Mark Latham Commodity Equity Intelligence Service

Wednesday 24th August 2016
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    Oil and Gas

    Iraq asks foreign oil companies to increase crude production, exports

    Iraqi Oil Minister Jabar Ali al-Luaibi on Tuesday asked foreign oil companies to increase oil and natural gas production and exports in order to maximise the OPEC nation's revenue, ministry spokesman Asim Jihad told Reuters.

    Luaibi, who took over the ministry earlier this month, held a meeting in Baghdad with oil companies operating in Iraq.

    "The minister reaffirmed support for the operations of international companies in order to increase the production and export rates of crude oil and natural gas," Jihad said.

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    PNG LNG eyes multi-year spot contracts

    The ExxonMobil-operated US$19 billion PNG LNG project is looking at multi-year contracts for spot sales of the chilled fuel as the project is producing above the nameplate capacity, according to Oil Search that has a 29 percent share in the JV.

    The PNG LNG project is producing 7.7 million tonnes per annum (mtpa), 12 percent above the nameplate capacity of 6.9 mtpa. It is currently in the recertification process for all of the PNG LNG fields, which according to Oil Search will result in a larger reserve base that could underpin long-term contracts for future spot LNG cargoes.

    “At the moment, as we go to the recertification process for all of the PNG LNG fields, those are relatively short-term type of spot sales that we are looking at which may cover four to eight cargoes,” Julian Fowles, Oil Search’s executive general manager for PNG, told analysts on a conference call on Tuesday after the company announced its first-half results.

    However, with a positive outlook on the recertification, the JV would “certainly be looking at longer term strips of sales – contracts that would be potentially a number of years that would cover a substantial portion of the spot volumes that we have since we are currently producing above nameplate capacity,” Foyles said.

    PNG LNG sold eight spot cargoes in the first half of this year, out of which six were delivered to Japanese customers, Fowles said,  adding that this reflects the “desire of our premium customer for our high heating value gas.”

    “We have also been selling spot cargoes to other customers beyond our long-term contract customers that have traditionally been our primary buyers of spot cargoes. We have other customers now becoming used to PNG LNG product, and that is also good for future marketing of longer-term spot cargoes.”

    The PNG LNG project commenced production of LNG in April 2014 and since then it had delivered 205 cargoes of the chilled fuel.

    The LNG project includes gas production and processing facilities in the Southern Highlands, Hela, Western, Gulf and Central Provinces of Papua New Guinea.

    There are over 700 kilometres of pipelines connecting the facilities, which includes a gas conditioning plant in Hides and the two-train liquefaction facility near Port Moresby.

    According to Oil Search, there is enough gas for two more LNG trains, and also a third one if the next drilling campaign is successful.

    Besides ExxonMobil and Oil Search, other JV participants are Santos, National Petroleum Company of PNG, JX Nippon Oil and Gas Exploration, Mineral Resources Development Company, and Petromin PNG Holdings.
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    Oil Search Says Second PNG Greenfield Project May Not Proceed

    Oil Search Ltd. said development of a second standalone liquefied natural gas export terminal in Papua New Guinea is unlikely with Exxon Mobil Corp. and Total SA expected to favor cooperation to expand the existing PNG LNG project.

    The Sydney-based company owns 29 percent of the Exxon Mobil-led PNG LNG project and a 22.8 percent stake in the Papua LNG development operated by Total and co-owned by explorer InterOil Corp. Exxon Mobil, after prevailing over Oil Search in the $2.5 billion battle for control of InterOil Corp. in July, said it will funnel gas from the Papua project into an expansion of PNG LNG.

    “A greenfields development for Papua LNG is highly unlikely based on the share of equity that will reside across the various projects at completion of the InterOil transaction with Exxon Mobil,” Oil Search Managing Director Peter Botten said on an earnings call.

    Botten was speaking Tuesday after Oil Search posted a 89 percent fall in first-half net income to $25.6 million as a drop in energy prices offset increased output. The result compared with expectations for $38 million, according to the average of three analysts surveyed by Bloomberg.

    The price Oil Search received for oil and condensate fell 27 percent from the year before while liquefied natural gas prices dropped 40 percent. Oil Search slashed its interim dividend to 1 cent from 6 cents a share.

    Oil prices have likely bottomed and the company is in the midst of an eight week strategy review after losing out in its battle for InterOil, according to Botten. The study, which will be completed by the fourth quarter, will focus on cooperation between the PNG LNG and Papua LNG projects to determine what strategies hold the most value for all stakeholders, Botten said in a statement.

    The company delivered a higher than expected dividend, Macquarie Group Ltd. said in a note. “Based on the increasing volumes and revenue as well as further lowering of costs at PNG LNG, we anticipate this higher dividend will be the first of many,” according to the note.

    Oil Search last month said revenue fell 33 percent even as production climbed 4 percent. Brent oil averaged about $41.20 a barrel for the first half, more than 30 percent less than the corresponding period in 2015.

    Oil Search’s realized price of $5.23 per million British thermal units for its gas in the second quarter is lower than rival Woodside Petroleum Ltd., according to data compiled by Bloomberg.
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    China targets teapot oil refineries in tax crackdown -sources

    China's crackdown on alleged tax evasion in the oil industry will target independent refineries and follows complaints by state energy giants, in the first major sign of growing tensions between established players and their upstart rivals.

    In a statement on Tuesday, the National Development and Reform Commission (NDRC) said it will ban crude imports for up to a year or, in certain cases, cancel import licenses for any companies found guilty of tax fraud.

    It did not give any further details, identify which companies it was targeting or provide the reason for the announcement.

    But industry sources in China familiar with the matter say the government launched an investigation earlier this year into complaints by government-owned firms that the nation's independent refiners, known as teapots, are not paying enough sales taxes.

    Officials from the NDRC and the State Administration of Taxation have visited some teapots, they said.

