Mark Latham Commodity Equity Intelligence Service

Thursday 21st April 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Iraq's Sadr calls for protests to bring about new government: statement


    Iraq's powerful Shi'ite cleric Moqtada al-Sadr on Wednesday called for renewed protests after the nation's politicians missed a deadline he gave to vote on a cabinet of technocrats proposed by Prime Minister Haider al-Abadi to tackle corruption.

    In a statement received by email, Sadr called for "continuing peaceful protests under the same intensity and even more in order to pressure the politicians and the lovers of corruption."

    "Nobody has the right to stop it otherwise the revolution will take another turn," he said in the statement.

    Sadr renewed his call for the parliament to vote on the cabinet overhaul and asked MPs that represent him not to take part in any session other than the one to be convened for that purpose.

    http://www.reuters.com/article/mideast-crisis-iraq-politics-idUSL5N17N2A3
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    China just unveiled new steps it will take to encourage foreign trade and boost exports


    China will take steps to boost exports, including encouraging banks to boost lending, expanding export credit insurance and raise tax rebates for some firms, the cabinet said on Wednesday, in the latest step to underpin growth.

    "Foreign trade is an important part as well as a driving force of the national economy," the State Council said in a statement after a meeting chaired by Premier Li Keqiang.

    Banks will be encouraged to lend to profitable trading companies that have received overseas orders, export credit insurance will be expanded and tax rebates for exporters of some machinery products will be increased, it said.

    China's exports in March returned to growth for the first time in nine months, adding to further signs of stabilization in the world's second-largest economy but officials have cautioned about the trade outlook.

    The government will also implement proactive import policies, supporting imports of advanced equipment and technology, the cabinet said.

    The government will step up investment in roads, railways and airports in poorer regions and encourage its less developed western and central provinces to attract investment from more developed eastern provinces.

    China's economic growth slowed to 6.7 percent in the first quarter, its weakest pace since early 2009, but stronger-than-anticipated activity indicators for March suggested the economy was picking up.

    http://uk.businessinsider.com/china-will-boost-exports-2016-4?r=US&IR=T

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    China’s energy guzzlers Q1 power use down 5.8pct on yr


    Power consumption of China’s four energy-intensive industries dropped 5.8% on year to 381.6 TWh in the first quarter, accounting for 28.2% of the nation’s total power consumption, the China Electricity Council (CEC) said on April 19.

    Of this, the ferrous metallurgy industry consumed 104.2 TWh of electricity in the first quarter, falling 14% year on year, compared to the drop of 6.8% from the previous year; while the non-ferrous metallurgy industry used 115.2 TWh of electricity, down 5.7% year on year, compared a 3.1% growth from the year prior.

    The chemical industries consumed 104.4 TWh of electricity during the same period, up 3.4% year on year, lower than a 3.6% growth a year ago; while power consumption of building materials industry dropped 4.7% year on year to 57.8 TWh, compared to a 4.5% decline a year ago.

    In March, the four industries consumed a total 137.4 TWh of electricity, climbing 2.9% year on year, accounting for 28.8% of China’s total power consumption.

    Of this, the ferrous metallurgy industry consumed 37.1 TWh of electricity in March, dropping 5.6% on year; while the non-ferrous metallurgy industry used 43.3 TWh of electricity, increasing 6.3% from a year ago.

    http://en.sxcoal.com/0/144683/DataShow.html

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    Incentives offered for Chinese mining companies who want to upgrade


    The Ministry of Land and Resources said on Wednesday that it will release a five-year-guidance for providing financing support and tax cut policies to mining companies that are willing to upgrade mining facilities by the end of this year.

    "Companies should further seek solutions to boost mining efficiency. The nation is speeding up efforts to protect natural resources during the 13th Five Year Plan," said Yu Haifeng, director at the department of mineral resources under the Ministry of Land and Resources.

    Yu said the mining companies that develop major mineral resources, such as cooper, iron and aluminum, are able to get around 40 percent of financial support towards upgrades. While companies that exploit other types of less-widely used mineral resources, are able to get 10 to 25 percent.

    In the meantime, the Ministry and State Administration of Taxation will make more efforts to promote resource tax reform. This is to reduce tax burden to cash-restrained companies and encourage them to make investment to improve mining efficiency.

    A sample survey conducted by the ministry earlier this year shows that natural resources' exploitation in China is gradually becoming more efficient. The recovery rate for coal mining gauges the level that can be recovered from known coal reserves increased 15 percentage points compared to the levels in 1999.

    http://en.chinamining.com.cn/Policies/2016-04-21/1461202586d76172.html

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    Senate passes bill to bolster power grid, speed LNG exports


    The Senate passed the first broad energy bill in nine years on Wednesday, legislation containing modest measures popular with both Republicans and Democrats to modernize the power grid and speed the permitting process for liquefied natural gas exports.

    The bill, which passed 85-12, attempts to protect the power grid from extreme weather events such as ice storms and hurricanes, and from cyber attacks. It also aims to spur innovations in storage of power from wind and solar energy.

    The House of Representatives passed a similar bill last year.

    The Energy Policy and Modernization Act would increase U.S. exports of liquefied natural gas (LNG), eventually helping to give European consumers alternatives to relying mainly on Russia for gas.

    After disagreements held the bill up for months, senators last week dropped measures from the bill to aid Flint, Michigan overcome a drinking water crisis, in which children have been exposed to dangerous levels of lead, and on offshore drilling.

    Lawmakers from both the House and Senate will next iron out differences over the bill. The Senate bill, for instance, requires the Department of Energy to issue a decision on LNG projects within 45 days of an environmental assessment, while the House bill directs the DOE to make the decision on permits after 30 days.

    Senator Maria Cantwell, a Democrat from Washington state who co-sponsored the bill, said shortly before it passed that she hoped the chambers would move quickly "so that we can realize the opportunity to help our businesses and consumers plan for the energy future."

    The White House has signaled that President Barack Obama would sign the Senate bill.

