Mark Latham Commodity Equity Intelligence Service

Monday 5th September 2016
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    China allocates 100-billion yuan for tackling industrial overcapacity

    China has allocated 100-billion yuan in structural adjustment funds for the steel and coal industries, making the country one of the first major economies to tackle excessive industrial capacity, said Chinese vice finance minister Zhu Guangyao on Sep. 2, two days before the G20 Hangzhou Summit opening.

    Zhu, at a press conference on Sep. 2, said China has implemented the strongest measures to tackle industrial overcapacity, including enterprise mergers and reorganizations based on market rules or bankruptcy laws.

    China is also promoting the use of nationwide bankruptcy courts, he added.

    Zhu said the G20 Hangzhou Summit comes at a time when world economic recovery is slow and unbalanced. The world economy is full of uncertainties, such as Brexit, is increasingly divided by the develop world’s monetary policies, and is experiencing downward pressure.

    He expressed his hope that the world can come together to spur economic growth.

    “This is also why the world sets its eyes on Hangzhou and expects the summit to boost global economic growth and improve global financial market stability,” said Zhu.

    Specifically, Zhu pointed out that one of the key focuses of this year’s summit will be international tax reform, especially on the coordination of policy on tax evasion, baseerosion, and tax havens.

    China announced that the G20 Hangzhou Summit will, for the first time in history,encourage the establishment of a new international tax system that is fair, just, inclusive,and orderly.

    Zhu stressed that under China’s presidency, much discussion has focused on the use of taxes to support economic growth and increase government tax revenue.
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    AfD beats CSU: anti elite, again.

    CONFIDENT of a strong showing, the Alternative for Germany (AfD), a right-wing populist party, splurged on a visually impressive venue to watch the results of an election in Mecklenburg-West Pomerania on September 4th. Its candidates and supporters gathered in a thatched-roof beach house on a lakeside in Schwerin, overlooking the castle that houses the state assembly. “We tack into the wind,” ran the message on the sail of a boat on the water. And how the cheers went up when the exit polls came in. The party won 21.9% of the vote, putting it second after the Social Democrats (SPD), which got 30.2%—and beating the Christian Democrats (CDU) of Chancellor Angela Merkel, who got just 19%.

    This result is the latest in a string of advances for the AfD. It has no hope of entering a governing coalition anywhere in Germany; other parties view it as toxic. Instead, it positions itself as collecting protest votes against a politically correct elite. It will now be represented in nine of Germany’s 16 federal state parliaments. “Finally there is a real opposition again,” bellowed Leif-Erik Holm, the party’s top candidate in Mecklenburg, to his cheering supporters in the beach house. “Maybe today is the beginning of the end of the chancellorship of Angela Merkel.”

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    Argentina seeks to unify regulations to spur mining investments

    The Argentine government wants to unify mining regulations under a proposed federal law that would permit open-pit mines to operate throughout the country as part of an effort to jump-start investment in the sector, a government official said.

    Argentina has fallen behind its mineral-rich neighbors Chile and Peru in mining investment, despite containing rich deposits of copper, gold, silver and zinc. Local regulations are tough, and seven of the country's 23 provinces prohibit open-pit mining altogether due to environmental concerns.

    "We have decided to invite the provinces back into the system by way of a federal agreement," Argentine Secretary of Mining Daniel Meilan said in an interview last week. The government plans to send its mining bill to Congress early next year, he added.

    The country's mining sector attracted scant investment under the 2007-2015 government of Cristina Fernandez, who increased the state's role in Latin America's No. 3 economy. She was succeeded by free-markets advocate Mauricio Macri, who has eliminated mining sector export taxes.

    He also lifted Fernandez's prohibition on foreign mining companies sending profits made in Argentina out of the country.

    Analysts say there is some $400 billion worth of untapped mining resources underground in Argentina.

    Ricardo Martínez, head of Buenos Aires-based mining consultancy Viento Andino, said Peru and Chile are each expecting $30 billion to $50 billion in mining investment over the next five years, dwarfing current expectations in Argentina.

    The lack of a nationwide mining law "is perhaps the only impediment to investment" in the sector, said Hugo Nielson, secretary general of the Latin American Mining Organization, a regional grouping.

    Gaining the backing of provincial governors is expected to be challenging, as many local officials prefer not to cooperate with the sector, mining sector experts said.

    Meilan said details of the proposal will be hammered out with local officials before the bill is sent to Congress.

    The first step will be to draft the bill with input from the Federal Mining Counsel (Cofemin), a grouping of regional mining officials.

    "Then we we'll sit down with the governors and negotiate an agreement of the proposal that will be sent to Congress," Meilan said.
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    Uniper sets $4.5 bln listing date as spin-off from E.ON nears end

    Uniper, the power plant and energy trading unit to be spun off from Germany's top utility E.ON, is set to start trading on Sept. 12, in the final phase of an expected 4 billion euro ($4.5 billion) listing.

    The flotation is being closely watched by investors and the industry for insight into the standalone market value of ailing coal and gas fired power stations and trading activities.

    E.ON said in late 2014 it would pool and list its struggling power plants and volatile trading business, hoping this would free up enough cash for future investments, and give a boost to its renewable and grid business which it is now focused on.

    There will be no advance price range released for Uniper shares, but an expected dividend yield of 5 percent suggests an opening price of 11 euros and a market capitalisation of about 4 billion, a person familiar with the spin-off said.

    Since the spin-off announcement, shares in E.ON have fallen by 43 percent, with investors pointing to substantial liabilities in relation to the storage of Germany's nuclear waste, which will remain with the company.

    "The new energy world is so vastly different from the traditional one that they need completely different entrepreneurial strategies," E.ON Chief Executive Johannes Teyssen said.

    E.ON shareholders will receive one Uniper share for every 10 E.ON shares they hold. E.ON will spin off 53.35 percent in Uniper in a first step and has previously said it does not plan to divest additional stakes before 2018.

    In response to the crisis in conventional energy generation, caused by overcapacity and a rise in renewable capacity, Uniper plans to cut about 500 million euros in costs and sell at least 2 billion euros of assets
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    Oil and Gas

    Oil Slips as Saudi-Russia Agreement Stops Short of Output Plan

    Oil fell as two of the world’s biggest producers stopped short of making concrete proposals to coordinate output, pledging instead to cooperate to ensure market stability.

    Futures lost as much as 0.9 percent in New York. Saudi Arabia and Russia agreed to work together to stabilize prices, without offering details on joint action, after Deputy Crown Prince Mohammed bin Salman and President Vladimir Putin met in China on Sunday. Crude rose the most in two weeks on Friday as Putin said he’d like OPEC and Russia to agree to an output freeze.

    Oil rallied last month amid speculation members of the Organization of Petroleum Exporting Countries and other producers would agree to a plan to limit output when they meet later this month in Algiers. A similar proposal, originally put forward in February, was derailed in April after Iran declined to cap its production.

    “At this stage, markets are probably just going to take the view that it needs to see some evidence, some tangible idea on what the agreement might actually amount to before responding to it,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “We will get a lot of statements about it but probably nothing really concrete until we get to the stage of the Algiers meeting.”

    OPEC Record

    West Texas Intermediate for October delivery fell as much as 38 cents to $44.06 a barrel on the New York Mercantile Exchange and traded at $44.28 at 1:52 p.m. in Hong Kong. The contract rose $1.28 to $44.44 on Friday, the biggest gain since Aug. 18. Total volume traded was about 48 percent below the 100-day average.

