Mark Latham Commodity Equity Intelligence Service

Friday 20th November 2015
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    Oil and Gas


    China state firms' profit decline worsens in Jan-Oct, down 9.8 pct

    Profits at China's state firms fell 9.8 percent in the first 10 months of this year, the Ministry of Finance said on Friday, with commodities-linked companies bearing the brunt of the pain.

    The near double-digit fall in profits in January-October from a year earlier was worse than the 8.2 percent drop in the first nine months of the year.

    Combined profits of state-owned enterprises totalled 1.88 trillion yuan ($294.51 billion) in the January-October period, the ministry said in a statement published on its website.

    "The downward pressure on economic operations remains relatively big," the ministry said.

    Excluding financial firms, revenues of state firms for the first 10 months fell 6.3 percent from a year earlier to 36.79 trillion yuan, the ministry said.

    Companies in transportation, electronics and power sectors reported a rise in profit in the January-October period, while coal, steel and non-ferrous metal sectors continued to suffer losses.

    The world's second-largest economy is on track this year to grow at its slowest pace in more than two decades.

    Annual growth in profits of China's state-owned firms slowed to 3.4 percent in 2014 from 5.9 percent the previous year as factories struggled to cope with falling prices amid an economic slowdown.

    Read more at Reuters

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    China just uncovered a $64 billion 'underground bank'

    Chinese authorities just uncovered a massive "underground bank" in the country's eastern Zhejiang province, according to a report in the People's Daily, the official Chinese Communist Party newspaper.

    The scale of the operation reported is astonishing. The report suggests 410 billion yuan ($64 billion, £42 billion) in foreign exchange transactions were made by the unnamed illegal organisation. 370 people have reportedly been arrested.

    China's currency is tightly regulated by the government, so even multinational firms have struggled with large foreign exchange deals. An underground bank effectively smuggles money in and out of China for investors.

    According to Bloomberg, a man named Zhao Mouyi transferred billions of yuan through bank accounts meant for international companies, which are not usually available to Chinese citizens.

    Here's a snippet from their report of the People's Daily piece:

    Zhao circumvented the capital controls by directly transferring yuan overseas and then exchanged the money into foreign currencies at banks including HSBC Holdings Plc in Hong Kong, the People’s Daily said. Zhao then allegedly transferred it to his clients’ accounts, the report said, citing the local police.

    The size of the bank means that it makes up over half of the underground financial activities that have been identified since earlier this year.

    The Chinese government is engaged in a major crackdown on corruption, which is paired with attempts to stem the flight of capital from the country. Up until recently, the world was buying the yuan (or renminbi) on net, as people battled to invest in China. Now, that's changing:

    With Chinese growth slowing and investment opportunities elsewhere, people are trying to get money out of the country, but the strict capital controls stop that from happening through official channels. That's why the illegal or "underground" banks crop up.

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    Finland's Outotec to axe jobs as miners cut spending

    Finnish mining technology company Outotec said on Friday it was planning to cut up to 650 jobs, or 13 percent of its workforce, and save 70 million euros ($75 million) annually in a bid to protect profitability amid deteriorating markets.

    "The global market in minerals and metals processing has further weakened during recent months," chief executive Pertti Korhonen said.

    Shares in the company, which are down 17 percent this year, rose 3 percent in early Helsinki trade.

    Outotec is struggling as miners have cut spending due to low metal prices, and recent uncertainty regarding China's growth prospects has further hit its business.

    Earlier this month, the firm trimmed its full-year sales and profit forecast.

    Outotec is 14-percent owned by Solidium, the government's investment arm, which has recently increased its stake in the firm.

    Out of the global job cut target, up to 160 positions are expected to be cut from Finland, the company said.

    Read more at Reuters

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    Kirchner foe in lead in Argentina vote — and markets are excited

    Argentinians will head to the polls once again on Sunday, in a second-round of voting that will likely see the pro-business opposition trump the incumbent socialists.

    It is less than a month since the first vote, on October 25, produced no outright winner. It is also the first time that an election has gone to a runoff in Argentina.

    "We are in uncharted territory in Argentina's political history. This will be the first runoff since the current election system was instituted under the 1994 constitutional reform (the 2003 election would have gone to a runoff between Carlos Menem and Nestor Kirchner, but Menem withdrew) and indeed, the first runoff ever," Stuart Culverhouse, global head of research at Exotix Partners in London, said in a report last week.

    Sunday's vote will pit the two leading candidates against one another — that's Daniel Scioli, who is backed by fiery President Cristina Kirchner and pro-business opposition candidate, Mauricio Macri. The Argentinian constitution bars Kirchner from running for a third term.

    Macri is seen winning — and Argentina's benchmark stock index, the Merval, has rocketed on the prospect of an end to 14 years of socialist rule. It has risen around 22 percent since the first vote in October and is around 60 percent higher on the year.

    Both Macri and Scioli have pledged to resolve Argentina's long-standing dispute with so-called holdout creditors, which has dragged on since a massive default in 2002. This could allow the country to re-access the international capital markets and raise much needed funds.

    Macri is seen more likely, however, to scale back the swathes of interventionist measures that cripple the Argentinian economy at the moment. These range from capital controls to subsidizing electricity prices far below the market rate.

    "A Macri victory would be positive for markets and investors, with the candidate pledging to end currency controls and bring about currency convergence," Nicholas Watson, senior vice president at Teneo Intelligence, said in a report this week.
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    Baltic Dry Shipping Index drops to All Time Low on Thursday

    The Baltic Exchange's main sea freight index BDI slumped to a new record low of 504 on Thursday as slowing activity, especially in China which is translating into weakening demand for imported iron ore that's used to make the steel, took its toll.

    The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry;s biggest source of cargoes.

    Shipping market is looking like a disaster and the rates are a reflection of that. It is looking scary for the market and it doesn't look like there is going to be any life in the market in the near term
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    Venezuela's foreign income down 64 pct this year -president

    Venezuela's foreign income fell 64 percent this year due to the global fall in oil prices, President Nicolas Maduro said on Thursday.

    The decline has led to major shortages and an economic crisis ahead of legislative elections on Dec. 6 that will be the toughest test yet for the socialist leader.

    "Revenue in dollars entering the country from oil and other things this year decreased 64 percent, nearly a financial catastrophe," Maduro said, speaking in the eastern coastal city of Cumana.

    "If there were an oligarch sitting here, what would he have done? Frozen salaries, pensions? Would he have maintained (housing, welfare)? He would have said 'No, there are no more houses.'"

    Maduro went on to announce in detail the number of houses built for the poor in various parts of the country, to cheers from the crowd.

    However, Venezuela is suffering from the lack of foreign income. Imports have dwindled, leading to shortages of the most basic goods.

    Inflation is thought to be in triple figures and the local currency has tanked 80 percent on the black market this year alone.

    The OPEC nation receives 96 percent of its foreign income from oil.

    The country's oil on Thursday sold for $34.25 per barrel, slightly up from the previous day at $34.10, Maduro added.

    Read more at Reuters
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    Iran Sanctions Might Be Lifted in January as Atomic Gear Removed

    Oil and banking sanctions against Iran might be lifted by mid-January based on the pace at which technicians are removing and mothballing nuclear equipment at the country’s uranium-enrichment facilities.

    Iran removed 4,530 centrifuges during the 28 days ending Nov. 15, a rate of 162 machines per day, according to an International Atomic Energy Agency report issued late Wednesday. Based on current work rates, Iran may be able to fulfill its part of the nuclear deal agreed with world powers by Jan. 12.

    “By the time you have this down to a routine, it’s not much more difficult than changing a set of tires,” said Robert Kelley, a nuclear engineer and former IAEA director who has supervised centrifuge disassembly projects. “There’s no reason the Iranians cannot continue at the same pace.”

    The July 14 deal agreed with world powers requires requires Iran to reduce the number of its installed centrifuges -- the fast-spinning machines that enrich uranium -- to 5,060 from about 19,000. Once IAEA monitors have verified that Iran has met its commitments, oil and banking sanctions that have dragged on the economy of 77 million people will be lifted.

    Nuclear monitors have been present during every stage of the removal process, according to two senior diplomats familiar with the IAEA’s role in Iran. The agency is recording the serial number of every machine that is being removed to ensure nothing goes missing, they said, asking not to be identified in exchange for discussing details of the work.

    Before sanctions are removed, Iran also has to eliminate about 8,000 kilograms (17,600 pounds) of enriched uranium, either by exporting it to another country or diluting it with inert material. The core of a heavy-water reactor in Arak also has to be disabled.

    The IAEA “has begun conducting preparatory activities related to the verification and monitoring of Iran’s nuclear-related commitments,” it said in the 22-page document. The agency is setting up remote monitoring technologies and will be prepared to implement its commitments whenever the Iranians are ready, the diplomats said.
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    India, not China, powering growth in fuel demand

    China's fuel usage tends to gather headlines as an indicator of the strength of global crude oil demand, and while this has been justified, the real growth action is happening over the Himalayas in India.

    India's total demand for oil products is about one one-third of that in China, but the South Asian nation is powering up as China's growth moderates.

    This isn't entirely unexpected given that the slowdown in China's economic growth is well known, as is the rotation towards a more service- and consumer-oriented economy from one reliant on heavy industry.

    India's rapid gains in fuel consumption have seen it overtake Japan to become Asia's second-largest crude oil importer behind China, and this growth trend appears likely to continue.

    India's fuel demand in October grew at its fastest pace in almost 12 years, rising 17.5 percent from the same month a year earlier, according to data from the Petroleum Planning and Analysis Cell, a unit of the oil ministry.

    Total consumption of refined oil products was 15.2 million tonnes, which equates roughly to 3.6 million barrels per day (bpd).

    This is using a conservative conversion rate, the crude oil factor of 7.3 barrels per tonne, while the factors for the main products India consumes, diesel and gasoline, are 7.5 and 8.5, respectively.

    If the pace of fuel demand growth for the first seven months of India's April to March fiscal year is maintained, it puts the nation on track for consumption of at least 3.6 million bpd for the 2015-16 year.

    If this is achieved, it will mean that India's fuel demand growth was 8.7 percent higher in 2015-16 over the prior year, equivalent to a gain of about 290,000 bpd.

    China's apparent oil demand was 10.14 million bpd in October, a gain of 0.9 percent from the same month a year earlier, but only 0.1 percent higher than in September.

    Detailed figures for October aren't yet available, but it's likely that the apparent demand number will be below the moving 12-month average, which stood at 10.67 million bpd in September.

    Assuming China's apparent demand for the whole of 2015 comes in around 10.6 million barrels, this represents a gain of about 5.9 percent over 2014's 10.06 million bpd.

    But it's here that one runs into difficulty with China's fuel figures, as apparent demand is a derived number that doesn't include changes in inventory levels, data which isn't disclosed by the authorities.

    China has been filling strategic and commercial storage sites, and looking at the difference between crude available from domestic output and imports and what's processed through refineries shows that at least 200,000 bpd appears to have headed into oil tanks so far this year.

    This would cut China's actual rise in fuel consumption to something closer to 4 percent, or a growth rate of less than half what India is likely to achieve in the 2015-16 fiscal year.

    Read more at Reuters
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    BHP Billiton says solid balance sheet a priority.

    Mining giant BHP Billiton said on Thursday its priority was to maintain a healthy balance sheet, but made no direct comment on future dividends amid speculation that tumbling commodity prices will force it to cut its payout.

    BHP's progressive dividend policy, under which it guarantees never to cut its annual payout, has endeared the stock to investors but come under increasing scrutiny as the mining bust eats into profits.

    "Through thick and thin, through good times and bad times, this company has been quite strong," Chairman Jacques Nasser told shareholders at the company's annual meeting in Australia.

    "But the one thing we never risk is the strength of the balance sheet through the cycle. We've been very explicit about a solid "A" balance sheet through the cycle."

    BHP has so far stuck to its dividend policy as profit margins contract, which could mean future payouts may need to be funded by debt.

    UBS is forecasting a near 50 percent fall in BHP's net earnings to $3.3 billion in 2015/16, about half the $6.49 billion the company paid out last year on dividends, while Goldman Sachs has said BHP needs to cut its dividend in half.

    The world's biggest diversified mining house is also facing a potentially multi-billion bill to help clean up a mud slide disaster that killed at least 11 people on Nov. 5 in Brazil at its Samarco iron ore joint venture.

    Nasser told the meeting that it would be some time before the company will fully understand what occurred in Brazil.

    He agreed to a request by Greenpeace for a moment's silence in respect for those affected by the tragedy.

    Nasser agreed with a shareholder who suggested there would be more information on dividends when the company releases its first half results in February.

    BHP shares were trading up 2.7 percent on Thursday at A$20.34, after hitting a seven-year low in the previous session.

    Iron ore, BHP's main source of income, was sitting at $46.35 a tonne .IO62-CNI=SI, down from highs above $180 in 2011, while copper was veering towards a six-year low. Oil and coal are also weaker.

    Read more at Reuters

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    Home prices in China rose for the first time in 14 months

    Home prices in China rose for first time in over a year in October on an annual basis, signalling a housing market stabilisation that could help re-energise the listless economy.

    A swift rebound in property prices, however, is unlikely due to high inventories in all but the biggest cities, forcing developers to slow the pace of or even stop expansion to protect their cash flows.

    "For next year, most market players are somewhat pessimistic as new construction is still dropping and policy effects are fading away," said Liu Yuan, head of research at property consultant Centaline in Shanghai.

    Average new home prices rose 0.1 percent in October from a year earlier, Reuters calculated from National Statistics Bureau (NBS) data out on Wednesday, reversing September's 0.9 percent drop, marking the first year-on-year gains since August 2014.

    Even a modest recovery in a sector that accounts for 15 percent of gross domestic product is a welcome boost for an economy heading for its weakest growth in 25 years.

    The numbers bootsted Chinese real estate stocks with the Shanghai stock exchange property subindex surging more than 4 percent. Greenland Holdings and Poly Real Estate gained nearly 10 percent.

    The NBS data showed larger cities have led the price upturn, with Shenzhen the top performer. Prices in Shenzhen rose 39.9 percent in October from a year earlier, quickening from September's annual 37.6 percent.

    "Looking ahead, property prices will continue to warm up in first and second-tier cities. Smaller cities will face headwinds due to inventory destocking," economists at ANZ said.

    Following a year-long slump, China's home sales and prices have increased in bigger cities over recent months, helped by a barrage of government measures. Analysts expected to see more measures to revive the key sector in coming months.

    Chinese President Xi Jinping told the APEC conference in Manila on Wedneday that the fundamentals of China's economy remain positive, the economy is proving resilient to the pains of deepening reform, and there is ample room to fend off downward pressure.

    Data out last week showed growth in property investment cooled to its slowest rate since the global financial crisis, while new construction continued to show year-on-year falls.

    "There are signs of price gains losing momentum, fuelling hopes that more stimulus, including tax breaks and downpayment cuts, will come in the remainder of this year," said Guo Yi, market director of Yahao, a real estate consulting agency.

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    Buyout Bubble Bursts

    Ten years after Symantec paid $13.5bn for Veritas, Carlyle Group agreed in August to buy the data-storage business for just $8 billion (the biggest LBO of the year). Of course, the buyout deal made sense when the cost of funding was negligible and The Fed had your back but, as Bloomberg reports, amid soaring borrowing costs, banks have pulled the $5.5 billion debt offering for Veritas signaling a clear end to the reach-for-yield, nothing is a problem, bond market's risk appetite.. and if 'growthy' deals like this are being killed, what does that say for distressed bets on Energy M&A deals?

    As Bloomberg noted earlier,

    The banks backing Carlyle Group LP’s $8 billion buyout of Symantec Corp.’s data-storage business are facing one of the costliest debt deals of the year to offload part of the financing in the corporate-bond market.

     As investors squirm at the amount of debt being piled onto the unit, known as Veritas, underwriters are discussing yields of 11.5 percent to 12.5 percent to lure potential buyers to a $1.775 billion junk-rated portion of the debt,according to people with knowledge of the talks. That would be one of the highest bond yields of 2015 and shows just how risk-averse fixed-income investors have become as the global economy cools and the U.S. Federal Reserve moves to raise interest rates for the first time in almost a decade.

    Borrowing costs on junk bonds are soaring back toward a three-year high set last month as investors grow wary of increasing their exposure to risky assets in the credit markets.That is beginning to impact banks that have committed to finance buyouts in the last few months and are now finding it difficult to syndicate the debt.

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    Explosion, Fire Reported At Chinese Chemical Factory (Again)

    Count us incredulous at this point (and we're sure we aren't the only ones), but it looks as though there has been yet another explosion at a Chinese chemical facility, this time in Liaoning

    View image on Twitter
     FollowPeople's Daily,China  ✔@PDChina

    : Chemical plant explosion in Fushun city, Liaoning Province, on Tue

    2:07 PM - 17 Nov 2015

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    China losing out to US in cost advantage


    WUHAN - China's manufacturing industry is losing out to the United States in terms of its cost advantage, a new report has suggested.

    Prices of energy, logistics and some raw materials in China have surpassed those in the United States, according to the 2015 China Purchasing Development Report, released on Thursday by the China Federation of Logistics and Purchasing.

    The report said that the United States has slashed its energy costs with exploitation of shale gas, increasing the competitiveness of American manufacturers.

    "Many raw materials are cheaper in the United States," the report said. "For example, US cotton is 30 percent cheaper than that in China." It also pointed out China's price disadvantages with statistics in sectors including logistics and industrial land.

    Citing a survey by the Boston Consulting group, the report said the cost advantage of China's manufacturing industry over the United States has plummeted to 4 percent in 2014 from 14 percent in 2004.

    "If the trend continues, China's cost advantage in manufacturing could be completely wiped out by 2020," the report predicted.

    It suggested China steps up innovation and relies on made-in-China equipment and Chinese brands to sustain growth in the futur

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    Oil and Markets

    The fluctuations in crude oil have dictated the direction for the stocks. A slide in oil futures has more times than not resulted in a tumble in the broader stock market. Conversely, a rise in oil prices, as was seen on Monday when West Texas Intermediate oil CLZ5, +0.60%  saw a 2.5% pop to settle at $41.74 a barrel, has delivered a bump to stocks. The following table from Dow Jones data show that a strong positive correlation between oil and stocks has really taken hold in July and August of this year.

    All the main U.S. indexes surged sharply higher on Monday, highlighted by a more than 230-point rally in the Dow Jones Industrial Average DJIA, +1.38%

    Year Same Direction (Down days) Same Direction (Up days) Total Same Direction Total Days % of Days
    2014 64 67 131 252 51.98
    2015 78 57 133 221 60.18
    Since Aug. 19 25 20 45 63 71.43
    Aug. 19-Nov. 14, 2014 17 17 34 63 53.97
    Aug. 19-Nov. 15, 2013 26 19 45 64 70.31

    More than 70% of the time that oil has moved in a given direction, stocks have followed. Compare that with a roughly 52% correlation for 2014. For all of 2015, the correlation is a little over 60%, according to Dow Jones data.

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    The West should not right off the Middle East

    We should respond with similar generosity to some of the words spoken immediately after the Paris abominations. Bernie Sanders said terrorism was a consequence of climate change. Janine di Giovanni said: “What really worries me is that these attacks will help the Right wing”. Jean-Claude Juncker said that the murders strengthened the case for the free movement of migrants in Europe. Stop the War said that France brought the attacks on itself by bombing Syria. In each case, people were responding in the way that human beings do to trauma, by retreating into the familiar, by saying, in effect, “This just proves whatever it was I was arguing a moment ago.”

    Our larger purpose, though, was to engage with local politicians. It is worth recalling what sparked the revolution in 2010 – which spread from Tunisia across North Africa and the Middle East. The risings began when Mohamed Bouazizi, a market trader, was driven to the horrific extreme of self-immolation because he had been denied ownership of his own goods and the right to engage in commerce. His was a protest against the violation of property rights, and he was not alone. In an authoritative study of the Arab Spring, the Peruvian economist, Hernando de Soto, chronicled hundreds of cases of entrepreneurs in Arab countries being driven to suicide by police corruption and harassment.

    The Arab Spring, in other words, began as a movement against arbitrary government. Citizens were fed up with living under regimes that could make up the rules as they went along, seizing property without due process, rigging the law in favour of their clients. They wanted freedom: freedom of speech, freedom of assembly, freedom of worship, freedom of association and, not least, freedom to enjoy their own property.

    The answer ought to be obvious. Religion isn’t going to disappear, much as some Leftists might like it to. The question is whether observant Muslims can be represented by values-based democratic parties, of the sort that the Western Right takes for granted, but that have so far barely existed in the Arab world except in Morocco and Tunisia.

    No one can definitively answer that question, and the recent history of North Africa cautions against excessive optimism. Still, as Benedikt Koehler – a fellow CapX contributor and also a conference delegate – has regularly argued here, freedom and free markets were an integral part of early Islam. The aspiration to liberty is universal. Don’t write off an entire region.

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    Sumitomo Metal seeks stakes in copper, gold mines

    Sumitomo Metal Mining is looking to snap up stakes in copper and gold mines, taking advantage of its sound finances and a slump in commodity prices to bolster future growth, its president said.

    "We have a perfect opportunity now to make use of strength and pursue good deals that would benefit us in future," Sumitomo Metal President Yoshiaki Nakazato told a news conference.

    A number of companies had approached the firm about possible sales, he said, but declined to elaborate.

    Several miners have indicated they are on the look out for copper assets, as slowing demand growth in China, the world's biggest consumer of industrial metals, has pushed copper prices to six-year lows. Gold is at nearly five year lows.

    Companies such as Glencore have come under pressure from investors to cut debt amid a broadranging slump in commodity prices.

    Nakazato said Sumitomo Metal was sticking with a long-term goal to boost its annual copper output from the mines in which it holds a stake to 300,000 tonnes in 2021, up from planned output of 175,000 tonnes this year.

    Sumitomo Metal was also unlikely to reach full capacity at its Sierra Gorda copper mine in Chile until April or May, he said, confirming indications from another company official last week that the schedule would be delayed from December.

    The delay was due to problems with the mine's molybdenum plant, he said.

    The Sierra Gorda mine, owned jointly with Polish producer KGHM Polska Miedz, began commercial production at the end of June and the setback adds to a slew of production delays at Chilean copper mines this year.

    While its basic finances are healthy, Japan's second-biggest copper producer still slashed its full-year profit forecast this month, blaming the plunge in the prices of copper and nickel and the delayed ramp-up at Sierra Gorda.

    Read more at Reuters

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    BHP Reviews Mine Operations Management After Dam Disaster

    BHP Billiton Ltd. said it’s reviewing the operating structure of mining joint ventures with companies including Glencore Plc and Anglo American Plc in the wake of the deadly Brazil mine disaster.

    The world’s biggest mining company is reviewing Samarco Mineracao SA, its joint iron ore operation with Vale SA in Brazil’s Minas Gerais state, after tailings dams burst Nov. 5, sending a torrent into a valley below and killing at least nine people. It’ll also assess the Antamina copper operation in Peru and its Cerrejon coal venture in Colombia, BHP Chief Executive Officer Andrew Mackenzie told investors Monday on a conference call.

    Three of its mining joint ventures - Samarco, Antamina and Cerrejon - are operated by standalone entities owned by the partners, while in BHP’s petroleum business one of the partners acts as the operator, he said. BP Plc and Chevron Corp. are among BHP’s oil partners. Of 19 major assets in its portfolio of wells to mines, BHP operates 12 of the sites, according to a March filing.

    “That is the kind of arrangement we need to review and have been reviewing,” Mackenzie told investors on the call. BHP will assess “whether a more petroleum-type model might be more appropriate in the future,” he said.

    While any changes to the structure of joint ventures could speed up decision-making and allow for the adoption of more unified standards and working practices, it would be complicated for companies that own an equal share of a joint venture to select a single producer to take the lead, said Sydney-based Deutsche Bank AG analyst Paul Young.

    “The issue is, when you have equal ownership and you have one operator, who’s going to be the operator and who do you choose?” Young said by phone. Any change would likely take years, rather than months, he said.

    BHP and Glencore both hold a 33.75 percent stake in Compania Minera Antamina, which operates Peru’s Antamina copper mine, while Teck Resources Ltd. has 22.5 percent and Mitsubishi Corp. holds 10 percent, according to filings. Glencore, BHP and Anglo American each have a third share in Cerrejon Coal Co., the filings show.

    In addition to its consideration of operating structures, BHP is also conducting a review of dam facilities across the organization, Mackenzie told investors on the call. “We are hungry for the lessons that we can learn from Samarco,” he said. “We are clearly looking at ways we can run the vast bulk of our business even better.”
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    CO2 Emissions Data

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    Boart Longyear Q3 loss widens

    Boart Longyear's third quarter loss has widened 58 per cent and the drilling services company does not expect the impact of its cost cutting measures to show in results until the next financial year.

    Boart's net loss for the three months to September 30 was $US24.8 million ($A34.87 million), compared to $US15.7m for the prior corresponding period, after revenue dropped 21.9 per cent to $US186.8m.

    "Drilling activity levels continue to be low and we are also battling headwinds in prices and foreign exchange rates," executive chairman Marcus Randolph said.

    Chief executive Richard O'Brien stepped down in August after Boart reported a blowout in half year losses to $US152.3 million ($A214.13 million) to June 30.

    International driller Boart Longyear sees its cost and productivity improvements are continuing to gain traction despite a statutory operating loss of $US24.8M in the Sept qtr (Q3), a 58% deterioration from Q3 2014. The loss from trading activities was $7.7M ($6.2M).

