Mark Latham Commodity Equity Intelligence Service

Thursday 5th January 2017
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    China services sector activity rises to 17-month high in December - Caixin PMI

    Growth in China's services sector accelerated to a 17-month high in December, a private survey showed, adding to views that the world's second-largest is entering the new year with stronger momentum.

    The strong pick-up mirrored improvements in manufacturing surveys earlier this week, as market watchers debate whether China's leaders will settle for a more modest growth target this year in order to focus on more pressing issues such as an explosive growth in debt.

    The services PMI rose to 53.4 in December on a seasonally adjusted basis from 53.1 in November, the Markit/Caixin services purchasing managers' index (PMI) showed.

    The December reading was the highest since July 2015, and well above the 50-mark that demarcates expansion in activity from contraction on a monthly basis.

    New business for services firms also rose at the fastest pace in 17 months, while business expectations were at a 4-month high, though an employment sub-index remained stubbornly weak and input prices rose the fastest in nearly two years.

    Companies surveyed said that higher raw materials prices were the biggest factor in higher prices, but strong competition meant they weren't able to pass along higher costs to customers, pointing to pressure on profit margins. An index of prices charged held basically stable at 50.5 in December.

    Caixin's composite PMI covering both the manufacturing and services sectors matched a near 4-year high of 53.5 in December from the previous month's 52.9, pointing to solid and more balanced growth for the economy overall.

    The upbeat findings broadly echo those of official and private manufacturing surveys earlier this week that showed improving conditions across broad sectors of the economy.

    "The Chinese economy performed better in the fourth quarter than in the previous three quarters," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note with the report, adding that full-year growth was certain to meet the government's target of 6.5-7 percent.

    China is slowly making progress in shifting its economic growth model away from a heavy reliance on exports and investment, with consumption contributing 71 percent of growth in the first nine months of 2016.

    But auto sales are forecast to slow to single-digit growth this year, home sales are on a downward trend and even China's red-hot film industry grew only 3.7 percent last year.

    Even as fears of an economic hard landing have greatly diminished, other risks have become more pronounced.

    The foreign trade environment looks increasingly uncertain amid threats by U.S. President-elect Donald Trump to slap tariffs on China's shipments into its largest export market, and to brand Beijing a currency manipulator.

    Credit is growing significantly faster than GDP and likely hit a record high last year, while speculation in housing, commodities and even government debt markets have raised the risks of asset bubbles as overall leverage in the economy is still rising.

    These risks have led to expectations that financial and monetary conditions will be tighter this year, while pressure from a weakening yuan and capital outflows will also keep the focus on risk containment at the expense of growth.

    "All known macroeconomic risks of China are still elevated. Persistent loss of foreign reserves, rising debt-to-GDP ratio, the risk of bubble burst in the property market, and the liquidity crunch in the domestic bond market etc will continue to work in unison to pressure economic growth lower," DBS said in a note on Wednesday.

    "It is no coincidence that the leadership is reportedly to accept even slower growth this year."
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    Oil and Gas

    Libya Oil-Export Terminal Said to Re-Open as Crude Output Rises

    Libya is re-opening its last major oil-export terminal that shut amid the conflict hobbling output in the country with Africa’s largest crude reserves.

    The Zawiya terminal is preparing to resume exports after the pipeline supplying it was re-opened, an official at the state-run National Oil Corp. said Wednesday, asking not to be identified for lack of authorization to speak to news media. With Zawiya shipping, all nine of Libya’s main oil ports would be exporting. The country is revving up its oil industry just as most of its OPEC peers are cutting production to counter a glut.

    Libya currently pumps 700,000 barrels a day of oil, the NOC official said. That’s up from 580,000 barrels a day in November and 520,000 in October, data compiled by Bloomberg show.

    The North African country plans to almost double output in 2017. Last month it re-opened two of its biggest oil fields and began loading the first crude cargo in two years from its largest export terminal, Es Sider. Libya’s comeback will put pressure on the Organization of Petroleum Exporting Countries and the other major producers that agreed to start cutting output this month in a drive to shore up crude prices.

    Libya in December re-opened the Sharara oil field, which supplies Zawiya, allowing for exports to resume from the terminal in western Libya. Almost 1.9 million barrels are set to load from Zawiya this month, according to a loading program obtained by Bloomberg. That compares with a pumping rate from Sharara of almost 9 million barrels a month as recently as late 2014, before the country’s internal conflict halted flows.

    Libya pumped about 1.6 million barrels a day before an uprising in 2011 toppled the nation’s leadership. International oil companies pulled out as rival governments and militias struggled for control of Libya’s energy assets, and oil output plunged to as little as 45,000 barrels a day in August that year.

    With production rising, NOC Chairman Mustafa Sanalla said on Dec. 21 that output would reach 900,000 barrels a day early this year and 1.2 million barrels a day by the end of 2017
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    OPEC Oil Output Slides in December Amid Nigeria Disruptions

    OPEC’s crude production fell by 310,000 barrels a day in December, as unplanned disruptions in Nigeria reduced the group’s supply before deliberate cuts take effect this month.

    Nigeria’s daily output dropped by 200,000 barrels to 1.45 million in December, ending three months of gains as the African nation struggled to restore capacity after a year of militant attacks on oil infrastructure. Saudi Arabia’s production fell by 50,000 barrels a day while Venezuela declined by 40,000.

    “Crude production in Nigeria in December was once again severely impacted, mostly due to a field maintenance as well as a strike of port workers,” Amrita Sen, chief oil analyst at London-based consultant Energy Aspects Ltd., said by e-mail.

    The decline in December comes as OPEC, which controls around 40 percent of global supply, is planning to curb output in a bid to boost oil prices. The organization reached a historic deal last month with Russia and other non-members to cut global production by almost 1.8 million barrels a day starting this month.

    Brent crude, the global benchmark, advanced 52 percent last year, the biggest annual gain since 2009. Prices were down 0.3 percent at $56.31 a barrel as of 6:39 a.m. London.

