Mark Latham Commodity Equity Intelligence Service

Thursday 28th May 2015
Background Stories on

News and Views:

Attached Files


    Fossil industry faces a perfect political and technological storm

    The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero.

    The International Monetary Fund has let off the first thunder-clap. An astonishing report - blandly titled "How Large Are Global Energy Subsidies" - alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP.

    This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation - also on cue - has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

    The killer point is that this architecture of subsidy is a "drag on economic growth" as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer - and more dynamic - if the burning of fossils was priced properly.

    This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison.

    The British electricity group SSE (ex Scottish and Southern Energy) is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal "has a limited role in the future".

    The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to stop investors keeping all the profit while dumping the costs on the rest of society.

    The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying 'social' taxes for a long time.

    But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world's premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

    It is becoming clearer that last year's sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the 'North-South' conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009.

    Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. "The two 800-pound gorillas are working together," he said.

    Mr Stern claims that a constellation of states responsible for 60pc of global CO2 emissions are "already on board" for a binding deal, aimed at limiting the rise in carbon to 450 particles per million (ppm) and capping the rise in temperature to 2C degrees above pre-industrial levels by the end of the century. Climate scientists warn that we are currently on course for 4C degrees.
    Back to Top

    Delhi power rates to hike by 5pct to 20pct

    Business Standard reported that power distribution companies would breathe a sigh of relief and consumers cry with Appellate Tribunal of Electricity directing the Delhi Electricity Regulatory Commission to determine fuel price reflection on the final electricity rates.

    According to senior executives in the 3 distribution companies operating in the national capital, the likely hike in consumer tariff across the board would be 5% to 20%.

    TATA Power Delhi Distribution Limited had filed a case against DERC, which rolled back its tariff hike in less than 24 hours, in November last year ahead of Assembly elections. The hike was proposed owing to an increase in the power purchase adjustment cost, a surcharge given to compensate the distribution companies for variations in the market-driven fuel costs.

    In its judgment, Aptel observed “Petitioner is already suffering huge financial crunch, firstly, on account of non-determination of PPAC on time-bound basis, and secondly, arising out of the revenue gap of INR 2,359 crore which is well acknowledged by the DERC. The Petitioner finds it very difficult to wait for hearing and conclusion of the tariff proceedings and ultimately tariff determination for the year 2015 to 2016.”

    Taking a stern stand, Aptel ordered “We direct the Delhi Commission to determine the PPAC for the above said third and fourth quarter within three weeks from today otherwise face the five consequences and action will be taken by this Tribunal.”

    Executives said that for TPDDL consumers, the hike would be 5% to 10% and for BSES consumers, it would lead to increase in 5% to 20%. The current average rate of electricity in Delhi is INR 2.8 per unit while the power purchase cost has gone up to INR 5 per unit.
    Back to Top

    Oil and Gas

    OPEC sees rivals boosting oil output despite weak prices

    The North American oil boom is proving resilient despite low oil prices, producer group OPEC said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years.

    A draft report of OPEC's long-term strategy, seen by Reuters ahead of the cartel's policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017.

    Sluggish global demand for oil means the call on OPEC's crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options - cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.

    "Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth," the OPEC report said.

    Shale oil production has proved to be more resilient than many had originally thought.

    "Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs," the OPEC report said.

    "For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations."

    It also said that since 1990, most of the forecasts concerning future non-OPEC oil supply have been pessimistic and often erroneous: "For example, non-OPEC production was once projected to peak in the early 1990s and decline thereafter."

    OPEC publishes long-term strategy reports every five years. Its 2010 report did not mention shale oil as a serious competitor, highlighting the dramatic change the oil markets have undergone in the past few years.

    The long-term report is prepared by OPEC's research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.


    OPEC's ability to cut and raise production over the past decades to balance demand has earned it a reputation of being a swing producer. But the long-term report suggested it is tight shale oil that is now playing this role.

    "Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity)," the report noted.

    It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.

    "Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past... The world's liquids resources are sufficient to meet any expected increase in demand over the next few decades," it said.

    "With plenty of oil still left in familiar locations, forecasts that the world's reserves are drying out have given way to predictions that more oil than ever before can be found," the report said.

    By 2019, OPEC crude supply at 28.7 million bpd will still be lower than in 2014, the report said, and demand for its oil will start rising only after 2018-2019, reaching almost 40 million bpd by 2040.
    Back to Top

    How Russia was warned against oil output cut as prices dived

    As Russia prepares to meet OPEC next week, a briefing paper from a Moscow think tank has shed light on how the government was warned against cutting oil output late last year even though global prices were plummeting.