    Q3 revenues fell 22% to $186.8M ($293.3M), due to lower volumes and unfavourable $US exchange rates. Liquidity improved to $153M, $8M higher than at end-June.
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    Chinese firm to invest $2.15b in Mexico's energy sector: report

    Chinese firm to invest $2.15b in Mexico's energy sector: report
    China National Corporation for Overseas Economic Cooperation (CCOEC) is set to invest $2.15 billion in Mexico's energy sector, it was announced at a bilateral trade forum which ended in Mexico City on Thursday, Xinhua News Agency reported on Saturday.

    The government of Mexico's northern state of Durango signed the agreement with the Chinese partner as part of the 2015 China-Mexico Trade and Investment Expo and Forum, which took place in Mexico City through November 10-12.

    The project, in which the CCOEC will be the main investor, calls for the construction of what is known as a combined cycle plant with capacity of 1,500 megawatts.

    The plant "will be built over three different stages of 500 (MW) each," said Durango's Secretary of Economic Development, Ricardo Navarrete Gomez.

    "Each stage will be developed over a two-year period, generating 1,500 direct jobs," he explained.

    China is supplying 85 percent of the investment needed, with the remaining 15 percent coming from Mexican sources, he said. "This is quite a large investment for Durango, but it opens up future investment" possibilities.

    President of CCOEC, Huo Xuejun, noted bilateral business in various fields has been "steadily" strengthened.
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    China Oct power consumption down 0.2pct on year

    China’s power consumption stood at 449.1 TWh in October, edging down 0.2% on year and down 1.58% on month, showed data from the National Energy Administration (NEA) on November 16.

    Power consumption by the residential segment was 56.6 TWh, rising 4.7% from the year prior but down 17.3% from September.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 7.3 TWh of electricity in October, rising 6.6% on year but down 28.4% on month.

    The secondary industries – mainly the industrial sector – consumed 329.8 TWh of electricity, falling 1.9% on year but up 5.43% from September.

    The industrial sector specifically, consumed 324.5 TWh of electricity in October, decreasing 1.9% from the year before but up 5.77% from September, with the heavy industry accounting for 83.4% or 270.5 TWh, dropping 1.5% year on year but up 8.46% on month.

    Power consumption by tertiary industries – mainly the services sector – reached 55.4 TWh in October, increasing 4.6% year on year and 14.8% lower from the month prior.

    Over January-October, China consumed a total 4,584 TWh of electricity, up 0.7% from the same period last year, the NEA said.

    Power consumption by the residential segment amounted to 614 TWh during the same period, gaining 4.6% from the previous year.

    Under the non-residential segment, the primary industries used 87.9 TWh of electricity, up 3% year on year; the secondary industries used 3,285.8 TWh of power, down 1.1% year on year, with the industrial sector at 3,228.5 TWh, down 1%; while the tertiary industries consumed 595.9 TWh, up 7.1%.

    Meanwhile, the average utilization of power generating units across the country dropped 7.56% year on year to 3,279 hours over January-October this year.

    Hydropower plants logged average utilization of 2,989 hours during the same period, dropping 3.67% from the previous year; while thermal power plants logged average utilization of 3,563 hours, falling 7.86% from a year ago.

    China added 82.57 GW of power generating capacity from January to October, including 12.58 GW of new hydropower capacity and 43.36 GW of new thermal power capacity.

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    Australian Senate passes China-Australia FTA

    The Australian Senate has passed the China-Australia Free Trade Agreement (CAFTA), paving the way for implementation from January 1 next year that will help lower the import tariff on coal selling into China.

    Australian media reported that the Customs Amendment (China-Australia Free Trade Agreement) Bill 2015 and the complementary Customs Tariff Amendment (China-Australia Free Trade Agreement) Bill 2015 passed the Senate on November 9, after being approved by the House of Representatives on October 22.

    The agreement will come into effect after gaining approval from China’s legislative body.

    China and Australia are important trade and investment partners. Australia is the second largest destination of Chinese overseas investment after Hong Kong. China is the largest trade partner of Australia, and its largest import and export destination.

    If tariffs come down, there would be a 96.45% export tariff cut for Chinese products, totaling $1.6 billion yuan, in force for three years from ratification.

    The CAFTA will benefit Australia’s exports of coking coal, thermal coal and aluminium oxide, enhancing Australian miners’ competitiveness in the seaborne market and cutting production cost for coal chemical, steel and aluminium producers of China.

    Upon implementation, China would scrap the existing 3% import tariff on coking coal, and lower the current 6% import tariff on thermal coal to 4%, and gradually reduce to zero in 2017.

    This will directly improve profitability of Chinese holding companies or subsidiaries in Australia, such as Yancoal Australia.

    Half of China’s imported coking coal comes from Australia. Over January-September, China imported 19.59 million tonnes of coking coal from Australia, down 6.1% on year, accounting for 53.8% of China’s total coking coal imports, customs data showed.

    During the same period, China’s imports of thermal coal -- including bituminous and sub-bituminous coals -- from Australia fell 25.8% on year to 33.89 million tonnes, taking 53.3% of China’s total thermal coal imports, the data showed.
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    New York AG mulls widening effect from Peabody climate settlement

    The New York state attorney general's office, which told Peabody Energy this week to give investors more details about how its sales would suffer from measures to curb global warming, is now mulling whether the tactic it used with the coal firm could be applied to companies beyond the energy sector.

    The state investigation into Peabody, which was settled on Monday, found that the company repeatedly denied in public filings it could predict how potential climate change regulations would affect its business, even though its internal studies showed revenue could tumble if coal were targeted in a carbon pollution crackdown.

    New York Attorney General Eric Schneiderman seized upon this discrepancy between public and private pronouncements as a violation of securities laws, arguing that material facts were withheld.

    While the settlement will pressure other fossil fuel companies to bolster their climate change disclosures, it also could spawn new pressures on a range of companies facing regulatory risks over policy issues from obesity to soaring drug prices, according to corporate governance experts including James Cox, a law professor at Duke University in Durham, North Carolina.

    "This is sweeping," Cox said. "I think there will be a ripple effect from this."

    Schneiderman's office has considered the effects the Peabody settlement could have on disclosure practices for companies outside the energy industry, though no additional actions are planned at the moment, a person familiar with the matter told Reuters.

    At least one other case similar to Peabody is in the works in New York, where Schneiderman's office last week was reported to have opened an inquiry into whether Exxon Mobil Corp misled shareholders about climate change risks.

    U.S. Securities and Exchange Commission disclosure guidelines give companies considerable leeway to make their own judgments about the likelihood that future events, such as tougher regulations, will affect their valuations.


    The Peabody settlement, while not binding for corporate America, could prompt companies to reexamine what they are defining as material to shareholders, at a time when demands by investors for more robust disclosures are growing, corporate governance experts said.

    For example, soda makers could see a crackdown on sugary drinks by governments worried about public health, or changes in insurance rules might result in lower drug prices paid to pharmaceutical companies, they said

    "There is this horrible mismatch between what companies know about their own businesses and what they tell investors in mandatory public filings. That isn't okay," said Michael Guttentag, a law professor at Loyola Law School.

    He said the New York settlement sets a precedent that could prod companies to make fuller disclosures, though others said firms would still have ample latitude under SEC rules, which they do not see changing.

    Andrew Logan of Ceres, a group that advocates for more sustainable business practices, said companies will need to be more forthcoming with investors.

    "The Peabody settlement ... should be seen as a shot across the bow to any company that faces regulatory risk in its core business, whether you produce junk food, high-priced pharmaceuticals or fossil fuels," he said.

    When it announced on Monday it would amend its disclosures, Peabody said there was no admission or denial of wrongdoing and no financial penalty. It could not be reached for comment on Thursday.

    Corporate officers are still digesting the settlement.

    A handful of prominent food companies canvassed by Reuters said they were either unaware of the Peabody settlement or not yet prepared to address it. The Pharmaceutical Research and Manufacturers of America trade group said it would be premature to comment.

    Meredith Cross, a former SEC official who now advises companies and their boards on disclosure and securities law as a partner at Wilmer Hale, warned against expecting companies to divulge even the smallest of facts or being asked to reliably predict regulatory changes in the future.

    "I do not think it is a good idea to require companies to provide an encyclopedia of data and make people wade their way through it. That doesn't strike me as a reasonable approach," she said.

    Read more at Reuters

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    US Port Traffic Slows

    For the first time in at least a decade, imports fell in both September and October at each of the three busiest U.S. seaports, according to data from trade researcher Zepol Corp. analyzed by The Wall Street Journal. Combined, imports at the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor, which handle just over half of the goods entering the country by sea, fell by just over 10% between August and October.

    The declines came during a stretch from late summer to early fall known in the transportation world as peak shipping season, when cargo volumes typically surge through U.S. ports.

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    Hollande cries "War!"

    In Brussels, at the political headquarters of NATO, and in Mons, the military “Pentagon” of NATO just an hour south, officials will be working through the weekend. The 28-nation alliance, after all, is founded on one key premise enshrined in the Article 5 of its founding treaty: “The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked.” It is worth noting that the only country to ever activate Article 5 was the United States after the 9/11 attacks in 2001.

    If France would like to become the second such country, the first step would be to call for an Article 4 consultation, which would convene the ambassadors of the 28 nations, who are in permanent session in Brussels, to discuss the situation and decide a course of action. This happened most recently in 2014, when Turkey requested an Article 4 meeting after the Islamic State attacks there.

    It seems likely that an Article 4 meeting would conclude that the Paris massacres, given their scale and scope, should be considered an attack under Article 5. That would be entirely appropriate. The terrorist attacks — assuming that the Islamic State is, in fact, responsible for them — are the culmination of a long-running humanitarian disaster in Syria that has destabilized the Middle East and initiated the flow of millions of refugees into the heart of Europe. NATO can no longer pretend the conflict does not affect its most basic interests.

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    Oil and Gas

    Eni selling remaining Galp shares

    Italian oil company Eni has started, through an accelerated book building procedure, the sale of shares it owns in Galp Energia, a Portuguese oil and gas company.

    Eni is selling 33,124,670 ordinary shares of Galp. This means the Italian company is actually selling its entire participation it has in Galp, which is around 4% of Galp’s total share capital.

    The shares were underlying its Exchangeable Bonds under which the terms of conversion are expired. The shares will be placed with qualified institutional investors with Goldman Sachs International and Merrill Lynch International acting as Joint Bookrunners.

    Over the last few months Eni has completed the disposal on the stock exchange of approximately 4% of the share capital of Galp.

    Following the completion of the Offering, Eni will not hold any participation in Galp’s share capital, completing the disposal process of the initial 33.34% stake, sold through several transactions starting from 2012.
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    Brazil Said to Study Hybrid Securities for Petrobras: Estado

    Brazil is studying the possibility of using hybrid securities to boost capital at struggling state-controlled oil producer Petroleo Brasileiro SA, Agencia Estado reported, citing government officials it didn’t name.

    The operation is being discussed between Brazil’s Treasury and Petrobras’s management, and no amount has been defined yet, Estado said. The government and Rio de Janeiro-based Petrobras aren’t considering a share sale to minority investors as an option to raise cash at this time, Estado said. Petrobras declined to comment.

    Hybrid securities like contingent convertibles -- or Cocos, as they are known -- provide companies with a way to raise money without immediately diluting shareholders, as is the case when a firm issues new stock.

    The instrument, which doesn’t impact the country’s surplus or the public net debt, was used by former Finance Minister Guido Mantega to fund state-controlled banks in recent years, the paper said.

    In Brazil, the securities have been used by banks only and the government would still need to find an intermediary to transfer the money to Petrobras, as the producer is not a financial institution, Estado reported.

    The government could use Brazil’s Treasury to get Petrobras an advance payment for a capital increase, Eliseu Martins, a former securities regulator and accounting specialist, said by phone. The Treasury would issue securities without a firm deadline to convert them into Petrobras shares, he said.

    “When market conditions improve, the company could then call investors for a capital increase,” Martins said, adding he isn’t aware of the government’s discussions.

    Petrobras’s debt has surged fourfold in the past five years as the company boosted investments to tap giant oil fields deep in the South Atlantic, while at the same time subsidizing fuel imports during the commodities boom as part of a government effort to contain inflation. Standard & Poor’s cut the company’s ratings to junk in September amid rising leverage and a corruption scandal that has resulted in some of its suppliers filing for bankruptcy.
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    Chesapeake Investors Seen Signalling Surrender as Bonds Plunge

    Credit investors who lent $11 billion to Chesapeake Energy Corp. are starting to give up on the company, the second-biggest junk-debt issuer in the U.S. energy industry.

    Nearly all of the energy producer’s bonds plummeted to their lowest levels ever on Thursday as oil dropped toward a more-than six-year low. Chesapeake notes were the second-most actively traded in the high-yield market, just behind Petrobras Global Finance BV.

    One of Chesapeake’s bonds dropped 9 cents on the dollar, while the price of credit-default swaps -- used by investors to protect against defaults -- rose to the highest ever. The company’s shares sank to a 13-year low.

    "We are seeing investors capitulate to the reality of the situation," said John McClain, a money manager at Diamond Hill Capital Management Inc. in Columbus, Ohio, which oversees $16 billion. "They have a lot of debt, they are burning through cash and their earnings profile is not getting any better. They are trading worse than their credit rating suggests, and there is almost certainly a downgrade coming."

    Chesapeake, rated two steps below investment grade with a negative outlook by Moody’s Investors Service, is making investors worry about its ability to pay back borrowings that are three times the current worth of its oil and natural-gas fields. The company, which took on most of its debt under former Chief Executive Officer Aubrey McClendon, recorded a $5.4 billion writedown in value of those fields when it reported earnings earlier this month. The recalculation wiped out third-quarter profits.

    The company’s $700 million of 5.375 percent unsecured notes due 2021 dropped the most of the dozen Chesapeake bonds that traded Thursday, falling 9 cents to 41 cents on the dollar at 10:02 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. One of its biggest bonds, the $1.5 billion of floating-rate notes due 2019, fell 4.3 cents to 46.8 cents at 5:15 p.m., the data show.

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    U.S. manslaughter charges filed in deadly 2012 oil platform blast

    Two companies involved in the deadly 2012 explosion of an oil platform in the Gulf of Mexico have been indicted on federal charges of involuntary manslaughter, the U.S. Justice Department said in a statement on Thursday.

    Black Elk Energy Offshore Operations LLC and Grand Isle Shipyards Inc. were charged on Thursday with three counts of involuntary manslaughter, eight charges involving federal safety laws and one violation of the Clean Water Act.

    Three people and a third company, Wood Group PSN Inc., also face criminal charges related to the explosion, the department said. Those charges include felony violations of the Clean Water Act and other federal safety laws.

    The 2012 fire off the coast of Louisiana ignited when workers were welding a pipe on the deck of the shallow-water platform operated by Houston-based Black Elk Energy. The explosion led to the three deaths, several injuries and an oil spill.

    Read more at Reuters

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    Noble Midstream Partners postpones IPO amid oil slump

    Noble Midstream Partners LP, a wholly owned unit of Noble Energy Inc, said it postponed its planned IPO amid a slump in oil prices.

    The company filed for an initial public offering on Oct. 22.

    Noble Midstream will continue to evaluate the timing for the proposed offering as market conditions develop, the company said.

    Read more at Reuters
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    US natural gas in storage hits 4 Trillion cf

      Historical Comparisons
    billion cubic feet (Bcf)
     Year ago
    5-year average
    Region11/13/1511/06/15net changeimplied flow Bcf% changeBcf% change
    East934  929  5  5   892  4.7  926  0.9  
    Midwest1,124  1,117  7  7   1,051  6.9  1,091  3.0  
    Mountain214  217  -3  -3   185  15.7  213  0.5  
    Pacific381  382  -1  -1   349  9.2  358  6.4  
    South Central1,347  1,340  7  7   1,119  20.4  1,205  11.8  
       Salt377  373  4  4   329  14.6  288  30.9  
       Nonsalt970  967  3  3   790  22.8  917  5.8  
    Total4,000  3,985  15  15   3,596  11.2  3,793  5.5  

    Working gas in storage was 4,000 Bcf as of Friday, November 13, 2015, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 404 Bcf higher than last year at this time and 207 Bcf above the five-year average of 3,793 Bcf. At 4,000 Bcf, total working gas is above the five-year historical range.

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    Tanker rate spike dents efforts to store oil glut at sea

    Record high freight rates are creating more headaches for traders looking to house millions of barrels of unsold crude oil and who already face potential losses due to record high stocks.

    They have to decide on whether to use tankers for longer term storage until they can sell their cargoes, or dump them at even more discounted prices in order to keep wells running.

    This is expected to come at a bigger cost as rates for supertankers have soared - reaching their highest since 2008 at over $100,000 a day last month and currently around $70,000 a day.

    Some have already been caught out with extra oil, and had no choice but to keep it on vessels. Trade sources said the expensive freight meant this was not a money-making play - and is unlikely to become one any time soon.

    "They're losing money, and they want to place the vessel as fast as possible," said Eugene Lindell, senior crude market analyst with JBC. "It's putting pressure on anyone who has to take a vessel out."

    Booking a supertanker on a one-year time charter has also spiked to over $50,000 a day - double the rate last year - with the overall monthly cost of storing oil on a vessel estimated at just over $2 million.

    A combination of bargain buying by oil importers and refineries and fewer new vessel deliveries this year meant that the tanker market was having its best year since the 2008 financial crisis, Omar Nokta with Clarksons Platou Securities said.

    "Capacity utilisation has jumped sharply as a consequence, nearly reaching 90 percent, the highest level since 2008," Nokta said. "As seasonal factors now turn up, we expect to see more of the above with floating storage possibly becoming an even bigger factor."

    Placing crude in storage is only profitable if prices for delivery in the future are at a large enough premium to the current levels - a market structure known as contango. The contango also has to be large enough to pay for the cost of storage, which is usually much higher on ships than land tanks.

    Earlier this year, as much as 50 million barrels of oil was estimated to have been earmarked for sea storage options with traders looking to sell the cargoes later on at a profit.

    That speculative play fizzled out as the contango flattened quickly.

    "If it (a wide contango) gets there, it would be a very, very small amount of time ... before the freight rate goes up and it closes," one oil trader said. "(Tanker) owners are notoriously bad at hiking the rates in no time at all."

    The trading strategy was last used in 2009, when slumping prices led traders to park more than 100 million barrels of oil on tankers at sea before stocks were sold off. At the time, oil tanker rates were at rock-bottom levels, and owners were keen for long-term leases.

    This time round, tanker owners have the upper hand, with worldwide bottlenecks and heavy traffic to oil refineries keeping vessels fully booked.

    Read more at Reuters

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    IEA Says Natural Gas to Play Key Role in Climate Talks

    Natural gas, the “least carbon-intensive fossil fuel,” could play a key role in reaching global climate goals, an issue at the center of upcoming talks in Paris, said the head of the International Energy Agency.

    Fatih Birol, the agency's new executive director, noted that energy production and use account for two-thirds of global greenhouse gas emissions, so energy policies will be key at the Paris talks starting Nov. 30, which have the aim of achieving a global deal to fight climate change, largely through commitments to cut carbon dioxide emissions.

    Speaking at the agency's Nov. 17–18 ministerial meeting, which brought together energy ministers from the Paris-based agency's 29 members, including the world's advanced economies and many of its biggest energy users and carbon dioxide emitters, Birol said IEA ministers approved his three-pillar plan for modernizing the agency's strategy to face today's “transformed” global energy landscape.

    That starts with doing more to bring emerging economies into the IEA's work, Birol said.

    IEA's members now account for less than 50 percent of global energy consumption, but including non-IEA emerging economies, that rises to over 75 percent, according to Birol.

    The meeting included representatives from the biggest emerging economies: Brazil, China, Indonesia, India, Mexico, Morocco, South Africa and Thailand, with Mexico and Chile announcing plans to join the agency. Some 30 leaders from business and the energy industry also attended.

    U.S. Energy Secretary Ernest Moniz, who chaired the meeting, said natural gas will play an important part in shorter term U.S. efforts to cut power sector greenhouse gas emissions, but special technologies could be needed to “really squeeze down” on emissions from gas in the very long term.
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    In Shell-BG review, China wants concessions on huge gas deals

    Chinese regulators vetting Royal Dutch Shell's proposed merger with BG Group are pressing the Anglo-Dutch company to sweeten long-term gas supply contracts in a move that could cast new doubt over the near-term benefits of the $70 billion tie-up.

    For China, the opportunity to re-negotiate existing liquefied natural gas (LNG) supply contracts with Shell, which combined with BG would supply around 30 percent of its imports by 2017, comes at an ideal time because the world's top energy consumer faces a large surfeit over the next five years.

    For Shell, any revision of the contracts with China could dilute the near-term financial benefits of a merger that has already raised concern among some investors and analysts because of stubbornly low oil prices.

    Shell declared it wanted to become the world's top trader of LNG when it agreed a takeover of BG in April.

    It expects global demand for LNG to grow by nearly 5 percent per year by 2030. Power plants, industries and vehicles are shifting to the less polluting gas, which once extracted from the ground is cooled and liquified, loaded onto ships before being turned back into gas at its destination.

    The proposed Shell-BG tie-up has already won mandatory approvals from Brazil and the European Union. It secured clearance on Thursday from one of two Australian regulators but still requires the green light from China.

    Senior Shell officials, who have held closed door discussions in recent months, had expected China's anti-trust authorities to put forward some demands before approving the deal just as they did ahead of Glencore's $29 billion merger with Xstrata in 2013.

    As the Chinese regulatory approval process entered its third and final 60-day phase earlier this month, Beijing broached with Shell a request to review prices in LNG contracts worth tens of billions of dollars annually with its energy champions China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and Sinopec, industry sources close to the talks told Reuters.

    Negotiators from China's ministry of commerce (MOFCOM) are also seeking to lower import volumes by extending the term of the existing deals with Shell as well as other suppliers in order to thin out deliveries given low demand, according to several sources.

    Some Shell officials fear that a revision of the terms of the contracts could create a ripple effect around the world, further eroding gas prices.

    The combined Shell-BG group is planned to sell around 15 million tonnes of LNG per year by 2018 to China's major importers, around one third of China's contracted volumes.

    Read more at Reuters

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    Oil traders prepare for next big price drop in March 2016

    Oil traders are preparing for another downward turn in prices by March 2016, market data suggests, as what is expected to be an unusually warm winter dents demand just as Iran's resurgent crude exports hit global markets after sanctions are ended.

    Crude futures have already lost around 60 percent of their value since mid-2014 as supply exceeds demand by roughly 0.7 million to 2.5 million barrels per day to create a glut that analysts say will last well into 2016.

    Goldman Sachs said on Thursday that there was a substantial risk of a "sharp leg lower" in oil prices.

    "Mild winter weather over the coming months could see weak heating demand in the U.S. and Europe," it said. This "would likely be the trigger for adjustments through the physical market, pushing oil prices down to cash costs, which we estimate are likely around $20 per barrel," the bank added.

    A recent steep rise in March put option positions tied to a $35-per-barrel strike price in Brent and West Texas Intermediate (WTI) crude suggests traders agree with the bank and expect the major benchmarks to slump in coming months.

    For WTI, put positions at the $30 strike price have more than doubled since Nov. 10, but have stayed flat at a more modest level for Brent.

    This is in accord with a broadly held view that while oil prices in general will remain under pressure over the medium term, WTI prices may fall faster and further than Brent.

    Goldman and other analysts say persistently high U.S. shale oil output that producers aren't allowed to export could overwhelm the country's storage tanks, which are already filled with near-record inventories. C-STK-T-EIA

    Compounding the production glut is an expectation of a mild winter as a result of an El Nino weather pattern, which is expected to limit heating oil demand.

    The market may also have to accommodate a rapid rise in Iranian oil exports if sanctions are lifted, which many analysts say could happen in the first half of 2016.

    One option to deal with the glut would be to use crude oil tankers for storage. But this requires a price curve in which oil is sufficiently more expensive in the future than for immediate delivery - a market structure known as contango - so that holding costs can be covered.

    High tanker rates and a relatively flat price curve make floating storage unattractive for now, however, so analysts say spot prices would have to drop further to make storing crude on ships a viable market strategy.

    Read more at Reuters

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    Iraqi oil selling at $30 as OPEC readies for new battles

    Iraq may increase oil output further in 2016, although less dramatically than this year, intensifying a battle for market share between OPEC members and non-OPEC rivals that has forced Baghdad to sell some crude grades for as little as $30 a barrel.

    Iraq's output in 2015 has jumped almost 500,000 barrels per day (bpd), or 13 percent, according to the International Energy Agency (IEA). That has made Iraq the world's fastest source of supply growth and a key driver of surging OPEC production.

    At most, that growth is likely to give way to a modest rise next year, easing downward pressure on prices that are close to a 2009 low. But a lifting of sanctions on Iran or an easing of violence in Libya could further boost OPEC supplies, without cutbacks by Saudi Arabia or other members.

    "Stable to limited growth in output from Iraq would give some potential for an uptick in prices - if it were not for Iran," said Eugene Lindell, analyst at JBC Energy in Vienna. "Libya is another big wild card."

    The southern fields produce most of Iraq's oil. Located far from the fighting in other parts of the country, they have kept pumping and seen record exports, most recently in July, when 3.064 million bpd was sold abroad.

    Iraq plans to export 3.0-3.2 million bpd from the south in 2016, an Iraqi oil source told Reuters. He declined to forecast exports from Iraq's north, which restarted in late 2014 and have grown to about 600,000 bpd, despite tension between Baghdad and the Kurdistan region.

    The scale of Iraq's growth this year surprised many observers. Moreover, the extent of any slowdown in 2016 and Iran's growth are on the minds of OPEC delegates heading into the group's Dec. 4 meeting on output policy.

    "The Iraqis need to tell OPEC their plan for next year and the Iranians so far haven't told anyone how much they really can pump," an OPEC delegate said. "Production from these two countries is important for OPEC to make a decision."

