Mark Latham Commodity Equity Intelligence Service

Wednesday 20th April 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Who speaks for Saudi Arabia on oil, rivals and allies wonder


    As far as Venezuelan oil minister Eulogio Del Pino is concerned, his counterpart Ali al-Naimi, the world's most influential oil official for the past two decades, is no longer the voice of authority for Saudi Arabia.

    Del Pino is still trying to find who is.

    As prospects for the first deal between OPEC and non-OPEC in 15 years faded on Sunday due to last-minute demands from Saudi Arabia, ministers gathered in Qatar appealed to Naimi to save the agreement, Del Pino said.

    "Unfortunately, the people representing the Saudis at the meeting didn't have any authority at all," Del Pino told reporters in Moscow on Monday, a day after Saudi Arabia's demand that arch-rival Iran sign on ruined a widely expected agreement to freeze output.

    "Even Naimi didn't have the authority to change anything. The Saudis said, 'we have new papers and either you approve them or we don't agree'," Del Pino said. "It was a purely political decision... Oman, Iraq, everyone was disappointed and one minister told me it was his worst-ever meeting."

    OPEC member Venezuela, one of the hardest hit by the latest oil price collapse, has had a tense relationship with the cartel's de facto leader Riyadh for decades.

    But Del Pino's frustration is being echoed inside and outside the Organization of the Petroleum Exporting Countries since Deputy Crown Prince Mohammed bin Salman became the kingdom's top oil official last year.

    Few Saudi or OPEC watchers have doubts that the 31-year-old Prince Mohammed is ultimately in charge of oil policy at the world's largest oil exporter. He is also in charge of defence and economic reform.

    But after decades of hearing mostly one technocrat reliably articulate that policy to the outside world -- Naimi -- a proliferation of voices is causing more confusion than clarity, they say.

    Besides Prince Mohammed, the second in line to the throne, those voices also include Naimi's deputy and an older half-brother of the deputy crown prince, Prince Abdulaziz, as well as state oil giant Saudi Aramco's chairman Khalid al-Falih.

    Added to those is the persistent presence of Naimi himself, despite rumours that the 81-year-old would soon be allowed to retire.

    Saudi policies have never been easy to read, but the unpredictability has risen steeply in recent months, Saudi watchers said. That is particularly unwelcome given the worsening relations between Riyadh and Tehran, which are fighting proxy wars in Syria and Yemen.

    Gulf OPEC sources said that although the Saudis' Gulf allies quickly came into line behind Naimi during the meeting on Sunday, his decision came as a complete surprise to them. The kingdom usually consults with Kuwait, the UAE and Qatar.

    A senior source familiar with discussions said he thought Naimi himself was not aware of the change in plan until late in the game.

    "I think it was a last-minute decision, otherwise Naimi would not have come," the source said. "Naimi flew to Doha with an intention to close a deal and when he arrived in Doha, he got another instruction not to do it."

    Up until Saturday, Prince Abdulaziz was assuring everyone privately that there would be a deal, sources close to the discussions said.

    Qatari officials were also telling participants that the Emir of Qatar, Sheikh Tamim bin Hamad al-Thani, had clinched Prince Mohammed's agreement that there would be a deal no matter whether Iran took part or not, the sources said.

    For Russia, which also meant to join the global freeze deal, the change in the Saudi position was a huge surprise because the Kremlin had thought it had cut the deal with almost everyone who matters in Saudi Arabia, Russian sources said.

    Russian oil minister Alexander Novak was so confident in the deal's success on Sunday that he was the last minister to arrive, having spent most of Saturday playing for the Russian government's soccer team against Italy.

    "At the end of the day it didn't really matter who we were speaking to, Naimi or Prince Mohammed. The Saudis just changed the policy," said a source close to Novak, who was at the Doha talks.

    "Of course, we will continue talking to the Saudis. But it is so difficult," the source said.

    http://www.reuters.com/article/oil-meeting-saudi-idUSL5N17M434
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    China's investment in highways, waterways up 7 pct in Q1


    China's fixed investment in highways and waterways in the first quarter (Q1) reached 254.6 billion yuan (39.35 billion U.S. dollars), up 7 percent year on year, the transport ministry said Tuesday.

    Of the investment, 228.9 billion yuan was in highways, a year-on-year increase of 8.5 percent.

    The growth rate in western regions hit 11.1 percent year on year, which was much higher than central and eastern China, Ministry of Transport (MOT) data showed.

    A total of 4.87 billion trips were made and 8.79 billion tonnes of freight were transported via railways, highways and waterways in Q1, MOT official Zhang Dawei said. The number of journeys was down 1.8 percent from the same period last year, and freight tonnage rose 2.1 percent year on year.

    In Q1, the cargo-handling capacity of major ports increased 1.7 percent year on year to 2.76 billion tonnes, and the container throughput increased 1.9 percent to 50 million standard units, Zhang said.

    Logistics business volume surged more than 50 percent in the first three months, he said, compared with the same period last year.

    Zhang expects the current momentum in freight transportation to remain throughout the first half of 2016 while passenger traffic growth will remain subdued as a result of industrial restructuring.

    http://news.xinhuanet.com/english/2016-04/19/c_135293923.htm

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    Russian PM orders state firms to spend 50 pct of profits on dividends


    Russian Prime Minister Dmitry Medvedev on Tuesday ordered state companies to spend 50 percent of their profits on dividend payouts in 2016, according to a document published on the government website.

    The measure is expected to boost federal budget revenues by 100 billion roubles ($1.52 billion), Medvedev told the lower chamber of Russia's parliament as he reported on the performance of his cabinet.

    The order concerns some of the country's largest companies, including natural gas giant Gazprom, diamond producer Alrosa, oil companies Bashneft and Zarubezhneft, as well as RusHydro, Sovkomflot, Transneft, Rosneftegaz, according to the document.

    http://www.reuters.com/article/russia-dividends-medvedev-idUSR4N17G05B
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    Total targets gas, renewables and power expansion


    French oil and gas company Total announced the creation of a gas, renewables and power division on Tuesday, which it said will help drive its ambition to become a top renewables and electricity trading player within 20 years.

    The new business division, to be led by a president with a seat on the company's executive committee, will take effect from Sept. 1.

    "Gas, Renewables and Power will spearhead Total's ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency," Total said in a statement.

    The new organizational structure was presented by Chief Executive Officer Patrick Pouyanne to workers' representatives at a works council meeting in Paris on Tuesday.

    "The goal is to be in the top three global solar power companies, expand electricity trading and energy storage and be a leader in biofuels, especially in bio jet fuels," Pouyanne said in the statement.

    The Gas, Renewables and Power branch will be Total's fourth business division. The others are Exploration and Production; Marketing and Services, and Refinery and Chemicals.

    A spokeswoman said the plan outlined on Tuesday was not a strategic roadmap but the company's ambition of where it wanted to be in 20 years. Total will present its strategic outlook to investors in September.

