Mark Latham Commodity Equity Intelligence Service

Friday 26th August 2016
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    Bolivia says deputy interior minister killed after kidnap by miners

    Bolivian Deputy Interior Minister Rodolfo Illanes was beaten to death after he was kidnapped by striking mineworkers on Thursday, the government said, and up to 100 people have been arrested as authorities vowed to punish those responsible.

    "At this present time, all the indications are that our deputy minister Rodolfo Illanes has been brutally and cowardly murdered," Minister of Government Carlos Romero said in broadcast comments.

    He said Illanes had gone to talk to protesters earlier on Thursday in Panduro, around 160 km (100 miles) from the capital, La Paz, but was intercepted and kidnapped by striking miners.

    The government was trying to recover his body, Romero said, in a case that has shocked Bolivians.

    Defence Minister Reymi Ferreira broke down on television as he described how Illanes, appointed to his post in March, had apparently been "beaten and tortured to death".

    Illanes' assistant had escaped and was being treated in a hospital in La Paz, he said.

    "This crime will not go unpunished. Authorities are investigating ... around 100 people have been arrested," Ferreira said.

    Protests by miners in Bolivia demanding changes to laws turned violent this week after a highway was blockaded. Two workers were killed on Wednesday after shots were fired by police. The government said 17 police officers had been wounded.

    The National Federation of Mining Cooperatives of Bolivia, once strong allies of leftist President Evo Morales, began what they said would be an indefinite protest after negotiations over mining legislation failed.

    Protesters have been demanding more mining concessions with less stringent environmental rules, the right to work for private companies, and greater union representation.

    The vast majority of miners in Bolivia, one of South America's poorest countries, work in cooperatives, scraping a living producing silver, tin and zinc. There are few foreign-owned mining firms, unlike in neighboring Peru and Chile.

    Natural gas accounts for roughly half of Bolivia's total exports. Ex-coca grower Morales nationalized Bolivia's resources sector after taking power in 2006, initially winning plaudits for ploughing the profits into welfare programs and boosting development.

    However, his government has been dogged by accusations of cronyism and authoritarianism in recent years, and even the unions who were once his core support have soured on him as falling prices have crimped spending.

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    Biden: Nord Stream 2 pipeline is a 'bad deal' for Europe

    U.S. Vice President Joe Biden said on Thursday the United States believed the Nord Stream 2 pipeline involving Russia and several European energy companies was a "bad deal" for Europe.

    Russia's Gazprom and its European partners agreed the project, which will run across the Baltic Sea to Germany, last year.

    But many eastern European countries and the United States have said the pipeline could limit supply routes and the energy security of the European Union, which gets a third of its gas from Russia.

    Biden made his comments during a news conference in Sweden.
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    Brexit takes deeper toll on German business morale-Ifo economist

    Britain's vote to leave the European Union weighed on German business morale in August more heavily than previously, with orders in the chemicals and auto industry particularly subdued, Ifo economist Klaus Wohlrabe told Reuters on Thursday.

    "Brexit has had a stronger effect now," Wohlrabe said, adding this applied in particular to companies that have strong trade ties to Britain such as the chemicals or automotive industry.

    The Munich-based Ifo economic institute said its business climate index unexpectedly fell to 106.2 in August from 108.3 in July. Economists polled by Reuters had forecast a reading of 108.5.

    Wohlrabe said the decline in the index was mainly due to a weaker performance from the chemicals and electric industry: "Export expectations in the chemicals sector have fallen significantly due to Britain," he said.
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    Four More Mega-Banks Join The Anti-Dollar Alliance...blockchain

    That was fast.

    Yesterday I told you how a consortium of 15 Japanese banks had just signed up to implement new financial technology to clear and settle international financial transactions.

    This is a huge step.

    Right now, most international financial transactions must pass through the US banking system’s network of correspondent accounts.

    This gives the US government an incredible amount of power… power they haven’t been shy about using over the last several years.

    2014 was one of the first major watershed moments when the Obama administration fined French bank BNP Paribas $9 billion for doing business with countries that the US doesn’t like– namely Cuba and Iran.

    It didn’t matter that this French bank wasn’t violating any French laws.

    Nor did it matter that only months later the President of the United States inked a sweetheart nuclear deal with Iran and flew down to Cuba to attend a baseball game with his new BFFs.

    BNP had to pay up. A French bank paid $9 billion because they violated US law.

    And if they didn’t pay, the US government threatened to kick them out of the US banking system.

    $9 billion hurt. But being kicked out of the US banking system would have been totally crippling.

    Big international banks in particular cannot function if they don’t have access to the US banking system.

    As long as the US dollar remains the world’s dominant reserve currency, major banks must able to clear and settle US dollar transactions if they expect to remain in business.

    This means having access to the US banking system… the gatekeeper of the US dollar.

    But having watched BNP Paribas get blackmailed into paying an absurd $9 billion fine to the US government, the rest of the world’s mega-banks knew instantly that their heads could be next ones on the chopping block.

    So they started working on contingency plans.

    Blockchain technology provided an elegant solution.

    Instead of passing funds through the US banking system’s costly and inefficient network of correspondent accounts, blockchain technology provides an easy way for banks to send payments directly to one another.

    I cannot understate how important this technology is.

    Blockchain may very well be what neutralizes the US government’s domination of the global financial system.

    And while there’s been a lot of momentum in this direction (hence yesterday’s letter to you), even I’m surprised at how fast it’s moving.

    Today, four of the world’s largest banks announced a brand new joint venture to create a new financial settlement protocol built on blockchain technology.

    Deutsche Bank from Germany, UBS from Switzerland, Santander from Spain, and Bank of New York Mellon have joined together to launch what they’re naming the very un-sexy “utility settlement coin”.

    Like Ripple, Setl, Monetas, and several other competing technologies, Utility Settlement Coin has the potential to end the reliance on the US banking system for cross-border payments and financial transactions.

    Banks will be able to send payments to one another directly without having to transit through the Wall Street financial toll plaza.

    (Global consulting firm Oliver Wyman estimates that the cost of clearing and settling international financial transactions at up to $80 billion annually.)

    This has enormous implications, especially for US banks.

    The Federal Reserve, for example, has already warned that financial technology could pose stability risks to the US financial system.

    And they’re right.

    If foreign banks are able to transact directly with one another without having to go through the US banking system, then why would they need to park trillions of dollars in the United States?

    They wouldn’t.

    Adoption of this technology could cause a gigantic vacuum of deposits out of the US banking system.

    US banks would take a big hit. And the US government would have far fewer foreign buyers to sell its ever-expanding piles of debt.

    Make no mistake, the adoption of this technology is a game-changing development with far-reaching implications. And it’s happening very quickly.

    If these mega-banks can hit their milestones, they’ll launch commercially in eighteen months.

    Mark it on your calendar– that may be the end of peak US financial dominance.
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    Glencore's underlying profit falls, lowers debt target

    The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann/File Photo

    Glencore reported first-half adjusted underlying profit (EBITDA) down 13 percent at $4 billion (3.04 billion pounds), but said it was on track to sell assets and lowered its net debt target to between $16.5 billion and $17.5 billion this year.

    It had said in March that it aimed to cut net debt to $17 billion to $18 billion by the end of 2016.

    "We have already largely achieved our asset disposals target of $4-5 billion with a diverse and material pool of asset sales' processes also ongoing," Chief Executive Ivan Glasenberg said in a statement on Wednesday.

    He said an upturn in commodity markets had helped, but the company remained "mindful that underlying markets continue to be volatile".

    Glencore came under pressure to reduce its net debt last year after investors said they were concerned by its leverage after a fall in commodity prices and weaker demand in China.

    Glencore says its combination of industrial activities and trading protects it from market volatility with trading being a defensive earnings driver when commodities prices fall.

    It said its adjusted EBITDA in metals and minerals was up 11 percent at $3.229 billion on strong trading and improved contributions from aluminum and nickel.

    Adjusted EBITDA in oil, refined products and coal fell 49 percent to $847 million on lower prices and as trading earnings fell to $276 million. Glencore said that supportive oil marketing conditions seen in the first half of 2015 were not repeated and coal trading was challenging.

    The company kept its full-year adjusted EBIT guidance for trading, which it calls marketing, unchanged at $2.4-2.7 billion.
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    China Plans to Open Up More Industries to Private Investors

    China will open sectors including oil and gas drilling to private capital to counter record-low investment growth by non-state firms.

    "Political barriers" for private investment will be removed to offer a fair playing field and encourage non-state companies to take part in 165 projects outlined in the country’s 13th five-year plan, said Hu Zucai, vice chairman of China’s National Development and Reform Commission, the government’s top economic planning body.

    The remarks follow a government plan announced Monday to lower corporate costs and raise profitability. China’s leaders are seeking to rev up faltering fixed-asset investment growth by the private sector to keep this year’s economic expansion target of at least 6.5 percent in sight.

    "The government needs money, because they have to restructure a huge state sector," said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA in Hong Kong. "But it’s still not clear where they will give up control."

    For strategic sectors such as telecommunications, energy and nuclear power, Herrero said there might be some private investment, but not "deep involvement."

    Hu reiterated the government’s pledge to ease burdens on companies and create a fair investment environment for private investors. "The most important thing is to grant maximum market access, and the State Council has made it clear it will roll out a negative list regarding market access," he said. A negative list would specify which areas are off limits, leaving all others theoretically open to private firms.

    "We need to generate more channels for private investment to take part in major projects more swiftly and smoothly," Hu said. "There must be a clear and predictable investment environment for private investors."
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    Kurdish militia launches assault to evict Syrian army from key city of Hasaka

    The Kurdish YPG militia launched a major assault on Monday to seize the last government-controlled parts of the northeastern Syrian city of Hasaka after calling on pro-government militias to surrender, Kurdish forces and residents said.

    They said Kurdish forces began the offensive after midnight to take the southern district of East Nashwa, close to where a security compound is located, near the governor's office.

    The fighting this week in Hasaka, divided into zones of Kurdish and Syrian government control, marks the most violent confrontation between the Kurdish YPG militia and Damascus in more than five years of civil war. It forms part of a broader battle for control of the long border area abutting Turkey.

    After a morning lull in fighting, fierce clashes broke out again across the city, the Syrian Observatory for Human Rights said. The powerful YPG militia has captured almost all of east Ghwairan, the only major Arab neighborhood still in government hands.

    The YPG is at the heart of a U.S.-led campaign against the Islamic State militant group in Syria and controls swaths of the north, where Kurdish groups associated with the militia have set up their own government since the Syrian war began in 2011.

    NATO member Turkey, facing a Kurdish insurgency of its own, is concerned about attempts to extend Syrian Kurdish control westward along its border. Turkey is currently allowing a rebel Syrian force under the banner of the Free Syrian Army to assemble on its soil for an attack on an Islamic State-held town, seeking to deny control to the YPG.

    The Syrian army deployed warplanes against the main armed Kurdish group for the first time during the war last week, prompting a U.S.-led coalition to scramble aircraft to protect American special operations ground forces.

    War planes were seen in the skies above Hasaka again on Monday, but did not drop bombs, the Observatory said.

    Syrian state media accused the YPG-affiliated security force known as the Asayish of violating a ceasefire and said its members had torched government buildings in Hasaka.

    It accused the Asayish of igniting the violence through escalating "provocations", including the bombing of army positions in Hasaka, and said the Asayish aimed to take control of the city.


    The YPG denied it had entered into a truce. It distributed leaflets and made loudspeaker calls across the city urging army personnel and pro-government militias to hand over their weapons.

    "To all the elements of the regime and its militias who are besieged in the city, you are targeted by our units," leaflets distributed by the YPG said.

    "This battle is decided and we will not retreat ... We call on you to give up your weapons or count yourselves dead."

    The YPG, known as the People's Protection Units and linked to Kurdish rebels who fight the Turkish state, appeared intent on leaving a nominal Syrian government presence confined to within a security zone in the heart of the city, where several key government buildings are located, Kurdish sources said.

    The complete loss of Hasaka would be a big blow to President Bashar al-Assad's government and would also dent efforts by Moscow, which had sought through a major military intervention last year to help Damascus regain lost territory and prevent new rebel gains.

    Kurdish forces have expanded their control of the city despite the bombing of several locations by Syrian jets.

    Thousands of civilians in the ethnically mixed city, including members of the Christian community, have fled to villages in the countryside as the fighting intensified, residents said.

    The confrontation appears to have undone tacit understandings between the YPG and the Syrian army that had kept the city relatively calm.

    Hasaka's governor told state media after the flare-up of violence the military had armed the YPG with weapons and tanks to fight jihadist elements but had not expected them to turn against them.

    Hasaka's population, swelled by displaced Syrians fleeing areas that fell under Islamic State control, is broadly divided along ethnic lines, with Kurds mainly in the city's eastern neighborhoods and Arabs in the southern parts.
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    German exports to Iran soar in H1 after removal of sanctions

    German exports to Iran, mostly machines and equipment, jumped in the first half of the year following the removal of international sanctions against the Islamic Republic, official trade data showed on Monday.

    Exports to Iran surged by 15 percent year-on-year in the first six months of 2016 to 1.13 billion euros ($1.3 billion), the Federal Statistics Office said.

    This compares with a rise of 1.4 percent in overall German exports in the same period and a fall of 14 percent in German exports to Iran in 2015.

    "There is a huge demand in Iran for plant and equipment", said Michael Tockuss, head of the German-Iranian Chamber of Commerce, adding that chemical products and electrical engineering were also doing well.
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    Emerging as per the Economist.

    Image titleInvestors love the promise of high returns from emerging-market equities, but there are not many of them to buy. Especially if you exclude stakes held by governments, the market capitalisation of bourses beyond the rich world is tiny. Just how tiny is apparent from the map above: in many emerging markets, the value of all the freely traded shares of firms that feature in the local MSCI share index (which typically tracks 85% of local listings) is equivalent to a single Western firm. Thus all the shares available in India are worth roughly the same as Nestlé; Egypt’s are equal to Burger King. This suggests that emerging economies need deeper, more liquid markets-and investors need more perspective.

    Attached Files
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    Gold and Bonds: Unlikely cousins!

    The Gold SPDR (GLD) and the 20+ YR T-Bond ETF (TLT) are two of the best performing asset class ETFs this year and both remain in clear uptrends. GLD is up over 26% year-to-date and TLT is up around 16%. One would not expect bonds and gold to be leading at the same time. The indicator window shows the 65-day Correlation Coefficient (GLD,TLT) to confirm the positive relationship. Notice that gold and bonds have been positively correlated for most of the last ten months (since mid October). A positive correlation means they have tended to move in the same direction. It is strange to see this positive correlation, but it is what it is and this is a good time for the prayer of serenity.Image title
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    Oil and Gas

    American LNG granted blanket LNG export permit

    The United States Department of Energy issued an order granting American LNG Marketing blanket authorization to export LNG from its Hialeah facility in Medley, Florida.

    Liquefied natural gas will be delivered in ISO containers and loaded onto container ships or roll-on/roll-off ocean-going carriers for export at Port Canaveral or other ports in Florida, according to the filing.

    On a cumulative basis, American LNG will export up to the equivalent of 6.04 billion cubic feet of natural gas over a two-year period.

    The facility, once completed, will have a total production capacity of 100,000 gallons of LNG per day or 8.26 MMcf of natural gas, and a storage capacity of approximately 270,000 gallons.

    DOE previously issued two long-term authorizations to American LNG to export liquefied natural gas to free trade agreements and non-FTA countries. American LNG was authorized to export up to the equivalent of 3.02 bcf per year in each of the orders.

    The company noted that the blanket authorization is to enable it to engage in short-term exports of domestically produced LNG prior and following the commencement of commercial operations. The volumes proposed for export are not additive to either of the previously granted authorizations.

    American LNG is controlled by Fortress Equity Partners, a partnership sponsored by entities related to Fortress Investment Group. The company added that the Hialeah facility is owned and operated by LNG Holdings, another company controlled by FEP.

    LNG Holdings contracted Chart Industries to provide its standard C100N LNG liquefaction plant for the project.
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    Blackstone Unleashes Cash Hoard in Texas Shale Oil Land Grab

    Blackstone Group LP is partnering with two oil and gas companies as it targets assets in the sought-after Permian shale formation.

    Jetta Permian, formed with Jetta Operating Company Inc., plans to acquire leaseholds in the Permian’s Delaware Basin in West Texas and southern New Mexico, New York-based Blackstone said in a statement Thursday. The partnership has $1 billion of capital committed.

    Blackstone has also designated $500 million in a partnership with Guidon Energy to acquire assets in the Permian’s Midland Basin "with the potential to commit significantly more with future acquisitions." Guidon purchased about 16,000 net acres in Martin County, Texas, in April.

    The partnerships underscore the industry’s interest in one of the few regions where drilling remains profitable at current prices. The Permian has dominated acreage deals among independent drillers this year. PDC Energy Inc. bought into the Permian with a $1.5 billion acquisition announced this week. Meanwhile Parsley Energy Inc. and Concho Resources Inc. also added holdings in the play this month.

    Crude prices have rebounded to above $47 a barrel since dropping near $26 in February. Private equity firms have stepped into the market to pick up assets that have lost value since oil plunged from above $100 a barrel in the middle of 2014.

    Blackstone’s energy private equity business, led by David Foley, raised $7 billion across two funds in the past four years. The most recent vehicle, which finished gathering $4.5 billion last year, had only spent about 5 percent of its money as of June 30, according to Blackstone’s second-quarter earnings statement.
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    China’s Biggest Oil Company Aims for 50% Natural Gas by 2020

    China’s biggest oil company wants natural gas to account for half its output by the end of the decade.

    PetroChina Co. aims to raise natural gas as a share of its production from 37 percent currently, President Wang Dongjin told reporters Thursday in Hong Kong. The company supports the government’s efforts to liberalize gas prices and implement market-based reforms, he said.

    “We will have some adjustment on oil and gas production down the road,” Wang said. “There is a huge potential for natural gas production to grow in the years to come.”

    The world’s largest energy consumer is seeking to raise the share of less-polluting natural gas in its energy mix to 10 percent by 2020. President Xi Jinping’s government twice cut gas prices last year in an attempt to boost demand. While demand growth for oil has slowed, natural gas use rose 9.8 percent in the first half this year.

    PetroChina shares in Hong Kong gained as much as 1.9 percent, the biggest intraday gain in more than a week, and were up 0.6 percent at HK$5.25 at 1:41 p.m. local time. The city’s benchmark Hang Seng Index added 0.3 percent.

    2030 Targets

    The state-owned explorer plans to raise output by around 30 percent to produce more than 300 million tons of oil and gas equivalent (6.02 million barrels per day) by 2030, with half of that coming from overseas projects, Wang said. PetroChina had 14.4 percent of its output coming from overseas in the first half of the year, according to its interim report.

    “The target should be very achievable based on our current overseas oil and gas equity reserves,” Wang said. “The pace of overseas oil and gas production growth will also be affected by factors including crude price when we make investment decisions.”

    The company’s global crude output in the first half of the year fell 1.4 percent to 470.6 million barrels from the same period in 2015, it said in astatement Wednesday. Gas production rose 7.4 percent to 1.66 billion cubic feet. Total oil and gas output was 748.2 million barrels of oil equivalent. While that’s up 1.7 percent from the same period last year, its a 1.3 percent slide from the second half of 2015.

    China National Petroleum Corp., PetroChina’s parent company, is prioritizing natural gas exploration and production in the second half the year and may adjust investment strategies depending on the change in oil prices, Chairman Wang Yilin said in a statement last month.

    Pipeline Sale

    The state-owned explorer’s profit dropped 98 percent to 531 million yuan ($80 million) in the six months to June, while revenue fell 15.8 percent to 739 billion yuan, it said Wednesday. The sale of a Central Asian pipeline network helped the company recover from its first-ever quarterly loss earlier this year.

    Lower crude price forced PetroChina’s exploration and production business to post a 2.4 billion yuan operating loss in the first half, compared with a profit of 32.9 billion yuan a year earlier. Operating profit from refining jumped almost fourfold to 21.4 billion yuan from 5.6 billion a year ago, according to PetroChina’s earnings statement.

    The explorer cut its domestic crude output target for 2016 to 103 million tons from 106 million tons set at the beginning of the year as some high-cost fields were shut down because they couldn’t make a profit at current oil prices, PetroChina’s President Wang said on Thursday.

    Reallocating resources to refining may be a strategy to deal with low crude prices, Wang said. The shift will be temporary as oil and gas output will lead the company’s rebound once oil recovers to $60 to $80 a barrel, he said. The company expects prices to stabilize between $45 to $50 a barrel in the second half of this year, before rising to around $50 to $60 by 2017, and $60 to $80 by 2020, he said.

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    Low prices may hobble potentially massive new Canada oilfield

    A deepwater oilfield off the coast of eastern Canada could hold 25.5 billion barrels of crude, according to a new seismic report by the Newfoundland and Labrador government, potentially making it the country's largest offshore resource.

    But the West Orphan Basin, 300 km (186 miles) northeast of Newfoundland, may still struggle to attract exploration bids in a November land sale due to persistently low crude prices.

    Paul Barnes, Atlantic Canada and Arctic manager with the Canadian Association of Petroleum Producers, said while publicly available seismic data was useful, companies needed to drill to prove the potential of a basin and there were a limited number able to spend $200 million-$250 million per deepwater exploration well.

    "In order to undertake that type of activity you have to be a very financially well-off company or multinational and have a degree of confidence there's potential there to find something," Barnes said. "With the downturn in oil prices and less cash to invest, whether this basin will see any activity in that land sale is hard to predict."

    Provincial government-owned Nalcor Energy used seismic data, assessed by independent oil and gas consultancy Beicip-Franlab, to study a 20,000 square-km (7,722 sq-mile) area.

    The report, released on Wednesday, found the basin could potentially hold 20.6 trillion cubic feet of natural gas in addition to the unrisked oil reserves. Unrisked means it is unclear how much of the reserve will eventually be recovered, but Jim Keating, an executive with Nalcor Energy, said recovery factors typically range between 25 and 75 percent.

    The nearby Flemish Pass Basin is estimated to hold 12 billion barrels of potential unrisked reserves. Norwegian company Statoil announced a 300 million to 600 million barrel discovery there in 2013 and the basin attracted C$1.2 billion in exploration commitments in a 2015 licensing round.

    The bidding on licenses in the West Orphan Basin will close on Nov. 9. Nalcor's Keating said interest was high so far, and provincial premier Dwight Ball said in a news release he was "cautiously optimistic" about positive results.

    Oil and gas companies already active in the Atlantic Canada region were lukewarm when asked about potentially exploring the West Orphan Basin, where no drilling has been done so far.

    Statoil said it had no firm plans at this time to undertake additional exploration drilling activities, while Royal Dutch Shell said its focus was on its exploration program offshore Nova Scotia.
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    Petrobras voluntary layoff program accepted by 6,100 employees

    A voluntary layoff program at state-run oil company Petroleo Brasileiro SA has been accepted by 6,100 employees, a source with direct knowledge of the matter told Reuters.

    The number may rise by month-end, the deadline for the plan proposed by the oil giant known as Petrobras. Around 12,000 employees, or 21 percent of its workforce, are eligible.

    If all eligible employees accepted the voluntary layoff program, Petrobras would face an immediate cost of 4.4 billion reais ($1.3 billion) but save 33 billion reais in salaries over the next four years, the company said upon announcing the plan.
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    Tangguh LNG expansion contracts signed

    BP, on behalf of the Tangguh Production Sharing Contractors, has announced that it has signed two major Tangguh Expansion Project contracts for the onshore LNG engineering, procurement and construction (EPC) and offshore GPF engineering, procurement, construction and installation (EPCI).

    The contract signing, which took place in BP’s office in South Jakarta, Indonesia, was witnessed by the Chairman of SKK Migas, Amien Sunaryadi.

    The onshore EPC contract has been awarded to a joint venture led by Indonesian EPC contractor Tripatra with Chiyoda, Saipem and Suluh Ardhi Engineering. The Offshore EPCI ihas been awarded to PT Saipem Indonesia.

    BP confirmed that construction of Tangguh Train 3 is set to begin by the end of this year. First LNG production ins scheduled for 2020.
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    Iraq Seeks Formal Deal With Kurds to Protect New Oil Exports

    Iraq’s resumption last week of oil shipments through a Kurdish-controlled pipeline bumped up its export capacity by five percent almost overnight. Now OPEC’s second-biggest producer is seeking a formal deal with the self-ruling Kurds to ensure it can maintain the increased flows.

    The central government in Baghdad has been locked in a dispute with the semi-autonomous Kurdistan Regional Government in the north of Iraq since 2014, when the Kurds began selling their oil independently. In March, Iraq’s state-run North Oil Co. stopped using its only export route, the KRG’s pipeline to Turkey, for crude it pumped in Kirkuk province. The Oil Ministry ordereda restoration of these exports last week.

    “We’re still waiting for an agreement on the details regarding who should receive the oil revenues,” Deputy Oil Minister Fayyad Al-Nima said Wednesday in a telephone interview.

    The government is now exporting about 100,000 barrels a day from its Kirkuk fields, Al-Nima said. Officials at the KRG’s Ministry of Natural Resources didn’t immediately reply to e-mailed and telephone requests for comment.

    Sustaining Supply

    A formal accord could keep Iraq’s northern exports flowing smoothly, sustaining the producer’s recent increase in supply to global markets. Iraq has struggled to raise oil exports this year, due partly to its feud with the KRG, and a failure by the two sides to reach a political agreement could jeopardize the renewed shipments. The three Kirkuk fields -- Baba Gorgor, Jambour and Khabbaz -- can produce a combined 150,000 barrels a day for export.

    “It looks like a very shaky foundation for the restart,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said by phone.

    The central government and the KRG last reached a deal in December 2014, when they agreed that the Kurds would give Baghdad control of their exports in exchange for a full payment of their share of the federal budget. Within six months, independent Kurdish exports had resumed, and each side was accusing the other of not meeting its obligations.

    Minister’s Support

    Iraq’s new oil minister, Jabbar al-Luaibi, fed hopes for a new agreement, saying on Aug. 15, his first day in office, that he saw ways to resolve the dispute.

    “I don’t think it’s unreasonable to hope for two or three months of steady flows” of oil exports from Kirkuk, Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy, said by phone. “Beyond that it really depends. Does the new minister succeed in coming up with a more sustainable proposition?”

    Both governments could benefit from a deal, not least because both are short of cash after more than two years of battling Islamic State militants and weathering low oil prices. Iraq is exporting 3.8 million barrels a day, including oil sold by the KRG, Prime Minister Haidar Al-Abadi said Tuesday at a news conference.

    “It’s in the interest of both governments to try and get as much revenue as they can at the moment,” Hannah Poppy, an analyst at The Risk Advisory Group in London, said by phone. “It probably won’t be sustainable in the long term, simply because of the wider political disputes.”
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    Iran sets terms for cooperating with OPEC to stabilise oil market

    Iran will help other oil producers stabilise the world market so long as fellow OPEC members recognise its right to regain lost market share, the country' oil minister said on Friday in remarks made ahead of next month's meeting of the oil exporters group.

    Iran, OPEC's third-largest producer, boosted output after Western sanctions were lifted in January, and had to refused to join OPEC and some non-members in an accord earlier this year to freeze production levels.

    "Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its rights to regain its lost share of the market," Bijan Namdar Zanganeh was quoted as saying by the oil ministry's news agency SHANA.

    Asked about an oil output freeze plan, Zanganeh said that Iran supports any effort to bring stability to the market.

    Tehran insists it will be ready for joint action only once it regains pre-sanctions output of 4 million barrels per day (bpd). It pumped 3.6 million bpd in July, OPEC figures show.

    Zanganeh said Iran had no role in instability of the oil market, as the crisis happened when Tehran's exports were less than 1 million bpd.

    Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum (IEF), which groups producers and consumers, in Algeria on Sept. 26-28.
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    Concho's remarkable acheivement.

    Image title
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    Seadrill says oil industry may be turning as Q2 beats forecast

    Norway-listed offshore driller Seadrill, once the crown jewel in the businessempire of shipping tycoon John Fredriksen, said the oil industry may be turning a corner as it posted second-quarter earnings above forecasts on Thursday.

    At the height of the oil price boom, the company was the world's largest offshore driller by market capitalisation, but it has been struggling as oil firms slash costs to counter a 57-percent decline in crude prices since mid-2014.

    Seadrill's share price has fallen by 90 percent over the past two years, against a 1.5 percent rise for the Oslo benchmark index over the same period.

    But the cycle may be turning, Seadrill said on Thursday, joining other industry suppliers that have recently pointed to signs of recovery in demand from oil companies.

