Mark Latham Commodity Equity Intelligence Service

Monday 19th September 2016
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    EU Diesel Market death spiral.

    Because by 2030 diesels are forecast to account for just 9 percent of new-car sales in Europe, according to a recent study by AlixPartners, compared with about 50 percent today.

    The cause of the massive shift is the expectation that automakers will be forced to rely on electrified powertrains to meet tougher emissions rules in the future. Therefore, if I remain faithful to my beloved diesel, I will be a niche motorist.

    Automotive News Europe was probably the first publication to report the forthcoming demise of the diesel in Europe. That was more than a decade ago when diesel's rise seemed unstoppable. We were told then, however, that the introduction of stricter European emission standards would require automakers to add costly after-treatment systems to make diesels clean enough to meet new pollution regulations.

    That cost would need to be passed on to car buyers, making the diesels uncompetitive against alternatives such as gasoline-powered cars and models with electrified powertrains. This regulatory-driven change would make the gasoline king of Europe again when it came to the top-selling fuel for internal combustion engines.

    The power shift, predicted during my interview in 2005 with former Fiat powertrain guru Rinaldo Rinolfi, who is one of the fathers of the common-rail diesel, was set to happen last year. Rinolfi was off by just one year as gasoline engines are poised to take the lead again in 2016.

    I recently spoke to Rinolfi to get his next prediction for diesels, which he said would stabilize at about 40 percent of total European vehicle sales in 2020. That sounded reasonable. Then came AlixPartners' head-turning forecast that diesels would have a single-digit share of the European vehicle market 14 years from now. AlixPartners, which is a very respected U.S. consulting firm, says that diesels are on track to lose 2.7 points of market share a year starting now.

    Will this happen? I fear it will. Euro 6 emissions standards, particularly for nitrogen oxide (NOx), already have made diesel minicars a rarity because the powertrain fixes are just too costly for most customers. This trend will spread to subcompacts and could extend to compacts.

    Europe accounts for about 85 percent of global diesel demand. The powertrain is nonexistent in China and any dreams that U.S. customers would embrace diesels are probably dead because of Volkswagen Group's image-shattering emissions-cheating scandal. Diesels might have had a chance if a fast-growing, densely populated, relatively wealthy country decided to embrace the technology. But why would an emerging market want to welcome the NOx and particulate matter that the EU was willing to allow to help reduce CO2 emissions?

    Here's Why:

    BRUSSELS - The European Union will take legal action against some member states for failing to police car emission rules, its industry commissioner, Elzbieta Bienkowska, said.

    Bienkowska said she "definitely" wants to start formal infringement procedures against "not all and not one" member state for allowing an overshoot in emissions but is still gathering evidence. "It will be in the next several weeks, a few months from now because we have to complete the evidence," Bienkowska said. She declined to name which EU nations would be affected.

    "We need a very good legal basis, but I definitely want to start infringements," she said.

    The commissioner reiterated calls for VW to compensate European owners of its diesel cars along the lines of its $15 billion settlement in the United States, saying it was unfair for them to be treated differently due to the different legal system. VW has offered U.S. customers compensation for bringing in vehicles to remove cheat software and make them compliant with emissions regulations. In Europe, the carmaker only offers the technical fix.

    "It is not enough just to send your cold letters saying 'Please come on this day and we will replace these devices for a new one'," Bienkowska said in an interview with Reuters.

    "Compensation is the noisiest subject, present everywhere, and this is a really important topic."

    'Defeat devices'

    The VW scandal also highlighted an industry-wide disparity between NOx emissions recorded in regulator-approved laboratory tests and those in everyday use on roads, which is often five times more.

    NOx gases contribute to acid rain and respiratory illnesses blamed for hundreds of thousands of deaths globally each year.

    Bienkowska said starting in 2019, rules proposed by regulators in the wake of the the VW diesel scandal would tackle the widespread use of engine regimes that switch off technology designed to lower tailpipe gases, once cars are in real road conditions.

    "We have a lot of such examples, some of them are quite shocking," Bienkowska said.

    Under current EU law, the use of "defeat devices" - triggered, for instance, by outside temperatures different to those in indoor testing facilities - are legal if they can be shown to be needed to protect engines rather than cheat tests.

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    Prices are flying for the commodities Anglo wants to ditch

    Anglo American, the century-old mining firm seeking to cut debt, is getting an unexpected windfall from the commodities it wants to ditch.

    When Anglo announced a plan in February to shrink its business by more than half to weather a crisis in raw-material prices, it put coking and thermal coal as well as iron-ore on the chopping block. While it chose to focus on more profitable diamond, platinum and copper mines, it’s the commodities being shunned that are performing best this year.

    Benchmark prices for coking coal, used to make steel, have surged 153% this year to the highest since at least May 2013 amid Chinese output curbs. The thermal type has jumped 40%, while iron-ore climbed 28%. The three commodities brought in combined revenue of about $3.5-billion in the first half, a third of Anglo’s total sales.

    Anglo’s surprise earnings boost is easing the pressure of meeting a $3-billion to $4-billion asset-sales target this year. The only major sale so far is the niobium and phosphatesbusiness, which the company said in July would bring net debt to $10.3-billion when completed. That’s within touching distance of a goal to cut borrowings below $10-billion by year-end.

    “The sales target is immaterial if they can get their net debt down to targeted levels,” said Hunter Hillcoat, an analyst at Investec in London. “The sales process was a means of delivering that. The windfall they’ve gained from higher commodity prices means that’s not so necessary.”

    Higher prices may however be holding back asset sales. The process of selling coking coal mines in Australia has been hindered, with both Anglo and possible buyers concerned about the dramatic spike in prices, according to two people familiar with the matter, who asked not to be identified because talks were private. The mines had been valued at as much as $1.5-billion, people familiar with the matter have said.

    The London-based company’s attempt to offload a nickel mine in Brazil also stalled because bids from potential buyers were too low, people familiar with the matter said last month.

    Coking coal’s advance has been so rapid that it’s now more than double the current quarterly contact price agreed between some of the biggest producers and steel mills. With new rates set to be negotiated this month, Anglo stands to benefit from the recent gains.

    Along with Anglo’s plan to pull itself out of a crisis that saw its stock plunge by 75% last year, the commodities rebound has led to a share-price resurgence. The company more than doubled this year and is the best performer in the UK’s benchmark FTSE 100 Index. The shares were up 0.4% by 8:26 a.m. in London.

    Some investors are worried about sales being too hasty.South Africa’s Public Investment Corporation, Anglo’s biggest shareholder, voiced concerns that assets wouldn’t fetch their full value following the plunge in commodity prices in recent years.

    CEO Mark Cutifani has repeatedly insisted that the company is not running a firesale and will rebuff offers that don’t meet its expectations.

    “It is about value,” Cutifani said in July. “It is about having the discipline to hold and make sure we get values to the assets.”
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    Spotlight: Berlin vote results put Merkel under heavier pressure

    German Chancellor Angela Merkel's CDU party was hit by a second electoral blow in two weeks in the Berlin state-city vote on Sunday, highlighting an increasing pressure on her open-door refugee policy.

    The loss Merkel's conservative party suffered in the Berlin polls, following the vote in early September in the eastern state of Mecklenburg-Vorpommern, turned largely into a gain for the anti-immigrant Alternative of Germany (AfD).

    In Sunday's vote, support for the Christian Democratic Union dropped to 17.6 percent from 23.3 percent in the last election in 2011, the lowest since 1990. Meanwhile, a 14.2 percent of the vote enabled the three-year-old right-wing AfD to enter Berlin's state parliament, the 10th among Germany's 16 states.

    Berlin's traditionally strongest Social Democrats also recorded a fall in support, to a record low of 21.6 percent from 28.3 percent, and is unlikely to continue the current coalition with their junior partner, the CDU.

    With one year away from a federal election, the outcome raised pressure on Merkel as well as doubt about a fourth term for the most powerful leader in the European Union.

