Mark Latham Commodity Equity Intelligence Service

Friday 24th March 2017
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    Oil and Gas

    Steel, Iron Ore and Coal


    Europe's traditional power utility business model in profound transformation: Vattenfall

    Europe's traditional power utility business model is undergoing a revolution across Western Europe as the continued drop in the costs of renewables, batteries and new technology drive decentralization of the power system, a key Vattenfall official said Wednesday.

    "The smaller scale and lower required investment of many RES technologies make them more attractive for smaller parties such as cooperatives," Markus Prass, responsible for strategy and business development at Vattenfall's energy trading unit, told the Platts Power Generation conference in Brussels.

    In Vattenfall's core markets -- Germany, the Netherlands and Sweden -- the cost of renewables and equipment including batteries is already below retail power prices with falling RES costs and rising retail prices set to further increase that trend.

    At the same time, wholesale power prices remain at historically low levels, discouraging investment in new power generation but with "security of supply" still a key concern for traditional utilities.

    During that transformation, utilities can also play a vital role in traditional areas with aggregating, optimizing, dispatching into wholesale power markets as well as utility scale generation and flexibility services through large-scale batteries, Prass added.

    Future regulation and especially the question of grid fee financing remains uncertain not just for utilities, but also consumers.

    "[Retail] pricing mechanisms are not in any way reflective of costs. Unless governments do something to change retail pricing soon, you're going to end up with a lot of misallocation of capital...when prices have to be fixed and you end up with stranded assets," Deutsche Bank equity analyst Martin Brough said.

    "Maybe I'm thinking about putting in a solar-battery system in my home, for instance, reducing my electricity bill by 80%. Then in three or four years [domestic tariffs are changed] to a standing charge with a very low unit charge. I'm still paying for my solar battery, but I'll be paying most of the bill as well [ie the standing charge to cover system costs]," Brough said.

    National and EU regulation currently supports self consumption with new technology also potentially enabling so-called 'prosumers' with energy consumers playing a more active role in areas were new technologies overlap.

    There are more challenges ahead for utilities amid increased competition from new players emerging with the overlap of technology, mobility and energy with traditional utility models potentially more likely in line with the traditional incumbent players in the telecoms industry during the mass roll-out of mobile phones, many industry participants at the Platts Power Summit said.

    The Swedish state-owned utility which is also a major player in Germany and the Netherlands, has avoided the fate of Germany's two leading utilities RWE and E.ON, which split into a traditional conventional power generation and energy company and a new consumer-services focused energy provider.

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    EU Council approves law on energy contract information mechanism

    The EU Council on Tuesday approved the establishment of a mechanism that will allow Brussels to assess intergovernmental energy contracts with non-EU member states before they are signed.

    The policy is designed to make sure intergovernmental agreements -- such as natural gas supply deals between Russia and an EU member state -- are in line with EU energy law.

    The approval from the Council followed an informal agreement reached in December with the European Parliament.

    The legislation now only requires to be published in the EU's Official Journal to become law, expected later this year.

    "The aim of the decision is to correct shortcomings in the existing information exchange mechanism on energy contracts in order to enhance the transparency and consistency of the EU's external energy relations and to strengthen the EU's negotiation position vis-a-vis third countries," the Council said Tuesday.

    "It will enter into force in the course of 2017," it said.

    The rules will allow the European Commission to assess intergovernmental agreements before they are signed, and give an opinion as to whether they are in line with EU rules.

    "This decision will strengthen transparency in negotiations with third countries on energy agreements, ensuring that such agreements are fully compatible with Union law, thus contributing to energy security," said Konrad Mizzi, the energy minister of Malta, which currently holds the rotating EU Council presidency.
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    Huaneng Power Int'l 2016 net profit down 36.06% YoY

    Huaneng Power International, Inc., a listed subsidiary of China Huaneng Group, saw its net profit slump 36.06% from the previous year to 8.81 billion yuan ($131.89 million) in 2016, the company said in a statement on March 22.

    The company posted a year-on-year decrease of 11.71% in operation revenue to 113.81 billion yuan last year.

    As of December 31, 2016, total assets of the company valued at 309.42 billion yuan, up 3.23% from the year-ago level. Net assets attributable to shareholders witnessed a year-on-year increase of 2.26% to 81.52 billion yuan.

    By the end of 2016, the company's installed power generation capacity stood at 83.9 GW. The company generated electricity of 313.69 TWh, ranking first among its Chinese peers. It owned 102 ultra-low emission power generation units, totaling 45.8 GW in capacity.

    Over half of coal-fired power generation units had capacity surpassing 600 MW, including 12 world-class advanced units, the company said. Installed natural gas power generation capacity reached 7.9 GW; while installed onshore wind power capacity exceeded 2.4 GW.

    The company's power plants were distributed in 22 provinces, cities and autonomous regions, mainly in coastal and riverside cities, coal-rich regions and high power load areas with convenient transportation, which could help guarantee coal supply and cut cost .

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    BHP buys back $2.5bn in bonds

    Mining major BHP Billiton has repurchased $2.5-billion worth of bonds, allowing the miner to extend its average debt maturity profile and enhancing its capital structure.

    BHP this week announced the expiration of its tender offers for its $1.25-billion, 3.25% senior notes due in 2021, its $1-billion 2.875% senior notes due in 2022, and its $1.5-billion 3.85% senior notes due in 2023.

    Meanwhile, the group said its $500-million 2.05% senior notes, due in 2018, will be redeemed on March 23 at a “make-whole” redemption price equal to $1 020.28 per $1 000 principal amount of 2018 notes, which will include an accrued principal interest of $9.85.

    After the redemption date, the 2018 notes will no longer be deemed outstanding and interest on these notes will cease to accrue.

    With the redemption of the 2018 notes, BHP has now repurchased some $2.34-billion of outstanding notes.
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    Fred Money Velocity hitting new lows.

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    Master Drilling boasts strong order book

    The launch of new projects in the Democratic Republic of Congo, Sierra Leoneand Tanzania, paired with increased investment in human resources, has resulted in a 12.1% drop in JSE-listed Master Drilling’s gross profit to $23.5-million for the 2016 financial year.

    However, the company noted that conservative provisions for taxation in some jurisdictions in previous years, as well as raising of deferred tax assets on historically loss-making entities that returned to profitability, have led to a decrease in taxation, supporting a 5.7% increase in profit after taxation to $22.3-million.

    "We delivered a satisfactory performance in 2016 following a difficult first half marked by severe operational and economic issues. As indicated at half-year, the improvement in our operating environment, including in the commodities sector, supported an uplift in overall performance for the year,” CEO Danie Pretorius said in a statement.

    He added that a more stable environment was setting in, with the company encouraged by the intensified market activity. “This is highlighted by a committed order book of $196.6-million and our strong pipeline of $320.8-million,” he noted.

    Master Drilling’s earnings a share and headline earnings a share rose by 22.1% and 19.4% respectively to 210c apiece.

    Net cash generation was lower at $26.5-million, owing to significant investments in working capital, while debtor days increased as a result of longer payment cycles.

    "The corrective measures implemented in key markets to support market position and performance are bearing fruit and we will continue to balance investments in technologyand people that support growth with the need to drive efficiencies and productivity ratios across the group,” said Pretorius.

    "This approach coupled with our diversification strategy across regions, commodities, currencies and industries will see our revenue and margins stabilise further,” he added.

    In the year ahead, Master Drilling will continue to set its sights on opportunities in advanced economies such as Australia, Canada and the US.
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    Big banks talking to Rio Tinto's specialist new Ventures arm

    Big banks talking to Rio Tinto's specialist new Ventures arm

    London bankers are vying for contracts after Rio Tinto said it had set up a new unit, Rio Tinto Ventures, to develop more specialized mining prospects as it seeks to reduce its reliance on bulk commodities, three banking sources said.

    The big miners have traditionally relied on producing high-margin commodities, such as coal and iron, for the largest part of their earnings. 

    But, as the commodity price crash of 2015 and early 2016 underlined, that leaves them exposed to violent swings in commodity prices and ultimately the risk of stranded assets if factors such as a shift to greener fuels or an increase in metals recycling fundamentally change demand.

    Rio Tinto last month said Rio Tinto Ventures was seeking to identify projects aligned with its analysis of such macro trends.

    At least three international banks have pitched for business with Rio Tinto's new unit, based on developing projects for various products ranging from lithium to soda ash, the sources said.

    "We are talking to Rio," one of the sources said. "They are open to exploring projects in more exotic metals."

    Outlining its plans for Rio Tinto Ventures, Rio has said the arm could produce commodities that have not so far been central to its business, giving as an example its discovery in Serbia of the promising new mineral jadarite, which contains lithium and borates.

    "The idea is to capture value beyond our core portfolio with a focus on new and emerging commodities," Bold Baatar, Rio Tinto's chief executive of energy and minerals, said at a conference in South Africa in February.

    "I see this as an opportunity to build upon our capabilities through commercial partnerships, investing in the future of the company in projects and commodities that will create value."

    Partnerships can also help to maximize exploration budgets that mining companies reduced in response to the commodity price crash and are unlikely to restore to pre-slump levels as the chances of success diminish.

    Rio told investors last year it anticipated capital expenditure staying at around $2 billion per year for the next three years, adding that the correlation between exploration spending and discovery rates ceased in around 2005 as finding new, high-quality deposits is proving harder when the best reserves have been depleted.
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    Politics, and the art of the deal.

    Democrat Rep. Elijah Cummings On Meeting With Trump

    Heard on Weekend Edition Saturday

    Scott Simon talks with Rep. Elijah Cummings of Maryland, who is a sharp critic of the president, but sounded positive after meeting with Trump about trying to lower the cost of prescription drugs.


    You probably won't find a sharper critic of President Trump than Representative Elijah Cummings of Maryland. But Mr. Cummings met with Mr. Trump this week to discuss the possibility of lowering prescription drug costs, and Mr. Cummings came out of that meeting sounding upbeat. The congressman joins us now. Representative Cummings, thanks so much for being with us.

    ELIJAH CUMMINGS: It's good to be with you, Scott.

    SIMON: You and your fellow Democrat Peter Welch gave the president a proposal that would allow the government to use the leverage of Medicare to try to negotiate lower prices with drug manufacturers. Let me ask you a question from the Democratic primary. If that was such a great idea, why didn't the Democrats do it themselves when they controlled Congress in 2010 and passed the Affordable Care Act?

    CUMMINGS: That's a great question. What happened back then is I think President Obama was trying to get the deal through. And as you know, we got very little, if any, cooperation from the Republicans. And I think that this was...

    SIMON: Well - but you had the votes in your own party to make this a part of the legislation.

    CUMMINGS: Yeah, but, Scott, you know that that doesn't always work that way. It's not that simple because we had a lot of blue dogs. We had people who - Democrats who really didn't even want to go along with the Affordable Care Act. And so there was a lot of compromise there. And part of the compromise was to work through a deal where the prices of Medicare Part B - that is the prescription - drug prices would not be negotiated. I was against that because I thought that we were - I thought that we were bulk purchasing. And as most bulk purchases do, you're usually able to get a discount. But that was a part of the deal to get through the Affordable Care Act, and that's one of the reasons why I think you had a lot of Democrats who were concerned about the act even back then.

    SIMON: Well - but let me ask this - there are some health care economists who have looked the idea of having government negotiate for lower drug prices who say - talk about "The Art Of The Deal" - negotiation only works if one party is willing to get up and walk away from the table. But you can't do that with Medicare, can you? You can't say, well, we're willing to walk away from this deal because millions of people on Medicare need those drugs to survive.

    CUMMINGS: Yeah, but you're missing a point. You may have a - you know, say for example leukemia - just hypothetically. You may have four or five drugs there by four or five different manufacturers. And so you want to add one drug in the formulary that addresses most of those people's needs. So there would be competition, Scott, between those four or five companies. So yeah, it can be done. As a matter of fact, it's done in Rhode Island right now, so that's not unusual. So no, no, no, no, it - definitely room for that. President Trump fully understands it, and he wants to do something about it.

    SIMON: Do you think you have a chance with President Trump that you didn't have with the previous administration?

    CUMMINGS: I think that we have a chance. As a matter of fact, as late as yesterday - last night - he told me that he's going to try to get it into his bill.

    SIMON: He told you this last night, Friday night.

    CUMMINGS: Last night, that's right. So we'll see what happens. You know, with President Trump you - I think you have to wait and see. You're going to have a good conversation. It sounds like he's going in the direction that you're going in, and people have told me you step out of the room and next thing you know maybe something has changed. But the conversation that we had with him was a very good one.

    SIMON: We've got about a minute left. You figured in another headline. You sent - was it November 18? - a letter to Vice President Pence alerting him - if he didn't know already, and he said he didn't - to the fact that Michael Flynn had worked centrally as a foreign agent in behalf of the Turkish government.

    CUMMINGS: That's right. We sure did.

    SIMON: Are you concerned he was appointed anyway?

    CUMMINGS: Yeah, I am concerned. I'm concerned about the vetting process. I also had a conversation with Vice President Pence yesterday, and it's my understanding that he may have missed my letter because they were trying to get up and running, and he had just been appointed to head the transition team, that is Vice President Pence. And those things do happen.

    SIMON: Yeah.

    CUMMINGS: But there were too many warning signs about Flynn, and, you know, that's the reason why we should have very careful vetting. You can't have somebody like that as head of your security team. That's ridiculous.

    SIMON: Thanks so much, Representative Elijah Cummings of Maryland.

    CUMMINGS: All right. Thank you, sir.

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    Hebei Jan-Feb industrial added value up 3.0%

    Hebei posted a year-on-year increase of 3.0% to 169.11 billion yuan in industrial added value over January-February, showed data from Hebei Provincial Bureau of Statistics on March 17.

    During the same period, Hebei's fixed-asset investment (FAI) amounted to 100.46 billion yuan, increasing 10.1% from the preceding year. Of that, state-owned and state-holding's FAI witnessed a year-on-year surge of 14.3% to 22.61 billion yuan; Private's FAI at 75.83 billion yuan, up 7.8% year on year.

    Fixed-asset investment in primary industries in the first two months in Hebei jumped 21% year on year to 4.05 billion yuan, while that in secondary industries posted a year-on-year increase of 4.0% to 41.75 billion yuan; tertiary industries at 54.66 billion yuan, up 14.5% year on year.

    During the same period, investment in real estate development stood at 22.05 billion yuan, climbing 6.8% from the year-ago level.

    Over January-February, Hebei realized a steady development and grew at a moderate pace with accelerating transformation and upgrading, the bureau said.
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    Judge advocates blockchain for share register in singular case.

    A lawsuit from 2013 involving Dole Foods showed that the company had 12 million more shares of its stock than it had originally thought, exposing a weakness in the overall market system.

    In 2013, David Murdock, who was the chairman, chief executive officer and biggest shareholder of Dole Food Co., took the company private for $13.50 a share. A report from Bloomberg states that shareholders felt that Murdock had purposely driven the value of the company down, so he could buy it cheaply. As a result, they sued and won.

    At the time, it was believed that there were 36,793,758 shares; however, the end figure ended up being 49,164,415 shares.

    Last month, the judge presiding over the Dole case, Delaware Chancery Court vice chancellor J. Travis Laster, indicated in his 17-page memorandum opinion a potential solution to the problem: blockchain technology.

    Laster stated that the Blockchain Initiative of Delaware state might have facilitated Dole to handle the inconsistency in stock figures.

    Blockchain to the Rescue?

    Laster, an advocate for blockchain technology, was reported in October as saying that the blockchain allows for ‘a utopian vision of a share ownership system where there is only one type of owner: record owners’ when it comes to taking back the stockholding infrastructure and share voting.

    According to Laster, the current system is outdated and too complex, making it difficult to determine who actually owns a share and how it’s used in corporate decision making.

    Laster believes that the use of the blockchain could cut down on the cost of money and mistakes, ensuing transparency, giving peace of mind to those involved.

    Such a measure with the Dole Food stock error could have prevented the mistake from occurring in the first place.

    Blockchain Share Voting

    The use of the blockchain has been used for voting purposes in the past.

    Last October, the Abu Dhabi Securities Exchange (ADX) developed an e-voting platform based on the technology. This was to ensure that shareholders of listed companies on the exchange had the chance to fairly and accurately vote during annual general meetings.

    Of course, while it’s too late to solve the issue with Dole, it could provide a solution to prevent a mistake from taking place again in the future.

    With the blockchain’s use expanding as more organizations understand the impact and benefit it can provide, it is proving that it’s a viable alternative for many problems, ensuring transparency and traceability.

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    China's MIIT forecasts 4.8% rise in nonferrous metals output for 2017

    China's production of major nonferrous metals such as copper, aluminum, lead and zinc is expected to grow by 4.8% year on year in 2017, which is equivalent to 55.37 million mt, according to a post made by the Ministry of Industry and Information Technology late Friday.

    MIIT disclosed that for the nonferrous metals sector, excess capacity cuts, and restructuring, optimization and concentration of metals producers in China would remain among the core tasks for this year. The ministry did not mention any more details.

    Nevertheless, aluminum could be one of the primary targets among the metals, as China's central government has always been listing aluminum together with steel, coal, glass and cement when addressing industries that have serious levels of overcapacity.

    The production projection more or less matched MIIT's prediction of a 4.1% average annual increase in apparent consumption of the metals nationwide over the 13th Five Year Plan period of 2016-2020, or six percentage points lower than the 12th Five Year Plan period of 2011-2015.

    Last year, China's production of the ten major metals grew by 2.5% year on year to 52.83 million mt, among which, primary aluminum was up 1.3% year on year to 31.87 million mt, zinc was up 2% to 6.27 million mt, lead was up 5.7% year on year to 4.67 million mt, and refined copper accounted for 8.44 million mt, up 6% year on year.

    And by 2020, China's consumption of the ten metals is expected to reach 68 million mt, the ministry had said late last year.

    Over 2016-2020, China's demand for refined copper is expected to grow by 3.3%, or 5.6 percentage points lower than the previous five years, aluminum up 5.2%, down 9.2 percentage points, while lead consumption increase is expected to stabilize at around 0.6%, and zinc at about 1.7%.

    Consumption of lithium and cobalt are expected to grow at 13.5% and 12.5%, respectively, over 2016-2020, as these are the new materials for manufacturing batteries.
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    Workers at France's EDF to strike again for 24 hours from Mar 20 evening

    Workers at France's EDF will strike for 24 hours starting Monday at 9:00 pm local time (2000 GMT), the company said in a note posted on the website of French grid operator RTE Friday morning.

    The strike will end at 9:00 pm on Tuesday, EDF said, without giving any details on how much capacity could be affected.

    The last strike began on Monday, March 13, at 4:00 pm, with it being initially announced for 9:00 pm and it ended Tuesday at 9:00 pm.

    The event had little if any impact on prices, as strong solar output and high temperatures helped offset the impact of a drop in nuclear, hydro and fossil fuel capacity.

    On Tuesday, 12 nuclear reactors were seen operating at reduced capacity, all citing the strike as a reason. Combined nuclear capacity slashed at the 12 reactors amounted to 4.355 GW Tuesday, according to data from French grid operator RTE.

    With one coal plant and two fuel oil units taken down because of the strike as well, the total capacity cuts during Tuesday's industrial action amounted to 8.12 GW.

    Hydro capacity was also impacted by the strike, with the latest update from the grid operator showing a drop of 540 MW in hydro availability.

    All 12 reactors, hydro and other units were seen operating normally again on Wednesday.


    The notice of the latest EDF action comes as labor unions representing professionals in the energy industry called on Thursday for a national action day on Tuesday. The call to strike comes against the backdrop of a proposal to freeze the national base salary this year.

    "No to the freezing of the national base salary, a fundamental element of the social regulation for all people in the electricity industry! On March 21, 2017, the struggle continues. The FNME CGT calls on all the staff to strike...This must be extended to all categories of staff," France's main energy trade union, FNME-CGT said in a statement on its website Thursday.

    The statement said the unions were asking for the reopening of negotiations on the national basic salary, and an end to job cuts.

    EDF workers have joined several recent calls for national action days organized by FNME-CGT and other unions, with the strike next week the sixth for EDF workers this year.
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    China Feb power consumption up 17.2pct on year, NEA

    China consumed 448.8 TWh of electricity in February, increasing 17.2% year on year, showed data from the National Energy Administration (NEA) on March 15.

    Over January-February, China's total electricity consumption gained 6.3% from a year ago to 935.6 TWh.

    Of this, 146.7 TWh was consumed by the residential segment during the same period, gaining 3.5% from a year earlier, data showed.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 13.4 TWh in the first two months this year, rising 12% from the previous year.

    The secondary industries – mainly the industrial sector -- consumed 632.7 TWh, increasing 6.7% year on year.

    Power consumption by tertiary industries – mainly the service sector – increased 7.3% from a year earlier to 142.8 TWh.

    From January to February, the average utilization hours of power generating units across the country was 578 hours, 3 hours more than a year ago, according to the NEA data.

    Of this, hydropower plants logged average utilization of 397 hours, a decrease of 49 hours; the average utilization of thermal power plants increased 21 hours year on year to 678 hours.
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    Blockchain and Electricity.

    Energy Sector Gets Blockchain Boost

    As with many sectors, the energy industry is turning its attention to the blockchain to improve on its services.

    Last month, it was reported that Wien Energie, Austria’s largest regional energy company, was joining a group of others to take part in a blockchain pilot that aims to reduce costs related to energy trading.

    In October, Spanish energy company Endesa revealed plans to open a blockchain laboratory to encourage the creation of blockchain-based solutions for the sector.

    While Australian electric company, Power Ledger, announced last August that it was undertaking trials via the blockchain to see how people buy, sell or exchange excess solar electricity.

    As knowledge of the distributed ledger increases, more sectors are keen to use the technology to further the services they provide to consumers. And the energy industry is no different.

    While this in the early days of development, the technology appears to be on its way of reshaping the energy sector. Not only that, but if people can receive compensation from the sector as a way of helping the sector, so much the better.

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    3D Printed Excavator.

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    Oil and Gas

    Argentina's Tecpetrol to invest $2.3 billion in Vaca Muerta: union leader

    Argentina's Tecpetrol, part of the Techint Group, said on Thursday it would invest $2.3 billion in the Vaca Muerta shale fields through 2019, the largest announcement in the formation in years.

    Tecpetrol said in a statement the investment was made possibly due to measures from President Mauricio Macri's government, including a deal with labor unions earlier this year and a definition of price supports this month.

    Tecpetrol will aim to produce an average 14 million cubic meters (494 cubic feet) of shale gas per day by 2019 said Guillermo Pereyra, a union leader and senator who participated in a Thursday meeting where executives communicated the plan to Macri.

    That is half the amount of gas Argentina currently imports, Pereyra said, and will help Macri's government reach its goal of energy self efficiency. An energy deficit is a major contributor to Argentina's fiscal deficit.

    About the size of Belgium, the Vaca Muerta formation is one of the largest shale reserves in the world but it has been mostly unexplored due to high production costs and lack of labor flexibility.

    The investment would eventually result in 1,000 new jobs, Pereyra and Tecpetrol said.

    "We are going to arrive in September with five or six drilling teams, each one with about 100 people, this is very important," Pereyra said in a telephone interview.

    Macri's government in January announced an agreement with oil companies and unions to lower labor costs and stimulate investments, which until now have been slow to arrive.

    YPF said it reached a preliminary deal with Royal Dutch Shell Plc last month to develop oil and gas assets in Vaca Muerta involving a $300 million investment from Shell.

    Earlier this month the government said it would gradually lower the price it guarantees for gas drilled from new wells, currently $7.50 per million British thermal units of gas, to encourage investment sooner rather than later.

    Vaca Muerta contains 308 trillion cubic feet of shale gas and 16.2 billion barrels of shale oil, according to the U.S. Energy Information Administration.

    Tecpetrol has been carrying out a pilot project in the Fortin de Piedra area and will now move on to the development phase, Pereyra said.

    The company said it planned to drill 150 wells in the next three years, with $1.6 billion of the investment going toward the wells and $700 million to be used for treatment and gas transport installations,
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    Saudi exports to U.S. to fall by 300,000 barrels per day in March - official

    Saudi exports to U.S. to fall by 300,000 barrels per day in March - official

    Saudi Arabia's crude exports to the United States in March will fall by around 300,000 barrels per day from February, in line with OPEC's agreement to reduce supply, a Saudi energy ministry official said on Thursday.

    The United States imported about 1.3 million bpd from OPEC's top exporter in February, according to U.S. Energy Information Administration data.

    "Exports may fluctuate week on week, but on average in March exports will be down," the official said, responding to a Reuters request to comment on the EIA data. Saudi exports are then expected to remain around March's level for the next few months, the official said.

    The official noted that export data showed higher Saudi oil exports in January and February, but these shipments were the result of cargo loaded in November and December.

    Saudi Arabia has made the largest cut in production after the agreement reached last year by both the Organization of the Petroleum Exporting Countries and non-OPEC producers to reduce output by 1.8 million bpd.

    Oil prices have been in a downtrend for two weeks on concerns that OPEC cuts so far have not dented record U.S. crude inventories. U.S. crude has declined nearly 10 percent since March 7 as speculators reduced big bets that oil would keep rising. It settled on $47.70 on Thursday.

    Crude stocks in the United States, the world's largest oil consumer, were a record 533 million barrels last week, the EIA said. In the week ended March 17, U.S. imports from Saudi Arabia unexpectedly rose by more than 200,000 bpd to 1.28 million bpd, after a sharp decline the prior week.

    The official said lower Saudi exports to the U.S. is likely to affect stockpiling in the U.S.

    "This is mainly because there is a refinery maintenance in the U.S. The cuts in exports will help the crude stockpiling in the U.S. to go down," the official said.

    Gasoline stocks are falling, but remain seasonally high.

    The official also said he believed other Gulf oil exporters will follow suit and their crude exports will be lower in March and will continue to decline. Imports from Iraq and Kuwait dropped sharply for the week to March 10 but then rebounded in the most recent week of data.
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    All drill, no frack: U.S. shale leaves thousands of wells unfinished

    U.S. shale producers are drilling at the highest rate in 18 months but have left a record number of wells unfinished in the largest oilfield in the country – a sign that output may not rise as swiftly as drilling activity would indicate.

    Rising U.S. shale output has rattled OPEC's most influential exporter Saudi Arabia and pushed oil prices to a near four-month low on Wednesday. U.S. production gains are frustrating Saudi-led attempts by the world's top oil exporters to cut supply, drain record-high inventories and lift prices.

    Investors watch data on the number of rigs deployed in North American oil and gas fields as a leading indicator for output. But the rising rig count and frenetic drilling activity in the Permian Basin in West Texas is not all about pumping oil. [RIG/U]

    During the 2014-2016 downturn in global oil prices, the number of wells left incomplete grew as companies shut down rigs, laid off workers and retreated from the fields. When prices picked up, operators were expected to pump the oil from those incomplete wells before spending money on drilling new ones.

    Instead, the number of incomplete wells has risen. A record 1,764 wells were left unfinished in the Permian in February, according to U.S. government data going back to December 2013. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.

    The surprise surge in unfinished wells indicates that investors, traders and oil market players may need to reinterpret rig count data.

    "You would now be looking at the number of wells drilled and the uncompleted wells and not necessarily the rig count," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas.

    Reuters interviews with more than a dozen well completion service providers, oil and gas lawyers and industry experts show that some operators are drilling because their leases require them to do so within a specified time limit to keep their leases. But they may not be required to actually pump the oil immediately after they have drilled the hole.

    To complete a well, shale producers stuff the hole with sand, water and chemicals at high pressure until the rock fractures and releases the oil contained in its pores.

    There is typically a lag of a few months between drilling and completion in government data, so some of the increase in unfinished wells can be explained by rising activity.

    Some leases do require firms to produce a minimum volume of oil. On those leases, many firms will frack one well and leave others incomplete. That allows them to meet their contracts with land holders but gives them flexibility to come back and pump the oil later.


    The value of land in the Permian has rocketed as oil prices recovered to around $50 a barrel, so oil firms are now scrambling to do the required drilling to keep leases they had left dormant.

    "During the period where we had the downturn in price, there were a lot of leases that were in danger of being lost ... they had to drill a well to maintain it," said Michael Stoltz, an attorney who represents energy firms in Texas for Stubbeman, McRae, Sealy, Laughlin & Browder Inc.

    A new lease could cost the operator as much as five times more than a few years ago, said Joe Dancy, an oil and gas lawyer, who helps negotiations on such deals. Drilling costs are also on the rise, adding to the rush by producers trying to stay ahead of price inflation.

    Fracking is more expensive than drilling and is time consuming. As much as 70 percent of well completion costs are tied to fracking, while 30 percent is for drilling, experts say.

    Fracking crews are in short supply, which is another reason that oil firms have delayed completion.

    As activity has picked up in the Permian, the labor market has tightened. Many oil workers found jobs elsewhere during the downturn, so rebuilding the workforce is taking time.

    "There were a number of completions that were originally scheduled in first quarter and you've seen those slide to Q2 and that's really being driven by ... access to service crews and things like that," said Tom Stoelk, the CFO and interim CEO of Northern Oil & Gas Inc (NOG.A), a producer focused on the Williston Basin in North Dakota and Montana.


    The number of incomplete wells could complicate OPEC's attempt to balance markets, as they could be completed relatively quickly if the oil price rises.

    Saudi Arabia is targeting a $60 per barrel price, and that could trigger those well completions and bring a new wave of supply to the market.

    If all the incomplete wells in the Permian pump instantaneously, output from the field could jump as much as 300,000 barrels per day (bpd), according to consultancy Wood Mackenzie.

    In February, the field accounted for about 2.1 million bpd, or about 23 percent of total U.S. crude output of about 9 million bpd, according to U.S. government data.


    Landowners lease their land to energy companies for an upfront lump sum or signing bonus and subsequent royalty payments.

    A standard lease lasts three years, with an option to extend for another two years, said sources who work with companies on such agreements.

    Leases vary greatly. Some require drilling but no production, others require production, and some require a well every six months. None of them require firms to complete all the wells they drill.

    Continental Resources Inc (CLR.N), which has about 185 such drilled but uncompleted wells (DUCs) in the Bakken in North Dakota, says that innovation during the downturn meant it could now complete those wells more cost efficiently.

    "We're glad we saved all those wells," CEO Harold Hamm said at an industry conference this month.
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    State Dept to approve Keystone pipeline permit: Politico

    State Dept to approve Keystone pipeline permit: Politico

    The U.S. State Department will approve by Monday the permit needed to proceed with construction of the Canada-to-United States Keystone XL oil pipeline, a project blocked by former President Barack Obama, according to Politico.

    The approval of the permit would mark the beginning of process that could be lengthy and complicated by approvals needed by state regulators and legal challenges.

    But President Donald Trump, a Republican, supports Keystone and days after he took office in January ordered its construction. That could mean that project, first proposed in 2008, will eventually be completed.

    The State Department's undersecretary for political affairs, Tom Shannon, will approve the cross-border permit for TransCanada Corp's pipeline on or before Monday, the report said.

    Monday is end of the 60-day timeline that Trump ordered in January when he issued an executive order for the construction of Keystone and the Dakota Access pipelines.

    The Keystone pipeline would bring more than 800,000 barrels-per-day of heavy crude from Canada's oil sands to U.S. refineries and ports along the Gulf of Mexico, via an existing pipeline network in Nebraska.

    Obama had rejected the pipeline saying it would do nothing to reduce fuel prices for U.S. motorists and would contribute emissions linked to global warming.

    TransCanada resubmitted its permit application after Trump's executive order. Spokesman Terry Cunha said the company was working closely with the State Department.

    "Monday is the deadline, so that's what we're working towards," Cunha said.

    A State Department official said there was no decision to announce on Keystone. A White House official did not immediately comment.

    Conservatives said they supported quick approval. Nick Loris, an energy and environment researcher at the Heritage Foundation, said approval would "reestablish some certainty and sanity to a permitting process that was hijacked by political pandering."

    Environmental group Greenpeace had pushed for Secretary of State Rex Tillerson to recuse himself from a decision on Keystone, as Exxon Mobil Corp, the company Tillerson recently headed, could profit from the pipeline. Tillerson did recuse himself.

    "We will resist these projects with our allies across the country and across borders, and we will continue to build the future the world wants to see," Diana Best, a Greenpeace climate campaign specialist said.

    A stretch of Keystone XL also awaits approval from Nebraska regulators. Transcanada has to file its pipeline route plans with the state's Public Service Commission, which is required to hold public hearings on the proposal.

    Attached Files
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    Russia, Saudis Move at a Different Pace as Oil Cuts Scrutinised

    Russia, Saudis Move at a Different Pace as Oil Cuts Scrutinised

    Russia and Saudi Arabia head to this weekend’s OPEC committee meeting as the tortoise and hare of a global deal to cut oil supply, with Moscow sticking to a slow and steady pace despite Riyadh’s cajoling.

    OPEC’s de-facto leader Saudi Arabia publicly prodded the Kremlin to speed up and implement its full 300,000 barrel-a-day production cut by the end of this month, but Energy Minister Alexander Novak reiterated it won’t reach the target before April -- four months into the agreement. While this pace has offset the impact of deeper-than-expected cuts by other OPEC members, the need to show unity means Russia is unlikely to get called out for its inertia, said Daniela Corsini, a Milan-based analyst at Intesa Sanpaolo SpA.

    “Confidence in the OPEC/non-OPEC deal is the most important tool to protect crude prices,” Corsini said by email. “Saudi Arabia will not openly criticize poor Russian compliance as it’s not in their interest to scare market participants.”

    The Organization of Petroleum Exporting Countries and its allies are almost three months into the pact to take 1.8 million barrels a day off the market in a bid to eliminate a global surplus after three years of glut.  After a promising start in January, Russian production flatlined the following month and is now just over half way to the reduction Moscow promised. Compliance from the 11 non-OPEC participants -- estimated at just 64 percent in February -- will come under scrutiny at a ministerial meeting in Kuwait City on Sunday.

    The agreement is set to last the six months through June, but several OPEC members are signaling an extension may be necessary. BenchmarkBrent crude dropped below $50 a barrel for the first time since November on Wednesday as swollen U.S. stockpiles and rising shale production offset the impact of the cuts.

    Russian output has fallen 160,000 barrels a day from the October level -- a post-Soviet record -- and will fall another 40,000 barrels by the end of this month, Novak said on March 17. He has maintained since the deal was first struck that the target will be reached no sooner than April.

    The Russian cuts are “slower than what I’d like,” Saudi Energy Minister Khalid Al-Falih said in an interview with CNBC March 7. “But I think we are patient and we will see where we are in May and take it from there.”

    Targeting Growth

    The structure of the Russian oil industry makes it harder for the country to deliver on a supply pledge, according to Chris Weafer, a Moscow-based senior partner at Macro Advisory.

    “Unlike OPEC, where you have only one national oil company, the Russia industry is fragmented and, therefore, its collective actions are unpredictable,” he said.

