Mark Latham Commodity Equity Intelligence Service

Thursday 28th January 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Manufacturing Depression Enters Uncharted Territory: Caterpillar


    Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse.

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    Not only is the fourth, feeble and final dead CAT bounce in US sales officially over, with December US retail sales tumbling -10% Y/Y, after "only" a -5% decline in November and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -21%, EAME dropping -12%, and Latin America (i.e. Brazil) continuing its free fall dropping by -36%, but global retail sales just posted a massive -16% drop in the past month, tied for the worst annual decline since the financial crisis.

    Putting the annual drop in context, CAT sales dropped 12% a year ago, another 9% in 2013, and -1% in 2012, or four consecutive years of declines!

    But where the manufacturing depression as seen from the perspective of heavy industrial machinery operator has never been worse is shown in the chart below: CAT has now suffered a record 37 months, or over 3 years, of consecutive declining annual retail sales - something unprecedented in company history,and set to surpass the "only" 19 months of decling during the great financial crisis by a factor of two in January!


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    Iraq Kurds Agree on Independence Vote, Official Says


    Iraqi Kurdish leaders plan to hold a referendum on the region’s independence, an official said on Wednesday, in a move that could lead to the break-up of OPEC’s second-biggest oil producer.

    Massoud Barzani, president of the semi-autonomous Kurdish Regional Government, and other Kurdish leaders have all agreed to hold the referendum, said Kifah Mahmoud, an adviser at the president’s office.

    While they all agreed to hold the referendum, the vote “doesn’t mean independence. It is the decision of the people,” Mahmoud said.

    The Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are independently developing oil reserves they say may total 45 billion barrels -- equivalent to almost a third of the deposits in the rest of Iraq, according to BP Plc data.

    Saad Al-Hadithi, a spokesman for Iraqi Prime Minister Haider Al-Abadi, said “any unilateral position from any party without coordination or approval will be against the constitution and illegal.”

    The Kurds have been holding back crude produced in their enclave in northern Iraq and exporting it independently since June via a pipeline through Turkey, as they exercise greater control of their own affairs. KRG finances have been eroded by a budget impasse with Baghdad, the collapse in crude prices, and the cost of a war against Islamic State militants.

    http://www.bloomberg.com/news/articles/2016-01-27/iraqi-kurds-plan-independence-vote-before-before-u-s-election
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    Brazil Police Widen Petrobras Probe to Offshore Money Laundering


    Brazil’s federal police carried out search and arrest warrants in four cities on Wednesday to probe allegations of money laundering related to a corruption scheme at state oil company Petrobras.

    The latest phase of the investigation, dubbed Car Wash, focuses on offshore operations that sought to conceal proceeds from the corruption scheme, the police said in a statement.

    The corruption scandal rattled Brazil’s business and political elites for the better part of last year with the arrest of leading businesses executives and legislators including the government’s former leader in the Senate, Delcidio Amaral.

    Prisoners from Wednesday’s police raid will be held in the southern city of Curitiba. Federal police are scheduled to hold a press conference at 10 a.m. local time.

    http://www.bloomberg.com/news/articles/2016-01-27/brazil-police-widen-petrobras-probe-to-offshore-money-laundering

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    Russia hints at OPEC talks.

    Oil futures surged on Wednesday after Russia indicated there was a possibility of co-operation with OPEC, fanning hopes for a deal to reduce a global oversupply that sent prices to the lowest levels in over a dozen years last week.

    A statement from Russia's energy ministry left the door open to talks with OPEC, moments after the head of Russia's pipeline monopoly said officials have decided they should talk to Saudi Arabia and other OPEC members about output cuts.

    The top non-OPEC producer, Russia has in the past been unwilling to cut oil output, as it battles for market share with OPEC output leader Saudi Arabia.

    "I remain sceptical, at the end of the day, about that happening as the oil producers are looking at the other guy to cut production while maintaining their own levels," Andrew Lipow of Lipow Oil Associates said.

    "I think the geopolitical factors in the Middle East are playing a bigger part in the actual oil production than the statements from energy ministers who'd like to see higher prices."

    Hints of a possible deal between OPEC members and rival producers had already helped oil rally 4 percent on Tuesday.

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    China Sharpens Efforts to Halt Money Outflow


    China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.

    Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans and banning yuan-based funds for overseas investments, said people with direct knowledge of the matter.

    The measures, most of which haven’t been publicly disclosed, follow a series of efforts by China’s central bank to discourage investors from betting against the yuan and cracking down on overseas money transfers.

