Mark Latham Commodity Equity Intelligence Service

Friday 2nd September 2016
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    The Italian Referendum Could Result In The Death Of The Euro

    An important election is coming up, and I’m not talking about the US presidential election. The upcoming referendum in Italy this fall will have a major macroeconomic impact on the world. But hardly anyone outside of Italy is paying much attention to it - yet.

    I’ve been saying for some time in interviews around the country that the referendum in Italy could have even more of an impact than the Brexit vote did in the UK. And like the Brexit vote, it is rife with emotion and political turmoil, making the outcome too close to call.

    The current prime minister, Matteo Renzi, has basically bet his career on this referendum, which would allow him to enact much-needed reforms. In fact, they’re the same reforms that I have written about in my letters over the past five years and that I talked about in my previous two books.

    Italy has about as sclerotic a governmental process as any country in Europe. And that is saying something. There is no end to corruption and crony politics. Each faction wants to keep the status quo and keep its perks but wants everybody else to give theirs up. If you’re a voter in Italy, your frustration is understandable.

    This vote in Italy needs to go on your economic radar screen. If the “no” vote wins, Renzi has promised to resign. This would throw Italy into a political crisis. Then there would be a real potential to elect parties that would call for a vote on whether to stay in the European Union. And at this point, it is not clear what the Italians would decide to do.

    Know this: The European Monetary Union does not work very well, if at all, without Italy. A “no” vote would be the death knell of the euro.

    Nick Andrews, who writes for my friends at Gavekal, gives an excellent summary of the situation in Italy. And, it is worth every bit of your attention.

    Renzi’s Great Gamble

    By Nick Andrews and Stefano Capacci

    Prime ministers come and go in Italy—four since the financial crisis—but precious little seems to change. The latest incumbent, Matteo Renzi, has pursued structural reform more energetically than his predecessors. But for all the progress he has made, he might as well have been wading through molasses. Now, in a bid to secure a popular mandate for his restructuring program, Renzi has bet his premiership on a referendum over badly-needed constitutional reforms. It is a high stakes gamble. If Renzi wins the vote, which is due in either October or November, his proposed measures will streamline Italy’s legislative process, breaking the parliamentary gridlock which has crippled successive governments, and opening the way to far-reaching economic reforms. If he loses, Renzi has promised to step down—a pledge that has turned the referendum into a popular vote of confidence in the unelected prime minister, his Europhile policies, and—by extension—Italy’s membership of the eurozone itself.As a result, a “no” vote in October will not just precipitate the fall of Renzi’s government; it could throw Italy’s long-term membership of the eurozone into doubt, plunging the single currency area once again into crisis.
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    China's overcapacity problem mainly due to slower global demand - vice finmin

    China's industrial overcapacity problems have arisen mainly due to slower global demand, Vice Finance Minister Zhu Guangyao said on Friday ahead of the G20 summit in Hangzhou.

    Excess capacity is a global problem requiring global solutions, Zhu said, echoing a line from a communique issued by G20 finance ministers and central bankers in July.

    Excess steel capacity in particular has been a hot-button issue for many G20 countries this year, amid a slowdown in global demand that has led to a steel glut, layoffs and idled mills.

    China looks set to export a record amount of steel this year, creating frictions with its major trading partners.

    Rising steel prices have complicated Beijing's efforts to reduce capacity, but it has pledged to quicken the pace of its industrial capacity cuts, particularly in steel, after falling behind earlier in the year. It produces half the world's steel.

    In the July gathering of G20 ministers, they cautioned that subsidies and other types of support from governments or government-sponsored institutions can cause market distortions and contribute to global excess capacity.

    China is looking to use market principles to address industrial overcapacity, China's Vice Finance Minister Zhu said on Friday.
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    Wall Street's language is now being applied to the human race, and it has scary implications

    Image titleWall Street's language is now being applied to the human race, and it has scary implications.

    Viktor Shvets, a strategist at Macquarie in Hong Kong, has a big note out on declining productivity. In it, he discussed a common Wall Street metric usually applied to capital or equity to humans.

    His argument, in short, is that the "return on humans" is declining.

    He said:

    "Long-term structural decline in rate of “return on humans” due to deep structural changes in relationships between humans; humans & machines; humans, machines & society. The pressure has been intensifying over the last three decades with the peak of ‘crescendo’ just around the corner."

    The bigger picture here, according to Shvets, is that the global economy is stuck in stagnation. There is, according to Shvets, "no growth; no trade; no return to conventional business and capital market cycles for years to come."

    The heart of the problem, according to Shvets, is a lack of productivity. 

    There are two key drivers of this lack of productivity, according to the note. The first is overleverage and overcapacity in services and merchandising economies, and the second is the decline in the "return on humans" during what it describes as the third industrial revolution.

    The note said (emphasis added):

    "It takes around 50-70 years to start enjoying productivity gains.However, the 3rd Industrial Revolution is even more disruptive than the first two, as it aims to replace rather than augment humans. In the middle of Industrial Revolutions, productivity rates tend to decrease; income & wealth inequalities rise; social and geopolitical tensions escalate."

    Sound familiar? The note added:

    "Technology is entering the sharp end of the S curve; innovations are multiplying in geometric progression vs. slow take-off in 1980s-00; it is destroying the middle class (i.e. accountants; lawyers; traders; logistics; clerks; pilots; economists; editors; investment advisors) and fissuring labour force (contingent employment). Whilst new jobs are created, these tend to be lower productivity occupations (at least in the first several decades)."

    Shvets argues that this is being exacerbated by loose monetary policy, as the flow of easy money is supporting consumption and slowing the closure of excess capacity and unproductive industries.

    This is most clearly happening in China, and Shvets argues that this is now taking place around the world.

    "We have described it as nationalization of capital markets and gross capital formation but in a polite company it might be called a 'mix of proactive fiscal and monetary policies'," the note said. "In other words, state would directly intervene in supporting consumption (such as income guarantees; vouchers); sponsoring investment and assisting with overextended pension and welfare liabilities. All directly funded by Central Banks (no borrowings)."

    That has broad implications for investors.  Shvet is predicting a period similar to the 1930s following the New Deal policies, and the late 1960s and 1970s, and suggests focusing on a handful of themes in investing:

    "Replacement of humans (robotics; automation; AI)."
    "Augmentation of humans (biotech)."
    "Societal control (security; intelligence; warfare)."
    "Entertainment & skilling."
    "Environmental control."
    "Manufacturing shifts (degrading supply & value chains)."
    Companies that benefit from "from government transfer fiscal & social payments; Infrastructure investment; R&D and skilling."

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    Byron Wien: Consensus

    Two conclusions emerged from the Benchmark Lunches this year.  The first was that the world was condemned to a prolonged period of slow growth unless vigorous fiscal spending took place in the major industrialized economies. Monetary policy had been helpful in the recovery after the 2008–2009 recession, but its effectiveness as an economic stimulus had diminished. The second was that considering the uncertainties caused by margin compression, limited revenue growth, the U.S. political outlook, terrorism, Brexit and other factors, the fact that the U.S. equity market is making an all-time high is remarkable.

    Every year I organize four Friday lunches for serious investors who spend their summer weekends in eastern Long Island. These sessions have evolved over the past thirty years from a single lunch for five people to four lunches in different venues for over 100. Participants include billionaires and academics, hedge fund managers, private equity leaders, corporate chiefs and real estate titans. Leading Republican and Democrat fundraisers interact with each other. The lunches are not social affairs; I actively moderate a discussion of the key issues for almost two hours at each session.

    As you might expect, the conclusions of a group like this might serve as a contrary indicator, and sometimes they do.  But in August 2001, one participant had warned of a major terrorist attack in the United States during the following year, and last summer a number of attendees thought the appeal of Donald Trump’s message was underestimated and he had a good chance to be the Republican nominee. In any case, those who came to the sessions this year were sufficiently confused that they listened carefully in search of an insight that would help them find clarity in the outlook.

    There were three major narratives threaded through the four lunches. The first was how important a factor populism was in the United Kingdom referendum that resulted in the decision to “leave” the European Union.  The movement also played a significant role in Donald Trump’s ascendency to the Republican nomination and Bernie Sanders’ surprisingly strong showing in the Democratic primaries. The second was low world productivity, which improved at 1.8% in the 1964–2014 period and was expected to increase .9% over the next fifty years, but was only up half of that recently.  In the U.S., productivity was actually down .4% in the second quarter of this year. Profit growth and standard of living increases depend on productivity improvement.  The third was “secular stagnation” caused by technology and globalization that has resulted in the slowing of the growth rate of the United States from more than 3% in the period 1945–2007 to a struggling 2% now.

    While the initial investor reaction to the Brexit vote was negative, two months later the impact appears to be largely local. The pound has declined more than 20%, asset values in the U.K. are down by 10% and the prospects for a recession in Britain have risen significantly. In Europe, the risk of contagion would appear to have diminished somewhat, although there were some recent murmurings out of Italy, but right after the U.K. referendum, Spain added seats to the establishment party. The French and German elections next year will be important. Overall, the group at the lunches believed that the slow European recovery would continue in spite of Britain’s vote to leave the EU.  One knowledgeable observer said that the impact on the world economy may be unnoticeable several years from now. It will take two years from the invocation of Article 50 of the Lisbon Treaty to implement the departure and during that period Britain will negotiate trade treaties that will soften the negative effect of leaving. Both sides will be practical; Europe has too much to lose by trying to punish the U.K. economically. The big issue is immigration. Britain will now be able to make it harder for Middle Easterners to settle and work in their country. Europe will make it harder for British citizens to travel in Europe, but there may be special visas to ease the border difficulties.

    We had an extensive discussion at all the lunches about the productivity question. Prominent executives from West Coast technology institutions were participants. Everyone knew that the productivity numbers were disappointing, but many questioned the way productivity was being measured. It was hard to believe that the smartphone with all of its new applications wasn’t adding to productivity. There were a million Uber drivers earning or supplementing their income by providing on-demand transportation; you could do your job from remote locations with great effectiveness; there was almost no information you could not retrieve instantaneously. On the downside, everyone acknowledged that millions of manufacturing jobs had been eliminated through robotics and other forms of technology. The employee attrition problem was likely to get worse as artificial intelligence becomes more prevalent as a tool in the white collar workplace, eliminating jobs in law firms, healthcare and elsewhere. Where will these displaced workers go?

    Those worried about productivity and inequality were perhaps not recognizing changes in the “quality” of life. Technology had definitely made our lives easier even if this isn’t reflected in the productivity numbers. Also, someone living in “poverty” in the United States probably has a residence, a refrigerator, television and other amenities not enjoyed by those in poverty in other countries. While this may be true, I do believe that a substantial portion of Americans go to sleep scared every night. They don’t have a job; they have one but it doesn’t cover all their bills; they have a good job but they are worried that business conditions or technology will cause them to lose it. Sanders, Trump and populism generally are products of an insecure population. They feel that their government’s policies have let them down.

    Perhaps the productivity problem is not as complicated as we make it out to be. When the economy is growing reasonably rapidly, say at 3% plus, companies are slow to hire new workers and the existing workers produce more. When the economy is growing slowly, say at 2% or less as now, even though technology enables companies to produce more with fewer workers, managers are reluctant to reduce the workforce and productivity declines.

    Adding to this problem are the impressive advances being made in healthcare and surgical procedures.  Doctors can now perform operations more effectively and more economically than ever before. The result will be that many people will live longer with a better quality of life than any previous generation. Life expectancy is increasing by several weeks a year in the U.S. When you put all of this together you have a larger aging population being supported by a diminishing number of workers who hold jobs that provide incomes that enable them to have a comfortable middle-class life. The inequality problem has grown in the last two decades and may get worse. Stronger growth would help create more well-paying jobs, but the top brackets may earn even more as prosperity improves, widening the inequality gap even further. Improving our educational system could alleviate the problem, but the progress there seems agonizingly slow. Charter schools have been providing encouraging prospects for part of the population, but on-line education had not gotten the traction everyone had hoped for. It wasn’t enough to have a student sit before a screen working on a well-conceived learning program. Teachers to provide guidance and inspiration and other students to foster an academic atmosphere were needed to enrich the experience.

    The third theme was “secular stagnation,” a term developed by Harvard professor Alvin Hansen in the 1930s, to describe the prolonged period of slow growth that he thought would follow the Great Depression. He was wrong, but the term has been resurrected by Larry Summers and others to describe the difficulties economies have when they are trying to come out of a recession in which both an economic and a financial decline occurred, as in 2008–2009. Monetary policy was the principal tool used across the world. The United States and others used selected fiscal measures as well, particularly at the beginning, but monetary policy, which requires no legislative approval, was the instrument used most extensively. In 2007 the balance sheets of the central banks of the United States, England, the European Union and Japan had total assets of $3.5 trillion; today, according to Bianco Research, the aggregate is more than $12 trillion. The slow pace of world growth is troubling when monetary policy has been so expansive. But central banks have had no incentive to stop printing it, because inflation has not followed the enormous growth in money. Milton Friedman must be rolling in his grave.

    Terrorism continues to be a threat to world financial stability and periodic incidents are unlikely to end. ISIS can be contained but probably not defeated. The Zika problem reminds us that the uncontrollable spread of infectious disease represents a lurking natural terror.  The climate change problem is real, but not immediate and it is hard to get policy makers to focus on it, despite rising temperatures and sea levels.  Only 50% of the public think this is a serious problem; 16% do not; the rest are undecided. That’s why it’s hard to get governments to act. According to some climate experts, in 200 years most major cities will be in danger, but there is not a sense of urgency that will get world leaders to deal with this problem now.

    Almost everyone agreed that the time has come for more fiscal spending on infrastructure, education, job training, research and development and other programs to improve growth and increase competitiveness. One participant knowledgeable in municipal finance pointed out that state and local governments were now amortizing more debt than they were incurring, thereby not investing enough to reduce the infrastructure problem. The companies that are doing well are the “disrupters” like Amazon, Google, Apple, Airbnb, Uber, Netflix and similar companies. The “old economy” companies will continue to face challenges from margin pressure and foreign competition.  Excessive regulation is also a problem that limits growth, as does labor union inflexibility. This may have a dampening effect on the market multiple in the long term, but it sure isn’t evident now. There was a feeling in the group that American consumers had enough “stuff” and their spending money on experiences and services rather than goods was having a negative impact on growth.

    At each lunch I ask the participants for their views on various asset categories. As the lunches proceeded and the market moved higher there were fewer bears. At the beginning, half of the group thought that the S&P 500 might be flat to down for the year by Christmas and the other half thought it would be up by 10% or more. Few saw a recession brewing before 2018. There were many bulls on gold at one lunch and almost none at another. More people expected the dollar to head toward 1.05 against the euro, but there were some dollar bears (at 1.20) as well. Conviction that oil (West Texas Intermediate) would be above $50 a barrel at year-end was high, while almost no one thought it would be below $40. There was a general feeling that interest rates were headed higher, but nobody thought the move would be large or that it would occur soon. The group slightly favored raising the minimum wage to $12. The consensus was that the current favorable but unspectacular performance of equities would continue. The U.S. was still considered the best place to invest in spite of all its problems, but there was nobody who expressed table-pounding enthusiasm about an investment idea.

    As for China, the general feeling was that the economy had picked up some strength in 2016 and the fear of a hard landing had diminished. While the non-performing debt problem was worrisome, it was not likely to bring down the whole economy and there was a sizable minority of investors willing to put money there. Chinese consumers were holding back on their spending because of a lack of government-supported healthcare and retirement programs. Some of the macro people were concerned about strained diplomatic relations between the U.S. and China. Part of this was related to disagreements about territorial rights in the South China Sea and the buildup of military bases there and part to confusion about the Trans-Pacific Partnership. India continues to be the most popular Asian investment, but it is ranked very low in terms of ease of doing business. What was surprising was the increasing interest in the emerging markets, including Argentina, Peru and the Middle East. Nobody, however, had an appetite for investing in Africa.

    In the past we could always count on the real estate people at the lunches to provide some optimism. This year their comments were more mixed. The effects of the internet on retailing are significant, having an impact not only on shopping malls, but also on urban retail rentals. Office rentals are still okay, and warehouses are doing well, but there has been some overbuilding of residential condominiums.  While apartment rentals continue to be in strong demand, rents are softer. The outlook there is good, however, because we are not building enough housing units to keep up with family formations. If interest rates rise, 3% cap rates won’t look so attractive for commercial property.

    Since this is a presidential election year a part of each session was naturally devoted to politics. A number of those attending had been major contributors to the Republican Party in the past. Some of them were supporting Donald Trump. Some were not voting for either Trump or Clinton; a few were voting for Gary Johnson, the Libertarian candidate. Many thought a Trump presidency would put the country at risk. One strong Trump supporter suggested that I not take The Donald’s statements literally. He said they were “metaphors” for what Trump believed. When he says he’ll build a wall with Mexico, he means he’ll do something about immigration. When he says he’ll prevent Muslims from entering the country, he means he’ll be very tight on entry screening. There were a few who expected Trump to be president. Most thought he had hurt his brand by running. When he entered the race more than a year ago, he thought the downside was that his brand would be enhanced whether or not he got the nomination. 

    Some said Trump might do surprisingly well in the debates because Clinton was so vulnerable. He was likely to hit her hard on her personal e-mail server, her failure to protect the Americans in Benghazi, her performance as Secretary of State, her fundraising for the Clinton Foundation while she was a cabinet officer and her relationship with her husband. Most participants believed Hillary Clinton would be the next president and that the Senate would shift to a Democratic majority by perhaps one vote. The Republicans would lose a number of House of Representatives seats as well, but would retain a majority.  Clinton would essentially continue Obama’s center-left policies but there would be no drastic changes out of Washington. That’s perhaps another reason the market has been working its way higher.

    As I reviewed my notes for the four lunches, I noted a mood of complacency. The setting was pleasant, the food good and the weather agreeable. All of the attendees had done well in their careers. Some truly frightening possibilities were looming out there, but they didn’t seem imminent. The intermediate future was likely to be like the recent past: lower but positive returns. Let’s see if that’s the way the next year plays out. 
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    PIC wants vote on Anglo American’s sales plan

    Anglo American Plc’s biggest shareholder, the Public Investment Corp., will meet with the company next week to discuss whether its plans to sell more than half of its mines including South African coal and iron-ore assets is the best option for the country.

    The PIC, which oversees the pension funds of South African government workers and owns about 14.5 percent of Anglo, wants the sale plan put to a shareholder vote because it’s concerned that selling mines after commodity prices plunged would not realize the full value of the assets, said Deon Botha, the Pretoria-based PIC’s head of corporate affairs.

    If the sale plan does go ahead, the PIC would prefer the creation of a new company from the South African assets and would want that company’s portfolio to include some of the platinum mines currently held by Anglo, Botha said in an e-mailed response to questions. The PIC doesn’t favour the sale of the assets as single mines, he said.

    Anglo is seeking to sell the assets as part of wider restructuring of the business after it spent $14 billion buying and building an iron-ore mine in Brazil that it may now dispose of because of plunging prices. The century-old firm plans to exit iron ore and coal and focus on diamonds, platinum and copper. Chief Executive Officer Mark Cutifani has repeatedly insisted that the company is not running a firesale and will rebuff offers that do not meet expectations.

    Anglo wants to cut debt to below $10 billion by the end of the year.
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    Brazil's Petrobras to pay $3.25 million to aid troubled Games

    Brazilian oil company Petroleo Brasileiro SA said on Wednesday it will spend 10.5 million reais ($3.25 million) to buy marketing rights to the financially troubled Rio de Janeiro Paralympic Games.

    The decision allows Petrobras, as the state-controlled company is known, to become an official sponsor of the event about a week before it is set to begin on Sept. 7. Petrobras joins companies such as Toyota Motor Co, BP Plc, Visa and Samsung in getting marketing benefits in exchange for financial support.

    Reuters reported on Aug. 18 that Petrobras was willing to buy marketing rights valued in the "low millions" of dollars to help the Paralympics.

    The Games, which feature athletes with physical and mental disabilities, was forced to make budget cuts as the city and state of Rio de Janeiro, mired in a major Brazilian recession, struggled to pay the 40 billion reais ($12.4 billion) price tag for the 2016 Olympics and Paralympics.

    Petrobras' money brings 205 million reais ($92 million) in extra funds Games organizers can draw on, said Mario Andrada the games communication director on a conference call on Wednesday.

    The bulk, 150 million reais, is from the City of Rio de Janeiro. The rest, 55 million reais is from Petrobras, the lottery unit of Caixa Economica Federal, a Brazilian government bank, and Apex, Brazil's Trade and Investment Promotion Agency.

    Petrobras, which is facing financial difficulties of its own and has debt of nearly $125 billion, was one of several state-owned or controlled companies asked by the government to help meet the Paralympic shortfall.

    Petrobras' money will come from its existing 98 million real sports budget for 2016.

    The sponsorship deal will allow Petrobras to run advertisements on TV, radio and social media mentioning the Games and featuring "Team Petrobras" athletes it is sponsoring for the Paralympics during the Games themselves, the company said in a statement.

    Petrobras will also be able to display its logo at Paralympic venues, set up a stand in the Olympic Park and have its name mentioned in an opening ceremony video, rights normally reserved for sponsors that signed up long ago.

    Without new funds, the Rio 2016 organizing committee would not be able to pay national Paralympic bodies for travel, food and uniforms, preventing some countries from competing, a judge, who overturned an injunction prohibiting the use of new public money for the Games, said earlier in August.
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    Brazil's Rousseff ousted by Senate, Temer sworn in

    Brazil's Senate ousted President Dilma Rousseff on Wednesday, ending an impeachment process that polarized Latin America's biggest country amid a massive corruption scandal and brutal economic crisis.

    Senators voted 61-20 to convict the country's first female president for illegally using money from state banks to bankroll public spending, marking the end of 13 years of leftist Workers Party rule.

    Rousseff's opponents hailed her removal as paving the way for a change of fortunes for Brazil. Her conservative successor, Michel Temer, the former vice president who has run Brazil since her suspension in May, inherits a bitterly divided nation with voters in no mood for the austerity measures needed to heal public finances.

    In his first televised address to the nation after being sworn in as president through 2018, Temer called on Brazilians to unite behind him in working to rescue the economy from a fiscal crisis and over 11 percent unemployment.

    "This moment is one of hope and recovery of confidence in Brazil. Uncertainty has ended," Temer said in the speech broadcast after his departure for a G20 summit in China.

    Until just a few years ago, Brazil was booming economically and its status was rising on the global stage.

    The country then slid into its deepest recession in decades, and a graft scandal at state oil company Petrobras tarnished Rousseff's coalition. Millions took to the streets this year to demand her removal, less than two years after she was re-elected.

    A string of corruption scandals, led by the Petrobras scheme, has engulfed vast swaths of Brazil’s political class and business elites over the past 2-1/2 years.

    Temer will likely face tough opposition from the Workers Party both on the streets and in Congress to his agenda of privatizations, reforms to Brazil's generous pension and welfare laws and a public spending ceiling he hopes lawmakers will pass this year.

    For the third straight day, pro-Rousseff demonstrators in Sao Paulo, Brazil's largest city, clashed with riot police, who used tear gas to clear the streets.

    Defiant to the end, Rousseff, a former leftist guerrilla who was tortured and jailed under military dictatorship in 1970, vowed to fight on in defense of Brazil's workers.

    Standing outside the presidential residence flanked by supporters, she insisted on her innocence and said her removal was a "parliamentary coup" backed by the economic elite that would roll back social programs that lifted millions of Brazilians out of poverty over the last decade.

    "They think they have beaten us but they are mistaken," Rousseff said, adding that she would appeal the decision using every legal means. "At this time, I will not say goodbye to you. I am certain I can say 'See you soon'."

    The end of the Workers Party's long grip on power sparked angry reactions from leftist governments across the region.

    Venezuela, Bolivia and Ecuador withdrew their ambassadors, and Brazil responded by recalling its envoys for consultations. Cuba's Communist government branded Rousseff's ouster part of an "imperialist" offensive against progressive governments in Latin America.

    The U.S. State Department voiced confidence that strong bilateral relations with Brazil would continue, adding the country's democratic institutions had acted within the constitutional framework.

    In an unexpected move, Brazil's Senate voted 42-36 to allow Rousseff to retain the right to hold public office - a break with Brazilian law that specifies a dismissed president should be barred from holding any government job for eight years.

    The move appeared to demonstrate unease among some senators, notably within Temer's own fractious Brazilian Democratic Movement Party (PMDB), over whether a budgetary sleight of hand that is common in Brazil was truly an impeachable offense.

    Visibly annoyed in televised remarks at his first cabinet meeting, Temer said he would not tolerate divisions in his coalition as he quickly tried to quash the first sign of splits that could grow as allies press him to deliver on austerity.

    Aecio Neves, leader of the center-right PSDB party that backs Temer, said the divisions had caused acute concern among his allies, but he denied there was any prospect of a split.

    "Brazil has given itself a new chance, to look to the future and construct an agenda for reform in line with the economic crisis," said Neves, who narrowly lost the 2014 election to Rousseff.


    Motorists honked car horns in the Brazilian capital to mark the removal of a president whose popularity had dwindled to single figures since winning re-election in 2014. In Brazil's largest city, Sao Paulo, fireworks exploded in celebration after the vote.

    Temer has vowed to boost an economy that has shrunk for six consecutive quarters and implement austerity measures to plug a record budget deficit, which cost Brazil its investment-grade credit rating last year.

    An upturn in corporate investment in the second quarter provided a glimmer of economic hope for Temer and economists expect a return to growth before the end of the year.

    Brazil's stocks and real currency slightly accelerated gains following the Senate's decision but the reaction was muted as most traders were already counting on the result. Market analysts said investors would now be looking to Temer to quickly deliver on his promises of reform, notably a constitutional change to limit spending increases in coming years.

    "What changes now, with Temer definitively confirmed, is that the pressure will increase on him to deliver," said Newton Rose, chief economist at Sulamerica Investimentos. "The honeymoon is over, and the market wants to know now how capable he is to govern and put the government accounts in order."

    Temer's government risks entanglement in the ongoing investigation into kickbacks at Petrobras, which ensnared dozens of politicians in Rousseff's coalition. Three of Temer’s ministers have already had to step down due to links to the scandal, which could hobble efforts to restore confidence.

    Rousseff became the first Brazilian leader dismissed from office since 1992, when Fernando Collor de Mello resigned before a final vote in his impeachment trial for corruption.
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    China factories unexpectedly expand in August, suggests economy steadying

    Activity in China's manufacturing sector unexpectedly expanded at its fastest pace in nearly two years in August as construction boomed, suggesting the economy is steadying in response to stronger government spending.

    The best factory reading since late 2014 may reinforce growing views that China's central bank will be in no hurry to cut interest rates or banks' reserve requirements, for fear of adding to high debt levels or fuelling asset bubbles.

    But the official factory survey also highlighted growing lopsidedness in the world's second-largest economy, with larger firms expanding, likely thanks to Beijing's largesse, while smaller manufacturers continued to struggle.

    "Our view is that the People's Bank of China doesn't really have any reason to ease until we start to see clear signs of another downturn," Julian Evans-Pritchard, China Economist at Capital Economics said, saying it is concerned such action could aggravate economic imbalances and credit risks.

    "I think eventually they'll come under pressure to ease further, but given the economy is still stable, I don't think it'll happen this year," he said, predicting the factory strength could last through the end of the year.

