Mark Latham Commodity Equity Intelligence Service

Tuesday 4th April 2017
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News and Views:


Shale and China: Q2 Presentation.

I am in China for a week, but will return for a q2 presentation round mid April.

We're taking dates for the calendar.

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China vows fresh smog crackdown as toxic air shrouds capital

China's smoggiest cities have pledged to ramp up the battle on pollution after air quality deteriorated in the first few months of this year, the China Daily reported on Monday, as smog blanketed the capital, Beijing, and the surrounding region.

Top officials from seven districts in Beijing, Tianjin and cities in Hebei and Shanxi provinces were scolded at the weekend by the environmental watchdog for lax control of pollution this year, the paper said.

The officials promised to submit plans to the Ministry of Environmental Protection (MEP) to resolve the problem within 20 days, it said. In the first quarter, air quality deteriorated in the districts and cities, according to the ministry.

The news came as toxic smog blanketed the capital and surrounding cities on Monday, forcing some to issue an orange alert, the second-highest level after red, as pollution reached hazardous levels.

On Saturday, Hebei, the northern province home to six of China's 10 smoggiest cities in the first two months of 2017, said it would take more action to shut "backward" coal-fired power plants, promote new energy vehicles and shift industries.

The province is on the frontline of a three-year "war on pollution", and has already promised to slash coal consumption and close inefficient industrial plants.

The ministry's weekend warning followed a month-long inspection that turned up severe violations, such as poor adherence to restrictions on smoggy days, said Liu Changgen, its head of inspections, according to the paper.

Gao Nan, head of Zhaoxian county, said it would invest 1.3 billion yuan ($188.9 million) to build a road to divert diesel vehicles from downtown areas.

The ministry will make random checks in April to ensure air pollution measures are being followed, the paper said.

China's "war on pollution" aims to reverse the damage done to its skies, soil and water after decades of untrammeled economic growth.

On Monday, an orange alert was in effect in Tianjin, Tangshan and Langfang in Hebei province and Puyang and Anyang in central Henan, state news agency Xinhua said.

The orange alert means the air quality index (AQI), a measure of air pollutants, is forecast to exceed 150 for three consecutive days.

In Beijing, where the authorities issued a yellow alert, the AQI reading was 264, the city's environmental protection agency said.

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Henan Energy & Chemical signs swap deals with three banks

Henan Energy and Chemical Group signed debt-to-equity swap deals with Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC) and Bank of Communications (BoCom) on March 30, local media reported.

The group, together with the ABC, ICBC and BoCom, will jointly set up a fund worth 35 billion yuan ($5.08 billion), in order to lower asset liability ratio, optimize debt structure and bring vigor into sound development.

It was another breakthrough of debt-to-equity swap agreement in Henan province, after China Construction Bank signed a similar deal with the State-owned Assets Supervision and Administration Commission of Henan, Henan Energy and Chemical Group, China Pingmei Shenma Group and Anyang Iron and Steel Group on January 11.

In the first quarter this year, Henan Energy and Chemical Group achieved operating revenue of 33 billion yuan, surging 64% year on year, while its profit totalled 330 million yuan.
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Oil and Gas

Recovery in Libyan oil production

Libya's Sharara oil field, the country's largest, resumed production on Sunday after a week-long disruption and state-owned NOC lifted force majeure on loadings of Sharara crude on Monday, sources told Reuters.

The field was producing around 80,000 barrels per day (bpd) on Sunday and about 220,000 bpd prior to the March 27 shutdown.

"The main development over the weekend is the restart of Sharara," managing director of PetroMatrix Olivier Jakob said.

Uncertainty about how Libyan output would fare in the months ahead added short-term volatility to oil prices, he said. "(It) is a swing factor that can make it move both ways if one looks at the balances for the second half of the year." he added.
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Oil Traders Said to Drain Caribbean Hoards as OPEC Impact Hits

During the oil price rout, islands in the Caribbean were exhibit A for the longest-lasting glut in three decades, with millions of barrels stored there. Now, that oil is flowing again, a sign the market is rebalancing.

Since mid-February, between 10 million and 20 million barrels have left the Caribbean, according to estimates from traders who asked not to be named because their data is proprietary. The draw, hardly noticed by most in the market, reflects the impact of the output cuts orchestrated by OPEC and Russia.

Low taxes and the Caribbean’s proximity to U.S. and Latin America oil centers have made it into one of the world’s largest oil storage centers, holding as much as 140 million barrels. While a lack of official data can make the area invisible to some, the information is key in framing a full picture of global supply and demand at a time of market uncertainty.

"Caribbean and other storage has drawn down rapidly over the past weeks," said Amrita Sen, chief oil analyst at Energy Aspects Ltd., in a note to clients. "The first indications that the rebalancing has begun are here."

On Sunday, Mohammad Barkindo, OPEC’s Secretary-General, said he remained "cautiously optimistic” the gap between supply and demand was starting to tighten. The Organization of Petroleum Exporting Countries and the 11 countries that agreed to trim production in the first half of the year are now weighing whether to extend the cutbacks to the end of 2017.

West Texas Intermediate oil fell 0.7 percent to $50.24 a barrel in New York on Monday. Oil prices have fallen about 10 percent this year as crude stockpiles in the U.S. have since December grown by almost 55 million barrels to 534 million barrels, the highest since 1929.

Grand Bahama, Aruba, Bonaire, Curaçao, St. Eustatius and St. Lucia, mostly known for the beaches that draw sun-chasing visitors from around the world, all have significant depots to store crude and refined products.

Chinese oil companies, which lease millions of barrels of storage in the southern Caribbean sea, are leading the stock-draw from those islands, the traders said. PetroChina Co. used the super-tanker Nectar last month to remove stored crude from Aruba and Curaçao, according to ship-tracking data compiled by Bloomberg. It also loaded the Maxim, another very-large crude carrier (VLCC), with crude from storage in the Caribbean Sea.

Indian oil refiners are also taking crude out. In a rare shipment, Reliance Industries Ltd. received Ecuadorian crude stored in the island of Grand Bahama in the DHT Condor super-tanker. More recently, another giant tanker, the Amphitrite, took Venezuelan crude from a terminal in St. Eustatius, also for Reliance.

"Globally, crude stocks are coming down," said Mike Loya, the Houston-based top executive at Vitol Group BV, the world’s largest independent oil trader.

The Caribbean outflows also reflect a change in the relationship between spot and forward oil prices. For much of 2015 and 2016, the shape of the oil curve showed spot prices below forward prices. In a contango market, traders can buy barrels, place them on storage and lock in a profit by selling them forward in the futures market.

The price difference between Brent crude oil for immediate delivery and the one-year forward, a key contango yardstick, reached more than $11 a barrel in January 2015. But after OPEC and Russia announced their output cuts in late last year, the contango has all but dissipated, with the one-year Brent price spread at just about 80 cents a barrel on Monday.

"Less visible inventories have been drawing," Martijn Rats, oil analyst at Morgan Stanley in London, said in a note to clients.

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Qatar restarts development of world's biggest gas field

Qatar has lifted a self-imposed moratorium on development of the world's biggest natural gas field, the chief executive of Qatar Petroleum said on Monday, as the world's top LNG exporter looks to see off an expected rise in competition.

