Mark Latham Commodity Equity Intelligence Service

Monday 14th September 2015
Background Stories on www.commodityintelligence.com

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    Macro

    China Aug commodities output weak as economic slowdown bites


    China's output of key industrial commodities including coal and steel weakened in August, as government measures to cut smog ahead of World War Two commemorations further cut production already lowered by a slowing economy.

    Growth in China's investment and factory output missed forecasts in the month, pointing to a further cooling in the world's second-largest economy that will likely prompt the government to roll out more support measures.

    Production of coal and steel, which has steadily fallen amid weak demand and chronic oversupply, fell further in August after the government mandated the closure of scores of factories to reduce pollution in Beijing ahead of events to mark the end of World War Two that included a massive military parade.

    Qiu Yuecheng, analyst with the steel trading platform Xiben New Line E-Commerce, said demand for some commodities, such as steel, may pick up in the second half of the year after the summer lull, "but with the overall economy facing pretty big downward pressures and funds still tightening, the scale of the recovery will be limited."

    Crude steel output fell 3.5 percent year-on-year to 66.94 million tonnes in August, the second consecutive monthly decline, which also triggered a 6.6 percent drop during the month in the output of coking coal, a key steel-making material.

    Raw coal output, which has been falling as a result of government measures to promote cleaner burning fuels, also dropped 2.6 percent from the same month a year-ago, according to data published by the National Bureau of Statistics on Sunday.

    Coal production is down 4.8 percent for the first eight months, hit by a 2.2 percent decline in thermal power production over the period as grids took on more hydropower.

    Still, the anti-pollution measures failed to boost demand for natural gas, with data from the statistics bureau showing output grew 3 percent over the first eight months of the year, down from 6.9 percent in 2014 and 11.5 percent in 2013.

    Crude oil throughput remained resilient as refiners continued to take advantage of weak global prices. Runs rose 6.5 percent on the year to 10.44 million barrels per day (bpd). Domestic crude oil output stood at 18.17 million tonnes, up 3.6 percent on the year.

    Oil demand rose 5.1 percent from a year earlier to 10.26 million bpd, rising 1.4 percent from July, according to Reuters calculations using preliminary government data.

    In its latest forecast released on Friday, the International Energy Agency said it expected Chinese oil demand to grow 4.1 percent this year, noting that demand has remained "remarkably resilient" amid the economic slowdown.

    http://www.reuters.com/article/2015/09/13/china-economy-output-commodities-idUSL4N11H1R520150913
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    China Aug thermal power output up 3.7pct YoY


    Electricity output from China’s thermal power plants – mainly coal-fired – stood at 377.8 TWh in August, rising 3.7% year on year and up 3.3% month on month, showed data from the National Bureau of Statistics (NBS) on September 13.

    The increase was mainly due to increased residential demand amid hot weather across the country.

    China’s hydropower output fell 11.8% on year and down 4.7% on month to 104.6 TWh in August – the first drop in the wake of the fifth consecutive monthly increase.

    Total electricity output in China stood at 515.5 TWh in August, edging up 1% from a year ago and up 1.3% on month – the fourth consecutive month-on-month increase, the NBS data showed. That equated to daily power output of 16.63 TWh on average, rising 1% on year and up 0.13% from July.

    Over January-August, China produced a total 3,738 TWh of electricity, up 0.5% year on year, with thermal power dropping 2.2% on year to 2,833.7 TWh while hydropower output increasing 5.7% to 639.6 TWh.

    http://en.sxcoal.com/0/131368/DataShow.html
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    China under the spotlight.

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    China Fixed-Asset Investment Tumbles to Lowest Since 2000


    China’s fixed-asset investment rose at the slowest pace in 15 years and industrial production trailed analyst estimates, raising further question marks over the effectiveness of government efforts to revive growth.

    Investment excluding rural households climbed 10.9 percent in the first eight months, the National Statistics Bureau said Sunday, versus 11.2 percent median projection of economists surveyed by Bloomberg.
    Industrial output rose 6.1 percent in August from a year earlier, missing the 6.5 percent estimate.
    Retail sales rose 10.8 percent in August, beating the projected 10.6 percent gain and July’s 10.5 percent rise.

    “The economy is showing no sign of recovery," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “From the perspective of monetary policy, the government has done what it can, but demand from the real economy needs to pick up to really make use of that.”

    The weakening economic figures underscore the challenge the government faces in meeting its growth target of 7 percent this year, as exports decline and producer price deflation deepens. Factory shutdowns in Beijing and surrounding provinces before a Sept. 3 military parade in the capital may also have contributed to the weaker-than-forecast output reading.

    "Demand for industrial products from domestic and overseas markets is still on the weak side," Jiang Yuan, senior statistician at NBS, wrote in a statement issued with the report. "Downward pressure on industries is still relatively big."

    http://www.bloomberg.com/news/articles/2015-09-13/china-factory-output-misses-estimates-highlighting-challenges
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    China issues state-firm reform plans, expects results by 2020


    China issued some details on Sunday on plans to reform state-owned enterprises (SOEs), including the introduction of "mixed ownership" by bringing in private investment, and said it expected decisive results by 2020.

