Mark Latham Commodity Equity Intelligence Service

Thursday 17th September 2015
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    'Golden age of gas' *ends*

    Add cheap coal to the challenges keeping the golden age of liquefied natural gas far from reality.

    Coal is gaining market share in the European Union while the role of natural gas in the region has shrunk in the past year, Christopher Jones, a director for energy with the European Commission, said at a conference in Tokyo Wednesday. Buyers are in no hurry to commit to purchases, according to Qatar, the
    world’s biggest exporter of the supercooled fuel.

         “Cheap coal and increasing competitiveness of renewables are squeezing gas in many markets,” Fatih Birol, executive director of the Paris-based International Energy Agency, said during a speech in Tokyo. “For many, this means the golden age of gas remains more of a dream than reality.”

         Japan’s return to nuclear power after the 2011 Fukushima disaster and less expensive alternatives are undermining demand that prompted the IEA to envision a golden age four years ago. LNG producers are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase in
    history and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.

         LNG shipped to northeast Asia has tumbled to $7.10 per million British thermal units, more than 60 percent below a record $19.70 in February 2014, according to New York-based Energy Intelligence Group. A glut will cap LNG prices for years, according to Citigroup Inc.

     ‘Grave Mistake’

         The bulk of the new supply is coming from Australia, where companies including ConocoPhillips, Royal Dutch Shell Plc and Inpex Corp., counting on Asia’s consumption, are spending more than $150 billion on ventures due to start in the next two years.

         “The energy industry assumed that Asian consumers would take any amount of LNG at any price because Asia is the center of global demand growth,” Birol said. “But this assumption was a grave mistake.”
       Meanwhile, coal is gaining ground. Use of the fuel in the Netherlands rose to a record in the first five months of the year, according to industry consultant Energy Aspects Ltd. In Denmark, the Liberal government is set to reverse ambitious CO2 emission targets introduced by the previous administration, and also drop plans to phase out coal-fired power plants and become fossil-fuel free by 2050.

         Oil and gas prices that have fallen sharply over the past year are disrupting global supply-chain patterns and dynamics, Qatar Energy and Industry Minister Mohammed Al Sada said at the conference in Tokyo Wednesday. Clauses in long-term LNG contracts that restrict the destination of cargoes to specific buyers or countries should be scrapped, Jae Do Moon, vice minister of Trade, Industry and Energy for South Korea, said at the event.

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    UK Energy consumption collapsing?

    Charts of electricity consumption:
    Image titleNow this data includes the utility renewables, but may exclude retail renewables. 
    Image titleCoal falling like a stone.
    Image titleGas does not look good either. 

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    FedEx misses on earnings and cuts its outlook

    FedEx misses on earnings and cuts its outlook

    FedEx released its first-quarter financial results on Wednesday morning, and while earnings rose year-over-year, they missed analysts' expectations.

    The company also lowered its forecast for earnings in the fiscal 2016 year.

    The global freight giant reported $2.42 in adjusted earnings per share, versus the consensus estimate among analysts of $2.45, according to Bloomberg. Revenues during the quarter totaled $12.3 billion, and $12.26 billion was expected.

    On Tuesday, the company announced that it is hiking shipping rates4.9% across the board for a second straight year.

    The stock is down 11% year-to-date. It was unchanged just ahead of the earnings release.
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    India govt shortlisted 13 gas projects for subsidy support

    As part of its plan to provide relief to the stranded gas-fuelled power generation capacity in the country, the government shortlisted 13 projects with an installed capacity of 8,262.08 MW for receiving subsidy.

    Under the strategy aimed at providing relief to project lenders, 13.5 million metric standard cu. m per day of LNG will be imported and cash-strapped state power distribution companies financially supported to buy electricity from them.

    The projects were shortlisted after they participated in the so-called reverse e-bidding process for supply of power to distribution companies that was conducted by state-owned MSTC Limited.

    The power ministry said in a late evening statement that “The government is delighted to announce the revival of 13 stranded gas-based power generation plants with an installed capacity of 8,262.08MW which have successfully bid through a transparent and competitive reverse e-auction process. These plants will generate 11.03 billion units of electricity, which will be supplied at or below INR 4.70 per unit to the purchaser discoms during1 October 2015 to 31 March 2016. This will involve government support of Rs.1,590.09 crore from the Power System Development Fund.”

    Of India’s gas-fuelled capacity of 24,150 MW, projects totalling 14,305 MW at an investment of INR 60,000 crore have no domestic gas supply and are considered stranded. Also, the balance 9,845MW at an investment of INR 40,000 crore is working at a low plant load factor, a measure of average capacity utilization, due to limited domestic gas supply.

    The statement added that “The present reverse e-auction for stranded gas-based plants is the second phase of auctions conducted under scheme for utilization of stranded gas-based generation capacity. Compared to the first phase, the second phase has offered increased gas to more plants at a higher PLF.”

    This comes in the backdrop of the National Democratic Alliance government’s promise of 24-hour power supply to all households in a country chronically short of power. Around 280 million Indians lack access to electricity in a country where per capita electricity consumption is one-fourth the world’s average.