    Speculation was rife that Russia and the oil exporters' cartel might strike a production deal to arrest the slide when Energy Minister Alexander Novak met his Saudi Arabian counterpart last November.

    However, the think tank had already advised Novak that OPEC would not cooperate and unilateral action would be costly at a time when Russian state finances were in a dire state.

    "If Russia cuts output, OPEC will take our market share in Europe," a team led by energy expert Grigory Vygon said in the previously unpublished paper, commissioned by the Energy Ministry before the Nov. 25 meeting in Vienna.

    The paper was prepared by the Skolkovo Institute's energy team, which has subsequently set up the independent Vygon Consulting group.

    In the event, Novak opted against lowering Russia's output and two days later Saudi Oil Minister Ali al-Naimi also blocked calls at an OPEC conference for production cuts, sending crude prices to a fresh four-year low and declaring a global battle for market share.

    Six months on, the agenda at least will repeat itself next week: non-OPEC producers led by Russia are scheduled to meet the cartel in the Austrian capital on Wednesday and Thursday, before an OPEC conference on Friday.

    Benchmark crude at around $63 a barrel remains well below where it was before last November's OPEC meeting. However, it has recovered from a low of $46 hit in January, easing the pressure for radical action.

    Therefore OPEC, which controls a third of the global oil market, and Russia, which produces another 12 percent, are unlikely to reverse their output strategy.

    The confidential briefing paper, seen by Reuters, said that should Moscow decide to cut output or exports, similar quality OPEC crude - mainly from Saudi Arabia but also from Iran and Libya - would replace as much as 1 million barrels per day (bpd) of Russian oil. That is equivalent to a tenth of both Russian production and of European consumption.

    Vygon predicted Saudi Arabia would refuse to cut production as it could weather the low oil price. Instead, OPEC's leading member would use the opportunity to win market share at the expense of rival and more costly producers, such as in the United States or Russia, it said.

    That has proven true. Far from cutting, OPEC has increased production by 1.4 million bpd over the past year with Saudi output alone jumping by 450,000 bpd year-on-year to 10.15 million in April.

    The paper also predicted that U.S. shale oil producers would prove resilient in maintaining output, even with the much lower prices. That has also proved correct, at least so far.

    Russia has pushed its own production up by 200,000 bpd over the past year, hitting an all-time high of more than 10.7 million in April. This is mainly thanks to rising output at state-run Gazprom and freshly nationalised Bashneft.

    However, a source close to the Russian team responsible for talks with OPEC said that much has changed since then. "The oil price has bounced back and Russia is kind of coping. There is also an understanding that the Saudis will not cut as they would lose market share, so nor should Russia," said the source.

    "The consultations (with OPEC) are under way," he said. "Look at the forecasts we had produced earlier. In that sense, you will understand that we are within the (pricing) corridor that we had forecast."
    Back to Top

    North Sea oil industry to get boost from falling costs

    After months of bad news, oil companies working in the North Sea can finally see a glimmer of hope after a leading energy consultant forecast operating costs to plummet over the next two years.

    Wood Mackenzie now expects costs in the North Sea, which is one of the most expensive and challenging regions for operators, to fall by 15pc through to the end of 2016.

    "High capital and operating costs are the single biggest issue for companies in the UK and Norwegian sectors of the North Sea today," said Malcolm Dickson, principal North Sea analyst for Wood Mackenzie.

    "Even before the oil price crash, developing and operating fields while making a profit was challenging and we expected some cost deflation in the sector as activity cooled. The drop in oil price has accelerated the need for lower costs, as companies adjust to protect their cash flows, and changes are now required to correct the industry's cost base."

    Cost escalation in the North Sea basin has been a persistant concern for the industry, which had been heightened by the 40pc decline in oil prices since last November.

    The UK's main oil producing area has found itself caught in the crossfire between US shale drillers and members of the Organisation of Petroleum Exporting Countries (Opec) who appear to be fighting an oil price war to win greater market share.

    However, output from the North Sea has been under pressure for years before Opec decided to keep its production levels unchanged last year effectively triggering the current price war.

    "We have already seen rig rates dropping significantly with reductions of up to 20pc for new contracts agreed in 2015," said Mr Dickson. "40pc of mobile rigs in the UK and 23pc in Norway are either currently without contract or due to come off by the end of 2015, giving scope for high reductions in future contract renewals."