    Energy policy analyst Kevin Book of ClearView Energy Partners said the chances the bill would be signed into law this year were about 65 percent, because the White House has had some differences with the House bill.

    Charlie Riedl, the head of industry group the Center for Liquefied Natural Gas, said the vote was a "big step forward" and that certainty about the regulatory process is "crucial" for projects that cost billions of dollars to build.

    Rob Cowin, director of government affairs at the Union of Concerned Scientists, a nonprofit group, said the bill falls "far short" of what is needed to promote wind and solar power, but is "better than doing nothing."

    The Senate on Tuesday passed several amendments to the bill, including restricting most sales from the Strategic Petroleum Reserve when oil prices are low.

    http://www.reuters.com/article/us-usa-energy-senate-idUSKCN0XH1U9

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    U.S. Bancorp Profit Drops as Provisions for Energy Loans Surge


    U.S. Bancorp, the nation’s largest regional lender, said profit dropped 3.1 percent in the first quarter as provisions for bad loans surged 25 percent, driven by a jump in downgrades on energy-related credits.

    Net income fell to $1.39 billion, or 76 cents a share, from $1.43 billion, or 76 cents, a year earlier, the Minneapolis-based bank said Wednesday in a statement. The average estimate of 31 analysts surveyed by Bloomberg was for per-share profit of 76 cents.

    Oil prices have plunged more than 60 percent since their 2014 peak, forcing banks to set aside billions to cover bad energy loans. Standard & Poor’s said in March that U.S. regional banks could suffer losses if oil prices continue to fall. U.S. Bancorp Chief Executive Officer Richard Davis has relied on fees from credit cards and auto financing to bolster earnings.

    “Although the pressures from the energy industry negatively impacted the quarter, we took appropriate measures and remain confident that we are well positioned to continue delivering industry-leading returns throughout the year,” Davis, 58, said in the statement.

    Provisions for credit losses increased to $330 million from $264 million a year earlier, and energy-related commercial non-performing assets jumped $257 million from the fourth quarter, the company said. Reserves for the commercial energy sector rose to 9.1 percent of outstanding balances from 5.4 percent at the end of December.

    U.S. Bancorp’s loans to energy-related businesses were $3.4 billion as of March 31, about 1.3 percent of the total outstanding.

    Revenue rose 2.7 percent to $5.04 billion, while expenses climbed 3.2 percent to $2.75 billion.

    U.S. Bancorp shares fell 1.8 percent this year through Tuesday, compared with the 6.4 percent decline of the 24-company KBW Bank Index.

    PNC Financial Services Group Inc., the second-largest U.S. regional bank, last week reported profit that missed analysts’ estimates as provisions for bad loans almost tripled from a year earlier. Bank of America Corp. said April 14 that first-quarter net income fell 13 percent on a drop in trading and underwriting revenue, while Wells Fargo & Co., Wall Street’s top oil and gas banker, posted profit that missed estimates as the firm set aside more money for soured energy loans and expenses increased.

    http://www.bloomberg.com/news/articles/2016-04-20/u-s-bancorp-profit-drops-3-1-as-expenses-compensation-climb

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    South32’s 2016 guidance on track following strong Q3


    Diversified miner South32 said on Thursday that the company was on track to achieve its 2016 production guidance for all its operations, following a strong third quarter ended March. 

    The BHP Billiton spin-off produced 1.3-million tonnes of alumina during the three months under review, which was up 2% quarter-on-quarter, as well as 240 000 t of aluminium, which was on par with the previous quarter. Energy coal production from South Africa declined by 5% to 7.9-million tonnes in the March quarter, while metallurgical coal production from Australian mines was up by 35% to 1.2-million tonnes during the same period. 

    South32 reported that the increase in metallurgical coal production was underpinned by the restart of longwall mining at the Dendrobium operation, at the Illawarra operations, as well as the ramp-up of the new Appin Area 9 longwall, following project completion, at a cost of $565-million. 

    Meanwhile, manganese production for the quarter was up by 33% on the previous quarter, to 1.2-million tonnes, while manganese alloy production declined by 27% to 48 000 t. At the Australian manganese operations, South32 benefited from an increase in ore production on the back of optimised concentrator performance and drier weather conditions. 

    However, manganese alloy production at the Australian operations reflected a temporary suspension of two of the four furnaces in response to power shortages in Tasmania. The first of the furnaces was suspended in December, and the second one followed in March. The two remaining furnaces are currently operating at a reduced electricity load. All four furnaces were expected to return to full production by the end of June. 

    At the South African manganese operations, South32 also reported an increase in manganese ore production, following the extended suspension of operations at the Wessels and Mamatwan mines, in November, in response to the challenging market conditions. Following a completion of a strategic review, mining activities at the South African manganese operations resumed in the March quarter, with South32 saying that the reconfigured operation would have greater flexibility to respond to market demand, having ramped-up production to an optimised 2.9-million tonnes a year. 

    However, manganese alloy production from the South African operations also decreased during the three months to March, following the suspension of three of the four high-carbon ferromanganese furnaces in May last year. The one remaining furnace would remain operational until market conditions improved. 

    Furthermore, South32 on Thursday also reported that nickel production for the quarter was up 10%, to 9 700 t, while silver production declined by 20% to 4.4-million ounces, lead production was down 24% to 36 900 t and zinc production fell by 17% to 18 500 t. 

    Meanwhile, CEO Graham Kerr said that the company was on track to reduce its controllable cost by $300-million during the full 2016, with the restructuring of operations at Worsley Alumina, in Australia, as well as the Australian and South African manganese units largely complete. The restructuring of the Cerro Matoso operation and the Illawarra metallurgical coal operations would be completed by the June quarter. “We are making great progress on our cost-out programme across all operations and have continued to generate cash despite volatile commodity markets,” Kerr said.

    http://www.miningweekly.com/article/south32s-2016-guidance-on-track-following-strong-q3-2016-04-21
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    Oil and Gas

    Oil steadies as IEA expects biggest non-OPEC output fall in 25 years


    Crude prices steadied after earlier declines on Thursday as the International Energy Agency (IEA) said that 2016 would see the biggest fall in non-OPEC production in a generation, helping rebalance a market that has been dogged by oversupply.