Qatar declared a moratorium in 2005 on the development of the North Field, which it shares with Iran, to give Doha time to study the impact on the reservoir from a rapid rise in output.

The vast offshore gas field, which Doha calls the North Field and Iran calls South Pars, accounts for nearly all of Qatar's gas production and around 60 percent of its export revenue.

"We have completed most of our projects and now is a good time to lift the moratorium," QP Chief Executive Saad al-Kaabi told reporters in Doha.

The new development will increase production of the North Field by about 10 percent, adding about 400,000 barrels per day of oil equivalent to Qatar's output, he said.


Qatar is expected to lose its top exporter position this year to Australia, where new production is due to come on line.

The LNG market is undergoing huge changes as the biggest ever flood of new supply is hitting the market, with volumes coming mainly from the United States and Australia.

President Vladimir Putin said on Thursday Russia aimed to become the world's largest LNG producer.

The flurry of LNG production has resulted in global installed LNG capacity of over 300 million tonnes a year, while only around 268 million tonnes of LNG were traded in 2016, Thomson Reuters data shows.

That has helped pull down Asian spot LNG prices by more than 70 percent from their 2014 peaks to $5.65 per million British thermal units (mmBtu).

Qatar's decision to lift the moratorium on new gas development now could help the Gulf monarchy maintain a competitive edge after 2020, when the global LNG market is expected to tighten.

"With global activity levels and costs low, now is a good time to add new capacity, even if the LNG market does presently look over supplied," said Giles Farrer, research director of Global LNG at Wood Mackenzie.

"It's a signal that Qatar intends to increase its market share, which has been falling as other regions have built new capacity."

An energy advisor to the Qatar government said he saw it as a preemptive step to warn competitors who are considering LNG investments that Qatar would remain an aggressive seller.

"It will certainly give rivals something to chew on. It's like when Saudi develops future oil capacity even when there is a glut - it shows you mean business," he said, declining to be named as he was not authorized to speak publicly.

The announcement coincides with the start of a major LNG industry conference this week in Japan, attended by many of its competitors and potential new customers.

Kaabi said low prices would not pressure Qatar.

"By the time this project comes online in five years or so it should be a good market for gas," he said. "We don't see that the pricing pressure has affected us as much as some."


Iran, which suffers severe domestic gas shortages, has made a rapid increase in production from South Pars a top priority and signed a preliminary deal with France's Total in November to develop its South Pars II project.

Total was the first Western energy company to sign a major deal with Tehran since the lifting of international sanctions.

Kaabi said the decision to lift the moratorium was not prompted by Iran's plan to develop its part of the shared field.

"What we are doing today is something completely new and we will in future of course ... share all this with them (Iran)."

The economy of Qatar, a future World Cup host with a population of 2.6 million, has been pressured by the global oil slump and in 2015 QP dismissed thousands of workers and has earmarked a number of assets for divestment.

QP is merging two LNG divisions, Qatargas and RasGas, to save hundreds of millions of dollars.

In February, Kaabi said Qatar would focus on seeking international opportunities by exploring for oil and gas in Cyprus and Morocco.

But the current low LNG price environment may deter investment in new supply projects, bringing tighter supplies and price spikes in the future.

New production from Qatar's North field is seen starting within 5-7 years, targeting gas exports of 2 billion standard cubic feet per day, Kaabi said.

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LNG trio to test leverage in push to free-up purchases

The world’s gas industry is descending on Tokyo this week with something other than cherry blossoms on its mind: a trio of Asian LNG buyers testing their collective muscle in a push for more flexible long-term contracts for the fuel.

Korea Gas Corp (KOGAS), Japan’s JERA and China National Offshore Oil Corp (CNOOC) – whose joint liquefied natural gas volumes account for a third of global LNG trade – are attempting to cement a shift in power from producers to importers amid a supply glut that is expected to persist into the early-2020s.

Developing responses from LNG producers to the group’s alliance may also soon start to give clues as to who will win advantage as the fuel surplus puts pressure on suppliers to give buyers greater contractual freedom than they have had since the industry first began to ramp up in the 1970s.

Destination clauses will probably die soon under the pressure of buyers and the growing needs for flexibility,” said Anne-Sophie Corbeau, a research fellow at the King Abdullah Petroleum Studies and Research Centre (KAPSARC) in Saudi Arabia.

No meetings between the three buyers and major producers such as Royal Dutch Shell, Chevron and Qatargas have yet been confirmed at the Gastech biannual industry gathering, but representatives of all are certain to be in attendance, and other delegates are sure to be watching to see what happens when their paths cross.

North Asian LNG buyers – including those agreeing last month to explore joint purchases of supplies – have for decades relied on rigid long-term contracts that prevent cargo resales because the main priority was security of supply as energy demand soared amid double-digit economic growth.

But a slowdown in Asian growth over the past few years, especially in top two buyers Japan and South Korea, and impending liberalisation of gas and power markets mean dominant utilities are now often stuck with surplus cargoes they cannot resell amid stagnant or shrinking demand at home.

Last year for instance, global installed LNG capacity was over 300 million tonnes a year, while only about 268 million tonnes of LNG were traded, according to Thomson Reuters data.

JERA and KOGAS have both indicated they aim to ink only future contracts that have more flexible terms, but it remains unclear if they or other Asian buyers plan to force existing contracts into arbitration.

Many LNG producers have so far declined to comment on the rising threat from more aggressive buyers, although Australia’s Woodside Petroleum; suggested last week that flexibility in long-term contracts would eventually lead to a more liquid market.


Another disrupting force in the LNG market could be the emergence of importers like Pakistan that utilise floating storage and regasification units, who would also be small-scale buyers seeking shorter-term contracts.

“There are more new types of players coming into the market so it’s no longer the long-term bilateral type of dedicated deals between utilities and exporters, but we’re seeing a more flexible and liquid market developing,” Keisuke Sadamori, director of energy markets and security for the International Energy Agency, told Reuters.

Asia, which accounts for about 70 percent of the world’s LNG demand, is poised as well to benefit from rising U.S. exports that are on track to make the United States the third-largest exporter of LNG next year.

U.S. LNG is attractive to Asian buyers as cargoes have no destination restrictions that prevent them from being resold when domestic power demand is weak.

“This growth (in spot and short-term contracts) is driven by several factors including … the Japanese gas and power sector deregulations, (and the) uncertainty of LNG demand in Japan and Korea given potential nuclear power plant re-starts,” said Marc Howson, LNG Senior Managing Editor at Global Platts.

The emergence of price-sensitive buyers in India and China is also driving the market towards more spot trade, Howson said.

India does not rule out the possibility of joining the China, Japan and Korea grouping to jointly buy LNG to extract better deals, the country’s Oil Minister Dharmendra Pradhan said last month, adding that the market was gradually becoming more consumer-centric.

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Shell's Wetselaar says LNG contract destination clauses

Royal Dutch Shell's integrated gas and new energies director, Maarten Wetselaar, said on Tuesday that destination clauses in long-term liquefied natural gas (LNG) supply contracts that have linked suppliers and customers for decades are "not really crucial".

