Mark Latham Commodity Equity Intelligence Service

Thursday 19th May 2016
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    Saudi Arabia Admits To A Full-Blown Liquidity Crisis

    Just three weeks ago we reported that the biggest construction conglomerate in the middle east, the Saudi Binladin Group had announced it would layoff 50,000 workers or a quarter of its workforce, slammed by the weak economy.

    Now, Saudi Arabia has admitted that in addition to acute economic problems, which will manifest themselves most directly in a soaring Saudi debt load...and rising default risk...

    Saudi Arabia can also add liquidity worries which just spilled out into the open, because Bloomberg reported moments ago, Saudi Arabia has told banks it is considering paying some outstanding bills to contractors with government-issued bonds, citing people with knowledge of matter say.

    Contractors would be able to hold bond-like instruments until maturity.

    Bloomberg adds that issuing bonds is one of several options being considered.

    Contractors so far received some payments of outstanding bills from government in cash.

    Saudi Arabia’s finance ministry declines to comment, while central bank didn’t immediately return calls seeking comment

    What this means is simple: as a result of the budget imbalance driven by low oil prices, largely a Saudi doing, the kingdom is forced to give workers an implicit pay cut. It also means that since the government has to "pay" through the issuance of debt, that the liquidity crisis in the kingdom is far worse than many had anticipated.

    Which brings up the question of devaluation: how long until the SAR has to follow the Yuan and see a substantial haircut. According to the market, 12 month SAR forward are now trading at a price which implies a 12% devaluation in the coming months.

    When that happens is, of course, up to the King Salman.

    What it also means is that as Saudi Arabia is now scrambling to generate any incremental cash, it too will be caught in the deflationary spiral of excess production as it will have no choice but to outsell its competitors, especially those rushing to grab Chinese market share such as Russia, as it seeks to make up with volume what it has lost due to lower prices.
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    China’s energy guzzlers Jan-Apr power use down 4.4pct on year

    Power consumption of China’s four energy-intensive industries dropped 4.4% on year to 526.7 TWh over January-April, accounting for 29.1% of the nation’s total power consumption, the China Electricity Council (CEC) said on May 18.

    Of this, the ferrous metallurgy industry consumed 144.3 TWh of electricity over January-April, falling 11.6% year on year, compared to the drop of 6.9% from the previous year; while the non-ferrous metallurgy industry used 156.2 TWh of electricity, down 5.4% year on year, compared a 3.7% growth from the year prior.

    The chemical industries consumed 140.5 TWh of electricity during the same period, up 4% year on year, lower than a 2.9% growth a year ago; while power consumption of building materials industry dropped 2.2% year on year to 85.8 TWh, compared to a 6.5% decline a year ago.

    In April, the four industries consumed a total 145.4 TWh of electricity, decreasing 0.5% year on year, accounting for 31.8% of China’s total power consumption.

    Of this, the ferrous metallurgy industry consumed 40.2 TWh of electricity in April, dropping 4.3% on year; while the non-ferrous metallurgy industry used 40.7 TWh of electricity, decreasing 4.9% from a year ago.
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    Russia's VTB to grow trading to help Russian commodity exports

    Russia's second largest bank, state-controlled VTB, is growing its commodities trading business to help the country's oil, coal and metals producers expand in new markets from China to Africa.

    VTB aims to become a top global commodities trading bank as Western peers cut their Russian exposure due to sanctions and as Russian firms feel the pressure of falling prices, the division's head, Atanas Djumaliev, told Reuters.

    "We aim to enter the top ten of leading banks working with commodities markets," said Djumaliev, who already has 30 people in offices in Moscow, London and Switzerland and plans to grow.

    The market's top trading banks, such as Goldman Sachs or Citi, employ 200 to 300 people in commodities, generating revenues which can top $1 billion in good years.

    But their proprietary trading -- taking bets with their own money -- has been drastically reduced by U.S. regulations, a factor VTB does not need to worry about.

    "We don't limit ourselves at just providing liquidity. We participate in export flows," said Djumaliev.

    Inside Russia, VTB would, for example, often buy oil from mid-sized independent producers and supply it to small refiners, from which it would purchase refined products for exports.

    "However, we are rather niche players in commodities and do not aim to rival global tradinghouses such as Vitol or Glencore. Our priority is to support Russian clients locally and improve Russian export competitiveness on global markets," he said.

    VTB plans to grow operations - from hedging to structural finance - in Africa, Asia and Latin America to help Russian companies spur exports to those destinations.

    Russia has become one of the top oil suppliers to China and Asia in the last decade, competing with OPEC leader Saudi Arabia in markets Riyadh and its Gulf allies long dominated.

    VTB hopes to help Russian firms expand even further.