    The IEA's chief Fatih Birol said on Thursday that low oil prices had cut investment by about 40 percent in the past two years, with sharp falls in the United States, Canada, Latin America and Russia.

    "This year, we are expecting the biggest decline in non-OPEC oil supply in the last 25 years, almost 700,000 barrels per day. At the same time, global demand growth is in a hectic pace, led by India, China and other emerging countries," he told reporters in Tokyo.

    Despite the IEA comments, statements by Russia and Iran on Wednesday weighed on the market. Russia's energy minister said it might push oil production to historic highs of over 12 million barrels per day (bpd) just days after a global deal to freeze output levels collapsed and Saudi Arabia threatened to flood markets with more crude.

    Meanwhile, Iran, determined to regain market share following the lifting of sanctions last January, reiterated its intention to reach output of 4 million bpd as soon as possible.

    With major producers in the Middle East and Russia seemingly racing to raise production, much will depend on U.S. drillers and demand to determine how long the global glut lasts, which sees between 1 million and 2 million barrels of crude pumped every day in excess of demand.

    "Any hope of market re-balancing from the current surplus in supply (lies) on the predicted decline in U.S. oil production," French bank BNP Paribas said.

    "The U.S. accounts for the bulk of non-OPEC's 2016 oil supply contraction of 700,000 barrels per day forecast. If the decline in the U.S. oil supply proves insufficient to tighten balances, then ... the oil price will remain low," it added.

    In refined products, China saw exports of diesel and gasoline soar, spilling surplus fuel into a market that is already well supplied, and threatening to further cut Asian benchmark refining margins that have halved since the beginning of the year.

    http://www.reuters.com/article/global-oil-idUSL3N17O1QG

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    Russian oil CEO: We won't do deals with OPEC


    A top Russian oil executive may just have killed off any lingering talk of an agreement among producing countries to freeze output.

    The world's top exporters, including Russia, failed to agree a production freeze at talks on Sunday, but said they would continue to work together to find a way to support prices.

    Whatever happens now, there's very little chance of Russia -- the world's second biggest oil producer after the U.S. -- ever agreeing to restrain output, said Lukoil CEO Vagit Alekperov.

    Asked whether Russia and OPEC could eventually reach a deal, Alekperov told CNN: "I don't think so, despite the fact that work on so called coordination of our activities is underway."

    He said Russia wouldn't "integrate" with OPEC, noting that his country had maintained its distance from the cartel even during the Soviet era.

    Lukoil is Russia's second biggest oil company after Rosneft. It claims to produce around 2% of the world's crude oil.

    Alekperov said Lukoil and other Russian oil companies have adjusted to low prices and are able to "earn money to invest and money for shareholders."

    Related: Oil crisis is hitting Russia hard

    Alekperov, who owns 23% of Lukoil, said he believed oil prices bottomed out earlier this year and will now rebound.

    "What we're seeing today ... indicates that we're coming to a period of stability of prices and a trend towards higher oil prices," he said.

    Alekperov also downplayed the Russian government's claim it could increase production in response to the failure of the Doha talks. He said most of Russia's oil reserves are in mature oil fields.

    "You need new oil fields to boost the production in new territories," he said. "They're in the Arctic of course, the Far East, the deep waters of the Caspian sea...so it's hard to talk today about getting these territories producing soon, because they require colossal spending."

    Investment in Russia's oil and gas industry has been held back by international sanctions, introduced after Russia seized Crimea from Ukraine in 2014.

    Alekperov added that he expects prices to reach $50 per barrel by the the end of this year, or early 2017.

    http://world.einnews.com/article/322358039/v-PBv70RfzyHR6Xm
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    Russia Warns Of Production Increase:


    Perhaps upset at the weekend's development, Russia has decided to rattle the global crude complex cage. Amid hopes of a freeze,Russia's energy minister Alexander Novak has reversed course and stated that Russia could "in theory" increase oil output and "was never ready to cut production." It appears things are rapidly breaking down between Russia and The Kingdom - which perhaps explains Obama's rapidly arranged trip to kiss the ring in Riyadh.

    Russia’s Deputy Prime Minister Arkady:

    "The policy of certain countries regarding diversification of energy sources aimed at supporting local production is sometimes implemented inefficiently as it creates extra costs for consumers and changes the oil and gas market balance. From our viewpoint, the situation is not transparent enough as not the whole information is provided to consumers," he said.

    http://www.zerohedge.com/news/2016-04-20/crude-slides-after-russia-warns-production-increase-was-never-ready-cut-output

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    Cheniere ships US LNG to Europe


    Cheniere’s Sabine Pass LNG export terminal in Louisiana has shipped its sixth commissioning cargo to Europe.

    As reported by LNG World News, the sixth cargo is being carried onboard Teekay’s first MEGI-powered LNG carrier, Creole Spirit. The 174,000 cbm capacity Creole Spirit left the Sabine Pass liquefaction and export facility on April 15.

    The vessel will deliver the chilled fuel to Portugal that imports LNG via the REN-operated terminal in the Port of Sines. Creole Spirit is expected to dock at the Sines LNG terminal on April 26, shipping data by the Port of Sines showed on Wednesday.

    Houston-based Cheniere has not responded to an email by LNG World News seeking more information on the matter, by the time this article was published.

    Cheniere started exporting LNG from Sabine Pass in February, a major milestone in global LNG trade as the U.S. is set to become a net exporter of domestically sourced shale gas.

    However, this will not be the first shipment of U.S. shale gas to Europe as the Swiss-based Ineos said in March it had delivered the first-ever cargo of shale gas-sourced ethane to Europe.

    Europe will be the third continent to receive LNG export volumes from Cheniere’s Sabine Pass plant after South America and Asia. Sabine Pass commissioning cargoes have been shipped to Brazil, Argentina and India.

