Mark Latham Commodity Equity Intelligence Service

Thursday 10th September 2015
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    China to step up fiscal incentives for growth

    China will adopt "stronger" fiscal policies to support growth, Beijing said as it seeks to soothe increasing fears about the world's second-largest economy following turmoil in domestic and overseas markets.

    The government will accelerate major construction projects, allow more small companies to benefit from tax cuts, and encourage private capital to invest in key areas, among other measures, the finance ministry said in a statement.

    Global markets have been in turmoil for weeks on worries about slowing growth in China, a key driver of global expansion, wiping trillions off share prices. The panic has also hammered mainland Chinese markets, with Shanghai's exchange plummeting after a debt-fuelled bubble burst.

    The finance ministry gave no specific values for future spending. But it said that by the end of August the central government had already spent 96 per cent of its annual infrastructure investment budget.

    To achieve China's 2015 growth target of around seven per cent, the ministry said it would step up and improve a "proactive fiscal policy, fine-tune the measures in a timely manner and accelerate reforms that will help stabilise growth".

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    Brazil downgraded to junk rating by S&P, deepening woes

    Standard & Poor's downgraded Brazil's credit rating to junk grade on Wednesday, further hampering President Dilma Rousseff's efforts to regain investors' trust and pull Latin America's largest economy out of recession.

    The faster-than-anticipated downgrade from investment grade will likely rock Brazilian financial markets on Thursday and will increase borrowing costs for the government and Brazilian companies.

    Brazil first won its investment-grade credit rating in 2008 and the S&P downgrade is a major setback for Rousseff, a leftist struggling to kick-start the economy and shore up weak public finances.

    It further sours market sentiment about the country and Brazilian assets will suffer because many investors will perceive higher risks.

    S&P cut Brazil's rating to BB-plus, the highest junk rating, from BBB-minus.

    It warned less than two months ago that a downgrade was possible but the unusually fast move underscores how quickly Brazil's economy and public finances have deteriorated since then. The outlook on the new rating remains negative, which means additional downgrades are possible in the near term.

    The investment-grade rating was a key imprimatur that solidified Brazil's emergence as an economic power during a decade-long commodities boom that fizzled in recent years as the Chinese economy, Brazil's biggest export market and once ravenous for its raw materials, began slowing.

    Further fallout from the downgrade will depend on how other major ratings agencies respond. While there will be some sharp falls in asset prices now, a flood of "forced selling" is not expected until a second agency also drops Brazil to junk status.
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    Oil and Gas

    Kazakhstan may cut 2016 oil output if prices fall further

    Kazakhstan might cut crude oil output by almost 10 percent next year if prices drop to $30 per barrel, its energy official said, while top producers such as Russia are resisting calls to cut production to support prices.

    Reduced volumes from Kazakhstan, which exports the bulk of its production to Europe and Asia, may help to balance global markets, where oil prices have hit multi-year lows this year.

    Kazakhstan's Deputy Energy Minister Uzakbai Karabalin told reporters on Wednesday that if the oil price next year was $50 per barrel, Kazakhstan would produce between 79 and 80 million tonnes.

    That would be little changed from this year's forecast of 80.5 million tonnes, or roughly 1.6 million barrels a day.

    But if the price drops to $40, Kazakhstan's output would be 77 million tonnes and if oil fell to $30, it would be cut to 73 million tonnes, Karabalin said.

    Mexico, which like Russia and Kazakhstan is not a member of the Organization of the Petroleum Exporting Countries (OPEC), will also not consider cutting oil output at the moment, Energy Minister Pedro Joaquin Coldwell told Reuters on Tuesday.

    Oil production in Kazakhstan is falling anyway as the bulk its fields are depleting. Output dropped 1.2 percent last year to 80.8 million tonnes and is expected to fall again in 2015.

    The Chevron-led venture, Tengizchevroil, is Kazakhstan's largest oil producer. Last year, its output fell 1.5 percent to 26.7 million tonnes and is expected to remain unchanged in 2015.

    Kazakhstan was hoping to boost oil output, a major source of budget revenues, through the Caspian offshore Kashagan oil field, which was finally launched in September 2013 after huge delays and cost overruns.

    But Kashagan halted production a few weeks later when gas leaks were detected and it is not expected to be up and running before 2017, a date confirmed by Karabalin on Wednesday.

    Kazakhstan officials had expected the country to be producing between 90 million tonnes and 100 million already in 2015, thanks to Kashagan.

    On Wednesday, Karabalin said the lower forecasts were not due to Kashagan's delays: "This is not about Kashagan, but because the oil price is different now and costs are different."

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    China shale gas output set to hit 4 bcm in 2015

    China’s shale gas output may exceed 4 billion cubic meters (bcm) this year, with production capacity up to 8 bcm per annum by end-2015, sources reported.

    That’s lower than the government’s output target of 6.5 bcm in 2015, the last year of the country’s 12th Five-Year Plan. But the development of China’s shale gas industry is much faster than the coalbed methane (CBM) industry, analysts said.

    The growth in shale gas output was attributed mainly to increased output from Sinopec and PetroChina – China’s two oil giants -- which stood at 0.9 bcm and 0.24 bcm in the first half of the year.

    Shale gas output from Sinopec and PetroChina is expected to reach 2.1 bcm and 0.75 bcm in the second half of the year, respectively.