    Nonetheless, the delegate added, the Organization of the Petroleum Exporting Countries is unlikely to cut output.

    Iraq has every incentive to keep pumping all it can as its actual oil prices are even lower than the benchmarks. The official selling price of Basra Heavy in Europe is $10.40 a barrel below Brent for December, and trade sources say cargoes are being sold a dollar or more below OSP - or less than $30. BASH-OSP1-E.

    In Europe, Iraq has overtaken Saudi Arabia as the second-largest seller after Russia, and Iran has already lined up buyers to purchase its crude when sanctions are lifted, the IEA says, likely keeping prices under pressure.

    "For this reason, producers are likely to grow still more competitive on pricing," the IEA said.

    Smooth progress in Iraq's exports is not certain. An escalation of the dispute between Baghdad and Erbil could affect northern shipments, although supplies have risen despite some sabotage attacks and tensions. In purely technical terms, this growth could continue next year, traders say.

    "Out of Basra, we don't see more than 3.2 million barrels a day of exports," JBC's Lindell said. "From the north, that's where the surprise could come from."

    Read more at Reuters
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    Saudi Oil Minister Says OPEC With Others to Stabilize Market

    Saudi Arabia is working with other OPEC members and producers from outside the group to stabilize the market, Saudi Oil Minister Ali al-Naimi said.

    The world economy is going through an unstable situation, al-Naimi said. Crude demand is expected to rise by 1 million barrels a day every year in this decade, and the world requires more investments in oil to compensate for decline rates, he said. The decline rate of recovery at the world’s oil fields is at about 4 million barrels a day, he said.

    “Saudi Arabia is a very reliable supplier. We cooperate with OPEC and non-OPEC countries to stabilize the market,” al-Naimi said at a conference in Manama, Bahrain. “We need billions of dollars to continue exploration and producing oil and to invest in spare capacity to stabilize the market.”

    Threatened by surging production mainly from North America and Russia, the Organization of Petroleum Exporting Countries has been pumping above its quota for 17 months as it seeks to take market share from higher-cost regions. Oil tumbled since the middle of last year as U.S. stockpiles and production expanded, creating a global oversupply.

    Saudi Arabia, the world’s top crude exporter, led OPEC to reject demands from members including Algeria and Venezuela to cut supply to bolster prices. The group opted to maintain its production target to protect market share at the last meeting in June. OPEC ministers are due to meet Dec. 4 to assess the market and decide on production levels.

    Arab countries hold 57 percent of the world’s oil reserves, and that will grow on new discoveries, al-Naimi said. Arab countries need $700 billion of energy investments over the next 10 years, and oil consumption in the region is about 10 percent of the world’s demand, he said.
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    Cheniere sees half of its US LNG exports headed for Europe at $4.40 breakeven landed EU.

    Some 50% of Cheniere's future LNG supply from the US is likely to go to Europe, but the low cost of the gas would also give European buyers the option to send cargoes onward to other markets, a senior company official said Wednesday.

    Cheniere Marketing President Jean Abiteboul said at a conference in Geneva that there were uncertainties over the demand picture for LNG in places like China and India, and that price would be the determining factor in where cargoes ultimately end up.

    Asked whether Europe would be the dumping ground for US LNG given its spare regasification capacity, Abiteboul said: "I'm not sure it will happen that way.

    "Even long-term customers [in Europe] will have the opportunity for arbitrage between markets," he said, pointing to the possibility of reloading cargoes for shipping to Asia or South America.

    He added that this was possible as there were no destination clauses in Cheniere's term contracts with buyers and no take-or-pay obligations, just an obligation to pay the liquefaction fee.

    Cheniere currently has 31.5 million mt/year of liquefaction capacity under construction at Sabine Pass and Corpus Christi, but plans to expand it out to 60 million mt/year.

    Cheniere -- the pioneer of US LNG -- will ship the first cargo in January next year, and Abiteboul said that US LNG would be competitive in Europe, even in a low price environment.

    Taking a TTF price of around $6.40/MMBtu, Abiteboul said an exporter of US LNG could still expect a margin of $2/MMBtu once all costs -- including the cost of the gas, liquefaction and transportation -- were factored in.

    "So it's still very much acceptable," he said.

    He also pointed to the fact that in the US, liquefaction costs are around $600-$800/mt, compared with costs of as much as $3,000/mt in some cases in Australia.

    "So the US should be well-placed to supply any new demand growth in both Europe and Asia, as well as new markets like South America," he said.

    He added: "We don't have long to wait to see the impact of US LNG on the market in general and in Europe in particular."

    Abiteboul added that Europe was "clearly ready" to receive new sources of LNG. He said that in western Europe, the load factor of the existing facilities was running at around 30%.

    As an example, he said that the long-term contracts signed by customers in Spain meant that Cheniere LNG from the US would supply 30% of the gas market in Spain.

    And the long-term contracts signed by Cheniere in Europe, amounting to some 16 million mt/year, represent 5% of the total European gas market.

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    Fledgling U.S. LNG Exports Face Threat of China Becoming Seller

    U.S. liquefied natural gas producers face an unlikely challenge as they prepare to enter global markets: China’s sale of supply it won’t need.

    The Asian nation will accept only 77 percent of contracted cargoes in 2015 as the slowest economic growth since 1990 cuts demand, according to industry consultant IHS Inc. The rest of the supply will be put up for sale amid a worldwide glut that Goldman Sachs Group Inc. says is likely to force U.S. export projects to operate at half capacity.

    The U.S. and China are seeking to sell cargoes just as new output equivalent to more than a third of global demand is set to flood the market over the next three years. While producers face more competition, the supply surge is a bonanza for the world’s biggestbuyers, including Japan, who are benefiting from the lowest prices since at least 2010.

    “Chinese buyers have started trying to divert cargoes away from their home market,” James Taverner, an IHS analyst in Tokyo, said by e-mail. “To deal with existing and looming oversupply, the companies are attempting to sell volumes to other markets and have been negotiating with suppliers to delay ramp-ups of contracts.”

    The North American shale boom triggered producers to prepare for LNG exports five years ago, when benchmark U.S. natural gas was as much as double today’s price. Elsewhere, companies including Chevron Corp. and BG Group Plc sank billions of dollars into new supply from Australia to Africa, counting on Asian demand.

    Producers will increase annual supply by about 90 million tons over the next three years, according to Sanford C. Bernstein & Co., equivalent to about 38 percent of demand in 2014. There is 67 million metric tons of liquefaction capacity under construction in the U.S., Goldman Sachs said in a Nov. 5 note.

    Asian demand isn’t guaranteed and prices for cargoes delivered to the region have plunged more than 60 percent from a record in 2014. LNG shipped to buyers such as Japan is now at $7.55 per million British thermal units, according to New York-based Energy Intelligence Group. That’s similar to what Asian buyers would pay for supplies from the U.S. including the cost of shipping.

    China produces its own LNG for domestic use, especially when a producing gas field has no access to a pipeline, according to Taverner at IHS. In such cases, small amounts of the liquefied fuel is transported to customers via trucks and none of it is exported. That accounts for about 5 percent of the nation’s gas market while about 15 percent of demand was met through LNG imports in 2014, he said.

    China’s LNG purchases plunged 51 percent to 1.29 million tons in September from a record in January 2014, according to the country’s Customs General Administration. Natural gas pipeline imports from Turkmenistan fell by 30 percent from a February peak. The nation’s economic planner said Wednesday that the government will cut natural gas prices for business and industrial users as it seeks to boost use of the fuel.

    “If China’s gas demand growth remains this slow, the excess capacity will gradually be exported,” said Michal Meidan director of consultant China Matters, which focuses on the energy sector. “The impact for regional markets would be to add supplies and hasten the move toward more competitive regional gas prices.”

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    Petrobras's Dangerous Debt Math: $24 Billion Owed in 24 Months

    The debt clock is ticking down at Brazil’s troubled oil giant, Petrobras. Next up: $24 billion of repayments over 24 months.

    That’s a towering hurdle for a company that hasn’t generated free cash flow for eight years and whose borrowing rates are soaring. Annual debt servicing costs have doubled to 20.3 billion reais ($5.4 billion) in the past three years.

    The delicate task of managing the massive $128 billion mound of debt accumulated by Petroleo Brasileiro SA -- 84 percent of it in foreign currencies -- falls to the two banking veterans parachuted atop the company earlier this year, CEO Aldemir Bendine, 51, and Chief Financial Officer Ivan Monteiro, 55. The pair came from the state-controlled Banco de Brasil SA to contain the damage from the biggest corruption scandal in the country’s history.

    While prosecutors continue to grind away at years of suspicious dealings, Act II for the boys from the Bank of Brazil will further test their mettle. The challenge of Petrobras’s runaway debt, which has grown four-fold in five years, has been exacerbated by low oil prices, a weak currency and the Brazilian government’s own fiscal travails.

    “If you considered them to be totally independent and there were no chance of any kind of government support, I think the risk of default would certainly be there in a big way,” said Jason Trujillo, an Atlanta-based fixed-income analyst at Invesco Ltd.

    Petrobras total debt has quadrupled in five years

    Petrobras is not without options, but they tend to be either politically unpalatable or unattractive to the marketplace. Bendine is actively trying to peddle off minority stakes in the Rio de Janeiro-based oil producer’s pipeline and gas station units, among others, but that plan is behind schedule and faces fierce opposition from the oil industry’s most powerful union.

    Other alternatives are also running up against resistance from one interest group or another. The only source of comfort for many bondholders is the belief the Brazilian government would stop at nothing to save the country’s biggest company -- though, even at that, Trujillo said markets are “lessening the amount of implied government support.”

    Petrobras dollar bonds due in 2024 yield 10.07 percent, or 3.80 percentage points more than when they were issued in March 2014 in one of its last major international financing efforts. Citing adverse conditions in capital markets, the company canceled a 3 billion reais bond issue last month after a downgrade to junk status. These widening spreads are increasing the pressure on a management team faced with both rolling over existing debt and financing growth.

    “We don’t want to sanction the high yields offered by the market,” CFO Monteiro told reporters in Rio de Janeiro last week. He added that while “Petrobras doesn’t have Harry Potter’s magic wand,” it is not without “a number of alternatives on the table.” A Petrobras press official declined to comment further on the company’s debt load and the refinancing options it’s considering.

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    Falcon Oil very encouraged by Beetaloo horizontal

    Falcon Oil & Gas’s rapid progress in its Australian shale venture has continued with the completion of a successful horizontal well.

    Hot on the heels of two successful vertical wells Falcon and its partners have now drilled the Amungee NW-1H well to a total measured depth of 3,808 metres and has cut 1,100 metres horizontally through the ‘B Shale’ interval of the Middle Velkerri formation.

    The B Shale is said to have favourable properties, excellent gas shows were observed throughout and the results are described by Falcon as “very encouraged”.

    It is now anticipated that the Amungee NW-1H well will be fracked and tested in 2016.

    In the meantime there will be an in-depth evaluation and petrophysical analysis of all the technical data gathered from the three wells drilled this year.

    Falcon told investors that the results to date confirm the area as a “prospective and laterally extensive sweet spot” in the north of the Beetaloo basin, and highlighted that they have “fully justified” the decision to accelerate the drill programme.

    Following the success of the first two vertical wells the partners had agreed to bring forward horizontal drilling by about a year.

    Philip O’Quigley, Falcon chief executive, also pointed out that the drill rig is now being ‘warm stacked’ which means it could be mobilised more easily to start a further drill programme in early 2016.

    He says it demonstrates further commitment from Origin Energy and Sasol, which via a 2014 farm-in agreement are covering Falcon’s share of costs from the ongoing programme.

    “This continues to be an exciting time for Falcon with continued positive developments for the Beetaloo Joint Venture,” O'Quigley said.

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    Summary of Weekly Petroleum Data for the Week Ending November 13, 2015

    U.S. crude oil refinery inputs averaged 16.1 million barrels per day during the week ending November 13, 2015, 137,000 barrels per day more than the previous week’s average. Refineries operated at 90.3% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.6 million barrels per day. Distillate fuel production increased last week, averaging over 5.0 million barrels per day.

    U.S. crude oil imports averaged about 7.0 million barrels per day last week, down by 409,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.1 million barrels per day, 0.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 389,000 barrels per day. Distillate fuel imports averaged 158,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.3 million barrels from the previous week. At 487.3 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 1.0 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories remained unchanged last week. Distillate fuel inventories decreased by 0.8 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 0.5 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.2 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.8 million barrels per day, down by 0.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.2 million barrels per day, up by 2.0% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, up by 7.1% from the same period last year. Jet fuel product supplied is up 3.7% compared to the same four-week period last year.

    DOE confirmed a significant 1.495mm barrel inventory build at Cushing.

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    US Oil production shows very small loss

                                          Last Week       Week Before      Year Before

    Domestic Production '000. 9,182               9,185                 9,004
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    Marathon Ups Cash Offer for MarkWest 2nd Time – Deal in Trouble?

    For a second time in as many weeks, Marathon Petroleum has increased the amount of cash it’s willing to pay as part of the deal to purchase Marcellus/Utica midstream giant MarkWest Energy.

    Last week Marathon upped the cash portion of the deal from $675 million to $1.075 billion–a hefty $400 million increase . Yesterday Marathon announced they have increased it again–they’re now willing to pay $1.28 billion in cash, in addition to unit swaps and other financial high jinks in a deal worth $15 billion (initially was worth $20 billion). That is, Marathon has just added another $205 million to the dowry they’re offering.

    Does the increase have anything to do with former MarkWest CEO John Fox telling everyone MarkWest is crazy for selling itself for such a low price (see Former MarkWest Energy CEO Urges Vote Against Marathon Buyout)? MarkWest is attempting to win a PR battle against Fox. In their announcement about receiving more cash as part of the deal, MarkWest claims three big unit
    holders (i.e. shareholders) representing a collective 15% of the outstanding units (i.e. shares) say they will vote in favour of the deal.

    That’s still a long way from 51%. We wonder if this deal is in trouble…
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    Russia struggles to sell Siberian light crude

    Russia's Siberian Light crude oil hits lowest level against Dated Brent since 2008, after Nov loading program struggled to clear

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    China slashes wholesale gas prices as it seeks to spur demand for cleaner fuel

    China announced a near 25 percent cut in wholesale prices of natural gas from Friday, the second reduction this year, as it seeks to boost flagging growth in demand for the cleaner-burning fuel.

    China's energy giants have been forced to resell or renegotiate long-term global supplies as a cooling economy has hit gas demand in the world's third-largest consumer, while an inflexible pricing policy also curbed consumption.

    Benchmark city-gate prices for non-residential users will be lowered by 0.70 yuan ($0.1097) per cubic metre from Nov. 20, the country's top economic planner, the National Development & Reform Commission, said in a statement on its website on Wednesday.

    Besides cutting the benchmark prices, the agency also said it allowed a 20 percent upward float, but set no limit for a downward adjustment.

    Some market watchers had expected another cut in prices but not by as much, illustrating that the government wanted to send a strong price signal to boost demand, but the impact could be mixed for players in the market.

    "It should boost demand on the direct, large end users of especially domestic pipeline gas, and also benefits those with integrated value chains such as downstream assets in power plants and city distribution networks," said Li Yao, CEO of Beijing-based consultancy SIA Energy.

    But for state energy firms that have signed up to more pricey long-term supply deals of liquefied natural gas, such as with Qatar and more recently Australia, the price cut would hurt their import business, Li said.

    City-gate prices are those paid by local distributors or city gas firms to pipeline operators, mainly PetroChina and Sinopec Corp .

    The agency also urged participants in the market for non-residential gas to trade on the Shanghai spot exchange in order to achieve "full market transparency" within two to three years.

    The Shanghai exchange will publish regular information on spot trades, it added.

    Beijing introduced a new pricing scheme in July 2013 to pull domestic prices of natural gas closer to the cost of imports, besides spurring greater domestic output and burning cleaner fuel to cut emissions and fight pollution.

    The government last adjusted prices on April 1, with a 0.44 yuan per cubic metre cut on so-called "incremental" gas, effectively merging two tiers of pricing into one, to track an oil market slump.

    But that price cut did not fully reflect the falls in substitution fuels against which the regulated gas prices were benchmarked, curbing use by factories and slowing vehicles' shift to the fuel from diesel and gasoline.

    Demand growth shrank to less than 3 percent this year, a far cry from the heady years between 2004 and 2013, when gas use jumped five-fold.

    The fall forced state oil majors to cut domestic onshore production and also delay developing new discoveries offshore China.

    The economic planner's announcement on Wednesday did not address residential gas, a sector long seen as sensitive to price increases.

    It said last month it was considering shortening the gap between gas price adjustments, so as to better reflect market fundamentals.

    Read more at Reuters

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    Safety risks prompt Dutch court to order cuts at Groningen gas field

    Dutch court on Wednesday ordered more cuts in gas production at Groningen, Europe's largest gas field, saying the government had given too little consideration to the stronger and more frequent earthquakes extraction had caused.

    Output at the field, the world's 10th largest, will now be capped at 27 billion cubic metres (bcm) per year from 33 bcm, the court said, adding that the government had failed to sufficiently weigh public safety risks.

    The spate of earthquakes has caused extensive damage in the Netherlands' northernmost province.

    Groningen, along with a few smaller Dutch fields, supplies about 15 percent of the Europe's gas and proceeds made up more than 5 percent of government revenues for the national budget during recession years 2011-2013.

    "Although the minister (economy minister Henk Kamp) was entitled to attach great importance to the security of supply, he permitted a higher level of extraction than the average that is required," a summary of the 70-page ruling said.

    Kamp had argued that 33 bcm was the minimum needed to guarantee supply in a cold winter. The court said 27 bcm was enough for an average winter, but added: "Should it turn out to be a relatively cold year, the maximum gas extraction can be raised to 33 billion cubic metres."

    The order applies to production through October 2016.

    The court also rejected Kamp's calculations of safety risks from earthquakes and said he would have to incorporate a better assessment by October 2016.

    The government has twice this year reduced production from its original target of 39.4 bcm, sending regional prices higher.

    But British gas prices for delivery next summer and next winter fell by more than 3 percent to 34.60 pence per therm and 38.40 pence/therm respectively.

    Point Carbon analyst Oliver Sanderson said the announcement was not a great surprise.

    "Healthy supply from other sources such as LNG (liquefied natural gas) from Qatar, as well as piped imports from Russia and Norway have eroded any bullish impact of Groningen production cuts over the past 10 months," he said.

    In February, Kamp ordered production cut to an annualised rate of 33 bcm for the first half of the year. In June Kamp ordered a further cut to 13.5 bcm for the second half of the year.

    Read more at Reuters

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    European oil refiners set for strong 2016 - Neste CEO

    European oil refiners are set for another good year in 2016, helped by strong demand and a battle among crude producers for market share, the chief executive of Finnish refiner Neste told Reuters.

    The state-controlled company, which has two traditional refineries in Finland as well as renewable refineries in Singapore and Rotterdam, last month reported a 47-percent rise in quarterly core profit helped by high European refining margins and favourable foreign exchange rates.

    On a rainy day at the company's Porvoo refinery by the Baltic Sea, CEO Matti Lievonen said the industry outlook remained bright.

    "Looking at next year, the demand for gasoline remains strong, and inventories are relatively low. We do see that next year will be another good year, perhaps not as strong margins as this year, but a good year," he said.

    He noted refining margins had held up in the fourth quarter.

    "Normally in oil products, the demand is strongest in the second and third quarter because of the driving season. The fourth quarter is usually worse, but now it is good too. It tells (us) about inventory levels in the gasoline side as the gasoline (margin) has remained high."

    Neste buys most of its crude from neighbouring Russia, which has traditionally dominated the European market. But this year, Saudi Arabia has sold crude to Polish and Swedish refiners, while Iraq has stepped up business in the Mediterranean Sea.

    "We also use crude from the North Sea, Africa, wherever we get the best deal," Lievonen said, adding Neste had not used Saudi oil yet.

    He said refiners were benefitting as producers battle for market share.

    "It's a zero-sum game ... If oil is being imported here, the importers must lower prices ... One (customer) must not use every producer to get the advantage."

    Neste has lately shifted more focus to renewable diesel, and 30 percent of profits in the first nine months of the year came from biofuels.

    It makes 70 percent of its renewable diesel from waste and feedstock residues, such as animal fats, and aims to increase biofuel capacity.

    The company has benefitted in the past from biofuel tax breaks in the United States, and such a credit could be repeated for 2015 retroactively by the end of the year.

    "We have no information whether it comes back ... the local industry seems to be expecting it to come back because they produce a lot, unprofitably," Lievonen said.

    Read more at Reuters

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    InterOil: Antelope-4 sidetrack confirms reservoir quality

    InterOil Corporation informed that the Antelope-4 sidetrack-1 well in Total-operated PRL 15 in Papua New Guinea confirmed the Elk-Antelope field’s “high-quality”.

    The wireline logging of the field’s southern extension measured 182 vertical meters of dolomite and a vertical gross gas column of about 339 meters, InterOil said in a statement on Wednesday.

    InterOil Chief Executive Michael Hession said, “First, we intersected the top of the reservoir 36 meters higher than the original Antelope-4 penetration.”

    He added that InterOil’s interpretation of data from Antelope-4 and Antelope-5 suggests that the field-wide gas-water contact is deeper than previously interpreted.

    The PRL 15 joint venture intends to begin drilling Antelope-6 in December this year as part of the appraisal program to define the resource for the Papua LNG project.

    The joint venture is also considering an additional appraisal well on the western flank of the Antelope field that could add an incremental volume of 1 to 3 Tcfe, the statement reveals.
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    Moody’s: Distressed exchanges becoming more common

    Low prices for crude and strained finances are forcing more oil and gas companies into distressed exchanges, according to debt rating service Moody’s, which may help struggling companies stave off bankruptcy but don’t always help creditors get paid back.

    Moody’s classifies a distressed exchange as when a company, facing liquidity pressure and an untenable debt structure, offers creditors new debt, securities or other assets that lead to a diminished financial obligation when compared to the first set. Under Moody’s rules, the exchange is classified as a default.

    Recently, companies such as Venoco, Halcon Resources Corp. and Goodrich Petroleum Corp. have offered creditors distressed exchanges, according to Moody’s.

    The exchange is intended buy the company more time and delay or avoid bankruptcy until the company’s operations or the broader economic environment recover. When all goes well, the move can have benefits for both companies and creditors, Moody’s said.

    An exchange can keep a company solvent as well as avoid the expenses and the loss of control that comes with filing for bankruptcy. But even if the company still defaults, the exchange can also delay a bankruptcy until market conditions improve.

    Distressed exchanges have become increasingly common since 2009. Through the end of October 2015, distressed exchanges represented 21 of 48 or 43.8 percent U.S. corporate defaults, up from 22 percent of total defaults from 1988 through October 31.

    In the oil and gas sector, distressed exchanges have caught on as companies struggling amid low oil prices look for alternatives to filing for bankruptcy. Many creditors have been willing to agree to swaps that give them less total money but the security of a lien.

    That added protection justifies taking a smaller loss, Moody’s said. And on average, distressed exchanges increase the total recovery rate for every tranche of debt in a first-time distressed exchange as opposed to a first-time bankruptcy.

    But, the firm noted, if the exchange doesn’t solve the company’s issues and another default happens, creditor recoveries plunge. And even extra protection in the form of a lien doesn’t increase the amount creditors can expect to recover significantly.

    “Historically, unsecured-debt facilities have had poor recovery rates, while second-lien debt tranches’ ultimate recoveries were not significantly better than those of their unsecured counterparts since both types were in the same position in the debt structure,” Moody’s wrote. “Distressed exchanges involving the exchange of unsecured debt for second- or third-lien secured debt at least raise the holders’ position in the balance sheet, but the recovery prospects for the new secured debt might only be improved if the amount of debt above is reduced.”

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    Ecopetrol profit falls 62 pct on oil price drop

    Colombia's state-controlled oil producer Ecopetrol on Tuesday reported a 62.2 percent drop in quarterly profit due to the global plunge in oil prices and costs incurred because of rebel attacks.

    The company posted a third quarter net profit of 654.1 billion Colombian pesos ($212.8 million), compared with 1.73 trillion pesos in the year-ago period.

    Earnings before interest, taxes, depreciation and amortization fell 25.9 percent to 4.69 trillion pesos in the third quarter.

    The company's consolidated oil and gas production for the first nine months of the year was 761,000 barrels per day, despite attacks on pipelines by leftist rebels, the company said in a filing to Colombia's financial regulator, a 1.1 percent increase from a year ago.

    In the third quarter, though, production fell 1.8 percent to 740,900 bpd.

    Ecopetrol is the largest producer in Colombia's nearly million barrel-per-day oil sector, followed by Toronto-listed Pacific Exploration and Production Corp, the biggest private player.

    Read more at Reuters

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    Suncor Plans Higher Spending of Up to $5.5 Billion Next Year

    Suncor Energy Inc., Canada’s largest crude producer, plans to boost capital spending to as much as C$7.3 billion ($5.5 billion) next year to expand operations and increase efficiency.

    The investment would be an increase from about C$6.3 billion this year, the average of 14 analysts’ estimates compiled by Bloomberg. The program is flexible, within a range starting at C$6.7 billion, to respond quickly to any further deterioration in market conditions, Suncor said Tuesday. Both capital and operating expenditures can be scaled back.

    Suncor has announced 1,000 job cuts, lowered its 2015 capital budget by $1 billion and delayed projects to weather collapsing prices. The company, along with Canadian Natural Resources Ltd., Cenovus Energy Inc. and other competitors, has squeezed spending in the oil sands, one of the world’s most expensive reserves to develop.

