Mark Latham Commodity Equity Intelligence Service

Friday 2nd June 2017
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    Oil and Gas


    Trump's Paris Adieu Is a Win for Coal and Oil But Not a Big One

    The biggest winners in President Donald Trump’s decision to walk awayfrom the Paris climate accord are oil, coal and natural gas producers. And even they aren’t popping Champagne corks.

    The president, who has called climate change a hoax, cast aside any lingering doubts about his commitment to fossil fuels Thursday when he announced the U.S. would quit the global agreement to cut greenhouse gas emissions.

    In theory, that bodes well for miners, oil drillers and gas companies. Yet coal stocks slipped Wednesday after news first leaked out of Trump’s decision. And two of the biggest oil producers, Exxon Mobil Corp. and ConocoPhillips, reiterated support for the accord. That’s because market forces and individual government policies play a far larger role in driving energy demand than the Paris accord. So while quitting may be a boon for fossil fuels, it’s not necessarily moving markets.

    “It’s symbolically important,” Anthony Yuen, an analyst at Citigroup Inc., said in an interview. “Numerically, it may not be as much.”

    On the flip side, renewable energy companies are the biggest losers in Trump’s decision. The Paris accord is designed to accelerate a transition away from fuels that emit greenhouse causing gases and toward wind, solar and electric vehicles. And indeed, shares of solar companies fell Wednesday after early reports of Trump’s decision, including JinkoSolar Holding Co., the world’s biggest supplier, and Canadian Solar Inc., the biggest North American panel maker.


    Analysts, however, predict those losses will be short-lived.

    “The impact is going to be irrelevant,” Richard Chatterton, a Bloomberg New Energy Finance analyst, said in an interview. “In terms of renewables, there isn’t going to be a change in the trend.”

    The reason boils down to state policies, economics and corporate demand. Even as Washington rolls back efforts to promote renewables, California, New York and other states are forging ahead. And after years of being supported by subsidies, wind and solar prices have plunged so much they can compete with fossil fuels in many areas.

    That’s prompting corporations including Inc., Facebook Inc., Anheuser-Busch InBev SA/NV and scores of others to buy renewable power. It’s also leading Consolidated Edison Inc., the Tennessee Valley Authority and other energy giants to forsake coal -burning power plants in favor of wind, solar and cleaner-burning natural gas.

    “Our businesses will continue to deliver clean energy solutions that make sense for our customers -- with or without the Paris agreement,” Jessi Strawn, a spokeswoman for the energy unit of Warren Buffett’s Berkshire Hathaway Inc., said in an email Wednesday.

    Divergent Views

    Some analysts see an unequivocal win for fossil fuels. Stephen Schork, president of Schork Group Inc., said investors were discouraged from wagering on hydrocarbons during President Barack Obama’s eight years in office. Now Trump is sending a clear message: place your bets.

    “The political winds have done a complete 180,” Schork said in an interview. “Pulling out of this accord will only further the oil and gas markets’ animal spirits.”

    “The winners are merchant generators with coal-burning plants,” Kit Konolige, a Bloomberg Intelligence analyst based in New York, said in an email Thursday. “Coal plants now have more flexibility to run longer. Big regulated utility owners like Southern, Duke and Xcel Energy probably won’t see much effect because it doesn’t matter to their earnings whether coal plants run.”

    On the other hand, Exxon and ConocoPhillips said the U.S. would be better off retaining a seat at the table, saying that staying in Paris would allow them to influence international efforts to reduce emissions from the oil they sell. Exxon Chief Executive Officer Darren Woods went further, saying at the company’s annual meeting Wednesday that oil demand will grow, with or without the accord.

    “Energy needs are a function of population and living standards,” Woods said. “When it comes to policy, the goal should be to reduce emissions at the lowest cost to society.”

    ‘A Great Pity’

    Coal producers were among the few companies that pushed for Trump to walk away from Paris, most notably Robert E. Murray, founder and CEO of coal miner Murray Energy Corp. Yet the industry isn’t united in the effort. Cloud Peak Energy Inc. CEO Colin Marshall said sticking with the accord would give the U.S. “influence” to ensure the future of fossil fuels.

    Trump argued that staying in the accord would handicap American businesses, making it difficult for them to compete with overseas rivals. Impax Asset Management Group CEO Ian Simm said the U.S. may wind up losing its competitive edge by dropping out.

    The U.S. is a global leader in energy efficient technology. Trump’s rejection of that effort may cause companies to think twice about some of their investments, opening the door for other nations to step in, Simm said in an interview.

    “You may well see that the leadership is taken by China and other Asian companies rather than the U.S.,” said Simm, whose company focuses on sustainability and has about $7.8 billion under management. “It would be a great pity for many of the U.S. leaders in that industry.”
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    Top miner BHP sees 'huge demand' lift from China's new Silk Road

    China’s multi-billion dollar Belt and Road Initiative can deliver a major boost for commodities and will add about 150-million tons to global steeldemand, according to BHP Billiton, the world’s largest miner.

    The plan to develop infrastructure and rebuild ancient trading routes from China to Europe overland and by sea has seen projects initiated worth about $1.3-trillion, according to Melbourne-based BHP, the biggest exporter of coking coaland the third-largest iron ore supplier. Investments worth $313-billion to $502-billion could be funneled to 62 Belt-Road countries over the next five years, Credit Suisse Group AG said last month.

    “Everywhere where we see the infrastructure being built, on the back of that there will be economic development that will trigger copper demand, which will trigger energy demand,” BHP’s COO Arnoud Balhuizen told reporters Thursday in Melbourne. “Steel produced in China will be used along the road, and that of course is good for demand for our commodities.”

    BHP on Thursday lifted force majeure restrictions at Chile’s Escondida copper mine, where workers carried out a 44-day strike earlier this year, Balhuizen told reporters. Coking coalsales continue to be subject to restrictions following a cyclone in Australia in March, he said.

    The producer declined 0.7% to A$23.73 on Thursday in Sydney, extending its decline this year to 5.3%.

    The “One Belt One Road” initiative promises “huge demand for resources, services and technology,” and is “an opportunity like no other,” Balhuizen said earlier in a speech. BHP gets about 43% of full-year revenue from China and a total of at least 68% from Asia, according to data compiled by Bloomberg.

    China’s plan, lauded by President Xi Jinping as a "project of the century," has the potential to generate about 120-million tons of crude steel demand, according to Citigroup. Increased appetite from infrastructure will support steel even as there’s a slowdown in China’s housing sector, Templeton Emerging Markets Group Executive Chairman Mark Mobius said last month in an interview.

    Indian Prime Minister Narendra Modi’s plans for rural electrification, which aim to supply power to every citizen by 2019, and the drive to provide more affordable housing, will also boost commodities and are likely to “have a material impact on demand for coal, iron ore, copper and petroleum,” Balhuizen said in his speech.

    BHP sees global demand for potash growing at 2% to 3% a year through 2030, as the world’s population rises and crop demand swells by 50% by 2050, he said. BHP may seek board approval for its Jansen potash project in Canada as early as next June, the producer said last month.
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    Dry bulk: Panamax, Supramax TCE rates sink 50% on sluggish demand

    Earnings, or time charter equivalent rates, for Panamax and Supramax vessels traded out of the key Indian Ocean region have sank more than 50% over the past month mainly because of lower-than-expected demand for South American grain and reduced coal exports from South Africa.

    S&P Global Platts TCE rate for an 81,000-dwt vessel delivered at east coast India for a trip from South Africa's Richards Bay Coal Terminal to Paradip on India's east coast was assessed at $5,116/day on May 31, down 65.52% from $14,838/day on April 18.

    The TCE rate for a 57,000-dwt Supramax vessel performing a similar trip was assessed at $4,291/day, down 53.94% from $9,317/day on April 20.

    The voyage charter rate on a Panamax vessel to move a 75,000-mt (plus/minus 10%) coal cargo from RBCT to Paradip was assessed at $8.75/mt on May 31, down $5.20/mt from $13.95/mt assessed on April 18.

    On the Supramax vessel, the voyage charter rate to move a 50,000-mt (plus/minus 10%) coal cargo from RBCT to Paradip was assessed at $10.75/mt on May 31, down $3.35/mt from $14.10/mt assessed on April 20.

    The TCE and voyage rates for Panamaxes and Supramaxes loading out of the Indian Ocean market have remained languid due to wobbly demand for South African coal following a spike in prices during the second half of May. The price of 5,500 kcal/kg NAR South African coal on a FOB basis was $65.50/mt on May 31, up from $61/mt on May 12, Platts data showed.

    Meanwhile, given fewer ships in general open in the Atlantic region for their next employment, vessels getting released in the Asia-Pacific region will ballast over to that region during grain export season, even though demand is currently lower than expected.

    "While ballasters [moving to east coast South America in search of grain cargoes] are keeping a tab on the markets, demand from other commodities too is missing," said a Singapore-based ship operator, adding that iron ore shipments out of west coast India have almost come to a standstill because of monsoon season.

    An India-based ship operator said some shipowners were less willing to lock in at a lower rate for a longer duration out of east coast South America. Instead, shipowners were more keen to do a shorter trip within the Indian Ocean, while waiting to see if rates improved out of east coast South America, he added.

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    BHP board set to select new chairman in June: sources

    BHP's board is expected to select a new chairman at its June meeting to replace long-serving former Ford Motor Co boss Jac Nasser, according to two sources familiar with the matter.

    The world's largest miner, under pressure from U.S.-based activist investor Elliott Management over its strategy, has been searching for a replacement since Nasser announced his impending retirement in October.

    Executive search firm Heidrick & Struggles has been assisting with a search that includes internal and external candidates, the sources said. They declined to be named because the process is not public.

    A source close to Elliott told Reuters last month the activist fund, which owns 4.1 percent of BHP's UK shares, would be willing to back an internal candidate for the role, but declined to disclose the fund's preference.

    Both Nasser, 69, and his predecessor, Don Argus, served on the board for at least three years before taking on the chairman's role.

    Craig Evans, the co-portfolio manager of the Tribeca Natural Resources Fund, said his fund would prefer an external candidate with technical and operational experience in the mining and oil and gas industries.

        "The existing board hasn't covered itself in glory," he said. "We have concerns that the majority of the board has been in charge for the financial underperformance and have not shown a track record of respecting shareholder capital compounded by the safety issues at (Brazil iron ore mine) Samarco."

    A burst dam at Samarco, a joint venture between BHP and Brazil's Vale, killed 19 people and caused Brazil's worst ever environmental disaster in 2015, when mud and waste destroyed a village and polluted the Rio Doce river.

    Andy Forster, a portfolio manager at Argo Investments, said he expected BHP would choose a current board member given the strong slate of candidates.

    "It would be surprising if someone external was to beat them and have the understanding of the business," he said. "If you look at Jac, they don't necessarily have to have someone with direct mining experience."

    BHP and Heidrick & Struggles declined to comment.

    The following are names mentioned by industry sources, investors and analysts as potential candidates.


    * Ken MacKenzie, 53

    Canadian-born MacKenzie, a former CEO of Melbourne-based global packaging group Amcor Ltd who has been on the BHP board for less than a year, is highly respected among investors. At Amcor he had a track record of smart acquisitions and brought cultural transformation to a company hit by a price-fixing scandal.

    "He's been one of Australia's most effective CEOs. He does tick a lot of boxes," said George Clapham, managing partner of Arnhem Investment Management, which owns BHP and Amcor shares.

    * Lindsay Maxsted, 63

    Maxsted, an Australian, has been on the BHP board for six years. The former corporate recovery specialist is the chairman of both the country's second largest bank, Westpac Banking Corp and toll road operator Transurban Group.

    Local media reports have said he is willing to step down from those roles if he gets the prestigious BHP job.

    * Carolyn Hewson, 61

    Hewson, an Australian, has been on the board for seven years and is a champion of gender diversity. The male-dominated company has set an aspirational target for half of its workforce to be female by 2025.

    The former investment banker is also a director at property group Stockland Corp.

    * Malcolm Broomhead, 64

    Broomhead, an Australian who has served on the board for seven years, has extensive experience in running industrial and mining companies with a global footprint. He also has experience in project development in many of the countries in which BHP operates.

    He is the chairman of explosives maker Orica Ltd, where he once served as CEO. He had previously headed miner North Ltd before it was bought by Rio Tinto.


    * Andrew Liveris, 63

    Liveris, the Australian-born Chairman and CEO of Dow Chemical Co has spent more than 40 years with the U.S.-based company. He is due to step down as chairman of the merged DowDuPont in July 2018.

    He has been a leading adviser on manufacturing to U.S. President Donald Trump and his predecessor, Barack Obama.
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    Russia's big dividends.

    It is becoming an annual ritual. Each spring, Russia’s government presses its state-controlled companies to pay out more of their profits in dividends. The companies then scurry to find loopholes or lobby for exemptions.Moscow has been trying for years to increase the payout from “national champions” such as Alrosa, the diamond producer, Russian Railways, Transneft, the oil pipeline monopoly, and Rosneft and Gazprom, the energy groups. It first proposed state companies should pay out at least 25 per cent of net profits in 2012 and later sought more as low oil prices and sanctions squeezed budget revenues.Last year, the government demanded a 50 per cent payout, originally as a one-off anti-crisis move. But in April this year Dmitry Medvedev, the prime minister, signed a decree again ordering state companies to pay out 50 per cent of net income under International Financial Reporting Standards.The issue is vital for state coffers. The finance ministry’s projected revenues assume state companies will pay the full 50 per cent, with Rbs480bn ($8.5bn) in dividends earmarked for this year’s budget. Getting them to pay up is a test of how much control the government really exerts, and a way of trying to enforce tighter capital discipline.The payout ratio matters to investors, too. Many state-controlled companies have substantial and largely foreign-owned free floats. Expectations of higher payouts have underpinned recent investor interest in several of the businesses. If some groups, such as Gazprom, really moved to a 50 per cent payout ratio, a big jump in share prices could result.
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    BHP lifts force majeure declaration at Escondida copper mine not Aus coal

    BHP Billiton said on Thursday it has lifted a declaration of force majeure at its Escondida copper mine in Chile, more than a month after a costly strike came to an end.

    BHP declared force majeure at the mine in early February at the start of a labor strike that lasted 43 days and cost the world's biggest mining house an estimated $1 billion.

    "I'm pleased to say that our copper FM (force majeure) is lifted as of today. We are back to normal," BHP's chief commercial officer, Arnoud Balhuizen told reporters after addressing a mining luncheon.

    Force majeure remained in place on shipments from its coal mines in Australia's Queensland state, where a cyclone in late March knocked out rail haul lines, Balhuizen said.

    "We still need a bit of time to get to full normal shipments in coal," he said.

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    German power grid redispatch measures, costs down by quarter in 2016

    German power grid redispatch measures, costs down by quarter in 2016

    Germany's need for and cost of power grid stabilizing measures fell by around a quarter in 2016 mainly due to improved grid management and less volatile wind and solar production, the federal grid regulator BNetzA said.

    According to its annual report published Monday, the costs of redispatch measures (throttling or increasing power production to deal with bottlenecks to stabilize the grid) dropped to Eur219 million ($245 million) from a record Eur412 million in 2015.

    Power plants used by the grid operators for such measures produced a total 11.5 TWh to help stabilize the grid last year, down from 15.4 TWh in 2015, it said.

    On top of this, so-called winter reserve power plants were needed on 108 days with output from such plants almost doubling to 1.2 TWh, it added.

    By contrast, curtailments of renewable output due to grid bottlenecks fell by almost 1 TWh to 3.7 TWh with compensation costs paid to renewables operators falling from Eur478 million in 2015 to Eur373 million in 2016, it added.

    According to the grid regulator's annual grid expansion report, Germany has so far only realized 11% of power grid link projects classed as 'high priority' with regional imbalances set to increase over coming years despite a reduced need for winter reserve power plants once the German-Austrian power price zone is split next year.

    The grid regulator's 10-year-grid plan based on TSO calculations, estimates the cost of the grid expansion at around Eur50 billion ($55 billion) over the next 10 years, including the offshore wind grid links needed through to 2030.
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    Why the west won- for now. Ian Harris

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    Metals recycler Befesa targets pre-summer IPO -sources

    Metals recycling group Befesa is planning to list on the Frankfurt stock market, potentially valuing the group's equity at 1-1.2 billion euros ($1.1-1.3 billion), two people close to the matter said.

    Befesa, which says it has almost half of Europe's steel recycling market and the market for recycling aluminium residues, is expected to announce its intention to float in June, with its planned market debut taking place four weeks later, the sources told Reuters on Wednesday.

    The company is hoping to benefit from buoyant stock markets and a nascent recovery of global equity listings after a 2016 slump and would be the third listing in Germany in the second quarter alongside restaurant chain Vapiano and online food takeaway firm Delivery Hero.

    Shares worth about 450-500 million euros will be offered, including 100 million in new shares, while Befesa's owner, buyout group Triton, will also sell some stock, the sources added.

    Santander, Commerzbank, Berenberg and Stifel are acting as bookrunners alongside global coordinators Goldman Sachs and Citi, they said.

    Triton declined to comment, while the banks also declined to comment or were not immediately available for comment.

    Triton is also weighing an outright sale of Befesa as an alternative to the IPO. Triton has offered Befesa to potential buyers and may opt for the sale if that proves a better deal.

    Befesa, which is headquartered in Luxembourg and was listed until it was bought by Spain's Abengoa in 2000, on Tuesday posted adjusted earnings before interest, tax, depreciation and amortization of 151 million euros on sales of 640 million euros in the year to the end of March.

    It had net debt of 460 million euros and is hoping to reap a valuation including debt similar to that of peers.

    Waste Connections, Stericycle, US Ecology , Umicore and Ecolab trade at 11-15 times their expected core earnings.

    Befesa, which sees itself as market leader in hazardous waste recycling services to the steel and aluminium recycling industries, cited a strong business in its core steel dust and aluminium salt slags units.

    Befesa specialises in recycling steel dust from the steel and galvanizing industry and salt slags from the aluminium industry. Abengoa sold the company to Triton in 2013 for 850 million in cash, or 1.1 billion euros including debt.

    Iron, zinc and aluminium prices have picked up substantially since October.

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    Sumitomo companies switch from coal to LNG for power generation

    Members of the Japanese Sumitomo Group, Sumitomo Chemical and Sumitomo Metal Mining, intend on scaling down on use of coal and move to liquefied natural gas for power production.

    The two companies are looking to build an LNG receiving terminal as well as a gas-fired power plant at the site of Sumitomo Chemical’s factory in Niihama, the company’s statement reads.

    The overall project cost is estimated at around 60 billion to 70 billion yen (US$541 million to $631 million).

    The 150,000 kW power plant will be operated by Sumitomo Joint Electric Power through a new company which will be formed with Tokyo Gas and Shikoku Electric Power. The facility will also include the LNG tanker mooring as well as the liquefied natural gas storage tanks.

    The design work on the facility, which is set to start operation in 2021 will be completed by Tokyo Gas’ unit, Tokyo Gas Engineering Solutions.

    Once in operation, the facility will provide electricity to nearby Sumitomo group companies, with the operator, Sumitomo Joint Electric Power shutting down the coal-fired power plant.
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    Iraq enjoys cordial, strategic relations with Iran: Ammar Hakim

    Iraq enjoys cordial, deep and strategic relations with Iran, Head of Iraq National Coalition (INC) Ammar Hakim said on Monday.

    He made the remarks in a fast-breaking (Iftar) meal ceremony held at the Iranian embassy in Baghdad.

    Hakim called Iran-Iraq relations historical, adding that the Iraqi groups should prepare for countering challenges they will face after defeat of ISIS.

    In the ceremony, Iraqi Foreign Minister Ibrahim al-Jaafari, for his part, hailed the achievements made in the fight against terrorism.

    Iraq is committed to good neighborly relations with Iran, he added.

    Meanwhile, Iranian Ambassador to Iraq Iraj Masjedi said that cooperation between Tehran and Baghdad can guarantee security, sovereignty and progress of Iran and Iraq.

    He voiced hope for the victory of Iraqi armed forces and volunteer forces over ISIS.
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    ERCOT real-time power prices spike above $1,000/MWh

    The Electric Reliability Council of Texas footprint saw real-time prices jump to four-digit territory Tuesday as power demand rose above forecast levels and reserve capacity was expected to fall below acceptable levels.

    Prices spiked across the footprint as Houston Hub real-time power averaged more than $1,000/MWh for the two-hour period that ended at 2:30 pm CDT (1930 GMT), topping $2,000/MWh for the 15-minute interval ending 2:30 pm CDT, while prices at other hubs averaged about $250/MWh over the same period. Houston Hub on-peak real-time futures price for balance-of-the-day traded in the low $90s/MWh on Intercontinental Exchange, more than double Monday's settlement in the low $40s/MWh as 1,000 MW changed hands.

    ERCOT load was around 53 GW for the hour ending 2 pm CDT, which was nearly flat to a Tuesday forecast, but above a day-ahead forecast calling for a peak near 47.3 GW.

    However, the grid operator posted a notice early Tuesday morning that a reserve capacity shortage was expected for the hours ending 3 pm through 8 pm CDT, asking generators to update their schedules to ensure sufficient generation was available.

    "Because our forecast showed tight conditions over peak hours, in spite of the fact that sufficient generation was available, the notice provided a signal to the market that more generation was needed for today's peak than was scheduled at that time. Currently, additional generation has been scheduled, and we do not anticipate reliability problems," ERCOT spokeswoman Robbie Searcy said in an email Tuesday afternoon.

    High temperatures in Houston were forecast in the high 80s degree Fahrenheit, compared with Monday highs in the low 80s.

    ERCOT expects the peakload on Tuesday to top 55 GW at 5 pm CDT, compared with a day-ahead forecast of 50 GW.
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    China May factory activity holds up on boost from steel, construction

    China May factory activity holds up on boost from steel, construction

    China's manufacturing and services sectors expanded at a solid pace in May thanks to robust construction and infrastructure investment, welcome news for authorities trying to strike a balance between maintaining stable economic growth and defusing debt risks.

    The official manufacturing Purchasing Managers' Index (PMI) was at 51.2 in May, unchanged from April, a monthly survey by the National Bureau of Statistics showed on Wednesday. Analysts polled by Reuters had predicted a reading of 51.0.

    The survey results suggest authorities were having some success in stabilizing the broader economy without risking a sharper slowdown in growth as they try to defuse bubble risks from years of credit-fueled stimulus.

    On the whole, "China's economy is changing into a trend of stabilization from a momentary spike and drop," Zhang Liqun, an analyst with the China Logisticas Information Centre, said in a statement.

    Most analysts agree that momentum in China will slow after strong first quarter growth of 6.9 percent, as Beijing's crackdown on its financial sector is expected to take a toll on corporates' financing costs.

    So far the slowdown has been benign, however, with some key sectors such as construction activity holding up well.

    The statistics bureau said construction remained robust despite slowing a notch from the previous month, as infrastructure investment speeded up, boosting demand for steel.

    Indeed, activity in the steel industry expanded the most in a year in May, supported by higher new orders, a separate industry survey showed, suggesting still-solid demand in construction.

    Growth in the services sector also accelerated to 54.5 as commercial services such as retail and railway transportation expanded on rising demand.

    New orders for China's manufacturers kept pace with April at 52.3, with export orders firming a touch by 0.1 percentage point to 50.7, suggesting external demand held up.

    Production stayed well within expansionary territory, though growth eased to 53.4 compared to last month's 53.8.


    The government has set a more modest growth target of around 6.5 percent for 2017, after achieving a slightly higher 6.7 percent target in 2016.

    The crackdown on financial risks, however, is seen pushing borrowing costs up and dragging on growth.

    ANZ analysts estimate the average lending rate has edged up by around 30 basis points in the past few months.

    "We suspect that the current stability of growth will prove temporary," said Julian Evans-Pritchard, a Singapore-based China economist at Capital Economics.

    "With the regulatory crackdown on financial risks still weighing on credit growth, it will be difficult to avoid a further slowdown in the coming months."

    There are also doubts about whether other sectors of the economy will be able to pick up the slack if the property market slows as persistent curbs gradually take the heat out of the market.

    Those worries were inflamed last week when Moody's Investors Service downgraded China's credit ratings for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

    China's growth impulse is also being challenged by a slowing trend in producer price inflation. Official data showed on Saturday profits earned by Chinese industrial firms slowed to its weakest in four months in April.

    The input price sub-index dropped to 49.5 in May, according to the statistics bureau's May PMI survey, after easing to 51.8 in April, as the tailwind from a commodities boom weakens.

    Output prices also slipped to 47.6 from April's 48.7.

    China's biggest steelmaker, Baoshan Iron & Steel, for instance, cut its main steel product prices for May and June after a long series of increases.

    Property sales growth also slipped in April and a strong rebound in commodity prices appears to have peaked, pointing to a continued slowdown in the industrial sector.

    On whole, however, analysts don't expect economic growth to slow sharply this year, noting the government is keen to maintain stable economic and financial conditions heading into a key political leadership reshuffle later in the year.

    "In the months leading up to the 19th Party Congress in November, stability will remain the top priority for Chinese policymakers," said ANZ's chief China economist Raymond Yeung.
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    Mining service company shares outstrip oil peers

    Companies supplying miners with equipment and services have performed better than their oil sector peers, buoyed by spending on new technology and expectations the demand outlook for other minerals is more bullish than for fuel.

    The index of mining services companies, such as Atlas Copco, Sandvik and Metso, has risen more than 50 percent over the last 12 months.

    In contrast, the oil services index has barely moved as companies such as Saipem, Technip FMC and SBM Offshore grapple with the thinnest order books in 13 years.

    Analysts say the picture is particularly bleak for the European oil services sector.

    "For most of the markets that the European oil services companies serve, it's almost arithmetically impossible for revenue to go up this year," Alex Brooks, equity analyst at Canaccord Genuity, said, referring to a drop in service contracts.

    Any increase is unlikely for now as oil prices hover above $50 a barrel, depressed by oversupply, despite last week's decision led by the Organization of the Petroleum Exporting Countries to maintain output curbs.

    The outlook is fundamentally stronger for miners and their supply companies, although lingering nervousness following the commodity price crash of 2015 means they are unwilling to risk shareholder disapproval by embarking on major new projects.

    Instead, most of the spending is to boost mine output and from the sector's belated recourse to technology to cut costs and improve margins.

    Sandvik said it had seen growth in demand for automation, which so far represents a small part of the mining sector, leaving room for more growth.

    Analysts say any spending in the oil sector, which has already experienced the kind of technical breakthroughs creeping into mining, is focused on maintenance or expanding existing production.

    "If you're an oil guy who lives off building new subsea structures and new pipelines, this is a very worrying trend," Nicholas Green, senior equity analyst at Bernstein, said.

    Longer, as well as shorter term prospects, are brighter for mining service companies that have reported more orders this year.

    Mining executives predict a quicker uptake in electric vehicles than previously expected will lift the sector as a whole as consumption of minerals, such as copper and cobalt grows, while oil demand retreats.

    "Technology is bad for energy consumption and for some metals, it could be very good," Jefferies analyst Chris LaFemina said.

    But concerns about the economic health of China, the biggest commodities consumer, were capping growth across the resources sector, he added.

    The major miners, which led gains on Britain's benchmark FTSE-100 stock index last year, have lost momentum in 2017, while iron ore, the commodity most closely linked to their performance, is slightly weaker than at the start of the year following a 300 percent gain in 2016.

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    Middle East freight rates for petrochemicals to come under pressure

    Freight rates for petrochemical cargoes loading from Middle East are expected to come under pressure as a result of lacklustre demand for spot tonnage, according to industry sources.

    The current bearish conditions will continue into the third quarter amid a slowdown in the Chinese markets and an increase in the number of tankers available for deployment.

    Ship owners globally will be taking delivery of at least 45 newly built vessels in 2017 from shipyards in northeast Asia. Some of the new vessels will be used for trading in the West while others will be serving the Middle Eastern and Asian region.

    The global chemical fleet grew by 5.2% in 2016 and is expected to expand by 3.3% in 2017. This will continue squeezing rates on major routes over the next two years, according to Hu Qing, lead analyst for chemical shipping at consultancy firm Drewry.

    As part of their expansion program, major shipping companies such as Navig8 and Odjfell SE, are actively placing orders for energy- and cost-efficient new buildings at shipyards in northeast Asia.

    However, demand for spot tonnage will continue softening in the third quarter as northeast Asian supply of key feedstock materials such as benzene, toluene, xylenes, paraxylene (PX) remains ample amid plant expansions and start-ups in 2016-2017.

    China, a key importer for Middle Eastern petrochemical cargoes, has been steadily reducing its reliance on imports due to a combination of economic slowdown, high debt levels and overcapacity for some chemicals.

    Market analysts forecast a decline in Chinese demand growth for key chemicals due to lack of manufacturing and capital investments.

    Currently, chemical volumes moving from the Middle East to northeast Asia have slumped, with most market players expecting the trend to continue into the third quarter because of ongoing turnarounds at major refineries in Japan, South Korea and China.

    Freight rates for chemical tankers in the Middle East market will continue to struggle to find a bottom going into June and July as trading volumes and liquidity traditionally decreases during the holy Muslim fasting month of Ramadan, which ends with the Eid ul-Fitr festival.

