Credit Suisse has identified what it sees as 8 "key challenges" for the mainstream adoption of blockchain, the innovative database technology first developed to underpin digital currency Bitcoin.

Banks and financial institutions have been going crazy for blockchain technology over the last year and a half.

Institutions are spending thousands on proof of concepts using the technology, issuing countless white papers, and joining industry-wide bodies to figure out how to use the protocol.

Blockchain, also known as distributed ledger technology, is a kind of decentralised database system. Instead of one central database of who owns what in a settlement house somewhere and duplicate records in banks based on this master ledger, blockchain is a network of identical databases that talk to each other and are updated simultaneously.

Every time someone wants to make a change or add something onto the blockchain, the majority of members of the network must sign off on it. This cuts out the need for middle men in transactions, because the fact that everyone signs off means trust is built into the system. Bitcoin's original blockchain is used to record bitcoin transactions — but the tech could theoretically be used to record just about anything.

In essence, blockchain helps cut out a lot of admin, and has the possibility to reduce costs and increase simplicity in finance. Goldman Sachs went as far to say that blockchain has the potential to "change, well, everything."

But in a note on the technology sent to clients this week, Credit Suisse analysts Charles Brennan and William Lunn says they are "less sanguine" about the technology, and identify 8 key barriers to blockchain's successful transition from interesting, leftfield technology to mainstream, financial services core technology.

They are:

Security vs Costtrade-off: Basically, the current set-up either means your blockchain is cheap but risky or expensive and secure. In bitcoin's blockchain, the integrity of the records is guaranteed by the fact that the majority of the network are signing off on each transaction — more eyes are inspecting it. Bitcoin incentivises this by rewarding people with bitcoin for the job of inspecting and cryptographically sealing off the transactions. This is costly. Permissioned networks are the alternative and operate like a private members club. There's a doorman but once you're in, you can do what you want on the network. The fact that there are fewer people on the network means there's less oversight of transactions and potentially room for abuse by one of the members.

Do you actually need blockchain? Credit Suisse says: "'If it ain't broke, don't fix it,' for a blockchain to be relevant you must: (1) require a database, (2) need shared write access, (3) have unknown writers whose interests are not unified, and (4) not trust a third party to maintain the integrity of the data."

Critical mass is essential: Blockchain is, after all, a network. What use is it being the first one to join if you can only really use it when there are lots of members? There is some progress on this problem with various industry-wide bodies, such as R3 and the Hyperledger foundation, but getting people together is one thing — getting them to agree and work together is another.

The input problem: Pretty much the same as problem one. A blockchain is only as good as the information on it, and so far good processes haven't been developed for vetting anything other than bitcoin transactions. Vetting people who are allowed on the chain needs to be sorted too.

Hackable: The more people on the network, the more entry points, and the more vulnerabilities for hackers. Of course, part of blockchains appeal is that once data is logged it can't be changed but bad actors could place false trades, for example. Even proprietary data about who's trading what with who could be valuable.

You have to see it to believe it: Credit Suisse writes: "Although identity can be encrypted relatively easily on a blockchain, transaction data are not for the simple reason that nodes have to see it to verify it. This may be an issue for those concerned about data privacy."

Identity problems: Basically, what if you lose the private key that unlocks ownership of a specific asset registered on the blockchain? Credit Suisse: "The issue with bearer instruments is you can lose them; cash being the most salient example. A better solution to reconciling on and off-chain identity appears necessary."

The DAO attack: The Decentralised Autonomous Organisation, which holds hundreds of millions of dollars worth of digital currency Ethereum, was hacked in June, forcing it to "fork" its network to stop thieves taking more. But the problem is Ethereum, like bitcoin, is a decentralized network and so needed the consensus of the community before it could make the immediate change. Credit Suisse says: "The 'hard fork' undertaken by the Ethereum community also shows that blockchains are only immutable when consensus wants them to be."

Despite all the above, Credit Suisse says they see blockchain as potentially "disruptive" technology that should be embraced. Just don't get too caught up in the hype.

Gazprom, Russia’s flagship energy company and the face of its geopolitical ambitions, is facing grim times. Although the company was able to report an almost five-fold profit increase in 2015, and while it had managed to expand its share of the European and Turkish gas markets in 2013, Gazprom’s influence over the EU’s energy market is dwindling. As the European Commission moves forward in completing the internal energy market, reverse flow pipelines now allow most European states to buy gas at spot prices and undermine Gazprom’s preferred model of expensive, long-term contracts.