    Earlier, a total of 15 projects of developers such as NTPC Limited, Gujarat State Electricity Corp. Limited, Torrent Power Limited, CLP India Pvt. Limited, GVK Industries Limited, Lanco Kondapalli, GMR Energy Limited and Ratnagiri Gas and Power Private Limited were shortlisted for receiving this subsidy as part of the bailout for plants operating at low PLF.

    Power plants seldom use costly imported LNG since the electricity produced would cost much more than that from a domestic coal-fuelled plant or a domestic gas-fired plant, and there would be no takers for such expensive power. The PSDF will help cushion the impact of this tariff increase on the distribution utilities. The bailout plan, approved by the cabinet committee on economic affairs, will help generate 79 billion units of electricity valued at around INR 42,000 crore.

    With a gas consumption of 51 billion cubic metres, India is the world’s 15th largest consumer and the fourth largest LNG importer by sourcing 18 billion cubic meter of LNG.

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    Vedanta Hires Former Anglo American CEO Carroll as Adviser

    Vedanta Resources Plc, the Indian metals and oil producer controlled by billionaire Anil Agarwal, hired Anglo American Plc’s former Chief Executive Officer Cynthia Carroll as an adviser.

    Carroll, 58, who was CEO of Anglo from 2007 to 2013, will chair the company’s Vedanta Resources Holdings Ltd. unit and advise the group’s chairman Agarwal on “corporate development and significant value creation opportunities,” it said in a statement Wednesday.

    “Having known Cynthia for many years, I look forward to collaborating with her and leveraging her valuable industry expertise,” Vedanta CEO Tom Albanese, who headed the world’s second-biggest mining company Rio Tinto Group at the same time Carroll was running Anglo, said in the statement.

    Carroll and Albanese presided over two of the world’s most prominent miners during the global financial crisis that sparked a rout in commodities before a subsequent rally that led both to undertake major acquisitions. Carroll quit Anglo after the company lost about $14 billion in value during her tenure and suffered cost blowouts and delays at an $8.8 billion iron-ore project in Brazil.
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    Oil and Gas

    Iran to clients - Buy our oil and get joint ventures too

    Iran to clients - Buy our oil and get joint ventures too

    Iran has unveiled details for long-awaited foreign cooperation contracts which it hopes will attract oil buyers and investors to modernise its ageing infrastructure, including offers to take part in joint ventures to extract its huge reserves.

    The United Nations endorsed a deal in July to end years of economic sanctions on the Islamic republic over its nuclear programme, although a removal of those sanctions still requires U.S.-Congressional approval.

    Pre-sanctions agreements between Iran and foreign energy firms offered partners oil and gas revenue payments in return for cash investment in so-called buyback contracts. But foreigners were barred from joint ventures or from extracting themselves, making these contracts unpopular with investors.

    "Iran is going to apply a new version of oil contract model in order to make it more attractive for foreign investors, with similar terms to a PSA (production sharing agreement)," said Shahrouz Abolhosseini, petroleum products pricing manager at National Iranian Oil Company (NIOC), during a business meeting in the South Korean capital on Wednesday.

    "NIOC ... aims to embark on joint ventures with foreign investors and international companies in the oil and gas industry," he added.

    Also in Seoul, Ali A. Arshi, adviser to the deputy minister for international affairs and commerce at Iran's Ministry of Petroleum, said the main advantage of the new contracts over the previous buybacks would be more contractual flexibility. He did not elaborate.

    Tehran's move is a latest attempt to attract buyers beyond offering outright oil discounts, which have included offers of extended credit and free cost of shipping.

    "What we can expect from Iran is being creative in the sense that when they approach potential clients they will tie the sale of Iranian crude or Iranian (refined) products to future collaboration," said Bijan Khajehpour, managing partner at Atieh International, which advises companies on investing in Iran.

    Khajehpour said there were discussions to favour returning oil buyers with direct investment or joint venture opportunities in Iran.
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    Saudi Aramco says Amin Nasser appointed as CEO

    Saudi Aramco's Supreme Council has named Amin Nasser as chief executive officer of the state oil company of the world's largest exporter, Aramco said on Thursday.

    Nasser has been acting president and chief executive officer of Saudi Aramco since April, when his predecessor Khalid al-Falih was appointed Aramco's chairman and also health minister of the world's top oil exporter.

    The post of Saudi Aramco chairman had previously been held by Oil Minister Ali al-Naimi, himself a former chief executive of the company. Naimi remains in the ministerial position he has occupied for 20 years.

    A statement by Saudi Aramco said the appointment was made after the company's Supreme Council, which was created in April this year, held its first meeting in Jeddah. The council is chaired by Deputy Crown Prince Mohammed bin Salman.

    Nasser has been serving as senior vice-president for upstream operations at Aramco since 2008, according to his biography posted on Aramco's website. Nasser joined Aramco in 1982 after earning a degree in petroleum engineering.

    The state giant's statement on Thursday did not say who will replace Nasser as senior vice president of upstream.