    The company said last year that it plans to spend at least half a billion dollars annually in its renewable energies and aimed to increase the share of clean energies in its portfolio to between 15 to 20 percent by 2035, from 3 percent currently.

    The spokeswoman said the company was responding to the shift in global energy demand from fossil fuels' dependency to more energies from renewable sources to combat global warming.

    "The idea behind it is that we will remain an oil and gas major with competitive oil assets that we can exploit with a low break-even point," she said.

    Total also said on Tuesday that it was creating a global services division which will pool some services including purchasing, information systems and human resources in an effort to cut costs in the current price downturn.

    http://www.reuters.com/article/us-total-organisation-idUSKCN0XG2G1
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    Oil and Gas

    Kuwait oil workers call off strike, return to work


    The Kuwait Oil Workers Union on Wednesday called off a "total strike" and decided to return to work, hours after a fresh appeal by the acting oil minister.

    "In respect for the emir and in loyalty to him... we have decided to cancel the total strike," an official statement by the union said, ending action that had given support to oil prices.

    The statement said workers would go back to work at 0400 GMT.

    "We trust the emir... for the protection of the rights of oil workers," said the union statement, posted on its official Twitter account.

    The decision came only hours after the union leaders told a press conference that they would continue their strike, having rejected all appeals.

    The union leaders insisted that they would end the strike only after all their demands were met in full including the scrapping of plans to cut their wages and benefits.

    The union said in the new statement that the strike was "extremely successful" and conveyed the workers' message to authorities about their rights.

    It also warned oil authorities of taking any action toward the workers who stopped work.

    The strike, which began on Sunday, slashed OPEC members' crude and natural gas production by more than half.

    Kuwait's crude production dropped from 3.0 million barrels per day to just 1.5 million bpd and refining output dived to 520,000 bpd from 930,000 bpd.

    The workers' demands included abolishing decisions by authorities to cut some incentives in the face of falling oil prices and excluding the oil sector from a new payroll scheme for public servants.

    Acting oil minister Anas Al Saleh called on workers in a television interview Tuesday night to return to work and start negotiations with authorities.

    "We cannot sit on the negotiations table while the strike was still going. Return to work and come for negotiations," Saleh told private Al Rai satellite television.

    Saleh, who is also the finance minister, said that authorities have not yet implemented any decision regarding the oil workers' pay.

    Oil prices ended a four-day losing streak Tuesday as sharply curtailed production in Kuwait due to the strike spurred hopes for an easing of the global crude glut.
    US benchmark West Texas Intermediate for delivery in May jumped $1.30 (3.3 per cent) to $41.08 a barrel on the New York Mercantile Exchange.

    In London, European benchmark Brent North Sea crude for June delivery finished at $44.03 a barrel, a gain of $1.12 (2.6 per cent) from Monday's settlement.

    http://gulfnews.com/news/gulf/kuwait/kuwait-oil-workers-call-off-strike-return-to-work-1.1717076
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    Iran's crude output to reach pre-sanctions level by June, official says


    Iran's crude oil production will reach pre-sanctions levels within two months, a deputy oil minister was quoted as saying on Tuesday, reaffirming Tehran's commitment to boosting production.

    State news agency IRNA quoted Rokneddin Javadi as saying that the pre-sanctions level would be attained by the end of the Iranian month of Khordad, which falls on June 20.

    Iran's oil production was slightly below 4 million barrels a day before sanctions were imposed on the oil industry in 2011 and 2012. Last week Javadi said output had already surpassed 3.5 million barrels a day.

    http://www.reuters.com/article/iran-oil-production-idUSD5N16G00N

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    Brent signals traders to release oil stocks


    Crude oil storage helped commodity traders and refiners make strong profits last year and in the first quarter of 2016 but now the price structure which made it possible is evaporating.

    In a typical storage strategy, known as "cash and carry", traders buy physical crude and put it into storage in a tank farm, or more rarely on a tanker at sea.

    Traders simultaneously sell crude futures for a nearby contract, hedging their exposure in case prices fall while the oil is stored.

    As the futures contracts near expiry, traders buy them back and sell more contracts for a date further in the future. The strategy continues until the trader is ready to release the stocks back to the market.

    But the strategy only works if the futures market trades in contango, with contracts near expiry cheaper than those further forward.

    In a contango market, traders are constantly buying lower-priced contracts and selling higher-priced ones, making a profit on the difference.

    The profit from the futures half of the transaction pays for all the costs of borrowing money to buy the physical oil and arranging storage.

    Provided the physical and financial transactions are exactly matched there is an opportunity to make a riskless profit.

    In practice, the transactions rarely match perfectly and there is often some residual risk, but cash and carry is still one of the lowest risk and most popular trades in the physical oil business.

    In late 2014 and again in late 2015, traders and refiners raced to buy as much crude as possible and put it into storage to profit from a big contango structure in the futures market.

    But the strategy depends on the contango remaining wide enough to cover all the costs of financing and storing the physical crude.

    As the contango in Brent narrows sharply, strategies which depend on selling Brent futures are becoming unprofitable (Hedge funds bet on tightening oil market despite Doha debacle, Reuters, April 19 ).

    To the extent traders and refiners are financing and storing extra stock with Brent futures, the barrels are likely to be sold if the market remains in a narrow contango or moves deeper into backwardation.

    In contrast, WTI futures continue to trade in a much larger contango, which continues to make financing physical oil stocks profitable (tmsnrt.rs/1Sij19m).

    Brent is used in cash and carry strategies outside North America while WTI is employed mostly for storage trades in the United States.

    The sharp narrowing of Brent spreads suggests speculative physical stocks in Europe, Asia and on tankers at sea will be the first sold, while stockholding in the United States remains profitable for now.

    The prospect of a market near to balance has helped narrow the contango (Brent contango is hard to square with missing barrels, Reuters, March 9 ) (tmsnrt.rs/1Sij459).

    OECD crude stocks rose by a relatively modest 375,000 barrels per day during the first two months of the year, according to the International Energy Agency.

    Preliminary data show OECD crude stocks rose only 400,000 bpd in March, compared with an average build of almost 1 million bpd in the same month over the last five years (Oil Market Report, IEA, April 14).

    The IEA's predictions for a very small crude surplus in the second half of the year imply OECD stocks are likely to decline between July and December.

    http://www.reuters.com/article/brent-oil-kemp-idUSL5N17M44R

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    Statoil develops subsea technology to reduce costs by 30%


    Norwegian operator Statoil has developed a new concept for subsea developments aimed at reducing costs by 30%.

    The company has created Cap-X, which according to reports in Norwegian media, will bring them one step further towards a “plug and play solution” to the seabed.

    A spokesman for Statoil said the technology had been inspired by the company’s previous experience drilling in the Barents Sea.

    He said the technology had given “confidence” in creating profitability for the company in the region.