"They're not really crucial in contracts anyway, once you've delivered LNG into a tank, it is quite expensive to get it out again and ship it to someone else," Wetselaar said, speaking on the sidelines of a gas conference in Chiba, Japan.

The Shell executive was responding to questions on efforts made by the world's biggest buyers of the fuel to club together last month to push for more flexible supply contracts that drop cargo destination clauses.

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AG&P Announces Integrated Plug-and-Play Solutions for LNG Supply Network in Asia

New, standardized solutions will drive down production costs and accelerate delivery

AG&P’s scalable LNG platforms have a flexible design. The 4,000 m3 to 8,000 m3 vessel is designed for shallow water delivery and the 6,000 m3 to 16,500 m3 platform has scalable capacity which is suitable for open water delivery cost-efficiencies and uptake. (Graphic: Business Wire)

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AG&P (Atlantic, Gulf and Pacific Company), the global leader of infrastructure solutions, today announced two standardized modular products for the LNG supply network that will drive down costs, accelerate schedule and enable last-mile delivery to LNG demand centers scattered across Southeast Asia, South Asia and the Caribbean.

“While there is increasing preference for small-scale and mid-scale LNG solutions in emerging economies like Indonesia and India, uptake remains slow with few projects underway. Standardization and modular solutions will be the circuit-breaker that will bring projects online, enabling the switch to LNG as a clean and affordable energy source”

Speaking at Gastech 2017, the company presented designs incorporating standardized equipment to deliver a scalable LNG delivery platform and a fit-for-purpose, onshore modular regasification unit. These ‘plug and play’ packages, based on standard solutions, are built in AG&P’s dedicated, state-of-the-art, 150-hectare modularization facilities, which helps speed delivery times and significantly reduces the cost of customized engineering and project man-hours while increasing productivity and quality. Cost-effective and built for transportation across the world, AG&P believes these off-the-shelf products have the potential to bolster the small and mid-scale LNG market.

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Mediterranean gas pipeline could be built by 2025

European and Israeli governments gave their support on Monday to moving forward with a Mediterranean pipeline project to carry natural gas from Israel to Europe, setting a target date of 2025 for completion.

The planned 2,000 km (1,248 mile) pipeline aims to link gas fields off the coasts of Israel and Cyprus with Greece and possibly Italy, at a cost of up to 6 billion euros ($6.4 billion).

"This is an ambitious project, which as the Commission, we clearly support, as it will have a high value in terms of security of supply and diversification targets," said European Climate and Energy Commissioner Miguel Arias Canete.

Israel has discovered more than 900 billion cubic metres (bcm) of gas offshore, with some studies pointing to another 2,200 bcm waiting to be tapped. Along with the European market, it is exploring options to export to Turkey, Egypt and Jordan.

Cyprus' Aphrodite natural gas field holds an additional 128 bcm, and Cypriot waters are expected to hold more reserves.

After a meeting in Tel Aviv between energy ministers from Israel, Cyprus, Greece and Italy, Canete told reporters he believed the project would "meet all relevant requirements" to make financial commitment possible.

Israeli Energy Minister Yuval Steinitz said the pipeline could be completed in 2025. "But we will try to speed up and to shorten the timetable," he said.

A feasibility study has been completed and the next few years would focus on "proper development activities", with a final investment decision expected by 2020, said Elio Ruggeri, chief executive of IGI Poseidon, the project owners.

IGI Poseidon is a joint venture between Greece's DEPA and Italian energy group Edison.

"Our estimate today is for the pipeline to cost 5 billion euros to (reach) the Greek system and 6 billion euros to (reach)the Italian system," Ruggeri told Reuters.

The energy ministers said they would next meet in Cyprus in six months to further advance the project.
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Vitol's 2016 profit rises 25 pct

World's largest independent energy trader Vitol's profit rose 25 percent last year, the Financial Times reported on Monday, citing people familiar with the matter.

The Swiss-based company had a net income of $2 billion in 2016, up from just over $1.6 billion in 2015.

The 2016 net income included $500 million of gains from asset sales and a $100 million tax bill, the newspaper reported.

The results are unaudited and subject to revision, according to the FT.

Vitol said last month that annual traded volumes rose 16 percent in 2016 to a new record as it sold more gasoline and diesel in markets such as the U.S. and Australia.

Vitol's turnover, however, fell to $152 billion in 2016 from $168 billion in 2015 as a result of lower energy prices.
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Brazil's black market pipeline: Gangs hijack Petrobras' oil, fuel

Brazil's black market pipeline: Gangs hijack Petrobras' oil, fuel

In September, police investigating a wave of killings in the northern Rio de Janeiro suburbs followed a tip to the isolated scrubland near the massive Duque de Caxias oil refinery.

Police presumed the killings were linked to turf battles between criminal gangs in the run-up to municipal elections the following month.

They found a different explanation buried beneath the grass: a system of tubes to siphon fuel from underground pipelines leading from the refinery, owned by state-run oil company Petrobras.

Some of the killings, police said, were part of a power struggle between rival gangs earnings millions of dollars a year from stealing crude oil, diesel and gasoline and selling it on a thriving black market.

The discovery highlighted a fast-growing criminal enterprise in Brazil's oil heartland, between Rio de Janeiro and Sao Paulo. From just one recorded incident in 2014, the number of thefts and attempted thefts from Petrobras rose to 14 in 2015 - before jumping five-fold to 73 last year, the company told Reuters.

The racket is part of a larger crime wave in Brazil, and especially Rio, amid the country's worst recession on record.

Investigators believe the oil and fuel thefts were masterminded by the city's powerful militias - often made up of retired or off-duty cops - as they seek to move away from terror and violence to lower-profile crimes following a crackdown by authorities in recent years.

The thieves' methods range from hijacking tanker trucks to tapping the company's more than 11,000 kilometers of pipelines - and processing stolen crude at their own secret refineries.

"Not even Petrobras knows exactly how much is being stolen," said Giniton Lages, the Rio police chief who led the investigation at Duque de Caxias. "It's a huge business, moving millions of reais."


While oil theft - often with environmental damage from the accompanying spills - is commonplace in regions like the Niger Delta of Nigeria, it has not traditionally been a problem in Brazil.

The thefts add to the steep challenges facing Petroleo Brasileiro SA, as the Rio-based firm is formally known. Amid weak oil prices, the company is scaling back under new CEO Pedro Parente and trying to emerge from a $100 million pile of debt.

For the past three years, the state-run company has been hit by a sprawling investigation into corruption and political kickbacks in its dealings with construction firms.

Police suspect corruption in the oil thefts as well. The taps and pipes near the Duque de Caxias refinery were so precisely engineered that investigators concluded the thieves must have had help from inside Petrobras.

"They knew what type of fuel was inside each pipe and what was the ideal point to place a tap without the change of pressure in the tube raising the attention of the company's security system," Lages said.

Petrobras, whose production of about 2.8 million barrels a day makes it one of the world's top 10 oil companies, said it was working with police to identify any employees or ex-employees that may have been involved in the crimes.