    The council has endorsed a five-year business plan (2015-2019) for the company, Aramco said without providing details.

    The 10-member Supreme Council of Aramco was formed after King Salman abolished the Supreme Petroleum Council earlier this year.

    Members of the council include Deputy Oil minister, Prince Abdulaziz bin Salman, Oil Minister Ali al-Naimi, Finance Minister Ibrahim al-Assaf, Economy Minister Adel Fakieh, Aramco Chairmain Falih and Fahad al-Mubarak, governor of the Saudi Arabian Monetary Agency, the Saudi central bank.

    A previous list of the council's members had not included Prince Abdulaziz, but it is not known if he has only recently been named to the group.
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    Energy ministers, businesses gather in Tokyo to discuss LNG market

    Energy ministers, businesses gather in Tokyo to discuss LNG market

    Ministers and business delegates from around 50 countries and regions gathered in Tokyo on Wednesday to discuss further development of the liquefied natural gas market and the latest market trends and challenges.

    The LNG Producer-Consumer Conference has been hosted annually by the Japanese Ministry of Economy, Trade and Industry since 2012. It comes as the government seeks a manageable way to set LNG prices given the recent increase in imports for thermal plants in the absence of nuclear power following the 2011 Fukushima crisis.

    “A market that is flexible and can function better will provide benefits for (both) producing and consuming countries,” Japanese industry minister Yoichi Miyazawa said in a speech.

    Flexibility in deciding prices for LNG will help lower costs in Asia, where it mostly trades at higher prices than in Europe or the United States, under long-term contracts linked to crude oil prices, ministry officials said.

    Miyazawa also underscored the importance of stable procurement of LNG in the event of emergencies such as natural disasters, adding the issue was expected to be one of the agenda items at a Group of Seven energy ministers’ meeting slated for next May in Japan.

    Mohammed Saleh al-Sada, minister of energy and industry in Qatar, and International Energy Agency Executive Director Fatih Birol are among the participants at the fourth LNG conference.
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    Gas markets are clamouring for more LNG FSRUs ships

    At a time when commodity producers are writing down billions in asset values and cancelling projects around the world, one niche area of the gas market is booming.

    Hybrid ships, called Floating Storage and Regasification Units, or FSRUs, offer emerging nations from Egypt to Pakistan a cheaper, quicker way to attack power shortages by importing liquefied natural gas. They cost about $300 million to build, or half as much as an onshore import terminal, and are up and running as much as six times faster, sometimes within as little as a year, according to owners Hoegh LNG Holding Ltd. and Excelerate Energy LLC.

    As prices for the fuel slumped 64 percent from last year’s peak, the rout made importing the fuel more popular with new buyers seeking a quicker route to LNG amid soaring power demand. Built at shipyards in South Korea, Hoegh sees as many as 55 such vessels in use within 5 years, from about 20 now and just the one a decade ago.

    “The main driver is speed,” Sveinung Stohle, Hoegh’s chief executive officer, said by telephone from the company’s Oslo office. “Demand for FSRUs follows a drastic reduction in the cost of LNG. We see that this has caused a very strong increase in requests.”

    Hoegh gained 44 percent this year in Oslo trading. By comparison, the 79-member Bloomberg World Mining Index fell 26 percent, led by Glencore Plc’s 57 percent slump as raw materials from coal to copper plunged.

    FSRUs are emerging as the fastest alternative for imports just as nations imposing limits on carbon dioxide emissions turn to gas, which is twice as clean as coal.

    With prices down, “environmentally beneficial natural gas delivered as LNG is becoming competitive with coal” in power generation, said Graham Robjohns, the CEO of Golar LNG Partners LP, in a Aug. 27 earnings call. Hamilton, Bermuda-based Golar LNG has 6 operating FSRUs and two on order. Floating terminals account for 28 percent of the import capacity under construction, according to Bank of America Corp.
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    Norway rolls out the barrels

    Norway’s oil production hit 1.56 million barrels per day last month, exceeding an official forecast.

    The output figure was up 4% on the tally a year ago and 4.5% above the prognosis for the month of the Norwegian Petroleum Directorate, even as oil prices have sunk to around $47 a barrel for Brent crude.

    However, overall liquids production of 1.9 million bpd, including oil natural gas liquids and condensate, was down 37,000 bpd, or 2%, on the previous month while total gas sales of 9.7 billion cubic metres were unchanged.

    Dominant state-owned operator is looking to maximise recovery from mature offshore fields such as Gullfaks to fully utilise existing infrastructure.

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    Brazil's Petrobras output hits all-time high in August

    Brazil's Petroleo Brasileiro SA said on Wednesday that output rose 4.5 percent in August to an all-time high of 2.88 million barrels of oil and equivalent natural gas a day from a year earlier.

    Petrobras, as the state-run company is known, said production surpassed an earlier peak of 2.86 million barrels reached back in December.

    The company, which is trying to overcome a massive corruption scandal, said the increase in production was mainly due to initial operation of the new Cidade de Itaguaí rig at Lula field in Brazil.