    "Oil prices stabilized in the $40-50 range during the quarter and there is a growing belief that we are at or near the bottom of this downcycle," Seadrill said in a statement.

    Seadrill's earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $557 million in the second quarter, against $651 million a year ago and expectations for $512 million in a Reuters poll of analysts.

    Seadrill repeated that it expected to conclude the refinancing process of its $10 billion debt by the end of the year.
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    Maybank second quarter profit slides, says closely monitoring oil sector loans

    Malaysia's biggest lender Malayan Banking Bhd  said on Thursday it is keeping a close watch on loans made to the oil and gas sector, after posting a 27 percent drop in quarterly net profit as allowances for loan impairment losses tripled.

    Slowing loan growth in Malaysia and higher provisioning for loan impairments across the region due to rising risks in industries such as oil and gas have hurt Southeast Asia's fourth largest bank by assets.

    "We will... remain vigilant and maintain proactive management of asset quality while building our capital and liquidity positions," Group CEO Abdul Farid Alias said in a statement.

    Net profit slid to 1.16 billion ringgit ($288.70 million) for the April-June quarter from 1.58 billion ringgit a year ago. Net interest income rose 7.5 percent to 2.88 billion ringgit.

    The bank saw allowances for impairment losses jump to 982 million ringgit in the quarter from 301 million ringgit in the same period last year.

    Group CFO Amirul Feisal Wan Zahir said Maybank was also monitoring the oil and gas sector. About 3.75 percent of the group's total loans were in that sector, he said.

    "We are monitoring the sector closely in Malaysia and Singapore," Amirul told reporters.

    Analysts have said Maybank has exposure to Swiber Holdings (SWBR.SI), which last month became the biggest Singapore business to fall victim to the oil price slump. Amirul declined to comment on the bank's exposure to Swiber.

    Malaysian oil and gas service provider Perisai Petroleum Teknologi (PPTB.KL) is also facing financial challenges.

    Maybank said loans growth at home will likely continue to moderate to 6-7 percent this year from 7-8 percent in 2015 on the back of easing household loans growth.

    It maintained its overall 2016 loans growth forecast of 8-9 percent. Maybank had seen 12 percent growth in the previous year.

    Maybank's CEO did not rule out another 25-basis-point rate cut by the central bank this year, adding that the cuts could drive loan growth for the lender.

    Last month, Bank Negara Malaysia surprised markets by cutting its overnight interest rate MYINTR=ECI by 25 basis points to 3.00 percent, the country's first rate cut since 2009.

    Attached Files
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    BOEM offers 4399 offshore blocks. Attracts bids for 24

    U.S. Bureau of Ocean Energy Management (BOEM) on Wednesday held a lease sale offering acreage in 4399 blocks across 23.8 million acres million in the Gulf of Mexico, offshore Texas.

    The Lease Sale 248, as it was officially called, attracted 24 bids from only three oil and gas exploration companies which took part in the bidding round, BHP Billiton, BP, and ExxonMobil.

    There were no competing bids for the same acreage. The sum of all bids submitted was a little over $18 million.

    BHP Billiton, an Australian energy giant, offered the most bids. The company offerred to acquire acreage over 12 blocks in the U.S. Gulf of Mexico, located in East Breaks and Alamino Canyon areas.

    By the number of bids submitted, BP was the second. The British oil major filed bids for ten blocks, all situated in the Garden Banks area of the Gulf.

    Also, U.S. supermajor ExxonMobil submitted two bids for two blocks situated in the East Breaks areas. Worth noting, of all the bids submitted, the highest one for a single block was filed by ExxonMobil – $1.25 million. However, when all the bids are summed up, BHP Billiton offered almost $10 million, BP $6.3, and ExxonMobil $1.75 milion.

    In this sale, BOEM offered 23.8 million acres in federal waters offshore Texas for oil and gas exploration and development. The three companies submitted bids for blocks covering 138.240 acres.

    Director Abigail Ross Hopper said: “Though this sale reflects today’s market conditions and industry’s current development strategy, the bidding confirms that there is continued interest in the deepwater areas of the Gulf”.

    Today’s sale in New Orleans, Louisiana, was the first federal offshore oil and gas auction broadcastlive on the internet.

    Sale 248 included approximately 4,399 blocks, located from nine to 250 nautical miles offshore, in water depths ranging from 16 to more than 10,975 feet (5 to 3,340 meters). As a result of offering this area for lease, BOEM estimates a range of economically recoverable hydrocarbons to be discovered and produced of 116 to 200 million barrels of oil and 538 to 938 billion cubic feet of natural gas.

    Following today’s sale, each bid will go through an 90-day evaluation process before a lease is awarded.
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    Permian rig count up nearly 50 percent

    While the latest report from Baker Hughes showed that the oil rig count rose again, now up for eight consecutive weeks – now up nearly 30 percent from the lows of late May to 406 rigs – the Permian Basin has got a headstart.

    Permian is resoundingly considered the lowest-cost U.S. shale play, and its rig count bottomed out a month prior to the low ebb of the aggregate rig count in late-April, some two-and-a-half months after WTI dipped into twenty dollardom. The Permian rig count has now rebounded emphatically, up nearly fifty percent in recent months, and accounting for nearly half of all active U.S. rigs.
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    Canacol Energy tests Nispero-1 exploration well at 28 MMSCFPD,

    Canacol Energy Ltd. is pleased to provide the following update concerning the Nispero 1 gas discovery, the doubling of its gas drilling program for the remainder of 2016, and an increase of 9% in Corporate cash sales to 19,440 barrels of oil equivalent per day for the month of July 2016 compared to the average cash sales of 17,817 boepd for the quarter of April 1 to June 30, 2016.

    Nispero 1 Exploration Discovery (100% Operated Working Interest)

    The Nispero 1 exploration well was spud on the Esperanza Exploration and Exploitation Contract on July 17, 2016. The well reached total depth of 9,906 feet measured depth ('ft md') on August 7, 2016, encountering 79 ft md (55 feet true vertical depth) of net gas pay with average porosity of 17% within the primary Cienage de Oro ('CDO') reservoir target. The CDO reservoir interval was perforated in 7 different intervals between 8,792 to 9,630 ft md and flowed at a final stabilized rate of 28 million cubic feet per day ('MMscfpd') of dry gas with no water at a flowing tubing head pressure of 2,045 pounds per square inch over a test period of 53 hours. The Corporation is currently completing the Nispero 1 well for permanent production via a flow line that will tie the well into the Corporation's operated Jobo production facility.

    Given the success at Nispero, the Corporation plans to immediately drill the offsetting Trombon gas prospect from the same drilling platform the Nispero 1 well was drilled from. The Trombon 1 exploration well will target the same CDO reservoir interval tested in the offsetting Nispero 1 well, but in a distinct and isolated fault block located approximately 2 kilometers south of the Nispero discovery. The Corporation anticipates spudding the Trombon 1 well late in the week of August 29, 2016, and anticipates that the well will take 5 to 6 weeks to drill and flow test.

    Expansion of the 2016 Gas Drilling Program

    The Corporation is currently contracting a second rig to drill the Nelson 6 and Nelson 8 wells while the existing rig will be left to drill the Trombon 1 exploration well and then be mobilized to drill appraisal wells in the Clarinete and Oboe fields. The Nelson 6 exploration well will target gas pay within the shallow Porquero sandstone reservoir in the Nelson field. The Nelson 8 well is a development well targeting productive reservoirs within the CDO reservoir that are not being drained by the existing producing wells in the Nelson field. The Corporation anticipates that both new Nelson wells will be drilled and tested prior to the end of 2016. Following the drilling and testing of the Trombon 1 exploration well, the existing rig will be mobilized to the Clarinete field to drill the Clarinete 3 appraisal well prior to the end of 2016. The Corporation intends to keep one drilling rig active for all of 2017 drilling gas exploration and appraisal wells on its operated VIM 5, Esperanza, VIM 19 and VIM 21 Exploration and Production contracts.

    The objectives of the expanded gas drilling program are to 1) target management's estimate of more than 100 billion cubic feet of potential recoverable resource in order to secure new gas sales contracts, and 2) increase the productive capacity of the Corporations gas assets to more than 190 MMscfpd in 2017 to supply the new contracts.

    The Corporation also plans to spud the Mono Cappuccino oil exploration well on its operated VMM2 E&P contract in the last quarter of 2016.

    Corporate Production

    Gas and oil cash sales before royalties for the month of July 2016 averaged approximately 19,440 boepd, which consisted of 88.0 MMscfpd (15,431 boepd) of gas, and 4,009 barrels of oil per day of oil which included production from Ecuador. Of the 88 MMscfpd of gas cash sales, approximately 85.0 MMscfpd were realized contractual gas sales as the Corporation saw its customers accept physical delivery of nearly all of their nominated gas volumes. The average cash netback of the gas cash sales was approximately US$ 26.60 / barrel of oil equivalent during this period, while the average cash netback of the oil sales was US$ 25.16 / barrel.
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    Summary of Weekly Petroleum Data for the Week Ending August 19, 2016

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending August 19, 2016, 186,000 barrels per day less than the previous week’s average. Refineries operated at 92.5% of their operable capacity last week. Gasoline production decreased last week, averaging over 10.0 million barrels per day. Distillate fuel production decreased last week, averaging over 4.8 million barrels per day.

    U.S. crude oil imports averaged over 8.6 million barrels per day last week, up by 449,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.5 million barrels per day, 13.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 801,000 barrels per day. Distillate fuel imports averaged 224,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.5 million barrels from the previous week. At 523.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories remained unchanged last week, and are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.1 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.4 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 6.6 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.8 million barrels per day, up by 2.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.7 million barrels per day, up by 1.8% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, unchanged from the same period last year. Jet fuel product supplied is up 4.7% compared to the same four-week period last year.

    Cushing +400,000
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    US Oil production slightly down

                                                                   Last Week   Week Before  Last Year
    Domestic Production '000..........    8,548           8,597            9,337
    Alaska '000................................... 483              477               427
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    Planned BP stake sale in Indian unit has not taken place: exchange data

    An up to $261 million share sale in Castrol India Ltd (CAST.NS) by BP Plc due to take place on Wednesday according to a term sheet seen by Reuters had not taken place as of the end of the trading day, according to exchange data.

    BP, which owns a majority stake in Castrol India, had been due to sell an up to 8.53 percent stake including an upsize option, according to the term sheet seen by Reuters on Tuesday.

    A spokesman for BP declined to comment.

    Banking sources in India said they were not aware of a share sale having been launched.
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    Norway Oil Companies Cut Investment Plans Further Amid Slump

    Oil and gas companies operating in Norway, western Europe’s biggest producer, cut investment forecasts further for this year and next as they continue to weather a two-year long collapse in crude prices.

    Investments in Norway’s offshore oil and gas industry are now expected to fall to 163 billion kroner ($20 billion) in 2016, down from a 166 billion-krone estimate in May, according to a quarterly survey published by Statistic Norway on Wednesday. The estimate for 2017 fell to 151 billion kroner from 153 billion kroner. Investments peaked at 221 billion kroner in 2014 before falling to 195 billion kroner in 2015.

    The decrease for 2016 was mainly due to lower estimates for field developments, while lower expected investments in shutdowns and removals and exploration led to a decrease for 2017, the statistics agency said.

    “A decrease from the second quarter to the third quarter in the year before the investment year is very unusual,” Statistics Norway said in a statement. It also happened last year for the first time since 1999, it said.

    Oil companies are delaying development projects and exploration drilling in Norway and elsewhere to withstand a decline in crude prices. About 40,000 jobs have been cut in Norway’s offshore industry, while the central bank lowered rates to a record. Survey unemployment rose to 4.8 percent in June, the highest since at least 2004, according to separate statement today. The downturn has forced the government to make its first withdrawals from its $890 billion sovereign wealth fund this year as it spends more of the nation’s oil wealth amid dwindling income from petroleum production.
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    PetroChina Ekes Out Profit Amid Oil Crash With Pipeline Sale

    PetroChina Co., the country’s biggest oil and gas producer, posted its smallest half-year profit since it was publicly listed in 2000 as the crash in oil prices continues to drag on earnings.

    Net income dropped 98 percent to 531 million yuan ($80 million), the state-run explorer said in a statement to the Hong Kong stock exchange on Wednesday. Revenue fell 15.8 percent to 739 billion yuan. The sale of a Central Asian pipeline network helped the company eke out a profit and recover from its first-ever quarterlyloss earlier this year.

    “Low crude price is a killer for companies like PetroChina as they pretty much rely on oil incomes to make a living,” Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. said by phone.“The performance is not unexpected and what they do in the second half hinges on whether oil can really rebound to a higher level.”

    The state-owned explorer’s total global crude oil and gas output rose 1.7 percent to 748.2 million barrels of oil equivalent during the first half of the year, it said on Wednesday. That’s down 1.3 percent from the second half of last year. Capital expenditures fell 17.5 percent to 50.9 billion yuan. The company declared a special dividend of 0.02 yuan a share in addition to an interim dividend distribution of 45 percent of profit.

    While oil prices have recovered from a 12-year low earlier this year, the crash continues to roil explorers. Exxon Mobil Corp. and Royal Dutch Shell Plc in July reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp. is suffering the longest earnings slump in more than a quarter century and BP Plc posted its lowest refining margin in six years.

    Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, down roughly 30 percent from the same period in 2015. Prices have fared better in the second quarter, averaging about $47 from about $35 during the previous three months.

    Domestic Decline

    High production costs, aging fields and low prices have resulted in a decline in China’s domestic crude output, helping drive imports by the world’s second-biggest consumer to a record. Oil producers including PetroChina and China Petroleum & Chemical Corp. have said they will shut down high-cost fields this year after prices crashed to the lowest since 2003. PetroChina’s domestic crude output in the first half of the year fell 4.2 percent from the same period in 2015 to 385.3 million barrels.

    The country’s crude production in July tumbled to the lowest since October 2011 and has slipped 5.1 percent in the first seven months of the year, according to data from the National Bureau of Statistics. The drop contrasts with a 3.1 percent increase in natural gas output over the same period. While demand growth for oil has slowed, natural gas use rose 9.8 percent in the first half the year.

    Pipeline Sales

    PetroChina and it’s parent company, China National Petroleum Corp., have sold off some assets to shore up their balance sheets to weather the crash. The company announcedin November that it planned to sell a 50 percent stake in Trans-Asia Gas Pipeline Co., which builds and operates links between Central Asian countries to China’s western province of Xinjiang, to a unit of state-ownedChina Reform Holdings Corp. The company said Wednesday that it booked a 24.5 billion yuan gain from the sale.

    CNPC said in July that it earned a profit in the first half of the year of 27.6 billion yuan, without providing details. The company will give priority to natural gas exploration and production in the second half the year and may adjust investment strategies depending on the change in oil prices, Chairman Wang Yilin in a statement last month.

    The Changqing oil field, CNPC’s biggest domestic oil and gas producer, reported separately last month that it rebounded from losses earlier this year to turn a first-half profit on reduced spending. PetroChina posted a 13.8 billion yuan loss in the January to March period, its first-ever quarterly loss since listing in 2000.
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    Shale Land Grab Tops Mergers as Buyers Await Better Oil Outlook

    The buyer’s market that the battered U.S. shale patch has become is so far luring more land purchases than takeovers as investors await a more solid crude price rebound before making bigger moves.

    Handshakes between U.S. oil and gas explorers have had more to do with acquisitions of coveted acreage in the Permian Basin straddling West Texas and New Mexico, or Oklahoma’s Scoop and Stack areas, than agreements to share a head office and a logo.

    “People are trying to find the bottom,” said Stephen M. Trauber, vice chairman & global head of energy at Citigroup Inc. “They would rather do a deal when they know they can pay for something and they know the price improves, versus declines.”

    A two-year slump in crude prices has sent many producers into bankruptcy, while others slash spending and sell assets to stay afloat. Crude rebounded from a 12-year low earlier this year but is still lingering below $50 a barrel, less than half a 2014 peak. The Permian, the nation’s largest field, has led the biggest and longest revival in oil drilling since 2014 while producers remain more cautious in areas that are less profitable.

    Of the $32.1 billion in deals U.S. oil and gas explorers signed this year as of Monday, 52 percent were asset sales, mostly land in the country’s hottest plays, according to data compiled by Bloomberg. But even in the case of deals that are tallied as takeovers, often it’s the acreage that comes along with the acquisition that drives the buy. To help pay for the bargains, producers have issued a record $20.59 billion in shares so far this year.

    Concho Resources Inc. and Newfield Exploration Co. are among producers that boughtup areas in the Permian and Oklahoma to consolidate their hold on the lowest-cost shale plays. PDC Energy Inc. joined the race, announcing late Tuesday a $1.5 billion purchaseof two companies with holdings in the Permian. While technically a takeover, the deal was mainly about the combined 57,000 acres PDC is getting out of it.

    Producers are looking to focus on areas in which they can operate more economically and increase drilling more efficiently, said Sean Coleman, chief credit officer at Franklin Square Capital Partners. At current price levels, that’s a strategy that makes sense, he said.

    The asset sales have reached $16.7 billion so far this year, about 69 percent higher than a year earlier but less than half of the volume of sales during the same period of 2014, the data compiled by Bloomberg show. About $7.46 billion of transactions have been in the Permian, compared with only about $1.88 billion in the Eagle Ford, according to PLS data compiled by Bloomberg.

    Scarce Funding

    With debt markets practically closed off for many producers, financing constraints have been a large obstacle for mergers and acquisitions, according to the mid-year Oil and Gas Mergers and Acquisitions report from the Deloitte Center for Energy Solutions.

    While a relatively better price environment won’t usher in “a tsunami of deals in the next several months,” we’ll likely see a gradual increase, said said Andrew Slaughter, executive director at the Deloitte Center for Energy Solutions.

    The level of uncertainty among buyers and sellers is “probably the highest it’s ever been,” Slaughter said. The timing and extent of the recovery has been difficult to predict, which has made agreement on valuations even harder to come by, he said. And traditional debt markets “will be very slow to open up again.”

    Executives at Hess Corp. have expressed a strategic but cautious approach to deals: If they can create growth by tweaking existing portfolios, there isn’t strong pressure to go out and buy.

    M&A Window

    “I think these people are looking at targets,” said Hugh "Skip" McGee, chief executive officer at Intrepid Financial Partners. “But I don’t think that they feel the window is about to close, and that they need to jump now.”

    An increased level of interest indicates there will be a higher volume of mergers and acquisitions later this year into the next -- though likely not many mega-deals, Citigroup’s Trauber said. Consolidation “absolutely makes sense” given how fragmented the upstream industry is, he said. Those waiting on a surge are likely to see an uptick in activity.

    In the meantime, the most sought-after assets remain pieces of land in the Permian and Oklahoma’s Scoop and Stack regions.
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    Oil refiners face reprieve as maintenance tames fuel glut

    Oil refiners reeling from tumbling profits can expect some reprieve in the coming weeks as lower production will tame a huge global excess of gasoline and diesel.

    Dozens of plants that will switch off for regular autumn maintenance will help slow the downward spiral in margins (the profit from refining crude into oil products) that have fallen to barely break even in 2016 from highs of around $11 a barrel a year earlier, analysts said.

    Refining profits have been a vital bulwark for the likes of Royal Dutch Shell, BP, Eni and Repsol, helping to offset losses from crude oil production in a more than two-year price rout.

    European refinery turnarounds are set to peak at around 1.1 million barrels per day (bpd) in mid-September before gradually tapering off throughout October, according to Reuters data and traders.[REF/E]

    Though last minute maintenance announcements could increase the balance, it remains significantly lower than last year, when it peaked at around 2.3 million bpd.

    Globally, maintenance is expected to be more significant, particularly in export hubs in the Middle East and Asia, taking off around 5 million bpd of capacity at the peak, roughly 7 percent of global refinery throughput.

    "No one is seeing the same sort of margins we saw a year ago, but nor are they falling off a cliff," said David Fyfe, head of market research at Switzerland-based trader Gunvor, which owns three refineries in northern Europe.


    Unplanned outages in the U.S. Gulf Coast, a major export hub, including at ExxonMobil's 502,500 bpd Baton Rouge refinery, are further helping reduce the glut.

    A cold winter would further eat into stocks of heating oil.

    All this will likely help deplete brimming gasoline and diesel stocks, a result of excessive production earlier this year when prices of crude oil feedstock were low and demand expectations were high.

    "We're approaching a state of equilibrium in the sense that demand is matching quite closely with what refineries can produce," said Jonathan Leitch, oil product markets research director at Wood Mackenzie.

    The overhang in developed economies of middle distillates, which include diesel and heating oil, is at around 72 million barrels or around four days of consumption, a reasonable level given limited spare refining capacity, according to Fyfe.

    Gasoline faces an overhang of 30 million barrels, roughly two days of forward cover.

    Robert Campbell, head of oil products markets at consultancy Energy Aspects said refining margins, or cracks, are unlikely to surge even though European diesel stocks are expected to decline by 4 to 6 million barrels in September.

    "All of this sounds very bullish, but a good deal of this story may already be priced in. European diesel cracks have rallied from their lows in recent weeks, but cannot realistically go much higher," according to Campbell.

    "Margins don't look great going into September but maintenance, even if it is small, will keep people afloat for a while."

    Chances for a new tidal wave of refined oil products once autumn maintenance is completed are diminishing as 2016 and 2017 will see far less new refinery capacity come on line compared to last year, Fyfe said.
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    Kenya finalises agreement for development of crude oil pipeline

    Kenya has finalised an agreement with oil explorer Tullow Oil and its partners Africa Oil and A.P. Moller-Maersk for the development of a crude oil pipeline, as it bids to become an oil exporter, the president's office said.

    Tullow and Africa Oil first struck oil in the Lokichar Basin in the country's northwest in 2012. The recoverable reserves are an estimated 750 million barrels of crude.

    The two firms were 50-50 partners in blocks 10 BB and 13T where the discoveries were made. Africa Oil has since sold a 25 percent stake in those blocks to A.P. Moller-Maersk.

    A statement from President Uhuru Kenyatta's office quoted Energy and Petroleum Minister Charles Keter as saying the three partners and the government had finalised the pipeline's development plan.

    "He said the Government and its upstream partners, Tullow Oil, Africa Oil and Maersk Companies, have concluded a Joint Development Agreement (JDA) for the development of the pipeline," the statement said.

    In April, Keter said the pipeline - to run 891 km between Lokichar and Lamu on Kenya's coast - would cost $2.1 billion and should be completed by 2021.

    The government and the companies are pushing to start small scale crude oil production in 2017, at about 2,000 barrels per day to be initially transported by road.

    "We have started and we are not moving back. We want to be at the top of the pile. So, we have set a path and by 2019, Kenya is going to be a major oil producer and exporter," Kenyatta said.

    The statement said Tullow Oil had confirmed it would start production in March 2017 and quoted Paul McDade, its chief operating officer, as saying the company would be ready to start exports in June next year.

    Neighbouring Uganda is also looking to build a pipeline to export its oil. Though it initially favoured a route though Kenya, Kampala has decided to build its pipeline through Tanzania instead.
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    Loss-making CNOOC warns of headwinds to oil price recovery

    CNOOC Ltd reported a loss for the first half of 2016 on Wednesday and warned that headwinds will stymie a recovery in crude oil prices from the worst downturn in years.

    The company, China's offshore oil and gas specialist, reported a net loss of 7.74 billion yuan ($1.16 billion) in the first six months of the year, compared with a profit of 14.73 billion yuan in the same period last year, it said. This is the first half-year loss the company has reported for data on Eikon going back to 2011.

    Oil and gas sales in the period plunged 28.5 percent to 55.08 billion yuan from 77.03 billion yuan even as total net production rose 0.6 percent over the year-ago period to 241.5 million barrels oil equivalent.

    The state-owned oil company vowed to continue to cut costs amid a "complex and volatile" market and said uncertainties remain in the global and domestic macro environment while a further recovery in oil prices faces headwinds.

    Global crude prices rose by a third in the first six months of the year, recovering from their lowest in more than a decade of $27 a barrel in mid-January amid hopes that major producers would cut output, helping to erode a global surplus.

    Prices are currently near $50 per barrel, but have struggled to sustain major gains.

    The state-controlled firm said its realized oil prices during the January-June period fell 34.5 percent over a year earlier and its natural gas prices also dropped 16.2 percent during the same period.

    CNOOC's Hong Kong-listed share prices were up 19 percent in the first half, outperforming the broader Hang Seng Index , which dropped 5 percent during the period.
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    Mexico's Round 2.2 auction features 12 blocks, gas potential: minister

    A total of 12 onshore oil and natural gas blocks will be on offer in the second auction of Round Two of Mexico's energy reform, the energy ministry announced Tuesday.

    The blocks include 39 fields that have already been explored. In all cases, licenses will be on offer.

    A total of nine of the blocks lie in the Burgos Basin, across the US border from Texas, and the nation's main source of non-associated gas.

    Production of gas from Burgos has fallen below 1 Bcf/d in recent months. The remaining three blocks comprise two in the Chiapas Fold Belt, and one in the southeastern basins in the states of Tabasco and Campeche. All three have potential for both oil and natural gas.

    Speaking at a press conference, Pedro Joaquin Coldwell, the energy secretary, said that the main objective of Round 2.2 is to "extract both wet and dry gas so as to produce more ethane, propane and butane in order to benefit the petrochemical industry."

    Mexican gas demand has averaged just over 8 Bcf/d over the past three months, peaking at 8.05 Bcf/d in June, according to Platts Analytics' Bentek Energy data. This represents a year-on-year build of 330 MMcf/d or 4%.

    A substantial proportion of that demand is now being satisfied by a growing network of pipelines linking the US to Mexico.

    Joaquin Coldwell said the Round 2.2 blocks are, at 340 to 480 square km, much bigger than those of similar blocks in Round One. He added that the ministry hopes to attract $5 billion from investment in 2.2.

    Bids on Round 2.2 are to be placed on April 7, 2017. Results will be announced two days later.

    Round 2.1 consists of 15 shallow-water southern Gulf of Mexico blocks on production sharing contracts, the ministry recently announced. Bids on 2.1 are to be presented on March 22.

    Round One will be completed on December 5, when 10 blocks in the 1.4 auction are being auctioned in the deepwater Gulf of Mexico, including the Perdido Fold Belt. A total of 26 companies, including the majors, have applied to bid and the government expects to bring in $44 billion in investment.

    Attached Files
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    Trudeau Faces Split Aboriginal Groups in Kinder Morgan Ruling

    In the rolling country of central British Columbia, Michael LeBourdais’s Whispering Pines Indian Band is looking forward to a cash injection from a new pipeline proposed by Kinder Morgan Energy Partners LP. He’ll be seeking compensation for his band if it doesn’t go through.

    Meanwhile, 400 kilometers (250 miles) away near the pipeline’s terminus in Vancouver, the Tsleil-Waututh First Nation is battling the expansion, saying it will lead to oil spills on their tribal land and in the waters of Burrard Inlet.

    Into this breach will step Prime Minister Justin Trudeau, who must decide on the C$6.8 billion ($5.4 billion) Trans Mountain pipeline expansion, which oil companies say is vital to get increased output from Canada’s oil sands to global markets via the Pacific Coast.

    The conflicting native views underscore the delicate balance Trudeau must strike as he seeks to fulfill his promises of upholding aboriginal rights and responsible resource development while sparking growth in an economy reeling from plunging oil prices.

    Trans Mountain brings together “in one file” the biggest priorities for Trudeau and his Liberal Party government, with political implications that set environmental issues against the “cold, hard facts” of economic development, said pollster Nik Nanos, chairman of Ottawa-based Nanos Research Group. The scale of the decision may even force the prime minister to slow down the process and delay a ruling, currently set for the end of the year, he said.

    This is “very tricky because of some of the conflicting priorities,” Nanos said. The decision will “be a big signal nationally and internationally and indicative on how the Liberals convert talk on the environment.”

    Pipeline Expansion

    Kinder Morgan plans to triple Trans Mountain’s capacity to 890,000 barrels a day by twinning the existing 1,150 kilometer line that runs through the mountainous Canadian province. The system, in operation since 1953, is the only pipeline from Alberta to the Pacific Coast and connects the oil sands directly to a port with reach to markets outside North America.

    Input from stakeholders during Kinder Morgan’s 159 workshops and open houses as well as other feedback has “improved” the project, the company said in an e-mailed response to questions. The Houston-based pipeline operator has changed the route to avoid sensitive areas and made the pipeline thicker in some locations, it added.