    Even as Russia reduces output, producers are preparing for growth, according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital. “Capex guidance is up for most companies so no one is cutting spending,” he said.

    Extending Deal

    Companies are achieving lower volumes by slowing down electric submersible pumps, closing more wells for workovers, and fracking less. They likely plan to make up for missed production volumes in the second half, Davletshin said.

    Those plans may have to be abandoned if the supply deal is extended. OPEC meets on May 25 to decide whether to continue. Al-Falih has said the group would prolong the deal if oil stockpiles remain high, and other members including Iraq have expressed their support for an extension.

    Russia hasn’t ruled out such a move, Interfax news agency reported Wednesday, citing Vladimir Voronkov, the country’s envoy to international agencies in Vienna. A final decision will depend on Saudi Arabia, it said.

    “I don’t have serious reasons to think Russia will abandon the deal, as long as they benefit from higher and stable prices,” Intesa’s Corsini said.

    Attached Files
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    Former Niger Delta militants call on Nigeria to pay stipends or face protests

    Former militant leaders in Nigeria's Niger Delta oil region have urged the government to pay out delayed stipends granted under a 2009 amnesty or face protests, a statement said on Thursday.

    An uneasy peace is currently being kept in Nigeria's oil-producing heartland, which was rocked last year by militant attacks that cut crude production by as much as a third.

    Failure to pay off former militants under the amnesty could jeopardize the relative stability in the region and even result in oil production again being choked off.

    "We are calling for the immediate release of the balance sum of the 2016 supplementary budgetary allocation ... to avert any situation that will warrant beneficiaries of the program going to the streets to protest and barricade roads," the former militants said in a statement.

    The government is now in talks with militants to end the attacks which cut Nigeria's output by 700,000 barrels a day (bpd) for several months last year, reducing total production at that time to about 1.2 million bpd. It has since rebounded.

    Under the amnesty program, each former militant is entitled to 65,000 naira ($213.68) a month plus job training. But last week a special adviser to Nigeria's president said the program was facing a cash crunch.

    Authorities had originally cut the budget for cash payments to militants to end corruption. They later resumed payments to keep pipeline attacks from crippling vital oil revenues.

    Two months of stipends were paid out in January, but the amnesty office said foreign schools fees and other allowances had not been sent by the federal government yet.

    The damage from attacks on Nigeria's oil industry has exacerbated a downturn in Africa's largest economy, which slipped into recession in 2016 for the first time in 25 years, largely due to low oil prices.

    Crude oil sales make up around two thirds of government revenue.
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    Eni strikes oil offshore Mexico

    Italian oil company Eni has informed it has “successfully drilled” the Amoca-2 well in the shallow waters of Campeche Bay, offshore Mexico, confirming the presence of oil in multiple reservoirs.

    Amoca-2 is the first well drilled by an international oil major in Mexico since the 2013 Energy Reform. It is located in the Contractual Area 1, 200 km west of Ciudad del Carmen, in the Campeche Bay, in 25 meters of water.

    The well reached a total depth of approximately 3,500 meters, encountering approximately 110 meters of net oil pay from several good quality Pliocene reservoir sandstones, of which 65 meters were discovered in a deeper, previously undrilled horizon. The well confirmed the presence of 18° API oil in the shallower formations, while the newly discovered deeper sandstones contain high quality light oil. Reserves are still being assessed, but the well indicates a meaningful upside to the original estimates.

    “This important discovery comes in a country where Eni has not yet operated and confirms our exploration capabilities, building upon our strong exploration track-record, and is another confirmation of the validity of our “Dual Exploration Model” approach.

    Focusing on conventional exploration with high initial stakes and operatorship, we manage to fast-track exploration activities, monetize exploration successes early and receive competitive development opportunities, therefore maximizing value generation for our shareholders,” Eni CEO Claudio Descalzi said.

    The Area 1 drilling campaign will continue with a new well in the Amoca area (Amoca-3) followed by the Miztón-2 and Tecoalli-2 delineation wells, to be drilled in 2017 to appraise existing discoveries as well as targeting new undrilled pools.

    Eni holds a 100% stake in the Area 1 Production Sharing Agreement and is already evaluating options for a fast track phased development of the fields.

    Attached Files
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    China's CNOOC reports worst result since at least 2011, forecasts output rise

    China's offshore oil and gas producer CNOOC Ltd reported its worst annual result since at least 2011, with revenue from its core oil and gas business tumbling 17 percent last year, but it expects to raise output 2017 as oil prices rebound.

    CNOOC reported a net profit of 637 million yuan ($92.5 million) in 2016, down nearly 97 percent from 20.2 billion yuan in profit in 2015.

    Total revenue from oil and gas fell to 121 billion yuan from 147 billion yuan in 2015.

    "CNOOC managed to eke out a tiny profit thanks to cost efficiencies and the oil price rebound during 4Q," said analyst Gordon Kwan of Nomura Research.

    The pooring showing for last year came as CNOOC slashed upstream investment, reduced production and saw a drop in both crude oil and natural gas prices.

    The state-owned firm reported a realized oil price of $41.40 a barrel in 2016, 19 percent lower than 2015. Natural gas prices fell 14.6 percent from a year earlier.

    Total production of oil and gas fell 3.8 percent year on year to 476.9 million barrels of oil equivalent, the first drop since 2012.

    "CNOOC must confront difficult challenges to kick-start production growth and replenish reserves, probably at the expense of higher capex and perhaps lower dividend payout ahead," Kwan said.

    CNOOC said it would start up operations on five new projects in 2017 and plans to increase reserves and production through drilling and acquisitions.

    "In 2017, our strategies in exploration will focus on the continued search for large and medium-sized oil and gas fields," the company said in a statement.

    CNOOC recommended a final 2016 dividend of 23 Hong Kong cents (3 U.S. cents) a share. The dividend for 2015 was 25 Hong Kong cents.
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    China Feb gasoline imports plunge

    Strong exports of refined fuel products reflected persistence excess in the domestic market as China's refiners maintain a record pace of crude oil buying and high rates of operation.

    China became a net exporter of fuel products in late 2016. Gasoline imports last month slumped to just 7,245 tonnes, tumbling 94 percent from the same period last year, leaving net exports at 1.05 million tonnes.

    Diesel imports in February dropped 52 percent from a year ago to 50,000 tonnes, while liquefied natural gas imports rose 29 percent year on year to 2.37 million tonnes, the customs data showed.

    Meanwhile diesel exports jumped 67 percent compared with February 2016 to 1.32 million tonnes, climbing from 965,000 tonnes in January.

    Attached Files
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    Shell reluctant to part with California refinery amid asset sale

    Royal Dutch Shell is in talks with several potential buyers for its refinery outside of San Francisco, but the Anglo-Dutch oil giant is reluctant to part with its last asset in California, three people familiar with the process say.

    The company is in the midst of a massive asset sale, shedding properties from Thailand to the North Sea to pay down debt following its $54 billion purchase of smaller British rival BG Group last year.

    Shell, Europe's largest oil company, has sold around $15 billion of assets over the past year as part of a planned $30 billion in asset sales to trim debt incurred from the transaction.

    Bidders for Shell's 158,000 barrel-per-day Martinez refinery, located 30 miles (48 km) northeast of San Francisco, include PBF Energy (PBF.N) and NTR Partners III LLC.

    Still, sources familiar with the issue say the company wants to sell for a higher price, with one saying the plant could be valued at about $900 million.

    Shell, which barred potential buyers from hiring advisors during a first round of the auction, has since allowed third parties to review materials related to a sale, according to one person familiar with the negotiations.

    Shell declined to comment. PBF referenced its quarterly calls with analysts, where it has said it considers all refining and logistics assets that come on the market, but declined to comment on interest in the specific plant. NTR did not respond to requests for comment.

    Shell retained Lazard last year to advise on the overall asset sale program. In the fall, Shell retained Deutsche Bank to find a buyer for the Martinez facility.


    Over the past 15 years, Shell has sold refineries in Bakersfield and Wilmington, California. Selling the Martinez plant would mark its exit from the state.

    While state-specific emissions regulations and fuel standards make it more expensive to operate a refinery in California, the plant still drew interest because of its location and ability to process local crude.

    Among the bidders, PBF bought a refinery in Torrance, California last year, while privately held NTR Partners has bid on other California plants.

    California's environmental regulations and pipeline connections make the state an island, with few sources for gasoline imports.

    As a result, when one plant in California is shuttered, margins at other refineries in the state surge.

    Most operators in the state own more than one plant. PBF, one of the only California refiners with a single operation, would consider buying a second to hedge against disruptions at its troubled Torrance refinery, Jeff Dill, PBF's president for West Coast operations said last month.

    The Martinez refinery, which has been operating since 1915, processes crude into gasoline, jet fuel, diesel and other refined products and has a coker unit for processing heavy crude.

    The potential sale would include a pipeline that brings crude produced in California's San Joaquin Valley to the refinery.
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    As Trump targets energy rules, oil companies downplay their impact

    President Donald Trump’s White House has said his plans to slash environmental regulations will trigger a new energy boom and help the United States drill its way to independence from foreign oil.

    But the top U.S. oil and gas companies have been telling their shareholders that regulations have little impact on their business, according to a Reuters review of U.S. securities filings from the top producers.

    In annual reports to the U.S. Securities and Exchange Commission, 13 of the 15 biggest U.S. oil and gas producers said that compliance with current regulations is not impacting their operations or their financial condition.

    The other two made no comment about whether their businesses were materially affected by regulation, but reported spending on compliance with environmental regulations at less than 3 percent of revenue.

    The dissonance raises questions about whether Trump’s war on regulation can increase domestic oil and gas output, as he has promised, or boost profits and share prices of oil and gas companies, as some investors have hoped.

    According to the SEC, a publicly traded company must deem a matter "material" and report it to the agency if there is a substantial likelihood that a reasonable investor would consider it important.

    "Materiality is a fairly low bar," said Cary Coglianese, a law professor at the University of Pennsylvania who runs the university’s research program on regulation. "Despite exaggerated claims, regulatory costs are usually a very small portion of many companies’ cost of doing business."

    The oil majors’ annual filings come after the industry and its political allies have spent years criticizing the Obama administration for policies aimed at reducing fossil-fuel consumption, curtailing drilling on federal lands and subsidizing renewable energy.

    Trump promised during the campaign that a rollback of the Democratic administration’s policies would help free the nation from reliance on imported oil.

    "Under my presidency, we will accomplish complete American energy independence," said Trump, describing regulation as a "self-inflicted wound."

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    The Trump administration is now preparing an executive order - dubbed the "Energy Independence" executive order - to roll back Obama-era regulations, which could be signed as early as this month, according to administration officials.

    U.S. presidents have aimed to reduce U.S. dependence on foreign oil since the Arab oil embargo of the 1970s, which triggered soaring prices. But the United States still imports about 7.9 million barrels of crude oil a day - almost enough meet total oil demand in Japan and India combined.


    "We haven’t seen 3 percent growth in the economy for eight years, and I think part of the reason is that we’ve had a heavy dose of regulation," Chevron Corp. CEO John Watson said at CERAWeek, a global energy conference in Houston this month.

    Continental Resources CEO, Harold Hamm, who advised Trump on energy issues during his campaign for the White House, told the Republican National Convention in Cleveland in July that stripping regulation could allow the country to double its production of oil and gas, triggering a new "American energy renaissance."

    Yet Continental's annual report, filed last month with the SEC, says environmental regulation - after eight years under the Obama administration - does not have a "material adverse effect on our operations to any greater degree than other similarly situated competitors."

    Continental's competitors who reported actual spending on environmental compliance told investors that such expenses amount to a small percentage of operating revenues.

    Fourteen of the 15 companies whose filings were reviewed by Reuters declined to comment on their statements to investors or the impact of regulation on their profits.

    A spokesman for ConocoPhillips acknowledged that regulatory compliance has not had a material adverse impact on the company's liquidity or financial position. But red tape can be an unwelcome burden nonetheless.

    "Changing, excessive, overlapping, duplicative and potentially conflicting regulations increase costs, cause potential delays and negatively impact investment decisions, with great cost to consumers of energy," the spokesman, Daren Beaudo, said in a written statement.

    The American Petroleum Institute - which represents the U.S. oil and gas industry - also declined to comment.

    Last month, before the U.S. Senate Commerce, Science and Transportation Committee, API President Jack Gerard said that the oil and gas industry has surged forward despite onerous regulations under the Obama administration.

    "Technological innovations and industry leadership have propelled the oil and gas industry forward despite the unprecedented onslaught of 145 new and pending federal regulatory actions targeting our industry."

    Though the industry saw a staunch opponent in Obama, oil and gas production soared more than 50 percent during his presidency. That was mainly because of high oil prices and improved hydraulic fracturing, a drilling technology that has allowed producers to access new reserves in previously tough-to -reach shale formations.

    The rush of production ultimately contributed to a global glut that dropped crude oil prices CLc1 from a high of over $100 a barrel in early 2014 to a low of nearly $25 by 2016. Current prices hover near $50 a barrel.


    Four of the 15 companies reviewed by Reuters reported that spending on environmental matters - including new equipment or facilities, as well as fines and compliance staffing - amounted to a small fraction of revenues.

    Exxon Mobil reported spending $4.9 billion worldwide in 2016, or about 2.24 percent of gross revenue. Occidental Petroleum, a much smaller company, reported spending $285 million, or about 2.82 percent of revenue. Neither addressed whether the spending was "material" in their filings.

    Two other companies, ConocoPhillips and Chevron, also broke out their environmental spending while reporting that regulation had no material impact on their business. Conoco spent $627 million in 2016, or about 2.57 percent of gross revenue, while Chevron spent $2.1 billion, or 1.91 percent of gross revenue.

    The other 11 companies did not break out spending, but all of them told the SEC that environmental regulation did not have a material impact on their business.

    In one typical statement, EOG Resources (EOG.N), one of the biggest U.S. producers, told investors in a report filed last month: "Compliance with environmental laws and regulations increases EOG's overall cost of business, but has not had, to date, a material adverse effect on EOG's operations, financial condition or results of operations."

    Devon Energy Corp (DVN.N), Anadarko Petroleum Corp (APC.N), Pioneer Natural Resources Co (PXD.N), Apache Corp (APA.N), and other large U.S.-focused oil and gas drillers used similar wording.


    Still, Obama's exit - and Trump's win over Democratic presidential candidate Hillary Clinton in November - has been enough to brighten the outlook of some big investors.

    "I believe the absence of a negative is a positive," John Dowd, who manages several energy funds at Fidelity Investments, wrote in his 2017 energy outlook. "The market has been concerned with the sustainability of fracking, and particularly to what extent it might have been regulated into obscurity by a different election outcome."
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    Saudi Arabia sees crude supply stable around 10 million bpd: sources

    Saudi Arabia expects its crude oil supply to be stable at around 10 million barrels per day in the next few months, fully in line with the country's OPEC quota and regardless of possible fluctuations in monthly production, industry sources said.

    Riyadh has stressed the importance of focusing on its supply rather than output as supply includes crude delivered to the market - domestically and for export - from the wellhead and from storage.

    One Saudi-based source told Reuters production could be lower than supply in March or April.
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    Top Asian LNG buyers form alliance to push for flexible contracts

    Three of Asia's top buyers of liquefied natural gas (LNG) have agreed to work together to secure more flexible contracts when buying the commodity.

    Korea Gas Corp (KOGAS) said in a statement on Thursday that it had signed a memorandum of understanding in mid-March with Japan's JERA and China National Offshore Oil Corp (CNOOC) to exchange information and "cooperate in the joint procurement of LNG".

    The alliance, which has been touted for the last year or so, comes as LNG buyers around the world push to move away from contracts that restrict them from reselling or swapping excess cargoes.

    "Through this MOU deal, Korean, Chinese and Japanese LNG buyers are expected to play an active role in the LNG market," Lee Seung-hoon, KOGAS chief executive officer, said in the statement. KOGAS is the world's No.2 LNG buyer.

    South Korea, Japan and China accounted for over half of global LNG trade in 2015, according to the BP Statistical Review of World Energy.

    Lee said in a recent interview with Reuters that the company would look for flexible LNG contracts.

    JERA is joint venture between Chubu Electric Power and Tokyo Electric Power.
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    ICE to start trading first U.S. LNG futures contract

    Intercontinental Exchange (ICE) will begin trading a first-ever U.S. LNG futures contract in a response to the growing U.S. LNG export volumes.

    The ICE LNG futures contract will be cash settled against the Platts LNG Gulf Coast Marker (GCM) price assessment and it will use Platts-derived U.S. GCM LNG forward curves for daily settlement purposes. The curves will have an initial tenor of 48 months.

    Speaking of the U.S. LNG futures contract, J.C. Kneale, vice president, North American power and natural gas markets, ICE, said, “by providing the marketplace with a U.S. Gulf Coast LNG futures contract, along with the prospect of future additional products, domestic and international market participants now have a risk management solution that lays the foundation for a more effective means of hedging their spot and forward exposure, which will be particularly useful as the global LNG market continues to evolve and grow.”

    According to S&P Global Platts, the increased exports of U.S. LNG has positioned the United States to play a new primary role in the global natural gas and LNG markets.

    LNG exports are becoming an increasingly important market driver in the U.S. natural gas markets, with a new focus toward LNG values at the U.S. Gulf Coast, the country’s heaviest concentration of liquefaction plants and largest storage hub for export-bound natural gas.

    Kwhame Gittens, manager, commodity risk solutions (Americas), S&P Global Platts, said, “additionally, the optionality, transparency and freedom of a U.S. LNG cargo are nearly unparalleled in global markets, offering real opportunities for participation in this emerging spot market by financial markets, traders and other interested stakeholders.”

    Shelley Kerr, global director of LNG and regional director of generating fuels & electric power, Europe, Middle East and Africa (EMEA), S&P Global Platts added that the over the past couple of years there has been an exponential growth in Asia-based LNG swaps.

    “Counterparties are demanding that the new flexible supply from the U.S. is underpinned by both price transparency and the means to hedge,” Kerr said, adding that in any such evolution, transparency will be crucial to the development of the LNG market and that the U.S. Gulf Coast is “become a key anchor for LNG prices.”

    According to the latest S&P Global Platts research, natural gas producers, plagued by low domestic prices in recent years, are eager to sell into the international marketplace through LNG. The natural gas infrastructure that intersects the United States, Mexico and Canada is the world’s largest and most integrated natural gas market and by 2020, the Americas region is expected to be the world’s third largest producer of LNG, behind Australia and Qatar.
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    Kinder Morgan announces 430-mile, Permian gas pipeline

    Houston’s Kinder Morgan said Wednesday it plans to build a 430-mile natural gas pipeline from West Texas’ Permian Basin to the Corpus Christi region.

    The project is designed to capitalize off of increasing Permian oil and gas production to carry more gas to the Texas Gulf Coast, where it can be consumed locally, refined and exported, or shipped to Mexico. The 42-inch pipeline, which could be completed in late 2019, would specifically trek from Waha, Texas to Agua Dulce, which is just west of Corpus Christi.

    Although everyone in the Permian is drilling for oil, most of the wells drilled also produce associated natural gas liquids. That extra gas is why producers don’t need to drill specifically for gas in West Texas.

    The project costs are not being revealed. The proposed Gulf Coast Express Pipeline Project can tap into Kinder Morgan’s existing Permian-area pipeline network, as well as Dallas-based Energy Transfer Partners’ new Trans-Pecos Pipeline, which will ship gas from West Texas to Mexico.

    The growing petrochemical sectors in the Houston and Corpus Christi areas are consuming more natural gas for feedstock, while new Gulf Coast liquefied natural gas projects need gas to convert into LNG for exporting. Also, Mexico increasingly relies on Texas shale gas for electricity generation.

    Kinder Morgan already is expanding existing pipeline from Texas and Arizona into Mexico. Likewise, Energy Transfer, as well as Canadian pipeline giants Enbridge and TransCanada are all building new gas pipelines into Mexico.

    Kinder Morgan said it is seeking customers to secure contracts for the pipeline’s use from now through April 20.
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    NOC given no money to pay salaries, let alone invest: Mustafa Sanalla

    Salaries are going unpaid because National Oil Corporation (NOC) is not getting the $2.5 billion allocated it by the Presidency Council,  Mustafa Sanalla the oil company’s chief complained today.

    The Ministry of Finance was not only delaying salary payments, he said, but also failing to produce funds for projects which are considered essential to boosting production by maintaining and repairing oil fields and ports that have been damaged in fighting.

    It seems clear from this that Sanalla has not yet achieved the financial independence he wants by being given control over a proportion of oil revenues. NOC is still having to go cap in hand to the finance ministry, even for salaries, as in the days of Qaddafi.

    The good news however was that Sanalla said output had recovered rapidly after the interruption from the Benghazi Defence Brigades attack on the Sidra and Ras Lanuf terminals earlier this month.

    “Our production today is 700,000 bpd and we work hard in order to reach 800,000 bpd before the end of April,” he said in a statement, “We will, God willing, reach 1.1 million barrels/day next August.”

    “We are doing our best to increase production despite all the obstacles and circumstances that face us and despite all those who try to obstruct production or decrease it in addition to spreading rumours and lies that affect NOC’s work” he said, “By doing so, they want to destroy what is left from the Libyan economy and hold it a hostage to aids and international loans.”

    One lie he may have had in mind was the surprise news this morning of his resignation. What was said to be a letter in which he announced he was quitting was presented in the House of Representatives in Tobruk. The circumstances are unclear, but one report says that Sanalla’s rival, the chairman of eastern NOC Nagi Maghrabi was present when the letter was delivered.

    The news is likely to have brought anxious calls from international oil traders but it quickly emerged that the letter was a fake.
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    China's Biggest Oil and Gas Producer Seen Ready to Unleash $85 Billion Spinoff

    China's Biggest Oil and Gas Producer Seen Ready to Unleash $85 Billion Spinoff

    As China’s biggest oil and gas producer prepares to report what may be its worst-ever earnings, investors are focused on billions of dollars that could be unlocked by a spinoff of its massive pipeline network.

    PetroChina Co.’s natural gas and crude oil transportation system, stretching from the country’s remote borders with Central Asia to major coastal cities, could be worth at least $85 billion dollars, according to analysts at Sanford C. Bernstein & Co. and Jefferies Group LLC. As President Xi Jinping’s government prepares to unveil long-awaited energy industry reforms, speculation has grown that the company and its parent, China National Petroleum Corp., may spin off the pipelines into an independent company as soon as this year.

    “While timing is unclear, there is a sense that management is in favor of such a spinoff,” said Neil Beveridge, Bernstein’s head of Asia-Pacific oil and gas research, who has a buy rating on the stock and estimates the assets are worth 585 billion yuan ($85 billion). PetroChina’s preferred option is an initial public offering that would leave it with a controlling stake, he said.

    PetroChina, which Goldman Sachs Group Inc. estimated this month trails only Exxon Mobil Corp. and Rosneft PJSC as the world’s biggest oil company by reserves, is suffering depressed prices and slumping domestic production from the country’s aging fields. While output is unlikely to rebound without a surge in prices, investors are hungry for a spinoff to unlock cash that may be used to fund fatter dividends.

    The future of PetroChina’s pipelines has been unclear since 2015. The central government originally planned to strip the company, as well as its domestic rival China Petroleum & Chemical Corp., known as Sinopec, of the assets to create a new state-owned entity. That idea has since been scaled back, though regulators are still pushing for greater independence of the pipeline operations and easier access for all users.

    Timing Unclear

    The company may spin off the unit as soon as the end of this year, the Hong Kong Economic Journal reported in February, citing people it didn’t identify. Gordon Kwan, head of Asia-Pacific energy research at Nomura Holdings Inc., sees oil prices needing to rebound to $60 before any such move. Bernstein’s Beveridge sees it delayed until the pipeline segment accounts for less than half PetroChina’s revenue, which may not happen until next year.

    Bernstein values the pipeline business at HK$3.60 per share, more than half PetroChina’s current stock price. The company in Hong Kong gained 0.7 percent to HK$5.83 as of 10:53 a.m. local time Thursday, compared with a 0.3 percent rise in the city’s benchmark Hang Seng Index.

    Monetizing pipeline assets is one of the few options PetroChina still has to raise funds and attract investors under the current low oil price environment, according to Laban Yu, head of Asian oil and gas equities at Jefferies, who sees the pipelines worth 597 billion yuan. Brent crude, the international benchmark, averaged about $45 a barrel last year, down almost 16 percent from 2015.

    Sprawling Asset

    PetroChina holds a 71 percent market share of the country’s oil and gas pipelines, analysts at Goldman Sachs wrote in a March 7 report. Its network stretches more than 77,600 kilometers (48,200 miles), with almost two-thirds of that used for natural gas, according to its latest 20-F filing to the U.S. Securities and Exchange Commission.

    The main natural gas network has been built in three parallel sections, known as the West-East Gas Pipeline. Those assets were consolidated into PetroChina Pipelines in December 2015, in which PetroChina holds 72.26 percent.

    The company, which barely broke even in the first half of the year although it booked a 24.5 billion yuan one-time gain from selling pipelines, warned in January that it expects full-year profit to fall by as much as 80 percent because of the slump in international oil prices and low domestic natural gas rates. That means profit may decline to as low as 7.1 billion yuan, down for a third year to the weakest in data going back to 1996.

    Sinopec, which may report earnings as early as Friday, may post an 18 percent rise in net income, including one-off items, to 38.3 billion yuan, according to the mean estimate of 8 analysts surveyed by Bloomberg. The company last year sold 50 percent of its Sichuan-to-East China pipeline for 22.8 billion yuan, though it’s unclear when it will account for that gain.

    China’s biggest offshore explorer, Cnooc Ltd., may report Thursday its first annual loss since its Hong Kong trading debut in 2001. Net income is forecast to have swung to a 3.22 billion yuan loss, according to the mean estimate of 10 analysts surveyed by Bloomberg.
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    China Feb gasoline exports jump to 2nd-highest on record, imports plunge

    China's gasoline exports in February climbed to their second-highest monthly level on record as refiners increasingly turn to exports to Asian markets to drain a domestic supply glut that almost wiped out imports altogether.

    Gasoline exports rose 77 percent in February compared with the same month a year earlier to 1.06 million tonnes, just short of the monthly record of 1.1 million tonnes set in June last year, data from the Chinese customs authority showed on Thursday.

    Meanwhile diesel exports jumped 67 percent compared with February 2016 to 1.32 million tonnes, climbing from 965,000 tonnes in January.

    Strong exports of refined fuel products reflected persistence excess in the domestic market as China's refiners maintain a record pace of crude oil buying and high rates of operation.

    China became a net exporter of fuel products in late 2016. Gasoline imports last month slumped to just 7,245 tonnes, tumbling 94 percent from the same period last year, leaving net exports at 1.05 million tonnes.

    Diesel imports in February dropped 52 percent from a year ago to 50,000 tonnes, while liquefied natural gas imports rose 29 percent year on year to 2.37 million tonnes, the customs data showed.

    Attached Files
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    Major oil companies open their wallets in Gulf of Mexico bidding

    Royal Dutch Shell plc, Chevron Corp and Exxon Mobil Corp signaled the oil industry's return to the Gulf of Mexico's deep waters with high bids in a government auction up 76 percent over a year ago.

    The auction of offshore oil and gas parcels received nearly $275 million in high bids, compared with $156.4 million a year ago. The year-ago auction drew the fourth lowest total bids for leases in the central Gulf.

    The oil industry had moved away from deep water projects as oil prices fell and regulatory scrutiny increased following the Deepwater Horizon disaster in April 2010, the largest accidental marine oil spill.

    The five-month-long spill, which spewed some 210 million U.S. gallons (780,000 m3) into the Gulf, caused extensive damage to marine and wildlife habitats, as well as to the area's fishing and tourism industries, forcing BP to sell assets worth of billions of dollars.

    Wednesday's auction was the first under President Donald Trump, who has promised to cut permitting and regulatory hurdles in support of energy exploration.

    Shell and Chevron each had 20 high bids, and Shell's $55.8 million total was the largest among the 26 companies submitting offers. Norway's Statoil ASA was the second-largest total bidder with $44.5 million, followed by Hess Corp, Chevron and Exxon.

    "Today's strong sale reflects continued industry optimism and interest in the Gulf's Outer Continental Shelf, Department of Interior Secretary Ryan Zinke said in a statement.

    The highest bid on a single block this year, from Shell, was for $24 million, almost twice last year's $13.6 million top offer. Among other top bidders, Exxon submitted 19 high bids totaling nearly $22 million, and Anadarko Petroleum had 16 high bids totaling nearly $19 million.

    The bids will be evaluated for the next 90 days by the Bureau of Ocean Energy Management and winners disclosed following the review.

    Interest in new deep-water projects is heating up with more favorable costs for drilling rigs, services and production equipment. Shell has cut its well costs by at least 50 percent and reduced logistics costs by three quarters, helping make deep-water projects affordable at crude prices under $50 a barrel.

    Last month, the Anglo-Dutch oil giant gave final approval to go ahead with its Kaikias deep-water project in the Gulf. In December, BP said it planned to move ahead with a previously delayed expansion project known as Mad Dog Phase 2, the first new platform sanctioned for the Gulf in a year and a half.
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    Saudi Arabia may insist on Iran oil output cuts to continue OPEC deal: sources

    Geopolitical rivals Saudi Arabia and Iran may be headed for another OPEC showdown, as the producer group enters negotiations over extending oil production cuts in force since January.

    Saudi Arabia may demand that Iran, which is allowed a slight rise in output under the deal, commit to an output reduction as a condition of continuing the cuts, people familiar with the kingdom's thinking told S&P Global Platts.

    The provision is among several that Saudi Arabia, tired of seeing its market share eroded as it bears most of the burden of OPEC's agreed cuts, is likely to come to the table with, sources say. These include stipulations on members who have exceeded their quotas and exempt members nearing full production capacity, notably Nigeria.

    But it is Iran that is likely to be the biggest sticking point given historic distrust between the two countries, as talks among OPEC members ramp up amid signs that the global inventory glut remains stubbornly high.

    "We do expect that the Saudis will have demands on both poorly complying deal participants and those exempted like Iran for the second half," said Bob McNally, president of energy consultancy Rapidan Group.

    "We expect some tension ahead of the May 25 meeting, but as we have seen ministers will temper disgruntlement with supportive public comments so as not to spook investors," he added.

    Saudi energy officials declined to comment on their plans, with one telling Platts on condition of anonymity that "it is too early" to discuss the particulars of negotiations that have yet to start. Iranian energy officials did not respond to requests for comment.

    Any move to rein in Iran's production is likely to be met with significant resistance, experts say.

    Oil minister Bijan Zanganeh last week, in remarks viewed as conciliatory towards a deal extension, said Iran would be willing to hold production at 3.8 million b/d for the remainder of the year.

    That is right around its quota under the deal of 3.797 million b/d and ahead of its February production level of 3.75 million b/d, according to the latest S&P Global Platts OPEC survey.

    Cutting below that "would be a non-starter especially since the Iranian leadership is unlikely to be in a compromising mood in advance of their May presidential elections," said Helima Croft, head of commodity strategy with RBC Capital.

    The deal, which called for OPEC to cut 1.2 million b/d and freeze output at 32.5 million b/d, will be up for review at the organization's May 25 meeting in Vienna. The participation of 11 non-OPEC producers, who pledged cuts of 558,000 b/d in concert, may also be decided then.


    An OPEC/non-OPEC monitoring committee meeting this weekend in Kuwait may provide the first signs of whether the pact will survive past its June expiry.

    The committee is chaired by Kuwait and also includes OPEC members Algeria and Venezuela, along with non-OPEC Russia and Oman. Saudi Arabia, which holds the rotating OPEC presidency, will also attend Sunday's meeting.

    Saudi Arabia has cut its production by 140,000 b/d below its requirement under the agreement with a January-February average output of 9.92 million b/d, according to the Platts survey. That has helped cover for its less compliant counterparts.

    The kingdom has made its displeasure with non-compliant participants known, warning against "free riders." It is likely to demand stricter adherence for the deal to continue, sources said.

    Matthew Reed, senior vice president of Middle East consulting company Foreign Reports, said given how Iran is pumping near its maximum capacity, the Saudis may feel Iran should participate in an "all hands on deck" effort to reduce global inventories, as OPEC has said is the goal of the cuts.

    "These days Iranian officials are bragging about producing more oil than at any time since the shah, so a conversation about what Iran can contribute is obligatory," Reed said.


    Diplomatic sparring between Iran and Saudi Arabia scuttled OPEC's first attempt last April in Doha to forge a production cut deal, as Iran's insistence on an exemption while it recovered from sanctions prompted Saudi Arabia to withdraw from negotiations.

    At a September extraordinary OPEC meeting in Algiers, with Saudi Arabia more eager for a deal and despite Iran having ramped up its production in the intervening months, Iran came away from the talks with a political victory -- an allowance to increase output by 90,000 b/d to 3.797 million b/d.

    From Iran's viewpoint, the country is already in compliance with its quota, making it unlikely to acquiesce to any demands to cut production, said Sara Vakhshouri, president of consultancy SVB Energy International.

    Vakhshouri estimates that Iran may be able to raise its production capacity by the end of 2017 to a total of 3.78 million b/d, but no further due to financial constraints.

    Keeping the current ceiling on Iranian oil output may be all Saudi Arabia can hope for, she said.

    "Iran's production capacity by the end of 2017 is very close to what they agreed to produce in the first half of the year," said Vakhshouri, who is also a senior fellow at the Atlantic Council. "Hence, even if there are political disagreements, Iran can't technically produce much higher."
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    Summary of Weekly Petroleum Data for the Week Ending March 17, 2017

    U.S. crude oil refinery inputs averaged 15.8 million barrels per day during the week ending March 17, 2017, 329,000 barrels per day more than the previous week’s average. Refineries operated at 87.4% of their operable capacity last week. Gasoline production increased last week, averaging about 9.8 million barrels per day. Distillate fuel production increased last week, averaging over 4.8 million barrels per day.

    U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 902,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.9 million barrels per day, 3.0% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 325,000 barrels per day. Distillate fuel imports averaged 127,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.0 million barrels from the previous week. At 533.1 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.8 million barrels last week, but are near the upper half of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.9 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories increased by 1.3 million barrels last week.

     Total products supplied over the last four-week period averaged over 19.5 million barrels per day, up by 0.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, down by 2.9% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the last four weeks, up by 14.1% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

    Cushing up 1.5 Mln bbls
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    US oil production up 20,000 bbls

                                                    Last Week  Week Before  Last Year

    Domestic Production '000........ 9,129           9,109         9,038
    Alaska ............................................ 528             .528       .     507
    Lower 48 .................................... 8,601           8,581    .     8,531
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    Nigerian crude oil emerges from South Africa storage amid flattening structure

    Nigerian crude from South Africa's Saldanha Bay storage site has come into the market, adding to the glut of Nigerian crude available in the April program, according to trading sources.

    "Everyone is trying to empty storage with the structure where it is and diffs coming off; everyone is trying to do it and you are seeing offers out of Saldanha, but everyone is in same boat," said one West African crude trader.