    Ramadan started on 27 May in Asia and the Middle East.

    On the other hand, some petrochemical tanker owners remain optimistic about prospects for the rest of the year even as the number of new vessels outpaces the increase in tanker demand.

    They expect China’s One Belt, One Road initiative would improve demand for infrastructure material, and increase petrochemical tanker usage.


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    Even with iron ore prices diving, NASA fast tracks mission to $10,000 quadrillion asteroid

    While many still see space mining as science fiction, the US National Aeronautics and Space Administration (NASA) is fast tracking its planned mission to 16 Psyche — an iron ore and nickel rich asteroid, worth roughly $10,000 quadrillion.

    To put that value into perspective, the targeted celestial body’s estimated value is more than the combined economy of our entire planet, guessed at $78 trillion, multiplied by a thousand.

    NASA's mission to "16 Psyche" may give humans a first ever chance of exploring a world made of iron, not rock or ice.

    You don’t need to be a mathematician or a financial expert to realize that bringing that amount of minerals back to our planet would collapse the Earth’s economy.

    And if you follow the mining sector’s news, then you know the market wouldn’t benefit from yet more iron ore supply.

    Fortunately, NASA is only planning to explore 16 Psyche, not mine it. Al least for now. What the agency has done, however, is to move forward the launch date to 2022 from 2023, Science Alert reports.

    While a year is nothing in terms of space missions, the team behind the project has devised a plan to make the journey to the asteroid more efficient, which slashes four years from the original travel time.

    If the mission to 16 Psyche — one of the most massive asteroids found between the orbits of Mars and Jupiter — is successful, then humans will have a first ever chance of exploring a world made of iron, not rock or ice.

    Geologists believe all asteroids are packed with iron ore, nickel and precious metals at much higher concentrations than those found on Earth, making up a market valued in the trillions of dollars.

    Not only private companies are planning to mine celestial bodies, but governments are increasingly joining the race too. In 2015, ex US President Barack Obama signed a law that grants American citizens rights to own resources mined in space. Shortly after, Luxembourg inked a deal with two US space research companies, in an effort to become a global centre for asteroid mining.

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    U.A.E. Minister Says Gulf States in Crisis Amid Qatar Spat

    A United Arab Emirates minister said Gulf Arab monarchies are going through a “severe” crisis, an apparent reference to a spat between a Saudi-led alliance and Qatar over ties with Iran.

    The dispute poses a “grave danger” to members of the Gulf Cooperation Council, Anwar Gargash, the U.A.E. minister of state for foreign affairs, said on Twitter. “Fending off strife needs a change in behavior, building confidence and restoring credibility.”

    Tension has flared within the six-member bloc since state-run Qatar News Agency carried remarks criticizing efforts to isolate Iran after U.S. President Donald Trump and Saudi Arabia’s King Salman took turns to attack the Islamic Republic at an American-Muslim summit in Riyadh last week. Qatari officials said the statements, which have since been removed, were the work of hackers. The denial didn’t stop U.A.E. and Saudi media from accusing Qatar of breaking away from the GCC’s position against Iran.

    The feud dominated Saudi newspapers on Monday. Okaz’s headline declared, “Qatar breaks covenants, doesn’t fulfill promises,” while Al Eqtisadiah’s pronounced, “Qatar: An economy of lost opportunities and investments connected to financial scandals.” The website of the Qatari-owned Al Jazeera television channel remained blocked by the Saudi Ministry of Culture and Information.

    The Islamic Republic is Saudi Arabia’s main regional rival. The two major oil exporters are on opposite sides of conflicts from Syria to Iraq. In 2015, Saudi Arabia assembled a coalition of Sunni-led countries to fight Yemeni Shiite rebels loyal to Iran after they toppled a Gulf-backed government.

    Rouhani’s Call

    Qatar’s ruler, Sheikh Tamim bin Hamad Al Thani, spoke by phone with Iranian President Hassan Rouhani over the weekend. Rouhani, a moderate cleric who was re-elected to a second, four-year term last week, said his country was ready for talks to resolve the crisis, according to his website.

    “We want the world of Islam, which is suffering from divisions, to advance toward peace and brotherhood and to this effect we are ready to negotiate to get a real agreement,” he said.

    On the same day, however, Iran’s Supreme Leader Ayatollah Ali Khamenei, who wields more power than Rouhani, said the Saudi regime faces certain demise for its policies in Yemen.

    “Appearances should not fool anyone,” he said, according to his website. “They are on their way out. There is no question about that.”

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    Key projects at risk as Greens back NDP in British Columbia

    British Columbia's minority Green Party on Monday struck a deal with the left-leaning New Democrats to govern Canada's western-most province, a move that casts doubt on the future of key energy projects from firms such as Kinder Morgan Inc.

    Announcement of the partnership ends a stalemate that emerged last week when the final tally of votes from a May 9 election stripped Liberal premier Christy Clark of her majority. She will now leave office.

    The two parties said they will disclose details of their plans on Tuesday.

    Green leader Andrew Weaver did not reveal what the pact says about Kinder Morgan's plans to twin its Trans Mountain crude oil pipeline from Alberta to the Pacific coast. Both parties oppose the C$7.4 billion ($5.49 billion) project.

    "This issue of Kinder Morgan is one that was critical to us and I think you'll see that reflected in tomorrow's announcement," Weaver told a news conference with NDP leader John Horgan.

    Clark had backed Trans Mountain as well as liquefied natural gas (LNG) projects.

    Kinder Morgan's Canadian unit is expected to debut on Tuesday on the Toronto Stock Exchange in an initial public offering to part-finance Trans Mountain. The company did not immediately respond to a request for comment, although it acknowledged last week the political climate was "not ideal".

    Any move by the new government to block Kinder Morgan will be a blow to federal Liberal Prime Minister Justin Trudeau, whose government approved the project last November. Clark's Liberals are unrelated to Trudeau's party.

    Trudeau's spokeswoman Andree-Lyne Halle said the federal government would continue to "work constructively with provincial and territorial governments on the issues that matter to Canadians".

    Trudeau says the Alberta energy industry needs the pipeline to boost exports to Asia and reduce reliance on the U.S. market. Opponents say the risks of a spill are too large.

    "We will continue to do what we have done all the way, which is standing up for Alberta's best interests. That includes Kinder Morgan and making sure we have access to tidewater for our products," said Alberta Deputy Premier Sarah Hoffman.

    Hoffman said Alberta would intervene in lawsuits against the project.

    While there is some dispute over whether British Columbia can actually formally block a pipeline project, it can raise multiple hurdles like denying local construction permits that could effectively make it impossible to build.


    Horgan has also expressed reservations about a $27 billion liquefied natural gas terminal that Malaysia's Petronas wants to build in northern British Columbia. Petronas was not immediately available for comment.

    The political agreement reached between the Greens and New Democrats still needs to be voted on by the NDP caucus on Tuesday. If they agree to create a minority government, it would be the province's first in 65 years.

    The Greens and the New Democrats together have 44 of the 87 seats in the provincial legislature. Under the terms of the deal the Greens promise not to defeat the New Democrats for the full four-year term of the new parliament.

    Richard Johnston, a professor of political science at the University of British Columbia, said the announcement was "a revolutionary moment in B.C.'s politics. This would be the first minority that lasts more than a year."

    The Liberals have ruled the province for 16 years.

    Clark issued a statement saying the government had "a responsibility to carefully consider our next steps" and would have more to say on Tuesday.

    Her obvious options include resigning, or hanging onto power until she presents her formal agenda to the new legislature. The Greens and NDP would then immediately vote to bring her down.

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    1177BC: The Year Civilization Collapsed (Turning Points in Ancient History)

    Image title"The memorable thing about Cline's book is the strangely recognizable picture he paints of this very faraway time. . . . It was as globalized and cosmopolitan a time as any on record, albeit within a much smaller cosmos. The degree of interpenetration and of cultural sharing is astonishing."--Adam Gopnik, New Yorker [See full review http: //]

    Image title

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    Blockchain tokens explained.

    Thoughts on Tokens

    Tokens are early today, but will transform technology tomorrow.

    By Balaji S. Srinivasan and Naval Ravikant

    The exponential rise of non-Bitcoin tokens prior to the coming correction. Data from

    In 2014, we wrote that “Bitcoin is more than money, and more than a protocol. It’s a model and platform for true crowdfunding — open, distributed, and liquid all the way.”

    That new model is here, and it’s based on the idea of an appcoin or token: a scarce digital asset based on underlying technology inspired by Bitcoin. While indisputably frothy, as of this writing the token sector sits at a combined market cap in the tens of billions. These new “fat protocols” may eventually create and capture more value than the last generation of Internet companies.

    Here we discuss many concepts related to tokens, beginning with the basics for folks new to the space and then moving to advanced ideas.

    The most important takehome is that tokens are not equity, but are more similar to paid API keys. Nevertheless, they may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing — like a Kickstarter on steroids. This in turn opens up the space for funding new kinds of projects previously off-limits to venture capital, including open source protocols and projects with fast 2X return potential.

    But let’s start with the basics first. Why now?

    1. Tokens are possible because of four years of digital currency infrastructure

    The last time the public at large heard much about digital currency was in late 2013 to early 2014, when the Bitcoin price last touched its then all-time high of $1242 dollars. Since then, several things happened:

    In 2013, the legality of digital currency was still in question, with many predicting death and others going so far as to call Bitcoin “evil”. Those kneejerk headlines eventually gave way to Satoshi billboards in Davos and the Economist putting the technology behind Bitcoin on its cover.

    By 2017, every major country has a digital currency exchange and every major financial institution has a team working on blockchains. The maturation of infrastructure and societal acceptance for digital currencies has set the stage for the next phase: internet-based crowdfunding of novel Bitcoin-like tokens for new applications.

    2. Tokens vary in their underlying blockchains and codebases

    To first order, a token is a digital asset that can be transferred (not simply copied) between two parties over the internet without requiring the consent of any other party. Bitcoin is the original token, with bitcoin transfers and issuances of new bitcoin recorded in the Bitcoin blockchain. Other tokens also have transfers and changes to their monetary base recorded in their own blockchains.

    One key concept is that a token’s codebase is different from its blockchain database. As an offline analogy, imagine if the US banking infrastructure was repurposed to manage Australian dollars: both are “dollars” and have a shared cultural origin, but a completely different monetary base. In the same way, two tokens may use similar codebases (monetary policies) but have different blockchain databases (monetary bases).

    The success of Bitcoin inspired several different kinds of tokens:

    • Tokens based on new chains and forked Bitcoin code. These were the first tokens. Some of these tokens, like Dogecoin, simply changed parameters in the Bitcoin codebase. Others like ZCash, Dash, and Monero innovated on privacy-preserving features. Still others like Litecoin also began as simple tweaks to Bitcoin’s code, but eventually became test grounds for new features. All of these tokens initiated their own blockchains, completely separate from the Bitcoin blockchain.
    • Tokens based on new chains and new code. The next step was the creation of tokens based on wholly new codebases, of which the most prominent example is Ethereum. Ethereum is Bitcoin-inspired but has its own blockchain and was engineered from the ground up to be more programmable. Though this comes with an increased attack surface, it also comes with new capabilities.
    • Tokens based on forked chains and forked code. The most important example here is Ethereum Classic, which was based on a hard fork of the Ethereum blockchain that occurred after a security issue was used to exploit a large smart contract. That sounds technical, but essentially what happened is that a crisis caused the Ethereum community to split 90/10 with two different go-forward monetary policies for each group. A real world example would be if all the citizens of the US who disagreed with the 2008 bailouts changed in their dollars for “classic dollars” and adopted a different Fed.
    • Tokens issued on top of the Ethereum blockchain. Examples include Golemand Gnosis, all based on ERC20 tokens issued on top of Ethereum.

    In general, it is technically challenging to launch wholly new tokens on new codebases, but much easier to launch new tokens through Bitcoin forks or Ethereum-based ERC20 tokens.

    The latter deserves particular mention, as Ethereum makes it so simple to issue these tokens that they are the first example in the Ethereum tutorial! Nevertheless, the ease with which Ethereum-based tokens can be created does not mean they are inherently useless. Often these tokens are a sort of public IOU intended for redemption in a future new chain, or some other digital good.

    3. Token buyers are buying private keys

    When a new token is created, it is often pre-mined, sold in a crowdsale/token launch, or both. Here, “pre-mining” refers to allocating a portion of the tokens for the token creators and related parties. A “crowdsale” refers to a Kickstarter-style crowdfunding in which internet users at large have the opportunity to purchase tokens.

    Given that tokens are digital, what do token buyers actually buy? The essence of what they buy is a private key. For Bitcoin, this looks something like this:


    For Ethereum, it looks something like this:


    You can think of a private key as being similar to a password. Just like your private password grants you access to the email stored on a centralized cloud database like Gmail, your private key grants you access to the digital token stored on a decentralized blockchain database like Ethereum or Bitcoin.

    There is one major difference, however: unlike a password, neither you nor anyone else can reset your private key if you lose it. If you have the private key, you have possession of your tokens. If you do not, you have lost access.

    4. Tokens are analogous to paid API keys

    The best existing analogy for tokens may be the concept of a paid API key. For example, when you buy an API key from Amazon Web Services for dollars, you can redeem that API key for time on Amazon’s cloud. The purchase of a token like ether is similar, in that you can redeem ETH for compute time on the decentralized Ethereum compute network.

    This redemption value gives tokens inherent utility.

    Tokens are similar to API keys in another respect: if someone gains access to your Amazon API keys, they can bill your Amazon account. Similarly, if someone sees the private keys for your tokens, they can take your digital currency. Unlike traditional API keys, though, tokens can be transferred to other parties without the consent of the API key issuer.

    So, tokens are inherently useful. And tokens are tradeable. As such, tokens have a price.

    5. Tokens are a new model for technology, not just startups

    Because tokens have a price, they can be issued and sold en masse at the inception of a new protocol to fund its development, similar to the way startups have used Kickstarter to fund product development.

    The money is typically received in digital currency form and goes to the organization issuing the tokens, which can be a traditional company or an open source project funded entirely through a blockchain.

    In the same way that boosting sales is an alternative to raising money, token launches can be an alternative to traditional equity-based financings — and can provide a way to fund previously unfundable shared infrastructure, like open source. A word of caution, though: read these three posts and consult a good lawyer before embarking on a token launch!

    6. Tokens are a non-dilutive alternative to traditional financing

    Tokens aren’t equity, because they have intrinsic use and because they are non-dilutive to the company’s capitalization table. A token sale is more similar to a Kickstarter sale of paid API keys than equity crowdfunding.

    However, when considered as an alternative to classic equity financing, token sales yield a >100X increase in the available base of buyers and a >1000X improvement in the time to liquidity over traditional methods for startup finance. The three reasons why: a 30X increase in US buyers, a 20–25X increase in international buyers, and a 1000X improvement in time-to-liquidity.

    7. Tokens can be bought by any American (>30X increase in buyers)

    A token launch differs from an equity sale — the latter is regulated by the 1934 Act, while the former is more similar to a sale of API keys.

    While equities can only be sold in the US to so-called “accredited investors” (the 3% of adults with >$1 million in net worth), the US could not restrict the sale of API keys to accredited investors alone without crippling its IT industry. Thus, if tokens (like API keys) can be sold to 100% of the American population, it would represent an increase of 33x in the available US buyer base relative to a traditional equity financing for a US startup.

    Do note, however: some people might want to issue a token and explicitly advertise it as a way to share in the profits of their efforts as a company. For example, the issuer might want to make token holders entitled to corporate dividends, voting rights, and the company’s total ownership stock may be denominated in these in tokens. In these cases, we really are talking about tokenized equity (namely securities issuance), which is very different than the appcoin examples we’ve discussed. Don’t issue tokenized equity unless you want to be limited to accredited investors under US securities laws. The critical distinction is whether the token is simply a useful and tradable digital item like a paid API key. Again: read these three posts and consult a good lawyer before embarking on a token launch!

    8. Tokens can be sold internationally over the internet (~20–25X increase in buyers)

    Token launches are typically international affairs, with digital currency transfers coming in from all over the world. New bank accounts receiving thousands of wires from all over the world in minutes for millions of dollars would likely be frozen, but a token sale paid in digital currency is always open for business. Given that the US is only ~4–5% of world population, the international availability provides another factor of 20–25X in the available buyer base.

    9. Tokens have a liquidity premium (>1000X improvement in time-to-liquidity)

    A token has a price immediately upon its sale, and that price floats freely in a global 24/7 market. This is quite different from equity. While it can take 10 years for equity to become liquid in an exit, you can in theory sell a token within 10 minutes — though founders can and should cryptographically lock up tokens to discourage short-term speculation.

    Whether or not you choose to sell or use your tokens, the ratio between 10 years and 10 minutes to get the option of liquidity is up to a 500,000Xspeedup in time, though of course any appreciation in value is likely to be larger and more sustainable over a 10 year window.

    This huge liquidity premium alone would cause tokens to predominate whenever they are legally and technically feasible, because the time to liquidity enters inversely in the exponent of the compound annual growth rate. Fast liquidity permits reinvestment in new tokens permits faster growth.

    10. Tokens will decentralize the process of funding technology

    Because token launches can occur in any country, the importance of coming to the United States in general or Silicon Valley / Wall Street in particular to raise financing will diminish. Silicon Valley will likely remain the world’s leading technology capital, but it will not be necessary to physically travel to the United States as it was for a previous generation of technologists.

    11. Tokens enable a new business model: better-than-free

    Large technology companies like Google and Facebook offer extremely valuable free products. Despite this, they have sometimes come under fire for making billions of dollars while early adopters only receive the free service.

    After the early kinks are worked out, the token launch model will provide a technically feasible way for tech companies (and open source projects in general) to spread the wealth and align their userbase behind their success. This is a better-than-free business model, where users make money for being early adopters. Kik is the first example of this, but expect to see more.

    12. Token buyers will be to investors what bloggers/tweeters are to journalists

    Tokens will break down the barrier between professional investors and token buyers in the same way that the internet brought down the barrier between professional journalists and tweeters and bloggers.

    This will have several implications:

    • The internet allowed anyone to become an amateur journalist. Now, millions of people will become amateur investors.
    • As with journalism, some of these amateurs will do extremely well, and will use their token-buying track-record to break into professional leagues.
    • Just like it eventually became a professional requirement for journalists to use Twitter, investors of every size from seed funds to hedge funds will get into token buying.
    • New tools analogous to Blogger and Twitter will be developed that make it easy for people to use, buy, sell, and discuss tokens with others.

    We don’t yet have a term for this, but perhaps it will be “commercial media” by analogy to “social media”.

    13. Tokens further increase the primacy of the technologist over the traditional executive

    Since the rise of Bill Gates in the late 70s, there has been a trend towards ever more tech-savvy senior executives. This trend is going to accelerate with token sales, as folks who are even more predisposed to the pure computer science end of the spectrum end up founding valuable protocols. Many successful token founders will have skillsets more similar to open source developers than traditional executives.

    14. Tokens mean instant custody without intermediaries

    Because token buyers need only hold private keys to guarantee custody, it changes our notion of property rights. For tokens, the final arbiter of who possesses what property is not a national court system but an international blockchain. While there will be many contentious edge cases to work through, over time blockchains will provide “rule-of-law-as-a-service” as an international, programmable complement to the Delaware Chancery Court.

    15. Tokens may be generalizable to every tech company through paid logins

    Can the token model can be extended beyond pure protocols like Bitcoin, Ethereum, or ZCash? It’s not hard to imagine selling tokens as tickets — for access to logins, to car-rides, to future products. Or distributing them as rewards to the authors who power social networks and the drivers who power ride-sharing networks. Eventually, tokens can be extended to hardware as well: every time someone buys a slot in line for a Tesla Model 3 or re-sells a ticket, they’re exchanging a primitive token. But the model will need to work for protocols first before being generalized.


    The token space is very early, and is likely to experience a dramatic correction over the next few weeks. To deal with the coming profusion of tokens we will need review sites like Coinlistportfolio management tools like Prismexchanges like GDAX, and many other pieces of supporting technical and legal infrastructure.

    But the world has changed. Tokens represent a 1000X improvement over the status quo, and those don’t come around very often.

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    Oil and Gas

    Rosneft CEO warns of oil market instability as U.S. producers ramp up exports

    The global oil output cut deal has given only a temporary breather, and rising oil exports by U.S. oil producers could create further instability on the oil market, Igor Sechin, the CEO of Russian oil giant Rosneft, said on Friday.

    Low oil prices are here to stay for a long time, and the market cannot stabilize unless all producers to curb their output, Sechin said.

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    Eni sanctions Coral South FLNG project

    Italian oil company Eni has launched its Coral South floating LNG (FLNG) project offshore Mozambique.

    The President of the Republic of Mozambique Filipe Nyusi, the Minister of Mineral Resources Leticia Klemens, and Eni’s CEO Claudio Descalzi, participated on Thursday to the launch of the Coral South LNG project implementation phase.

    Managers from the partner companies were also in attendance, including CNPC’s Wang Yilin, Galp’s Carlos Gomes da Silva, Kogas’ Seunghoon Lee and ENH’s Omar Mitha.

    Eni said that, during the ceremony, all the drilling, construction and installation contracts for the production facilities were signed, as well as agreements with the Mozambican government for the regulatory framework and financing of the project.

    Coral South is the first project in the development of the considerable gas resources discovered by Eni in Area 4 of the Rovuma Basin. The sanction comes three years since the drilling of the final exploration well in a Mozambique.

    Eni noted that the Floating Liquefied Natural Gas (FLNG) unit will have a capacity of around 3.4 MTPA (million tons per year).

    The Italian energy company has said that its unit will be the first FLNG in Africa and only the third globally. However, it’s worth noting that Golar has said earlier this week that it hopes to start production from its FLNG Hilli Episeyo offshore Cameroon in September this year.

    The FLNG facilities construction will be financed through Project Finance covering around 60% of its entire cost. This is the first Project Finance ever arranged in the world for a liquefaction floater. The financing agreement has been subscribed by 15 major international banks and guaranteed by 5 Export Credit Agencies.

    Eni CEO Claudio Descalzi commented: “As the world transitions to a low-carbon energy mix, Eni believes that the use of gas is critical to achieving a more sustainable future. Our ambition to become a global integrated gas and LNG player is based on working alongside key partners such as Mozambique. The Coral South Project will deliver a reliable source of energy while contributing to Mozambique’s economic development.”

    The Coral field, discovered in May 2012, is located within Area 4 and contains approximately 450 billion cubic meters (16 TCF) of gas in place. In October 2016, Eni and its Area 4 partners signed an agreement with BP for the sale of the entire volumes of LNG produced by the Coral South project for a period of over twenty years.

    Eni is the operator of Area 4, through its participation in Eni East Africa (EEA), which holds a 70% participating interest in the concession while Portugal’s Galp Energia, South Korea’s Kogas and Mozambique’s Empresa Nacional de Hidrocarbonetos (ENH), each hold 10% stake. Eni holds 71.4% shares of Eni East Africa with China’s CNPC holding 28.6%.

    In March 2017 Eni signed an agreement to sell 50% of its shares in EEA to ExxonMobil, which will be completed subject to satisfaction of a number of conditions precedent, including clearance from Mozambican and other regulatory authorities.
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    Perry To Sign Agreement To Facilitate LNG Exports To Japan

    U.S. Energy Secretary Rick Perry’s ongoing trip to Japan is slated to be a boon for liquefied natural gas (LNG) exporters. Sources told Bloomberg that Perry will sign an agreement to promote American LNG in resale venues for developing nations surrounding Japan.

    A natural gas oversupply problem has pushed Tokyo to become a LNG resale hub for the developing countries in its circuit. At this point, Japan is the largest LNG importer in the world.

    “The Secretary looks forward to having a productive dialogue with Japanese officials about a multitude of issues, including the potential for increased LNG exports from the United States to Asia,” Shaylyn Hynes, a spokesperson from the Department of Energy, said in an email.

    American LNG exports to Japan have occurred on an on-and-off basis since June 2011, data from the Energy Information Administration (EIA) shows. Currently the commodity is sold at a rate of $7.18 per thousand cubic feet – the highest level since August 2015.

    In January, Japan bought its first shipment of liquefied natural gas derived from fracking. The 70,000-ton cargo was the first of a series of shipments that will total 700,000 tons by the end of 2017.

    “In 2016, most US LNG exports went to customers in the Western Hemisphere,” Richard D. Kauzlarich, former U.S. ambassador to energy hubs Azerbaijan and Bosnia said earlier this year. “[S]hipments to East Asia (especially Japan and China) will overtake destinations in this hemisphere in 2017.”

    Asian destinations for American oil and gas exports will spur the kind of economic development President Donald Trump promised constituents during his campaign, analysts say. Congress allowed companies to begin selling oil to other countries in December 2015, with the approval of the Obama administration.

    “We see few better ways for the Trump administration to deliver on its promises of job creation and trade deficit reduction, than liquid natural gas agreements with major importers, such as China, India, Korea and Japan,” said Michael Roomberg of the Burner Tip Fund.
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    Dakota Access Pipeline starts moving oil after years of controversy, protest

    The Dakota Access Pipeline started shipping oil Thursday, a milestone in the project after a protracted legal battle and temporary halt in construction.

    Energy Transfer Partners LP ETP, +0.87%  , one of the pipeline’s owners, said the $3.8 billion pipeline spans nearly 1,180 miles and can transport as much as 470,000 barrels of oil daily.

    Ramping up the amount of oil that can flow through the pipeline will take time, according to ESAI Energy, a consulting firm that has tracked the progress of the project. The pipeline is expected to hit 75% of its capacity by the end of the year.

    The Dakota Access Pipeline is part of a system that transports oil from the Bakken and Three Forks production areas in North Dakota to a storage hub outside Patoka, Ill., and later to terminals in Nederland, Texas. The launch of commercial service comes more than three months after President Donald Trump signed an executive order to restart the project, fulfilling a campaign pledge to reverse actions to delay construction taken by former President Barack Obama.
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    Pennsylvania pipeline fight could upend international oil flows

    Refiners from the Midwest United States are fighting for access to a vital Pennsylvania pipeline – a move that could cripple their East Coast competitors and redraw the map for international flows of crude and fuel into coveted coastal markets.

    The regulatory dispute centers on a proposal by pipeline operator Buckeye Partners’ to that state's Public Utilities Commission. The plan would reverse the flow of fuels on a section of Buckeye’s 350-mile Laurel Pipeline, which currently flows from the East Coast to Pittsburgh.

    Because pipelines only flow in one direction, the change would effectively block five East Coast refineries from serving Pittsburgh – with Midwest refiners picking up their market share.

    The commission will decide on whether to allow Buckeye to reverse the flow from Pittsburgh, near the state’s western border, to Altoona, a small city about a hundred miles to the east.

    Initially, such a reversal would cost East Coast refiners about $10 million annually, according to a study gasoline marketer Gulf Operating commissioned to include in its objections to the Buckeye proposal. Piping gasoline to Pittsburgh yields some of their highest per-barrel profits.

    But opponents, including East Coast refiners and some state lawmakers, are far more worried that such a decision would presage a reversal of the entire pipeline. That would take Midwest fuels all the way to Philadelphia on the state's eastern border, where it connects to distribution networks serving the entire eastern seaboard.

    For Buckeye, the move represents a bet that surging Midwest refiners will be better customers - keeping its pipeline full to capacity - than their struggling East Coast counterparts.

    The stakes are much higher for the refiners involved. Midwest refiners could gain a huge market opportunity to pipe fuels into the East Coast, the largest U.S. gasoline market.

    Their products could also make their way to the New York Harbor, a major gasoline trading hub, where they would likely displace imports from Europe that currently account for about 23 percent of the fuel consumed in the region.

    For East Coast refiners, access to the Laurel pipeline is a matter of survival.

    "I have terrible anxiety, to say the least, when I see this proposal," said Anthony Gallagher, business manager for the local Philadelphia pipefitters union, speaking at a recent hearing on the proposal in Harrisburg, the state’s capital. “It will totally choke off these refiners, and they will have to start laying people off. Then, they will shut down.”

    Buckeye’s proposal has also drawn formal objections from state lawmakers and two refiners from the Philadelphia region, Philadelphia Energy Solutions (PES) and Monroe Energy, a subsidiary of Delta Airlines. Together, they employ about 1,000 people.

    The two other firms operating East Coast refineries - PBF Energy and Phillips 66 - also own Midwest refineries, which gives them conflicting economic interests in the outcome.

    PBF Energy and Phillips 66 did not respond to Reuters’ requests for comment, and neither has filed comments with the commission.

    PES and Monroe declined to comment to Reuters but filed formal written objections to the commission.

    Monroe argued that approving Buckeye’s plan would require East Coast refiners to “reduce output or sell petroleum products at drastically reduced prices” into an already oversupplied market.

    A delegation of Philadelphia-area lawmakers sent a letter warning the commission of “devastating economic effects.”

    Buckeye’s attorney David MacGregor countered that consumers will reap the economic benefits.

    Midwest refiners, he said at a recent commission hearing, could lower gas prices throughout Pennsylvania and lessen the region’s reliance on imported oil.

    A decision on the reversal is not likely until the fall and rests with the five-member state board. The five board members declined to comment through a commission spokeswoman.