    "(The probe) was triggered by strong complaints from state oil companies that local refineries were paying much less fuel tax compared to them," said a senior official with the China Petroleum & Chemical Industry Federation, a semi-official agency. He declined to be named due to the sensitivity of the issue.

    Inspectors from the NDRC are also looking into allegations that refineries with import licenses are selling foreign crude oil to companies without, breaking rules set by Beijing when it started granting the quotas a year ago, according to four industry officials with knowledge of the inspections.

    The complaints illustrate how the rapid rise of the teapots, which are mainly privately owned and nimbler than their state-run rivals, like Sinopec and PetroChina, has roiled the domestic industry since Beijing granted the import permits a year ago.

    Any steps to curb their imports would be a major blow to this small but fast-expanding group, which have grabbed a growing slice of the domestic market by selling diesel and gasoline at discounts to state-run majors, and forcing them in turn to sell their excess into a saturated global market.

    "Previously, state refiners have been (turning) a blind eye on teapots, because they are not a big enough threat. Now things have changed. Big SOEs are quite sensitive over teapots' business practices," Lin Boqiang, energy researcher with Xiamen University.

    When asked about the probe last week, Sinopec spokesman Lu Dapeng said he had no knowledge of the government's inspections, and would not comment further.

    Rancor over taxes has been brewing for months, according to local media reports and traders.

    Before they had access to foreign crude, teapots mainly refined fuel oil and whatever excess crude they could pick up from the state-owned players.

    "A (teapot) plant of five million tonnes of annual capacity pays less than half of that of a state-owned refinery," Li Tianshu, a PetroChina refinery manager was quoted as saying by the 21st Century Business Herald in July.

    "Competition from teapots forced us to lower operations, they are now the biggest challenge to our profitability," the paper cited a second state refinery official as saying.

    In an apparent response to growing criticism, Shandong Dongming Petrochemical Group, the country's largest teapot operator, last week said via a social media post that it paid a record amount of taxes totaling nearly 1.28 billion yuan ($193 million) between January and April to the government of Heze, where it is headquartered.

    That's nearly 40 percent of total tax revenue for the city of 9.6 million people, it said on wechat.

    An executive with a leading teapot refiner said independents were paying lower taxes because many were configured to treat heavier crude oil that yields a smaller amount of gasoline and diesel versus more sophisticated plants.

    Many produce heavier products like bitumen that are not subject to consumption levies, he added.
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    China refiners, petrochemical companies to propose CO2 benchmarking plan

    China's oil refining, petrochemical and chemical companies will propose a plan to benchmark their carbon dioxide (CO2) emissions as the first step toward setting up an emissions market for the sector, the group's industry association said on Tuesday.

    The China Petroleum and Chemical Industry Federation (CPCIF), China's oil industry lobbying group, plans to make a proposal by September on how to set benchmarks for the CO2 produced while manufacturing products ranging from diesel fuel to benzene, it said in its China Chemical Industry News newsletter.

    The benchmarks will be used to set CO2 emissions caps for nearly 2,400 companies in the sector under the national carbon market that will start next year, the CPCIF said.

    China, the world's second-largest oil consumer, will need to benchmarks to help create reduction targets for its large petrochemical and chemical factories that are responsible for up to 70 percent of the sector's CO2 emissions, the CPCIF said.

    The number of the petrochemical and chemical companies participating in China's domestic carbon market will account for one-third of the total number of companies participating nationally, said Li Yongliang, a CPCIF official, as cited by China Chemical Industry News.

    China plans to bring in up to about 8000 companies in eight industries into its national carbon trading programme, including from the power, steel, cement and transportation sectors.

    The CPCIF will propose benchmarks for 23 products including refined oil products, ethylene and aromatic hydrocarbons such as benzene. The final cap will be set based on the benchmarks at the best-performing facilities.

    Sinopec Group, China's biggest oil refiner, said earlier this month that it would cut its carbon intensity 51 percent below 2005 levels by 2020 as a part of the company's five-year plan.

    China's oil companies have been trading carbon in the seven local carbon exchanges since the start of the pilot trading phase in 2013.
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    Mexico's Round 2.2 auction features 12 blocks, gas potential: minister

    A total of 12 onshore oil and natural gas blocks will be on offer in the second auction of Round Two of Mexico's energy reform, the energy ministry announced Tuesday.

    The blocks include 39 fields that have already been explored. In all cases, licenses will be on offer.

    A total of nine of the blocks lie in the Burgos Basin, across the US border from Texas, and the nation's main source of non-associated gas.

    Production of gas from Burgos has fallen below 1 Bcf/d in recent months. The remaining three blocks comprise two in the Chiapas Fold Belt, and one in the southeastern basins in the states of Tabasco and Campeche. All three have potential for both oil and natural gas.

    Speaking at a press conference, Pedro Joaquin Coldwell, the energy secretary, said that the main objective of Round 2.2 is to "extract both wet and dry gas so as to produce more ethane, propane and butane in order to benefit the petrochemical industry."

    Mexican gas demand has averaged just over 8 Bcf/d over the past three months, peaking at 8.05 Bcf/d in June, according to Platts Analytics' Bentek Energy data. This represents a year-on-year build of 330 MMcf/d or 4%.

    A substantial proportion of that demand is now being satisfied by a growing network of pipelines linking the US to Mexico.

    Joaquin Coldwell said the Round 2.2 blocks are, at 340 to 480 square km, much bigger than those of similar blocks in Round One. He added that the ministry hopes to attract $5 billion from investment in 2.2.

    Bids on Round 2.2 are to be placed on April 7, 2017. Results will be announced two days later.

    Round 2.1 consists of 15 shallow-water southern Gulf of Mexico blocks on production sharing contracts, the ministry recently announced. Bids on 2.1 are to be presented on March 22.

    Round One will be completed on December 5, when 10 blocks in the 1.4 auction are being auctioned in the deepwater Gulf of Mexico, including the Perdido Fold Belt. A total of 26 companies, including the majors, have applied to bid and the government expects to bring in $44 billion in investment.