    “They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”

    The central bank, which didn’t respond to requests for comment, also is considering ways to lure money back to the country. Among them: letting foreign residents and companies open longer-term bank accounts.

    The unusual moves come as China burns through hundreds of millions of dollars in foreign exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.

    http://www.wsj.com/articles/china-sharpens-efforts-to-halt-money-outflow-1453898254

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    Anglo American says fourth-quarter copper production rises 23%

    Anglo American said copper production increased 23% in the fourth quarter, while it also mined more nickel than a year earlier.

    Copper output from its retained operations rose to 181 400 metric tons from October through December, the London-based company said on Thursday. Nickel output increased to 10 500 tons, while coking-coal output increased to 5.5 million tons. Production of platinum, diamonds and iron ore from its Kumba operations in South Africa all declined. Kumba plans to cut about 3 900 jobs as part of plans to reduce costs.

    Global mining company Anglo American produced more iron ore last year after increased production at its Minas-Rio mine in Brazil offset lower output from its Kumba subsidiary in South Africa.

    Production at Kumba Iron Ore fell 7% to 44.9 million tonnes last year while output at Minas-Rio rose to 9.2 million tonnes from 0.7 million tonnes, the company said on Thursday.

    Iron ore is one of the biggest earners for Anglo American, which also produces coal, copper, platinum and diamonds.

    It said annual production of thermal coal, nickel, copper and diamonds all fell last year though platinum output rose 25 percent to 2.3 million ounces as the company ramped up output following strikes in 2014.

    Like its rivals, Anglo is battling with low commodity prices and slowing growth in top copper consumer China.

    Anglo said last month it would sell more assets, suspend dividends until the end of 2016 and whittle its business down to three divisions to cope with severe falls in commodity prices.

    Kumba Iron Ore said on Thursday it would scale back operations, cut costs and planned to reduce jobs at its Sishen mine, the largest iron ore operation in Africa.

    http://www.mineweb.com/news/iron-and-steel/anglo-boosts-annual-iron-ore-output-on-minas-rio-ramp-up/

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    Tesla vs Toyota hybrid. So which actually has higher mpg?

    Losses From Generation To Distribution

    Generation Losses

    This is a table of heat rates for electricity generation. To express the efficiency of a generator or power plant as a percentage, we must divide the equivalent Btu content of a kWh of electricity (which is 3,412 Btu) by the heat rate. The average heat rate for all types of turbines, if you average them together, is about 10,134. This is a rough calculation and does not scale as dispersed.

    Efficiency = [(3,412)/(10,134)]*100 = 33.7%

    This means that 66.3% of the energy in the raw materials themselves are lost due to heat. Think about that! 1,000 kWh worth of fuel dumped into a generator will leave you with 337 kWh of electricity on average!Image title

    Transmission and Distribution Losses

    Electricity needs to make it from the generator to your home. As an electrical engineer who works for an electrical contractor, I can briefly speak to how it works.

    GENERATOR -> HIGH VOLTAGE TRANSMISSION LINES -> SUBSTATION (steps down voltage for distribution -> DISTRIBUTION LINES -> HOME

    The EIA estimates that approximately 6% of all electricity is lost - 2% for transmission and 4% for distribution - from the generator to your meter. This is due to the real-world inefficiencies of the infrastructure and can vary wildly from state-to-state. Older infrastructure, of course, will likely perform worse. Please note these are US figures - we have some of the most efficient electricity transmission and distribution infrastructure in the world thanks to our rigorous standards - countries like India are estimated to incur losses of up to 30% in transmission and distribution (significant amounts are from theft), so EV's will perform remarkably worse in poorer countries, further lessening their efficiency.Image title

    dding It All Up

    If you've made it this far, we need to calculate the real energy cost of an EV like the Tesla Model S 70, factoring in losses in generation, transmission, distribution and charging.

    Generation Efficiency: 33.7%

    Transmission/Distribution Efficiency: 94%

    Charging Efficiency: 90%

    [[(70)/(0.337)]/(0.94)]/(0.90) = 245.53 kWh

    Because electricity is such an inefficient utility, it actually takes more like245.53 to charge a 70 kWh EV battery. This drops the real efficiency of a Tesla Model S 70 to 0.977 miles/kWh.