    Statoil believes Cap-X, which had first been developed for solving challenge of shallow reservoirs, will also have further potential elsewhere on the Norwegian shelf.

    The subsea concept is based on suction anchor technology for mounting installation on the seabed such as Statoil, Shell and the Norwegian Geotechnical institute has been pioneering.

    The company has also patented the technology but the company’s spokesman said the move was “not about” other companies being unable to adopt the technology.

    https://www.energyvoice.com/other-news/trainingtechnology/107168/statoil-develops-subsea-technology-reduce-costs-30/
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    Iran Is Ready To Flood The World With Oil... It Just Has No Ships To Deliver It


    Late last week, just ahead of the Doha meeting, we showed that Iran's existing oil tanker armada which until recently had been on anchor next to the Iranian coast and which according to Windward data was storing as much as 50 million barrels offshore...

    ...  had finally started to move.

    The reason, as Bloomberg reported, was that tankers carrying about 28.8 million barrels of crude, or more than 2 million a day, left the Persian Gulf country’s ports in the first 14 days of April. That compares with a rate of about 1.45 million barrels a day in March. As a result, Iran’s crude shipments have soared by more than 600,000 barrels a day this month, and offsetting the entire production decline by US producers with just half a month's incremental production.

    However, now that the shipping armada has sailed to its various (most Asian) destinations, it may be difficult to repeat this in the near term.

    According to Reuters, Iran is struggling to increase oil exports because many of its tankers are tied up storing crude, some are not seaworthy, and foreign shipowners are clearly reluctant to carry its cargoes.

    The math: Iran has 55-60 oil tankers in its fleet, a senior Iranian government official told Reuters. He declined to say how many were being used to store unsold cargoes, but industry sources said 25-27 tankers were parked in sea lanes close to terminals including Assaluyeh and Kharg Island for this purpose.

    Asked how many tankers were not seaworthy and needed to go to dry docks for refits to meet international shipping standards, the senior official said: "Around 20 large tankers ... need to be modernised." A further 11 Iranian tankers from the fleet were carrying oil to Asian buyers on Tuesday, according to Reuters shipping data and a source who tracks tanker movements. That was broadly in line with the number consistently committed to Asian runs since sanctions were lifted in January, putting more strain on the remaining available fleet.

    So as increasingly more of Iran's tanker fleet is currently utilized or is otherwise out of commission, Iran desperately needs foreign ships to execute its plans for a big export push to Europe and elsewhere and meet its target of reaching pre-sanctions sales levels this year.

    There is just one problem: nobody wants to give their spare tanker capacity to Iran.

    According to Reuters ship owners, who are not short of business in a booming tanker market, are unwilling to take Iranian cargoes.

    One stumbling block is residual U.S. restrictions on Tehran which are still in place and prohibit any trade in dollars or the involvement of U.S. firms including banks - a major hurdle for the oil and tanker trades, which are priced in dollars.

    As a result only eight foreign tankers, carrying a total of around 8 million barrels of oil, have shipped Iranian crude to European destinations since sanctions were lifted in January, according to data from the tanker-tracking source and ship brokers.

    That equates to only around 10 days' worth of sales at the levels of pre-2012, when European buyers were purchasing as much as 800,000 barrels per day (bpd) from the OPEC producer. So far no Iranian tankers have made deliveries to Europe, according to data from the tanker-tracking source.

    Whether it is due to politics or simple business precaautions, Paddy Rodgers, chief executive of leading international oil tanker company Euronav, said at present there was "no great urgency to do business in Iran".

    "There is not a premium to do business in Iran and there is plenty of other business - the markets are busy, rates are good. So there is no stress on wanting to do it," he told Reuters. "I don't really want to set up a euro bank account in Dubai in order to trade with Iran - that would crazy."

    Michele White, general counsel with Intertanko , an association which represents the majority of the world's tanker fleet, said: "We have witnessed a reluctance by our members generally to return to Iranian trade given the prohibition on use of the U.S. financial system - essentially no U.S. dollars."

    One can almost smell Saudi intervention here, which we firstdescribed two weeks ago when we reported that not only has Saudi Arabia banned Iranfrom sailing in its territorial waters, but has taken proactive steps to slow Iran’s efforts at increasing oil exports, interfering with third parties and making Iran's procurement of vessels virtually impossible. As the abovementioned oil tanker association Intertanko and other industry participants said then, while no formal notice has been given by Saudi Arabia, uncertainty is making some charterers less willing to lift Iranian crude.

    "It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis."

    Iran admits as much.

    A senior Iranian government official, who declined to be named due to the sensitivity of the matter, acknowledged his country was finding it difficult to hire foreign tankers.

    "We are working on the problems. There are various issues involved, financial, banking and even insurance. It has improved a little bit since the lifting of sanctions but we still face serious problems."

    Asked if this and the need to modernise some of the domestic fleet was holding back exports, he said: "Of course it does."

    Iran's problems may not be resolved any time soon. Reuters adds that two other sources with other leading oil tanker operators echoed the above concerns and said they were not doing Iran deals at the moment.

    http://www.zerohedge.com/news/2016-04-19/iran-ready-flood-world-oil-it-just-has-no-ships-deliver-it
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    Sinopec Shifts Global Oil Assets to State Buyers Amid Downturn


    One of China’s biggest oil and gas explorers found a buyer for its oil assets from Canada to Kurdistan amid a collapse in energy prices and a drive to reform state-run firms: another government-owned company.

    China Petrochemical Corp., Asia’s biggest refiner known as Sinopec Group, sold to two state investment vehicles more than half of a unit that holds its overseas assets. Shifting ownership of properties across the energy supply chain into other government-run companies is becoming more common in China in anticipation of broader industry reforms, according to Tian Miao, an analyst at North Square Blue Oak Ltd., a China policy research company.

    “Only the state-owned asset companies have the capacity and money to merge and reorganize them,” Tian said. “Those overseas projects bought at high oil prices years ago may have lost massive value in this low oil price environment.”

    The unit, Sinopec International Petroleum Exploration & Production Corp., acquired many of the properties when oil was above $100 a barrel and is now challenged to find buyers, according to James Hubbard, a Hong Kong-based analyst at Macquarie Capital Securities Ltd.

    “No company would buy those assets at anything but a small fraction of what Sinopec Group paid for them,” Hubbard said. The assets “have book values that are far in excess of anything Sinopec’s listed company would pay without destroying vast amounts of shareholder value.”

    China’s biggest oil and gas companies, which include Sinopec Group as well as China National Petroleum Corp., spent nearly $119 billion on energy deals from 2009 through 2013, accounting for 13 percent of global transactions in the industry, data compiled by Bloomberg show.

    The overseas assets SIPC held for Sinopec Group include the $3.1 billion stake it bought in Apache Corp.’s Egyptian operations in 2013 and its $4.65 billion share in Syncrude Canada Ltd. in 2010. It also took over Canadian explorer Daylight Energy Ltd. for $2.1 billion in 2011. Oil prices averaged more than $100 during those years.

