Mark Latham Commodity Equity Intelligence Service

Friday 2nd October 2015
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    Claude Dauphin Passes as Trafigura Tested by Commodities Slump

    The death of Claude Dauphin, the billionaire who co-foundedTrafigura Beheer BV and built it into one of the world’s biggest commodity trading houses, leaves the firm with fresh challenges amid unprecedented turmoil in the sector.

    Dauphin, 64, died in a Bogota hospital Wednesday while on a business trip. He remained until the end a key deal maker for the world’s second-largest metals trader, despite being diagnosed with cancer two-and-a-half years ago.

    A protege of Marc Rich, before co-founding Trafigura in 1993, Dauphin negotiated oil deals from Angola to Russia and secured metals and minerals from Zambia to Mongolia as chief executive officer and chairman. Despite reporting record first-half profit of $654 million in June, Dauphin’s passing comes as other traders struggle with plunging raw-materials prices and as crude oil lost half its value in the past 12 months.

    While traders can profit from commodity price volatility and declines, shares of Glencore Plc, the world’s largest metals trader and one of the five biggest mining firms, have dropped about 68 percent this year on concerns over the Baar, Switzerland-based company’s debt and slumping metals prices.

    Trafigura has been caught up in the turmoil. The yield on the firm’s 550 million-euro bond, maturing in 2020, widened by 18 basis points to a 11.57 percent as of 12:41 p.m. in London. The yield has almost doubled over the past six weeks.

    During a week when his own company’s shares were whipsawed from a record drop on Monday, before recovering most of those losses in a two-day rebound, Glencore CEO Ivan Glasenberg paused to pay tribute to Dauphin, his rival and former colleague.

    “He was a respected competitor,” Glasenberg said in a statement. “Our thoughts and condolences are with his family and friends.”

    Dauphin, a French citizen who held U.K. residency, was the closely held company’s largest owner with a stake of less than 20 percent. He became executive chairman after stepping aside as CEO of the world’s second-biggest metals trader in March 2014 for medical treatment. He was the last of the firm’s six founders with an executive role. A group of 600 employees own the balance of the company.

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    Petrobras: Corruption closes in on Dilma

     Messages sent by mobile by the owner of UTC Engenharia, Ricardo Pessoa, and an executive of the group, at the end of July 2014, suggests that donations of contractor for the reelection campaign of President Dilma Rousseff were related to the receipt of values of contracts he holds at Petrobras, shows analysis by the Federal Police on the basis of the material attached to the records of Operation Lava jet. In one of the passages of the material analyzed by PF, a person subordinate in UTC suggests that transfers the contractor to PT's election campaign were "rescued" diverted Petrobras money. This month, the Supreme Court decided to open an inquiry to investigate the minister Edinho Silva (head of the Secretariat of Social Communication), who was the treasurer of the president of the campaign last year. The exchange of messages indicates that the chief of staff Edinho Silva, Manoel Araújo Sobrinho, was the bridge of levying such amount paid in two installments. At 10h33 on 29 July 2014 when he was worth the official calendar of the election campaign, Walmir Pinheiro, one of the executives UTC writes to the person: "RP, u think I should call the contact that bovine Religious spent ???. "The Federal Police did not identify who would be" religious beef ". But two hours later, Ricardo Pessoa replied that he was with a caller, whose name was withheld by stripe in the PF document and passes the guidance of those who seek and value "hit": "The person you have to call it Manoel Araújo tel:... 16 (...) Hit 2.5 5/8 day (up) and 2.5 to 30/8 Call him who is waiting The problem is much greater Give me answer. ". Coincident In the Superior Electoral Court ( TSE) for the registration of two donations of $ 2.5 million for Dilma campaign on dates coinciding with the communications Ricardo Pessoa and his subordinate in UTC. A donation took place on August 5, as indicated by person, and the other on 27 August, three days before the combination. Of the total donations made in the UTC 2014 elections - R $ 52.2 million, the campaign the PT received R $ 7.5 million. There was a third transfer of $ 2.5 million on 22 October. The name of Manoel Araújo hit the radar of Lava jet were found when the UTC donation records. In one, the name of the chief of staff appears as contact Rousseff's campaign committee and the minister's name Edinho Silva, responsible for issuing the receipt. In one of the records, written down in ink, stated: "2500 - 05/08 / 2500 - 30/08?". One of Araujo contact telephone numbers is the same as the message sent by its Executive Person with area code 16. The other is the phone of the presidential campaign committee in Brasilia. The analysis of the equipment seized from executives UTC also shows that on July 24, 2014, person received an email from a caller scheduling committee meeting in the presidential campaign in Brasilia,
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    Glencore gives trading details as share price falls

    Glencore has revealed key details of its trading operations and told investors its plans to cut its debt are on track in an effort to reassure traders nervous about the impact of falling commodity prices.

    Since Glencore floated, its “marketing” or trading arm has been regarded by many investors as black box trading operation run by the people who liked to think of themselves as the “smartest guys in the room”.

    Analysts have struggled to forecast profits for the business because Glencore discloses very little, arguing that more information would empower private rivals such as Trafigura and Vitol.