    "We are talking to many refiners in China, which are interested in Russian supplies. Chinese refiners, for example, like purchasing oil with deferred payment. Sometimes it doesn't suit Russian producers. So our role is to optimise the process for both sides," said Djumaliev.

    "We can make a pre-payment, provide funding to a Chinese consumer and coordinate oil supply to a local port".
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    Oil and Gas

    Saudi Oil Stockpiles Hit 18-Month Low in March as Output Capped

    Saudi Arabia’s crude oil stockpiles fell in March for the fifth month in a row reaching the lowest level in 18 months as the kingdom kept shipping crude to meet customer demand while keeping a lid on production.

    Stockpiles dropped to 296.7 million barrels in March from 305.6 million barrels in February, according to data published on the website of the Riyadh-based Joint Organisations Data Initiative. Stockpiles peaked at 329.4 million barrels in October and have been in decline since then, the data showed.

    Saudi Arabia, Russia, Venezuela, and Qatar had an initial agreement in February to freeze production at January levels to curb a global glut and shore up prices. Negotiations between OPEC members and other producers on April 17 in Doha ended without a deal to limit output after Saudi Arabia and allies in the Gulf Arab region wouldn’t agree to any accord unless all members of the Organization of Petroleum Exporting Countries joined, including Iran.

    "The Saudis were pushing for a freeze deal since February so they needed to rely on stocks to meet any rise in customers demands at home and abroad while keeping their output flat,” Mohamed Ramady, an independent analyst and former economics professor at King Fahd University of Petroleum and Minerals, said by phone from London. “The Saudis also wanted to give some rest to fields after 12 months of production above 10 million barrels a day.”

    The world’s biggest crude exporter kept its oil production almost flat since January at about 10.2 million barrels a day. It exported more in the first quarter this year compared to the same quarter last year, the data showed. Daily exports in March were at 7.54 million barrels, little changed from February. They reached 7.84 million barrels a day in January, the highest since March 2015 when it shipped 7.89 million barrels a day.

    Saudi Arabia’s own refineries produced 2.85 million barrels daily of different products in March, an all-time high and up from 2.84 million barrels a day in February, according to the initiative known as JODI. Gasoline production rose to 569,000 barrels a day in March, the highest since December 2013 when Saudi refineries produced at a record of 613,000 barrels a day, according to JODI.
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    Oil demand strong, year end too early for re-balancing: Total CEO

    Oil demand in 2016 will stay strong, supporting prices, but the market is unlikely to rebalance by the year end, the Chief Executive of French oil and gas major Total, said on Wednesday.

    Patrick Pouyanne told a French Senate committee that oil demand rose sharply in 2015 to 1.8 million barrels per day (bpd), increasing at about 2 percent in a single year.

    "This year, experts see demand at about 1.2 million barrels per day," Pouyanne said.

    "Me and my team see it at about 1.4 million barrels per day, which is still strong and means the market is rebalancing, but will not rebalance completely by the end of the year, however, it will somehow support prices," he added.

    Oil futures have rebounded in the past days, hitting 2016 highs of nearly $50 per barrel due to supply disruptions in Nigeria and Canada, from as low as $26 per barrel in January on a global supply glut.

    The Paris-based International Energy Agency, said in its May forecast that global oil demand growth was broadly unchanged at 1.2 million bpd for this year, but said the risks to future forecasts lay to the upside.

    Pouyanne said the market was still being supplied and major projects that were decided by oil companies some three to four years ago when prices were high at about $100 per barrel, are expected to enter into production around the year 2020.

    "However, investments have fallen sharply and we are not preparing production for the years 2019-2020," he said, adding that investments have fallen from about $700 billion in 2014 to $400 billion this year.

    "At this rhythm, there could be a shortfall of supply and a counter shock. There could be a shortfall of about 5 million barrels in that horizon, which is a lot. All of this because volatility has been extreme," Pouyanne said.

    Attached Files
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    Exxon Mobil expected to ramp up Nigeria's Qua Iboe crude output this week

    Exxon Mobil is expected to ramp up its production of Nigeria's Qua Iboe crude oil this week.

    The company declared force majeure on exports of the grade late last week after a drilling rig damaged a pipeline. Sources said the issue cut the company's production by as much as 250,000 barrels per day (bpd).

    Traders said that Exxon is expected to increase production as early as Tuesday and issue a new loading programme later in the week. Traders expect exports to be delayed by about 10 days.

    Exports of Qua Iboe were scheduled at roughly 306,000 bpd for May. Nigeria's oil production has fallen by almost 40 percent to 1.4 million bpd because of militant attacks on pipelines and other facilities, its oil minister said on Monday.
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    Eni pipeline 'blown up' in Nigeria

    A pipeline owned by Italian player Eni has been attacked by a militant group in the Niger Delta.

    The pipeline bombing is the latest in a string of attacks on major oil and gas companies operating projects in the area.  