    Brent for November settlement lost as much as 43 cents, or 0.9 percent, to $46.40 a barrel on the London-based ICE Futures Europe exchange. The contract added 3 percent to $46.83 a barrel on Friday. The global benchmark crude traded at a $1.85 premium to November WTI.

    Putin said in an interview last week in Vladivostok that other producing countries now recognize Iran should be allowed to continue raising output since it was freed just months ago from international sanctions. The Russian president said at the time that he may recommend such a plan when he met with Prince Mohammed.

    Saudi Arabia led OPEC’s decision in 2014 not to cut output amid a global glut in order to protect market share and force out higher-cost producers. Group production rose to a record 33.69 million barrels a day in August, just under a third of global demand, a Bloomberg survey showed last week.
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    After brief resurgence, China's oil demand falters yet again

    China's oil demand fell to 11-month lows in July on the back of erratic weather and feeble industrial growth, crushing hopes of a recovery in consumption which the market had expected after the country in June pulled itself out of the red for the first time in many months.

    But analysts are hopeful that the fall would be temporary and demand would recover in the remaining months of the year.

    Total apparent oil demand in the world's second-largest oil consumer fell to 10.75 million b/d in July, dropping 6.9% from June and witnessing the steepest year-on-year decline of 5.4% since January 2009, S&P Global Platts calculations showed.

    China's apparent oil demand in June had increased 1.8% year on year to 11.54 million b/d, which was 6.1% higher from May.

    "Apparent demand was dragged down by record high oil product exports in July, at around 860,000 b/d, a further reflection of overflowing supplies, overwhelming refiners," said Song Yen Ling, senior analyst at Platts China Oil Analytics.

    Demand for key oil products grew either in single digits or fell year on year in July.

    LPG, naphtha and jet fuel have largely been registering double-digit year-on-year growth in recent months.

    The slowdown in July pulled down apparent oil demand over the first seven months by 1% year on year to 11.12 million b/d, lower than the average of 11.19 million b/d seen in the first half of the year.

    Analysts said China's July real economic activity had disappointed, but they thought that would be temporary.

    Manufacturing PMI edged down to 49.9 last month from 50 in June, dipping below the 50 mark for the first time since March 2016, with value-added industrial production growing at 6% year on year, which was slower than the growth rate of around 6.2% in June.

    Fixed asset investment growth also softened to 8.1% in the year to date, slowing significantly from 9.8% in June and from 9.6% in May.

    Growth in fixed asset investment and industrial output are related to energy consumption.

    The National Bureau of Statistics partly attributed the slowdown to extremely hot weather and heavy rains following flooding.

    Citing government data, Standard Chartered Bank said around 60 million people were affected by flooding in July.

    The bank expects a modest pick-up in growth in H2, supported by post-flooding reconstruction, although sluggish private investment poses downside risks.


    Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly product output at Chinese refineries and net imports.

    Apparent demand for gasoline in July fell by 4.1% year on year to 2.62 million b/d, the sharpest year-on-year fall since March 2010. It was also 5.45% lower than the average of 2.78 million b/d over the first seven months. Actual consumption would probably still witness single-digit growth because of destocking.

    In addition, extremely hot weather encouraged gasoline consumption for air-conditioners, which could partly offset the fall in demand because of heavy rains.

    The National Reform and Development Commission on August 26 said China's gasoline consumption in July increased 5.8% year on year.

    Gasoline demand also found some support from a 25.3% year-on-year increase in sales of gasoline-guzzling sport utility vehicles, which jumped 47.8% year on year in July, according to data from the China Association of Automobile Manufacturers.

    Moreover, gasoline stocks at the end of July retreated by 2.2% from the end of June, according to Xinhua.

    Actual gasoline demand also include blended gasoline, in addition to the barrels produced from the refining sector. Blended gasoline is not included in apparent demand calculations because of a lack of official data.

    It is hard to tell how many barrels of blended gasoline flowed in to domestic market in July, but heavy imports of mixed aromatics in 2016, used as blending material for gasoline, indicated the volume was unlikely to be low. China in July imported 669,737 mt of mixed aromatics, helping total inflows in the first seven months to surge 160% year on year to 7.41 million mt, data from the General Administration of Customs showed.

    Almost all of China's mixed aromatics imports go into the gasoline blending pool, with 3 mt of mixed aromatics needed to blend 10 mt of gasoline.


    Gasoil in July was also hit by hot weather and heavy rains, which disrupted construction, mining and transportation, pulling down apparent demand by 8.8% year-on-year in July to 3.17 million b/d, lower than the average of 3.3 million b/d in the first seven months and only slightly higher than the recent 70-month low of 3.14 million b/d recorded in May.

    The NDRC said that China's gasoil consumption in July fell 4.1% year on year.

    According to data compiled by Xinhua, China witnessed a 3.53% month-on-month gasoil inventory increase by the end of July, following a 6.29% stock draw at the end of June, It suggested that actual consumption would be lower than implied demand.

    Sinopec's chairman Wang Yupu said Monday that demand for gasoil was expected to fall further in line with structural changes in the Chinese economy.

    Apparent demand for jet fuel edged up by 1.5% year on year to 766,000 b/d in June, lower than the average demand growth of 7.4% year on year to 753,000 b/d in the January to July period.

    The slow growth in July was mainly due to heavy rainfall in the central and eastern regions in China, which resulted in widespread flight cancellations.

    The latest data from the Civil Aviation Administration of China showed that overall aviation traffic turnover continued to register growth, rising 14.1% year on year in June and by 12.5% in the first six months.


    Apparent demand for naphtha in July was at 949,000 b/d, with year-on-year growth dropping to 0.6% from double-digit levels over the previous eight months.

    But the slower growth rate was mainly because of a high base registered in July 2015.

    Apparent demand was still considered healthy, with average consumption hovering at 978,000 b/d in the first seven months, gaining 15.6% year on year. The growth was attributed to increasing production from independent refineries, which are increasingly using light feedstock to generate more light-end products than before. Production of naphtha rose 9.7% from July 2015, to 822,000 b/d.

    Inflows were mainly used as feedstock to produce ethylene, output of which grew 0.3% in last month to 1.46 million mt. This may explain the reason for the 34.7% year-on-year decrease in naphtha imports in July.

    Apparent demand for LPG rose 9.1% year on year to 1.48 million b/d in July, which was actually the lowest since March, and lower than the average of 1.51 million b/d for the first seven months of 2016.

    Market sources said actual consumption in July should be higher despite demand from the residential sector remaining low. Propane dehydrogenation plants were actually running at very high operation rates because of healthy profit margins, but the plants were consuming their existing stocks which were imported in previous months instead of processing new inflows.
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    Iran ready to raise oil output to 4 mln bpd depending on demand -NIOC

    Iran is ready to raise its oil production to 4 million barrels per day (bpd) in the next two to three months depending on market demand, a senior official from the National Iranian Oil Company (NIOC) said on Monday.

    "We can increase crude production based on market requirement," Seyed Mohsen Ghamsari, the director for international affairs at NIOC, said at the Argus Crude Forum.

    Iran's plans to return output to pre-sanctions levels of more than 4 million bpd comes just ahead of an informal meeting later this month among members of the Organization of the Petroleum Exporting Countries (OPEC) in Algeria, where they are expected to seek to revive a deal on freezing global output.

