Mark Latham Commodity Equity Intelligence Service

Thursday 22nd June 2017
Background Stories on www.commodityintelligence.com

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    Macro

    Extreme heat grips Northern Hemisphere on summer solstice



    Extreme heat across large tracts of the Northern Hemisphere raised fears for crops in China, fueled forest fires in Portugal and Russia's Far East, forced flight cancellations in the Southwest U.S., and melted tarmac on roads in Britain.

    As Wednesday marked the summer solstice - the longest day of the year - forecasters said temperatures in Paris were expected to hit 37 Celsius (100 Fahrenheit), Madrid could see 38C, and London was set for 34C with warnings of thunderstorms.

    Rounding up the record temperatures set in the past two months, the World Meteorological Organization (WMO) said the Earth was experiencing "another exceptionally warm year" and the heatwaves were unusually early.

    "Parts of Europe, the Middle East, North Africa and the United States of America have seen extremely high May and June temperatures, with a number of records broken," the WMO said late on Tuesday.

    The trend seen during the past two months has put average monthly global temperatures among the highest ever recorded since data began to be collated in 1880.

    Even before this month, U.S. National Oceanic and Atmospheric Administration (NOAA) data showed Europe, the United States and Northeast Asia - including eastern China, Japan and South Korea - had experienced unusually warm weather between March and May.

    In China, the world’s top grain producer, hot and dry conditions in the main corn belt have delayed plantings and stunted crop development, especially in the province of Liaoning where soil moisture levels are at their lowest in at least five years.

    Thomson Reuters Eikon data shows that precipitation in Liaoning for the past month has been between 40 and 60 percent below the seasonal norm.

    "The drought that hit parts of China’s northeast is the worst for this time of the year in the past decade, in the breadth of areas it has affected and the length of time it has lasted," Ma Wenfeng, analyst at Beijing Orient Agribusiness Consultancy, said.

    The hot, dry weather is a major factor behind forest fires that have killed dozens of people in Portugal, while the Russian news agency Tass reported scores of forest fires, mostly in Siberia and the far east region of Irkutsk.

    In the U.S. Southwest, flights were canceled mostly by regional airlines whose aircraft operate at a lower maximum temperature.

    And in Britain, regional media in the southeast county of Surrey reported that the intense sun had melted tarmac roads.

    Solar power generation was expected to surge in Germany on Wednesday, with Eikon data showing a potential of 27,500 megawatt-hour (MWh) could be generated, compared to a seasonal norm of just 20 MWh.

    The Climate Change Institute at the University of Maine recorded temperatures in the Northern Hemisphere were 0.44C (0.8F) above the norm on Tuesday, compared with a global average of 0.25C above usual.

    A study published earlier this week found that nearly one in three of the world's people were already exposed to potentially deadly heatwaves and predicted that number would rise to nearly half by the end of the century unless governments take steps to aggressively reduce climate-changing emissions.

    "People are talking about the future when it comes to climate change, but what we found from this paper is that this is already happening … and this is obviously going to get a lot worse," said Camilo Mora, geography professor at the University of Hawaii at Manoa and lead author of the study published in the Nature Climate Change journal.

    http://www.reuters.com/article/us-global-heatwave-idUSKBN19C0OX
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    Oil and Gas

    Looming Chinese refinery cuts to hit oil demand



    Some of China's top oil refineries are having to take the highly unusual step of cutting operations during what is typically the peak demand summer season when hot weather drives up power usage and families take to the road during school holidays.

    Almost 10 percent of China's refining capacity is set to be shut down during the third quarter, signaling that demand growth from the world's top crude importer is stuttering further.

    West African and European suppliers are already feeling the chill from China's reduced demand, and a global glut has dragged spot prices for crude this week to their lowest since November, 2016.

    Major Chinese oil refineries, including PetroChina's Jinzhou will set their run rates around 6,500 barrels per day (bpd) lower than the second quarter, sources at the affected refineries said.

    Petrochina's Fushun refinery, with an annual capacity of 233,200 bpd, began a 45-day full shutdown at the start of June, the sources said on condition of anonymity as they are not authorized to speak to media.

    Rival Sinopec is considering slashing as much as 230,000 bpd, equivalent to about 5 percent of its average daily production last year, in what would be only the second time in 16 years that the firm has cut runs.

    Stocks of surplus products like gasoline and diesel have been building since mid-2015, when Beijing started giving out crude import licenses to independent refiners, sometimes called teapots. This has forced state-owned Sinopec and PetroChina to cut back operations, and reduced their crude buying.

    "Refiners probably realized that the domestic market cannot take so much gasoline and diesel, and the only way is to cut runs," said Gao Jian, crude oil analyst with China Sublime Information Group.

    Adding to these cuts, around 1.3 million bpd of refining capacity is going to shut in the third quarter as four state-run refineries and six independents begin planned maintenance, data provided by China Sublime Information Group showed.

    Those closures mean almost 10 percent of China's 15.1 million bpd total refining capacity will go offstream in the third quarter.

    To whittle down the surplus weighing on the domestic market, analysts expect China to export refined product, putting more pressure on a well supplied global markets.

    "China will have to export product... onto Asian markets, which given demand conditions regionally does not appear particularly constructive," said Harry Tchilinguirian, head of commodity strategy at French bank BNP Paribas.

    The lower refinery throughput should reduce China's demand for crude until around September. Some suppliers are already feeling the chill. Shipments by Angola, which sends most its oil to China, were running at the lowest level in at least a year during the first few weeks of June.

    From the North Sea, just 2 million barrels of Forties crude has been shipped to Asia so far this month, compared with around 6 million barrels in June last year, and 10 million barrels in May.

    BUT DON'T WRITE CHINA OFF

    The imminent cuts in China's refining sector are likely to further weigh on oil prices, which have more than halved since 2014 due to oversupply.

    However, traders say that China's voracious thirst for oil will likely return once the immediate glut is cleared.

    Nineteen Chinese independent refiners this week received fresh licenses to import crude for 2017.

    "I'd expect improved buying now that teapot quotas have been released. If prices drop, China tends to buy more," said Oystein Berentsen, managing director for Strong Petroleum, a trading firm supplying Chinese refiners.

    Taken together with the licenses awarded earlier, independent refiners now have import quotas for about 1.42 million bpd this year, and it is possible that eight companies will receive allocations for another 340,000 bpd.

    As refiners start chartering tankers to import crude, the impact of the new import allowances is expected to show from the end of the third quarter.

    Traders said they will meet much of this demand by re-selling crude stored in South Korea and China, particularly from Shandong province where most of the independent refiners are, and from tankers off Malaysia.

    Some traders even expect demand to spike in the fourth quarter, as seen late last year as teapots rushed to use up quotas to build their case for maintaining or increasing future quota allocations.

    "China is a bit unpredictable – suddenly they buy a lot out of the blue, so you can never underestimate China's buying," said Berentsen.

    http://www.reuters.com/article/us-china-oil-demand-analysis-idUSKBN19C168
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    OPEC mulls deeper cuts due to higher than expected US oil output: Zanganeh



    OPEC countries are discussing deepening their production cut agreement, Iran oil minister Bijan Zanganeh said Wednesday, even as some members say the recent extension of the deal needs more time to play out.

    "The US oil production increase was unpredictable and this increase is more than what OPEC members had foreseen," Zanganeh was quoted as saying by state broadcaster IRIB news agency. "We are in consultation with OPEC members to prepare ourselves for a new decision. But making a decision in this organization is very difficult because any decision will mean an output cut by the members."

    Zanganeh, speaking on the sidelines of a cabinet meeting, said he personally felt that OPEC should "wait a while and see how the market will form."

    Some members "believe that it's not [been] long since OPEC decided to cut production, and the impact of this decision has not practically kicked in in the market yet," he added.

    A meeting of the OPEC/non-OPEC Joint Ministerial Monitoring Committee is scheduled in Russia in late July, with the exact venue and date still to be determined.

    The committee, composed of ministers from Kuwait, Russia, Venezuela, Algeria and Oman, is empowered to recommend further cuts or any other adjustments to the deal, as it sees fit, officials have said.

    Saudi energy minister Khalid al-Falih and Russian energy minister Alexander Novak, who represent the largest producers in the OPEC/non-OPEC coalition, have said in recent days that they saw no need to change the production cut agreement, with stock drawdowns expected to accelerate in the next three to four months.

    The deal calls on OPEC to cut 1.2 million b/d and 10 major non-OPEC countries, led by Russia, to cut a collective 558,000 b/d.

    Participants have said the deal is aimed at getting OECD oil stocks down to their five-year average. OPEC's monthly oil market report earlier this month estimated that OECD commercial stocks had fallen in April for the third straight month to now stand at 251 million barrels above the five-year average.