    Considering only output in Brazil, Petrobras said it produced 2.69 million barrels of oil and equivalent natural gas a day in August, the highest volume ever for local output.
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    ExxonMobil Starts Oil Production at Erha North Phase 2 Project

    Exxon Mobil Corporation announced today that its subsidiary, Esso Exploration and Production Nigeria Limited, has started oil production ahead of schedule at the Erha North Phase 2 project offshore Nigeria.

    The Erha North Phase 2 project is a deepwater subsea development located 60 miles offshore Nigeria in 3,300 feet of water and four miles north of the Erha field, which has been producing since 2006. The Erha North Phase 2 project includes seven wells from three drill centers tied back to the existing Erha North floating production, storage and offloading vessel, reducing additional infrastructure requirements.

    The project is estimated to develop an additional 165 million barrels from the currently producing Erha North field. Peak production from the expansion is currently estimated at 65,000 barrels of oil per day and will increase total Erha North field production to approximately 90,000 barrels per day.

    "Executing successful projects such as Erha North Phase 2 ahead of schedule and under budget results from ExxonMobil's disciplined project management approach and expertise," said Neil W. Duffin, president of ExxonMobil Development Company. "We are able to create additional shareholder value by optimizing existing infrastructure, which reduces capital spending requirements and improves capital efficiency."

    Duffin said the ahead-of-schedule startup was supported by strong performance from Nigerian contractors, which accounted for more than $2 billion of project investment for goods and services, including subsea equipment, facilities and offshore installation.

    "These contracts are bringing direct and indirect benefits to the Nigerian economy through project spending and employment, consistent with project objectives," Duffin said.

    ExxonMobil expects to increase its global production volumes this year by 2 percent to 4.1 million oil-equivalent barrels per day, driven by 7 percent liquids growth. The volume increase is supported by the ramp up of projects completed in 2014 and the expected startup of major developments in 2015.

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    Australian regulator deferring decision on Shell-BG deal

    The Australian Competition and Consumer Commission voiced its concerns over issues on the proposed $70 billion acquisition by Royal Dutch Shell of BG Group.

    ACCC’s Statement of Issues seeks industry views and more information on the competition issues that have arisen in the regulator’s review to date.

    “The ACCC is concerned that, by aligning Shell’s interest in Arrow Energy with BG’s LNG facilities in Queensland, the proposed acquisition may change Shell’s incentives such that it will prioritise supply to BG’s LNG facilities over competing gas users. As a result, Shell could choose to direct more (and possibly all) of Arrow’s large gas reserves towards meeting BG’s contracts to supply LNG export markets. This would remove some or all of Arrow’s gas from the domestic market,” ACCC Chairman Rod Sims said.

    He added that currently, Arrow has the largest quantity of uncommitted gas reserves in eastern Australia and there are a limited number of other potential suppliers to the domestic market. If the proposed acquisition resulted in less supply of gas to the domestic market, therefore, this could substantially lessen competition to supply domestic gas users and lead to higher domestic prices and more restrictive contractual terms.

    The ACCC  said it has received a large number of submissions from market participants concerned about the competition effects of the proposed acquisition.

    It called for further submissions from the market in response to the Statement of Issues by October 8. As a result, the ACCC’s final decision will be deferred until 12 November 2015.
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    Shale gas fracking should go ahead in UK - Taskforce

    Image Source: The GuardianThe Guardian reported that fracking for shale gas in the UK should be pursued as an alternative to the use of coal, a taskforce on the controversial technology has concluded, in order to provide a bridge to a low-carbon future.

    According to the chairman of the taskforce, former Labour cabinet minister Mr Lord Smith, but shale gas should not receive public subsidy or tax breaks, and the tax revenues arising from its exploitation should be redeployed to develop renewable energy and other low-carbon innovations.

    He said that “I can’t see any reason why the shale industry needs tax breaks. If the gas is there and is recoverable and that’s still a big ‘if’ the industry can derive revenue from extracting it.”

    He said that “Shale gas is not the answer to climate change. That is a mixture of renewables, nuclear and energy efficiency and other low-carbon sources of energy. But we can’t simply wave a magic wand and say that will happen tomorrow. Shale gas provides a bridge.”

    The Task Force on Shale Gas, which is funded by the UK’s shale gas industry but operates independently, found that climate change targets could still be met even with an increase in the use of gas, which is less carbon-intensive than coal. When technologies known as ‘green completion’ are used, which means stopping the leaks of methane from shale wells, the fuel is no more carbon-intensive than conventional gas, and less so than imports of liquefied natural gas from countries such as Qatar.

    But the report also found that if gas is to be used for another four decades, as envisaged by the group, then much more effort must be put into carbon capture and storage technologies. These have been problematic, as repeated attempts to set up UK pilot projects over the past decade have yet to produce a result. “The government must get a move on,” said Lord Smith. “I don’t think the reason for the slowness lies in problems with the technology. It is a lack of political will.”
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    Summary of Weekly Petroleum Data for the Week Ending September 11

    U.S. crude oil refinery inputs averaged over 16.5 million barrels per day during the week ending September 11, 2015, 403,000 barrels per day more than the previous week’s average. Refineries operated at 93.1% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.2 million barrels per day. Distillate fuel production increased last week, averaging about 5.1 million barrels per day.