    Reform of mammoth state-owned firms is one of China's most pressing tasks as growth slows in the world's second-largest economy.

    The guidelines, jointly issued by the Communist Party's Central Committee and the State Council, China's cabinet, include plans to clean up and integrate some state firms, the official Xinhua news agency said. But it did not give any details of which firms will be merged.

    The government will not use forceful means to push the "mixed ownership", nor it will set a timetable, giving each firm the go-ahead only when conditions are mature, it said.

    State firms will be allowed to bring in "various investors" to help diversify their share ownership, and more state firms will be encouraged to restructure to pave the way for stock listings, Xinhua said.

    Private investors will be encouraged to buy stakes in state firms, buy convertible bonds issued by state firms, or swap shares with state firms, it said, adding that steps will be taken to curb corruption during reforms.

    Chinese private companies are seen as more efficient and innovative than state-owned firms, which enjoy easier access to government policy support, subsidies and bank loans.

    The government aims to "cultivate a large number of state-owned backbone enterprises with innovation capability and international competitiveness," Xinhua said, indicating the reforms will not amount to full-scale privatisation.

    The step comes nearly two years after President Xi Jinping called for market forces to play a decisive role in better allocation of resources in the world's second-largest economy.

    China will push firms to merge and sells shares as part of the most far-reaching reforms of its sprawling and inefficient state sector in two decades, according to documents seen by Reuters last week.

    China's state enterprises are dominated by 111 central government-owned conglomerates, which account for about 60 percent of SOE revenue and are overseen by the State-owned Assets Supervision and Administration Commission (SASAC).

    Earlier this year, state media said the number of central government conglomerates could be cut to 40 through mergers.

    http://www.reuters.com/article/2015/09/13/china-economy-reforms-statefirms-idUSL4N11J07X20150913

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    China clears wrecked containers at core area of Tianjin port blast


    Image Source: PAIHS Maritime 360 reported that wrecked containers at the main area of a warehouse explosion in Tianjin port have been cleared out as of 8 September, announced the local government.

    The remaining steel structures, frames, and other debris have been cleared after detection and decontamination, and will be melted down later, said the authorities.

    Meanwhile, all buildings at the core area of the blast were torn down, and nearby pools of polluted water that formed during the blast are being cleaned and shipped out after safe treatment.

    Local officials said that the clean-up work at the Tianjin port blast site is about to finish.

    At present, the port is under normal operation. However, its throughput in August dropped 1.1 million from July, stating at 7.5 million tonne, and its container volume last month plunged 27.9% year on year, showed data released by the port authority.

    As of September 9th, the death toll of the blast rose to 163, when the remains of one of the 11 missing people from the Tianjin warehouse blasts was identified. There are still 10 people missing, including seven firemen and three civilians, and hundreds are still accepting medical treatment in hospitals.

    http://steelguru.com/logistic/china-clears-wrecked-containers-at-core-area-of-tianjin-port-blast/434300#tag
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    Glencore's "Doomsday" Plan Disappoints As CDS Resumes Rise


    While the US was still sleeping on its Labor Day holiday, the global commodity world was stunned on Monday when Glencore's CEO Ivan Glasenberg - formerly a perpetual optimist in all things commodity - announced a dramatic recapitalization plan, one which would see it not only scramble to raise $10 billion in capital through an equity offering, asset sale and capex cut, but become the first major copper supplier of scale to cut production, thereby defecting from the game theoretical "race to the bottom" equilibrium, and indirectly benefiting its biggest competitors. The reason: prepare for a "doomsday" scenario for commodity prices.

    Glencore's unprecedented action was in direct response to an S&P downgrade warnings from the previous week, which threatened to strip the world's biggest commodity trader of its critical investment grade, BBB rating, which would have dramatic and adverse consequences on the company's trading operations: thing an AIG-like collateral waterfall. The S&P warning is also why last week the company's CDS blew out all the way to 450 bps, the widest since the financial crisis.

    Then, as a result of the capital raise, one which many took for admission the company would aggressively focus on lowering its net leverage to a far more reasonable for the current commodity bear market 2.0x target, Glencore's CDS tumbled by nearly a third in the past 4 days.

    And then, something bad happened: the other rating agency, Moody's, agreed with us when we said that Glencore's deleveraging efforts may fall well short of the market, and put the outlook for Glencore's credit rating of Baa2, just a fraction above junk, on negative watch.

    Why was the news particularly bad? Because Moody's confirmed that Glencore's doomsday scenario may not be "doom" enough.

    As a reminder, the reason why we said back in March 2014 that going long Glencore CDS is the best trade to hedge against a Chinese collapse, is precisely due to Glencore's underappreciated sensitivity to copper prices...