    Thus, shales output from these two groups may total 3 bcm and 1 bcm in the whole year. Other producers may realize combined output at around 0.1 bcm in 2015.

    Sinopec and PetroChina’s shale gas production capacity is expected to be 5 bcm and 2.5 bcm by the end of 2015, separately.

    China aimed to pump at least 30 bcm of shale gas by 2020, compared with an initial goal of 60-100 bcm, the Ministry of Land and Resources said in September last year.
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    China curbs conventional gas output, keeps shale target

    China's state energy giants are reducing output from conventional natural gas fields as demand growth for the fuel eases to a multi-year low, local media and sources said, although shale gas targets are being maintained.

    Sinopec Corp and PetroChina have restricted production at two major conventional fields - Puguang and Anyue - in the Sichuan gas basin, as a cooling economy curbs fuel use by industries like chemical plants and glass and ceramics makers.

    By end-August, Sinopec had closed 12 wells at Puguang, one of the country's largest with annual production capacity of 12 billion cubic metres (bcm), and planned to shut in another 15 wells, the Sichuan Daily reported, citing a Sinopec official at Puguang.

    Sinopec said Puguang was pumping at a daily commercial rate of 10 million cubic metres, which was half the amount at the start of the year, as reported by the paper. The production loss was equivalent to roughly 3 percent of national output.

    Puguang is competing with rising production at the Fuling shale gas project, China's first and largest commercial shale discovery, as well as at the nearby conventional Yuanba gas field.

    Petrochina has also capped production at the Moxi block of the Anyue field, which is among the country's largest gas reservoirs tapped onshore in recent years, said a government source who had been briefed by gas companies.

    A PetroChina spokesman declined to comment on output curbs, but said production rates at conventional fields were "adjustable based on market conditions".

    Official data showed China's domestic gas output rose 2.6 percent in the first seven months of 2015, down from 6.9 percent annual growth in 2014, and a far cry from average double-digit growth over the past decade.

    Despite the reductions at conventional fields, the firms said they remain on track to meet a government-set shale gas target this year, as Beijing tries to replicate the shale boom in the United States.

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    Tanker-Rate Slump Ending as Asia Refiners Restock African Crude

    For operators of very large crude carriers, the tankers that move as much as 2 million barrels of oil across oceans on a single trip, the fourth quarter can’t come fast enough.

    Since July, shipping rates have dropped by 47 percent after later-than-usual maintenance caused Asian refineries to close and demand to fall. Now rates are poised to reach their highest levels in a final quarter since 2008, according to analysts who point to growth in the amount of crude scheduled to be loaded from West African countries in October. Nigeria is aiming for a 9.5 percent rise in the number of barrels shipped compared with last year, while Angola’s programs show a 6.7 percent increase.

    The total of Nigeria and Angola’s loadings is set to be the highest for an October since records began in 2008.

    The most likely buyer for the added barrels is Asia, with China building up its crude reserves as it takes advantage of higher refining margins, according to Charles Rupinski, an analyst who follows shipping for Global Hunter Securities LLC in New York. Winners may include Euronav NV, DHT Holdings Inc. andFrontline Ltd., all of which saw their shares drop between late July and late August as the hire rate declined.

    As refineries restart, “we think the market will get tight,” said Jonathan Chappell, an analyst with Evercore Partners Inc. in New York.

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    Record eastern diesel to hit Europe as mega refineries hit full stride

    Europe is poised to receive record levels of diesel from the east this month as the region bears the full brunt of supply from new Middle Eastern refineries.

    A mammoth 1.4 million tonnes of diesel has already been booked from new mega refineries in the Middle East, and export-oriented refineries in India, to land in Europe in September, according to traders and Reuters shipping data.

    Traders expect several more shipments to be booked in the coming days, leading total exports this month to surpass August's 1.6 million tonnes.

    "It will be high," one trader said of the imports, adding that it was likely to hit a new record.

    Reuters shipping data shows more than 3 million tonnes in total of oil products en route from the east. The bookings include diesel on two oil product supertankers capable of carrying 1 million barrels each, the Atina and the Novo.

    Three even larger mega tankers with 2 million barrels, the Gener8 Neptune, the Yuan Chun Hu and the Yuan Qiu Hu, are also set to carry distillates from South Korea to West Africa on their maiden voyages.

    While Europe's imports typically peak in the autumn, during refinery maintenance season, Middle Eastern shipments were turbo-charged by the addition of crude producer Saudi Arabia's new 400,000 barrel per day (bpd) Yasref refinery.

    That unit hit full capacity at the end of June, just as the Middle East's own distillate consumption entered its summer peak.

    In the first five months of the year, total Saudi distillate exports were 22 percent higher than the same period last year, according to JODI data, reaching an average of roughly 1.1 million tonnes per month. These shipments were aided by the 400,000 bpd Jubail refinery, which reached maximum output in late 2014.

    "These two Saudi refineries have hit their full stride, and they're going to keep pushing diesel to Europe," said Harry Tchilinguirian, global head of commodity strategy at BNP Paribas. "That's what they were built, configured and optimized for."

    Already, stocks of distillates in the Amsterdam-Rotterdam-Antwerp hub have hit all-time records, according to Dutch consultancy PJK International. Figures from industry monitor Genscape show gasoil stock levels in ARA at nearly 5.7 million tonnes at the end of August - nearly one million above the previous year.