"In 2016, there was a startling increase in theft from our pipelines," said Rodrigo Spagnolo, head of pipeline maintenance at Transpetro, Petrobras' transport subsidiary.

The company, however, said the robberies had no material impact on its earnings. Petrobras reported revenues of $81 billion last year.

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Genscape: small Cushing build

Genscape Cushing: +762,000bbls in last week

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New US Gulf fields add to oil production; operators eye exploration

It may be more than a year before US Gulf of Mexico oil exploration begins to ramp up in any noticeable way, but several new deepwater fields are adding to production and there seems to be sparks of interest in developing recent offshore finds.

Platts Analytics Bentek Energy is forecasting a rise in US offshore production to 1.868 million b/d by year-end and to 2.296 million b/d by end-2022 from 1.669 million b/d at end-December 2016.

The reason? Several new fields are slated to come online this year, including Barataria and South Santa Cruz, operated by small privately held Deep Gulf Energy, and Crown and Anchor by LLOG Exploration. Those will bring a combined 15,000 b/d of oil equivalent production.

But the Tornado Field, at around 9,000 boe/d, came onstream in November and other large fields that came on in 2016 such as Anadarko Petroleum's Heidelberg, Shell's Stones, ExxonMobil's Julia and Noble Energy's Gunflint, are still ramping up, sources said. Also, new wells are expected this year from Anadarko's Lucius Field (online since early 2015), and Hess' Tubular Bells (online since late 2014).

Even though sanctioning of large projects are few in number these days, some are still being advanced. For instance, Chevron's long-awaited Big Foot development will come online in late 2018. And Shell's Appomattox field is set to come online in 2020. Shell's Kaikias Field, to be tied back to its Ursa production hub, comes on in 2019.

"I've said for the past few years that things should be more active [in the Gulf] in 2018 and 2019, and I'm still hopeful that's the case," Trevor Crone, analyst for Platts unit RigData, said. "We should see a modest but steady increase in drilling in 2019."

RigData shows just six semisubmersible rigs and 22 drill ships under contract in the US Gulf of Mexico as of the end of March, down from 10 and 29, respectively, year on year.

"It won't go gangbusters anytime soon. I think there will be gradual improvement from here on out," Crone said.


As for new exploration, last month's Central Gulf of Mexico lease sale, which captured nearly $275 million in total high bids -- up from the $156 million seen in last year's comparable sale -- "is an early sign that offshore exploration and production spend is likely to come back," UBS analyst Amy Wong said in a post-sale investor note.

Mexico also held its first deepwater auction on its side of the Gulf in December 2016, where eight of 10 blocks received bids and Australia's BHP won a separate bidding to develop the Trion deepwater find jointly with state company Pemex.

But most of these are long-lead exploratory projects that could take up to a decade to produce -- and that's after a discovery is made, which could take several years as seismic is analyzed, drilling locations selected and other prepatory work is done.

Terms for US Gulf deepwater tracts are seven to 10 years, meaning operators have until 2024 (for tracts in 2,600-5,250 foot water depths) or 2027 (for blocks in water depths greater than 5,250 feet) to drill them.

Analysts have said $60/b is roughly the oil price operators likely want to see before embarking on wildcat exploration. With many deepwater wells costing well over $100 million each in remote locations 150-200 miles offshore and at total depths 30,000 feet and greater, operators have shied away from the risk -- especially when shale wells onshore yield more immediate benefits.

"Broadly speaking, our view is that we're not going to see any kind of full-scale return to exploration until oil prices go back up," Gordon Loy, Gulf of Mexico upstream oil and gas analyst for energy consultants Wood Mackenzie, told S&P Global Platts.

Still, Loy said breakeven oil prices for many Gulf of Mexico deepwater projects are "sub-$50" per barrel now, down from the $60s/b and $70s/b a few years ago.

In a report last week, Wood Mac said investment decisions on global deepwater oil and gas projects will likely see a recovery this year as drilling costs in the sector have fallen to a level making them more competitive with US shale plays.


Noting that cost inflation in the US tight oil industry was back "with a vengeance," the report estimated that, in contrast, deepwater costs could fall further, helped by leaner development principles and improved well designs.

"A lot of projects we classify as probable [for development] are undergoing a rescrubbing," Loy said. "They are being optimized, and operators are right-sizing facilities to be able to produce from a field they have now, not over-designing and not building in extra capacity [for the] future."

On the other hand, "we're still seeing appraisal activity at some high-profile discoveries" in the Gulf of Mexico, including Chevron's 2015 Anchor discovery (not related to a similar-named LLOG field), Anadarko Petroleum's Shenandoah and Cobalt's North Platte, he said.

"Those will still move forward. But a majority of Gulf of Mexico exploration will focus on lower-risk subsea tiebacks for the near future," Loy said.

Subsea tiebacks connect fields relatively near a production hub to the facility. They allow operators to capture value from smaller discoveries that may not be economic enough to warrant stand-alone production hubs.

In addition, top energy officials such as Saudi's oil minister Khalid Al-Falih and even Chevron CEO John Watson recently said shale alone will not be enough to fill a needed crude supply gap into the 2020s.

Speaking at the Howard Weil conference in New Orleans last week, Paal Kibsgaard, CEO of oil services provider Schlumberger, said production is holding up well despite under-investment despite a global industry downturn now into its third year.

Even so, "the current situation is not sustainable," Kibsgaard added.

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NAmerico unveils natural gas pipeline plan to relieve Permian glut

NAmerico Partners LP is proposing a multibillion-dollar pipeline to ferry natural gas from fast-growing fields in West Texas to the Gulf Coast, the company said on Monday, angling to match plans by rivals such as Kinder Morgan Inc (KMI.N).

The pipeline, one of at least three being considered to ease a looming gas glut in the Permian producing region, would link to existing lines, including those that export gas to Mexico and to a Cheniere Energy Inc (LNG.A) liquefied natural gas export facility under construction.

The pipeline would be the first major project by NAmerico Partners, founded two years ago in Houston. The company is backed by private equity fund Cresta Energy LP, whose management includes former executives from Regency Energy Partners LP, a large energy infrastructure company that was bought by Energy Transfer Partners (ETP.N) in 2015.

NAmerico Managing Partner Jeff Welch told Reuters in an interview this week that discussions with prospective shippers were at an advanced stage, and the pipeline would begin operations in 2019 if enough of them committed to supplying gas.

He declined to identify the shippers but said the company was confident the project would proceed.

NAmerico's 468-mile (753-km) pipeline, named the Pecos Trail Pipeline, would transport some 1.85 billion cubic feet per day of natural gas to the major Gulf Coast refining and petrochemical hub in Corpus Christi.

Last month, Kinder Morgan, which operates the largest natural gas pipeline network in North America, outlined a plan to build a 430-mile (692-kilometer) pipe traveling a similar route. It would be able to move 1.7 bcf per day of gas.

Enterprise Products Partners (EPD.N), another large pipeline operator, has said it may build a gas line to Corpus Christi, Texas, from the Permian.

"We've got this gigantic gas supply in West Texas, and big exports southbound and eastbound," Rick Smead, managing director of advisory services for consultancy RBN Energy, said in a telephone interview.