    The official Purchasing Managers' Index (PMI) rose to 50.4 in August from 49.9 in July, and above the 50-point mark that separates growth from contraction on a monthly basis.

    Analysts had expected a reading of 49.9 for the second month in a row, and some thought there would be added weakness after Beijing ordered many plants around Hangzhou to close to clear the air ahead of China's first summit of G20 leaders Sept 4-5.

    Yet factory output growth accelerated, with the index rising to 52.6, the highest this year, from 52.1 in July. Total new orders expanded sharply, though export orders continued to shrink, albeit at a more modest pace.

    "While many factories have been shut down before the G20 summit, overall manufacturing activities are still elevated, reflecting improving growth momentum," said Zhou Hao, senior economist at Commerzbank AG in Singapore.

    Buoyed by a government infrastructure building spree and a housing boom, Shanghai futures prices for steel bars used in construction have surged about 43 percent so far this year, coaxing steel mills to keep output at high levels even as Beijing tries to cut overcapacity in the sector.

    But analysts are divided over how much domestic demand is actually improving, with China's steel exports on track for record highs, and prolonged weakness in imports.

    In another sign that business conditions remain tough, factories continued to cut staff, though at a slightly slower pace than in July.

    China has vowed to quicken the pace of cutting excess steel and coal capacity after falling behind this year, raising the risk of more layoffs and debt defaults in coming months, which could further strain the banking system.


    The divergence of performance between smaller and larger enterprises is also a concern if struggling smaller firms have more trouble servicing their debt burdens, some analysts said, noting recently introduced debt-for-equity swaps are likely to help bloated state companies more than private ones.

    Smaller firms showed a sharp contraction in activity in August, while one for larger companies showed a solid expansion, suggesting state-owned enterprises, though often inefficient, remain the backbone sustaining China's economic growth.

    "Fiscal expansion will likely need to continue at a strong pace, to ensure stable growth in the coming months," HSBC economists said in a note.

    "We still see challenges in the second half, from further moderation in the housing sector to uncertainties about private investment. Therefore despite some upside surprise, withdrawal of policy stimulus at this stage would be highly premature."

    A private PMI survey focusing more on small and mid-sized firms reinforced the picture of a two-track economy. The survey suggested that activity at smaller manufacturers stagnated in August as output and new orders both grew at a softer pace.

    The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) slipped to 50.0, the no-change mark which separates expansion of activity from contraction on a monthly basis.

    An official survey on the services sector showed the sector continued to expand at a rapid pace, though slightly more modestly than in July.

    China is counting on growth in services to offset persistent weakness in manufacturing and exports that dragged economic growth to a 25-year low.
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    Commodities Break?

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    China's stimulus is inventory formation???????????????????

    Baoshan Iron & Steel , China's top listed steelmaker, expects the country's apparent consumption of crude steel to drop to 680 million tonnes this year from 698 million in 2015, Dai Zhihao, its general manager, told an online briefing.

    The forecast from Baoshan Iron & Steel, or Baosteel, comes at a time when China, the world's top producer of the alloy, is stepping up efforts to slash a huge overcapacity that has boosted cheap exports amid slowing demand at home.

    ~Baoshan, yesterday online briefing.
    China’s crude steel production for July 2016 was 66.8 Mt, an increase of 2.6% compared to July 2015. 
    ~World Steel Association 22.08.2016

    Attached Files
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    "You beleive in a god who plays dice, and I in complete order and sanity"

    However, as the Church and the KGB give way to Google and Facebook, humanism loses its practical advantages. For we are now at the confluence of two scientific tidal waves. On the one hand, biologists are deciphering the mysteries of the human body and, in particular, of the brain and of human feelings. At the same time, computer scientists are giving us unprecedented data-processing power. When you put the two together, you get external systems that can monitor and understand my feelings much better than I can. Once Big Data systems know me better than I know myself, authority will shift from humans to algorithms. Big Data could then empower Big Brother.

    This has already happened in the field of medicine. The most important medical decisions in your life are increasingly based not on your feelings of illness or wellness, or even on the informed predictions of your doctor — but on the calculations of computers who know you better than you know yourself. A recent example of this process is the case of the actress Angelina Jolie. In 2013, Jolie took a genetic test that proved she was carrying a dangerous mutation of the BRCA1 gene. According to statistical databases, women carrying this mutation have an 87 per cent probability of developing breast cancer. Although at the time Jolie did not have cancer, she decided to pre-empt the disease and undergo a double mastectomy. She didn’t feel ill but she wisely decided to listen to the computer algorithms. “You may not feel anything is wrong,” said the algorithms, “but there is a time bomb ticking in your DNA. Do something about it — now!”

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    Indo-Russia Summit expected to fast track mining, hydrocarbon collaboration projects

    The forthcoming Indo-Russia Summit in October is expected to lay down the framework for scaling up bi-lateral engagements in the mining, energy and hydrocarbon sectors, wherein mega marquee investments have already been put on the anvil.

    While the bilateral agreements up for discussion and likely joint declarations are under preparation, back channel diplomatic talks have already decided to focus on increasing Indo-Russia bilateral trade to about $30-billion a year over the next 10 years, up from $10-billion, largely riding on minerals and hydrocarbon investments and trade, an official said.

    It was pointed out that the preponderance of some of recent investment proposals between the two countries was such that the Indo-Russian Summit was brought forward to October even though the yearly event had been scheduled for December.

    The officials added that, with Russian President Vladimir Putin already in Goa in October to attend a meeting ofBrazil, Russia, India, China and South Africa bloc of nations, holding the Indo-Russia Summit straight thereafter was only logical.

    Officials of both countries have already met earlier this month to draw up background papers of the summit and to fast-track Indian investments in Russia. Gas, coal, iron-ore,petrochemicals will be high on the agenda of talks between the Putin and Indian Prime Minister Narendra Modi.

    India’s oil and gas exploration and production major, ONGC Limited, has already planned $5-billion of investments inRussia, with media reports quoting India’s Commerce Minister as saying that total Indian investments in Russia’soil and gas sector could touch $15-billion in the next five years.

    Reflecting this, ONGC Videsh, the overseas arm of ONGC Limited, has already submitted an expression of interest in picking up a 49% equity stake in Russian oil producer’sRosneft Oil Company’s Tagul field in a deal that has been estimated at $1-billion.

    Another Indian E&P company, Oil India Limited, is also in process of raising funds, estimated at $500-million, to part fund the acquisition of stake in Rosneft’s oil and gas fields in east Siberia.

    At a working group meeting of Russian and Indian officials, the Indian side offered joint development of coal mines inRussia. Officials said that both sides have agreed to exchange information and to identify coal projects suitable for joint development.

    It was pointed out that as a fallout of downturn in commodity prices, the Russian coal sector was facing drop in investments and was estimated to be a low of $1-billion at present. Against such a backdrop, since any Indian foray into Russian coal was likely to be spearheaded by government-owned and -operated Coal India Limited, bi-lateral sovereign guarantees worked out at the forthcoming summit will  fast track the coal sector collaborations.
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    Oil and Gas

    Putin Pushes for Oil Freeze Deal With OPEC, Exemption for Iran

    Putin Pushes for Oil Freeze Deal With OPEC, Exemption for Iran

    Vladimir Putin said he’d like OPEC and Russia, producers of half of the world’s oil, to reach a deal to freeze supply and expects the dispute over Iran’s participation can be resolved.

    “From the viewpoint of economic sense and logic, then it would be correct to find some sort of compromise,” Putin said in an interview in Vladivostok. “I am confident that everyone understands that. We believe that this is the right decision for world energy.”

    While talks collapsed in April over whether Iran should join in, countries now recognize the nation -- freed just months ago from international sanctions -- should be allowed to continue raising production, Putin said. The Russian president said he may recommend completing the plan when he meets with Saudi Deputy Crown Prince Mohammed bin Salman at the Group of 20 summit in China next week.

    Oil rallied more than 10 percent last month on speculation the Organization of Petroleum Exporting Countries will reach an accord with non-members at an informal meeting in Algiers this month. The prolonged slump in crude prices -- stuck at half the levels seen two years ago -- is battering the economies of producer nations, giving oil-market rivals cause to cooperate.

    “I would very much like to hope that every participant of this market that’s interested in maintaining stable and fair global energy prices will in the end make the necessary decision,” said Putin. Prince bin Salman “is a very reliable partner with whom you can reach agreements, and can be certain that those agreements will be honored,” he said.

    Russian Energy Minister Alexander Novak had been a lead player in secret talks with OPEC producers at the beginning of the year, which culminated in a meeting in Doha in mid-April. The agreement collapsed just hours before it was due to be signed when Prince bin Salman insisted on Iran’s participation, leaving Novak diplomatically exposed.
    “Our Saudi partners at the last moment changed their view,” said Putin. “We didn’t reject the idea of freezing output. Our position hasn’t changed.”
    Until now, Russia had sounded wary of giving the proposal another chance. Novak said yesterday that no accord is necessary given current price levels, according to a report by RIA Novosti. Brent futures traded at $45.60 a barrel in London at 8:44 a.m. local time.

    The world’s biggest energy exporter, Russia is reliant on oil and natural gas for about 40 percent of its budget revenues and battling the longest recession in two decades as crude prices remain below $50 a barrel. Burdened by social spending and military commitments, the government is seeking ways to ease the budgetary pain before parliamentary elections later this year and a presidential vote in 2018.

    OPEC nations are scheduled to hold informal talks on Sept. 27 in Algiers, on the sidelines of an industry conference, the International Energy Forum. Novak is due to attend the conference.

    Putin said that oil producers recognize that Iran, which has mostly restored the output halted during three years of trade restrictions, deserves to complete its return to world markets.

    “Iran is starting from a very low position, connected with the well-known sanctions in relation to this country,” Putin said. “It would be unfair to leave it on this sanctioned level.”

    Saudi Arabia, whose rivalry with Iran in regional conflicts from Syria to Yemen remains unabated, has given only cautious support to renewed negotiations. Energy Minister Khalid Al-Falih said Aug. 26 that while a freeze would be “positive” for market sentiment, no “intervention of significance” is required as global markets are rebalancing by themselves.

    Even if a deal is concluded, analysts from Commerzbank AG to Citigroup Inc. warn that simply capping output at current levels -- rather than cutting production -- would do little to tackle the persisting surplus in global markets. Besides, most of the countries involved are already producing as much as they can, making a pledge to keep output flat irrelevant, they say.

    Other OPEC members, from Iran and Iraq to Libya and Nigeria, may still press on with plans to restore lost output or add new capacity, undermining the point of a “freeze,” the banks said. While supportive of a limit, Putin’s remarks indicated that Russian production has the potential to increase.

    “The oil companies, they are continuing to invest,” he said. “Our oil output is increasing.”

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    First US Gulf Coast ethane cargo departs for Europe

    The first ethane cargo from the US Gulf Coast has departed from Enterprise's Morgan's Point, Texas, terminal, two weeks after loading began.

    The JS Ineos Intrepid -- which carried the first US waterborne ethane cargo from Sunoco's Marcus Hook, Pennsylvania,  -- Wednesday left for Rafnes, Norway, and expected to arrive on September 14, according to cFlow, Platts tradeflow software.

    US Coast Guard officials had confirmed the ethane transfer began late on August 18.

    The 260,000-barrel Intrepid is one of five ethane carriers in service globally and is one of Ineos' four ethane carriers.

    Enterprise's 200,000 b/d Morgan's Point terminal began initial flaring in July -- more than two years after the company announced plans to construct the fully refrigerated ethane export facility. The terminal is supported by long-term contracts including those with Ineos, Braskem, Reliance Industries and Sabic.

    Ineos and Enterprise did not immediately respond to requests for comment.

    Non-LST ethane, reflecting prices for September barrels at the Enterprise terminal in Mont Belvieu, was trading at 17.75 cents/gal, down 62.5 points from Wednesday assessment.

    Ethane prices rose as high as 24.875 cents/gal in June, incentivizing recovery from the natural gas stream. The increased supply then pressured prices lower through August.
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    LNG trading meets eBay as startup launches online auction site

    A group of liquefied natural gas industry executives is launching a digital platform that will allow LNG traders to buy and sell spot cargoes via online auctions.

    The Global LNG Exchange, or GLX, will begin testing its platform in October and plans to handle live deals starting in the first quarter, Chief Executive Officer Damien Criddle said. Criddle hopes the site can replace the current system of buy-and-sell tenders that are issued and bid on through emails, instant messages and phone calls, which dominate the current spot and short-term market.

    The launch comes as spot LNG trading expands and new liquefaction plants increase global supplies and spur some traditional buyers to resell cargoes they don’t need. Spot and short-term deals accounted for 28 percent of the global LNG trade last year, according to the International Group of LNG Importers, up from 16 percent a decade prior.

    “Right now you have to find information on the market through rumors and various angles,” said Criddle, a former Royal Dutch Shell attorney. “When you see supply and demand on a screen, that will lead to price discovery, which will lead to a more transparent market, which will lead to more liquidity.”

    Anonymous Bids

    The platform will allow members to post offers to sell or requests to buy cargoes, and then let other participants anonymously bid on proposals. When the auction is finished, the winning bidder and the auction poster will be connected so long as the bid meets a reserve price, and the two parties will be able to close the deal.

    “This is exactly the right time to be doing this kind of innovation,” said Jonathan Stern, chairman of the gas research program at the Oxford Institute for Energy Studies, who has been briefed by GLX executives. “We still have not seen the big wave of new LNG projects arrive, and when we do we’re going to see a lot of cargoes looking for homes.”

    GLX is in discussions with several LNG buyers and sellers to build a roster of members for the launch, although it hasn’t announced any participants yet, Criddle said. The exchange plans to charge an annual membership fee as well as a transaction fee for closed deals, Criddle said. The company is betting that the benefits of the platform, such as faster execution and the possibility of better prices, will make it worthwhile for market participants.

    ‘Right Price’

    “Getting the right price, in our view, is one of the key value drivers for the platform,” he said.

    Criddle said GLX’s management team includes former Woodside Petroleum board member Rob Cole and former BP executive Phil Home. The platform has been funded so far by the management and private investors from Australia. The company plans to operate out of Singapore, while its parent will remain headquartered in Perth.

    If successful, the data trove of completed trades could lead to price indexing for different locations around the world, Criddle said. Those indexes could then be used as the basis for trading of futures contracts and derivatives, possibly through other exchanges, he said. Other platforms, including Singapore Exchange, offer LNG futures contracts based on price assessments or pricing-agency reports, but none have any open interest at the moment.
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    Shell Becomes First Non-Bank to Join Mexico’s Oil Hedge

    Royal Dutch Shell Plc participated in protecting Mexico against low crude prices in 2017, according to four people with knowledge of the matter, the first time an oil company has taken part in the world’s largest commodities hedging program.

    The Mexican government spent $1 billion buying put options -- contracts that give it the right to sell at a predetermined price -- to lock in an average price for its export basket of $38 a barrel for next year. Shell’s trading unit was one of the seven counterparties to the Mexican government, the people said, asking not to be identified because the information is private.

    Shell’s involvement is the first known participation of an oil trader in the hedge since Mexico started to lock in prices regularly 15 years ago. It shows that the retreat of some banks from commodity trading because of increased post-crisis regulation is opening up space for non-financial players.

    Alberto Torres, head of public credit at Mexico’s finance ministry, declined to name any of the counterparties. But in an interview, he said Mexico looks for partners "that are solid, who can manage their own risk in an efficient way, who are in the market each day. In recent years, the number of participating counterparties has grown."

    Shell declined to comment. Europe’s largest oil company, Shell describes its trading arm on its website as "one of the largest and most experienced energy merchants in the world." The company says it trades the equivalent of 13 million barrels of oil per day -- more than double the size of the world’s largest independent oil trader, Vitol Group.

    Dodd-Frank Act

    Shell trades so many derivatives the company is one of the only three non-financial firms registered as a swap dealer under the U.S. Dodd-Frank Act. Nearly 100 financial firms are also swap dealers, including all the major Wall Street banks. The other two non-financial firms are rival oil company BP Plc, which also operates a large in-house trading unit, and agricultural behemoth Cargill Inc.  

    Mexico has traditionally used banks including JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, Barclays Plc, Citigroup Inc. and BNP Paribas SA for its annual hedge, according to government documents. The program is the largest sovereign petroleum hedge, and often roils the markets.

    Mexico bought the put options for 2017 between May 13 and Aug. 25 covering oil exports worth 250 million barrels, the Mexican government said Aug. 29.

    Budget Fund

    On top of the put options at $38 a barrel for the Mexican oil basket -- which equates to about $45 a barrel for West Texas Intermediate -- Mexico has set aside nearly $1 billion from its budget stabilization fund to guarantee the government will effectively receive $42 a barrel in oil revenues next year.

    The country’s budget for 2017 is based precisely on $42 a barrel. Mexico’s oil mix fell 1.4 percent to $38.96 a barrel at 2:37 p.m. in Mexico City. Last year, the country had locked in 2016 prices at $49 a barrel.

    The Latin American country has received handsome payouts from its oil guarantees, earning a record $6.4 billion in 2015 and $5 billion in 2009. If oil prices remain at current levels, Mexico is set to earn about $3 billion from the 2016 hedge.

    Despite Mexico’s hedging success, few other commodity-rich countries have followed suit. Ecuador hedged oil sales in 1993, but losses triggered a political storm and the nation never tried again. More recently, oil importers Morocco, Jamaica and Uruguay have bought protection against rising energy prices, but their deals had been relatively small.
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    Argentina reworks LNG import deals as mild weather hits demand

    Argentina is diverting or cancelling incoming shipments of liquefied natural gas (LNG) after mild late winter temperatures curbed fuel demand and forced state-run buyer Enarsa to rework some deals.

    South America's biggest LNG importer launched back-to-back tenders in June and July after a cold start to winter, lining up dozens of cargoes at bargain prices as global output continued to outpace demand.

    But a milder streak in August has undercut demand for heating fuel and left state-run LNG importer Enarsa juggling a supply overhang, the company and trading sources said.

    Enarsa said it had delayed three cargoes until next year because of one of the warmest Augusts in a decade.

    Stubbornly high stock levels at Argentina's two import terminals, Bahia Blanca and Escobar, also mean there is no storage for more imports.

    LNG trade sources who conduct business with Argentina say at least four cargoes destined for Bahia Blanca have been canceled or rescheduled.

    "The Bahia cargoes are being targeted for cancellation because it is more difficult to divert Escobar shipments," one source said.

    Argentina's LNG suppliers, which include major oil firms and leading trading houses BP, Gunvor and Royal Dutch Shell, can levy penalty fees of up to $5 million for cancellations, one trading source said.

    Fernando Pazos, head of institutional relations and communications for Enarsa, denied paying penalties. He said Enarsa sometimes pays a stop fee when a ship is outside the port but cannot enter due to weather conditions.

    LNG traders dealing with Argentina demand payment upfront due to concerns about the level of U.S. dollar reserves in the country after they were run down by the former president.

    Seven gas tankers are now crowded around Argentina's import terminals, live ship-tracking data shows.

    One of the Bahia Blanca-bound tankers already diverted, the Methane Alison Victoria chartered by Shell, discharged at Jordan's port of Aqaba on Wednesday, according to Thomson Reuters shipping data.

    Problems in the take up of LNG stretch beyond Argentina.

    "LNG imports into Latin America in the first half of the year are down by three million tonnes, or 28 percent lower than volumes received over the same period last year," independent LNG consultant Andy Flower said.

    In Mexico, cheaper pipeline imports from the United States pushed out LNG, while Brazil cut imports by 60 percent as heavy rainfall replenished hydroelectric reserves, he said.

    In Argentina, sea-borne LNG imports declined by 15 percent in the same period.

    Attached Files
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    U.S. onshore oil production has stopped declining; growth is coming from the Permian Basin

    Looking only at oil production in the Lower 48 states (excl. Gulf of Mexico), Rystad Energy observes 120 kbbl/d higher output in August 2016 compared to EIA's latest August 2016 STEO. Nearly 70 rigs in the Permian Basin have returned to operation since early May and current horizontal drilling activity in West Texas and New Mexico is comparable to the levels observed in 2Q-4Q 2015. Additional completion works on the drilled uncompleted (DUC) wells have also been initiated and new volumes coming from the Permian Basin are sufficient to balance the decline from more mature liquid plays in September-October 2016.

    Contrary to the recovery in the Permian Basin, major operators in Bakken and Eagle Ford have not yet accelerated fracking activity and several companies have called for a WTI price level of 55-60 USD/bbl in order to do so. However, as base production in these plays gets more mature, new activity in the Permian Basin will not only balance the decelerating decline in other plays, but will restore the growth trend in U.S. onshore oil production in November and December 2016.

    The modest decline pace of U.S. onshore oil production from June to August was masked by the summer maintenance on major Alaska fields and several disruptions in the Gulf of Mexico (including unplanned outages in July along with massive shut-ins due to the Tropical Depression Nine threat in late August). These outages caused more severe decline in the total U.S. oil production than implied by the natural decline in the Lower 48 states.

    Rystad Energy foresees a continuation of upward revisions to EIA's short-term U.S. oil production outlook in the upcoming months, which could slow down oil price recovery despite the counter-seasonal global stock draws in 2Q-3Q 2016.

    An upward revision of 200-240 kbbl/d has already been observed for 4Q16 Lower 48 oil production in the August 2016 STEO. However, we still observe that the current exit-2016 projections for Lower 48 oil production are about 450 kbbl/d below Rystad Energy's base case scenario. Even with zero shale well completions between September and December 2016, Rystad Energy forecasts that Lower 48 oil production exits 2016 at 6.07 mmbbl/d, which is just 90 kbbl/d below the forecast observed in the current STEO. Thus, further STEO upward revisions in the coming months are inevitable and the market should take notice. Rystad Energy expects the revisions to happen gradually over the next five to six months as more official production data becomes available and it becomes evident that the trend in oil production has already reverted.
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    Eni successfully drilled and tested Zohr 5x

    Eni informs that Zohr 5x, the fifth well on Zohr structure has been successfully drilled to the final TD of 14,271 ft (4,350 m). The Zohr 5x well is located in 1,538 m of water depth and 12 Km south west from the discovery well Zohr 1x.

    The well proved the presence of a carbonatic reservoir and gas accumulation also in the South-Western part of the Zohr mega-structure encountering about 590 ft (180 metres) of continuous hydrocarbon column in the carbonate sequence with excellent reservoir characteristics. The results are confirming the potential of the Zohr Field at 30 Tcf OGIP.

    The well was also successfully tested opening 90 m of reservoir section to production. The data collected during the test confirmed the great deliverability of the Zohr reservoir, in line with the Zohr 2 well test, producing more than 50 mmscfd limited only by the constraints of the drilling ship production facilities.

    In the production configuration, the well is estimated to deliver up to 250 mmscf per day.

    The drilling campaign on Zohr will continue in 2016 with the drilling of the sixth well that will ensure the accelerated start up production rate of 1 bcf per day. The steady progress of the project execution is confirming the schedule expected to reach the first gas by the end of 2017.

    Eni, through its subsidiary IEOC Production B.V., holds a 100% stake in the Shorouk Block. Petrobel is operating the activities on behalf of the Petroshorouk company, an equal joint venture between IEOC and the state company Egyptian Natural Gas Holding Company (EGAS)
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    The Golden Age of Fracked Natural Gas has Arrived

    There is precisely one main reason why the United States produces 40% less carbon dioxide now than it did five years ago.

    Must be the onslaught of solar, right? Nope.

    How about wind. Yeah, wind power is coming on strong–I see those ugly windmills all over the place now. Must be wind power, right? Nope.

    Hydro? Nope. Biomass? Nope.

    There is only one main reason why we pump less CO2 into the atmosphere (if you care about that sort of thing), and it’s this: because fracked shale gas has replaced coal in electric generating plants.

    You would think environmentalists would celebrate. They don’t and they won’t, pointing out their uber-hypocrisy…
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    Norway's Goliat oilfield shut at least until Sept 5 -ENI spokesman

    Production at energy firm ENI's Arctic Goliat oilfield will remain shut at least until Sept. 5, a spokesman for the company said on Thursday.

    Output from the field has been shut since Aug 26 when the Goliat rig was hit by a power failure.

    Electricity was later restored, but the company is still investigating the incident. At the earliest, production will resume when the firm has presented a report to Norway's Petroleum Safety Authority, ENI spokesman Andreas Wulff said.

    "Deadline is Monday (Sept. 5) to deliver (the) investigation," he added.
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    Iraq, Kurdistan jointly exporting Kirkuk oil again: trading sources

    Iraqi state oil firm Somo and Iraq's semi-autonomous region of Kurdistan have begun jointly exporting crude from the giant Kirkuk oil field again after cutting a new preliminary deal on revenue-sharing, trading sources said on Thursday.

    The Kirkuk flows, usually amounting to 150,000 barrels per day, have been suspended since March amid a dispute over revenue-sharing between the central government in Baghdad and Erbil.

    Before March, the Kirkuk flows were unilaterally handled by Kurdistan while Somo has not seen a cargo being exported on its behalf from the Turkish port of Ceyhan since the middle of 2015.
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    Spain's Repsol, Criteria exploring sale of around 20 pct in Gas Natural

    Spanish oil firm Repsol and Criteria Caixa, an industrial holding company that owns Caixabank, said on Thursday they were in talks with various investors to each sell around 10 percent of Gas Natural .

    Two sources familiar with the matter told Reuters earlier that U.S. investment fund Global Infrastructure Partners (GIP) is in preliminary discussions with Repsol and Criteria to buy part of Gas Natural.

    Repsol and Criteria did not confirm which investors they were talking to. However, they said in separate statements to the stock market regulator that they were exploring the sale of a combined 20 percent in the gas company.

    A 20 percent stake of Gas Natural has a current market value of around 3.8 billion euros ($4.23 billion).

    GIP said it would not comment on speculation or market rumours. Gas Natural declined to comment.

    Criteria - the holding company of Caixabank and which has stakes in other Spanish companies such as infrastructure group Abertis - holds 34 percent of Gas Natural while Repsol has 30 percent of the gas company.

    "Repsol and Criteria are in contact with various investors," the oil company said. "This analysis is in a preliminary phase, and no decision has yet been taken."

    Repsol has sold off various assets in recent months, such as an offshore wind power business in Britain, as it looks to trim its debt.

    Criteria and its banking unit, meanwhile, are both under pressure to boost their solvency ratios in a more demanding global regulatory environment.

    In last month's Europe-wide stress test, both Criteria and Caixabank were among the weakest links in the health checks.

    Bloomberg earlier reported that the sale could value the Gas Natural stake at about 4 billion euros, citing sources familiar with the matter.

    Analysts at Banco Sabadell said that this price tag would be positive for the gas company, though they added this initial stake selldown raised the possibility of further disposals, which could weigh on the shares.

    "This disinvestment would be the official declaration by Repsol and Criteria that their remaining stakes (in Gas Natural) are not strategic for either of them," the analysts said.
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    Russia Says Oil Output Freeze Not Needed With Price Near $50

    Russia sees no need for talks with other major oil exporters on freezing output with prices at around $50 a barrel, according to the Energy Ministry in Moscow.

    If prices fall, then Russia will consider resuming discussions, the ministry’s press service cited Energy Minister Alexander Novak as saying.