    “We’re well-positioned to invest in our base business and growth projects, even in a lower for longer oil price environment,” Chief Executive Officer Steve Williams said in the statement. “We remain focused on achieving further reliability improvements across our operations.”

    The Calgary-based company estimates production of 525,000 to 565,000 barrels of oil equivalent a day next year, down from guidance of 550,000 to 595,000 barrels for 2015, due to maintenance work. Approximately 55 percent of the 2016 capital spending program has been allocated toward growth projects, Suncor said.

    Oil-sands cash operating costs per barrel, excluding the Syncrude venture in northern Alberta, will be C$27 to C$30, “continuing a multi-year trend that has seen Suncor reduce its oil sands cash costs by over 25 percent since 2011,” the company said. The company’s share of Syncrude output will drop to 30,000 to 35,000 barrels a day in 2016, from 32,000 to 36,000 barrels this year.

    Suncor has urged shareholders of Canadian Oil Sands Ltd., its partner in the Syncrude project, to accepts its C$4.7 billion ($3.5 billion) hostile takeover offer, while the target company’s board has rejected it.

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    Brazil oilworkers local tells members to quit Petrobras platforms

    The Brazilian oilworkers union local responsible for the bulk of the country's oil and gas output told its members on Tuesday to leave all Petroleo Brasileiro SA vessels in the Campos Basin, Brazil's most productive oil district.

    The action by the local, Sindipetro Norte Fluminense, defied its national federation FUP, which on Friday recommended members accept a contract offer from state-run Petrobras, as the company is known, and end a two week strike.

    The members want Petrobras to pay them for all their days on strike, rather than the half offered by company negotiators, and to expand the scope of a union-management committee being established to review Petrobras budget cuts and planned asset sales.

    Petrobras on Tuesday agreed to talk about compensation for days on strike, FUP said in a statement.

    "We want to see if Petrobras can maintain production without our people," said Tezeu Bezerra, a SindipetroNF leader.

    SindipetroNF members on 51 offshore units, including production platforms, drillships and support vessels, voted on Saturday against accepting the offer, the union said. Many have been on board their vessels since the strike started, the union said.

    The Campos Basin is responsible for 64 percent of Brazil's oil output and 34 percent of natural gas output, the vast majority of it from Petrobras offshore platforms.

    Petrobras last week offered workers a 9.53 percent wage hike and promises that the union-management committee will present a report on possible increases in investment to the government and board of directors within 60 days.

    Petrobras has slashed nearly $100 billion from planned five-year investments to trim nearly $130 billion of debt, the largest in the oil industry.

    On Tuesday Petrobras said its Brazil oil production is being cut by about 100,000 barrels a day, or about 4.8 percent of pre-strike output. Earlier in the strike, which is the most disruptive at Petrobras in 20 years, output was cut by about 13 percent, according to Petrobras.

    Petrobras is under-reporting production cuts, which have been as high as 400,000 barrels a day, or 19 percent of pre-strike output, the union has said.

    Read more at Reuters

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    OPEC Said to Delay Long-Term Strategy Amid Rift Over Production

    OPEC’s board of governors was unable to agree on the group’s long-term strategy plan and won’t present it to oil ministers when they meet on Dec. 4 in Vienna, two OPEC delegates with knowledge of the matter said.

    Approval of the plan is delayed until at least the next meeting of the board of governors in 2016, said the delegates, who asked not to be identified because the plan isn’t public. Calls to the headquarters of the Organization of Petroleum Exporting Countries in Vienna weren’t immediately answered.

    Governors of the 12-member group couldn’t agree on the final draft of the plan at a meeting in Vienna earlier this month, the delegates said. The governors disagreed on clauses suggested by some members, including about curtailing output, setting production quotas and finding ways to maximize OPEC profit, according to the delegates.

    OPEC ministers are to meet on Dec. 4 to assess the oil market and the group’s output policy. Venezuela and Algeria are among OPEC states most affected by the slump in oil price and have long urged fellow members to curb production and support prices. Saudi Arabia, the world’s largest crude exporter, led the group to switch its strategy in November 2014 to focus on pressuring competitors such as U.S. shale producers and reclaiming market share.

    Oil tumbled since the middle of last year as U.S. stockpiles and production expanded, creating a global oversupply. OPEC decided at its last meeting on June 5 to keep its production target of 30 million barrels a day unchanged, although the group has exceeded the ceiling for the past 17 months. OPEC member Iran has asked OPEC to accommodate its planned production increase once sanctions are lifted.

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    U.S. and Russian gas exporters square up over Europe

    The first exports of U.S. gas to Europe will head for Lithuania, two industry sources say, a gesture to the Baltic states, reliant on Russia for supply, and the likely first shot in a price war over market share in Moscow's backyard.

    The February delivery will be of U.S. liquefied natural gas (LNG) transported by sea to custom built terminals, challenging Russia's land locked pipelines, as producers turn from the wilting Asian market to Europe.

    Europe has attained strategic importance for the United States, where companies that have already invested $60 billion in building four giant export schemes are offered a lifeline by the continent's deep markets and dozens of under-used import terminals.

    Talks are ongoing on the inaugural U.S. shipment, though Lithuania's state-run Lietuvos Energija wants a discount to Russian piped deliveries, one source said.

    With U.S. exports set to top 60 million tonnes/year in 2019, EU regulators see LNG as the solution to rising Russian market dominance as they challenge the legality of Russia's Gazprom's pipeline strategy.

    The European Commission says it will also scrutinise Gazprom's planned Nord Stream pipeline expansion to Germany which is part of the company's plan to boost European sales by offering gas direct into freely-traded markets.

    But for all the Commission's LNG enthusiasm, analysts and utility sources are split over how much U.S. gas will reach Europe.

    "If you have massive U.S. LNG building up in 2017 and 2018, new Australian supply and Qatar - this means lots of LNG into Europe, at that point Russia will have to fight," senior gas analyst Thierry Bros of Societe Generale said.

    The question is whether Gazprom will defend market share by upping output and lowering prices or by restraining production, as it did during the last gas market glut in 2008-2009, and waiting for prices to recover, Stephen O'Rourke, director of gas research at Wood Mackenzie, said.

    He said Gazprom would need to bring spot gas prices below $4 per million British thermal units (mmBtu), versus around $5.65 per mmBtu now, to shut Europe off to U.S. imports - a level Goldman Sachs expects could be reached by 2018/2019.

    Read more at Reuters

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    Change Coming This Week in How EIA Reports NatGas Storage Data

    It may sound dry as unbuttered toast, but the issue of natural gas storage is a serious business. So serious that the U.S. Energy Information Administration (EIA) tracks natural gas storage each week.

    Natural gas traders, buyers and sellers all watch the numbers closely. As we’ve told you over the years, natural gas is about as pure of a commodity as you can get. It is a classic supply and demand kind of business. The more supply you have (as indicated by how much gas is in storage), without corresponding demand–the lower the price goes.

    We are, as of right now, hitting record storage levels at this point in the year. That means the price of gas isn’t going higher any time soon. There is an important change coming in the way the EIA reports storage data.

    Beginning this Thursday, Nov. 19, the EIA will move from reporting storage data in three regions in the U.S. to reporting it in five regions…
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    Middle East, North Africa rig count

    Saudi rig count=71 up 4 YoY. 
    Kuwait=32, up 1 YoY. 
    Abu Dhabi=44 up 8 YoY. 

    Iraq=50, down 6. 
    Algeria=38, up 6. 
    Iran doesn't give data


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    Iran Won’t Seek OPEC’s Permission Before Boosting Oil Exports

    Iran won’t negotiate with OPEC or seek the group’s permission before boosting oil exports by a planned 500,000 barrels a day once sanctions are removed from the nation’s economy.

    The Persian Gulf state is unconcerned about the impact this additional supply may have on crude prices, which already reflect the expected increase in Iranian shipments, Oil Minister Bijan Namdar Zanganeh said Tuesday at a news conference in Tehran. The fifth-largest producer in the Organization of Petroleum Exporting Countries will inform the group after it increases exports, he said.

    “The drop in prices won’t be a concern for us,” Zanganeh said. “It should be a concern for those who have replaced Iran.” Iran doesn’t expect difficulties selling the additional barrels, and “the market has taken into account our return,” he said.

    Iran has struggled to sell its oil due to international sanctions over its nuclear program and is eager to reclaim its share of global sales. Sanctions are widely expected to be lifted next year as a result of an accord the country reached with six world powers in July. Iran produced 2.7 million barrels a day of oil in October, according to data compiled by Bloomberg, down from more than 4 million before the U.S. and other nations imposed curbs on its energy and financial industries.

    “Our oil will probably double within a short while of sanctions being lifted,” Zanganeh said, without specifying the amount of such an increase in exports. “So if the price does go down, it won’t worry us because it means, for instance, if the price drops but then export volumes increase, the income will stay the same as before.”

    All phases of the South Pars natural gas field except for one, the 14th phase, will be open by the time President Hassan Rouhani’s presidential term ends in June 2017, Zanganeh said at the conference. Iran has the world’s biggest gas reserves, according to BP Plc data.

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    Russian oil output may fall by up to 10 mln tonnes in 2017

    Russian oil production may fall by up to 10 million tonnes in 2017 from projected levels for 2015 and 2016, affected by western sanctions that reduce companies' ability to raise funds, First Deputy Energy Minister Alexei Texler said on Tuesday.

    Russian oil and gas condensate production hit a new post-Soviet high in October, rising by 0.4 percent month on month to 10.78 million barrels per day (bpd).

    Texler told reporters the ministry was forecasting oil output at around 533 million tonnes this year or 10.7 million bpd, with the same projection for next year when oil output should be supported by bigger gas condensate production.

    "Possible reduction may come in 2017, with a potential decline of up to 10 million tonnes," Texler said, adding that Russian oil firms are lacking foreign financing due to sanctions imposed over Moscow's role in the Ukraine crisis.

    Russia has constantly refused to cooperate with OPEC on supporting oil prices, currently under $50 per barrel due to global oversupply, which analysts expect to persist at least for some time next year until a natural reduction in output comes.

    Read more at Reuters

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    Russia Resolves to Make Most of Soviet Oil as New Finds Delayed

    Russia plans to squeeze all the oil it can from Soviet-era discoveries to hold crude output stable for the next two decades as new finds are delayed by sanctions and slumping prices, according to the Energy Ministry.

    “We’ve got a safety cushion until 2035,” Deputy Energy Minister Kirill Molodtsov said in an interview in Moscow. “The potential for output growth at oil fields already in operation is higher than in unexplored territories.”

    Russia, which relies on oil and gas for almost half of its budget revenue, has repeatedly broken post-Soviet production recordsthis year as drillers benefit from a weakening ruble. Nevertheless future barrels may be at risk as exploration campaigns, mostly in undeveloped areas offshore, have tailed off following investment cuts.

    Exploration drilling dropped 21 percent in the nine months through September after increasing in 2012 to 2014, government data show. State-run energy giants Rosneft OJSC and Gazprom PJSC are delaying some offshore drilling by two to three years, according to the Natural Resources Ministry.

    Production Outlook

    Exploration drilling is first in line when companies trim spending, according to Molodtsov. Adding wells at existing fields or using chemicals or fracturing to push out more oil provide a quicker return than tapping new territories, he said, estimating steady annual output of 525 million metric tons (about 10.5 million barrels daily) through 2035 even in a conservative scenario.

    A tax system that provides the right incentives could help drive volumes to 540 million tons in the coming years, he said.

    Russia plans to boost offshore oil production by 33 million tons to 50 million tons in the next two decades, according to its long-term energy strategy.

    Alternatively, “with the right motivation we can get those 33 million tons in West Siberia,” Molodtsov said. Russia has 21,500 idle wells in its main oil-producing province, the Khanty Mansiysk region, mostly explored during the Soviet Union era. It’s there that production needs to be “intensified,” according to the deputy minister.

    Insufficient Capacity

    The International Energy Agency has taken a less optimistic view on Russia. The nation doesn’t have the capacity to wring enough crude from existing fields to support longer-term growth, the IEA said in its World Energy Outlook 2015 report published this month.

    For more than three years, Molodtsov’s ministry has been pushing the government to agree to a new profit-based tax system to spur crude output, while the Finance Ministry has suggested Russia should wait until at least 2017 given the economy’s recession.

    Russia’s oil and gas industry deserves incentives because it’s “the driver of the economy,” Molodtsov said. The country should encourage its “strongest” players by stimulating output at existing fields, he said.
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    India's Oct fuel demand surges at fastest pace in nearly 12 years

    India's annual fuel demand in October surged at its fastest pace in nearly 12 years driven by higher sales of gasoil and gasoline ahead of festival season in Asia's third-largest economy.

    Fuel consumption, a proxy for oil demand, rose 17.5 percent in October from a year ago, the biggest jump since April 2004, according to data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.

    India last month consumed 15.2 million tonnes of refined oil products, the data showed, with gasoil sales rising to their highest level in five months.

    Consumption of gasoil or diesel, which makes up about 40 percent of refined fuels used in India, rose 16.3 percent to 6.34 million tonnes. Campaigning ahead of an election in the eastern Bihar state also fuelled diesel demand last month.

    Sales of gasoline climbed 14.5 percent to 1.85 million tonnes from a year earlier on robust passenger vehicles sales in the month.

    Cooking gas or liquefied petroleum gas (LPG) sales increased 12.5 percent to 1.69 million tonnes, while naphtha sales rose 31.32 percent to 1.05 million tonnes.

    Construction activity also likely rose due to drier conditions with the data showing sales of bitumen, used for making roads, were 64.99 percent higher, while fuel oil use was up 27.98 percent in October.

    Read more at Reuters

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    Schlumberger acquires Fluid Inclusion Technologies, Inc.

    Schlumberger announced the acquisition of Fluid Inclusion Technologies, Inc. (FIT), a US-based oil and gas service company specializing in laboratory analysis of trapped fluids in rock material, and advanced borehole gas analysis on drilling wells.

    'FIT offers innovative and proprietary technologies that will further strengthen our ability to deliver integrated rock and fluids solutions to our customers,' said Amir Nessim, president, Testing Services, Schlumberger. 'This acquisition is a natural extension of our comprehensive reservoir fluids and rocks services. Customers can expect even stronger one-stop-shop evaluation of rock and fluids from their developments, which Swe offer through our global network of Schlumberger Reservoir Laboratories.'

    'As a Schlumberger company, we will be able to furthele integrated workflows from Schlumberger field and laboratory services. For example, customers can bring cuttings or rock samples to the Schlumberger Reservoir Laboratory and obtain full analytical information supported by Schlumberger domain knowledge and expertise. Services include integrated studies covering the type and origin of rocks and hydrocarbons, and comprehensive understanding of reservoir heterogeneities and gradients. Through FIT, proprietary geochemical logging technology is being added to Schlumberger's advanced mud gas logging portfolio.
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    North Dakota's Bakken Pumps Less Oil for First Time in Decade

    The state’s Bakken oil region produced less oil in September than it did the previous year, the first time that’s happened in more than a decade. Output fell as low oil prices, exacerbated by the region’s remoteness, caused companies to scale back drilling operations and delay completing new wells.

    North Dakota’s portion of the Bakken produced 1.11 million barrels a day in September, down 1.1 percent from the same month a year ago, according to state data. Half the oil left the state by costly truck and rail routes, forcing producers to offer steep discounts. Along with an overall decline in crude prices, that’s prompted drillers to idle 67 percent of the rigs that were in the region last year.

    “The production drop was inevitable with the rig decline and the low-price environment,” Carl Larry, head of oil and gas for Frost & Sullivan LP, said by phone. “The cost of rail and trucking hasn’t gone down enough to keep production profitable, so it’s a precarious area to keep production steady or growing.”

    The year-over-year decline was the first since August 2004, when the region produced just 1,500 barrels a day. The drop was set in motion nearly a year ago, when falling oil prices made oil companies curtail spending and idle rigs.

    Companies that are drilling wells are waiting longer to complete them with hydraulic fracturing crews. The number of drilled but uncompleted wells, known as the fracklog, rose to 1,091 by the end of September, the first time it exceeded 1,000, according to data from state regulators.

    The price drop was felt harder in North Dakota because there’s only pipeline space for a fraction of the state’s output. Pipelines are cheaper than rail or truck transportation, so sellers have to offer discounts to make up for the difference in transportation cost. Oil at the wellhead in the Bakken region sold for $29.74 a barrel Friday, compared with $37.40 in West Texas, according to the trading unit of Royal Dutch Shell Plc.
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    Brazil prosecutors say bribes paid in Petrobras Texas refinery deal

    Brazilian police and prosecutors investigating corruption at Petroleo Brasileiro SA said on Monday they have evidence that bribes were paid as part of the state-run oil company's $1.2 billion purchase of Pasadena Refining Systems Inc in 2006.

    At a news conference announcing a new round of searches, seizures and arrests, federal prosecutor Carlos Fernando dos Santos Lima said the bribes related to the U.S. Gulf Coast-based refinery could lead to the cancellation of the purchase.

    After Monday's police operation, two were arrested and five brought in for questioning, prosecutors said, the latest twist in a nearly 20-month probe of price-fixing and political kickbacks at the company known as Petrobras.

    "This case is important because, who knows, we might be able to annul the sale or recover assets belonging to the Brazilian public," Lima told reporters in Curitiba, Brazil where the investigation is being run.

    The prosecutor did not say how a U.S.-based transaction could be canceled, but throughout the corruption prosecution, serious efforts have been made to return illegally diverted funds to the government or Petrobras.

    The prosecutor said Petrobras lost $792 million in the purchase of the 100,000-barrel-a-day refinery from Astra Oil, a unit of Belgian-controlled Astra Transcor Energy. He also alleged that Petrobras overpaid for the facility, claiming it was in terrible condition when acquired.

    Petrobras paid $360 million for half of Pasadena Refining in 2006, more than eight times what Astra paid for the whole refinery a year earlier. By 2012, Petrobras had sunk $1.18 billion into it including the cost of buying out Astra's remaining half after a legal dispute between both firms.

    Lima cited evidence that Astra paid $15 million in bribes in the sale of the initial 50 percent of the Pasadena refinery to Petrobras in 2006.

    Petrobras bought the refinery as its exports of Marlim-grade heavy crude and other oil blends grew, largely to the United States. It was hoping to capture extra profit for those exports by refining those exports into fuels such as gasoline. A congressional inquiry found that it paid far too much for the refinery.

    "Besides being obsolete and in a terrible state, the refinery did not have the capacity to refine Marlim crude produced by Petrobras," a statement by the prosecutors said.

    In Houston, a voice mail request for comment to Astra Oil Company LLC was not immediately answered. An Astra Transcor Energy employee in Rotterdam declined to comment. A corporate affairs official in Zug, Switzerland did not immediately return calls requesting comment.

    Read more at Reuters

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    Key Petrobras union still on strike over back-pay, asset sales

    A union representing workers at state-run oil company Petroleo Brasileiro SA in Brazil's most important production area said on Monday it remains on strike over back pay and the state-owned oil company's plans for assets sales.

    Sindipetro Norte Fluminense workers operate oil platforms and other services in the Campos Basin, the source of 64 percent of Brazil's oil production and 34 percent of its natural gas output.

    SindipetroNF on Saturday rejected a call to end the two-week-old strike by FUP, the largest Brazilian oil workers union federation and one of the last strong power bases for embattled Brazilian president Dilma Rousseff.

    An extended strike risks deepening Brazil's economic recession.

    The walkout is also heaping further operational and financial pressure on Petrobras, which is struggling to maintain every source of cash as it tries to pay down about $130 billion of debt, the largest in the world oil industry.

    "The rejection has created a confused situation," said Fernanda Vizeu, a SindipetroNF press officer. "Members want pay for all the days they were on strike, not half, and want a broader discussion of budget cuts and asset sales."

    A previous split between SindipetroNF and its parent entity FUP in 2013 was resolved quickly she said.

    FUP unions went on strike Nov. 1 in an effort to reverse Petrobras' plans to cut nearly $100 billion in capital expenditures over five years and sell $15.1 billion of assets by the end of 2016. The union was also seeking an 18 percent pay hike.

    With Petrobras admitting to production cuts of as much as 13 percent from pre-strike levels, the walkout was the worst at the company in 20 years.

    On Friday, FUP recommended a contract agreement that would give workers a 9.53 percent wage hike, back pay for half the days lost on the picket lines and the promise of a management-union committee to discuss budget cuts and assets sales.

    SindipetroNF members are demanding that the committee's agenda be broadened to the issue of whether Petrobras should sell shipping unit Transpetro and natural gas unit Gaspetro.

    Deyvid Bacelar, a FUP member and union representative on the Petrobras board of directors, said the decision by SindipetroNF could hurt their goals.

    "The idea to suspend the strike was to gain time to develop support with members of the government and social movements," Bacelar said. "We were not going to achieve our demands on our own."

    Read more at Reuters

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    OPEC Export Price Falls Below $40 for First Time Since 2009

    The average price of crude sold by OPEC fell below $40 a barrel for the first time 2009, underscoring the financial cost of the group’s strategy to defend its market share.

    The daily OPEC Basket Price fell to $39.21 a barrel on Nov. 13, according to an e-mail on Monday from the organization’s secretariat in Vienna. The basket, an average of export grades from each of the group’s 12 members, typically trades below international oil futures as some OPEC nations pump denser or higher-sulfur crude that’s less profitable to refine.

    Oil has slumped since the middle of last year as the Organization of Petroleum Countries keeps output elevated to pressure rivals it sees as responsible for creating a global surplus. A decline in production among its higher-cost competitors including U.S. shale drillers has now slowed, with output still above last year’s level. With OPEC members’ revenues diminished, the group may reconsider its approach if the price slump persists, according to the International Energy Agency.

    Low oil prices aren’t just problematic for higher-cost producers, said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “It is also providing a challenging fiscal environment” for OPEC nations, he said.

    OPEC’s annual revenues may be curbed to $550 billion at current prices from an average of more than $1 trillion in the last five years, Fatih Birol, executive director at the IEA, said in London on Nov. 10. Even Saudi Arabia, the group’s biggest member, faces a budget deficit this year that the International Monetary Fund predicts will exceed 20 percent of gross domestic product.

    Still, IEA expects the price slump would need to persist for several years before the kingdom reconsiders its current strategy. OPEC Secretary-General Abdalla El-Badri, said this month that the global market is on track to rebalance next year.

    OPEC ministers will meet to review their current policy on Dec. 4 in Vienna.

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    Niko Resources to give stake in NEC-25 gas block to RIL, BP

    Image Source: Economic TimesPTI reported that cash-starved Niko Resources of Canada has decided to quit Reliance Industries' gas discovery block NEC-25, off the Odisha coast, by divesting its 10 per cent stake to the existing partners.

    Niko said that "In the second quarter of fiscal 2016, the company elected to withdraw from the NEC-25 block and relinquish its interest to the remaining interest holders."

    RIL is the operator of the block with 60 per cent interest while BP plc of UK has the remaining 30 per cent stake.

    Niko's 10 per cent interest will be split between RIL and BP in proportion to their equity stake. Gas discoveries in North-East Coast block NEC-0SN-97/1 (NEC-25) hold recoverable reserves of 1.032 trillion cubic feet.

    The Canadian company has been facing cash problems and had even put up for sale its interest in NEC-25 as well as 10 per cent stake in RIL's Krishna Godavari basin oil and gas producing block KG-DWN-98/3 or KG-D6. But it hasn't been able to find a buyer.

    With the upstream regulator DGH not approving a USD 3.5 billion plan for developing gas discoveries in block NEC-25 in the absence of its prescribed tests to confirm two of the finds, the partners opted to do the test on one of the finds and relinquish or give up the other.

    It said that "In the first quarter of fiscal 2016, the contractor group for the NEC-25 block elected to conduct a DST for one discovery in the block," adding that relinquishing its interest would eliminate the company's obligation to fund its share of the DST programme.

    RIL had in March 2013 submitted a USD 3.5 billion Integrated Field Development Plan for producing 10 million standard cubic meters per day of gas from the discoveries D-32, D-40, D-9 and D-10 in NEC-25 by mid-2019.
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    Trafigura Reveals $4.3 Billion in Oil Payments to Governments

    Trafigura Pte Ltd. disclosed $4.3 billion in oil-related payments to governments in 2013 as part of a push toward more transparency by the third-largest independent oil trader.

    The firm said the funds were used to purchase crude oil, refined petroleum products and gas from national oil companies in countries that have signed up to the Extractive Industries Transparency Initiative, or candidate countries. It revealed payments made in Colombia, Ghana, Nigeria, Norway, Peru, and Trinidad and Tobago in its inaugural responsibility report.

    The commodity trading industry, much of it centered in Switzerland where traders aren’t directly regulated, has long been noted for its opacity and lack of disclosure. While Trafigura is based in Singapore it has major operations in Geneva, as do closely held competitors Vitol Group -- the largest independent oil trader -- and Gunvor Group Ltd. In the past, the traders have cited competitive reasons for their furtive ways.

    Trafigura is the first major independent commodity trader to report oil-related payments to member-states of the EITI, a voluntary disclosure program for oil and mining companies aimed at rooting out and preventing corruption. The report “sets out an ambition to become acknowledged leaders in our sector in the way we manage corporate responsibility,” Chief Executive Officer Jeremy Weir said in a statement. “It also expresses our awareness that we have more work to do.”

    Trafigura’s decision to report payments comes amid a schism among members of Switzerland’s tight-knit commodity-trading industry, which accounts for about 4 percent of the nation’s gross domestic product.