    In deciding Trans Mountain’s fate, the government is adding its own review of the project following the National Energy Board’sgreen light in May, subject to 157 conditions. The expansion probably won’t add to the climate impact of the country’s oil production, the Canadian Environmental Assessment Agency said in a separate report.

    Still, even with the conditions and additional review, opposition to the pipeline remains stiff, especially near Vancouver with its beaches and environmentally-conscious residents. Mayor Gregor Robertson in June submitted a request for judicial review of the NEB’s decision. The expansion is “not in Vancouver or Canada’s economic or environmental interest,” the mayor said.

    Chief LeBourdais at Whispering Pines, meanwhile, says he wants compensation if Robertson and other opponents succeed in blocking the pipeline, which would provide his band with a “very large sum of money” following years of negotiation with the company.

    “If you’re going to say no, that’s ok, but then somebody owes me the value of that negotiated agreement,” he said.

    And at a recent public meeting in Burnaby earlier this month as part of the federal government’s review on Trans Mountain, Burnaby Mayor Derek Corrigan summed up the challenges for Trudeau -- using the prime minister’s own words.

    “Justin Trudeau said governments give permits but communities give permission,” Corrigan told the panel. “Well, we don’t.”

    Canada’s oil companies have struggled to win new outlets for their increasing volumes of petroleum, especially from the oil sands where output may rise 50 percent to 3.7 million barrels a day by 2030, according to the Canadian Association of Petroleum Producers. With Enbridge Inc.’s permit for Northern Gateway recently revoked by a federal court and TransCanada Corp.’s Keystone XL approval rejected last year by President Barack Obama, the industry has pinned its hopes on Trans Mountain after years of disappointments.

    “There is no question that a decision on the Trans Mountain pipeline is of significant national impact,” said Jeff Gaulin, vice president at the Canadian Association of Petroleum Producers, an industry lobby group in Calgary. “It will be a watershed moment for the development of Canada’s energy resources to reach more international markets.”

    Trans Mountain will be the first test of Trudeau’s approach to Canada’s resource-heavy economy and highlights how the government is unprepared with policy to support decisions on individual energy projects, said Monica Gattinger, a University of Ottawa professor and director of the school’s Institute for Science, Society and Policy. A policy framework that provides direction on climate, aboriginal relations and cumulative effects is needed to help resolve opposition to such projects, she said.

    “We have a number of policy gaps around energy that frankly extend well beyond the remit of any individual energy project decision-making processes,” she said. “Are governments really trying to make climate policy one pipeline at a time? That’s putting the cart before the horse.”

    Trudeau wants to remake Canada into a low-carbon society while balancing natural resource development in an economy that relies on commodity exports, making the country more dependent on resources for economic growth than other large wealthy nations. His government is currently developing a climate strategy, including a national price on carbon, in coordination with the provinces.

    “All projects are reviewed individually based on science, evidence and the traditional knowledge of indigenous peoples,” Natural Resources Canada said in an emailed response to questions about the Kinder Morgan pipeline.
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    PDC Energy Joins Permian Oil Rush With $1.5 Billion Acquisition

    PDC Energy Joins Permian Oil Rush With $1.5 Billion Acquisition

    PDC Energy Inc. joined the parade of companies buying into the U.S.’s biggest oilfield, announcing a $1.5 billion purchase of two companies with holdings in Texas’ Permian Basin.

    PDC agreed to buy two closely held companies with a combined 57,000 acres in the Permian, the Denver-based explorer said in a statement Tuesday. The driller will pay $915 million in cash and give about 9.4 million of its shares to Kimmeridge Energy Management Co., a New York-based private equity fund that manages the two Permian companies.

    Drillers including Pioneer Natural Resources Co., Parsley Energy Inc. and Concho Resources Inc. have all announced deals in the Permian this year, expanding their presence in one of the few North American oil regions where production is profitable at current prices. Until now, PDC has concentrated on wells in Colorado and Ohio, according to its statement.

    The privately negotiated transaction includes about 57,000 acres in Reeves and Culberson counties in Texas, which currently produce the equivalent of about 7,000 barrels of oil a day. The company intends to fund the cash portion of the purchase though “potential equity and debt financings," PDC said. The deal is expected to close in the fourth quarter.
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    U.S. EPA links Texas quakes to oil work, echoing research

    U.S. EPA links Texas quakes to oil work, echoing research

    Federal regulators have concluded that recent earthquakes in North Texas are likely linked to wastewater disposal wells used by the oil and gas industry, echoing findings from researchers at Texas universities.

    EPA officials made the comment in a letter to the Texas Railroad Commission, which regulates the oil industry in the top crude-producing state.

    Quakes have been tied to the injection of saltwater, a normal byproduct of oil and gas drilling, into deep disposal wells and underground caverns.

    The Railroad Commission has in the past questioned the causal link found in university studies.

    "EPA believes there is a significant possibility that North Texas earthquake activity is associated with disposal wells," said the Aug. 15 letter reported by the Texas Tribune on Tuesday.

    The EPA said it was concerned about seismic activity in the Dallas-Fort Worth area because of its potential to affect underground sources of drinking water.

    On Tuesday, the Railroad Commission said it has subjected new disposal well applications to greater scrutiny, participated in technical hearings about so-called induced seismicity, and supported installation of more earthquake monitoring stations so more data can be collected to better understand seismic activity in Texas.

    Regulators in Oklahoma have ordered dozens of disposal wells to be shut in to curb a spate of quakes in that state.

    The use of disposal wells intensified during the fracking boom, although U.S. oil and gas drilling has slowed recently on the worst price crash in years.
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    API Reports Massive Build In U.S. Crude Stocks

    The American Petroleum Institute reported a 4.464 million barrel increase in U.S. crude oil inventories in the biggest build in crude supplies in four months.

    These figures are in stark contrast to a survey by Reuters earlier today, which showed an expert consensus for a 0.5 million-barrel draw in crude oil inventories. Similarly, Zero Hedge’s sources expected an 850,000 barrel draw this week, while analysts polled by S&P Global Platts expecteda 200,000-barrel rise in U.S. crude inventories. No estimates expected the massive increase in inventory.

    Gasoline inventories decreased by 2.2 million barrels – and if confirmed by tomorrow’s EIA figures, this would be the fourth weekly draw for the energy source in a row. Distillates also experienced an 834,000 barrel draw.

    West Texas Intermediate prices fell lower after the release of the new data, in light of the high inventory build-ups. However, the actual supply numbers will be released tomorrow in a report by the federal Energy Information Administration.

    In light of the new energy supply configuration, analysts at Goldman Sachs predict that even if the Organization of Petroleum Exporting Countries (OPEC) agree on a production freeze next month, the move will be self-defeating as net energy importer nations begin buying energy supplies en masse to hedge against higher prices.

    This week, supplies at the storage facilities at Cushing increased by 417,000 barrels according to the API figures, against a more conservative expected 200,000-barrel build. In the week prior, crude inventories at the site were down by 680,000 barrels according to actual EIA data.
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    Cheniere ships first cargo from Sabine Pass Train 2

    U.S. LNG player Cheniere Energy has shipped the first cargo produced from the second train at its Sabine Pass export facility in Lousiana, according to gas shipping giant BW.

    “BW GDF Suez Everett loaded the first cargo from Sabine Pass Train 2 last week,” BW LNG, a unit of the Singapore-based company said in a short statement through its social media channels.

    The 2003 built 138,028-cbm LNG tanker left the Sabine Pass facility on August 18 and is currently located in the Caribbean Sea, according to AIS data provided by the vessel tracking website, MarineTraffic.

    LNG World News contacted both Cheniere and BW seeking comment on the matter. We will update the article once we receive a response.

    Cheniere said in the latest Sabine Pass construction update it expects first Train 2 cargo late August, with completion of the second liquefaction unit expected at the end of September. Train 2 started producing the chilled fuel on July 27.

    Cheniere’s Sabine Pass plant in Louisiana, first of its kind to ship U.S. shale gas overseas, started exporting LNG from Train 1 in February this year.

    The majority of these exports went to South America, followed by the Middle East, Asia, and Europe.

    Cheniere is developing and constructing up to six trains at Sabine Pass. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.
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    Oil Search Says Second PNG Greenfield Project May Not Proceed

    Oil Search Ltd. said development of a second standalone liquefied natural gas export terminal in Papua New Guinea is unlikely with Exxon Mobil Corp. and Total SA expected to favor cooperation to expand the existing PNG LNG project.

    The Sydney-based company owns 29 percent of the Exxon Mobil-led PNG LNG project and a 22.8 percent stake in the Papua LNG development operated by Total and co-owned by explorer InterOil Corp. Exxon Mobil, after prevailing over Oil Search in the $2.5 billion battle for control of InterOil Corp. in July, said it will funnel gas from the Papua project into an expansion of PNG LNG.

    “A greenfields development for Papua LNG is highly unlikely based on the share of equity that will reside across the various projects at completion of the InterOil transaction with Exxon Mobil,” Oil Search Managing Director Peter Botten said on an earnings call.

    Botten was speaking Tuesday after Oil Search posted a 89 percent fall in first-half net income to $25.6 million as a drop in energy prices offset increased output. The result compared with expectations for $38 million, according to the average of three analysts surveyed by Bloomberg.

    The price Oil Search received for oil and condensate fell 27 percent from the year before while liquefied natural gas prices dropped 40 percent. Oil Search slashed its interim dividend to 1 cent from 6 cents a share.

    Oil prices have likely bottomed and the company is in the midst of an eight week strategy review after losing out in its battle for InterOil, according to Botten. The study, which will be completed by the fourth quarter, will focus on cooperation between the PNG LNG and Papua LNG projects to determine what strategies hold the most value for all stakeholders, Botten said in a statement.

    The company delivered a higher than expected dividend, Macquarie Group Ltd. said in a note. “Based on the increasing volumes and revenue as well as further lowering of costs at PNG LNG, we anticipate this higher dividend will be the first of many,” according to the note.

    Oil Search last month said revenue fell 33 percent even as production climbed 4 percent. Brent oil averaged about $41.20 a barrel for the first half, more than 30 percent less than the corresponding period in 2015.

    Oil Search’s realized price of $5.23 per million British thermal units for its gas in the second quarter is lower than rival Woodside Petroleum Ltd., according to data compiled by Bloomberg.
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    Argentina to consider less than 400% natural gas hikes: official

    Argentina's government may consider raising natural gas bills on households by less than a previously proposed 400% as it seeks to rebuild gas production to reduce imports, Cabinet Chief Marcos Pena said.

    The government will pursue "the best scheme for gradualism" in raising gas tariffs, Pena said Saturday on Cadena 3, a radio broadcaster.

    The government called the public consultation last week after the Supreme Court annulled its 400% hike implemented April 1, on grounds that hearings must come first to allow users a chance to voice their concerns before changes are made in what they are charged.

    This was a blow for the right-of-center government of President Mauricio Macri, only nine months in office. His government wants to rebuild gas production and end chronic energy shortages, helping to reel in foreign investment to pull the economy out of recession.

    To encourage drilling, Macri has doubled the wellhead price to an average of $5.20/MMBtu and kept in place an incentivized price of $7.50/MMBtu for output from new developments, like in shale and tight plays.

    With higher gas distribution and transport tariffs, the government wants to cover more of the wellhead price from consumers, helping to reduce the strain on public finances through subsidies.

    With more gas production, the government is seeking to cut imports, which hit a record of nearly 50 million cu m/d in June. The goal is to end purchases of liquefied natural gas -- half of total imports -- by 2021-22, the government has said.

    Argentina's gas production rose 6.8% to an average of 121.4 million cu m/d in the first five months of 2016 from a 10-year low of 113.7 million cu m/d in 2014, according to Energy Ministry data.
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    Iraq asks foreign oil companies to increase crude production, exports

    Iraqi Oil Minister Jabar Ali al-Luaibi on Tuesday asked foreign oil companies to increase oil and natural gas production and exports in order to maximise the OPEC nation's revenue, ministry spokesman Asim Jihad told Reuters.

    Luaibi, who took over the ministry earlier this month, held a meeting in Baghdad with oil companies operating in Iraq.

    "The minister reaffirmed support for the operations of international companies in order to increase the production and export rates of crude oil and natural gas," Jihad said.

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    China targets teapot oil refineries in tax crackdown -sources

    China's crackdown on alleged tax evasion in the oil industry will target independent refineries and follows complaints by state energy giants, in the first major sign of growing tensions between established players and their upstart rivals.

    In a statement on Tuesday, the National Development and Reform Commission (NDRC) said it will ban crude imports for up to a year or, in certain cases, cancel import licenses for any companies found guilty of tax fraud.

    It did not give any further details, identify which companies it was targeting or provide the reason for the announcement.

    But industry sources in China familiar with the matter say the government launched an investigation earlier this year into complaints by government-owned firms that the nation's independent refiners, known as teapots, are not paying enough sales taxes.

    Officials from the NDRC and the State Administration of Taxation have visited some teapots, they said.

    "(The probe) was triggered by strong complaints from state oil companies that local refineries were paying much less fuel tax compared to them," said a senior official with the China Petroleum & Chemical Industry Federation, a semi-official agency. He declined to be named due to the sensitivity of the issue.

    Inspectors from the NDRC are also looking into allegations that refineries with import licenses are selling foreign crude oil to companies without, breaking rules set by Beijing when it started granting the quotas a year ago, according to four industry officials with knowledge of the inspections.

    The complaints illustrate how the rapid rise of the teapots, which are mainly privately owned and nimbler than their state-run rivals, like Sinopec and PetroChina, has roiled the domestic industry since Beijing granted the import permits a year ago.

    Any steps to curb their imports would be a major blow to this small but fast-expanding group, which have grabbed a growing slice of the domestic market by selling diesel and gasoline at discounts to state-run majors, and forcing them in turn to sell their excess into a saturated global market.

    "Previously, state refiners have been (turning) a blind eye on teapots, because they are not a big enough threat. Now things have changed. Big SOEs are quite sensitive over teapots' business practices," Lin Boqiang, energy researcher with Xiamen University.

    When asked about the probe last week, Sinopec spokesman Lu Dapeng said he had no knowledge of the government's inspections, and would not comment further.

    Rancor over taxes has been brewing for months, according to local media reports and traders.

    Before they had access to foreign crude, teapots mainly refined fuel oil and whatever excess crude they could pick up from the state-owned players.

    "A (teapot) plant of five million tonnes of annual capacity pays less than half of that of a state-owned refinery," Li Tianshu, a PetroChina refinery manager was quoted as saying by the 21st Century Business Herald in July.

    "Competition from teapots forced us to lower operations, they are now the biggest challenge to our profitability," the paper cited a second state refinery official as saying.

    In an apparent response to growing criticism, Shandong Dongming Petrochemical Group, the country's largest teapot operator, last week said via a social media post that it paid a record amount of taxes totaling nearly 1.28 billion yuan ($193 million) between January and April to the government of Heze, where it is headquartered.

    That's nearly 40 percent of total tax revenue for the city of 9.6 million people, it said on wechat.

    An executive with a leading teapot refiner said independents were paying lower taxes because many were configured to treat heavier crude oil that yields a smaller amount of gasoline and diesel versus more sophisticated plants.

    Many produce heavier products like bitumen that are not subject to consumption levies, he added.
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    China refiners, petrochemical companies to propose CO2 benchmarking plan

    China's oil refining, petrochemical and chemical companies will propose a plan to benchmark their carbon dioxide (CO2) emissions as the first step toward setting up an emissions market for the sector, the group's industry association said on Tuesday.

    The China Petroleum and Chemical Industry Federation (CPCIF), China's oil industry lobbying group, plans to make a proposal by September on how to set benchmarks for the CO2 produced while manufacturing products ranging from diesel fuel to benzene, it said in its China Chemical Industry News newsletter.

    The benchmarks will be used to set CO2 emissions caps for nearly 2,400 companies in the sector under the national carbon market that will start next year, the CPCIF said.

    China, the world's second-largest oil consumer, will need to benchmarks to help create reduction targets for its large petrochemical and chemical factories that are responsible for up to 70 percent of the sector's CO2 emissions, the CPCIF said.

    The number of the petrochemical and chemical companies participating in China's domestic carbon market will account for one-third of the total number of companies participating nationally, said Li Yongliang, a CPCIF official, as cited by China Chemical Industry News.

    China plans to bring in up to about 8000 companies in eight industries into its national carbon trading programme, including from the power, steel, cement and transportation sectors.

    The CPCIF will propose benchmarks for 23 products including refined oil products, ethylene and aromatic hydrocarbons such as benzene. The final cap will be set based on the benchmarks at the best-performing facilities.

    Sinopec Group, China's biggest oil refiner, said earlier this month that it would cut its carbon intensity 51 percent below 2005 levels by 2020 as a part of the company's five-year plan.

    China's oil companies have been trading carbon in the seven local carbon exchanges since the start of the pilot trading phase in 2013.
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    PNG LNG eyes multi-year spot contracts

    The ExxonMobil-operated US$19 billion PNG LNG project is looking at multi-year contracts for spot sales of the chilled fuel as the project is producing above the nameplate capacity, according to Oil Search that has a 29 percent share in the JV.

    The PNG LNG project is producing 7.7 million tonnes per annum (mtpa), 12 percent above the nameplate capacity of 6.9 mtpa. It is currently in the recertification process for all of the PNG LNG fields, which according to Oil Search will result in a larger reserve base that could underpin long-term contracts for future spot LNG cargoes.

    “At the moment, as we go to the recertification process for all of the PNG LNG fields, those are relatively short-term type of spot sales that we are looking at which may cover four to eight cargoes,” Julian Fowles, Oil Search’s executive general manager for PNG, told analysts on a conference call on Tuesday after the company announced its first-half results.

    However, with a positive outlook on the recertification, the JV would “certainly be looking at longer term strips of sales – contracts that would be potentially a number of years that would cover a substantial portion of the spot volumes that we have since we are currently producing above nameplate capacity,” Foyles said.

    PNG LNG sold eight spot cargoes in the first half of this year, out of which six were delivered to Japanese customers, Fowles said,  adding that this reflects the “desire of our premium customer for our high heating value gas.”

    “We have also been selling spot cargoes to other customers beyond our long-term contract customers that have traditionally been our primary buyers of spot cargoes. We have other customers now becoming used to PNG LNG product, and that is also good for future marketing of longer-term spot cargoes.”

    The PNG LNG project commenced production of LNG in April 2014 and since then it had delivered 205 cargoes of the chilled fuel.

    The LNG project includes gas production and processing facilities in the Southern Highlands, Hela, Western, Gulf and Central Provinces of Papua New Guinea.

    There are over 700 kilometres of pipelines connecting the facilities, which includes a gas conditioning plant in Hides and the two-train liquefaction facility near Port Moresby.

    According to Oil Search, there is enough gas for two more LNG trains, and also a third one if the next drilling campaign is successful.

    Besides ExxonMobil and Oil Search, other JV participants are Santos, National Petroleum Company of PNG, JX Nippon Oil and Gas Exploration, Mineral Resources Development Company, and Petromin PNG Holdings.
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    EIA: U.S. shale oil production to fall sharply through 2017

    The flow of oil from U.S. shale fields is projected by government analysts to fall 14 percent by 2017, as the reverberations of the recent crash in crude prices are felt.

    Production from those shale fields had increased exponentially over the past decade as hydraulic fracturing and horizontal drilling techniques were improved. Shale oil now accounts for more than half of the nation’s crude output.

    But according to a report Monday by the U.S. Energy Information Administration, shale oil output – which peaked in 2015 at 4.9 million barrels a day – will fall to 4.2 million barrels by the end of next year.

    The fall is “mainly attributed to low oil prices and the resulting cuts in investment. However, production declines will continue to be mitigated by reductions in cost and improvements in drilling techniques,” the report reads.

    After 2017 government analyst are more bullish, predicting that by 2040 shale oil production will increase 45 percent from 2015 levels to 7.1 million barrels a day. U.S. natural gas production from shale would more than double to 79 billion cubic feet a day – with no drop off in production in the short-term.

    Those predictions are predicated on analysts ability to predict future oil prices. In the report, EIA explains that fluctuations in oil prices could cause wild production swings. In the event of high prices, shale oil would reach more than 12 million barrels a day by 2040. If prices were low, production could fall close to 3 million barrels a day.

    The EIA also predicts that by 2019 the Bakken formation, which spans North Dakota and Montana, will be the country’s largest oil field, surpassing the Eagle Ford field in South Texas. By 2040, analysts predict, the Bakken will produce 2.3 million barrels per day, almost a third of the nation’s shale oil output.
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    China's Biggest Oil Firms May Calm Investors With Post-Crash Payouts

    Cnooc Ltd., the country’s largest offshore producer, may consider a special dividend even as it’s forecast to report on Wednesday that it lost 8 billion yuan ($1.2 billion) in the first half of the year, according to China International Capital Corp. and Morgan Stanley. PetroChina Co., the country’s biggest oil and gas company, may pass on to investors the proceeds from selling stakes in Central Asia pipelines, according to Nomura Holdings Inc.

    “At current oil prices, China’s big oil companies have basically nothing but reasonable dividend payouts to keep current investors and attract new ones,” Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., said by phone. Payouts will add extra stress to cash flow, but they’re necessary for the companies to stay attractive or meaningful to financial and strategic investors, Tian said.

    Oil companies have stayed committed to dividends in the face of the energy crash, with some of the biggest selling billions of dollars of bonds this year to sustain payouts. Exxon Mobil Corp. and Royal Dutch Shell Plc maintained dividends despite posting the lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp. reported its longest earnings slump in 27 years, while BP Plc posted its lowest refining margin in six years and still kept the shareholder payout intact.

    ‘More Generous’

    While shares of China’s so-called Big Three oil companies -- which includes China Petroleum & Chemical Corp., the world’s biggest refiner -- have recovered this year amid a rebound in oil prices, they’re all still down more than 30 percent since their peak in 2014.

    PetroChina may break even in the first half of the year on the back of one-off gains, according to a July 15 research note by Citigroup Inc. analysts including Graham Cunningham, who has a sell rating on the company. The company may see a gain of at least 20 billion yuan from the sale of 50 percent in Trans-Asia Gas Pipeline Co. in November, according to Citigroup and Nomura.

    “The improved balance sheet means that PetroChina has the capacity potentially to pay a special divided to reward investors,” Gordon Kwan, Nomura’s Hong Kong-based head of Asia oil and gas research, who has a buy rating on the stock, said in a report earlier this month. “We think PetroChina could become more generous in rewarding investors amid depressed oil prices and trigger out-performance for the stock. ”

    Cnooc said in July that it expects a loss for the first six months of the year, compared with profit of 14.7 billion yuan in the same period in 2015, on the back of falling oil prices and an impairment on assets including its Canadian oil sands project. It would the first time the company reported a half-year loss since it began trading in 2000, according to data compiled by Bloomberg.

    “Thanks to Cnooc’s competitive cash cost and strategy to reward shareholders, we think the company is highly likely to pay special dividend in first half of 2016 despite the loss,” Morgan Stanley analysts including Andy Meng, wrote after it announced the profit warning. He has an overweight rating on the stock, similar to a buy recommendation.

    The exploration and production units of China’s energy giants will be hit by both the decline in oil prices as well as the slide in the country’s production due to an estimated 10 percent reduction in capital spending during the first half of the year, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in an Aug. 1 report.

    The country’s crude output in July tumbled to the lowest since October 2011 and has slipped 5.1 percent in the first seven months of the year, according to data from the National Bureau of Statistics. The drop contrasts with a 3.1 percent increase in natural gas output over the same period.

    Profit at China Petroleum, known as Sinopec, is expected to drop about 40 percent to roughly 15 billion yuan -- compared with less than 200 million yuan for PetroChina -- as losses on its oil production units will be countered by its refining business, according to Bernstein’s Beveridge. The company’s domestic crude output, which makes up more than 80 percent of its production, dropped nearly 13 percent in the first half of the year, it said in a statement last month.

    China’s oil production has a break-even price between $37 and $50 a barrel, Beveridge wrote in the report. Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, compared with more than $59 during the same period in 2015.

    PetroChina shares dropped 1.1 percent to HK$5.25 in Hong Kong as of 10:13 a.m., while Sinopec fell 0.7 percent to HK$5.56 and Cnooc slid 2 percent to HK$9.55. The city’s benchmark Hang Seng Index declined 0.4 percent.

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    China receives U.S. LNG cargo

    World’s largest energy consumer, China has on Monday received the first cargo of LNG from Cheniere’s Sabine Pass liquefaction and export terminal in the United States.

    The cargo was brought onboard the 161,870-cbm Maran Gas Apollonia, chartered by the Hague-based LNG giant Shell, that was the first LNG tanker to transit the newly expanded Panama Canal connecting the Atlantic and Pacific oceans.

    Maran Gas Apollonia is currently unloading the U.S. LNG cargo produced from shale gas at the CNOOC-owned Guangdong Dapeng LNG terminal in Shenzhen Dapeng Bay, according to AIS data provided by the vessel tracking website, MarineTraffic.

    Cheniere’s Sabine Pass plant in Louisiana, first of its kind to ship U.S. shale gas overseas, started shipping the chilled fuel from Train 1 in February this year.

    The majority of these exports went to South America, followed by the Middle East, Asia, and Europe.

    Cheniere previously said it expects first cargo from Sabine Pass Train 2 in mid-August with substantial completion to be achieved in late September.
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    Genscape Cushing inventory

    Genscape Cushing inventory: -187,197 bbls in week ended Aug.19

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    UK gas supply worries ease as storage site to open more wells for withdrawals

    Twenty wells at Britain's Rough gas storage site should be available for withdrawals from Nov. 1, Centrica Storage Limited (CSL) said on Monday, above the operator's previous estimate and easing concerns about record low gas stocks this winter.

    Centrica, which owns British Gas, one of Britain's largest energy suppliers, imposed restrictions in March last year on how much gas could be stored at Rough as a safety precaution after identifying potential issues with well integrity.

    Following investigations, Centrica shut down the facility for injections and withdrawals of gas in June this year and then said the outage would be extended until March or April next year.

    However, it also said it hoped to be able to re-open at least four wells for withdrawals only by Nov. 1, 2016.

    Britain depends on stored reserves to help manage winter demand spikes and to ensure security of supply. The Rough site accounts for more than 70 percent of the country's storage capacity, National Grid data shows.

    There were fears Britain could go into next winter with very low levels of gas stocks, because if only four wells returned to service, the site would have a maximum withdrawal rate of around 5 million cubic metres (mcm) per day.

    If 20 wells are available for withdrawals, the maximum withdrawal rate is around 35 mcm/d, based on CSL data earlier this month.

    "It certainly eases concerns (about stocks). It has had an impact on the first quarter price and beyond and hopefully it will mitigate future issues if Centrica can address problems now," said Nick Campbell, an analyst at Inspired Energy.

    The British gas prices for delivery this winter fell by 0.90 pence to 40.90 p/therm at 1122 GMT, having previously traded at a high of 42.20 p/therm earlier on Monday.

    The Q1 2017 contract was down 0.40 pence at 43.70 p/therm.

    However, CSL added it could not increase the reservoir pressure at Rough while it was doing its well testing programme, so no wells were currently available for injection.
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    Future U.S. tight oil and shale gas production depends on resources, technology, markets.

    Image title

    Based on projections in the U.S. Energy Information Administration's Annual Energy Outlook 2016 (AEO2016), U.S. tight oil production is expected to reach 7.08 million barrels per day (b/d), and shale gas production is expected to reach 79 billion cubic feet per day (Bcf/d) in 2040. These values reflect Reference case projections, while several side cases with different assumptions of oil prices, technological advances, and resource availability have different levels of tight oil and shale gas production.

    U.S. production of tight oil and shale gas has increased significantly from 2010 to 2015, driven by technological improvements that have reduced drilling costs and improved drilling efficiency in major shale plays, such as the Bakken, Marcellus, and Eagle Ford.

    Production from tight oil in 2015 was 4.89 million barrels per day, or 52% of total U.S. crude oil production. From 2015 to 2017, tight oil production is projected to decrease by 700,000 barrels per day in the Reference case, mainly attributed to low oil prices and the resulting cuts in investment. However, production declines will continue to be mitigated by reductions in cost and improvements in drilling techniques. The use of more efficient hydraulic fracturing techniques and the application of multiwell-pad drilling, as well as changes in well completion designs, will allow producers to recover greater volumes from a single well.

    As oil prices recover, oil production from tight formations is expected to increase. By 2019, Bakken oil production is projected to reach 1.3 million b/d, surpassing the Eagle Ford to become the largest tight oil-producing formation in the United States. The Bakken, which spans 37,000 square miles in North Dakota and Montana, has a technically recoverable resource of 23 billion barrels of tight oil that can be produced based on current technology, industry practice, and geologic knowledge. Bakken production is projected to reach 2.3 million barrels per day by 2040, almost a third of the projected U.S. total tight oil production.

