Mark Latham Commodity Equity Intelligence Service

Friday 8th July 2016
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    Oil and Gas


    Wuhan Floods impact mines?

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    China to reform state firms, help private investors

    China is carrying out a new round of reforms on its torpid state-owned enterprises (SOEs) and pushing local governments to support private firms.

    One key part of the broad reforms would allow employees to hold stakes in SOEs, as mixed-ownership companies are considered more vibrant and efficient.

    "We are working to select a few centrally and locally administered SOEs to pilot the employee stakeholding reform," an anonymous source with the state-owned assets authority was quoted by Xinhua-run newspaper Economic Information as saying on Wednesday.

    High tech companies will be given preference to pilot the reform, said the source, adding that the trials are expected to build experience for future expansion.

    "The second half of 2016 will be a critical period for the employee-stakeholding reform," said Li Jin, chief researcher with the China Enterprise Research Institute (CERI).

    China has more than 150,000 SOEs. They play a pivotal role in bolstering the economy and providing employment, with total assets worth about 125 trillion yuan (nearly 20 trillion U.S. dollars) as of the end of May.

    However, an economic slowdown, which trimmed the country's GDP growth to 6.7 percent in the first quarter, has bitten into SOEs' profitability and left many struggling to keep afloat.

    Combined profits of Chinese SOEs saw a decline of 9.6 percent year on year in the first five months despite warming signs in the broader economy.

    To reverse the situation, policy makers are promoting an overhaul on SOEs, piloting mixed ownership programs, encouraging mergers and acquisitions, and downsizing overstaffed companies.

    President Xi Jinping and Premier Li Keqiang gave written advice on the development of SOEs to a national meeting on SOE reform earlier this week.

    Xi demanded continued efforts to enhance SOEs' vitality, competitiveness and risk resistance, and to establish a modern corporate governance system.

    The premier urged SOEs to slash excess production capacity, boost technological innovation and upgrade traditional industries.

    In fact, many SOEs still have huge investment in lackluster traditional heavy industries and are overburdened by high operational costs and long payrolls, according to Xiao Yaqing, head of the State-Owned Assets Supervision and Administration Commission of the State Council.

    More efforts are needed to improve state-owned asset management and change rigid corporate governance, Xiao said.

    "Further measures will be rolled out to facilitate changes in SOEs, including industry consolidation, improvement in main business and overcapacity reduction," said CERI's Li.
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    Glencore CEO lists mining’s mistakes after $1 trillion spree

    Glencore Plc’s billionaire Chief Executive Officer Ivan Glasenberg wants the mining industry to learn from past mistakes after a $1 trillion spending spree left the world awash with metals.

    Growth for the metals industry should mean cash flows and earnings, not digging up as many tons as possible, Glasenberg said in a presentation on Tuesday. Profit can be improved by accepting lessons from the 12 years when mining companies poured cash into boosting production of everything from copper to iron ore.

    “Accept that volume growth cannot be an end in itself,” according to Glencore’s slides from the Bank of America Merrill Lynch mining conference in Miami.

    Under a headline of “Recipe for Better Returns,” the company wrote that management incentives in the industry need to encourage “rational behaviour.”

    Years of debt-fueled investment in mining resulted in a massive oversupply of commodities at the same time that China’s economy hit the breaks. The rout in prices that followed forced mining companies to slash debt, cut costs and sell assets. In just five years, the FTSE 350 Mining Index saw more than 70% of its value disappear.

    Different Future

    Capital allocation going forward needs to be more conservative and based on cash generated, Glencore said.

    “The future can be different,” according to the presentation slides. “Doing nothing on growth is often the best outcome.”

    Glencore shares gained 1.1% by 8:10am in London. The stock has rebounded 50% this year as some commodities recovered and the company took steps to lower debt. It’s still down 74% since a $10 billion initial public offering five years ago.

    As companies lower production, spending by the world’s top five diversified miners is set to total $24 billion this year, down from a peak of $71 billion in 2012, according to Glencore. Cost cuts across the board are reaching the limits of what is possible, Andrew Mackenzie, BHP’s chief executive officer, said in a separate presentation.

    It’s not the first time Glasenberg has offered his reflections on the mining industry. Last year, he remarked that miners should understand the concept of supply and demand. In 2013, he said mining chiefs had “ screwed up” by flooding the world with raw materials.
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    Eskom moves towards a more stable financial position

    Eskom has moved to a more stable financial footing after reporting results for the financial year ending March 2016 on Tuesday.

    Earnings before interest, tax, depreciation, and amortization (Ebitda) increased by 37% to R32bn owing largely to greater cost savings than anticipated (R17.5bn vs. R13.4bn). This moved Ebitda margin from 15.9% to 19.8%.

    Revenue rose 10.6% to R163.4bn and net profit for the year rose to R4.6bn from R400m in the prior year.

    Eskom said it had secured 57% of required funding for the forthcoming financial year, something which will enable the utility to add 8 600MW of new capacity from its new build programme by 2020/21. In addition, the utility had signed 65 power purchase agreements with Independent Power Producers (IPP’s) to add 4 900MW of IPP capacity through renewables during the same period.

    From an operational perspective, there was an improvement in generation performance in the second half of the year, with plant availability averaging 73.5% in the last quarter (January – March). Unplanned outages improved from an average of 16.2% in April 2015, to 11.5% in March 2016. This allowed Eskom to drastically cut the amount of money it spent on fueling the open cycle gas turbines.

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    Norway says could achieve full carbon capture and storage by 2022

    Norway says could achieve full carbon capture and storage by 2022

    By 2022, Norway could realize every step in the development of a technology many see as critical to reducing global carbon emissions, carbon capture and storage (CCS), it said on Monday.

    Oslo said it could capture carbon dioxide from an industrial plant, transport it by ship and inject it into an empty North Sea oil and gas reservoir for 4.3 billion to 7.6 billion crowns ($915 million to $515 million) by 2022.

    If it goes ahead with the plan, it could help lower carbon emissions worldwide: the International Energy Agency says deployment of carbon capture and storage (CCS) technology is critical to reducing carbon emissions but wide adoption of the technology has been frustrated partly due to high costs.

    In 2014 Canada's Saskatchewan Power opened the world's first coal-fired power plant retrofitted with CCS and there are now 15 large-scale CCS projects in operation, according to the Global CCS Institute, an Australian-based lobby.

    But the transportation and storage infrastructure is still problematic, with a large up-front investment needed.

    Oslo said it could be possible to set up every step in the process within six years, according to a feasibility study released on Monday by the Norwegian oil and energy ministry.

    "The cost for planning and investment for such a chain is estimated at between 7.2 and 12.6 billion crowns (excluding VAT)," it said in a statement, adding the cost estimates had an uncertainty of 40 percent on the lower and upper end of the scale.

    Three firms could capture gas at their plants, said the ministry: carbon dioxide at an ammonia plant run by fertiliser-maker Yara International and at a waste incinerator owned by Oslo city council, and flue gas at a cement factory owned by Germany's HeidelbergCement in southern Norway.

    The carbon dioxide could then be transported by ship, said the ministry, citing North Sea gas infrastructure operator Gassco.

    Finally it could be transported via pipeline from an onshore installation and into an empty oil and gas reservoir in the North Sea, said the ministry, citing oil firm Statoil.

    The government said it would present further CCS plans in the 2017 state budget in October.

    If the scheme goes ahead, it would be a big step for Norway: it had to drop plans in 2013 for a costly large-scale project to capture carbon dioxide that the then government once compared in ambition to sending people to the Moon.
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    Rio Tinto commits to London head office after Brexit vote

    Rio Tinto Group’s new chief executive officer pledged to keep the head office of the world’s second-biggest miner in London after Britain’s vote to leave the European Union raised fears businesses will flee.

    “No doubt whatsoever about it,”  Jean-Sebastien Jacques, a 44-year-old Frenchman who’s also a British citizen, said in an interview at the offices in St. James’s Square, a short walk from Buckingham Palace. “ Rio Tinto doesn’t do any politics.”

    British voters backed a decision to leave the EU in a June 23 referendum, driving the pound to a more than 30-year low and sending shudders through equity and commodity markets around the world. Banks including JPMorgan Chase & Co. and HSBC Holdings Plc said the result may prompt them to move thousands of jobs from London.

    “We recognize the decision of the British people,” said Jacques, who replaced Sam Walsh on July 2. “When we did look at the level of trade we do between the UK and the EU, or the EU and the UK, it is very small.”

    Jacques’ views echo those of former Rio CEO Tom Albanese, who said June 24 that the biggest miners will likely retain UK headquarters. Albanese, now head ofVedanta Resources Plc, said Britain offers benefits for resource companies.

    “The direct impact on us is very small,” Jacques said. “However, we will continue to monitor the situation for obvious reasons in the coming weeks, months and years.”
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    Low scrap metal prices hurting even U.S. garbage scavengers

    Erica spends four hours daily walking miles of Milwaukee streets and alleys, digging through garbage and stuffing her red plastic grocery cart with aluminum cans and other small metal items to sell to support her three children.

    The 34-year-old scavenger has had to work longer and harder over the past year, underlining how a drastic decline in scrap metal and commodity prices has hurt even the poor who collect discarded metal to sell to scrap yards.

    Two years ago, Erica, who declined to give her last name, would have earned about $30 for a cart full of scrap. Now she makes about $15 due to the plummeting prices.

    "It is tougher to feed my family," Erica, who wanders the streets while her children attend school. "I have to panhandle and do other things to make ends meet now, or make more trips."

    Prices have fallen mainly because of a downturn in global demand from manufacturers, especially in China, pressure on supplies, and the increased use of substitutes, said Joe Pickard, chief economist and director of commodities at the Institute of Scrap Recycling Industries.

    "We get really walloped when all of those things are combined," he said.

    An index kept by the trade organization showed a downward trend in ferrous scrap metal commodity prices for several years until a plunge in 2015 made it probably the industry's worst year in decades, if not a generation, Pickard said.

    For example, the price for industry benchmark No. 1 heavy melt scrap metal was about $500 a ton in 2008 before sliding to about $330 at the beginning of 2015. It then fell to about $170 by the end of the year, Pickard said.
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    Thyssenkrupp looking at further shakeup of Industrial Solutions

    German industrial group ThyssenKrupp is considering a further shakeup of its Industrial Solutions unit, which it is restructuring in the face of weak demand for plant engineering from companies hit by low oil and raw-material prices.

    Jens Michael Wegmann, the unit's chief executive, told reporters on Monday that Industrial Solutions - whose activities range from shipbuilding to mining technology to automotive engineering systems - aimed to increase sales from its services business to around a third from 13 percent now, but did not say by when. Its service business is more profitable than construction.

    To that end, it will need to redistribute its Germany-focused workforce more evenly around the world, establishing three or four project management competence centres to be closer to customers around the world, Wegmann said, speaking at ThyssenKrupp's headquarters in Essen.

    He said he could not yet detail what this would entail in terms of cost or job cuts but ThyssenKrupp is consulting with employee representatives and aims to complete the review by the autumn.

    "Our culture is too much focused on acquiring big projects," Wegmann said. "The people who do that don't have the right mindset to win service contacts."

    "German engineering is still a brand in the world but it's not enough on its own - you have to be close to the customer."

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    Yuan lower again.

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    Counting to resume in Australia’s election cliff-hanger

    Vote counting is scheduled to resume on Monday in a dramatic Australian federal election that failed to produce a clear winner on the weekend, raising the prospect of prolonged political and economic instability.

    The exceptionally close vote leaves Prime Minister Malcolm Turnbull’s centre-right Liberal Party-led coalition in a precarious position, potentially needing the support of independent and minor parties to reform government.

    It has also opened the door to the possibility, albeit less likely, that the main opposition Labor Party could win enough backing from the smaller parties to form government itself.

    Turnbull said on Sunday he remained “quietly confident” of returning his coalition to power for another three-year term but the key independents who have become the powerbrokers after winning a greater share of the vote than anticipated are yet to declare their allegiance for either side.

    With counting expected to take several days, possibly weeks, the uncertainty is likely to put downward pressure on the Australian dollar and the share market as analysts warned Australia’s triple A credit rating could be at risk.

    Both Turnbull and opposition Labor Party leader Bill Shorten began talking on Sunday with the independents, whose election campaigns ranged from anti-foreign ownership and economic protectionism to anti-gambling and policies to improve the treatment of asylum seekers.

    The election was meant to put a line under a period of political turmoil which has seen four prime ministers in three years. Instead it has left a power vacuum in Canberra and fuelled talk of a challenge to Turnbull’s leadership of the Liberal Party, less than a year after he ousted then prime minister Tony Abbott in a party-room coup.

    “I can promise all Australians that we will dedicate our efforts to ensuring that the state of new parliament is resolved without division or rancour,” Turnbull, whose coalition will rule as a caretaker government in the interim, said on Sunday.

    If the coalition fails to form a government, it would be the first time in 85 years an Australian ruling party has lost power after its first term in office.

    Official electoral data for the House of Representatives showed a 3.4% swing away from the coalition government, with about two-thirds of votes counted before counting was paused early on Sunday.

    Electoral Commission projections give the coalition 67 seats in the 150-seat lower house, against Labor’s 71 and five to independents and the Greens. A further seven seats were in the balance.

    The Liberal-National coalition and Labor Party require 76 seats in the House of Representatives to form majority government.

    Small parties are also likely to do well in the Senate, with Pauline Hanson’s One Nation on track to win between two and four seats, marking the return of the right-wing anti-immigration activist to parliament after an almost 20-year absence.
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    Russian tycoon Prokhorov's Onexim Group selling all its assets -Vedomosti

    Russian tycoon Mikhail Prokhorov's Onexim Group is selling all its assets, the Russian newspaper Vedomosti reported on Monday, citing sources.

    Onexim owns stakes in aluminium giant Rusal, potash firm Uralkali and power generator Quadra , among other firms.

    Prokhorov, the owner of U.S. basketball franchise the Brooklyn Nets, has a net worth of around $8 billion, according to Forbes magazine. Onexim manages his assets.

    Russian law enforcement officials in April conducted searches of Onexim's offices.

    Officials said the searches were related to a tax investigation
    . But at the time, two sources told Reuters they believed they were linked to Prokhorov's RBC media holding, which had published revelations about people with ties to President Vladimir Putin.

    The Kremlin said then it was "absolutely inappropriate" to link the searches to articles published by RBC.

    Putin's spokesman Dmitry Peskov, when contacted by Vedomosti, called claims Onexim was selling its assets on a recommendation from the Kremlin "sheer folly".

    Vedomosti's sources, which included two people in Onexim Group, an acquaintance of Prokhorov and someone who had received an offer to buy several assets, did not say whether Onexim's decision to sell up was linked to the searches in April.

    Onexim was not immediately available for comment to Reuters outside business hours.

    Sources told Reuters in June that Prokhorov was preparing to sell his stake in Quadra.

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    Austrian Court Orders Rerun Of Presidential Election After Finding "Widespread" Voting Fraud

    In yet another slap in the face for an already reeling Europe, moments ago Austria's Constitutional Court ruled on Friday that the presidential runoff election must be held again, handing the Freedom Party's narrowly defeated candidate another chance to become the first right-wing head of state in the European Union. Norbert Hofer of the anti-immigration FPO lost the May 22 vote to former Greens leader Alexander Van der Bellen by less than one percentage point, or around 31,000 votes, all due to mailed-in ballots.

    This prompted a loud outcry of allegations that the vote had been rigged. As it turns out the allegations were spot on.

    As a reminder, one month ago - in the aftermath of the Freedom Party candidate's loss by a negligible margin in the Austrian presidential runoff election - five voting districts were being investigated over postal vote irregularities in the close-run presidential election. Allegations of fraud arose from the far-right Freedom party of defeated candidate Norbert Hofer, after the Green candidate Alexander Van der Bellen just scrapped ahead with 31,000 votes when the postal ballot was counted. As a result, the anti-immigrant Freedom Party had challenged the election result earlier this month, alleging “catastrophic” violations of election law, especially in how mail-in ballots were processed.

    Many were sceptical that anything of substance would be found, and yet that is precisely what happened: as the WSJ reports, the court found law violations in “many districts” in how the May 22 second-round vote was carried out, Mr. Neuwirth said. “It is for the [Constitutional Court] completely clear that the laws that regulate an election must be applied rigorously.”

    “The challenge is granted,” chief justice Gerhart Holzinger said in announcing the verdict in Vienna

    The decision comes a week after Britain delighted anti-EU groups such as the Freedom Party (FPO) by voting to leave the bloc. Concerns about immigration and jobs featured prominently in the Brexit referendum, as they did in Austria's knife-edge election.

    However, if the Freedom Party does end up winning after a recount, it will confirm that in addition to using fearmongering tactics, the Euro-faithful resort to such blatant measures as outright vote fraud (in addition to rigging bookie odds) in order to preserve a dying status quo. Which would mean that any and all future polls and referenda in which the future of the EU is at stake will be even more closely scrutizined, while concerns about a "rigged system" will rise to unseen levels.
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    Is the long cycle finally turning in resources favour?

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    A century of the ten year US bond yield: touching the lows. 

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    Oil and Gas

    Riverstone plucks Centennial pre IPO.

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    7 July 2016


    ("REL" and the "Company")


    REL announces investment in Centennial Resource Development LLC

    Riverstone Energy Limited ("REL") has signed an agreement alongside other funds affiliated withRiverstone Holdings, LLC ("Riverstone") to acquire a majority stake in Centennial Resource Development LLC ("Centennial") from NGP Energy Capital and certain other related coinvestment funds.

    Centennial is an exploration and production company focused on the acquisition and development of oil and liquids-rich natural gas resources in the Permian Delaware Basin, West Texas.

    The investment by REL is expected to comprise up to US$175 million depending upon approval for the transaction by the other Riverstone affiliated funds.

    Closing of the transaction is expected to occur in late September 2016.

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    Oil-Sands Crude Returns to U.S. Market When It’s Less Needed

    Canadian oil-sands producers who are restoring production after wildfires are finding U.S. refiners are doing just fine without as much crude from their northern neighbor.

    The U.S. imported 2.6 million barrels a day from Canada last week, the smallest amount since May 13, preliminary data from the Energy Information Administration show. The decline came after producers including Suncor Energy Inc. and Syncrude Canada Ltd. brought back more than a million barrels a day that was shut in May amid the worst wildfire in Alberta’s history.

    U.S. refiners made commitments to import crude by sea from alternative suppliers when the northern Alberta wildfire was out of control, and the duration of disruption to supplies was unclear, John Auers, executive vice president at Turner Mason & Co. in Dallas, said by phone Thursday. Those imports are arriving now, he said.

    “As the supply comes back on, that will displace some of the imports brought in to replace that lost supply,” he said.

    Imports from Mexico, which compete with Canada’s heavy crude, rose to 803,000 barrels a day last week, the highest since April 15, EIA data show. Shipments from Saudi Arabia also increased.

    A wildfire that broke out at the beginning of May prompted the shutdown of as much as 1.4 million barrels a day of oil-sands production, about 40 percent of Canada’s supply. Since then, restarts have restored most of the lost output. Rising output combined with reduced U.S. demand has weakened Canadian heavy-crude prices, with Western Canadian Select trading at its biggest discount to U.S. futures since April.

    Western Canadian Select’s discount to West Texas Intermediate futures grew 10 cents to $14.25 a barrel Thursday, the biggest discount since April 18, data compiled by Bloomberg show. Light synthetic crude, produced from oil sands upgraders, has also weakened, trading at a 30 cent a barrel discount to WTI, the biggest discount since April 22.
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    Nigerian oil trade union begins strike on holiday, warns of delayed effect

    A Nigerian trade union representing oil workers said it had begun a strike on Thursday, but added that the effect of its industrial action would not be felt for some time because it started on a public holiday.

    The Petroleum and Natural Gas Senior Staff Association of Nigeria said 10,000 of its members, who include refinery workers and office staff, had begun a "gradual withdrawal" from "offices, sites and production facilities".

    In a statement, the union said it was responding to issues that were "critical to the survival of the oil and gas industry in the country" including joint venture funding and cash call arrears, which it said had stalled the creation of new jobs.

    Cash calls are the government's financial obligations to joint venture projects between state oil firm NNPC and international and local oil companies.

    Nigeria, the north of which is predominantly Muslim with mostly Christian southerners, has been observing the Eid al-Fitr holiday. Thursday was the last day of the three day holiday.

    "The strike has started but you know today is a public holiday that is why you may not readily see the immediate impact but I can assure you that the strike has commenced," said Lumumba Okugbawa, the union's acting general secretary.

    Okugbawa said the union had been in touch with the government to hold talks. He said the government had proposed discussions take place on Friday but the PENGASSAN would prefer to meet on Monday instead.

    "Shutting down the refineries, oil production and export would be the last option if all negotiations with government break down," he said, adding: "There are so many steps to that."

    Crude production in Nigeria, an OPEC member, has been pushed to 30-year lows as a result of attacks on oil and gas facilities in the southern Niger Delta.

    The militants behind the attacks have called for a greater share of Nigeria's oil wealth to go to the impoverished region, which is the source of most of the country's oil.
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    U.S. finalizes Arctic energy development regulation

    The U.S. Department of Interior on Thursday unveiled its final regulations on drilling in the U.S. Arctic Outer Continental Shelf to boost safety in the environmentally sensitive region.

    The rules set safety standards for exploratory drilling on the U.S. Arctic Outer Continental Shelf for vessels on Alaska's Beaufort and Chukchi Seas.

    "The rules help ensure that any exploratory drilling operations in this highly challenging environment will be conducted in a safe and environmentally responsible manner, while protecting the marine, coastal and human environments, and Alaska Natives’ cultural traditions and access to subsistence resources,” said Janice Schneider, the Interior Department's assistant secretary for land and minerals management.

    The rules are a key part of the Obama administration's strategy for energy development in the Arctic region, Schneider said.

    Oil and gas exploration in the U.S. Arctic has been limited. Last year, Royal Dutch Shell pulled the plug on its Arctic oil exploration plans after failing to find enough crude oil, despite getting permission from the United States to drill.

    The company had spent $7 billion exploring in the waters off Alaska's coast. In 2012, Shell interrupted Arctic exploration after an enormous drilling rig broke free and ran aground.

    The new rules require oil operators to submit a detailed operations plan before filing an exploration request. The operators must also demonstrate that they can quickly deploy containment equipment, such as capping stacks or domes, as well as a relief rig in the event of a well accident.

    The Interior Department's environmental enforcement director, Brian Salerno, said the rules were developed to address issues identified after Shell's 2012 rig accident.

    “This rulemaking seeks to ensure that operators prepare for and conduct these operations in a manner that drives down risks and protects both offshore personnel and the pristine Arctic environment,” Salerno said.

    Kristen Miller, conservation director of the Alaska Wilderness League, said the Interior Department released "minimum regulations" - a first step that needs to be further strengthened.

    National environmental groups went further and said the Interior Department should not allow any drilling in the Arctic.

    Rachel Richardson of Environment America said: "The only 'safe' form of drilling for the Arctic and the climate is none at all."

    But industry groups like the American Petroleum Institute quickly reacted to the announcement by saying the regulation is the latest attempt by the Obama administration to stifle offshore energy development.
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    Eletrobras may never pay some Petrobras debts -official

    Brazil's state-led oil firm Petrobras may never collect some debts owed it by state-run power utility Eletrobras, the energy ministry said on Thursday, acknowledging the government has little cash to provide new capital to the debt-ridden electricity company.

    The government will probably be unable to provide Centrais Eletricas Brasileiras SA, as Eletrobras is formally known, with the estimated 8 billion reais ($2.38 million) it wants to cut debt and revive investment, said Fabio Lopes Alves, electricity secretary at the Energy Ministry. The company's financial woes may force it to let licenses for some money-losing power-distribution units lapse,
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    Summary of Weekly Petroleum Data for the Week Ending July 1, 2016

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending July 1, 2016, 8,000 barrels per day less than the previous week’s average. Refineries operated at 92.5% of their operable capacity last week. Gasoline production increased last week, averaging over 10.0 million barrels per day. Distillate fuel production decreased last week, averaging about 5.0 million barrels per day. U.S.

    crude oil imports averaged about 8.4 million barrels per day last week, up by 808,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.0 million barrels per day, 11.6% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 765,000 barrels per day. Distillate fuel imports averaged 61,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 524.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.1 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 1.6 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.7 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 3.4 million barrels last week.

    Total products supplied over the last four-week period averaged over 20.5 million barrels per day, up by 3.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.8 million barrels per day, up by 2.5% from the same period last year. Distillate fuel product supplied averaged over 3.9 million barrels per day over the last four weeks, up by 1.5% from the same period last year. Jet fuel product supplied is up 11.7% compared to the same four-week period last year.

    Cushing down 100,000
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    US oil production sees large drop on Alaska fall

                                                  Last Week      Week Before        Last Year

    Domestic Production '000........ 8,428                 8,622                 9,604

    Alaska '000                        ...........340                   496                    434
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    Russia’s Novatek says ships first LNG cargo

    Russia’s Novatek said Thursday it has supplied its first ever cargo of liquefied natural gas, marking the company’s first step into global LNG trading business.

    The cargo was sourced from Trinidad & Tobago’s LNG plant in Point Fortin and delivered to the Quintero import terminal in Chile.

    The shipment was made by Novatek Gas & Power, a trading subsidiary of Novatek involved in sales of gas and liquid hydrocarbons on the international markets.

    “This first LNG cargo is an important milestone for Novatek to enter the global LNG market,” said Lev Feodosyev, Deputy Chairman of Management Board – Commercial Director of Novatek.

    “After the launch of the first train of the Yamal LNG project we will enter the LNG market with our own volumes, and gaining spot trading experience is important for us,” Feodosyev added.

    Novatek is the operator of the US$27 billion Yamal LNG project in the Arctic which is expected to produce 16.5 mtpa of LNG at full buildout. The first cargo from Yamal LNG’s first train is scheduled to be shipped during the second quarter of 2017.

    Novatek’s first spot LNG cargo comes just weeks after Russia’s Rosneft delivered its first ever shipment of the chilled fuel to Egypt.

    Gas giant Gazprom is currently the only Russian company that exports LNG from Russia from the country’s sole liquefaction facility in Sakhalin.

    At the end of 2013, Russia approved legislative amendments liberalizing its export regulations for LNG, allowing Rosneft and Novatek to export the chilled fuel.

    As a result, Gazprom and its unit Gazprom Export lost the exclusive right to ship LNG abroad.

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    North Dakota Mineral Resource Director Calls EPA Regulations into Question

    Lynn Helms, director of the Oil and Gas Division of the North Dakota Department of Mineral Resources, testified before the House Committee on Energy and Commerce – Subcommittee on Energy and Power to discuss the effects EPA regulations have had on the state since 2009. Helms’ testimony, which can be read in full here, outlined the ways in which the EPA was creating duplicative and unproductive regulations in the state.

    Helms presented a timeline of nine different topics – all of which have the ability to directly impact the way North Dakota regulates the oil and gas industry, starting with the 2010 EPA study of the relationship between hydraulic fracturing and drinking water, to the most recent 2016 request for emission information for existing oil and gas facilities.