Kinder Morgan has also said its pipeline would begin operations in 2019 if enough shippers commit.

Analysts said the potential for new supplies could allow multiple projects to proceed.

The projects are being planned as big producers including Exxon Mobil, Apache Corp, and Chevron Corp are expected to pour billions of dollars into drilling in the Permian, a vast shale play in West Texas known for its low production costs and massive reserves.

Demand for natural gas in south Texas and the Corpus Christi area is expected to soar in the coming years. Cheniere Energy has said it has customers for 8.42 million metric tons a year of LNG from its site, which is expected to begin operations around 2018.

Exxon and Saudi Basic Industries Corp 2010.SE, an arm of Saudi Aramco, the state-owned energy company, also have proposed building a multibillion-dollar chemical and plastics plant outside of Corpus Christi. That plant would use natural gas as a raw material.

Natural gas production in West Texas is expected to more than quadruple by the middle of the next decade, Scott Sheffield, chief executive of Pioneer Natural Resources Co (PXD.N), a large Permian producer, said last month.

Gas production in the Permian is projected to reach 7.9 Bcf/d in April, up from 5.4 bcf/d the same month in 2014, according to the U.S. Energy Information Administration.

The number of drilling rigs operating in the region has more than doubled in the last year to 319 as of March 31, according to energy services provider Baker Hughes (BHI.N).

While companies are primarily drilling in the Permian for crude, natural gas comes up along with it. The EIA estimates each new rig in March added in the Permian increases the field's gas production by 1.1 million cubic feet a day.

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Alternative Energy

UK Solar Record

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ERCOT sets record wind output Friday

The Electric Reliability Council of Texas set a wind-output record of 16,141 MW Friday night, it reported on Saturday in its daily wind integration report.

ERCOT said the record was set at 8:56 pm CDT Friday and wind accounted for about 39.5% of the total power demand at that time.

In the real-time market, for the 15 minutes interval ended 9 pm Friday, the price for ERCOT West Hub was about $5.50/MWh, while prices for all other hubs averaged near $13.50/MWh.

The US National Weather Service office in San Angelo, Texas, reported the local peak gust speed registered was around 42 mph while the average wind speed was around 19 mph on Friday. Meanwhile, the average wind speed has been 13 mph in March.

ERCOT's prior record was 16,022 MW, set on December 25, 2016. The grid operator reported earlier a new wind penetration record of 50% on March 23.

The latest ERCOT data showed installed wind capacity totaled 18,358 MW as of March 1, while a total of 26,510 MW was in queue for study. It expects another 5,584 MW to be added to the grid by the end of 2017, to bring the total across its footprint to 23,942 MW.

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Li-ion is a transition technology!

Many of you won't agree, and this is necessarily a thought piece.

Fact remains: Li-ion is the best battery technology we have today in commercial production. 

Attached Files
Whywearscepticalonliion (4).pdf
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China builds first large scale carbon capture facility

On March 30, China started to build its first large scale carbon capture, utilization and storage (CCUS) facility, owned by Shanxi Yanchang Petroleum (Group) Co., Ltd.

Located in Xi'an, Shaanxi province, this facility captures 400,000 tonnes of carbon dioxide (CO2) from coal-fueled power plants. This is the first large scale carbon CCUS facility in China even across the Asia.

The captured CO2 will employ Enhanced Oil Recovery to enhance production at the exploited oil field. This technology has the potential to enhance the long-term viability and sustainability of coal-fuelled power plants.
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Australian state says 90 firms interested in supplying grid-scale batteries

Dozens of companies from 10 countries are vying with Elon Musk's Tesla Inc to install Australia's largest grid-scale battery to help keep the lights on in the country's most wind-dependent state.

The South Australian state government said on Monday it had received 90 expressions of interest to set up a battery by December with about 100 megawatts of capacity to store wind and solar power.

That would be used to stabilize the grid at peak times, which tend to be when the sun and wind are low.

Grid stability has become a hot-button political issue in Australia since a state-wide blackout in South Australia paralyzed industry for up to two weeks last September, and outages during a severe heatwave over the past summer.

If successful, the storage project could deliver a political windfall to South Australia's government, vindicating their investment in renewables, and give Tesla a high-profile platform to demonstrate their product.

Musk was first to say he could supply 100 MW of battery storage for the state at $250 per kilowatt hour, in a social media exchange with the co-founder of Australian software firm Atlassian Corp, Mike Cannon-Brookes.

"Tesla's interest and enthusiasm in this goes beyond just the Australian market. It is proving a concept and providing a solution," said Gero Farrugio, managing director of renewables consultancy Sustainable Energy Research Analytics.

The South Australian government did not name the companies who had expressed interest in the project.

A handful of companies have publicly said they would consider supplying the battery: Zen Energy, privately owned Lyon Group, working with U.S. power company AES Corp, and Carnegie Clean Energy, using batteries from Samsung SDI Co Ltd.

Lyon Group said last week it would go ahead with a A$1 billion battery project this year, with or without funding from the South Australian government, but the configuration would depend on whether it won any state funding.
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Areva faces "uranium-gate" in Niger

French nuclear power giant Areva is reportedly cooperating with a legal enquiry by activists who say the company cheated Niger out of $3.25 million in uranium exports.

The scandal known as "uranium-gate" resulted from a 2011 transaction between Areva, and companies in Niger and abroad:

Their complaint alleges embezzlement of public funds, money laundering, forgery and conspiracy to defraud.

The legal action centres on the allegation that Areva in 2011 bought a stock of uranium from Niger at a discounted price.

Back in 2014 Areva reached a deal with Niger's government to continue uranium mining as it pledged to pay more taxes and to indefinitely postpone a large project over profitability concerns.

At the time, opponents to Areva’s proposed Imouraren mine in Niger, the world's fourth-largest uranium producer, claimed the country's riches haven’t been translating into wealth for its citizens. According to Associated Press, critics have accused the state-owned French company of exploiting Nigeriens since it began operations in 1971.

The country provides 7.5% of the world's uranium through two significant, high-grade uranium mines, according to the World Nuclear Association.
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Base Metals

Southern Copper CEO hopes to prevent strike at Peru mines

Southern Copper Corp hopes to dissuade workers at its Toquepala and Cuajone mines in Peru from striking this month, as a second labor union this year in the world's No.2 copper producer seeks a larger share of profits.

The company's chief executive, Oscar Gonzalez, said he did not think the labor ministry would give the green light for the strike, adding that the firm could hire contract staff to protect output if its workers went against the government.

"A union in a country that's facing economic problems can't paralyze a company and keep it from generating revenues for the state," Gonzalez said in an interview on Monday at the CRU World Copper Conference in Santiago, referring to Peru's faltering growth prospects this year amid destructive flooding.

"They're the ones who are going to look bad," Gonzalez said of workers planning to strike.

The union, one of five representing Southern Copper workers in Peru, plans to hold an indefinite strike starting April 7 or 10, according to a regulatory filing.

Gonzalez said a labor agreement with workers was still in force and the company was not planning to give them a bigger share of profits, though it would seek agreement through dialogue.