    Sabine Pass is expected to load up to eight commissioning cargoes as part of its start-up process, after which it will start to operate commercially.

    After the departure of Creole Spirit, Genscape, that has infrared cameras pointed at Sabine Pass, estimates Sabine’s LNG storage level to be at “14.3 Bcf, accounting for a 10% fuel use for the compressors“.

    “The BW GDF Suez Brussels is next up to take a cargo from Sabine, expected on April 24, awaiting in the Gulf of Mexico,” the analytics firm said in a note on Monday.

    Worth mentioning, the U.S. FERC has on Monday granted Cheniere’s request to introduce feed gas to Sabine Pass LNG’s Train 2 for commissioning.

    The company plans to construct over time up to six liquefaction trains, which are in various stages of development. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.

    http://www.lngworldnews.com/cheniere-ships-us-lng-to-europe/
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    China March diesel exports jump 316.5 pct on year -customs


    China's diesel exports soared 316.5 percent in March from a year earlier to 1.25 million tonnes, customs data showed on Thursday.

    Gasoline exports rose 9.1 percent in March from a year earlier to 670,000 tonnes, while kerosene exports fell 7.4 percent on year to 1.03 million tonnes, the data showed.

    http://www.reuters.com/article/china-fuel-exports-idUSB9N17H03N
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    Sinopec's second LNG project at Beihai begins commercial operations


    State-owned China Petroleum and Chemical Corp., or Sinopec, received the first commercial cargo at its newly commissioned Beihai LNG terminal in Guangxi province, the company said in a statement Tuesday.

    The Methane Spirit, loaded with a 160,000 cubic meter cargo from the Australia Pacific LNG project, docked at the terminal on April 19, marking the official start of commercial operations of the first phase of the project.

    In the first phase, the plant has a nameplate capacity of 3 million mt/year of LNG that can meet the demand of 22 million households in Guangxi and the western part of the neighboring Guangdong province.

    This phase has been delayed by close to a year. The plant had been scheduled to start commercial operations in mid-2015.

    Sinopec had earlier stated that the second phase of the project would see the terminal capacity increase to 9 million mt/year.

    However, Sinopec has not stated a timeline for the second phase. There were no replies to requests for clarification on the status of phase 2 of the project.

    Most of the supply for the terminal will come from Australia, where Sinopec has already signed a 20-year sale and purchase agreement with APLNG for 7.6 million mt/year of LNG.

    As the 3 million mt/year terminal import capacity is currently well below the contracted volumes, Sinopec recently sold some of its term volumes to other buyers in the spot market.

    In the future, some contracted volumes would go to Sinopec's existing LNG terminal in Qingdao, but given the size of the contract, more volumes would most likely be sold, a source close to the company said.

    The arrival of the first commercial cargo comes two weeks after the ship delivering the commissioning cargo to the facility left.

    The BW Pavilion Vanda, which also carried a cargo from the APLNG project, arrived at the Beihai plant on March 28, and left on April 5, cFlow Platts ship-tracking software, showed.

    http://www.platts.com/latest-news/natural-gas/singapore/sinopecs-second-lng-project-at-beihai-begins-27485575

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    US Oil production falls 24,000 bbl day in latest week


                                                Last Week    Week Before    Last year

    Domestic Production '000...... 8,953              8,977              9,366

    http://ir.eia.gov/wpsr/overview.pdf
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    Summary of Weekly Petroleum Data for the Week Ending April 15, 2016


    U.S. crude oil refinery inputs averaged 16.1 million barrels per day during the week ending April 15, 2016, 163,000 barrels per day more than the previous week’s average. Refineries operated at 89.4% of their operable capacity last week. Gasoline production increased last week, averaging over 9.7 million barrels per day. Distillate fuel production decreased last week, averaging over 4.7 million barrels per day.

    U.S. crude oil imports averaged 8.2 million barrels per day last week, up by 247,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, 2.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 791,000 barrels per day. Distillate fuel imports averaged 90,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.1 million barrels from the previous week. At 538.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.1 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 3.6 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.2 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 0.4 million barrels last week.

    Total products supplied over the last four-week period averaged 19.9 million barrels per day, up by 3.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, up by 3.9% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the last four weeks, down by 0.7% from the same period last year. Jet fuel product supplied is down 2.0% compared to the same four-week period last year.

    Cushing inventories fell 300,000 bbl last week.

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    China's March piped natural gas imports up 37.7 pct y/y - customs


    China's imports of piped natural gas jumped 37.7 percent year on year to 2.72 million tonnes in March, the country's General Administration of Customs said on Thursday.

    March imports of liquefied natural gas (LNG) grew 27.4 percent on year to 1.7 million tonnes.

    http://www.reuters.com/article/china-economy-trade-lng-idUSB9N17H03M
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    Devon Energy Announces Sale of Non-Core Mississippian Assets


    Devon Energy Corp. announced today it has entered into a definitive agreement to sell its non-core Mississippian assets in northern Oklahoma to White Star Petroleum, LLC for $200 million. The transaction is subject to customary terms and conditions and is expected to close in the second quarter of 2016 with an effective date of Jan. 1, 2016.

    “This is another important step in executing on our plan to divest $2 billion to $3 billion of non-core assets across our portfolio during 2016”

    “This is another important step in executing on our plan to divest $2 billion to $3 billion of non-core assets across our portfolio during 2016,” said Dave Hager, president and CEO. “Proceeds will be used to further strengthen our investment-grade balance sheet. Additionally, this timely transaction accelerates Devon’s efforts to focus exclusively on its best-in-class resource plays in onshore North America.”

    Net production from the Mississippian assets averaged 12,800 oil-equivalent barrels (Boe) per day in the first quarter of 2016, of which approximately 30 percent was oil. At Dec. 31, 2015, proved reserves associated with these properties amounted to 11 million Boe. Field-level cash flow accompanying these assets, which excludes overhead costs, totaled $8 million in the first quarter.