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    Argentina to consider less than 400% natural gas hikes: official

    Argentina's government may consider raising natural gas bills on households by less than a previously proposed 400% as it seeks to rebuild gas production to reduce imports, Cabinet Chief Marcos Pena said.

    The government will pursue "the best scheme for gradualism" in raising gas tariffs, Pena said Saturday on Cadena 3, a radio broadcaster.

    The government called the public consultation last week after the Supreme Court annulled its 400% hike implemented April 1, on grounds that hearings must come first to allow users a chance to voice their concerns before changes are made in what they are charged.

    This was a blow for the right-of-center government of President Mauricio Macri, only nine months in office. His government wants to rebuild gas production and end chronic energy shortages, helping to reel in foreign investment to pull the economy out of recession.

    To encourage drilling, Macri has doubled the wellhead price to an average of $5.20/MMBtu and kept in place an incentivized price of $7.50/MMBtu for output from new developments, like in shale and tight plays.

    With higher gas distribution and transport tariffs, the government wants to cover more of the wellhead price from consumers, helping to reduce the strain on public finances through subsidies.

    With more gas production, the government is seeking to cut imports, which hit a record of nearly 50 million cu m/d in June. The goal is to end purchases of liquefied natural gas -- half of total imports -- by 2021-22, the government has said.

    Argentina's gas production rose 6.8% to an average of 121.4 million cu m/d in the first five months of 2016 from a 10-year low of 113.7 million cu m/d in 2014, according to Energy Ministry data.
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    API Reports Massive Build In U.S. Crude Stocks

    The American Petroleum Institute reported a 4.464 million barrel increase in U.S. crude oil inventories in the biggest build in crude supplies in four months.

    These figures are in stark contrast to a survey by Reuters earlier today, which showed an expert consensus for a 0.5 million-barrel draw in crude oil inventories. Similarly, Zero Hedge’s sources expected an 850,000 barrel draw this week, while analysts polled by S&P Global Platts expecteda 200,000-barrel rise in U.S. crude inventories. No estimates expected the massive increase in inventory.

    Gasoline inventories decreased by 2.2 million barrels – and if confirmed by tomorrow’s EIA figures, this would be the fourth weekly draw for the energy source in a row. Distillates also experienced an 834,000 barrel draw.

    West Texas Intermediate prices fell lower after the release of the new data, in light of the high inventory build-ups. However, the actual supply numbers will be released tomorrow in a report by the federal Energy Information Administration.

    In light of the new energy supply configuration, analysts at Goldman Sachs predict that even if the Organization of Petroleum Exporting Countries (OPEC) agree on a production freeze next month, the move will be self-defeating as net energy importer nations begin buying energy supplies en masse to hedge against higher prices.

    This week, supplies at the storage facilities at Cushing increased by 417,000 barrels according to the API figures, against a more conservative expected 200,000-barrel build. In the week prior, crude inventories at the site were down by 680,000 barrels according to actual EIA data.
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    U.S. EPA links Texas quakes to oil work, echoing research

    U.S. EPA links Texas quakes to oil work, echoing research

    Federal regulators have concluded that recent earthquakes in North Texas are likely linked to wastewater disposal wells used by the oil and gas industry, echoing findings from researchers at Texas universities.

    EPA officials made the comment in a letter to the Texas Railroad Commission, which regulates the oil industry in the top crude-producing state.

    Quakes have been tied to the injection of saltwater, a normal byproduct of oil and gas drilling, into deep disposal wells and underground caverns.

    The Railroad Commission has in the past questioned the causal link found in university studies.

    "EPA believes there is a significant possibility that North Texas earthquake activity is associated with disposal wells," said the Aug. 15 letter reported by the Texas Tribune on Tuesday.

    The EPA said it was concerned about seismic activity in the Dallas-Fort Worth area because of its potential to affect underground sources of drinking water.

    On Tuesday, the Railroad Commission said it has subjected new disposal well applications to greater scrutiny, participated in technical hearings about so-called induced seismicity, and supported installation of more earthquake monitoring stations so more data can be collected to better understand seismic activity in Texas.

    Regulators in Oklahoma have ordered dozens of disposal wells to be shut in to curb a spate of quakes in that state.

    The use of disposal wells intensified during the fracking boom, although U.S. oil and gas drilling has slowed recently on the worst price crash in years.
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    Cheniere ships first cargo from Sabine Pass Train 2

    U.S. LNG player Cheniere Energy has shipped the first cargo produced from the second train at its Sabine Pass export facility in Lousiana, according to gas shipping giant BW.

    “BW GDF Suez Everett loaded the first cargo from Sabine Pass Train 2 last week,” BW LNG, a unit of the Singapore-based company said in a short statement through its social media channels.

    The 2003 built 138,028-cbm LNG tanker left the Sabine Pass facility on August 18 and is currently located in the Caribbean Sea, according to AIS data provided by the vessel tracking website, MarineTraffic.

    LNG World News contacted both Cheniere and BW seeking comment on the matter. We will update the article once we receive a response.

    Cheniere said in the latest Sabine Pass construction update it expects first Train 2 cargo late August, with completion of the second liquefaction unit expected at the end of September. Train 2 started producing the chilled fuel on July 27.

    Cheniere’s Sabine Pass plant in Louisiana, first of its kind to ship U.S. shale gas overseas, started exporting LNG from Train 1 in February this year.

    The majority of these exports went to South America, followed by the Middle East, Asia, and Europe.

    Cheniere is developing and constructing up to six trains at Sabine Pass. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.
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    PDC Energy Joins Permian Oil Rush With $1.5 Billion Acquisition

    PDC Energy Joins Permian Oil Rush With $1.5 Billion Acquisition

    PDC Energy Inc. joined the parade of companies buying into the U.S.’s biggest oilfield, announcing a $1.5 billion purchase of two companies with holdings in Texas’ Permian Basin.