    Image title
    Source: U.S. Energy Information Administration, Annual Energy Outlook 2016

    Natural gas production from shale gas plays in 2015 accounted for 37.4 billion cubic feet per day (Bcf/d), or 50% of total U.S. natural gas production. Unlike production from tight oil, which declines in the near term before increasing later in the forecast period, natural gas production from shale gas plays is expected to increase through 2040 in the AEO2016 Reference case.

    The two Appalachian shale gas plays, the Marcellus and Utica, have factors favorable for production: shallower geologic formation depths and proximity to consuming markets. Both Appalachian shale gas plays have remained resilient to the low natural gas prices and are projected to continue to drive total U.S. production in the long term. Shale gas production in these plays is expected to reach more than 40 Bcf/d by 2040, providing just over half of U.S. total shale gas production.

    Two oil price side cases illustrate the effect of higher or lower global crude oil prices on production from tight formations. By 2040, the global benchmark Brent crude oil spot price averages $73/b in the Low Oil Price case, $136/b in the Reference case, and $230/b in the High Oil Price case. In the High Oil Price case, drilling activities increase tight oil production through 2026, after which it begins to decline. The opposite is true in the Low Oil Price case, where tight oil production declines slightly before increasing after 2026. Production of shale gas increases in both the High and Low Oil Price cases.

    In the resource and technology side cases, the estimated ultimate recovery for shale gas and tight oil wells in the United States is 50% higher or 50% lower than in the Reference case. Rates of technological improvement that reduce costs and increase productivity in the United States are also 50% higher or 50% lower than in the Reference case. By 2040, these cases result in the greater differences from Reference case production values than do the alternative oil price cases.

    Image title

    Source: U.S. Energy Information Administration, Annual Energy Outlook 2016

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    ‘Well-Timed’ OPEC Talk Forces Oil Bears Into Record Reversal

     OPEC has done it again.

    Talk of a potential deal to freeze output helped push oil close to $50 a barrel and prompted money managers to cut bets on falling prices by the most ever. West Texas Intermediate, the U.S. benchmark, went from a bear to a bull market in less than three weeks.

    OPEC is on course to agree to a production freeze because its biggest members are pumping flat-out, said Chakib Khelil, the group’s former president. Saudi Energy Minister Khalid Al-Falih said that the talks may lead to action to stabilize the market.

    "This is all courtesy of some very well-timed comments from the Saudi oil minister," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "They’ve been successful over the last year in jawboning the market, and this is the latest example."

    Hedge funds trimmed their short position in WTI by 56,907 futures and options during the week ended Aug. 16, the most in data going back to 2006, according to the Commodity Futures Trading Commission. Futures rose 8.9 percent to $46.58 a barrel in the report week and traded at $47.41 as of 11:16 a.m. in London on Monday. WTI is up 20 percent from its Aug. 2 low, meeting the common definition of a bull market.

    "This was a very short market so we were bound to get some covering," said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. "You probably won’t hear a lot from OPEC with prices up here, but if we get down to where we were a few weeks ago we can expect to hear more."

    Informal Talks

    The Organization of Petroleum Exporting Countries plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Russian Energy Minister Alexander Novak said that the nation -- not an OPEC member -- was open to discussing a freeze.

    Talks to implement a production cap collapsed in April when Saudi Arabia said it wouldn’t take part without Iranian participation. Iran was restoring exports after sanctions over its nuclear program were lifted in January.  

    Saudi Arabia, Iran, Iraq and Russia are producing at, or close to, maximum capacity, Khelil said in a Bloomberg Televisioninterview on Aug. 17. Saudi Arabia told OPEC that its production rose to an all-time high of 10.67 million barrels a day in July, according to a report from the group.

    Ample Stockpiles

    Declining crude and gasoline stockpiles in the U.S. also bolstered the market last week. Crude supplies dropped by 2.51 million barrels as of Aug. 12, Energy Information Administration data show. Gasoline inventories slipped 2.72 million barrels during the period. Stockpiles of both crude and gasoline remain at the highest seasonal levels in decades even after the declines.

    "There’s a high level of uncertainty right now, so fairly small news can move the market a lot," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "It still remains the case that we have a huge surplus of supply and aren’t going to see it disappear anytime soon."

    Money managers’ short position in WTI dropped to 163,232 futures and options. Longs, or bets on rising prices, increased 0.1 percent, while net longs advanced 56 percent, the most since July 2010.

    In other markets, net-bearish bets on gasoline climbed 54 percent to 1,970 contracts. Gasoline futures rose 5.7 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel increased more than fivefold to 10,835 contracts. Futures advanced 9.8 percent.

    More Rigs

    A backlog of drilled but uncompleted wells, or DUCs, helps support the bearish case, said Ed Morse, head of commodities research at Citigroup Inc. in New York. There’s also been an upsurge in drilling as prices have climbed. U.S. producers added oil rigs for an eighth week, the longest run since April 2014, according to Baker Hughes Inc. data on Aug. 19.

    The EIA increased its domestic output forecast for 2017 to 8.31 million barrels a day from 8.2 million projected in July, according to its monthly Short-Term Energy Outlook released Aug. 10.

    "In the U.S., DUC completion and the drilling of new wells are changing the production outlook," Morse said. "We might see U.S. production rise next year instead of falling."

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    Petronas Posts 96% Quarterly Profit Decline on Lower Oil Prices

    Petroliam Nasional Bhd., Malaysia’s state oil company, said profit dropped 96 percent last quarter after it was hit by oil prices that remained sharply lower than a year earlier.

    Net income fell to 348 million ringgit ($86 million) in the three months through June, from 9.1 billion ringgit a year ago, the company said Monday. Revenue slid 21 percent to 48.4 billion ringgit.

    “The first half of 2016 remained difficult for Petronas,” Chief Executive Officer Wan Zulkiflee Wan Ariffin told reporters in Kuala Lumpur. “The continuous volatility of oil prices means that we cannot let up, but instead continue to grow on the back of better operational efficiencies, more controllable" spending on operations, he said.

    Petronas, as the company is known, said earlier this year a change in its business structure will result in the loss of about 1,000 jobs as it joined global oil majors including Royal Dutch Shell Plc in cutting spending as crude prices fell. The company had about 51,000 workers at the end of 2014. The company will focus on non-performers for any further headcount reductions, without aiming for a specific target, Wan Zulkiflee said.

    No Debt-Raising

    Petronas is planning to lower capital and operating expenditures by as much as 20 billion ringgit in 2016, with a planned reduction of 50 billion ringgit over four years, Wan Zulkiflee said in February. While Petronas has said that it may need to raise debtand tap its cash reserves to cover spending and dividend payments to the government, no debt-raising has been planned so far, Chief Financial Officer George Ratilal said Monday.

    Brent crude, the global benchmark, averaged almost $47 a barrel in the second quarter, compared with about $63 during the same period last year. Petronas is sticking with its expectation for Brent to average $30 a barrel in 2016, Wan Zulkiflee said. The average oil price this year is still lower than 2015, he said.

    Petronas will make a total review of its liquefied natural gas development in Canada after the government there finishes its own assessment of the project around September or October, Wan Zulkiflee said Monday. The company plans to revisit the cost, schedule and market conditions for the project before making a final investment decision with its partners after delays in securing regulatory approvals, he said.

    The Canadian government is evaluating the company’s final submission for the C$36 billion Pacific NorthWest LNG projectbefore deciding if the company can proceed with its planto ship gas from the country’s Pacific Coast. Construction was originally scheduled to start in 2015, but the approval has been mired over concerns about the impact on fish, wildlife and the traditional ways of life of First Nation tribes in the region.
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    Iran, Oman in subsea gas pipeline studies

    Iran, Oman in subsea gas pipeline studies

    Iran and Oman have intensified works on identifying the best route for a subsea pipeline that would carry Iranian gas to Oman.

    According to Alireza Kameli, managing director of National Iranian Gas Exports Company (NIGEC), studies to select the best route have started, and two routes are being considered. These include deepwater and shallow water paths.

    He reportedly said that the deepwater option would mean a shorter pipeline and no need for permission from a third country. However, the decision will be made after the studies have been completed.

    The Iranian Offshore Engineering and Construction Company (IOEC) is conducting the offshore studies and Pars Consulting Engineers Company the onshore ones.

    The land part of the gas pipeline extends for 200 kilometers from Rudan to Mobarak Mount in Iran’s southern Hormozgan province. The seabed section between Iran and Sohar Port in Oman will stretch for another 200 kilometers.
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    China-Russia oil pipeline fuels trade

    A new China-Russia oil pipeline will help guarantee China's oil consumption and, cut its transportation costs, said Gao Jian, an oil analyst at commodities consultancy Sublime China Information Co Ltd.

    Compared with other countries, Russia has oil of quite good quality, and its location near China makes it competitive in exporting oil to China, Gao said, adding that Russia will certainly become China's largest exporter of oil in the near future.

    The European economic situation made Russia shift its oil export destinations to the Asia-Pacific region, while China, as one of the world's largest oil consumers, has the need to import oil from neighboring countries, according to Gao.

    Construction of the second China-Russia crude oil pipeline started recently in northeastern China's Heilongjiang province, a move that expands the capability for oil transportation from Russia to China.

    The pipeline, traversing the China-Russia border, is 940 km in length and 813 mm in diameter, with a capacity to transport 15 million tons of crude oil annually, according to China National Petroleum Corporation.

    The Chinese section of the pipeline starts from the border city of Mohe in Heilongjiang, runs southward through the Inner Mongolia autonomous region and ends at Daqing in Heilongjiang.

    The pipeline is expected to be put into operation at the beginning of 2018.

    It will run parallel to an existing pipeline-the first China-Russia crude oil pipeline that was put into use in 2011, which can also transport 15 million tons of oil each year.

    According to the CNPC Economics & Technology Research Institute, China imported 328 million tons of oil last year.

    In 2015, Russia exported 41.04 million tons of crude oil to China, making China the country's largest oil importer, Russian media reported.

    That means more than 12.5 percent of crude oil China imported last year was from Russia.

    China and Russia signed a cooperation agreement on expanding bilateral trade in crude oil in 2013.

    Following the agreement, CNPC signed a trade contract with Rosneft, Russia's largest oil producer, to expand the supply of oil for China.

    Building a new pipeline is the main action under the contract.
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    Oil rigs lift overall US rig count by 10

    Entirely comprising oil-directed units, the US drilling rig count increased by 10 during the week ended Aug. 19, according to data from Baker Hughes Inc.

    Now at 491 rigs working, the overall count has risen in 10 of the last 12 weeks, adding 87 units during that time. Compared with Dec. 5, 2014, the week prior to the drilling freefall, the count is down 1,429 units.

    Largely bolstered by increased oil-directed drilling activity in the Permian basin, last week’s overall 17-unit rise in the US was the country’s largest since July 24, 2015 (OGJ Online, Aug. 12, 2016). The basin has represented more than two thirds of the total US gain during the recent rally.

    Meanwhile, US crude oil production during the week ended Aug. 12 jumped 152,000 b/d to 8.597 million b/d, down 751,000 b/d year-over-year, according to data from the US Energy Information Administration. The Lower 48 accounted for 100,000 b/d while Alaska contributed the remaining 52,000 b/d.

    EIA also this week forecast a 3,000-b/d increase in output from the Permian during September after several months of declines (OGJ Online, Aug. 15, 2016). Overall US shale oil output, however, is expected to fall 85,000 b/d during the month.

    The projected rise in the Permian comes as firms have been snatching up acreage and adding rigs in the Midland and Delaware basins (OGJ Online, Aug. 5, 2016). Over the past 3 months, Callon Petroleum Co., Pioneer Natural Resources Co., QEP Resources Inc., Laredo Petroleum Inc., SM Energy Co., Concho Resources Inc., and Parsley Energy Inc. have all moved to expand their positions in the Midland basin alone.

    Among those planning to maintain higher rig counts during the second half in the Midland basin are Pioneer, QEP, Concho, and Apache Corp. Doing the same in the Delaware basin are Concho, Devon Energy Corp., WPX Energy Inc., and Anadarko Petroleum Corp.

    West Texas horizontal wells

    With another double-digit increase this week, US oil-directed rigs have added 90 units since May 27 to reach 406, which is down 1,203 units since their peak in BHI data on Oct. 10, 2014.

    All but 1 of the 10 oil-directed units began operations on land, bringing that tally to 470. Rigs engaged in horizontal drilling counted 7 more units to 382, up 68 units since May 27. Directional drilling rigs edged up 1 unit to 45. One unit started work offshore Louisiana, lifting the overall US count to 18.

    Texas paced the major oil- and gas-producing states, gaining 8 units this week to 238, up 64 units since May 27. As with last week’s 13-unit jump, all but 1 of the units to begin work this week were in the Permian. At 196 rigs working, the basin is up 59 units since May 27.

    The last time the Permian recorded an increase as big as last week’s was Mar. 7, 2014. The basin peaked at 568 rigs working during October-November 2014 before plunging to a bottom of 134 in this past April-May.

    A 1-unit increase in the Barnett to 5 was offset by a 1-unit decline in the Granite Wash to 9.

    Pennsylvania posted the only other double-digit increase, rising 2 units to 17. The Marcellus jumped 3 units to 24. Oklahoma, Louisiana, and West Virginia each edged up 1 unit to 62, 43, and 8, respectively. The Cana Woodford rose 3 units to 32, while the Mississippian dropped a unit to 3.

    New Mexico dropped a unit to 30, ending its recent warm streak at 6 weeks. Down 2 units to 27, North Dakota led the way in losses, mirroring the same tallies of the Williston.

    Canada recorded its first rig-count decline in 11 weeks, relinquishing 5 units during the week to settle at 121, still up 85 compared with the week ended May 6. Oil-directed rigs, however, remained flat at 65. Gas-directed rigs lost 4 to 56 while the country’s only unclassified rig went offline.
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    Australia's CIMIC sues Chevron over $1.4bln Gorgon LNG construction dispute

    Australian construction company CIMIC Group said on Monday it had started court proceedings in the United States against Chevron Corp and KBR Inc, seeking as much as A$1.86 billion ($1.42 billion) regarding a dispute over the jetty at the Gorgon LNG project in Western Australia.

    CIMIC was commissioned to build the jetty there in 2009 and issued a notice of dispute regarding the work in February, following a disagreement over changes to the project.

    The company said then that it was entitled to A$1.86 billion for the work.

    "Negotiations under the contract continue," CIMIC said in a statement on Monday.

    "The commencement of the proceedings has no effect on the negotiation process or CIMIC Group's entitlement to the amounts under negotiation," it added.
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    Nigerian militant group says agrees on ceasefire, ready for dialogue with government

    A Nigerian militant group, which has claimed a wave of attacks on oil facilities in the Niger Delta, said it was ready for a ceasefire and a dialogue with the government.

    The restive southern swampland region has been rocked by violence against oil and gas pipelines since the start of the year, reducing the OPEC member's output by 700,000 barrels a day to 1.56 million bpd.

    Any ceasefire agreement would be very difficult to enforce as the militant scene is divided into small groups dominated by unemployed youth driven by poverty, who are difficult to control even by their "generals".

    "We are going to continue the observation of our announced ceasefire of hostilities in the Niger Delta against ... the multinational oil corporations," the Niger Delta Avengers said in a statement received by Reuters on Sunday.

    "We promise to fight more for the Niger Delta, if this opportunity fails," it said.

    The Niger Delta Avengers have claimed several major attacks but have been apparently less active in recent weeks, which has led to speculation about a ceasefire as the government has been trying for two months to reach out to the militants.

    The group said it would support a dialogue "to engage with the federal government of Nigeria, representatives from the home countries of all multinational Oil Corporations and neutral international mediators."

    It only said it wanted talks to focus on de-escalating the Niger Delta conflict. The group previously said it was fighting for oil revenues to drag the region out of poverty, floating even the idea of secession, a goal out of question for the government.

    The statement was sent to Reuters by mail but it was not possible to contact the group which only communicates with the media via statements on social media, its website or sent by mail.

    Like other militant groups, the Avengers has apparently split, making it difficult for the government to identify the right people to talk to.

    The was no immediate statement from the government of President Muhammadu Buhari but a youth council representing the largest ethnic group in the swampland urged the government to seize the opportunity for dialogue.

    "We welcome the conditional declaration of ceasefire by the Niger Delta Avengers if it is actually from them," the Ijaw Youth Council said in a statement.

    "We call on the federal government, especially President Buhari, to take advantage of this ceasefire to aggressively dialogue with the people of the region to address the issues affecting the region."
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    TransCanada offers 42 percent gas pipeline toll cut on long-term contracts

    Pipeline company TransCanada Corp is offering tolls as low as 82 Canadian cents per gigajoule on its natural gas mainline from western Canada if enough producers sign up to long-term contracts, a company executive said on Friday.

    Stephen Clark, TransCanada's senior vice president for Canadian natural gas pipelines, said cheaper tolls are crucial if companies in areas like the Montney and Duvernay shale plays are to compete with U.S. gas producers in eastern markets.

    The new toll would be a 42 percent cut from the current shipping price of roughly C$1.41 a gigajoule to go from Alberta and British Columbia to markets in Ontario, and depends on customers signing up to 10-year contracts to ship at least two petajoules of natural gas in total on the line.

    Clark said the boom in U.S. shale, in particular the Marcellus play in Appalachia, meant more natural gas was flooding into the southern Ontario market and displacing traditional western Canadian supply.

    While the remote Montney and Duvernay gas plays can compete with U.S. shale on cost of production, their greater distance from market increases delivery costs and the price of western Canadian gas in Ontario.

    "If that market starts to acquire gas from other basins, they will essentially forgo western Canadian supply," Clark said. "Part of the reason we are doing this is we see a supply overhang in western Canada if we don't retain those markets."

    TransCanada has been in talks with producers for the last three or four months and is hoping to launch an open season to formally gauge interest in the new tolling system in September.

    However, Clark said the company would need to see sufficient interest from shippers in long-term contracts to go ahead with the open season.

    "We would like to get into multi-hundreds of millions of commitments, and if we could get north of a billion cubic feet or a petajoule of commitment, that would certainly give us sufficient indication that we should go forward," he said.

    Some producers are reluctant to commit because they are unused to 10-year contracts, Clark added, while others are unfamiliar with selling in the Ontario market.

    TransCanada's current settlement in place with the Mainline shipper group expires in 2020.
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    China's oil product exports surge in July- customs

    China's diesel, gasoline and kerosene exports surged in July from a year earlier, customs data showed on Monday, the latest sign the world's top commodities consumer can't cope with its domestic oversupply of fuel.

    Diesel exports rose 181.8 percent to 1.53 million tonnes, gasoline shipments were up 145 percent at 970,000 tonnes and kerosene exports jumped 46 percent to 1.09 million tonnes.

    The world's second-largest economy imported 1.6 million tonnes of liquefied natural gas, down 16.4 percent from a year earlier and increased its purchases of foreign kerosene by 15.2 percent to 340,000 tonnes.
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    InterOil encourages shareholders to vote for ExxonMobil transaction

    Now, InterOil Corp. has announced that it has filed and will begin the mailing to InterOil shareholders of the Management Information Circular (MIC) relating to the company’s special meeting of shareholders in order to vote on the transaction with ExxonMobil Corp. InterOil claims that the special meeting is due to take place on 21 September 2016 in New York City, US, and that shareholders of record as of 10 August will be able to vote at the meeting. In order to be counted, InterOil claims that all proxies must be received by 12.00 PM on 19 September 2016.

    In its statement, the InterOil board has recommended that shareholders vote for the ExxonMobil transaction so that they receive significant and superior value for their investment in InterOil.

    Oil Search had previously made a bid to acquire InterOil, but declined the opportunity to submit a revised bid following ExxonMobil’s superior bid.
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    Falling Associated Gas Volumes Means NatGas Price on the Rise

    A number of factors affect the price of natural gas in general–and the price of natgas is always important, no matter which geography it is produced in.

    One of the things that affects the price of natural gas is “associated gas” production. What the heck is that? When you drill a hole in the ground to extract hydrocarbons–like oil–other hydrocarbons come out of the ground along with that oil. Those other hydrocarbons are, first and foremost, methane–or natural gas. Propane, butane, ethane, and other hydrocarbons are also in the mix.

    But the fact remains, when you drill for oil, you also (almost always) get at least some natgas along with it. That natgas, the stuff you weren’t necessarily drilling for but get anyway, is associated gas. It’s usually extracted in conventional oil drilling–found in deposits close to oil deposits

    Perhaps you now begin to see how oil and gas–and their prices–are closely aligned. When the price of oil goes down and drillers quit drilling, the amount of associated gas being produced and brought to market also goes down–affecting the overall quantity of gas available for sale.

    The less gas for sale, with demand remaining constant, prices go up. Got it? Good! Fitch Ratings recently published a short article on how associated gas from oily shale plays is on the decrease, and that means prices for natural gas everywhere is on the increase…
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    LNG slump, cost cutting spur rare output curb at Australian plant

    LNG slump, cost cutting spur rare output curb at Australian plant

    Spending cuts and weak global liquefied natural gas prices have forced the operator of the $18.5 billion Gladstone LNG project in Australia to consider running the plant at less than full tilt, an unusual move for the global LNG industry.

    It's a sign of how the LNG market - long dominated by large plants with low costs running at maximum capacity - will evolve with exports from a new breed of projects, the world's first to be fed by coal seam gas in Australia and U.S. plants fed by gas from the grid.

    Traditionally, LNG producers spend billions of dollars building large plants directly connected to conventional gas fields, with most of their output contracted to long-term customers. The running costs are low once built, which spurs them to run at full capacity to boost returns.

    The plants fed by coal seam gas rely on hundreds of wells to be drilled each year, an ongoing cost which traditional plants don't face, and as a result they could become more like swing producers, said Saul Kavonic, head analyst for Australasia at consultants Wood Mackenzie.

    Gladstone, which shipped its first cargo last October, is one of three new Australian coal seam gas-fed LNG plants that have started operating since early 2015 on the country's east coast.

    Santos has been squeezed by a heavy debt load taken on to build the Gladstone LNG project and falling oil and LNG prices, sapping funds needed to drill its coal seam gas wells.

    As a result it has opted to buy more gas from third parties to supply the plant in order to meet LNG contracts, and said on Friday it would be willing to run the plant, which has two production trains, below its full capacity of 7.8 million tonnes a year.

    "We wouldn't be looking to ever mothball one train," Santos CEO Kevin Gallagher told analysts on a conference call after the company reported an inerim loss.

    "But what I would say is that we will operate both trains potentially at reduced capacity to optimise the production across the facilities," he said, adding that would depend on market conditions and contract requirements.

    He declined to say how much LNG Gladstone has contracted to supply, but analysts estimate it at 7.2 million tonnes per annum (mtpa), out of a capacity of 7.8 mtpa with the two trains.

    "I view Santos' indications that it is considering operating the LNG trains below capacity - an iconoclastic approach for the industry - as a positive sign that value is being prioritised over volumes by Santos' new management," Kavonic said.

    He predicted that U.S. LNG plants may eventually follow the same path, at times when U.S. benchmark Henry Hub prices climb above prices that would justify exports to Europe.

    "At times we expect even half their LNG capacity could be shut," he said.

    Santos rival, Woodside Petroleum, Australia's biggest LNG producer, said output cuts at Gladstone LNG would not have a huge impact on the LNG market, which is heavily oversupplied, but it would help with overall sentiment.

    "Clearly every bit of capacity overhang that's not there is a help - more in the short to mid-term market, than the long term,"
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    Tanker sent by Libya's NOC starts to load oil from threatened port

    A tanker sent by Libya's National Oil Corporation (NOC) began to load oil on Thursday at the country's eastern Zueitina port, after rival forces stationed in the area agreed to let it dock and take the oil to safety, a port official said.

    The NOC expressed concern earlier this month after reports of possible clashes between the Petroleum Facilities Guard (PFG), one of Libya's many armed brigades, and forces loyal to eastern commander Khalifa Haftar, fearing these might damage the port infrastructure.

    The PFG has signed a deal with the U.N.-backed Government of National Accord (GNA) in Tripoli to end its blockade of Zueitina and two other ports, but eastern forces loyal to a separate government in eastern Libya have threatened to block port loadings and exports.

    Those forces recently mobilized near Zueitina and PFG positions, though there have been no reports of violence.

    The port official stressed that the port was still closed, but the tanker had started emptying storage tanks and reservoirs.

    The Zueitina storage tanks contain about 3.08 million barrels of crude oil and 180,000 barrels of condensate, the NOC said in a statement.

    "NOC can confirm, that after considerable efforts, we have received the consent from all relevant parties to permit the Greek flag vessel New Hellas to enter Zueitina terminal in order that it will transfer a shipment to Zawiya refinery" in western Libya, the NOC said in a statement.

    The NOC said the New Hellas would transport about 620,000 barrels of oil at a time to Zawiya, and that it would charter additional ships to finish the process as soon as possible.

    "I want to express my appreciation to all sides for heeding our request," NOC Chairman Mustafa Sanalla said.

    "It was the right thing to do and I think shows that when the opportunity arises, we Libyans can do the right thing. Instead of all being harmed, all will benefit."

    Libya's oil output has been reduced to a fraction of the 1.6 million barrels per day (bpd) it used to produce before the uprising that toppled late dictator Muammar Gaddafi in 2011. Recently, output has been hovering at about 200,000 bpd.

    The NOC has ambitious plans to revive production but political disputes, blockades, insecurity and damage to oil facilities have so far frustrated their efforts.
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    U.S. Gasoline Use Reaches Record in July as Pump Price Dips

    U.S. gasoline consumption climbed in July to a record as low retail prices encouraged Americans to hit the highways.

    Demand for gasoline rose 2.4 percent from a year earlier to 9.67 million barrels a day, the American Petroleum Institute said Thursday in a monthly report. Total fuel deliveries, a measure of consumption, climbed 0.8 percent to the highest July total since 2007.

    "Gasoline deliveries, a measure of consumer demand, hit their highest level on record in July," Erica Bowman, chief economist at the API in Washington, said in an e-mailed statement. "With this indication of increased demand, it’s clear that consumers have continued to benefit from lower gasoline prices at the pump."

    The average price of regular gasoline at the pump nationwide was $2.135 a gallon on Wednesday, down 20 percent from a year earlier, according to data from Heathrow, Florida-based AAA, a national federation of motor clubs. Retail prices touched $2.116 on Aug. 3, the lowest since April 20.

    Refineries maximized gasoline production at the expense of other fuels. Gasoline output averaged a record 10.2 million barrels a day in July, up 1.9 percent from a year earlier, the API said. Output of distillate fuel, a category that includes diesel and heating oil, averaged 4.96 million barrels a day, down 2.5 percent from a year earlier.

    Ample Inventories

    Inventories of the motor fuel ended July at 237.1 million barrels, the most for the month since 1984, the API said. Crude-oil stockpiles stood at 519.6 million barrels at the end of last month, the highest July total since 1920.

    Producers pumped an average 8.49 million barrels of crude a day in July, down 10 percent from a year earlier. It was the fourth-straight month that output slipped, leaving production at the lowest level since March 2014, the API said.

    Output of natural gas liquids, a byproduct of gas drilling, rose 8.7 percent from July 2015 to 3.57 million barrels a day, a record for the month.
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    OPEC Freeze Wouldn’t Be So Potent as Gulf Rivals Pump More

    OPEC Freeze Wouldn’t Be So Potent as Gulf Rivals Pump More

    Even if OPEC strikes a deal with Russia next month in Algiers to freeze oil production, success will mean a lot less than when they tried and failed four months ago.

    Oil has rallied more than 10 percent since the Organization of Petroleum Exporting Countries said that it will hold informal meeting in the Algerian capital, fanning speculation the group could complete a supply agreement with rival producers that sputtered in April. Iran may now drop its refusal to join a freeze after restoring most of the crude output curbed by sanctions, a development analysts say makes a deal more likely, but also less worthwhile.

    “A freeze at 34 million barrels a day is not the same as one at 33 million barrels a day,” said David Hufton, chief executive officer of PVM Group in London, referring to the broker’s own estimate for total OPEC output. “It pushes the re-balancing process back at least a year.”

    Saudi Arabia and Iran, whose political rivalry thwarted the previous negotiations, are together pumping about 1 million barrels a day more than in January -- the proposed level of the original freeze. That additional crude has prolonged a global oversupply, preventing the market from sliding into deficit this quarter, according to Bloomberg calculations based on International Energy Agency data.

