Mark Latham Commodity Equity Intelligence Service

Friday 14th October 2016
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China Sept power use growth accelerates on year

China's power use growth, a key barometer of economic activity, continued to accelerate in September due to more consumption by the service sector, an increasingly significant driver of the Chinese economy, official data showed on October 13.

A total of 496.5 TWh of electricity was consumed in September, up 6.9% year on year, according to the National Development and Reform Commission (NDRC). The growth was in sharp contrast with a 0.1% drop in the same period of 2015 and extended year-on-year increases seen since July.

September's power use, however, was down 11.83% on the month, mainly a result of falling air-conditioning demand as the hot weather days faded away gradually.

Electricity consumed by the service sector expanded rapidly in September, with information, computing and software industries surging 17.1% year on year, the NDRC official Zhao Chenxin said during a press conference.

Power use by commerce, hospitality and catering industries grew 14.5%, while financial and real estate industries as well as business and residential services rose 15.5%.

In the first three quarters of the year, the service sector accounted for 66.7% of power use growth, well above the 31.3% for the industrial sector.

China has been re-balancing its economic structure from manufacturing and investment to services and consumption.

The service sector grew 7.5% in the first half of the year, accounting for 54.1% of the overall economy, up 1.8 percentage points from a year earlier, official figures show.

In the first three quarters, the agricultural, industrial and service sectors all used more electricity, with year-on-year growth at 4.8%, 2.0% and 11.5%, respectively, according to the NDRC. Residential power consumption also went up rapidly by 11.6% from the year-ago level.

During the same period, the nation's total power use grew 4.5% year on year to 4,388.5 TWh, compared with a 0.8% rise a year earlier, Zhao said.

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Brazil court to try Lula on Angola corruption charges

A federal judge in Brazil ruled on Thursday that former President Luiz Inacio Lula da Silva will stand trial for an alleged bribery scheme related to work by construction giant Odebrecht in Angola.

It's the second time in less than a month that a federal judge has ruled that Lula, a two-term president who left office in 2011 as Brazil's most popular president with an 83-percent approval rating, must stand trial.

Lula faces allegations of corruption, money laundering and obstruction of justice related to a sprawling kickback scheme at state-run oil company Petrobras, which prosecutors allege he orchestrated for more than a decade.

Thursday's decision by Judge Vallisney Oliveira in Brasilia centers on allegations Lula and others took 30 million reais ($9.3 million) in bribes to help win low-interest financing from the BNDES development bank for Odebrecht projects in Angola. Lula's lawyers denied the accusations.

Last month, Judge Sergio Moro ruled that Lula would stand trial on charges he was a "direct beneficiary" of 3.7 million reais in bribes from OAS SA, one of the engineering and construction firms at the center of the graft scandal.

Separately, Moro decided on Thursday to try Eduardo Cunha, former speaker of the lower house of Congress, for his alleged role in the Petrobras corruption scandal.

As speaker, Cunha led the successful drive to impeach former President Dilma Rousseff for breaking budgetary rules - a move Rousseff and her supporters call a "coup" in retaliation for her not trying to quash the aggressive Petrobras investigation.

Rousseff, who served as the chairwoman of the Petrobras board for several years as the kickback scheme played out, is being investigated for obstruction of justice in the graft probe, but has not been charged with any crimes.
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ChemChina, Sinochem in talks on possible $100 billion merger: sources

Chinese state-owned chemical companies Sinochem Group and ChemChina are in discussions about a possible merger to create a chemicals, fertilizer and oil giant with almost $100 billion annual revenue, three sources familiar with the matter said.

The deal has been proposed by China's central government as part of its efforts to slash the number of state-owned companies and create larger, more competitive global industry players, said the sources.

The sources asked not to be identified because they were not authorized to speak publicly about the matter.

Top management of the two firms held a meeting earlier this week to discuss a potential merger, said one source directly briefed on the matter.

"The government has given the mandate to let Sinochem lead in this potential merger with ChemChina," said the source.

A second source familiar with the matter said both firms have started due diligence work looking into each other's financial details and business segments.

When asked about a potential merger, a ChemChina spokesperson said: "There is no such thing."

A Sinochem spokesperson said he was not aware of the discussions. China's State-owned Assets Supervision and Administration Commission (SASAC), which oversees state-owned enterprises, did not comment when asked about the talks.

While still at an early stage, the talks come as China National Chemicals Corp, as ChemChina is officially known, finalizes a $43 billion takeover of Swiss pesticides and seed group Syngenta. That deal would be China's largest-ever foreign investment.

Beijing may have initiated the talks to create a stronger, larger player to make it easier to absorb a world-class company like Syngenta, said the source directly briefed on the matter.

If approved, the ChemChina-Sinochem merger would be among the largest between two Chinese state-owned enterprises, following similar marriages that created shipping giant China Cosco Shipping Corp, train maker CNR-CSR and more recently, the tie-up between Baosteel Group and Wuhan Steel.

Combining the two companies, which make everything from refined oil products to latex gloves and insecticides, would propel it into the top echelons of the competitive global chemicals, fertilizer and oil industries.

Based on 2015 annual reports, revenues of the combined group would comfortably eclipse Germany's BASF, the world's largest maker of industrial chemicals by sales.

The second source said a deal would benefit both companies: Sinochem's upstream oil and gas assets could feed ChemChina's nine refineries, Sinochem's access to rubber trading would help ChemChina's tire business, while Sinochem's dominance in fertilizer markets would be a good fit for ChemChina's agri-chemical business.

"Sinochem is generally light on assets, while ChemChina is a more of a manufacturer," he said.
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U.S. weather forecaster now sees La Nina likely in the coming months

 A U.S. government forecaster on Thursday said the chance has increased for weather phenomenon La Nina developing in the coming months in the Northern Hemisphere fall and persist into winter 2016-17.

The Climate Prediction Center (CPC), an agency of the National Weather Service, in a monthly forecast pegged the chance of La Nina developing this fall at 70 percent, versus a likelihood of neutral conditions forecast last month.

The conditions are slightly favored to persist into the winter, CPC said, pegging the chances at 55 percent. The emergence of La Nina would follow a strong El Nino that has dissipated in recent months after wreaking havoc on global crops.

Typically less damaging than El Nino, La Nina is characterized by unusually cold ocean temperatures in the equatorial Pacific Ocean and tends to occur unpredictably every two to seven years. Severe occurrences have been linked to floods and droughts.
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Clinton vs Trump: Hilarious!

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Caterpillar, GE invest in material-transport robotics company

Clearpath Robotics, a leading provider of self-driving vehicle solutions, announced today the completion of a $30 million (USD) investment led by iNovia Capital with participation from Caterpillar Ventures, GE Ventures, Eclipse Ventures, RRE Ventures and Silicon Valley Bank.

Clearpath will use the funding to grow the company’s industrial division, OTTO Motors. Clearpath launched OTTO Motors in 2015 to focus on self-driving vehicles for material transport inside manufacturing and warehouse operations.

“Factories operate like small indoor cities, complete with roads, traffic, intersections and pedestrians,” said Matt Rendall, CEO and co-founder of Clearpath. “Unlike city streets, a factory floor is a controlled environment, which makes it an ideal place to introduce self-driving vehicles at scale. Companies like Google, Tesla and Uber are still testing, whereas our self-driving vehicles are commercially available today.”

Companies including GE and John Deere have deployed OTTO’s material handling equipment in their facilities.

“The market for self-driving passenger vehicles will be over $80 billion by 2030,” Rendall said. “We believe the market for self-driving materials handling vehicles will be equally significant. Clearpath has a big head start, and this new funding will allow us to further accelerate the development of the best self-driving software in the industry – and bring more OTTOs into the world faster.”

“Software-differentiated hardware will disrupt every major sector over the next decade,” said Karam Nijjar, Partner at iNovia Capital. “Self-driving vehicles are already revolutionizing transportation. Clearpath has built a world-class team, technology and customer base to accelerate that vision. Clearpath isn’t just building the factory of the future; they are laying the foundation for entirely new business models enabled by artificial intelligence, autonomy and automation.”

Manufacturers need flexible and efficient automation more than ever due to rapidly changing market demands. The U.S. alone anticipates a shortage of more than two million skilled manufacturing workers over the next decade. Meanwhile, consumers are increasingly demanding ethically sourced, domestically made products. OTTO Motors’ self-driving indoor vehicles help fill the labor gap while providing manufacturers an affordable way to keep or return operations onshore. Clearpath is helping create a new industry and category of domestic jobs developing, servicing and working with their self-driving vehicles.

“Clearpath is developing exciting self-driving vehicle technology for industrial environments,” says Michael Young, Director at Caterpillar Ventures. “We look forward to collaborating with Clearpath to drive efficiency gains in Caterpillar facilities.”

Clearpath previously raised $11.2 million (USD) in a January 2015 Series A round led by RRE Ventures with participation from iNovia Capital, GE Ventures and Eclipse Ventures to develop their OTTO product line. Officially launched in 2009, Clearpath’s founders established the company by participating in a U.S. Department of Defense-funded robotics competition to design a robot that could detect and remove land mines. With help from a $300,000 angel investment the following year, the team pivoted from mine removal to providing unmanned vehicle development platforms for the global research community. After launching the first OTTO product in September 2015, Clearpath established its OTTO Motors division to focus on self-driving vehicles for materials handling.

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Rising rates are good for resource stocks.

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More Chinese firms unveil debt swaps as Beijing struggles to reduce leverage

Chinese firms are moving rapidly to announce debt restructuring plans following the release of government guidelines on Monday, as policymakers experiment with ways to rein in the country's ballooning corporate debt.

China Construction Bank Corp (CCB) , the nations' second-largest lender by assets, has been reported in two deals to help big, debt-laden state companies in as many days, and other Big Four banks are expected to follow soon.

Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms.

Construction Bank will conduct a debt-to-equity swap with Yunnan Tin Group, the world's biggest tin producer and exporter, to cut its debt and financing costs, the official Xinhua News Agency reported on Wednesday.

Separately, the bank on Tuesday announced the launch of a 24 billion yuan ($3.60 billion) debt restructuring fund to help struggling Wuhan Iron and Steel Group Corp.

Although the statement from CCB did not specify the planned operations of the fund, official media reported that the debt reduction would be accomplished primarily through debt-to-equity swaps.

CCB will give Yunnan Tin 2.35 billion yuan next week in its first round of investment to swap some high-interest debt, Xinhua reported, without spelling out further details of the deal.

The guidelines for debt-to-equity swaps, mooted as one solution to China's growing corporate debt overhang, have been in development for months.

However, some senior bankers and analysts have been outspoken critics of the idea, saying it risks saddling banks with ownership stakes in weak companies which Beijing sees as too big or too sensitive to fail, rather than addressing the root causes of repayment problems.

In a news briefing on Monday apparently intended to assuage such concerns, a high-level official warned the swaps are not a "free lunch" for troubled companies, adding that loss-making "zombie" firms are strictly forbidden from such exchanges, which will be used mainly to help high-quality firms that face temporary difficulties.

The government will take a multi-pronged approach to cutting company debt, including encouraging mergers and acquisitions, bankruptcies, debt-to-equity swaps and debt securitisation, according to the guidelines issued by the State Council, China's cabinet.

State-owned metals trading giant Sinosteel was the first firm to receive approval for a debt-to-equity swap this year, according to online financial magazine Caixin, later confirmed by one of Sinosteel's subsidiaries.

As China's corporate debt burden reaches levels that International Monetary Fund economists say sharply raises the risk of a financial crisis, top officials have increasingly urged struggling firms to "deleverage" - borrow less and pay off existing debt quicker.

Less leverage almost always means slower economic growth in the short run, however, a prospect China's leaders will be loathe to accept as they spend ever more to hit official targets.


Analysts said the plans announced this week could serve as models for future debt restructurings, but stressed that success would ultimately depend on the ability of the firms themselves to use healthier balance sheets to improve their competitiveness.

"Unlike the previous candidates under a debt-for-equity swap pilot, (Wuhan Iron and Steel) is a company with a relatively secure financial outlook. The firm is in the process of merging with Baosteel and the newly-formed giant will likely become the second-largest steel company globally," wrote analysts at consultancy NSBO Research in a Wednesday note.

"Approximately 17 billion yuan will be used for the debt-equity swap, leaving at least 7 billion yuan in capital to invest in other projects in order to diversify risk. Since both creditor and debtor alike are involved, social investors could have an interest in injecting further capital."

Yunnan Tin controls more than 10 percent of the world's tin resources and accounts for more than 45 percent of China's tin products market. But its debt level is nearly 30 percentage points higher than the industry average, according to Xinhua.

The total scale of CCB and Yunnan Tin's agreement could be worth nearly 10 billion yuan, and it is expected to lower the firm's debt-to-asset ratio by 15 percentage points.

A third refinancing agreement involving China First Heavy Industries has also been approved by regulators, according to a disclosure to the Shanghai Stock Exchange on Wednesday.

China First Heavy said it has received approval to pay off debts through a private 1.55 billion yuan A-share equity placement by its parent China First Heavy Industries (Group) Co Ltd.

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China says 55 firms severely exceeded pollution limits in the second-quarter

Dozens of major Chinese firms "severely exceeded" pollution limits in the second quarter of this year, the Environment Ministry said on Wednesday, as the country struggles to combat widespread air, soil and water contamination.

The ministry's official publication, China Environmental News, said the regions with the most offenders were Inner Mongolia and Liaoning in the industrial northeast, and the country's top steel producing province, Hebei, which surrounds the capital Beijing.

The ministry said 55 firms had been subject to punitive measures, including tougher supervision arrangements, fines and production restrictions.

Included on the list of firms published by the ministry was the Dalian subsidiary of the state oil giant, PetroChina, which was fined 8.5 million yuan ($1.27 million), as well as a mining firm owned by the Angang Group, a state-owned steelmaker, which was fined 150,000 yuan.

The firms would be compelled to "rectify" their illegal activities and disclose the details to the public. The ministry said 61 of the 95 corporate offenders in the first quarter of the year had already completed rectification efforts.

China has been stepping up efforts to enforce controls on pollution and its traditionally underpowered Environment Ministry has been granted new powers to force firms to toe the line.

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Four Highlights From Saudi Arabia’s 220-Page Bond Prospectus

As Saudi Arabia prepares to meet investors Wednesday with a view to selling its first international bonds, the country has disclosed little-known information about its economy. Here are four statistics that catch the eye.

1) Oil Income Plunged About 70% in 5 Years

Saudi Arabia relies on oil for three-quarters of its income. Crude revenue has slumped 68 percent since 2011 to 334 billion riyals ($89 billion) this year amid a supply glut.

The slide in prices accelerated after OPEC adopted a Saudi-led strategy in 2014 to allow members to pump as much as they wanted to protect the group’s market share and drive higher-cost producers out of business. As oil swamped the market, prices fell to a 2003 low of about $28 a barrel in January.

The Organization of the Petroleum Exporting Countries agreed last month to cut output to support crude, which traded over $50 a barrel this month.

2) Spending Cuts

The kingdom slashed capital expenditure by more than 70 percent this year to 75.8 billion riyals. Current spending, including salaries and government services, is forecast to decline 19 percent.

The cuts mean that investments in infrastructure projects will drop to less than a tenth of government spending, from about a third in 2011. The government has delayed payments to contractors and is weighing plans to cancel more than $20 billion of projects, people familiar with the matter said last month. It has also suspended bonuses and trimmed allowances for government employees.

3) Government Debt is Rising Fast

Saudi Arabia has been selling domestic bonds for over a year to fund the largest budget shortfall among the world’s 20 biggest economies. Debt has ballooned more than six times since the end of 2014 to 273.8 billion riyals as of the end of August, according to the prospectus.

Most of the debt is domestic. In the first eight months of the year, the government raised 94 billion riyals from the sale of government bonds to local banks and institutions, and it raised 98 billion riyals last year, according to the prospectus. It has a $10 billion sovereign loan that was signed in May.

Public debt levels will increase to 30 percent of economic output by 2020 from 7.7 percent, according to targets set out in an economic transformation plan released in June.

4) PIF Will Cut Back on Lending

Since it was created in 1971, the Public Investment Fund has focused on lending to development projects in the country. Outstanding loans by the PIF, as the fund is known, rose to 104 billion riyals at the end of 2015, from 57 billion riyals at the end of 2011, according to the prospectus. In the future, the PIF “will not act as a source of lending to the same extent that it has historically,” according to the document.

Transforming the PIF from a lender on domestic projects into the world’s largest sovereign wealth fund is a key part of Saudi Arabia’s plans to diversify the economy away from oil. The government is looking to sell less than 5 percent of national oil company Saudi Aramco in an initial public offering and transfer ownership of the rest of the company to the PIF. The shift will give PIF assets of more than $2 trillion and will technically make investments the main source of government revenue, not oil, Deputy Crown Prince Mohammed bin Salman told Bloomberg in March.

There is a long way to go. The fund had assets of 587 billion riyals as of June 30, and received more than 20 billion riyals in dividends, mostly from its holdings of Saudi Arabian equities, including Saudi Basic Industries Corp. and National Commercial Bank, according to the prospectus.
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South Africa's finance minister is going to be charged with fraud

South African prosecutors issued Finance Minister Pravin Gordhan with a formal summons on Tuesday to appear in court on Nov. 2 in relation to the granting of early retirement to a colleague, sending the rand reeling.

The currency fell as much as 3.4 percent when prosecutor Shaun Abrahams also told a news conference that Gordhan was being investigated for his role in setting up a surveillance unit at the tax department a decade ago.

Abrahams said Gordhan, in his previous role as head of the South African Revenue Service (SARS), would be charged with approving early-retirement for former tax agency deputy commissioner Ivan Pillay and then re-appointing him as a consultant.

This cost the tax agency around 1.1 million rand ($79,000), in violation of public finance laws, Abrahams said.

An elite police unit known as the Hawks also has also been investigating Gordhan over the so-called "rogue spy unit" at the tax agency, set up when he was at its helm. Abrahams said the probe on the unit was continuing.

Gordhan was first asked questions by the Hawks about the SARS unit in February, an investigation analysts say was the result of political pressure from a faction allied to President Jacob Zuma. The president has denied the claims.

The affair, which has rumbled on for months, has rattled markets in Africa's most industrialized country, which faces the risk of ratings downgrades later this year.

Gordhan, who is highly respected by financial markets, has painted the allegations about his role in establishing the special tax unit as "political mischief" but said prosecution officials delivered a summons to his house on Tuesday morning.

"It looks like we are in for a bit of excitement going forward," he said at a business seminar in Johannesburg. "My lawyers will issue a proper statement in a short while."

Abrahams denied any mischief in the handling of the case, and said the surveillance unit acted in a "very strange manner" and without clearance from the national intelligence services.

"I can assure you there has been no political interference in this matter. There has been no political interference in the decision made," Abrahams said.
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Rio buys back more debt

Mining major Rio Tinto will reduce its gross debt by a further $1.5-billion under cash tender offers.

As part of the company’s ongoing capital management plan, Rio will purchase $1.5-billion worth of outstanding securities. The offer started on September 26 and will expire on October 24.

Rio in September also announced the redemption of some $1.5-billion of its 2017 and 2018 notes. The redemption date is October 26, and along with the offer, the redemption will bring the total amount of notes purchased in October to $3-billion.
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Russia and Turkey sign gas deal, seek common ground on Syria as ties warm

Turkey and Russia signed an agreement on Monday for the construction of a major undersea gas pipeline and vowed to seek common ground on the war in Syria, accelerating a normalization in ties nearly a year after Turkey shot down a Russian warplane.

Turkish President Tayyip Erdogan hosted Russia's Vladimir Putin at an Ottoman-era villa in Istanbul for talks which touched on energy deals, trade and tourism ties, defense and the conflict in Syria, where the two leaders back opposing sides.

"Today has been a full day with President Putin of discussing Russia-Turkish relations ... I have full confidence that the normalization of Turkish-Russian ties will continue at a fast pace," Erdogan told a joint news conference.

The warming relations between NATO member Turkey and Russia comes as both countries are dealing with troubled economies and strained ties with the West.

Putin said Moscow had decided to lift a ban on some food products from Turkey, imposed after the Turks shot down a Russian fighter jet near the Syrian border last November, and that both leaders had agreed to work toward the full-scale normalization of bilateral ties.

They signed a deal on the TurkStream undersea gas pipeline, which will allow Moscow to strengthen its position in the European gas market and cut energy supplies via Ukraine, the main route for Russian energy into Europe.

The plan for TurkStream emerged after Russia dropped plans to build the South Stream pipeline to Bulgaria due to opposition from the European Union, which is trying to reduce its dependence on Russian gas.

Erdogan also said plans for a Russian-built nuclear power plant in Turkey would be accelerated. Time lost on the Akkuyu project because of strained relations would be made up, he said.

In 2013, Russia's state nuclear corporation Rosatom won a $20 billion contract to build four reactors in what was to become Turkey's first nuclear plant, but construction was halted after the downing of the Russian jet.

But progress on Syria, over which they remain deeply divided, has been more problematic. Erdogan described the topic as "very sensitive", but said he had discussed Turkey's military operations in Syria with Putin on Monday.

Putin says Russia agrees gas price discount for Turkey

Russian President Vladimir Putin said on Monday Moscow had agreed a gas price discount mechanism for Turkey as part of a broader deal to construct the TurkStream gas pipeline.
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Lula charged over Odebrecht Angola work in Brazil graft probe

Lula charged over Odebrecht Angola work in Brazil graft probe

Corruption charges against former Brazilian President Luiz Inacio Lula da Silva piled up on Monday as prosecutors accused him and Marcelo Odebrecht, ex-CEO of engineering group Odebrecht SA, in an alleged bribery scheme related to contracts in Angola.

Lula already faced several other charges related to a sweeping kickback probe at state-run oil company Petrobras, and Odebrecht is serving a 19-year sentence after his conviction on other corruption allegations in the investigation.

The new charges come amid expectations that Odebrecht - Latin America's largest construction conglomerate - is on the cusp of signing a leniency deal with prosecutors that would see its former CEO and dozens of other executives turn state's witness.

Prosecutors have said the Odebrecht group, with its global reach and powerful connections inside Brazil, was at the heart of the long-running corruption scheme. Testimony from its executives could significantly expand the Petrobras probe, lead to new investigations and implicate more politicians.

Brazil's top prosecutor Rodrigo Janot is investigating 66 politicians - many sitting lawmakers - for alleged participation in the Petrobras scheme, a number that could grow significantly with possible testimony from Odebrecht executives.

To date, nearly 200 executives and former politicians have been charged in the Petrobras probe and 83 have already been found guilty. Prosecutors are seeking 38 billion reais ($12 billion) in damages from companies and individuals involved.

Federal prosecutors in Brasilia said the latest charges are related to alleged crimes carried out from "at least" 2008 - when Lula was still president - until 2015.

They allege Lula used his influence while in office to secure financing from Brazil's state development bank BNDES for undisclosed Odebrecht projects in Angola - and that Odebrecht in return paid 30 million reais in kickbacks to Lula and others.

Lawyers for Lula did not immediately respond to a request for comment.

Prosecutors also said in their statement they are looking into Odebrecht projects elsewhere in Africa and Latin America to see if the company received low-interest BNDES loans in the same manner as the alleged scheme in Angola.

Lula was charged on Monday with corruption, influence peddling and money laundering - the latter of which prosecutors say they found on 44 occasions, often by Odebrecht paying inflated prices to subcontractor Exergia Brasil, which was run by a Lula confidant who was also charged in the case.

It is now up to a federal judge in Brasilia whether or not to accept the prosecutor' charges against Lula and the others and put them on trial.

Lula had already been charged twice for various counts of corruption in connection with a massive anti-graft investigation centered on state oil company Petrobras, known formally as Petroleo Brasileiro SA.

Sergio Moro, a crusading anti-corruption judge in southern Brazil, has ruled that Lula will stand for at least one set of those charges. The trial date has not been set.

Prosecutors wrote in their Monday indictment that Lula also received kickbacks for an unspecified sum from Odebrecht for delivering lectures to business leaders abroad, although it is not clear if the speeches actually took place.

"It is suspected that ... those contracts and payments, in truth, were only to conceal the real reason behind Odebrecht's payments to ex-President Lula," the document read.
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Commodity Trader Trafigura Sells Oil Tankers to Chinese Bank

Trafigura Group has sold five medium-range oil tankers to China’s Bank of Communications Financial Leasing Co. as the commodity trader ends a brief foray into owning vessels.

The third-largest independent oil trader will lease back the 50,000 metric-ton capacity tankers ordered in 2013 from Guangzhou shipyard, Trafigura said Friday in an e-mailed statement.

“While we have a significantly growing cargo program, it is not a must for us to also own the steel,” said Global Head of Wet Freight Rasmus Bach Nielsen. “The sale and lease back concludes an entry and exit for now in owning product tankers for Trafigura.”

Rental rates for crude tankers may slide 25 percent in 2016 and another 11 percent in 2017 after climbing by more than two-thirds in 2015, according to analysts surveyed by Bloomberg. Expectations for a seasonal rally in rates heading out of the summer months appear to be diminishing, Bloomberg Intelligence analysts said in a report last month.

“The ships were bought at low entry levels and we saw an opportunity to sell now,” Nielsen said.

Trafigura’s expects its wet freight fixtures to rise to more than 2,700 in 2016, from 1,959 in 2015 and 1,680 in 2014.

Trafigura said in June that its fiscal first-half profit fell 10 percent to $602 million from a year earlier, even as oil-trading volumes jumped to a record 4 million barrels a day.
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Lew calls out China on capacity.

“I’m talking about steel, I’m talking about aluminum, I’m talking about real estate—when you don’t have market forces driving investment, when you don’t have bad investments allowed to fail, you end up with resources allocated in a way that ultimately chokes the future of economic growth,”

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Oil and Gas

Emerging winter demand propels Asian LPG prices to 10-month high

Asian LPG prices shot to a 10-month high of $379.50/mt late Thursday, waking up from a protracted slumber, as robust appetite from China to stockpile for winter and a high-priced deal by oil kingpin Saudi Aramco this week set the stage for firmer prices, market sources said Friday.

"There is strong demand since winter is coming," said a source with a Chinese company.

The price was last higher on January 4, the first trading day of the year, at $385/mt, data from S&P Global Platts showed.

Chinese buyers such as Ouhua Energy, Star Gas, Oriental Energy and Tianjin Bohai have bought end October to early November arrival cargoes of propane and butane since late September.

Exact price details were sketchy but traders said some clips were done at Far East Index plus $1-$3/mt on a delivered basis.

Tianjin Bohai earlier this week bought an early November-arrival cargo from Turkish trader Bayegan.

The cargo was heard to be an evenly-split 44,000 mt parcel. Price details were not available.

The physical CFR Singapore-Japan propane price climbed $3.50/mt day on day Thursday -- bucking a $1.07/b ($8.56/mt) slump in the crude complex -- to be assessed at $379.50/mt.

The front month contango structure in Far East Index swaps has largely flattened out, while the CP swap structure has flipped into backwardation.

The November/December Far East Index swap flattened out from a $3/mt contango Wednesday to parity Thursday, while the November/December CP swap flipped to a $1/mt backwardation from a $1/mt contango over the same period.

The front month structure weakened slightly Friday morning, with November/December FEI swaps at minus 50 cents/mt and November/December CP swaps at plus 50 cents/mt

Further forward, December/January FEI and CP spreads were both pegged at plus $3/mt Friday morning.

"Demand is coming from China," said a Singapore-based trader.

Japanese buyers, on the other hand, remained on the sidelines as stock levels were still healthy and deemed largely sufficient to tide over winter.


The other factor that gave the market an uplift was news of a deal by Saudi Aramco, heard done Wednesday, at a strong level.

Saudi Aramco was heard to have sold a 44,000 mt cargo comprising 11,000 mt of propane and 33,000 mt of butane for early November loading at $376/mt for propane and $406/mt for butane.

The buyer was said to be either Kolmar or trading company SHV Energy. SHV specializes in LPG downstream marketing.

"The Saudi sale price seems high, but the market is moving up," said the Singapore-based trader.

Saudi Aramco's fixed price deal is equivalent to a $5-$10/mt premium to the November CP, a source said.

Premiums in the Middle East for FOB AG cargoes have climbed since September; Qatar's Tasweeq early last month sold an October-loading cargo at parity to the CP.

The recovery in LPG market sentiment is a departure from the sluggish mood that has dominated over the past two to three months, when the market was awash with supply from a flood of US exports due to the shale oil revolution, sources said.
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Cushing draw continues

Genscape 10/13 data shows largest wkly #crude inventory draw @ #Cushing in 7 yrs as of WE 10/11.

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North Dakota Is Pumping Oil at the Slowest Pace in Two Years

North Dakota oil production dropped below one million barrels a day in August for the first time in more than two years as depressed prices forced explorers to cut back.

Production from the state’s portion of the Williston Basin fell to 981,000 barrels a day, the lowest since March 2014, according to a report by the North Dakota Pipeline Authority. The state’s crude output has shrunk from a peak of more than 1.23 million barrels a day in December of that year.

"It does send a signal to the world markets that U.S. producers are serious about reducing activity, reducing costs, reducing production and I think that should help support the recent price increase we saw," Lynn Helms, director of state’s Department of Mineral Resources, said in a call with reporters.

The collapse in oil prices from above $100 a barrel in 2014 prompted producers to curtail drilling in unprofitable areas. U.S. shale production could fall to about 4.4 million barrels a day in October, the EIA forecast last month. Lower output and last month’s OPEC decision to limit supply has helped oil rally above $50 a barrel this month from a 12-year low of about $26 in February.

Horizontal fracking of tight rocks in North Dakota’s Bakken region contributed to a renaissance in U.S. oil production this decade that turned the country into the world’s second-biggest oil producer for a time. North Dakota was the second-biggest oil-producing state in the U.S. in July, trailing only Texas, Energy Information Administration data show.

North Dakota’s output should “bottom out” at 900,000 barrels a day by the middle of next year, Helms said. At least two North Dakota operators restricted production in August, contributing to the drop, Helms said. North Dakota’s rig count stands at 33, after falling to 22 in May, Baker Hughes Inc. data show.

"North Dakota is hit harder than other places, but it’s not as if we’re falling off the cliff in terms of production," U.S. Energy Secretary Ernest Moniz said on Bloomberg TV.
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RSP Permian to buy Silver Hill Energy Partners for about $2.4 billion

Oil producer RSP Permian Inc (RSPP.N) said it would buy oil and gas company Silver Hill Energy Partners for about $2.4 billion to expand its assets in the Permian Basin in Texas.

RSP Permian is the latest company to bulk up in the Permian Basin, widely seen as the cheapest place to develop onshore fields in the United States.

Thursday's deal adds to more than $12 billion in transactions this year in the Permian Basin.