    U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 270,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.4 million barrels per day, 4.3% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 722,000 barrels per day. Distillate fuel imports averaged 66,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.1 million barrels from the previous week. At 455.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 2.8 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.1 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 1.1 million barrels last week and are well above the upper limit of the average range.

    Total commercial petroleum inventories increased by 8.5 million barrels last week. Total products supplied over the last four-week period averaged 19.5 million barrels per day, up by 0.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, up by 2.0% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, down by 2.8% from the same period last year. Jet fuel product supplied is up 5.6% compared to the same four-week period last year.
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    US Weekly Oil production

                                                Last Week   Week Before   Year Before

    Domestic Production '000....... 9,117             9,135             8,838
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    US NatGas boom falters

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    EIA chart showing declining US NatGas production month by month

    The retrenchment in drilling for US oil is threatening to leave a different market short: natural gas.

    “The impacts of oil rig counts extend beyond oil: the outlook for US. natural gas is critically dependent on the outcome of this balancing act in US oil rigs,” said Anthony Yuen, a strategist at Citigroup in New York, in a report to clients Wednesday.

    “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.”

    Associated gas is the gas that comes out of oil wells along with the crude.

    Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices. That’s about 7% of US residential gas demand.

    The US Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines.

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    Are Chesapeake Shopping Utica Dry Gas Assets for $2B?

    Did Chesapeake Energy take Williams to the cleaners? Chesapeake Energy has just cut a deal with Williams to shave 25 cents per Mcf off their natural gas gathering fees in the Utica Shale. In return for the price cut from Williams, Chesapeake agreed to bring more wells online and increase the volume of the gas they send through Williams’ pipes.

    But what’s this? Credible rumours are swirling that Chesapeake, after winning concessions from Williams, is now looking to dump their dry gas (not wet gas) Utica Shale assets in an effort to raise $2 BILLION. Sure looks to us like Chessy just enhanced the value of their assets in the Utica as a way to turn around and sell it…
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    KKR's Samson Resources files for bankruptcy, lenders to take control

    Oil and gas producer Samson Resources Corp filed for Chapter 11 bankruptcy protection on Wednesday to carry out a debt-cutting plan reached with key lenders, who will assume control of the company.

    The company, owned by private-equity firm KKR & Co, listed assets and liabilities of more than $1 billion in its bankruptcy filing. (

    Samson's bankruptcy comes four years after the company agreed to be acquired in a leveraged buyout led by KKR, for $7.2 billion. KKR and its partners on the buyout made a big bet on the future of shale oil and gas, investing $4.15 billion in equity on the deal. The rest was funded with debt.

    Lenders agreed to cut Samson's obligations by swapping the $1 billion they are owed for nearly all of the company's newly issued stock. They will also invest $450 million in Samson.

    The investment by lenders may be further increased, under certain circumstances, by $35 million to improve liquidity, Samson said.

    By filing with the support of the lenders, Samson could be able to implement its restructuring plan in the next few months. The plan must be approved by the U.S. Bankruptcy Court in Wilmington, Delaware.

    The group of lenders includes affiliates of Cerberus Capital Management, Columbia Management, Credit Suisse, Eaton Vance Management, Invesco Ltd, New York Life Insurance Co and Silver Point Capital.

    Samson follows many smaller commodity producers and related services firms into bankruptcy, including Sabine Oil & Gas, Alpha Natural Resources, Hercules Offshore, Quicksilver Resources and Dune Energy. Crude oil prices have fallen more than 50 percent since the middle of 2014, to less than $50 per barrel. Coal and natural gas prices have also dropped sharply.

    As part of its bankruptcy plan, Samson is expected to continue to shed non-core assets that are mostly located in Oklahoma to focus on its best wells in East Texas and North Dakota, according to a plan disclosed prior to its bankruptcy.
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    Alternative Energy

    China rare earth demand seen rising 50 pct by 2020 -industry body

    Chinese rare earth demand is likely to soar by more than 50 percent in the next five years, putting pressure on authorities to relax tough production quotas that have spurred illegal mining and rampant smuggling.

    Chen Zhanheng, vice-secretary general of the Association of China Rare Earth Industry, told a conference in Shanghai that domestic consumption was expected to rise nearly 9 percent this year to 97,700 tonnes, and would end the decade at nearly 150,000 tonnes, up from 90,000 tonnes in 2014.

    With China expected to export at least 30,000 tonnes through official channels this year, the production cap of 105,000 tonnes is unlikely to satisfy total demand, meaning that there are still incentives for illegal producers.

    "It is not very easy to close all illegal mining and it is very easy for illegal miners to steal from the mines. Costs are low, the mines are scattered and some local governments also protect illegal miners," said Chen.

    China's controversial reform plans for the rare earth sector have included strict production and export quotas as well as a nationwide crackdown on illegal mining and processing. Plans to consolidate production in the hands of six state-owned conglomerates are also due to be completed by year-end.