    MARKET UNMOVED BY COMPLIANCE

    Compliance with the cuts remains high -- in fact it was at its highest in May since the deal began, according to an OPEC source who spoke on condition of anonymity.

    OPEC compliance hit 108% in the month, with non-OPEC participants achieving 100%, the source said.

    While not all members have cut down to their quotas, other participants -- notably Saudi Arabia -- have exceeded their required cuts, making up for the difference.

    Saudi Arabia has cut 110,000 b/d more than required through the first five months of the deal, according to the latest S&P Global Platts OPEC survey, one of six secondary sources used to monitor compliance.

    But the market in recent weeks has not rewarded the coalition with price gains, as doubts about the cuts' effectiveness in the face of surging US shale output and stubbornly high US inventories have led to bearish sentiment.

    US liquids production has risen 795,000 b/d in 2017 from 2016 levels, OPEC has estimated.

    The US' "oil production increase over the recent months is the main reason for the global oil price fall," Zanganeh said.

    Production gains from Libya and Nigeria, both of which are exempt from the cuts, also appear to be weighing on prices, along with an uncertain global demand outlook.

    https://www.platts.com/latest-news/oil/london/opec-mulls-deeper-cuts-due-to-higher-than-expected-26756720
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    NIGERIA'S AUGUST OIL EXPORTS EXPECTED TO HIT 2 MLN BPD,



    NIGERIA'S AUGUST OIL EXPORTS EXPECTED TO HIT 2 MLN BPD, LARGEST PLAN IN 17 MONTHS, AS MILITANT ATTACKS FADE - PROGRAMMES

    @EnergyBasis  
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    From Middle East to Argentina, France's Total bets on cheap resources



    As the world witnesses spectacular growth in oil and gas production from the U.S. shale deposits, the boss of French energy giant Total paradoxically says this is one area where he doesn't want to expand.

    Instead, chief executive Patrick Pouyanne told Reuters he can find an edge over rivals by going after cheaper reserves elsewhere, including from shale in Argentina and deepwater wells in the Gulf of Mexico, as well as through new gas technology.

    "Shale oil is too expensive," said Pouyanne, who has clinched strategic deals for Total in Brazil, the United Arab Emirates, Qatar and Iran since taking over as CEO at the end of 2015.

    Rapid growth in U.S. shale production has led to a sharp increase in global oil supplies that depressed prices. This year, it is forecast to increase by up to 1 million barrels per day to more than five million, or almost 10 percent of the country's total crude output.

    Low production costs and relatively short development times have made shale attractive during one of the worst downturns in the oil industry's history. Companies including Exxon Mobil, Chevron and Statoil have invested billions in recent months to enter U.S. shale areas such as in the Permian basin in Texas.

    The problem lies with asset prices, Pouyanne said in an interview. The cost of buying land to exploit shale deposits below the surface has rocketed, as has the purchase price of companies which already hold development rights. An acre of land in the Permian basin rose from $1,000 in 2012 to $50,000 last year, according to consultancy WoodMackenzie.

    Pouyanne therefore remains reluctant to expand beyond Total's current gas fields in the Barnett and Utica shale formations in Texas and Ohio respectively.

    Total has cut costs throughout the downturn, leading to a surge in first quarter adjusted net profit to $2.6 billion, up 56 percent on the same period of 2016.

    Now Total, which is France's largest company, is cautiously returning to new projects. This year it gave its first go-ahead since 2014 to develop Argentina's Vaca Muerta gas project, one of very few exploited shale deposits outside North America and where land costs are significantly lower. The first phase will cost around $500 million.

    In U.S. production, Pouyanne sees greater opportunities in the Gulf of Mexico, where Total along with only a handful of the world's other top oil companies have the necessary expertise in deep water drilling. "Today it is a game of only five or six players," he said.

    Many smaller producers abandoned capital intensive projects in the Gulf of Mexico after an explosion on the Deepwater Horizon rig in 2010 killed 11 people and led to the largest oil spill in U.S. history. That cost BP $60 billion in clean-up costs and fines.

    Deepwater production costs fell sharply in the wake of the oil price crash, as project cancellations forced service companies to cut their prices. Today companies such as Total, Royal Dutch Shell and BP can develop some fields at around $40 a barrel, on a par with the most competitive shale.

    Total will raise its production by around 30 percent during this decade and has already surprised the market with better than expected growth rates in the past few quarters as projects in Angola, Russia and Brazil added new barrels.

    Pouyanne's formula is to concentrate on fields that will still be competitive after global oil demand has finally peaked and begun declining.

    "Let's concentrate on low cost oil. Don't tell me I need to invest in the highest technology barrels because low cost oil is the answer to volatility and peak oil," he said.

    Last year, Total became the first major energy group to renew a giant long-term production concession in Abu Dhabi, one of the United Arab Emirates, which alongside OPEC leader Saudi Arabia has some of the world's lowest cost reserves.

    "That's why I told Saudi Arabia: 'Don't panic, the last barrels that will be produced will come from your country'," said Pouyanne. "It is why we have taken the position in Abu Dhabi."

    FOCUS ON GAS

    Last month, the Organization of the Petroleum Exporting Countries and non-member producers including Russia agreed to extend production cuts until March 2018, aiming to drain a global oil glut.

    Pouyanne said he thought the oil market would take another 12-18 months to rebalance supply and demand, adding that he still believed prices would be high in the long term due to the lack of new project start-ups and cuts in investment in the last three years.

    Like many of his peers, Pouyanne aims to shift Total increasingly toward less polluting gas as the world seeks to reduce carbon emissions to near zero by the end of the century.

    For the 53-year-old, renewable energy sources such as solar and wind will make up around 20 percent of Total's portfolio within 20 years.

    However, Pouyanne says coal remains the main threat to gas and he supports a drive by some oil majors for more countries to impose punitive taxes on carbon emissions, which are much greater from burning coal than gas.

    "Gas might be undercut by coal. Renewables will grow but the real fight is against coal. That is why we are advocating a carbon tax," he said.

    Britain could serve as a model after its imposition of a carbon tax helped to reduce coal usage drastically. "The UK has managed to shift its power system to gas from coal in one year. The UK has demonstrated it works," he said.

    Total will also prioritize using new technology to lower the cost of gas infrastructure around the world, making it affordable for more smaller economies. This includes regasification plants, where liquefied natural gas shipped in by sea is converted back into gas for fuelling power stations.

    "We are building more and more infrastructure around the world. Disrupting technology for regasification is changing the world because for $200-$300 million you can build a new point of regasification. You can have a network in the world of more producers and more points to sell your gas," he said.

    http://www.reuters.com/article/us-total-strategy-idUSKBN19C0HO
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    Norway offers record number of blocks for Arctic oil exploration



    Norway offered a record number of blocks for oil and gas exploration in the Arctic Barents Sea on Wednesday, brushing off concerns about the risks of drilling in the remote, icy environment.

    The oil ministry proposed 102 blocks, comprising 93 in the Barents Sea and nine in the Norwegian Sea, despite calls from the Norway's Environment Agency to remove about 20 blocks near Bear Island, an important nesting site for Arctic birds.

    The application deadline for Norway's 24th Arctic licensing round is Nov. 30 and the aim is to announce awards during the first half of 2018, the ministry said.

    The 93 blocks proposed in the Barents Sea beat the previous record of 72 blocks offered in Norway's 22nd round

    The country's Petroleum Directorate (NPD), which regulates the industry, said drilling in the Barents Sea was Norway's best chance of making new oil and gas discoveries.

    "Therefore it's important to facilitate acreage for exploration in this area," the NPD said in a statement. "There's great interest, which also reflects the fact that 2017 is set to become a record year for exploration in the Barents Sea."

    The latest offer drew sharp criticism from environmentalists, who said Western Europe's top oil and gas producer was ignoring the 2015 Paris climate agreement.

    "This is an attack on the environment," Truls Gulowsen, head of Greenpeace Norway, told Reuters. "It's a confirmation that the Norwegian government doesn't take their own climate commitments from Paris seriously."

    The Paris Agreement sets a goal of limiting the rise in global temperatures to well below 2 degrees Celsius (3.6 Fahrenheit), ideally 1.5 (2.7F), above pre-industrial levels. Temperatures have already risen about 1 degree (1.8F).

    Norway's petroleum sector contributes about 28 of the country's total emissions, which have to be limited according to the Paris Agreement.

    Greenpeace is already taking the government to court over its previous licensing round, saying the expansion of exploration would raise emissions, violating the country's climate commitments.

