Mark Latham Commodity Equity Intelligence Service

Monday 26th September 2016
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    Saudi Arabia Is Forced To Raise Cash As Oil Prices Tank

    Saudi Arabia has seen better days, at least for its storied oil industry. From playing the part of the world’s swing oil producer for decades, ramping up or pulling back production as it saw fit – it has now lost much of its significance.

    Due to the U.S. shale oil boom that caught everybody in the Oil Patch off guard, including most in the U.S., global oil markets have been awash in supply, putting tremendous downward pressure on oil prices which are off at least 60% since mid-2014.

    During the summer of 2014, prices reached $115 per barrel but then started trending downward, reaching only $26 in January, bouncing back to the low $50s range briefly this year and are now hovering in the mid-$40s range.

    Saudi Arabia’s quandary, however, can’t be blamed just on massive U.S. oil output, but must also be placed at Riyadh’s door. The Kingdom made the infamous decision in November 2014 to abandon its role as swing oil producer and actually increase output, despite a glut and lower prices.

    In fact, Saudi Arabia has been producing crude at record highs; first, to keep prices low to drive more U.S. shale oil producers out of business, and secondly, to protect market share in Europe and Asia, including China’s massive oil market, against Russia (the world’s top oil producer who is producing crude at Soviet era highs) and against an upstart Iran who is trying to reach pre-sanction oil production levels.

    However, despite Saudi Arabia’s game plan to hurt other producers, it has actually hurt itself in unprecedented ways.

    Riyadh has been burning through foreign reserve holdings. The Kingdom’s foreign reserve holdings, likely in U.S. dollars, dropped 16%, from the same period in 2015, to $555 billion. This marks a drop of $6 billion from July, and their lowest level since February 2012. Holdings peaked in August 2014 at $737 billion before prices tanked in July that year.
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    China launches a $52.5 billion restructuring fund for state-owned firms

    A private equity fund worth 350 billion yuan ($52.5 billion) has been launched in China to help with the restructuring of state firms, a newspaper run by Xinhua news agency reported on Monday.

    The China State-owned Enterprises Restructuring Fund will be managed by the State-owned Assets Supervision and Administration Commission (SASAC), according to the Economic Information Daily.

    The report said 10 state-owned enterprises have established the fund to help with restructuring of state firms, including M&A deals, as part of government efforts to advance supply side reform.

    The 10 firms have provided initial registered capital of 131 billion yuan, the newspaper said.

    No detail was provided on the source of the rest of the equity fund.

    The 10 firms include China Mobile Ltd , China Railway Rolling Stock Corporation, China Petroleum & Chemical Corp and China Chengtong Holding Group Ltd., a restructuring platform supervised by SASAC that will lead the fund.

    China is embarking on a revamp of its massive but debt-ridden state sector, which has struggled under a system that requires firms to maximize economic gains while fulfilling government policy objectives.

    The government has vowed to create innovative and globally competitive enterprises through mergers, asset swaps and management reforms.
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    Caterpillar sees green shoots in mining, but sales far from picking up

    Caterpillar, the world's No.1 heavy machinery maker, injected some much-needed optimism in the global mining industry this weekend by saying it is finally seeing growing signs of improvement.

    The Peoria, Illinois-based company, which held a special press event before the upcoming MINExpo in Las Vegas, revealed it has had more discussions about potential sales in recent months than in the last two or three years. Those talks, however, have been quite “preliminary” and with no timeline set.

    “Whether those conversations will materialize, that remains to be seen,” said Denise Johnson, CAT’s Group President, Resource Industries.

    "We've had more discussions about potential sales in recent months than in the last two or three years. Whether those conversations will materialize in actual sale remains to be seen.” – Denise Johnson, CAT’s Group President, Resource Industries.

    She added that while there have been clear signs of improvement, from a sales point of view CAT has not seen any significant movements just yet.

    The company’s performance is often seen as a gauge of the health of the global economy, as its machines are huge, expensive, and used in different kinds of projects to which companies and governments are only likely to commit if they're confident in the economic outlook and their financial standing.

    The fact that CAT has been approached much more in the last few months about potential deals is a positive sign for the industry. But challenging conditions persist, warned CAT, which in recent months has repeatedlyaxed its full-year sales and profits forecast, not to mention plants closures and massive lay-offs.

    As part of those measures, the company recently announced its exit from the room and pillar business. And while CAT plans to keep servicing existing customers, it revealed the unit is currently up for sale.

    Johnson, who was selected by the National Mining Association (NMA) to chair MINExpo 2016, said that if the company finds a buyer it will look for ways to not abandon completely its former room and pillar customers.

    Denise Johnson, CAT’s Group President, Resource Industries.

    While CAT expects demand for mining equipment to pick up next year, it keeps investing in ways to improve current equipment performance.

    It has also increased the presence of CAT representatives at the mine site, whose mission is to help operator make the most out of their acquisitions.

    “CAT doesn’t measure the success of that representative by the amount of equipment he or she sells, but by the performing metrics of the mine itself, “ said Johnson. “Their success is measured in terms of their customers’ achievements and that is how they are rewarded.”

    CAT considers this a key investment in terms of after sales support, which includes working with the dealers.

    In the meantime, the company is going digital. The largest percentage of its research and development budget is currently being allocated to that area.

    The goal, though seems counterintuitive, is to reduce the amount of mining equipment needed at operations. That means that during a downturn, such as the one that has jut wrecked the industry, CAT would continue to thrive in terms of sale, just not of equipment, but technology that supports and maximize the returns and efficiency of mining operations.

    Precious metal miners to boost sales

    Caterpillar sees key opportunities in the precious metals sector, particularly gold, for the next 12 to 15 months, as miners restart projects that were placed in the back burner and expand current operations thanks to a continued price rally for the yellow metal.