    Attached Files
    Back to Top

    The Tanker Market Is Sending a Big Warning to Oil Bulls

    Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat.

    A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate.

    The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc.

    “Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,”

    Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

    Brent crude futures advanced almost 40 percent from this year’s low on Jan. 13, and traded at $62.58 a barrel on the London-based ICE Futures Europe exchange at 12:53 p.m. Singapore time Thursday.

    OPEC’s 12 members have will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, a Halifax, England-based company monitoring the flows, said by e-mail Wednesday.

    Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs.

    Spare tanker capacity in the Middle East has seldom been tighter. The combined excess of ships competing for the region’s exports stood at 6 percent last week, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. While that expanded to 12 percent this week, the monthly average was still the lowest on record for May.

    Bullish oil traders may get some comfort from the U.S. Recent drops in oil inventories there are signaling a gradual easing of the glut, Paul Horsnell and other Standard Chartered Plc analysts wrote in a report May 26. It may take at least another quarter for the surplus to disappear, they wrote.

    “There still seems to be a lot of physical activity, a lot of oil on the water,” Nigel Prentis, the head of research at Hartland Shipping Ltd. in London, said by phone. While the second quarter is usually quieter as refineries switch to summer fuels for the northern hemisphere, “the market is still busy and rates are incredibly high,” he said.
    Back to Top

    Petrobras pays 2014 bonus despite record loss, canceled dividend

    Brazil's state-run oil company, Petroleo Brasileiro SA, will pay employees 1.04 billion reais ($331 million) in bonuses for 2014 despite recording its largest-ever loss and rejecting investor dividends, a company union said on Wednesday.

    The bonus, known as "a share in results", is a third bigger than in 2013, when the company recorded a profit, and was approved at an annual shareholders meeting on Monday, the union, known by its Portuguese initials FUP, said in a statement.

    "The shareholders of Petrobras tried hard, but this time did not receive dividends," FUP said. "Disgusted, they even criticized the company for treating the workers differently."

    Officials of Petrobras, as the company is known, did not respond to requests for comment or confirm the authenticity of a Petrobras letter dated Wednesday and addressed to FUP outlining the payments. The letter was published on FUP's website.

    While Brazil's government owns a majority of voting common shares, non-government investors, primarily holders of preferred shares, own most Petrobras stock.

    Petrobras recorded a 23.6 billion real ($7.5 billion) profit in 2013. In 2014 it had a 21.6 billion real loss, the result of a $17 billion write-down of assets as a result of a massive price-fixing, bribery and political-kickback scandal, poor planning and execution and a decline in oil prices.

    The union accused investors of "crying for their dividends."

    FUP, closely aligned with the Workers' Party of Brazilian President Dilma Rousseff, herself chairwoman of Petrobras from 2003 to 2010, applauded the company's 2014 performance, the only annual loss in at least two decades.

    "The company's positive 2014 results, along with the fabulous profits that have marked its history, are the direct result of the workers," FUP said.

    Some holders of preferred shares, the company's most traded class of stock, have explored using a Brazilian law that requires, under some circumstances, the conversion of preferred shares into common stock if minimum dividends are not paid.

    Petrobras, the world's most indebted oil company, also faces U.S. and Brazilian lawsuits over the corruption scandal. Worth $290 billion in 2008, Petrobras is worth $55 billion today.

    Petrobras, according to the unconfirmed FUP letter, agreed during contract talks to a higher 2014 bonus even if it lost money.

    In Brazil, most employees automatically belong to a union. All Petrobras employees, including senior mangers, are eligible for bonuses. Petrobras did not say which employees are eligible for payments, which will be made by mid-June.

    Attached Files
    Back to Top

    Gail sells some US LNG to Shell

    India's Gail has sold some of its liquefied natural gas from its US portfolio to Anglo-Dutch supermajor Shell ahead of production from early 2018, its head B.C. Tripathi said on Wednesday.

    Gail has a deal to buy 3.5 million tonnes per annum of LNG for 20 years from US-based Cheniere Energy and has also booked capacity for another 2.3 mtpa at Dominion Energy's Cove Point liquefaction plant.

    Tripathi refused to elaborate on the volumes, pricing and duration of the deal with Shell, but a trade source said Gail has sold at least 0.5 mtpa LNG to Shell, Reuters reported.

    Gail would also issue an LNG swap tender in two months to cut transport costs for supplies to India, he said, adding 0.5 million tonnes of its US LNG has already been booked by local clients while talks were ongoing with domestic and foreign firms for more such deals.