    China said the policies were designed to curb pollution, but overseas critics said its real aim was to dominate strategic downstream sectors like defence and renewable energy. Rare earths are used in a range of products from smartphones to military jet engines and hybrid vehicles.

    While it has now been forced to ditch export quotas following a World Trade Organisation ruling, China has already encouraged overseas consumers to relocate to the country.

    China not only produces around 90 percent of global rare earth supplies, but also consumes about 80 percent, according to industry estimates, and demand is set to continue rising.

    Dudley Kingsnorth, executive director of the Industrial Minerals Company of Australia, said there will be a supply shortfall of 50,000 tonnes this year that is likely to be met by illegal production in China.

    Illegal output and smuggling from China have helped drag global prices to their lowest level since 2011 and put foreign producers like Molycorp in jeopardy.

    "This is the major issue facing the industry today, and unless this is controlled, it will bring catastrophe for a long time," said Kingsnorth.
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    Base Metals

    Codelco, Antofagasta halt copper mines in Chile after quake

    Codelco and Antofagasta PLC suspended operations at two major copper mines in Chile, the world's top producer of the metal, after a powerful earthquake struck off the coast on Wednesday, threatening over 600,000 tonnes of annual capacity.

    Copper prices on the London Metal Exchange rose to two-month highs in early Asian trading as worries about supply disruptions offset lingering concerns over demand from China, the world's No. 1 consumer, amid copper's longest rout in years.

    State copper miner Codelco halted open-pit operations at its large Andina mine and evacuated workers at its smaller Las Ventanas refining and smelting division, as well as at the two northern ports of Mejillones and Barquito, as a precautionary measure. Andina produced 232,000 tonnes of copper last year.

    Antofagasta said it had temporarily closed its flagship Los Pelambres mine, which produced over 400,000 tonnes of copper in 2014, and would wait until daybreak to assess the damage. There were no initial reports of damage to personnel or equipment.

    Other producers in the region Anglo American PLC and BHP Billiton, said they were unscathed after the magnitude 8.3 earthquake hit off the coast, shaking buildings in the capital city of Santiago and generating a tsunami warning for Chile and Peru.

    The quake is the latest natural catastrophe to roil mining in the resource-rich South American nation, which accounts for a third of global copper output.

    Heavy rains caused flooding and shut many mines in the north of the country in April.

    Codelco has also been hit by repeated strikes by contract workers this year. Last week, it was forced to temporarily halt the concentrator at its massive Chuquicamata mine for security reasons after workers tried to take over the unit.

    Analysts previously estimated that between about 1 million and 1.5 million tonnes of annualized global mine supply has been lost due to flooding, droughts, power shortages and low ore grades from Chile to Zambia this year. That is about 5 percent of global annual consumption.

    "Anything that has potential to restrict supply will have more of an effect on the price when things pick up," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.

    A planned expansion at Andina is one of the key pillars of Codelco's plan to boost production as ore grades decline at its older mines.

    Antofagasta's Los Pelambres has been affected by water shortages and local protesters who have blocked mine access.
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    Glencore to sell part of its Chile, Peru copper output

    The alleged deals involve Glencore's Collahausi mine in Chile, as well as Antamina and Antapaccay copper mines in Peru.

    Mining and commodities giant Glencore is said to be in talks with five companies to sell portions of the future production of three of its copper mines in Chile and Peru.

    According to Global Mining Observer, the firms involved in the negotiations are Franco-Nevada Corp, Silver Wheaton, Royal Gold Inc. and two other unnamed miners.

    The alleged deals involve Glencore's Collahausi mine in Chile, as well as Antamina and Antapaccay copper mines in Peru.

    The alleged deals involve Glencore's Collahausi mine in Chile, as well as Antamina and Antapaccay copper mines in Peru.

    The potential agreements, known as streaming transactions, are a kind of alternative financing in the mining industry, in which a firm such as Silver Wheaton or Franco-Nevada provides funds upfront to a miner in exchange for the sale of a fixed amount of future production at a discounted price.

    Collahuasi, one of the world's largest copper mines, produced around 470,000 tonnes of copper last year, or about 8% of Chile's total output.

    In the first half of 2015, production at the mine — a joint project of Glencore, Anglo American (LON:ANGLO) and several Japanese firms — fell 10% compared to the previous year, impacted by maintenance at a processing mill and other factors.

    Antamina mine, located in Peru’s central Ancash state, is the country’s top copper producer by output, and it also yields zinc, lead, and silver.
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    China push into solar, wind power to heat up global copper markets

    As China's slowdown hits demand for metals in traditional sectors such as housing and heavy industry, copper is being offered a lifeline: massive plans to expand solar and wind power in the world's second-biggest economy.

    Beijing's push into renewables as it looks to tackle the pollution that has choked its cities is set to be a vital new source of demand for copper, which as the world's most conductive base metal is used in cables for solar panels and parts for wind turbines.

    Reuters calculations based on government and industry projections for the growth of cleaner energy in China suggest that demand from the sector could boost global copper consumption by around 2 million tonnes, or about 2 percent, over the rest of the decade.