    It adds fuel to the dispute over Merkel's migrant policy between Christian Democrats and their traditional ruling partner, the Christian Social Union (CSU) in Bavaria, whose call for an annual cap of 200,000 refugees has been rejected by Merkel.

    The CSU's Bavarian finance minister Markus Soeder called the Berlin vote result another "massive wake-up call".

    "A long-term and massive loss in trust among traditional voters threatens the conservative bloc," he told the Bild daily, while urging changes in Merkel's migrant policy to win back support.

    Berlin hosts over 70,000 of the 1 million asylum seekers Germany took in last year. German media reported that a poll found about 22 percent of those voting for the AfD in Berlin supported the CDU in 2011.

    "From zero to double digits, that's unique for Berlin. The grand coalition has been voted out -- not yet at the national level, but that will happen next year," said AfD candidate Georg Pazderski to supporters after the Sunday results.

    Berlin's SPD Mayor Michael Mueller had warned before the vote that a strong AfD result would be "seen throughout the world as a sign of the resurgence of the right and of Nazis in Germany."
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    Oil and Gas

    Oil climbs as Venezuela sees output deal, Libya suffers clashes

    Oil prices rose almost 2 percent on Monday, after Venezuela said OPEC and non-OPEC producers were close to reaching an output stabilizing deal and as clashes in Libya raised concerns that efforts to restart crude exports could be disrupted.

    Venezuelan President Nicolas Maduro has said that a deal could be announced this month to stabilize oil markets, which have come under pressure due to a persistent glut and a price collapse over the past two years.

    Brent crude futures were at $46.59 per barrel at 0301 GMT (11:01 p.m. EDT), up 82 cents, or 1.8 percent, from their previous settlement. U.S. crude was up 88 cents, or about 2 percent, at $43.91 a barrel.

    The rise in oil prices is a reaction to Venezuelan comments about producers reaching a possible output agreement, said Ric Spooner, CMC Markets' chief market analyst. Loading disruptions in Libya were also underpinning the market, Spooner added.

    "(Libya) unable to get their first ship loaded is a reminder that it may be difficult for Libya to increase production."

    Clashes in Libya have halted the loading of the first oil cargo from the port of Ras Lanuf in close to two years, while also raising fears of a new conflict over Libya's oil resources.

    Brent and WTI prices had been dragged to multi-week lows on Friday amid worries returning supplies from Libya would add to the global supply glut.

    Concerns over rising supplies remain a bugbear on sentiment.

    Crude exports from No.3 OPEC producer Iran in August jumped 15 percent from a month ago to more than 2 million barrels per day, according to a source with knowledge of its tanker loading schedule, closing in on Tehran's pre-sanctions shipment levels of five years ago.

    In the United States, drillers have added oil rigs for 11 out of the past 12 weeks. Drillers added two oil rigs in the week to Sept. 16, bringing the total rig count up to 416, the most since February.
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    Iran crude exports hit five-year high near pre-sanctions levels

    Iran's August crude oil exports jumped 15 percent from July to more than 2 million barrels per day (bpd), according to a source with knowledge of its tanker loading schedule, closing in on Tehran's pre-sanctions shipment levels of five years ago.

    The No. 3 OPEC producer has more than doubled its crude exports, excluding the ultra light oil condensate, since December. Economic sanctions targeting Iran's disputed nuclear program were lifted in January, and it has been battling since then to regain market share lost to other Middle East producers over the previous four years.

    The strong demand for Iran's crude in Asia and Europe has enabled it to raise its oil output to just over 3.8 million bpd as of this month, still shy of the 4 million bpd level Tehran says is a precondition for discussing output limits with Saudi Arabia and Russia.

    Members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia are expected to meet during the International Energy Forum in Algeria over Sept. 26-28 to discuss a possible output freeze to stabilize oil prices LCOc1 CLc1 that are still down around 60 percent since mid-2014.

    "The only way for producers to maximize their revenues in a low oil price environment to meet budget requirements is to raise production," said Victor Shum, an oil analyst at consultancy IHS. "So there is unlikely to be any supply deal ... in late September," he said.

    "We can expect Iran to continue to raise production."

    August crude exports from Iran excluding condensate roughly doubled from a year ago to 2.11 million bpd, the source said, based on data compiled from tanker loading schedules.

    The crude exports have climbed from 1.9 million bpd in June and 1.83 million bpd in July, the schedules showed.

    Iran's August exports are the highest since January 2012, boosted by record purchases from the world's third-largest oil importer India and a 48 percent jump that brought European sales to 630,000 bpd, tanker loadings for last month also showed.

    Other sources who track Iran's shipping data or who are familiar with its tanker loadings have slightly different figures for Iran's crude exports in August, but still show a near doubling since January.

    For countries like Iran that do not report official trade data, counting tankers is the primary means of estimating their oil trade, although counts may vary from tracker to tracker.

    Details on condensate loadings for August remain unclear. But if shipments of the ultra light oil were steady with this year's average of nearly 310,000 bpd, the total crude and condensate exports last month would be this year's highest at 2.41 million bpd, still short of average pre-sanctions exports of 2.5 million to 2.6 million bpd in 2011, according to figures from the U.S. Energy Information Administration.

    Iran's crude exports excluding condensate to Asia in August were 1.48 million bpd, up from 1.40 million bpd in July and roughly steady to this year's previous peak in April.

    Loadings headed for India reached a likely record of nearly 600,000 bpd last month, according to data stretching back at least 15 years, up 150,000 bpd from July, and topping 564,000 bpd loaded for China.

    Japanese loadings were nearly 230,000 bpd, compared with about 92,000 bpd for South Korea.

    Iranian oil was also loaded for Turkey, Greece, and Spain, and exports to Italy more than doubled from the previous month to 87,000 bpd, according to the schedules.

    To further boost its exports, Iran expects to complete the building of a terminal by year-end for a new grade.
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    Libya Clashes Halt First Oil Cargo From Ras Lanuf Since 2014

    Libya halted loading what would be the first overseas crude shipment from the port of Ras Lanuf since 2014 as rival armed forces fought for control of the facility, complicating efforts to end a five-year conflict that has slashed oil exports from the OPEC country.

    Forces loyal to eastern-based military commander Khalifa Haftar repulsed a local Petroleum Facilities Guard unit that tried on Sunday to seize control of Ras Lanuf and the country’s largest oil port of Es Sider in east Libya, Mohammad Al-Azoumi, spokesman for a battalion under Haftar’s command, said by phone. Five petroleum guards were killed during the clashes, he said.

    The fighting forced the tanker Seadelta to suspend the loading of 781,000 barrels of oil for shipment to Italy, Nasser Delaab, petroleum operations inspector at Harouge Oil Operations, said by phone. The tanker, which began loading earlier Sunday, sailed away from Ras Lanuf and may return to the port to finish taking on oil on Monday, he said. Another tanker, the Syra, will arrive soon in Ras Lanuf to ship 600,000 barrels of crude to Italy, he said.

    Output Slashed

    Libya is seeking to boost crude exports after fighting among rival militias slashed oil production following the 2011 ouster of former dictator Moammar Al Qaddafi. The conflict halted exports from the nation’s main oil ports of Es Sider, Zueitina and Ras Lanuf as the country struggled to form a unified national government. The National Oil Corp. planned to resume exports from the ports after reaching an accord with Haftar, who seized control of the facilities last week.

    Brent crude gained as much as 1.9 percent to $46.62 a barrel and traded at $46.52 as of 9:08 a.m. in Dubai on Monday. Haftar took Ras Lanuf and Es Sider from Ibrahim Jadran, leader of local Petroleum Facilities Guard units, giving the eastern region’s powerful military chief control of both shipping terminals and oil fields in Libya’s main producing areas.

    The Seadelta had been loading crude from onshore storage tanks before being interrupted, said Delaab, who helps organize oil movements at Ras Lanuf, Libya’s third-largest oil port. The vessel arrived there early Sunday from Trieste, Italy, according to tanker tracking data compiled by Bloomberg. Both the Seadelta and Syra were navigating off the Libyan coast as of Sunday evening local time, according to the tracking data.