    The Norwegian Environment Agency had proposed expanding a non-drilling zone around Bear Island to 100 km from 65 km but about 20 blocks offered in the latest round fall within the new suggested exclusion zone.

    The agency was not immediately available to comment.

    http://www.reuters.com/article/us-norway-oil-idUSKBN19C17Y
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    Iran starts gas exports to Iraq, Iranian official tells IRNA



    Iran has begun exporting gas to Iraq, an Iranian official told the state-run Islamic Republic News Agency (IRNA) on Wednesday, after a several years of delays.

    The neighbors, both members of the Organization of the Petroleum Exporting Countries, initially signed a deal in 2013 for Iran to supply Iraqi power stations, but officials in the past blamed poor security in Iraq for hampering implementation.

    Exports had started at approximately 7 million cubic meters per day and would eventually reach up to 35 million cubic meters per day, Amir Hossein Zamaninia, the deputy oil minister for trade and international affairs, told IRNA.

    Iran signed two contracts to export gas, one for the Iraqi capital Baghdad and the other for southern Iraqi city of Basra, IRNA reported.

    Iran, which has huge gas reserves alongside its oil resources, exports small amounts of gas to Turkey but production has struggled to keep pace with rising domestic consumption.

    Experts say years of Western sanctions over Iran's disputed nuclear program have also hindered development of gas projects. Some sanctions have been lifted since a nuclear deal was reached with Western powers.

    http://www.reuters.com/article/us-iran-iraq-gas-idUSKBN19C2PT
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    LNG glut delayed, but only slightly



    The great LNG glut predicted for 2016, as new Australian and US LNG projects came on stream, didn't quite materialize -- with disruptions to existing LNG output in Yemen, Libya, Egypt and Angola, combined with underperformance from some of the new producers meaning less LNG on the market than expected -- but it has just been delayed, according to Anne-Sophie Corbeau, research fellow at the King Abdullah Petroleum Studies and Research Center.

    Corbeau was speaking Tuesday at the International Association for Energy Economics international conference in Singapore. Corbeau said LNG trade expanded by only 27 million mt/year between 2014-16, despite 65 million mt/year of new capacity nominally coming into operation.

    However, Corbeau sees 100 million mt/year of new capacity starting up between 2017-2020, 85 million mt/year of that by 2019.

    Ken Koyama, chief economist at the Institute of Energy Economics, Japan, said the LNG supply/demand balance did shift into oversupply in 2016, but not by as much as anticipated, with supply at 304 million mt and demand at 286 million mt, compared with 266 million mt and 267 million mt respectively in 2015.

    INFLECTION POINT

    How long the glut will last is a matter of conjecture, but perspectives on the issue are important because they will determine when developers sanction new, multi-billion dollar, LNG projects.

    According to Tatiana Mitrova, head of the oil and gas research department at the Energy Research Institute of the Russian Academy of Sciences, there will be no need for new Russian LNG or pipeline gas to Asia until 2025.

    US company Anadarko, which is developing the greenfield onshore Mozambique LNG project, is more optimistic, citing 2023 as the supply/demand inflection point.

    Given a five-year construction timeline for what would be the first onshore LNG plant in East Africa, that would suggest the company could be planning a final investment decision (FID) some time in 2018.

    New LNG plant construction has all but dried up. Corbeau noted that only three LNG projects had been sanctioned since 2016 and all are small, single-train developments, mostly incremental brownfield projects.

    The prognosis is that steadily growing demand for LNG, particularly in Asia, will steadily soak up the excess supply, and the current dearth of new projects will see the market eventually move back into deficit.

    The question is when? Forecasts for LNG demand remain highly uncertain. Mitrova said demand for Russian gas in Asia could fall anywhere between 25 Bcm to 115 Bcm a year by 2025. Explaining the plethora of proposed Russian gas projects designed to supply Asia, both pipeline and LNG, she said that "in a turbulent environment, opportunistic behavior is a rational choice."

    In effect, both buyers and sellers are willing to keep all options open but make few firm commitments, she said.

    LIBERALIZED MARKETS CREATE RISK

    Andrew Seck, vice president for LNG marketing and shipping at Anadarko, said FIDs are never easy, but particularly so in the current environment in which there is no common view about the future. He said that the supply overhang made it a buyers' market with buyers asking for smaller, shorter contracts with greater flexibility on pricing and delivery destinations.

    That in itself does not present a problem for developers, he said, but it does for the bankers expected to provide finance.

    So too does power and gas market liberalization in core markets, he noted. Lenders have been used to underwriting finance on the back of oil-indexed, take-or-pay contracts with North Asian utilities that had the security of selling on into protected regional monopolies.

    This is no longer the case, with Japanese utilities, for example, now having to fight for market share in their newly-liberalized domestic gas and power sectors, a competition which makes them increasingly price sensitive when it comes to signing new LNG offtake agreements.

    They also face uncertainty from the impact of nuclear restarts on oil and LNG import demand. Koyama said Japan has five reactors in operation currently, but that he expects another four to start up this year. Beyond that, he said, "it is very hard to predict."

    Seck is confident of the strategic advantages of LNG in Mozambique, in terms of its access to both the Atlantic and Pacific basins, the multi-Tcf size of the reserves, and of its importance to the domestic economy.

    The company has signed an agreement with the government of Mozambique to provide 100 MMcf/d of gas to the small domestic market, as the first two trains are developed, later rising to 400 MMcf/d as more trains are added, he said.

    Seck said his challenge is to turn Heads of Agreements into bankable purchase contracts that could support an FID. To do this in the current environment, he said it would be necessary to build a much wider coalition of buyers than in the past that includes established and new buyers in both Europe and Asia.

    https://www.platts.com/latest-news/natural-gas/singapore/analysis-lng-glut-delayed-but-only-slightly-26756715
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    Naphtha supply length in Asia grows on more workable Mediterranean arbitrage



    A more workable naphtha arbitrage between the Mediterranean and Asia over the past month, helped by a wider naphtha east/west spread, is adding to the current excess of supply in east Asia, according to sources.

    According to Asian sources, some 1.2 million mt to 1.3 million mt of naphtha from Europe is due to arrive in Asia in July, largely in line with June arrivals, but higher than volumes in the winter and the spring, when the naphtha arbitrage from the Mediterranean and the Black Sea to Asia was heard closed for spot fixtures.

    However, the arbitrage seems to have partly re-opened since the end of May, particularly for LR2 vessels loading from one port.

    The front-month naphtha east/west spread -- the premium of CFR Japan naphtha cargo swaps over the CIF NWE naphtha cargo swap -- widened 75 cents/mt to an almost four-month high of $13/mt on Tuesday, S&P Global Platts data show. It is the widest naphtha east/west spread since February 24, according to Platts data.

    After falling to a year-to-date low on June 2, clean freight rates for LR2 tankers on the Med-Japan route have risen, but remain relatively inexpensive, according to sources. Clean LR2 rates on the Med-Japan route, basis 80,000 mt, were assessed at a $1.725 million lumpsum Tuesday, unchanged from Monday, compared with a $1.55 million lumpsum on June 2, Platts data show.

    Amongst the latest fixtures, the Saint George was reported to have been fixed to load a 90,000 mt naphtha cargo in the last decade of June from Skikda in Algeria to Asia and the Fair Seas loaded 80,000 mt of naphtha from Skikda on June 11 and is headed for the South China Sea. The Southern Spirit has reportedly been fixed to load 80,000 mt of naphtha from Greece and the Russian Black Sea port of Tuapse around June 18 to go to Japan.

    Meanwhile, Asian destinations are also seeing some arrivals from the US Gulf Coast. The Sauger was heard fixed at a lumpsum rate of $1.65 million to load 60,000 mt of naphtha on June 18 on the US Gulf Coast and is destined for Japan.

    As a result of the influx, the Asian market is seeing an inventory buildup.

    Petrochemicals producers have high inventories and sellers were nominating maximum volumes for cargoes' operational tolerance to end-users due to weaker outright prices, sources said.

    Demand for spot August-delivery cargoes is likely to be affected, as end-users scale back their purchases and manage their stocks, although spot buying for August cargoes has yet to start.

    Benchmark CFR Japan naphtha was assessed at $409.625/mt Tuesday. The CFR Japan naphtha crack against front-month ICE Brent crude futures remained under $60/mt at $56.375/mt Tuesday.

    Platts FOB Mediterranean naphtha cargo assessment on Tuesday was $370.25/mt, down $12.50/mt day on day.

    In the Northwest European naphtha complex, sentiment was seen improving as most of the prompt length cleared out, but overall physical premiums remain under pressure due to the healthy availability of cargoes and rather slow spot demand.