    Nigerian crudes Qua Iboe and Escravos have been offered out of storage, by trading house Vitol and oil major Total. Market sources estimated that around 10 million-11 million barrels of stored oil has been offered out. Additionally, around 15 million barrels of the April program were still available, with the May programs expected to be released later this week.

    As a result, trading sources said that due to the overhang, crude differentials started to see pressure, particularly Qua Iboe and Escravos, with the former seeing its offer levels fall 40 cents/b over the course of the past two weeks, reflecting a tougher market for sellers.

    "Values remain stable but pressured," a second crude trader said.

    Vitol was heard to have fixed the VLCC Astro Chloe to take a 270,000 mt crude cargo from storage in Saldanha Bay in South Africa to Singapore with March 28-31 loading dates at w58.

    "Vitol may be looking to lift another VLCC with April dates as well because the storage economics are not making sense down there at the moment," a shipbroker said.

    Rumblings of South Africa storage being emptied have been seen in the market for a few weeks, although these are the first signs of volumes actually leaving Saldanha Bay.

    At the end of February, Vitol was seen offering up to 4 million barrels of Qua Iboe crude, basis DES Rotterdam/Lavera, arrival April 20-30, in the Platts Market on Close process. At the time, several trading sources said the oil being offered by Vitol was volumes being stored in South Africa.

    While there has not yet been a ship fixed by Total, last week the company for two consecutive days -- on March 15-16 -- offered a VLCC comprised of 2 million barrels of Escravos crude, which was confirmed as coming out of Saldanha Bay.

    The Total indication was basis CFR Singapore, arriving May 15-25.

    A shipping report on Monday also reported that Total was seeking a VLCC for a Saldanha Bay April 20-22 load, with East discharge options, although an update on Tuesday showed that the fixture was on hold at the moment.


    There has been a growing incentive for traders to move crude oil out of storage in recent weeks, with a noticeable flattening emerging in the structure of the BFOE Contracts for Difference curve (CFD).

    S&P Global Platts Monday assessed the contango of the eight-week CFD curve at 46 cents/b, down from 75 cents/b a week earlier. Indeed, certain parts of the curve have been particularly strong, with backwardation emerging between April 3-7 and April 10-14.

    According to market participants, the strength at this point in the curve is attributable to traders hedging on VLCCs that may have been fixed to move Forties crude to the Far East in the third decade of April.

    "That period [of backwardation] is the period in which people are hedged for a physical move on VLCCs. They have bought three-week rolls and hedged," a North Sea trader said.

    "Dated/Dubai is very narrow and VLCC freight is very cheap," a second North Sea trader said. "The market probably expects barrels to move to the East."

    The flatter structure of the curve means there is less incentive for traders to keep physical oil in storage. "It has been a big theme this year. Anytime we come close to backwardation people begin to unwind their hedges and move oil out of storage," the first trader said.


    Saldanha Bay is a particularly popular destination for traders looking to store crude oil. Given its location between the demand centers of Asia and Europe, barrels can be sent either east or west depending on the prevailing economics of the Brent/Dubai EFS spread.

    "You can go into any direction -- you have all optionality, and that makes [Saldanha Bay] interesting," a third trader said. However, most grades coming out recently would likely be headed to Asia due to the stronger demand seen in that region and the narrower EFS, traders said.

    Crude from as far as the North Sea, the Mediterranean and Latin America has been placed into storage in this location in recent years. The majority of crude stored there is Nigerian, according to trading sources.

    Saldanha Bay's storage capacity is around 40 million-50 million barrels of oil, and it emerged as a very popular spot for storing crude oil from July 2014 when the crude oil market flipped into a contango structure.

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    Chevron confirms sale of its South African assets to Sinopec

    Chevron Global Energy confirmed on Wednesday that it had signed a sales and purchase agreement with a wholly-owned subsidiary of China's Sinopec  for Chevron's assets in South Africa and Botswana.

    Chevron said in a statement the deal hinged on regulatory approval. Sinopec said earlier on Wednesday it has agreed to pay almost $1 billion for a 75 percent in Chevron's South Africa assets and unit in neighbour Botswana, securing its first refinery on the continent.
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    Oil's Bad Timing Pressures Drillers as Banks Review Loans

    The rally in global oil prices has stalled at the worst possible time for explorers, just as banks reassess credit lines crucial to their growth.

    This year’s reviews, due to start next month, will arrive with the industry nursing a nasty case of whiplash. Spot prices surged late last year on OPEC’s pledge to cut output, hitting $54.06 a barrel in New York. Since then, they’ve fallen 12 percent, undercut by rising U.S. rig counts. Futures contracts show longer-term prices deteriorating as well.

    A drop below $45 would likely spur credit-line reductions, raising the specter of cuts that crippled drillers a year ago, said Kraig Grahmann, a partner in Houston for law firm Haynes & Boone LLP. Between the end of 2015 and October, when credit lines were last reassessed, the average borrowing base for U.S. explorers fell 16 percent, according to data compiled by Bloomberg.

    “The next month is going to be absolutely critical from an oil price standpoint," said Paul Grigel, a Denver-based analyst at Macquarie CapitalUSA, by telephone. “If you see prices retrench further, clearly the banks are going to have to re-evaluate. They are going to say, ‘Should we be pulling back?’"

    Credit reviews are “a combination of art and science," Grigel said, with banks taking into account a company’s reserves, production trends and the future outlook for the market as well as current prices. Lenders can also be reluctant to cut credit lines if it would mean mortally wounding a borrower and raising the risk of default.

    Industry budgets this year call for spending about $25 billion more collectively than in 2016, an 11 percent increase, according to a report last week from Wood Mackenzie Ltd. EOG Resources Inc. said it will increase capital spending 44 percent in 2017 to about $3.9 billion, while Continental Resources Inc. will elevate spending 68 percent to $1.95 billion.

    For many companies, credit lines remain a major determiner of how much growth they can achieve, said Spencer Cutter, a Bloomberg Intelligence analyst. The reassessments are traditionally done in April and October, when bankers will review both commodity prices and reserves, which are put up as collateral.

    The start of the year “was definitely not a good time for a price drop," Grahmann said. “The pause that the market has taken recently has caused some bankers to be a little bit more cautious about assuming that every run-up will last."
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    Sinopec to boost capacity of China's largest shale gas project to 10 bcm

    China's Sinopec Corp expects to boost production capacity of China's largest commercial shale gas project to 10 billion cubic meters, up from 7 bcm, it said in statement on March 21.

    This signals that China's shale gas industry has been on the way towards large-scale commercialization, which will help promote energy structure adjustment as well as energy conservation and emission reduction.

    Sales of the clean fuel from Sinopec's Fuling Project near Chongqing in southwestern China hit 16 million cubic meters on a daily basis, equivalent to the need of 32 million households, the company said.

    Sinopec launched operations of three wells recently, it stated.

    Total shale gas supply of the Fuling project has surpassed 10 billion cubic meters.

    The Fuling shale gas field had proved reserves of 380.6 billion cubic meters by end-2015.
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    USGC refiners set to win from the new bunker fuel spec

    US Gulf Coast refiners look well positioned to cash in on the earlier than expected 2020 deadline for ship operators to start using lower sulfur bunker fuel. That seems to be the consensus among most analysts attending the 2017 American Fuel and Petrochemical Manufacturers conference in San Antonio, Texas this week.

    Although the drop to 0.5% sulfur from the current 3.5% sulfur limit was widely anticipated, the timing was not. In a surprise move in October 2016, the International Maritime Organization agreed to implement the 0.5% sulfur limit for marine fuels in 2020, instead of the 2025 deadline which many expected.

    "It's always been 10 years away and now it's three years out," said David Hackett, a transportation fuel expert at California-based consulting firm, Stillwater Associates.

    Hackett made his comments Monday during the conference as a panel member at the Platts Barrel Talk Lunch, sponsored by S&P Global Platts.

    USGC refiners invested heavily over the past decade or so to build coking units capable of processing heavy crude at their plants, with an eye to handling the heavy Canadian crude expected to flow down the Keystone XL pipeline from the oil sands of Alberta to the USGC.

    While the XL has yet to materialize, the money was well spent, creating a world class center of complex and sophisticated refineries with the flexibility to handle most any crude.

    USGC coking capacity rose to 1.58 million b/d in 2016, almost double the region's 2007 capacity of 798,700 b/d, according to Energy Information Administration data.

    Conversely, residual fuel output from these refiners fell during the same time period, to an average of 292,000 b/d in 2016 from the 319,000 b/d in 2007, EIA data shows.

    In terms of global bunker fuel market share, "the US is under-represented," Alan Gelder, Wood Mackenzie's vice president of refining, chemicals and oil markets, said in a presentation to AFPM attendees Monday.

    "Bunker fuel is an opportunity for USGC refiners," he said, noting that North America has about 10% of the global bunker market, compared with Asia's 47% and Europe's 22%.


    While technology in the form of scrubbers exists to clean emissions from high sulfur fuels on board, the upfront costs mean it is tough for ship owners to fund fitting them to existing ships.

    Shippers are "making material progress" in taking steps to meet tighter specs, but they are "truly broke" due to the deep and prolonged downturn in demand and shipping rates, Gelder said.

    He estimated that only about 14% of all vessels will have scrubbers in place in time to meet the tighter specs by 2020.

    The alternative to scrubbing high sulfur fuels is burning new, low sulfur fuels -- which puts the onus on refiners and blenders.

    Texas-based refinery consultants Turner, Mason & Company anticipate slightly higher scrubber installations -- about 20% by 2020 -- but said the fact there have been virtually no announcements of construction of new residual hydrotreaters to make the cleaner bunker fuel is a concern.

    The consultancy, which tracks refinery construction in its annual Worldwide Construction Report, expects lower sulfur fuel specs to be achieved by blending equal parts of very low sulfur distillates, such as ULSD, into the bunker fuel.

    This in turn will back out a nearly equal amount of high sulfur fuel oil, cause a spike in global distillate demand, and result in rising distillate prices, it said.

    "In 2020, 2021, 2022, we expect to see a big bump in distillate demand," Turner, Mason executive vice president John Auers said, speaking as a panelist.

    It will also leave HSFO with out a home, which could have a knock-on effect for light/heavy crude spreads and prices, although some is likely to find its way into asphalt markets.

    But most of the surplus fuel oil is likely to be blended with lighter crude oil, creating a synthetic heavy crude oil. Increased heavy crude supply will depress prices, while light sweet crude oil will get renewed life along the USGC as a blendstock for the surplus fuel oil. While USGC refiners have options given their coking capacity, regions without cokers will suffer.


    "This is bad news for Europe," said Auers, noting that there is a lot of fuel oil made there and virtually no coking capacity. ExxonMobil's project to build a coker at its Antwerp refinery is about the only project on the books, he said.

    Wood MacKenzie's Gelder concurred. Almost 250,000 b/d of European fuel oil will be displaced, he said, while there is less than 100,000 b/d of spare upgrading capacity to process it.

    Gelder expects the price for clean bunkers to be set by Chinese "teapot" refiners, because of the closer ratio of upgrading capacity to refinery throughput.

    He estimates that in 2015 these independent refiners processed about 2.5 million b/d of crude, with spare upgrading capacity of about 2 million b/d.

    "It is an interesting dynamic," he said, adding that he expects to see a wider differential between fuel oil and gasoil.

    Nevertheless, North America's ratio of spare upgrading capacity to fuel displaced by bunkers is also favorable, at 300,000 b/d and 150,000 b/d, respectively, due in part to their deep conversion.

    "They will be printing money," he said.

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    Oil cost curve and 'short cycle' shale.

    Image titleImage title
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    Early boost to Libya oil production

    Libya’s Crude Production Rises to 699k B/D: State Oil Company

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    Petrobras debt, operational metrics improve despite profit miss

    Petróleo Brasileiro SA cut debt by 20 percent and had positive free cash flow for the seventh straight quarter during the fourth quarter, in a further sign of recovery at Brazil's state-controlled oil company in spite of a quarterly profit miss.

    Net income at Petrobras (PETR4.SA) came in at 2.510 billion reais ($812 million) last quarter, reversing a loss of 16.458 billion reais in the July-to-September period. Drastic cost-cutting and higher well productivity helped offset weaker revenue trends, the main culprit behind the profit miss.

    The average consensus estimates of analysts compiled by Thomson Reuters forecast a profit of 3.703 billion reais in the fourth quarter. Net debt fell a bigger-than-expected 20 percent to 314.120 billion reais, helped by a stronger currency and sliding borrowing costs in Latin America's largest economy.

    The results underscore Chief Executive Officer Pedro Parente's success in cleaning up a balance sheet with unrealistically priced investments and scaling back the largest debt burden among the world's major oil companies.

    Free cash flow, the money left for holders of bonds and shares after all operating and financial expenses are paid, reached 11.953 billion reais, down 27 percent from the third quarter but in line with most estimates. Free cash flow generation is key for Petrobras's goal to reduce debt.

    "We had some good results in the quarter, but the job is far from done, the company's debt is still too high," Parente told reporters at an event to discuss results. "Happily, there are very encouraging operational numbers here."

    Chief Financial Officer Ivan Monteiro said at the event that both credit costs and access to financing have improved since Parente took the helm of Petrobras last May. Both elements are key to speed up a reduction in the company's debt metrics in coming months, he added.

    The cost of insuring against a Petrobras bond default for five years PETR5YUSAC=R, a contract commonly known as credit default swap, has dropped about two-thirds in the past 11 months, to 334 basis points.

    Management will further discuss results on Wednesday in a conference call with investors.


    Parente, however, faces several market and operational challenges that include oil price nearing their lowest in a decade, a corruption scandal highlighting governance flaws, and losses incurred over many years because of government-mandated fuel subsidies and money-losing investments.

    This month's ruling by state audit court TCU allowing Petrobras to resume asset sales should propel cash generation and translate into lower capital debt and fundraising needs, both executives said. Petrobras has a goal of about $19 billion in divestitures and new partnerships by December 2018.

    Still, Petrobras will forgo dividend payouts and worker bonuses linked to profit related to last year, until the company's debt and cash positions improve further, Parente said. The company lost a net 14.824 billion reais for the full year.

    "We'd love to resume payouts as soon possible, though," he said at the event.

    A slump in global commodity prices led common American depositary receipts of Petrobras (PBR.N) down 3.9 percent to $8.81 on Tuesday in New York, extending their decline this year to 12.7 percent.


    Net revenue was largely flat from the third quarter, totaling 70.489 billion reais, below consensus estimates of 74.762 billion reais.

    Even as Petrobras had to raise wages above inflation for a collective bargaining agreement, costs fell more than expected in the wake of smaller charges related to a worker retirement program and a 77 percent decline in asset impairments.

    Capital spending surprisingly rose 15 percent last quarter, bucking the 9 percent decline forecast by analysts. Petrobras revised total capital spending planned for the 2017-2021 period to $74.5 billion from $74.1 billion previously.

    Steps to grow output in some offshore fields, sell non-essential assets and keep expenses in check helped drive operational earnings higher, executives said at the event.

    Adjusted earnings before interest, taxes, depreciation and amortization, a gauge of operational profit known as adjusted EBITDA, reached 24.788 billion reais, beating an estimate of 19.707 billion reais.

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    Saudi flows swing west once more

    In the first two months of the year, in the aftermath of the OPEC production cut, Middle East producers have chosen to keep Asian customers well supplied, by swinging their exports east of the Suez. This is illustrated in our ClipperData below, which shows January loadings bound for Asia from Saudi Arabia and Iraq were nearly 800,000 bpd higher than October's reference level, while flows heading west of Suez to North America were up just 50,000 bpd.

    This has flipped in March, however, with loadings bound for North America rising nearly 800,000 bpd versus October's benchmark, while loadings bound for Asia are down nearly 300,000 bpd. We have said before that China is such a big market participant that it 'makes the weather' - dictating global flows - and it appears to be doing so again.

    China's demand for Saudi and Iraqi crude was primarily the driver behind the spike in crude loadings to Asia in January; its waning appetite in March has given way to Middle East loadings swinging west once more.

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    India targets national LNG auto fuel norms in fiscal year 2017-18

    The Indian government has in-principle cleared the decks for LNG to be used as an auto fuel, with draft norms for its application in road vehicles to be ready in the new fiscal year from April, officials told S&P Global Platts on Monday.

    As the industry awaits detailed guidelines and the timing for the official implementation of the decision, India's plan to push toward LNG comes at a time when many countries are assessing an array of options to not only reduce transportation costs but also curb emissions as part of their commitment to tackle global warming.

    The standards for LNG as a transportation fuel will be developed in consultation with the ministries of highways, shipping, and the environment, the officials said, adding that the basic norms for a national auto fuel LNG policy would be ready after internal consultations among the ministries conclude.

    CNG pumps like diesel and gasoline retail stations would be a reality in the near future, an official said.

    Analysts view the move to introduce LNG as an auto fuel as positive not only for road transportation but also for the LNG bunkering sector. 


    Prime Minister Narendra Modi's government has already provided a thrust to the use of LNG as a marine fuel on India's inland waterways as well as in coastal shipping.

    Most LNG has no detectable sulfur, and LNG-fueled vessels' emission of particles and nitrogen oxide are considerably lower than those of vessels using other marine fuels.

    The use of LNG as a bunker fuel is projected to cut fuel costs to run ships in India's inland waterway system by a fifth, while its use is also likely to reduce carbon dioxide emissions by 20-25% and nitrogen/sulfur oxide emissions by 90%, according to a shipping ministry note last year.

    The government's LNG bunkering plans include a switch from diesel to LNG in existing barges and the introduction of new LNG-fueled barges in the main waterways on the Ganges, a trans-boundary river that flows through India and Bangladesh.

    The Indian government will also provide a 20% subsidy for the construction of LNG barges at Haldia, Sahibganj, Patna and Ghazipur on the main national waterways over the Ganges.

    Petronet LNG is working in collaboration with state-owned Inland Waterways Authority of India, the regulator for shipping and navigation for domestic inland waterways, to design, construct and operate LNG unloading, storage, bunkering and reloading facilities.

    The waterways in which LNG barges are being targeted over the next two years have the potential to transport 17.5 million mt of cargo by 2020, according to the shipping ministry.

    However, some industry sources believe that LNG bunkering will not manifest itself in any very big way in the short to medium terms.

    "LNG bunkering is already taking place in India but right now it is minuscule. At Kochi, a handful of vessels have been fueled with LNG while making voyages from Asia to the West," one source said, adding that the high infrastructure costs associated with the development of LNG bunkering facilities still continue to act as an impediment to its widespread use.

    The increased use of LNG for bunkering will not only depend on regulation but also how the shipping industry perceives LNG, another source said.

    LNG's popularity in shipping would depend on pricing and its viability compared with other options such as scrubbers with heavy fuel oil, marine gasoil and 0.5% sulfur fuel oils, he said.
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    Far East Russian crude oil premiums hit record lows as EFS, margins take toll

    Far East Russian crude premiums are being weighed down by a narrow Brent- Dubai spread, faltering middle distillate product margins and an expected drop in Chinese end-user demand, resulting in cash differentials for Sakhalin Blend, Sokol and ESPO Blend hitting fresh lows Monday.

    Latest market talk in Asia indicated that Sakhalin Energy could have sold a total of five 730,000-barrel cargoes of light sweet Sakhalin Blend crude for loading in the second half of May and H1 June to end-users in South Korea, China and Japan, as well as an unidentified trading company.

    The Russian producer was said to have received price differentials of between parity and a premium of around 8 cents/b to Platts front-month Dubai crude oil assessments on a CFR North Asia basis for the cargoes.

    S&P Global Platts assessed Sakhalin Blend crude at a premium of 25 cents/b to Platts front-month Dubai on a CFR North Asia basis Monday, the lowest on record for the light sweet crude.

    Other benchmark Far East Russian export grades have also succumbed to downside pressure in the May trading cycle, with premiums for ESPO Blend and Sokol crude loading in May hitting record lows.

    Platts assessed the second-month ESPO Blend crude at a premium of $1.80/b to Dubai Monday, the lowest since September 25, 2015, when it was assessed at a $1.60/b premium, Platts data showed.

    Russia's Rosneft kicked off the new trading cycle for ESPO on a bearish note last week, with market talk indicating it could have awarded its latest tender, offering two cargoes for loading over May 9-15 and May 22-27, at premiums of between $1.70/b and $2/b.

    Trade sources said Surgutneftegaz could have awarded its tender offering three cargoes for loading over April 30-May 5, May 3-8 and May 5-10 at premiums in the range of $1.50-$1.80/b to Dubai on an FOB Kozmino basis.

    In comparison, most of the April-loading ESPO crude cargoes received premiums in the mid-$2s/b in the previous trading cycle.

    Meanwhile, Sokol was assessed Monday at a premium of $1.40/b to the average of Mean of Platts first-line Dubai and Oman assessments in May, the grade's lowest cash differential on record.

    Platts took into consideration several deals heard in the spot market, including ExxonMobil's latest tender results, which indicated that the oil major could have sold a 700,000-barrel cargo each for loading over May 15-17 and May 25-27 to Shell and a Japanese company at premiums of $1.70-$1.80/b to Platts Dubai on a CFR North Asia basis.


    The narrow Brent/Dubai Exchange of Futures for Swaps spread -- a key indicator of ICE Brent's premium to benchmark cash Dubai -- has not been kind to the Far East Russian crude complex to date this year, market participants said.

    One Singapore-based crude trader said the EFS spread of less than $2/b would keep the Dubai-linked Far East Russian grades less price competitive against several Asia Pacific, European and West African grades linked to the European benchmark.

    "What used to be more than $2/b [spread last year] is barely mid-$1s/b this year ... Dubai [-linked grades are looking] very expensive because of that," said a Singapore-based sweet crude trader.

    The second-month EFS has averaged $1.42/b to date in March, the lowest since August 2015, when it averaged 79 cents/b, Platts data showed.

    The latest downtrend in refining margins has also worked against Far East Russian crude suppliers in recent weeks, traders said.

    "It's double, triple whammy really ... narrow EFS is bad enough but weak margins and [North Asia's] maintenance season [are also weighing on the premiums]," said a North Asian sweet and sour crude trader.

    Platts data showed the second-month jet fuel/kerosene to Dubai crude swap crack has averaged $11.34/b to date this month, the lowest since August 2016, when it averaged $11/b.


    Premiums for ESPO Blend crude have plunged as demand from baseload buyers in China dissipated for May-loading cargoes due to turnarounds, while China's independent refiners used up most of their government-allotted crude import quotas, Asian traders said.

    Crude imports by the independent refiners were expected to slow down as several have used up most of their allocation from the first round of import quotas. These refiners will need to wait until June for the second batch of quotas to be allocated by the government before they can resume purchasing, market sources said.

    A total 45.64 million mt of quota allocations were issued to 19 independent refineries in the first round in January. An allocation was based on the volume the refiner had imported in the first 10 months of 2016.

    This resulted in some refiners getting sufficient allocation in the first round this year to cover their entire year's requirements and some that had imported a relatively small volume in those 10 months facing a shortfall, especially if they have raised runs this year.

    Meanwhile, turnarounds in China are ramping up from March, with substantially more maintenance expected this year than in the same period last year, according to Platts Oil Analytics.

    About 550,000 b/d of primary distillation capacity will go offline in March, rising to almost 1 million b/d in April and 750,000 b/d in May. In comparison, a maximum 550,000 b/d was offline for turnarounds over March to May last year.

    "Chinese [buyers] are the first tier market for ESPO... without demand from China, ESPO's premiums will fall," said another Singapore-based crude trader.
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    API crude inventories rise greater than expected 4.5 mln bbls

    U.S. crude oil inventories climbed by 4.5 million barrels in the week to March 17 to 533.6 million barrels, the American Petroleum Institute (API) said late on Tuesday.

    "The American Petroleum Institutes' crude inventories stuck the knife into crude overnight, coming in at a 4.5 million barrel increase against an expected increase of 2.8 million barrels," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

    "If the API stuck the knife in, tonight's EIA Crude Inventory figures may twist it. A blowout above the 2.1 million barrel increase expected, may well torpedo oil below the waterline," he added.

    Official U.S. Energy Information Administration (EIA) oil storage data is due on Wednesday.

    The bloated storage comes as U.S. oil production has risen over 8 percent since mid-2016 to more than 9.1 million barrels per day (bpd), levels comparable to late 2014, when the oil market slump started.

    Rising production in the United States and elsewhere, and bloated inventories, are undermining efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to cut output and prop up prices.

    "OPEC's market intervention has not yet resulted in significant visible inventory draw-downs, and the financial markets have lost patience," U.S. bank Jefferies said on Wednesday in a note to clients, although it added that the cutbacks would likely start to show by the second half of the year if OPEC extends its production cuts beyond June.
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    Big Oil’s Plan to Buy Into the Shale Boom

    Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp., are jumping into American shale with gusto, planning to spend a combined $10 billion this year, up from next to nothing only a few years ago.

    The giants are gaining a foothold in West Texas with such projects as Bongo 76-43, a well which is being drilled 10,000 feet beneath the table-flat, sage-scented desert, and which then extends horizontally for a mile, blasting through rock to capture light crude from the sprawling Permian Basin.

    While the first chapter of the U.S. shale revolution belonged to wildcatters such as Harold Hamm and the late Aubrey McClendon, who parlayed borrowed money into billions, Bongo 76-43 is financed by Shell.

    If the big boys are successful, they’ll scramble the U.S. energy business, boost American oil production, keep prices low, and steal influence from big producers, such as Saudi Arabia. And even with their enviable balance sheets, the majors have been as relentless in transforming shale drilling into a more economical operation as the pioneering wildcatters before them.

    “We’ve turned shale drilling from art into science,” Cindy Taff, Shell’s vice president of unconventional wells, said on a recent visit to Bongo 76-43, about 100 miles (160 kilometers) west of Midland, Texas, capital of the Permian.

    Bongo 76-43, named after an African antelope, is an example of a leaner, faster industry nicknamed “Shale 2.0” after the 2014 oil-price crash. Traditionally, oil companies drilled one well per pad—the flat area they clear to put in the rig. At Bongo 76-43, Shell is drilling five wells in a single pad for the first time, each about 20 feet apart. That saves money otherwise spent moving rigs from site to site. Shell said it’s now able to drill 16 wells with a single rig every year, up from six in 2013.

    With multiple wells on the same pad, a single fracking crew can work several weeks consecutively without having to travel from one pad to other. At Bongo 76-43, Shell is using three times more sand and fluids to break up the shale, a process called fracking, than it did four years ago. The company said it spends about $5.5 million per well today in the Permian, down nearly 60 percent from 2013.

    “We’re literally down to measuring efficiency in minutes, rather than hours or days,” said Bryan Boyles, Bongo 76-43’s manager.

    Independent companies are watching the big three’s arrival with ambivalence. Exxon, Shell, and Chevron will be able to spend more than independents can for service contracts and prime drilling acreage. But if the majors pursue acquisition deals, as they’ve done before, the wildcatters stand to reap the benefits.

    Exxon invested big in shale in 2010 when it bought XTO Energy Inc. in a deal valued at $41 billion. For years, however, the major companies spent little on shale, instead focusing on their traditional turf: multibillion-dollar engineering marvels in the middle of nowhere that took years to build. The wells that Big Oil drilled were mostly in deep water, where a single hole could cost $100 million, rather than shale wells that can be set up for as little as $5 million each.

    The machinery used to fracture shale formations inside the Delaware Basin pumps water, sand, and chemicals into the holes already drilled at a Royal Dutch Shell hydraulic fracking site near Mentone, Texas, on Thursday, March 2, 2017.
    Photographer: Matthew Busch/Bloomberg

    All that changed after oil prices crashed in 2014. Big companies were forced to cut costs and focus on projects that delivered cash quickly and could easily be sped up or slowed down. Shale was the solution.

    “The arrival of Big Oil is very significant for shale,” said Deborah Byers, U.S. energy leader at consultant Ernst & Young in Houston. “It marries a great geological resource with a very strong balance sheet.”

    The big three have all hatched ambitious catch-up strategies. Shell plans to spend about $2.5 billion a year, or about one-tenth of its total spending—a bet that’s bigger than those of some pure-play shale companies such as Hamm’s Continental Resources Inc.

    “The majors arrived late,” said Greg Guidry, who runs Shell’s shale business. “We want to be as nimble as the independents but levering the capabilities of a major.”

    Chevron said it estimates its shale output will increase as much as 30 percent per year for the next decade, with production expanding to 500,000 barrels a day by 2020, from about 100,000 now. “We can see production above 700,000 barrels a day within a decade,” Chevron Chief Executive Officer John Watson told investors this month.

    Exxon said it plans to spend one-third of its drilling budget this year on shale, with a goal to lift output to nearly 800,000 barrels a day by 2025, up from less than 200,000 barrels now. The company doubled its Permian footprint with a $6.6 billion acquisition of properties from the billionaire Bass family. Darren Woods, Exxon’s new CEO, said shale isn’t “on a discovery mode, it’s in an extraction mode.”

    The price of oil is starting to reflect rising U.S. output. West Texas Intermediate, the national benchmark, this month dropped below $50 a barrel for the first time this year, down 10 percent from its 2017 peak.

    Big Oil’s dive into shale could weaken the hand of Saudi Arabia and other big exporters by raising U.S. output. Economically, the countries would have to contend with lower oil prices. Geopolitically, their share of the global energy market would fall, and the U.S. would depend less on foreign supplies.

    U.S. domestic production is likely to top 10 million barrels a day by December 2018, a level surpassed only twice, in October and November 1970, according to the U.S. Energy Information Administration.

    Some investors remain unconvinced. Shale, they argue, is a very different business for the big companies. Huge projects, their mainstays, require a big upfront investment before becoming cash cows for decades with relatively little spending. Shale, on the other hand, requires ongoing spending because output quickly falls after an initial burst.

    Guidry, head of Shell’s shale, said the company could make money in the Permian with oil at $40 a barrel, with new wells profitable at about $20 a barrel.

    A lesson of the oil-price crash was how important it was to keep cash on hand. The independents typically overspent, taking on debt to keep drilling, so when prices fell, they slowed their operations. The big three will experience no such pinch, said Bryan Sheffield, the billionaire third-generation oilman who heads Parsley Energy Inc.

    “Big Oil is cash-flow positive, so they can take a longer-term view,’’ Sheffield said. “You’re going to see them investing more in shale.”
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    Chevron's $1 Billion Sale of China Oil Fields Stalls

    Chevron Corp.’s sale of its stakes in Chinese offshore oil fields operated by state-owned CNOOC Ltd. has stalled, people with knowledge of the matter said.

    Bids that Chevron received for its interests in three fields in China’s Bohai Bay didn’t meet its expectations, according to the people. Chevron had aimed to sell the assets for as much as $1 billion, the people said, asking not to be identified discussing private information.

    The U.S. oil and gas explorer is considering keeping the Bohai Bay holdings for now, the people said. The assets had drawn interest from Chinese suitors including AAG Energy Holdings Ltd., Brightoil Petroleum Holdings Ltd.and Shanghai-traded Meidu Energy Corp., according to the people.

    Oil majors such as Royal Dutch Shell Plc and BP Plc have been looking to shed overseas assets to focus on their home markets. Chevron, based in San Ramon, California, has said it wants to raise as much as $10 billion from asset sales this year and it agreed in December to sell Asian geothermal assets to Ayala Corp. Shell is considering a sale of its stake in a Malaysian liquefied natural gas export plant, people familiar with the matter said last year.

    Chevron owns a 24.5 percent working interest in the QHD32-6 field, as well as a 16.2 percent each in the Bozhong 25-1 and Bozhong 19-4 fields, according to its website. CNOOC holds the remaining stake in each field and is the operator.

    There’s still a chance a buyer could emerge for the assets, the people said. Representatives for Chevron and Brightoil declined to comment. A representative for Meidu said he couldn’t immediately comment, while AAG didn’t respond to an email and phone calls seeking comment.
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    Marathon adds to Permian acreage with $700 million buy

    Marathon adds to Permian acreage with $700 million buy

    Marathon Oil Corp said on Tuesday it bought additional acreage in the Permian basin for about $700 million, the company's second purchase in less than two weeks as it focuses on higher-margin, lower-cost U.S. assets.

    The about 21,000 acres, situated in the Northern Delaware basin of New Mexico, was acquired from Black Mountain Oil & Gas and other private players, the company said.

    Marathon, which has said it would exit its Canadian oil sands business, bought up about 70,000 net surface acres in the oil-rich Permian basin for $1.1 billion earlier this month.

    Oil producers have made a beeline for the Permian basin as the region's sprawling pipeline network, abundant labour and supplies and warm winters that allow year-round work help companies make money at current crude prices.
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    Ferus plans small-scale British Columbia LNG facility to serve Yukon, NW Territories

    Ferus is in the early stages of developing a merchant LNG facility in British Columbia to supply natural gas for mining companies in Yukon and the Northwest Territories to replace diesel they use for operations and for power generation, a spokeswoman said Monday.

    A merchant LNG facility is a small-scale plant that is typically not owned by a utility and with a capacity of between 50,000 gallons/day (about 29,000 mt/year or 4.13 MMcf/d) and 500,000 gal/d.

    "Our proposed Fort Nelson LNG facility consists of two phases each of 300,000 gal/d with a targeted final investment decision in 12 to 18 months," the spokeswoman, Blaire Lancaster, said in an e-mail.

    Calgary-based Ferus has not yet started the regulatory process to build the facility, but the first phase is targeted for start up in 2020. The second phase is due for commission in 2022, Lancaster said.

    Last fall, Vancouver-based Casino Mining Corp. and Selwyn Chihong Mining signed a memorandum of understanding with Ferus for LNG supplies to their mine projects in Yukon and the NWT.

    Besides reducing greenhouse gas emissions by nearly 30%, the LNG to be supplied from North Nelson will have a delivered price of "just less than C$15/gigajoule ($11.22/GJ) and this is compared with a price of C$27.12/GJ for diesel," she said.

    The heat content for a gallon of LNG is 83,000 Btu, compared with 140,000 Btu for a gallon of diesel.

    Ferus will supply the gas after compression in either trucks or in rail cars, Lancaster said.

    In neighboring Alberta, where Ferus owns and operates a 50,000 gal/d merchant LNG at Elmworth, a second phase development is planned to be operational in 2018, she said.

    Output from the Elmworth facility is currently supplied to the oil and gas industry in Western Canada to displace diesel in drilling rigs and fracking operations and power generation in Yukon and the NWT, Lancaster said.


    In the US, Ferus-owned Maxville LNG is due to start by the summer a liquefaction facility at Jacksonville in Florida with a 1 million-gal storage tank and an LNG truck-loading system, she said.

    With a nameplate capacity of 200,000 gal/d, the project will have an output of 87,000 gal/d at the initial stage and will serve nearby island markets, Lancaster said.

    Another Ferus-owned subsidiary, Eagle LNG, is building a fuel depot dockside at Talleyrand on the St John's River in Florida. The terminal, which is due to be operational this summer, will have a 500,000gallon storage capacity for bunkering operations, she said.