    Overall, the Organization of Petroleum Exporting Countries -- excluding Indonesia which suspended its membership on Nov. 30 -- pumped 33.1 million barrels a day in December, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. That compares with a November total of 33.41 million barrels a day for the 13 continuing members of the group, or 34.14 million including Indonesia’s daily output of 730,000 barrels.

    Under the terms of last month’s agreement, OPEC’s total output including Indonesia would fall to 32.5 million barrels a day. Compliance with that target will be judged against independent estimates compiled by OPEC, which can vary from the Bloomberg News survey.

    Nigeria Disruption

    In Nigeria -- which along with Libya is exempt from making cuts because of conflict -- maintenance on the Erha field and strike action by workers at Exxon Mobil Corp.’s operations in the country disrupted both exports and production, Sen said. A year ago, the country was pumping almost 2 million barrels a day.

    No cargoes of the Agbami crude grade were shipped in first half of December, while three out of the four Erha cargoes originally scheduled to load were deferred, with two of those moved into January, according to loading programs obtained by Bloomberg.

    Iran, Kuwait and Angola each reduced output by 20,000 barrels a day while Algeria and Iraq dropped by 10,000, the survey showed.

    Libya pumped an extra 50,000 barrels a day last month as the Northern African nation reopened two of its biggest oil fields and loaded the first cargo in two years from its largest export terminal.
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    Vitol clinches $1 bln pre-finance oil deal with Iran-sources

    The world's largest oil trader, Vitol, has clinched a deal with the National Iranian Oil Co. (NIOC) to loan it an equivalent of $1 billion in euros guaranteed by future exports of refined products, four sources familiar with the matter said.

    The pre-finance deal is the first such major contract signed between Iran and a trading house since sanctions were lifted in early 2016. Vitol and NIOC declined to comment.

    It highlights the speed of the oil industry recovery in Iran just a year after lifting of sanctions, which is allowing Tehran to claw back oil market share from arch-rival Saudi Arabia.

    It also re-establishes some old dealings with Western firms as Tehran is benefiting not only from easing of EU sanctions but also from reduced U.S. restrictions on its access to dollars, which Iran needs to reignite its economy.

    Foreign companies still tread carefully for fear of breaking a myriad of complex laws, and oil majors such as Shell, BP and Eni have been slow to return as regular crude lifters.

    Executives who are U.S. citizens are often ring-fenced from negotiations with Iran, notably BP's CEO Bob Dudley and even those working for non-U.S. companies.

    U.S. president-elect Donald Trump has also been outspoken about reviewing the nuclear deal brokered under Barak Obama's administration, adding fresh uncertainty.

    But privately held trading houses are more flexible and can negotiate deals quicker than listed firms.

    Traders have increasingly turned to pre-finance in recent years to secure long-term access to large volumes of oil and products - the system of pre-finance by large traders including Vitol has for example kept the Iraqi region of Kurdistan afloat during its war with Islamic State in the last two years.

    The Vitol Iranian deal was signed in October and will come into effect this month, one of the sources who is based in Tehran said.

    "It is in euro...with the interest rate of around 8 percent in exchange for oil products," the source said, adding that some products could be supplied by the private sector rather than NIOC.

    Major crude producers in the Middle East, including Iran, remain reluctant to sell crude oil to traders as they prefer to control pricing and destination themselves.

    Traders have also been looking at restarting the Caspian crude and product swaps with Iran but the process has been slow to pick up.

    OPEC's third-largest oil producer, Iran, exports more than 500,000 bpd of refined products, mainly fuel oil, petroleum gas and naphtha to Asian markets, according to OPEC.
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    Outlook 2017: China's independent refiners face uncertain times

    China's independent refiners face uncertain times in 2017 as the government comes down hard on them for compliance and tax evasion, and has rowed back from allowing them to export refined products.

    Beijing allowed independent refiners access to imported crude oil in early 2015 and to export oil products in late 2015. Their emergence, which came at a time of excessive oil supply, made them the darlings of oil suppliers.

    But 2017 is going to be fraught with challenges, which may undermine their profitability and slow their crude import growth.

    Below S&P Global Platts examines the effect these challenges will have on independent refiners and on the country's overall crude oil imports.


    China's National Development and Reform Commission is expected to issue crude import quotas of around 20 million mt/year to new independent refiners for 2017, down 19% from 2016, according to Platts estimates.

    A total of 14 refineries have applied for a combined quota volume of 30.89 million mt/year for approval in 2017, but around 20 million mt/year, or two-thirds of the total amount requested, are likely to be approved.

    The downtrend has been clear. In 2016, the NDRC approved 24.58 million mt of new crude import quotas to eight independent refineries, only half of the 49.19 million mt/year the commission allocated to 11 refiners in 2015.

    "The government will definitely continue to approve new quotas to independent refineries, but the slow reviewing process means fewer quotas will be allocated," a refinery source in Shandong said.

    The NDRC has said it will tighten supervision to ensure independent refiners are adhering to all rules before awarding them quotas.


    China's crude oil import growth is likely to slow down to a pre-2016 level of around 8% in 2017 as independent refineries are faced with lower quota allocations and uncertainty over their ability to export products.

    Independent refiners are estimated to have imported 45.96 million mt of crude oil in 2016, according to Platts estimates based on shipping data.

    This compares with an estimated total imports of around 10 million mt/year of crudes by 11 quota holders in 2015.

    Crude imports by the independent refiners pushed up China's imports in 2016 to an estimated 378 million mt/year, up 12.8% year on year, according to Platts China Oil Analytics.

    However, crude import growth is likely to slow down to a pre-2016 level of around 8% in 2017, according to COA.

    The government has tightened supervision of the sector to prevent illegal re-selling of crude and tax evasion, a COA analyst said.