    "The Med looks OK, but slowly July supply is coming out so it might feel long very shortly," a Europe-based market participant said.

    According to a second Europe-based market participant, prompt supplies cleared out in Northwest Europe and the Mediterranean naphtha market looks better thanks to the more workable arbitrage to Asia and vessels going to Brazil. As a result, fewer cargoes should come from the Mediterranean to Northwest Europe.

    "Some long-range tankers got fixed to Asia and some to Brazil ... not much naphtha is coming [north] I think," he said. However, "it's a kind a standoff," he said, adding that no one seemed to really want to buy or sell.

    CIF NWE naphtha cargo was assessed at $386/mt Tuesday, $12.50/mt lower day on day and assessed at a 50 cents/mt discount to the July CIF NWE naphtha swap, compared with a 50 cents/mt premium the previous day.

    https://www.platts.com/latest-news/oil/london/naphtha-supply-length-in-asia-grows-on-more-workable-27848056
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    Summary of Weekly Petroleum Data for the Week Ending June 16, 2017



    U.S. crude oil refinery inputs averaged about 17.2 million barrels per day during the week ending June 16, 2017, 104,000 barrels per day less than the previous week’s average. Refineries operated at 94.0% of their operable capacity last week. Gasoline production increased last week, averaging about 10.2 million barrels per day. Distillate fuel production increased last week, averaging about 5.3 million barrels per day.

    U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 149,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.1 million barrels per day, 2.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 909,000 barrels per day. Distillate fuel imports averaged 87,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.5 million barrels from the previous week. At 509.1 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 0.6 million barrels last week, but are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 1.1 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories increased by 1.8 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories decreased by 1.9 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.2 million barrels per day, down by 0.4% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.6 million barrels per day, down by 1.6% from the same period last year. Distillate fuel product supplied averaged over 3.9 million barrels per day over the last four weeks, up by 4.0% from the same period last year. Jet fuel product supplied is up 6.2% compared to the same four-week period last year.

    Cushing down 1.1 mln bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    US lower 48 oil production up 25,000 bbls


                                                       Last  Week  Week  Before  Last Year

    Domestic Production '000............. 9,350            9,330            8,677
    Alaska ............................................. 485               490               522
    Lower 48 ...................................... 8,865            8,840            8,155

    http://ir.eia.gov/wpsr/overview.pdf
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    Texas Scientific Group Examines Shale Development Effects



    Elite science group looked at 6 impacts

    The Academy of Medicine, Engineering and Science of Texas (TAMEST) released a report on the effects of shale development in Texas yesterday.

    The report, Environmental and Community Impacts of Shale Development in Texas, examines six key impact areas: seismicity, land, air, water, transportation and economic and social impacts.

    Texas has dominated U.S. oil production throughout its history, and is still foremost among U.S. states. According to the EIA, Texas alone accounts for more than one-third of all U.S. oil production. According to TAMEST, Texas oil production in 2015 was larger than all but six countries.

    The current shale boom, particularly the frenzy to produce the Permian, has ensured that Texas will remain a major player in American oil for years to come.

    Source: TAMEST

    TAMEST is Texas’ premier scientific organization, bringing together the state’s best and brightest scientists and researchers. TAMEST membership includes all Texas-based members of the National Academies of Sciences, Engineering and Medicine and the state’s Nobel Laureates.

    Earthquake activity 60 times higher in Oklahoma than Texas

    TAMEST first examined the issue of earthquake activity, investigating the potential for induced seismicity and if such events have already occurred.

    According to TAMEST, while faults are widespread through Texas, most known faults are stable and are not prone to generating earthquakes. Earthquakes have increased in recent years, but are still relatively infrequent. Between 2008 and 2016, there were, on average, 12 to 15 earthquakes of magnitude greater than M3.0. For reference, nearby Oklahoma experiences about 60 times more earthquakes of magnitude greater than M3.0. Earthquakes smaller than this are almost never noticeable by people.

    Disposal wells, not fracturing, cause of quakes

    The group’s conclusions confirm those of previous reports. Potentially induced earthquakes that have been felt at the surface have been associated with water disposal wells, not hydraulic fracturing. TAMEST’s primary recommendation regarding induced seismicity is simply to improve data sharing between groups, making things easier to analyze.

    Multi-well pads continue to decrease landscape impacts

    When considering the impacts of development on the landscape, TAMEST concludes that the vast amount of activity in the past decade has had a significant impact on the landscape. However, an equal number of vertical wells would have had a much larger impact. The continuing shift to multi-well pads will decrease the effect of development further.

    One major difference between Texas and many other states relates to landowners.

    Landowners in Texas who do not own the mineral rights under their property have less say in oil and gas operations than similar landowners in most other states. These landowners also have somewhat less protections in development of their property. One of TAMEST’s main recommendations is to examine the advantages and disadvantages of adopting a surface damages act for these landowners. One of TAMEST’s other recommendations for land issues is similar to its recommendation for seismic issues. While there is a great deal of data available in different locations, there is not a single usable database.

    Small number of bad wells responsible for most air emissions

    TAMEST’s research indicates that air quality emissions from oil and gas operations have roughly scaled with production rates. Notably, however, most types of emissions are dominated by a small number of sources. A small number of wells (and associated equipment) are responsible for most emissions. In particular, liquid storage tanks were found to be the weak point for emissions. In the Barnett Shale, for example, 90% of the cases of detectable emissions came from liquid storage tanks.

    The problem of a small amount of the population contributing most of the emissions is not unique to oil and gas development. For example, about 10% of all passenger cars in the U.S. are responsible for half of all on-road emissions.

    TAMEST recommends the use of infrared cameras or other reliable and relatively inexpensive emissions detectors. These would easily identify the small number of bad wells that need repair, which would make reducing emissions relatively simple.

    TAMEST confirms fracturing into aquifers extremely unlikely

    TAMEST then examined the use and safety of water in Texas. While each hydraulic fracturing job uses a large amount of water, overall hydraulic fracturing processes represent less than 1% of total water use in the state. Recycling produced water for use in fracturing jobs can reduce freshwater use, and TAMEST recommends additional research into these technologies. However, fracturing with produced water could have downsides. Produced water, even water treated to be used in fracturing, still has contaminants in it. Spills with produced water would be a larger problem than spills of fresh water used in fracturing.

    Like most other reports, TAMEST concludes that the massive depth separation between oil-bearing zones and aquifers makes fracturing into drinking water zones extremely unlikely, and it has not been observed in Texas.

    The USGS published a study in early June examining the effects of oil and gas production on drinking water quality. The study examined wells in the Eagle Ford, Haynesville and Fayetteville areas, and determined at in the regions sampled unconventional oil and gas production is not currently a significant source of methane or benzene to drinking water wells.

    Eagle Ford wells need more than 1,700 trucks per well

    TAMEST also examined the effects of increased truck traffic caused by development. A modern unconventional well requires a surprisingly large number of trucks to bring a well on production. While the total needed varies between basins, a single well can need more than 1,000 trucks to come online, the group calculated.

    Most of the Permian is sparsely populated, and many roads were never meant to handle the large number of trucks needed by current development. TAMEST recommends two main responses to the problem of truck traffic. Development of other ways to transport the needed materials would go a long way to relieving the stress on the road system. Additionally, active preparation in advance of drilling activity would allow areas to improve their road system before traffic begins, avoiding the current strain.

    The positive effects: Permian economic activity exceeds that of Hungary

    TAMEST finally addressed the positive effects of oil and gas development on the economy of Texas. While the exact numbers are hotly debated, economic data shows development has local, regional, and state-wide positive effects.

    Recent estimations indicated the oil and gas industry in the Permian Basin in 2013 sustained over 546,000 jobs and generated $137.8 billion in economic output. If these estimations are correct, this means Permian basin activity in 2013, before the Permian boom took off, was larger than the total GDP of Hungary.

    Economic results of activity in other basins, while certainly not as large as the Permian, is still impressive. Barnett Shale activity in 2013 generated an estimated $12.8 billion in gross product and supported about 115,000 jobs. Eagle Ford activity in 2013 employed about 150,000 people and resulted in $87.8 billion in economic output.

    https://www.oilandgas360.com/texas-scientific-group-examines-shale-development-effects/
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    Study finds Canadian oil and gas spending at risk under stricter emissions limit



    A study by financial think-tank Carbon Tracker says Canadian oil and gas companies rank among some of the most exposed to climate policy risk.

    The report is part of an effort to increase disclosure on climate risks in the industry by looking at what projects and spending among 68 publicly listed companies might be jeopardized by a crackdown on emissions.