    ... which have since tumbled, and led to the recent surge in not only GLEN CDS but the record drop in its stock price.

    http://www.zerohedge.com/news/2015-09-11/glencores-doomsday-plan-insufficient-cds-resumes-rise-questions-emerge-what-happens-
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    U.S. House votes against Iran deal in two symbolic votes


    The U.S. House of Representatives defeated a resolution backing the nuclear agreement with Iran on Friday, in a symbolic vote engineered by congressional Republicans who object to the deal.

    House members voted 269 to 162 against the resolution in a strongly partisan vote, part of an effort by Republicans to underscore their objection to the accord despite a vote on Thursday in the Senate that blocked a Republican-led effort to kill the international pact.

    In a second symbolic vote on Friday, the House voted 247 to 186 to pass legislation that would bar Obama from waiving, suspending or reducing sanctions under the nuclear agreement.

    To become law, that measure would have to be passed in the Senate and then survive a likely veto.

    There are no plans for the Senate to vote on either measure.

    http://www.reuters.com/article/2015/09/11/iran-nuclear-congress-idUSL1N11H1A020150911
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    California Democrats in open revolt on new renewable standards.

    But now his party has mutinied. Democrats hold near supermajorities in both legislative chambers with 52 of 80 seats in the Assembly. Yet this week 21 Democratic Assembly members representing middle- and low-income communities—including 11 blacks and Latinos—joined Republicans to kill a bill mandating a cut in state greenhouse gas emissions to 80% below 1990 levels by 2050.

    Democrats also forced Mr. Brown to scrap a measure that would have given the California Air Resources Board plenary authority to reduce statewide oil consumption in vehicles by half by 2030. Imagine the EPA without the accountability. “One of the implications probably would have been higher gas prices,” noted Democratic Assemblyman Jim Cooper. “Who does it impact the most? The middle class and low-income folks.”

    Many Democrats demanded that the legislature get an up-or-down vote on the board’s proposed regulations before they take effect. Yet the Governor and Senate liberals wouldn’t abide constraints on the board’s powers.

    The defeat is all the more striking for the failure of appeals to green moral superiority. Liberal groups targeted Catholic Democrats with ads featuring Pope Francis. Mr. Brown demonized oil companies for selling a “highly destructive” product.

    The most morally destructive product in California these days is green government. Take the 33% renewable electricity mandate. Since 2011 solar energy has increased more than 10-fold while wind has nearly doubled. But during this period electricity rates have jumped 2.18 cents per kilowatt hour—four times the national average. Inland residents and energy-intensive businesses have been walloped the most.

    California’s cap-and-trade program has also hurt manufacturers, power plants and oil refiners, which are required to purchase permits to emit carbon. Between 2011 and 2014, California’s manufacturing employment increased by 2% compared to 6% nationwide, according to the federal Bureau of Labor Statistics.

    Cap and trade has also raised fuel costs, though its effect is hard to isolate from other environmental mandates. The Western States Petroleum Association last year projected that cap and trade would add 16 to 76 cents per gallon to the retail price of gas based on data from the Air Resources Board.

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    Modi to meet utilities to fix electricity debt mess


    Indian Prime Minister Narendra Modi is set to meet bosses of loss-making electricity utilities on Monday to debate a rescue package for a sector whose vast debts weigh on the banking system and undermine promises to provide power for all.

    The government has identified $66 billion of troubled debt held by state-run utilities as a major obstacle to efforts to speed up growth in Asia's third-largest economy, hurting both credit growth and industrial performance.

    Modi earned praise for fixing the power sector in Gujarat state when he was chief minister. A national solution would burnish his reputation after a series of setbacks to his agenda of economic reform in recent months.

    The pressure to act is rising as a three-year financial restructuring package introduced in 2012 comes to an end, with the utilities still selling power to consumers at below the cost of production and ignoring rampant theft.

    The prime minister will chair a meeting with finance ministry officials and the head of individual state distribution companies, a top government source and an official in the power ministry told Reuters.

    The government has not made public the contours of the package, but options under discussion include allowing states to take over debts of distribution companies to ease their financial crunch, in return for a renewed clampdown on electricity losses.

    Utilities' weak finances mean they cannot buy in more power or invest in transmission lines that are needed if Modi is to get power flowing to industry and to the 300 million Indians living without electricity.

    India has doubled energy generation capacity in the last decade, helping to more than halve its peak power deficit, but transmission and distribution have remained largely unreformed, leading to regular blackouts across large swathes of the country and debts that threaten the health of the banking system.

    A fifth of India's electricity still goes unpaid for.

    "The poor financial health of the distribution utilities has the potential to make all investments made in the electricity value chain unviable," said Umesh Agrawal, a power expert at PwC.

    "A comprehensive set of measures targeting efficiency improvements as well as setting tariffs to recover costs is required to prevent the situation becoming worse," he said.

    http://www.reuters.com/article/2015/09/14/india-power-utilities-idUSL5N11K09220150914

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    China exporting diesel in size.

    China’s diesel exports may surge to a record in the coming months as refinery output increases while domestic demand growth for the fuel slows.