    SIPC also holds assets Sinopec Group picked up from Addax Petroleum Corp., for which it agreed to pay C$8.3 billion in June 2009, and a $7.1 billion chunk of Repsol YPF SA’s Brazilian unitbought in 2010. It also owns projects in Russia, the Middle East and Africa, according to its website. SIPC will retain operational control of the assets after the deal, it said in a statement Friday.

    SIPC sold the stakes to China Chengtong Holdings Group Ltd. and China Reform Holdings Corp., without providing a value for the transactions. The statement Friday announcing the deal said ownership will be split into two 30 percent stakes and one 40 percent share, without providing details. A Sinopec Group spokesman was unable to clarify. Neither China Chengtong Holdings nor China Reform Holdings responded to requests for comment.

    China Reform Holdings was involved in a separate shift of assets in November, when it bought a 50 percent stake in PetroChina Co.’s Trans-Asia Gas Pipeline Co. for $2.4 billion as the the state-owned explorer tried to raise money to meet year-end profit targets.

    Sinopec Group’s international units produced 49.86 million barrels of crude in 2014, or about 14 percent of its total 360.7 million barrels output, according to its 2014 annual report.

    http://www.bloomberg.com/news/articles/2016-04-19/sinopec-shifts-global-oil-assets-to-state-buyers-amid-downturn

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    Woodside Petroleum sales slashed by price rout


    Woodside Petroleum has started on engineering work to bring gas held by US player Hess Corporation off Western Australia into the North West Shelf venture, as one of several smaller projects it is pursuing after dropping the $US40 billion-plus Browse floating LNG project last month.

    The progress on the Equus project with Hess, envisaged under an agreement struck by the North West Shelf venture in late 2014, came as Woodside reported a 30.3 per cent drop in sales for the first quarter as the impact of lower oil and LNG prices hit home.

    Sales for the first three months of 2016 fell to $US982 million ($1.3 billion) from just over $US1.4 billion in the year-earlier period, despite an 8.7 per cent rise in production to 23.7 million barrels of oil equivalent.

    Woodside shares dropped 1.6 per cent, markedly underperforming the broader energy index, which gained 3.8 per cent on an uptick in crude oil prices overnight on Tuesday Australian time.

    But the sales figures beat analysts' expectations, with several pointing to a less severe decline in LNG prices than had been feared due to price floors in some long-term sales contracts.

    JPMorgan analyst Mark Busuttil described the quarter as a "strong" one, and said Woodside could beat its full-year output guidance. He also cited the better-than-expected LNG prices, which dropped only 10 per cent at the North West Shelf venture and 2 per cent at Pluto, compared with a 20 per cent drop in the oil benchmark.

    But he said the risk remained Woodside may have to accept lower prices when long-term contracts are renegotiated in the near future.

    Chief executive Peter Coleman, who will face shareholders at the annual general meeting in Perth on Thursday, said the company was "progressing well" with its low-cost, high-value growth strategy.

    "We are taking advantage of market conditions and applying latest technology to reduce life-cycle costs, further enhancing our position as a low-cost operator," Mr Coleman said.

    Dropping the Browse floating LNG project has left Woodside short of large growth projects, but Mr Coleman has been pointing to more-modest opportunities.

    Last week, he said Woodside was close to a final investment decision on its $US2 billion-plus Greater Enfield oil project off Western Australia, and chief operating officer Mike Utsler signalled plans for early production from recent gas discoveries off Myanmar.

    In Wednesday's quarterly report, Woodside also gave a 2017 date for a final investment decision on the Equus project, which Hess had previously indicated could cost $US6 billion for the upstream development of its fields in the Carnarvon Basin.

    Meanwhile the Lambert Deep gas project at the North West Shelf is set for a final investment decision this December half, although projects are intended to keep the venture's gas plants full rather than provide new growth.

    "Organic growth for the company remains limited," said Bernstein Research analyst Neil Beveridge, while agreeing with the decision to put Browse on hold.

    Woodside reiterated it was still committed to "the earliest commercial development" of Browse gas, with floating LNG still its preferred solution.

    Production volumes slid 4.8 per cent from the December quarter, due to maintenance work at NW Shelf oil and waning flows from older projects.

    The Balnaves oil venture, which Woodside acquired only last year as part of its $US3.75 billion deal with Apache Corporation, has had a disappointingly rapid decline and ceased production on March 20.

    However, Woodside's Pluto LNG venture in Western Australia had a good quarter, producing about 12 per cent beyond its expected capacity. The Kitimat gas venture in Canada, also acquired from Apache, produced more gas than expected into the domestic market, although the LNG export part of the project is still widely seen as a long-dated option dependent on higher prices.



    Read more: http://www.smh.com.au/business/energy/woodside-petroleum-sales-slashed-by-price-rout-20160419-goa7bz.html#ixzz46Ls7uiq0
    Follow us: @smh on Twitter | sydneymorningherald on Facebook

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    Brazilian Gas Producer Parnaiba Seeks Acquisitions Amid Downturn


    Parnaiba Gas Natural SA, Brazil’s biggest independent natural gas producer, is considering acquisitions and preparing to expand output in Latin America’s biggest economy.

    The Rio de Janeiro-based producer spent 800 million reais ($223 million) last year to expand infrastructure and drill 30 wells in what was Brazil’s biggest drilling campaign on land, Chief Executive Officer Pedro Zinner said in an interview. This has put the company on track to nearly double output to 8.4 million cubic meters (297 million cubic feet) in July, and it is looking to expand further, he said.

    “We’re always looking at opportunities,” said Zinner at the company’s office in Rio. “We’ll see a lot of stranded assets.”

    State-controlled Petroleo Brasileiro SA is looking to divest assets ranging from pipelines to offshore oil fields in an effort to ease the biggest debt load in the oil industry and withstand the worst oil market in a generation. Apart from potential acquisitions, Parnaiba also plans to hunt for more gas deposits at seven concessions it won in October. It plans to start using seismic technology next year to map the geology and decide on drilling sites, he said.

    Last month energy producer Eneva SA, which owns 27.3 percent of Parnaiba, signed an agreement with the company’s other main shareholders to incorporate it as a subsidiary. Brazil’s antitrust regulator, Cade, approved the deal last week, and it still needs to be approved at a shareholders’ meeting. Parnaiba will feed its expanding gas production to Eneva’s power plants, which are some of the most efficient in Brazil, Zinner said.

    “Upstream will be the growth arm of the new entity,” Zinner said. “It’s been a good year despite all the turbulence.”

    http://www.bloomberg.com/news/articles/2016-04-19/brazilian-gas-producer-parnaiba-seeks-acquisitions-amid-downturn
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    Pacific E&P Reaches Restructuring Deal With Canada's Catalyst


    Catalyst won out over five other bidders, Bogota-based Pacific said in a statement Tuesday. Restructuring will reduce debt, improve liquidity, and better position the oil producer after a rout in crude prices. Operations will continue without disruption throughout the restructuring.