    The comments from Russia’s government come before OPEC nations and other oil producers meet for talks in Algiers later this month. Russia, the world’s biggest energy exporter, was a key negotiator in talks on an oil-output freeze with Saudi Arabia and other OPEC producers in April. That proposal failed after Iran declined to attend the meeting in Doha and Saudi Arabia refused to proceed with the deal without the participation of its Persian Gulf rival.

    Iran, which plans to keep boosting crude output until it regains its pre-sanctions share of OPEC production, has said it will take part in the Algiers talks. A cap on production would be positive for the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said in August, while ruling out a cut to output. Speculation that the meeting may result in action to stabilize the market helped oil post the biggest gain in four months in August.

    Algiers Meeting

    Novak plans to attend the International Energy Forum -- 73 countries accounting for about 90 percent of the global supply and demand for oil and natural gas -- that starts a three-day meeting in the Algerian capital on Sept. 26. His ministry hasn’t commented on whether Novak will participate in the informal talks with Saudi Arabia and other OPEC nations.

    While OPEC export revenues are seen falling to a 12-year low this year, crude suppliers want a deal to manage output, the organization’s Secretary General Mohammed Barkindo told Al-Hayat newspaper last week.

    The comments by Novak were reported earlier by RIA Novosti.

    Right after the failed Doha deal, Russia said it may boost crude output to a new post-Soviet record of almost 11 million barrels a day this year. Production may climb further to 11.65 million barrels over the next three years, exceeding the record set almost 30 years ago, as low-cost fields allow producers to defy the slump in prices, Goldman Sachs Group Inc. analysts said in July.

    The Russian government’s preliminary target for next year was set at 10.5 million to 11 million, depending on the market. The state is now weighing a new tax increase for its oil industry in 2017 with a decision possible in the fall as the nation’s economy struggles with its longest recession in two decades.
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    Saudi Aramco, Japan to expand Okinawa crude storage deal-CEO

    Saudi Aramco and the Japanese government are set to agree on a roughly 2 million barrel expansion of crude storage capacity in Okinawa, used by the state-run firm to store oil, Saudi Aramco CEO Amin Nasser said on Thursday.

    Under an agreement with Tokyo, Saudi Aramco and Abu Dhabi National Oil Co (ADNOC) each store up to 1 million kilolitres (6.3 million barrels) of crude oil in Okinawa, southwest of mainland Japan.

    In return for providing free storage space, Japan gets a priority claim on the stockpiles in case of an emergency.

    "It would be in the best interest for Saudi Aramco and Japan to increase the capacity," Nasser told reporters in Tokyo. "We are looking at a couple of million (barrels) more than what we have now."

    A Japanese trade ministry official said no agreement had yet been reached for additional storage, although a source familiar with the matter said the deal was set to signed in October.

    Nasser is accompanying Saudi Arabia's powerful Deputy Crown Prince Mohammed bin Salman on his visit to Japan this week, along with Saudi Arabia's Energy Minister Khalid al-Falih and other ministers.

    Japan treats the crude oil stored at Okinawa as quasi-government oil reserves, counting half of the barrels stored by Aramco and ADNOC as national crude reserves.

    Saudi Aramco has stored crude in Okinawa since February 2011, and has used the facility to supply oil to China, Japan and South Korea among others.

    Also on Thursday, Aramco signed memorandums of understanding on business cooperation in Tokyo with Japanese companies including three major banking groups.
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    Russian state fund aims to take part in Bashneft privatization

    The Russian Direct Investment Fund (RDIF) is aiming to take part in the privatization of oil producer Bashneft, Kirill Dmitriev, head of the fund, said on Thursday.

    "We certainly will participate in Bashneft (privatization)," he told reporters.

    The Russian government plans to sell a 50.08 percent stake in Bashneft. The stake has been valued at around 300 billion roubles ($4.6 billion).

    The RDIF plans to look for investors and bid itself for one tenth of the Bashneft stake being offered, Dmitriev said. He compared the fund's plans with a model previously used when it took part in the privatization of diamond producer Alrosa earlier this year.

    Sovereign funds in the Arab world and Asia have showed an interest in Bashneft's privatization, Dmitriev said.
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    Oil glut to ease by 2017, clean energy investment to rise - IEA's Birol

    The International Energy Agency (IEA) expects oil markets to reach a balance between supply and demand in 2017 as the current oil glut slowly eases, IEA chief Fatih Birol said during meetings in South Korea.

    The head of the Paris-based agency also exchanged views with energy minister Joo Hyung-hwan on the direction of the world's energy markets in the wake of the renewed commitment to tackle climate change after last year's Paris climate talks, South Korea's Energy Ministry said in a statement on Thursday.

    The IEA forecast in its August report that oil markets will slowly tighten in the second half of 2016 as global demand growth declines and non-OPEC supplies rebound.

    "Oversupply of oil markets will gradually be eased and (oil markets) will find a balance between supply and demand in 2017," Birol said in the statement.

    In a separate interview with Reuters after the statement was released, Birol said he saw two drivers for the rebalancing of the oil market.

    The first is a drop in production from countries outside of the Organisation of the Petroleum Exporting Countries (OPEC) of about 900,000 barrels per day (bpd), especially in the United States in 2016. The second is "demand that is growing in a healthy way" and that the IEA expects to climb by 1.4 million bpd this year.

    "We may be on a higher side compared to others (forecasts), this is mainly because we're more upbeat when it comes to Europe and emerging Asia demand in demand growth," he said.

    In the statement, Birol also said there is concern that a decline in upstream oil and gas investments because of the prolonged low oil prices could increase oil price volatility.

    The statement added that Birol believes the start of the new climate regime after Paris would spur research and development investments on clean energy technology, with fast growth expected from the solar, wind power and electric car sectors.

    Birol noted in the interview that solar energy costs have dropped by 80 percent over the last five years and wind power costs have declined by 35 percent which means more countries can afford them.

    "Several years ago renewables were considered to be a romantic story but now it's becoming a business," he said.

    Birol also commented in the interview on how changes in the global liquefied natural gas (LNG) markets could affect South Korea, the world's second-largest LNG buyer, and other countries, particularly regarding destination clauses that restrict LNG sales to the country of delivery.

    "A lot of gas is coming to markets ... and this creates a historic opportunity to push for flexibility in gas contracts, especially destination clauses," he said.
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    S&P Global Platts Analysis of U.S. Energy Information Administration (EIA) Data

    U.S. crude oil and distillate stocks rose last week, though the size of the drawdown in gasoline inventories was less than expected, according to Wednesday's release of Energy Information Administration (EIA) data.

    Crude oil stocks increased 2.276 million barrels to 525.870 million barrels the week that ended August 26, EIA said.

    It was the fifth weekly build in six reporting periods, pushing crude stocks beyond historical levels. Crude inventories are 38.6% greater than the five-year average (2011-15) for this time period.

    With the end of the summer driving season and the start of refinery maintenance approaching, crude oil inventories will likely face upward pressure in the near-term, analysts say.

    'Petroleum demand has hit its seasonal peak, along with refinery runs,' said Anthony Starkey, energy analysis manager at Platts Analytics, the forecasting and analytics unit of S&P Global Platts. 'This implies we will again begin to see outsized builds in crude inventories in the weeks ahead, especially if imports remain as robust as they have been recently.'

    The biggest driver behind last week's build was crude imports rising 275,000 b/d to 8.917 million b/d. Crude oil imports have averaged 8.5 million b/d over the last four weeks, versus 7.6 million b/d year-to-date.

    By country of origin, there were large increases in imports from Saudi Arabia (up 531,000 b/d to 1.681 million b/d), Canada (up 350,000 b/d to 3.365 million b/d) and Mexico (up 228,000 b/d to 634,000 b/d).

    Most Canadian imports enter the US via the Midwest, where crude imports increased 424,000 b/d to 2.566 million b/d.

    Despite the uptick in imports, Midwest crude stocks drew 1.403 million barrels last week to 151.032 million barrels.

    Stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude futures contract -- fell 1.039 million barrels to 63.867 million barrels, the lowest amount since January.The weekly draw at Cushing was likely a factor behind NYMEX crude timespreads strengthening slightly Wednesday, even though oil futures were declining across the board.

    The difference between NYMEX crude's front-month and second-month futures contracts was about 2 cents narrower at minus 62 cents per barrel (/b), while the front-month/sixth-month spread was about 9 cents narrower at minus $2.86/b.


    The biggest build by region could be seen on the U.S. Gulf Coast (USGC). Crude oil inventories on the USGC increased by 2.911 million barrels to 275.550 million barrels. USGC crude runs decreased 132,000 b/d to 8.58 million b/d, helping push stocks highs.

    A slowdown in Gulf Coast refinery operations was expected, as the region continued to grapple with a slew of problems stemming from bad weather.

    Facilities still experiencing outages included ExxonMobil's refineries in Baton Rouge, Louisiana, and Baytown, Texas, and Marathon Petroleum's ultracracker at its Galveston Bay, Texas, refinery, while Motiva had flaring at its plant in Norco, Louisiana.

    Even though crude runs were down, Gulf Coast refinery utilization still rose 0.4 percentage points to 92.7% of capacity, as gross inputs were up 34,000 b/d to 8.817 million b/d.

    Total refinery utilization increased 0.3 percentage point to 92.8% of capacity. Analysts were looking for a decrease of 0.4 percentage points.

    U.S. crude oil exports were up 21,000 b/d last week to 698,000 b/d last week, EIA said.

    EIA's crude export figure released Wednesday covering the week that ended August 26 was calculated for the first time using more immediate petroleum export data from U.S. Customs and Border Protection.

    The EIA had previously estimated weekly exports based on monthly export data published by the U.S. Census Bureau.

    According to EIA, the new methodology should improve the weekly estimate of petroleum consumption, which includes exports as one of the variables in its calculation of product supplied, seen as a proxy for demand.


    U.S. gasoline implied* demand declined 148,000 b/d last week to 9.511 million b/d, EIA said.

    The drop in demand capped last week's gasoline draw at 691,000 barrels, which fell short of the 1.1 million-barrel decline analysts were expecting.

    U.S. gasoline inventories equaled 232.004 million barrels the week that ended August 26, a 10.5% surplus to the five-year average for the same time of year, according to EIA.

    Refinery outages helped strengthen Gulf Coast spot gasoline prices last week, though EIA data showed USGC gasoline stocks were up 555,000 barrels to 78.513 million barrels.

    An even bigger build occurred in the Midwest as gasoline inventories increased 1.497 million barrels to 49.859 million barrels.

    On the U.S. Atlantic Coast (USAC), gasoline stocks declined 1.936 million barrels to 67.178 million barrels, which was still 7.36 million barrels above the level from a year ago.

    USAC gasoline imports fell 22,000 b/d to 640,000 b/d, helping draw inventories lower.

    Distillate stocks rose 1.496 million barrels last week to 154.753 million barrels. Analysts had expected stocks to be unchanged.

    Implied demand increased 48,000 b/d to 3.838 million b/d, but production grew by 124,000 b/d to 4.973 million b/d.

    On the Atlantic Coast, stocks of low- and ultra-low sulfur diesel built 1.683 million barrels to 57.887 million barrels. That was 8.6 million barrels above last year at this time.
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    BP strikes second China shale contract

    Oil major BP has signed a second Chinese shale gas contract with China National Petroleum Corporation (CNPC).

    The company has agreed a production sharing contract (PSC) for shale gas exploration, development and production.

    The PSC was signed at the end of July and covers an area of approximately 1,000 square kilometres at Rong Chang Bei in Sichuan b.
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    Norway's Frontline sees major weakening in tanker market in H2

    Norway's Frontline, one of the biggest international independent tanker groups, expects a major deterioration in the tanker market in the remaining half of the year, compared with the first half, it said Wednesday.

    Posting second-quarter results, the company said the softer global tanker market led to its Q2 net profit slumping to $14.3 million from $78.9 million in the first quarter.

    "The spot market is currently at a 24-month low, and although we expect the rate environment to improve from current levels, the second half of 2016 will be significantly weaker than the first half of the year," Frontline CEO Robert Hvide Macleod said in a statement.

    "In the second quarter the tanker market experienced a downward pressure on rates which has continued into the third quarter," Macleod added.

    While these quarters are seasonally weaker, the tanker market was also hit by crude oil supply disruptions in the Atlantic basin, high levels of crude inventories, 13 vessels delivering from the newbuild fleet and easing congestion in ports around the world, Macleod said.

    Macleod said Frontline's scale, strong shareholder base and cost-effective operations positioned it well in the difficult market, with CFO Inger Klemp indicating the group had sound financial resources to ride out the market.

    Klemp said the company had secured bank financing of up to $548 million and was in the final stages of obtaining approval for further bank financing of up to $325 million.

    She said this new financing would partly finance 20 of Frontline's newbuild contracts at highly attractive terms, with the group maintaining its very low cash break-even levels.

    As of June 30, 2016, the company's fleet consisted of 82 vessels, including newbuilds, with an aggregate capacity of approximately 15 million dwt. The newbuild program comprised eight LR2 tankers, eight VLCCs and eight Suezmax tanker newbuildings.

    Almost 100 VLCCs were still to be delivered over the next two years and this was expected to put pressure on the tanker market.

    Frontline said there had been a notable absence of new orders placed in 2016 and it expected constraints in debt financing would continue to restrict newbuild orders, perhaps leading to a stronger market further out in the cycle.

    "Shipyards are also under pressure to restructure, and a reduction of capacity at several yards is expected," Frontline said. "Periods of market weakness, like we are currently experiencing, may also encourage scrapping of older tonnage, a factor which has been virtually absent for the last two years."
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    US distillate exports hit record high in June

    The US exported a record high 1.45 million b/d of distillates in June, up 207,000 b/d from May, with increases seen to Latin America and Europe, US Energy Information Administration data showed Wednesday.

    Distillate exports to the Netherlands jumped 115,000 b/d to 225,000 b/d in June, while exports to France edged up 11,000 b/d to 79,000 b/d.

    In Latin America, increases were seen across the board. US refiners exported 116,000 b/d of distillate to Brazil in June, up from 97,000 b/d in May. Exports to Mexico jumped 52,000 b/d to 212,000 b/d, while exports to Argentina climbed 46,000 b/d to 118,000 b/d.

    US Gulf Coast refiners -- notably Marathon, Valero and Phillips 66 -- have increasingly depended on export demand to market their refined products. While sluggish economic growth has sparked concerns that export demand might begin to dry up, threatening USGC refinery margins, the EIA June data showed export demand running strong.

    The market may be glutted with refined products, making the diesel arbitrage to Europe difficult, but near record low freight rates have helped keep the barrels moving.
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    Open Hole Stimulation 30 Times Faster than Plug-and-Perf Method

    Packers Plus Energy Services Inc. is pleased to announce an operator successfully stimulated a StackFRAC® HD open hole multi-stage ball-drop system in Argentina's Loma La Lata field. This field-proven, cost-effective completion technology effectively stimulates multiple stages thereby increasing access to the reservoir, and resulted in a stimulation time which was 30 times faster than that of the traditional plug-and-perf method. Open hole completions have been proven to increase induced fracture complexity and provide superior connection to the reservoir.

    "The operator wanted a completion system that was more time efficient, as well as a system that would avoid proppant overdisplacement and its negative effect on production, whilst lowering operational risk" said Packers Plus President, Ian Bryant. "We're very pleased to have delivered on both counts and look forward to continuing to optimize completions for operators in the region."

    The completion, which would have taken an estimated 220 hours using the coiled tubing plug-and-perf technique (assuming a smooth operation), was successfully completed in 7 hours with the StackFRAC HD system, averaging one stage per hour. This saved the operator approximately $280,000USD.The frac spread utilization rate was 85% of total completion time. Because the StackFRAC system uses a continuous pumping operation and does not require trips between stages, the operator was able to control fluid placement, avoiding proppant overdisplacement, and avoid the potential risk associated with multiple coiled tubing runs. Additional time and cost savings were achieved with the use of degradable balls, which mitigated the need for post-stimulation intervention.  

    The key to successful multistage stimulation is connecting to a complex fracture network, maximizing near wellbore conductivity and reducing pressure drops during production. To date, Packers Plus has successfully completed more open hole wells than any other service company in Argentina. To learn more about Packers Plus' proven performance and international experience, visit
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    Golar LNG’s loss deepens in second quarter

    Bermuda-based Golar LNG, the owner and operator of liquefied natural gas carriers on Wednesday reported a net loss of US$99.5 million.

    The shipping company’s adjusted operating loss was cut slightly from $42.7 million in the first quarter to $37.1 million in the quarter under review, according to the company’s latest quarterly report.

    “Although headline shipping rates remained relatively unchanged during the quarter there was a modest improvement in utilization which increased from 24 percent in 1Q to 31 percent in 2Q,” the report reads.

    With the utilization increase, Golar’s total operating revenues increased from $16.6 million in the first quarter to $18.4 million in the second quarter.

    LNG Shipping business

    During the quarter, 22 spot voyages were concluded by the Cool Pool relative to only 8 commencing in the first quarter, Golar LNG said.

    The additional activity was initially supported by an Enarsa tender for 35 cargoes into Argentina early in the quarter followed by tenders for additional cargoes into Egypt.

    However, despite the increase in activity, hire rates remained at low $30,000 per day for TFDE tonnage and sub $20,000 per day for modern steam vessels, during the quarter.

    Subsequent to the quarter end, chartering activity and LNG charter rates have climbed steeply, Golar LNG said, noting that ramped up production from new facilities that started producing in late 2015/early 2016, the withdrawal of spot traded ships in anticipation of the imminent start-up of their dedicated project volumes and more trading activity to service recently installed FSRU capacity have collectively started to absorb some of the excess spot tonnage, increasing the rates as a result.

    Golar LNG believes that there is cautious confidence among shipowners in the market in the following 12 to 24 months. Currently, the round-trip voyages fetch $40,000 per day in the Atlantic basin and mid $30,000 per day in the Pacific.

    FSRU Tundra arrives in Ghana

    During the quarter, Golar LNG’s FSRU Tundra has arrived in Ghana and issued its notice of readiness.

    Amounts due under the contract started to accrue from mid-July, Golar LNG said adding that charterers of the FSRU, West Africa Gas Limited have experienced significant delays with respect to the part of the project for which they are responsible.

    Golar Partners who own the FSRU Tundra are however entitled to payment of hire.

    The company has been assured that the project remains intact and is in contact with WAGL in order to find a way to bring the project forward.

    Attached Files
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    An already-hot Permian basin continues to draw crowds

    West Texas’ Permian Basin has held the hottest oil land in the United States for about two years.

    And it’s not slowing down.

    Last week, another energy firm bought in. Denver-based PDC Energy bought 57,000 acres from New York-based private equity asset manager Kimmeridge Energy for $1.5 billion, or about $21,000 per undeveloped acre.

    This year, companies have spent $27 billion on oil exploration and production mergers and acquisitions in the lower 48 United States, according to market analysts Wood Mackenzie. Of that, $12 billion, or almost half, has gone to assets in the Permian.

    “Things are definitely getting hotter in the Permian Basin right now,” said WoodMac analyst Ben Shattuck. “You’ve got a substantial asset base that you can drill at today’s prices and still make money on.”

    Over the past three months, the firm has tracked eight deals worth more than $400 million each — some, far more.

    In June, San Antonio’s Pioneer Energy bought 28,000 acres from Oklahoma City-based Devon Energy for $435 million, or about $14,000 per undeveloped acre. A few days later, Denver’s QEP Resources bought 9,000 acres for $600 million from an undisclosed seller, spending more than $60,000 an acre — a sum that made oilmen raise eyebrows.

    In July, Midland’s Diamondback Energy bought 19,000 acres from Austin’s Luxe Energy for $560 million or $27,000 per undeveloped acre. Houston-based Silver Run Acquisition, run by former EOG chief executive and renowned shale driller Mark Papa, bought 38,000 acres from the private, Denver-based Centennial Resource Development for $1.38 billion, or $29,000 an acre.

    And in August, companies booked four big deals, including Denver-based SM Energy’s purchase of 25,000 acres from Houston’s Rock Oil for $980 million, or $31,000 per undeveloped acre; Midland-based Concho Resources’ pickup of 40,000 acres from Midland’s Reliance Energy for $1.63 million, or $30,000 an acre; and Austin-based Parsley Energy’s 9,000-acre buy from an undisclosed seller for $400 million, or $43,000 an acre.

    About three-quarters of the Permian deals in recent years have been in the region’s northern and eastern area, called the Midland Basin.

    This year, the Permian’s western half, the Delaware Basin, is heating up.

    Small private firms like Brigham, Jagged Peak, Three Rivers, Silver Hill and Luxe also have dipped into the Delaware — as have big public companies like Shell, Chevron and Conoco, which are finally running horizontal drilling operations there.

    This summer’s Diamondback, PDC and Silver Run purchases were all in the Permian’s western basin.

    Papa, the former EOG chief, said Silver Run had been looking for “a meaningful position in one of North America’s premier oil shale basins.”

    “There has been a lot of recent excitement about the Delaware Basin, but we believe its potential is still significantly underappreciated,” Papa said in a statement. He described the deal as a launching point for the new company.

    “I look forward to replicating the culture and philosophy that made EOG Resources such a success during my time there,” Papa said, “and using the Centennial assets as a platform to build something truly special.”

    The Delaware wasn’t a secret, WoodMac analysts said. But the basin’s geology is more complex than that of the neighboring Midland. And drilling technology didn’t allow efficient production in the Delaware until late 2014.

    That’s when rigs began flocking to the basin, WoodMac’s Shattuck said, even as oil prices crumbled and drillers moth-balled other plans.
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    Ferrellgas sheds rail terminal contract as oil prices fall

    Ferrellgas Partners LP has quietly shed a five-year contract at a Philadelphia-area crude rail terminal just a year after it obtained it through a deal that gave the propane company its first foothold in the oil logistics business.

    The deal - the purchase of Bridger Logistics - allowed Ferrellgas to move at least 65,000 barrels of Bakken crude daily through a rail terminal in Eddystone, Pennsylvania owned by Enbridge. But deliveries stopped in February - the same time Ferrellgas sold the terminal contract to a company named Jamex Transfer Services based in Baton Rouge, Louisiana.

    Ferrellgas, a retail propane supplier and midstream oil logistics company, has not disclosed the sale to investors. The details became public as an arbitration fight instigated by Enbridge spilled into New York federal court. The company declined to comment.

    The quiet sale raises questions about how transparent Ferrellgas has been with investors about developments around the Eddystone terminal contract, which was held by Bridger until Ferrellgas bought the logistics company last year.

    It also demonstrates how companies have been forced to reckon with the shifting economics in delivering oil by rail to the East Coast, viewed as a lucrative opportunity just a couple of years ago. Deliveries stopped in February after a fall in oil prices made it uneconomical to deliver the crude to the East Coast.

    The contract had a minimum volume commitment, which means Ferrellgas paid Eddystone Rail Company, which is majority-owned by Canada's Enbridge, roughly $5 million a month whether it brought crude to the facility or not, according to court records. Jamex Transfer stopped making monthly payments to Eddystone in February, as trains stopped coming into the terminal.

    Eddystone and its local investors in April asked a panel of arbitrators in New York to force Jamex to pay them millions of dollars in missed payments, along with payments due for the remainder of the contract, which expires in 2018.

    Arbitrations are typically private affairs, but a portion became public in early August when Enbridge asked a federal judge in the Southern District of New York to enforce a subpoena against Ferrellgas.

    Jamex Transfer is a subsidiary of Jamex Marketing, which Ferrellgas has identified as a related party in SEC filings. Related party transactions that meet certain thresholds, such as exceeding $120,000, are required to be disclosed. What Ferrellgas got for the contract is unknown.

    Enbridge declined to comment.

    The developments leave Ferrellgas without a reliable method to deliver Bakken crude to the 185,000 bpd refinery run by Monroe Energy, a subsidiary of Delta Air Lines. It also threatens Monroe Energy's ability to easily source Bakken crude if the market shifts in favor of domestic grades.


    In 2013, as U.S. crude-by-rail volumes were surging, Bridger Transfer Services, a subsidiary of Bridger Logistics, entered into a five-year contract with Eddystone, according to court documents.

    The agreement gave Bridger unequaled access to transport crude to the rail terminal. Bridger agreed to pay $2.50 for each barrel of crude oil unloaded at the facility, with a minimum volume commitment of 64,750 bpd, according to the agreement.

    Bridger then had a separate agreement with Monroe Energy to purchase the crude oil, according to regulatory filings. Monroe agreed to purchase half the crude at the Brent benchmark price minus $3 and the other half at cost, plus a fee, according to two people familiar with the agreement.

    In June 2015, Ferrellgas bought Bridger Logistics for $822.5 million. They noted the Monroe agreement was Bridger's "largest revenue-generating contract" and boasted the deal gave it "exclusive use of unloading capacity" at the Eddystone facility.

    In court and arbitration filings, Jamex Transfer said they stopped making payments because the rail station was "sub-standard" and the owners failed to make promised improvements.

    Jamex Transfer also alleged Eddystone did not disclose that crude trains would be slowed by regional rail service. Its own financing was also a problem, Jamex said in court papers.

    Through its attorneys, Jamex declined to comment.

    Eddystone said Jamex is fabricating problems, when the real problem is that Bakken crude has become economically unattractive on the East Coast.

    "The developments were connected with Monroe's reduced demand for North Dakota crude oil," Eddystone said in court documents.
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    EXCO Resources Turnaround is Working, but Comes at a High Cost

    EXCO Resources was once a sizable player in the Marcellus. They still have 145,000 net acres in the Marcellus, with 124 horizontal Marcellus wells drilled and in production.

    However, EXCO, as we pointed out in March, has pretty much abandoned the Marcellus at this point. In May the company announced it was looking at “restructuring,” which is typically a code word for bankruptcy, and the company’s stock took a nosedive.

    Not long after, EXCO announced it was firing some board members, hiring new ones, and aggressively hammering midstream companies to lower pipeline costs. It looks like the plan is working. The bleeding slowed in 2Q16.

    So far the company has stayed out of bankruptcy. How did they do it, where some others in similar circumstances have failed? According to EXCO’s chairman (and major investor) Wilbur Ross, Jr., the turnaround is due to turnaround expert C. John Wilder that the company hired last year.
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    The Truth Emerges: EIA Admits It "Overestimated" Crude, Gasoline Demand In The First Half By 16%

    One of the recurring peculiarities of oil complex data as reported by the EIA was how, during a time of an unprecedented crude glut by OPEC and pronounced economic weakness in the US, was overall US demand of various petrochemical products as strong as the DOE reported on a weekly basis. To be sure, the alleged increase in demand was one of the major catalysts that prompted rising oil prices together with relentless jawboning by OPEC members about a "production freeze" that would never materialize, in turn spurring not one but two record short squeeze across the commodity complex.

    We now know the answer.

    In a note released moments ago by the EIA, whose bias to keeping prices as high as possible is no secret, admitted that "over the first six months of 2016, EIA weekly estimates underestimated total crude oil, petroleum, and biofuel exports by an average of 16%, compared with final data published in the PSM."

    This underestimation of exports "led to the overestimation of total consumption" by a similar amount. The new methodology using near-real-time data from Customs significantly reduces the difference between weekly estimates and the actual data for total exports shown in the PSM during the first half of 2016.