    Libya, if it succeeds in shipping the Seadelta cargo from Ras Lanuf, will be selling into an oversupplied market in which crude is trading at about half its 2014 levels. The country holds Africa’s largest oil reserves and pumped 1.6 million barrels of crude a day before Qaddafi’s ouster. Production has tumbled since then to 260,000 barrels a day in August, according to data compiled by Bloomberg, and Libya now ranks as the second-smallest producer in the Organization of Petroleum Exporting Countries, after Gabon.

    Harouge Oil pumped about 100,000 barrels a day through the end of 2014 but halted operations due to fighting in the country, Delaab said. The company has production rights to at least five oil fields around Ras Lanuf, according to its website.
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    Funding Nigerian oil cash calls from debt key for economy - minister

    Nigeria must get out of paying so-called cash calls to joint ventures with oil and gas companies to stand a chance of pulling its ailing economy out of recession, Finance Minister Kemi Adeosun said on Friday.

    The minister said the Nigerian National Petroleum Corporation (NNPC) had spent 110 billion naira ($360 million) on cash calls this month, which dwarfed the country's 41 billion naira income from oil production over the same period.

    NNPC also owes several billion in back debt to oil companies from unpaid cash calls, which oil worker unions say is stalling the creation of jobs and investment.

    "We are already working to see how we can get out of the cash calls. And that is very fundamental to the economy," Adeosun told a press conference.

    "We are working with the Ministry of Petroleum Resources and NNPC ... that's a long-term plan: To allow those joint ventures to borrow money that they need rather than taking money out of the federation account."

    Sub-Saharan Africa's largest economy is trying to boost tax revenues and the non-oil income to fund a record $30 billion 2016 budget aimed at reviving the West African country that has been hit by lower oil prices.

    Adeosun told Reuters in April the government was thinking of forcing the cash calls, which are for international and local joint venture partners, out of budget funding and into so-called modified carrier arrangements.

    Modified carry agreements are loans provided by large international oil companies to the NNPC for investing in oil exploration and production projects.
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    Exxon’s Accounting Practices Are Investigated

    New York Attorney General Eric Schneiderman is investigating why Exxon Mobil Corp. hasn’t written down the value of its assets, two years into a pronounced crash in oil prices.

    Mr. Schneiderman’s office, which has been probing Exxon’s past knowledge of the impact of climate change and how it could affect its future business, is also examining the company’s accounting practices, according to people familiar with the matter.

    An Exxon spokesman declined to comment about the investigation by the Democratic attorney general but said Exxon follows all rules and regulations.

    Since 2014, oil producers world-wide have been forced to recognize that wells they plan to drill in the future are worth $200 billion less than they once thought, according to consultancy Rystad Energy. Because the fall in prices means billions of barrels cannot be economically tapped, such revisions have become a staple of oil-patch earnings, helping to push losses to record levels in recent years.

    Exxon hasn’t taken any write-downs—the only major oil producer not to do so—which has led some analysts to question its accounting practices.

    The company has played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduces its exposure to write-downs if the assets later prove to be worth less than expected, it says.

    Exxon’s ability to avoid write-downs—and potential losses that come with them—has been among the factors helping the company outperform rivals since prices began falling in mid-2014. Exxon shares have fallen by about half of the average of top peers  Chevron Corp., Royal Dutch Shell PLC, Total SA andBP PLC. Since 2014, those companies have booked more than $50 billion overall in write-downs and impairments.

    Yet Exxon has lost money for six straight quarters in its U.S. drilling business. The company had to remove the equivalent of more than 900 million barrels of U.S. natural gas reserves from its books in 2015, an acknowledgment that wells on those properties cannot currently be economically drilled. When it agreed to purchase shale explorer XTO Energy Inc. in 2009 for $31 billion, natural gas sold for almost double what it does now.

    For many producers, such losses in net income and reserves would make write-downs inevitable, but Exxon didn’t write down the overall value of its reserves. The lack of such a step at Exxon “raises serious questions of financial stewardship,” Paul Sankey, an oil analyst at Wolfe Research, wrote last month.

    “It is impossible to believe that no assets have been impaired,” he said.

    The process for booking oil and gas reserves, and recognizing when they fall, is separate from accounting for how the value of those reserves changes over time on a company balance sheet.

    John Herrlin, an analyst at Société Générale, came to a different conclusion in an investor note last month, writing that about three fourths of Exxon’s reserves are from areas with producing wells, a factor that makes impairments less likely than in undeveloped areas.

    Exxon Chief Executive Rex Tillerson told trade publication Energy Intelligence last year that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.

    “We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”

    Out of the 40 biggest publicly traded oil companies in the world, Exxon is the only one that hasn’t booked any impairments in the last 10 years, according to S&P Global Market Intelligence.

    In 2013, the U.S. Securities and Exchange Commission asked Exxon why it hadn’t booked any impairments in the previous year, citing a speech Mr. Tillerson gave in June 2012 in which he said the company was making “no money” due to declining natural-gas prices.

    Exxon’s response then mirrors its position now: That short-term price fluctuations aren’t enough to render worthless wells that would potentially be drilled over decades. Another key to the company’s assessment is the view that its assets will hold value when prices eventually rebound.

    Natural gas rose substantially in 2013 after the SEC’s inquiry, but many oil executives and forecasters have said they expect prices to remain low for some time.

    Last year, Exxon scrutinized its assets most at risk for impairment and found that future cash flows anticipated from its fields were “substantially” higher than the book value of the asset. Exxon “does not view temporarily low prices or margins as a trigger event for conducting impairment tests,” according to a company filing.

    The company is known for its conservatism in recognizing the value of reserves, a practice that results in lower write-downs, said Sean Heinroth, a principal in the energy practice at management consultancy A.T. Kearney. Exxon is also known for rigidly interpreting regulations and sometimes pushing back against regulators if company leaders feel their practices follow the law, he said.

    “I would have expected some write-downs, even to avoid being called out on it, on being the last company not to have write-downs,” he said.

    Exxon has previously faced a lawsuit over its impairment practices. Plaintiffs including the Ohio state pension system alleged in a 2004 class-action suit that the company’s failure to impair its properties undercut shareholders of Mobil Corp. in the 1999 deal that combined the companies.

    The suit alleged that Exxon should have seen write-downs of between $3 billion to $7 billion in the late 1990s, another period of historically low prices. It included an allegation from a former Exxon insider that the company “operated under an order” by former Chief Executive Lee Raymond that “no impairment would be recorded.”

    Exxon denied the allegations. The lawsuit was dismissed because the statute of limitations on such claims had passed.
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    Against All Odds, North Sea Proves Resilient to Oil-Price Slump

    Oil producers in the North Sea were supposed to be among the first victims of OPEC’s battle for market share. Instead their high-cost, decades-old facilities are proving surprisingly resilient to the price slump.

    Crude oil and condensate output is likely to continue rising in the U.K. North Sea until 2018 as projects that were sanctioned before crude’s plunge four years ago start up, according to estimates by industry consultant Wood Mackenzie Ltd. Even though production dips after that, output by the end of the decade will still be roughly equal to the 2015 level.

    Since 2014, the Organization of Petroleum Exporting Countries has pumped without limits and allowed prices to plunge to 12-year lows to squeeze higher-cost rivals. While the strategy is expected to reduce non-OPEC output by 840,000 barrels a day this year, the battle is far from over. The unexpected stamina of areas like the North Sea, where operators have proved adept at keeping the taps open to keep cash flowing, is adding to the global glut and keeping prices lower for longer.

    “Production has stayed resilient,” said Ian Thom, an Edinburgh-based senior research manager for U.K. upstream at Wood Mackenzie. “We saw a record number of dollars invested in the high-oil price environment,” and that is still delivering new production.