    Under terms of the deal, Toronto-based Catalyst and the other creditors will provide $500 million in debtor-in-possession financing secured against the company’s assets, according to the statement. The $250 million provided by funding creditors will be converted into five-year convertible notes, while Catalyst’s $250 million will be converted or exchanged for 16.8 percent of the common shares in the reorganized company.

    “We are confident that the company will emerge from this process as a stronger entity, best-positioned to weather the current oil price environment and capitalize on opportunities once the market adjusts,” Pacific Chief Executive Officer Ronald Pantin said in the statement.

    Upon completion of the transaction, Catalyst is expected to hold 29.3 percent of the reorganized company, while the funding creditors will hold 12.5 percent.

    Pacific’s $4.1 billion in unsecured debt, $1.2 billion in obligations on its credit facility and other unsecured claims by creditors will be wiped out and exchanged for a 58.2 percent stake in the reorganized company.

    The agreement, which is contingent on customary approvals, is also subject to a no-shop clause for as many as 12 weeks, and is expected to be completed by the end of the third quarter.

    "We understand the importance of Pacific to the countries in which it operates, including Colombia and Peru, and we are eager to work with Pacific’s local and international stakeholders to complete this restructuring with a view to establishing a stronger, long-term focused and soundly recapitalized Company," said Gabriel de Alba, managing director and partner of Catalyst.

    http://www.bloomberg.com/news/articles/2016-04-19/pacific-e-p-reaches-restructuring-deal-with-canada-s-catalyst

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    US oil drillers seek limits on crude imports


    Oil drilling companies and royalty owners from the Texas Panhandle to New Mexico’s stretch of the Permian Basin are embarking on a grass-roots campaign to limit foreign oil imports, salvaging what they say is a major sector of the U.S. economy.

    “American oil is competing against a cartel of government operators which has a stated initiative of driving an American industry out of business,” said Tom Cambridge, one of the Panhandle producers leading the campaign.

    The grass-roots movement is pushing for the next president of the United States to issue a proclamation setting quotas for imports — something that hasn’t been done in more than four decades.

    “It’s not that this is the first time but this is a more concerted, deliberate effort and I think it’s gaining ground,” said John Yates Jr., a member of a well-known family that is a leader in the industry and has over the last century developed some of New Mexico’s largest and most significant oilfields.

    Under the plan unveiled by the Panhandle Producers and Royalty Owners Association and other supporters, import quotas could be imposed within the next administration’s first 90 days in office. Canadian and Mexican oil would be exempt.

    Quotas on heavy crude oil would be phased in and imports would eventually be limited to around 10 percent of total demand.

    Supporters say they’re drawing a line in the sand after more than a dozen oil-rich nations failed to agree during a recent meeting in Saudi Arabia to freeze production. They blame Middle East producers for flooding the market and fueling the price war as a means to stifle domestic production.

    Oil fell in the past two years from above $100 a barrel to touch 12-year lows under $30 a barrel earlier this year, and U.S. production has dropped by as much as 700,000 barrels a day and the number of rigs in the field has sunk to historic lows.

    By 2017, crude oil production is forecast to average around 8 million barrels per day, nearly 1.5 million less than in 2015, according to the U.S. Energy Information Agency.

    Oilfield equipment along one of the two-lane highways that link West Texas and southeastern New Mexico sits idle in company yards, and local governments and schools are feeling the pinch as severance taxes and royalties dwindle.

    “Service companies, restaurants, real estate, the people building motels and hotels — there are a lot of impacts,” said Yates told the Associated Press.

    Daniel Fine with the Center for Energy Policy at New Mexico Tech has been commissioned by the quota supporters to bring the idea before lawmakers and other elected leaders.

    “The idea is to support domestic energy sources against import reliance and the risks that come with that,” said Fine, who is also an energy policy adviser to Gov. Susana Martinez’s administration and a former MIT research associate.

    The effort launched this week with forums in Amarillo, Texas, and Artesia, New Mexico.

    http://fuelfix.com/blog/2016/04/19/us-oil-drillers-seek-limits-on-crude-imports/
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    FERC allows feed gas for Sabine Pass Train 2


    The United States federal Energy Regulatory Commission on Monday granted Cheniere’s request to introduce feed gas to Sabine Pass LNG facility’s Train 2 for commissioning.

    Cheniere Energy requested authorization to introduce feed gas and refrigerants within the areas identified as Phases 3 – 5, which was granted in March, and then added a request for authorization to introduce feed gas and refrigerants to Train 2, including the heavies removal unit (HRU).

    However, FERC did not reveal in its order the exact areas into which feed gas can be introduced to.

    To remind, Sabine Pass export facility in Louisiana started producing LNG from its Train 1 in February.

    The first cargo from the facility departed on February 24 and was later delivered to Petrobras’ Guanabara Bay LNG terminal in Brazil.

    Cheniere is building liquefaction and export facilities at its existing import terminal located along the Sabine Pass River on the border between Texas and Louisiana.

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

    http://www.lngworldnews.com/ferc-allows-feed-gas-for-sabine-pass-train-2/
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    ND Bakken Crude Oil Being Transported to Europe


    The exportation of Bakken crude oil is beginning just 4 months after Congress lifted the 40-year-old ban on transporting oil overseas.

    Congress lifting the oil export ban back in December of 2015 allows the U.S. and North Dakota to compete in the global market.

    "We have been waiting for that first shipment of Bakken crude to end up leaving our shores, we've seen that," said Sen. Heidi Heitkamp, D-N.D.

    "Hess sold 175,000 barrels of Bakken crude oil for export from the United States. The oil was loaded in St James, La., and is being transported to a European refinery," said Hess in a statement.

    "Whenever you can capture new markets, wherever those new markets are, it incentivizes you to produce more of whatever it is. So eventually it's going to lead to more domestic production," said Kari Cutting, Vice President, ND Petroleum Council.

    Cutting says exporting oil overseas will also help grow our nation's economy, support job growth and keep gasoline prices low for the consumers.

    "Once North Dakota crude oil is able to reach a major market hub like the Gulf Coast it then becomes a marketing situation where they will try to determine whether that crude will be destine for a refinery in the U.S. or globally at this point," said Justin Kringstad, ND Pipeline Authority.

    It's up to the oil companies to find markets overseas that have a need for the state's light, sweet crude.

    A representative from Hess says the ship of Bakken crude should reach Europe sometime this week.

    http://www.kfyrtv.com/home/headlines/ND-Bakken-Crude-Oil-Being-Transported-to-Europe-376123761.html
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    Denbury Resources' borrowing base cut by 30 pct to $1.05 bln


    Oil and gas producer Denbury Resources Inc said its lenders reduced its borrowing base by 30 percent to $1.05 billion and that it had to pledge more assets.