RSP Permian, with a majority of its acreage located in the core of the Midland Basin within the Permian Basin, said Silver Hill was based in the oil-weighted area of the Delaware Basin.

Reuters reported in August that Silver Hill was up for sale.

RSP Permian said on Thursday that it would pay $1.25 billion in cash and 31 million in shares for Silver Hill, owned by private equity firms Kayne Anderson Capital Advisors LP and Ridgemont Equity Partners.

RSP also said the purchase would be funded by an offering of 20 million shares.

Silver Hill Energy Partners comprises two entities, Silver Hill Energy Partners LLC and Silver Hill E&P II LLC. Their current net production is 15,000 barrels of oil equivalent per day (boe/d).

The deal for Silver Hill Energy Partners LLC is expected to close in November and the other entity in March.

RSP also increased its average daily production forecast in 2016 to 28,500-29,500 boe/d from 26,500-28,500 boe/d, largely attributing this to its existing wells' performance.

The short period of the newly acquired production would not meaningfully impact the forecast, the company said.

RBC Capital Markets is the lead M&A adviser to RSP and Barclays Capital the co-adviser. Vinson & Elkins L.L.P. served as legal counsel to RSP.

Jefferies LLC advised Silver Hill while Thompson & Knight LLP and DLA Piper LLP served as legal counsel.

RSP's shares were down 4.8 percent at $39.73 in extended trading.
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Oil Production Starts At Giant Kashagan Field

Commercial-scale production at Kazakhstan’s giant Kashagan field in the Caspian Sea has started at a daily rate of 90,000 barrels, the country’s Energy Minister Qanat Bozumbaev said. The field is operated by a consortium including Exxon, Shell, Eni, Total, CNPC, and Japan’s Inpex, along with Kazakh state oil company Kazmunaygaz.

Kashagan, the biggest oil discovery in Kazakhstan in about four decades, holds an estimated 38 billion barrels of crude and a trillion cubic meters of natural gas. Of the oil reserves, 10 billion barrels are recoverable.

The field was first put into operation three years ago, but just a month later production was suspended because of a gas leak. An inspection revealed the whole 200-km stretch of pipelines set to transport oil and gas from Kashagan needed to be replaced because of micro-cracks, the result of high-sulfur associated gas running through them.

Kazakhstan is the largest oil producer in Central Asia and ranks 18th in the world, with annual production of 1.72 million barrels per day as of two years ago. This year, however, according to OPEC, production is set for a decline to 1.56 million bpd, from the 2015 daily average of 1.6 million barrels.

The revision comes after in August, Kazakhstan pumped around 1.27 million bpd, down 300,000 bpd from July on the back of scheduled maintenance at the TengizChevroil field, also in the Caspian.

Again according to OPEC, production at Kashagan should reach 370,000 bpd by June next year, and the country’s overall growth in oil production should average 220,000 bpd through the end of 2017.

Kazakhstan is not a member of OPEC, and as such is not taking part in the number-one news item in global energy these days: the freeze agreement that OPEC is discussing with Russia. It’s not as big of a producer as Russia is, but if output at Kashagan rises as OPEC expects, this will be an increase in global production that trumps the 160,000-bpd OPEC rise in August that curbed the upward movement in international oil benchmarks caused by the news about the freeze.

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Marathon’s Billion Dollar Bet on the Utica Shale

Marathon Petroleum, which purchased midstream company MarkWest Energy last year, continues to grow and expand–because of the Utica Shale. 

Marathon operates a refinery in Canton, OH that processes crude oil. Question: Did you know that 25% of the crude oil being processed at the Marathon refinery comes from the Utica Shale? 

No, we didn’t know that either! Marathon has made some big bets on the Utica. In fact, over the past two years, they’ve bet more than $1 billion on the Utica…
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Summary of Weekly Petroleum Data for the Week Ending October 7, 2016

U.S. crude oil refinery inputs averaged about 15.6 million barrels per day during the week ending October 7, 2016, 480,000 barrels per day less than the previous week’s average. Refineries operated at 85.5% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.9 million barrels per day. Distillate fuel production decreased last week, averaging 4.5 million barrels per day.

U.S. crude oil imports averaged about 7.9 million barrels per day last week, up by 151,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.9 million barrels per day, 8.9% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 762,000 barrels per day. Distillate fuel imports averaged 95,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 million barrels from the previous week. At 474.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.9 million barrels last week, but are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.7 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are above the upper limit of the average range. Total commercial petroleum inventories decreased by 5.1 million barrels last week.

Total products supplied over the last four-week period averaged 20.0 million barrels per day, up by 2.4% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.3 million barrels per day, up by 2.3% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, down by 3.5% from the same period last year. Jet fuel product supplied is up 9.1% compared to the same four-week period last year.

Cushing down 1.4 mln bbls

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Small fall in Us oil production

                                                                        Last week   Week before  Last year

Domestic Production '000................... 8,450             8,467            9,096
Alaska ................................................ 481                462                490
Lower 48 ......................................... 7,969             8,005            8,606
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Extraction soars in IPO

Shares of Extraction Oil & Gas - the first producer to launch a US IPO this year - rose as much as 19.7% in their market debut as crude prices held above $50 per barrel.
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Polish firms concede defeat in search for shale gas riches

Poland's drive to exploit shale gas has come to an end with state-run gas firm PGNiG and oil refiner PKN Orlen drawing a line under projects to find it.

The country's quest to explore for shale gas began five years ago, when the then prime minister Donald Tusk raised hopes with a forecast of it coming on stream in 2014.

This attracted global energy majors, including Chevron Corp, Exxon Mobil and Total, but one by one they pulled back after disappointing results and a slump in oil prices.

Polish state-run firms, including PGNiG and PKN Orlen were the last ones to work on the country's shale gas projects.

"The discussion and projects related to shale gas is a closed issue for us," Miroslaw Kochalski, deputy head of PKN Orlen told a news conference on Wednesday.

This was echoed by Piotr Wozniak, the chief executive office at PGNiG, who said:

"Shale gas has ended not that badly when it comes to the improved techniques of unconventional gas exploration. Shale gas as such has failed indeed."
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EIA Winter Fuels Outlook

For the purposes of this outlook, EIA considers the winter season to run from October through March. The average household winter heating fuel expenditures discussed in this supplement are a broad guide to changes compared with recent winters. Fuel expenditures for individual households are highly dependent on the size and energy efficiency of individual homes and their heating equipment, along with thermostat settings, local weather conditions, and market size (seeWinter Fuels Outlook table).

Temperatures this winter, based on the most recent forecast of heating degree days (from the National Oceanic and Atmospheric Administration (NOAA), are expected to be much colder than last winter east of the Rocky Mountains, with the Northeast and Midwest 17% colder and the South 18% colder. Despite the expectation of colder temperatures compared with last winter, temperatures in the eastern United States are expected to be about 3% warmer than the average of the five winters preceding last winter, as temperatures last winter were much warmer than normal in those areas. In the West, temperatures are forecast to be about 2% warmer than last winter. However, recent winters provide a reminder that weather can be unpredictable. In addition to the base case, the Winter Fuels Outlook includes forecasts for scenarios where heating degree days in all regions may be 10% higher (colder) or 10% lower (warmer) than forecast.

Full report:

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Israel, Turkey discuss joint gas pipeline as ties resume after six-year rupture

Israel and Turkey have discussed the possibility of building a natural gas pipeline between the two countries, Israel's energy minister said on Thursday, in the first Israeli ministerial visit to Turkey since ties were ruptured six years ago.

Israeli Energy Minister Yuval Steinitz agreed at a meeting in Istanbul with his Turkish counterpart Berat Albayrak to "establish immediately a dialogue between our two governments" to examine the project's feasibility, he told reporters.

"We discussed energy in general and particularly the issue of natural gas and the possibility of building a natural gas pipeline from Israel to Turkey in order to deliver natural gas to Turkey and to Europe," Steinitz said.

Relations between the two countries crumbled after Israeli marines stormed an aid ship in May 2010 to enforce a naval blockade of the Hamas-run Gaza Strip, killing 10 Turkish activists on board. Israel and Turkey announced in June that they would normalize ties.
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Rosneft head says confident privatisation to happen by year end

Igor Sechin, the chief executive of Russia's top oil producer Rosneft, said on Thursday he was confident the sale of a minority stake in the company would happen by the end of this year.
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Dollar curbs, tough marketing crimp Iran oil deals - traders

Nine months after sanctions on Iran were lifted, some of the world's biggest traders have yet to strike major oil deals with the OPEC member, stymied by Tehran's tough stance on marketing its crude and restrictions on dollar trades.

Top executives from Vitol, Glencore, Trafigura and Gunvor told the Reuters Commodities Summit this week that while they are keen for a slice of the business, hurdles remain.

"It's still very difficult," Ian Taylor, chief executive of commodity trading house Vitol, said.

He cited the lack of a usable dollar system to conduct transactions with the country, making transfers of the U.S. currency troublesome and hindering trading.

Taylor said that while Vitol had started to do some business with Iran, the competition was strong. "Everybody is looking at it as well."

Most Western sanctions against Iran were lifted on Jan. 17, but remaining U.S. restrictions stipulate that only non-U.S. banks can do dollar trades with Iran provided these do not pass via financial institutions in the United States.

Iran has already signed a raft of deals with international firms, some of which are dollar-based. But to date big banks have steered away from doing business involving the country, out of worries over inadvertently running afoul of U.S. authorities.

Concerns about the dollar were echoed by Gunvor Group Chief Executive Torbjorn Tornqvist and Trafigura Chief Financial Officer Christophe Salmon.

Limits on where crude can be sold remains a sticking point as it reduces a trader's ability to maximise profit margins, particularly in an oversupplied market.

"We shouldn't also forget that the Iranians ... when it comes to crude oil, are extremely skilful in their marketing," Tornqvist said.

"They need to know where it (crude) goes and to whom. And we see very little change: 'this is what we did before sanctions and this is what we'll continue to do after the sanctions'."

Iran, like Saudi Arabia, sets different monthly prices for each region and has traditionally dealt only with majors or pure refiners where supplying their own refineries remains the core business.


Trade houses have been largely confined to Iran's refined products market although Trafigura loaded a large cargo with Iranian crude in late June.

"Iran is a very promising country for many companies including ourselves. But so far what we have done since the sanctions were lifted, it's really small," Salmon said.

Trafigura loaded the Olympic Target tanker with 2 million barrels of Iranian Heavy crude in a bid to capture market share among China's independent refiners.

But the so-called teapot refineries were slow to buy the oil once it arrived in China. After arriving in the area around mid-July, it took the tanker a month and a half to start offloading, Reuters ship tracking data showed.

Global head of oil at Glencore, Alex Beard, said his firm had already had substantial dialogue with Iran, including "conversations with NIOC about prefinance and continue to talk to find the right terms and conditions for both sides".
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India has received a consignment of 2 million barrels of oil from Iran for storage.

India says it has received a consignment of 2 million barrels of oil from Iran and that the volume has been used to partly fill half of the capacity of a strategic storage in the country’s south.

The consignment was imported by Mangalore Refinery and Petrochemicals Ltd (MRPL) through a very large crude carrier (VLCC).

A second consignment is to be procured by Bharat Petroleum Corp and is scheduled to arrive around October 25, the New Delhi-based Business Standard newspaper reported quoting sources with direct knowledge on the matter.

India will fill half of the storage with 6 million barrels of Iranian oil, the report added. New Delhi is engaged in talked with United Arab Emirates and Saudi Arabia for meeting the remaining demand, the daily added.

India, which is seeking to hedge against energy security risks as it imports about 80 percent of its oil needs, is building emergency storage in vast underground caverns at three locations in southern India to hold a total of 36.87 million barrels of crude, enough to cover almost two weeks of demand, the Business Standard added.

Other reports showed that India imported about 552,200 barrels per day (bpd) of oil from Iran in September.  The figure, Reuters reported, was down by 4.1 percent compared to August when imports from Tehran hit their highest in at least 15 years.

India's average Iranian oil imports in April-September, the first six months of India's financial year, rose nearly four-fifths to about 468,000 bpd.  Reuters said in a report that Iran’s share in India’s overall purchases during the period had jumped to 11 percent.
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Chevron eyes Gorgon condensate sales this month

US supermajor Chevron could this month start selling condensate produced at the its Gorgon liquefied natural gas plant in Australia, trade sources said on Thursday.

Chevron could market a 600,000 to 650,000-barrel cargo for loading in December, they said, although the company is still finalising some details.

The California-based oil giant did not immediately respond to requests for comment from Reuters.

It started operations at the Gorgon field in March, but was forced to shut briefly in July due to unexpected technical problems.

The introduction of the new condensate comes at a time when demand for the light oil is rising as two new splitters in South Korea and Qatar have started trial runs.

Gorgon condensate has an API gravity of about 52.9 degrees and a sulphur content of 0.0088%, the two sources said, declining to be identified as they were not authorised to speak with media.

Splitters process condensate to obtain mainly naphtha for petrochemical production.
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China's crude imports rise to highest this year

China's crude imports rose to the highest level this year in September, underscoring robust demand from refiners, as many have ended their annual maintenance, and the country's expanded storage capacity.

In September, China imported 33.06 million metric tons of crude oil, or a year-over-year rise of 18%, around 8.08 million barrels a day, preliminary data from the General Administration of Customs showed Thursday. The amount is also the second highest on record after the 33.18 million tons seen in December.

China, the world's second-largest energy consumer, has been a major guzzler of crude at a time of oversupply and rivals the U.S. as the top oil importer.

The bulk of China's imports is attributed to a growing batch of independently owned refineries that the government has recently allowed to directly import crude. In the past, teapot refiners mainly used fuel oil as their main feedstock. Those who used crude oil had to source the barrels from state-owned energy companies.

The elevated imports are also a reflection of China's dwindling crude production. In August, China's crude production fell 10% year over year to 16.54 million tons, or 3.9 million barrels a day. In the first eight months of the year, the country's production was down 5.7% compared with the same period last year.

Stockpiling also drove China to increase its foreign crude buying in September, said Energy Aspects analyst Virendra Chauhan, who noted that a 7.5 million-barrel storage facility in China's northeastern Qingdao Port was recently opened.

An additional 19 million barrels of storage also came online on Aoshan Island, which received two shipments in September, the analyst said.

"Crude buying may slow in October, but overall fourth quarter should stabilized around 7.6 million barrels a day due to declining domestic production and stockpiling," he added.

The jump in crude imports, however, doesn't necessarily reflect a rise in China's domestic oil consumption, said Nelson Wang, a China analyst at investment bank CLSA.

He pointed out that a number of Chinese refineries, such as Sinopec Shanghai Petrochemical Co. SHI, +0.26% are buying crude and processing the feedstock on order on behalf of another oil company. The most recent annual report shows that in the first six months of this year, around 18% of the company's crude processing was on order.

Analysis by S&P Global Platts shows China's apparent oil demand contracted 4.3% year over year in August to 10.76 million barrels a day, mainly because of a contraction in demand for gasoil, fuel, oil and gasoline.

"It is likely that if exports of oil products continue unabated, overall apparent demand for the whole of 2016 could be lower than in 2015," said Song Yen Ling, senior analyst with Platts China Oil Analytics.

"Chinese refiners have typically built product stocks toward the end of the year, but ongoing oversupply in the domestic market could mean that exports will be sustained," she added.

In September, China's refined-oil product imports totaled 1.93 million tons, a decline of 29% year over year, as domestic need for industrial fuels such as diesel continue to fall along with the country's ebbing industrial activities growth. In recent months, China has also been exporting unwanted barrels. China exported 4.3 million tons of oil products in September, a year-over-year rise of 21%.


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OPEC Faces Half-Million-Barrel Dispute With Members on Cuts

The scale of the internal differences OPEC must resolve before securing a deal to cut supply was revealed Wednesday as the group’s latest output estimates showed a half-million-barrel difference of opinion over how much two key members are pumping.

Venezuela and Iraq’s own figures on how much crude they produced in September were 565,000 barrels a day higher than estimates compiled by the Organization of Petroleum Exporting Countries from so-called secondary sources. The two nations are disputing the data, which could determine the production target for each country when caps on members’ output are decided next month.

OPEC reached a preliminary agreement to limit its total oil production to a range of 32.5 million to 33 million barrels a day in Algiers on Sept. 28. Details of how the burden of the cuts will be shared will be discussed by a committee that will meet in Vienna later in October. The credibility of last month’s deal, and the participation of other countries including Russia, rests on OPEC’s ability to resolve these differences by its next formal meeting on Nov. 30.

Venezuela told OPEC it pumped 2.33 million barrels of crude a day in September, 245,000 more than estimated by secondary sources, which include news organizations such as Platts and Argus Media as well as the International Energy Agency. Iraq said it pumped 4.78 million barrels a day, 320,000 more than the secondary-source view. The total discrepancy for both countries equals the daily production of Ecuador.

For an analysis of the hurdles faced by OPEC to implement its cuts, click here.

Of OPEC’s 14 member countries, Iraq and Venezuela are the only two that have publicly criticized the sources’ figures. Yet there are five others whose own estimates are higher than those provided by secondary sources. Three nations -- Angola, Nigeria and Qatar -- provided estimates that are lower.

Following the meeting in the Algerian capital, Iraq’s Oil Minister Jabbar al-Luaibi and its OPEC Governor Falah Al-Amri challenged the secondary-source data at a press briefing, urging representatives of those sources to explain the discrepancy and demanding the figures be “corrected.”

On Tuesday, Venezuela’s Oil Minister Eulogio del Pino said his country disputed the source estimates because they excluded a type of heavy crude it produces in the Orinoco belt. He said the committee set up by OPEC will look into the matter.

The total gap between the estimates of secondary sources and countries’ direct communications to OPEC was 866,000 barrels a day last month. That doesn’t include four nations that failed to submit a production report for the period.

Supply, Demand

OPEC left its estimate for world oil-demand growth unchanged for this year and next at 1.24 million and 1.15 million barrels a day, respectively. Non-OPEC supply will contract by 680,000 barrels a day this year, 70,000 barrels more than the organization forecast in last month’s report. Next year it will grow by 240,000 barrels a day.

Demand for OPEC’s crude next year is seen at 32.6 million barrels a day, 100,000 barrels a day more than the lower end of the target range OPEC set itself in Algiers.

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API Reports Biggest Crude Inventory Build In Six Months

The American Petroleum Institute report, released Wednesday, which showed a 2.7 million build – the first increase in U.S. supplies in six weeks and the largest single inventory increase in the last six months.

Experts had expected a large build of 2 million in crude oil for this week—but 2.7 million exceeded even this pessimistic figure, and the already unsteady markets appear rattled.

The large build report caused a notable weakness in West Texas Intermediate prices, which were trading down 1.46% at $50.05 after the data was released, with Brent down 1.26% at $51.75.

This build will either be confirmed or denied by the U.S. Energy Information Administration (EIA) report to be released tomorrow—a day later than normally scheduled due to this week’s holiday schedule.

API also reported a gasoline build of 688,000 barrels, in sharp contrast to analyst experts’ anticipated 900,000-barrel draw.

Distillate supplies declined by more than 4.5 million barrels, marking the third straight week of draws in that type of fuel. The distillate withdrawals were particularly high last week – the highest since October 2014 - due to the effects of Hurricane Matthew.

Oil supplies at the Cushing, Oklahoma, facility saw a 1.35 million-barrel dive, as opposed to the 100,000-barrel build that analysts anticipated
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U.A.E. Gets Second Deal This Month Securing Natural Gas Supplies

Sharjah National Oil Co. signed the second deal this month aimed at securing natural gas supplies for the United Arab Emirates.

The Persian Gulf emirate’s state oil company signed a memorandum of understanding with Uniper SE, of Germany, to import liquefied natural gas through the Port of Hamriyah, in Sharjah, according to a joint statement Wednesday. Sharjah Electricity & Water Authority will receive set quantities of gas via pipeline from Qatar under an accord signed last week, the utility’s Chairman Rashid Al Leem said in an interview.

Middle East countries are seeking new energy supplies to meet growing demand to power homes and industry. Most of the oil in the U.A.E is in Abu Dhabi. The emirate, holder of about six percent of global oil reserves, neighboring Dubai and Sharjah are developing solar plants to diversify fuel sources. Renewable power is one of the pillars of the U.A.E.’s energy policy, Suhail Al Mazrouei, the oil minister, said Wednesday in a speech in Istanbul.

Dolphin Energy Ltd., majority owned by an Abu Dhabi investment fund, signed a contract for gas from Qatar to supply utilities in the emirates of Sharjah and Ras Al Khaimah, Qatar News Agency reported on Oct. 5. The Sharjah utility previously received fluctuating amounts of gas from Qatar through the Dolphin pipeline, its Chairman Al Leem said.

“It wasn’t a firm quantity,” he said. “Now it’s firm.” He declined to say how much gas the emirate would receive under the arrangement or provide the price.

Uniper plans to start deliveries of gas to Sharjah in 2018, according to the statement. The company is evaluating bringing a vessel, known as a floating storage and regasification unit, to Sharjah to receive the fuel supplies, John Roper, Uniper’s Middle East head, said by e-mail Wednesday.
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Libya’s Oil Production Set to Reach Three-Year High by December

Libya’s oil production is set to reach a three-year high by December as fields restart and ports reopen after five years of armed conflict crippled sales.

Output is now 540,000 barrels a day and will reach 900,000 barrels by the end of the year, Libya’s National Oil Corp. Chairman Mustafa Sanalla said Wednesday in Istanbul. That would be the highest production since June 2013, according to data compiled by Bloomberg.

Libya, with Africa’s largest crude reserves, has increased oil output after the NOC reached an agreement last month with Khalifa Haftar, commander of the armed forces controlling key oil ports. Shipments were able to resume from ports including Ras Lanuf, Es Sider and Zueitana, leading Germany’s Wintershall AG to resume output in the As Sarah oil field on Sept. 16.

The country produced about 1.6 million barrels a day of oil before the 2011 uprising that ousted longtime leader Moammar Al Qaddafi, but output has withered as rival militias vied to control energy facilities.

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OPEC points to larger 2017 oil surplus despite deal to cut

OPEC reported a increase in its oil production in September to the highest in at least eight years and raised its forecast for 2017 non-OPEC supply growth, pointing to a larger surplus next year despite the group's deal to cut output.

The Organization of the Petroleum Exporting Countries pumped 33.39 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 220,000 bpd from August, OPEC said in a monthly report on Wednesday.

The figures underline OPEC's challenge in seeking to restrain supplies for the first time since 2008 to curb a persistent supply glut and prop up prices. Oil is trading near $53 a barrel LCOc1, less than half the price hit in mid-2014.

"Inventories stand near all-time highs worldwide," OPEC said in the report. "Although in recent weeks these high levels have been slightly drawn down."

To speed up a rebalancing of the market, OPEC agreed at a meeting in Algeria on Sept. 28 to cut supply to between 32.50 million bpd and 33.0 million bpd. The group hopes to finalize details, including how much each of the its 14 members can pump, at a meeting in November.

The report showed the supply boost in September mostly came from Libya and Nigeria, which are restoring output after disruptions, and from Iraq, which has questioned the accuracy of OPEC's secondary-source figures.

OPEC uses two sets of figures to monitor its output: figures provided by each country, and secondary sources which include industry media. The reason why two sets of figures are used is because of past disputes over how much countries were really pumping.

Iraq told OPEC it produced 4.775 million bpd in September, while the secondary sources put output at 4.455 million bpd. From Iraq's point of view, joining the OPEC supply cut deal from the higher figure would be more favorable.

Baghdad has taken issue with the gap between the two sets of figures. Iraqi Oil Minister Jabar Ali al-Luaibi called a separate briefing on the day of the Algeria meeting to complain about the gap.

That aside, OPEC's report is the latest to show output is hitting new peaks. The September figure is the highest since at least 2008, according to a Reuters review of past OPEC reports.

In the report, OPEC also raised its forecast of non-OPEC supply next year, saying output from outside the group would rise by 240,000 bpd, up 40,000 bpd from an earlier forecast due to a higher forecast for Russia.

With demand for OPEC crude in 2017 expected to average 32.59 million bpd, the report indicates there will now be an average surplus of 800,000 bpd if OPEC keeps output steady. Last month's report pointed to a 760,000 bpd surplus.

OPEC made no change to the global oil demand outlook, predicting demand growth of 1.15 million bpd in 2017.
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OPEC Raises Doubts Over Cut Timing

Just when everyone thought "oil" was "fixed" the meeting ends and OPEC secretary-general drops this little tape-bomb - BARKINDO: NOT DECIDED WHETHER OPEC WOULD CUT BEFORE NON-OPEC...

We haven’t decided yet whether OPEC and non-OPEC would make cuts at the same time, or OPEC would move first, Secretary-General Mohammed Barkindo tells reporters in Istanbul.
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Friendly ambush in Istanbul

Russian energy minister Alexander Novak and Total chief executive Patrick Pouyanne were chatting and smiling before and after a high-profile session at the World Economic Congress in Istanbul last night.

And it is not surprising, as Total is one of the largest international investors in Russia’s oil and gas industry, including at the 16.5mn t/yr Yamal LNG project in the Arctic.

That is why what happened an hour into this otherwise orderly conference session came as a surprise, caused something of a commotion and provoked whispers and excited smiles in the audience — and on stage.

From the start, the conference had been hijacked by two themes. One was all about geopolitics, given the attendance of the presidents of Turkey and Russia – friends turned foes turned friends again in the space of less than a year. The other theme was the attempt by Opec members to agree on ways to implement their recent oil production cap initiative and secure the participation of non-Opec producers.

Russian president Vladimir Putin’s comment two days ago that Russia stands ready to collaborate with an Opec agreement first pushed the oil price higher, before the market started to doubt whether Russian oil companies would follow the government’s suit.

No surprise then that by yesterday, all eyes were on Novak, who was expected to shed more light on Russia’s intentions. And, one hour into the session, Novak decided to refocus this attention on Pouyanne as the head of a major international oil and gas company.

“I would like to ask my friend Mr Patrick Pouyanne… whenever we talk about co-ordinated actions, for some reason only ministers are asked about it, be it Opec or non-Opec countries… Very often ministers cannot tell private companies what to do in the market… We [ministers] are always asked the same question, and I want to pose it to the head of one of the world’s largest companies — to stabilise the market, are you ready to… decrease or freeze your output? Or is it just for ministers to deal with?” Novak asked with a smile.

Some in the audience started nodding, looking forward to Pouyanne’s answer.

“As a company myself, I am driven by maximising revenues. It is my objective. Then I am also working in producing countries, and if a policy is decided by the president of Russia or by Opec, we will obviously apply this policy,” Pouyanne said.

“Unfortunately, we are quite selfish, I would say. And for the time being, I am very proud to announce every quarter to my investors that my production is growing by 4-5pc [a year]. It is true that I do not participate in the stabilisation of the market. By the way, I am growing [production] more in gas thanks to Russia than in oil. But if Opec decides – I am a big investor in Abu Dhabi, for example – and if some quota is decided, we will apply the quota. I think there is a level of policy makers… and there is a level of entrepreneurs and investors,” he said.

And Pouyanne saved the most pointed reminder for governments for last. The budgets of many oil producing countries depend heavily on oil revenues as a spin through, say, Opec statistical data illustrate.

“We are partners with them, we are working in all these countries and, by the way, we are paying a lot of taxes in all these countries. So, I think we deserve our part of the partnership.”

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Falcon Oil & Gas’s Aussie shale discovery declared official

Falcon Oil & Gas Ltd's oint-venture partner Origin Energy has officially declared Amungee as a new discovery.

It follows successful drilling. The most recent results, from the Amungee NW-1H well, are encouraging and evaluation work continues.

Origin, the project operator, has submitted a notification of discovery and an initial report on discovery to the Department of Primary Industry and Resources of the Northern Territory, Australia.

This means there’s sufficient data to confirm the discovery of a petroleum accumulation. Specifically, the discovery is confirmed by production testing data, petro-physical logs and core analysis.

Origin noted the gas rates ranging between 0.8 and 1.2 million standard cubic feet per day. The flow-back of hydraulic fracture stimulation fluid of volumes continues, with the recovery of between 100 and 400 barrels per day.

Initial estimates suggest a dry gas composition with less than 4% CO2, it added.

It said the discovery has a thickness of 30 metres. The discovery has porosity between 4.0% and 7.5%; gas saturation is measured between 50% to 75%, and permeability between 50 and 500 nano-Darcy.

Work continues to determine the size of the discovered resource.

Philip O’Quigley, Falcon chief executive, described the filing with the Australian authorities as an “exciting development” and he added that it provides further evidence of the scale of resource potential of the Beetaloo Basin.

“We look forward to updating the market when the evaluation to determine the resource size is concluded,” O’Quigley said.
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Japan protests over signs of renewed Chinese gas exploration

Japan has protested to China over signs it is pressing ahead with maritime gas exploration in the East China Sea despite Tokyo's repeated requests to stop, Japan's top government spokesman said on Wednesday.

The exploration platforms are on the Chinese side of the median line between the two countries, but Japan accuses China of ignoring a 2008 agreement to maintain cooperation on resources development in an area where no official border has been drawn.

China said in July it had every right to drill in the East China Sea close to waters disputed with Japan, adding that it did not recognize the "unilateral" Japanese median line setting a boundary between the two.

Ties between China and Japan, the world's second- and third-largest economies, have already been strained by their conflicting claims over a group of tiny East China Sea islets and the legacy of Japan's wartime aggression.

"Earlier this month, flares were newly witnessed at two of the gas exploration platforms China had installed in the East China Sea," Chief Cabinet Secretary Yoshihide Suga told reporters.

"It is extremely regrettable that China, despite our multiple representations, is carrying on with unilateral development in an area where no maritime border has been set. We protested to China through diplomatic channels right away."

Japan is also at adds with China's South China Sea claims.

China claims most of the South China Sea, through which more than $5 trillion of trade moves annually. Brunei, Malaysia, the Philippines, Taiwan and Vietnam have rival claims.

Japan has no territorial claims over the waters, but much of the trade is to and from Japanese ports.
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Chevron said to seek $2bn in sale of Bangladesh gas fields

Chevron Corp., the U.S. oil producer divesting assets to counter an energy-price slump, is seeking about $2 billion from a sale of natural gas assets in Bangladesh, people familiar with the matter said.

The San Ramon, California-based company is in talks to sell its interests in natural gas fields it operates in the South Asian nation, according to the people. The sale has drawn interest from suitors including Indian and Chinese oil producers, the people said, asking not to be identified because the information is private.

Energy companies have announced $41.9 billion of asset sales this year after crude prices fell to the lowest level in more than a decade, according to data compiled by Bloomberg. Chevron, the largest U.S. oil producer after Exxon Mobil Corp., is seeking buyers for Asian geothermal assets that could fetch as much as $3 billion and is also holding talks to sell assets in Indonesia and Thailand, people familiar with the matter said earlier.