    East Coast refiners have already closed plants because of their precarious competitive position.

    The region's refineries currently meet about one-fifth of gasoline demand on the East Coast, according to the U.S. Energy Information Administration. The rest comes from Gulf Coast refiners, via the Colonial and Plantation pipelines, and imports from Europe and Canada.

    Currently, Pittsburgh can access fuels from either the Midwest – through other pipelines owned by Buckeye - or the East Coast, whichever is cheaper at the time.

    Losing that market would be a blow to the East Coast plants, but the impact would be far more dire if Buckeye ultimately seeks to reverse the flow of the Laurel line all the way to Philadelphia.

    That’s why both Philadelphia refineries and other opponents have argued that regulators must consider Buckeye's broader intent - a possible reversal of flows along the entire pipeline - in deciding the current dispute over reversing a smaller section.

    "It is imperative that there be a full investigation” of Buckeye’s long-term plans, Philadelphia Energy Solutions argued in a filing to the commission.

    In an interview with Reuters, a Houston-based Buckeye executive would not rule out seeking future reversals that would extend Midwest refiners’ pipeline access to Philadelphia.

    “We go where the market wants us to go,” said Bill Hollis, a Buckeye senior vice president.


    The market is tilting in favor of Midwest refiners mostly because they can access cheaper crude than their East Coast counterparts.

    Midwest refiners including Marathon Petroleum and Husky Energy and Phillips 66 have added nearly a half-million barrels of daily refining capacity in the last ten years, tailoring their systems to run crude out of Canada and North Dakota’s Bakken shale oil field.

    Today, Midwest refiners process 80 percent of the crude that the U.S. imports from Canada, according to the U.S. Energy Information Administration (EIA), and crude from Western Canada can be purchased for $14 a barrel less than benchmark U.S. crude.

    Midwest refiners can access Canada's crude via pipeline; East Coast refiners have to pay more to get it shipped on boats or trains.

    Adding to their competitive advantage, Midwest refiners will soon be able to tap Bakken crude through the nearly completed Dakota Access Pipeline.

    The East Coast refiners import most of the oil they turn into gasoline and diesel from West Africa and South America, and the region must import gasoline from Europe and Canada to meet local demand.

    Buckeye’s proposal is a bet on the future of the Midwest refineries - and against those on the East Coast, Hollis said.

    “You don’t have to have 35 years in the industry to know where the trend is going," he said.
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    Gazprom’s export of natural gas to Germany rising

    Gazprom’s export of natural gas to the German market jumped 15.7 percent in the January-May period in 2017, in comparison to the corresponding quarter last year.

    In total, Gazprom delivered 22.3 billion cubic meters of gas to Germany, Russian giant’s head Alexey Miller and Uniper’s CEO Klaus Schaefer, noted during their meeting in St. Petersburg.

    In 2016, Gazprom’s gas supplies to Germany hit 49.8 billion cubic meters, a 10 percent increase compared to 2015.

    The two parties also discussed the cooperation on the Nord Stream 2 project, saying that “the signing of the financing agreements was crucial to the implementation of the project.”

    Nord Stream 2 is the construction project for a gas pipeline with the annual capacity of 55 billion cubic meters from Russia to Germany across the Baltic Sea. The project is implemented by Nord Stream 2, where Gazprom is the sole shareholder.

    In April Nord Stream 2, Engie, OMV, Royal Dutch Shell, Uniper and Wintershall Holding signed the financing agreements for the Nord Stream 2 project.
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    Carlyle OFS Exec: It's Dangerous to Declare Industry in Recovery

    Carlyle Group principal cautions crowd at Louisiana Energy Conference that not all of the oil and gas industry is rebounding as conventional and offshore service companies continue to struggle.

    An uneven recovery is taking hold of the oil and gas industry, and if folks don’t realize that some sectors continue to struggle, industry exuberance can quickly retreat to the downturn’s despair.

    Stuart Page, principal in oilfield services and equipment at The Carlyle Group, said taking the same approach to the post-downturn economy as the one that led to plummeting commodity prices will imperil the industry.

    “I think it’s dangerous that we’re all looking at this as the new recovery. If everybody thinks the same thing, we’re all going to apply the same [excessive] valuations, we’re going to end up with the same problem all over again,” Page said during a panel at the Louisiana Energy Conference in New Orleans on May 31.

    “This time, if we call it a recovery, it’s very, very specific to who’s recovering. The unconventional space in the Permian is great, but if you’re a conventional producer somewhere much less popular, life is not so great. If you’re an oilfield service company offshore, it’s tough times still, and no recovery in sight.”

    As production at unconventional plays heats up, pressure is on for oilfield service providers (OFS) to re-equip and staff their crews. And generally, their bills to the exploration and production (E&P) companies are going to increase, but Page said the rate is still unknown. The OFS sector collectively says a cost increase of up to 20 percent is necessary this year; some E&P companies exploration and production companies are balking at such a hike.

    “I see this big gulf between the E&P companies and the service companies,” Page said. “We’ll see who wins.”

    Attached Files
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    OPEC looked at extra 1-1.5 percent oil supply cut, could revive proposal

    OPEC discussed cutting its oil output by a further 1-1.5 percent when it met last week, three sources familiar with the matter said, and could revisit the proposal should inventories remain high and continue to weigh on prices.

    The Organization of the Petroleum Exporting Countries and non-member producers ultimately decided at their May 25 meeting to extend their existing supply-cutting agreement for nine months, although oil ministers including Saudi Arabia's Khalid al-Falih confirmed deeper curbs had been debated.

    One of the sources said the idea floated was to widen OPEC's supply cut by about 300,000 barrels per day (bpd).

    That would equate to a further curb of about 1 percent of April output of nearly 32 million bpd and bring OPEC's total pledged cut to 1.5 million bpd, from 1.2 million bpd.

    "They wanted to do some scenarios and get around 300,000 bpd of extra cuts to be distributed among everyone," the source, who declined to be identified, said. "But I think they decided to wait and see how the market will react first."

    The initial price reaction to OPEC's May 25 decision was one of disappointment that producers had not deepened their cuts. Brent crude fell 5 percent to below $52 a barrel and was trading near there on Thursday, half its level of mid-2014.

    OPEC officials nonetheless hope an inventory glut will ease in the next few months as market fundamentals move closer to balance. OPEC is not scheduled to meet again to set policy until November.

    "By the next meeting, if prices and the situation remain like this, they will have to do something ... Everyone will be on board (for more cuts) if prices remain like they are now," the source said, adding that he expected the market and prices to improve by the third quarter.

    A second source familiar with the matter said "everything is possible", when asked whether the option of a deeper cut could be revived.

    A third source, an OPEC delegate, was skeptical that a larger cut would be agreed on by all parties, including non-OPEC producers. "I doubt it," that source said. "There was a proposal for a deeper cut, but it didn't work."

    A fourth source, also an OPEC delegate, was skeptical for the same reason.

    "To ensure a proposal can be feasible, you need to see who can buy in," that delegate said. "I believe the number of countries who can buy in will be few. However, continuing the current agreement is much more acceptable even for a longer period of time until the rebalancing is achieved."


    OPEC, Russia and other producers agreed last year to cut production by 1.8 million bpd for six months starting on Jan. 1.

    Oil prices have gained from the pact but stockpiles remain high and production from non-participating countries, including the United States, has been rising, keeping crude below the $60 that top exporter Saudi Arabia would like to see this year.

    Riyadh is preparing to list around 5 percent of its national oil company Saudi Aramco in 2018 and wants higher oil prices ahead of the initial public offering (IPO) for a better valuation, industry and OPEC sources have told Reuters.

    "I think the Saudis have a target oil price for the Aramco IPO," the first source said. Falih, however, said after OPEC's meeting that the IPO did not affect the decision to extend the duration of the supply cut.

    A deeper cut, along with extending the curbs for various lengths of time, were among the scenarios reviewed by an OPEC panel, the Economic Commission Board, days before the OPEC ministerial meeting.

    Falih, who currently holds the OPEC presidency, said after the May 25 meeting that keeping the existing cuts for another nine months was the best outcome.

    On Wednesday in Moscow, Falih reiterated his country's position to do "whatever it takes" along with Russia to help stabilize the market, signaling an open-ended policy to reduce the inventory overhang.

    OPEC has a self-imposed goal of bringing inventories in industrialized countries down from a record high of 3 billion barrels to their five-year average of 2.7 billion.

    The next OPEC meeting is on Nov. 30 in Vienna. Another panel, the Joint Ministerial Monitoring Committee, will convene in Russia in July and has a mandate to recommend adjusting the supply pact, if needed.
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    Total, Exxon interested in oil and gas exploration off Crete

    A joint venture of Total, ExxonMobil, and Hellenic Petroleum (HELPE) has submitted an official application of interest to explore for hydrocarbons in two blocks off the Greek island of Crete.

    The joint venture, with Total as the operator, on Wednesday submitted the application to the Ministry of Environment and Energy and to EDEY, the Greek Hydrocarbons Management Company, expressing its interest to explore for hydrocarbons in two adjusted offshore blocks in Crete.

    According to a statement by Greece’s oil company, Hellenic Petroleum, the companies expressed their willingness to explore in these deep water frontier areas, anticipating the Greek state to accept the application and release an international tender, as per the Greek Hydrocarbons Law in force.

    President of Hellenic Petroleum, E. Tsotsoros, noted: “If indeed the existence of exploitable hydrocarbons is verified, it is certain that our country will enter a new era, with obvious benefits for the national economy and the local communities, and will contribute to the geopolitical and energy upgrade of Greece.”

    The company’s CEO, Gr. Stergioulis, said: “The three companies combined, Total-ExxonMobil-HELPE, compose a powerful business venture that possesses specialized and advanced expertise as well as robust financial magnitude, which are required for the successful outcome of the complicated endeavor of deep water exploration.

    “The Hellenic Petroleum Group is fully aware of the responsibility of undertaking such an effort of unprecedented complexity, and commits to proving worthy of the Greek Government’s trust, if it is selected.”
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    Russia could boost oil output next year, to test new tax regime

    Russia could increase oil production next year to as much as 551 million tonnes, or 11.07 million barrels per day (bpd), and will begin testing a new tax regime to support output growth, Alexei Texler, first deputy energy minister, told Reuters.

    The increase will depend on how smoothly a global output-cutting agreement is wound down, Texler said, adding that this year's oil output was seen at 547 million tonnes.

    "My forecast for next year - 547-551 million tonnes - depends on how smooth the exit from the agreement is," Texler said in an interview.

    Russia and 10 other non-OPEC nations agreed last December to join OPEC output cuts for the first time in 15 years. Last week, the Organization of the Petroleum Exporting Countries and non-OPEC producers agreed to extend the curbs by nine months to March 2018.

    Russia has cut production by 300,000 bpd under the deal.

    Texler said a new tax regime was expected to be introduced in 2018 for selected oilfields for up to five years as part of efforts to increase production.

    If successful, it could be expanded to the entire domestic oil sector, already the world's largest by volumes produced.

    The bulk of Russia's oil production comes from mature fields in western Siberia and is subject to two key taxes - the mineral extraction tax (MET) and the oil export duty.

    Some oilfields, both mature and new, receive tax breaks and Russia has long been considering the introduction of a new, unified, profit-based taxation system instead.

    "Thanks to the profit-based tax, we expect that the fields covered will see an increase in production of up to 20 percent over the next five years," Texler said.

    The new tax regime will be tested at fields with combined production of 15 million tonnes a year (300,000 bpd). Five Russian oil firms have applied for the trial to be carried out at 21 fields, Texler said.

    The proposed switch has prompted a debate with the finance ministry, which fears the new system would be harder to control. The finance ministry also opposes plans to apply both the new tax regime and existing tax breaks.

    Rosneft, Russia's biggest oil producer, has been lobbying for a lower MET at Samotlor oilfield, one of its largest and which is battling water inundation. The finance ministry has instead proposed testing the profit-based tax at Samotlor.

    Texler did not comment specifically on Samotlor but said that in the energy ministry's view, the profit-based tax and tax breaks for so-called watered fields were separate issues.

    Special tax regimes and breaks have helped to increase production and budget revenues, he said. Without them, he added, oil production would have been 470 million tonnes at best, while it reached 547.5 million last year.

    Texler added that the oil export duty, which under the existing tax regime has been gradually cut while the MET has risen, was not expected to come to zero before 2021.
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    Summary of Weekly Petroleum Data for the Week Ending May 26, 2017

    U.S. crude oil refinery inputs averaged over 17.5 million barrels per day during the week ending May 26, 2017, 229,000 barrels per day more than the previous week’s average. Refineries operated at 95.0% of their operable capacity last week. Gasoline production increased last week, averaging over 10.4 million barrels per day. Distillate fuel production increased last week, averaging over 5.2 million barrels per day.

    U.S. crude oil imports averaged 8.0 million barrels per day last week, down by 309,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.1 million barrels per day, 6.6% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 703,000 barrels per day. Distillate fuel imports averaged 105,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.4 million barrels from the previous week. At 509.9 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 2.9 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 increased by 0.4 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories increased by 3.4 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories decreased by 5.2 million barrels last week.

    Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 0.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.6 million barrels per day, down by 0.7% from the same period last year. Distillate fuel product supplied averaged 4.2 million barrels per day over the last four weeks, up by 3.0% from the same period last year. Jet fuel product supplied is up 6.0% compared to the same four-week period last year.

    Cushing down 800,000 bbls
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    US Lower 28 production up 20,000 bbls

                                                Last Week   Week Before  Last Year

    Domestic Production '000.......... 9,342           9,320          8,735
    Alaska ................................................ 507     .        505          .   510
    Lower 48 ....................................... 8,835           8,815          8,225
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    U.S. East Coast crude-by-rail loading's at 5 monitored facilities fell to zero

    U.S. East Coast crude-by-rail loading's at 5 monitored facilities fell to zero w/e May 19, says @Genscape

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    Japan's Marubeni joins industry coalition to promote LNG bunkering

    Japan's Marubeni Corporation is the latest company to join SEA\LNG, a multi-sector industry coalition aiming to accelerate the widespread adoption of LNG as a marine fuel, SEA\LNG said in a statement Wednesday.

    This comes at a time when Japan, the world's largest LNG importer which accounts for about 35% of global demand, is set to play a significant role in LNG bunkering as the marine industry turns to cleaner fuel options to comply with stricter environmental regulations, including the International Maritime Organization's 2020 global sulfur cap.

    LNG far exceeds alternative options in terms of emissions reductions, as it emits zero sulfur oxides and virtually zero particulate matter. It can also emit 90% less nitrogen oxide than heavy marine fuel oil, according to SEA\LNG. With the use of best practices and appropriate technologies to minimize methane leakage, LNG offers the potential for up to a 25% reduction in greenhouse gas emissions, SEA\LNG said.

    "Although our company has expertise in multiple sectors, we view LNG as a core business field within our multifaceted service offering," Marubeni's Executive Officer and Chief Operating Officer of its Energy Division, Akihiko Sagara, said in the statement.

    "Together with our partners, we look forward to collaboratively working towards a cleaner, more efficient shipping environment," he added.

    Since its launch in July 2016, SEA\LNG's membership has expanded rapidly from 13 to 25 members, which comprise shipping companies, LNG suppliers, infrastructure providers, classification societies, downstream companies, major ports and original equipment manufacturers.
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    Indonesia looking to increase crude imports from Nigeria: NNPC

    Indonesia is looking to increase its crude purchases from Nigeria, state oil firm Nigerian National Petroleum Corp. said Wednesday.

    Harry Purwanto, Indonesia's ambassador to Nigeria, said during a meeting with NNPC group managing director Maikanti Baru in Abuja that the Asian country was seeking to increase crude imports to meet its surging energy needs, the NNCP said in a statement.

    "The Indonesia ambassador disclosed that his country looked forward to lifting crude oil directly from Nigeria, rather than through a third party as is currently the case," the NNPC said.

    The southeast Asian country is a keen consumer of Nigerian crude, buying around 30,000 b/d every month, according to S&P Global Platts estimates.

    The country's refiner Pertamina is a key buyer of Nigeria's largest export grade, Qua Iboe, buying around one cargo every month through a tender.

    Earlier this month, Pertamina issued a tender looking for a variety of West African crudes for the second half of this year. Traders said the amount of crudes tendered for was larger than normal, including a wider basket of crudes from the region, such as Nigeria?s Qua Iboe, Bonny Light and Escravos; Angola's Cabinda and Girassol; and Gabon's Rabi Blend.

    Baru urged Indonesia to consider participating in the forthcoming bid round in order to realize its aspiration of maintaining a presence in the Nigerian oil and gas sector.

    "The call by the ambassador signifies the prospects of soaring Nigeria's market share in Asian emerging economies which include China and India, having lost ground in crude oil sales in the [US] due to advances in shale oil exploration in recent years," Baru said, according to the statement.

    Indonesia, which produces around 900,000 b/d of crude, relies on imports to meet domestic demand of 1.4 million b/d, with Nigeria accounting for 18% of oil imports, the NNPC said.
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    Chevron restarts production at Gorgon Train 1

    US-based energy giant Chevron has resumed production at the first liquefaction train at its multi-billion Gorgon LNG plant on Barrow Island in Western Australia following a shutdown earlier this month.

    “Production from Gorgon LNG Train 1 has resumed,” Chevron’s spokesperson told LNG World News in an emailed statement on Thursday.

    “Trains 2 and 3 are running normally, and we continue to ship cargoes,” the spokesperson said.

    Chevron closed the first Train on May 12 saying the cause of the closure was a failure of a flow measurement device.

    The company previously expected the unit to be down about one month.

    Chevron has in March started-up the third and the last Train at the Gorgon facility that has a total capacity of 15.6 million mt/year.

    The troubled $54 billion LNG project has experienced several production interruptions since it shipped its first cargo in March last year.

    The Gorgon LNG project 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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    Saudi Aramco trading arm hiring staff for Singapore push: sources

    The trading arm of oil giant Saudi Aramco is looking to step up hiring for its Singapore office as it pushes into the regional energy hub, three sources with knowledge of the matter said.

    The office aims to employ 10 to 15 staff by year-end after opening with one person in late 2015, said one of the sources. That would include operational, analytical and administrative workers.

    A spokesman for Saudi Aramco Products Trading Company did not answer calls from Reuters.

    "The main aim is for employees to support trading activities of the head office in Saudi Arabia," said the first source. All three declined to be identified as they were not authorized to speak with the media.

    The office may also expand into trading beyond refined oil products and chemicals, the source continued.

    According to the company website, it is looking to hire a marketing coordinator, as well as an analyst to provide energy market research on crude oil, oil products and chemicals, preferably with experience working with an Indian state-owned oil company.

    Saudi Aramco Products Trading Company is now trading about 1.5 million barrels of refined, liquid chemical and polymer products every day across the globe.

    Saudi Aramco has a separate unit in Singapore, Aramco Asia Singapore, focused on marketing the company's own liquefied petroleum gas (LPG) and crude oil.
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    Has Permian Productivity Peaked?

    The U.S. shale industry might have just received a huge windfall with the nine-month extension of the OPEC cuts. Shale output was already expected to come roaring back this year, but the extension of the cuts provides even more room in the market for shale drillers to step into.

    The sky is the limit, it seems. However, there are growing signs that the U.S. shale industry could be reaching the end of the low-hanging fruit. Or, more specifically, drilling costs are starting to rise and the enormous leaps in production that can be obtained by simply adding more rigs also appears to be running into some trouble.

    According to the EIA’s Drilling Productivity Report, productivity (as opposed to absolute production) is set to fall next month in the Permian Basin. In other words, the average rig will only be able to produce an estimated 630 barrels per day of initial production from a new well, down 10 b/d from the 640 b/d that such a rig might have produced in May. That is convoluted way of saying that the ever-increasing returns on throwing more rigs at the problem might be hitting a ceiling.

    This is a very notable development – it is the first time that the EIA predicts falling well productivity per rig since it began tracking the data several years ago. Still, because the rig count has increased so much, there will still be more production coming out of the Permian. It’s just that as drillers gobble up all the best spots to drill, it will become more and more difficult to find easy pickings.

    Moreover, simply drilling the wells is only one part of the equation. As Collin Eaton of Fuel Fix notes, companies are drilling wells at a faster pace than contractors can frac them. The shortage of completion crews means that the backlog of drilled but uncompleted wells (DUCs) has shot up over the past year, rising by more than 60 percent to 1,995 in April 2017 from a year earlier.

    The strain on contractors means that drilling costs will also rise. Oilfield service companies bore the brunt of the market downturn over the past three years, forced to slash their rates because of the lack of work. Oil producers have consistently and repeatedly boasted about their “efficiency gains,” but much of the cost-savings came from soaking service companies.Related: The Mysterious Rosneft Deal And Its Consequences

    That could be at an end. The rise in drilling activity means that oilfield service companies finally have more leverage to hike their prices. The results could be an upswing in costs for producers. Service costs could jump by 20 percent this year, according to an estimate from S&P Global Platts.

    But it isn’t all rosy for service companies either. Fuel Fix notes that they have to rebuild their rig fleets after scrapping so many during the last few years. Also, finding enough people to return to work after savagely cutting payrolls will be a challenge.

    Overall, however, production is still expected to increase. Generous financing from Wall Street will ensure that capital is not a limiting factor. Consequently, the shale industry will continue to shower West Texas with money, rigs and people. Oil will flow in larger volumes this year and probably next year, barring another downturn. The Permian, for instance, is still expected to add more than 70,000 bpd of additional output between May and June.

    Also, OPEC’s determination to prevent another downturn in prices provides some certainty to shale drillers. OPEC is erasing some of the risk for drillers to deploy resources in the Permian. On an annual basis, the EIA estimates that U.S. oil production will average 9.3 million barrels per day (mb/d) in 2017 and a staggering 10.0 mb/d in 2018.

    But if well productivity has peaked, the marginal barrel will be a bit trickier to produce next year than it was in, say, late 2016.
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    Matchmaking: OPEC and Russia Want to Formalize a Long-Term Partnership

    Russia is looking to find ways to cooperate with OPEC despite years of saying it has no plans to join the group

    OPEC and Russia hope to institutionalize cooperation between the two beyond the current production cuts, according to Russian Energy Minister Alexander Novak and OPEC Secretary-General Mohammad Barkindo. The group of producers and Russia overcame years of mutual distrust in December to execute the current production cuts, which both extended earlier this month, but Russia has repeatedly said in the past that it has no intentions of joining OPEC as a member nation.

    OPEC and non-OPEC ministers may continue to meet once or twice a year after the current agreement ends, Novak said. “When the action ends and the market is balanced, we will undoubtedly continue working and interacting with OPEC,” he said.

    “The cooperation and collaboration between us — OPEC and non-OPEC — will outlive the implementation process,” Barkindo told reporters. “We are putting in place, if you like, the building blocks for a Catholic marriage. We do not expect a divorce in this marriage.”

    A six-nation committee overseeing implementation of the deal will consider proposals for how to sustain the partnership in the long term when it meets next month in Moscow, Novak said. These will then be presented to ministers when they next gather in November in Vienna.

    Libyan production rattles markets

    Following the extension of the OEPC and non-OPEC production cuts, Novak said Russia could cut production further depending on the market’s reaction. With a presidential election quickly approaching in Russia, higher oil prices could go a long way in improving the economy and helping President Vladimir Putin with his expected attempt to run for another term in office.

    So far, markets have reacted negatively to the production cuts being extended with many hoping the group would remove even more production from the market. News Wednesday that production from Libya, which is exempt from OPEC production cuts, reached a three-year high of 827 MBOPD did little to improve market sentiment.

    Traders appear to be adding to short positions as crude fell sharply Wednesday morning, CNBC reported.

    “The game of chicken between them and the market is back on again,” said John Kilduff, partner at Again Capital.

    “The meeting was much more of a failure than people realize because of what wasn’t achieved. There are no caps on production for Libya, or Nigeria, or Iran,” said Kilduff. Libya has shipped an average of 500,000 barrels per day of oil so far this year, up from 300,000 per day last year. Production reached 800,000 barrels per day earlier this month.

    “There were official statements about production from the Libyan National Oil Co., and that validated it with the market,” Kilduff said.
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    Exxon shareholders approve climate impact report in win for activists

    Exxon Mobil Corp's chief executive said on Wednesday the company would reconsider how it communicates the risks its faces from climate change after shareholders approved a measure calling for increased transparency.

    The non-binding proposal passed with 62 percent of ballots cast in a rare defeat for Exxon's management, which had recommended a vote against the measure. The company argued that it already provides sufficient information on the potential impact of changing technologies and energy demand on its asset portfolio.

    The results likely reflected a shift in how big shareholders voted on the measure, as the same proposal last year received only 38.1 percent of shares voted.

    Asset manager BlackRock Inc (BLK.N) backed the proposal, according to a source familiar with the matter. BlackRock holds about 6 percent of Exxon shares.

    Among other top Exxon shareholders, spokespeople for State Street Corp (STT.N) and Vanguard Group declined to comment on the vote on Wednesday.

    "It’s a powerful message," New York State Comptroller Thomas DiNapoli said in an interview. A New York state public employee pension fund he oversees was one of the proposal's sponsors. "They recognized the global community is staying committed to Paris," he said, referring to the Paris global climate accord.

    The proposal asked for Exxon to report on risks its business could face from technology changes and from climate change policies such as the 2015 accord aiming to keep average global temperature increases below 2 degrees Celsius.

    In remarks following the shareholder meeting, Exxon Chief Executive Darren Woods said the board would reconsider its climate change-related communications but did not commit to producing the report requested in the proposal.

    He also said board directors would review a policy designed to bar them from meeting individually with big shareholders, a practice criticized by the climate proposal sponsors.

    "We take the vote seriously will respond to that feedback and look for opportunities" to communicate, Woods said. "That issue along with others is part of dialogue we have with the board."

    Exxon still faces probes by Massachusetts and New York Attorneys General into whether it misled the public and investors by soft-pedaling climate change risks. Exxon has said suits are politically motivated and intended to force it and others to change their positions on climate change.

    Protesters, some in skeleton costumes, held up signs saying "Exxon Lied" across the street from Wednesday's annual meeting.

    Approval of Exxon's executive pay meanwhile received 68 percent of ballots cast, down from 89 percent a year ago. Proxy advisory firm Institutional Shareholder Services had recommended shareholders reject the executive pay plan.

    A proposal calling for a report on Exxon's efforts to reduce emissions of methane, another greenhouse gas, in its operations received support of nearly 39 percent of ballots cast.

    Another proposal calling on the company to increase shareholder payouts in light of climate change-related risks was approved by less than 4 percent of ballots cast. Exxon had opposed both proposals.

    Earlier, Exxon's Woods had said the company supported the goals of many of the proposals, but disagreed with the methods.
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    Cushing hub's crude storage shell, working capacity edges lower: EIA

    Crude oil storage shell capacity at Cushing, Oklahoma, fell to 90.1 million barrels as of March 2017 from 90.4 million barrels six months ago, data from the U.S. Energy Information Administration (EIA) showed on Wednesday.

    Working storage capacity at the U.S. crude hub fell to 76.7 million barrels from 77.1 million barrels in the same comparison, EIA data showed.

    U.S. Gulf Coast crude oil shell capacity rose to 301.3 million barrels as of March, up from 291.3 million barrels. U.S. Gulf Coast working capacity also rose, increasing to 260.3 million barrels from 250.5 million barrels in September 2016.
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    API reports strong fall in inventories

                      Actual          Expected        Last Week

    May 31, -8.670M         -2.500M          -1.500M
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    US Oil Rig Count To Peak Soon Unless WTI Prices Rise

    U.S. exploration and production companies have hired an extra 400 rigs to target oil-bearing formations since the end of May 2016, according to oilfield services company Baker Hughes.

    The number of active oil-directed rigs has more than doubled over the last year, from 316 to 722, in one of the most remarkable recoveries on record, coming after one of the deepest slumps during the previous two years.

    But the recovery in oil prices has stalled since February and prices are now no higher than they were a year ago. Experience indicates the rig count will stop rising within a few months.

    The active rig count is likely to peak in June or July unless the price of benchmark West Texas Intermediate (WTI) crude starts rising again above $50 per barrel.

    Drilling activity and WTI prices each exhibit a pronounced cycle and are closely correlated.

    Price changes typically lead changes in the number of rigs employed, with an average lag of between 16 and 22 weeks.

    In 2014, oil prices turned lower in the middle of June and the rig count started to fall 16 weeks later, in mid-October.

    In 2016, prices turned higher from the middle of January and the rig count began to recover 19 weeks later, from the end of May (

    But prices stopped rising in late February 2017 and have since drifted sideways or slightly lower, which suggests the rig count is likely to peak between mid-June and the end of July.

    In recent weeks, exploration and production companies have added rigs at a slower pace than earlier in the year, which could be a sign that drilling is already starting to level off.

    Baker Hughes reports that an average of six oil rigs were added each week in May, down from more than 13 per week in March (

    Prominent shale producers have told investors they can drill new oil wells profitably at prices well below the current level of almost $50 a barrel.

    But further increases in the rig count are likely to require a further increase in prices to make them sufficiently attractive.
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    Russian Aframax Urals netbacks strengthen as freight rates plummet

    A rapid fall in freight rates for Aframax cargoes loading in the Black Sea and Mediterranean over the past week has helped send the FOB Novorossiisk Urals market to its highest value versus Dated Brent since April 28, S&P Global Platts data showed.