    This along with not allowing them to export oil products will impact overall imports by independent refiners, the analyst added. MOVE TOWARDS SWEETER CRUDES

    With China moving towards a cleaner fuel standard from January 1, some independent refineries have started to buy crudes with lower sulfur content.

    Hengyuan Petrochemical, an independent refiner in Shandong, prefers to import crudes with sulfur content below 0.8%, according to a company source.

    The refinery in 2016 imported over 1.4 million mt of crudes, with most grades sourced from Angola.

    The portion of Angola crudes, typically grades with sulfur below 1%, in the crude basket has increased to around 10%, according to Platts estimates based on shipping data. This compares with an estimate of around 1% in 2015.

    "Crudes with lower sulfur content usually have lower carbon residue and metal contents, so they are pretty good feedstock," said the source.

    In November and December, cargoes of Brent crudes, as well as Forties blend, arrived into Shandong ports for the independent refineries, setting a new trend.

    While the price of crudes with lower sulfur is higher, their greater quality can translate into higher refinery returns, depending on the cost of desulfurization of crudes with higher sulfur content.

    "On average, refineries this year have been making a good profit of around Yuan 200/mt," said a refinery source, encouraging the purchase of more costly crudes with lower sulfur content.

    More crude diversification can also be expected in 2017 as some independent refineries have increased their ability to adapt to crudes with higher sulfur content in recent years, after setting up desulfurization units.


    Removal from the oil product export quota allocation in 2017 is perhaps the biggest blow dealt to independent refiners who were all set to invest in infrastructure to facilitate exports.

    China recently awarded export quotas for the first quarter of 2017 and independent refiners were not given any quotas under the processing trade route, which allows direct exports with no applicable taxes on the product. While the share of exports among independent refineries in 2016 was relatively small -- they exported around 700,000 mt of gasoline, less than 8% of the country's total, according to COA -- it did help reduce surplus and competition in a weak domestic market.

    "Direct exports from independent refineries are not much in terms of volume, but the sharp increase in output from independent refineries have eaten into oil majors' domestic market share, forcing them to export more oil products into the overseas market," said a trading source.

    Independent refiners may still be allowed to export oil products through the so-called general trade route by asking stated-owned trading companies to export products on their behalf, but this option has not attracted much enthusiasm.

    "Firstly, we need to pay the agency fee if we are to export through other companies," a source with Dongming Petrochemical said. "What price we supply oil products at and who takes the profit are also critical questions."

    "Secondly, it is time-consuming and inefficient, as more communication is required if exports take place through external companies," the source said.

    "Thirdly, if we export through Chinaoil, for example, we're just a domestic supplier, instead of an international supplier that can respond quickly to market changes, so we will have less negotiating power in future, not only with international buyers, but also with those domestic agents."


    Fewer quota allocations, heightened government supervision and no export quotas have all rendered the outlook on products output uncertain.

    But one Shandong-based source pointed out that output will likely continue to rise following the higher crude throughput supported by more crude quotas to be allocated.

    China's total output of oil products was estimated at around 438.16 million mt in 2016, up 5% year on year, slightly higher than the 4.3% growth registered in 2015, according to COA.

    This was largely driven by the higher output from independent refineries, according to COA.

    Data provided by energy information provider JYD suggested that total output of gasoline and gasoil from Shandong independent refineries increased by around 81% to 54 million mt over January-November.
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    Arab separatists in Iran say attacked pipelines in west, Tehran issues denial

    Arab separatist militants in Iran said on Tuesday they had blown up two oil pipelines in coordinated attacks in the western Khuzestan region two days earlier, though this was subsequently denied by Iran's Interior Ministry.

    The group, the Arab Struggle Movement for the Liberation of al-Ahwaz, said on its website its armed wing had caused major damage and fuel losses in the attacks on Jan. 3 near the town of Omidiyeh and the port of Deylam.

    However, a spokesman for the Interior Ministry told state television the reports were untrue.

    Ahwazi Arabs are a minority in mainly ethnic Persian Iran, and some see themselves as under Persian occupation and want independence or autonomy. Separatist groups have carried out intermittent attacks for decades, including on oil installations.

    Tehran denies there is discontent among its Arab minority and has blamed suggestions of there being any separatist sentiment on a foreign plot to seize the oil that lies beneath Iran's Gulf coastal territory.

    In a statement posted on their website, the group said the first attack targeted the "Maroun" pipeline of the state-owned Aghajari Oil and Gas Production Company, while the second attack targeted pipelines from the Baharkan oilfield to Kharg Island.
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    OUTLOOK 2017: European gas supply, demand to remain robust

    Europe is set to retain numerous gas supply options throughout 2017 as traditional pipeline suppliers continue their market share offensive and LNG imports to the continent rally from their unexpected lows in 2016.

    With demand -- especially in the key power sector -- seen continuing its recovery from the past two years, much focus will again be placed on declining domestic European production and the subsequent need for increased imports.

    EU gas demand is expected to have increased by some 6% in 2016 to around 447 Bcm, according to industry group Eurogas, following a rise of around 4% in 2015, and according to Platts Analytics' Eclipse Energy could rise further in 2017 driven by the arrival of more LNG.

    The demand recovery from the lows of 2011-14 has been a result of increased gas consumption for power generation and signs of revival in industrial activity in Europe.

    Gas demand for power generation in the UK rose 50% to 19.8 Bcm in the year to December 15, while Italian gas-for-power demand jumped 12% to 20.9 Bcm, according to data from Platts Analytics.

    Demand in France also rose sharply towards the end of 2016 as parts of the French nuclear fleet were taken offline for safety checks.

    From January 1 to December 15, 2016, French gas demand for power generation more than doubled to 3.8 Bcm.

    The situation around the availability of French nuclear capacity in 2017 is still uncertain and coal prices are expected to remain volatile after their late-2016 rally, so the level of gas demand for power generation will be dependent on numerous interlinked factors.