The oil producer posted its third straight quarterly loss in July as a collapse in oil prices forced it to write down the value of oil and natural wells. The San Ramon, California-based company reported a loss of $1.47 billion, or 78 cents a share, compared with profit of $571 million, or 30 cents, a year earlier.

Chevron has also invited second-round bids for its Asian geothermal assets from firms including China General Nuclear Power Corp., people familiar with the matter said in September.

Chevron operates the Bibiyana, Jalalabad and Moulavi Bazar fields in Bangladesh and sells all the production to state oil company Petrobangla, according to its website. Its net daily production last year averaged 720 million cubic feet of natural gas and 3,000 barrels of condensate.

No final agreement has been reached with any party, the people said. Cam Van Ast, a Perth-based spokesman for Chevron, declined to comment.
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Glencore shipping arm charters VLCC to ship Asian gasoil

Glencore's shipping unit ST Shipping has chartered a newly built very large crude carrier (VLCC) to ship gasoil from South Korea possibly to Africa in a rare move, shipbrokers and traders said on Wednesday.

Gasoil is usually shipped on medium and long-range sized vessels carrying up to 700,000 barrels. It is unusual for the industrial and motor fuel to be shipped in VLCCs able to carry about 2.2 million barrels of the oil product.

Shipping data in Thomson Reuters Eikon shows that the brand-new, 299,011 deadweight tonne (DWT) Gener8 Oceanus VLCC, now off the southeast coast of Taiwan en route to Singapore, and with a carrying capacity of about 2.2 million barrels, has been chartered to load gasoil.

Several broker and trading sources said the ship, which was delivered to ship owner Gener8 Maritime Inc by South Korean shipbuilder Hyundai Mipo Heavy Industries on Sept. 12., was chartered by Glencore's shipping arm ST Shipping.

One of the brokers said the ship would load more gasoil in Singapore before heading to Africa, though this could not be confirmed with ST Shipping or Glencore.

Neither company would comment on the matter.

VLCCs typically ship crude oil and fuel oil but newly built ships sometimes carry cleaner oil products like gasoil in their maiden voyages out of Asia before doing a return trip with crude oil to offset shipping costs, shipbrokers said.

Separately, Koch Supply and Trading is expected to lease the 320,000 DWT VLCC Eco Seas on a time charter of about three months, although it was not immediately clear if it will load gasoil or crude initially.

The newly built vessel, owned by privately held Norwegian group Awilhelmsen, is currently at South Korea's Okpo port doing sea trials, according to Eikon data.

Koch did not respond to an e-mail for comment, and like Glencore does not typically comment on trading matters.

The cargoes were likely fixed when freight rates for VLCCs were lower, but rates have since soared due to seasonal demand and increased cargoes from West Africa, shipbrokers said.

French oil major Total and oil trader Vitol shipped gasoil in newly built VLCCs earlier this year from Asia to Europe.

Thirty VLCCs were delivered between January and August, while a further 13 were ordered in the first half of this year, according to data from ship broker Banchero Costa
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Bechtel completes construction of Curtis Island LNG program

Bechtel has announced that it has completed the construction of the Curtis Island LNG program, with Australia Pacific LNG (APLNG) starting production from Train 2.

Bechtel has now delivered all six LNG production trains to QGC, Santos GLNG and APLNG on Curtis Island, off the shore of Queensland, Australia. Combined, the facilities are capable of supplying 25 million tpy of LNG.

Alasdair Cathcart, President of Bechtel’s Oil, Gas and Chemicals business unit, said: “Completion of the unprecedented scale of engineering and construction work on Curtis Island in Australia is a historic achievement for Bechtel, the largest greenfield program we delivered since the company was founded in 1898.

"No company has ever attempted to build three simultaneous construction programs in one location. Successful delivery of reliable gas liquefaction facilities along with sustainable local benefits is a testament to the talent and ingenuity of our global team, collaborative relationship with the three customers, the excellence of our extensive global supply chain, and the immense support of the Gladstone community. Thanks and congratulations to the entire team on achieving the extraordinary."
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Kuwait Forms A US$6 Billion National Oil Firm

The Kuwaiti government gave the go-ahead to a request by the Kuwait Petroleum Corporation (KPC) to create what would be the country’s largest oil company, according to on Tuesday.

The new firm – the Kuwait Integrated Petrochemical Industries Company (KIPIC) – will act as a subsidiary of the KPC and, Mina Al-Ahmadi Refinery deputy chief executive officer Ahmed Al-Jeemaz believes it will have the production capacity of approximately 615,000 barrels per day (bpd).

Al-Jeemaz further noted that the KIPIC will play a pivotal role in running the Az-Zour complex, which serves to process petrochemicals and is a liquefied natural gas (LNG) importing facility.

The Kuwaiti News Agency (KUNA) mentioned that the KIPIC will have a capital of US$6 billion, of which one-quarter, or US$1.5 billion, has already been paid.

The KPC, which runs refining and petrochemical projects, as well as Az-Zour, is rumored to have plans to place half of the KIPIC’s new shares on the Kuwait Stock Exchange. This has yet to be confirmed by the Kuwaiti government or KPC officials.

The creation of the KIPIC was announced after Finance Ministry Undersecretary Khalifa Hamada last month said the federal budgetrelies too heavily on oil revenue; thus, hurting the Kuwaiti economy.

The government has attempted to push through a series of financial and economic reforms that have affected the energy sector. One proposal to raise gasoline prices by 83 percent wasdeclared illegal by a Kuwaiti court earlier this month. Authorities and legislators subsequently came to a compromise to give fuel subsidies in order to compensate for a smaller gasoline price increase.

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Shipowners ready to embrace cleaner fuels but concerns remain

With a key meeting of the International Maritime Organization less than two weeks away, the financial, environmental, regulatory and energy-related implications of changing shipping fuel emission norms has come back into the spotlight.

IMO's Marine Environment Protection Committee will meet in London October 24-28 amid a raging debate on how best to handle the proposed implementation of a 0.5% cap on sulfur content in marine fuel from 2020.

"This transition will be more disruptive than the switch to the 0.1% sulfur blend in the ECAs because the 0.5% cap will affect the industry worldwide and have a significant impact on fuel supplies," Goh Swee Chen, chairperson of Shell Singapore, said at the Singapore International Bunkering Conference.

The higher cost of production and increased use of gasoil in the blend will drive up the cost of 0.5% sulfur fuel oil and a lack of demand for high sulfur fuel oil will drag down HSFO prices, Swee Chen said.

According to shipping industry estimates, close to 2.5 million b/d or over 75% of the current bunker fuel market will be displaced when the lower sulfur content norms are implemented.

While more than half of this or 1.5 million b/d will be used in the incremental coker capacity that is expected to come on stream, it still leaves another 1 million b/d of surplus putting pressure on HSFO prices.

Alternative markets such as bitumen will have to be found to dispose off fuel oil, Andy Milnes, BP's CEO for Integrated Supply and Trading for the Eastern Hemisphere, said at the conference.

The displaced bunker fuel will be substituted with middle distillates. More than 7.5% of existing global distillates production of 33 million b/d is expected to be needed for cleaner marine fuels, according to industry estimates.

"It is not just about switching a configuration of the refinery but to change the very nature of fuel [the industry] is producing and it entails investments," ExxonMobil's Policy Planning Senior Adviser Eddy H. Van Bouwel said.

There is a provision for IMO to delay the implementation of the new sulfur content cap to 2025.

While a decision is not expected anytime soon, the MEPC meeting later this month will take up any matter concerned with the prevention and control of pollution from ships.


"We would like the industry to go as clean as possible in what is economically viable for the companies and the sooner they make their choice, the better it is for the planet," Jacques Werner, the Dutch ambassador in Singapore, said at the conference.

The shipping industry is urging for clarity on the sulfur content issue soon so as to plan their investments accordingly.

The IMO's decision on whether to implement the sulfur cap in 2020 or delay it to 2025 will also have an impact on the number of ships that will be recycled.

"An earlier timeline might mean an earlier ship recycling date and these decisions too will have cost implications," Shell's Swee Chen said.

For the last few years, owners have been ordering ships with engines that can be run on both gas and bunker fuel or dual fuel-fired engines, said Carlos Torres, BP's global head of marine fuels in the eastern hemisphere.

A bigger challenge for the industry was to design supertankers which carry oil cargoes but are run on LNG, without operational hazards, Torres said.

Ships that run on LNG need to have a fuel tank system that can pressurize gas and is fully segregated from the oil cargo space.

Retrofitting existing oil tankers with LNG fuel compliant storage and engines may be a complex and expensive task, but trials on designing new ships are going on and a few product tankers already run on LNG.

"LNG is too dense and dissipates quickly and segregating it in fuel tanks in ships that carry oil cargoes is not an insurmountable issue," said Arthur Bowring, managing director of the Hong Kong Ship Owners Association.

River-trade vessels deployed in China are being retrofitted to run on LNG, Bowring said. Currently, there are around 80 LNG-fuelled ships in operation worldwide with dozens more on order. Global merchant fleet population is over 85,000 ships.

Experts say that LNG fuel will become popular with ships moving on specific routes and between ports with bunkering facilities. They include cruise lines, container ships, Ro-Ro vessels and ferries.

"We are heading into an era of multiple fuels where both gas and low sulfur fuels will be used," Torres said, adding that dry bulk carriers and containers would be able to make a relatively easier transition to LNG fuel.

This also brings into focus the role of oil majors that produce and refine fuels and also trade in them and move them on ships.

"We can provide market intelligence on the kind of fuel to be used depending on the routes, ports and ship types," Torres said.

To comply with multiplicity of regulations worldwide, including various Emission Control Areas, ships have to maintain up to three different types of fuel in segregated tanks.

High and low sulfur fuels are incompatible and utmost care needs to be taken while changing fuels to avoid any choking of filters, said Narhari Mahanta, a consultant scientist with Andrew Moore and Associates. PORTS GEAR UP FOR LNG BUNKERING

Shipowners are currently reluctant to make an investment in cleaner fuel tonnage because they don't seen enough returns or incentives and ports needed to set up adequate infrastructure to instill confidence among them, BP's Milnes said.

An international focus group that includes Singapore, Rotterdam, Antwerp and Zeebrugge and which is working towards building a network of LNG bunker ready ports along the Asia-Europe shipping route, was expanded this week to include Jacksonville, Ulsan and representatives from Norway and Japan.

Currently LNG is mostly offered on an as-is-where-is basis but as demand grows there will be need for more testing on specifications such as methane content, water level and impurities, said Bhavnani Raghuvir, vice-president of Viswa Lab.

"We will provide a suitable environment to companies for delivering cleaner fuels to their clients," said Bob Sanguinetti, CEO, Gibraltar Port Authority, which signed an agreement with Shell to provide LNG.

Enforcement of rules will also be critical. "Penalty for non-compliance has to be higher than the cost of compliance," said Joshua Low, global head of trading at Maersk Oil Trading.

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India’s LNG demand set to double in next 4 years: Report

India, the world’s fourth largest liquefied natural gas (LNG) importer, is set to see its demand for LNG double in the next four years, courtesy a glut in the global market and the country’s own increasing demand from the power and fertilizer sector.

India is the largest LNG importer after Japan, Korea, and China and its import capacity over the next four years is expected to double to 45 million tonnes per annum (MTPA) against 22 MTPA currently, says a 5 October report by Citi Research.

The report adds that India’s LNG demand increased from 14 to 16 million metric tonnes (MMT) from FY15-FY16, and has the potential to touch 30 MMT by FY20.

“We believe India’s LNG demand has the potential to increase from 16 to 30 MMTPA over FY16-20E, even if we limit our exercise to clearly identifiable demand contributors already connected to the grid,” Citi Research said.

One of the key reasons for the spike in demand could be due to the revival of gas-based power generation in India as a result of the lower LNG prices brought on by the oncoming global LNG glut, which could drive Asian spot prices to below 10% to Brent in 2017 (against 11-12% currently).

In recent months, Indian LNG imports have risen substantially, with volumes at 1.62 MMT in August, up 9% on a monthly basis and 35% on a yearly basis. This has been aided by falling LNG prices as well as the government’s efforts in increasing gas consumption (especially the power & fertiliser pooling policies introduced last year).

The report states that Essar Group plans to restart its two captive gas-based power capacities at Hazira in Gujarat (500 MW + 515 MW), subject to availability of re-gasification capacity. Both these plants have been shut since 2013, but the economics have now turned favourable as the alternative is to buy relatively more expensive power from the grid.

In addition, Essar will also require LNG for the gas requirement at its steel plant in Hazira and its refinery at Vadinar. “A recent feasibility report released by the Essar Group highlights a total LNG demand estimate of 3.9 MMTPA from the aforementioned power, refinery, and steel plants,” the report stated.

Also, there is potential for 7 million standard cubic metres per day (mscmd) of additional gas consumption by the fertiliser sector due to additional production of 3.7 MMT of urea by existing units over the next four years as part of the pooling mechanism.

Refineries, petrochemicals and small industries in Gujarat could also add to the increase in LNG demand.

On an average, the Indian refinery sector consumes about 10-15 mscmd.

Oil minister Dharmendra Pradhan launched the Gas for India campaign last month, targeted at promoting gas usage in the country. The campaign will educate citizens on the various benefits of using gas as the preferred fuel, in a bid to raise the share of gas in the country’s energy basket to 15% from the current 6.5%, which is substantially below the world average of 24%.

Apart from efforts to communicate the benefits of using gas as a fuel, the government is also setting up infrastructure for gas usage and promoting a nationwide gas grid. As part of this move, the government has launched a project on city gas distribution (CGD) network in smart cities to encourage the urban population to shift from LPG (Liquefied Petroleum Gas) to PNG (piped natural gas).

The LPG freed up will then be given to below poverty line families under a scheme that was launched by Prime Minister Narendra Modi in May, which aims to supply 50 million free LPG connections to the BPL families over a period of five years.

However, the lack of pipeline infrastructure is preventing large scale adoption of LNG in the country. India’s current gas pipeline infrastructure is heavily skewed toward the western, northern and southern parts of the country that account for 75% of the network and 90% of consumption.

“Although there are several pipelines planned for the unconnected regions of the country, there has been little progress on them and hence our estimates on demand from the sectors highlighted earlier are not dependent on their completion and we only include contributions from sources where we feel the existing infrastructure is sufficient to handle the demand,” the report said.
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Egypt Begins Receiving Imports From Unspecified Source After Aramco Debacle

Egypt received oil shipments from an unspecified source on Tuesday, according to Petroleum Ministry spokesperson Hamdy Abdelaziz, who said the move came after Saudi Aramco decided it would suspend delivery of energy products to the North African country.

Abdelaziz said to Mada Masr that this month’s delivery failure “does not mean that the entire import agreement with Aramco will be canceled, since the halt may be due to technical or logistical reasons, which are normal in all economic agreements.”

The current deal between Aramco and the Egyptian government brings the equivalent of 700,000 barrels of fuel per month to Egypt at a cost of $23 billion for 15 years.

The news site also contacted two different sources from the Saudi company, both of whom chose to remain anonymous.

One of the sources said the halt occurred due to technical reasons, but the agreement will still function normally.

“The agreement is still working and is not subject to any changes. It is purely technical and is related to the latest OPEC meeting held at the end of September,” the source said.

The other source, however, suggested that the decision to halt Egypt’s October petroleum imports had a “political nature.”

“We don’t know the background of the issue and we cannot determine the reason behind it specifically,” the source stated.

Although the issue could be technical and related in some way to the OPEC agreement, Saudi Arabia’s halt of petroleum products to Egypt follows conveniently a spat between the two after Egypt backed separate Russian and French Draft resolutions on Syria at the UN Security Council this last weekend.

In response, Abdallah Al-Mouallimi, Saudi UN ambassador,chastised Egypt for supporting the Russian draft. “It was painful to see that the Senegal and Malaysia positions were closer to the Arab consensus on Syria compared to that of an Arab representative.”

A Washington-based Saudi lobbyist, Salman Al-Ansari, took to Twitter, adding, “Excuse me, Arab Republic of Egypt, but your vote in favor of the Russian draft in the Security Council made me doubt your motherhood of the Arabs and the world''.

The deal with Aramco has saved Egypt millions of dollars per month while it is desperately trying to revive its downbeat economy and narrow its budget deficit—one of the largest in the Middle East. In an attempt to raise cash, Egyptian authorities intend to start their initial public offerings (IPOs) program with state-held oil companies in a plan to raise US$10 billion from listings in three to five years.
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Activists disrupt key Canada-U.S. oil pipelines

Climate-change activists on Tuesday disrupted the flow of millions of barrels of crude from Canada to the United States in rare, coordinated action that targeted several key pipelines simultaneously.

Activists in four states were arrested after they cut padlocks and chains and entered remote flow stations to turn off valves in an attempt to stop crude moving through lines that carry as much as 15 percent of daily U.S. oil consumption. The group posted videos online showing the early morning raids.

Protest group Climate Direct Action said the move was in support of the Standing Rock Sioux Tribe, which has protested the construction of a separate $3.7 billion pipeline carrying oil from North Dakota to the U.S. Gulf Coast over fears of potential damage to sacred land and water supplies.

Officials, pipeline companies and experts say the protesters ran the danger of causing environmental damage themselves by shutting down the lines. Unscheduled shutdowns can lead to a build-up of pressure and cause ruptures or leaks, they said.

The activists had studied for months how to execute the shutdowns safely, said Afrin Sopariwala, a spokeswoman for the group.

"We are acting in response to this catastrophe we are facing," Sopariwala said, referring to global warming.

Police confirmed four arrests, three in Washington state and one in Montana. Protesters were also arrested in Minnesota and North Dakota, the activist group said, after the action early on Tuesday.

The pipelines carry crude produced from Canada's oil sands to the United States. Environmentalists have fought for years to stem Canadian oil sands production, which some call tar sands, in favor of cleaner energy.

Together, the lines affected can carry up to 2.8 million barrels of oil a day. No damage has been reported to the lines and the shutdown had little impact on the oil market. One of the lines restarted on Tuesday.

"Tampering with energy infrastructure is a dangerous activity and it could cause harm to citizens and surrounding communities, which is unacceptable," said Canadian Energy Minister Jim Carr.

His ministry was monitoring the situation closely, he said, adding that safety and security of energy infrastructure was a top priority.

Carl Weimer, executive director at the industry watchdog Pipeline Safety Trust, said the action was a "dangerous stunt".

"Closing valves on major pipelines can have unexpected consequences endangering people and the environment. We do not support this type of action," he said.

The incident is the latest in a series of actions by environmentalists and others in response to growing concern over the effects of fossil fuels on the environment and the potential effects on land and livelihoods of spills.

On Monday, 27 people were arrested for protesting the North Dakota pipeline including actress Shailene Woodley, who narrated her arrest on Facebook Live.


Enbridge Inc said that it temporarily shut its Line 4 and 67 pipelines at its valve site in Leonard, Minnesota, but that there would be no effect on deliveries. The company said in a statement the activists "are inviting an environmental incident" and endangering public safety.

Spectra Energy Partners LP said trespassers had tampered with a valve on its Express Pipeline in Montana. It said it was taking steps to restart the line after shutting it down as a precaution.

The other pipelines the group claimed to have shut are TransCanada Corp's Keystone pipeline and Kinder Morgan Inc's TransMountain pipeline.

TransCanada said its Keystone pipeline in North Dakota was shut down temporarily as a precaution after protesters tried to disrupt it.

Kinder Morgan confirmed trespassers broke into a location of one of its two Trans Mountain feeder lines in Washington state but it was not operating that part of the pipeline at the time and no product was released. The company said the line has since reopened and deliveries on Trans Mountain were not affected.

All Tuesday's protesters and their support crews have been arrested, Sopariwala said.Protesters have previously shut lines down in more isolated incidents but it is rare, said Richard Kuprewicz, president of pipeline safety consultancy Accufacts Inc.

"It's rare because ... you can be prosecuted and go to jail," he said. "Even if nothing happens, it can be dealt with very harshly."

In January, Enbridge was forced to shut a crude pipeline in Ontario, Canada, after a protester tampered with a valve station, while in December the company turned off another line in the province of Quebec for several hours after activists chained themselves to equipment.

Protesters have been buoyed by the recent success of Native American groups and environmentalists in their campaign against construction of the 1,100-mile (1,770-km) Dakota Access pipeline, a project spearheaded by Energy Transfer Partners LP that would carry oil from North Dakota's Bakken shale fields into Texas.

Construction of one section in North Dakota has been halted in response to the concerns of the Standing Rock Sioux Tribe, and is under review.

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Marathon suit attempt to renegotiate Texas City purchase terms: BP

BP Plc on Tuesday said it would vigorously defend itself against a federal civil suit by Marathon Petroleum Corp (MPC.N) alleging that it had failed to deliver a Texas oil refinery and three products terminals in the condition promised under a $2.4-billion sales agreement signed in 2012.

"This suit is nothing more than an attempt by Marathon to renegotiate the terms of the Texas City refinery purchase of almost four years ago," Geoff Morrell, BP's senior vice president of U.S. communications and external affairs, said in an emailed statement.

Marathon took over the 459,000 barrel-per-day (bpd) refinery in Texas City, Texas, and terminals when the transaction closed on Feb. 1, 2013, and began finding problems that breached the sale agreement, according to the lawsuit filed on Monday.

When sold in 2013, the Texas City refinery fulfilled the terms of the sale agreement and met all commitments BP had made to federal regulators, Morrell said, adding BP tried to resolve Marathon's complaints through mediation.

"It is disappointing that immediately following the first mediation session, Marathon chose to go to court."

Marathon also alleged BP planned to carry out an overhaul of an aromatics recovery unit prior to the sale being complete, but did not do so after signing the sale agreement, according to the lawsuit.

However, BP said it spent billions of dollars in the years before the sale to upgrade the Texas City refinery.

"Marathon insisted on and received a discounted sales price so it could make some additional capital investments," Morrell said. "Marathon conducted extensive due diligence and was given virtually unrestricted access to documents and equipment at the refinery."

The BP Texas City refinery was the site of a March 23, 2005, explosion that killed 15 workers and injured 180 others. BP was fined $84.6 million by the U.S. Occupational Safety and Health Administration between 2005 and 2012 for safety rules violations found at the refinery in investigations following the blast.

BP pleaded guilty to a federal environmental law violation and paid $50 million to the U.S. Justice Department in 2009. BP also paid more than $2 billion to settle lawsuits stemming from the 2005 explosion.

Monday's lawsuit was filed in the U.S. District Court for Southern Texas in Galveston, Texas by Marathon subsidiary Marathon Petroleum Co LLC against BP subsidiaries BP Products North America Inc and BP Pipelines (North America) Inc.
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OPEC, key producers to discuss six-month oil deal

OPEC will hold talks with non-member oil producers on Wednesday in a bid to hammer out details of a global agreement to cap production for at least six months as Russia lent its support for the plan.

Ministers from OPEC members embarked on a flurry of talks at an energy conference in Istanbul to shore up support for the OPEC deal they agreed in Algeria last month hoping to adopt it at the end of November.

Oil prices that have more than halved since mid-2014 as global supplies swelled.

"I can say that many countries from outside OPEC are willing to join ... we are not talking about support, we are talking about contribution," Saudi Energy Minister Khalid al-Falih told Reuters on Tuesday in Istanbul.

Representatives of some OPEC members and non-OPEC countries including Russia, Azerbaijan and possibly Mexico will hold a round-table meeting at 1100 GMT on Wednesday on the sidelines of the World Energy Congress, according to OPEC ministers.

Any deal would initially be applied over six months and then reviewed, OPEC Secretary General Mohammed Barkindo said.

"We are confident that the other non-OPEC producers will join this (agreement) because it is in the benefit of all producers ... and also consumers," Barkindo said.

Eulogio Del Pino, the petroleum minister for cash-strapped Venezuela said he preferred a deal to extend for a full year in order to include peak output periods of different oil producers.

Last month in Algiers, the Organization of the Petroleum Exporting Countries agreed modest oil output cuts. The goal is to cut production to a range of 32.50-33.0 million barrels per day (bpd). OPEC's current output PRODN-TOTAL is a record 33.6 million bpd.

The International Energy Agency said global oil supply could fall in line with demand more quickly if OPEC and Russia agree to a steep enough cut in production, but it is unclear how rapidly this might happen. [IEA/M]

Any deal would face challenges from a 3 billion barrel global inventory build in recent years as well as efforts by OPEC members Libya and Nigeria to increase production curtailed by conflict.

Iran, OPEC's third largest member, had said it would not curb its supplies before it reached 4 million barrels per day, a level it had seen before international sanctions were imposed in 2012 and lifted in January this year.

Speaking at the Istanbul conference, Russian Energy Minister Alexander Novak said that the world's top producer would maintain its current oil output unchanged under a deal. Russia pumped 11.1 million barrels per day in September.

On Monday, President Vladimir Putin said Moscow was ready to join the proposed cap on oil output by OPEC members.

Falih said he would not attend Wednesday's meeting due to prior engagements but met with Novak in Istanbul on Tuesday.

He is due to meet his Russian counterpart for talks later this month in Riyadh, according to a statement by the Saudi energy ministry.

"The ministers emphasized that their two countries are committed to working together and with other producers, OPEC and non-OPEC, to help improve oil market fundamentals, which will benefit producers, consumers, the energy industry and the global economy," the statement said.
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South Korean shipbuilders eyed for LNG carriers deal worth $3.8 billion

A little-known investment company said it intends to order up to 20 liquefied natural gas (LNG) carriers, probably from South Korean shipbuilders. The contracts would be worth as much as $3.8 billion, two people with direct knowledge of the matter told Reuters.

CBI Energy and Chemical, which is controlled by Australian and Canadian investors and has offices in Hong Kong, also disclosed in a statement to Reuters that it would be seeking to buy floating LNG production and import facilities as part of an ambitious plan for Africa and Asia.

The orders would be a major shot in the arm for South Korea's ailing shipbuilding industry, which has been hit by a collapse in new orders as global trade growth slows and after the slump in commodities prices in recent years.

CBI Energy would be taking advantage of low shipbuilding costs and cheap credit, that make it easier for newcomers to tap into a global switch towards cleaner sources of energy, LNG traders said. Depressed LNG prices are encouraging demand for the fuel, they added.

The company said in a statement to Reuters that "there is a need to custom-build specialty LNG carriers that will meet CBI's business needs."

It said that CBI has plans for Africa and Asia that include natural gas extraction, pipelines, marine transportation logistics, LNG plants, rail transport, power generation, chemical plants, and an LNG distribution network, including retail gas stations.

CBI has entrusted Korea Offshore and Ship's Technology Co Ltd (KOST) to find South Korean shipbuilders for the projects, officials from the two companies said.

"South Korea's LNG carriers are the best in terms of design, shipbuilding and delivery speed," an executive at CBI, who declined to be identified, told Reuters. "The shipbuilding industry is in a slump. This would be a stimulus."


KOST could approach STX Offshore & Shipbuilding, Daewoo Shipbuilding & Marine Engineering Co, Samsung Heavy Industries and Hyundai Heavy Industries Co Ltd to build the vessels, the person added.

It is not yet clear whether the contract would be concentrated with one or two shipbuilders or be spread more widely, said the official from KOST, who also declined to be identified. Initially there would be 10 firm orders, with an option to buy 10 more carriers, this person said.

South Korean shipbuilders have also been hit by increased competition from Chinese and Japanese yards, and massive overcapacity in the shipping industry.

The collapse of Hanjin Shipping, the world's seventh largest container shipper at the end of August, dealt a further blow to sentiment. Korea Development Bank forecast in a report the same month that the country's shipbuilders would suffer a 92.3 percent plunge in orders this year.

"Global shipyards including those in the main shipbuilding countries of South Korea, China and Japan, have seen the volume of orders in tonnage terms slump this year to the lowest level in more than 20 years," said Peter Sand, chief shipping analyst at ship owners lobby group BIMCO.

LNG carriers are a bright spot, though, because of demand for cleaner energy, said the KOST official.

The person said talks with shipbuilders would start after detailed plans were made, adding that it would take two to three months to select contract winners based on price, quality and the ability to meet delivery deadlines.

The vessels would each have the capacity to transport 120,000 to 175,000 cubic meters of LNG, the two sources said.

The first ship was due to be delivered in 2019, they said, adding the remaining vessels would be delivered at a rate of one ship every two-to-three months.


CBI Energy is a holding company registered in the British Virgin Islands and lists offices in Hong Kong, Beijing and Switzerland.

Its core investments are in coal poly generation, a "clean coal" technology, as well as LNG and associated supply chain businesses, according to the company statement.

The CBI executive said the group was 70 percent Australian owned and 30 percent Canadian owned. He declined to provide further details.

It has raised 2 billion euros from European private equity investors to fund the orders, the executive added.

The KOST official said CBI planned to ship LNG from Africa and the Middle East to China.

KOST, which is based on South Korea's southeastern island of Geoje, the country's shipbuilding hub, supervises shipbuilding projects.

The order would increase the global fleet of LNG tankers by more than 3 percent, making CBI a significant new player in the LNG logistics business if it opted to operate all the vessels itself. There are currently 460 tankers in service, with a further 170 on order.

A 174,000 cubic meter LNG carrier costs around $198 million to buy, down from $205 million two years ago, shipping services firm Clarkson said.

South Korean shipbuilders, Samsung Heavy and Daewoo Shipbuilding and Marine Engineering, are the most popular shipbuilders for LNG tankers, having built 22 percent and 21 percent respectively of the LNG carriers operating worldwide, according to data from shipbroker Banchero Costa (Bancosta). Of the LNG carriers under construction and on order, 37 percent of the current order book is placed at Daewoo shipyards, 14 percent at Hyundai Heavy and a further 11 percent at Samsung, Bancosta said.

Between 2016 and 2020, global LNG production capacity is expected to rise by about 50 percent to around 370 million tonnes a year, with major new projects in Australia, the United States and elsewhere, and this expected run-up in supply has dragged on prices.

"Although as many as 2,200 new cargoes of LNG are set to come on-stream by 2019 or 2020, the growth in the sector continues to be quite uncertain," according to a Bancosta report last month.

"European Union demand is fairly stable, global gas demand has slowed in the face of competition from other energy sources within the power sector, and from the persistence of low prices in energy commodities."

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Part of AIM Pipeline Begins to Flow; Protesters Hide in Pipe

Spectra Energy’s Algonquin Incremental Market (AIM) pipeline project is an $876 million expansion of the existing Algonquin pipeline system that will carry 342 million cubic feet of natural gas per day to New England states that badly need the gas. 

On March 3, 2015 the Federal Energy Regulatory Commission (FERC) issued their final approval for the project, allowing it to go forward. Construction began last year and continues now. 