    FOB Novorossiisk Aframax Urals cargoes were assessed at a $2.29/b discount to the Mediterranean Dated Strip Tuesday, up 38 cents/b on the day.

    Platts assesses FOB Novorossiisk Aframax cargoes as a freight netback to the CIF-delivered Rotterdam Urals market, using the Black Sea-Mediterranean 80,000 mt freight route to calculate the Urals value back to its loading point at the Russian Black Sea port of Novorossiisk.

    In this case, the FOB uptick was also helped by a strengthening CIF Augusta assessment as the CIF Augusta quote rose 15 cents/b on the day to Dated Brent minus $1.235/b Tuesday.

    The Black Sea to Mediterranean Aframax route, basis 80,000 mt fell to w100 Tuesday, down w20 from Friday. This route has shed w50 points since May 23 when it reached w150, a four-month high, according to S&P Global Platts data.

    A falling freight rate will make the FOB netback relatively more expensive to the CIF assessment.

    Brisk demand and tight tonnage for end May to early June loading dates drove prices up rapidly but they came down just as quickly as demand tailed-off, sources said.

    The port of Trieste finished maintenance too and re-opened all the crude discharge berths, which meant a lot of vessels came back into the spot market over the weekend, sources said.

    Delays in the Turkish strait have also been steady with the wait estimated at two days southbound and two days northbound, sources said.
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    Saudi Arabia's Falih dismisses US shale threat

    Saudi energy minister Khalid al-Falih played down the threat of rising US shale production in Moscow on Wednesday, especially in light of the deepening strategic relationship between Saudi Arabia and Russia and the extension of the OPEC and non-OPEC crude production cut deal agreed in Vienna last week.

    Falih, who was meeting with Russian energy minister Alexander Novak and OPEC Secretary General Mohammed Barkindo, outlined four drivers at play in the market: robust oil demand growth, the natural decline in legacy oil fields, investment cuts of $3 trillion over the last few years with a continued lack of sizable investments in long term projects, and the OPEC-led agreement to balance the market.

    "When these factors are taken together I can only conclude that the supplies coming from marginal barrels including shale production will not be sufficient to meet the future need for incremental capacity the mid-term," Falih said. "The market balance is already pointing in that direction," he added.

    "We have made tremendous progress in rebalancing the market and giving the market strong direction through our determined actions and high degree of conformity," Falih said of the agreement among producers to cut output by 1.8 million b/d in November 2016. This was followed up by high levels of compliance by most of the countries involved, with the OPEC/non-OPEC monitoring committee overseeing the deal pegging compliance among the deal's 24 members at 102% for April.


    Falih said the nine-month rollover of the current deal would lead to "further and more accelerated inventory drawdowns," adding that "following two consecutive years of decreased global exploration and production investments since 2014, there has been a decline of investments of roughly 40%...but investments will stabilize this year at over $530 billion."

    He was keen to point out that this stabilization should be attributed to the expectation of a balanced market in the very near future.

    "All in all I am confident that the high level of cooperation we have seen among producers over the last six months will remain strong and that by acting with solidarity and in pursuit of our common objective we can steadily overcome the inventory challenge," Falih said, with compliance in the first half of the year defying analysts' expectations.

    Falih said greater collaboration was here to stay and that he foresaw many opportunities to continue and enhance joint efforts between non-OPEC and OPEC in the months and years to come.

    "We want to institutionalize the goal of maintaining and strengthening cooperation between OPEC and non OPEC producers," while also "extending excellent relations with international energy institutions like the IEA, OECD and others to promote better understanding and global economic prosperity," he said.

    Attached Files
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    Norway 'flags rule change'

    Government in proposal to restrict foreign ownership of offshore fields amid increased Russian interest

    Norway is reportedly looking to implement a regulatory shift that would restrict foreign ownership of its offshore fields in an apparent effort to deflect Russian investment moves.

    The proposed rule changes would enable the Oslo government to reject non-European entities seeking to acquire stakes in oil and gas licences on grounds of national security, Bloomberg reported.

    It comes amid increasing interest from outside investors in Norway’s assets
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    BP to sign Azerbaijan oilfield extension deal at end of June

    British oil company BP expects to sign a contract at the end of June extending its production sharing deal for Azerbaijan's biggest oilfields until 2050, the company's regional head said on Wednesday.

    The existing deal is due to expire in 2024 and BP-led consortium and Azeri state oil firm SOCAR signed a letter of intent in December to continue developing the giant Azeri-Chirag-Guneshly (ACG) offshore fields until 2050.

    "End of June is a very reasonable time for it," Gary Jones, BP's regional head for Azerbaijan, Georgia and Turkey, told reporters when asked when the contract was due to be signed. "It's a big deal. We want to get it right."

    The shareholders in the consortium include BP, SOCAR, Chevron, INPEX, Statoil, ExxonMobil, TPAO, ITOCHU and ONGC Videsh.

    Azeri President Ilham Aliyev said on Wednesday he expected the contract to be signed soon.

    "We are thinking about development of the ACG bloc and I think we will reach a final agreement with investors," Aliyev said at the annual Caspian Oil & Gas conference in Baku.

    BP came under fire from Aliyev earlier this decade when the country's leader criticised the oil firm for lower than promised output levels. Oil output at ACG totaled more than 7.1 million tonnes in the first quarter of this year.
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    LNG ltd company ends funding in QLD gas project

    Liquefied Natural Gas Limited (LNGL) will no longer fund maintenance for Queensland’s Fisherman’s Landing LNG (FLLNG) project, it has announced.

    Following a review of its asset portfolio, the Australian company has relinquished the site to the Gladstone Ports Corporation (GPC), a wholly-owned subsidiary of LNGL.

    “The closure of the FLLNG project was not an easy decision by the company,” said Greg Vesey, LNGL’s managing director and CEO.

    “However, after many years without success in securing the long-term economic gas supply that would be needed to proceed with project construct, we made a strategic decision to close the project.”

    LNGL, which owns gas exploration companies including US-based Magnolia LNG, Canadas Bear Head LNG, and LNG Technology, has notified the relevant regulators of the change.

    The move is also not believed to have a material impact on the company’s cash management plan.
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    Saudi Aramco signs joint venture deal to build shipyard

    Saudi Aramco said on Wednesday it had signed a joint venture agreement with three firms to build a shipyard on the kingdom's east coast, part of the government's drive to diversify the economy beyond oil.

    A shareholder agreement was signed with National Shipping Co of Saudi Arabia (Bahri), a state-controlled firm which ships oil for Aramco, as well as London-listed Lamprell Plc, a United Arab Emirates-based engineering firm, and South Korea's Hyundai Heavy Industries Co.

    Aramco, which announced a memorandum of understanding for the project in January 2016, gave no financial details of the joint venture.

    It has previously said the project will cost over 20 billion riyals ($5.3 billion).
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    BREAKING: Qatar to boost LNG export capacity

    State-owned Qatar Petroleum on Wednesday said that it has signed an agreement with Japan’s engineering company Chiyoda to study further boosting its liquefied natural gas (LNG) capacity in order to stay as the world’s largest LNG exporter.

    Qatar, the top LNG producer with a capacity of about 77 Mtpa is facing a growing competition from a tide of new LNG sources mostly from Australia and the US.

    Under the new deal, a detailed study will be undertaken to identify the modifications that are required for debottlenecking the capacity of Qatar’s LNG trains, located in Ras Laffan Industrial City, in order to process additional quantities of gas that will be produced from the planned new North Field gas project, QP said in a statement.

    To remind, Qatar Petroleum had announced last month its intention to develop a new gas project in the southern sector of the North Field with a capacity of about 2 billion cubic feet per day for export.

    “As part of its efforts to reinforce Qatar’s leading position in the global gas industry, this agreement provides Qatar Petroleum with the option of increasing its LNG production with minimum investment, by leveraging the existing massive, world-class infrastructure and valuable synergies available in Ras Laffan Industrial City,” said Saad Sherida Al-Kaabi, Qatar Petroleum’s Chief Executive

    “Qatar ranks first in the world in the production and export of liquefied natural gas (LNG), the first in the production and export of gas to liquid products (GTL) and the first in the production and export of Helium. Qatar Petroleum is determined to continue its lead position in the gas industry with its expansion plans, both inside and outside the State of Qatar,” Al-Kaabi added.

    The study is expected to be completed before the end of this year, which will allow Qatar Petroleum to kick off the FEED work early next year, if it concludes that this option would achieve the optimum value for Qatar, the company said.
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    Kinder Morgan Canada falls in trading debut on concerns over Trans Mountain project

    Kinder Morgan Canada (TSX:KML) kicked off its first day of trading on the wrong foot with the stock falling as much as 7% early in the day after a Monday deal between two political parties in British Columbia that oppose the company’s Trans Mountain pipeline expansion.

    The company’s shares had been priced at between Cdn$19 and Cdn$21 last week, and then scaled back to Cdn$17, but were trading at $15.79 Tuesday morning before recovering to about Cdn$16.20 by 12:30 pm ET.

    Construction of the $7.4bn project is scheduled to begin in September and should be completed by December 2019.

    The value drop can be explained by rising uncertainty about the future of the Trans Mountain expansion, following an agreement between anti-pipeline Greens and NDP to form a minority NDP government in B.C.

    Both parties have repeatedly voiced their opposition to Kinder Morgan’s planned pipeline expansion, which would see capacity nearly triple to 890,000 barrels of oil per day from the current 300,000 barrels.

    Delays of any kind would be negative for Kinder Morgan, but might provide a boost for rival Enbridge Inc.’s mainline system, according to analyst David Galison, from Canaccord Genuity.

    “Based on the current production forecasts there may not be enough demand for both the Trans Mountain expansion project and” TransCanada’s Keystone XL project, he wrote in a note to clients. “New capacity has the potential to put pressure on Enbridge’s mainline system, which is the largest exporter of crude out of Canada.”

    Alberta Premier Rachel Notley issued a statement saying the provincial government remains "steadfastly committed" to using all means at its disposal to seeing the project through to completion.

    Prime Minister Justin Trudeau also reiterated his federal Liberal party still supports the expansion project.

    The expansion of the pipeline, which will carry oil from Alberta's oil sands to B.C. to be exported to global markets, was approved by Trudeau in November. The green light, however, came with a series of both federal and provincial conditions attached.

    Construction of the $7.4 billion project is scheduled to begin in September and, according to the company, it should be completed by December 2019.
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    OPEC/non-OPEC deal unlikely to alter crude strategy for Asia

    The deal by OPEC and non-OPEC countries to extend output cuts is unlikely to lead to any fall in crude inflows into Asia from the region's main suppliers, who will ensure they keep their key markets well supplied as they strive to maintain market share and limit the prospect of the region being flooded with arbitrage cargoes.

    Market participants and experts were of the view that the move by OPEC and 11 non-OPEC producers to extend production cuts by nine months -- a move that would keep nearly 1.8 million b/d of crude oil off the market through March 2018 -- would not be big enough to throttle the supply strategy of major exporters and prevent them from meeting the needs of their traditional Asian buyers.

    Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp (Jogmec), said some OPEC producers in the Middle East won't be able to afford to reduce supplies to Asia -- instead they may boost shipments to meet peak demand needs.

    "We may see an increase in supplies, even without an increase in production in the summer," he added.

    Some traders said that it could be a testing moment for OPEC producers to maintain their output cuts as agreed, as they battle for market share in Asia amid the approaching peak demand season.

    OPEC and non-OPEC producers agreed in Vienna last Thursday to extend the current oil output cut deal by nine months to the end of March 2018. The original deal calls on OPEC to cut 1.2 million b/d, while the 11 non-OPEC participants committed to 558,000 b/d in cuts, from January through June.

    "The volume cut is not so big. So far we haven't seen any effect from the OPEC cuts in the past six months. The market is generally over-supplied. So even if they extend it by nine months, they may reduce volumes to Asian refiners for at least one month but then gradually increase the volumes again," a North Asian crude trader said. "The cuts will likely be adjusted elsewhere, with little impact on Asian buyers."

    The trader added that if Middle East producers start to cut supplies to their key Asian buyers, they may lose out to the competition. "They will start to get lesser number of customers and lose market share," the trader added.

    As Asia enters its peak refinery turnaround season, traders dismissed the possibility of any big impact on their prompt crude procurements, adding that the effect from the January-June production cut agreement was largely limited.


    Traders said they would be keeping a close watch on the extent to which OPEC and non-OPEC producers would adhere to their production cut commitments ahead of the approaching summer and winter demand seasons.

    "The summer season will be the key," a North Asian refiner source said. "It will be a focal point -- whether producers can comply and endure their production cuts."

    Nogami added that some Middle East producers' compliance with production cuts could be tested from as early as June as they may try to meet cargo demand for August-loading programs. If not then, compliance could be seriously strained from around October for November loadings, as the winter demand season kicks in.

    Any increase in oil production by OPEC's Middle Eastern producers in the coming months could have an impact on the currently narrow spread between the Dubai and Brent benchmarks in the second half of this year, pushing it back out, Nogami said.

    In addition, the Dubai/WTI spread could also be narrowed by increasing US crude exports to the Pacific and the Atlantic, which may support WTI prices ahead, he added.

    OPEC crude output in April averaged 31.85 million b/d, flat from March, an S&P Global Platts survey found, with the group still showing high compliance with its production cut agreement as increases in Angola and Nigeria were offset by declines from Libya and Iraq.


    In the wake of the OPEC/non-OPEC production cut deal, Asian refiners have begun to diversify their crude slates, following the narrowing of the Dubai crude benchmark's spreads against WTI and Brent prices.

    The Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent's premium to benchmark cash Dubai, has been narrowing sharply this year as OPEC cuts tightened supplies of Middle Eastern medium, heavy sour grades, thereby raising their values against light sweet crudes in Northern Europe.

    "Regionally, the market has already priced in the narrowing EFS for quite some time and is adapting to this scenario," an Asian sweet crude trader said. "The bigger question is which grades will now face more pressure than others. Most likely, the light crudes will come under pressure the most."

    The second-month EFS has averaged 86 cents/b in the second quarter to date, down from $1.49/b in Q1. This is down from an average of $2.31/b in Q4 last year and significantly lower than the $3.10/b average in Q1 and $3.54/b average in Q2.

    "Asian buyers have diversified their timing of purchasing crude. Before, they used to only focus on purchasing Middle Eastern crudes mid-month to end-month [for two months forward]. But now when they are offered arbitrage cargoes, typically CFR cargoes with good economics and the price is cheaper than Middle Eastern crudes. They will consider to take those cargoes and adjust their requirement for Middle East cargoes," said the North Asian crude trader.

    An Asian crude trader said: "We will also be keeping an eye on the WTI/Brent spread, as we could see more US crude coming into the Far East."

    US crude exports slowed in March after hitting a record of exporting more than 1 million b/d in February, as domestic crude price discounts to Brent and Dubai widened significantly.

    The spread between front-month Dubai crude swap continues to command a premium to the same-month WTI swap for most of this year, with the spread averaging at $1.37/b so far in the second quarter and $0.51/b in Q1 against an average discount of $1.62/b in Q4 last year.

    A weaker WTI versus Dubai crude typically makes various North, Central and South American crudes priced against WTI more competitive.
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    Eni to reach Coral FLNG FID this week

    Italian energy giant and LNG player Eni will reach the final investment decision on the development of the Coral gas discovery in the Rovuma Basin, offshore Mozambique.

    The company will reach the decision by the end of this week, Reuters reports, citing a company’s spokeswoman.

    The project involves the construction of 6 subsea wells connected to a floating LNG production facility, with a liquefaction capacity of over 3.3 million tons of liquefied natural gas per year, equivalent to approximately 5 billion cubic meters.

    In February last year, Mozambique government approved the development of the gas field discovered in 2012. Located within Area 4, the field contains about 450 billion cubic meters (16 TCF) of gas in place.

    In October, Eni and its Area 4 partners signed an agreement with BP for the sale of the entire volumes of LNG produced by the FNLG Coral South, for a period of over twenty years.

    Eni is the operator of Area 4 with a 50 percent indirect interest owned through Eni East Africa, which holds a 70 percent stake in Area 4.

    The other concessionaires are Galp Energia, Kogas and Empresa Nacional de Hidrocarbonetos (ENH), each owning a 10 percent stake. CNPC owns a 20 percent indirect interest in Area 4 through Eni East Africa.

    Attached Files
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    Ensco set to buy Atwood Oceanics

    UK offshore driller Ensco is set to acquire its U.S. rival Atwood Oceanics, expanding its fleet with high end rigs, and becoming the world’s largest jack-up operator.

    The two companies have entered into a definitive merger agreement under which Ensco will acquire Atwood in an all-stock transaction. The definitive merger agreement was unanimously approved by each company’s board of directors.

    Under the agreed merger, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock for a total value of $10.72 per Atwood share based on Ensco’s closing share price of $6.70 on 26 May 2017. This represents a premium of approximately 33% to Atwood’s closing price on the same date.

    Upon close of the transaction, Ensco and Atwood shareholders will own approximately 69% and 31%, respectively, of the outstanding shares of Ensco plc.

    As for the fleet, once the transaction has been completed, Ensco’s fleet will be expanded by six ultra-deepwater floaters, and five high-specification jack-ups.

    The combined company will have a fleet of 63 rigs, comprised of ultra-deepwater drillships, deep- and mid-water semi-submersibles and shallow-water jack-ups.

    The expanded fleet will have 37 jack-up rigs, including 27 premium units, which Ensco says will make it the largest jack-up operator in the world.

    Ensco Chief Executive Officer Carl Trowell said, “The combination of Ensco and Atwood will strengthen our position as the leader in offshore drilling across a wide range of water depths around the world – creating a broad platform that we can build upon in the future.

    Trowell said the acquisition significantly enhanced the company’s high-specification floater and jack-up fleets, adding technologically advanced drillships and semi-submersibles, and refreshing “our premium jack-up fleet to best position ourselves for the market recovery.”

    The estimated enterprise value of the combined company is $6.9 billion, based on the closing price of each company’s shares on 26 May 2017. For comparison, Transocean, the world’s largest offshore driller, has an enterprise value of around $9 billion, according to data provided by Ycharts.

    The merger transaction, subject to shareholders’ approvals of both companies, is expected to close in the third quarter 2017.  The combined company will have approximately $3.7 billion in revenue backlog.

    An interesting fact: Almost exactly six years ago, on May 31, 2011, Ensco completed acquisition of Pride, making it the world’s second largest offshore drilling company at the time.
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    Iraq Approves $5B Oil Refinery Project In Kurdistan’s Kirkuk

    Iraq’s oil ministry has authorized the construction of a refinery in Kirkuk in the semi-autonomous region of Kurdistan that would cost US$5 billion, Kurdish media network Rudaw reported on Monday, citing an Iraqi lawmaker from Kirkuk.

    “The Iraqi oil ministry has given the go-ahead for a modern refinery to be built which will cost $5 billion,” Rebwar Taha from the Patriotic Union of Kurdistan (PUK) party told Rudaw. The project will be carried out in phases and could take between 3 and 5 years to complete, Taha noted.

    The existing refinery in Kirkuk is 65 years old and refines just 30,000 bpd—a capacity that cannot meet demand in Kirkuk, the lawmaker said.

    “This is why we have asked for the refinery’s production rate to be increased to 70,000 barrels a day so that oil from Kirkuk is no longer taken elsewhere under the pretext of refining it,” Rudaw quoted Taha as saying.

    The region of Kurdistan in northern Iraq is estimated to have 45 billion barrels of oil reserves. Exports from the fields in northern Iraq held by the Kurdistan Regional Government (KRG) stand at around 600,000 bpd.

    A spokesman for Iraq’s oil ministry, Asim Jihad, told Rudaw that the oil ministry had given its consent for a new refinery to be built in Kirkuk.

    At the beginning of March, production from the Kirkuk fields was disrupted after Kurdish protestors seized a pumping station in order to protest the policies of Baghdad and Erbil, the capital of the autonomous Kurdish area. The protest was allegedly inspired by Kurdish demands that Baghdad authorize the construction of a refinery in Kirkuk, and they shut down the line shipping oil to Turkey.

    A few days later, PUK agreed with Iraq’s central government to keep oil from the Kirkuk oilfields flowing via the pipeline to the Turkish export terminal Ceyhan on the Mediterranean. The deal was reportedly reached after Baghdad agreed to boost the capacity of the Kirkuk oil refinery, and thus PUK withdrew its threat to shut the pipeline to Ceyhan.
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    Brazil court orders Petrobras to supply natural gas to Eletrobras

    A Brazilian court ordered state-controlled oil firm Petróleo Brasileiro SA to sell natural gas to Centrais Elétricas Brasileiras SA despite the power utility's billionaire debt with the oil company.

    Eletrobras, as the state-controlled utility is known, plans to use the gas to begin testing a thermal power station under construction in the Amazon region that is scheduled to start operating in June.

    Reuters had reported on Feb. 22 that Petrobras had refused to supply natural gas to test the so-called Mauá 3 plant because Eletrobras and some of its subsidiaries did not pay several billion reais for fuel supplies.

    The 590-megawatt Mauá 3 thermal plant is close to completion, but is at risk of not getting the gas to run on.

    Petrobras will now be forced to sell enough natural gas to allow the testing to take place, the oil firm said in a statement to Reuters, but not the amount needed for the plant to fully operate.

    In its first-quarter financial statements, Petrobras said Eletrobras owed Petrobras 9.8 billion reais ($3 billion), of which 8.2 billion reais stemmed from the power firm's subsidiary in the Amazon region.

    A media representative for the subsidiary Eletrobras Amazonas Energia said the parties were in talks and that it would comment on the court dispute "in a timely manner."
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    Qatar talks tough on project stakes in Japan LNG contract talks

    Qatar Petroleum is warning Japanese natural gas buyers not to press too hard in long-term supply talks or Japanese companies could be squeezed out of Qatar's LNG projects, sources have told Reuters.

    Qatar faces rising competition from a tide of new LNG from sources including Australia, which is expected to surpass it as the world's top exporter by 2019.

    That has emboldened buyers as they look for lower prices and more control via shorter contracts and the rights to divert or resell unwanted cargoes, for example.

    In Japan, QP, which owns producers Qatargas and Rasgas, counts on customers led by JERA, a joint venture between Tokyo Electric and Chubu Electric.

    In the current contract negotiations with Japan, at stake are annual supplies of 7.2 million tonnes of gas expiring in 2021 worth some $2.8 billion, or 10 percent of QP's output.

    Underscoring the depth of Qatar's ties to Japan, Marubeni Corp and Mitsui & Co each own 7.5 percent stakes in the three-train Qatargas I project.

    Mitsui also holds a 1.5 percent stake in Qatargas 3.

    "If Japan pushes too hard or decides to buy LNG from other buyers like Australia, Qatar has said it could force Japanese companies out of their stakes in Qatargas projects," a Japanese diplomat told Reuters.

    A QP official confirmed supply renewal talks may impact Japanese ownership stakes in Qatar's LNG projects.

    Marubeni and Qatargas did not return requests for comment. JERA declined to comment.

    Losing its foothold in Japan would force QP to seek sales among less creditworthy buyers in Africa, the Middle East and south Asia which are riskier to deal with.

    Its status in Japan is already under threat, with its market share falling 17 percent last year while Australia's jumped by 20 percent, customs data showed.

    One advantage Qatar still possesses is as the lowest cost producer it can undercut on prices.

    "Chubu (Electric) has enough contracted supply from Australia and the United States to manage without Qatari supply if they wanted," a source at a Japanese trading house said.


    Japanese importers value longstanding business ties with Qatar and are unlikely to drop deals altogether, but the utilities are insistent on introducing more buyer-friendly terms, a Japanese trading source said.

    "The flexibility to divert and cancel shipments will be one of the main demands from Japanese buyers who see themselves becoming more like traders in the years ahead," the source said, in particular reference to JERA.

    Reducing volumes, shortening deals from the current 25 years, and aligning pricing formulas with market conditions will also be important, he said.

    Pakistan recently struck a 15-year deal with Italy's Eni, showing how buyers are driving changes to long-term contracts.

    Long-term pricing is closely tied to the price of crude oil, expressed as a percentage of a barrel's worth.

    Pakistan was able to force Eni down to a price of about 11.8 percent, far lower than the 14.2 percent Japan buyers pay Qatar, industry sources said.

    Slashing the premium on Japanese deals could add up to billions of dollars over a contract's lifespan.

    Qatar could also be forced to offer contractual devices like those offered by some producers in Australia which protect buyers from oil price spikes.

    Aside from Australia, Qatar faces an unlikely source of competition for Japanese market share from Nigeria.

    Sources say the world's fourth-biggest LNG producer is courting Japan's city gas companies, power utilities and trading houses as many of its own supply deals with Europe wind down in 2021-2023.

    Up to eight million tonnes of annual LNG output from Nigeria is coming off contract at that time and Japanese buyers are being targeted, according to traders.

    Nigeria has LNG projects that are fully depreciated, allowing them to offer more flexible terms such as diversion rights and shorter contracts, sources said.

    Attached Files
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    Iran eyes 5.3 Bcf/d of additional natural gas production from South Pars phases 17-21

    Iran eyes 5.3 Bcf/d of additional natural gas production from South Pars phases 17-21

    South Pars development phases 17-21 will add more than 150 million cubic meters/d (5.3 Bcf/d) of new gas production from the giant Iranian offshore
    field when they achieve full operating capacity, oil ministry news agency Shana reported Saturday quoting the CEO of National Iranian Oil Company, Ali

    "We are now witnessing their completion and operation," Kardor said, referring to the five phases inaugurated in April, according to a transcript
    Shana published of an interview by Iran Petroleum.

    In a separate Shana report, Iran Petroleum put South Pars' current gas output at 540 million cu m/d, up from 280 million cu m/d in 2013, when Hassan
    Rouhani first became president.

    Development of the field started 15 years ago and has accelerated under Rouhani's administration, Iran Petroleum reported.

    To date, eight new South Pars phases have been brought on stream by the Rouhani administration. Rouhani was elected May 19 to his second term in
    office. Project phases 12, 15 and 16 were completed earlier.

    Iran's petroleum ministry has assigned top priority to the development of South Pars, which has gas reserves estimated at about 500 Tcf, not only
    because of the Persian Gulf field's huge size but also because it extends across Iran's maritime border with Qatar.

    Qatar calls its side of the gas deposit North Field and estimates the gas reserves at roughly 900 Tcf.

    "After the new administration took office, crude oil prices had fallen, we were under sanctions and our oil export rate had declined. Therefore,
    NIOC's financial resources had declined sharply and we could not develop all phases together," Kardor said. "Had we done so, none of these phases would
    have reached production."

    Financial resources were allocated first to projects that had progressed the furthest so that they could be brought into production faster, he added.

    Financing remained a serious obstacle to development, Kardor said. With sanctions still in place, about $3 billion in financial guarantees were
    extended to contractors by the National Development Fund of Iran to enable South Pars development work to proceed, he added.

    Total development costs for phases 17-21 was around $18 billion: nearly $7 billion for the combined phases 17 and 18, $5.5 billion for phase 19 and
    $5.3 billion for the combined phases 20 and 21, he said.

    Each new South Pars phase would raise Iran's GDP by 1%, Kardor estimated, adding that incremental South Pars gas supplies would displace liquid fuels,
    allowing the country's oil exports to rise.

    "Any delay in bringing these phases into operation means funneling profits to Qatar's market," he said.


    The lifting of nuclear sanctions in January 2016 after Iran signed a nuclear deal with the P5+1 group of international powers, known as the Joint
    Comprehensive Plan of Action, speeded up South Pars development by enabling Iran to import essential equipment that had been impounded in European
    countries and the UAE, Kardor said.

    Now facing the prospect of production declines at some South Pars phases without facilities upgrades, Kardor said compressors and pressure-booster
    platforms were being installed to avert a pressure decline that would hurt output.

    "These platforms weigh 19,000 to 20,000 mt. Iranian companies can build platforms weighing up to 7,000 mt and the contractors' yards do not have the
    equipment to build pressure-booster platforms. Therefore, we have to apply
    special equipment and technology which Iranian companies lack," he said, explaining the need for foreign input. Eventually, as Iranian contractors
    worked alongside international partners and gained more experience, the construction know-how would be transferred to Iran, he said.


    Long-term reliance on the National Development Fund of Iran for finance would be unfeasible, Kardor said.

    "Mere reliance on the NDFI resources is not a long-term and defendable approach. These resources will help the development of jointly owned fields
    until the way is cleared for attracting foreign investment," he added.

    "NIOC is making efforts to apply a variety of investment attraction methods in order to reduce dependence on domestic financial resources. This
    company is facing numerous financial bottlenecks. In order to deal with development projects under such circumstances we need to develop skills to
    attract foreign investment and apply creative methods," he said.

    Kardor described NIOC's recent Eur550 million ($615 million) deal to buy corrosion resistant steel tubing from Spanish manufacturer Tubacex as one that
    would both assist further development and maintenance efforts at South Pars, where the pipes are extensively used, and facilitate technology transfer to

    "NIOC is serious pursuing the transfer of technology for building this tubing in the country," he added.