    OPEC's third-largest producer is currently producing a little over 3.8 million bpd, Ghamsari said.

    Attempts by OPEC and non-OPEC oil exporters to reach a pact on stabilising output levels earlier this year foundered because Iran, which is anxious to increase exports after the lifting of international sanctions, declined to participate.

    Tehran's aggressive moves to recoup market share that was lost under international sanctions targeting its nuclear programme has paid off in Asia, where its four biggest buyers raised their imports by 61 percent in July versus a year ago.

    Iran is also eyeing shipping supplies to new Chinese crude buyers via trading company Trafigura.

    Looking ahead, NIOC may raise its production capacity to 4.3 million bpd in the first quarter next year and eventually reach 5 million bpd in two to three years, Ghamsari said, noting that the bulk of any new production would be heavy crude.

    "We believe that the market is more in favour of heavier grades and that's why we are going to introduce a new one."
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    China's state crude oil reserves at 31.97 mln T by start of 2016

    China increased its strategic crude oil reserves by 22.5 percent between the middle of last year and the start of 2016, taking the total to 31.97 million tonnes (233 million barrels), the National Statistical Bureau said on Friday.

    The volume, equivalent to about 33 days of net oil imports to China, was higher than analysts had estimated.

    "Stockpiling over the second half of 2015 was faster than our calculation," Sengyick Tee of SIA Energy said. "The numbers look like more till the first quarter, mostly likely also including stockpiling by some independents."

    In its last update in December 2015, the government said it had 26.1 million tonnes, or about 190.5 million barrels, stockpiled by mid-2015.

    The world's largest consumer bought the crude as global prices sank 40 percent in the second half of 2015 to below $40 per barrel, testing fresh multi-year lows on evidence of a growing worldwide glut.

    The reserve is closely watched by analysts as a gauge of what proportion of China's oil imports is going into the reserves and how much is being refined and consumed.

    Stockpiling should pick up significantly in the fourth quarter, but slower oil demand and some delays in preparing storage tanks will likely drag on the growth rate, according to Michal Meidan of Energy Aspect.

    The current data includes strategic and some commercial stockpiles, the statistic bureau said. The government did not release a breakdown of the figure.

    Reuters reported that a private company has signed a preliminary agreement to provide oil storage for 2.6 million barrels of commercial state crude reserves.

    China intends to build crude reserves of 550 million barrels by 2020.
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    Rosneft, BP, Schlumberger Sign Seismic Exploration Deal

    Rosneft, BP and Schlumberger have reached a deal on joint research and development of seismic exploration technologies.

    A RIA Novosti correspondent reported Friday from the signing ceremony. The document provides for Rosneft to become a full partner in a project carried out by BP and Schlumberger subsidiary WesternGeco on wireless seismic data acquisition on land.

    Read more:
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    GLOBAL LNG-Prices slip as Nigeria shakes off output problems

    Asian liquefied natural gas (LNG) prices fell in a slow week as traders awaited the outcome of two tenders and Argentina turned away shipments due to mild weather curbing demand.

    A major tender expected from Egyptian Natural Gas Holding (EGAS) to buy 120 cargoes for 2017, which sources said could be launched this weekend, was the market focus.

    Bids under the Brent-priced tender will be due by October and awards are to be finalised by the end of November at the latest, one trading source said.

    "They are trying to extend credit terms to 120 days," he added. In December EGAS extended payment terms to 90 days from the previous 15 days due to a foreign currency crisis.

    Asian spot prices for October delivery traded at $5.30 per million British thermal units (mmBtu), 20 cents below last week's levels, trading sources said.

    Gail India is set to award a purchase tender for one October cargo on Friday, while Exxon Mobil's Papua New Guinea LNG export plant is offering a cargo loading in late September.

    Several cargoes changed hands in tenders.

    Indian Oil Corp bought two for October, and Conoco Phillip's Darwin project in Australia sold one each to Trafigura and Gunvor on a free-on-board basis, at $5.10 per mmBtu, traders said.

    BP sold a October cargo to Turkey's EGE Gaz for around $5.20 per mmBtu, trade sources said.

    On supply, Indonesian liquefaction plants at Bontang and Donggi Senoro offered additional shipments to their long-term partners and possibly spot buyers.

    The giant Gorgon facility in Australia is also set to offer more cargoes though spot tenders. The second production line at Gorgon is due to start up in the fourth-quarter and the third is to begin in the second-quarter 2017, a Chevron spokesman said.

    Angola LNG, shut for maintenance since July, may resume output before late September as two vessels, the Lobito and Soyo, are due to arrive at the plant by mid month, shipping data shows.

    Nigeria LNG shook off production disruptions caused by a pipeline leak last month with vessels now leaving the plant regularly.

    "The September loading programme shows no disruption to supply," one source said.

    In mid-August the plant canceled cargoes earmarked for project stakeholders, including 4-5 cargoes for Shell, 1 for Enel and 2 for Total, trade sources said.

    Algeria's Sonatrach was still heard offering cargoes for October loading, traders said.

    Argentina's state-run buyer Enarsa said it had canceled one shipment and delayed three cargoes until next year because of one of the warmest Augusts in a decade.
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    Russia's Gazprom, China's CNPC ink pipeline construction deal

    Russian gas giant Gazprom said on Sunday it had signed a contract with China National Petroleum Corp (CNPC) to build a section of the Power of Siberia gas pipeline under the Amur river.

    Gazprom CEO Alexei Miller and CNPC President Wang Yilin inked the deal at a meeting on the sidelines of the G20 summit in the eastern Chinese city of Hangzhou, Gazprom said in a statement.

    CNPC's pipe-building unit, China Petroleum Pipeline, will carry out the construction, Gazprom said.
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    Petrobras Rises Most in Three Weeks After Cutting Workforce

    Petrobras rose the most in three weeks after completing a voluntary dismissal program to help reduce debt and adjust operations to lower oil prices.

    The dismissal plan ended on Aug. 31 with 11,704 employees signing up, Petrobras said in a statement Friday, adding that the numbers may change. It is in line with the offshore-producer’s original plan to save 33 billion reais ($10 billion) through 2020 by shedding 12,000 jobs. The initial severance cost is estimated at 4 billion reais, it said.

    Shares rose as much as 4.5 percent, the most since Aug. 11, and were up 3.7 percent at 13.88 reais at 11:32 a.m. local time. The company has slashed investments and kept domestic fuel prices stable amid the oil rout to improve cash flow and cut the largest debt load in the industry. The administration of President Michel Temer has pledged to reduce government interference in the state-run producer and implement policies aimed at lowering costs and increasing competition in the industry.

    Petrobras’s stock price has doubled in price this year after sinking to the lowest since 1999 in January.

    The country’s main oil union says the cuts are causing a brain drain at a company that needs experienced staff to extract crude from deep waters of the Atlantic Ocean. In 2013, Petrobras and its subsidiaries had a payroll of about 86,000.

    "The company is giving up a work force of 20,000 in only two, three years. You would need more than a decade to restore this kind of knowledge," Jose Maria Rangel, a leader at the FUP oil workers’ federation, said in a phone interview from Rio.