    PDC agreed to buy two closely held companies with a combined 57,000 acres in the Permian, the Denver-based explorer said in a statement Tuesday. The driller will pay $915 million in cash and give about 9.4 million of its shares to Kimmeridge Energy Management Co., a New York-based private equity fund that manages the two Permian companies.

    Drillers including Pioneer Natural Resources Co., Parsley Energy Inc. and Concho Resources Inc. have all announced deals in the Permian this year, expanding their presence in one of the few North American oil regions where production is profitable at current prices. Until now, PDC has concentrated on wells in Colorado and Ohio, according to its statement.

    The privately negotiated transaction includes about 57,000 acres in Reeves and Culberson counties in Texas, which currently produce the equivalent of about 7,000 barrels of oil a day. The company intends to fund the cash portion of the purchase though “potential equity and debt financings," PDC said. The deal is expected to close in the fourth quarter.
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    Trudeau Faces Split Aboriginal Groups in Kinder Morgan Ruling

    In the rolling country of central British Columbia, Michael LeBourdais’s Whispering Pines Indian Band is looking forward to a cash injection from a new pipeline proposed by Kinder Morgan Energy Partners LP. He’ll be seeking compensation for his band if it doesn’t go through.

    Meanwhile, 400 kilometers (250 miles) away near the pipeline’s terminus in Vancouver, the Tsleil-Waututh First Nation is battling the expansion, saying it will lead to oil spills on their tribal land and in the waters of Burrard Inlet.

    Into this breach will step Prime Minister Justin Trudeau, who must decide on the C$6.8 billion ($5.4 billion) Trans Mountain pipeline expansion, which oil companies say is vital to get increased output from Canada’s oil sands to global markets via the Pacific Coast.

    The conflicting native views underscore the delicate balance Trudeau must strike as he seeks to fulfill his promises of upholding aboriginal rights and responsible resource development while sparking growth in an economy reeling from plunging oil prices.

    Trans Mountain brings together “in one file” the biggest priorities for Trudeau and his Liberal Party government, with political implications that set environmental issues against the “cold, hard facts” of economic development, said pollster Nik Nanos, chairman of Ottawa-based Nanos Research Group. The scale of the decision may even force the prime minister to slow down the process and delay a ruling, currently set for the end of the year, he said.

    This is “very tricky because of some of the conflicting priorities,” Nanos said. The decision will “be a big signal nationally and internationally and indicative on how the Liberals convert talk on the environment.”

    Pipeline Expansion

    Kinder Morgan plans to triple Trans Mountain’s capacity to 890,000 barrels a day by twinning the existing 1,150 kilometer line that runs through the mountainous Canadian province. The system, in operation since 1953, is the only pipeline from Alberta to the Pacific Coast and connects the oil sands directly to a port with reach to markets outside North America.

    Input from stakeholders during Kinder Morgan’s 159 workshops and open houses as well as other feedback has “improved” the project, the company said in an e-mailed response to questions. The Houston-based pipeline operator has changed the route to avoid sensitive areas and made the pipeline thicker in some locations, it added.

    In deciding Trans Mountain’s fate, the government is adding its own review of the project following the National Energy Board’sgreen light in May, subject to 157 conditions. The expansion probably won’t add to the climate impact of the country’s oil production, the Canadian Environmental Assessment Agency said in a separate report.

    Still, even with the conditions and additional review, opposition to the pipeline remains stiff, especially near Vancouver with its beaches and environmentally-conscious residents. Mayor Gregor Robertson in June submitted a request for judicial review of the NEB’s decision. The expansion is “not in Vancouver or Canada’s economic or environmental interest,” the mayor said.

    Chief LeBourdais at Whispering Pines, meanwhile, says he wants compensation if Robertson and other opponents succeed in blocking the pipeline, which would provide his band with a “very large sum of money” following years of negotiation with the company.

    “If you’re going to say no, that’s ok, but then somebody owes me the value of that negotiated agreement,” he said.

    And at a recent public meeting in Burnaby earlier this month as part of the federal government’s review on Trans Mountain, Burnaby Mayor Derek Corrigan summed up the challenges for Trudeau -- using the prime minister’s own words.

    “Justin Trudeau said governments give permits but communities give permission,” Corrigan told the panel. “Well, we don’t.”

    Canada’s oil companies have struggled to win new outlets for their increasing volumes of petroleum, especially from the oil sands where output may rise 50 percent to 3.7 million barrels a day by 2030, according to the Canadian Association of Petroleum Producers. With Enbridge Inc.’s permit for Northern Gateway recently revoked by a federal court and TransCanada Corp.’s Keystone XL approval rejected last year by President Barack Obama, the industry has pinned its hopes on Trans Mountain after years of disappointments.

    “There is no question that a decision on the Trans Mountain pipeline is of significant national impact,” said Jeff Gaulin, vice president at the Canadian Association of Petroleum Producers, an industry lobby group in Calgary. “It will be a watershed moment for the development of Canada’s energy resources to reach more international markets.”

    Trans Mountain will be the first test of Trudeau’s approach to Canada’s resource-heavy economy and highlights how the government is unprepared with policy to support decisions on individual energy projects, said Monica Gattinger, a University of Ottawa professor and director of the school’s Institute for Science, Society and Policy. A policy framework that provides direction on climate, aboriginal relations and cumulative effects is needed to help resolve opposition to such projects, she said.

    “We have a number of policy gaps around energy that frankly extend well beyond the remit of any individual energy project decision-making processes,” she said. “Are governments really trying to make climate policy one pipeline at a time? That’s putting the cart before the horse.”

    Trudeau wants to remake Canada into a low-carbon society while balancing natural resource development in an economy that relies on commodity exports, making the country more dependent on resources for economic growth than other large wealthy nations. His government is currently developing a climate strategy, including a national price on carbon, in coordination with the provinces.