    So time to fix the mistake then, and as a result, the EIA said that starting with today's release of the Weekly Petroleum Status Report (WPSR), EIA is now publishing weekly petroleum export and consumption
    estimates based on near-real-time export data provided by U.S. Customs and Border Protection (Customs). EIA previously relied on weekly export estimates based on monthly official export data published by the U.S. Census Bureau roughly six weeks following the end of each reporting month. This new methodology is expected to improve weekly estimates of petroleum consumption (measured as product supplied) by improving estimates of weekly exports of crude oil, petroleum products, and biofuels, which increased from 1 million barrels per day (b/d) in 2004 to nearly 5 million b/d in 2015.

    The EIA adds that the use of near-real-time export data should reduce differences between EIA's weekly data, as presented in the WPSR, and monthly data, as presented in the Petroleum Supply Monthly
    (PSM). The monthly data that EIA publishes 60 days after the end of
    each month are based on EIA's comprehensive monthly survey data and the actual Census Bureau export data for that month.

    As the EIA adds, the difference between the old and new weekly methodologies differs across individual products, with the new methodology providing a particularly significant improvement in the estimate of finished motor gasoline exports for the first six months of 2016. The improvement in export values reduces the difference in finished motor gasoline consumption from within 1.3% to within 0.9% of the actual values published in the Petroleum Supply Monthly for the first six months of 2016.

    Still, don't assume that all the bias will be eliminated: while the new weekly export methodology should provide improved weekly
    petroleum consumption estimates, there still may be differences between the weekly and monthly balances. Although the Census Bureau is able to directly validate data with export filers, EIA processes the raw Customs data without the ability to directly validate reported data with those filers and adds estimates for data not reported by Customs. In
    addition, there will continue to be minor differences between weekly
    sampled survey data for the nonexport categories and monthly data
    because of standard sampling and statistical issues.
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    OPEC oil output hits record as Gulf gains counter African losses

    OPEC's oil output is likely in August to reach its highest in recent history, a Reuters survey found on Wednesday, as extra barrels from Saudi Arabia and other Gulf members make up for losses in Nigeria and Libya.

    Production in top OPEC exporter Saudi Arabia has likely reached a fresh record, sources in the survey said, as it meets seasonally higher domestic demand and focuses on maintaining market share.

    Other big Middle Eastern producers, except Iran, also boosted output.

    Supply from the Organization of the Petroleum Exporting Countries has risen to 33.50 million barrels per day (bpd) from a revised 33.46 million bpd in July, according to the survey based on shipping data and information from industry sources.

    The gain could add to scepticism about renewed OPEC talk of freezing output to support prices. Oil has risen towards $48 a barrel from $42 at the start of August, helped by such speculation, but these hopes have waned in recent days.

    "OPEC does not really want to freeze production," said Olivier Jakob, oil analyst at Petromatrix. "But it dreams of freezing prices at current levels."

    Supply has risen since OPEC in 2014 dropped its historic role of fixing output to prop up prices as Saudi Arabia, Iraq and Iran pumped more. Production has also climbed due to the return of Indonesia in 2015 and Gabon in July as members.

    The membership changes have skewed historical comparisons. August's supply from OPEC excluding Gabon and Indonesia, at 32.54 million bpd, is the highest in Reuters survey records starting in 1997.

    In August, Saudi Arabia is expected at least to match July's record of 10.67 million bpd, sources in the survey said. Other industry sources told Reuters a new record as high as 10.90 million bpd was possible in August.

    There is no sign of any deliberate cutbacks. Saudi Energy Minister Khalid al-Falih told Reuters last week that August production had remained around July's level, without giving a precise figure.

    The United Arab Emirates continues to expand output, hitting 3.0 million bpd in August for the first time in the Reuters survey. Iraq and Kuwait pumped slightly more than in July, the survey found.

    Supply in Iran, OPEC's fastest source of production growth earlier this year after the lifting of Western sanctions, has held steady this month as output nears the pre-sanctions rate. Iran is seeking investment to boost supply further.

    Of countries with lower output, the biggest drop came from Nigeria as militants attacked oil facilities. The Qua Iboe stream, the country's largest, was under force majeure for the whole month, reducing exports.

    Libyan output slipped further and another decline occurred in Venezuela, hit by an economic crisis.

    The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.

    Attached Files
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    Summary of Weekly Petroleum Data for the Week Ending August 26,

    2016 U.S. crude oil refinery inputs averaged over 16.6 million barrels per day during the week ending August 26, 2016, 64,000 barrels per day less than the previous week’s average. Refineries operated at 92.8% of their operable capacity last week. Gasoline production decreased slightly last week, averaging over 10.0 million barrels per day. Distillate fuel production increased last week, averaging about 5.0 million barrels per day.

    U.S. crude oil imports averaged over 8.9 million barrels per day last week, up by 275,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.5 million barrels per day, 11.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 832,000 barrels per day. Distillate fuel imports averaged 128,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 525.9 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.7 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories increased by 1.5 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.4 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 4.5 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.6 million barrels per day, up by 1.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.7 million barrels per day, up by 1.8% from the same period last year. Distillate fuel product supplied averaged about 3.8 million barrels per day over the last four weeks, up by 1.7% from the same period last year. Jet fuel product supplied is up 9.9% compared to the same four-week period last year.

    Cushing falls 1.0 mmln bbls

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    US oil production falls

                                                           Last Week  Week Before  Last Year

    Domestic Production '000....... 8,488           8,548          9,218
    Alaska '000.............................. 473               483             327
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    Shell’s Forcados Oil Pipeline Seen Restarting in September

    Royal Dutch Shell Plc’s Forcados pipeline in Nigeria will resume deliveries in September, according to an oil company that uses the line.

    “We are hearing Forcados is due to return at the middle of next month," Kola Karim, chief executive officer of Shoreline Group, said Wednesday by phone from London. "It has been a tough situation for us these past couple of months."

    The Forcados pipeline system is among oil infrastructure targeted by Nigerian militants this year. In February, Shell declared force majeure -- a legal clause that allows it to stop shipments without breaching contracts -- after militants blew up a line feeding the Forcados terminal, which typically exports about 200,000 barrels a day. Of that, Shoreline sends about 52,000 barrels a day.

    Precious Okolobo, a Lagos-based spokesman for Shell, declined to comment on Wednesday.

    While the Niger Delta Avengers, which claimed most attacks in Nigeria’s oil heartland this year, have called a halt to hostilities, other militant groups have emerged. The Niger Delta Greenland Justice Mandate, or NDGJM, claimed an assault this week on the Ogor-Oteri pipeline, which is run by Nigerian Petroleum Development Co. and Shoreline and was already halted following a previous attack on Forcados.

    "It’s key to note that there are other groups now trying to assert themselves," Dolapo Oni, the Lagos-based head of Ecobank Energy Research, said by phone. "Nevertheless, it shouldn’t prevent the September opening."

    Shoreline is still trying to pinpoint the location and assess the damage from Tuesday’s attack in Delta state, Karim said.

    Nigeria expects to pump 1.5 million barrels a day “at best” this year, Minister of State for Petroleum Emmanuel Kachikwu said Aug. 12. The OPEC member produced about 2 million barrels a day last year.

    "With Forcados, we are likely to regain output at 1.8 million barrels a day and should be able to sustain that til year-end, which is a major boost for government revenue," Oni said.

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    Indian Oil Corp. to carry on importing two cargoes of LNG per month

    According to Reuters, a top executive at Indian Oil Corp. (IOC) has said that the company will continue to import a minimum of two cargoes of LNG each month after the Dahej import terminal expansion.

    The terminal is located on the west coast of India, and is operated by Petronet – the nation’s largest single LNG importer. The company increased the import capacity of the facility to 15 million tpy – an increase of 50%.

    Reuters added that IOC purchased two cargoes of LNG just last week.
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    Victoria premier moves to ban unconventional gas development in the state

    Spearheaded by Victoria state premierDavid Andrews, the Labor government on Tuesday put forward a permanent ban on theexploration for and development of all onshore unconventional gas in the state, including hydraulic fracturing (fracking) and coal seam gas.

    The proposed permanent legislative ban, which will be introduced to Parliament later this year, will protect the ‘clean, green’ reputation of Victoria’s agriculture sector, which employs more than 190 000 people.

    Andrews noted that the farmers in Victoria produced some of the world’s cleanest and freshest food and that the government did not want to put that at risk.

    “Victorians have made it clear that they don’t support fracking and that the health and environmental risks involved outweigh any potential benefits,” he said, adding that Victoriais Australia’s top food and fibre producer, with exports worth $11.6-billion, and that the ban would protect the state’s reputation for producing high-quality food.

    Resources Minister Wade Noonan added that the government had carefully considered the key findings and recommendations of last year’s Parliamentary inquiry intoonshore unconventional gas development in Victoria and had made this latest decision “with the best available evidence”.

    The 2015 Parliamentary inquiry received more than 1 600 submissions that were mostly opposed to onshore unconventional gas, according to the Labor government.

    “There has been a great deal of community concern and anxiety about onshore unconventional gas – this decision gets the balance right,” said Noonan.

    The Minerals Council of Australia (MCA), however, believes the ban is a “retrograde step” for the nation, and not just forVictoria, as it will reduce the availability of gas for energy andindustrial use across the country.

    “This decision removes a key energy generation option from the energy mix and contradicts the recent [Council of Australian Governments] Ministerial communiqué that emphasised the need to increase the overall supply ofonshore gas,” commented MCA CEO Brendan Pearson, highlighting that the mining and minerals processing industry was a prominent electricity user, and that the country’s ability to compete globally depended on inexpensive and reliable energy supplies.

    “By ruling out new gas supply, there’s a real question as to what exactly will power Victorian (and also New South Wales, South Australian and Tasmanian) homes and businesses in the future.

    “These decisions will lead to higher prices for all energyconsumers,” said Pearson.

    He noted that the Victorian government had already showed its intention to move away from coal-fired electricity generation in the state and that this pre-empted any “reasonable” policy decision with the setting of ambitious renewable-energy targets.

    “The Victorian government seems intent on increasing the state’s dependence on expensive and part-time energy sources,” said Pearson, adding that the lessons from South Australia were “irrefutable”.

    “Energy prices will go up and reliability and grid stability will suffer,” he said.

    Meanwhile, until the Labor government’s proposed ban is passed by Parliament, Victoria’s current moratorium onunconventional onshore gas exploration and development will stay in place.

    The Labor government will also legislate to extend the current moratorium until June 30, 2020, while fracking remains banned.

    The government noted that exemptions to the ban would remain for other types of activities not covered by the current moratorium, such as gas storage, carbon storage research and accessing offshore resources. Exploration and development for offshore gas would also continue.

    Meanwhile, the Australian Labor party committed to undertaking the most extensive scientific, technical andenvironmental studies in Australia on the risks, benefits and impacts of onshore gas.

    “These will be overseen by an expert panel, headed by the lead scientist Amanda Caples, and will include farmers and industry, business and community representatives,” said the government.

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    Louisiana Ports Awash in ‘Dead Iron’ as Oil Manufacturing Drops

    In Alaska and Louisiana, the oil bust accentuates an impending economic catastrophe: Easier-to-produce crude and natural gas deposits are running out. The depletion of fields that fed the need for generations-old manufacturers is forcing them to search for new markets.

    "You’ve got to tap dance,” said Emile Dumesnil, chief executive of Dynamic Industries, Inc., at its Port of Iberia fabrication facility. “The easy money of 30 years ago is behind us. We’re running just under 50 percent capacity and spending a whole lot of money chasing opportunities."

    In Louisiana’s Cajun Country, the evidence of a manufacturing industry in crisis is inescapable. About 131 miles (211 kilometers) southwest of New Orleans, the Port of Iberia is crammed with "dead iron."

    Idled barge rigs rocked as sugarcane swayed in the breeze. Mountainous offshore oil platforms sat across an isthmus from rusted lift boats with 130-foot-tall legs. Two-hundred-foot-long supply vessels named for members of a family-owned firm seeking to lease them to oil companies for $9,000 a day -- one fifth of their $45,000 rate in 2014 -- floated nearby. Some multi-million-dollar equipment, delivered after the downturn started, has never been used.

    Construction Boom

    Unlike other energy-dependent states that are struggling to diversify their economies, Louisiana’s job loss could be offset by a $65 billion construction boom in liquefied natural gas and other industrial facilities that officials say could make it the world’s LNG export capital.

    Instead of constructing platforms for drillers on the Gulf’s shallow shelf, Dumesnil’s welders are making pipe modules for an $11 billion chemical facility Sasol Ltd. is building a 90-minute drive northwest in Lake Charles.

    The Sasol complex will join up to 19 other capital projects in parishes next door to the Lafayette metro area, which includes the Port of Iberia. The region’s municipalities are steeling themselves for an influx of some 31,000 scaffolders, electricians, truck drivers and others.

    Yet officials in Lafayette are without funds to retrain thousands of workers like Jimmie Green for these jobs. Green, 50, lost a position he held for two decades painting helicopters when Bristow U.S. LLC decided to contract out his work. He’s been unable to find another.

    "I’m taking money out of my retirement to live," he said. "I am hurting for insurance."

    Jermaine Ford, director of the Corporate College at South Louisiana Community College, is managing a wait list of more than 600 laid-off employees eager for retraining. Most require tuition subsidies for programs that don’t qualify for federal aid.

    "I’ve seen grown men and women cry because they can’t feed their families," he said. "I’ve had students sleeping in their cars."

    Bleak View

    The view outside the office window of Quay McKnight, chairman of the board of M&M International, a safety valve manufacturer founded by his father and uncle in 1980, is bleak: Enormous lathes that fashion metal bodies for valves sit idle. Lights are off in part of the plant. Lanes plied by fork lifts ferrying parts to milling machines are empty. In the last year, revenue plummeted 80 percent and M&M laid off 45 percent of its workforce.

    With oil production on hold in the Gulf and Bakken, M&M is without inventory. To protect his remaining workers, McKnight is seeking clients in other industries. He’s researching medical manufacturing.

    "My goal is to find work," he said. "The long-term goal is diversification -- we need to make sure this doesn’t impact us this way again."

    Nineteen miles southeast, boat maker Breaux mopped sweat from his tan, balding brow and explained he’s advertising his 33-year-old family-operated company for the first time in 15 years to find contracts to fill his warehouses.

    "When oil gets good again we will be the last to get back to work" because half the fleet available isn’t being used right now, he said. "It could take two years."

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    Asia's July Iran oil imports rise 61 pct from a year ago

    Imports of Iranian oil by four major buyers in Asia in July jumped 61.1 percent from a year earlier, marking the biggest percentage gain since April 2014, reflecting Tehran's aggressive moves to recoup market share, lost under international sanctions.

    Iran is regaining market share at a faster pace than analysts had projected
    since sanctions were lifted in January, and Iran's senior government official
    said it sees its oil production at 4 million barrels per day by year-end.
    The four countries, South Korea, Japan, China and India, imported 1.64
    million barrels per day (bpd) in July, government and ship-tracking data showed.

    Japan's trade ministry on Wednesday released official data showing its
    imports jumped 61.8 percent from a year earlier to 256,651 bpd last month.

    Imports by South Korea jumped more than fourfold last month, while India's
    imports more than doubled from a year ago.
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    Saudi Arabia doesn't target specific level of oil output - Falih

    Saudi Arabian Energy Minister Khalid al-Falih said the top crude exporter does not target a specific figure for its oil production and that its output is based on customers' needs.

    "We in the kingdom of Saudi Arabia do not have a targeted number to reach. The kingdom's production meets the requirements of the customers, whether they are outside or inside the kingdom," Falih told the Saudi-owned al-Arabiya television channel in remarks broadcast on Wednesday.

    "The kingdom's production policy will maintain a large degree of responsibility," he said.

    Speaking during an official visit to China, Falih said that despite low crude prices, "demand for oil does not worry me", adding that demand for crude in China remains "very healthy".

    The OPEC heavyweight started to increase production in June to meet a seasonal rise in domestic demand as well as higher export requirements. Industry sources have told Reuters that Riyadh could boost production to a record in August.

    Saudi Arabia produced 10.67 million barrels per day (bpd) of crude, the most in its history, in July. Falih told Reuters last week that production in August had remained around that level, though he could not cite a specific number.

    Saudi Arabia has a production capacity of 12.5 million bpd, giving it the ability to boost output in case of any global shortage.

    Falih said that production level was not expected to be reached unless there were unexpected outages.

    "The market now is saturated with oversupply and we don't see in the short term a need for the kingdom to reach its maximum production capacity," he told the TV channel.

    The minister is part of an official Saudi visit headed by Deputy Crown Prince Mohammed bin Salman aimed at bolstering relations with China, a top energy customer and trade partner. The delegation heads to Japan late on Wednesday.

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    US Oil exports at record high.

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    ExxonMobil, BP, ConocoPhilips back out of Alaska LNG

    ExxonMobil, BP and ConocoPhilips are looking to exit the Alaska LNG project following a report by Wood Mackenzie stating the project’s competitiveness ‘ranks poorly’ under current market conditions.

    Speaking to the Alaskan House and Senate Resource Committees, David  Van Tuyl, regional manager for BP in Alaska, noted the project is commercially challenged.

    The pre-FEED work on the Alaska LNG project is over 90 percent complete, however, Van Tuyl noted that the next phase will likely cost over one billion dollars.

    “We  don’t  want  to  rush  into  the  largest  energy  project  in  North  America  only  to  end  up  losing  lots  of  money  for  all  of  us.   So  right  now  is  not  the  time  to  make  that  commitment,” he said.

    He stressed BP has not given up on the project but noted the cost of supply have to be reduced in order to make the project competitive.

    Bill McMahon, ExxonMobil’s senior commercial advisor for the project said that the company supports the state’s plans to assume full management of the project through Alaska Gasline Development Corp.

    The company will be a part of the development of Alaska’s North Slope natural gas resources through investment in the development of Prudhoe Bay and Point Thomson and by making gas available for sale for the project.

    Alaska’s governor Bill Walker commented on the report by Wood Mackenzie stating that at current LNG market prices, Alaska LNG project could struggle to make “acceptable returns even under US$70/bbl price,” saying that there is still potential for the project to be viable.

    By exploring alternative project structures it could be economically viable even at $45/bbl oil prices, Walker said.

    AGDC, that is currently holding transition meetings with BP, ConocoPhillips, and ExxonMobil, said it expects the transition to be completed by the end of the year.

    According to AGDC’s plans, FEED work could start in 2018 while the construction could begin in 2019.

    The liquefaction and export facility of the $45 billion-plus Alaska LNG project will be built on the eastern shore of Cook Inlet on the Kenai Peninsula. The plant would receive gas via an 800-mile pipeline from the North Slope and is expected to be able to produce about 20 mtpa of LNG from three liquefaction trains.
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    Mystery of Oil Held on Chinese Islands Puzzles Crude Markets

    China’s got the world puzzling over its oil hoard.

    From underground caverns by the Yellow Sea to a scattering of islands in the Yangtze River delta, the government has been stockpiling crude for emergencies in a network of storage sites dotted around the country. Record purchases this year by the world’s biggest energy consumer have helped oil prices recover from the worst crash in a generation. What the country plans to do next could determine where they go from here.

    The difficulty is that nobody outside China really knows for certain. The government won’t say how much it’s holding or when the tanks will be full. Energy Aspects Ltd. says the country will probably keep buying and fill up commercial tanks if it has to, while the likes of JPMorgan Chase & Co. say the purchases may soon stop. The difference in opinion is equivalent to about 1.1 million barrels a day, or more than the Asian country buys from Saudi Arabia.

    “China seems to feel no obligation to report on its strategic stocks, and that might confer a genuine advantage in its favor,” said John Driscoll, the chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “The scope of their purchases can dramatically affect fundamentals and prices. However, since they will likely be shrouded in secrecy, it will remain challenging to quantify the impact.”

    China outlined in 2009 its plans to build reserves equivalent to 100 days of net imports. But since then it’s only provided sporadic scraps of detail on its strategic petroleum reserves, or SPR. That stands in contrast to the U.S., where the Energy Department has been detailing data on American inventories for more than three decades.

    The Asian country had about 191 million barrels of crude in its SPR as of the middle of last year, according to a statement on the website of the National Bureau of Statistics in December. But it also said at the time that total combined capacity of seven above-ground sites and one location with underground caverns was the equivalent of only 180 million barrels. The figures haven’t been updated since.

    The government also said at the time it has leased space in commercial sites, signaling it could buy additional oil while more of its own tanks are constructed. Nobody replied to a fax sent to the press office of the National Energy Administration asking for details about the SPR.

    “SPR has been a China mystery due to the lack of government data disclosure,” said Ying Wang, a Hong Kong-based analyst at JPMorgan. The bank estimates the amount of crude China is putting into stockpiles by calculating how much more oil the country is buying and producing than it’s using.

    Surplus Crude

    That amounted to about 1.2 million barrels a day over the first half of the year, according to JPMorgan. The bank estimates the country built up a total of about 400 million barrels by mid-2016 out of a targeted 511 million barrels. That means at the current rate of stockpiling, the storage would be filled up by August, leading to a potential drop in imports in September.

    Energy Aspects looks at it differently. Because China can shift oil between commercial and strategic storage, the government may be able to increase purchases even if it runs out of its own space, said Michal Meidan, a London-based analyst for the industry consultant. Another 150 million barrels of commercial storage space is coming online by the end of next year that can be filled, she said. That means that while reserve buying may slow, it won’t fall significantly.

    “Even if SPR tanks only come online later in the year, more commercial tanks are starting up,” Meidan said. Energy Aspects sees demand for the reserves dropping by only 100,000 barrels a day in the second half of the year to 300,000 barrels daily.

    China’s oil imports have averaged an unprecedented 7.5 million barrels a day so far this year, government data show. The purchases, along with temporary production outages in Nigeria and Canada, helped rebalance supply and demand in the market, leading Brent crude, the benchmark for more than half the world’s oil, to jump almost 90 percent from mid-January to June.

    Brent crude futures in London traded 0.1 percent lower at $48.31 a barrel by 11:09 a.m. Singapore time. They were at more than $115 a barrel in mid-2014.

    In the U.S., supplies in the strategic reserve were at 695 million as of Aug. 26, enough to support 149 days of import protection, according to data from the Energy Department. The government regularly reports how much oil is at each of its four sites and even breaks down the quantity of crude that’s held by sulfur level. When it purchased supplies for the reserve last year, it did so in a bidding system in which the sellers and even the price were publicly announced.

    Deadline Delay

    China plans to build emergency reserves equivalent to 100 days of net imports by 2020, the nation’s top refiner said in 2009, citing a plan approved by the State Council. It pushed back completion of the stockpile to beyond the 2020 deadline, according to a Five Year Plan released in March 2016.

    “The Chinese seem to embrace the concept of asymmetric information which holds that those in possession of proprietary information and data hold a critical, strategic advantage over the less-informed,” JTD Energy’s Driscoll said.
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    Iraq Pledges to Support an OPEC Freeze Deal, Shifting Its Stance

    Iraq Pledges to Support an OPEC Freeze Deal, Shifting Its Stance

    Iraq would support a proposal for OPEC and other major oil producers to freeze output at talks in Algeria next month, Prime Minister Haidar Al-Abadi said in Baghdad.

    The endorsement marks a slight shift by Al-Abadi, who was quoted by Reuters on Aug. 23 saying that Iraq still hadn’t raised production sufficiently. The country’s deputy oil minister, Fayyad Al-Nima, said the following day that Iraq would support measures to establish fair crude prices.

    The Organization of Petroleum Exporting Countries will hold informal talks during an industry conference in Algiers in September, fanning speculation the group could revive an initiative with non-members such as Russia to limit output. A previous attempt collapsed in April amid political tensions between Saudi Arabia and Iran.

    “Our opinion is to freeze output to support prices,” Al-Abadi said. “The drop in oil prices is causing volatility and this is harming Iraq because our revenues are based on oil.”

    Iraq is the second-biggest member of OPEC, whose other major producers have signaled only qualified backing for an output accord.

    Saudi, Iran

    Saudi Arabian Energy Minister Khalid Al-Falih said Aug. 26 that while a freeze would be “positive” for market sentiment, no “intervention of significance” is required as global markets are rebalancing by themselves.

    Iranian Oil Minister Bijan Namdar Zanganeh said that the country expects to recover its market share -- eroded during years of international sanctions -- as a condition of co-operating with OPEC, according to an Aug. 26 report by news service Shana.

    OPEC gave Iraq an exemption from the individual quotas imposed on members from 1998 as the country contended with years of sanctions and war. While Iraq has boosted output in recent years after signing deals with international companies, its production was still below capacity in July, according to the International Energy Agency.

    Iraq has shown more willingness to co-operate with OPEC as the plunge in oil prices -- down 50 percent since 2014 -- and the fight against Islamic State battered its finances. The country has secured a $5.3 billion loan from the International Monetary Fund to stabilize its reeling economy.  

    The nation’s current expansion plans may be difficult to reconcile with a production freeze. Iraq told international oil companies to boost output after reversing previous instructions to cut investment, Iraq Oil Report said Aug. 23.
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    API data shows rise in US oil inventory

    U.S. crude stocks rose by 942,000 barrels in the week to Aug. 26 to 525.2 million, nearly in line with analysts' expectations for an increase of 921,000 barrels, data from industry group the American Petroleum Institute showed on Tuesday.

    Official U.S. oil inventories data published by the EIA is due for release on Wednesday.

    Concerns over refinery production outages caused by storm threats in the Gulf of Mexico have done little to support prices as a product glut in the United States persists.
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    Shell divests Gulf Of Mexico assets for $425 million plus royalty interests

    Shell divests Gulf Of Mexico assets for $425 million plus royalty interests

    Royal Dutch Shell plc, through its affiliate Shell Offshore Inc. (Shell), today announces it has an agreement to sell 100 percent of its record title interest in Gulf of Mexico Green Canyon Blocks 114, 158, 202 and 248, referred to as the Brutus/Glider assets, to EnVen Energy Corporation, through its affiliate EnVen Energy Ventures, LLC. In line with Shell's global divestment plans, this transaction includes $425 million in cash.

    The transaction is expected to close in October.

    The Brutus/Glider assets include the Brutus Tension Leg Platform (TLP), the Glider subsea production system, and the oil and gas lateral pipelines used to evacuate the production from the TLP. The Brutus/Glider assets have a combined current production estimate of approximately 25,000 barrels of oil equivalent per day (boe/d).
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    Cabot to Double PA Gas Production by 2019 – Without Constitution

    It’s no secret that Marcellus and Utica drillers need new pipelines–and they need those pipelines urgently. Especially in Pennsylvania where lack of pipelines is keeping inventories high and prices for natural gas the lowest in the country.

    However, drillers must deal with reality as it is–today. Pipelines take time to build, and recent efforts to block pipelines are delaying important projects like the Constitution and PennEast pipeline projects.

    The good news is that some pipeline projects *are* being built in the northeast, some of which are almost done. Drillers like Range Resources are ramping up new drilling now, about six months in advance of when new pipelines are due to go online.

    That’s about how long it takes to put the pieces in motion.

    The other good news is that some drillers, like Cabot, are finding new markets that DON’T require new pipelines–like selling a tremendous volume of natgas to new gas-fired electric generating plants situated in close proximity to Cabot’s wells.
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    Shell Says: While Gas Is the Future, It Won’t Be Traded Like Oil

    Natural gas is rapidly becoming one of the most traded global commodities, but that doesn’t mean it will have a global price, according to Royal Dutch Shell Plc.