    Petroleo Brasileiro SA, as it is formally known, said it has implemented management training programs to guarantee the continuity and safety of operations as it cuts staff.
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    Woodside buys Scarborough stake from BHP Billiton

    Australian energy company Woodside has entered into binding sale and purchase agreements to acquire half of BHP Billiton’s Scarborough area assets in the Carnarvon Basin, located offshore Western Australia.

    The acquisition includes a 25% interest in WA-1-R and a 50% interest in WA-62-R, which together contain the Scarborough gas field. Woodside will also acquire a 50% interest in WA-61-R and WA-63-R which contain the Jupiter and Thebe gas fields.

    Woodside will operate WA-61-R, WA-62-R, and WA-63-R. ExxonMobil is the operator of WA-1-R.
    Woodside will pay BHP Billiton $250 million on completion of the transaction and a contingent payment of $150 million upon a positive final investment decision to develop the Scarborough field. The effective date of the transaction is July 1, 2016.

    According to Woodside, the Scarborough area assets include the Scarborough, Thebe, and Jupiter fields, which are estimated to contain gross 8.7 trillion cubic feet of gas resources at the 2C confidence level. Woodside’s net share of the resources is estimated to be 2.6 trillion cubic feet of gas.

    Woodside CEO Peter Coleman said that adding Carnarvon Basin volumes to the Australian portfolio would complement Woodside’s growth strategy and leverage the company’s deepwater and LNG capabilities.

    “We look forward to working with ExxonMobil and BHP Billiton following completion of the transaction to progress commercialisation of these world-class resources,” he said.

    BHP Billiton President Operations, Petroleum, Steve Pastor said: “BHP Billiton considers the proposed sale to Woodside to be a positive outcome for all parties. Woodside is a strong partner with substantial LNG experience in Western Australia, and we believe they will contribute positively to the future development of the Scarborough resources.”

    Completion is subject to pre-emption rights and customary regulatory approvals and is targeted by year end 2016.
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    Oil rig count sees small hike despite rigs evacuating the Gulf

    Fourteen drilling rigs were added to onshore oil and gas fields this week, while seven offshore rigs were evacuated the Gulf of Mexico as Tropical Storm Hermine took shape.

    The net gain for the amount of rigs actively drilling is eight rigs — including the addition of one inland waters rig — with seven of the net additions drilling for natural gas and one primarily seeking oil, according to the weekly count from the Baker Hughes oilfield services firm. However, the oil rig count’s net gain is skewed because most of the evacuated offshore rigs likely were drilling for oil.

    The biggest gains came in Texas, Oklahoma and Wyoming. Texas’ Permian Basin and Eagle Ford shale regions each saw three rigs added this week. Nearly half of the nation’s active rigs are in Texas — 241 out of 497 rigs. The Permian alone accounts for 202 active rigs.

    The oil rig count stayed flat in the week prior after eight previous weeks of increases.

    The total rig count now is 497, up from an all-time low of 404 in May, according to Baker Hughes. Of the total, 407 of them are primarily drilling for oil. But the oil rig count is down 75 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.
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    Texas drillers added jobs in July for first gain in 19 months

    Drillers across the state added about 100 new jobs in July, the first monthly gain since the Texas energy industry’s employment figures began falling dramatically in January 2015, economist Karr Ingham says.

    Texas upstream companies – oil producers, service companies and rig contractors – had shed more than 102,000 jobs since the beginning of last year, piling on losses month after month, but July’s small increase may be a sign things are finally turning around for the state’s energy workforce.

    “It’s not spectacular, but it’s a gain rather than a loss,” Ingham said. Ingham has not yet released the Texas Petro Index, a monthly report he prepares for the state’s oil industry. “I believe it’s a recovery in the making, but it’s a slow, frustrating and torturous one because prices aren’t going up as much as most people hoped. But the first thing was the bleeding had to stop, and it looks like we may be at that point.”

    A worker waits to connect a drill bit on Endeavor Energy Resources’s Big Dog Drilling Rig 22 in the Permian basin in 2014. (Brittany Sowacke/Bloomberg)

    Ingham noted the Texas Petro Index, which measures drilling and related activity in Texas, still contracted in July. August and September may yield bigger bumps in drilling activity metrics and jobs, though: Oil companies have resurrected 68 rigs across Texas in the past four months, bringing the state’s rig count to 241. Drilling permits in Texas also are on the rise.

    In the downturn, falling oil prices forced Texas oil companies to set down 733 rigs across the state as they cut jobs by the thousands. It was “a set of falling dominos,” Ingham said. “They’re being set up again.”

    Ingham, an Amarillo economist who studies the upstream oil industry in Texas, makes adjustments to Texas Workforce Commission numbers to reach his conclusions, stripping out some official figures associated with statewide mining jobs.
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    Permian Fields Profitable With Oil Below $30, Pioneer CEO Says

    Oil wells in the biggest U.S. oil field remain profitable even when crude prices drop below $30 a barrel, said Pioneer Natural Resources Co. Chairman and Chief Executive Officer Scott Sheffield.

    The so-called break-even price for drilling in the Permian Basin in Texas is “sub-$30” a barrel, Sheffield said during a Bloomberg Television interview on Friday. For shale drillers such as Irving, Texas-based Pioneer, “break-even” typically means operating costs plus a 10 percent or 15 percent return.

    Pioneer closed a $435 million acquisition of drilling rights across 28,000 acres in the Permian region from Devon Energy Corp. earlier this week. When the transaction was announced in June, Pioneer said wells drilled in the acquired assets will generate returns of 50 percent or more.
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    Canada’s Small-Cap Energy Stocks Set to Outpace U.S. in Catch-Up

    Canadian small-cap oil and gas stocks are poised to outperform U.S. peers as their moves to cut costs and lower debt begin to gain traction with analysts and investors.

    Analysts have increased their price targets for Canadian producers with market valuations of up to C$2 billion ($1.5 billion) more than equivalent U.S. peers. Canadian companies are expected to gain 21 percent over the next 12 months, compared with 13 percent for U.S. competitors, according to data compiled by Bloomberg.

    That valuation gap has made Canadian companies including Bonterra Energy Corp., Torc Oil & Gas Ltd. and Vermilion Energy Inc. attractive buys relative to U.S. peers, said Swanzy Quarshie, a money manager at Sentry Investments in Toronto.

    “There’s a lot more value in Canada because Canadian businesses’ capital requirements have gone down significantly,” said Quarshie, who helps oversee C$18 billion in assets. “The stocks are really well priced.”

    The higher price targets suggest the Canadian energy stocks may reverse six months of lagging returns. U.S. stocks have gained 34 percent more than their Canadian peers in the six months to Aug. 31, according to the data, which analyzed 59 Canadian companies.

    Two years into a commodity-price downturn, executives in Canada’s oil and gas hub have sold assets, raised equity and looked for ways to scale back costs. Investment since the slump began in 2014 has been slashed the most since 1947, according to the Canadian Association of Petroleum Producers.

    Low Costs

    Canadian companies remember the importance of controlling debt and keeping costs low from the collapse of petroleum prices after 2008 and the recession that followed, said Robert Mark, director of research at MacDougall, MacDougall, McTier in Toronto, which oversees C$6 billion in assets.

    “There’s definitely better upside on the Canadian side,” he said “The Canadian guys learned their lesson post-2008.”

    Investors gave a boost to U.S. shale producers over the past two quarters as crude almost doubled from a 12-year low in February to almost $50 a barrel in June. That encouraged some companies including Oklahoma City-based Continental Resources Inc. to return crews to finish wells left uncompleted when prices began to tumble two years ago.