    The nation’s diesel shipments might have risen to a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million tons a month in the fourth quarter, according to ICIS China, a Shanghai-based commodity researcher. China is scheduled to release August diesel export data next week.

    Refiners processed 44.34 million metric tons of crude in August, up 6.5 percent from a year earlier, data from the Beijing-based National Bureau of Statistics showed Sunday. That’s about 10.48 million barrels a day and 1.8 percent higher than July as production increased to satisfy growing demand for gasoline.

    “Diesel exports will continue to rise amid a supply glut created by high oil processing to meet robust gasoline demand,” Lin Jiaxin, an analyst with ICIS China, said by phone from Guangzhou. “The public holiday breaks early this month and in October will boost traveling and demand for gasoline, while diesel use will remain very weak.”Image title

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    Oil and Gas

    Oil Search turns down Woodside's $8 bln takeover plan


    Oil Search Ltd on Monday rebuffed an $8 billion takeover proposal from Australia's biggest energy company Woodside Petroleum Ltd as far too cheap, although it left the door open to higher offers.

    Woodside last week sought exclusive talks with the Papua New Guinea-focused oil and gas producer on a one-for-four share offer, conditional on support from key stakeholders, including the PNG government.

    The rejection is a blow to Woodside, which is chasing low cost liquefied natural gas assets in PNG at a time when the company has little new output due to start this decade and its undeveloped projects face challenges in a world of cheap oil.

    "The proposal from Woodside from every which way we looked at it grossly undervalued Oil Search," Oil Search Chairman Rick Lee told Reuters.

    Oil Search said it was in a strong financial position and highlighted its low-cost operations in PNG, where its output could double in the early 2020s working with giants ExxonMobil Corp and France's Total SA on two liquefied natural gas projects.

    Lee said there were unlikely to be any benefits in putting the two companies together, and the board saw Woodside's plan to create a regional LNG champion conflicting with Oil Search's long history as PNG's national energy champion.

    The company and its partners did not need Woodside's operational or liquefied natural gas marketing expertise, Lee told analysts on a conference call.

    Shareholders found Woodside's proposal unattractive, he added. Oil Search is nearly one-fourth owned by the PNG government and Abu Dhabi's International Petroleum Investment Corp.

    "If any proposals are tabled in the future that reflect compelling value for Oil Search shareholders, we will engage on them," Lee said.

    Woodside declined to comment on whether it was considering another approach.

    "Woodside is surprised and disappointed that the board of Oil Search has rejected the proposal without meeting with Woodside to understand the benefits of the opportunity or to negotiate the terms of a possible merger," it said in a statement to the stock exchange.

    Credit Suisse estimated Woodside would have to pay between A$9 and A$10 a share, or at least A$13 billion ($9.2 billion), to snare Oil Search, well above its A$11.4 billion value on Monday.

    The PNG government last year bought its 9.8 percent stake in Oil Search for A$8.20 a share, so it's unlikely it would sell for less than that.

    "The door's been closed pretty firmly in their face," Credit Suisse analyst Mark Samter said.

    Investors said Woodside shareholders had little to gain from paying a bigger premium and said they doubted Woodside would sweeten its offer.

    "They're seen not to have been frivolous in the past with their bid prices. For that reason, I think they're most likely to walk away from a tie-up with Oil Search," said Simon Mawhinney, chief investment officer at Allan Gray, which owns Woodside shares.

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    Oil servicers say "fat trimming" will become new norm


    A slump in oil prices is forcing the oil and gas services industry for the first time in 15 years to trim costs in a way that executives say will create a lasting change away from their usual lavish way of doing business.

    Navigating a new environment in which oil prices have halved in a year and their customers are slashing investments, oil service firms face a rough ride.

    "The industry has been quite lazy in changing because oil prices have been helping us a lot," Samir Brikho, chief executive of oil service engineering company Amec Foster Wheeler , told Reuters.

    "At a time like this, you need to take a look at how you can take out the fat. Once we have done this we will never go back, this will become the new norm."

    The previous oil price plunge in 2008-2009, driven by the global financial crisis, ended too soon to force oil service firms seriously to reassess their cost structures.

    Now, as oil prices have failed to rebound in over a year, oil service companies are depending on running their businesses more efficiently to survive.

    This week's biennial gathering of the offshore oil services sector in Britain's oil capital, Aberdeen, highlighted the extent of cost savings being made.

    British oil service heavyweights including Wood Group and Petrofac, as well as London-headquartered Seadrill , had no presence among the 1,500 exhibitors at the conference.

    "It shows how seriously they take the cost-cutting," said one conference attendee who works in the industry but declined to be identified.

    Britain's oil and gas industry lobby group estimates the sector will reduce costs by 2.1 billion pounds ($3.2 billion) by the end of next year.

    A large part of these savings is related to job cuts. Oil & Gas UK estimates the industry has already shed 65,000 jobs since peak employment at the start of last year. The group expects employment in the sector to drop further in coming months.