    According to the EPA, one gallon of gasoline has an energy equivalent of 33.7 kWh. If a Tesla Model S 70 goes 240 miles on 245.53 kWh of electricity, then we can say a Tesla Model S 70 goes 240 miles on 7.29 gallons of gasoline. In other words, the Tesla Model S 70 gets an equivalent of 32.94 mpg. That is only 58.8% as efficient as a 2016 Toyota Prius Eco for nearly three times the price. (fueleconomy.gov estimates a 2016 Toyota Prius ECO gets a combined fuel rating of 56 mpg.) Depending on which state you live in, a Toyota Prius could get even better mileage by comparison if your transmission and distribution networks see above average losses, or if your state gets more energy from coal than natural gas, which is less efficient in the generation.




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    Oil and Gas

    Oil Surges After Russia Says Will Discuss "Possible Production Cuts With OPEC"


    ... one just one piece of news: moments ago both Reuters and Bloomberg cited the CEO of Russia's Transneft, who said that Russia and OPEC will discuss possible output cuts:

    BREAKING: Russia's Transneft says Russia and OPEC will discuss possible output cuts -TASS

    It appears that Russian oil chiefs discussed coordination w/ OPEC at meeting with Energy Minister Alexander Novak, Bashneft head Alexander Korsik, a participant, tells reporters after event. Bloomberg notes that discussions will continue, no decision yet.

    Russia needs to discuss cuts, coordination with OPEC, Transneft CEO Nikolay Tokarev, another participant at meeting said cited by Bloomberg.

    The response: every risk asset is now soaring, tracking the bounce in oil tick for tick. At least until Saudi Arabia issues a statement denying that it has any intention of cooperating with Russia on production cuts.

    For now, however, those record WTI and Brent shorts are feeling the heat.

    http://www.zerohedge.com/news/2016-01-27/stocks-storm-green-oil-surges-after-russia-says-will-discuss-production-cuts-opec
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    Shell shareholders approve $49 bln BG takeover


    Shareholders of Royal Dutch Shell approved the company's $49 billion takeover of BG Group on Wednesday, clearing one of the final hurdles for a deal that will create the world's biggest liquefied natural gas (LNG) trader.

    As many as 83 percent of shareholders voted in favour and 17 percent against the deal, one of the largest in the energy sector in the past decade.

    BG shareholders will cast their votes in London on Thursday.

    "Our immediate focus is on the successful completion of the transaction and we now await the results of tomorrow's BG shareholder vote," said Shell Chief Executive Ben van Beurden in a statement.

    Over 40 percent of Shell's shareholders also own around half of BG's stock, according to Reuters data.

    If the deal is approved by all shareholders on both sides, the two companies will merge on Feb. 15. Shell will then become the world's most powerful LNG trader and gain access to valuable oil resources offshore Brazil and in Australia.

    http://www.reuters.com/article/bg-group-ma-shell-idUSL8N15B2UV
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    Angola LNG project begins recommissioning


    According to Reuters, the Angola LNG project has started recommissioning. A series of technical faults, and an eventual rupture on the flare line, forced the plant into shutting down in April 2014.

    The project is owned by Chevron, which holds a 36.4% stake, Sonangol (an Angolan state oil firm), which holds a 22.8% stake, as well as Total, ENI, and BP.

    Reuters reports that traders have said that they expect LNG exports from the Angola LNG project to resume by April 2016.

    http://www.lngindustry.com/liquefaction/27012016/Angola-LNG-project-begins-recommissioning-1932/
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    Repsol Books $3.2 Billion Charge as Provision for Oil Drop

    Repsol Books $3.2 Billion Charge as Provision for Oil Drop

    Repsol SA, Spain’s largest oil company, said it will book an impairment charge of about 2.9 billion euros ($3.2 billion) for 2015 as a provision after crude prices collapsed.

    The charge will lead to a net loss of about 1.2 billion euros for the year, Madrid-based Repsol said Wednesday in a regulatory filing following a board meeting. Excluding one-time items, net income of about 1.85 billion euros for the year will surpass the higher end of the company’s estimates, driven by refining profits and a cost savings, Repsol said. Adjusted fourth-quarter net income will rise 20 percent from a year earlier to about 450 million euros.

    As the global oil industry struggles with a price crash, Repsol is faced with the additional task of integrating Talisman Energy Inc., the Canadian oil producer it acquired last year, while also reducing its debt load. Oil this month reached the lowest level since 2003, driving companies globally to cut projects and write down the value of assets.