Earlier this year NY Gov. Andrew Cuomo tried to stop work on the pipeline . A few months later NY’s lib Dem senators got in on the act. 

We’re happy to report none of the above efforts to stop AIM succeeded. Last week FERC issued an order allowing part of the AIM project–in Putnam County, NY, and Fairfield County, CT–to power up and begin service. 

However, not all of the project is yet built. Four nutjob protesters criminally locked themselves inside a piece of pipeline in Verplanck (Westchester County), NY yesterday. They were there to protest “filthy fossil fuels” like natural gas…

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North Sea Oil and Gas Drilling Activity Plunges to All-Time Low

The number of rigs drilling for oil and gas in the North Sea, home of the Brent crude benchmark, plunged in September to the lowest in nearly 35 years as companies cut spending to weather low prices.

Baker Hughes Inc., the services company that tracks drilling activity worldwide, said just 27 rigs operated last month in the North Sea, the lowest number since records started in January 1982. The previous low was set in October 1999, when oil prices plunged to $10 a barrel.

The North Sea, which includes the shallow waters of the U.K., Norway, Denmark, Germany and the Netherlands, enjoyed its heyday in the 1970s and early 1980s, when a series of big oilfields, including Brent, Forties, Ekofisk and Oseberg, were discovered. The region, where operating costs are relatively high, has been badly hit by the price slump that started in late 2014 when OPEC adopted a policy of pumping at will.

Despite the drop in oil and gas drilling rigs, North Sea production notched two consecutive years of increases in 2014 and 2015 thanks to the tail wind of projects approved during the boom years of $100-a-barrel oil. July output, the latest for which data is available, surged to a four-year high, according to the International Energy Agency.

Job Cuts

The future does look bleak, however, as companies cut spending and fire workers. Oil & Gas U.K., a trade body, said in June that the British oil industry alone will ax 120,000 jobs by the end of the year. The numbers include non-oil producing jobs in the wider economy, including hotel staff and taxi drivers. On top of those losses, companies operating from Norway to the Netherlands have also announced staff cuts.

The estimates demonstrate how much oil companies have tightened their belts in order to weather the collapse in crude prices and the effect of the downturn on the wider economy. Brent, the global benchmark, has tumbled from as high as $115 a barrel two years ago to about $52 a barrel now.

The industry has been spending beyond its means, and has no choice but to improve its performance, Deirdre Michie, chief executive officer of Oil & Gas U.K., said in June.

BP Plc said in January it would cut North Sea jobs by 600 over the next two years, while Royal Dutch Shell Plc said on May 25 it was planning 475 job cuts in its U.K. and Ireland exploration and production business, mostly this year.

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Saudi Aramco warns of supply drop off, hints at Turkey deals

Saudi Aramco’s chief has said a new “road map” is needed to help smooth the transition from fossil fuels to green energy.

Amin Nasser, the firm’s president and chief executive, said gradual improvements would “not be enough” and called for sweeping transformation.

Speaking at the 23rd World Energy Congress in Istanbul, Mr Nasser said the “Energy 2.0” road map should consist of three elements: investment in oil and gas supply, financial resilience and investment in technology.

Mr Nasser said supply would fall behind demand “over time” as new discoveries become more challenging and expensive to operate.

Current primary energy demand is 280 million barrels of oil equivalent, of which 80% is met by fossil fuels.

By 2040, that demand will be 360 million barrels of oil equivalent, with 75% met by fossil fuels, Nasser said.

He also said Aramco would sign preliminary agreements with Turkish contractors for construction work in Saudi Arabia.

At the same time, Aramco is looking into downstream opportunities in Turkey, he added.

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Frank’s to snap up Blackhawk in $320m deal

Oil service firm Frank’s International has agreed to buy a US well engineer for about $320million.

Frank’s will pay $150million in cash and hand over 12.8million shares for Houston-headquartered Blackhawk Speciality Tools, according to Simmons and Co, which advised on the deal.

Founded in Louisiana in 2008, Blackhawk supplies cement products, well intervention tools and service to the global oil and gas industry. It’s main focus is on the Gulf of Mexico.

Frank’s employs about 3,000 employees and provides services in over 60 countries. It has a base in the Altens Industrial Estate in Aberdeen.

Frank’s president Gary Luquette said: “Similar to Frank’s, Blackhawk has a reputation for combining exceptional service with an innovative portfolio of technology that delivers consistent value to customers.

“Together we will continue to offer the same reliable service customers expect, while furthering customer relationships with new products and services across the Frank’s global footprint.

“Joining Blackhawk’s cementing tool expertise with Frank’s global tubular running services franchise will allow us to offer customers worldwide a more integrated suite of best-in-class products and services to address their well construction needs across all environments from land to shelf to deepwater.”

Blackhawk chief executive Billy Brown said: “Joining the Frank’s global family is the next step in continuing the expansion of Blackhawk’s industry leading specialty products and equipment.

“Our team is proud of the progress we have made in developing innovative products and strong customer relationships through quality and reliable service, and we appreciate the support we have enjoyed from our partners at Bain Capital.

“Combining Frank’s and Blackhawk is the right strategic move at the right time, providing customers the same exceptional service with a broader platform to accelerate future growth.”
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India mulls options to sweeten deals for marginal oil, gas fields

India’sOil and Natural Gas Ministry is considering offering investors leeway to explore adjoining areas to the 67 marginal oil and gas fields already up for auction.

Faced with the challenge of securing positive responses from prospective bidders in a weak oil and gas market, the Ministry is trying to take cognisance of concerns raised at investor road shows, one being that the marginal oil and gasfields offered for contracts are too small.

Since the marginal oil and gas fields on the block are just a few square kilometres each, compared with hundreds of kilometres for most oil and gas fields, several prospective foreign investors have expressed concerns that the operations will not be of their usual scale.

Hence, the Ministry is considering its options regarding the adjoining areas around the 67 blocks, a government official said.

The 67 marginal oil and gas blocks have been combined into 47 contracts. Of these, 30 blocks are less than 25 km2 and the rest less than 10 km2.

Domestic and international exploration and production (E&P) companies have until the end of the month to submit their bids.

However, offering adjoining areas to investors is proving to be a challenge for the government. Officials pointed out that the marginal oil and gas field boundaries had already been demarcated and, since these were already discovered fields, government could come up against legal challenges if it changed the boundaries once the auction process had been initiated.

To avoid such roadblocks, the Ministry is talking to prospective investors seeking their view on opening upexploration of adjoining areas for exploration to winning bidders of the marginal fields once the current round of bidding is completed.

The idea is for winning bidders to enter into a fresh round of competitive bidding to explore the adjoining areas under the newly unveiled Hydrocarbon Exploration and Licensing Policy (Help) and avoid allocating the adjoining areas to winning bidders through preferential allotment.

The government has replaced the New Exploration and Licensing Policy (Nelp), under which nine rounds of auction have been completed but the tenth round had been nixed, to put Help in place. Under the latter, E&P companies will have the freedom to explore and extract any fuel they discover, including coalbed methane, shale gas, oil or gas, without having to seek fresh approvals for each resource discovered and that too under a composite revenue-sharing agreement.

Earlier, under Nelp and production sharing contracts, E&P companies that were successful bidders at auction, were allowed to recover costs entailed in developing the block, as approved by the government, and the government’s share of revenue was determined based on revenue generated from the block adjusted for developmental costs.
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IEA Head Sees $60 Oil Prompting Surge in North American Output

Crude prices of $60 a barrel would probably trigger a strong increase in North American oil production while trimming global demand growth, the head of the International Energy Agency said.

Brent crude reached a one-year high of $53.73 a barrel in London on Monday after Saudi Arabia and Russia, the world’s two largest crude producers, pledged a joint effort to limit output to counter a global glut and prop up prices.

“We may well see, in a short period of time, strong production growth coming from North America and elsewhere,” IEA Executive Director Fatih Birol said Tuesday in a Bloomberg TV interview. “Prices around $60 would be sufficient.”

Many oil producers are facing “serious challenges” to their economies due to lower prices, Birol said. Benchmark Brent crude slid from more than $115 a barrel in June 2014 to less than $28 in January this year. Prices tumbled after the Organization of Petroleum Exporting Countries adopted a policy of pumping without limits to try to squeeze higher-cost producers, including U.S. shale drillers, from the market.

Prices should be determined by supply and demand rather than by any intervention in the market, Birol said.

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Hong Kong-based Winson Oil buys ship to store oil in Europe

Hong Kong-based trader Winson Oil has bought a very large crude carrier (VLCC) to store oil in the Mediterranean as it pushes to expand its business in Europe, two company sources said.

The step could boost Asian gasoil margins if the firm enters the spot market to make large purchases to fill the vessel, traders said.

Winson bought the VLCC in July for $28 million and has renamed it Winson No. 5, one of the sources said on Tuesday, declining to be identified as he was not authorised to speak with media.

The ship is currently docked in Shenzhen, China for repairs and maintenance and will be moved in about 1 or 2 months, ready to receive oil products.

"The plan is to store gasoil and the ship will first travel to Singapore and eventually to the Mediterranean Sea as offshore inventory storage," the source said. He did not give a timeframe for the move to Europe.

The vessel was built in 2001 and can hold around 2 million barrels of oil, according to shipping data on the Reuters Eikon terminal.

The step is part of the company's plans to expand in Europe, the source said. Winson Oil will trade in European markets from an office that was incorporated in Dubai in February, he added.

Storing gasoil in VLCCs is unusual as it can be more expensive than using tanks on land, but some of the costs can be mitigated by owning a vessel.

With its headquarters in Hong Kong, Winson Oil has recently been stepping up its oil trading activities in Singapore, where its trading arm is based, routinely buying gasoil from Taiwan and selling it as bunker fuel into North Asia.

The company has offices in Hong Kong, Singapore, Taiwan, China, Dubai and other Asian countries, and has a fleet of more than 25 vessels, according to its website.

The company has no plans to reduce its leasing of tanks onshore to store gasoil due to the purchase of the VLCC, the sources added.

VLCC charter rates from the Middle East to Asia hit a new four-month high on Monday at around $40,200 per day.
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IEA releases Oil Market Report for October

Demand growth continues to slow due to vanishing OECD growth and a marked deceleration in China

Global oil supply rose by 0.6 million barrels per day (mb/d) in September, the newly released IEA Oil Market Report  (OMR) for October informs subscribers. Non-OPEC supply was up nearly 0.5 mb/d on higher Russian and Kazakh flows and OPEC supply was at an all-time high. World oil output of 97.2 mb/d was up 0.2 mb/d from last year due to strong OPEC growth. Non-OPEC supply is forecast to drop by 0.9 mb/d in 2016 before rebounding by 0.4 mb/d in 2017.

Meanwhile OPEC crude output rose by 160 kb/d to a record 33.64 mb/d in September as Iraq pumped at the highest ever and Libya reopened ports. Supply from the group stood 0.9 mb/d above 2015 due to robust Middle East output. OPEC has agreed to cut supply to between 32.5 mb/d and 33 mb/d, with details to be set by end-November.

Demand is forecast to expand by 1.2 mb/d this year, with a similar gain expected in 2017. Growth continues to slow, dropping from a five-year high in 3Q15 to a four-year low in 3Q16 due to vanishing OECD growth and a marked deceleration in China. The potential for colder weather should see growth rebound somewhat in 4Q16.

OECD commercial inventories fell for the first time since March, by 10 mb to 3 092 mb in August due to a larger than seasonal decline in crude stockpiles. Preliminary data for September show crude stocks falling in both Japan and the US.

Weighed down by autumn maintenance, global refinery throughput in 4Q16 is expected to decline seasonally by 1.1 mb/d, up just 70 kb/d year-on-year. Global throughput in 2016 is expected to grow y-o-y by just 220 kb/d, the lowest annual growth rate in more than a decade, excluding the last economic recession.

Benchmark crude prices rose in September as market rebalancing continued and participants anticipated an OPEC supply cut. At the time of writing, front month ICE Brent was trading at $53.05/bbl with front month NYMEX WTI lower at $51.15/bbl.

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Royal Caribbean Cruises orders LNG-fuelled ships

Royal Caribbean Cruises Ltd has announced that its newest class of ships will be powered by LNG and introduce the use of fuel cell technology. The ships will join the fleet of Royal Caribbean International.

RCL signed a Memorandum of Understanding (MoU) with shipbuilder Meyer Turku for the new class of vessel under the project name ‘Icon’. The vessels will be delivered in 2Q22 and 2Q24. In the meantime, the company confirmed that it will begin testing fuel cell technology on an existing Oasis-class ship next year, and will also run progressively larger fuel cell projects on new Quantum-class vessels being built in the next several years.

Richard Fain, Chairman and Chief Executive Officer (CEO) of Royal Caribbean Cruises Ltd, said: "With Icon class, we move further in the journey to take the smoke out of our smokestacks […] We are dedicated to innovation, continuous improvement, and environmental responsibility, and Icon gives us the opportunity to deliver against all three of these pillars."

Fain continued: "Increasing the commitment to LNG makes it easier for suppliers to make their own infrastructure commitments […] As more ships are built for LNG, the number of ports that support it will grow."

The Icon ships are expected to run primarily on LNG but will also be able to run on distillate fuel, to accommodate occasional itineraries that call on ports without LNG infrastructure.

Michael Bayley, President and CEO of Royal Caribbean International, said: "Our guests expect us to push every envelope we can […] And on this new class of ship, we began by challenging ourselves to find a new approach to power and propulsion that is safe, reliable, and more energy-efficient than ever before."

Jan Meyer, the CEO of Meyer Turku, added: "Our partnership with RCL has created a number of groundbreaking ship classes, such as Oasis, Celebrity Solstice, Quantum, and Mein Schiff, and we are grateful that Royal Caribbean is again giving us the opportunity to partner with them on a new class of ships."

Harri Kulovaara, RCL's Chief of Ship Design, said: "We believe fuel cells offer very interesting design possibilities […] As the technology becomes smaller and more efficient, fuel cells become more viable in a significant way to power the ship's hotel functions. We will begin testing those possibilities as soon as we can, and look to maximise their use when Icon class debuts […] There is a long lead time for Icon class, and we will use that time to work with Meyer Turku to adapt fuel cell technology for maritime use." Kulovaara said that additional regulatory standards would also need to be developed for the technology.

Because of the long lead time, Kulovaara said that many Icon design elements are in early stages. The Icon ships would likely accommodate approximately 5000 passengers, but details are still being worked out.

This order is contingent upon the completion of contractual conditions, including documentation and financing. Final contracts are expected to be completed by year end.
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Oil is sliding after the 'scariest man on earth' said no to freezing production

The price of oil is sliding on Tuesday, after comments from Igor Sechin, the president and chairman of Russia's state oil company said that he sees no reason for a freeze or cut in oil production right now.

Crude oil prices rose to their best levels of the year on Monday after Russian President Vladimir Putin said he hoped OPEC reaches an agreement, while speaking at an energy congress in Istanbul.

"Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join," Putin said, according to

However, speaking to Reuters at the same conference, Rosneft's Sechin — often referred to as "Russia's Darth Vader," and once dubbed the"world's scariest man" — questioned why he would take part in a cut, and said that Rosneft will not cut or freeze oil production as part of any possible agreement with OPEC.

When asked about the potential for a freeze or cut on the sidelines of the conference in Turkey, Sechin said: "Why should we do it?"

Sechin also cast doubt on whether certain countries in OPEC would actually be willing to join in with a cut: "Try to answer this
question yourself: would Iran, Saudi Arabia or Venezuela cut their production?"

Sechin is one of Putin's closest allies, but his comments are almost exactly the opposite of what Russia's President said on Monday,
suggesting potential conflicts in Russia's official stance on oil.
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Argentina wants to delay, cancel three-four Oct LNG cargoes: sources

Argentina's Enarsa is trying to defer or cancel three to four LNG cargoes due to be delivered in October, after doing the same for up to four cargoes in September, sources told S&P Global Platts Monday.

Enarsa awarded contracts for a total of eight October cargoes via tender, with five cargoes scheduled for delivery into the Escobar terminal and three for the terminal at Bahia Blanca.

According to cFlow, Platts trade flow software, only one cargo has been delivered to either port. One vessel, the Arctic Voyager, is laden and has been in a holding pattern off the coast of Bahia Blanca for two weeks.

The country's reduced appetite for LNG is understood to be driven by warmer-than-expected weather after an Argentinian winter -- which runs between June and August -- that was colder than in the previous three years.

Enarsa told Platts on October 4 that warmer weather conditions have caused demand for natural gas to drop considerably, adding that its ability to store LNG was minimal relative to the total volume consumed.

According to one London-based analyst: "My view on Argentina is that they overbought for September assuming colder weather, similar to [that of] July and August, but the reality turned out relatively normal and demand is falling fast as it is mainly residential."

The tenders for the October cargoes were launched in July and August, when temperatures were below those seen in previous years.

The average daily temperature in Argentina between June and August was 1.07 degrees Celsius below average winter temperatures for the past three years, with a similar trend observed for the two months leading into the winter, according to Platts Analytics data.

Average temperatures for September, however, have fallen back in line with those for the previous three years, with both amounting to 13.7 degrees. Temperature data for October was not available.

Despite the colder weather, LNG imports to Argentina for the winter were down year on year from 2.52 Bcm to 2.42 Bcm, with aggregate deliveries over the 12 months prior to October down 23% or 1.467 Bcm of gas equivalent at 5.02 Bcm.

The utilization of gas in electric generation has been relatively steady year on year, implying increased pipeline deliveries from Bolivia and Chile. From September 2015 through August, gas consumption fell only 2.8% from 15 Bcm to 14.58 Bcm, according to data from Argentina's Comision Nacional de Energia Atomica.
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New China refinery faces delay as Myanmar seeks extra tax on oil: sources

A newly built Chinese refinery near its border with Myanmar is facing a delayed start after State company PetroChina Co balked at paying an extra tax for piping crude oil through the Southeast Asian nation, two senior Chinese industry sources said.

PetroChina parent China National Petroleum Corp early last year began trial operations of a deep sea port and 2,400 kilometer pipeline through Myanmar to Southwest China's Yunnan Province. The pipeline is aimed at easing China's reliance on the Malacca Strait, through which about 80 percent of its oil imports now pass.

PetroChina has also been building a refinery with capacity of 260,000 barrels per day at Anning, Yunnan to process the oil, which so far can only be stored in tanks.

The company completed construction of the Anning plant around July, and had aimed for test operations this month, but the project is facing delays, said one of sources with knowledge of the matter.

"The Myanmar government is asking for an additional 5 percent tax for the crude oil, which is on top of an agreed transit fee and pipeline tariff," said the Beijing-based industry official.

It [the tax] is quite off the international norm. The refinery will certainly run into losses if this tax applies," said the source, adding that the start of the plant was being held back by this issue.

Commercial operations of a new refinery typically follow several months after testing.

A Nay Pyi Taw-based senior official with Myanmar's Energy Ministry said the two countries had agreed that the pipeline contract was subject to change if the Finance Ministry and other government agencies suggested it needed changing.

A PetroChina spokesman said the company does not comment on operational matters.
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BP scraps plan to drill off Australia's south coast

BP Plc has abandoned plans to drill for oil and gas off the south coast of Australia, saying it can get better value for its exploration spending elsewhere, although it still sees strong potential in the Great Australian Bight.

The decision comes as a win for environmental groups which have heavily opposed drilling off the coast of South Australia, saying it would damage whale and sea lion breeding grounds, a haven for dolphins, and important fisheries.

BP said the Bight project, where it has been working with Norway's Statoil, would not be able to compete for capital investment with other opportunities in its global portfolio in the foreseeable future.

"This decision isn't a result of a change in our view of the prospectivity of the region, nor of the ongoing regulatory process," BP's head of exploration and production in Australia, Claire Fitzpatrick, said in a statement.

"It is an outcome of our strategy and the relative competitiveness of this project in our portfolio."

BP was forced to revise its Bight exploration drilling plan late last year and was awaiting a decision by the National Offshore Petroleum Safety and Environmental Management Authority later this month on two wells, and a broader environmental plan by the end of this year.

The agency said on Tuesday it had yet to receive a request from BP to withdraw its application.

The Wilderness Society, which has long fought to stop drilling in the Great Australian Bight, on Tuesday urged the federal government to terminate BP's leases and cancel all exploration permits in the basin.

"We should not be expanding the fossil fuel industry into pristine treacherous seas where the risk of spills is far greater than we've seen before," Wilderness Society national director Lyndon Schneiders said in a statement.

Others with exploration permits in the region include Chevron Corp, Murphy Oil working with Santos, and Karoon Gas Australia, which just won an exploration permit last week.

Karoon called the Bight Australia's "most active and prospective frontier oil exploration province." Industry consultant Wood Mackenzie has estimated it could hold 1.9 billion barrels of oil equivalent, making it a potentially major resource.

BP said Statoil, a 30 percent partner in the exploration licenses for four blocks in the Bight, had accepted its decision to give up on the Bight.

The Australian Petroleum Production and Exploration Association said earlier this year the industry was potentially looking to spend more than A$1 billion ($760 million) on exploration alone in the region.
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Rosneft ‘buys $5.3bn Bashneft stake’

Rosneft has reportedly acquired the state-owned stake of another Russian major oil player Bashneft in a recently approved 329.6 billion rouble ($5.3 billion) deal.

The sale was approved by Russian Prime Minister Dmitry Medvedev on Monday, according to reports in the Russian press.

The deal for just over 50% of Bashneft is reportedly expected to be closed by 14 October.

The acquisition follows plans of the Russian Economy Minister Alexei Ulyukayev announced earlier this year to privatise a stake in Bashneft.

The agreed sale, however, came as a surprise as initially the government said it should delay selling its stake for up to five years, until the company was worth more.

Bashneft declined to comment on the deal when contacted by Upstream. Rosneft was not immediately available for a comment.

The Russian government, which owns almost 70% of Rosneft, also hopes to get more than $11 billion for a minority stake of the company. Supermajor BP holds a 19.75% share of Rosneft.

Russia's top oil producer Rosneft has around $32 billion in available funds, so it buying a controlling stake in mid-sized oil company Bashneft would not be a problem, Russian Economy Minister Alexei Ulyukayev told state television in comments broadcast on Monday.
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Petrobras Says Deep-Water Opening Luring Big Oil to Brazil

International oil companies are reaching out to Brazil after it opened its most promising offshore region to increased competition, a move welcomed by Petrobras Chief Executive Officer Pedro Parente as he seeks partners to spread investment costs.

Producers rushed to contact Houston-based Brazilian officials last week after Congress removed a requirement that Petrobras control operations at all new projects in an area known as the pre-salt, Parente said. It’s the most investor-friendly change in regulation since the 1997 oil law that ended the company’s monopoly in Brazil.

“Our foreign ministry representation unit in Houston, in the very following day, received seven manifestations of interest of big companies," Parente said at Bloomberg’s offices in New York City.

The policy shift comes as the state-controlled producer is selling assets to slash debt, which stood at $125 billion in the second quarter. The Rio de Janeiro-based producer has a group of more than 30 projects worth about $40 billion that it is marketing to potential buyers, Parente said.

Allowing others to control drilling and production in the potentially oil-rich pre-salt will provide a larger group of offshore operators for Petrobras to team up with at upcoming licensing rounds. Foreign oil companies haven’t had a chance to bid for licenses to operate in the pre-salt since before anyone knew how vast the reserves were.

The nationalistic oil policies were put in place in 2010 when the government moved to put Petrobras in control of the biggest group of offshore discoveries this century. This limited access to bidding with Petrobras as a minority partner, or trying to buy into an existing license awarded under previous rules.

Pre-salt oil was formed when the South American and African continents began separating more the 100 million years ago. The repeated flooding and evaporation of salt water in what is now the South Atlantic created a layer of the mineral as thick as 2,000 meters that blankets the deposits. The biggest discovery in the area, Libra, holds an estimated 8 to 12 billion barrels of recoverable reserves.

Interest in the region is strong. Petroleo Brasileiro SA, as it is formally known, recently sold its stake in a pre-salt concession to Statoil ASA for $2.5 billion. The government is planning to offer new pre-salt exploration acreage in 2017, and the new rules let Petrobras bid more selectively as it looks to contain capital expenditures. The company is likely to continue shedding staff in the next two years, said Parente.

Higher-than-expected output at the pre-salt has cut Petrobras’s break-even cost to $40 a barrel, and the company can lower it further, said Parente. The company will continue efforts to reduce spending even if oil prices rebound, he said, adding that he sees oil at $50 to $55 a barrel next year.

“Productivity of the pre-salt fields in Brazil is amazing,” said Parente. “Some wells produce 40,000, 50,000 barrels a day per well. So I think this is what is in the mind of these companies.”

For more on Petrobras fuel price policy, click here.

Petrobras is also looking to bring in partners for its refineries, which posted losses in four out of the past five years. The "ideal" partner would supply knowledge, not just money, according to Parente.

The influx of partners, asset sales and increased competition in offshore fields from foreign producers will force Petrobras to become more efficient, the company’s top managers said.

“Five to ten years from now the market landscape will be completely different,” said Nelson Silva, Petrobras’ head of strategy who was at the interview. “It will put pressure in us to improve.”
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Vitol sees no oil market supply balance before second half of 2017

The oil market may see supply and demand rebalance if OPEC and Russia deliver a meaningful enough production cut, but it will still take until the second half of 2017, Vitol  chief executive Ian Taylor said on Monday.

The Organization of the Petroleum Exporting Countries agreed in Algiers last month to limit output to bring oil supply more quickly into balance with demand.

Taylor, whose heads the world's largest trader of physical crude oil, said that while the price would get a boost from a cut of 1 million barrels per day (bpd), he was unsure OPEC members could agree on who should cut and by how much.

"If they really give us 1 million bpd, I think you're going to have to say oil is going to be in the high 50s, early 60s," Taylor said at the annual Reuters Commodities Summit, referring to the price of a barrel of oil in dollars.

"That for sure will start having an impact, much more on paper immediately, and will bring the market back to balance in the second half of 2017. But can they really give us a million between OPEC and non-OPEC? It's a tough call," he said.

The oil price LCOc1 has risen by 45 percent so far this year to around $52 a barrel, in large part driven by the prospect of OPEC tackling a global supply glut.

OPEC, led by Saudi Arabia, has indicated it could cut production by 700,000 bpd, but not how this would be shared.

Iran is struggling to recapture market share lost to five years of international sanctions over its nuclear program, while Libya and Nigeria are pushing to raise output against a backdrop of geopolitical upheaval and violence.

Major non-OPEC rival Russia said it believes a cut would be a positive for the market, but has not indicated whether or not it would limit its own production, which is close to record highs above 11 million barrels per day.

More modest global economic growth has prompted a more cautious view on demand from forecasting agencies such as the International Energy Agency and OPEC itself.

The prospect of a steep rise in output from outside OPEC, such as from the Kashagan field in Kazakhstan, and the likelihood of a return of volumes from within the cartel, specifically from Libya and Nigeria, could keep pockets of the market in surplus, Taylor said.

"One of the features of the market at the moment is probably physical crude is a bit longer than the paper markets are telling us," he said adding the Mediterranean market could end up being significantly oversupplied.
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OPEC action should not shock rebalancing oil market: Saudi energy minister

Saudi energy minister Khalid al-Falih said Monday an agreement among OPEC members outlined last month should not shock the market and a "very gentle hand on the wheel" was needed as global supply and demand was already converging.

Speaking at the World Energy Congress in Istanbul, Falih said he was "optimistic" the details of last month's preliminary agreement in Algiers would be pinned down when OPEC holds its regular meeting in Vienna in November.

Several OPEC ministers are expected to meet here this week, with Russian energy minister Alexander Novak also due in Istanbul.

Falih reiterated comments earlier in the year that an increase in oil prices to $60/b was "not unthinkable," while insisting that prices were not the over-riding consideration.

However his comments on the need for caution by OPEC may fuel suggestions that Saudi Arabia is reluctant to deviate greatly from the policy it adopted in 2014 of tolerating low prices and seeking to maintain market share.

"OPEC needs to make sure that we don't crimp too tightly and create a shock to the market. We don't want to give the market the opposite signal and shock markets into prices that could be harmful," he said.

Falih added that market conditions had changed since OPEC made its decision in late-2014 not to intervene in the market to support prices -- a time, he said, when booming US shale production was causing a divergence in the market.

"It's a very gentle hand on the wheel and we're not doing anything dramatic, different. I think the market forces have shifted significantly between 2014 and now," he said.

"I spoke in June about the rapidly emerging rebalancing and the fact that I was seeing the convergence of supply and demand, from a very clear [divergence] in 2014, where supply from one region alone, North America, was growing much faster than global demand. OPEC made its decisions not to intervene because there was a long-term structural divergence," he said.

"In June I said that divergence has been reversed and now we're seeing the convergence of supply and demand."

OPEC ministers who gathered in Algiers last month agreed to take action to support low oil prices. Concessions that would allow output to increase in countries such as Iran and Nigeria are expected, but the details are unclear.

But Falih on Monday stressed he was taking account not only of prices and OPEC producers, but of the global supply and demand picture.

"My eyes are not on the price -- my eyes are on supply and demand... I make sure that we collaborate with our colleagues in OPEC and non-OPEC producers our decisions, our signals, so that we balance the interests of all these stake holders and most importantly the interests of the billions of people around the world" who depend on oil, he said.

Falih also reiterated his worries about a drop in investment in oil and gas globally, either due to current low oil prices or factors such as exaggerated expectations of renewable energy or lack of demand.

"I don't want to shrink it to an issue of targeting a single price for the purpose of maximizing the income of Saudi Arabia," he said.

"I am concerned about all the talk about stranded resources, coupled with the view of abundant oil and the low oil prices in recent time pulling away investment that is needed for the continued growth in demand we anticipate.

"To ensure availability of reliable and sufficient supplies of energy during the transition period we all must recognize that we need the continued use and investment in all energy sources, especially oil and gas, which is the core energy source today," he added.
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Talisman Energy Facing Texas Federal Lawsuit Over Unpaid Oil, Gas Royalties

Attorneys representing oil and gas royalty owners with interests in the Texas Eagle Ford Shale have filed a federal lawsuit against Talisman Energy USA Inc. based on claims that the company manipulated oil and gas production volumes by as much as 20 to 30 percent and consistently shorted royalty payments.

Attorneys from Texas-based Provost Umphrey Law Firm, L.L.P., are representing Eugene and Kimberly Cran of DeWitt County in their claims against Warrendale, Pennsylvania-based Talisman.

Talisman entered the Texas oil and gas market in 2010 by acquiring leases and wells in the Eagle Ford Shale under a 50/50 joint venture agreement with Norway-based energy company Statoil. Today, the joint venture includes some 4,500 oil and gas leases covering 59,000 net acres and 494 producing wells. In 2014, Talisman reported its share of Eagle Ford production topped 22,000 barrels of oil/condensate per day and represented approximately 20 percent of its proven reserves.

