Mark Latham Commodity Equity Intelligence Service

Friday 28th October 2016
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    Oil and Gas

    Steel, Iron Ore and Coal


    Recovering Anglo American sticks to asset sales but with less haste

    Shares in Anglo American are up more than 200 percent this year, like prices of the coking coal it mines, and yet the group is sticking to an overhaul accelerated when commodity markets were rock bottom and it was in deep trouble.

    Now that Anglo American is the best performing blue chip on the London Stock Exchange and some minerals have rebounded, shareholders want the firm to achieve top prices as it sells swathes of its bulk commodities business under a strategy of concentrating on high value minerals.

    The global miner hatched the strategy three years ago. However, it needed to speed up the asset sales and job cuts last year, when its shares dived 75 percent as investors worried about the group's ability to cope with a heavy debt burden during the commodity slump.

    Since last December's announcement that Anglo American would offload three-fifths of its assets and focus on diamonds, platinum and copper, the rally in bulk commodity prices has transformed the market mood.

    Bulk commodities such as coal and iron ore are generating cash for Anglo American, and shareholders are demanding that these assets are disposed of at high prices - or not at all.

    Chief Executive Mark Cutifani rules out a fire sale and says Anglo American will reduce its portfolio of businesses at its own pace, agreeing deals when the price is right.

    "We said at the outset in 2013 that we needed to focus the portfolio. So, the asset strategy hasn't changed, but we needed to accelerate at the end of 2015," Cutifani told Reuters this week. "That is what we are doing and we are progressing pretty well to that plan."

    Questioning of the divestment policy intensified after the appointment in September of a new chief financial officer with a track-record at iron ore giant Fortescue (FMG.AX) - even though iron ore is one of the assets Anglo American says is no longer central to its portfolio.

    Robust production results this week reinforced the view that the firm has less need to sell assets that are generating cash.

    The group's top shareholder, South Africa's state-owned Public Investment Corp, is critical. "The PIC is not in favor of Anglo American's asset sale plan in its current format. Talks are ongoing to see what's best of all for shareholders," a source familiar with the fund's thinking told Reuters.

    PIC fears that much of Anglo American's South African assets will be sold piecemeal to foreign buyers. "The PIC would like to see a break-up where Anglo creates an Africa-focused local company, owned and run by South Africans, and keeps its overseas operations," the source said.

    A PIC spokesman had no immediate comment.


    A year ago, Anglo American's debt reached $12.9 billion, and slumping commodity prices had wiped out its profits. In December it suspended dividend payments until the end of 2016.

    Now the firm says it is on track to reduce the figure to less than $10 billion by the end of the year. Low interest rates can also allow it to cut servicing costs by rolling over debt.

    Anglo American is also making progress on another measure of balance sheet strength in the capital-intensive mining sector - the ratio of its net debt to its earnings before interest, tax, depreciation and amortization (EBITDA).

    This is around 2.4 times, it says, in line with its target of a ratio sustainably below 2.5.

    Further asset sales could improve the firm's credit-worthiness. The Moody's agency moved Anglo American's rating up a notch in September, although it remains two notches below investment grade. Further upgrades could follow "greater visibility" on disposals of iron ore and coal, Moody's said.

    "We expect the company's net leverage to decline to around 2x net debt/EBITDA at the end of this year," Elena Nadtotchi, a vice president at Moody's, said.

    "A sustained increase in net leverage to above 2x net debt/EBITDA could lead to a downgrade, while a further decline in net leverage would be credit positive."

    Many analysts also say Anglo American's disposal strategy makes sense longer term, but the urgency has disappeared.

    "The risk of selling assets at the bottom of the commodity price cycle - and thereby crystallizing losses - has to a significant extent dissipated," analysts Bernstein said in a note this month.


    The most imminent sale is meant to be of Anglo American's Australian coal assets to a group headed by private equity firm Apollo (APO.N), sources close to the deal say.

    This has been held up by price negotiations and analysts expect any agreement to include an escalator clause under which Anglo American would get more if the coal market keeps rising.

    Richard Knights, analyst at Liberum, said a price of say $1.5 billion would equate to about 9 months' cash flow at current coal prices. "I would be surprised if they did a deal without some sort of price escalator," he said.

    Together with Anglo American's other big sale this year of its niobium and phosphates business to China Molybdenum for $1.5 billion, the coal deal would take it to at least the lower end of its 2016 target of selling assets worth $3-$4 billion.


    While placing the focus on a high-value core, Anglo American always said bulk operations, such as iron ore and coal, would be managed, for "cash generation or disposal over time".

    For now, they are generating cash. Coking coal has sold for well over $240 a ton, up 210 percent this year. Australian thermal coal spot prices have hit $100 per ton for the first time since 2012, a nearly 100 percent rise since June.

    Anglo American estimates a $10 per ton price increase in coking coal creates a $142 million rise in pre-tax earnings, while for thermal coal it leads to an extra $54 million to $200 million, depending on the region.

    Iron ore's gains are smaller at around 30 percent, but margins are high. .IO62-CNI=SI A $10 per ton rise adds $491 million to pre-tax earnings, Anglo American calculates.

    Prices of Anglo American's core commodities have by comparison barely moved, but their time will come, analysts predict.

    They are expected to rise late in the commodity cycle when other raw materials fall as China, for instance, switches from smelting new metal, which uses high volumes of coking coal and iron ore, to recycling scrap.

    Copper and platinum are also regarded as plays on a more environmentally sustainable future. Copper, as the best conductor of electricity, could benefit from grid upgrades to carry power from renewable sources, while platinum is used in catalytic converters to make cars less polluting.

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    Coal rally, cost cuts help Teck Resources swing to profit

    Canada's largest diversified miner, Teck Resources logged Thursday better-then-expected quarterly revenuethanks mainly to a sustained rally in coking coal as well as the firm’s cost-cutting measures implemented in the three months to Sept. 30

    The Vancouver-based company, the best-performing Canadian stock in seven years, swung to a profit of Cdn$234 million ($174.9 million), or 40 cents per share in third quarter of the year, compared with a loss of Cdn$2.15 billion, or C$3.73 per share, in 2015.

    Teck’s shares have climbed five-fold to a market value of $16.2-billion, the biggest year-to-date gain of any Canadian stock since 2009.

    The miner, with operations and projects in Canada, the US, Chile and Peru, has risen five-fold on the S&P/TSX Composite Index to a market value of $16.2-billion, the biggest year-to-date gain of any Canadian stock since 2009.

    Teck’s bonds are also the best-performing debt on the Bank of America Merrill Lynch U.S. High Yield Index, returning 104%,according to Bloomberg TV.

    Key to the company’s success has been the ongoing rally of coking coal prices, as it is the largest producer of the steel-making kind in North America. Only last week, the commodity reached $230 a tonne, up from $75 a tonne just a few months ago.

    As a result, Teck has lifted its production forecast for the year. Now it expects to generate about 27-27.5 million tonnes, compared with its previous forecast of 26-27 million tonnes.

    Since early 2015 the company has been implementing a series of cost-cutting measures, including placing projects in the back burner and the reduction of about 9% its global workforce, through a combination of layoffs and attrition.

    Now that its finances have improved, Teck said it expected unit costs to rise in the fourth quarter as it plans to hire more contractors and use higher-cost equipment to maximize production while the bonanza brought by skyrocketing met coal and zinc prices lasts.

    Oil sands progress

    Teck is speeding ahead with its Fort Hills Oil sands project, based in Alberta, and is expected to start production in the second half of 2017. The company has committed $2.9 billion to the project, which is reported to be over 70% complete.

    The investment generated some uncertainty among investors earlier this year, especially after the development of the site was delayed back in May due to wildfires near the project location.

    Teck owns 20% of the 180,000 barrel-per-day project, which is majority-controlled by Suncor Energy (TSX, NYSE:SU), Canada's largest oil and gas producer.
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    Germany votes against the internal combustion engine

    Germany’s lower house of parliament, the Bundesrat, voted in October to ban the sale of cars with internal combustion engines by 2030. It is a resolution with no binding implications, but it did garner cross-party support. It is certainly a powerful statement of intent.

    Seen from the capitals of the major oil exporting countries, it should be viewed with alarm, not that it will necessarily be achieved, but as a reminder that in combination with the technologies to deliver them, environmental targets only ever seem to get more ambitious in scope and in timing.

    For oil producers, the idea that some oil will be left in the ground forever is a strong motivation to produce now. Revenue maximization no longer lies in controlling supply to support prices over time because time is running out. There is no point husbanding resources for future generations that reject their use.

    But, in the short-term, the opposite appears the case, and OPEC is again considering output controls. This is for two reasons: the financial pain caused by low prices for economies far too heavily reliant on oil; and because producers are near the limits of current output capacity. Iraq and Iran are close to full capacity, Russia is pumping at record post-Soviet levels and Saudi output remains elevated. They are willing to ‘freeze’ only because they cannot produce much more.

    Yet, just as OPEC edges towards an agreement, both Iran and Iraq are seeking billions of dollars of investment capital, which should result in millions of barrels of new oil production from relatively low-cost, conventional resources. Both already contest the limitations that an OPEC agreement would place upon their future development.

    One of the most lasting legacies of US shale oil will thus be the rejuvenation of conventional Middle Eastern oil production, and the world’s dependence upon it. This is because US shale forced Saudi Arabia into open market competition, because climate change concerns have speeded up the peak oil demand clock, and because protecting resources with closed markets hasn’t delivered the desired growth.

    This is a huge sea-change. Lack of access to resources was a permanent refrain of the oil industry in the early 2000s, one that was made all the more intense by the rise of Asian National Oil Companies as they started to compete for scarce assets with the western oil majors. This resulted in rampant asset value inflation and a huge shift in the balance of power between resource owner (the state) and would-be developers.

    That pendulum has now swung back with a vengeance.

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    FT: Copper and China.

    Copper’s reputation held as China industrialised and became the world’s biggest consumer of the metal. Indeed, a crash in copper prices in January 2015 raised concerns among investors about a slowing in the world’s second-largest economy.

    This year, however, copper’s antennas appear less reliable. Despite Beijing trying to turbocharge the economy with credit, the copper price is only up about 5 per cent to $4,700 a tonne, even though it is widely used in construction and property.

    By contrast, prices for steel and iron ore have jumped more than 40 per cent. And coal prices have outdone that with coking coal, which is used in steel, having more than doubled on the Dalian Commodity Exchange.

    So which commodity is sending accurate signals about China’s growth? Yvonne Zhang, director of metal products at CME Group in Singapore, says there are good reasons why coking coal and scrap steel may be better barometers of the Chinese economy right now.

    For one, they are consumed quickly so reflect immediate demand unlike copper which does not corrode so it can be easily parked in a warehouse.

    Strong imports of copper into China this year was not all consumed but was left in stockpiles that are still weighing on the price of the metal.

    That has sent China’s retail investors into steel, iron ore and coal futures. This year the daily trading volumes in iron ore futures have averaged $7bn, according to Goldman Sachs.

    Copper also has a weak correlation with the so-called Li Keqiang index, a popular barometer of China’s growth based on remarks by China’s premier that he follows electricity production, rail shipments and total credit growth as good indicators of China’s growth rather than gross domestic product figures.

    Since January 2012, the three global copper futures (on the London Metal Exchange, Shanghai Futures Exchange and CME) have had a positive correlation with China’s CSI300 equity index but a negative correlation with the Li Keqiang index, according to Ms Zhang.

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    China's slowing industrial profits show rising debt hampering economy

    Profit growth in China's industrial firms slowed sharply as some key manufacturing sectors stumbled on weak activity and rising debt, suggesting the world's second-biggest economy remains underpowered despite emerging signs of stability.

    The September data from National Bureau of Statistics (NBS) underlined the daunting task facing policy makers as the nation's vast manufacturing industry grapples with slack demand, overcapacity and ballooning debt.

    Industrial sector profits last month rose 7.7 percent to 577.1 billion yuan, slowing markedly after surging 19.5 percent in August, NBS figures released on its website showed on Thursday.

    Earnings in industries such as electronics, steel and electricity were hit by a significant drop in growth, He Ping, a NBS official said in a note accompanying the data.

    "Although industrial profits have got back on track with more stable growth, unfavorable factors still exist," He said, noting weak demand at both home and aboard, and delayed payments put a strain on firms' cash flow.

    The official also cautioned about rising debt levels in the coal and steel sectors, stressing the importance of controlling debt risks as capacity cuts and structural reforms get implemented.

    China's debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years.

    Recent data showed some signs of stability, with annual economic growth of 6.7 percent in the third quarter matching the previous quarter, as increased government spending and a property boom offset stubbornly weak exports.

    But the profits data suggest China's economy continues to face a host of challenges as authorities try to wean businesses off cheap credit-fueled growth, temper a surge in home prices and curb rising debt levels and shadow banking activity.

    "If you look at the structure of the economy, it's actually worsening because the growth of SOEs and public sector growth is relatively stronger, but private sector growth is much weaker. This shows the quality of the growth is deteriorating," said Yang Zhao, economist at Nomura.


    Profits in electricity tumbled 23.2 percent on-year, as electricity prices were adjusted lower and revenue growth slowed. Earnings in general and special equipment manufacturing also turned negative, dropping 10.8 percent on-year.

    Total profits for the first nine months stood at 4.64 trillion yuan ($684.77 billion), up 8.4 percent from the same period a year ago, the same pace as in the January to August period.

    Industrial overcapacity, mainly in the traditional sectors, have been a drag on profits in recent months and analysts say the outlook for earnings in the sector could hinge on the progress made by policy makers to cut capacity.

    Beijing has embarked on a campaign to cut capacity in the coal and steel sectors in the economy's most significant transformation in two decades.

    The August profit growth - the fastest pace in three years - was helped by Beijing's splurge on infrastructure projects and a booming real estate industry and so was seen as unsustainable.

    China's producer prices rose in September for the first time in nearly five years, thanks to higher commodity prices.

    "Profits were largely driven by a restoration in commodity prices such as coal and steel," David Qu, economist at ANZ said in Shanghai.

    But Qu said the outlook for steel prices remain cloudy, as "the tightening in the property market means potential demand could shrink." .

    Indeed, a subdued property market is expected to drag on growth in the first two quarters next year, as policy makers introduce curbs to cool home prices.

    "We are optimistic that stable growth will last through end of this year, because they have to finish the projects started earlier," said Merchants Securities economist Xie Yaxuan in Shenzhen.

    "But property and its related industries will definitely affect growth in the first or second quarter next year," Xie said.
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    Audi swaps diesel for electric motor racing

    Audi has announced an end to the German marque’s presence in FIA WEC and the Le Mans 24 Hours.

    In a statement released on Wednesday, Audi said it will shift its primary motorsport focus to the Formula E championship - where it is partner to the Abt Schaeffler team - while maintaining its DTM programme.

    Audi’s Chairman of the Board of Management Rupert Stadler said: “We’re going to contest the race for the future on electric power.

    “As our production cars are becoming increasingly electric, our motorsport cars, as Audi’s technological spearheads, have to even more so.”

    Reports emerged that Audi was considering ending its 18-year involvement in the top flight of sportscar racing in the run-up to this year’s WEC 6 Hours of Fuji, citing the cost of competing and the decreasing relevance of diesel technology in road cars.

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    Satellite company claims 1/3 Earth's surface now covered every day.

    Are you ready for the coming era of global transparency?

    After two years in operation, the satellite-imaging startup Planet tells Quartz that it is now photographing more than 50 million square kilometers of the earth every single day. That’s about a tenth of the world’s surface area, or more than a third of its 149 million square kilometers of land. Indeed, in September 2016 alone, the company says it imaged 91% of earth’s land mass.

    We have old mental models for the state of the world,” Schingler said. “The world is increasingly dynamic, and a lot of that is happening without people knowing about it.”

    The technology currently used to gather these images are large, expensive satellites flying 600 kilometers or more above the earth. Their operators typically target these satellites on specific areas requested by their clients. But these satellites can’t be everywhere at once, and competition over satellite capacity drives up the cost of using them. This is further compounded by the fact there is only so much cloud-free daylight over earth for imaging.

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    Anglo American rallies again, output guidance broadly unchanged

    Anglo American on Tuesday left output guidance broadly unchanged for most of its commodities, adding market conditions had improved for its diamond business, while it trimmed full-year production expectations for coking coal exports.

    Chief Executive Mark Cutifani said in a statement operational improvements were continuing across the portfolio.

    Analysts also said the results were solid and Anglo American's share price gained another 3.8 percent by 0748 GMT, adding to a leap of well over 250 percent this year.

    The gains have been fuelled by a rally in commodities, notably coal.

    Coking coal prices have risen by more than 200 percent, meaning even small changes in output can impact profits and prices.

    Anglo American has estimated a $10 per tonne price increase in coking coal creates a $142 million change in pre-tax earnings, while for thermal coal the same increase leads to an extra $54-to-$200 million depending on the region.

    Anglo American lowered full-year production guidance for export metallurgical coal to 20.5-21.5 million tonnes from 21-22 million following the completion of the Foxleigh sale in Australia at the end of August.

    Full-year production guidance for export thermal coal from South Africa and Colombia was unchanged at 28-30 million tonnes.

    Anglo American has said it is focusing on high value core commodities, including platinum group minerals, copper and diamonds.

    For its De Beers diamond unit, it said market conditions had improved after a difficult 2015 and output had been increased by 4 percent to 6.3 million carats compared with the third quarter a year ago.

    Rough diamond sales increased by 77 percent in the third quarter to 5.3 million carats.

    Full-year production guidance remains unchanged at 26-28 million carats, subject to trading conditions.

    For copper and platinum, it also said overall guidance was unchanged.

    Production from Los Bronces in Chile decreased by 27 percent to 72,100 tonnes due to expected lower grades and in part because of a strike, but it reaffirmed its previous full-year guidance of 570,000 to 600,000 tonnes.

    Paul Gait, analyst at Bernstein, which rates Anglo American outperform, said the results were solid and Anglo was "putting to rest" issues, such as high levels of debt that a year ago rocked the sector.
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    Caterpillar Warns Of

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    As we previewed yesterday when we showed that for 46 consecutive months industrial bellwether Caterpillar has failed to post a retail sales increase...


    ... it should probably not come as a surprise that moments ago CAT not only badly missed revenues, reporting $9.2 billion well below the $9.80 billion expected (courtesy of the usual non-GAAP fudging, CAT managed to "boost" its EPS enough to beat estimates, reporting adjusted earnings of $0.85, above the $0.76 consensus), but it also once again slashed full year guidance, now expecting revenue of $39 billion, and EPS of $3.25 per share excluding restructuring costs, down from the guidance of $40.0 to $40.5 billion and EPS of $3.55 provided just three months ago.

    But it was outgoing CEO Doug Oberhelman's commentary in the release that was more troubling, to wit:

    "Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged.  In North America, the market has an abundance of used construction equipment, rail customers have a substantial number of idle locomotives, and around the world there are a significant number of idle mining trucks."

    "While we are seeing early signals of improvement in some areas, we continue to face a number of challenges.  We remain cautious as we look ahead to 2017, but are hopeful as the year unfolds we will begin to see more positive momentum.  Whether or not that happens, we are continuing to prepare for a better future.  In addition to substantial restructuring and significant cost reduction actions, we've kept our focus on customers and on the future by continuing to invest in our digital capabilities, connecting assets and jobsites and developing the next generation of more productive and efficient products"... "Many of our businesses, including mining, oil and gas, rail and construction, are currently operating well below historical replacement demand levels in many parts of the world."

    That said, it was not all gloom:

    "there were a few bright spots this quarter.  Both the construction industry and our machine market position improved in China.  Most commodity prices, while low, seem to have stabilized.  Parts sales have increased sequentially in each of the last two quarters.  Our machine market position and quality remain at high levels and our work on Lean and restructuring are continuing to help us lower costs.

    Caterpillar’s results are closely followed by investors as the company is viewed as a bellwether of global construction and manufacturing activity.

    In pre-market trading, shares of the company were down about 2%. Year-to-date, the stock is up about 25%.

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    UK Electricity touches £260 yesterday evening.

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    Brazil's police seek corruption charges against ex-finance minister

    Brazil's federal police on Monday sought corruption charges against former finance minister and presidential chief of staff Antonio Palocci and accuse him of running a bribery scheme that funneled money to the former-ruling Workers Party's (PT).

    Police said in their investigation sent to federal prosecutors that Palocci conspired with construction firm Odebrecht SA to pay 128 million reais ($41 million) from 2006 to 2013 to the party, politicians and other officials in return for winning bloated contracts from state-run oil company Petrobras.

    Police are also seeking corruption charges against former Odebrecht Chief Executive Officer Marcelo Odebrecht and powerful political strategist Joao Santana, the force behind the PT's presidential campaigns.

    Odebrecht is already serving a 19-year sentence for a separate case in the Petrobras probe, while Santana faces other corruption charges in the investigation.

    Under Brazilian law, only prosecutors can file charges, a process that can typically takes a month or longer.

    Palocci's lawyer Jose Batochio said in a statement that his client was innocent and that the police accusation amounted to "literary fiction."

    Reuters was not immediately able to reach lawyers for Odebrecht. It was not clear if Sanata had an attorney.

    Nearly 200 executives and former politicians have been charged and 83 have already been found guilty in the Petrobras probe. Prosecutors are seeking 38 billion reais ($12 billion) in damages from companies and individuals involved.

    Brazil's top prosecutor Rodrigo Janot is investigating 66 politicians - many sitting lawmakers - for participation in the scheme, a number that could grow significantly as more of those charged turn state's witnesses.

    Palocci, a medical doctor by training, was former President Luiz Inacio Lula da Silva's finance minister and a key player in the 2002 election campaign that put the PT leader in the presidential seat.

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    First use of Blockchain: Cotton from TX to China

    YDNEY (Reuters) - The first cross-border transaction between banks using multiple blockchain applications has taken place, Commonwealth Bank of Australia and Wells Fargo & Co said on Monday, resulting in a shipment of cotton to China from the United States.

    Australian cotton trader Brighann Cotton Marketing bought the shipment bound for the port city Qingdao from U.S. division Brighann Cotton in Texas, the companies and their banks said in a joint statement. The blockchain trade, for 88 bales, totalled $35,000, Commonwealth Bank told Reuters.

    Blockchain is a web-based transaction-processing and settlement system whose efficiency banks say could slash costs. It creates a "golden record" of any given set of data that is automatically replicated for all parties in a secure network, eliminating any need for third-party verification.

    "Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies," Michael Eidel, Commonwealth Bank's executive general manager for cashflow and transaction services, said in the statement.

    The transaction is not the first involving the decentralised database, used since 2009 for the digital currency bitcoin. But it is a milestone for the traditional banking industry which at first shied away from the technology, partly because it makes money flows harder for law enforcement agencies to track.

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    China's energy guzzlers Sep power use edges up on year

    Power consumption of China's four energy-intensive industries edged up 0.6% on year to 148.4 TWh in September, accounting for 29.9% of the nation's total power consumption, the China Electricity Council (CEC) said on October 20.

    Of this, the chemical industry consumed 35.0 TWh of electricity, and the ferrous metallurgy industry consumed 41.6 TWh, dropping 4.9% and 0.7% on year, respectively; while power consumption of building materials industry and non-ferrous metallurgy industry stood at 28.1 TWh and 43.8 TWh, separately, rising 4.1% and 4.3% compared to the same month last year.

    In the first nine months of the year, the four energy guzzlers consumed 1284.1 TWh of electricity in total, or 29.3% of the country's total power consumption, declining 1.9% from the year-ago level, compared to a 2.2% drop a year prior.

    The ferrous metallurgy industry consumed 353.6 TWh of electricity during January to September, falling 6.8% year on year, compared to the drop of 7.8% from the previous year; while the non-ferrous metallurgy industry used 376.2 TWh of electricity, down 1.7% year on year, against a 3.7% rise from the year prior.

    The chemical industry consumed 322.7 TWh of electricity over the same period, up 1.6% year on year, against a 2.5% rise from a year ago; while power consumption of building materials industry increasing 0.9% year on year to 231.6 TWh, compared to a 6.4% decline a year ago.
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    Gold: biding her time.

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    China's Capital Outflows Are Soaring Again: Goldman Finds Sept. FX Flows Surged To $78 Billion

    If one looks at China's reserve data released by the PBOC, one would be left with the impression that China's capital outflows - the bogeyman that sent global risk assets tumbling in late 2015 and early 2016 -  have moderated notably in 2016 after the surge during the summer of 2015 and in early 2016. However, as we explained previously, the PBOC has a habit of hiding what is truly happening below the surface, using legitimate mechanisms such as forward contracts,as well as some less legitimate ones. So to get an accurate perspective of what is happening with China's fund flows, one has to look at a monthly dataset provided by SAFE, which presents the capital flow data in a way that can't be "fudged."

    As a reminder, according to PBOC official data, China’s currency reserves fell by $18.79 billion in September to $3.17 trillion. The drop was larger than the $11 billion fall estimated and followed a drop of $15.89 billion in August and was the largest monthly decline since May. However, in what will surely be a troubling sign to Yuan bulls, not to mention all those who believe another burst of Chinese capital outflows can destabilize the market (as China is forced to dump US denominated reserves), Goldman has found that the real outflow in September was vastly greater: more than 4 times the official number, and the highest since January, an indication that the capital outflows are once again picking up substantial pace.

    As Goldman's MK Tang writes in a note released overnight, his preferred gauge of FX flow (based on SAFE data) shows that FX outflows rose to US$78bn in September (from US$32bn in August). The particular gauge incorporates information on both onshore net FX demand by non-banks and cross-border RMB movements.
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    Oil and Gas

    GE in talks to buy oilfield services provider Baker Hughes-WSJ

    General Electric Co is in talks to buy oilfield services provider Baker Hughes Inc, the Wall Street Journal reported on Thursday, citing people familiar with the matter. (

    Baker Hughes, which has a market capitalization of $23.1 billion, declined to comment.

    GE could not be immediately reached for comment.

    Baker Hughes shares shot up nearly 18 percent to $64.31 in after-hours trading. GE shares were down 1.6 percent at $28.18.

    General Electric denied reports late Thursday that it’s in talks to buy the Houston oil services company Baker Hughes.

    The Wall Street Journal, citing unnamed sources, reported earlier that GE approached the Baker Hughes about a takeover. In a statement, GE, headquartered in Boston, said  saying it is only in talks with Baker Hughes regarding partnerships, not a potential acquisition.

    “We are in discussion with Baker Hughes on potential partnerships. While nothing is concluded, none of these options include an outright purchase,” said GE spokeswoman Jennifer Erickson in an email response.
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    ConocoPhillips sees APLNG hitting full tilt in Q2 2017

    ConocoPhillips, operator of the Australia Pacific liquefied natural gas (APLNG) plant, said it expects the project to reach its full capacity of 9 million tonnes a year in the June quarter of 2017.

    APLNG started shipping from the second of its two production units earlier this month, and is now focused on ramping up coal seam gas supplies, operated by its Australian partner Origin Energy, into the plant.

    "I expect it will be some time in the second quarter before we have enough gas supply from the upstream side to be able to run both trains at full tilt," ConocoPhillips' head of production, drilling and projects Al Hirshberg said on a quarterly conference call on Thursday.

    APLNG has shipped more than 50 cargoes this year, he said.

    Origin has said it expects to start reaping benefits from its investment in the A$26 billion ($20 billion) APLNG project in the year to June 2018.

    APLNG, co-owned by ConocoPhillips, Origin Energy and China's Sinopec, is the largest of three coal seam gas-to-LNG projects to have opened on Curtis Island off Australia's east coast over the past two years.
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    Sanchez may partner with Blackstone to buy Anadarko assets

    Sanchez Energy Corp is in talks to partner with Blackstone Group LP (BX.N) on a deal to buy Anadarko Petroleum Corp's assets in South Texas, the Wall Street Journal reported.

    The deal is expected to value Anadarko's assets at between $3 billion and $3.5 billion, the Journal reported, citing people familiar with the matter. (

    Blackstone and its credit arm, GSO Capital Partners, would likely fund or participate in the purchase, according to the newspaper.

    Sanchez had also been in talks with Apollo Global Management LLC (APO.N) and energy-focused private equity firm EIG Global Energy Partners to participate in the offer, the Journal reported.

    Intrepid Partners, Citigroup Inc and J.P. Morgan Chase & Co are working with Sanchez on the deal, the report said.

    Anadarko in July increased the high end of its asset monetization target range to $3.5 billion, expected by year-end.

    Sanchez, Blackstone, Apollo Global and EIG were not immediately available for comment. Anadarko declined to comment.
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    Oil major Total delivers forecast-beating profits on cost cutting and increased production

    The French oil and gas company Total has managed to offset the effects of weak commodity prices by reporting better-than-expected profits in the third quarter of 2016.

    Total's adjusted net income was $2.1 billion in the third quarter of 2016, a 25 percent contraction compared to the same period a year ago but above an expected $1.96 billion seen in a Reuters poll. The company's operating cash flow before working capital changes stood at $4.5 billion.

    The company has put in place a strategy to cut costs across all its units and this is set to continue. The company raised its cost-cutting target from $2.4 billion to $2.7 billion this year. This has meant cutting capital investment and exploring for oil in established fields. The company also noted that increased production at some of its new projects also helped it to deliver forecast-beating profits.

    "Total continues to benefit from its integrated business model and is responding effectively to short-term challenges due to good operational performance and strong cost discipline," Patrick Pouyanne, Total's CEO said in a statement.

    Major oil firms have been busy restructuring since mid-2014 when the price of oil dramatically sank from around $110 a barrel. Oil prices were trading higher in Asia on Friday morning. Brent was up by 7 cents from Thursday at $50.54 a barrel and WTI was up by 4 cents at $49.76 a barrel.
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    National Oilwell Varco reports third quarter 2016 loss

    National Oilwell Varco, Inc. today reported a third quarter 2016 net loss of $1.36 billion, or $3.62 per share. Excluding other items, net loss for the quarter was $128 million, or $0.34 per share. Other items totaled $1.09 billion, pretax, consisting of a $972 million goodwill impairment and $116 million of other charges primarily associated with severance, facility closures and write-offs of certain assets. Other items, net of tax, totaled $1.23 billion and included a $213 million valuation allowance against foreign tax credits.