    On the development of Iran's offshore North Pars gas field, Kardor said it was a project for future development as the field lay entirely within
    Iran's territorial waters. However, North Pars gas could be used to make up for any production shortfalls in the event of a fall-off in reservoir
    pressure, he added.

    "If not, we can use the North Pars gas for LNG and exports," Kardor said.
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    Exxon Squares Off With Shareholders in Annual Climate Showdown

    Exxon Squares Off With Shareholders in Annual Climate Showdown

    This week will be a public trial by fire for new Exxon Mobil Corp. CEO Darren Woods.

    Presiding over his first annual meeting since predecessor Rex Tillerson left to become U.S. secretary of state, Woods will be tested Wednesday on everything from climate change to his own paycheck. Analysts and investors will be watching to see if he proves as adept as his mentor in striking a welcoming tone with restive activists while gently disagreeing with just about everything they say.

    So far, Woods has been a stabilizing presence.

    “He represents a continuation of what Mr. Tillerson was doing and so far we’ve seen no strategic shift,” said Brian Youngberg, an analyst at Edward Jones & Co. In St. Louis with a “hold” rating on Exxon’s stock. That’s comforting “for long-term holders who own Exxon for the dividend and not much else.”

    Woods faces a vote on a resolution requiring Exxon to provide a detailed analysis of whether the energy giant can prosper under strict greenhouse-gas limits. Backers of the measure, which are as diverse as the California Public Employees’ Retirement System and the Church of England’s investment fund, are striving to improve upon the 38 percent support a similar proposal received from shareholders last year. Exxon opposes the resolution because it says it already discloses enough data.

    For Exxon, the shareholder-centered event it stages every May in a Dallas symphony hall has become a donnybrook over the environment and corporate governance. Activist groups have shifted in recent years from rowdy bullhorn protests on the sidewalks outside to delivering measured shareholder appeals inside the meeting hall arguing for more prudent financial stewardship.

    Woods, an electrical engineer by training who’s spent his entire career at Exxon, will be confronted by investors demanding that Exxon cut new spending on oil fields and hand the cash over to shareholders in dividends instead. And less than five months after his promotion to the jobs of chairman and chief executive officer, Woods and the board he leads will face rising opposition to his $16.8 million pay package and the way it was calculated.

    Activist shareholders are hitting Exxon, which produces about 2 percent of the world’s crude oil, with a version of the climate change accounting proposal for a second straight year. Despite the company’s steadfast opposition, the measure attracted more investor support than any of the four other environmental proposals put to a vote last year. This year there are almost 90 Exxon investors planning to support the measure, according to data compiled by investor advocacy group Ceres.

    “Exxon’s business is extremely vulnerable to changes in climate regulation and consumer demand,” said New York State Comptroller Thomas P. DiNapoli, a lead sponsor of the climate impact resolution. The company “puts itself and its long-term investors at risk by failing to acknowledge this reality.”

    Disclosures Sufficient

    Exxon says its current disclosures, which include forecasts of how caps on carbon emissions will affect long-term petroleum demand, are sufficient.

    Even with the strictest scenarios envisioned under the 2015 Paris Agreement, global population growth and economic expansion will need vast quantities of oil and natural gas to fuel power plants, vehicles and industrial society, Exxon said in a May 19 letter to shareholders. The Paris accord calls on nations to prevent worldwide temperatures from rising more than 2 degrees Celsius (3.6 Fahrenheit) from pre-industrial levels by slashing fossil-fuel pollution.

    “The world will continue to require significant quantities of hydrocarbons for which Exxon Mobil is well-situated to compete,” according to the letter. “Substantial upstream oil and gas investment will be required through 2040, even assuming a 2-degree Celsius scenario.”

    Thus far, this annual-meeting season has been bruising for oil producers seeking to beat back activists on the climate and compensation fronts.

    Occidental Surprise

    A majority of investors in Occidental Petroleum Corp. broke with company leaders and approved a climate impact proposal on May 12 that was almost-identical to the Exxon resolution. Calpers, representing California stateretirees, and other backers persuaded fellow investors to validate the resolution by a 58 percent margin, compared to a 40 percent "yes" vote in 2016.

    Such shareholder votes are advisory, and aren’t binding on the company.

    In a significant change, the proposal was supported by Occidental’s largest shareholder, BlackRock Inc. The $5.4 trillion asset manager voted in favor of a climate-change resolution for the first time ever after Occidental exhibited a "lack of response" on the issue after last year’s vote, BlackRock said in a statement on its website.

    Occidental’s result was historic because it was the first time a proposal of this type succeeded despite company opposition, according to Gregory Elders, a Bloomberg Intelligence analyst.

    BlackRock hasn’t yet made a decision on its Exxon vote, Zach Oleksiuk, head of Americas for BlackRock Investment Stewardship, said in an email Thursday. Vanguard Group is considering voting for the proposal, Glenn Booraem, the firm’s investment stewardship officer, said in an email Thursday.

    Executive Pay

    At ConocoPhillips, the world’s largest independent crude explorer, a majority of shareholders rejected CEO Ryan Lance’s pay package, even after his total 2016 compensation was cut almost 10 percent to $19.2 million. It was the first time Conoco investors said ‘no’ on executive pay.

    Sixty-eight percent of shareholders participating in the Houston-based company’s annual meeting either abstained or voted against the executive pay resolution.

    Exxon holders have been urged to follow the lead of Conoco investors and turn thumbs down on executive pay. Proxy adviser Institutional Shareholder Services Inc. cited a mismatch between pay and performance as reasons to vote against the package. Exxon’s long-standing compensation system has remained unchanged even as “investors’ expectations around executive compensation” have evolved, ISS wrote in a May 18 report to clients.

    “Our compensation program ensures that executives focus on the long-term performance of the business and is aligned with shareholder interests,” Scott Silvestri, an Exxon spokesman, said in a May 19 email. “Exxon continues to demonstrate strong business performance relative to industry peers.”
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    Russia's Putin meets influential Saudi prince in Moscow

    Saudi Arabia's Deputy Crown Prince Mohammed bin Salman and Russian President Vladimir Putin, who together have worked to cut oil production, are to meet in Moscow late on Tuesday.

    The two were instrumental in a successful global deal which saw oil production curtailed by 1.8 million barrels per day as part of efforts to prop up prices and reduce bloated inventories.

    Kremlin spokesman Dmitry Peskov confirmed at a conference call with reporters their meeting would take place later on Tuesday.

    Last time they met in China in September on the sideline of the G20 summit.

    Al Arabiya TV said they will discuss the Syrian conflict, while four cooperation agreements are expected to be inked between Saudi Arabia and Russia.

    Earlier on Tuesday, Russian Energy Minister Alexander Novak met his Saudi counterpart Khalid al-Falih and discussed situation on global oil markets.

    The meetings take place following the agreement by the Organization of the Petroleum Exporting Countries and other large global oil producers led by Russia too extend oil output cuts by another 9 months.

    Powerful Saudi Deputy Crown Prince Mohammed bin Salman told Russia's President Vladimir Putin on Tuesday that Russia and Saudi Arabia had no contradictions on the oil market.

    Putin told the prince that energy agreements between the two countries had high importance and Moscow and Riyadh developed their relations successfully to stabilize the energy market and the oil prices.
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    Russia's Lukoil says Q1 net profit up 45.5 percent, y/y

    First-quarter net income of Russia's No.2 oil producer Lukoil has increased by 45.5 percent to 62.3 billion roubles ($1.10 billion) compared to the same period last year, the company said on Tuesday.

    Analysts, polled by Reuters, expected the January - March net income to rise by 16 percent, year-on-year, to 50 billion roubles.

    First quarter sales rose to 1.43 trillion roubles compared to 1.18 trillion roubles in the first quarter of 2016, while EBITDA (earnings before interest, taxes, depreciation and amortization) increased to 207.6 billion roubles from 192 billion roubles year-on-year.

    Lukoil is controlled by Vagit Alekperov, the long-standing chief executive, and his deputy, Leonid Fedun.
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    Energean confirms Israel gas deal

    Following reports on Monday that Greece’s Energean has found buyers for gas from its fields offshore Israel, this has now been officially confirmed.

    In an emailed statement, Energean Oil & Gas has confirmed its subsidiary Energean Israel has signed with Dalia Power Energies and its sister company – Or Power Energies, two agreements for the supply of natural gas from the Karish and Tanin fields, offshore Israel.

    Dalia and Or will purchase part of their gas requirements from Karish-Tanin to operate the Dalia power plant, the largest private power station in Tzafit, south-central Israel, as well as future power plants to be built by Or.

    Energean Israel will supply an overall amount of up to 23 billion cubic meters of natural gas from Karish-Tanin reservoirs over the lifetime of the contracts.

    The period of the supply agreements will start from the date natural gas flows in commercial volumes from Karish-Tanin to the buyers, and conclude at the point when the Purchasers’ generation licenses need to be extended.

    The buyers have agreed to a Take or Pay arrangement for a minimum annual amount of natural gas from Energean Israel, at a price linked to Israeli electricity markets and underpinned by a floor price.

    Energean Oil & Gas Chairman & CEO, Mathios Rigas said: “This is a significant day for the Israeli gas market. These are the first contracts for gas supplies from the Karish and Tanin fields signed with the Dalia group, the largest private power producer in Israel. The agreement is a substantial step towards bringing competition and cheaper energy to the market for the benefit of Israeli consumers and the country’s economy. Energean is in talks regarding further contracts with other potential customers in the market and is aiming to submit a Field Development Plan for the Karish and Tanin project in the next few weeks.”

    Dalia Power Energies Company CEO, Eitan Meir added: “Dalia and Or Energy are working to expand the volume of production offered by them, while continuing to reduce the price of electricity. We are pleased to sign the agreement that expands the gas sources and the ability of the companies to offer their customers electricity at a competitive price. Competition in all segments of the electricity sector will serve the public and the Israeli economy.”
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    Groningen minimum required output level lowered in study

    The Dutch government said on Tuesday that a study of the minimum amount of gas that can be produced annually at the Groningen gas field through 2020 while still guaranteeing supply is 21 billion cubic metres (bcm), assuming average temperatures.

    That's slightly below the 21.6 bcm the government has proposed producing for the coming five years beginning October 1.

    The study was carried out by national gas grid transmission operator Gasunie following a request by parliament.

    The Netherlands has been cutting output at the Groningen field, Europe's largest, to reduce the risk of earthquakes caused by production.

    In a letter to parliament, Economic Affairs Minister Henk Kamp said Gasunie and NAM, the Shell/ExxonMobil joint venture that operates the Groningen field, is investigating whether reduction can be further cut at the Loppersum cluster, near to where several relatively strong quakes have occurred.
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    India's record diesel demand to continue in 2017, growth to slow

    India's diesel demand is expected to rise to record levels again this year as a slew of infrastructure projects boosts use of the transport and industrial fuel, although a government-induced cash shortage will hold growth to its slowest in three years.

    Increased fuel efficiency, a fall in commercial vehicle sales, and the use of other fuels for power generation are also expected to dent demand growth for diesel, analysts and traders told Reuters.

    "The first quarter saw delayed effects of demonetization but I think (diesel demand) should improve as there are a number of projects going on such as road and railways, which should drive diesel demand up," said Tushar Bansal, director of Ivy Global Energy, a Singapore-based consultancy.

    India has budgeted a record $59 billion for 2017/18 for infrastructure such as ports, roads, railways and power.

    The world's third largest oil consumer guzzled 6.955 million tonnes of diesel in April, the highest so far this year and near a record of 6.958 million tonnes hit in May 2016, the latest government data showed.

    Still, a weak first quarter is expected to hold India's diesel demand growth at 1.6 to 3 percent this year, a gain to 1.63 million to 1.65 million barrels a day, analysts from energy consultancies FGE and Wood Mackenzie said.

    This is the slowest annual growth for diesel since 2014, down from a rise of more than 5 percent in 2015 and 2016.

    "The slowdown is a result of the demonetization drive, which dampened economic growth for a few months since its implementation in November last year," said Sri Paravaikkarasu, head of FGE's East of Suez Oil.

    Prime Minister Narendra Modi in November declared notes of 500 rupees and 1,000 rupees illegal tender, taking about 86 percent of total currency out of circulation, in a move that hit sales of cars and motorcycles and small businesses.

    April sales of India's commercial vehicles, which consume mainly diesel, fell 23 percent year-on-year, for instance. Sales of passenger cars and motorcycles, however, mostly powered by gasoline, have started to recover.

    Woodmac expects India's diesel growth to moderate at 3.2 percent a year over 2017 to 2025, down from an average annual growth rate of 3.9 percent from 2010 to 2016.

    "The main reasons for a slowdown lies in increasing fuel efficiency, more substitution (for) oil, primarily diesel, in the power sector and a bearish outlook for diesel cars in India," said Sushant Gupta, research director for Woodmac's Asia-Pacific refining.

    Still India's diesel demand growth in 2017 accounts for one third of Asia's demand growth for the fuel, he said.

    "It is a positive story compared with China, where we expect diesel demand to be in slow decline in 2017."

    Attached Files
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    Ecopetrol says crude losses due to unrest now at 33,595 b/d

    Colombia's state-controlled oil company Ecopetrol on Friday raised the figure for production losses due to labor unrest and vandalism at a northern oil field to 33,595 b/d from the 26,000 b/d figure released Monday.

    The losses represent 4.7% of the first quarter's normal daily output of 712,000 b/d of oil equivalent.

    According to an Ecopetrol source who spoke Friday on condition of anonymity, the lost production stems from the shutdown of 633 production wells at the La Cira Infantas oil field in Santander province. The latest figure is up from 617 production platforms that were reported closed Monday.

    Ecopetrol said the shut-in of nearly all production at La Cira Infantas was made imperative by ongoing vandalism and blockades by protesters that started May 17 outside the production complex. The protests stem from new work rules that redefine how oilfield workers are to be hired.

    The lost production is especially painful for Ecopetrol because La Cira Infantas is its only significant oil field that showed a year-on-year increase in output over Q1, growing 17% from a year earlier to 22,000 b/d. Production is still trending upward, the company has said.

    Protesters were also able to breach the La Cira Infantas installation to open pipeline valves, spilling hundreds of barrels of crude. The spills have reached nearby streams and are threatening the drinking water supplies of several cities, including Barrancabermeja, a major refining center.

    Ongoing blockades have prevented repair and cleanup crews from entering the site of the spills.

    The protests began after Ecopetrol informed local community leaders that it would begin observing the government's Decree 1668 issued late last year that outlaws hiring of oilfield laborers by illegal third parties. Many workers complain that hiring is done unfairly by intermediaries as political patronage or by extorting a portion of wages as commissions.

    The Ecopetrol source did not comment on radio news reports that the company has begun negotiations with community and labor groups to try to solve the situation.

    A similar change in Ecopetrol hiring procedures earlier this month forced a similar series of blockades and vandalism at Castilla oil field in eastern Meta state, resulting in the loss of 10,000 b/d for several days. The dispute has since been settled.

    Colombia's oil patch has been plagued in recent years by community protests of oil installations, especially in rural areas where rule of law is weak. Some of the protests are provoked by legitimate environmental concerns, but others, oil company officials said, are power plays encouraged by local politicians or mafias seeking to gain hiring influence for political advantage or extortion purposes.

    A top executive at a Canada-based oil company recently said the dozens of community blockades reported last year were a greater impediment to production than guerrilla attacks on pipelines and personnel. He also said the government does too little to break up the disruptions even when they are clearly illegal.

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    China's gasoil exports to rebound as Beijing hands out new quotas

    China's gasoil exports to rebound as Beijing hands out new quotas

    China's gasoil exports fell sharply in April from the previous month's record high, as a cocktail of lower stocks and reduced output at home prompted refiners to keep more barrels for local use, but market participants expect outflows to rebound in May on the back of new quotas.

    China's April gasoil exports fell 35.7% month on month to 1.23 million mt, easing from a record high of 1.91 million mt in March, according to General Administration of Customs data released Wednesday.

    "Exports have returned to a more normal level -- a level we normally see when domestic output goes down," said an analyst in Beijing.

    Gasoil stocks at the end of March dropped 7.3% month on month, after posting two consecutive month-on-month gains of 29.7% and 39.2% end- February and end-January, respectively, according to data released by the state-owned news agency Xinhua. This indicated that less gasoil was available for exports in April.

    In addition, gasoil production fell 6.5% month on month to 14.55 million mt in April, following lower refinery crude throughput because of the turnaround season, latest data from the National Bureau of Statistics showed.

    Lower availability of gasoil in the domestic market prompted refineries to send fewer barrels abroad in April.

    The peak turnaround season also forced refineries to cut export plans for April. PetroChina's Dalian Petrochemical in the northeast canceled its plan to export two MR-sized cargoes of gasoil in April because of maintenance.

    In the same month, Sinopec exported around 551,159 mt of gasoil from its refineries in the southern and eastern coasts, according to S&P Global Platts estimates based on customs data. This was a drop of 38.9% month on month from an estimated 902,000 mt exported in March.

    The bulk of the fall in exports from Sinopec were from Sinopec's Qingdao Refining and Jinling Petrochemical, while Sinopec Tianjin boosted exports in April.

    PetroChina was estimated to have cut gasoil exports by 39% month on month to around 404,945 mt in April from its refineries in northeast China. Gasoil exports from the region were 664,000 mt in March.

    The Sinochem-owned Quanzhou refinery was also estimated to have cut its gasoil exports by around 22.8% to about 173,947 mt in April, from 225,000 mt in March. China's gasoil exports are mainly from state-owned refineries owned by Sinopec, PetroChina, CNOOC and Sinochem.

    However, actual exports of gasoil from PetroChina may have been higher than the registered volume in April. Last month, PetroChina Guangxi had carried out its plan to export 156,000 mt of gasoil through the Nanning customs but GAC data showed that to be zero, meaning actual shipments were not reflected in the data.

    GAC may have also missed some export data from Sinopec's Qingdao Petrochemical, which had exported around 275,000 mt of gasoil in April, but customs data showed it to be only around 7,000 mt.

    "There could be some lag in the customs accounting," said a Guangxi refinery source.


    With refinery turnarounds easing from the peak level in April, exports of gasoil are expected to rebound in May, according to S&P Global Platts China Oil Analytics.

    "With new export quotas becoming available since mid-May, we will likely see higher exports of gasoil from China, as major refineries will resume normal exports after maintenance," said Hou Rui, an analyst at COA, adding that gasoil exports could rebound to around 330,000 b/d in May as refineries are eager to push out the barrels because of weak domestic demand.

    China last week allocated a new round of oil product quotas amounting to 6.29 million mt -- for exports under the general trade route -- to the country's four major oil product exporters. This will enable refineries to carry out their export plans on time.

    Gasoil is the largest oil product consumed in China but the fuel's share in the overall apparent demand basket has fallen from 32% at the end of March last year to 29% at the end of March 2017.

    It is now primarily used by the commercial vehicles sector, which accounts for about 65% of the total demand, while the rest is consumed by industrial, farming, fishing and other industrial sectors.


    In contrast to the drop in gasoil exports in April, China's exports of gasoline rebounded by 8.9% month on month to 910,712 mt, because of slightly lower demand for driving by the household sector after the festival season ended in early April.

    Responding to lower domestic demand, Sinopec raised gasoline exports by 122% to 298,546 mt in April from its Hainan and Qingdao refining plants, according to Platts estimates based on customs data.

    China's major gasoline exporter PetroChina cut its exports of the product to around 395,654 mt in April -- down 15.8% from 470,000 mt in March.

    Exports from PetroChina's refineries normally account for over 50% of total gasoline exports, but this dropped to 43% in April from 56% in March.

    Looking into May, China's gasoline exports are expected to rebound to around 150,000 b/d, because of increasing demand in the domestic market, according to COA.
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    Gazprom, Shell discuss LNG cooperation

    Gazprom’s head, Alexey Miller on Monday met with Shell’s Maarten Wetselaar to discuss collaboration between the two companies under the cooperation agreement signed in 2015.

    The two companies have already joined forces in the Sakhalin II project, which includes Russia’s only active LNG plant.

    Gazprom holds 50 percent plus one share in Sakhalin Energy, the operator of the LNG facility, while Shell owns a 27.5 percent minus one share.  Mitsui – 12.5

    The remaining stake is held by Mitsui and Mitsubishi with 12.5 percent, and 10 percent stake each.

    In 2015, Gazprom and Shell signed the memorandum to construct the third production train of the LNG plant, as well as the agreement of strategic cooperation providing for the expansion of the companies’ joint project portfolio, including a potential asset swap.

    In June 2016, Gazprom and Shell signed the MoU to cooperate on the Baltic LNG project.

    Attached Files
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    Oil dips as ongoing glut outweighs strong start to summer driving

    A run by U.S. oil prices toward $50 a barrel ran out of steam on Tuesday as persistent concerns of oversupply outweighed signs of a strong start to the American summer driving season.

    U.S. West Texas Intermediate (WTI) crude futures CLc1 climbed above $50 per barrel in early trading on Tuesday, but dipped back to $49.77 by 0336 GMT, down 3 cents.

    "WTI spot (front-month) did attempt a move higher in thin trading, but failed at the $50.00 level before slipping back," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

    Analysts said the early price boost came from indicators that U.S. summer driving had a strong kick-off.

    U.S. demand for transport fuels such as gasoline for cars, diesel for buses and jet fuel for planes tends to rise significantly as families visit friends and relatives or go on vacation during the summer months. The so-called summer driving season officially started on the Memorial Day holiday at the start of this week.

    "The start of the U.S. driving season ... boosted confidence in the market that stockpiles would start to fall in coming weeks," ANZ bank said on Tuesday.

    The American Automobile Association (AAA) said ahead of Memorial Day that it expected 39.3 million Americans to travel 50 miles (80 km) or more away from home over the Memorial Day weekend, the highest Memorial Day mileage since 2005.

    Despite this, traders said that ongoing concerns of oversupply were weighing on prices.

    U.S. drillers have added rigs for 19 straight weeks, to 722, highest since April 2015 and the longest run of increases ever, according to energy services firm Baker Hughes.

    The ongoing glut was also reflected in global markets, where benchmark Brent crude futures LCOc1 were at $52.09. per barrel, down 20 cents, or 0.4 percent, from their last close.

    The main factor for Brent is whether a decision led by the Organization of the Petroleum Exporting Countries (OPEC) to extend a pledge to cut production by around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 will significantly tighten the market to end years of oversupply.

    An initial agreement, which has been in place since January, would have expired in June this year, and the production cutback has so far not had the desired effect of substantially drawing down excess inventories.
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    US Rigs up for Nineteenth Week

    Now exactly one year past bottom of rig count

    Baker Hughes (ticker: BHI) released its weekly rig count today, showing an increase in active U.S. rigs for the nineteenth- straight week. After breaking 900 for the first time since 2015 last week, American rigs continued their growth this week, ending at 908 active rigs. A total of 504 more rigs are online today than this time last year. In fact, this time last year was the bottom of the rig count cycle, when there were only 404 rigs online in the U.S.

    Seven rigs came online in the U.S., all land-based rigs. Two of these rigs are targeting oil formations, while the remaining five target gas. This is nearly the opposite of overall proportions, as a total of 722 oil rigs are active in the U.S., while only 185 gas rigs are online. Seven horizontal rigs were added this week, meaning there are 766 horizontal rigs running currently. One directional rig came offline, while one vertical rig became active.

    Surprisingly, Texas did not add rigs this week; instead the One Star State lost one to end the week at 458. This week Colorado was the most popular state, adding five rigs. One rig came online in Alaska, New Mexico, North Dakota and Oklahoma this week.

    Almost all of the rigs that moved to Colorado went to the DJ-Niobrara, which saw an increase of four rigs this week. Three more came online in the Cana Woodford, while the Eagle Ford, Permian and Williston each added one rig. Of the major basins that Baker Hughes tracks, only the Granite Wash saw a decrease in rigs, losing one to end the week at nine.

    Canada continuing to recover

    Canada appears to have completed the “spring breakup” cycle, in which rigs come offline in springtime. This week eight Canadian rigs came online, the second week of rig growth. The current Canadian rig count is 93, 259 below the peak of 352 in February but still 50 more than at this point last year. Unlike the U.S., in Canada there are more gas rigs active than oil rigs. Fifty three gas rigs are online in Canada this week, compared to forty oil rigs.
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    Tender for Iran's Azadegan oilfield has started: oil minister

    The tender for Iran's Azadegan oilfield has started, the country's oil minister said on Monday, according to the Islamic Republic News Agency (IRNA).

    "Right now the tender for developing the Azadegan field is being carried out," said Bijan Zanganeh.

    The Azadegan field, in southwest Iran near the border with Iraq, is considered to be the biggest oilfield in the Islamic Republic, IRNA reported.

    It has 37 billion barrels of oil, Petroleum Engineering and Development Company Managing Director Seyed Noureddin Shahnazizadeh told Mehr News agency this month.
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    Fosun, others eye Australia's Origin Energy gas assets worth $1.5 billion: sources

    Australia's top energy retailer Origin has drawn interest from at least five potential bidders, including China's Fosun International, for A$2.0 billion ($1.5 billion) worth of oil and gas assets it aims to spin off, sources said.

    Origin said in December it was going to put its smaller Australian and New Zealand gas fields in a unit, dubbed Lattice Energy, to be spun off in an initial public offering (IPO) this year to help it cut debt and boost returns.

    But after receiving approaches for some of the Lattice assets, Origin Chief Executive Frank Calabria said in March the company was willing to consider a trade sale, in what would be the biggest oil and gas deal in Australia since Apache Corp sold its Australian assets in 2015.

    Origin has opened Lattice's books, with bids due in June, and is likely to decide whether to float the business or sell it after releasing full-year earnings in August, people familiar with the process said. It is being advised by UBS, Macquarie and Bank of America Merrill Lynch.

    Analysts at Royal Bank of Canada and Citi value Lattice at A$2 billion and A$2.3 billion, respectively, including debt, on a discounted cash flow basis.

    "Origin has set the bar quite high. It'll be interesting to see if anyone gets there," said one banker not directly involved in the process, when asked if the business was likely to fetch more than A$1.5 billion.

    Australia's Beach Energy is one of the interested parties and could be the bidder to beat, as it is the biggest of the producers in the fray, the sources said. Lattice, with annual output of around 13 million barrels of oil equivalent, would more than double Beach's production.

    But even for Beach, with a market value of A$1.2 billion, Lattice would be a huge bite.

    Beach declined to comment on whether it was bidding, but the company has said in presentations it is reviewing several "inorganic growth" opportunities.

    Fosun International, which took over Roc Oil in Australia in 2014, is looking, the banker said.

    Private firm Questus Energy, run by former Roc Oil and Shell executives and backed by UK-based Intermediate Capital Group, is also in the running, a second banker said.

    Origin declined to comment beyond what it has announced. Fosun and Questus did not respond to requests for comment.

    Bankers expect private equity firms that have long eyed Australian oil and gas assets to team up with local producers to bid.

    Senex Energy is expected to work with its stakeholder, U.S. private equity firm EIG Global Energy Partners. KKR is seen lining up with AWE Ltd, two bankers said. All four firms declined to comment.

    Private equity fund Lone Star, which was rebuffed in a bid for AWE last year, declined to comment on whether it was looking at Lattice.

    All the sources did not want to be named as the process is confidential. Private firm Pathfinder Energy, which some assumed would be in the race, told Reuters it is not bidding.

    While Origin has said it would prefer an IPO, some analysts say a trade sale would be less risky.
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    China's teapot refiners set to slow crude imports as tanks overflow

    As OPEC extends production cuts in a bid to tighten the oil market, China's independent refiners - awash with crude and facing disappointing local demand - are poised to slow purchases of oil for at least the next two months.

    The move by China's so-called "teapots", a key driver of the country's crude appetite, will stir concerns about demand in the world's top oil buyer, which fell from a peak of 9.2 million barrels per day (bpd) in March to 8.4 million bpd in April.

    Independent refiners, mainly based in Shandong, are under pressure to cut run rates as profit margins have been squeezed by Beijing's tighter scrutiny over taxes and shifting quota policies, while some have begun seasonal maintenance.

    Plans by state oil majors to bring on new refining capacity later this year will help offset some import losses, but lower appetite from teapots and the potential for falling output indicates that the boom among this group of upstart refiners that has transformed China's oil market may be slowing.

    "There will be more shutdowns in June, July and possibly August. It's seasonal but also because the market is not doing well and stocks are plentiful," said a manager at a Dongying-based independent refiner, who asked not to be named.

    Independent refiners, which make up some 12 percent of China's crude demand, have enjoyed record profits since winning the right since late 2015 to import oil, selling diesel and gasoline throughout Asia while expanding domestic sales in unprecedented competition with state firms.

    However, Beijing in January abruptly banned quotas for independents to export fuel, favoring its large state-owned refiners, put in a deadline for new applications for crude oil permits and tightened scrutiny on tax practices, squeezing margins.

    Some refineries had rushed to buy crude in the first quarter, worried that they could be penalized for slow use of import permits, said a second teapot manager, who asked to only give his surname Wang.

    "There were some over-purchases of crude earlier as (plants) were unsure of the quota policy. Now inventories are high everywhere," he said.