    The divestiture process for the Company’s remaining non-core assets is ongoing. Devon is marketing its 50 percent interest in the Access Pipeline in Canada and anticipates an announcement in the first half of 2016. Efforts to monetize remaining upstream assets in the U.S. are also progressing. Data rooms for upstream assets have been open since early March and bids are expected in the second quarter. Overall, Devon remains on track to complete its $2 billion to $3 billion of non-core divestitures by year end.

    http://www.businesswire.com/news/home/20160420005306/en/Devon-Energy-Announces-Sale-Non-Core-Mississippian-Assets
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    Oil output down for U.S. shale company Sanchez


    U.S. inland oil player Sanchez Energy Corp. said Wednesday its average daily oil production volume was down nearly 10 percent from last year.

    Total production of oil, natural gas and other liquids during the first quarter of the year was 56,500 barrels of oil equivalent per day, which Sanchez said represented a 25 percent increase from first quarter 2015. Output is divided evenly between the three categories, and all of the gains came from gas and other liquids.

    For oil, the company said it produced a total of 1.6 million barrels during the first quarter of the year, an 8 percent decline from the previous quarter and a 9 percent decline year-on-year.

    A short-term market report from the U.S. Energy Information Administration finds production will decline in most of the Lower 48 states and Alaska because of the pressure from lower crude oil prices. Total U.S. crude oil production declined from the 9.1 million bpd expected during the first quarter of the year to an average 7.9 million bpd by third quarter 2017.

    CEO Tony Sanchez said the results showed the company was able to perform well under the pressure from lower crude oil prices, despite the drop in oil production.

    "With these results, we believe we are now drilling and completing wells at some of the lowest cost levels reported in unconventional oil and gas development," he said in a statement.

    Sanchez in January announced plans to cut spending by about $50 million. The company entered 2015 with plans to cut spending by about 60 percent compared with fourth quarter 2014.

    Strong production trends in the United States and weakened global demand pushed crude oil prices down from highs about $100 per barrel in mid-2014, leading to a sustained level at around $40 per barrel for much of the latter half of first quarter 2016. That's left companies with little spare capital to invest in exploration and production.

    Much of the focus for Sanchez is in the Catarina section of the Eagle Ford shale reserve area in Texas. The company said drilling costs at the Catarina shale "continue to trend downward," with some wells running at about 9 percent below the field's average.

    http://www.upi.com/Business_News/Energy-Industry/2016/04/20/Oil-output-down-for-US-shale-company-Sanchez/8601461154299/
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    Kinder Morgan cuts 2016 spending, lowers earnings guidance


    Kinder Morgan, the nation’s largest natural gas pipeline operator in the U.S., kicked off the first quarter earnings season Wednesday by scaling back its expectations for 2016.

    The Houston company said it expected its 2016 adjusted, pretax earnings to be about 3 percent less than the $7.5 billion it had previously budgeted. The forecast for distributable cash flow, an industry-standard metric that approximates how much cash the company has available to pay out or reinvest, sank by about 4 percent below previous annual forecast of $4.7 billion.

    Net income was $314 million for the quarter, down 25 percent from $419 million in the same period last year.

    In addition, the company cut its backlog of projects expected to be built in the next five years from $18.2 billion to $14.1 billion. Kinder Morgan cut out the Northeast Energy Direct Market project due to insufficient interest from customers and nixed the Palmetto Pipeline after it was blocked by regulators.

    In a statement issued Wednesday announcing the results, Kinder Morgan CEO Steve Kean said fewer projects and less spending would help the company focus on strengthening its financial footing.

    “We continue to focus on high-grading our growth project backlog to allocate capital to the highest return opportunities by reducing spend, improving returns and selectively joint venturing projects where appropriate,” Kean said.

    Kinder Morgan’s first-quarter 2016 distributable cash flow, an industry-standard metric that approximates how much cash the company has available to pay out or reinvest, rose to $1.272 billion from $1.24 billion in the same period last year. In January, executives said they expected to see about $1.2 billion in distributable cash flow.

    Net income was $314 million for the quarter, compared to $419 million in the same period last year.

    Much of that cash will stay within Kinder Morgan’s business, thanks to a 75 percent dividend cut the company the company instituted in December.

    Before the cut, Kinder Morgan had paid out almost all of the cash its businesses generated and borrowed to fund expenses such as new pipelines. But low oil prices have roiled credit and equity markets, and by late 2015 lenders and stock traders wanted a higher premium for opening their check books. The dividend cut allowed the company to bypass those markets and fund growth with its own cash. Executives said that self-funding growth was a better long-term move than using cash to pay a dividend.

    In the first quarter alone, the company said it will have $954 million in cash after paying out its 12.5 cent quarterly dividend.

    “We do not need to access the capital markets to fund growth projects in 2016,” said Richard D. Kinder, executive chairman and former CEO. “This cash flow in excess of our dividends insulates us from challenging capital markets and significantly enhances our credit profile.”

    http://fuelfix.com/blog/2016/04/20/kinder-morgan-cuts-2016-spending-lowers-earnings-guidance/
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    Alternative Energy

    WTO terms India's ruling on solar power 'inconsistent'; Centre calls it 'unfortunate'


    India on Wednesday termed as "unfortunate" the recent WTO ruling which held the Centre's power purchase agreements with solar firms as "inconsistent" with international norms and said it will raise the issue during a high-level UN event this week.

    "It is unfortunate that when India has launched such a big renewable programme, very small portion of it is in a way reserved for India's small entrepreneurs.

    "We will definitely flag this issue because this shows that the way we are going green. The developed world should not have objections on such a small thing," Environment Minister Prakash Javadekar said.

    During a recent meeting of BASIC countries - Brazil, South Africa, India and China - held in New Delhi, China had come out in support of India's decision to file an appeal against the WTO ruling.

    Javadekar will sign the Paris Agreement on behalf of India on April 22 at a high-level signature ceremony convened by United Nations Secretary-General Ban Ki-moon. He will also attend the Major Economic Forum meeting on April 23-24.