    Revenues for the third quarter of 2016 were $1.65 billion, a decrease of five percent compared to the second quarter of 2016 and a decrease of 50 percent from the third quarter of 2015. Operating loss for the third quarter was $1.19 billion, or 72.1 percent of sales. Excluding other items, operating loss was $108 million, or 6.6 percent of sales. Adjusted EBITDA (operating profit excluding other items before depreciation and amortization) for the third quarter was $68 million, or 4.1 percent of sales, an increase of $43 million from the second quarter of 2016.

    'Our ability to post a higher Adjusted EBITDA on a five percent sequential decline in revenue was the result of our team's continued progress in improving our efficiencies and lowering our costs,' commented Clay Williams, Chairman, President and CEO. 'While consolidated revenues continued to contract in the third quarter, two of our four reporting segments posted sequential revenue growth, and three of our four segments posted higher margins.'

    'We are encouraged by the early signs of a recovery in the North American marketplace. Our short cycle businesses within our Wellbore Technologies Segment account for over 80% of total segment revenue. Within North America these posted sequential revenue growth of approximately 15%. Even though international, offshore and capital equipment markets remain challenging, we believe declining global production and improving commodity prices are setting the stage for a broader recovery in 2017. In the meantime, we continue to aggressively reduce costs, improve efficiencies, and invest in our comprehensive technology portfolio. So far in 2016 we have added significant new technologies in completion tools, directional drilling tools, condition-based monitoring services and drilling optimization services. All are winning significant customer interest, and all better position NOV for the inevitable recovery.'Rig Systems

    Rig Systems generated revenues of $470 million in the third quarter of 2016, a decrease of 17 percent from the second quarter of 2016 and a decrease of 69 percent from the third quarter of 2015. Operating loss was $962 million, which includes the Company's charge against goodwill. Adjusted EBITDA was $50 million, or 10.6 percent of sales, an increase of two percent sequentially and a decrease of 84 percent from the prior year.

    Backlog for capital equipment orders for Rig Systems at September 30, 2016 was $2.76 billion. New orders during the quarter were $185 million, representing a book-to-bill of 51 percent when compared to the $363 million shipped out of backlog.
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    Antero Resources 3Q16: Production Up 25%, Averaged $3.96/Mcf

    Antero Resources, one of the biggest drillers in the Marcellus, released their second quarter 2016 update in August which showed natgas production was up 19% over 2Q15.

    However, the company also reported production was essentially flat (the same as) production during the first quarter of 2016. But in September the company revised its 2016 production estimates–up–because they are using more sand in their fracking.

    How’s that working out? Yesterday Antero released their third quarter 2016 results. Production is up 25% in 3Q16 over 3Q15, and up 6% over 2Q16. In other words, more sand is working.

    The other important thing to note about Antero is that the company is perhaps the top Marcellus/Utica driller that makes use of hedging–locking in long-term prices for the gas it produces. Instead of having to sell its gas at whatever the daily market price is (right now averaging $1.35 per thousand cubic feet, or Mcf, in the Marcellus/Utica), they sell it at a locked-in price that’s much higher. For 3Q16, Antero’s average sale price was a whopping $3.96/Mcf! Smart financial folks working at Antero.

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    More Marcellus/Utica Gas Begins to Flow to Chicago Area via NGPL

    More Utica/Marcellus natural gas will begin flowing to the Chicago area beginning next Tuesday, Nov. 1.

    In June 2014 MDN brought you the news that the mighty Rockies Express (REX) pipeline was reversing the flow on the eastern end of the pipeline, to send Utica/Marcellus gas from Ohio all the way to points in Indiana and Illinois.

    In October 2014 MDN reported Kinder Morgan’s subsidiary Natural Gas Pipeline Company of America (NGPL) announced plans to expand their Gulf Coast mainline pipeline from the REX pipeline interconnection in Moultrie County, Illinois, to points north on NGPL’s pipeline system, called the Chicago Market Expansion Project. In March of this year, the Federal Energy Regulatory Commission (FERC) approved

    it (see FERC Approves Pipeline to Move More Marcellus/Utica Gas to Chicago). Great news! The work is done, and FERC has just granted permission to NGPL to start up the compressor station next Tuesday that will deliver more gas to Chicagoland…
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    ExxonMobil Announces Significant Oil Discovery Offshore Nigeria

    Exxon Mobil Corporation today announced a significant discovery with a potential recoverable resource of between 500 million and 1 billion barrels of oil on the Owowo field offshore Nigeria.

    “We are encouraged by the results and will work with our partners and the government on future development plans”

    The Owowo-3 well, which was spud on Sept. 23, encountered about 460 feet (140 meters) of oil-bearing sandstone reservoir. Owowo-3 extends the resource discovered by the Owowo-2 well, which encountered about 515 feet (157 meters) of oil-bearing sandstone reservoir.

    “We are encouraged by the results and will work with our partners and the government on future development plans,” said Stephen M. Greenlee, president of ExxonMobil Exploration Company.

    Owowo-3 was safely drilled to 10,410 feet (3,173 meters) in 1,890 feet (576 meters) of water. The Owowo field spans portions of the contract areas of Oil Prospecting License 223 (OPL 223) and Oil Mining License 139 (OML 139). The well was drilled by ExxonMobil affiliate Esso Exploration and Production Nigeria (Deepwater Ventures) Limited and proved additional resource in deeper reservoirs.

    ExxonMobil holds 27 percent interest and is the operator for OPL 223 and OML 139. Joint venture partners include Chevron Nigeria Deepwater G Limited (27 percent interest), Total E&P Nigeria Limited (18 percent interest), Nexen Petroleum Deepwater Nigeria Limited (18 percent interest), and the Nigeria Petroleum Development Company Limited (10 percent interest).

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    Genscape Cushing inventory 10/22-10/25

    Genscape Cushing inventory 10/22-10/25: -339,126 bbl over week ending 10/21

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    US Drillers spending increases indicate turning point for industry

    U.S. oil companies have hemorrhaged money and jobs for two years, and scores have gone bankrupt, but now they're making a run at a comeback.

    As exploration and production firms begin reporting spending plans for next year, the first nine said they expect to pump billions of dollars more into oil field operations in 2017. Analysts believe many other companies will follow, hiking spending across the industry by 25 to 45 percent if crude prices hold at $50 a barrel. A resurgence in oil field spending would mark a key turning point for an industry that cut more than $100 billion in U.S. capital expenditures and axed more than 100,000 energy jobs in Texas alone during the downturn that began in the summer of 2014. Such a rebound in spending would lift Houston's energy services companies, toolmakers, and other businesses that support oil production. -- and slowly bring back jobs to a traumatized industry.

    "We're walking down the tunnel and finally seeing the light," said Joe DeGeare, president of Energy Fishing and Rental Services, a Houston company that provides tools to retrieve objects stuck in oil wells. "We're looking forward to an uptick, no doubt about that."

    Historically, energy employment in Houston begins to rise about a year after crude prices hit bottom and six months after the nation's fleet of drilling rigs reaches its lowest point. U.S. crude snapped higher after plummeting to $26 a barrel in February, and the rig count has steadily climbed since May.

    That means Houston's energy job market will probably start to show signs of life around the beginning of next year, when companies begin spending more, said Bill Gilmer, an economist and director of the Institute for Regional Forecasting at the University of Houston. But hiring isn't just going to take off.

    "The last step in the improvement process," Gilmer said, "will be robust hiring."

    Energy executives have changed their tune about the oil industry's prospects since crude prices climbed to $50 a barrel and strong global demand began whittling the supply glut. U.S. stockpiles of crude oil, for example, have plunged 43 million barrels since the beginning of September, including a 550,000 barrel decline last week, according to the Energy Department.

    In addition, Saudi Arabia and other major oil-producing nations have moved to cut output and resume their role of managing markets, further propping up prices.

    Energy services firms Baker Hughes of Houston, and Weatherford, which has its main U.S. offices in Houston, reported combined job cuts of more than 2,000 in the third quarter, but their executives said worst of the downturn appears behind them. "The fourth quarter is the beginning," Bernard Duroc-Danner, Weatherford's CEO, told investors Wednesday.

    They'll know for sure soon enough. In coming weeks, oil companies will put out a flurry of announcements detailing how much money they plan to spend in oil patches in Texas, Oklahoma and North Dakota. Over the last two years, the industry has found itself crippled by ultra-low oil prices, forcing them to make deeper budget cuts in 2015 and 2016 than they did during the mid-1980s oil bust. Over the past two years, oil companies have cut their U.S. budgets by 51 percent compared to 46 percent in the mid-1980s, according to investment bank Cowen & Co.

    So far, it looks like the nation's shale plays will get an infusion of additional cash in 2017. Midland-based Diamondback Energy, one of the largest producers in the Permian Basin in West Texas, plans to boost its budget 48 percent to as much as $650 million next year. Several others, including U.S. drillers Rice Energy and RSP Permian, signaled they'll increase spending by 52 percent, to more than $5 billion combined.

    Assuming crude prices remain around $50 a barrel, the oil industry will likely spend at least 25 percent more in 2017 than it did this year across North America, bringing capital expenditures in the region to around $110 billion, according to investment bank Evercore ISI. That would be the largest increase Evercore has recorded since at least 2000.

    If crude prices keep climbing, spending could increase somewhere between 30 percent and 40 percent, Evercore forecast.

    "We're coming out of the biggest recession for the oil field in a generation," said James West, an analyst at Evercore ISI in New York. "North American companies are very intent on stemming production declines and returning to growth mode."

    Oil companies cut their budgets by more than half this year, to $88 billion from $195 billion in 2014, Evercore estimates. A 25 percent increase would make up a lot of ground, analysts noted, but it wouldn't restore the industry to its condition at the height of the shale oil boom in 2014.

    That's largely because U.S. oil service companies will have to work through equipment and labor constraints for several months, after the extended downturn forced service companies to dramatically reduce workforces and take parts from idle equipment rather than making repairs on active machines. Crude prices also remain below their $107 a barrel peak in June 2014, and lenders are reluctant to provide the capital the companies need to expand.

    Cowen & Co. expects U.S. onshore expenditures to clime 45 percent next year, and probably push domestic oil production up from its 2016 low point of around 8.7 million barrels a day. With larger budgets, drillers would likely bring the U.S. land rig count up from 528 active machines to around 610, according to Cowen.

    "All these companies need to show production growth to appease investors," said Marc Bianchi, an analyst at Cowen & Co.

    Evercore and Cowen track the oil industry's spending habits through annual surveys. A third firm, energy research group Wood Mackenzie, said domestic drillers could easily bring spending up by $10 billion next year – though that amount could double or triple if crude prices rise toward $60 a barrel.

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    Ensco’s revenues slip over lower rig utilization

    UK-based offshore drilling contractor Ensco saw its profit as well as revenues drop during the third quarter of 2016 mainly due to lower rig utilization.

    According to its report on Wednesday, the drillers’s profit during the third quarter of 2016 dropped to $85.3 million, compared to $292 million in the prior-year third quarter.

    Revenues were $548 million in the third quarter of 2016 compared to $1.012 billion a year ago. The drop in revenues was primarily due to a decline in reported utilization to 53% from 62% last year.

    Ensco’s third quarter 2015 revenues included $129 million from early contract terminations. The average day rate for the fleet declined to $184,000 in third quarter 2016 from $232,000 a year ago.

    Contract drilling expense declined 31% to $298 million from $434 million last year due to fewer rig operating days and disciplined expense management.

    Ensco said has taken steps since mid-year 2016 to reduce the company’s expense base by reducing onshore support personnel and suspending a discretionary compensation plan. In aggregate, these actions are expected to reduce expenses by approximately $50 million on an annualized basis from second quarter 2016 levels.
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    ConocoPhillips posts smaller Q3 loss on cost, production cuts

    U.S. oil producer ConocoPhillips reported a smaller-than-expected quarterly loss, helped by lower expenses, and cut its capital budget forecast for the year.

    The company also raised the lower end of its full-year production estimate to 1.56 million barrels of oil equivalent per day (mboed). It had previously forecast a range of 1.54-1.57 mboed.

    For the fourth-quarter, the company expected production of 1.56-1.60 mboed. The company said its forecasts exclude production from Libya.

    ConocoPhillips said its total realized price fell to $29.78 per barrel of oil equivalent (boe) in the third quarter ended Sept. 30 from $32.87 a year earlier.

    The company cut its 2016 capital budget forecast to $5.2 billion from $5.5 billion.

    ConocoPhillips' net loss fell to $1.0 billion, or 84 cents per share, in the quarter from $1.1 billion, or 87 cents per share, a year earlier.

    Excluding items, the company lost 66 cents per share, while analysts on average had expected loss of 70 cents, according to Thomson Reuters I/B/E/S.

    The company's total operating costs fell about 25 percent for the quarter.
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    Cenovus cuts exploration and production budget again

    Cenovus Energy Inc. cut its 2016 exploration and production budget again, as the Canadian oil producer looks to tackle a steep fall in oil prices that has eroded cash flows.

    The company, which reported a much bigger-than-expected loss on Thursday, cut the full-year exploration and production budget to $715-million-$805-million, from $740-million-$855-million it had previously forecast.

    Cenovus also narrowed its full-year oil and gas production forecast to 266-272,000 barrels of oil equivalent per day (boe/d) from 258-280,000 expected earlier.

    The company is on track to increase its oil sands production capacity to 390,000 barrels per day (bpd) on a gross basis, Chief Executive Brian Ferguson said.

    Cenovus’s oil sands production in the third quarter was 153,591 bpd, while total oil production was 208,072 bpd.

    The company reported a net loss of $251-million, or 30 cents per share, for the third quarter ended Sept. 30, compared with a profit of $1.80-billion, or $2.16 per share, a year earlier.

    The year-ago period included a $1.9-billion after-tax gain.

    Operating loss, which excludes most one-time items, was 28 cents per share in the latest quarter, much steeper than analysts’ average estimate of 9 cents per share, according to Thomson Reuters I/B/E/S.
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    Sinopec's profit rises 11 pct, boosted by refining business

    China Petroleum and Chemical Corporation, or Sinopec Corp said on Thursday net profit for the first three quarters of the year rose 11.2 percent versus a year earlier on the back of a stronger performance from refining.

    The state-controlled energy firm, Asia's largest refiner, recorded net earnings of 30.11 billion yuan ($4.44 billion)during January-September, the company said an emailed statement.

    Smaller rival CNOOC Ltd on Wednesday reported a 15.2 percent fall in third-quarter oil and gas sales as its predominant offshore oil and gas business was hit by weaker prices.

    Sinopec's earnings growth for the three quarters, versus a 22-percent year-on-year drop in net profits for the first half of 2016 suggested its business improved in the third quarter.

    The company said its oil and gas output fell 8 percent on year in the January-September period, with crude oil down 12.6 percent as it was forced to cut output at loss-making fields in response to weaker oil prices.

    Its refinery throughput fell 1.7 percent in the period over a year earlier to 175 million tonnes (4.68 million barrels per day), but the group recorded a 3.5 percent increase in total fuel sales.

    "In face of rapid production growth from independent refiners and ample market supply, Sinopec has focused on readjusting fuel mix to further lift output of gasoline and kerosene," the company said.

    Sinopec said gasoline and kerosene had had a much more rapid increase in consumption compared with lackluster demand in diesel, China's main transport and industrial fuel.

    Fuel demand growth in China, the world's second-largest consumer, moderated along with the broader economy. But domestic competition heated up following moves to allow more than a dozen independent refineries to import crude oil for the first time since late 2015.

    As these independents boosted refinery throughput, state majors came under pressure to reduce operations.

    Sinopec also said its chemicals department contributed to the earning growth by raising production of higher-value products and by using lower-cost feedstock for producing petrochemicals.
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    Which US Independents will increase production in 2017?

    Cash-flow neutrality, capital discipline and de-leveraging will remain the strategic priorities for the coming year. Unless oil prices rebound to US$60/bbl, a return to double-digit production growth is still some way off for most. So what does the future hold for US Independents?

    Growth and cash-flow neutrality are mutually exclusive goals for all but a handful at US$50/bbl WTI, but most companies could self-fund 10% growth at US$60/bbl.  Our most recent analysis looks at:

    Oil prices required for cash-flow neutrality
    Spending requirements
    Cash-flow impact
    Leverage versus cash-flow breakevens
    Company guidance for 2017

    Kris Nicol, Principal Analyst for Corporate Research, shares his thoughts on the future of US Independents.

    Companies included in this analysis: APC, APA,CHK, COP, CLR, DVN, ECA, EOG, HES, MRO, MUR, NFX, NBL, OXY, PXD, RRC & SWN.

    A return to material self-funded growth requires >US$55/bbl

    We estimate that our peer group of the 17 largest US Independents requires an average of US$50/bbl WTI in 2017 to be cash-flow neutral and replace production declines; US$57/bbl and US$63/bbl is required to grow at 5% and 10%, respectively. Three companies can achieve self-funded double-digit growth in 2017 at
    Production could decline even with increased spending

    We estimate that half of the companies’ production would decline if capex remained flat from 2016 to 2017; several require >40% increases just to offset declines. Southwestern and Chesapeake face the biggest challenge. Companies with inventories of high-impact wells (Pioneer and Range) and those with production support from international assets (Marathon, ConocoPhillips, Hess) require less capital to generate growth. Delivering 10% growth across the peer group in 2017 would require US$19 billion more capex than 2016 and translate to a US$11 billion cash-flow deficit in our base-price scenario.

    Who is best positioned to grow in 2017?
    Companies with low cash-flow breakevens and low leverage (Marathon, Hess, Pioneer) are best positioned to grow in 2017. Longer term, portfolio quality plays a larger role in determining which companies grow at the highest rates (Pioneer, EOG, Devon) and which remain challenged (Chesapeake and Southwestern).

    Flexibility will be incorporated into 2017 planning process

    Several companies have already provided preliminary 2017 guidance, much of which aligns with our analysis. But we expect activity plans to remain dynamic, with activity ultimately determined by oil and gas prices, capital availability, M&A activity, hedging activity, shifting cost structures, and development optimisation.

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    Kinder Morgan to begin construction on Elba Liquefaction project November 1

    Kinder Morgan will begin construction on its Elba Liquefaction project near Savannah, Georgia, on Nov. 1, ahead of a final ruling from federal regulators on rehearing requested by environmental activists, the company said on Wednesday.

    The company received approval from the Federal Energy Regulatory Commission (FERC) on June 1, but the Sierra Club and associated individuals have since filed a request for a rehearing, which is still pending FERC.

    The project, which is supported by a 20-year contract with Shell, will be constructed and operated next to the existing Elba Island liquefied natural gas (LNG) terminal and have capacity to export 2.5 million tonnes per year of LNG.

    A number of other projects under construction by the midstream giant are facing regulatory and legal hurdles at a time when energy infrastructure projects in North America are drawing increased scrutiny from environmental and native American groups.

    Kinder Morgan on Wednesday said it was appealing a decision by a judge in Wood County, Ohio, who ruled the company did not qualify for eminent domain for the construction of its proposed Utopia Pipeline. That line would transport 50,000 barrels per day (bpd) of ethane and ethane-propane mix across Ohio to Windsor, Ontario.

    The company has filed lawsuits for eminent domain in other counties in Ohio for construction of the line, executives said, adding they were able to obtain the property they sought.

    "It is typical in all of our projects that we try to avoid use of eminent domain and we negotiate with a spectrum of landowners," executives said, noting about 65 percent of the land acquired for its pipeline construction comes through easements without eminent domain.

    The appeal could take months, Kinder Morgan said.

    Kinder Morgan's Trans Mountain Pipeline expansion, which would increase capacity on the line from 300,000 bpd to 890,000 bpd, remains under review by Canadian government, after the National Energy Board recommended its approval, subject to 157 conditions. A decision on that project is expected on Dec. 20, 2016.

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    AG&P launches small scale LNG carrier

    Atlantic, Gulf and Pacific Co. (AG&P) has announced that it has launched an ultra-shallow draft 4000 – 8000 m3 LNG carrier capable of accessing rivers and shallow harbours with a draft of only 2 m.

    The vessel will serve as a ‘work horse’ for nearshore LNG milk-run deliveries to locations with limited access, including shallow rivers and restricted harbours with low water depths.

    The vessel features a hull design that reduces the waterline entrance angle and vessel resistance in waves. The carrier can also be ballasted in open water, improving both stability and speed. It does not require handling tugs, and is able to receive LNG cargoes from a floating storage unit (FSU).

    Derek Thomas, Head of AG&P’s Advanced Research Unit, said: “LNG can be break-bulked – breaking larger LNG cargoes into smaller shipments – and transported in small volumes over short distances using coastal tankers, specialised trucks and trains to a variety of customers. The availability of a smaller scale delivery network through break-building has enabled both distributed power generation and a variety of industrial applications in various manufacturing and processing facilities. Our new scalable LNGC is a plug-and-play customisable supply solution that requires lower capital cost making LNG more accessible and economically viable for small or developing LNG import markets.”

    The company will finance and construct the vessel at its manufacturing facility in the Philippines. It will be built in 16 months, and will be made available for sale or lease.
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    Whiting Petroleum Corporation Announces Third Quarter 2016 Financial and Operating Results

    * Q3 2016 Net Cash Provided by Operating Activities of $151 Million Exceeds Capex by $66 Million
    * Q3 2016 Average Production of 119,890 BOE/d at High End of Guidance
    * Q3 2016 LOE Below Low End of Guidance at $7.98 per BOE
    * Williston Basin 5+ Million Pound Completions Continue to Track 900 MBOE Type Curve after 265 Days
    * Williston Basin 10+ Million Pound Completions Tracking 1,500 MBOE Type Curve
    13 New McKenzie County Wells Test at Average Rate of 3,727 BOE/d

    Whiting’s (NYSE: WLL) 2016 third quarter capex of $85 million was under budget and relatively flat with the second quarter. Production in the third quarter came in at the high end of guidance and totaled 11.0 million barrels of oil equivalent (MMBOE), an average of 119,890 barrels of oil equivalent per day (BOE/d). Production was comprised of 85% crude oil/natural gas liquids (NGLs). Whiting continued to lower its lease operating expense (LOE). LOE for the third quarter averaged $7.98 per BOE, below the low end of guidance. Third quarter LOE benefitted from the sale of higher operating expense North Ward Estes properties, continued operating efficiencies and better than anticipated production results.

    James J. Volker, Whiting’s Chairman, President and CEO, commented, “During the third quarter, we continued to improve our capital efficiency with production at the high end of guidance on lower than projected capital spending, and LOE per BOE improving to $7.98 per BOE on the sale of North Ward Estes. This resulted in our net cash from operating activities exceeding our capital spending by $66 million. In the Williston Basin, the combination of high quality acreage and innovative completion methods drove solid results. Our thirteen new wells completed in McKenzie County tested at an average rate of 3,727 BOE/d and our leading edge design 10+ million pound completions in Williams County are tracking a 1,500 MBOE type curve. We believe the focus on balance sheet strength and capital spending discipline in the first nine months of 2016 provides us with a strong financial base to continue to deliver solid operational results and realize the potential of our world class asset base.”

    Lots more:
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    Statoil Q3 lags forecast, cuts capex again

    Statoil Q3 lags forecast, cuts capex again

    Norwegian oil firm Statoil cut its 2016 capital expenditure again after posting third-quarter earnings below forecast on Thursday due to lower-than-expected output and persistently low oil prices.

    Like other oil companies, Statoil has been slashing investments, jobs and projects to cope with a 56-percent decline in the price of crude since mid-2014.

    On Thursday it said it would cut its capital expenditure for 2016 to $11 billion from $12 billion and its exploration spending to $1.5 billion from $1.8 billion.

    In July, the company had already reduced those figures from $13 billion and $2 billion respectively.

    "The financial results were affected by low oil and gas prices, extensive planned maintenance and expensed exploration wells from previous periods," Statoil CEO Eldar Saetre said in a statement.

    The firm's adjusted operating profit fell to $636 million in the third quarter from $2 billion a year ago, well below analysts' expectations for $950 million. All three divisions of the company missed forecasts.
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    Suncor reports third quarter profit on higher production, refinery throughput

    Suncor Energy Inc, Canada's largest oil and gas company, reported a better-than-expected third-quarter profit on Wednesday thanks to strong upstream production, lower operating costs and record crude throughput at its refineries.

    The company reported net earnings of C$392 million ($293 million), or 24 Canadian cents per share. In the year-prior quarter, Suncor recorded a net loss of C$376 million, or 26 Canadian cents a share, which included an unrealized after-tax foreign exchange loss of $786 million on the revaluation of U.S. dollar-denominated debt.

    Suncor's third-quarter operating profit, which excludes one-time items, was C$346 million, or 21 Canadian cents per share, versus C$410 million, or 28 Canadian cents per share, in the year-ago period.

    Analysts had predicted earnings of 9 Canadian cents per share, according to Thomson Reuters I/B/E/S.

    Calgary-based Suncor is the biggest producer in Canada's oil sands and also has operations offshore Atlantic Canada and in the North Sea. The company produced 728,100 barrels of oil equivalent per day in the third quarter, up from 566,100 boepd in the same period of 2015, due mainly to becoming the majority owner of the Syncrude project.

    Syncrude, a mining and upgrading project in northern Alberta, has been dogged by operating issues over the years, but Suncor said upgrader reliability improved to 98 percent in the third quarter and operating costs dropped to C$27.65 per barrel from C$41.65 per barrel in the year-prior quarter.

    Suncor also owns a number of thermal oil sands projects and a mining and upgrading plant near Fort McMurray, Alberta. Production rebounded after wildfires in the region in the second quarter shut down facilities for several weeks.

    Total third-quarter oil sands production was 433,700 bpd, compared with 430,300 bpd a year previously, with increased output from thermal projects offset by lower synthetic crude volumes as a result of unplanned maintenance.

    Oil sands operating costs fell to $22.15 a barrel in the quarter from $27 a barrel a year prior because of lower natural gas prices, cost reductions and increased production.

    "Our cost reduction efforts combined with safe, reliable operations have delivered the lowest cash costs per barrel at our oil sands operations in over a decade and Syncrude delivered similar improvements," Suncor Chief Executive Steve Williams said.

    The company is divesting non-core assets, and said it had advanced the sales process for its lubricants business, as well as starting the sales process for some assets and liabilities related to its renewable energy business.

    Average refinery throughput improved to a record 465,600 bpd from 444,800 bpd in the prior-year quarter.

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    Russia's Gazprom Neft Discovers New Oil Field in Country's North

    Russia's Gazprom Neft energy company has discovered a new oil field in the country's northern Yamalo-Nenets Autonomous Area, the company said in a press release on Wednesday. 

    "According to the results of drilling of the three search and exploratory oil wells, six… deposits of oil, with total geological reserves of more than 40 million tonnes have been discovered. 

    The resources of a new Zapadno-Chatylkinskoye oil field have been approved at the State Commission on Mineral Reserves," the press release said.

    Read more:
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    Centennial Pipeline Reversal “a Go” to Send NE NGLs to Gulf Coast

    In September 2015 MDN brought you the news that two joint venture partners, MPLX (Marathon Petroleum) and Enterprise Products Partners, were actively evaluating a plan to reverse the flow of the 795-mile Centennial Pipeline to send natural gas liquids (NGLs) from the Utica/Marcellus to the Gulf Coast.

    The Centennial began operation in 2002 after a 26-inch diameter natural gas line from Longville, LA into Bourbon was converted to refined light product service. At the same time, a new 24-inch diameter line was constructed from Beaumont, TX to connect to the existing 26-inch diameter line at Longville, TX.

    Since last year we had not heard any concrete plans–until now. Yesterday at the S&P Global/Platts ninth annual Appalachian Oil & Gas Conference in Pittsburgh, Enterprise announced it is “a go” to reverse the Centennial…
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    BP To Sell US Crude To Australia, Thailand For First Time

    Oil major BP is set to ship 1 million barrels of U.S. crude to Australia and Thailand by the end of this year in what would be the first U.S. crude imports for the two Asian-Pacific countries, Reuters reported on Wednesday, quoting three trade sources.

    BP has sold 300,000 barrels of U.S. crude to Thai company PTT PCL and will ship the other 700,000 barrels to its own refinery in Australia, the Reuters sources said, adding that the London-based oil giant will load the crude from the U.S. Gulf Coast on a tanker expected to dock in Asia in December.

    According to BP’s refining in Australia page, the company’s refinery currently processes crude oil shipped from the Middle East, West Africa, New Zealand, Indonesia and north-west Australia.

    BP’s shipment to Thailand and Australia would be the company’s at least fifth cargo of U.S crude bound for Asia Pacific in 2016, after the U.S. repealed a four-decade-old ban on crude exports in December of last year.

    BP seeks to raise U.S. crude exports to meet the healthy Asia Pacific demand. Traders also want to send more U.S. oil to Asia, but so far, the lower shale production and the very tight spread between the WTI and Brent prices for most of the year have not allowed them to take advantage of a profitable arbitrage window.

    BP may start processing U.S. crude at its Australian refinery, but it has backed out of some of its upstream plans in Australia. BP hasquit a US$600-million drilling operation in the Great Australian Bight. The project was not in line with BP’s “strategic goals,” the company said. Another reason for the withdrawal could be the strong public opposition to drilling for oil in the pristine Bight, and several regulatory delays, including two rejections from Australia’s National Offshore Petroleum Safety and Environmental Management Authority.
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    Summary of Weekly Petroleum Data for the Week Ending October 21, 2016

    U.S. crude oil refinery inputs averaged about 15.6 million barrels per day during the week ending October 21, 2016, 182,000 barrels per day more than the previous week’s average. Refineries operated at 85.6% of their operable capacity last week. Gasoline production increased last week, averaging over 9.8 million barrels per day.

     Distillate fuel production decreased last week, averaging over 4.5 million barrels per day. U.S. crude oil imports averaged over 7.0 million barrels per day last week, up by 109,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.4 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 834,000 barrels per day. Distillate fuel imports averaged 74,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.6 million barrels from the previous week. At 468.2 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.4 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 2.1 million barrels last week but are near the upper limit of the average range. Total commercial petroleum inventories decreased by 8.7 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.4 million barrels per day, up by 4.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.1 million barrels per day, down by 0.1% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, up by 2.5% from the same period last year. Jet fuel product supplied is up 6.5% compared to the same four-week period last year.