    Continental’s shares have more than doubled over the past six months, while Oasis Petroleum Inc. of Houston has gained 69 percent. Canadian share gains have been modest in comparison.

    Vermilion Gains

    Vermilion has risen 26 percent over the past six months. The company, while posting a loss in the second quarter, has targeted as much as C$50 million in cost reductions and has lowered per unit expenses by 18 percent. Vermilion has exposure to global prices and “flexibility to allocate capital,” said Kyle Preston, a company spokesman. The producer expects a “modest” increase in spending next year, he added.

    Torc Oil & Gas Ltd. has gained 21 percent over the same period. The Calgary-based producer arranged financing worth C$75 million as part of a bought deal, has a bank facility of C$400 million and has hedged as much of 60 percent of its production against commodity price fluctuation. Chief Financial Officer Jason Zabinsky wasn’t available to comment.

    “The Canadian oil and gas space continues to look more attractive than the U.S. space on most 2017 metrics,” Chris Feltin, an analyst at Macquarie in Calgary, wrote in a note. “Many companies have taken dramatic steps over the last year to address their leverage issues, including asset sales, more focused capex programs, and opportunistic hedging.”

    Birchcliff, which has gained 74 percent in the past six months, is the “most attractive name” in North America, Feltin said. The company in July purchased assets from Encana Corp. in Alberta’s Gordondale region, giving a boost to the stock whose largest shareholder is resource investor Seymour Schulich.

    Price Sensitive

    Smaller oil producers are generally more responsive to fluctuations in commodity prices than larger companies such as Suncor Energy Inc. and their prices have more potential to rise along with petroleum, analysts said.

    Still, there may yet be trouble ahead for Canadian petroleum companies. The rebound in U.S. crude prices from a low of about $26 a barrel this year hasn’t pushed oil high enough for most companies to start investing in new production.

    Oil has recovered almost 70 percent from the February doldrums, and recently fell below $45. Most companies say they need prices to rise to between $50 and $60 before new investment can be considered.

    In addition, investors have raised concerns about a sinking Canadian dollar, pipeline access and increased regulation. Those have helped keep stock gains in check.

    For now, if oil continues its slow climb back to more than $50 by the first quarter of 2017, as forecast by analysts surveyed by Bloomberg, Canadian producers’ parsimony and careful approach will pay off.

    “There’s more impetus for Canadian companies to be prudent,” said Quarshie. “They’re at the back of the line in getting product to market.”
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    Ohio 2Q16 Utica Production – Who Produced O&G Where & How Much

    The Ohio Dept. of Natural Resources (ODNR) has just issued production numbers for the second quarter of 2016. 

    Compared with second quarter 2015, production numbers in 2Q16 were a mixed bag. Oil production in 2Q16 dropped by 19%–that’s the bad news. But natural gas production from shale is up 51% year over year–that’s the good news. 

    CONSOL Energy’s CNX Gas division had the #1 producing gas well in Monroe County, the Brewster well, producing 1.6 billion cubic feet of natgas during 2Q16. 

    Eclipse Resources had the #1 producing oil well in Guernsey County, the monster Purple Hayes, which produced an astonishing 71,072 barrels of oil in 2Q16. 

    Below we have the ODNR’s high level overview of the numbers, along with MDN’s own exclusive analysis showing: the top 25 producing gas wells, the top 25 producing oil wells, and then the top 25 gas and oil wells as ranked by average production per day.

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    Rice Energy Prime Prospect for M&A Buyout?

    One of the lowest cost producers that gets some of the highest prices for its natural gas in the Marcellus/Utica is Rice Energy.

    The difference between what it costs Rice to produce gas ($0.90/thousand cubic feet, or Mcf) verses what they sell it for (an average $3.12/Mcf) means Rice makes a whopping 247% internal rate of return, or IRR–which is THE most profitable driller among 10 of the largest Marcellus/Utica drillers surveyed

    The Rice boys’ stellar performance has not gone unnoticed by analysts at investment and research firms. In fact, one such analyst, from Wolfe Research, says Rice “could be” a target for takeover/buyout by a larger competitor.

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    Enbridge announces delay of Sandpiper Pipeline Project

    Enbridge Inc, Canada's largest pipeline company, said it will withdraw its regulatory applications pending with the Minnesota Public Utilities Commission for the Sandpiper Pipeline Project.

    The long-planned and often-delayed Sandpiper pipeline project will be put on hold until crude oil production in North Dakota recovers sufficiently to support the pipeline's capacity, Enbridge said on Thursday in a statement.

    This comes against the backdrop of a dramatic decline in oil prices that has weighed on production in North Dakota's Bakken play.

    The company also said its $1.5 billion investment or 27.6 percent stake in the Bakken pipeline system, will be jointly funded 75 percent by Enbridge and 25 percent by subsidiary Enbridge Energy Partners.

    The Enbridge-Marathon Petroleum Corp joint venture will pay $2 billion to Energy Transfer Partners and Sunoco Logistics Partners for a 49 percent stake in the holding company that owns 75 percent of the system.

    Phillips 66 owns the remaining 25 percent of the Bakken Pipeline System. Once in operation, Sunoco Logistics will be the pipeline operator.
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    Oklahoma rocked by one of its strongest earthquakes

    One of the strongest earthquakes ever recorded in Oklahoma rattled the area northwest of Pawnee on Saturday, fuelling growing concern about seismic activity linked to energy production, a federal agency said.

    The magnitude 5.6 quake, which was felt from South Dakota to Texas, prompted the closure of some 35 wastewater disposal wells in the area, officials said.

    It shallow quake struck 9 miles (14 km) northwest of Pawnee in north-central Oklahoma at 7:02 a.m. CDT (1302 GMT). Its 5.6 magnitude matched a 2011 earthquake for the biggest on record in the state, the U.S. Geological Survey said.

    There were no immediate reports of injuries in Pawnee, where about 25 percent of the residents are Native Americans. Damage in the town appeared to be minor, and the Pawnee Nation declared a state of emergency for its area.

    Stonework litters the sidewalk outside an empty jewelry store at the corner of Sixth and Harrison in Pawnee, Oklahoma, U.S. September 3, 2016 after a 5.6 earthquake struck near the north-central Oklahoma town. REUTERS/Lenzy Krehbiel-Burton

    "You heard it before it happened," Pawnee resident Jasha Lyons Echo-Hawk said. "Watching my drawers all shake out and my headboard rattle, it felt like I was watching 'Paranormal Activity.' It felt like I was in a movie."

    Pawnee Mayor Brad Sewell said the tremor lasted nearly a minute, far longer than previous ones that lasted only a second or two. Part of the facade of an early 20th-century bank building fell into a downtown street, he said.

    The earthquake, which was only 4.1 miles (6.6 km) deep, could fuel concerns about the environmental impact of oil and gas drilling, which has been blamed for a massive spike in minor to moderate quakes in the region.

    Following the tremor, the state Corporation Commission ordered 35 wastewater disposal wells within a 500-square-mile (1,295-square-km) area to shut down, Governor Mary Fallin said via Twitter.

    Oklahoma has been recording 2-1/2 earthquakes daily of magnitude 3 or greater, a seismicity rate 600 times greater than before 2008, the Oklahoma Geological Survey (OGS) said.