    The Eni gas pipeline was blown up on Tuesday in Ogbembiri in Bayelsa state, according to local media reports. As a result, Eni's production is said to have been affected.  

    It is not clear yet who was responsible for the attack, but reports indicate it was a group calling itself the Niger Delta Avengers, which previously claimed responsibility for similar attacks on Chevron and Shell project.  

    Eni was unavailable for immediate confirmation when contacted by Upstream.
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    India Sustains Crude Buying at Record, Boosts Diesel Imports

    India sustained crude oil imports at a record and purchased more diesel than it has in the previous three years combined.

    The South Asian nation imported 17.96 million metric tons of crude last month, according to data released Wednesday by the oil ministry’s Petroleum Planning and Analysis Cell. That’s roughly equivalent to 4.39 million barrels a day, little changed from a record in March. A surge in diesel buying to a five-year high pushed net exports of the fuel to the lowest since May 2015. Total product imports at 3 million tons were the highest ever.

    India is becoming the center of global oil demand growth as an expanding economy translates into more goods being transported and increasing consumer spending. Water shortages and disputes between government-owned refiners and their private rivals has further boosted the need for overseas supplies.

    “The water shortages have led to run cuts at some refineries, while growing demand continues to result in Indian state-owned refiners importing products in the spot market,” said Virendra Chauhan, an oil market analyst at Energy Aspects Ltd.

    Bharat Petroleum Corp., Indian Oil Corp. and Hindustan Petroleum Corp. are turning to fuel imports because of an ongoing dispute over freight costs and taxes with private refiners Reliance Industries Ltd. and Essar Oil Ltd. Mangalore Refinery and Petrochemicals Ltd. last month shut a crude distillation unit with an annual capacity of 3 million metric tons at its facility in southern India because of water shortages.

    A strong monsoon season -- which runs from June to September -- should ease diesel imports as water levels improve, Chauhan said.

    The country imported 508,000 tons of diesel in April while exporting 2.1 million tons. That left the country’s net exports -- a measurement which strips out inbound shipments -- at the lowest in 11 months. Gasoline exports slipped to 1.37 million tons, the lowest since September.

    Attached Files
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    Iran fields to be developed by Sinopec, CNPC

    Chinese companies will develop the second phases of two giant Iranian oil fields, Russian news portal reported, citing Iranian Minister of Petroleum Bijan Zangeneh.

    Sinopec will develop the Yadavaran oil field, and China National Petroleum Corp (CNPC) will develop the North Azadegan one, Zangeneh said on Monday, following a meeting with Zhang Yuqing, deputy head of China's National Energy Administration.

    Sinopec and CNPC are two of three State-owned oil giants in China. Once the second phase of the Yadavaran oil field is developed, its output will be 180,000 barrels per day, up 95,000 barrels from the current production level, the Cihan News Agency in Turkey reported on Tuesday, citing Abdolreza Hoseininejad, CEO of Petroleum Engineering and Development Co (PEDEC).

    CNPC and Iran's PEDEC have already signed a deal to produce 25,000 barrels per day in the second phase of the North Azadegan oil field, according to the Cihan News Agency.

    Early in 2009, CNPC signed contracts with Iran to develop the North Azadegan oil field, but work was interrupted by Iran's nuclear crisis.
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    Petronas warns of further oil price impact as profit hit

    Malaysia's Petroliam Nasional Bhd warned that lower oil prices will continue to hurt its earnings on Wednesday after its first quarter profit fell by 60 percent.

    The state-owned company has been hit hard by a tumble in oil prices that has forced it to slash costs and reduce dividends to the government. It detailed plans this year to cut spending by up to 50 billion ringgit ($12 billion) over the next four years.

    "Concerns on moderate demand outlook and persistent oversupply will continue to pressure crude oil prices," Petronas said. "Petronas expects performance to be affected by the volatility of oil prices and foreign exchange rate."

    It added that it will continue with its cost cutting.

    In February, Petronas said it may have to borrow or tap into reserves to meet its dividend commitment to the government.

    Crude oil prices have risen by about 30 percent this year and are near their 2016 highs, but prices are nevertheless down 60 percent since mid-2014, plagued by a global supply glut.

    Petronas said lower prices across all products and higher net impairment on assets had also reduced profitability.

    First-quarter net profit fell to 4.6 billion ringgit ($1.14 billion) from 11.4 billion ringgit in the year-ago quarter, while revenue slid 26 percent to 49.1 billion ringgit, it added.
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    Technip, FMC Technologies to merge in all-stock deal

    France's Technip announced an all-stock merger with U.S. rival FMC Technologies to create an oil services group with combined revenue of $20 billion.

    The transaction is expected to deliver annual pretax savings of at least $400 million as of 2019 and boost earnings per share significantly, the companies said in a statement on Thursday.