    Cushing down 1.3 mln bbls
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    US Oil production increases

                                                                        Last Week   Week Before       Last Year

    Domestic Production '000.................. 8,504                 8,464                9,112
    Alaska ................................................ 501                    489                    505
    Lower 48 ........................................ 8,003                 7,975                8,607
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    Tough OPEC Equation With Mounting ‘Exemptions’

    Saudi Arabia faces the prospect of much deeper -- and financially painful -- oil production cuts after Iraq joined the queue of group members seeking immunity from the deal hatched in Algiers.

    In addition to Iraq, the second-biggest exporter in the group, Iran has already sought to exclude itself. Output is also recovering from fields in Nigeria and Libya, two more countries that were exempted from the Algiers deal because violence has wrought havoc in their oil industries. Taken together, more than a third of OPEC’s production now stands outside the plan.

    Iraq’s plea to be left out prompted Olivier Jakob, a consultant at Petromatrix GmbH, to quip on Twitter that the oil-club stood for the “Organization of Producers Exempt from Cuts."

    The worsening OPEC equation presents Saudi Arabia with a difficult choice after its Algiers U-turn: carry a greater burden within the group, ceding market share to other producers, or lose credibility by softening the terms of the deal. In a worst-case scenario, Saudi Arabia will have to cut production by more than 1 million barrels a day, sending the kingdom’s output to a two-year low.

    While oil has rallied more than 15 percent since Algiers, the growing cost of following through is becoming clear. During the last two weeks, Saudi Arabian Energy Minister Khalid Al-Falih has appeared to give himself room for maneuver. In a speech in London last week, he mentioned the possibility of an OPEC freeze as well as a cut. He’s also stressed the need for non-OPEC nations to take part in a global deal to manage supply.

    “Oil markets started moving into balance recently, but we in OPEC, along with producers from outside the group, started intense consultations to take the right action to quicken the re-balancing and market recovery,” Al-Falih said Sunday in a speech.

    Willing to Cut

    In Algiers, OPEC agreed to reduce its production to a range of between 32.5 and 33 million barrels a day. That leaves Saudi Arabia and other countries willing to cut facing two very different potential outcomes.

    In a best-case scenario -- based on Nigeria meeting its target to restore production, Libya maintaining recent improvements and Iran, Iraq and Venezuela staying at September levels -- reductions of 1.3 million barrels a day would be required to meet the top end of the Algiers target. In a worst case, where Iran, Iraq and Venezuela produce more than they did last month, that rises to over 2 million barrels a day, based on Bloomberg calculations.

    “Everyone has a lot to lose if they do not fill in the details and implement a final agreement at the end of next month,” said Mike Wittner, global head of oil research at Societe Generale SA. “Of all the developments, the one that worries me the most for posing an issue for the other members of OPEC is Iraq.”

    OPEC representatives and counterparts from countries outside the group will meet in Vienna later this week to discuss how the burden of output cuts is shared. The most contentious topic is likely to be how the production of individual countries is measured.

    Since Algiers, Iraq and Venezuela have criticized OPEC estimates of their production, which are compiled from secondary sources that include independent analysts and news organizations. Those estimates will form the basis for any future OPEC deal limiting production, according to the group’s secretary-general.

    Islamic Militants

    Iraq, which said over the weekend it shouldn’t be required to cut production as it’s fighting Islamic militants, says it’s currently pumping more than 4.7 million barrels a day, higher than estimates from OPEC’s secondary sources of 4.46 million barrels a day for September.

    Venezuela is also dissatisfied with its OPEC estimates since they don’t include heavy crude production from the Orinoco basin, Oil Minister Eulogio del Pino said earlier this month.

    OPEC agreed in Algiers that Libya, Nigeria and Iran should receive special treatment as they’re seeking to increase their production after experiencing disruptions due to internal violence, sabotage and sanctions. So far this month, Libya and Nigeria have managed to increase their daily output by 220,000 barrels and 300,000 barrels respectively.

    Russian Stance

    Iran has steadily increased its crude production since the start of the year following the lifting of sanctions. Tehran has repeated it aims to ramp up its production to a level around 4 million barrels day from around 3.7 million a day estimated by OPEC for September.

    Russia -- the biggest oil producer outside OPEC -- has agreed to play a part in stabilizing the markets and is discussing different options including a freeze in output, according to the Energy Minister Alexander Novak. Production cuts are not an option for Russia, the nation’s envoy to OPEC said, according to Interfax.

    While OPEC members from Angola and Gabon to Algeria and Ecuador could contribute to the required output cuts, Saudi Arabia’s main support will come from its Gulf allies of Kuwait and the United Arab Emirates, according to Wittner.

    Torbjorn Kjus of DNB Bank ASA expects OPEC to over-promise in Vienna, but under-deliver on implementation. He expects Saudi Arabia to cut output by about 400,000 barrels a day and the U.A.E. to trim a further 100,000 barrels a day. The other members probably won’t comply, he said.

    OPEC: Organisation of Producers Exempt from Cuts

    Attached Files
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    Range Resources Corporation announces third quarter 2016 results

    RANGE RESOURCES CORPORATION announced its third quarter financial results.


    * Merger with Memorial Resource Development Corp. ('Memorial') closed on September 16th
    * Gulf Markets Expansion pipeline on line in early October improves natural gas netbacks by moving 150,000 Mmbtu per day of Range natural gas from Appalachia to Gulf Coast markets
    * North Louisiana production growth and additional takeaway projects result in better natural gas differentials going forward
    * New condensate sales agreements commenced July 1, improving condensate prices by approximately $7.00 per barrel compared to the previous quarter
    * NGL pricing improved to 25% of WTI compared to 13% of WTI in the prior-year quarter
    *Third quarter production averaged a record 1,508 net Mmcfe per day
    * Southern Marcellus production averaged a record 1,228 net Mmcfe per day, up 23% from the prior-year quarter
    Unit costs improved by 3%, or $0.09 per mcfe, compared to prior-year quarter

    Commenting, Jeff Ventura, the Company's CEO said:

    'Range reached another milestone in the Company's history with the closing of the Memorial merger on September 16th. Combining the North Louisiana stacked pay assets with our extensive Marcellus/Utica inventory makes Range a better and stronger company, with geographic diversity that allows us flexibility in capital allocation and marketing. The integration of North Louisiana's operations is going well and we expect the combined experience and skills from both teams will enhance the value of these high-quality assets.

    Third quarter results were encouraging, as production increased, unit costs improved and unhedged cash margins rebounded. We are excited as we look forward to fourth quarter 2016 and the full year 2017, as we anticipate improving margins on all of our products and continued improvement in capital efficiency across the Company. With our extensive opportunity set in two high-quality natural gas plays, we believe Range is in a great position to drive shareholder value for many years to come.'
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    Hess Corporation announces third quarter 2016 net loss of $339 million

    Third Quarter Highlights:

    * Net loss was $339 million, or $1.12 per common share, compared with a net loss of $279 million, or $0.98 per common share, in the prior-year quarter
    * Adjusted net loss was $340 million, or $1.12 per common share, compared to an adjusted net loss of $291 million, or $1.03 per common share, in the third quarter of last year
    * Reduced E&P capital and exploratory expenditures by 49 percent to $435 million from $849 million in the prior-year quarter
    * Oil and gas production was 314,000 barrels of oil equivalent per day (boepd); Bakken net production was 107,000 boepd
    * Successful Liza-3 well in the Stabroek block, offshore Guyana (Hess 30 percent), confirms world class oil discovery; estimated recoverable resources for Liza now expected to be at the upper end of the previously announced range of 800 million to 1.4 billion barrels of oil equivalent
    * Issued $1 billion of 4.30% notes due in 2027 and $500 million of 5.80% notes due in 2047; proceeds to be used primarily to purchase or redeem higher-coupon bonds and near-term maturities ($750 million of proceeds used through September 30, 2016)
    * Cash and cash equivalents were $3.5 billion at September 30, 2016 ($625 million committed for debt retirement in October)

    Hess Corporation (NYSE: HES) today reported a net loss of $339 million, or $1.12 per common share, in the third quarter of 2016 compared with a net loss of $279 million, or $0.98 per common share, in the third quarter of 2015. On an adjusted basis, the Corporation reported a net loss of $340 million, or $1.12 per common share, in the third quarter of 2016 compared with an adjusted net loss of $291 million, or $1.03 per common share, in the prior-year quarter. Third quarter 2016 after-tax results reflect lower production and realized selling prices compared with the third quarter of 2015, as well as lower operating costs and depreciation, depletion and amortization expenses.'Our company continues to take steps to maintain a strong balance sheet and materially reduce our spending,' Chief Executive Officer John Hess said. 'We also are investing in growth projects including the world-class Liza oil discovery in Guyana that we believe will create significant value for our shareholders. Based on the positive results of the Liza-3 well, we now expect Liza to be at the upper end of the previously announced estimated recoverable resources range of 800 million to 1.4 billion barrels of oil equivalent.'
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    OPEC OIl exports hit 29 mln bbl last week

    OPEC OIl exports hit 29 mln bbl last week

    OPEC OIl exports hit 29 mln bbl last week This is incredible: OPEC crude oil weekly exports reached a record last week, led by SaudiArabia with loadings of 8.4mn bpd 

    Image title


    Attached Files
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    Greece names Total-led consortium preferred bidder for offshore gas drilling

    Greece named on Wednesday a consortium of France's Total, its biggest oil refiner Hellenic Petroleum and Italy's Edison as the preferred bidder for an offshore gas drilling block in the west of the country.

    Greece, which signed up to a third bailout last summer, has made several fruitless attempts over the last 50 years to find big oil and gas reserves. Its debt crisis and important findings in neighbouring countries has prompted the country to step up those efforts.

    Last year, Athens tendered 20 offshore blocks in the Ionian Sea and south of the island of Crete for deep sea oil and gas drilling and unsealed the offers in February.

    The Total-led consortium has bid for one block in the Ionian Sea, while Hellenic Petroleum has bid independently for two other blocks.

    A committee assessing the bids will invite the consortium to finalise the contract, the country's energy ministry said in a statement.

    Hellenic Petroleum in a venture with Edison, and Energean Oil , the country's sole oil producer, are already searching for oil in three onshore and offshore blocks in western Greece.
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    CNOOC announces key operational statistics for third quarter 2016

    CNOOC Limited today announced its key operational statistics for the third quarter of 2016.

    For the third quarter of the year, the Company achieved total net production of 117.7 million barrels of oil equivalent ('BOE'), representing a decrease of 7.7% year-on-year ('YoY'), mainly due to the decline of production volume in oil and gas fields and weak demand in the domestic downstream gas market.

    During the period, the Company made one new discovery and drilled ten successful appraisal wells offshore China. During the third quarter, Weizhou 6-9/6-10 comprehensive adjustment project and Enping 18-1 oilfield commenced production. The four projects that were planned to come on stream in 2016 have all commenced production.

    For the third quarter of the year, the unaudited oil and gas sales revenue of the Company reached approximately RMB30.75 billion, representing a decrease of 15.2% YoY. The Company's average realized oil price decreased by 13.5% YoY to US$42.26 per barrel, while the average realized gas price was US$5.22 per thousand cubic feet, down 18.6% YoY.

    To cope with the low oil price environment, the Company continued to lower costs, enhance efficiency and cut capital expenditure for the whole year. During the period, the Company's capital expenditure amounted to approximately RMB11.67 billion, representing a decrease of 20.9% YoY.

    Mr. Yang Hua, Chairman and CEO of the Company, said, 'In view of the market challenges during the third quarter of the year, the Company endeavored to lower costs and enhance efficiency, as well as made proactive efforts in all fields. In addition, the Company is confident in meeting the full year target of its key operating indicators.'
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    LNG tanker attacked off Yemen?

    A merchant tanker has been the target of an attack of the coast of Yemen on Tuesday, October 25, according to a report by the crisis management and response consultancy NYA.

    According to various media reports, the vessel in question was Teekay’s LNG carrier, the 2004-built Galicia Spirit with the capacity to transport up to 137,814 cubic meters.

    LNG World News contacted Teekay seeking confirmation of the reports, however, no response has been received by the time this article was published.

    NYA said the merchant tanker was approached by a small boat whose occupants fired an RPG at the vessel. The damage at the time of the report was unknown, however, the consultancy said that crew are safe and that the vessel continued with its passage.

    The AIS data provided by the vessel tracking website, MarineTraffic, shows that Galicia Spirit departed Qatar’s Ras Laffan LNG complex on October 19 and is scheduled to deliver its cargo to one of the FSRUs serving as Egypt’s liquefied natural gas import terminals in Ain Sokhna on October 29.
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    Big Oil Braces for Profit Pain as Refining Safety Net Slips

    The world’s biggest oil companies, supported during crude’s collapse by a buoyant refining business, have lost that buffer as brimming fuel stockpiles swamp demand.

    Profits from turning oil into gasoline and diesel contracted 42 percent last quarter from a year earlier to an average $11.60 a barrel, the weakest for the time of year since 2010, industry datafrom BP Plc show. The impact of that will be apparent as earnings for the period roll in over the coming weeks.

    Refineries benefited from oil’s two-year slide that began in mid-2014 because the cost of feedstock fell while fuel demand rose. That led to over-production and huge stockpiles that now can’t be absorbed. For oil majors including Exxon Mobil Corp. and BP, that erodes a valuable source of income that bolstered earnings for much of the past year amid spending cuts, job losses and project cancellations.

    The “best days are over” for refining, said Alan Gelder, vice president for refining, chemicals and oil-market research at consulting firm Wood Mackenzie Ltd. “Don’t expect 2015 to be repeated. We’re expecting some ‘average’ years.”

    Every $1 decline in the refining margin cuts BP’s adjusted pretax earnings by $500 million a year, according to its website. The London-based company warned back in July that margins had dropped to their lowest in six years and would remain “under significant pressure.”

    BP is expected to report $688.7 million in adjusted third-quarter profit on Nov. 1, 62 percent lower than a year earlier, according to the average of 12 analyst estimates compiled by Bloomberg. Exxon is likely to post a 38 percent decline in earnings on Oct. 28. Royal Dutch Shell Plc may report profit that’s little changed on Nov. 1 following its acquisition of BG Group Plc in February.

    Summer in the U.S. and Europe typically boosts refining margins as the driving season increases demand for gasoline. Yet high fuel stockpiles around the world this year pushed third-quarter margins below second-quarter levels in Europe, according to Wood Mackenzie’s Gelder.

    For an analysis of commodity markets through the end of the year, click here.

    Texas-based refiner Valero Energy Corp. said Tuesday that quarterly net income dropped by more than 50 percent from a year earlier as it announced a cut in 2016 capital spending.

    For European refiners, gasoline was on average $7.51 a barrel higher than benchmark Brent crude last quarter, about half its level a year earlier and 40 percent lower than the preceding quarter, according to PVM Oil Associates Ltd. For gasoil, or heating oil, the premium was $9.10 a barrel, 36 percent lower than a year earlier.

    Refining margins are likely to stay “depressed” next year as inventories remain high, according to Ehsan Ul-Haq, senior oil-market analyst at KBC Energy Economics.

    Making it worse for oil companies is crude’s continued weakness. Though prices have risen more than 80 percent from 12-year lows in January, they’re still half their level before the collapse. Dwindling revenue has forced the industry to cut billions of dollars of investment, boost drilling efficiency and reduce costs. European oil majors are likely to lower capital spending by a third this year from 2014, Barclays Plc analysts wrote in a note last week.

    Brent averaged $46.99 a barrel last quarter, 8.4 percent lower than a year earlier and little changed from the prior three months. The global benchmark lost 1.2 percent to $50.20 a barrel at 12:03 p.m. Singapore time.

    “Third-quarter earnings will likely again be nothing to write home about, given that oil prices were flat on the second quarter,” said Iain Reid, an analyst at Macquarie Capital Ltd. in London. “We estimate earnings per share will fall another 50 percent from a year ago, although this is now becoming more driven by weaker refining margins than oil prices.”
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    Shale breakevens down more than 50% in 3 years.

    Image titleBy Christopher Sell
    (Bloomberg) -- Breakeven prices in key shale plays in the
    U.S. have dropped by 55 percent in the last three years,
    according to research by Rystad Energy. Average breakeven prices
    at the Bakken have dropped from around $67 a barrel in 2013 to
    $29 a barrel in 2016. A greater focus on core areas of the shale
    plays and improved well performance are the main drivers to the
    lower price, the report said.
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    Weatherford International reported $1.78 billion loss, completes job cuts

    Weatherford International, which has its main operations in Houston,  posted a $1.8 billion net loss for the third quarter, even though its North American revenues slowly began to rise from the previous three months.

    Weatherford laid off  several hundred workers in  in the third quarter to complete at least 8,000 job cuts through the first nine months of the year.

    About $1.4 billion of the oilfield services company’s losses come through the write downs on the lost values of rigs, equipment and other assets, as well as other tax charges.

    Weatherford’s net loss compares to a $170 million loss during the same time last year, as well as a $565 million loss in the second quarter of this year.

    Weatherford’s $1.35 billion in revenues are down almost 40 percent from last year, but just down 3 percent from the second quarter. The company’s North American revenues actually grew 12 percent from the previous quarter.
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    BP, Shell Help Lift Profitability of Oil Trading to 6-Year High

    The trading arms of Royal Dutch Shell Plc and BP Plc enjoyed their best year ever in 2015, helping push the combined gross margins of oil merchants to a six-year high, according to a closely watched report.

    Oil traders last year “stormed ahead, thanks to low, volatile spot prices that created cash-and-carry opportunities,” consultancy Oliver Wyman said in its annual review of the commodities-trading industry published Wednesday.

    These oil traders’ gross margins -- a rough measure of profitability -- rose to a combined $19 billion, the highest since 2009, when traders thrived off of big price swings and oversupplied markets. For commodities traders in general, total gross margins stagnated at $44 billion for the second consecutive year as natural gas, power and other markets underperformed oil.

    The Oliver Wyman report is closely watched in the commodities industry as several of the world’s top traders, including units of major oil companies such as Shell, BP and Total SA, don’t disclose their profitability. Shell and BP have said they had a very strong year in 2015.

    Independent energy traders including Vitol Group and rivals Trafigura Group Pte, Glencore Plc, Gunvor Group Ltd. and Mercuria Energy Group Ltd. profited last year from the increase in volatility as oil prices plunged below $50 a barrel, from $100 in mid-2014.

    Contango Opportunity

    The oil traders filled tanks to take advantage of contango -- a relatively rare situation where contracts for future delivery are trading higher than spot prices, allowing them to buy oil cheap, store it and sell the commodity at a profit later by locking in their income through derivatives.

    Oliver Wyman noted that profitability also increased last year as the top independent traders boosted volumes to an average of 4 million barrels per day each, while the trading arms of oil majors handled between 5 million and 10 million barrels a day each.

    The trading conditions have since changed, with contango narrowing and even disappearing in some markets and volatility dropping.

    The report, co-authored by Graham Sharp, one of the founders of top trading house Trafigura, warned that the number of commodities trading houses will “shrink” in the next few years as competition increases and margins continue to drop.

    Artificial Intelligence

    The commodity-trading industry is about to undergo major changes in how it uses technology to manage shipments, the consultancy said in the report, adding that “digital contenders” will exploit advances including artificial intelligence to automate processes.

    “Managing fleets of vessels, optimizing credit risk, aggregating internal and external intelligence on cash flows, and even making freight decisions accounting for cargo flows in relation to the market, weather, congestion, and other factors will soon all be assisted by machines as often as by man,” Oliver Wyman said. “Vastly fewer people will be required, compared to today’s standards, because artificially intelligent systems will manage the bulk of volume.”

    Attached Files
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    API Reports Larger Than Expected Inventory Build of 4.8 Million Barrels

    The latest weekly American Petroleum Institute (API) data recorded an inventory build of 4.8mn barrels. This followed a 3.8mn draw the previous week. Markets were expecting a smaller build of around 1.5mn barrels, although estimates of the likely build had been gradually increasing ahead of the data release.

    The build will tend to maintain a more fragile tone in crude given concerns that the run of inventory drawdowns is coming to a close, although maintenance schedules are liable to distort the data in the short term.

    There was another sharp draw in Cushing stocks of 2.3mn barrels due to a continuing impact from the outage of a key pipeline into the storage facility.

    Gasoline inventories recorded a build of 1.7mn barrels in the week while distillate recorded a third successive weekly draw, this time of 0.9m barrels.

    There will be some disappointment in the gasoline data, with a series of builds in October after a sharp decline in stocks during September, lessening confidence that fuel inventories are being brought under control.

    There was high volatility in crude during Tuesday as recent choppy trading conditions persisted. WTI pushed to highs around $50.80 p/b early in the US session before sliding to lows below $50.00 later in the New York session.

    The movements in oil prices tended to be correlated positively with the dollar trends during the day, with oil sliding at the same time as the US currency was subjected to heavy profit taking.

    Crude was undermined by reported comments from Russian officials that the government would not be willing to consider a production cut. Wider uncertainty surrounding the OPEC production cuts also triggered a fresh round of selling while markets were also braced for a rise in inventories.

    From levels around $49.80 ahead of the data, WTI immediately moved sharply lower to below $49.50 before attempting to stabilise around this level, although losses subsequently extended to $49.35.

    The Energy Information Administration (EIA) data will again be important on Wednesday with high volatility likely to be a key feature. Levels of fuel inventories data will be watched closely and the US production levels will also be important given expectations that the increase in drilling rigs will help trigger a rebound in US output.
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    Texas wildcatter eyes IPO after previous company exits bankruptcy

    Upstart oil company Energy Hunter Resources Inc said on Tuesday it plans to hold an initial public offering in November, only six months after founder Gary Evans left as chief executive of his previous company when it exited bankruptcy.

    If the IPO is successful, it will serve as a testament to the openness of capital markets in what has been a roller coaster ride for shale oil companies since mid-2014, when OPEC's refusal to curb production caused the worst oil price crash in a generation.

    During the downturn, scores of U.S. independent oil companies fueled the biggest wave of bankruptcies since the telecom meltdown of the early 2000s.

    But this year, oil prices have nearly doubled to $50 a barrel, allowing for equity markets to set records for secondary stock issuances by energy companies.

    "The markets have definitely gotten stronger than I anticipated and that has to do with a change in market sentiment about commodities prices," Evans told Reuters on Tuesday after investor presentations in New York.

    Energy Hunter Resources said earlier on Tuesday it has filed for the IPO with the U.S. Securities and Exchange Commission under what is essentially a fast-track process for startups.

    The IPO would be the third for Evans, an oilfield wildcatter known for his entrepreneurial streak and penchant for big-game hunting. His previous company, Magnum Hunter Resources, bet heavily on natural gas fields before prices sank.

    Energy Hunter would tap the public markets before Thanksgiving to add to its still small land holdings in Texas, and issue stock again next year to raise more funds, Evans said.

    It would be the second oil and gas IPO since OPEC said in September it would restrict output for the first time in more than two years, a move that effectively put a floor on prices.

    On Oct. 12, Denver-based Extraction Oil & Gas Inc became the first producer to launch a U.S. IPO this year in a raising that valued the company at about $3.23 billion.

    "What OPEC accomplished - they regained market share (from other producers around the world.) They hurt U.S. industry, but we are coming back. They didn't think we could make this work at $50 oil. But we did it, and so now you are seeing Wall Street embrace this," Evans said.
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    Lawyers Warn Pipeline Case May Turn Midstreamers “On Their Heads”

    A couple of legal beagles from the Fox Rothschild law firm (in NJ) are sounding the alarm that two bankruptcy court decisions in New York State are threatening to up-end the midstream industry across the country. We tend to agree with them.

    Earlier this year, MDN brought you the news that a NY bankrutpcy court judge had allowed Sabine Oil & Gas, going through bankruptcy, to cancel a pipeline gathering contract with Cheniere’s Nordheim Eagle Ford Gathering in Texas.

    Nordheim spent $84 million building a pipeline system to Sabine’s wells. In return for laying out that kind of money, Sabine, as is always the case, signed a multi-year contract with Nordheim (10 years in this case), ensuring Nordheim would make make a profit on its up-front investment.

    The judge allowed Sabine to carte blanche cancel the deal several years into the contract. We asked at the time: If a driller signs a contract and that signature is no longer any good, will anyone build pipeline systems anymore?

    A pair of lawyers delve into the case and point out: “If other judges follow the analysis and conclusions reached in the Sabine Oil case, the expectations of midstream service providers in the oil and gas extraction process might be turned on their heads.” Indeed…
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    Libyan oil exports have more than doubled this month

    Libyan oil exports have more than doubled this month, currently at 432,000 bpd, with a wider variety of crude grades being exported.

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    Japan utilities use 8.7 pct more LNG in July than June for power

    Japanese power companies consumed 4.68 million tonnes of liquefied natural gas (LNG) for power generation in July, up 8.7 percent from the previous month, data
    from the Ministry of Economy, Trade and Industry showed.

    The power companies also consumed 10.04 million tonnes of thermal coal in July, up 23.2 percent from June, while their crude oil consumption rose 27.2 percent from the previous month to 274,752 kilolitres (55,746 barrels per day), the preliminary
    data for June released on Friday showed.

    The utilities generated 79.3 billion kilowatt-hours of electricity in July, the data showed.

    The group of 10 former power monopolies, which started publishing monthly data in 1972, stopped compiling power output and demand numbers in April to ensure fair competition after the liberalisation of retail power market.

    That left the trade ministry's monthly data as the only official data gauging the power statistics.
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    Online trading aims to break up LNG 'club'

    The founder of the world's first online trading platform for liquefied natural gas says "the time is right" to break up the cosy club of producers and buyers in the commodity, where a single cargo can be worth up to $US30 million.

    The GLX global exchange, formally launched in Singapore on Tuesday, means sellers can be satisfied they are securing fair market prices for their spot cargoes, rather than relying on the strength of their relationships and market intelligence, said Damien Criddle, the founder and one of the Australian developers of the venture.

    The oversupply dogging the LNG market, expected to last until early next decade, and the growing numbers of buyers and sellers have opened up an opportunity for the introduction of the platform, said Mr Criddle.

    The exchange, funded by high net worth backers including the Criddle family, which founded miner Decmil Group, will facilitate auctions of LNG cargoes on behalf of buyers and sellers worldwide and is also expected to support the emergence of transparent price benchmarks for the commodity.

    "The LNG market is in a state of flux and change," Mr Criddle said from Singapore. "This is the right time for this initiative to be put to the market."

    He said global LNG producers, buyers and traders were all among those parties trialling the system, with a view to starting live trading in the March quarter next year. As an incentive to encourage participants, GLX is waiving fees for trading participants for the first 12 months.

    GLX, which is chaired by former Woodside senior executive Rob Cole, will run the LNG trading platform from Singapore, which has emerged as a leading LNG trading market in Asia, the biggest import region for LNG. Auctions will be carried out based on either Singapore or London time, with reserve prices set, and invited counterparties. Once an auction is successfully completed, a binding sales contract results.

    The expansion of the LNG market over the past few years means some 75 sellers and 75 buyers are involved worldwide in trading, with no efficient way until now to bring the market together, according to Mr Criddle. Most cargoes have been traded, therefore, on a bilateral basis between parties with existing relationships.

    About 1200 cargoes a year are now traded through short-term sales, representing almost 30 per cent of the market, according to GLX. With each cargo worth $US20 million-$US30 million, the short-term market is worth up to $US36 billion a year, even at current depressed prices.

    Mr Cole, a former chief executive of Beach Energy who resigned for personal reasons last year, said the platform had been developed with close consultation with industry and governments and was "deliberately unaligned" with any market or regional interests.

    "We have sought to create a truly independent platform which serves the interests of all participants, which is a market operating on demand and supply fundamentals and based on fair and transparent pricing," Mr Cole said.

    He said the time had come for the LNG industry to embrace online platforms in the way that other globally traded commodities such as coal and iron ore have.

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    Why China Is Being Flooded With Oil: Billions In Underwater OPEC Loans Repayable In Crude

    When the price of oil was above $100, many of the less developed oil exporting OPEC members decided to capitalize on the high price and cash out by taking loans using the precious liquid as collateral very much the same way corporate CEOs use their inflated stock (thanks to buybacks they authorize) to issue loans against said stock. And why not: even if the price of oil were to drop, they could just pump more until the principal is repaid. However, few oil exporters anticipated such an acute oil plunge in such as short time span, which resulted in the value of the collateral tumbling by 70%, and now find themselves have to repay the original loan by remitting as much as three times more oil!

    According to Reuters, this is precisely what happened in the years preceding the great 2014-2015 oil bust: "poorer oil-producing countries which took out loans to be repaid in oil when the price was higher are having to send three times as much to respect repayment schedules now prices have fallen."

    As a result, the finances of countries such as Angola, Venezuela, Nigeria and Iraq have been crippled, in the process creating further division within the Organization of the Petroleum Exporting Countries.

    But while these already poor and corrupt OPEC nations were the biggest losers, one country was a huge winner, the country that provided the billions in virtually risk-free, oil-collateralized loans to any country that requested them. China. The same China which has once again proven smart enough to not demand repayment in fiat but in physical commodities, be they oil, copper or gold.

    Take Angola for example: Africa's largest oil producer has borrowed as much as $25 billion from China since 2010, including about $5 billion last December, which according to Reuters forced its state oil firm to channel almost its entire oil output toward debt repayments this year.

    Or Venezuela: ever since 2007, China, which has become Venezuela's top financier via an oil-for-loans program, has funneled an amazing $50 billion into the Chavez first and then Maduro regimes, in exchange for repayment in crude and fuel, including a $5 billion deal last September.  While details of the loans have not been made public, analysts from Barclays estimate Caracas owes $7 billion to Beijing this year and needs nearly 800,000 bpd to meet payments, up from 230,000 bpd when oil traded at $100 per barrel.