    “We’ve had a sort of ongoing discussion with investors, and there’s a growing desire to understand who the winners and losers might be in the energy transition,” said James Leaton, research director at Carbon Tracker.

    Using the Paris Agreement goal of limiting global warming to two degrees and scenarios to achieve that put out by the International Energy Agency, Carbon Tracker calculated that about a third of the $4.8 trillion in oil and gas spending planned to 2035 isn’t needed if the industry is going to achieve the IEA emission targets.

    Under those assumptions, Carbon Tracker ranked the economics of projects using data from research firm Rystad Energy. It found that between 50 and 60 per cent of spending proposed by Imperial Oil, Encana Corp. and Vermilion Energy would fall within the third of spending that’s least justifiable. Meanwhile, Suncor Energy and Husky Energy look to have between 40 and 50 per cent of spending at risk.

    The companies said they would have to review the report before commenting on it, and pointed to general discussions of risks posed by climate change policies in their regulatory filings.

    Husky spokesman Mel Duvall said it was also important to consider the industry’s capacity to innovate and reduce greenhouse gas emissions.

    Some Canadian companies fared much better, however, with Seven Generations , Tourmaline Oil and Arc Resources found to have no projects threatened under the report’s assumptions.

    The study’s findings come as calls are growing for companies to disclose more data on how they might be exposed to climate change risks.

    The Canadian Securities Administrators, which represents the country’s provincial and territorial securities regulators, is looking into how companies disclose those risks.

    Exxon Mobil shareholders defied the company’s recommendation and voted 62 per cent in favour of a resolution earlier this year calling for more information on climate risks.

    Suncor put out its first report on climate change risks in April, following a similar shareholder vote last year. The report said new oilsands growth projects are challenged and unlikely to proceed under conditions that most align with the IEA’s two-degree scenario.

    Nathan Fabian, director of policy and research at Principles for Responsible Investment, which contributed to the study, said the report is a nudge to get more companies to provide information.

    “The companies haven’t provided enough data, which is why we’ve gone and done the modelling ourselves,” Fabian said.

    “We’re hoping that having published this modelling, that the companies will now be a bit more forthcoming on scenarios they see, and how they might start to reduce their capex on upstream activities.”

    http://boereport.com/2017/06/20/study-finds-canadian-oil-and-gas-spending-at-risk-under-stricter-emissions-limit/
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    Alternative Energy

    America’s hungriest wind and solar power users: big companies



    Major U.S. corporations such as Wal-Mart Stores Inc and General Motors Co have become some of America’s biggest buyers of renewable energy, driving growth in an industry seen as key to helping the United States cut carbon emissions.

    Last year nearly 40 percent of U.S. wind contracts were signed by corporate power users, along with university and military customers. That's up from just 5 percent in 2013, according to the American Wind Energy Association trade group.

    These users also accounted for an unprecedented 10% of the market for large-scale solar projects in 2016, figures from research firm GTM Research show. Just two years earlier there were none.

    The big reason: lower energy bills.

    Costs for solar and wind are plunging thanks to technological advances and increased global production of panels and turbines. Coupled with tax breaks and other incentives, big energy users such as GM are finding renewables to be competitive with, and often cheaper than, conventional sources of electricity.

    The automaker has struck deals with two Texas wind farms that will soon provide enough energy to power over a dozen GM facilities, including the U.S. sport utility vehicle assembly plant in Arlington, Texas that produces the Chevrolet Tahoe, Cadillac Escalade and GMC Yukon.

    The company is already saving $5 million a year worldwide, according to Rob Threlkeld, GM's global manager of renewable energy, and has committed to obtaining 100% of its power from clean sources by 2050.

    "It's been primarily all driven off economics," Threlkeld said. "Wind and solar costs are coming down so fast that it made it feasible."

    (For a graphic showing the corporate green-energy rush, see: tmsnrt.rs/2spS81j )

    Growing corporate demand for green energy comes as U.S. President Donald Trump is championing fossil fuels and targeting environmental regulations as job killers. This month he announced the United States will withdraw from the landmark Paris Agreement to fight climate change, a move that was condemned by several prominent U.S. executives, including General Electric Co Chief Executive Jeff Immelt.

    Trump’s administration, however, has made no moves to target federal tax incentives for renewable energy projects, thanks mainly to bipartisan support in Congress. Many Republican lawmakers hail from states that are major solar or wind energy producers, among them Texas, Oklahoma and Iowa.

    U.S. companies, meanwhile, are pursuing their own clean-energy agendas independent of Washington politics. Over the past four years, corporations have contracted for about 7 gigawatts of renewable energy – enough to power more than 1 million homes. That number is expected to rise to 60 GW by 2025, according to the Edison Foundation Institute for Electric Innovation, a utility-backed non-profit based in Washington D.C.

    Growth in renewables for years was driven by utilities laboring to meet tough state mandates to reduce carbon emissions, particularly in places such as California. Early corporate adopters included Alphabet Inc and Amazon.com Inc, leading-edge companies with progressive company cultures, deep pockets and major power needs.

    Now mainstream industries are stepping in as costs have plummeted. Wind-power costs have dropped 66% since 2009, according to the American Wind Energy Association, while the cost to install solar has declined 70% since 2010, according to the Solar Energy Industries Association trade group.

    This year alone, home improvement retailer Home Depot Inc, wireless provider T-Mobile US Inc, banker Goldman Sachs and food producer General Mills announced major purchases of renewable energy.

    POWER TO THE PPA

    Such deals can take many forms, but most are so-called power purchase agreements. Known as PPAs, these are roughly 10-to-20-year contracts in which the owner of a large solar or wind project sells electricity to large customers, often at rates lower than those charged by utilities. These agreements allow energy users to buy renewables at attractive prices with no upfront investment.

    These agreements also help companies avoid outages if the sun doesn't shine or the wind doesn't blow. The massive wind farms and solar plants that support these contracts often supply electricity straight to the grid rather than feed it directly to corporate customers' plants and offices. Companies get the benefit of clean energy without cutting themselves off from the security of the grid.

    The arrangement also saves companies from having to do it all themselves. Mark Vanderhelm, vice president of energy for Wal-Mart, said the retailer is about half way to its goal of sourcing 50% of its power from renewable sources by 2025. While the chain has installed solar panels atop hundreds of stores, it has purchased much of its green energy via two PPAs.

    "For us to meet our goals, we wouldn't be able to get there by doing it all on site. We just fundamentally don't have enough roof space," Vanderhelm said.

    He said Wal-Mart is seeing roughly single-digit percentage savings with its green-power contracts.

    Furniture retailer IKEA is a notable exception to the PPA trend, preferring to own the renewable-energy assets that serve its U.S. business, including rooftop solar systems on most of its buildings and two wind farms in Texas and Illinois. The approach is part of the Swedish company's long-term corporate strategy of owning all of its stores, factories and the land on which they're built.

    Demand from big corporations has benefited a host of wind and solar developers including Pattern Energy, First Solar and NextEra Energy. BNB Renewable Energy Holdings LLC, a privately held New York-based developer, said corporations now make up about half its business.

    "There is a convergence right now where price is low and their sustainability commitments are high," said Jos Nicholas, a managing partner with BNB.

    The developers or owners of the projects, meanwhile, get the stability of long-term contracts plus those federal tax breaks. The solar credit is worth up to 30 percent of a project's value. For wind, the most popular tax credit is a maximum of 2.4 cents per kilowatt-hour of electricity produced for a decade.

    AMBITIOUS GOALS

    Since 2014, nearly 100 large global companies have committed to transitioning to 100% renewables through a partnership with The Climate Group, a nonprofit that's working to reduce greenhouse gas emissions. Roughly two corporations a month are joining that effort, according to Amy Davidsen, the organization's executive director for North America.

    In addition to GM, U.S. companies that have made the commitment include Johnson & Johnson, Procter & Gamble Co and Nike Inc.

    Still, many big firms remain on the sidelines because they lack an overall corporate sustainability mandate, view renewables as having unattractive returns or because the contracts are too long, according to a 2016 PricewaterhouseCoopers survey.

    Many small- and medium-sized businesses have a hard time benefiting too. They don't consume enough energy to negotiate large, lowest-cost PPAs like the big guys. Smaller projects, such as installing rooftop solar panels, tend to depend heavily on state and local incentives that come and go.

    The 2020 expiration of the federal tax incentives is another concern. But industry watchers expect U.S. companies will continue their ambitious public commitments to boost renewable energy use even if those breaks aren't renewed.