    The extra appetite from China, the world's largest metals consumer, is part of a trend also rippling across other regions as governments target greener technologies to combat pollution and climate change, an issue that is centre stage ahead of U.N. environmental talks in Paris in December.

    "The current developments in China in solar and wind are the highest in the world. Since it's policy driven, the plans made by government are generally achieved or exceeded year-on-year," said Mayur Karmarkar, team leader for sustainable energy in Asia at the International Copper Association (ICA).

    "The numbers are astonishing," he said, referring to estimates on expansion in China's renewable sector.

    Amid growing public disquiet about smog and the environment, China has declared a war on pollution, vowing to abandon a decades-old growth-at-all-costs economic model that has spoilt much of its water, skies and soil.

    That is expected to get a shot in the arm with new targets likely to be announced as part of the country's latest five-year plan on economic growth, which will be discussed at a meeting of the ruling Communist Party in October.

    "Chinese renewable energy is a potential new source of copper demand that I think is being overlooked by the market at the moment, especially if people are going to take the renewable targets seriously," said a Singapore-based source at a global copper miner. He declined to be identified as he was not authorised to speak with media.

    Due to its high conductivity, copper cuts power loss in transmission and is typically used far more heavily in generating so-called green electricity than in traditional thermal plants.

    China's installed solar energy capacity is set to soar to 200 gigawatts (GW) by 2020 from around 36 GW in 2015, according to projections from China's Renewable Energy Industry Association. Minerals consultancy CRU estimates 6,000 tonnes of copper is used per GW of capacity.

    Wind power is projected to reach 250 GW by 2020, according to industry estimates. About 3,850 tonnes of copper is used per GW of wind capacity, according to an average of industry estimates compiled by Reuters.

    These, alongside a steady increase in demand from China's electric vehicle sector of around 200,000 tonnes over the next five years, account for more than 2 million tonnes of copper, compared with current forecasts on total copper consumption over the period of about 105 million tonnes.

    The ICA's Karmarkar noted that falling costs for green technology would help accelerate its uptake in China and beyond.

    Renewable energy growth will also help stoke the roll out of energy grids connecting power hubs with cities, including transformers that use copper.

    Growing appetite from China's renewable energy sector comes as the chief executive of copper and coal at Australian mining giant Rio Tinto last week said that markets for the metal could flip into a structural shortage within two to three years as broad demand from power stations makes it the first commodity to come out of a glut.
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    Sandfire Resources and Talisman hit massive sulphides

    Image Source: smartimagehq.comSandfire Resources NL has used a reverse circulation step-out hole to intersect mineralisation along strike on either side of TLRC0004. The reason why TLRC0004 is so important to the drilling program, is that it has previously delivered: 18 metres at 5.7% coper and 2.4g/t gold from 107 metres.

    This news could mean that extensions have been discovered, which has the potential to significantly increase the size of the mineralisation discovered to date. Step-out hole TLRC0008 delivered: 2 metres of massive sulphides from 90 metres; and 11 metres of massive sulphides from 111 metres. Step-out hole TLRC0009 delivered: 8 metres of massive sulphides from 133 metres; and 1 metre of massive sulphides from 158 metres.

    Samples are currently under assay. Drilling is ongoing.

    Sandfire is earning a 70% interest in the Talisman Mining’s Doolgunna Project, which forms part of its Greater Doolgunna Project. This comprises a 1,700 square kilometre package of contiguous tenements surrounding the DeGrussa Copper Mine.
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    Petcoke: the ticking time bomb at the heart of aluminium

    Petcoke: the ticking time bomb at the heart of aluminium

    Bauxite, the key metallic input, is a commonly occurring mineral and one that can be easily scooped out of the ground without the need for "hard rock" mining.

    That abundance of supply has been proven by Indonesia's ban on exports of bauxite to China. Chinese smelters have wasted no time simply switching sources, particularly to Malaysia, a country with virtually no bauxite sector until one was needed.

    Smelters, meanwhile, are capital intensive to build and costly to shut down. Electricity, the second most important input for making aluminium, acts as a brake on industry's responsiveness to low prices because so many smelters have locked themselves into long-term supply contracts.

    But might that all change in a couple of years time? Might the aluminium production sector, currently swamped with excess output, face its own supply chain challenge?

    Yes, according to a new study by three consultants, AZ China, Cascade Resources and Turner Mason and Co.("Anode coke outlook to 2025")

    Readers may well recognise the first of those names. AZ China is a respected specialist on all things concerning the Chinese aluminium sector.

    But maybe not the second two, because they specialise in carbon products and petrochemicals respectively.

    And this is a study on the availability of the third, often forgotten, input into the aluminium production process, carbon anodes.

    The aluminium production process requires up to half a tonne of carbon for every tonne of metal produced.

    Specifically petroleum coke (petcoke), a by-product of the oil refining process. And specifically anode-grade petcoke, commonly defined as that with a sulphur content of less than three percent.

    There are two dominant suppliers of anode coke to the world's smelters, the United States and China.