    There was some coal-to-gas switching in Northwest Europe in 2016 given the divergence in coal prices to the upside and gas prices to the downside, while in the UK coal use in power generation slumped due mostly to the continued impact of the carbon price support mechanism and the retirement of a big chunk of coal-fired power generation capacity.

    But no new UK coal plant retirements are expected in 2017, according to Platts Analytics.

    Industrial demand will likely have been boosted by the weaker euro in 2016, benefiting Europe's export-oriented industries.

    But with demand expected to be relatively robust in 2017, there is a risk of a price spike at the start of the year in the event of a cold snap given gas storage constraints at the Rough facility in the UK and historically low stocks in NWE.

    On the other hand, a milder winter would lead to less storage injection demand in the summer 2017 and subsequent pressure on prices.

    According to the latest forecasts from Platts Analytics, NWE storage stocks are expected to return to the top of their three-year range by the end of September 2017 as higher LNG sendouts are absorbed into storage facilities.


    The biggest shift on European gas markets is expected to be in the volume of LNG supply.

    According to Platts Analytics, in the latter part of the first quarter there will be a "substantial" year-on-year increase in LNG deliveries to NWE, reducing the need for overall storage withdrawals by 42 million cu m/d on the year.

    In the UK, Netherlands, Belgium and France, Platts Analytics assumes 80 million-90 million cu m/d of LNG sendouts in Q1, 2017 compared with 58 million cu m/d on average in February-March 2016.

    The increase in imported LNG volumes could put pressure on prices and increase demand for coal-gas switching.

    LNG imports into Europe surprised to the downside in 2016 due to higher demand in the Middle East and several trips at liquefaction plants including Gorgon in Australia and Angola LNG.

    But the picture is set to shift in 2017 as high counter-seasonal demand in the Middle East dissipates and Qatari production returns to around 300 million cu m/d.

    Global LNG supply will be boosted further as US and Australian volumes ramp up, although there is the possibility that many cargoes will be swallowed up by the key north Asian markets given the rally in spot LNG prices in December to close to $10/MMBtu.

    While LNG is expected to stage a European recovery in 2017, the traditional pipeline suppliers to Europe -- Russia, Norway and Algeria -- will continue to fight to retain, or even grow, market share.

    In 2016, Russia smashed its record for deliveries to Europe and Turkey with exports hitting an all-time high of an estimated 180 Bcm.

    Norway, meanwhile, was expected to have exported close to its record high from 2015 of 115 Bcm, and Algeria saw its exports to Italy rise threefold to some 18 Bcm.


    The reason for the rise in Italian imports from Algeria was an increase in Algerian production, a shift in the volume terms for Eni's import contract with state-owned Sonatrach and a competitive oil-indexed price given low crude prices in 2016.

    At the end of 2016, Eni CEO Claudio Descalzi said it had made a "very important achievement" by again reworking its Algerian import contract for Gas Year 16 (October 2016-September 2017).

    The contract, which expires in 2019, is now aligned to the Italian PSV hub, Descalzi said.

    "That will allow us to get the break-even for gas and power in 2017 as promised," he said at an investor day in New York in December.

    Eni was not the only company to renegotiate long-term gas contracts in 2016 -- Engie and RWE were among those to rework their Gazprom supply contracts to "de-risk" their Russian gas purchases.

    Russian gas supplies to Europe are expected to be strong again in the first months of 2017 as buyers look to max out their take-or-pay volumes ahead of a likely rise in oil-indexed contracts, especially in southern Europe, following the recent oil price rally stemming from OPEC's decision to cut production from the start of January.

    Oil indexation does seem to be losing its influence in long-term contracts -- even in southern Europe -- but the oil price still matters.

    The head of Gazprom Export, Elena Burmistrova, said in May that hub pricing was not a "panacea" for the gas industry and the ideal way to price gas in Europe was still a regime based on oil indexation with only elements of hub pricing.

    But given that global oil prices are currently in contango, oil-linked gas prices become more expensive further down the curve in 2017.

    Gazprom has also said it is not "dumping" gas in Europe and the entire boom in supplies is due to buyer-led nominating behavior to meet demand.


    Russia has said it expects to export in 2017 similar volumes to Europe as in 2016, while the European Commission decision in October to allow Gazprom more access to the OPAL gas link in Germany could mean increased flows of Russian gas.

    It is not yet clear whether Gazprom will choose to divert flows to Nord Stream and OPAL away from the Ukrainian route, or use the extra OPAL capacity to flow more gas.

    Whichever way it falls, the key is that OPAL is a cheaper option for Gazprom than Ukraine.

    Tensions between Moscow and Kiev remain heightened, with the anticipated result of the multiple arbitration cases between Gazprom and Naftogaz in March an added pressure.

    The state of relations between Russia and Ukraine is always a matter of concern for European gas buyers.

    Disruption to flows via Ukraine -- as always -- cannot be entirely ruled out especially in an extreme cold winter scenario.

    Norway, meanwhile, is forecasting gas output at 107.3 Bcm in 2017 while the UK has been buoyed by the startup of three new fields in 2016 -- Laggan-Tormore, Alder and Cygnus.

    Algeria too expects to bring on a number of new gas fields in 2017, including the major Engie-operated Touat field.

    Closer to home, the Groningen field quota has been reduced to 24 Bcm from 27 Bcm for Gas Year 16, although a number of appeals are being heard currently that could see the quota fall further.

    The drop in Dutch gas production is a worry for European gas supply security, with increased dependence on imports the result.

    Also in the Netherlands, the expiry of long-term capacity contracts for the BBL pipeline to the UK has shifted European gas market dynamics significantly.

    The TTF/NBP spread and whether it goes above full-cycle BBL costs (including entry-exit) could become a new key pricing point.

    Current geographical spreads are so poor there is no incentive to move gas given the high cost of pipeline capacity.
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    Chevron resumes production at Gorgon LNG Train 1 US-b

    Energy giant Chevron resumed production at the first liquefaction train of its US$54 billion Gorgon LNG project on Barrow Island in Western Australia.