    In a meeting with investors this week Glencore gave more details on a part of its balance sheet that has been under scrutiny — its $17bn of inventories that are used for its trading and marketing operations.

    Glencore does not include these inventories to its own definition of its group net debt, which it puts at $30bn as of the end of June. However, credit rating agencies and some investors do count the inventories towards the group’s overall debt, affecting their view of its creditworthiness.

    Glencore gave more details of the inventories to support its view that they could be quickly liquidated if needed, saying that about two-thirds, or $12bn, related to oil and had a trading cycle of only eight days.

    Glencore’s metals business, which has a much longer 40-day trading cycle, makes up a smaller proportion of the inventories.

    As part of its debt reduction efforts, Glencore plans to cut some of its less profitable trading activity, which it says will allow it to cut a large amount of working capital relative to a small hit to operating profits.

    In the investor meeting — which was hosted by Barclays, a bank that was among those working on Glencore’s recent equity raise — the commodities house also said its marketing inventories carried minimal price risk, with almost all being either sold forward or hedged as of the end of June.

    Most trades were hedged on exchanges, Glencore said, according to Barclays’ account of the investor meeting. About 3 per cent of trading — involving more esoteric metals such as vanadium, where there is no liquid forward or futures market — could not be hedged.

    Shares in the company remain more than 20 per cent under the level at which Ivan Glasenberg, chief executive, other executives and investors backed the $2.5bn equity raise last month.

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    Polystyrene prices drop sharply


    Downward pricing trends continued in September for solid polystyrene and PET bottle resins in North America.

    Solid PS prices plunged an average of 9 cents per pound, marking the second straight monthly decline for that material. Prices had slipped an average of 2 cents per pound in August, holding to a number that was pre-announced by PS makers Americas Styrenics and Styrolution.

    The September PS price drop was more extreme, however, as the material followed benzene feedstock prices, which slipped 79 cents per gallon to finish September at $2.01 — a drop of about 28 percent.Image title

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    New Limit for Smog-Causing Emissions Isn’t as Strict as Many Had Expected

    The Obama administration on Thursday unveiled a major new regulation on smog-causing emissions that spew from smokestacks and tailpipes, significantly tightening the current Bush-era standards but falling short of more stringent regulations that public health advocates and environmentalists had urged.

    The Environmental Protection Agency set the new national standard for ozone, a smog-causing gas that often forms on hot, sunny days when chemical emissions from power plants, factories and vehicles mix in the air, at 70 parts per billion, tightening the standard of 75 parts per billion set in 2008. Smog has been linked to asthma, heart and lung disease, and premature death.

    The smog rule is the latest in a string of major new Clean Air Act pollution regulations that have become a hallmark of the Obama administration. Republicans and the coal industry have attacked the rules as job-killing regulatory overreach. In August, the E.P.A. proposed climate change regulations aimed at greenhouse gas pollution, which could shutter hundreds of coal-fired power plants. But with the new ozone rule, the Obama administration appears to have tempered its environmental ambitions and sought a politically pragmatic outcome that would sit better with business.

    Even so, the E.P.A. estimated that the annual cost to the economy would be $1.4 billion, making it one of the most expensive regulations in history. But it said those costs would be vastly outweighed by annual economic benefits of $2.9 billion to $5.9 billion because of fewer premature deaths, missed days of school and work, asthma attacks and emergency room visits.
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    U.S. EPA says "likely" recall of VW diesel cars

    The U.S. Environmental Protection Agency said on Thursday that a recall of affected Volkswagen < diesel cars in the ongoing emissions scandal would "likely" take place.

    "EPA will require VW to remedy the noncompliance. It is likely that there will be a recall of affected vehicles," an EPA spokesperson said, adding that no specific timeline had been ordered yet.

    The German car maker has said it would refit up to 11 million diesel vehicles worldwide.
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    U.S. fuel economy data on cars inaccurate and getting worse, study finds

    The U.S. government's testing underestimates how much fuel cars will burn on the road, and the problem has gotten worse, according to a study released on Thursday.

    The release of the study funded by the Department of Energy's Oak Ridge National Laboratory comes as regulators in the United States, Canada and Europe tighten their scrutiny of how cars perform in real-world conditions.

    That comes after Volkswagen admitted last month to equipping its diesel cars with software that made the cars run clean in laboratory tests in order to hide actual emissions .

    The gap between the better performance of cars in testing by regulators and the lower fuel economy drivers experience has been widely known. But a wider gap could jeopardize the United States from reaching its targets for reducing carbon emissions, according to the study by researchers at self reported the University of Tennessee and Oak Ridge

    Fuel economy measurements used to certify compliance with federal regulations overestimated engine efficiency by roughly 15 percent for much of the 1990s and 2000s, research found.

    But the Oak Ridge study found that driver-cited fuel economy was 25 percent below government estimates in 2013 and about 22 percent lower this year and last.

    "The important thing is to see that the gap has been increasing by model year. We have to keep track of it and monitor to see that it doesn't increase," said David Greene, a senior fellow at the University of Tennessee, Knoxville, and one of the researchers.