    Gail was keen to swap about 2 mtpa of its LNG, Tripathi had said in January 2014.

    India's gas demand is set to rise as the federal government has approved policies to boost power and fertiliser production using imported gas.

    Gas demand in the world's second most populous nation, however, declined in the quarter ending in April as alternative fuel like furnace oil turned cheaper due to rout in global oil markets.

    Also, prices of gas sourced under a long-term deal with Qatar have turned costly, tapering the demand for the cleaner fuel.

    He said India has used a 10% reduction permissible under a 25-year contract with Qatar's RasGas to import up to 7.5 mtpa the super cooled fuel.
    Back to Top

    Premier hits oil in Isobel Deep well (Falkland Islands)

    Premier Oil has announced an oil discovery at the Isobel Deep exploration well 14/20-1 in the North Falkland Basin, offshore the Falkland Islands, approximately 30km south of the Sea Lion field.

    According to Premier, the Isobel Deep exploration well has been drilled to a depth of 8,289 feet reaching top reservoir on prognosis. The bottom 75 feet of the well consists of oil bearing F3 sands.

    These sands were at a higher than expected reservoir pressure and this resulted in an influx into the well, the company said. Premier further notes that as part of the operations to remove the influx, oil was recovered from the well and appears similar in nature to Sea Lion crude.

    Premier added that as a result of the new geological information it has been decided to suspend operations on the well and release the Eirik Raude drilling rig to drill in the South Falkland Basin. The rig is expected to return to continue operations in the North Falklands Basin in August.

    Premier is now considering the optimal appraisal programme for the Elaine/Isobel complex in PL004.

    Andrew Lodge, Exploration Director, commented:

    “This is an important play opening discovery in the previously unexplored southern area of Licence PL004. The well has successfully demonstrated a trapping mechanism and the presence of moveable oil in the Elaine/Isobel fan complex.”  

    Falkland Oil and Gas Limited (FOGL) has 40% interest in the licence PL004a where the well is located.

    Tim Bushell, CEO of FOGL, commented: “We are delighted by the results of this well. Whilst it has not been possible to acquire wireline logs over the F3 reservoir (Isobel Deep), the presence of oil bearing sands is highly encouraging. FOGL believes these initial results open up an exciting new oil play in this part of PL004 and also, significantly reduce the risk on FOGL’s other prospects in the adjacent PL005 licence.
    Back to Top

    Saudis' Drive To Kill U.S. Shale Has Backfired

    For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over.

    The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production, they are claiming a brilliant triumph.

    But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more.

    U.S. shale producers will survive and grow. American consumers, paying less for gasoline and heating oil, will be the big winners. The Saudis and their friends in OPEC, so dependent on oil-export revenue, will be the clear losers.

    The U.S. shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology.

    The result is a rapid decline in the break-even price across shale plays. Already, analysts believe it is now $60 per barrel and before long will fall to $50.

    Goldman Sachs now predicts that prices will likely hold at $50 for at least the next five years. Shale efficiency and innovation have created a new ceiling for the price of oil. This certainly was not the Saudis' aim.

    But, as the Saudis are finding out, we are just in the early innings of a new revolution — "Shale 2.0" as Manhattan Institute fellow Mark Mills calls it. A strong, increasingly efficient and productive U.S. shale industry — powered by American ingenuity and "Made in the USA" drilling and extraction technologies — is here to stay.

    Read More At Investor's Business Daily:
    Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook
    Back to Top

    Texas police evacuate people near dam after deadly storms

    Police evacuated residents living near a dam southwest of Dallas that was poised to burst on Wednesday due to surging floodwaters as emergency officials searched for bodies from storms that killed at least 17 in Texas and Oklahoma.

    Water was topping the Padera dam, about 25 miles (40 kms) southwest of Dallas, and Midlothian Police said they have called on people living downstream to evacuate their houses and move livestock to higher ground in case the structure gives way.

    Meanwhile, the death toll is set to rise with numerous people still missing in Texas after the storms slammed the states during the Memorial Day weekend, causing record floods that destroyed hundreds of homes, swept away bridges and stranded more than 1,000 motorists on area roads.

    "Right now we still have a lot of our neighborhoods underwater," Michael Walter, a spokesman for Houston's Office of Emergency Management, told NBC's "Today" program.
    Back to Top

    Sage Grouse Plan Said to Bar Drilling on Some U.S. Land

    A flamboyant bird will get new protections Thursday when federal regulators announce a plan to limit oil and gas drilling on its sprawling western U.S. habitat, which may stave off declaring the greater sage-grouse as endangered.