    Ruling against India, the World Trade Organization (WTO) had recently said the government's power purchase agreements with solar firms were "inconsistent" with international norms -- a matter in which the US had filed a complaint before the global trade body alleging discrimination against American firms.

    The US had dragged India to WTO on this issue in 2014, alleging the clause relating to Domestic Content Requirement (DCR) in the country's solar power mission were discriminatory in nature and "nullified" the benefits accruing to American solar power developers.

    After looking into the matter, the WTO's Dispute Settlement Panel had ruled that "the DCR measures are inconsistent" with relevant provisions of TRIMs (Trade Related Investment Measures) Agreement and with the articles of the erstwhile GATT (General Agreement of Trade and Tariffs).

    The ruling was a blow to India which has announced a target of 175 GW of renewable energy by 2022, of which 100 GW will be realised through the National Solar Mission.

    Supporting India's decision to challenge the WTO ruling, Greenpeace also had earlier said the ruling "violates" the spirit of the Paris Climate Change Agreement.

    http://www.dnaindia.com/money/report-wto-terms-india-s-ruling-on-solar-power-inconsistent-centre-calls-it-unfortunate-2204229
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    Drax offers to end coal burning in return for green subsidies


    The head of Drax Group, Dorothy Thompson, says they are willing to accelerate the closure of itscoal-fired power units in return for green energy subsidies to help develop its biomass power facilities.

    Ms Thompson told the Financial Times, the company would be unable to transform the rest of the plant from coal to biomass without the subsidies, but could if offered the incentives, be in a position to close its coal capability inside three years.

    “We have project plans that we could execute within three years, so you could take our coal units off the system by 2020 if not before,” Ms Thompson said in an interview ahead of Drax’s annual shareholder meeting on Wednesday.

    The company has already turned its 42-year-old Selbypower station into one of the world’s biggest renewable generators over the past four years, by upgrading nearly half its six coal-fired boilers to burn wood pellets, mostly imported from the US.

    But it has only done this after receiving subsidies and other support worth £451.8m in 2015, or 17 per cent of revenues at the power plant, which supplies about 8 per cent of the UK’s electricity.

    The company has suffered from government policy as it bids to move away from coal. When a climate change tax was applied to renewable generators, Ms Thompson likened it to “putting an alcohol tax on apple juice”.

    Ms Thompson says switching Drax’s remaining three coal boilers to wood would be impossible unless the company receives more of a newer type of subsidy structured as a contract for difference, or CFD, that guarantees long-term power prices for renewable power companies.

    Drax was awarded one CFD contract for its third boiler conversion two years ago but is still awaiting state aid approval for it, a delay Ms Thompson says is “shocking”.

    Approval is widely expected because Brussels waved through support in December for a coal-to-wood pellet conversion at the smaller Lynemouth power station.

    http://www.powerengineeringint.com/articles/2016/04/drax-offers-to-end-coal-burning-in-return-for-green-subsidies.html
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    Uranium

    Germany asks Belgium to switch off nuclear reactors


    Germany has asked Belgium to take two nuclear reactors temporarily off the grid while questions about their safety are cleared up, an unusual diplomatic move that underscores German concerns about the plants.

    Production at Belgium's Tihange 1 nuclear reactor was halted for about 10 days in December because of a fire. Staffing has also been reduced to minimize the risk of unauthorized personnel gaining access to the plants after the November attacks on Paris and the March attacks on Brussels.

    Environment Minister Barbara Hendricks said on Wednesday that the decision to request another shut down of the Tihange 2 and Doel 3 reactors came after Germany's independent Reactor Safety Commission advised that it could not confirm the reactors would be safe in the event of a fault.

    Deputy Environment Minister Jochen Flasbarth telephoned the Belgian Interior Minister on Hendrick's behalf on Tuesday to request a shutdown pending further safety investigations. Officials did not specify a timeframe.

    The core tanks at the 33-year-old Doel 3 and Tihange 2 reactors were built by Dutch company Rotterdamsche Droogdok Maatschappij, which has also built reactors in other countries.

    The two reactors, both with about a gigawatt of capacity, were closed in 2012 and again in 2014 after a brief restart, after inspections unveiled tiny cracks in their core tanks.

    But the Belgian regulator authorized a restart in November 2015 after finding that the cracks were hydrogen flakes trapped in the walls of the reactor tank and had no unacceptable impact on the plant's safety.

    "I consider it right that the plants are temporarily taken offline at least until further investigations have been completed. I have asked the Belgian government to take this step," Hendricks said in a statement.

    She added the move would send a strong signal to reassure Germany and show that Belgium is taking the concerns of its neighbors seriously.

    Belgian nuclear regulator FANC expressed surprise at the German minister's remarks, saying in a statement that it had explained the issue with the reactors at a meeting of international experts.

    "The nuclear reactors at Doel 3 and Tihange 2 fulfill the highest security standards," the agency added.

    Spurred by the disaster at Japan's Fukushima plant in 2011, Germany pledged to abandon nuclear power generation completely by 2022 in favor of other power sources.

    Hendricks' comments are the highest profile criticism of the Belgian nuclear reactors so far in Germany, with the region around Aachen and the state of North Rhine-Westphalia having previously voiced concern.

    Last week, the state of North Rhine-Westphalia said it would join a lawsuit brought by the Aachen city region against the Tihange 2 reactor, which is roughly 65 kilometers (about 40 miles) away from the west German city.

    Germany has long been nervous about the safety of the reactors and a working group of officials met earlier this month to discuss the issue. Flasbarth told reporters talks with Belgian authorities had been constructive.

    He added the decision to make the request had not been taken lightly and that Germany would give the Belgian government time to respond.

    http://www.reuters.com/article/us-germany-belgium-nuclear-idUSKCN0XH0U7
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    Uranium market is getting crushed


    Uranium is having the worst start to a year in a decade. U3O8 is down more than 25% in 2016 with the UxC broker average price sliding to $25.69 a pound on Friday. That's the cheapest uranium has been since May 2, 2005.