    OPEC and the International Energy Agency have said they expect production from some countries to increase, deferring a return to balance in the market. OPEC, responsible for more than 40 percent of the world’s oil, said Sept. 12 it expectsproduction from outside the group will grow by 200,000 barrels a day next year, raising it from an earlier projection of a drop of 150,000 a day.

    A day later, the IEA said it estimates supplies outside OPEC will rise by 380,000 barrels a day, rebounding from a sharp decline this year. Coupled with slowing demand, increasing output will delay the rebalancing of the market until the second half of next year, the Paris-based agency said. Only last month it predicted a return to equilibrium this year.

    “There are pockets of resilience across the world,” IEA’s Executive Director Fatih Birol said in an interview in London. “Some companies were able to bring costs down substantially and this provides some resilience.”

    Production of crude and condensate, a type of light oil, will top 1 million barrels a day in the U.K. North Sea this year, about 8 percent higher than last year, according to Wood Mackenzie. Output will reach 1.07 million barrels a day in 2017 and 1.11 million the next year before falling to about 956,000 barrels at the end of the decade.

    Post-Soviet High

    When oil prices started their decline in the middle of 2014, some countries found it easier and cheaper to keep the fields running instead of shutting them now and starting again later. In Russia, production has been running at a post-Soviet high all year, Energy Ministry data show. The plunge in the ruble has reduced costs, offsetting the decline in oil prices.

    In Norway, companies have brought down costs and become more efficient. Output in Western Europe’s biggest producer has exceeded 2015 levels in six of this year’s first seven months, according to the Norwegian Petroleum Directorate. Efficiency gains and new field start-ups have helped the country beat the government’s own forecasts.

    In the U.S. Gulf of Mexico, output is projected to reach a record high in 2017, according to the Energy Information Administration. However, narrowing profit margins have forced many operators to pull back on future exploration spending, and they are putting fewer rigs to use, according to the agency.

    Losing Steam

    With oil’s downturn now running into its third year, companies’ and producing countries around the world are seeing their balance sheets getting weaker. Drillers have been cutting investments in exploration, contributing to a drop in discoveries to the lowest in seven decades. This will affect supply at some point in the future and, potentially, prices.

    If oil prices continue to be low “the general trend is high-cost areas will lose steam sooner or later,” Birol said.

    For now, operators in the U.K.’s North Sea are seeking to weather the price slump by cutting costs and even collaborating in ways they never thought possible. Earlier this year, some including Royal Dutch Shell Plc started pooling spare parts and tools, and are even sharing plans on how to drill wells so they can work faster and cheaper.

    Companies are “working on cost efficiency reductions which seems to be going fairly well” in the North Sea, said Philipp Chladek, a senior industry analyst for Bloomberg Intelligence in London. “But without new investments in exploration, you will see the effects on production levels in three to five years.”
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    Naftogaz says charter change threatens gas purchases from Europe

    Ukraine has changed the charter of Naftogaz in violation of a deal with foreign creditors, in a move that could hold up a $500 million loan for vital gas purchases from Europe, the state-run energy firm said on Friday.

    "These funds are essential for gas purchases that will allow Ukraine to get through the winter season in a stable manner," Naftogaz said in emailed comments.

    The European Bank for Reconstruction and Development (EBRD) expressed concern on Friday after Naftogaz said the economy ministry transferred control of the company's gas transport arm last week, in violation of corporate governance principles.

    The ministry did not immediately respond to a request for comment.

    Last October, the government approved a plan to reform the corporate governance of Naftogaz in exchange for loans worth $800 million from the World Bank and the EBRD to buy gas from Europe for the winter.

    Naftogaz said on Friday that the charter change imposed by the ministry violated the terms of the energy firm's loan agreement with the EBRD and could lead to a default on the debt.

    The EBRD, which along with Ukraine's other Western backers has urged the authorities to prioritise the restructuring of the graft-ridden energy sector, said Naftogaz must stick to the terms of the deal.

    "The EBRD is looking into this, if the development is confirmed, this is a very serious matter. We do expect that our partners (Naftogaz Ukraine) will honour their commitments and continue building Naftogaz into an example of corporate governance reform," an EBRD spokesman said.

    Naftogaz, Ukraine's largest energy company, operates in every part of the gas sector, from production to transport to sales.

    Since last December, Ukraine has not bought any gas from traditional supplier Russia, instead importing gas from Europe. Last year, Ukraine produced 19.9 billion cubic metres of gas and imported 16.5 bcm, including 10.3 bcm from Europe.

    Naftogaz says charter change threatens gas purchases from Europe

    Ukraine has changed the charter of Naftogaz in violation of a deal with foreign creditors, in a move that could hold up a $500 million loan for vital gas purchases from Europe, the state-run energy firm said on Friday.

    "These funds are essential for gas purchases that will allow Ukraine to get through the winter season in a stable manner," Naftogaz said in emailed comments.

    The European Bank for Reconstruction and Development (EBRD) expressed concern on Friday after Naftogaz said the economy ministry transferred control of the company's gas transport arm last week, in violation of corporate governance principles.

    The ministry did not immediately respond to a request for comment.

    Last October, the government approved a plan to reform the corporate governance of Naftogaz in exchange for loans worth $800 million from the World Bank and the EBRD to buy gas from Europe for the winter.

    Naftogaz said on Friday that the charter change imposed by the ministry violated the terms of the energy firm's loan agreement with the EBRD and could lead to a default on the debt.

    The EBRD, which along with Ukraine's other Western backers has urged the authorities to prioritise the restructuring of the graft-ridden energy sector, said Naftogaz must stick to the terms of the deal.

    Naftogaz, Ukraine's largest energy company, operates in every part of the gas sector, from production to transport to sales.

    Since last December, Ukraine has not bought any gas from traditional supplier Russia, instead importing gas from Europe. Last year, Ukraine produced 19.9 billion cubic metres of gas and imported 16.5 bcm, including 10.3 bcm from Europe.

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    Gazprom export volume data points to strong natural gas flows to Europe in September

    Russian gas exports via pipeline to Europe and Turkey in the year to date are up by 9.4%, or 10.3 Bcm, compared with the same period last year, state-controlled gas giant Gazprom said Friday, pointing to continued strong flows so far in September.

    After a slump in exports in July, Gazprom's supplies to Europe and Turkey -- but not including the former Soviet Union countries -- recovered in August.

    Supplies in the first eight months of 2016 were 10 Bcm higher than in the same period last year.

    That implies year-on-year growth in the first half of September of 0.3 Bcm.

    Gazprom's gas exports in the first six months of 2016 were up 10.6 Bcm year on year, so exports in the second half are still down year on year.

    Gazprom's most recently stated target of total exports to Europe and Turkey in 2016 is 166-170 Bcm, though Miller, speaking in Moscow on June 30, said Gazprom's gas sales in Europe could even exceed that amount if the upcoming winter was cold and the sales dynamics seen earlier in the year persisted.

    Gazprom -- while not giving absolute volumes -- broke out the year-on-year supply growth for some of its European customers.

    Russian gas supplies to Germany rose by almost 28% year on year from January 1 to September 15, while exports to Austria were up 40% and to Denmark by a huge 222%.

    "We continue to record strong demand for Russian gas in the countries along the route of the planned Nord Stream 2," Miller said.

    "Nord Stream 2 is being developed in line with the schedule," he added.

    Russian gas exports to the UK rose by 55%, to France by 27%, to Poland by 20%, to the Netherlands by nearly 92%, to Greece by 59% and to Macedonia by 20%.

    Exports to the countries of the former Soviet Union are also up by 9.4% in the year to date compared with the same period of 2015.


    With Europe remaining Gazprom's absolute key focus -- especially given the prospect of a large wave of US LNG headed for the continent -- Gazprom is also working quickly to realize new gas pipeline projects.

    As well as Nord Stream 2, which still faces intense political opposition, Gazprom is making quick progress on the planned TurkStream line to Turkey.

    This week, it was granted by Ankara the first permits for the offshore section of the pipeline in Turkish waters.

    It followed the first permits earlier this month, which came just one week after a meeting between Miller and Turkish energy minister Berat Albayrak in Istanbul.