    Ecuador, one of OPEC's smallest member countries, borrowed up to $8 billion from Chinese and Thai firms, repayable with oil, between 2009 and 2015, according to the national oil company

    Many other countries have borrowed money from China (and others such as producers Exxon, Shell and Lukoil, as well as traders Vitol and Trafigura) and promised to repay in oil included Nigeria, Iraq, Venezuela and others.

    Fast forward to today when Angola, Nigeria, Iraq, Venezuela and Kurdistan are due to repay a total of between $30 billion and $50 billion with oil, Reuters calculates. Repaying $50 billion required only slightly over 1 million barrels per day (bpd) of oil exports when it was trading at $120 per barrel but with prices of around $40, the same repayment would require exports of over 3 million bpd.

    This is terrible news for all the indebted exporters because not only do they now have to pump three times as much just to repay the same loan, they have little if anything left over to fund critical budget needs and certainly nothing left over to invest.

    "All of those oil nations – Angola, Nigeria, Venezuela – have taken money for survival but haven't got any money left for investments. That is very damaging to their long-term growth prospects," said Amrita Sen from Energy Aspects think-tank. "People tend to look at current production volumes but if you have committed your entire production to China or other buyers under loans – then you cannot invest to keep growing and won't benefit from higher prices in the future."

    While the poorer OPEC exporters find themselves pumping unprecedented amount just to stay afloat, the rich OPEC producers have understandably stayed away from debt: according to Reuters, OPEC's Gulf Arab members - Saudi Arabia, the United Arab Emirates, Kuwait and Qatar - have very few joint ventures with oil companies, do not have pre-payment deals with China and do not need to borrow from trading houses.

    And so, while Saudi Arabia saw every dollar from its oil sales going to state coffers, the poorer members had a large part of their oil revenue eaten up by debts - read China - leaving no money to invest in infrastructure and field development. As a result, Nigeria and Venezuela are now facing steep production declines at a time when Saudi Arabia is preparing to further ramp up supplies as it invested heavily in new fields.
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    Baker Hughes announces third quarter 2016 results; revenue falls to $2.4 billion

    * Revenue of $2.4 billion for the quarter, down 2% sequentially and 38% year-over-year
    * Operating losses were $321 million for the quarter, a sequential improvement of $249 million, or 44%
    * GAAP net loss per share of $1.00 for the quarter includes $0.85 per share of adjusting items
    * Cash flows from operating activities were $119 million for the quarter

    North America

    North America revenue of $674 million for the quarter increased 1% sequentially. The activity increase in the U.S. onshore and the seasonal uplift in Canada were almost entirely offset by a steep decline in activity in the Gulf of Mexico. Despite the increase in activity, the competitive landscape remains challenging across the entire segment.

    Operating loss before tax for the third quarter was $65 million, a $246 million improvement compared to the prior quarter. The reduced losses were driven primarily by $158 million of inventory-related adjustments in the prior quarter not repeating, cost savings from recent restructuring actions, including lower depreciation and amortization expense from impairments, and a reduced provision for excess inventory. The current quarter also includes a $28 million benefit from non-recurring items.

    Adjusted operating loss before tax (a non-GAAP measure), which excludes the inventory-related adjustments, was $74 million for the third quarter, a $79 million improvement compared to the $153 million in the prior quarter.

    Latin America

    Latin America revenue of $243 million increased 3% sequentially against the backdrop of a 2% rig count reduction. The increase in revenue was driven mainly by a one-time product sale in the Andean area, partially offset by reduced activity in the region, primarily in Venezuela and Mexico.

    Operating profit before tax for the third quarter was $20 million, an increase of $263 million, compared to an operating loss before tax of $243 million in the prior quarter. The improvement in profitability is driven by $130 million of provisions for doubtful accounts and $88 million of inventory adjustments in the prior quarter not repeating, lower provision for excess inventory, and cost savings from restructuring actions, including reduced depreciation from impairments. The current quarter also includes a high-margin, one-time product sale in the Andean area and a $3 million benefit from non-recurring items.

    Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was $16 million for the third quarter, a $171 million increase compared to the $155 million operating loss before tax in the prior quarter.

    Europe/Africa/Russia Caspian

    Europe/Africa/Russia Caspian revenue of $519 million for the quarter decreased 11% sequentially, primarily due to reduced activity and unfavorable exchange rates in West Africa and reduced activity in Norway, mainly as a result of project timing and labor union strikes.

    Operating profit before tax for the third quarter was $22 million, an increase of $279 million compared to an operating loss before tax of $257 million in the prior quarter. Despite lower revenue, profitability improved sequentially, mainly as a result of $152 million of inventory adjustments and $58 million of valuation allowances on indirect taxes and provisions for doubtful accounts in the second quarter not repeating. The current quarter also includes cost savings from restructuring actions, including reduced depreciation and amortization expense, lower provision for excess inventory, and a $5 million benefit from non-recurring items.

    Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was $13 million for the third quarter, a $118 million increase compared to the $105 million operating loss before tax in the prior quarter.

    Middle East/Asia Pacific

    Middle East/Asia Pacific revenue of $649 million for the quarter was relatively flat sequentially. Activity declines and price erosion across most of the segment were offset by pockets of activity growth, primarily in Saudi Arabia and Kuwait.

    Operating profit before tax for the third quarter was $71 million, an increase in profitability of $213 million compared to operating loss before tax of $142 million in the prior quarter. Despite price deterioration, profitability improved as a result of $125 million of inventory adjustments in the prior quarter not repeating, cost savings from restructuring actions, including reduced depreciation and amortization expense, lower provision for excess inventory, and a $6 million benefit from non-recurring items.

    Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was $63 million for the third quarter, an increase in profitability of $80 million compared to adjusted operating loss before tax of $17 million in the prior quarter.

    Industrial Services

    Industrial Services revenue of $268 million for the quarter decreased 2% sequentially. The decrease in revenue was mainly related to project delays in the pipeline inspection and maintenance business, causing an earlier-than-usual seasonal decline.

    Operating profit before tax for the third quarter was $30 million, an increase of $73 million compared to operating loss before tax of $43 million in the prior quarter. The increase in profitability was driven by $47 million of inventory adjustments and $7 million of provisions for doubtful accounts in the second quarter not repeating. The current quarter also includes cost savings from restructuring actions, including reduced depreciation and amortization expense, lower provision for excess inventory, and a $3 million benefit from non-recurring items.

    Adjusted operating profit before tax (a non-GAAP measure), which excludes the inventory adjustments, was $26 million, an improvement of $22 million compared to $4 million in the prior quarter.

    BHI says 100 rigs have been added in Russia in past year
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    India: Torrent Power issues tender seeking 38 LNG cargoes

    Indian power company, Torrent Power, launched a tender seeking the supply of a total of 38 LNG cargoes for delivery from 2017 to 2021.  

    According to the company’s tender document, the supply term is divided into three periods with the first one starting in April 2017 and lasting until December 2019.

    During the first period, Torrent Power is looking for the supply of 22 cargoes, with eight cargoes to be delivered in the two following supply windows.

    The second period starts in January 2020 until December the same year with the last supply period starting in January 2021 until December 2021.

    Torrent Power is looking for cargoes in volumes between 125,000-cbm and 175,000-cbm, on delivered ex-ship (DES) basis to Petronet’s Dahej LNG terminal where the power utility reserved storage and regasification capacity from April 2017 onwards.

    Bidders are invited to submit offers with fixed prices, brent-linked prices or a mix of the both options.

    Tender documents show that the deadline for bid submissions is November 14.
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    Iraq offers oilfields under new contract terms

    Moving away from the service-based contracts it agreed for its giant fields, Iraq's oil ministry has launched a new round of bidding to develop 12 small to medium-sized oilfields and will directly negotiate terms with oil companies.

    The 12 fields now on offer are located in three provinces including four in Basra, five in Maysan and three in the Central province, according to a tender document on the ministry's website.

    The ministry pre-qualified 19 companies for the round including six Japanese firms, the UAE's Dragon Oil, Mubadala Petroleum, and Crescent Petroleum, Glencore Exploration Ltd, as well as firms from China, Russia, Italy, Kuwait, Indonesia, Vietnam, Thailand and Romania.

    Companies that have not been pre-qualified may also participate in the tendering after paying a $15,000 fee and submitting proof of their technical and financial capabilities.

    The new invitation to tender allows oil companies to ‘submit their own proposals for contractual, commercial and financial terms and conditions’, a clear shift from the service contracts used for the country's giant southern fields.

    The ministry will hold direct negotiations with individual IOCs or consortia and use those talks as the basis for awarding development and production contracts for the fields.

    Under the service contracts used for Baghdad's post-2003 bidding rounds including those for its giant southern fields like Rumaila, West Qurna 1 and 2 and Majnoun, the ministry pays IOCs a fixed dollar-denominated fee every barrel of oil produced.

    While the model worked well for Baghdad when oil prices were high the slump in prices over the past two years left Baghdad paying the same fees to firms like BP, Exxon, Lukoil and Shell at a time when revenue from oil sales was significantly lower.

    The oil ministry has repeatedly said it wishes to renegotiate the terms of its service contracts with IOCs to link fees they receive for developing its fields to oil prices and have them share the burden when markets go down.

    A data package costing $50,000 is available for purchase from the oil ministry.

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    Today at about 3:45am our strike team 06 took down Chevron Escravos export pipeline at Escravos offshore. This action is to further warn all IOCs’ that when we warn that there should be no repairs pending negotiation/dialogue with the people of the Niger Delta, it means there should be no repairs. Ant attempt to use dialogue to distract us so as to allow the free flow of our oil will halt the dialogue process.

    Brig.Gen Mudoch Agbinibo

    Nigeria's oil production has risen to 1.9 mil b/d, oil ministry said Tuesday. Capacity at 2.4 mil b/d
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    Buckeye to buy stake in Vitol’s terminal business for $1.2 billion

    Oil-storage firm Buckeye Partners plans to pay $1.15 billion for part of Vitol’s international oil terminal business, the companies said Monday.

    The transaction, slated to close in January, would give the Houston energy company 50-percent ownership of VTTI B.V., owned by oil-trading house Vitol, which is based in the Netherlands. Vitol’s 13 terminals hold roughly 54 million barrels of oil and other products made from oil.

    Buckeye and Vitol said they’ll have the same number of directors on the jointly-owned company’s board. In a written statement, Buckeye CEO Clark Smith said the deal gives the company a springboard to “further attractive growth opportunities across the globe.”

    He pointed to the marine terminals “strategic” locations in places such as Northwest Europe, the United Arab Emirates and Singapore.

    The 120 petroleum products terminals Buckeye already owns hold some 110 million barrels.

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    Total, Glencore and Gunvor bidding for Chevron's South African assets

    Total, Glencore and Gunvor are bidding for a 75 percent stake in Chevron's South African downstream assets, which include a refinery, three industry sources told Reuters on Tuesday.

    U.S. oil major Chevron said in January it planned to sell 75 percent of its South African business unit, which includes a 110,000-barrels-a-day refinery in Cape Town.

    The second bidding round in which actual offers were made closed on Sept. 30, the sources said, with a selling price estimated at $1 billion expected for the assets in South Africa as well as neighboring Botswana.

    "Total, Glencore and Gunvor have bid for the assets," said one industry source close to the matter.

    A second source with knowledge of the transaction said: "These companies comprise the front-runners for the bid. We might possibly get a (preferred bidder) decision by the first quarter of next year."

    French oil major Total, crude oil trader Gunvor and Glencore, a mining and trading company, declined to comment.

    Chevron spokesman Braden Reddall said in an emailed response that the bidding process was continuing and "as a matter of policy, we do not disclose details of commercial activities".

    Financial advisor Rothschild & Co is helping Chevron on the sale, which has also seen interest from Sasol, the world's largest gas-to-fuel producer, which said in July it was considering buying the majority stake.

    Chevron is a leading refiner and marketer of petroleum products in South Africa, the most industrialized country in Africa, where it has had a presence for more than a century.

    Besides the Cape Town refinery, Chevron also has interests in a lubricants plant in Durban on the east coast. Its network of Caltex service stations makes it one of South Africa's top five petroleum brands, according to its website.

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    LUKOIL begins commercial production at Pyakyakhinskoye field

    LUKOIL started today commercial production at the Pyakyakhinskoye oil and gas condensate field in the Yamal-Nenets Autononous District. The official ceremony was attended by Deputy Prime Minister of the Russian Federation Arkady Dvorkovich, President of LUKOIL Vagit Alekperov and Governor of the Yamal-Nenets Autonomous District Dmitry Kobylkin. The event is a milestone for both the Company and the Russian oil and gas industry.

    The active construction and development phase at the Pyakyakhinskoye field started in 2014. A gas-turbine electric power plant with a capacity of 36 MW and a number of production, social and environmental facilities have been built at the field to date, including an oil treatment unit, a pump station of the pressure-maintenance system, a condensate de-ethanization and stabilization unit, a transfer-and-acceptance station, a gas treatment unit, a refuse dump for household and industrial waste, and a field camp for 300 people.

    One hundred and seven (107) wells have been drilled at the field, including 72 oil wells and 31 gas wells. Thirty-six (36) oil wells are currently in production, with an overall daily flow rate exceeding 3,000 tons (20,000 barrels). The crude oil is transported via the Zapolyarye-Purpe pipeline.

    The launch of gas production at the field is planned for the latter part of 2016. Marketable gas from the field will be transported via a trunk pipeline to a gas-compressor station near the Nakhodkinskoye field and farther on to the Yamburgskaya gas-compressor station.

    The field is planned to produce 1.5 million tons of crude oil and gas condensate and 3 billion cubic meters of natural gas in 2017.
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    Carrizo Oil & Gas Eagle Ford acquisition and prices public offering of 6 mln shares

    * Carrizo Oil & Gas announces Eagle Ford shale acquisition and estimated third quarter production

    * Deal for $181 million

    * Estimated production volumes during Q3 of 2016 were 3,750 MBOE, or 40,762 BOE/D

    * Carrizo plans to fund acquisition with proceeds from a separately-announced equity financing

    * Believe transaction is accretive on a variety of financial metrics, including cash flow and earnings per share

    * Carrizo Oil & Gas prices upsized public offering of common stock

    * Priced public offering of 6 million shares of its common stock, upsized from previously announced offering of 5 million shares

    * Also granted underwriters an option to purchase up to 900,000 additional shares

    * Total gross proceeds of offering will be about $225.0 million
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    Pemex says crude oil exports up more than 20 pct in Sept

    Mexico's state-owned oil company Pemex said on Monday that crude oil exports rose nearly 22 percent in September compared to the same month last year, the highest level of shipments in more than five years.

    The Mexican oil giant exported an average of 1.425 million barrels per day (bpd) during the month, the highest volume since August 2011, according to Energy Ministry data.

    The company's crude production, however, slipped 7 percent in September to an average of 2.113 million bpd.

    Pemex expects oil production this year to settle at 2.13 million bpd due largely to spending cuts resulting from low international oil prices.

    Mexico's oil output has fallen for a dozen years since hitting a peak of 3.38 million bpd in 2004.
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    Venezuela Wins Bondholder Relief as 39% Accept PDVSA Swap

    Petroleos de Venezuela SA, the state oil company struggling to avoid default, won near-term debt relief by moving forward with a bond swap even after falling short of the threshold it had sought.

    The oil producer said holders with 39 percent of $7.1 billion of bonds coming due next year agreed to tender their securities for new debt that matures in 2020, less than its 50 percent goal. Officials at PDVSA had repeatedly said they needed investors with at least half the debt to participate in the swap or they would struggle to meet obligations. Notes from PDVSA and Venezuela’s government edged higher.

    Years of declining output and a crash in oil prices have left PDVSA and Venezuela, which relies on crude for almost all its hard currency income, short of cash to make payments and import basic necessities for its citizens. PDVSA first announced the exchange in September and, despite extending the deadline four times and improving the terms, it was unable to persuade a majority of creditors to tender their notes.

    “This does provide them with a bit more breathing room for 2017, so mission accomplished,” said Edwin Gutierrez, the head of emerging market sovereign debt at Aberdeen Asset Management in London, which overseas $403 billion in assets. “Although by no means does it ensure that all payments will be made in 2017 as that remains a big challenge.”

    By exchanging $2.8 billion of the old bonds, due in April 2017 and November 2017, for new debt with annual payments through 2020, the state-owned oil company will reduce bond outlays that would have totaled $11 billion by the end of next year.

    PDVSA said it will issue $3.4 billion in new debt to complete the exchange.

    The company’s existing bonds extended earlier gains after the swap announcement. The notes due in November 2017, half of which are due for payment next week, rose 0.82 cent to 83.06 cents per dollar as of 11:39 a.m. in New York. Its bonds due in 2022 rose 1.4 cent to 60.73 cents per dollar. Venezuelan sovereign debt also rose.

    “The announcement is mildly positive ,” Jorge Piedrahita, the chief executive officer of brokerage Torino Capital LLC, said in an e-mailed note. "Clearly there is no desire to default and they will continue paying."

    The company pledged 50.1 percent of its stake in the holding company of U.S. refining arm Citgo Petroleum Corp. as a guarantee for the bonds created in the exchange. It had been reluctant to swap less than half to avoid devaluing its prized asset.

    Oil Minister Eulogio Del Pino last week said that if the swap failed, officials would be “evaluating all options.”

    After initially offering investors $1,000 of the new securities for every $1,000 of the old bonds offered, PDVSA on Sept. 26 sweetened the deal by pledging $1,170 for every $1,000 of the April 2017 securities and $1,220 for the November 2017 bonds.

    The fact the swap went through at all may reassure holders of other Venezuelan debt that both the company and country can avoid a default. PDVSA has $1 billion of bonds coming due next week, which trade at levels signaling some skepticism the payment will be made.

    Venezuelan bonds have lost investors 5.5 percent this month, the most in emerging-markets, as hope faded that the swap would go through. Venezuelan sovereign debt is the most expensive to insure against default with the contracts pricing in a 89 percent probability of missed payments in the next five years.
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    Stone Energy Enters Bankruptcy, Sells Marc/Utica Assets for $350M

    Stone Energy, an independent oil and natural gas exploration and production company (E&P) headquartered in Lafayette, Louisiana drills mainly in the Gulf of Mexico but also has a presence in the Marcellus/Utica Shale with 90,000 acres of leases.

    Last year Stone quit drilling in the northeast and actually shut-in part of their production due to low prices. In June Stone cut a new midstream gathering agreement with Williams to return some of their shut-in Marcellus wells to full production.

    In April MDN told you Stone was (in our opinion) inching toward bankruptcy. In August MDN tipped you off that Stone is looking to unload their Marcellus/Utica assets. Both bits of news have come true.

    Last Thursday Stone issued an announcement that the company, like others before it, has cut a deal to file a “prepackaged” bankruptcy AND sell it’s Marcellus/Utica assets to Tug Hill for $350 million…

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    Genscape Cushing inventory week ending 10/21: -1,033,140 bbl

    Genscape Cushing inventory week ending 10/21: -1,033,140 bbl

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    Petronet eyes 10 pct cut in Gorgon LNG price

    India’s largest importer of liquefied natural gas, Petronet LNG is reportedly looking to cut the price of the chilled fuel to be loaded at the giant Chevron-operated Gorgon LNG project in Australia.

    Petronet LNG, that has a 20-year deal in place to import 1.44 million tons per year, is looking to cut the price by 10 percent, Press Trust of India reports, citing a company official.

    The deal was signed in 2009 with ExxonMobil, the owner of a 25 percent stake in the project, and the official said that due to the changes in pricing since then the LNG deals are being signed at a lower indexation.

    Negotiations to alter the terms of the agreement have started, the official said.

    Petronet has already reworked its 7.5 mtpa LNG import deal with RasGas, cutting the price significantly.

    Under the current spot market conditions and with the oil price of US$50 per barrel, LNG from the Gorgon project would cost at around $7.25 per mmBtu with the current formula.

    As the delivery is set for the Kochi LNG terminal, added customs duty and shipping and regasification costs, bring the price up to $9.5 per mmBtu.

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    Shell Among New LNG Sellers for Asia Hub Contender Singapore

    Singapore, which is vying to become a regional center for the trading of liquefied natural gas in Asia, picked Royal Dutch Shell Plc and Pavilion Gas Pte Ltd. as its next suppliers of the fuel.

    The companies will have exclusive rights to sell 1 million metric tons of LNG annually for up to 3 years, with imports beginning in 2017, the city-state’s Energy Market Authority said in a statement. The country will also consider spot purchases of the supercooled fuel and piped natural gas on a case-by-case basis, S. Iswaran, the Minister of Industry, said at the Singapore International Energy Week conference on Monday.

    Singapore wants to use its geography and stature as Asia’s oil-trading center to also be a leader in LNG in a region that accounted for more than 70 percent of global demand in 2015. The nation has built a receiving terminal while the state-owned investment company set up Pavilion Energy Pte in 2013 to trade the fuel. It’s drawn firms from Glencore Plc and GAIL India Ltd. to open trading desks in the country, and Singapore Exchange Ltd. has started futures and swaps linked to an index of spot LNG prices.

    Shell and Pavilion were chosen because they “offered flexible and competitive pricing not just indexed to oil but to different options on the table,” Iswaran said. “One of the considerations in looking at the next tranche was the offering of flexibility in terms of price indexation. And indeed they have put forward some flexible options, and end-users have responded to these offers.”

    The exclusive licenses will expire either after three years or if the companies import more than 1 million tons in a year, according to a statement from the Energy Market Authority. Beyond that the companies will still be able to import LNG into Singapore but will not be guaranteed exclusivity, Darius Lim, a Pavilion spokesman, said by e-mail.

    Natural gas can be cooled and liquefied to transport it on tankers between areas difficult to link by pipeline. LNG traded in Asia -- where sellers such as Qatar and Indonesia ship fuel to buyers including Japan or China -- has traditionally been pegged to crude prices. That’s because the region lacks a benchmark similar to Henry Hub in the U.S., which the country’s burgeoning LNG exporters use in sales contracts.

    Demand Surge

    A previous contract to supply LNG to Singapore was won by BG Group Plc. The company was acquired by Shell in February. Under that deal, BG was to supply 3 million tons of LNG annually over 10 years starting in 2013. The island nation, which generates 95.5 percent of its electricity using natural gas, imported 1.2 million metric tons of LNG last year, a drop of 14 percent from 2014 because of lower power demand, according to Bloomberg New Energy Finance.

    LNG consumption may rise to more than 3 million tons annually from 2022, and surge to 11 million tons a year by 2030 as its contracts to receive natural gas via pipeline from Malaysia and Indonesia expire, BNEF analysts including Maggie Kuang said in a June 9 report.

    Annual imports of LNG in Southeast Asia totaled 3.8 million tons in 2015, and is expected to jump to 16.8 million tons by 2020, with growth accelerating even more thereafter as national resources are depleted, according to BNEF. By 2030, total LNG demand in the region will reach more than 50 million tons a year.

    Changing Market

    The plunge in commodity prices over the past two years hasprompted changes in the LNG market, allowing for an expansion of the spot market as some buyers seek to resell shipments and the fuel’s price relationship with oil is weakened.

    “Singapore will carry out a consultation starting this quarter on spot LNG imports,” Iswaran said. “Our hope is that we should be able to get something moving on this next year.”

    Singapore is home to more than 25 LNG trading desks and its estimated that about 2,000 cargoes transit near the country each year. Singapore LNG Corp., which operates the city-state’s first receiving terminal, has three storage tanks at its Jurong Island facility.

    Spot LNG in Singapore rose to $6.119 per million British thermal units last week, climbing to trade above $6 for the first time since January.

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    Egypt launches record LNG tender for 96 cargoes -trade

    Egypt launched the world's biggest tender for liquefied natural gas (LNG) on Sunday as officials from top energy companies and trading houses converged on Cairo undeterred by new rules forcing them to wait even longer to get paid.

    After months of speculation and delay, state-run Egypt Natural Gas Holding (EGAS) released tender documents on Sunday bidding to secure 96 LNG shipments in 2017 and 2018, participants in the tender told Reuters.

    An additional 12 optional cargoes were included in the tender, which EGAS may decide not to award, they said.

    It is the biggest mid-term LNG buy tender ever issued, trade sources said.

    Egypt, a major importer of commodities from wheat to diesel, helped buoy global gas markets last year after emerging as the fastest-growing new LNG consumer.

    Once an LNG exporter, Egypt turned into a net gas importer just as global spot prices plunged.

    Commodity trade houses, led by Switzerland-based Trafigura , vied to supply Egypt as the country looks to buy until new gas finds can be developed offshore.

    But Egypt's worsening credit profile has tempered initial enthusiasm as suppliers fret over payment difficulties given the country's sinking economy and shortage of U.S. dollars.

    Under the latest tender terms, LNG suppliers may have to wait as long as six months after delivery to get paid, according to two sources with knowledge of the matter.

    At a meeting with energy suppliers this month Egypt discussed extending payment deadlines to as much as 120 and 180 days after delivery to give itself more breathing room, the sources said.

    "I know that the 180-day payment terms were something agreed in Cairo a couple of weeks ago across all products and is a sign of the current situation in Egypt," one trading source said.

    LNG shippers previously got paid 90 days after delivery.

    Firms may think twice about committing to large supply positions carrying credit risks, but the tender is expected to draw large crowds given generally weak demand for LNG.

    "It's a big short in a long market - I expect participation to be huge," a trade source said.

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    Enterprise says part of Seaway Pipeline shut after Cushing, Oklahoma spill

    The Seaway Pipeline Co shut down part of its pipeline system following a leak of crude oil in Cushing, Oklahoma on Monday, said Enterprise Products Partners LP, which operates the pipeline in a venture with Enbridge Inc.

    The 500-mile, 30-inch diameter pipeline system connects the U.S. crude storage hub of Cushing to the Freeport, Texas area, and a terminal and distribution crude oil network that serves all the refineries in the Greater Houston area.

    The prompt crude spread, which often correlates to the supply-demand balance in Cushing, traded as wide as 69 cents on Monday, the biggest discount in nearly two months.

    Energy intelligence firm Genscape also reported the shutdown of its 450,000 bpd Seaway Twin pipeline, which twins the existing Seaway pipeline.

    The Seaway Pipeline system has a total capacity of about 850,000 bpd, according to the company website.

    A company spokesman said the spill occurred on the Seaway legacy line. He could not immediately confirm if the incident also resulted in the shutdown of the Seaway Twin pipeline, and did not provide an estimate of the volume spilled.

    The Seaway spill comes on the heels of a Sunoco Logistics Partners LP pipeline spill on Friday, which released about 1,300 barrels (55,000 gallons) in the vicinity of the Susquehanna River in Lycoming County, Pennsylvania.

    Enterprise said on Monday there was no threat to the public and no evacuations were ordered following the spill, located near the intersection of Lynnwood Avenue and Texaco Road in Cushing.

    The company was working with emergency responders and law enforcement to address the situation.
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    Russian energy minister says cooperation with OPEC intensifying

    A short-term cap in oil output would reduce market volatility, Russian Energy Minister Alexander Novak said on Monday at a meeting with OPEC Secretary-General Mohammed Barkindo, as both are looking at ways to stabilize prices.

    Russia is the world's largest oil producer but not a member of the Organization of the Petroleum Exporting Countries and its budget has been hit by low oil prices, the same as for many OPEC nations.

    Novak, in Vienna after visiting Saudi Arabia over the weekend for talks with Saudi Energy Minister Khalid al-Falih, said sharp falls in the price of crude threatened to trigger an oil deficit and unpredictable volatility in prices.

    "That's why ... (an oil output) freeze or even a cut for a certain period of time is a right decision for global energy ... Being a short-term measure, an oil output cap may help to lower volatility in the market and make it more stable," Novak said.

    Last month in Algiers, OPEC agreed modest output cuts that are due to be set in stone in coming weeks. The goal is to trim production to a range of 32.50-33.0 million barrels per day (bpd).

    OPEC's Barkindo said before Monday's meeting, which also included Qatar Energy Minister Mohammed al-Sada, that Russia and OPEC were "committed to stable and predictable markets".

    "While there are signs that the rebalancing of the fundamentals is under way with overall non-OPEC supply contracting this year and demand ... at healthy levels, the large stock overhang continues to be a major concern," Barkindo said.

    Neither Novak nor Barkindo said at which levels Russia could cap its production, which reached a record-high 11.1 million bpd in September.

    Novak has repeatedly said Russia would prefer to freeze output rather than cut but would consider specific steps after OPEC members reach agreement.
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    Petrobras says forming alliance with Total for oil and gas projects

    Brazil's Petroleo Brasileiro SA and France's Total SA agreed on Monday to study opportunities for joint developments in the exploration and production of oil and gas, in Brazil and abroad, Petrobras said in a statement.

    Initially, the strategic alliance signed in Rio by CEOs Pedro Parente and Patrick Pouyanné will focus on potential natural gas and electric energy projects in Brazil, it said.
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    Iran is Open for the Oil Business - Sort Of

    Hunger for Iran's cheap oil will lure some foreign companies, but questions remain on how much it will cost commodity prices.

    Long a nation rich in oil but short on relative wealth, Iran is gearing up to offer its oil patch projects under a new contract model designed to entice foreign investment.

    Two years in the making, the Iranian Petroleum Contracts (IPC) sets an average contract duration for 20 years and replaces the buyback clause that decimated foreign interest with a more user-friendly fee-per-barrel.

    As Wood Mackenzie analyst Homayoun Falakshahi explained, the buybacks left foreign investors with lacking returns. The new contract terms aren’t great, he told Rigzone, but, “Still, they are much better than before. It’s a big opening.”

    While the country is inviting foreign oil investment at a level not seen since 1979, it’s still a mixed message Iran is sending. The country doesn’t have political parties; rather, stakeholders exist as various factions within the regime. Politically, it’s been a challenge to get the new concessions approved, and the current iteration of the IPCs is dramatically different from the first, experts have said.

    But, Iran wants foreign investment for a number of reasons. From the outset, the country has significant infrastructure needs. That recognition comes largely from the return of current oil minister Bijan Zanganeh, who was initially responsible for opening Iran to foreign oil and gas investment in 1995. And Zanganeh is back in power with the election of Hassan Rouhani in 2013, who triggered the outreach for foreign investment in Iran’s oil fields. Iran is eager reclaim its position as a top OPEC producer, and to do so, the country needs outside technology and cash.