    Output in both is declining.

    In the U.S. this is largely a function of the increasing use of shale oils, which "reduce either the quality or quantity of petcoke produced, or both," the study argues.

    A similar trend has been evolving in China, reflecting changes in oil refining technology.

    In both cases what is an essential ingredient in the process of making aluminium is nothing more than a low-value by-product for oil refiners.

    The study examines every other possible supply source but concludes that supply will be insufficient to meet smelter demand from around 2017.

    "The argument that 'you can get the coke if you are prepared to pay enough' is not a sustainable position," the study's authors write, concluding that "at some point, there simply will not be enough coke on a global basis."
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    Hindalco Industries to go through testing time - Mr Kumar Mangalam Birla

    Business Standard reported that chairman Mr Kumar Mangalam Birla told shareholders at the company's 56th annual general that Hindalco Industries would see its domestic aluminium business go through testing times in the short term as recent ramp-up of projects would impact its performance in the coming months,.

    He said “High interest outgo and depreciation is expected keep the company's performance under pressure.”

    He also said “In the coming years, focus will continue to be on operational excellence and increasing productivity of new assets.”

    The chairman also informed the shareholders that the company has refinanced its loan to get a longer tenure of 10 years, thus giving it additional repayment time.

    The country’s largest aluminium producer has fully ramped up its Mahan aluminium smelter facility, in Madhya Pradesh, and about 55 per cent of ramp up has taken place at Aditya smelter, in Odisha.
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    Steel, Iron Ore and Coal

    China Aug coal imports from Dalrymple Bay plunge 49.7pct on mth

    China’s coal imports from Australia's Dalrymple Bay terminal stood at 583,000 tonnes in August, plunging 49.7% from 1.16 million tonnes in July, operator DBCT Management said in a report on September 14.

    China’s total import over January-August from the coal terminal stood at 7.9 million tonnes, said the terminal shipping data.

    Japan’s coal imports from Dalrymple Bay terminal in August was 1.67 million tonnes, up from 1.32 million tonnes in July.

    South Korean coal buyers booked 952,000 tonnes of coal exports from shippers at the Dalrymple Bay coal terminal for August, and slightly less than July's volume of 1.1 million tonnes.

    Japan has been the leading export destination for coal shipments from the coal terminal at Dalrymple Bay this year to date at 9.7 million tonnes, and South Korea and China each tie for second place at 7.9 million tonnes for the eight-month period, said the terminal shipping data.

    Coal shipments from the Dalrymple Bay coal terminal in the Australian state of Queensland increased 10.6% month on month to 6.27 million tonnes in August, up 10.6% from 5.67 million tonnes in July, data showed.

    For the eight-month period ended August, Dalrymple Bay coal terminal has shipped 47.2 million tonnes of coal exports compared with 44.6 million tonnes for the corresponding period in 2014.

    Attached Files
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    China’s Coal Consumption 14% Higher Than Previously Thought

    Everyone knew China needed a lot of coal as its economy hummed along in recent years. Now the world is finding out just how much.

    A newly released analysis of Chinese government data by the U.S. Energy Information Administration found over the past decade-plus, China consumed as much as 14% more coal on an energy-content basis than previously reported. Its domestic coal production meanwhile was as much as 7% higher between 2000 and 2013.

    Chimneys belonging to a coal-fired power plant near residential houses in Shijiazhuang. Reuters

    The U.S. government’s global energy-data keeper based the new analysis on preliminary data from China’s government that showed a large upward revision in annual total energy consumption in China, measured in tons of standard coal equivalent, a common industry and government metric.

    In practical terms, the new analysis means that during a period of speedy growth, China consumed as much as hundreds of millions more metric tons of coal than previously understood.

    The EIA’s analysis also supports those who say China’s coal consumption has peaked, at least for the time being. It estimates China’s coal consumption dropped 2% last year. Rampant air-pollution levels that are a source of public discontent in China helped force the Chinese government to slightly shift its energy mix away from coal in recent years. Alternative sources of energy production—from solar to natural gas—are growing in use, but coal’s huge consumption base means any significant changes will be gradual and could take decades.

    The upward revisions are also a reminder of just how unreliable Chinese government data can be – a fact that makes project planning a vastly difficult task for commodity producers and other businesses that sell to China. Concern over China’s economy has played a big part in driving a bust in commodity prices, which contributed to impairment losses industrywide.
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    Baosteel cut Oct prices by 100-200 yuan/t

    Baoshan Iron and Steel Co., Ltd. (Baosteel), China’s largest listed steel maker, cut its major products prices for October delivery by 100-200 yuan/t from the month before, after maintaining prices stable in September, said the company on September 14.

    The company kept prices of cold-rolled products unchanged from September, but offered a 100 yuan/t discount for orders in advance.

    Industrial insiders said the drop was mainly due to Baosteel’s anticipation for further price decline and flat orders amid persisting weak demand from end users.

    Analysts said China’s domestic steel market would continue to be gloomy in the short run, as demand may stay weak after entering into the slack winter season.

    Attached Files
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