In July 2013, Talisman and Statoil revised their agreement to allow Statoil to assume well operations for half of the Eagle Ford joint venture, while Talisman remained the operator for the remaining wells. As a result, the Crans and other royalty owners began receiving monthly checks from both companies rather than Talisman alone. Shortly after the transfer of operations, the Crans began receiving checks from Talisman with substantial variances in production volumes compared to those reflected in their Statoil royalty payments. The lawsuit refers to these shorted production volumes and shorted payments as the "skim."

Talisman is accused of secretly altering wellhead production data by arbitrarily reducing the measured volumes of oil and gas by as much as 20 percent. The royalty owners say Talisman further reduced the measured volumes in the spring of 2015, shortly after the company was purchased by Spanish energy giant Repsol in a deal valued at more than $13 billion. This January, Talisman gave up all operator responsibilities and Statoil became the sole operator in the Eagle Ford Shale under the joint venture agreement.

The lawsuit filed on Oct. 3 includes claims against Talisman for breach of contract, fraud, conversion and unjust enrichment, among others. A jury trial has been requested by Mr. and Mrs. Cran, who are represented by attorneys Bryan O. Blevins Jr. and Michael Hamilton of Provost Umphrey in Beaumont, Texas, and Ernest Freeman and Stephen Scholl of The Freeman Law Firm, P.C., in Houston.

"When Talisman entered the U.S. market, they were totally unprepared to manage fractional ownership interest by individual royalty owners whose rights and remedies are governed by their lease terms," says Mr. Blevins, lead counsel for the Crans and a litigator who has represented clients in Texas and across the U.S. for more than 25 years. "Our clients have been and are still being significantly and purposely underpaid by Talisman for their mineral rights, and our goal is to make sure that the appropriate parties are held accountable. Talisman's manipulation of production volumes and shorted royalty payments were intentional and may have been related to the Repsol acquisition."
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BP CEO: Oil market is in balance

"The oil market is "pretty much in balance," Bob Dudley the chief executive of BP has told CNBC.

Speaking at the World Energy Conference in Istanbul he said the current oil price was giving producers a little more breathing room.

"We look at it on a daily basis and it is pretty much in balance. It is pretty much there, within half a million barrels one way or the other," Dudley told CNBC.

Dudley added with oil stocks still so high, the wider market sentiment may take time to change.

On the cost of production per barrel, Dudley told CNBC that said BP was looking to re-base targets: "We said $60 next year; we are under $55 now. We can see our way to $53 next year."

"We are going to work hard make these sustainable, so that we don't have to rely on swings in prices that are volatile and not healthy for industries and consumers and markets."

The oil-producing cartel OPEC announced at its meeting in Algeria late last month that it plans to agree on an output cut by the time it meets in late November.

The targeted range is to cut production to a range of 32.50 million barrels per day (bpd) to 33.0 million bpd.

On Monday the Saudi Arabian Energy Minister Khalid al-Falih said he was optimistic that while a production deal could be reached, OPEC shouldn't curb supply too tightly.

Dudley added that the meeting of oil suppliers in Algiers gave those looking for a supply freeze deal some reason to be optimistic

"I will note that countries that traditionally don't have good relations actually made some understanding and agreement there," he said.
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Putin says Russia ready to support OPEC in oil production freeze and even cut

Russian President Vladimir Putin has said Russia will join the deal to cut global oil output. On September 28, the Organization of the Petroleum Exporting Countries said it would reduce production by about 700,000 barrels per day (bpd).

"We support the recent initiative of OPEC to fix oil production limits. We hope that at the OPEC meeting in November, the idea will be embodied in an official agreement, giving a positive signal to the markets and investors," said Putin at the World Energy Congress in Istanbul on Monday.

The Russian President added that the era of oil and gas will not come to an end in foreseeable future.

"The demand for traditional energy supported not only the motorization and electrification of such huge countries and economies as China and India, but also by the continuing participation of oil and gas products in the most diverse areas of human life, in industrial processes," he said.

Oil prices surged during Putin’s speech. The North Sea benchmark Brent was trading at $52.61 per barrel, up 68 cents, rebounding from Monday morning losses. The US benchmark West Texas Intermediate rose 55 cents to $50.36.

Oil producing countries want to reduce the global glut of an estimated 1.0 million to 1.5 million barrels per day (bpd). On September 28, OPEC agreed to curb production by 700,000 bpd.

The details of how the production cuts will be shared are still to be worked out at the next OPEC meeting in Vienna on November 30. OPEC also needs to convince oil producers outside the group like Russia to participate.

Russian Energy Minister Aleksandr Novak said Moscow favors the idea of a global oil production limit, but added it’s profitable for Moscow to freeze production at September’s level. Last month, Russia pumped a record volume of oil, exceeding 11 million bpd.
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The Shale Hedgers start to bite!

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Iran, Russia sign MoU for developing Iran's oil field

National Iranian Oil Company (NIOC) and the Russian Tatneft signed a Memorandum of Understanding (MoU) here on Saturday for feasibility studies on development of Iran's Deholoran oil field, Iran's Petro-Energy Information Network (SHANA) reported.

Addressing the signing ceremony, Director General of Tatneft Nail Ulfatovich Maganov introduced the capabilities of his company for doing the project and said that his company is active in various oil industry subsidiaries, including the upstream and downstream activities.

Oil extraction, enhanced oil recovery, oil refining, manufacturing of machinery and equipment are among the expertise of Tatneft, Maganov was quoted as saying.

Tatneft uses specialized forces and takes advantage of the latest technologies in oil industry, Maganov said.

He voiced satisfaction for cooperating with the NIOC, expressing hope that the agreement will prepare the ground for future cooperation.

Dehloran oil field is 22 km to the southwest of Dehloran city in Iran's Ilam province and contains about five billion barrels of oil reserves.
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China to boost shale gas output

China will boost its shale gas annual output to 30 billion cubic meters by 2020 and 80-100 billion cubic meters in another ten years, according to a document released by the National Energy Administration (NEA) on September 30.

The goal represents a huge increase from the current level, 4.5 billion cubic meters last year, according to NEA data.

To realize this ambition, China will ramp up government subsidies, introduce more investors to the cash-starved sector and encourage cooperation with foreign companies in advanced prospecting technology.

As the world's biggest energy producer and consumer, China is promoting the use of clean energy for greener growth.

China's exploitable shale gas reserves are estimated at 21.8 trillion cubic meters, the most in the world and nearly doubling that of the United States, with 544.1 billion cubic meters discovered. The country's shale oil reserves are also vast, ranking third globally.

Currently, only the US, Canada, China and Argentina commercially produce shale gas. China has produced 5.7 billion cubic meters of shale gas since its commercial exploitation started in 2014.

The government has vowed to increase the proportion of natural gas used in its energy consumption to more than 10% from the current 5.9%. The global average is 24%.

According to Department of Land and Resources of Hubei Province, eight shale gas projects in the province have gained approval recently.

Meanwhile, Qianneng Shale Gas Development Co. in southwestern China's Guizhou province on August 18 decided to get its 10 billion yuan ($1.49 billion) Anye #1 into operation in October, with a capacity of 3 billion cubic meters per annum.
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Shale Explorers Boost Activity Further After OPEC ‘Lifeline’

Explorers added oil rigs in the U.S. for a sixth consecutive week after OPEC’s pledge to cut output triggered a crude market rally, allowing producers to lock in higher prices with hedge contracts.

Rigs targeting crude in the U.S. rose by 3 to 428, adding to the largest level of work since February. Producers haven’t pulled back activity since the end of June. Natural gas rigs fell by 2 to 94 this week, while miscellaneous rigs rose by 1 to 2, bringing the total for oil and gas up by 2 to 524. Despite the overall activity boost, none of the four largest oil basins added rigs.

"Companies are looking at areas that are under-explored or under-developed," James Williams, president of WTRG Economics in London, Arkansas, said Friday in a phone interview. "But what we’re going to see is continued growth in the major oil plays."

Oil breached $50 a barrel for the first time since June this week after the Organization of Petroleum Exporting Countries agreed to the first production cut in eight years. By resuming its policy to balance the market, the group threw a “lifeline” to U.S. shale firms and prompted them to hedge “in droves,” Harry Tchilinguirian, head of commodity research at BNP Paribas SA in London, said last week.

“Every time prices get above the $50 range we see a lot of activity coming in from producers selling into the rally,” said Hamza Khan, an analyst at ING Bank NV in Amsterdam.

Production Delcine

Crude output fell by 30,000 barrels a day to 8.47 million last week, the Energy Information Administration reported Wednesday.

The oil price recovery from a 12-year-low in February prompted producers to begin returning parked rigs to service after idling more than 1,000 rigs since the start of last year. West Texas Intermediate, the U.S. benchmark crude, fell 1.4 percent to $49.73 at 1:15 p.m. on the New York Mercantile Exchange.

"If the oil price is near current levels two months from now, there’s going to be a significant growth in oil based off of the $50 price we’ve seen," Williams said. "So you’ll also see more oil drilling come November and December."
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Australia Pacific LNG second unit starts producing

The Australia Pacific liquefied natural gas (LNG) plant, run by ConocoPhillips , confirmed on Monday that production had begun in the second of its two units.

"The second train is up and running, enabling our LNG Facility on Curtis Island to deliver commercial quantities of LNG at sustained output from both trains," Australia Pacific LNG Chief Executive Page Maxson said in a statement.

APLNG, a 9 million-tonnes-a-year project co-owned by ConocoPhillips, Origin Energy and China's Sinopec , is among three coal seam gas-to-LNG plants to have opened on Curtis Island off Australia's east coast over the past two years.

APLNG did not say when it would ship its first cargo from the second production train, but traders say it is due in the second half of October. The plant has loaded 47 cargoes since starting up last December.
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Iraq's oil minister wants country to increase output in 2017

Iraq's oil minister has urged oil and natural gas producers operating in the country to continue increasing output next year, the oil ministry said in a statement on Sunday.

Jabar al-Luaibi's comments came as OPEC nations are trying to implement an agreement to curb oil output for the first time since the 2008 financial crisis, in order to push up crude prices.

The ministry's statement quoted remarks Luaibi made to a meeting of Iraq oil industry executives in the southern oil city of Basra to review the ministry's oilfields' development plans.

It made no mention of the decision by the Organization of the Petroleum Exporting Countries on Sept. 28 to reduce output to a range of between 32.50 million barrels per day and 33.0 million bpd.

OPEC's production stood at around 33.6 million bpd in September, according to a Reuters survey that put Iraq's output at 4.43 million bpd.

The minister "has affirmed the need to proceed forth with increasing oil and gas production through enhancing the national effort and those of the licensed companies for the remainder of 2016 and also for 2017," the statement said.

Foreign companies' oil output targets "should be reached within the assigned periods," the ministry quoted Luaibi as saying.

The ministry also aims to increase associated gas output by adding 350 to 450 million cubic feet a day to the nation's production in 2017, Luaibi said.

Natural gas output levels in Iraq's southern region are tied to crude production levels as the two are produced from the same reservoirs.
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Iranian, Iraqi oil ministers will not attend Istanbul talks - sources

The oil ministers of Iran and Iraq will not attend informal talks between OPEC and non-OPEC producers in Turkey this week, sources familiar with the matter said on Sunday.

OPEC sources and the Russian energy minister said on Thursday that ministers from the two countries would be among representatives of OPEC states at the meeting in Istanbul, which is hosting the World Energy Congress.
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Russia, Turkey resume gas price talks: Russian energy minister

A worker checks the valve gears in a natural gas control centre of Turkey's Petroleum and Pipeline Corporation, 35 km (22 miles) west of Ankara, January 5, 2009. 

Moscow and Ankara have resumed talks on the price of Russian gas for Ankara, Russian Energy Minister Alexander Novak said in an interview with Turkey's Hurriyet newspaper.

A gas price dispute between Turkish pipeline operator Botas and Russia's state gas producer Gazprom led to Botas launching international arbitration proceedings against Gazprom in October 2015.

The row had led to talks on their joint Turkish Stream natural gas pipeline project to be suspended earlier that year.

In November 2015, most contact between Russia and Turkey were halted after the downing of a Russian fighter jet by Turkish military, although since then Moscow and Ankara have made significant progress towards restoring relations.

"Talks about gas price have resumed, I hope the sides will come to a common position," Novak said, according to the text of the interview published on the Russian Energy Ministry's website on Sunday.

Botas says it was promised a discount on the price of gas in February 2015 but that Moscow never signed off on the deal.

Novak said he expected the first hearing in the case to be held in 2017.

"It is possible that by then Russia's Gazprom Export and Turkey's Botas will be able to resolve their disagreements related to the price of gas," Novak said.

Novak also told Turkey's state-run Anadolu Agency that an intergovernmental agreement on Turkish Stream was almost complete and would be finalised before the meeting of the presidents of Turkey and Russia in Istanbul this week.

Novak is due to attend the World Energy Congress in Istanbul this week, and plans to meet representatives of key OPEC producers and OPEC secretary general for informal talks on oil output.
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ConocoPhillips sues Venezuela's PDVSA, calls bond swap 'fraudulent'

Subsidiaries of U.S. oil company ConocoPhillips have sued Venezuelan state oil company PDVSA in a Delaware court, according to a court filing, accusing it of fraudulent operations involving its U.S. subsidiary Citgo.

ConocoPhillips said PDVSA operations, including an ongoing bond swap that uses shares in Citgo Holding Inc as collateral, are part of an effort to prevent Conoco from collecting compensation in a dispute over a 2007 nationalization of its Venezuela holdings.

ConocoPhillips has for nearly a decade been pursuing a case against Venezuela in a World Bank tribunal to obtain billions of dollars in compensation for the 2007 takeover of its Venezuela assets by late socialist leader Hugo Chavez.

The tribunal known as ICSID in a partial ruling in 2013 said that takeover was illegal.

The U.S. company in an Oct. 6 filing cited numerous operations involving Citgo, including an attempt to sell it in 2014, a debt offering that financed dividend payments to PDVSA, and most recently a bond swap operation that uses Citgo Holding as collateral.

"The purpose behind each of these transfers is the same: to remove assets from the United States to Venezuela and/or to encumber assets in the United States, with the intent to hinder, delay or defraud PDVSA's and Venezuela's arbitration award creditors, including ConocoPhillips," it said in the document.

ConocoPhillips says Venezuela has also sought to protect its assets from being seized in any of some 20 arbitration cases filed by companies ranging from U.S. oil giant Exxon Mobil to small Canadian mining company Crystallex.

Neither PDVSA nor a U.S.-based lawyer who represents it immediately responded to request for comment.

It was not immediately clear when a decision was expected.
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NOVATEK reports preliminary operating data for the first nine months of 2016

OAO NOVATEK reported today preliminary operating data for the nine months 2016.

NOVATEK's marketable production totaled 49.95 billion cubic meters (bcm) of natural gas and 9,387 thousand tons of liquids (gas condensate and crude oil), resulting in a slight decrease in natural gas production by 150 million cubic meters, or by 0.3%, and an increase in combined liquids production by 2,852 thousand tons, or by 43.6% as compared with the nine months 2015.

The Company processed 9,356 thousand tons of unstable gas condensate at the Purovsky Processing Plant, which represented a 7.6% increase as compared with the corresponding volumes processed in the nine months 2015.

NOVATEK processed 5,197 thousand tons of stable gas condensate at the Ust-Luga Complex, which was 3.0% higher than the volumes processed at the facility in the nine months 2015. Preliminary nine months 2016 petroleum product sales volumes aggregated 5,211 thousand tons, including 3,247 thousand tons of naphtha, 774 thousand tons of jet fuel, and 1,190 thousand tons of fuel oil and gasoil. Export sales of stable gas condensate amounted to 1,069 thousand tons.

As at 30 September 2016, NOVATEK had 2.46 bcm of natural gas and 426 thousand tons of stable gas condensate and petroleum products in storage or transit and recognized as inventory.

NOVATEK's marketable hydrocarbon production including share in production of joint ventures:

                                             9M 2015       9M 2016       Change,%
Natural gas, bcm                 50.10           49.95              -0.3%
Liquids, thousand tons      6,535           9,387             43.6%
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Last minute talks end Norway strike threat

Norway has avoided strike action by unions at three plants serving the country’s energy industry after a deal was agreed.

The move means industrial action which could have cut gas supplies to Britain has now been avoided.

The deal was reached after extending talks for three hours past a midnight deadline.

A strike could have impacted deliveries of liquefied natural gas (LNG) globally.

Jan Hodneland, a negotiator from the oil industry, said: “We are happy that the parties have agreed during the mediation on a new collective agreement for the next two years.”

Altogether 338 members of the SAFE union were set to go on strike at Statoil’s Melkoeya LNG plant, Shell’s Nyhamna natural gas processing plant and ExxonMobil’s Slagen refinery terminal if the wage talks had failed.

The Melkoeya plant turns gas from the Arctic Snoehvit field into LNG, while Nyhamna can supply up to 20 percent of Britain’s natural gas demand from the giant Ormen Lange field offshore in Norway.
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GLOBAL LNG-Prices rise to highest in nine months on firm Asian demand

Asian liquefied natural gas (LNG) gas prices reached a nine-month high this week as demand from India, Japan and South Korea underpinned sentiment.

LNG for November delivery were about $6.20 per million British thermal units (mmBtu), 10 cents higher than last week, as supply-demand balances for the rest of the year appear tighter, said three traders who participate in the market. That is the highest since the week ending Jan. 8.

Higher crude prices are also lending support to LNG values. ICE Brent futures have gained 3.3 percent to above $52 a barrel this week following the Organizations of the Petroleum Exporting Countries announced plans to curb production.

LNG demand from North Asia remains firm as nuclear power stations in Japan and South Korea that have been taken offline are expected to stimulate demand for the super-cooled fuel.

Japan's Kyushu Electric Power Co shut the 890-megawatt No. 1 reactor at its Sendai nuclear plant on Thursday for planned maintenance that is expected to last at least two months, although a restart could be hampered by anti-nuclear local authorities.

South Korea has also shut multiple nuclear power plants for maintenance and as a precaution after the country suffered its biggest earthquake ever in September.

"We expect demand to continue to be strong in Korea and Japan. China is also looking for more cargoes," a Malaysia-based LNG trader said.

The best bids from Asian buyers were pegged at the low-$6 per mmBtu range, while offers were in the mid- to high-$6 per mmBtu range, the traders said.

"It is still a buyers' market, but for November and December cargoes, sellers can decide who they want to sell to," a Singapore-based trader said, adding that the market may rise due to demand from India and North Asia.

Indian gas firm GAIL closed a tender seeking a November and a December cargo early this week. The results were not immediately known, but traders expect the firm to have appetite for more cargoes.

Angola LNG, which closed its sell tender for its Oct. 4-6 loading cargo on Wednesday, is likely to have awarded the tender because of its prompt loading dates. The bids are valid until Friday.

Despite firm Asian demand, gains in spot prices could be capped by new production from the Australia Pacific LNG (APLNG) project that is due to start-up this quarter, and returning U.S. supplies. Cheniere's Sabine Pass is scheduled to come back from maintenance around Oct. 17, a source close to the matter said on Thursday.

The Australian project is starting up its second production line, an APLNG spokesman said on Thursday, with traders expecting a first shipment to be loaded later this month.

Attached Files
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Venezuela makes new attempt to arrest oil production fall with new ventures

In a fresh attempt to contain a fall in oil production, Venezuela's state-owned PDVSA announced two alliances with Chinese and Bulgarian companies to reactivate 931 wells in Lake Maracaibo, with the objective of adding 50,600 b/d and 43 MMcf/d of natural gas to output in the short term.

"China-based Shandong Kerui Group Holding Co. will repair 624 wells, with financing of $30 million provided by the Chinese company," PDVSA said Thursday.

"Also, PDVSA and the Bulgarian-Venezuelan Consortium Aleco are discussing reactivating 307 wells in Lake Maracaibo, with financing of $100 million that would come from the Bulgarians," PDVSA added.

In September, PDVSA President Eulogio Del Pino, who also is oil and mining minister, said the company will drill 480 wells in the Orinoco Belt in the next 30 months, with the participation of international companies such Schlumberger and Horizontal Well Drillers, as well as Venezuela's Y&V, Halliburton and Baker Hughes.

"The goal is to increase production by 250,000 b/d with an investment amounting to $3.2 billion," Del Pino said in September.

On Monday during an interview broadcast by state television, Del Pino said that the 'well drilling and rehabilitation projects in Lake Maracaibo as well as in the Orinoco Belt are structured with a contract scheme so that financing is paid with future crude output."

PDVSA's growing debts with its oil field service providers is paralyzing upstream development. Of the 373 wells drilled last year, 51% were contracted to international service companies, which have gradually been halting work due to non-payment.

"There is a sustained decline of production of light crude, which has not been compensated for with production of heavy and extra heavy crudes," a source in PDVSA's exploration and production division said on condition of anonymity.


On Thursday, the Oil and Mining Ministry said that Venezuela's crude oil production in September averaged 2.334 million b/d, up 0.2%, or 6,000 b/d, from 2.328 million b/d in August.

The increase was attributed to greater output from the Orinoco Belt, the ministry said in a release Thursday.

But over the longer term, Venezuelan oil production has been falling steadily since January 2015, when it totaled 2.812 million b/d.

Contrary to the Venezuelan report, S&P Global Platts' latest OPEC survey showed Venezuela averaged 2.1 million b/d of crude oil production in September, a 20,000 b/d decrease from August.

The production of light crude fell to 374,000 b/d in 2015 from 416,000 b/d in 2014, according to official data. The figures for 2016 are not available yet, but output continues to decrease.

The most pronounced declines occurred in the light crude fields in western Venezuela, especially those located in the Lake Maracaibo basin, the PDVSA E&P source said.

Declines in eastern Venezuela have been less pronounced. But still, output at El Furrial and Pirital, between Monagas and Anzoategui states, continues to show signs of depletion, the source said.

To make up for the growing deficit of light crude, PDVSA has since the end of 2014 been importing cargoes of light crude from Nigeria, Algeria, Russia and the United States to process at refineries in Venezuela and Curacao for its export mixtures and for upgraded extra heavy crudes.

But PDVSA continues to face cash flow problems, and imports have slowed. The lack of light crude supply also hurts PDVSA's diluted crude oil (DCO) production, which in turn means less revenue on exports and compounds the company's cash problems.

"Assuming an average weighted blending ratio of around 22%/barrel and assuming there's broadly between 50,000-100,000 b/d of diluent material they can't get their hands on, that's around 250,000-500,000 b/d of DCO at risk," said FGE analyst Thomas Olney in an email.


In August, due to a lack of feedstock, PDVSA shut two crude distillation units at its leased 335,000 b/d refinery on Curacao island.

Light crude imports from the US to Curacao have been falling for several months and dropped to zero in July, according to the latest US Energy Information Administration data.

PDVSA has also had to reduce rates at its domestic refineries in Venezuela due partly to a shortage of light crude.

"We have reports of low availability of light crude, which is an important component of the crude diet processed at the refineries," said oil workers union leader Ivan Freites.

"PDVSA maintains processing levels below 50% at its refineries because restarts at basic units are months behind schedule and there is not enough crude to process," Freites said.

PDVSA's largest refinery, at Amuay, is operating at 49.6% capacity or 320,000 b/d.

The Cardon refinery is operating at 38.7% capacity or 120,000 b/d, according to a technical report seen by Platts on Thursday. The two refineries, with 645,000 b/d and 310,000 b/d maximum capacities respectively, comprise the Paraguana Refining Center, or CRP, in northwestern Venezuela.

PDVSA's 140,000 b/d El Palito refinery had been shut since April, and the company is conducting maintenance there through October.

Also, PDVSA's FCC unit at the 187,000 b/d Puerto La Cruz refinery has been closed since May 1.

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Australia: LNG exports to rise 40 percent in 2016-17

Australia’s LNG export volumes are expected to increase by 40 percent year on year to 51 million tonnes in fiscal 2016–17, according to the country’s Department of Industry, Innovation and Science.

An additional 15 million tonnes of LNG export capacity is expected to be completed by mid- 2017, bringing total operational capacity to around 66 million tonnes, the department said in its latest report named Resources and Energy Quarterly.

This includes the second and third trains at Chevron’s giant Gorgon project in Western Australia, and the second train at the ConocoPhillips-operated Australia Pacific LNG project in Queensland.

The value of Australia’s LNG exports is forecast to increase by 41 percent to $23 billion in fiscal 2016–17, supported by higher LNG prices and export volumes, the department said in the report.

Increased exports to Japan, South Korea and China are expected to drive the rise in Australia’s LNG export volumes.

“While prospects for total import growth in Japan and South Korea are subdued, Australian producers are expected to capture an increasing share of both country’s imports with the commencement of a number of long-term contracts over the outlook period.”

LNG export forecast revised down

The department said in the report that the forecast for LNG export volumes in fiscal 2016–17 has been revised down by 2 million tonnes from the June edition.

The revised forecast reflects a conservative view of the ramp up of LNG exports at several projects in Australia.

“Statements from Santos executives in August indicate that GLNG may operate both trains below capacity for some time, with company releases noting that the low price environment is restricting capital expenditure and that the cost of third party gas has risen,” the report said.

Prices rise

After declining over the first five months of 2016, prices for Australian LNG delivered to markets in North East Asia rose in June, the department said.

The average price of LNG into Japan, Australia’s largest market and the world’s largest importer, increased by 18 percent to US$6.51 a gigajoule, it said.

“The recent uptick in prices reflects the effect of the oil price rally in early 2016, with most LNG delivered into Asia sold under contracts linked to the Japanese Customs-cleared Crude (JCC) oil price, by a time lag of three to four months.”

The North East Asian spot price has increased over the past few months, averaging $5.80 a gigajoule in August, but remains around historic lows, as a result of growing excess capacity in the market.

“Prices for LNG delivered to North East Asia are expected to rise in the September quarter before flattening out towards the end of the year, as the lagged response of LNG contract prices to recent oil price movements plays out.”

LNG contract prices are then expected to rise further in 2017, consistent with the forecast recovery of oil prices to $55 a barrel. In contrast, spot prices are forecast to remain low, as the entry of new capacity in the US and Australia ensures that the market remains well supplied, the department said.

“The implications of a potential divergence between contract and spot LNG prices remain to be seen, with one scenario that buyers begin to reduce LNG purchases to take-or-pay levels and seek to buy larger volumes on the spot market.”

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Sanchez Production Partners executes agreements to acquire midstream and other assets from Sanchez Energy

Sanchez Production Partners LP today announced that the Partnership has executed definitive agreements with Sanchez Energy Corporation pursuant to which the Partnership anticipates:

SPP will acquire Sanchez Energy's 50% interest in Carnero Processing, LLC for an initial payment of approximately $47.7 million in cash and the assumption by SPP of remaining capital commitments to Carnero Processing, which are estimated at approximately $32.3 million;
SPP will acquire certain production assets, located in South Texas, from Sanchez Energy for total consideration of $27 million, prior to normal and customary closing adjustments (the 'Production Asset Transaction'); and
SPP will obtain an option to acquire a lease for a tract of land leased from the Calhoun Port Authority in Point Comfort, Texas.


Carnero Processing is currently constructing a cryogenic natural gas processing plant in La Salle County, Texas which is expected to be operational in early 2017 (the 'Raptor Plant'). The Raptor Plant will be connected to Sanchez Energy's Catarina asset in the Eagle Ford Shale in South Texas via the Carnero Gathering System, which is 50% owned by SPP through Carnero Gathering, LLC ('Carnero Gathering').

Carnero Processing and Carnero Gathering, joint ventures that are 50% owned and operated by Targa Resources Corp. (NYSE:TRGP) ('Targa'), have firm capacity, fixed fee agreements with Sanchez Energy for 125,000 Mcf/d of plant processing and associated pipeline capacity for five years. Pursuant to the agreements, Sanchez Energy has dedicated its Catarina acreage and all production developed at the asset to the joint ventures during a 15 year term. Sanchez Energy also has the option to deliver additional volumes and commit additional acreage to the Raptor Plant as production increases. Sanchez Energy plans to spend approximately two-thirds of its 2016 drilling and completion budget at Catarina, and considers the asset a key part of its development focus and growth strategy.


The Production Asset Transaction includes working interests in 23 producing Eagle Ford wellbores located in Dimmit and Zavala counties in South Texas together with escalating working interests in an additional 11 producing wellbores located in the Palmetto Field in Gonzales County, Texas (the location of SPP's first Eagle Ford acquisition, which closed in March 2015). The Production Asset Transaction is expected to add approximately 700 Boe/d of production, on average, in 2017. The estimated proved reserves from the producing wellbores is approximately 2,136 MBoe, of which 73% is oil, 13% natural gas liquids, and 14% natural gas. Subject to the terms and conditions of its credit agreement, the Partnership intends to execute hedges for up to five years on the incremental production in conjunction with transaction closing.


The Port Comfort Lease would provide the Partnership with a strategic location for the intended construction of a marine crude storage terminal with a joint venture partner, which is expected to be completed in early 2017. Once complete, the terminal is expected to include 350,000 shell barrels of storage capacity.

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NuBlu Energy starts construction work on LNG plant in Louisiana, US

NuBlu Energy starts construction work on LNG plant in Louisiana, US

NuBlu Energy has announced that it has started building an LNG plant along the Mississippi River in Port Allen, Louisiana, US.

The plant will support high-horsepower fuelling applications, such as rail, marine, long haul transportation, power generation, gas interruption, asphalt and other energy markets.

The facility will have an initial start-up capacity of 30 000 gal./d, which will rise to 90 000 gal./d at total capacity. It will also feature a storage capacity of 100 000 gal., and will be able to load both LNG transport trailers and ISO containers. The plant is expected to become operational in 2Q17.

Cory Duck, General Partner, NuBlu Energy, said: “This project represents the inauguration of a new direction for the LNG energy market. By ‘making LNG local’, NuBlu will foster the growth of LNG consumption for all current and future consumers of this clean energy fuel. Our patented process allows the production of LNG at a fraction of the cost per gallon of other existing liquefaction technologies and our modular design allows the facilities to be deployed at a relatively low capital outlay.”

Josh Payne, General Partner, NuBlu Energy, added: “Our site selection process was intense. We wanted to be positioned to meet the demands of the emerging marine market for both brown water and blue water fuelling and we absolutely believe we have achieved that goal.”
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Essar Group Said to Near Sale of $6.5 Billion Refinery Unit

Essar Group, controlled by India’s billionaire Ruia brothers, is nearing a final agreement to sell control of its refinery unit to Russian energy giant Rosneft PJSC and commodities trader Trafigura Group Pte, people with knowledge of the matter said.