    Helms pointed to a number of issues, from studies which cannot be concluded due to the EPA Scientific Review Board dealing with concerns over the definitions of “widespread” and “systemic,” to rules that “potential conflict with (North Dakota’s Industrial Committee’s) mission to prevent waste, maximize recovery, and fully protect correlative rights (of mineral owners).”

    “It is of great concern to North Dakota that the USEPA rule and guidance would potentially conflict with the Industrial Commission’s mission,” Helms stated in his testimony.

    Helms also pointed out that many of the EPA’s regulation were disproportionately costly compared with the environmental threat. “Many states that run effective regulatory programs and have adopted hydraulic fracturing rules that include chemical disclosure, well construction, and well bore pressure testing should be explicitly exempted from the guidance,” Helms said to the sub-committee.

    North Dakota’s Mineral Resources director encouraged the sub-committee to expand the use of the program FracFocus nationwide, saying it is “by far the best way for EPA to minimize reporting burdens and costs, avoid duplication of efforts, and maximize transparency and public understanding.

    “EPA should consider funding of programs such as FracFocus and Interstate Oil and Gas Compact Commission and Ground Water Protection Council programs such as the State Oil and Gas Regulatory Exchange, UIC Peer Reviews, and National Field Inspector Certification Program,” said Helms. “All of these programs are overseen by governors and state regulators who can provide independent third-party certification, collection of information, and development of best practices about hydraulic fracturing operations in lieu of a new EPA mandatory reporting or voluntary disclosure program.”

    He went on to add that some of the rules proposed by the EPA could have a direct impact on the planned expansion of North Dakota’s gas capture and infrastructure requirements, with changes to regulations like the transportation of drill cuttings potentially costing the state billions of dollars.

    Other witnesses included, Travis Kavulla, Vice-Chairman of the Montana Public Service Commission and David Porter, Chairman of the Texas Railroad Commission.
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    Libya to Resume Oil Exports From Biggest Ports Within a Week

    Libya will resume crude exports from two of its biggest oil ports within one week after clashes that forced Islamic State militants to pull out of the area, according to the commander of the petroleum guards in the region.

    Crude exports will resume from Es Sider, the country’s biggest oil port, and Ras Lanuf, the third-largest, and which have been closed since 2014, Ibrahim al-Jedran, a regional commander of Libya’s Petroleum Facilities Guard, said in a phone interview. The exports will be under the authority of the Tripoli-based Government of National Accord, which is seeking to reunify the divided country, he said.

    Some “minor technical problems” related to the transportation network between the oil storage tanks and the Es Sider and Ras Lanuf oil ports due to damage, inflicted during clashes since last year, will be fixed within a few days, al-Jedran said.

    “The oil ports are now safe after Islamic State pulled back away from them toward Sirte,” he said. “The petroleum guards are now capable of guaranteeing the safety and security of oil tankers seeking to use the ports.”

    News of the reopening of the ports that had been exporting more than two thirds of Libya’s oil comes after the Petroleum Facilities Guard captured towns from Islamic State militants last month. Rival leaders of Libya’s National Oil Corp., reached an agreement last week to unify the state company under a single management, a step meant to help end the conflict over who can control the divided country’s crude exports and revenue.

    Libyan oil officials have made multiple predictions over the past few years that crude production or exports were poised to climb only for those increases to fail to materialize. The nation pumped an average of about 330,000 barrels a day this year, on course for the smallest annual supply in decades, data compiled by Bloomberg show.

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    Niger Delta Avengers claim fresh attack on Chevron’s oil facilities

    Nigeria militant group, Niger Delta Avengers said  it has blown up more Chevron oil installations belonging to Chevron Nigeria Limited in the creeks of Delta State early Thursday morning.

    In a statement by its spokesperson, Mudoch Agbinigbo, the group said it destroyed manifolds RMP 22, 23 and 24 operated by Chevron in Delta state at about 1:20 am (0020 GMT).

    The group had earlier blown up the RMP 23 and 24 last Friday.

    RMPs or remote manifold platforms are where smaller oil and gas pipelines converge before being sent

    Avengers’ statement read, “Between the hours of 10:50pm to 11:10pm our (Niger Delta Avengers) strike team blew up Chevron Manifolds. The manifolds are RMP 22, 23 and 24.”

    Reports indicated that the attacks which occurred in the Warri North area of Delta state may have been carried out using controlled explosive device.

    Niger Delta Avengers repeated attacks on Nigeria’s oil installations has brought the country’s oil production to a historic low, worsening the financial crisis inflicted on the country by low crude prices.  

    The group has since rebuffed any suggestions of dialogue with the Nigerian government towards stopping its spate of attacks on oil installations.

    President Muhammadu Buhari   had also in the past weeks appeal to the militants to stop their attacks on oil installations.

    But the militant group had insisted that on more autonomy for the Niger Delta and more control of the oil resources as its key demands.
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    Noble Energy announces second quarter 2016 sales volumes of 425 MBoe/d

    Noble Energy, Inc. today announced second quarter 2016 expected sales volumes of approximately 425 thousand barrels of oil equivalent per day (MBoe/d).

    The amount represents a record quarterly total for Noble Energy and is more than 3 percent beyond the midpoint of the Company's quarterly guidance range of 405 to 415 MBoe/d.

    The out-performance was driven by continued strong operating performance and execution across the Company.

    Significant contribution to the higher volumes resulted from new wells online in the Eagle Ford, including wells testing various lateral spacing and completion techniques. In addition, Israel gas sales volumes were higher than expected due to continued displacement of coal by natural gas in electricity generation and seasonally warmer weather than normal.
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    Lost Generation of Oil Workers Leaves Few Options for Next Boom

    Already contending with a global price slump, U.S. explorers are also grappling with the demographic hangover of the last great industry downturn in the 1980s, when scores of drillers went out of business. That rout drove a generation away from the business, leaving a shortage of workers in their late 30s to 50s today just as companies try to replace the Baby Boomers who make up much of senior management.

    What the industry calls the Great Crew Change -- the looming retirement of thousands of older workers -- has companies trying to plug the gap by training younger employees, recruiting outside the industry and enticing veterans to hang on longer. It’s also forced drillers into a delicate balancing act amid the current downturn, as they lay off thousands but try to hold on to hard-to-replace scientists and engineers.

    “Everybody that’s going through the process of downsizing their business right now is faced with this extra complication," said Robert Sullivan, a management consultant for New York-based AlixPartners. “Decisions that get made right now on how you right-size the company are going to have a huge impact when the market turns."

    Employers have spent years trying to prepare. Baker Hughes Inc., the oilfield services company, runs a mentoring program for young engineers. Exxon Mobil Corp. has spent about $2.6 million on workforce training initiatives in the Gulf Coast over the last decade, Bill Holbrook, a company spokesman, said. It’s also sponsored ad campaigns to entice more Americans into engineering careers.

    Houston-based Apache Corp. has been bracing for the Great Crew Change for 15 years, Chief Executive Officer John Christmann said by phone. The driller has asked some senior staff to extend their careers past retirement age. It also runs a three-year professional development program for new hires designed to cement their ties to the business. About half the company’s technical staff are 36 or younger; another third are over 50.

    “There’s a big gap from 1985 to 2000 when not very many people entered this business," said Christmann, 50. While Apache is prepared for the transition, the industry as a whole is “reeling a little bit because we don’t have a lot of those managers," he said.

    The wave of retirements comes as the oil sector is already bleeding talent. Worldwide, oil and natural gas companies have cut more than 350,000 jobs since crude prices started to fall in 2014, according to a May report by Houston-based consultant Graves & Co.
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    Shell Nigeria lifts force majeure on Bonny Light exports

    Royal Dutch Shell's Nigerian division lifted a force majeure on exports of Bonny Light crude oil on Thursday, the latest sign that Nigeria's oil production is recovering after being hit by militant attacks in its oil-rich delta region.

    The force majeure was lifted from 09:00 a.m. Nigerian time (0800 GMT) on Thursday, the company said in a statement, following restoration of production into Bonny Terminal.

    Two other Nigerian crude oil grades - Forcados and Brass River - remain under force majeure. But the country's oil production has remained resilient despite some of the worst militant attacts in decades on delta region oil facilities.

    Oil prices rose during the attacks, which briefly pushed Nigeria's production to 30-year lows. The country was Africa's largest oil exporter, but dropped into second place behind Angola earlier this year due to the disruptions.

    Still, some fields recovered more quickly than expected so that Nigeria's exports were largely steady from April into May.

    Exports are on track to rise in August, although the Niger Delta Avengers, the group that has claimed responsibility for the worst of the damage, have continued to attack oil installations.

    Bonny Light exports had continued during the force majeure, a legal declaration made on May 11 following the closure of the Nembe Creek Trunk line. But cargo loadings are expected to run more smoothly now it has been formally lifted as these had been subject to repeated delays.
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    Libya's oil guards back NOC, preparing to reopen fields - spokesman

    Libya's oil guards back NOC, preparing to reopen fields - spokesman

    Libya's oil guard brigades, who control Ras Lanuf and Es Sider, two major export terminals closed since 2014, are working with the unity government's state oil company and preparing to reopen shuttered fields to pump crude again, a spokesman said on Thursday.

    The spokesman for Ibrahim Jathran's PFG forces did not give any details of whether that would include reopening the two ports soon; starting shipments there would restore a potential 600,000 barrels per day of crude export capacity.

    Militant attacks, fighting between rival factions and strikes have kept Libya's oil production at around 350,000 bpd, or less than a quarter of its output before the 2011 revolution that ousted Muammar Gaddafi and began years of instability.

    The National Oil Corporation (NOC) is working with the U.N.-backed government of national accord, led by Prime Minister Fayaz Seraj, who is trying to bring together rival factions whose armed backers have fought for control and oil resources since 2014.

    "The commander of Petroleum Facilities Guards (PFG), Ibrahim Jathran, has announced that oil will be pumped soon and oilfields of the oil crescent (region) will be also prepared to resume work," PFG spokesman Ali Hassi said.

    "Jathran said that we, the PFG of central region, will work with the NOC that belongs to the presidential council of the government of national accord."

    The NOC announced this week that it would merge with a rival energy company set up in the east by Libya's eastern government, a move seen by analysts as a step towards restoring order to the industry.

    The NOC in Tripoli, recognised by the international community, and the eastern NOC had operated in parallel as the rival governments struggled for control. The U.N.-backed government now in Tripoli is meant to supersede those administrations, but hardliners on both sides are holding out.

    The NOC has an ambitious plan to bring Libya's oil production back to pre-revolution levels. But damage to oil pipelines left closed for months, and to ports that have seen fighting, may take years to fully repair.

    Islamic State militants who are fighting in the western city of Sirte have also targeted the oil infrastructure in the past, and Seraj's unity government has yet to fully establish its influence.

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    Alberta oil sands producers will eye new projects at $55-$60/b WTI: execs

    Investments in additional oil sands production capacity in Alberta will be boosted with a WTI price hovering between $55/b and $60/b even as producers spare no effort to reduce their capital costs, executives said Wednesday.

    "It is still tough out there, but in the past year we have dropped operating and capital costs by 17% and 30%, respectively, with our focus still being on consolidation and optimization," Lyle Stevens, Canadian Natural Resources executive vice president, told the 2016 TD Securities Energy Calgary Conference.

    CNR is adding 23,000 b/d of oil equivalent of heavy and light oil output in Western Canada over the coming six months at a cost of C$17,000 ($13,120)/flowing barrel and is also three months away from adding 45,000 b/d of bitumen output at its Horizon facility in northern Alberta, he said.

    Flowing barrel costs include construction costs and sustaining capital and operating expenditure.

    "We're feeling a lot better this year than last year and have also been successful in cutting costs by 40% primarily due to the application of new technologies and deflation in the service sector," Harbir Chhina, executive vice president of oil sands development with Cenovus Energy, told attendees of the same event.

    Cenovus will restart three projects that were put on the backburner last year due to low oil prices. But the company would seek "price sustainability" before taking a final investment decision, Chhina said.

    "We are going to design this [oil sands] business at WTI $55/b," Chhina said, without naming the three projects that would likely be sanctioned for development.

    No decision has been made yet about the restart of deferred projects as oil prices move higher, Cenovus spokesman Brett Harris said separately in an email, adding that the earliest an update on capital allocations would likely be available was in the company's second-quarter earnings later in July.


    Fellow producer, MEG Energy, which is producing at less than C$10/b, could "very quickly turn on" a few bite-sized oil sands projects typically of 10,000 b/d to 15,000 b/d if prices were to rise to $60/b, company spokesman John Rogers said at the same event.

    But Suncor Energy, which is on track to produce first oil in late 2017 from its 180,000 b/d Fort Hills development, will be less proactive in loosening its purse strings, the company's executive vice president for refining and marketing, Kristopher Smith, said.

    "We need some very strong signals on prices before we sanction new projects beyond Fort Hills and Hebron," Smith said.

    Hebron is a heavy oil development in offshore Newfoundland and Labrador that is due to start up in late 2017 and is being developed by operator ExxonMobil Canada along with Suncor, Chevron, Statoil Canada and Nalcor Energy.

    In 2015, Suncor reduced its costs by $1 billion, with a target of doing so again by C$500 million in 2016, Smith said.

    "This is not a crash diet, but a life-cycle change. With cash operating costs of just north of C$24/b, managing costs will be a focus and a challenge and there is a need for a structural change," Smith said.

    While the oil sands sector will likely receive the bulk of the planned investments, availability of financing will decide the future growth of tight oil production in Alberta and Saskatchewan, MEG Energy's Rogers said.

    "For an oil sands project, we spend 20% of our cash on maintaining the facility while the remaining 80% is available for growth. But for tight oil, it is just the reverse," Rogers said.

    Tight oil output in Western Canada is forecast to decrease 13% by 2019, the Alberta government said in a report in April.

    Compared with production of some 560,000 b/d in 2015, output will decline to 529,000 b/d this year and 524,000 b/d in 2017. In 2018 and the following year, production is forecast to be 506,000 b/d and 486,000 b/d respectively, it said.
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    The oil industry is losing the burn of Asian demand

    The oil industry is losing the burn of Asian demand

    After half a year of strong oil price rises, Asian crude demand is slowing and by some measures falling, and many market participants suspect it is not just a cyclical phenomenon, but also a product of more permanent structural changes.

    But an industry that has come to rely on Asia's booming thirst for oil could soon be scratching around for growth.

    Thomson Reuters Eikon data shows that Asian crude oil tanker imports have fallen, albeit from record levels, for four straight months and by 12 percent since March to around 82 million tonnes (20 million barrels per day), slightly below last year's levels.

    Much of the surprise decline is explained by conditions in China, the region's biggest consumer, accounting for 27 percent of Asia-Pacific demand and 13 percent of global demand.

    With its long-term growth outlook now camped perhaps permanently below 7 percent, most analysts expect vehicle sales in China will slow accordingly.

    They have already slipped to 2.1 million at the end of May, down from a peak of almost 2.8 million in December 2015.

    Refiners across Asia said that was starting to hit their business.

    "Asian oil demand growth is slowing down. China, Asia's largest market, is experiencing sluggish demand," said a South Korean refiner.

    As domestic refiners sell off surplus fuel, China's exports of diesel and gasoline, the main refined fuels for industrial and passenger vehicles, have both soared.

    "Asia refiners have already started to pull back ... and there are reports of (oil) cargoes struggling to sell," said Adam Longson of Morgan Stanley this week in a note to clients, adding that demand in the third quarter could fall further.

    Ship brokers say traders have started chartering supertankers to store supplies that consumers can't absorb.

    One key pillar of recent demand is never coming back. Analysts think China has nearly finished building its strategic petroleum reserves (SPR).

    Oil analysts at JPMorgan estimated in a note to clients last week that the SPR was now at 400 million barrels, which they believed was close to capacity.

    "Our model suggests a 15 percent month-on-month decline in China's crude oil net imports in September, or a loss of 1.2 million barrels versus August and 0.8 million barrels less from the 12-month average," they said.

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    API report show large decline in stockpiles and a gasoline glut on the East coast

    The American Petroleum Institute (API) trade group said its data showed U.S. crude stockpiles fell by 6.7 million barrels last week, declining for a seventh week in a row.

    The profit from turning U.S. crude into gasoline, known as the gasoline "crack," remained at a four and a half month low despite expectations that a record number of motorists would hit the road during the July 4 holiday weekend.

    Gasoline stocks in the U.S. East Coast, home to the New York Harbor delivery point for the fuel, reached a record high of 72.5 million barrels in the week ended June 24. Vessels carrying gasoline-making components could not unload at the harbor this week because of lack of space.
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    Cruel summer for U.S. refiners as margins tank

    Summer driving season is in full swing and American motorists are filling their tanks at a healthy clip, but that is not swelling the profit margins as much as usual at U.S. independent oil refiners such as PBF Energy Inc and Valero Energy Corp.

    In April, executives shrugged off the industry’s lousy first quarter as an aberration that would be remedied this summer.

    “We still are bullish gasoline and bullish octane," PBF CEO Tom Nimbley told investors in an earnings call back then. “The driving season really hasn't hit that hard yet.”

    Nimbley was right about the surging summer demand. But refiner margins are still being squeezed as gasoline and diesel inventories stubbornly sit well above five-year averages.

    Summer gasoline demand usually fattens margins for refiners with seasonally high levels for the crack spread, the premium of a barrel of gasoline over a barrel of crude oil.

    That will not happen this year, said analysts who expect the situation to remain bleak in the weeks ahead unless there are large drawdowns in inventories.

    Late on Wednesday, the American Petroleum Institute, an industry group, assuaged some of those concerns, reporting a 3.6-million-barrel drawdown in gasoline stocks. Yet inventories remain much higher than they were last year at this time, and analysts have slashed earnings estimates for big U.S. refiners who report second-quarter results in coming weeks.

    The situation is so dire that U.S. East Coast refineries have been cutting production. Refiners on the East Coast, known as "PADD 1" by the U.S. Energy Department, are typically the first to feel a profit pinch, because their margins tend to be thinner than those of other regions.

    PADD 1 is a holy mess,” said Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut. “It is very unusual. If a market becomes extremely oversupplied, like PADD 1, they are going to have to cut runs.”

    The U.S. gasoline crack spread 1RBc1-CLc1, a proxy for refiner margins, has dropped 34 percent in two weeks. On Wednesday, it hit a five-year low for this time of year of $13.10 a barrel. That is less than half the crack spread of $28 a barrel at this time last year.

    "An RBOB crack trading 13 bucks in the middle of driving season is unheard of," said one trader.

    East Coast gasoline stocks hit a record 72.4 million barrels, about 17 percent higher than the same time last year, data from the U.S. Energy Department showed last week. Overall, U.S. gasoline stocks were at 239 million barrels in the week to June 24, nearly 10 percent higher than last year and 15 million barrels more than the five-year average.

    The glut is so extreme that several tankers full of products were forced to sit idle in New York Harbor recently, waiting to unload.

    Inventories have grown despite evidence that U.S. motor travel continues to surge. Analysts noted that U.S. refiners switched to maximum gasoline mode earlier than usual during a fleeting moment of high margins in the early part of 2016. Imports also have been higher than normal in recent weeks, adding to the glut.

    John Auers, executive vice president at Turner, Mason & Co, a Dallas-based consultancy, said he remains bullish on gasoline demand and refining margins this summer, noting that gasoline and diesel inventories can draw down just as fast they fill up.

    “I think we will see some significant drawdowns in July and August, and that will help margins,” Auers said. “I think $50 a barrel for crude oil will be the high water mark, so gas prices will remain low and we will have a record driving season this summer."

    He warned that if inventories remain historically high at the end of the summer, refiners could be forced to cut production significantly to account for weaker seasonal demand.

    The 10 largest independent U.S. refiners booked a combined net income of $944 million in the first quarter, down 74 percent from a year earlier, a Reuters analysis showed. That put profits on track to be much less than the annual level of more than $10.6 billion in the past five years.

    Auers estimated that second-quarter margins would come in as the lowest for this normally profitable quarter in at least five years. Over the last 30 days, estimates for second-quarter earnings have fallen 17 to 20 percent for four of the major U.S. refiners, Phillips 66, Valero Energy, Marathon Petroleum and Tesoro, according to Thomson Reuters StarMine.

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    Qatar Sees Spike in LNG Exports to South Asia, Middle East

    Qatar’s exports of liquefied natural gas (LNG) to India and Pakistan grew by 50 percent annually over the first half of the year. LNG deliveries to South Asia reached 7,138,785 metric tons from January to June, which is an increase of 46 percent compared to the same period in 2015. Of this, Qatar delivered 6,045,886 metric tons to India.

    The India shipments resulted from a revised contract between India’s Petronet and Rasgas of Qatar. In December of last year, the two companies re-worked a long-term agreement that had stipulated the delivery of 7.5 million metric tons of LNG per year to India. The revision followed Petronet delivering some 30 percent less than the amount it had agreed to deliver up to September 2015.

    According to the new revisions, the volumes not taken in 2015 would be purchased during the term of the contract with 1 million metric tons added to the total contract volume.

    In Pakistan, Petronet delivered some 1,092,899 metric tons of LNG during the first half of 2016. The increase in deliveries was attributed to a new 15-year agreement with Qatargas for the delivery of 3.75 million metric tons per year. That deal was inked in February. Deliveries began in March. During that time, deliveries of LNG from Qatar rose to around three cargoes per month, which was up from one per month for the same period in 2015.

    Qatar gas shipments to parts of the Middle East also saw a spike in the first half of this year. The amount was an increase of approximately 20 percent in the shipments to Dubai, Kuwait, Jordan, and Egypt. Egypt had the lion’s share of deliveries. The country has meanwhile purchased two floating storage and regasification units, which will give Egypt the ability to increase its imports. The units were delivered last year.
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    Rex Energy’s $190M Borrowing Base Reaffirmed by Bankers

    Rex Energy, now a pure play driller focused on the Marcellus/Utica, announced yesterday that its bankers have reaffirmed (or continued) the company’s $190 million borrowing base.

    A company’s borrowing base is the value of its assets–in this case the value of the leases and oil/gas wells Rex owns. Those assets are used as collateral to back up loans and IOUs.

    Rex has plenty of both. Rex announcement that its bankers will continue to value Rex’s assets at $190 million…
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    Southwestern Exceeds Goal in New Stock Offering, Raises $1.2B

    Last week MDN reported that Southwestern Energy, a major Marcellus/Utica driller, was floating up to 86 million shares of new stock looking to raise $1.1 billion

    If you do the math, it worked out to ~$12.75 per share. The stock offering is done and dusted.

    Southwestern ended up selling 98.9 million shares for $1.247 billion, or $12.60 per share. Not too shabby in a down market where investors have been reluctant to continue funding oil and gas companies…
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    U.S. crude oil exports hit record 662,000 bpd in May: Census Bureau

    U.S. crude oil exports rose to a record 662,000 barrels per day in May from 591,000 bpd in April, foreign trade data from the U.S. Census Bureau showed on Wednesday.

    Canada accounted for the most U.S. crude exports at 308,000 bpd, followed by the Netherlands at 110,000 bpd and Curacao at 67,000 bpd. Other prominent destinations were the United Kingdom at 36,000 bpd, Japan at 29,000 bpd and Italy at 23,000 bpd.

    The total export figure was the highest on record since at least 1920, according to U.S. government data.

    U.S. oil exports have risen since a decades-long ban on them was lifted in January. During that time, a number of merchants, traders, producers and even refiners have moved crude to Latin America, Europe, Asia and other locations.

    The Census Bureau publishes its oil export data weeks before the closely watched U.S. Energy Information Administration trade figures. The EIA, which bases its numbers on the Census data, will release its monthly crude figures at the end of July.
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    Exxon Said to Join Forces With Qatar for Mozambique Gas Assets

    Exxon Mobil Corp. and Qatar Petroleum have teamed up to look at energy assets in Mozambique, home to some of the biggest natural-gas discoveries in a generation, according to four people with knowledge of their plans.

    The companies are considering buying stakes in gas fields owned by Anadarko Petroleum Corp. and Eni SpA, the people said, asking not to be identified because the matter is confidential. They have a strong relationship and often discuss potential investments, though no final agreement has been reached, the people said.

    Mozambique’s discoveries in the Rovuma Basin off its northern coast have attracted oil companies from Europe, the U.S. and China as the southern African country plans one of the world’s largest liquefied natural gas projects. Investment from Exxon and state-owned Qatar Petroleum, which have partnered in joint ventures for at least 15 years, would bring much needed funds for development, not to mention a tax windfall to a nation grappling with a deepening debt crisis.

    Exxon, Eni and Anadarko declined to comment. Qatar Petroleum didn’t respond to a call or e-mail.

    Exxon Presence

    Anadarko operates in Area 1 of the Rovuma Basin, while Eni is in Area 4. Both have plans to export the gas as LNG, though neither has reached a final investment decision.

    Exxon has already established a presence in Mozambique after winning three offshore exploration licenses in October for blocks to the south of the Anadarko and Eni finds. The U.S. company also has a working interest in Statoil ASA’s Block 2 in Tanzania, north of the Rovuma Basin.

    Exxon’s ties with Qatar, the world’s largest exporter of LNG, include the RasGas partnership, which produces and liquefies gas from Qatar’s North field, and the Golden Pass LNG terminal in Texas.

    Acquiring a share of Anadarko’s Area 1 could generate capital gains tax of about $1.3 billion for the Mozambique government, one person said last month, adding that Exxon is also interested in Eni’s Area 4. Rome-based Eni said in May that it’s in talks to sell a stake in its discovery and expects to decide on its LNG project this year.

    Should Exxon and Qatar decide to invest, they would potentially accelerate the realization of Mozambique’s LNG export ambitions amid a looming credit crunch. The country is struggling to balance its books after $1.4 billion of hidden debt was disclosed in April, prompting the World Bank and other donors to suspend aid.
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    Pipeline reportedly bombed in Colombia

    A militant group has reportedly bombed an Ecopetrol pipeline in Colombia.

    The incident has halted output and caused an oil spill into a nearby river.

    The Cano Limon pipeline is the second largest in Colombia and trasnfers oil from Occidental Petroleum’s oilfields near the Venezuelan border to the Caribbean port of Covenas.

    According to local reports, the pipeline was hit late on Monday in Boyaca department’s Cubuara municipality.
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    Tullow issues convertible bonds to attract new investors, shares dive

    Africa-focused oil explorerTullow Oil has issued convertible bonds worth $300-million, a move it said was designed to diversify its investor base, sending its shares to the lowest in nearly three months.

    The bonds, due in 2021 and offered at a conversion price set at a 30% to 35% premium to the average Tullow share price on July 6, will be offered to institutional investors at a coupon between 5.88% and 6.63%, Tullow said on Wednesday.

    "The proposed convertible bond issue will further diversifyTullow Oil's sources of funding and give the company access to a new investor base," said CFO Ian Springett.

    Tullow shares were down 12% at 211.5 pence at 07:55 GMT, the lowest since April 18.