    The country that’s home to more than 500 commodity-trading companies has decided not to impose mandatory regulations on the sector despite calls to do so by non-governmental organizations. Government officials have encouraged other trading houses to join Trafigura in disclosing payments under the EITI framework to improve transparency.
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    Oil Theft Soars as Downturn Casts U.S. Roughnecks Out of Work

    The moon was a waning crescent sliver Sept. 9 when a man emerged from an oil tanker, sidled up to a well outside Cotulla, Texas, and siphoned off almost 200 barrels. Then, he drove two hours to a town where he sold his load on the black market for $10 a barrel, about a quarter of what West Texas Intermediate currently fetches.

    “This is like a drug organization,” said Mike Peters, global security manager of San Antonio-based Lewis Energy Group, who recounted the heist at a Texas legislative hearing. “You’ve got your mules that go out to steal the oil in trucks, you’ve got the next level of organization that’s actually taking the oil in, and you’ve got a gathering site -- it’s always a criminal organization that’s involved with this.”

    From raw crude sucked from wells to expensive machinery that disappears out the back door, drillers from Texas to Colorado are struggling to stop theft that has only worsened amid the industry’s biggest slowdown in a generation. Losses reached almost $1 billion in 2013 and likely have grown since, according to estimates from the Energy Security Council, an industry trade group in Houston. The situation has been fostered by idled trucks, abandoned drilling sites and tens of thousands of lost jobs.

    “You’ve got unemployed oilfield workers that unfortunately are resorting to stealing,” said John Chamberlain, executive director of the Energy Security Council.

    In Texas, unemployment insurance claims from energy workers more than doubled over the past year to about 110,000, according to the Workforce Commission. In North Dakota, average weekly wages in the Bakken oil patch decreased nearly 10 percent in the first quarter of 2015, compared with the previous quarter, according to the Federal Reserve Bank of Minneapolis.

    With dismissals hitting every corner of the industry, security guards hired during boom times are receiving pink slips. That’s leaving sites unprotected.

    “There are a lot less eyes out there for security,” said John Esquivel, an analyst at security consulting firm Butchko Inc. in Tomball, Texas, and a former chief executive of the U.S. Border Patrol in Laredo. “The drilling activity may be quieter, but I don’t think criminal activity is.”

    States are trying to get a handle on the theft, which can include anything from drill bits that can fetch thousands on the resale market, to copper wiring that can be melted down, to the crude itself. Texas lawmakers met earlier this month in Austin to craft a bill that would increase penalties related to the crime. A similar measure passed both houses of the legislature this year, but Republican Governor Greg Abbott vetoed it, saying it was “overly broad.” Lawmakers, at the urging of industry, are hoping to revive it next legislative session.

    In Oklahoma, law-enforcement officers recently teamed with the Federal Bureau of Investigation to intensify their effort. In North Dakota, the FBI earlier this year opened an office in the heart of oil country to combat crimes including theft, drug trafficking and prostitution.
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    India Plans to Free Natural Gas Prices Under New Auction Rules

    India plans to free prices of locally extracted natural gas and allow producers marketing autonomy as part of new rules for auctioning exploration blocks.

    The government also proposes to introduce a revenue-sharing model with operators, replacing the current profit-sharing mechanism, according to a notice on the oil ministry’s website. The plan includes a uniform licensing policy that will allow operators to explore all forms of oil and gas resources, including coal-bed methane, shale gas and oil, tight gas and gas hydrates.

    The government’s initiative follows petitions from gas producers that the current tariff is too low to support exploration and production costs. State control on fuel pricing has prompted oil majors such as Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc to stay away from India’s exploration-block auctions, which started in 1999. BP Plc, Europe’s second-biggest oil company, is the only overseas company with any significant presence in India’s exploration sector.

    Reliance Industries Ltd., which produces gas from a deepwater block in the Bay of Bengal, reversed morning losses in Mumbai, rising as much as 0.5 percent to 937.35 rupees. Cairn India Ltd. rose as much as 1.2 percent, overcoming a decline of up to 1.3 percent . Oil & Natural Gas Corp. gained as much as 0.9 percent, recovering from a 3.3 percent drop.

    Prime Minister Narendra Modi has made energy security a priority for India, which imports the bulk of its oil and gas. The government announced open-market rates for gas extracted from 69 small fields slated for auction by next month, Oil Minister Dharmendra Pradhan said on Sept. 2.

    “On the similar lines, it is proposed to provide pricing and marketing freedom for natural gas to be produced from the areas to be awarded under the new contractual and fiscal regime in order to incentivise production from these areas,” according to the statement.

    India will also move to an open acreage licensing policy, allowing companies to submit bids for areas of their choice, according to the statement. The new rules, which have been sent to the explorers for their opinion by the end of this month, are aimed at “ease of doing business.”

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    G20-Russian Energy Minister sees oil supply-demand imbalance narrowing

    Russia, the world's top oil producer, sees the gap between global oil supply and demand narrowing gradually, the country's Energy Minister Alexander Novak told reporters on the sidelines of the G20 summit in Turkey.

    He added that excessive oil supply could be eliminated in the second half of next year.

    The Organization of Petroleum Exporting Countries (OPEC) was ready to hold consultations with Russia to assess the situation on the global oil market, Novak said, adding however that there was no joint position within OPEC regarding oil output cuts.

    Read more at Reuters
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    No value in equity unless Oil rebounds

    Oil Dealmakers Find Slim Pickings Among Premium-Priced Explorers
    Crude needs to rebound to justify valuations, FirstEnergy says
    Industry will have `almost no value' if oil doesn't recover

    Wannabe dealmakers in the oil industry are stymied by a fundamental problem: there’s a mismatch between the price of crude and the value of companies.

    Oil’s slump prompted speculation that explorers and producers, collectively known as E&Ps, were on the cusp of an acquisitions boom as many of the smaller companies burned through cash. That’s unlikely with crude languishing below $50 a barrel, according to research from FirstEnergy Capital LLP.

    “Many names among the E&Ps require a much higher oil price than $60 a barrel to justify their valuation and you won’t have a transaction if you don’t pay a premium to the share price,” Stephane Foucaud, an analyst at FirstEnergy in London, said by phone. If crude doesn’t rebound, “there’s almost no value in the oil exploration and production sector.”

    Image titleRoyal Dutch Shell Plc’s $70 billion move for BG Group Plc helped lift the value of merger and acquisition proposals this year to about $150 billion, from roughly $110 billion in the same period last year, but deals involving smaller companies have been failing, according to data compiled by Bloomberg. Almost $30 billion of this year’s takeover approaches have been rejected, the data show.

    Santos Rebuff

    Santos Ltd. rejected an offer worth $11.3 billion including debt from Scepter Partners, calling it “opportunistic.” Canadian Oil Sands Ltd. snubbed a C$6.6 billion ($4.96 billion) bid from Suncor Energy Inc. saying it “substantially” undervalued the company.

    “Reaching a consensus on fair value between buyer and seller presents challenges,” Martin Ewan, an oil and gas corporate partner at law firm Pinsent Masons LLP, said by e-mail. “Oil price volatility adds a layer of complexity to M&A deals not typical during more stable market conditions.”

    A gauge of volatility in U.S. crude prices has almost doubled on average this year to the highest since 2009.

    French oil giant Total SA said in October it wouldn’t bid for overvalued explorers and producers, which were trading as if crude were at $70 to $80 a barrel. Adding a takeover premium would bring their valuation closer to a $100 scenario, Chief Financial Officer Patrick de la Chevardiere said Oct. 29.

    Out of 18 oil E&P companies tracked by FirstEnergy, only four can give positive returns for shareholders with oil at $60 a barrel, Foucaud said. Should prices rise to about $83, all but one would deliver returns.

    Brent, currently trading at about $44-$45 a barrel, will probably recover to $58 in 2016 and may take a further two years to reach $70, according to the median estimate of 48 analysts surveyed by Bloomberg.

    Feeding Frenzy

    Most recently Anadarko Petroleum Corp., the third-largest U.S. natural gas producer, said it withdrew an all-stock offer for Apache Corp. after the company refused to engage in substantive talks. In a prolonged slump, targeted companies may find themselves less able to refuse prospective buyers.

    Crude’s collapse has hit E&Ps hard, wiping off about 45 percent of their market value this year according to the index of 18 companies tracked by FirstEnergy. In comparison, the Stoxx Europe 600 Oil & Gas index, which includes the largest energy companies, has returned 3.5 percent.

    The lack of completed deals “indicates that people aren’t yet at the completely distressed point, or on the buy-side they don’t believe that prices have bottomed out yet,” said Michael Wachtel, a partner at Clyde & Co., who has worked for more than 20 years in the oil and gas industry. The price slump has left many companies facing mounting debts and ratings cuts. A “feeding frenzy” may ensue in the first half of 2016 once buyers believe prices have reached their lowest point, Wachtel said.

    There’s no shortage of funds for takeovers. The world’s six biggest publicly traded producers have more than a half-trillion dollars in stock and cash to snap up rival explorers, according to data from corporate filings compiled by Bloomberg. Ewan of Pinsent Masons said he’s noticing a “very healthy” interest in North Sea exploration and production assets.

    “We are in a transition period where industry players have to adjust to a lower price environment and where buyers and sellers need to find a common ground for deals to happen,” said Lionel Therond, a London-based equity analyst with Standard Bank Group Ltd. “No doubt that price aspirations will go down as desperation sets in.”

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    US Bound VLCC's at 4 year high.

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    U.S. oil drillers add rigs for first week in 11: Baker Hughes

    U.S. energy firms this week added oil rigs for the first week in 11, data showed on Friday, despite continued weak crude prices.

    Drillers added 2 oil rigs in the week ended Nov. 13, bringing the total rig count up to 574, oil services company Baker Hughes Inc said in its closely followed report.

    That total is about a third of the 1,578 oil rigs operating in same week a year ago. Over the prior 10 weeks, drillers cut 103 oil rigs.

    The additions this week showed that at least some drillers were willing to start drilling again even with U.S. oil prices trading in the $40s a barrel in hopes of higher prices in the future.

    U.S. oil futures averaged $43 a barrel so far this week, down from $46 last week.

    Crude futures were on track for their biggest weekly loss in more than two months as swelling stocks weighed on the market. [O/R] In the minutes after Baker Hughes released the report, U.S. crude prices dipped about 20 cents to around $40.50 a barrel.

    Energy traders noted the rate of weekly oil rig reductions over the past two months, about 10 on average, was much lower than the 19 rigs cut on average over the past year or so since the number of rigs peaked at 1,609 in October 2014, due in part to expectations of slightly higher prices in the future.

    U.S. crude futures for next year were trading around $46 a barrel, according to the full year 2016 calendar strip on the New York Mercantile Exchange. That however was down from $49 last week.

    Higher prices encourage drillers to add rigs. The most recent time crude prices were much higher than now was in May and June, when U.S. futures averaged $60 a barrel.

    In response to those higher prices, drillers added 47 rigs over the summer.

    Drillers added rigs in just one of the four major U.S. shale oil basins this week. They added one in the Eagle Ford in South Texas, while removing two in the Permian in West Texas and eastern New Mexico and one in the Bakken in North Dakota and Montana. The number of rigs in the Niobrara in Colorado and Wyoming remained unchanged.

    Despite the increase in oil rigs this week, total oil and natural gas rig count slid to a fresh 13-year low due to a decline of six gas rigs.

    Read more at Reuters
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    BG, partners to spend $1.7 billion on drilling for Queensland LNG venture

    BG Group and its Asian partners in the $US20.4 billion Queensland Curtis LNG venture have given the go-ahead for a further $1.7 billion of investment to drill up to 400 more wells to maintain gas supply, providing a welcome lift to resources industry spending.

    Drilling for the Charlie project will take place during the next two years in permits west of Wandoan in the Surat basin, with Leighton Contractors winning the main contract to carry out the work, which will create up to 1600 jobs.

    The large investment underscores the ongoing spending commitment required by Queensland coal seam gas-based LNG projects, which need to keep drilling new wells every year to maintain gas supplies for their export plants in Gladstone. BG started shipments from its QCLNG venture in January, marking the first gas exports from Queensland, and has so far delivered 62 cargoes to Asia.

    It also shows that British-based BG has not deviated from investment required to support the QCLNG project, even as it is set to be acquired by Royal Dutch Shell in a proposed $US70 billion ($98 billion) takeover and as returns from the venture are squeezed by low commodity prices.

    Environmental approval for the Charlie project, which will supply gas into an existing processing plant at Woleebee Creek, was already granted by the federal Environmental Minister in December 2014.

    As partners in QCLNG, China National Offshore Oil Corporation and Tokyo Gas will fund part of the work, but the British company will shoulder most of the investment in line with its 73.75 per cent stake in the gas permits.

    In addition to the wells, the project involves 725 kilometres of water and gas gathering lines and a compression station as well as other pipelines, power lines and water-handling facilities over a total footprint of 2500 hectares. The key infrastructure will be built on land owned by BG.

    Tony Nunan, managing director of BG's QGC subsidiary, described the project as "a vote of confidence in the secure, long-term future of Queensland's natural gas industry".

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    Chesapeake Lenders Flee Debt as Oil Rout Pummels Reserves Value

    Chesapeake Energy Corp.’s bonds have plunged to half their face value as lenders fret that tumbling energy prices are hurting their chances of getting paid on borrowings that are three times the current worth of the company’s oil and gas fields.

    The producer’s $1.5 billion of 4.875 percent notes due in April 2022 dropped 9.625 cents this week to 50.375 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Oklahoma City-based company estimates the discounted value of its proven oil-and-gas reserves will fall to about $4.2 billion by the end of the year down from $22 billion last December.

    Chesapeake shares have been the worst performer among their peers in the Standard & Poor’s 500 Index this year, plunging 73 percent. The downturn in oil markets has been especially painful for the driller because it happened just as the company was attempting to focus on petroleum, which traditionally has delivered higher profits than gas.

    “We are not forecasting a price recovery,” Chief Executive Officer Doug Lawler said during a conference call with analysts last week. “The downturn in commodity prices has presented a severe test to our industry.”

    Collapsing crude and gas prices have erased profits, starved companies of cash flow and spurred more than 200,000 job cuts globally as drillers struggle to stay solvent.

    Chesapeake recorded $15 billion in impairments during the first nine months of this year as the value of its fields dwindled. Additional write downs are expected during the current quarter and will continue for as long as energy prices remain under pressure, Chesapeake said in a public filing on Nov. 4.

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    Oil Producers Hungry for Deals Drool Over West Texas `Tiramisu'

    The worst oil market in decades would be hard to spot in West Texas, where two-lane county roads are still jammed with trucks and energy companies are on the prowl for deals.

    The Permian Basin, the biggest of the shale oil regions that ignited the U.S. energy boom, is also the only one where production is increasing even as drillers idle more than half the rigs in the country during the longest price slump since the 1980s.

    That’s drawn the interest of companies from Exxon Mobil Corp. to Anadarko Petroleum Corp., that have hunted for assets in the hot, arid flatland that spans an area the size of Syria. Anadarko’s bid for Apache Corp. was seen driven by Apache’s vast holdings in the Permian. Rising output from the region has helped buoy U.S. production after OPEC’s decision to pump more oil to maintain market share sent crude prices into a tailspin.

    “We’re already seeing a lot of people that are targeting the Permian,” Allen Gilmer, chief executive officer of Austin-based Drilling Info Inc., said in an interview in Houston. “If you were to look for the most stable area today to go do anything, it’s got to be there. Today you might even argue it’s more stable than Saudi Arabia.”

    Exxon, the largest publicly traded energy company in the world, bought 48,000 acres in the Permian in two deals in August, and is meeting with small, closely held producers to discuss additional purchases and joint ventures. Anadarko made an unsolicited, all-stock offer to purchase Apache, which has one of the largest Permian positions with 3.2 million acres, before withdrawing it, Anadarko Chief Executive Officer Al Walker said last week.

    Oil production in the Permian is forecast by the government to rise 0.6 percent in December to 2.02 million barrels a day, even as drillers have idled 59 percent of the rigs there in the past year. Output in rival shale fields like the Bakken and Eagle Ford has fallen 12% and 25%, respectively, as drillers pulled out after oil prices crashed last year.

    The Permian’s multiple layers of oil- and gas-soaked rocks, in some places stacked 5,000 feet thick, contain plenty of places to drill that will yield 30 percent to 40 percent rates of return with crude prices as low as $40 a barrel, Laird Dyer, a Royal Dutch Shell Plc energy analyst, said at a conference in Toronto Nov. 10.

    A single layer in the Permian, the Spraberry, probably holds 75 billion barrels of recoverable oil, Dyer said. That’s enough to supply the entire world for more than two years.

    “Somebody described it to me once as a tiramisu, it’s just lots of layers of beauty over there,” Gilmer said. “Everyone recognizes that the Permian Basin is by far the richest land on earth. The only thing holding it back from more and more is the engineering, and I think this is an industry that’s really proven that the engineering gets better every year.”

    The region seems to be the place where new companies continue to look to expand, he said. Roughly $50 billion in private equity capital is funding more than 80 management teams focused on the Permian Basin, Will Giraud, chief commercial officer at Concho Resources Inc., told a crowd of 1,100 attendees on Nov. 10 at the Hart Energy Executive Oil Conference in Midland, Texas. Concho has about 700,000 acres in the basin.

    “It’s the last oil basin standing,” Giraud said. “It’s still the last place you can put together a material position. It’s the last place you can drill in this environment and make money. It’s the last place where there’s still a tremendous amount of resources to be discovered.”

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    North Dakota oil well backlog eclipses 1,000 for first time

    The number of oil wells in North Dakota that have been drilled but not fracked eclipsed 1,000 for the first time in September, as producers delayed turning them on in hopes crude prices will soon recover.

    The milestone, which was widely expected around the second-largest oil producing state, highlights the immense cost pressure companies have come under in the past year as crude prices have dropped more than 50 percent.

    Fracking alone can account for nearly two-thirds of a well's cost.

    Today more than 8 percent of oil wells in the state are sitting idle, storing their crude and natural gas in rock miles underground until prices rise.

    The delay harms the industry's ability to grow production, a metric closely watched by investors. Daily output in the state fell 2 percent in September.

    "That's sending a definite signal to the market that oil and gas operators are not willing to do a lot of drilling or hydraulic fracturing or production at these low prices," said Lynn Helms, director of the state's Department of Mineral Resources (DMR), the oil regulator.

    State officials last month said they would consider, on a case-by-case basis, allowing oil producers additional extensions to bring new wells online. The change was widely perceived as a cost-saving favor to the energy industry and has helped fuel the jump to above 1,000.

    The DMR doesn't expect that backlog to be worked off until next year at least and only if oil prices rise, Helms said.

    Helms released separate data showing the breakeven price for oil production now sits above current prices for two of the state's four main crude-rich counties.

    Producers "are shutting some wells in and producing only as much oil as they need to make the stockholders and the bankers happy," Helms said.

    North Dakota produced 1,162,253 barrels of oil per day (bpd) in September, compared with 1,187,631 bpd in August, according to the DMR, which reports on a two-month lag.

    The number of producing wells fell by six to 13,025, though state officials permitted one more well in September than in August.

    Helms acknowledged the state has experienced far more pain in its oil price battle with OPEC than initially expected when the cartel decided to maintain production last year.

    Many in the state had said at the time that OPEC's strategy would ultimately fail, an expectation that, so far, has proven premature.

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    U.S. highway bill should include oil export provision -senator

    The U.S. ban on crude oil exports stands the best chance of being lifted when linked to highway funding legislation, said U.S. Senator John Hoeven, a Republican from North Dakota.

    The 1970s-era ban on most oil exports is deeply unpopular in North Dakota and other crude-producing U.S. states, with energy executives chafing at the limited access to global markets.

    Various stand-alone measures in Congress to pass a repeal have failed, and President Barack Obama has threatened to veto any such legislation that reaches his desk, saying the focus should be on renewable energies.

    Now supporters of a repeal are trying several tactics that they hope will force Obama's hand.

    Hoeven said a bill providing funds for new bridges and roads, potentially by selling oil from the Strategic Petroleum Reserve, would be the best way to end the restrictions.

    The Senate and House of Representatives have each passed versions of the proposal. Hoeven said he hoped to add the export clause in a negotiated final version, in a tacit bet that Obama will not put transportation funding in jeopardy with a veto of the entire bill.

    "Using the Strategic Petroleum Reserve for a strong portion of funding for this highway bill makes a strong case to keep our oil and gas industry viable," Hoeven said on Thursday night on the sidelines of the annual banquet of the Williston, North Dakota, chapter of the American Petroleum Institute trade group.

    The Strategic Petroleum Reserve holds more than 695 million barrels of crude in Texas and Louisiana, but economists have cautioned that tapping it now, with oil prices down more than 50 percent in the past year, makes little financial sense.

    North Dakota produces more than 1.1 million barrels of oil per day, making it the second-largest producing state after Texas.

    The industry itself has undertaken various technological and cost-cutting measures to cope with that price drop, and Hoeven said lifting the ban is the best way to help oil producers, among his state's largest employers.

    "With low prices, we have to take a long-term view of our oil basin here," Hoeven said. "We're in a global battle now as to who will produce oil and gas."

    Hoeven's North Dakota counterpart in the Senate, Democrat Heidi Heitkamp, told Reuters last month that any proposal for lifting the ban would only succeed if it is tied to renewable energy incentives.

    Read more at Reuters

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    Gran Tierra Energy to acquire Petroamerica Oil Corp.

    Gran Tierra Energy Inc. and Petroamerica Oil Corp., both international oil and gas companies operating in Colombia, are pleased to announce that they have entered into an arrangement agreement dated November 12, 2015 whereby Gran Tierra has agreed to acquire all of the issued and outstanding common shares of Petroamerica by way of a statutory plan of arrangement under the Business Corporations Act (Alberta).

    Under the terms of the Arrangement Agreement, Petroamerica shareholders will receive, at their election, either 0.40 of a Gran Tierra common share or C$1.33 in cash for each Petroamerica share, subject to a maximum of 70 percent of the consideration payable in cash. If Petroamerica shareholders elect to accept all share consideration, Gran Tierra expects to issue 43.6 million common shares. Gran Tierra will also be assuming the net positive working capital of Petroamerica, estimated at $25 million as at October 31, 2015, after accounting for severance and transaction costs, and including previously restricted cash which Gran Tierra expects to replace with letters of credit. Based on a 5-day volume weighted average trading price of C$3.32 per Gran Tierra common share on the facilities of the TSX, the transaction value including working capital and accounting for severance and transaction costs is $84 million.

    Gran Tierra believes that the acquisition of Petroamerica is highly strategic and will strengthen its position as the premier operator and land holder in the Putumayo Basin. Petroamerica's undeveloped land holdings and exploration and development portfolio are highly complementary to Gran Tierra's own exploration portfolio, strong cash flow, reserves base and balance sheet strength. With expected base pro forma production of 28,000 to 30,000 boe/d in 2016, Gran Tierra believes that the combined entity will be uniquely positioned as a high growth, well-capitalized, Colombia focused oil and gas producer with a dominant position in the Putumayo basin and a growing presence in the Llanos basin. In addition, Gran Tierra has the financial capacity to pursue additional exploration and development projects within Petroamerica's asset portfolio. The successful completion of the Acquisition is expected to be accretive to Gran Tierra's net asset value per share. Gran Tierra will remain debt free with pro forma working capital of $135 million to $210 million, depending on the form of consideration elected by Petroamerica shareholders.
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    Alternative Energy


    SUNE is down almost 8% this morning, back under $3.00, as yesterday Twitter-based "Blackstone buying SUNE Debt" rumour is dashed in the epic realization that you might be the last one in line for the exits...

    Down 40% this week alone and over 60% in 2 weeks... this is a bloodbath

    As we recently noted, a "possible credit event is looming."

    A brand new note by Axiom Capital Research titled "The Nightmare Before Christmas” – Credit Event Appears More Likely than Presaged, in which the analyst Gordon Johnson sees at least another 33% of downside before the stock finally stabilizes at something resembling a fair value of $2.00

    Lots more detail:
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    Solar power could be 10% cheaper than Indian coal-based power by 2020 - KPMG

    Consultancy firm KPMG said that solar power could be up to 10% cheaper than coal-based power by 2020.

    KPMG said that "Today, in India, solar prices are within 15% of the coal power prices on a levelised basis. While this may not fully capture costs such as grid integration costs for solar, our analysis suggests that even after considering the same, solar prices would be competitive with coal. Our forecast is that by 2020, solar power prices could be up to 10% lower than coal power prices."

    Solar power tariff in India touched a record low early this month with US-based SunEdison's winning bid of INR 4.63 per unit for a contract to sell 500 mw of solar energy to state-run NTPC Ltd. The tariff is about 15% less than the industry average and 8% below the previous low of INR 5.05 per unit quoted by Canada's SkyPower for a tender in Madhya Pradesh.

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    Floating windfarm offshore Portugal will be Europe's second ever

    Europe's second-ever floating windfarm will be built off the coast of Portugal under plans set out on Monday by a group of energy utilities and engineering companies.

    Floating offshore windfarms hold huge potential as the technology opens up large parts of the oceans, which would otherwise be too deep for traditional structures that can only be built in seas with maximum depths of about 50 metres.

    French gas and power group Engie, Portugal's EDP Renewables, Japan's Mitsubishi Corp and Chiyoda Corp, along with Spanish energy group Repsol , are teaming up to build the windfarm, which will comprise three or four turbines.

    The 25 megawatt (MW) facility is planned to be operational in 2018.

    The project will be the second floating offshore windfarm pilot in Europe, after Norway's Statoil said this month it would invest about $236 million in a 30 MW, five-turbine floating windfarm off Scotland.

    Engie said the aim of its project is to further demonstrate the economic potential and reliability of the floating offshore technology. It gave no financial details of the operation.