The Indian conglomerate aims to sign a binding deal in the next two weeks to sell 49 percent of Essar Oil Ltd. to Rosneft, according to the people, who asked not to be identified because the information is private. Trafigura is also in advanced talks to buy a minority stake in Essar Oil, the people said. The suitors have been discussing a valuation of about $6.5 billion for Essar Oil, India’s second-largest private refiner, one of the people said.

The board of Rosneft, which signed a non-binding pact on the potential purchase in July 2015, plans to meet Oct. 13 to approve the transaction, according to the people. Essar is considering eventually selling down most of its remaining interest in the refinery business and may keep only a residual stake of 5 percent or less, the people said.

Russia has been cementing energy ties with India, which is expected to surpass Japan as the world’s third-largest oil user this year and be the fastest-growing crude consumer through 2040, according to International Energy Agency estimates. A conclusion to the sale would help Essar Group, which has been grappling with debt after an $18 billion spending spree, generate funds to repay lenders.

‘Huge Population’

“Global players want to bet heavily on the Indian market because India has a huge population as well as rising income,” Jagannadham Thunuguntla, head of fundamental research at Hyderabad-based Karvy Stock Broking Ltd., said by phone Friday. “Its energy needs are growing rapidly both at the consumer level and industry level.”

Final terms of the deal are currently being negotiated and an agreement could still be delayed, according to the people. Representatives for Essar, Rosneft and Trafigura declined to comment.

Essar Oil runs the Vadinar refinery in the western state of Gujarat, which can process about 400,000 barrels a day. Most of the refinery’s output is sold locally, either through its own outlets or to government-owned fuel retailers. In July last year, Rosneft signeda pact to supply Essar Oil about 200,000 barrels of crude per day over 10 years.

The deal being discussed includes the refinery as well as the Vadinar port and more than 2,000 retail gas stations, according to the people. The initial transaction won’t include a power plant serving the refinery, which could be transferred later after getting necessary approvals, the people said.

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Alternative Energy

EU Parliament committee backs carbon market reform compromise

The European Parliament's industry committee voted on Thursday to back a compromise for reforming the European Union's carbon market, favoring a Commission proposal on the speed for removing permits from the market.

The committee voted 45 to 13 for a package of measures aimed at tightening the amount of carbon permits overall as part of the EU's policy of implementing a landmark global climate deal, the Paris Agreement.

The EU's Emissions Trading System (ETS) is designed to make big polluters in Europe, such as power companies and industry, pay for their emissions. However, a surplus of carbon credits following the economic crisis has weakened prices.

The report will feed into debates in the European Parliament's environment committee, which is tasked with the bulk of the reform.

The industry committee backed a proposal for a 2.2 percent annual rate for removing carbon permits from the market from 2020 to 2030.

This was criticized by environmental groups for not being tough enough to help meet EU emissions targets.

Lawmakers stuck with the EU executive's proposal for allocating permits to industry perceived to be at risk of relocating abroad to avoid the burden of climate taxes.

Under the Commission's proposal, energy-intensive industries would be divided into two categories, with sectors considered "at risk" receiving allowances covering 100 percent up to a benchmark value based on the cleanest plants, and the rest 30 percent.

That would meet a key demand of a group of 15 European energy-intensive industry associations, which had called for the rejection of an alternative proposal for a tiered approach, which would add more categories of allocations of free permits to industries.

The cement lobby welcomed the deal as balanced.

Lawmakers also proposed not to hand out free permits to sectors not seen as at risk of relocating - a move viewed as bullish for the market, analysts for Thomson Reuters Point Carbon said.

However, they approved allocating up to 5 percent more free allocations to industry affected by a trigger mechanism known as the correction factor that cuts permits across all sectors if the total meted out by nations exceeds EU law. These would be taken from the share of permits to be auctioned.

The committee also agreed to cancel 300 million allowances from the Market Stability Reserve (MSR), which soaks up surplus permits, and called for a higher threshold of 50,000 tonnes for small emitters to opt out of the system.

Lawmaker Ian Duncan, who is shepherding the changes through the European Parliament, described the overall report as a sensible compromise.

"The real test now is not to get through the committees, it’s to get through the plenary," he said at Carbon Pulse's Carbon Forward conference in London.

Parliament's Environment Committee is scheduled to vote on the reforms in December while a plenary vote is due early next year, probably in February.

The benchmark EU carbon price was trading at 5.56 euros a tonne, after earlier rising to a session high of 5.68 euros.

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GE to buy wind turbine rotor blades maker for $1.65 billion

The logo of Down Jones Industrial Average stock market index listed company General Electric is shown at their subsidiary company GE Aviation in Santa Ana, California April 13, 2016. REUTERS/Mike Blake

General Electric Co (GE.N) said it would buy LM Wind Power, a maker of rotor blades used in wind turbines, from private equity firm Doughty Hanson for $1.65 billion, as it looks to boost output in its renewable energy business.

Denmark-based LM Wind Power is the largest supplier of rotor blades to GE, and the deal will help the U.S. industrial conglomerate in-source turbine blade design and manufacturing, the company said on Tuesday.

GE said it intends to operate LM Wind Power as a standalone unit within its renewable energy operations.

LM Wind Power operates 13 factories in eight countries including Denmark, Spain, Poland, Canada, the United States, India, China and Brazil.

GE said it expected the deal, which would close in the first half of 2017, to add to earnings in 2018.

GE also said the integration of Alstom Power was on track.

The company closed its $13.6 billion acquisition of Alstom SA's (ALSO.PA) power business in November last year.
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BHP swallows Lomborg line and sells itself short on wind and solar

Australia’s biggest company and the world’s bigger miner, BHP Billiton, has issued a downbeat forecast for wind and solar in a blog post that predicts demand for fossil fuels – among its core businesses – will continue to flourish for decades to come.

The BHP blog post is tantalisingly titled – “How much spark is there in the solar and wind revolution” – and begins with the comment that the world is seeing “the dawn of a wind and solar power revolution”.

But a “dawn” is about all it sees.

The post is apparently based on the ground-breaking Paris climate agreement, which aims to limit average global warming to well below 2°C and possibly at 1.5°C.

Yet its forecasts for wind and solar are based on the world completely ignoring that deal and pushing forward with the current suite of enacted and proposed policies, rather than the additional initiatives that the agreement will require world governments to bring to the table.

Borrowing a line often spoken by climate contrarian Bjorn Lomborg – and frequently cited by the Coalition government – BHP says that wind accounts for just 3.5 per cent of total electricity and solar 1 per cent and will not play a huge role into the future.

It says that the share of wind and solar will grow, even triple, but that fossil fuels will continue to provide 80 per cent of the world’s energy needs in 25 years time.

This forecast is based on the International Energy Agency’s “new policies” scenario, which forms the bedrock of similarly pessimistic predictions by Lomborg, and also forms the basis of the Australian Coalition government’s latest energy white paper.

It effectively ignores climate change because the new policies scenario is expected to produce an outcome of between 3°C and 4°C of global warming. Is this then the basis of BHP Billiton long-term investment decisions?

Billions of dollars are at stake, and investors would not want to see a repeat of its Johnny-come-lately dive into the US shale gas industry which cost it billions of dollars in write-offs.

BHP, however, hints that the trillions of dollars of sunk investment in fossil fuel industries will make it difficult for renewable energy to get much more of a foothold.

“The trillions of dollars already ‘sunk’ in existing conventional, long-life power plants must also be considered,” it writes. “This will impact the speed of renewables uptake, but not the direction of change.”

It then adds that there is plenty of headroom for renewables to grow before the “constraints of the current renewables technology begin to bite.”

It defends its predictions by citing the cost of solar in the world’s biggest energy market, China, where it predicts that solar will not compete with coal for at least another decade.

These are perilous predictions. The established world order has made a terrible hash of predicting the uptake of wind and solar, or realising its rapid cost reduction curves.

BHP recognises that solar is already cheaper than fossil fuels countries such as Morocco and Chile – but suggests it will take a while for that to happen in China.
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Government reveals tax rates for green electricity

The government has revealed new tax rates for gas and electricity for the next three years.

It includes new prices for electricity generated from renewables following former Chancellor George Osborne’s announcement in July last year to scrap the Climate Change Levy exemption for green power.

That means from April 2017, the price for green electricity will be £0.568p/kWh and 0.583p/kWh a year later and £0.847p/kWh in 2019.

The rate for gas has been set at 0.198p/kWh for 2017, 0.203p/kWh for 2018 and 0.339p/kWh the following year.

The price for petroleum gas and other gaseous hydrocarbon supplied in a liquid state will be 1.272p/kg in 2017, 1.304p/kg in 2018 and 2.175p/kg in 2019.

The government has also announced the standard landfill tax rates for April 2017 which will be £86.10 per tonne, £1.70 higher than  previously set.

The rate from April 2018 will be £88.95 per tonne, 3.3% higher than the previous rate.
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Canada's carbon pricing pushing mines to look at renewable alternatives

Carbon pricing is pushing mining leaders to consider renewable-energy options as a way of further reducing greenhouse-gas emissions and stabilising energy costs, according to information source for energy and mining Energy and Mines director Adrienne Baker.

"Carbon pricing in Canada is having an impact on the energychoices of mines. With carbon becoming a commercial liability, mines are evaluating renewables for remote sites and integrating alternative energy into feasibility studies for new operations as a way of limiting carbon exposure," she says.

Energy and Mines points out that Canadian miningcompanies currently leading carbon reduction and renewables integration include Barrick Gold, Iamgold,AurCrest Gold, Goldcorp and TMAC Resources.

These companies are investing in renewables and mine electrification to significantly reduce their carbon exposure, stabilise energy costs and boost social licence to operate.

"The projects these mines are doing and the approaches they are taking to energy are models for the entire sector to mitigate carbon risk and address energy challenges," notes Baker.

Internationally, Conference of the Parties 21 targets, as well as emerging carbon policies in key mining jurisdictions – including Chile, Argentina and South Africa – are also pushing mining leaders to integrate carbon exposure into their energy choices.

Energy and Mines notes that mining leaders are adopting shadow prices - the estimated price of a good or service for which no market price exists - on carbon and introducing carbon risk into their energy plans for global operations, which is a big change over the last two years, when the core focus has been energy savings.

"Many miners, including Newmont and Gold Fields, are elevating carbon risk to a strategic level and integrating it into their energy plans," she adds.

Carbon pricing and the role of renewables will be a key topic at the fourth yearly Energy and Mines World Congress, taking place in Toronto, Canada on November 21 and 22, which will bring together over 300 mining, renewables andfinance leaders to discuss carbon mitigation and renewables integration.

Solar energy company Lightsource Renewable Energy is the event sponsor, which drives connections between globalmining and renewables experts to accelerate sustainable energy for mines.

The event will also celebrate mining companies for their achievements in renewable energy for the first time this year.
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Global Q3 clean energy investment at weakest since 2013-research

Global clean energy investment fell to its lowest quarterly level since 2013 between July and September due to a lull in offshore wind financing in Europe and a slowdown in project financing in China and Japan, research showed on Monday.

Investment in renewable energy and smart energy technologies totalled $42.2 billion in the third quarter, down 31 percent from the previous quarter and down 43 percent from the third quarter of 2015, a report by Bloomberg New Energy Finance said.

Asset finance of utility-scale renewable energy projects fell 49 percent year-on-year to $28.8 billion in the third quarter.

"These numbers are worryingly low even compared to the subdued trend we saw in Q1 and Q2," Michael Liebreich, chairman of the advisory board of Bloomberg New Energy Finance, said in a statement.

Chinese investment fell by 51 percent compared with the third quarter last year to $14.4 billion and Japan's investment was 56 percent lower at $3.5 billion.

In many countries, electricity demand growth is also lower than government forecasts.

"My view is that the Q3 figures are somewhere between a 'flash crash' blip and a 'new normal'," Liebreich said.

If more transactions emerge, Q3 figures could be revised upwards, but with Q1 and Q2 data down an average 23 percent from the equivalent quarters last year, clean energy investment this year could end up well below last year's record of $348.5 billion.

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Xinjiang reaches deals with eastern provinces on electricity supply

Northwestern China's Xinjiang Uygur autonomous region reached deals recently with Jiangsu, Jiangxi and Tianjin on 1.5 TWh of outbound electricity supply this year, with 200 GWh of electricity generated from wind, solar and other new energies, local media reported.

The electricity, as per contracts signed, will be transmitted from Xinjiang through multiple inter-province UHV DC power transmission lines to the three major power users in eastern China.

It not only guarantees the power supply of these regions, but also contributes to the maximum utilization of Xinjiang's resource advantages and its economic development.

In addition, Guangdong, Beijing, Hubei and Hunan will also purchase a total 2.05 TWh of electricity from Xinjiang this year, and the relative framework agreements will be signed between governments afterwards.

By end-August this year, the installed capacity of power generation in Xinjiang totaled 74.47 GW, with 25.5 GW of new energies. Its installed capacity is expected to exceed 80 GW by end of this year.

Xinjiang has outbound power transmission capacity of 8 GW presently, and its transmission capacity will further expand after operation of the Zhunger-Anhui UHV DC power transmission line by the end of the 13th Five-Year Plan period (2016-2020).
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Argentina expects $1.8 billion investment from renewable energy auction

Argentina expects investment of $1.8 billion from 17 renewable energy projects awarded in an auction to generate 1,109 megawatts of power, the government said on Friday, as it tries to lessen dependence on imported power.

Argentine and international companies are among the winners, with Spanish companies Isolux Corsan SA and FieldFare earning a solar contract and China's Envision Energy winning four wind contracts.

The projects are meant to increase the percentage of national power production from renewable sources to 8 percent of the total next year from 1.8 percent currently.

"We'll be at about 5 percent of the goal we have established," Undersecretary of Renewable Energy Sebastian Kind told a news conference.

The average winning price was $59.40 per megawatt hour and $59.70 per megawatt hour for solar.

Argentina received a total of 123 project bids in September, but said on Friday it awarded 17. Of those, 12 are wind, four solar and one biogas. The government received some bids for hydroelectric and biomass projects but did not accept them.

The government has said it aims to stop importing light crude oil this year as it moves toward energy self-efficiency. The country has been running an energy deficit since 2011 and investment in its Vaca Muerta shale fields has been slow to arrive.

Several Latin American countries are turning their attention to renewable energy. In August neighboring Chile awarded contracts to supply power for two decades from the 2020s.

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Perovskite breakthrough may fast-track new solar PV technology

Just over a year after Australian cleantech company Dyesol claimed to have achieved efficiency levels of 10 per cent in its perovskite solar cells, US researchers claim to have topped that, with a breakthrough that could also work to fast-track commercialisation of the technology.

As reported on RenewEconomy, perovskite PV applications have been one of the most-hyped areas for next generation solar PV technology in recent years, with researchers achieving startlingly fast conversion efficiency increases.

It has, however, also been plagued with stability and durability issues, with the material sensitive to moisture contact and high efficiency perovskite cells exhibiting high degradation rates.

Researchers at the US National Renewable Energy Laboratory (NREL) said last week that their work in fashioning a next-generation perovskite PV cell using so-called “quantum dots” had been successfully tested to have better than 10 per cent efficiency.

NREL researchers with solutions of all-inorganic perovskite quantum dots, showing intense photoluminescence when illuminated with UV light. Source: NREL

The work, part of the federal Energy Department’s Sunshot initiative, has also led to development of a method to stabilise the crystalline structure of all-inorganic perovskite material at room temperature rather than only high temperatures, according to Recharge News – a key step in commercialisation of the concept.

By using quantum dots – nanocrystals of cesium lead iodide (CsPbI) – the team has removed the need for the cells unstable organic component, “opening the door” to a high-efficiency perovskite cell that can operate at temperatures ranging from far below zero to well over 600 degrees Fahrenheit.

“Most research into perovskites has centred on a hybrid organic-inorganic structure,” said the NREL team, which was led by Abhishek Swarnkar. “Since research into perovskites for photovoltaics began, their efficiency of converting sunlight into electricity has climbed steadily and now shows greater than 22% power conversion efficiency.

“However, the organic component hasn’t been durable enough for the long-term use of perovskites as a solar cell.

“Contrary to the bulk version of CsPbI, the nanocrystals were found to be stable not only at temperatures exceeding 600F but also at room temperatures and at hundreds of degrees below zero,” said the researchers.

A report earlier this year from US-based analysts Lux suggest recent advances in perovskite PV could lead to commercial roll-out of the technology “between 2019-21”.

According to Recharge, approaches to cell design have led to a transformative improvement in the economics of the technology, making it increasingly competitive with market-dominant crystalline silicon (CSi) and thin-film, which boast efficiencies of 17-23 per cent.
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India receives $500m boost for rooftop solar

India will see an increase in the number of rooftop solar systems in the country, thanks to a £500 million funding.

The Asian Development Bank (ADB) is providing the money to support the government’s plans to expand energy access using renewables.

Punjab National Bank – one of India’s largest commercial banks –  will use the fund to provide loans to developers and end users throughout the country to install rooftop solar panels.

The funding will also help India reach its target of installing 40GW of solar rooftop systems by 2022.

According to the ADB, the investment will help the nation reduce around 11 million tons of greenhouse gases during the 25-year lifetime of solar rooftop systems.

The announcement follows India’s ratification of the Paris Agreement.

Anqian Huang, Finance Specialist in ADB’s South Asia Department said: “There is huge potential for India to expand its use of solar rooftop technologies because of the sharp drop in the price of solar panels, meaning the cost of producing solar energy is at or close to that from fossil fuels. Sourcing more solar energy will also help India meet the carbon emissions reduction target that it has committed to as part of the recent global climate change agreement.”
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EDF CEO says hopes more nuclear reactors will return online by year-end

The chief executive of French utility EDF said on Thursday he hoped more offline nuclear reactors could return to production before the end of the year, following reports that France could face tight supplies this winter.

"We are working to make sure reactors that are on outage resume production," EDF CEO Jean-Bernard Levy told reporters.

"We are still carrying out demonstrations with ASN and we hope that some of these reactors will resume production by the end of the year," he said.

Power prices have spiked sharply higher in recent weeks on fears of supply shortages.
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Sapec launches sale of agricultural chemicals business - sources

Belgium-listed chemicals group Sapec has launched the sale of its agricultural chemicals business as it streamlines its portfolio, two people close to the matter said.

The company has asked Lazard to find a buyer for the business and tentative buyers have already been asked to sign non-disclosure agreements, the people said.

Sapec was not available for comment while Lazard declined to comment.

In the first six months of 2016, sales at Sapec's agricultural chemicals business were roughly flat at 120 million euros ($134 million), while earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by a third to 20 million euros.

The agrichemicals sector has seen a wave of consolidation, including Bayer's acquisition of Monsanto and ChemChina's purchase of Syngenta.

While these deals valued the targets at roughly 17 times expected core earnings, Sapec's agrichemicals unit is unlikely to reach a similar price tag as it is a mixture of higher-margin crop protection and lower-margin fertilizer business.

Potential bidders were expected to value the business at up to 10 times its expected core earnings, or up to 400 million euros, a person familiar with the matter said.
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Bayer: won't use Monsanto buy to force GM seeds on Europeans

The CEO of Germany's Bayer AG is promising it won't use its planned acquisition of Monsanto Co. to force genetically modified crops on skeptical Europeans.

Monsanto in September accepted an offer from Bayer to pay $57 billion to its shareholders and assume $9 billion in debt. The combination would create a global agricultural and chemical giant—and bring Bayer together with a leading producer of genetically modified seeds that are engineered to resist drought, among other things, but viewed with deep suspicion in Europe.

Bayer CEO Werner Baumann was quoted Monday as telling German daily Sueddeutsche Zeitung: "We don't want to take over Monsanto in order to establish genetically modified plants in Europe." He added that Bayer accepts European resistance "even if we are of a different opinion."

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Precious Metals

Gold Standard Intersects 97.3m of 3.16g Au/t at the North Dark Star Gold Deposit

Key North Dark Star Highlights

DS16-24 intersected 97.3m of 3.16 g Au/t approximately 65m down-dip to the west from 126.2m of 3.95 g Au/t intersected in DS16-08 (see August 9, 2016 news release). The dip of the mineralization appears to be flattening to the west, rather than steepening, a positive development. Mineralization occurs within the host package of decalcified, variably silicified, and collapse brecciated debris flow conglomerate, the same part of the conglomerate section that hosts gold in core holes DS16-08, DS16-03B, DS16-21 and DS15-13.

The intercept in DS16-24 is split into two contiguous zones: an upper, pervasively oxidized zone, with limonite and hematite; and, a lower reduced zone with sooty pyrite, carbon, weak limonite and hematite on fractures. The transition from oxide to reduced zones with increasing depth in Carlin-style gold systems is a well-documented and expected pattern. The two higher grade intervals of 10.1m of 4.02 g Au/t and 49.1m of 4.62 g Au/t are indicative of a robust gold system.

Approximately 120 meters south of DS16-24 and -08, the oxide intercept of 39.0m of 0.72 g Au/t in DS16-27 represents the down-dip continuation of 101.2m of 1.50g Au/t mineralization intersected in DS16-03B (see August 18, 2016 news release). Separation between the DS16-27 and DS16-03B mineralized intercepts is approximately 60 m and mineralization appears again to be flattening to the west. Mineralization in DS16-27 occurs in decalcified, weak to moderately silicified, oxidized and collapse brecciated debris flow conglomerate, bioclastic limestone, calcarenite, and silty limestone.

The north-striking Ridgeline fault has emerged as an important control on mineralization with the gold system focused in the eastern, hanging wall side of the fault. A new and evolving interpretation suggests that the North Dark Star gold zone occurs in a syncline within the hanging wall of the Ridgeline fault. Faults and folds are well-documented controls on mineralization within Carlin-style gold systems of northern Nevada.

DS16-23, a core hole located approximately 80m east and up-dip of DS16-03B, returned anomalous gold values from altered and oxidized debris flow conglomerate. Initial interpretations suggest DS16-23 may be east of mineral-controlling structures.

Attached Files
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Silver miner Hochschild raises full-year production forecast

Precious metals miner Hochschild Mining Plc raised its full-year production forecast for a second time this year on Thursday, citing better-than-expected performance at its Inmaculada and Arcata mines in Peru.

** The company, which has mining operations in Peru, Chile and Argentina, said it expected full-year production to be 35 million silver equivalent ounces.

** The company had earlier expected to produce 32 million ounces this year.

** Hochschild also reported a 17.8 percent rise in its silver production at 5.9 million ounces in the third quarter ended Sept. 30.
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Barrick’s $1bn Super Pit stake said to draw Kinross, Zijin

Barrick Gold’s stake in the Kalgoorlie Super Pit mine has drawn interest from Kinross Gold and Zijin Mining Group in a sale that could fetch as much as $1-billion, people with knowledge of the matter said.

Australian producers  Newcrest Mining, Northern Star Resources and Evolution Mining are also reviewing data on the mine ahead of possible indicative bids, which are due by the end of October, according to the people. Chinese companies including China National Gold Group andShandong Gold Mining are also considering offers, the people said, asking not to be identified because the details are private.

Gold producers have been reining in costs and selling assets after prices dropped for three straight years. Barrick, the world’s largest gold miner, continues to seek asset disposals even as a price surge this year helped spur its highest profit since 2013.

The Toronto-based firm announced plans to sell the 50% stake in the mine in July and hired Credit Suisse Group to advise on the sale. Its joint venture partner Newmont Mining, the mine’s operator, has signalLed it would be willing to buy the stake at the right price. Barrick President KevinDushnisky said last month the company expects a competitive auction for the Super Pit and that initial indications were “very positive".

Barrick is considering various ways to structure the sale, according to the people. One possibility involves selling shares in the holding company that owns the mine, which would not include a right of first offer for Newmont and thus would allow other buyers to potentially acquire the stake, the people said.


Newmont will “participate in the process", and as operator of the asset it has improved the mine’s production and costs, spokesman Omar Jabara said in a mobile-phone text message. The partners in the joint venture agreed last April to changes in the site’s management under which Newmont assumed greater responsibility.

Spokesmen for Barrick, Kinross, Newcrest, Northern Starand Evolution declined to comment. Zijin, China NationalGold and Shandong Gold didn’t answer calls to their offices and e-mails seeking comment during a public holiday inChina.

The asset, known as the Super Pit, is 3.5 km long and ranks asAustralia’s largest openpit gold mine, its website shows. It’s located in Kalgoorlie, a city in Western Australia where themetal has been produced continuously since a late 19th-century gold rush.

Barrick last year sold the Cowal mine in Australia to Sydney-based Evolution for $550-million and a 50% stake in thePorgera mine in Papua New Guinea to Zijin. The company said in July it would divest other non-core assets including the Lumwana copper mine in Zambia, a 64% interest in African gold producer Acacia Mining and its remaining holding in Zaldivar.

Gold bullion for immediate delivery has risen 19% this year to $1 258/oz as demand for the metal as a store of value climbed on global economic-growth concerns. The metal fell this week to the lowest in almost four months after US jobs data strengthened the case for an increase in interest rates in December.
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Base Metals

Chile regulator draws up charges against Antofagasta's Los Pelambres mine

Chile's environmental regulator on Thursday drew up various charges against the Los Pelambres copper mine for mismanaging water resources and nearby flora, charges which could lead to stiff fines or even closure.

"In all, nine charges have been brought for detected non-compliance relating to its RCA (environmental permit)," the regulatory body SMA said in a statement.

Of the nine alleged violations at Los Pelambres, controlled by Antofagasta Minerals, five were considered serious and four minor, according to the SMA.

The infractions included the extraction of water from unauthorised locations, the construction of unauthorised wells and the failure to reforest some zones as required by law.

Antofagasta could not be immediately reached for comment.

Los Pelambres has ten days to present a compliance plan to the SMA or 15 days to present a defence. The punishment for the alleged infractions could be a fine of $23.8-million or the temporary or indefinite closure of the mine, the SMA said.

In 2013, the SMA initiated a separate regulatory proceeding against Los Pelambres for mismanaging archaeological sites.

Los Pelambres, located in Chile's north-central Coquimbo region, produced 375 800 t of copper in 2015
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Philippines minister says wants to ban new mines as clampdown deepens

Philippines Environment and Natural Resources (DENR) Secretary Regina Lopez answers a question during a news conference at the department's headquarters in Quezon city, metro Manila, Philippines August 11, 2016. REUTERS/Romeo Ranoco

The Philippines' environment minister on Friday said she wanted to ban new mines, ramping up a campaign to clamp down on damage from the minerals industry in the Southeast Asian nation.

The Philippines is the world's top nickel ore supplier and an environmental crackdown that has halted a quarter of its 41 mines, and the risk that 20 more maybe shuttered has spurred a rally in global nickel prices.

"I want to put a moratorium on any new mine," Regina Lopez told a media briefing on Friday.

"I don't want to fight the mining companies, I can work with them as long as they don't silt the river, destroy the rice fields."

Lopez, a committed environmentalist, also said her agency would review around 800 environmental compliance certificates (ECC) including those granted to mines. That would come on top of a mining industry audit completed in August that led to the current mine suspensions.

Lopez on Friday said that not all the 20 mines recommended for suspension would be halted, confirming an earlier Reuters report.

Nickel prices surged to a one-year high of $11,030 a tonne in August, although the metal has since retreated, trading at $10,425 on Friday.

Lopez also announced the suspension of the ECC of a nickel mine in southern Davao Oriental province run by private-owned Austral-Asia Link Mining Corp.

Lopez told Reuters on Monday that the environmental permit would be canceled because it sits between Mount Hamiguitan, a UNESCO World Heritage Site, and Pujada Bay, a marine protected area.

"We're now going to have an intense evaluation of all other ECCs. No more mining in any protected areas," she said.

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Kamoa-Kakula Project said to be largest copper discovery ever in Africa

Kamoa-Kakula Project now demonstrated to be the largest copper
discovery ever made on the African continent

Kamoa-Kakula ranks among the world’s 10 largest copper deposits – and stands as the world’s largest, high-grade copper deposit – following a new Mineral Resource estimate

Kakula – the second major discovery at Kamoa – contains Indicated Mineral Resources estimated at 66 million tonnes  at 6.59% copper plus Inferred Resources of 27 million tonnes  at 5.26% copper, at a 3% cut-off

Kakula also contains Indicated Mineral Resources estimated  at 192 million tonnes at 3.45% copper plus Inferred Resources  of 101 million tonnes at 2.74% copper, at a 1% cut-off

Kakula’s addition boosts the combined Kamoa-Kakula  Indicated Mineral Resources to 944 million tonnes  at 2.83% copper plus Inferred Resources of 286 million tonnes  at 2.31% copper, at a 1% cut-off
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Prominent Hill resumes full production, Olympic Dam ramping up

Mining companies Oz Minerals and BHP Billiton have resumed operations at their mines in South Australia, after electricity was restored earlier this week.

Oz Minerals’ flagship Prominent Hill copper/gold mine has resumed full production, the company reported on Thursday.

The miner previously warned that it will likely miss its gold production target for the year, owing to the suspension ofoperations, but that its copper production will within guidance.

BHP Billiton said that it was working to ramp-up operations at Olympic Dam mine. While some work continued in the underground operations during the power outage, the miner said the focus was on safely transitioning surface operations from a period of care-and-maintenance back into full production.

BHP is expected to release the production impacts of the power outage in its September quarterly report, but it has been speculated that the miner lost an average of 567 t of copper production, at a cost of A$2.7-million a day, during the power outage, based on the 2015 output of 203 000 t and current metals prices.

South Australia’s power grid suffered a blackout a fortnight ago, following a fierce state-wide storm, which knocked down power lines. The outage has attracted severe criticism from Prime Minister Malcolm Turnbull, who has accused some state governments of putting too much emphasis on generating electricity from wind and solar farms. South Australia uses wind farms and rooftop solar panels for 40% of its power, more than any part of the country.

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China September copper imports drop 26 pct yr-on-yr -customs

China's imports of copper fell by more than a quarter in September to the lowest in more than a year, customs data showed on Thursday, the latest sign of waning appetite in the world's top commodities consumer as local supplies remain plentiful.

Copper imports dropped by 26 percent from a year ago and 2.9 percent from month ago to 340,000 tonnes in September, data from the General Administration of Customs showed. That's the lowest since at least August 2015.

Ore and concentrates shipments totaled 1.39 million tonnes, down 4.1 percent from August and up 14.9 percent from last year.

Copper imports to China, the world's leading copper and aluminium consumer, include anode, refined, alloy and semi-finished copper products.

The country exported 390,000 tonnes of unwrought aluminium and aluminium products, including primary, alloy and semi-finished aluminium products, in September, down from August's 410,000 tonnes, but up 11.4 percent year-on-year.
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Resurgent Iran to impact copper, zinc prices through 2020

While not expecting a boom, BMI Research in a new report is positive about the medium-term growth outlook for Iran’s mining industry following the lifting of decades old Western sanctions at the beginning of the year.