    Oklahoma's economy is heavily dependent on energy production, which accounts for one of every four jobs in the state.

    Oklahoma geologists have documented links between increased seismic activity in the state and the injection into the ground of wastewater from oil and gas production, according to a report from a state agency last year.

    The drilling technique known as hydraulic fracturing, or "fracking," also generates large amounts of wastewater. The OGS report said fracking is responsible for only a small percentage of the total volume of injected wastewater.

    Zachary Reeves, a seismologist with the USGS National Earthquake Information Center in Golden, Colorado, said the agency had received reports of the Oklahoma quake from South Dakota, Wisconsin, Kansas, Missouri, Arkansas and Texas.
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    Alternative Energy

    Blowing bubbles to catch carbon dioxide

    Sandia National Laboratories and the University of New Mexico (UNM) have created a powerful new way to capture carbon dioxide from coal- and gas-fired electricity plants with a bubble-like membrane that harnesses the power of nature to reduce CO2 emissions efficiently.

    The CO2 Memzyme design captures carbon dioxide from coal-fired power plants and is 10 times thinner than a soap bubble. CO2 is a primary greenhouse gas, and about 600 coal-fired power plants emitted more than a quarter of total U.S. CO2 emissions in 2015.

    When you include emissions from natural gas plants, the figure goes up to almost 40 percent.

    Current commercial technologies to capture these emissions use vats of expensive, amine-based liquids to absorb CO2. This method consumes about one third of the energy the plant generates and requires large, high-pressure facilities.

    The Department of Energy has set a goal for a second-generation technology that captures 90 percent of CO2 emissions at a cost-effective $40 per ton by 2025. Sandia and UNM’s new CO2 Memzyme is the first CO2 capture technology that could actually meet these national clean energy goals. The researchers received a patent for their innovation earlier this year.

    It’s still early days for the CO2 Memzyme, but based on laboratory-scale performance, “if we applied it to a single coal-fired power plant, then over one year we could avoid CO2 emissions equivalent to planting 63 million trees and letting them grow for 10 years,” said Susan Rempe, a Sandia computational biophysicist and one of the principal developers.

    Membranes usually have either high flow rates without discriminating among molecules or high selectivity for a particular molecule and slow flow rates. Rempe; Ying-Bing Jiang, a chemical engineering research professor at UNM; and their teams joined forces to combine two recent, major technological advances to produce a membrane that is both 100 times faster in passing flue gas than any membrane on the market today and 10-100 times more selective for CO2 over nitrogen, the main component of flue gas.

    By combining a water droplet loaded with CO2 enzymes in an ultrathin nanopore on a flexible substrate, researchers at Sandia National Laboratories realized the first technology that meets and exceeds DOE targets for cost-effective CO2 capture.Stabilized, bubble-like liquid membrane

    One day Jiang was monitoring the capture of CO2 by a ceramic-based membrane using a soap bubble flow meter when he had a revolutionary thought: What if he could use a thin, watery membrane, like a soap bubble, to separate CO2 from flue gas that contains other molecules such as nitrogen and oxygen?Thinner is faster when you’re separating gases.

    Polymer-based CO2 capture membranes, which can be made of material similar to diapers, are like a row of tollbooths: They slow everything down to ensure only the right molecules get though. Then the molecules must travel long distances through the membrane to reach, say, the next row of tollbooths. A membrane half as thick means the molecules travel half the distance, which speeds up the separation process.

    CO2 moves, or diffuses, from an area with a lot of it, such as flue gas from a plant that can be up to 15 percent CO2, to an area with very little. Diffusion is fastest in air, hence the rapid spread of popcorn aroma, and slowest through solids, which is why helium slowly diffuses through the solid walls of a balloon, causing it to deflate. Thus, diffusion through a liquid membrane would be 100 times faster than diffusion through a conventional solid membrane.

    Soap bubbles are very thin – 200 times thinner than a human hair – but are fragile. Even the lightest touch can make them pop. Jiang and his postdoctoral fellow Yaqin Fu knew they would need to come up with a way to stabilize an ultra-thin membrane.Luckily, his colleague Jeff Brinker, another principal developer who is a Sandia fellow and regent’s professor at UNM, studies porous silica.

    By modifying Brinker’s material, Jiang’s team was able to produce a silica-based membrane support that stabilized a watery layer 10 times thinner than a soap bubble (JACS, "Sub-10 nm Thick Microporous Membranes Made by Plasma-Defined Atomic Layer Deposition of a Bridged Silsesquioxane Precursor"). By combining a relatively thick hydrophobic (water-fearing) layer and a thin hydrophilic (water-loving) layer, they made tiny nanopores that protect the watery membrane so it doesn’t “pop” or leak out.

    Enzyme-saturated water accelerates CO2 absorptionEnzymes (the –zyme part of Memzyme; the mem– comes from membrane) are biological catalysts that speed up chemical reactions. Even the process of CO2 dissolving in water can be sped up by carbonic anhydrase, an enzyme that combines CO2 with water (H2O) to make super soluble bicarbonate at an astounding rate of a million reactions per second. This enzyme can be found in our muscles, blood and lungs to help us get rid of CO2.
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    Wind Power Curtailment in China Expected to Increase in Second Half of 2016

    Aggregate wind power curtailment across China grew to 32.3 billion kWh during the first seven months of 2016, an increase of 14.8 billion kWh over the same period of 2015, according to data from the National Energy Administration of China (NEA). The number was very close to the 33.9 billion kWh recorded for the whole of 2015. The country’s average wind power curtailment rate grew by 6 percentage points year on year to a record 21 percent.  

    In particular, wind power curtailment in the northwestern part of China was 15.5 billion kWh, representing an average curtailment rate of 38.9 percent. In three regions — Ningxia Hui Autonomous Region, Xinjiang Uyghur Autonomous Region and Inner Mongolia — the amount of curtailment for the first six months of the year was equivalent to or exceeded that recorded for the whole of 2015.  Curtailment in Gansu province surpassed that recorded for the first half of 2015. Several factors, including the amount of available heat supply for the upcoming winter and the decline in electricity load, point to the level of curtailment across the entire country showing a further rise during the second half of this year, according to industry analysts.

    Statistics show that China’s installed capacity of wind power as a result of the completion of new facilities grew by 9.03 GW to 138 GW during the first seven months of this year. Aggregate wind power production reached 120.9 billion kWh, a rise of 14.8 percent over the same period of 2015. July production jumped 25.9 percent year on year to 14.9 billion kWh.

    According to data from the NEA, the country’s grid-connected wind power capacity showed a year on year gain of 30 percent to 1.37 GW during the first half of 2016. Accumulated on-grid electricity from wind totaled some 120 billion kWh, a year on year rise of 23 percent, while the average utilization time of wind farms declined by 85 hours to 917 hours.

    In particular, wind power production in the northwestern part of China was 24.4 billion kWh during the first half of this year, accounting for 8.2 percent of the region’s total power production. Grid-connected wind power capacity also climbed by 0.4 GW to 37.4 GW, accounting for 18.7 percent of the total installed capacity. The region’s average utilization time of wind farms clocked in at 688 hours.