Even as Gazprom slowly loses its footing, the Kremlin is aggressively pushing forward with the expansion of another of its state enterprises, the Russian State Atomic Energy Corporation (Rosatom). Pervasive skepticism about the sustainability of nuclear energy following Chernobyl and Fukushima notwithstanding, Rosatom is currently constructing eight reactors in Russia and 34 more abroad. These include the construction of reactors in Southern Turkey at Akkuyu, as well as in Belarus’ Ostrovets. Both projects have attracted vocal criticism, especially as the type of reactor in question remains inadequately tested and the locations are fraught with peril.

The Turkish gambit

In May 2010, Turkey and Russia signed an agreement for four VVER1200 reactors to be built by Rosatom in Akkuyu under a controversial Build-Own-Operate (BOO) model, with construction set to begin in 2016. What this means is that Russia will provide 100 percent of the financing and will pass along to the host state the responsibility of monitoring the project. Essentially, Rosatom faces minimal liabilities as the onus falls on the Turks to oversee the plants.

Akkuyu’s suitability also leaves much to be desired. Not only is the area around it prone to seismic activity - a 5.2 earthquake rocked the area just last year – but Turkey’s Atomic Energy Authority remains affiliated with the prime minister’s office, leaving the country without an independent authority for monitoring nuclear activities. With the Turkish Energy Market Regulatory Authority recently calling for the purge of suspected Gülen supporters, control over regulatory agencies will likely increase, awarding more power to Erdogan’s imperial ambitions to the detriment of sound environmental policies.Related: Saudi Arabia Unmoved By Oil Price Uncertainty

Indeed, since the failed coup, Turkey has mended bilateral relations with Russia, which had been at a low point after the downing of a Russian fighter jet late last year. Ankara is seemingly refocusing on Russian production to meet its energy needs via the newly revived Turkish Stream pipeline and the Akkuyu nuclear reactors. With foreign investment into Turkish markets likely to fall due to unstable political and economic conditions, the shift towards Russia in the hopes of becoming amajor energy hub seems inevitable. Moscow is more than eager to invest in Turkish energy projects, meaning Akkuyu and Turkish Stream could succeed as the European Union’s competing energy projects falter. Erdogan may have to enter into a Faustian bargain with Russia: given the international fall-out from the coup, Turkey has no other option than Putin.

Trouble in Belarus

Meanwhile, Rosatom’s Belarusian engagement in Ostrovets since 2012 has been receiving serious flak from Lithuania, Belarus’ western neighbor. The $10 billion project boasts two 1200MW reactors, slated to come online in November 2018 and July 2020. Owing to Ostrovets’ close proximity to Lithuania’s capital Vilnius (less than an hour’s drive), Lithuania has asked Rosatom repeatedly to prove the power plants’ safety in terms of “seismic hazards, emergency preparedness and stress-test plans” without receiving a response.

Furthermore, in 2014, Belarus was found to be in non-compliance with some of its obligations concerning the construction of the Ostrovets site. The construction has also experienced a number of security incidents, including reports that the structural frame of the reactor collapsed.Related: Powering The Internet Of Things

Despite unpersuasive assurances from Minsk, skepticism regarding Rosatom’s construction projects remains strong. In a 2014 report, Greenpeace described Rosatom as a “questionable business partner, plagued by concerns over corruption, the safety and quality control standards of its nuclear reactors, its competence at building and operating nuclear plants, its model for financing projects and concerns over its ability to complete construction on time…” Specifically, the report lamented the “minimal external scrutiny” that allows the company to operate as a state within a state, giving its leadership ample opportunity for corruption and embezzlement of millions of Euros, while construction quality is undermined by lack of adequately trained construction staff and failure to safely manage spent fuel.

Rosatom’s presence in the European Union’s backyard has wider implications as well. It is a well-known fact that Russia’s push for Rosatom expansion is another tool in the Kremlin’s geostrategic grab box, with Moscow using the corporation to bind various governments in long-term cooperation. With this in mind, the Ostrovets site at the EU’s eastern frontier essentially makes Belarus a Trojan Horse for a Russian company. In other words, as Ian Armstrong at Global Risk Insights analyzed, “Russian-built nuclear power plants in foreign countries become more akin to embassies — or even military bases — than simple bilateral infrastructure projects”, as the nuclear contracts establish a “long-term or permanent presence” with “notable influence in countries crucial to regional geopolitics.”