Toquepala and Cuajone, both in southern Peru, together produced some 310,000 tonnes of copper last year, according to government data.

Union representatives were not immediately available for comment outside regular working hours.

Last month, workers at Peru's biggest copper mine, Freeport-McMoRan Inc's Cerro Verde, downed tools for three weeks to demand a better share of mining profits after production at the mine doubled and global copper prices improved.

Southern Copper, owned by Grupo Mexico, boosted its copper output by 21 percent to 900,000 tonnes last year on the back of an expansion at a mine in Mexico. Gonzalez said the company's cost of producing 1 pound of copper is now the world's lowest at a little under $1.

Gonzalez said former investment banker Pedro Pablo Kuczynski has improved the investment climate in Peru since replacing a former military officer as the country's president last year.

Southern is now considering expanding the capacity of its smelter in southern Peru by 40,000 tonnes, or 14 percent, a move that would boost Kuczynski's goal of bolstering local metals processing.

Gonzalez also said he hoped Kuczynski's government would this year issue a long-awaited construction permit for Southern's $1.4-billion Tia Maria copper project.

The proposed mine, which would take two years to build and would produce around 120,000 tonnes of copper per year, was derailed in 2015 by protesters who feared it would pollute a farming valley.

"We hope Tia Maria can happen but there's a question mark, it depends a lot on the government acting appropriately," Gonzalez said.

He added that Southern has offered to buy all Anglo American Plc's 81.9-percent stake in the proposed Quellaveco copper mine in southern Peru, but has not yet received an answer.

Anglo has previously rebuffed Southern's bid to buy part of its Quellaveco stake.
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Nautilus to test seafloor production tools in PNG submerged trials

Marine mining hopeful Nautilus Minerals will shortly start submerged testing of its fleet of seafloor production tools, following the equipment’s arrival in Papua New Guinea (PNG).

"We are delighted to be undertaking submerged trials in PNG. The trials will result in money and investment going into the PNG economy, and the employment of Papua New Guineans in 'state of the art' technology, which are some of the key benefits of seafloor production. The trials also allow us to work closely with our partner Petromin, government officers from the various government agencies, as well as representatives from Provincial Governments of New Ireland and East New Britain,” CEO Mike Johnston stated Monday.

The submerged trials will happen in an existing facility on Motukea Island, near Port Moresby in PNG.

The company last month stated that it remains on track to achieve production from the Solwara 1 project, offshore PNG in the Bismark Sea, in the first quarter of 2019. The company’s objective is to develop the world's first commercial high-grade seafloor copper/gold mine and launch the seafloor resource production industry.

Nautilus formed a joint venture company with PNG’s nominee, Eda Kopa (Solwara), in December 2014 to mine high-grade polymetallic seafloor massive sulphide deposits. Nautilus has an 85% shareholding and Eda Kopa 15%.

Nautilus announced in September a revised work programme, pending the company successfully raising the required capital by June. It entails a more staged approach, moving the Nautilus equipment integration phase of vessel construction out until after the vessel has been delivered by Fujian Mawei Shipyard and Marine Assets Corporate in the fourth quarter of 2018, resulting in a 12-month delay to the original schedule.
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Steel, Iron Ore and Coal

Coking coal price surges 15%

The market for coking coal exploded on Monday with the steelmaking raw material surging more than 15% to $175.70 (Australia free-on-board premium hard coking coal tracked by the Steel Index), an 11-week high.

The met coal price spike come on the back of major disruption to Australia’s coal exports. Australian cargoes destined for China may be disrupted for as long as five weeks as flooding associated with Cyclone Debbie has caused serious damage to some of the country’s key rail lines, particularly in the north-east.

The global met coal market is around 300 million tonnes per year with premium hard coking coal or PHCC constituting more than a third of the total market. More than half of PHCC seaborne coal come from Australian producers according to TSI data.

A reduction in allowable work days at the country's coal mines last year sparked a massive rally in coal prices, lifting met coal prices to multi-year high of $308.80 per tonne by November from $75 a tonne earlier in 2016.
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Australia's Abbot Point coal terminal to reopen end week after Cyclone Debbie

Abbot Point Coal Terminal in the Australian state of Queensland is expected to reopen by the end of the week after weather related to Tropical Cyclone Debbie forced its closure last week, a spokesman for operator Adani told S&P Global Platts Monday.

Abbot Point port was closed last Tuesday last week in preparation for the cyclone, and vessels were given the OK to return to anchorage from the outer reef last Thursday, North Queensland Bulk Ports Corporation said.

Once reopened, exports of coal via Abbot Point will still likely be impeded as the coal rail system that connects it to mines in the region is expected to remain closed for the next 2-3 weeks.

The rail system, Newlands, which closed at 12:00 AEST last Tuesday, has a significant number of sites that have sustained minor damage, but there are no reports of major damage, operator Aurizon said Monday.

A spokesman for coal miner Glencore said export volumes from Abbot Point will be "significantly impacted" as a result of the rail system closure.

The Abbot Point Coal Terminal has a shipment capacity of 50 million mt/year. In February, it shipped its lower monthly volume of coal in 35 months at 1.79 million mt, down 1.92% year on year and down 13.73% month on month, NQBP data showed.

The Newlands system was linked to Aurizon's Goonyella Coal Rail System -- which is expected to remain closed for five weeks -- to provide Central Queensland Coal Network users with the flexibility with access Abbot Point.

Aurizon's major customers that use the Newlands system include Glencore, Jellinbah Resources and QCoal.
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Jellinbah declares force majeure on met coal shipments on Cyclone Debbie

Jellinbah Group, a significant Queensland met coal miner, which produces low ash second-tier coals and mid-tier PCI, has declared force majeure on some shipments Monday, a source with knowledge of the matter said.

This follows a declaration of force majeure by Yancoal's Middlemount mine last week, due to cyclone Debbie which hit Australia early last week.

Jellinbah's force majeure affects only a few shipments, Jellinbah PCI and Lake Vermont HCC and it was due to railway logistical issues rather than issues at the mining site, the source added.

Jellinbah Group is Queensland's third largest producer and exporter of coking coal. The company produces Lake Vermont HCC which is widely traded in the spot market due to its relatively low ash component which is favored by the Chinese.

Jellinbah's Lake Vermont HCC is the second most widely traded low ash coal in the international spot market, accounting for 23% of the trades according to S&P Global Platts spot data analysis in 2016.

The miners' PCI products are the fourth most traded in the spot market, accounting for 13% of the trades flows, according to 2016 spot data analysis by Platts.

Jellinbah produces 13.09 million mt of coking coal and PCI in 2014-15, according to latest data from their company website.
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Second Australia miner declares force majeure in wake of Cyclone Debbie

Australia's QCoal on Tuesday became the second miner to declare force majeure in the wake of Cyclone Debbie, as the deadly storm's damage to railway lines in the country's northeast disrupts exports and pushes coal prices higher.

The cyclone, which struck last week as a category four storm, one rung below the most damaging category five, has now left a disaster zone stretching 1,000 km (600 miles) and subsequent flooding has claimed at least four lives.