    Companies say they are making changes in working practices that mean the sector is less wasteful, such as cooperating better on projects and standardising equipment.

    "It's this transformation that needs to be sustained," said Andy Samuel, chief executive of Britain's newly created oil and gas regulator.

    http://uk.reuters.com/article/2015/09/11/britain-oil-services-idUKL5N11F3X920150911
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    INPEX Corp. raises LNG production


    INPEX Corp. has announced it has increased the expected production capacity of the Ichthys LNG Project to 8.9 million tpy, an increase of approximately 6% compared to the initial 8.4 million tpy. Initially, the product was expected to start towards the end of December 2016, but is now expected to begin in 3Q17. It is expected that these two updates will increase the project’s investment by approximately 10%.

    This increase in production capacity is based on the company’s recent evaluation of the latest technological information pertaining to the entire LNG production system.

    “The Ichthys LNG Project is a world-class project with an expected operational life of at least 40 years. All the LNG initially planned to be produced from the project has been sold. Of this, about 70% of the LNG is set to be supplied to Japan, and this is expected to further contribute to the long-term, stable supply of energy to the country and improve Japan’s energy procurement risk management,” said INPEX Corp. President & CEO, Toshiaki Kitamura. “The project is also expected to make a significant contribution to the social and economic development of Australia, one of the world’s foremost producers of energy.”

    http://www.lngindustry.com/liquid-natural-gas/11092015/INPEX-Corp-raises-LNG-production-1272/
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    Sinopec to shut hotels, ditch cars in graft crackdown


    Chinese state-owned energy giant Sinopec Group will sell off most of its hotels by the end of 2017 and get rid of more than 4,000 company cars as part of efforts to root out corruption and waste, it said on Monday.

    Since President Xi Jinping's appointment in 2013, the government has cracked down on official corruption and extravagance in China, where the flaunting of personal and often illicit wealth and wasteful public spending have led to widespread criticism of the party.

    The big state-owned conglomerates have been a particular focus, and several high-ranking executives or former executives at Sinopec have been investigated or jailed. Sinopec Group is the parent of Sinopec Corp, Asia's largest oil refiner.

    In a statement released by the Communist Party's graft-busting Central Commission for Discipline Inspection, Sinopec said that the latest inspection by anti-corruption teams had been very effective at rooting out problems.

    "It has hit the nail on the head, grasping the essence and crux (of the issue), helping us to find the root of the disease," it said.

    As part of company efforts to rein in spending, all the hotels it runs will be sold off by late 2017, apart from a "small number" that are competitive or are in exploration areas with no other hotels, it said.

    State-owned firms in China tend to be very diversified and often own assets that have nothing to do with their core business.

    The number of cars the company operates will also be slashed by 4,300, it added, a move in line with other government-run organisations and departments.

    The probe found a series of other problems of waste, including a holiday two executives took to Taiwan in 2013 on the company dime, and four people who did not return to China immediately after a board meeting in gambling hub Macau.

    Sinopec is not the only state-owned energy company to have been probed by the graft watchdog.

    In a statement released late on Sunday, China National Offshore Oil Corp, better known as CNOOC, listed the steps it was taking to address the problems inspectors had found there, including promising not to use company money to buy high-end cigarettes and liquor.

    http://www.reuters.com/article/2015/09/14/china-corruption-sinopec-idUSL4N11K1DF20150914
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    Oil Rig Count Down by 10 Last Week


    In the week ended September 11, the number of rigs drilling for oil in the United States totaled 652, compared with 662 in the prior week and 1,592 a year ago. Including 196 other rigs drilling for natural gas, there are a total of 848 working rigs in the country, down by 16 week over week and down 1,083 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count.

    Last week marks the second consecutive week with a substantial drop in the rig count.

    The number of rigs drilling for oil in the U.S. is down by 940 year over year and down by 10 week over week. The natural gas rig count fell by six, from 202 to 196. The count for natural gas rigs is down by 142 year over year.



    Read more: Oil Rig Count Down by 10 Last Week; US Production Declining - 24/7 Wall St. http://247wallst.com/energy-economy/2015/09/12/oil-rig-count-down-by-10-last-week-us-production-declining/#ixzz3lgo7UagF
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    Operational constraints limit crude storage at U.S. refineries


    U.S. commercial crude stocks are still close to their highest levels in over 80 years, but operational requirements prevent refineries filling on-site storage facilities to their maximum capacity.

    An increasing proportion of U.S. crude oil stocks is held in off-site tank farms, some owned or leased by refiners themselves, but many owned or leased by marketers and traders.

    According to the Energy Information Administration (EIA), which surveys storage capacity every six months, total crude in storage at the end of March was 475 million barrels, and the country had capacity to store up to 660 million.

    Only 182 million barrels of storage capacity, around 28 percent, was on site at oil refineries. The rest was off site at tank farms or in pipelines, railroad tank cars, barges and oilfield tanks.