    Currently CAT makes the most sales to the coal, copper and iron ore sectors, in that order. Gold, while still a small sector for the equipment maker, has now taken the forth place, said Johnson.

    “We believe in mining and it is an industry we will continue to serve,” said Tom Bluth, vice president, material handling and underground. “We know it is a cyclical business and it will come back.”

    Evidence of CAT commitment to mining can be seen at all the newest equipment and technology the firm will present at MINExpo 2016, which begins this Monday Sep. 26 and runs until Sep. 28 at Las Vegas Convention Centre, in Nevada.
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    Oil and Gas

    Oil prices rebound after Algeria says all options open at OPEC meeting

    Oil prices rebound after Algeria says all options open at OPEC meeting

    Crude prices rebounded on Monday after Algeria's energy minister said the day before that all options were possible for an oil output cut or freeze at this week's informal meeting of OPEC producers.

    That came after prices tumbled 4 percent on Friday amid signs Saudi Arabia and Iran were making little progress in achieving preliminary agreement to freeze production.

    Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum in Algeria from Sept. 26-28, where they will discuss a possible output-limiting deal.

    "We will not come out of the meeting empty-handed," Algerian energy minister Noureddine Bouterfa said in Algiers on Sunday.

    A weaker U.S. dollar also supported oil prices.

    "The fact countries like Algeria are still talking about a deal means it's still on the table regardless of others' views about what might be happening," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.

    "I expect Algeria and Venezuela to keep pushing for a deal - it's imperative for them to keep the price up," Barratt said.

    Signals have been mixed so far on whether a deal on cutting or freezing production is possible.

    Sources told Reuters on Friday that Saudi Arabia did not expect a decision to be made in Algeria, while Saudi Arabia had also offered to reduce production if Iran caps its own output this year, an offer to which Tehran had yet to respond.

    "Our base case is that OPEC will meet on Sept. 28 without a formal statement. A nonbinding commitment to stabilize oil markets is possible, but it would likely lack teeth," Morgan Stanley said in a note on Monday.

    "Rather, we expect OPEC to note how this meeting lays the foundation for a more constructive and formal discussion at the official November OPEC meeting," the bank added.
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    So Much For The Saudi "Proposal" - Iran Refuses To Cap Output, Clashes With Saudis Over Freeze

    After oil spiked earlier on an anonymously-sourced Reuters "report" that Saudi Arabia has offered to cut production in exchange for an Iran production freeze, a proposal which was promptly shut down by third party observes, moments ago WSJ reporter Summari Said effectively killed this particular attempt to spike the price of oil when she reported - also citing sources - that Saudis and Iranians have clshed over output freeze levels, and that Iran has refused to cap output.

    This is what she tweeted in its entirety:

    Saudis, Iranians Clash Over Output Freeze Level--Sources
    Saudis Want to Use Secondary Sources for Output Freeze Levels--Sources
    Iran Wants to Use Govt Projections for Freeze Levels--Sources
    Disagreements in Vienna Go Unresolved Ahead of Algiers Meeting-- Sources
    Iraq Won't Cap Output Until It Reaches 4.75M B/D to 5M B/D--Statement
    Iraq Output Cap Implies Boost of 150,000B/D to 400,000 B/D Vs August

    Oil has recouped some of its gain, but is still well above the intraday lows. We expect many more such headline headfakes in the coming days and especially early next week during the Algiers OPEC meeting.
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    Iran unlikely to agree to oil freeze, pre-sanctions output still aim: source

    Iran would be unlikely to agree to freeze its crude output at current levels as part of any deal among OPEC and other major oil producers, an Iranian official told S&P Global Platts on Friday.

    Reuters reported earlier that Saudi Arabia has told Iran it would be willing to reduce its output if Iran agreed to freeze its production at current levels of around 3.6 million b/d, citing unnamed sources.

    The Iranian official, who spoke on condition of anonymity, as oil minister Bijan Zanganeh has final say over policy decisions, declined to confirm whether Iran had received any such proposal from Saudi Arabia.

    But he said Iran continues to insist on regaining its pre-sanctions output levels before agreeing to any restrictions on its output.

    "I think it's unlikely that Iran will even consider 3.6 million b/d," the official said. "It is very, very unlikely that Iran agrees to this figure or negotiates it." He added: "As far as the oil ministry's principal policy is concerned, we have always stressed that we want our pre-sanctions level of 4.2 million b/d back."

    Representatives from the two countries have been meeting in Vienna the past few days ahead of next week's International Energy Forum in Algiers, where OPEC is scheduled to informally meet and possibly discuss an output freeze, according to media reports.

    Saudi Arabia pumped a record 10.66 million b/d in August, according to the latest Platts OPEC production survey. Many observers expect the kingdom's output to decline in the coming months anyway, as the peak summer air conditioning season ends, reducing its domestic crude burn.

    Iran produced 3.63 million b/d in August for the third straight month, according to the Platts survey, as recovery from sanctions imposed on its oil sector by western powers over its nuclear program appears to be plateauing.

    A previous agreement in April among major OPEC and non-OPEC producers at a summit in Doha to freeze output at January levels fell apart over Saudi Arabia's insistence that Iran be a party to the deal.

    Iran did not participate in the Doha talks but is scheduled to attend the Algiers meeting.

    The meeting comes as the market continues to languish from a global supply overhang that has persisted far longer than many producer nations had anticipated.

    Saudi Arabia, which in recent years has declined to act as the world's swing producer to balance the market, has said that it would only participate in coordinated output action if there were unanimous agreement among all key producers.

    Attached Files
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    Niger Delta Avengers claim first attack in energy hub since ceasefire

    Nigerian militant group the Niger Delta Avengers said on Saturday it had carried out its first attack in the country's southern energy hub since it declared in August it was halting hostilities to pursue talks with the government.

    The militants, who said they attacked the Bonny crude export line on Friday night, have in previous months launched assaults which have cut crude production, which was 2.1 million barrels per day at the start of the year, by around a third.