Regarding Turkey and Belarus, it stands to reason that European influence in its periphery will likely decline as a result of the new Russian projects. This makes Russia’s nuclear diplomacy more of a threat to Europe’s overall security than Gazprom ever was. Even so, there has still been no response from Brussels. Despite the urgency of the issue, and despite a probing of the European Commission conducted by Members of the European Parliament over the safety of Ostrovets, neither Commission President Juncker, Environment Commissioner Karmenu Vella or Energy Commissioner Maroš Šef?ovi? have released statements on the matter. While the EU leadership is silent, Russia’s presence grows more powerful.

http://oilprice.com/Energy/Energy-General/EU-Fends-Off-Gazprom-But-Still-Needs-to-Deal-With-Rosatom.html

Standard Chartered Plc, the U.K. lender reeling from billions of dollars of losses on soured energy loans, has increased lending to oil refineries just as companies across that industry face a slump in profit.

The London-based lender said Wednesday it had $7.3 billion of loans to oil refineries at the end of June, a 24 percent increase since the end of 2015. While Standard Chartered cited the industry’s “broadly steady” profit margins for the period, some of the world’s biggest oil producers have since reported that this metric has tumbled amid a glut of gasoline.

Investors cheered the lender’s drop in loan impairment charges Wednesday as a signal that it has moved past the worst of credit issues that peaked last year when Standard Chartered posted more provisions against bad loans than HSBC Holdings Plc, a bank four times its size. The increase in refiner lending shows risks remain even as Chief Executive Officer Bill Winters shrinks the bank’s overall commodities exposure.

“I’m not sure it’s the area where most investors would like to see them growing at the moment,” said Joseph Dickerson, an analyst in London with Jefferies Group LLC who has an underperform rating on the shares. “Hopefully they’re getting paid for the risk.”

‘De-risking Mantra’

Shares in Standard Chartered have risen 15 percent so far this year, the only major European bank to climb in 2016. Provisions for bad loans in the ongoing business were $1.1 billion for the first half of 2016, including $606 million in the unit that deals with energy clients, the bank reported Wednesday. That was less than analysts at Citigroup Inc. had expected and the stock climbed 4.2 percent Wednesday and another 5.5 percent at 12:35 p.m. Thursday.

“Since the start of 2016, we’ve seen a sort of stabilization in their impairment costs on the back of the ‘de-risking’ mantra,” said Filippo Maria Alloatti, a credit analyst at Hermes Investment Management Ltd. in London. “I’m surprised that they’ve started lending to the sector again.”

Oil refiners had benefited from a boom in so-called refining margins. This is the difference between what energy producers pay for crude oil and what they sell as refined gasoline, diesel and other products. As oil prices plunged, refiners were able to buy cheap crude and process it into relatively expensive gasoline and other petroleum products.

“The profitability of refiners is driven by gross refining margins and the margins held broadly steady during this period despite the volatility in crude oil prices,” Standard Chartered wrote in its report for the first half of the year. “We have selectively increased our exposure since year end to this subsector, in particular to good credit quality clients.”

Yet refining margins have tumbled since late May as over-production of gasoline in the U.S. created a glut that depressed prices for refined products. BP Plc, the third-biggest European oil company, said in late July the metric had slumped to the lowest in six years as it posted a 45 percent decline in profit for the second quarter. The London-based company said that the margins will remain “under significant pressure” in the third quarter.

BP isn’t alone. Statoil ASA, the biggest Norwegian producer, reported a surprise loss for the second quarter and CEO Eldar Saetre said that refining margins had fallen by almost half from a year earlier. Valero Energy Corp., the biggest U.S. refiner, has said it faced “weaker gasoline and distillate margins” in the period.

Summer Slump

“We expect margins to remain poor throughout summer,” said Nevyn Nah, oil products analyst at Energy Aspects Ltd., a consulting firm in London. “Refineries overproduced when margins were strong, so we’re left with a very high product inventories right now, which is pressuring margins.”

Standard Chartered’s $7.3 billion of loans to oil refineries accounts for almost half of the lender’s $14.8 billion net exposure to “commodity-related sectors,” the report shows. Outstanding debts tied to this group have climbed 13 percent since December and are up from $13.5 billion since 2014, according to the report. Those loans represent about 6 percent of Standard Chartered’s total.