    Genscape pegs ARA gasoil storage at close to 70 percent of total capacity.

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    Cheap Russian Gas Tempts EU Buyers as LNG Import Growth Stalls

     Europe lowered purchases of liquefied natural gas for a third month in August as buyers boosted purchases of oil-linked fuel through pipelines from Russia.

    LNG imports by 10 nations in the region that receive the tanker-delivered fuel dropped 3.4 percent from a year earlier in August, after reaching a two-year high in March, according to data from Genscape Inc. Russian pipeline supplies soared about 20 percent from a year earlier in August, remaining at the highest level this year, tracking declining crude prices, according to data from Gazprom PJSC, the world’s biggest gas producer.

    Europe, which imports as much as 70 percent of its gas needs, has increased shipments from Russia as contract prices declined because they follow crude with several months delay. Traders bought more LNG as they waited for pipeline gas prices to drop further in the third quarter, encouraged by a slump in Asian LNG prices that removed the incentive for producers such as Qatar to send cargoes east.

    “We expect the supply picture to remain stable for the rest of the year with shippers continuing to draw heavily on oil-indexed supply and LNG sitting on the margin,” Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance, said in an e-mailed note Tuesday. “As has largely been the case in 2015, exactly how much LNG will land in Europe depends on how competitively priced seaborne gas is.”

    Chart showing changes in LNG imports in August vs year earlier

    LNG imports into the U.K., Belgium, Spain, France, Greece, Italy, Lithuania, the Netherlands, Portugal, and Turkey declined to 3.02 million metric tons in August, compared with 3.13 million tons in the same month a year earlier, according to Genscape. Only the Netherlands, Italy and Portugal boosted shipments.

    Russian exports to Europe, excluding the Baltic states and including Turkey, were at 14.3 billion cubic meters in August, unchanged from the previous month, and up from 11.5 billion cubic meters in the same month a year earlier, according to data from Gazprom and the Russian Energy Ministry’s CDU-TEK unit.

    Russia’s average price could drop as low as $237 per 1,000 cubic meters ($6.64 per million British thermal units) this year, according to Valery Nemov, a deputy head of department for Gazprom’s export arm, from more than $340 in 2014. That compares with $6.39 per million British thermal units for front-month gas in the U.K., the European benchmark, on the ICE Futures Europe exchange.

    European LNG imports so far this year are 4.3 percent higher than a year earlier at 26.1 million tons, according to Genscape data through August.

    LNG imports into Europe are expected at 30 million tons this year, according to BNEF. The EU will have a “moderate LNG demand growth” to 40 million tons in 2020, and 74 million tons in 2025, according to BNEF’s Global LNG Market Outlook.

    “Existing supplies in the Middle East and Atlantic basin may be increasingly forced to look for markets in northwest Europe to deliver their LNG and put downward pressure on European gas hubs,” Barclays analyst Nicholas Potter said in a note dated Sept. 7.“With limited outlets, Gazprom may continue to raise exports to Europe in order to balance falling oil-linked prices.”
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    Poland to receive first LNG cargo by year-end

    Poland’s LNG import terminal in Świnoujście will receive its first cargo of the chilled gas by the end of 2015.

    Gaz-System’s unit Polskie LNG, which is building the import terminal, said on Wednesday that it has concluded talks regarding the project completion with the construction consortium led by Italy’s Saipem.

    Polskie LNG and the consortium signed an annex to the original contract where the EPC contractor “committed itself to complete construction works and receive the first LNG cargo this year,” the company said in a statement.

    The second delivery of LNG designated for operational tests will be supplied in the first quarter of 2016, while commercial operations of the terminal will commence in the second quarter of the same year, Polskie LNG said.

    The start-up of Poland’s first LNG terminal has been delayed several times with the original date which was set for the end of June last year.

    Saipem said earlier this year it would finish construction of the LNG terminal this summer only if it received further payment.

    “The contractual lump sum remuneration due to the EPC contractor will remain unchanged, thus the investor will not incur any additional expenses in relation to project implementation,” Polskie LNG said.

    The total contractual lump sum remuneration amounts to 2.4 billion zlotys ($635.8 million).

    The LNG project in Świnoujście is more than 98.2 percent complete, according to the statement.

    In the first stage of operation, Polskie LNG’s facility will enable the regasification of 5 Bcm of natural gas annually.

    Polskie LNG has earlier this year signed a contract with Tractebel Engineering to conduct a feasibility study for the expansion of the terminal involving the construction of a third storage tank and accompanying investment.

    The expansion would include adding LNG reloading service for smaller vessels, through which the terminal could become a reloading depot for smaller installations operating in the region, as well as for bunkering vessels with LNG.
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    Maersk Oil cuts $1 billion from investment budget as prices fall

    A.P. Moeller-Maersk A/S’s oil unit cut $1 billion off its annual budget for capital expenditure after petroleum prices plunged.

    Maersk Oil CEO Jakob Thomasen presenting at the company's Capital Markets Day. Image: Louise Münter, Maersk Group.

    Maersk Oil plans long-term capex in the range of $2 billion to $4 billion a year compared with a previous range of $3 billion to $5 billion, according to an investor presentation in Copenhagen on Wednesday. The new forecast doesn’t include funds to be spent on acquisitions, which the company says it’s still pursuing.