    In a statement on its website the group said it "brought down oil production activities at the Bonny 48 inches crude oil export line" through its "strike team". Reuters was unable to immediately independently verify the details.

    The Avengers, who want a greater share of the OPEC member's wealth to go to the Niger Delta where most crude is produced, said the attack was a "wake up call" for the government, which it accused of intimidating youths in the region since the ceasefire began.

    "While we were promised that the concerns of the Niger Delta will be addressed once a truce is declared, the activities of the government and her agents are not assuring enough, there has been no progress," the group said.

    However, the statement added that the organization was "still in favor of dialogue and negotiations". Earlier this month the Avengers told Reuters there had been no contact with the government since the group agreed to cease hostilities.
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    Russian finance minister wants to raise tax on oil, gas firms

    Russian finance minister Anton Siluanov said on Friday he wanted to increase taxes on the oil and gas industry by around 50 billion roubles ($787 million) a year.

    Russia is the world's biggest oil producer and its output has been rising to record highs despite low crude prices. The trend, supported by a weaker rouble, has caught the attention of the treasury, which needs revenues to cover a budget deficit.

    The current oil tax regime envisages a gradual increase in mineral extraction tax (MET) and export duties on heavy oil refining products, offset by a reduction in duties on exports of oil and high-grade refined products.

    This year, however, the MET was increased as planned, but there was no corresponding reduction in oil export duty, angering the industry. Russia's oil taxes are already among the highest in the world.

    Speaking on the sidelines of the Moscow Finance Forum, Siluanov told reporters the finance ministry would propose increasing taxes on the oil and gas industry by about 50 billion roubles a year via tools such as MET.

    "We are working with the energy ministry on how this should be spread out, which sectors (oil or gas) we will take this money from," he said, without giving further details.

    Siluanov also said the ministry planned to reach the same level of taxation for the gas sector as for the oil industry, in a step-by-step process.

    "First of all, we are talking about Gazprom," he said.
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    Schlumberger strike agreement on seismic with Petronas

    Schlumberger said it has signed an agreement to license a significant part of the WesternGeco Campeche seismic survey in the southern Gulf of Mexico with Petronas.

    The Western Geco Campeche deepwater survey is located in the southern Gulf of Mexico.

    More than 800,000km of newly imaged subsurface data has been acquired in the last 12 months.

    The project follows the Mexican government’s opening of licensing rounds to non-government companies for the first time.

    Maurice Nessim, president of WesternGeco, Schlumberger, said: “We are pleased to have the opportunity to expand our collaboration with PETRONAS in Mexican waters of the Gulf of Mexico,’ ‘The great potential of the area and complexity of the geology in the Campeche basin requires high-quality wide-azimuth acquisition to image the subsalt effectively.

    “We will leverage our extensive US Gulf of Mexico experience to deliver enhanced subsalt imaging and additional exploration solutions to our clients.”
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    Brookfield-led group to buy stake in Petrobras natgas pipeline

    Brazil's state-run oil company Petroleo Brasileiro SA agreed to sell 90 percent of its natural gas pipeline unit for $5.2 billion to a group of investors led by Canada's Brookfield Asset Management Inc , the companies said on Friday.

    The Brookfield-led group agreed to pay $4.34 billion upon closing the deal and the remaining $850 million in five years, they said. The consortium includes sovereign wealth funds CIC Capital Corp of China and GIC Private Ltd. of Singapore.

    Reuters had reported on Sept. 6 details of the accord that the investor group struck with Petrobras, as the oil company is known.

    The deal, which is still subject to approval by shareholders and Brazilian regulators, is the largest yet in a plan by the oil company to sell $15.1 billion of assets in 2015 and 2016 and raise another $19.5 billion through divestments and partnerships between 2017 and 2018.

    Under the accord, Brookfield Infrastructure Partners Ltd will invest at least 20 percent of value of the deal, while Brookfield Asset Management has an initial investment of about 30 percent.

    The Petrobras pipeline unit, Nova Transportadora do Sudeste SA, transports natural gas in south-central Brazil, providing Rio de Janeiro, São Paulo and Minas Gerais with natural gas coming from Bolivia and Brazil's offshore oil and gas fields.
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    Interview: Gazprom's 2016 natural gas export hike led by buyers, not 'dumping'

    Platts spoke this week with Gazprom Export's Valery Nemov about Russian gas supplies to Europe and current European gas market conditions. Read the interview below and also hear more from Valery Nemov at Platts' European Gas Summit in Dusseldorf on September 27-28.

    * Hub indexation 'broadly' used in Gazprom contracts: Nemov
    * But oil indexation 'still alive'
    * Take-or-pay levels also changing in revised agreements

    The significant increase in Russian gas supplies to Europe so far in 2016 is a result of higher demand from buyers, and is not due to Gazprom "dumping" gas on the European market, a senior official from Gazprom Export said Friday.

    In a wide-ranging interview with S&P Global Platts, Valery Nemov, Gazprom Export's deputy head of contract structuring and price formation, also said that oil indexation remained key to gas pricing.

    Gazprom's gas exports to Europe -- including Turkey and the ex-Soviet Union states -- rose by 14% to 85 Bcm in the first half of 2016 compared with the same period last year.

    Some industry spectators have questioned whether the sharp increase was demand-driven or whether Gazprom has been flooding the European market with cheap gas as part of a market defense strategy ahead of the startup of US LNG exports.

    "We have observed a remarkable increase in our supplies to Europe in the first half," Nemov said.

    "Gazprom has not been dumping these volumes. Our contracts are mostly designed in a way that the nomination right comes from the buyer. So the increase in supplies means that demand has increased, as it reflects buyers' willingness to take Russian gas," he s

    Nemov also said Russian gas supplies to Europe were "cost-effective" compared with the cost of shipping US LNG to Europe at current prices.