    An initial negative share price reaction had been expected due to bond investors typically hedging their purchases by taking a short position on the share price, a source close to the company said.

    Tullow said it would use the money raised to pay for investments in west and east Africa, where it is developing new oil fields, and general corporate purposes.

    In April, the oil producer announced its lenders had agreed to extend a revolving loan facility by a year and to increase flexibility on another, helping Tullow keep its finances in order amid weak crude prices.

    "The fact that the company needs $300-million after the recent reassessment of its borrowing facilities is a bit of a surprise to us," said analysts at Stifel, who recommend selling Tullow shares.

    Other analysts judged the bond issuance more positively.

    "The dilution should be limited and this is a useful diversification of funding for Tullow," said analysts at RBC Capital Markets, who rate Tullow's stock as 'outperform'.
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    U.S. gasoline oversupply pushes crude oil prices lower: Kemp

    U.S. gasoline stocks remain stubbornly high despite record demand from motorists, a situation that will probably force refiners to cut crude processing over the next few months and prioritise production of diesel.

    The prospect of reduced refinery processing rates has intensified the downward pressure on crude oil prices in recent days.

    U.S. gasoline stockpiles have been running above last year's level since January but the year-on-year build-up has increased rather than lessened as the summer driving season arrived (

    Gasoline stockpiles hit a seasonal record 239 million barrels on June 24, an increase of 22 million barrels (10 percent) compared with the previous year, according to data from the U.S. Energy Information Administration.

    The year-on-year stock build has grown from 14 million barrels (6 percent) at the end of April and 10 million barrels (4 percent) in late January (

    The gain in stockpiles has been most pronounced along the U.S. East Coast, where stocks were 13 million barrels (21 percent) higher than prior-year levels and still increasing as recently as June 24 (

    The degree of oversupply is less in other parts of the eastern United States.

    Gasoline stocks in the Midwest are up by 4 million barrels (8 percent), while stocks on the Gulf Coast are up by 6 million barrels (8 percent) (

    But the East Coast is the pricing point for U.S. gasoline futures which call for delivery to New York Harbor.

    Tankers have been forced to anchor off the harbour, unable to discharge their cargo, because local tanks are full ("Gasoline tankers drop anchor off New York as stocks brim", Reuters, July 4).

    Unsurprisingly, gasoline futures prices and crack spreads have come under pressure as stocks build in the region.

    The crack for gasoline delivered in October has fallen from a peak of almost 30 cents per gallon on May 23 to less than 22 cents on July 5 (

    Futures prices are anticipating even worse oversupply once the peak demand season for gasoline finishes in September.

    In contrast to gasoline futures, crack spreads for middle distillates such as heating oil and diesel, have continued to climb.

    Refiners have only limited flexibility to shift from producing gasoline to distillates in the short term ("Increasing distillate production at U.S. refineries", EIA, 2010).

    So the main response to falling gasoline cracks is likely to come through reduced refinery crude processing, which will cut the output of heating oil as well as gasoline.

    Delta's refinery at Philadelphia has already cut production by 16 percent, according to sources familiar with the plant's operations .

    Run cuts should eventually rebalance the gasoline market but will tighten the distillate market even further, supporting heating oil cracks.

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    Brazil 2017 subsalt oil rights sale to unlock stalled fields

    Brazil on Tuesday said it will sell four areas in its prolific subsalt region by mid-2017 to speed up development of offshore oil and gas discoveries blocked by nationalist energy policies and state-run Petrobras' debt and financial woes.

    One of the areas will abut the giant Carcará prospect in the BM-S-8 block in Brazil's offshore Santos Basin south of Rio de Janeiro, Marcio Felix, the energy ministry's oil and gas secretary designate, told reporters in Rio de Janeiro.

    "Without this sale, Carcará can't be developed," said a senior official with a company that owns Carcará resources.

    While there is no official estimate for the size of Carcará, partners in the group, including state-led Petroleo Brasileiro SA, or Petrobras, Portugal's Galp Energia SPGS SA, and Brazil's Barra Energia and QGEP Participações SA, have said it rivals Brazil's 8-billion-barrel Lula field.

    With enough oil to supply all the world's needs for nearly three months, Lula is one of the world's largest discoveries in four decades. The subsalt is a region near Rio where about 100 billion barrels of oil are trapped deep beneath the seabed by a layer of mineral salts.

    Petrobras owns 66 percent of BM-S-8 where Carcará was discovered, and is lead partner or "operator". Galp owns 14 percent and Barra and QGEP each own 10 percent.

    In addition to areas abutting BM-S-8, Felix said the auction will sell blocks adjacent to Petrobras' Tartaruga field; the Sapinhoa field owned by Petrobras, Royal Dutch Shell Plc, Spain's Repsol SA and China's Sinopec; and the Gato do Mato prospect owned by Shell and France's Total SA.

    Changes made in 2010 by a previous government to Brazil's oil law were designed to increase government control of the giant subsalt discoveries and channel an expected bonanza to health care, education and economic development.

    Instead they stalled investment and put development into regulatory limbo. They've since combined with a Petrobras corruption scandal, the company's $126 billion of debt, the world oil industry's largest, and a plunge in oil prices, to hobble a once-booming oil industry.

    Carcará partners have invested more than $2 billion to date but will have to wait until at least 2020 for a return, two decades after rights to the area were first sold.

    Brazilian law also requires fields to be developed as a single unit, meaning parts of Carcará extending into unleased areas must be sold to another company and "unitized" with Carcará resources in BM-S-8.

    About 55 percent of Carcará is outside BM-S-8, the Carcará partner and a governmentsource said.

    The 2010 law, though, required all unleased areas in Brazil's subsalt to be operated and at least 30 percent owned by Petrobras. New subsalt areas must also be sold under production sharing contracts, where the government earns both oil and royalties. Older areas such as BM-S-8 are concessions that pay only royalties.

    Short of cash, though, Petrobras can no longer afford new subsalt areas it is legally obligated to lead.

    "Petrobras is broke, the rules a mess. Without change we're stuck," the Carcará partner said.

    A bill ending Petrobras' obligation to lead all new subsalt development should pass Congress within weeks, opening the 2017 subsalt auction to new bidders, Felix said.

    Rules clarifying unitization of concessions and production-sharing contracts will be complete by year end, he added.

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    Indonesia's Pertamina eyes SPR storage facility for 25 mil barrels of crude

    Indonesia's state-owned oil and gas company Pertamina will seek partners to build a strategic petroleum reserve of about 25 million barrels to ensure energy security, a senior official said Tuesday.

    "The third party will provide the crude. We plan to select partners after Eid al-Fitr," Pertamina's processing director Rahmad Hardadi said.

    About 60% of the crude for the SPR storage was expected to come from domestic production and the rest from other sources, he added.

    The SPR storage facility was expected to be built in 1 1/2 to two years, Hardadi said.

    The company also plans to build storage capacity for 7.3 million kiloliters of oil products by 2020 from 4.8 million kl currently, S&P Global Platts reported earlier.

    President Joko Widodo has committed to build upstream and downstream infrastructure, such as new refineries, pumping stations and storage tanks in a bid to cut Indonesia's dependency on imported fuels.

    The government also plans to provide incentives to private companies to participate in building the infrastructure.

    Indonesia is already in talks with Oman, Kuwait, Iran and Saudi Arabia to lease storage tanks to hold buffer stocks of crude and oil products equivalent to 30 days of consumption.
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    Grade-Grubbing Oil Producers Are Threatening to Boost U.S. Output Yet Again

    Shale producers are tapping their crown jewel assets in response to the latest oil price rally, according to Morgan Stanley.

    The recovery in crude to close to $50 per barrel has encouraged shale producers to double down on their most profitable fields — a process known in oil country as high grading.

    This new trend threatens to force analysts to revisit calls for declining U.S. production, warned Morgan Stanley Commodity Strategist Adam Longson, and thereby constitutes a downside risk for prompt prices.

    "The rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak," writes a Morgan Stanley team led by Longson. "Since May 6, the Midland has added 13 horizontal rigs in top tier counties versus only eight for the entire play."

    In other words, capital is returning to the oil patch, and it's being invested in new projects that will allow firms to boost production in an expeditious manner once the taps are turned on.

    The collapse in headline oil rig count, as such, continues to provide only a partial picture of the outlook for U.S. production.

    If this trend towards new fertile plays continues, it could alter the downwards trajectory for U.S. production in about four to six months, said Longson.

    "It’s also important to consider that the rigs are going into the most prolific areas, the decline curve for shale wells is flattening, and completing drilled-but-uncompleted wells could slow declines in as short as one to two months," he added.

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    Unexpected Cushing Build

    Genscape reported an unexpected 230k barrel build at Cushing

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    Colombia's peace deal could spur oil sector turnaround

    Is a peace dividend in the form of more investment-and ultimately more production and jobs-coming to Colombia's beleaguered oil and gas sector?

    That's been the hope of executives and analysts since the government signed a permanent cease fire on June 23 with the Revolutionary Armed Forces of Colombia, or FARC, the country's largest rebel group. If a comprehensive peace deal is signed later this summer as expected, the warring sides could end 52 years of armed aggression.

    An end to hostilities, assuming one takes hold in the mostly rural areas where oil is pumped, would be welcome news for E&P and oil field services firms. Their employees have been regular victims over the decades of FARC kidnappings, bombings, extortion and murders.

    From 2001 through 2015, Colombian national police reported 219 oil company employees were kidnapped for ransom by FARC guerrillas and other groups, according to figures compiled by Agora Consultorias, a risk analysis firm in Bogota. Oil firms have paid untold millions in extortion payments to armed groups as well.

    Over that same 15-year period, there were 1,814 reported bombings of Colombian pipelines, the vast majority by suspected FARC rebels. According to El Tiempo newspaper, as many as 4.1 million barrels of oil have been lost to the bombings since the mid-1980s, or more than twice the oil spilled by the Exxon Valdez after it ran aground in Alaska in 1989.

    Naturally, those statistics have had a chilling effect on Colombia's oil patch, especially in recent years as lower global prices have made the Andean country a tougher sell to oil companies' investment committees. Added to the country's challenging logistics and higher lifting costs associated with heavy oil, security issues have driven many companies to more inviting conditions in Mexico, Peru and Argentina.

    Three years of investment declines are coming home to roost, contributing to a precipitous decline in Colombia's crude output this year. After averaging 1,005,000 b/d in 2015, Colombia pumped only 904,000 b/d in May, down a shocking 11.8% from what was pumped in the year-ago month.

    Adding to the gloom is that Colombia's proven oil reserves took a major hit last year, falling to 2 billion barrels as of December 31, down from 2.308 billion barrels at the end of 2014, a 13% decline.

    The drop follows a 5.6% decline reported at the end of 2014.

    Others step in where FAR C left

    President Juan Manuel Santos insists the improved security resulting from a peace deal, which if signed would go before Colombian voters later this year, could be a turning point, making Colombia more appealing to investors in energy and other sectors.

    But analysts caution that benefits from a peace accord will take time to materialize. Moreover, investors are weighing factors other than security in their Colombian investment decisions, including a looming tax reform package that goes before Congress later this year that could place a higher fiscal burden on oil companies.

    Orlando Hernandez, president of Agora Consultorias, notes that Colombian armed forces are still at war with other rebel and criminal groups that dominate some areas of rural Colombia, making the Colombian oil patch still a risky environment.

    Hernandez notes that as the FARC has wound down its violent activities since declaring a provisional cease-fire a year ago, the National Liberation Army, another rebel group known by its Spanish initials ELN, had moved in. The ELN has carried out 15 pipeline attacks so far this year, up from its year-ago total of five, he said.

    The Colombian government and the ELN are not currently in peace talks.

    Another problem that oil companies face that won't be helped by a FARC peace deal is the rising occurrence of blockades by peasants and indigenous groups of oil and gas installations. Executives complain that the blockades have been more damaging to production in recent years than the rebels. Some groups have environmental complaints against E&P projects, others do it to extract labor or royalty concessions from the government.

    Currently, a month-long blockade by indigenous groups of a natural gas processing plant in the town of Gibraltar in northeast Colombia has caused a 30% increase in gas prices for residents of nearby Bucaramanga. Last year, groups blocked repair crews from fixing the 220,000-b/d Cano Limon pipeline for two months, costing the country millions in oil revenue, Hernandez said.

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    Bakken multi-well pads getting bigger

    Oil well pads are getting bigger in western North Dakota as companies figure out how to get the most oil out of the Bakken.

    Hess Corp. has the Bakken’s largest well pad with 18 wells on a single location, but the state’s top oil regulator says he expects to see mega-pads get even larger.

    “At any time in the not too distant future, their record is going to be eclipsed,” said Lynn Helms, director of the Department of Mineral Resources.

    Regulators already have permitted a few larger multi-well pads, including one from Continental Resources that will have 25 wells on one location.

    Many landowners prefer consolidating more wells onto one location rather than having several smaller pads, said Troy Coons, chairman of the Northwest Landowners Association.

    “For the most part, people want things to be the most efficient so they can farm around them with the least amount of impact on the land,” Coons said.

    On average, a single-well pad takes up 3.35 acres, Helms said.

    But consolidating 18 or more wells on on pad can shrink that impact to less than 1 acre per well, Helms said.

    “That’s an enormous reduction in use of the landscape,” Helms said. “I think we’re going to see a lot of 16-plus well pads.”

    In addition to reducing the footprint of oil production, companies are finding other benefits.

    Hess recently increased the amount of oil the company expects to recover from its Bakken and Three Forks wells from 1.4 billion barrels to 1.6 billion barrels. The increase in production is in large part due to spacing the wells closer together, as well as optimizing hydraulic fracturing techniques, said Gerbert Schoonman, a Hess vice president who oversees the company’s Bakken assets.

    “All of a sudden, essentially you add another 200 million barrels of recoverable reserves to your business,” Schoonman said. “There aren’t many fields in the world that have got 200 million barrels. This is big.”

    Oil companies are experimenting with different well densities to optimize how much oil they can recover from the Bakken and Three Forks formations.

    For Hess, drilling nine middle Bakken wells and eight Three Forks wells in a single location is showing good results, Schoonman said, though the company is doing other field studies.

    These multi-well pads are unique to the Bakken, Helms said.

    “In my experience, our multi-well pads are larger and have a lot more wells on them,” he said.

    The largest locations will be concentrated in the core of the Bakken in McKenzie, Dunn and Mountrail counties. In those areas, Helms estimates it will take 32 wells in a single 1,280-acre spacing unit to fully develop the Bakken.

    The areas on the fringe of the Bakken, such as parts of Stark and Divide counties, will likely have four to six wells in a single area, Helms said.

    At the Hess 18-well pad in Mountrail County, the location has nine pump jacks lined up on one side and nine on the other, with horizontal wells extending two miles in opposite directions. Pipelines transport the oil, natural gas and produced water - a waste byproduct of oil production - to nearby facilities for further processing. The 20-acre pad, which looks like a gravel parking lot, is surrounded by a containment berm in case of a spill.

    Steve McNally, general manager for Hess in North Dakota, said multi-well pads make the entire process of developing a well more efficient, from acquiring the land to drilling and fracking the well to monitoring wells once they’re complete.

    “It reduces the amount of time through every single step,” McNally said.

    Consolidating wells also allows pipelines to be installed to one location, rather than several smaller ones, eliminating truck traffic and reducing natural gas flaring.

    One potential downside to multi-well pads is that by consolidating the drilling, it could also concentrate the waste, Helms said.

    State regulations allow companies to bury drill cuttings – a waste byproduct of oil development – on the drilling site after mixing them with a stabilizing material. Cuttings pits at multi-well pads will be larger with the waste more concentrated in one place, Helms said.

    But companies can also choose to dispose of the cuttings by hauling them to a special waste landfill, which is how Hess handles the waste.

    Another downside of the larger locations is they can have a major impact on a single landowner, Coons said.
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    Cabot Oil & Gas In New Long-Term Sales Deal To Supply Lackawanna Energy Center

    Cabot Oil & Gas Corp. reported Tuesday that it has executed a 10-year sales agreement to be the exclusive provider of natural gas supplies to Invenergy LLC's Lackawanna Energy Center power plant.

    Additionally, South Jersey Industries (SJI) , the energy holding company for South Jersey Resources Group, LLC, will become a counterparty to both entities through an exclusive supply fuel management service agreement.

    The company noted that confidential pricing terms under the deal guarantee Cabot attractive rates of return while providing fuel costs directly linked to power prices, eliminating risks for each of the parties involved in the transaction.

    The proposed facility is a natural-gas fueled 1,500 megawatt combined-cycle generating station located in Lackawanna County, Pennsylvania and is expected to be one of the most efficient power plants in the United States.

    Commercial operations are expected to begin in mid-2018 and to reach full-scale operations by year-end 2018. The facility, at maximum capacity, will burn up to 240,000 dekatherms of natural gas per day.

    Dan O. Dinges, Chairman, President and Chief Executive Officer, said, "Together with our previously announced agreement with SJI to supply natural gas to the Caithness Moxie Freedom project, Cabot will be providing more than 400,000 dekatherms of natural gas per day for power generation directly in our backyard."
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    Noble Energy sells 3% interest in Tamar field for $369 million

    Noble Energy, Inc. today announced that it signed a definitive agreement to divest a 3 percent working interest in the Tamar field, offshore Israel, to the Harel Group, a leading insurance provider and pension manager in Israel, in partnership with Israel Infrastructure Fund ('IIF'), Israel's largest infrastructure private equity fund. The transaction value of $369 million is based upon a gross pre-tax Tamar valuation of approximately $12 billion and is subject to purchase price adjustments between January 1, 2016 and the closing date. Closing for the transaction is anticipated in the third quarter of 2016, subject to customary terms and conditions, with after-tax proceeds received expected to be approximately $275 million. Under terms of the agreement, Harel and IIF have the option to elect, before closing, to purchase an additional 1 percent working interest from Noble Energy at the same valuation.

    Gary W. Willingham, the Company's Executive Vice President of Operations, commented, 'This transaction reflects the inherent value of our producing Tamar asset, which reliably fuels more than half of Israel's electricity generation today. It also highlights the potential of our other undeveloped Levant Basin discoveries, which share similar reservoir and well deliverability characteristics and are poised to bring needed energy to a region which is fundamentally short natural gas. We are excited about partnering with Harel and IIF, which bring additional leading Israeli investors into the project. These proceeds further bolster our balance sheet in the near-term and will contribute to our upcoming capital investments in Israel, including our initial investment in the Leviathan project.'

    Noble Energy and partners are planning to drill and complete an additional development well at the Tamar field in response to the continued increasing demand and outlook for natural gas usage within Israel, as Israel displaces coal for clean-burning natural gas. Drilling is anticipated to commence in the fourth quarter of 2016. The additional producing well will further enhance redundancy while meeting maximum deliverability for extended peak demand periods. There is no material change to the Company's overall 2016 capital program.

    Prior to the announced working interest sale, Noble Energy operated the Tamar field with a 36 percent working interest. The Company is carrying out an 11 percent sell-down of its interest in the Tamar field in accordance with Israel's approved Natural Gas Regulatory Framework. Noble Energy anticipates the sale of the remaining 7 to 8 percent working interest over the next 36 months. Following completion of this sell-down process, Noble Energy will retain a 25 percent working interest and operatorship in the Tamar field, which has recoverable gross mean natural gas resources of 10 trillion cubic feet (Tcf).

    The Tamar field sold 252 million cubic feet per day, net, of natural gas and generated net pre-tax income of $318 million for Noble Energy in 2015.

    Noble Energy also operates the Leviathan field, offshore Israel, with a 39.66 percent working interest and the Aphrodite field, offshore Cyprus, with a 35 percent working interest. The Leviathan field has an estimated 22 Tcf of recoverable gross natural gas resources, while Aphrodite holds an estimated 4 Tcf of recoverable gross natural gas resources.
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    U.S. shale firms' first-quarter hedging rush may squeeze margins, spur output

    As oil prices began recovering from 13-year lows early this year, U.S. shale producers ramped up their hedges against another slump on a scale unseen for at least a year, a Reuters analysis of company disclosures shows.

    A review of disclosures by the largest 30 U.S. shale firms showed 17 of them increased their hedge books in the first quarter, the most at least since early 2015.

    Several, including EOG Resources Inc and Devon Energy Corp, two of the biggest shale companies, secured significant protection of future earnings for the first time in at least six months.

    A greater volume of hedged production typically indicates more drilling activity ahead as producers that locked in prices for a sizeable part of their output ensure enough cash flow to sustain or increase production.

    What makes the outlook more complicated this time is the fact that oil companies, fearing the rally could fizzle, locked in sales at levels around $10 a barrel below both current prices and break even levels for some producers.

    For those producers the concern is that their margins will suffer if service costs rise as activity picks up.

    It is less clear how it will affect production, though most analysts expect more supply.

    Michael Cohen, head of energy commodities research at Barclays in New York, believes hedges allow producers to plan better even if they secured prices below present levels just below $50 a barrel.

    "I think (the hedging) gives producers more security to lock in a capex plan," Cohen said, predicting shale production will edge up in the second half of the year.

    The 17 companies locked in prices for nearly 55 million barrels of future production, the highest volume in at least a year and some 45 percent more than hedges added by eight companies in the fourth quarter.

    The spike in hedging came as crude recovered from February's 13-year lows around $26 a barrel CLc1 later in the first quarter, a rally that continued into the second quarter.

    That recovery stalled, however, in the final weeks of last month amid heightened uncertainty about the impact of Britain's vote to leave the European Union and crude prices slipped back below $50 a barrel. (Graphic:


    Sometime in the first quarter, Marathon Oil Corp (MRO.N), for example, hedged at an average price of $39.25 for the second quarter, when prices averaged just below $46 a barrel. Denbury Resources Inc (DNR.N) locked in first-quarter 2017 U.S. crude production at just over $42 a barrel; those futures CLF7 this week were trading at about $52 a barrel.

    While those deals may look problematic now, analysts point out that they did make more sense three or four months ago.

    Michael Tran, director of commodity strategy at RBC Capital Markets in New York, said that at the time market players had expected oil prices to average at or below $40 this year.

    "You have to remember that sentiment in this market is still so fragile," he said. "Producers ended up locking in something in case we did a double dip."

    For those that have enough money, the hedges may now act as an incentive to crank up production for the spot market to average up how much they fetch per barrel, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.

    For a number of oil producers hedges were more of a necessity than a strategic choice as they needed them to get bank loans, said Thomas McNulty, a director at consultancy Navigant, who advises producers on valuation, transactions and risk management such a hedging.

    "Banks have been working very hard with their clients to continue or extend financing, and that requires producers to hedge more," McNulty said, adding that he saw limited appetite for hedging that went beyond what banks required.
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    Saudi petchem firms may seek M&A as part of efficiency drive

    Saudi petrochemicals producers are looking for mergers and acquisitions to secure scale and raw materials as part of an efficiency drive to adjust their businesses to lower oil prices.

    The industry has developed substantially since the 1970s, fuelled by cheap gas feedstock provided by the Saudi government. Saudi Basic Industries Corp (SABIC), the kingdom's biggest petchems firm, is the world's fourth-largest by sales behind German BASF and Bayer and U.S. Dow Chemical.

    But a government decision in December to raise feedstock prices, has forced petchem firms to reconsider their business models, already hit by lower product prices due to cheap crude.

    Saudi companies have already invested abroad with SABIC signing a coal to chemicals project in China. Another reaction has been consideration of potential mergers and acquisitions.

    "We made a commitment at SABIC to improve our efficiency to absorb the additional cost for the feedstock and we will do that, but we still look for any other options that can position SABIC competitively for investment through acquisitions," the company's acting CEO Yousef al-Benyan, told Reuters.

    The acquisitions route could create a number of benefits, including increased scale for businesses to drive efficiencies, sourcing raw materials, and expanding into new product ranges.

    Petrochemicals are the second-largest contributor to Saudi's economy at 7-10 percent of GDP and has the potential to be a significant part of the kingdom's Vision 2030 economic plan.

    "The way forward is to crack naphtha or to grow outside, and me and everybody are looking outside. By increasing gas prices, the opposite will happen, it is definitely not going to encourage investors to go further downstream," Mutlaq al-Morished, chief executive of National Industrialization Co (Tasnee) said.


    It is the increase in feedstock prices that has jolted the Saudi petchems industry into action, as previously they could enjoy much improved margins thanks to subsidies.

    Remove the subsidies -- the Saudi government has pledged to phase out "support" over the next five years -- and high-priced oil and Saudi is competing on a level playing field.

    "What is alarming in the Saudi petrochemical industry is its obsolete fixed assets and inefficiency, where large numbers of plants today are more than 20-30 years old and do not match parameters of fuel consumption and need to be replaced," said Mohammed Alomran, a member of the Saudi Economic Association.

    Most Saudi petchem firms are now undertaking restructuring programmes to slash costs -- Tasnee said it has cut 2,000 jobs, while SABIC is reviewing some of its investments.

    It could help to switch to a more effective feedstock, but this is being inhibited by Saudi's shortage of gas.

    "I think the Saudi petchem industry is more constrained by new gas allocations than by price," said Sanjay Sharma vice President - Middle East and India at IHS Chemical Consulting.

    Aramco plans to double gas output in a decade but it is unclear just how much will go to petrochemicals.

    One alternative is deriving petrochemicals directly from crude oil, with Aramco and SABIC announcing this week they were study building an oil-to-chemicals (OTC) venture.

    OTC will open up a number of new downstream product lines to Saudi producers, which fits with the kingdom's strategic goals of creating more higher-value products.

    But the technology is still developmental and there are question marks over how it would work commercially, Sadad al-Husseini, a former top executive of Aramco, says.

    Therefore, perhaps the most promising short-term solution would be to go down the M&A route for more feedstock supply.

    Aramco has indicated it would seek opportunities in global upstream gas, while SABIC has said in May it would look to North America for gas to fuel growth.

    However, it is unlikely to result in M&A within the Saudi sector due to cumbersome rules on combining listed companies.

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    Chevron, Exxon Commit to $36.8 Billion Expansion Project in Tengiz

    Chevron Corp., Exxon Mobil Corp. and their partners on Tuesday committed to a $36.8 billion oil expansion project in Kazakhstan—the biggest investment in new barrels since oil prices collapsed two years ago.

    The investment in the expansion of the field known as Tengiz—one of the world’s largest—comes on top of around $37 billion already spent by Chevron, the operator, and its partners: state-owned energy firm KazMunaiGas, Exxon and Russia’s Lukoil.

    “This project builds on the successes of prior expansions at Tengiz and is ready to move forward,” said Jay Johnson, Chevron’s executive vice president in charge of upstream.

    “It has undergone extensive engineering and construction planning reviews and is well-timed to take advantage of lower costs of oil industry goods and services,” he said in a statement.

    The $36.8 billion includes $27.1 billion for facilities, $3.5 billion for wells and $6.2 billion for contingencies. It will take Tengiz production up to 1 million barrels of oil equivalent a day from around 800,000 barrels of oil equivalent a day currently. First production from the expansion is due in 2022.