    Maersk Oil is following the rest of the industry in cutting jobs and lowering investments after crude prices dropped about 50% over the past 12 months. The company says it has lowered unit costs by about 33% over the past year and completed 600 job cuts by the end of June.

    Maersk Oil will focus on acquisitions in 2015 and 2016, it said. In the “long term”exploration will be “critical” to replace reserves, it said.

    “We believe this is an opportune time for inorganic moves,” Jakob Thomasen, CEO of the oil division, said at the presentation.

    The company is still on track to meet a goal of lowering operating expenses by 20% by the end of 2016 compared with 2014 levels.

    The oil price will stay at about its current level in the “short term,” and then rise, helped by Chinese demand and responses from OPEC, Maersk said.
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    Clock ticking for North Sea oil as low prices threaten closure of 140 fields

    Falling oil prices could lead to the closure of 140 fields in the North Sea over the next five years as operators accelerate plans for decommissioning amid drastic cost cutting, a leading energy consultancy has warned.

    Wood MacKenzie said that the decommissioning of the fields could go ahead even if oil prices return to $85 per barrel, from their current price of around $49.

    Even a partial recovery to around $70 a barrel would leave 50 oil fields facing early closure, the Edinburgh-based firm said.

    Over the same period just 38 new fields are expected to be brought on stream in the UK Continental Shelf (UKCS), according to Wood Mackenzie.

    "In 2015 operators have reacted to the low oil price environment by deferring spend and delaying sanction of new developments," said Fiona Legate, UK upstream research analyst for Wood Mackenzie. "We have analysed the impact of the low oil price on decommissioning activity looking at the timing of cessation, retained decommissioning liabilities from previous deals, and batch decommissioning."

    The report comes after Oil and Gas UK said that 65,000 jobs had been lost in the North Sea since the slump in oil prices began last November. The trade body has warned that with so few new projects gaining approval, capital investment is expected to drop from £14.8bn last year to between £2bn and £4bn in each of the next three years.

    Decommissioning is already underway in more ageing fields in the North Sea.Royal Dutch Shell is planning the decommissioning of the Brent field. Four Brent platforms – Alpha, Bravo, Charlie and Delta – have generated £20bn of tax revenue since they were brought into production in 1976.

    Investment in North Sea expected to collapse

    "We expect around £54bn (in nominal terms) will be spent on decommissioning on the UKCS and anticipate it to be completed in the early 2060s. Decommissioning spend is expected to increase by over 50pc by 2019 and will overtake development spend in the same year," said Ms Legate.

    Lower oil prices are forcing companies to review their operations around the world. New basins opening up in the Arctic and Brazil mean that the UK Government will have to provide more incentives to drillers to keep working in the North Sea.
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    Egypt Aims to Cut Arrears Owed to Foreign Oil Firms to $2.5B in 2015

    Egypt paid foreign oil companies $600 million in arrears in August and still owes them $2.9 billion, the petroleum minister told Reuters on Wednesday.

    Sherif Ismail also said Egypt aims to lower the amount of arrears it owes foreign oil companies to $2.5 billion by the end of 2015.

    Delays in paying back foreign companies had discouraged investment in Egypt's economy, battered by power cuts, attacks by militants and political turmoil triggered by a 2011 uprising that toppled autocrat Hosni Mubarak.

    Egypt's energy sector received a boost last month when Italian energy group Eni said it had discovered the largest known gas field in the Mediterranean off the Egyptian coast, predicting the find could help meet the country's gas needs for decades to come.

    Egypt, which once exported gas to Israel and elsewhere, has become a net energy importer over the last few years.

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    U.S. shale giants turn to 2016 with somber outlook

    Some of the largest U.S. shale oil producers have already begun slashing 2016 budgets, with some planning double-digit reductions starting next January, the latest sign low crude prices are forcing a radical adjustment in the industry.

    A rash of bleak commentaries from CEOs this week marks one of the earliest times in a calendar year that oil producers have laid out rough sketches for the following year's spending.

    Gone, for now at least, are the high-rolling ways of an industry that as recently as last year was flush with cash. Here to stay, it seems, is constant belt-tightening, though executives still think they will be able to pump more oil.

    In all, North American oil companies should cut their budgets by as much as 15 percent next year, analysts at Barclays estimate.

    "No cost is too small for us to scrutinize," Marathon Oil Corp Lee Tillman told the Barclays Energy Power Conference on Wednesday. "We continue to be laser-focused on reducing costs across all areas of our business."

    Marathon, which operates in North Dakota and Texas, said it would trim at least 18 percent of its capital budget next year - more than $600 million - by cutting the number of wells it fracks, among other steps.

    Executives at Anadarko Petroleum Corp and Apache Corp hinted strongly they could take cuts of their own.

    "If we do stay in this lower-for-longer scenario, we're going to see (2016) become a very different period than we would have anticipated," Al Walker, Anadarko's CEO, said at the conference.

    Searching for a metaphor for the downturn, Walker quoted a friend saying: "It is going to rain for a long time. We are all going to get wet, and a few people are going to drown."

    Analysts expect the most acute pain at very small firms, not the big independents.

    Still, cuts are happening. Apache has cut 20 percent of its staff this year and has begun looking for a joint venture partner to help develop its Montney shale acreage in Canada, a sign that the company is looking to spread financial risk.