    Most of the crude at refineries and tank farms is stored in giant cylindrical tanks with a roof that floats directly on the surface of the oil.

    Storage tanks need to be kept filled to a minimum of around 20 percent to support the roof and operate the pipes and other equipment.

    Adjusted for these tank bottoms, the effective or "working" capacity of refinery storage tanks was 150 million barrels, according to the EIA ("Working and net available shell storage capacity", May 2015).

    But at the end of March, U.S. refineries were storing only 104 million barrels, equivalent to just 69 percent of their maximum working capacity and 57 percent of the total storage volume.

    Refinery storage is subject to various operational constraints that make it hard for refiners to fill tanks to the top.

    Refinery tanks are commonly divided into storage tanks, which receive the crude oil, and charging tanks, which feed crude into the atmospheric distillation units 

    With so many constraints on charging and discharging, minimum residence, unintended mixing of crudes, and continuously feeding distillation units, refineries cannot operate with their storage and charging tanks anywhere near full.

    Refineries are prevented from filling all their tanks to the brim by the need to preserve some flexibility for scheduling changes ("Crude oil scheduling in refinery operations", 2003).

    It is easy to see why U.S. refineries were storing only 104 million barrels at the end of March even though they had working capacity to store 150 million and total capacity of 182 million.

    The amount of crude stored in the United States has been rising since around 2005. But the working storage capacity at U.S. refineries has remained roughly unchanged. Most of the extra capacity has been added at tank farms.

    Tank farm capacity has grown rapidly to meet both the refineries' need for more operational flexibility and heightened demand for medium-term storage from crude marketers and traders.

    Some of the tank farms are owned or leased by refiners themselves to give them access to more off-site storage options.

    Others are owned or leased by traders who use them for speculative storage, especially when the futures market is trading in contango.

    At the end of March, tank farms held almost 240 million barrels of crude, more than twice as much as the refineries.

    Tank farm storage is subject to many of the same constraints that affect operations at refineries. Tanks cannot normally receive and send crude at the same time, need to minimise the amount of unintentional mixing, and must generally be kept at least 20 percent full.

    But because one tank farm can hold crude that can be used at a number of refineries, the space can be effectively shared, providing important flexibility at lower cost than on site at a single refinery.

    As U.S. refineries increasingly process a mix of very light domestic shale crudes and heavy imported oils, tank farms are being used to meet the requirement for more blending capacity.

    Refineries tend to hold crude for immediate use because space within the tank farm is at a premium: filling a tank with crude and leaving it idle for weeks or months at a time significantly reduces the refinery's scheduling flexibility.

    Tank farms are more suitable for medium-term storage of crude because they can hold oil for months at a time with no operational penalty.

    http://www.reuters.com/article/2015/09/11/usa-refineries-oilstorage-kemp-idUSL5N11H1PO20150911
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    US oil producers thirsty for cash eye wastewater unit spin-offs

    Some U.S. oil producers are trying to sell parts of their lucrative saltwater disposal businesses in a sign that cheap crude is already forcing cash-starved companies to sell assets so oil can keep flowing.

    Many oil companies rely on outside contractors, which tend to be small, privately-held companies, to inject the briny byproduct of crude production hundreds or thousands feet deep into the earth, well below the water table.

    But for producers which own such facilities, the high-margin business has served as a source of cost savings and steady revenue, factors that also make them appealing to yield-seeking investors in master limited partnerships (MLPs) and private equity funds.

    SandRidge Energy Inc and Oasis Petroleum Inc are two publicly traded oil producers openly marketing their saltwater divisions. SandRidge is planning to raise cash by listing it as an MLP and Oasis is seeking at least a partial sale.

    "The psychology of the market is pretty bad right now," said Andrew Coleman, an energy analyst at Raymond James. "Any sale of these assets gives financial visibility without having to carry the cost of the asset on their books in what could be a rocky next few months."

    Putting even a part of such businesses on the block suggests some energy executives are coming under increasing pressure to part ways with good, albeit non-core, assets to ride out the crude market slump and finance core oil operations.

    The SandRidge and Oasis transactions could bring each company $100 million or more at a time when capital market funding is drying up and cash is tight as crude oil trades at less than half mid-2014 levels, analysts say.

    Other publicly held energy companies with notable saltwater units include Devon Energy Corp, MidStates Petroleum Co and Ferrellgas Partners LP. So far only SandRidge and Oasis have publicly discussed their spin-off plans.

    The U.S. Environmental Protection Agency figures show more than 9.5 million barrels of brine and other liquid byproducts gets pumped into some 28,000 saltwater disposal wells around the country.

    With disposal fees ranging from 25 cents to $1 per barrel, large wastewater operations can generate hundreds of millions of dollars in annual revenues for investors.

    And given that the volumes of water extracted alongside oil tends to increase as wells age, in some cases reaching as much as five barrels for every barrel of crude produced, rates have held steady even as crude prices tumbled and production tapered off

    http://www.reuters.com/article/2015/09/11/usa-oil-water-idUSL1N11G32P20150911
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    Repsol wins approval from Canadian regulators to export LNG


    Repsol has received approval from Canadian regulators to begin exporting liquefied natural gas (LNG) from its Canaport import facility.