    The Maxville liquefaction facility and Talleyrand have Crowley Maritime Corp as the anchor customers, Lancaster said.

    Crowley transports cargo from the US to Puerto Rico in its own vessels.

    Separately, a second liquefaction facility proposed by Eagle LNG is also planned at Jacksonville that is currently undergoing a Federal Energy Regulatory Commission process.

    "We filed the application on January 31 and anticipate completion of the project in 2019," Lancaster said.

    The proposed facility will have processing capacity of 1.5 million gal/d, with an on-site LNG storage of 12 million gallons and output from the project will be sold to the Caribbean to replace diesel that is used for power generation.
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    Chinese independent refiners' crude oil imports set to slow on quota issues

    Chinese independent refiners' crude oil imports set to slow on quota issues

    Crude imports by China's independent refiners are expected to slow down in the coming months as several refiners have used up most of their allocation from the first round of import quotas and will need to wait until June for the second round before resuming purchases.

    Independent refiners need government-allotted quotas to import crude oil. A total of 45.64 million mt of quotas were allocated to 19 independent refineries in the first round in January.

    The refiners have submitted applications for a second batch of quotas, but the government is only expected to allocate fresh quotas in June leaving the refiners with the option of either reducing throughput or buying barrels from the domestic spot market, market sources said.

    China's independent refineries imported a total of 60 million mt (1.2 million b/d) of crude oil in 2016, according to S&P Global Platts estimates.

    This represented 16% of China's total imports of 381 million mt in 2016.

    The quota allotted to each refiner in the first round was based on the volume the refiner had imported in the first 10 months of 2016.

    This resulted in some refiners getting sufficient quotas in the first round to sustain themselves for the entire year, but refiners that imported a relatively small volume in the first 10 months of 2016 are suffering from a quota shortage, especially if they raised runs this year.

    The refiners in this category include Shandong-based Chambroad Petrochemical, Wonfull Petrochemical and Haiyou Petrochemical.


    Chambroad, Wonfull and Haiyou were awarded import quotas of 780,000 mt, 1.67 million mt, and 430,000 mt respectively in the first round. The volume is significantly below their annual ceiling quota of 3.31 million mt, 4.16 million mt and 3.2 million mt, respectively.

    The ceiling quota is set by the National Development and Reform Commission and sets the maximum volume a refiner can import in a given year. The actual quota is allotted by the Ministry of Commerce and cannot exceed the ceiling quota.

    "If we don't get the new quota by the end of this month, we will have to lower our production," a source with Chambroad Petrochemical said, adding that the company had heard that the new round was unlikely before the end of June.

    Chambroad Petrochemical would have imported a total of 593,000 mt crudes over the first three months of the year, leaving 187,000 mt of quota available, below its typical monthly consumption of around 250,000 mt.

    "We hesitate when booking cargoes for April and May arrivals as we are not sure whether we have enough quota to bring them in," the source with Chambroad said.

    Wonfull was expected to receive a total 1.5 million mt of imported crude oil by the end of April, leaving only around 170,000 mt quota available for May delivery, a refinery source with the company said.

    "It is time to book May delivery cargoes. Without additional quotas, we will have trouble maintaining our throughput at 300,000 mt/month," the source said.

    Haiyou faces less of an issue -- the refinery has fixed to import around 269,000 mt of crude oil in Q1, leaving it with 161,000 mt of quota available for the rest of the year -- but it may apply for additional quota in order to have more flexibility.

    China's independent refining sector has lifted utilization rates this year. In January and February, the Shandong-based independent refineries operated their plants at between 58% and 61%, up from 53%-54% a year ago, according to Beijing-based energy information provider JYD.

    The refiners will either need to lower throughput or buy barrels from the domestic spot market if the new allocations are not issued on time, market sources said.
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    Going Horizontal in the Permian: Ring Energy Triples CapEx for 2017

    9 X the investment per well to yield 15X the reserves

    With its 2016 reserves up 14% to 27.7 MMBOE from 24.4 MMBOE in 2015, consisting of about 90% oil, a small Midland, Texas-based oil company, Ring Energy (ticker: REI) has decided it’s time to go horizontal.

    Horizontal well pilot program finds success

    Ring anticipates spending about $70 million in 2017, primarily in the Permian basin. The company said it will drill 36 total wells in 2017. Most of these wells will be drilled in the Central Basin Platform of the Permian, where the company owns nearly 26,000 net acres. Ring has previously developed this acreage with vertical wells, with all but three of the 195 drilled wells having vertical designs. The company recently began horizontal development, though, and completed a three well pilot program testing horizontal wells in 2016.

    This pilot program was successful, and 22 of the 28 planned wells in the Central Basin Platform will be horizontals. The company estimates that although horizontal wells are almost nine times more expensive to drill than vertical wells, they produce fifteen times the net reserves.

    Grabbed Delaware basin assets for about $3,750 per acre

    Ring Energy also owns about 20,000 acres in the Delaware basin, a property that was acquired in mid-2015 for $75 million. Eight new wells will be drilled in 2017 in the Delaware, and 12 existing wells will be worked over. Ring is currently exclusively using vertical wells to develop this asset, though horizontal wells may be drilled in the future.
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    Indonesia police say Interpol issues red notices for three Sinopec executives

    Indonesian police said on Tuesday Interpol has issued red notices, the closest to an international arrest warrant, for three Chinese executives suspected of fraud linked to a more than $800 million Sinopec oil terminal development in Indonesia.

    China Petroleum and Chemical Corp, or Sinopec, is the second major Chinese state oil firm in less than three years to find staff facing allegations of corruption in Indonesia, where the resources sector is riddled with graft and legal and contractual uncertainty.

    "The three red notices have been published for those wanted people," said National Police spokesman Boy Rafli Amar.

    Indonesian authorities filed a request for Interpol assistance on Feb. 21 regarding the three executives, suspects in the alleged embezzlement of an undisclosed sum of money from the West Point Terminal project, Amar said. He identified the three as West Point Terminal finance director Zhang Jun, chief executive Feng Zhigang and chairman Ye Zhijun.

    A Sinopec spokesman declined to comment. Reuters has not yet been able to find telephone numbers or email addresses for the three executives, so has been unable to contact them for comment.

    Interpol's General Secretariat press office said in an emailed response to questions on the matter that it did not "comment on specific cases or individuals except in special circumstances".

    A red notice is Interpol's highest alert and is a request to locate and provisionally arrest an individual pending extradition. It is not an international arrest warrant as Interpol cannot compel any member country to arrest an individual who is the subject of a red notice.

    Indonesia, an archipelago of some 250 million people rich in resources, is routinely ranked by watchdog Transparency International as one of the world's most corrupt countries.

    Former Indonesian energy minister Jero Wacik is serving an eight-year prison term for involvement in extortion and kickbacks worth about $840,000.


    Defrizal Djamaris, a lawyer representing West Point Terminal's 5-percent stakeholder, PT Mas Capital Trust (MCT), said MCT reported suspicions of fraud on the project to local police in 2015.

    The red notices were issued because the three executives had left the country and "not cooperated" with local police investigations, Djamaris said. The police's Amar did not confirm this.

    The West Point Terminal was touted to be Southeast Asia's largest and was initially expected to be operational by mid-2016, but has faced a series of setbacks including a lawsuit filed by Indonesian shareholders in November.

    The project in Indonesia's Batam free trade zone to the south of Singapore is 95-percent owned by Sinopec Kantons Holdings, a subsidiary of Sinopec.

    Sinopec Kantons bought into the project in January 2012, aiming to develop a 2.6 million-tonne storage facility worth more than $800 million.

    The project was delayed by several years due to slow demand for tank space, Reuters reported. An official at Indonesia's energy ministry said the downstream operations permit for the West Point Terminal expired in late 2014.

    Sinopec's only other Indonesian asset is an 18-percent stake in Chevron's deep water project, bought in 2010.

    Sinopec Kantons, which is one of Sinopec's smallest subsidiaries, was not immediately available for comment.
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    Chevron calls end of LNG mega project after $88Bn spree

    Chevron Corp. has signaled the end of major new liquefied natural gas(LNG) projects in Western Australia and is unlikely to sanction an expansion of its Gorgon and Wheatstone export developments as it focuses on boosting returns from $88-billion of investment.

    The climate for developing large greenfield LNG projects has shifted to smaller developments given a slump in the price of oil to under $50 a barrel, according to Nigel Hearne, a managing director with the company’s Australia unit.

    “The mega projects of the past decade are giving way to smaller, more targeted investments with quicker economic returns,” Hearne said in a speech in Perth on Tuesday. “As it stands there is unlikely to be another large greenfield LNGdevelopment” in Western Australia.

    Chevron’s two major Australian LNG facilities have suffered from cost blowouts, delays and poor timing. Oil’s worst slump in a generation and an LNG supply glut reduced revenue from projects across the industry.

    While the third LNG train from the $54-billion Gorgon project is in the process of starting up, further expansions are unlikely in the current climate with Chevron focusing future investments on “shorter-term” returns.

    “I can’t see in the near-term us investing in a fourth train at Gorgon or a third train at Wheatstone,” Hearne said in Perth. Chevron is focused on generating returns on its existing investments and paying a “dividend back for the money” already spent.

    The first train from the $34-billion Wheatstone projectremains on schedule for mid-2017, he said.

    About A$118-billion ($91-billion) of LNG developments in the nation are scheduled to be completed in 2017 including Gorgon, Inpex Corp.’s Ichthys and Royal Dutch Shell Plc’s floating Prelude vessel, according to a December report from Deloitte Access Economics.

    A growing supply glut will likely deter significant investment in new Australian LNG projects beyond 2017 with doubts growing over the feasibility of planned floating facilities, according to the report. Planned FLNG projects in Australiaincluding Woodside Ltd.’s Browse and Sunrise facilities and Exxon Mobil Corp.’s Scarborough may not proceed due to a more competitive operating environment, Deloitte said.
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    Shell to drill new wells by end-2018 to shore up Australia gas supply

    Royal Dutch Shell said on Tuesday it will drill 161 new gas wells at its Queensland operations by the end of 2018, helping to underpin its promise to continue supplying 10 percent of the domestic gas market to help prevent a shortage.

    The project at its QGC operations in the Surat Basin in southeast Queensland has been planned for some time as existing wells decline, with the new wells due to be drilled this year and next. The wells will help sustain Shell's 75 petajoules of gas supplies a year to eastern Australia's gas market.

    The new drilling will not affect exports from Shell's Queensland Curtis liquefied natural gas (LNG) plant.

    The announcement came a week after Prime Minister Malcolm Turnbull hauled in Australia's gas producers, led by Shell Australia and ExxonMobil Corp, to discuss how to boost supplies in face of warnings from the nation's energy market operator of a looming shortage within the next two years.

    Gas supply has become a hot issue, following blackouts and brownouts in Australia's eastern states over the past year, and as growth in LNG exports has led to soaring gas prices for manufacturers.

    Thanks to onshore production in Queensland, businesses there will pay less than rivals further south, where onshore drilling has been banned or restricted due to opposition from landowners and green groups, said Shell Australia Chairman Andrew Smith.

    "This is a competitive advantage for Queensland business in attracting manufacturing jobs from Victoria, where gas customers will be forced to pay more for political reasons," Smith said.
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    Japan's Top Oil Experts Seek Solutions to Chinese Fuel Flood Problem

    Huddled deep within Tokyo’s government district, nearly two dozen of Japan’s top oil experts pore over a problem plaguing its energy industry: how can they stop China from pushing its crude refiners into a corner?

    The task force, summoned by the trade ministry, needs a strategy to save oil refiners battered by years of declining demand at home. The processors, including JX Holdings Inc. and Idemitsu Kosan Co., now face rising competition for sales in Asia, the world’s biggest oil market. The ministry fears that China’s move to adopt stricter fuel standards will spur regional rivals into producing higher quality products, forcing Japan out of the market.

    “We’ve been saying for more than 20 years that Japanese refiners should become stronger,” said Hidemasa Nishiyama, director of the trade ministry’s petroleum refining and reserve division. “The external environment has changed: the capacity of China and other countries is becoming excessive, and their exports could surge.”

    China is the biggest among a slew of other threats for Japan. The gradual slowdown of economies such as South Korea’s have led to rising exports to an increasingly saturated market. Meanwhile, other developed countries including the U.S. are also fighting for its share in Asia after China’s diesel and gasoline shipments overseas capped a record year in 2016.

    Sense of Urgency

    Members of the task force include Seisuke Iwai, a senior official at industry group Petroleum Association of Japan, Norimasa Shinya, an energy analyst at Mizuho Securities Co., Fuminori Hasegawa, senior vice president at Mitsubishi Corp. and Katsuhiro Sato, a partner at McKinsey & Co. in Japan.

    Their mission has taken on a sense of urgency following China’s move at the start of this year to curb the amount of sulfur used in vehicle fuels in an effort to reduce air pollution. The new rule has encouraged suppliers like China Petroleum and Chemical Corp., the world’s biggest oil refiner known as Sinopec, to pledge about $29 billion in facility upgrades to enable it to pump cleaner fuel.

    At the same time in Japan, the popularity of electric hybrid vehicles has reduced the country’s gasoline demand, contributing to an oversupply in refined products. Domestic oil-product sales at JX Holdings and other refiners have shrunk for the past five years, forcing them to cut capacity while seeking to sell excess fuel abroad.

    JX Holdings shares slipped 0.7 percent at the close in Tokyo on Tuesday. TonenGeneral Sekiyu KK lost 1.9 percent, Showa Shell Sekiyu KK dropped 1.7 percent while Idemitsu Kosan added 0.4 percent. The benchmark Topix index declined 0.2 percent.

    This isn’t the first time the ministry has intervened. The trade ministry, known as METI, enforced a rule eight years ago that pushes refiners to increase their ratios of heavy oil cracking capacity to crude oil distillation units by March 2014. Later that year, the ministry asked refiners to further improve its efficiency while setting a new deadline for March 2017. For the refiners to upgrade their oil cracking units, they would likely need to invest tens of billions of yen, according to Nishyama.

    But the rules have been met with little success. Rather than upgrading to enable plants to produce more high-quality and expensive crude products such as diesel while reducing low-value residual ones such as fuel oil, the refiners instead opted to slash processing capacity. While that drop helps alleviate oversupply issues in Japan, it hasn’t helped the companies become more competitive overseas.

    The expert group is scheduled to make new recommendations to the country’s industry at its next meeting this month. METI hasn’t decided whether to implement a third round of similar efficiency rules, Nishiyama said.

    “Cutting nameplate capacity like we are doing now means our costs won’t change but profits will rapidly fall,” said Tsutomu Sugimori, the president of JX Nippon Oil & Energy Corp., Japan’s biggest refiner by capacity. “It will only weaken the health of refining companies.”
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    Libya Ports Prepare to Resume Crude Shipments After Clashes

    Libya’s major oil ports of Es Sider and Ras Lanuf are resuming operations and preparing to export crude after a two-week halt in shipments due to military clashes in the holder of Africa’s largest crude reserves.

    Libya’s total production rose to 646,000 barrels a day from 621,000 barrels on Sunday mostly due to an increase from Waha Oil Co., Jadalla Alaokali, a National Oil Corp. board member, said Monday by phone. Waha Oil feeds into Es Sider, the country’s biggest oil port. Staff are returning to Es Sider and Ras Lanuf, its third-largest, and exports are set to restart in a week to 10 days, Alaokali said Sunday.

    “Both ports are ready to restart exports,” Alaokali said.

    Waha Oil, a joint venture between the NOC, Hess Corp., Marathon Oil Corp. and ConocoPhillips, suspended production earlier this month after clashes between armed factions in the politically divided nation forced Es Sider and Ras Lanuf to suspend shipments. Waha Oil is "soon" expected to reach 75,000 to 80,000 barrels a day, the level it was at about two weeks ago before fighting broke out near the ports on March 3, according to Alaokali. It began pumping on Saturday.

    Forces loyal to Libya’s eastern-based military commander Khalifa Haftar regained control over the two ports on March 14. The fighting, including airstrikes, dealt a blow to international efforts to restore stability in the country. A rival group had seized Es Sider and Ras Lanuf earlier this month.

    Pumping Oil

    Brent crude added 23 cents, or 0.5 percent, to $51.85 a barrel at 1:24 p.m. Singapore time. The global benchmark has lost almost 9 percent this year.

    Libya’s eastern oil region is safe now, and companies in the area can resume normal operations related to production and exports, Mustafa El-Zegheid, coordinator of the NOC’s Oil Crescent emergency committee, said.

    At least 45 workers and engineers have returned to their jobs at Ras Lanuf and 35 others at Es Sider, El-Zegheid said. Employees at Es Sider have inspected storage tanks and valves, and the facilities are ready to receive crude from the Waha field, which will slowly increase Waha Oil’s production, he said.

    Libya has sought to boost crude exports after fighting among rival militias hobbled oil production following the overthrow in 2011 of dictator Moammar Al Qaddafi. The conflict showed signs of calming in recent months, with oil output reaching about 700,000 barrels a day in February from 260,000 a day in August, according to data compiled by Bloomberg. Libya pumped 1.6 million barrels a day before Qaddafi’s ouster.

    Waha Oil has an output capacity of more than 300,000 barrels a day, according to the NOC’s website. Its production dropped by half to 40,000 barrels a day after the closing of Es Sider, before it came to a complete halt. Libya has been rescheduling crude loadings at Es Sider and Ras Lanuf and transferring them to other ports such as Zueitina and Brega.

    Libya split into separately governed regions in 2014, leading to the establishment of competing NOC administrations. A deal meant to unite them under a single management was signed in July 2016. The future of that accord now appears uncertain as the head of the NOC in the east said earlier this month he was pulling out of the deal because the terms of the agreement, including the transfer of the company’s headquarters to Benghazi, have yet to be met.
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    Genscape Cushing inventory higher

    Gesncape Cushing inventory +1.5mmbbl

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    Strike action looms as UK offshore workers reject pay deal again

    Members of Scotland’s biggest offshore trade union Unite have once again voted to reject a pay offer by their employers thus moving a step closer to a potential strike action.  

    The union said in a statement on Monday that, in a consultative ballot, 81 per cent of its members voted to reject the latest deal put forward by their employers, represented by the Offshore Contractors Association (OCA).

    Unite, along with the GMB union, is seeking a wage increase for offshore members, along with improved sick pay and paid travel time to an employer’s onshore base.

    This is the second pay offer rejected by members. In December, 85 percent of Unite members voted to reject a previous OCA proposal that would have seen no increase in their pay and no improvement to their terms and conditions, the union claimed.

    Unite regional officer Tommy Campbell said: “We have repeatedly warned the OCA employers and other offshore employers that we cannot simply have a race to the bottom, with companies competing with each other to suppress the pay and conditions of offshore workers.

    “It’s bad for our members and it’s bad for the local economies that rely on their incomes.

    “Those companies who invest in their workers and see them as genuine partners will reap the benefits in the future. Those who don’t will end up lagging behind, and will always face the possibility of industrial action from their workforce.”

    Referring to what will come next, Campbell further said: “We will now consult with our union members and Unite workplace representatives about the way forward, given they now have a mandate for an industrial action ballot following the rejection of the pay offer.”

    Several days before the results of the ballot were revealed, OCA said that member companies believed this offer would help protect and sustain the North Sea industry and employment opportunities within the sector, now and in the long-term.

    Responding to the results of the vote, Paul Atkinson, OCA CEO, said: “We are extremely disappointed that members of the trade unions who took part in the consultative ballot have rejected our pay offer.

    “Our priority is to find ways of avoiding industrial action. We will continue to maintain an on-going dialogue with union officials in an attempt to bring this to a resolution.”
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    TransCanada seeks Canada pipe approval for Petronas LNG terminal

    Transcanada Corp has secured shipper commitment for a pipeline for Malaysian state-owned oil company Petronas's Pacific NorthWest liquefied natural gas (LNG) terminal in western Canada and will seek approval for early construction, the company said on Monday.

    TransCanada was previously granted approval for the North Montney Mainline pipe on condition of a positive final investment decision from Pacific NorthWest. The approval TransCanada is seeking will allow the company to start building most of the pipe before such a decision, TransCanada said.
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    Methanol's use as marine fuel to hinge on commercial aspects

    The popularity of methanol as a bunker fuel will hinge on commercial considerations rather than environmental concerns, as the marine industry confronts an array of viable alternatives that comply with the International Maritime Organization's 2020 sulfur cap, sources said at an industry event.

    Methanol is a biodegradable, clean-burning marine fuel that reduces smog-causing emissions, and is also similar to bunker fuel specifications because it is a liquid, making it easier to transport and store than alternatives such as liquid natural gas which requires its own infrastructure.

    But the move to look at methanol as a marine fuel is relatively recent, and has been driven by the recent surge in production capacity, particularly in the US, where supply has burgeoned thanks to cheap gas from shale plays.

    Tepid demand from traditional downstream applications of methanol such as acetic acid and formaldehyde, has also prompted some suppliers of methanol to scout for other applications including its use as a marine fuel.

    The production cost of methanol is about 50% higher than that of LNG. However, the distribution chain of methanol is much simpler as it requires no additional investment -- special vessels or storage terminals. LNG, on the other hand, requires expensive sophisticated deep sea vessels, import and re-export terminals, LNG coastal feeder vessels, local LNG terminals and storage, and LNG bunker vessels. Due to the costly distribution chain for LNG, the cost difference at the production facilities is eliminated when the fuel is distributed to the vessel," said Bengt Ramne, managing director at ship design company ScandiNAOS AB.

    "Conversion costs of using methanol are also much lower -- around 300-350 kw of installed power -- a third of the conversion costs of LNG," Ramne said, speaking at an event Friday jointly organized by the Methanol Institute, International Bunker Industry Association and Lloyd's Register Marine.

    Conversion costs are likely to fall further as more methanol plants come online and additional storage infrastructure is developed, sources said.

    Another factor that could spur the use of methanol would be the prospect of rising crude oil prices, they said.

    Stena Line, for example, successfully retrofitted the vessel Stena Germanica to use methanol as a solution to low sulfur fuel requirements, Ramne said. But the decision was taken at a time when methanol prices were low, he said, adding that the incentive for shipowners and operators to switch to methanol had dwindled in the current low crude oil price environment.

    S&P Global Platts assessed Asian methanol at $343/mt CFR China Thursday, lower than MGO Singapore at $468.50/mt but higher than Singapore delivered 380 CST bunker fuel at $297.50/mt.


    In the absence of a real pull factor from the shipping industry, concerns still remain over the widespread adoption of methanol over other alternatives, an industry source said. These alternatives could be scrubbers with heavy fuel oil, marine gasoil, 0.5% sulfur fuel oil or LNG.

    Although LNG infrastructure is costly, LNG uptake is expected to rise, he said, adding that the push for LNG is coming not only from suppliers but also governments and ports. Many ports in Singapore, Japan and South Korea are already gearing up for LNG bunkering.

    Methanol has other challenges too.

    "The flash point [for methanol] is around 11-12 degrees Celsius whereas the SOLAS regulation requires minimum 60 C, and of course the biggest challenge is to beat the low fuel price," said Md Harun Ar Rashid, technical manager at fuel tester Veritas Petroleum Services.

    "Gasoil will still be the dominant fuel, whether we like it or not. Low sulfur fuel oils and hybrids will also have a bigger role, particularly post 2020," Rahul Choudhuri, Managing Director VPS Singapore, said, adding this trend was reflected in recent data and tests conducted by his company. In 2016, for example, VPS observed a 9% year-on-year increase in hybrid fuels as they gained traction due to tougher environmental regulations, he said.

    "Increased use of methanol will also take time as the use of scrubbers is expected to accelerate," another industry source said. "People will have too many choices and may end up choosing just plain vanilla."

    "Installing scrubbers may be an economically attractive option [for the shipping industry]. Although there is an initial investment, shippers can expect a high return of 20% and 50% depending on investment cost, MGO fuel oil spread and ships' fuel consumption," Sushant Gupta research director for Asia refining at Wood Mackenzie said at a different event last month.

    He added that the company's baseline case estimated scrubbers in ships rising from around 300 currently to as high as 8,000-10,000 by 2025.
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    Nigeria's amnesty plan for militants facing funding challenges

    The Nigerian government's amnesty program designed to keep militants from attacking oil facilities in the Niger Delta is facing funding problems, posing a potential challenge to efforts to curb violence in the region and raise oil production, a government official said Sunday.

    Nigeria had been paying hundreds of millions of dollars annually to former Niger Delta militants under an amnesty program introduced in October 2009 to help end years of attacks on oil installations.

    "The program has faced inadequate funding," presidential adviser to the Amnesty program Paul Boroh was quoted as saying Sunday in a government statement.

    This meant the government was unable to cover the monthly stipends paid to ex-militants as well as fund their training programs at foreign institutions, Boroh was quoted as saying at the inauguration of an inter-ministerial committee set up to oversee development plans for the restive Niger Delta region.

    "Inadequate funding has also limited the capacity to empower [ex-militants] and exit them from the program," he said in the statement.

    Nigerian government revenue has been hit by low oil prices in the international market, as well as a decline in output and exports.

    Output slumped to a near 30-year low of 1.2 million b/d in mid-2016 from 2.2 million b/d earlier due to a sudden resurgence in attacks on oil facilities in the Niger Delta.

    However it has since been on a gradual increase, hitting 1.7 million b/d in February according to the Platts survey, on the back of the recent peace talks between the government and Niger Delta leaders and youths.

    Nigeria's Vice President Yemi Osinbajo, who has been leading the peace talks, inaugurated an inter-ministerial team to fast track the government's development plans for the Niger Delta as part of the deal struck with the communities to end the violence in the region.

    Setting up the team confirmed the government was "faithful to the promises and the spirit of the presidential engagements with the people of the Niger Delta," Osinbajo was quoted as saying in a statement.
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    India boosts February LNG imports

    India’s imports of liquefied natural gas (LNG) rose 19.2 percent in February as compared to the same month a year ago.

    India imported 2.13 billion cubic meters or about 1.57 million mt of LNG in February, as compared to 1.78 Bcm in the same month in 2016, according to the data from oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

    This is India’s first monthly increase in LNG imports after posting a decline in January and December, respectively.

    Domestic natural gas production declined 1.7 percent in February to 2.52 Bcm, the PPAC data shows.

    In the April-February period, India’s LNG imports rose 16.4 percent year-on-year to 22.53 Bcm or about 16.67 million mt of LNG.

    The country’s LNG imports have been rising since the beginning of last year on the back of lower prices.

    Costs of importing LNG into India have dropped sharply in 2016 after the country’s largest importer, Petronet LNG signed a revised long-term contract with Qatari LNG producer RasGas.

    India paid $0.6 billion for December LNG imports. In the April-February period, LNG import costs reached $5.4 billion, PPAC said.

    This year, India made additional steps to further boosting its imports of the chilled fuel as part of plans to shift to a natural gas-based economy.

    The country announced last month it would halve its basic customs duty on imports of LNG from current 5 percent to 2.5 percent.

    India’s ministry of the road, transport and highways has also recently given the green light for the use of LNG as fuel for road vehicles.

    Attached Files
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    Borr Drilling to buy 15 Transocean rigs in $1.35 billion deal

    Oslo-listed rig operator Borr Drilling has agreed to buy 15 drilling rigs from Swiss-based Transocean in a $1.35 billion deal, Borr said in a statement on Monday.

    The letter of intent comprises 10 rigs from Transocean's current fleet and five that are currently under construction, it added.

    Borr also said a group of investors had agreed to an $800 million share issue, and that the proceeds will be used to fund the Transocean deal.

    The new shares will be sold at $3.5 each, a discount to the 32.5 Norwegian crowns ($3.85) that Borr currently trades at.
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    Italy gives final approval to Intesa funding of Russian oil deal

    Italy has given its final blessing to a 5.2 billion euro loan made in January by bank Intesa SanPaolo to finance the privatisation of a stake in Russia's biggest oil company, after checking to ensure the deal did not breach sanctions.

    Russia sold a 19.5 percent stake in Rosneft in December for 10.5 billion euros, in one of the biggest transfers of Russian state assets into private hands since the 1990s.

    The stake was bought by a consortium made up of Qatar and the oil trading company Glencore, which together provided 2.8 billion euros. The consortium borrowed funds from Intesa, Italy's biggest retail bank, to make up most of the rest of the purchase price.

    The deal was subject to regulatory scrutiny in Italy because of the size of Intesa's loan and the potential for entanglement in EU sanctions on Russia. Rosneft itself, its boss Igor Sechin and Russia's main state banks are all subject to sanctions imposed after Russia's annexation of Crimea from Ukraine in 2014.

    However, Italy's Financial Security Committee (FSC), a government body which includes officials from the finance, foreign and justice ministries, the central bank, finance police and anti-mafia prosecutors, found no sanctions violations.

    The FSC, which gave preliminary blessing to the deal in January, concluded its inquiry in early March, officials said.

    "At the end of all checks, we didn't find any kind of obstacle... The operation was carried out in compliance with all rules," said a spokesman for the FSC.

    Glencore, Rosneft and the Qatari investment fund QIA declined to comment. Intesa's spokesman said: "No issues were raised by competent authorities."

    According to four Italian government and bankingsources,  Intesa first agreed to lend the money to Glencore and Qatar on Dec. 6 and approached the FSC for approval, but this was held up until the new year because the new government of Prime Minister Paolo Gentiloni was sworn in only on Dec. 12.

    Since the Russian government wanted to close the deal before the end of 2016, Russian state lender VTB provided a bridge loan while the buyers waited for the money from Intesa.

    VTB is subject to sanctions, and the sources said the FSC investigated the Russian bank's role, but concluded that the bridge loan arrangement did not make the transaction illegal. VTB declined to comment.

    Reuters reported in January that certain details of the deal could not be determined from public records, including the source of 2.2 billion euros in funding and the beneficial owners of a Cayman Islands company that is part of the consortium's ownership structure. Rosneft says the deal was transparent and Glencore and Qatar are the only owners of the stake.
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    Armed With $11 Billion, Thai Oil Giants Hunt for Investments

    The Asian energy companies sitting on the largest hoard of cash outside China are ready to put it to use.

    Thailand’s PTT Exploration & Production Pcl and its parent company have nearly $11 billion combined in cash and marketable securities, such as bonds and other short-term investments. The explorer is ready to spend from its portion on projects and exploration acreage to rescue declining oil and gas reserves, according to Chief Executive Officer Somporn Vongvuthipornchai.

    PTT E&P is eyeing early-life producing assets or projects that are already sanctioned and ready for development, Somporn said in an interview in Bangkok. It’s also looking to work with its parent, PTT Pcl, to invest in liquefied natural gas plants, which would help feed the country’s growing demand.

    “We’ll have to rely on mergers and acquisitions to maintain our growth,” said Somporn. “We’re looking at opportunities in the few hundred million to $1 billion range.”

    There was no such hunger when Somporn took the reins of the upstream company in October 2015. Oil prices had already fallen from the $100 a barrel range into the $60s, and he watched as over his first six months they cratered below $30 to hit the lowest in more than a decade.

    He kept the company focused on weathering the downturn by cutting costs and investments. Meanwhile, proved reserves have fallen from the equivalent of 1.1 billion barrels of oil in 2009 to 695 million last year. That will last just five years at its current production rate.

    Short Life

    “They have a relatively short reserves life and it’s pretty clear they’re going to have to acquire to grow as a company,” said Neil Beveridge, an analyst with Sanford C. Bernstein in Hong Kong, who has a neutral rating on the company.“Domestic oil and gas production is going to decline over the coming years, so that puts more emphasis on companies like PTT E&P to go overseas and build supply.”

    Oil’s crash made deals difficult to close last year because it was hard to agree on long-term values. While the market will remain volatile, Somporn said there is enough of a consensus now for buyers and sellers to find common ground. PTT E&P is using a $50 oil price forecast this year for its investment decisions.

    “It’s a good time to grow while we have this cash with us,” he said. The E&P company has $4 billion in cash and marketable securities, which parent PTT accounts in its $10.9 billion. Only China’s big three oil firms, led by PetroChina Co.’s $18 billion pile, have more than that among listed energy companies in Asia, according to data compiled by Bloomberg.

    LNG Growth

    Most of the company’s wells are in Thailand and Myanmar, where Somporn is looking first for new supply. Divestitures by oil majors seeking to maintain dividends in a lower revenue environment provide opportunities to find assets, he said.

    LNG is another avenue for growth. Parent-company PTT is looking to expand gas imports to meet growing domestic demand fueled by economic expansion, while domestic production is declining and pipeline imports from Myanmar may be redirected to China.

    “There is an opportunity for us to participate more on the LNG value chain,” Wuttikorn Stithit, PTT’s executive vice president for natural gas supply and trading, said in a separate interview. “It’s kind of a natural hedge, because when the price of LNG is high, from the projects we would have some value.”

    PTT last week announced a higher-than-expected 2016 dividend of 16 baht (46 U.S. cents) per share, signaling an increased focus on capital allocation, according to Mayank Maheshwari, an analyst at Morgan Stanley in Singapore. The company’s balance sheet can sustain 20 percent higher dividends in the medium term, Maheshwari said in a note.

    Somporn said geography doesn’t play as much of a limiting role for LNG projects. He would prefer a project where the export facilities and production fields are combined, as opposed to projects such as those on the U.S. Gulf Coast, where firms buy already produced gas and then pay to have it liquefied for export.


    PTT E&P owns an 8.5 percent stake in Anadarko Petroleum Corp.’s proposed Mozambique LNG project. Somporn said the companies are finalizing legal requirements with the government, firming up gas contracts with buyers and beginning to discuss financing for the project. He said he hopes to make a final investment decision on the project by the end of this year.

    The company also has exploration acreage 700 kilometers (435 miles) offshore Australia that could contain 4 trillion cubic feet of natural gas. The company has shifted its focus from developing a floating production platform for the project to working with existing onshore liquefaction plants, Somporn said.

    “Thailand would be hungry for LNG,” he said. “Our Gulf of Thailand gas fields are getting mature, while demand is rising and rising.”

    Attached Files
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    Strong export demand drives large propane stocks draw in winter 2016-17: EIA

    US propane inventories fell 59 million barrels since October despite a mild winter, largely on record exports, the Energy Information Administration said.

    "As domestic propane consumption has remained relatively flat or declined on an annual basis, US exports of propane have continued to increase," EIA said in its Today In Energy feature. "Rising production and lower seasonal heating demand over the past two winters, in particular, have meant that more propane has been available for export."

    Stocks began to fall during the week of October 7, 2016, EIA data showed, when inventories were at 103.93 million barrels. As of March 10, the latest data available, stocks had dipped to 44.47 million barrels, or 18.03 million barrels below levels at this time a year ago.

    The 59.46 million-barrel draw this season tops last year's winter draw by almost 20 million barrels -- in the same 23-week period -- and is 32 million barrels larger than winter 2014-15.