    Zanganeh is more technocrat than politician, Falakshahi said, and he grasps the situation in Iran. The country needs investment and access to modern technology to enhance recovery from its aging oilfields.

    “To increase the crude oil production capacity, they need investors. In some cases, (foreign investment) is not even to increase production capacity, it’s to keep the production capacity steady. They need investors from the outside,” Falakshahi said.

    Post-Sanction Iran

    Released from economic sanctions that battered Iran’s crude production returns less than a year ago, the country is eager to ramp up its production to pre-sanction levels. In April, U.S. Energy Secretary Ernesto Moniz said the country was close.

    Wood MacKenzie has estimated the sanctions cut Iran’s crude exports to 1.1 million barrels per day, which forced the national oil company to shut in its southern fields. And with the recent consensus OPEC deal capping crude production to help stabilize commodity prices, Iran has an exemption so it can realize and maintain its pre-sanction market share.

    Of the 49 projects being offered to both local and foreign investors Oct. 21, 29 of them have 11 billion barrels of oil, according to analyst reports.

    The overture to foreign companies is part of Iran’s efforts to re-establish a leadership position in the region and in global markets, said John J. Maresca, former U.S. Ambassador to the Organization for Security and Cooperation in Europe, an entity responsible for drafting agreements that effectively ended the Cold War, former vice president of Unocal and an independent advisor on energy-related issues.

    “The country is gradually opening up to normal relations with the world community, and is welcoming tourism and investment as part of that evolution,” he told Rigzone.

    While progress in that evolution will be protracted, it will happen, Maresca said.

    “The fact is that the developing world has growing needs for energy, and there will always be efforts to meet such demands,” he said. “There are always some companies that are unwilling to go into risky areas, but there are also always companies that decide to invest, and that produces job opportunities. It is an area to watch.”

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    Psabrjam reduces the cost of implementing the second phase of North Azadegan

    مجری طرح توسعه آزادگان شمالی با اشاره به مذاکره با شاخه بین المللی شرکت ملی نفت چین (سی‎ان‏‎پی‎سی‎آی) برای فاز دوم این میدان گفت: با توجه به شرایط پسابرجام انتظار داریم هزینه اجرای پروژه کاهش یابد.

    Behbahani dignity in an interview with SHANA said the current harvest of crude oil from North Azadegan oil field to 75 thousand barrels per day and 11 million barrels of cumulative production in the field of frontier past.

    طرح توسعه میدان مشترک آزادگان شمالی در ٢ فاز و هریک با ظرفیت تولید ٧٥ هزار بشکه نفت در روز اجرا می‌شود که با بهره‌برداری از آن‎ها، برداشت نفت خام از آزادگان شمالی در مجموع به ١۵٠ هزار بشکه در روز می رسد.

    Branch of China National Petroleum Corporation International (CNPCI) contractor for the implementation of the first phase of development of the North Azadegan oil field is in the form of buyback contract. According to the initial agreement, in the event of agreement between the National Iranian Oil Company and the Chinese company, the second phase of the field's development company "CNPC-Fi" will be assigned.

    Behbahani said that negotiations with "CNPC-Fi" for the second phase of the field development continues, said most discussions about underground studies, in situ reserves and the amount of withdrawals from the second phase of the field.

    Preliminary studies of the second phase of the Petroleum Engineering and Development Company (text) shows the final reserves of about 6.3 billion barrels.

    مجری طرح توسعه آزادگان شمالی با اشاره به شرایط پسابرجام و تاثیر آن در اجرای فاز دوم این میدان، اظهار کرد: بدون شک شرایط همکاری در فاز دوم به‎واسطه شرایط پسابرجام متفاوت خواهد بود.

    He continued: Accordingly, we expect to reduce project costs and easy access to modern technology and if necessary use of new technologies.

    Behbahani said foreign contractors for development of joint oil fields of Iran are required to cooperate with local companies.

    North Azadegan oil field of Azadegan oil field is located about 120 kilometers West of Ahvaz (West Karun River) in the region bordering Iran and Iraq, Iran is located in the South West.

    Join the official channels and energy Shana (Shana) in the telegram
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    LHS crude market falls to multi-month lows as barrels come out of tanks

    The Light Houston Sweet crude market saw a late-week decline in value relative to cash WTI, which market sources attributed to a number of factors including a disappearing contango structure in the Brent-WTI spread.

    The sweet crude grade ended the week at a 95 cents/b premium to November cash WTI, down 15 cents/b from Thursday and 25 cents/b less than one week ago. It is also the weakest premium for LHS over cash WTI since July 19, when it was at 90 cents/b over cash WTI, S&P Global Platts data showed.

    "It's the usual cash period mess," a Houston crude trader said, referring to the period of time between when front-month NYMEX WTI expires and the cash market rolls a little less than one week later.

    A second trader said the Gulf Coast market was a "bloodbath" Friday and added grades were "completely collapsing."

    "The market is flooded with everything coming out of tanks," a crude trader said Friday. "That will help push crude down."

    The front-month Platts WTI-Brent Houston swap ended the week at minus $1.71/b, compared with minus $1.63/b for month 12 -- a difference of about 8 cents/b contango. That compares with a front-month to month-12 spread of 3 cents/b backward one week ago, Platts data showed.

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    Asia naphtha crack hits 6-month high on improved demand, short covering

    Asian naphtha crack spreads soared to a six-month high and spot price differentials improved Friday amid rebounding demand stirred by the conclusion of the cracker maintenance season, a healthy gasoline blending market as well as short covering and hedging for CFR term cargoes, traders said.

    A stronger LPG market due to fourth-quarter winter stockpiling has also made propane and butane less attractive petrochemical feedstock alternatives, they said.

    Naphtha supply, in abundance for most of this year due to excess exports from India and steady flows from the Middle East, is starting to be constricted, as Indian Oil Corp. phases out exports from the Paradip refinery due to the end-September startup of the gasoline-making reformer at the complex, after a near nine-month outage, traders said.

    The CFR Japan naphtha crack versus the front-month December ICE Brent marker jumped by $11.03/mt day on day to $69.68/mt Friday, the highest since hitting $70.10/mt on April 25, S&P Global Platts data showed.

    The persistently firm European market continued to shut the Western arbitrage, despite the recent rally in Asia, keeping the East/West spread at $8.30/mt, the widest in a month but still off the $20/mt mark needed to prise the arbitrage open.

    The base-load monthly flows from Europe to the traditionally net-short Asian market have been limited to below 700,000 mt during September and October.

    Some sources said the November program is expected to hover at that level, versus 1 million-1.5 million mt a month last year.

    "It's driven by the West and Asia front month cleared the overhangs," one market source said.

    News that BASF will restart its two Ludwigshafen steam crackers in the coming days also offered relief to the market.

    A Western trader said: "The market is stronger due to traders short covering. And some hedging for CFR term cargoes as well, I believe."

    A third trader said that, when the market was in a steep contango structure almost two months ago, Northeast Asian end-users had "rushed to buy cargoes on a term basis and traders sold without securing cargoes. Traders built up short positions first and have to cover for their shorts later."

    "So, the potential buying interest persists in the market," he said, adding that the strength seen for the fourth quarter would last through the first quarter.


    End-users such as South Korea's Yeochun Naphtha Cracking Center and Lotte Chemical, Japan's Mitsubishi Chemical and refiner Idemitsu, Taiwan's Formosa Petrochemical and Thailand's Siam Cement Group have finalized annual or half- yearly term contracts for 2017 during the third quarter at discounts of between $6/mt and $8/mt to the Mean of Platts Japan naphtha assessments.

    YNCC, South Korea's top ethylene producer, and Lotte Chemical continued to show appetite for spot cargoes for November and December deliveries amid robust ethylene cracks, narrowing the CFR Korea discounts.

    YNCC on Friday bought three cargoes of open spec naphtha with a minimum 70% paraffin content at a discount of $3.75/mt to the MOPJ naphtha assessments, for H1 December delivery CFR Yeosu, while Lotte earlier in the week bought four similar grade lots for the same laycan at a $5/discount, CFR Yeosu and minus $4.50/mt, CFR Daesan basis, traders said.

    YNCC and Lotte had previously bought H2 November delivery cargoes at minus $7/mt to the MOPJ naphtha assessments, CFR basis, traders said.

    Another North Asian trader said supply from the Middle East would also be limited by the comprehensive maintenance scheduled at Saudi Arabia's Yasref refinery from early November and at the Ras Tanura complex from early December.

    Price differentials for FOB Middle East cargoes have also flipped to premium levels from months of discounts, as appetite for prompt cargoes improved.

    Kuwait Petroleum Corp. last week sold by tender a 25,000 mt parcel for November 1-2 loading at a small premium to the Mean of Platts Arab Gulf assessments and this week sold a 50,000 mt cargo for mid-November loading at around $5/mt premium, traders said.

    The discount of propane to naphtha -- which has widened to up to $100/mt around early June, stoking demand for LPG as substitute feedstocks -- has narrowed to around $50-$54/mt this week. The discount of butane has even shrank to single digits, Platts data showed.

    "LPG is now used in smaller amounts," the North Asian trader said.

    But some traders pointed to the potential of increased supply with commercial startup next month of South Korean Hyundai Oilbank's 130,000 b/d condensate splitter at its Daesan complex, in a joint venture with Lotte Chemical, which can produce 1 million mt/year of light naphtha.

    Trade sources had said the new splitter could reduce Lotte Chemical's monthly naphtha imports by two to three cargoes, or 60,000 mt, though Lotte's continued imports for November and December showed that any reductions would not come so soon.

    Qatar Petroleum's new condensate-fed refinery -- Laffan Refinery 2 -- is expected to start up next month after a slight delay, and can produce 60,000 b/d to 70,000 b/d of naphtha.
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    India's oil demand seen rebounding after sluggish September

    After posting double-digit growth in August, India's oil products demand in September declined as widespead rains and regional unrest took toll on transport, but analysts expect a rebound in October on the back of firm fundamentals and following the end of the monsoons.

    The sharp growth in consumption of LPG and jet fuel in September was not enough to offset a drop on demand for diesel and gasoline, pulling down overall oil products demand 0.8% year on year to 14.6 million mt, or 3.82 million b/d, latest provisional data from the Petroleum Planning and Analysis Cell showed.

    "The conclusion of seasonal rainfalls, the onset of winter, and improving industrial demand amid festive season should propel growth in coming months, notwithstanding any increases in crude prices," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

    The negative growth recorded in September was a steep decline from the double-digit demand growth of 11% year on year to 15.81 million mt, or 4 million b/d, posted in August.

    Analysts attributed the fall in demand to heavy rains towards the end of the June-September monsoon season and water sharing disputes between two southern states -- Karnataka and Tamil Nadu -- and political unrest in the northern state of Jammu and Kashmir.

    "Reasonably healthy levels of rainfalls, riots in the southern states and weak stockpiling activities led to a sharp year-on-year decline in gasoline and gasoil demand," Paravaikkarasu said.

    Diesel consumption fell more than 11% year on year to 5.22 million mt, from 5.89 million mt. But the fall was more from the previous month -- down about 15% from 6.1 million mt in August.

    Gasoline also witnessed a similar trend, dropping 3.4% year on year and 17.6% month on month to 1.82 million mt in September.

    "Oil products demand typically remains subdued in September due to seasonal rainfall. Reduced economic activities dampen gasoil demand. But, this September turned to be an oddity because demand not only dropped month-on-month but fell from year-ago levels as well," Paravaikkarasu added.


    LPG demand posted the sharpest growth of all products in September, rising 16% year on year and 1.6% from August to 1.87 million mt, the data showed.

    Larger subsidies granted for new connections and more LPG dealerships for oil marketing companies helped boost demand last month, according to analysts.

    Around 3.3 million new connections were given in August, highest ever in a single month.

    While the price gap between subsidized and non-subsidized LPG cylinders narrowed to a record low of Rupees 41.44 (62 cents) per cylinder in September, according to Facts Global Energy.

    "This encouraged consumers to purchase beyond their fixed quota of 12 subsidized cylinders, along with a strong increase in commercial use," Paravaikkarasu added.

    Other than LPG, India's appetite for jet fuel was another bright spot, with consumption rising nearly 12% year on year in September to 555,000 mt.

    "Airline capacity has been increasing at about 20%, helping jet fuel demand grow at above 10%," Credit Suisse said.

    Demand for naphtha fell 1.3% year on year to 1.05 million mt in September, while fuel oil demand grew 5.5% year on year to 591,000 mt.

    With the government encouraging use of cleaner fuels and slashing kerosene subsidy, its demand fell 11% year on year to 501,000 mt in September, the data showed.

    Over the January-September period, India's oil products demand rose 9% year on year to 143.04 million mt, or 4.1 million b/d.

    "Fundamentals remain solid and we see demand springing back positively this month [October]. Gasoline demand should increase by an average 12% in the fourth-quarter, while gasoil consumption should post a 5% increase," Paravaikkarasu added.

    The International Energy Agency in its Oil Market Report for October said that global oil demand was continuing to fall on vanishing OECD growth and economic slowdown in China.

    For 2016, a gain of 1.2 million b/d was expected, with a similar rise expected next year.

    The potential for colder weather should see global demand rebounding in the fourth quarter of 2016, the IEA report said.
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    Cooper Energy has struck an $82 million deal with Santos which will transform the Adelaide company

    COOPER Energy will buy Santos’s Victorian gas assets for $82 million in a deal which will transform the Adelaide company.

    The transaction, which is expected to be effective on January 1 subject to approvals, will give Cooper full ownership of its Sole gas project which was a 50:50 joint venture with Santos, and will also bring on board producing gas assets.

    Cooper’s full year production this year will jump 3.9 times to one million barrels of oil equivalent and on an annualised basis production is expected to increase sevenfold.

    The company’s proved and probable reserves will also increase by a factor of nine.

    The assets to be acquired as part of the deal are:

    — a 50 per cent interest and, subject to the approval of the joint venture partners, operatorship of the producing Casino-Henry gas project in the offshore Otway Basin

    — a 10 per cent interest in the producing Minerva gas field and Minerva Gas Plant in the

    Otway Basin

    — the remaining 50 per cent interests in the Sole gas field and Orbost Gas Plant in the

    Gippsland Basin, increasing Cooper Energy’s interest in both assets to 100%

    — acreage prospective for gas in the offshore Otway Basin, Victoria, and

    — a 100 per cent interest in the largely depleted and non-operating Patricia Baleen gas field and

    associated infrastructure in the offshore Gippsland Basin.

    Cooper Energy has been on a path to transition away from oil to gas in recent years, based on a theory that the east coast gas markets present an attractive proposition.

    “The transaction will transform Cooper Energy by substantially increasing our production,

    further enhancing our gas reserves and resources for supply to southeast Australia and adding

    proven technical and project expertise,’’ managing director David Maxwell said.

    “Our position as a gas supplier to the southeast Australia gas market will be strengthened considerably.

    “The assets acquired align with our gas strategy, and offer immediate and long term benefits in

    the interests of our shareholders.

    “In the near term, Cooper Energy will be repositioned within the oil and gas sector with a fourfold lift in its Australian production and ninefold increase in Australian proved and probable reserves.

    “Cooper Energy will shift to over 85 per cent of total production being sourced from gas sold under stable long term contracts.

    “Looking to the long term, we now have more gas to market at a time when supply is being

    keenly sought in southeast Australia.’’

    Cooper Energy expects to make a final investment decision on the $552 million Sole project, which would bring gas from offshore fields into the Victorian market, in the last quarter of this year, with first gas expected in the March quarter of 2019.

    Front end engineering and design was completed during the past quarter and the optimal funding and equity structures are the final elements being considered.

    “Sole is considered to be an outstanding gas project with robust and attractive economics

    featuring highly competitive costs and a favourable price and demand outlook,’’ the company said.

    Santos employees involved with the relevant assets will be offered employment with Cooper.

    “This includes the engineering and project staff who have managed the Sole Gas Project front end engineering and design work, and who are assisting Cooper Energy reach its final investment decision for the Sole Gas Project,’’ the company said.

    The deal will be funded via a capital raising from institutional and retail investors to raise $62.6 million.

    Retail investors will be offered new shares on a one for two basis at 28.5c per share.

    That offer is expected to close on November 15.

    Cooper will pay Santos $62 million in cash as part of the deal and a further $20 million when the sole FID is made or if Cooper sells down any of the other Victorian assets.
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    Saudi Arabia looks to Russia to boost non-OPEC cooperation

    Saudi Arabia's Energy Minister Khalid al-Falih said on Sunday he had invited his Russian counterpart Alexander Novak to meet Gulf Arab energy ministers in Riyadh as part of efforts to cooperate with non-OPEC members to stabilize the oil market.

    "Russia is one of the world's biggest oil producers ... and is one of the influential parties in the stability of the oil market," Falih said at the opening session of the six-member Gulf Cooperation Council (GCC).

    Falih said Novak had welcomed the invitation, "as a clear indication of sincere desire to continue cooperation and coordination with the oil producing and exporting countries for more stability in the market."

    Novak had said on Friday he would take "some" proposals to the meeting in Riyadh.

    Last month in Algiers, the Organization of the Petroleum Exporting Countries agreed modest oil output cuts. The goal is to cut production to a range of 32.50-33.0 million barrels per day (bpd).

    "The Algeria meeting last month was successful in pushing the path of cooperation between oil producing and consuming countries and included important talks between experts from OPEC countries and outside of OPEC about oil markets," Falih said calling on his Gulf energy counterparts to work together as a bloc.

    Falih also said that the low oil price environment had led to a decrease in investments which could lead to a shortage in supply in the future and have a negative effect on the global economy.
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    U.S. oil and gas rig count up again; Permian booms

    U.S drillers sent 14 rigs back to the oilfield this week, the fifth increase in a row and the 17th in the past 20 weeks, the Houston oilfield services company Baker Hughes reported Friday.

    The rig count climbed to 553, up from a low of 404 in May. The count, however, is still down more than 200 over the same period last year, when 787 were operating in U.S. oil and gas fields.

    Drilling activity has followed a modest rebound in prices, from February’s low of about $26 a barrel to more than $50 over the past week.

    This week, the number of active oil rigs increased by 11 to 443. Gas rigs rose 3 to 108. The number of offshore rigs was unchanged, at 23.

    Drillers operated 253 rigs in Texas, up 10 from the week prior; All of those came in the Permian Basin.

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    Iraq says doesn't want to join OPEC cut

    Iraq said it wanted to be exempt from any deal by producer cartel OPEC to cut production to prop up the market, and as U.S. drillers stepped up work.

    Traders said price falls followed comments from Iraq, which said it wanted to be exempt from a production cut by the Organization of the Petroleum Exporting Countries (OPEC) that the group plans to decide at its Nov. 30 meeting.

    OPEC plans to reduce production to a range of 32.50 million to 33.0 million barrels per day (bpd), down from 33.39 million bpd in September.

    That would be harder to achieve if Iraq, which is OPEC's second-biggest producer after Saudi Arabia, didn't participate.

    Iraq said on Sunday that its oil production stood at 4.774 million bpd, with exports standing at 3.87 million bpd.

    "We are not going back in any way, not by OPEC not by anybody else," said Falah al-Amri, the head of Iraq's State Oil Marketing Company.

    "Comments by Iraq over the weekend that it may not join the OPEC agreement to cut production could see oil prices come under pressure in today's session," ANZ bank said on Monday.

    On the demand side, Japan's crude imports fell 4.6 percent in September from the same month a year earlier, to 3.27 million bpd, official data showed on Monday.

    Despite Monday's lower prices, analysts said that oil markets, which have been dogged by two years of oversupply, might be rebalancing in terms of production and consumption.

    "Statistical balances suggest that conditions have improved markedly. We suspect that the market is moving more quickly into balance than is generally recognised," Barclays bank said in a note to clients on Sunday.

    "The market moved into a small deficit in Q3, will remain so in Q4 and then the deficit will expand significantly in 2017," it added.

    Attached Files
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    Southwestern Energy 3Q16: Still in Red, but Trims Loss by Half

    Southwestern Energy issued its third quarter 2016 update yesterday. The good news is that the company continued to drill in 3Q16 in the Marcellus, and was able to lower their losses.

    Southwestern is still in the red, losing $735 million in 3Q16. But that’s down from losing $1.8 billion in 3Q15–so they cut their losses by more than half. Still, you can’t be in the red forever.

    The average price Southwestern received for natural gas in 3Q16 was $1.73 per thousand cubic feet (Mcf), down from the $2.21/Mcf they averaged in 3Q15.

    In northeast PA Southwestern drilled 18 new wells in 3Q16, completing 9 of them. However, production in NEPA was down, from 93 billion cubic feet (Bcf) in 3Q15 to 84 Bcf in 3Q16.

    In Southwestern’s southwest PA/WV area they drilled 4 new wells and completed 8 wells. Production in that region stayed even at 37 Bcf/d. The company said they expect to exit 2016 with 85 drilled but uncompleted wells (DUCs).
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    Rosneft may buy own shares in stake sale: minister

    Russia's top oil producer Rosneft can buy some of its shares slated for privatization and re-sell them later, an Economy Ministry official told Reuters on Friday.

    Russia hopes to raise around 700 billion roubles ($11.2 billion) from the sale this year of a 19.5 percent stake in Rosneft by state holding company Rosneftegas, which holds 69.5 percent of its shares.

    "In accordance with the law, a part of Rosneft stake may be bought by the parent company (Rosneft) or its subsidiary," Oksana Tarasenko, head of the Economy Ministry's Corporate Governance Department, said in emailed comments.

    "Even if there is a buyback (by Rosneft), we will expect a further sell-off of these shares to an investor at the most suitable point of time," she added.

    President Vladimir Putin also said last week the state-owned company could buy its shares from the government and resell them to private investors in future.

    Tarasenko said the search for investors for the Rosneft stake continued.

    She said Rosneft's value had increased after it bought a 50.1 percent stake in rival Bashneft , adding "the budget should receive quite a substantial amount (of funds) from the (Rosneft privatization) deal". 

    Moscow envisages the funds it raises from the stake sale will help plug holes in a state budget hit by low world oil prices and Russia's economic stagnation.
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    Finding the right model for Indonesia's oil and gas management

    Indonesia has substantial unexplored basins predicted to hold 43.7 billion barrels of crude oil, according to data from the country's Upstream Oil and Gas Taskforce (SKK Migas).

    But companies are reluctant to fund expensive explorations of new oil fields, which in Indonesia's case are mostly offshore. The problem: Indonesia does not have a dedicated law for oil and gas management. The lack of clear regulation creates legal uncertainty for the industry.

    It was not always like this. Indonesia had a dedicated oil and gas law. In 2002, the parliament passed a law that ended the state oil company's three-decade monopoly over oil and gas management in Indonesia. But a decade later the Constitutional Court ruled in favour of nationalist groups and declared the 2002 oil and gas law unconstitutional.

    The country's lawmakers for the past two years have been deliberating a new oil and gas bill without much progress. Nationalist groups are pushing to return monopoly rights over the country's oil and gas reserves to the state oil company, Pertamina.

    Learn from past failures

    Lawmakers should learn from past failures and avoid this option. Throughout the 1970s to the early 2000s, the concentration of power in the hands of Pertamina created systemic corruption. It also created complacency within the company, resulting in inefficiency and a lack of competitiveness.The Pertamina monopoly used a model called the production sharing contract. It was introduced in Indonesia in the 1960s and is now used for oil and gas contracts by around 40 developing countries in Africa, Central Asia and Southeast Asia.

    Under this model, a state, represented by a state oil company, hires private contractors to explore and produce oil and gas. The contracted company will bear all the risks, including the financial costs of exploration and production. If oil is discovered, the company receives 'payments' for the oil produced after covering production costs. If the exploration fails, the company receives nothing.

    Pertamina held both supervisory and commercial roles under the production sharing contract model. There was no independent agency to monitor Pertamina's commercial activities. Since private contractors did all of the hard work, Pertamina's own capacity in oil production regressed.
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    Shell nets $1 bln through Canadian shale divestment

    Royal Dutch Shell, through its unit Shell Canada Energy, agreed to sell approximately 206,000 net acres of non-core oil and gas properties in Western Canada to Tourmaline Oil for approximately US$1 billion.

    The consideration is comprised of $758 million in cash and Tourmaline shares valued at $279 million, the company said in a statement.

    Shell expects to close the transaction in the fourth quarter of 2016.

    The acreage includes 61,000 net acres in the Gundy area of Northeast British Columbia, Canada, and 145,000 net acres in the Deep Basin area of West Central Alberta, Canada.

    The assets are a combination of developed and undeveloped lands, along with related infrastructure, producing 24,850 barrels of oil equivalent per day (boe/d) of dry gas and liquids, Shell said.

    Andy Brown, Shell upstream director, said, “Shell retains a significant shale position in Canada and we are actively working to mature our attractive core asset base in the Montney and Duvernay.”

    In Canada, Shell retains approximately 430,000 net acres in the Duvernay liquids play in Alberta and approximately 218,000 net acres in the Montney gas play in Northeast British Columbia.
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    Alternative Energy

    Solar Roadway Under Construction In France

    French energy minister Ségolène Royal inaugurated yesterday the construction of one kilometer of solar road in France’s northwestern department Orne.

    The construction of the first solar road in Orne, France has now begun. French energy minister Ségolène Royal had traveled to Orne in the summer to inaugurate a manufacturing plant that will produce the so-called “Wattway” paving, made from solar PV.

    On Monday, Royal made the same trip to inaugurate the construction of the first solar road. The solar road will be approximately 1km long and 2 m wide, covering an area of 2,800 m².

    Colas, which is the French company behind the Wattway innovation, said the installation of the 1km solar road will be completed by December 2016.

    Upon its completion, the solar road in Orne will be connected to the ENEDIS electricity distribution network and is expected to generate 17,963 kWh of electricity per day, which is enough for the public lighting of a town of 5,000 inhabitants, added Royal.

    Furthermore, the energy ministry said, the site will enable firstly the evaluation of construction techniques for solar roads at large scale; and secondly, the assessment of the technology in terms of its behaviour over time under traffic and in terms of energy efficiency.

    The project is funded by the French energy ministry, while in the summer Royal had also announced the mobilization of €5 million in state funding to support the development of the Wattway photovoltaic panel at the Société Nouvelle Areacem (SNA) factory, which is in the same area.

    Royal has never hidden her enthusiasm for the Wattway innovation and her visits both in July and this week aim to showcase the government’s support for the solar roads concept. She has also publicly spoken of the development of the solar roads as a part of the country’s energy transition to green growth and, at the same time, creating new jobs.
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    China's growth in renewable energy raises 'overcapacity' concerns: IEA

    China led the world in expanding renewable energy capacity last year, contributing 40% of global renewable power growth, and it's set to grow by another 60% over the next half decade, according to the Medium-term Renewable Market Report released by the International Energy Agency (IEA) on October 25.

    The IEA predicts that in 2021, more than one-third of global solar photovoltaic and onshore wind capacity will be located in China.

    Integrating that capacity could be difficult however, given a slowdown in demand for electricity and the relatively high cost of renewables compared with fossil fuels.

    But a new challenge of electricity overcapacity may emerge over the medium term, given that China still has a substantial number of coal, nuclear and renewable plants under development, yet its electricity demand growth is slowing down at the same time, the IEA warned.

    The overcapacity may have an impact on the integration of renewables into an already congested power grid system over the medium term, said the IEA.

    China has been seeking out a more financially sustainable policy to "tackle the increasing total cost" to support renewable energy, as it aims to shift economic growth away from heavy industries such as coal, the IEA said.

    The country installed over 160 GW of non-hydro renewables since 2010, mostly supported by the "feed-in tarriff", which was aimed at promoting investment in renewables, requiring power companies to purchase green energy at a set cost. But the FIT also caused renewable energy to be costlier than fossil fuels such as coal.

    The rapid growth in renewables, in turn, also increased the financial burden, with the renewable energy surcharge more than tripling over the last five years since its introduction in 2009, the IEA said.

    "Several policy options are on the table to decrease the cost of renewable support, but they are all at an early stage of development," it said.
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    Tesla turns profit, Musk says no new capital needed for Model 3

    Tesla Motors Inc reported its first quarterly net profit in more than three years on Wednesday, buoyed by nearly $139 million in sales of clean car credits, and Chief Executive Elon Musk said the company could turn a profit again in the fourth quarter.

    The electric carmaker also signaled it has substantially reduced the costs for launching production of its high volume Model 3 sedan next year. Musk told analysts the company's current plan "does not require any capital raise for the Model 3 at all."

    The tech billionaire said Tesla could still raise capital to "account for uncertainty ... and de-risk the business," however.

    The third quarter profit and a leaner capital spending plan could help grease the wheels for Musk if he does seek to tap the markets for cash. Turning a profit, even for one quarter, should help counter skeptics who have questioned his ambitious plans for combining Tesla and solar panel maker SolarCity (SCTY.O) into a company offering roof-to-garage no-carbon energy systems.

    Musk has made promises to investors before related to the timing of product launches, production and profitability, only to walk them back.

    The company has weathered a difficult few months, beginning with the death of a Model S driver using Autopilot, Tesla's much vaunted semi-autonomous driving system, and culminating in the decision to acquire debt-laden SolarCity, which has increased scrutiny on the finances of both Tesla and SolarCity.

    Earlier this month, Tesla told investors it expected to raise capital this year to fund the Model 3 launch, which will involve a substantial investment in machinery and product development. But Musk signaled in a tweet earlier this month that was no longer the case.

    Tesla reiterated that the mass-market Model 3 sedan was on track for deliveries in the second half of 2017. The Model 3 has a starting price of $35,000, about half the price of the current Model S sedan.

    In the short term, Musk said sales of a new 100 kilowatt-hour version of the Model S, which starts at $134,500 and can travel 315 miles (507 km) on a charge, will be key to profitability.

    Tesla said it planned capital spending of $1.8 billion for the year, with just over $1 billion of those outlays coming in the fourth quarter. However, that new total capital spending forecast for this year is about 20 percent lower than the automaker's previous forecast of $2.25 billion.

    Tesla's results were lifted by $139 million in sales of California zero emission vehicle credits. Rival automakers can buy the credits rather than sell electric cars of their own. That was comparable to what the company booked from sales of so-called ZEV credits for all of 2014, said Cowen analyst Jeffrey Osborne.