    “All projects are reviewed individually based on science, evidence and the traditional knowledge of indigenous peoples,” Natural Resources Canada said in an emailed response to questions about the Kinder Morgan pipeline.
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    Alternative Energy

    World-leading solar and battery storage project lures BHP

    A world leading large-scale solar and battery storage project in north Queensland has drawn interest from the world’s biggest miner, BHP Billiton, which says it is looking at the technology for its remote and off-grid mine sites.

    The project, near Lakeland south of Cooktown, will combine 10.4MW of solar PV with 1.4MW/5.3MWh of lithium-ion battery storage, and is being pitched as a world-first for remote, edge of grid technology, and one likely to trigger a host of similar projects across Australia.

    It was announced on Tuesday that the $42.5 million project, being developed by German-based Conergy, will get $17.5 million in funds from the Australian Renewable Energy Agency, and has also signed a power purchase agreement with Origin Energy.

    That will be Origin’s fourth PPA with a solar project in the last few months, following its deals withMoree, Clare, and the Degrussa mine facility. Three of these have been co-funded by ARENA, and two of these – Lakeland and Degrussa – have been paired with battery storage.

    This is where BHP Billiton’s interest has been pricked. The head of environment at BHP Billiton, Dr Graham Winkelman, says solar and storage projects may help BHP Billiton reduce its own operating emissions while helping to support energy reliability at some of the more remote operations.

    BHP Billiton is tipping $350,000 into the “knowledge sharing” aspects of the project, small change for a company of its size, but it recognises the potential because of the number of its own operations that are in remote locations, far from infrastructure or on the fringe of grids. Energy security, through battery storage, is also an issue.

    “The applications for mining could be enormous,” the company says. “The Lakeland Solar and Battery Storage Project will allow us to understand behaviour and performance of solar and storage systems with network and industrial loads.

    “It is also an important component of Low Emissions Technology that provides balance to our portfolio. More broadly, battery storage is a key piece in the advancement of renewables and realising their potential to reduce emission on a larger industrial scale.”

    There are now a growing number of solar and storage projects under construction or already running in Australia, including Degrussa and Weipa mines, along with off-grid projects such as Coober Pedy, Rottnest Island, King Island, and Flinders Island.

    BHP has been operating a 1MW solar plant at the township adjacent to one of its copper mines in Chile,and it has previously canvassed solar and other renewable technologies when it put together its draft planning for the massive Olympic Dam project, although that whole project is now on hold.

    ARENA chief executive Ivor Frischknecht said the ground breaking aspect of the project was its ability to operate in “island mode”, including in the evening peak, meaning that it could still supply power when the main transmission lines were cut due to storms or some other technical issue.

    This is critically important for the likes of Ergon Energy, which runs the world’s most elongated and least populated grid, and which is looking at solar and storage options as an alternative to investing in upgrades of poles and wires and transformers in other locations in western and northern Queensland.

    “Batteries are already competitive for particular situations,” Frischknecht told RenewEconomy. “They are not competitive right now with coal or gas generation, but that is not what we are trying to do.”

    In a statement, he said: “The global energy transition is happening faster than many anticipated and Australia is well placed to be a key player. Our growing expertise in integrating renewables and batteries could readily translate into economic opportunities including export dollars in world markets.”
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    Tesla's Musk buying over half of SolarCity bond offer - filing

    Tesla's Musk buying over half of SolarCity bond offer - filing

    Tesla Motors Chief Executive Elon Musk is buying $65 million of bonds from SolarCity Corp in the latest debt offering by the solar panel company that Tesla plans to acquire for $2.6 billion, according to a filing on Tuesday.

    Musk's purchase of the so-called "solar bonds" comes after money-losing SolarCity last week said it would cut operating costs to bring expenses in line with its reduced solar installation outlook.

    SolarCity Chief Executive Lyndon Rive and Chief Technology Officer Peter Rive are each buying another $17.5 million of the $124 million offer, according to the SolarCity filing.

    It appeared to be the first time Musk has directly purchased SolarCity bonds, although his rocket-making and space transport services company SpaceX has bought them in the past. He is the largest shareholder in Tesla and SolarCity and a cousin of the Rives.

    Also on Tuesday, Tesla said an improved battery for the performance version of its Model S all-electric sedan would allow it to accelerate from 0-60 miles per hour in just 2-1/2 seconds.
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    U.S. Senate Judiciary Committee to hold hearing on ag chemical deals

    The U.S. Senate Judiciary Committee will hold a hearing in late September to discuss the mergers of Dow Chemical Co and Dupont Co as well as China National Chemical Corp's purchase of Syngenta AG, committee chair Charles Grassley said in a statement on Tuesday.

    Grassley, a Republican from the farm state of Iowa, has already expressed concern that the deals would result in farmers paying more for seeds, pesticides and herbicides and reduce the companies' incentives to innovate.

    "The seed and chemical industries are critical to agriculture and the nation's economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy," Grassley said.

    Dow and DuPont said in December that they would combine in an all-stock merger with plans to then break into three separate businesses. In February, China's state-owned ChemChina made a $43 billion bid for Swiss seeds and pesticides group Syngenta.

    Executives from the companies will be invited to testify, as will consumer groups, the lawmaker said in a statement.

    The committee has no formal say over whether the deals may go forward. The Justice Department is looking at the merger of Dow and DuPont, while the Federal Trade Commission is reviewing ChemChina's purchase of Syngenta.
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    Precious Metals

    Implats falls most in a month as profit tumbles on work stoppages

    Impala Platinum(Implats), the world’s second-largest miner of the metal, headed for the biggest decline in more than a month after the company said full-year earnings will tumble as much as 75% because of lower local prices and production stoppages.

    The shares slid 4.6% to R58.95 as of 9:52 a.m. inJohannesburg, the largest decrease in the five-member FTSE/JSE Africa Platinum Mining Index. A close at this level will mark the biggest one-day drop since July 20. Earnings before one-time items are expected to be between 9 cents to 16 cents a share for the year ended June 30, compared with 36 cents a year earlier, the Johannesburg-based company said in a statement Monday.