    With a deadline of September to decide if the chicken-sized bird is endangered, Interior Secretary Sally Jewell will unveil ways the Bureau of Land Management will conserve the bird’s habitat, according to two people familiar with the decision. More than half of the grouse’s range is on federal land spread across 11 states.

    “In a sense, BLM has been actively working to deflect a listing for some time,” said Kevin Book, an analyst at ClearView Energy in Washington, who hasn’t seen details of the announcement. “Even without the final plan, BLM has already taken at-risk areas out of play for leasing and development.”

    Long a totem of the American West, the greater sage-grouse has been at the center of one of the nation’s biggest conservation disputes, pitting energy and development interests against naturalists in lawsuits and lobbying campaigns. A decision on its status would be among the most far-reaching since the U.S. protected the northern spotted owl, disrupting logging communities in Oregon in the 1990s.

    “We’ve seen this story before with what the federal government did in Oregon with the spotted owl,” said Kathleen Sgamma, vice president of the Western Energy Alliance, which represents oil and gas producers. “We believe the science doesn’t justify these restrictions.”

    The Interior Department is set to issue proposals for 14 different areas Thursday, covering the land it oversees from Wyoming to Nevada. The plans will ban drilling and mining on some of the most pristine areas, and set protections around the leks, or areas where the birds gather in mating season, according to the people, who requested anonymity to discuss the decision before the announcement.

    It’s not clear how large the protected areas would be, and if they could be enough to avoid an endangered finding. And oil interests in the Western states may object.

    Interior’s U.S. Fish and Wildlife Service has been considering listing the bird as endangered -- prompting opposition from lawmakers and energy interests. Environmentalists say that it’s not clear BLM’s protections will be enough to ensure the bird’s protection.
    Back to Top

    S.Korea's SK Innovation wants to expand U.S. shale investment

    South Korea's SK Innovation Co Ltd , which owns the country's biggest refiner SK Energy Co Ltd, said it aims to raise investment in U.S. shale fields and increase partnerships with major crude producers to stabilise energy supplies.

    The firm said in a statement on Thursday it wanted to expand its shale gas fields in Oklahoma and Texas, which it acquired last year, into nearby areas. It also aims to boost competitiveness by diversifying crude sources and cutting import costs.

    SK Innovation suffered its first loss in decades in the fourth quarter of 2014, though better margins over January to March amid weak global oil prices helped it swing back to a profit of 321.2 billion Korean won ($300.61 million).

    The statement, quoting its chief executive and president Chung Chul-khil, also said that for its troubled chemical business its growth strategy would focus on the Chinese market.

    The company said it hoped the plans would triple its domestic stock market value to 30 trillion Korean won ($27.09 billion) by 2018.
    Back to Top

    Alternative Energy

    Oil Billionaire Makes $450 Million Bid on Russian Solar Ramp-Up

    Billionaire Viktor Vekselberg is out to prove that solar has a place in Russia, the world’s largest exporter of oil and gas.

    Hevel Solar, a venture between Vekselberg’s Renova and OAO Rusnano, plans 22.5 billion rubles ($450 million) of solar farms through 2018 and says diversifying power generation will benefit the country.

    “You don’t have to eat potatoes all the time,” Hevel Chief Executive Officer Igor Akhmerov said in an interview in Moscow. “You can have some salad as well.”

    At first glance, solar in Russia makes little sense. The country has surplus energy, and the sun barely crests the horizon in midwinter in Moscow. Yet it does shine along the nation’s southern border with Kazakhstan, where Hevel completed its second solar farm in the Orenburg region last week.

    Solar energy can help ease the burden on overloaded power lines, while replacing costly and polluting diesel generators in areas off the grid, according to Akhmerov. The plan isn’t to rival oil and gas, rather to deploy solar where it’s most useful.

    “You can’t compete with 70 years of planning and infrastructure,” he said. “You try to find a way to leapfrog problems to the front.”

    Capacity Auctions

    Hevel built its first solar farm, supported by government subsidies, in East Siberia, where sparse cloud cover provides sufficient sunny days for power generation. The project, which started selling output this year, was the first of Russia’s renewable-energy subsidy deals to produce power for the market.

    The country’s annual subsidy auctions, which began in 2013 and focus on solar, wind and small hydropower, show Russia has begun to seek a greater role for clean energy, targeting an expansion of domestic industry as much as environmental protection.