    "In the 'sunk-cost' concept US LNG deliveries are possible, but the scheme in the current price environment turns out to be a loss-making one for some party -- a tolling contract holder or a liquefaction capacity investor," he said. "So which deliveries are more viable in longer term? The answer is quite obvious."

    And in the short term, the level of gas price in Europe has fallen to a point that it is almost prohibitive for new LNG suppliers.

    "Prices in Europe are currently so low that they hardly cover semi-variable costs of LNG supplies from new projects," he said.


    Nemov also said that Gazprom increasingly used hub pricing in its long-term contracts with customers in Europe.

    "In recent years we have revised many of our long-term contracts. Hub indexation is currently broadly used in our contract portfolio, predominantly in Western Europe," he said.

    He added that with this came more flexibility around take-or-pay obligations for buyers.

    "Generally, the transition to broader use of hub indexation comes together with changing take-or-pay levels," he said.

    Gazprom has said in the past year or so that it is open to providing more flexibility around gas supplies to Europe, but Nemov said that a supplier also needs an incentive to provide more flexible terms.

    "To have more flexibility within existing contracts and more hub indexation at the same time is a fantastic desire. But you can't have your cake and eat it too," Nemov said. "Flexibility stemming from long-term contracts should have its own fair price as it is the supplier that is responsible for providing flexible volumes." Nemov also said that oil indexation was here to stay.

    "Oil indexation is still alive and oil prices serve as a benchmark for gas forward prices," he said, adding that in long-term investment planning it was usual to look at the correlation between oil and gas prices when forecasting.

    Nemov also said that the only participants in the liberalized European gas market that are truly interested in outright prices are the producers as they are unbundled from the supply to end-users.

    The midstream -- the importers of gas -- are more concerned with the margin they get from buying and selling gas.

    "Their revenues do not correlate with the absolute level of price anymore," he said.

    Attached Files
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    Gazprom looks to expand LNG output in Russian Far East

    Russian state-run gas major Gazprom plans to build a new liquefied natural gas platform at its Sakhalin-2 development project with an eye on boosting exports to Japan, Deputy Chairman Alexander Medvedev said in Moscow.

    The platform, which may receive final approval next year with the goal of starting production in 2022, could boost Japanese and Russian efforts to strengthen economic ties under an eight-point plan presented by Tokyo.

    Gazprom works with Royal Dutch Shell and Japanese trading houses Mitsui & Co. and Mitsubishi Corp. on the Sakhalin-2 oil and gas project, with LNG production beginning in 2009 mainly for export to Japan.

    Sakhalin-2's LNG business "has been one of our most successful projects in the last 10 to 15 years," Medvedev said. "If there's enough demand in Japan, we will make the expansion of this business a top priority, creating a pillar for future cooperation between Russia and Japan."

    The project's two existing LNG platforms, which combined produce about 10 million tons a year, are both operating at nearly full capacity. Gazprom plans to obtain the natural gas needed to boost LNG output from fields off the coastal island of Sakhalin, including the Sakhalin-3 project. But Gazprom also is negotiating the possible purchase of natural gas from Sakhalin-1, which the Russian company considers to be the best option.

    The Sakhalin-1 project's stakeholders include U.S. giant Exxon Mobil, Russian state-run Rosneft and Japanese public-private consortium Sakhalin Oil and Gas Development, or Sodeco. Sakhalin-1, which Gazprom is not involved in, has yet to deliver on planned exports to China and the construction of its own LNG plant.

    Medvedev also said Gazprom will revisit the possibility of building a gas pipeline from Sakhalin to Japan in cooperation with the country. Previous plans for the pipeline were scrapped over economic calculations and environmental concerns, such as the potential impact on the fishing industry.

    "We've received strong, repeated requests" from Japanese business and political leaders to reconsider the pipeline, Medvedev said.

    Gazprom also had planned to build a new LNG plant in Vladivostok to serve as the export hub to Japan.

    "We have shelved the idea for a while as we observe the development of gas fields and domestic demand," Medvedev said. "We haven't scrapped the plan, but we will prioritize expanding Sakhalin-2 in order to utilize the gas reserves there more efficiently."
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    Exxon Mobil Reportedly Considers Sale Of More Than $1 Bln In Norway Assets

    Exxon Mobil Corp. is considering a sale of some of the oil fields it operates in Norway'sNorth Sea in a deal that could fetch more than $1 billion, according to reports citing people familiar with the matter.

    Exxon isn't running a formal process, though it has had discussions with potential buyers, the reports said.

    The reports indicated Exxon was planning to sell Ringhorne, Balder and Sigyn, while Jotun is closing down soon.

    Read more:
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    East Africa Oil Pipelines a Boon to Private Investors, AfDB Says

    Oil pipelines planned in Kenya and Uganda to ferry crude from fields to port present opportunities for private financiers keen to gain a foothold in East Africa’s energy industry, the African Development Bank says.

    “Nobody has ever, ever lost money financing pipelines,” Gabriel Negatu, the Abidjan-based lender’s regional director for East Africa, said in an interview in Kenya’s capital, Nairobi, on Sept. 23. If there is oil flowing, “it’s generally viable,” he said.

    East African countries are in a race to start exploiting crude oil reserves estimated at 1.7 billion recoverable barrels in Uganda and 750 million barrels in neighboring Kenya. Both nations are planning to start construction on pipelines by 2018, even as oil prices are stuck at less than half the level of three years ago, straining finances of producers across the continent.

    While global oil prices are “depressed a little bit,” that shouldn’t hold sway over potential investors seeking to finance pipelines in the two countries, Negatu said. Current global price levels are “not a permanent situation,” he said.

    “Prices should stabilize around at $60 per barrel next year, barring the unforeseen,” Negatu said. “At that point I think the industry will adjust to that reality and figure out how to become viable and profitable.”