    While the fuel can be transported anywhere on liquefied natural gas carriers, it will probably remain regionally priced for the time being, with some contracts continuing to track oil, said Roger Bounds, senior vice president for global gas at Shell. Prices will depend on location, regulation and infrastructure, as some countries replace coal in electricity generation to cut carbon emissions.

    “I shouldn’t say it’s not possible, but what would it take for such a price to be possible?” Bounds said in an interview in Stavanger, Norway. “We have some way to go.”

    For a global gas price to emerge, pipelines would need to shed some interstate regulations like in the U.S., trade data would need to be more transparent and widely available and buyers and sellers would need more confidence their contracts will be respected, he said. Europe is partly on that path with some hub pricing, he said.

    “We’re somewhere back from that in a number of other markets,” Bounds said. “We’re not that close to that in India, we’re not close to that in China.”

    Interchangeable Sources

    Until then, there will be many two-party gas trades. Additionally, conventional contracts that link the price of gas to the price of oil will remain, partly because the two will become increasingly interchangeable as energy sources.

    Those changes to the global gas market structure will come amid a renaissance for the fuel, Shell says. It will probably be used more because when transitioning to a lower-carbon economy, gas complements renewable energy sources, which aren’t yet able to consistently provide uninterrupted electricity to customers during peak periods.

    Additionally, some European countries may introduce a floor on the price of carbon that could hasten a switch to gas-fired power.

    “There’s been a period of weakness in carbon prices in Europe but in the near future we’re likely to see that starting to bite,” Bounds said. When that happens, “we think more gas will get drawn into the system,” he said.

    LNG Consumption

    European Union carbon has dropped 85 percent from its peak in 2006 as lawmakers struggle to deal with a glut. The price hasn’t been high enough to rid Europe of coal use.

    Bounds expects global LNG consumption to climb by 5 percent to 7 percent a year. A trend of declining usage in Europe may also reverse due to the higher demand, with supply coming from U.S. export terminals and fields in Russia and North Africa. Shell CEO Ben Van Beurden said on Monday that he expects gas demand to grow at twice the pace of oil.

    At the moment, there is a global glut of natural gas as producers scramble to gain a foothold in the expanding market. That will probably balance out in the early 2020s, said Bounds.

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    Gazprom Profit Falls Less Than Expected as Ruble Strengthens

    Gazprom PJSC’s profit shank less than expected in the second quarter as a strengthening ruble helped ease the world’s biggest natural gas producer’s debt burden.

    Net income fell 17 percent from a year earlier to 244.9 billion rubles ($3.8 billion), the Moscow-based company said in a statement late Monday. That compares with an estimated 186 billion rubles in an Interfax survey. Earnings before interest, taxes, depreciation and amortization, or Ebitda, also beat estimates. The producer booked a net gain related to the stronger currency of about 152 billion rubles.

    “The second quarter was the worst for Gazprom this year, and the results are better than expected,” said Andrey Polischuk, an analyst at Raiffeisen Bank in Moscow. The company’s gas prices in its most lucrative markets, Europe and Turkey, are set to recover until the end of the year. “Gazprom even has a chance to see a positive cash flow -- close to zero but still positive -- if oil remains at about $50 a barrel and depending on the cold season.”

    The Kremlin-backed exporter, which supplies about 30 percent of the European gas needs, has faced a drop in its dollar-denominated gas-export earnings to the lowest since at least 2005 as most of contracts are linked to crude prices with a time lag of six to nine months.

    Even with oil hovering below $50 a barrel, the company expects positive free cash flow this year, deputy head Andrey Kruglov said in June, declining to elaborate on the outlook.

    Revenue increased 4.9 percent to 1.33 trillion rubles. Net debt fell 15 percent from the start or the year to 1.76 trillion rubles, mostly because of the currency strengthening.
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    Militants attack Niger Delta pipeline

    A militant group has taken responsibility for an attack on a pipeline operated by the Nigerian Petroleum Development Company (NPDC).

    The incident comes after the Niger Delta Avengers (NDA) said they had halted hostilities after months of attacks in the region.

    In a statement, the Niger Delta Greenland Justice Mandate said it had attacked the Ogor-Oteri pipeline in Niger Delta state, operated by the NPDC and Nigerian energy company Shoreline at around 3am.

    A spokesman for the NPDC and Nigerian energy company Shoreline said the incident happened in the early hours of Tuesday morning.

    OPEC member Nigeria has seen its oil output fall by around 700,000 barrels a day to 1.56 million bpd due to attacks on oil pipelines in the southern energy hub, home to much of the country’s oil and gas wealth, since the start of the year.
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    Rebound in Asian refining margins may be short-lived

    A rapid rebound in Asian refining margins ahead of the autumn maintenance season could prove short-lived as it may prompt refiners to lock in quick profits by increasing their run rates.

    Singapore refining margins to Dubai crude DUB-SIN-REF hit a 10-month high of $3.32 a barrel on Friday. Though they have since fallen back to $2.19 a barrel on Tuesday, they are still at the highest level since January and more than double levels seen this time last year of around $1.

    Margins typically rise in August before refineries close for maintenance but this year's rise in Asia has been accentuated by two other factors.

    "The rebound is driven mainly by gasoline and weakness in the Dubai benchmark which is flipping back to contango," said Nevyn Nah, an oil products analyst at research firm Energy Aspects.

    Indonesian motorists are buying more petrol amid cheaper pump prices and gasoline supplies in the United States have tightened after hurricanes in the Gulf of Mexico delayed shipments, analysts said.

    Refiners also enjoy better margins when the crude market is in contango as it means their feedstock costs are lower. In a contango market, prices of oil for delivery today are lower than those in the months ahead.

    However, Asian refining margins could start to fall if their current strength encourages refiners operating below capacity to maximise refinery run rates where possible. Some could even postpone some planned September/October maintenance work to take advantage of fat margins, traders said.

    "I think refineries will make hay whilst the sun is at least peeking out, not shining," said Matt Stanley of brokerage Freight Investor Services (FIS) in Dubai. "But alas with higher runs of products, the global product glut could increase, further putting pressure on prices."

    That could dash refiners' hopes that demand for the autumn refinery maintenance season in September and October would help draw down product inventories and reduce the glut in global product supplies.

    The oil markets expect upcoming winter demand for products to rise from 2015 when a warmer than expected winter depressed demand, but that may not enough.

    "This temporary rebound in margins would basically unravel the rebalancing of the products market that has just started, which means that winter would have to be extraordinarily cold in order to draw down product supplies," Nah said.
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    Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead

    Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. This year, they’ll probably find even less, spurring new fears about their ability to meet future demand.

    With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone. The result: Just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947, according to figures from Edinburgh-based consulting firm Wood Mackenzie Ltd. This year, drillers found just 736 million barrels of conventional crude as of the end of last month.

    That’s a concern for the industry at a time when the U.S. Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there.

    New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem, a senior project manager at Oslo-based consultants Rystad Energy AS. “There will definitely be a strong impact on oil and gas supply, and especially oil.”

    Global inventories have been buoyed by full-throttle output from Russia and OPEC, which have flooded the world with oil despite depressed prices as they defend market share. But years of under-investment will be felt as soon as 2025, Bjurstroem said. Producers will replace little more than one in 20 of the barrels consumed this year, he said.

    Global spending on exploration, from seismic studies to actual drilling, has been cut to $40 billion this year from about $100 billion in 2014, said Andrew Latham, Wood Mackenzie’s vice president for global exploration. Moving ahead, spending is likely to remain at the same level through 2018, he said.

    Exploration is easier to scratch than development investments because of shorter supplier-contract commitments. This year, it will make up about 13 percent of the industry’s spending, down from as much as 18 percent historically, Latham said.

    The result is less drilling, even as the market downturn has driven down the cost of operations. There were 209 wells drilled through August this year, down from 680 in 2015 and 1,167 in 2014, according to Wood Mackenzie. That compares with an annual average of 1,500 in data going back to 1960.

    10-Year Effect

    Ten years down the line, when the low exploration data being seen now begins to hinder production, it will have a “significant potential to push oil prices up," Bjurstroem said.

    “Exploration activity is among the easiest things to regulate, to take up and down," Statoil ASA Chief Executive Officer Eldar Saetre said Monday in an interview at the ONS Conference in Stavanger, Norway. “It’s not necessarily the right way to think. We need to keep a long-term perspective and maintain exploration activity through downturns as well, and Statoil has."

    The Norwegian company will drill “a significant number” of wells in the Barents Sea over the next two to three years, exploration head Tim Dodson said Tuesday at the same conference. Given current levels of investment across the industry and decline rates at existing fields, a “significant” supply gap may open up by 2040, he said.

    Oil prices at about $50 a barrel remain at less than half their 2014 peak, as a glut caused by the U.S. shale boom sent prices crashing. When the Organization of Petroleum Exporting Countries decided to continue pumping without limits in a Saudi-led strategy designed to increase its share of the market, U.S. production retreated to a two-year low.

    Global benchmark Brent advanced 0.7 percent to $49.59 a barrel at 10:56 a.m. in London on Tuesday.

    Creating Opportunities

    Kristin Faeroevik, managing director for the Norwegian unit of Lundin Petroleum AB, a Stockholm-based driller that’s active in Norway, said it will take "five to eight years probably before we see the impact" on production from the current cutbacks. In the meantime, he said, "that creates opportunities for some.”

    Oil companies will need to invest about $1 trillion a year to continue to meet demand, said Ben Van Beurden, the CEO of Royal Dutch Shell Plc, during a panel discussion at the Norway meeting. He sees demand rising by 1 million to 1.5 million barrels a day, with about 5 percent of supply lost to natural declines every year.

    Less Risk

    Persistently low prices mean that even when explorers invest in finding new resources, they are taking less risk, Bjurstroem said. They are focusing on appraisal wells on already-discovered fields and less on frontier areas such as the Arctic, where drilling and developing any discovery is more expensive. Shell and Statoil, among the world’s biggest oil companies, abandoned exploration in Alaska last year.

    “Traditionally, it’s the big companies that have had the means to gamble, and they might be the ones that have cut the most,” Bjurstroem said.

    Overall, the proportion of new oil that the industry has added to offset the amount it pumps has dropped from 30 percent in 2013 to a reserve-replacement ratio of just 6 percent this year in terms of conventional resources, which excludes shale oil and gas, Bjurstroem predicted. Exxon Mobil Corp. said in February that it failed to replace at least 100 percent of its production by adding resources with new finds or acquisitions for the first time in 22 years.

    “That’s a scary thing because, seriously, there is no exploration going on today,” Per Wullf, CEO of offshore drilling company Seadrill Ltd., said by phone.

    Attached Files
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    Oil Companies Seen Investing $8 Billion to Start Uganda Output

    Uganda expects three oil companies to invest $8 billion in the East African nation before they start producing oil in 2020, Energy Minister Irene Muloni said.

    The government on Tuesday issued production licenses to London-based Tullow Oil Plc and Total SA of France and said that together with Cnooc Ltd., the state-owned Chinese producer, the country expects to pump as much as 230,000 barrels per day of crude.

    “The companies are expected to invest over $8 billion in the infrastructure required for all the production licenses,” Muloni said in the capital, Kampala. “This investment will be for the drilling of about 500 wells, construction of central processing facilities and feeder pipelines, among others.”

    The companies are expected to make their final investment decisions within 18 months, Muloni said. The licenses will run for 25 years, with the possibility of them being renewed for a further five years, she said.
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    Norway’s Statoil opens North Sea Christmas present early

    Statoil today said it had unwrapped one of its Christmas presents four months early.

    The Statoil-operated Gullfaks Rimfaksdalen field in the Norwegian North Sea was slated to start production on Christmas Eve, but is already on stream.

    The company, which owns 51% of the field, also managed to cut costs to NOK 3.7billion from NOK 4.8billion.

    Statoil said Gullfaks Rimfaksdalen was an example of one of its fast-track projects that are completed quickly and cheaply through the use of existing infrastructure.

    Gas is taken from the field to the Gullfaks A platform using a pipeline that was already in place.

    It is then transported to a processing plant at Karsto north of Stavanger for processing ahead of export to Europe.

    The field contains recoverable reserves of about 80 million barrels of oil equivalent, mostly gas.

    The other licensees are Petoro, with a 30% stake, and OMV, with 19%.

    Torger Rød, senior vice president for project development in Statoil, said: “I am pleased to see that the project starts up four months ahead of plan, demonstrating good and efficient project management.

    “Over time we have focused on reducing costs and raising the profitability of our projects to ensure long-term activity and value creation on the Norwegian continental shelf (NCS).

    “Based on a smart concept using standard solutions and existing infrastructure, Gullfaks Rimfaksdalen strongly proves that we are on the right track to succeed on this work.”

    Arne Sigve Nylund, Statoil’s executive vice president for development and production in Norway, said: “The volumes from Gullfaks Rimfaksdalen help us reach our ambition of maintaining production and a high activity level on the NCS beyond 2030.

    “We have a well-developed infrastructure and we will keep realising opportunities in the North Sea.

    “This development leads to more production, improved value creation and higher activity level on Gullfaks, and also throughout the value chain related to the field.”
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    About 11% of US Gulf of Mexico oil output shut-in as storm threatens area: BSEE

    About 11% of US Gulf of Mexico oil production has been shut-in as operators evacuate platforms in the possible path of a tropical depression expected to pass through the Central-Eastern and Eastern Gulf of Mexico, the US Bureau of Safety and Environmental Enforcement (BSEE) said Monday.

    Offshore operator reports submitted to BSEE as of late Monday morning show operators had shut-in a total 168,334 b/d of oil output as they evacuated crews from a total of six production platforms, the agency said in a statement. There is a total of 781 manned platforms in the US Gulf.

    Total Gulf of Mexico production was almost 1.62 million b/d in May, the latest month for which data was available from the Energy Information Administration.

    Tropical Depression 9 is currently off the west coast of Cuba, but the National Hurricane Center expects it to become a tropical storm on Tuesday and veer to the northwest. It is then forecast to head to the northeast and could make landfall in western Florida later in the week, the NHC said. BSEE said shut-in production figures are estimates based on the amount of oil and natural gas the companies plan to produce that day.

    Operators have also shut in about 190,000 Mcf/d of gas output, BSEE said, or 5.51% of total US Gulf gas production.
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    Chevron inks LNG supply deal with ENN

    Chevron signed a binding sales and purchase agreement with ENN LNG Trading Company, for the delivery of liquefied natural gas to China from its portfolio.

    Under the agreement, ENN LNG Trading Company, the unit of ENN Energy, China’s private owner and operator of LNG terminals, will receive up to 0.65 million metric tons of liquefied natural gas per year, for a period of 10 years, Chevron noted in its statement on Monday.

    First delivery is expected to start in 2018 or the first half of 2019.

    The start of the liquefied natural gas supply matches the expected date of the completion of ENN’s Zhoushan LNG receiving terminal currently under construction. It is expected the terminal will be in operation by 2018.

    Chevron added the LNG volumes under the supply deal will be delivered from the company’s global portfolio including the company’s Australian LNG interests at Gorgon, Wheatstone and the North West Shelf.
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    China imports less natural gas amid weak consumption

    China's imports of natural gas dropped 0.3 percent year on year in July on the back of slowed domestic consumption, official data have shown.

    The decline came at a time when China's natural gas consumption slowed to 2.3 percent in July from 9.8 percent in the first half of 2016, according to the National Development and Reform Commission.

    Anemic demand also dragged down production, which fell 3.4 percent in July, while it increased 2.9 percent in the first half of 2016.

    China's natural gas consumption grew 3.7 percent in 2015, the lowest pace in nearly a decade.

    The country's economic restructuring contributed to the slowdown as factories were the biggest consumers, according to Yin Haitao, an expert at Shanghai Jiaotong University.

    Some enterprises preferred cheaper oil and coal, he added.

    China is now facing an oversupply of natural gas from a previous undersupply, said industry expert Gu Anzhong.
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    Protesters shut down TransCanada pipeline approval hearing

    Canada's National Energy Board has indefinitely postponed hearings in Montreal on TransCanada Corp's proposed Energy East pipeline after protesters on Monday disrupted the first day's session, an agency spokeswoman said.

    Montreal police said three protesters were arrested on obstruction charges, with two of the three also charged with assaulting a police officer.

    Footage posted on Twitter by local media showed protesters at the downtown venue standing, clapping and chanting at the panel.

    "Our first priority at any hearing is always the safety of all participants," NEB spokeswoman Sarah Kiley said in an email. "Once we have determined how we will hear from those intervenors in Montreal who were scheduled to present today and tomorrow, we will share that information."

    Environmental groups opposed to Canadian oil sands development have fought the 1.1 million-barrel-per-day Energy East pipeline, which would carry crude oil from Alberta to Canada's Atlantic coast.

    Opposition has been particularly strong in the mostly French-speaking province of Quebec, which the pipeline would need to cross on its way to the coast. Opponents include Montreal Mayor Denis Coderre, who has cited concerns the route could endanger forest and agricultural land.

    Coderre told reporters on Monday the public needed answers on the number of jobs that would be created from the pipeline and TransCanada's contingency plan in case of a spill.

    Unionized workers hoping to benefit from the construction work estimate the pipeline would create 2,000 jobs over three years in Quebec, where private investment in large projects has been hit by weak commodity prices.

    "Until 2014, there was a shortage of workers," said construction union representative Eric Verdon, who gathered with unemployed members to protest in favor of Energy East. "Now they can't find jobs."

    Calgary-based TransCanada also proposed building the Keystone XL pipeline, which was denied a U.S. presidential permit by Barack Obama last year, and is a frequent target of environmental protesters.

    "We are standing by and ready to respectfully and constructively begin the sessions in Montreal after five such productive sessions in New Brunswick – and we will be ready when the sessions resume," TransCanada said in a statement.

    Energy East has had several setbacks in Quebec. In March, the provincial government filed an injunction against the pipeline to force an environmental review, which TransCanada later agreed to.
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    August 27th, 2016 - Iranian Floating Oil Storage Update

    The amount of Iranian oil on floating storage has decreased by

    1.85 M Barrels

    Last summer The Hedy was, inaccurately, rumoured to have left the Gulf. Windward explained at the time why it hadn't left… Now it has.

    The Current Amount Of Oil Stored

    44.8 M Barrels

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    Iraq Agrees With Kurds to Start Talks on Kurdish, Kirkuk Oil

    Iraq’s prime minister agreed with the semi-autonomous Kurdistan Regional Government to start talks about crude output from northern regions that have been bypassing the central government to export oil.

    Prime Minister Haidar Al-Abadi reached an agreement with KRG Premier Nechirvan Barzani during a meeting in Baghdad to start “technical talks” between the federal oil ministry and the KRG Ministry of Natural Resources, according to an e-mailed statement from Al-Abadi’s office. The talks will focus on the production and distribution of crude from the Kurdish region and the adjacent Kirkuk area, it said.

    “Iraq’s prime minister stressed the necessity to boost oil output and for the Kurds to hand over oil exports from Kurdistan and Kirkuk to the federal government,” Saad Al-Hadithi, spokesman for Al-Abadi, said by phone. “In return, the KRG will receive its financial dues.”

    The central government in Baghdad has been locked in a dispute with the KRG since 2014, when the Kurds began selling their oil independently. Iraq has struggled to raise oil exports this year, due partly to its feud with the KRG, and the new agreement could help OPEC’s second-biggest producer boost northern exports, sustaining its recent increase in supply to global markets.

    New Minister

    Iraq’s new oil minister, Jabbar al-Luaibi, fed hopes when he said on Aug. 15, his first day in office, that he saw ways to resolve the dispute between the central government and the Kurds. Both sides could benefit from a deal, not least because both are short of cash after more than two years of battling Islamic State militants and weathering low oil prices.

    Islamic State invaded large swaths of northern Iraq in June 2014, driving out the Iraqi central government’s army. Kurdish forces then took control of nearby Kirkuk oil fields and started shipping crude from the area through their export pipeline network running to Turkey’s port of Ceyhan.

    Al-Abadi and Barzani also agreed on Monday to cooperate on “liberating” the northern city of Mosul from Islamic State fighters, according to the prime minister’s statement.
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    Oil Refining Empire Helps Sinopec Beat Chinese Energy Rivals

    China Petroleum & Chemical Corp., the refining giant known as Sinopec, outshined its domestic state-run rivals in the first half of the year as its fuel-making business helped it weather the worst crude crash in a generation.

    The world’s biggest refiner reported 19.9 billion yuan ($3 billion) in profit for the first half of the year, according to a filing Sunday with the Hong Kong stock exchange. While that’s down 22 percent from the same period in 2015, it’s more than double its net income in the second half of last year, when it posted its weakest earnings since 2002. Shares on Monday closed 0.2 percent lower at HK$5.61, compared with a 0.4 percent decline in the city’s benchmark Hang Seng Index.

    “Sinopec continues to be a defensive play among China’s Big Three oil companies as its huge refining exposure puts it in a good position to benefit from a low crude price environment,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong, said by phone. “Sinopec’s management deserves a lot of credit for maximizing refining incomes while containing crude losses.”

    The company’s rival PetroChina Co., the country’s biggest oil and gas producer, saw net income drop to 531 million yuan in the first half of the year, a 98 percent plunge even after booking a 24.5 billion yuan gain from selling a Central Asian gas pipeline network. Cnooc Ltd., China’s largest offshore explorer, reported a 7.74 billion yuan loss, mainly from a charge on the value of its Canadian oil sands assets.

    Refining Volumes

    A slump in crude prices benefits fuel makers like Sinopec as their supply costs fall, though the company is still vulnerable to the collapse as it’s the country’s third-biggest oil and gas producer. Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, down roughly 30 percent from the same period in 2015.

    The company’s refining margin, or the profit from turning crude into fuels, rose nearly 48 percent from same period last year to 514.4 yuan a ton, it said in a separate statement on Sunday.

    Sinopec processed 115.9 million tons of crude into fuels during the first half of the year. That’s roughly equal to almost 4.67 million barrels a day, according to Bloomberg calculations. PetroChina refined the equivalent of nearly 2.66 million barrels a day, the company said in its release last week.

    Sinopec will raise refining throughput in the second half of the year to 120 million tons, up 3.5 percent from the first six months, the company said on Sunday.

    China’s oil refiners earlier this year got a boost from a government policy that halts retail fuel price adjustments when oil falls below $40 a barrel, putting a floor under gasoline and diesel prices while crude continued to drop. The rule boosted margins during Sinopec’s first quarter, when net income tripled from a year ago to 6.66 billion yuan.

    China’s state-run oil giants have been slashing spending to weather the downturn, mainly impacting their exploration and production operations. The companies are relying more on overseas crude and natural gas to sustain output as production dwindles at home from aging, high-cost oil fields.

    Sinopec’s crude production in the first half of the year tumbled to 154.2 million barrels, down 11.4 percent from the same period in 2015. Almost the entire drop came from domestic operations, which accounts for more than 80 percent of its crude output. The company forecasts total production will dip in the second half to 147 million barrels, it said Sunday.

    Upstream ‘Disaster’

    “Sinopec delivered better than expected first-half 2016 results as refining margins continued to benefit the group,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in a note Monday. “Upstream remains a disaster.”

    Sinopec shut some inefficient and aging oilfields that had higher production costs than international crude prices in the first half, Chairman Wang Yupu said at a press briefing on Monday in Hong Kong. The refiner will be able to quickly reopen most of these fields when prices return to a reasonable level, Wang said.

    Natural gas production by Sinopec, which in the first six months rose 10 percent year-on-year to 388.7 billion cubic feet, will increase further to 421.2 billion cubic feet in the second half of the year, the company said.

    Spending Cuts

    PetroChina’s domestic crude output slipped 1.4 percent year-on-year to 470.6 million barrels during the first half. The company said last week that it aims to boost the share of natural gas to half its output by 2020, from about 37 percent now.

    China last month pumped the least amount of crude since October 2011, and production has slipped 5.1 percent in the first seven months of the year, according to data from the National Bureau of Statistics. Natural gas output over the same period is up 3.1 percent.

    Sinopec chopped capital expenditures in the first half of the year by more than 40 percent from the same period in 2015 to 13.5 billion yuan. PetroChina’s fell 17.5 percent to 50.9 billion yuan. Cnooc’s spending for the period dropped 33 percent to 22 billion yuan.

    Sinopec maintained the 100.4 billion yuan capital spending target it set at the beginning of the year as it upgrades refineries and starts exploration projects in the second half, President Dai Houliang said at the same briefing on Monday.

    The refiner also announced a new commercial oil and gas discovery in Xinjiang’s Tarim basin. The field may have oil and gas reserves of 1.7 billion tons, it said in an e-mailed statement. The company is targeting production of 1.5 million tons a year from the field by 2020.
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    Mega-Frac Well Comparison Shows Why EIA Weeklies Are Way Off

    Mega-Fracs have significantly increased production in all US unconventional plays, but it isn't just initial production affected, more importantly it is decline rates.

    Mega-Fracs (a general term used to describe a completion that creates a massive amount of fracturing near the well bore) are also lowering play breakevens.

    We compared 98 2014 standard completions with 39 2015 Mega-Fracs in NE McKenzie County, and the Mega-Fracs had a 23% increase in one year total oil production.

    Mega-Fracs are have re-written the decline curve for unconventional wells which have thrown off EIA estimates for production declines in the United States.

    Image title

    Northeast McKenzie County has seen significant traffic, even in a low oil price environment. There are many operators working this acreage. This includes EOG Resources (NYSE:EOG), Whiting (NYSE:WLL), SM Energy (NYSE:SM), Statoil (NYSE:STO), Halcon (NYSE:HK), and Oasis (NYSE:OAS). It is one of the best areas in North Dakota, and has favorable economics. NE McKenzie is unique due to middle Bakken and upper Three Forks producing similar excellent results. It is the intermingling of two core plays providing a thick payzone. The middle Bakken core is quite large. It is located in NE McKenzie, SW Mountrail and NW Dunn.

    Image title

    (Source: Continental)

    Continental Resources (NYSE:CLR) provides an illustration of the area of maximum overpressure. Higher pressures mean resource will be pushed up and out of the well bore at a faster rate. This produces better results, as more oil reaches the surface in a shorter period of time. Pressures increase to the center, so some of the best results are seen in NE McKenzie. Keep in mind this is not the only core play. Parshall field rivals this acreage when comparing the middle Bakken. As a general rule, the best completions are used in the core. NE McKenzie has seen a large number of Mega-Fracs. This is a general term used for completions using high intensity measures to create mega, or a much larger numbers of fractures in the shale. This is done through shorter stages, and tight per clusters.

    Attached Files
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    Platts: Marcellus/Utica Production Nears All-Time High in August

    Platts Analytics is estimating that natural gas output in the combined Marcellus/Utica will average 22.63 billion cubic feet per day (Bcf/d) during August.

    If that bears out, it will an increase of 2% from July and the second highest monthly output EVER for the Marcellus/Utica, second only to February’s all-time high of 22.78 Bcf/d. That is astonishing!

    The numbers are catching analysts by surprise, who did not expect an increase in northeast gas volumes, but instead a decrease. Even the venerable U.S. Energy Information Administration (EIA) predicted August numbers for the Marcellus would go down by 26 million cubic feet per day (MMcf/d), but Utica would increase by 5 MMcf/d, for a total net decrease of 21 MMcf/d

    Not according to according to Platts Analytics. Why the increase in August, of all times?…
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    Iran Sets Condition Under Which It Would Join OPEC Oil Production Freeze

    In the past two weeks, Iran has rejoined the OPEC production freeze headline and jawboning fray, by making bold statements that it would be willing to work with OPEC on the recurring plan other members, mostly Venezuela, have proposed to push prices higher, namely freeze oil production (at a level which is an all time high output for OPEC's largest member, Saudi Arabia, beyond which it can't produce even if it wanted). So earlier today, Iran's oil minister Bijan Zanganeh made the most explicit statement on the topic, when he laid out the conditions under which Iran would be willing to "help other oil producers stabilize the world market."