    Gazprom has also now opted to build the TurkStream line -- which is expected to have two strings of 15.75 Bcm/year capacity -- right up to the Greek border.

    From there it can link in with the once defunct, but now revived, ITGI Poseidon project to pipe Russian gas onward to Greece and Italy. Gazprom in February signed a memorandum of understanding in Rome with Edison and Greece's DEPA outlining the interest of the three parties in the route to Greece and Italy.

    On Wednesday, Miller met with EDF CEO Jean-Bernard Levy in Paris where they discussed the creation of new routes for Russian gas exports to Europe "in light of the resumed TurkStream project."

    Miller also met with Engie Chairman Gerard Mestrallet to discuss "ongoing and future cooperation", including joint efforts within the Nord Stream 2 project.

    Engie was a member of the Nord Stream 2 operating consortium along with four other European partners until August when the companies dropped out of the JV because of Polish competition objections.
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    ConocoPhillips finds buyer for offshore block in Indonesia

    ConocoPhillips finds buyer for offshore block in Indonesia

    Indonesian energy company Medco is reportedly on the verge of acquiring ConocoPhillips’ stake in the Natuna Sea offshore block in Indonesia.

    ConocoPhillips operates the offshore South Natuna Sea Block B with a 40 percent stake. The area has three producing oil fields and 16 natural gas fields in various stages of development.

    Reuters based its story on accounts of three people familiar to the matter, who did not wish to be identified. They reportedly said that Medco would announce the deal soon. No financial details were given.

    When asked for a comment by Offshore Energy Today, a ConocoPhillips’ spokesperson said: “Unless formally announced by our company, ConocoPhillips does not comment on ongoing business development or commercial activities.”
    To remind, ConocoPhillips has been working on asset sales, primarily deepwater fields in the U.S. Gulf of Mexico, but it also mentioned Indonesia in one of its previous quarterly reports.

    The company is working to achieve a goal of $1 billion of proceeds from asset sales in 2016, aiming to use the obtained cash to service debt.

    ConocoPhillips CEO has previously said the company’s aim is to reduce debt as it matures, adding that debt payment could be accelerated as assets sales progress.

    As for the soon to be sold offshore block in Indonesia, natural gas production from it is sold under international sales agreements to Malaysia and Singapore, and liquefied petroleum gas is sold locally for domestic consumption.
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    DW: new developments to shake up LNG market

    Recent development in the LNG market is expected to have a significant impact on both the construction of LNG carriers and the primary LNG trading routes, according to Douglas-Westwood (DW).

    The LNG carrier market currently faces over-supply and a combination of low commodity prices and a reduction in imports from key consumers such as Japan (following the re-start of its nuclear power stations), has resulted in a substantial decline in charter rates for LNG carriers.

    Rates have been pushed down to approximately US$25,000 a day, considerably below typical breakeven costs of $40,000, as DW notes that 36 carriers were delivered in 2015, and only four newbuilds having been ordered in 2016 so far.

    However, this trend is expected to change over the 2017-2021 period, due predominantly to liquefaction projects expected onstream in Australasia and North America. The USA is forecast to increase its LNG export capacity from 11 mmtpa in 2016 to 77 mmtpa by 2021. In the World LNG Market Forecast Report 2017-2021, DW forecasts the delivery of over 150 units yet to be ordered over the 2017-2021 period, in addition to the current order book, in order to satisfy this additional supply.

    DW forecasts the delivery of over 150 units yet to be ordered over the 2017-2021 period, in addition to the current order book, in order to satisfy this additional supply.

    With the increase in U.S. LNG exports, DW expects the diversification of the primary trade routes for LNG transportation. The recent expansion of the Panama Canal also provides a means for vessels travelling to Asia and South America from the Gulf Coast to reduce their voyage times. This is ultimately expected to introduce greater competition to LNG trading routes, DW says.
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    Oil rig count ticks up slightly

    The activity in U.S. oilfields inched up  with the number of drilling rigs looking for oil increasing by two in the last week. Those gains though were more than offset by the amount of natural gas-seeking rigs shrinking by three.

    The oil rig count gains primarily came in Oklahoma. Texas’s Permian Basin saw two rigs added, but North Texas’ Barnett Shale losing two rigs negated those gains for the state, according to weekly data collected by the Baker Hughes oilfield services firm.

    The total count of 506 rigs is up from an all-time low of 404 in May, according to Baker Hughes. Of the total, 416 of them are primarily drilling for oil. But the oil rig count is down 74 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.
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    Leak from biggest US gasoline pipe sparks supplier ‘red alert’

    Gasoline prices are set to jump across the eastern U.S. after a spill from the country’s largest fuel pipeline choked off supplies.

    A leak in Alabama Sept. 9 shut the main gasoline pipeline delivering fuel from refineries along the Gulf Coast to 50 million Americans in states from Mississippi to New Jersey. Colonial Pipeline Co. said on Thursday it pushed back the estimate for a complete startup of its Line 1 to next week from this weekend, citing adverse weather conditions overnight that slowed the cleanup and repair.

    Suppliers are moving gasoline and diesel by sea and sending trucks to distant terminals to bring fuel to consumers, but it won’t come close to the 1.3 million barrels a day that the shuttered line normally carries.

    “The thing is that there is a time pressure. No one is exactly sure when the pipeline will be completely fixed,” Patricia Hemsworth, senior vice president at Paragon Global Markets in New York, said by message.

    Colonial is delivering some gasoline through a pipe that typically carries jet fuel and diesel, though the company hasn’t said how much. The U.S. Environmental Protection Agency temporarily lifted requirements on fuel quality amid what it described as “extreme and unusual fuel supply circumstance,” and Georgia, Alabama and North Carolina governors lifted rules that limit how many hours fuel truckers can work.

    Red Alert

    North American fuel distributor Mansfield Oil Co. on Thursday urged its customers to take fuel-saving measures over the next week and place orders early as its supply distribution network was impacted from Mississippi to Maryland.

    “Mansfield’s Supply and Logistics Teams are meeting daily and treating this situation with the same importance and urgency as a natural disaster and moving to Red Alert,” the company said in its online daily newsletter to customers.

    Prices may rise as much as 15 cents a gallon over the next week in parts of the eastern U.S. due to the shutdown, Patrick DeHaan, an analyst with GasBuddy, said in a tweet.

    “It’s likely to get worse before it gets any better,” he said by phone. “It’s really a race against the clock — will there be gasoline available to replenish those terminals before they draw down?”

    Retailers in Nashville and Atlanta were required to sell summer-grade gasoline, which carries a lower vapor pressure than fuels used in the winter, through Thursday. The EPA is waiving the federal mandates to distribute the fuel with low volatility amid the regional shortages.

    Gasoline futures jumped 6.87 cents a gallon Thursday and the premium of October contracts over November widened on concern that prompt supply at the delivery point for the New York Mercantile Exchange will become scarce. The eastern U.S. relies on imports, primarily from refineries in Texas and Louisiana, eastern Canada and Europe, to help meet demand.

    “What is truly extraordinary and really the main barometer of this Colonial Pipeline disaster is the spread action,” Hemsworth said. “Right now logistics are limiting the supply at the futures contracts’ deliverable point. You realize how dependent we are on our infrastructure.”
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    EIA: Recent mergers change the landscape of natural gas pipeline ownership

     Enbridge Inc. announced its purchase of Spectra Energy Corp. Enbridge currently operates 1,800 miles of large-diameter (24 inches or greater) natural gas pipelines in the United States. Before its acquisition of Spectra Energy, Enbridge was the 15th-largest holder of large-diameter U.S. natural gas pipeline miles (including co-owned pipeline), and Spectra ranked fourth in the nation with nearly 9,800 miles. Their newly combined pipeline holdings are still the fourth-largest overall.