    At no point since Fukushima, did the average weekly spot price dip below $28 a pound

    Haywood Securities in a  research note points out that the spot U3O8 price "saw three years of back-to-back double-digit percentage losses from 2011-13, but none worse than what we’ve seen thus far in 2016, and at no point since Fukushima, did the average weekly spot price dip below $28 a pound." The long term price, where most uranium business is conducted, is languishing at around $44 a pound.

    Uranium was actually the best performing commodity in 2015 by virtue of having declined in value only slightly over the course of the year. So what's happening?

    Vancouver-based Haywood attributes the decline to "a dearth of non-discretionary buying from utilities combined with an over-supplied market which continues to inflate global inventories, partially attributable to the continued shutdown of Japanese reactors and the ramp-up of production at selected uranium mines including Cigar Lake."

    Five years after the Japanese disaster only two of the country's 50 nuclear reactors are back on line.  In other developed markets nuclear power is also in retreat.

    Top user France which relies on its 58 plants for more than three-quarters of its electricity needs, has begun a program to reduce that figure to 50%.   Problems with next-generation plants developed by French state utility EDF and top supplier Areva are well-documented. Germany is phasing out the technology.

    Prospects for new reactor build are very different in China (22 under construction), India (6 being built), Russia (8 inside the country and another 2 in neighbouring Belarus) and the Middle East (4 under construction in the UAE with many more planned in the region). But growth in emerging uranium markets may also be less rosy than the build-out numbers suggest.

    Special arrangements like top producer Kazakhstan's uranium-sovereign debt deal with China leave little room for non-state players. India's focus and expertise is with reactors using locally-sourced thorium and longer-term low oil prices may rein in any nuclear energy ambitions in middle-Eastern countries and Russia.

    http://www.mining.com/uranium-market-getting-crushed/

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    Agriculture

    Fertiliser group Yara sees benefits of lower energy costs


    Fertiliser maker Yara International on Thursday reported stronger than expected first-quarter earnings and said lower energy costs in the next two quarters would help its performance, sending its shares up.

    The company has been cutting costs and increasing investments to become more competitive in the face of difficult market conditions.

    Chief executive Svein Tore Holsether said the company had produced strong results in a challenging market environment, where weaker fertilizer prices and lower deliveries impacted earnings.

    "Lower natural gas cost in Europe continued to improve Yara's competitive position during the quarter," he said.

    Yara's energy costs in the second quarter would be 1.15 billion crowns lower than a year ago, and would be 1.0 billion crowns lower in the third quarter, the company said, due to lower oil and gas prices. Its fertilizer business is a big energy consumer.

    It reported earnings before interest, taxes, depreciation and amortisation, excluding one-offs, of 5.1 billion crowns ($628.47 million) in the quarter, down from 5.7 billion a year earlier, but above analysts' forecasts for 4.9 billion in a Reuters poll.

    "Given the fall in share price the last months, the market's expectations for the quarter had clearly come down ahead of the report," said Thomas Nielsen, a fund manager at Norwegian fund Odin, which holds shares in the company.

    "As such adjusted EBITDA down 12 percent compared to same quarter last year, was probably not so bad after all. We believe lower energy prices may have a positive impact going forward."

    http://www.reuters.com/article/yara-intl-results-idUSL5N17O1AL
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    Precious Metals

    Newmont's earnings beat market estimates


    Gold and copper miner Newmont Mining Corp (NEM.N) reported lower quarterly earnings on Wednesday but they blew past analyst estimates due to higher copper sales from its Indonesian operation and a strong performance from its Australasian mines.

    Newmont, the world's second-biggest gold miner by market value, said its adjusted net income fell to $182 million, or 34 cents a share in the first quarter.

    Although down from $229 million or 46 cents a share in the year-ago period, it was well ahead of the 20 cents a share that analysts were expecting, according to Thomson Reuters I/B/E/S estimates.

    "A combination of lower capex, better operating performance out of Australasia and more copper sales during the quarter is really how that beat materialized," BMO Capital Markets analyst Andrew Kaip said.

    Greenwood Village, Colorado-based Newmont, left unchanged the forecasts it made in February for gold and copper production in 2016 and 2017.

    The company said its net income from continuing operations was $78 million, or 15 cents a share, in the quarter ended March 31. That compares with $175 million, or 35 cents a share, in the same period a year ago when gold and copper prices were higher.

    In the first quarter, attributable gold production from Newmont mines in the Americas, Australia, Asia and Africa rose to 1.23 million ounces of gold and 38,000 tonnes of copper. That compares with 1.19 million ounces of gold and 37,000 tonnes of copper in the same quarter a year ago.

    All-in sustaining costs to produce one ounce of gold improved to $828 an ounce in the first quarter from $849 in the same quarter a year ago.

    Prices received for its gold averaged $1,194 an ounce in the first quarter, down from $1,203 per ounce in the first three months of 2015. Average copper prices received fell to $2.02 a pound from $2.34 per pound.

    Earlier on Wednesday Newmont said vice-chair Noreen Doyle has been appointed to succeed Vincent Calarco as board chair. Calarco will remain as a director.

    http://www.reuters.com/article/us-newmont-mining-results-idUSKCN0XH2JI
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    Base Metals

    S Korea aluminium premiums slip $3/mt on weak demand, narrow LME spreads


    Spot premiums for South Korean primary aluminium fell $3/mt in the last week with Platts assessing them at $108-$112/mt plus LME cash, CIF Busan.

    Trading volumes were thin, market participants said, with low factory orders impacting consumer demand and traders not restocking due to a narrow spread in LME aluminium prices.

    Producer, consumer and trader sources had widely differing ideas on market clearing levels.

    A producer put the market clearing premium at $108-$110/mt CIF Busan, but said he did not conclude any sales.