    Some analysts reckon the run curbs may last longer than previously expected. Teapots operated at 58 percent of capacity in April, falling below 60 percent for the first time since October and down from record rates of almost 65 percent in February, according to BMI Research.

    "Policy headwinds, domestic competition from SOEs (state-owned enterprises) and insufficient storage infrastructure at major port cities will cap imports," it said in a research note this week.

    Wang said diesel inventories were particularly high in Shandong compared to gasoline. To ease the pressure, his plant planned to shut its 90,000 bpd crude unit through July for an overhaul.

    Plans by state oil firms China National Petroleum Corp (CNPC) and CNOOC to bring on stream new refineries in Yunnan and Huizhou with combined capacity of 460,000 bpd, as well as some new approvals for teapot importers, are expected to bolster China's crude oil imports from August onward, analysts said.

    Beijing over April and May has also provided approvals for six independents to import crude with total permits of around 280,000 bpd, although some are still preliminary.

    Harry Liu, an analyst at consultancy IHS Markit, estimated China's total imports have fallen to around 8 million bpd at present, but could climb back to around 8.5 million bpd from around August.

    "CNPC and CNOOC will contribute the bulk of the increases in refinery runs later this year. Teapots' contribution will be smaller as the environment for them to grow has got much tougher this year," Liu said.

    Attached Files
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    Governor touts U.S.-China deal as helping Alaska LNG, but analysts are doubtful

    While some analysts are skeptical that the new trade agreement between the United States and China will help Alaska's gas export project, a state official who recently attended a conference in Beijing said potential Chinese investors and gas buyers were encouraged by the deal.

    Keith Meyer, president of state-owned Alaska Gasline Development Corp., said Chinese companies looking to meet their country's growing demand for gas had previously felt that U.S. barriers prevented them from participating in American liquefied natural gas projects.

    But Meyer, who was in China last week to market the state's LNG project, said Wednesday that the trade deal helped change that perception. The U.S. Department of Commerce announced the agreement May 11.

    Meyer said his meetings with Chinese executives included a discussion with a high-ranking Chinese official for a state-owned company, who said the deal shows the "U.S. has given the green light to China for energy trade and specifically LNG and natural gas trade," Meyer quoted the official as saying.

    Meyer would not name the executive or company.

    The state corporation is seeking gas buyers in Asia who might sign long-term contracts, as well as investors to help with project financing. Alaska is the lone sponsor of the $40 billion to $45 billion project after ExxonMobil, BP and ConocoPhillips backed out late last year. The project involves construction of several major facilities, including an 800-mile pipeline from the North Slope and a gas export terminal at Nikiski.

    Gov. Bill Walker said the timing of the trade deal was important. It came a month after the governor, Meyer and others met with Chinese President Xi Jinping on April 7. Xi had stopped in Alaska on his flight home after meeting President Donald Trump in Florida.

    China, a huge buyer of Alaska fish, is the state's largest trading partner. But part of the discussion in Alaska centered on the state's LNG project. On a couple of occasions, Xi said it was important that any LNG trade barriers that might exist with the United States be removed, said Walker.

    "(The trade deal) removed any optics of there being a perceived restriction,"  Walker said in an interview Wednesday.

    A 2015 Reuters article indicated that the U.S. Department of Energy under President Barack Obama was advising U.S. companies not to accept Chinese investments in their LNG projects.

    The agency, amid concerns that exports would lead to higher domestic gas prices, felt it faced political risk approving projects that shipped gas to China or were partly owned by the Chinese, according to the article. Its source was Michael Smith, chief executive of Freeport LNG, a Texas project.

    Concern about about the federal government's stance at the time and the lack of long-term gas contracts between Chinese buyers and U.S. sellers created the perception that the Chinese were wary of U.S. projects, said Nikos Tsafos, an oil and gas consultant for the Alaska Legislature.

    In that sense, the trade agreement is a clear signal that the United States wants the Chinese as partners in LNG projects, said Tsafos, whose legislative contract ends this month.

    The agreement on LNG, spelled out in a paragraph, doesn't legally change anything, Tsafos said. But that expression of U.S. support might make some Chinese investors feel more comfortable.

    Meanwhile, Alaska LNG will continue to be judged on its economic merits, analysts said. One obstacle is whether state officials can figure out how to produce and ship natural gas to Asia at a cost lower than that of other export projects in the U.S. and worldwide.

    "I'm looking for a set of data points to convince me this current iteration (of Alaska LNG) has legs, and this isn't one of those data points," Tsafos said of the deal.

    A study released last year by consulting firm Wood Mackenzie called Alaska LNG one of the least competitive projects in the world, sparking ongoing efforts by the state to lower costs.

    Kristy Kramer, head of Americas gas research for Wood Mackenzie, said the trade deal could remove any political concerns that might have kept Chinese companies on the fence from signing long-term gas agreements with U.S. companies.

    Meyer pointed out that Alaska's LNG terminal would be significantly closer to China than other U.S. projects, giving it an important advantage.

    He said the visit by Xi to Alaska was critical for creating access in China with top executives. On May 18, he spoke at an international LNG summit in Beijing, in front of about 200 people.

    During his visit to China, key Chinese government officials helped arrange meetings at energy companies and banks, Meyer said. Two other AGDC officials on the trip were Lieza Wilcox, vice president of commercial and economics, and John Tichotsky, economic adviser.

    Attached Files
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    India Said to Choose Arrangers for $1 Billion IOC Share Offering

    The Indian government has chosen arrangers for the sale of a nearly $1 billion stake in the country’s largest refiner, Indian Oil Corp., according to people with knowledge of the matter.

    The country picked Citigroup Inc, Deutsche Bank AG and Goldman Sachs Group Inc. to advise on the offering, said the people, who asked not to be identified because the information is private. ICICI Securities Ltd. and SBI Capital Markets Ltd. are also among banks selected to work on the sale, the people said.

    The 3 percent stake the government is aiming to divest is worth 63.9 billion rupees ($990 million) based on Thursday’s closing price. The country, which currently owns 58.3 percent of the energy giant, is pursuing a sale as it seeks to meet a 725 billion-rupee divestment target for the fiscal year beginning April 1. India has met or exceeded its privatization target only six times since 1998.
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    Algerian natural gas flows to Italy dip on field maintenance, Europe offsets fall

    Algerian gas flows to Italy dropped by 11 million cu, or 25%, on Wednesday to 32 million cu m, according to data from Platts Analytics' Eclipse Energy, with the cause said to be maintenance at an unnamed Algerian gas field.

    Supplies from northwest Europe via the Passo Gries interconnection point rose by almost the same volume -- some 13 million cu m -- to offset the fall from Algeria, the data show.

    Deliveries to Italy via Passo Gries hit 37 million cu m on Wednesday, the highest level since mid-January.

    Italian imports from Russia and Libya, and LNG sendouts, remained broadly unchanged day on day.

    A source with Algerian state-owned company Sonatrach said this week there would be some field maintenance at an unnamed gas facility, but did not elaborate on the timeframe or the volume impacted.

    According to nominations for Thursday, the pattern is set to remain the same, with Algeria nominated to flow 30 million cu m and the Passo Gries point expected to supply 36 million cu m, Platts Analytics data show.


    Algerian gas flows to Italy have been averaging at a steady rate of some 46 million cu m/d since the start of the second quarter, so the drop down to 33 million cu m/d on Wednesday was notable.

    Algerian flows had already dropped sharply in April from the Q1 average of 67 million cu m/d, with the start of the new quarter seeing a big increase in Russian supplies to Italy, likely a result of contract optimization by Italian buyers.

    Italy is often a good gauge of whether supply contracts are competitive versus each other and versus the northwest European hubs at any particular time.

    Italian buyers have import contracts with Russia's Gazprom and Algeria's Sonatrach, but can also import gas from the northwest European natural gas hubs, giving them options when long-term contract prices diverge from hub prices.

    Italy also has 11 million mt/year (15 Bcm) of LNG import capacity and significant storage of around 16.5 Bcm, making it well disposed to optimization.

    Despite falling off from their Q1 highs, Algerian supplies are still at record high levels in 2017, having already surged in 2016.

    Last year, supplies to Italy averaged 49.1 million cu m/d -- a total of 17.96 Bcm -- compared with just 18.9 million cu m/d in 2015.

    But supplies in 2017 to date are averaging 59.4 million cu m/d, which on an annualized basis would represent flows of 21.68 Bcm.

    In April, the Italian ambassador to Algeria, Pasquale Ferrara, said Italy's imports of Algerian gas could exceed 20 Bcm this year.
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    China's refinery expansions likely to face hurdles amid supply glut

    China's state-owned and independent refiners plan to boost their combined refining capacity by 14% by the end of 2020, but given the oversupply of products in the country, expansion plans are likely to move at snail's pace, delaying some of the projects.

    While state-owned refiners may drag their feet on expansions as they try to gauge oil demand growth in China and Beijing's policy on product exports, independent refiners may also struggle to find funds as banks restrict credit.

    China plans to add 85 million mt/year (1.71 million b/d) of primary refining capacity -- following the government's final approval -- with operations expected to startup between 2018 and the end of 2020.

    The country currently has around 15 million b/d of refining capacity, which is likely to grow to around 15.5 million b/d by the end of 2017, following the 200,000 b/d expansion of CNOOC's Huizhou Petrochemical as well as PetroChina's greenfield 260,000 b/d Yunnan Petrochemical plant.

    But China's oil products demand is far short of current capacity. Refinery throughput was as low as 11.26 million b/d and apparent oil demand 11.57 million b/d in the first four months of 2017.

    "There are likely to be delays in projects as it is difficult to find an outlet for oil products that China is currently producing, while for independent refiners, projects may meet hurdles due to lack of funds," said Hou Rui, an analyst with S&P Global Platts' China Oil Analytics.

    State-owned Norinco initially developed a 300,000 b/d refinery project in the northeastern Liaoning province in 2011. The project got final approval in 2015. But there was no update about the project until it recently started actively looking for partners. Finally, with Saudi Aramco's involvement, it has become a Belt & Road project and a groundbreaking ceremony was held last Tuesday.

    A Belt & Road project will be supported by the Chinese government. But the Norinco project has still to overcome many challenges.

    "Even some high-profile Belt & Road projects will meet problems and result in delays," a Hong Kong-based analyst with an investment bank said, adding that the North Industries Group or Norinco's joint project with Saudi Aramco and Panjin Xincheng Industrial Group was likely to be delayed beyond the targeted date of 2019 amid oil products surplus in the region.

    Refining capacity around Bohai Bay, comprising Beijing and the provinces of Hebei, Liaoning and Shandong, is at 6.9 million b/d, accounting for 45.7% of China's total refining capacity. Products demand in Liaoning has been weak because of a gloomy economic outlook in the country's northeast.

    The Norinco project is designed to add supplies of around 6.62 million mt of gasoil and 1.05 million mt of gasoline annually when it runs at 100% of capacity.

    In addition, Norinco also lacks an oil products outlet as it was initially a Chinese state-run group for research and production of military equipment. So building business relationships and finding long-term customers in the oil market would be a challenge.


    With the region around Bohai Bay struggling with surplus oil products, Sinopec has decided to suspend its approved 200,000 b/d project in Caofeidian in Hebei province. This would mean that the 200,000 b/d Guangdong Petrochemical project in southern China would remain the only greenfield project by 2020.

    Sinopec has developed a supply and marketing network both domestically and overseas, which would help the Guangdong project find an outlet for its oil products.

    Construction on the project started at the end of 2016, although it was planned in 2009 and had won final approval in 2011. Sinopec aims to finish construction by 2018 and start commercial operations in 2019.

    The project has been reduced from the originally planned 300,000 b/d because of the plentiful supply of oil products in the region.

    At the end of 2016, total refining capacity in Guangdong and Guangxi provinces was 1.62 million b/d, accounting around 10.6% of China's total nameplate capacity, according to CNPC.

    CNOOC's Huizhou Phase 2 project in the same region with a capacity of 200,000 b/d is expected to come online in 2017.


    The target for the remaining two approved refinery projects -- in which independents have invested -- to come online is end 2020.

    One is the 400,000 b/d Dalian Hengli Petrochemical refinery in Liaoning province, which aims to startup in October 2018. The other is the 800,000 b/d Zhejiang Petrochemical refinery in eastern Zhejiang province, which plans to startup 400,000 b/d of capacity by the end of 2018 and rest by end 2020.

    Theoretically, independents can move ahead faster than the state-owned ones on projects because of their shorter decision-making chain, but there are other hurdles to cross.

    "In addition to finding sales channels for their oil products, the projects would require more funds than the Sinopec one due to the relatively bigger capacity, indicating more financial risks during the construction stage," said the Beijing-based analyst.

    Hou added: "In China, it is more difficult for independent companies to get substantial funds, compared with the state-owned refineries."

    Therefore, even though the construction of the phase 2 of Zhejiang Petrochemical is expected to start after the phase 1 is launched at the end of 2018, it is unlikely to be completed by the end of 2020, analysts said.

    Attracted by high refining margins and encouraged by the country's strategy to increase the output of value-added petrochemical products, an additional 1.72 million b/d of independent refining projects are waiting for approval or are under the planning stage. But some state-owned companies have stepped back from adding more refining capacity.

    Attached Files
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    Eni, Snam to develop CNG, LNG stations in Italy

    Eni, Snam to develop CNG, LNG stations in Italy

    Eni and Snam signed on Thursday a framework agreement for the development of compressed natural gas (CNG) and liquefied natural gas (LNG) fueling stations in Italy, as part of a wider set of initiatives to promote sustainable mobility.

    The duo aims at developing CNG and LNG plants within Eni’s national network of stations, favouring the supply of low-emission alternative fuels such as natural gas, according to a joint statement.

    Natural gas eliminates particulate matter, the most polluting element in urban areas, and ensures considerable economic advantages to customers, the statement reads.

    The framework agreement is part of Snam’s initiatives to promote sustainable mobility, with an investment of 150 million euro by 2021 to roll-out up to 300 new CNG service stations in order to support the development and a more balanced distribution of natural gas fuelling stations in different regions across the country.

    Through this initiative Eni intends to further strengthen its offer for sustainable mobility. At present approximately 1,000 of Eni’s stations deliver LPG and methane (including 2 LNG and 180 CNG), while the remaining 3,500 deliver Eni Diesel+, its premium diesel with 15% renewable content produced from vegetable oils at its Venice biorefinery.

    Italy is the leading European market for natural gas consumption for vehicles, with over 1 billion cubic meters consumed in 2015 and about 1 million vehicles currently in circulation, according to the statement.

    The deal and the subsequent contracts for the implementation of the initiative will provide a further boost to the natural gas industry from the transport sector, which is globally recognized for its technological and environmental excellence, and is able to leverage Europe’s largest gas pipeline network, the statement said.
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    Alternative Energy

    Trump to announce decision on global climate deal on Thursday

    Rumours have abounded for days

    President Donald Trump said he would announce on Thursday his decision whether to keep the United States in a global pact to fight climate change, as a source close to the matter said he was preparing to pull out of the Paris accord.

    Trump said he would make the announcement at 3 p.m. EDT (1900 GMT) in the White House Rose Garden, ending his tweet with "MAKE AMERICA GREAT AGAIN!"

    During his 2016 presidential campaign, Trump blasted the accord, and called global warming a hoax aimed at weakening U.S. industry.

    The Republican vowed at the time to "cancel" the Paris deal within 100 days of becoming president on Jan. 20, part of an effort to bolster U.S. oil and coal industries.

    A U.S. withdrawal could deepen a rift with U.S. allies. The United States would join Syria and Nicaragua as the world's only non-participants in the landmark 195-nation accord agreed upon in Paris in 2015.

    Trump came under pressure on Wednesday from corporate CEOs, U.S. allies, Democrats and some fellow Republicans to keep the United States in the accord.

    Responding to shouted questions earlier on Wednesday from reporters in the White House Oval Office where he met with Vietnamese Prime Minister Nguyen Xuan Phuc, Trump said: "I'm hearing from a lot of people, both ways."

    The source, speaking on condition of anonymity, said Trump was working out terms of the planned withdrawal with U.S. Environmental Protection Agency Administrator Scott Pruitt, an oil industry ally and climate change doubter.

    The pact was the first legally binding global deal to fight climate change. Virtually every nation voluntarily committed to steps aimed at curbing global emissions of "greenhouse" gases. These include carbon dioxide generated from burning of fossil fuels that scientists blame for a warming planet, sea level rise, droughts and more frequent violent storms.

    The United States committed to reduce its emissions by 26 percent to 28 percent from 2005 levels by 2025.

    Advocates of the climate deal pressured Trump, who has changed his mind on large decisions before even after signaling a move in the opposite direction.

    The chief executives of dozens of companies have made last-minute appeals to Trump. The CEOs of ExxonMobil Corp, Apple Inc, Dow Chemical Co, Unilever NV and Tesla Inc were among those urging him to remain in the agreement. Tesla's Elon Musk threatened to quit White House advisory councils if the president pulls out.

    Musk said: "I've done all I can to advise directly" to Trump and through others in the White House.

    Robert Murray, CEO of Murray Energy Corp [MUYEY.UL], an Ohio-based coal company and major Trump campaign donor, urged Trump to withdraw from the deal. But on Wednesday, U.S. coal company shares fell alongside renewable energy stocks following reports that Trump would pull out.

    Pulling the United States from the accord could further alienate American allies in Europe already wary of Trump and call into question U.S. leadership and trustworthiness on one of the world's leading issues. It also would be one more step by the Republican president to erase the legacy of his predecessor, Democrat Barack Obama, who helped broker the accord and praised it during a trip to Europe this month.
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    European solar additions set to rebound amid widening forecast range: SPE

    European solar additions are forecast to rebound sharply after falling to a seven-year low in 2016, with European solar association SPE forecasting some 9 GW of new additions in its mid-range scenario for 2017 amid a widening range in its forecasts through to 2021.

    Solar Power Europe's annual five-year outlook published Tuesday at the Intersolar trade fair forecasts capacity additions in a range of 5.8 GW to 12.4 GW for this year, with the annual forecast range widening to between 8.1 GW and 27.3 GW by 2021.

    Solar additions across Europe plunged 22% on year in 2016 to just 6.7 GW, the lowest annual growth since 2009, it said.

    Europe's cumulative solar PV capacity could nearly double to 202.9 GW by the end of 2021 from 104.3 GW installed by 2016, with the mid-range scenario forecast pegged at 167.2 GW, averaging over 12 GW of additions each year.

    Its low scenario forecasts just 33.6 GW of new additions over the next five years, with an annual average of just 6.7 GW taking capacity to 137.9 GW by 2021.

    In Europe, the political support prospects for solar are not as bright as elsewhere for the coming years, SPE said.

    The solar "weather outlook" for European countries remains still mostly cloudy but shows increasingly sunny areas and just one rainy spot, the Brussels-based lobby group said, adding that the UK is the only European country expected to add less new solar power year on year until 2019.

    Only two European markets are forecast to remain in the global top ten over the next five years. Germany will be the largest European market, adding as much as 12.5 GW of cumulative growth to 2021 (up from 8.7 GW in last year's forecast), with France potentially adding more than 8 GW (up from 6.3 GW in last year's forecast), it said.


    Globally, 2016 was another record year with global annual solar additions growing by 50% to 76.6 GW, it said.

    Total worldwide grid-connected solar power generation capacity was pegged at 306.5 GW by end-2016 and is forecast to double to more than 600 GW by 2020, it said.

    "After the 300 MW milestone was reached in 2016, we expect the total global installed PV capacity to exceed 400 GW in 2018, 500 GW in 2019, 600 GW in 2020 and 700 GW in 2021," SPE said in its annual five-year outlook. However, as in Europe the global forecast ranges are also widening with the 2021 total installed capacity forecast ranging between a high scenario forecast of 936 GW and a 623 GW low scenario forecast, it said. China, India, the US and Japan are the key markets globally.

    The report highlights the rapidly decreasing cost of solar, which continues to improve its competitiveness and is the major driver for solar's global success story.

    "All solar tenders awarded since 2016 are lower than the price guarantee the UK government signed for the Hinkley Point C nuclear power plant last year," it said.

    A new world-record low 25-year solar power supply contract was awarded in Abu Dhabi in 2016 for $24.4/MWh (2.4 cents/kWh), it said, adding that this is reflected in 2017's report being more optimistic on solar growth than previous editions.

    "If policy makers get things right by addressing the needs for a smooth energy transition, such as through establishing the right trade policy, electricity market design and renewable energy frameworks, solar demand could increase much faster," said Michael Schmela, executive adviser at SolarPower Europe and lead author of the Global Market Outlook.
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    German solar PV production peaks at 42% of demand

    Having kicked off the month of May with a day of record renewable energy generation, Germany looks to be winding it up with a new first, with the nation’s solar PV production averaging at greater than 30GW for an hour on Sunday May 28, amounting to 42 per cent of total production (71.41GW) at that time.

    As the Tweet and chart from Navigant Energy’s Kees van der Leun show, solar PV, along with wind, hyrdo and biomass, renewables combined to provide a total of 46.44GW, or roughly 65 per cent of total demand at that time, while fossil fuels/nuclear were reduced to around one-third of generation.

    Today, in early afternoon, German solar PV production averaged >30 GW for an hour; first time ever! 42% of total production at that time.

    And while this is not quite as impressive as the April 30 record – when wind and solar along with biomass and hydro produced a level of 85 per cent renewable energy generation, almost completely sidelining hard coal plants – it marks a new first for solar PV in Germany.

    It should be noted that both records were achieved on a Sunday, at times of lower overall demand, but as Patrick Graichen of Agora Energiewende Initiative said of the April 30/May 01 record, days like these are expected to be “completely normal” by 2030, as the federal government’s Energiewende (energy transition) initiative continues to add value to the wealth of resources invested in it.
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    Queensland may change solar tariffs to match peak demand

    The Queensland government has asked the state’s Competition Authority to report on the potential benefits of introducing of time-of-use solar tariffs in the state over the next year, marking the latest move by the nation’s state governments to offer consumers a fairer price for their rooftop solar generation.

    In a letter to QCA chair Roy Green, Queensland energy minister Mark Bailey asks the Authority to calculate spot wholesale electricity pool price values for different possible peak and off-peak combinations,  over the course of a day.

    The data will then be used to compare peak and off-peak values, weighing up any potential cost savings to consumers, as well as to network owners – in this case, the Queensland government.

    Bailey says he expects the Authority to “illustrate the impacts and outcomes of different peak and off-peak periods,” to inform rooftop solar consumer understanding.

    “This must include presenting each of the potential peak and off-peak periods against a typical solar generation profile for a relevant location covered by the Ergon Energy network to allow solar customers to understand the timing of solar generation compared to the possible peak and off-peak periods,” the letter says.

    Queensland currently has a feed in tariff of 6c-8c/kWh – which is voluntary in south east Queensland but ,andatory 6-8¢/kWh in regional areas where Ergon operates.

    However, Queensland’s wholesale electricity prices have averaged more than 10c/kWh for the 2016/17 year, suggesting that solar households are being sold short, and average tariffs at afternoon peaks have been significantly higher.

    The QCA is also expected to undertake public consultation on the timing of peak and off-peak periods, and report to government which times are preferred by consumers.

    The move by the Palaszczuk government follows recent tariff changes in Victoria, where a premium for solar – because it produces during the day – was added to the existing feed-in tariff, along with avoided loss factors on transmission lines, and avoided costs of carbon, taking the tariff to a minimum 11.3c/kWh, up from a previous 5c/kWh.

    As we reported at the time, the increase announced by the Essential Services Commission in February, was the result of a big rise in wholesale prices, and the Victoria Labor government’s instruction to include an implicit carbon price, network benefits and environmental benefits into the tariff.

    The ESC has also been asked to set varying tariffs, depending on the network benefit for local grids. But it says it has set a flat rate for the first year to “allow sufficient time for consultation with energy retailers on the implementation of multi-rate feed-in tariffs in future years.”

    A draft report from the Queensland Competition Authority is expected to be published by 9 June 2017, after which time the QCA will undertake public consultation on the timing of the peak and off-peak periods examined in the report.
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    U.S. notifies WTO it may put emergency tariff on solar imports

    The United States has notified the other 163 members of the World Trade Organization that it is considering the case for putting emergency "safeguard" tariffs on imported solar cells, according to a WTO filing published on Monday.

    Under WTO rules, countries can impose temporary safeguard tariffs to shield an industry from a sudden, unforeseen and damaging surge in imports. The U.S. International Trade Commission will recommend by Sept. 22 whether to go ahead with the tariffs, the filing said.
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    China biggest virtual power plant operated

    The first set of "Source-Grid-Load Smart Grid", built to distribute clean energy on a large scale, has been put into operation in China's eastern province of Jiangsu.

    This virtual power plant, the largest in China, uses intelligent technology to coordinate the plants' power generation as well as the users' power consumption, in order to achieve a dynamic equilibrium.

    According to experts, by using the "Internet Plus Grid" technology, the smart grid system can help connect a huge number of scattered power supply channels and equipment to the system.

    And all those equipment can be controlled separately, in order to deal with emergencies such as a natural disaster, excessive demand for power, a sudden collapse of the power grid or to simply save energy.

    The system will also allow the supply of power to specific areas, even a building, to be controlled in such a way that, for example, only lights can be used, not air conditioners, which is a smart way of saving energy.

    The system is also environmentally friendly. About 1,370 enterprises are already using this system, which will be promoted nationwide soon.

    A nationwide smart grid system could be ready by 2020 with a capacity of more than 1 GW -equal to 1-GW-class coal-fired units - which can reduce sulfur dioxide emission by 97,000 tonnes and carbon dioxide emission by 35 million tonnes.

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    Russia signs deal to expand India's Kudankulam nuclear plant

    Russia signed an agreement with the Indian government on Thursday to build two new reactors for the Kudankulam nuclear power station in Tamil Nadu and said it would loan India $4.2 billion to help fund construction.

    President Vladimir Putin says Russia is ready to build a dozen nuclear reactors in India over the next 20 years to back Prime Minister Narendra Modi's growth strategy for Asia's third-largest economy, which continues to suffer chronic power shortages.

    The agreement to build reactors 5 and 6 at Kudankulam was signed in St Petersburg during a meeting between Putin and Modi at an economic forum. It should help cement already close ties between the two countries.

    Atomstroyexport, a unit of Russian state nuclear corporation Rosatom, will carry out the work, Kremlin documents seen by Reuters showed.

    Russian Finance Minister Anton Siluanov told reporters the Russian government was lending India $4.2 billion from next year for a 10-year period to help cover construction costs.

    Separately, in a joint declaration, the two countries said they noted the "wider use of natural gas" which they hailed as an economically efficient and environmentally friendly fuel that would help reduce greenhouse gas emissions and help them fulfil the terms of the Paris climate change accord.
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    Kazakhstan to produce nuclear fuel for China

    Kazakhstan, the world's biggest uranium producer, will start producing nuclear fuel for Chinese power plants in 2019 through a joint venture set up by the two countries, a senior official at the Ulba Metallurgical Plant told Reuters.

    The joint venture, Ulba-FA, is now building on land at the Ulba plant, Kazakhstan's main uranium processing factory.

    The Central Asian nation has no enrichment facilities and mostly exports uranium in the form of triuranium octoxide or pellets, both of which require further processing before being used by power plants.

    By contrast, the joint venture between Kazakh state nuclear company Kazatomprom and China's CGNPC aims to produce ready-to-use fuel assemblies. It will procure enriched uranium either in China or in Russia, the Ulba plant's head of sales Alexander Khodanov said on Friday.

    The first stage of the joint venture will produce about 200 tonnes of nuclear fuel a year using technologies and equipment supplied by France's Areva.

    Kazakhstan, a former Soviet republic that borders China, has no nuclear power plants of its own.
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    Record Australian grain exports flood market, but Black Sea challenge ahead

    Australia's grain exports have shot to record volumes this year as bumper crops push down prices, but levels may fade toward year-end as rival shipments step up from the Black Sea region.

    Wheat, canola and barley exports have been over 60 percent higher than normal over the first five months of 2017, at 17.2 million tonnes, according to Thomson Reuters Eikon data.

    That flood of grain from Australia, the world's fourth largest wheat exporter, and other suppliers is dragging on global prices that are trading close to last September's 10-year low.

    "There are two key reasons for strong flows of grain shipments from Australia," said a Singapore-based trader with an international trading company, declining to be identified as he was not authorized to speak with media.

    "They had massive crops and they were cheaper than any other origin."

    Australian Standard White wheat has been selling for $185-$195 a ton, free on board since January, well below the price from other origins, traders said.

    The country's 2016/17 wheat production, at 35.13 million tonnes, was around 17 percent more than the previous record of 29.6 million tonnes set in 2011/12. Barley output was 25 percent above the prior record at 13 million tonnes, while canola production of 4.1 million tonnes was 1 percent shy of an all-time high, according to official data.

    But industry sources estimate the country will be left with just 5-6 million tonnes of wheat by the end of Australia's grain marketing year in September, similar to last year's levels, due to the scale and pace of exports.

    "India has taken more wheat, China is taking lots of barley and we have got back into the Iraqi market," said Ole Houe, an analyst with brokerage IKON Commodities in Sydney.

    "Demand is strong everywhere."

    India has been buying aggressively this year to fill a supply shortfall left by two years of drought, although purchases have eased in recent months.