    Kenya expects production by Tullow Oil Plc to start in mid-2017, with the government initially hauling crude by road and rail to a refinery at the port city of Mombasa. East Africa’s largest economy plans to start building an 865-kilometer (538-mile) pipeline linking fields in its northern region to a port at Lamu on the Indian Ocean coast by 2018, the government has said.

    Ongoing Exploration

    The AfDB is confident that results from exploration in northern Kenya and the possibility of South Sudan routing crude exports via Kenyan ports “will support the pipeline and even other downstream facilities,” Negatu said.

    Work on Uganda’s pipeline, which will run from the western region of Hoima to the Tanzanian port of Tanga, is expected to begin in 2018. France’s Total SA, China National Offshore Oil Corp. and London-based Tullow are developing oil fields in Uganda’s Lake Albert basin. The three companies have been awarded production licenses by the Ugandan government that will run for 25 years.

    The AfDB will support the pipelines “with whatever means available,” Negatu said. “If there are two different pipelines, we will talk to both sides and find ways to make resources available.”

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    U.S. oil rig count set for biggest quarterly rise in 2 years -Baker Hughes

    Sept 23 U.S. drillers this week added oil rigs for a 12th week in the past 13 and were on track to add the most
    rigs in a quarter since crude prices plummeted two years ago,although the momentum has slowed as prices hold below $50 a

    Drillers added two oil rigs in the week to Sept. 23,bringing the total rig count up to 418, the most since February
    but still below the 641 rigs seen a year ago, energy services firm Baker Hughes Inc said on Friday. 

    The oil rig count plunged from a record high of 1,609 inOctober 2014 to a low of 316 in May after crude prices collapsed
    in the biggest price rout in a generation due to a global oil glut. That decline continued through the first half of this yearwhen drillers cut 206 rigs.

    So far this quarter, however, drillers have added or at least not removed any oil rigs for 13 weeks in a row, the
    longest streak of not cutting rigs since 2011.

    With just one week to go in the quarter, oil rig additions over the past three months were on track to be the most since
    the first quarter of 2014 when drillers added 105 rigs. To date,the count has increased by 88 rigs so far this quarter.

    Continued growth in the rig count in the short-term,however, could be at risk if the small, independent drillers,
    which accounted for about two-thirds of rig additions since May,pull back if prices remain low.

    As their cash flows ramped with oil moving from itsFebruary bottom to over $50, they redeployed their cash flows in
    the form of rigs," analysts at Evercore ISI, a U.S. investment banking advisory, said about the small, independent drillers.

    "With WTI (West Texas Intermediate crude) now oscillating inthe mid-$40s, and cash flows declining again due to the lower
    oil price, we wouldn't be surprised to see this group of operators let some rigs go," Evercore said.

    U.S. WTI futures were below $45 per barrel on Fridaybut were on track for a 5-percent hike for the week ahead of
    next week's meeting in Algeria where the world's biggest producers are expected to discuss a deal to curb the global oil

    Looking forward, analysts said they still expect the rigcount to rise in 2017 and 2018 over 2016, but not by as much as
    a few weeks ago as future oil price forecasts hold in the $50 to$60 a barrel range.

    Futures for calendar 2017 were trading around $48 a barrel, while calendar 2018 was about $51.

    "Based on a lower assumed price deck of about $50-60 for thenext two years, we are moderating our exploration and production
    capital spending and activity growth assumptions," analysts at Simmons & Co, energy specialists at U.S. investment bank Piper
    Jaffray, said in a note.

    Simmons reduced its average total oil and natural gas rig count forecasts to 495 from 498 in 2016, to 647 from 704 in 2017
    and to 857 from 981 in 2018.

    The combined number of oil and gas rigs active so far thisyear has averaged 480 rigs, according to Baker Hughes data. That
    compares with an average rig count of 978 in 2015.

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    Federal Reserve proposes new limits on Wall Street energy bets

    The Federal Reserve on Friday outlined a plan to limit Wall Street bets on the energy sector by forcing companies like Goldman Sachs and Morgan Stanley to hold more capital against such investments.

    Under current law, Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) may invest in energy storage and transportation in ways that other banks cannot, but the U.S. central bank's new plan would make such bets more costly.

    Banks would have to hold more capital against energy and commodity investments under the plan. The Fed also contemplated other limits like banning Wall Street control of power plants and prohibiting bank holding companies from owning copper.

    At this stage the plan is only a proposal that is subject to comment and change. The Fed has opened a three-month window for comment.

    The Fed, which regulates the banking and financial services sector, said the new measures would help shield banks and the broader financial system from a costly mishap like the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.

    Under the plan, Fed officials said, banks would have to hold roughly $1 in capital for every $1 of energy infrastructure they owned.

    In the Fed’s calculus of bank safety, that amounts to a 1,250 percent capital charge - the regulator's highest tariff for the riskiest investments.

    Wall Street would have to offer roughly $4 billion in fresh capital to satisfy the proposal.


    Firms on Wall Street have already been scaling back their ownership of refinery, shipping and storage facilities in the face of scrutiny from regulators who have asked what benefit comes from banks in the raw material market.

    Morgan Stanley has decreased the value of physical commodity assets on its balance sheet to $321 million in 2015 from $9.7 billion in 2011.

    Goldman Sachs has shed much of its energy infrastructure, too, but the bank is still a major trader of fossil fuels.

    J. Aron, Goldman's commodities arm, traded more natural gas than both Chevron  and ExxonMobil in the second quarter of this year, according to Natural Gas Intelligence, a trade publication.

    The energy trader moved 5.42 billion cubic feet of physical gas in the United States during the period, more than 73 percent of the volume it did during the same time in 2011, according to data.

    Morgan Stanley and Goldman declined to comment on the Fed's proposal.

    Between 2007 and 2009, commodities trading for banks like Morgan Stanley and Goldman accounted for as much as a fifth of their overall annual revenues.