    The report analyzed approximately 75,000 individual fuel economy estimates reported by drivers to the EPA online.

    Responding to the report, the EPA said that while its "testing cannot and does not purport to reflect national average driving behavior, weather, and traffic conditions," its fuel economy label on cars accounts for those variables.

    "Since 2008 average fuel economy as reported by drivers has been very closely aligned with the fuel economy labels," said Christie St. Clair, a spokeswoman with the EPA.

    The VW scandal was unearthed by researchers at the U.S.-based nonprofit International Council on Clean Transportation, which hired researchers at a West Virginia University lab.

    A 2013 study by the ICCT found an even wider gap between testing and real world carbon emissions. That study found the gap had increased from 8 percent in 2001 to 38 percent in 2013. The study concluded that up to half of that gap could be the result of manufacturers designing vehicles that would perform better in lab testing.

    The EPA said last week that it would step up its emissions testing on all kinds of vehicles in road driving conditions after the VW admission of cheating on emissions testing.

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    Oil and Gas

    Platts Report: China Oil Demand Grows 10% Year over Year in August

    China's apparent oil demand* rose 10.2% in August from a year earlier to 11.19 million barrels per day (b/d), according to a just-released Platts analysis of Chinese government data.

    Barring gasoil and naphtha, China's apparent demand for all other key products--gasoline, liquefied petroleum gas (LPG), jet/kerosene, and fuel oil--saw double digit year-on-year growth in August.

    China's refinery throughput in August averaged 10.49 million b/d, up 6.5% from a year earlier, data from the country's National Bureau of Statistics (NBS) on September 12 showed.

    Meanwhile, China's net imports of oil products surged 131% year on year to 700,000 b/d in August, driven by strong inflows of LPG, fuel oil and naphtha, according to data released September 21 by the General Administration of Customs.

    During the first eight months of this year, China's total apparent oil demand averaged 11.14 million b/d, an increase of 8.2% from the same period of 2014.

    China's actual oil demand growth could be higher since stocks of key products have fallen, Platts estimates show. "Inventories of gasoil, gasoline and jet/kerosene fell by between 2.5% and 9.7% at the end of August, from end July," said Platts Associate Editorial Director for Asia Oil News Mriganka Jaipuriyar.

    China's apparent oil demand is expected to remain steady at 11.1 million b/d for the rest of the year, according to data from Platts China Oil Analytics, an on-line platform for supply/demand, refining margins, volume forecasts, trade flows and the like. However, it indicates that overall growth for 2015 could moderate to just over 5%, given the high base in the fourth quarter of last year.

    Gasoil is the most widely consumed oil product in China and the nation's declining economic growth over the last three years has hit gasoil demand.

    Apparent demand in August rose 3.4% year over year to 3.50 million b/d, but actual demand could be higher given the stock draw down, Platts China Oil Analytics indicate.

    Stocks of gasoil fell 7.6%, or near 7.5 million barrels, in August from July to an estimated 90.38 million barrels, Platts calculates, based on Xinhua's China Petroleum Stockpile Statistics.

    "Some of the government's stimulus measures implemented in prior months are likely filtering down through the economy," said Song Yen Ling, Platts senior analyst for Asia Pacific oil markets. "Industrial production growth improved marginally in August, while other indicators such as highway freight traffic also showed positive growth."

    Up to 70% of the fuel is used in the transport sector while the remainder is used by various sectors - including construction, farming and fishing, and industrial heating - to power machinery.

    Apparent demand for gasoil rose 3.7% over January to August to 3.58 million b/d.

    Demand for LPG surged 27.3% year on year to 1.27 million b/d in August. Growth was supported by import demand from new propane dehydrogenation plants. Net imports of LPG rose 168.5% year over year to an average 376,000 b/d for the month.

    Year to date, apparent demand for LPG is up approximately 21.4% versus a year ago to 1.21 million b/d.

    Apparent demand for gasoline rose 21.6% year over year to 2.75 million b/d, with January-August demand rising 11.4% to 2.69 million b/d.

    According to Xinhua's China Petroleum Stockpile Statistics, gasoline stocks fell 9.7% year over year at the end of August, suggesting actual demand could be higher than Platts estimates.

    Even though overall auto sales contracted in August, China's sales of gasoline-guzzling MPVs and SUVs, which have been the key demand drivers, rose 10% and 44.5% respectively, year on year, according to data from the China Association of Automobile Manufacturers.

    Fuel Oil
    Apparent demand for fuel oil in August rose 27.20% year over year to 695,000 b/d. Demand for the January to August period rose 14.3% year over year to 952,000 b/d.

    Net imports of fuel oil rose 58.5% in August on a year-over-year basis to 549,000 b/d, led in large part by a jump in imports of petroleum bitumen blend.
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    Russian oil output reaches post-soviet record in September

    Russian oil output rose to a post-Soviet record last month as producers take advantage of the weak ruble to push ahead with drilling.

    The nation’s production of crude and condensate advanced to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry’s CDU-TEK unit.