    Tengiz is one of the most profitable fields in the history of the modern oil era. Some analysts estimate that it has brought Chevron more than $70 billion in revenue, and $40 billion in profits, since 1993, when the U.S. company became the first foreign oil company to strike a deal with the former Soviet republic.

    The decision, which has been on hold since last year, is a signal of the industry’s growing confidence that oil prices have stabilized and are set to move higher. Oil prices collapsed from around $115 a barrel in mid-2014 to a low of $27 in January, but have hovered near $50 a barrel in recent weeks.
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    World’s Top Oil Trader Says Prices Won’t Rise Much Further

    Oil prices won’t rise much further over the next year and a half as demand growth slows and refiners comfortably meet gasoline consumption, according to the world’s largest independent oil-trading house.

    "I cannot see the market really roaring ahead," Vitol Group of Cos. Chief Executive Officer Ian Taylor told Bloomberg Television in an interview. "We have a lot of oil in the system and it will take us considerable time to work that off."

    Since rallying from a 12-year low of $27.10 a barrel in January, Brent crude has been hovering around $50 a barrel for the last month. The international benchmark will probably end the year “not too far away from where we are today" and rise to about $60 by the end of 2017, Taylor said.

    The forecast, which coincides with a similar view from Goldman Sachs Group Inc., would mean oil-rich countries and the energy industry face a prolonged period of low prices, more akin to the 1986 to 1999 downturn than the swift recovery after the 2008 financial crisis. Vitol trades more than 6 million barrels a day of crude and refined products -- enough to cover the needs of Germany, France, Italy and Spain together -- and its views are closely followed in the energy market.

    Taylor, who has traded oil for nearly four decades, said one-off factors, including supply disruptions and stronger-than-expected demand growth, helped to tighten the market in the first half, lifting prices.

    Demand Growth

    "We probably expect demand growth to be slightly less in the second half of the year," he said. "There is a little less pull from the Far East” and basic Chinese refineries, known as teapots, seem well satisfied after having “overbought” crude in the first months of the year, he said.

    The summer driving in the U.S. may not be so bullish for oil because "the refinery system of the world has clearly been able to make enough gasoline, and the gasoline stocks are healthy,” Taylor said.

    U.S. wholesale gasoline futures for August delivery -- traditionally the peak of the driving season -- traded at $1.50 a gallon in New York at 12:01 p.m. Monday, below the price for futures to delivery in September, suggesting current supplies are plentiful. "We don’t see any shortages of gasoline," Taylor said.

    Supply Disruptions

    At the same time, "most of the disruptions are beginning to correct themselves," such as wildfires that halted Canadian output, Taylor said.

    The oil price outlook is unlikely to change significantly in 2017 as supply from new oilfields, including the super-giant Kashagan in Kazakhstan and others in the U.S. Gulf of Mexico, offset production drops elsewhere, Taylor said. The wild card for next year is U.S. shale supply, which appears to have reached a bottom, but it’s too early to say whether growth will resume.

    U.S. oil production was hit hard by the plunge in oil prices after the Organization of Petroleum Exporting Countries diverged from its traditional policy of adjusting supply to manage prices, announcing in late 2014 that it would maintain output to defend its position in the market. The nation pumped 8.6 million barrels a day last month, down from a peak of 9.6 million in June 2015.

    Vitol, which celebrates its 50th anniversary this year and is owned by its employees, didn’t made as much money in the first half of the year as in the same period in 2015, Taylor said. It earned $1.6 billion last year, the most since 2011, as it profited from price swings in the energy market.

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    Petrobras to sell 'junk' fields as big finds delayed: sources

    Petrobras' plans to sell 'junk' oil fields off the coast of Brazil's Sergipe and Ceara states will do little to boost the economic prospects of the regions, hampered by company cutbacks and delays at larger discoveries nearby, sources said on Monday.

    Brazil's state-owned oil company on Monday said it plans to sell nine shallow-water oil fields that produce a total of 13,000 barrels of oil and equivalent natural gas a day from multiple wells.

    Furthermore, the sale of the fields, among Brazil's oldest, will not significantly cut the debt of Petroleo Brasileiro SA as the company is formally known, the sources said. Petrobras' $126 billion of debt is the largest in the world oil industry.

    Not only do the fields produce very little oil or natural gas compared to other Petrobras assets, the sources said, their age will require substantial investment to maintain commercially viable output, a situation made more difficult by oil prices near decade lows.

    Additionally, the ageing wells come with large future costs for safe closure under environmental and other laws.

    "The fields are junk," one of the sources said. "Unless Petrobras shoulders the labor-related costs of selling the fields and laying off workers and some of the shut-in costs that will come sooner rather than later, the fields offer little upside even though almost anybody can run them cheaper than Petrobras."

    The sources, who asked for anonymity because their dealings with Petrobras are confidential, have either direct knowledge of the fields up for sale or were briefed on the proposed sale on Monday by Petrobras chief executive Pedro Parente.

    Petrobras announced the sale hours after Parente met with Sergipe officials to explain the company's cutbacks at low-output onshore fields in the state.

    He also addressed repeated delays in developing giant offshore discoveries it owns with Indian companies Oil and Natural Gas Corp and IBV Brasil Ltda, a 50-50 joint venture between Bharat Petroleum Corp and Videocon Industries Ltd, a source at the briefing said.

    Earlier on Monday, Reuters reported that Petrobras told IBV in April that oil output at the Sergipe offshore areas would be delayed until 2022, four year later than promised. The Indian partners have invested $2.1 billion in the giant deepwater fields near the state.

    The prospects owned by Petrobras and the Indians dwarf the rapidly declining Sergipe onshore and shallow water fields and are among the world's largest discoveries in decades. Sergipe gets about a quarter of its industrial output from Petrobras.

    "We're stuck," one of the sources said. "Petrobras is cutting crucial investment and thousands of jobs in Sergipe and can't or won't invest in new discoveries that could transform people's lives here. The shallow water sales, even if they happen, won't help much."

    Parente has promised to sell or slash investment and sell assets in underproducing areas to focus the company's limited cash on the so-called "subsalt" region near Rio de Janeiro. Some single wells in the subsalt produce 40,000 barrels a day, among the highest levels ever seen in offshore development.
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    Gran Terra launches $525m bid for third Colombian acquisition this year

    Calgary,Alberta-based oil and gas major Gran Tierra Energy has launched a $525-million bid to acquire independent exploration and production company PetroLatina Energy, marking the company’s third multi-million dollar push this year into Colombia.

    Under terms of the acquisition agreement,Gran Tierra would make an initial $500-million cash payment at closing, and a deferred payment of $25-million before December 31.

    "The acquisition represents a unique material opportunity inColombia in terms of scale and upside potential, and will add a new core area for Gran Tierra in the prolific MiddleMagdalena Basin. The combination of Gran Tierra's strong, positive cash-flowing asset base and PetroLatina's attractive portfolio of development opportunities will create a premierColombia-focused exploration and production company,”Gran Tierra president and CEO Gary Guidry stated.

    Gran Tierra advised that the acquisition was expected to be funded through a combination of the comany’s current cash balance, available borrowings under existing credit facilities, a new $130-million debt facility, and a private placement of up to $173.5-million of subscription receipts priced at $3 each. Each receipt would entitle the holder thereof to one share of common stock in the capital of the corporation. The pricing reflected a 7.9% discount from the five-day volume weighted average price of $3.26 a share.

    Guidry pointed out that Gran Tierra was acquiring significant proved, probable and possible reserves in a new core area in the Middle Magdalena basin, which he expected to enhance the company’s long-term growth strategy and to be a fit withGran Tierra's current reserves and resources base in the Putumayo basin.

    The transaction was expected to provide Gran Tierra with a significant growth platform in the Middle Magdalena basinwith significant proved plus probable (2P) reserves additions of 53-million barrels (100% oil), increasing Gran Tierra's pro forma December 31, 2015 2P reserves by 70% to 129-million barrels of oil equivalent.

    The PetroLatina deal was expected to close by October 31.

    Earlier this year, Gran Tierra completed the acquisitions ofPetroamerica Oil Corp and PetroGrenada as part of its corporate strategy to expand and diversify Gran Tierra's oil and gas growth portfolio in Colombia.

    In May, the company increased its 2016 capital budget by between $33-million and $43-million to a range of $140-million to $150-million, from the previously budgeted $107-million.

    Despite the TSX-listed stock being down as much as 5.5% on Monday at C$4.12 apiece, the stock had gained more than 41% since the start of the year, buoyed by more optimistic crude oil prices.
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    Nigeria's oil minister replaced as state oil company boss

    Nigerian President Muhammadu Buhari has replaced Oil Minister Emmanuel Ibe Kachikwu as group managing director of state oil company NNPC as part of a wider board overhaul.

    Oil accounts for about 70 percent of Nigeria' revenue, but the OPEC member has been hit hard by a prolonged drop in crude prices that has caused the deepest crisis in Africa's biggest economy for more than a decade.

    Dr Maikanti Kacalla Baru, previously group executive director for exploration and production, will take the reins from Kachikwu, who will remain on the board as chairman, the president's spokesman said on Monday.

    Buhari, elected last year, has accused the previous administration of failing to save when crude oil cost more than $100 a barrel. In 2013 the central bank governor said that tens of billions of dollars in oil revenue had failed to make it into state coffers, which the company denied.

    Kachikwu was appointed minister of state for oil last year, making him a junior minister, while Buhari kept the petroleum minister portfolio for himself in order to oversee energy sector reforms.

    Baru's previous roles at the state oil company included a six year stint, from 1993 to 1999, as an executive at the National Petroleum Investment Management Services (NAPIMS), an NNPC subsidiary, where he worked on gas-related projects.

    "President Buhari urges the new board to ensure the successful delivery of the mandate of NNPC and serve the nation by upholding the public trust placed on them in managing this critical national asset," said Buhari's spokesman Femi Adesina.

    The president's chief of staff, Abba Kyari, joins the new board, which replaces the one dissolved by Buhari in June last year.

    "Reconstituting the board appears to be an attempt to adopt a different approach with a sense of proper oversight and accountability," said Antony Goldman, head of Nigeria-focused PM Consulting.

    "The issue in the past has been that NNPC has been involved in deals that benefited certain individuals but not Nigeria as a whole," he added.

    Kachikwu, a former Exxon Mobil executive, was brought in by Buhari as head of NNPC last August and was named as minister of state for oil when his cabinet was appointed a few months later.

    Rolake Akinkugbe, head of energy and natural resources at FBN Capital, said there was "always a question around how you could have the head of the national oil company who was also the oil minister".

    "Being moved to chairman, where he will not be involved in day-to-day operations but retains strategic input, helps to resolve that issue," she said.
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    Rystad: US oil reserves larger than Saudi.


    July 04, 2016

    By Per Magnus Nysveen, Head of Analysis, Rystad Energy

    A new independent estimate of world oil reserves has been released by Rystad Energy, showing that the US now holds more recoverable oil reserves than both Saudi Arabia and Russia. For US, more than 50% of remaining oil reserves is unconventional shale oil. Texas alone holds more than 60 billion barrels of shale oil according to this new data.

    The new reserves data from Rystad Energy also distinguishes between reserves in existing fields, in new projects and potential reserves in recent discoveries and even in yet undiscovered fields. An established standard approach for estimating reserves is applied to all fields in all countries, so reserves can be compared apple to apple across the world, both for OPEC and non-OPEC countries. Other public sources of global oil reserves, like the BP Statistical Review, are based on official reporting from national authorities, reporting reserves based on a diverse and opaque set of standards.

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    Total reshuffles management in renewables drive

    French oil major Total has moved the head of its refining and chemicals arm to run its newly created gas, renewables and power division as the group strives to become a leading renewables and electricity player within 20 years.

    The appointment of Philippe Sauquet to oversee Total's expansion in renewables makes room for Bernard Pinatel to return to the company as president of the refining and chemicals arm.

    Pinatel returns from Bostik, a former Total subsidiary that was sold to Arkema. He was a member of Total's refining and chemicals management committee from 2012 to 2014.

    Pinatel will join Total's executive committee, as will Namita Shah, who was appointed executive vice president and will take charge of Total's human resources division and oversee the newly created Total Global Service.

    The new appointments will take effect from Sept. 1.
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    Ecopetrol takes over Cusiana operation

    Colombian state-oil player Ecopetrol has taken over operations at the large light oil and gas condensate field Cusiana after ending a long-term contract with partners Equion Energy and Emerald.
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    Gulf Keystone debt default

    Gulf Keystone, struggling oil explorer told the market it had defaulted on its $26m April debt payment, but remains in crunch talks with its lenders.

    After Gulf Keystone failed to pay its April debt coupon its bondholders granted repeated extensions to its stay of execution. The oil producer has technically been in default since May but it has used a ‘stand-still’ period to shield itself from insolvency proceedings while it negotiates a rescue deal with its lenders.

    The freeze agreement expired on Friday evening and the company said it would not extend the stand-still period, or make the outstanding debt coupon payment, raising speculation that a deal with its lenders may be imminent.

    Gulf Keystone said its “restructuring discussions remain ongoing” with the bondholders and a further announcement would be made in due course, but a company spokesman declined to comment further.

    A deal to restructure its debt is expected to deliver a heavy blow to existing Gulf Keystone shareholders, who have already seen the stock plummet from 410p in early 2012. The company has been hit hard by the oil market crash and geopolitical tensions in the Iraqi region, which have crimped oil payments from the local government.

    In addition to April’s $26m debt coupon Gulf Keystone is due to make another $26m payment in October before repayments rocket to $250m in April 2017 and $325m in October next year.
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    Two Eni workers killed in Niger Delta attack

    Two oil workers working for Italian major Eni were killed after their boat came under fire in the Niger Delta last week, it has emerged.

    The men were travelling in what is believed to have been a workboat in Bayelsa State when they came under fire some time on Wednesday.

    A spokesman for Eni told Upstream that the team from local subsidiary Agip was on its way to a well location to carry out a routine operation in the Nembe area when it was attacked.

    “Three members of the team managed to escape, reaching the near flow station, while another two were missing.

    “Two days later their bodies were found. Investigations with security agencies were immediately undertaken and are still ongoing.”

    One source said the workers were on their way to the Obiama flow station when they were attacked around Okoroma waterway. The source added that the boat may have had no escort, which is not advisable in the locality.

    Some local reports have linked the Niger Delta Avengers (NDA) with the attack, although this would be a significant departure from their current modus operandi of attacking oil infrastructure such as wells and pipelines, while refraining from killings.

    The NDA has routinely claimed attacks through posts on its internet page or Twitter. However, the militant group’s Twitter account was disabled on Monday morning, but not before it used it to claim five attacks on infrastructure belonging to Chevron, Nigerian National Petroleum Corporation (NNPC) and Nigerian Production Development Company (NPDC) between Friday and Sunday.

    Attacks on oil companies this year has spiked in Nigeria’s oil-producing region due in some measure to political tensions and the continued low oil price. Information from Norwegian risk analysis firm Bergen Risk Solutions shows that there have been 65 incidents in the Niger Delta so far this year involving international oil players, compared with 42 for the whole of 2015.
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    New Rival Seen in Mediterranean Gas Race ‘Before It’s Too Late’

    Lebanon may soon approve measures to push ahead with a stalled first auction of offshore oil and natural gas rights, ending years of political wrangling as it tries to catch up in a regional race to tap energy wealth in the eastern Mediterranean.

    The auction first scheduled for November 2013 was frozen by the government’s failure to pass decrees to demarcate energy blocks, establish production-sharing contracts and specify tender protocols. Mohammad Kabbani, head of the parliamentary energy committee, said Monday that he expected the decrees to be approved “a short period” after the Muslim holidays of Eid al-Fitr this week.

    “This would be the first serious step in three years,” Kabbani said in a phone interview in Beirut, without elaborating on the possible timing of an approval. “We should hurry up to be present in the market before it is too late.”

    Lebanon has lagged behind neighboring Israel, Cyprus and Egypt in developing oil and gas deposits that may lie beneath its share of the Mediterranean Sea. Seismic surveys show the country could hold at least 96 trillion cubic feet of gas and 850 million barrels of oil, then-Energy Minister Gebran Bassil said in a December 2013 interview. Exxon Mobil Corp. and Total SA are among 46 companies pre-qualified to bid to explore off the country’s coast.

    Lebanon has had no president for more than two years, and government institutions have been paralyzed by political divisions and sporadic violence that have deepened since the war in Syria erupted in 2011. Lebanon needs revenue to trim its public debt, the highest as a share of annual economic output among 22 Arab nations.

    A breakthrough to enable the energy auction looks close, partly because a dispute has been settled over which of 10 blocks should be awarded, Kabbani said. Companies will be allowed to bid for the blocks they want, and the government will then approve two or three, he said.

    The possibility that Lebanon shares offshore gas reserves with Israel adds urgency to the effort, Kabbani said. Turkey and Israel ended years of diplomatic estrangement in June, opening the way for Israel to export fuel to the Turks from its offshore Leviathan field. “We have to prove we are here and we are serious,” Kabbani said.
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    India Demand Surge Sucks Up LNG Otherwise Meant for Europe

    India’s burgeoning demand for liquefied natural gas is dictating how many tankers make it to Europe, the world’s dumping ground for the fuel.

    LNG imports to India jumped 43 percent in May from a year earlier, a contrast to western Europe where shipments have stagnated over the past three months. The world’s second-most populous nation is expected to double its LNG intake over the next four years, according to energy consultants Wood Mackenzie Ltd.

    India overtook South Korea as the second-biggest buyer of spot and short-term LNG cargoes after prices crashed about 65 percent in almost two years, spurring demand for the cleaner fuel from fertilizer producers to power plants. For a supplier, having a closer market helps. It takes three days to ship LNG to western India from Qatar, the biggest producer of the fuel, compared with two weeks to get it to the U.K. where prices are lower.

    “India needs to be full before you start getting LNG imports in Europe going up,” Noel Tomnay, vice president of global gas and LNG research at Wood Mackenzie, said in an interview in London. “We haven’t seen a significant uptick in European LNG imports yet. What we have seen is a significant uptick in India.”

    The nation gets the fuel from Qatar at about $5 per million British thermal units, according to Petronet LNG Ltd., India’s biggest importer. That compares with $4.37 on average at Britain’s National Balancing Point trading hub in the second quarter, data from the ICE Futures Europe exchange in London show.

    “The NBP is below the western Indian market price, and that should gravitate the spot cargoes toward India,” Prabhat Singh, the chief executive officer of Petronet, said in an interview in New Delhi on June 30. “India is the place for world LNG to come if we handle the market well.”

    Import Surge

    India’s imports of cargoes under contracts with duration of four years or less rose 45 percent to 9.7 million tons in 2015, according to the International Group of LNG Importers. The country imported 14.6 million tons of LNG last year, little changed from a year earlier, according to the group.

    In May, the nation purchased a total of 2.08 billion cubic meters of LNG, or 1.57 million tons, according to provisional data from the Oil Ministry’s Petroleum Planning & Analysis Cell. That compares with 3 billion cubic meters imported into western Europe, a figure that’s slated to fall to 1.25 billion cubic meters in June, according to consultants Energy Aspects Ltd.

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    Western Europe is poised to take a bigger share of LNG imports “over the coming quarters” thanks to the region’s liquid trading hubs capable of absorbing excess LNG from the global markets, according to Fitch Ratings Ltd.’s BMI Research unit. Global supply is set to soar from the second half of this year as plants from the U.S. to Australia and Angola increase production, pressuring prices, BMI said in a June 30 research note.

    Stretched Infrastructure

    Increased deliveries have stretched India’s existing infrastructure. The Dahej terminal this year is running at an estimated 111 percent of its designed nameplate capacity and will be operating at 120 percent over the next six months, according to Petronet, which operates the facility. The company plans to complete an expansion of the terminal by September.

    India’s LNG price is forecast to fall to $4.8 per million Btu on average this year and $4.6 in 2017, down from $7.5 last year, according to Energy Aspects.

    “We have seen demand elasticity in India and it’s starting to stretch regas capacity,” said WoodMac’s Tomnay. “It is interesting to see how tested India will be as Asia’s natural sink.”

    Attached Files
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    Top Indian Refiner Plans $6 Billion Expansion as Demand Climbs

    Indian Oil Corp. will spend about 400 billion rupees ($6 billion) to boost capacity by almost 30 percent in the next six years to feed the booming fuel demand in the world’s second-most populous nation.

    “Fuel demand is rising and India’s excess capacity is very small,” Sanjiv Singh, director of refineries at India’s biggest processor, said in an interview Friday. “We all need to expand if demand sustains.”

    The expansion comes as Indian refiners are racing to add capacity amid rising fuel consumption. India is poised to surpass Japan as the world’s third-largest oil user this year and will be the fastest-growing crude consumer in the world through 2040, Paris-based International Energy Agency estimates.

    The state-run company aims to increase its capacity to about 104 million metric tons a year, or about 2 million barrels per day, over the next six years by expanding the existing refineries across the country, said Singh.

    Indian Oil currently can process 80.7 million tons of crude a year from its nine plants and two owned by its unit Chennai Petroleum Corp., accounting for 35 percent of the nation’s total, according to its website.

    India’s oil demand is forecast to reach 329 million tons by 2030, according to IEA. The country’s 23 refineries have a total capacity of 230 million tons a year, while total fuel demand was 183.5 million tons during the financial year that ended March 31, according to the oil ministry.

    Adding Capacity

    “In another 15 years, India should be adding another 100 million ton refining capacity,” Singh said. “By 2030, India would easily cross as much as 340 million-ton capacity.”

    Separately, Indian Oil is working with the government as well as other refiners to build a 60-million-ton-a-year refinery on the west coast. The proposed project, which would include petrochemical units, may cost about 2 trillion rupees, Singh said.

    They will build the refinery in two phases, with two crude units totaling 40 million tons in the first phase and a third one in the second phase, he said. “After getting possession of the land, it will take five to six years to complete the first phase,” he said.
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    Hedge funds to U.S. refiners: produce more diesel, less gasoline: Kemp

    Hedge funds and other money managers are betting diesel and heating oil will take over from gasoline as the main driver of U.S. refinery profitability in the second half of the year.

    For the past 18 months, refiners have been rewarded for maximising output of gasoline and minimising production of diesel, but that could all be about to change.

    By the middle of June, hedge funds had accumulated the largest net long position in heating oil futures and options since oil prices began to slump in July 2014.

    At the same time, hedge funds were running one of the smallest net long positions in gasoline contracts in the past decade.

    The most recent data published by the U.S. Commodity Futures Trading Commission shows some profit-taking on these positions in the week to June 28.

    But the strongly bullish position on heating oil and bearish position on gasoline remains fundamentally intact for the time being.

    At the start of the year, hedge funds were bearish towards heating oil and bullish on gasoline, but the position began to switch from March onwards.

    The switch in hedge fund positions has coincided with a marked strengthening in the refining margins for diesel and weakening of those for gasoline.

    The gross refining margin for diesel for October is now 35 cents per gallon compared with just 23 cents per gallon for gasoline (

    Despite record consumption of gasoline, refiners have struggled to work down the excess stockpiles that built up in January and February.

    Gasoline stocks remain close to the highest level for a decade even after adjusting for current record rate of demand(

    Gasoline stocks are currently equal to 24.6 days worth of consumption, down from 29.2 days at the end of January, but still well above the 22.7 days at this point last year and the 10-year average of 22.9 days.

    By contrast, the enormous overhang of diesel stocks that built up at the start of the year has been steadily reduced over the last two months (

    Diesel stocks have dropped from almost 50 days worth of consumption at the turn of the year to 39.3 days although they are still well above the 34.5 days this time last year and the 10-year average of 31.9 days.

    During the summer driving season, gasoline stocks normally fall while diesel stocks rise, as refiners run hard to produce motor fuel and find themselves with too much distillate as a by-product.

    But this year gasoline stocks show little signs of reducing while diesel stocks are exhibiting an unusual seasonal decline.

    Counter-seasonal stock movements suggest the U.S. market is on course to have surplus gasoline and not enough distillate once the summer driving season is over. Margins are adjusting accordingly.

    Hedge funds and futures prices are also anticipating stronger demand for diesel during the winter of 2016/17 after unusually weak demand over the winter of 2015/16.

    El Nino, which contributed to an unusually warm winter in parts of North America during 2015/16, is now giving way to La Nina.

    The unusually warm winter temperatures experienced last winter are unlikely to be repeated in the coming winter which should increase consumption of heating oil.

    Diesel demand should also get a boost from an eventual recovery in the freight market, provided the U.S. and global economies manage to avoid recession.

    Freight remains sluggish, but U.S. manufacturers, distributors and retailers do at last seem to be starting to get a grip on excess inventories, which could herald an eventual improvement.

    The realignment of gasoline and diesel margins seems to have a solid grounding in supply-demand-stocks fundamentals.

    The big problem is the large concentration of hedge fund positions, which makes the market vulnerable if they all attempt to unwind at the same time.

    With hedge funds already so bearish on gasoline and bullish on heating oil, and margins already having moved significantly, the risk now is that margins will recoil as the funds try to take some profits.

    Profit-taking already seems to have started in the final week of June but could still have some way to run.
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    Qatargas, RWE in LNG supply deal

    World’s largest liquefied natural gas producer, Qatargas has expanded its European client portfolio by signing a seven-year sales and purchase agreement with German utility RWE Supply & Trading.

    According to Qatargas’ statement, it has agreed o deliver 1.1 million tons of LNG per year, supplied from the Qatargas 3, the joint venture between Qatar Petroleum, ConocoPhillips and Mitsui & Co.

    Khalid Bin Khalifa Al-Thani, chief executive officer of Qatargas noted that the company is working to expand its European client portfolio.

    With the emerging export volumes from the United States and Australia, Qatar is looking to reinforce its position as the leading supplier of liquefied natural gas.

    It was reported in March that Qatargas is looking to expand LNG supply deals with Uk and Dutch terminals.

    However, it is not only the European market that Qatargas is adding new supply deals in. On June 30, the company signed a 20-year contract with Global Energy Infrastructure (GEIL) of Pakistan for the supply of 1.3 mtpa of LNG per year.

    Andree Stracke, chief commercial officer at RWEST noted that the deal with Qatargas adds to the diversity of the company’s European gas portfolio.
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    U.S. Drillers Bring Back Rigs as Oil Market Seen Stabilizing

    Shale drillers brought back the most oil rigs of any week this year as confidence in a stabilized market is prompting talk of expansion throughout 2016.

    Rigs targeting crude in the U.S. rose by 11 to 341, after 7 were dropped last week, Baker Hughes Inc. said on its website Friday. It’s the fourth time in the past five weeks that producers have added oil rigs. Explorers in the Permian Basin of West Texas, the nation’s busiest oil patch, again led the activity climb by adding 4 for a total of 154 oil rigs working in the region.

    "You’re seeing rig counts added in the right places, like the Permian," Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, said in a phone interview. "There have been a lot of cuts in the industry, so a lot of wounds to heal. It’s understandable that the first steps would be small."