    Although Goldman has scaled back its ownership of physical commodities, it has remained committed to trading.

    The bank during the second quarter of 2016 earned more from that business than any of its Wall Street peers, according to data provider Coalition.

    Tougher regulations conceived since the 2008 financial crisis, though, have push much of that trading business to specialists like Glencore Plc, Vitol Group and Mercuria Energy Group.

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    Alternative Energy

    Chinese solar power project developers offer record low tariff price -media

    Chinese solar power developers have made their lowest bids so far in a tender to build a one gigawatt solar power base in Inner Mongolia, aiming to accelerate a transition to renewals, China Business News said on Friday.

    Fifty solar PV manufacturers and generators have bid as low as 0.52 yuan ($0.0780) per kilowatt hour in the tender backed by the government in northern Inner Mongolia, the newspaper said.

    The price offered by a subsidiary to China Huadian Gorp is close to the upper end of China's coal-fired thermal power price in some regions.

    However, it is much higher than solar costs in countries such as the United Arab Emirates.

    "Policy incentives have been given to such government-backed projects which are not available to other commercial utilities, which take higher financial losses through transmission curtailment and subsidy default," said a bidder who declined to be named because he is not authorised to speak to media.

    China has delayed payments to solar power operators for more than a year as overseas appetite for its manufactured goods wanes.

    But on Friday the Ministry of Finance approved renewable power projects for subsidies delayed since 2015, according to an official statement published on its website.

    Subsidies are given to power suppliers and to some manufacturers who act as subcontractors on solar projects.

    China installed 20 gigawatts (GW) of solar power capacity in the first half of 2016, which took the new commercial solar power capacity above its 2016 target at 18.1 GW.

    The government said it would halt approvals to new projects in western regions such as Gansu and Xinjiang where solar projects are concentrated.

    To make solar power cheaper and increase domestic demand, China has pushed use of the best available equipment.

    Many such programmes are located in coal mining provinces looking to shift to renewables.

    In China's top coal producing Shanxi province, solar module producer GCL New Energy (GLC) pushed its price down to 0.61 yuan per kilowatt hour in another tender a month ago.

    "Such a low bidding price fell below the widely accepted offers mostly at 0.7-0.75 yuan," said Qin Haiyan, director with the solar and wind simulation agent, the China General Certification.

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    Eni io build Algerian solar plant

    Italy’s Eni said September 23 it has reached a strategic agreement with Algerian state producer Sonatrach to develop renewable energy projects in Algeria, the first being a 10 megawatt photovoltaic plant on their joint Bir Rebaa North (BRN) oil and gas field near the Tunisia/Libya borders. Eni said the goal is to start work building the 10 MW plant before end-2016.

    In June, Eni CEO Claudio Descalzi and Sonatrach chief Amine Mazouzi agreed in June to cooperate on renewables, during meetings in which Eni’s upstream licences in the country were extended. Eni says its long-term strategy is to integrate its core and renewable businesses.

    Descalzi said: "In the early 1970s, Eni was the first foreign company to sign an agreement with the Algerian state, for the construction of the Transmed gas pipeline, and, in 1987, the first oil & gas company to sign an upstream contract in Algeria. Today Eni is the first oil & gas company to reach a strategic agreement in the field of solar energy in Algeria, a country with an important potential". Eni, Shell and Total have spoken this year of their plan to invest in renewable energy, alongside infrastructure for gas-fired power, in developing countries where they are already oil and gas producers.

    Sonatrach and Sonelgaz have also discussed borrowing to fund new investments, including renewables, from the African Development Bank among others.
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    No end to uranium price plunge

    While thermal coal has embarked on an astounding surge, natural gas has recovered and oil has rallied more than 70% from 13-year low struck in January, uranium is languishing at decade lows.

    U3O8 is down nearly 30% in 2016 with the UxC broker average price sliding to $24.40 a pound on Thursday. Current levels are the cheapest spot uranium has been since April 2005. The long term price, where most uranium business is conducted, has fallen to unprecedented levels below $40 a pound.

    Uranium's weakness persists despite strong fundamentals with only reactors already being built – mostly in China – expected to increase the global need for uranium by a fifth from today's levels.

    Last week's go-ahead for a $24 billion nuclear power station at Hinkley Point –  Europe's biggest energy project and the UK's first nuclear project in a generation – should also go a long way in restoring confidence in the market.

    But in the short term there seems no relief in sight for the battered industry.

    "We expected Japan to move more quickly with restarting their reactors but it didn’t happen. Material that would have been delivered to Japan is now coming onto the market and keeping the price down"

    Jonathan Hinze, executive vice president at UxC, quoted by Bloomberg paints a picture of the spot price environment where there is simply too much material available to utilities and little prospect of demand improvement, at least in the short term:

    "Some producers and other sellers need to move material for cash flow purposes, and thus, we have seen some pretty aggressive selling in the past few weeks. These market conditions are unlikely to change in the near future."

    In an interview with MINEX Asia in June, Tim Gitzel, President and CEO of Cameco, the world's number one listed uranium producer representing nearly a fifth of global production summed upped the depressing environment for uranium this way:

    "We haven’t seen prices this low for many years. There’s not very much activity on the market, small amounts of material, often changing hands among traders. There is a sense among utilities that there is a lot of uranium around and so there is no urgency to be buying. Utilities are well covered for the next few years so the prices are staying low for now. We expected Japan to move more quickly with restarting their reactors but it didn’t happen. Material that would have been delivered to Japan is now coming onto the market and keeping the price down."
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    Base Metals

    Ivanhoe announces more high-grade copper results from Kakula discovery

    The 2016 drilling campaign at Ivanhoe Mines’ Kakula discovery, in the Democratic Republic of Congo, is continuing to demonstrate that it is substantially richer, thicker and more consistent than other mineralisation at the the Kamoa project.