    The increase comes at a time when Organization of Petroleum Exporting Countries are defending market share rather than cutting production amid a global output glut. Russia, which gets about half of its budget income from oil and gas revenues, is maintaining its own supplies in the face of Brent crude prices that fell 50 percent in the past year.

    Oil producers, which earn in dollars, pay for services using the ruble, which has weakened to 65.65 to the dollar from 39.56 to the dollar a year earlier.

    Crude exports rose 3.4 percent from the previous year to 5.27 million barrels a day, according the data. Exports rose 5 percent from the previous month.
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    Gazprom chief says gas exports to Europe up 23 pct in third quarter

    Russian gas giant Gazprom has exported 41.4 billion cubic metres of gas to Europe and Turkey in the third quarter, up 23 percent from the year-earlier period, the company's head Alexei Miller said on Friday.

    In September, gas exports stood at 13.3 bcm, an increase of 24 percent.

    European buyers of Russian gas have increased purchases before the cold season and as the price of the commodity, pegged to prices of oil with a lag of six to nine months, fell.

    Miller said that Germany, the largest buyer of Russian gas, increased purchases by 19 percent to 11.2 bcm in third quarter. Italy boosted intake by 69 percent to 7 bcm.
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    Iran invites foreign firms to develop its oil, gas industry - official

    Iran is inviting foreign investors to actively develop the OPEC member's energy industry after implementation of a historic nuclear deal reached between Iran and six global powers, deputy Oil Minister Rokneddin Javadi told Reuters on Thursday.

    "We welcome all oil companies, including the Americans, that meet Islamic Republic's requirements to invest in Iran," Javadi said by telephone from Tehran.

    Iran plans to increase crude output by 2 million barrels a day from about 50 energy projects slated for investors at a conference in Tehran next month, National Iranian Oil Co. Managing DirectorRoknoddin Javadi said.

    The package will also aim to boost natural gas production by 7 billion standard cubic feet, Javadi said at a conference in Berlin Thursday. Oil production is now about 2.8 million barrels a day,data compiled by Bloomberg show. Iran has the world’s largest gas reserves and the fourth largest oil reserves, according to BP Plc figures.

    Iran will need $30 billion of investment over five years to boost oil production, starting with about 350,000 barrels of new output next year, Goldman Sachs Group Inc. said in a report Thursday. The supplies could keep pressure on oil prices and delay the market’s return to balance, Henry Tarr, a Goldman analyst, said in the report.

    “The global oil market will stay bearish in the short to medium term,” Javadi told the conference.

    The July deal agreed by the U.S., France, China, Russia, U.K. and Germany to remove sanctions on Iran in exchange for curbs on its nuclear program point to an early 2016 start if all conditions are met, Goldman’s Tarr said in the report.

    Potential investors will be asked to consider contracts over 20 to 25 years, Javadi said. Iran’s council of ministers endorsed a new model contract for the projects in a meeting chaired by PresidentHassan Rouhani in Tehran, the state-run Mehr news agency reported Wednesday. The conference is set for Nov. 16 to Nov. 20 in Tehran. Another seminar about the projects is scheduled Oct. 19 to Oct. 21 in Tehran, with Iran’s Oil Minister Bijan Zanganeh set to attend. There is another conference set for London in February.

    Iran needs 210 million cubic meters a year of natural gas, with production seen reaching about 300 million cubic meters by the end of next year, Javadi said. That would leave up to 90 million cubic meters a year available for export. Talks have been renewed with European Union countries to supply them with natural gas via pipeline and liquefied natural gas, with plans to bring its first LNG plant into operation within 2 1/2 years with capacity of 10 million tons a year, he said.

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    Oil rallies on U.S. storm fears, Syria

    Oil prices jumped as much as 4 percent on Thursday, boosted by a rally in U.S. gasoline on worries about potential damage to oil installations from a hurricane headed for the U.S. East Coast, traders said.

    Heightened geopolitical risk from the worsening war in Syria also boosted crude futures in earlier trade.

    Weather forecasters said Hurricane Joaquin could hit the New York metropolitan area as a tropical storm on Tuesday, potentially following the destructive course of Hurricane Sandy in 2012.

    Traders watch Atlantic hurricanes because they can lead to precautionary shutdowns of Gulf of Mexico oil and gas platforms, and in exceptional cases damage energy infrastructure.
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    ONGC supports Cairn India plea for Rajasthan block's term extension

    As a shot in the arm for Cairn India, its partner Oil and Natural Gas Corp has asked the government to extend the tenure of prolific Rajasthan oil block by 10 years without any changes in terms and conditions.

    Cairn, which holds 30% interest in the Rajasthan block, wants to retain the Rajasthan block beyond the contractual deadline of 2020. And for such an extension the nod of the state-owned firm, which is a licence of the block holding 30% interest, was necessary.

    A top official said that ONGC has agreed to the Cairn proposal and written to the Oil Ministry saying the licence term should be extended by 10 years on the existing terms and conditions.