“It’s interesting to see that that’s an area where the bank feels it can get paid for taking incremental risk,” said Dickerson, the Jefferies analyst. “It seems to run contrary to the direction of refining margins.”

HSBC also said Wednesday that exposure to oil clients climbed by 7 percent from the end of last year to $31 billion. The same sector triggered loan losses of about $400 million in the first half.  

Commodity Exposure

Standard Chartered’s increase stands as a contrast to the bank’s approach to other kinds of energy debt since JPMorgan Chase & Co. veteran Winters joined as CEO last year. Standard Chartered’s exposure to commodity producers and firms that trade financial products tied to energy was $37.1 billion at the end June, down 32 percent since 2014.

Winters, who replaced Peter Sands as CEO, is seeking to undo an era of relaxed lending standards, in part by exiting and restructuring $100 billion of risky assets. Standard Chartered’s corporate and institutional unit has booked about $4.8 billion of impairments and restructuring costs since 2014. The $606 million in impairment charges the bank has added so far this year is “primarily” because of commodities, the report shows.

Still, some analysts are pleased at the increase in lending. As long as Standard Chartered is dealing with state-owned refiners and large corporations, the bank will be “fine,” according to Chirantan Barua, an analyst in London with Sanford C. Bernstein Ltd. who has an outperform rating on the stock.

“Standard Chartered is a trade bank and, as a trade bank, you cannot not work with the refiners,” said Barua in an e-mail. “It’s good that they’re stepping back in.”

A recent policy move by India's BJP-led government to raise prices of subsidized kerosene and LPG signals New Delhi's strong commitment towards further lowering its fuel subsidy burden and freeing up upstream companies' cash for projects, which would ultimately ensure better supplies in the longer term.

"The financials of oil marketing companies and upstream oil companies, which foot the subsidy burden along with the government, will improve considerably," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

"The companies will channel the realizations towards competitive investments, which will complement their long-term growth strategies," she added.

India deregulated diesel prices in October 2014, but continues to subsidize LPG and kerosene prices.

The subsidy burden is shared between the government and upstream companies.

Upstream companies share the subsidy burden by way of discounts on the price of crude oil sold to state-owned refiners and marketers.

India's state-run oil marketing companies since last month have raised prices of subsidized LPG twice.

Last week, LPG prices were raised by Rupees 1.9 (2.8 US cents)/cylinder in Delhi, accounting to a 0.5% increase. And kerosene prices were raised by Rupees 0.25/liter, or about 1.6%.

"The magnitude of price increases is small and requires several years to fully remove under-recoveries. However, the intent of the government's policy is a key positive," Credit Suisse said in a research note.

"The price increases are positive for upstream stocks -- although there is always a risk that the government can ask for a share of the subsidy savings."

Under-recoveries refer to the loss of revenue from selling kerosene and LPG at below market cost.

TOUGHER ON KEROSENE

In addition to the price rises, there are reports that the government has also given the go-ahead to state-run companies to raise prices of kerosene, which accounts for more than 40% of total petroleum subsidies, by similar amounts every month until April 2017. "The step to gradually increase SKO (superior kerosene oil) prices every month is a major reform considering the politically sensitive nature of the product," said K. Ravichandran, senior vice-president at ICRA.

"It's credit positive for PSU (public sector undertaking) upstream oil companies as it will reduce the subsidy sharing burden."

The move to raise retail prices of subsidized kerosene by Rupees 0.25/liter per month for 10 months would lead to a reduction in gross under-recoveries by Rupees 7.6 billion in the financial year 2016-17 (April-March) and by Rupees 20.4 billion in 2017-18, ICRA said.

As kerosene under-recoveries beyond Rupees 12/liter are expected to be borne by state-run upstream companies, those companies would be major beneficiaries of the reform especially at current or higher level of crude oil prices, ICRA said.

"At an Indian basket crude oil price of $44-$45/b, the kerosene subsidy tends to be around Rupees 12/liter, implying no subsidy burden on PSU upstream companies," it added.

In addition, ICRA said the step to increase retail prices of subsidized kerosene would lead to a reduction in diversion for "unintended purposes", such as adulteration of auto fuels.

The government has capped its share of the subsidy burden up to Rupees 12/liter for kerosene and Rupees 255/per LPG cylinder.