    The Kamoa project is a joint venture between Ivanhoe Minesand Chinese miner Zijin Mining.

    “Given the consistent and thick intercepts at shallow depths of very high-grade copper mineralisation, Kakula is quickly becoming a key focus in our planning for the development of the Kamoa project,” CEO Lars-Eric Johansson said in a statement on Friday.

    The company noted that Kakula’s copper mineralisation was consistently bottom-loaded and chalcocite dominant.

    The consistent, bottom-loaded nature of Kakula mineralisation supports the creation of selective mineralised zones at cut-offs of between 1.0% and 3.0% copper, and potentially higher.

    The Kakula copper mineralisation displays vertical mineral zonation from chalcopyrite to bornite to chalcocite, with the highest copper grades associated with the siltstone unit consistently characterised by chalcocite-dominant mineralisation.

    Chalcocite is high-tenor mineral that is opaque and dark-gray to black with a metallic lustre. Owing to its very high percentage of contained copper by weight and its capacity to produce a clean, high-grade concentrate, chalcocite is considered to be the most valuablecopper mineral.

    The Kakula discovery remains open along a northwesterly-southeasterly strike, while high-grade copper mineralisation has been outlined along a corridor that now is at least 3.5 km in length.

    The high-grade copper zone is less than 300 m below surfacein the central section and gently dips to the southeast and northwest.

    Initial metallurgical test results received in July from a sample of drill core from the Kakula discovery zone showedcopper recoveries of 86% and produced a copper concentrate with an extremely high grade of 53% copper.

    The July results also indicated that material from Kamoa's Kakula and Kansoko zones could be processed through the same concentrator plant, which would yield significant operational and economic efficiencies.
    Earlier metallurgical test work had indicated that the Kamoa concentrates contain arsenic levels of 0.02%, which are extremely low by world standards.

    Given this critical competitive marketing advantage, Kamoa's concentrates are expected to attract a significant premium from copper concentrate traders for use in blending with concentrates from other mines.

    The Kamoa concentrates will help to enable high-arsenic concentrates from mines in Chile and elsewhere to meet the limit of 0.5% arsenic imposed by Chinese smelters to meet China's new environmental restrictions.
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    China's largest lead and zinc mine discovered in Xinjiang - Xinhua

    China's largest lead and zinc mine has been discovered in the country's far-western region of Xinjiang, the official Xinhua news agency reported on Sunday.

    The mine is located in Hotan county and has almost 19 million tonnes of lead and zinc reserves, Xinhua said, citing a statement from the Xinjiang Bureau of Geology and Mineral Resources.

    Lead and zinc have been discovered in 27 provinces and regions in China, concentrated in southwestern Yunnan province, northwestern Gansu and Inner Mongolia, Xinhua said.

    Lead and zinc are used in electronics, machinery, chemicals, light industry and pharmaceuticals, among other industries, Xinhua added.
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    Steel, Iron Ore and Coal

    China rejects steel mills' plea for coking coal output hike: sources

    China's state planner rejected a request on Friday by the nation's steel makers for coal mines to ramp up coking coal output to help ease supply tightness that has triggered a frenzied price rally, sources said.

    At a hastily-called meeting on Friday in Beijing, the National Development and Reform Commission (NDRC) also gave the greenlight for 74 major miners to increase output of thermal coal, two sources familiar with the meeting said.

    Coking coal is a key ingredient in steel making.

    The NDRC did not respond to calls for comment.

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    Indonesian diesel demand picks up as coal miners churn out more

    Consumption of diesel by Indonesian miners has picked up for the first time in four years as coal producers in the country ramped up output to meet Chinese demand, offering a glimmer of hope to Asian traders grappling with multi-year low fuel margins.

    Once Asia's top buyer of diesel, Indonesia's imports of the fuel slowed to a fraction of what it used to be with a plunge in coal prices over the past four years curbing mining activities. But this year, thermal coal prices have rallied amid a supply squeeze in top consumer China.

    "Coal prices are getting higher so the miners are trying to speed up production", boosting demand for the fuel needed to power mining machinery, said a trader, who supplies diesel to mining companies in Indonesia.

    Monthly diesel use in Indonesia's mining sector rose by at least 5 to 10 percent over July-September, traders said.

    Benchmark Australian thermal coal prices rose to $74.30 a tonne in the week to Sept. 23, the highest in 28 months and up almost 47 percent this year. Prices in the Southeast Asian country have been rising since May.

    Indonesia - the world's biggest thermal coal exporter - shipped out 3.71 million tonnes to China in August, up 55.8 percent from a year ago.

    "It has also been a wet summer so the water level is very good in the rivers in Kalimantan, which makes it easier and faster for ships to flow in and unload cargoes," said the trader, who did not want to be named.

    Demand for diesel could rise further next year, a second trader supplying diesel to mines said, as thermal coal miners overcome logistical and debt constraints.

    The rise in the use of diesel by Indonesia's mining sector should help support Asian fuel margins that are currently languishing near six-year lows.

    AKR Corporindo, one of the largest suppliers of diesel to miners in Indonesia, imports about 800,000 to 1 million barrels a month, while oil major BP Plc brings in about 275,000 to 330,000 barrels a month, the first trader said.

    It is difficult to track the exact volumes of diesel imported into Indonesia as there are nearly 200 small companies with a license to import the fuel, he added.

    However, the traders cautioned that Indonesia's total diesel imports would still remain lower than in previous years with a hike in domestic retail prices and a higher local biodiesel mandate keeping a lid on demand. Diesel is used both in the industrial and transport sectors of Indonesia.

    State energy firm PT Pertamina has imported 600,000 barrels of diesel so far this year, according to a company official, compared to its peak of about 4 to 4.5 million barrels a month before 2012.
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    Essar Power loses coal mine for failing to clear payment

    The coal ministry of India has issued a termination notice to Essar Power – one leading private power producer -- ending the contract for development of the Tokisud North coalmine in Jharkhand for not making the upfront payment for the block.