    General Mills, for instance, sees climate change as a major threat to the agricultural supply chain behind products such as Cheerios cereal and Yoplait yogurt. The company has a goal of reducing its greenhouse gas emissions by 28 percent by 2025.

    http://www.reuters.com/article/us-usa-companies-renewables-analysis-idUSKBN19C0E0
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    Norway's Statkraft to make biofuel from wood chips and other waste



    Norwegian utility Statkraft has found a way to produce biofuel from wood chippings and other solid organic waste, which it says replicates in minutes a process that made crude oil underground over millions of years.

    Using high temperatures and pressure, Statkraft's "hydro thermal liquefaction" process turns wood and organic waste into diesel, producing what it says is a second-generation biofuel that is carbon neutral. It emits the same amount of carbon when burned that was originally absorbed by the organic feedstock.

    By using wood and other waste, Statkraft may avoid criticism directed at other biofuels that rely on vast tracts of farmland. The firm also says it wants to create a green fuel for aviation and other areas where a liquid is needed, rather than focus on cars where diesel's emissions are increasingly scrutinized.

    Statkraft and Swedish forestry group Sodra have formed a joint venture called Silva Green Fuel, which will make an investment decision this year on a 50 million-70 million euro ($56 million-$78 million) pilot plant in Tofte, south of Oslo.

    Statkraft CEO Christian Rynning-Toennesen said up to 7 percent of the new fuel, whose energy density is similar to fossil-derived diesel, could be mixed into diesel fuel and used for any vehicle without modification. With small adjustments, a diesel engine could run solely on the fuel, he said.

    "This could be revolutionary,     it could have the same widespread impact as wind turbines or solar photovoltaics. Mankind needs liquid fuels, just not fossil liquid fuels," he told Reuters at the Eurelectric utilities industry conference.

    The biofuels industry has seen a string of failures due to technological issues, changes to subsidies and problems with obtaining sufficient feedstock, particularly in the European Union, which puts limits on how much farmland can be switched from food production to making biofuels, such as ethanol.

    However, Statkraft's procedure would use wood chippings and offcuts that have no other use, alongside other waste.

    "We know the technology works, but there are now also good market reasons for why this procedure has a chance of success," said Jeremy Tomkinson, CEO of bioeconomy consultants NNFCC.

    Rynning-Toennesen said the new product was not primarily aimed at passenger cars, as cities worldwide are trying to phase out diesel to boost air quality and favor electric cars.

    Instead, the focus was mainly on planes, shipping and trucking, which are likely to require high-energy liquid fuels for the foreseeable future.

    Statkraft's pilot plant was expected to produce diesel "by the truckload, not the shipload" for a few years, the CEO said.

    A full-scale plant would cost several 100 million euros and was at least five years away, Rynning-Toennesen said, adding that six large-scale plants could supply 15 percent of Norway's diesel demand using only forestry waste products.

    "If you add what can be produced from algae or food waste, there is no limitation on raw materials. We can take any solid organic material, even plastic," Rynning-Toennesen said.

    For now, the firm's calculations show the new fuel is cost-competitive with regular diesel because of higher taxes on fossil-derived fuels.

    "The big question for these kind of investment projects is whether this tax advantage will last long enough," said Arij van Berkel, a biofuels specialist at Lux Research.

    After converting waste into an energy-rich liquid, the process separates out the water, then adds hydrogen to produce diesel in a process similar to oil refining.

    "What we are doing is the same as what nature has done over billions of years," Rynning-Toennesen said.

    http://www.reuters.com/article/us-statkraft-biofuels-wood-idUSKBN19B2C7
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    Tidal feasibility study underway off Martha’s Vineyard



    Marine Renewable Energy Collaborative (MRECo) has started the feasibility study into the development of tidal power in Muskeget Channel off Massachusetts.

    The study, being conducted with the town of Edgartown on Martha’s Vineyard island, will seek to determine if an adequate tidal resource exists in the Muskeget Channel.

    If the survey confirms that there is an adequate resource in the channel, a model will be created to see what potential output there would be for up to 5 tidal turbines, MRECo informed.

    This model along with preliminary estimates of the costs of permitting and grid interconnection is expected to provide more precise power output estimates which will then be used to determine the Levelized Cost of Energy (LCoE) for a project of that scope.

    MRECo is a nonprofit corporation that aims to foster the sustainable growth of marine renewable energy, including wave, tidal, and offshore wind sectors of New England.

    http://tidalenergytoday.com/2017/06/21/tidal-feasibility-study-underway-off-marthas-vineyard/
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    Gorgon LNG project to show business case for carbon waste storage



    The Gorgon gas project in Western Australia will soon start up the world's biggest carbon capture and storage operation.

    The start-up of Chevron's $2 billion carbon capture and storage project anticipated later this year should help put to rest arguments that the process is too expensive to be used commercially, according to Brad Page, head of the Global Carbon Capture and Storage Institute.

    The US energy major is in the final stages of construction of the CCS part of its monster Gorgon LNG project off Western Australia, and while it won't confirm the start-up date for this year, the institute expects the initial injection of carbon waste underground within months.

    The project will mark the last major part of the $US54 billion Gorgon project to get under way after the first LNG shipment in March last year and the commencement of domestic gas sales into the WA market last December. The third of the three LNG trains started up in March.

    It will also bring into production the world's largest carbon waste storage venture, more than three times bigger than the largest currently in operation, at Shell's Quest project in Canada.

    "This is clearly a demonstration that on an LNG facility you can attach CCS and there is a business case," Mr Page said.

    CCS advocates are constantly battling arguments that the process is too expensive despite several projects operating overseas and reminders from the International Energy Agency and other experts that it is vital to meet the world's greenhouse gas reduction commitments.

    While the weakness in LNG markets has raised questions about the economics of Gorgon, Mr Page said the cost of the CCS part was still small compared to the overall budget.

    The cost was put at $2 billion by the federal government in 2011 and has not been updated by Chevron, despite the overall budget for Gorgon ballooning from $US37 billion in 2009 to $US54 billion.

    Even if the cost of the CCS project turns out to be $4 billion, it is "not the case" that it represents a crippling additional burden, Mr Page argued.

    When fully operational the Gorgon CCS project is intended to bury between 3.4 million and 4 million tonnes a year of carbon dioxide, injecting it into a saline aquifer more than two kilometres underneath Barrow Island. Chevron says it will cut greenhouse gas emissions from Gorgon by about 40 per cent.

    With the LNG operation at Gorgon having met several early technical hitches – most recently in May – Chevron is cautious on the CCS schedule.

    "Construction of the Gorgon Carbon Dioxide Injection Project is in the final stages which includes final testing and commissioning activities," a spokeswoman said, declining to be more specific.

    "This is expected to take some time to ensure the system is ready for safe and reliable operations."

    The Gorgon LNG project has so far been able to run without CCS because gas for the liquefaction plant was initially produced from the Jansz offshore field which has less than 1 per cent carbon dioxide.

    But the second major offshore field started up in mid-February and contains a much higher percentage of carbon dioxide. At 14 per cent CO2, that gas requires the carbon to be removed to avoid freezing to a solid during the LNG production process.

    Read more: http://www.afr.com/technology/gorgon-lng-project-to-show-business-case-for-carbon-waste-storage-20170618-gwtpk6#ixzz4ke0EV15M
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    British forest pumped full of CO2 to test tree absorption



    Researchers at a British University have embarked on a decade-long experiment that will pump a forest full of carbon dioxide to measure how it copes with rising levels of the gas - a key driver of climate change.

    The Free Air Carbon Dioxide Enrichment (FACE) experiment at the University of Birmingham's Institute of Forest Research (BIFoR) will expose a fenced-off section of mature woodland - in Norbury Park in Staffordshire, West Midlands - to levels of CO2 that experts predict will be prevalent in 2050.

    Scientists aim to measure the forest's capacity to capture carbon released by fossil fuel burning, and answer questions about their capacity to absorb carbon pollution long-term.

    "(Forests) happily take a bit more CO2 because that's their main nutrient. But we don't know how much more and whether they can do that indefinitely", BIFoR co-director Michael Tausz told Reuters.

    The apparatus for the experiment consists a series of masts built into six 30-metre wide sections of woodland, reaching up about 25 meters into the forest canopy.

    Concentrated CO2 is fed through pipes to the top of the masts where it is pumped into the foliage.

    Last year the U.N World Meteorological Organization (WMO) announced that the global average of carbon dioxide, the main man-made greenhouse gas, reached 400 parts per million (ppm) in the atmosphere for the first time on record.

    "The forest here sees nearly 40 percent more CO2 than it sees normally, because that's what it will be globally in about 2050; a value of 550 parts per million, compared to 400 parts per million now," Tausz said.

    With deforestation shrinking the carbon storage capacity of the world's forests, researchers hope that a greater understanding of their role in climate change mitigation could help policy makers make informed decisions.