    U.S. oil and gas companies are seeing the largest cuts yet to their bank loans as oil prices continue to remain weak.

    Every six months, oil and gas producers negotiate with banks how much credit they should be given, based on the value of their reserves in the ground.

    Denbury said the amendment to its credit facility increased the mortgaged property collateral requirement to 90 percent from 85 percent of its proved reserves.

    The amendment also allows the company to take on $1 billion of junior lien debt that may be issued in exchange for the company's senior subordinated notes or other unsecured debt.

    Denbury also said it added to its hedging positions and now has hedges in place through the second quarter of 2017.

    http://www.reuters.com/article/denbury-resource-credit-line-idUSL3N17M3DY
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    At least 5 dead, hundreds rescued from high water in Houston flooding


    At least five people have been killed in flooding that has covered the Houston region, officials said Monday, forcing the evacuation of hundreds of people and knocking out power to thousands of homes and businesses.

    "This is a life-threatening emergency," the city said on an emergency website. "Houston residents should avoid travel at all costs today."
    Four of the deaths happened in hard-hit Harris County, officials said.
    The driver of an 18-wheeler was found dead inside the cab after he drove into high waters, a Harris County constable reported, and another man was found dead in a submerged car, the Houston Fire Department said.
    Two others were found dead after driving around a barricade on Houston's west side, Harris County Judge Ed Emmett said.

    In neighboring Waller County, a 56-year-old man was found dead in a submerged vehicle, County Judge Trey Duhon said.
    "It is believed the car rode off the road and into a ditch," Duhon said.

    A flash flood watch is in effect for the Houston area through Tuesday morning, with "life-threatening" flash flooding possible Monday night, the weather service said. As little as an inch of rain could aggravate the flooding, it said.

    Emmett called it the most significant flood event since Tropical Storm Allison in 2001, which left 41 people dead. It caused more than $5 billion in property damage in Harris County alone, according to the county's Flood Control District.

    Around 45,000 customers in the region were without power as of Monday afternoon, emergency management officials said, down from a peak of 123,000 earlier in the day.

    Some areas had received as much as 16 inches of rain by Monday morning, according to the flood control district.

    The heavy rains forced seven of the city's many bayous out of their banks and created flooding in parts of the city that had not flooded for many years, Turner said.

    The situation is the result of a nearly stationary area of low pressure that has stalled over the western United States, allowing moisture from the Gulf of Mexico to flow into Texas over the last few days, according to CNN meteorologist Sean Morris.

    Very heavy rainfall is expected to continue through Tuesday before the system begins to move off to the northeast and weaken, he said.

    http://edition.cnn.com/2016/04/18/us/houston-texas-flooding/
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    Seventy Seven Energy to file for bankruptcy amid oil slump


    Oilfield services company Seventy Seven Energy Inc said it intended to file for a prepackaged Chapter 11 bankruptcy on or before May 26, the latest energy company to seek bankruptcy protection amid a prolonged oil price slump.

    The company, which was spun off from Chesapeake Energy Corp in 2014, said it had entered into a restructuring agreement with certain lenders that would allow it to convert about $1.1 billion of its debt into equity.

    A more than 60 percent fall in global oil prices since mid-2014 has forced about 50 North American oil and gas producers to seek bankruptcy protection.

    Weak oil prices have also prompted oil producers to severely curtail spending, weighing on demand for the oilfield services provided by companies such as Seventy Seven Energy.

    Chesapeake Energy Corp, the company's former parent, surprised investors last Monday, when it said lenders had allowed it to keep its $4 billion borrowing base, despite concerns about its liquidity position.

    Baker Botts LLP is Seventy Seven Energy's legal counsel and Lazard Freres & Co LLC is the financial adviser. Alvarez & Marsal is the company's restructuring adviser.

    http://www.reuters.com/article/seventyseven-bankruptcy-idUSL3N17M3QS
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    Alternative Energy

    China's CGN Q1 power output up 54.4pct on year


    China General Nuclear Power Group (CGN), a large clean energy enterprise in China, produced 24.46 TWh of electricity or 22% of the targeted volume for 2016 in the first quarter of the year, soaring 54.42% on year, said the company in its latest statement.

    It was mainly due to the marked year-on-year rises in power output of its subsidiaries Yangjiang Nuclear Power Co., Ltd and Liaoning Hong Yanhe Nuclear Power Co., Ltd, as well as less maintenances over January-March than the same period last year, said the statement.

    Social power use declined during the period when China was celebrating Lunar New Year, and some power generating units of the company slowed or even suspended operation. These units all recovered operation currently. The company has 9 nuclear power generating units under construction by end-March this year.

    In the first quarter, CGN saw operating revenue increasing 67% on year to 6.87 billion yuan ($1.06 billion), with net profit up 36% on year to 1.94 billion yuan or 26% of the targeted volume for 2016.

    http://en.sxcoal.com/0/144610/DataShow.html
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    Burying Pollution Tested With $1.5 Billion Project in Australia


    The idea that significant amounts of greenhouse gases can be buried underground will be tested soon at a remote island off northwest Australia, where oil companies led by Chevron Corp.are poised to inject pollutants 2 kilometers (1.25 miles) into the Earth’s crust.

    The A$2 billion ($1.5 billion) carbon capture and storage project at Barrow Island about 37 miles off the coast will be the biggest of its kind when it starts by next year. It’s part of the gigantic Gorgon liquefied natural gas development, which began production last month after $54 billion of investment and will run for four decades.

    So-called CCS plants are crucial to holding back climate change, accounting for a seventh of the emissions reductions theInternational Energy Agency says are needed to keep the planet from overheating. While the Barrow CCS project will be a milestone for the effort to sequester greenhouse gases, it also highlights the difficulties of the technology. It wouldn’t have happened without the government pushing it, stepping in with A$60 million in funds and vowing to assume long-term liability should any of the gas escape.

    “It doesn’t happen without the government doing something,” said Tony Wood, director of the energy program at the Grattan Institute research group in Melbourne and an adviser to governments in the region on clean-energy technologies at the Clinton Foundation until 2014. “You can either put in place a carbon price, throw money at it as a government or you can regulate it. In this case, they effectively chose the third.”

    The Western Australian government insisted on Barrow CCS as a condition of approving Gorgon, whose developers also include oil majors Exxon Mobil Corp. and Royal Dutch Shell Plc. At the time the investment decision was made in 2009, the government was planning to introduce a carbon trading system that would have underpinned the economics of the project. The development will inject as much as 4 million tons of carbon dioxide per year at Barrow Island, reducing Gorgon’s emissions by 40 percent.

    “It is still early days for these types of projects, and they are costly,” John Watson, Chevron’s chief executive officer, told reporters in Perth on April 12. “So the ultimate application of these technologies will be their competitiveness.”

    http://www.bloomberg.com/news/articles/2016-04-19/burying-pollution-tested-with-1-5-billion-project-in-australia

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    Precious Metals

    Silver is going nuts.