    Hevel opened a solar-panel factory in Novocherboksarsk this year. The plant supplies its own projects, and Hevel is in talks to supply other solar investors. The company will decide in July whether to upgrade the site, Akhmerov said.

    Set up in 2009, Hevel is 51 percent-owned by Renova and 49 percent by state nanotechnology company Rusnano. Vekselberg has moved into technology investments since building his fortune in oil, power and metals.

    Having its own panel supply has helped Hevel to weather the decline in the ruble, which has increased the cost of imports. Yet the currency’s weakness has prompted a change in funding strategy for its solar farms.

    “The original strategy was that we build it, de-risk it, and sell it” after proving consistent cash flow, Akhmerov said. “Our decision now, unfortunately, is to hold them.”
    Back to Top

    AGL targets 400MW rooftop solar in push into New Energy

    AGL Energy has for the first time revealed some of the details of its new energy strategy, revealing plans to install more than 400MW of solar PV on the rooftops of its customers over the next five years.

    This is part of ambitious growth plans for the New Energy division, headed by Marc England, which includes a revenue target of $400 million by 2020, and a “break even” year on profits in 2018.

    The division, which is to focus on new technologies such as solar, storage, electric vehicles and smart technologies for home energy management, is expected to lose $45 million a year as it builds its team to 200 or more.

    Full story and charts:
    Back to Top

    Morgan Stanley sees 2.4m Australia homes with battery storage

    Investment bank Morgan Stanley has painted a bullish outlook for the home battery storage market in Australia, saying it could be worth $24 billion, with half of all households likely to install batteries to store the output from their solar panels.

    That will mean around 2.4 million households in the National Electricity Market (all states except WA and Northern Territory and off-grid areas), more than the double the 1.1 million households that already have solar in the NEM.

    That, the investment bank says, is likely to impact the incumbent electricity utilities, particularly AGL and Origin Energy, cutting earnings and forcing asset write-downs. So much so that Morgan Stanley has slapped a “cautious” tag on its outlook for the industry, suggesting they could be badly hit by lost revenue in coming years.

    Morgan Stanley’s conclusions came about from a survey it commissioned from 1,600 households, and the subsequent release of pricing by the new Tesla Powerwall battery storage offering.

    The survey – conducted in March before the Tesla release at the end of April – found half of all households had a strong interest in household solar and battery product, with a clear $A10k price point and 10-year pay-back period.

    “Battery adoption should follow solar adoption patterns (literally and figuratively) which, in our view, suggests a market of about 2.4m NEM households,” the analysts write, noting that around 1.1m households in NEM already have solar panels.

    “We think there will be strong interest in household solar and battery products, which transfer value away from the incumbent merchant utilities,” they write.

    “We think household battery take-up will follow a similar pattern to household solar take-up, especially seeing as around 1.1m households in the NEM could ‘retrofit’ their existing solar systems with batteries, especially where legacy Feed-in-Tariff schemes are set to expire.”
    Back to Top

    Precious Metals

    Gold Road hikes Gruyera mineral resource 44%

    Junior gold developer Gold Road Resources has reported a 44% increase in mineral resources at its Gruyera mineral deposit, in Western Australia. 

    The deposit was estimated to host 137.81-million tonnes, grading 1.24 g/t gold for 5.51-million ounces of gold. This was a 1.67-million ounce increase compared with the maiden mineral resource estimated in 2014. 

    “Gruyera now has a scale of real significance. This substantial 44% increase in the Gruyera mineral resource to 5.51-million ounces reflects the quality of the deposit and the exceptional exploration and geological work our team has undertaken,” said Gold Road executive chairperson Ian Murray. He pointed out that since Gruyera’s discovery in October 2013, Gold Road has spent about A$10.9-million on the project, which equated to A$1.98/oz of mineral resource. 

    The latest resource upgrade was derived from 66 000 m of diamond and reverse circulation drilling, including 28 000 m drilled since the 2014 maiden mineral resource estimate. “This updated mineral resource will feed into the ongoing prefeasibility study. 

    We look forward to settling on the scale and power source at the end of Phase 1 next quarter,” said Murray, adding that the entire prefeasibility study would be completed by the end of the calendar year, and would be reported to market in early 2016.
    Back to Top

    Base Metals

    Chile regulator seeks sanctions against Lundin’s Candelaria mine

    The Candelaria mining complex consists of an open pit mine and an underground mine providing copper ore to an on-site concentrator with a capacity of 75,000 tonnes per day.