    Unlike in 2011, when it had given conditional approval for Cairn being acquired by Vedanta Group to resolve the royalty dispute, ONGC has not put any pre-condition this time.

    He said that after ONGC nod, the ministry has now sought a view from the upstream regulator, the DGH for extension of the license term.

    Cairn's contractual term for exploring and producing oil and gas from the Rajasthan Block RJ-ON-90/2 expires in 2020 and the area is to return to the block licensee, ONGC.
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    Egypt Expands Energy Import Options with Second LNG Terminal

    Taking another step towards easing its energy demand challenges, Egypt welcomed the arrival of a second liquefied natural gas import terminal this week, opening another avenue for needed natural gas imports.

    According to media reports, Cairo took in the floating LNG terminal with plans to begin operations later in October, complete with storage and regasification capacity.

    The unit was sent by Singapore-based Norwegian group BW Gas, has a capacity of 600 to 700 million cubic feet per day, according to Reuters.

    The arrival comes at a time when Egypt continues to struggle to meet its domestic demand, as well as draw down significant debts to international producers.  Egypt has a long history of energy challenges, though they grew significantly more daunting over the last four years. With the collapse of the long-standing government of Hosni Mubarak, the country of over 80 million found itself economically isolated, which served to reduce its foreign reserves and with it, the ability to keep up payments to oil and gas importers.

    At the same time, the country’s domestic production has continued to slow, a situation made worse by a series of attacks on eastbound gas pipelines to buyers in Israel and Jordan, further reducing needed energy sector revenue.

    Despite such set-backs, Egypt is now flush with confidence thanks to the recent discovery of a “super giant” natural gas discovery off its Mediterranean coastline. According to a Bloomberg report on the discovery, Italy’s Eni outlined a potential “super giant” field that could potentially be home to 30 trillion cubic feet of gas, making it the biggest find in the Mediterranean.

    However, even in the best case scenario, access to that gas is a long way down the road, making short-term solutions like LNG terminals all the more important.
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    Senate Bank Commitee votes 13-9 in favour of Oil exports.

     A bill to lift the 40-year-old ban on U.S. oil exports passed the Senate Banking Committee on Thursday, but the future of the measure is uncertain in the full chamber, after a controversial amendment was added to it.

    Senator Pat Toomey, a Republican of Pennsylvania, added an amendment to the bill that would make Iran compensate U.S. victims of Iranian backed terrorism, language that senators said would doom the bill's future.

    "The bill is dead," because of the addition of the Toomey amendment that the White House likely opposes, said Senator Jon Tester, a Democrat of Montana.

    A similar bill to lift the ban passed earlier in the year in the Senate Energy Committee. This bill too was only supported by one Democrat, Senator Lisa Murkowski of oil-producing Alaska, the head of the panel. Backers of the bill need six Democrats to pass the bill if all 54 Republicans vote for it.

    If all 54 Senate Republicans vote for the bill, supporters will need six Democrats to reach the 60 votes needed for approval.

    Heitkamp and other supporters of lifting the ban sought to gain Democratic votes by including a provision that would allow the president to halt exports if he deemed they were not in the interest of national security. Heitcamp said that mechanism was put into the legislation to respond to concerns about runaway gasoline prices.

    The White House said on Wednesday it does not support Senate efforts to reverse the ban even though Heitkamp's bill contains the provision.

    However, Heitkamp said she and others were talking with senior White House officials on a regular basis. She said she was confident President Barack Obama could support a balanced bill doing away with the ban if it included measures such as backing renewable energy like solar and wind power.

    Pulling that off could be difficult. Adding a measure to make tax breaks for renewables permanent could cause other senators in states heavily reliant on coal sales to back away from the bill.

    Heitkamp said it was premature to discuss what kinds of deals could be made to eventually pass the bill, but that some of the issues on the table could be "surprising."

    Oil producers say the domestic drilling boom will eventually be choked if the trade restriction, which Congress passed in 1975 after the Arab oil embargo, is not lifted.

    Opponents to lifting the ban say it could hurt employment in oil refining and shipbuilding and damage the environment.

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    First Nations join in support of LNG corridor

    First Nations elected and Hereditary Chiefs from across Northern British Columbia have joined together to sign a letter that declares their support for the development of a multibillion-dollar energy pipeline corridor through their traditional territories by Eagle Spirit Energy.

    First Nations leaders support the government of B.C.’s position that the shipment of LNG is the priority. The proposed energy corridor is not only the solution for shipping B.C. LNG but also Alberta oil, reads a joint statement by the First Nations.

    Eagle Spirit Energy was formed as a First Nations-led initiative to develop an energy corridor from Alberta to B.C. tidewater. An energy corridor means that pipelines can be built to efficiently and safely transport liquefied natural gas, and later on oil, to a proposed tanker loading export facility located on tidewater in northern B.C.

    This letter to Prime Minister Harper, and Premiers Clark, Notley and Wall states, “our support is for moving forward with Eagle Spirit to continue to meet with all communities, to continue the necessary due diligence in terms of the environmental protection, to assess the viability of the project, and to clearly establish the benefits to our communities.”