    Supply disruptions and falling U.S. output have helped cut a global surplus, with both the International Energy Agency and theOrganization of Petroleum Exporting Countries forecasting that the market is heading toward balance as demand growth outpaces supply.

    "With oil prices approaching $50 per barrel for WTI as supply and demand move into balance, operational visibility is beginning to improve," Patrick Schorn, president of operations at Schlumberger Ltd., told investors last week at the Wells Fargo West Coast Energy Conference in San Francisco. "The rig count is now expected to increase on land during the next two quarters."

    Attached Files
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    Libya’s rival oil company leaders reach deal to unify sector

    Once-rival leaders of Libya’s National Oil Corporation (NOC) have agreed on a structure for the group that aims to put to rest squabbles over who has the right to export the country’s oil, according to a statement.

    Oil industry leaders in OPEC-member Libya have said they could quickly double production to over 700,000 bpd if conditions stabilized. Before a 2011 revolution, Libya was producing 1.6 million bpd.

    The rival oil officials agreed in principle to unify the oil sector in May, but the agreement on the structure and leadership of a joint group took weeks of meetings to iron out. (here)

    Mustafa Sanalla, who led the Tripoli-based NOC, will remain chairman of the group, while the head of the eastern-backed NOC, Naji al-Maghrabi, will serve as a board member, according to a statement seen by Reuters.

    A UN-backed unity government that arrived in Tripoli in March is seeking to replace two rival governments that were set up in Tripoli and the east, and to unite Libya's many political and armed factions.

    A united oil sector would be a key support for the unity government. Libya relies heavily on oil exports as a source of income and hard currency.

    “This agreement will send a very strong signal to the Libyan people and to the international community that the Presidency Council is able to deliver consensus and reconciliation,” Sanalla said in the statement.

    Al-Maghrabi said both men “made a strategic choice to put our divisions behind us” as there is “no other way forward”.

    Oil production sank to around 200,000 bpd in May after a political dispute between the eastern and western factions blocked loadings at Marsa al Hariga for more than three weeks.

    A unified NOC structure could also smooth negotiations to reopen the El Sharara and El Feel fields, which are closed due to disagreements with local groups.

    The two sides also agreed a budget for the remainder of the year, taking steps to “address any imbalances resulting from the period of division”, they said.

    They also identified infrastructure rehabilitation as a big goal, particularly in the eastern city of Benghazi, "in preparation for the relocation of NOC's headquarters".

    NOC aims to hold meetings of its board of directors meetings in Benghazi "if security conditions permit”.

    The joint NOC will also submit periodic reports to committees established by both the Presidential Council and the House of Representatives, which it recognized as the highest executive and legislative authorities within Libya.
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    Niger Delta Avengers group claims five attacks in Nigeria's southern Delta

    The Niger Delta Avengers, a militant group that has been carrying out attacks on Nigerian oil facilities in the past few months, claimed responsibility on Sunday for five new attacks in the southern energy hub since Friday.

    The group had previously not laid claim to any attacks in the Niger Delta - the source of most of the OPEC member's oil - since June 16.

    Petroleum Ministry sources said in late June that a month-long truce had been agreed with militants. But the Avengers said they did not "remember" agreeing to a ceasefire.

    Attacks in the Niger Delta have pushed Nigerian crude production to 30-year lows, although the Nigerian National Petroleum Corporation (NNPC) said last week that output was rising because of repairs and a fall-off in attacks.

    In messages posted on Twitter in the early hours of Sunday, the Avengers said they had attacked a pipeline connected to the Warri refinery operated by NNPC on Friday night.

    They added that they blew up two lines on Saturday night close to Batan flow station in Delta state run by NPDC, a subsidiary of NNPC.

    The militants also said two Chevron facilities close to Abiteye flow station, in Delta state, came under attack early on Sunday.

    Residents in some of those areas reported hearing blasts.

    "All five operations" were carried out by an Avengers "strike team", the group said.

    Garba Deen Muhammad, a spokesman for state oil company NNPC, whose managing director is the oil minister, confirmed that the crude facilities identified by the Avengers had been attacked.

    "Government will not be deterred in its efforts to find a lasting solution to these attacks," he said.

    Chevron spokeswoman Isabel Ordonez said that "as a matter of long-standing policy," the company did not comment on "the safety and security" of its personnel and operations.

    The militants say they want a greater share of Nigeria's oil wealth, which accounts for around 70 percent of national income, to be passed on to communities in the impoverished region and for areas blighted by oil spills to be cleaned up.

    On Thursday, President Muhammadu Buhari hosted a group of community leaders from the Delta and urged them to pacify people in the restive region where anger is widespread.

    Eric Omare, of the Ijaw Youth Council (IYC), which represents the Delta's biggest ethnic group, said the "resumption" of attacks was "worrisome", adding that the government had failed to build on goodwill generated by the oil minister's visit to the region in June.

    "The federal government has not taken any practical step toward resolving the issues," said Omare, adding that the IYC urged the Avengers not to carry out further attacks in order to "give room for constructive dialogue".
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    Petrobras' Indian partners fight delay in troubled Brazil oil project

    Petrobras has warned its Indian partners in a huge offshore project to not expect oil from the site until 2022, according to sources, a fresh sign of how low oil prices and the state-owned company's corruption scandal and mountain of debt are dragging on Brazil's energy industry.

    The previously unreported, four-year delay in the "super-giant" discovery off the northeastern coast of the Brazilian state of Sergipe is forcing India's Oil and Natural Gas Corp and IBV Brasil Petroleo Ltd to seek ways to speed up the Petrobras-led project which has cost them $2.1 billion with no return in sight.

    The delay and pressure from the Indian partners is just one of many challenges for new Petrobras Chief Executive Pedro Parente, named by Brazil's interim-President Michel Temer in late May amid an ongoing financial crisis.

    In the face of a massive bribery and kickback scandal and Petrobras' $126 billion of debt, Parente has pledged to run the company in a more market-friendly way but has declined to comment on individual projects. He has also promised a revamped investment plan by the end of October - though it is unclear whether it will address the Sergipe offshore standoff.

    In April, Petrobras told IBV, a 50-50 joint venture between state-owned Bharat Petroleum Corp and privately held Videocon Industries Inc, that there will be no oil output from Sergipe "until at least 2022," an IBV executive told Reuters. A year ago, Petrobras' promised first oil by 2018.

    Hoping to speed up development, IBV told Reuters it has offered to arrange up to $10 billion in loans from Indian and other international development banks to finance the Sergipe development - Brazil's biggest oil prospect outside the prolific subsalt region near Rio de Janeiro where Brazil is pinning hopes of energy independence.

    "It's a common and simple loan structure, if Petrobras is willing to provide future output as collateral, it won't have to pay a penny until oil starts flowing, something we could can probably do by 2020," the IBV executive said.

    "But we get the feeling that Petrobras has yet to accept its new, more restricted circumstances," the executive added.

    Petrobras told Reuters it has yet to receive a formal proposal from its Indian partners to finance the project. Asked about the delays, Petrobras said in a statement it has invested about $3.5 billion on exploration in the Sergipe blocks it owns with ONGC and IBV. It expects to complete a development plan for the areas by 2020 but has no date for the first production of oil.

    All development decisions have been made in conjunction with its partners, Petrobras said, and delays have been the result of "considerable" deepwater technical challenges, efforts to reduce costs and a lack of infrastructure to transport the area's natural gas.

    After investing $2.1 billion in the offshore finds since 2007, the Indian partners are getting impatient.

    "We can't put off a return forever," the IBV executive, whose company has spent $1.6 billion in Sergipe, told Reuters. "We've been investing for nearly a decade. They now say we'll have to wait at least four years more. In our experience with Petrobras, it will probably be longer."

    An ONGC executive, who also declined to be named, said the partners hope the new Parente regime will speed up development plans "so that we can monetize and unlock the potential at the earliest."

    The company did recently relinquish its stake in one of two proposed production areas in the Sergipe block that it owns a quarter of to partner Petrobras.


    In nine years, ONGC has invested $500 million exploring with Petrobras off the coast of Sergipe. It has spent another $2 billion elsewhere in Brazil and produces about 12,000 barrels a day in the country, a small amount considering the outlay so far.

    The expected prize, though, is Sergipe. The BM-SEAL-11 block, 40 percent controlled by IBV, holds more than 3 billion barrels of oil and equivalent natural gas, enough to supply all the world's petroleum needs for more than a month. There are no public estimates for the two adjacent blocks, one fully owned by Petrobras and the other owned 25 percent by ONGC, but people involved with them say the volumes of oil and gas are very large.

    The Sergipe project's problems have also been compounded by IBV and ONGC's own failures. Two sources involved with the Indians in Sergipe exploration said IBV and ONGC often missed deadlines to pay their share of costs, only paying after Petrobras threatened legal action.

    The Indians confirmed the delays, which they blamed on partner Videocon, which has cash flow problems and may sell its IBV stake. Videocon executives were not available for comment.

    Venugopal Dhoot, chairman of Videocon told the Business Standard Newspaper in June that his company was considering the sale of its oil and gas assets to pay debt.

    Both IBV and ONGC also declined to invoke clauses in the blocks' contracts allowing them to move ahead with development on their own if Petrobras demurred.

    "Unfortunately, everybody in Brazil is afraid to challenge Petrobras, even if they have a case. They know Petrobras, and perhaps the government, will retaliate," said John Forman, a geologist and former director of Brazil oil regulator ANP. "Court fights can drag on for years, so you lose even if you win."

    Whatever the reason for delay, Brazil may be the biggest loser. While ONGC and IBV bought their Sergipe stakes in 2007 from existing leaseholders Petrobras and Encana, Brazil's oil regulator ANP has allowed partner Petrobras to delay a start to production by extending exploration rights in the areas repeatedly.

    Had the ANP enforced tighter deadlines, designed to prevent companies from hoarding assets without developing them, Sergipe might be producing, or near first production, today and providing revenue for Brazil's cash-strapped Treasury, Forman said.

    The tendency to give Petrobras such wide latitude underlines Brazil's conflicted priorities as it tries to revive both its economy and largest company, he noted.

    "In Brazil we say 'the oil is ours', that it belongs to the people. In reality we act like it belongs to Petrobras," he said.
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    Norway oil workers agree wage deal, avoid strike

    Norwegian offshore oil workers and employers signed a new wage deal on Saturday, avoiding a strike that would have cut the output from western Europe's top oil and gas producer by about six percent, employers and unions said.

    Some 755 workers at fields operated by Statoil, ExxonMobil and Engie had threatened to strike if the talks had failed. A conflict would initially have capped Norway's daily oil and natural gas output by 229,000 barrels of oil equivalents.

    "We've beaten back all attempts at weakening our terms," Safe union leader Hilde-Marit Rysst told Reuters. "On pay, we got a deal we can live with for this year," she added.

    Unions were seeking pay increases in line with other industries while producers wanted workers to refrain from seeking such increases and to accept more flexible work practices, citing still weak oil prices.

    In 2012 a 16-day strike among some of Norway's oil workers cut the country's output of crude by about 13 percent and its natural gas production by about 4 percent.
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    July 3rd, 2016 - Iranian Floating Oil Storage Update

    Floating Storage Update

    The amount of Iranian oil on floating storage has increased by

    1.9 M Barrels

    as the Diamond joins the fleet

    The Current Amount Of Oil Stored

    48.6 M Barrels 

    From Windward
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    U.S. gasoline consumption shows surprise fall in April

    U.S. gasoline consumption was significantly lower in April than reported at the time, new data published by the Energy Information Administration on Thursday show.

    Gasoline supplied to the domestic market averaged 9.213 million barrels per day (bpd) during April according to an estimate included in “Petroleum Supply Monthly” published on June 30 (

    Gasoline supplied was significantly lower than the four-week average of 9.474 million bpd contained in the final “Weekly Petroleum Status Report” for April published on May 4 (

    The downward revision in estimated consumption has encouraged analysts to reassess the strength of gasoline demand in the world’s largest driving market.

    Strong demand for gasoline in the United States, as well as emerging markets including India and China, has been cited as the main reason for strong growth in oil consumption in 2016.

    Strong gasoline demand underpins the argument for oil market rebalancing so anything that triggers a re-evaluation has important implications for the wider oil market.

    But the most reasonable interpretation of the data suggests that gasoline consumption was slightly understated in April after being overstated in March, while the underlying growth trend is little changed.


    Most analysts regard the monthly gasoline supplied data as more reliable than their weekly counterparts.

    Both are estimates and calculated as residuals from reported domestic gasoline production plus imports minus exports minus stock changes.

    Data on production, imports and stock changes are reported to the EIA in weekly and monthly surveys of the industry. Export data however is not reported to the EIA but to the U.S. customs service.

    EIA has to estimate exports at the time of producing the weekly data; by the time it has to produce the monthly numbers it has hard figures on exports from U.S. customs.

    Largely because of the problems associated with estimating exports in real time, most analysts regard the monthly data as more accurate.


    Despite the differences, the gap between the daily consumption reported in the weekly surveys and the monthly survey for April amounts to just 260,000 bpd or 2.75 percent (

    The gap is not especially large and actually represents a high level of accuracy given the enormous flows of physical oil which both the weekly and monthly surveys have to capture (

    The lower level of gasoline consumption reported in the monthly survey is consistent with other data showing slower refinery run rates and an unusually high level of gasoline stocks in April.

    Even at the lower level reported in the monthly survey, gasoline consumption was still up by 74,000 bpd compared with 2015 and only 2,000 bpd below the record rate set in 2007.

    Moreover, there are some reasons to be cautious in relying on the monthly survey for April which comes after the previous monthly survey showed an exceptionally high level of consumption in March.

    Monthly data put gasoline supplied at 9.4 million bpd in March, an increase of more than 340,000 bpd compared with the same month in 2015.

    According to the monthly surveys, gasoline consumption then declined by 186,000 bpd between March and April, which if true, would be highly unusual.

    Gasoline supplied normally increases significantly between March and April: the average increase over the last 70 years has been more than 160,000 bpd.

    Gasoline supplied has only dropped between March and April in 10 years between 1945 and 2015. The last significant decline was back in 1995 (

    A reasonable conclusion is there is some noisiness in the data and that gasoline supplied was overstated in March and understated April.

    The unusual decline in estimated consumption, and discrepancy between the weekly and monthly surveys for April, are a reminder about the dangers of over-interpreting noisy time series.

    The broad picture, however, remains basically unchanged. U.S. gasoline consumption continues to grow significantly compared with 2015 and is on course to exceed the previous peak set in 2007.
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    Stronger North Asian demand, Gorgon gas leak lift Asian LNG prices

    Asian prices for liquefied natural gas (LNG) rose to their highest since February this week on rising Asian imports and a gas leak at Australia's Gorgon export site, as well as higher prices in Britain.

    Asian spot LNG prices LNG-AS were valued around $5.50 per million British thermal units (mmBtu) by traders, about one-third higher than their 2016 lows from April.

    Traders said that prices were supported by strong demand and also by Chevron's huge but troubled Gorgon LNG plant in Australia, with the latest technical incident a gas leak reported on Friday, although Chevron said the facility "remains on track to load the second cargo of Gorgon LNG in the coming days."

    Prices were also supported by firm Asian demand. Driven by upticks in Japanese, Taiwanese and also Chinese imports, LNG shipments into North Asia have risen from weekly levels of around 3 billion cubic metres (bcm) to 4 bcm between mid-May and mid-June, according to Eikon data.

    Volatile financial markets this week after Britain's vote to leave the European Union also pushed up gas prices.

    With the British pound falling against other currencies, UK gas prices were pushed higher across the curve .

    That lifted Asian spot LNG prices since international gas traders look towards Britain's gas market for guidance as it can take in supplies from multiple sources, including continental European pipelines and overseas LNG imports.

    Also, Qatar's RasGas this week signed an agreement with France's EDF to deliver up to 2 million tonnes per year of LNG to EDF's new terminal in Dunkerque starting in 2017, pulling supply away from Asian markets.

    With the opening of the extended Panama Canal last week, traders said LNG markets would become better connected, improving trade flows between the Atlantic and Pacific basins.

    "The expanded Panama Canal increases LNG's reach and flexibility," Singapore's exchange SGX said.

    The British Merchant LNG tanker, loaded with gas from Trinidad & Tobago, is scheduled to be the first LNG tanker to travel through the expanded Panama Canal.

    But traders said that recent gas price rises might not last, with downward pressure building in both Europe and Asia.

    With the start of the monsoon season, likely lasting through September, traders expect lower LNG orders from India.

    In Europe, analysts said that recent price rallies might also fizzle out.

    "The rally in European... gas prices is unlikely to be sustained and we expect global gas prices to remain low in an oversupplied market over the second half of 2016," analysts at BMI Research said.

    "Markets have tightened in recent months but global supply is still robust at a time when there is limited demand-side pressure on prices," they added.
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    Chile Just Gave Cheniere a Big Reason to Build Another LNG Plant

    Chile this week gave Cheniere Energy Inc. a good reason to build another plant to export U.S. natural gas by clearing the final environmental hurdle for a proposed floating import terminal.

    Approval was granted for the Penco Lirquen LNG project, which comprises a floating storage and regasification unit, Juan Jose Gana, executive director of Biobiogenera SA, the developer behind the project, said in an e-mail Thursday. The 1,200-megawatt Central El Campesino power plant, which will be supplied by the gas import vessel, “should be approved” in July or August, he said.

    This approval marks a milestone for Cheniere, which has a 20-year agreement to supply gas to the power plant. Cheniere is also a co-owner of the LNG import project with Biobiogenera, according to Hoegh LNG Holdings Ltd., which is building the terminal.

    Success in Chile may help Cheniere find other new buyers needed to sign long-term contracts before it makes a decision on an additional liquefaction plant at its Corpus Christi facility in Texas, according to Energy Aspects Ltd. and Hennessy Funds.

    “This a positive development for U.S. exports,” Alex Tertzakian, an analyst with Energy Aspects in London, said by e-mail Thursday. Although the contract to supply the terminal and the connected power plant “is relatively small volume-wise,” the latest developments will “undoubtedly increase the chances” of Cheniere moving ahead with building the third liquefaction plant at Corpus Christi, he said.

    Local Protests

    Although it got the environmental nod, the project has stirred up controversy in the local community. Police used a water cannon to break up protests in the Chilean city of Concepcion on Tuesday after the regional environmental commission unanimously approved the LNG project, Radio BioBio reported on its website. Two local towns plan to team up to seek a court injunction to block the project, La Tercera reported, citing Valentina Escalona, the mayoress of Penco, 262 miles south of Santiago.

    Cheniere’s marketing unit has an agreement to supply to the El Campesino power plant with 32.3 million British thermal units a year, the equivalent of nine cargoes, the company said in a June 27 presentation. Shipments are slated to start in 2019 from Corpus Christi. This contract would represent about 17 percent of the marketing arm’s projected LNG available from seven liquefaction plants over two decades.

    Cheniere has two liquefaction plants under construction at Corpus Christi. While a third one is fully permitted, the company said on its website it is seeking additional contracts before making a final investment decision. Cheniere is building four plants in Louisiana.

    “The more contracts that they can sign up to service their growth for the Texas project, the better because they don’t have it fully subscribed,” said Skip Aylesworth, who manages $1.5 billion in holdings at Hennessy Funds in Boston. “They are trying to develop markets that are closer to Texas and Louisiana than Europe and Asia because the smaller they can make that transportation cost the more it helps them.”
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    Iraq's June oil exports fall as domestic usage rises

    Iraq's oil exports from the southern ports fell slightly in June as power generators burning more fuel to keep up with demand for air conditioning increased domestic demand, an official at the state-run South Oil Company said on Friday.

    Loadings from Iraq's southern oil terminals, on the Gulf, ran at an average daily rate of 3.175 million barrels, compared with 3.2 million barrels per day (bpd) in May, he said.

    Crude supply to local oil refineries rose due to the increase in demand for electricity for cooling during summer in OPEC's second-largest producer, he said.

    The southern region produces most of the OPEC nation's crude oil. The northern Kurdish regional government exports about 500,000 bpd through a pipeline to the Turkish port of Ceyhan, on the Mediterranean, but independently from the central government in Baghdad which oversees crude sales from the south.

    Iraq, which relies on oil for nearly all its revenue, made$3.845 billion in revenue from oil exports in June, selling at an average price of $40.37 a barrel, an oil ministry spokesman said. June's revenue was higher than April as prices increased.

    Iraqi officials and oil analysts expect further growth in the country's exports this year, but at a slower rate than 2015 when it was the fastest source of supply growth in OPEC.
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    Russia's Russneft plans to raise $500 mln in November IPO: source

    Russian oil company Russneft plans to hold an IPO on the Moscow Exchange in November, aiming to raise $500 million for 10 percent of its shares, a source close to the deal told Reuters.

    "A request for proposal has been sent to banks, and most likely organizers of the deal will be chosen next week," the source said.

    Western banks are not taking part in the IPO. Invitations to take part were received by Russian lenders Gazprombank, VTB and FC Otkritie.
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    Chevron says suspends output at Australia's Gorgon LNG operation after leak

    Chevron said it had suspended production at Australia's Gorgon liquefied natural gas (LNG) export terminal after a leak but remained on track to make a second shipment in coming days.

    "Chevron Australia plans to undertake some minor repair work on the low pressure flare system at the acid gas removal unit before recommencing production in the coming week," it said in a statement. "Plans remain on track to load the second cargo of Gorgon LNG in the coming days."
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    BP announces final investment decision to expand Indonesia's Tangguh LNG facility

    Project will create 10,000 new jobs and support economic growth in Papua Barat Province

    BP, on behalf of Tangguh Production Sharing Contract Partners, today announced that the Final Investment Decision (FID) has been approved for the development of the Tangguh Expansion Project in the Papua Barat Province of Indonesia.

    'The Tangguh Expansion Project demonstrates BP and its partners' continued confidence in Indonesia and our commitment to work closely with the government to meet the country's energy needs, while creating thousands of jobs,' said Bob Dudley, BP Group Chief Executive.

    The Tangguh Expansion Project will add a third LNG process train (Train 3) and 3.8 million tons per annum (mtpa) of production capacity to the existing facility, bringing total plant capacity to 11.4 mtpa. The project also includes two offshore platforms, 13 new production wells, an expanded LNG loading facility, and supporting infrastructure.

    The Tangguh Expansion Project will play an important role in supporting Indonesia's growing energy demand, with 75% of the Train 3 annual LNG production sold to the Indonesian state electricity company PT. PLN (Persero). The remaining volumes are under contract to Kansai Electric Power Company in Japan, the other foundation buyer for Train 3.

    The Tangguh Expansion Project will also bring a positive contribution to Indonesia and the Papua Barat Province starting in 2016, supporting economic growth and providing 10,000 valuable jobs spread over the project period.

    Tangguh is currently making positive local social and economic impacts through its comprehensive community development programs and providing much needed electricity for the Teluk Bintuni Regency. Train 3 will enhance this with a portion of the gas committed for the electrification of Papua Barat, and further development of Tangguh's Papuan workforce to meet the 85% Papuan skilled workforce commitment by 2029.

    Commenting on the decision, Christina Verchere, BP Regional President Asia Pacific said, 'This final investment decision marks the culmination of many years of hard work by BP, our partners, and the Indonesian Government. We are pleased to reach this major milestone and look forward to continued cooperation as we progress the largest upstream project in the eastern part of Indonesia.'

    This FID decision follows the Government of Indonesia's approval of the Plan of Development II in late 2012. Awards for the project's key engineering, procurement and construction (EPC) contracts are expected in the third quarter of 2016 with construction to begin thereafter. Operation is expected in 2020.
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    US Propane exports surge to 1/3 of global market.

    In a first, U.S. oil-and-gas companies are on track this year to export more propane than the next four largest exporting countries combined—OPEC members Qatar, Saudi Arabia, Algeria and Nigeria, which have long dominated the trade—according to analytics provider IHS Inc. U.S. exports already account for more than a third of the overall market for waterborne shipments, IHS said.
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    Alternative Energy

    GE, Senvion prepare bids for French wind group Adwen - sources

    General Electric and German wind turbine maker Senvion are preparing bids for French wind power group Adwen, which is jointly owned by Spain's Gamesa and France's Areva, people familiar with the matter said.

    German industrials group Siemens is due to take over Gamesa's 50 percent stake in Adwen as part of its 1 billion euro ($1.1 billion) deal to buy a majority stake in Gamesa. It has also made an offer for Areva's stake in Adwen.

    However, under the terms of a side-deal agreed in connection with Siemens's buyout of Gamesa, Areva has until mid-September to look for an alternative buyer.

    The companies declined to comment.

    Siemens Chief Executive Joe Kaeser said last month he believed his company's offer for Adwen was compelling.

    "We took a lot of time to discuss the offshore projects in France with customers, where the risks are, where benefits could be, on so-called legacy projects that obviously have their challenges," he said.

    "If we get the 50 percent that is fine, and if we don't, if someone puts a better offer there, they maybe deserve it."

    Gamesa values its 50 percent equity stake in Adwen at 74 million euros, according to its 2015 annual report.

    "Areva has a put option to sell its 50 percent stake to Gamesa for 60 million euros. I would be surprised if the premium offered would be massive," one of the people familiar with the matter said.

    Adwen's products include an 8 megawatt offshore wind turbine, a machine with the largest annual energy production in the industry, for which the group has almost 200 orders already, according to the company website.

    "But it's a prototype with production starting in two years time, and the orders aren't that fixed," one of the people said.

    The merged Siemens-Gamesa wind company will have a market capitalisation of around 10 billion euros, according to analysts, and would overtake Denmark's Vestas to become the world's biggest builder of wind farms by market share.

    Vestas is not interested in buying Adwen, a company spokesman said.
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    S. Korea to invest $36 bln on renewable energy industries by 2020

    South Korea will spend about 42 trillion won ($36 billion) on renewable energy industries by 2020, the country's minister of Trade, Industry and Energy Joo Hyung-hwan said at a meeting for future energy strategy committee on July 5.

    According to the minister, South Korean government will invest in new energy industries such as solar and wind powers and eco-friendly power plants by taking all available policy measures, promising deregulations and various assistances to develop the new energy sectors as new growth engine for exports.

    Some 33 trillion won will be spent on the development of renewable energy resources in the next five years, with 4.5 trillion won to be invested in energy storage system and 2 trillion won in eco-friendly power plants.

    By focusing on renewable energy developments, Seoul aims to secure 13 million kilowatts of energy from the eco-friendly power plants. It is equivalent to the electricity that 26 coal-fired power plants can produce.

    The government raised the required ratio of renewable-energy power generation to 5% by 2018 and 7% by 2020, expecting the new energy sectors to create about 30,000 jobs by 2020.

    Meanwhile, about 2.5 trillion won would be spent on developing smart meters, an electronic device enabling both electricity consumers and suppliers to remotely connect the power meters and communicate with each other.

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    Australia to get 52GW of solar capacity in dramatic energy transformation

    The Australian infrastructure market is participating in a global energy transformation that will have a profound effect on our economy and financial markets.