    Nearly 82% of large-diameter pipeline miles and 62% of all pipeline miles in the United States are owned by 10 companies. Kinder Morgan Inc., with 32,000 miles of large-diameter pipeline, has more than double the mileage of TransCanada Corporation, which acquired Columbia Pipeline Group in July 2015. The merger of Energy Transfer Equity LP (third-largest holder) and Williams Companies, Inc. (fifth-largest holder) that was recently canceled would have resulted in a large natural gas pipeline conglomerate ranked second to Kinder Morgan, which owns about 19% of all U.S. pipeline.

    Most of the top-10 companies, which includes some large regional players, are common carrier pipelines regulated by the Federal Energy Regulatory Commission (FERC). The top five companies have national or international scale operations.

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    Alternative Energy

    Total's venture arm acquires stake in smart grids firm Autogrid

    Total Energy Ventures, the venture capital arm of oil and gas company Total said on Friday has acquired an interest in Autogrid, a company that develops solutions to manage and energy supplied to and from power grids.

    * Total said in the statement that Autogrid's customers include utilities and equipment manufacturers that produce electricity from solar panels, batteries and other sources.

    * It said the funding was intended to finance California-based Autogrid's expansion.

    * It did not disclose financial terms of the investment.

    * The oil and gas company has said it aims to become a top renewables and electricity trading player within 20 years.
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    EPA says glyphosate, used in Monsanto herbicide, likely not carcinogenic

    Glyphosate, the key ingredient in Monsanto Co's Roundup herbicide, is not likely carcinogenic to humans, the U.S. Environmental Protection Agency said on Friday as it outlined its current position on the controversial chemical.

    The EPA has been involved in a decades-long process to assess human and animal health risks, as well as ecological risks, of glyphosate. Various agencies around the world have offered conflicting opinions on whether glyphosate causes cancer.

    The EPA's "proposed" position on glyphosate was outlined in a 227-page paper it published on the website, which the EPA manages.

    After reviewing the available data, the paper states, "The strongest support is for 'not likely to be carcinogenic to humans' at doses relevant to human health risk assessment."

    The paper was among 86 documents, which included dozens of research studies about glyphosate. All the material is to be reviewed next month by an advisory group of scientists known as the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) Scientific Advisory Panel.

    "Meeting materials are being shared with the public in advance of the FIFRA Scientific Advisory Panel who will use these materials for the meeting and their report," the agency said to Reuters in an email statement.

    The panel is tasked with reviewing scientific issues related to the agency's ongoing evaluation of whether the herbicide does - or does not - have the potential to cause cancer in humans. It will also comment on the agency's review and evaluation process in how it reached its conclusions.

    Last year, the World Health Organization's cancer arm, the International Agency for Research on Cancer, classified glyphosate as "probably carcinogenic to humans."

    Other government authorities have issued a variety of opinions. The European Food Safety Authority last November said glyphosate was "unlikely to pose a carcinogenic hazard to humans."

    The EPA also republished a paper from its cancer assessment review committee, which found that glyphosate was "not likely carcinogenic" to humans. In May, the agency published the CARC paper online, but then removed it and other related documents, saying it had inadvertently published the document prior to finishing its review of the controversial chemical. [nL2N17Z1TZ]

    The EPA said on Friday that it expects to publish its final assessment of glyphosate in the spring of 2017. Previously, the agency had said the review could be done by the end of this year.
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    China to invest $450 billion modernizing agriculture by 2020

    The Agricultural Development Bank of China [AGDBC.UL], one of the country's main policy lenders, agreed to loan at least 3 trillion yuan ($450 billion) by 2020 for the modernization of China's agriculture industry, state media said on Sunday.

    The Ministry of Agriculture and the bank, which lends in line with government policy, signed an agreement to protect national food security, support the sector doing business overseas and develop China's seed industry, according to the official Xinhua news agency.

    It was not immediately clear whether this commitment is separate from the bank's plan announced in May to lend 3 trillion yuan for poverty reduction via agricultural investments.

    The move reported on Sunday also aims to increase the agriculture industry's efficiency and foster rural income growth.

    The Agricultural Development Bank of China will be responsible for managing financial services, including offering financial products and setting interest rates, said Xinhua.

    Chinese state-owned company ChemChina earlier this month extended its offer to buy Swiss pesticides and seeds group Syngenta (SYNN.S) for $43 billion, a deal which sparked food security concerns in the U.S., though it later cleared regulatory hurdles there.
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    Agrium to woo uneasy investors over Potash merger deal

    Canada's Agrium Inc will woo reluctant shareholders next week in Toronto to support its proposed merger with Potash Corp of Saskatchewan Inc, and seek to appease concerns that it has little to gain by marrying its fertilizer rival.

    The $26-billion, all-stock merger would combine Potash's crop nutrient production capacity, the world's largest, with Agrium's farm retail network, North America's biggest.

    It represents a major shift for Agrium Chief Executive Chuck Magro, who at its annual meeting in May sounded neutral at best on potash, said John Goldsmith, vice-president of Montrusco Bolton Investments, a top 20 Agrium investor.

    "Something must have happened to make him bet the farm on the potash commodity," Goldsmith said, adding that he is concerned the new company would be too linked to the slumping commodity. On Monday, Magro said potash will be "a terrific business longer term."

    Montrusco would need a compelling new rationale from Agrium for it to vote for the deal, Goldsmith said.

    Shareholders, including Montrusco, plan to meet with Agrium on Tuesday in Toronto. Agrium shareholders generally dislike the deal, while Potash investors are pleased, Scotiabank analyst Ben Isaacson said in a note on Tuesday.

    Agrium stock fell 6 percent in Toronto from the deal announcement on Monday, to Wednesday, before recovering ground on Thursday.

    The deal, scheduled to close in mid-2017, would give Potash investors 52 percent of the new company and requires two-thirds approval from shareholders of each company.

    Agrium and Potash said in a joint statement on Thursday that they were "very pleased with the overwhelming support" from many of their biggest shareholders.

    The crop nutrient potash, which has fallen this year to decade lows on oversupply and tumbling crop prices, is worth 10 percent of Agrium's EBITDA on average, but would account for 35 percent of the merged company's earnings before interest, taxes, depreciation and amortization.

    Agrium's farm retail business, currently worth 48 percent of EBITDA, would account for just 19 percent of the new company, a level that dismays shareholders like Michael Sprung.

    "We really liked the balance between retail (and) wholesale," said Sprung, president of Sprung Investment Management, of Agrium's existing business.

    He said he is considering whether to vote against the merger or sell his shares over concerns about prospects for potash.

    "We're not sure that the net benefit is there for Agrium," he said.

    Cidel Asset Management, also meeting with Agrium on Tuesday, is concerned about dilution of the retail business and that Potash investors would benefit from a higher dividend, said portfolio manager Robert Spafford.

    To be sure, creating a crop nutrient champion with almost triple the enterprise value of the next biggest fertilizer company, appeals to some.

    "Agrium gets the benefit of scale. In a fiercely competitive environmentthat gives them an advantage," said Mohsin Bashir, portfolio manager at Stone Asset Management, another Agrium investor. "They're getting a larger network when the price for potash is rock bottom."

    If either Agrium or Potash were to terminate the deal, the company backing out of the merger would pay a hefty $485 million break up fee.

    The penalty may discourage another suitor for Agrium, as would protectionist Canadian sentiment. In 2010, Ottawa blocked a foreign takeover approach for Potash Corp.
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    Precious Metals

    World's gold miners stick close to home in hunt for more metal

    The world's biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money to explore around existing mines rather than new territory in a strategy that may have short-term gains but risks future production growth.

    Top producers are relying more than ever on small companies to do the heavy lifting of searching for new deposits and increasingly taking 10 to 20 percent equity stakes in the junior miners.

    Exploring close to home is more cost efficient and improves the odds of discoveries. But the chances of making major new finds are limited, diminishing global gold output, which is expected to decline by nearly 9 percent in the next three years.

    "It only makes sense to be looking in your own backyard first before exploring elsewhere," said Paul Rollinson, Chief Executive of Kinross Gold, which spends about 90 percent of its exploration budget around existing sites.