    Notably, Yunnan province ranked first across China in terms of the growth in grid-connected wind power capacity during the first half of this year, with grid-connected capacity jumping by 2.15 GW, followed by Jiangsu province with 0.68 GW, Jilin province with 0.61 GW, and Shandong province with 0.54 GW. Yunnan province, with average utilization time of 1,441 hours, laid claim to be the most productive region across the country, followed by Sichuan province with 1,377 hours, Tianjin with 1,266 hours and Fujian province with 1,166 hours. The poorest performers were Xinjiang with 578 hours, Gansu with 590 hours, Jilin with 677 hours and Ningxia with 687 hours.
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    Turkey formally announces nuclear energy agreement with China

    Turkey published in its official gazette a deal with China for cooperation in the peaceful use of nuclear energy on Friday, a step needed to open the way for China to potentially build Turkey's third nuclear power plant.

    The deal was originally signed in 2012 but such international agreements only go into effect in Turkey once they are published in the gazette.

    Russia is building Turkey's first nuclear plant, while a Japanese-French consortium will build its second in the north. China is among countries interested in building a third plant.
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    Interim waste water report prolongs uncertainty for K+S

    The interim results of a German environmental regulator's probe into waste water discharge by K+S will keep the potash mining company in limbo, with hundreds of thousands of tonnes of potential potash production at risk.

    Authorities in the city of Kassel, where K+S is headquartered, are working on a computer model to predict the impact on drinking water caused by K+S's facilities, and preliminary results from March this year pointed to unacceptably high salt levels, a spokesman for the regulator said.

    But the predictive model was unreliable at the time and is still being worked on, the spokesman for Regierungspraesidium Kassel cautioned.

    "It is everybody's goal" to refine the model and to decide whether K+S will receive a permit by the end of the year, when a preliminary approval scheme expires, he added.

    Weekly magazine Der Spiegel first reported the interim study results.

    The regulator has missed the initially expected November 2015 deadline to decide on whether to give K+S a permit to dispose of waste water via deep-well injection into porous layers of rock.

    That has left discharge into the Werra river as the only option, where K+S already faces other restrictions.

    Salty waste water emerges when potash ore is processed into fertilizer products.

    Under a preliminary permit, K+S has been forced to suspend production intermittently at major mines. It said last month it could not yet foresee when permanent approval would be given.

    That has dimmed its earnings prospects, with K+S warning at the time that full-year core profit would plunge by as much as three quarters, hurt also by weak global prices for potash.

    A K+S spokesman said the company was still addressing questions from the regulator and it remained convinced its request for waste water discharge was fully approvable.
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    Seaweed farming, a sudden slimy success, needs greener rules: U.N.

    Seaweed farming needs tighter regulation to limit damage to the environment after booming into a $6.4 billion business with uses in everything from sushi to toothpaste, a United Nations study showed on Sunday.

    Led by China, South Korea, Indonesia and the Philippines, seaweed's surge in recent years has seemed environmentally friendly since it needs no fertilisers and has created both jobs and food in remote coastal areas of developing nations.

    But emerging evidence shows that seaweed can sometimes cause harm and spread diseases and pests, the U.N. report said. One Asian seaweed brought to Hawaii has smothered some coral reefs by out-competing local plants.

    "There's very little regulation" in many nations, Elizabeth Cottier-Cook, lead author of the U.N. University study who also works at the Scottish Association for Marine Science, told Reuters.

    "You can take a plant from the Philippines and plant it in East Africa. There are pests, there are pathogens that can go along with that plant. There is no quarantine," she said.

    A damaging bacterial disease known as ice-ice, for instance, has spread with a red seaweed from the Philippines and infected new farms in nations such as Mozambique and Tanzania.

    Cuts in production caused by ice-ice caused losses estimated at $310 million in the Philippines alone from 2011 to 2013, according to the report.

    Globally, about 27.3 million tonnes of farmed seaweed were produced in 2014, worth $6.4 billion and up from almost nothing in 1970, the U.N. University said.

    Seaweed is used in foods such as soup, sushi wraps and spaghetti, as fertilisers and as feed for animals. Seaweed extracts are used in products from skin care to toothpaste.

    The report urged governments to learn from the pitfalls of other aquaculture businesses.

    A virus that infected farmed salmon in Norway in 1984, for instance, wiped out up to 80 percent of fish at some farms and led to tighter laws. A virus that harms shrimp has spurred some nations to ban imports from all but bio-secure hatcheries.

    Nidhi Nagabhatla, an author at the U.N. University's Canada-based Institute for Water, Environment and Health, said seaweed could have extra benefits such as helping combat global warming because plants soak up carbon dioxide from the atmosphere.

    The report recommended measures such as seed banks to help preserve stocks, better monitoring for disease, long-term investments and perhaps government-sponsored insurance schemes in case of natural disasters such as typhoons.
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    Precious Metals

    Russia's Polyus considering placing GDRs in London says CEO

    Russia's largest gold producer Polyus is considering placing global depository receipts (GDRs) in London in the future, its chief executive said on Friday, less then a year after it left the London market.

    Polyus, controlled by the family of Russian tycoon Suleiman Kerimov, delisted shares of its Jersey-registered parent company from the London Stock Exchange (LSE) in late 2015 amid Western sanctions imposed on Moscow.

    "We consider the possibility of placing depository receipts in (the) future," its Chief Executive Pavel Grachev told Reuters on the sidelines of a business conference in Vladivostok, when asked if the company could return to London.

    The company is preparing for the placement of 5 percent of its shares on Moscow Exchange as it needs to raise its free float to at least 10 percent from five percent to meet a requirement of Moscow Stock Exchange.

    Polyus is planning a public deal with either existing or new shares and the placement is expected towards the end of this year or early next year, Grachev said. The funds from the placement will go to Polyus.

    In the first half of the year, Polyus financed a $3.4 billion buyback of shares from its controlling shareholder. As a result its net debt jumped to $3.5 billion at the end of June, from $364 million at the end of 2015.

    Grachev said that Polyus did not see any need to refinance this debt now, adding "We have quite comfortable repayment schedule, the main weight of its is after 2021."

    The CEO also said that Polyus' 2016 gold production may exceed its previously announced range of 1.76-1.80 million of troy ounces.
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    Base Metals

    D-day looms for nickel market as top shipper checks on mines

    The global nickel market will discover the severity of the Philippines’mining audit next Thursday as PresidentRodrigo Duterte’s government presents the findings of the checkup and announces support for communities affected by any further suspensions. Benchmark prices surged.

    The audit in the world’s largest mined nickel supplier has been completed after 16 teams fanned out across the country to assess compliance with environment and welfare rules, according to Leo Jasareno, the official in charge of the examination. The results and community-support program will be presented by Environment Secretary Gina Lopez, Jasareno said in an interview in Manila.

    “It’s not about money, it’s about happiness,” saidEnvironment Undersecretary Jasareno, a former head of the mines bureau with almost four decades’ of experience in the industry. The government and Lopez “would not want to see a mine profitably operating but filled with complaints,” he said.

    The crackdown helped to lift nickel to the highest level in a year last month as some mines were suspended, tightening global supplies and fanning speculation that more significant disruption could follow. Cargoes from the Southeast nation are a vital source of nickel for China’s stainless-steel industry, and account for about 20% of global mined output. Duterte, a plainspoken politician who was sworn in June 30, has said his country can do without the mining industry entirely, while Lopez has also been a critic.

    “The administration would want only those who really practice responsible mining,” said Jasareno. “It’s a greater emphasis on environmental protection, more than anything else. More than anything, the president would want that theenvironment would not suffer, that the people would not suffer.”