    This is the first time that First Nations have come together with such a resolution. It is a responsive model developed to provide appropriate consultation, enhanced land and marine environmental protections, and fair compensation for the Province of British Columbia, First Nations, and northern communities.

    Exclusivity and benefits agreements, and non-disclosure agreements have been signed by those First Nations through whose traditional territories the pipelines would cross. The initial and ongoing participation of impacted First Nations will be incorporated into the project through the formation of a Chiefs’ Council.

    The parties are presently working together to determine the final route and towards the completion of final binding agreements
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    NDIC Considering Extending Completions Deadlines

    When considering the likely production of crude oil in the U.S. in the coming months, and the affect that production will have on prices, one of the large variables is the rate of completions, particularly in the Willison Basin in North Dakota.  That is because there are more than 900 drilled but uncompleted wells in the state.  However, NDIC regulations require that, unless extended, an operator must complete a well within one year of the issuance of the drilling permit.

    The tension created by this rule in the era of depressed prices is obvious.  As Ron Ness, the president of the North Dakota Petroleum Council (NDPC) recently stated:  “Why would we want companies to be forced to spend money or complete the wells when the economics don’t warrant it?  In today’s economic of an over-supplied oil market, it makes no sense.”

    As a result, the NDIC has “indicated they are leaning towards leniency in their treatment of operators that have drilled but not completed wells within the one-year time frame permitted. Instead of assuming such wells are abandoned, which would otherwise mean an expired drilling permit and about $200,000 in plugging costs, the State plans to give operators more time.”   The NDIC has stated that they are “leaning toward” issuing a greater number of temporary abandonment permits which in general give operators a one-year grace period, with potential extensions by the NDIC.

    The NDPC favors such extensions from the NDIC.  As Mr. Ness succinctly put it – “Just defer completions.  So they sit on them two years.  What’s the difference.”
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    Chesapeake Bonds Crater on New Debt Leeway in Amended Revolver

    Chesapeake Energy Corp. bonds plunged Thursday after the energy producer announced an amendment to its credit line that would allow the company to incur as much as $2 billion in junior debt.

    The oil and gas producer’s $1.3 billion of 6.625 percent unsecured notes due in August 2020 dropped 8.1 cents to 65.6 cents on the dollar at 8:34 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

    The Oklahoma City-based company’s $4 billion revolving credit line will now be secured. In exchange, Chesapeake was able to extract some concessions from its lenders, such as the ability to incur new debt and the removal of the total leveraged ratio covenant, according to the statement.
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    Stripper Wells Burning Cash at $30 Oil to Speed U.S. Output Drop

    The speed at which oil producers shut down wells spitting out their final drops of unprofitable crude may hold the key to an eventual rebound if prices fall further.

    Crude prices tumbling to $30 a barrel would threaten the profitability of about 206,000 barrels per day of production from older wells that produce minimal amounts of oil, according to areport Thursday from Bloomberg Intelligence.

    Output from older U.S. wells less profitable as oil prices fall

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    The wells, which are most prevalent in Texas’ Permian Basin, are about 25 years old on average and produce no more than 15 barrels a day. They require regular maintenance to help pump even that much after years of sagging pressure.

    "These wells dance on the edge of profitability," Peter Pulikkan and William Foiles, analysts at Bloomberg Intelligence, wrote in the report. "The reaction of smaller mom-and-pop operators to sustained low oil prices will dictate how quickly uneconomic supply is removed from the market."

    Stripper wells represent more than 80 percent of total wells in the U.S. and 12 percent of total production, according to the report. In total, they generate about 1.1 million barrels of oil a day, nearly as much as Algeria, the third-largest African crude producer.

    The key decision will be whether operators continue to let the wells produce at losses to hold the lease in hopes that oil prices soon recover, or shut in production and potentially surrender the well, the analysts wrote. While most of the little wells are operated by tiny producers, the two companies with the greatest production from stripper wells are Chevron Corp. and Occidental Petroleum Corp.

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    Penn West Seen Selling Most-Prized Oil Assets as Debt Weighs

    Penn West Petroleum Ltd. is trying to avoid parting with its best assets as the oil market crash brings its debt into focus. The company appears to be running out of other options.

    Penn West has exceeded a target set with its debt holders of selling C$650 million ($489 million) of assets outside its areas of focus, with a deal announced Thursday to dispose of its 9.5 percent stake in the Weyburn oil field in southeast Saskatchewan for C$205 million. That brings the total sold this year to C$810 million, not enough to keep debt in check, according to Desjardins Capital Markets and Dundee Capital Markets Inc. estimates.

    “Frankly, I think they have to sell one of their jewels if they want to survive, the jewel being the Viking, most likely,” Brian Kristjansen, an analyst at Dundee in Calgary, said in a phone interview. The Viking tight oil asset in Saskatchewan produces light crude, generates high returns and is probably worth at least C$800 million, he said, which would bring Penn West’s total asset sales to at least C$1.61 billion.

    “The resulting company won’t be as attractive because it’s their highest net-back asset.”