    "We could get a clear idea of whether they can keep helping us into the future by sucking up more CO2," said Tausz.

    The remainder of the Norbury Park woodland is open to the public and will not be affected by the experiment.

    http://www.reuters.com/article/us-science-forest-lab-idUSKBN19C2A8
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    Uranium

    Rapid nuclear decommissioning threatens climate targets, says IEA


    Decommissioning nuclear plants in Europe and North America from 2020 threatens global plans to cut carbon emissions unless governments build new nuclear plants or expand the use of renewables, a top International Energy Agency official said.

    Nuclear is now the largest low-carbon power source in Europe and the United States, about three times bigger than wind and solar combined, according to IEA data. But most reactors were built in the 1970s and early 80s, and will reach the end of their life around 2020.

    With the average nuclear plant running for 8,000 hours a year versus 1,500-2,000 hours for a solar plant, governments must expand renewable investments to replace old nuclear plants if they are to meet decarbonization targets, IEA Chief Economist Laszlo Varro told Reuters.

    "The ageing of the nuclear fleet is a considerable challenge for energy security and decarbonization objectives," he said on the sidelines of the Eurelectric utilities conference in Portugal.

    Renewables have grown rapidly in the past decade but about 20 percent of new low-carbon capacity has been lost from the decommissioning of nuclear plants in the same period, he said.

    "This is just a taste of thing to come," Varro said.

    Russia and India were building new plants, while China was bringing a new plant online every quarter, Varro said.

    However, he said future projects in Japan were uncertain after the 2011 Fukushima disaster, while there was less appetite for new nuclear projects in Europe and the United States.

    Financing new nuclear plants has become more challenging, partly because several new builds were running over budget, while in the United States nuclear has been struggling to compete against plants run on cheap shale gas.

    Governments who chose the renewables route would have to consider upgrading power grids and invest in power storage to offset the variable nature of renewable generation, while those choosing nuclear would need to offer financial support as Britain has done for its plans, Varro said.

    Wind and solar generation was expanding rapidly, but the pace needed to increase to meet climate stabilization goals. "At the moment it is not quickly enough," he said.

    The biggest challenge was in Europe and the United States, where nuclear energy capacity was steady or falling, he said.

    "If we do not keep nuclear in the energy mix and do not accelerate wind and solar deployment, the loss of nuclear capacity will knock us back by 15 to 20 years. We do not have that much time to lose," he said.

    http://www.reuters.com/article/us-nuclear-carbon-iea-idUSKBN19C1UL
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    Agriculture

    Agrium-Potash merged company to be called Nutrien



    Canadian fertilizer producers Agrium Inc and Potash Corp of Saskatchewan Inc, which are seeking regulator approval to merge, said on Wednesday that the combined company would be called Nutrien.

    The companies said in a statement that they expect the deal to close in the third quarter of the year.

    Agrium and Potash announced plans to merge last year, as excessive supplies weigh on fertilizer prices. The deal requires approval from regulators in the United States and elsewhere.

    Shares of both companies rose slightly in afternoon trading.

    http://www.reuters.com/article/us-agrium-potash-corp-m-a-idUSKBN19C2QA
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    Base Metals

    Freeport Indonesia workers to extend strike for a month -union


    Thousands of mine workers at the Indonesian unit of Freeport-McMoRan Inc will extend their strike for another month to protest against layoffs, a union official said on Wednesday.

    Up to 6,000 workers will remain on strike, Freeport Indonesia union industrial relations officer Tri Puspital told Reuters, putting Freeport's plan to ramp up output at risk.

    Workers started a strike in May after Freeport laid off around 10 percent of its workforce, while the miner negotiates a new mining permit with the government.

    http://www.reuters.com/article/indonesia-freeport-strike-idUSL3N1JI3K9

    Operations at the world's No.2 copper mine in Indonesia are "running as normal", a spokesman for the local unit of Freeport-McMoRan Inc said, despite thousands of workers extending a strike for another month.

    Riza Pratama said in a text message on Thursday that "around 25,000 workers and contractors" continued to work at the Grasberg mine, a key supplier to buyers including top metals consumer China.

    That came after Freeport Indonesia union industrial relations officer Tri Puspital told Reuters on Wednesday that 6,000 workers would remain on strike.


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    Russia's Rusal may cancel Paris listing, head to London – sources



    Russian aluminium producer Rusal is considering cancelling its Euronext listing in Paris and instead moving to a technical listing in London, two sources close to the company said.

    The move would not require new shares to be placed.

    A Rusal spokeswoman Vera Kurochkina said the "information does not reflect reality".

    A third person familiar with the matter said Rusal, which is the world's second-largest aluminium producer and had $475-million in earnings before interest, tax and amortisation (Ebitda) in the first quarter of 2017, might just keep its Hong Kong and Moscow listings.

    According to its website Rusal's share volume on Euronext Paris was 500 on Tuesday compared with some 1.9-million shares in Hong Kong.

    The company has 13% of its foreign capital in free float on the Hong Kong, Paris and Moscow exchanges. Russian tycoon Oleg Deripaska's En+ Group, which owns 48% of Rusal, is planning an initial public offering in Moscow and Londonthis year, sources familiar with the matter told Reuters.

    http://www.miningweekly.com/article/russias-rusal-may-cancel-paris-listing-head-to-london-sources-2017-06-21
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    US aluminium industry urges Commerce to focus on China imports, exclude Canada, EU



    US aluminum industry representatives will urge the Department of Commerce to target Chinese overcapacity and subsidies in both the primary and downstream sectors, and to ensure that any Section 232 trade remedies do not impact imports from Canada and the EU, the Aluminum Association said Wednesday.

    The association's comments will be submitted to Commerce, and its testimony will be presented Thursday at a public hearing on Section 232 National Security Investigation of Imports of Aluminum.

    The comments indicated the industry prefers a government-to-government agreement with China to address the overcapacity, rather than tariffs, but implied if tariffs are imposed, they should be limited.

    Related: Find more content about Trump's administration in our news and analysis feature.

    "In evaluating possible actions that may be appropriate for our industry, the Aluminum Association urges the Department of Commerce to focus on the unique characteristics of the aluminium industry, which differ in important respects from the steel industry that is being investigated in a concurrent Section 232 proceeding," the association said.

    The submission pointed out that while the US steel industry has frequently used US trade laws to target dumped and subsidized imports from a "broad array of countries," the aluminium industry has generally benefited from fair international trade in aluminium and has only filed a few unfair trade cases in the last decade, all focused on China.

    "As such, we urge the Commerce Department and the Administration to focus any action that may be taken in connection with this investigation on the significant negative impacts that are resulting from the massive overcapacity to produce aluminium and aluminium products in China, frequently with the assistance of subsidies provided by the Government of China," the association said.

    The industry statements alluded to the fact that aluminium producers and fabricators have joint ventures and other partnerships with aluminium companies around the world, and duties targeting imports from those countries could hurt US business.

    The association stressed that "any remedy should not interfere with the current trading relationship between the United States and critical trading partner countries which have been determined by the Department of Commerce to be operating as market economies (especially Canada and the European Union, and which support US aluminium production and jobs, and are highly integrated with North American supply chains)."

    Marco Palmieri, president of Novelis North America, will testify specifically that "Canada should be excluded from any remedy or recommendation made in the department's final report," citing the fact that Novelis' automotive parts production may involve aluminium crossing the border four times in manufacturing.

    Garney B. Scott III, president and CEO of Scepter, went even further to say that "US border measures will not fully address the problems we face because the domestic aluminum industry competes globally and has international supply chains."

    Scott's testimony argues that "unless a broader agreement is negotiated to reduce and eliminate the massive overcapacity in China, the negative effects will persist and continue to threaten the US industry's long-term health and vibrancy."

    To balance its production with domestic demand, China needs to close or idle at least 2 million mt/year of smelter and semi-finished plant capacity, Scott said.

    Heidi Brock, president and CEO of the Aluminum Association, also stressed that downstream industries should not be disadvantaged. "Specifically, any remedy recommended to the President should ensure that beneficial effects are experienced by producers and fabricators of intermediate aluminium products that are used in manufacturing finished products," her testimony said.

    The Aluminum Extruders Council testified at the US International Trade Commission last year that duties on P1020 or billet could hurt the extrusion industry.

    Palmieri's testimony points out that "US smelting operations cannot meet the domestic demand for primary aluminium." He described product lines where Novelis has lost out to Chinese producers, and warned that Chinese producers will increase production of automotive aluminium products in the next few years. He said that "relief is needed for the entire aluminium supply chain -- including downstream rolled products."