    The National Energy Board of Canada granted a 25-year permit to import as much as 312 billion cubic feet of natural gas per year by pipeline from the US and western Canada.

    It will then be converted to six million metric tons of LNG at a new on-site facility.

    The project is one of four LNG export terminals proposed in Canada aimed at shipping North American natural gas to markets overseas.

    Canada’s energy regulator has acknowledged the deluge of recent applications but also indicated it was unlikely all would survive.

    In its proposal, Repsol downplayed concerns about supply, saying it was “evaluating the prospects of sourcing feed gas supply from Western Canada and/or the United States.”

    But only one pipeline, Spectra’s Maritimes & Northeast (M&NP), currently connects the region with the vast Marcellus shale gas deposit beneath Pennsylvania, Ohio and West Virginia.

    Recent proposals to build pipelines through the US Northeast have met resistance from local environmentalists.

    Canaport was built in 2009 to supply the Canadian and US markets, but the shale boom in the United States has since left it underused.

    https://www.energyvoice.com/oilandgas/87587/repsol-wins-approval-from-canadian-regulators-to-export-lng/
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    LNGL advancing talks over Magnolia LNG remaining capacity


    LNG Limited informed that it has agreed a schedule to conclude pricing negotiations and subsequent signing of the turnkey EPC contract for the Magnolia LNG project with the KBR‐SK joint venture in the fourth quarter 2015.

    KSJV will provide LNGL a fixed‐price on the full 8 mtpa project, as well as a 6 mtpa project, providing certainty of pricing for a six‐month period from the EPC contract’s effective date, the company said in a project update.

    The two firm KSJV prices allow LNGL flexibility in its FID decision to match a firm EPC contract price with the outcome of ongoing liquefaction capacity marketing efforts, without further KSJV negotiations during the six‐month period.

    As part of the EPC contract, the KSJV will fully guarantee the LNG production and fuel gas efficiency of each train at the guaranteed production rate of 206 metric tons/hour (1.7 mtpa equivalent) and fuel gas efficiency of 8%, incorporating the OSMR process design provided by LNGL.

    LNG Limited also revealed in the update that FERC’s draft environmental impact statement comment period for Magnolia LNG project has expired on 8 September.

    One substantive comment was received from the National Marine Fisheries Service recommending the resolution of certain dredging issues in advance of the final EIS. Magnolia LNG is working with FERC, NMFS and the Army Corps of Engineers on this matter and expects to have it resolved promptly, the company said.

    LNG Limited also added that marketing of binding offtake agreements for the remaining 6 mtpa of Magnolia LNG capacity continues with a number of investment‐grade, as well as some non‐investment grade counterparties.

    Certain negotiations (with investment‐grade counterparties) are advanced and progressing through the internal investment decision authorisation processes attendant to each counterparty.

    Each of the offtake negotiations are for initial 20‐year terms, with some taking the form of a liquefaction tolling agreement and some being LNG sale and purchase agreements, LNGL said

    http://www.lngworldnews.com/lngl-advancing-talks-over-magnolia-lng-remaining-capacity/
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    Alternative Energy

    Navitus Bay wind farm refused permission by government


    A proposed wind farm off the south coast of England has been refused consent by the government.

    Developers behind the Navitus Bay project - for up to 121 turbines off Dorset, Hampshire and the Isle of Wight - say it would have provided electricity for up to 700,000 homes.

    Opponents said it would damage tourism and was too close to protected coasts.

    It is the first time the Department of Energy and Climate Change has refused permission for an offshore project.

    The £3.5bn Navitus Bay plan, developed jointly by Dutch firm Eneco and French giant EDF Energy A, would have had up to 121 8MW turbines at 200m (656ft) high.

    Image copyrightNavitus BayImage captionAn artist's impression shows how the turbines could look 14.6km (9.1 miles) off Swanage

    The Planning Inspectorate spent six months studying the plans, which developers said would contribute £1.6bn to the UK's economy over 25 years.

    MHI Vestas Offshore Wind would have made the 80m-long blades at its factory in Newport on the Isle of Wight - six years after it shut a plant on the island, axing 425 jobs and sparking an 18-day sit-in by workers.

    But all surrounding local authorities, except the Isle of Wight Council, were opposed to the scheme, and campaigners feared it would have a negative impact on the area's tourist industry.

    Bournemouth Borough Council had claimed the turbines, 13.3 miles out to sea from the resort, would detract tourists from visiting, risking almost 5,000 local jobs and cause a total economic loss of £6.3bn.

    http://www.bbc.co.uk/news/uk-england-34220834
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    Steel, Iron Ore and Coal

    Xinjiang H1 outbound electricity surge 125pct on yr to 14.6 TWh


    The outbound electricity transmission from northwest China’s Xinjiang Uygur Autonomous Region surge 125% on year to 14.6 TWh over January-June this year, the latest official data showed.