    Because propane's primary source of demand domestically is as a heating fuel for homes and businesses, inventories tend to peak in late September or mid-October and bottom out in March.

    An expanded Enterprise LPG export terminal on the Houston Ship Channel, which came online in December 2015 and the startup of Phillips 66's 150,000 b/d Freeport, Texas, export terminal in late 2016, along with a growing shipping fleet, have increased US propane export capacity.

    In fact, US propane exports in December 2016 -- the latest monthly export data available -- topped 1 million b/d for the first time since the EIA began reporting propane exports in 1973 at 1.05 million b/d. December 2015 exports were at 751,000 b/d.

    As such, Gulf Coast propane prices spiked as high as 74% of crude futures in early February, a first since October 2011. Outright prices for non-LST, or Enterprise, barrels reached a 28-month high of 93.75 cents/gal February 2.

    WINTER 2017-18

    Next winter's stocks are not likely to rise to the 100 million-barrel levels of the last two years because of the expected startup of Sunoco's 275,000 b/d Mariner East 2 pipeline in the third quarter and continued export demand, according to Platts Analytics Bentek's Weekly NGL Market Monitor.

    Mariner East 2 will allow producers in the Utica shale play to move LPG to Marcus Hook for export.

    Platts Analytics models show stocks could reach 81 million barrels by the first week of October if inventories build at a similar rate to the average builds in 2015 and 2016 and Mariner East 2 does not come online until next year. If Mariner East 2 starts up quickly before the end of the year and Northeast propane does not reach the Conway, Kansas, or Mont Belvieu, Texas, NGL hubs, stocks might only reach 60 million barrels by October.

    "This likely represents a "worst-case" scenario of sustained high exports through the summer and fall," analysts said in the Weekly Monitor. "A minimum-price response would be the 5-15 cents/gallon needed to re-route propane from Marcus Hook to the US Gulf Coast."

    Attached Files
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    North Sea oil outlook less promising as Scotland eyes new referendum: consultancy

    The North Sea oil industry faces a halving of investment in the next three years and tens of billions of pounds worth of decommissioning obligations, creating an unpromising environment for a potential Scottish independence referendum, consultancy Wood Mackenzie said Friday.

    The UK oil industry has made progress on costs and efficiency since Scotland's last independence referendum in 2014, the consultancy said in a research note after the devolved government in Edinburgh proposed a new referendum this week.

    However new challenges have emerged, including weaker oil prices and a lack of new discoveries and development projects, Wood Mackenzie, which is based in the Scottish capital, said.

    "It is clear that oil and gas tax revenue will play a smaller part in the economic case for independence should a second referendum be held," it said.

    In any case, "political uncertainty could deter investors from committing to new projects," particularly in the context of the UK's exit from the European Union, it added.

    Wood Mackenzie estimated the value of Scottish oil and gas fields, including a 10% discount, at GBP44 billion ($64 billion).

    However the volume of the UK's commercial oil and gas reserves has dropped 30% since the vote in 2014, mainly because reserves totaling 1.6 billion barrels of oil equivalent have been tapped in the intervening period, compared with total discoveries of just 100 million boe.

    In addition, 1.3 billion boe of UK resources have been removed from consideration as commercial reserves due to lower oil prices.

    This means that as of the start of this year the UK was home to 6 billion boe in reserves, of which 5.3 billion boe, or 88%, lay in Scottish waters, although Scotland may be able to count on another 4.3 billion boe of "contingent" resources.

    The note highlighted a Wood Mackenzie estimate that the UK faces a total bill of GBP52 billion ($64 billion) for the eventual decommissioning of North Sea facilities, 80% of this being attributable to Scotland.

    The industry is counting on rebates of past taxes paid to the UK Treasury to help it meet these expenses, a potential difficulty for a fully autonomous Scottish government.

    "With new investment and jobs at stake, and the complicating factors of boundaries and decommissioning tax relief, much is at stake," the consultancy concluded.

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    Phillips 66 announces Rodeo pipeline in the Permian

    Houston’s Phillips 66 hopes to take advantage of West Texas’ booming Permian Basin by building the 130-mile Rodeo pipeline to the Midland area.

    The project would focus on transporting oil from the surging Delaware Basin portion of the Permian that’s west of Midland. The pipeline would run from the northern portion of Reeves County and run through Loving and Winkler counties en route to terminals in the Odessa-Midland area.

    The Reeves-Odessa Origination Project, nicknamed Rodeo, is slated for completion in the second half of 2018. Phillips 66 is not revealing project costs.

    The pipeline initially would transport 130,000 barrels of crude daily and eventually ramp up to 450,000 barrels a day. The pipeline would be 130 miles long, but that’s not counting various laterals built off of the mainline.

    Phillips 66 will build a new storage terminal near Odessa and Midland to service the pipeline. Phillips 66 currently is seeking oil producing customers in need of West Texas pipeline services.
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    Little new damage found as east Libyan forces push to secure oil ports

    A broken down truck and a tank lie by the side of the road in the sand, and overturned boxes are strewn across the floor of a firefighting station.

    Otherwise, Libya's coastal Oil Crescent appears much as it did before a string of battles saw the eastern-based Libyan National Army (LNA) lose and retake the major export terminals of Ras Lanuf and Es Sider in the space of 11 days.

    The fighting with the Benghazi Defence Brigades (BDB) caused output to dip slightly, and fuelled fears of fresh shutdowns in Libya's most important oil producing region.

    But workers are gradually returning to the oil facilities which officials say show little sign of damage beyond what was wrought in previous rounds of fighting.

    Military checkpoints have sprung up again, and shops, mosques and petrol stations have reopened. The LNA says it is once more fully in control.

    Es Sider and Ras Lanuf are two of Libya's largest terminals. They have a potential combined capacity of some 600,000 barrels per day (bpd), but have been operating at a fraction of normal levels after being repeatedly fought over and blockaded for two years.

    Reuters reporters saw a heavy military presence at Es Sider, the westernmost of the ports, during a visit on Thursday, just two days after the LNA recaptured it.

    "The port has not suffered damage that would hinder exports, just some stealing," said an engineer at Es Sider. "About 30 workers have returned to the port, though we have not started export operations yet."

    At the Harouge oil storage tank farm in Ras Lanuf, about 30 km (18 miles) east of Es Sider, a group of soldiers with five military vehicles stood guard.

    "There were clashes around the tanks, they didn't last long," said Alaa Gaddafi, an LNA commander stationed there. "Some of them escaped and we found some dead. We got control of the tanks after about 10 minutes. There was no new damage to the tanks, the damage is from before."

    The LNA and its leader Khalifa Haftar say they are working to rid Libya of Islamist extremism and militia rule. They have gradually extended their control over most parts of eastern Libya.

    The BDB is partly made up of fighters who battled the LNA in Benghazi. They draw on support from Haftar's opponents in western Libya, and say they are fighting to prevent a return to authoritarian rule and to allow displaced families to go back to Benghazi.


    The attack on the Oil Crescent by the BDB on March 3 took the LNA by surprise, exposing previous claims to have the area well secured.

    Its loss of Es Sider and Ras Lanuf, and the BDB's promise to push northeast towards Benghazi, raised the prospect of an escalation in a simmering conflict between loose armed alliances based in the east and west of the country.

    It also put at risk a partial revival of Libya's oil production, throwing into doubt a fragile arrangement by which the LNA allowed the National Oil Corporation (NOC) in Tripoli to operate the ports, even whilst allowing revenues to go to a central bank that it opposes.

    National output more than doubled after the LNA took control of all four of the Oil Crescent's ports last September, allowing the NOC to reopen three of them. During this month's clashes it dropped by about 100,000 bpd.

    The LNA maintained control of Brega and Zueitina, two ports that lie to northeast of Ras Lanuf, as the BDB advanced. And after massing its forces between Brega and Ras Lanuf, and carrying out daily air strikes against its rivals, it took back both those terminals in a single day.

    "They had no air cover and were in open land, they were on land they did not know, a land which to them was hostile," said Mohamed Manfour, commander of Benghazi's Benina air base, speaking in Brega

    The BDB says it will regroup and that its campaign to reach Benghazi will continue.

    The depth of local support for either side in the Oil Crescent remains unclear. Local backing is often won by offers of financial support and tribal pledges that can quickly shift. Both sides accuse the other of using mercenaries from southern Libya and sub-Saharan states across the border, and of carrying out abuses.
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    Chinese Oil Production Dives by 8% in 2017

    Demand is not dropping, but China’s oil production has been decreasing since November 2015

    Chinese oil production so far this year is down 8%, as the world’s fifth largest oil producer continues to be squeezed by lower commodity prices. China has produced 230.5 million barrels of oil in January and February this year, down from the 250 million barrels produced in the first two months of 2016.

    Demand has not dropped, though, as Chinese crude imports grew by 12.5% to 482.3 million barrels.

    Chinese natural gas production has not seen a decline, as production in the first two months of this year is 888.2 Bcf. This is virtually unchanged from the 885.4 Bcf produced in the first two months of 2016. Like crude oil, though, imports have risen by about 7.5% so far this year.

    Chinese oil production has been hit hard by the industry downturn, as expensive fields have been shut in. After growing steadily since 2009, the country’s oil output began to fall in November 2015. Total yearly crude production fell by 6.9% in 2016 to 1.464 billion barrels. This is China’s largest crude output drop since at least 1990. Writing in January, Bloomberg predicted that 2017 could see another production drop of about 7%

    The collapse in Chinese production is a positive for U.S. producers, though, as it reinforces the effect of the current OPEC cuts.

    China’s total production in 2016 dropped by about 313 MBOPD, about one quarter of the OPEC cut commitment.

    According to Xinhua News Agency, the nation expects to produce 1.466 billion barrels of oil in 2020.

    This could be a difficult goal to achieve, especially if Bloomberg’s decline prediction proves correct. Most of Chinese oil production comes from mature fields that are declining. At current prices many of these fields are not economic in primary production, let alone when utilizing the EOR techniques that would be required to increase production.
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    Norway's Hoegh sees Australia as top target market for LNG imports

    Norway's Hoegh LNG Holdings is targeting Australia as the next destination for its liquefied natural gas (LNG) import ships, its chief executive said on Monday, aiming to fill a looming supply gap that has sent prices soaring.

    Hoegh has just started talking to Australia's energy retailers and also sees big gas users as potential customers, with floating regasification and storage units (FSRUs) giving them access to the world market.

    Australia is about to become the world's top exporter of LNG, but faces a gas shortage at home as producers have focused on supplying gas to plants offshore that have locked in 20-year export contracts.

    "(Australia's) at the top of the opportunity list on our side," Hoegh LNG Chief Executive Sveinung Støhle told Reuters in an interview.

    Buyers could take advantage of a global glut of LNG to break the grip of Australia's big gas producers, who have more than doubled contract prices to big gas customers, like power producers and fertilizer, bricks and packaging manufacturers.

    "If they're not happy with the price they're paying in Australia, well then they can buy LNG in the market. It gives you commercial flexibility," Støhle said.

    For a graphic on Australia's gas market, click here

    Hoegh LNG, along with fellow Norwegian company Golar LNG Ltd, is leading the construction of FSRUs, which have become attractive to gas importers from Colombia to Indonesia, as they are quicker and cheaper to build than terminals onshore.

    Hoegh covers the cost of building an FSRU and the customer leases the vessel and pays the operating costs.

    Støhle sees Australia as the best potential destination for FSRUs that Hoegh has coming out of shipyards in April and early next year, in light of warnings that the eastern half of the country could face gas shortages within the next two years.

    If spot LNG prices stay around $6.50 per mmBTU, plus freight of around 50 cents/mmBTU, regasification cost with an FSRU of around 40 cents/mmBTU and crude prices around $50 a barrel, imported LNG could compete with domestic gas, Støhle estimated.

    That is roughly in line with a recent estimate by consultants McKinsey.

    Australia's top power producer and no.2 energy retailer, AGL Energy, is considering building an LNG import terminal, but has said the earliest it may start importing LNG would be in 2021.

    In contrast, Hoegh could have an FSRU in place within six months of signing a contract, as it did in Egypt in 2015, assuming port space, a jetty and infrastructure to hook into gas pipelines were available, Støhle said.
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    Bullish Crude Bets Cut by Most Ever as Price Falls Below $50

    Money managers cut bets on rising West Texas Intermediate crude by a record amount during the week ended March 14, while wagers on a further price drop doubled as oil remained below $50 a barrel.

    "It’s sort of a negative feedback loop, where money managers were selling because the price was falling, and the price was falling in part because money managers were selling,” said Tim Evans, an analyst at Citi Futures Perspective in New York, in a telephone interview.

    Bets on rising WTI crude during the report week were reduced by the most on record in data going back to 2006, the U.S. Commodity Futures Trading Commission announced Friday. The cuts came as prices tumbled below $50 a barrel for the first time this year, and anxious executives discussed rising U.S. rig counts at an industry meeting in Houston.

    On Monday, oil slid 39 cents, or 0.8 percent, to $48.39 a barrel on the New York Mercantile Exchange at 12:48 p.m. in Hong Kong. Saudi Arabia and Russia sent mixed messages as the week ended on the future of the production cuts agreed to by the Organization of Petroleum Exporting Countries and 11 other nations for the first half of the year.

    Saudi Arabia is ready to extend the cuts into the second half if supplies stay above the five-year average, Energy Minister Khalid Al-Falih said on Bloomberg Television. Russian Energy Minister Alexander Novak countered it was too early to discuss an extension. An OPEC panel is scheduled to meet this month to review compliance with the current deal.

    ‘Room to Grow’

    “If you make it through this next OPEC compliance meeting and we don’t have further jawboning by the Saudis and Russia, or more compliance, I think that you have room to grow on the short side, which is worrisome,” Brent Belote, founder of Cayler Capital LLC, which manages $5 million in oil-related assets, said by telephone.

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    During the week ended March 14, hedge funds decreased their net-long position, or the difference between bets on a price increase and wagers on a decline, by 23 percent to 288,774, the largest decline on record and the lowest level since December. WTI tumbled 10 percent during the period. Longs fell 8.9 percent to the lowest level since early January, and shorts doubled from the prior week to the highest since November.

    Producers and merchants increased their short positions, or bets on lower prices, to 739,736 futures and options during the report week, the highest level in a month.

    The U.S. benchmark slipped below $50 a barrel on March 9 as oil executives gathered in Houston for the annual CERAWeek by IHS Markit conference.

    Industry players at the meeting aired their concerns that growing U.S. output may thwart OPEC’s efforts to trim stockpiles and raise prices, an idea underpinned by U.S. government data released during the week showing inventories at record high levels. Many shale producers view $50 as a benchmark price for profitability.

    Bets on OPEC

    “The rise to record inventory levels in the U.S. is a challenge to the idea that the market has already fully rebalanced and that the downside risk is negligible," Evans said.

    There’s still hope OPEC will continue its efforts to reduce the global glut. Deutsche Bank AG Thursday predicted OPEC will extend the cuts not only through the end of this year, but also through the end of 2018. Citigroup Inc. said OPEC’s output cuts aimed at easing the glut are “real” and already are cleaning up the market.

    “We’re close to the $49 mark, not too far from $50,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone. “It seems like there are a lot of people who still have faith in OPEC delivering the kind of cuts that would allow prices to increase.”

    Attached Files
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    Libya's NOC says expects to regain Es Sider, Ras Lanuf oil ports

    Libya's National Oil Corporation (NOC) has been coordinating with military forces from eastern Libya and has "no reason to believe" it will not regain control of the Es Sider and Ras Lanuf oil ports, NOC's chairman said.

    The loss and recapture of the ports this month by the eastern-based Libyan National Army (LNA) had raised doubts over its willingness to let the Tripoli-based NOC manage the ports.

    Revenue from the sites is controlled by a central bank and U.N.-backed government in the capital which pro-LNA factions oppose.

    Eastern officials accuse rivals in Tripoli and the western city of Misrata of supporting a March 3 attack on the ports by a faction known as the Benghazi Defense Brigades (BDB).

    An oil guard commander appointed by the U.N.-backed government was deployed to secure them.

    After they were retaken, the head of a Benghazi NOC office appointed by Libya's eastern government, Naji al-Maghrabi, said he was pulling out of an NOC unification deal signed in July and an LNA spokesman said there would be no immediate decision on a handover.

    But in written responses provided to Reuters, Mustafa Sanalla, the Tripoli-based NOC chairman, said his staff had already been working with the LNA.

    "We have been coordinating our assessment of the facilities with them," Sanalla said, in his first public comments since the ports were retaken.

    "We have no reason to believe control of the ports will not be handed back to NOC."

    Es Sider and Ras Lanuf have a combined potential capacity of 600,000 barrels per day (bpd).

    Operations there and at two other ports southwest of Benghazi are crucial to the NOC's efforts to revive Libya's output, which has been crippled by years of conflict and political chaos.

    The LNA took over the ports in September, ending a two-year blockade at three of them and quickly inviting the NOC to resume exports.

    Es Sider and Ras Lanuf were badly damaged in previous rounds of fighting and have been operating well below normal levels. The latest clashes, which included ground battles and more than a week of LNA air strikes, had dented the LNA's claim it could defend the ports and led to fears that facilities would suffer further damage.

    But Waha Oil Company resumed pumping to Es Sider on Saturday and Sanalla said the NOC had decided to restart operations at the ports based on technical assessments and a review by military engineers.

    "For the most part, the facilities are not damaged. In one or two locations, some work needs to be done by the military engineers. Our workers are returning to their terminals gradually."

    Reuters journalists observed little apparent additional damage to the ports during a visit on Thursday.

    An engineer at the Waha oil field said on Sunday it was pumping 25,000 bpd to Es Sider as it restarted production. The NOC said 13,000 bpd were being pumped from Defah field, and that Waha's production should reach 80,000 bpd by the end of March.

    Sanalla said the NOC was hoping to raise overall production to 800,000 bpd by the end of April from 611,000 bpd currently.

    Libya along with Nigeria has been exempted from production cuts recently agreed by the Organization of the Petroleum Exporting Countries (OPEC).

    However, any gains in Libya remain fragile as long as the political turmoil that has fractured the country since its 2011 uprising continues.

    Oil accounts for nearly all of Libya's income and pipelines and ports have been repeatedly blockaded by local groups seeking political and financial gain.

    Eastern authorities have attempted to sell oil independently, but have been blocked by international sanctions which remain in place.

    Oil facilities are protected by the Petroleum Facilities Guard (PFG) but PFG units often operate independently or for a particular political faction.

    Sanalla said he was not concerned by Maghrabi's rejection of the NOC unification deal, which he said had been signed to clear up uncertainty in the markets. "I don't think that uncertainty exists anymore," he said.

    "No respectable oil company or ship owner will touch (the eastern NOC) ... To export oil independently would risk the integrity of the state of Libya."

    Sanalla said a neutral PFG should have a role, "but under the authority and real management of NOC".

    "Putting the PFG under the NOC would, we think, go a long way to removing Libya's oil assets as an object of military competition," he said.

    "Unless oil assets are taken off the table as an object of conflict, unless the oil industry is ring-fenced from our political conflict, then the possibility of more

    fighting remains."
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    Statoil to save another $1 billion in further cost-cutting push

    Norwegian oil and gas giant Statoil will reduce its costs by another $1 billion during 2017.

    The oil company on Friday presented its annual report for 2016 where it said it expects to achieve an additional $1 billion in efficiency improvements in 2017 for a total of $4.2 billion.

    While oil prices in 2016 increased over $30 per barrel towards the end of the year, the company said in the report that its average realized liquids price for the year as a whole was still below $40 per barrel.

    Statoil President and CEO, Eldar Sætre, wrote in a letter to shareholders: “We delivered our cost improvement program above target. The next step will be to go from project mode to a culture of continuous improvements, and we have set a target of achieving $1 billion in additional cost improvements in 2017.”

    According to the report, the $1 billion improvement is on top of already achieved $3.2 billion.

    Sætre further wrote: “The break-even price for our ‘Next generation’ portfolio of projects is now at $27 per barrel of oil equivalents.”

    During 2016, Statoil’s equity production was helped by high production efficiency and amounted to 1,978 million barrels of oil equivalents per day, which is a slight increase compared to 2015.

    The company said that the equity production for 2017 is estimated to be around 4- 5% above the 2016 level.

    Statoil’s serious incident frequency, measured as incidents per million hours worked for both Statoil employees and contractors, increased from 0.6 in 2015 to 0.8 in 2016 due to a fatality in South Korea and a helicopter crash at the end of April that killed 13 people.

    The company’s organic capital expenditures for 2017 are estimated at around $11 billion.
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    Cheniere seeks permission to start Sabine Pass LNG Train 4 commissioning

    Cheniere filed a request with the Federal Energy Regulatory Commission (FERC) to begin the commissioning process of its fourth liquefaction train at the Sabine Pass LNG project in Louisiana.

    The company requested the permission to introduce fuel gas to Train 4 to be granted no later than March 24, 2017, in order to start the commissioning activities, according to the FERC filing.

    Cheniere is developing up to six trains at the Sabine Pass terminal with each train expected to have a nominal production capacity of approximately 4.5 million tons per annum of LNG.

    The first two trains have already been completed and commissioned last year and the project has already produced the commissioning cargo from its third liquefaction train in January

    According to the latest weekly report by the U.S. Energy Information Administration, the third train is currently undergoing routine commissioning-related work to enhance the train’s operational performance.

    The facility exported a total of 30 cargoes during the first two months of the year, EIA’s report shows.
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    Norway's energy minister lauds natural gas sector competitiveness

    Norway's gas supplies will remain competitive in the coming years versus other sources of gas, including US LNG, in its key northwest European markets, recently appointed energy minister Terje Soviknes said in an interview with S&P Global Platts.

    Soviknes, who replaced former minister Tord Lien at the end of December last year, has not given any indication so far that he is likely to stray much from the previous party line, namely that Norway is well placed to continue robust gas supply to northwest Europe.

    "I expect Norwegian gas exports to remain high and stable, not only [this] year, but also for the coming years," Soviknes said.

    Norway's gas sales totaled 115 Bcm in 2016, flat on the previous all-time high recorded the previous year, and according to the Norwegian Petroleum Directorate sales are likely to remain around that 114-115 Bcm/year level until the end of the decade.

    Asked if US LNG exports, which started up in February 2016, could be a threat to Norway's key European markets in the coming years, Soviknes was unfazed.

    "Norwegian gas has a strong competitive position due to its proximity to the northwest European market and efficient, low-cost infrastructure," he said.

    "I am confident there will be a profitable market for Norwegian gas in Europe, in the short- as well as in the long term."

    He also dismissed the prospect of shale gas ever becoming competition to Norwegian gas in the UK and wider European market.

    "What matters for Norwegian gas interests is how supply and import requirements develop in the European market, in which the UK is an integral part. Our resource base is very competitive in this market and I do not expect shale gas in the UK or elsewhere in Europe to have a strong impact on the market in the years ahead," he said.


    Despite Soviknes' confidence around Norway's position in the European gas market, he did express some concern over the attitude to gas within the EU and certain of the bloc's individual countries.

    "The signals from the EU and EU capitals on the future gas demand and the role of gas in the energy mix are somewhat mixed," he said, without elaborating.

    The European Commission has backed the use of gas in power generation as a cleaner alternative to coal, but some member states are still using significant volumes of coal, such as Germany and Poland.

    "I think that key policymakers in most EU countries are aware the important role gas has to play in the EU energy mix," Soviknes said.

    Calls for a European tax, or price, on carbon emissions -- like the policy unilaterally enforced by the UK -- have also so far fallen on deaf ears.

    Such a move would automatically trigger incremental gas demand for power generation across Europe.

    There has also been some doubt about Norway's ability to sustain its gas exports at current elevated levels into the 2020s due to a lack of investment -- triggered by the falling oil price -- and the maturing resource base of the Norwegian Continental Shelf.

    Soviknes said the majority of exports over the coming years would come from already producing fields, but that the pipeline of projects due online was healthy.

    "New fields coming on stream, such as [Gina] Krog, [Aasta] Hansteen and [Martin] Linge will replace production from mature fields in decline," he said.

    Statoil operates both the Gina Krog and Aasta Hansteen fields, which are due online in the summer of 2017 and fourth quarter of 2018, respectively.

    Martin Linge is a Total-operated field expected to produce first gas in 2018.


    Another key issue affecting Norway's gas output is the strategy of its mainstay producer Statoil to sometimes keep back production to wait for higher prices.

    The state-controlled company's "value over volume" strategy has seen production reduced at times of low prices at some of its swing fields, such as Troll.
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    Tullow Oil makes $750 mln cash call to reduce debt

    Britain's Tullow Oil Plc plans a rights issue to raise about 607 million pounds ($750 million) to cut its $4.8 billion debt burden and make investments in drilling and exploration in Latin America and Africa.

    Tullow, whose founder and long-serving chief executive Aidan Heavey will hand over to Chief Operating Officer Paul McDade in April, was hit hard by the collapse in oil prices in 2014 just as it was investing heavily in an oil project off Ghana.

    Under the terms of the 25 for 49 rights issue, Tullow said on Friday it will issue 466.9 million shares at 130 pence each, a 45.2 percent discount to Thursday's close.

    Some analysts said they were surprised by the move and Tullow's shares were down 13.7 percent at 204.9 pence at 0833 GMT.

    "The ... rights issue comes as a surprise to us and possibly indicates banks were not as supportive to RBL refinancing as we were expecting," Jefferies analyst Mark Wilson said.

    Tullow, which had tightened its investment budget to $500 million this year, from $900 million in 2016, had net debt of about $4.8 billion as of Dec. 31.

    The company said it would use the proceeds from the rights issue, which is being underwritten by Barclays, JPMorgan and other banks, for investments in new drilling opportunities and further exploration and appraisal programmes in offshore Ghana.

    The company said it also plans to invest in more exploration and appraisal activity in Kenya and fund drilling projects in Africa and South America.

    Tullow also said that CNOOC Uganda Ltd had exercised its pre-emption rights to buy 50 percent of the interests in Uganda which are being transferred to Total.

    Total agreed in January to buy most of Tullow's stake in a Uganda project, jointly owned by Total, Tullow, and China's CNOOC, for $900 million.

    The terms of the CNOOC's agreement will be the same as agreed between Tullow and Total, Tullow said.

    Attached Files
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    Nigerian court overturns seizure of oilfield from Shell and Eni

    A Nigerian court on Friday overturned a request by Nigeria's financial crimes agency to seize an oilfield from Royal Dutch Shell and Eni.

    In January, a court had ordered the seizure of the OPL 245 oil block and transfer of operations to the federal government on the request of the Economic and Financial Crimes Commission (EFCC).

    Oil companies Shell and Eni had filed motions to dispute this.

    The EFCC is investigating whether the $1.3 billion purchase of OPL 245 in 2011 involved "acts of conspiracy, bribery, official corruption and money laundering", according to court papers seen in January by Reuters.

    "The chairman of the EFCC failed to meet the precondition for making an application for interim attachment of properties. So the application as such was irregular and the order granted on its basis ought to be discharged," Justice John Tsoho of the Federal High Court said.

    Reuters contacted Eni and Shell by telephone on Friday, following the court ruling. Both companies said they would issue comments in due course.

    Shell had previously said the EFCC conducted "a gross abuse of process and an abuse of power" to get a court order asking for the forfeiture, according to a document obtained by Reuters.

    The Nigerian court case is the latest of several inquiries, following those by Dutch and Italian authorities, into the purchase of OPL 245, which could hold up to 9.23 billion barrels of oil, according to industry figures.

    The oilfield's license was initially awarded in 1998 by former Nigerian oil minister Dan Etete to Malabu Oil and Gas, a company in which he held shares.

    The license was then sold for $1.3 billion in 2011 to Eni and Shell. A British court document has shown that Malabu received $1.09 billion from the sale, while the rest went to the Nigerian government.
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    Dakota Access Pipeline races to start moving Bakken crude

    Oil will likely flow through the Dakota Access Pipeline under Lake Oahe in North Dakota early next week.

    Barring any more twists or turns — and there have been plenty in the last seven months of this project — the contentious 470,000 b/d crude oil pipeline will start commercial service very soon thereafter. It will open up a major new route for Bakken and Three Forks production to flow to Illinois and onto the Texas Gulf Coast.

    A March 7 ruling by Judge James Boasberg of the US District Court for the District of Columbia cleared the way for the startup, when he turned down two North Dakota tribes’ request for a preliminary injunction to prevent oil from flowing under Lake Oahe. On Tuesday, he ruled against the tribes again in denying an injunction pending appeal by the US Court of Appeals for the District of Columbia Circuit.

    The lawsuit will go on, but Boasberg’s role in the Dakota Access saga will likely fade to the background.

    Boasberg has presided over the lawsuit with a level head that you’d expect of any judge named to one of the top US courts. He often acted as a mediator during hearings, trying to get the parties to the lawsuit — the North Dakota tribes, the US Army Corps of Engineers and Dakota Access — to reach an agreement without protracted filings about scheduling or moot issues.

    He lost his cool only once — after the US Department of Justice issued a press release freezing pipeline activity near Lake Oahe moments after Boasberg had denied a preliminary injunction and allowed construction to go on.

    Boasberg routinely thanked members of the public who attended the hearings — for being civil and for being a part of the process. There were Standing Rock Sioux in ceremonial regalia, energy industry analysts gathering information for clients, and lots of lawyers and journalists filling the less-than-comfortable benches of Courtroom 19 in the federal courthouse in Washington.

    Native Americans and other opponents of the Dakota Access Pipeline demonstrated outside the White House as part of the Native Nations Rise march on March 10. Photo by Meghan Gordon.

    Protesters will continue to fight Dakota Access and use it to galvanize opposition to future energy projects. The movement solidified a shift among environmentalists from exclusively targeting upstream projects to trying to block the transportation networks that move oil or natural gas from the wellhead to markets.

    At the same time, companies have likely learned their own lessons from the Dakota Access saga — whether they plan to ramp up local engagement before applying for projects to build community support or adopt Energy Transfer Partners’ strategy of keeping nearly silent while they go through the regulatory and court process.

    Attached Files
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    China's Sinopec nears deal to buy Chevron's South African oil assets: sources

    China Petroleum and Chemical Corp (Sinopec) is nearing an agreement to buy a majority stake in Chevron Corp's South African assets, which are estimated at $1 billion, two people familiar with the transaction said.

    The sources said that Sinopec, Asia's largest oil refiner, was the last bidder remaining, and close to completing a deal with the U.S. oil major.

    If the deal is finalised, it will be Sinopec's first refinery asset in Africa, forming a part of the Chinese major's global fuel distribution network.

    Sinopec declined to comment.

    Chevron first announced plans in January 2016 to sell the stake in the business unit, which includes a 110,000-barrels-per-day refinery in Cape Town, South Africa.

    Chevron spokesman Braden Reddall said "the process of soliciting expressions of interest in the 75 percent shareholding is ongoing."

    The remaining 25 percent interest is held by a consortium of Black Economic Empowerment shareholders and an employee trust. A second bidding round closed on Sept. 30, additional sources said.
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    U.S. drillers add oil rigs for 9th week in a row -Baker Hughes

    March 17 U.S. drillers added oil rigs for a ninth week in a row, extending a recovery that is expected to boost shale production by the most in six-months in April.

    Drillers added 14 oil rigs in the week to March 17, bringing the total count up to 631, the most since September 2015, energy services firm Baker Hughes Inc said on Friday. During the same week a year ago, there were 387 active oil rigs.

    That rig count increase came despite a collapse in crude futures over the past two weeks to a more than three-month low because the rigs activated this week were based on decisions made a couple of month ago when oil prices were higher.

    U.S. crude futures were at about $49 a barrel on Friday, set for a modest weekly rise after falling 9 percent last week on concerns production cuts by the Organization of the Petroleum Exporting Countries (OPEC) was failing to reduce a global glut as U.S. shale producers crank up activity.      

    Since crude prices first topped $50 in May after recovering from 13-year lows in February 2016, drillers have added a total of 315 oil rigs in 38 of the past 42 weeks, the biggest recovery in rigs since a global oil glut crushed the market over two years starting in mid 2014.

    Baker Hughes oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May 2016 as U.S. crude collapsed from over $107 a barrel in June 2014 to near $26 in February 2016.

    U.S. shale oil production in April was projected to rise 109,000 barrels per day (bpd), the biggest monthly rise in six months, to 4.96 million bpd as output in the Permian Basin, America's fastest growing shale oil region, hits another record high, according government data on Monday.                

    U.S. crude inventories edged down from record highs last week, after nine straight weeks of builds, while overall production was projected to rise from 8.9 million bpd in 2016 to 9.2 million bpd in 2017 and a record high of 9.6 million bpd in 2018, according to federal energy data.                    

    Analysts said they expect U.S. energy firms to boost spending on drilling and pump more oil and natural gas from shale fields in coming years now that energy prices are expected to keep climbing.
    Futures for the balance of 2017 and calendar 2018 were both trading around $50 a barrel. Analysts at Simmons & Co, energy specialists at U.S.
    investment bank Piper Jaffray, this week forecast the total oil and gas rig count would average 818 in 2017, 937 in 2018 and 1,048 in 2019. Most wells produce both oil and gas.

    That compares with an average of 729 so far in 2017, 509 in 2016 and 978 in 2015, according to Baker Hughes data. Analysts at U.S. financial services firm Cowen & Co said in a note this week that its capital expenditure tracking showed 54 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016.

    That expected spending increase in 2017 followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015, Cowen said according to the 64 E&P companies it tracks.

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    Platts JKM prices for Apr LNG delivery fall 21% on month to $6.079/MMBtu

    The Platts JKM for April LNG delivery averaged $6.079/MMBtu over February 16-March 15, sliding 20.5% from a month earlier on expectations of rising supply and limited demand.

    Train two of the Gorgon project in Western Australia resumed production at the end of February, following its recent shutdown.

    The prospects for new LNG supplies grew as market players focused on the expected startups of Australia's Gorgon Train 3, US Sabine Pass Train 3 and Petronas' floating LNG project, all expected to start up in March and all exerting bearish pressure on the market.

    There was also re-selling of long-term contracted volumes, with Unipec actively re-marketing volumes in February, expected to be at least one cargo a month, with the exact volumes dependent on Chinese domestic demand, from their 7.6 million mt/year LNG contract from eastern Australia's APLNG project.

    In addition, at the end of February, multi-cargo sell-tenders from Papua New Guinea's PNG LNG, as well as Russia's Sakhalin injected significant supply into the market. Sakhalin's May 2017-March 2018 DES sell tender of six cargoes were heard awarded to BP, JERA and another northeast Asian utility at 11.5% of Brent crude price. A further three cargoes for April delivery was awarded at $6.10-6.20/MMBtu, to Mitsui, PetroChina and Gazprom, sources said.

    PNG LNG's six-cargo tender, which closed on February 22, for April-November deliveries were heard awarded to CPC, as well as several non-project offtakers.