    “Gorgon LNG Train 1 operation resumed earlier this week,” Chevron’s spokesperson told LNG World News in an emailed statement.

    According to the statement, production was halted in late November 2016 to assess and address some performance variations.

    Production at Chevron’s Gorgon LNG project has been hit several times last year since it shipped its first cargo of the chilled fuel on March 21.

    “Train 2 production was unaffected and we continued to produce LNG and load cargos during this time,” the statement reads.

    Once in full production, the three-train plant on Barrow Island is expected to have a capacity of 15.6 million mt/year.

    The Gorgon LNG project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

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    Angola LNG back online

    Chevron-led 5.2 million tons per year Angola LNG plant in Soyo has restarted production following the latest shutdown during late December.

    The December shutdown was due to engineers performing “minor intervention”.

    “I confirm that Angola LNG’s plant has restarted production,” Angola LNG spokeswoman said in an emailed statement to LNG World News.

    To remind, the $10 billion Angola LNG project, restarted operations in May last year after it was closed for more than two years due to a major rupture on a flare line that occurred in April 2014.

    At the end of October, Chevron chief financial officer Pat Yarrington, told that such short duration shutdowns are often experienced as facilities are ramped up to their full capacity.

    Angola LNG is a joint venture between Sonangol (22.8%), Chevron (36.4%), BP (13.6%), Eni (13.6%), and Total (13.6%).

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    Forget Latin America, Asia Is the Biggest U.S. LNG Buyer Now

    Asia’s finally becoming a prime destination for U.S. shale gas cargoes.

    Nine of the 12 tankers that have left Cheniere Energy Inc.’s Sabine Pass terminal in Louisiana -- the only one sending U.S. shale gas overseas -- since the beginning of December are headed for Asian countries, shipping data compiled by Bloomberg show.

    That’s a big shift for the U.S. LNG market, which has been dominated by cargoes to Latin America since exports began in February. Asia’s emerging as a bigger buyer as winter’s chill stokes demand for the heating and power-plant fuel, fulfilling analysts’ predictions that the region would eventually become a major importer of U.S. supply. Global demand has the U.S. on course to become a net exporter of gas this year, a turnaround from just a decade ago when it was facing shortages.

    Asia is “probably the most economic destination to ship to right now," Het Shah, an analyst at Bloomberg New Energy Finance in New York, said in a phone interview Tuesday.

    Spot LNG prices in northeast Asia have jumped 79 percent since July, according to Energy Intelligence’s World Gas Intelligence report.

    More than half of the 42.9 million tons a year of U.S. LNG export capacity over the next three years is contracted by Asian buyers, a July analysis by Bloomberg New Energy Finance showed.

    Cheniere wasn’t immediately available for comment.

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    Statoil to drill more exploration wells in 2017

    Norwegian state-owned oil giant Statoil plans to drill around 30 exploration wells in 2017, an increase of around 30 percent compared to 2016.

    More than half of the wells will be drilled on the Norwegian Continental Shelf (NCS), Statoil said on Wednesday.

    “Taking advantage of our own improvements and changed market conditions, we have been able to get more wells, more acreage and more seismic data for our exploration investments in later years,” says Tim Dodson, Executive Vice President for Exploration in Statoil.

    “This allows us to firm up a strong drilling program for 2017, totaling around 30 exploration wells as operator and partner. The upcoming well program is balanced between proven, well-known basins and new frontier opportunities,” says Dodson, underlining that the exploration drilling plans are dependent on permitting, rig availability, and partner approvals.

    In 2016, Statoil completed a total of 23 exploration wells as operator and partner – 14 of them on the NCS. The company stated that the total exploration activity, also including a.o. licensing, access and seismic data acquisitions, was completed well below the original forecast due to efficiency improvements and market effects.

    According to the company, in Norway, the 5-7 well exploration campaign in the Barents Sea is at the core of the activity plan. In the Norwegian Sea and the North Sea, the ambition is to prove near field volumes to prolong the productive lifetime of existing infrastructure and determine the growth potential, Statoil said.

    In total, Statoil expects 16-18 NCS exploration wells to be completed in 2017. The company noted that new discoveries are crucial to counteract decline om the NCS.

    “The Barents Sea has yielded several of Norway’s most significant oil discoveries in recent years. We are looking forward to test new targets, both in the relatively well-known geology around in the Johan Castberg and Hoop/Wisting area, as well as some new frontier opportunities with greater geological uncertainty but also high impact potential. This campaign can provide us with crucial information about the long term future of the Norwegian shelf,” says Dodson.

    Internationally, Statoil’s 2017 exploration drilling activity will comprise growth opportunities in basins where Statoil already is established with discoveries and producing fields, as well as new frontier opportunities.

    “Following our take-over as operator for the Carcara discovery last summer, Brazil has become even more important in Statoil’s portfolio, not least on the exploration front. We are stepping up exploration also in the UK, with plans for three Statoil-operated exploration wells in 2017,” says Dodson.

    Elsewhere, partner operated wells are planned to be spudded in established basins like the US Gulf of Mexico and in new frontier areas like Indonesia and Suriname. Statoil is also partnering in onshore exploration drilling planned in Russia and Turkey.

    “The 2017 exploration plans demonstrate our long-term commitment to the NCS, while we continue to position the company for global opportunities. If everything goes to plan, we will this year have exploration drilling activity in 11 countries on five continents,” says Dodson.
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    Oil Trader Gunvor Suing Cerberus Over Failed Chevron Africa Bid

    Oil trader Gunvor Group is suing Cerberus Capital Management alleging that the private equity firm is refusing to pay its share of costs incurred when the two companies made a failed $650 million bid for Chevron Corp. assets in South Africa.

    While a relatively small amount of money is at stake, the suit sheds light on the acquisition campaign now under way after Gunvor sold the bulk of its Russian assets following the 2014 U.S. sanctioning of its co-founder, billionaire Gennady Timchenko.