    Together with the impairment, Repsol also plans to cut investments in 2016 by an additional 20 percent to 4 billion euros, according to the filing. It will also accelerate efforts to seek cost savings from the Talisman assets. The company now identifies potential synergy gains of about $400 million a year, compared with $220 million when Talisman was acquired.

    While provisions are “not a complete shock, we are a little surprised that the impairments already include Talisman," Jefferies Group Plc analysts Marc Kofler and Jason Gammel said in a note to clients Wednesday. The analysts expect all the impairments to be in the exploration and production division.

    For the entirety of its assets, the Spanish company intends to reach synergies and efficiency savings of about 1.1 billion euros this year, or more than 50 percent of the target set through 2018 in its business plan.

    In Wednesday’s announcement, Repsol also said that its fourth-quarter refining margin will probably stand at $7.30 per barrel, compared with $5.50 per barrel a year ago. The margin is a gauge for refining profitability. The company also said production reached an estimated 697,000 barrels of oil equivalent per day in the period.

    http://www.bloomberg.com/news/articles/2016-01-27/repsol-books-3-2-billion-charge-as-provision-for-oil-collapse
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    Hess Reports First Annual Loss Since 2002 Amid Oil Slump


    Hess Corp. reported its first annual loss in 13 years as it cut spending to weather a prolonged slump in oil prices.

    The oil and gas producer posted a net loss of $1.82 billion, or $6.43 a share, in the fourth quarter compared with a deficit of $8 million, or 3 cents, a year earlier, the company said in a statement Wednesday. For the full year, the loss was $3.06 billion. Excluding one-time items, the per-share loss was $1.40, beating the average estimated loss of $1.47 from analysts in a Bloomberg survey.

    Hess will cut spending by 40 percent this year to $2.4 billion as it pulls back in all regions and seeks further cost reductions and efficiency gains, it said Tuesday in a statement. Oil prices have tumbled more than 70 percent from a June 2014 peak.

    “Looking forward, our top priority is to continue to keep our balance sheet strong," said Chief Executive Officer John Hess in the statement. "Our 2016 capital and exploratory budget is 40 percent below our 2015 spend and we will continue to pursue further cost reductions. At the same time, we plan to continue to invest in future growth.”

    The company reduced its estimate of proved oil and gas reserves to 1.086 billion barrels of oil equivalent as of Dec. 31, down from 1.431 billion a year earlier, as a result of lower crude prices and reduced drilling plans.

    The company will hold a conference call with analysts and investors at 10 a.m. New York time.

    http://www.bloomberg.com/news/articles/2016-01-27/hess-reports-first-annual-loss-since-2002-amid-oil-slump

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    Gasoline cargoes sail to Iran, crude exports still tough


    Major oil firms and trade houses are gradually resuming energy trading with Iran but efforts remain very cautious and often face huge legal obstacles, meaning a post-sanctions return to full-scale activity will take weeks if not months.

    Trading sources told Reuters major trading houses Gunvor and Vitol have each delivered several cargoes of gasoline into Iran in the past few weeks. Gunvor and Vitol declined to comment.

    Meanwhile, Swiss trading house Litasco of Russian oil major Lukoil (LKOH.MM) had to cancel a booking of a tanker to transport oil from Iran to Italy in early February due to what trading sources described as ship insurance difficulties.

    Trading sources on Wednesday cited preliminary fixtures being made by Glencore and Total for tankers to lift Iranian crude in February although it was still unclear if the deals had been concluded partly due to insurance issues.

    "It is still very difficult despite the sanctions removal. Dollar clearing is an issue, banks' letters of credit is an issue, ship insurance is an issue. Loads of people are still very cautious," said a senior trading executive.

    Leading shipping players say efforts by Iran to start exporting oil to Europe are being held up as tanker owners are still struggling to secure insurance for cargoes.

    A nuclear deal between world powers and Iran earlier this month led to the removal of European sanctions on the country.

    But many foreign firms remain wary of violating other sanctions that were imposed by the United States and have not been lifted. Measures still in place from Washington prohibit most business between U.S. persons, U.S. companies and Iran as well as no dollar trades.

    Third-party liability insurance and pollution cover for vessels is provided by P&I clubs - marine insurers owned by shipping clients and reinsured internationally. The umbrella International Group of P&I clubs is still unable to confirm payments under re-insurance contracts.

    "Gasoline exports to Iran are a bit easier as tankers are much smaller, insurance is easier and there are banks which are willing to do this as non-dollar transactions," one senior trading source familiar with the matter said.