    Chile's environmental regulator SMA said on Wednesday it will seek new sanctions against Lundin Mining’s (TSX:LUN) Candelaria copper mine in the country’s north for not complying with some of the country's environmental requirements.

    Inspections that took place between 2013 and 2014, revealed 16 infractions, nine of which were considered very serious, the SMA said in an e-mailed statement.

    The most severe violation, added the body, is the company’s failure to reduce use of fresh water from the area, as well as ongoing damage to groundwater from the Copiapo River.

    The company has 10 days to submit a plan to correct the irregularities detected by the SMA or 15 days to appeal the charges.

    Candelaria, which first went into production in 1993, had a roughly 14-year mine life when Lundin acquired the asset from Freeport in July last year, and two new discoveries extend the reserves life by around three years. The Susana and Damiana underground deposits are of a higher grade, are below the existing open pit at Candelaria and can be easily accessed from existing and new portals from the pit. The new deposits could come on stream within three years.

    Attached Files
    Back to Top

    Aluminium import premiums slip to $130-$150/mt CFR basis

    Chinese import premiums for Good Western aluminium slipped further this week to $130-$150/mt CFR plus LME cash, down from $150-$200/mt last week and also from $260-$280/mt in April.

    Market sentiment remained bearish as aluminium prices remained low on the London Metal Exchange, aluminum premiums to South Korea and Japan narrow, and domestic Chinese metal outlook bearish, sources said.

    There was a lack of actual import trade to China this week despite the lower LME and premiums, as domestic Chinese aluminium prices continued below import levels, sources added.

    "The arbitrage window is opening and we've had queries asking about premiums again, but the Chinese still cannot work with the current levels -- there's still a gap of a few hundred yuan between import and domestic metal prices," a Shanghai-based trader said.

    "There's also expectation that Chinese domestic metal prices will lower further, maybe dropping below Yuan 13,000/mt again, so there's no rush to buy," he said.

    Another Shanghai-based trader agreed, adding that the market was also eying the third-quarter contract talks starting in Japan in the near term, which is widely expected to settle at much lower than the second-quarter premium of $380/mt.

    "The arbitrage window is almost there, but not yet...people expect Q3 for Japan to be much lower, so they are all very cautious," he said.

    A north China consumer said they were offered premiums this week at $135/mt delivered to Shanghai bonded warehouses, but were not interested.

    "It's still not enough. We expect Japan Q3 to drop to $100 plus, so we want to wait," the consumer source said.
    Back to Top

    Steel, Iron Ore and Coal

    India's coal industry

    With Chinese demand for seaborne coal stalling, India has become the great hope of the seaborne coal market.

    However, improvements in inland transport infrastructure are critical both to cope with rising imports and the delivery of competing plans for a huge rise in domestic production.

    Investment in India's transport infrastructure could prove a double-edged sword for trade in seaborne coal.

    Growing domestic production and rapidly increasing import volumes are stretching the capacities of India's railways and ports.

    A shortage of railcars and line congestion mean that over 50 million tons of coal piles up at the end of each year at the pit-heads of Coal India Ltd, the country's state-owned coal miner.

    The transportation issue is set to become even more acute, if the government's ambitious new coal production plan proves successful.

    CIL, which accounts for over 82% of annual Indian coal production, has been directed by the National Democratic Alliance government to double its production to a billion tons in the next five years.

    Coal demand over this period is expected to rise to 1.2 billion mt.

    The power sector alone is expected to account for 65%, equivalent to over 750 million tons of annual coal consumption.

    CIL managed 7% growth in the financial year to March 2015, following five years that saw average annual production growth of just 1.5%. Growth this year is targeted at 11%, which would take CIL production to 550 million tons.

    CIL has approved a plan to raise production to 908 million mt by March 2020 and is currently working on a strategy to add a further 98 million mt/year production capacity in the same time frame.

    The mining giant will undertake 126 new mine and old mine expansion schemes in addition to the 149 such projects already under way. The plan requires 12% average annual growth.

    Central to the strategy will be better coordination between the eight producing subsidiaries of CIL, the railways and coal-producing states.

    The government also expects other producers to increase output five-fold to over half a billion tons by 2020. This vote overcame a 15-year legislative logjam, in which coal mine workers' unions had blocked any change to the law that nationalized private coal mines over 40 years ago.

    If this massive expansion can be achieved, it would mean a drastic cut in currently forecast levels of coal imports, sending another shockwave through already struggling seaborne coal markets.