    The market also had to absorb more sell tenders, with Argentina's Enarsa awarding a total of 20 cargoes, in a tender which closed March 7. The results of the Enarsa tender awarded were published by the company, Wednesday. Super major Shell was awarded all of the tender slots, save those for June 6 and July 21 delivery into Escobar, which were awarded to Petrobras and Gas Natural Fenosa, respectively. All of the Shell cargoes for July and August were sold on a Henry Hub basis.

    Falling NBP and crude oil prices also lead to bearish near-term sentiment.

    But prices stabilized in the second week of March, as end-users from Japan, India and South Korea with low inventories sought to take advantage of low prices. LNG buyers closed buy tenders in the first half of March, including India's Gail and IOC, South Korea's POSCO, as well as Japan's Kansai Electric and Tohoku Electric. Regarding sell tenders, Angola LNG, Bontang and ADGAS also all closed tenders it the first half of March.

    As far as alternative fuels go, in the US, front-month NYMEX Henry Hub gas futures averaged $2.823/MMBtu, rising 59.5% on the year, but falling 11.9% on the month.

    Platts FOB Singapore 180 CST fuel oil fell 2.1% month on month and rose 94.2% year on year over the period, averaging $8.141/MMBtu.

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    Alternative Energy

    Smog-hit Beijing plans 'green necklace' to block pollution

    Beijing and the surrounding province of Hebei will plant trees, establish green belts and make use of rivers and wetlands to create a "green necklace" to protect China's smog-hit capital from pollution, the Hebei government said on Thursday.

    Beijing's reputation as a major world city has been tarnished by regular outbreaks of hazardous smog, especially during the winter, and poorly regulated heavy industry in neighboring Hebei has been identified as one of the major culprits.

    The Hebei government said in a notice published on its website ( that it would raise forest coverage, expand ecological space and use the river systems, mountains, wetlands and farms to establish new green belts around Beijing.

    Policymakers are also trying to tackle the problem of overdevelopment and overpopulation in fast-growing Beijing itself, known as "big city syndrome", and the new cross-regional plan will aim to restrict urban development on the capital's borders.

    The plan, which also set out new unified public service and transportation rules for Beijing and surrounding border areas, is part of the government's long-term "Jing-Jin-Ji" program to integrate Beijing, Hebei and the port city of Tianjin.

    The development of separate "fortress economies" in the region was blamed for widening income disparities and causing a "race to the bottom" when it came to environmental law enforcement.

    Beijing, home to 22 million people, is trying to curb population growth and relocate industries and other "non-capital functions" to Hebei in the coming years as part of its efforts to curb pollution and congestion.

    The city has also promised to curtail coal consumption and decommissioned its last coal-fired power plant earlier this month.
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    “Sun King” returns with ultralight, flexible PV to reshape solar market

    Dr Zhengrong Shi, the founder of Suntech and the former UNSW PhD graduate known as the “Sun King”, is returning to the solar market with a newly developed lightweight, ultra-thin and flexible panel that he is hailing as the biggest change to the solar industry in decades.

    The new PV panel uses a composite material – similar to that used in aircraft windows – that makes it nearly 80 per cent lighter than conventional panels, and thin, and flexible.

    This makes the panel ideal to incorporate into building structures such as rooftops and facades, and to put on large rooftop structures such as factories and carports that often cannot take the weight of conventional solar PV products.

    Dr Shi also says the new product – known as eArche, due to its architectural qualities – can be cut and shaped to order and is perfect to be incorporated into pre-fabricated buildings and building materials such as roofs and wall panels.

    “We think governments should require all new buildings to have solar panels integrated into their structure,” Dr Shi told RenewEconomy from Shanghai ahead of an official launch in Sydney this Thursday. “With this panel, it is easy to do.”

    Dr Shi estimates that even if one-tenth of the 20,000 new homes built in Australia each year used this product, that would add 20MW of solar each year. Around 10kW in each house could be easily incorporated into roofs, facades and pergolas.

    Indeed, Dr Shi’s big pitch is to new housing and extensions, and not the “retrofit” market. His team has invited more than 50 architectural firms to the launch in Sydney this week, and is working with lightweight building materials specialist Stratco, and numerous other building supply companies.

    He says the new panels will offer huge possibilities for architects, given their weight, their appearance, and the fact that they can be cut into different shapes, and can be curved.

    Tesla, along with others, have unveiled ideas for “solar tiles” in recent years, but Dr Shi says Tesla, in particular, is going about it the wrong way, by making tiles heavy and rigid. “The Tesla solar tile is the wrong way of doing it. That type engineering is very expensive.”

    Dr Shi has launched a new company, called SunMan, and an Australian company called Energus, to distribute the new products. It includes several ex-Suntech employees such as managing director Jenny Lu and marketing director Thomas Bell.

    Australia and Japan are the initial major launch countries for what he describes as the biggest innovation in the solar industry in more than a decade.

    “Most of the cost reductions we have seen come from manufacturing, growing efficiency and supply chain,” Dr Shi said from Shanghai. “There has been very little innovation on products and applications, so we have decided to focus on the panel itself, which has been very rigid and heavy.”

    Dr Shi says his lightweight, ultra-thin solar panels will cost about the same as conventional panels, but will cost much less to install. The material itself is only 2-3mm thick, with the entire panel width measuring between 5.5mm and 6mm.

    They weigh around 6kg each, compared to more than 20kw for a conventional panel and can be transported at bulk – 1MW can fit in a 40′ container rather than just 200kW, saving on transport costs.
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    Coal mine in Germany turns into hydroelectric battery

    RAG AG-owned Prosper-Haniel hard coal mine, located in the German state of North-Rhine Westphalia, will be turned into a giant battery that stores excess solar and wind energy.

    Set to be totally transformed by 2018, the mine will become a 200-megawatt pumped-storage hydroelectric reservoir, which means it will behave as a battery and have the energy to power more than 400,000 homes.

    When needed to compensate intermittent wind and solar power, as much as 1 million cubic meters of water could be allowed to plunge as deep as 1,200 metres, turning turbines at the foot of the collieries mine shafts. The mining complex comprises 26 kilometres of horizontal shafts.

    Miners in the town of Bottrop, who have worked for decades at the site, will remain employed while seeing a shift in their usual tasks. According to governor Hannelore Kraft, they will continue playing a key role in providing uninterrupted power for the country.

    During a press briefing earlier this week, Kraft also said that other mines may follow suit because the state needs more industrial-scale storage as it seeks to double the share of renewables in its power portfolio to 30% by 2025.
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    IEA finds CO2 emissions flat for third straight year even as global economy grew in 2016

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    Global energy-related carbon dioxide emissions were flat for a third straight year in 2016 even as the global economy grew, according to the International Energy Agency, signaling a continuing decoupling of emissions and economic activity. This was the result of growing renewable power generation, switches from coal to natural gas, improvements in energy efficiency, as well as structural changes in the global economy.

    Global emissions from the energy sector stood at 32.1 gigatonnes last year, the same as the previous two years, while the global economy grew 3.1%, according to estimates from the IEA. Carbon dioxide emissions declined in the United States and China, the world’s two-largest energy users and emitters, and were stable in Europe, offsetting increases in most of the rest of the world.

    The biggest drop came from the United States, where carbon dioxide emissions fell 3%, or 160 million tonnes, while the economy grew by 1.6%. The decline was driven by a surge in shale gas supplies and more attractive renewable power that displaced coal. Emissions in the United States last year were at their lowest level since 1992, a period during which the economy grew by 80%.

    “These three years of flat emissions in a growing global economy signal an emerging trend and that is certainly a cause for optimism, even if it is too soon to say that global emissions have definitely peaked,” said Dr Fatih Birol, the IEA’s executive director. “They are also a sign that market dynamics and technological improvements matter. This is especially true in the United States, where abundant shale gas supplies have become a cheap power source.”

    In 2016, renewables supplied more than half the global electricity demand growth, with hydro accounting for half of that share. The overall increase in the world’s nuclear net capacity last year was the highest since 1993, with new reactors coming online in China, the United States, South Korea, India, Russia and Pakistan. Coal demand fell worldwide but the drop was particularly sharp in the United States, where demand was down 11% in 2016. For the first time, electricity generation from natural gas was higher than from coal last year in the United States.

    With the appropriate policies, and large amounts of shale reserves, natural gas production in the United States could keep growing strongly in the years to come. This could have three main consequences: it could boost domestic manufacturing, supply more competitive gas to Asia through to LNG exports, and provide alternative gas supplies to Europe. US and natural gas prospects will be explored in details in the next World Energy Outlook 2017.

    In China, emissions fell by 1% last year, as coal demand declined while the economy expanded by 6.7%. There were several reasons for this trend: an increasing share of renewables, nuclear and natural gas in the power sector, but also a switch from coal to gas in the industrial and buildings sector that was driven in large part by government policies combatting air pollution.

    Two-thirds of China’s electricity demand growth, which was up 5.4%, was supplied by renewables — mostly hydro and wind – as well as nuclear. Five new nuclear reactors were connected to the grid in China, increasing its nuclear generation by 25%.

    “In China, as well as in India, the growth in natural gas is significant, reflecting the impact of air-quality measures to fight pollution as well as energy diversification,” said Dr Birol. “The share of gas in the global energy mix is close to a quarter today but in China it is 6% and in India just 5%, which shows they have a large potential to grow.”

    In the European Union, emissions were largely stable last year as gas demand rose about 8% and coal demand fell 10%. Renewables also played a significant, but smaller, role. The United Kingdom saw a significant coal-to-gas switching in the power sector, thanks to cheaper gas and a carbon price floor.

    Market forces, technology cost reductions, and concerns about climate change and air pollution were the main forces behind this decoupling of emissions and economic growth. While the pause in emissions growth is positive news to improve air pollution, it is not enough to put the world on a path to keep global temperatures from rising above 2°C. In order to take full advantage of the potential of technology improvements and market forces, consistent, transparent and predictable policies are needed worldwide.

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    China nuclear cos take a step closer to joining forces

    China moved one step closer to merging two of its nuclear power developers, as the country drives through consolidation in many of its state-owned enterprises, including the railways, shipping, nonferrous metals, construction materials and steel sectors, China Daily reported.

    The Shanghai-listed units of China National Nuclear Corp, a holding company for reactor design and technology, and China Nuclear Engineering Corporation Group, a company that focuses on construction, said in regulatory filings on March 20 that a strategic reorganization of the two nuclear giants is underway.

    The units said the reorganization requires regulatory approval, but does not involve major assets of the listed companies and would not affect normal operations.

    Joseph Jacobelli, a senior analyst of Asian utilities and infrastructure at Bloomberg Intelligence, said the nuclear sector plays a significant role in the country's advanced manufacturing exports, and the merger means not only streamlining the SOEs, but also helping China's nuclear companies better export their technology to the global market.

    He said the combination would be a joint force with a better share of the international market.

    Jacobelli added that the plan is to boost internal efficiencies in the country's nuclear sector and external competitiveness.

    China suspended approving new nuclear power plants after Japan's Fukushima nuclear disaster in 2011. However, nuclear power generation in recent years, especially in the first two months of the year, continued to see sharp growth.

    Jacobelli said China's nuclear energy developers are believed to be commissioning many more reactors during the 13th Five-Year Plan (2016-20), because nuclear power is a key source of clean energy along with hydropower.

    Installed nuclear capacity more than doubled to 27.17 GW in the 12th Five-Year Plan (2011-15) and is expected to double again by 2020 to 58 GW.

    Being the world's fastest-growing nuclear market, China said it would further cut industrial overcapacity and introduce market-based reform, in an attempt to accelerate restructuring of the nation's bloated SOE sector.

    It also vowed to further expand its nuclear sector to reduce its reliance on coal and help achieve its climate-change commitments.

    China will develop nuclear power in a safe and highly efficient way, Premier Li Keqiang said in the Government Work Report delivered during the fifth session of the 12th National People's Congress on March 5.

    Wang Shoujun, former chairman of China Nuclear Engineering Corporation Group, has taken over as CNNC chairman, after former chairman Sun Qin stepped down on reaching retirement age last year.

    CNNC is principally engaged in the development, investment, construction, operation and management of nuclear power projects. It is also involved in the research of technology, for nuclear power operational safety and related technical services and the consultation business.
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    China approves fewer GMO crop imports, hampering trade: U.S. industry group

    China is approving fewer new biotech crops for import than before, hampering the launch of new products globally and hurting trade, an American industry group said on Tuesday.

    China does not permit the planting of any genetically modified varieties of staple food crops amid deep-seated consumer opposition. But it does allow the import of GMO crops, such as soybeans for use in its huge animal feed industry.

    The number of annual approvals has fallen to just one last year, down from three in previous years, according to China's agriculture ministry.

    "The trend is moving in the wrong direction in terms of the product being approved in the past few years," said Gao Yong, co-chairman of the agriculture group at the American Chamber of Commerce in China.

    Gao, who is also China president at global biotech giant Monsanto Co, told reporters he was not sure why there were fewer approvals.

    Chinese government officials were not immediately available for comment.

    The United States is the biggest producer of GMO crops and one of China's top suppliers of soybeans. It has long been a pioneer in technology aiming to protect crops against insects or allow them to resist herbicides.

    China has said it supports biotechnology to raise the efficiency of its agriculture sector and that it plans to commercialize new GMO varieties of corn and soybeans in coming years.

    But public acceptance of biotechnology is a key challenge for the future introduction of GM crops in China, and despite attempts by the government to persuade consumers of the safety of such foods, opinions remain highly polarized.

    In a paper on China's agricultural policy, the American Chamber of Commerce said the government and academics have helped to improve public understanding of biotech products.

    But Gao said the industry was "extremely disappointed" that China only approved one new biotech product for import in 2016, a Bayer CropScience Ltd soybean. Eight other products were seeking approval.

    There were also nine products waiting for approval for local field trials, the step prior to applying for a safety certificate and full import approval. One of those - a Monsanto soybean product - was approved, said Gao.

    Other products seeking China market access include GMO corn and cotton.

    Approvals of imported biotech products currently takes about six years in China, compared with up to three in other major markets, Gao said.

    Beijing has reduced the number of times its expert committee meets to review applications from three to "at least two". Decisions to approve the applications were only made once a year.
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    China calls on Brazil to take stricter safety measures on food shipments

    China on Tuesday called on Brazil to take stricter safety measures in its food shipments, as Brazilian officials scrambled to limit the fallout from a corruption scandal that led Beijing to suspend meat imports from its top supplier.

    China this week suspended imports of all Brazilian meat following a scandal in the South American country over the alleged bribery of health officials to allow the sale of tainted meat.

    "China is concerned by the quality problems of some meat products in Brazil," foreign ministry spokeswoman Hua Chunying told reporters.

    "We hope that the Brazilian side will conduct a thorough investigation of the case...and take more stringent measures to ensure safe and reliable food exports to China."

    She declined to comment on when the temporary ban on Brazilian meat imports might be lifted. That decision will be made by China's Administration of Quality Supervision, Inspection and Quarantine (AQSIQ).

    Senior Brazilian government officials spoke with AQSIQ's vice minister about the issue in a video conference on Tuesday, said a source briefed on the matter.

    The meeting was the highest level discussion yet between the two nations, underscoring the urgency with which Brazil and China want to avoid further disruption in trade.

    The source, who asked not to be named because of the sensitivity of the information, did not elaborate on the meeting.

    AQSIQ did not immediately respond to a request for comment.

    Brazil is the top supplier of beef to China, accounting for about 31 percent of its imports in the first half of last year. The second supplier, Australia, is still rebuilding its herd after drought and is not seen to be able to meet China's fast-growing demand.

    Other major producers, such as the United States and some smaller European markets, are banned from supplying to China due to bird flu outbreaks.
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    Brazilian meatpackers slump as China, South Korea suspend imports

    Brazilian meatpackers slump as China, South Korea suspend imports

    Fallout over a Brazilian meat corruption scandal spread on Monday, with China and South Korea suspending some imports, the European Union mulling action and shares of meatpacking companies BRF SA  and JBS SA dropping.

    China, Brazil's top trade partner, decided to suspend the import of meat products from Brazil as a "precautionary measure," said a source who requested anonymity because of the sensitivity of the information.

    South Korea's agriculture ministry said in a statement that it would tighten inspections of imported Brazilian chicken meat and temporarily bar sales of BRF chicken products.

    The South Korean ministry said suppliers of Brazilian chicken would have to submit a health certificate issued by the Brazilian government.

    The actions came after Brazilian police investigation on Friday named BRF, JBS and dozens of smaller rivals in a major investigation of alleged bribery of health inspectors to hide unsanitary conditions in plants.

    Police conducted raids on Friday in six states to seek more evidence, tarnishing one of few vibrant sectors in Latin America's biggest nation, which is suffering its worst recession on record.

    The two-year probe, known as "Operation Weak Flesh," found evidence that meatpackers paid off inspectors and politicians to overlook practices including processing rotten meat and shipping exports with traces of salmonella, police said.

    Shares of BRF SA fell 8 percent and JBS SA dropped 5 percent on Monday. The companies have strongly denied any wrongdoing.

    Shares of Minerva SA (BEEF3.SA) and Marfrig Global Foods SA which are not involved in the investigations, also fell sharply as traders fretted over the possibility of further import bans.

    Credit Suisse Securities analyst Victor Saragiotto wrote in a Monday note to clients that the scandal "could be enough to compromise temporarily Brazilian protein's acceptance worldwide."

    Brazil exported $6.9 billion of poultry and $5.5 billion of beef worldwide last year, according to industry groups.

    More than 80 percent of the 107,400 tonnes of chicken imported by South Korea last year came from Brazil, and almost half of that was supplied by BRF.

    The European Commission said it would monitor meat imports from Brazil, and any companies found to be involved in a meat scandal there will be denied access to the European Union market, a spokesman said.

    "The Commission will ensure that any of the establishments implicated in the fraud are suspended from exporting to the EU," a spokesman for the European Commission told a media briefing.

    The Commission said the scandal would have no impact on negotiations between the European Union and South American bloc Mercosur about agreements on free trade.
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    Precious Metals

    Franco-Nevada reports rising revenues as it looks to diversify

    Canadian gold royalties and streaming firm Franco-Nevada Corp has recorded a 37.6% increase in revenue for 2016, boosted by record ounces delivered and soaring sales.

    The company, which derives income from 107 producing royalties and streams, achieved a 30.9% increased in gold-equivalent ounces (GEOs) delivered to 471 509 oz in 2016. Revenue rose to $610.2-million, derived from the sale of 464 383 GEOs.

    Removing one-off items, the company saw headline earnings grow 84.9% to $164.4-million, or $0.94 a share, surprising analysts who had predicted on average full-year earnings a share of $0.89.

    Franco-Nevada said while it strives to generate 80% of revenue from precious metals over a long-term horizon which includes gold, platinum group metals and silver, it will not preclude itself from diverging from the long-term target based on opportunities available. With 93.7% of revenue earned from precious metals in 2016, the company said it has the flexibility to consider diversification opportunities outside of the precious metals space and increase its exposure to other commodities.

    The company, meanwhile, increased its guidance for GEO output to between 470 000 oz and 500 000 oz in 2017, with oil and gas asset income is set to rise to between $35-million and $45-million, up from $30.1-million in 2016.

    Franco-Nevada expects its existing portfolio to generate between 515 000 oz to 540 000 GEOs by 2021. Oil and gasrevenues at the same $50/bl West Texas Intermediate oil price assumption are expected to range between $55-million and $65-million.
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    Washington Cos. reveals stalled $1.1 billion bid for Dominion Diamond

    The Washington Companies said on Sunday it had previously made a proposal to acquire all of the outstanding common stock of mining company Dominion Diamond Corp. (DDC.TO) for $13.50 a share.

    The all-cash $1.1 billion offer was sent to the Dominion board of directors on Feb. 21, according to the statement, but subsequent discussions broke down.

    "We are disappointed that Dominion's board has thus far prevented Washington from moving ahead with its proposal under which shareholders would receive a substantial premium and immediate liquidity," said Lawrence Simkins, president of Missoula, Montana-based Washington, a group of privately held North American mining, industrial and transportation businesses founded by Dennis Washington.

    "We remain fully committed to completing this transaction," Simkins added in the statement.

    Yellowknife, Canada-based Dominion said in a statement late on Sunday that its board had considered Washington's unsolicited offer but that the terms of the proposed talks were unusual and unacceptable.

    They included, according to the statement, the ability to see confidential information that could later be used for a proxy fight to take over the company, and the ability to veto the board's choice of the new chief executive officer.

    "The Dominion Board is more than willing to consider all value-creating opportunities for the Company, but it will not do so to the detriment of its shareholders and other stakeholders," the statement said.

    "The Board of Directors reiterates its openness to engage with WashCorps on customary terms," it added.

    The offer price of $13.50 represents a 36 percent premium to Dominion's closing stock price on March 17 and a 54 percent premium to the price when discussions ended on March 15, according to Washington.
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    Mining's biggest loser Lonmin is burning cash to stay alive

    For most of the miningindustry, 2017 is turning out to be another good year. The big exception is Lonmin Plc.

    Investors are losing confidence in the world’s third-largest platinum producer as it burns through cash to stay afloat, just 15 months after raising about $400-million from shareholders. Platinum prices aren’t far from a seven-year low and Lonmin has its own set of operational problems, including higher costs and lower output at its biggest miningshaft.

    The stock is down more than 30% in 2017, the most in the FTSE All-Share Basic Materials Index of 28 commodity producers. The overall index has gained 11% this year.

    “Lonmin can’t survive in its current form unless there’s a very significant recovery in platinum-group metal prices,” said Marc Elliott, a London-based analyst at Investec Plc with a sell rating on the stock. “I wouldn’t be surprised to see them come back to the market for more cash in the next two to three years.”

    Other mining companies are looking to deploy new cash into dividends and acquisitions, buoyed by a recovery in commodity prices and deep cost cuts. Lonmin stands out for its years of problems. The company used up 70% of its net cash last quarter, leaving it with $49-million, although it can draw on $414-million, mainly through credit lines from banks.

    CEO Ben Magara has pushed to get Lonmin back on track and repair its reputation after the shootings at Marikana in 2012, when police killed protesting mineworkers. But it hasn’t been enough. The company has raised about $1.7-billion from shareholders in the past eight years yet its current market value is about $330-million.

    The problem is simple: Lonmin’s costs exceed revenue. Each ounce of platinum-group metal costs R12 296 ($965) to produce, compared with a sale price of R10 372/oz in the three months through December.

    Lonmin said capital spending is usually higher at the end of the year and sales are weighted toward the middle quarters. But the problem isn’t new. Free cash flow has been negative each year since 2011, according to data compiled by Bloomberg.

    “We see cash burn ad infinitum at current PGM prices, and at some point they’ll need to find more financing again,” said Edward Sterck, a London-based analyst at BMO Capital Markets. “Management is doing a good job with challenging assets, but there doesn’t seem to be a Plan B. Plan A is for commodity prices to recover in rand terms and that’s it.”

    With demand growing for electric cars, which unlike conventional vehicles don’t use platinum, there’s no certainty that prices will pick up soon. Platinum declined 0.2% to 955.64 an ounce, while Lonmin rose 5.1% to R15.55 a share at 9:42 a.m. in Johannesburg.

    Operational performance is another problem for Lonmin, which mainly has deep, labor-intensive mines. First-quarter production at K3 shaft, the company’s biggest, dropped 14% due to safety stoppages, union disputes and absenteeism. In February, a worker died in an accident at the shaft.

    COO Ben Moolman resigned in March after less than two years in the role. Previous COO Johan Viljoen held the job for under a year.

    “C-level resignations at Lonmin have in the past presaged bad news, so COO Ben Moolman’s resignation - ostensibly ‘for personal reasons’ - is not an encouraging sign,” Yuen Low, a London-based analyst at Shore Capital Stockbrokers, wrote in a report.

    CEO Magara has temporarily taken over the COO role, having had extensive operations experience at Anglo American Plc’s coal and platinum divisions, spokeswoman Wendy Tlou said in response to questions.

    “We have seen the upward trajectory of our production efforts in the past month from last quarter’s disappointing production results,” she said.


    Magara, a Zimbabwean national, has tried to arrest Lonmin’s decline since taking the CEO job in 2013. He cut 6 000 jobs, or 15%, in the past two years, closed high-cost mining areasand reduced capital expenditure to save cash. In November, Lonmin bought Anglo American Platinum’s stake in Pandora, a mine near its Saffy shaft, in a deal that Magara said would save R2-billion of capital spending over the next five years.

    Magara is also looking to produce more low-cost metal from waste dumps and has the option of shifting mining crews to ore-bearing areas instead of developing corridors for future production.

    Still, some investors are increasing bets Lonmin shares have further to fall. About 7% of the company has been sold short, the highest since the December 2015 rights issue, data compiled by Markit show.

    What the company really needs is a rally in platinum prices, according to Investec’s Elliott.

    “We currently don’t anticipate that will happen any time soon,” he said.
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    AuRico gets federal enviro nod for multimillion-ounce Kemess project

    Precious metals royalties firm and project developer AuRico Metals has received a positive decision statement from the Canadian Environmental Assessment Agency (CEAA), prompting the British Columbia Environmental Assessment Office (EAO) to grant an environmental-assessment certificate for the company's 100%-owned Kemess underground project.

    "These positive decisions are the culmination of a comprehensive process which began in 2014 . . . The Kemess underground project presents an attractive development opportunity given its strong economics – supported by existing infrastructure, large scale, good jurisdiction and advanced stage,” president and CEO Chris Richter stated.

    The EAO managed the environmental assessment for the Kemess underground project in a substituted process on behalf of British Columbia and CEAA, the latter of which is on behalf of the federal government of Canada. The project will require several other normal-course licences and permits, which are expected to be received early in 2018.

    The Kemess project has about $1-billion of existing infrastructure on care and maintenance on site, which will dramatically reduce the expected capital expenditures to first production to just under $400-million.

    The Kemess underground project and the Kemess East deposits currently hold about 3.34-million ounces of gold in the proven and probable mineral reserve categories, 6.66-million ounces gold in the indicated resource category, and another 2.26-million ounces in the inferred category.

    AuRico believes there is significant exploration upside, especially at Kemess East, where the deposit remains open in several directions.

    A 2016 feasibility study on the project calculated a net present value, at a 5% discount, of C$421-million, with an internal rate of return of 15.4%.
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    Barrick mulls selling part of Peru mine, bringing partner — report

    Canada’s Barrick Gold, the world's No.1 producer of the precious metal, is said to be mulling either the sale of a stake in its Lagunas Norte mine in Peru or the addition of a partner in the venture.

    People familiar with the matter told Reuters that the Toronto-based miner would prefer to keep at least a 50% ownership of the mine, located in north-central Peru, 140 km east of the coastal city of Trujillo. However, they said it was unclear whether the company wanted to keep control of the open-pit mine as operator, the people added.

    Rumours come a year after the gold miner vowed to spend $640 million to extend the life of Lagunas Norte, worth about $1.4 billion according to industry experts.

    The rumours come a year after Barrick vowed to spend $640 million to extend the life of the mine, worth about $1.4 billion according to industry experts, by about nine years.

    The plan unveiled last year including adding a refractory processing facility at the property, which was expected to potentially unlock other refractory ore sources in the region, the company said at the time.

    Perched on the western flank of the Peruvian Andes at an elevation of 4,000 to 4,260 meters above sea level, Lagunas Norte produced 435,000 ounces of gold in 2016, at a cost of sales of $651 per ounce, and all-in sustaining costs of $529 per ounce.

    Production this year is anticipated to be 380,000-420,000 ounces of gold, the company said last month, at a cost of sales of $710-$780 per ounce, and all-in sustaining costs of $560-$620 per ounce.

    In the past few months, Barrick has been working on strengthening its position in Latin America, a market where it has experienced a series of challenges since the beginning of the decade.

    In September, the gold miner appointed a new executive, George Bee, to lead the development of the Argentine side of the mothballed Pascua Lama gold, silver and copper project straddling the border between Chile and Argentina.

    A few months later, it hired a new director for the region — Pablo Marcet — with decades of mining experience in the geographic area.
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    World's top diamond miner Alrosa quadruples profit amid sector recovery

    Alrosa, the world's top diamond producer by output in carats, injected some fresh good news into the gems market Thursday by posting a fourfold increase in total profit to $2.31 billion (133.5 billion roubles) for 2016.

    The Russian miner said 2016 was a year of active recovery in the diamond market following the decline of 2015.

    The miner, majority-owned by the Russian government and the far eastern province of Yakutia where most of its operations are based, said profit attributable to shareholders totalled $2.25 billion (131.39bn roubles) last year, versus $530K (30.67bn) roubles in 2015, thanks to a global recovery in diamond prices.

    "2016 was a year of active recovery in the diamond market following the decline of 2015,” Alrosa's chief financial officer Igor Kulichik said in the statement. "The company managed to deliver record-high financial performance and generate net cash flow sufficient to repay short-term and medium-term liabilities and pay out dividends to shareholders,"

    Earnings before interest, tax, depreciation and amortization, however, fell 30% in the fourth quarter, becoming the second-worst quarter in the Alrosa’s history due mostly to a weakened demand for gems.

    The diamond miner, which is planning to increase production by 6% to 39.2 million carats this year, appointed last week Sergei Ivanov, the son of a close advisor to Russian president Vladimir Putin, as its new president.
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    Base Metals

    Philippines allows suspended miners to ship out nickel ore after clampdown

    The Philippines' environment ministry has allowed eight suspended nickel ore miners to ship out stockpiles of mined ore, sources told Reuters, temporarily boosting supply from the world's top exporter of the raw metal after a major crackdown.

    More than half of all mines in the Philippines have been ordered to permanently shut to protect watersheds in an eight-month campaign led by Environment and Natural Resources Secretary Regina Lopez.

    Allowing the halted mines to sell their stocked nickel ore is aimed at limiting the potential build up of silt in nearby waters, an official with knowledge of the order said, rather than the government toning down its campaign.

    The volume of nickel ore stocks from the mines may well exceed 1 million tonnes, or about a month's worth of consumption by top buyer China, said the official, who declined to be named because he is not authorized to discuss the matter publicly. The total would likely be less than 5 million tonnes, he added.

    Daniel Hynes, commodity strategist at ANZ Bank, said he did not expect the temporary boost in Philippine supply to be a big drag on nickel prices.

    "It certainly doesn't remove the long-term issues around security of supply and the closures of other operations," Hynes said.

    Still, three-month nickel on the London Metal Exchange CMNI3 fell 1 percent to $9,935 a tonne by 0600 GMT, the biggest decliner among base metals on Friday. Nickel has lost more than 9 percent this month, following a 10 percent spike in February when Lopez ordered the mine closures.


    In a memorandum issued on March 6, a copy of which was reviewed by Reuters, Lopez allowed the eight suspended nickel miners to remove their stockpiles from all mining areas.

    The order also required the mines to put 2 million pesos ($39,730) per hectare of disturbed land into a trust fund "to further mitigate the adverse impacts of the mining operations to the environment and to the affected communities."

    Environment Undersecretary Philip Camara confirmed the memorandum is valid, a spokeswoman for the ministry said.

    The eight miners, including Hinatuan Mining Corp - a unit of top nickel ore producer Nickel Asia Corp (NIKL.PS) - were among 10 suspended for environmental breaches during a July-August audit of the nation's 41 mines.

    Lopez last month ordered 23 mines closed for good, including six of the eight suspended nickel producers. Many of these mines have appealed to President Rodrigo Duterte and continue to operate while waiting for Duterte's final ruling.

    The suspended miners had asked Lopez's permission to remove the mined ore and were granted it, the first official said.

    "It's an issue of environmental hazard. If we don't allow it then it will just be a hazard so it needs to be removed," the official said. Another official with the environment ministry confirmed the mines can ship out the ore.

    Two of the suspended mines are owned by construction-to-power firm DMCI Holdings Inc (DMC.PS), which was planning to restart the mines this month while it awaits the outcome of an appeal, in a test of rules around the crackdown.

    Hendrik Martin, manager at DMCI's nickel mine in Zambales province, said the company had received the order from the environment agency and would likely sell its 200,000-tonne stockpile to China.

    DMCI Mining Corp President Cesar Simbulan separately said stockpiles at its Berong Nickel Corp in Palawan province stand at around 1 million tonnes. Hauling of the stocks from the Zambales and Palawan mines to the ports had yet to start, he added.

    Nearly all of the Philippines' nickel ore is sold to China where it is used to produce stainless steel. Philippine shipments reached 30.5 million tonnes last year, or 95 percent of China's total imports of the raw material.

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    Chinese aluminium giant Chalco's net profit more than doubles in 2016

    Chinese aluminium giant Chalco's net profit more than doubles in 2016

    Aluminum Corporation of China Ltd's (Chalco) net profit more than doubled in 2016, marking a second straight year of profitability thanks to recovering non-ferrous metal prices and cuts in production costs.

    The state-owned aluminium producer, one of the biggest in the world, made a net profit of 402.5 million yuan ($58.5 million) in 2016, up from a revised 148.6 million yuan a year earlier, it said in a filing to the Shanghai stock exchange.

    "The increase in profit was mainly due to power reforms and stronger operations, which helped lower production costs of alumina and electrolytic aluminium products by about 12 percent and 17 percent respectively," Chalco said on Thursday.

    Alumina is the key raw material for producing aluminium.

    In 2016, aluminium prices rose by more than 10 percent, with gains continuing so far this year due to global capacity cuts and infrastructure projects in China, the world's top producer and consumer of the metal.

    Earlier this year, Yunnan Aluminium Co Ltd said it expected its 2016 net profit to rise about 315 percent, while Shandong Nanshan Aluminium Co Ltd forecast a rise of about 217 percent for the same period.

    As the overall market improves, Chalco said on Thursday it planned to invest up to 700 million yuan in a light alloy joint venture project with a total investment of 3.9 billion yuan in Guizhou province.

    Chalco's announcement came after Hong Kong and China's markets closed on Thursday. Its Hong Kong shares ended 1.3 percent higher while its Shanghai stock closed 1.04 percent up, outpacing the broader markets.

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    Escondida workers to end strike as they opt for old contract

    The strike at Escondida, the world's largest copper mine, will end after workers decided to invoke a legal provision that allows them to extend their old contract, the union said on Thursday.

    The workers said they would present their decision to the government on Friday and return to work on Saturday at Escondida, which is operated by BHP Billiton.

    The so-called Article 369 will allow workers to revert to their previous contract for 18 months, after which both sides must again try to reach a new agreement.

    The workers will be able to enjoy current benefits and working conditions, which the company wants to change, and hold the next talks under the umbrella of an upcoming labor reform that strengthens their hand. But they would also lose out on a bonus typically paid when the contract is signed and on any pay raise.

    A swift restart in output at Escondida, which produced about 5 percent of the world's copper last year, would probably weigh on copper prices and provide some relief to the Chilean economy after a strike that has lasted 43 days.

    But the use of Article 369 would be "complex" for the company, mine President Marcelo Castillo said earlier on Thursday.

    "Having collective talks in 18 months ... would require us to revise our plan, our operating model, our structure in order to allow us to make our mining business viable," he said.

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    China to add 6.65 mil mt/year new alumina capacity in 2017: Antaike

    China is expected to add 6.65 million mt/year of new alumina capacity in 2017, chiefly in North China, Central China and Northwest China, in addition to the 79.25 million mt/year built national alumina capacity as of end-2016, state-run metals consultancy firm Beijing Antaike has forecast in its aluminum sector report on Thursday.

    Shandong Province in North China is expected to add 2 million mt/year new alumina capacity and Henan Province in Central China is to add 1 million mt/year new alumina capacity in 2017, the Antaike report showed.

    Shanxi Province and Inner Mongolia Autonomous Region, both in Northwest China, are forecast to add new alumina capacity of 2.6 million mt/year and 500,000 mt/year, respectively, in 2017, the agency figures showed.

    China is also expected to add an extra 5.7 million mt/year new alumina output capacity in 2018, with 2 million mt/year in Shandong, 1.8 million mt/year in Shanxi, 300,000 mt/year in Chongqing City in Sichuan Province, and 1.6 million mt/year in Guizhou Province in Southwest China, according to Antaike.

    Meanwhile, the agency has forecast China's national alumina demand in 2018 to hit 75.16 million mt, up 5.5% year from the estimated demand of 71.24 million mt in 2017. The growing alumina demand forecast is due to the rising refined aluminum output in China.

    China's national refined aluminum output in 2016 hit 32.65 million mt, up 6% year on year, with compound output growth rate of 9.2% in the 2014-2016 period, figures from Antaike showed.

    The Beijing agency has forecast China's net alumina imports in 2018 to hit 4 million mt, up 11% from an estimated 3.6 million mt imports in 2017.

    China's national alumina output in 2018 is expected to be 72.5 million mt, up 6.9% from an estimated 67.8 million mt output in 2017.

    The agency has forecast China's alumina supply in 2018 to be 76.5 million mt, up 7% from estimated 71.4 million mt in 2017.

    The country's alumina surplus in 2018 is expected to be 1.34 million mt, widening from an estimated surplus of 160,000 mt for 2017, the Antaike figures showed.

    Due to surging raw material costs, Chinese domestic alumina production costs (excluding tax) as of end-2016 averaged Yuan 2,060/mt ($299/mt), up 8.9% year on year, but stable from end-2014, the agency figures showed.

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    Zambia copper shake down, ahem, 'tax audit'.

    ZAMBIA Revenue Authority (ZRA) will soon undertake forensic audits of large mining companies to establish whether or not they have been complying with the various tax legislations administered by the authority.

    Recently, Financial Intelligence Centre (FIC) assistant director Clement Kapalu disclosed that Zambia is losing US$3 billion annually due to illicit financial flows mainly perpetrated in the minerals sub-sector, where tax evasion malpractices such as transfer pricing, over and under-invoicing and trade mispricing is rampant.

    In trying to correct these flaws, ZRA is seeking the services of an auditing or investigation firm to undertake a forensic audit on a number of large mining companies.

    According to a request for expression of interest, ZRA intends to engage a company to perform audits of identified mining companies to establish their tax compliance status.

    “This audit will focus on value added tax (VAT) and will also aim to identify any other areas of non-compliance with legislation, fraud, tax evasion and avoidance schemes perpetrated by the mining companies to, on the one hand, minimise their tax obligations and maximise their profits on the other.

    “The firm will be required to produce a comprehensive report outlining the issues observed and recommend ways in which ZRA should conduct future audits,” it stated.

    It stated that the audit will cover the last five accounting periods of the identified mines and will cover most areas such as sales, production, finance, distribution, human resources, as well as import and export operations.

    “The investigation will focus on establishing the completeness, accuracy and authenticity of the corporation tax, income tax and VAT returns submitted by the mining companies in relation to the underlying data and information from their business operations,” it stated.

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    Indonesia prepares to takeover Freeport.

    The government has started consolidating state mining companies to take over the majority stakes in gold and copper miner PT Freeport Indonesia by 2019, while waiting for the House of Representatives’ approval for a holding company for state-owned mining firms.

    The State-Owned Enterprise (SOE) Ministry’s deputy of mining, strategic industries and media, Fajar Harry Sampurno, said that the ministry had sent a letter informing the Finance Ministry and the Energy and Mineral Resources Ministry of the interest to take over the subsidiary of American mining giant Freeport McMoRan.

    “We have stated our readiness, but still have to wait for the final decision,” Fajar said on Wednesday in Jakarta. “But if we are appointed to take over the shares, we must be ready. That’s why we have started consolidating all of the mining companies under the planned holding company.”

    The government plans to form holding companies for various sectors including mining, financial services and construction, with the aim of boosting the value, debt leverage and efficiency of all state enterprises.

    State-owned aluminum maker PT Indonesia Asahan Aluminum (Inalum) has been projected to be the holding company for mining companies. The House is now deliberating Government Regulation (PP) No. 72/2016 on procedures for state capital injections into SOEs as the legal umbrella for the holding company.

    “There needs to be an understanding with all lawmakers first [to realize the PP],” said the SOE Ministry’s deputy for company restructuring and development, Aloysius Kiik Ro. (ags)

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    Union leaders at BHP's Escondida mine to meet with workers

    Leaders of the striking union at BHP Billiton's Escondida mine in Chile will meet with the rank-and-file before making any additional decisions about negotiations, a union spokesman said after exiting a meeting with BHP on Wednesday.

    BHP and leaders of the 2,500-member union at Escondida, the world's largest copper mine, left the meeting in the city of Antofagasta without offering additional comment, or saying when the parties would next sit down.

    "No comment, we're going to meet with the base," union spokesman Carlos Allendes told reporters.

    Since workers walked off at the massive deposit on Feb. 9, copper production has been stopped, sending global copper prices higher amid supply concerns.

    Talks have since been tense, and various attempts to return to the negotiating table have failed. The two parties finally returned to the table on Monday for the first time in weeks, and met again on Wednesday afternoon.

    Earlier on Wednesday, BHP decided to suspend work indefinitely at projects linked to Escondida, such as construction work at its Coloso desalinization plant and its Los Colorados concentrator, citing continued blockades by the union.

    Throughout the process, workers have maintained three core demands: that the benefits in the previous contract not be reduced; that shift patterns not be made more taxing; and that new workers get the same benefits as those already at the mine.

    The union has also said in recent days that it could invoke an article of Chile's labor code that would stop the current negotiations and send the miners back to work for 18 months under the previous contract. They said that would allow them to start negotiations again under new labor laws set to go into effect in Chile in April, strengthening their hand.
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    Peru's minerals railway to take 2-3 weeks to resume: government

    A railway used by copper, zinc and silver mines to transport concentrates from Peru's central Andes to port is likely be out of action for at least two to three weeks following deadly floods and mudslides, a minister said on Wednesday.

    Repairs should take about two weeks, but work in the field was unlikely to start until next week once dangerous river levels had eased, transportation minister Martin Vizcarra told Reuters.

    The railway has been closed since Friday, when torrential downpours triggered flooding and mudslides that killed at least 75 people and ruptured the rail line in several places.

    "The damage wasn't mild, it was seriously damaged," Vizcarra said by phone. "It'll take at least two to three weeks."

    Even after the railway resumes operations, exports from the port of Callao near Lima could be delayed by two to three weeks if ships wait for more concentrates to arrive in order to send full loads, said Deputy Mines Minister Ricardo Labo. "It's going to depend on where stock levels are in Callao," Labo said.

    The situation could put pressure global mineral prices.

    Peru is the world's second biggest copper producer and third biggest zinc and silver producer. The railway usually transports about half of the country's zinc and silver output, about 60 percent of its lead production and about 10 percent of its copper output, according to the energy and mines ministry.

    Vizcarra said the only available road routes took too long to be a practical alternative for transporting the minerals.

    "That's why we have to make a strong effort to make the railway operative again," Vizcarra said.

    Mines in central Peru, from Chinalco's Toromocho copper deposit to Buenaventura's polymetallic mine Brocal, have been stockpiling their concentrates while they wait for the railway to be fixed.

    The recent round of heavy rains has prompted Peruvian miners Milpo and Volcan to declare force majeure and led Brazil's Votorantim to halt zinc smelting at its Cajamarquilla plant on the outskirts of Lima.

    Labo said any impacts on production would be minimal or made up for later, since miners tend to use stoppages to undertake routine maintenance.

    "So far no mine has halted production," Labo said. "That's the good news. And we don't believe they would stop production for another three weeks."

    Mines could eventually be constrained by a lack of supplies, such as explosives or fuel, or storage space.

    Warehouses at Callao have enough supplies to fulfill companies' commitments for up to 30 days, the country's mining association said Monday.

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    First Japan Q2 aluminium settlement at $128/mt plys LME CIF, up 35% from Q1

    A Japanese consumer and an aluminium producer have agreed to set the second-quarter aluminium contract premium at $128/mt plus London Metal Exchange cash CIF Japan, up 35% from $95/mt plus LME cash CIF Japan for Q1, seller and buyer sources said Wednesday.

    The deal was for the supply of over 500 mt/month of P1020A aluminium ingot for loading over April to June 2017.

    A second producer has also agreed with a Japanese buyer to set the Q2 premium at $128/mt plus LME cash CIF Japan as well, said the buyer source, but the producer could not be reached for confirmation.

    Five producers and 10 to 15 Japanese buyers have been in negotiations since late February for Q2 aluminium contracts.

    The producers first offered $135/mt plus LME cash CIF Japan, while some buyers counterbid at $115-$120/mt plus LME cash CIF Japan.

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    Global zinc market deficit may continue in 2017: analyst

    The zinc market was in deficit in 2016, even though demand was modest, while fundamentals remain positive and global zinc demand is expected to grow 2.5% in 2017, CRU analyst Helen O'Cleary said Monday.

    Mine closures and cutbacks led the market into deficit last year, however "producers may require some further restraint in order for the deficit to be repeated in 2017," O'Cleary told Metal Events Ltd.'s 9th International Zinc Conference in London.

    The consultancy believes that new mines might be developed in China within 2016-2021, but that will depend significantly on environmental standards imposed by the Chinese government, while mining growth in the West will be slower in the medium term, she said.

    The recent labour strike at Noranda Income Fund's CEZinc smelter in Quebec will hasten metal market tightness, according to CRU.

    The 265,000 mt/year plant is the largest zinc smelting facility in northeastern America, where many zinc consumers are based.

    Last week, market participants told Platts that it a zinc deficit in the US was not impossible, adding that as stocks were consumed, European zinc might end up in the US.

    While global zinc demand is expected to grow by 2.5% this year, European zinc demand will remain flat in 2017, O'Cleary said.

    Market participants told Platts last week that even though spreads had improved, demand remained flat in Europe, with physical premiums moving higher, but slowly.

    Global demand faces a couple of challenges, mainly from the automotive industry due to the substitution of zinc metal with aluminum in body sheets in the shift to lighter vehicles. "The substitution will be permanent," O'Cleary said.

    "A wholesale switch to Galvalume (45% Zn, 55% Al) or Galfan (a zinc- aluminum alloy coating) may lead to a 40% fall in zinc demand," she added.

    Meanwhile, zinc prices on the London Metal Exchange rose sharply in 2016 and, if they move above $3,000/mt, this might put some pressure on galvanizers who could find it hard to pass on surcharges, O'Cleary suggested.
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    Africa’s biggest copper find keeps giving as Ivanhoe hits mineralisation 3.8 km west of Kakula

    The TSX-listed stock of Africa-focused explorer Ivanhoe Mining on Tuesday rose 12% after it announced that it had encountered more shallow, high-grade mineralisation at Africa’s largest copper deposit ever – the Kamoa-Kakula copper discovery, in the Democratic Republic of Congo (DRC).

    A new hole has intersected a shallow, 3.8 km extension (now known as Kakula West) of the Kakula discovery, essentially doubling the Kakula mineralised system to more than 10 km, while it remains open for expansion.

    “In the mining exploration business, the very idea that a crew would drill a step-out hole almost 4 km away from the last known mineralisation is virtually unheard of. Nonetheless, our geologists and independent advisers have become so confident in the proven consistency of Kakula’s chalcocite-rich mineralisation that they expected we would find more thick, near-surface, Kakula-style mineralisation in the vicinity of where it actually was discovered. The remarkable success with DD1124 is further validation of our team’s judgment and expertise,” executive chairperson Robert Friedland stated.

    The target area where hole DD1124 was drilled was selected by the Kamoa-Kakula geological team at the intersection of the axis of the interpreted Kakula trend, with a southwesterly-northeasterly-trending antiform (the Kakula West antiform). DD1124 intersected 16.3 m of visually moderate-strong chalcocite copper mineralisation, like the mineralisation encountered within the core of the chalcocite-rich Kakula deposit, beginning at a downhole depth of 422.2 m (410 m below surface), which included a 4 m zone of strong to very strong mineralisation beginning at a downhole depth of 432.4 m.

    Ivanhoe said it expects assays for DD1124 in about two weeks. The current resource estimate for Kakula, announced last October, only covers about 40% of the presently defined 10.1 km strike length of Kakula’s mineralised trend.

    Up to five rigs are being mobilised to fast-track drilling at the Kakula West discovery, the company said.

    The Kakula discovery remains open along a westerly-southeasterly strike. Importantly, the chalcocite-rich zone of mineralisation in DD1124 was intersected at a depth of about 400 m, indicating that the Kakula mineralised zone extends significantly closer toward the surface in the area around the new discovery hole.

    Ivanhoe's TSX-listed stock gained C$0.52 a share to C$4.82 at the height of trading Tuesday.

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    Freeport Indonesia resumes copper concentrate production

    Freeport McMoRan Inc's Indonesian unit has resumed production of copper concentrate at its giant Grasbergmine, a spokesman told Reuters on Tuesday, ending a more than one-month stoppage.

    "We have begun to resume operations in stages," Freeport Indonesia spokesman Riza Pratama said, confirming that copper concentrate production had resumed on Tuesday.

    Freeport stopped producing copper concentrate on February 11 after Indonesia prevented it from exporting the material used to make refined copper, and its sole domestic buyer halted operations due to a strike.
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    China Hongqiao: Auditor suspends work.

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    China eyes 4.4 mil mt 2020 recycled copper, 9 mil mt aluminium output

    China is aiming to produce 4.4 million mt recycled copper and and 9 million mt of recycled aluminium by 2020, in line with the central government's goal of using more recycled resources to be eco-friendly, the Henan Provincial Nonferrous Metals Guild said in a report in its website Tuesday.

    Henan Provincial Nonferrous Metals Guild, a metals industry association, with over 100 member producers, advises the government on nonferrous metal industry policy, laws and does metal research.

    The 2020 output target is 44% and 57% higher than realized recycled copper and recycled aluminium output of 3.05 million mt and 5.75 million mt in 2015. The 2016 data is not yet available.

    The guild said China set output goals of 2.5 million mt for recycled lead and 2.1 million mt for recycled zinc by 2020, which is 67% and 53% more than realized output of 1.5 million mt and 1.37 million mt back in 2015.

    Figures from the guild showed that China set recycled nonferrous metals production goal of 18 million mt by 2020, up 54% from realized output of 11.67 million mt in 2015.

    The higher recycled nonferrous metals output is to keep in line with the the Ministry of Industry and Information Technology, Ministry of Commerce and Ministry of Science and Technology's guidance notes for speeding up growth in the mainland Chinese recycled resources sector, the guild said.

    China's is forecast to utilize recycled resources of 350 million mt by 2020, according to MIIT.

    The growing Chinese recycled metal sector has greatly eased the supply and demand imbalance in primary metal resources, helping the country set up a circular economy, cutting emissions and saving energy, according to MIIT.
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    Emirates Global Aluminium plans IPO, banks pitch for role: sources

    Emirates Global Aluminium (EGA), one of the world's top five producers, has invited banks to pitch for a role in its planned initial public offering, sources told Reuters.

    The IPO could take place later this year, on either the Dubai or Abu Dhabi stock exchange, but the size of the offering has yet to be determined, the sources said.

    EGA was created in 2013 when state-owned companies Dubai Aluminium (Dubal) and Abu Dhabi's Emirates Aluminium (Emal) merged. Its enterprise value was put at $15 billion at the time of the merger.

    It is owned by Abu Dhabi state fund Mubadala Investment Co and Investment Corporation of Dubai (ICD). Mubadala, which recently merged with International Petroleum Investment Co, has been reviewing its investments in the wake of low oil prices and could see more changes in its strategy, banking sources said.

    A request for proposals on the IPO was sent to banks, and submissions were due last week, according to three sources familiar with the matter, who spoke on condition of anonymity as the information is not yet public.

    Emirates NBD ENBD.DU, National Bank of Abu Dhabi NBAD.AD, and a U.S. bank have pitched for the role, according to a banking source.

    EGA is working with banks to determine the valuation of the company and the size of the IPO, with a listing in the United Arab Emirates, either the Dubai Financial Market or the Abu Dhabi Securities Exchange, two other sources said.

    Mubadala's team is working on the offering, one of the two sources said.

    EGA, Mubadala, Emirates NBD and National Bank of Abu Dhabi declined to comment. ICD was not immediately available to comment.

    EGA, which supplies aluminum to 300 customers in more than 60 countries, reported last month a 10 percent rise in 2016 net profit to 2.1 billion dirhams ($572 million) despite a fall in revenue.
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    Global copper market ends 2016 in 50,000 mt deficit: ICSG

    A 2.5% increase in apparent Chinese demand put the global refined copper market in a 50,000 mt deficit in 2016, according to preliminary data released Monday by the International Copper Study Group.

    Adjusting for changes in Chinese bonded stocks, the deficit narrowed to about 42,000 mt, the Lisbon-based research group said in a report, adding that December saw a small surplus of 20,000 mt.

    Global copper mine production last year grew an estimated 5%, or 1 million mt, to 20.15 million mt, with concentrate production increasing by 7% and solvent extraction-electrowinning (SX-EW) declining by 2%, according to ICSG data.

    The mine production increase was due mainly to a 38% increase (650,000 mt) increase in Peruvian concentrate output that benefited from new and expanded capacity brought online in the last two years, the ICSG said.

    Additional factors included a recovery in production levels in Canada, Indonesia and the US, and expanded capacity in Mexico, as well as supply disruptions from strikes, accidents or adverse weather conditions.

    "However, overall growth was partially offset by a 3.8% (220,000 mt) decline in production in Chile, the world's biggest copper mine producer, and a 4.5% decline in [the Democratic Republic of Congo], where output is being constrained by temporary production cuts," ICSG analysts said.

    On a regional basis, production rose by 6% in the Americas and 11.5% in Asia but declined by 3.5% in Africa while remaining essentially unchanged in Europe and Oceania, they added.

    World refined production is estimated to have increased by about 2.5% (530,000 mt) in 2016 to 23.40 million mt, with primary production (electrolytic and solvent extraction-electrowinning) increasing by 3% and secondary production from scrap declining by 2%.

    "The main contributor to growth in world refined production was China (increase of 6%, or 470,000 mt), followed by the United States and Japan, where production increased by 7% and 5%, respectively, and by Mexico (16%) where expanded SX-EW capacity contributed to refined production growth," according to the ICSG.

    "However, overall growth was partially offset by a 3% decline in Chile, the second world leading refined copper producer."

    Although primary electrolytic refined production increased by 4.5%, electrowinning production declined by 6.5% due to definitive/temporary closures of SX-EW mines, ICSG analysts said.

    Production in the DRC and Zambia also declined by an aggregated 11% mainly due to the impact of temporary production cuts.

    On a regional basis, refined output is estimated to have increased in the Americas (1%) and Asia (6%) while declining in Africa (10%) and in Europe (including Russia) (2%) and remaining essentially unchanged in Oceania.

    World apparent refined usage is estimated to have increased by around 2% (430,000 mt) in 2016 to just over 23.46 million mt, the ICSG said.

    "Growth was mainly due to an increase in Chinese apparent demand, as world usage excluding China is estimated to have increased by only 0.9%. Chinese apparent demand (excluding changes in unreported stocks) increased by around 2.5% based mainly on 6% growth in refined production as in fact net imports of refined copper declined by 7.5%," ICSG analysts said.

    Usage in the US and Japan, the second and third leading refined copper using countries, was down by 2% and 2.5% respectively.

    On a regional basis, usage is estimated to have increased by 3% in Asia (excluding China, Asia usage increased by 3%) and by 2% in Europe (by 1.5% in the European Union), while declining by 3% in the Americas, the ICSG said.
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    Peru mine output stranded after rains disrupt rail shipments

    Heavy rains in Peru have disrupted train transport of minerals from the country's central region to the Pacific Coast, and the train line could take at least 15 days to fix, VP and Transport Minister Martin Vizcarra said on Monday.

    The government is coordinating with mining companies to find alternative routes, Vizcarra said. The intense floods have killed more than 70 people and destroyed tens of thousands of homes since the start of the rainy season.

    Central Peru accounts for at least one-fifth of Peru's metals production, according to the National Society of Mining, Petroleum and Energy (SNMPE), an industry group. Peru is the world's second-largest copper producer, the third-largest zinc and silver producer and the sixth-largest gold producer.

    The region is home to Chinalco Mining Corp's 300 000 t/y Toromocho copper mine, a zinc and silver mine owned by Volcan Compania Minera and some precious metals mines owned by Compania de Minas Buenaventura .

    An SNMPE spokesperson said warehouses at Peru's El Callao port had enough supplies to fulfill companies' commitments for up to 30 days.

    Alvaro Barrenechea, director of corporate affairs at Chinalco's Peruvian affiliate, said the company would be affected if the railway does not re-open within a month.

    "I expect the situation will improve in ten days," he said.

    Speaking to local radio station RPP, Vizcarra said at least one kilometre of the rail line that links the center of the country with the coast was destroyed by flooding from the Rimac river in the outskirts of Lima.

    The intense rains began a week ago, due to an unexpected climate phenomenon known as "Coastal El Nino" that could last through April.

    "This railway was attached to the river bank," said Vizcarra. "We need the river flow, which is rising, to recede, and that will not happen in less than 15 days. Then, we will be able to instal the line."
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    Striking union at BHP's Escondida says it is open to further conversations

    The union for striking workers at BHP Billiton's Escondida in Chile, the world's largest copper mine, said after meeting with the company on Monday that it was open to further conversations that could lead to reopening negotiations.

    "At this time, both parties are doing their own evaluation. Depending on the status of that evaluation, this could go forward," union spokesman Carlos Allendes told reporters in the city of Antofagasta.

    "We're going to see if that could put in place a dialogue going forward. We're hopeful. We have the willingness, and we're going to wait."

    The union was unclear when further conversations might occur, but Allendes said union leaders might sit down with BHP representatives as early as Monday night.

    Company representatives could not be reached for comment.

    The 2,500-member union at Escondida has been on strike since Feb. 9. Since then, production has been stopped, sending global copper prices higher amid supply concerns.

    Workers have maintained three core demands - that benefits in the existing contract not be reduced, work shifts not be made more taxing and new workers receive the same benefits as those already at the mine.

    On Thursday, the union invited the company to return to the negotiating table on the condition that BHP give a written guarantee that talks would focus on that trio of demands.

    The company agreed but was ambiguous about its commitment to discuss only the union's key issues. Earlier on Monday, union leaders said that they would meet with BHP, despite slamming the company's response as "manipulative."

    Union leaders said earlier on Monday that they had received approval from the rank and file to invoke Article 369 of Chile's labor code, if the leaders deem it appropriate.

    That would legally halt the current negotiation process and maintain the benefits of the current contract for 18 months, postponing collective wage talks.

    Such an agreement is not often invoked by workers, as it delays the one-time bonus typically given to miners when contracts are signed, and appears less likely after the union's most recent remarks.

    The union said delaying the wage talks would allow the next round of negotiations to occur under Chile's new labor code, which is set to take effect in April, giving the union more power.

    Escondida produced slightly over 1 million tonnes of copper in 2016. Rio Tinto and Japanese companies including Mitsubishi have minority interests in the mine.
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    Union at Peru mine Cerro Verde says it to restart strike Friday

    A strike at Peru's top copper mine, Cerro Verde, is set to end by government order on Thursday, but workers said the stoppage would start right back up on Friday if no deal over their demands is reached with management.

    Union Secretary General Zenon Mujica said that 11 days of striking had not resolved the dispute. The workers want better family health benefits and a bigger share of the mine's profits.

    The mine is operating at 50 percent because the company has found replacement workers, Mujica said. Cerro Verde is controlled by Freeport-McMoRan.

    "This first strike is ending on Thursday and we will start a new one on Friday," Mujica said.

    The union, which represents 1,300 workers, will meet on Tuesday with the company and government officials to try to negotiate a deal. "It's going to be hard because the company has been quite intransigent," Mujica said.

    Representatives of the company could not be immediately reached for a comment.

    Production at the mine, which generated nearly 500,000 tonnes of copper last year, has fallen by 50 percent since some 1,300 of about 1,650 workers joined the strike, Mujica said earlier this month.
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    Union at Chile's Escondida slams new offer from management

    The labor union at the world's largest copper mine, BHP Billiton's Escondida in Chile, called a fresh offer of talks by management to end a 39-day strike "manipulative."

    The union told Reuters on Sunday that it will decide whether to attend a meeting with the company after holding two assemblies for its 2,500 members on Sunday and early on Monday. The company has proposed talks for Monday afternoon.

    Escondida said on Friday that it had agreed to meet with the union and was offering better salaries, bonuses and benefits in response to workers' three main demands.

    "We're sorry to say that all of that is just manipulation and deceit," the union told its members in a statement late on Saturday about the new proposal to end the strike, which has put pressure on global copper prices.

    The union wants Escondida not to trim benefits in its existing contract, not to make shift patterns more taxing, and to offer the same benefits to new workers as existing ones.

    BHP, which owns a 57.5 percent stake in the mine, did not immediately respond to requests for comment.
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    Vedanta already turning Anglo’s discarded zinc assets to account

    Diversified mining company Vedanta, which is acquiring 13% of Anglo American through Volcan Investments, has done well with the assets it acquired from Anglo seven years ago.

    On the $1 338-million it paid for Anglo’s zinc assets in 2010, the London-listed, India-rooted company achieved full payback two years later through decisive underground and near-pit mining.

    It is now managing to do what both Anglo and Gold Fields failed to do before it – build a zinc mine at Gamsberg, in South Africa’s Northern Cape, which has been 40 years in the waiting.

    Vedanta’s face in these parts is that of Deshnee Naidoo, formerly of Anglo American, who has managed to shave close to $200-million off the project’s original capital estimate to take it down to $400-million.

    In a video interview with Mining Weekly Online last year, Naidoo again outlined Vedanta’s thrift culture in that the company is planning to use revenue generated during the Gamsberg project’s first phase to help fund its second phase, which will probably include a new 300 MW to 350 MW zinc refinery at a cost of nothing less than $500-million to $600-million. (Also watch the attached Creamer Media video interview).

    The zinc price has been recovering well, buoyant on a fall-off in supply, exemplified by Vedanta’s own closure of the former Anglo Lisheen zinc mine in Ireland.

    A contract to establish and mine the Gamsberg opencast zinc operation has been awarded to Aveng Moolmans by Black Mountain Mining, a Vedanta Zinc International operation.

    The contract award to Aveng Moolmans involves the setting up and commissioning of a concentrator plant and associated infrastructure for the opencast mine, which is located on one of the world’s largest undeveloped zinc deposits, 20 km east of the town of Aggeneys, in South Africa’s Northern Cape.

    Engineering solutions provider ELB’s Engineering Serviceswill oversee the construction of the process, power and waterplants at the project.

    While all this is taking place, Vedanta chairperson Anil Agarwal’s use of Volcan as his vehicle to swoop on £2-billion worth of Anglo’s shares is heightening speculation that Vedanta may be after the rest of Anglo’s South African assets, many of which until recently had for-sale signs on them.

    Agarwal, Naidoo and Vedanta CEO Tom Albanese were prominent at last month’s Investing in African MiningIndaba, in Cape Town, where they usurped Anglo’s usual position of main stage sponsor.

    In their combined main stage presentation, Agarwal and Albanese displayed an appetite for more African investment in general and more South African investment in particular.

    During his visit to South Africa in July last year to coincide with the visit to this country of Indian Prime Minister Narendra Modi, Agarwal waxed lyrical about South Africa’s rich natural resources sector being underexplored.

    During his visit, Vedanta signed two memorandums of understanding with South African companies.

    In September, the company won a prestigious Southern African Institute of Mining and Metallurgy award that recognised the contribution of the company’s cataract surgery project to the advancement of health and wellness.
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    Rusal forecasts global aluminium deficit to widen to 1.1 mil mt in 2017

    Russian aluminium producer Rusal said Friday it expects global aluminum deficit to widen to 1.1 million mt in 2017 from 0.6 million mt in 2016, as strong demand growth is seen outpacing the increase in supply.

    Rusal put global aluminium demand in 2017 at 62.7 million mt, up 5% from a year ago, and supply at 61.6 million mt, up 4.3%.

    China's aluminium demand is expected grow by 6.7% to 33.5 million mt in 2017, while demand outside of China is forecast to rise by 3.3% to 29.2 million mt.

    But China's supply will stay relatively tight due to the government's new anti-pollution measures. Production in China is expected to rise by 6% to 34.3 million mt in 2017.

    "The country may still have a high risk of supply tightness due to the new environmental measures against pollution including outlined capacity closures and a significant decline in new capacity additions ... similar to ... the steel sector," Rusal said.

    Production outside China will rise 2.4% in 2017 to 27.3 million mt, Rusal said.

    In 2016, global aluminium demand grew by 5.5% to 59.7 million mt. China posted a 7.6% growth to 31.4 million mt, while demand outside of China rose 3.4% to 28.3 million mt.

    China's economic growth remained stable, with gross domestic product increasing 6.7% year on year and industrial output also rising by 6%.

    In North America, Donald Trump's win in the US presidential election resulted in economic optimism, Rusal said.

    New housing starts increased by nearly 5% year on year in 2016 and car output increased by 1.2%.

    Rusal put 2016 global supply at 59 million mt, up 3.6% year on year.

    China's aluminium output increased to 32.3 million mt in 2016, up 5.5% from the previous year, due to capacity ramp-ups in the fourth quarter of 2016, while production outside China was 26.7 million mt, up 2.2%.
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    Steel, Iron Ore and Coal

    Nippon Steel plans to raise product prices by 5,000 yen/T in Apr-Sept

    Nippon Steel & Sumitomo Metal Corp plans to raise prices of its steel products by about 5,000 yen per tonne in the April-September half to reflect rising costs of materials and distribution, its president said on Friday.

    "We have asked our customers to raise our products prices by about 20,000 yen per tonne this financial year due to higher prices of coking coal and other costs," Kosei Shindo, president of Japan's biggest steelmaker, told a news conference.

    "But we will need to ask for an additional hike by about 5,000 yen per tonne in the first half of the next financial year as prices of iron ore and other raw materials including zinc as well as metal scrap are climbing," he said.
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    Fortescue Metals to pay down a further $1 bln in debt

    Fortescue Metals Group Ltd , the world's No.4 iron ore miner, will pay down $1 billion in a term loan on March 30, it said on Friday, as it looks to continue its cost-cutting drive.

    The repayment will save it about $38 million in interest costs and reduce its debt burden to $3.6 billion, with about a quarter of that due in 2019.

    The rapid reduction in debt paves the way for the company to step up payouts to shareholders, with analysts forecasting a dividend of 37 cents a share for the year to June 2017, more than double last year's level, according to Thomson Reuters I/B/E/S.

    "We will continue to prioritise free cash flow for debt reduction, investment in our core iron ore business and returns to shareholders," Chief Executive Officer Nev Power said in a statement.
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    China's coal resources may converge to competitive firms, China Coal Energy

    With the enforcement of surplus coal capacity cuts and reform and upgrading at coal firms, China's coal resources are expected to converge to competitive firms, said China Coal Energy Co., Ltd in its 2016 annual report released late March 22.

    The industry concentration and professionalization will be gradually enhanced, and industrial structure is expected to develop to medium and high levels, according to the report.

    The company is committed to using its advantages and participating in coal resource integration. Its operator China National Coal Group will successively take over coal businesses and assets of state-owned enterprises, in order to facilitate synergetic development of coal, power and chemical operations.

    China Coal Energy produced 80.99 million tonnes of commercial coal in 2016. Of this, 71.27 million tonnes were thermal coal, down 17.7% year on year; 9.72 million tonnes were coking coal, up 9.7% from a year ago.

    Its coal sales stood at 132 million tonnes last year, dropping 3.9% from the preceding year, with self-produced coal sales down 17.3% year on year to 80.67 million tonnes. The company plans to produce and sell 80 million tonnes of self-produced coal this year.

    Last year, sales cost of its self-produced commercial coal stood at 161.94 yuan/t ($23.5/t), sliding 2.7% year on year.

    During the period, China Coal Energy realized net profit of 2.03 billion yuan, compared with a loss of 2.52 billion yuan in 2015.
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    China's six major coastal power cos report continuous stocks declines

    Coal stocks at China's six major coastal power companies were on the decline, showed data from industry portal

    On March 21, their coal stockpiles stood at 9.51 million tonnes, sliding 4.88% from 10 million tonnes on March 10 and 15% lower than a month earlier, which were enough to cover only 15 days of use, down from 17 days on March 1.

    However, their average daily coal consumption did not sharply plunge, signaling robust restocking demand from utilities in peak season for coal-fired power generation.

    The uptrend in coal-fired power market was mainly attributed to a supply shortage of hydropower. Data showed that hydropower output stood at 122.9 TWh in the first two months of this year, down 4.7% year on year.

    The output of hydropower has been falling since September last year, except for a year-on-year increase of 3.3% recorded in November.

    Coal transfer ports accordingly increased stocks to meet demand from downstream sector. On March 20, coal stocks at Tianjin port, a major coal transfer port in northern China, reached 3.18 million tonnes, hitting a 18-month high.

    The uptick in thermal coal market is expected to remain in the short term, bolstered mainly by decreased coal inventories at power plants and contracted hydropower supply before rainy days.

    Attached Files
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    China Jan-Feb steel output up 5.82% YoY

    China's crude steel output totaled 128.77 million tonnes over January to February, increasing 5.82% from the previous year, showed data from the China Iron and Steel Association (CISA).

    The daily crude steel output amounted to 2.18 million tonnes during the same period, the CISA said.

    CISA members produced 50.34 million tonnes of crude steel in February, up 6.16% from the year-ago level. Their daily output of crude steel reached 1.80 million tonnes, climbing 6.94% from the year-ago level, the CISA said.

    Total crude steel output of CISA members witnessed a year-on-year increase of 7.51% to 102.45 million tonnes in the first two months of 2017, with daily output at 1.74 million tonnes.
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    Shanxi Coking 2016 net profit up 105pct on year

    Shanxi Coking Co., Ltd, one major coking firm in Shanxi, saw its net profit soar 105.33% year on year to 44 million yuan ($6.4 million) in 2016, showed its annual report released late March 20.