    As per coal block auction norms, Essar Power will be barred from bidding in coal block auctions for a year. The ministry is also considering stern action against the company, including disqualifying it from Coal India 0.32 % supplies, a senior government official said.

    The move is in line with coal minister Piyush Goyal's stand to prevent private companies from derailing the auction process or reneging on contracts. Essar Power said it has approached the coal ministry to clear the dues. The company said it has invested Rs 450 crore ($67.5 million) on development by way of cash payments and performance guarantees and has made all the necessary efforts to commence mining at the coal block.

    "The termination notice will come into effect from October 6. The firm's Rs 261-crore bank guarantee will also be forfeited," a government official said.

    A decision on the allocation of Tokisud mine will be taken in due course, he said. The mine is the most expensive block of those bid out to the power sector. The company had won the producing coal block in an aggressive bid of Rs 1,110 per tonne. Scrapping the coal block will have an adverse impact on Essar Power's 1.2 GW Mahan power plant in Madhya Pradesh that has been shut for several years. Mahan's Unit I had begun operations in April 2013 but had to suspend them because of coal wasn't available.

    The mining licence for an attached Mahan coal block was cancelled by the Supreme Court in October 2014.
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    Adani to start work on Australian Carmichael coal mine in 2017

    Indian Adani Group is planning to begin construction work on its giant Carmichael thermal coal project in the Galilee Basin in Australia's Queensland next year, and gradually ramp up production to 60 million mt/year, a company spokesman said Friday.

    The project -- which is approaching its seventh year of the environmental approvals process -- has been forced to delay its start-up and change its development ramp-up profile due to a raft of legal challenges, including an appeal against it to the Federal Court by the Australian Conservation Foundation as recently as this week, the spokesman said.

    "While the original first stage has been split into two slightly smaller sequential phases to allow for this longer ramp-up, the development is still for a 40 million mt/year and then, in the longer term, a 60 million mt/year project," he said.

    Production from the mine is expected to increase from 25 million mt/year during the initial startup to 40 million mt/year around five to seven years into the mine's life, with the growth to 60 million mt/year to be determined from there, the spokesman told S&P Global Platts.

    "Not only has this legal interdiction been costly to taxpayers and for those in regional communities looking for work, but the additional cost of approvals and delays has to be accommodated in the project development plan," he said.

    And the plan to begin construction next year will only happen upon resolution of outstanding approvals and court proceedings.

    Director of energy finance studies at the Institute for Energy Economics and Financial Analysis Tim Buckley, said Thursday that even "downsized and delayed", the Carmichael coal proposal remains unbankable.

    "The Galilee Basin is stranded 400 km inland from the coast without any industrial grade power, road, water, aviation or rail infrastructure in place," IEEFA said.

    "Adani Enterprises argues their coal proposal is de-risked by the existence of its sister company Adani Power willing to provide long dated offtake agreements for its largely yet-to-be-built import coal-fired power plants in western India," it said.

    "IEEFA would note Adani Power is in financial distress with net debts of over $7.3 billion against a market capitalization of just $1.4 billion," it added.

    The Adani spokesman said that the company's commitment to the project is evidenced through its agreement to purchase the Abbot Point Coal Terminal operator Abbot Point BulkCoal from Glencore on Tuesday this week.

    Adani is the terminal owner and plans to link the Carmichael mine to it via 388 km of rail way line.

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    Iron giants to add 200Mt of supplies through 2020

    The world’s two largest iron-ore exporters Australia and Brazil will each add about 100-million metric tons of supply through the end of the decade, boosting a global glut and hurting prices in a slump that will then force marginal miners to cut output, according to Citigroup.

    Shipments from Australia will expand to 934-million tons in 2020 from 835-million this year, while Brazilian cargoes rise to 480-million tons from 37- million, the bank said in a report. That’ll lift the surplus to 56-million tons in 2018 from 20-million this year, before price-induced curtailments help bring the global market back toward a balance, Citigroup estimates.

    While iron-ore has rallied in 2016, confounding predictions for renewed losses, investors are now refocusing on prospects for rising output from the top suppliers. With Brazil’s Vale SAset to start a four-year rampup of its S11D project, banks fromMorgan Stanley to Citigroup, as well as BHP Billiton have said the additional output will probably contribute to weaker prices.


    The expansion of ore supply is on track, with restarted capacity a swing factor, Citigroup analysts including EdMorse wrote in the report received on Monday. “We expectiron-ore prices to find some support in the next one to two months, but should face strong headwinds thereafter through 2017.”

    The raw material with 62% content delivered to Qingdaoclimbed 0.8% to $56.79 a dry ton on Friday, according to Metal Bulletin. Prices are still 3.7% lower in September, heading for their first back-to-back monthly decline since November 2015. Citigroup reiterated its outlook for ore dropping to $45 next year and $38 in 2018.

    The global surplus will probably start to shrink after 2018, dropping from 56-million that year to just 8-million tons in 2019, the bank forecast. It estimated price-induced curtailments would be about 150-million tons in 2018 and more than twice that figure in 2020.

    Prices may soften toward year-end as supply increases,Virginia Wilson, BHP’s general manager of iron-oremarketing, said at a conference last week. Among newprojects is Vale’s S11D, which will have the capacity to produce 90 million tons a year. Inaugural cargoes are expected in January, Vale’s executive manager for shipping and iron-ore marketing Luiz Meriz told the gathering.

    SGX AsiaClear futures point to lower prices, with the contract for October trading at $55.67 a ton, January’s at $50.51 and next September’s below $45. Miners’ shares were mixed  inSydney on Monday, with BHP little changed, Rio Tinto Group0.7% higher and Fortescue Metals Group lower. The trio areAustralia’s top shippers.
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