    Iran is a gasoline importer despite being the third largest producer within the OPEC group as its outdated refining industry cannot meet rising petrol needs in the country.

    The country has continued to import gasoline regardless of sanctions but the biggest names stayed out of the game for the past few years.

    Iran's oil exports have fallen to just over 1 million bpd, from a peak of more than 2.5 million bpd before the imposition of tougher European sanctions in 2012.

    Since the sanctions' removal this month, Iran has ordered a 500,000 barrel per day (bpd) increase in oil output, of which it said some 200,000 bpd will initially go to Europe. Prior to sanctions, Europe was importing as much as 800,000 bpd.

    Greece's Hellenic Petroleum (HEPr.AT) on Friday became the first European refiner to agree to restart crude imports from Tehran and pre-sanctions buyers Italy, France and Spain are expected to follow.

    Oil and gas condensate held by Iran on its domestic tankers in floating storage is estimated by shipping sources to be at least 40 million barrels and the country has said it is keen to offload volumes into the market to boost revenues.

    "It will take weeks if not months to return to full-scale crude exports to Europe. Tonnes of papers will need to change hands between inhouse risk officers, lawyers and banks before the picture is fully clear," said a trading executive involved in the discussions.

    But ultimately oil should flow at full steam.

    "It's just a matter of price. If the price is good, we'll buy it," Marco Schiavetti, director of supply and trading with Italy's Saras said of Iranian oil. "Obviously we will talk to them soon, and we will consider."

    http://www.reuters.com/article/iran-trade-oil-idUSL8N15B2RO
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    US Oil production drops slightly from previous week


                                                    Last Week   Week Before  Last year

    Domestic Production '000......... 9,221            9,235            9,213

    http://ir.eia.gov/wpsr/overview.pdf
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    Summary of Weekly Petroleum Data for the Week Ending January 22, 2016


    U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending January 22, 2016, 551,000 barrels per day less than the previous week’s average. Refineries operated at 87.4% of their operable capacity last week. Gasoline production decreased last week, averaging 9.4 million barrels per day. Distillate fuel production decreased last week, averaging about 4.5 million barrels per day.

    U.S. crude oil imports averaged 7.6 million barrels per day last week, down by 170,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.8 million barrels per day, 7.2% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 576,000 barrels per day. Distillate fuel imports averaged 186,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.4 million barrels from the previous week. At 494.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 3.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 4.1 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 6.2 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week.

    Total products supplied over the last four-week period averaged 19.5 million barrels per day, down by 1.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.7 million barrels per day, down by 2.5% from the same period last year. Distillate fuel product supplied averaged 3.4 million barrels per day over the last four weeks, down by 14.8% from the same period last year. Jet fuel product supplied is up 4.8% compared to the same four-week period last year.

    http://ir.eia.gov/wpsr/wpsrsummary.pdf

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    Spread between Henry Hub, Marcellus natural gas prices narrows as pipeline capacity grows

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    Natural gas spot prices around the United States are often compared to prices at the Henry Hub in Louisiana. At trading points in and around the Marcellus and Utica shale plays in Pennsylvania, West Virginia, and Ohio, natural gas prices consistently trade below the Henry Hub national benchmark price. However, the difference between these pricing points and the Henry Hub has narrowed in recent months as new pipeline projects have come online.

    Most of the natural gas produced in the region is consumed in other areas of the country. With limited infrastructure to deliver natural gas to consumers, the Marcellus region can quickly become oversupplied, causing prices within the Marcellus region (especially Pennsylvania) to be discounted. In times of high demand for heating in the winter, natural gas spot prices can rise substantially in market areas such as New York and Boston. New infrastructure projects have come online to alleviate the disconnect between prices in producing and consuming areas around the country.

    Although prices in the Marcellus region are still relatively low, trading under $1.50 per million British thermal units (MMBtu), the gap between Marcellus region price points and Henry Hub has narrowed. The price at Transcontinental Pipeline's (Transco) Leidy Hub in central Pennsylvania, for example, averaged 93 cents per MMBtu below the Henry Hub price from December 1 through January 15. In July 2015, this differential was much larger, averaging $1.65/MMBtu for the month.

    Bentek Energy noted that the effect of these new pipeline projects was somewhat limited in November and the beginning of December because of a warm beginning to winter. As heating demand increased in late December and into January, natural gas production in the region increased as well, setting records in December and January, likely because producers had access to new takeaway capacity.