    "We have complementary skills, technologies and capabilities," Technip Chairman and Chief Executive Thierry Pilenko said. "Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth."

    Lower energy prices are driving consolidation in the oil services sector as companies seek savings to boost profits amid an oil supply glut that has been weighing on exploration and production.

    Reuters reported in December that Technip had held talks with FMC.

    Under the terms of the deal, each Technip share will be converted into two shares of TechnipFMC, and each FMC Technologies share will be exchanged for one share of TechnipFMC, with each company's shareholders owning close to 50 percent of the combined company.

    Pilenko will serve as executive chairman of TechnipFMC, while FMC Technologies’ President and Chief Operating Officer Doug Pferdehirt will be CEO, the companies said. The transaction is expected to close early in 2017.

    Last year, the two companies formed a joint venture, Forsys Subsea, aimed at reducing the cost of subsea oilfield exploration, a sector that has been badly hurt by the drop in the price of oil.

    Technip has a market value of about $6.2 billion, compared with $6.5 billion for FMC Technologies. Technip has annual revenue of $13.5 billion, more than double that of FMC Technologies.

    Goldman Sachs and Rothschild are acting as financial advisers to Technip. Evercore and Societe Generale are acting as financial advisers to FMC Technologies.
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    Summary of Weekly Petroleum Data for the Week Ending May 13, 2016

    U.S. crude oil refinery inputs averaged about 16.4 million barrels per day during the week ending May 13, 2016, 192,000 barrels per day more than the previous week’s average. Refineries operated at 90.5% of their operable capacity last week. Gasoline production decreased last week, averaging 10.0 million barrels per day. Distillate fuel production increased last week, averaging about 4.8 million barrels per day.

    U.S. crude oil imports averaged about 7.7 million barrels per day last week, up by 22,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 8.8% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 691,000 barrels per day. Distillate fuel imports averaged 52,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.3 million barrels from the previous week. At 541.3 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 2.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.2 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.0 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 0.7 million barrels last week.

    Total products supplied over the last four-week period averaged 20.2 million barrels per day, up by 2.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.6 million barrels per day, up by 5.7% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the last four weeks, down by 0.9% from the same period last year. Jet fuel product supplied is up 3.8% compared to the same four-week period last year.

    Cushing inventories rise 500,000 bbl
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    Small drop in US oil Production

                                                    Last Week    Week Before    Last Year 

    Domestic Production '000........... 8,791            8,802              9,262
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    Report: Apache set to be bought by Occidental Petroleum

    Apache +9.8% premarket following a report from that the company may be acquired by Occidental Petroleum in a deal thought to be worth at least $25B.

    APA has called a town hall meeting today where it may announce the takeover to staff, according to the report.

    APA is a "perfect fit" for OXY, the report says, as the companies have a similar production profile in terms of liquids production.


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    Continental Resources announces record STACK oil well

    Continental Resources, Inc. today announced the completion of an industry record well in the over-pressured oil window of Oklahoma's STACK play. The Verona 1-23-14XH flowed at an initial 24-hour test rate of 3,339 barrels of oil equivalent per day, comprised of 2,345 barrels of oil, or 70% of production, and 6.0 million cubic feet of 1,370-Btu natural gas (British thermal units). The Verona is producing from the Meramec reservoir through a 9,700-foot lateral at a flowing casing pressure of approximately 2,400 psi, on a 34/64-inch choke.

    'The Verona is another example of the exceptional results we are getting from wells drilled in the over-pressured oil window of STACK,' said Harold Hamm, Chairman and Chief Executive Officer. 'We couldn't be more pleased with the performance of our wells in STACK and the addition of this outstanding asset to our portfolio. Our STACK team also completed the Verona at a cost of approximately $9.0 million, which is $500,000 less than our year-end 2016 target cost for two-mile lateral wells in the over-pressured oil window. This is the Company's lowest cost completion in STACK to date.'

    The Verona is the Company's ninth well completed in the over-pressured oil window of STACK, and all have been strong producers. The Company is in the process of completing four additional Meramec wells. Continental currently has 11 operated rigs drilling in STACK, with six targeting the Meramec zone and five targeting the Woodford zone.

    Located in Blaine County, Oklahoma, the Verona is immediately east of the Company's Ludwig unit, where Continental is currently drilling an eight-well density pilot, its first in the STACK play. The density pilot consists of seven new wells in the Upper and Middle Meramec reservoirs, as well as an additional well in the Woodford reservoir underlying the Meramec. Results from the Ludwig density pilot are expected to be announced by the Company's third quarter 2016 earnings release.