    Gunvor claims it entered into an agreement with Cerberus in September to prepare a joint bid for the Chevron assets and that Cerberus agreed to pay half the cost of evaluating an offer, according to the documents filed in New York Supreme Court.

    Gunvor said it spent about $1.6 million hiring advisers and consultants to help it perform due diligence on the assets, which include a refinery in Cape Town, a lubricants plant in Durban and about 800 service stations. Gunvor provided all of its due diligence materials to Cerberus and the two companies teamed up to make a bid “approaching $650 million,” according to the claim. The offer, which was submitted to Chevron’s banker on Cerberus letterhead, was rejected by Chevron soon after it was made, Gunvor said.

    Cerberus has refused to “honor its obligations” under a September written agreement to pay for half of the due diligence costs, Gunvor said in the claim, which alleges breach of contract and is seeking $829,020.

    Seeking Partners

    The claim confirms that Gunvor, one of the world’s largest independent oil traders, is looking to partner with outside investors such as private equity to fund deals in much the same way that larger rivals Vitol Group and Trafigura Group have structured transactions in the Middle East, Africa and Brazil.

    Gunvor spokesman Seth Pietras in Geneva declined to comment on the matter. Cerberus’s London office referred media inquiries to its New York office, which didn’t respond to e-mailed questions outside normal office hours.

    After initially claiming that the cost-sharing provisions were not binding, Cerberus has now taken the position that the parties did not submit a joint bid as defined by their agreement, Gunvor said in the claim.

    No statement of defense has been filed and none of the allegations have been proved in court.

    Vitol Group and China Petroleum & Chemical Corp. are the two final bidders competing to buy Chevron’s South African assets, people familiar with the matter said last month.

    French oil major Total SA was also involved in the process, according to the same people. Chevron plans to make a decision in coming weeks, though sale talks could still falter, the people said.
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    Cape sees FY results 'materially ahead' of current views

    Cape said on Thursday that its full-year results for 2016 are likely to be “materially ahead” of current market expectations, as it announced the award of additional work packages on the Chevron-operated Wheatstone natural gas project.

    The company, which provides critical industrial services to the energy and natural resources sectors, said it has seen strong trading across its three regional businesses in the last two months of the year, with a particularly strong performance in Asia Pacific driven by high levels of project activity across the region.

    As a result, it now anticipates that the-full year performance for 2016 will be materially ahead of current market expectations.

    “This improvement in performance is supported by strong cash generation with a consequent positive impact on net debt,” Cape said, adding that it remains confident that the outlook for 2017 is encouraging.

    In addition, the group said it has been awarded additional work packages on the Chevron-operated Wheatstone natural gas project, near Onslow, Western Australia.

    Cape is now providing access, painting, insulation and fire proofing services to the project until completion and the additional packages will see Cape extending its scope of services to include outside battery limits, the domestic gas plant and commissioning support.

    “The award reflects the group's performance on the contract to date, including safety (over 2 million man hours to date Lost Time Incident free), operational excellence, innovation in project management and cost savings through productivity and workforce management,” Cape said.
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    Oil prices firm on U.S. crude inventory fall, record car sales

    Oil prices were firm on Thursday, buoyed by data showing a fall in U.S. crude inventories and by record car sales in the United States.

    Traders said that WTI had been lifted by a report by the American Petroleum Institute (API) stating that U.S. crude inventories fell 7.4 million barrels in the week ended Dec. 30 to 482.7 million, compared with analyst expectations for a decrease of 2.2 million barrels.

    "We expect Asia to trade on the positive-side today, supported by the API number," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

    Prices were also lifted by U.S. car and truck sales, which were up 3.1 percent in December from the same month last year, and hit a record 17.55 million overall in 2016.
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    Encana expects 2017 margins to top previous forecast

    Jan 4 Canadian oil and natural gas producer Encana Corp said on Wednesday it expects its margins in 2017 to exceed its previous target on lower costs and an expected rise in output in the second half of this year.

    The company also said it expects production from its core assets to be in the upper range, or exceed its previous forecast of 15-20 percent growth, between the fourth quarter of this year and the corresponding period last year.

    Encana has downsized operations to focus on four core North American plays - the Montney and Duvernay in Western Canada, and the Eagle Ford and Permian in the United States.

    The company said it expects its corporate margin to be above $10 per barrel of oil equivalent (boe) in 2017, higher than the $8 per boe it had forecast at its investor day in October.

    Encana is scheduled to report its fourth-quarter results and 2017 budget on Feb 16.

    Attached Files
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    PDC Energy Announces Bolt-On Acquisition of Approximately 4,500 Net Acres in the Core Delaware Basin

    PDC Energy, Inc. today announced that on December 30, 2016, it closed the acquisition of approximately 4,500 net acres in Reeves and Culberson Counties, Texas, from Fortuna Resources Holdings, LLC, for approximately $118 million in cash, subject to certain post-closing adjustments. PDC’s working interest in the acquired leasehold is 100 percent and PDC expects to operate 100 percent of the properties. The acquired properties are concentrated in the Company’s Central acreage block contiguous with the Company’s acreage from the recently closed acquisition of approximately 57,000 net acres in Reeves and Culberson Counties. Current net production associated with the acquisition is approximately 300 barrels of oil equivalent per day. Also included is a drilled, but uncompleted (“DUC”) horizontal well, and a salt water disposal well.

    The Company estimates the acquired acreage contains 75 gross one-mile horizontal drilling locations, based on four wells per section in each of the Wolfcamp A, B and C zones. This estimate is based on the assumptions utilized by the Company in its prior Delaware Basin acquisition. The Company plans to integrate the newly acquired acreage into its development drilling plans for its Central acreage block.