    WPX Energy Inc, which is spending $825 million to $925 million this year, could cut that to $700 million to $800 million next year, Chief Executive Rich Muncrief said Wednesday.

    Chesapeake Energy Corp CEO Doug Lawler told investors at the conference on Tuesday that maximizing liquidity and preserving the company's ability to generate cash were near-term priorities.

    "How we deploy our cash in the next few years will be very important," said Lawler, adding that he was prepared to cut capital spending next year.

    "We believe our customers will take a conservative approach to their 2016 budgets," Paal Kibsgaard, chief executive of Schlumberger NV, the world's largest oilfield service provider, told the conference on Wednesday.

    To be sure, budget cuts don't necessarily mean that oil output will drop, with productivity of drilling rigs and frack crews jumping in the past two years.

    Cimarex Energy Co said new processes to complete wells have helped it extract 64 percent more oil in New Mexico than had previously been available, a staggering jump that points to how nonchalantly the industry had spent money and overlooked efficiencies when oil prices eclipsed $100 per barrel, roughly $55 above current levels.
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    Encana's four strategic assets deliver 257,000 BOE/d in August 2015

    Encana's capital investment and operational activity in the first half of 2015 is delivering high-margin production growth from its four strategic assets. During July and August the company brought 72 new wells on production in the Permian, Eagle Ford, Duvernay and Montney. In August, these assets delivered total average production of 257,000 barrels of oil equivalent per day (BOE/d), up from an average 223,000 BOE/d in the second quarter 2015.

    'Our strategic assets are delivering impressive high-margin production growth and are on track to meet our fourth quarter expectations,' said Doug Suttles, Encana President and CEO. 'We remain focused on executing our highly disciplined capital program, strengthening our balance sheet and capturing sustainable efficiencies through innovation.'

    Operational update on Encana's four strategic assets

    Permian August production up 26 percent from the second quarter 2015

    production in August averaged 45,000 BOE/d, up from an average of 35,800 BOE/d in the second quarter
    well performance continues to improve, with new wells performing in line with type curve expectations
    during July and August, 44 net wells were brought on production, including 20 horizontal wells

    Eagle Ford August production up 25 percent from the second quarter 2015

    production in August averaged 57,100 BOE/d, up from an average of 45,800 BOE/d in the second quarter
    the Patton Trust South Facility came on stream in July, increasing the processing capacity of the facility to over 25,000 BOE/d
    during July and August, 17 net wells were brought on production

    Duvernay August production up 62 percent from the second quarter 2015

    production in August averaged 9,400 BOE/d, up from an average of 5,800 BOE/d in the second quarter
    better well performance and the successful start-up of Phase 2 of the 15-31 plant reduced the impact of third-party transportation restrictions
    during July and August, four net wells were brought on production

    Montney August production up 7 percent from the second quarter 2015

    production in August averaged 145,000 BOE/d, up from an average of 135,900 BOE/d in the second quarter
    continuous improvement in well performance reduced the impact of third-party transportation restrictions
    during July and August, seven net wells were brought on production

    Encana continues to expect its Permian, Eagle Ford, Duvernay and Montney assets will achieve average production of 270,000 BOE/d during the fourth quarter

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    Alternative Energy

    IEA study highlights remarkable shift in competitiveness of solar PV

    This new IEA report is based on data for 181 plants in 22 countries, including 3 non-OECD countries.

    It then applies a coherent set of assumptions to calculate the so-called Levelized Cost of Electricity (LCOE) for each of the main power generation technologies. The most remarkable finding in the report is the dramatically improved competitiveness of solar PV, compared to the established baseload technologies coal, nuclear and natural gas.

    Several data in the analysis underpin this finding:

    The median LCOE from all solar PV plants has dropped from 500 to below 200 USD/MWh since 2010, whereas the power from combined-cycle gas, coal and nuclear has become slightly more expensive in the same period.

    By equalizing costs and revenues using a 3 % real interest rate, which the IEA economists believe is a reasonable proxy for the «social cost of capital» today, the median cost of ground-mounted PV drops to below 100 USD/MWh. This is equivalent to the median cost of power from combined-cycle natural gas plants (CCGT), and only 20-30 % higher than cost from existing coal and nuclear plants in the OECD area.

    If we apply the higher 7 % real interest rate, the median cost of the capital-intensive ground-mounted PV increases in the study to around 125-130 USD/MWh, only 20–40 % higher than the baseload alternatives gas, coal and nuclear.

    PV competitiveness is most relevant to study in sunny countries. The data from the only sunbelt-countries in the report, United States and China, confirm the remarkable progress made by solar PV. The reported costs from ground-mounted PV in the US and China are as low as 55 USD/MWh at 3 % interest rate and 74 and 80 at 7 % respectively.

    In China, solar PV is already 40 % (3% interest rate) or 20 % (7% interest rate) cheaper than natural gas-fired power using the most cost-efficient technology CCGT. In the US, which has the lowest natural gas costs of all countries, solar PV is still cheaper than gas assuming a 3 % real interest rate. Even with 7 % interest rate, ground-mounted PV in the US is only 8 dollar/MWh more expensive than natural gas.
    Of course, the data and assumptions used in the report should be treated with caution. Many will argue the data points are too limited, the fuel price assumptions to high or too low, the cost data inaccurate, etc. The model furthermore applies a 30 $/t carbon cost to all technologies. This might look a bit high given today’s carbon prices, but is highly realistic – if not moderate – considering the 30-40 year lifetime of newly built power plants.