    Silver is going nuts

    The price of silver has exploded on Tuesday and is trading at its highest level since May 2015

    Just after 2:20 p.m. BST (9:20 a.m. ET) the metal synonymous with finishing second is the biggest gainer of all major commodities, up by more than 4.9% on the day. It is trading at roughly $17.02 an ounce. Silver gained 3% in early trading but has continued to jump.

    Here's how silver looked a few minutes ago:Image title


    The cause of silver's rally looks to be a correction in the trading ratio between gold and silver. Traditionally, silver prices track gold carefully, meaning that when gold rises, so does silver. However, this year, silver prices have lagged a little behind.

    At the start of April, gold had gained more than 13% on the year, while silver was up just 8%. However in the past couple of weeks, silver has started to gain momentum, as investors look to close the appreciation gap between the metals.

    As UBS analyst Joni Teves puts it, as quoted by the Financial Times: "It's a combination of silver getting a bit of attention over the past week with the big move in the gold/silver ratio and quite a few market participants looking at silver in and its relative performance to gold and thinking it might be time for a bit of catch up."

    Gold has been garnering most of the attention in markets in recent months, enjoying its most successful quarter in 30 years in Q1 of 2016.

    The safe-haven metal appreciated hugely in the first quarter, driven by high market volatility and a weakening dollar; however, on Tuesday, it is silver that is in focus, with gold pulled higher by silver's surge. It is up by roughly 1.75% on the day. Platinum, one of few metals to cost anywhere near as much as gold, has gained just less than 3.55%. Palladium, another rare metal, closely related to platinum, is up 2.7%.



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    Base Metals

    Nickel (and Cobalt)



    Image titleImage title

    Eurasian Resources Group S.a.r.l. plans to use a $2.2 billion project in the Democratic Republic of Congo to become the world’s top cobalt producer and tap growing demand for batteries from companies including Tesla Motors Inc.

    ERG, which earlier this month agreed on $700 million of Chinese funding for the project, has started construction and aims to complete it within 20 months, according to Chief Executive Officer Benedikt Sobotka. He sees the company becoming the largest cobalt producer when full capacity is reached. Chinese producers currently vie with each other for the top spot.

    Cobalt prices should advance “significantly” in the next two years as demand for the metal used in rechargeable batteries increases, Sobotka said. The battery market is expanding as more consumers turn to electric and hybrid cars and look to store renewable energy to power appliances when there’s little wind or sunshine. Daimler AG and Tesla said they plan to sell batteries storing energy to homeowners and businesses.

    “Given that companies such as Tesla are expanding and increasing the use of batteries, our project has very good prospects," Sobotka said in an interview last week.

    ERG Assets

    Luxembourg-registered ERG owns Eurasian Natural Resources Corp., which delisted shares in London in 2013 amid a fraud probe. It controls assets in Kazakhstan, Europe, Africa and Brazil and is 40 percent owned by the Kazakh government with the remaining held by private investors.


    Image title


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    Rio Tinto’s Oyu Tolgoi lifts gold guidance after strong start to 2016


    Rio Tinto subsidiary Turquoise Hill Resources, which owned a 66% interest in the significant Oyu Tolgoi copper/gold mine, in Mongolia, on Tuesday said the mine’s first quarter performance was so strong, that it hiked its full-year production guidance. 

    For the three months ended March 31, Vancouver-headquartered Turquoise Hill advised that the Oyu Tolgoi operation’s concentrator throughput reached a quarterly high, as well as better-than-expected gold production. 

    As a result, the company was increasing its 2016 gold production guidance to reflect the mine accessing more of the final, high-gold benches in Phase 2 of the openpit. Also during the quarter, Oyu Tolgoi exceeded two-million tonnes of concentrate shipped. During the period, concentrator throughput increased 3.1% quarter-over-quarter, resulting in average throughput of about 106 000 t/d for the quarter. 

    Concentrate production in the first quarter remained high, resulting from increased throughput and strong copper grades. Copper output in the period reached a quarterly high, increasing 0.5% over the previous period. Turquoise advised that as expected, gold output in the period declined about 30% over the previous quarter, owing to lower grades and the near-completion of mining in phase 2 of the openpit. 

    Given the stronger-than-expected first-quarter gold output, the Turquoise Hill had increased its 2016 gold in concentrates guidance to a range of 255 000 oz to 285 000 oz, up from 210 000 oz to 260 000 oz forecast previously. Oyu Tolgoi was also expected to produce 175 000 t to 195 000 t of copper in concentrates for 2016. 

    Turquoise Hill expected a notice-to-proceed decision for the $6.8-billion underground expansion of its massive Oyu Tolgoi mine – one of the largest in the mining industry.

    http://www.miningweekly.com/article/rio-tintos-oyu-tolgoi-lifts-gold-guidance-after-strong-start-to-2016-2016-04-19
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    Steel, Iron Ore and Coal

    BHP Billiton weighs getting out of Indonesian coal


    BHP Billiton is considering quitting its coal assets in Indonesia, where it recently started shipping steel-making coal from a small mine, amid uncertainty over Indonesian regulations and a weak outlook for coal.

    BHP owns a 75 percent stake in the IndoMet Coal project, having sold the rest to Indonesia's Adaro Energy in 2010 for $335 million. Coal asset prices have collapsed since then, and analysts said BHP would be lucky to fetch $200 million now for the stake in a largely undeveloped resource.

    "Does it move the dial for BHP? No. But it's a really high quality met-coal property and potentially a fantastic opportunity for an Indonesian company with the right connections," said Shaw & Partners analyst Peter O'Connor.

    BHP, the world's largest exporter of metallurgical coal, is considering a range of options for IndoMet, a spokeswoman said. She declined to comment on whether the company has entered into talks with any potential buyers for its stake.

    "BHP Billiton is conducting a strategic review of the long-term future options for its Indonesian coal interests, IndoMet Coal, which comprises seven coal contracts of work within the provinces of Central and East Kalimantan," the global miner said in its quarterly review.

    IndoMet started producing last year from the 1 million tonnes a year Haju mine, where BHP has come under fire from environmental groups. The mine made up less than 2 percent of BHP's metallurgical coal output in the first nine months of this fiscal year.

    BHP has held off approving larger developments in Indonesia, awaiting more certainty on government regulations.

    Adaro says the IndoMet assets holds at least 1.27 billion tonnes of coal resources. ItsCEO and a spokesman did not immediately respond to emailed requests for comment.

    Indonesia's director of coal mining at the Energy and Mineral Resources Ministry, Agung Pribadi, said he was unaware of BHP's review of IndoMet.

    http://www.reuters.com/article/bhp-billiton-output-indonesia-idUSL3N17N1E9
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    Shenhua Wuhai raises met coke prices


    Shenhua Wuhai Energy Co., Ltd, one subsidiary of China’s top miner Shenhua Group in Inner Mongolia, has raised prices of its Grade II met coke delivered to end users in Tangshan, Hebei province, in response to positive changes recently observed in the coke and steel markets.