    "We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with."

    The world's 10 biggest gold miners are bumping up the share of exploration budgets earmarked for land around existing mines, or brownfield exploration, increasing the spending to 56 percent in 2015 from 45 percent in 2013.

    In the meantime, they curbed spending on greenfield exploration in new territory to 21 percent from 25 percent of their budgets, data from SNL Metals & Mining, a unit of S&P Global Market Intelligence, shows.

    "They say the best place to discover a mine is in the shadow of a headframe," atop mine shafts, said Maria Smirnova, portfolio manager at Sprott Asset Management.

    "The rate of failure in exploration is staggering, so it is always better to try and improve what you have already."


    Barrick Gold, the world's largest producer by output, looks to near-mine discoveries because plants and equipment are already in place and the deposit is well known, said its president, Kelvin Dushnisky.

    Finding affordable and reliable deposits became vital in the last three years as miners slashed spending amid a slump in gold prices. Miners have kept a lid on spending this year despite a partial recovery in bullion prices and income.

    Exploration spending by the world's 10 biggest gold miners, such as South Africa's AngloGold Ashanti, sank 37 percent to $1.075 billion between 2013 and 2015, the last year for which data is available, SNL Metals & Mining data shows.

    Newmont Mining the world's top gold miner by market valuation, cut its exploration budget by nearly 40 percent in 2013 and prioritized areas expected to deliver higher-margin ounces, said Chief Executive Gary Goldberg.

    "That's first of all around our existing operations," he said, adding that Newmont has earmarked about 80 percent of its approximately $200 million budget in 2016 for brownfield exploration.

    Longer-term, Newmont is eyeing Ethiopia, Cote d'Ivoire and Queensland, Australia for greenfield exploration, he said.

        "Any management team in the industry would consider brownfields expansions first," before committing to big new projects, given capital is still limited, said David J. Christensen, CEO of mining fund ASA Gold & Precious Metals.

    Goldcorp Chief Executive David Garofalo said there was little available to throw even that limited capital at.

    "We are a supply-challenged industry," he said. "We've had a very poor track record over the last few years of exploration success."

    Global gold mine production peaked in 2015 and is estimated to fall nearly 9 percent by 2018, to 2,903 tonnes, Thomson Reuters GFMS data shows.

    Big gold miners have always relied on small exploration companies for discoveries, acquiring them to access their big finds. But they are increasingly hedging their bets with 10-20 percent equity stakes in juniors, said RBC Capital Markets analyst Sam Crittenden in a report earlier this year.

    Barrick plans to be more active partnering with juniors going forward, Executive Vice President for Exploration and Growth, Rob Krcmarov, said in June.

    Mid-tier producer Agnico Eagle Mines, which has bucked the industry trend by boosting its drilling budget over the past five years, plans to continue investing in juniors even as it adds to its drilling budget.

    Agnico last week increased its gold estimate for its Amaruq project, a new deposit close to its existing Meadowbank mine in Canada's Arctic, by 13 percent to 3.71 million ounces.

    "Greenfields is tough. I think the general consensus amongst gold producers is that the real greenfields is best left to the juniors," said Chief Executive Sean Boyd.

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    Petra Diamonds expects up to 24 pct rise in 2017 production

    Petra Diamonds Ltd said it expected production to rise up to 24.3 percent in 2017 from a year earlier and grow further to hit 5 million carats (mcts) in 2018, a year earlier than expected.

    The diamond miner forecast production to rise to 4.4-4.6 mcts in the year ending June 30, 2017 from 3.7 mcts in the corresponding period a year earlier.

    Higher volumes at its joint venture with Kimberley Ekapa Mining in South Africa was helping boost total production, the company said.
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    Base Metals

    London tin market a small and shrinking space

    The London tin market is becoming increasingly prone to spread tightness.

    At one stage last week the London Metal Exchange (LME) cash price flared out to a $250-per tonne premium over the three-month price.

    It was the third time in a year the front part of the LME curve has contracted sharply and there may be more to come.

    LME inventory holds the key and right now it looks very depleted. Open tonnage, that which is available for the settlement of positions, touched a 12-year low of 2,705 tonnes earlier this month.

    It has recovered to a current 2,985 tonnes, albeit through movement of previously cancelled tonnage back into the open tonnage category rather than through fresh arrivals of metal.

    Low stocks can be seen in part as a sign of genuine supply pressures, particularly in Indonesia. Tin is the second best performer among the LME base metals pack this year, eclipsed only by zinc, another metal with an enticing bull narrative of market deficit.

    But there is also a sense that low LME stocks are a sign of a changing tin trading landscape, one in which the London exchange is shrinking even while the upstart Shanghai contract is growing.


    Providing the backdrop to last week's spreads spasm was a dominant long position holder.

    It is still there, holding 50-80 percent of available stocks and cash positions as of the close of business Wednesday.

    But given stocks are so low, that could translate into a position of just 1,500 tonnes at the lower end of that spectrum.

    Hardly the stuff of world domination, but enough to dominate the London tin market.

    Last week's flare-out in the cash premium should in theory have enticed more metal into LME sheds. So far none has shown up.

    Until it does, the small room that is the London tin market will feel ever more constricted.

    The LME's market positioning reports <0#LME-FBR> show both significant long and short position holders liberally sprinkled over the next three main monthly prompt dates, Sep. 21, Oct. 19 and Nov. 16.

    On the first of those, which under the LME's two-day prompt system will trade out on Monday, six shorts are jostling against five longs. In November nine shorts are facing off against four longs.

    That doesn't mean that all or indeed any of these positions will be physically settled but everyone will have to step very carefully if another spread spasm is going to be avoided.


    Low LME stocks are in part a manifestation of real-world supply issues.

    Indonesia is the largest supplier of the soldering metal to the rest of the world and its exports are on track to decline for the fourth consecutive year.

    At a cumulative 38,343 tonnes over the January-August period they are down 16 percent on last year and look on track to meet tin industry body ITRI's full-year forecast of 60,000-65,000 tonnes.

    As recently as 2012 Indonesia's exports were close to 100,000 tonnes.

    In the interim, repeated government crackdowns on the independent producers clustered on the islands of Bangka and Belitung, natural attrition of easily accessible resources and last year's low price environment have combined to deal a heavy blow to the country's operators.

    Indonesia's own energy and resources ministry reported in May that only 29 out of 47 audited smelters were still operational, according to ITRI.

    Long-term decline in the world's largest exporter is the core driver of tin's bull.

    Some short-term spice has been added by the closure of several big Chinese smelters for environmental audits and maintenance overhauls.

    However, this has not translated into any noticeable acceleration in net imports, which at 4,000 tonnes in the first seven months of this year were down by 26 percent on last year.

    If Chinese smelter outages are having an impact, it is evidently a drama playing out within the domestic not the international market-place.

    Indeed, the effect may simply be to help draw down local stocks which have accumulated thanks to the raw materials boost to China's smelters from the tin mining boom taking place just over the border in Myanmar.

    Myanmar's emergence as a major supplier is the bearish spectre hovering over tin's bull story of chronic supply shortfall.


    But when it comes to tin, what's made in China still largely stays in China thanks to a 10-percent export duty on exports of refined metal.

    And more of it is being drawn into warehouses registered with the Shanghai Futures Exchange (ShFE).

    The ShFe's tin contract hasn't attracted the same amount of attention as the nickel contract, which exploded into life when it was first launch in March last year.

    Tin, which started trading at the same time, has been more of a slow fuse affair but activity has picked up sharply this year.

    Volumes totaled 4.47 million lots in the first eight months, compared with 1.03 million in the March-December 2015 period.

    Open interest was 14,198 lots at the end of last month, up from 1,998 lots a year ago.

    As with the ShFE's nickel offering, rising trading liquidity has been accompanied by rising stocks liquidity.

    There are currently 3,633 tonnes of tin in ShFE warehouses and most of it, around 87 percent, is warranted.