    A consumer said $108-$110/mt CIF Busan may apply to Indian and Russian material, but aluminium from other origins might fetch closer to $115/mt. He too, however, did not report any deals.

    A trader reported a sale last week of Q2 strip shipments at $105/mt and $114/mt plus LME cash, CIF Incheon, for monthly shipments of 1,000 mt.

    The source attributed the difference in premiums to the metal's origin and chemical content.

    A second producer source reported wide range of offers in the domestic market at $106-$116/mt, FCA basis.

    He attributed the difference in premiums to the seller's corporate profile.

    The larger South Korean conglomerate trading houses were generally offering at higher premiums, while global traders were more competitive, he said.

    http://www.platts.com/latest-news/metals/sydney/s-korea-aluminum-premiums-slip-3mt-on-weak-demand-27486986
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    Steel, Iron Ore and Coal

    Rio Tinto Q1 HCC output falls slightly on year


    Rio Tinto’s 1Q16 hard coking coal production fell slightly from last year’s 2 million tonnes but climbed 4.2% from the previous quarter to 1.98 million tonnes, according to the company’s latest quarterly production report.

    The company’s produces hard coking coal from two mines in the Bowen Basin, Queensland: the Hail Creek opencast mine and Kestral underground mine. Rio Tinto owns 82% of Hail Creek with joint venture partners Nippon Steel Australia, Marubeni Coal and Sumisho Coal Development. It owns Kestral mine with Mitsui Ketral Coal Investment, a subsidiary of Japanese trading house, Mitsui.

    Hail Creek produced 1.22 million tonnes of hard coking coal in 1Q16 – up from 1.13 million tonnes in the previous quarter and 1.18 million tonnes in 1Q15. Overall, the mine produced 5.01 million tonnes of hard coking last year for Rio Tinto.

    Kestral mine production of hard coking coal fell slightly to 758,000 tonnes in 1Q16 – down from 766,000 tonnes in 4Q15 and 813,000 tonnes in 1Q15.

    Production of semi-soft coking, however, jumped by 31% year on year and up 47% from 4Q15, as a result of mine production sequencing at Hunter Valley Operations and Mount Thorley Warkworth. Rio Tinto produces semi-soft coking coal from operations in New South Wales.

    The company also completed the restructuring of its ownership of its New South Wales assets, taking full ownership of Coal & Allied from its joint-venture partner, Mitsubishi. The Japanese company took a 32.4% direct stake in Hunter Valley operations as part of the restructuring, leaving Rio Tinto’s stake in Hunter Valley Operations, Mount Thorley and Warkworth at 67.6%, 80% and 55.57% respectively.

    Looking ahead, the company’s share of production is unchanged and is expected to be 7–8 million tonnes of hard coking coal and 3.3–3.9 million tonnes of semi-soft coking coal.

    http://en.sxcoal.com/0/144687/DataShow.html
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    As prices surge, Vale joins iron ore production guidance cuts


    Top iron ore producer Vale followed rivals Rio Tinto and BHP Billiton  on Wednesday by announcing that it expects full-year iron ore production to come in at the lower end of guidance.

    Vale  said it produced 77.5 million tonnes of iron ore in the first quarter, marking a record for output during the first three months of the year for the Rio de Janeiro-based company.

    Its Carajás operations also achieved a production record for a first quarter of 32.4 million tonnes, representing an increase of nearly 18%, offsetting the halt in production at its Samarco 50-50 joint venture with BHP and the decrease in output at its Mariana mining hub. Operations at Samarco remains suspended following the failure of a tailings dam in November.

    The company total output was down 12% from the December quarter however.

    "Production in the first quarter and the plan for the rest of the year suggests an annual production towards the lower end of our original guidance of 340-350 million tonnes," Vale said in a statement. The company produced 345.9 million tonnes in 2015.

    While Rio could just pip Vale as the top iron ore miner this year on current predictions, the Melbourne-based company won't top the rankings for long. Vale’s flagship S11D project in the Carajas complex with annual capacity of more than 90 million tonnes is 80% complete and is expected to start shipping by the end of 2016.

    http://www.mining.com/vale-joins-production-guidance-cuts/
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    China steel mills resume production


    A survey by Chinese consultancy Custeel showed 68 blast furnaces with an estimated 50 million tonnes of capacity have resumed production. The capacity utilization rate among small Chinese mills has increased to 58 percent from 51 percent in January. At large mills, it has risen to 87 percent from 84 percent, according to a separate survey by consultancy Mysteel.

    The rise in prices has thrown a lifeline to 'zombie' mills, like Shanxi Wenshui Haiwei Steel, which produces 3 million tonnes a year but which halted nearly all production in August. It now plans to resume production soon, a company official said, declining to be named as he's not authorized to speak publicly.

    Another similar-sized company, Jiangsu Shente Steel, stopped production in December but then resumed in March as prices surged, a company official said.

    More than 40 million tonnes of capacity out of the 50-60 million tonnes that were shut last year are now back on, said Macquarie analyst Ian Roper. "Capacity cuts are off the cards given the price and margin rebound," he said.

    Profit margins have risen to 500-600 yuan a tonne ($77-$93) on average, the highest in at least two years, said Hu Yanping, senior analyst at Custeel.com.

    "The government wants to bolster the economy and boost demand for industrial sectors, but it is also resolute to push forward the supply-side reform, putting it in a dilemma," said Hu.

    To show the world it is serious in slicing its bloated steel sector, China has said it cut 90 million tonnes of capacity and plans to cut another 100-150 million tonnes through 2020.

    Yet China's crude steel output hit a record high of 70.65 million tonnes in March.

    A surge in steel output should be driven by an increase in contracted purchases, otherwise mills are just betting on an improvement in demand that may not happen, Liu Zhenjiang, vice secretary general of the China Iron and Steel Association (CISA), told an industry conference in Beijing this month.

    "Cutting steel capacity is important, but controlling steel output is more important," he said.

    http://www.reuters.com/article/china-steel-overcapacity-idUSL3N17M1JH

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