    It was a simple condition: Iran will cooperate as long as it is excluded from the freeze, or as Reuters put it, Iran will cooperate "so long as fellow OPEC members recognize its right to regain lost market share, the country' oil minister said on Friday."

    In other words, Iran will endorse an OPEC supply freeze as long as it can keep pumping more.

    Iran, OPEC's third-largest producer, boosted output after Western sanctions were lifted in January, and had refused to join OPEC and some non-members in an accord earlier this year to freeze production levels.

    "Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its rights to regain its lost share of the market," Bijan Namdar Zanganeh was quoted as saying by the oil ministry's news agency SHANA.
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    OPEC's Barkindo: Oil producers show realisation action needed on output

    The logo of the Organization of the Petroleum Exporting Countries (OPEC) is pictured at its headquarters in Vienna, Austria, May 30, 2016. REUTERS/Heinz-Peter Bader

    OPEC Secretary-General Mohammed Barkindo sees a growing understanding inside and outside the oil producers' group that action is needed to manage crude production in order to support prices, he said in remarks published in London-based newspaper Al-Hayat.

    He told the newspaper: "There is growing realisation within OPEC and outside that producers inside and outside must take more proactive stands in relation to production management in order to complement traditional market forces."

    "We have seen where the approach of non-intervention in prices since 2014 has led," he said in remarks published in Arabic.

    Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum (IEF), which groups producers and consumers, in Algeria on Sept. 26-28.

    Asked about the possibility of an agreement on freezing production levels, he said: "Nothing is impossible in the current situation, and I know that no country in OPEC is immune to low prices."
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    GLOBAL LNG-Asian prices steady as spot cargo fetches high rate amid glut

    GLOBAL LNG-Asian prices steady as spot cargo fetches high rate amid glut

    Asian spot liquefied natural gas (LNG) prices held steady in the absence of any decisive indicators, with a lone deal being done at a higher-than-expected level in an amply supplied market.

    Prices for October-delivery LNG to Northeast Asia were valued at around $5.50 per million British thermal units, unchanged from last week's levels, traders said.

    A spot deal for an early October-loading Australian North West Shelf (NWS) LNG cargo was done via a sell tender issued by BHP Billiton this week at around $5.40 per million British thermal units on a free-on-board basis.

    Traders said the deal, factoring in freight, would be equivalent to around $5.80 per million British thermal units on a delivered basis to Northeast Asia, but added that prices in the region were below those levels.

    A Singapore-based trader said the buyer bid aggressively for the cargo, likely to "cover a short" in required supplies after buying a Nigerian cargo earlier.

    Supply disruptions in Nigeria have forced traders who usually take West African cargoes to seek alternative sources for replacements.

    Traders also said that the NWS deal was more expensive than expected as a September-loading supply overhang was generally weighing on prices.

    Tenders offering two September-loading Australian Darwin LNG cargoes and a separate tender offering two Trinidad and Tobago LNG cargoes closed this week. Reuters was not able to establish the tender award details.

    However, traders said that they expected these cargoes to be awarded at lower prices than the October-loading NWS deal.

    Given a general supply overhang, Asia-Pacific LNG producers are looking at new means of marketing their cargoes and are exploring multi-year contracts for sales of spot cargoes.

    ExxonMobil Corp's Papua New Guinea LNG project is eyeing such contracts to soak up excess production, co-owner Oil Search said on Tuesday.

    The new contract types come as buyers are reluctant to commit to traditional long-term contracts as a supply glut in the LNG market offers them greater sourcing options and wears down their concerns over supply security.

    Simultaneously, producers are unwilling to market their surplus cargoes on the spot market because of depressed prices.

    Supply and demand fundamentals could, however, be inching towards equilibrium as emerging countries like Egypt and Pakistan import more of the super-cooled fuel.

    Pakistan, which is moving towards becoming a key LNG buyer, recently signed a deal to purchase a Floating Storage and Regasification Unit for its second import terminal.
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    API: US LNG critical to Europe

    API: US LNG critical to Europe

    Following a recent statement from the US Vice President, Joe Bidden, outlining Europe’s need for “diverse sources of natural gas,” the Executive Director for Market Development at the American Petroleum Institute (API), Marty Durbin, has emphasised the benefits that increased US LNG exports would provide to the US’s allies in Europe.

    Mr Durbin said: “Our nation is leading the world in the production of oil and natural gas, even as we lead the world in the reduction of carbon emissions, which are near 20-year lows […] America’s growth in natural gas production means that through LNG exports we can give our allies stability and security in the global natural gas market. America’s shale revolution is growing our economy, spurring environmental improvements and strengthening our own energy security. US LNG will give our allies an opportunity to achieve those some goals.”
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    Alternative Energy

    SolarCity adviser Lazard made mistake in Tesla deal analysis

    Lazard Ltd, the investment bank that advised SolarCity Corp on its $2.6 billion sale to Tesla Motors Inc, made an error in its analysis that discounted the value of the U.S. solar energy company by $400 million, a regulatory filing by Tesla showed on Wednesday.

    While the purchase price was within the valuation range that Lazard came up with for SolarCity even after accounting for the miscalculation, the error illustrates how even leading investment banks can make mistakes on some of the highest-profile deals.

    The mistake came after Tesla and SolarCity co-founder Elon Musk, who is the largest shareholder in both companies, went out of his way to create processes and structures, including a special board committee at SolarCity, aimed at alleviating concerns that he used his influence to force the two companies into a deal.

    An analysis by Lazard for SolarCity that indicated an equity value of between $14.75 and $34.00 per share was wrong because it double-counted some of the company's projected indebtedness, according to Tesla's filing with the U.S. Securities and Exchange Commission.

    This was the result of a computational error "in certain SolarCity spreadsheets setting forth SolarCity’s financial information that Lazard used in its discounted cash flow valuation analyses," according to the filing.

    The error was not included in the valuation analysis performed by Tesla and its financial adviser, Evercore Partners Inc (EVR.N), the filing said.

    After becoming aware of the mistake on Aug. 18, more than two weeks after the signing of the deal, Lazard realized the accurate valuation range was $18.75 to $37.75 per share.

    SolarCity and Tesla agreed however that the error would not change their view of the deal, according to the filing. The purchase price, to be paid with Tesla stock, equated to $25.37 per share.

    Lazard, SolarCity and Tesla declined to comment.

    Lazard ranks No. 10 in the Thomson Reuters Americas M&A league table so far this year, down two spots on where it was last year.

    This is not the first time a major investment bank has made a miscalculation on a big deal. An erroneous share count in the leveraged buyout of Tibco Software in 2014 by its financial adviser, Goldman Sachs Group Inc (GS.N), led to a Tibco shareholder lawsuit that was settled earlier this year.

    Goldman discovered it had overstated the number of Tibco's fully diluted shares only after the company agreed to sell itself to private equity firm Vista Equity.

    This had the effect of lowering the sale price to $4.14 billion from the $4.24 billion used in Goldman's fairness opinion. Nevertheless, Tibco decided not to ask Vista to pay the additional $100 million.

    Goldman and Vista agreed to pay $30 million to the Tibco shareholders as part of the settlement, the Wall Street Journal reported at the time.
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    Iowa approves giant $3.6bn wind project

    The Iowa Utilities Board has approved a 1,000 turbine wind project.

    The $3.6 billion (£2.72bn) Wind XI wind farm is expected to generate up to 2GW of electricity.

    It is MidAmerican Energy’s largest wind project, with 1,000 turbines to be installed by the end of 2019 at multiple sites across the state.

    President and CEO Bill Fehrman said: “Wind energy helps us keep prices stable and more affordable for customers, provides jobs and economic benefits for communities and the state and contributes to a cleaner environment for everyone.”

    The project is expected to generate more than $1.2 billion (£0.91bn) in landowner easement and property tax payments over the next 40 years as well as provide thousands of jobs during construction.
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    Mined-out Chinese coal capital bets on photovoltaic industry

    The city of Datong in Shanxi Province has been moving residents out of a coal-depleted mining zone as the north China city bets on solar energy to revitalize its economy.

    Rivers have gone dry and cracks have appeared on land and houses following years of erosion from coal mining in the 1,687-square-km area of Datong.

    The municipal commission of development and reform said on Monday that 250,000 people have been resettled away from the mined-out areas, and the remaining 120,000 people will be moved out by the end of 2017.

    The city, once dubbed "China's Capital of Coal," churned out over 7.5 percent of the country's annual coal output at its peak in 1999. Coal mining in Datong dates back 1,500 years, and its modern mining industry took shape in the late Qing Dynasty (1644-1911).

    However, the heavy environmental costs have made Datong an exemplar of China's resource-depleted cities scrambling to build new economic pillars.

    "Infrastructure construction started in 2015 to turn the uninhabitable swaths into a huge photovoltaic base," said Zhao Yaodong, an energy official with the commission.

    According to plan, the city will a build photovoltaic project with an installed capacity of 3 million kilowatts on the deserted land from 2015 to 2017.

    The objective has made Datong the first Chinese city to plan a million-kilowatt photovoltaic industry.

    In June, power generated by Datong's photovoltaic facilities was connected to the state power grid.

    Under the city's photovoltaic development contracts, villagers who were removed from the land will share profits from 20 kilowatts of electricity annually. The emerging industry should also offer job opportunities to farmers who have lost their land.
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    Molycorp thrown a lifeline

    Bankrupt Molycorp has been offered a vital loan to keep its Mountain Pass mine under care and maintenance.

    On Wednesday the former rare earths producer morphed into Neo Performance Materials, but its rare earths mine and processing facility – the only mine and processor of REEs in the United States – is still under a separate Chapter 11 bankruptcy after Molycorp failed to find a buyer for the mine and release it from Chapter 11. The bankruptcy trustee tried to get a court to shut down the bankruptcy due to lack of funds, but on Tuesday, he revealed that Lexon Insurance Co. "has offered to lend the estate $4.2 million to maintain the mine and continue the search for a buyer," the Wall Street Journal reported.

    That means the mine will continue to be maintained safely, including keeping pumps running to contain groundwater contaminated by the rare earths separation process.

    Once considered the vehicle to challenge China's domination of the rare earths market (the Asian superpower mines about 90 percent of the materials used in everything from cell phones to defense systems) through Mountain Pass – Molycorp's fall from grace began in 2014. That summer the rare earths producer was forced into bankruptcy, a victim of low rare earth oxide prices. Shareholders sued the company's officers and directors, hoping to collect on their liability insurance. According to court filings, Molycorp spent $1.7 billion to outfit Mountain Pass with specialized equipment.

    A restructure plan made Molycorp 92.5 percent the property of Oaktree Capital Management LP, from which Molycorp received $130 million in debt financing. Unsecured creditors, including Molycorp bondholders, got the rest.

    The Greenwood, Colorado- based company moved Mountain Pass into care 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 had caused the prices of REOs to spike. When China subsequently relaxed export rules, however, prices fell, leaving Molycorp to pay the close to $2 billion bill for expanding Mountain Pass.

    Hit by lower rare earth prices, Molycorp warned it might not have enough money to remain in business. Three months later, it filed for chapter 11 bankruptcy protection.
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    Tesla plans to raise additional cash this year

    Tesla Motors Inc plans to raise additional cash this year to help fund development and production of its new Model 3 sedan and build out a giant battery factory, the company said on Wednesday.

    The electric carmaker plans to raise money through either an equity or debt offering, it said in a registration statement filed with the U.S. Securities and Exchange Commission.

    Tesla Chief Executive Officer Elon Musk had warned the company might need "a small equity capital raise" in 2017.

    Earlier this month, Tesla said it closed the second quarter with nearly $3.25 billion in cash, but in July it repaid $678 million on a revolving credit line and planned to redeem $422 million in convertible notes.

    That would leave the company with $2.15 billion in cash. But it also told analysts earlier this year it planned to spend $1.75 billion in the second half on plants and equipment, primarily to get the $35,000 Model 3 ready for production next year and finish construction at the Reno "gigafactory."

    As a result, Tesla would be left with around $400 million in cash at a time when the company has been burning through cash and is in the process of acquiring and absorbing its money-losing sister company, SolarCity Corp.

    Tesla has posted operating losses in 14 straight quarters and negative cash flow since early 2014.

    The company said its main source of revenue is the sale of vehicles, but deliveries fell below projections in the first half, to 29,222.
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    Yunnan's power transmission exceeds 500 TWh

    Southwestern China's Yunnan province transmitted a total 500.4 TWh of electricity to eastern cities of China since 1993 till August 9 this year, of which 75% were clean energies, the China News reported on August 31.

    The province, boasting rich resources of water and solar energy yet suffering backward economy, began to supply electricity to Tianshengqiao in Guizhou province through a 220 KV power transmission line in August 1993.

    Later in end-2001, it pledged to vigorously develop power industry to be another pillar industry of the province.

    Over 2006-2015, the installed capacity of power generation in Yunnan increased to 80 GW from 10 GW, which further accelerated the construction of electricity outbound channels.

    Yunnan saw its "West-to-East" power transmission capacity nearly triple to 25.2 GW, compared to 9.3 GW in 2010, accounting for 59% of the total capacity of "West-to-East" power transmission projects from China Southern Power Grid.

    The Yunnan Grid realized asynchronous connection with China Southern Grid on July 1 this year, which upgraded electricity transmission channel consisting of four AC and four DC lines into seven DC power transmission lines. The move was expected to strengthen electricity supply in Guangdong and Guangxi while enhancing the revenue of Yunnan.

    As present, the daily power outbound transmission of Yunnan Grid accounted for over 60% of China Southern Grid.

    Yunnan Grid announced that its "West-to-East" power transmission capacity will increase to 31.2 GW over 2016-2020.
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    Hollande says Paris climate change deal far from being implemented

    French President Francois Hollande said on Tuesday an international deal on climate change agreed in Paris last year was still far from being implemented and called on countries to ensure it was ratified by year-end.

    "The immediate urgency is to ensure the (climate agreement) is put into action by year-end. That's far from being achieved. I ask you to double your efforts to push countries where you reside to ratify the accord before Marrakech," he said addressing an annual gathering of French ambassadors.
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    India to invest £1.4bn in biogas projects

    India plans to invest Rs 142 crore (£1.42bn) in biogas projects in 2016/17.

    Piyush Goyal, Minister for Power, Coal, New & Renewable Energy and Mines said the government is promoting the green technology under three schemes.

    National Biogas and Manure Management Programme caters to setting up “family-type” biogas plants for meeting energy needs for cooking in rural and semi-urban areas of the country.

    A target for installing 100,000 biogas plants has been set for the year 2016/17.

    The Biogas Power General Programme aims to install plants with a capacity of 3KW to 250KW and part of the funding will be used for the Waste to Energy Programme which aims to build large plants that can recover energy from urban, industrial and agricultural waste.
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    Britain does not need Hinkley for future energy needs -think tank

    Britain does not need the Hinkley Point C nuclear project and could use a mixture of alternative resources to guarantee its future energy needs at a lower cost, an energy and climate think tank said on Friday.

    Britain stunned the energy industry in July when, at the last minute, it failed to sign off on an 18 billion-pound plan by France's EDF to build two reactors at Hinkley with financial backing from a Chinese state-owned company.

    Prime Minister Theresa May's government said it needed more time to consider the plan after critics said it would endanger Britain's energy security and cost more than was necessary.

    Britain needs to invest in new power stations as all but one of its existing nuclear plants, which produce around a fifth of the country's electricity, are set to close by 2030.

    Coal-fired power plants provided around a quarter of the country's electricity last year, but the government plans to close them by 2025 as a part of efforts to meet climate targets.

    The Energy & Climate Intelligence Unit, a non-profit organisation which provides analysis on British energy and climate change issues, said the country could meet its targets even without the Hinkley project.

    The group said a mixture of established approaches could be used, such as wind farms, gas-fired power stations and cables that connect the UK grid with other countries. Combined with measures to manage demand, Britain could save around 1 billion pounds ($1.32 billion) per year, it said.

    "Our conclusion is that it's not essential," ECIU director Richard Black said. "Using tried and tested technologies, with nothing unproven or futuristic, Britain can meet all its targets and do so at lower cost."

    The report said four big wind farms, in addition to those already being built, could bring as much electricity into the grid as Hinkley would generate, while three additional interconnector cables could also offer the same supply.

    "The scenarios outlined in the ECIU report are not credible alternatives to Hinkley Point C," an spokesman for EDF's British subsidiary EDF Energy said in an email.

    "(Hinkley C's) cost is competitive with other large-scale low carbon technologies. It will generate electricity steadily even on foggy and still winter days across Northern Europe. It will play a crucial role as part of a future, flexible energy system," he said.

    EDF was awarded a minimum electricity price contract by the British government of 92.50 pounds per megawatt hour (MWh), while similar contacts awarded so far for offshore wind production have been for 115-120 pounds/ MWh.

    May's government has indicated it will make a decision on Hinkley in September.
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    Banks backstop Sirius Minerals for $2.9B UK potash mine

    Plans for a new potash mine in northern England moved a step forward on Thursday when the mine developer announced it has lined up six companies to backstop the project.

    London-listed Sirius Minerals Plc said that JP Morgan, Lloyds Bank, Société Générale, RBS, Export Development Canada and ING will supply $2.6 billion in debt facilities to support the second stage of developing the mine such as tunnel boring. The non-binding agreement depends on the ability of Sirius to secure first-stage funding which will pay for higher-risk activities like shaft sinking, The Telegraph reported.

    York Potash mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate an initial 10 million tonnes per year of polyhalite – a form of potash that is used in plant fertilizers.

    The newspaper said the company is in “active discussions” with companies that could provide first-stage financing which will be a mix of debt and equity. In June Sirius said it will use Associated Mining Construction UK (AMC), known for its expertise in shaft sinking for potash projects, for the design-build of the mine, as well as for site development works; and appointed Hochtief Murphy Joint Venture for the construction of the mineral transport system, specifically the tunnel that will link the mine with the materials handing facility.

    Sirius’ mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate an initial 10 million tonnes per year of polyhalite – a form of potash that is used in plant fertilizers – before it enters a second phase that will double that production to 20 million tonnes a year.

    York Potash mine is expected to create about 1,800 jobs during construction and 1,000 permanent positions once opened. The project has attracted some controversy because it lies under the North York Moors national park, but defenders of the mine say that construction will be underground and include a 25-mile-long conveyor belt that will carry the ore to port.

    Sirius had originally expected to begin production in late 2016, with initial output of 5 million tonnes per year, and had signed a few future supply agreements. The current development schedule, however, points at 2018 as the most likely time for production to begin.

    Investors in Sirius Minerals have been rewarded this year for their staying power, with the equity advancing an impressive 154% year to date.

    The stock surge comes despite seemingly unfavourable conditions for a new potash mine. A global oversupply of the fertilizer has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.

    Prices for the fertilizer ingredient began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.

    Potash's collapse picked up speed in the past year, putting additional pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.

    In August the world’s largest miner BHP Billiton, revealed it may place its Canadian Jansen potash project in the back burner if prices for the fertilizer ingredient don’t pick up by the end of the decade. A major potential consolidation is also underway, with Potash Corp. of Saskatchewan, the world’s largest producer of the fertilizer by capacity, and rival Agrium revealing recently they are in preliminary merger talks.
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    USDA Sees 2016 Farm Income Crashing As Farmer Leverage Spikes to 34 Year Highs

    USDA Sees 2016 Farm Income Crashing As Farmer Leverage Spikes to 34 Year Highs
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    The plight of the American farmer has been a frequent topic for us over the past couple of months.  A few weeks ago we pointed out how declining corn, wheat and soybean prices were leading to the first declines in farmland values in the Midwest since the 80s.  We also questioned whether California farmland was overvalued by $70 billion as almond prices have been cut in half over the past year and drought conditions threaten farming sustainability in many regions of the Central Valley.

    Most food grown in the U.S. has come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from the combined effect both a weak Chinese economy and a relatively strong U.S. dollar.  This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand.

    Unfortunately, per the USDA's latest farming income forecast for 2016, conditions only look to be getting worse for farmers as demand still remains low but supply has been slow to adjust in the wake of improving yields.  Below are a couple of the key takeaways from the USDA's 2016 forecast.

    Real farm incomes in 2016 are expected to sink below 2010 levels which represents a 34% decline from the recent peak and 14% decline YoY.

    Meanwhile farm debt continues to rise at an astonishing rate...


    While farmer leverage has spiked to the highest level since the early 80s.
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    And of course, lower incomes means less money to spend on shiny new John Deere tractors with equipment capex expected to decline 31% YoY.
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    And finally, farmer returns have crashed to the lowest levels ever.  We're not sure about you but a 2% ROIC seems a "little low" even in our current rigged interest rate environment.  So, there's only a couple of ways to fix that problem...either commodity prices have to recover quickly or farmland prices need to come down substantially.  Which do you think will happen first?

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    Attached Files
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    Deere, Monsanto Slide After DOJ Files Suit To Block Precision Planting Deal; Ag Sector Lower

    Several months after dozens of merger arb funds had their worst day in years when the US government effectively killed the Pfizer-Allergan deal, moments ago both Deere and Monstanto stocks dropped, after the DOJ filed a lawsuit seeking to block Deere's deal for Monsanto's Precision Planting.


    The news promptly dragged down the entire ag complex...


    ... as it now appears that the US government has shifted away from blocking tax inversion deals, and is instead focusing on the US agri space.

    As a reminder, in November 2015, Monsanto and Deere struck a deal to strengthen their cooperation in the emerging business of big-data services that help farmers improve crop performance. Deere agreed to buy Monsanto’s line of high-tech planting equipment, called Precision Planting, and in return make it easier for farmers to link their John Deere machinery to Monsanto’s Climate Corp. unit, which crunches data on crop performance and weather conditions to formulate farming advice. Terms of the deal weren’t disclosed.

    The deal “benefits all our customers and will allow for more information and better data-driven insights to come out of Climate,” Mike Stern, president of the division at Monsanto, said Tuesday.

    It appears that US government thought otherwise.
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    Fertilizer giants Potash Corp, Agrium talk merger- Bloomberg

    Canadian fertilizer companies Agrium Inc and Potash Corp of Saskatchewan Inc are in talks to merge, Bloomberg reported on Tuesday, in what would be a tie-up of the world's biggest crop nutrient company by capacity and North America's largest farm retailer.

    The combination could be announced as soon as next week, Bloomberg reported, citing people familiar with the matter.

    No final decisions have been made and the companies could decide against a deal, Bloomberg said.

    Spokespeople for the companies could not be reached.

    Fertilizer companies have suffered lower profits as prices of crop nutrients, especially potash, have tumbled to multi-year lows due to excessive supply and weak demand, tied partly to softer currencies in buyer markets such as Brazil.

    "I think (a merger) will make them a better force to compete on a global scale," said Mohsin Bashir, portfolio manager at Stone Asset Management Ltd, which owns Agrium shares, adding however that regulator approval may be difficult to gain.

    Potash Corp is the third-biggest seller of potash globally, but owns the most capacity, some of which is idle due to the industry's slump. It also produces nitrogen and phosphate fertilizer.

    Merging with Agrium would give Potash a direct channel to U.S. farmers through Agrium's retail stores, which as of May accounted for 17 percent of the U.S. market.

    It also would allow Potash to diversify from its heavy weighting in its namesake nutrient, said Chris Damas, principal of BCMI Research.
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    US growers eye more soybeans, less corn

    Strong demand and profitable hedging opportunities on this year’s crop may convince farmers to boost their soybean acreage again next year, according to Farm Futures first survey of 2017 planting intentions.

    Results of the annual survey, typically the first in the industry, were released on the opening day of the Farm Progress Show, held this year near Boone, Iowa.Growers said they are considering devoting a record 84.4 million acres to the oilseed, up almost 1% from 2016. But at the same time, they plan to put in less corn and wheat.

    Though farmers have shown a preference for corn historically, red ink may trim plantings to only 93.1 million acres next spring. That would be down around 1 million from 2016, when they boosted plantings 7%. Wheat seedings could be lower for the fourth consecutive year, in a market beset by low prices.

    Producers said they were ready to plant 49.1 million acres, down 3.4%, which would be the lowest total since 1970. Most of the cutback would come in hard red winter wheat sown on the central and southern Plains, which had very good yields in 2016, and very weak cash prices as a result. Hard red winter wheat seedings could fall nearly 1.4 million, to 25.1 million.

    Soft red winter wheat could also be down, losing 2.7% to 6.4 million. But growers in the Pacific Northwest could be ready to boost white wheat planting modestly if conditions allow.On the northern Plains, spring wheat ground could fall nearly 2% to 11.9 million, with durum down slightly after an increase in 2016.

    Two other crops besides soybeans could pull a little acreage away from wheat and corn. Growers said they want to boost cotton plantings about one-half of 1% to 10.1 million. Sorghum ground could also be up less than 1% to 7.3 million.The survey queried 1,225 growers from around the U.S. during late July and early August.

    Producers were invited by email to fill out an online survey about their planting plans.With harvest of 2016 crops barely underway, much obviously could change by the time planters start rolling, said Farm Futures grain market analyst Bryce Knorr, who has conducted surveys for the magazine since 1988.“Farmers show a tendency to base planting decisions on what worked the previous year, and soybeans were profitable for growers able to take advantage of hedging opportunities this summer,” Knorr said.

    “Strong buying from China also provides a much better fundamental underpinning for the market compared to corn and wheat, which lack demand drivers.”Knorr said the ratio of new crop soybean to corn futures favors soybeans, though prices for both crops are well below break-even levels.“Another factor to watch is moisture for seeding winter wheat,” he continued. “Above average rainfall is forecast over the central Plains into September, which could convince more farmers to plant wheat, hoping to double crop soybeans behind it.

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    Australian cash wheat price falls to multi-year low on abundant supply outlook

    The cash price for Australian wheat fell to a fresh multi-year low of $205/mt FOB Western Australia for Australian Premium White Monday, as an anticipation of record supply for 2016-2017 (October-September) crop pressurized market outlook.

    This is the lowest assessment since S&P Global Platts started assessing APW in November 2015.

    "We have not seen such low pricing since [the] 2008-2009 record harvest [in] the low $200/mt FOB WA," an Australian trader said Monday.

    Australian wheat production in 2016-2017 is expected to rise to a five-year high of 26.5 million mt amid favorable weather and soil conditions, according to estimates by the US Department of Agriculture in August.

    In anticipation of higher wheat production, the main bulk handler in Western Australia, CBH is preparing for 400,000-500,000 mt of temporary storage to cater to an estimated 27 million-30 million mt wheat crop, according to local media.

    Traders pegged possible carryout in Australia for 2016-2017 at 8 million-10 million mt, noting the erosion of market share in Indonesia and other Southeast Asian markets over the last two years due to unwillingness of Australian farmers to sell at the lower international price levels.

    Over the last year, Australian wheat exporters have lost some of their market share in the Middle East and Southeast Asia -- mainly to Russia or Ukraine -- due to uncompetitive prices.