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    China's stock market to launch carbon efficiency index next month

    China's equity market in Shanghai will launch a carbon index next month, the first of its kind in China with the aim of identifying the greenest companies on the exchange.

    The Shanghai Stock Exchange (SSE) and China Securities Index (CSI) will launch the index on Oct. 8, according to a statement from the CSI published on its website on Wednesday. It will track the carbon efficiency of blue-chip companies belonging to Shanghai's SSE180 index, which are worth 15 trillion yuan ($2.35 trillion) in total.

    "The less carbon intensive companies will be weighed more in the index. It aims to direct the flow of capital from funds managers towards green businesses," said Zhao Yonggang, an official with CSI responsible for compiling the index.

    The index will rank all the constituent stocks of the SSE180 apart from the most carbon-intensive, defined as those with a carbon footprint that exceeds 1,000 tonnes of CO2 per million U.S. dollars of market value.

    The sampled companies still include giant energy firms like PetroChina, the biggest listed steel firm Baoshan Iron and Steel and the China Railway Group .

    China is planning to launch a national carbon market no later than early 2017 in order to bring down greenhouse gases starting by around 2030, but it is not yet mandatory for listed companies to disclose their annual emissions rate.

    The index will adopt carbon benchmarks provided by Trucost, a British environmental consultancy, to assess the emissions of the firms.

    "Some institutes have shown interest in developing products linked to the index," said Zhao. "The index will move along with the market value of the 180 stocks on a daily basis, and we will adjust carbon-related factors every half-year," said Zhao.

    Turmoil on China's stock markets has wiped out 40 percent of the value since June, but CSI said the carbon index is already 64.77 percent higher than the benchmark level of 1000 which reflects prices on July 2013.
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    San Marcos University commits to Doosan fuel cell

    California State University San Marcos has finalized an agreement that will provide the 304-acre campus with two fuel cells to help the institution adhere to strict sustainability standards and reduce greenhouse gas emissions associated with energy consumption.

    The project, developed by BioFuels Energy LLC, will utilise power plants provided by Doosan Fuel Cell (Doosan), which will shrink reliance on the San Diego power grid and, unlike grid power, will consume no water during energy production – a key performance advantage in droughtstricken California.

    “As an institution for higher learning, we believe it is our responsibility to continually look for the most efficient and innovative ways we can operate our campus,” says Lindsey Rowell, director of energy management and utility services for CSUSM, which serves more than 14,000 students.

    “CSUSM’s new fuel cells not only represent a significant step toward achieving our aggressive sustainability goals, they will also offset electricity costs and ensure we can sustain continued growth while remaining one of the most energy-efficient universities in the state.”

    BioFuels Energy, a project developer that supplies its clients with “renewable energy solutions” through strategic alliances and long-term power purchase agreements (PPAs), has acquired two 440kW fuel cells and a 90 tonne chiller from Connecticut-based Doosan.

    “The Doosan fuel cells have been in existence longer than most any stationary fuel cell for commercial applications. These units have very reliable uptime and (energy) availability,” says Ken Frisbie, managing director for BioFuels. “In this flexible financing model, using a combination of state and federal incentives has helped Cal State San Marcos acquire the benefits from fuel cells with no upfront expense.”

    The Doosan PureCell Model 400 technology requires no water consumption or water discharge while combining hydrogen and oxygen to produce electricity and heat. The fuel cells, which meet the CARB (Calif. Air Resources Board) standard for ultra-low emissions devices, operate quietly, can be installed in nearly any indoor or outdoor environment and have the potential to deliver grid-independent power.

    “As businesses, including college campuses across America, reduce their environmental impact and cut greenhouse gas emissions, fuel cells are moving to the forefront,” says Jeff Chung, President and CEO of Doosan Fuel Cell. “As demonstrated by Cal State San Marcos, this is especially true in California where water resources are evaporating due to drought conditions and building a sustainable future with ultraclean energy from fuel cells is essential.”
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    Base Metals

    Canada’s Capstone puts Chile copper project on back burner

    The Santo Domingo copper and iron project is located in Chile's north, 50 kilometres west of Codelco's El Salvador copper mine. (Image courtesy of Capstone Mining Corp.)

    Capstone Mining Corp. (TSX:CS) said Wednesday that low commodity prices have forced the company to halt work at its 70%-owned Santo Domingo copper development project in northern Chile, adding it will lay off most of the employees at its South American offices.

    The Vancouver-based miner noted the move would affect 23 of the 31 people it employs at its two Chilean offices.

    "As copper prices continue to deteriorate, we have looked at a range of actions to preserve our financial flexibility,” Capstone president and CEO Darren Pylot said in a statement. “This includes reducing and deferring capital expenditures at our operating mines, suspending all work on the Santo Domingo project, eliminating non-essential operating and general and administrative expenses and reducing exploration expenditures."

    The company anticipates the cost of community relations going forward will be about $2 million a year.

    He added the company anticipates the cost of community relations going forward will be about $2 million a year.

    “While we continue to believe that Santo Domingo is an excellent project, a number of factors, including uncertainty over the future direction of copper prices and our financing capacity for the project, make capital preservation a priority at this time,” Pylot said.