    We are fast approaching a tipping point in the transformation of energy markets from fossil fuels to renewables. This transformation will not be orderly, rather will be a disruptive transition that will produce significant winners and losers.

    The Australian solar industry will experience unprecedented growth, from 4GW currently to 52GW of capacity in the National Electricity Market by 2040. This will require an investment of approximately $40bn or $3bn per annum over this period in solar alone.

    Global financial markets are not fully pricing the impact of climate change. The impacts of climate change will have far-reaching consequences for carbon intensive industries and global financial markets.

    The Electricity sector is responsible for more than a third of Australia’s greenhouse gas emissions. Fossil fuel energy producers and carbon intensive industries have been providing some disclosure to financial markets about emissions, which to date has been mostly voluntary. Regulators have been slow to ensure this data is presented on a consistent, comparable and understandable basis. Financial markets are not fully informed and are therefore not fully pricing climate change risks into equity and bond markets.

    Many institutional investors are now actively divesting fossil fuel exposures in favour of non fossil fuel exposures and investment in renewable energy. These investors have long accepted the moral argument for divestment, however are now persuaded by the economic argument that investment in a non fossil fuel portfolio is likely to produce outperformance over the long term.

    This is a very deliberate strategy, which is taking time and careful consideration to execute. President of the US$860 million Rockefeller Brothers Fund, Stephen Heintz recently presented the keynote address at the Divest Invest conference in Sydney. Heintz acknowledges that the carbon-fuelled capitalism of the 20th century has brought immense prosperity to the developed world, but at a huge cost. The Fund supports the scientific contention that in order to achieve the 1.5 degree Celsius target reduction agreed in Paris in 2015, that 60–80% of known fossil fuel reserves must remain in the ground.

    This means that companies owning those reserves lose material value, which provides investors the economic justification to support the moral case to divest these exposures. The Rockefeller Brothers Fund, since 2014, has been divesting its 7 percent exposure to fossil fuels and by 2017 through its divest campaign, is expecting to deliver a zero exposure to fossil fuels.
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    Sweden’s Vattenfall and CS Wind UK ink deal

    Swedish wind farm developer Vattenfall and turbine specialist CS Wind UK will today ink a deal to co-operate on future projects.

    The Memorandum of Understanding means Vattenfall will give the UK firm the opportunity to tender for tower supply contracts for onshore wind farm projects.

    Later this week CS Wind UK is due to break ground on a £27 million investment to expand its Machrihanish facility. The investment will increase production volume and allow for the fabrication of larger towers.

    Vattenfall’s potential development projects in Scotland would require in excess of 100 of these towers. The firm is also due to start the planning process on a 1.8GW wind farm in the southern North Sea.

    Scottish Energy Minister Paul Wheelhouse said: “I warmly welcome this important collaboration which will help to deliver on our aim to capture, for Scottish engineering and the wider renewables supply chain, a far greater share of the economic value arising from the construction phase of wind energy projects.”

    Attached Files
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    Lynas shares soar on production report

    Shares in Australia-based rare-earths producer Lynas surged 17% on Wednesday as the company reported that it had exceeded its production target of 3 840 t of neodymium-praseodymium (NdPr).

    During the 12 months ended June 30, Lynas produced 3 911 t of NdPr.

    As a result of exceeding its production targets, Lynasmanaged to reduce the interest rate under its Jare senior loan facility from 6.5% a year to 5.7% a year. The loan facility specified NdPr production targets for each six-month period from July 1, 2015, to December 31, 2017.

    Lynas shares closed at A$0.07 apiece on Wednesday, up 17.24% from the previous day’s closing price. The company had a market capitalisation of A$237.21-million.

    Lynas owns the Mt Weld mine, south of Laverton, in Western Australia, the Mt Weld concentration plan, near the mine site, and the Lynas Advanced Materials Plant, in Malaysia.
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    Dong wins Borssele tender at €72.70/MWh

    Dong Energy has placed a winning bid of €72.70/MWh to build the 700MW Borssele I and II offshore wind projects in the Netherlands following a competitive tender.

    The bid, which excludes transmission costs, is among the lowest offshore prices to date.

    Dong will receive the €72.70/MWh support prices for the project's first 15 years of operation, after which it will be subject to market prices.

    Dong has up to five years to build the two 350MW projects, 22km from the Dutch coast. It is expected both will use approximately 100 turbines in total, meaning turbines of at least 7MW capacity will be used.

    "With Borssele 1 and 2, we are crossing the levelised cost of electricity mark of €100/MWh for the first time, and are reaching a critical industry milestone more than three years ahead of time," said Dong head of wind Samuel Leupold.

    The Dutch government has supported the development stages of the project, easing project costs. After consultation with the industry, the Dutch authorities tried to remove many of the cost and time barriers for developers looking to bid to build and operate the projects.

    The government took on the burden of preparing all the site data required to help with bids, including the environmental impact assessment. The final project and site description for the Borssele sites was placed online at the Netherlands Enterprise Agency website.

    Dutch offshore grid operator Tennet is responsible for construction, operation and ownership of the projects' substations and export cables.

    The Netherlands has approximately 520MW of offshore wind capacity installed in the North Sea.

    The previous lowest winning bid for an offshore project had been Vattenfall's €103.1/MWh for the 400MW Horns Rev 3 site in Denmark, which also excludes connections costs.
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    New Heat Pump Water Heater Changes the Game

    Today, A. O. Smith, the largest manufacturer and marketer of water heaters in North America, introduced a dramatically efficient new model of heat pump water heater.

    “Contractors can confidently recommend a Voltex heat pump water heater to their customers across the Northwest as a way for them to save money and energy, while still delivering the same reliable hot water.”

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    Already three times more efficient than a standard electric water heater, A. O. Smith engineers refreshed the Voltex line to improve energy efficiency benefits and performance for homes in all climates, including homes that routinely deal with cold weather.

    These improvements qualify the Voltex for the highest tier of efficiency under the Advanced Water Heater Specification. This specification was developed by an alliance of Northwest utilities, energy efficiency organizations and market partners under the umbrella of Hot Water Solutions, a program facilitated by the Northwest Energy Efficiency Alliance (NEEA). The goal of this program is to advance higher performing electric heat pump water heaters.

    Tremendous energy savings

    “The new Voltex Hybrid Electric Heat Pump can reduce electric water heating costs by as much as 71 percent for some homeowners,” according to David Chisolm, vice president of marketing for A.O. Smith. “Contractors can confidently recommend a Voltex heat pump water heater to their customers across the Northwest as a way for them to save money and energy, while still delivering the same reliable hot water.”

    Over the past three years, Northwest utilities and the Hot Water Solutions program have supported increased energy efficiency performance and influenced the sale of over 13,000 electric heat pump water heaters, paving the way for this technology.

    Heat pump water heaters have the potential to bring about enormous energy savings to the Northwest region. Currently 55 percent of Northwest homes have electric water heaters. If all of those homes used high-efficiency heat pump water heaters, the region could save nearly 300 average megawatts by 2025 – the equivalent to powering all the homes in Spokane and Boise annually.

    “We know that heat pump technology has a tremendous potential to save energy. That’s why we’re working as a region to spread the word, and with manufacturers to keep improving the efficiency and performance of these products.” said Jill Reynolds, program manager at NEEA.
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    Wind power plant in Atacama Desert fills Chile's clean-energy sails

    Deep in northern Chile's Atacama Desert, a remote community of 6,000 people is preparing to host the country's largest wind power plant.

    The residents of Freirina commune, on the coast of Huasco province, 700 km (435 miles) from the capital Santiago, have traditionally made a living from mining, olive farming, fishing and collecting seaweed.

    The new wind project marks a turning point for all Freirina’s families, according to 35-year-old mayor Cesar Orellana, a clean-energy enthusiast.

    “Having an important wind plant so close to us inspires everyone with positive expectations,” said the Socialist Party politician, who was born and raised in the isolated commune. “The energy Freirina wants is clean.”

    Near Huasco port, a privately run coal-fired thermoelectric power plant spills pollution into the air - which the mayor referred to as a “nuisance”.

    The Atacama Desert is one of the driest, sunniest and least populated places on Earth, offering economic opportunities to harness renewable energy resources.

    The San Juan wind project, located in Chañaral de Aceituno, 60 km south of Huasco port, is being developed by Latin America Power, a Chilean company, backed by Brazilian investment.

    The first wind turbines are due to start functioning in October, with an initial capacity of 10 megawatts (MW).

    Company spokesman Giovanni Vinciprova said all 56 turbines should be operating by February 2017, generating 185 MW - enough to power a city of 900,000 inhabitants. If all goes to plan, the $81-million wind plant will be Chile’s largest.

    Construction work began on the plant in March 2015, but engineers, biologists and social workers started to make contact with community leaders and hundreds of households in early 2014.

    “There are rural communities (here) who live in precarious conditions without access to energy, water or any means of transport,” said Vinciprova.

    And Freirina’s history of resistance against large companies meant residents were initially suspicious of the new wind power initiative.


    A few years ago, they mobilized against a pig farm and pork plant, one of Latin America's biggest meat-processing sites, owned by Chilean farm Agrosuper, due to the unpleasant smells it emitted.

    In May 2012, authorities declared a health alert in the area and ordered the plant, which kept half a million pigs, to close temporarily. It then shut down permanently, leaving behind hundreds of rotten dead animals that caused health and environmental problems.

    The experience left residents fiercely opposed to similar large-scale investments in their town, mayor Orellana said. So the wind power company had to make a careful effort to overcome negative sentiment towards investors.

    Gradually, the prospect of job creation and funding for community projects such as paving roads and bringing solar power to isolated fishing villages started changing local minds.

    A fund set up by the wind developer has already invested $60,000 in projects for Freirina, with a further $100,000 due to be spent in the second half of the year.

    “At the beginning it was a challenge, but we’ve had a positive experience with local communities,” said Vinciprova. “We’re taking into account (their) demands on water and telecommunications. The families are the ones who know their needs.”


    Chile currently relies on fossil fuels - coal, petroleum and natural gas - for almost half its electrical power generation.

    The other half comes from hydropower plants that have suffered from a lack of rainfall linked to the El Niño weather phenomenon which ended in May. This has highlighted the economic advantages of investing in alternative clean energy sources, including wind and solar.

    Luis Vargas, director of the Department of Electrical Engineering at Chile University, said the country’s private sector is now investing aggressively in renewables.

    The volume of wind capacity under construction jumped from 168 MW in late 2014 to around 400 MW in early 2016, for example.

    “We took advantage of learning from technology advances worldwide that now have highly competitive prices,” the researcher said. “Investing in renewables has become profitable in Chile.”

    Wind still generates only 4 percent of the nation's electricity, but that could rise to one third by mid-century, Vargas predicted.

    Chile has pledged to achieve at least a 70 percent share of renewables in its electrical power generation by 2050.

    The country’s new long-term energy policy includes hydropower but puts more emphasis on solar and wind, complemented by geothermal, biomass and ocean energy.

    While solar is still considered a non-conventional source of energy, at the beginning of the year Chile was generating 1,103 MW of solar power, according to the National Centre for Innovation and Promotion of Sustainable Energy (CIFES).

    The Atacama Desert will also be home to the Copiapó solar thermal power project, which is expected to cost $2 billion and begin operating in 2019 with a capacity of 260 MW.

    “Some researchers believe that around 2050 the country might be 100 percent renewable. Fossil fuels are gradually reducing their share,” Vargas said.

    Projections point to wind potential in Chile of 15,000 MW, equivalent to the country’s entire electrical power generation capacity today, he noted.

    “Wind potential could be even higher - we could harness this resource not only on the coastline but also along the Andes (mountains),” he said.
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    Germany to limit offshore wind power

    Germany plans to cap the expansion of offshore wind power at the start of the next decade to ensure the future growth of renewables keeps step with the construction of new power lines, according to a revision to a new energy law seen by Reuters.

    Between 2021 and 2025 the government plans to limit offshore wind installations to 3.1 gigawatts (GW) of capacity since high-voltage power lines needed to carry green energy from the windy north to the industrial south will not be ready.

    The reforms to the energy law are aimed at bringing down the costs of Germany's shift towards renewables sources of energy and away from nuclear power and fossil fuels known as the Energiewende.

    The rapid expansion of green energy, which now makes up more than 30 percent of the power mix, has pushed up electricity costs in Europe's biggest economy and placed a strain on its grids.

    In 2021, new offshore wind capacity should be built exclusively in the Baltic Sea since power lines on the mainland there are already available, according to the agreement between the Economy Ministry and government parties.

    From 2026, there will be annual new capacity of 840 megawatts (MW) in order to reach the target of having 15 GW of offshore wind capacity in 2030.

    The revision to the new law also set out the size of tenders for new offshore projects. For 2017, 1.7 GW will be auctioned, while in 2018 this will be cut to 1.4 GW.

    In addition, energy-intensive companies that were exempt from paying green energy surcharges until 2014 will only have to pay 20 percent of the surcharge in future, according to the agreement.

    The new law, which must still be examined and approved by the European Union, is due to come into force at the start of 2017.
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    France rolls out tenders for 20GW solar capacity by 2023

    The new tenders will aim to boost France’s DG, BIPV and large-scale storage sectors over the coming decade.

    French environment and energy minister Segolene Royal greenlights raft of new tenders for solar energy, including a three-fold increase in installed PV capacity, eyeing 20 GW by 2023.

    The French environment and energy minister Segolene Royal announced this week the introduction of a number of new solar tenders in France for the development of various PV applications.

    Chiefly, France is aiming to triple its solar PV capacity to 20 GW by 2023, with the tenders expected to hit incremental goals of 10.2 GW by 2018, and between 18.2 to 20.2 GW by 2023.

    Other tenders announced aim to support France’s stuttering building integrated photovoltaics (BIPV) sector, with the French government earmarking 450 MW of BIPV tenders over the coming three years. Another tender will be aimed solely at the country’s self-consumption sector, particularly in C&I and agriculture, while 1 GW of tenders for ground mounted PV will be issued annually for the next six years.

    An additional 50 MW tender for solar+storage has also been introduced for France’s overseas territories.

    This latest suite of support for solar development follows the previous round of tenders – first introduced in 2014 – that have collectively attracted more than $1 billion in investment into France’s solar PV industry. Experts in the country believe that the certainty offered by this approach will curry further favor with investors, and should particularly help boost France’s ground-mount and BIPV sectors.
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    Tesla’s deliveries miss due to ‘extreme’ production ramp-up

    Tesla Motors Inc. delivered 14,370 vehicles in the second quarter, missing its forecast of 17,000 units because of what it called an “extreme production ramp” that saw half of the quarter’s production in the final four weeks.

    The maker of electric cars and energy storage devices now expects to deliver about 50,000 cars in the second half, according to a statement Sunday. That means 79,180 Model S sedans and Model X sport utility vehicles shipped for the full year, slightly below its previous range of 80,000 to 90,000.

    Even after increasing its production, the carmaker has had trouble getting its vehicles to customers fast enough to meet its targets. Tesla said that 5,150 cars are still on trucks and ships making their way to clients who ordered them, and will be delivered in the first part of the third quarter. Tesla is ramping up production at its Fremont, California, factory with an eye toward making 500,000 cars a year by 2018 — an ambitious timeline that also depends on the carmaker’s battery factory east of Reno, Nevada, coming online with battery cell production.

    Tesla delivered 9,745 Model S vehicles and 4,625 Model X vehicles in the second quarter. The smaller, less-expensive Model 3, which is slated to start at $35,000 before incentives, is scheduled to begin deliveries in late 2017.

    It’s the second time in a row that the carmaker’s deliveries come in short this year. In the first quarter, Tesla had blamed the shortfall on what it called “hubris” in adding too much new technology that led to part shortages for the Model X.
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    Estimated cost of Hinkley Point C nuclear plant rises to £37bn

    The total lifetime cost of the planned Hinkley Point C nuclear power plant could be as high as £37bn, according to an assessment published by the UK government. The figure was described as shocking by critics of the scheme, who said it showed just how volatile and uncertain the project had become, given that the same energy department’s estimate 12 months earlier had been £14bn.

    The latest prediction comes amid increasing speculation about the future of the controversial project in Somerset, whose existence has been put in further doubt by post-Brexit financial jitters.

    Hinkley has been a flagship energy project for the British government and in particular for the chancellor, George Osborne, who lobbied hard and successfully for China to take a stake in the scheme.

    Officials at the Department of Energy and Climate Change (DECC) on Thursday confirmed the £37bn figure, but said it was provisional, set in September 2015, when wholesale power prices were low, and would not affect bill payers.

    “Hinkley will generate enough low-carbon electricity to power six million homes and around £10 [a year] from [each] consumer’s bill will pay for it once it is up and running. We have set the strike price to protect bill payers if energy costs go up or down, so the cost of the project to consumers will not change,” a DECC spokesperson said. “Today’s report from the IPA (Infrastructure and Projects Authority) does not suggest that the lifetime costs of Hinkley have increased. It is a sna shot of the position at the end of September 2015.”

    EDF said the £37bn figure should be disregarded. “Hinkley Point C will generate reliable low-carbon electricity in the future, so a cost estimate based on last year’s depressed wholesale price is not relevant. HPC’s electricity will be competitive with other low-carbon energy options and consumers won’t pay a penny until the plant begins operating.”

    But experts said the extra money, if the cost did remain at £37bn, would have to come from somewhere – probably the taxpayer – or be shaved off other DECC budgets available for different energy projects, such as windfarms and solar arrays. “This whole-life cost of £37bn is a truly shocking figure. It is an extraordinary ramp-up from last year’s figure, and just underlines how hard it is to get a real handle on the long-term cost of Hinkley,” said Paul Dorfman, senior research fellow at the Energy Institute, University College London.

    The latest increase is a new blow to a scheme with an already precarious outlook due to the debt problems besetting its lead developer, EDF, which has been hit by rising costs and delays to another new-build nuclear power station scheme, at Flamanville, in Normandy.

    EDF, a French group part-owned by the state, has high debt levels and has had difficulty convincing some of its own board members to support Hinkley despite the French government’s efforts to help it financially.

    The Brexit vote has made the British commercial environment much more uncertain, and French trade unions, who want the final investment decision postponed, have been pressing independent directors to convince EDF’s chief executive, Jean-Bernard Levy, to ditch Hinkley.
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    BHP said to be after Potash Corp again

    Shares in Potash Corp., the world’s second-largest producer of the fertilizer, soared as much as 6.6% in Toronto on Thursday to $22.18, closing at $21, on fresh rumours that BHP Billiton had made an unsolicited takeover offer for the Canadian miner.

    In 2010, Canada rejected BHP's $40 billion hostile takeover bid for Potash Corp. saying the offer failed to provide a net benefit to the country.

    According to The Fly website, the word among traders was that the Saskatchewan-based miner had hired an investment bank to analyze the proposal.

    In 2010 the Canadian government's rejected BHP's $40 billion hostile takeover bid for Potash Corp. saying the offer failed to meet the criteria of providing a net benefit to the country. Analysts believed at the time the move would deter any potential suitors from approaching the company in the future.

    But ever since BHP has been developing its own Canadian potash mine — the Jansen project — in Potash Corp's backyard, and has already invested about $3.8 billion on it.

    And while the Melbourne-based firm is sinking shafts and installing some infrastructure, it has not fully committed itself to the project, nor received board approval for Jansen, which is expected to begin operations sometime “in the decade beyond 2020.”

    The mine would be a game-changer in the industry, as it is expected to generate eight million tonnes of potash a year, which would amount to nearly 15% of global supply.

    Jansen would be a game-changer, as it is expected to generate eight million tonnes of potash a year, which would amount to nearly 15% of global supply.

    By comparison, the Mosaic Company’s (NYSE:MOS) Esterhazy mine will produce about 6.3 million tonnes per year once its latest expansion is complete, while most Saskatchewan operations churn out between three and four million tonnes per year.

    BHP has also said it would not join Canpotex — the overseas marketing arm of Saskatchewan's three largest potash producers — and would set instead its own sales strategy. In that sense, Jansen and BHP would also be disruptive to the Canadian potash market.

    Prices for the fertilizer ingredient have tumbled amid increased productionand as farmers spend less on fertilizer amid lower agricultural commodity prices.
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    Precious Metals

    Order book for Russia's Alrosa share sale fully covered – sources

    The order book for a share placement in Russian diamond producerAlrosa is fully covered, two financialmarket sources told Reuters on Thursday, quoting information from organisers of the placement.

    Russia on Wednesday launched the sale of 10.9% of ordinary shares in Alrosa, the world's largest producer of roughdiamonds in carat terms, as part of a privatisation programme to help bolster government finances which have been hit by weak oil prices.
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    Russia starts sale of stake in diamond producer Alrosa

    Russia on Wednesday launched the sale of a stake in diamond producer Alrosa as part of a privatisation programme to help to bolster government finances which have been hit by weak oil prices.

    Alrosa is the world's largest producer of rough diamonds in carat terms. Together with Anglo American's unit De Beers, they produce about half the world's rough diamonds.

    Russia, trying to keep its budget deficit within 3 percent of gross domestic product, is also planning to sell stakes in other companies, including Rosneft and Bashneft and VTB Bank.

    Alrosa said the process to sell 10.9 percent of its ordinary shares owned by the government had been launched, confirming what sources had told Reuters earlier.

    Alrosa's market capitalisation is up around 23 percent so far this year as the diamond market has improved. As a result, the market value of the 10.9 percent stake is around 55 billion roubles, based on Reuters' calculations.

    Diamond sales stagnated in 2015, hit by a slowdown in the Chinese economy. But producers are seeing scope for recovery. Alrosa forecasts global demand for diamonds rising by up to 2 percent in 2016.

    The government has previously said it aimed to get more than 60 billion roubles ($928 million) from selling 10.9 percent of its 44 percent stake in Alrosa.

    Economy Minister Alexei Ulyukayev said proceeds from the sale would contribute to general budget expenditure.

    Two financial market sources said the books on the Alrosa share placement were expected to close on July 8 but that they could close earlier.

    One source said the deal's organisers expected the shares being sold would start trading on July 11.

    Shares in Alrosa fell 1.3 percent in Moscow on Wednesday to close at 68.71 roubles per share.

    Two sources, one financial and one familiar with the process, said the Russian Direct Investment Fund (RDIF) together with foreign funds could buy part of the stake.

    Russian pension funds and some of Alrosa's current minority shareholders could also buy shares, the financial source said.

    The government of the Yakutia region and its districts, where Alrosa's main producing assets are based in Russia's far east, will keep their 33 percent stake in the company.

    Alrosa's free-float is currently at 23 percent. In 2013, Russia sold a 16 percent stake in it to the market, raising $1.3 billion.
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    Dominion Diamond to focus on developing core assets, share buyback

    Dominion Diamond Corp said it would focus on developing its core assets in Canada's Northwest Territories and on buying back shares, months after a group of investors urged the diamond miner to take steps to boost its share price.

    Dominion also said Chief Financial Officer Ron Cameron would step down on July 15 and Vice President Group Controller Cara Allaway would take over as interim CFO.

    An investor group led by hedge fund K2 & Associates said in December that it believed Dominion's share price had "suffered excessively and unnecessarily" as a result of "misguided policies and missed opportunities."

    The diamond miner, whose Toronto-listed shares had lost a third of their value in 2015, had said then that it would engage in talks with the group.

    Dominion will focus on developing the Sable and Jay projects at its majority-owned Ekati mine and a fourth pipe at its Diavik mine, among other core assets, it said on Wednesday.

    Both Diavik and Ekati mine sites are located in the Lac de Gras region of the Northwest Territories.

    Dominion is also selling its office building in downtown Toronto. The sale is expected to be completed in the third quarter of fiscal year 2017, the company said.

    Reuters reported in December, citing sources, that Dominion was working with Rothschild & Co to find ways to boost shareholder value, including a potential sale.

    Dominion's U.S.-listed shares closed at $9.11 on Tuesday.

    Up to Tuesday's close, the stock had fallen more than 35 percent in the past 12 months.
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    Tahoe expands presence in Canada, to acquire Whitney JV from Goldcorp

    Latin America-focused Canadian miner Tahoe Resources is expanding its presence home by acquiring Goldcorp's  2% net smelter return royalty for production at Bell Creek Mine for $12.5 million.

    The parties have also signed a letter of intent that would increase Tahoe’s ownership interest in their Whitney joint venture to 100%. Goldcorp’s current interest of 30% would be reduced to a 2% net smelter royalty, Tahoesaid in a statement.

    The move follows Tahoe’s deal with Lake Shore Gold in February, which added two low-cost mines in Northern Ontario to its portfolio.

    The Bell Creek Complex, located about 20 km northeast of Timmins, Ontario, consists of an underground mine and processing facility and is 100%-owned by Tahoe. It is very close to the Whitney Project, currently a 70% (Tahoe) – 30% (Goldcorp) joint venture with Tahoe as the operator.

    The move follows the company’s deal with Lake Shore Gold (TSX:LSG) in February, which added two low-cost mines in Northern Ontario to its portfolio.

    Tahoe’s chair and chief executive, Kevin McArthur, said Bell Creek and Whitney were two key components of the company’s strategy to grow gold production in Timmins to over 250,000 ounces per year by 2020.

    The Vancouver-based miner, which was spun out of Goldcorp in 2010, has been one of the most aggressive buyers in the industry. It bought Rio Alto Mining last year to expand into Peru, and in February this year, after the deal with Lake Shore, it hinted it could be interested in Goldcorp's Porcupine operation, also located in Timmins, Ontario.
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    Centerra Gold to buy Thompson Creek Metals for $1.1 billion including debt

    Canadian mining company Centerra Gold agreed on Tuesday to buy U.S. –based miner Thompson Creek Metals for around $1.1 billion in shares and cash, including paying off nearly $900 million of debt, to expand its operations in North America.

    Centerra, whose main asset is the Kumtor gold mine in Kyrgyzstan, has wanted to reduce its exposure to the impoverished Asian nation, which has in recent months escalated its rhetoric against the miner as it guns for a bigger slice of its profits.

    Denver, Colorado-based Thompson Creek's main asset is the Mount Milligan copper and gold mine in British Columbia.

    "Half of the value of all our assets will now be domiciled in Canada. I really think we have absolutely transformed the company in a very favorable way," Centerra Chief Executive Scott Perry said in an interview.

    Thompson Creek last November hired Moelis & Co and BMO Capital Markets to look at alternatives, including debt refinancing and restructuring and asset sales, after the company's debt ballooned following the 2010 purchase of Mount Milligan and the cost of developing it into a mine.

    In December, Deutsche Bank analyst Jorge Beristain described Thompson Creek's debt as "unsustainable" in a note to clients and said the company was "quickly approaching an end-game". The company was also hit by weaker gold and copper prices.


    In terms of the deal, Centerra will redeem all of Thompson Creek's secured and unsecured notes at their call price plus accrued and unpaid interest for $889 million.

    Perry said Centerra opted to pay off all the noteholders to ensure "deal certainty".