    The world’s top platinum miners, including Anglo AmericanPlatinum Ltd. and Lonmin Plc, have seen earnings squeezed by a more than 40% plunge in platinum prices in the past five years. Platinum averaged R13 825 ($1 026) an ounce in the year to June 30, almost 3% below the mean a year earlier. Themetal is Impala’s main earner and the company has also been plagued by safety-related stoppages in the past year.

    Impala’s Number 14 shaft, which produces almost a fifth of its metal, “has had a horrific year,” said Rene Hochreiter, aJohannesburg-based analyst at Noah Capital Markets (Pty) Ltd.

    On May 17, two miners at the shaft were killed after an underground area caved in and CEO Terence Goodlaceannounced his resignation a day later. As of June, eight workers have been killed at Impala’s operations this year. Every fatality causes lost production while government inspectors examine the site.

    Impala shares have more than doubled this year amid a broader rebound in mining stocks. The company also produces palladium, rhodium, nickel and copper.
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    Base Metals

    Jiangxi Copper targets investors with $300 mln global mining fund

    Jiangxi Copper Co Ltd said on Wednesday it has set up a Cayman Islands-based fund that will buy mining projects as the Chinese state-owned copper producer sets its eyes on potential bargains as the commodities cycle bottoms.

    As China's largest copper producer reported a 37.9 percent drop in profits due to weak metals prices, it said it had allocated $100 million through its subsidiaries to establish Valuestone Global Resources Fund I in the Cayman Islands with CCB International Asset Management Ltd, part of China Construction Bank Corp.

    By Aug. 4, the fund had $150 million in initial funding and was now open to domestic and foreign institutional investors. The aim is to get $300 million in total investment.

    Jiangxi didn't identify what projects it was targeting, but said the fund will capture opportunities arising from low metals prices.

    While it is not unusual for banks and hedge funds to use investment arms to buy into mining projects, it is an unusual move for a Chinese government-owned producer and reflects the company's global ambitions.

    "The focus is not to secure supply, it is rather how to make a profit at the bottom of this industry cycle," analyst Helen Lau of Argonaut Securities in Hong Kong said.

    "Eventually Jiangxi Copper may participate in operating and investing... but they may ask the (private equity) fund to just flip it."

    The fund may be able to cast its net wider than traditional private equity units, said Lau.

    Private equity funds have been on the hunt for deals for the past few years but have largely held back on purchases.

    However, Jiangxi's fund could have greater capacity to develop projects since it is a major producer as well as a stakeholder offering operational know-how and could pay for the offtake, said Lau.

    Jiangxi Copper sources only 20 percent of its supply from its own mines. It has said its next step will be to focus on international acquisitions and Lau said the fund will help Jiangxi bolster its international M&A experience.

    Jiangxi has had limited success overseas with projects in Afghanistan and Peru, unlike peers such as China Moly and Minmetals.

    The Afghani project has been delayed after insurgent attacks that have also hampered nearby infrastructure builds.

    London Metal Exchange copper prices have fallen by more than quarter since May 2015 amid concerns about slowing demand from China, the world's top commodities consumer, and are languishing at around $4,700 per tonne.
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    Glencore speeds up debt reduction with Australian copper mine deal

    Glencore Plc has agreed to sell all the gold and a 30 percent stake in its Ernest Henry copper mine in Australia to Evolution Mining for A$880 million ($670 million), advancing the Swiss giant's effort to pay down debt.

    The deal will take Glencore nearer to its target of cutting debt to between $17 billion and $18 billion by the end of this year, while Evolution, Australia's second-largest gold miner, said the stake would boost its gold output and cut its costs.

    "This agreement recognizes Ernest Henry Mine as a world class copper-gold-silver mining operation with significant potential going forward," Glencore said in a statement.

    Glencore, which reports its half-year results later on Wednesday, is targeting asset sales of up to $5 billion this year, on top of $1.4 billion it has reaped from sales of future output of precious metals.

    It has already raised $3.1 billion from the sale of just under half of its agricultural business, and is in talks to sell its Cobar copper mine and its coal rail business in Australia, which together could fetch close to $1.5 billion.

    Evolution approached Glencore to buy the Ernest Henry mine some time ago but was told it was not for sale, Executive Chairman Jake Klein told Reuters.

    So instead, Evolution, advised by Royal Bank of Canada, came up with the proposal to buy the mine's gold and set up a partnership with Glencore by taking an economic stake. It is also in talks to drive exploration around the mine.

    "This was a meeting of the minds," Klein said in an interview. "It's one of those innovative transactions where each party has got what they want out of the deal. For us it's gold and for them copper."

    Evolution would receive all of the gold produced by Ernest Henry for its current 11-year mine life, as well as 30 percent of the copper, which it would sell back to Glencore, offsetting gold production costs.

    The deal will boost Evolution's gold output by about 88,000 ounces a year, extend the life of its reserves, and lower its all-in sustaining cost of production by 7 percent to A$930 an ounce. That compares with the current gold price at A$1,760.

    "It definitely improves the quality of our portfolio," Klein said.

    Evolution plans to raise A$401 million through a sale of new shares priced at A$2.05 a share, a 16 percent discount to its close on Tuesday, to help fund the deal.

    Evolution produced 735,000 ounces of gold last year from six mines, excluding the Pajingo mine which it recently agreed to sell.
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    Nickel market swings into undersupply

    After several years of surplus, the nickel market moved to a deficit in the second quarter of this year and, with the price of the commodity now above $10 000/t, a smaller portion of global nickel producers are now cash negative, research and consultancy group Wood Mackenzie nickel markets principal analyst Sean Mulshaw tells Mining Weekly.

    He expects that the market will remain undersupplied over the medium term and, therefore, nickel prices should increase from their current level. Although the metal reached a record-high price, higher than $50 000/t, in 2007, Mulshaw cautions that only moderate improvements can be expected until the excess supply of nickel has been depleted.