    An oil market slump that began last year is keeping prices below $50 a barrel for the U.S. benchmark, curbing cash flow for producers. Calgary-based Penn West will probably violate a covenant on its debt in the first three months of 2016 if it doesn’t sell a key property, Kristjansen said.

    The producer’s debt remains “a significant headwind,” at more than six times its cash flow, according to a note by Kristopher Zack at Desjardins in Calgary.

    In a statement Thursday announcing the Weyburn sale, Penn West said it would stick to its strategy of selling “non-core” assets to further lower debt and will continue to focus on primary operations. A company spokesman declined to comment further.

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    Titanium Corp. Surges Most Since 1999 After Agreement With Syncrude

    Titanium Corporation Inc. shares gained the most in more than 16 years after reaching an agreement that gave the company access to heavy minerals at Syncrude Canada Ltd.’s oil sands sites.

    The stock price rose 78 percent to the intraday high of C$1.39 at 3 p.m. Thursday in Toronto, the biggest increase since April 1999.

    Titanium will have “first right” to recover heavy minerals from waste generated at Syncrude oil sites using a patented technology it owns, the company said in a release. Syncrude was given a 50 percent interest in the patented technology, which will also extract bitumen from the waste deposited in tailing ponds.

    The company spent 10 years negotiating with oil-sands producers including Syncrude, Suncor and Canadian Natural Resources Ltd. to apply its technology, Scott Rattee, former senior analyst at Edgecrest Capital Corp., said in a phone interview.

    The stock is “surging today because people are amazed it finally happened,” he said.

    The technology could give Titanium access to “several hundred million” dollars a year worth of minerals including zircon and titanium dioxide that are now dumped, Rattee said. The technology also raises bitumen extraction by 2 percent to 3 percent and makes the resulting tailing ponds much cleaner as a result, he said.

    Scott Nelson, Titanium’s chief executive officer, didn’t return a phone call seeking comment.

    Oil-sands companies, which emit more carbon than traditional oil producers and leave vast swaths of wasteland from their mining operations, have sought to reduce their environmental impact in recent years.
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    Alternative Energy

    India’s expensive solar power birth pangs

    Free Press Journal reported that amidst all the euphoria about India’s tremendous progress in incremental solar power addition, there is a sudden realization that all is not picture perfect. Not yet.

    The most painful part is the cost at which India generates solar power. In the US, solar power installations offer power against 20 year power purchase agreements at a tariff of under 4 cents a unit. India, on the other hand, has seen the lowest tariff of just around INR 5.50 per KWh.

    That makes India’s solar power at least twice as expensive as that which can be got in the US or even in the Middle East or Israel.

    This in turn, raises the question: is India an inefficient producer? Or are its entrepreneurs greedier than their counterparts in other parts of the world? In fact, if you ask experts, you discover that the truth lies elsewhere.

    As one expert explains, the difference in US and Indian solar-power-tariffs is on account of several reasons. First, most countries, especially the US, enjoy a lower cost of funds, of 3% to 4% as against 10% to 11% in India. Then there is the need to hedge foreign exchange loans for importing solar power equipment.

    But the killer in cost escalation is the cost of land acquisition and of power evacuation. Thanks to populist policies of previous governments, India faces the most painful land acquisition costs. And nothing shows it up as clearly as in the cost difference between solar tariffs in the US and in India.

    Obviously, since land acquisition costs will be difficult to roll back, India will have to opt for solar power installations where the cost of land and of evacuation is the lowest. There are only two places where this is feasible.

    One would be water reservoirs next to hydro-electric power stations, where solar power panels could be built on the top of water surfaces. This is what Gujarat has done on its canals along the Sardar Sarovar Nigam project. The second would be by going in for rooftop solar more aggressively than has been the case till now.

    Hitherto, the government has opted for solar PPAs only from large solar installations which require very large tracts of land. The good thing about rooftop solar is that the cost of land becomes zero. Instead, allow the building occupiers to use the solar power themselves. All that would be required is a bi-directional metering facility which measures the amount of solar energy used, and the additional power drawn from the grid.

    Since the wires have already been laid out in the building, the cost of evacuation of solar power would also get minimized. Any surplus power generated as on holidays, when power is generated but not consumed by the building’s occupiers is sold to the grid.

    And as experience in Germany has shown, the adoption of rooftop solar also allows for large scale employment generation for installation and maintenance of these systems. Today, thanks to solar power, this sector accounts for more employees in Germany than does its famed auto sector. Fortunately, some states have begun to wake up to the tremendous advantages rooftop solar installations hold out for India.

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    India unveils climate target to cut carbon intensity

    India has promised to make its economy more energy efficient and cut the carbon produced per unit of GDP growth by 33-35 percent by 2030 from 2005 levels in a climate-change policy statement released ahead of a U.N. summit in Paris in December.

    India, the world's third-largest emitter of greenhouse gases, also said it would target 40 percent cumulative installed power capacity from non-fossil fuel sources by 2030, though said this would require U.N. financial support.

    The pledges, submitted to the United Nations late on Thursday, were broadly in line with expectations, given emerging economies such as India have resisted setting specific targets to cut emissions.