    EDPR has already tested a semi-submersible wind generator carrying a 2 megawatt Vestas turbine and which has produced more than 16 gigawatt-hours over almost four years of operation, having withstood extreme weather conditions.
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    Molycorp restructure plan includes asset sales

    Molycorp, the beleaguered rare earths producer that was forced into bankruptcy in June, has announced a plan to restructure that may include the sale of its Mountain Pass mine in California.

    The plan filed with a U.S. bankruptcy court in Delaware would allow Molycorp, the only rare earths miner and processor in the United States, to emerge from Chapter 11 bankruptcy protection "either a stand-alone reorganization that would substantially de-lever its balance sheet or a sale of substantially all of its assets," according to a press release. If approved, the plan could reduce Molycorp's debt by $1.9 billion as well as cut interest payments, "putting us on a more solid financial and operational footing going forward,” stated Geoff Bedford, president and CEO.

    In July Molycorp received $130 million in debt financing from Oaktree Capital Management LP. In August the Greenwood, Colorado- based company moved its Mountain Pass facility intocare and maintenance, while continuing to serve customers through its production facilities in Estonia and China.

    Mountain Pass was expected to be America’s flagship source of rare earths. In 2010 Molycorp sensed an opportunity to capitalize on reduced rare earth oxide exports from China – which supplies about 90 percent of the world's rare earth minerals – which caused the prices of REOs to spike. When China subsequently relaxed export rules, however, prices fell, leaving Molycorp holding the bag on a $1.25 billion expansion of Mountain Pass.

    Hit by lower rare earth prices, Molycorp had warned in March it might not have enough money to remain in business. Three months later, it filed for chapter 11 bankruptcy protection.
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    Sandy solution for renewable energy storage

    SAND is emerging as a key ingredient in the race to develop a viable electricity storage system for renewable energies.

    Latent Heat Storage has developed a low cost thermal energy storage system based on the latent heat properties of silicon derived from sand.­

    The device – known as TESS – is being developed in South Australia with the help of an AUD $400,000 government grant to take it from prototype to commercial reality.

    The TESS device stores electricity as thermal energy by heating and melting containers full of silicon. The high latent heat capacity and melting temperature of silicon makes it ideal for the storage of large amounts of energy.

    Latent Heat Storage Chief Executive Officer Jonathan Whalley said storage was the next big challenge for energy generation worldwide.

    “Renewable energy sources generally spill energy due to supply and demand mismatches, so we’ve designed the TESS device to capture this ‘spilt’ energy for later use or release to the grid,” Whalley said.

    “Our system also means that energy consumers will be able to purchase stored electricity off-peak at low tariffs, which ultimately means cheaper energy.”

    A key benefit of the TESS device is its capability to handle an increasing workload from 500kW applications through to an industrial scale of up to several hundred megawatt hours – enough to power about 7000 homes for a day.

    The patented device is small enough to fit inside a 20-foot shipping container but is readily scalable as demand requires.

    TESS is suitable for grid and off-grid applications and has been designed to overcome the intermittent nature of renewable energies such as wind and solar by providing a stable energy output suitable for base load power.

    It can be integrated anywhere within an electricity network and is suitable for commercial and industrial businesses where heat and electricity are required such as hotels, schools and hospitals.

    “After three years of research and development, our key objective now is to complete building a commercial prototype of the TESS device and start showcasing its potential to global markets,” Whalley said.

    A commercial prototype will be ready in early 2016 to be used as a selling tool to potential clients and Whalley said devices would initially be built to meet the needs of individual sites rather than mass produced.
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    Solar Power Is Booming and Its Biggest Component Is Dirt Cheap

    Prices for polysilicon, the main ingredient in solar cells, have dropped to a record low amid a supply glut that won’t end soon.

    There’s so much of the shiny black stuff on the market that suppliers including Europe’s Wacker Chemie AG, Hemlock Semiconductor Corp. in the U.S. and South Korea-based Hanwha Chemical Corp. are losing money at spot prices that reached $14.76 per kilogram this month, down 31 percent in the past year, according to data compiled by Bloomberg New Energy Finance.

    The global surplus is unlikely to ease with polysilicon manufacturers reluctant to curtail production because demand for solar power is surging, said Jenny Chase, lead solar analyst at New Energy Finance. It’s reminiscent of the panel glut that struck the industry a few years ago that drove down module-makers’ earning, and shows that the solar-power industry is still experiencing growing pains on its path to becoming a mainstream source of energy.

    “It’s another sign of how good the solar industry is at losing money,” Chase said in an interview Wednesday. “You don’t want to close an entire factory just because of a temporary drop in prices. It can take six months to shut down and start up again.”

    Prices can’t stay this low for long before producers start to cut back, said Jade Jones, a solar analyst at GTM Research in San Francisco. For a healthy industry, a price of $20 is more fair based on manufacturing costs.

    “We thought prices might start to tick-up in the fourth quarter as demand climbs but that’s not happening,” Jones said. Increased competition to garner market share has created a price war that’s not sustainable. “If the price stays this low in 2016 then I’d expect ramp-downs.”

    Low prices are taking a toll. Hemlock’s parent company Dow Corning Corp. reported a 9 percent decline in third-quarter sales, due in part to declining polysilicon revenue. Not only are prices low, some orders are being delayed.

    “Results continue to be impacted by fewer polysilicon shipments to Hemlock Semiconductor’s long-term contract customers,” Chief Financial Officer J. Donald Sheets said in an Oct. 28 statement.

    The current price is a huge drop from polysilicon’s heyday back in early 2008, when manufacturers were getting as much as $475 a kilogram -- some companies are still benefiting from long-term contracts panel makers signed back then. Suppliers also sell higher-grade polysilicon to semiconductor makers at higher prices.

    However, 90 percent of the world’s polysilicon supplies ended up in solar panels in 2014, up from 27 percent in 2001, according to GTM Research. While demand for panels is expected to climb 30 percent this year, polysilicon capacity is also increasing.

    Polysilicon production capacity currently stands at about 350,000 metric tons a year, and there are plans to increase that by at least 10 percent next year, according to New Energy Finance. That oversupply, combined with existing inventory, will continue to pressure prices.

    Wacker Chemie, the second-biggest producer, doesn’t see it that way. Chairman Peter-Alexander Wacker is predicting a rebound as strong demand for panels in the U.S. and China soaks up excess supplies.

    “We always have swings based on demand but this trough in price seems to be saying that even the biggest producers are finding it difficult to rein back production,” Wacker said in an interview in Berlin.

    He’s planning to open a new factory in Tennessee next year and is running the rest at full capacity, according to slides from the company’s third-quarter earnings presentation.

    That’s partly why New Energy Finance’s Chase sees little chance for price recovery. “Next year does not look much better for polysilicon manufacturers.”

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    New York expresses opposition to re-licensing Indian Point

    New York Governor Andrew Cuomo is strongly opposed to the renewal of the operating licenses for the two reactors at the 2,069-MW Indian Point nuclear plant and has asked the US Nuclear Regulatory Commission to deny Entergy's application to extend its operations.

    In a letter dated Monday, Jim Malatras, director of New York state operations, reiterated the state's opposition to relicensing the units as the Atomic Safety and Licensing Board began hearings to address issues raised during the application process.

    The hearings began Monday and will continue through the week.

    The plant's proximity to a major population center, with more than 20 million people within 20 miles of the two-unit plant makes it impossible to have an effective safety and evacuation plan, Malatras said. The reactors generate about 25% of the power for New York City and Westchester County.

    "Given the deterioration of this aging plant, it should not be permitted to operate for another 20 years," the letter said.

    Entergy's plan to address defects does not justify putting the lives of so many New Yorkers at risk, Malatras said.

    Specifically, Malatras noted that the reactor pressure vessels has become brittle and that metals on key reactor components are fatigued. The two units entered commercial operations in 1974 and 1976.

    "Recently, unplanned shutdowns at the facility, for reasons ranging from transformer fires to unplanned replacement of parts in the reactor head, have plagued the plant," the letter said.

    Entergy's proposed inspection and monitoring will not solve the serious concerns at the plant, Malatras said.

    Entergy applied for a 20-year relicensing of plants units in 2007. The 40-year license for Unit-2 expired in 2013 and the license for Unit-3 expires in December. The NRC allows the units to operate under expired licenses until a final decision is made on relicensing.

    "This is far and away the most complex relicensing the NRC has dealt with," Neil Sheehan, an NRC spokesman, said Wednesday in an interview.

    All the issues that the licensing board is addressing are related to the age of the units, Sheehan said. They include whether the license application is deficient because it fails to include an adequate aging management program for the embrittlement of the reactor pressure vessels, whether it fails to include an adequate aging management program for metal fatigue on key reactor components and whether it fails to demonstrate that the company has a program that will manage the effects of the aging of several critical components or systems.

    The hearings are very technical in nature and the three administrative law judges are asking expert witnesses from Entergy, New York and the NRC questions regarding the concerns in a public setting, Sheehan said.

    New York has jurisdiction over the units in two areas, water intake and discharge and coastal zone certification, Sheehan said. Earlier in November, the state said the Indian Point units do not comply with its coastal management program and renewing the operating licenses is not consistent with the provisions of the state's coastal management program.

    Entergy disagrees with Malatras' comments and said the plant is safe. "Entergy has invested more than $1 billion in Indian Point since purchasing the facility, adding new layers of safety and back-ups to protect against man-made or natural events, no matter how unlikely," Jerry Nappi, an Entergy spokesman, said Wednesday.

    The plant has also received the highest operational ratings from independent experts at the NRC, Nappi said.
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    Monsanto could take lead role in agchem acquisitions-executives

    Monsanto Co. executives are discussing whether they should acquire rivals, including top pesticide maker Syngenta AG, company executives said on Tuesday, as talk of consolidation continues in the global agrochemical industry.

    "We've had conversations inside" about Syngenta and other agricultural companies, Monsanto President Brett Begemann said at an investor meeting at its headquarters in St. Louis.

    Company executives were studying every possibility for consolidation in both the seed and agrochemical sectors.

    Monsanto's chief executive, Hugh Grant, also speaking at the investor meeting on Tuesday, said the company is "best placed to be a leading consolidator or a leading partner in an industry that is changing."

    The world's largest seed company abandoned a $45 billion bid for rival Syngenta in August and since then, nearly all of the major players in the farm chemicals and seeds business have been the subject of consolidation talk, amid a landscape of plummeting grain prices and farm income.

    Last week, Syngenta rejected a $42 billion offer from state-owned China National Chemical Corp, Bloomberg reported. Dupont Co, Dow Chemical Co. and BASF DE have also featured in reports of talks on mergers and acquisitions.

    Monsanto's internal discussions, which have been going on since the company walked away from its latest bid for Syngenta, include weighing the benefits of bidding for rivals, Begemann said.

    In particular, he said Monsanto is keeping a close eye on farm chemical product lines it could acquire if rivals merged their agricultural businesses -- such as Dow Chemical and Dupont -- and were forced to spin-off assets in order to meet regulatory approvals.

    But Begemann said they were focusing on chemistry, not seed, assets for such potential acquisitions.

    Grant told investors that he considers China an "opportunity" for Monsanto as rising soybean consumption there drives demand for growing more beans in the United States and South America. In addition, he pointed to the potential for new traits created specifically for China and possibly licensing those traits.

    Grant said any deals would need to be a "strategic fit" for Monsanto and provide incremental growth.

    But he noted that Monsanto does not need to buy or partner with an agrochemical rival in order to meet its financial forecasts or growth plans.

    The Wall Street Journal has reported that Syngenta has been talking to Dupont about merging with its agricultural unit, while Dupont has separately been in talks with Dow

    Read more at Reuters

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    Precious Metals

    Lonmin shareholders approve crucial rights issue

    Lonmin shareholders decisively approved the company's deeply discounted $400 million share issue on Thursday as the beleaguered platinum producer seeks cash to stay afloat.

    Bruised by strikes, rising costs, a weak platinum price and slowing demand for the metal, South Africa-focused Lonmin said last month it also planned to raise another $370 million in loans to refinance debt currently due in May 2016.

    Lonmin said about 88 percent of its shareholders approved the rights issue at a meeting in London after warning that if it couldn't raise the cash, shares could be suspended.

    "We had no choice but to vote in favour because we will be wiped out if this doesn't go through. But does that mean we will be with the company in the next 10 or even two years? We don't know," said Anthony Guildford, a Lonmin investor since 1969.

    The loss-making platinum producer had asked its shareholders to vote on five proposals, which also included consolidation of Lonmin shares. Shareholders also authorised its directors to allot new shares.

    The scale of Lonmin's plight was illustrated on Nov. 9 when it priced its rights issue at just 1 pence a share - a 94 percent discount to the stock's previous session closing price of 16.25 pence on the London Stock Exchange.

    Some investors, including pensioners, raised concerns about the consolidation of shares.

    "There had to be a better idea than consolidation. I will never see my money (14,500 pounds in shares) back at 6 pounds where I bought ... They were 1.70 last Christmas!," one investor said.

    Lonmin still has to convince the wider market it can be a viable business.

    "Lonmin has got its reprieve, and existing shareholders can hardly be blamed for sticking with it. But with labour costs still high and platinum still stuck, it is hard to work out where the positive investment story lies," IG analyst Christopher Beauchamp said.

    Read more at Reuters
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    Indians Refuse To Give Their Gold To The Government

    Now, one week after the gold scheme's official launch, we take a look at how has it has done so far. In one word, so far the "gold monetization" plan has been a disaster with a laughable 30 kilograms in gold tendered by the people from physical into "government-backed" form.

    The Times of India has the details, and reports that in the first-week "collection by the government's sovereign gold bond scheme has been rather tepid with less than Rs 10 crore being reported to the Reserve Bank of India (RBI). The scheme, which closes on November 20, allows investors to purchase between 2 and 500 grams of gold-equivalent.

    The spin was immediate: "bankers say that in any issue, savvy investors - including high net worth individuals - usually hold off until the closing date before locking in their funds." Or maybe they don't lock in their funds at all since giving the government your physical gold in exchange for a interest payment - in other words, converting gold into a paper asset with the government's blessing - is about as stupid as it gets.

    TofI adds that "the money raised through the sale of these bonds will form a part of government borrowing. According to sources, the RBI, which manages government borrowings, is keeping track of the collections and it has got a number of below Rs 8 crore until last weekend. Of this, around Rs 6.5 crore has been reported by banks and another Rs 1.35 crore by the Post Office. The government has fixed the issue price at Rs 2,684 per gram, which means that the gold-equivalent of the bonds is less than 30kg."
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    Small Canadian miner finds massive diamond in Botswana

    A small Canadian diamond company has found what it says is the world's second-biggest gem quality diamond ever recovered, and the largest in more than a century, at its mine in Botswana.

    Lucara Diamond Corp said on Wednesday the 1,111 carat stone was found at its Karowe mine in north-central Botswana, one of the world's most prolific diamond-producing areas.

    The Type IIa diamond measures 65 millimeters by 56 mm by 40 mm. 

    The biggest gem-quality diamond ever found is the Cullinan diamond, a 3,106-carat stone found in the Premier mine in South Africa in 1905. It was cut into several polished gems, the two largest of which are part of Britain's crown jewels.

    Read more at Reuters

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    Gold is collapsing to new lows

    Gold fell towards a fresh six-year low on Tuesday.

    Gold was down by just over 1% in New York, near $1,064.50 an ounce, around levels it has not traded at since 2009.

    Other precious metals including platinum and silver were also lower in trading.

    Gold has dropped roughly 6% this month.
    Image title

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    Semafo Gold costs approaching $600 all in

    Shares of Semafo Inc defied a fresh slump in the gold price on Thursday, after announcing better than expected third quarter financial results on the back of a strong operational performance at its Mana Mine in Burkina Faso.

    After a 1% jump on Thursday bringing weekly gains to 8.5% Semafo is now worth $893 million on the Toronto Stock Exchange. The Montreal-based producer is one of only a handful of gold miners still in positive territory for the year.

    The company reported cash flow of $34.8 million during the three months to end-September, down from $40 million in the same quarter 2014, but ahead of expectations. That boosted the company's cash pile to a healthy $137.8 million.

    Net income came in at $14.5 million for the quarter, a 14% improvement on the back of production of 67,200 ounces during the quarter at industry leading all-in sustaining cost of $616/oz and $485/oz on a cash basis. Head grades were a mouthwatering 3.7 g/t, a 26% improvement thanks to a greater percentage of high-grade ore processed from the Fofina and Siou pits.

    Semafo's 2015 production guidance is at the midpoint between 245,000 – 275,000 ounces and the firm is targeting further costs reduction with an expected AISC of $630 – $650/oz for the year. Cash costs for 2015 is now predicted at between $485 – $505/oz.

    In February the company acquired Australia's Orbis Gold (ASX:OBS) in a deal valued at $139 million. The Orbis acquisition brought with it three gold projects in the West African country, notably Natougou, located about 600 kilometres east of Semafo's Mana mine.

    On Thursday Semafo said the feasibility study for Natougou is now 70% complete with publication expected early in the second quarter next year.

    According to an October  2014 scoping study by Orbis, Natougou has the potential for development of a large-scale low-cost open pit mine producing up to 217,000 of gold per annum (more than 700,000 in year one and two) with a 6.7 year mine life at an all-in cost of $619 an ounce. Capex for the Natougou project was put at $234 million.

    Burkina Faso is the continent's fourth largest gold producer after Mali and has commissioned eight new mines over the past six years. Burkina Faso is due to hold national elections at the end of the month.

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    Paragon Diamonds halts trading on capital, financial position woes

    Africa-focused Paragon Diamonds suspended trading Monday morning ahead of the company issuing a statement that revealed a precarious financial position.

    The miner, who committed to buy a 75% stake in Lesotho’s Mothae project from Canada’s Lucara Diamond (TSX:LUC) earlier this year, said it currently has limited working capital.

    Until a funding package has been secured, Paragon noted, there is a “material uncertainty” over the company’s financial position.

    It remains in talks with potential financers in order to secure funding to complete the acquisition of Mothae, develop the Lemphane project, also in Lesotho, and repay short-term debts

    However, it said it remains in talks with potential financers in order to secure funding to complete the acquisition of Mothae, develop the Lemphane project, also in Lesotho, and repay short-term debts, including a £500,000 (US$760,000) loan due on November 18.

    If that loan is not repaid within five business days, Paragon will be in default, and the lender will be able to demand immediate repayment of the loan at 120% of the outstanding amount, or the lender may convert the outstanding loan into shares in the company.

    Paragon’s situation reflects the challenging times currently affecting large parts of the diamond chain. Dealers are facing increasing difficulties to sell their existing inventory into softening markets, while also facing tougher financing conditions.

    At the same time, major players such as Anglo American-owned De Beers, the world’s No.1 diamond producer, are finding it difficult to place expected volumes of rough stones with traders and polishers.

    And even Russia's Alrosa, the world's top diamond producer by output in carats, said last month it was able to sell only 42% of the precious stones it mined in the quarter ending in September.

    Paragon’s stock was last quoted on Friday at 3.98 pence, and it has lost almost 33% of its value this year.
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    Tahoe surges on strong results

    Shares of Tahoe Resources Inc shone in an otherwise lacklustre day on precious metals markets after the company announced better than expected third quarter financial results on the back of a strong operational performance and near-record breaking cash flows despite the fall in metals prices.

    The Vancouver-based miner was trading 11% higher in Friday afternoon trade on the New York Stock Exchange in heavy volume with some 1.5 million shares changing hands. The $1.7 billion company like its peers is experiencing a torrid 2015 with the counter losing nearly 40% year to date.

    The company reported operating earnings of $40.1 million during the three months to end-September, on revenues of $145 million generate from its Escobal silver mine in Guatemala and the La Arena gold mine in Peru.

    Operating cash flow was a robust $53 million. That boosted the company's cash pile to a healthy $110.6 million. Sales consisted of 5.5 million ounces of silver, 59,814 ounces of gold, 2,557 tonnes of lead and 2,753 tonnes of zinc.

    Silver production from Escobal was a record 5.8 million ounces in concentrate for the quarter, and 14.9 million ounces year to date. Escobal is the world's third largest primary silver mine.

    Gold production from La Arena was 57,415 ounces in doré for the quarter and 117,697 ounces from April 1 to date. All-in sustaining cost came in at $9.72 per silver ounce produced and $729 per gold ounce produced.

    Tahoe entered into a friendly $1 billion deal with Rio Alto Mining in February, acquiring La Arena and the Shahuindo gold project in Peru that is on track for first production early next year.

    The project’s technical report of November 2012 will be updated before the end of the year according to Tahoe. The 2012 study detailed measured and indicated resources totalling 147.3 million tonnes with gold and silver grades of 0.515 g/t and 7.1 g/t.

    Tahoe's 2015 production guidance is between 160,000 – 170,000 ounces of gold and 18–21 million ounces of silver.

    Guatemala’s Constitutional Court recently ruled that a 10% mining royalty lawmakers passed in late 2014 was unconstitutional and that the 1% royalty rate in place since 1996 will stay in place until a new regime is negotiated with the new government which won a landslide election last month.
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    Base Metals

    India signals higher aluminium import tax, stoking Vedanta rally

    India is considering as much as doubling the levy on aluminum imports to counter supplies from China, according to a Mines Ministry official, stoking a rally in the shares of producers Vedanta, Hindalco Industries and National Aluminium Co.

    The proposal will be put forward for discussions with India’s Finance Ministry ahead of the nation’s budget speech, Mines Secretary Balvender Kumar said in an interview on Thursday on the sidelines of a conference in New Delhi. The budget is due around the end of February next year.

    “We’re considering the raising of duties,” he said. “It will go up to 7.5% or to 10% from 5%.”

    The prospect of a stiffer shield against imports saw Vedanta, the top Indian producer, advance as much as 3.3% in Mumbai. Hindalco jumped as much as 3.1% and Nalco 4.5%, the most in more than a month. Producers have been squeezed by a collapse in aluminum prices amid a slowdown in China’s economy and low-cost supplies from abroad.

    Vedanta’s local smelters are running at 40% of capacity, chairman Anil Agarwal said yesterday.

    Aluminum prices have slumped 27% in London in the past 12 months to a six-year low. Supply will top demand through to 2018, according to BMI Research.
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    CME plans Japan aluminium contract to rival LME

    Chicago-based CME Group said on Thursday it would launch a Japanese aluminium premium contract next month, the latest move by the world's largest futures market operator to challenge the London Metal Exchange's dominance in base metals trading.

    CME said it would list the new 25-tonne contract on its Globex electronic trading platform, with trading starting on Dec. 7. The contracts will be cash-settled against Platts' daily assessment of the premium.

    Japan is Asia's biggest importer of aluminium and supply contracts are set between the world's biggest producers like Alcoa and Rio Tinto, and consumers such as UACJ , and major Japanese trade houses each quarter. These talks set the quarterly benchmark for the region.

    "If it's useful, we may use it. We will watch how the market develops," said a source at a trade house in Japan.

    Adding Japan, with its big automotive sector, completes CME's suite of aluminium contracts - it launched a U.S. premium contract 3-1/2 years ago and a European one in September.

    The timing also underscores the growing competition between the two exchanges. The LME, the world's oldest and largest market for industrial metals now owned by Hong Kong Exchanges and Clearing Limited, will list its new aluminium premium contract on Monday.

    A source at a producer said the CME contract may have a better chance than the LME contract of succeeding if, like the U.S. Midwest contract, it is for cash settlement only, with no option on physical delivery.

    "Japanese buyers tend to have preference on brand, meaning they have a list of brands that they don't like," the source said.

    The physically deliverable London contract would mean that consumers could be allocated any LME brand of aluminium from warehouses that have opted into its premium program for the South East or East Asian contracts. The LME acts as a market of last resort, and contracts are primarily designed for hedging rather than a source of supply.

    "The LME's premium contracts are physically settled, rather than cash-settled, and so provide important price convergence to the underlying physical market," an LME spokeswoman said.

    The idea for the new contracts was conceived a few years ago due to a disconnect between surging premiums and the reality of an oversupplied market due to long queues for aluminium in LME-registered warehouses.

    Big consumers, such as can makers, asked for a listed premium contract to hedge and protect the financial risk of the soaring cost of freight and insurance and physical delivery of metal.

    Premiums have since plunged, raising questions among some traders about whether there is an appetite for such a product.

    CME has also introduced a zinc futures contract and will launch one for lead next week.

    Read more at Reuters

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    Something odd in Shanghai?

    The flurry of new entrants into the market has coincided with a 12% slide in global copper prices, a tumble that has sent copper to its lowest levels in more than six years.

    Analysts at Goldman say that this type of trading pattern tends to precede a pullback in Chinese metal demand. China accounts for roughly 40% of global copper demand and is the world’s top copper buyer.

    “Over the past five years, periods of rising SHFE open interest and falling metals prices have been associated with concurrent or imminent weakening in China’s commodity intensive ‘old economy’,” they said in a note to clients.

    This signal has been correct on four of five occasions since mid-2011 and suggests upcoming Chinese economic data could continue to disappoint, driving copper prices even lower, they said.

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    Nickel smelter developers shelve Indonesia projects amid credit squeeze

    Nickel smelter developers are putting projects on hold as they struggle to get financing with metal prices near their lowest in more than a decade, industry and government stakeholders said on Wednesday. 

    Indonesia was the world's top exporter of nickel ore until 2014 when it banned shipments in an effort to push miners to develop downstream, or mineral processing, industries. With abundant reserves of relatively high quality ore investors say there is potential for developing nickel smelters in Indonesia, but the current market is challenging. 

    "Banks, primarily government banks, are allergic to providing support, credit (and) working capital etc to miners," Joseph Renyut, an advisor to smelter operator Cahaya Modern Metal Industri, told Reuters on the sidelines of a nickel industry conference in Jakarta. Indonesia's mining ministry has received applications for smelter permits from at least 30 companies but several of the projects have been postponed or delayed, a mining ministry official who asked to remain anonymous, told Reuters. 