    This led to weak sales volume in the first half of the year, and concerns of higher carryover stocks.

    Offers for "new crop" Australian wheat exports were heard in the $203-$204/mt FOB WA range Monday for APW loading in December 2016 or January 2017, with buyers seen in the mid-$190s/mt, traders reported.

    "We shall wait for January pricing from Ukraine or Russia to compare prices," said an Indonesian miller.

    The lower Australian prices could possibly prompt Southeast Asian buyers to increase their procurement of Australian wheat, as the recent increase in freight rates and Black Sea wheat prices might edge out the competitiveness of Black Sea wheat, a Southeast Asian miller commented.
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    Precious Metals

    Investigation of Goldcorp Inc. Announced by Law Offices of Howard G. Smith

    Law Offices of Howard G. Smith announces an investigation on behalf of investors of Goldcorp Inc. (“Goldcorp” or the “Company”) (NYSE: GG) concerning the Company and its officers’ possible violations of federal securities laws.

    Goldcorp engages in the acquisition, exploration, development and operation of precious metal properties in Canada, the United States, Mexico and Central and South America.

    On August 24, 2016, Reuters reported that Goldcorp was currently being investigated by Mexican regulators concerning its handling of a contaminated water leak at the Company’s Penasquito goldmine. According to the article, the Penasquito mine was leaking selenium into the groundwater as early as October 2013; and Goldcorp had failed to disclose the extent of the environmental contamination to the Mexican regulators and the investing public.

    On this news, Goldcorp fell over 9% per share, closing at just $16.05 per share on August 24, 2016.

    If you purchased Goldcorp securities, have information or would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Howard G. Smith, Esquire, of Law Offices of Howard G. Smith, 3070 Bristol Pike, Suite 112, Bensalem, Pennsylvania 19020 by telephone at (215) 638-4847, toll-free at (888) 638-4847, or by email to howar[email protected], or visit our website at
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    Implats sounds warning on platinum supply crunch

    Impala Platinum CEO Terence Goodlace has backed up the prediction made last week by Northam Platinum (Northam) CEO Paul Dunne that the platinum market is heading towards a crunch that will be triggered by sharp drops in supply from South Africa.

    Speaking on a conference call held today over Implat’s results for the year to end-June Goodlace commented, “ I believe the train is coming because of the lack of investment in the platinum industry.

    “We are not too far from the years 2020 to 2022 when supply from the country will drop off a cliff. I believe the big deficits we are seeing now are going to get worse. In the short-term pgm (platinum group metal) prices will remain subdued but I certainly believe there will be a big surprise in the future,” Goodlace said.

    Presenting Northam’s results on August 26 Dunne predicted South African platinum production would fall below 4moz during 2017 because of declining mine production which was an aspect of the business he believed was not fully appreciated by the market which was overly focused on the demand side of the demand/supply equation.

    He said the declining trend was being driven by underinvestment in replacement and new platinum mining capacity over the past decade as well as by the rising level of technical difficulty and costs involved in mining platinum at greater and greater depths.

    “We think there is going to be a large fundamental gap by 2025 between platinum demand and primary platinum supply out of southern Africa which holds 80% of the world’s total platinum orebody, “ Dunne predicted.

    While South Africa is by far the world’s largest platinum producer it does not dominate in palladium production where – according to Implats refining and marketing executive Paul Finney – there is also a major shortfall looming.

    Finney said market deficits in palladium would continue commenting, “ palladium recycling will not plug this gap and we don’t believe ounces (stockpiled) on surface will plug the gap either. “

    Implication is that automobile manufacturers may have to swing back to using greater amounts of platinum in autocatalyst from a situation where palladium was previously widely substituted for platinum in the autocatalyst needed to clean up emissions from petrol engines.

    Implats’ shares rose more than 11% in trading on Thursday morning after the release of the results which met market expectations and showed the group had not only managed to increase production but had hit targets on operating cost and capital expenditure reductions.   The group did not declare a dividend.

    This was Goodlace’s last results presentation because he will step down as CEO by the end of November. Asked why he was leaving Goodlace replied “it’s personal. I have been in the industry for 40 years. It’s time I left and relaxed a little bit.”

    Goodlace said the executive search for his replacement was continuing and commented, “we have identified a few candidates and we are doing the due diligence process. I am still on the hook until November 30.”
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    Scientists find way to extract gold from old gadgets

    Scottish scientists have developed a new method for recovering gold from old gadgets such as mobile phones, TV’s and computers, which not only doesn’t require the use of toxic chemicals, such as cyanide, but it is also said to be more effective than current techniques.

    According to the researchers from the University of Edinburgh, who have just published their findings in the journal Angewandte Chemie, their extraction method could help recover about 300 tonnes of the precious metal used in electronics each year.

    Researchers from the University of Edinburgh say their method could help recover about 300 tonnes of the precious metal a year.

    They estimate that electrical waste contains as much as 7% of all the world’s gold as the precious metal is a key component of the printed circuit boards found inside most modern devices.

    The team’s proposed technique involves submerging printed circuit boards in a mild acid to dissolve the metal parts, before adding an oily liquid containing the team's chemical compound. That solution then helps extract gold selectively from the complex mixture of other metals, the researchers say.

    The findings could aid the development of methods for large-scale recovery of gold and other precious metals from waste electronics, the team says.

    "We are very excited about this discovery,” Professor Jason Love, who led the research, said in a statement. “We have shown that our fundamental chemical studies on the recovery of valuable metals from electronic waste could have potential economic and societal benefits."

    The study, funded by the Engineering and Physical Sciences Research Council, is one of many staff and student-led initiatives at the University of Edinburgh to promote the so-called “circular economy,” which encourages reuse of materials and greater resource efficiency.
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    India may auction diamond mine abandoned by Rio Tinto

    India will auction a diamond project that global miner Rio Tinto is abandoning, or allocate it to a state firm, the mines secretary said on Tuesday, adding that the government would move fast to tap the resource.

    The Bunder deposit, about 500 km (300 miles) southeast of New Delhi and discovered by Rio Tinto in 2004, is estimated to contain about 27.4 million carats of diamonds potentially worth billions of dollars.

    But Rio Tinto said this month it would pull out of the project, on which it has spent about $500 million, by the end of the year to conserve cash and cut costs.

    In early August, the company reported a 47 percent slump in first-half profit to its weakest in 12 years and underlined the importance of cost-cutting.

    Mines Secretary Balvinder Kumar told Reuters in an interview the withdrawal was a surprise as the company was close to getting a forest clearance for the mine from the environment ministry.

    Rio Tinto's decision came at a time when the government was seeking the help of it and its rivals, such as Anglo American, to explore for diamonds and gold to make India a major mineral producer.

    "It's a commercial decision taken by their headquarters in which we could have not done anything," said Kumar, who has been briefed by Rio Tinto India management on the exit.

    "Bunder is one of the best deposits in India and we would like to make sure that it is tapped."

    Kumar said he would talk to parties interested in Bunder when Rio Tinto formally hands the project back to the state government of Madhya Pradesh, where it is located.

    He said Madhya Pradesh already had a lot of data on the mine that can be shared with potential bidders or any government company willing to develop it.

    Rio Tinto has said the company would work with the government on the future of Bunder and was "looking at options for a third-party investor to carry forward the development of the project".
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    Mothballed Ghana gold mine reveals risk of reliance on minerals

    Two years after AngloGold Ashanti suspended production at its giant but loss-making gold mine in Obuasi, central Ghana, the boom of underground explosions has resumed.

    Lacking any alternative in an area devastated by the mine's closure and the loss of thousands of jobs, hundreds of people broke into the site, dug shafts by hand and grew so bold in their quest for gold they started using explosives.

    Earnings as high as 10,000 cedis ($2,600) a month from the illicitly mined gold mean people are willing to gamble with their lives.

    "This work is risky work. Some people go there and on their first time they don't come back," said Barack Godspeed, 27, who says mining is his only option even though he has a science degree.

    Obuasi's downturn highlights the pitfalls of Ghana's - and Africa's - dependence on its mineral sector and the question of how countries will adjust as natural resources start to dwindle.

    For decades Obuasi and its 100-year-old mine attracted jobs and investment, to the envy of other towns. It even boasted a premier league football team, Ashanti Gold.

    Since the mine fell silent, residents say unemployment soared, crime rose and the town's secondary businesses suffered.

    "None of us really considered that there could be a time when the mine is no more," said Kwabena Kwarteng, a local MP.

    Metals, fuels and ores represent 60 percent of Africa's exports, the World Bank said in a recent report, making it vulnerable to global price swings. The recent slump has reduced average growth in oil-producing countries from 5.4 percent in 2014 to 2.9 percent last year.

    Ghana's experience illustrates the problem. A boom that relied on exports of gold, cocoa and oil saw five years of sustained GDP growth at around 8 percent and lifted Ghana to official 'middle income' status.

    Since 2014, however, growth has slowed sharply, coinciding with the commodities slump.

    The government began following an aid deal with the International Monetary Fund last year to reduce its inflation, public debt and fiscal deficit.

    "You can tell the whole story of the mining industry in Africa and in Ghana in particular through Obuasi," said Emmanuel Kuyole, Africa deputy director of the Natural Resource Governance Institute.

    "There wasn't serious thinking about Obuasi beyond the mine and now the mine has nearly closed and the other investments aren't sustainable," he told Reuters.

    Since the mine stopped producing, AngloGold has maintained social commitments including treating water, providing free power to some communities, building schools, donating medical equipment and running a malaria programme, according to Eric Asubonteng, managing director of AngloGold Ashanti Ghana.

    But that help and payments to unemployed miners cannot sustain the local economy, residents and union officials said.

    Benjamin Annan of the Association of Small Scale Miners in Obuasi said part of the problem was that farmland in the vast mine concession area was off limits or had been damaged, cutting off a potential source of employment.

    Businessman Michael Mensah said trade at his shop, which sells tiles and plumbing equipment, had plummeted since the lay-offs. Even the football club is now in trouble.


    AngloGold officials say at least 25 illegal miners have died this year in accidents.

    The illegal shafts extend down up to 50 metres, stiffened with interlaced branches to prevent collapse. Miners descend with torches and tools and pass sacks of ore to the surface.

    Those shafts now intersect with AngloGold's vast network of tunnels, allowing illegal miners to penetrate deeper.

    Working in gangs, they have reached 2,100 feet in depth and use explosives to try and breach the thick concrete bulwarks erected by the company to prevent access to elevator shafts that lead straight down to the richest seams, company officials said.

    Obuasi's ageing labyrinth of tunnels makes access to the remaining 9.5 million ounces of reserves uneconomic.

    AngloGold is building a tunnel to allow trucks to drive from the surface to the deepest point but the illegal mining has halted the project and also deters potential investors.

    "The best approach to getting things done sustainably ... is to ensure that the mine itself that is the core business is back on its feet in a proper way and ... the illegal mining ... is certainly not helping," said AngloGold's Asubonteng.

    He also says the government failed to keep illegal miners out. The firm has sought arbitration with the Ghanaian government at the International Centre for Settlement of Investment Disputes in Washington.

    "They (the government) are trying to get these guys out without losing one pint of blood," said Toni Aubynn, chief executive of the government's Ghana Minerals Commission.
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    DRDGold dividend given fivefold uplift

    Dump retreatment company DRDGold Limited on Tuesday announced what totals a five-fold dividend increase for the year to June 30.

    The final dividend of 12 c a share took the total declared dividend for this financial year to 62 c a share, which is more than five times the 10 c a share of last year

    The 25% increase in free cash flow to R308.7-million facilitated the total dividend declaration of close to R261-million as well as the repayment of liabilities.

    Volume throughput increased by 5% but yield was 9% lower, resulting in a 4% drop in gold production to 143 457oz.

    Revenue rose by 16% however, reflecting a 21% increase in the average rand gold price received to R546 142/kg and although cash operating unit costs were up 20%, operating profit was 13% higher at R434.8 million.

    The operating cost margin of 18% and all-in sustaining cost margin of 8% remained virtually unchanged.

    Headline earnings of the Johannesburg- and New York-listedgold company rose 39% to R53.8-million, equating to 28%-higher earnings a share of 12.7 c a share.

    DRDGold CEO Niël Pretorius said the company’s monetary and intellectual investment in plant and process were showing clear and measurable results, reflected in increased throughput and improved extraction efficiency at the company’s Ergo plant on the East Rand.

    “Both are important achievements in helping to address the diminishing grade of our reserves,” he added.

    Pretorius views the progress made in securing additional tailings deposition capacity for the Ergo plant at the Brakpan/Withok Tailings Complex as a major development in leveraging Ergo’s increased throughput capacity in the future.

    With tailings capacity locked in, the company is well placed to optimise its 11.8-million ounce resource and acquire additional resources within the greater Johannesburg area.
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    Russian diamond miner Alrosa's second-quarter sales tumble 21 pct q/q

    Russia's Alrosa, the world's largest producer of rough diamonds, said its second-quarter sales fell 21 percent from the previous three months to 9.6 million carats after a recovery in demand seen early this year faded.

    The company, which with Anglo American's unit De Beers produces about half the world's rough diamonds, reported a second quarter net profit of 40.5 billion roubles ($625 million). That was 61 percent higher than a year ago, helped by the rouble's weakness against the dollar, but was down 19 percent from a record high profit in the first quarter.

    Russia's government sold a 10.9 percent stake in Alrosa in July, raising $813 million and increasing the company's free float to 34 percent. It was the biggest Russian privatisation for almost four years.

    Alrosa's second-quarter revenue tumbled 18 percent from the previous three months to 84.3 billion roubles.

    "Alrosa maintains a conservative outlook on the diamond market and executes permanent costs control," CEO Andrey Zharkov said in the results statement.

    Earnings before interest, taxes, depreciation and amortisation (EBITDA) dropped 13 percent to 51.8 billion roubles.

    "After the sharp recovery observed at the beginning of the year, the seasonal slowdown was broadly expected by the market," Renaissance Capital said in a recent note on Alrosa. Renaissance said it expected gem-quality diamond sales volumes to decline by 13 percent in the third quarter compared with the second quarter.

    Alrosa said its first-half finiancial results were stronger than in the same period a year ago thanks to an increase in diamond sales by 21 percent in carat terms and because of the weaker rouble.

    It also said Russia would scrap a 6.5-percent rough diamonds export duty from Sept. 1 in line with World Trade Organization (WTO) rules.
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    Base Metals

    Chile orders two copper mines suspended after fatal accidents

    Chile's mining regulator on Tuesday ordered a halt to all operations at two major copper mines, state-owned Codelco's Chuquicamata and Freeport-McMoran's El Abra, to investigate separate fatal accidents.

    "We are concerned that today August 30 we had two accidents with three lost lives," said Rodrigo Alvarez, the head of the Sernageomin regulator, in a tweeted video comment.

    "We've made two very difficult decisions for the industry. We've ordered the provisional and total suspension of both mines," Alvarez added.

    Codelco, the world's No 1 copper producer, suspendedoperations at century-old Chuquicamata after two workers were killed when the vehicle they were driving collided with agiant mining truck at around 1 pm local time.

    El Abra said that a worker died after an accident at its acid unloading terminal.

    "All the workers are affected," the president of El Abra's union, Juana Mejias, said as she choked back tears. "This is really terrible and it hurts and is a product of excess workload in which the company cares about producing and producing and has pushed safety to the sidelines."

    When asked about the union leader's comments, Freeportreferred to an earlier statement that said the company reiterates its commitment to worker safety.

    The accidents come at a time when mining companies across the industry have cut costs and laid off workers to cope with plummeting copper prices.

    Century-old Chuquicamata produced 309 000 t of copper in 2015. El Abra, which is 51% owned by Freeport and 49% owned by Codelco, produced around 147 000 t of copper last year.
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    Chile produces 447,558 mt of copper in July, down 1.5%

    Chile produced 447,558 mt of copper in July, down 1.5% from the same month of last year, statistics institute INE said Tuesday.

    INE attributed the decline to lower ore grades at a number of copper mines.

    But the fall is lower than the monthly drop of more than 5% recorded in the previous three months.

    Copper production during the first seven months of the year totaled 3.227 million mt, down 5% from the same period of 2015.

    Chile is the world's largest producer of copper, accounting for around 30% of global mine production.

    However, production has been hit in recent years by falling ore grades, water shortages, flooding and mine closures as a result of the drop in the copper price.

    Last month, the Chilean Copper Commission predicted that copper production would fall 0.5% this year to 5.738 million mt, largely on lower production at BHP Billiton's Escondida operation, the world's largest copper mine, where output has been curtailed by lower ore grades.

    According to Cochilco, the mine produced 539,800 mt of copper during the first six months of 2016, down 21.9% from the first half of last year.
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    Mongolia asks Rio Tinto to speed up work on giant copper mine

    Mongolia's Prime Minister has asked Anglo-Australian miner Rio Tinto to step up the pace of construction at the giant Oyu Tolgoi copper/goldmine, part of efforts to revive the country's debt-ridden economy.

    Jargaltulga Erdenebat assured Rio Tinto's copper chief Arnaud Soirat that Mongolia would honour its past agreements with Rio Tinto, and called on the company to do the same.

    "For Oyu Tolgoi, the Mongolian policy to work together with Rio Tinto is already set," he was quoted as saying in a statement posted on Mongolia's official government website.

    "You need to comply with contract obligations and speed up the momentum of work," he told Soirat, adding that Oyu Tolgoi should procure construction materials like cementfrom Mongolian service providers only.

    The launch of Oyu Tolgoi in 2009 helped kickstart a mining-driven economic boom in Mongolia, but it quickly sparked concerns that the country's resources were being sold off on the cheap, and legislators repeatedly tried to renegotiate the terms of the original agreement in a bid to raise Mongolia's stake.

    Rio Tinto's majority-owned Turquoise Hill Resources has a 66% stake in the mine, with the Mongolian government holding the remainder.

    Dale Choi, an analyst for research firm Mongolian Metals &Mining, said the Prime Minister has made it clear thatMongolia would not repeat past mistakes by interfering with the running of Oyu Tolgoi.

    "The Prime Minister understands that the more quickly Oyu Tolgoi develops, the more profitable it is for the government," he said.

    The expansion of Oyu Tolgoi was delayed for two years amid concerns about rising costs, and revenues have suffered as a result, with the project still dependent on lower-quality ore dug from its openpit mine, which has been in operation since 2013.

    Work on the lucrative underground phase finally got underway this year, and Rio Tinto has received $5.3-billion inproject financing from banks with the option to draw down an additional $1.6-billion.

    Elected in a landslide in late June, Mongolia's new government has pledged to restore the confidence of foreign investors. It is now grappling with a 20.6% budget deficit, a currency in freefall and a decline in coal and copper demand from its major customer, China.
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    Rio Tinto offers Q4 aluminium at $82/mt plus LME CIF Japan

    Rio Tinto Japan has offered Japanese aluminium buyers a fourth-quarter contract premium of $82/mt plus London Metal Exchange cash CIF Japan, down 10% from the Q3 premium of $90-$93/mt, Japanese buyers said Tuesday.

    The producer said in an email to Japanese trading houses and consumers late Monday that it saw $82/mt plus LME cash CIF Japan as the market premium level for Q4 shipments.

    If buyers agree, the $82/mt quarterly contract premium would be the lowest in over 7 years, since $75-$78/mt plus LME cash CIF Japan for Q3 2009. The Q4 premiums are down from Q3 but the downside is limited due to lower stocks in Japan, European spot premiums stabilizing from the previous downfall and Asian demand recovery, Rio Tinto Japan said in the email, according to one Japanese buyer.

    Two Japanese buyers said they would not accept the offer premium of $82/mt.

    "I am seeing less than $80/mt, as there is pressure on traders to sell to end-users at $60/mt," said one Japanese trader.

    Two other producers, South32 and Alcoa, which are also negotiating Q4 premiums with Japanese buyers, have yet to announce offers, the buyers said.
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    Canada's Ivanhoe Mines gets unsolicited interest, to hire bankers

    Canadian copper miner Ivanhoe Mines Ltd said on Monday that companies from Asia, Europe, Africa and elsewhere had expressed interest in the company and its projects in recent months.

    Ivanhoe Mines said it would hire an investment bank to seek advice on the unsolicited interest and to advise its board on all available alternatives.

    The miner, which had a market value of about C$1.30 billion (nearly $1 billion) as of Friday's close, did not name the companies or provide any other details on the expressions of interest.

    Ivanhoe Mines said it is giving investors and banking analysts tours of its projects, including of the Kakula Discovery - a high-grade copper discovery in the Democratic Republic of Congo.

    The Kakula Discovery is part of Ivanhoe's Kamoa Copper Project, which is thought to be the world's largest untouched high-grade copper discovery.

    Ivanhoe Mines said in October it expects production at the Kamoa project to begin by the end of 2018.
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    Zhongwang USA to buy aluminium products maker Aleris

    A company logo of China Zhongwang Holdings Limited is displayed at a news conference in Hong Kong April 23, 2009. 

    Aleris Corp, a U.S.-based aluminium rolled products maker, said it would be bought by Zhongwang USA LLC, a division of Zhongwang International Group Ltd, in a $2.33 billion deal.

    Zhongwang International is also the parent of China Zhongwang Holdings Ltd, the world's second-largest producer of aluminium extrusions.

    Zhongwang USA, which is majority-owned by Liu Zhongtian, the founder of China Zhongwang, will pay $1.11 billion in cash and take on Aleris's $1.22 billion in net debt, Aleris said in a statement.

    Aleris supplies fabricated products to the aerospace, construction, automotive and defense industries. It has plants in the United States, Europe and Asia.

    The company has been owned by Oaktree Capital Management LP since it emerged from bankruptcy in 2010.

    The deal is expected to close in the first quarter of 2017.
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    Steel, Iron Ore and Coal

    Coal India monthly output, shipments slump to lowest in 3 years

    Coal India, the world’s biggest miner of the fuel, reported the lowest production and shipments in three years after heavy rains flooded its mines.

    Coal production in August dropped 10.4% from a year ago to 32.4-million metric tons and shipments declined 9.6% to 36.72-million tons, both plunging to the lowest since the same month in 2013. Rains and local agitations cut output by 2.4-million tons, N. Kumar, technical director at the miner, said Wednesday.

    The Kolkata-based miner’s plans to double annual output in four years have been undermined by inadequate demand from power utilities, which account for almost 80% of its shipments. A government plan to revive power distributors may boost generation and push demand for the fuel that fires almost two thirds of the nation’s generation capacity.

    “The drop in production and offtake is a near-term negative for Coal India, but it’s still not a dire situation,” said Abhisar Jain, a Mumbai-based analyst at Centrum Broking Pvt. “Power plants continue to use their own coal inventory, which may have affected Coal India’s production and dispatches, coupled with strong monsoons. We expect things to improve in a month or so, as plants go for restocking ofcoal and monsoons subside.”

    Coal stocks at power plants monitored by India’s Central Electricity Authority dropped to the lowest level since April 4. Plants had stocks of 28.3-million tons as of Aug. 30, enough for an average 21 days.

    Coal India’s production in the five months ended August 31 rose 1.3%, while shipments increased 0.2%. The company plans to raise output almost 12% to 598.6-million tons in the year to March 31.
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    Glencore's interest in Rio Tinto coal assets reignited

    Glencore is once again considering an acquisition of Rio Tinto's $US 1 billion-plus coal assets, as revealed by Street Talk on Thursday.

    Deutsche Bank is understood to be in Rio's corner but it's unclear whether Glencore is using advisers.

    Street Talk understands this time around, Glencore is seeking to buy all of Rio's Australian coal, including the mining giant's coking coal assets in Queensland.

    The official book value at June 30, 2016, for Rio Tinto Coal Australia was $US1.15 billion.

    Glencore, which last ran a ruler over the thermal coal assets a year ago,  has had its eye on Rio's Hunter Valley portfolio for the best part of three years.

    The Swiss miner initially sought to merge its assets with Rio's in the Hunter Valley, then famously attempted to merge the two companies together in mid 2014.

    Both attempts failed.

    Rio shopped its Hunter Valley thermal coal assets in early 2015, and managed to sell the Bengalla mine to New Hope Corporation for $US616 million and the undeveloped Mt Pleasant asset to Mach Energy for $US224 million plus a share of future royalties.

    Mach Energy is a little known subsidiary of Indonesia's biggest conglomerate Salim Group.

    Those transactions prompted Rio and its joint venture partners to reorganise the corporate structure behind its remaining Hunter Valley mines.

    Many viewed the structure as making it simpler to conduct future asset sales. Rio put further sales on hold shortly before Christmas 2015.

    Glencore's acquisitive streak has been tamed over the past year by the commodity price downturn, which turned the notoriously acquisitive miner into a seller of assets.

    Ratings agency Standard & Poor's noted on Thursday that the recent improvement in commodity prices was giving Glencore some "extra headroom" within its current credit rating of BBB-.

    The interest in Rio Tinto's coal divisions comes on the same day that S&P said it wanted to see Glencore maintain a conservative fiscal attitude for longer.

    "In the context of a still-uncertain industry outlook, we would likely look for Glencore to establish a sustained track record of a more conservative financial policy, relatively robust and resilient operating performance, and actual and forecast positive discretionary cash flow before we would consider the potential timing or extent of any positive rating action," said the agency.

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    As Beijing aims for blue skies over G20, China's steel mills get unexpected boost

    When Beijing ordered hundreds of industrial plants to close ahead of China's first-ever G20 summit next week, the government wanted to spruce up the host city of Hangzhou and ensure world leaders would gather under clear blue skies.

    In doing so, China's leaders may have given the nation's stricken steel mills an inadvertent leg-up, helping to restore profitability after a years-long downturn caused by weak prices as a global glut swelled and demand slowed.

    Steel prices have jumped as much as 42 percent since late May, with the unexpected turn in fortunes all the more striking as the health of the global steel industry is set to feature on the G20 agenda amid escalating tensions over Chinese exports.

    Some Chinese steel plants are turning in the best margins in at least three years following increased demand, efforts to tackle a supply glut and an environmental crackdown, with temporary production curbs for events like the G20 accelerating the boost to profits and prices.

    "Many small mills in neighboring cities of Hangzhou have been ordered to suspend production for the world summit," said Wu Wei, an analyst with Yong'an Futures in Hangzhou.

    A survey of 32 construction-steel mills in the region by industry consultancy Mysteel found almost half have either halted or curbed output since July, cutting steel output by nearly 1 million tonnes as part of the G20 and environmental curbs.


    European and U.S. leaders have urged China to accelerate capacity cuts, blaming its big exports on slumping prices and accusing the world's top producer of dumping its metal in foreign markets. They have threatened sanctions or anti-dumping taxes on Chinese steel imports.

    China has promised to slash steel capacity by 45 million tonnes this year and cuts in the first seven months of the year amounted to 47 percent of the annual target, spurring Beijing to vow to quicken its pace.

    While the boon from the G20 cuts will only be fleeting, Chinese steel prices have still rebounded 51 percent since the beginning of this year after six consecutive years of falls as a slowing economy hits demand for industrial metals.

    Chinese mills that produce rebar, a product used in the construction industry, were earning up to 1,000 yuan ($150) a ton in April and are still turning a profit of up to 300 yuan a ton in August, said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.

    Mills making hot-rolled coil for use in manufacturing were earning currently earning more than 300 yuan a ton, Zhao added.

    Liuzhou Iron & Steel Co Ltd <601003.SS> said last week it returned to profit in the first half of the year from a loss last year as it took advantage of the price rally.