    In the Marcellus and Utica plays, production has grown rapidly over the past several years, and infrastructure growth has not kept pace. This is partly because pipeline projects are costly and may take several years to bring online. As a result, there is a large backlog of wells that have been drilled but won't produce until there is available infrastructure or until the price of natural gas increases. These wells allow Marcellus production to ramp up quickly when new infrastructure comes online. According to Bentek estimates, from January 1 through January 20, natural gas production in the Northeast (which includes production from the Marcellus and Utica) was 17% higher than during the same period in 2015.

    An upcoming Today in Energy article will discuss several new pipeline projects and expansions that have recently begun operation, along with several projects now under development. As these projects and other pipeline expansions come online, the difference between Marcellus region prices and the Henry Hub price should continue to narrow.

    http://www.eia.gov/todayinenergy/detail.cfm?id=24712

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    Kinder Morgan to partner with private equity on $3 billion in investment


    Kinder Morgan plans to sell partial stakes in two projects representing $3 billion in investment to private equity groups, executives said Wednesday.

    The deals, which would carve off parts of the planned $2 billion Elba Island liquefied natural gas facility and the $1.1 billion Palmetto refined products pipeline, are part of Kinder Morgan’s push to slash capital spending amid an oil bust that has sharply limited its access to capital.

    In a presentation to analysts Wednesday, Kinder Morgan Chief Financial Officer Kimberly Dang said the company was already in talks with potential partners and was budgeting under the assumption they’d be sharing the cost of the projects.

    Dang also opened the door to cooperating on other joint ventures, saying that Kinder Morgan would shop around some of the planned projects that weren’t directly linked to the company’s core network of pipelines.

    “It’s not going to make sense for projects that are on our existing network,” she said. “It needs to be projects that are stand-alone… and it needs to be projects that are attractive generally to infrastructure funds, because that’s where the most firepower is today.”

    Kinder Morgan’s Elba Island liquefied natural gas plant export project is a $2 billion venture that will put about 350 million cubic feet per day of export capacity on the coast of Chatham County, Georgia. Kinder Morgan expects the project to be completed by 2018 and is currently working its way through permitting.

    Originally, Elba Island LNG was a 51-49 percent joint venture between majority owner Kinder Morgan and international major Royal Dutch Shell. Kinder Morgan bought Shell’s interest in July 2015, though Shell has still hung onto the 20-year contracts for 100 percent of the facility’s capacity.

    The second project Kinder Morgan is shopping around is the $1.1 billion Palmetto pipeline, which would carry gasoline and other products from the northern part of South Carolina through Georgia and into Jacksonville.

    Construction on the pipeline is expected to commence in spring 2016. Kinder Morgan faced regulatory hurdles late last year when Georgia denied the company the permit that would grant the power to use eminent domain to clear the route. Kinder Morgan appealed the decision, and CEO Steve Kean said Wednesday that the company may be able to finish the project without eminent domain. The company would likely wait until there’s more clarity on the permitting issue before signing on a partner, he said.

    http://fuelfix.com/blog/2016/01/27/kinder-morgan-to-sell-stakes-in-pair-of-joint-ventures-totaling-3-billion/
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    Alternative Energy

    Brazil's Gerdau, Japan's Sumitomo, JSW form wind power joint venture


    Brazilian steelmaker Gerdau SA will form a joint venture with Japan's Sumitomo Corp and Japan Steel Works Ltd  to compete in the wind power sector in Brazil, Gerdau said on Wednesday.

    With 280 million reais ($70 million) in investment for new equipment, the joint venture would use Gerdau's mill in Pindamonhangaba in the state of Sao Paulo to supply parts for wind turbines from 2017.

    In the midst of a downturn in Brazilian steel because of a collapse in the construction and auto sectors, Gerdau said the wind power sector in Brazil was set to grow in coming years.

    "We are working to transform Gerdau into a more efficient and more profitable company, considering the current and future challenges in the global steel market," Chief Executive Andre Johannpeter said in a statement.

    Sumitomo and JSW have extensive experience in supplying the wind power industry, Gerdau said. It said Gerdau would have a stake of more than 50 percent stake in the joint venture, which would create 100 jobs.

    http://www.reuters.com/article/gerdau-br-sumitomo-corp-jointventure-idUSL8N15B3TC
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    Agriculture

    China to delay signing potash contracts


    As prices continue to slide, China may hold off on signing potash deals until April and rely on its own stockpiles of the fertiliser.