While the balance for kerosene would be shared by upstream oil companies, for LPG, there is lack of clarity as to whether the state-run companies would bear the subsidy or it will be passed on to the consumers in case global crude oil and LPG prices increase significantly from the current levels.

"The cap in LPG subsidy for the government of India at Rupees 255/cylinder is likely to be adequate up to the crude oil price of $60/b, which provides comfort to oil marketing companies over the medium term," ICRA added.

TWIN GAINS

In its effort to promote cleaner fuels, the government has been aggressively promoting the use of cleaner fuels, such as LPG, for cooking.

This has led to kerosene demand in India falling by more than 3% year on year to 6.89 million mt in 2015, from 7.13 million mt in 2014.

Kerosene demand also fell more than 5% year on year to 3.27 million mt in first half of 2016, from 3.46 million mt in H1 2015. It was the only oil product that witnessed negative growth in demand last year and in the first half of this year.

Analysts said that with the plan to raise kerosene prices gradually over the next 10 months, the government aims to kill two birds with one stone -- the move will not only help to reduce kerosene consumption, but will also help to cut oil under-recoveries.

"While the market anticipated such bold moves, the timing of the announcement came as a surprise," Paravaikkarasu said.

"The successive price hikes of subsidized kerosene will not only ease the subsidy burden, but also discourage consumers using the fuel. The government is working hard to move away household consumers from using kerosene to LPG," she added.

LPG demand continues to grow at a healthy pace, rising by 8.5% year on year in June to 1.61 million mt. Cumulative growth in H1 2016 was 9.6% year on year at 10.06 million mt.

The government has announced 2016 as the "year of LPG consumers" and has set an ambitious target to open 10,000 new LPG dealerships across the country this year, in addition to the 16,000 that already exist.

New Delhi also has ambitious plans to provide additional subsidies to provide 50 million new connections among lower-income families, with another 15 million being added this year.

"Various structural changes are been already made to LPG pricing. Between LPG and kerosene, the government will prioritize deregulating kerosene prices even though it is tougher, and keep targeted LPG subsidies in place," Paravaikkarasu said.

http://www.platts.com/latest-news/oil/singapore/analysis-indias-new-oil-price-recipe---short-27642288

Diversified junior Metals X has completed an institutional placement to raise A$100.6-million – and is undertaking a share purchase plan of up to A$15-million – to fast-track the development of additional production from several of the company’s projects in both the gold and base metals divisions.

The placement is for the issue if about 68-million new Metals X fully paid ordinary shares at an issue price of A$1.48 a share, representing about 12.9% of the fully diluted shares that the company has on issue.

The ASX-listed metals miner noted that the placement would provide it with additional working capital, enabling it to pursue additional value-adding.

Metals X also intends to demerge its gold assets from the rest of its diversified metals base and is, therefore, taking steps to gain shareholder and other regulatory approvals in this regard.

Following several acquisitions made in recent years, including the completion of a takeover offer for Aditya Birla Minerals, which owns and operates the Nifty copper mine, inWestern Australia, the company believes that its base metals division – which was significantly bolstered from this most recent acquisition – can stand alone “as a formidable diversified base metals company, with production from its tin and copper assets, and expansion and growth assets in tin,copper and nickel”.

“Given prevailing economic and market conditions, the board of Metals X believes the time is now right, and its shareholders are better served, if the company looks to separate its gold division from the remainder of the diversified base metal assets,” said the company.

The intent is that, following the completion of the separation of a gold unit, a Metals X shareholder will own equal interests in shares in both entities. Cash and working capital will also be split, so that the two new companies will have adequate funding for their operations and respective growth plans.

Metals X CEO and executive director Peter Cookhighlighted this as “an exciting time” for shareholders and an opportunity for the company to unlock “the considerable value” under the Metals X umbrella.

“Following the equity raising and demerger process, our shareholders will own shares in two formidable miningcompanies with great opportunity and outlook to grow and prosper,” said Cook.

Cook will likely become the MD of the gold business unit, while Metals X’s other executive director, Warren Hallam, will become the MD of the base metals business.

Metals X has three operating gold projects, four process plants with a combined capacity of 5.5-million tons a year, agold resource base of 15.4-million ounces and ore reserves of 2.89-million ounces.

It currently produces at a run-rate of 220 000 oz/y and has a clear plan to double this over the next few years.

http://www.miningweekly.com/article/metals-x-raises-a1006m-intends-to-demerge-gold-assets-2016-08-04