    "Certainly what drove the upside on profit is the $139 million of those zero emission credits which is a near 100 percent profit business," said Osborne.

    Tesla said it had $3.08 billion in cash and cash-equivalents as of Sept. 30, compared with $3.25 billion at the end of the second quarter.

    Tesla's planned acquisition of SolarCity will be neutral, or a cash contributor to fourth-quarter Tesla results in "a small way," Musk said.

    The automaker's shares initially rose 6.2 percent in after-hours trade but gave back some of those gains and were trading at about $211 a share, up 4 percent from the closing price of $202.24.

    Tesla recorded net income of $21.9 million, or 14 cents per share, for the third quarter ended Sept. 30, marking the first positive earnings since the first quarter of 2013. That compared with a loss of $229.9 million, or $1.78 per share, a year earlier. Total revenue more than doubled to $2.30 billion.

    SolarCity shares rose 3 percent in after-hours trade after closing at $19.99.
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    Lenders rescue rare earths producer Lynas from collapse

    Japanese lenders and a hedge fund have struck a deal to save Australia's Lynas Corp, the only rare earths producer outside China, from collapse, cutting its interest costs and giving it nearly four years breathing room to pay off its debt.

    State-owned Japan Oil, Gas and Metals National Corp (JOGMEC) and Sojitz Corp are eager to ensure a supply of rare earths from outside China, the world's biggest producer of the elements crucial for smart phones, computers and cars.

    Loss-making Lynas urged shareholders on Wednesday to approve the debt restructure, even though their stakes could shrink as the deal allows New York-based hedge fund Mount Kellett to buy more shares in the company and sets a lower price for converting its bonds to equity.

    "Notwithstanding the potential for dilution, Lynas Directors have concluded that approval of the proposed amendments is important to assist the continued operation of the Lynas business as a going concern," the company said in a statement to the Australian stock exchange.

    Lynas shares jumped as much as 17 percent after the announcement to a one-month high at 6.2 cents a share. The company peaked at A$2.70 a share in 2011 when rare earths prices rocketed following a Chinese curb on exports.

    Under the deal, Lynas will not have to make any fixed repayments on the $203 million it still owes to Sojitz and JOGMEC until 2020. It previously faced staged repayments up to 2018.

    The Japanese, eager to ensure that Lynas stays viable following the collapse of the only other rare earths producer outside China, U.S. company Molycorp, have also agreed to slash the interest on their loan to 2.5 percent from 6 percent.

    At the same time, Mount Kellett has agreed to cut the interest rate on its $225 million in convertible bonds to 1.25 percent from 2.75 percent.

    The deal needs to be cleared by Australia's Foreign Investment Review Board.
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    IEA raises its five-year renewable growth forecast as 2015 marks record year

    The International Energy Agency said today that it was significantly increasing its five-year growth forecast for renewables thanks to strong policy support in key countries and sharp cost reductions. Renewables have surpassed coal last year to become the largest source of installed power capacity in the world.

    The latest edition of the IEA’s Medium-Term Renewable Market Report now sees renewables growing 13% more between 2015 and 2021 than it did in last year’s forecast, due mostly to stronger policy backing in the United States, China, India and Mexico. Over the forecast period, costs are expected to drop by a quarter in solar PV and 15 percent for onshore wind.

    Last year marked a turning point for renewables. Led by wind and solar, renewables represented more than half the new power capacity around the world, reaching a record 153 Gigawatt (GW), 15% more than the previous year. Most of these gains were driven by record-level wind additions of 66 GW and solar PV additions of 49 GW.  

    About half a million solar panels were installed every day around the world last year. In China, which accounted for about half the wind additions and 40% of all renewable capacity increases, two wind turbines were installed every hour in 2015.

    “We are witnessing a transformation of global power markets led by renewables and, as is the case with other fields, the center of gravity for renewable growth is moving to emerging markets,” said Dr Fatih Birol, the IEA’s executive director.

    ‌There are many factors behind this remarkable achievement: more competition, enhanced policy support in key markets, and technology improvements. While climate change mitigation is a powerful driver for renewables, it is not the only one. In many countries, cutting deadly air pollution and diversifying energy supplies to improve energy security play an equally strong role in growing low-carbon energy sources, especially in emerging Asia.

    Over the next five years, renewables will remain the fastest-growing source of electricity generation, with their share growing to 28% in 2021 from 23% in 2015.

    Renewables are expected to cover more than 60% of the increase in world electricity generation over the medium term, rapidly closing the gap with coal. Generation from renewables is expected to exceed 7600 TWh by 2021 -- equivalent to the total electricity generation of the United States and the European Union put together today.

    But while 2015 was an exceptional year, there are still grounds for caution. Policy uncertainty persists in too many countries, slowing down the pace of investments. Rapid progress in variable renewables such as wind and solar PV is also exacerbating system integration issues in a number of markets; and the cost of financing remains a barrier in many developing countries. And finally, progress in renewable growth in the heat and transport sectors remains slow and needs significantly stronger policy efforts.

    The IEA also sees a two-speed world for renewable electricity over the next five years. While Asia takes the lead in renewable growth, this only covers a portion of the region’s fast-paced rise in electricity demand. China alone is responsible for 40% of global renewable power growth, but that represents only half of the country’s electricity demand increase.

    This is in sharp contrast with the European Union, Japan and the United States where additional renewable generation will outpace electricity demand growth between 2015 and 2021.

    The IEA report identifies a number of policy and market frameworks that would boost renewable capacity growth by almost 30% in the next five years, leading to an annual market of around 200 GW by 2020. This accelerated growth would put the world on a firmer path to meeting long-term climate goals.

    “I am pleased to see that last year was one of records for renewables and that our projections for growth over the next five years are more optimistic,” said Dr. Birol. “However, even these higher expectations remain modest compared with the huge untapped potential of renewables. The IEA will be working with governments around the world to maximize the deployment of renewables in coming years.”

    Attached Files
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    China's first molten salt solar thermal plant sends power to grid

    China's first molten salt solar thermal plant sends power to grid

    China's first molten salt solar thermal power plant has started to send electricity to the grid, said the developer based in north China's Tianjin municipality on October 23.

    Known as concentrated solar power, solar thermal energy is believed to be the next generation of solar energy, and an ideal green power source for energy-hungry countries like China.

    The Tianjin Binhai Concentrating Solar Power Investment Co. Ltd. said its 50 MW molten salt trough project in Akesai in northwest China's Gansu Province shows the maturity of the commercial development of solar thermal technology.

    Guan Jingdong, chair of the company, said that the company will carry out large-scale production with the technology in 2018, when it is scheduled to produce facilities with 200 MW of annual solar power output.

    Molten salt solar thermal plants can harness solar energy by using molten salt as a heat transfer medium.

    The Akesai plant was among 20 demonstration solar thermal plants listed for construction by China's National Energy Administration in September as the government eyes the potential of renewable energy.
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    Wind, solar almost half the cost of new coal generators in South Africa

    The cost of wind and solar energy has fallen so dramatically that wind and solar plants can now be built in South Africa at nearly half the cost of new coal, according to the country’s principal research organisation.

    A presentation from the energy division of the Centre for Scientific and Industrial Research (CSIRO, that country’s equivalent of the CSIRO) illustrates the dramatic different in costs, based on tenders held this year for wind, solar and coal and assumed costs for other technologies.

    Image titleThe analysis by Dr Tobias Bischof-Niemz and Ruan Fourie shows that solar and wind are on par on pricing, and are more than 40 per cent cheaper than new baseload coal plants. Solar and wind are at 0.62 rand per kilowatt hour ($A0.058/kWh), with coal at 1.03 rand/kWh ($A0.09/kWh).

    It’s a standout result for South Africa, which unlike developed economies has a shortage of power rather than a surplus, so needs to build new capacity to meet the demands of its growing population and economy.

    But they also have implications for countries like Australia, which over the next two decades will need to replace much of its existing fossil fuel capacity. Solar and wind, which are following a similar if slower trajectory in Australia (thanks to its policy environment), will present similar price advantages.

    Indeed, the results will be seen as important for any review of the draft update to the Integrated Resource Plan for Electricity (Draft IRP), currently in progress by the Department of Energy and which will set the country’s new energy priorities.

    According to the Daily Maverik website in South Africa, that review was to have been delivered earlier this year, but possibly because of the falling cost of solar, in particular, and wind, the process has been delayed.

    That program has sought to build 17.3GW of renewable energy and 11.5GW of “non renewables”, including 5GW of coal and 4.7GW of gas fired generation.

    A request for proposals for 9.6GW of nuclear power has been put off indefinitely – from its previous deadline of late March and a later deadline of late September – possibly as the result of an assessment of the technology costs.

    Attached Files
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    End of Nuclear in U.S. Seen by Carlyle Group Without Subsidies

    Nuclear power will come to an end in the U.S. if the industry doesn’t get more government support, according to Carlyle Group LP, one of the world’s largest investment firms.

    The nation’s nuclear reactors need more subsidies to keep running, such as a federal carbon tax that’ll reward them for their zero-emissions power, Bob Mancini, co-head of Carlyle Group’s power unit, said at a conference in New York. Carlyle, which has $176 billion in assets under management across funds, invests in natural gas- and coal-fired power plants and renewable energy projects.

    Its outlook comes as nuclear power generators including Exelon Corp. and Entergy Corp. make plans to shut reactors across the country. Low power prices, fueled by an abundance of natural gas from shale drilling and weakening demand, have squeezed their profits just as their operating costs rise amid mounting regulation.

    “We will see the end of the nuclear industry in the next coming decades” without legislation, incentives or other support to keep reactors open or encourage new builds, Mancini said at S&P Global Platts’s Financing U.S. Power Conference on Tuesday.

    The cost of building a nuclear plant may be more than five times that of a gas-fired one based on U.S. government data, Bloomberg Intelligence analyst Stacy Nemeroff said in a report earlier this month.

    China, India and Russia are among the few places where new nuclear plants are being built, Mancini said. The U.S. is building four new nuclear units in Georgia and South Carolina.

    New York Plan

    Mancini pointed to measures approved by New York as an example of the kind of help nuclear power plant owners are going to need to survive. In August, state regulators there cleared subsidies worth about $500 million a year as part of a clean energy plan to reduce greenhouse gas emissions. They’re being fought by competing power producers who say the measures are unlawful.

    If the upstate reactors shut down, “emissions reductions will be eviscerated and volatility of prices will increase,” Mancini said. “More importantly, from a political perspective, hundreds of millions of dollars of tax revenue will be affected and thousands of jobs lost in parts of the state that are already economically depressed.”

    Attached Files
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    Potash Corp beat sales estimate as prices rise, volumes jump

    Potash Corp of Saskatchewan , the world's biggest fertilizer company by capacity, reported better-than-expected quarterly sales as prices bounced back from the lows of the year and on record volumes.

    Sales volumes rose 16.3 percent to 2.5 million tonnes in the third quarter ended Sept. 30, the company said on Thursday.

    "Supported by improved market fundamentals, spot prices have increased by approximately 15 percent from the lows experienced earlier in the year," Chief Executive Jochen Tilk said in a statement.

    Potash Corp in September agreed to combine with fellow Canadian fertilizer producer Agrium Inc to navigate a severe industry slump by boosting efficiency and cutting costs.

    The world's third-largest potash producer said costs of goods sold fell 11.6 percent to $792 million.

    The company cut the upper end of its full-year earnings forecast to 45 cents per share from 55 cents. The company retained the lower end at 40 cents.

    Net income fell to $81 million, or 10 cents per share, from $282 million, or 34 cents per share, a year earlier.

    Sales fell 25.7 percent to $1.14 billion, but beat analysts' average estimate of $1.04 billion.

    Excluding items, the company earned 11 cents per share, above the 9 cents expected on average by analysts, according to Thomson Reuters I/B/E/S.
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    DuPont raises profit forecast, says Dow merger may get delayed

    DuPont raised its full-year adjusted profit forecast as it cuts costs ahead of its merger with Dow Chemical Co (DOW.N), but said the deal may not close by the end of this year as planned.

    Shares of DuPont, which reported a higher-than-expected quarterly profit on lower expenses and higher sales volumes, were marginally lower at $69.81 in morning trading.

    The $130-billion merger of Dow Chemical and DuPont is being scrutinized by regulators world over, with EU antitrust officials expected to decide the deal by Feb. 6.

    "We continue to work constructively with regulators in key jurisdictions to close the merger as soon as possible," Chief Executive Ed Breen said in a statement.

    "In the event that regulators in those jurisdictions use their full allotted time, closing would be expected to occur in the first quarter of 2017."

    DuPont and Dow plan to merge and then break up the combined company into three businesses focused on agriculture, material science and specialty products over 18 months after the deal closes.

    The company, which is looking to cut $1 billion of costs by the end of this year on a run-rate basis, said operating costs declined by $235 million in the three months ended Sept. 30.

    Strict cost control encouraged DuPont to forecast full-year operating earnings of $3.25 per share, higher than its previous estimate of $3.15-$3.20 per share.

    Net sales rose marginally to $4.92 billion in the third quarter, aided by a 3 percent rise in sales volumes, helping the company top analysts' average estimate of $4.87 billion, according to Thomson Reuters I/B/E/S.

    "This reinforces our view that Breen's management is leading to top-line improvement, not just cost-cutting," Bernstein analyst Jonas Oxgaard wrote in a note.

    Revenue in DuPont's performance materials business rose 2.5 percent - accounting for more than 27 percent of the company's total revenue - helped by increased demand in automotive markets.

    Revenue in the agriculture business rose 2.4 percent as higher volumes partially offset lower prices. The unit made up for 23 percent of the company's total revenue.

    Net income attributable to DuPont shareholders slumped to $2 million, or breakeven on a per share basis, in the quarter, from $235 million, or 26 cents per share, a year earlier.

    Excluding a $172 million net charge related to employee severance and asset writedowns, profit from continuing operations was 34 cents per share. That was much higher than the analysts' average estimate of 21 cents per share.
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    ChemChina ready for concessions to clinch delayed Syngenta deal in 2017: source

    State-owned Chinese chemicals group ChemChina is ready to offer more concessions to win European Union antitrust approval for its $43 billion bid for Swiss pesticide and seed group Syngenta, a source with direct knowledge of the process said.

    Clinching China's biggest-ever foreign acquisition is taking longer than planned amid a flurry of deals in the agriculture sector that Syngenta, the world's biggest pesticides maker, said on Tuesday had swamped competition watchdogs.

    Syngenta expects the transaction to close around the end of March 2017, rather than this year as first planned, but insisted it would go ahead despite increased scrutiny by watchdogs gauging the impact of big deals on farmers and consumers.

    Syngenta’s deal with ChemChina is one of two under EU scrutiny, while another mega deal involving Bayer and Monsanto is expected to land on the regulator’s desk in coming months.

    Bayer and Monsanto have not formally requested EU approval but the European Commission has to consider this deal as well when assessing the ChemChina and Syngenta linkup, and another deal involving DuPont and Dow Chemical, to take into account the changing landscape, said an EU official.

    Syngenta stock plunged more than 9 percent on Monday after a European Commission spokesman said the companies had not offered concessions to get the deal through, raising concerns about the likelihood of a longer, full investigation.

    ChemChina submitted a proposal to the Commission in September, including a plan to divest some $20 million worth of assets from its agrichemical subsidiary Adama Agricultural Solutions, the Beijing-based source told Reuters.

    But the Commission raised "a more detailed menu of possible remedies" last week, said the source, who declined to be identified because he was not authorized to speak to the media.

    ChemChina is ready to cooperate fully with the Commission and come up with a satisfactory solution, the source added.

    A ChemChina spokesman was not immediately available.

    The Commission sometimes opens a full investigation to get a better understanding of complex takeovers, whereby some are eventually cleared with no or minor concessions, though this is probably not the case for ChemChina because of the wave of consolidation moves and the diverse interests involved.


    Regulatory scrutiny over the ChemChina-Syngenta deal comes as global agricultural chemicals makers bulk up to better compete with each other.

    Dow Chemical and DuPont plan a $130 billion merger, while Bayer aims to buy Monsanto for $66 billion.

    Syngenta Chief Executive Erik Fyrwald told Reuters he expected the EU anti-trust watchdog to take its regulatory review of the ChemChina deal to a second phase once the Oct. 28 deadline for fast-track approval passes.

    "I think it is likely and we are expecting it, but it is not certain," Fyrwald said. "The process was going along and then on Sept. 14 ... the Bayer and Monsanto deal was announced, since then in both the U.S. and the EU there has been a very large escalation in data requests and questions."

    The Commission declined comment.

    Fyrwald dismissed suggestions that the deal could be complicated by a possible merger of ChemChina and Sinochem.

    "We talk to ChemChina regularly on a range of issues ... and they have repeatedly assured us that they are not in any discussions about merging with Sinochem," he said.

    Fyrwald declined to comment on the regulatory impact of the other two big deals in the pipeline. "But I can tell you that the regulators are taking a very close look at everything."

    Syngenta reported third-quarter sales of $2.5 billion, down 3 percent year-on-year at constant exchange rates. The average forecast from analysts polled by Reuters was for sales to ease 0.5 percent.

    Syngenta stock rose 1.8 percent to 404.70 Swiss francs by 0530 ET, still well below the ChemChina offer price of $465 in cash per share plus a 5 Swiss franc special dividend, worth a total of around 467 francs.

    Liberum analysts, who rate Syngenta "buy", valued Syngenta at 357 francs per share should the deal not go through. ChemChina's offer also includes a break fee of $3 billion, or 32 francs per share, for an overall fair value of 389 francs, they wrote in a note.
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    ChemChina has not offered concessions over Syngenta deal -EU

    Chinese state-owned chemical company ChemChina has not offered concessions over its $43 billion bid for Swiss pesticides and seeds group Syngenta, the European Commission said on Monday.

    Syngenta shares fell after the comments from the EU competition enforcer. They were down 7.6 percent at 390 Swiss francs in early trade.

    The companies met with the EU antitrust authority a week ago in a bid to allay competition concerns about China's largest-ever foreign investment. They had until Oct. 21 to do so.

    "No commitments," Commission spokesman Ricardo Cardoso said in an email. This means either the Commission will clear the deal unconditionally or open a full investigation, a process can take up to five months.

    Syngenta said discussions with the EU were ongoing and that it would issue an update on the progress of the ChemChina deal with its third quarter trading statement on Tuesday.
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    Grain exporters in Argentina invest $1.2 billion in Rosario hub

    Companies that ship grains from Argentina including Glencore, Cargill, Cofco, and Bunge, will invest some $1.2 billion over three years to improve infrastructure in the main port network of Rosario, the government said on Friday.

    The largest investment came from Renova, a joint venture between Glencore Plc and Argentina's Vicentin SA, for 6.2 billion pesos ($410 million), according to export chamber CIARA-CEC. Renova will build a new dock and improve unloading areas and storage capacity by the end of 2017, CIARA-CEC said.

    At Terminal Six, the largest at Rosario, operators AGD, of Argentina, and Bunge are investing 1.66 billion pesos to improve railway access to the port and expand storage capacity through 2018.

    The grain exporters are the latest to pledge investment in the first year of market friendly President Mauricio Macri's government.

    Argentina is the world's No. 3 soybean and corn exporter and top exporter of soyoil and soymeal, but antiquated infrastructure and lack of investment over the past decade have threatened its competitive advantage. Rosario's terminals export around 80 percent of the country's grain output.

    "The news is more significant given that investments in the sector were paralyzed for some years," CIARA-CEC said in a statement.

    China's COFCO is also investing 420 million pesos to expand a dock for barges. U.S.-based Cargill committed investments of 140 million pesos and Nidera announced 255 million to expand storage, CIARA-CEC said.
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    China lays out plan for agricultural modernization by 2020

    China aims to achieve "marked progress" in agricultural modernization by2020, according to a five-year plan released by the State Council Thursday.

    The country will strive to ensure food security, improve the quality and efficiency of farmproduce supply, and enhance the sector's international competitiveness by 2020, the plansaid.

    It also targets all-round moderate prosperity for rural residents, and a beautifulcountryside.

    Modern agriculture should be established in the country's eastern coastal developedregions, major cities' suburbs, state farms and several demonstration areas, according tothe plan.

    The plan specified tasks to promote innovation, coordination, green development, openingup and farmers' welfare.

    Fourteen key projects will be carried out to attain the plan's goals. They include projects tocultivate high-standard farmland, integrate various sub-industries and ensure farmproduce quality.

    Fiscal and financial support will be given to the agricultural sector, while better landpolicies and farm produce market regulations will be introduced, the plan said.
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    Precious Metals

    Gold miner Newmont doubles dividend, says CFO retiring

    Newmont Mining (NEM.N) doubled its dividend on Wednesday and raised its production forecast for the year, as it reported a rise in third-quarter earnings, boosted by a higher gold price.

    The world's second-biggest gold producer by market value also announced that it had appointed Nancy Buese as chief financial officer from Oct. 31 to replace Laurie Brlas, who is retiring.

    Newmont, which also mines copper, kicked off the reporting season for large North American gold miners. They are expected to show improvement thanks to an average 19 percent rise in bullion prices in the third quarter from a year ago.

    The miner said it expects the sale of its stake in the Batu Hijau copper and gold mine in Indonesia to close in the fourth quarter. It had been due to close in the third quarter but Newmont's chief executive told Reuters last month the approvals process was complex.

    Greenwood Village, Colorado-based Newmont doubled its quarterly dividend to 5 cents from 2.5 cents.

    The company also updated its dividend policy, which is linked to the price of gold. The revised policy has the potential to increase payout levels by more than 100 percent starting in the first quarter of 2017, Chief Executive Officer Gary Goldberg said in a statement.

    Newmont reported net income from continuing operations of $169 million, or 32 cents a share, in the three months to end-September, up from $159 million, or 30 cents per share, a year earlier.

    Its adjusted net income increased to $202 million, or 38 cents per share, in the quarter from $70 million, or 13 cents per share in the same period in 2015.

    Newmont also raised the lower end of its 2016 gold production forecast. It now expects to produce between 4.8 million and 5 million ounce of gold this year compared to a previous forecast of 4.7 million to 5.0 million ounces.

    Attributable production at Newmont, which has mines in the Americas, Africa, Australia and Asia, rose to 1.25 million ounces in the quarter from 1.21 million a year ago.

    The miner's all-in sustaining costs, the gold industry cost benchmark, rose to $925 an ounce from $879 an ounce before, hurt by "inventory adjustments" at its Yanacocha mine in Peru and Ahafo mine in Ghana.

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    Barrick earnings climb but miner keeps lid on costs

    Barrick earnings climb but miner keeps lid on costs

    Barrick Gold Corp, the world's largest producer of bullion, reported a bigger quarterly profit on Wednesday, reflecting higher gold prices and lower costs, while cutting its 2016 production costs and lifting its output.

    Toronto-based Barrick, which has been selling off non-core assets and using cash flow to pay down debt, said profits were lifted by lower fuel and energy costs, smaller exploration and project spending, foreign exchange gains and the sale of higher-cost mines.

    Debt has been reduced by $1.4 billion year-to-date and the company said it is on track to meet its 2016 reduction target of $2 billion. In three to five years, it wants to reduce its $8.5 billion debt to below $5 billion.

    Barrick reported adjusted earnings of 24 cents per share in the three months to end-September compared with 11 cents per share in the same period last year. Analysts on average expected earnings of 20 cents a share, according to Thomson Reuters I/B/E/S.

    With mines in the Americas, Australia and Africa, Barrick increased its 2016 production forecast to a range of 5.25 million to 5.55 million ounces of gold, from a previous target of 5.00-5.50 million.

    Barrick also lowered its estimate of all-in sustaining costs to produce an ounce of gold to a range of $740 to $775 from a previous target of $750-$790. Capital spending for 2016 is also forecast lower, at $1.2 billion to $1.3 billion, down from $1.25-$1.4 billion in the second quarter.

    Third-quarter gold production declined to 1.38 million ounces from 1.66 million ounces, while all-in sustaining costs improved to $704 an ounce from $771. Copper output fell to 100 million pounds from 140 million pounds.

    Revenue dipped to $2.3 billion from $2.32 billion, while free cash flow fell to $674 million from $866 million.

    Barrick cut its 2016 production forecast for its Veladero mine in Argentina to 530,000 to 580,000 ounces of gold, from 580,000 to 640,000 ounces, citing severe weather and a near three-week suspension.

    All-in sustaining costs at the site were increased to $800 to $870 per ounce from $790 to $860.

    Veladero operations were suspended in September after falling ice damaged a pipe and some crushed ore saturated with a process solution containing cyanide spilled over a barrier.

    It was the second cyanide spill at the mine in just over a year. The suspension was lifted after Barrick completed measures, such as increasing the height of perimeter banks surrounding the leach pad.

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    Chinese miners in talks for stake in Barrick's Veladero mine - sources

    China's Zijin Mining Group Co Ltd and Shandong Gold Mining Co Ltd have held separate talks with Barrick Gold Corp to buy a 50 percent stake in its Veladero gold mine in Argentina, according to four sources with knowledge of the process.

    Veladero is one of Barrick's five core mines; all are in the Americas. It is expected to produce between 580,000 and 640,000 ounces of gold this year.

    The high quality of the mine, production capacity and the prospect for geographical diversification have appealed to the state-owned Chinese suitors, said three of the sources, who requested anonymity because the matter is private. All spoke over the past week.

    Barrick, the world's biggest gold miner, has not launched a formal sales process for Veladero, and there is no certainty that the talks will result in a transaction, the sources said.

    A potential sale of a 50 percent stake could fetch Barrick more than $1 billion, two of the sources said.

    Barrick's shares rose about 2.6 percent in early trade on higher gold prices, then extended gains after the Reuters report. They climbed as much as 6.7 percent, hitting their highest in more than three weeks and closing up 2.2 percent at C$22.57 in Toronto.

    "It's a sensible thing to reduce risk, and bringing in a deep-pocketed partner can help," said John Stephenson, president of Stephenson & Co Capital Management, who acknowledged that it is very difficult to make a joint venture work "in the best of times".

    "In a tighter operating environment with lower commodity prices, it's important to keep a focus on costs. I think this is a positive move for Barrick," he added.

    Last month, operations at Veladero were shut down for more than two weeks after a cyanide spill at the high-altitude mine. This was the second cyanide spill at the mine in a year.

    The deal would be the latest instance of Chinese companies investing in Latin America's resource-rich commodities sector, partly to help meet domestic demand. Chinese investors have poured billions into Latin American acquisitions in recent years, buying into copper and iron ore miners, oil and gas concessions and power grids.

    Barrick would like the buyer of the Veladero stake also to make an investment in its Pascua-Lama project in South America, two of the sources said.

    The gold and silver project, which straddles the border of Argentina and Chile in the Andes Mountains, was put on hold in 2013 due to environmental issues, political opposition, labor unrest and development costs that ballooned to $8.5 billion.

    The Canadian company wants help developing the mineral-rich area it controls, known as the El Indio belt, a 140-kilometer stretch of land home to Veladero and Pascua-Lama. Alturas, another large discovery owned by Barrick, is also on the El Indio belt.

    Last year, Barrick and Zijin, one of China's biggest gold producers, formed a strategic partnership, with Barrick selling a stake in its Papua New Guinean mine to the Chinese company. Zijin officials have visited Pascua-Lama several times, according to local media reports in 2014.

    Barrick has been trimming noncore assets to reduce debt. It has a public process under way in Australia to sell its stake in Kalgoorlie, an Australian gold mining joint venture with Newmont Mining Corp.
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    Nano technology could be a game changer for placer mines

    Nano-technology could come to the rescue of ailing gold companies.  A new recovery method using nano-technology promises to improve gold recoveries by upwards of 40%, and in some tests has achieved improvements of an astonishing 90%. For marginal mine operators, this is could clearly be a game changer.

    In August, the technology transitioned from pilot phase to full production at Nevada-based New Gold Recovery (NGR), and is already attracting interest from mining companies around the world. New York-based investment firm Unicore Group has taken a minority share in the company and sees this as one of the most exciting additions to its portfolio.

    UniCore Group’s senior managing partner, Herve Ime, says the expansion possibilities for NGR, given the parlous state of gold mining worldwide, is huge. “We decided to back NGR when it was still in its embryonic phase and the technology had not been commercially applied. The gold mining industry is crying out for something like this. We see this as a killer technology, rather like what Google is to the internet.”

    NGR started production in August 2016, and will ramp up to 2,000 ounces a month by 2017. That makes it a decent mid-level player. Apart from gold, the company will generate revenue by offering its technology on a profit-sharing basis with other producers.

    Given that margins in mining are so small – companies attempt to recover grams on the tonne – a small change in yield results in a large swing in profitability, and this could mean the difference between  life and death for many of the millions of mines, big and small, around the world.

    The developer of the technology is NGR CEO Anastasios Morfopoulos, better known as Tas. He has been working on a system for improving precious metals recoveries for the better part of a decade. It’s long been known that  placer miners are losing almost half of their gold in the traditional recovery process, which relies on mills to separate the gold from the ore and then traps the liberated gold by means of gravity as it is washed down a sluice. But as much as half of the gold ends up in the tailings. These are the tiny particles, generally smaller than 100 microns, that do not respond to gravity-based recovery. Until now, there has been no way for placer miners to trap these particles.

    Hard rock miners are also paying close attention to this ground-breaking development.

    Several years ago Morfopoulos had a Eureka moment when he realised that gold and other precious metals had a natural affinity for certain nano-particles. The precious metals can then be separated from the condensate without use of mercury, cyanide and other hazardous substances generally used in this type of mining, and which are in any event banned in most countries for health reasons.

    The initial results from the Tas 3 technology were promising, showing 40% and even higher recoveries over more traditional methods. Further refinements were made to improve the recovery grades before settling on what is now called Tas 3, the third and latest system evolution. The system is described as the first-ever green and eco-friendly placer mining technology for gold recovery.

    “We decided to use the technology to give us a recovery advantage as a primary producer,” says Morfopoulos. “Our studies show that placer mines lose up to 70% of their gold because they do not have a way to capture the fine gold particles. If we can recover that for them, then I think this is good news for gold mining generally.”