The disruption, which primarily affects steel-making material coking coal, comes after damage to Aurizon Holdings' rail lines that has reverberated around the market leading to price rises in both coking and thermal coal.

Some of Aurizon's rail network will take up to five weeks to repair, the company said, disrupting coal deliveries from mines to ports.

Privately-owned QCoal said in an emailed statement on Tuesday that it had declared force majeure on two coal shipments "due to infrastructure availability". It did not give the volume of the cargoes.

Yancoal Australia Ltd has already declared force majeure, while miners including BHP Billiton and Glencore PLC are waiting to see if they will be able to fulfil contracts with customers in Japan, China, South Korea and India.

Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with the Goonyella rail line alone transporting more than half of the state's coal.

The Insurance Council of Australia has declared the cyclone a catastrophe, which could cost hundreds of millions of dollars in losses and state officials have warned recovery and repairs will take months as many areas remain subject to evacuation orders.

Floodwaters receded from many parts of New South Wales state on Monday, though last week's deluge is still flowing through river systems further north. New Zealand is bracing for heavy rain on Tuesday as the storm crosses the Tasman Sea.

BHP Billiton, the world's biggest exporter of metallurgical coal, said on Monday that crews were returning to work at its coal mines in the storm-hit region.
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After Cyclone Debbie, China replaces Australian coal with U.S. cargoes

China, the world's biggest coking coal importer, is scrambling to cover Australian supply disruptions after Cyclone Debbie knocked out mines and rails by turning to an unusual source: the United States.

Debbie, which hit Australia's Queensland state last week, caused the evacuation of several mines and damaged coal trains supplying export terminals, triggering two miners - Yancoal Australia and QCoal - to declare force majeure on its deliveries. With other miners like BHP Billiton and Glencore also affected by the storm's fallout, more disruptions may follow.

Force majeure is a commercial term that means a buyer or seller cannot fulfill their obligations because of outside forces. It is typically invoked after natural disasters or accidents.

Australia, the world's biggest coking coal exporter, is China's largest suppliers. With markets there closed on Monday and Tuesday, its steel makers are clambering to find alternative supplies.

"Markets may be closed Monday and Tuesday, but there's certainly activity. The Chinese are fixing cargoes from the United States in order to replace the shortfall from Australia," one coal trader with knowledge of the matter said, speaking on the condition of anonymity as he was not cleared to talk about commercial deals.

"More will make its way from the U.S. to China very soon," he added.

It was not immediately clear which American miners were providing the supplies, but Thomson Reuters Eikon data shows that China has already imported over 500,000 tonnes of U.S. coking coal in 2017, ending a two-year stretch when no coking coal was shipped between the two countries.

China will require more coal, as the Australian outages far outstrip what is immediately available from the United States.

"The minimum impact over the coming weeks we would expect would be in the region of 14 million tonnes of coal (11.5 million metallurgical, and 2.5 million tonnes thermal)," said Rodrigo Echeverri, head of energy coal analysis at commodities trading house Noble Group, adding that the current estimate was for the outages to last around five weeks.

Shipping data in Eikon shows that around 70 ships are waiting to load coal off the Queensland ports of Abbot Point, Mackay, Dalrymple Bay, and Hay Point.

The outages caused Australian coking coal futures on the Singapore Exchange on Monday to spike by over 25 percent to $197 per tonne, the biggest one-day move ever.

China has recently turned to Russia for more coking coal, with imports rising to over 400,000 tonnes in February from 275,000 tonnes in December.

Mongolia and Indonesia are other potential sources of coking coal for China, three coal traders said. Anthracite coal shipments from North Korea to China, also used as coking coal, have dried up after Beijing ordered an import ban following missile tests of its isolated neighbor.

Overall, traders said it was unlikely that all of China's near-term demand could be met without Queensland supplies, likely requiring inventory drawdowns, which will push up prices.

"With a significant amount of the world's premium hard coking coal now marooned onsite, prices are likely to continue to push higher," ANZ said.

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China's 90 large coal producers Jan-Feb output down 0.6% YoY

China's 90 large coal producers produced a total of 370 million tonnes of raw coal over January-February, edging down 0.6% year on year, showed data from the China National Coal Association (CNCA).

The top ten coal enterprises produced a total 220 million tonnes of raw coal over the same period, accounting for 61.1% of the total output produced by 90 coal producers, the CNCA data showed.

Of this, raw coal output of Shenhua Group, China National Coal Group and Shaanxi Coal & Chemical Industry Group stood at 71.07 million, 23.17 million and 21 million tonnes during the period.

Shandong Energy Group, Datong Coal Mine Group and Yankuang Group followed with raw coal output at 19.8 million, 18.73 million and 17.3 million tonnes.

Shanxi Coking Coal Group, the State Power Investment Co., Ltd, Lu'an Group and Kailuan Group produced 15.45 million, 14.12 million, 12.39 million and 11.77 million tonnes, respectively.

The CNCA data showed that there were 5,052 above-sized coal producers (main businesses revenue above 20 million yuan) in the first two months, 875 less than the same period last year.

The main businesses revenue of the above-sized coal firms totaled 393.7 billion yuan ($57.14 billion) over January-February, up 37.5% from a year ago. Their total profit was 43.8 billion yuan during the period, compared with a loss of 2.09 billion yuan during the same period last year.

Among them, loss-suffering enterprises reported a loss value of 5.82 billion yuan in the first two months, down 68.8% year on year. The asset liability ratio was 69.4%, compared with 69% a year earlier.

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SouthGobi Resources coal output up 73.3pct in 2016

SouthGobi Resources Ltd. produced 3.38 million tonnes of coal in 2016, up 73.3% from 1.95 million tonnes in 2015, it announced in its financial and operating results for the quarter and the year ended December 31, 2016 on March 31.

The company managed to increase its sales volume from 1.07 million tonnes in 2015 to 3.91 million tonnes in 2016, data showed.

In 2016, the company recorded a $38.1 million loss from operations in 2016 compared to a $166.9 million loss in 2015.

Although the coal prices generally improved in China during 2016, the impact of negotiating coal sale agreements during lower coal price periods and the depreciation of the RMB against the USD negatively impacted the overall coal prices achieved by the company.

The average realized selling price decreased from $17.66/t in 2015 to $16.44/t in 2016.

In the fourth quarter of 2016, the company produced 1.21 million tonnes of coal, compared to 0.62 million tonnes for the fourth quarter of 2015.

The company sold 1.08 million tonnes of coal during the same period, compared to 0.21 million tonnes in the fourth quarter of 2015.

During the fourth quarter of 2016, the company recorded an $11.4 million loss from operations as compared to a $105.1 million loss in 2015.

Although the general coal market remained difficult in 2016, the results were an improvement when compared to 2015 and were principally attributable to increased coal sales as well as decrease of impairment of property, plant and equipment from $92.7 million in 2015 to $1.2 million in 2016, the company said.
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Robust China iron ore imports in March may be highwater mark: Russell

China's appetite for iron ore is likely to have continued unabated in March, but it seems increasingly likely that the first quarter of 2017 may prove to be as good as it gets this year for imports of the steel-making ingredient.