    All of Thompson Creek's common shares will be exchanged for Centerra shares at a ratio that implies a value of 79 Canadian cents per Thompson Creek share - a premium of 32 percent on the stock's closing price on July 4 for a value of $140 million.

    Both company's shares were halted before the deal was announced.

    To fund the transaction, Centerra said it would raise C$170 million ($130.76 million) through a bought deal, pay $460 million from cash on hand at Thompson Creek and Centerra, and raise $300 million from a new debt facility.

    Centerra also has a commitment from mining financier Royal Gold Inc (RGLD.O) to restructure Royal's so-called streaming finance deal with Thompson Creek.

    Royal had helped finance the construction of Mount Milligan in exchange for 52.25 percent of its future annual gold output. That will now be amended to 35 percent of annual gold output plus 18.75 percent of copper production.

    Thompson Creek shareholders will vote on the transaction in September.
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    Silver tops $21 for first time since ’14 as investors seek haven

    Silver vaulted $21 for the first time in two years and gold advanced for a fourth day, as investors sought precious metals as haven assets following the UK’s vote to leave the European Union.

    Spot silver surged as much as 7% to $21.1377 an ounce, before paring the increase to $20.3311 by 11:50 a.m. in Singapore, according to Bloomberg generic pricing. Gold rose as much as 1.2% to $1,357.63 an ounce, near the highest level in more than two years, and traded at $1,346.31.

    Bullion has benefited as the post-Brexit vote turbulence in financial markets added to speculation that global central banks may act to boost stimulus, with interest rates in the U.S. set to remain low. Holdings in silver-backed exchange traded funds expanded to a record last month, and assets in gold ETFs are now at the highest since August 2013.

    “There is a huge momentum in buying silver on the way up,” Bob Takai, chief executive officer and president of Sumitomo Corp. Global Research Co., said by phone from Tokyo. “Those who are a little bit reluctant to increase investment in gold are now flowing into the silver market which is very cheap.”

    Gold bought as few as 64.2 ounces of silver on Monday, the least since August 2014, after purchasing as much as 83.8 ounces in February, which was the most since the global financial crisis in 2008. Silver will continue to outperform gold until the market turmoil from the Brexit issue subsides, said Takai, who’s been following silver since 1980.

    Silver has jumped 47% this year, outpacing gold’s 27% advance. Funds have boosted their net-long futures and options positions in the two metals to the highest since the data began in 2006.

    Global gold holdings in exchange-traded funds have expanded by more than 500 metric tons since bottoming in January to 1,959.1 tons, the highest since 2013, while silver assets climbed to a record 20,232.1 tons in June, according to data compiled by Bloomberg. While silver’s rise is not overdone for now, that could change, said Sumitomo Corp.’s Takai. If gold reverses, silver will decline much more heavily, he said.
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    Base Metals

    Sandfire debt-free as DeGrussa delivers strong results

    Base and precious metals miner Sandfire Resources was in a net cash positive position for the first time in four years, following a strong performance at its DeGrussa copper/gold mine, inWestern Australia, which has allowed the company to repay a significant component of its debt early.

    Sandfire reported on Friday that it had fully repaid its amortising facility with its financier, ANZ Banking, ahead of schedule, following a A$20-million payment at the end of the June 2016 quarter. The facility was previously scheduled to be repaid over the next 18 months to December 31, 2017.

    The repayment reduced the total outstanding debt to A$50-million as at June 30. With A$60-million in group cash holdings, Sandfire was in a net cash positive position of A$10-million at financial year-end, meaning the company was debt-free for the first time since development of the DeGrussa project started in 2011.

    “This is a very pleasing result which essentially means that we have greater flexibility and optionality in terms of financing future growth initiatives,” said MD Karl Simich.

    The DeGrussa mine produced 68 202 t of contained copperand 37 612 oz of contained gold in the 12 months ended June 30. This was at the upper-end of a previously announcedcopper production guidance range of between 65 000 t and 68 000 t and at the mid-point of its guidance range for gold of between 35 000 oz and 40 000 oz.

    Copper/gold concentrate sales results for the financial year were 282 012 t containing 68 653 t of copper (65 832 t payable) and 36 042 oz of gold (33 302 oz payable).

    Simich said that Sandfire would continue to assess the optimal financing structure for the organic growth options, such as the Monty copper/gold deposit, for which a feasibility study was under way.
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    Copper’s $149bn mine pipeline stalls as deficit nears

    Producers are counting on expansions and the development of new operations to meet supply shortages they forecast arriving toward the end of the decade. The plans are fraying as reluctant lenders, political wrangling, technical obstacles and a  lack of water and electricity push back project deadlines from  Papua New Guinea to  Peru.

    Only six major projects to build new mines or expand existing operations will be completed by 2020, with two of that total still at risk of potential delays, according to researcher CRU Group. That compares with a global slate of about 80 planned developments, according to Bloomberg Intelligence.

    Freeport-McMoRan, the largest publicly listed copper producer, forecasts an end to the metal’s current surplus from next year as demand improves and output drops. Chile’s state-owned Codelco, the top producer, is predicting a deficit by 2018, while BHP Billiton, operator of the world’s biggest copper mine, sees a shortage from 2019.

    “Our project pipeline has thinned considerably over the last year as we have factored in further delays,” said ChristineMeilton, principal consultant on copper supply and raw materials at CRU in London. While the industry is confident about an emerging deficit, it remains difficult to raise financefor projects as low prices deter investors, she said.

    Capital spending by 35 major producers will shrink to about $41-billion next year, down from $104-billion in 2013, and mine output last year tumbled by more than 20%, company data compiled by Bloomberg Intelligence show. Even with a project pipeline with forecast capital expenditure of about $149.4-billion, according to the data, the mining industry faces challenges to deliver new supply in time to meet the deficit.


    Rio Tinto Group’s $5.8-billion expansion of Mongolia’s Oyu Tolgoi won’t be completed until 2027, while BHP, the world’s largest mining company, says it will be “a little bit late to the party", under a plan for a major expansion at Australia’s largest copper mine from about 2025, the site’s asset president, Jacqui McGill, said in May.

    “The mid-2020s is when we are targeting,” Justin Bauer, BHP’s head of resource planning and development forOlympic Dam, said in an interview at an Adelaide laboratory where the producer is testing processing technology. “We’d like to find a way to expand it, and find a viable way for quite a large expansion, a cheaper way of processing ore is a really important step for us.”

    About 25 global copper projects have been delayed by up to two years, a further 21 for as long as four years and about nine developments face hold-ups of between four and six years,Codelco said in a presentation to a Florida conference earlier this year.

    Codelco’s plan to covert the Chuquicamata pit in Chile into an underground mine, a program the company said in May was about 29% complete, is among projects CRU sees at risk of delays beyond this decade. Targets for First Quantum Minerals’s mine in Panama are also considered under doubt, according to CRU. First Quantum, which forecasts a rise in production at its Cobre Panama site from 2018, didn’t respond to a request for comment.

    Projects on track to deliver at least 100 000 t a year of new supply by 2020 are Qulong in China’s western TibetAutonomous Region, Southern Copper’s Toquepala in Peru,Freeport’s expansion at Indonesia’s Grasberg and Myanmar’s Monywa Letpadaung operation, according to CRU.

    Copper demand was weaker than expected in the first four months of 2016 and slower growth in consumption poses risks to forecasts on both the market balance and prices, RBC Capital Markets analysts wrote in a June 9 note. A deceleration in global growth, in particular in China, remains the key risk to the demand outlook, the analysts wrote. The country accounted for 47% of global consumption last year.

    Still, any new disruptions to projects could deliver a deficit earlier than predicted, CRU’s Meilton said in an e-mail. “It will also have implications for the next decade, when the supply gap is expected to widen,” she said.

    New delays could also spur prices further, RBC said in the June note. Copper prices may rise more than 40% through 2020, the bank forecasts.

    That’s why OZ Minerals is accelerating work on a A$975-million project in Australia, seeking to deliver new output in 2019, according to CEO Andrew Cole. “When you realize the copper price is high it’s too late, you’ve missed the boat,” Cole told the Sydney Mining Club in a June 2 speech.

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    Peru's Kuczynski to try to reopen shuttered La Oroya smelter

    Peru President-elect Pedro Pablo Kuczynski vowed on Wednesday to make his "strongest effort" to reopen the polymetallic smelter La Oroya, part of his goal of wringing more value out of the country's key mineral exports.

    The former operator of the smelter, Doe Run Peru, owned by U.S.-based Renco Group Inc, halted operations at La Oroya in 2009 when it ran out of money to buy concentrates. The company also lacked financing needed to finish an environmental clean-up and to pay for upgrades to curb pollution.

    Now controlled by Doe Run's former creditors, the smelter faces liquidation on Aug. 27 unless a new buyer is found.

    "La Oroya is dying and we have to change that. We have to give it oxygen, oxygen from investors," Kuczynski said in televised comments before a crowd in the town of La Oroya, where former workers have held rallies to demand operations resume.

    "You have my word that I'll make my strongest effort to push this out!" Kuczynski said to cheers. The former investment banker, 77, takes office on July 28.

    Kuczynski asked La Oroya residents to march to Lima to help him press the incoming opposition-controlled Congress to extend the liquidation deadline. He did not say what he would do to make the smelter, which opened in 1922, more attractive.

    Kuczynski's party will have just 18 lawmakers in the 130-member Congress, threatening his proposed reforms as the party of his defeated rival, Keiko Fujimori, will hold 73 seats.

    Kuczynski wants Peru to become a refining and smelting hub to boost its copper, zinc, tin, gold and silver exports as slumping prices drag on growth. His first trip abroad as president will be to China to talk with officials about potential partnerships on refineries.

    La Oroya, some 140 kilometers (87 miles) from Lima in central Peru, could process concentrates from several nearby mines, Kuczynski said. Toromocho, operated by Chinese miner Chinalco Mining Corp International, is the biggest copper deposit near the La Oroya smelter.

    "When minerals are refined here, their value will go up. There's a margin of about $400 million that we can recover," Kuczynski said.

    The smelter was once the world's most diversified - churning out gold, silver, lead, zinc, copper and a dozen specialty metals. But it turned La Oroya into one of the 10 most polluted places in the world, according to a 2007 report by the environmental group the Blacksmith Institute organization.

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    Huntsman Corp. closing its African titanium dioxide plant

    The Woodlands-based Huntsman Corp. chemical giant said Wednesday it will close its only plant in Africa by the end of the year to cut costs.

    Closing the titanium dioxide plant in Umbogintwini, South Africa, will mean the loss of 140 jobs, but the plant is Huntsman’s smallest and oldest in its pigments and additives business. Huntsman plans to spin off or sell a stake in the pigments division.

    The business unit includes titanium dioxide, a chemical that can be used as a pigment for everything from food coloring and paints to sunscreen. Huntsman is the world’s second-largest producer of the chemical, often called TiO2.

    Last year was termed a transition year for Huntsman after the purchase of $1 billion of assets from Rockwood Holdings in late 2014. But Huntsman’s biggest financial drag is its titanium dioxide plants, some of which came from Rockwood. Huntsman President and CEO Peter Huntsman expressed long-term optimism for titanium dioxide in a conference call this year. “People feel the (titanium dioxide) market is as bad as it’s going to get,” he said, noting that some improvements are expected this year. “Let’s not panic.”

    On Wednesday, Simon Turner, Huntsman president of pigments and additives, said its profit margins remain well below historic norms despite some recent recovery.

    “It is critical that we continue our successful cost reduction and synergy program to combat such conditions. We have sufficient capacity across our production network to allow us to close our smallest facility, still meet our customers’ needs and improve our overall competitiveness,” Turner said in a statement.
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    Japan's spot aluminium torn between stable demand, tight LME spread

    Japan's spot aluminium premiums were assessed Wednesday at $80-$85/mt plus London Metal Exchange cash CIF Japan, unchanged since June 21 as the market appears to be torn between stable demand and tight futures contract spreads.

    Demand outlook for the third quarter has risen from the previous outlook, said Japanese buyers who have decided to increase their purchase volume for the third quarter from producers on annual contracts.

    There is no sector clearly outgrowing earlier expectations but there is a spreading feeling of relief as there is no sector that has underperformed either, sources said.

    "Demand is holding stable and as we have better visibility for the next month or so, I am feeling more comfortable," said one consumer, who has increased his Q3 purchase volume.

    "Japanese domestic demand is stable but we need to be competitive to be awarded sales," said a Japanese trader.

    Tight LME spreads were discouraging buyers, added a producer.

    Cash-three months were $10/mt in contango Wednesday during Asian hours, up from $6/mt on Monday.

    "People don't want exposure to risks and there is no appetite to take positions," said one international trader.

    "People will buy less and there will be less trades, and there will be more pressure for lower spot premiums," said the producer.

    Several Japanese traders said one international trader was offering at $85/mt plus LME cash CIF Japan.

    One Japanese trader said it was for a volume greater than 500 mt for August loading, origins either Australian, South African, Middle Eastern or Brazilian.

    The trader said he had rejected the offer and decided not to engage in spot trades due to tight LME spreads.

    S&P Global Platts, however, has not been able to confirm with the seller.

    The two-tier market structure, comprising of a producer price and a trader price persisted, sources said.

    A producer said he was offering to a spot buyer in south Asia $90-$93/mt plus LME cash CIF, following Japanese third quarter contract premiums settlement at this level. The volume was less than 1,000 mt and loading was for either July or August.

    The international trader said he would offer $65/mt plus LME cash CIF, if he received an inquiry from a buyer from the same country.

    Producers had only monthly production to sell, while traders had abundant stocks, creating a gap in the price levels, sources said.

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    BHP Billiton digs deep at Escondida copper mine in Chile

    BHP Billiton has approved an ­effective plant expansion at the giant Escondida mine in Chile that will provide an extra 150,000 tonnes of annual copper production for a development spend of just under $US200 million ($266m), in a prime example of chief Andrew Mackenzie’s push to unleash low-cost latent capacity.

    The approval, which reverses a previous decision to demolish the Los Colorados concentrator at ­Escondida to gain access to high-grade ore, was revealed by BHP’s new head of American mining operations, Daniel Malchuk, in an interview with The Australian.

    The Santiago-based Mr Malchuk said BHP remained keen on copper from a market perspective and would still be prepared to make acquisitions in the metal if the right assets came to market during the current downturn.

    And, he said the company would consider buying partner Anglo American out of the Cerrejon coalmine in Colombia at the right price. Saving the Los Colorados concentrator at Escondida, the world’s biggest copper mine, is part of Mr Mackenzie’s plan to squeeze more from existing assets and increase BHP production by 10 per cent, by spending $US1.5 billion activating latent capacity.

    By overhauling and keeping Los Colorados, BHP will capture 100,000 tonnes of daily ore processing capacity for less than $US200m.

    That is less than one-tenth the capacity cost of the 150,000 tonnes-per-day Organic Growth ­Project 1 concentrator, approved at a cost of $US3.8bn in 2012, originally planned to go after the high-grade ore located under Los ­Colorados.

    “This is amazingly high capital efficiency,” Mr Malchuk said of the Los Colorados extension. “As you can imagine the return is very high — it’s north of 100 per cent.”

    No extra mining will be required; instead more ore will be processed through the concentrators, rather than sent to Escondida’s sulphide leach circuit, where rates of copper recovery from ore are about half that of the ­concentrators. The Los Colorados extension was approved by the Escondida partners, BHP (which owns 57.5 per cent), Rio Tinto (30 per cent) and Japan’s JECO (12.5 per cent) on June 30, just meeting a previously announced 2016 ­financial-year target.

    It was not publicly announced because the development spend was kept low enough not to cross the threshold BHP and Rio deem to be significant.

    Mr Malchuk took over as copper boss in March 2015 and was made president of the Minerals Americas unit under a BHP restructure earlier this year that separated operations heads from corporate functions, like finance and human resource.

    The same restructure saw coal boss Mike Henry made president of Minerals Australia.

    Mr Malchuk said BHP was still prepared to make copper acquisitions, in addition to the latent ­capacity expansions, if the right opportunity presented.

    “The kind of assets we are interested in — there are not too many around,” he said.

    “And we haven’t yet seen a significant opportunity in terms of those assets being placed in the market.”

    The Americas mining boss also said there was the potential for BHP to increase its interest in the Cerrejon coalmine in Colombia, following Anglo American’s recent announcement that it wanted to sell out of the three-way joint venture with BHP and Glencore.

    “We haven’t had those conversations yet, but we will be open to see how this situation evolves and see if there is an opportunity for us,” Mr Malchuk said.

    The “three concentrator strategy” at Escondida, under which Los Colorados will be retained, was first flagged in late 2014.

    The previous plan had been to pull down Los Colorados, enabling access to higher grade ore once the OGP 1 concentrator was finished last year.

    But through some innovative mine planning, which included making the pit wall steeper, higher-grade ore will now be accessed without demolishing Los Colorados until at least 2030.

    That effectively gives Escondida average extra annual copper production of 150,000 tonnes and helps keep costs near $US1 per pound as the big mine’s overall grades ­decline.

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    Chile's copper output falls in May on lower ore grades

    Chile’s copper production declined 6.8% year-on-year in May on lower ore grades, the country's national statistics institute, INE, said.

    Output totalled 473,825 tonnes in May, according to preliminary figures from INE. This compares with 508,135 tonnes in the corresponding month of 2015...
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    Kenmare able to proceed with capital restructuring

    Aim-listed Kenmare Resources announced on Friday that it had secured new equity commitments of $275-million, enabling the company to commence with capital restructuring and an open offer. 

    This offer comprised $100-million in a cornerstone placing, $145.7-million cash commitments under a firm placing, and $29.3-million under a lender underwriting. The issue price was $3.132 per new ordinary share, equivalent to 1.566c before the impact of the proposed 1 for 200 consolidation.  

    An open offer of up to $122.7-million would proceed at the same price as all other funds raised, a full subscription under which would reduce gross debt to nil.  Based on the agreed terms of the debt restructuring, announced in June, completion of the capital raise would reduce debt from no less than $292.5-million to no more than $100-million, providing the company with $75-million for working capital and to cover expenses.   

    "The capital raise and capital restructuring provides Kenmare with an excellent platform to deliver strong returns to its shareholders. The strengthening of the balance sheet, allied to falling cash costs and vastly increased power stability, allows Kenmare to benefit from the strong improvement in the titanium feedstock market we are currently experiencing," said MD Michael Carvill.
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    Adani plans $1.5 bln copper smelter to boost solar ambitions - source

    Indian billionaire Gautam Adani-controlled conglomerate Adani Enterprises plans to build a copper smelter with an eye to furthering its ambitions in the solar sector, said a source familiar with the plan.

    The company recently sought environmental approval to set up a 1-million-tonne-per-year copper smelter in the western state of Gujarat, according to an application submitted by the company which was reviewed early this month by the Environment Ministry.

    The smelter is expected to cost 100 billion rupees ($1.47 billion) and will source copper concentrate through imports, the application stated, without providing the reasoning behind the new foray.

    The source, who spoke on condition of anonymity, said that the smelter however, is expected to feed into its proposed solar panel manufacturing capacity, fueling the company's ambitions of becoming an integrated solar power company.

    The project will not be an entry into the commercial copper business for Adani, also India's biggest coal importer, but will be primarily for ensuring secure supply of raw material for the group's proposed venture into solar photovoltaic equipment manufacturing, said the source.

    The company did not respond to requests for comment on the plans.

    A second source from an international trading firm familiar with the smelter project said the first stage of 300,000 tonnes is expected be completed within the next two years.

    Adani Enterprises, which has interests in coal mining, oil & gas and logistics, has bet big onsolar power riding on Prime Minister Narendra Modi's solar mission that targets setting up of 100 gigawatts of solar power generation capacity by the end of 2022.

    As part of the push, the government has also incentivised setting up of exclusive parks for domestic manufacturing of solar PV modules. That would equate to around 600,000 tonnes of additional copper demand based on the thumb rule of 6 tonnes of copper required for one megawatt of solar cell capacity.

    Adani plans to have a share of 10 percent of the national target by the same time and has said it plans to set up a solar PV module plant in Gujarat.

    The gamble could also get a boost from the $1 billion loan promised Thursday by the World Bank for India's solar energy programme as Modi sought climate change funds from the international lender.
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    Steel, Iron Ore and Coal

    China warns of punishment for delaying coal, steel capacity cuts

    China has threatened to punish regional governments for failing to close unneeded coal mines and steel mills, adding pressure to carry out reforms as the country shifts away from industrial production, Bloomberg reported.

    Provincial governments must set capacity reduction targets by July 15 and submit detailed phase-out plans by the end of this month, said Xu Shaoshi, chairman of National Development and Reform Commission, the nation’s top economic planner, according to a report by official Xinhua News Agency.

    About 800,000 coal and steel jobs are expected to be cut this year amid President Xi's supply-side reforms, the Ministry of Human Resources and Social Security said separately on July 8.

    Provincial governments that fail to stick to capacity cut plans or miss their targets will be "seriously punished," Xu said, according to the report on July 7. Regions shouldn’t waver in the face of slowing economic growth and unemployment and refrain from restarting closed mines and mills, he said.

    China’s coal output will fall by 280 million tonnes this year, and steel capacity will shrink by 45 million tonnes, Xu said at the World Economic Forum in Tianjin last month. The coal capacity cut target was modified in his statements on July 7 to "more than 250 million tonnes," while the steel target remains the same.

    The country plans to eliminate as much as 500 million tonnes of coal production capacity, and consolidate a further 500 million tonnes, and cut as much as 150 million tonnes of steel making capacity by 2020.

    China is still targeting 1.8 million in total job cuts for both industries over three to five years, Xin Changxing, vice minister of the human resources ministry, said at a briefing in Beijing.

    Output from both industries has fallen in the first five months of the year, with coal dropping 8.4% and steel down 1.4%.
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    Daqin June coal transport down 28.9pct on year

    Daqin line, China’s leading coal-dedicated rail line, transported 24 million tonnes of coal in June this year, sliding 6.32% on month and down 28.93% on year – the 22nd consecutive year-on-year drop, said a statement released by Daqin Railway Co., Ltd on July 8.

    In June, Daqin’s daily coal transport averaged 0.80 million tonnes, dipping 3.61% on month.

    Daqin rail line realized coal transport of 157.74 million tonnes in the first half of this year, falling 23.36% year on year.

    The operation of Zhunchi (Zhunger-Shenchi) railway accelerated the transport of Shuohuang (Shuozhou, Shanxi-Huanghua port, Hebei) railway to jump, while squeezed the transport share of Daqin railway to sharply fall. As a result, coal handlings at Huanghua port surged, while those at Qinhuangdao port and Tangshan port plunged.
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    Iron, steel exports discouraged amid lackluster demand

    The Chinese government has been discouraging iron and steel exports amid lackluster demand in the global market, the Ministry of Commerce said on July 5.

    "China's iron and steel output primarily meets domestic demand. The Chinese government has taken measures, such as increasing the export tariffs on some products, to control exports," said Shen Danyang, spokesman for the ministry.

    Shen said the tax refund rate for iron and steel exports is lower than the 17% value-added tax rate. The percentage of exports, Shen added, is very low compared with total output.

    In the first five months of the year, China's exports of iron and steel increased by 6.4% year on year, stirring further concerns that the global supply will further outstrip the demand.

    "In the first five months in 2015, iron and steel exports increased by 50% compared with the same period the previous year. The growth rate this year has fallen by around 22 percentage points," said Shen.

    "This has shown that China has restrained its exports to maintain the stability of the world's iron and steel market."

    Shen has said previously that the global economic slowdown was the main cause of iron and steel overcapacity. The Chinese government has been making efforts to keep the production capacity down.

    The State Council has issued a plan to reduce crude steel output by 100 to 150 million tonnes within five years starting from 2016.

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    Chinese steel plants bounce back after destocking, CISA

    China's large steel plants saw improved profits and narrowed losses in the first five months of this year thanks to their destocking efforts, according to the China Iron and Steel Association (CISA).

    Major iron and steel enterprises raked in 8.736 billion yuan ($1.31 billion) in the Jan-May period, up over 700% year on year while fewer firms reported losses, according to the national steel association.

    The improvement is a result of the firms' rational response to overcapacity in the sector, as most large iron and steel plants reduced their output in the first five months and tried to stabilize product prices, CISA head Liu Zhenjiang said.

    Total steel production in the first five months of this year dropped 1.4% on year, data from the National Bureau of Statistics showed.

    China, the world's largest steel producer and consumer, plans to cut steel capacity by about 10% -- as much as 150 million tonnes of steel -- in the next few years, with funds set aside to help redundant workers.
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    Australia cuts 2016, 2017 iron ore forecasts on supply glut

    Australia on Friday signaled it sees the current rally in iron ore prices coming to an end, cutting its price forecasts over the next 18 months to reflect an industry grappling with oversupply and weak demand.

    The Department of Industry, Innovation and Science cut its 2016 forecast for the country's biggest export earner by nearly 2 percent to an average of $44.20 a tonne and by 20 percent to $44 in 2017.

    Australia, the world's largest exporter of iron ore - forecast to total 818 million tonnes this year - warned the steel-making ingredient will be slower to recover in 2017 than previously expected due to oversupply.

    The department previously forecast 2016 prices to average $45 a tonne in March and earlier predicted 2017 prices to average $55.

    "Despite the large movements in prices, the market fundamentals are broadly unchanged - demand growth is slow and the market remains well supplied," Australia's Department of Industry, Innovation and Science said in its latest quarterly commodities paper.

    Iron ore was trading at $55.20 a tonne, according to the latest quote from The Steel Index. Iron ore averaged $48 in the first six months of 2016.

    The official forecast is also short of the Australian Treasury’s $55 per tonne prediction contained in the national budget released in May.

    The Treasury forecast represented a 41 percent increase on its December view of $39 and took into account a spike in ore prices to almost $70 in April.

    A price closer the Department of Industry calculation would increase the projected national budget deficit for 2016-17 of A$37.1 billion ($27.82 billion) by roughly A$1.5 billion.

    Morgan Stanley recently lifted its 2016 iron ore forecast by 17 percent to $46 a tonne and its 2017 outlook by 13 percent to $42.

    Dragging on sentiment are hefty stocks of imported iron ore sitting at major Chinese ports. Inventories stood at 102.55 million tonnes on July 1, the highest since December 2014, according to data tracked by SteelHome.

    Global iron ore trade is forecast to grow by 0.9 percent and 4.0 percent in 2016 and 2017, respectively, despite relatively flat global consumption, according to the industry department.

    This will occur because imports will displace iron ore mined in China, it said
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    China government-run steel, coal firms to cut 10 percent of capacity in two years: regulator

    China's central-government run steel and coal firms will cut capacity by around 10 percent in the coming two years, and by 15 percent by 2020, as part of their efforts to tackle gluts in the sectors, the state asset regulator said on Friday.

    The State-Owned Assets Supervision and Administration Commission (SASAC) held a meeting with the 25 coal and steel firms under its jurisdiction at the end of June, it said.

    The SASAC-run firms include China's biggest coal producer, the Shenhua Group, as well as the Baoshan Iron and Steel Group (Baosteel) and the Wuhan Iron and Steel Group, which have recently announced plans to restructure.