    That was equivalent to some 4.84 million tonnes of standard coal.

    In 2014, Xinjiang transmitted 17.5 TWh of electricity outside of the province in China, rising 167.9% from the year prior.

    As projected in the “13th Five-Year Plan”, multiple power transmission networks are to be constructed by 2020, with investment totaling 201.9 billion yuan ($33 billion).

    Xinjiang will construct five DC and three AC outbound transmission lines, including ±1,100 KV Zhundong-Chengdu and Zhundong-eastern China lines, ±800 KV DC Hami-Chongqing line, ±600 KV Ili-Pakistan line and ±750 KV Ruoqiang-Qinghai line.

    The ±800 KV Hami-Zhengzhou DC transmission line and a quadruple-circuit 750 KV AC transmission line to northwest China have been put into operation.

    By then, Xinjiang will realize electricity transmission capacity over 300 TWh per annum, equaling transporting 100 million tonnes of raw coal.

    http://en.sxcoal.com/0/131255/DataShow.html
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    China Jan-Aug coal industry FAI down 14.4pct


    China’s fixed-asset investment (FAI) in coal mining and washing industry stood at 256 billion yuan ($41.8 billion) over January-August, down 14.4% year on year, showed data from the National Bureau of Statistics (NBS) on September 13.

    The decrease is faster than a 13.4% drop over January-July this year.

    Private investment in the sector contributed 144.2 billion yuan of the total, falling 12% from the previous year, compared to a 9.4% decline over January-July.

    Meanwhile, fixed-asset investment in all mining industries across the country posted a year-on-year drop of 7.6% to 800.4 billion yuan over January-August. Of this, private investment in mining industries contributed 456.4 billion yuan during the same period, falling 9.5%.

    The NBS data showed a total 92.2 billion yuan was spent on fixed assets in ferrous mining industry during the same period, down 17.3% from the previous year; while investment in oil and natural gas industry fell 1.1% on year to 192.3 billion yuan.

    The fixed-asset investment in non-ferrous mining industry witnessed a year-on-year decline of 2.3% to 98 billion yuan during the same period, data showed.

    http://en.sxcoal.com/0/131364/DataShow.html
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    Japan’s power utilities burns record coal flouting minister's call


    Image Source: LC NewsBloomberg reported that Japan’s regional power utilities burned the most coal on record in August, flouting calls from the nation’s environmental minister to rein in use to control greenhouse gas emissions.

    The nation’s 10 power utilities used 5.82 million tonne of coal in August, the Federation of Electric Power Cos. reported Friday. That’s the most in monthly usage since the group started compiling data in April 1972. While total power generation and purchases fell 0.9 percent, liquefied natural gas use slid to the least in August in 5 years and fuel oil to its lowest level for the month in 6 years.

    Japan’s environment minister said last month that he won’t support a new coal power station planned for central Japan as part of a push by the ministry to control greenhouse gas emissions. Coal consumption increased 19 percent between 2010 and 2014, largely due to the March 2011 Fukushima disaster, which led to the shuttering of the nation’s nuclear plants for safety checks.

    Mr Ali Izadi-Najafabadi, a Tokyo-based analyst with Bloomberg New Energy Finance, said that “Coal is still the cheapest fuel source. There is more coal plant capacity available this year than last year in Japan.”

    By year’s end it will cost on average of about JPY 4 per kilowatt hour to operate a coal-fired plant, compared to JPY 9.6 for a gas-fired facility, according to data compiled by BNEF. Thermal coal at the port of Newcastle in Australia, the fuel’s biggest export harbor, closed at USD 59.48 a tonne September 4th, according to prices from Globalcoal. That’s near the lowest since May 2007.

    Mr Izadi-Najafabadi said that natural gas is typically used more in Japan during winter and summer when greater demand fluctuation occurs because gas-fired facilities can more quickly boost and lower production.

    http://steelguru.com/power/japan-s-power-utilities-burns-record-coal-flouting-minister-s-call/434425#tag

    Attached Files
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    China’s 1st 1-Mtpa-plus CTO project commences operation


    China’s first one-million-tonne-per-annum-plus coal-to-oil project was put into operation in Yulin city, a major coal production base in northwestern Shannxi province, local media reported.

    Total investment of the project was 16.4 billion yuan ($2.56 billion). It is designed to produce 1.15 million tonnes of oil products at consumption of 5 million tonnes of coal each year.

    The project, operated by Shaanxi New Energy Chemical Co., Ltd., will be able to produce 5 million tonnes of oil products during the 13th Five-Year Plan ended in 2020.

    The project adopted domestic technology developed by Yanzhou Coal Mining Co., Ltd. – one major Chinese coal producer based in Shandong.

    It only consumes 3.441 tonnes of standard coal and 2.68 tonnes of water to produce one tonne of oil products, with 98.26% of the water recycled.

    http://en.sxcoal.com/0/131254/DataShow.html
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