    "Nobody earlier expected steel mills to have heydays and make a big profit this year," said Xia Junyan, an investment manager of Hangzhou CIEC Trading Co in Shanghai.
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    Samarco prosecutor expects to seek criminal charges next month

    Brazilian prosecutors are finalising a criminal investigation into the Samarco mine disaster and expect to ask a judge by the end of September to charge employees, said one of the prosecutors heading the case.

    The investigation is looking into alleged negligence that may constitute involuntary manslaughter charges, along with possible environmental crimes, Prosecutor Eduardo Aguiar said Tuesday in an interview in Belo Horizonte. Samarco, a venture owned by Vale SA and BHP Billiton, denies wrongdoing.

    “We are separating each individual from Samarco to know who had the power to make decisions or avoided making decisions that increased the level of risk of a dam rupture,” Aguiar said.

    A panel commissioned by Samarco and its owners found that the November 5 spill resulted from a series of misguided efforts to fix structural defects that hindered drainage and led to liquefaction, with small earth tremors possibly accelerating the process.

    BHP’s Chief Commercial Director Dean Dalla Valle said Monday that there was no evidence that anyone put production over safety or had reason to believe that anyone at BHP had any information that indicated the dam was in danger. Samarco and its owners declined to comment on the criminal case.

    The “findings, while answering the technical question of why the dam failed, draw no conclusions on liability and was not designed to,” UBS Group AG analysts, led by Glyn Lawcock, said in an August 30 report.

    BHP shares fell 3.2% in Sydney on Wednesday, while Vale was down 3.4% at 12.50 pm in Sao Paulo. The Bloomberg World Mining Index lost 1.6%.

    The rupture sent billions of gallons of sludge through the Rio Doce valley, killing as many as 19, leaving hundreds homeless and contaminating waterways in two states in what the government described as Brazil’s worst environmentaldisaster.

    The panel’s conclusions didn’t assign blame and, according to Aguiar, didn’t reveal anything new.

    The probe indicates that there was evidence that the risk of a dam breach rose in the years prior to the accident, Aguiar said. Samarco’s decision to continue increasing output, rather than halting operations to properly address the growing dam issues, was one of the major causes of the rupture, he said.

    While the criminal investigation is focusing on the role of Samarco employees, it may eventually shift to Vale and BHP, whose representatives are on the venture’s board of directors.

    “We expect the legal issues to eventually be resolved,” Macquarie Wealth Management said in an August 30 report. A restart of production is expected in fiscal 2018, though “we do not incorporate any cash flow contribution from Samarco in our forecasts for BHP and value it at zero,” it said.
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    US mills cancel August ferrous scrap; pressure mounts on primes

    US mills began sending cancellation notices to their ferrous scrap suppliers for any material not delivered by close of business Wednesday, the last business day of the month.

    Some mills canceled only undelivered prime scrap, the grade expected to see the biggest price drop in September, while other mills canceled all grades.

    "No surprise on the cancellations coming in," one source said. "[The] market is weaker, which means cancellations are sure to come. Demand is much weaker."

    A major electric arc furnace in Ohio was canceling all grades, two Detroit-area EAFs were canceling only prime grades of scrap, and other Midwest mills were canceling most grades with some mill-specific exceptions, including heavy melting scrap or plate & structural scrap exclusions.

    September trading is expected to begin on Tuesday at the earliest following the US Labor Day holiday on Monday.

    One major mill was indicating to dealers on Thursday it was likely to take primes down $20/lt and obsolete grades of scrap down $10/lt during the September buy week.

    "People have given up on busheling; shred will take a hit because the powerhouse shredders have plenty of shred to offer into the market," one trader said. "The fight will be on cut grades."

    Mill outages and poor utilization rates are the two major factors weighing on the market. Mill buyers indicate they are not in a hurry to procure tonnage and will likely wait until Wednesday of next week to enter the market.

    "Cuts will be tough to figure out," one Midwest mill buyer said of grades including P&S and HMS. "For most [mills] you can fill in with shred if you can or pay [extra] for remote P&S/HMS."

    Prime scrap prices are averaging around a $30/lt premium to shredded scrap, a wide premium that many believe still needs to be reconciled.

    One Southeast scrap supplier who had yet to receive a cancellation notice by late Wednesday believed most of the cancellations in the Southeast would be limited to prime scrap.

    "Cut scrap seems a bit tight and should trade at sideways in most regions," he said. "Shred looks to be a soft sideways to possibly down $5-$10 depending on region. I would expect prime to be down $10-$20."
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    China's robust August iron ore, coal imports mirrored in prices

    China's imports of iron ore and coal remained robust in August, providing a fundamental justification for the ongoing resilience in the price of the two major bulk commodities.

    Although there are several more factors driving prices than China demand, it's also worth noting that crude oil imports likely slipped back somewhat in August, coinciding with a retreat in the price of global benchmark Brent crude.

    Imports of iron ore by China, buyer of about two-thirds of global seaborne supplies of the steel-making ingredient, were estimated at 89.26 million tonnes in August by Thomson Reuters Supply Chain and Commodities Research, based on vessel-tracking and port data.

    While the shipping data doesn't exactly dovetail with official data because of slight differences in when cargoes are assessed as having arrived for customs purposes, it was within 2.5 percent of the customs numbers over the first seven months of the year.

    Official data for August commodity imports will be released in about 10 days time.

    If the official numbers mirror the vessel-tracking data, it would mean August's iron ore imports would be the second-highest on record, and the most in any month this year.

    Such strength in imports is being reflected in spot Asian iron ore prices .IO62-CNI=SI which rose slightly in August from July to finish the month at $59 a tonne, taking the year-to-date gain to almost 40 percent.

    Whether this can continue is largely dependent on whether China will actually start cutting steel output, which reached a record on a daily basis in June, before easing slightly in July.

    Coal is also performing strongly on the back of rising Chinese import demand, which similar to iron ore has taken the market by surprise.

    China's August seaborne coal imports are estimated at 18.12 million tonnes, down somewhat from July's 18.9 million, but still the second-highest monthly total this year, according to ship-tracking data.

    The Thomson Reuters vessel-tracking data doesn't exactly match Chinese customs data, as the official figures include overland imports by rail and truck, mainly from Mongolia.

    However, the vessel data implies that China's total coal imports in August will be fairly close to July's official number of 21.21 million tonnes.

    Earlier in August it seemed from vessel-tracking data that China's seaborne coal imports would slump in August, but a flurry of late cargoes from Indonesia boosted the total, implying increased demand for the low-rank coal typically supplied by the Southeast Asian nation.

    China's year-to-date coal imports were up 6.7 percent in July, again providing fundamental support for the 32 percent rally this year in the benchmark thermal coal weekly index at Australia's Newcastle Port.

    While both thermal coal and iron ore remain well-supplied markets, the strength in Chinese demand has boosted prices for both, a situation likely to persist as long as China's imports remain robust.

    Among major resource imports, it appears China's appetite for crude oil eased in August, with Thomson Reuters Supply Chain and Commodities Research estimating 28.79 million tonnes of oil being imported in August.

    This equates to about 6.78 million barrels per day (bpd), which would be substantially down on the 7.32 million bpd officially reported in July.

    The most likely explanation for the lower crude imports is seasonal refinery maintenance in China, but it's also true that apparent demand has been weak, falling 0.3 percent to 10.58 million bpd in July from the same month in 2015.

    Softer growth in the parts of the Chinese economy that are heavy users of diesel, such as manufacturing and construction, have served to trim the use of the main fuel used for transport and in industry.

    While oil markets have been more focused on yet another round of "will they, won't they" being played over the possibility of a producer freeze on output, the slowing of purchases by the world's second-biggest crude importer has largely flown beneath the radar.

    It might be that China is experiencing a temporary easing in crude oil imports, but any sign of slowing growth and the possibility of a weak second half may act as a drag on oil prices.

    Overall, it appears that China's imports of major commodities are still relevant to prices, notwithstanding the slowing growth in the world's second-largest economy.
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    Hebei lags behind on plan to cut steel capacity

    Hebei province in northern China, accounting for a quarter of China's steel output, is lagging far behind in its plan to slash iron and steel making capacity, said the Hebei Development and Reform Commission.

    Seven major iron and steel producers cut capacity of 3.18 million tonnes per annum (Mtpa) in the first seven months of the year by closing six plants, which, however, accounted for only 10% of the de-capacity target set by the government, data showed.

    Hebei province, as the heavily polluted province which surrounds China's capital Beijing, had pledged a month earlier to cut iron and steel making capacity of 17.26 Mtpa and 14.22 Mtpa respectively by end-2016, yet the disappointing figures showed the difficulties that China faces trying to reduce excess capacity across several industrial sectors.

    The government had allotted 30.7 billion yuan ($4.62 billion) to support the capacity cuts in steel and coal industries, but de-capacity results across the world's top steel producing nation are also behind national targets, said the National Development and Reform Commission.
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    China listed steel enterprises swing to profit in H1

    China listed steel enterprises swing to profit in H1

    China's 24 surveyed listed steel enterprises posted a total profit of 3 billion yuan ($450 million) in the first half of the year, compared with a loss of 56.4 billion yuan last year, according to their half-year reports released lately.

    19 out of these enterprises managed to make profit, compared with only 7 last year.

    In the first quarter of the year, 11 out of the 24 steel enterprises posted profit, and total loss of the 24 enterprises exceeded 4 billion yuan.

    With the deepening of China's de-capacity movement, steel price has rebounded since March this year, which led to an increment in steel mills' profit.

    However, many steel producers are cautious about the future market, as the oversupplied situation can't be changed in the short run, and most steel mills are still operating with high cost.

    Baoshan Iron and Steel Co., Ltd., China's largest listed steel maker, ranked first with profit at 3.46 billion yuan in the first half of the year.

    The figure exceeded the total profit of the other 18 enterprises.

    The company planned to cut outdated steel capacity by 9.2 Mtpa in 2016-2018, in response to the government's supply-side reform.

    China aimed to reduce steel production capacity by 100-150 Mtpa over the next five years, with some 45 Mtpa cut in 2016.
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    Thyssenkrupp steel workers protest merger plans

    Several thousand steel workers at Thyssenkrupp on Wednesday protested management's plans for a merger of its European steel business with that of Tata Steel as well as possible site closures.

    Carrying banners saying "Stop steel exit" and "Steel is the future" in a rally organised by powerful labour union IG Metall, they marched to the headquarters of Thyssenkrupp Steel Europe in the industrial city of Duisburg, where the steel business's supervisory board is due to meet on Wednesday.

    Steel-to-elevators group Thyssenkrupp is in talks with India's Tata Steel to merge their European steel operations, but a senior labour official at Thyssen said this month that any plan to close some plants could go ahead irrespective of whether there is a merger deal.

    Thyssenkrupp has its 19th century roots in steelmaking but the sector is now being hit by lacklustre demand and cheap imports into Europe. Labour representatives fear the group wants to exit the sector at any cost, under pressure from activist investorCevian, which owns 15 percent of the group.

    "The workers want clarity on what is going on. They are worried," Steel Europe's works council chief Guenter Back told Reuters on Wednesday.
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    Baosteel sees China's 2016 steel consumption down nearly 3 pct y/y

    Baoshan Iron & Steel , China's top listed steelmaker, expects the country's apparent consumption of crude steel to drop to 680 million tonnes this year from 698 million in 2015, Dai Zhihao, its general manager, told an online briefing.

    The forecast from Baoshan Iron & Steel, or Baosteel, comes at a time when China, the world's top producer of the alloy, is stepping up efforts to slash a huge overcapacity that has boosted cheap exports amid slowing demand at home.

    China has promised to slash steel capacity by 45 million tonnes this year. .

    Dai said Baosteel's parent company, China's No. 2 steel producer - the Shanghai-based Baosteel Group, would cut 12.20 million tonnes of capacity through 2018, in line with Beijing's efforts to curb oversupply in China's steel sector. It had previously planned to reduce 9.2 million tonnes of capacity.

    Overcapacity in China's steel sector has created trade tensions, with India, Australia and the United States imposing duties on Chinese steel exports amid allegations of dumping.

    In fact, U.S. regulators have launched an investigation into complaints from United States Steel Corp that Chinese steelmakers, including Baosteel Group, stole its secrets and fixed prices.

    Dai cautioned that the outcome of this probe would have a big impact on Chinese steel exports to the United States.

    The listed unit, Baosteel, expects to ship out more than 3.4 million tonnes of steel products this year. The company recently reported higher profits for the six months to June, aided by cost-cutting measures.

    Baosteel has previously said it was restructuring, together with Wuhan Steel, amid wide expectations the two firms will be merged.

    Dai declined to disclose the latest progress, but said China's steel sector would require mergers and acquisitions to increase the share of top mills which might take two decades.

    In the short term, Dai expects steel prices to get a boost from a seasonal recovery in demand after the summer and China's crackdown on the sector's overcapacity.

    Shanghai rebar prices fell to their lowest in almost a month on Wednesday on worries about demand, but for the year the market is still up about 43 percent.
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    BHP CEO Mackenzie’s bonus axed after fatal Samarco dam failure

    BHP Billiton CEO Andrew Mackenzie won’t get his 2016 bonus following last year’s fatal dam collapse at the Samarco iron-ore mine in Brazil.

    “The tailings dam failure at Samarco in November 2015 was a key consideration, along with the ongoing decline in commodity markets,” a BHP spokeswoman said in an e-mailed statement Wednesday.

    The board’s decision came after Mackenzie had indicated this was an appropriate move, she said. Bonuses for other senior executives will also be discounted.

    Mackenzie, who is paid an annual base salary of $1.7-million, could have earned a maximum of $4-million as a short-term bonus, according to the company’s most recent remuneration report. He was awarded 85% of his short term incentive plan in the year to June 30, 2015, after five fatalities during the year.

    A report this week found the collapse at the mine, a joint venture with Brazil’s Vale SA, was caused by part of the structure liquefying after a series of misguided efforts to fix structural defects hindered drainage. Brazilian prosecutors are finalizing a criminal investigation into the disaster and expect to ask a judge by the end of September to charge employees.

    BHP’s chief commercial director Dean Dalla Valle said after the release of the report that there was no evidence that anyone put production over safety or reason to believe anyone at BHP had any information that indicated the dam was in danger. Samarco and its owners declined to comment on the criminal case.

    The probe indicates that there was evidence that the risk of a dam breach rose in the years prior to the accident, ProsecutorEduardo Aguiar said Tuesday in an interview in Belo Horizonte. Samarco’s decision to continue increasing output, rather than halting operations to properly address the growing dam issues, was one of the major causes of the rupture, he said.

    Samarco, a venture owned by Vale SA and BHP, denies wrongdoing. While the criminal investigation is focusing on the role of Samarco employees, it may eventually shift to Vale and BHP, whose representatives are on the venture’s board of directors.
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    Shares of two largest steelmakers suspended for at least another month

    Shares of two largest steelmakers suspended for at least another month

    Shares of Wuhan Iron and Steel (Group) Corporation and Baosteel Group Corporation will continue to be suspended for at least one month, as the two state-owned steelmakers restructure their major assets in view of merger, China Daily reported.

    Wuhan Iron and Steel (Group) Corporation, China's fourth-largest steelmaker by output, planned to reorganize the assets of the iron and steel business with one of its rivals Baosteel Group Corporation, Wuhan Iron and Steel (Group) Corporation said in an interim statement.

    The move was preliminary, since they haven't signed the framework or agreement of intent, but the merger between the two largest Chinese iron and steel groups would play a leading role in reducing excess capacity of the industry.

    During the suspension, according to Wuhan Iron and Steel Co Ltd in a statement, the company would carry out audits, address legal and financial issues, and perform a due diligence review.
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    Australian fund takes over Anglo American's Foxleigh coal mine

    Anglo American, one of the world's largest miners, sold its 70% stake in Foxleigh coal mine in Queensland of Australia to a joint venture led by Taurus Fund Management on August 29, as part of efforts in completely exiting from coal recently announced by Anglo.

    Anglo said the new owners included POSCO, Nippon Steel and Middlemount South Pty – a subsidiary of Taurus Funds Management, yet the sum was not disclosed.

    Scott Graham, chief operating officer of Middlemount South, said the company plans to keep the mine in production, and meet all current sales contracts.

    Anglo bought its majority stake in Foxleigh mine at $620 million in 2007 under former chief executive Cynthia Carroll in a bid to grow its share of the coal market. The mine produces around 2.5 million tonnes of the steel-making commodity a year.

    Anglo was expected to benefit $3-$4 billion from asset sales this year. Yet the miner reported an $813 million loss over the first half of this year, compared with the $3 billion it logged in the same period last year, said Mark Cutifani, chief executive of Anglo.
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    Indian July coal imports dip 11pct on year

    India imported 18.03 million tonnes of coal in July, declining 11.14% from the year-ago level on the back of higher domestic availability of the fossil fuel, showed data from Indian mjunction services limited, an online procurement and sales platform jointly floated by Steel Authority of India and Tata Steel.

    Of the coal imported, 68.72%, or 12.39 million tonnes, was non-coking coal, followed by coking coal at 20.85% (3.76 million tonnes) among others.

    The ecommerce company attributed the decline in July imports to number of factors including monsoon, when imports generally come down, said Viresh Oberoi, CEO and MD of mjunction.

    "In addition, firmness in international coal prices since beginning of June and higher availability of domestic coal also impacted imports," added Oberoi.

    According to PwC's Kameswara Rao, thermal coal imports, after a dip last year, will be at similar levels, indicating a flat trend on the whole.

    The real change is that with surplus generation capacity and adequate supplies of domestic coal, imported coal-based power plants are largely filling in the marginal gaps in demand requirement, taking opportunistic advantage of price movements, he said.

    Further, with many imported coal-based load power plants operating at lower utilisation, the overall volume of imports is likely to remain flat.

    The government had earlier said that coal imports will further come down in the ongoing fiscal year on account of increased domestic output.

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    China's HeSteel breathes life into old steel factory in Serbia

    As Chinese steel giant HeSteel increases production at the Smederevo Steel Mill in Serbia, its 5,000 workers are feeling more confident of the future and believe their families will improve their living standards once the factory starts working at full capacity.

    As blast furnaces melt ore into liquid iron, these are cast at the steel shop into blocks and later hot and cold rolled to get the final product. New Chinese managers witness how hard-working employees complete their tasks with diligence and precision, respecting strict procedures and orders of their superiors.

    For most of these 5,000 people coming from the city of Smederevo or nearby towns, production of steel has become a family tradition, while working at the factory is the only way of living they can imagine. Here, some 60 km south-east of the capital Belgrade where HeSteel bought the factory, men and steel became one over the course of history.

    There is even one popular joke in the city that if a group of people stay together, even if only two of them work in the steel mill, topics will only be the mill. And the same goes for local families.

    For them, it's not just personal feelings they attach to the factory, it is a common sense of belonging and hope the factory bears for the city of Smederevo and even Serbia.

    One month after HeSteel took over the factory by paying the amount of 46 million euros (51.39 million US dollars) to the Serbian government on July 2, sales of the factory's products -- cold and hot rolled steel -- increased monthly from 81,000 tons of steel in June 2016 to 102,000 in July this year.

    Both managers and workers rejoice that the expected sales in August are estimated at 126,000 tons. Workers will finally feel "safe" and relieved as long as production continues to increase.

    The goal of HeSteel is to reach annual output of 1.8 million tons in 2017 and 2 million tons in 2018, and workers hope that this might mean a chance to earn more money and contribute to their home budget.

    Wang Lianxi, general director of Legal, HR and general affairs committee at HeSteel Serbia Iron & Steel, told Xinhua that the Belt and Road initiative provided HeSteel with a precious opportunity.

    "In response to the Initiative, HeSteel came to Serbia to acquire Smederevo Steel Mill, using its experience and techniques accumulated over years in China and trying to build a base of manufacturing industry in Europe," he said.

    Quoting the president of Chinese HeSteel Group Yu Yong, he said the aim will be to help the factory to regain its vitality and turn Smederevo into one of the most competitive steel mills in Europe.
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    Shenhua lifts 2016 coal sales target to 355 mln T

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, lifted its coal sales target for 2016 to 355 million tonnes from the previous 340 million tonnes, said Zhang Yuzhuo, president of the company.

    It also lifted revenue target to 156 billion yuan ($23.37 billion) this year, and boosted capital expenditure to 27.5 billion yuan from 20 billion yuan in March this year, of which 20.75 billion yuan or 75.5% will be put into the investment in coal-fired power projects, said Zhang.

    "We will vigorously promote power business this year, and push ahead with new projects that reach their expected return rates, for not only the projects' own return, but its profit contribution to our mining, rail and port operations. " he noted.

    In 2015, 88.4 million tonnes or 24% of the company's coal was consumed by its coal-fired power plants, data showed.

    The bullish move came at a time when China is experiencing excess power capacity as its economy slows. Many coal-fired power producers are facing decreasing profitability for years, coupled with rising competition from alternative energy such as hydropower, nuclear and wind energy.

    China Shenhua is just one of them. Its net profit slid 18.6% on year to 9.83 billion yuan ($1.48 billion) in the first half of the year, and the operating revenue reduced 12.5% on year to 78.72 billion yuan over the same period, announced the company in its half-year report released on August 10.

    Over January-June, output of commercial coal edged up 0.2% on year to 139.7 million tonnes, while sales rose 4.8% on year to 186.3 million tonnes, which was due to the rebounding demand from steel mills, more efforts in selling outsourced coal and the increased installed capacity of power units.

    The company's electricity generation and sales stood at 111.01 TWh and 103.9 TWh over the same period.

    "Yet coal prices will gradually come back to a reasonable level after spiking for months, as most of the closed mines were small mines while large mines under construction will release more capacity in the future, " Zhang Yuzhuo added.

    China Shenhua's coal imports are expected to reach 230 million tonnes this year, compared with 200 million tonnes last year, said Zhang.

    "The company will reduce coal exports, given the sliding production of domestic coal industry," said Han Jianguo, CEO of China Shenhua, adding that the move is likely to further stimulate coal imports as climbing prices tempt more overseas countries to sell coal to China.
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    China's coal industry Jan-Jul profit stands at 14.6 bln yuan

    China's coal mining and washing industry profits dropped 19% from last year to 14.6 billion yuan ($2.18 billion) over January-July, a slower decline compared with the slump of 38.5% over January-June, according to data released by the National Bureau of Statistics (NBS) on August 27.

    During the same period, the coal mining and washing industry realized revenue of 1.2 trillion yuan, dropping 11.9% from a year ago, data showed.

    Total profit of the country's entire mining industry declined 77% on year to 37.2 billion yuan overt January-July.

    Meanwhile, profit in ferrous and non-ferrous metal mining industry fell 14.5% and up 2.6% on year to 19.58 billion and 24.08 billion yuan, respectively.

    The profit of the power and heat generation industry dropped 4.5 % from the year prior to 226.71 billion yuan.
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    Samarco dam failed due to poor drainage and design: investigation

    The deadly collapse of a tailings dam last November at the Samarco mine, owned by Vale SA and BHP Billiton, was caused by drainage and design flaws, a report into Brazil's worst-ever environmental disaster showed on Monday.

    The 76-page report commissioned by the companies responsible for the spill, which killed 19 people, attributed the dam burst to a chain of events dating back to 2009, but did not assign blame or highlight specific errors in corporate or regulatory practice.

    Norbert Morgenstern, a geotechnical engineering professor who headed the investigation, repeatedly told reporters he could not answer their questions when quizzed on whether there was negligence or malpractice on the part of the companies involved.

    A separate police investigation has accused Samarco of willful misconduct, saying the company ignored clear signs the dam was at risk of collapsing. Samarco denies any wrongdoing.

    BHP Billiton's chief commercial officer, Dean Dalla Valle, said cost-cutting since 2012 was "absolutely not" a factor and there was no evidence anyone had prioritized production over safety.

    "We have no reason to believe that anyone at BHP had any information that indicated that the dam was in danger of collapsing," Dalla Valle told reporters in Australia on a conference call from Belo Horizonte.

    The report stressed that a change in the dam's design between 2011 and 2012 led to less efficient water drainage that saturated sand in the dam and resulted in liquefaction.

    Liquefaction is a process whereby a solid material such as sand loses strength and stiffness and behaves more like a liquid. It is a common cause for the collapse of dams holding mining waste, known as tailings, because the walls of these dams are mostly built with dried tailings which consist of a mixture of sand and clay-like mud.

    "There was a fundamental change in the design concept whereby more widespread saturation was allowed and accepted," the report said, adding "this increase in the extent of saturation introduced the potential for sand liquefaction."

    Liquefaction was triggered by increased weight on the tailings as the height of the dam was raised, reaching 100 meters (109 yards) at the time of collapse.

    This weight pushed the clay-like mud in the dam outwards "like toothpaste from a tube," resulting in a loosening of the sand which had more space to spread and ultimately caused it to flow like a liquid and cause the dam's wall to collapse.

    A small earthquake on the day of the dam burst may also have "accelerated" the failure, the report said.

    Carlos Eduardo Pinto, a prosecutor in the case against Samarco, said much of what was in the report had already been shown in the police investigation.

    "Samarco has long claimed it performs good practice but the report did not demonstrate this," Pinto told Reuters. "Quite the opposite, it showed the companyaltered the project in a way that would not have been permitted."

    BHP Billiton said it had learned from the tragedy. It had already reviewed 10 of its biggest tailings dams and said they were stable, but was taking steps to improve risk management.

    The disaster has already cost BHP Billiton $2.2 billion, including a total write-off of its investment in Samarco, due to uncertainty over when the mine will reopen, and funds for its share of agreed compensation and damages.

    BHP and Vale's shares, mauled last November after the dam disaster, were unharmed by the release of the report. Vale's shares rose 2.4 percent on Monday and BHP's shares rose 1 percent in early trading on Tuesday.
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    Coke prices in Hebei increase a total 320 yuan/t since July

    Major coke firms in Hebei made the eighth price hike since July on August 26, with price rises totaling 320 yuan/t, thanks to strong restocking demand from steel mills and consistently tight supply of coke.

    They offered quasi Grade I met coke at 1170-1180 yuan/t or so, on ex-works basis, and believed the price was acceptable for downstream users, as profit margin of steel products still remained relatively high.

    Steel makers in Hebei reported low coke inventories, though efforts had been made to replenish stocks. "Buyers had to snap up coke amid the shortfall of supply, which, however, still can't meet the climbing demand," said a Tangshan-based steel mill source.

    Coke prices in Hebei will probably further increase in the short run, if coking coal prices still have room to go upwards. Yet a sharp rise is not very likely, as demand from steel mills may shrink following the faster steps of slashing steel-making capacity in the second half of this year.

    By August 25, Fenwei assessed the delivered price of Grade I met coke in Tangshan at 1,130 yuan/t with 17% VAT, up 30 yuan/t on week.

    Coke market in Shandong province reported good sales and tight supply. Steel makers in the province enjoyed profit of 300-500 yuan/t on the whole, or even more than 700 yuan/t, which encouraged production and thus called for lager supply of coke.

    Coking plants generally run full capacity to meet swelling demand, yet it still can't keep up with the growth of demand from mills.

    Coke prices in Shandong are expected to further climb, given the robust demand from steel mills and insufficient supply of coke.

    By August 25, Fenwei assessed the delivered price of Grade II met coke in Rizhao at 1,060 yuan/t, stable on week.
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