    "Several need refinancing because investors have stopped. Most are from China and China is in crisis," he said on Wednesday. "If they are built they won't be economical so they are waiting." But he said the government still expects at least seven smelters to be built next year. Another official said the government expects to add at least 767 000 t of ferronickel production capacity in 2016. 

    Wahyu Prasetyo, deputy project manager at Karyatama Konawe Utama, a subsidiary of China Hanking Group, said his company wanted to expand from a pilot project to a 40 000 t high-grade ferronickel smelter in North Konawe, Sulawesi. "The big one is still under study because we're trying to get the process cost lower than LME prices," he said, referring to London benchmark nickel prices. "We're struggling to get financing." 

    Titon Mineral Utama CEO Warsito Hans Tanudjaja said his company had also invested in a small-scale nickel pig iron smelter but was facing similar difficulties expanding and was also waiting for nickel prices to improve. "When the market comes back we'll be more ready than the others," he said adding that his company needed LME nickel prices to climb above $10 500/t.
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    South32 focuses on shareholder returns, safe operations – chair

    Diversified miner South32’s main focus was not on increasing production volumes from its existing assets, but rather to focus on increasing shareholder return and maintaining safe operations, chairperson David Crawford told shareholders on Wednesday at the company’s first annual general meeting. 

    “We have adopted a simple approach to capital management, with well-defined priorities for cash flow. We also start with a commitment to maintain safe and reliable operations and an investment-grade credit rating through the business cycle,” Crawford said at the meeting in Perth. 

    The company made its market debut in May, after BHP Billiton shareholders agreed to the divestment of South32, which comprises the aluminium, coal, manganese, nickel and silver assets previously held in the BHP portfolio. CEO Graham Kerr said on Wednesday that despite the significant progress made at the company’s operations to date, three fatalities at the South32 operations were reported in the previous financial year, and a further two for this financial year. “A single fatality is unacceptable and not what South32 is about,” Kerr told shareholders from Perth. 

    Meanwhile, Crawford told shareholders that market uncertainties would likely persist for some time, adding that South32 was responding to the global challenges through a targeted programme of reducing operational and capital expenditure, and changing the way the company did business. 

    Kerr has previously flagged that the company would reduce its costs by at least A$350-million a year by the end of 2018, and would reduce sustaining capital expenditure by 9%, to A$650-million by 2016. “At the time of the demerger, we recognised that a fresh approach to managing our operations was required, with a focus on improving our return on invested capital, addressing resource and grade decline, and building stronger shareholder relationships, particularly in South Africa and Colombia,” Kerr said. 

    The company would aim to achieve these cost saving targets by reducing the layers of management, aggregating functional support at the regions, changing the capability and structure of the procurement function and implementing resource development plans, with a view to optimise performance and growth opportunities. 

    While South32 would not turn away merger and acquisition opportunities, Kerr said that 95% of the company’s focus would be on optimising its own assets. “We are very disciplined, but our focus is on the assets that we have. We have a lot of resources in the ground that has never been converted to reserves. So we will look at [acquisition] opportunities, but its not the primary focus.” “Looking ahead, despite the challenging market conditions, I can assure you that we have the right strategy, the right balance sheet strength and management commitment to deliver sector leading returns,” Kerr said.

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    Teck Announces Dividend, $650 Million in Cost Reduction Measures

    Teck Resources Limited announced today that it will pay an eligible dividend of $0.05 per share on its outstanding Class A common shares and Class B subordinate voting shares on December 30, 2015, to shareholders of record at the close of business on December 14, 2015.

    In response to persistent low commodity prices, Teck is implementing additional measures to reduce costs and conserve capital:

    Reduction in total spending of $650 million in 2016, to be achieved through $350 million of capital spending reductions and deferrals and $300 million of operating cost savings identified as part of the 2016 operating budget.
    Elimination of an additional 1,000 positions across Teck's global offices and operations, through a combination of layoffs and attrition. This will include a reduction in senior management positions and brings total labour force reductions over the past 18 months to approximately 2,000 positions.
    Withdrawal of the Coal Mountain Phase 2 (CMO Phase 2) project from the Environmental Assessment process and suspension of further work on the project.

    The capital reductions and deferrals described above are in comparison to preliminary 2016 capital spending plans. The 2016 capital budget is still under review and Teck will announce forecast 2016 capital spending in February 2016.
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    Rusal to decide on aluminium plant suspensions in mid-December

    Russian aluminium giant Rusal plans to decide in mid-December which aluminium smelters to suspend as a part of its plans to potentially cut up to 200,000 tonnes of production, Chief Executive Vladislav Soloviev told reporters on Tuesday.

    Rusal, the world's top aluminium producer, is looking to cut production, under pressure from sliding prices due to a market surplus.

    "We have not decided yet. We are now looking at KUBAL," Soloviev said. KUBAL, the sole producer of primary aluminium and the largest industrial facility in Sweden, has annual production capacity of 128,000 tonnes of aluminium.

    "We will take a decision along with the business plan in December," Soloviev said.

    He added that apart from KUBAL, Rusal was looking at the Kandalaksha smelter in North-Western Russia with annual capacity of 76,000 tonnes of aluminium production and the Novokuznetsk smelter in Siberia with another 195,000 tonnes, as potential plants for suspending.

    Three-month LME aluminium prices were at $1,467.5 per tonne on Tuesday, down from $2,029 a year ago.

    Rusal has trimmed its forecast for global aluminium demand growth in 2015 to 5.6 percent and raised its forecast for a global aluminium surplus this year by a third to 373,000 tonnes.

    Read more at Reuters
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    Copper Is Crashing In China

    Shanghai Copper is down 4.6%, hitting fresh cycle lows not seen since March 2009. No clear catalyst is evident for now aside from stronger USDollar, Codelco's cuts, and more chatter of CCFD unwinds. If COMEX Copper holds these losses, it will be down for 10 straight days - the longest on record from what we could tell.

    Image titleChina is facing an unprecedented drop in refined copper imports as a slowing economy erodes demand, according to one of the country’s largest buyers. Shipments to the country will shrink 10 percent next year, Stephen Huang, chief executive officer of trading house Arc Resources Co., said in an interview.

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    Congo copper production down 8.2% in Q3 -chamber of mines

    Copper production in Democratic Republic of Congo, Africa’s top producer, slumped 8.2 percent year on year in the third quarter due to power shortages and low metal prices, the chamber of mines said.

    The mining sector accounts for about 20% of the central African nation’s gross domestic product (GDP) but falling mineral prices have threatened tax revenue and economic growth. The government has pledged to promote agriculture and services.

    In a report seen by Reuters on Saturday, the industry group said Congo produced 252,057 tonnes of copper in the third quarter, down about 22,500 tonnes from the same period last year.

    The chamber says electricity deficits hurt production by forcing operators to rely on expensive imports from neighbouring Zambia, which has hit by its own power problems, or even costlier generators.

    Congo surpassed 1 million tonnes of output in 2014 for the first time in its history last year but the chamber expects that figure to dip by five percent to about 980,000 tonnes this year.

    Glencore’s Katanga Mining unit suspended copper and cobalt production at one of its mines in September for 18 months, citing the low price of copper and a need to reduce operating costs.

    The mine had accounted for 15% of Congo’s copper output in 2014.

    On Friday, benchmark copper on the London Metal Exchange hit a six-year low at $4,787.50 a tonne before rebounding to close at $4,825.

    Meanwhile, gold production provided a bright spot, rising 27 percent in the third quarter compared to the same period in 2014. The chamber expects production to exceed 26 tonnes in 2015, a 33% increase over last year.

    Large new mines opened by companies including Randgold Resources, AngloGold Ashanti and Banro Corporation in the last four years have boosted Congo’s industrial gold output from nearly zero in 2011 to over 20 tonnes last year.

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    Codelco cuts China 2016 copper premium to 3-year low -sources

    Codelco cuts China 2016 copper premium to 3-year low -sources 

    Codelco, the world's top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market's biggest buyer.

    In a move that will deepen concerns about waning consumption as growth in the world's second-largest economy slows, Chile's State-owned miner Codelco offered a premium of $98/t for 2016 term shipments, down from $133/t this year, three trading sources in China said. 

    Codelco's premiums, which buyers pay on top of metal prices on the London Metal Exchange to secure physical refined copper, are viewed as a benchmark for global term contract prices, and other producers are likely to follow suit. 

    Traders and buyers in China, who had expected a premium of $105 to $110, were shocked at the size of the drop, which they said underscores the bleak outlook for the year ahead as LME prices languish at six-year lows. "We are surprised, and the offer is quite low," said a trader at an international trading firm. "It could change the game, as buyers need to think how much they should buy, not how little." 

    The trader said many Chinese buyers had planned to reduce 2016 term shipments heavily if Codelco offered more than $110, as demand in China was expected to be weak next year. Now buyers could book more than they had planned due to the lower-than-expected offer, he added. 

    Codelco has been widely expected to cut term premiums to China for shipments in 2016 after it reduced premiums to European customers by 18 percent to $92 a tonne. Still, few players expected Codelco's term premium to be lower than the term offers for Japanese copper, which have come in at $105 to China. 

    Traders said Codelco's offer showed it had accepted that demand in China is weak. The offered premium is still higher than the $80/t to $90/t seen on spot copper imports recently.

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    Falling copper forces Poland's KGHM to scale back

    Europe's No. 2 copper producer, Poland's KGHM, cut 2015 production targets for its main overseas mine and flagged lower spending as well as mining asset write-downs on Friday, as copper prices hit a six-year low.

    "The situation on the commodity market is getting worse and there are reasons to presume the possibility of testing our mining assets for value loss," KGHM's Chief Financial Officer Jaroslaw Romanowski said.

    "We see 2016 as a turnaround year, but we presume that this crisis may continue into next year," he added. "Our capital expenditures will surely go down or be postponed."

    Worries over growth in China, which consumes half of global copper production, have pushed copper prices below $5,000 a tonne, seen as a stress-test level for KGHM.

    State-run KGHM, also the world's top silver producer, said a 21 percent surge in the dollar against the Polish zloty helped limit the effect of an 18 percent fall in copper prices in the first nine months of 2015. But its net profit for the period dropped 31 percent to 1.23 billion zlotys ($312.1 million).

    Earnings before interest, taxes, depreciation and amortization (EBITDA) inched up 1 percent to 3.72 billion zlotys, capped by losses at KGHM's key Sierra Gorda mine in Chile, launched commercially last quarter.

    The group gained control of the Sierra Gorda facility in 2011 when it bought Canada's Quadra FNX, for C$2.87 billion ($2.16 billion), inking the largest ever foreign acquisition by a Polish company

    Sierra Gorda, which KGHM co-owns with Japan's Sumitomo , holds 5.5 million tonnes of copper deposits.

    KGHM and Sumitomo are testing for deposits near the mine, calling their potential "second Sierra Gorda." They also want to cut the mine's costs and expect it to book positive EBITDA in the fourth quarter of 2015.

    However, they also cut Sierra Gorda's 2015 production targets to around 90,000 copper tonnes and around 20 million pounds of molybdenum, planning to hit previous goals of 120,000 tonnes and 50 million pounds in 2016.

    While Chinese demand worries weigh on copper, used by power and construction industries, swelling oil stocks have hit molybdenum, used in oil refining and steel production.

    That has helped send KGHM shares down 25 percent this year.

    A stronger dollar increases KGHM's dollar-denominated debt. The group said it expects its net debt to EBITDA ratio to hit 1.3 this year versus 1.0 at the end of the third quarter.

    Read more at Reuters

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    Steel, Iron Ore and Coal

    China steel output to plunge 23 mln T in 2016: CISA

    China’s steel output may plunge 23 million tonnes in 2016, equaling more than 1/4 of American annual steel output, said Li Xinchuang, one senior official with the China Iron & Steel Association (CISA) on October 18.

    China’s key steel mills may see their output fall 2.9% from 806 million tonnes in 2015 to 783 million tonnes in 2016, impacted by weakening domestic demand and severer export resistance from overseas market.

    The CISA data showed China’s steel output was around half of the global output. China has around 300 million tonnes of excess steel capacity that should be idled completely, not simply by cutting output, said David Humphreys, previous chief economist of Rio Tinto.

    Domestic steel demand experienced the first drop in the past three decades, with steel mills suffering from losses, oversupply and falling prices.

    Li predicted a further drop in steel demand, falling from 668 million tonnes this year to 654 million tonnes in 2016.

    Meanwhile, China’s iron ore imports may slash 10 million tonnes from 2015 to 920 million tonnes in 2016, said Li.

    China’s Crude Steel output dropped 2.2% on year to 675.1 million tonnes in the first ten months, but was still not enough to offset the plunge in demand, said the CISA.

    Thus, controlling output would remain to be the key measure to save the sector; steel producers should realize transformation to form diversified competitiveness.

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    Russia's Metalloinvest posts Q3 net loss on weaker rouble

    Russia's biggest iron ore producer Metalloinvest posted a third-quarter net loss of $110 million on Thursday due to foreign exchange losses as a result of the weaker rouble, the company said in a statement.

    The rouble has fallen 6 percent since early October, dragged down by lower oil prices and hitting Russian companies with debt held in dollars.

    "(The net loss) was mainly due to the accrual of exchange differences on the debt currency," Metalloinvest said.

    Metalloinvest, owned by Russia's third-richest man Alisher Usmanov, said revenue decreased 9.6 percent quarter-on-quarter to $1.1 billion due to lower prices for its products.

    Core earnings, or EBITDA, fell 13 percent to $361 million and net debt decreased 9 percent to $3.5 billion, it said.

    "In the third quarter, global prices for our main product types remained under pressure from oversupply and a cooling in developing markets," said Chief Financial Officer Pavel Mitrofanov.

    Mitrofanov said Metalloinvest's debt burden remained under control despite the difficult market conditions and increasing production of value-added products was a priority.

    Read more at Reuters
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    Thyssenkrupp cautious on year ahead, dividend below forecasts

    Thyssenkrupp gave a cautious outlook for the year ahead and raised its dividend by less than expected.

    The steel-to-elevators group said it was worried about cheap imports, especially from China, depressing steel prices. It said it expected operating profit in the current quarter to be lower than a year ago for that reason.

    Thyssenkrupp, with its roots in 19th-century German steel firms, has been transforming itself into a diversified industrial group. Three-quarters of its sales now come from capital goods products such as lifts, car parts and energy-plant components.

    It earned more money than it spent in the year to end-September for the first time in nine years, with free cash flow of 65 million euros ($69 million), and posted a better than expected 26 percent rise in adjusted operating profit.

    But pressure on steel prices and weak demand in an economically anaemic Europe dimmed its outlook and the proposed dividend payout of 0.15 euros per share was at the bottom end of analysts' forecasts.

    "Growing economic uncertainties and high import pressure on materials markets, above all from Asia, are a cause for concern. Thyssenkrupp therefore feels the need to take a cautious view of the 2015/2016 fiscal year," it said in a statement.

    Shares in Thyssenkrupp were indicated down 0.7 percent at brokerage Lang & Schwarz ahead of the 0800 GMT Frankfurt open, the only decliners in a blue-chip index indicated to open 0.8 percent higher.

    ArcelorMittal, the world's largest steel producer, cut its full-year profit forecast earlier this month, saying that cheap Chinese exports had hit steel prices and customers were holding off making new orders.

    Some steelmakers, notably Austria's Voestalpine, are keeping profit margins relatively high by offering more specialised steel products, but Voestalpine also reported a drop in quarterly profit on China.

    Thyssenkrupp said adjusted earnings before interest and tax (EBIT) could fall this fiscal year, giving a forecast of 1.6 to 1.9 billion euros ($1.7 billion to $2 billion), after making 1.68 billion in 2014/15.

    It reiterated it would not be able to improve the level of dividend payout until annual EBIT reached a threshold of 2 billion euros.

    "This cannot be a satisfactory dividend over the medium term. But it is a step in the right direction which also takes into account our balance sheet needs," Chief Executive Heinrich Hiesinger said in a statement.

    Hiesinger has led Thyssenkrupp through a turnaround in which the group shed many of its steelmaking operations, allowing it to focus on the more profitable capital goods divisions like elevators that now account for three quarters of sales.

    But the Essen-based company still remains hostage to a relentless depression of steel prices by cheap exports from China, where overcapacity in production has been amplified by slowing growth in demand for steel for construction and cars.

    It has few levers in the short term to combat this other than cutting costs, which it said it did to the tune of 1.1 billion euros in 2014/15, ahead of its target of 850 million. It said it planned to cut a further 850 million this fiscal year.

    Read more at Reuters
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    China moves to contract coal capacity.

    China should build a perfect capacity exit mechanism in the coal industry, in a bid to effectively ease oversupply and facilitate structural transformation in China, said the vice director Jiang Zhimin with China National Coal Association (CNCA) at the news conference of 2016 annual national coal trade fair on November 17.

    "The CNCA is just working on designing a scientific and proper coal capacity exit mechanism for further resource consolidation," said Jiang.

    China’s coal industry is still faced with downward pressure with overcapacity being the most fundamental problem, so it is in great urgency to build a more perfect capacity exit mechanism while letting the market play its regulating role, he said.

    "The mechanism will be especially important for legal mines, as it is impossible for them to naturally retreat from the coal market like those mines facing resource exhaustion," said Jiang.

    As the coal industry encounters new problems and challenges in a changeable world, further improvement needs to be made to China’s current coal mine firms exit policies, which were rolled out at the beginning of this century, he added.

    Coal output across the country stood at 3.05 billion tonnes over January-October, posting a drop of 3.6% on year. The October output fell 1.2% from a year ago to 317 million tonnes, a slower year-on-year decline compared with previous months, indicating a greater pressure on production control.

    China’s coal consumption over January-October slid 4.7% from a year ago to 3.23 billion tonnes, signaling a persisting decline trend after the first negative growth last year in the past fifteen years, data showed.

    The decrease was mainly affected by the falling coal consumption seen in power, steel and building materials industries, which registered the year-on-year drop of 6.4%, 3.4% and 8.1% between January and October, respectively.

    More and more coal enterprises suffered expanding losses, as impacted by continuously falling prices.

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    Cash constraints will slow iron ore mine expansions - FMG CEO

    Fortescue Metals Group chief executive Mr Nev Power has said the global iron ore industry is likely to be "saved" by the majors' cash constraints preventing any further multibillion-dollar expansions. Taking fresh aim at the producer's larger Pilbara rivals, Mr Power said the boards of the "big players" were unlikely to approve expansions when they were struggling to generate cash to pay dividends.

    He said "In iron ore, I think we have a very positive outcome in that all the big players that would otherwise be spending money to invest in capacity are basically running out of cash flow. So I don't think any of the boards are likely to sign off on a $10 billion expansion in iron ore any time soon, particularly if people are out there borrowing money to pay dividends. I think the structure of the iron ore industry is probably going to be saved because of that one point."

    Mr Power said after the elimination of some global high-cost supply, the iron ore industry had "a very healthy cost curve", with the approximately 450mt of supply being produced further up the curve than the "low cost" producers likely to determine the price going ahead.

    Mr Power hit back at critics of the company's cost-cutting efforts, which have questioned the sustainability of the miner's rapid cash cost reductions, labelling the reductions "absolutely sustainable". He said "I know there are a lot of people with all the scepticism under the sun about whether we can do this and whether this is achievable. That is the same scepticism of whether we would be here, whether we would get to 155 million tonnes per annum … There are people out there that are just born sceptics.”

    Fortescue is targeting cash costs of $US15 a tonne by June, down from about $US50 a tonne four years ago and about half of what it was 12 months ago.
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    Modi plans to sell Coal India stake - FT

    Prime minister Narendra Modi’s government has approved a further 10 per cent sale of Coal India, the mammoth state-controlled mining company, as the government battles to live up to its privatisation promises and burnish its tarnished reform credentials.

    The decision by Mr Modi’s cabinet was announced on Wednesday and marks the latest attempt to raise $10bn by selling state-owned assets this year, as the government strives to shrink India’s fiscal deficit. At current prices, the sale should net the government $3.2bn.

    The drive to sell off state assets has progressed far slower than Mr Modi would have hoped with total proceeds so far amounting “to less than a fifth of the annual target... with only two quarters of the fiscal year left”, said Singaporean bank DBS in a recent note to clients.

    The fact that the government’s target looks set to be missed “does not come as a surprise given the unimpressive past track record”, it added.

    While the practice of using proceeds of such sales to lower deficit financing is unsustainable in the longer term, the sale of the 10 per cent stake in Coal India should ease pressure on government finances, analysts said. Although India, a large oil importer, has benefited from the falling oil price, analysts suggest the government is struggling to meet its current fiscal deficit goal of 3.9 per cent of GDP. Last year, it came in at 4 per cent, but it has already exceeded the government’s target for the past two quarters.

    The announcement of the planned sale follows the surprise defeat of Mr Modi’s ruling Bharatiya Janata party in a state election in the north Indian state of Bihar this month, a loss expected to dent his authority and potentially slow India’s reform drive.

    Recent moves to further open the Indian economy have partially reassured investors who hope this sale can kickstart other stalled privatisation efforts. The government has tentative plans to sell stakes in more than a dozen other companies including Oil India and ONGC but the falling oil price has hurt valuations and provoked delays

    India is estimated to have the fifth-largest coal reserves in the world, with Coal India accounting for approximately 80 per cent of total coal production, and Mr Modi is looking for increased private participation in the sector as he pushes to bring uninterrupted power supplyto all of India's 1.3bn people by 2019..

    The government currently owns about 80 per cent of Coal India and based on Wednesday’s market cap of Rs2115bn, a 10 per cent sale could be worth close to Rs212bn, or $3.2bn.
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    UK proposes closing all its coal-fired power plants by 2025

    Britain wants to close all of its coal-fired power plants by 2025 and lower their output from 2023, the government said on Wednesday, making it the first major economy to put a date on shutting down polluting coal plants to curb carbon emissions.

    Secretary of State for Energy and Climate Changel, Amber Rudd, will set out further details in a speech later on Wednesday that will seek to encourage the building of new gas and nuclear power plants instead.

    Coal-fired power plants provided around a third of Britain's electricity last year but many of the ageing plants have been due to close over the next decade due to tightening European Union environmental standards.

    Now a consultation starting in the spring next year will set out proposals to close by 2025 all coal-fired power stations which are "unabated" - plants not equipped to capture and store their carbon emissions - and restrict their usage from 2023.

    "It cannot be satisfactory for an advanced economy like the UK to be relying on polluting, carbon intensive 50-year-old coal-fired power stations," Secretary of State for Energy and Climate Change Amber Rudd will say, according to excerpts of the speech she will deliver at the Institution of Civil Engineers.

    Drax Group, operator of one of Europe's largest coal and biomass-fired power plants, could see the remaining coal units close two years earlier if the government sticks to the 2025 closure date, analysts at Jefferies said.

    "By putting a specific date by which coal will be phased out, the government will naturally focus attention on security of supply," the analysts said in a research note.

    Shares in Drax were down 0.8 percent at 224.8 pence by 1023 GMT, having already fallen from over 600 pence in the past year.

    Britain hopes to fill the supply gap with new lower-carbon gas and nuclear power plants, which will also help it to meet a legally binding target to cut its carbon dioxide emissions by 2050 to 80 percent below 1990 levels.

    "One of the greatest and most cost-effective contributions we can make to emission reductions in electricity is by replacing coal-fired power stations with gas," Rudd will say.

    Gas plants emit almost half the amount of carbon dioxide per megawatt of power generated as coal plants.

    The move away from coal was welcomed by climate change campaigners seeking a reducton in carbon emissions blamed for global warming.

    Later this month, world leaders will gather in Paris for U.N. negotiations to seek an accord to curb greenhouse gas emissions.

    "The UK is demonstrating the type of leadership that nations around the world must take in order to craft a successful agreement in Paris and solve the climate crisis," said former U.S. Vice President and climate change campaigner Al Gore.

    Read more at Reuters

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    Iron ore price craters

    The price of iron ore fell to within shouting distance of all-time lows on Tuesday as worries about oversupply continue to dog the market and steel prices in top consumer China fall to record lows.

    Benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin fell 3.2% to $45.80 a tonne, the lowest since July 8 and down 9.5% in a month.

    Today's peg is also the second lowest on record since The SteelIndex began tracking the spot price in November 2008. Iron ore traded at $44.10 a tonne on July 8 this year, before bouncing back more than 9% the very next day. Today's price compares with record highs above $190 a tonne hit in February 2011.

    Ore with 62% content delivered to Qingdao tracked by the Metal Bulletin fared even worse, dropping 4.5% to $45.58 a tonne on Tuesday, also the lowest since the record on July 8, according to Metal Bulletin.

    China forges 46% of the world's steel and consumes for more than 75% of the world's seaborne iron ore trade, but overproduction and unprofitability at the country's giant state-owned mills have seen steel prices in decline for years.

    Shanghai rebar prices dropped to a record low on Tuesday with the most active May futures contract exchanging hands for 1,748 yuan or $275 a tonne.

    The scale of the oversupply in this market is such that small supply disruptions are only creating shortlived rallies, if at all

    The decline in Chinese steel consumption is accelerating with use falling –5.7% to 590.47 million tonnes in the January to October period, industry group China Iron and Steel Association said on Friday. That's tracking way below estimates by the  World Steel Organization which forecasts steel demand in China will shrink by -3.5% this year.

    Last month the chairman of one of the largest steelmakers Shanghai Baosteel's Xu Lejiang, said the country's steel demand is weakening at "unprecedented speed" and forecast nationwide output may eventually slump 20%, mirroring similar developments in Europe as the US and markets matured. The view from inside the country is in contrast to projections by the Big Three which sees slow but sustained growth through 2020.