    While the Aluminum Association statements stressed the importance of aluminium to national security, particularly highlighting high-purity aluminium, Palmieri concluded that "if trade measures under this investigation only were enacted to protect the aluminium used directly in defense-related products, such remedies would not secure the stability of the entire domestic aluminium industry, nor its associated hundreds of thousands of US jobs."

    https://www.platts.com/latest-news/metals/washington/us-aluminum-industry-urges-commerce-to-focus-21112580
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    Steel, Iron Ore and Coal

    Australia's Atlas defers new iron ore mine over price falls



    Australia's Atlas Iron, which narrowly escaped collapse when iron or prices crashed in 2015, has deferred construction of a new mine, citing weak prices for the steelmaking commodity.

    Development of the Corunna Downs mine by Australia's fifth biggest producer, costing between A$47-A$53 million ($35-$40 million), was announced in February when iron ore was trading at around $95 a tonne.

    Prices have since retreated to under $60 a tonne on concerns about oversupply and weak demand from steelmakers in China, the world's top buyer.

    "Corunna Downs remains an important project for the company to sustain its production base and we will proceed with its development when market conditions improve," Atlas Managing Director Cliff Lawrenson said in a statement.

    The mine was a key plank in efforts to rebuild the company's yearly production rate to 12 million tonnes, after the firm almost collapsed during a previous down cycle before being rescued by creditors.

    Atlas was forced to suspend mining in April 2015 when it was losing $15 for each tonne mined. It faces higher costs than some other Australian producers because it uses road, not rail, to ship ore up to 230 kilometers (140 miles) to port. Within a year, the mines were back running, after 70 percent of Atlas was transferred to creditors in exchange for a 48-percent reduction in debt. Inventories of imported iron ore at Chinese ports last stood at 138.95 million tonnes, according to the latest data tracked by SteelHome. The week before stockpiles hit a record 140.05 million tonnes SH-TOT-IRONINV.

    Forecasters for Citi expect an iron ore surplus of over 100 million tonnes this year.

    The bank has slashed its 2017 average forecast to $61 a tonne from $70, and to $50 from $53 for next year.

    In lieu of developing Corunna Downs, Atlas said it would add an additional 2 million tonnes of production capacity from its existing mines for an overall annual rate of 9-10 million tonnes.

    http://www.reuters.com/article/australia-atlas-iron-idUSL3N1JI2IB
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    Meet OI, the elephant in the room for iron ore shorts



    The tightening of Chinese bank lending rates continues to have an adverse effect on the iron ore sector, with domestic futures prices now 41% from their recent Highs on the 16-3-17.

    The Bloomberg China BOF steel profit index has domestic HRC margins at around the CNY 486 level. In any normal trading environment this would have resulted in speculative buying on the expectation of higher iron ore prices.

    However port stockpiles at around 140 million tonnes, combined with the increase in lending rates, the buying appetite has remained muted.

    Meanwhile Dalian iron ore futures have now been in a range for nearly three weeks, between CNY 443 and CNY 412.5. From the fundamental point of view, there is little reason for concern. The trend is flat to lower, lending rates continue to rise, and port stocks are starting to resemble Mount Everest.

    Market sellers can feel safe in the knowledge that there is little reason to fear a directional change in trend.

    Or can they?
    Every market has a big grey elephant sitting in the corner, and Dalian iron ore futures are no different.

    We’ve named this particular Asian elephant OI, short for open interest. The aggregate open interest on February 22, 2017 stood at 1.587 million contracts, today it sits at 2.537 million contracts.

    Of this increase – nearly a million contracts in the bear market – 340,000 futures positions have been placed since May 26, 2017, below the CNY 451 level.

    For the market seller who is short at CNY 600, there is probably little to be concerned about.

    However if for any reason price action starts nearing the CNY 451 level, a third of those market shorts are going to start to get very nervous indeed.

    Most trends start on short covering, and at this point the fundamentals should give some solace to those that are short at low levels.
    However, even a stream can end up as a river. And 340,000 market shorts might be just enough to get the flow going – and catch the Iron ore market by surprise in the process.

    http://www.hellenicshippingnews.com/meet-oi-the-elephant-in-the-room-for-iron-ore-shorts/
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    Global crude steel output jumps 2 percent in May



    Global output of steel, a gauge of economic health, jumped 2 percent in May, retreating from the 5 percent surge in April as demand for the alloy tapers off, industry data showed on Tuesday.

    Producers churned out 143 million tonnes of crude steel in May versus 140 million tonnes a year ago, according to the World Steel Association (Worldsteel).

    Output in China, which accounts for half of global steel production and a quarter of global steel exports, rose 1.8 percent to 72.3 million tonnes, said Worldsteel, whose members jointly account for 85 percent of global steel production.

    The ramp-up in Chinese steel output has been spurred by high margins due to tighter supplies of construction steel after Beijing vowed to crack down on low-quality furnaces by the end of this month.

    China cut some 65 million tonnes of steel capacity in 2016 and aims to cut another 50 million tonnes of outdated capacity this year, not including low-quality steel - spurring soaring steel margins and high production.

    Industry participants are nervous that steel supply might yet exceed demand and weigh on prices. In January-March global steel production surged 5.7 percent from a year earlier, rising a further 5 percent in April.

    Chinese steel futures, seen as a global benchmark, slipped on Tuesday after a four-day rise, on demand concerns as rains curb construction activity and the government presses ahead with measures to curb the property market.

    http://www.reuters.com/article/steel-output-global-idUSL8N1JH52P
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    China steel mill spreads surging, as weak raw materials find foothold



    Steel mill export product spreads with raw materials in China have surged in the past week on the back of a strong recovery in May, which may be incentivizing seaborne raw materials purchases as traders lock in margins.

    The move may be arresting a recent decline in iron ore prices for imports, at least for now. Stronger domestic concentrate iron ore prices were seen over the past few weeks.

    Iron ore reference 62% Fe IODEX prices have found some stability in the mid $50s/dry mt CFR China in the last trading sessions, after steep falls over the past few months shaved a third off its price. IODEX ticked up 80 cents to $56.80/dmt CFR China Tuesday, from a low so far this month of $54/dmt CFR, seen a week ago.

    However, inventories at ports in China remains high, and more seaborne supply pressure is expected by analysts and market traders. Several voiced expectations an effort to really reduce port stockpiles currently at over 140 million mt, and curb new positions could see spot prices gap down another leg.

    China mill spreads between HRC steel export prices and imports of iron ore with coking coal reached a new high of just under $272/mt Tuesday, 42% higher than a year ago, and the highest since April 2016.

    The Platts China rebar export price-based spread was 63% higher than a year ago, at near $256/mt.

    In China, flat coil prices in both domestic and export sectors have more to climb to meet earlier year-to-date highs, while rebar is back at the strongest levels this year.

    On June 8, the China rebar export spread exceeded the China HRC export spread again. This was the first time since rebar pipped HRC pricing in April 19, and is based on higher prices for the construction steel at a time of seasonal high demand. Usually, HRC in China is priced higher than rebar.

    RAW MATERIAL COSTS

    Raw materials costs for reference iron ore and premium coking coal imported into China were at their lowest on average in May since August 2016, based on Platts calculations using spot prices for quantities used per ton of hot metal.

    "Demand [for iron ore] is overwhelmingly bullish with tailwinds from consistently strong positive profit margins. With such margins, steel production rates remain at all-time high," brokers Marex Spectron said in an email, citing research analyst Hui Heng Tan.

    "Both our domestic vs imported [iron] ore arb and the cash and carry arb suggest incentive to buy/store seaborne iron ore," Marex Spectron added.

    China Iron & Steel Association data showed a slowdown in steel output late May, from higher rates earlier last month. After China increased hot metal rates earlier this year, beating some industry and analyst expectations, how the country's steel output shapes up remains key in global raw materials and steel markets outlook.

    Marex Spectron added that the re-stocking of iron ore is "losing momentum but continues to trend above long-term average."

    There may be growth in iron ore availability two-to-three weeks ahead, "which is likely to put pressure on the price going forward."

    The first rise for official domestic coke prices in several months was also confirmed this week. This adds to growing purchasing demand for lower-priced import met coals into China than domestic alternatives.

    Domestic coke prices assessed by Platts weekly in China have fallen weekly since April. The next weekly assessment is due for publication Thursday.

    Seaborne premium coking coal prices have more than halved to the low $140s/mt FOB Australia since a peak in the market April. At the time, available coal was bid up for prices to spike in several days, as buyers rushed to replenish supplies after material was delayed by Cyclone Debbie hitting Queensland coal haulers.

    https://www.platts.com/latest-news/metals/london/analysis-china-steel-mill-spreads-surging-as-21097775
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