    As announced earlier in the month, at March 31, 2016 Continental had approximately 171,000 net acres of leasehold in the STACK play, 95% of which is in the over-pressured window.
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    Shell ships Cheniere's ninth Sabine Pass export cargo

    Cheniere’s Sabine Pass LNG export terminal in Louisiana, the first of its kind to ship US shale gas overseas, has exported its ninth cargo of the chilled fuel since start-up in February.

    The 155,000 cbm GasLog Shanghai LNG tanker left the Sabine Pass facility on Monday and is currently located in the Gulf of Mexico, according to AIS data provided by the vessel tracking website, MarineTraffic.

    The liquefied natural gas tanker is chartered by BG’s Methane Services, now part of Hague-based LNG giant Shell.  Shell has a 20-year offtake agreement with Cheniere for 3.5 mtpa of LNG from Train 1.
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    Halcón reaches pact with creditors on prepackaged bankruptcy plan

    Halcón Resources Corp, which produces oil in Texas and North Dakota, said on Wednesday it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices.

    Shares of the Houston-based company fell 55 percent to 44 cents in after-hours trading.

    The bankruptcy marks a setback to Halcón Chief Executive Floyd Wilson's long-running goal to build and then sell the company to the highest bidder, a plan that mimicked Wilson's 2011 sale of Petrohawk to BHP Billiton for more than $12 billion at a 65 percent premium to its shares.

    Yet almost from the beginning, Halcón was saddled by high costs and high debt, despite having some quality acreage. Indeed, the value of Halcón's holdings in North Dakota's Bakken shale formation have long eclipsed the market value of the company.

    Halcón's restructuring plan will eliminate about $222 million of preferred equity, and reduce the company's annual interest payments by more than $200 million.

    Debtholders will hold most of Halcón's shares after it emerges from bankruptcy protection, the company said in a statement, with existing common shareholders getting 4 percent of the new equity and existing preferred shareholders receiving $11.1 million.

    In a prepackaged bankruptcy, companies and their creditors agree on a reorganization plan prior to the bankruptcy filing.

    Wilson did not immediately respond to a request for comment.

    Together with several former colleagues from Petrohawk, Wilson pooled $55 million to form Halcón in 2011. EnCap Investments LP, a private equity firm, together with a subsidiary of Liberty Mutual Holding Co, invested $550 million.

    In a 2013 interview with Reuters he boasted: "We will be successful. I've been doing this a long time. Nothing keeps me up at night."

    A near-60 percent fall in crude prices has eroded cash flows at oil producers, forcing them to restructure to cut debt and reduce interest payments. More than 60 U.S. oil producers have so far sought bankruptcy protection, though most are not prepackaged.
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    Susquehanna County Uses NatGas to Attract New Business, May 19 Expo

    Cabot Oil & Gas is a great company that focuses most of its shale efforts in the Marcellus. And every single Marcellus well they drill is located in a single northeastern Pennsylvania county–Susquehanna County. Susquehanna County has been good for Cabot, and conversely, Cabot has been good for Susquehanna County–providing jobs and pumping millions into the local economy.

    So it was no surprise to learn that Cabot is the main sponsor of a county event being held tomorrow: the Susquehanna County Business Expo. The purpose of the expo? To lure companies to locate or relocate in a relatively rural but rapidly growing county–where the air is good, the people are nice, the taxes are LOW and the gas is plentiful.

    The not-so-subtle message to businesses located nearby in Broome County, NY (where MDN is written) is that they ought to consider relocating over the border.

    Specifically in their sights are manufacturers who can leverage the cheapest natural gas in the world! The sad truth is that businesses have been, and continue to, leave the Empire State in droves. Cuomo is driving them out with his obtuse policies.

    The Expo will be held tomorrow in Montrose, PA. MDN encourages Broome businesses (and business from other areas) to consider attending.
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    Alternative Energy

    U.S. EPA expected to increase 2017 biofuels targets -sources

    U.S. environmental regulators were expected to raise targets for the amount of corn-based ethanol and biofuels that must be mixed into the nation's motor fuel supply next year, five sources said.

    Sources expected the Environmental Protection Agency (EPA) to raise requirements from the 18.11 billion gallons set this year reflecting strong demand for diesel and gasoline as Americans drive at a record pace, sources said. The 2016 target included 14.5 billion gallons for ethanol.

    A spokeswoman for the EPA declined to comment on the timing of the proposal or its contents.

    The size of the rise was not known, but it would fall short of the 24 billion gallons outlined in a 2007 law aimed at weaning the United States off oil imports and boosting the use of fuel based on renewable sources such as corn.

    The EPA said last year that those requirements were unachievable, acknowledginginfrastructure constraints known as the "blend wall," the 10 percent saturation point for ethanol blended in gasoline.

    An ethanol target of 15 billion gallons would be a victory for the farm lobby and biofuels companies like Poet LLC, which has spent millions to produce advanced biofuels, and a blow to the oil industry.