    The slowdown in China comes at just the wrong time for producers as a flood of new supply hits the market.

    The big three producers – Vale, Rio Tinto and BHP Billiton – have been following a scorched earth policy of raising output and slashing costs to weather low prices and push out competitors.

    The decline in the price of iron ore has also not been arrested by disruptions from the suspension of mining by Samarco, a Vale/BP joint venture in Brazil, following a deadly tailings spill. The dam burst also damaged a nearby Vale mine and the company said that up to 19 million tonnes of annual output is affected.

    Those losses will be more than made up by Vale's gigantic S11D project in the Amazon which the Rio de Janeiro-based company said will deliver ore – 95 million tonnes of it every year –way under budget and bang on time at the end of 2016.

    Vale's ambitions are more than matched by the other majors. After a near 15% year-on-year surge in output in the third quarter Rio is well on its way to reach 360 million tonnes in the next few years, while BHP Billiton which grew production 6% last quarter is on target to grow capacity to 290 million tonnes per year some time during 2017.

    World number four producer Fortescue Metals added 5% to its targeted output hitting a rate 165 million tonnes per year in July.

    Unlisted miner Hancock Prospecting's Roy Hill is set to ship its first ore from its Pilbara mine which has a 55-million tonnes-a-year capacity early next year. That would place it within shouting distance of Anglo American which is predicting 53 million tonnes for this year before its Minas Rio mine ramps up to capacity of 26 million tonnes in 2016–2017.

    “The floor of this market is in the hands of the top five mining companies. We will need to see more cuts before there is a sustained recovery.”

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    Chinese coal miners find it hard to re-enter international market

    Chinese miners are facing difficulties in selling coal into the international market, due to reputation crisis, government intervention and the 3% export tariff, said Huang Teng, a coal expert with Beijing LT Consulting Co., Ltd. during the third Global Thermal Coal Resource & Market Summit.

    China’s coal exports started in 1978 and boomed in the following decades, with export volume peaking at 94 million tonnes in 2003, ranking second in the world after Australia.

    Since the late half of 2003, China’s coal exports started to plunge to meet growing domestic demand on the back of rapid economic growth. Coal exports dropped to 8 million tonnes per year or less.

    Customs data showed China exported 4.54 million tonnes of coal in the first ten months of the year, falling 6.5% on year but up 12.9% on month. Total exports in 2014 stood at 5.74 million tonnes, down 23.5% on year.

    However, oversupply has getting increasingly serious in China’s domestic market since 2012, due to the expansion of mine capacities vis-à-vis a slowdown of domestic economy and increased supply of alternative energy sources.

    Domestic producers had to resort to export to relieve sales pressure. In fact, the demand from international market does exist, according to Huang.

    Data showed China’s neighbors have a total 650 million tonnes of coal demand each year, with India, Japan and South Korea at 200 million, 190 million and 130 million tonnes, respectively. Besides, Taiwan, Thailand and Malaysia also have a demand of 70 million, 20 million and 20 million tonnes each year, separately.

    But Chinese miners still faced problems to sell coal to these potential buyers, Huang said.

    First, Chinese coal producers need to reshape their reputations in the international market to win acceptance after their defaults in the past "Golden Decade" of the coal industry over 2003-2011, which is still impacting buyers’ enthusiasm.

    Second, the Chinese government doesn’t encourage large-scale export of coking coal, due to the scarce resource. The export quota system, which only allows five companies to export coal at present, also greatly weakened the export enthusiasm.

    Third, the country levies a 3% export tariff on coal, without returning the 17% VAT for producers, which added miners' financial burdens.

    In addition, the export quality management system has been outdated after limited exports over the past 10 years, and has to be reestablished, Huang said.

    Based on the above reasons, China’s coal export would be hard to increase extensively in the short run, let alone to help support domestic prices and save the beleaguered sector, Huang concluded.

    Analysts said the reenter of Chinese coal into the international market would intensify global oversupply, resulting in a slump of global coal prices.

    As thus, Chinese coastal consumers may import more, imposing more sales pressure on domestic producers.
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    Indian tribe blocks iron ore rail line of Vale protest at disaster

    Financial Review reported that anger in the Brazilian city of Mariana about the Samarco tailings dam disaster is turning to action, with an Indian tribe affected by the tragedy blocking a key iron ore railroad line owned by Vale.

    Many of the 350 members of the Krenak tribe who live on the banks of the Rio Doce in Minas Gerais, hundreds of kilometres downstream from the disaster site, have put on war paint and camped out on the Vale do Rio Doce railroad line that passes near their village, leading Vale to shut down iron ore shipments and other train traffic until the problem is resolved.

    According to the G1 news site, Krenak chief Geovani Krevak said the murky, red-tinged slurry clogging the river water, their only source of potable water, had been undrinkable for a week. "Like us, now the trees and the animals also don't have any water. The river dies, we all die."

    Though the 650 or so survivors from the smashed district of Bento Rodrigues of Mariana have been quickly and peaceably resettled in hotels and have been told they will be relocated to new homes "soon", anger is growing and public protests are being called as the red-tinged iron ore slurry continues its polluting journey to the Atlantic Ocean about 500 kilometres away along one of Brazil's most important rivers, the Rio Doce.

    Samarco said the Krenak tribe had been given 8000 litres of mineral water, 140 water cisterns and a water truck to help them get through the situation. For its part, Vale said it was negotiating with the Krenak to re-establish ore shipments on the line.
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    OECD agrees deal to restrict financing for coal technology

     Members of the Organisation of Economic Cooperation and Development (OECD) struck a deal on Tuesday to restrict subsidies used to export technology for coal-fired power plants, ending months of wrangling.

    Representatives of the world's richest countries agreed a deal to end export credits for inefficient coal plant technology to take effect from Jan. 1, 2017, with a review in 2019 that could allow the deal to be strengthened.

    This week's talks at the Paris-based OECD were viewed as a final chance to end export credits for coal, the most polluting of fossil fuels, before the two-week United Nations climate summit on a global deal to curb climate change begins on Nov. 30, also in Paris.

    A senior Obama administration official who participated in the talks said Tuesday OECD countries have financed over $35 billion worth of coal plants over the past seven years.

    "This is a landmark agreement that's the culmination of a long process," the official said.

    While the United States already restricted coal technology exports, the new OECD agreement would force countries like Japan and South Korea to limit theirs for the first time. The European Union plans to end domestic coal subsidies by 2018.

    Japan, wary of regional competition from China, had been at the vanguard of opposition to phasing out coal export credits that benefit companies such as Toshiba Corp.

    But prospects for a deal improved after Japan agreed to a compromise proposal with the United States last month.

    Tuesday's deal modified that agreement and would limit lending for coal plants to the most efficient coal-fired power plants using ultra-supercritical technology.

    A compromise provision tabled by South Korea and Australia added an exception to allow the construction of smaller, less efficient "supercritical" coal plants of up to 500 megawatts in developing countries.

    It would allow some exemptions in emerging economies where up to 90 percent of the country has electricity access, including India, Indonesia, the Philippines and South Africa.

    "The agreement is a victory for multilateral efforts to address climate change though it's a limited victory," said Steve Herz of the Sierra Club, adding that countries like Korea, Japan and Australia "continue to put their interests ahead of global cooperation."

    He added that the deal has the potential to remove around 850 previously eligible coal plant projects out of the global pipeline,

    The coal industry has said coal is still a necessary energy source, especially in poor countries that have few other options.

    At a meeting in Turkey this week, leaders of the world's largest economies, the G20, reaffirmed their commitment "to rationalise and phase out inefficient fossil fuel subsidies".

    Read more at Reuters
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    Cliffs Natural to temporarily idle Minnesota plant

    Coal and iron ore producer Cliffs Natural Resources Inc said it would temporarily halt all operations at its Northshore iron ore mine in Minnesota by Dec. 1, aiming to reduce costs at a time when miners are hit by weak prices and low demand.

    Cliffs said it expects the Northshore mine and United Taconite processing facility to be idled through the first quarter of 2016 and that inventory at both mines was adequate to meet current customer demand.

    Cliffs shares were down 3.7 percent at $2.59 in early trading on Tuesday. The stock had fallen 62.3 percent this year.

    The company, which has previously idled the United Taconite mine, said it will continue to operate the Hibbing Taconite mine in Minnesota and the Tilden and Empire mines in Michigan.

    Cliffs and other U.S. miners have been hit by a drop in demand from steel mills and weak iron ore prices due to excess supply from big miners such as Vale SA, Rio Tinto Plc and BHP Billiton Plc.

    "The historic high tonnage of foreign steel dumped into the U.S. continues to negatively impact the steel production levels of our domestic customers," Cliffs Chief Executive Lourenco Goncalves said on Tuesday.

    U.S. steel companies in June had filed a complaint with the U.S. government over cheaper imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan.

    Goncalves said Cliffs will immediately ramp up production by restarting idled facilities "as soon as the unfairly traded steel problem subsides and domestic steel production recovers to normal levels".

    The company expects that idling the two operations will cost it $9 million per month.

    Read more at Reuters
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    China says cuts capacity, seeks talks to solve steel trade disputes

    China is actively taking measures to cut steel capacity and is looking to strengthen talks with other countries to solve steel trade disputes, China's commerce ministry said on Tuesday.

    China's steel industry, the world's biggest, has been blamed by overseas steel mills for causing them hurt by exporting indiscriminately at unfair prices.

    The nation is expected by analysts to ship a record 100 million tonnes-plus of steel products abroad this year to offset shrinking domestic demand amid a slowing economy.

    "The overcapacity is a common issue facing the global steel industry which is under restructuring. China is actively taking measures and optimising the industry structure, including slashing large capacities," Shen Danyang, spokesman for the Ministry of Commerce, told reporters at a briefing.

    Chronic overcapacity and falling demand has helped drive Chinese steel prices to their lowest level in decades, forcing domestic mills to cut output and some to shut down permanently due to heavy losses and debt.

    World steel producers have complained on several occasions about Chinese steel exports. In the latest instance, nine international steel associations said in a joint statement earlier this month that the Chinese government played a big role in its steel sector and it remains a non-market economy.

    Shen refuted the claims of the associations, saying such concerns should not be used to engage in discriminatory trade practices and steel trade tensions should not be linked with the status of Chinese economy.

    "I don't think steelmakers in China are subsidised and the government's attitude towards the steel industry makers is very clear: Those that are not competitive should be closed," said Wang Li, an analyst with CRU in Beijing.

    Read more at Reuters

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    India needs different tariffs to combat steel imports – Mr Seshagiri Rao

    Mr Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel  speaking about the outlook for the steel market going forward said even after the imposition of state guard duty, imports haven’t fallen, adding that in fact imports grew by around 42 percent this fiscal. He said “In order to avoid the safe guard duty, the Chinese are under pricing the products, so there has been no relief for the domestic steel producers as such. There is need to introduce different tariffs across the supply chain to combat the problem of imports into India.”.
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    China steel prices hit record low as crisis deepens with possible mill closure

    Chinese steel prices hit record lows on Tuesday amid prolonged worries over shrinking demand in the world's top consumer that market sources say has forced one of the country's largest private producers to cease output.

    The shutdown by Tangshan Songting Iron & Steel, with an annual capacity of 5 million tonnes, would be one of the biggest in the sector's years-long downturn as the world's No.2 economy slows, traders and analysts said.

    The company, located in the northeastern city of Tangshan, did not answer repeated telephone calls. An official with the local government of Tangshan said it was "dealing with the issue right now in accordance with related law and regulations", without specifically stating the company had ended production.

    Chinese social media showed photos and videos that were apparently of hundreds of disgruntled workers gathered outside a local government building in Qian'an, Tangshan, demanding help in the face of the closure.

    A shutdown would highlight the sector's woes and fuel concerns that more closures are on the way, with a raft of mills already shuttering output.

    While cuts in output would remove some of the surplus capacity that has weighed on prices, traders said the latest shutdown dented overall sentiment on the outlook for the Chinese economy.

    On Tuesday, Chinese steel prices plumbed a record low of 1,748 yuan a tonne, down nearly 37 percent since the beginning of this year. That has also hit demand for steelmaking ingredient iron ore .IO62-CNI=SI, already down over 30 percent in 2015.

    "I think there will be more closures in China and no capacity additions. Steelmakers and local governments don't have the incentive to build new capacity," said Wang Li, an analyst at CRU Group in Beijing.

    "Generally people think that to close a steel plant would be quite difficult in China and maybe unlikely, but the fact is closures are increasing and quicker than people's expectations."

    Tangshan, which is 200 km (124 miles) east of Beijing and produces more steel a year than the United States, has tens of small steel mills and has been on the frontline of China's campaigns to tackle overcapacity and pollution.

    The city has pledged to reduce its annual crude steel capacity by 28 million tonnes from 2013 until 2017, roughly a fifth of its total.

    Around 15 million tonnes of steel capacity in Tangshan has been shut down so far, said Cheng Xubao, an analyst with industry consultancy Custeel said.

    "Local governments want to help, but they are not able to help all. More mills could shut down as demand keeps weakening. Mills are not afraid of losses, but they are worried that there is no demand."

    Apparent steel consumption in China, the world's biggest producer and consumer, fell 5.7 percent to 590.47 million tonnes in the first 10 months of the year, the China Iron and Steel Association (CISA) said.

    Read more at Reuters

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    China Shenhua Oct sales slide 15.7pct on month

    China Shenhua Energy Company, a listed arm of coal giant Shenhua Group, saw its coal sales in October slide 15.7% on month and down 23.9% on year to 26.4 million tonnes, despite successive price cuts in the month.

    The company realized coal sales via northern Chinese ports at 13.8 million tonnes in October, falling 21.1% on year and down 18.34% on month, with sales over January-October falling 14.3% on year to 167.2 million tonnes.

    Of the October sales, 3.1 million tonnes or 63.3% of the total decreased volume were from coal sold via northern Chinese ports, compared with September sales.

    Coal shipped from Shenhua’s exclusive-use Huanghua port stood at 7.3 million tonnes or 52.9% of the total in October, sliding 22.3% on year and down 27% on month.

    Sales over January-October stood at 305.3 million tonnes, down 18.8% from the year prior, accounting for 75.5% of the sales target for the whole year, it said.

    On October 9, Shenhua offered a 15 yuan/t discount for monthly purchase at or above 40,000 tonne of 5,500 Kcal/kg NAR shipped coal and a 10 yuan/t discount for the same purchase volume of other coal varieties.

    Seeing continued slack sales, Shenhua offered its "Shenyou" variety a discount of 0.068 yuan/t/Kcal. It offered the price of its 5,500 and 5,000 Kcal/kg NAR coal at 374 yuan/t and 340 yuan/t FOB Qinhuangdao, down 16 yuan/t and 10 yuan/t from its self-produced mixed coal with the same calorific value , respectively.

    However, successive price cuts of large coal producers did not actually improve the current sluggish market, and they turned to stabilize prices before the end of the year, in the hope of a favorable turn amid the slight demand rebound from coastal power plants in November.

    In addition, the company produced a total 233.8 million tonnes of commercial coal or 85.5% of the annual target over January-October, down 9.2% on year.

    Coal output in October stood at 23.2 million tonnes, up 4.5% from September but down 1.3% on year.

    Coal imports over January-October slumped 98.5% on year to 100,000 tonnes, with October imports down 100% from a year ago to zero.

    Coal exports during the same period fell 35.7% on year to 900,000 tonnes, with October exports down 50% to 100,000 tonnes.

    Additionally, power output of the company in the first ten months this year decreased 3.3% on year to 186.49TWh, with October output down 1.9% to 17.77TWh.

    The company sold 173.51TWh of electricity during the same period, down 3.4% on year, with sales in the month falling 3.3% to 16.32TWh.

    Some downstream utilities predicted further price cut in Shenhua and other large coal producers in November, due to unimproved demand from downstream sectors, despite Shenhua’s steady pricing in November.
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    Sinosteel extends bond redemption date for second time

    China's state-owned Sinosteel said on Monday it has extended the date investors can start redeeming its bonds by a month until Dec. 16, the second extension since October.

    This second extension comes after Sinosteel had asked bondholders of its 2 billion yuan October 2017 bonds not to exercise a put option on Oct. 20, because the company would not be able to make a full payment, according to a letter seen by Reuters last month.

    The new extension would give investors in the debt issued by subsidiary Sinosteel Corp Ltd more time to review the matter, the company said in a statement posted on the website of one of the country's main bond clearing houses.

    In the statement, Sinosteel again offered shares of its Shenzhen-listed subsidiary Sinosteel Engineering & Technology Co Ltd as additional collateral for the debt, as an inducement for bondholders to stay invested.

    Sinosteel said it is negotiating the plan with related parties.

    Today's statement contained no additional information on repayment of scheduled interest due to bondholders. If Sinosteel is determined to have formally defaulted, it would be the first Chinese company to do so on a so-called enterprise bond, typically issued by large state-owned enterprises.

    Several Chinese firms have defaulted this year following the first default in 2014 by Chaori Solar. These include state-owned Baoding Tianwei, a power equipment firm, and Cloud Tech Live, a food producer which tried to reinvent itself as an Internet company.

    Read more at Reuters

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    CIL to enhance washing capacity by 112 million tonne - Officials

    CIL, the government-owned near-monopolist in the sector, is to build 15 washeries across its various subsidiaries, through private companies under a build and operate model.

    Senior CIL officials said that CIL currently owns 17 washeries, five for coking coal (used by the steel and cement industries) and 12 for non-coking (for producing electricity). Of the new ones, six are to handle coking coal and the other nine the other. The cumulative washing capacity is estimated at 112 million tonnes (mt).

    The coking washeries would be awarded by Bharat Coking Coal (BCCL), the combined capacity being 18.6 mt. The non-coking ones would be distributed among Mahanadi Coal (four), South Eastern Coal (two) and Central Collieries (three).

    A senior CIL official added that "We are expecting three coking coal washeries to be operational by the end of next year."

    Mr Anil Swarup, secretary, ministry of coal, said that “Grades of coal range from G-1 to G-17; G-1 is the best quality, of 7,500 kcal of calofiric value or heating capacity. G-10 is the moderate grade, of 2,000-2,500 kcal. There have been disputes between power producers and CIL over quality and grading issues. All coal above G-10 grade would not be delivered unwashed after October 1, 2017."

    Mr Swarup said that "We have set up a committee to resolve all CIL's quality issues."
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    Russia Oct coal output up 4.4pct on year

    Russia, a major coal-producing country, produced 34.38 million tonnes of coal in October, posting a year-on-year rise of 4.4%, showed the latest data from the Ministry of Energy.

    Coal output of the country over January-October stood at 300.83 million tonnes, an increase of 4.7% on year, data showed.

    In October, Russia exported 13.45 million tonnes of coal, up 7% from the previous year.

    Coal exports over January-October fell 1.2% from a year ago to 126.14 million tonnes.
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    Coal consumption of China power industry to reach 60% by 2020

    Coal consumption in China’s power industry is expected to account for 60% of the country’s total coal use by 2020, compared with the current 50%, according to the 13th Five-Year Plan.

    This means that more coal would be used for power generation, as the government advocates use of the clean energy, said one official with China Electricity Council at the 3rd Global Thermal Coal Resource & Market Summit on November 13.

    China’s consumption of primary energy was expected to be 4.8 billion tonnes of standard coal equivalent by 2020, with coal consumption at 4.2 billion tonnes, the official said in the summit.

    Total installed power capacity across the country would reach around 1.8 TW by 2020, according to the plan, with thermal, hydropower, wind, solar and nuclear power capacity at 1TW, 350GW, 200GW, 100GW and 58GW, respectively.

    By 2020, coal consumed for per kWh of power output should be limited within 310g of standard coal equivalent; while that of 600MW-above thermal units and new thermal units should be within 300g.

    Coal consumption of per kWh of power output averaged 318g of standard coal equivalent in 2014.

    Power consumption has slowed in China this year, due to lackluster industrial activity. In the first three quarters, China’s power consumption saw a slight year-on-year rise of 0.8%, and the average growth of the whole year is expected to be 1% or so.

    Over January-September, power consumption in industrial sector fell 4.6% on year; while service sector and residential sector rose 7.43% and 3.9%, respectively.

    The utilization of power generating units saw a decline of over 200 hours from the previous year. The operation hour of thermal units for the whole year is expected to reach 4,448 hours, with that over January-September at 3,245 hours.

    The newly-added installed capacity may reach 1.77 TW this year, compared with last year’s 1.66 TW.
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    Coal India Q2 net profit up 16pct

    Coal India (CIL), the world's biggest coal miner, posted a 16% rise in consolidated net profit at Rs 2,543.80 crore for the quarter ended September 30 on the back of higher sales, it said on November 13.

    The consolidated net sales of the company was Rs 16,957.59 crore during the quarter, registering an increase of 8%.

    "The increase in earnings is largely due to the higher production and sales during the current period compared to the corresponding period in the previous year," it said.

    The total expenses of CIL increased to Rs 15,067.87 crore, up 6.53% from Rs 14,144.73 crore in the year-ago period.

    Coal production during the second quarter of the current fiscal was 108.20 million tonnes, up 5.88% from the second quarter of the previous year, the statement said.

    Sales for the second quarter of 2015-16 was 121.99 million tonnes, up 10.91% from 110.49 million tonnes in second quarter of 2014-15, the statement added.
    Total sales during the first and second quarters of the current fiscal was 251.38 million tonnes, up 9.13% from 230.09 million tonnes year on year.
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    Brazil's CSN sinks as management fails to assuage debt worries

    Shares in Cia Siderúrgica Nacional SA sank the most in a month on Friday, as management failed to assuage mounting concerns over a swelling debt burden at Brazil's second-largest listed maker of flat steel.

    Executives led by Chief Executive Officer Benjamin Steinbruch told investors on a conference call to discuss third-quarter results that keeping capital spending near current levels is needed to stay competitive in steelmaking and mining.

    CSN, as the company is known, is pushing ahead with plans to refinance debt, sell assets, but avoid fire-sales, and raise the price of some flat-steel products. Steinbruch has likened his choices to "war economy decisions."

    Investments planned for next year will add value for shareholders in the medium term, Steinbruch said.

    Net debt rose to a record 6.6 times 12-month trailing operational earnings last quarter. That is twice CSN's 3.4 net debt to EBITDA ratio a year earlier. Investors are uneasy about capital spending and working capital trends, which have further eroded CSN's already weakened balance sheet, said Leonardo Correa, an analyst with Banco BTG Pactual.

    Dividend payments will resume next year, pending the outcome of some aspects like asset sales, Steinbruch noted.

    Shares extended losses during the call, falling as much as 9 percent to 4.92 reais. The stock has shed 50 percent over the past six months.

    The price on CSN's 7 percent perpetual bond was unchanged at 45 cents on the dollar on Friday. The bond has fallen from about 75 cents at the start of the year.

    "For now, the case has become very much an event-driven story, with leverage rising and depending on billions of asset sales," Correa said.

    CSN's net loss reached 532.7 million reais ($140 million) last quarter, compared with a shortfall of 250.1 million reais a year ago. The result, however, was smaller than the loss of 709 million reais estimated in a Reuters poll.

    More than 20 companies have shown preliminary interest in Sepetiba Tecon SA, a container terminal operator that CSN recently put up for sale, Chief Financial Officer Paulo Caffarelli said on the call.

    Read more at Reuters
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    Moody's downgrades steelmaker ArcelorMittal

    In an advisory to clients at the close of markets on Thursday, the ratings agency said ArcelorMittal's corporate family rating (CFR) and probability of default rating (PDR) had been downgraded to Ba2 and Ba2-PD from Ba1 and Ba1-PD, respectively, primarily reflecting the steelmaker's “weaker operating performance since the beginning of 2015 as a result of falling steel prices, and a material decrease in EBITDA from its mining operations”.

    At the same time, Moody's also downgraded ArcelorMittal's senior unsecured ratings to Ba2 from Ba1.

    “The outlook on all the ratings is negative with limited opportunity for ArcelorMittal to experience a rebound in profitability over the next 12 months,” a spokesperson said.

    Apart from having to contend with a challenging climate in the steel industry, ArcelorMittal also has to absorb a material EBITDA shortfall from its mining operations of 66% compared to the third quarter of 2014, which have in the past contributed up to an average of 25% of the group's consolidated EBITDA.

    Moody’s added that its downgrade also reflects the current recession in ArcelorMittal's Brazilian market and a challenging operating climate in North America.

    On a more positive footing, Moody's believes ArcelorMittal's liquidity is solid and expects that it will remain adequate in 2016 as evidenced by "the large amount of cash held on the balance sheet" and the committed facilities available to the company.

    - See more at:
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    Essar Steel appoints advisers to help find strategic investors

    The Hindu Business Line reported that under pressure from lenders, Essar Steel has appointed ICICI Securities & SBI Capital Markets as advisors to help identify and induct strategic investors into the company.

    This decision is in addition to the previously announced plans to monetise certain non-core assets to raise equity and infuse additional funds to enhance operations to full capacity.

    Earlier, Essar Steel had revealed a financial plan to sell two of its non-core assets to improve its liquidity, reduce debt and focus on core business area.

    According to the proposed plan, Essar Steel plans to hive off Hazira Coke Oven plant having a production capacity of 1.53 million tonnes per annum. The second one relates to 8 million tonnes per annum 267-km Visakhapatnam Slurry Pipeline (between Kiradul and Visakhapatnam)

    The company statement said that “The global steel industry is facing major headwinds due to falling steel prices and increased exports from China. The effects of these are already being seen in North America, Canada and Europe. Major steel companies across the world are taking suitable steps to cut costs and raise money.”

    It said that “India is no different and it is important that measures are taken now to maintain the long-term health of the steel industry. It is in this context that Essar Steel has taken a proactive decision to induct strategic / financial investors into the company.”
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