    Prices have struggled to go much higher than $50 a barrel. After the longest run of gains since March, Brent crude, the international benchmark, traded at $50.82 at 5:22 p.m. in London on Thursday.

    Sixteen nations representing about half the world’s oil output gathered on April 17, but talks broke down because of Saudi Arabia’s last-minute demand that Iran must also participate. Iran wasn’t at the Doha meeting because it refused to consider any limits on its production, which had only been released from nuclear-related sanctions in January.

    Record Production

    Now that major producers including Iran are pumping at or close to capacity, they have little to lose by agreeing to a cap, Chakib Khelil, former OPEC president and Algerian energy minister, said in a Bloomberg television interview Aug. 17.

    Iran produced about 600,000 barrels a day more in July than January as it restarted oil fields shuttered during almost four years of sanctions, according to the IEA. Saudi Arabia pumped an extra 410,000 a day, lifting output to a record as it met surging domestic demand and defended its share of global markets, the IEA said.

    “All the conditions are set for an agreement,” said Khelil, who steered OPEC in 2008, the last time it announced a supply cut. “Russia, Iraq, Iran and Saudi Arabia are reaching their top production level. They have gained all the market share they could gain.”

    There are still reasons to think Iran could be reluctant to join a freeze.

    The nation will refuse to accept any limits as long as officials insist they can boost output further, said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. Iran is also trying to attract billions of dollars of investment from international oil companies to expand production capacity, which would conflict with submitting to a cap, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.

    Iranian Oil Minister Bijan Namdar Zanganeh hasn’t decided yet whether to participate in the talks in Algiers, a spokesman said on Aug. 16.

    Market Psychology

    Other OPEC members who supported an agreement in April may now be less keen, or seek exemptions, because they are suffering output losses, said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland.

    Nigeria’s production is near a 27-year low as militants attack oil pipelines while Venezuela’s output dipped to the lowest since 2003 amid an economic crisis. They may join conflict-hit Libya, who refused to freeze at reduced levels back in April, Jakob said.

    Major producers have kept expectations low. Saudi Arabian Energy Minister, Khalid Al-Falih, said only that “there is an opportunity” to discuss “possible action that may be required to stabilize the market,” according to the Saudi Press Agency. Russia sees no need for a freeze at current crude prices, while leaving open the possibility for the future, Energy Minister Alexander Novak said Aug. 8.

    Even with a deal, the extra oil OPEC is pumping means it would be less effective than the Doha proposal, said Algeria’s Khelil. Still, the demonstration of unity after a series of inconclusive meetings would improve the “psychology” of the market, he said.

    “This time it’s more psychological because they will retain the surplus in the market,” said Khelil. “It would have been better before, but it’s never too late.”
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    LNG trade: an agent’s perspective

    LNG is considered a specialist commodity requiring particular care and the attention of experienced personnel. The technically complex and sophisticated nature of both the ships and terminals, as well as the highly regulated nature of the trade, requires the agent to be fully conversant with the unique characteristics of the LNG trade, including local and international regulations.

    LNG carriers, ports and terminals have to meet exceptionally high safety standards. Therefore, it is a requirement, and there is an implicit understanding, that all responsible parties, including the agent, are trained and vetted to a high standard and act with a full working knowledge of the entire operation, and their role within it.


    In December 2014, the Gaslog Chelsea, loaded with 150 000 m3 of LNG from Papua New Guinea, berthed at the Sinopec Shandong Qingdao LNG terminal in China. Its arrival marked Sinopec’s first LNG project in Shandong Province. The first phase of the project has a designed receiving and transport capacity of 3 million t of natural gas and is capable of meeting the demand of 22 million households per year.

    Located at the new Dongjiakou port in the West Coast New Area, the Sinopec Shandong Qingdao LNG terminal was constructed and is operated independently by Sinopec. In the future, it will have a receiving and transport capacity of 10 million tpy.

    In 2009, Sinopec signed a long-term deal to buy 2 million tpy from the PNG LNG project over a period of 20 years. Sinopec is the last of China’s three national oil companies to begin importing LNG, making a significant contribution to energy conservation and emission reduction in the country.

    As agent, Inchcape Shipping Services (ISS) China has been involved in this project since 2010. It assisted Sinopec in developing know-how of terminal and ship operations, port tariffs, tug usage and other matters, such as assimilating and collating LNG terminal information and port manuals for China’s LNG terminals.As of December 2015, ISS Qingdao had acted as local agent for 13 LNG shipments at the new port.

    Compared with other vessels, LNG carrier operations are demanding, commencing with the berthing operations at the yet to be finished Qingdao LNG terminal. Furthermore, it takes at least five working days to obtain relevant government permissions for berthing such vessels. The LNG commercial interests also require a high level of quality service.

    As such, ISS Qingdao formed a team of specialised operational staff dedicated to the LNG business. The Qingdao LNG terminal is still in its construction and expansion phase and ISS continues to assist the terminal in all aspects of its marine business, including the incoming LNG vessels.

    Papua New Guinea

    In May 2014, the Spirit of Hela loaded the first LNG cargo out of Papua New Guinea bound for Tokyo Electric Power Co. in Japan. ISS PNG acted as the terminal agent for this historic shipment.

    The ISS PNG agency team is on site at the terminal, located 20 km from Port Moresby, on a daily basis, with vessels loading every three to four days. As agents, ISS coordinates and communicates between the terminal and the carrier to handle arrival and departure, organise clearance procedures and ensure that there are no operational delays. ISS also fulfils its client’s cargo export documentation to meet customs requirements.

    To date, having handled over 150 vessel calls, the PNG terminal is almost regarded as the home port for the regular LNG carriers. ISS has extended its services to these vessels for all husbandry needs, such as crew changes, immigration formalities, ship provisioning and spares, waste removal, etc. These husbandry operations are carried out through the terminal or over the seaward ship’s side, which ensures that loading operations are not disrupted.

    ISS handles the coastal petroleum product tanker trade on behalf of a client in Papua New Guinea. With the commencement of the LNG trade, which is expected to produce more than 9 trillion ft3 of gas over the estimated 30 years of operations, ISS continues to strengthen its service delivery to its LNG clients.


    Japan is currently the world’s largest importer of LNG, although its imports dropped to 85 million t in 2015.

    In the early days of the LNG trade, all cargoes were delivered by vessels chartered by cargo vendors under Delivered Ex Ship (DES) terms. ISS estimates that more than 30% of cargoes are currently delivered by vessels chartered by Japanese buyers under Free on Board (FOB) terms, and this is a growing trend.LNG cargoes are imported by 17 buyers at 29 LNG receiving terminals around Japan. The number of both buyers and receiving terminals is expected to grow further in the year ahead.

    Another feature of the trade in its early stages was the use of long-term contracts, typically for 20 years or more, with vessels deployed according to an annual delivery programme.

    In recent years, the long-term contracts serving older LNG projects are expiring or are being renewed under new terms and conditions, while new LNG projects are appearing simultaneously.

    As cargo sources have expanded, LNG buyers have started importing cargoes from various points of origin on spot, short-term or portfolio contracts, to meet peak demand or to cover the time gap between termination of old contracts and the commencement of new projects.

    In particular, following the Tohoku earthquake and nuclear accident at Fukushima in 2011, electric power companies dramatically increased LNG imports on spot and short-term contracts, to cover the closure of nuclear power stations.

    ISS expects LNG import volumes in Japan to remain stable for the time being, although the import sources are expanding.

    Today, ISS Japan is working for nine projects supplying cargoes under long-term contracts, and for more than 30 owners and operators of LNG vessels who trade under spot and short-term contracts. In 2014, ISS attended 898 LNG calls at ports around Japan. The company’s role is not only to arrange port clearance, but to assist its clients in maintaining and developing business.

    For owners and operators, it is important to comply with the requirements of each terminal and local regulations in addition to international rules. To this end, ISS assists its customers in meeting requirements, such as:

    Customs verification to Custody Transfer Measurement System (CTMS): before trading to Japan, LNG vessels are required to have verification for accuracy of CTMS by Japanese customs authorities in order to determine the import quantity for taxation.
    Confirmation of ship-shore compatibility: when the vessel calls at an LNG terminal for the first time, it is common procedure to hold a meeting at the terminal in order to confirm ship-shore compatibility, (e.g. interface of ship-shore connection, mooring arrangement, cargo operation procedures, etc.).
    Local regulations: for LNG vessels, each port authority and terminal has the regulations for safety in port entry and cargo operations according to the particular conditions of each region.

    LNG operators and officer personnel are required to study and understand those local regulations in advance, and to fulfil the necessary reporting and arrangements for escort tugs, watch boats, etc.


    In early 2012, ISS noted in an article published by LNG Industry: “As an important footnote, the discovery of shale gas in the US has prompted existing as well as potential new facilities to be built with liquefaction capability, radically altering the balance of trade. Where several billion dollar facilities have been developed over recent years for the import of LNG based on the fear of shortages, these are now being transformed into export facilities with US government approval. This in turn has resulted in a transitional lull in business until conversion work is completed – still two years or more away.”1

    Now, four years on, with much of the LNG market still in limbo or in transition from regasification to liquefaction, the authors can only speculate as to how the market will develop over the next year.

    The transition from regasification to liquefaction is, of course, market driven. In respect of the US Gulf, the market underwent a drastic change in 2011 and has remained somewhat weak ever since. The development of LNG production in shale sites has dramatically changed the market, forcing many players to reverse direction or stop completely.

    LNG movements that shipping agents such as ISS have handled include discharge operations at terminals such as CMS Trunkline LNG, Lake Charles, Louisiana; Sempra Marine Terminal, Hackberry, Louisiana; Cheniere Energy Inc.’s Sabine Pass, Louisiana; Golden Pass LNG, Sabine Pass, Texas; Freeport LNG, Freeport, Texas; Southern LNG, Elba Island, Georgia; and Dominion Cove Point LNG, Lusby, Maryland.

    Several of these terminals are in the process of re-fitting, and many new start-ups are either breaking ground or are still in the planning stage.

    Most of the projects referred to above will not have reached the US Federal Energy Regulation Commission (FERC) approval and financial agreement stage until later this year or into 2017. Completion of many of the conversion projects in the states of Louisiana and Texas are only forecast for 2017 to 2019.From the agent’s point of view, the operational learning curve to adjust to such change is minimal. However, the inherent volatility of the LNG market and the financial ramifications have been seen before.
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    North Sea Oil Prices Rebound as Glut of Floating Crude Clears

    North Sea Oil Prices Rebound as Glut of Floating Crude Clears

    The glut of crude oil stored in ships on the North Sea is finally starting to dissipate.

    Demand for the commodity has increased as traders take advantage of remaining discounts before maintenance begins at the U.K.’s largest oil field. The result: a whittling away at the backlog of floating storage that has persisted for months.

    The “timing is right” for buying interest in North Sea crudes to rise, David Reid, an analyst at Vienna-based JBC Energy GmbH, said by e-mail. Planned work at the 170,000 barrel-a-day Buzzard field, scheduled to begin in mid-September and last about a month, will curtail production and push up prices, he said.

    Vessels storing crude on the North Sea are moving to port as oil demand rises.

    The movement of crude-laden vessels to port reverses a floating-storage build-up that peaked at more than 11 million barrels in late July. Earlier in the summer, faltering demand spurred by unexpected refinery strikes led to excess storage of the fuel at sea. Now, with discounts vanishing, it’s more profitable to send the oil to shore.

    Declining Volumes

    Crude kept in North Sea tankers has declined by more than 50 percent, to five million barrels, within the last three weeks, according to ship-tracking data compiled by Bloomberg. Ships loaded with Brent and Forties oil, two of the region’s primary grades, discharged their cargoes in Germany and Rotterdam this week after being anchored for as many as four months.

    Other factors helping to reduce the excess in North Sea storage include supply disruptions in Nigeria and an increase in crude purchases in Asia, according to Amrita Sen, chief oil analyst at London-based Energy Aspects. “Chinese buying in particular is returning slowly,” she said in an e-mail.

    Forties crude, one of four grades used to price Dated Brent, the global benchmark, traded at a two-month high early this week. The grade last sold at a discount of 15 cents a barrel to that benchmark, versus 65 cents two weeks earlier, according to data compiled by Bloomberg. Meanwhile, the structure of derivatives used in the North Sea for speculation or hedging is shifting toward backwardation, an indication of a strong market where existing cargoes sell at higher prices than those for later delivery.

    Brent futures on Thursday climbed above $50 a barrel into a bull market, capping a six-day run of price increases.

    Price Rally

    Crude moving out of North Sea storage is “consistent with what we’re seeing in the overall rally in prices,” Craig Pirrong, director at the Global Energy Management Institute at the University of Houston’s Bauer College of Business, said in a phone interview. An increase in demand will draw oil out of storage, and “it tends to come out in a run.”

    Two supertankers and two smaller vessel loaded with Forties, Brent and Norwegian Oseberg crude remain off the U.K.’s shores. The two-million-barrel carrier Maran Thetis has been floating near Scotland’s Hound Point terminal since July 26. A similar vessel, the Front Ariake, is anchored at Southwold, England, after receiving Forties and Brent crude via two ship-to-ship transfers three weeks ago.

    Loading disruptions and cancellations in the region may create more demand for any crude available, according to a survey of six North Sea traders. A Forties cargo was dropped from the September shipping schedule, and at least six cargoes had to defer their loading dates due to a slow restart of oil flows via the Forties Pipeline System, operated by BP Plc.

    “You put stuff in storage for a rainy day,” Pirrong said. “The rainy day’s here, so you take it out of storage.”

    Attached Files
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    U.S. natural gas market rebalances on hot weather, low prices

    U.S. stocks of natural gas are rising much more slowly than normal for this time of year as a long, hot summer spurs record air-conditioning demand and gas burn by power generators.

    Natural gas stocks exhibit strong seasonal behaviour, increasing between April and October, then drawing down during winter between November and March.

    But working gas stocks increased by just 22 billion cubic feet (bcf) last week, which was less than half the average increase of 55 bcf at the same time of year between 2011 and 2015.

    Stocks have increased by less than normal in 17 of the last 20 weeks. Inventories have risen by just 859 bcf since the start of April compared with a typical increase of 1,328 bcf in the last five years.

    Part of the reason is that surging temperatures have spurred record demand for air conditioning and forced power producers to burn more gas to meet demand.

    Temperatures have been consistently higher than normal in June, July and August across most of the United States.

    Total air-conditioning demand so far in 2016 has been 4 percent higher than in 2015 and 12 percent above the long-term average.

    However, even allowing for higher temperatures, natural gas consumption by power producers has been exceptionally strong, while natural gas production has lagged.

    For any given level of temperatures and air-conditioning demand, stocks have risen more slowly each week in 2016 than in 2015 (

    The market mechanism is working its magic and ultra-low gas prices are gradually forcing production and consumption back into balance.

    Cheap natural gas has encouraged power producers to maximise gas-fired generation at the expense of coal and other fuels.

    Meanwhile, low prices have discouraged the drilling of new wells. U.S. natural gas production has levelled off in recent months after growing strongly in 2014 and 2015.

    Stocks started the year at a record and the oversupply was made worse by mild weather in February and March. By mid-March, gas stocks were 1,014 bcf (69 percent) above the same point in 2015.

    But the excess has been whittled away by strong power burn. By the middle of August, stocks were just 312 bcf (10 percent) higher than at the corresponding point in 2015.

    Stocks are still at a record for the time of year, around 2 percent higher than the previous peak and 14 percent higher than the five-year average.

    But the continuing heatwave across the eastern United States should ensure another week of very low stock builds this week.

    And low prices of natural gas will incentivise maximum consumption throughout September, ensuring the rebalancing continues.
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    Exxon, GT find way to cut carbon emissions for chemicals

    Exxon, GT find way to cut carbon emissions for chemicals

    Exxon Mobil and Georgia Tech researchers published findings of a breakthrough in the journal Science on Thursday, saying they had devised a way to slash carbon emissions from chemicals manufacturing by using reverse osmosis instead of heat to separate molecules.

    Reverse osmosis, which has been widely used for decades in desalination plants that turn seawater into drinking water, has long been seen as having applications for the oil and chemicals industry.

    Now researchers have finally come up with a specially treated polymer that can serve as the semipermeable membrane needed to do reverse osmosis for chemicals manufacturing at room temperature.

    Current techniques use high temperatures and heat to break up molecules to create chemicals that are used in myriad products across the economy.

    Exxon said it was too early to say when the new technology could be applied commercially, or how they might go about patenting and licensing the technology so that other manufacturers could use it.

    But if applied globally, the chemical industry's annual carbon dioxide emissions could be slashed up to 45 million tons, which is about equal to the yearly carbon dioxide emissions of about of 5 million U.S. homes.

    The fossil fuels industry is under pressure to curb emissions, especially in light of the Paris Agreement signed in December, in which 195 governments agreed that aims to limit the rise in global temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit), raising the potential for regulatory crackdowns on carbon-based businesses.

    “We need multiple solutions to reduce CO2 emissions,” said Vijay Swarup, Exxon's vice president of research and development.

    Chemical plants account for about 8 percent of global energy demand and about 15 percent of the projected growth in demand to 2040.

    Researchers said their next steps will be to develop a pilot project that, if successful, could be scaled up.
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    Alternative Energy

    Another glut looms: Solar industry boosts panel production

    Solar manufacturers that are ramping up production now face a looming glut of panels, forcing companies to adjust or face dire consequences.

    Trina Solar, Canadian Solar and  JinkoSolar Holding Co. are among the suppliers boosting output at factories that will expand global capacity by 18 percent this year, according to Bloomberg New Energy Finance.

    The manufacturers are locked in a race to build bigger and more advanced factories to crank out panels faster and cheaper. Just as they start rolling off the lines, demand is expected to slow, especially in China where the government rolled back subsidies last month. Prices are slumping, and suppliers expect margins to slip as well. It’s a pattern we’ve seen before, after a global oversupply five years ago drove dozens of companies out of business.

    RELATED: Why solar power is still waiting for ‘liftoff’ in Texas

    “Oversupply appears to be business as usual in the solar industry,” said Jenny Chase, New Energy Finance’s lead solar analyst.

    The solar industry went through a similar boom-bust cycle after capacity grew faster than demand, triggering a two-year slump starting in late 2011. The result was a wave of consolidation as prices plunged and panelmakers’ losses piled up. Cheap panels also helped spur demand for more solar power, eventually prompting the survivors to expand production.

    Battle for customers

    “These companies are all fighting for market share and their tendency is to build more and more capacity,” Pavel Molchanov, an analyst at Raymond James Financial, said in an interview. “Ultimately that drives down prices and margins for everyone.”

    Canadian Solar, the second-largest manufacturer, is building a a 350-megawatt facility in Brazil, and JinkoSolar is expanding output from a 450-megawatt factory that went into operation in Malaysia last year.

    RELATED: IEA: China, Japan, U.S. leading solar energy boom

    This comes as demand slows in China, the world’s largest market, where the government is reducing subsidies for solar farms commissioned after June 30. That fueled a rush of projects in the first half of the year as developers added as much as 22 gigawatts before the subsidy expired, said Hugh Bromley, a New Energy Finance analyst. With the lower subsidy in place, he expects about 6 to 8 gigawatts of new solar projects in the second half.

    Trina, the world’s largest panel maker, said Tuesday that shipments will fall as much as 6.5 percent in the third quarter, to between 1.55 and 1.65 gigawatts. At the same time, the company has increased production capacity 7.1 percent after opening a 500-megawatt factory in Thailand in March. Yingli Green Energy Holding Co. said Tuesday that it expects shipments to slip as much as 54 percent in the current quarter, after 60 percent of its panels went to China in the second quarter.

    Demand rises at slower pace

    “Chinese solar manufacturers now face tougher competition due to a supply capacity increase and a decrease in market demand,” Yingli Green Energy Vice President and Chief Climate Officer Jingfeng Xiong said during a call Tuesday with analysts.

    To be clear, demand for solar is continuing to rise, but that growth is slowing. Global installations this year may reach about 67 gigawatts, up 27 percent from last year, according to New Energy Finance. In 2017, it’s expected to increase by 25 percent, and in 2018 it will rise 23 percent.

    It’s hard to pinpoint whether supply has already eclipsed demand since companies won’t report whether their shipments have been impacted by the reduced subsidy in China until the fourth quarter. Evidence is mounting, however, that the glut has already arrived. Panel prices are at a record low of 44.7 cents a watt after plunging 10 percent in the past six weeks. Prices may fall another 15 percent by the end of the year, according to Patrick Jobin, an analyst at Credit Suisse Group AG.

    While the last supply glut ravaged the solar industry, it may have less impact this time because the supply chain is more consolidated. The market has fundamentally changed, with 90 percent of sales going to a handful of the biggest companies, compared with 66 percent four years ago, said Xiaoting Wang, a New Energy Finance analyst. Industry leaders like Trina and Canadian Solar have expanded beyond manufacturing, diversifying their revenue by developing solar farms.

    ‘Collectively, it’s suicide’

    While manufacturers may have known they were speeding toward a glut, it’s not easy to take their foot off the gas. Many production costs are fixed, so cutting output would drive down margins and erode their market share.

    “They would essentially be giving up the race,” said Chase of New Energy Finance. “And nobody wants to do that –- even though collectively it’s suicide.”

    Canadian Solar is one of the few companies that has announced it is scaling back its manufacturing expansion, adding 5.8 gigawatts of capacity this year instead of an initial target of 6.4 gigawatts.

    “Canadian Solar’s objective this year is to play safe, not to grow our market share, but to improve our margin structure,” Canadian Solar Chief Executive Officer Shawn Qu said during an Aug. 18 conference call with analysts.

    It’s unclear how long a supply glut may last. Wang, of New Energy Finance, said it may take two years to work through surplus capacity.

    The key is how the companies react, whether they take a cautious approach or continue the race to build more factories, according to Merry Xu, chief financial officer at Trina.

    “It just depends on the strategic approaches of our peers,” Xu said on a call with analysts Tuesday. “We do hope that this imbalance won’t last very long.”
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    France to open tender for 3,000 MW of solar plants -ministry

    France to open tender for 3,000 MW of solar plants -ministry

    France will launch a series of tenders for a combined capacity of 3,000 megawatts (MW) of solar plants, the energy ministry said in a statement on Wednesday.

    The ministry will launch a series of six tenders of 500 MW each, between 2017 and 2020, each spaced six months apart.

    The ministry said this regular cadence would provide stability and visibility to the French solar industry and provide green jobs.

    Bidders will benefit from France's new subsidy mechanism for solar power, introduced in May, under which they will receive a premium on top of the market price for the power they generate, which will guarantee a level of revenue to cover the investment.

    Projects will be selected based on price and carbon footprint, the ministry said. Cooperative projects run by groups of citizens will receive an additional premium.

    In April, the government set a target to boost France's relatively small solar capacity from the current 6,700 MW to 10,200 MW by end 2018 and 18,200 to 20,200 MW by 2023.
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    New record global low price for solar in Chile

    The price of solar in Chile has hit a record global low in an energy auction.

    The government has awarded a contract to sell solar energy at $29.1/MWh (£21.8/MWh).

    That undercuts the previous record set by a solar plant in Dubai at $29.9/MWh (£22.4/MWh).

    Spanish firm Solarpack won the bid and will built a 120MW solar farm in Tarapaca.

    The project is scheduled to be operating by 2019.

    Pablo Burgos from Solarpack said: “This tender, in addition to reaffirming the commitment of Solarpack with Chile, also demonstrates the competitiveness of Solarpack and solar energy at offering the best price among the bidding companies.”

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    Tesla's Musk buying over half of SolarCity bond offer - filing

    Tesla's Musk buying over half of SolarCity bond offer - filing

    Tesla Motors Chief Executive Elon Musk is buying $65 million of bonds from SolarCity Corp in the latest debt offering by the solar panel company that Tesla plans to acquire for $2.6 billion, according to a filing on Tuesday.

    Musk's purchase of the so-called "solar bonds" comes after money-losing SolarCity last week said it would cut operating costs to bring expenses in line with its reduced solar installation outlook.

    SolarCity Chief Executive Lyndon Rive and Chief Technology Officer Peter Rive are each buying another $17.5 million of the $124 million offer, according to the SolarCity filing.

    It appeared to be the first time Musk has directly purchased SolarCity bonds, although his rocket-making and space transport services company SpaceX has bought them in the past. He is the largest shareholder in Tesla and SolarCity and a cousin of the Rives.

    Also on Tuesday, Tesla said an improved battery for the performance version of its Model S all-electric sedan would allow it to accelerate from 0-60 miles per hour in just 2-1/2 seconds.
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    World-leading solar and battery storage project lures BHP

    A world leading large-scale solar and battery storage project in north Queensland has drawn interest from the world’s biggest miner, BHP Billiton, which says it is looking at the technology for its remote and off-grid mine sites.

    The project, near Lakeland south of Cooktown, will combine 10.4MW of solar PV with 1.4MW/5.3MWh of lithium-ion battery storage, and is being pitched as a world-first for remote, edge of grid technology, and one likely to trigger a host of similar projects across Australia.

    It was announced on Tuesday that the $42.5 million project, being developed by German-based Conergy, will get $17.5 million in funds from the Australian Renewable Energy Agency, and has also signed a power purchase agreement with Origin Energy.

    That will be Origin’s fourth PPA with a solar project in the last few months, following its deals withMoree, Clare, and the Degrussa mine facility. Three of these have been co-funded by ARENA, and two of these – Lakeland and Degrussa – have been paired with battery storage.

    This is where BHP Billiton’s interest has been pricked. The head of environment at BHP Billiton, Dr Graham Winkelman, says solar and storage projects may help BHP Billiton reduce its own operating emissions while helping to support energy reliability at some of the more remote operations.

    BHP Billiton is tipping $350,000 into the “knowledge sharing” aspects of the project, small change for a company of its size, but it recognises the potential because of the number of its own operations that are in remote locations, far from infrastructure or on the fringe of grids. Energy security, through battery storage, is also an issue.

    “The applications for mining could be enormous,” the company says. “The Lakeland Solar and Battery Storage Project will allow us to understand behaviour and performance of solar and storage systems with network and industrial loads.

    “It is also an important component of Low Emissions Technology that provides balance to our portfolio. More broadly, battery storage is a key piece in the advancement of renewables and realising their potential to reduce emission on a larger industrial scale.”

    There are now a growing number of solar and storage projects under construction or already running in Australia, including Degrussa and Weipa mines, along with off-grid projects such as Coober Pedy, Rottnest Island, King Island, and Flinders Island.

    BHP has been operating a 1MW solar plant at the township adjacent to one of its copper mines in Chile,and it has previously canvassed solar and other renewable technologies when it put together its draft planning for the massive Olympic Dam project, although that whole project is now on hold.

    ARENA chief executive Ivor Frischknecht said the ground breaking aspect of the project was its ability to operate in “island mode”, including in the evening peak, meaning that it could still supply power when the main transmission lines were cut due to storms or some other technical issue.

    This is critically important for the likes of Ergon Energy, which runs the world’s most elongated and least populated grid, and which is looking at solar and storage options as an alternative to investing in upgrades of poles and wires and transformers in other locations in western and northern Queensland.

    “Batteries are already competitive for particular situations,” Frischknecht told RenewEconomy. “They are not competitive right now with coal or gas generation, but that is not what we are trying to do.”

    In a statement, he said: “The global energy transition is happening faster than many anticipated and Australia is well placed to be a key player. Our growing expertise in integrating renewables and batteries could readily translate into economic opportunities including export dollars in world markets.”
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    China to more than triple geothermal power consumption by 2020

    China is expected to more than triple geothermal power consumption by 2020 to 72.1 million tonnes of coal equivalent from the current level, Xinhua News Agency reported, citing an expert as saying.

    China consumed about 20 million tonnes of coal equivalent of geothermal resources for heating, power generation and other uses in 2015, said Cao Yaofeng, an academician of the China Engineering Academy, at a summit on sustainable development on August 22.

    By 2020, geothermal power will likely account for about 1.5% of the country's total energy consumption, Cao said, helping to reduce carbon dioxide emissions by 177 million tonnes.

    In 2014, the amount of hot dry rock, the most abundant source of geothermal energy on the Chinese mainland, was estimated to be the equivalent of 860 trillion tonnes of standard coal, or 260,000 times China's annual energy consumption that year.
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    Wind, solar can supply bulk of South Africa’s power at least cost, CSIR model shows

    There has been much discussion in recent months about the work done by the Council for Scientific and IndustrialResearch Energy Centre into the role thatrenewable energy could play in South Africa’s future electricity mix. In an extensive interview with Engineering News Online, Dr Tobias Bischof-Niemz outlines the key findings of the research and unpacks the possible implications. The article follows:
    The dramatic fall in the cost of supplying power from wind and solar photovoltaic (PV) plants has moved the globalelectricity supply industry beyond a critical “tipping point”, which leading energy scientist Dr Tobias Bischof-Niemzsays is irreversibly altering the operating model, with significant implications for sun-drenched and wind-richSouth Africa.