    China aims to cut 100-150 million tonnes of annual steel production capacity and 500 million tonnes of coal production capacity in the next three to five years, amid waning domestic demand and a long decline in prices.
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    India puts power projects based on imported coal under review

    A pall of uncertainty has been cast over Indian thermal power stations running on imported coal, as the country is moving into surplus production and even considering options to export coal.

    The Coal Ministry has directed all government-owned and -operated thermal power generation companies to desist from importing coal for their feedstock requirement, and against this backdrop questions have been raised about costs, risks and the viability of imported coal-based mega thermalprojects currently on the anvil.

    Various government departments had raised questions about the risk that projects based on imported coal would seekfrequent electricity tariff revisions, following changes in the international trading environment.

    These power station projects had been conceived during times of domestic coal shortage; however, continuing with their implementation when the country was moving into a surplus situation was not considered to be prudent, a CoalMinistry official has said.

    Citing examples, the official pointed out that earlier this year, the Appellate Tribunal for Electricity had revoked a 2014 order allowing Adani Power and Tata Power to seek higher or compensatory tariff revisions in the face of the Indonesian government changing benchmark pricing for coal exports. The Indian power plants had been implemented based on the assumption of continued supply of cheap coal fromIndonesia.

    Government officials said that such risks were not necessary any more as India had sufficient domestic coal available.

    The government has awarded ultra mega power plantprojects (UMPPs) to investors through competitive bidding, based on electricity tariffs they proposed. The surplus domestic coal situation had obfuscated plans for UMPPs so much that four such projects with aggregate generating capacity of 16 GW had been cancelled, while the future of one planned in the southern Indian province of Tamil Nadu was uncertain, the official added.

    In a roadmap, the Coal Ministry had proposed complete self-sufficiency in coal within the next three years and such a target had made import-based UMPPs superfluous, the official said.

    Indian coal imports in April and May 2016 were down 5% at 35.85-million tons over the corresponding period of the previous year, according to government data.

    With a target to produce one-billion tons a year, Coal IndiaLimited (CIL) produced 125.65-million tons in the quarter ended June 2016, up 3.5% on the corresponding quarter of 2015 with a total production target of 598-million tons for thefinancial year.

    The surplus situation was indicated by lower offtake of 2.9% during the quarter ended June at 133.19-million tons and a pithead inventory estimated at 30-million tons.

    In a statement, Coal Secretary Anil Swarup said “consequent to record production of coal by CIL, it is now exploring avenues to export coal”.

    For starters, an Indian delegation recently visited Bangladeshto explore opportunities to export coal to the thermal powerplant that India’s NTPC was building in the neighbouring country.

    Coal Ministry officials said that with coal exports on the cards, imported coal-based thermal power plants had lost relevancy and all such projects were under review, starting with scrutiny by the Finance Ministry.

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    Dalrymple Bay's Jun coal exports hit one-year high

    Coal exports from Australia's Dalrymple Bay coal terminal reached 6.42 million tonnes in June, the highest level year to date, a source close to the Queensland terminal said on July 6.

    The volume rose 1% month on month, but fell 7.23% year on year, port data showed.

    It is also 19% higher from the fiscal average of 5.41 million tonnes.

    Typically, coal shipments in the month of June are strong as producers seek to maximize exports for the last month of the fiscal year in Australia.

    For fiscal year 2015-16 ended June 30, DBCT exported 67.35 million tonnes of coal, the source said, down 5.6% from the year-ago level.

    Anglo American, BHP Billiton, Glencore, Peabody Energy and Rio Tinto are the coal producers that ship product through DBCT.

    China, Japan and South Korea are the largest recipients of coal shipped via DBCT.

    The terminal had nine ships in its offshore vessel queue as of July 7, according to a terminal operating report.
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    Arch coal in new deal for bankruptcy exit plan

    St. Louis-based Arch Coal said on July 5 it has filed an amended reorganization plan in US federal court that would give cash and stock to unsecured creditors and could help it move out of bankruptcy.

    The reorganization plan includes a global settlement with senior secured lenders holding more than 2/3 of its first lien term loan and the committee that has been negotiating on behalf of unsecured creditors.

    "The global settlement is a momentous achievement that should facilitate a timely and successful conclusion to our financial restructuring process," said John W. Eaves, Arch's chairman and CEO.

    As part of the plan, Arch would offer holders of general unsecured claims 6% of the new common stock of the reorganized company and warrants to buy more of the company stock. Arch also would pay out $30 million in cash to bondholders and general unsecured creditors.

    As part of the global agreement, senior managers would relinquish claims to $6 million in bonuses for 2016, according to court documents. The plan is still subject to court review Wednesday.

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    EU to investigate rise in Russian, Brazilian steel imports

    The European Commission will investigate whether Russia, Brazil and three other countries are flooding the bloc with cheap hot-rolled flat iron and alloy and non-alloy steel products, following a complaint from European rivals.

    The EU executive said the probe, opened on Thursday, will focus on the period July 1, 2015 to June 30, 2016.

    In addition to Russian and Brazilian iron and steel exporters, the Commission is also targeting those from Serbia, Ukraine and Iran. The companies have been given 15 days to contact the EC with their details.

    The European Steel Association (Eurofer), whose members account for more than a quarter of EU iron and steel products, triggered the case with a May complaint.

    "The complainant has provided evidence that imports of the product under investigation from the countries concerned have increased overall in absolute terms and in terms of market share," the Commission said in the Official Journal.

    The EU, which can impose duties on imports if there is evidence that these are sold at below fair market prices and are damaging the businesses of European competitors, now has 10 anti-dumping investigations underway into steel products.
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    China June steel sector PMI further slides to 45.1 amid sluggish steel market

    The Purchasing Managers Index (PMI) for China’s steel industry fell 5.8 to 45.1 in June, the lowest level this year, showed data from the China Federation of Logistics and Purchasing (CFLP).

    It was the second straight month of downward, indicating an apparent contraction in China’s steel industry.

    In June, the steel industry output sub-index was 42.5, the lowest level this year, plunging 11.2 from 53.7 in May.

    As of June 24, only 48.47% steel mills across the country made profit, down from 65.03% a month ago.

    Meanwhile, the new orders sub-index reached the lowest level year to date at 43.3, lower than 52.7 in the previous month.

    Besides, the purchase price index fell dramatically from 60.9 in May to 50.4 in June, indicating increased support to steel prices, despite high cost at steel mills.

    Steel prices were volatile in June, mainly due to price plunge in May and low stockpiles. As of June 30, the Tangshan steel billet price stood at 1,990 yuan/t, up 170 yuan/t on month.

    China's steel market is likely to be strongly fluctuated in the short run, affected by macroeconomic factors, given weak demand and insufficient supply.
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    Guinea says Rio bound to $20bn mine as CEO flags delay

    Guinea said Rio Tinto Group must honour its commitment to develop the world’s largest untapped iron-oredeposit, after the company’s CEO signalled it may delay building the $20-billion mine and related infrastructure because of low prices.

    Guinea is counting on Rio and other investors, including Aluminium Corporation of China and International Finance, to meet their funding commitments for the Simandou project, the Mining Ministry said in an e-mailed statement.

    The government is “convinced” that a financing solution will be found.

    Rio, which owns 47% of the project, is being squeezed by iron-ore prices that have plunged by about 70% since 2011 as China’s slowdown left the world awash with supply. Jean-Sebastien Jacques, CEO of the second-biggest mining company, told the Times newspaper this week that he doesn’t see a way forward for Simandou.

    “It’s not the right time to develop this project from a Rio standpoint,” the Times cited Jacques as saying. “The other stakeholders might have different perspectives on this one.”

    A spokesman for Rio declined to comment beyond Jacques’ remarks in the newspaper. The company submitted a bank feasibility study to the government in May.

    Guinea is keen to develop Simandou, which could double the size of the West African nation’s economy and provide an additional 45 000 jobs, the government, Rio, Chinalco and IFC said in 2014. Jacques’ predecessor Sam Walsh said last year that the project, which includes a 650-km railway, is “very complex.”

    Separately, Sundance Resources, based in Perth, Australia, said it’s committed to the 436-million metric ton Mbalam-Nabeba iron-ore project on the border between Cameroon and the Republic of Congo, even after prices dropped.

    “There is no question of abandoning such an important project, especially with the constant support of the highest authorities of Cameroon and Congo,” CEO Giulio Casello said in an e-mailed statement.

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    Anglo American settles Q3 premium low vol below mid-vol: sources

    Mining company Anglo American has settled third-quarter premium low vol hard coking coal contracts with North Asian steelmakers at $92/mt FOB Australia, 50 cents/mt lower than settlements for Australian prime hard mid-vol material, according to sources.

    This was the first time in about a decade that quarterly term prices of premium mid-vol coal have surpassed that of low-vol, according to two sources.

    "It's strange that mid-vol is [priced] higher than low-vol, but the supply situation is more difficult for mid-vol supply," according to a North Asian steelmaker.

    Sources said there were ongoing production issues in at least two Australian premium mid-vol mines producing high fluidity coals.

    Anglo American's contract settlement applies to premium low-vol hard coking coal brand German Creek.

    Sources from at least three steelmakers told Platts they had concluded settlements for the coal brand since late last week.

    It was still unclear whether other premium low-vol suppliers like Canada's Teck Resources had attained a similar Q3 price. There was also doubt among market participants about whether the premium mid-vol settlement of $92.50/mt FOB Australian reached at the end of June between Nippon Steel & Sumitomo Metal Corporation and Glencore PLC was truly representative.

    The Q3 premium mid-vol price was $8.50/mt higher than the previous quarter's settlement.

    "We find it hard to [recognize] a benchmark coming from a package deal reached between one steelmaker and one producer in which semi-soft is included," one steelmaker said.

    Meanwhile, two Asian steelmakers told Platts that they had agreed July-September price for Australian semi-soft coal at $74/mt FOB Australia.

    A London spokesman for Anglo American declined to comment on the company's commercial agreements.

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    Steel industry still choppy under half-year de-capacity efforts

    China’s steel and coal sectors have been implementing 276-workday reform at coal mines, layoffs and regroupings at steel enterprises, in response to the capacity cut policy for two industries rolled out by central government before the Chinese Lunar New Year holidays.

    However, the result of steel sector was not as satisfactory as expected, compared with the reported 8.4% year-on-year drop of coal output over January-May this year.

    National Bureau of Statistics (NBS) data showed that China’s crude steel output dipped only 1.4% on year to 329.9 million tonnes between January and May.

    Hebei, Jiangsu and Shandong, major steel-making provinces that are also entrusted with de-capacity tasks, witnessed coal production up 0.3%, 2.19% and 5.47% on year during the same period, instead of anticipated declines.

    Under the national de-capacity requirement of 100-150 million tonnes per annum (Mtpa) over next five years, Hebei government vowed to decrease 49.89 Mtpa iron-making capacity and 49.13 Mtpa steel capacity during the same period, and to firstly realize iron and steel capacity elimination of 17.26 Mtpa and 14.22 Mtpa this year.

    While Shandong province promised to cut pig iron and crude steel capacity of 9.7 Mtpa and 15 Mtpa in next five years, respectively.

    However, the ferrous metal market came to boom over March-May out of the previous slackness, bringing about as much as 74.8% profit in the first five months and 160% year-on-year profit in May.

    Steel sector also benefited much, with steel profit as much as 800-1,000 yuan/t in April and May. China Iron & Steel Association (CISA) data showed that CISA member steel makers realized 8.74 billion yuan ($1.31 billion) of profit in the first five months, soaring 738% on year.

    "China's suspended capacity reached 110 Mtpa last year, and over 60 Mtpa capacity was eliminated, yet 51% of the suspended plants resumed production this year," said steel analyst, adding that "the crude steel output probably decreases in the wake of peak over April-May, as difficulties remains for those still suspended capacity to recover operation."

    Meanwhile, de-stocking measures at steel industry are rewarding. The average steel stocks declined 24.2% on year in the first half of this year. The social stock of steel products dropped more than 5% on month and down 30% on year this week.

    CISA data showed that the average weekly steel stockpiles of medium and large steel makers decreased 16.36% on year to 13.3 million tonnes in the first half of the year, indicating enhanced efforts of those enterprises in de-stocking.

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    Russia H1 coal output up 6.4pct on year

    Coal-rich Russia produced 186 million tonnes of coal in the first six months this year, rising 6.4% year on year, showed the latest data from the Energy Ministry of Russian Federation.

    Of this, coal output in June stood at 29.13 million tonnes, up 5.3% from a year prior.

    During January to June, the country exported 78.98 million tonnes of coal, climbing 7.94% from the year-ago level.

    The coal export in June was 13.84 million tonnes, rising 7.5% on year.
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    World’s Biggest Coal Producer Exploring Exports to Trim Glut

     The state-run miner, which produces the bulk of the country’s coal, is “exploring avenues to export” amid record production, Coal Secretary Anil Swarup wrote on Twitter on Tuesday. Demand from power producers, the company’s biggest customers, has lagged output, leading to rising stockpiles at plants and the company’s own mines. The country has exported the equivalent of 0.2 percent of total production, according to the latest available data.

    “We don’t want inventories to build up,” said S.N. Prasad, director of marketing at Coal India. “That is why we are looking at all possible opportunities to sell coal.”

    Coal producers from Australia to the U.S. have been punished by a growing glut of the fuel as countries seek cleaner forms of energy and as ample supplies of natural gas make it a cost-competitive alternative. Thermal coal at Australia’s port of Newcastle, a benchmark in Asia, has rebounded since hitting the lowest since 2006 in January and prices are on pace to halt five years of declines.

    Coal India rose as much as 0.8 percent to 320.50 rupees, headed for the highest level since March, and traded 0.4 percent higher as of 12:33 p.m. in Mumbai. The benchmark S&P BSE Sensex fell 0.3 percent.

    Record Production

    Coal India boosted output 8.5 percent to 536 million metric tons in the year ended March 31, a record annual haul. Production in June was 10 percent higher from the same month last year, though it still missed output and off-take targets.

    The company increased prices of lower-grade coal, a staple for Indian power plants, by as much as 19 percent in May, at a time when cash-strapped regional power retailers are curtailing purchases because they can’t afford the cost of electricity.

    Tepid demand from cash-strapped regional power retailers has left Coal India with 45 million to 50 million tons stockpiled at its mines, said Abhishek Jain, an analyst at India Nivesh Securities Ltd.

    “The company might be looking at exports to nearby countries like Nepal and Bangladesh,” he said. “But it won’t be more than 5 million to 10 million in a year.”

    Coal India is in talks to supply fuel to NTPC Ltd.’s 1,320 megawatt power plant being built in Bangladesh, Prasad said.

    India’s total coal imports reached 212.1 million tons in the year to March 2015, up 27 percent from the previous year and dwarfing exports of 1.24 million tons, according to government statistics. Total production of coal, from private and public companies, rose to 612.4 million tons, according to the data.

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    Indian coal blocks go a-begging

    In a sign of times of surplus, neither India’s Ministry of Coal or  Ministry of Power was willing to take charge of seven coal mines, lying idle for the last nine months.

    The Coal Ministry was seeking to hand over the seven coalmines with aggregate production capacity of close to 46-million tons a year to the Power Ministry, but the latter was not willing to take over the mines unless each mine came bundled with all government mandatory approvals like environmental and forest clearances.

    While the Power Ministry was insisting that the nine coalmines be handed over “ready for production with all mandatory approvals built in with the assets”, the CoalMinistry had taken a stance that “onus of securing all mandatory approvals rested on the  companies which were finally allocated the assets”, a senior government official has said.

    Off the record, officials acknowledged that the tussle over handing over the nine coal mines was indicative of a lack of appetite among investors to buy coal mines during a coal over supply.

    They conceded that the Power Ministry’s stance on not taking charge of the mines stemmed from the belief that it would be difficult to find takers of the assets unless they were made “plug and play” as few miners would be willing to spend time an prolong gestation period of the assets in seeking all mandatory approvals to turn them into producing mines.

    However, it was pointed out that  current rules governing coalblocks did not have any clarity on  allocating “ready-made assets” to miners or end users and until now, the responsibility of securing mandatory approvals invariably had vested with the company securing the mine.

    In the case of the seven coal blocks, the Coal Ministry was to hand over the blocks to the Power Ministry based on the recommendation of a technical committee, which had identified the blocks as suitable for  the power sector.

    The delay in operationalising the coal blocks was also attributed to lack of clarity on who to allocate these blocks to. While the technical committee had recommended allocation to the power sector and the Power Ministry favoured handing them over to provincial power distributions companies, a section within the government maintained that these companies did not have the financial muscle required to bring the coal blocks back to production.
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    Iron ore surges past $55 as Rio Tinto exits Simandou

    The two events may not be directly connected, but it's likely that Rio Tinto's decision to shelve its huge Simandou iron ore project in Guinea bid up the price today.

    On Monday the steelmaking ingredient ran past US$55.90 a tonne, according to The Steel Index, a gain of 3.5 percent from the previous session. Iron ore is now at its highest level since May 18, despite dropping down to $47.90 a tonne on June 2nd.

    The price is down sharply since trading within shouting distance of the $70 mark in mid-April but is back in bull territory for 2016 with a 24.5% rise since the beginning of the year, as of last Tuesday, and a 44% rebound since hitting near-decade lows in December.

    We’ve been very clear that it’s a very expensive project … in the current ­market environment we don’t see a way forward in relation to Simandou.

    Analysts at Morgan Stanley became the latest to upgrade their outlook for iron ore, although forecasts for the rest of the year still call for a steep decline in the price from current levels.

    The price increase comes as iron ore major Rio Tinto decided to put its Simandou project in Guinea on ice due to the iron ore glut that is keeping a lid on prices – despite delivering a bankable feasibility on the project in May.

    The Australian reported new CEO Jean-Sebastien Jacques saying that the cost of developing the US$20 billion mine isn't justified due to the bleak prospects for iron ore in the next decade. The incoming chief executive's position contrasts with his predecessor Sam Walsh who favoured the project, which was said to produce over 2 billion tonnes of iron ore and double the size of Guinea's economy.

    "We’ve been very clear that it’s a very expensive project. We did deliver the BFS (bankable feasibility study) to the government as per the agreement a few weeks ago and we’ve been very clear that in the current ­market environment we don’t see a way forward in relation to ­Simandou. We’ve been absolutely on record on this one. It’s not the right time to develop this project from a Rio standpoint."

    Along with its exhorbitant cost, Simandou also created headlines for accusations that BSG Resources, a rival of Rio Tinto, bribed the wife of the Guinean dictator to win control of the concession. BSG, controlled by Israeli diamond tycoon Beny Steinmetz, later sold half of its concession to Vale (NYSE:VALE), while not admitting any wrongdoing.

    Rio acquired the rights for the vast mountain deposit more than 15 years ago and has already spent more than $3 billion on the project. In February, the company swung into the red primarily due to a $1.1 billion writedownin the value of its investment.

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    Indonesia’s Jul HBA thermal coal price up 2.3pct on month

    Indonesia's Ministry of Energy and Mineral Resources set its July thermal coal reference price, also known as Harga Batubara Acuan or HBA, at $53/t FOB, up 2.3% from June, but down 10.4% compared with the same month last year.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

    The HBA for thermal coal is the basis for determining the prices of 75 Indonesian coal products and for calculating the royalties Indonesian producers have to pay for each metric ton of coal they sell locally or overseas.

    It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.
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    CIL Jun output down 6.17pct on month

    Coal India Ltd (CIL), India's biggest producer of thermal coal, produced 42.72 million tonnes of coal in June against a target of 43.31 million tonnes, falling 6.17% from May and helping to ease the glut accumulating at the company's mines.

    Its deliveries for June stood at 44.96 million tonnes, against a target of 47.52 million tonnes.

    CIL has boosted output at a record pace over the past two years and the government has urged state power generation companies to buy local coal and reduce imports.

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    PWCS coal exports to China down 36 pct on mth

    Australian coal exports from the Port Waratah Coal Services terminals at Newcastle to China fell 36% on the month to 1.03 million tonnes in June from a 16-month high of 1.6 million tonnes in May, PWCS said on July 2 in an operating report.

    The exports to China were the lowest seen from the terminals in a month since March, but well above the 0.58 million tonnes seen in January, port data showed.

    Month-on-month declines in exports were also seen to key destinations of Japan, South Korea and India.

    After China, the second sharpest fall came in exports to Japan — which gets the lion’s share of Newcastle exports — with 3.99 million tonnes shipped in June, down 9% from 4.38 million tonnes in May, PWCS data showed.

    Japan’s year-to-date average of 4.25 million tonnes lagged 2015’s monthly average of 4.54 million tonnes.

    Japan has received 48% of all Newcastle coal exports for the year to date, with South Korea taking 13%, China 12% and India 1.1%, the Monthly Exports Statistics report said.

    PWCS coal exports to South Korea were relatively stable on the month at 0.92 million tonnes in June, compared with 0.93 million tonnes in May.

    This is well below the 1.79 million tonnes in June last year. South Korea’s year to date monthly average was at 1.14 million tonnes, down 0.31 million tonnes from the 2015 average.

    There were no coal cargoes exported to India in June — the second time this has happened this year. In May, 0.034 million tonnes was exported, while the year-to-date monthly average was at 0.10 million tonnes, in line with the 2015 average.

    Total coal exports from the PWCS terminals at Newcastle in June were 8.31 million tonnes, down from 9.38 million tonnes in May, the data showed.

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    Rio Tinto sells Australian coal mine for a dollar

    A small Australian miner on Monday bought Rio Tinto's Blair Athol coal mine in Queensland state for a token A$1, swooping in as big miners offload unprofitable assets after years of low coal prices.

    TerraCom Ltd, a subsidiary of Orion Mining Pty Ltd, said it will also receive A$80 million ($60.10 million) from the mining giant to meet rehabilitation costs at the site.

    Cameron McRae, TerraCom's chairman, said the mine represented a good opportunity despite weak thermal coal prices.

    "We believe that we can make a good return at the current coal prices," McRae said by telephone. "Any upside, is obviously good for us."

    Coal from Australia's Newcastle port was trading at around $52.85 per tonne last week, up from a low of under $50 earlier in June.

    The Blair Athol coal mine, which was closed in late 2012, is one of the oldest in Queensland and the second in the Bowen Basin to be sold for A$1 in the past year.

    In July 2015, Stanmore Coal paid Vale and Sumitomo Corp A$1 for the Issac Plains coking coal mine, which is about 100 kilometres (62 miles) from the Blair Athol mine.

    McRae, who worked at Rio Tinto for 28 years, said the Blair Athol Mine had a 30-year history of selling a high energy, low-in-cost coal to Asia.

    "Thermal coal is still going to be a large part of the energy mix in the future," he said.

    TerraCom plans to start more than 50 hectares (124 acres)of site rehabilitation while bringing the mine back into production.

    The company estimated more than 100 people would be employed once work started and said it hoped to be producing 2 million tones per year by the end of 2016.

    David Lennox, a resource analyst at Fat Prophets, said the rock-bottom sale price would be an advantage to TerraCom given the condition of the thermal coal market.

    "The fact they outlaid such a small capital amount will be beneficial, but they have to get their operating prices down."
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    Rio Tinto shelves $US20bn Simandou iron ore project

    A $20 billion project to develop the world’s biggest untapped deposit of iron ore has been shelved by Rio Tinto, in the latest twist in a long-running and contentious saga.

    Simandou, in Guinea, has more than two billion tonnes of iron ore, and the colossal scheme has the potential to double the size of the west African country’s economy.

    But Jean-Sebastien Jacques, who starts work today as chief executive of Rio Tinto, has told The Times that the enormous cost of developing the mine could not be justified in an iron ore market that is suffering from huge overcapacity.

    Mr Jacques’s comments mark an abrupt change in tone from his predecessor, Sam Walsh, who had repeatedly insisted that the mine would be developed.

    The move risks exacerbating relations with the Guinean government, which has responded by saying it would not let the project be derailed by “a global agenda that actually has nothing to do with the project economics”.

    ASX-listed Rio Tinto shares had jumped by 1pm (AEST), gaining $3.58 per cent to $47.72 against a 0.31 per cent rise in the benchmark index.

    The Simandou project has become a notorious example in the mining industry because of accusations that a rival of Rio Tinto corruptly gained control of half the concession. The accusation, which was upheld by a review by the Guinean government but denied by the company, has led to criminal inquiries and several civil court actions.

    Mr Jacques said: “We’ve been very clear that it’s a very expensive project. We did deliver the BFS (bankable feasibility study) to the government as per the agreement a few weeks ago and we’ve been very clear that in the current market environment we don’t see a way forward in relation to Simandou.

    “We’ve been absolutely on record on this one. It’s not the right time to develop this project from a Rio standpoint. The other stakeholders might have different perspectives on this one.”

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    Vale says sold three Valemax iron ore ships to ICBC for $296m

    Brazil's Vale SA said it has sold three of its giant "Valemax" iron-ore ships to a group led by Industrial and Commercial Bank of China, continuing efforts to unload assets to cut debt and focus investment on its main mining activities. 

    Vale will receive $269-million for the ships when they are delivered to the Chinese-led group, likely in August, Vale said in a statement late on Thursday. 

    Vale said it was also seeking to sell other Valemax ships. The vessels, also known as Very Large Ore Carriers (VLOC's) are about 300 m (984 ft) long and carry up to 400 000 deadweight tonnes, making them some the largest ships afloat.
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    Biggest private coal producer in US warns of cutting 80 pct of workforce

    Murray Energy Corp., the largest privately held coal miner in the U.S., has warned that it may soon undertake one of the biggest layoffs in the sector during this time of low energy prices.

    In a notice sent to workers this week, Murray said it could lay off as many as 4,400 employees, or about 80% of its workforce, because of weak coal markets. The company said it anticipates “massive workforce reductions in September.”

    The law requires a 60-day waiting period before large layoffs occur.

    The American coal industry, especially in Appalachia, has languished as cheap natural gas replaces coal as fuel for power plants. World-wide demand for coal has also slumped, and new environmental regulations are making many coal mines unprofitable to operate.

    The Central Appalachian coal price benchmark is $40/t, or half its level from five years ago. Almost all of the biggest coal producers in the U.S. have declared bankruptcy in the past 18 months, including Peabody Energy Corp., Arch Coal Inc. and Alpha Natural Resources Inc.
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    Europe must protect itself against Chinese steel exports: German minister

    Europe needs to protect itself against Chinese steel exports, German Economy Minister Sigmar Gabriel said on Saturday at a conference of his Social Democrat (SPD) party.

    "Europe needs to organise its markets in such a way that it not only creates competition but also social security," said Gabriel, leader of the SPD.

    "And that includes Europe confidently protecting its markets if others - in this case China - try to destroy our industrial foundations with government funds. Europe's steel workers have a right to that," he said.

    China is by far the world's biggest steel producer and its annual output is almost double that of the EU, with rival producers accusing China of selling into export markets at below cost after a slowdown in demand at home, causing a crisis for the industry that has led to job cuts and plant closures.
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