Over the next five years, new investment from Europe and Asia will accelerate the growth of the Middle-Eastern nation’s mining sector, which contains vast underdeveloped reserves but is in dire need of modernization and new technology.

BMI cautions progress will be slow given that the industry remains dominated by state-owned companies despite two rounds of privatization of state-owned copper producer Nicoco (shares were taken up other government enterprises and banks).

According to BMI Iran's copper output will outperform in the coming years, averaging yearly growth rates of 13% through 2020, compared to just 2.1% during the past five years.

Copper production is expected to top 500,000 tonnes by the end of the decade despite Nicoco’s virtual monopoly over the copper supply chain in the country.

Nicoco operates the country's three major copper mines of Sarcheshmeh, Sungun and Miduk which has combined reserves estimated to be 3.4 billion tonnes (bnt) of ore containing an average of 0.6% copper. The Sarcheshmeh copper mine, located in Kerman Province, is the world's second largest.

Copper production is expected to top 500,000 tonnes by the end of the decade despite Nicoco’s virtual monopoly

The mine holds over 826 million tonnes of proven and 1.2 billion tonnes of estimated copper reserves with 0.7% average grade alongside substantial amounts of other minerals including molybdenum, gold, silver and rare metals. The Sungun mine is Iran's second largest copper operation with over 470 million tonnes of proven and 1 billion tonnes of potential reserves grading 0.6%.

The third major copper mine is Miduk, an open pit mine that holds 170 million tonnes of proven copper reserves with an average grade of 0.25%. In 2015, Nicoco added about 300,000 annual capacity to its total copper concentrate production capacity by commissioning two ore beneficiation units at Sarcheshmeh and Sungun.

BMI notes that a year ago Nicoco signed an investment agreement with a consortium of Middle-east companies for the construction of the 100,000 Chah Firouzeh copper concentrate plant in Kerman Province, expected to start operations in 2019.

Iran has the world's largest proven zinc reserves estimated at roughly 300 million tonnes, but the sector is vastly underdeveloped according to BMI with just 0.5% mined so far. Iran sits behind China, Kazakhstan and India as the world's number four producer of zinc ore.

After several years of production decline, Iran's zinc mine output is set to return to positive growth, boosted by stronger international prices and booming demand from domestic construction.

The two largest mines are Mehdiabad with 16.5 million tonnes of zinc ore reserves and the Angouran mine with 9 million tonnes of remaining zinc ore reserves. Lead and zinc production are in the hands of Iran Zinc Mines Development Group, Bama Mining & Industrial, Bafgh Mines and Calcimin.
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Indonesia probably won’t allow nickel-ore exports, Minister says

Indonesia will probably drop a controversial plan to allow exports of low-grade nickel ore and bauxite amid opposition from local smelters and fears that it could upset Chinese investors who’ve poured billions of dollars into the country to build processing plants.

“Most likely there won’t be any relaxation for exports of nickel ore and bauxite,”  Luhut Panjaitan, acting energyand mineral resources minister, told reporters on Wednesday. The country “has attracted investments of about $5 billion, including for stainless steel, so why do we need toexport if we can process domestically?”

The apparent U-turn comes about a week after Panjaitan had raised the possibility of easing the ban. The government had discussed allowing ore exports with 1.8% nickel content or less because the material is hard to process locally and the money would help fund local smelters. Shipments of 15-million metric tons a year were being considered.

A final decision has yet to be made and the government aims to complete discussion on the mineral export policy next week, Panjaitan said in Jakarta. The proposal has met resistance from top domestic nickel producers Tsingshan Bintangdelapan Group, partly owned by China’s Tsingshan Holding Group, and  PT Vale Indonesia, a unit of Brazil’s Vale SA. State-owned PT Aneka Tambang supported the move.


The government is still reviewing its policy on copperconcentrates exports, Panjaitan said. The current legislation stipulates that shipments must end from January 2017 as part of a drive to get more value from sales by encouraging miners to invest in domestic processing capacity.

Southeast Asia’s biggest economy banned raw ore exports in 2014 to stop mineral wealth disappearing overseas. The country was the top supplier of nickel ore to China for use instainless steel before the moratorium.

The Philippines ramped up production to fill the gap, but the country’s mining industry is now facing a raft of closures forenvironmental reasons. Indonesian sales of 15-million tons would have been almost half the 32.3-million tons shipped by the Philippines last year.
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Savannah shares rise 4% on Rio Tinto deal

Savannah Resources PLC expects to begin a scoping study immediately on its enlarged heavy minerals sands project in Mozambique having brokered a new deal to combine assets with mining giant Rio Tinto PLC.

The commercials remain broadly similar to the original agreement to bring together the projects, which are next to each other and are effectively component parts of the same deposit.

To speed up the process, Savannah’s Jangamo property and Rio’s Chilubane and Mutamba areas will go into a consortium company at a later date, likely to be after the grant of a mining licence.

The AIM-listed mine developer will have an initial 10% stake in and operatorship of the merged entity, which will rise to 51% as it achieves certain milestones.

The scoping study, to assess the potential of the projects, is one of those landmarks. It will kick off immediately and is expected to be complete by the first quarter of next year.

Mutamba-Jangamo includes an established 65mln-tonne resource and significant expansion potential. The exploration target is out at between 7-12bn tonnes at a grade ranging from 3% to 4.5% total heavy minerals sands.

The tie-up with Rio was first announced last summer. The latest agreement follows consultation with the Ministry of Mineral Resources and Energy of Mozambique.

A “delighted” chief executive David Archer said: “Agreeing an arrangement that enables exploration activities to be conducted on a unified basis across the Mutamba, Dongane and Jangamo projects makes significant commercial sense, effectively combining three areas which are part of the same, continuous mineralisation trend.”

Stock is on the move

The shares rose 4% to 4.25p in morning trade, valuing the business at £18mln. In the year to date the stock has advanced 173% and is showing no signs of flagging.

“The consortium approach is a major positive development for Savannah Resources that will allow the company to get started on its eagerly awaited initial work programme at the combined Mutamba-Jangamo project,” said Ryan Long, mining analyst at Northland Capital.
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Peru's Antamina expects to double its zinc output next year

Oct 10 One of Peru's top copper and zinc mines, Antamina, will likely double its zinc output to between 340,000 tonnes and 360,000 tonnes next year to take advantage of an expected rise in prices, the mine's general manager said on Monday.

Abraham Chahuan added that annual copper production would probably rise to 430,000 tonnes in 2016 and 2017, slightly above the 412,000 tonnes the mine reported in 2015, according to the energy and mines ministry.

BHP Billiton and Glencore Plc each own 33.75 percent stakes in Antamina. Teck Resources Ltd controls 22.5 percent of the mine and Mitsubishi Corporation 10 percent.

Chahuan said the open-pit operation in Peru's central Andes is expected next year to tap a layer of zinc veins that would allow it to reap the benefits of potential price increases as a global shortage looms.

"There's a lot of talk about how there are greater expectations for the price of zinc, and that's ... going to coincide with our much greater production of zinc next year," Chahuan said at a press conference.
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Copper: Funds turn net long again in copper

The funds trading Comex copper were net buyers last week for the fourth week running, with 2,328 lots of fresh buying and 661 contracts of short-covering.

This made for a net rise of 2,989 contracts, switching the net fund position to net long 899 contracts from net short 2,090 contracts last week....
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Vedanta expects higher second-half production at Indian zinc unit

Diversified miner Vedanta Resources Plc said it expects production at its Indian zinc unit to be significantly higher in the second half of the financial year ending March 31, 2017 compared with the first half.

Zinc India's mined metal production was 318,000 tonnes in the first half ended Sept. 30, 2016, down about 33 percent on year due to lower production from the Rampura Agucha mine in the northwestern state of Rajasthan, Vedanta said.

The company's shares rose as much as 2.5 percent, before paring gains to trade up about 1.1 percent at 0716 GMT on the London Stock Exchange.

Vedanta said it expected to complete the takeover of oil and gas explorer Cairn India Ltd in the first quarter of calendar year 2017.
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SolGold tells BHP Billiton to buzz off

Mining giants are queueing up to get a piece of Solgold and its Cascabel project but, flattered though it is by BHP Billiton's offer, it is going to dance with the girls it came with
The wedding's off - not that it was ever on

Mining heavyweight BHP Billiton plc has taken a shine toSolGold plc and its Cascabel project in Ecuador.

The Anglo-American FTSE 100 heavyweight has offered to take a 10% stake in Brisbane-based SolGold at US$0.22 a share, which comfortably tops an offer on the table from Maxit Capital pitched at 16 cents a share, which in turn was twice the amount Australian gold major Newcrest had offered for a piece of SolGold.

Even so, SolGold’s board has rejected BHP’s proposals.

BHP’s US$30mln offer comes with strings attached, in the form of the right to appoint a director to the board of SolGold, but it is also proposing to sweeten the pot further by spending US$275mln to acquire 70% of SolGold’s 85% interest in Exploraciones Novomining (ENSA), the company that owns the mining rights to the Cascabel project tenements.

It is worth noting that BHP’s proposed cash injection is subjection to a number of conditions, such as completion of due diligence and the SolGold board agreeing to row Maxit and Newcrest out of the picture. The latter looks unlikely, as SolGold’s board expressed the view that BHP’s proposal is not superior to the previously announced US$33mln financing with Maxit and Newcrest.

“When all of the elements of the BHP Proposal are taken into account, the BHP proposal implies an attributable price paid to SolGold and in respect of the Cascabel project that is at a significant discount to the current trading price of SolGold and the US$33 million financing with Maxit and Newcrest,” SolGold’s statement said.

"We are very pleased to see BHP join a growing list of international mining companies that are interested in investing in SolGold; however, the current US$33 million financing with Maxit and Newcrest is the preferred option at this time as it leaves us in control of this very exciting project at Cascabel,” said SolGold executive director Nick Mather.

“There is considerable upside in the additional 13 targets as well as the existing and growing Alpala deposit. We have developed the exploration models and strategies to an advanced level, we are well funded and we are intent on delivering and retaining that upside substantially, for all SolGold shareholders," Mather said.
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Steel, Iron Ore and Coal

Coking coal spot price triples to $231/mt FOB Australia on severe shortage

Coking coal spot price triples to $231/mt FOB Australia on severe shortage

Coking coal prices continued its upward trend Thursday, tripling in value to $231/mt FOB Australia from $76.45/mt at the beginning of the year. This is based on the S&P Global Platts Premium Low Vol benchmark assessment.

Spot prices have climbed $12.50/mt since the beginning of the week on the back of high liquidity.

At least eight trades were reported done or close to being concluded this week. End-user demand, coupled with trader interest fueled the trades.

In terms of a geographical breakdown, the trades were mostly Asia-centric though with some participation from Europe.

Concerns over supply of prime hard coals after two force majeure declarations by Anglo American and South 32 in the last two months, coupled with perennial Chinese coal shortages led to the price rally, sources said.

PLV spot price has now exceeded the Q4 contract price settlement in northeast Asia by $31/mt. The settlement was done at $200/mt FOB Australia last Friday. The soaring met coal prices have also affected steelmakers' production costs, which was previously dominated by the price of iron ore.

Met coal now accounts for 60% of a steel mill's production costs compared with 42% in 2015, according to Platts cost composition model.

Trades in the paper market, however, suggested a backwardated structure.

Paper trades on the Chicago Mercantile Exchange on Platts PLV FOB Australia were at $182/mt FOB Australia Thursday for Q1 2017.
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At last, residual mining right returned to Kumba Iron Ore’s Sishen

A long-running legal dispute, which arose in 2010, came to a head on Thursday whenSouth Africa’s Department of Mineral Resources(DMR) returned the residual 21.4% undivided share of the mining right for the Sishen mine toKumba Iron Ore subsidiary, Sishen Iron Ore Company (SIOC).

The 21.4% share, initially held by steelmaking companyArcelorMittal South Africa (AMSA), has been the subject of a head-scratching dispute, which arose six years ago when the DMR controversially granted the right to politically connected company Imperial Crown Trading (ICT).

Now SIOC has the mining right back, following the completion of an internal appeal process, as prescribed by Section 96 of the Minerals and Petroleum ResourcesDevelopment Act (MPRDA).

Prior to the MPRDA coming into effect, SIOC and AMSA both held undivided shares of a mining right in the properties on which Sishen's mine was located.

In terms of the latest development, SIOC is the sole and exclusive 100% holder of the right to mine iron-ore and quartzite at the Sishen mine.

New Kumba CEO Themba Mkhwanazi expressed appreciation to the DMR for bringing the matter to a successful conclusion.

However, the consent is subject to various conditions.

Kumba said in a release to Creamer Media’s Mining Weekly Online that these include the continuation of the exportparity price agreement between SIOC and AMSA in its role as a strategic South African steel producer, as well as SIOC’s continued support of skills development, research and development and initiatives to enable preferential procurement.

Mkhwanazi made the point that Kumba, an Anglo American subsidiary, remains fully committed to contributing towardsSouth Africa’s developmental objectives against the background of Anglo last year announcing its intention to dispose of its controlling interest in Kumba and to exit the Northern Cape iron-ore business.
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China's Sept steel exports down 22pct on year

China exported 8.8 million tonnes of steel products in September, falling 21.78% on year and down 2.33% on month, the lowest in the past three months, showed the latest data from the General Administration of Customs (GAC).

Total exports of steel products rose 2.4% on year to 85.12 million tonnes over January-September, data showed.

China's steel makers preferred to sell steel products to domestic buyers than export amid a robust domestic market.  

Meanwhile, China imported 1.13 million tonnes of steel products in September, climbing 11.88% on year and up 1.8% from August; imports over January-September stood at 9.83 million tonnes, gaining 1.03% from the year prior.

China imported 92.99 million tonnes of iron ore in September, 7.98% higher than last year and up 6.01% from August. Over January-September, iron ore imports reached 762.55 million tonnes, rising 9.13% year on year.

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New Hope warns Queensland enviro Bill risks A$900m coal mine expansion

Coal miner New Hope has warned that it will likely start redundancies as its Acland mine, in Queensland, if the state Parliament passes new environmental legislation that risks a A$900-million expansion of the mine.

In a letter to members of the Queensland Parliament, New Hope MD Shane Stephan said that the Environmental Protection (Underground Water Management) and Other Legislation Amendment Bill, in its current form, posed a risk to the expansion of the Acland mine.

The New Acland Stage 3 project will expand the mine’s yearly output from 4.8-million tonnes to 7.5-million tonnes and will extend the mine life beyond the current end-date of 2017/18.

The expanded operation will see a further 260 people employed at the mine, and could inject some A$12-billion in local, state and federal revenues over the life of the project.

However, Stephan noted in his letter that despite the project having been subject to an environmental impact statement (EIS), a public consultation, and the issue of a draft environmental approval by the Department of Environment and Heritage Protection in August last year, the new Bill could stall the expansion by as much as two years, as New Hope would have to apply for an associated water license, which would require a mining lease approval and a baseline assessment.

The baseline assessment could take between 6 to 12 months to complete, Stephan pointed out, noting that the application process for an associated water license could take an additional 6 to 12 months.

“As resource within our current mining lease will be declining in 2018, it has always been New Hope’s case, and in fact the subject of our application for urgency in the current Land Court hearings, that without approval of a further mining lease in a timely manner, by the first quarter of 2017, redundancies would commence as early as April next year,” Stephan said.

Stephan has called on the members of Parliament to support better transitional arrangements within the Bill for projects that were in the latter stages of the approvals process.

In its submissions to the Parliamentary Committee, mining giant Rio Tinto has also warned that the Bill could delay its own Kestrel Extension 4 project and its Hail Creek transition projects, which have already successfully completed various public submissions and third party challenge process as part of their statutory approvals pathways.

The Bill was referred to a Parliamentary Committee in September, with the Agriculture and Environment Committee expected to report back to Parliament by October 25.

The Bill aims strengthen the effectiveness of the environmental assessment of underground water extraction by resource projects, allow the ongoing scrutiny of the environmental impacts of underground water extraction during the operational phase of a resource project, and ensure the administering authority for the Environmental Protection Act was the decision-maker for specific applications relating to environmental authorities.

The Bill further aims to ensure that the impacts of mining projects that are advanced in their environmental and mining tenure approvals are “appropriately assessed” for their impact on the environment and underground water users, and that opportunities for public submissions and third-party appeals are provided before underground water is taken.
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China's CISA hopes for stable steel prices in Q4

The China Iron & Steel Association (CISA) hopes prices will remain stable in the fourth quarter, secretary general Liu Zhen Jiang said on the sidelines of Worldsteel-50 in Dubai on October 11.

"We will try to avoid a big drop in steel prices because if we see a new price drop the economic efficiency we see at the moment will be badly impacted," Liu said.

Chinese steel demand is seasonally weaker in the fourth quarter, Liu said, suggesting CISA will remind its members "to pay more attention to balancing supply and demand".

The correlation between iron ore and steel is currently more manageable than before, he said.

"We are happy to see the mills and miners wiser and more rational and we hope this stability and correlation between steel and iron ore remains in the coming months."

The rise of coking coal and coke costs poses a real challenge for mills, but this pressure should support steel prices.

China is on target to reduce capacity by 45 Mtpa this year, and could possibly surpass this.

Next year's reduction target is likely to be no less than this year, Liu said, adding that there will be more mergers like Baosteel and Wuhan Iron and Steel Group going forward in the continuing restructuring of the industry.

"They have reasons to join hands, they have similar product portfolios, the merger will help to optimize the product mix while in the meantime reducing overcapacity," Liu said.
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China September coal imports surge again as domestic cuts bite

A worker speaks as he loads coal on a truck at a depot near a coal mine from the state-owned Longmay Group on the outskirts of Jixi, in Heilongjiang province, China, October 24, 2015. 

China imported 24.26 million tonnes of coal in September, up more than a third from a year ago, customs data showed on Thursday, as government-enforced mine closures forced utilities and steel mills to buy more foreign raw material.

For the year to date, imports increased 15.2 percent to 180 million tonnes.

The monthly total was up from 17.7 million tonnes last year but down from August's total of more than 26 million tonnes, which was the highest in nearly two years.

The pace of buying may not continue into October after Beijing allowed domestic mines to ramp up output after inventories fell to critically low levels and prices spiked.

Attached Files
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China's key steel mills daily output slides 3pct in late Sep

Daily crude steel output of China's key steel mills dropped 3% from ten days ago to 1.72 million tonnes over September 20-30, according to data released by the China Iron and Steel Association (CISA).

Chinese steel makers slowed production amid narrowing profit as steel prices fall and key raw materials prices climbed. The government's efforts to reduce surplus capacity in the sector also contributed to the drop.

Daily crude steel output across the country was estimated at 2.28 million tonnes during the same period, falling 1.89% from ten days ago, the CISA said.

By September 30, stocks of steel products at key steel mills stood at 13.15 million tonnes, down 7.33% from ten days ago, the CISA data showed.

By October 8, total stocks of major steel products in China increased 5.21% on week to 9.95 million tonnes, the tenth consecutive rise on weekly basis.

The daily output of China's key steel mills is expected to further slide in October, as steel makers may tend to make furnace maintenance frequently amid a greater risk of loss coming with rising costs.

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China iron ore imports hit 2nd highest on record in Sept-customs

China's iron ore imports surged to the second highest on record in September, customs data showed on Thursday, as mills in the world's top steel producer ramped up production amid healthy profits.

Firm domestic prices also helped curb China's steel exports to the lowest since February, offering a reprieve for overseas rivals that had been angered by a flood of cheap Chinese products.

"Despite a modest fall in steel prices, steel mills were still making a profit in September and thus lifted steel production," said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.

"Actually this year's steel production stood at very high levels, boosting appetite for imported iron ore."

China imported 92.99 million tonnes of iron ore in September, up 6.0 percent from the previous month, data from the General Administration of Customs showed. That was the highest since the all-time high of 96.27 million tonnes in December 2015.

Imports of the steelmaking raw material for January to September reached 763 million tonnes, up 9.1 percent from a year ago.

The country's steel exports fell 2.3 percent from August to 8.80 million tonnes last month, the data showed. Shipments for the first nine months of the year were up 2.4 percent at 85.12 million tonnes.

Chinese prices for rebar steel, a construction product, fell 6.5 percent in September, but are still up 39 percent since the beginning of this year.

However, prices may came under under pressure from Beijing's efforts to restrict home purchases to cool its property market.
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Merafe ferrochrome output rising in higher price environment

The attributable ferrochrome production ofMerafe is on the rise, with the black-controlled JSE-listed company reporting upped output primarily on additional production from the low-energy Project Lion II furnaces of theGlencore Merafe Chrome Venture.

South Africa’s 300 000-member Bafokeng community has the influential shareholding in Merafe, participating in the venture as a pooling and sharing partner.

The company said on Wednesday that furnace refurbishments had been timed to optimise stock levels and manage production volumes, which rose 8 000 t to 285 000 t from January to September, 3% higher than for the same period last year, and 8.5% up in the third quarter to 89 000 t.

Headed by CEO Zanele Matlala, Merafe reported earlier this year that it expects to benefit from renewed positive ferrochrome demand trends, as well as from only four of seven South African ferrochrome producers currently being in production.

The fourth-quarter European benchmark ferrochrome price has been settled at a 12.2%-higher 110c a pound, well up on the 98c-a-pound price of the third quarter.

Ferrochrome-using global stainless steel production is expected to rise by 2.6% this year and by 3.1% next year.

Merafe’s main focus is on its 20.5% participation in the earnings before taxes, depreciation and amortisation of theGlencore Merafe Chrome Venture, in which the London-, Hong Kong- and Johannesburg-listed Glencore holds 79.5%.

As reported earlier by Creamer Media’s Mining Weekly Online, the Lion ferrochrome smelter, owned and operated by the venture, uses 37% less electricity than conventional ferrochrome processes to produce the equivalent volume of ferrochrome.

In addition, the smelter needs far less coke than conventional smelters and uses significant amounts of locally produced, lower-cost anthracite and char.

Had the Lion operation not installed the Premus technology, it would have needed an additional 1 776 MWh to produce the same volume of ferrochrome.

Instead, all four furnaces collectively use some 4 800 MWh/d.

The efficient use of energy – enhanced by pelletising to cope with increasing volumes of fine chrome ore, the proximity of the Port of Maputo, the use of more cost-effective uppergroup two (UG2) chromite ore recovered from platinumtailings – places Lion in a favourable cost position.

The UG2 ore is sourced from the nearby Mototolo mine, aplatinum joint venture between Glencore, black economic-empowerment partner Kagiso Tiso and Anglo AmericanPlatinum.

The bulk of the smelter’s ore arrives by road from theGlencore Merafe Chrome Venture’s Thorncliffe and Magareng mines, which are some 25 km away, and the final ferrochrome product leaves by road in an area not served byrail.

The pelletised material is put through prereduction kilns, which radically reduce furnace time and, thus, electricityconsumption.

Lion II, which was commissioned more than two years ago, doubled the 360 000 t capacity of Lion I to give the Lion smelter a combined capacity of 720 000 t/y of ferrochrome.

Lion II was built at a capital cost of R4.9-billion and includes the Magareng mine.
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Xinjiang Jan-Aug raw coal output reaches 101 mln T

Northwestern China's Xinjiang Uygur autonomous region produced 100.87 million tonnes of raw coal in the first eight months, coming up to the fifth biggest coal producer after Inner Mongolia, Shanxi, Shaanxi and Guizhou, according to the Xinjing government website.

The autonomous region has seen its coal industry moving ahead in recent years, with an array of modern coal mines established and put into operation, greatly boosting coal-based power generation and chemical projects.

In 2015, raw coal output of Xinjiang stood at 140 million tonnes, ranking sixth across the country.
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China key power plants coal stocks surge to 60 mln T

Coal stocks at key power plants across the country surged to 60 million tonnes by October 10 this year, compared with 51.22 million tonnes a month ago, as supply continued to exceed consumption at utilities, official data showed.

That could help sustain power plants to run for 17-18 days on average, up from 14 days at the end of August, when their coal stocks dropped to 51.22 million tonnes.

Key utilities have been seeing their coal stocks rising in the past month, reaching 53.1 million tonnes on September 20 and further to 56.06 million tonnes on September 30.

That was mainly attributed to the drop in power demand for air-conditioning purpose as the hot summer ended, in addition to continuous restocking efforts by utilities.

Analyst predicted that coal stocks at China's key power plants will continue to rise in the remaining days of the year, hovering above 60 million tonnes.

Meanwhile, coal stocks at power plants under the six coastal utilities stood at 13.25 million tonnes on October 10, up 8.5% from the end of September. That could last 23.7 days of consumption, as daily coal burns dropped 5.9% from late September to 0.56 million tonnes.

Coal supply from main production areas are expected to increase, as the government allowed more mines to operate within 276-330 days to ensure supply for the winter heating season, following extreme tightness in recent summer months that lifted up the fossil fuel from multi-year lows.  

Prices of thermal coal, used mainly for power generation, have climbed 63.9% from the start of the year, with 5,500 Kcal/kg NAR material traded at benchmark Qinhuangdao port hitting 599 yuan/t on October 11, up 70.7% from the lowest recorded in November last year.
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Iranian steel exports to reach 20 million mt: Mobarakeh executive

Iran's plan to increase steel capacity could leave 20 million mt/year available for export, Bahram Sobhani, managing director of Mobarakeh Steel, said Tuesday at Worldsteel-50 in Dubai.

The government is planning to increase production to 55 million mt/year by 2025, with 35 million-36 million mt likely to be consumed domestically, he said. Iranian exports are currently around 6 million mt.

Not all delegates were happy to hear this, however.

The strategy was "very questionable" with Iran following a similar trajectory to China -- "increasing capacity without really knowing where to go with it ... Potentially Iran will be a problem going forward," Axel Eggert of European steel producers' association Eurofer told S&P Global Platts on the sidelines of the conference.

Sobhani played down the increased export availability.

"If capacity increases to 55 million mt, it does not mean production will be at that level, it could be another five years until we reach this," he said.

Countries bordering Iran in the south and east had no steel production and good markets, and the eventual resolution of conflicts in the Middle East would mean the export capacity was necessary, Sobhani added.

He said economic growth moved up from minus 2% a few years ago to 6% last year, amid stronger demand for steel.

There has been a huge investment in the country's car industry, and lifestyle changes mean people are buying more household appliances. At the same time, infrastructure is developing quickly and residential housing construction is also increasing.

All this suggests higher steel demand going forward, while pent-up demand in the oil and gas industry after sanctions were lifted could also buoy steel buying.

Mobarakeh recently installed a billet caster at its plant, and has been exporting steel.
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Glencore to resume production at Collinsville mine on resurgent demand

Glencore said on October 11 that it would resume operation at its Collinsville coal mine in Australia's Queensland state by hiring over 200 workers after scaling back production earlier this year, as coal demand resurged in Asia, Reuters reported.

Glencore did not specify when production is expected to resume, while it would likely be in the next couple of months or beginning of next year.

The decision was made after seeing increased demand from Southeast Asia for the specific type of coal produced by Collinsville, the company said.

The coal mine has a production capacity of 6 million tonnes per annum, and mainly produces thermal and coking coal.

There was very little active mining from the mine throughout 2016 with most of the activities focused on drawing down stockpiles which had built up significantly when demand for coal waned, the report cited the company as said.

Less than a year after the coal industry was declared to be in terminal decline as governments tackle reducing carbon dioxide emissions, markets for coal used to generate power and make steel have surged on factors such as China tightening regulations on local production.

Thermal coal prices at the Australian port of Newcastle are up 69% this year to $84.2/t, the highest since January 2014.

Prices for metallurgical coal, used in steel making and also mined at the Collinsville mine, have more than doubled since January to around $200/t.

The 230-strong workforce had been cut by 180, 140 of whom were redeployed to other Glencore mines.

Glencore's saleable coal production in fiscal 2014-15 (July-June) was at 2.6 million tonnes and at 971,000 tonnes in fiscal 2015-16.

Production at Collinsville is not expected to increase Glencore's overall coal exports from Australia given the recent close of its underground mines at Newlands and West Wallsend, the company said.

Exporting coal via the Abbot Point Coal Terminal, Collinsville mine is managed by Glencore and is owned by a joint venture partnership between Glencore (55%), Itochu Coal Resources (35%) and Sumitomo (10%).

Glencore is one of Australia's largest coal producers running 18 mines and employing some 7,650 workers.
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Coking coal, iron ore prices resume surge

The rise in the price of coking coal shows no signs of running out of steam with the Australian export benchmark price climbing again as Chinese traders return from a weeklong holiday with renewed confidence in the the health of the world's second largest economy.

Metallurgical coal was exchanging hands at $218.10 on Tuesday, up $4.70 since the start of the week according to data provided by Steel Index. Steelmaking coal prices are up nearly three-fold since hitting multi-year lows in November last year.

Coal used in power generation has also experienced an unexpected jump this year with seaborne prices for thermal coal up more than two-thirds since the start of the year to exchange hands for just over $84 a tonne on Monday, up 8% since the start of October.

The rally was triggered by Beijing’s decision to limit coal mines' operating days to 276 or fewer a year from 330 before as it seeks to restructure the industry. Safety closures and weather related supply curbs in China and Australia only added fuel to the fire.

Iron ore also enjoyed renewed interest adding nearly 4% this week to trade at $56.50 a tonne on Tuesday.  The price of iron ore is up 32% this year and like coking coal the resurgence comes against expectations of further declines as Chinese steelmaking peak after three decades of growth.

In 2011 floods in key export region in Queensland saw the coking coal price touch  $335 a tonne. The iron ore price peaked in February that same year at $191.50 a tonne. Despite iron ore rally, the iron ore/coking coal ratio is now at its lowest level this century after peaking at 1.2x during 2010.
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Shanxi Coking Coal raises prices as supply tightness remains

Shanxi Coking Coal Group, China's top producer of the steelmaking material, decided to raise washed coking coal prices transported by railways by 50-95 yuan/t ($7.45/t-$14.15/t), effective October 11, sources said.

The state-owned miner raised washed primiary coking coal prices  by 80-90 yuan/t, and wahsed fat coal by 80-95 yuan/t. It also adjusted up its washed 1/3 coking coal by 80 yuan/t, PCI coal and other coking coal  varieties by 50 yuan/t.

In late-September, Shanxi Coking Coal raised October prices of washed coking coal shipped via northern ports by 100-170 yuan/t.

It was learned that Lu'an Group Sima coal mine also lifted up price of #2 washed coking coal by 90 yuan/t to 915 yuan/t, effective October 11.