    Originally, the plan was for NGR to licence the technology on a tolling basis to other miners, but it was then decided to go into full-blown mining production using the proprietary technology. Morfopoulos says the technology will be made available to other miners, and says the company is looking for partners in Africa and elsewhere.

    The nano-technology is applied to a series of trays placed on a rack in a zigzag formation, trapping only precious metals as the concentrate flows over the tray formation. The dirt washes off, leaving up to 99% of the gold from the concentrate extracted.

    Hard rock mines, with their sophisticated recovery plants, have much better yields than placer (or alluvial) mines, but even here there is potential for improvement that NGR wants to harness. For the moment, NGR’s focus is on placer mining, but Morfopoulos says he is receiving tailing samples from around the world to see if recovery grades can be improved.

    NGR, through its wholly-owned subsidiary New Gold Nevada (NGN), acquired more than 3,400 acres of land in north-east Nevada, one of the world richest gold and silver producing region with over 50 active mines and annual production of 4.95 million troy ounces of gold and 10.94 million troy ounces of silver in 2014. NGR raised $5m by way of private placement, and brought in UniCore Group as its financial partner. This gave it sufficient capital to acquire the Black Rock Canyon Mine deposit, reckoned to have $480 million worth of gold deposits lying no more than 90 feet below the surface, and refurbish an old processing plant on the site. UniCore is currently exploring the possibility of raising an additional $10 million for expansion of mining operations, which Morfopoulos says will initially focus on high value deposits in the south-west U.S.

    The company recently secured approval from the U.S. Bureau of Land Management to commence mining operations. It also secured a water permit to allow it to establish settling ponds.

    Black Rock Canyon has an indicated resource of 9 69 907 cubic metres averaging 0.6 grammes per cubic metre gold and an inferred resource of 3 344 509 cubic metres of gravel which are estimated to average 0.48-0.72 grammes per cubic metre.

    The Tas 3 prototype was verified and cross-checked by two third-party inspectors: Bureau Veritas Group and Global Mineral Research, world-renowned metallurgical research labs.

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    Gold price: Hedge funds abandoning market at record pace

    On Monday gold continued to trade sideways with December futures trading on the Comex market in New York exchanging hands at $1,265.90 an ounce in European trade, down $1.80  from Friday's close.

    Gold has been on the defensive since the start of October and is still down nearly $50 after falling to a four month low of $1,243 on October 7.

    Year to date the metal is still managing gains of nearly 20% or more than $200 an ounce, one of its best annual performances since 1980.

    But there are signs that hedge funds active on the derivatives market have lost confidence in gold's ability to claw back losses suffered since mid-July when the metal touched a two-year high near $1,380 an ounce.

    During the previous two weeks speculators dumped more than 10 million ounces, the most rapid reduction since 2006, when government first started to collect the data

    Bullish bets placed by hedge or so-called managed money on gold futures and options are down by just over 50% from the July high and  below the net position reached in May, when gold came close to falling through the $1,200 an ounce level.

    According to the CFTC's weekly Commitment of Traders data up to October 18 released on Friday speculators added to short positions – bets that gold could be bought cheaper in future – and cut longs pushing bullish bets down to a net 13.7 million, the lowest since the beginning of March.

    During the previous two weeks speculators dumped more than 10 million ounces long gold, the most rapid reduction since 2006, when government first started to collect the data.

    Hedge funds dramatically raised bearish bets on gold during the final months of 2015 pushing the overall market into a net short position – bets that gold could be bought back at a lower price in the future – for the first time on record.

    The trend was thoroughly reverse this year however with investors building large bullish positions culminating in an all-time record number of net long contracts – bets that gold will be more valuable in future – in the first week of July of 28.7 million ounces.

    That was more than managed money investors' holding on the gold derivatives market in New York of August 2011 when gold was peaking at an all-time high of $1,900.

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    South Africa's AMCU union reaches tentative wage deals with platinum trio

    South Africa's AMCU union has reached wage deals in principle with platinum producers Anglo American Platinum, Impala Platinum and Lonmin, subject to final approval from its members, the union's president said on Friday.

    This means a strike has almost certainly been averted in South Africa's platinum sector, which is still recovering from a crippling five-month stoppage led by the Association of Mineworkers and Construction Union (AMCU) in 2014.

    "What our members have been demanding has been secured from the companies," AMCU President Joseph Mathunjwa told Reuters, without elaborating.

    Asked if AMCU had an agreement in principle with the three producers, Mathunjwa responded: "Yes, subject to a mass meeting of general members to confirm it again."

    He said the meeting would be held on Oct. 30 and AMCU would disclose more details at a press briefing next week.

    Known for its militancy and strident tone, AMCU had publicly sought wage increases of about 50 percent compared with offers in the single digits from the employers. It is not clear if AMCU watered down its demands to reach agreements.

    Earlier AMCU said in a statement that it had received its "members' mandate", which is union speak for their agreement, on wages at the trio of companies while Lonmin confirmed it had reached an agreement "in principle" with the union.

    However, Amplats said on Friday that "wage negotiations are progressing well" and it could "comment further in due course".

    Sibanye Gold will be relieved at a wage deal as it is set to take over Amplats' labour-intensive Rustenburg operations, which is where the company's AMCU membership is concentrated.

    AMCU dislodged the once dominant National Union of Mineworkers (NUM) on South Africa's platinum belt in a turf war that triggered violence in which dozens were killed. It is also trying to grow its membership in the gold sector.

    Heading off a strike is rare good news in the mining sector in South Africa, where investors have been rattled by labour unrest, policy uncertainty and generally depressed prices.

    Platinum prices rallied in the third quarter of this year but have since cooled and spot platinum is now only about 4.5 percent higher so far this year and below $930 an ounce.
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    Centerra’s Thompson Creek takeover establishes ‘leading low-cost gold producer’

    TSX-listed miner Centerra Gold has completed its acquisition of US-basedThompson Creek Metals, establishing a geographically diversified gold producer with a high-quality producing platform and a strong growth pipeline.

    The companies announced Thursday that they had completed a plan of arrangement through which Centerra acquired all of the issued and outstanding common shares of Thompson Creek for 0.0988 of a Centerra common share.

    “The transaction diversifies Centerra’s operating platform and adds low-risk production and cash flow from a very high-quality, long-lived asset in Mount Milligan, [creating] a leading low-cost mid-tier gold producer,” said Centerra CEOScott Perry.

    He added that the acquisition established an operating base in Canada, one of the lowest-risk mining jurisdictions in the world. “[This] will complement our Greenstone project and provide for further flexibility to expand into the Americas,” he added.

    The common shares of Thompson Creek have been transferred to Centerra’s newly formed, wholly owned subsidiary, Centerra BC Holdings, issuing 22.3-million shares to the former Thompson Creek shareholders.

    All of Thompson Creek's 7.375% senior notes, due 2018, and 12.5% senior notes, due 2019, have been redeemed at 101.844% and 106.250% of the principal amount redeemed, respectively, plus accrued and unpaid interest to October 20.

    Thompson Creek operates the world-class Mount Milligan mine in British Columbia, a low-cost asset with more than two additional decades of profitable production expected from the current reserve base.
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    Base Metals

    DeGrussa delivers another strong quarter

    Copper/goldminer Sandfire Resources has maintained its full-year guidance after another solid quarter of production at its DeGrussa operations, in Western Australia.

    During the three months to September, the DeGrussa mine delivered 15 610 t of contained copper and 9 731 oz of contained gold. This compares with 17 827 t of copper and 11 227 oz of gold delivered in the previous quarter.

    Sandfire told shareholders on Thursday that mining performance during the quarter reflected the continued focus on production scheduling, reliable stoping design and excavation, as well as improving mining fleet productivity.

    Opportunities to further enhance production would be explored, the miner said.

    A total of 52 665 t of concentrate, containing 12 437 to of copper and 7 482 oz of gold was sold during the quarter, with shipments completed from Port Hedland and the port of Geraldton.

    Sandfire maintained its targeted copper production of between 65 000 t and 68 000 t for the full 2017, while gold production is expected to reach between 35 000 oz and 40 000 oz during the full year.
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    Suspended Philippine nickel miner mounts first legal challenge to govt crackdown

    A suspended Philippine nickel miner said on Wednesday it has sued governmentenvironment agencies for a nearly four-month stoppage of its operations, in the first legal challenge to the state's environmental crackdown on the mining sector.

    The Philippines is the world's top nickel ore supplier and an environmental audit that has halted a quarter of its 41 mines plus the risk that 20 more may be shuttered has fuelled a rally in global nickel prices.

    Benguetcorp Nickel Mines Inc's (BNMI) mine in Zambales province, north of the capital Manila, is among 10 suspended for environmental infractions in a government clampdown on damage from mining in July and August.

    "Seeing that BNMI is left with no other viable administrative remedy, it is constrained to elevate to the Courts the matter of the unlawful suspension of its nickel mining operations," the company said in a statement.

    The company filed a "petition for certiorari with injunction to assail the suspension order" jointly issued by the Mines and Geosciences Bureau, Environmental Management Bureau and the Department of Environment and Natural Resourcesregional offices with a regional trial court in Pampanga province, said Anna Montes, spokeswoman for parent firm Benguet Corp.

    The petition was filed on Oct. 21 and the first hearing is set on Nov. 9, Montes told Reuters by phone.

    The Zambales mine of BNMI was among the first mines suspended by the government on July 8.

    The suspensions followed "various complaints of environmental degradation," according to Leo Jasareno, who was then director of the Mines and Geosciences Bureau. He said the suspensions would be in effect until the companies complied with conditions set by the agency.

    BNMI said the government environment officials rejected its proposal to address the problems. It said it was forced to lay off more than 1,000 workers since its suspension.

    "To avoid irreversible financial damage to its business and ease the hardship on other affected stakeholders, the company has no choice but to resort to legal action to obtain an equitable resolution to this controversy," it said.

    Environment and Natural Resources Secretary Regina Lopez, who spearheaded the mining audit, did not immediately return a request for comment.

    On top of the audit that was completed in August, Lopez said on Oct. 14 that her agency will review all environmental permits previously granted to the minerals industry.
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    Aeon in talks on Century assets, but liabilities a deal-breaker

    Australian base metals miner Aeon Metals said on Wednesday it was interested in parts of MMG Ltd's giant Century zinc mine, but would be unable to shoulder all of the liabilities of the mine that was wound down last year.

    "Aeon is unable to pursue a transaction based on MMG's preferred structure which involves taking on all the assets and liabilities associated with the Century mine and infrastructure," it said in a notice to regulators.

    "Nevertheless, Aeon has made clear to MMG its interest in certain assets of Century."

    Clean up costs at Australia's largest open-cut zinc mine stand at $378 million, nearly 10 times the market capitalisation of Aeon Metal, at A$48.7 million ($37.2 million).

    MMG, the Hong Kong-listed arm of state-owned China Minmetals Corp, had to hike its estimate of closure provisions more than 60 percent just months before shuttering the mine last year as the cost of remediation became clearer.

    The work includes capping and compacting waste dumps, and rehabilitating an evaporation pond and a tailings dam, but doesn't involve filling the open pit, which covers 3.5 square km (1.4 sq miles).

    "We are pleased with the significant interest in the Century mine assets and we will not provide commentary on the parties involved," a spokeswoman for MMG said.

    Major miners have been trying to sidestep hundreds of millions of dollars in closure costs by selling off pits and infrastructure, but the cost of environmental rehabilitation has made it tough to seal deals.

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    Miner Freeport-McMoRan cuts sales forecast for 2016

    Diversified U.S. miner Freeport-McMoRan Inc reported a weaker-than-expected quarterly profit and said it expects to sell less gold, copper and molybdenum this year.

    The miner now expects to sell about 4.8 billion pounds of copper and 1.26 million ounces of gold, down from its earlier estimate of 5 billion pounds of copper and 1.7 million ounces of gold.

    Freeport now expects to sell 73 million pounds of molybdenum compared with its earlier forecast of 76 million pounds.

    Like other miners, Freeport has been hit hard in recent years by a downturn in prices for commodities, including copper, gold and oil, at a time when its debt had soared on the back of acquisitions.

    The world's biggest publicly listed copper producer, which had a debt of $19 billion as of Sept. 30, unveiled in July a $1.5 billion share issue to help cut its debt and shift focus from its high-profile asset sales plan.

    Phoenix-based Freeport, which is under pressure from activist investor Carl Icahn, also cut a quarter of jobs in its oil and gas business in April and suspended its dividend in December.

    The company's net income attributable to shareholders was $217 million, or 16 cents per share, in the third quarter ended Sept. 30, compared with a loss of $3.83 billion, or $3.58 per share, a year earlier.

    Excluding items, the company earned 13 cents per share, below analysts' average estimate of 18 cents per share, according to Thomson Reuters I/B/E/S.

    Revenue rose 14.6 percent to $3.88 billion.
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    Protest ends at MMG’s Las Bambas copper mine in Peru, exports to resume

    Copper exports from MMG’s giant Las Bambas mine in Peru, which came online this year, are set to resume later this month or early November after a 10-day stoppage caused by protests against the operation came to and on Monday, the company said.

    “The Government of Peru and local communities have agreed a framework for future dialogue and cooperation in the region,” MMG said in the statement. “The process of restoring calm in local communities and the re-opening of essential infrastructure is now underway.”

    Copper exports from Las Bambas have driven economic growth in Peru as domestic demand remains weak.

    The miner also said it expects key road transport logistics to be restored progressively via an alternate route and people and supplies have begun to again move freely on local roads.

    Concentrate trucking, in turn, is expected to resume progressively in the coming days, MMG said.

    The news comes as supplies needed to keep operations at Las Bambas, one of the world's largest copper mines, were about to run out because of the main access roads being blocked by protesters.
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    Codelco copper premiums $80 to $85 Europe, $70 China – sources

    The world's biggest copper miner, Codelco, has slashed its 2017 physical copper premium to European buyers to the $80 to $85 per tonne range and is offering Chinese buyers a premium of around $70, three traders told Reuters this week.

    That would represent a deep cut from last year, underlining continued oversupply and demand weakness in the global copper market. Two of the sources said that Codelco would offer a premium of $82 to buyers in Europe.

    Codelco's premiums, the delivery charge buyers use on the London Metal Exchange to secure physical copper, are viewed as a benchmark for global contracts, and other producers are likely to follow suit.

    The state-run copper giant offered a Chinese premium of $98 and a European premium of $92 last year.

    Last week, Aurubis, Europe's largest copper smelter, offered its clients a premium of $86, down from $92 the previous year.

    Two of the traders said they believed Codelco this year will have less margin to offer premiums that are significantly higher than those that traders can obtain later in the year in the spot market.

    One trader said that premium pricing would be tricky this year in South Korea and Taiwan, as premiums in those countries are typically tied to the European premium and are below the Chinese one. As the Chinese premium is below the European premium this year, the source said, that pricing framework will not work.

    Treatment and refining charges, or TC/RCs, will be similar to last year or slightly lower, the traders said.
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    Las Bambas protests could halt copper production

    Copper bulls might be tempted to place buy orders after a protest at a Peruvian mine turned ugly about 10 days ago.

    That's because supplies needed to allow Las Bambas, one of the world's largest copper mines, to keep operating are running out because access roads are being blocked by protesters following a death on Oct. 14. The mine just came online this year.

    "Community roads are currently blocked and supplies for operating and subsisting are about to run out," mine owner MMG's CEO Andrew Michelmore said in a statement e-mailed to Reuters. "We now have large reserves that cannot be transported by road, a situation that cannot go on for much longer."

    The several thousand protesters are demanding that Peruvian President Pedro Pablo Kuczynski attend the scene in the highland province of Challhuahuacho.

    The group is protesting against the ongoing noise and high levels of dust close to the road used by trucks that carry the Chinese-owned mine's copper concentrates. The protests led to clashes with police that culminated in one of the protesters being shot by police.

    Interior Minister Carlos Basombrío said the victim died from a bullet wound to the head, presumably fired by Peruvian police while they attempted to disperse more than 200 protesters who had blocked an access road to the mine, the country’s largest copper operation.

    The government has now launched an internal probe to determine who authorized police intervention, local paper La República reports (in Spanish).

    Las Bambas produced 35,000 tonnes of the red metal in August, or almost a fifth of Peru’s overall output, official data shows. The operation is set to deliver 400,000 tonnes of copper per year during the first five years of production.
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    Steel, Iron Ore and Coal

    Vale posts Q3 net profit of $575 mln

    Brazilian miner Vale SA on Thursday reported third quarter net profit of $575 million, as the world's largest producer of iron ore returned to profit after a hefty loss during the same quarter last year.

    The result marks Vale's third quarterly profit in a row, a sign the miner may be through the worst of the downturn following a torrid 2015 in which it posted the worst loss in its history due to falling commodity prices and heavy investment in new projects.

    Net profit was down 48 percent from the second quarter, and below analyst estimates of $758.9 million, with Vale citing a weakening Brazilian currency against the dollar which caused a $379 million non-cash loss.

    But strong cash generation led to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.023 billion from net revenue of $7.3 billion, a result that analysts highlighted as positive.

    "The more recent emphasis on 'value over volume' certainly appears to be bearing fruit in terms of Vale's cost position," Paul Gait, analyst at Bernstein in London, said in a note to clients.

    Vale's net debt fell by $1.5 billion from the second quarter to $25.97 billion. Vale has said it aims to cut net debt to $15 billion by mid-2017, primarily through an aggressive program of asset sales.

    "It was a clean result, excellent operational performance with good cash generation," Chief Financial Officer Luciano Siani said in a video on the company website.
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    China sees a 2.4% drop in coal demand in 3Q, NDRC

    China's coal consumption dropped 2.4% to 2.84 million tonnes in the first three quarters, said Xu Kunlin, deputy secretary general of the National Development and Reform Commission, in a meeting held on October 25.

    Over July-September, the coal consumption began to edge up 0.5% or so on year after declines, with 4.8% of coal burns from power sector, he said.

    Raw coal output of China's above-sized coal producers (annual revenue of coal business above 20 million yuan) totaled 2.46 billion tonne during the same period, down 10.5% on year.

    "There will be scarcely any space for coal demand to swell in the future, and the supply glut will also not be fundamentally changed," said Xu.

    By 2020, China's coal consumption is expected to be 4.1 billion tonnes at most, while coal capacity is some 4.6 million tonnes per annum, he noted.

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    Iron ore giants use unconventional methods to lower costs

    From buying second-hand gym equipment to generic replacement parts, the world’s biggest iron ore producers are using increased ingenuity to keep on cutting costs at their mines — but it’s getting tougher.

    Even as Fortescue Metals Group Ltd. sources more parts from China and automates trucks and drills, its targeted reduction in full-year cash costs may be less than a quarter of the drop in 2014, according to company data. The top producers, threatened with declines in iron ore earnings from next year, face increased margin pressure as the pace of cost cutting slows, just as prices are forecast to drop.

    Limited opportunities to squeeze further savings from operations, together with forecasts for higher oil prices and  stronger operating currencies, means costs are more likely to increase, according to Global Mining Research Ltd. Banks including UBS Group AG and Citigroup Inc. anticipate a price slump next year as low-cost supply surges after a rebound this year on China demand.

    “For the next two or three years, it is inevitable” rising costs will add to a squeeze on producers’ margins, Adrian Doyle, a Sydney-based senior consultant on iron ore costs at researcher CRU Group, said by phone. “We are in a structurally oversupplied market.”

    Rio Tinto Group, the world’s second-biggest exporter, can expect earnings at its iron ore unit to drop by about $3 billion next year, according to estimates from Goldman Sachs Group Inc. , while Deutsche Bank AG sees a $1.4 billion decline. Rio, which earlier axed hot pies from mine site menus to cut costs, is continuing to target even small gains, for example, sourcing used gym equipment for its facilities at a Australian mine.

    Major savings from cuts to staff and capital expenditure, or by raising volumes to fully utilize capacity along railroads and at ports, have been largely achieved, according to David Radclyffe, Sydney-based managing director at Global Mining Research. Rio is now looking to about 1,000 initiatives from staff to win new savings, the producer’s top iron ore executive Chris Salisbury said in an internal memo this month.

    Heavy Lifting

    “The majority of the heavy lifting has been done, and you can already see it in the numbers,” Radclyffe said. “They have done a fantastic job at taking costs out, but obviously it gets harder and harder, and I don’t think that we see any scope for much more.”

    BHP Billiton Ltd., which reduced its iron ore cash costs 19 percent in fiscal 2016, sees a slower pace of savings in the current year, forecasting a reduction of 7 percent to $14 a ton. Rio cut its cash costs, which exclude freight and royalty charges, to $14.30 in the first six months of 2016, 12 percent lower than a year earlier.

    Fortescue is targeting more than 10 areas across mining, processing and procurement as it seeks to shave a further $3 a wet ton from cash costs, it said Tuesday in a presentation. The producer sees potential for savings by sourcing more goods from China, looking beyond original manufacturers for equipment components and by introducing remote operation of processing facilities.

    Even at its current break-even price of about $28 to $30 a ton, Fortescue would continue to generate good margins, Chief Executive Officer Nev Power said last week in a phone interview. “We do have a cost curve that supports an iron ore price which provides really good margins for all of us at the bottom of the supply curve,” he said Thursday.

    The Perth-based company, whose profits are forecast to drop about 47 percent in fiscal 2018, is targeting cash costs of between $12 and $13 a ton by June 30. Vale SA, the top exporter, had cash costs of about $12.75 in the first half and is  targeting new savings as it begins output from its lower cost, $14 billion S11D project in northern Brazil.

    CRU sees iron ore averaging about $49 a ton next year and $48 in 2018, before rebounding in 2019 as more higher-cost Chinese production is shuttered. Benchmark iron ore has averaged about $54 a ton this year as the material has advanced by more than 42 percent, according to Metal Bulletin Ltd. data. It surged 4.5 percent to $61.96 a dry metric ton on Tuesday.

    Aside from Vale, the biggest producers “might be able to eke out a dollar or two here and there, but if we look at forecast exchange rates and freight rates, they are going to basically counteract those reductions,” CRU’s Doyle said.

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    China's coal industry Jan-Sep profit up 65pct on year

    China's coal mining and washing industry profits surged 65% on year to 35.18 billion yuan ($5.19 billion) over January-September, compared with 22.48 billion yuan over January-August, according to data released by the National Bureau of Statistics (NBS) on October 27.

    During the same period, the coal mining and washing industry realized revenue of 1.6 trillion yuan, dropping 8.2% from a year ago, a slower decline compared with a fall of 10.2% in the first eight months, data showed.

    Total profit of the country's entire mining industry declined 62.1% on year to 76.14 billion yuan from January to September, with total revenue at 3.47 trillion yuan, a decrease of 8.5% from the year-ago level.

    Meanwhile, profit in ferrous and non-ferrous metal mining industry stood at 25.85 billion and 31.96 billion yuan, falling 20% and up 5.2% on year, respectively.

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    German economy minister sees no brown coal exit before 2040

    Economy Minister Sigmar Gabriel does not expect Germany to withdraw from brown coal in its power production before 2040, despite a growing debate over how to protect the climate from rising CO2 emissions.

    "It will on no account be switched off in the next decade - in my opinion not even in the one after that," Gabriel told an energy conference in Berlin.

    Calls have grown for Germany to set out a timetable for a withdrawal from coal in power production following the climate protection deal struck in Paris last December.

    The government has pledged to reduce CO2 emissions by up to 95 percent compared to 1990 by the middle of the century.

    Domestic hard coal mining will cease in 2018 and Germany's coal miners and users expect the country's last brown coal mines to close by around 2045.

    While coal will lose significance, Gabriel said it was important to first come up with alternative business opportunities in affected regions.

    Germany in June distanced itself from initial proposals to set out a timetable to exit coal-fired power production "well before 2050" as part of a national climate action plan.

    Now it plans to set up a committee for climate protection and structural change that will deal with how to exit brown coal production while ensuring jobs for the affected regions.

    The committee will be asked to come up with proposals by 2018.
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    POSCO Q3 profit jumps to more than 4-yr high on steel price gains

    South Korean steelmaker POSCO posted its strongest quarterly operating profit in more than four years, but cautioned results could weaken in the current three-month period as high raw material prices bite.

    POSCO, the world's fourth-biggest steelmaker in 2015, said on Wednesday that its consolidated operating profit rose to 1.03 trillion won ($908.79 million) in the third quarter, up from 652 billion won a year earlier and its strongest quarterly result since the second quarter of 2012.

    The operating profit also beat a consensus forecast of 904 billion won from a Reuters' poll of 15 analysts.

    Steel prices in China, the world's biggest consumer and producer, have rallied 50 percent this year as Beijing's efforts to reduce a crippling overcapacity in the sector there have led to lower inventories of the alloy.

    POSCO said this year's profit would far exceed earlier forecasts, which would lead to higher-than-planned dividends.

    After the earnings announcement, Moody's Investors Service revised POSCO's ratings outlook to stable from negative, citing a recovery in earnings and debt reductions.

    Still, Moody's expects that POSCO's operating income will fall moderately in 2017.

    "The level of earnings achieved in 3Q 2016 is not sustainable, based on overcapacity issues in China and Korea, as well as sluggish key end-markets in Korea, such as in the shipbuilding and automobile sectors," it said.

    POSCO shares fell 0.4 percent on Wednesday prior to the earnings announcement while South Korea's main index declined 1.1 percent.

    The steelmaker's shares have rallied 49 percent so far in 2016, tracking China's higher steel prices, bouncing back after falling a sixth straight year in 2015.


    The outlook for steelmakers has been clouded by a recent rally in coking coal prices that could squeeze profit margins.


    Comcast posts higher third-quarter revenue, adds video customers
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    As with steel, the pricing surge for coking coal - a key steelmaking material - has been driven by Beijing's efforts to tackle chronic overcapacity.

    "We plan to raise steel prices to cover the expected increase in costs, but it will be difficult to cover them fully," said Chon Jung-son, senior vice president.

    Raw material costs were expected to rise by 50 percent in the current quarter, Chon said.

    In Japan, surging prices for coking coal will likely drive Japan's top two steel producers, Nippon Steel & Sumitomo Metal and JFE Holdings, to miss their earnings forecasts for the year to March 31, adding to the troubles of the companies already reeling from a stronger yen.

    South Korean steelmakers are also facing tough export markets - where they are already struggling with competition from Chinese and other producers - after anti-dumping measures were implemented by the United States and India.

    The U.S. Commerce Department in August imposed anti-subsidy duties of 3.9 to 11.3 percent against most steelmakers in Brazil, Turkey and South Korea, but slapped POSCO with a 57 percent anti-subsidy measure.

    POSCO is considering launching an appeal against the anti-subsidy measure at the World Trade Organization, POSCO executive Jeong Tak said during an earnings conference, calling it an "unfair decision" aimed at "protecting its own industry."

    He also said POSCO will try to offset impact of the duties by expanding sales in other regions, including South Korea.

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    Brazil's Vale sees 50m tonnes of iron-ore entering 2017 market

    Brazilian miner Valeexpects 50-million tonnes of new iron-ore production to enter the global market in 2017, but it should be offset by falling production in China and increased steel demand, a company executive said at a conference in Rio de Janeiro.

    Paulo Salles, Vale's head of iron-ore marketing for South America, said that the 50-million tonnes would be composed of 28-million tonnes from Brazil, 18-million tonnes from Australia and 4-million tonnes from India.
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    All these Australian mines are reopening thanks to the rally in coal prices

    An ongoing rally in the price of Australia’s key exports, mainly coal and iron ore, is prompting miners to restart projects and resume operations at mines that were shut only a few months ago, when both commodities were trading close to 10 years-lows.

    At least seven coal mines are expected to resume operations before the end of the year — four in Queensland and three in New South Wales.

    Miner and commodities trader Glencore, for one, has reopened its Collinsville mine in Australia's Queensland state because of higher demand for the product in Southeast Asia and favourable prices

    The move by the world’s biggest supplier of thermal coal is expected to create about 200 jobs in the region.

    At least seven other coal mines are expected to resume operations before the end of the year — four in Queensland and three in New South Wales. These include Collinsville and Isaac Plains, which Vale and Sumitomo sold last year to Stanmore Coal (ASX:SMR) for only $1.

    But the potential multibillion-dollar windfall could be short-lived, economists have warned.

    NAB’s chief economist, Alan Ostler, believes that global production peaked in 2014, which together with action on setting a carbon price after the Paris climate accord will continue to suppress demand, inevitably affecting prices.

    Liberum analyst Ben Davis agrees. He said in a report last week that thermal coal may start a downward trend soon as Chinese policymakers decided to temporarily reverse limits on thermal-coal production until December.

    “We expect the hedging loss to shrink as thermal-coal prices drop faster than what is currently being implied by the forward curve,” he wrote.

    There also are still plenty of major companies including Peabody Energy, Anglo American and Rio Tinto that are trying to sell its coal assets. Meanwhile, BHP Billiton, the world’s largest mining company, warned last week that coking coal supply could grow “more quickly than demand” in the near term.

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    Shanxi's 58% coal-fired power plants in the red over Jan-Sept

    Northern China's Shanxi province, a major coal production base in China, saw 30 or 57.69% of coal-fired power producers in the red in the first nine months, mainly due to a decline of thermal power output over the period, showed the latest data from the Shanxi branch of National Energy Administration.

    Over January-September, power producers in the province realized profit of 3.02 billion yuan ($445.4 million), falling 55.7% year on year. In September, they suffered losses of 91 million yuan.

    Total profit of top five producers in the black stood at 978 million yuan, data showed.

    In the first nine months, Shanxi generated 168.07 TWh of thermal electricity, sliding 3.17% on year, accounting for 92.4% of the province's total electricity generation, which edged down 0.76% on year to 181.96 TWh.

    Electricity output from wind and hydropower was 9.26 TWh and 2.82 TWh over the same period, increasing 31.49% and 29.35% on year, respectively; solar power output surged 219.28% on year to 567 GWh.

    Over January-September, the utilization hours of power generation units in Shanxi declined 263 hours to 2,546 hours, with that of thermal power down 261 hours to 2,816 hours.