    China is taking higher quality Australian wheat and other feed grains such as barley and sorghum.

    "We have been seeing some strong demand from traditional markets, but also from markets that we haven't done much business with for the past few years," said James Foulsham, wheat trading manager at Australia's largest grain exporter CBH Group.


    The nation's main wheat exporting state, Western Australia, is expected to sell close to 17 million tonnes of wheat, barley and canola, this year, against total production of 16 million tonnes, industry sources said.

    "Western Australia will be dipping into reserves to fulfill export commitments," said a Sydney-based trader.

    But in the second half of 2017, Australian wheat will likely face stiff competition from the Black Sea region as Russia and Ukraine also look to offload bumper harvests.

    Last week, a miller in Indonesian bought around 60,000 tonnes of Black Sea wheat at $190 a ton, including cost and freight, for August arrival, traders said. A similar variety of Australian wheat was priced at $215 a ton.

    Attached Files
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    Precious Metals

    Johnson Matthey expects higher catalysts demand after profit rises

    Johnson Matthey expects increased efforts to curb vehicle pollution to boost demand for its catalysts in the medium to long term, it said on Thursday, after reporting an 18 percent rise in annual operating profit and boosting its dividend.

    The British company, which this year divided into four sectors -- clean air, efficient natural resources, health and new markets -- said sales of catalysts rose 16 percent in the year to March 31.

    It said the quest for cleaner air, with many cities clamping down on transport pollution, would spur demand for catalysts, while it is also increasing its focus on batteries using nickel and lithium and on pharmaceutical ingredients.

    "Over a five-year period that market (catalysts) is going to grow almost irrespective of electric vehicles given the size of the base," Johnson Matthey Chief Financial Officer Anna Manz told Reuters, referring to the still small percentage of the market that has gone electric.

    "After that, it’s harder to predict."

    The company is also re-focusing to ensure it is strong in technologies for gasoline and diesel vehicles and in the Asian market, which is catching up with European pollution standards, Manz said.

    Doubts about diesel cars have grown as Volkswagen's dieselgate scandal has spread to other automakers and research has shown the health damage caused by diesel emissions.

    Some analysts are also predicting a quicker-than-expected uptake in electric vehicles, which do not use catalytic converters.

    The company reported an 18 percent rise in annual operating profit to 493 million pounds ($634 million) on revenue up 12 percent at 12.03 billion.

    It recommended a final dividend of 54.5 pence per share, up 5 percent.

    It said sales this year would be probably in line with the 6 percent growth delivered in the six months to March 31.

    Shares in Johnson Matthey were down 0.6 percent at 3,091 pence, lagging an FTSE-100 Index up 0.29 percent at 0945 GMT.

    "Today’s results do not flag any immediate problems. Nonetheless, guidance still implies at least no upgrade potential," analysts at Morgan Stanley said in a note.

    It rates Johnson Matthey "equal weight" or hold citing "a lack of near-term earnings impetus".
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    Eurasia ready to apply for discovery certificate for Russian palladium, platinum project

    Russia-based Eurasia Mining has hit a significant milestone in the advancement of its Monchetundra palladium and platinum project, with the Russian State Agency for Subsoil Use (Rosnedra) approving the project’s reserves report and feasibility study.

    The approval allows Eurasia to apply for a discovery certificate, which is a prerequisite for a production licence.

    MD Christian Schaffalitzky on Wednesday described the Rosnedra approval of the project’s reserves as an “incredibly important” development at Monchetundra, which is located in the Kola Peninsula bordering Finland.

    "This excellent result has come considerably quicker than we had anticipated, as the reserves report and the feasibility study were only submitted for approval on December 31, 2016.”

    The Monchetundra project, in which South Africa’s Anglo American Platinum used to be a joint venture partner, now has State-approved, Russian standard C1 and C2 category reserves of 55.9 t (1.9-million ounces) palladium equivalent, with major gold and base metals credits, at two openpit locations occurring about 2 km apart.

    The reserves are fully compliant, as defined under the State Commission on Mineral Reserves, or GKZ, standards.

    Schaffalitzky reported that the development of its 80%-owned Monchetundra project would follow the same route as its West Kytlim project, which was brought into production last year.

    “We are working on creating partnerships with qualified firms to help realise the potential of this significant platinum, palladium, gold, copper and nickel mine, with the bonus of having an engineering, procurement and constructioncontract (EPC) with the financing inside it already in place.”

    Eurasia last year agreed an EPC deal with Chinese giant Sinosteel for a 1.7-million-tonne-a-year mine and beneficiation plant at Monchetundra, which includes financing. The total value of the Sinosteel contract is $176-million, with the Chinese group responsible for the debt finance of $149.60-million (85% of the contract value).

    Schaffalitzky said that the Monchetundra openpit was significantly larger than the West Kytlim operation and that it would seek to appoint a management company with experience in beneficiating platinum group metal (PGM) ores. Discussions were reportedly at an advanced stage.

    Eurasia also owns the Semenovsky tailings project, which comprises reserves of about two-million ounces total contained PMGs.
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    'Strong hand' may be pushing palladium price higher

    Yesterday was a generally good day for precious metals with the complex recovering much of the losses suffered since mid-April.

    Palladium was once again the best performer on the day, up 1.5% to $816.75. Nymex palladium futures are sporting year-to-date gains of more than 20% and are once again approaching  two-year highs hit at the end of April.

    The fortunes of palladium and sister metal platinum have diverged dramatically over the past year. A new annual report by the GFMS team at Thomson Reuters on the PGM market argues it is "more a case of when, not if, the palladium price will exceed platinum".

    It would be the first time since 2001 that palladium is worth more and its relative strength is even more remarkable given that the gap averaged just over $1,000 an ounce between 2007-2012.

    The superior performance for palladium is unsurprising given that 2016 was the fifth year in a row of substantial deficits (1.2m ounces or 37 tonnes) and the automotive markets in China and the US have enjoyed record breaking runs. Palladium mainly finds application in gasoline engines and the sector is responsible for 70% of overall palladium demand.

    But a  report from Platts News suggests other forces may be at work and that a market participant with a "strong hand" may be putting the "squeeze" on the metal.

    Sponge (semi-finished metal) prices have been stable which suggests the unusual tightness is at the refining end of the market.  The report quotes a senior banking source as saying lease rates for palladium have quadrupled from 1% to 4%:

    "There's certainly a tightness, but I'm not sure if it's fundamentals or a strong hand," he said.

    "People have tried this [possible squeeze] before and it can get ugly, real fast. You'd be a brave man to take a position, short or long, at these levels," the source said.

    A research note from Commerzbank also cautioned on the outlook with the investment bank saying it "cannot understand why the palladium price should be so strong given that automotive markets in the US and China are faltering and ETF outflows are continuing."

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    Fosun buys stake in Russia's top gold miner for $887 million

    A consortium of investors led by China's Fosun International Ltd will buy a 10 percent stake in Russia's top gold producer Polyus for $887 million, they said on Wednesday.

    Russia, the world's third largest gold producer, has been looking for investments in Asia, mainly in China, since the West imposed sanctions on Moscow due to its role in the Ukraine crisis and the annexation of Ukraine's Crimea peninsula in 2014.

    China is the world's top consumer, producer and importer of gold and Chinese companies have been targeting gold mine acquisitions.

    Fosun, an acquisitive Chinese conglomerate, will buy 12,561,868 Polyus shares for $70.6025 per share from the family of Russian tycoon Suleiman Kerimov.

    "We are delighted to enter into this agreement to acquire a significant stake in Polyus," Wang Qunbin, Fosun's Chief Executive, was quoted as saying in Polyus' statement.

    The consortium, which includes two of Fosun's affiliates - Zhaojin Mining (1818.HK) and Hainan Mining (601969.SS) - will be a strategic long-term shareholder, he said.

    The deal is the first major foreign investment for Qunbin who replaced Liang Xinjun as CEO in late March. Liang, who was Fosun's public face for years and was instrumental in driving Fosun's overseas expansion, stepped down in a surprise reshuffle that created uncertainty over the group's strategy.

    Fosun has been in talks since last year to buy a Polyus stake, sources have said. The deal was announced one day before the start of the St Petersburg International Economic Forum, the country's annual event to attract investors.

    Kerimov's family also said that their firm Polyus Gold International Limited (PGIL) had granted the consortium an option to acquire up to an additional 5 percent in the company for $77.6628 per share by the end of May 2018.

    Polyus shares were down 0.5 percent in Moscow on Wednesday at 4,425 roubles ($77.87).

    The price for the initial stake purchase values Polyus at $9.0 billion and the deal is expected to be done by the end of 2017.

    The agreement also provides for minimum annual dividend payments by Polyus for 2017-2021 at the greater of 30 percent of its full-year core earnings, known as EBITDA, or $550 million for each of 2017, 2018 and 2019 and $650 million for each of 2020 and 2021.

    Polyus, whose free-float is currently at 6.8 percent, is also considering launching a secondary share offering in London and Moscow in June, sources familiar with the matter have said previously.

    "PGIL and the consortium committed to cooperate to ensure the company complies with the requirements of the Moscow Exchange where its ordinary shares are listed, as well as the requirements of foreign exchanges where the company's equity securities may be listed in the future," PGIL said
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    Osisko Gold Royalties takes 19.9% stake in Minera Alamos

    Intermediate precious metal royalty company Osisko Gold Royalties has taken a 19.9% stake in Minera Alamos through a C$3.3-million private placement, giving it access to near-term gold production at the La Fortuna project and future opportunities in Mexico.

    Osisko has agreed to buy 22.5-million Minera Alamos shares at C$0.15 a share.

    In parallel with the Osisko placement, Minera Alamos also announced that it has appointed Haywood Securities as lead agent on behalf of a syndicate of agents to sell, on a best efforts private placement basis, up to 23 33-million common shares at the same price, for further gross proceeds of up to C$3.5-million. The agents also have an over allotment option to sell up to a further 20% of the brokered offering in common shares at the issue price, for a period of 48 hours before the offering closes.

    The brokered offering is expected to close on or about June 29.

    “This is a transformative announcement for Minera Alamosand marks the beginning of the next phase of our Mexican production and growth strategy. We look forward to working with Osisko to fast-track La Fortuna toward production and expand our presence in Mexico organically and through additional acquisitions,” Minera Alamos president Darren Koningen said in a statement Tuesday.

    Under terms of the investment agreement, Osisko will have nondilution rights to any future financing activity Minera Alamos might undertake, if it maintains at least 10% ownership of the company, up to maximum of 20%. For as long as Osisko maintains a 10% interest, it will have the right to nominate two directors to the Minera Alamos board. It has put forward the current chief geologist of Talisker Exploration Services Ruben Padilla with immediate effect.

    Further, Osisko will have the right to buy up to a 4% net smelter return royalty (NSR) for C$9-million, and have a participation right on any future royalties and streams granted by the company. Osisko also has the right to participate in half of any buybacks of existing La Fortuna royalties, and the right to acquire a 2% NSR on any property acquired within a 250-km radius of La Fortuna.

    Minera Alamos advised that it will use the proceeds from the financings to develop La Fortuna and for working capital and corporate purposes.

    The La Fortuna gold project includes the historic La Fortuna mine, together with the surrounding concessions, totalling 994 ha. The property is in the north-western corner of Durango state, about 70 km northeast of the city of Culiacan, Sinaloa.

    The project has a current resource block model that produced a measured and indicated resource of 4.8-mmillion grading 2 g/t gold, for 308 000 contained ounces, at a 0.5 g/t goldcutoff grade.

    Meanwhile, Minera Alamos announced the resignation of director and CEO Chris Frostad on May 31, who will be replaced by current president Koningen.
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    Base Metals

    India’s Nalco to open new bauxite deposit at its existing mines

    Hit by delays in securing a new mine, integrated aluminium producer, National Aluminium Company Limited (Nalco), has started the process to open a new bauxite deposit near its existing Panchpatmali mines in Odisha.

    The opening up of the new deposit along the south face of its existing mining operations will enable the Indian company to maintain its bauxite production at 6.825-million tons achieved during the 2016/17 financial year, a senior government official says.

    In 2015, the 70-million-ton Pottangi bauxite reserves, also located in Odisha, had been reserved for allocation to Nalco, but “bureaucratic hurdles” resulted in delays in handing over the new resource to the company, the official says.

    Hence opening up of the south face bauxite deposit at Panchpatmali is an imperative for Nalco’s alumina and aluminium capacity expansion plans, he adds.

    The integrated aluminium producer has already firmed up plans to install its fifth potline at its smelter in Angul, Odisha. The new potline will add 0.6-million tons a year of aluminium capacity, ramping up the company’s total capacity to one-million tonnes. The $1.87-billion project is scheduled for completion in the next three years.

    In tandem, the company will expand its alumina refinerycapacity, close to its mines, to add another one-million tons a year of alumina production to its existing output of 2.275-million tons a year, to feed the expanded capacity of its smelters and to merchant export the surplus alumina in global markets, the official says.

    In the short term, the raw material security for its expansion plans will be met through the opening of new mine at Panchpatmali, but in the long term, Nalco hopes to be using the bauxite reserves at Pottangi.

    The official said that the long-term raw material security had to be ensured by the government, as Nalco’s corporate strategic plan aimed to achieve a finished aluminium metal production target of one-million tons a year by 2020.
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    Antofagasta sells solar park stake in Chile, calls for power auction

    Antofagasta sells solar park stake in Chile, calls for power auction

    Chilean mining company Antofagasta Minerals has sold its minority stake in a solar park in northern Chile, and will launch a power auction for one of its copper mines, the company said on Tuesday.

    The firm said in a statement it had agreed to sell its 40 percent stake in the 69.5-megawatt Javiera solar park in north-central Chile to Atlas Renewable Energy, a Latin America-focused solar platform launched in March by English private equity fund Actis.

    Antofagasta participated in the park through EnergiaAndina, a joint venture with Australia's Origin Energy. Javiera was originally constructed by now-bankrupt SunEdison, and is now 100 percent owned by Atlas.

    "Atlas is pleased to conclude another important acquisition to grow its footprint in Chile, with long-term contracted projects with high quality offtakers," the company's chief executive, Carlos Barrera, wrote in an email. "We're looking forward to explore further growth opportunities in the region."

    Antofagasta did not disclose a price for the sale but said that as part of the transaction, it had renegotiated the prices of the energy produced by the park.

    Javiera signed an agreement in 2014 to provide power at a fixed price to Antofagasta's Los Pelambres copper mine. Power prices in the area have since dropped precipitously, meaning the terms of energy contracts inked by large mines in previous years are now largely unfavorable.

    "This decision takes place in the context of Antofagasta Minerals reducing costs and focusing on the business that we best know: copper production," Antofagasta CEO Ivan Arriagada said in a statement.

    Antofagasta also said it would launch a request for tenders in the coming days to provide energy to its Zaldivar mine in Chile starting in 2020.

    The auction is likely to draw interest from an array of domestic and international energy companies that have flooded into the South American nation in recent years.
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    Savannah earns 20% stake in Rio Tinto’s Mutamba project

    A recently completed scoping study at the Mutamba heavy minerals mine, in Mozambique, has shown that the mine is capable of sustaining a 30-year mine life, based on a resource of 451-million tonnes at 6% total heavy minerals with relatively modest capital requirements.

    Being developed in conjunction with Rio Tinto, Savannah Resources has the right to earn up to a 51% interest in the project, subject to key milestones being met, and by delivering the scoping study, Savannah has earned a 20% interest.

    Savannah CEO David Archer said the scoping study outlined the potential for a long-life, robust project at a time of increasing demand for titanium feedstocks and strong price growth.

    “Mutamba is a tier-one deposit that is well placed to provide a long-term, reliable supply of ilmenite, zircon and rutile,” he noted, adding that the project was projected to have a pre-tax net present value of $244-million and a four-year payback period.

    First production is being targeted for 2020, with average production of 456 000 t/y of ilmenite and 118 000 t/y of nonmagnetic concentrate.

    The mine is expected to need preproduction capital expenditure (capex) of $152-million, plus $74-million of contingency, engineering, procurement, constructionmanagement and spares, with identified opportunities that may reduce capex by about 35%.
    “Our conceptual mine plan is based on well known, long established mining and processing techniques and is enhanced by the very complementary infrastructure setting, comprising local roads, power, telecommunications, an international airport and the nearby Port of Inhambane.

    “Mutamba could be a major industrial development for the region and, with an anticipated final labour complement of 332 people and over 1 000 indirect jobs expected to be created, we are targeting 95% local participation once the operations become established.  The project could also provide strong capital flows into Mozambique and will be an additional element in the country’s growing levels of foreign direct investment,” said Archer.

    Savannah can now earn a further 15% stake in the project by completing a prefeasibility study.
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    Japan's Q3 aluminium premium offers at $123-$128/mt, CIF, down from Q2

    Three aluminum producers have offered to Japanese aluminium buyers premiums of $123-$128/mt plus London Metal Exchange cash CIF Japan for third-quarter shipments, down from $128/mt CIF for Q2, market sources said Tuesday.

    Rusal offered $128/mt plus LME cash CIF Japan, Rio Tinto Japan $123/mt plus LME cash CIF Japan, and a third global producer at $125/mt plus LME cash CIF Japan.

    A fourth producer has held meetings with buyers but he has not placed his offer yet, a Japanese buyer said.

    Q2 premiums rose 35% from Q1 on the rise in US premiums, and the Q3 premiums, in theory, should track the US premiums lower, a Japanese buyer said.

    The Platts Midwest Transaction premium fell by 8.6% to 9 cents/lb delivered from 9.85 cents/lb on April 3.

    The lowest offer of $123/mt plus LME cash CIF Japan, down 4% from Q2, is not low enough, the buyer added.
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    Codelco warns bad weather delaying copper shipments from Chile

    A spate of bad weather is affecting shipments of copper from Chile, the world's leading producer of the metal, a top executive said Friday.

    "This is a major problem which is stopping us from loading and shipping our minerals," said Nelson Pizarro, CEO of Chile's state copper producer Codelco.

    Heavy swell has closed many of Chile's most important ports for much of May. Ports across northern Chile, including those used by copper producers Antofagasta, Codelco and Collahuasi, among others, were closed four days from May 16.

    The alert was extended May 21 to ports throughout central and northern Chile, including the country's largest San Antonio and Valparaiso, and remained in place until Thursday.

    Ports throughout Chile were operating normally again Friday, but it is expected to take several days for the situation to normalize.

    An indefinite strike by customs officials, which began Wednesday, could cause further delays.

    Last year, Chile exported 5.9 million mt of copper, including cathode, concentrates and blister, of which 47% went to China, 11% to Japan and 9% to South Korea.

    The closure of major ports for extended periods could hinder the ability of Chilean mining companies to fulfill commitments to clients.

    "It upsets the sales plan because the vessel cannot dock to be loaded. We hope we can ship normally again from the summer in order to comply with budgeted sales," Pizarro said.

    Attached Files
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    Poseidon expects Silver Swan restart to deliver ‘healthy’ return

    The Silver Swan nickel mine, in Western Australia, will require a preproduction and working capital investment of A$25-million, and a breakeven nickel price of $4.63/lb, to deliver its 8 800 t of contained nickel.

    A definitive feasibility study (DFS) found that the high-grade underground nickel mine is expected to have an initial mine life of two years, ASX-listed Poseidon Nickel said on Friday.

    “The DFS demonstrates Silver Swan has a robust production and nickel grade profile and the completion of the detailed engineering for Silver Swan will allow Poseidon to take early advantage of an improving nickel market, as soon as it occurs,” said Poseidon chairperson Chris Indemaur.

    The study found that the project could deliver some A$120.7-million in revenue, and will have a pre-tax net present value of A$27.8-million and an internal rate of return of 204%.

    Silver Swan was acquired by Poseidon in 2014 as part of the Black Swan purchase, which was made in order to access the 2.2-million-tonne-a-year processing plant, as well as supporting infrastructure and the associated high-grade underground Silver Swan and Black Swan openpit mines.

    Indemaur said on Friday that it remained a core asset in a highly prospective nickel and gold location.

    The DFS confirmed that restarting the high-grade underground mining operations at Silver Swan, and sale of direct shipping ore to China under an existing offtake agreement would generate a “healthy” return on investment at a nickel price above $5.50/lb

    Indemaur said that the company was exploring options to fund the initial preproduction activities, which would include the refurbishment of the mine and infrastructure in preparation of a restart at the right time.

    In the meantime, Poseidon will also update the Black Swanprefeasibility study capital estimate for the process plant refurbishment to a definitive feasibility study level, and will incorporate Silver Swan as a fully integrated alternative.

    Outstanding regulatory approvals will also be sought.
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    Steel, Iron Ore and Coal

    EU urges U.S. to limit national security probe on steel

    The European Union warned the United States on Thursday that its investigation into U.S. steel imports should be limited to issues of national security and not result in unjustified, sweeping measures on exporting nations.

    President Donald Trump launched a trade investigation in April against China and other exporters of steel into the U.S. market, under a law that allows presidents to impose restrictions on imports for reasons of U.S. national security.

    In a written submission to the U.S. Department of Commerce seen by Reuters, the European Commission said that restrictive actions based on national security could not provide the lasting solution that the steel market needs.

    "On the contrary, their impact may create further distortions at global level with negative consequences, ultimately affecting the position of U.S. companies - both steel producers and also U.S. manufacturers which use steel," the submission to the U.S. investigation hearing said.

    The Commission said that U.S. steel imports might be higher year-on-year, but had decreased by about 25 percent between 2014 and 2016, with anti-dumping and anti-subsidy duties limiting Chinese products.

    The study, it said, should be limited to the issue of national security, adding that only about 3 percent of U.S. steel demand was used for national defense and homeland security purposes.

    A Commission spokesman said there was no evidence that imports, and certainly those from the EU, threatened U.S. national security.

    "Overcapacity is the root cause of the problems in the steel sector and only by working together can we find a solution and bring back fairness to the market and ensure a level playing field for our producers and workers," he said.

    U.S. Commerce Secretary Wilbur Ross has until early next year to prepare a report for the president, who can then take action to "adjust the imports".

    Trump's principle target would appear to be China, the world's largest steel producer, the subject of a pre-election pledge to crack down on Chinese trade practices.

    Chinese premier Li Keqiang arrives in Brussels on Thursday and is expected to commit with the European Union to the Paris climate accord and to address steel overcapacity "at its roots".

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    Coking coal price talks stall as steelmakers, miners spar on contract terms

    Talks between Australian miners and Japanese steelmakers over coking coal supplies have stalled as the Japanese companies are pushing to move to more flexible arrangements from the current quarterly fixed-price terms.

    The Japanese are backed by BHP, the world's biggest producer of coking coal, a key steelmaking ingredient. However, other miners are against upending the 45-year-old fixed price settlement mechanism. Any changes could potentially further roil a market hit by wild swings recently.

    Coking coal supply contracts between Australian miners and Japanese steelmakers are accepted as the benchmark around the world.

    Pricing could instead be set by using the monthly average of a daily spot price, said three sources close to the negotiations.

    While none of the companies involved has publicly stated the precise changes being sought, several industry sources said that Japan's steelmakers are pushing for change.

    "The days of the benchmark system as we know it are dead," said a source close to the negotiations.

    Should the changes be agreed, coking coal prices would be more closely aligned to that for iron ore, the other main steel making ingredient.

    When supplies are short, as recently after a cyclone hit supply chains in Australia, miners would get a windfall.

    But miners would also be hit by low prices when supplies are plentiful and demand is weak, while the reverse would apply for steel mills.

    Japanese steelmakers led by Nippon Steel and Sumitomo Metal Corp have long resisted the idea of more flexible pricing, preferring the stability of supply under term contracts. But that is changing.

    "They want index-linked or fluctuating pricing," said a source at one of the miners. "They are tired of quarterly discussions and want more third-party assessments."

    Meanwhile, another source with ties to the miners said talks were close to setting a benchmark price of around $195 a ton as early as Friday that would apply retroactively for the second quarter of 2017. The price roughly equates to the average coking coal price during March to May.

    BHP is aligned with the Japanese steelmakers, with Chief Commercial Officer Arnoud Balhuizen telling reporters in Melbourne on Thursday: "We are not participating in quarterly benchmarks."

    "Our conversations with our customers are very constructive," Balhuizen said. "We understand, probably triggered by the recent volatility in the market, people are more and more open to not fixing prices on a quarterly basis."

    Other miners led by Glencore and Peabody are resisting the moves since they sell coal with a lower heat content that could be priced at a discount to a spot market price, sources said.

    Prices for Australian premium coking coal surged to as high as $314 a ton earlier this year after Cyclone Debbie hit Queensland. They were quoted by S&P Global Platts at $149.20 per ton on Wednesday.

    The cyclone knocked out supply chains and forced a hiatus in talks on coking coal prices that would normally be wound up by March or April. The storm also forced Japanese steelmakers to scramble for alternative supplies.
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    Hebei steel makers to participate in Belt and Road Initiative projects

    Hebei province in northern China will facilitate advanced steel, cement and other industrial firms to participate in construction projects in the Belt and Road Initiative countries in the future, said the provincial government in a notice.

    The province will provide policy and financial support for enterprises in outstanding industries, including steel, cement, glass, power, textile and equipment manufacturing, to establish international cooperation with neighboring countries in Asia and countries in Africa, the Middle and East Europe and Latin America by green field investment, pooling of interest, joint venture and contract projects.

    Wen'an Iron and Steel Co., Ltd under Xinwu'an Iron and Steel Group in Hebei signed a memorandum of cooperation with China Metallurgical Corporation last year to invest in comprehensive steel projects totaling 6 million tonnes in Malaysia, said Gao Wei, vice general manager of the company.

    It was the first Hebei-based private steel company that participates in global capacity cooperation with countries along the Belt and Road Initiatives, he added.

    Sarawak – the third largest economic state in Malaysia – has successively shifted its reliance to manufacturing and service industry from traditional agriculture, and steel projects supported by Wen'an Iron and Steel could fill in the market gap.

    Malaysian government reserved a space close to ports for the projects, which will greatly reduce production cost. These projects are expected to benefit emerging markets in South Asia, the Middle East and East Africa, and meanwhile create more than 10,000 jobs, said Wang Wen'an, president of the company.

    In 2016, a total of 33 enterprises in Hebei invested in projects in Belt and Road Initiative countries. Chinese firms' investment in these projects totaled $1.6 billion yuan, accounting for over 48% of total Chinese investment across the province.
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    Rio Tinto Looks To Lower Debt Amid Uncertainty In Iron Ore Prices

    Rio Tinto has announced plans to further lower its debt burden, as it looks to strengthen its balance sheet amid an uncertain iron ore pricing environment. The company announced plans to buy back $2.5 billion of outstanding debt earlier this week. The company has been trying to lower its debt burden over the past couple of years due to a business environment characterized by weakness in iron ore prices. Under the simplifying assumption that the company is able to meet its business expenses from its operating cash flows and existing cash balances, the following table indicates the extent to which the company will have lowered its debt by year end. (The debt figures indicate year-end or projected year end gross debt balances.)

    Iron ore prices rose sharply in the fourth quarter of last year and the first quarter of this year, driven by a favorable demand outlook from China and the U.S. A fiscal stimulus instituted by the central government in China targeting the infrastructure sector raised the demand outlook from China, while the Trump administration’s infrastructure plans have raised the prospects of higher demand from the U.S. However, prices of iron ore have fallen sharply in recent months as demand growth in China, the world’s largest market for iron ore, has shown signs of faltering.

    Though Chinese imports of iron ore have continued to remain at elevated levels, the country’s stockpiles of the commodity have reached record levels, indicating that the underlying demand growth may not be keeping pace with the expansion in supply. Moreover, there are concerns over the sustainability of China’s debt-fueled (mainly domestic debt) economic growth, with Moody’s downgrading the country’s sovereign debt rating for the first time in nearly thirty years. Given the concerns over the sustainability of demand from the world’s largest consumer of iron ore, Rio Tinto’s move to shore up its balance sheet would stand the company in good stead in case of a further decline in prices.
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    China iron ore falls 6 pct to 6-mth low, steel sags despite upbeat PMI

    Iron ore futures in China tumbled 6 percent on Wednesday to the lowest since November, posting their biggest monthly decline in a year, amid lower steel prices and a glut of the raw material.

    Industry data showing activity in China’s steel industry expanded at the fastest pace in a year in May spurred gains in Shanghai steel futures earlier in the session. But steel later gave up those gains and slid nearly 4 percent as analysts warned demand may ease in the coming summer months when construction activity slows.

    The most-traded iron ore contract on the Dalian Commodity Exchange fell as low as 423.50 yuan ($62) a tonne, its lowest since November 2016. It closed down 6 percent at 424.50 yuan.

    The contract lost 16.7 percent in May, its biggest monthly decline since May 2016.

    Chinese markets reopened on Wednesday after being shut for public holidays on Monday and Tuesday.

    The decline in Chinese futures, along with a stubborn glut, has fuelled a nearly 40 percent drop in spot iron ore prices from this year’s peak.

    In the medium to longer term, iron ore should move towards $50 per tonne, said Julius Baer analyst Carsten Menke.