Northeastern China's Heilongjiang Longmay Group also raised coking coal prices by 130 yuan/ton October 11, setting primary coking coal at 995 yuan/t, 1/3 coking coal at 910 yuan/t, and gas coal at 865 yuan/t.

Coking coal supply still fell short of demand from coke and steel producers after the weeklong National Day holidays despite the government's easing of production control, mainly affected by the newly-implemented truck transport rules and production halts during the holidays.

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Daqin Sept coal transport rise for the 3rd straight month

Daqin line, China's leading coal-dedicated rail line connecting Datong City of coal-rich Shanxi province with northern Qinhuangdao port, transported 29.71 million tonnes of coal in September, further increasing by 2.2% after rising for two consecutive months but down 4.81% on the year, said a statement released by Daqin Railway Co., Ltd on October 11.

The operation of Zhunchi (Zhunger-Shenchi) railway boosted coal transport of Shuohuang (Shuozhou, Shanxi-Huanghua port, Hebei) railway this year, which squeezed the transport by Daqin line.

While in September, Daqin's daily coal transport averaged 0.99 million tonnes, up 5.32% on month, thanks to the new truck transport rules and increased transport ahead of its routine autumn maintenance.

Daqin rail line realized coal transport of 241.73 million tonnes in the first nine months, falling 20.75% year on year.

The coal-dedicated rail line started its autumn maintenance from October 8, lasting 3-4 hours each morning for some 20 days, during which coal deliveries to Qinhuangdao, SDIC Caofeidian and SDIC Jingtang ports, which mainly get coal via Daqin rail line, are expected to drop.

As of October 8, stockpiles at four Daqin-backed coal ports stood at 7.72 million tonnes, rising 49% from the beginning of September.

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Stainless steel surge impacts nickel and ferro-chrome

Global steel demand will rise by a meagre 0.2 percent this year, according to the World Steel Association (WSA).

Next year won't be much better with a forecast of just 0.5 percent growth.

But it could have been worse. The WSA has upped its forecasts from April, when it was expecting demand to fall by 0.8 percent this year.

The improvement is all about China, where production and demand have been lifted by the government's latest stimulus package, another push of the infrastructure and construction buttons.

Within the steel universe, however, one sector is faring much better.

Stainless steel production rebounded strongly in the first half of this year, thanks again to China.

And that has implications for two of the metallic inputs into the stainless production process, nickel and ferro-chrome.

The latter is one of those metals that trades largely in the shadows for want of exchange-traded pricing.

But that may be about to change with the London Metal Exchange (LME) eyeing a potential new contract.


Global stainless production rose by 4.1 percent to 22.1 million tonnes in the first half of this year, according to the International Stainless Steel Forum (ISSF).

That represents both a strong recovery from last year, when production fell by 0.3 percent, and an outperformance relative to total steel production, which fell by almost two percent over the same period.

And, unsurprisingly, this is again all about China, which produces over half the world's stainless steel.

Chinese production surged by 11.5 percent in the second quarter, boosting first-half growth to 7.9 percent.

Domestic demand has been booming but so too have exports, a mini drama within the broader story of rising pushback against the flood of Chinese steel exports.

The trade tensions are there to see in the ISSF's regional breakdown. Other than China the only other region to experience stainless production growth was the rest of Asia.

Output in the rest of the world declined, a trend that may start reversing as the trade sanctions accumulate.


Stainless steel is a core driver of demand for nickel, a market which is currently fixated on the shifting supply dynamics arising from government policy in Indonesia and the Philippines.

Indonesia was the major supplier of nickel ore for China's production of nickel pig iron, a form of the metal used for stainless production.

The country banned ore exports in 2014 in a drive to force its miners down the value chain. The policy has been only partly successful. There has been some build-out of smelter capacity, and in the case of China's Tsingshan, even stainless capacity.

But other smelter projects have struggled to get off the ground and the government is now mulling whether to relax the ban for those that have started construction work.

The Philippines filled the ore supply gap after the Indonesian ban but the country's nickel production has been thrown into disarray by a draconian environmental review of its miners.

A quarter of the country's miners have been closed with another 20 of them under the threat of suspension, many of them nickel operations.

Which begs the question of how China's stainless steel producers are getting sufficient nickel to feed such strong output.

The answer, according to analysts at Macquarie Bank, is by blending higher-content concentrates and even refined metal into their ore mix. ("Nickel and the Philippines - the big surprise of 2016", July 13, 2016).

There is, after all, no shortage of refined nickel around, particularly in China, which has lifted imports by 68 percent to 290,000 tonnes so far this year.

This relatively new usage of primary metal in the stainless production process may be one reason why Chinese nickel demand is up eight percent so far this year and global usage six percent, according to the International Nickel Study Group.


Stainless steel producers also need ferro-chrome and China's surging output has already translated into strong price rises, again according to Macquarie Bank. ("Chrome swings back to a raw material constraint", Oct. 5, 2016).


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This market is still characterised by producer benchmark pricing.

South Africa's Merafe Resources settled European deliveries for the fourth quarter at 110 cents per lb, the highest level in two years and a 12-cent increase in a quarter normally characterised by price weakness.

That reflects a shortage of chrome ore further upstream, particularly falling production in South Africa, the world's largest supplier.

China has no chrome resource of its own and is highly dependent on South African supply. Port stocks, according to Macquarie, are at multi-year lows thanks to booming demand from stainless makers.

The bank does expect some pick-up in supply but "overall, we are looking at a chrome market where inventories will continue falling over the coming years".

With Indonesian stainless capacity rising, thanks in large part to that government policy on pushing for value-add in the nickel sector, "the coming years may well see an ongoing scramble for supply."


None of which would normally make many headlines outside of the small world that is the chrome market.

But ferro-chrome has made it onto the radar of the London Metal Exchange (LME).

A group of industry participants recently met in London to discuss the idea of a new contract, according to Metal Bulletin.

The idea of a London ferro-chrome contract has done the rounds before but this time seems to be gaining traction to the point that the exchange is happy to confirm the interest.

"The LME has been approached by industry users regarding the introduction of an LME ferro-chrome contract," it said.

"We believe in developing products in conjunction with participants to meet the real needs of the market, and are committed to assessing and enhancing our offering as effectively as possible."

So watch this space.

The current stainless steel surge may be about to have a bigger impact than just boosting demand for nickel and ferro-chrome.

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Japanese steel mills delay Q4 deals as coking coal surges...Peabody deal

A dramatic surge in the spot price of Australia's second-biggest
export, coking coal, has seen Japanese steel mills delay new contract
settlements that would deliver big gains to Australian miners, in a
standoff over an expected doubling of the contract price that could
spell the end of the current pricing system, The Australian reported.

Australian coking coal spot prices have surged 155% since the start of
June to a four-year high of $213/t as China cracked down on mining
overcapacity at the same time that government stimulus fired the
housing market, while rain and derailments hit Australian supply.

The price is now more than double the still-standing September quarter
contract price of $92.50/t, with the size of the ¬potential jump in
the new ¬contract price delaying settlement more than a week into the
December quarter.

While BHP Billiton, the world's biggest coking coal shipper, has moved
almost completely to spot pricing and is reaping the benefits of the
surge, other ¬Australian miners are still receiving a contract price
less than half that of current spot prices as they wait for price

Japanese steel mills are delaying settling the current quarter's
price, which is normally set at close to the spot price at the start
of the quarter, as they hold out for a hoped-for fall in spot -prices.

The surge in coking coal prices looks like being the major driver in a
wiping out of Australia's monthly trade deficits for the first time in
more than two years.

Price negotiations between Japanese steel mills and Australian miners
continued on October 7 in Sydney at the 33rd Japan-Australia Coal
Conference, a closed meeting of coalminers and users that occurs every
two years.

Whitehaven Coal managing director Paul Flynn, who was this JACC
meeting's co-chairman, said it was too early to say where contract
prices would settle.

Whitehaven, which produces both coking coal used in steelmaking and
the thermal coal burned by power stations, is ¬exposed to the
quarterly coking price settlements but is not participating in the

According to Macquarie commodities analysts, Nippon Steel is demanding
December quarter contract prices of $160/t.

But miner Anglo American wants $212/t, which would be in line with the
regular practice of settling at spot prices at the start of the

The price of Australian PCI coal, a lower-grade steelmaking ingredient
whose spot prices have not risen as much as premium coking coal,
settled last week at $133/t, in line with the spot price.

Peabody deal at $200/mt said to break Q4 coking coal impasse

A benchmark coking coal accord at the upper end of expectations
appears to be getting established, as Peabody Energy has sold North
Goonyella premium mid-vol at $200/mt FOB Australia under contract for
the fourth quarter to Nippon Steel, according to a source close to the

The source described the sale as a benchmark deal, but this could not
immediately be confirmed.

The Q3 benchmark was $92.50/mt FOB, and spot prices rose after key
spot buyer China increased purchases, supply was disrupted in
Australia and China, and mining curbs were imposed in China, along
with limited exports from the US at a time of greater global spot
trade exposure. Steelmakers were left stunned at the prospect of
$200/mt benchmark, given tight availability of alternative coals, with
one Atlantic buyer suggesting the likely outcome would be lower steel
production in due course. European and Brazilian steel mills have
bought some coals ahead to cover the year at potentially lower prices,
reducing the exposure to the quarterly benchmark while also increasing
spot and index-linked purchasing.

Talk of the settlement by US miner Peabody, which has US operations
under Chapter 11 and mines met coal in Australia, surfaced Monday from
the US, a public holiday in Japan. St Louis-based Peabody declined to
comment on the matter. Nippon Steel & Sumitomo Metal Corp. was not
available for comment when contacted outside usual office hours.

The two-day Australia Japan Coal Conference ended Friday afternoon,
with no news of a settlement emerging that day. The AJCC draws senior
steel and coal executives, promoting cordial discussion around
longer-term planning and industry challenges, more so than finalizing
price negotiations.

Analyst Lucas Pipes of investment bank FBR, citing a report of a
"potential settlement," described it as "well above our and others'
expectations even over the weekend of around $180-$190/mt."

Anglo American and Glencore have previously set the hard coking coal
benchmark in their sales negotiations with Asian steelmakers, leading
some buyers to question the validity of the Peabody arrangement, ahead
of confirmation.

A source close to the price talks said Nippon Steel was getting closer
to meeting bids after an opening negotiation position last month said
to have been $150/mt FOB.

"At the AJCC, Nippon became a lot more sensible about pricing, edging
closer to a deal. If someone moved down to $190 they would have got a

As key miners were seeking to get higher prices in line with spot
prices, and keeping up offers last heard at $212/mt FOB in light of
Chinese buying interest and a force majeure declared at Anglo's German
Creek mine, Peabody may have taken the initiative. Peabody already
settled PCI for Q4 at $133/mt FOB with a separate mill.

The usual 80% ratio for PCI to HCC would have yielded a HCC price of
around $160/mt, suggested a buyer, who was surprised at a $200/mt
level potentially agreed. A $200/mt outcome for HCC would lead PCI to
a 66.5% ratio, compared to the current spot price ratio at 61%.

The news came after the price settlement was delayed into a second
week, after the usual calendar deadline of the end of the prior
quarter in question.

"A settlement of $200/mt would be the highest in US dollars since the
Q3 2012 contract of $225/mt," FBR said. "In AUD, the settlement would
imply a price of A$263/mt, the highest since Q4 2011 when the contract
settled at A$274/mt and the Australian dollar was trading at $1.04/mt
vs. $0.76 today."

North Goonyella had a longwall move expected to last till
end-September. It is a mid-vol with high fluidity. On the globalCOAL
brokered screen trading platform, North Goonyella makes up one of five
brands traded on the premium mid-vol contract, along with BHP Billiton
Mitsubishi Alliance's Goonyella, Glencore's Oaky Creek, South32's
Illawarra, and Anglo American's Moranbah North.
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China Baowu Steel to cut 6.05 Mtpa steel capacity this yr

China Baowu Steel Group, restructured from Wuhan Iron and Steel Group (WISCO) and Baoshan Iron and Steel Group (Baosteel), planned to complete the reduction target of 6.05 million tonnes per annum (Mtpa) of steelmaking capacity set for 2016-2017 by the end of this year, sources reported.

WISCO will shut 1.4 Mtpa of steel capacity over the period, while Baosteel will cut 4.65 Mtpa, said sources.

The move may usher in a new wave of capacity cuts in China's steel industry, contributing to reorganization and improvement of the sector, said analysts.

The merger of China's two major steelmakers had been approved by the State Council, the State-owned Assets Supervision and Administration Commission said on September 22.

Shanghai-based Baosteel Group, China's second largest steelmaker, will issue new stock to shareholders of Wuhan Iron and Steel Group to absorb the other company, according to the merger plan announced late September 20.
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Rio Tinto says Guinea iron ore partner IFC to sell stake

Mining giant Rio Tinto said on Monday that the International Finance Corporation (IFC), a partner in its $20 billion Simandou iron ore project in Guinea, is selling its 4.6 percent stake.

The exit of IFC, an arm of the World Bank, is the latest setback for the project to develop the world's biggest untapped iron ore reserves. In July, Rio Tinto's new Chief Executive Jean-Sebastien Jacques indicated the project had been shelved temporarily due to a sustained slump in prices.

"We confirm that the IFC has exercised a put option, which it has held since 2006, to require Rio Tinto and Chinalco to buy their stake in Simfer," Rio Tinto said in an emailed statement, referring to the joint venture.

Rio has a 46.6 percent stake in the project; China's Chinalco has 41.3 percent and the Guinea government has 7.5 percent.

A senior official at Guinea's mines ministry said he was not aware of the decision.

The West African country is counting on the project to spur economic growth after Guinea was hit by a crippling Ebola epidemic that officially ended in June.

When fully operational, Simandou has the potential to double Guinea’s GDP, the project partners have said, while China, the world's largest iron ore consumer provides an obvious market.
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173 steel firms violate environmental rules

As many as 173 Chinese steel enterprises were found to have violated the country's environmental rules during recent nationwide investigations into the industry, the environment ministry said on Monday.

The Ministry of Environmental Protection said in July that it had set up dedicated inspection teams to determine whether the country's giant steel sector was meeting state technology and emission standards.

After visiting a total of 1,019 steel enterprises across the country, the inspectors found that 173 firms had broken the rules, with 62 firms involved in illegal construction and 35 exceeding state emission limits, according to the ministry's official publication, China Environmental News.

Worried by the social and political impact of pollution, China has vowed to crack down on lawbreaking companies and the local governments that protect them. It has also promised to use tougher environmental standards to help shut as much as 100-150 million tonnes of surplus steel capacity over the next five years.

The ministry said 23 of the offending firms had been asked to cut production, while another 29 had been shut down temporarily in order to "rectify" their problems. Fines totaling 18.9 million yuan ($2.8 million) have been imposed and three officials have been detained.

The paper singled out Xinyi Huada Steel in eastern China's Jiangsu province, saying the local government had repeatedly ignored requests from environmental regulators to close the firm down for producing illegally.

As part of its war on pollution, China's traditionally underpowered environment ministry was this year granted new powers to send inspection teams to local regions without prior warning, and was also given the authority to summon senior provincial officials to explain their conduct.

During a tour of Hebei province, China's biggest steel producing region as well as its biggest polluter, inspectors found that local steel firms had illegally expanded capacity and engaged in "fraudulent practices".

The ministry has called on the regions to continue to pay special attention to the steel sector, to crack down hard on illegal behavior and to cooperate with local government efforts to close down surplus capacity in the industry, China Environmental News said.

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Dongbei Special Steel formally enters bankruptcy restructuring: Xinhua

Dongbei Special Steel Group Co Ltd has formally entered into a bankruptcy restructuring process following a court filing by one of its creditors, official news agency Xinhua reported on Monday.

Dongbei, owned by the Liaoning provincial government in the country's "rustbelt" northeast, has been at the heart of troubles in China's debt market this year, defaulting on nine separate bonds even as Beijing has vowed to crack down on "zombie" firms with perennial losses and too much debt.

Its first bond default in late March helped trigger a sharp sell-off in the corporate debt markets as investors reassessed the likelihood of bailouts for key provincially-owned state enterprises, especially in coal and steel sectors hobbled by overcapacity.

The firm has also been involved in an extended struggle with creditors over how to restructure its debt, highlighting the challenges in restructuring inefficient, state-owned enterprises, according to Reuters IFR and other media publications.

Dongbei's listed subsidiary Fushun Special Steel had previously said on Sept. 30 that a Chinese court was reviewing an application for such a bankruptcy restructuring.

In a separate exchange filing on Monday, Fushun said that 496.9 million of its shares held by Dongbei had been frozen by the court.

The filing by creditor Alashan Jinzhen Smelting Co Ltd includes Dongbei subsidiaries Dalian Special Steel Co Ltd and Dalian Gaohe Jinbang Xiancun Co Ltd, Xinhua said. In its exchange filing, Fushun said it had not been named in the filing.

A court-managed bankruptcy process will not necessarily end in liquidation, but analysts said the recent court-ordered liquidation of Guangxi Nonferrous Metal Group, another provincially-owned enterprise, sets a worrying precedent.

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Indonesia's October HBA thermal coal price hits 2-year high

Indonesia's Ministry of Energy and Mineral Resources has set its October thermal coal reference price, also known as Harga Batubara Acuan or HBA, at $69.07/mt FOB, up 8% from September and the highest level in two years. October HBA also represents a 20% jump from a year ago. The HBA was last set higher at $69.69/mt in September 2014.

The HBA price rally since May this year has been largely driven by a mix of supply cuts and strong demand from China.

The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg GAR assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

In September, the daily Platts FOB Kalimantan 5,900 kcal/kg GAR coal assessment averaged $62.14/mt, up from $57.19/mt in August, while the daily 90-day Platts Newcastle FOB price for coal with a calorific value of 6,300 kcal/kg GAR averaged $72.90/mt, up from $67.37/mt in the previous month.

The HBA price for thermal coal is the basis for determining the prices of 75 Indonesian coal products and for calculating the royalties producers have to pay for each metric ton of coal they sell locally or overseas.

It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.
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Inner Mongolia allows 172 coal mines to boost output

Northern China's coal-rich Inner Mongolia autonomous region has given green light to 172 coal mines with capacity totaling 534.32 Mtpa to operate within 276-330 days, in response to the central government's call to ensure supply during this winter, the regional Economic and Information Commission said on October 9.

These coal mines will help provide additional coal supply as much as 8.48 million tonnes each month over October-December, roughly 280,000 tonnes each day.

As one major coal producer in China, Inner Mongolia produced 541.39 million tonnes of coal in the first eight months, down 10.1% year on year, accounting for 24.8% of the country's total. Coal output in August stood at 67.78 million tonnes, down 8.3% on year but up1.9% on month.

China has been suffering coal shortages in recent months, mainly due to the government-mandated 276-workday at coal mines, as demand from utilities jumped amid strong air-conditioning demand in summer months.

This helped to spur prices of thermal coal, used primarily for power generation, to surge to 32-month high as of the end of September. Domestic 5,500 Kcal/kg NAR coal jumped to 579 yuan/t on September 30, up 13.8% from the previous month and 58.4% higher than the start of the year, showed the Fenwei CCI Thermal index.

In a statement released on September 29, the National Development and Reform Commission (NDRC) said more coal mines would be allowed to boost production within 276-330 operating days to ensure supply for winter heating and power generation.

Besides those identified by China National Coal Association as advanced capacity, coal mines listed as Level I safety mines in 2015 by the State Administration of Coal Mine Safety and those safe and high-efficiency mines recommended by local governments would be allowed to increase output, said official with the NDRC.

Moreover, due to such restrictions as coal varieties and distance to end users, some coal-producing provinces could select some mines meeting Level II safety standards in 2015 and include them into the category of accommodation, sources said.

Newly-built coal mines that would replace outdated ones would also be allowed to commence operation before the old ones are closed, which could be allowed to shut later than previously required, the NDRC said.
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Anglo American declares force majeure on Q4 German Creek met coal

UK-based miner Anglo American declared force majeure on October 7 for fourth-quarter shipments of German Creek met coal to a few long-term contract customers, effective October 3, Platts reported, citing sources.

It was because of "a significant weighting event on the longwall roof support which impacted the working height of the longwall and created multiple cavities," the report cited one Asian steel mill source as said.

Anglo American had been plagued with issues including industrial action earlier, due to workers' employment terms and hazardous working environment at the German Creek-Grasstree operation.

The force majeure declaration comes amid ongoing negotiations for fourth-quarter term contracts with Northeast Asian end-users. The talks have been challenging this quarter with prices of Premium Low Vol HCC spiking since July, and with Anglo American in the middle of divesting its coal business.

The force majeure declaration affects only the German Creek hard coking coal brand mined from the German Creek-Grasstree underground mine operation in Australia's Queensland state for the fourth-quarter laycan, the report said. Yet there were no details on the volume affected.

Meanwhile, it will probably squeeze near-term supply for Premium Low Vol HCC – creating increased demand for spot November and December laycan cargoes, it cited sources as saying.

The German Creek-Grasstree mine produced 6.28 million tonnest of saleable products in fiscal 2014-15, according to the Department of Natural Resources and Mines.

This means that an estimated 1.5 million-1.6 million tonnes of coal could be disrupted, if all Q4 deliveries will be affected by the force majeure.

Anglo American's force majeure notification also comes on the heels of production outages at other Australian mining operations earlier this year. A force majeure was declared in early September at South32's Appin mine at its Illawarra project due to roofing problems.
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China Sep steel sector PMI slid to 49.5 in normally busy season

The Purchasing Managers Index (PMI) for China's steel industry slid to 49.5 in September, compared with 50.1 in the previous month, showed data from the China Federation of Logistics and Purchasing (CFLP).

After two consecutive months' fall, the index dropped below the 50-point mark that separates growth from contraction in normally peak season, because of high operating rate and more stocks vis-a-vis few orders and increased cost in domestic steel industry.

In September, the steel industry output sub-index was 50.2, sliding 0.3 from 50.5 in August, but still above the 50-point mark for the third month.

Steel producers boosted output during July to August, encouraged by considerable profit, which shrank recently affected by sliding steel prices and increased production cost.

China's daily steel output is expected to fall back in October, with more furnaces under maintenance and the implementation of new truck overloading policy.

In September, the new orders sub-index plunged to 49.2, compared with 52.1 in the previous month, as current sluggish demand failed to reach expectations.

The purchase price index fell back from 61.4 in August to 56.6 in the month, above the 50-point mark for the seventh straight month.

Entering September, steel demand from end users climbed as construction fastened in the normally peak season. Steel prices, however, dived this year.

As of September 28, the ex-plant price of steel billets in Tangshan was at 2100 yuan/t with VAT, down 230 yuan/t from the previous month.
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FMG picks up BC Iron's Nullagine stake for $1

Fortescue Metals Group has bought out joint venture partner BC Iron of its 75 per cent stake in the Nullagine iron ore project for the princely sum of $1.

BC Iron said it would eliminate the care and maintenance costs of the mothballed project and relieve it of its tenement commitments.

In return, FMG will pay an ongoing royalty on all future iron ore mined from Nullagine if and when production recommences.

However the future royalty payments would be partly waived to offset the obligations assumed by FMG as part of deal.

The Nullagine mine was in production for five years before weak iron ore prices forced it to be shuttered in December last year.

BC said it had sought interest in its 75 per cent stake in Nullagine from interested third parties.

Operations at the Nullagine iron ore project before it was shuttered late last year.

“Despite the identification of further operating cost savings and an improvement in iron ore prices, the Nullagine mine has remained marginal from BC Iron’s perspective and, based on projected future iron ore prices, it is unlikely that a restart of operations will become viable in the medium term under the current joint venture structure,” the company said in a statement.

“Ultimately, a sale has been agreed with Fortescue, and BC Iron’s view is that this is the appropriate transaction to maximise value for the company’s interest in Nullagine.”

Under the terms of the deal, BC Iron will retain its $US1.5 million debt obligation to Henghou Industries and an obligation to pay $5.2 million in deferred State Government royalties.

Under the royalty agreement, Fortescue will pay BC Iron a royalty on 75 per cent of the future iron ore that is mined from the Nullagine tenements.

Specifically, the royalty is 1-2 per cent of free-on-board revenue received by Fortescue for direct shipping ore and 50 cents-$1.50 per tonne for low grade ore adjusted for 15 per cent yield loss.

There will be a 50 per cent reduction in the royalty rate for all iron ore mined above 15 million tonnes and a 75 per cent reduction for all iron ore mined above 25 million tonnes.

Fortescue will initially pay BC Iron 33 per cent of the agreed royalty in cash, until the total amount waived by BC Iron equals $7.5 million.

After that, Fortescue will pay BC 100 per cent of the agreed royalty.

The amount to be waived by BC Iron is intended to offset the obligations Fortescue assumes as part of the transaction, including rehabilitation liabilities.

BC chairman Tony Kiernan said Nullagine had been a successful operation and BC Iron shareholders had extracted significant value from it over a number of years.

BC managing director Alwyn Vorster said BC would continue to have exposure to future Nullagine operations via an ongoing royalty payment.

“Importantly, the sale will also reduce exposure for BC Iron by eliminating its rehabilitation liability, as well as monthly costs of $150k-$200k associated with holding the Nullagine interest.

“Management will also be in a position to direct additional time and resources towards maximising the value of our Buckland project, and potentially securing attractive new project opportunities.”

Fortescue said it would assess the viability of restarting operations at Nullagine.

Chief executive Nev Power said the decision to purchase BC Iron’s interest in Nullagine reflected the outcome of constructive discussions between the parties since the suspension of operations late last year.

“We have enjoyed a strong working relationship with BC Iron through the life of the Nullagine joint venture and believe this is a positive outcome for both companies,” he said.

“We will review operations over the coming months to determine the best path forward, taking into account all relevant factors including market demand and other potential opportunities to extract value from the assets.”

FMG chief executive Nev Power. Picture: Michael O'Brien/The West Australian.

BC initially struck a deal to give FMG a 50 per cent stake in its Nullagine project in 2009 in return for access to rail and port infrastructure to move ore from the stranded Pilbara project.

BC lifted its stake in Nullagine in late-2012 to 75 per cent in a $190 million deal with FMG.
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Illinois Basin coal netbacks rise on tight supply

Illinois Basin coal netbacks rise on tight supply

Higher coal demand from European and Indian markets have pushed up netbacks from the US Gulf Coast, but tight volumes may keep some Illinois Basin producers on the sidelines, sources said Friday.

Export markets have picked up with increased demand from the European market, along with a "big push" out of the Indian market, an ILB producer said. "There are export deals to be had right now, but most people's volumes for [fourth quarter] are tight. You might have to defer [term] deals into next year."

ILB producers have cut production 24%, by an estimated 22.9 million st this year, according to S&P Global Analytics.

Tight supplies have backwardated prices for Q4 2016 against 2017, leaving producers unsettled on whether to sell limited amounts of export coal while deferring shipments to domestic customers, the source said.

Higher CIF ARA thermal coal prices have increased netbacks at Gulf Coast and eastern ports.

The Platts USGC netback for Illinois Basin 11,500 Btu/lb 2.9% sulfur GAR thermal coal was $59.08/st Friday, up $3.33 from Monday.

Larger producers have the option to sell tons into the export market, but how much depends on expectations of future prices that depend on winter weather, gas prices and utility demand, he said.

Wait too long for higher prices, and producers could become exposed, particularly if increased production in China lowers seaborne thermal prices, the source said.

"We'll employ the same strategy that we've always had," he said. "We don't play the market. We'll sell the coal as long as we can make money at it."

ILB coal producers also have several requests for proposals in the market to consider, the coal producer source said.

Several utilities have released solicitations, including Louisville Gas & Electric/Kentucky Utilities, which has a high sulfur RFP out for Illinois Basin coal due Tuesday. LGE/KU is seeking an unspecified amount of ILB thermal coal starting January 2018, said Mike Dotson, the company's fuel buyer.

"It's going to be interesting to see what the pricing looks like," he said.

Other solicitations include Duke Energy's RFP seeking an unspecified amount of coal for its regulated utilities starting January 1, 2017 through December 31, 2019. Offers were due September 26.

TECO Energy also has an RFP out due Thursday for roughly 500,000 st in 2017, sources said.

Platts assessed ILB 11,500 Btu/lb, physical barge coal for Cal 2017 at $35.95/st, up 25 cents from last week.
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EU sets import duties on cheap Chinese steel

The European Union has set provisional import duties on two types of steel coming into the bloc from China to counter what it says are unfairly low prices, in a move likely to anger Beijing.

The duties are the latest in a line of trade defences set up against Chinese steel imports over the past two years to counter what EU steel producers say is a flood of steel sold at a loss due to Chinese overcapacity.

Some 5,000 jobs have been axed in the British steel industry in the last year, as it struggles to compete with cheap Chinese imports and high energy costs.

G20 governments recognised last month that steel overcapacity was a serious problem. China, the source of 50 percent of the world's steel and the largest steel consumer, has said the problem is a global one.

The duties will be in place eight months after the launch of respective investigations, a month earlier than would normally be the case. The European Commission has committed to speed up its trade defence actions under pressure from EU producers.

The Stoxx basic resources sub-index was by far the strongest component of the Stoxx 600, propelled by European steelmakers. Shares of the world's largest steel producer, ArcelorMittal were up 4.3 percent, ThyssenKrupp by 2.2 percent.

European steelmakers association Eurofer, which brought the complaint to the European Commission, said it welcomed the fact that the duties would be in place earlier than normal.

The duties, which will take effect on Saturday, are provisional, meaning they are in place for up to six months until the European Commission completes its investigation. If upheld, they would typically be set for five years.

No one was available for comment at a series of steelmakers in China, which was celebrating a week-long national holiday.

The duties are set at between 13.2 and 22.6 percent for hot-rolled flat iron and steel products and at between 65.1 and 73.7 percent for heavy-plate steel, according to a filing in the European Union's official journal.

The hot-rolled steel case includes Bengang Steel Plates Co Ltd and Hebei Iron & Steel Co. Ltd [HEBEIH.UL] and units of Jiangsu Shagang Group.

The heavy plate steel case covers Nanjing Iron & Steel Co Ltd, Wuyang Iron and metals Yingkou Medium Plate Co Ltd..

Eurofer said Chinese producers' share of the EU market in heavy-plate steel, used in construction, mining and shipbuilding, grew to 14.4 percent in 2015 from 4.6 percent in 2012, while the average price dropped by 29 percent over the same period.

For hot-rolled, the market share grew to 4.3 percent from below 1 percent over the same period, while import prices fell by about 33 percent.

European producers of hot-rolled steel include ThyssenKrupp, Tata Steel and ArcelorMittal, while heavy-plate is made by Tata and two unlisted German companies.

The European Commission is also investigating alleged dumping of hot-rolled steel producers in Brazil, Iran, Russian Federation, Serbia and Ukraine.

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