    By contrast, the utilization hours of wind and hydropower generation units stood at 1,332 and 1,156 hours, up 113 and 262 hours, while that of solar power production slid 142 hours to 762 hours.

    Shanxi consumed 130.9 TWh of electricity over the period, rising 1.57% from a year ago.

    The outbound electricity of the province fell 6.27% on year to 51.07 TWh in the first nine months, while the volume dropped 32.47% on month in September.
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    Ternium near buying ThyssenKrupp's Brazil mill, sources say

     Ternium SA has resumed looking at ThyssenKrupp AG's money-losing Brazilian steel mill CSA Cia Siderúrgica do Atlántico SA for a potential acquisition, months after negotiations failed to gain traction because of legal and environmental issues, three people familiar with the matter said on Tuesday.

    Talks for the acquisition of CSA are in an advanced stage, according to one of the people. While no formal offer for CSA has been made yet, interest from Ternium stemmed from the possibility of using CSA to produce more slabs, whose production is insufficient in Brazil, two of the people said.

    Ternium's Brazilian unit did not have an immediate comment. In a statement, Thyssenkrupp said it sees the future of CSA "outside the company," making it "perfectly normal that we should conduct talks with possible interested parties."

    The news was first reported by Japan's Nikkei newspaper on Tuesday.
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    China's key steel mills daily output gains 1.3pct in early Oct

    Daily crude steel output of China's key steel mills gained 1.28% from ten days ago to 1.74 million tonnes over October 1-10, according to data released by the China Iron and Steel Association (CISA).

    The increase was mainly due to strong demand from end users boosted by the state planner's approval of a bunch of infrastructure construction projects on road, railways, bridges and airports.

    The average daily crude steel output across the country was estimated at 2.29 million tonnes during the same period, rising 0.69% from ten days ago, the CISA said.

    By October 10, stocks of steel products at key steel mills stood at 13.88 million tonnes, up 5.35% from ten days ago, the CISA data showed.

    By October 23, total stocks of major steel products in China slid 3.86% on month to 9.16 million tonnes, the second consecutive drop on weekly basis, which indicated robust demand from downstream sectors.
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    Shaanxi asks coal mines to increase output for winter supply

    Northwestern China's Shaanxi province asked advanced coal mines to increase production to ensure supply for this winter, showed a notice jointly released by the provincial Development and Reform Commission and provincial Bureau of Coal Mine Safety.

    Except those advanced mines approved by the government, coal mines in Yulin, Yan'an and Xianyang with annual capacity above 1.2 million tonnes adopting fully-mechanized mining and meeting Level I safety standard with no safety accident record in recent three years should make monthly plan for production increase, the notice pointed out.

    Coal mines listed for capacity reduction over 2016-2020, mines ordered to suspend production or halt construction and illegal mines are not allowed to resume production, it said.

    Efforts made by the provincial government in cutting surplus capacity have shown initial effect in the past months. Raw coal output in Shaanxi dropped 9.93% on year to 321 million tonnes in the first nine months.

    By end-September, stocks at coal companies across the province fell 21.43% on year and down 29.9% on month to 2.87 million tonnes.

    The province planned to slash 101 coal mines with capacity of over 47 million tonnes per annum (Mtpa) in 2016-2020, with 18.24 Mtpa to be cut this year.

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    China sets another meeting to boost coal supply as prices surge – sources

    China's State planner has called another last-minute meeting to discuss with more than 20 coal mines more steps to boost supplies to electric utilities and tame a rally in thermal coal prices, according to two sources and local press.

    The National Development and Reform Commission (NDRC) has convened a meeting with 22 coal miners for Tuesday to discuss ways to guarantee supply during the winter while sticking to the government's long-term goal of removing excess inefficient capacity, according to a document inviting companies to the meeting seen by Reuters.

    The hastily-arranged meeting, the latest in a series of gatherings since early September, will discuss "how to reduce capacity, guarantee market supply as well as making sure the industry grows in a healthy way," according to the document.

    Local media reported earlier on Monday that the heads of some of China's largest coal producers, including Shenhua Coal and ChinaCoal, were invited to the meeting.

    The NDRC did not respond to requests for comment.

    The frequency of the meetings reflects growing concern about the spiralling cost of coal for utilities, which could lead to higher corporate and residential energy bills ahead of the winter, the highest electric demand period of the year.

    Steps to boost output have done little so far to tame the wild price rally.

    Coal futures on the Zhengzhou Commodity Exchange soared again today amid speculation about more cutbacks. The most-active January contract rose 3% to 614.8 yuan ($90.79) per tonne, the highest since the launch of the contract in May last year.

    Miner China Shenhua Energy Company rose 7.3% on Monday while China CoalEnergy Co jumped more than 10% to close at 6.57 yuan per share.

    Earlier this month, the NDRC dismissed the months-long rally in coal prices as unsustainable, saying output from local mines would further replenish the country's stockpiles.

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    Chinese commodity futures are going nuts with iron ore 'limit up' for the session

    Chinese commodity futures are going nuts with iron ore 'limit up' for the session

    Chinese commodity futures, led by iron ore, are flying yet again on Tuesday.

    Yes, it’s the rally that keeps on keeping on, defying every bearish forecast that seems to come its way.

    At the lunchtime break, the most active January 2017 iron ore future on the Dalian Commodities Exchange currently sits up a whopping 6%, it’s “limit up” level for the session.

    Put another way, it cannot move any higher today based off established market rules — that’s it for the upside until the evening session begins tonight, leaving the only option in the afternoon for prices to go lower.

    That is, of course, presuming there’s any brave souls willing to sell into the enormous surge in buying momentum. It now sits at the highest level since late August.

    The moves in iron ore futures are being replicated in other steel-related futures, albeit on a fractionally smaller scale.

    Coking coal futures in Dalian sit up 5.92% while rebar futures traded separately on the Shanghai Futures Exchange have also added 3.85%. Bullish price action in anyone’s language.

    As for the reason behind the surge in buying activity, as usual, there are many hypotheses but no definitive answers.

    Continued supply shortages is one reason being cited, as is short-covering from traders. General exuberance is probably another factor.

    However, it is noteworthy that the move in futures — something that began in the overnight session — followed a huge profit being reported by Chinese steel giant Baosteel on Monday.

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    Steelmaker Set to Be China’s No.1 Posts Biggest Profit Since ’12

    The listed unit of Baosteel Group Corp., the steelmaker that’s merging with a local rival to become China’s biggest, swung to its largest profit in more than four years in the third quarter, boosted by a rebound in prices in 2016 that’s aided producers worldwide.

    Baoshan Iron & Steel Co., the first of the world’s top, publicly-traded steelmakers to declare earnings for the quarter to September, posted net income of 2.13 billion yuan ($315 million), from a loss of about 920 million yuan a year ago, the company said in a statement on Monday. That’s the Shanghai-based mill’s best quarterly performance since 2012. Revenue surged 34 percent to 55.5 billion yuan.

    It also said it expects a 600 to 800 percent surge in 2016 net profit. Steel prices have rallied this year after China’s government aided demand with a credit-and-infrastructure splurge. The advance helped producers from Asia to Europe and the U.S. by resuscitating profit margins that’d been squeezed last year. State-owned Baosteel will become China’s largest mill, and the global No. 2 by output, when it takes over Wuhan Iron & Steel Group Corp. in a merger granted government approval this month.

    “The steel market on the whole picked up in the third quarter,” Baoshan Steel said in the statement. “But the industry situation of supply exceeding demand still persists.”

    Hesteel Co. Ltd., the listed unit of the group that’s still China’s top producer, will confirm third-quarter earnings Wednesday after saying this month it expects net income to be higher than any quarter since 2010. Posco, South Korea’s biggest, is due to report figures the same day, while Japan’s Nippon Steel & Sumitomo Metal Corp. will report next Monday.

    Shares in Baoshan, which bottomed at 4.83 yuan in February, rebounded in Shanghai to 5.57 yuan on Monday. Hot-rolled coil, a benchmark product used in everything from buildings to cars and machinery, has surged more than 40 percent in 2016 on the Shanghai Futures Exchange, after a 33 percent slump in 2015. The results were announced after the close of trade.

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    Coking coal, coke 'set to rise further' on strong demand

    Domestic prices of coking coal and coke, crucial raw materials for the steel sector, will continue rising because of shortages, experts told the Global Times on Monday.

    But experts also warned that with the country apparently poised to take more measures to combat steel overcapacity, steel mills' demand for these raw materials might fall.

    From October 11 to 20, the price of coking coal, a key raw material in steel manufacturing, was up 5.2 percent to 893.8 yuan ($131.96) a ton compared with the previous 10 days, the National Bureau of Statistics (NBS) said on Monday.

    The price of coke was up 3.9 percent to 1,481.5 yuan per ton during the same period, also compared with the previous 10 days, NBS said.

    "Several coking plants said their supplies of coking coal and coke are quite limited," Jiang Haihui, a senior analyst at Shanghai-based SHZQ Futures, told the Global Times on Monday.

    "The supply shortage mainly leads to recent price hikes," Jiang said, noting that shortages are likely to persist, meaning prices will rise further.

    Domestic coal mines, except those that have specific safety requirements, can only produce at most 276 days a year, a limit that aims to cut coal output and maintain the sound development of the coal industry, according to a statement posted on the website of the National Development and Reform Commission in March. Previously, coal mines could produce 330 days per year.??

    In the first nine months of 2016, output of China's coking coal sector was down 1.6 percent at 331.74 million tons, according to data released by the NBS on October 19.

    "Domestic steelmakers' demand for coking coal and coke is still increasing. They don't want to reduce or stop output as they want to maintain a stable market share for the long term," Wang Guoqing, research director at Beijing Lange Steel Information Research Center, told the Global Times on Monday.

    From October 17 to Friday, among the 100 small and medium-sized steelmakers tracked by Beijing Lange, 89.65 percent were in operation.

    The overall market outlook remains positive in the near term as steelmakers still maintain high production levels, so they will have a strong demand for coking coal and coke, said Wang, noting that coking plants had benefited from price hikes recently.

    However, for the longer term, China's drive to cut steel overcapacity means the demand for raw materials might decline, which may drive coking coal and coke prices down, Wang said.

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    China Sept coking coal imports up 40.5pct on year

    China's coking coal imports surged 40.5% on year but down 14.3% on month to 5.56 million tonnes in September, showed the latest data from the General Administration of Customs (GAC).

    According to the GAC, value of the imports stood at $384.51 million in September, rising 26.9% on year but down 19.4% on month, which translated into an average price of $69.16/t, down $4.35/t from August.

    The surge on imports from a year ago was mainly due to limited domestic supply under the 276-workday regulation.

    Yet, fewer deals were concluded than August, because domestic buyers were reluctant to accept expensive imported material, which was mainly pushed up by robust interest from Japan, Europe and Indian users.

    By the end-September, the CFR price of premium low-vol Australian HCC was assessed at $208/t, up $62.25/t from the month-ago level; while the ex-washplant price of Liulin low-sulphur primary coking coal stood at 960 yuan/t, rising by 240 yuan/t on month, showed data from China Coal Resource (

    Over January-September, the country's coking coal imports climbed 20% on year to 43.48 million tonnes; the value of the imports was $2.91 billion, falling 3.9% year on year.

    Meanwhile, China's exports of coking coal dropped 59.7% on year and down 16.7% from the previous month to 50,000 tonnes in September, with the value at $5.17 million, falling 60% on year.

    In the first nine months of 2016, China exported 920,000 tonnes of coking coal, rising 22.9% from the previous year, with total value of the exports decreasing 0.5% on year to $82.76 million.

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    Four global mining giants set for $18 bln coal boost

    An unlikely resurgence in coal price this year, which was mainly caused by China's capacity cuts in coal industry, could deliver an $18 billion boost to the four London-listed big mining groups, including BHP Billiton, Rio Tinto, Glencore and Anglo American, The Australian reported on October 24.

    The biggest leap has been in coking coal for steelmaking purpose, with price rising to $243/t from $78/t at the start of this year, according to the Steel Index. The price of thermal coal used in power stations is up 50% during the same period.

    Chinese government relaxed production cuts this month as winter approached, bringing with it peak demand for fuel.

    Analysts at Investec recently pointed to a double-digit output increase from China Shenhua. "Such action will eventually stabilize coal prices, but it is anybody's guess where prices will settle," they said. "The Chinese government is firmly in the driving seat on this."

    The coal rally arrived at an unlikely moment. Prices were at their lowest in years and forecasters, such as the International Energy Agency, expected the slump to continue, based on the speed at which China was weaning itself off coal-fired power.

    The British government has pledged to phase out coal power by 2025 and coal generation hit zero on one day in May for the first time in history.

    Coal's share of total energy generation is predicted to fall from 40% to 29% by 2040, according to the US Energy Information Agency. However, coal demand is still expected to rise as emerging economies in Asia see coal-fired power plants as the easiest way to start generating electricity.

    Coal use will be drastically lower if steps are put in place to limit the rise in global temperatures to 2 degrees Celsius. Wood Mackenzie, an analyst, calculated that coal's share of generation would fall to 16% by 2035.
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    Glencore secures 48 percent hike in thermal coal price

    Glencore and Japanese power utilities have settled quarterly thermal coal contract prices at $94.75 a metric ton, up from around $64 last quarter, sources confirmed on Tuesday, reflecting a surge in spot prices.

    The Japanese buyers agreed to pay the higher price to secure supplies of high quality thermal coal from Australia, the Financial Times reported overnight.

    Glencore reached the settlement with Japan's Tohoku Electric following two months of negotiations, an industry source with knowledge of the matter said.

    "We were told it came in at $94.75, which was not unexpected given the surge in spot," added a coal trader in Sydney.

    Australian Newcastle spot cargo prices for November have almost doubled since June to $100.25 per metric ton, the highest since 2012.

    The price rally for thermal coal, used to generate electricity, was triggered by a Chinese government decision to cap its mining output to address labor issues and pollution, forcing its utilities to import more coal.

    The intervention cut China's mining output by around 15 percent and sent buyers back to global markets to meet the shortfall.

    Glencore is the world's biggest supplier of sea-traded thermal coal and typically sets pricing for the sector.

    Glencore declined to comment, citing a policy against speaking publicly about price negotiations with its customers.

    Japan's thermal coal imports remained stable year-on-year in the first six months of 2016, reflecting a slower-than-expected restart of nuclear power capacity and steady use of coal-fired power generation as a substitute.

    Australia's thermal coal exports in fiscal 2017 ending June 30 are forecast to increase 1.6 percent year-on-year to 204 million tonnes, with China's spike in import demand in the first half of the year more than offsetting declines in India, according to Australia's Department of Industry and Science.

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    Steel giants hit by losses see hope in complementary businesses

    Chinese steel companies are managing to ride over the tough times thanks to complementary businesses, said a top official of president of China Metallurgical Industry Planning and Research Institute on Saturday.

    "Steel covers a wide range of industries, including minerals, recycling, logistics, environment management, finance and steel deep processing, which provide a lot of options for the steel smelters," said Li Xinchuang, the president of the institute.

    The major complementary businesses of steel companies include high technologies, waste gas recycle, real estate and finance.

    In 2015, large- and medium-sized steel companies in China reported 112.7 billion yuan ($6.77 billion) loss in their main business. In comparison, their complementary businesses recorded 48.1 billion yuan's profit.

    The complementary businesses of some of the super-large steel smelters, such as Baosteel Group, Shougang Group and Wuhan Iron and Steel Group, have reached or exceeded 100 billion yuan.

    Li suggested that the complementary businesses should be part of the steel smelters' long-term plans.

    "The complementary businesses can form its own cycle where real estate, trade, new energy and logistics generate sufficient cash flow and profits to support deep processing and waste management. This way, the companies' portfolio will be more diversified and less reliant on steel, which is facing overcapacity downsizing pressure," said Li.

    Li Bing, chief of the corporate reform office of the State-owned Assets Supervision and Administration Commission, said that China's urbanization will generate huge potential for steel demand.

    According to Li, China's urbanization rate, which is 55.9 percent, is far lower than the average 70 percent among developed countries.

    "The need for houses and automobiles in China has far been satisfied. The problem is that the population in large cities is stretching the limited resources because they don't want to stay in mid and small cities. As urbanization deepens, the potential demand will drive up industries in various sectors," said Li Bing.

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    Gladstone port Sept coal exports down 11.1pct on month

    Coal exports from Australia's Gladstone port fell 11.1% on month and down 9.1% on year to 5.46 million tonnes in September, port authority said in the latest report.

    As the largest importer, Japan took delivery of 1.92 million tonnes of coal from Gladstone in the month, down 15.5% from August and down 4.5% on year.

    India's coal purchase volumes from Gladstone port fell 18.9% on month and down 27.6% on year to 1.22 million tonnes.

    China buyers followed and took delivery of 1.07 million tonnes of coal from Gladstone port last month, surging 42.9% on month and up 71.2% on year.

    South Korea imported 577,000 tonnes of coal from Gladstone, down 40.2% from August and down 34% from a year ago.

    Taiwan's coal imports from Gladstone stood at 292,000 tonnes last month, roaring 47.5% on month but down 6.1% on year.
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    China Sept thermal coal imports up 17.3pct on year

    China imported 8.14 million tonnes of thermal coal (including bituminous and sub-bituminous coal) in September, rising 17.29% on year but down 23.57% on month, showed the latest data released by the General Administration of Customs.

    The value of the imports totaled $466.57 million, translating to an average import price of $57.32/t, rising $2.17/t from a year ago and up $7.92/t from the month prior.

    Over January-September, China imported 68.62 million tonnes of thermal coal, up 7.66% from the year-ago level. Total value stood at $3.05 billion, down 20.62% year on year.

    China imported 8.65 million tonnes of lignite in September, soaring 86.83% year on year and up 31.46% on month, with the value increased 76.65% year on year to $307.38 million.

    Total lignite imports in the first nine months this year reached 48.71 million tonnes, up 30.45% year on year, with value at $1.94 billion, up 21.82% year on year.

    Meanwhile, the country exported 150,000 tonnes of thermal coal in September, with value at $9.77 million. Thermal coal exports from January to September stood at 2.48 million tonnes, with value at $178.32 million.

    China's export of lignite edged up 1.3% on year to 30.57 million tonnes over January-September, with values at $220,000; lignite export in September dropped 81.5% on year to 40 tonnes, with value at $2,000.
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    China's Zhengzhou exchange to raise fees for coal futures

    China's Zhengzhou Commodity Exchange will hike transaction fees for its thermal coal futures contracts, it said on Monday, which may act to reduce trading activity amid a historic price rally and a surge in speculative investment in the volatile market.

    Thermal coal transaction fees will be increased from 4 yuan ($0.59) per lot to 6 yuan per lot, effective from the night session on Monday, the exchange said in a statement on its website.

    The move came as the most-active January coal futures rose 3 percent to 614.8 yuan ($90.79) per tonne on Monday, the highest since the launch of the contract in May last year. Coal prices have risen amid growing concerns about tightening domestic supplies after government-enforced cutbacks.

    Total volume on Monday for the January future was 1.3 million contracts, equivalent to 130 million tonnes of coal, an all-time high and up more than 35 percent from Friday.

    Earlier this month, Beijing dismissed the months-long rally in prices as unsustainable and without foundation.

    The government has called another meeting for Tuesday to discuss more measures to boost supplies after previous efforts have done little to deflate the surging prices.

    Earlier this year, the exchange raised trading margins for the contract and trading limits.

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    China to curtail 140 Mtpa steel capacity by 2020, CISA

    China planned to curtail 140 million tonnes per annum (Mtpa) of steelmaking capacity by 2020, with 70% of the target to be finished by 2018, said Chi Jingdong, vice president of China Iron and Steel Association (CISA) on October 20.

    It was the first time for China's steel industry officials to make public the detailed de-capacity target, after a goal of 100-150 Mtpa set for the next five years was released by the State Council in January this year.

    The country will slash 45 Mtpa of steel capacity this year, with over 80% completed in the first three quarters, said the Ministry of Industry and Information Technology of China in a press conference on October 20.

    Meanwhile, a total of 180,000 layoffs will be resettled this year.

    By mid-October, domestic steel products price increased 30% from the start of the year.
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    Nippon Steel seeks 10,000 yen/T price hike as coking coal values surge

    Japan's biggest steelmaker Nippon Steel & Sumitomo Metal Corp is seeking an increase in product prices of about 10,000 yen ($96) per tonne from customers amid surging coking coal prices and weak margins, its president said.

    "We've sought a price hike since the first half of this financial year to improve our margin," Nippon Steel President Kosei Shindo told a news conference. "Given the surge in coking coal prices, we are now seeking an increase in (steel product) prices by 10,000 yen (a tonne) in total."

    Prices of steel making coal, or coking coal, have more than doubled this year.
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    Cleaner, but not leaner: China steel mills defy capacity cutbacks

    Chinese steel mills are becoming cleaner every month as Beijing pushes to curb its smoke-stack industries. But they're not getting any leaner.

    Despite efforts to step up environmental checks and trim out excess capacity, steel output by the world's top producer has risen year-on-year for the past seven months.

    As emissions cuts will mean steel mills are better able to meet stricter government standards, Beijing may find it more difficult to cut overcapacity in a sprawling industry.

    For now, domestic demand from infrastructure and construction has been robust, absorbing most of the extra supply. But a steeper slowdown in the world's second-largest economy could force mills to ramp up sales abroad.

    That could rekindle tensions with Europe and the United States, major trading partners which have for years accused China of dumping its excess steel overseas, hitting producers and hurting global prices.

    The issue took center stage at a recent G20 summit in China when world leaders pledged to work to address excess output.

    China's top steel producing city of Tangshan in Hebei province illustrates Beijing's dilemma. Hosting a months-long international horticultural show, Tangshan had a major six-month clean-up to ensure blue skies for visiting dignitaries, including the country's president Xi Jinping.

    Industry experts predicted this would see a big drop in output in a province that accounts for a fifth of national production, going some way to realizing government goals on output and capacity cuts.

    But production dipped by far less than expected as mills sustained output even as they cleaned themselves up.

    They could do this largely because steel prices SRBcv1 have risen 40 percent this year, and strong domestic demand is expected to continue, underpinning those increases, though exports have fallen to their lowest since February.

    By end-September, China had completed more than 80 percent of this year's capacity reduction goals in coal and steel, said Huang Libin, an official at the Ministry of Industry and Information Technology.

    China has targeted a cut of 45 million tonnes from its surplus steel capacity this year.

    But the battle to tackle excess capacity and curb pollution has failed to dent production. China's annual crude steel surplus is estimated at around 300 million tonnes, three times the annual output of the world's second-biggest producer, Japan.

    "If steel mills are profitable, there's no reason for the government to order them to reduce production if they meet environmental criteria," said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.


    While many of Tangshan's small mills have closed, bigger plants have installed or upgraded equipment since a nationwide environmental crackdown began in 2014, industry sources say.

    Some were forced to cut sinter production - processing iron ore fines into lumps - for a few days in September and October to clear the skies during the recent horticultural show. But the city's about 150 blast furnaces only dropped output three times - in June, July and September - and for only a couple of days during the six-month clean-up, according to a survey by industry consultancy

    The biggest drop was in early June when operating rates fell below 65 percent as leaders from central and eastern Europe gathered in Tangshan for talks on economic ties, followed by another fall in July as the city prepared to commemorate a 1976 earthquake that killed at least 250,000 people.

    Otherwise, mills have been operating at above 80 percent of capacity this year, the survey showed.

    "Production can be flexible. Even if production at steel mills is hit temporarily by the environmental crackdown, they can increase production later to offset the losses," said Xia at Hangzhou CIEC Trading.

    The government looks ready to keep targeting Tangshan's mills in its war on winter smog, with Hebei province last week imposing what it calls "special emission restrictions" on local steel mills, according to a policy document.

    Last month, the National Development and Reform Commission, China's state planner, said it punished hundreds of steel and coal companies nationwide for violating environmental and safety regulations. Some were forced to close or cut output.

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    China called a halt to construction work on 30 large coal-fired power plants

    Chinese leaders have called a halt to construction work on 30 large coal-fired power plants with a combined capacity of 17GW — greater than the UK’s entire coal fleet.

    This unprecedented move indicates just how serious the Chinese authorities are about bringing the country’s coal power bubble under control.

    And those 30 plants aren’t the only ones that are being stopped.

    The policy also dramatically scales down plans for transmitting coal-fired power from the west of China to the coast through a network of very long-distance transmission lines.

    Another 30 large coal plant projects, for which transmission lines were already under construction, are being axed.  

    Ten of those plants were already under construction but will now be marooned as they will have no connection to the grid.

    This means China is stopping work on the equivalent of the combined coal-fired capacity of UK and Spain.

    Up to now, the Chinese government had avoided interfering in projects that had already been contracted and financed, and where construction had started.

    The cancellations will be painful, and entail major commercial losses and disputes.

    But spending money to complete these unneeded coal plants would have been even more wasteful — it would likely have cost well over $20 billion.

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    China's utilities beg for coal as supply expansions yet to kick in

    China's electric power utilities are scrambling to get coal from anywhere they can, but are coming up short as efforts to boost supply take time to come into effect.

    China's government in September ordered miners to boost thermal coal output by 1 million tonnes per day, but it will take months before new supplies from the recent reopening of mines hits the market. Additionally, new rules on trucking have caused logjams in deliveries and transportation price spikes while suppliers at home and abroad are digging in for ever-higher prices.

    Together this is causing a major headache for China's power companies as they rush to secure feedstock ahead of their highest demand period during the Northern Hemisphere winter.

    "A couple months ago, when prices are low, we have begged power plants to sign more long-term contracts, but they refused," said a trader based in Shandong province, one of the nation's top producing regions.

    "Now they begging us to give them more supply."

    In a major break from the tradition of agreeing to monthly contracts, some small coal miners are only pricing on a daily basis and accepting cash upfront, said two analysts and a coal trader who have spoken to the utilities.

    That has added a major strain to the electricity companies' cash flow and eroded profits.

    Beijing's steps to boost coal supplies have done little to derail the months-long price rally. South China coal futures prices hit record highs this week above $85 per tonne, up by 21 percent since the start of the month.

    The quickening pace of the gains has stirred speculation that the government may wade in again to try and calm the markets and soothe utilities' concerns about tighter supplies and falling profits.

    "Some electricity producers (only) break even or are on the brink of losses. If the coal prices continue to rise from the current level, the majority of power plant will turn into losses," said Zheng Min, a coal analyst at China Sublime Information Group.


    Adding to the tumult are new trucking rules that came into effect on Sept. 21 aimed at cracking down on lorries that were illegally converted to carry extra weight.

    The regulations have affected the transportation of commodities from petrochemicals to pigs but has hit coal the hardest given the race for raw materials.

    Since being introduced, truck rates have jumped some 30 percent to 400 yuan ($59) per tonne. Smaller players do not have access to rail freight as an alternative, although those prices are also rising, traders said.

    Analysts who have visited some mines in Shaanxi province, one of the largest producing coal regions, report seeing long lines of trucks in and out of plants as power companies rush to secure feedstock.

    "With buyers, a serious problem has been they cannot find enough trucks, not to mention the delay to port due to traffic," said Xiaojing Zhang, an analyst at Everbright Futures.
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    Coal India to maintain prices despite rising international coking coal market

    CoalIndia Limited (CIL) has decided to maintain its domestic coking coal prices to liquidate stocks and offer an import substitution window to local steel producers, as international coking coal prices surge.

    According to a CIL official, by maintaining price of domestic coking coal, CIL expects to woo domestic steel producers that, according to two analysts’ reports, have booked imported coking coal at average price of $200/t for October to December deliveries.

    The official said that CIL had sufficient coking and thermalcoal stocks. Besides maintaining domestic prices, the miner would also ramp up volume offerings to give local steel mills the opportunity to shift to domestic dry fuel.

    While welcoming the CIL move, steel company officials have expressed reservations over the efficacy of the move’s impact on costs of steel production. They maintained that steelcompanies were yet to work out cost benefits of domestic coking coal factoring in railway freight charges in relation to the landed cost of coking coal, particularly for steel mills located along the coast.

    CIL officials said that most of the higher supplies of cokingcoal to steel companies would be through forward auctions to be conducted by CIL over the next three to four months of current financial year.

    In current round of forward e-auction, which got under way on Wednesday, CIL had put on offer 20-million tons, the official said.

    Depending on the response to the current auction round, CIL had the ability to progressively increase volumes on offer and such volumes would be dependent on off-take at the on-going auction, he added.

    Meanwhile in a related development, large Indian steelcompanies have requested that the government scrapped the 2.5% import duty on coking coal in light of rising international prices.

    In a memorandum submitted to the government ahead of Union Budget 2017/18, steel majors including Tata Steel,JSW Steel and Essar Steel, pointed out that coking coal had been exempted from import duty until 2014.

    Considering the rising international prices, the steelproducers believe the government should  scrap the duty  toenabled steel companies to reduce costs of production and to cope with depressed demand and prices.

    Steel company officials claim that the Steel Ministry had assured them that it would support the demand with theFinance Ministry, which had started preparatory work on the national Budget.

    According to published data of the Steel Ministry, in the current year, India has imported an estimated 50-million tons, compared with 43-million tons shipped in 2015/16. Imports are forecast to rise to 190-million tons by 2025 by when steel production is targeted at 300-million tons a year.
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    China increases limits on construction of coal-fired power plants

    China will further limit construction of coal-fired power plants by cancelling some projects that were already approved this year, the National Energy Administration (NEA) said on October 20.

    China will postpone construction of some coal-fired plants that have already secured approval, according to a statement posted on the NEA's website.

    The agency will also stop the building of any project that started this year and reassess the schedule for those that started in 2015, it said.

    It was not immediately clear how many plants this might involve.

    The NEA will also limit the capacity of some big coal power projects in major coal producing regions that are still under construction, it said.

    In northwestern Xinjiang, the planned output for the East Junggar Basin Coal Electricity Complex plant will be cut in half, while in northern Inner Mongolia, the Xinlingol project capacity will be capped at 7.3 GW per year by 2020, it said.

    The plan is an expansion of the government's prolonged effort to produce power from renewable energy such as solar and wind, and wean the country off coal, which accounts for the majority of the nation's power supply.
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