    Releasing the targets ahead of 2017 would be part of the EPA's efforts to get the controversial policy back on track after years of delays in the program, which has seen entrenched oil and farm interests fight an increasingly fraught lobbying battle.

    In November, the agency unveiled a retroactive target for 2014 and the first for 2015 and 2016, triggering lawsuits from both Big Corn and Big Oil.
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    Bayer makes move for Monsanto in global agrichemicals shakeout

    German drug and chemicals giant Bayer AG has made an unsolicited takeover offer for Monsanto Co, the world's biggest seed company, as high inventories and low commodity prices spur consolidation in the global agrichemicals industry.

    Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither released proposed deal terms.

    With Monsanto worth $42 billion by market capitalization, an acquisition would likely be bigger than ChemChina's February deal to buy Swiss agrichemicals firm Syngenta AG for $43 billion - a target Monsanto itself pursued last year - and could face U.S. antitrust hurdles.

    Monsanto said in a statement its board is reviewing the proposal, which is subject to due diligence, regulatory approvals and other conditions. There is no assurance that any transaction will take place, it said.

    Bayer, which has a market value of $90 billion, said in a brief statement that its executives recently met executives of Monsanto to privately discuss a negotiated acquisition. A further statement will be made as appropriate, it said.

    The proposal comes as Chinese state-backed ChemChina's deal for Syngenta faces intensive regulatory review in the United States over concerns about the security of U.S. food supply. The deal is the largest foreign acquisition ever by a Chinese company, as Beijing seeks to secure the country's own food supply.

    Any deal between Bayer and Monsanto, meanwhile, could raise U.S. antitrust concerns because of the overlap in the seeds business, particularly in soybeans, cotton and canola, antitrust experts have said.

    However, spurning a deal with Bayer over concerns a tie-up might not receive antitrust clearance could also pose challenges for Monsanto - its own bid for Syngenta last year would have meant significant expansion in seeds.

    Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is a much more diversified company than Syngenta or Monsanto, with a major life sciences business. Bayer's crop science division has businesses in seeds, crop protection and non-agricultural pest control, potentially complementing Monsanto's seeds assets.

    Monsanto approached Bayer earlier this year to express interest in the latter's crop science unit, in the form of an acquisition or joint venture, sources told Reuters in March.

    Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, according to industry data. The largest, Syngenta, has a 19 percent share.

    Monsanto is the leader in seeds, with a 26 percent market share, followed by DuPont, with 21 percent. DuPont agreed last year to merge with Dow Chemical.
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    Greenhouse gas emissions from this surprising source could doom the Paris climate accord goal

    By now, almost anyone can pick the world’s biggest polluters out of a lineup: power plants, automobile tailpipes and factories. Together they push nearly 70 percent of heat trapping greenhouse gases into the atmosphere. Not surprisingly, the trio drew considerable attention during the late 2015 Paris climate talks to limit global warming to 2 degrees Celsius, or 3.5 degrees Fahrenheit, by the end of the century.

    But a new study released Tuesday says the agreement reached by governments after the United Nations talks will fail if they fail to confront another major source of greenhouse gas emissions: agriculture. Based on some estimates, meat, dairy and crop production emit as much greenhouse gas pollution in the form of methane and nitrous oxide as automobiles emit carbon. The study said farm emissions must fall by a billion tons per year by 2030.

    According to the study, current regulations for agriculture will fall up to 5 percent short of what’s needed. “This research is a reality check,” said Eva Wollenberg, leader of the CCAFS Low Emissions Development research program at the University of Vermont’s Gund Institute for Ecological Economics. “Countries want to take action on agriculture, but the options currently on offer won’t make the dent in emissions needed to meet the global targets agreed to in Paris.”

    The U.N.’s current solutions call for more water efficiency in rice production, better forestry practices and lowering food waste. But the study’s authors said governments will have to do better than that. The study advocates identifying specific breeds of cattle that produce less methane, along with a dietary inhibitor that reduce the gas by more than 25 percent.

    The study, two years in the making, was published in the journal Global Change Biology. Its more than 20 authors represent research institutions from around the world, including the International Livestock Research Institute in Nairobi, the French National Institute for Agricultural Research in Paris, the International Rice Research Institute in Los Baños, Philippines, and the International Institute for Tropical Agriculture in Cali, Colombia.
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    ICL profits drop on weak fertiliser sales, to cut dividend

    Israel Chemicals (ICL) on Wednesday reported a 50 percent drop in first-quarter earnings due to a fall in fertiliser sales and said it would cut its dividend payout ratio because of weakness in agricultural markets.

    "Our board has adjusted the company's dividend policy to strengthen ICL's financial position amid the volatile situation we are facing in the agricultural commodities market," Chief Executive Stefan Borgas said.