    The Santo Domingo copper and iron project, located 50 kilometres west of Codelco's El Salvador copper mine, is co-owned by Korea Resources, which holds a 30% stake on it. The project estimated initial cost was $1.7 billion as per June 2014.

    Capstone highlighted that despite the gloomy news its operating mines — in Canada’s Yukon Territory, Arizona and the Mexican state of Zacatecas — are on track to meet the company’s overall 2015 output guidance.
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    Indonesia to allow mine contract extension talks to begin 5-10 yrs before expiry

    The Indonesian government plans to revise a mining regulation to allow miners to start contract extension talks five to ten years before a concession contract's expiry, at least doubling the time allowed from the current two years. "There are some contracts of work that will expire. This will give the chance to propose extension, such as for Freeport and Vale," energy and mines minister Sudirman Said told reporters on Thursday. Freeport's current mining contract is due to expire in 2021.
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    Freeport Indonesia cuts copper sales forecast due to El Nino

    Freeport-McMoRan has revised down its forecast for copper concentrate sales from its Indonesian unit, an official at the US mining giant said, after milling operations were hurt by the El Nino dry weather pattern. Freeport, which runs one of the world's largest copper mines in Papua in eastern Indonesia, said a lack of water supply would cut its 2015 sales by 25-million pounds, or 3%, from its earlier sales estimate of 860-million pounds for the year. 

    "During the third quarter, milling operations have been impacted by a reduction in process water available under current El Nino conditions," company spokesperson Eric Kinneberg said in an email late on Wednesday. Indonesia is expected to face moderate El Nino conditions from July to November, affecting provinces from Sumatra to eastern Indonesia, although the weather pattern could strengthen from September to December. 

    Exports from Freeport Indonesia's Grasberg mine complex in remote Papua have already been hindered this quarter by new payment rules for buyers and the closure of the company's domestic smelter. 

    Freeport Indonesia usually produces about 220 000 t/d of copper ore, which is then converted to copper concentrate. Kinneberg declined to provide daily output details for the mine. Union officials said last week that Freeport sent a letter to employees on August 20 asking for greater efficiency and emphasising the need for cost-saving.
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    Steel, Iron Ore and Coal

    BHP expects coal rebound and makes move in Borneo

    Image Source: SMHIt is reported that BHP Billiton is set to ramp up its focus on Indonesian coal, revealing it will open a second mine on Borneo within two years as it predicts a rebound in global markets.

    Mr Mark Small, BHP's Indonesian coal boss, said that mining had this year started at Haju in Central Kalimantan which is the first coal deposit mined in the IndoMet coal project, a joint venture which is 75 per cent owned by BHP and 25 per cent by Adaro Energy.

    Mr Small said that the company would look to start its next Indonesian mine within two years. In parallel we have commenced construction within a second CCoW (Coal Contracts of Work) due to come on-stream in 2017.

    He said that IndoMet would seek to create a world-class metallurgical coal basin supporting a suite of mines and employing many thousands of people.

    BHP's strategy is to mine only the world's largest mineral resources which can be expanded for generations or even centuries and therefore it rarely goes into a new mining province without evidence of a substantial resource.

    He added that "To date we have identified a resource of 1.3 billion tonnes with further exploration planned."

    However, coal prices have dived as part of a global commodity slump but Mr Small said that, beyond the challenging short-term outlook, he was optimistic about both thermal coal and metallurgical coal in the medium to long term.

    He further added that "We are potentially more bullish about metallurgical coal. In the long term I think there will be a recovery, to what extent I am not sure."
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    BHP’s met coal sees record production in fiscal 2015

    Metallurgical coal production from BHP Billiton -- the world’s largest supplier of seaborne metallurgical coal, rose 13% in fiscal 2015 to a record 43 million tonnes.

    Continued productivity improvements and the ramp-up of Caval Ridge helped achieve this record at Queensland Coal.

    Also, an increase in equipment and wash plant utilization helped six other operations achieve record volumes.

    Thermal coal production, on the other hand, fell 5% to 41 million tonnes. This was expected, as drought conditions and managing dust emissions at Cerrejon in Colombia impacted volumes.

    Met coal production is expected to drop to 40 million tonnes in fiscal 2016 as operations at Crinum come to an end in the first quarter of 2016.

    Wash plant shutdowns at Goonyella and Peak Downs mines are also scheduled for the quarter ending September 2015, which will impact production volumes for fiscal 2016.

    However, going forward, some of this drop in production should be offset by the 1 million tonnes per annum Haju mine in Indonesia, which is expected to commence production during fiscal 2016.

    Thermal coal production is forecast to remain largely unchanged in fiscal 2016 to 40 million tonnes. This assumes a full year production from the San Juan mine. BHP sold this mine to Westmoreland Coal Company, and the transaction is expected to close at the end of 2015.

    Going forward, BHP’s thermal coal production should drop since the San Juan mine, which produced 5 million tonnes of thermal coal in fiscal 2015, no longer contributes to BHP’s thermal coal volumes.
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    Dalian iron ore jumps 5 pct to 9-week high on steel hopes

    Iron ore futures in China climbed 5 percent on Wednesday, buoyed by hopes that infrastructure spending would gain pace for the remainder of the year and boost steel demand.