    President and Chief Executive Officer Bart Brookman commented, “This bolt-on acquisition is a great example of our strategy to both expand and block up our Core Delaware Basin position. Our net acreage, drilling inventory and estimated reserve potential in the basin are expected to increase by approximately ten percent with this transaction. Additionally, by creating a large, contiguous acreage block, we have the opportunity to focus on longer lateral development while optimizing our operational efficiencies.”

    Fortuna Resources Holdings, LLC, is a Permian Basin focused independent oil and natural gas producer sponsored by certain affiliates of Och-Ziff Capital Management Group LLC (NYSE:OZM).

    For a map related to this transaction, visit ‘Newsroom’ on the ‘Investor Relations’ page on PDC’s website at
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    Mgmt Musical Chairs at Eclipse, “Gen-3” Utica Wells Go Online

    Two members of Eclipse Resources’ top management team are playing musical chairs as part of the company’s plan to “accelerate growth” in 2017.

    Tom Liberatore, currently executive VP and COO is dropping the COO title and becoming executive VP of corporate development and geosciences. Meanwhile, Oleg Tolmachev, currently senior VP of drilling and completions is becoming executive VP and COO.

    Tolmachev’s star is clearly rising and he is now the man running the Utica/Marcellus drilling program for the company.

    In the same press release, the company said it has now completed and brought online five Utica wells in Monroe County, OH. The wells are the first dry gas Utica wells to use Eclipse’s new “Gen-3” completion design.
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    Alternative Energy

    Solar power ‘now cheaper than fossil fuels’

    That’s according to a new report from the World Economic Forum (WEF), which states renewables have finally reached a tipping point of popularity thanks to massive investment, falling installation costs, a rise in clean energy policies and technological advancements.

    This is supported by new data from Bloomberg New Energy Finance (BNEF), which shows the average price of solar energy in 60 countries is now $1.65 million/MW (£1.35m), with wind almost neck-and-neck at $1.66 million/MW (£1.35m).

    The WEF report adds roughly 9.5GW of solar capacity was added to the US grid in 2016, making it the year’s most popular choice of energy source to install. Around 1.7GW of this figure came from households and businesses.

    China’s $103 billion (£84.06bn) investment in solar is likely to only add more to investor confidence.

    Michael Drexler, Head of Long Term Investing, Infrastructure and Development at the WEF, said: “Renewable energy has reached a tipping point. It now constitutes the best chance to reverse global warming.

    “Solar and wind have just become very competitive and costs continue to fall. It is not only a commercially viable option but an outright compelling investment opportunity with long term, stable, inflation-protected returns.”

    In the next decade, the price of solar energy is expected to fall to around half of that of coal generation.
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    China to invest $360 billion in renewable power in 2016-2020

    China will invest 2.5 trillion yuan ($361 billion) in renewable power generation between 2016 and 2020, the National Energy Administration (NEA) said on Thursday, as the world's largest energy market pushes to shift away from coal power.

    The investment will create over 13 million jobs in the sector, the NEA said in a blueprint document that lays out its plan to develop the nation's energy sector in a five-year period.

    The NEA repeated its goal to have 580 million tonnes of coal equivalent of renewable energy consumption by 2020, accounting for 15 percent of overall energy consumption.

    Installed renewable power capacity including wind, hydro, solar and nuclear power will contribute to about half of new electricity generation capacity by 2020, the NEA said.
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    SunEdison settles contract fight to help close $150 million sale

    Bankrupt renewable energy company SunEdison Inc has reached a deal with a spinoff company that helps clear the way for a $150 million sale of its solar materials business to a Chinese buyer, according to court papers filed on Tuesday.

    Chinese solar equipment maker GCL-Poly Energy Holdings Ltd agreed to buy the business in August, part of SunEdison's drive to shed assets to raise money to repay its creditors.

    The sale ran into trouble due to an objection from SunEdison Semiconductor, which was spun off by SunEdison in 2014.

    The spin-off company argued in an October court filing it had not consented to transfer of intellectual property licenses as part of the deal.

    SunEdison has resolved that objection to help close the sale and will extend a services agreement with its affiliate through September at reduced rates.

    In addition, SunEdison Semiconductor gets an administrative expense claim of nearly $2.7 million and a general unsecured claim non-priority claim of about $16.5 million, compared with the $40 million in unsecured claims it had asserted.

    Once the fastest-growing U.S. renewable energy company, SunEdison filed for Chapter 11 bankruptcy protection in April after a binge of debt-fueled acquisitions proved unsustainable.

    A hearing at which the settlement could be approved will be held in U.S. Bankruptcy Court in Manhattan on Jan. 24, two days ahead of SunEdison's target date for filing a Chapter 11 plan.
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    French nuclear probe could impact on Hinkley Point

    The French regulator, Autorité de Sûreté Nucléaire (ASN) is planning a more thorough investigation into the Areva nuclear power company as concerns about part quality and documentation remain.

    There is a particular focus on whether a practice of falsifying documents, or cutting corners on document accuracy, have facilitated poor quality nuclear equipment parts.

    David Emond, head of Areva’s component manufacturing business, said that while 70 components with falsified documents had found their way into French nuclear reactors — and 120 into overseas power plants — no safety problems has so far been discovered.

    “It was wrong, but it seems to have been more of a cultural problem than a safety-related technical problem,” he said.

    The situation is compounded by issues uncovered relating to the nuclear reactor to be used at the EDF-owned Flamanville nuclear power plant in France. A two year-long investigation is to conclude with the presentation of a report to the ASN in the coming weeks.

    According to a report in the FT, if the structural weaknesses initially found on the reactor vessel are as serious as feared it could have an effect on the development of the Hinkley Point C nuclear reactor in the UK.

    EDF’s British plant is set to use the same technology as its sister plant and the financial support package the UK government has offered for Hinkley is premised on Flamanville being operational by 2020.

    Any significant problems with the Flamanville reactor vessel would mean restarting much of the construction work in France, which is already billions of euros over budget and years late.