    The company's operation revenue gained 19.97% from the year prior to 4.04 billion yuan last year.

    Improved performance resulted mainly from a price rally last year, with coke sales price averaging 849.78 yuan/t throughout the year, up 239.05 yuan/t year on year, according to the annual report.

    Shanxi Coking planned to produce 3 million tonnes of coke and realise operation revenue of 6 billion yuan this year, the company said.
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    European stainless steel surcharges resume upward trend in April

    Monthly alloy surcharges on austenitic grades of stainless steel flat-rolled products in Europe are set to rise again in April, first mill announcements indicated Tuesday.

    Surcharge levels slipped for March, halting a four-month trend which had seen them hit multi-year highs.

    Finland's Outokumpu, the Continent's largest producer, set its alloy adjustment factor for type 304 (4301) flat products at Eur1,455/mt ($1,571/mt) for April, up Eur51 from the current month and marking the highest level since March 2012, according to S&P Global Platts records.

    Dollar-denominated nickel prices on the London Metal Exchange flirted with $11,000/mt in late February/early March but have slipped back as the current month has progressed.

    The LME nickel cash settlement price has averaged $10,423/mt for March to date, down 1.9% from $10,620/mt for February.

    Outokumpu's surcharge for molybdenum-bearing type 316 (4401) flat products was set at Eur2,021/mt for April, up Eur95 from March to its highest level since October 2014.

    From a low of $6.40-$6.55/lb, basis Platts assessments, in mid-December, spot molybdenum oxide prices have moved up steadily in recent weeks and are currently at their highest levels since January 2015, nearing $9/lb.

    Meanwhile, Outokumpu's surcharge for nickel-free type 430 flat products is up Eur18 to Eur808/mt for April, marginally below the February figure of Eur810/mt, which was the highest level since Platts records began in January 2007.

    The European benchmark ferrochrome price negotiated between producers and steel mills was settled at 156 cents/lb for second-quarter 2017, down 11 cents, or 6.7%, from the previous quarter but up 90% from 82 cents lb in Q2 2016.

    Attached Files
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    South Korean utilities fulfill plan to book US thermal coal cargoes

    South Korean power generators are putting into action their stated plan to book more US thermal coal with approximately 1.5 million mt destined to arrive at Korean ports between July and September, said a market source Wednesday.

    All five Korean power utilities have purchased US thermal coal cargoes for Q3 delivery, and the specification of the coal involved is understood to be 4,850 kcal/kg NAR, said one source familiar with the matter.

    The shipments are coming from a port on the western seaboard of Canada, possibly Vancouver which is home to the Westshore coal terminal, said the source.

    One motivation for Korean utilities to take more US thermal coal is relatively high prices of similar calorific value Indonesian thermal coal, which have fluctuated widely since late last year.

    Indonesian 5,000 kcal/kg GAR grade coal was trading at $63/mt FOB Kalimantan on a 90-day basis this week, and peaked at $77/mt in mid-November 2015, according to S&P Global Platts data.

    US thermal coal on a 8,800 Btu/lb GAR basis, which is equivalent to 4,880 kcal/kg NAR was trading Tuesday at $56.16/mt FOB Vancouver, according to Platts prices.

    For the quickest route to Korea, across the Pacific Ocean, current Panamax cargo freight from Vancouver to Japan is $10.70/mt, indicating a delivered Japan price of about $66.90/mt CFR for US 4,850 kcal/kg NAR thermal coal.

    US thermal coal can be blended with other origins, particularly higher grades from Australia and Indonesia, according to the specifications of Korean power plants, sources said.


    Another spur to Korean buying of US 4,850 kcal/kg NAR thermal coal is the pending April 1 increase of Won 6,000 ($5.33/mt) in the Korean government's consumption tax on imported thermal coal, said the market source.

    "US thermal coal below 5,000 kcal/kg NAR will attract the lowest [rate of] consumption tax," said another market source.

    US thermal coal with a calorific value of 4,850 kcal/kg NAR would fit into the lowest tier of the Korean government's consumption tax which applies to imported coal under 5,000 kcal/kg NAR, he said.

    For the lowest band, the consumption tax rate is changing to Won 27,000/mt post-April 1, from Won 21,000/mt, currently.

    Thermal coal ranging from 5,000 to 5,500 kcal/kg NAR attracts a higher rate of consumption tax at Won 30,000/mt from April 1, up from Won 24,000/mt at present.

    And, for the upper band of the consumption tax which applies to imported thermal coal higher than 5,500 kcal/kg NAR the rate is Won 33,000/mt from April, rising from Won 27,000/mt now.

    Sources close to the Korean market flagged in January that a significant quantity of US thermal coal was expected to be delivered to the Northeast Asian country later in the year.

    One cargo of US thermal coal that arrived in Korea in January is understood to have traveled from a US port on the Gulf of Mexico via the Atlantic and Indian Oceans, said another market source in Korea.

    Korean power companies have freight agreements that provide vessels on a long-term basis at fixed prices, providing an incentive to send ships on long voyages to Colombia or the US, sources said.

    Two US coal producers with mines in the vast Powder River Basin covering the US states of Montana and Wyoming are known to have served the Korean market in the past few years, but their shipments have tailed off in recent months.

    One is Signal Peak Energy -- partly owned by commodities trading company Gunvor -- that produces bituminous thermal coal in Montana, and ships exports via Canada's Westshore terminal.

    And the other is Wyoming-headquartered Cloud Peak Energy which produces sub-bituminous coal for customers in the US and Asia, according to the company's website.

    Korea imported 1.05 million mt of US bituminous thermal coal in the 2016 year, according to Platts data.

    For the 2015 year, Korean imports were 670,000 mt for US bituminous thermal coal and 555,000 mt for US sub-bituminous thermal coal, said the data.

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    New Hope coy on buying Wesfarmers' stake in Bengalla

    New Hope Corp wouldn't rule out buying Wesfarmers' stake in the Bengalla coal mine, as it continues to review acquisition opportunities in the coal industry, the Sydney Morning Herald reported , citing the coal producer.

    New Hope and Wesfarmers, the conglomerate with interests ranging from Coles and Bunnings in retailing, through to chemical and fertiliser manufacturing, each hold a 40% stake in the Bengalla mine in the Hunter Valley.
    A year ago, New Hope paid Rio Tinto $865 million for its 40% shareholding in Bengalla, just before the price of coal surged, which has helped to rewrite New Hope's fortunes.
    "The timing of the Bengalla acquisition has been crucial to the result," New Hope's managing director Shane Stephan said when commenting on his group's profit surge in the six months to January, which was released earlier on March 21.
    Wesfarmers is believed to have its coal interests in the market, which include its stake in Bengalla and full ownership of the Curragh mine, producing coking coal and steaming coal.
    Stephan said his company is only interested in acquiring open-cut mines, instead of underground mines.
    New Hope is also seeking approvals to begin development of the New Acland mine in southern Queensland, a $900 million development that could be in production within 18 months after receiving all government approvals. Much of the capital cost of this project would be incurred in the latter stages of its proposed development.
    The surge in the coal price since mid-2016, coupled with the purchase of the stake in the Bengalla mine has pushed the earnings of New Hope sharply higher in the six months to the end of January. In February, it flagged a January half net profit of $50 million – $54 million, with an extraordinary profit of $14 million after tax.
    The outcome was to exceed the top end of the forecast, with a net profit after extraordinary items of $68.4 million, up from $2.7 million a year earlier. Earnings were boosted by a $13.9 million refund on rail charges.
    In March, 2016, the benchmark spot price for Newcastle steaming coal was around $51 a tonne, rising to $70/t by the middle of last year. The price has continued to firm, about $81.75/t to $83/t in recent dealings according to McCloskey/IHS data.
    Stephan said Chinese government policy appeared to be aimed at holding the price of steaming coal stable at around $75/t to $85/t as it seeks to shut down uneconomic domestic mines and lift its reliance on renewable energy sources and nuclear energy.
    In the first half, saleable output hit 7.4 million tonnes, up 45% with tonnes sold rising 47% to 3.95 million tonnes. The outlook is for continued strong earnings, thanks to the elevated coal price, the company said.
    Pointing to the shift towards higher efficiency, lower emissions coal-fired power stations in north Asia, New Hope expressed this will "attract ongoing premiums to alternative lower quality coals in the future", it said, highlighting the outlook for its output from mines in southern Queensland and the Hunter Valley.
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    Indonesia port graft investigation disrupting coal shipments

    Indonesia is cracking down on corruption and widespread graft at some of its top coal export hubs, disrupting shipments to destinations across Asia.

    Indonesia is the world's top exporter of thermal coal, still the main feedstock for global power generation. Interruptions to coal's output and shipment can impact seaborne prices of the fuel as well as wholesale electricity markets.

    The investigations that began on Friday are targeting port operations along the large anchorage area off Samarinda in East Kalimantan, officials said on Wednesday, delaying ships waiting to load new supplies from the region's mines.

    Police initially raided four port facilities, including the Samudra Sejahtera Stevedores Cooperative (Komura) office, a Transportation Ministry statement said, based on allegations of "blackmail, corruption, money laundering, and thuggery".

    "We are cracking down on patterns linked to illegal fees," Transportation Ministry spokesman J. A. Barata told Reuters.

    Almost 30 large dry-bulk ships are waiting offshore Samarinda to load coal, according to shipping data in Thomson Reuters Eikon. The data shows that some of the ships have been waiting to load coal since late February.

    The office of the stevedores' cooperative did not answer calls seeking comment.


    East Kalimantan Police spokesman Ade Yaya Suryana told Reuters that authorities were targeting stevedores that were asking coal companies in the Mahakam area to pay extra fees to load ships.

    One coal mining company had been asked by stevedores to pay 3 billion rupiah ($225,000) per month in illegal fees based on tonnage, Suryana said, adding that such fees had been charged on shipments since last year and that police estimated Komura had amassed several hundred billion rupiah from the illegal charges.

    Komura chairman Jaffar Abdul Gaffar told local media outlet that 6.1 billion rupiah confiscated by police in the raid on the cooperative was for wages and not from illegal fees.

    "I just took it out of the bank," Gaffar said, according to

    Transportation Minister Budi Karya Sumadi said in the ministry statement he had asked police "not to hesitate in cracking down on all forms of illegal fees."

    The crackdown follows coal shipment disruptions that occurred last month, when authorities put up road blocks in investigations that prevented workers from accessing ports.

    Indonesian Coal Mining Association chairman Pandu Sjahrir told Reuters that several coal producers had reported shipping and logistics delays resulting from the investigations.

    The police investigations are preventing many ports from arranging staff for loading and unloading coal, said one coal trader on the condition of anonymity, as he was not authorized to talk to the press.

    "It's very chaotic, delays in loading are common anyway, so these (investigations) have further disrupted coal operations," he said.

    East Kalimantan Transportation Agency, which oversees port authorities and marine transportation, declined to comment on the investigations. Coal miners in the region include Banpu unit Indo Tambangraya Megah (ITM), and Bayan Resources.

    The two mining companies could not be reached for comment

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    Chinese utilities urge regional government to curb soaring coal prices

    China's top power groups are lobbying the local government in the western region of Ningxia to require their main thermal coal supplier to cut prices as they are bleeding cash due to surging coal costs and falling power prices, two sources said.

    A glut of renewable and coal-fired power capacity in the Ningxia Autonomous Region has pushed down electricity prices, forcing utilities to sell their power at a discount after the government liberalized its power market. Prices in the region are the lowest in the country.

    Seven of China's largest electricity generators including the Ningxia subdivision of China Datang Corp, China Guodian Corp, China Huadian Group, China Huaneng Group and Chinalco Ningxia Energy Co asked Ningxia regional authorities to force China's largest miner Shenhua Group Corp to lower its coal price to 260 yuan ($37.79) per ton from 320 per ton.

    The companies submitted the proposal in a document, seen by Reuters, to the Ningxia government on March 17.

    In the proposal, the companies also asked the government to temporarily suspend the region's new wholesale power trading market and increase the volume of coal to the region from Inner Mongolia.

    The move follows a months-long rally in thermal coal prices in China, the world's top consumer of the fuel, amid fresh concerns about tighter supplies and robust demand even as winter draws to an end.

    An official from the Ningxia Economic and Information Committee, which is handling the matter, told Reuters that he met with representatives from the companies on Tuesday.

    He confirmed the authenticity of the proposal, but declined to be named because he is not authorized to speak to media.

    The seven companies and Shenhua were not immediately available for comment.

    "The cost of producing coal-fired electricity has reached 0.27 yuan per kWh, which is higher than our sales price," the seven companies said in the proposal. "Right now we are fully unprofitable."

    Though this seems isolated to the region, the move illustrates the challenges for utilities, who are facing a double whammy of weak electricity prices and soaring raw material costs even as the peak demand season nears an end.

    It also highlights the balancing act that regional authorities must perform between the interests of coal miners and utilities. Coal-fired power accounts for the majority of China's supplies.

    The issue has also fueled concerns about the country's ambition to reform its power market by liberalizing power prices through the trading scheme.

    Power company profitability is a major interest for the central government, which intervened last year to prevent a winter heating crisis when thermal coal prices soared to multi-year highs and forced mining cutbacks tightened supplies.

    The Ningxia official said the local government is hesitant to intervene in the coal market again, chastened by last year's experiences. Earlier this month, the central government said it would not intervene as long as prices are stable, handing oversight to the regional governments.

    "We will consider bringing together the power companies as well as coal producers to negotiate coal prices," the official said.

    "But coal prices are not the only reason that these utilities are not profitable."

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    Jiangsu to eliminate 6.5-8 Mtpa crude steel capacity in 2017

    Eastern China's Jiangsu province planned to shed 6.5-8 million tonnes per annum (Mtpa) of crude steel capacity in 2017, said Jiangsu Metallurgy Association on its website.

    Jiangsu aimed to eliminate 17.5 Mtpa surplus steel capacity during the 13th Five-Year Plan period (2016-2020). It closed 3.9 Mtpa of crude steel capacity and 5.8 Mtpa of steel capacity in 2016, overfulfilling the original goal by 48%.

    The province is expected to cut 11.7 Mtpa crude steel capacity within two years.

    Jiangsu will close "zombie" steel mills and make full use of resources to enhance industrial competition in the five-year period ending 2020.
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    Iron Ore Dives As Chinese Banks Move To Cool Housing

    Iron ore futures traded in China tumbled 4.4% to 665.5 per tonne on Wednesday after worries arise that local governments will move to cool down the bubbling property market.

    Data released last weekend showed that home price gains had spread to more cities in February and more cities were escalating tightening measures. The most extreme was the capital city of Beijing, which now asks second-home buyers to stump up 60% down payments.

    State-owned Xinhua News Agency reported today that the Beijing city government has asked 16 banks to raise their down payment ratio and halt the approval of 25-year mortgage loans. Even first-home buyers can’t get much of a mortgage loan discount any more. The local government now requires a maximum 5% discount to the benchmark mortgage rates.

    Meanwhile, China’s interbank lending rates are on the rise. See my earlier blog “Liquidity Squeeze? China’s Interbank Rates At 2014 High”

    If local Chinese governments can successfully cool down the property market, it will mean less construction, less steel and less demand for iron ore.

    To be sure, there are also global concerns that U.S. President Donald Trump is now wasting his political capital bickering over Obamacare instead of implementing his $1 trillion infrastructure spending proposal and tax cut reforms.

    Iron ore miners and steel companies tumbled today. Australia’s Fortescue Metals (FMG.Australia) slipped 5.5%, BHP Billiton (BHP) dropped 3.1%, and Rio Tinto (RIO) fell 2.8%. Korea’s POSCO (005490.Korea) tumbled 4.3%

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    Indian power utilities' Apr 2016-Feb 2017 thermal coal imports fall 20% on year

    Indian power utilities imported 60.38 million mt of thermal coal over April 2016-February 2017, down almost 20% year on year, according to data released by the Central Electricity Authority, seen by S&P Global Platts Tuesday.

    The April-February imports registered a growth of 10.8% month on month.

    Of the total quantity, 18.50 million mt was imported by 29 utilities for blending with domestic coal, while 41.88 million mt was imported by 11 utilities for power plants that use only imported coal.

    Fifteen utilities did not import any coal during the 11 months of the ongoing Indian fiscal year, while no data was available for one utility.

    Private sector power company Adani Power imported the largest volume of thermal coal during the 11-month period at around 14.5 million mt. Tata's Mundra Ultra Mega Power Project followed with around 9.9 million mt.

    On a monthly basis, February imports stood at 5.63 million mt, falling by around 16% year on year.

    The government plans to reduce the country's dependency on imported coal, to facilitate the consumption of the surplus fossil fuel produced by state-run miner Coal India Limited.

    CEA has not assigned any targets for power utilities for the current fiscal year. However, they can procure imported coal if they find it to be more economical than using domestic coal, especially for coastal power plants.

    Power utilities had imported around 80.47 million mt of thermal coal in fiscal 2015-2016 (April-March), down 11.8% year on year, and below the target of 84 million mt.
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    Daqin spring maintenance to start on April 6

    The routine spring maintenance to China's coal-dedicated Daqin rail line will start on April 6, beating market expectation for postponing to some later time, one source with the Taiyuan Railway Administration dislclosed to

    The maintenance will last 3-4 hours each morning for some 25 days.

    Total rail coal transport during the maintenance may decrease 16.6%, with daily transport likely to fall from 1.2 million tonnes to 1-1.05 million tonnes.

    The news may push utilities to make intensive coal buying in the days ahead of the maintenance, as their daily coal burn remained high above 640,000 tonnes.

    Days of use fell to below 10 at some coastal utilities, indicating urgent need to replenish inventories.

    After one-month rally, thermal coal prices showed signs of decline at northern China ports, as mines were gradually returning to normal production after the two parliamentary sessions.

    On March 20, the Fenwei CCI Thermal Index assessed domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port at 692 yuan/t FOB with 17% VAT, stable day on day but up 20 yuan/t week on week.

    On the same day, the price of domestic 5,000 Kcal/kg NAR coal was assessed at 615 yuan/t, FOB basis with 17% VAT, falling 4 yuan/t from the previous day but up 14 yuan/t from a week ago.

    The rail authority arranged the spring maintenance to Daqin line in April, as it is a slack demand season when utility coal burn will be relatively low and coastal coal market will be little affected.
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    Hebei Steel gets approval for $6 billion upgrade project

    Hebei Steel Group, China's biggest steelmaker by output, has won approval for a 42.4 billion yuan ($6.2 billion) project that will reduce its steel capacity by nearly 2 million tons and upgrade old technology, Hebei province's economic planner said.

    China, the world's biggest producer and consumer of steel, is prioritizing supply-side reform in its steel and coal sectors, seeking to tackle pollution and cut an output capacity glut that has weighed on both domestic and global prices.

    The Development and Reform Commission (DRC) of Hebei, China's largest steelmaking province, approved the project for four units of the Hebei Steel Group in a March 16 document that was published by China Steel News on March 19.

    An official surnamed Wei from the project registration office of the DRC confirmed the document's content to Reuters.

    The four entities, including two units of listed subsidiary Hesteel Co Ltd and Xuansteel Co, have vowed to phase out 9.15 million tons of iron capacity and 9.34 million tons of steel capacity, according to the document.

    "To cut excess capacity, upgrade technology and clean up the air for the coming Winter Olympic Games, Hebei Steel Group has planned to upgrade and relocate Xuansteel," Wei told Reuters, declining to give his full name.

    "Xuansteel will build new modernized plants in Laoting. After the new facilities pass assessments, a number of out-dated steel mills of Hebei Steel Group will be halted," Wei said.

    Xuansteel will build four new blast furnaces and five new converters with total iron and steel capacity of 7.32 million tons and 7.47 million tons, respectively.

    Then, when the outdated steel mills are phased out, that will cut Hebei Steel's annual iron capacity by 1.8 million tons and drop its steel capacity by about 1.9 million tons.

    Laoting is a seaside county in the Tangshan city area in Hebei province.

    Hebei is home to 104 mills that account for nearly a quarter of China's total steel output. The province has pledged to cut steel and iron making capacity by 31.17 million tonnes by 2017 and by 49.13 million tons by 2020.

    China has launched a campaign to shut down substandard steel output in its war on pollution and industrial overcapacity. It is planning to close 100-150 million tons of annual steel production capacity over the 2016-2020 period.

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    China Coal Energy Feb coal sales up 57.6pct on month

    China Coal Energy Co., Ltd, the listed arm of China National Coal Group, sold 10.45 million tonnes of commercial coal in February, rising 13.6% year on year and surging 57.6% month on month, the company said in its latest statement.

    Of the sales, 7.18 million tonnes were self-produced commercial coal, increasing 23.4% year on year and up 48.7% from January.

    The increased sales were partly attributed to increased demand from downstream utilities. Data showed that daily coal consumption of China's six major coastal power companies averaged 550,500 tonnes in February, up 40.7% from an average of 391,300 tonnes in corresponding period last year.

    In the first two months, the company sold 12.01 million tonnes of commercial coal, falling 10% from the year before.

    China Coal produced 6.34 million tonnes of commercial coal in February, up 4.4% year on year but down 8.1% from a month earlier.

    The production during January-February stood at 13.24 million tonnes, sliding 1.1% from the year prior.

    China's coal market began to gain upward momentum in mid-February, thanksto recovery of economy, low hydropower generation and relatively low coal output at mines after the Lunar New Year.

    Coal production has started to increase recently after the two parlimentary sessions ended in mid-March, and more mines in Yulin are getting back to production, said traders.

    On March 21, coal stocks at Qinhuangdao port stood at 4.75 million tonnes, up 10.9% from 4.29 million tonnes on March 10.

    China Coal expected its net profit to be 1.8 billion-2.2 billion yuan in 2016.
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    New Hope profit soars, confident coal prices won't drop

    New Hope Corp, Australia's top independent coal producer, reported a near quadrupling in first-half underlying profit after four years of pain, and said it was confident coal prices would hold near current levels thanks to producers' discipline.

    The company's managing director, Shane Stephan, told Reuters on Tuesday he believed thermal coal prices would stay within China's price target of $75-$85 a tonne, as no major supplies were expected to enter the market and weaken prices.

    "We're seeing this domestic Chinese industry policy as being a significant influence on Asian thermal coal pricing for the foreseeable future," Stephan said in an interview.

    Strong prices and New Hope's acquisition of the Bengalla coal mine in Australia helped the company report its best first-half profit in four years, with underlying profits at A$54.9 million ($42.4 million) for the six months to Jan. 31.

    The result was slightly higher than the top end of New Hope's upgraded guidance last month.

    Sale volumes rose 47 percent to 3.96 million tonnes, thanks to Bengalla.

    Stephan said he believed seaborne coal prices were sustainable because producers in Australia, Indonesia and Colombia had not increased output even after last year's strong price surge.

    Australia's Newcastle coal prices at $81.50 are about 50 percent higher now than they were a year ago, having peaked at around $116 in November.

    "The supply is steady despite the increase in price, which gives me confidence that we're looking at a little bit more reasonable future," Stephan said.

    "There is quite a gap, in our opinion, between the price needed for sustainable profitability of existing coal assets and the price required to encourage new production capacity," he said, adding that environmental challenges made it tough to bring on new production.

    He said he did not fear plans by India's Adani to build a 25 million tonnes a year mine in Queensland targeting first production in 2020, as that output was going to Adani's own power stations in India.
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    Trump says preparing new executive actions to save coal mining

    President Donald Trump said on Monday he was preparing new executive actions to save coal mining and put miners back to work.

    "As we speak we are preparing new executive actions to save our coal industry and to save our wonderful coal miners from continuing to be put out of work. The miners are coming back," Trump told a rally in Louisville, Kentucky, without providing any details.
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    Coking coal at $160/t expected for Q2 and Q3 benchmarks

    With a growing sense of market stability after a peak in prices seen at the end of 2016, coking coal industry reference prices in the second and third quarters of 2017 may end up close to current spot prices, Platts reported on March 17, citing US investment bank FBR.

    FBR has cut its estimate for Q2 and Q3 coking coal benchmark pricing under the accords to $160/t, from $180/t previously, said Lucas Pipes, an analyst from FBR.

    According to industry reports, Q2 met coal benchmark negotiations are ongoing. With premium coking coal spot prices hovering around $160/t FOB Australia, currently we believe a settlement at or close to this price is most likely, said FBR in a note.

    "Considering the decline in spot prices during February to the low $150/t, we believe the recent stabilization and potential Q2 settlement off the lows are promising signals of the market regaining stability following a particularly volatile six months."

    Coking coal spot prices peaked at over $300/t FOB Australia in Q4 2016, before plunging to half of that level by February this year.
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    China Shenhua 2016 net profit soars 40.7pct on year

    China Shenhua 2016 net profit soars 40.7pct on year

    China Shenhua Energy Co, the listed arm of coal giant Shenhua Group, saw net profit surge 40.7% year on year to 22.71 billion yuan ($3.29 billion) in 2016, the company said in its latest statement.

    It realized 183.1 billion yuan of operating revenue last year, a year-on-year rise of 3.4%, according to the statement. The company cited effective cost controls and enhanced competitiveness for the notable improvement of performance.

    The company reported production cost of self-produced coal at 108.9 yuan/t last year, down 8.9% from a year earlier.

    Last year, China Shenhua produced 289.8 million tonnes of commercial coal, increasing 3.2% from the year before.

    The company stepped up efforts to boost sales of coal traded at northern ports, which had the highest gross profit margin, and strengthen sales of outsourced coal, in order to obtain maximum sales profit.

    In 2016, its coal sales reached 394.9 million tonnes or 12.1% of China's total coal sales, up 6.6% from the preceding year. Of this, sales of coal via northern ports increased 11.1% year on year to 226.4 million tonnes, while sales of outsourced coal gained 34.7% from the year prior to 109.4 million tonnes.

    To maximize profit of integrated operations, China Shenhua increased sales of coal traded at northern ports, especially shipment at self-owned ports. The company's coal sales at self-operated Huanghua port and Shenhua Tianjin wharf accounted for 87.5% of its total coal sales at ports in 2016, compared with 74.5% a year earlier.

    The company established regional electricity sales firms to maintain market shares under the country's electricity marketization reform. Utilization of coal-fired power units averaged 4,428 hours, 263 hours more than the country's average level.

    In 2016, China Shenhua generated 236 TWh of electricity, up 4.5% year on year; while electricity sales climbed 4.8% from the year prior to 220.6 TWh.

    It said that China will continue to put efforts in cutting surplus coal capacity in 2017 to keep supply and demand in balance, and coal prices are likely to fluctuate around contract prices. Power producers may face a tougher competition, given the continued surplus in coal-fired power capacity and increased generation cost.

    The company predicted a year-on-year rise of 2.8% in commercial coal output to 298 million tonnes in 2017. It also expected coal sales to increase 3.1% from a year ago to 407 million tonnes, while electricity sales may drop 2.7% year on year to 214.7 TWh this year.

    It voiced uncertainties in realizing these goals, citing impacts from supply-demand situations in the coal and power sectors, de-capacity policy enforcement among others.
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    Guizhou bans coal outbound sales to ensure supply

    Southwestern China's coal-rich Guizhou banned coal sales to other provinces from March 17, in order to ensure thermal coal supply inside the province, market sources said.

    It was not clear how long the ban will last, and sources said it could be lifted once supply meets demand.

    Coal mines which finished coal supply tasks assigned by the provincial government are allowed to sell coal to other provinces, they noted.

    Supply of coal, especially thermal coal for power generation, has been rather tight in the province, as demand for coal-fired electricity increased significantly while coal output stayed low because of the capacity-cut campaign.

    In November last year, Guizhou banned sales of middlings but allowed sales of washed coal and peats to other provinces.

    With utilities facing losses, the government ordered miners to sell coal to local power plants at prices lower than market prices.

    In December, the province gave a 10-20 yuan/t reward to coal firms finishing coal supply tasks assigned by the provincial government, and offered preferential loans to coal miners to resume and maintain production.

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    Indian Railways April-February coal transport falls 4% YoY

    The Indian Railways carried 482.57 million tonnes of coal from April 2016 to February 2017, down 4% from a year earlier, showed data released by the Directorate of Statistics and Economics on March 16.

    Among the total volume transported by the Indian Railways, 413.56 million tonnes comprised domestic coal while 69.01 million tonnes was imported.
    Domestic coal to thermal power plants fell 4.88% to 302.80 million tonnes in the period while imported coal delivered to thermal power plants declined 6.21 million tonnes year on year to 14.4 million tonnes, the data showed.
    Coal accounts for around 50% of the overall freight traffic by rail. The fall in coal volumes is mainly due to low power demand and sufficient stocks at power plants. Also, owing to rationalization of coal supplies, power plants are now getting coal from mines that are nearer.
    Coal imports are also on a downtrend as domestic output rises. Volumes of domestic coal delivered to steel manufacturers were up 2.8% in the 11-month period to 16.9 million tonnes.
    However, imported coal delivered to steel plants declined 14.62% year on year to 26.80 million tonnes in the period.
    Domestic coal volumes delivered to other consumers rose 12.33% to 92.74 million tonnes during the period, while imported coal delivered to other consumers climbed 11.87% to 36 million tonnes.
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    Beijing's last large coal-fired power plant suspends operations

    Beijing's last large coal-fired power plant suspends operations

    Beijing's last large coal-fired power plant suspended operations on March 18, meaning the capital has become China's first city with all its power plants fueled by clean energy, China Daily reported.

    The Huaneng Beijing Thermal Power Plant was built up and put into operation in June 1999. It has five coal-fired units with a total installed capacity of 845 MW and heating capacity of 26 million square meters.

    Du Chengzhang, general manager of the plant, said it is an efficient and environmental friendly plant with advanced emission treatment equipment. The plant has provided important support to the stable operation of Beijing's electric power system and the heat-supply system.

    After the suspension of the plant, about 1.76 million tonnes of coal, 91 tonnes of sulfur dioxide and 285 tonnes of nitrogen oxide emissions will be cut annually.

    According to a clean air plan by Beijing from 2013 to 2017, Beijing will build four gas thermal power centers and shut down the four large coal-fueled thermal power plants during the period.

    Another three plants which used to consume over 6.8 million tonnes of coal each year were closed in 2014 and 2015.

    Du said Huaneng will prepare to serve as an emergency heat source for the capital's heating system after operations cease.

    Three of the four gas thermal power have already been built and are in use.

    Beijing has 27 power plants, all fueled by clean energy with a total installed capacity of 11.3 million KW.

    According to the city's plan, Beijing will build no more large-scale power plants.
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    China's 11 provinces Jan-Feb raw coal outputs surpass 10 mln T

    China's raw coal output stood at 506.78 million tonnes over Jan-Feb in 2017, down 1.7% from the year-ago level, compared to a 6.4% year-on-year drop in 2016, data showed from the National Bureau of Statistics (NBS).

    During the same period, the country's raw coal output reached 8.59 million tonnes each day on average, unchanged from the previous year, the NBS said.

    Raw coal output of China's 11 provinces surpassed 10 million tonnes, accounting for 92% of the total. Total raw coal output of Inner Mongolia, Shanxi, Shaanxi, Guizhou, Xinjiang, Shandong, Anhui, Henan, Hebei, Ningxia and Sichuan reached 466.27 million tonnes.

    Seven provinces witnessed a year-on year increase in raw coal output. Yunnan posted the largest increase of 15.5% to 4.67 million tonnes from the preceding year.

    Chongqing produced 1.59 million tonnes of raw coal, sliding the largest of 55.9% from the year-ago level.Image title

    During the same period, coal imports stood at 42.61 million tonnes, soaring 48.5% year on year.

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    India's Adani to finalize investment in Australia coal project by June

    India's Adani Enterprises said it would finalize an investment decision by June for its Carmichael coal project in Australia, which has been delayed due to protests from environmental groups.

    Adani, a business group with interests in power and ports, has battled opposition from environmentalists for more than five years in its quest to develop a mine in the northern state of Queensland that would mainly export coal to India.

    The company's chairman, Gautam Adani, expressed optimism that the project would proceed and said the board would take a final decision on investments in May or June, including structure and planned funding.

    "Definitely," Adani said during an interaction with a group of reporters, when asked if he was confident the project would go ahead. "Our internal planning is 2020 ...(for) first coal to come out," Adani added, noting construction could begin within three months of the board's decision.
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    Ganqimaodu coal sales surge on good demand

    Ganqimaodu border crossing in northern China's Inner Mongolia autonomous region reported a surge in coal sales and continuous drop of stocks, attributed mainly to robust demand from downstream steel mills and low operating rates at domestic coal mines becasue of the two parliamentary sessions.

    The border crossing sold 398,300 tonnes of coal to other provinces in China over March 6-12, surging 71.76% year on year and up 8.77% from a week earlier.

    Coal stocks at Ganqimaodu stood at 1.3 million tonnes, plummeting 389.83% from the preceding year and down 4.42% week on week.

    In the first two months this year, the border crossing imported 2.75 million tonnes of coal from neighboring Mongolia, up 374% from the year prior, with February imports at 1.3 million tonnes, showed data from Wulate Entry-Exit Inspection and Quarantine Bureau.

    Ganqimaodu borders resource-rich Mongolia, whose Tavan Tolgoi coal mine has coal reserves of 6.4 billion tonnes, with primary coking coal at 1.8 billion tonnes and thermal coal at 4.6 million tonnes. The border crossing has been an important hub of coal trades between the two countries since its opening in 2009.

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    Supply concerns keep molybdenum prices firm

    The molybdenum market continued to firm Wednesday, with speculation that prices could hit $9/lb by the end of the week, a level not seen since January 2015.

    "Some see higher numbers already and the trend as the friend," one European trader said on talk of higher prices in Asia.

    Others said they were holding back offers while watching the market. A second European trader said he had offered $8.70/lb in Rotterdam Tuesday and had no interest in selling at the same price today. Others said they were offering $8.85/lb by the end of the European day.

    Sources agreed supply was limited. Miners were either not offering in the market or offering limited units.

    Despite the end of strike action at Molymet's Molynor facility and Codelco's Molyb, industrial action at Freeport's Cerra Verde mine continued raising more supply concerns.

    Oxide powder sales in Asia were heard at $8.60/lb and $8.75/lb in Busan and $8.75/lb CI Japan. $8.60/lb was also reported in the US late Tuesday.

    "Talk is that there is not that much material around and it seems to be true. Demand is also supporting prices," the second European trader said.

    A ferromolybdenum tender in Europe attracted fewer than expected offers as traders held back material or were not able to find cargo to offer.

    Ferromolybdenum sales were reported at $21/kg in Rotterdam, $21.25/kg DDP and $21.35/kg DDP European mill. In Asia, a Chinese trader reported a 40 mt sale of China-produced ferromolybdenum at $20.40/kg and $20.60/kg CIF Asia.

    The Platts daily dealer oxide assessment was higher at $8.60-$8.75/lb from $8.40-$8.70/lb. The Platts daily European ferromolybdenum assessment jumped to $20.90-$21.35/kg from $20.40-$20.80/kg.
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