    None of this metal is going to bring any relief to short position holders in London, where chronically low stocks risk translating into structural spread tightness.

    But those low stocks are a sign that the tin market is increasingly bipolar.

    While the world outside China is characterised by shortfall, China itself seems to have ample amounts of the stuff to the point that on current trends ShFE warehouses will soon hold more than LME ones.

    And on current trends Shanghai volumes will keep growing while LME volumes will keep shrinking. They have been falling every month since the start of 2015.

    This shrinkage is as much part of the London market's increasingly frequent bouts of tightness as underlying supply-demand dynamics.

    The small room is getting smaller and it's getting increasingly crowded.
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    Steel, Iron Ore and Coal

    Australia's coal industry outlook ignites dispute

    Australia's coal industry outlook ignites dispute

    A report commissioned by The Australia Institute is causing some bickering between the mining industry, the scientific community, and policy-makers as it states that the country’s economy would not be hurt by a gradual phasing out of coal production.

    Economist Philip Adams, who led the research at Victoria University’s Centre of Policy Studies, saidin an interview with The Australian Broadcasting Corporation there would be minimal economic impact if the Government imposed a moratorium on new coal mines or the expansion of existing ones.

    According to Adams, "the world outlook for coal is fairly bleak,” as world leaders impose moratoriums on new coal mines or the expansion of existing ones. The effects of such decisions, however, will not be seen just yet.

    "Our modeling suggests that the impacts will not start for 10 to 15 years. There is enough coal in mines that are operating or will be operating to continue the level of exports that we see now,” Adams told ABC.

    Annual coal exports reached $38 billion in 2014/15, almost twice those of beef, wheat, wool and wine combined so following the report's logic, eliminating those great industries would also have negligible consequences — Minerals Council of Australia.

    Once that time window has passed, the economist said, the Australian economy will continue to grow with a difference of 0.06% in 2040. The impact on jobs wouldn’t be significant either since the industry's share of employment is 0.04% of the Australian workforce or some 44,000 workers.

    But not everything is “good news.” An in-depth look into how the phase-out would affect specific regions in the world’s second biggest producer of coal shows a grimmer picture. Real Gross State Product in the Fitzroy area in Queensland, for example, will fall to be around 40% of its Reference case value in 2040, while real GSP in Mackay will be down 25% and real GSP in the Hunter Valley of New South Wales will be down 31%.

    Nevertheless, TAI’s study concludes that “Australia can and should impose a moratorium on new coal mines and mine expansions, as part of climate and wider environmental policy, and should expect minimal economic disruption from doing so.”

    But the Malcolm Turnbull administration doesn’t seem to be moving towards such direction. Despitehaving received calls from his counterparts in other nations to reconsider his position, the Prime Minister has said that global emissions wouldn’t change “one iota” if his country stopped all coal exports.

    Source: The Australia Institute.

    "Only the green movement and their mouthpieces such as the Australia Institute (TAI) would be able to contend shutting down Australia’s second largest export industry would have limited economic impact," Greg Evans, executive director of coal at the Minerals Council of Australia said in an e-mailed statement.

    It's not realistic to think the world is moving away from a resource that provides 41% of its electricity— World Coal Association.

    He noted that annual coal exports at $38 billion in 2014/15 were almost twice those of beef, wheat, wool and wine combined so under the institute's logic, eliminating those great industries would also have negligible consequences.

    The coal industry also reacted to the think tank’s document. Benjamin Sporton, Chief Executive of the World Coal Association, told ABC that he doesn’t think it is realistic to think the world is moving away from the resource that provides 41% of its electricity.

    “Coal is going to play a big role in the world's economy and the world's electricity mix for decades to come and it's incredibly important that we focus on a role for low-emission coal technology,” he said.

    Meanwhile, 2016 has seen an unexpected surge in coal prices mainly driven by slowing supply growth from China.
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    China draws up restructuring plans for Bohai Steel - Caixin

    Financial authorities in the city of Tianjin plan to convert a portion of debt-stricken Bohai Steel Group's liabilities into bonds, according to rescue plans drawn up recently, the online financial magazine Caixin reported on Monday.

    Officials met on Sept. 11 to discuss a comprehensive restructuring plan for the firm, which has liabilities of 192 billion yuan ($28.78 billion) from 105 creditors.

    According to the plan, high-quality assets from Bohai Steel will be restructured to form a new company, which will take on 50 billion yuan of the total debt.

    Another 60 billion yuan will be issued as bonds by the original holding company, with the local government set to inject an additional 10 billion yuan into the firm. The remaining 80 billion yuan will be retained by the original holding firm or written off.

    The proposals are currently being assessed by financial institutions, the report said, citing unidentified sources.
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    Zhangjiagang steel company enjoying strong momentum

    Zhangjiagang steel company enjoying strong momentum
    Shagang Group, a private steel firm headquartered in Zhangjiagang, Jiangsu province, ranked ninth on the list of China's top 500 private companies for 2016, giving it the highest rank for a steel firm. The company has achieved total sales revenue of 205.84 billion yuan ($30.82 billion) in 2015, Zhangjiagang Daily reported.

    Jinfeng-based Jiangsu Shagang Group was the only firm in Zhangjiagang that made the top ten. It is China's largest iron and steel manufacturer and is also a member of the Fortune 500.

    According to Shagang Group, the firm produced 31.63 million tons of iron, 34.21 million tons of steel and 33.88 million tons of rolled metal products in 2015. Meanwhile, Shagang achieved success in foreign markets, with a total export volume of 6.88 million tons.

    Despite the slump in the domestic steel market, which nowadays has high production costs and low market prices, Shagang Group has worked out a business strategy based on research into new technologies and development, putting priority on quality and efficiency. The firm takes full advantage of its scientific research platform, advanced equipment and regional logistics, in order to lower production costs and strengthen production power.

    The All-China Federation of Industry and Commerce released its latest list of China's 500 largest private firms on Aug 25, with six companies from Zhangjiagang making the cut in 2016. The list featured more companies from Zhangjiagang than any other county-level city in Suzhou, highlighting the rapid growth of the area's economy. Twenty companies from Suzhou appeared in the top 500 for 2016.
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    China steel falls to lowest since June amid property curbs

    Chinese steel prices dropped to their lowest in nearly three months on Monday on worries that fresh efforts to curb home purchases could slow demand in the top global steel consumer.

    Financial markets reopened in the country on Monday after closing on Thursday and Friday for China's Mid-Autumn Festival.

    Home prices there rose at a faster pace in August, data showed, with the buying frenzy spilling over from first-tier cities to other parts of the country. Second- and third-tier cities such as Xiamen, Nanjing and Wuhan are now stepping up measures to cool overheated markets.

    Housing authorities from the eastern city of Hangzhou announced on Sunday it will begin to restrict home purchases from Sept. 19. Families who are not registered as residents and already own one or more houses in certain districts will not be able to purchase another home, new or pre-owned.

    The most-traded rebar on the Shanghai Futures Exchange touched a session low of 2,190 yuan ($328) a tonne, the weakest since June 29. The construction steel product was down 1 percent at 2,237 yuan by midday.

    "The supply of steel is quite big and demand is at risk because of the new restrictions on real estate purchases," said a Shanghai-based iron ore trader.

    "This will affect new property projects and eventually it will affect demand for steel."

    A surge in Chinese steel prices spurred by Beijing's efforts to stimulate the economy caused domestic crude steel output to rise for a sixth straight month in August.

    The decline in China's steel prices in September came after a three-month gain.

    Tracking losses in steel, raw material iron ore traded on the Dalian Commodity Exchange was last down 0.6 percent at 390.50 yuan a tonne. It fell as far as 383 yuan, the lowest since July 26.

    Spot iron ore prices were flat on Thursday and Friday owing to the Chinese holidays.

    Iron ore for delivery to China's Tianjin port was unchanged at $55.50 a tonne on Friday, according to The Steel Index.

    The spot benchmark has slid 10 percent since touching a 3-1/2-month peak of $61.80 on Aug. 16.
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