    “At present, nickel prices are low, primarily owing to many consecutive years of oversupply and a consequent build-up of global nickel stocks to record levels in response to the repeated promise of strong global demand that has, generally, failed to materialise.”

    Mulshaw notes that, at recent price lows, two-thirds of the world’s nickel producers have been losing money, with many forced to reduce costs and output to save cash. He adds that, despite this, surprisingly few producers have closed, largely in preparation for rising prices as global nickel supply tightens.

    This expected supply constraint is mainly driven by the substantial decline in Chinese nickel production and production cuts elsewhere in the world due to low nickel prices. Mulshaw explains that two-thirds of all nickel produced is used to make stainless steel, a market whichChina dominates, subsequently accounting for about 50% of global nickel demand.

    “Until recently, this demand for nickel was supported by the rapid growth of China’s nickel smelting industry, but a ban on exported ore from Indonesia in 2014 has resulted in falling output in Chinese nickel for stainless steel production since then,” he says.

    Ore supply to China from the Philippines, the only other supplier of nickel feed, is also at risk, as a result of an ongoingenvironmental audit of existing mines, causing a sudden uptick in nickel prices, Mulshaw notes.

    Africa accounted for 6.5%, or about 2.1-million tons, of global mined nickel production in 2015, owing mainly to diversified miner African Rainbow Minerals’ Nkomati mine, in South Africa; diversified miner Mwana Africa’s Trojan mine and platinum-group metals miner Zimplats’ project, both in Zimbabwe; nickel and cobalt miner Ambatovy’sproject, in Madagascar; and nickel miner Tati Nickel’sproject, in Botswana.

    The continent generates 4.5% of global finished nickel production, but accounts for only 1% of global nickel consumption, most of which is used by stainless steelproducer Columbus Stainless at its mill in South Africa.

    “In the longer term, there will be a need for the development of new projects to ensure that the world supply keeps pace with demand. However, investment in new projects will likely be stimulated only once the price climbs substantially higher than what it is . . .” he concludes.

    Attached Files
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    Steel, Iron Ore and Coal

    China's Henan province cuts loans to overcapacity sectors by almost $1 bln

    Banks in China's central Henan province have reduced their lending to sectors suffering from overcapacity by 6.4 billion yuan ($963.71 million) so far this year, a bank regulator official said on Tuesday.

    The local banking regulator in Henan is encouraging lenders to reduce the burden on firms in the landlocked province by restructuring their debts, Zhang Chun, deputy head of the Henan branch of China Banking Regulatory Commission (CBRC), said at a briefing in Beijing.

    Heavy industries such as coal and steel have languished in Henan amid an industry downturn that has also hit broad swaths of the country's northern rustbelt.

    Provinces are under pressure from the central government to cut excess capacity in those bloated sectors. Beijing has also told banks to slash lending to unprofitable and delinquent corporate borrowers in the coal and steel industries.

    Non-performing loans in China's banking sector are increasing at a rate that is "worrisome", Zhang said.

    Some provinces such as Henan have pushed back against Beijing's efforts to restrict credit to loss-making enterprises with excess capacity, though CBRC has given lenders some latitude to manage their lending to over-capacity industries.

    Total net new bank lending in Henan was at 274.5 billion yuan in the first half, according to central bank data.

    The squeeze in lending has led businesses to take on higher interest-rate loans from so-called shadow banks.

    Net shadow bank lending in Hebei, Shanxi, Jilin, Anhui, Henan, Sichuan and Shandong rose 240 percent to 249 billion yuan in the first quarter, against a 30 percent rise nationwide.

    Chinese commercial banks' NPL ratio was at 1.75 percent at end-June, while the total volume of NPLs hit an 11-year high, according to CBRC data.
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    China July coking coal imports slump on rising prices

    China's coking coal imports slumped 33% on year and 23.2% on month to 4.46 million tonnes in July, showed the latest data from the General Administration of Customs (GAC).

    According to the GAC, value of the imports stood at $307.84 million in July, plunging 42.9% on year and down 19.2% on month, which translated into an average price of $69.02/t, up 5.23% from June.

    The decline on imports of the steelmaking material was mainly due to price hikes of import coking coal in the month.

    China's steel producers preferred to purchase domestic coking coal, given high prices and long shipping time of imported material. Thanks to limited supply and rising exchange rate, prices of import coking coal rose significantly in July, impacting on advantages of Australian coal over domestic one.

    As of July 29, the CFR price of premium low-vol Australian HCC was assessed at $105.75/t, up $8.5/t from the month-ago level; while the ex-washplant price of Liulin low-sulphur primary coking coal stood at 658 yuan/t, dropping slightly by 2 yuan/t on month affected by falling coke prices, showed data from China Coal Resource.

    Over January-July, the country's coking coal imports climbed 11.8% on year to 31.48 million tonnes; the value of the imports was $2.04 billion, falling 14.8% year on year.

    Meanwhile, China's exports of coking coal increased 8.8% on year but plunged 71.4% from June to 40,000 tonnes in July, with the value at $3.11 million, falling 2.9% on year and plummeted 75.02 % on month.

    In the first seven months of 2016, China's coking coal exports stood at 810,000 tonnes, rising 49.6% from the previous year, with total value of the exports increasing 14.7% on year to $72.05 million.
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    Indian coal miners announce strike

    Coal India, Indian state-owned coal miner, has received notice of strike by its workers planned for September 2, the company said in a release to the Bombay Stock Exchange.

    "Efforts are being made for conciliation process," the company added, but warned that, should the strike go ahead, "it will affect production and dispatch of coal."

    The strike of coal workers forms part of a general strike called at a national convention of trade unions representing workers at companies owned by the Indian central government. It includes members of the Coal Mines Authority Limited Employees Union and Coal Mines Workers Union.

    According to the unions' charter of demands, the unions are calling for an end to privatisation of the coal industry, the end of coal imports, the raising of the status of the coal industry and various wage and benefits improvements – including equality of wagers for contract workers.