    “This is based on the assumption that Chinese steel production has moved beyond its structural peak and would decline steadily over the coming years,” Menke said.
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    Shanxi to suspend or slow construction of 120 Mtpa coal capacity

    Authorities in Shanxi, one of China's biggest coal-producing regions, have vowed to suspend or slow the construction of 120 million tonnes of coal production capacity from 2016 to 2020, reported the state media recently, citing a recent coal industry development plan published by the local government.

    The northern province will also suspend the construction of more coal mines over the period to further reduce capacity.

    As of the end of 2015, Shanxi had or was constructing 1,078 coal mines with a total production capacity of 1.46 billion tonnes per year.

    By 2020, Shanxi is set to reach the average single-mine production capacity of 1.8 million tonnes per annum via collieries reorganization and structure optimization in the coal sector.

    According to the latest forecast, the coal consumption across the province will reach 400 million tonnes by 2020, and another 600 million tonnes of coal will be distributed outside the region.

    Beijing has vowed to lower coal production over the next few years to reduce an annual capacity surplus amounting to more than 2 billion tonnes.

    The pledges are also part of China's years-long push to reduce the share of coal in its energy mix to cut pollution that has choked its northern cities.

    Shanxi, with a quarter of China's known coal reserves, aims to limit the number of its mines to 900 by 2020, with an average capacity of 1.8 million tonnes annually, according to earlier reports.

    Earlier this month, the province said it will shut 18 collieries and cut 17 million tonnes of coal capacity this year.

    China's government has said it aims to close 800 million tonnes of outdated coal capacity by 2020.

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    Australia's Arrium steel group narrows buyers to two

    Final bids were lodged on Wednesday for the assets of Australian steel group Arrium Ltd, with creditors hoping for a one-price-for-everything transaction completed by the end of the month, two sources familiar with the matter said.

    Britain's Liberty House, the industrials and commodities group that has been snapping up troubled steel plants around the world is one of only two bidders remaining for Arrium, a steel company, with mining and distribution arms that fell on hard times after using debt to expand, according to the sources.

    A spokeswoman for Liberty House declined to comment.

    The other bidder is Seoul-based Newlake Alliance Management, comprising former executives of private equity giant Blackstone, which is looking to employ Finex technology under license from Korean steel group Posco, one of the sources said.

    Newlake could not be reached for comment.

    Arrium collapsed in April 2016 with A$2.8 billion ($2.1 billion) in debt after creditors rejected a $927 million bailout proposal by private equity group GSO Capital Partners that would have paid no more than 55 cents on the dollar on their claims.

    The creditors' committee includes Australian lenders Commonwealth Bank, National Australia Bank, Westpac and ANZ Bank, which are owed a combined A$1 billion.

    Arrium's U.S.-based Moly-Cop division, regarded as the jewel in the company, was sold to private equity firm American Industrial Partners for $1.23 billion in November.

    Since the collapse, the company has been run by financial administrators KordaMentha, which is overseeing the sales process.

    A spokesman for KordaMentha declined to comment

    One source close to the bidding said it could be several weeks before the offers were fully assessed but that creditors were anxious to have a determination by the end of June in order to start the 2017-18 financial year afresh.

    Liberty House, which operates together with energy and commodities business SIMEC under the $9.4 billion Gupta Family Group (GFG) Alliance, hit the headlines last year when it offered to rescue steel plants owned by Tata Steel UK that were on the verge of shutdown.

    Liberty has since bought an aluminium smelter in Scotland and a steel plant in the United States.

    Arrium's main asset is the 76-year-old Whyalla steel mill, which almost seized up after a powerful storm cut power, leaving molten steel to cool in its blast furnace.

    Arrium used debt to expand iron ore production during the mining boom of the last decade. But slowing Chinese demand and a over-production by majors Rio Tinto and BHP Billiton resulted in a collapse in iron ore and steel prices.

    The South Australian state government has pledged A$50 million to a new owner of the Whyalla steelworks to help upgrade the plant.
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    Russia's Mechel first-quarter net profit jumps

    Russian metals and mining giant Mechel said on Wednesday its net profit jumped to 13.9 billion roubles ($245 million) in the first quarter, compared with a profit of 312 million roubles in the same period last year.

    Mechel, which borrowed heavily before Russia's economic crisis took hold in 2014, has fought back from the brink of bankruptcy after struggling to keep up debt repayments as demand for its products weakened alongside tumbling coal and steel prices.

    Higher prices and a nascent recovery in the Russian economy have since supported earnings and the company said in April it could start reducing debt this year if favourable market conditions continued.

    "In the first quarter of 2017 the group showed good financial results. Favourable price trends had their positive impact," Chief Executive Oleg Korzhov said in a statement.

    "Our net profit attributable to equity shareholders of Mechel for the first quarter went up by nearly nine times, reaching 13.9 billion roubles."

    Mechel's net debt, excluding fines and penalties on overdue amounts, totalled 458.9 billion roubles as of March 31, down from 469.2 billion roubles at the end of last year.

    Revenue increased 24 percent year-on-year to 77.4 billion roubles, while earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 22.8 billion roubles, up from 10 billion roubles a year ago.

    Mechel, controlled by businessman Igor Zyuzin, said earlier on Wednesday its crude steel output increased 8 percent year-on-year in the first quarter to 1.1 million tonnes.

    Coal output and sales of coking coal concentrate both fell 10 percent compared with the same period last year, to 5.2 million tonnes and 2 million tonnes respectively, it said.
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    “Clean coal” most expensive new power supply, says BNEF (and not all that clean)

    After a week of energy policy talk dominated by the Turnbull government’s outspoken support for new coal power generation for Australia, the independent energy research firm Bloomberg New Energy Finance has joined the growing chorus of voices saying, “umm, I don’t think so.”

    BNEF released a damning report on the cost of new ultra-supercritical coal-fired power stations in Australia – which the Coalition likes to call “clean coal” – which basically confirms the theory that this would be “the most expensive form of new energy supply” the federal government could possibly choose to invest in, even discounting future carbon liabilities.

    The research puts the Levelised Cost of Energy (LCOE) of a new ultra-supercritical coal-fired power station in Australia at $A134-203/MWh; significantly higher than the LCOE of new-build wind at $A61-118/MWh), solar $A78-140/MWh or combined-cycle gas at $A74-90/MWh.

    As for the cost of coal with carbon capture and storage technology added – which many, including Australia’s chief scientist, have said will be the only way new coal could be built, if we are to abide by our national and internaitonal emissions reduction commitments – BNEF says this is difficult to assess, but comes up with an LCOE in the ballpark of $A352/MWh – or around three times the cost of wind or solar.

    Not only does this research put clean coal firmly in the ‘economically ridiculous’ basket, but it puts lie to the Coalition’s argument that building new coal in Australia will help deliver that “affordable electricity supply.”

    According to BNEF, building new coal in Australia would result in “substantially higher” electricity prices than we would see from a combination of wind, solar and gas – provided gas markets operate efficiently.

    “New coal is made particularly expensive due to the substantial carbon, reputation, trading and construction risks the technology presents to an investor,” explains Leonard Quong, a senior associate with BNEF in Sydney and the report’s lead author.

    “But even if the government were to completely de-risk coal by paying for the whole plant and guaranteeing an exemption from any future liabilities, the lowest LCOE that could be achieved is $A94/MWh, which is still well above wind, solar or gas.”

    On the subject of emissions, BNEF’s research also found that new-coal is far from ‘clean’, with new ultra-supercritical plants found to have an emissions intensity of 0.76tCO2-e/MWh – around double that of combined cycle gas (0.37-0.46tCO2-e/MWh).

    “It is inaccurate and misleading to describe ultra-supercritical coal technology as “clean” without the presence of CCS,” said Quong – and as noted above, adding CCS to the cost of the technology takes it from unrealistic, to out of this world.

    Of course, BNEF is not alone in coming to these conclusions. The director of the Centre for Climate Economics and Policy at the Australian National University, Frank Jotzo, put them in his own words in this Conversation article today; while earlier this week the Melbourne Energy Institute’s Dylan McConnell also crunched the numbers, and found that the Coalition’s clean coal plan would cost $62 billion – and that for a reduction of just 27 per cent of coal power emissions.

    Based on the latest estimates from the CSIRO, McConnell said that achieving the 27 per cent reduction would require 20GW of new coal capacity, at a cost of $3,100 per kW to build.

    “No wonder no one wants to talk about the costs,” McConnell told The Guardian.

    He said the total cost of the exercise, $62 billion, could instead build between 35GW and 39GW of wind and solar energy, amounting to an emissions reduction of between 50 – 60 per cent in the electricity sector as a whole.

    In another scenario, where the 27 per cent emissions reduction was achieved with renewables, rather than with new coal, about 13-19GW of renewable energy would be needed, which would cost between $24 billion and $34 billion.
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    China steel PMI rises to one-year high in May; risks rising

    Activity in China's steel industry expanded at the fastest pace in a year in May, industry data showed on Wednesday, with a rise in new orders giving mills in the world's top producer incentive to further ramp up output.

    However, risks in the market are growing as prices hit historic highs, the China Federation of Logistics & Purchasing (CFLP) said, while analysts warned demand may ease in the coming summer months when construction activity slows.

    China, which makes about half of the world's steel, produced a record volume of the building material in April at a time when Beijing is campaigning to tackle surplus supply.

    The Purchasing Managers' Index (PMI) for the steel sector rose to 54.8 in May from 49.1 in the previous month, climbing above the 50-point mark that separates growth from contraction, according to data from CFLP.

    The new orders index jumped 13.6 percentage points to 60.5, the highest level since May 2016, data showed.

    "Demand from traders and downstream consumers rose as prices rebounded. Sales are good while steel firms are seeing more orders," CFLP said. Shipbuilding surged 72 percent in January-April, it said, while sales of excavators and bulldozers also grew sharply in April.

    "Steel demand fundamentals continue to improve. Currently, extremely low domestic steel stocks mean prices will continue to rally. But risk in the market is growing given that prices and margins for steel mills are at a historically high level," it added.

    Stocks of construction steel product rebar held by Chinese traders have more than halved from mid-February to 3.93 million tonnes as of May 26, according to SteelHome consultancy. SH-TOT-RBARINV

    China's fixed-asset investment grew 8.9 percent in January-April as the government increased infrastructure spending to spur economic growth.

    "There was an improvement in demand but we don't think it will be sustainable because we're approaching summer when construction usually slows down," said CRU analyst Richard Lu.

    There is also weak appetite for Chinese steel products overseas, particularly in Southeast Asia, said Lu. About a third of China's steel exports flow into that region.

    "In March and April, a lot of Southeast Asian importers booked rebar and billet orders from Russia, Ukraine, Iran and Turkey," he said.

    "So it seems their inventories are full now and monsoon season is coming, so their demand might not be as strong in June through August."

    The steel export index slipped 0.2 percentage points to 44.8, falling below the 50-threshold for the sixth consecutive month.

    "Steel mills have difficulty taking new export orders. We expect steel exports to continue to drop in following months," CFLP said, citing higher domestic steel prices and trade tensions between China and foreign markets.

    China's steel exports dropped 25.8 percent to 27.2 million tonnes in January-April
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    Chinese exports have little impact on US steel industry, ministry

    The Ministry of Commerce recently rejected US claims that China is behind the global steel overcapacity, saying its exports have little impact on the US steel industry.

    China understands that the United States is concerned about the closure of US steel companies and the resultant unemployment of blue-collar workers, but the root cause of this wave of global steel overcapacity is shrinking demand due to economic downturn since the global financial crisis, the MOC said in a research report on China-US economic and trade relations.

    China's steel industry is positioned to meet domestic demand, and the Chinese government does not encourage the export of iron and steel products, but has adopted a series of measures to control exports, according to the report.
    It said the proportion of China's steel exports within the United States total steel imports is small, citing a year-on-year decrease of 51.5% in the volume of Chinese steel exports to the United States and a 40.1% decline in the value in 2016.
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    Glut, Chinese gamblers fuel iron ore's biggest rout in a year

    Glut, Chinese gamblers fuel iron ore's biggest rout in a year

    A stubborn glut and selling by Chinese speculators have slashed iron ore prices this year, with traders and industry officials predicting further declines as memories fade of the steelmaking commodity's stunning recovery in 2016.

    Prolonged price weakness would make business tougher again for top miners like Vale, Rio Tinto and BHP, whose earnings were roiled as iron ore markets tumbled 70 percent in the three years through 2015.

    Weaker prices could also hit marginal suppliers such as Iran, potentially forcing that country out of the market again after boosting shipments to top buyer China earlier this year.

    Iron ore prices have plunged nearly 40 percent from this year's peak, trading at just below $60 a ton this week, with stockpiles at Chinese ports swelling to their largest in 13 years.

    In May alone, iron ore has fallen 15 percent, on course for its steepest monthly drop in a year. In 2016, the commodity rallied over 80 percent.

    "Demand is still healthy but there's way too much supply," said a trader at a global trading firm in Singapore that is looking for Chinese buyers for about 1.5 million tonnes of iron ore in coming weeks. He asked not to be identified.

    "If you're an iron ore buyer and you see it's an oversupplied market, and supply will only increase from here, would you have any incentive to buy more today?"

    Imported iron ore at China's ports reached 136.6 million tonnes on May 26, the highest since SteelHome consultancy began tracking the data in 2004. That is enough to build the Eiffel Tower in Paris more than 13,000 times over.

    Global iron ore output is forecast to expand an average of 1 percent annually from this year to 3.3 billion tonnes by 2021, the same average growth during 2012-2016, BMI Research said.


    Declining prices have been amplified by China's army of speculators, the ones behind the wild swings in iron ore futures traded on the Dalian Commodity Exchange (DCE).

    Dalian futures, launched in October 2013, gave many Chinese investors their first real chance to play in the iron ore futures market, and have largely influenced physical pricing.

    "DCE is the primary driver and it's always been the primary driver. That's not going to change because iron ore is a China market," said Kelly Teoh, broker at Clarksons Platou Futures.

    The volume of iron ore futures traded on the DCE so far in May reached nearly 2.8 billion tonnes, about twice annual global seaborne trade and the largest since April 2016, according to exchange data.

    As the most-traded contract dropped 32 percent from this year's high to mid-May, open interest - or open contracts - grew to 2.45 million lots, the highest since November 2015.

    "There is clear evidence of speculation in China's iron ore and steel futures," said Julius Baer analyst Carsten Menke.

    "Speculation always amplifies trends, to the upside and to the downside."

    Australia's Fortescue Metals Group, the world's No. 4 iron ore miner, said it was generating strong margins even at current prices.

    Fortescue CEO Nev Power expects China's steel output to rise "around 5 percent compared to this time last year" with demand backed by the nation's continuing "industrialization and urbanization".

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    Steel CEOs say EU carbon reforms threaten jobs, investment

    Steelmakers in Europe have written to EU leaders urging them not to burden the industry with extra carbon emissions costs they say would make them uncompetitive against foreign rivals and raise the risk of job losses and plant closures.

    Draft reforms to the EU Emissions Trading System (ETS) post-2020, agreed in outline by the European Parliament in February, aimed to balance greater cuts in greenhouse gases with protection for energy-intensive industries.

    Since then, negotiations between representatives of the European Parliament, governments and the European Commission have made the proposals tougher, the steel industry says.

    Environmentalists say the law should not be watered down.

    The CEOs of 76 steel makers, including Arcelor-Mittal, Germany's Thyssenkrupp and Austria's Voestalpine, say the reforms as they stand would add unmanageable costs and mean pollutants were produced by manufacturers in other regions.

    "You can avoid burdening the sector with high costs that will constrict investment, or that will increase the risk of job losses and plant closures in the EU," the CEOs say in an open letter, dated May 28, to EU heads of state and government.

    Writing before more closed-door talks on Tuesday on the carbon market reforms, the CEOs say the higher costs for emitting carbon dioxide would favor imports.

    "In its current form, the EU ETS favors steel imports from third country competitors that do not have such costs and which have a far higher carbon footprint than steel made in the EU," the letter says.

    It urges EU leaders "to help preserve the sustainability and global competitiveness of the European steel industry."

    The EU ETS is meant to be the prime tool to enforce EU emission cuts in line with the Paris Agreement on Climate Change.

    But it has been dogged by a surplus of permits for polluting industries that have depressed prices, while industry leaders have repeatedly objected to reforms to strengthen it.

    For the European steel industry, which has battled global oversupply, the European Union has agreed measures to protect it from dumped imports or those found to be sold at unfairly low prices by nations, such as China.

    China has urged the EU to treat Chinese firms fairly and abide by the World Trade Organization's rules.

    China is developing its own carbon markets to curb emissions, which environmental campaigners say undermines the European steel industry's argument that it helps to protect against more polluting production elsewhere.

    A spokesman for Malta, the nation in charge of steering EU debate until the end of June, said the Maltese presidency was working to ensure constructive talks on Tuesday.
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    South Korea to suspend eight older coal-fired power plants to tackle pollution

    South Korea will halt operations at eight of the country's older coal-fired power plants for a month in June as part of measures to tackle air pollution, the energy ministry said on Tuesday.

    New President Moon Jae-in earlier this month announced plans to temporarily shut operations at 10 coal-fired plants that are more than 30 years old and to bring forward their permanent closure to within his presidency which ends in May 2022.

    The energy ministry said in a statement that eight of the 10 older coal-fired plants will be temporarily shut down from June 1 for one month, while the other two will remain operational to ensure stable power supply.

    From next year, the plants will be regularly shut down for four months over spring, and operations will be permanently suspended by 2022, three years earlier than previously planned.

    Coal power currently accounts for about 40 percent of South Korea's total electricity needs.

    The country operates a total of 59 coal-fired power plants and the 10 older power plants account for 10.6 percent of the installed coal power capacity, or 3.3 gigawatts.
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    Early heat wave arrests slide in China's coal prices

    Forecasts for an unseasonable heat wave in many parts of China before the peak summer season have halted a decline in coal prices as utilities look to produce more power to meet demand for air-conditioning.

    Many of China's major cities in northern, central and southern regions are set for a warmer than usual June, forecasts from China's Meteorological Administration show, with Beijing set to hit 35.6 degrees Celsius (96°F) on May 28.

    Demand for thermal coal, which accounts for about two-thirds of China's total power generation, has also been boosted by dry weather that has reduced power output from hydro plants.

    Thermal coal usage normally peaks in winter for heating, then falls away until demand picks up during the hottest months of July and August, but warmer weather has already pushed up demand for air-conditioning in recent weeks.

    "There has been some concern that prices will continue to fall, but the heat wave has stopped prices falling further," said a Singapore-based coal trader.

    The most-active thermal coal futures contract hit a record 566 yuan/t in early April but slipped about 11% over five weeks until higher temperatures in Beijing re-ignited power demand and propped up prices.

    High domestic coal stocks had helped spur the bearish sentiment, with some traders forecasting that prices could retreat to the 420 to 450 yuan/t area where prices started the year.

    But with Beijing set for a lengthy hot spell, and Shanghai, Hangzhou, Wuhan and Changsha also set to have a hotter-than-usual June, traders are starting to revise their views.

    "Temperature is very crucial this year. We are following the weather more closely this year because the forecast for June temperatures is higher than the actual of the previous year," a senior official with China's top utilities group Huaneng said.

    The sentiment shift has been compounded by low hydro power production, which has fallen 4.5% for the first four months of 2017 to 268.4 TWh  on low reservoir levels, data showed.

    However, traders and analysts said prices were unlikely rise in coming weeks, with utilization rates lower than last year due to overcapacity, and with large coal stocks at the country's ports.

    Coal-fired power stations had built an average 30 days of coal stocks by late May, Zhang Xioajin, a Hefei-based analyst with Everbright Futures said.

    "Prices will continue to fall until late June," added Zhang Xiaojin, an analyst with Everbright Futures said. "The stocks level has not pointed to a revival in prices yet."

    Forecasts for an unseasonable heat wave in many parts of China before the peak summer season have halted a decline in coal prices as utilities look to produce more power to meet demand for air-conditioning.

    Many of China's major cities in northern, central and southern regions are set for a warmer than usual June, forecasts from China's Meteorological Administration show, with Beijing set to hit 35.6 degrees Celsius (96°F) on May 28.
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    India's Adani has to pay royalties in full for coal mine: Australia state premier

    Adani Enterprises will get no exemption or discounted rates on royalties it has to pay to develop its Carmichael coal mine project in Australia, Queensland state Premier Annastacia Palaszczuk said on Saturday.

    Ministers from the center-left state government made the decision on Friday, putting an end to speculation that the Indian company would be offered concessions on royalties during the early years of coal production.

    “Under this new policy, the Adani Carmichael mine will pay every cent of royalties in full,” Palaszczuk said in a statement on Saturday.

    “There will be no royalty holiday for the Adani Carmichael mine.”

    Adani said this week its board had deferred a final investment decision that had been expected by the end of May because the government had yet to sign off on a royalty regime.

    Adani could not be immediately reached for comment on the Queensland government’s announcement.

    Deputy Premier Jackie Trad said Adani would be allowed to defer payment of royalties provided interest was paid and a security of payment was in place.

    The state government ruled out the use of public money to subsidize the controversial project or any directly associated infrastructure.

    Adani has battled green groups over the past six years looking to block what would be Australia's biggest coal mine. Opponents have argued the coal exports would stoke global warming and that the project would require a port expansion that could damage the Great Barrier Reef.

    The port expansion is no longer needed as the company has shrunk the first phase of the mine to 25 million tonnes from 40 million tonnes a year, as it looks to make the mine and rail project more affordable at around $4 billion, instead of more than $10 billion
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    Australian state asks Rio, BHP for upfront cash

    The cash-strapped Western Australian state government will ask Rio Tinto and BHP to pay an upfront multi-billion dollar fee in exchange for cancelling an ongoing levy on their iron ore production.

    The revenue push by the mineral-rich state, which has run up more than A$30 billion ($23 billion) in debt following the end of a mining boom, sets the stage for talks with the miners, who are seen as unlikely to agree unless they win significant benefits.

    Under the proposal, the two mining houses would pay as much as A$4 billion ($3 billion) in exchange for cancelling a A$0.25 a tonne ongoing levy on iron ore from their mines, some of which could be running for another 50 years.

    State treasurer Ben Wyatt, whose center-left Labor party won a state election in March, said the proposal was still in its early stages.

    "It's an option that could only be close to crystallizing if you had a range of things in play, one, obviously the engagement and agreement of the miners," Wyatt told reporters on Monday.

    Rio Tinto has previously rejected the payout proposal, according to a company spokesman. A BHP spokesman declined to comment.

    The mining companies are due to meet with the government this week, but a source close to one company said the proposal could set an unwelcome precedent.

    "The last thing Rio and BHP want is to become the state's go-to ATM every time there's a financial crisis," said the source, who was not authorized to speak publicly on the topic.

    The A$0.25 a tonne levy raised around A$150 million for Western Australia last year, based on the two company's combined output of about 600 million tonnes of iron ore.

    The state earns far more from a 7.5 percent royalty based on the value of their sales, which contributes well over $2 billion a year to state coffers.

    Pietro Guj, a professor at the University of Western Australia who previously oversaw the state's royalties system, said the miners would need to benefit in order sign up to the proposal.

    "There would have to be a motivation from the miners' point of view unless they were feeling philanthropic," Guj said.

    The current plan follows a suggestion by a rival party in the lead up to the March election that the levy be raised to as much $5 a tonne, a proposal that was condemned by the miners.

    Only Rio Tinto and BHP pay the rental fee, which applies to mature projects, but other projects including those owned by Fortescue Metals Group and Gina Rinehart's Hancock Prospecting would be liable to pay it from 2023.
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    ArcelorMittal wins bid to buy Italy's Ilva steel plant

    ArcelorMittal, the world's biggest steelmaker, and Italian industrial group Marcegaglia have won a bid to buy the troubled Ilva steel plant in southern Italy, a source with knowledge of the matter said on Friday.

    The special commissioners in charge of Europe's biggest steel plant by output capacity have accepted the bid of just under 2 billion euros ($2.23 billion), the source said.

    A representative for ArcelorMittal in Italy declined to comment until after Italy's industry ministry ratifies the decision. A spokesman for Marcegaglia declined to comment.

    ArcelorMittal and the Italian family-owned company were bidding against a rival group including India's JSW Steel , the source said.

    Italy has been trying to sell Ilva, based near the southern port city of Taranto, since 2015, when the state took full control in a bid to clean up the polluted site and save thousands of jobs in an economically depressed area.

    The commissioners must now pass their decision on to Italy's industry ministry, which must issue a decree authorising it, the source said.

    Once the decision is official, the environment ministry will examine the consortium's plans for cleaning up the site, which was sequestered by magistrates in 2012 amid allegations that its toxic emissions were causing abnormally high rates of cancer.

    The environment ministry will issue its own decree around autumn this year, at which point the deal will need to be signed off by the European Union.

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    S Korean scrap bookings begin to draw some attention from buyers

    South Korea-origin scrap has begun to draw some attention from buyers in East Asia, mainly Vietnam and Taiwan.

    Along with the recent emergence of several bookings for China-origin scrap, South Korea-origin scrap is expected to be another addition to the market.

    Some bookings by Seoul-based scrap exporter GMR Materials have been heard done recently.

    Around May 24, Japan's leading mill Tokyo Steel concluded a booking for around 3,000 mt of Japanese H2-equivalent materials at $241/mt CFR Futajima, Japan, a source close to the company confirmed.

    Earlier this week, GMR sold around 5,000 mt of H2 to Taiwan at $221/mt FOB South Korea and also around 5,000 mt of H1/2 50:50 to Thailand at $230/mt FOB South Korea, the source added.

    S&P Global Platts had a chance to sit down with Danny Kim, CEO of GMR Materials, at the 2017 World Recycling Convention and Exhibition in Hong Kong on Tuesday.

    "South Korean scrap is starting to get more credibility from buyers in terms of quality, and the number of inquiries is increasing," said Kim.

    Currently, GMR Materials is exporting around 30,000 mt/month, equivalent to around 360,000 mt/year, of South Korea-origin scrap to mainly East Asian countries.

    Of the total, around 20,000 mt/month is for export to Vietnam and the rest to Taiwan, Thailand, and Bangladesh, the CEO said.

    It has been widely heard among trading sources in South Korea that domestic scrap suppliers find it difficult to export scrap because of their complicated business relationships with local steel mills.

    GMR, after acquiring a local scrap supplier in 2016, began its scrap-exporting business by selling around 25,000 mt to Bangladesh. GMR is now the only scrap exporter from South Korea.

    "The scrap market situation in South Korea now is following a very similar pattern to what was happening in the Japanese market around 10-15 years ago," the CEO explained.

    "Japan's domestic scrap generation had suddenly increased exponentially around 10 years ago, and now Japan is one of the main scrap exporters globally," he added.

    South Korean industry participants generally estimate the proportion of domestic scrap to around 70% of total scrap usage. However, the CEO claims that the proportion has now jumped up to around 80% or more.

    "Given the current trend in domestic scrap generation, it will be inevitable for South Korean scrap suppliers to start actively exporting in about five years," he told Platts.

    South Korea was the fifth-largest in using scrap in steel production, after China, EU-28, the US, and Japan, in 2016, according to data provided by the Bureau of International Recycling.

    In 2016, South Korea consumed a total of 27.4 million mt of scrap, down 8.2% year on year, to produce a total of 68.57 million mt of crude steel, also down by 1.6% year on year.
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    Sichuan pledges to kick out 100 coal mines in 2017

    China's southwestern province Sichuan plans to shut down 100 mines with production capacity of 13 million tonnes per annum (Mtpa) this year, the local media reported on May 22 in reference with a provincial working conference.

    The provincial government plans to close around 215 coal mines with capacity of 33.03 Mtpa within three to five years starting from 2016.

    Mines with annual coal production capacity below 90,000 tonnes, thickness of coal bed below 0.4 meter and mining height below one meter were among the shut-down list.

    In 2016, the province over fulfilled the task to close 169 coal mines, of which production capacity was at 23.03 Mtpa.

    As of end-2016, there were 354 coal mines in total across the province, with 70.15 Mtpa of production capacity.
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    Swedish miner begins massive relocation of whole city

    Ground fissures created by iron ore mining force entire town of Kiruna to migrate.

    The entire Swedish city of Kiruna has begun a long-planned and quite challenging relocation to an area situated about 3km (2miles) east, after ground fissures created by iron ore mining activity weakened the ground beneath it.

    The decision, however, didn’t take any local by surprise. In fact, mining company Luossavaara-Kiirunavaara AB (LKAB) has planned moving the nearly 18,000 residents of Kiruna and most of the city’s buildings since 2004.

    Over the next two decades, about 3,000 apartments and houses, several hotels, and 2.2 million square feet of office, school and health-care space will relocate east.

    While some residents of what is Sweden's most northern town have moved already, the first of the town’s historic buildings was hoisted up on a truck Wednesday and transported to its new location, Radio Sweden reported.

    State-owned LKAB, which is Kiruna's largest employer, has been digging deeper for ore in the area, which has increased the risk of Kiruna suddenly sinking into a hole.

    The company had alerted authorities that mining more iron ore would mean further excavation, which —in turn— would destabilize the city's centre. But instead of closing the mine, the municipality decided to relocate the town.

    LKAB is paying for a large proportion of the transformation, though it has said it is impossible to accurately ascertain the cost of the move.

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