    India is not yet prepared to go as far as China, the world's biggest emitter, which pledged at the end of June to reduce its carbon intensity by 60-65 percent by 2030, partly through the use of carbon trading. Beijing also said it would bring its absolute emissions to a peak by "around 2030".

    As well as not setting such a timeline, India did not give a commitment in its submission to establishing carbon trading.

    New Delhi also stressed that coal would continue to dominate power generation for its more than 1 billion people in the future, though stressed its commitment to clean energy technologies.

    India said it planned to develop 25 Solar Parks, supply 100,0000 solar pumps to farmers and convert all 55,000 petrol pumps across the country to solar.

    It also pledged to "aggressively" develop hydro and nuclear energy.

    India said its plans were "fair and ambitious considering the fact that India is attempting to work towards low carbon emission pathway while endeavoring to meet all the developmental challenges the country faces today."

    Preliminary estimates indicate India would need to spend around $206 billion between 2015 and 2030 for implementing adaptation actions in agriculture, forestry, fisheries infrastructure, water resources and ecosystems, the submission said.

    "India's climate actions have so far been largely financed from domestic resources. A substantial scaling up of the climate action plans would require greater resources...," said the statement, which was lodged with the U.N. Framework Convention on Climate Change.

    A preliminary estimate suggests that at least $2.5 trillion will be required for meeting India's climate change actions between now and 2030, it said.

    Indian Prime Minister Narendra Modi met U.S. President Barack Obama and France and Britain's leaders last month, and called for a climate change agenda that helps developing countries with access to finance and technology.
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    Mosaic settles claims with U.S. environmental agencies

    Fertilizer maker Mosaic Co's unit said it reached settlements with U.S. federal and state environmental agencies to resolve claims regarding waste management practices at its manufacturing plants in Florida and Louisiana.

    The company said it will invest $170 million on environmental cleanup and other projects and will place $630 million in a trust to support the closure and long-term care of its phosphogypsum stack systems.

    Phosphogypsum is a by-product of fertilizer production from phosphate rock and is stored indefinitely because of its weak radioactivity.

    Mosaic also agreed to pay penalty of $8 million and take up two environmental projects worth $2.2 million in the two states.

    The company said it does not expect the claim settlements to "adversely' hurt its output volumes.

    The deal still needs to be finalized by the court, Mosaic said.
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    Precious Metals

    NUM says accepts gold wage offer

    South Africa's National Union of Mineworkers (NUM) said on Friday its members had accepted the latest pay offer from gold producers covering the next three years. "Our members have accepted the offer," David Sipunzi, NUM's general secretary, told Reuters. 

    NUM is the biggest union in the sector, representing over 50% of the industry's workers. Two smaller unions which represent mostly skilled workers have also accepted the offer. But the Association of Mineworkers and Construction Union (AMCU), which represents close to 30% of workers in the sector, has not and it remained unclear if they would accept. 

    The offers vary from company to company but will see pay hikes on the basic wage for the lowest-paid, entry-level members of up to around 14% in the first year. Including allowances, the deal ensures that entry-level, underground employees will receive guaranteed pay of between R13 728 rand and R14 611 a month in the third year. This would equate to increases for the entire package by the third year of between 26.5% and 32%. 

    The four companies are AngloGold Ashanti, Harmony Gold, Sibanye Gold and Evander Gold, a unit of Pan African Resources. They made it clear that they could not afford big hikes as they grapple with depressed prices and soaring costs in the world's deepest mines.

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    Base Metals

    Norilsk to cut spending as no nickel price pickup seen soon

    Norilsk Nickel PJSC, Russia’s largest mining company, plans to cut investment and freeze some projects because it sees the risk of the metals prices remaining low.

    First Deputy Chief Executive Officer Mr Pavel Fedorov told reporters in Moscow on Wednesday "The sentiment in the commodities market is indeed negative and among the worst in almost two decades. The company plans to save USD 500 million in the next three to four years by cutting capital expenditure and putting projects on hold.”

    He said “We cannot entirely discount the probability that the current $10,000 a tonne nickel price will be the grim reality for the medium term.”

    Mr Fedorov said “New and untapped projects, including the Maslovskoye deposit on the Taymyr peninsula or Severniy Glubokiy upstream project on the Kola peninsula, will be put on hold. It will proceed with investing in the Bystrinsky copper mine that’s near the border with Mongolia and China because it’s already received financing for it and it’s a lesser risk. Norilsk will proceed with the most profitable expansion projects, including its Talnakh concentrator plant.”

    Mr Fedorov said that the company would face more pressure should the government decide to increase a mineral extraction tax
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    Steel, Iron Ore and Coal

    Peabody Energy leads coal stocks lower on Moody's grim outlook

    Peabody Energy Corp. led coal stocks lower Thursday after Moody's Investors Service issued a weak forecast for the coal industry. "The outlook for the North American coal industry remains negative amid ongoing challenges for both metallurgical and thermal coal, including declining coal consumption and low met coal prices," said Moody's in a report.
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