    The company said prices of agricultural commodities fell during the first months of 2016, weighing heavily on farmers' decisions on how much fertiliser to buy.

    Last month, the world's biggest fertiliser company producer by capacity Potash Corp cut its full-year 2016 profit forecast due to lower demand and weak prices.

    ICL, which has exclusive permits in Israel to extract minerals from the Dead Sea, earned 7 cents per diluted share, excluding one-time items, in the first quarter, down from 15 cents a year earlier. Sales fell to $1.27 billion from $1.4 billion, mainly due to a drop in potash prices and sales volumes.

    ICL, one of the three largest suppliers of crop nutrient potash to China, India and Europe, was forecast to make adjusted earnings of 9 cents on sales of $1.3 billion, according to Thomson Reuters I/B/E/S.

    The sale of non-core businesses and the weaker euro and pound against the dollar also hit revenue.

    The potash market, in particular, has been hurt by the delay of 2016 contracts with China, usually a trigger for other markets and which sets a price benchmark for the year, ICL said. Weak sales to China and India also hit potash profit margins.

    Potash sales in the quarter fell to 917,000 tonnes, including Israel, from 1.14 million a year earlier.

    Borgas said the company was taking steps to strengthen its phosphates joint venture in China, which was affected by weaker domestic demand and lower prices. ICL will step up efficiency measures to cut the joint venture's staff numbers and set up a marketing division in China to improve sales.

    For 2016 and 2017, ICL's dividend payout ratio will comprise up to 50 percent of its adjusted annual net income, compared with a prior policy of up to 70 percent.

    ICL will pay a dividend of 3 cents a share, or a total of $35 million, for the quarter.

    Shares in ICL, a subsidiary of Israel Corp, fell 2.8 percent to 15.78 shekels.

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    Base Metals

    Chinese company doubles Papua New Guinea copper mine cost to $3.6 bln

    A Chinese conglomerate planning to develop the Frieda River copper project in Papua New Guinea has more than doubled the estimated construction cost for the mine to $3.6 billion after boosting its potential production capacity.

    State-owned Guangdong Rising Assets Management Co Ltd bought into Frieda River in 2015, in line with moves by Chinese companies to pursue offshore copper mines to feed demand in the world's biggest user of the metal.

    The project has still to gain formal financing and no date has been set for construction, said Joe Walsh, corporate development officer at GRAM subsidiary PanAust.

    The capital cost for Frieda River is more than double the $1.7 billion estimate made in September 2014 by PanAust, before it was acquired by GRAM for around $950 million.

    The increase reflects a larger annual production capacity, as well as extra spending on waste management and rising construction costs, according to a document released by Highlands Pacific Ltd, which has a 20 percent stake in the project.

    An additional $2.3 billion would also be spent over the life of the mine, the document said.

    Copper has been earmarked as one of the few growth markets for mining companies stung by a slowdown in metals directly related to steelmaking, such as iron ore and nickel.

    China Molybdenum paid $2.65 billion for Freeport McMoran's majority stake on the Tenke copper project in Democratic Republic of Congo this month and $820 million for the Northparkes copper mine in Australia in 2013.

    In 2014, Hong Kong-listed MMG Ltd bought the Las Bambas copper project in Peru off Glencore for $5.85 billion.

    Copper is languishing near its lowest price in seven years due to a supply glut. With fewer discoveries, however, miners exploiting new lodes hope by the time they are up and running, the market will have turned.
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    Peru's Fujimori takes tough stance on Southern Copper Tia Maria project

    Peruvian presidential contender Keiko Fujimori said it would take "many years" for Southern Copper Corp to regain the trust of farmers, which she said is part of the community support she considers critical to developing the company's $1.4 billion Tia Maria copper project.

    The center-right candidate also said she would ban mining companies that pollute the environment from operating or slap fines on them, in some of her toughest comments yet for the key sector in the Andean country.

    Fujimori, the 40-year-old daughter of imprisoned ex-president Alberto Fujimori, has been neck-and-neck with economist Pedro Pablo Kuczynski in most polls ahead of the June 5 run-off election.

    Tia Maria has been on hold for the past year after protests by locals who fear the 120,000-tonne-per-year proposed mine would pollute the environment or disturb farming.

    Fujimori said Southern Copper had misled communities by initially saying Tia Maria would not impact groundwater supplies, and later, following protests in 2011, promising to build a desalinization plant.

    "That means they were going to use groundwater and they were going to affect farmers," Fujimori said in broadcast comments to reporters in Arequipa, the region where Tia Maria would be built.

    "Farmers in the Tambo Valley of Cocachacra obviously feel deep distrust, and it will take many years for the company to regain that trust. For me it's fundamental that an investment project be in harmony with communities," Fujimori said.

    Kuczynski has also said community support is needed before a new mine can be built.