    Instead of renewable energy playing only a modest and supportive role in the future supply mix, research conducted by the Council for Scientific and Industrial Research (CSIR)Energy Centre shows that, having the bulk of the country’s generation arising from wind and solar is not only technically feasibly, but also the lowest-cost option.

    “The notion of baseload is changing,” Bischof-Niemz tellsEngineering News Online. Over a relatively short period, renewables have become cost competitive with alternative new-build options in South Africa, dramatically altering the investment case.

    Until the large-scale global adoption of wind and solar PV, a phenomenon that has only really taken hold over the last ten years, generation technologies were not dispatched by nature. The objective was, thus, to use the assets as often as possible in order to reduce unit costs. Under such conditions, it made sense to first build baseload, such as coal and nuclearplants, and use these as much as possible, before deploying the more expensive mid-merit plants and the peakers, which acted as the ultimate safety net.

    With the large-scale adoption of renewables (in 2015 a record 120 GW of wind and solar PV were added globally, more than any other technologies combined), the model is being turned on its head, particularly as costs have fallen, making them competitive when compared with alternative new-build options in many countries, including South Africa.

    CSIR Energy Centre research goes so far as to suggest that it now makes sense, for cost reasons, to favour renewables generation over traditional baseload sources, and to supply any “residual” demand using “flexible” technologies able to respond to the demand profile created when the sun sets and/or the wind stops blowing.

    This has been stress tested using a simulated time-synchronous model, integrating wind and solar data from the Wind Atlas South Africa and the Solar Radiation Data respectively. The outcome is reflective of South Africa’s impressive wind and solar resource base, with a capacity factor of 35% found to be achievable anywhere in the country – far superior to the 25% actually achieved in Spain and the 20% in Germany.

    “On almost 70% of suitable land area in South Africa a 35% capacity factor or higher can be achieved,” Bischof-Niemz says, noting that a key finding is that South Africa’s wind resource is far better than first assumed.

    “The wind resource in South Africa is actually on par withsolar, with more than 80% of the country’s land mass having enough wind potential to achieve a 30% capacity factor or more. In addition, on a portfolio level, 15-minute gradients are very low, which makes the integration of wind power into the electricity system easier compared to countries with smaller interconnected areas. On average, wind power inSouth Africa is available around the clock, but with higher output in the evenings and at night.”


    The unit’s research has gone further, though, testing the technical feasibility of supplying a theoretical baseload of 8 GW resulting in a yearly electricity demand of 70 TWh using a mix of solar PV (6 GW) and wind (16 GW), backed up by 8 GW of flexible power, which could be natural gas, biogas,coal, pumped hydro, hydro, concentrated solar power, or demand-side interventions. In such a mix, 83% of the totalelectricity demand is supplied by solar PV and wind, and the flexible power generators make up the 17% residual demand. The carbon dioxide emissions of this mix per kilowatt hour are only 10% of what a coal-fired power station would emit.

    The economic feasibility, meanwhile, has been tested using the 69c/kWh achieved for wind in the fourth bid window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and the 87c/kWh achieved for solar. The flexible solutions to fill the gaps are assumed, “pessimistically”, to carry a cost of 200c/kWh.

    Bischof-Niemz notes that 200c/kWh for flexible generation is a “worst-case” assumption, as is the assumption that anyexcess energy produced when solar PV and wind supply more than the assumed load is simply discarded and, thus, has no economic value.

    The outcome shows that it is technically feasible for such a 30 GW mix to supply the 8 GW baseload in as reliable a manner as conventional baseload generators, while the economic analysis suggests that such a mix will deliver electricity at a blended cost of 100c/kWh. “Does it make sense to supply 8 GW baseload with an installed capacity of 30 GW? Yes, because it’s about energy, not capacity,” Bischof-Niemz avers.

    In reality, customer demand is never “pure baseload”. The CSIR unit has, therefore, also extended the model to the supply of the actual South African electricity-demand profile  – picking up in the morning, varying throughout the day, peaking in the evening and then falling again. This modelling is scaled to a 40 GW peak demand, or 261 TWh a year, which is about 10% more than South Africa’s current demand. Using the same cost assumptions, the 100c/kWh outcome is sustained, as is the technical feasibility.

    “So now the cost-optimal mix is a completely different mix than was traditionally the case,” Bischof-Niemz explains.

    The competitiveness of wind and solar PV, he adds, is likely to continue to improve, owing to the fact that the costs of the technologies are derived from manufacturing processes that are being continuously improved as production is upscaled. By contrast, traditional fossil-fuel plants rely on finite fossilresources, where it becomes increasingly expensive as more primary energy is consumed.


    However, what does the research mean for South Africa’sreal-world electricity supply industry, where the contestation of ideas and technologies has never been more robust?

    For Bischof-Niemz it means that energy planners can move with greater confidence in factoring in higher levels of renewables in the generation plan, as the model proves that the resources have the technical wherewithal to meet demand, while the tariffs achieved through the REIPPPP underpin their financial robustness.

    “It does require an acknowledgment that wind and solar PV have now passed a cost-competitiveness tipping point. Once one accepts that, things become far less complicated.”

    The issue then is for South African planners to set targets for the transition from the current coal-heavy mix, where conventional baseload generation remains the most cost optimal, to one that relies increasingly on renewables, supported by flexible load-followers.

    That is likely to translate into far higher allocations of wind and solar PV than is currently the case in the Integrated Resource Plan, which, in turn, could have material industrialpolicy implications.

    The CSIR unit is aiming to add further evidence for its thesis by implementing what has been dubbed CSIR’s ‘Energy-Autonomous Campus’, which is being rolled out across the science council’s 170 ha complex in Pretoria and all CSIR sites in the country. Interestingly, Eskom is a partner in this endeavour.

    It has already invested in a 558 kW ground-mounted solar PV plant and is currently adding two more facilities with a combined 450 kW. It has plans for the large-scale deployment of roof-top solar across many of the 52 buildings on site, as well as a wind turbine and a biogas plant, using municipal waste.

    Ultimately, the expectation is that the CSIR will meet its full 30 GWh-a-year demand and have surplus energy to balance load at other CSIR sites in a ‘virtual power plant”, to fuel a fleet of electric cars, as well as to produce hydrogen formobile and stationary fuel-cell applications.

    “Our vision is having a real-world research platform for cost-efficient future energy systems based on renewables,” Bischof-Niemz concludes.
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    Record hot summer, not much growth in electricity consumed.

    U.S. Power Generators Get Flattened by PJM's Summer Peak: BNEF

    • PJM capacity prices to 2020 are all below 2014 prices
    • AEP, Exelon, Dominion, NRG are top firm capacity owners

    By Nathaniel Bullard

    (Bloomberg) -- 

    Hot weather isn’t what it used to be, at least not for some U.S. utilities.

    Record heat has been smothering the states of PJM Interconnection, the regional transmission operator serving the U.S. Mid-Atlantic and Midwest. August 13, Washington D.C. tied its all-time high temperature for the day, arecord set in 1881 - but even such extreme temperatures might not bring the knock-on effect for revenue that utilities could once plan on. Heat waves are often a boon for PJM power companies like American Electric Power, Exelon,Dominion Resource, and NRG Energy - but the PJM capacity market suggests that link may be broken.

    Why is heat such a boon? Hot weather can strain the power grid by summoning ‘peak’ electricity demand from hard-working air-conditioning units. Really hot days threaten blackouts, if demand for power were to eclipse supply (measured as fleet-aggregate power plant capacity). In fact, grid operators like PJM design their entire power fleets specifically to address peak load from summer heat waves like those seen a week ago.

    PJM right-sizes its power plant fleet by awarding stand-by ‘capacity payments’ to generators, to ensure that in a given year, there are enough power plants in existence to keep air conditioning units running through the hottest summer days. These capacity payments are a material source of revenue for generators in the Mid-Atlantic and Midwest.

    Expectations for high peak demand in future years can cause capacity prices to rise; lower peak demand forecasts can cause capacity payments to fall. As such, generators pray for record-breaking hot weather, not just because it temporarily boosts wholesale energy prices, but because it can make grid operators nervous, causing them to revise upward their expectations for peak load in future years, ultimately leading to higher standby capacity payments.

    The problem with this narrative is that August 13, record heat did not deliver record electricity demand. This development may actually be bad news for generators, lending more evidence of the broad decoupling of electric load from weather and economic activity. This decoupling has profound long-term implications for the entire power sector.

    First: PJM summer peak demand has declined slightly, and so have the regional transmission operator’s 10-year average summer peak-load growth forecasts. Five years ago, PJM forecast 1.3 percent average summer peak load growth for the next decade; this year, it predicts only 0.6 percent. Since 2011, the delta between expected growth rates and actual summer peaks is real, and it is widening.

    PJM summer peak load growth projections 2011 - 2016, and actual peak load (PJM Interconnection annual forecasts)

    Second: capacity payment prices established in forward auctions to 2020 are all below 2014 levels. Turning that capacity payment trend upward would require creating relative tightness in capacity supply and summer peak demand. Creating that tightness means either a higher growth rate in PJM summer peak load, or a major retirement of generation assets in the region.

    The region retired nearly 10 gigawatts last year, as a clutch of coal plants succumbed to the effects of old age, cheap gas and environmental regulations. This was expected to promise some upside for capacity price, but the most recent auction surprised low, and now with peak load failing to materialize, the market is left to question how much more needs to come offline.

    The largest owners of firm capacity in PJM are all publicly listed utility holding companies:

    Top firm capacity owners in PJM, as of August 2016 (BNEF)

    Historically, ever-hotter summers increased electricity prices and capacity payments. PJM’s forward capacity payments are heading down, not up - despite record heat in the Mid-Atlantic.

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    China National Nuclear Power H1 net profit up 0.99pct on yr

    China National Nuclear Power H1 net profit up 0.99pct on yr

    China National Nuclear Power Co., Ltd, the listed subsidiary of China National Nuclear Corporation, realized net profit of 2.5 billion yuan ($375.09 million) in the first half of this year, edging up 0.99% from a year ago, said the company in its half-year report released on August 25.

    Its operating revenue reached 14.13 billion yuan during the same period, rising 9.6% year on year, mainly due to increased power output after Fangjiashan #2, Fuqing #2 and Hainan #1 power generating units were put into commercial operation, said the company.

    Over January-June, the company produced 40.4 TWh of electricity, increasing 10.17% on year, according to the report.

    China National Nuclear Power will continue to promote the development of nuclear power generation in the future, given its advantages such as zero carbon emissions, stable efficiency of power generation as well as policy support.

    At present, all of the company's power projects in operation and under construction are nuclear power projects.
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    U.S. Senate Judiciary Committee to hold hearing on ag chemical deals

    The U.S. Senate Judiciary Committee will hold a hearing in late September to discuss the mergers of Dow Chemical Co and Dupont Co as well as China National Chemical Corp's purchase of Syngenta AG, committee chair Charles Grassley said in a statement on Tuesday.

    Grassley, a Republican from the farm state of Iowa, has already expressed concern that the deals would result in farmers paying more for seeds, pesticides and herbicides and reduce the companies' incentives to innovate.

    "The seed and chemical industries are critical to agriculture and the nation's economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy," Grassley said.

    Dow and DuPont said in December that they would combine in an all-stock merger with plans to then break into three separate businesses. In February, China's state-owned ChemChina made a $43 billion bid for Swiss seeds and pesticides group Syngenta.

    Executives from the companies will be invited to testify, as will consumer groups, the lawmaker said in a statement.

    The committee has no formal say over whether the deals may go forward. The Justice Department is looking at the merger of Dow and DuPont, while the Federal Trade Commission is reviewing ChemChina's purchase of Syngenta.
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    U.S. watchdog clears ChemChina takeover of Syngenta

    A U.S. regulator has cleared ChemChina's $43 billion takeover of Swiss pesticides and seeds group Syngenta, the companies said on Monday.

    The decision should remove significant uncertainty over whether the acquisition of the world's largest pesticides maker will be completed.

    Syngenta shares ended trading on Friday at 380.80 Swiss Francs ($396), some 100 Swiss francs less than what ChemChina's offer valued the company.

    Reuters had reported earlier that the acquisition was in the final stages of being cleared by the Committee on Foreign Investment in the United States (CFIUS), which scrutinises deals for national security implications.

    "China National Chemical Corporation (ChemChina) and Syngenta today announced that the companies have received clearance on their proposed transaction from the Committee on Foreign Investment in the United States (CFIUS)," a joint statement released by Syngenta said.

    "In addition to CFIUS clearance, the closing of the transaction is subject to anti-trust review by numerous regulators around the world and other customary closing conditions. Both companies are working closely with the regulatory agencies involved and discussions remain constructive.

    "The proposed transaction is expected to close by the end of the year."

    Syngenta had said in July it expected the deal to close this year despite concerns that U.S. regulators could throw a spanner in the works.
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    Deere raises its outlook in the face of a 'global farm recession'

    Deere & Co posted lower quarterly earnings on Friday as the soft global agricultural economy depressed sales of its farming machinery.

    Net income attributable to Deere fell to $488.8 million, or $1.55 per share, in the third quarter ended on July 31 from $511.6 million, or $1.53 per share, a year earlier, when there was more outstanding stock.

    "John Deere's performance in the third quarter reflected the continuing impact of the global farm recession as well as difficult conditions in construction equipment markets," Chief Executive Officer Samuel R. Allen said in a statement.

    The company increased its fiscal-year earnings outlook to $1.35 billion from $1.2 billion.
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    Precious Metals

    Gold Slammed For Second Day As COMEX Options Expire

    With COMEX option expiration looming, gold is being monkeyhammered lower for the second day in a row on heavy volume...

     Image title


    Notably 1300 and 1310 Strikes seem most heavily held...

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    Harmony Gold turns predator on deal hunt to fill output gap

    Harmony Gold Mining Co. is willing to use debt and equity to buy a profitable mine that will offset falling production in South Africa and help fund a major new project in Papua New Guinea, Chief Executive Officer Peter Steenkamp said.

    With the company likely to lose about 40% of its current production over the next six years due to mines reaching the end of their lives, a big acquisition is “a necessity,” Steenkamp, 56, said Tuesday in an interview in Johannesburg.

    “We have a gap emerging and what we need to do is fill that,” Steenkamp said. “We have to look for something fairly big.”

    Harmony, South Africa’s third-largest gold miner, lost money for three years to 2015 but has been revived by a price for the metal that’s 26% higher this year and a weak South African rand, which has lowered costs. The company’s ultimate goal is to build a $2.6 billion mine on its Golpu copper-gold deposit in Papua New Guinea that will reduce costs as well as boost production and reserves. It has a 50% stake in the project with Newcrest Mining Ltd. owning the rest.

    The stock has more than tripled to R56.48 this year, giving the company a market value of R25 billion ($1.8 billion).

    “We’re trying to beef up the current engine to be able to build Golpu, which is the prize,” Steenkamp said. “We want to do the right acquisition at the right time to have enough firepower to build Golpu.”

    Debt Capacity

    Harmony has the capacity to raise about R5 billion in debt but would consider using its stock to make a big acquisition, Finance Director Frank Abbott said. “It’s difficult to put a value on the size of what a merger or acquisition would be.”

    Declining to name specific targets, Steenkamp said Africa and Papua New Guinea would be preferable locations for an acquisition. “In South Africa, it’s limited,” said Abbott, 60. “AngloGold has got some assets and Sibanye. It depends on whether they’re prepared to sell any of those assets. I don’t think Sibanye is a seller but AngloGold might be a seller.”

    Any purchase would have to have at least 1 million ounces of reserves, produce 100,000 ounces a year and bring the company’s overall costs down to $950 an ounce.

    Harmony produced 1.1 million ounces of gold in the year to June 30 at an all-in cost of $1,003 an ounce. Gold dropped 0.6% to $1,329.45 an ounce at 2:16 p.m. in London.

    Historically, the company has been an end-of-life operator for aging mines in South Africa. That’s now coming home to roost, with six of its 14 operations reaching the end of their scheduled lives in the next six years. Masimong and Unisel “are basically mined out” while Kusasalethu needs 2.6 billion rand of capital to extend its life beyond five years, Steenkamp said.

    Ounce Loss

    The three closures mean Harmony will lose about 220,000 ounces, he said. Bambanani, Hidden Valley and some of its surface operations will also cease by 2022, according to the producer’s website.

    As well as a future acquisition, Steenkamp plans to boost production by combining two of its mines, Tshepong and Phakisa. Together, they produced about 290,000 ounces last year. Merging them would cut costs and could raise output to 350,000 to 375,000 ounces a year, Steenkamp said. The company should be able to maintain current production for about five years, he said.

    “Harmony is not up against the wall like last year but it has to do something,” said Rene Hochreiter, a Johannesburg-based analyst at Noah Capital Markets (Pty) Ltd. with a buy rating on the stock. “The current gold price has provided a big windfall and they want to take advantage.”

    With gold up by almost a third this year and competitors also on the prowl for acquisitions, Harmony is aware that any deal would be “fairly expensive,” yet it would be a price worth paying to see the company through the mine closures and increase its ability to fund Golpu.

    “We can’t buy at any cost,” Steenkamp said. “But I’m pretty sure we’ll be able to find what we want in Africa.”
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    Implats falls most in a month as profit tumbles on work stoppages

    Impala Platinum(Implats), the world’s second-largest miner of the metal, headed for the biggest decline in more than a month after the company said full-year earnings will tumble as much as 75% because of lower local prices and production stoppages.

    The shares slid 4.6% to R58.95 as of 9:52 a.m. inJohannesburg, the largest decrease in the five-member FTSE/JSE Africa Platinum Mining Index. A close at this level will mark the biggest one-day drop since July 20. Earnings before one-time items are expected to be between 9 cents to 16 cents a share for the year ended June 30, compared with 36 cents a year earlier, the Johannesburg-based company said in a statement Monday.

    The world’s top platinum miners, including Anglo AmericanPlatinum Ltd. and Lonmin Plc, have seen earnings squeezed by a more than 40% plunge in platinum prices in the past five years. Platinum averaged R13 825 ($1 026) an ounce in the year to June 30, almost 3% below the mean a year earlier. Themetal is Impala’s main earner and the company has also been plagued by safety-related stoppages in the past year.

    Impala’s Number 14 shaft, which produces almost a fifth of its metal, “has had a horrific year,” said Rene Hochreiter, aJohannesburg-based analyst at Noah Capital Markets (Pty) Ltd.

    On May 17, two miners at the shaft were killed after an underground area caved in and CEO Terence Goodlaceannounced his resignation a day later. As of June, eight workers have been killed at Impala’s operations this year. Every fatality causes lost production while government inspectors examine the site.

    Impala shares have more than doubled this year amid a broader rebound in mining stocks. The company also produces palladium, rhodium, nickel and copper.
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    Moody’s restates Barrick’s Baa3 rating and revises outlook to stable

    Credit ratings agency Moody’s Investors Servicehas confirmed the Baa3 ratings of the world’s largest gold producer by volume Barrick Gold and revised the ratings outlook to stable from negative.

    "The outlook revision to stable reflects Barrick's reducing leverage and management's commitment to further reduce debt," stated Moody's VP and senior analyst Jamie Koutsoukis on Friday.

    The lowest rating under Moody's long-term ‘investment grade’ corporate obligation rating, Baa3, meant that Barrick’s obligations were subject to moderate credit risk, while the company is believed to have acceptable ability to repay short-term debt.

    Moody’s advised that Barrick’s Baa3 rating is underpinned by its large-scale, diverse and low-cost gold assets, sizeablecopper operations, favourable geopolitical risks and excellent liquidity. Moody's expects Barrick will achieve its debt reduction target of $2-billion in 2016, of which $968-million was already achieved at the end of June, following a $3-billion reduction in 2015.

    Moody's expects Barrick's adjusted financial leverage will be around 2.5x at the end of 2016 (compared with 2.8x as at June 30), assuming a gold price of $1 250/oz, with further reductions possible in 2017 and beyond.

    Barrick's credit metrics have markedly improved, with the company having reduced adjusted debt to $9.2-billion in June, from $13.2-billion in December 2014 and adjusted leverage improving to 2.8x at June 30, from 3.4x at December 31, 2014.

    Moody’s said it is heartened by Barrick’s continued discipline regarding capital expenditure and asset sales as it focuses on debt and leverage reduction.

    Moody’s forecast Barrick’s output to fall to a range between 4.6-million and 5.1-million attributable ounces by 2018, from 6.1-million attributable ounces in 2015.

    “As existing mines are depleted, absent mine expansions or the development of new mines, we expect Barrick's production to decrease further, resulting in a reduction of cash flow and an increase in leverage unless debt continues to be reduced. We also presume that Barrick's commitment to reduce debt further, towards $5-billion from $9.2-billion at June, will remain the more important priority compared to material new mine spending, although some of both may occur,” stated Koutsoukis stated.
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    Base Metals

    Nickel price hurts Western Areas' 2016 results

    A significant reduction in the nickel price has dented Perth-based miner Western Areas’ revenue in the 2016 financial year, pushing the company into an after-tax loss of A$29.78-million.

    The 2016 loss compares with a profit of A$35.01-million in the 2015 financial year, Western Areas, which is the only nickel producing pure play company listed on the ASX, reported on Thursday.

    Revenue decreased to A$209.12-million, from A$312.68-million in the previous financial year, while sales volumes decreased to 24.79-million tonnes, from 26.04-million tonnes in 2015. Mine production increased to 27.61-million tonnes in 2016, from 26.52-million tonnes in 2015, while mill production remained unchanged at 25.01-million tonnes.

    Production is built around two underground nickel mines, Flying Fox and Spotted Quoll, both within Western Area’s Forrestania project area, in Western Australia.

    Western Areas has managed to deliver improvements insafety and cost reductions, lowering its cash costs in US dollar terms from $1.94/lb in 2015 to $1.64/lb in 2016, but MDDan Lougher said that the nickel price environment had failed to reward the company’s efforts.

    “Western Areas has clearly demonstrated its resilience and flexibility by seeing through the worst nickel priceenvironment in its operating history.”

    The miner realised a nickel price of A$5.69/lb in the financialyear, compared with A$7.87/lb in 2015.

    “The company took decisive action in October 2015 by announcing the deferral of capital expenditure and someexploration activities into the 2017 financial year. These decisions are only possible due to prior period investments in the business and reflect the operational flexibility we’ve built into the business model,” Lougher said.

    “We believe that the company is well set to either operate in a difficult commodity price environment or prosper in an improving nickel price situation by virtue of the actions and decisions taken over the last eighteen months,” he added.

    Post year-end, there was an improvement in the nickel price which resulted in the June month experiencing positive quotational price adjustments of A$3.4-million (tax effected), for nickel price movements in July.

    Western Areas provided a production guidance of between 22 500 t and 24 500 t of ore for the 2017 financial year. Flying Fox is estimated to contribute between 10 000 t and 11 000 t, while the Spotted Quoll estimate is between 12 500 t and 13 500 t. The group’s nickel-in-concentrate production guidance is between 20 200 t and 22 200 t.
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    Mineral sands miner Iluka sinks to half-year loss

    Mineral sands miner Iluka Resourcesplunged to a net loss of $20.9-milllion in the first half of 2016, compared with a profit of $20.4-million a year earlier, owing to lower revenue growth.

    Mineral sands revenue dipped from $349.6-million in the six months ended June 30, 2015, to $338.4-million in period under review, the ASX-listed company reported on Thursday.

    “The poor half-year financial results reflect a lack of overall revenue growth, despite 15% higher zircon/rutile/synthetic rutile sales volumes. Lower prices prevailed, especially for zircon, as Iluka responded to competitor price positioning, but gross margins were protected through reductions in unit costs of goods sold,” commented MD David Robb.

    Zircon/rutile/synthetic rutile production increased by 20.8% year-on-year to 334.4-million tonnes, while ilmenite production decreased by 15.9% to 164.1-million tonnes, putting total mineral sands production at 498.5-million tonnes, compared with 472-million tonnes in the first half of 2015.

    Zircon/rutile/synthetic rutile sales increased from 275.9-million tonnes to 316.4-million tonnes, generating revenue of $321.1-million. Ilmenite sales fell to 17.7-million tonnes, from 159.5-million tonnes, generating revenue of $17.3-million.

    Sales mix factors, including a higher proportion of synthetic rutile and zircon concentrate sales, also influenced revenue outcomes, as did a lower Mining area C iron-ore royalty contribution.

    “Earnings and free cash flow generation were adversely affected, influenced in part by the timing of sales towards the end of the half and, therefore, lower collections occurring within the half,” he said, adding that free cash flow was expected to be second-half weighted.

    Robb detailed Iluka’s approach to adverse market conditions, pointing out that the company had constrained its production to match demand and that it continued to focus on operational efficiency and unit cash cost improvements, reporting a reduction in unit cash costs of production of 34.7% and a 12.7% reduction in the unit cost of goods sold.

    The group also continued to focus on investing in its future, he said, stating that it invested in trialing an innovativemineral sands mining technique, together with continued support for other research and development work in mineral sands mining and processing.

    Iluka aimed to take advantage of opportunities by investing in a counter-cyclical manner, Robb said, pointing to the offer for Sierra Rutile as one such example.

    “Investing counter-cyclically, by nature, involves investing at a time when current cash flows are depressed. To do otherwise is to fall into the resources industry trap of investing pro-cyclically. The timing of investment, as well as the nature of investment, is central to the creation of value in mineral resources, as is a through-the-cycle commitment toexploration, innovation and technology.”

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    Nickel merry-go-round: Indonesia ferronickel replacing Philippine ore

    Is nickel's current rally sustainable or is the metal merely having a strong run because market participants are more focused on the environmental crackdown in top ore miner the Philippines, rather than on the surge in Indonesian ferronickel exports?

    No doubt nickel is one of the strongest commodity performers this year, with benchmark London futures rising 13.3 percent from the end of last year to the close on Wednesday.

    The bulk of that rally has come in the past three months as new Philippine President Rodrigo Duterte and his hard-line environment secretary Regina Lopez cracked down on alleged environmental abuses by the mining industry.

    At least eight nickel mines have been shut down in the Philippines this year, cutting around 10 percent of the country's capacity.

    The Chamber of Mines of the Philippines has called the closure of mines a "demolition campaign", but Lopez appears undeterred, saying more mines will be shut if they are having adverse impacts on the environment.

    Certainly, it seems that lower Philippine nickel ore exports are already showing up in the import numbers for China, the world's biggest buyer of the metal that is used mainly in the manufacture of stainless steel and electronics.

    China imported 3.163 million tonnes of nickel ore and concentrates from the Philippines in July, down 35.9 percent from the same month a year ago, according to customs data.

    Imports in the first seven months totalled 13.84 million tonnes, a drop of 27.3 percent from the same period last year.

    This is significant as the Philippines is by far and away the largest supplier of nickel ore to China, accounting for almost 96 percent of the total for January-July.

    This means that if there is a sustained drop in supply from the Philippines it will be hard for Chinese nickel pig iron producers to source replacement material.

    This is especially true as nickel ore cargoes from Indonesia, which used to be China's top supplier, remain unavailable as part of that country's ban on the export of certain unprocessed minerals, such as nickel and bauxite.


    Indonesia's shipments of nickel ore came to an abrupt halt in early 2014 after the Southeast Asian nation enacted a mineral export ban as part of efforts to ensure investment in domestic downstream processing plants.

    It may also be that this effort is starting to show up in China's import figures, with a large jump in shipments of ferronickel, an intermediate stage of the metal that contains both nickel and iron.

    China's imports of ferronickel from Indonesia were 74,493 tonnes in July, more than five times taken in the same month a year earlier.

    Likewise, year-to-date imports from Indonesia have surged more than four-fold to 390,706 tonnes, giving the nation a 70 percent share of Chinese imports of ferronickel.

    This surge in imports of ferronickel is significant as it shows that the way China gets its nickel is changing.

    Indonesian nickel producer PT Antam says on its website that it extracts about one tonne of ferronickel from between 70 and 80 tonnes of nickel ore.

    If these figures are assumed to be representative of Indonesia's ferronickel production as a whole, it means the country's ferronickel exports to China in the first seven months of the year are roughly equivalent to 27.3 million tonnes of nickel ore.

    This is more than double the amount of nickel ore exported to China from the Philippines, providing proof that China isn't importing less nickel, but is changing the form in which it imports the metal.

    The Indonesian ore export ban of early 2014 led to a 50 percent spike in London nickel prices from January to a peak of $21,625 a tonne on May 13 that year.

    But as the market came to realise that there was sufficient nickel ore elsewhere to compensate for lost Indonesian output, prices slumped to a low of $7,550 a tonne on Feb. 12 this year.

    While the current disruptions in the Philippines have no doubt tightened the market for nickel ore, it's more than likely that the ramp up of ferronickel exports from Indonesia are more than sufficient compensation for the overall nickel market.

    The difficulty in sourcing nickel ore is certainly a problem for China's nickel pig iron producers, but their problems don't necessarily translate into a shortage of nickel in the global market, especially if Indonesia is back in the market as a ferronickel supplier.

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    Aluminium giant Rusal expects tough second half of year

    Russian aluminium giant Rusal on Thursday reported a nearly 40-percent drop in second-quarter core earnings due to weak aluminium prices, slightly better than analysts feared, and warned the second half of the year would remain tough.

    The company said it was focused on cutting debt to help weather tough markets and would continue to step up sales of value-added products, which it said made up nearly half its sales in the first half of 2016.

    "Looking forward to the second half of the year, we believe that the aluminium industry will remain under pressure," Chief Executive Vladislav Soloviev said in a statement.

    Rusal expects global aluminium demand to rise by 5.4 percent to 59.5 million tonnes in 2016, helped by housing and automotive growth.

    That, combined with slower growth in aluminium production and falling Chinese exports of aluminium semi-finished products, would result in a global aluminium deficit of about 1 million tonnes in 2016, it said.

    Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $344 million for the three months to June from $568 million a year earlier. However, the result was up 10 percent from the first quarter.

    Six analysts on average had predicted adjusted EBITDA of $336 million.

    Aluminium prices have risen about 11 percent since the start of 2016, but remain weak.

    Net debt was trimmed slightly by June to $8.33 billion from six months earlier.

    Rusal said its debt profile was helped by its recent agreement to sell its Alpart alumina refinery in Jamaica to China's state-owned Jiuquan Iron & Steel Group for $299 million.

    "The deal further strengthened Rusal's relationship with our Chinese partners, which is expected to open new opportunities for future cooperation in other areas," the company said.
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    Japanese aluminium premiums fall ahead of Q4 talks as keen sellers emerge

    S&P Global Platts assessed spot premiums for aluminium imports into Japan at $66-$74/mt plus LME cash CIF Japan Wednesday, down from $76-$77/mt plus LME cash CIF Tuesday, as keen sellers emerged ahead of fourth quarter premium negotiations.

    An international trader has offered $75/mt plus LME cash CIF Japan for October and received counterbids at $65/mt plus LME cash CIF Japan, with no deals done due to the gap.

    A Japanese trader confirmed having received the offer at $75/mt, which was for 99.7% minimum aluminum, 0.2% maximum iron and 0.1% maximum silicon guaranteed metal of origins excluding Brazil, Venezuela, Russia, India, Iran and Egypt.

    Other traders and producers who do not usually participate in quarterly contract premium negotiations have started to discuss Q4 with potential buyers.

    Related blog: What the ‘MJPexit’ debate implies in the aluminium market

    Buyers have asked for $65/mt plus LME cash CIF Japan for Q4, down 29% from $90-$93/mt for Q3, said two traders. One trader said there was also a bid at $60/mt plus LME cash CIF Japan for Q4.

    After holding discussions with potential buyers, one producer said he would wait for Q4 settlements to be agreed between major global producers and Japanese buyers.

    Another producer was asking for premium ideas from Japanese buyers for Q4 but had not returned with a firm offer, said a Japanese consumer.

    Japan's aluminum stocks at three main port warehouses have fallen to a near two-year low of 305,900 mt, according to trading house Marubeni.

    But there were also stocks in South Korea's Busan warehouses, exceeding their annual consumption, sources said.

    Busan stocks stood at 159,300 mt at LME-approved warehouses this week and there may be larger volumes outside LME warehouses where monthly rents were cheaper, sources said.

    The cost of bringing metal to Japan from South Korea is in the range of $20-$100/mt depending on shipping arrangements, sources said.

    Those who are able to secure transport at $20-$25/mt take the opportunity to ship the metal to Japan, trade and Japanese consumer sources said.

    Rising Libor interest rates are adding to pressure to sell, a trader said.

    Major global producers have not released their offers for Q4 premiums.

    Japanese buyers said one producer may announce his Q4 offer on Friday, and other producers next week. --Mayumi Watanabe
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    Glencore delays resumption of Katanga production to early 2018

    Mining and trading giant Glencore Plc will delay resuming production at its Katanga Mining unit to early 2018 due to stubbornly low copper prices, Chief Executive Ivan Glasenberg said on Wednesday.

    Katanga announced an 18-month suspension of operations last September at the mine, which accounted for about 15 percent of Democratic Republic of Congo's copper production in 2014.

    The company said in June that progress on $880 million in upgrades aimed at cutting costs was on track. However, Glasenberg said in a call with analysts that Glencore was in no rush to add to already oversupplied global markets.

    Congo's mines minister Martin Kabwelulu told Reuters that Glencore's announcement was made without consulting the government and "will lead the government to ask Glencore for explanations".

    The suspension and other cuts in Congo's mining sector due to low prices have cost more than 13,000 jobs since last year in Africa's top copper producer and caused output of the metal to fall 14 percent in the first half of this year.

    Mining and the smaller oil industry account for some 95 percent of Congo's export earnings. The government slashed its 2016 budget by 22 percent in June and has cut its annual growth forecast from 9 percent to 4.3 percent.
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    Think zinc: miners bet big on revival in key base metal market

    Resource companies are racing to dig zinc mines, betting that markets for the metal used to rust-proof steel and protect noses from sunburn have finally turned after a decade in the doldrums.

    A supply glut is evaporating as big zinc mines run dry, commodity analysts say, helping drive up prices by nearly half this year and triggering investments in new and long-dormant projects from Greenland to Africa.

    "There is a sense of urgency that the zinc price will continue to appreciate in coming years and we want to startconstruction as soon as possible to take advantage of that," said Simon Smith, finance manager of Heron Resources, which is spending A$190-million to return a landfill site inAustralia to its former life as a zinc mine.

    The global supply pool has been contracting as reserves are exhausted at huge mines in Australia, Canada and Ireland, while other major producing nations such as Peru have seen output drop as richer ores are mined out.

    Macquarie Bank calculates that global supply has plunged by as much as 14.5% in the first half of 2016 alone.

    "There is no doubt the supply side of this market is declining and supporting the case for new mines," said commodities analyst Daniel Morgan of UBS, adding that companies that buy zinc to refine had become "panicky" about supply.

    Not everybody is sure zinc prices will keep going up.

    Analysts at Capital Economics caution that zinc's upcycle could be clipped, if, as it predicts, Chinese steel prices weaken again in the second half of the year, reducing demand in the biggest consumer of the base metal.

    And investment bank Liberum warns that high prices may tempt China's miners to dig more metal, leaving little room for further upward price moves.

    Chinese zinc output has been running around 1.3-million tonnes below its 2014 peak, with local media reports that mines have been shuttered as part of a government crackdown on pollution.

    Miners remain optimistic on the long-term outlook for prices, however.
    "We were looking very hard for zinc, which is offering some of the greatest opportunities for growth, and wanted to move quickly," said Craig Mackay, MD at Golden Rim Resources.

    Golden Rim last month paid $2.29-million for the Paguanta zinc project, a 40-mile expanse of exploration ground nearChile's border with Bolivia.

    Andrew Michelmore, CE of China's MMG, said the company was digging a new mine in Australia costing $1.5-billion, with up to $550-million in loans from China Development Bank Corp and Bank of China.

    "The supply crunch has finally come," he said, adding that few opportunities exist to acquire operating zinc mines anywhere in the world.

    "Most of our focus is: how do we find it ourselves?"

    After years of exploring for copper in Mongolia, Ivanhoe Mines chairperson Robert Friedland wants to restart the long-dormant Kipushi zinc mine in the Democratic Republic of Congo.

    "We believe that market conditions are ideal as we evaluate the available options to return Kipushi to production," Friedland said in a statement announcing the prospect of restarting the mine at a cost of $409-million.

    Meanwhile, Jonathan Downes, CE of Australia's Ironbark Zinc, said he is closer than ever to developing a mine inGreenland discovered 23 years ago.

    China Non Ferrous (NFC) has already agreed to construct the mine and provide 70% of the debt funding in exchange for 30% of the zinc.

    Separately, Ironbark has entered into a $50-million funding and supply arrangement with mining giant Glencore, its biggest shareholder.

    "With zinc inventories down and the price up, our stars are starting to align," Downes said.
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    Glencore speeds up debt reduction with Australian copper mine deal

    Glencore Plc has agreed to sell all the gold and a 30 percent stake in its Ernest Henry copper mine in Australia to Evolution Mining for A$880 million ($670 million), advancing the Swiss giant's effort to pay down debt.

    The deal will take Glencore nearer to its target of cutting debt to between $17 billion and $18 billion by the end of this year, while Evolution, Australia's second-largest gold miner, said the stake would boost its gold output and cut its costs.

    "This agreement recognizes Ernest Henry Mine as a world class copper-gold-silver mining operation with significant potential going forward," Glencore said in a statement.

    Glencore, which reports its half-year results later on Wednesday, is targeting asset sales of up to $5 billion this year, on top of $1.4 billion it has reaped from sales of future output of precious metals.

    It has already raised $3.1 billion from the sale of just under half of its agricultural business, and is in talks to sell its Cobar copper mine and its coal rail business in Australia, which together could fetch close to $1.5 billion.

    Evolution approached Glencore to buy the Ernest Henry mine some time ago but was told it was not for sale, Executive Chairman Jake Klein told Reuters.

    So instead, Evolution, advised by Royal Bank of Canada, came up with the proposal to buy the mine's gold and set up a partnership with Glencore by taking an economic stake. It is also in talks to drive exploration around the mine.

    "This was a meeting of the minds," Klein said in an interview. "It's one of those innovative transactions where each party has got what they want out of the deal. For us it's gold and for them copper."

    Evolution would receive all of the gold produced by Ernest Henry for its current 11-year mine life, as well as 30 percent of the copper, which it would sell back to Glencore, offsetting gold production costs.

    The deal will boost Evolution's gold output by about 88,000 ounces a year, extend the life of its reserves, and lower its all-in sustaining cost of production by 7 percent to A$930 an ounce. That compares with the current gold price at A$1,760.

    "It definitely improves the quality of our portfolio," Klein said.

    Evolution plans to raise A$401 million through a sale of new shares priced at A$2.05 a share, a 16 percent discount to its close on Tuesday, to help fund the deal.

    Evolution produced 735,000 ounces of gold last year from six mines, excluding the Pajingo mine which it recently agreed to sell.
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    Jiangxi Copper targets investors with $300 mln global mining fund

    Jiangxi Copper Co Ltd said on Wednesday it has set up a Cayman Islands-based fund that will buy mining projects as the Chinese state-owned copper producer sets its eyes on potential bargains as the commodities cycle bottoms.

    As China's largest copper producer reported a 37.9 percent drop in profits due to weak metals prices, it said it had allocated $100 million through its subsidiaries to establish Valuestone Global Resources Fund I in the Cayman Islands with CCB International Asset Management Ltd, part of China Construction Bank Corp.

    By Aug. 4, the fund had $150 million in initial funding and was now open to domestic and foreign institutional investors. The aim is to get $300 million in total investment.

    Jiangxi didn't identify what projects it was targeting, but said the fund will capture opportunities arising from low metals prices.

    While it is not unusual for banks and hedge funds to use investment arms to buy into mining projects, it is an unusual move for a Chinese government-owned producer and reflects the company's global ambitions.

    "The focus is not to secure supply, it is rather how to make a profit at the bottom of this industry cycle," analyst Helen Lau of Argonaut Securities in Hong Kong said.

    "Eventually Jiangxi Copper may participate in operating and investing... but they may ask the (private equity) fund to just flip it."

    The fund may be able to cast its net wider than traditional private equity units, said Lau.

    Private equity funds have been on the hunt for deals for the past few years but have largely held back on purchases.

    However, Jiangxi's fund could have greater capacity to develop projects since it is a major producer as well as a stakeholder offering operational know-how and could pay for the offtake, said Lau.

    Jiangxi Copper sources only 20 percent of its supply from its own mines. It has said its next step will be to focus on international acquisitions and Lau said the fund will help Jiangxi bolster its international M&A experience.

    Jiangxi has had limited success overseas with projects in Afghanistan and Peru, unlike peers such as China Moly and Minmetals.

    The Afghani project has been delayed after insurgent attacks that have also hampered nearby infrastructure builds.

    London Metal Exchange copper prices have fallen by more than quarter since May 2015 amid concerns about slowing demand from China, the world's top commodities consumer, and are languishing at around $4,700 per tonne.
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    Nickel market swings into undersupply

    After several years of surplus, the nickel market moved to a deficit in the second quarter of this year and, with the price of the commodity now above $10 000/t, a smaller portion of global nickel producers are now cash negative, research and consultancy group Wood Mackenzie nickel markets principal analyst Sean Mulshaw tells Mining Weekly.

    He expects that the market will remain undersupplied over the medium term and, therefore, nickel prices should increase from their current level. Although the metal reached a record-high price, higher than $50 000/t, in 2007, Mulshaw cautions that only moderate improvements can be expected until the excess supply of nickel has been depleted.

    “At present, nickel prices are low, primarily owing to many consecutive years of oversupply and a consequent build-up of global nickel stocks to record levels in response to the repeated promise of strong global demand that has, generally, failed to materialise.”

    Mulshaw notes that, at recent price lows, two-thirds of the world’s nickel producers have been losing money, with many forced to reduce costs and output to save cash. He adds that, despite this, surprisingly few producers have closed, largely in preparation for rising prices as global nickel supply tightens.

    This expected supply constraint is mainly driven by the substantial decline in Chinese nickel production and production cuts elsewhere in the world due to low nickel prices. Mulshaw explains that two-thirds of all nickel produced is used to make stainless steel, a market whichChina dominates, subsequently accounting for about 50% of global nickel demand.

    “Until recently, this demand for nickel was supported by the rapid growth of China’s nickel smelting industry, but a ban on exported ore from Indonesia in 2014 has resulted in falling output in Chinese nickel for stainless steel production since then,” he says.

    Ore supply to China from the Philippines, the only other supplier of nickel feed, is also at risk, as a result of an ongoingenvironmental audit of existing mines, causing a sudden uptick in nickel prices, Mulshaw notes.

    Africa accounted for 6.5%, or about 2.1-million tons, of global mined nickel production in 2015, owing mainly to diversified miner African Rainbow Minerals’ Nkomati mine, in South Africa; diversified miner Mwana Africa’s Trojan mine and platinum-group metals miner Zimplats’ project, both in Zimbabwe; nickel and cobalt miner Ambatovy’sproject, in Madagascar; and nickel miner Tati Nickel’sproject, in Botswana.

    The continent generates 4.5% of global finished nickel production, but accounts for only 1% of global nickel consumption, most of which is used by stainless steelproducer Columbus Stainless at its mill in South Africa.

    “In the longer term, there will be a need for the development of new projects to ensure that the world supply keeps pace with demand. However, investment in new projects will likely be stimulated only once the price climbs substantially higher than what it is . . .” he concludes.

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    Too much copper

    In New York trade on Monday copper for delivery in September suffered another down day as new supply coming on stream coupled with fewer than usual mining disruptions upset the fundamentals for the metal.

    Copper dipped almost 2% to $2.1270 per pound ($4,690 a tonne), a six week low. While other industrial metals and steelmaking raw materials have jumped in value this year, industry bellwether copper has been underperforming badly. The red metal is now trading flat year to date following a 26% decline in 2015.

    Demand has held up well. China,  responsible for more than 45% of the seaborne trade, imported 9.4 million tonnes of concentrate during the first seven months of the year, a 36% jump on 2015.  For the first seven months refined imports are up by nearly one-fifth at 3.1 million tonnes.

    But the market is set stay in surplus despite some curtailment by top producers Freeport McMoran and Glencore as new mines and expansions, particularly in Peru, ramp up to capacity.

    If this low rate of disruption continues through the second half, mine supply will exceed our initial forecast by around 230,000 tonnes in 2016

    While top producer Chile settled into a gentle decline, Peruvian copper production  surged by more than 50% to just under 741,000 tonnes in the first half of the year.

    Additional supply includes increased production from Freeport’s Cerro Verde mine and the ramp-up of the Chinese-backed Las Bambas mine, both in Peru. Cerro Verde pumped out 260,000 tonnes during the first half of the year after Freeport completed a project to add 270,000 tonnes annual capacity at the mine.

    Operator MMG's Las Bambas ramp-up is ahead of schedule and the new mine is expected to produce 250,000 – 300,000 tonnes this year and 400,000 in 2017. Hudbay's Constantia is also hitting its stride with 63,800 tonnes unearthed so far this year while Glencore's Antamina and Antapaccay mines both upped output substantially.

    Add to Peru's success increased output at Vale's Salobo mine and the ramping up of Southern Copper Corp’s Buenavista mine in Mexico. BHP Billiton last week also announced increased guidance at Escondida, the world's largest copper mine by some margin.

    Further out Canada's First Quantum Minerals is also continuing to proceed with the development of the Cobre Panama project, with full production expected in 2018, while NGEx Resources Constellation copper project could fill any gaps opening up some time in the next decade.

    A rule of thumb for many industry forecasters is to allow for a 5%–6% swing in global annual output of 22 million tonnes due to mine level disruptions, be it from bad weather, labour problems or technical difficulties.

    According to a Morgan Stanley report quoted by CNBC, this year disruptions are tracking at 1.8%:

    "If this low rate of disruption continues through the second half, mine supply will exceed our initial forecast by around 230,000 tonnes in 2016 – bearish for copper's price."
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    Glencore ‘vindicated’ on zinc supply cuts, Morgan Stanley says

    Glencore’s decision to cut zinc output to fight a rout in prices last year has been vindicated as the metal has rallied in 2016, according to Morgan Stanley, which held out the possibility that the commodity trader may order restarts.

    “It turns out, cutting/waiting was a good plan,” Morgan Stanley said in a note, which contained the heading “Glencore, vindicated".

    The metal “may be supported/lifted, if China’s steel-production rate remains at around 800-million tons per year into 2017. Conversely, the most likely short-term price cap for zinc is the reactivation of Glencore’s dormant mining capability,” it said.

    Zinc has led gains in metals this year after the shutdown of depleted mines coupled with Glencore’s cutbacks. GlencoreCEO Ivan Glasenberg has repeatedly argued the case for miners not producing materials into oversupplied markets, saying in May that volume growth can’t be an end in itself. Morgan Stanley said zinc is its top commodity pick, while Goldman Sachs has dubbed it the “bullish exception” among metals.

    “We’re zinc bulls,” Morgan Stanley said. “But its 2016 price performance has surprised even us. Any upside from here depends on China’s steel production rate and Glencore’s willingness to re-fire some of its mine supply.”

    Zinc for delivery in three months traded 0.5% lower at $2 275.50 on the London Metal Exchange at 4:06 p.m. inSingapore, 42% higher in 2016. That performance has made it the top performer on the Bloomberg Commodity Index year-to-date.
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    China July unwrought copper and products exports surge- customs

    China July unwrought copper and products exports surge- customs

    China's exports of unwrought copper, including copper alloy products, stood at 75,022 tonnes in July, a more-than-fivefold increase from the same month a year earlier, Chinese customs data showed on Monday.
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    Steel, Iron Ore and Coal

    Vale expects Samarco to restart mid-2017

    Vale expects Samarco to restart mid-2017

    Brazilian miner Valeexpects Samarco, an iron-ore joint venture it owns with BHP Billiton, to restart operations in the middle of 2017, a company executive said on Thursday.

    Samarco's mine has been shut since November when a tailings dam on the site burst, killing 19 people and causingBrazil's worst-ever environmental disaster.

    André Figueiredo, head of investor relations at Vale, told a stock market event in Sao Paulo that he thought Samarcooperations could restart by mid-2017 in comments first reported by the Estado de S Paulo newspaper and confirmed by a Vale spokesperson.

    Figueiredo did not provide any details on why he expectedSamarco to be producing again by then.

    Samarco had originally expected to resume production this year, but has since said that this is unlikely. The Stateenvironmental body responsible for granting permission to resume operations, Semad, has said the process would continue into next year.

    The financial strain of being without its primary revenue stream has led Samarco to consider talking to bondholders about changing the terms on $2.2-billion of securities or to pursue an exchange offer, according to a Reuters report on Wednesday, which cited two people with knowledge of the situation.
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    Shandong Iron & Steel Group H1 profit surge 211 pct

    Shandong Iron & Steel Group Company Limited, one Shandong-based leading steel producer, saw its net profit surge 210.57% on year to 23.15 million yuan ($3.5 million) in January-June, the company said in its half-year report late August 25.

    Business income of the group stood at 21.96 billion yuan in the same period, falling 4.54% year on year, it said.

    The income accounted for 70.67% of the annual target of 31.08 billion yuan, thanks to price rise of steel products.

    In the first half of the year, the company produced 7.9 million, 4.27 million and 3.79 million tonnes of pig iron, crude steel and steel product, accounting for 47.09%, 46.16% and 44.33% of the annual targets, respectively.

    The lagging production was because the company intended to reduce stocks by controlling production and arranging maintenance.
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    Glencore records $395 million thermal coal derivative loss

    Glencore has made a loss of $395 million from hedging 55 million mt of its unsold coal production in the derivatives market during the first six months of 2016, the Switzerland-based diversified miner said in its half-year report Wednesday.

    "The net expense comprises primarily $395 million relating to an accounting measurement mismatch between the fair value of coal derivative positions in respect of portfolio risk management/hedging activities initiated in Q2 2016 and the anticipated future revenue to be generated from the sale of future unsold coal production," Glencore said in a statement.

    The miner added that the total derivatives position managing forward sales was expected to be settled before the end of June 2017.

    Glencore said that under International Financial Reporting Standards accountancy rules, the transactions could not be designated as hedging instruments as they included pre-existing trading contracts for which mark-to-market movements had already been included in trading results.

    As a result, the loss had to be reported ahead of the underlying futures transactions expiring.

    International seaborne thermal coal prices have been on an upward slant since bottoming out in the second quarter due to Chinese domestic production cuts, and a rebalancing of a previously oversupplied market.

    Since the beginning of April, Europe-delivered CIF ARA year-ahead thermal coal futures have risen over 37% to $57/mt on Tuesday, according to S&P Global Platts data.

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    Australian coking coal prices rally

    Australian coking coal prices are heating up, boosted by another bout of fiscal stimulus in China along with a swathe of supply disruptions worldwide, spurring shortage concerns.

    The spot price for premium coking coal has now rallied by over 60% since mid-February, with gains accelerating last week by the most since early 2011 when devastating floods hit parts of southeast Queensland, disrupting major supply chains.

    Supply disruptions and an increase in Chinese infrastructure and property investment lead to a remarkable turnaround following years of constant price declines.

    Several highways in Shanxi, one of China's major coal producing provinces, have been closed for repairs following heavy rainfall at the end of July. Competition for railway freight space with thermal coal has also led to a shortage of coking coal at Chinese steel mills. Outside China, supply has also come under pressure. Several hard coking coal mines in Queensland are undergoing maintenance or facing production troubles. Vale has also stopped rail transport at its operations in Mozambique due to militant attacks.

    A resurgence in China's manufacturing and property construction sectors this year, thanks largely to policy makers resorting to stimulus, has helped support commodity prices generally.

    "So long as Chinese steel mills enjoy healthy margins, spot and contract coking coal prices will likely remain supported. Though downside risks do exist," said Vivek Dhar, a mining and energy analyst at the Commonwealth Bank, adding that high prices may also incentivise US and Mongolian coking coal exporters to enter the Asian market and address any shortage concerns.

    According to the Australian government's Department of Industry, Innovation and Sciences, Australia's metallurgical coal production is forecast to increase by around 2% to 192 million tonnes in the current financial year.

    In the department's latest resources and energy quarterly report released in July, it forecast that Australia's metallurgical coal export earnings were likely to decline by a further 5% to A$18.2 billion ($13.9 billion) in 2016–17 due to "lower prices and subdued growth in volumes".

    Australian coal exports — both metallurgical and thermal — were worth $A37 billion last year, according to Austrade, accounting for 11.6% of total Australian exports of goods and services, second only to iron ore in terms of total value.
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    Ganqimaodu Jan-Jul coal imports up 29.9pct on year

    Ganqimaodu border crossing in northern China's Inner Mongolia autonomous region imported 5.41 million tonnes of coal from neighboring Mongolia over January-July, increasing 29.94% from the year prior, local media reported.

    It accounted for 45.61% of total coal imports of Inner Mongolia over the period, which were reported at 11.87 million tonnes, gaining 44% on year, according to data from the Hohhot Customs.

    The value of coal imports at Ganqimaodu rose 1.19% on year to 1.43 billion yuan ($214.06 million) or 59.37% of the autonomous region's total over January-July, which stood at 2.4 billion yuan, up 18.8% from the year prior, data showed.

    Cumulative coal import started to rise on a year-on-year basis in the first five months, after falling for 16th months amid lackluster demand as Chinese end users turned to imports amid tight domestic supply under the government's de-capacity policy.
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    Mounting losses, delisting drive Chongqing Steel out of steel sector

    China's debt-ridden Chongqing Iron and Steel is drawing up radical restructuring plans that will see the firm exit the steel industry and shift its focus to more lucrative sectors like finance, it said on Thursday.

    In a notice filed to the Shanghai stock exchange, Chongqing Steel blamed the downturn in the economy, severe industrial overcapacity, soaring labour costs and persistently low steel prices for its predicament.

    "In order to fundamentally improve the listed firm's performance and protect the interests of medium- and small-sized investors, the plan is to remove the company's steel-related assets," the firm said.

    It said it would sell its steel assets to the Yufu Group, an entity run by the local Chongqing city government. It then aims to acquire high-quality assets in the financial and industrial investment sectors from the group. The plans have not yet been finalised.

    The firm suffered net losses of almost 6 billion yuan ($901.47 million) in 2015 and nearly a billion yuan in the first quarter of 2016. Its shares in Shanghai have been suspended since June.

    After borrowing billions of yuan to expand production, China's steel firms are struggling with heavy debts and persistent losses. The country is now aiming to bring capacity down by 140 million tonnes over the 2016 to 2020 period, and will target non-competitive and obsolete assets.

    According to government estimates, China has 1.13 billion tonnes of crude steel capacity, more than 300 million tonnes higher than total output last year.

    The listed unit of the Valin Iron and Steel Group , based in central China's Hunan province, is also planning to swap its steel assets for more lucrative finance and clean energy operations to avoid being delisted.

    China's second biggest steelmaker, the Baoshan Iron and Steel Group, was mulling a similar restructuring plan for its loss-making unit SGIS Songshan, but the plan has been shelved.

    The government is setting up dedicated asset management firms for the steel and coal sectors to help shut capacity and handle the closure of "zombie enterprises" - those that would not survive without loans or government support.

    The State-Owned Assets Supervision and Administration Commission is also encouraging government-run enterprises that are not specialist steel or coal producers to withdraw completely from the two sectors.

    According to a recent study by Renmin University, 51.4 percent of China's listed steel firms could be defined as zombie enterprises because they have been unable to pay back debts.
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    China hopes Shanghai clean coal plant sets example

    A Shanghai coal-fired power plant is being championed as a model for the rest of China to emulate, as a result of the efficiencies created through its design.

    New Scientist reports that a Chinese engineer has re-engineered the Shanghai-Waigaoqiao No. 3 Power Plant to make it one of the world’s most efficient – and a potential model for the country’s coal-burning future.

    While the Beijing government is working hard to incorporate more renewables into the energy mix, China still has a large dependency on coal, as oil and gas reserves are limited.

    Feng Weizhong, general manager of the state-run plant, has overseen the introduction of technology which have enabled the plant to mill coal, generate electricity and remove sulphur compounds from its gas stream more efficiently.

    Feng’s supporters say that he achieved his efficiency gains in Shanghai by designing site-specific, cost-effective solutions for each component of the plant.

    The plant burns 276 grams of coal per kilowatt-hour, compared with China’s national average of 315 grams per kilowatt-hour

    The plant supplies about 8 per cent of the megacity’s power and is in one of the country’s largest power-generating complexes.