    Shenhua Wuhai increased the price of Grade II met coke by 30 yuan/t to 780 yuan/t with VAT, DDP Tangshan, effective 18:00 of April 14, sources confirmed with China Coal Resource.

    It also raised the price of high-sulphur material by 30 yuan/t to 700 yuan/t with VAT, DDP Tangshan.

    This is the second time Shenhua Wuhai raised prices of met coke this month, after a rise of 30 yuan/t on April 7.

    China’s coke market has improved in recent weeks, thanks to low stockpiles at coke plants and buoyant demand from steel mills amid rises in steel prices.

    http://en.sxcoal.com/0/144631/DataShow.html
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    Indian utilities FY 2015-16 thermal coal imports down 11.8pct on year


    Indian power utilities imported 80.47 million tonnes of thermal coal in fiscal year 2015-2016 ended on March 31, down 11.8% on year, according to latest data from India's Central Electricity Authority.

    Of this total, 36.98 million tonnes was imported by 37 utilities in the 12-month period as against a target of 42 million tonnes for blending purpose, the data showed.

    Six utilities did not import any coal during fiscal 2015-2016.

    However, eight utilities, which use only imported coal for their power plants exceeded the target of 42 million tonnes by importing 43.49 million tonnes during the last fiscal year.

    Private power producer Adani Power imported the highest quantity at 16.8 million tonnes for its Mundra thermal power plant during fiscal 2015-2016.

    State-run power generator NTPC Limited followed with 9.5 million tonnes, and Tata Power for its Mundra ultra mega power plant at 9.3 million tonnes.

    On a monthly basis, March 2016 imports were at 5.8 million tonnes, down 22.6% from the year-ago period.

    http://en.sxcoal.com/0/144667/DataShow.html
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    BHP joins Rio in iron ore output cut, eases oversupplied market


    Mining giant BHP Billiton followed rival Rio Tinto in trimming its iron ore output guidance on Wednesday, helping to ease pressure on an oversupplied market.

    The world's no. 3 producer cut its Western Australia iron ore production for the year to June 30, 2016 by 10 million tonnes to 260 million tonnes, blaming a cyclone that ripped through the Pilbara iron ore region in January coupled with accelerated railway maintenance work.

    Analysts said the output cut, along with Rio Tinto's lowered production guidance for 2017 on Tuesday, would help support iron ore prices, which have staged a recovery this year on restocking by Chinese steel mills.

    "In our view this potentially highlights a value over volume strategy from BHP, which is likely to be supportive of a tighter iron ore balance next year," J.P. Morgan said in a client note.

    Together with Brazil's Vale, the big three miners have trimmed about 55 million tonnes of expected iron ore output in recent months, equivalent to the output from the new Roy Hill mine built by Australian billionaire Gina Rinehart.

    "Talk to any iron ore bear in the market and they will tell you Vale and Roy Hill are flooding the market. Just remove those tonnes by cuts to BHP and Rio and that thesis is broken," said Macquarie Bank analyst Hayden Bairstow.

    BHP's latest production cut means the company is set to produce less iron ore year-on-year for the first time since a merger with Billiton in 2001.

    BHP also lowered its iron ore target by 10 million tonnes in January following the deadly Samarco dam disaster in Brazil.

    Rio Tinto on Tuesday cut its 2017 production guidance by 10 million to 20 million tonnes due to delays in its shift to driverless trains.

    Vale said in December said it would produce 340 million to 350 million tonnes in 2016, down from a target of 376 million tonnes, although still in line with 345.9 million tonnes in 2015. Some analysts expect the miner will cut its guidance further when it releases an operations update later on Wednesday.

    Iron ore prices have jumped 45 percent this year, but the industry has been virtually unanimous in predicting a return to lower prices given the scale of oversupply in the industry.

    "Demand has been overtaking supply as the determining factor for iron ore prices, that's a reason why the price is stronger," said a commodities trader specialising in bulk commodities such as iron ore and coal. "What BHP has done is make that even more evident."

    Shaw and Partners analyst Peter O'Connor said the production cuts were driving iron ore prices "30-40 percent ahead of consensus expectations."

    Despite the latest curtailments, Royal Bank of Canada analysts still see a mounting supply imbalance - growing globally to 161 million tonnes this year from an estimated 88 million in 2015.

    http://www.reuters.com/article/bhp-billiton-ltd-output-idUSL3N17M517
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    China steel rally unsustainable as production rises - CISA


    The recent rally in steel prices in China will be unsustainable, given rising output from steel mills in the world's biggest producer and consumer of the alloy, the China Iron & Steel Association (CISA) said on Tuesday.

    While government measures to boost the economy will underpin local steel demand, exports will come under pressure due to rising protectionism from Southeast Asia and European countries against cheap supplies from China, leading to a product build up at home and lower prices, CISA cautioned in its monthly report.

    Chinese steel prices have jumped almost 42 percent so far in 2016, following six straight annual falls, fuelled by tighter supply due to shutdowns in the past year and a pickup in construction activity after Lunar New Year in February.

    "The big rise in steel prices has led to a rapid reopening of capacity that had been shut or suspended ... a large rise in steel output will not be good for the gap between market demand and supply," CISA said.

    Already a huge surplus has forced China to aggressively ship out steel, with exports hitting a record high of 112 million tonnes last year. India's Tata Steel recently put its British operations up for sale, blaming the move on a flood of cheap Chinese supplies.

    But overseas sales will be difficult this year, given complaints of dumping and rising protectionism from Europe, the United States and Southeast Asian countries, CISA said.

    The United States has blamed China for not effectively dealing with overcapacity, while the latter has said blaming it for global steel woes was a lazy excuse for protectionism and that such finger-pointing would be counter-productive.

    A meeting of ministers and trade officials from over 30 countries this week failed to agree measures to tackle the global steel overcapacity.

    And this comes at a time when China's output is picking up.

    China's steel production hit a record high of 70.65 million tonnes in March, amounting to 834 million tonnes on an annualised basis. Traders and analysts expect output to rise further in April and May.

    China accounts for about half of global steel production with a total official capacity of 1.13 billion tonnes. The country aims to cut between 100 million and 150 million tonnes of crude steel capacity over the next five years.

    http://www.reuters.com/article/china-steel-exports-idUSL3N17M2TM

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    U.S., other countries call for urgent action on steel overcapacity


    The United States, Canada, the European Union, Japan, Mexico, South Korea, Switzerland and Turkey issued a statement on Tuesday calling for urgent action to deal with global steel overcapacity, U.S. officials said.

    The statement came a day after major steel-producing countries meeting in Brussels failed to agree to measures to tackle the problem, with Washington pointing a finger at China for failing to take action to cut overcapacity.

    http://www.reuters.com/article/china-steel-overcapacity-statement-idUSW1N16O01X
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