    The focus of that part of the investigation is Areva’s component factory at Le Creusot where some steel components— notably parts used in steam generators — were found to have excessive carbon levels, which could make them vulnerable to cracking.

    Julien Collet (above right), deputy director of the ASN, France’s nuclear regulator, said he wanted to “go much further” with investigations into Areva’s components.

    The ASN ordered a halt to operations at 18 plants for a short time after the discovery of high carbon levels in components made at the facility. The ASN also said some of the components with high carbon levels were supplied by Japan Casting and Forging Corporation, acting as a subcontractor to Areva.

    All the plants have since been allowed to restart, and the ASN and EDF have said there are no safety concerns.

    Attached Files
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    Base Metals

    Zambia Vedanta mine workers strike over delayed pay talks

    Zambian workers have downed tools at a mine and copper processing plant belonging to Konkola Copper Mines (KCM), a unit of Vedanta Resources, in a dispute over the pace of wage talks, a union official said on Wednesday.

    The stoppage at the Konkola mine in Chililabombwe in northern Zambia began after a Dec. 31 target for completing talks on a 2017 pay settlement passed without agreement.

    "The day shift workers have not entered the plant, they are protesting the slow pace of salary negotiations," National Union of Mine and Allied Workers (NUMAW) trustee Jonathan Musukwa told Reuters.

    The company is not saying what the impact will be on production but the workers locked the gates to block day-shift operations.

    Union sources said KCM officials were meeting the minister of labour and the unions to try and resolve the impasse.

    The company said the strike was illegal.

    "KCM regrets that a handful of employees at the Konkola underground mine in Chililabombwe have decided to go on an illegal work stoppage demanding increases in pay," the company said in a statement.

    "This is in contravention of labour laws since wage negotiations are still under way between management and the unions and no dispute has been declared."

    KCM said management would continue to engage the unions to find a lasting solution to the problems the company was facing.

    Chililabombwe is the largest plant operated by KCM, which produced 168,923 tonnes of finished copper in the financial year ended March 31, 2015.
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    Escondida copper workers reject opening offer ahead of talks

    Workers at the giant Escondida copper mine in northern Chile, the world's largest, have rejected an opening pay offer as insufficient as the two sides prepare for the start of a new collective wage agreement, the union at the mine said Wednesday.

    In its letter to members, the union said the management proposal included the reduction of some existing benefits but that it would refuse to consider these during talks.

    "In order not to waste time recovering what's already been gained, we shall focus our efforts to debating the points of the union's proposal which continue the necessary improvements in our conditions," officials wrote.

    The BHP Billiton-controlled operation produced 1.153 million mt of copper in 2015; however, production fell by almost 20% last year as the mine worked through lower grade ores. The company posted a 43% drop in profits for the first nine months of 2016, reflecting the lower production and copper price in the period.

    Escondida is the latest major mine in Chile to face pay negotiations in recent weeks.

    Last month, workers from six unions at the state-owned Chuquicamata copper complex in northern Chile voted to accept an offer which saw them forgo a pay rise in exchange for a signing bonus of Chilean Peso 4.35 million ($6,500).

    While companies are striving to reduce costs following the sharp fall in the copper price since 2013, workers are keen to defend benefits during the commodity boom.

    Under Chile's rigid rules for collective negotiations, negotiations between the sides will continue until January 24, when management must submit its final offer to be voted on by the union's members.

    If workers reject the offer, the law allows for five days of mediated talks. If unsuccessful, the union is permitted to strike, which means a strike could begin in early February.

    BHP Billiton owns 57.5% of the Escondida mine while Rio Tinto owns 30%. The remainder is held by two Japanese consortia.
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    Steel, Iron Ore and Coal

    Coking coal: more supply.

    Coking coal price
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    Inner Mongolia cuts 160 Mtpa coal capacity in 2016

    North China's coal-rich Inner Mongolia phased out 160 Mtpa of coal production capacity by closing 23 illegal mines in 2016, said the regional government in a press conference on December 30 last year.

    The autonomous region shut a total 10 mines with combined capacity of 3.3 Mtpa last year, in response to the central government's supply-side reform, said Zhang De, director of local bureau of small and medium enterprises.

    Besides, Inner Mongolia phased out 2.91 Mtpa of capacity in its steel sector, said Zhang.

    The region also guided up- and down-stream enterprises to conduct mergers and regrouping, that could help curb 70 Mtpa of new coal mining capacity and consume 92.86 million tonnes of locally-produced coal annually.
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    Hebei to build the world's largest dust screen

    Hebei Port Group will build the world's largest dust screen project after the completion of a 23-meter high, 2.9-kilometer long dust screen at Qinhuangdao port's coal handling area.

    The newly-added dust screen is expected to complete in 2017, and will be connected with another five kilometers dust screen which had been finished, thus encircling all the coal storage yards at Qinhuangdao port to reduce dust pollution.

    By that time, total length of the dust screen at three ports operated by Hebei Port Group – Qinhuangdao, Caofeidian and Huanghua – will exceed 17 kilometers, making it the largest dust screen project in the world.
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    China's key steel mills daily output falls 3.3pct in mid-Dec

    Daily crude steel output of China's key steel mills fell 3.32% from ten days ago to 1.66 million tonnes over December 11-20, according to data released by the China Iron and Steel Association (CISA).

    The country's total crude steel output was estimated at 2.17 million tonnes each day on average during the same period, dropping 3.98% from ten days ago and falling 4.41% from the month-ago level, the CISA said.

    By December 20, stocks of steel products at key steel mills stood at 12.73 million tonnes, down 0.69% from ten days ago, the CISA data showed.

    On December 23, total stocks of major steel products in China climbed 7.72% month on month to 9.21 million tonnes.

    In mid-December, the average price of crude steel increased 147 yuan/t from ten days ago to 2,962 yuan/t, while that of steel products rose 162 yuan/t from ten days ago to 3,660 yuan/t.
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