    India's domestic coal production has been hit in recent years by strikes, which limit Coal India's ability to reach government production targets.

    The government has made boosting domestic coal production a priority in order to reduce fuel import bills and enable the role out of coal-fired power to meet the country's energy needs.

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    South Korea July thermal coal imports down 10pct on year

    South Korea imported 7.61 million tonnes of thermal coal (including bituminous coal and sub-bituminous coal) in July, falling 10.24% year on year but up 6.77% month on month, customs data showed.

    Of this, 95.93% or 7.30 million tonnes was bituminous coal, rising 9.94% from June but down 7.87% from the year ago level.

    Australia remained the largest supplier of bituminous coal in July, shipping 2.68 million tonnes, up 5.69% from the previous month but sliding 32.92% on year.

    This was followed by Indonesia with a shipment of 2.28 million tonnes, dropping 3.46% from June and 4.77% from the year-ago level; Russia at 1.56 million tonnes, rising 29.06% on month and 6.01% on year; and South Africa at 167,500 tonnes.

    China exported 108,600 tonnes of bituminous coal to South Korea in July, up 23.27% from the previous month and surging 65.05% from a year prior.

    The Asian country imported 312,100 tonnes of sub-bituminous coal in July, dropping 36.16% on month and 43.99% on year, all from Indonesia.
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    Inner Mongolia to shut down 65 coal mines by 2020

    Inner Mongolia plans to shut down 65 coal mines with a combined capacity of 54.1 million tonnes by 2020, a local official said Tuesday.

    Wang Bingjun, head of the regional commission of economy and information technology, said 23 unlicensed coal mines have been ordered to close or stop construction.

    Other mines have been ordered to run at 84 percent of their production capacity, resulting in 10.4 percent reduction in output.

    During the next five years, the region also plans to cut steel capacity by 3.1 million tonnes, said Wang.

    The commission has not approved any new steel mills in nearly three years, added Wang.
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    Brazil's Vale says iron-ore railway down for over 12 hours on Monday

    Brazilian mining company Vale said on Tuesday that its most important railway, used to transport iron ore from its Carajas mine in the Amazon, stopped operating for over 12 hours on Monday due to a land protest on the line.

    Operations were interrupted between 6:30 am and 6:50 pm local time, the company said, adding the cargo railway has resumed operations. Vale did not say whether production was affected.
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    South Africa and ArcelorMittal forge steel pricing agreement

    ArcelorMittal's South African business and the country's government have agreed a new pricing model aimed at bolstering the domestic steel sector and reviving the economy.

    The company was fined a record 1.5 billion rand ($111 million) on Monday for setting prices at the level consumers would have to pay for imported steel, but Trade and Industry Minister Rob Davies told parliament on Tuesday that it had agreed on a mechanism that would provide transparent pricing based on domestic prices in a number of other countries.

    The government of Africa's most industrialized country formed a team six years ago to find ways to lower domestic steel prices after consumers complained that the European group's South African subsidiary was charging high prices.

    "This has been the concern that we've had for a long time, that the price of domestically produced steel has been supplied in the market on the basis of what the import parity price would be," Davies said.

    The local price for flat steel products will now be calculated through a formula using the weighted average of domestic prices in countries such as Germany, the United States and Japan, but excluding China and Russia, Davies said.

    In future, when ArcelorMittal South Africa changes its flat steel prices, it will have to use a transparent mechanism based on the forecast basket prices of fabricated metal products, machinery and equipment, as well as vehicle and other transport equipment, Davies added.

    "The basket aims to provide a fair price during boom and bust periods," he said.

    ArcelorMittal South Africa officials were not available to comment.

    South Africa, which has the only primary steel mill in sub-Saharan Africa, imposed a 10 percent import tariff last year to protect an industry hurt by cheaper Chinese imports.
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    Major steel merger could face obstacles

    Major steel merger could face obstacles

    Consolidation of China's steel industry may be more complicated than many outside observers thought, China Daily reported, citing sources with the central government.

    Commenting on market rumors that China is regrouping its steel industry into two large blocs, one in the south and the other in the north, an official from the National Development and Reform Commission says forming a northern steel group will probably take a much longer time than a southern group.

    The formation in the south may come about soon, industry observers say.

    Baoshan Iron and Steel and Wuhan Iron and Steel both issued notices of suspension of stock trading on June 26. The companies are large, state-owned steelmakers that could form the backbone of the southern steel group.

    Li Hongzhong, Party ecretary of Hubei province, met with chairmen of the Baoshan and Wuhan steel works recently to push for restructuring of the companies. However, no final confirmation has been given by the companies. Xinhua News Agency, however, indicated that Magang Group could be a third member of the proposed southern group.

    In contrast with the southern steelmakers, industry sources say it is hard to guess how the northern group's top management might be formed.

    Bloomberg reported that a northern group will be formed by Shougang Group, which was moved out of Beijing ahead of the 2008 Olympics, and Hebei Iron and Steel, whose interests cover all of Hebei province.

    Although both companies are located near each other, Shougang is directly administered by the central government, while its potential partner is under the Hebei government.

    Strategically, analysts say, such reorganization would help the industry shed its excess capacity, cut pollution and become more focused on product quality.

    Zhu Bin, an analyst with Southwest Securities, says he believes the consolidation would increase general profitability, enabling the industry to optimize its product structure and cut costs.

    According to the World Steel Association data, Hebei Iron and Steel produced 47.74 million tonnes of crude steel last year, making it the world's second-largest steel company. For Baoshan, the figure was 34.93 million tonnes; Shougang, 28.55 million tonnes; and Wuhan, 25.77 million tonnes.

    If the consolidation program works, the northern and southern groups would be the second- and third-largest iron and steel producers in the world, after only Arcelor Mittal, the Indian multinational based in Luxembourg that produced 97.13 million tonnes last year.
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