China imported 90.3 million tonnes of iron ore in March, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

If the estimate is matched by official customs figures, due next week, it will be only the fifth time that monthly imports have exceeded 90 million tonnes, the other occasions being January this year, November and September last year and in December 2015.

The vessel-tracking and port data is typically more conservative than customs data, undercounting by 3.5 percent over 2016, meaning that the risk is that March imports are higher than suggested by the data.

China's imports of iron ore in the first quarter of 2017 have been robust, mainly on the back of strong steel prices and optimism about the resilience of the construction and infrastructure sectors, the main steel consumers.

But there are already signs that the market is realizing it got ahead of itself, with spot iron ore prices ending last week at $80.39 a tonne, down 15 percent from the peak this year on Feb. 21.

The spot price is now virtually flat from the $78.87 at the end of last year, showing that the rally from December 2015 to February, which resulted in prices more than doubling, is starting to unwind.

Much of the focus on why the price gains were unsustainable has been on the rapid build-up of iron ore inventories at Chinese ports, with industry consultants SteelHome saying stockpiles at 46 ports reached a record 132.5 million tonnes in the week to March 31.

This is some 65 percent higher than the 80.5 million tonnes recorded in October 2015, just prior to the start of the strong rally in prices.

While an overhang of inventories was always likely to eventually cause prices to stumble, it also means that imports may be subdued in the coming months as traders and steel mills work through some of the stockpiles.


Chinese steel demand may also become a headwind for iron ore imports and prices, with the China Metallurgical Industry Planning and Research Institute estimating it will drop to 660 million tonnes in 2017, a decline of 1.9 percent from 2016.

"We think China's steel consumption will decrease step by step by step -- maybe increase some years, like last year. That's our situation," Li Xinchuang, the institute's president, told an industry conference in Perth on March 30.

Such a decline in domestic demand, coupled with likely lower steel exports, would likely lead to steel mills lowering output, thereby cutting their need for imported iron ore.

China's steel exports were 13.17 million tonnes in the first two months of 2017, down 25.7 percent from the same period last year.

If this pace is maintained for the rest of the year, steel exports will reach around 80 million tonnes, well below the 108.5 million recorded in 2016.

Steel prices in China are also feeling the pressure of possible lower domestic demand and exports, with the benchmark Shanghai rebar contract, ending last week at 3,166 yuan ($459.50) a tonne, down 6.2 percent from its recent closing peak on March 15.

For iron ore, it appears the combination of a softer demand outlook and record high inventories is finally weighing down prices.

While this has yet to show up in China's imports of iron ore, the risk is that these too start to moderate from the breakneck pace seen in the first quarter.
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Palmer’s Mineralogy loses battle for control of Cape Preston port

The Federal Court of Australia has dismissed an appeal by Clive Palmer’s Mineralogy to prevent CITIC Pacific Mining from accessing the Cape Preston port, effectively cutting off the multibillion-dollar Sino iron-ore project from its export vein.

Despite Mineralogy’s insistence that it should be entitled to control of the port, the three appeal judges found that, in 2010, the privately held company had confirmed that it did not plan to get involved in the port operations and, in 2012, only after CITIC had spent billions on the Sino project, had Mineralogy had a “change of heart”.

The judges noted that none of the proposals between the two companies had the “slightest suggestion” that Mineralogy would be carrying out the operation and maintenance of the port facilities.

“The decision is welcome news for the project, our staff and Western Australia,” a CITIC spokesperson told MiningWeekly Online.

“The appeal court has affirmed our view that Mineralogy had no right to operate our port terminal facilities. We’ve invested heavily in this infrastructure and they're critical to our operations.”

“Having to deal with such matters is a distraction from our main objective – putting Sino Iron on a sustainable footing, both economically and operationally. Mineralogy’s litigious approach continues to undermine these efforts,” the spokesperson said.

CITIC is in the midst of ramping up production at Sino, with the mine set to produce 24-million tonnes a year at full capacity.

“We still face many challenges. The cooperation and commitment of all stakeholders is vital if Sino Iron is to reach its full potential,” the spokesperson said.
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US stainless sheet prices move up on mill hikes, high demand

US stainless sheet prices moved up to start April as mills lowered base price discounts and demand increased, sources said Monday.

North American Stainless kicked off the latest round of price hikes February 28, announcing it would be raising prices for all series 200, series 300 and type 430 cold-rolled stainless coil and sheet grades, effective with shipments April 1. The increase, which was followed by ATI Allegheny Ludlum, Outokumpu Coils America and AK Steel, was to be achieved through a reduction in functional discounts of two percentage points. Overall, NAS expected the discount reduction to raise cold-rolled stainless flats base transaction prices 5%-7%.

"We have seen a solid incoming orders from both manufacturers and distributors," a service center source said, adding March was a record month for their operation. "Demand seems healthy, while inventories are lean."

Sources put current lead times from US stainless mills in the range of five to eight weeks, depending on the alloy.

"We're definitely seeing strong demand," another service center source said.

US stainless flats surcharges for series-300 grades will also be up for April deliveries, according to raw material levies published by domestic mills in late March. NAS, ATI, AK and Outokumpu set surcharges for Types 304 and 316 at 60.12-60.17 cents/lb and 76.02-76.09 cents/lb, respectively. Type 304 stainless is up from 59.29-59.34 cents/lb in March, while Type 316 is up from 73.31-73.36 cents/lb.

In the near term, stainless sheet base pricing seems firm at current levels, source said.

"I don't see mills cutting deals," the first service center source said. S&P Global Platts on Monday assessed Type 304 stainless sheet transaction prices at 120-123 cents/lb, up from 116-118 cents/lb in the previous month. Type 316 stainless was assessed at 156-160 cents/lb, up from 147-149 cents/lb.

Type 430 stainless sheet transaction prices were assessed at 93-96 cents/lb, up from 90-91 cents.
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China's PMI for steel sector falls to 50.6 in Mar, fuels oversupply fears

The Purchasing Managers' Index (PMI) for the steel sector fell to 50.6 in March, down from February's 51.4, but still above the 50-point mark that separates growth from contraction on a monthly basis, showed data from China Federation of Logistics & Purchasing (CFLP) on March 31.

It indicated that activity in China's steel industry expanded at a slower pace in March even as mills continued to ramp up output, sparking worries of oversupply in the world's top producer of the metal.

A renaissance in China's steel industry has been a major driver of the world's second-largest economy in recent quarters, helping generate the strongest profit growth in years.

Since last year, cash-starved Chinese mills have boosted production to take advantage of rising steel prices and higher profit margins, but a reading on new orders slipped to 50.6 in March from 55.3 in the previous month, suggesting a sharp cooling in demand.

Steel prices were on track for a 4% fall in March, the first monthly drop since December, on worries that supply is outstripping demand.

The purchasing price index for steel sector logged the second straight rise on monthly basis to a nearly four-month high of 62.6 in March, compared with 60.4 a month earlier. It has stayed above the 50-point mark for 13 consecutive months, indicating robust upturn of steelmaking material prices.

Inventories of finished goods expanded for the first time in March after five months of decline, rising to 53 from 47.7 in February, its highest level since July 2015.
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