    Southern Copper, controlled by Grupo Mexico SAB de CV , did not immediately respond to requests for comment.

    The president of Southern Copper, Oscar Gonzalez, told reporters in videotaped comments last month that he would press for a construction permit for Tia Maria from the government of President Ollanta Humala in the last two months of his term.

    Humala's energy and mines ministry said in December that the government would probably not issue the permit because of stiff local opposition to the project.

    Peru, a leading exporter of copper, gold, silver and zinc, is expected to supply a growing share of the world's copper supplies in coming years, but frequent disputes over mining and water threaten to hold up billions in investments.

    Fujimori said that if elected, she will ensure water goes to Peruvians before mining companies.

    "Water is prioritized for drinking first, then agriculture and livestock, and then all other activities related to man, and I'd say that in last place for mining," Fujimori said.
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    New Caledonia reports minor acid leak at Vale nickel operations

    Brazilian miner Vale has had a minor acid leak at its Goro nickel operations in New Caledonia, the government of the French Pacific territory said, two years after a large chemical discharge at the same site sparked violent protests.

    "A small leak was found on a tank container filled with hydrochloric acid at 30 percent (strength)," New Caledonian authorities said in a statement on Wednesday, adding there had been no environmental or human impact.

    Vale spokesperson Cory McPhee confirmed the leak at the company's port facility but said that production had not been interrupted and that there had been no impact on employees or the environment.

    In 2014, the Southern Province of New Caledonia suspended Vale's operations for nearly a month after acid-tainted effluent spilled into a river.

    The leak sparked violent riots by locals that caused more than $20 million in damage.

    Brazilian miner Vale said last week it would stick to a plan to sell $10 billion of core assets by next year to reduce debt, despite a recent rise in commodity prices.
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    Steel, Iron Ore and Coal

    China's government-controlled firms to cut steel and coal capacity: cabinet

    China's central government-controlled firms will cut steel production capacity by 10 percent over the 2016-2017 period, the cabinet said on its microblog on Wednesday.

    Coal production capacity would also be cut by 10 percent at these firms over the same period, the statement said, without specifying what the 2016-2017 period meant.

    The statement added the government-controlled firms, which are infamously bureaucratic, would shed layers of management from their existing 5-9 levels down to 3-4 levels in the next three years.

    The firms would also cut costs by at least 100 billion yuan over the next two years.
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    Large Indonesian coal miners to maintain output despite sagging demand

    Several large Indonesian thermal coal miners continue to forecast stable to higher production targets for 2016 despite weakening demand in both India and China, putting downward pressure on prices.

    Indonesian coal suppliers have been hit by a significant drop in Chinese imports of thermal coal and increasing domestic output in India.

    "China import demand for the thermal coal is expected to continue to decline over the medium term," said Tim Buckley, director of Energy Finance Studies at the US-based Institute for Energy Economics and Financial Analysis. Coal production in China fell about 6.8% in the first four months of 2016 from the same period last year, while thermal power generation was down 3.2% over the same period.

    "All are very negative trends in terms of falling demand from China, and a likely increase in China looking at export opportunities," Buckley said.

    China, which produces about 4 billion mt/year of coal, lowered its export tax to 3% from 10% early last year, fueling speculation the country might look to become a net exporter in the near to medium term.

    Global seaborne thermal coal demand is seen declining 25% by 2020 from 2014 peak volumes, Buckley noted.

    Goldman Sachs analysts expect seaborne trade to contract by 10% over 2015-2020.

    Indian imports fell about 19% year on year in the first four months of 2016. For fiscal year 2015-2016, Indian imports, including metallurgical and thermal coal, were down 15% to 182 million mt.

    "IEEFA expects Indian import demand for thermal coal to continue to decline at 10-20% year on year rates over the coming year, considering the comments from NTPC Ltd, the biggest user of coal in India, saying they will not import any thermal coal in next 12 months," Buckley noted.

    Growing domestic production in India has led NTPC to significantly cut imports. India has set a target of doubling coal production to nearly 1 billion mt by 2019.

    "India sits on substantial coal reserves equivalent to 150 years of current consumption, so a scarcity of resources has never been a constraint on future production," Goldman Sachs analysts said.

    With dwindling demand in both China and India, several Indonesian suppliers have begun to shift their focus to emerging economies like Vietnam, Thailand, the Philippines, Malaysia and other Southeast Asian countries.

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    BHP says over 50 Mt of steel capacity restarted in China

    More than 50-million tonnes of steel capacity has been restarted in China since the start of the year as rising prices boosted margins, a senior official told an industry conference on Thursday. 

    The world's No. 3 iron-ore miner also sees around 30-million tonnes of new seaborne supply this year, down from around 90-million tonnes last year, said Vicky Binns, vice president for marketing minerals at BHP.
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