    The country, which is the world’s largest potash consumer, has enough stockpiled material to tide it over for the time being, allowing it to defer agreements with major potash producers, including Uralkali PJSC, Belaruskali...

    http://www.indmin.com/Article/3524389/China-to-delay-signing-potash-contracts.html
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    Base Metals

    Indonesia, Freeport in last-ditch talks to prevent halt in copper exports


    Indonesia's government and Freeport McMoRan Inc are meeting on Thursday in last-ditch talks to prevent a halt in exports of copper concentrate from the U.S. mining giant's massive Grasberg mine in the province of Papua.

    A halt in exports would deal a blow to Freeport's profits and deny the Indonesian government desperately needed revenue from one of its biggest taxpayers. A stoppage would also buoy global copper prices that have slipped 3 percent so far this year on worries about oversupply.

    Freeport's six-month export permit for its Indonesian unit expires on Thursday but it is still unclear how soon a new one will be issued as the two sides have yet to resolve a government demand that the U.S. firm first pay a $530-million deposit.

    "There has been no information whatsoever from Freeport that states whether they are able to pay or not," Mohammad Hidayat, the mine's ministry director of minerals, told reporters on Thursday.

    "If an export permit extension is not issued today, that means that starting from the 29th they cannot export any more."

    Energy Minister Sudirman Said said he was certain the government would approve the export permit and was open to negotiations with Freeport on the $530 million deposit.

    "They are trying hard to fulfil requirements but asked us to consider the global commodities condition and their financial condition. Let's seek a solution together," Said said.

    Freeport officials were not immediately available to comment on Thursday. The company has previously said it was confident it would obtain a new export license.

    Jakarta wants the half-a-billion dollar deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July 2015 to obtain its current export permit.

    Said said if Freeport does not want to provide the deposit, the company must offer an alternative to demonstrate their commitment to expanding Indonesia's smelter capacity.

    Freeport CEO Richard Adkerson said late Tuesday the government's demand for a smelter deposit was "inconsistent" with an agreement reached between the two sides in mid-2014.

    According to those agreements, Freeport must sell the government a greater share of the Grasberg copper and gold mine and invest in domestic processing to win an extension of its mining contract beyond 2021.

    http://www.reuters.com/article/indonesia-freeport-idUSL3N15C23T

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    China's MMG output plan for Peru copper mine tops forecasts


    China's MMG Ltd flagged on Thursday that its $10 billion new copper mine in Peru was set to ramp up production faster than some analysts had expected, which could weigh on copper markets already mired at more than six-year lows.

    MMG, the Melbourne-based arm of China's state-owned Minmetals Corp, said it expected to produce 250,000 to 300,000 tonnes of copper in concentrate at the Las Bambas mine in 2016.

    That's well above two analyst forecasts for up to 200,000 tonnes this year from the project, which shipped its first cargo earlier in January and is set to be the world's third largest copper mine when it reaches full capacity.

    Worries over a global supply glut have hit copper markets hard, with benchmark London prices falling 27 percent since the start of last year to their lowest since mid-2009.

    "At this stage, it is expected that commercial production will be achieved during the second half 2016," MMG said in its quarterly report.

    The company expects production costs at the mine to be between 80 and 90 cents a pound once it reaches a steady state.

    MMG produced a total of 207,528 tonnes of copper in 2015, up 8 percent on the previous year from its mines in Australia, Laos and the Democratic Republic of Congo, and expects output to more than double to between 415,000 and 477,000 tonnes in 2016, thanks to Las Bambas.

    Annual output of zinc in concentrate fell 16 percent to 392,667 tonnes in 2015, as the Century mine in Australia came to the end of its life, but that beat the top end of MMG's forecast of 370,000 tonnes.

    Production costs for zinc were 47 cents a pound in 2015, well below the company's forecast of 60-65 cents a pound.

    http://www.reuters.com/article/us-mmg-ltd-output-idUSKCN0V603L

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    Aurubis earnings hit by weak copper scrap market


    Aurubis, Europe's biggest copper smelter, expects to post weaker than forecast first quarter earnings as a result of poor copper scrap availability and low precious metals output.

    Low copper prices mean that dealers collect less of the scrap Aurubis buys to process into new metal.

    Analysts had expected Aurubis to deliver first quarter pretax profits of 56 million euros. Thecompany said on Wednesday that its operating pretax profit slipped to 36 million euros ($39 million) in the quarter to the end of December 2015 from 39 million a year ago.

    Aurubis said in an advance release of its results that its full-year earnings guidance from December of a decline in operating pretax profit for the current financial year through to the end of September was still realistic.

    The company, which is due to release its first quarter results on Feb. 10, said good treatment and refining charges for copper concentrates, a high cathode output with "satisfactory" cathode premiums and good sales on the wire rod markets had a supported its results, as did the strength of the dollar.

    Copper ore treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal and are a key part of the global copper industry's earnings.

    Copper prices tumbled to their lowest since May 2009 on Jan. 15, pressured by a slide in oil prices and losses in Chinese equity markets.

    http://www.reuters.com/article/aurubis-results-idUSL8N15B3JR

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    Steel, Iron Ore and Coal

    Yanzhou Coal Mining 2015 coal sales slump 29pct


    Yanzhou Coal Mining Co., a leading coal producer based in eastern China’s Shandong province, saw it commercial coal sales fall 29.03% on year to 87.35 million tonnes in 2015, it said in the latest report on January 28.

    The commercial coal sales in the October-December quarter last year also dropped 26.07% from the year prior to 24.02 million tonnes, data showed.

    The decline was mainly due to a slump in sales of coal bought from third parties, which plummeted 53.77% on year to 26.36 million tonnes in 2015; while sales of self-produced coals only posted a yearly decline of 7.7%.

    The sales of outsourced coals accounted for only 30.2% of the total, compared with a 46.3% share in 2014.

    The outsourced coal sales in the fourth quarter stood at 8.92 million tonnes, down 39.15% on year.

    Meanwhile, Yanzhou Coal produced 62.51 million tonnes of coal in 2015, down 6.55% on year, with output in the fourth quarter down 7.86% at 15.23 million tonnes.

    http://en.sxcoal.com/0/140148/DataShow.html
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    Fortescue Iron Ore Shipments Climb 3.8% as Costs Decline


    Fortescue Metals Group Ltd., the world’s fourth-biggest iron ore exporter, said second-quarter shipments rose 3.8 percent, beating analyst estimates, as costs fell to a record and net debt declined.

    Shipments were 41.4 million metric tons in the three months ended Dec. 31, compared with 39.9 million tons a year ago, the Perth-based producer said in a statement on Thursday. This beat the median estimate of 40 million tons among three analysts surveyed by Bloomberg. Total shipments, including third-party material, were 42.1 million tons from 41.1 million tons.

    Producers are racing to cut costs as iron ore is trading at less than a quarter of its 2011 peak and last month plunged to the lowest level in more than six years as the economic slowdown in China slows demand growth in the biggest user. Fortescue’s output costs were lowered for the eighth consecutive quarter, Chief Executive Officer Nev Power said in the statement, dropping to $15.80 a wet metric ton.

    Fortescue “continues to make good progress on costs,” David Coates, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “I’d certainly expect them to make progress to get their" costs to, or below, $15 a ton by the end of the fiscal year, he said.

    Stock Climb

    The stock closed 4.1 percent higher at A$1.52, paring losses this year to 19 percent.

    Fortescue sees opportunities for further cost reductions this year including from lower shipping expenses helped by a 14 percent slump in oil prices this year. The company sees more scope to pare debt with a cash balance of $2.3 billion as at the end of last year. Net debt fell to $6.1 billion, from $6.6 billion the previous quarter.

    “The U.S. debt markets have been heavily oversold predominantly on the back of the oil price and our debt has been priced down,” Power said on a media call. “If the market would price our debt at those low levels, then it’s a great opportunity for us to buy back ahead of time and do it very economically.”

    Iron ore with 62 percent content delivered to Qingdao advanced 3.3 percent to $42.43 a dry ton on Wednesday after bottoming at $38.30 on Dec. 11, a record low in daily prices by Metal Bulletin Ltd.dating back to May 2009. Fortescue’s average realized price for the quarter was $40.46 a ton, the company said.

    “Demand for Fortescue’s products remains strong and represents over 17 percent of imported iron ore into China,” the company said in the statement. It maintained full-year shipments guidance at 165 million tons and completed the early repayment of $750 million of debt during the quarter.

    “The fact that they can service and reduce their debt in a tough iron ore market like this, I think it should give the market a lot of confidence in the stock,” Bell Potter’s Coates said.

    http://www.bloomberg.com/news/articles/2016-01-27/fortescue-iron-ore-shipments-gain-3-8-as-costs-hit-record-low

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