    Nickel rallied as much as 1.3% to $10 035/t on the LondonMetal Exchange, and traded at $10 025 at 11:36 a.m. inManila, 14% higher this year. The metal peaked on Aug. 10 at $11 030 before giving up some of its gains as concern about the Philippine audit eased, with Citigroup Inc. saying the checkup has had only a modest effect.

    The probe comes after global nickel demand exceeded supply in the first half, with a deficit of 80 800 t compared with a surplus of 45 200 t in all of 2015, according to the World Bureau of Metal Statistics. Stockpiles in LME-tracked warehouses have fallen 16% to 369 096 t this year.

    So far eight nickel operations have been suspended in the audit as well as an earlier examination under the previous administration, according to Jasareno. UBS Group AGestimated these accounted for 10% of the country’s nickel output, or 2% of global supply, according to an Aug. 12 report.

    The country shipped 33.1-million t of ore in 2014 and 32.3-million last year, according to official data. Volume next year would depend both on the audit’s outcome and the response of miners to shifting prices, according to Jasareno, who said mines that were suspended may reopen if they fixed shortcomings.

    “They will have to retrofit, they have to prove that they can pass the grade,” he said. After a mine is suspended, the department will assess the situation and then make a decision on whether or not it can be lifted, he said.

    The government is optimistic that the drive to clean up the industry will act as lure to stimulate investment, rather than a deterrent. The Chamber of Mines of the Philippines has been advising members – at least four of which has been suspended – that they should follow all environmentalcompliance.

    “It’s a different way of attracting investors,” said Jasareno. “You are not attracting investors because of incentives. You are not attracting investors because of permits that can be easily secured. But you are attracting investments because investors are assured that when they put their money on the ground, there’s sustainability.”

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    Steel, Iron Ore and Coal

    Russia July coal output and exports rise on demand

    Both Russian coal output and exports rise in July, boosted by the Asian country's effort to expand its share of coal exports to Asian-Pacific markets, amid the slowing down demand in Western Europe.

    Russia produced 30.51 million tonnes of coal in July, rising 4.55% year on year and 4.75% month on month, showed the latest data from the Energy Ministry of Russian Federation.

    Over January-July, the country's coal output totaled 217 million tonnes, up 6.15% compared to the corresponding period last year.

    In July, Russia exported 13.85 million tonnes of coal, increasing 4.71% from a year ago and edging up 0.26% from June.

    In the first seven months this year, total coal exports of the country gained 7.44% on the year to 92.93 million tonnes.

    Analysts attributed the rises to construction of port facilities and affiliated railways in 2013-15, which helped Russian Far East out of transport woes in exporting coal.

    In July, Russian coal shipments to China reached 1.98 million tonnes, rising both on year and on month for the third straight month. The volume surged 133% from July in 2015 and increased 48% from June.

    South Korean imports of Russian coal rose 17.98% year on year and 32.44% month on month to 2.58 million tonnes in July, hitting a record high of the year.

    Meanwhile, Japan imported 120,200 tonnes of coal from Russia, falling 13.86% from June, after monthly rises of 78.36% and 45.53% in May and June, respectively.

    Russian coal exports may continue to rise, supported by recovering demand from Asia-Pacific region.
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    Hubei to close 124 coal mines in 2016

    Hubei to close 124 coal mines in 2016

    Central China's Hubei province planned to close 124 coal mines in 2016, in response to the government-led capacity cut policy to tackle the overcapacity in domestic coal industry, said the province in its latest notice.

    The province will make efforts to slash coal capacity of 8 million tonnes per annum (Mtpa) by closing 80-100 mines in the next three to five years, according to a notice released on August 3.

    The de-capacity target was further divided, with 4 Mtpa, 2 Mtpa and 2 Mtpa of capacity cuts to be completed in 2016, 2017 and 2018, respectively, said the notice.

    Over the next three to five years, 15,429 laid-off coal workers in the province will be resettled.
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    China coal exports from Newcastle terminals slump in Aug

    Australian coal exports from the Port Waratah Coal Services (PWCS) terminals (Carrington and Kooragang) at Newcastle to China plunged to 549,000 tonnes in August, PWCS said in a performance report on September 1.

    The volume was down from 1.80 million tonnes in July — which was the most shipped since January 2015, when 2.16 million tonnes was sent, as well as almost half the year-to-date monthly average of 1.07 million tonnes, data from PWCS showed.

    The coal terminals exported 8.59 million tonnes of coal in August, down from 9.31 million tonnes in July.

    Of this, 3.97 million tonnes were shipped to Japan, according to the data, down from 4.23 million tonnes in July, and the lowest monthly volume since April 2015. South Korea received 800,000 tonnes compared to 1.30 million tonnes in July, which was also the lowest monthly volume since April 2015.

    After two months of no shipments, India was sent 80,000 tonnes, which is in line with the year-to-date monthly average, PWCS data showed. Exports to Taiwan rose from 839,000 tonnes in July to 1.39 million tonnes in August, it said.

    Of the total shipments in August, 86% were thermal coal and the remainder was coking coal, PWCS said.

    Over January-August, PWCS shipped 71.30 million tonnes of coal, which is an annualized rate of 109.9 million tonnes, up from a rate of 107.4 million tonnes for the same period last year, the operator said.

    Newcastle port has another coal terminal operated under the Newcastle Coal Infrastructure Group banner that does not publish regular information on its shipping data.

    The NCIG terminal has a capacity of 66 million tonnes per year and is operated by five coal producers including BHP Billiton, Peabody Energy and Whitehaven Coal.
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    Brazil's August iron ore exports rise 27% on year: ministry

    Brazilian iron ore shipments amounted to 34.5 million mt in August, up 27.2% from 27.12 million mt in the year-ago month, Ministry of Development and Trade data showed Friday.

    The overall sales value increased 29.3% to $1.25 billion FOB from $971.29 million FOB a year earlier, as the average price increased to $36.40/mt FOB from $35.81/mt FOB.

    Compared to July, Brazil's iron ore exports increased 14.1% from 30.25 million mt, while the sales value rose 26% from $996.43 million FOB.
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    China Aug steel sector PMI slid to 50.1

    The Purchasing Managers Index (PMI) for China's steel industry slid to 50.1 in August, compared with 50.2 in the previous month, showed data from the China Federation of Logistics and Purchasing (CFLP).

    It, however, posted the second consecutive reading above the 50-point mark that separates growth from contraction on a monthly basis, indicating an improvement of domestic steel industry amid the accelerated de-capacity campaign.

    In August, the steel industry output sub-index was 50.5, gaining 0.4 from 50.1 in July.

    The new orders sub-index reached 52.1, compared with 50.2 in the previous month, encouraged by rising steel prices amid the national capacity cut drive.

    The purchase price index bounced up from 55.3 in June to 61.4 in August, the highest level in recent four months, indicating increasing demand for steel-making materials from steel mills.

    In August, the market sentiment was unexpectedly bullish, mainly boosted by increasing exports and falling production amid several checks made by central environmental panels and strict measures at Tangshan to improve air condition.

    China's steel prices are likely to further go up in the next two months, as the demand from end users will probably rebound in peak season, and oversupply may be properly curbed following the stricter enforcement of the national capacity cuts policy in the rest months of this year.
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