    Mao Jianxiong, an energy expert at Beijing’s Tsinghua University who has consulted at the plant told New Scientist that Feng is currently working on a plant prototype that promises even greater gains.

    Feng is designing a plant that he says will have as its signature feature a system that more efficiently transfers steam between the boiler and turbine and reduces the need for expensive steel piping.

    Mao says the new plant, in the eastern province of Anhui, will burn 251 grams per kilowatt-hour. If all China’s coal-fired plants were that efficient, the country would reduce its annual carbon dioxide emissions by some 7 per cent, he says.

    The coal lobby, including the World Coal Association, has consistently warned that coal will continue to dominate the energy mix in much of the developed world and called for investment in clean coal technology as a means of reducing the emissions that are inevitable in that scenario.
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    Shenhua Shendong realizes profit of 3.5 bln yuan in H1

    Shenhua Shendong coal group Co., Ltd, a backbone company of China Shenhua Energy Co., Ltd, realized profit of 3.5 billion yuan ($526.16 million) in the first half of the year, exceeding its annual target for 2016, sources learned from the company’s website on August 24.

    It was benefited from the company's measures of cutting costs and enhancing quality of coal, coupled with its strict implementation of 276-workday regulation since April this year.

    "An increase of 100 Kcal/kg in the calorific value of coal will bring 7 yuan of profit, and what we have done is just enhance its calorific value," said Dong Zhichao, head of a coal mine of the group.

    Besides, the company has taken measures to cut the mining costs to 150 yuan/t or so, the lowest across the country.

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    China's most polluted province lags behind on plan to cut steel capacity

    China's northern Hebei, which accounts for a quarter of China's steel output, is lagging far behind in its plan to reduce steel and iron producing capacity, data released by the provincial state planner showed on Wednesday.

    Seven major iron and steel producers have cut their capacity by 3.18 million tonnes in the first seven months of the year by turning off six plants, but this accounts for only 10 percent of the target for capacity cuts set by the government.

    The disappointing data from the Hebei Development and Reform Commission showed the difficulties that China faces trying to reduce excess capacity across several industrial sectors.

    It comes just a month after state media said the heavily polluted province, which surrounds China's capital Beijing, pledged to close more than 31 million tonnes of combined iron and steel production capacity in 2016.

    Officials from nation's state planner said on Aug. 19 that the government had allotted 30.7 billion yuan ($4.62 billion) to implement the capacity cuts in steel and coal, but cuts across the world's top steel producing nation are also behind national targets.

    The Hebei authorities did not give further details on the plan, saying the data was published as required by the central government.
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    Brazil's Vale says iron-ore railway down for over 12 hours on Monday

    Brazilian mining company Vale said on Tuesday that its most important railway, used to transport iron ore from its Carajas mine in the Amazon, stopped operating for over 12 hours on Monday due to a land protest on the line.

    Operations were interrupted between 6:30 am and 6:50 pm local time, the company said, adding the cargo railway has resumed operations. Vale did not say whether production was affected.
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    Inner Mongolia to shut down 65 coal mines by 2020

    Inner Mongolia plans to shut down 65 coal mines with a combined capacity of 54.1 million tonnes by 2020, a local official said Tuesday.

    Wang Bingjun, head of the regional commission of economy and information technology, said 23 unlicensed coal mines have been ordered to close or stop construction.

    Other mines have been ordered to run at 84 percent of their production capacity, resulting in 10.4 percent reduction in output.

    During the next five years, the region also plans to cut steel capacity by 3.1 million tonnes, said Wang.

    The commission has not approved any new steel mills in nearly three years, added Wang.
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    Major steel merger could face obstacles

    Major steel merger could face obstacles

    Consolidation of China's steel industry may be more complicated than many outside observers thought, China Daily reported, citing sources with the central government.

    Commenting on market rumors that China is regrouping its steel industry into two large blocs, one in the south and the other in the north, an official from the National Development and Reform Commission says forming a northern steel group will probably take a much longer time than a southern group.

    The formation in the south may come about soon, industry observers say.

    Baoshan Iron and Steel and Wuhan Iron and Steel both issued notices of suspension of stock trading on June 26. The companies are large, state-owned steelmakers that could form the backbone of the southern steel group.

    Li Hongzhong, Party ecretary of Hubei province, met with chairmen of the Baoshan and Wuhan steel works recently to push for restructuring of the companies. However, no final confirmation has been given by the companies. Xinhua News Agency, however, indicated that Magang Group could be a third member of the proposed southern group.

    In contrast with the southern steelmakers, industry sources say it is hard to guess how the northern group's top management might be formed.

    Bloomberg reported that a northern group will be formed by Shougang Group, which was moved out of Beijing ahead of the 2008 Olympics, and Hebei Iron and Steel, whose interests cover all of Hebei province.

    Although both companies are located near each other, Shougang is directly administered by the central government, while its potential partner is under the Hebei government.

    Strategically, analysts say, such reorganization would help the industry shed its excess capacity, cut pollution and become more focused on product quality.

    Zhu Bin, an analyst with Southwest Securities, says he believes the consolidation would increase general profitability, enabling the industry to optimize its product structure and cut costs.

    According to the World Steel Association data, Hebei Iron and Steel produced 47.74 million tonnes of crude steel last year, making it the world's second-largest steel company. For Baoshan, the figure was 34.93 million tonnes; Shougang, 28.55 million tonnes; and Wuhan, 25.77 million tonnes.

    If the consolidation program works, the northern and southern groups would be the second- and third-largest iron and steel producers in the world, after only Arcelor Mittal, the Indian multinational based in Luxembourg that produced 97.13 million tonnes last year.
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    South Korea July thermal coal imports down 10pct on year

    South Korea imported 7.61 million tonnes of thermal coal (including bituminous coal and sub-bituminous coal) in July, falling 10.24% year on year but up 6.77% month on month, customs data showed.

    Of this, 95.93% or 7.30 million tonnes was bituminous coal, rising 9.94% from June but down 7.87% from the year ago level.

    Australia remained the largest supplier of bituminous coal in July, shipping 2.68 million tonnes, up 5.69% from the previous month but sliding 32.92% on year.

    This was followed by Indonesia with a shipment of 2.28 million tonnes, dropping 3.46% from June and 4.77% from the year-ago level; Russia at 1.56 million tonnes, rising 29.06% on month and 6.01% on year; and South Africa at 167,500 tonnes.

    China exported 108,600 tonnes of bituminous coal to South Korea in July, up 23.27% from the previous month and surging 65.05% from a year prior.

    The Asian country imported 312,100 tonnes of sub-bituminous coal in July, dropping 36.16% on month and 43.99% on year, all from Indonesia.
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    South Africa and ArcelorMittal forge steel pricing agreement

    ArcelorMittal's South African business and the country's government have agreed a new pricing model aimed at bolstering the domestic steel sector and reviving the economy.

    The company was fined a record 1.5 billion rand ($111 million) on Monday for setting prices at the level consumers would have to pay for imported steel, but Trade and Industry Minister Rob Davies told parliament on Tuesday that it had agreed on a mechanism that would provide transparent pricing based on domestic prices in a number of other countries.

    The government of Africa's most industrialized country formed a team six years ago to find ways to lower domestic steel prices after consumers complained that the European group's South African subsidiary was charging high prices.

    "This has been the concern that we've had for a long time, that the price of domestically produced steel has been supplied in the market on the basis of what the import parity price would be," Davies said.

    The local price for flat steel products will now be calculated through a formula using the weighted average of domestic prices in countries such as Germany, the United States and Japan, but excluding China and Russia, Davies said.

    In future, when ArcelorMittal South Africa changes its flat steel prices, it will have to use a transparent mechanism based on the forecast basket prices of fabricated metal products, machinery and equipment, as well as vehicle and other transport equipment, Davies added.

    "The basket aims to provide a fair price during boom and bust periods," he said.

    ArcelorMittal South Africa officials were not available to comment.

    South Africa, which has the only primary steel mill in sub-Saharan Africa, imposed a 10 percent import tariff last year to protect an industry hurt by cheaper Chinese imports.
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    Indian coal miners announce strike

    Coal India, Indian state-owned coal miner, has received notice of strike by its workers planned for September 2, the company said in a release to the Bombay Stock Exchange.

    "Efforts are being made for conciliation process," the company added, but warned that, should the strike go ahead, "it will affect production and dispatch of coal."

    The strike of coal workers forms part of a general strike called at a national convention of trade unions representing workers at companies owned by the Indian central government. It includes members of the Coal Mines Authority Limited Employees Union and Coal Mines Workers Union.

    According to the unions' charter of demands, the unions are calling for an end to privatisation of the coal industry, the end of coal imports, the raising of the status of the coal industry and various wage and benefits improvements – including equality of wagers for contract workers.

    India's domestic coal production has been hit in recent years by strikes, which limit Coal India's ability to reach government production targets.

    The government has made boosting domestic coal production a priority in order to reduce fuel import bills and enable the role out of coal-fired power to meet the country's energy needs.

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    China July coking coal imports slump on rising prices

    China's coking coal imports slumped 33% on year and 23.2% on month to 4.46 million tonnes in July, showed the latest data from the General Administration of Customs (GAC).

    According to the GAC, value of the imports stood at $307.84 million in July, plunging 42.9% on year and down 19.2% on month, which translated into an average price of $69.02/t, up 5.23% from June.

    The decline on imports of the steelmaking material was mainly due to price hikes of import coking coal in the month.

    China's steel producers preferred to purchase domestic coking coal, given high prices and long shipping time of imported material. Thanks to limited supply and rising exchange rate, prices of import coking coal rose significantly in July, impacting on advantages of Australian coal over domestic one.

    As of July 29, the CFR price of premium low-vol Australian HCC was assessed at $105.75/t, up $8.5/t from the month-ago level; while the ex-washplant price of Liulin low-sulphur primary coking coal stood at 658 yuan/t, dropping slightly by 2 yuan/t on month affected by falling coke prices, showed data from China Coal Resource.

    Over January-July, the country's coking coal imports climbed 11.8% on year to 31.48 million tonnes; the value of the imports was $2.04 billion, falling 14.8% year on year.

    Meanwhile, China's exports of coking coal increased 8.8% on year but plunged 71.4% from June to 40,000 tonnes in July, with the value at $3.11 million, falling 2.9% on year and plummeted 75.02 % on month.

    In the first seven months of 2016, China's coking coal exports stood at 810,000 tonnes, rising 49.6% from the previous year, with total value of the exports increasing 14.7% on year to $72.05 million.
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    China's Henan province cuts loans to overcapacity sectors by almost $1 bln

    Banks in China's central Henan province have reduced their lending to sectors suffering from overcapacity by 6.4 billion yuan ($963.71 million) so far this year, a bank regulator official said on Tuesday.

    The local banking regulator in Henan is encouraging lenders to reduce the burden on firms in the landlocked province by restructuring their debts, Zhang Chun, deputy head of the Henan branch of China Banking Regulatory Commission (CBRC), said at a briefing in Beijing.

    Heavy industries such as coal and steel have languished in Henan amid an industry downturn that has also hit broad swaths of the country's northern rustbelt.

    Provinces are under pressure from the central government to cut excess capacity in those bloated sectors. Beijing has also told banks to slash lending to unprofitable and delinquent corporate borrowers in the coal and steel industries.

    Non-performing loans in China's banking sector are increasing at a rate that is "worrisome", Zhang said.

    Some provinces such as Henan have pushed back against Beijing's efforts to restrict credit to loss-making enterprises with excess capacity, though CBRC has given lenders some latitude to manage their lending to over-capacity industries.

    Total net new bank lending in Henan was at 274.5 billion yuan in the first half, according to central bank data.

    The squeeze in lending has led businesses to take on higher interest-rate loans from so-called shadow banks.

    Net shadow bank lending in Hebei, Shanxi, Jilin, Anhui, Henan, Sichuan and Shandong rose 240 percent to 249 billion yuan in the first quarter, against a 30 percent rise nationwide.

    Chinese commercial banks' NPL ratio was at 1.75 percent at end-June, while the total volume of NPLs hit an 11-year high, according to CBRC data.
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    Anhui to cut iron & steel capacity of 8.9 Mtpa over 2016-20

    Anhui province pledged to cut steel-making capacity of 5.06 million tonnes per annum (Mtpa) and iron-making capacity of 3.84 Mtpa over 2016-2020, said the provincial government in a notice released days earlier.

    A total of 29,000 laid-off staff will be resettled by end-2018, according to the notice.

    Half of the money used for resettlement will come from central and provincial governments, and the rest will be paid jointly by municipal governments and steel enterprises, said the notice.

    Meanwhile, the provincial government required steel makers to further lower production and operating costs and asset-liability ratio by 2020. Annual steel production per capita is expected to reach 1,000 tonnes over the same period.

    The government said it will give sound support for the capacity cuts, regrouping of enterprises and the development of those promising steel makers by corresponding financial policies.

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    Will there be a shortage of US coal in 2017?

    Image title
    Even as summer heat is bolstering air conditioning load and, consequently, power and coal demand, high coal stockpiles are muting the upside for coal prices. With coal prices subdued and gas prices climbing, coal producers may not receive the proper price signals to increase supply to match higher levels of demand. As a result, coal shortages are possible, perhaps even likely next year.

    Displacement of coal-fired generation by lower cost combined cycle units has driven a dramatic decline in US coal production. Indeed, coal output through June 2016 is off a staggering 33% compared to the same period just two years ago.

    Coal producers have responded to slackening demand in various ways: mine closures, employee lay-offs, cutting back on hours worked and prolonged periods of low capital expenditures. According to the Mine Safety and Health Administration (MSHA) reporting, the number of employees at Powder River Basin (PRB) mines – the largest producing US coal basin - has declined by more than 15%, dropping from about 6,500 to 5,500 over the last two quarters.

    Consequently, quarterly production has fallen from about 100 Mst to about 75 Mst for the PRB. Based on the current level of employment – assuming productivity can return to historic norms – we forecast 85 Mst of quarterly PRB production. At that rate, PRB production in 2016 and 2017 would end at about 310 Mst and 340 Mst, respectively; compared to over 400 Mst in 2015.

    Low gas prices in 2015 and 2016 have had a similar impact on gas producers; the number of active drilling rigs have fallen 65% since the beginning of 2015. We project that the bottom of the gas market is behind us and gas prices will rise to cover the marginal cost of drilling new wells, at a minimum. Our forecast also shows that natural gas prices will average nearly US$3.60/mmBtu in 2017, and with higher gas prices, we expect coal consumption to increase considerably in 2017. In fact, annual coal demand in 2017 will be more than 400 Mst, even considering a historic 50 Mst draw down in coal inventories.

    In our H1 2016 base case, we assume that significant latent capacity exists and production rates similar to 2015 are achievable. In that case, the market should balance nicely. Prices will strengthen slightly, with new contract prices continuing to be settled in the US$12-13/st range, and bloated stockpiles will shrink to more normal levels, from over 60 full burn days to around 40 full burn days. However, our base case assumptions are reasonable only if coal producers can increase production quickly. Higher mine output requires bringing thousands of miners back to work, repositioning and re-starting idled equipment and adjusting mine plans. We do not doubt that miners have the ability to expand production over time, but the question is: how quickly can they ramp back up to take advantage of improved market conditions?

    Unfortunately, coal producers are receiving little if any encouragement to prepare for an increase in demand. Year-to-date in 2016, the amount of coal delivered classified as ‘"contract"’ is 27% lower than in 2015. The percentage of coal under long-dated contracts is running about 10% lower than average over the previous four years. The result could be a severe shortage of coal with the potential to spike coal prices. Based on the our estimates for natural gas prices, PRB prices as high as US$17/st could be justified.

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    China July thermal coal imports up 30.9pct on year

    China's import of thermal coal, including bituminous and sub-bituminous coal, stood at 9.32 million tonnes in July, rising 30.9% on year and up 23.44% from June, showed the latest data released by the General Administration of Customs.

    The value of the imports totaled $463.22 million, translating to an average import price of $49.7/t, falling $9.58/t from a year ago and down $1.84/t from the month prior.

    Over January-July, China imported 49.8 million tonnes of thermal coal, edging up 0.61% from the same period in 2015. Total value stood at $2.39 billion, down 22.11% year on year.

    Meanwhile, China imported 5.13 million tonnes of lignite in July, up 3.64% year on year but down 16.86% on month. That valued $171.58 million, down 15.5% year on year.

    Total lignite imports over January-July reached 33.48 million tonnes, up 16.66% year on year, with value at $1.11 billion, down 12.1% year on year.

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    CIC said to pursue $9-billion Vale iron-ore streaming deal

    China Investment Corp (CIC), the $814-billion sovereign fund, is leading a Chineseinvestor group in talks for a multibillion-dollariron-ore streaming deal with Brazil’s Vale, people familiar with the matter said.

    The consortium is negotiating the potential purchase of a portion of Vale’s future iron-ore output for as long as 30 years, two of the people said, asking not to be identified as the information is private. Vale could fetch about $9-billion upfront from the sale, one person said. No agreements have been reached, and the talks may not result in a transaction, according to the people.

    Some Chinese companies and Japanese trading houses have also held discussions with the Rio de Janeiro-based company about possible deals, including acquiring a minority stake in Brazilian iron-ore assets owned by Vale, the people said.

    A so-called streaming transaction would allow CIC, owned by the government of the world’s biggest iron-ore importer, to profit from a recovery in commodity prices without bearingall the operational risk associated with owning mines. Vale, which has said it will consider the sale of  $10-billion of its best assets by the end of next year, would get immediate cash while staying in charge of valuable assets.


    CIC didn’t answer calls to its Beijing-based press office seeking comment and didn’t respond to faxed queries. A representative for Vale’s press department declined to provide a comment Friday. On August 3, Reuters reportedVale was considering selling as much as 3% of future iron-oreoutput to undisclosed Chinese companies. In an August 10 response to the securities regulator, Vale said the information wasn’t true.

    The World Bank expects commodity prices to recover modestly in 2017 as demand strengthens. It forecasts iron-ore prices to fall next year, before rising to $65/t by 2025, according to a July report. Ore with $62/t content delivered to Qingdao fell 0.3% to $60.71 a dry ton on Thursday, according to Metal Bulletin.

    Vale has joined global miners Freeport-McMoRan, Glencoreand Anglo American in selling assets after its net debt swelled to about $27-billion as a commodity rout eroded earnings. CEO Murilo Ferreira raised the prospect of selling some of the company’s most prized assets in February, after the miner reported its first year of losses since 1997.


    The world’s top iron-ore producer has exited coal mines inAustralia and is in talks with US fertiliser producer Mosaic Coto sell its South American potash and phosphate assets, which may fetch about $3-billion, people familiar with the matter said this month.

    On Thursday, Vale said a Brazilian court dismissed its appeal of a lawsuit in connection with a dam spill at its Samarco joint venture, which includes a lien prohibiting the miner from selling stakes in its iron-ore operations. A streaming deal would sidestep those limitations.

    Samarco, which Vale owns jointly with BHP Billiton, is seeking a standstill agreement on about $1.6-billion in bank loans as its owners refuse to cover debt payments untilmining resumes, people with knowledge of the matter said this month.

    CIC is also part of a group alongside Brookfield Asset Management and Singapore sovereign wealth fund GIC Pte, which is close to buying a stake in a Brazilian natural gas pipeline network from State oil company Petrobras for nearly $6-billion, people familiar with the matter said in June.
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    Adani $12 billion Carmichael coal project clears latest hurdle

    Indian conglomerate Adani Group’s $12bn (A$16.5bn) Carmichael coal mine and rail project in Australia is closer than ever to receiving the green light after a federal court rejected Friday a man's native title claim.

    Since first proposed, Carmichael has faced relentless opposition from organizations ranging from the United Nations to green groups.

    Adrian Burragubba, a member of the Wangan and Jagalingou People, waschallenging a National Native Title Tribunal decision that allowed the Queensland government to grant Adani all the necessary licences to begin construction, Australian Broadcasting Corporation reports.

    He had argued the tribunal had failed to take into account material he placed before it and that Adani had dishonestly misled the tribunal on the economic benefits of the mine.

    Since first proposed, Carmichael has faced relentless opposition from organizations ranging from the United Nations to green groups fighting new coal projects, which has scared banks from lending to the project.

    Galilee Basin coal export projects map. (Courtesy of

    In August last year, a federal court had revoked the actual approval, citing environmental concerns.

    But the project was later approved by the Australian government, under what environment minister Greg Hunt called “the strictest conditions in Australian history."

    Adani has said legal costs and cutting its way through the environmental hurdles had so far cost it $120 million.

    According to official estimations, Carmichael will contribute $2.97bn each year to Queensland’s economy and has the potential to create 6,400 new jobs: around 2,500 construction positions and 3,900 operational posts.
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    China July crude steel output up 2.6pct on year, down from June

    China's crude steel output totaled 66.81 million tonnes in July, up 2.6% on year but down 3.8% from June, showed data from the National Bureau of Statistics (NBS).

    Over January-July, China produced 466.52 million tonnes of crude steel, falling 0.5% year on year.

    Meanwhile, production of steel products rose 4.9% on year to 95.94 million tonnes in July, down 4.75% from the previous month; and pig iron output posted a 1.7% increase to 57.81 million tonnes, down 3.23% from June, the NBS data showed.

    In the first seven months this year, China produced 657.05 million tonnes of steel products, up 1.9% on year; while pig iron output slid 1.4% on year to 403.25 million tonnes.
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    Australia's BlueScope Steel tips strong growth in 2017 after stellar year

    Australia's BlueScope Steel Ltd more than doubled its annual profit thanks to sharp cost cuts, higher sales, and the takeover of North Star in the United States, and said it expects strong earnings growth in the current half year.

    BlueScope, focused on growing in Asia while slashing costs at its Australian, New Zealand and U.S. steel plants, has engineered a huge turnaround since last year, when it averted closure of its Port Kembla steel mill.

    "We're making really good progress, but there's still some ways to go there," O'Malley told reporters on a conference call on Monday, referring to efforts to make its three plants competitive in a heavily oversupplied global steel market.

    BlueScope's shares jumped as much as 8.5 percent to their highest since May 2011.

    Underlying annual profit for the year to June 30 rose to A$293.1 million ($223 million) from A$134.1 million a year earlier, in line with market forecasts, largely thanks to A$235 million in cost cuts in Australia.

    BlueScope announced a flat final dividend of 3 cents despite the strong profit growth, as it wants to use cash to help pay down debt and invest in expanding in Asia.

    Cheap Chinese exports combined with tough U.S. anti-dumping duties have kept steel markets outside the United States heavily oversupplied, and O'Malley said the glut is likely to persist, even as inefficient mills in China shut down to curb pollution.

    "I think we should plan for global oversupply occurring for some time, which is why ... we've got to make sure we've got the balance sheet that can survive any shocks whether they come or not," he said.

    BlueScope expects underlying earnings before interest and tax in the current half year to rise to around A$510 million, about 50 percent more than in the six months to June.

    Its prospects are in sharp contrast to Australian peer Arrium, which has gone into administration. O'Malley played down the chances BlueScope would bid for any Arrium assets.

    In Thailand, the company is awaiting approval from its Japanese partner, Nippon Steel & Sumitomo Metal Corp, to add a third metal coating line and painting capacity to meet growing demand for its roofing and wall products.

    In India, where after 10 years its joint venture with Tata Steel is finally turning a profit, it is considering expanding painting capacity.
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    Tokyo Steel keeps prices unchanged for third month

    Tokyo Steel keeps prices unchanged for third month

    Tokyo Steel Manufacturing , Japan's top electric arc furnace steelmaker, said on Monday it would keep product prices unchanged for the third month in September, reflecting a slow recovery in its local market.

    Tokyo Steel's pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which all export to Japan.

    "There are signs of an improvement in export and domestic markets, but we want to wait and see to have a clear picture of the trend in markets," Tokyo Steel's managing director, Kiyoshi Imamura, told reporters.

    Steel prices in overseas market are on the rise led by price hikes by Chinese mills, helping Tokyo Steel's exports, Imamura said, adding that the Japanese market is also expected to gradually improve as inventories of some products are falling.
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    Iron ore miner Fortescue eyes dividend rise as profit leaps

    Australia's Fortescue Metals Group Ltd, the world No. 4 iron ore producer, reported a tripling of its annual net profit on Monday to nearly $1 billion and said it could shoulder a big jump in future dividend payouts.

    Fortescue surpassed analysts' forecasts by boosting its final dividend by 500 percent to A$0.12 ($0.90) a share for fiscal 2016, taking its total payout for the year to 36 percent of net profit.

    With iron ore prices holding up better than expected and an attack on production costs and debt, the company's payout ratio could exceed its 40 percent target "in the not too distant future," Chief Executive Nev Power told an analysts' call.

    Power said global iron ore supply was now in balance with demand, while China's ability to produce half the world's steel was underpinning the company's prospects.

    Fortescue, which has built Australia's third-biggest iron ore miner over the past decade to feed demand in China, reported a net profit of $985 million for the year to end-June, up from $317 million a year ago.

    The figure was was ahead of the $895 million average forecast of 13 analysts polled by Thomson Reuters I/B/E/S.

    Power said Fortescue was maintaining the flexibility to continue early debt repayments or refinancing to further cut debt, which stood at $5.2 billion on June 30.

    "As we reduce debt, there will be more cash flow available to pay dividends going forward," Power said on a post-earnings call. "It's very sustainable."

    The jump in the company's final dividend took its payout for the year to A$0.15 a share.

    Fortescue had produced a "clean result", UBS analyst Glyn Lawcock said, with revenue and earnings ahead of UBS estimates.

    "We expect the market to focus on sustainability of the higher dividend, which ultimately comes down to price," he said in a note.

    Revenue slid 17 percent to $7.1 billion but the company said it cut costs 43 percent, while capital spending more than halved.

    Power also stuck to an earlier forecast of lowering Fortescue's production cost target for fiscal 2017 to $12-$13 per wet tonne from $15.43 in fiscal 2016.

    This would put it on par with larger rivals Vale, Rio Tinto and BHP Billliton , which combined control more than 70 percent of global sea trade in iron ore.

    Iron ore .IO62-CNI=SI was selling for $61 a tonne on Monday. The price has climbed 13 percent since July 1.

    Fortescue shares dipped 2 percent cents on Monday to A$4.83, but have still more than doubled so far this year.
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    China's Bohai Steel $28.9 billion debt plan to get local support: Caixin

    Bohai Steel Group, the indebted state-owned conglomerate, may receive help from a local government bailout fund to restructure its debts, the online financial magazine Caixin said at the weekend.

    Bohai Steel, which was created in 2010 through the combination of four manufacturers, holds liabilities of 192 billion yuan ($28.9 billion) from 105 creditors, alongside assets of nearly 290 billion yuan, Caixin reported.

    The Tianjin government plans to create a local asset manager to assist in the debt workout of Bohai Steel, alongside other troubled Tianjin enterprises, the magazine said.

    Restructuring of the group represented the biggest since the global financial crisis, Standard & Poor's analyst Christopher Lee told Reuters in March.

    Bohai Steel creditors include the Tianjin branch of the Bank of Beijing Co Ltd, the magazine reported earlier, and several trust companies such as Tianjin Trust, Beifang Trust and Guomin Trust.

    China has been moving to empower special purpose restructuring managers, while accelerating debt-for-equity swaps with creditors, in a bid to manage rising state sector debt.

    In February, the top industrial asset manager appointed China Chengtong Holdings Group and China Reform Holdings Co. to pilot shareholding reform among loss-making government firms.

    The country's steel sector has been pressed to restructure following an extended slowdown in the nation's real estate industry, a major consumer of basic materials.
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    Is Vale's S11D project a game changer?

    As Vale's major project S11D nears its late-2016 production start date, we look at the economics of one of the largest undeveloped resources of high grade, direct shipping iron ore known in the world.

    S11D also known as Serra Sul is the major new mining project being developed by Vale in its Northern System. The project is planned to have an annual production capacity of 90 million tonnes and is estimated to have a capital cost of roughly US$16 billion.

    At full production we estimate the C1 cash cost (FOB Vessel) at US$10.6/tonne (real 2016 terms), placing Serra Sul at the bottom of the industry cost curve. Low operating costs are due to the low strip ratio, high grade orebody and the truck-less mining system.
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    Russia Jan-Jul coal output up 5.6pct on year

    Coal-rich Russia produced 217 million tonnes of coal over January-July this year, a year-on-year rise of 5.6%, showed data from the Energy Ministry of Russian Federation.

    The ministry didn't release the coal output data in July, which is calculated at 31 million tonnes, rising 5.8% on year and up 4.8% from June.
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