    Steel demand in China, the world's top consumer, has continued to shrink this year amid a slowing economy, spurring more producers to sell overseas. China's steel consumption fell last year for the first time since 1981. Infrastructure spending on some sectors such as telecommunications has only been "30-40 percent" completed, and local governments may speed up investment for the rest of the year, said Wang Li, an analyst at CRU Group in Beijing.

    "There are some uncertainties in the overall economy but the Chinese government has bigger power and influence on the economy so I'm not too bearish," said Wang. The most-traded January iron ore contract on the Dalian Commodity Exchange rose as much as 5 percent to 402 yuan ($63) a tonne, the daily ceiling set by the bourse and its highest level since July 3. It closed at 398 yuan, up 3.9 percent. On the Shanghai Futures Exchange, the January rebar contract ended 1 percent higher at 1,948 yuan a tonne after touching a 1-1/2-week high of 1,979 yuan.

    The 14-percent decline in China's iron ore imports in August from July possibly reflects slower supply additions, said Wang. "I think the major miners may adjust their business cycle according to Chinese demand," she said. Iron ore prices have been hurt by worries over a global glut amid signals that China's steel demand may be near its peak. But the steelmaking raw material, after recovering from a decade-low of $44.10 a tonne in July, has managed to stay above $50 since then.

     On Tuesday, iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI rose 0.7 percent to $56.40 a tonne, a level last seen on Aug. 5, according to the Steel Index. But Commonwealth Bank of Australia believes weak Chinese steel demand will continue to cut the country's iron ore imports. "While we still expect low-cost iron ore supply from Brazil and Australia to displace high-cost supply in China, we may still see China's iron ore imports fall this year due to weak steel production and demand," the bank said in a note.
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    DGS recommends 20% safeguard duty on HR import into India

    On anticipated lines but in a swift mode, India's DGS has recommended to impose 20% ad valorem safeguard duty on imports of HRC into India today. It is understood that the recommendations have been sent to a committee comprising of secretaries of steel, finance and commerce who, most likely, recommend immediate imposition to finance minister to approve and implement with immediate effect. The Indian government seems to be in real hurry to protect Indian domestic HRC makers

    India’s Director General Safeguard vide notice no GSRD-22011/26/2015 dated 9th September 2015 announced that after preliminary examination of the matter concerning imports of HR, as notified on September 7th 2015, it is seen that there is all around deterioration in the financial parameters of the domestic industry and the domestic industry has suffered serious injury and immediate protection is required in the form of the safeguard duties with a view to save the domestic industry from further injury.

    [email protected]
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    Mechel seals debt restructuring deal with VTB

    Russian coal and steel producer Mechel has signed a debt restructuring deal with the country's second-largest state bank, VTB, leaving it one step away from reaching an agreement with all three of its main lenders.

    The indebted miner has spent a year in talks over a $6.8-billion debt restructuring with its three main lenders: VTB, Gazprombank and Sberbank.

    VTB has agreed to restructure Mechel debt worth 70 billion roubles ($1 billion), the bank and the miner said on Wednesday.

    Mechel, which employs 72,000 people, had to ask its lenders to delay debt repayments after Russia's economic downturn and a decline in coal and steel prices put an end to its strategy of borrowing heavily to finance large investments.

    The restructuring will also allow VTB to cut costs on loan-loss provisions for Mechel's debt at a time when the bank's profits have slumped.

    "This restructuring will enable the company to service its debt even in these times, which are difficult for the global commodity market," Igor Zyuzin, Mechel's board chairman and controlling shareholder, said in a statement.

    The restructuring agreement gives Mechel a grace period on debt repayments to VTB until April 2017 and states that subsequent loan repayments will follow in monthly installments until April 2020, VTB and Mechel added.

    In late August, Mechel signed a similar debt-restructuring deal worth $1.4 billion and 33.7 billion roubles ($506 million) with Gazprombank.

    The company is still in talks with Sberbank, Russia's largest lender, to which it owed $1.3 billion as of mid-June.

    Sberbank said on Wednesday it was yet to agree terms with Mechel over its outstanding debt and was continuing legal proceedings to recover money it is owed.
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    Drinking, smoking China Baosteel exec sacked for frugality breach

    A top executive of China's Baosteel Group, the parent of Baoshan Iron & Steel, has been sacked for breaking Communist Party frugality rules, including smoking cigars and drinking expensive liquor during meetings, the party graft watchdog said.

    Since President Xi Jinping's appointment in 2013, the government has cracked down on official corruption and extravagance in China, where the flaunting of personal and often illicit wealth and wasteful public spending has led to widespread criticism of the party.

    Zhao Kun had been vice general manager of Baosteel Group, but was found to have spent company money on expensive accommodation, dinners and personal entertainment, the party's Central Commission for Discipline Inspection said late on Wednesday.

    Zhao booked villas on the company when at company meetings in August and December 2013, and used company money to drink expensive imported alcohol and smoke cigars, as well as allowing his subordinates to go sightseeing, the watchdog said.

    He also visited a private club in Guangzhou in May and September of last year and played golf at company expense, it added.

    "Since 2013, he accepted cigars from his subordinates six times, with each worth between 260 yuan ($40.77) and 900 yuan," the statement said.

    "Zhao ignored the party leadership's repeated warnings ... and did not stop his wrongdoings," it added.

    "Even now, some executives of state-owned firms continue to ignore the central leadership's orders."

    It was not possible to reach Zhao for comment. It is not clear if he will face any criminal charges.

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