    However, the degree to which India's coal demand can be met, either by domestic demand or imports, depends critically on rail links between ports, new mines and their customers.
    Back to Top

    S African power plants face 17Mt coal shortfall

    South African power utility Eskom faces a 17-million tonne coal shortfall by 2017 at its coal-fired power plants, a Cabinet Minister said on Wednesday. 

    The shortfall is anticipated in 2015 at Matla, Tutuka and Hendrina power stations and in 2016 at Kriel and Arnot Power Stations, Public Enterprises Minister Lynne Brown said in a written reply to questions in parliament.
    Back to Top

    No point in top iron ore miners cutting supply: Goldman

    The world’s largest iron ore producers are moving in the right direction by continuing to increase output even as demand cooled in top consumer China, sending prices tumbling and leaving smaller, high-cost producers struggling to survive.

    That seems to be the main conclusion of experts from Goldman Sachs Group, which wrote in a report Wednesday that “efforts to support prices via voluntary production cuts would be counter-productive,” as quoted by Bloomberg.

    While such cutbacks are appealing in theory, any such proposal is misguided, according to Goldman's analyst Christian Lelong.

    Brazil’s Vale, BHP Billiton and Rio Tinto, the report argues, are unlikely to create a cartel and agree on output cuts to stabilize prices, with waning demand expected to increase competition.

    “First, production cuts would go against the prevailing trend of improving efficiency,” Lelong wrote. “Second, the required coordination among dominant producers with different incentives would be more difficult to achieve among three companies; successful cartels in oil and potash have featured only one or two dominant producers.”

    Glencore chief executive Ivan Glasenberg and Fortescue’s Metals Group boss Andrew Forrest, among several others, have warned that oversupplying markets regardless of demand was damaging the industry’s credibility.

    Prices for the steel making material hit $46.70 a tonne in April, the lowest in a decade, though they have picked up since then to around $62 this week.

    Goldman expects the iron ore "war of attrition" will continue while prices gradually decline toward its $40 per metric ton forecast by 2017.

    Attached Files
    Back to Top

    Australian mine magnate Rinehart loses control of family trust - court ruling

    Australian iron-ore magnate Gina Rinehart's eldest daughter has been granted control of the multi-billion dollar family trust following the family's long-running legal battle.

    The order in the New South Wales state Supreme Court said Bianca had demonstrated the ability to robustly assert the rights of the trust against her mother and her company Hancock Prospecting. 

    Bianca and her brother John Hancock launched legal action against their mother in 2011, alleging she acted "deceitfully" and with "gross dishonesty" in her dealings with the trust, set up in 1988 by her father, Lang Hancock, with her children as the beneficiaries.
    Back to Top

    Essar Steel posts profit of Rs 648 crore in FY15

    Essar Steel reported a net profit of Rs 648 crore for the last financial year against a loss of Rs 1597.14 crore a year earlier, helped by higher operating margins and sale of assets.

    The Ruia-controlled Essar Steel's operating margin doubled to 18 per cent. The company attributed stronger margins to boost in sales of higher margin value added steel. The segment contributed 62 per cent of sales against 50 per cent sales last year. Gross revenue of the company rose 20 per cent to Rs 17,162 crore.

    ..Privately-held Essar Steel sold assets worth Rs 4850 crore during the year. Oxygen plant was sold for Rs 850 crore, while the Odisha slurry pipeline was sold for Rs 4000 crore. The company plans to sell its Vizag slurry pipeline and coke ovens for Rs 3600 crore each in the current financial year. Promoters infused Rs 1300 crore into the company during the year.

    The asset monetization plan and equity infusion is aimed at bringing down the leverage of the company and increasing liquidity. Care Ratings has a 'default' rating on Essar Steel since more than a year. The company said it will approach the rating agency soon for an upgrade.

    Essar Steel has a total debt of Rs 30,000 crore (about $4.7 billion) of which it has dollarized about Rs 2.2 billion, helping it reduce its interest cost to 9 per cent from 12 per cent. The remaining loan will be restructured under Reserve Bank of India's scheme, giving it a longer repayment period.

    "The company's strategy is to focus on value-added products, introducing new products, ramping up the production and improve profitability to ensure sustainable operations of the company," said Executive Vice Chairman Firdose Vandrevala.

    The company hopes to raise the capacity utilization to 80 per cent this financial year from less than 50 per cent at the end of last financial year. The company has a total capacity of producing 10 million tonne (mt) of liquid steel. However, the utilization has so far been constrained due to delay in completion of the plant and unavailability of gas.

    Read more at:
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP