Mark Latham Commodity Equity Intelligence Service

Friday 27th January 2017
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    Amid rising bilateral tensions, Mexico mogul Slim calls news conference

    Amid rising bilateral tensions, Mexico mogul Slim calls news conference

    Mexican mogul Carlos Slim, who was attacked by President Donald Trump during his election campaign but who later met with the U.S. leader in Florida, on Thursday called a press conference for Friday amid growing tensions between the two nations.

    The rare news conference, in which a spokesman said Slim would take reporters' questions, comes as Mexico wrestles with Trump over the highly divisive proposition of a border wall and threats to trade between the two neighboring countries.

    Trump has consistently riled Mexicans by pledging to build a wall on the U.S. southern border and make Mexico pay for it, as well as threatening to ditch a joint trade deal and impose punitive tariffs on Mexican-made goods.

    Those pledges sparked criticism from business leaders including billionaire Slim, who said Trump's plans could destroy the U.S. economy. But following the Nov. 8 election, Slim offered a more upbeat take, saying that if Trump succeeded, it would be good news for Mexico.

    In December, after Trump won the U.S. election, the two men dined at Trump's Mar-a-Lago resort in Florida, with Arturo Elias, Slim's son-in-law and spokesman, saying the meal was "very cordial and with a very good vibe for Mexico."

    Slim's press conference was set for 12.30 pm local time (1830 GMT) on Friday, in Mexico City.

    Slim, the top shareholder in The New York Times Co, is one of the world's richest people, with an empire that encompasses telecoms, mining, banking and construction.
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    Caterpillar Forecasts Fall Short as Demand Slump Persists

    Caterpillar Inc. forecast 2017 revenue and earnings that trailed analysts’ estimates as signs of a recovery in mining and energy have yet to translate into a rebound in demand for the company’s signature yellow machines.

    Revenue will be in a range of $36 billion to $39 billion, with a midpoint of $37.5 billion, the Peoria, Illinois-based company said in a statement Thursday. That is less than the $38.1 billion average of 16 analysts’ estimates compiled by Bloomberg, and indicates annual revenue may fall for a fifth consecutive year. Earnings excluding restructuring costs will be $2.90 a share at the midpoint, compared with the analysts’ estimate of $3.08.

    The company said the availability of used construction equipment will weigh on sales in 2017, and it expects capital spending among miners to be flat. In December, Caterpillar said analysts were overestimating its earnings prospects amid continued weakness in some markets. Any benefit from U.S. President Donald Trump’s infrastructure-spending plan and tax reforms probably wouldn’t be seen until some time in 2018, the company said Thursday.

    The lowered outlook “is happening because business still stinks,” Stephen Volkmann, a New York-based analyst for Jefferies LLC, said in a telephone interview. “The recovery is certainly not happening yet.”

    Caterpillar shares fell 1.2 percent to $97 before the start of regular trading in New York.

    Investors have made the company’s shares the best performer on the Dow Jones Industrial Average index in the past 12 months, rewarding management for cost cuts intended to mute the effects of a drop in demand from miners and energy explorers.

    “We continue to execute in a challenging economic environment and are focused on improving operating margins, profitability and shareholder returns,” Chief Executive Officer Jim Umpleby said in the statement. “While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging.”

    In late October, Caterpillar cut its 2016 sales forecast for a fourth time and warned that 2017 wouldn’t be much better as its customers defer orders amid sluggish growth. On Thursday, the company reported 2016 revenue of $38.5 billion, down from $47 billion a year earlier.

    Annual revenue of $37.5 billion would be the lowest since the recession in 2009, according to data compiled by Bloomberg.

    Commodities rebounded in 2016, with the Bloomberg Commodities Index rising for the first time since 2010 on signs of an improving U.S. economy and stabilizing growth in China. Higher commodity prices and better parts sales in each of the last three quarters, along with improvements in quoting and order activity in the fourth quarter, suggest mining-related sales may have bottomed, the company said.

    Last Quarter

    The quarter marked the last as chief executive officer for Doug Oberhelman, who stepped down on Jan. 1. He invested almost $20 billion into research and development, capital spending and deals as the commodity industry expanded, only to see emerging markets slow and commodity prices in early 2016 touch the lowest in at least 25 years.

    Oberhelman reorganized mining and energy segments, shutting down dozens of factories and cutting thousands of jobs. In early December, Oberhelman saidbecause of tax changes and other policies proposed by Trump he would consider retaining jobs in the U.S. that would have otherwise been shifted abroad. Investors are waiting to see how Umpleby will steer the cost-cutting effort.

    “They’re cleaning house,” Eli Lustgarten, an analyst at Longbow Securities, said in a telephone interview before the earnings report. “We’ll see how they follow it up with the changing of a guard happening in a transitioning environment. Can they make the transition now with the new management? And then the question is how do they prepare moving forward the rest of the decade?”

    Excluding restructuring costs, fourth-quarter earnings were 83 cents a share, topping the 66-cent average estimate of analysts. Revenue in the quarter dropped 13 percent to $9.57 billion.

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    Anglo American boosts 2016 output overall, copper down in fourth quarter

    Anglo American on Thursday reported a sharp production fall at its Los Bronces copper mine in Chile at the end of last year offsetting an overall increase in mineral output across its mines.

    The dip in output late last year weighed on Anglo American shares, which fell around a percent  although analysts said Anglo American's figures were broadly positive.

    They remain confident in the global mining sector, which recovered strongly last year led by Anglo American, the top performer in the FTSE 100 index .FTSE as the company's shares rebounded from a big sell-off in 2015.

    Anglo American said it had seen operational improvements across its portfolio, but Los Bronces output was difficult, as grade quality deteriorated, weather was bad and contractors carried out "illegal industrial action," Anglo said.

    "Together with positive contributions from ongoing ramp-ups at Minas-Rio, Grosvenor and Gahcho Kue, we will be reporting a 2 percent increase in copper equivalent production volumes for 2016 as a whole," CEO Mark Cutifani said in a statement.

    For the final quarter of 2016, the Los Bronces problems led to a 19 percent fall in copper output compared with the same time a year ago.

    Anglo American has put copper, along with platinum and diamonds, at the heart of its portfolio.

    Production at its diamond business De Beers rose 10 percent in the last quarter of 2016 compared with a year earlier as output was boosted in line with improved trading conditions relative to a difficult 2015.

    For platinum, up 2 percent, Anglo American said it continued to "maintain discipline by mining to demand".

    Bernstein analysts said in a note the news was positive.

    "Today's results do not materially change our view on the stock," it said, adding it maintained its "outperform" rating.

    Also on Thursday, Kaz Minerals (KAZ.L), a copper company focused on large scale, low-cost open pit mining in Kazakhstan reported 73 percent year-on-year output growth as new production came online.

    "We successfully ramped up Bozshakol and the Aktogay oxide plant," Chief Executive Oleg Novachuk said. "Our growth will continue in 2017 as Bozshakol reaches capacity and we commence production from sulfide ore at Aktogay."

    Kaz Minerals also said full-year gross cash costs would be around 20 percent less than the previous guided range of 140 to 160 U.S. cents per pound of copper.

    Share prices in the mining sector are broadly speaking extending last year's rally, but traders took profits in Kaz Minerals as well as Anglo American on Thursday.

    Reversing earlier small gains, Kaz Minerals was also down around a percent, slightly more than a dip in the overall sector. .FTNMX1770

    Copper prices on the London Metal Exchange CMCU3 were roughly flat.

    They jumped 18 percent last year, the first annual rise since 2012. Copper has been billed as the bulk commodity most likely to run into short supply, although output is still ample for now.
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    BHP launches online freight platform to sink shipping costs

    BHP Billiton has launched an online system under which shippers compete to offer the best price to haul cargoes of commodities such as iron-ore and copper to the mining giant's customers.

    BHP this week allocated its first cargo using the auction-style platform, which it hopes will save money as it bypasses brokers who traditionally help negotiate vessel-hire rates between cargo owners and shippers.

    The company plans to gradually ramp up the platform, which it said was the first of its kind for a major charterer, although it follows in the wake of similar freight portals from companies including Ocean Freight Exchange.

    Such platforms could potentially overhaul the way miners contract freight services, reducing their costs at a time when commodity markets appear to be picking up following years of low prices.

    "It's the first of its kind, certainly for a charterer of our rank," Rashpal Bahtti, BHP Billiton Freight vice president, told Reuters before the first auction on Wednesday.

    BHP asked 13 ship owners and operators to submit offers through its online platform to transport 170 000 t of iron-orefrom west Australia to China next month.

    They included Japanese firms NYK Bulk and Mitsui OSK Lines, Greek owner Anangel Maritime Services and commodity trader Cargill, Bahtti said.

    More than 50 bids were submitted in an hour and the final agreed price was almost $0.30 below the spot price, said company spokeswoman Angela Perera, without identifying the winning company. The spot freight index rate from Western Australia to China closed at $5.19/t on Wednesday.

    BHP said five vessel owners that were not invited to bid in Wednesday's auction have asked to take part in a second auction next week.

    "We will extend (the auction system) to a certain percentage of our (freight) book," Bahtti said, without giving specific details or a timeframe.

    "(As) with any new technology, we want to ensure it works and works well," he added.

    The world's biggest miner has said it spent $764-million shipping 275-million tonnes of iron ore from Western Australia to global markets, mainly China, in the year to June 30.

    But such platforms could be a blow to the ship broking industry, said a dry cargo broker at French company Barry Rogliano Salles.

    "If BHP finds it workable, maybe Rio Tinto and FMG (Fortescue Metals Group) would do online auctions as well which will affect almost all brokers in the market," said the broker, who declined to be identified.

    "I do not see any big downside for shipowners. Only brokers will lose out big time," added a senior executive at a European shipping company.

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    Polythene Prices Breakout.

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    China Said to Order Banks to Curb New Loans in First Quarter

    China’s central bank has ordered the nation’s lenders to strictly control new loans in the first quarter of the year, people familiar with the matter said, in another move to curb excess leverage in the financial system.

    The new guidance from the People’s Bank of China puts a particular emphasis on mortgage lending, the people said, as authorities grapple to contain runaway property prices. And while the PBOC regularly seeks to guide banks’ credit decisions, this time it may also make errant lenders pay more for deposit insurance, one of the people said.

    The central bank declined to comment. Policy makers are trying to strike a balance between avoiding excess credit that fuels asset bubbles and keeping enough funding in the financial system to meet the seasonal surge in demand for credit ahead of the start of the Lunar New Year holiday this week. President Xi Jinping and his top economic deputies reaffirmed last month that they plan to prioritize the control of financial risks in the economy to prevent asset bubbles.

    “This is a continuation of the tightening trend we’ve seen since the second half of last year and extends from shadow banking to on-balance sheet loans,” said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

    Record Lending

    The PBOC may use its MPA framework to punish banks which don’t comply with the new lending rules by lowering interest rates on reserves they are required to deposit with the central bank, according to the people, who asked not to be identified as the discussions are private. The central bank may also punish errant lenders by making them pay more for deposit insurance, one of the people said.

    The new instructions included a request for banks to keep any increase in new mortgage lending in the first quarter below the increase seen in the fourth quarter of last year, the people said. The growth rate of total outstanding mortgages should also not exceed the fourth quarter rate, they added.

    Chinese banks doled out a record 12.65 trillion yuan ($1.8 trillion) of new loans in 2016, with many tending to front-load their lending in the first quarter of the year so they could record the interest income earlier. Of the total new loans, 36 percent were given out in the first quarter of last year.

    In another sign of the effort to curb risks, the PBOC on Tuesday unexpectedly increased the interest rates on medium-term loans that it uses to manage liquidity. Earlier, the central bank said it will include wealth-management products held off bank balance sheets in its macro prudential assessmentframework for gauging risk to the financial system starting in the first quarter.

    Property Controls

    The government has been targeting home loans since the fourth quarter to containrunaway property prices in areas deemed overheated.
    At their annual economic work conference last month, Chinese leaders singled out property, saying that “houses are built to be inhabited, not for speculation,” according to a post-meeting statement released by the official Xinhua News Agency. Apart from mortgage curbs, China’s government is encouraging city-specific measures such as raising down-payment requirements.

    As well as setting a limit on new mortgages, the central bank told banks to keep other loans under control, the people said. Bank of Communications Co.estimates that China’s new loans may reach 13.5 trillion yuan in 2017, which would be a new record.

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    Animal Spirits: Can we measure this gold at the end of the rainbow?


    The original passage by Keynes reads:

    Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.[1]

    William Safire published an article "On Language: 'Animal Spirits'" in the New York Times on March 10, 2009, stating:

    The phrase that Keynes made famous in economics has a long history. "Physitions teache that there ben thre kindes of spirites", wrote Bartholomew Traheron in his 1543 translation of a text on surgery, "animal, vital, and natural. The animal spirite hath his seate in the brayne ... called animal, bycause it is the first instrument of the soule, which the Latins call animam." William Wood in 1719 was the first to apply it in economics: "The Increase of our Foreign Trade...whence has arisen all those Animal Spirits, those Springs of Riches which has enabled us to spend so many millions for the preservation of our Liberties." Hear, hear. Novelists seized its upbeat sense with enthusiasm. Daniel Defoe, in "Robinson Crusoe": "That the surprise may not drive the Animal Spirits from the Heart." Jane Austen used it to mean "ebullience" in "Pride and Prejudice": "She had high animal spirits." Benjamin Disraeli, a novelist in 1844, used it in that sense: "He...had great animal spirits, and a keen sense of enjoyment."[2]

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    China's 2016 industrial profits rise most in 3 years on commodities recovery

    Profits for China's industrial firms rose the most in three years in 2016 as a construction boom fueled a rally in prices of building materials from steel to cement, giving companies more flexibility to start chipping away at a mountain of debt.

    Strong profit growth of 8.5 percent last year suggests there may be a solid pick-up in industrial investment in 2017, though many analysts still expect China's overall economic growth to cool to around 6.5 percent this year from 6.7 percent in 2016.

    Industrial profits fell 2.3 percent in 2015.

    Profits in December rose 2.3 percent from a year earlier to 844.4 billion yuan ($122.76 billion), the National Bureau of Statistics (NBS) said on Thursday, slowing sharply from growth of 14.5 percent in November.

    But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms.

    Profits in the coal mining sector surged 223.6 percent in 2016, while those for iron and steel production and processing companies rose 232.3 percent.

    Baoshan Iron and Steel (Baosteel) said last week that it expected its net profit to rise 770 percent in 2016 from a year earlier.

    Baosteel Group is taking over rival Wuhan Steel to create the world's second-largest steelmaker, in the government's biggest effort yet to consolidate its fragmented steel industry.

    China's stock market investors have cashed in on the industrial revival. An index tracking the industrial sector has risen around 22 percent since June 2016 and reached a 10-1/2-month high in November.


    The NBS said a narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing contributed to the overall 2016 earnings turnaround.

    But part of the reason for the strong numbers last year was simply due to a weak base of comparison from the previous year and the foundation for further improvement in the industrial sector was not stable, the stats bureau added.

    "Average profit growth over the last two years has not kept up with output growth," NBS said in a statement. "An unreasonable demand structure, difficulties collecting funds and high costs are a drag on corporate profits."

    Indeed, the amount of time it took companies to collect payment rose to 36.5 days in 2016, while the increase in accounts receivables accelerated to 9.6 percent. The efficiency of production also fell, with companies having to invest more to generate the same amount of revenue as in the past.

    The stats bureau said the slower profit growth in December was due to volatility in oil prices and adjustments by some firms to their product structure.

    Profits for firms which make computers and other electronic equipment fell 10.5 percent in December, after rising 45.4 percent in November, possibly due to fewer new product launches at the end of the year.

    China's state firms fared worse than the broader industrial sector, with profits at government-owned firms rising only 1.7 percent in 2016, the Ministry of Finance said earlier on Thursday.

    Total profits at state firms stood at 2.3 trillion yuan for the year, while revenue rose 2.6 percent to 45.9 trillion yuan.

    China increasingly relied on its lumbering and often inefficient state firms to generate economic growth last year as private investment cooled.

    State firms' total liabilities rose 10 percent year-on-year to 87 trillion yuan at the end of December. For industrial firms overall, liabilities rose 5.6 percent in 2016.


    China's producer prices surged the most in more than five years in December, bolstered by a months-long rally in prices of coal and raw materials and contributing to a reflationary pulse felt across the global manufacturing sector.

    Government efforts to force bloated "smokestack" industries to shut excess and inefficient capacity also helped feed the rally by reducing supply.

    But some analysts worry the strong price gains may have been fueled by growing speculation in China's commodity futures markets, adding to the risk of asset bubbles in the economy which the central bank has vowed to prevent in 2017.

    Chinese futures prices for steel reinforcing bars used in construction have risen more than 10 percent so far this month, on top of a gain of more than 60 percent in 2016.


    China's economy expanded 6.7 percent in 2016, roughly in the middle of the government's target range, but it faces increasing uncertainties in 2017, with a housing frenzy showing signs of cooling and the impact of previous stimulus measures expected to fade.

    Still, the stronger cash flow will in theory give China's big state industrial champions more room to tackle their debt burdens.

    Chinese firms as a group owe some $18 trillion, equivalent to about 169 percent of gross domestic product, according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms.

    China's industrial output is likely to grow around 6 percent in 2017, similar to the pace seen in 2016, a state-run newspaper quoted Chinese industry minister Miao Wei as saying in December.
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    China’s metals curb plan seen risking shortages in biggest user

    China’s proposal to halt some metals production to fight air pollution over the winter would create shortages of alumina but have a more limited impact on aluminium supply, according to China’s top industry body, which has been consulted on the plan.

    The proposal involves an alumina suspension in three provinces that would affect about a fifth of the nation’s operating capacity producing the raw material for aluminium. The halts to aluminium, which is used in everything from cans to window frames, would be less severe – about a tenth of the country’s operating capacity would be targeted, across four provinces, according to the plan.

    A draft was circulated by the Ministry of EnvironmentalProtection earlier this month and is subject to change pending industry feedback, according to a person with knowledge of plan, who asked not to be identified because it’s confidential. The period targeted runs from November to March, when pollution peaks due to coal-fired heating. While the intention is to implement the plan next winter, it hasn’t been decided whether it would come into force over the remainder of this season, the person said.

    The impact on aluminium production would likely be limited at about one-million metric tons, the deputy chairman of the China Nonferrous Metals Industry Association, Wen Xianjun, said by phone on Wednesday. For alumina, the impact would be bigger and create an imbalance in supply and demand, he said, without giving figures.

    If the plan materializes, it would lead to a 12% production loss for alumina and a 4% loss for aluminium, Citigroup analysts including Jack Shang and Ada Gao said in a note on Wednesday.

    China churns out more than half the world’s aluminium and produced a record volume last year of almost 32-million tons, according to the statistics bureau. It had been expected to boost output further to put the global market into surplus in 2017. Alumina production in 2015, the latest for which figures are available, was 56-million tons, according to state-backed researcher Antaike Information Development.

    News of the proposal pushed aluminium prices in London to their highest level in 20 months on Tuesday, while on Wednesday the nation’s biggest smelter China Hongqiao Group surged as much as 8.4% in Hong Kong; the No. 2, Aluminium Corp of China, or Chalco, rose as much as 5.1%.


    There’s limited downside for aluminium prices with alumina supply remaining tight in 2017, even without the production cut plan, according to Citigroup. The bank said the proposal would affect China Hongqiao more in terms of volume than Chalco.

    Researcher SMM Information & Technology said in a note Tuesday it doubts the proposal will be implemented, as the halt would cost aluminium smelters about 2.25-billion yuan ($327-million) to stop and resume production, and risks other capacity coming online to fill the supply gap.

    Under the proposal, 30% of running capacity at some aluminium smelters in Hebei, Shandong, Henan and Shanxiprovinces would be ordered to halt over the period, according to the person. The operations targeted account for more than 11-million tons, or about 30% of the nation’s total. For alumina, 50% of running capacity in Shandong, Henan and Shanxi provinces would be affected, operations which account for about 28-million tons, or 40% of the nation’s total.

    Nobody responded to a fax requesting comment from the Ministry of Environmental Protection’s news department. An official at China Hongqiao, which also producers alumina, declined to comment. An e-mail to Chalco didn’t get a response.

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    Trump administration tells EPA to cut climate page from website: sources

    U.S. President Donald Trump's administration has instructed the Environmental Protection Agency to remove the climate change page from its website, two agency employees told Reuters, the latest move by the newly minted leadership to erase ex-President Barack Obama's climate change initiatives.

    The employees were notified by EPA officials on Tuesday that the administration had instructed EPA's communications team to remove the website's climate change page, which contains links to scientific global warming research, as well as detailed data on emissions. The page could go down as early as Wednesday, the sources said.

    "If the website goes dark, years of work we have done on climate change will disappear," one of the EPA staffers told Reuters, who added some employees were scrambling to save some of the information housed on the website, or convince the Trump administration to preserve parts of it.

    The sources asked not to be named because they were not authorized to speak to the media.

    A Trump administration official did not immediately respond to a request for comment.

    The order comes as Trump's administration has moved to curb the flow of information from several government agencies who oversee environmental issues since last week, in actions that appeared designed to tighten control and discourage dissenting views.

    The moves have reinforced concerns that Trump, a climate change doubter, could seek to sideline scientific research showing that carbon dioxide emissions from burning fossil fuels contributes to global warming, as well as the career staffers at the agencies that conduct much of this research.

    Myron Ebell, who helped guide the EPA's transition after Trump was elected in November until he was sworn in last week, said the move was not surprising.

    "My guess is the web pages will be taken down, but the links and information will be available," he said.

    The page includes links to the EPA's inventory of greenhouse gas emissions, which contains emissions data from individual industrial facilities as well as the multiagency Climate Change Indicators report, which describes trends related to the causes and effects of climate change.

    The Trump administration's recently appointed team to guide the post-Obama transition has drawn heavily from the energy industry lobby and pro-drilling think tanks, according to a list of the newly introduced 10-member team.

    Trump appointed Oklahoma Attorney General Scott Pruitt, a longtime foe of the EPA who has led 14 lawsuits against it, as the agency's administrator. The Senate environment committee held a tense seven-hour confirmation hearing for Pruitt last week. No vote on his nomination has been scheduled yet.

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    Trump signs executive orders on manufacturing, infrastructure

    U.S. President Donald Trump on Tuesday signed an executive order directing that the permitting process and regulatory burden for domestic manufacturers should be streamlined to reduce what he called "the incredibly cumbersome, long, horrible" process.

    "Sometimes it takes many, many years and we don’t want that to happen. If it's a 'no,' we'll get a quick 'no.' If it's a 'yes,' it's like, let's start building," he said.

    Among a total of five actions signed by Trump in an Oval Office ceremony, he also signed orders to expedite environmental review and approval of high-priority infrastructure projects, to accelerate the Keystone XL and Dakota Access pipeline projects and to decree that any pipelines intended for the United States should be built in the country.

    He said: "We will build our own pipeline. We will build our own pipes, as we used to in the old days."
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    Energy Suppliers Hit Pay Dirt in EU’s Surprise Deep Freeze

    It only took a few cold weeks to break Europe free from its three-year-long energy glut.

    From Houston to Oslo and Moscow, companies that sell natural gas have seen sales and exports surge at the start of the year as Europe scrambles to secure enough supplies to manage the harsh weather. After forecasts for a mild winter, January temperatures plunged enough to freeze rivers and cut off supplies for tens of thousands of homes.

    The revenue boost offered a reprieve from a price collapse that’s lingered since 2014, with supply overwhelming demand during the three warmest years on record. While consumers and industry will be hit by higher bills after February power prices in Germany surged to a record and U.K. gas traded near a four-year high, energy companies are enjoying a winter windfall.

    “We have had quite a few hard years in terms of mild winter and this is a big positive deviation,” said Elchin Mammadov, a London-based utilities analyst at Bloomberg Intelligence. “It will have an impact on first-quarter results.”

    Power Grab

    German utilities have run their available plants at full throttle as temperatures plunged to a countrywide average of minus 4 Celsius (25 Fahrenheit) some days last week. Energie Baden-Wuerttemberg AG, Uniper SE and other utilities were also asked to activate some reserve plants, resulting in payments of more than 19 million euros, according to a Bloomberg estimate based on output and a government document on compensation.

    Utilities and German grid companies declined to comment or couldn’t comment on overall costs. Temperatures in the country are seen remaining below zero through the weekend, compared to a 10-year average of about 1 degree Celsius.

    Britain and Scandinavia, which have mostly avoided abnormally low temperatures, have been exporting electricity. The U.K. is generating its highest-ever volume of power from natural gas to send to France where prices have soared, also exacerbated by lower nuclear availability. Exports are at their highest level since at least 2010, even with flows on a cable linking the countries cut 50 percent through February.

    Norwegian power shipments to the Netherlands jumped 14 percent this year through Jan. 24, according to data from the Nord Pool AS exchange. With gas-fired electricity generation reaching new heights in the U.K. last week, shippers of the fuel to both power producers and utilities have also been boosted with higher-than-forecast sales.

    “I can’t remember a start to the gas year that’s been this good,” said Frode Leversund, the chief executive officer of Gassco AS, which sends Norwegian fuel to the continent and the U.K. through its 5,000 miles of pipelines.

    The company set a new daily record on Jan. 12, exporting gas worth as much as 76 million pounds ($95 million) based on U.K. prices that day.

    Russia’s Gazprom PJSC also supplied record levels in the first 15 days of January. The Moscow-based exporter, which meets about a third of European Union’s needs, boosted deliveries to the region and Turkey by 26 percent.

    LNG Cargoes

    With gas being the fastest rising fuel source for the world, sellers of liquefied natural gas have also benefited from a 33 percent increase in European prices since the beginning of December, according to data from World Gas Intelligence.
    Cheniere Energy Inc., the Houston-based exporter of LNG produced from U.S. shale gas formations, shipped two cargoes into the Mediterranean for the first time within the space of a week. One went to Spain and the other to Turkey, as both nations struggle with shortages. The U.S. producer has up until now mainly supplied South America, Middle East and Asia.

    Cheniere spokeswoman Faith Parker didn’t respond to requests for comment.

    With more than two months of winter to go, and European stockpiles of gas at less than half full, further price surges are possible, according to Massimo Di’Odoardo, the London-based research director for European gas at industry consultant Wood Mackenzie Ltd.

    “The weather this year has really surprised people,” he said in an interview in London.
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    Senate Democrats Introduce $1 Trillion Infrastructure Plan, Offer Trump Support If He Backs It

    Senate Democrats are set to unveil a $1 trillion infrastructure plan and offer President Donald Trump their support if he backs it, the NYT reports.

    The plan includes $180 billion to rail and bus systems, $65 billion to ports, airports and waterways, $110 billion for water and sewer systems, $100  billion for energy infrastructure, and $20 billion for public and tribal lands.

    Cited by the Times, Chuck Schumer said “our urban and rural communities have their own unique set of infrastructure priorities, and this proposal would provide funding to address those needed upgrades that go beyond the traditional road and bridge repair." The Senate Democrat leader adds that “We’re asking President Trump to work with us to make it a reality/"

    As part of his agenda, Trump has promised to unveil an ambitious infrastructure package during the first 100 days of his presidency. “We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation,” he vowed in his Inaugural Address.

    One of Trump’s top advisers said Monday, however, that the president’s plan may run into roadblocks in the Republican-led Congress.

    “He has to come up with a financing plan, and I think there’s going to be a little bit of a tug of war between the conservatives in the Republican party who are concerned about deficits and the president who’s concerned about jobs,” Richard LeFrak said on CNBC’s "Squawk Box." “I think he will prevail, ultimately, because he wants to put people to work.”

    Republicans resisted President Barack Obama’s push for an infrastructure “surge” for eight years, arguing that the federal government couldn’t afford it and that state and local governments should shoulder more responsibility for improvements. However, now that Trump "has taken up the Democratic cause", they may find it more problematic.
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    EU Winter Package CO2 proposal unacceptable: Poland

    The proposed limit on CO2 emissions in the EU's 'Winter Package' is 'unacceptable' to Poland, which is dependent on coal and lignite for most of its electricity generation, Piotr Naimski, the government's adviser on strategic energy infrastructure said late Friday.

    In November, as part of the 'Winter Package', the European Commission proposed that only generating units that emit up to 550 kg/MWh of CO2 would be eligible for support from a capacity market.

    Poland is currently preparing to introduce a capacity market based on centralized capacity auctions similar to the system currently operated in the UK. The government would like the first auction for capacity to be delivered in 2021 to take place by the end of this year.

    "This is unacceptable for us," Naimski told reporters, when asked about the emission cap proposal. Naimski said hard coal and lignite would remain the basic source of electricity generation in Poland for the next 30 years because they are a relatively cheap source of fuel and they guarantee the country's energy security.

    The Polish Electricity Association (PKEE), which includes the country's four vertically integrated state utilities, has said it opposes the proposal, even taking into account that Polish generators would benefit from a five-year derogation period from the time the restriction comes into force.

    "Nearly 28 GW would be excluded from the future Capacity mechanism; this gap cannot be covered by energy import (the available interconnector's capacity is estimated to reach 3 GW)," the PKEE said in its position paper on the Winter Package in December.

    The installed capacity of the Polish electricity system amounts to roughly 38 GW. The Commission's proposal would apply to new units from the date it takes effect, while existing Polish plants would get a five-year derogation.
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    Most of Europe to be warmer than normal in February, March: forecaster

    Most of Europe is set for warmer-than-normal temperatures in February and March, The Weather Company -- formerly WSI -- said in an update Monday, though the UK and the Iberian Peninsula are likely to see colder weather than usual.

    The closely watched forecasts are a deviation from the group's most recent winter forecast from late December, which suggested a colder-than-usual February for much of Europe.

    The prediction comes after parts of Europe, especially southern and eastern Europe, suffered extreme cold temperatures in recent weeks, triggering price spikes across the region.

    "We expect that the evolving subseasonal signal should allow for warming/drying across southern Europe as we head into early February, with the strong westerly North Atlantic flow shifting the focus of the wet weather to the UK and Scandinavia for at least a couple of weeks," The Weather Company's chief meteorologist Todd Crawford said.

    "The bulk of the cold has been east-focused in January, with southeastern Europe getting the worst of it with extreme cold and very heavy snows," Crawford said.

    The Weather Company said it was expecting warmer-than-normal temperatures in the Nordic region, northern European mainland and the east of the southern mainland in February and March.

    It said the west of the southern mainland -- Spain and Portugal -- would be colder than normal over the next two months.

    The past three winters in Europe have seen warm, wet and windy weather, which were bearish for gas markets traditionally buoyed by increased cold winter demand.
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    China's producer prices face upward pressure in 2017, NBS

    China's producer prices face upward pressure in 2017, as the market situation continues to improve, the National Bureau of Statistics (NBS) said  in a commentary on its website, adding to expectations that global inflation may be stronger in 2017.

    China's producer prices surged more than expected by the most in more than five years in December as prices of coal and other raw materials soared.

    Stronger prices are welcome news for China's heavily indebted smokestack industries, which are largely state owned and in need of more cash flow to help pay off loans.

    But some industries have not resolved their overcapacity issues, which could be a potential obstacle for further rises in factory prices, the NBS said.
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    Trump pulls U.S. out of Pacific trade deal, loosening Asia ties

    U.S. President Donald Trump formally withdrew the United States from the Trans-Pacific Partnership trade deal on Monday, distancing America from its Asian allies, as China's influence in the region rises.

    Fulfilling a campaign pledge to end American involvement in the 2015 pact, Trump signed an executive order in the Oval Office pulling the United States out of the 12-nation TPP.

    Trump, who wants to boost U.S. manufacturing, said he would seek one-on-one trade deals with countries that would allow the United States to quickly terminate them in 30 days "if somebody misbehaves."

    "We're going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country," the Republican president said as he met with union leaders in the White House's Roosevelt Room.

    The TPP accord, backed heavily by U.S. business, was negotiated by former Democratic President Barack Obama's administration but never approved by Congress.

    Obama had framed TPP, which excluded China, as an effort to write Asia's trade rules before Beijing could, establishing U.S. economic leadership in the region as part of his "pivot to Asia."

    China has proposed a Free Trade Area of the Asia Pacific and has also championed the Southeast Asian-backed Regional Comprehensive Economic Partnership.

    Trump has sparked worries in Japan and elsewhere in the Asia-Pacific with his opposition to the TPP and his campaign demands for U.S. allies to pay more for their security.

    His trade stance mirrors a growing feeling among Americans that international trade deals have hurt the U.S. job market. Republicans have long held the view that free trade is a must, but that mood has been changing.

    "It's going to be very difficult to fight that fight," said Lanhee Chen, a Hoover Institution fellow who was domestic policy adviser to 2012 Republican presidential nominee Mitt Romney. "Trump is reflecting a trend that has been apparent for many years."

    Harry Kazianis, director of defense studies at the Center for the National Interest think tank in Washington, said Trump must now find an alternative way to reassure allies in Asia.

    "This could include multiple bilateral trade agreements. Japan, Taiwan and Vietnam should be approached first as they are key to any new Asia strategy that President Trump will enact,” he said.

    Trump is also working to renegotiate the North American Free Trade Agreement to provide more favorable terms to the United States, telling reporters he would meet leaders of NAFTA partners Mexico and Canada to get the process started.


    The new president met with a dozen American manufacturers at the White House on Monday, pledging to slash regulations and cut corporate taxes - but warning them he would take action on trade deals he felt were unfair.

    Trump, who took office on Friday, has promised to bring factories back to the United States - an issue he said helped him win the Nov. 8 election. He has not hesitated to call out by name companies he thinks should bring outsourced production back home.

    He said those businesses that choose to move plants outside the country would pay a price. "We are going to be imposing a very major border tax on the product when it comes in," Trump said.

    He asked the group of chief executives from companies including Ford Motor Co, Dell Technologies Inc, Tesla Motors Inc and others to make recommendations in 30 days to stimulate manufacturing, Dow Chemical Co Chief Executive Officer Andrew Liveris told reporters.

    Liveris said the CEOs discussed the border tax "quite a bit" with Trump, explaining "the sorts of industry that might be helped or hurt by that."

    "Look: I would take the president at his word here. He's not going to do anything to harm competitiveness," Liveris said. "He's going to actually make us all more competitive."

    At part of the meeting observed by reporters, Trump provided no details on how the border tax would work.

    The U.S. dollar fell to a seven-week low against a basket of other major world currencies on Monday, and global stock markets were shaky amid investor concerns about Trump's protectionist rhetoric.

    "A company that wants to fire all of its people in the United States, and build some factory someplace else, and then thinks that that product is going to just flow across the border into the United States - that's not going to happen," he said.


    The president told the CEOs he would like to cut corporate taxes to the 15 percent to 20 percent range, down from current statutory levels of 35 percent - a pledge that will require cooperation from the Republican-led U.S. Congress.

    But he said business leaders have told him that reducing regulations is even more important.

    "We think we can cut regulations by 75 percent. Maybe more," Trump told business leaders.

    "When you want to expand your plant, or when Mark wants to come in and build a big massive plant, or when Dell wants to come in and do something monstrous and special – you're going to have your approvals really fast,” Trump said, referring to Mark Fields, CEO of Ford.

    Fields said he was encouraged by the tone of the meeting.

    "I know I come out with a lot of confidence that the president is very, very serious on making sure that the United States economy is going to be strong and have policies - tax, regulatory or trade - to drive that," he said.

    Trump told the executives that companies were welcome to negotiate with governors to move production between states.
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    Anglo sees incremental gains as trading unit hits cruising speed

    Anglo American, which broke with tradition when it set up a focused commercial unit, sees modest improvements ahead after an early boost to profits, as it gets closer to clients, even offering shelter from volatile markets with fixed-price contracts.

    Anglo, like many miners, shied away from directly trading its own material for decades, selling instead largely through intermediaries such as established trading houses.

    That changed in 2013 under CEO Mark Cutifani, as Anglosought a direct connection with customers to get more value from every tonne of material sold, a move which added more than $400-million to underlying operating profit in two years.

    The value of sales made to intermediaries - and not direct to end users - fell from 60% in 2012 to less than 10% of the total in 2015 - roughly the current level, according to Peter Whitcutt, the Anglo veteran who became chief executive of marketing a year ago.

    The group is now close to the limit of the extra cash it can squeeze out per tonne sold, Whitcutt said in an interview last week. But it can still get closer to the needs of commodity end-users, particularly in opaque markets like thermal coal, or targeted markets like minor platinum group metals.

    "There is more we can do as we improve the resource-to-market connection and make the most of what we have in the ground," he said, speaking at the group's Singapore office, the base for much of its trading activities.

    Demand for fixed-price contracts, for example, has prompted Anglo to develop its capabilities in financial derivatives.

    "We sell on a floating price basis, but some customers want a fixed price, so we can put that back to our 'risk neutral' position using financial markets," he said.

    Anglo says it will not trade commodities it does not mine and has no plan to invest in warehouses or vessels, though it now has a shipping desk and sees more value to be extracted from better use of those ships.

    "We are not expanding into handling third party material or using financial instruments just for the sake of it," Whitcutt said. It does still see some scope to trade material mined by others.

    "We have a real capability rooted in Anglo American's mines and our desire to get full value for our resource."

    Anglo is one of several mining companies that have turned to the philosophy of extracting as many marginal gains as possible across operations to improve overall performance at a time of weak prices.
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    Beijing announces 10 measures to curb smog in 2017

    Beijing witnessed 39 heavily polluted days last year, 19 days fewer than 2013, said anofficial of the Beijing Municipal Environmental Protection Bureau at a press conference onSaturday, who also announced ten "strict measures" to fight smog in the Chinese capitalthis year.

    "In 2016, there were 39 days of heavy pollution in Beijing, a reduction of 19 days comparedwith 2013," said Li Xiang, Deputy Director of the Atmospheric Environment ManagementDivision of the bureau.

    According to a report by, Li attributed the improvement in air quality to arange of measures such as the reduction of coal consumption, the control of vehicleemissions and the closure of high-emission enterprises.

    This year will be crucial for Beijing to meet the targets set in China's Airborne PollutionPrevention and Control Action Plan (2013-17), according to which, by 2017, the Beijing-Tianjin-Hebei region should have reached a 25 percent reduction in air emissions from 2012 levels, with the average annual density of PM2.5 particles in Beijing falling to about 60 micrograms per cubic meter. Therefore, Beijing will take ten "strict measures" tofurther curb smog and improve air quality:

    1. To promote the transition from coal to clean energy in 700 villages in the rural area;

    2. To cut emissions in Beijing from the power sector as much as possible;

    3. To transform the remaining 4,000 ton/h coal fired industrial and heating boilers toones powered by clean energy;

    4. To ban light-duty gasoline vehicles of national I and II emission standards from beingdriven inside the fifth ring roads from February 15, 2017;

    5. To install diesel particulate filters on all new heavy-duty diesel vehicles and strictlypunish behaviors of excess emission from existing heavy-duty diesel vehicles;

    6. To reduce emissions of nitrogen oxides from 10,000 ton/h gas boilers;

    7. To clean up 2,560 "dispersed, disordered and dirty" enterprises and shut down 500 manufacturing and polluting enterprises;

    8. To replace oil-based paint with water-based paint in Beijing, Tianjin and Hebei;

    9. To enhance law enforcement and supervision and establish an environmental policeforce;

    10. To intensify regional collaboration mechanism on the prevention of and emergencyresponse to air pollution.
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    Consensus sharp again.

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    Sea ice charts for 18 January from NSIDC Masie show exactly as much sea ice in 2017 as there was back in 2006 – 13.4 million km^2.

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    Masie image below from 2006 (enlarged and cropped from archived version and label re-inserted) shows the distribution of ice was slightly different than this year (less in Baffin Bay/Davis Strait/Labrador Sea, more in the Barents and Bering Seas):

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    Considering only Canada (where 2/3 of the world’s polar bears live), Canadian Ice Service comparative graphs going back to 1971 show average amounts of ice existed the week of 15 January 2017, but considerably more than the estimates for the 1970s (odd that we never hear about that):

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    German Foreign Minister: With Trump, ‘Old World of the 20th Century is Finally Over’

    German Foreign Minister Frank-Walter Steinmeier says U.S. President Donald Trump’s election marks the end of an era, and Berlin will move quickly to secure “close and trusting trans-Atlantic cooperation based on common values” with the new administration.

    Steinmeier wrote in Bild newspaper on Sunday that “with the election of Donald Trump, the old world of the 20th century is finally over” and “how the world of tomorrow will look is not settled.”

    He says with any power change there are “uncertainties, doubts and question marks,” but a lot more is at stake “in these times of a new global disorder.”

     Steinmeier says he will promote free trade and joint efforts against extremism with Washington.

    He added he’s certain Germany will “find interlocutors in Washington who know big countries also need partners.”
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    S Korean leading presidential candidate pledges less coal, nuke, while pursuing Russian natural gas

    South Korea's leading presidential candidate Moon Jae-In has pledged to reduce coal-fired power plants and phase out nuclear reactors in the country, while seeking to buy Russian natural gas to meet power demand and combat climate change.

    "We should reduce consumption of fossil fuels, coal in particular," he said Wednesday night at a group interview that included S&P Global Platts. "Coal-fired power plants are accused of air pollution and fine-dust emissions," said Moon, former leader of the progressive opposition Democratic Party.

    Shutdown of aged coal-fired plants would not greatly affect the country's power supply if the country makes more investments in renewable power projects, Moon said, stressing that South Korea's fuel-mix for power generation should be more environment-friendly and low-carbon oriented.

    Moon is the front-runner in South Korea's next presidential elections, outpacing ex-U.N. Secretary-General Ban Ki-Moon by more than six percentage points in terms of popularity, according to recent public surveys.

    The current president, Park Geun-Hye, was suspended from duty in December 2016, after the national assembly voted to impeach her. The constitutional court is currently deciding whether to uphold the motion.

    The presidential elections will happen in 60 days if the constitutional court approves Park's impeachment that would come between March and June, which means, the next president could be elected by May.

    Moon is the top candidate from the Democratic Party, the biggest party, with 121 seats in the 300-seat National Assembly.

    The Democratic Party is more focused on environment and fair wealth-distribution than the conservative, currently ruling Saenuri (New Frontier) Party. The Saenuri Party has long placed the top priority on economic growth led by big business conglomerates, called chaebol, such as SK Group that runs oil refineries and chemical plants.

    In line with his party?s objectives, Moo said he would seek to raise electricity tariffs for businesses as part of efforts to overhaul energy-intensive manufacturers, which can sap profits of oil refiners and chemical makers mostly run by big conglomerates such as SK Innovation, GS Caltex, Hyundai Oilbank, Hanwha Total and Lotte Chemical.

    Moon's comment on coal-power plants came at a time when South Korea has been increasingly hit by higher concentrations of fine-dust in the air, caused largely by coal-fired power plants, sparking public health concerns.

    Fine-dust refers to particles that are smaller than 10 micrometers and have been known to cause various respiratory problems while also affecting the body's immune system.

    South Korea runs more than 50 coal-fired power plants that supply about 40% of the country?s total electricity, followed by nuclear about (30%), LNG (about 25%), oil (3%), and renewable sources, such as hydropower, solar, wind and fuel cells (2%).

    The coal-fired power plants mostly owned by the state have been usually operated at full capacity, because they, as base-load generators, provide electricity, along with nuclear reactors, as a means to minimize power production costs.

    With increasing demand for power, power plants using more expensive fuel like natural gas increase their electricity production, under South Korea's power trading formula.

    Operating rates at natural gas-fired power plants have decreased to less than 40% since the second half of 2014, from 60% over 2012-2013, due to increased capacity of coal-fired and nuclear power plants and economic slowdown.

    Moon has also pledged to pave the way for achieving 'nuclear zero' by around 2060, to address growing public fears about safety, particularly in the wake of the country's biggest earthquake in September last year, which forced four nuclear reactors to close for three months.

    "I will make South Korea build no more nuclear reactors and close down aged nuclear reactors when their lifespan expire," Moon said. "Through this, South Korea can arrive at nuclear zero in 2060, and until then, we can develop alternative sources," he said.

    The best alternative to coal and nuclear, Moon said, is renewable sources, but it would take a long time for them to meet electricity demand. "So, South Korea needs to consider purchasing natural gas from neighboring Russia by building a pipeline," he said. South Korea's state-run Korea Gas Corp. signed a preliminary agreement with Russia's Gazprom in 2008 to buy 10 Bcm/year of Russian gas for a 30-year period, beginning 2015.

    Under the $90-billion deal, Kogas and Gazprom also agreed to push for a pipeline that runs across North Korea as the preferred delivery option. For their part, Russia and North Korea signed a memorandum of understanding on the proposed cross-border gas pipeline.

    But talks on the project have been suspended due to military tensions across the inter-Korean border following the death of North Korean leader Kim Jong-Il in 2011, which was followed by nuclear and missile tests, as well as Seoul's concerns that North Korea may disrupt gas flows to South Korea to use it as a leverage to win more concessions.

    "South Korea's energy problems can be fully resolved once it can get cheaper and cleaner source of Russian natural gas via the inter-Korean pipeline," Moon said. "For this, I will place a top priority on improving ties with North Korea," he said.
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    Argentina, Chile advance towards gas, power swaps: minister

    Chile and Argentina are advancing in talks to agree on reciprocal exchanges of electricity and natural gas between the two countries, Chilean Energy Minister Andres Rebolledo said Thursday.

    Speaking to correspondents in Santiago, the minister said he will present Argentine counterpart Juan Jose Aranguren next week with a draft proposal for regulations allowing such swaps.

    "It would be very interesting to have a model that would allow you to sell electrons or molecules of electricity or gas at one point and import them at another," Rebolledo said.

    A decade ago, Chile was a major importer of natural gas from its neighbor, but flows along the pipelines were reversed last year as Argentina struggles with a lack of capacity in its energy infrastructure.

    Between May and August last year, Chile exported 361 million cu m of natural gas to Argentina, which had been imported as LNG from Trinidad and Tobago and the US.

    State energy firm ENAP is currently in talks with its Argentine counterpart ENARSA to repeat the exports this year.

    Chile also exported 101 GWh of electricity to its neighbor along an existing line to northwest Argentina.

    But greater synergies could be gained by balancing imports and exports at different points along the border.

    "This is super attractive as our country breaks up in the south we are not physically integrated," Rebolledo said.

    ENAP has discovered significant reserves of unconventional gas in Chile's southernmost Magallanes region, which is much closer to Argentina's Patagonia than the Chilean capital Santiago, 2,000 km to the north.

    Argentina could export gas from its Neuquen field to southern Chile via the Gas del Pacifico pipeline as it lacks sufficient internal domestic capacity to move that gas to Buenos Aires.

    Chile is also keen on developing an interconnection between its northernmost city Arica and the Peruvian city of Tacna, 50 km away. The line would also allow Chile to export excess solar power to its neighbor during the day, receiving electricity generated from Peruvian natural gas at night.

    Broader energy integration across the region would require the development of a lateral regulatory framework. But Rebolledo said recent economic and political developments made it a favorable time for such a deal.

    Argentina, Brazil and Peru have also gained new pro-business presidents since the end of 2015.
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    India extends 4.5% service tax on freight for CFR import cargoes

    India will impose a total of 4.5% service tax over freight on cargoes imported on a delivered or CFR basis from January 22, shipping market participants said Thursday.

    This service tax was already being levied since June last year on cargoes that were imported on a FOB basis and ships chartered by importers domiciled in India.

    The move is significant because it will make cargoes of commodities such as oil and coal costlier since shipowners will pass on the service tax to Indian importers, shipbrokers said.

    "The implementation of changes in India's local service tax clause implies that there will be additional burdens on importers of cargoes," one broker in Singapore said.

    Any cargo imported into India such as crude, refined petroleum products, coal, coke, phosphoric acid, gypsum and limestone among others, will become costlier.

    The total tax on imported goods will include the 4.2% service tax along with the Swachh Bharat (Clean India) Cess and Krishi Kalyan (Farm Welfare) Cess at 0.15% each.

    When the service tax was first introduced on freight for imported goods in June 2016, most experts were of the opinion that the service tax was not payable if the owner and the charterer of the ship were not residents of India.

    Since June last year, when the contract of supply was on a FOB basis and the vessel was chartered by the Indian importer, the service tax on the freight was paid by the Indian importer, the tanker broker said.

    On January 12, the Indian government made a fresh attempt to bring the freight component of CFR or delivered contracts -- where the foreign supplier chartered the vessel - into the service tax net.

    The new notification removes the exemption given to non-resident service providers of freight.

    According to the notification, the person responsible for the service tax will be the person who complies with the Indian Customs Act, which in this case is the agent of the foreign ship operator, a dirty oil tankers broker in Singapore said.

    Now even CFR contracts, where both charterer and ship operator of the cargo imported are located outside India, are covered under this service tax of 4.5%, the tanker broker said.

    When the contract of supply was on a CFR basis, where the foreign supplier of cargo was chartering the vessel and residing in a non-taxable territory, this service tax was not levied. "This tax exemption is now removed for all practical purposes," the tanker broker said.

    "Earlier the government did not know what to do about service tax on the freight for CFR sales where the foreign buyer chartered a foreign operator's vessel and the matter remained in limbo till the new notification was issued last week," the tanker broker added.

    Meanwhile, sources said the new notification has created confusion among charterers and shipowners.

    The standard charter party agreement notes that "all taxes on cargo voyage freights are to be for the charterer's account except income tax and taxes on time charter hire levied in the country of vessel and/or her owner's domicile. All dues, duties, charges and/or taxes on crew and/or stores are to be for the owner's account."

    However, there are instances where charterers negotiate the freight tax to be included into the owner's account, which the owner would factor into the freight cost.

    "This is OK to be implemented with some [notice] included, But this [the move by the Indian government] is too quick for owners to factor into their costs," a dry bulk shipowner operating Supramax vessels said.
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    Oil and Gas

    Drillers face $43 billion cash shortfall in 2017, study says

    North American drillers could face a $43 billion cash shortfall this year even with oil prices on the rise, according to a new study.

    U.S. shale drillers and Canadian producers would need oil prices to skyrocket to $80 a barrel oil to finance operations without borrowing more money or cutting spending by a whopping 40 percent, consultancy AlixPartners said in a study released Thursday.

    The gap in the cash flow they need to keep operating in shale oil patches across the United States isn’t nearly as large as it was last year, when AlixPartners said the industry lacked $130 billion on much lower oil prices.

    But oil companies that haven’t already gone through bankruptcy proceedings or fixed their balance sheet problems by other means are still at a stark disadvantage. These firms have on average $26,000 for each barrel of oil equivalent per day they produce, twice as much as rivals that have already restructured their balance sheets. More than 200 North American oil producers and energy services companies filed for bankruptcy over the past two years, according to Dallas law firm Haynes & Boone.

    Despite the influx of optimism in the oil patch, drillers and service companies will likely continue to restructure their balance sheets or sell themselves in mergers and acquisition deals. AlixPartners said companies should behave as if crude prices are still around $45 a barrel, “to keep any surprises on the upside, not the downside.”

    “For those companies that take requisite actions, at long last 2017 could be a year of rebuilding,” said Bill Ebanks, managing director of AlixPartners’ oil, gas and chemicals practice, in a written statement.

    AlixPartners also said it estimates oil field service companies that operate on land have seen profitability fall 68 percent over the past three years, even as they cut 250,000 jobs around the world. Don’t expect a full recovery this year, but more of a transition to higher demand in 2018, the consultancy said.
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    Keppel Sees No Quick Recovery Despite Oil Gain; Shares Drop

    Keppel Corp., the world’s biggest oil rig builder that eliminated more than 10,000 jobs last year, said even a doubling of crude prices is failing to offer relief to an industry slammed by overcapacity as it braced for a prolonged slowdown.

    While OPEC’s recent decision to cut output renewed optimism, with spending by some oil majors expected to increase, a quick recovery isn’t in sight, Chief Executive Officer Loh Chin Hua said. The company, which reported a 65 percent drop in net income last quarter, said it is closing some yards and signaled additional job cuts as part of efforts to pare costs.

    “We are happy that oil prices are starting to pick up, so that’s a good thing,” Loh said on a conference call after the market’s close Thursday. “But we are also realistic and it might take a while before it will flow down and it’s an overbuilt market.”

    Keppel and peers including Hyundai Heavy Industries Co. have been slashing jobs and scaling back capacity as spending cuts by explorers crimped demand for offshore drilling rigs. The Singapore-based company had mothballed two overseas facilities earlier. Shares of the company declined Friday, after having rallied more than 30 percent in the past year on expectations the oil rebound will spur a revival.

    “We remain bearish on Keppel’s O&M division earnings outlook for 2017 as we see little improvement in operating fundamentals,” despite market expectations for an industry turnaround helped by oil prices rebounding, Royston Tan, an analyst at Daiwa Capital Markets in Singapore, wrote in a note dated Jan. 26.

    Keppel shares fell 2.2 percent to S$6.25 as of 9:03 a.m. in Singapore, the largest intraday decline since Dec. 15. The city’s Straits Times Index gained 0.3 percent.

    Brent crude prices traded near $59 a barrel earlier this month, compared with less than $30 about a year earlier, according to data compiled by Bloomberg.

    At its offshore and marine division, Keppel reduced its direct workforce by 2,620 in the quarter through December. For the whole of 2016, the unit shed about 10,600 workers, of which 3,800 were in Singapore.

    “The painful but necessary measures to rightsize our O&M division must continue,” Loh said.

    In October, Keppel said its senior managers and directors were taking a cut in their salaries.

    Fourth-quarter earnings were dented by additional provisions for impairment of S$313 million, Keppel said.

    “What we’re going through is a very long, harsh winter,” Loh said. “It’s not business as usual.” The decision to mothball yards was taken to make the division “stronger and more efficient,” he said.

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    Petrobras reduces diesel and gasoline prices at refineries

    Brazil's state-run oil company Petroleo Brasileiro SA announced on Thursday it is reducing diesel and gasoline prices at refineries, reflecting the fall in international petroleum products prices and the appreciation of the local currency against the dollar.

    In a statement, Petrobras, as the company is known, said diesel prices will be reduced 5.1 percent at refineries, and gasoline prices will fall 1.4 percent. This may result in a reduction of up to 2.6 percent in diesel prices and 0.4 percent in gasoline prices to consumers, the company said.
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    Australia's LNG projects face major delays, benefiting U.S. producers

    Australia's plans for a huge increase in its production of liquefied natural gas are being dealt a big blow by a series of production delays, as energy companies struggle with technical problems and cost overruns.

    The country is still likely to become the world's biggest LNG exporter, dispatching about 85 million tonnes a year by the end of the decade, up from 30.7 million tonnes in 2015 and 45.1 million tonnes last year. But the pace of growth is much slower than expected because of snafus and higher-than-expected costs that have delayed plans to start or increase LNG exports from four megaprojects, Gorgon, Ichthys, Prelude and Wheatstone, all along or off the coast of northwest Australia.

    Now at least three of them, Shell’s Prelude floating LNG production vessel, Inpex’s Ichtys project, and the expansion of Chevron’s Gorgon operation, won’t begin exporting until 2018 or even later, rather than 2017 as previously planned, according to several sources with knowledge of the matter.

    Chevron, Shell, and Inpex would not comment on potential delays.

    It should all be a boon for other suppliers of LNG to Asian buyers, such as utilities in the region. These suppliers can also benefit from higher prices.

    Traders said that the beneficiaries include U.S.-based Cheniere Energy with its facility at Sabine Pass in the Gulf of Mexico, and global energy giant Exxon Mobil with its production in Papua New Guinea.

    Making matters even worse, the producers in Australia are having to go to their rivals to fulfill contracts.

    "The Australian producers have supply commitments, so when there's production delays they have to buy these supplies from competitors in the spot market," said an LNG trader involved in such deals who was speaking on condition of anonymity.

    "These guys will make a lot of money filling the gap of Australia's production delays," he said.


    Once completed the four projects will have a combined annual LNG capacity of 36.5 million tonnes. The development costs will total $130 billion.

    Each one has had to hit the brakes. "All of Australia's recent wave of LNG projects have had cost and schedule overruns compared to expectations," said Saul Kavonic of energy consultancy Wood Mackenzie.

    The projects being built In Australia are amongst the biggest and technically most challenging ever attempted in the industry. One problem the LNG project developers have pointed to in explaining production delays is that they struggle to find enough qualified and experienced staff.

    "There aren't many experts and teams with relevant experience who can lead such huge developments. That's contributed to some of the delays," said on engineer who has worked on developing offshore oil and gas projects.

    At the $35 billion Ichthys project, engineering firm CIMIC this week pulled out of its contract to build the facility's power station, citing cost overruns.

    Ichthys, which includes a stationary rig and a floating production vessel, was due to start operations between July and September this year, but the power station problem will almost certainly cause more delays and costs.

    "Any delays to the delivery of the project may have very serious implications for Inpex. Low oil prices have already impacted the financial position of the company," said Tom O'Sullivan, managing director of energy consultancy Mathyos Japan.

    At Gorgon, which has cost $55 billion to develop and which started operations last year, there are problems in bringing expanded production online.

    Two sources with knowledge of the matter said that crews working on the expansion phase had to be shifted to repair operational facilities, delaying full completion.

    Chevron said it would not comment on daily operations.

    Delays are also expected at Shell's Prelude. The production vessel, the world's biggest ship at half-a-kilometer in length, is currently being built in South Korea.

    Scheduled to generate cash flow by 2018, one source with the shipyard and another with one of Prelude's LNG buyers said it was unlikely that Prelude would produce any gas before late 2018, maybe even 2019.

    Potential delays and cost overruns are likely to have a big impact on returns on investment.

    "On average, Australia's recent LNG projects were forecast to achieve an internal rate of return (IRR) of around 13 percent," Wood Mackenzie's Kavonic said. "They are now only forecast to realize below 8 percent,"

    Neil Beveridge, oil and gas analyst at AB Bernstein in Hong Kong, said that "the returns of many of the projects are going to be low and probably lower than the cost of capital in the current oil price environment."


    Beyond adding to already huge costs for its developers, the delays will have a strong market impact.

    For 2017, they mean a tighter market than initially expected, and prices have already reacted. The Asian spot LNG price almost doubled between June last year and January 2017 to more than $9 per million British thermal units (mmBtu), its highest since 2014.

    The delays are happening just as new supplies are coming on stream elsewhere. Seven U.S. export projects are currently approved, with a potential to reach 50 million tonnes a year by the early 2020s.

    "Australian LNG projects will be competing with U.S. projects. Cost efficiency is going to be critical. And here, the Australians have to put in some serious effort," Kavonic said.

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    Iran Speeding Up Oil, Gas Deals

    The National Iranian Oil Company is keen to finalize high-priority oil and gas deals by the end of the current fiscal year in March, including Phase 11 of South Pars Gas Field and a plan to tender the giant South Azadegan Oilfield, NIOC's managing director said on Tuesday.

    “The agreement to develop Phase 11 of South Pars Gas Field in the Persian Gulf will be finalized by March," Ali Kardor was quoted as saying by Shana.

    NIOC signed a preliminary agreement, worth $4.8 billion, with Total S.A. and China National Petroleum Corporation in November to develop South Pars Phase 11, one of the least-developed phases of the joint field which has been plagued by years of procrastination.

    Kardor said that Total and CNPC have conducted the technical studies on the phase and NIOC is close to preparing a final draft of the contract.

    "Ninety percent of the work on drafting the contract with Total and CNPC is complete," he said.

    "Improving the rate of recovery is the most important aspect of collaboration with Total and CNPC," Kardor said, noting that gas production from Phase 11 will exceed 50 million cubic meters per day in 20 years.

    SP Phase 11 holds around 16 billion cubic meters of natural gas and some 834 million barrels of gas condensates, a type of ultra light crude. Oil Minister Bijan Namdar Zanganeh recently said that Total has pledged its long-term commitment to the South Pars project by using its advanced high-pressure boosters in the project.

    Iran is developing the giant South Pars field in 24 phases. It is the world’s largest gas field shared by Iran and Qatar, covering an area of 3,700 square kilometers of Iran’s territorial waters in the Persian Gulf.

    Azadegan Tender

    Asked about NIOC's other priorities, Kardor said the South Azadegan Oilfield will be the first to be offered for tender under the new model of contracts – the Iran Petroleum Contract.

    "The oilfield tender is scheduled for the near future," he said without elaboration.

    Located 80 kilometers west of Ahvaz in Khuzestan Province, Azadegan holds an estimated 33 billion barrels of oil in place.

    The Oil Ministry has issued a list of qualified companies to bid for its oil and gas tenders, but the list will be extended, Kardor said.

    Tehran has strongly ruled out bias or favoritism, insisting that all foreign companies will compete for the major energy projects on an equal footing.

    Early collaboration with several foreign companies, including with France's Total, Russia's Lukoil and Malaysia's state oil company Pertamina had fueled speculation that selected companies are given a head start in the oil/gas projects.

    Pointing to the experience of energy giants such as Total S.A., Anglo-Dutch major Royal Dutch Shell and Japan's Inpex, Kardor said NIOC is making efforts to bring together the three majors to benefit from their capability to develop the Azadegan field.
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    Libya: an OPEC wildcard?

    Libya has the potential to upset the OPEC apple cart, and early expressions of high levels of compliance with the cuts agreed by OPEC and associated non-OPEC producers should be taken with a pinch of salt.

    According to an interview with S&P Global Platts’ Eklavya Gupte January 24, chairman of Libya’s National Oil Company Mustafa Sanalla is targeting oil output of 1.25 million b/d by year’s end. This target comes with many caveats, including consistent funding from the country’s Central Bank. Given the volatility in Libyan oil output in recent years, it is not a target you would hang your hat on.

    “We need some money for a quick restoration of our production,” he said. “The government has promised to give us money to have this amount of production.” He also said he was meeting officials from international oil companies in London with a focus on seeking investment and reconstruction in the country’s oil sector.

    Progress has been slow, owing to continued political tensions between Libya’s UN-backed Government of National Accord and the Petroleum Facilities Guards, a militia which controls the bulk of the country’s oil terminals. “I press on my view to restructure and reorganize PFG and to be under NOC like it used to be,” he said. “Others [militias] should join the Libyan National Army. We have to have policies to be able to control them. I am making my uttermost efforts to ensure this,” he said.

    Nonetheless, the current trend looks positive. Output has almost tripled since August last year when it was around 230,000 b/d. All the country’s major oil export terminals are currently open, although they are far from operating at full capacity as a result of damage caused after more than five years of civil year.

    Libyan oil output was up 40,000 b/d in December on average at 620,000 b/d, according to secondary source estimates, and Sanalla said January production would not be far off NOC’s initial target of 719,000 b/d. Steady gains through the year to 1.25 million b/d would mean the addition of 630,000 b/d from December’s levels. Pre-conflict, Libyan crude oil production was as high as 1.6 million b/d.

    The current deficit in the global market is between 700,000-900,000 b/d, which implies a stock drawdown this year of close to 300 million barrels. Large, but not that large when set against OECD commercial stocks that remain above the 3 billion barrel mark.

    Based on the forecasts of the International Energy Agency, US Energy Information Administration and OPEC, oil demand growth in 2017 will be around 1.2-1.63 million b/d, but non-OPEC supply returns to growth of 200,000-410,000 b/d and OPEC’s Natural Gas Liquid output — which like Libyan and Nigerian production is not included in OPEC production targets — is expected to rise by 100-350,000 b/d. Increases in Libyan crude production could therefore go a long way to extending the stock overhang, particularly if the US shale rebound proves more extensive than expected.

    This possibility makes compliance with the promised production cuts all the more important, both in terms of actual volumes and market sentiment. Although OPEC and its non-OPEC associates are talking the talk, it is still unclear whether they will walk the walk. Some of the minor commitments and early reports of reductions are not far off normal fluctuations in monthly output.

    Natural decline, already factored into forecasts, may make up others. The focus should be on export volumes and refinery throughput, as much as total output because variations in Middle Eastern oil for power demand could have a substantial seasonal effect – January and February are on average the two coolest months of the year for Saudi Arabia, reducing air conditioning demand there and more broadly across the region.

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    Deloitte: changing LNG markets suit adaptive companies

    Despite near-term headwinds, the long-term future of global liquefied natural gas is positive for participants able to adapt to a more fragmented market, according to Deloitte’s new report “Navigating the new world of LNG.”

    LNG players will have to adapt to new and different customer expectations and more short-term and flexible commercial arrangements.

    “The transformation of global LNG markets is underway, and the future is expected to look very different from the past and present,” said Andrew Slaughter, managing director of the Deloitte Center for Energy Solutions, Deloitte Services.

    In the near term, the industry expects to face headwinds of slowing demand growth, recent and imminent supply capacity expansions that could overtake the pace of demand growth and a lower price environment that challenges the economic viability of new developments, the report says.

    “Long-term, strong underlying demand drivers and the opening of new markets could provide substantial opportunity for participants. However, the industry may need to adapt to a more complex market, moving away from high volume, long-term, point-to-point supply arrangements of the past toward more flexible physical supply and commercial arrangements,” according to Slaughter.

    The report discusses how these evolving new external parameters will likely drive the emergence of new types of participants, such as financial intermediaries, traders, hub operators and more. These are expected to generate new business models to unlock profit down the value chain.

    For the participants who can weather the near-term hurdles, the LNG outlook over the next two decades comprises a rich mix of growth, change, uncertainty, challenge and opportunity.

    Natural gas is the fastest growing fossil fuel globally, the report says, benefiting from its flexibility of use in multiple demand segments, its competitive economics and its relatively lower emissions profile. LNG is well positioned to account for a substantial share of this growth, as many markets do not have indigenous or adjacent natural gas resources which can be delivered by pipeline. Increased action around the world to reduce the carbon intensity of economic activity provides additional support for the long-term prospects for LNG.

    The report also notes that long-term growth prospects look positive as traditional markets expand, new markets emerge in more and more diverse destination countries, and new technologies and applications, such as in land and marine transport, power generation and others. Growth and diversity of markets could stimulate similar growth and diversity of supply sources, including more geographical variety and a range of liquefaction plant sizes and technologies.

    The emergence of new suppliers, new markets, more flexible commercial arrangements and new technologies, all bring new options to participants right along the LNG value chain. From a period of historical development based on a limited number of suppliers, a limited number of large markets, fairly standard commercial arrangements and a small number of technologies, all these elements will likely change significantly over the next two decades.

    With change, however, comes uncertainty, but when high-capital projects like large-scale LNG developments face heightened uncertainty, this often increases the risk profile of those investments. Sources of uncertainty include: the pace of recovery in demand growth; the price outlook for oil, which is still linked to a high proportion of global LNG trade; and what will be the impact of U.S. LNG, the new entrant into global markets?

    The recent wave of LNG supply capacity expansions, led by Australia and followed by the U.S. has resulted in a capacity overhang, often challenging the viability of existing and new projects, according to the report.

    The duration of this period of overcapacity may be extremely challenging for operators and could put at risk the next phase of capacity expansions required early in the next decade.

    “Technology marches on, opening up new applications on the demand side and new supply options. Our research suggests that LNG is expected to remain one of the most dynamic segments of the energy industry, as it transforms to take a key role in the 21st-century energy mix,” concluded Slaughter.
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    US Oil Supply Response.

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    Baker Hughes expects North America onshore revenue to rise

    Oilfield services provider Baker Hughes Inc said it expected revenue from its onshore business in North America to increase in the first half of the year as customers ramp up drilling activity and pricing improves.

    The company, which is being acquired by General Electric Co, however, reported a bigger-than-expected fourth-quarter loss as prices for its services remained weak.

    Improvement in pricing would remain limited as the market remained oversupplied, Baker said, joining bigger rivals Halliburton Co and Schlumberger NV in forecasting a decline in drilling activity and pricing pressure in markets outside North America.

    In international markets, activity declines in its deepwater business are expected to be more severe, Baker said.

    On an adjusted basis, the company reported a loss 30 cents per share, much bigger than the analysts' estimate of a 11 cents per share loss, according to Thomson Reuters I/B/E/S.

    Net loss attributable to Baker Hughes was $417 million, or 98 cents per share, in the quarter ended Dec. 31, compared with a loss of $1.03 billion, or $2.35 per share, a year earlier.

    The latest quarter includes after-tax charges of $291 million.

    Baker Hughes' revenue fell about 29 percent to $2.41 billion, which beat analysts' expectations of $2.37 billion.
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    Petrochemicals turn away from LPG as propane reaches competitiveness threshold

    European petrochemical end-users are reportedly switching away from maximizing the cracking of LPG as Northwest European propane cargoes reached a 22-month high and the gas becomes uncompetitive versus naphtha as a cracking feedstock.

    The CIF NWE propane physical cargo rose $3/mt to a 22-month high of $459/mt Tuesday, while in the paper market the front-month CIF NWE propane swap edged to a 35-month high versus naphtha as it was assessed at 90.03% of the front-month CIF NWE naphtha swap, up from 89.67% the previous day.

    The last time the front-month propane swap was assessed higher versus naphtha was February 3, 2014, when it was assessed at 90.97% of the front-month naphtha swap, S&P Global Platts data shows.

    It is generally considered that propane stops being attractive as an alternative cracking feedstock when it reaches 90% of the value of naphtha.

    Northwest Europe propane prices have been rallying since the end of December as a cold spell across the European continent boosted heating demand for the gas, and the spot propane arbitrage from the US to Europe became increasingly difficult to work.

    According to trading sources, at least two petrochemical end-users have been re-selling propane in NWE, preferring to maximize the cracking of naphtha.

    "We are starting to see signs of switching away from maximizing LPG," a naphtha trader said.

    According to an end-user, finding propane is the main problem.

    "Coasters have become too expensive, now [propane] is out of the cracking slate," he said.

    Another end-user said that it was more profitable to send propane from the US to Asia than to Europe, and this has left Europe a bit short.

    "When [the propane/naphtha spread] is minus $48/mt you can start to see reselling of propane and petchems get a different idea of what they want to crack as feedstock...we are reaching a kind of ceiling," he said.

    The CIF NWE naphtha physical cargo gained $3.25/mt Tuesday to be assessed at a 18-month high of $508.75/mt, while the front-month CIF NWE naphtha crack swap strengthened 5 cents/barrel on the day to a nine-month high of 50 cents/b, according to Platts data.
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    Alaska state gas corporation in Kenai LNG plant purchase talks: official

    Alaska Gasline Development Corp, the state-owned gas corporation, is in discussions about purchasing ConocoPhillips' mothballed Kenai LNG plant at Nikiski, south of Anchorage, officials told state legislators Wednesday.

    The idea is at an early stage. "We haven't signed a confidentiality agreement yet," said Frank Richards, AGDC's engineering vice president. The state-owned corporation is briefing legislators in Juneau on the Alaska LNG Project this week.

    Fritz Krusen, AGDC's vice president for LNG, said owning the plant, which exported Cook Inlet gas and is not now operating, would help the state corporation in its current bid to build a much larger LNG export project using North Slope gas.

    "It could allow us to present an early production scenario to buyers," Krusen said, where the smaller ConocoPhillips plant, which is capable of liquefying up to 1.5 million mt/year, could begin exports before a 20 million mt/year project is constructed.

    The three-train liquefaction plant planned as a part of the Alaska LNG Project would be on a 600-acre tract of land near the site of the current ConocoPhillips plant. There are many ways AGDC's acquisition of the plant would benefit the larger project, Krusen said. "For example, it would give up control of much more waterfront acreage," on Cook Inlet, he said.

    Owning the plant would also allow AGDC to tap into a long history of reliable operations and relationships with customers, Krusen said.

    State Senator Bill Wielechowski asked Krusen about the status of discussions with ConocoPhillips during a briefing of the Resources Committee of the state Senate.

    "If I answered that, I'm afraid I would breach confidentiality," he replied.

    ConocoPhillips has operated the plant since 1969, but ceased regular shipments to Japan in early 2012. The company put the facility up for sale last fall.

    Company spokeswoman Amy Jennings Burnett did not confirm talks were underway with AGDC, but said discussions are being held with a wide range of possible buyers.

    "We are in the early stages of marketing the plant. ConocoPhillips is following a standard marketing process for the Kenai LNG plant. A virtual data room, which opened on January 10, provides critical information to help potential buyers assess the asset and determine if they are interested in submitting a formal bid," Burnett said in an e-mail.

    "Interested parties are currently reviewing the data room material and we anticipate receiving bids later this year. At that point, ConocoPhillips will evaluate the bids and determine a path forward. We are not in negotiations with any party at this time," she said.

    Phillips Petroleum built the plant in 1969 to ship LNG made from Cook Inlet gas, then in surplus, to Japan. At the time, it was the first long-distance shipment of LNG, and demonstrated the viability of the business.

    Much larger shipments of LNG to Japan from southeast Asia developed in following years.

    The Kenai plant made regular shipments until 2012, when long-term contracts with Tokyo Gas and Tokyo Electric expired. ConocoPhillips made periodic shipments following spot sales in 2014 and 2015, but made no shipments in 2016.

    The company recently sold the North Cook Inlet gas field, which had supplied gas to the plant, to Hilcorp Energy, which operates other Cook Inlet oil and gas properties.

    AGDC recently assumed control of the Alaska LNG Project from a consortium of three North Slope producers and itself, as one of four partners in pre-engineering work.

    Given the state of Pacific LNG markets, the three producers -- BP, ConocoPhillips and ExxonMobil -- have stepped back from the project for now, but are supporting the AGDC in continuing to work on, and pursue innovative commercial terms, like tax-exempt status, that would be available only to a state-owned project.

    If built, Alaska LNG would tap 35 Tcf of confirmed gas reserves on the North Slope with an 800-mile pipeline from north to south across Alaska, and also build the large LNG plant near Kenai and a gas treatment plant on the North Slope.

    The companies, and the state, have spent about $600 million to date on pre-engineering, environmental and regulatory work. AGDC is working to raise about another $1.5 billion to carry out the final engineering work and is seeking investors and gas purchasers. The three large producers may still participate in the project, they say.

    Overall project cost is now estimated at $45 billion. If built according to AGDC's current schedule, Alaska LNG could be operating by 2025.
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    US Gasoline Demand goes south.

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    Susan Avery Elected to ExxonMobil Board

    Exxon Mobil Corporation announced today the election of Dr. Susan K. Avery to its board of directors, effective February 1, 2017. Avery, an atmospheric scientist, is the former president and director of the Woods Hole Oceanographic Institution.

    With the election of Avery, the ExxonMobil board stands at 13 directors, 12 of whom are non-employee directors.

    Avery’s leadership experience in multiple academic and scientific organizations, coupled with her breadth of scientific and research expertise, reinforce the corporation’s long-standing technical and scientific foundation.

    She served as president and director of the Woods Hole Oceanographic Institution from 2008 to 2015, and was the first woman and the first atmospheric scientist to hold the position. Avery served as interim dean of the graduate school and vice chancellor for research, and interim provost and executive vice chancellor for academic affairs from 2004 to 2008 at the University of Colorado Boulder. From 1994 to 2004, Avery served as director of the Cooperative Institute for Research in Environmental Sciences, a collaboration between the University of Colorado Boulder and the National Oceanic and Atmospheric Administration (NOAA).

    In 2013, Avery was named to the Scientific Advisory Board of the United Nations Secretary-General, which provides advice on science, technology and innovation for sustainable development. She also serves on the National Research Council Global Change Research Program Advisory Committee, participates on advisory committees with NASA, NOAA, the National Science Foundation, and the National Park System and worked with the Climate Change Science Program from 2003-2004. During her career, Avery authored or co-authored more than 80 peer-reviewed articles on atmospheric dynamics and variability.

    Avery earned a bachelor’s degree in physics from Michigan State University, and a master’s in physics and Ph.D. in atmospheric science from the University of Illinois Urbana–Champaign.

    She is a professor emerita at the University of Colorado Boulder and recently served as a senior fellow at the Consortium for Ocean Leadership in Washington, D.C. She is also a fellow of the American Meteorological Society, the American Association for the Advancement of Science, and the Institute of Electrical and Electronics Engineers
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    Continental Resources Projects 2017 Guidance And Capital Budget Of $1.95 Billion – Cash Neutral At $55 Per Barrel WTI

    Continental Resources, Inc. today announced a 2017 capital expenditures budget of $1.95 billion, which is expected to accelerate production growth in second half 2017 to an exit rate of 250,000 to 260,000 barrels of oil equivalent (Boe) per day. Crude oil is projected to account for approximately 59% of total production by year end, compared with approximately 55% in the fourth quarter 2016.

    Fourth quarter 2016 production averaged approximately 210,000 Boe per day, reflecting persistent severe weather in North Dakota since late November 2016. The Company expects production to range between 210,000 and 215,000 Boe per day through first half 2017, after which production is expected to significantly accelerate due to the timing of pad completions in the Bakken and six new multi-well density projects in the over-pressured oil window of Oklahoma’s STACK play.

    Full-year 2017 production is expected to average approximately 220,000 to 230,000 Boe per day, compared with approximately 217,000 Boe per day for 2016.

    Of the total $1.95 billion budget, the Company is allocating $1.72 billion to drilling and completion activities, with the remainder planned to be invested in other opportunities including leasehold and facilities.

    More than 80% of the drilling and completion budget is focused on completing the Company’s deep inventory of uncompleted wells in North Dakota, additional drilling in the Bakken, and further STACK development, which will drive the 2017 increase in crude oil volumes as a percent of total production. Crude oil production is expected to grow to approximately 150,000 barrels of oil (Bo) per day by year-end 2017, a 29% increase compared with approximately 116,500 Bo per day for fourth quarter 2016. Natural gas production is expected to increase to approximately 630 million cubic feet (MMcf) per day at year-end 2017, an approximate 12% increase over fourth quarter 2016.

    The capital budget is projected to be cash neutral for full-year 2017 at an average $55 per barrel NYMEX WTI and $3.14 per thousand cubic feet (Mcf) of natural gas Henry Hub. Continental noted that, at a full-year average $60 per barrel WTI price, the Company would expect to generate approximately $200 million in additional cash.

    Budgeted completed well costs reflect further enhancements in completion designs and potential increases in service costs, partially offset by drilling efficiencies and lower drilling day rates as long-term rig contracts expire.

    Continental intends to adjust the level of spend if necessary to remain cash neutral for the year. It also continues to target reducing long-term debt to $6 billion or lower using proceeds from the potential sale of non-strategic assets.

    2017 Operating Plan

    Continental plans to operate an average 20 drilling rigs in 2017, an increase of one rig from 2016. The Company expects to complete a total of 280 gross (178 net) operated wells with first production in 2017. The Company also plans to participate in completing 40 net non-operated wells in 2017, 35 of which will be in the Bakken.

    The Company plans to complete 131 gross (100 net) operated wells out of its Bakken uncompleted well inventory with first production commencing by year end. In addition, Continental plans to complete with first production approximately 17 gross (8 net) newly drilled Bakken wells in 2017. At year-end 2017, the Company expects to have 140 Bakken wells in inventory, of which 72 gross (40 net) wells will have been completed but waiting on first sales and 68 gross (47 net) operated wells will be waiting on completion.

    In Oklahoma, the Company expects to complete 132 gross (70 net) operated wells with first production in 2017, including 98 gross (50 net) operated wells in STACK and 34 gross (20 net) operated wells in SCOOP.

    Outlook for 2018 and Beyond

    The Company projects its current inventory will support an average annual production growth rate of more than 20% in 2018 to 2020 at $60 to $65 per barrel NYMEX WTI oil prices and remain cash neutral. At these prices the Company expects to deliver a 2018 exit rate of 290,000 to 310,000 Boe per day, which is an increase of approximately 18% over the projected 2017 exit rate (midpoint to midpoint). Continental expects crude oil production will continue increasing at an accelerated rate, accounting for 60% to 65% of total production in years after 2017.

    “We are capitalizing on the exceptional performance delivered by our operating teams the last two years,” said Harold Hamm, Chairman and Chief Executive Officer. “Our disciplined 2017 budget and growth plan will position the Company for multiple years of double-digit production growth. I’ve never been more excited by Continental’s opportunities to realize the value of our premier assets and to deliver exceptional shareholder value.”

    Bakken Well Completions Drive Production Increase

    Continental expects to grow Bakken production by approximately 26% in 2017, when comparing the 2017 exit rate to the fourth quarter 2016.

    Approximately $550 million, or 70%, of the operated Bakken capital investment in 2017 will be focused on completing wells from the Company’s uncompleted well inventory. The Company has five stimulation crews working currently and plans to average seven crews for 2017 as a whole.

    Continental plans to apply various enhanced stimulation techniques on all Bakken completions in 2017 to define the optimum designs for future completions. This includes larger proppant loads, diverter technology, shorter stage lengths and shorter cluster spacing. The Company is also applying high-rate production lift technology to accelerate fluid recovery and early production rates. Combined, these techniques add an average of approximately $1.4 million to the previous standard enhanced completion cost of $3.5 million.

    For the uncompleted well inventory, the average budgeted completion cost for the larger enhanced completion is approximately $4.9 million per well. The incremental investment is budgeted to deliver an average estimated ultimate recovery (EUR) of 980,000 Boe per well, or approximately 15% over the previous average EUR of 850,000 Boe per well. At $55 per barrel WTI, these completions should generate a cost forward average rate of return in excess of 100%.

    The Company also plans to maintain four operated drilling rigs in the Bakken throughout 2017 and drill 101 gross (57 net) operated wells, with 17 gross (8 net) of these wells completed in 2017 with first production. The 17 gross wells will have an average budgeted well cost of approximately $7.0 million. The average EUR for wells drilled in 2017 is expected to be 920,000 Boe per well. At a WTI price of $55 per barrel, these wells should generate over a 40% rate of return.

    Oklahoma Outlook: New STACK Density Projects

    In Oklahoma, strong liquids-weighted production growth in 2017 will be driven by the completion of six density projects in the over-pressured oil window of STACK, where the Company announced several record-production wells in the past year. STACK year-over-year production growth is expected to be approximately 130% in 2017.

    Continental plans to operate an average of 16 drilling rigs this year, of which 11 rigs will be in STACK targeting the Meramec and Woodford formations and five rigs will be drilling in the SCOOP play. The Company plans to average four completion crews in Oklahoma. In 2017, the Company will have an expected average working interest in STACK of approximately 57%, versus an average 42% working interest in 2016.

    In the STACK over-pressured oil window, the Company’s average budgeted completed well cost is approximately $9.0 million. Wells in the SCOOP Woodford condensate window have an average budgeted completed well cost of $10.3 million. STACK Woodford wells completed as part of the joint development agreement with SK E&S of South Korea have an average budgeted completed well cost of $13.0 million. As noted in Continental’s newly posted investor presentation on its website (, new wells in its Oklahoma plays typically generate rates of return ranging from 55% to more than 100% at $55 per barrel WTI and $3.50 per Mcf of natural gas.

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    Hess to triple Bakken rig count, forecasts late 2017 supply surge

    Hess plans to triple its rig count in the Bakken Shale by the end of 2017 from two rigs to six and forecasts the company's production in the play will grow as high as 110,000 b/d of oil equivalent by Q4, up 10% from the start of this year.

    "We are increasing activity in the Bakken," John Hess, the company's CEO, said during a Q4 earnings call Wednesday.

    Related episode of Capitol Crude: John Hess on the 'new chapter' for oil prices, US shale production

    Hess reported that its Bakken production averaged 95,000 boe/d in Q4, down about 13% from the same quarter a year ago, due largely to severe winter weather and the company's reduced drilling activity.

    Hess' production in the Gulf of Mexico fell from 73,000 boe/d in Q4 of 2015 to 61,000 boe/d in Q4 2016.

    Overall, oil and gas production averaged 311,000 boe/d in Q4, down from 314,000 boe/d in Q3 and 368,000 boe/d in Q4 of 2015.

    "Lower volumes were primarily due to a reduced drilling program across our portfolio, planned and unplanned downtime, and natural field declines," the company said in a statement.

    The dip was expected as the company cut its capital and exploratory expenditures to $1.9 billion in 2016, down from $4 billion in 2015. It plans to spend $2.25 billion on those expenditures in 2017 when it forecasts production to average between 300,000 boe/d and 310,000 boe/d.

    Still, production, particularly in the Bakken, is expected to surge through 2017, the company said. Hess forecasts production to average about 270,000 boe/d to 280,000 boe/d in Q2, but to grow as high as 340,000 boe/d by Q4.

    During the earnings call, Hess indicated that the global market is expected to approach supply-and-demand balance in the near future as worldwide capex cuts will likely cause production to fall below levels of future oil demand growth.

    In addition to increased Bakken activity, Hess said that offshore developments at North Malay Basin in the Gulf of Thailand and Stampede in the Gulf of Mexico are on track to come online in 2017 and 2018.

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    BP: Fossil fuels will still be dominant in 2035, but not as before

    British oil major BP has issued its annual energy outlook, according to which oil and gas, together with coal, will remain the main source of energy powering the world economy, accounting for more than 75% of total energy supply in 2035, compared with 86% in 2015.

    While the number will still overpower all other energy sources in 2030s, there is a significant drop of 11 percent when compared to the 2015 market share, and thus BP titled its outlook – BP Energy Outlook: An energy transition is underway.

    “The global energy landscape is changing. Traditional centers of demand are being overtaken by fast-growing emerging markets. The energy mix is shifting, driven by technological improvements and environmental concerns. More than ever, our industry needs to adapt to meet those changing energy needs,” said Bob Dudley, BP group chief executive.

    According to the 2017 edition of the BP Energy Outlook, published Wednesday, global demand for energy is expected to increase by around 30% between 2015 and 2035, an average growth of 1.3% per year. However, this growth in energy demand is significantly lower than the 3.4% per year rise expected in global GDP, reflecting improved energy efficiency driven by technology improvements and environmental concerns.

    Oil demand growth to slow down

    Oil demand grows at an average rate of 0.7% a year, although this is expected to slow gradually over the period. The transport sector continues to consume most of the world’s oil with its share of global demand remaining close to 60% in 2035. However, non-combusted use of oil, particularly in petrochemicals, takes over as the main source of growth for oil demand by the early 2030s.

    Spencer Dale, group chief economist said: “The possibility that the most important source of growth in oil demand in the 2030s won’t be to power cars or trucks or planes, but rather used as an input into other products, such as plastics and fabrics, is quite a change from the past.”

    According to the report, all of the demand growth for oil in the period to 2035 comes from emerging markets, with China accounting for half.

    In the outlook, the transport sector accounts for around two-thirds of the growth in oil demand. Within that, oil demand for cars increases by around 4 million barrels per day underpinned by a doubling in the global car fleet.

    The number of electric cars is assumed to increase from 1.2 million in 2015 to around 100 million in 2035 (around 5% of the global car fleet). The Energy Outlook constructs two illustrative scenarios to consider the impact of the broader mobility revolution affecting the car market, including autonomous cars, car sharing and ride-pooling.

    “The impact of electric cars, together with other aspects of the mobility revolution, such as self-driving cars, car sharing and ride pooling, is one of the key uncertainties surrounding the long-term outlook for oil” said Spencer Dale.

    The slowing rate of oil demand growth is contrasted by the abundance of global oil resources. The Energy Outlook speculates that the abundance of oil may cause low-cost producers, such as Middle East OPEC, Russia and the US, to use their competitive advantage to increase their market share at the expense of higher-cost producers.

    Gas fast, renewables faster, coal peaks in 2020

    Gas grows more quickly than either oil or coal over the Outlook, with demand growing an average 1.6% a year. Its share of primary energy overtakes coal to be the second-largest fuel source by 2035. Shale gas production accounts for two-thirds of the increase in gas supplies, led by growth in the US. LNG growth, driven by increasing supplies in Australia and the US, is expected to lead to a globally integrated gas market anchored by US gas prices.

    Coal consumption is projected to peak in the mid-2020s, largely driven by China’s move towards cleaner, lower-carbon fuels. India is the largest growth market for coal, with its share of world coal demand doubling from around 10% in 2015 to 20%in 2035.

    As in the previous outlook, BP says that Renewables are projected to be the fastest growing fuel source, growing at an average rate of 7.6% per year, quadrupling over the Outlook, driven by increasing competitiveness of both solar and wind. China is the largest source of growth for renewables over the next 20 years, adding more renewable power than the EU and US combined.

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    Oil Supermajors' Debt From the Crude Collapse May Have Peaked

    Surging debt dogged the world’s largest oil companies during crude’s collapse. Now, sweeping cost cuts and rising prices have combined to lessen the need to borrow.

    Since prices began to sink in 2014, the five “supermajors” more than doubled their combined net debt to $220 billion. That may be as bad as it gets. At $50 a barrel, they can balance their books and pay dividends without borrowing for the first time in five years, according to analysts at Jefferies International Ltd. All of the drillers will probably report profit growth in the next two weeks.

    As the price of oil declined, producers saved billions of dollars by shedding jobs, renegotiating supplier contracts and canceling projects. BP Plc has said it plans to keep at least 75 percent of its cuts, and other companies have expressed similar sentiments. That strategy, combined with oil’s recovery, are allowing the majors to generate cash again, a key focus for investors heading into earnings season.

    “As a group they are at peak debt levels now,” said Jason Gammel, a London-based analyst at Jefferies, citing operating and capital efficiency as well as rising oil prices. “Because quarterly earnings are backward-looking, the outlook is usually a bigger driver of the stock,” he said, with cash flow and dividends more important.

    In 2014, when oil sold for $100 a barrel, the five supermajors generated a combined $180 billion in cash from operations. Last year, that figure fell to just $83 billion, Jefferies estimates. Cost cuts and higher oil prices will drive that up to $142 billion in 2017 and $176 billion the following year, according to the brokerage.

    As the companies report for the fourth quarter, three of them -- Exxon Mobil Corp., Chevron Corp. and BP -- are likely to post the first year-on-year increase in profit since 2014, according to analyst estimates compiled by Bloomberg. Based on those expectations, here’s what we should see:

    Chevron is expected to return to profit from a loss a year earlier when it reports on Jan. 27.

    Exxon is likely to report a 5.8 percent income boost on Jan 31.

    Royal Dutch Shell Plc on Feb. 2 will probably announce higher profit for the second quarter in a row.

    BP’s adjusted earnings could end nine quarters of successive declines when the company releases results on Feb. 7.

    Total SA is likely to report an increase in adjusted net income of 4.3 percent.

    During the market rout, oil producers borrowed to maintain dividends they deemed sacrosanct. In the case of Shell, debt was also pushed higher by its $54 billion purchase of BG Group Plc. The Anglo-Dutch company, as well as Exxon, BP and Total, suffered credit-rating downgrades as debts spiraled higher.

    Fitch Ratings Ltd. estimates Total will have a $1 billion cash surplus after paying dividends if oil stays at $55 a barrel this year compared with a deficit of $3.6 billion at $45 barrel. Shell’s shortfall would be $823 million at $55, compared with $7.5 billion at $45.

    “A lot of fat has been cut,” said Maxim Edelson, a Moscow-based senior director at Fitch. “The companies will have to think about if they want to keep cutting spending or start investing for growth again.”

    Repairing and strengthening the balance sheet will remain the principal use of surplus cash, Jefferies’ Gammel said. Shell, the world’s most indebted oil producer after Brazil’s Petroleo Brasileiro SA, said last year that tackling that burden was its top financial priority. Shell and some of its peers remain on credit-rating watch for further downgrades.

    Benchmark Brent crude is still trading at half its level of mid-2014 but is expected to average $56 a barrel this year, up from $45 in 2016, according to analyst forecasts compiled by Bloomberg. It rose 0.9 percent to $55.57 at 1 p.m. Singapore time.

    “We’ve had 2 1/2 years of doom and gloom and we are on the cusp of the upstream oil and gas sector entering a new recovery,” said Tom Ellacott, a senior vice president at consultants Wood Mackenzie Ltd. “We expect the mood music to be a bit more upbeat.”

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    Speculation: Transco Sending M-U Gas to Louisiana LNG Terminal

    Speculation: Transco Sending M-U Gas to Louisiana LNG Terminal

    Over a year ago the mighty Transco turned bidirectional, sometimes sending gas northward from the Gulf (as it’s done for 50 years), and now, sometimes sending gas from the Marcellus/Utica southward, to the Gulf.

    Much more gas will head south once the Atlantic Sunrise Pipeline project gets built. However, from various stories we’ve read, and from our speculation, we’ve assumed that at least some Marcellus/Utica gas now flows far enough south that perhaps some of it reaches the Cheniere Energy LNG export facility in Sabine Pass, Louisiana.

    Until now, the gas traveling from north to south has only made it as far as the Creole Trail pipeline and from there Creole Trail would conduct the gas to Cheniere’s LNG plant in Sabine Pass.

    But beginning yesterday Transco is now connected directly to the Sabine Pass facility. We have to confess this is speculation on our part, but we don’t think it’s much of a stretch to say that Marcellus/Utica gas is now flowing to Sabine Pass for export. And if our gas is not now flowing to Sabine Pass, it soon will be.
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    Summary of Weekly Petroleum Data for the Week Ending January 20, 2017

    U.S. crude oil refinery inputs averaged over 16.0 million barrels per day during the week ending January 20, 2017, 421,000 barrels per day less than the previous week’s average. Refineries operated at 88.3% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.8 million barrels per day. Distillate fuel production decreased last week, averaging 4.6 million barrels per day.

    U.S. crude oil imports averaged over 7.8 million barrels per day last week, down by 568,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 4.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 593,000 barrels per day. Distillate fuel imports averaged 159,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 488.3 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.8 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories remained virtually unchanged last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.0 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 8.9 million barrels last week.

     Total products supplied over the last four-week period averaged about 19.0 million barrels per day, down by 2.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.3 million barrels per day, down by 4.7% from the same period last year. Distillate fuel product supplied averaged over 3.4 million barrels per day over the last four weeks, up by 1.3% from the same period last year. Jet fuel product supplied is down 3.4% compared to the same four-week period last year.

    Cushing down 300,000 bbls
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    Very small increase in US oil production

                                                          Last Week   Week Before   Last Year

    Domestic Production '000............. 8,961            8,944           9,221
    Alaska .................................................. 529         .      513        .     518
    Lower 48 ......................................... 8,432            8,431           8,703

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    Hess Reports Estimated Results for the Fourth Quarter of 2016

    Fourth quarter highlights:

    Net loss was $4,892 million, or $15.65 per common share, compared with a net loss of $1,821 million, or $6.43 per common share in the fourth quarter of 2015; Fourth quarter 2016 results include a noncash accounting charge of $3,749 million on deferred tax assets and other after-tax charges totaling $838 million

    Adjusted net loss was $305 million, or $1.01 per common share, compared with an adjusted net loss of $396 million, or $1.40 per common share in the fourth quarter of 2015

    Oil and gas production was 311,000 barrels of oil equivalent per day (boepd) compared to 368,000 boepd in the fourth quarter of 2015
    E&P capital and exploratory expenditures were $414 million. Full year E&P capital and exploratory expenditures were $1.9 billion, down 54 percent from $4.0 billion in 2015
    Confirmed a second oil discovery on the Stabroek Block, offshore Guyana (Hess 30 percent) at the Payara-1 well located approximately 10 miles northwest of the Liza discovery
    Year-end 2016 cash and cash equivalents totaled $2.7 billion
    Year-end total proved reserves were 1,109 million barrels of oil equivalent (boe), reserve replacement was 119 percent for 2016 at a finding and development cost of approximately $13 per boe

    2017 Guidance:

    E&P capital and exploratory expenditures are expected to be $2.25 billion, up from $1.9 billion in 2016
    Oil and gas production excluding Libya is forecast to be in the range of 300,000 to 310,000 boepd compared to full year 2016 net production of 321,000 boepd
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    TAP natural gas pipeline open to 'all potential suppliers': official

    The operator of the planned Trans-Adriatic Pipeline (TAP) to help bring Azeri natural gas to Europe would welcome offers of supply from any source, a TAP official said, after Gazprom deputy CEO Alexander Medvedev on Tuesday said it could look to link its own TurkStream pipeline into TAP.

    "We are open to all potential suppliers," TAP commercial director Ulrike Andres said at an energy conference in Vienna.

    TAP is part of the Southern Gas Corridor to bring non-Russian gas to Europe and has a design capacity of 10-20 Bcm/year.

    Should the line be underused once it begins operations in 2020, there could be an economic incentive to consider a Gazprom tie-up.

    TurkStream will consist of two pipelines, each with a capacity of 15.75 Bcm/year.

    One will serve the domestic Turkish market, while the other is planned to link in with other planned pipeline infrastructure to southern Europe.

    Previously, Gazprom said it would like to revive the 8 Bcm/year ITGI Poseidon pipeline project to link into TurkStream to enable Russian gas to reach Italy via the southern route.

    The TAP pipeline is designed to link into the 31 Bcm/year TANAP line across Turkey, part of the Southern Gas Corridor to bring Azeri gas into Europe.
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    Australia's Ichthys LNG dealt blow as major contractor pulls plug

    Australia's over $35 billion Ichthys liquefied natural gas (LNG) export project has been dealt a blow as engineering firm CIMIC, involved in building the facility's power station, announced on Wednesday it was pulling the plug.

    "CIMIC Group advises that the ... consortium (building the power station) ... has terminated its contract with JKC Australia LNG Pty Ltd for the design, construction and commissioning of the Ichthys Combined Cycle Power Plant (CCPP) project," CIMIC said in a statement to the Australian Securities Exchange Ltd (ASX) on Wednesday.

    CIMIC spokeswoman Fiona Tyndall said "we are not going beyond what we have said in that ASX statement."

    The power station is designed to supply the Ichthys LNG export facility with electricity.

    A spokesman for Japan's Inpex, the majority owner of Ichthys LNG, said the power station was 89 percent complete.

    And while the spokesman said Inpex did not see this cancellation as "critical" to Ichthys and that it would have "no fatal influence" on its launch, the cancellation will almost certainly delay the project's production ramp-up and add further costs, which was scheduled for July to September this year.

    Australia's $200 billion LNG production ramp-up is one of the biggest increases in supply the industry has ever seen, and will lift Australia over Qatar as the world's biggest LNG exporter.

    Even so, most of Australia's LNG projects currently under construction, including Chevron's huge Gorgon facility and Royal Dutch Shell's floating Prelude production vessel, are having trouble keeping within budget and sticking to schedules, and more delays are expected.

    "All projects currently being built or expanded in Australia are having trouble with time and cost control. They will almost certainly see further delays," a source advising LNG producers said on condition of anonymity.

    Once completed, Ichthys will produce 8.4 million tonnes of LNG per year.

    Inpex holds 72.8 percent of the project, France's Total 24 percent, with the rest spread over Japanese utilities Tokyo Gas, Osaka Gas, and Toho Gas .

    CIMIC gained the power station and infrastructure contracts for Ichthys after taking over Australian engineering firm UGL last year.

    UGL said in its last annual report that "unfortunately, the projects continued to be impacted by significant client delays and disruption resulting in additional costs incurred."

    CIMIC said the termination of the contract will not have any "material impact" on its 2016 and 2017 financial results.
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    U.S. LNG exports shift to Europe from Asia

    U.S. liquefied natural gas (LNG) exporters have shifted their focus to Southern Europe from Asia as cold weather and problems with Algerian gas supply have driven Europe's gas prices higher.

    Gas prices in Europe are at their highest premiums to U.S. gas prices for three years. Several cargoes have already made their way to Europe, and analysts expect more to come.

    Day-ahead prices at southern France's Trading Region South (TRS) gas hub jumped to a near five-year high last week of 45 euros per megawatt hour, or over $14 per million British thermal units (mmBtu), making TRS one of the world's premium markets.

    Next-day gas prices at the Henry Hub GT-HH-IDX benchmark in Louisiana, meanwhile, traded around $3.25 per mmBtu on Tuesday.

    Consumers cranked up their heaters as cold weather hit the region, pushing up demand for gas. As demand has risen, supply from Algeria has been reduced due to problems at Sonatrach's Skikda LNG export terminal.

    The ongoing shutdown of some French nuclear plants as a consequence of the discovery of forged manufacturing documents for some parts used in those plants has also fired up demand for power from the region's gas-fired plants higher than normal.

    Spain, Greece and Turkey would be other possible destinations for the LNG cargoes, said Madeline Jowdy, senior director global gas and LNG at PIRA in New York.

    The flow would likely slow in March, as winter comes to an end in Europe, said Ted Michael, LNG analyst, natural gas, at energy data provider Genscape.

    Over the past month, one vessel has delivered U.S. gas to Spain and one to Turkey. Two more vessels transporting U.S. gas were sailing in the Mediterranean and another was moving across the Atlantic, according to Reuters shipping data.

    That is very different from December when more than half of the vessels departing Cheniere Energy Inc's Sabine Pass terminal in Louisiana turned west toward Japan, South Korea and China. Sabine Pass is the only LNG export terminal in the lower 48 U.S. states.

    In December, spot gas prices in Asia LNG-AS spiked to a near two-year high of $9.75 per mmBtu in early January due to cold weather and a problem at the Gorgon LNG export terminal in western Australia.

    Asia gas prices have since collapsed by about 18 percent due in part to the return to service of the first liquefaction train at Gorgon.

    Sabine Pass should have more gas to sell than in December since the third liquefaction train at the facility started processing gas during its commissioning phase.

    Over the past two weeks, Sabine Pass has processed about 2.0 billion cubic feet per day (bcfd) versus an average of 1.4 bcfd in December, according to Thomson Reuters data.

    Since the first cargo left Sabine Pass in February 2016, about 65 vessels have carried off about 210 bcf of gas from the facility, worth about $540 million based on average Henry Hub prices in 2016. The United States consumes about 75 bcfd of gas on average.

    Royal Dutch Shell Plc's BG Group has the contract for part of the capacity of the first and second 0.65-bcfd liquefaction trains at Sabine Pass. Gas Natural Fenosa has a contract for part of the second train's capacity.

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    Origin denies claims of compliance cover-up

    Energymajor Origin Energy has denied allegations of covering up regulatory breaches and has said it will “vigorously” defend the court claims made by a former employee.

    Former Origin compliance manager Sally McDow has filed legal action in the Federal Court claiming that Origin’s former CEO, Grant King, had engaged in a cover-up that included noncompliance with safety and environmental regulations at a number of wells in Australia and New Zealand, which she said had not been maintained for more than ten years, and had caused oil and gas leaks.

    McDow also alleges that Origin failed to record these regulatory breaches at the oil and gas fields, and did not report them to regulators.

    The issues were allegedly picked up in 2013, and despite numerous efforts by McDow, the issues were not rectified by 2015.

    MacDow was made redundant in late 2015 as part of an 800 staff job shed undertaken by Origin at the time, and is now suing Origin for breaches of her employment contract, the Corporations Act and the Fair Work Act.

    “We categorically deny the allegations that form the basis of McDow’s most recent claim [and will] vigorously defend the claim in court,” a spokesperson for Origin told MiningWeekly Online on Wednesday.

    “We are confident that we have met, and continue to meet, all compliance related reporting obligations in relation to our asset,” the spokesperson said.

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    Mediterranean diesel supply firms as Black Sea loadings return to normal

    Black Sea loadings of gasoil and diesel have returned to more typical levels in recent days after a period of weather-based disruption, helping to meet product shortages in the Mediterranean consumer markets, sources said this week.

    "We are seeing more cargoes in general, of both gasoil and diesel coming into the Med over the past few days," one trader in the Mediterranean said.

    The return of loadings follows a period of disruption to product flows caused by poor weather conditions in the Black Sea.

    Distillate product flows to Mediterranean consumer markets were limited by fewer daylight hours, congestion and traffic around the Turkish straits, sources reported.

    "The weather delays in the Med are not there anymore...there were some issues yesterday [in Sarroch and Skikda], but they have smoothen down now," a Mediterranean shipbroker said.

    Cargoes of 10 ppm diesel in the Mediterranean were assessed by S&P Global Platts at a $5.75/mt premium to low sulfur gasoil futures Monday, down from a six-month high of $11.00/mt earlier in the month.

    "A lot of gasoil is being exported now, following the [Black Sea] delays. Now seeing material coming into the Med," a refinery source said. "There are many cargoes loading. There is around 8-10 cargoes of 0.5% gasoil [a month]; 5-6 cargoes of 0.25% gasoil; and 12-14 cargoes overall of ULSD."

    Another trader reported three cargoes of blended 0.1% gasoil loading from the Black Sea this week, along with two ultra low sulfur diesel cargoes.

    Despite the return of Black Sea loadings, 0.1% gasoil differentials remained strong, boosted by tender demand from the North African countries.

    Among the latest tenders for 0.1% gasoil were Algeria's Sonatrach and the Egyptian General Petroleum Corporation.

    Mediterranean 0.1% gasoil CIF cargoes were assessed at $2.25/mt against low sulfur gasoil futures Monday, 50 cents/mt higher than Friday's close.
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    PetroChina Warns Profit May Drop to Record Low on Oil Plunge

    PetroChina Co., the country’s biggest listed oil and gas producer, said full-year net income in 2016 fell by as much as 80 percent, putting it on pace to report a record-low profit.

    The slump is due to lower international oil prices and domestic natural gas prices dropping “drastically” compared with the previous year, it said in a filing with the Hong Kong stock exchange on Wednesday. The company reported net income of 35.5 billion yuan ($5.16 billion) in 2015, which means profit last year may have fallen to as low as about 7.1 billion yuan, down for a third year to the least in data going back to 1996.

    “It’s slightly better than what we were expecting, but overall it’s largely in line with guidance,” said Neil Beveridge, a Hong Kong-based analyst Sanford C. Bernstein & Co. “As oil prices recover, we’ll see a strong recovery in earnings in 2017.”

    The warning comes after the company in October said third-quarter profit dropped 77 percent and it barely eked out a half-year profit. The company will continue to improve cost cutting in 2017 and it expects oil prices to rise as the global market rebalances, it said in its statement. The company may report full-year results on March 30, according to Bloomberg estimates.

    Brent crude averaged about $45 a barrel last year, down from almost $54 in 2015. The government cut gas prices in November 2015 in order to spur consumption. The slump in oil prices has punished China’s state-run producers, who were forced to cut production at fields that were too expensive to operate.
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    Shell, Phillips 66 buy 6.4 million barrels of oil from U.S. emergency reserve

    Oil companies Shell and Phillips 66 together bought 6.4 million barrels of oil last week from the Strategic Petroleum Reserve (SPR), according to a Department of Energy document released on Tuesday.

    Shell bought 6.2 million barrels of oil and Phillips 66 bought 200,000 barrels on Jan. 18, according to the department document, seen by Reuters.

    The federal government held the sale to fund a revamp of the emergency oil stash, which is stored in salt caverns in Louisiana and Texas along the Gulf Coast. The Department of Energy had said it would sell up to 8 million barrels as part of its modernization program.

    Shell will take delivery of 1.7 million barrels of oil to a vessel, the documents said, while the remainder of the barrels are slated for pipeline delivery.

    The U.S. lifted its decades-long ban on exporting U.S. crude in December 2015, giving buyers of the oil the opportunity to export oil purchased from the reserves.

    A spokesman for Shell declined to comment on whether the company planned to export the crude.

    Phillips offered a price of $53.8985 a barrel for the oil, and Shell offered between $53.668 and $54.338 a barrel, the documents said.

    On Jan. 18, benchmark West Texas Intermediate crude futures settled at $51.08 a barrel.

    Shell and Phillips 66 both operate oil refineries along the U.S. Gulf Coast near sites of the strategic reserves.
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    Gas usage hits record highs in Tokyo, Osaka as cold bites Japan

    Gas usage in Japan, the world's biggest importer of the fuel in liquid form, this week hit daily records in the cities of Tokyo and Osaka, with residents cranking up heating as a cold snap grips the country.

    Japan's biggest city gas supplier, Tokyo Gas, on Wednesday said gas usage in the capital reached just over 60 million cubic metres (2.1 billion cubic feet) the day before as average temperatures there fell as low as 2.5 degrees Celsius (36.5 degrees Fahrenheit). That eclipsed Friday's record of 59.5 million cubic metres.

    Osaka Gas, which serves Japan's second-biggest metropolitan area, said gas usage marked a record 36.8 million cubic metres on Monday in the face of similar temperatures.

    Gas, along with electricity, is typically used for heating in Japan's main cities as they have pipe networks.

    In more rural and other urban areas, kerosene is often used to warm buildings, with sales also climbing as temperatures drop and heavy snow falls in many places.

    Kerosene sales rose nearly 6 percent to 550,000 barrels per day in the week to Jan 21 from a week earlier, Japan's petroleum association said on Wednesday.

    Temperatures fell to below -30 degrees Celsius on the northern island of Hokkaido, national broadcaster NHK said on Tuesday.

    Japan's liquefied natural gas (LNG) imports dropped for a second year in a row to 83.34 million tonnes, the government said on Wednesday.

    Prices for LNG spot cargoes for Japan rose for a third month to a 16-month high in December, gains that are attracting increasing supplies to Asia from as far away as the U.S. Gulf Coast.

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    Trump Signs Executive Orders Renegotiating Keystone XL, Dakota Access Pipelines

    Update: it's official, Trump has signed an executive order which will renegotiate the terms of the Keystone XL and Dakota Access pipelines:



    It is just day two of his presidency, and already Trump is taking a sledgehammer to the Obama legacy: in his latest move reported moments ago by Bloomberg, president Trump intends to sign two executive actions today that would advance construction of the controversial Keystone XL and Dakota Access pipelines, putting a spoke, so to say, in the train wheels of Warren Buffett's train-based oil transportation quasi-monopoly.

    Requiring Keystone XL (and Others) To Use Domestic Steel

    President Trump today signed executive actions to accelerate the Keystone XL and Dakota Access pipeline projects and to decree that American steel should be used for pipelines built in the United States.

    I want to see the precise language of the requirement (should be available later today), but this looks like a probable violation of international trade agreements. I wrote about this issue a while back, when Congress considered a similar requirement
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    EIA Says NatGas Prices Heading Higher This Year & Next

    Good news for natural gas drillers in general, and Marcellus/Utica drillers in particular:

    Our favourite government agency, the U.S. Energy Information Administration (EIA) predicts the average price for natural gas in the U.S. will rise in both 2017 and 2018.

    EIA expects the Henry Hub natural gas spot price to average $3.55 per million British thermal units (MMBtu) in 2017 and $3.73/MMBtu in 2018, both higher than the 2016 average of $2.51/MMBtu.

    Higher prices in 2017 and 2018 reflect natural gas consumption and exports exceeding supply and imports, leading to lower average inventory levels…
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    National Oil Corporation ends foreign investment moratorium

    The chairman of Libya’s National Oil Corporation, Mustafa Sanalla, today announced plans to allow foreign oil companies to invest again in Libyan oil production:

     “We intend in the coming months to lift our self-imposed moratorium since 2011 on foreign investment in new projects to achieve the best national interest for the Libyan oil sector and for Libya as a state.”

     In a keynote address at Chatham House’s Middle East and North African Energy conference,    Mr. Sanalla said NOC-driven projects to expand oil production could create a virtuous circle of domestic economic stimulus and security, while raising Libyan oil production to a forecast 1.25 million bpd by the end of 2017 and 1.6 mln bpd by 2022.

     Sanalla said after three years of blockades by the Petroleum Facilities Guards, all major oil export routes were now open. Investment in oil production capacity was needed to build on the opportunity created after the central Petroleum Facilities Guards under Ibrahim Jadhran were removed from the ports of the Oil Crescent by the Libyan National Army in September, and flows from the Shahara field were unblocked.

     “The LNA has its hands on the taps. And the Government of National Accord (GNA) has [UN Security Council resolutions] 2259 and 2278. Each side has one key to the treasure room, but both keys are needed to open the door. And for the moment the oil is flowing. This can be an important foundation of stability in Libya if we build on it.”

     Saying the oil sector had suffered from chronic under-investment, Sanalla continued:

     “We cannot rely on the international community to save us. We don't know when the transitional period will end. We cannot stand back and do nothing while the state disintegrates. The integrity of NOC is the best guarantee we have that Libya will be preserved as a unitary state.”
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    OPEC Clears Way for Cheap U.S. Oil to Sail to Biggest Market

    Add Southern Green Canyon and Mars Blend to the growing list of American crude that’s challenging OPEC’s dominance in the world’s biggest oil market.

    Cargoes of the two varieties produced in the Gulf of Mexico, which are heavier and more sulfurous than supply from U.S. shale fields, are poised to flow into Asia as they turn cheaper relative to similar-quality crudes from nations such as Saudi Arabia and Oman.

    The deal between producers worldwide to cut output and ease a glut is boosting the cost of Middle East supplies, priced against the Dubai benchmark, because most of the reductions are coming from the region. Meanwhile, U.S. marker West Texas Intermediate is turning relatively weaker as a rebound in global crude prices from the worst crash in a generation is spurring more American rigs into action. Shale oil that was already cheap enough to sail to Asia is now being joined by cargoes from more traditional fields.

    “Flows of Mars and Southern Green Canyon to Asia are extremely rare,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. But “the move is currently viable as Dubai has strengthened against other benchmarks such as WTI, following the Saudi-led output cut,” he said.

    Asia is buying oil from as far away as the U.S. because of a shortage of supplies of medium-heavy crudes, according to Nah. Refinery shutdowns for maintenance work on the U.S. Gulf Coast mean that grades such as Southern Green Canyon are available and cheap enough to be shipped to other regions, he said.

    WTI’s cost fell below Dubai in December for the first time in at least three months. The U.S. benchmark was at a discount of $1.08 a barrel to Dubai on Tuesday. Mars and Southern Green Canyon are even cheaper than WTI because they are more difficult to refine.

    Oil explorers last week put the most rigs back to work in U.S. oil fields in almost four years, according to data from Baker Hughes Inc. Oil output in the nation rose to the highest level since April in the week ended Jan. 6, while crude stockpiles surged by the most since November during the same week.

    Japanese refiner TonenGeneral Sekiyu K.K. bought Southern Green Canyon from BP, while Mars Blend is being offered to Asian customers. The tanker Manifa is sailing to Singapore after loading Southern Green Canyon, Eagle Ford shale crude and fuel oil via a series of ship-to-ship transfers, according to Matthew Smith, director of commodity research at ClipperData LLC, a firm that analyzes and tracks oil flows globally.

    Such arbitrage trades became viable as cargoes turned relatively cheaper compared with similar-quality Oman crude, a Bloomberg survey showed last week. Additionally, the premium for Brent crude, the benchmark for more than half the world’s oil, against Dubai narrowed to a 16-month low of $1.46 a barrel this month, providing an incentive for Brent-linked grades to flow from the Atlantic Basin to the Asian market.

    Market Competition

    Such shipments from the Americas as well as Europe and Africa are making oil sales to Asia more competitive. It’s also influencing the strategy of traditional dominant suppliers such as Saudi Arabia. In January, the largest oil exporter was focusing its output curbs on its Arab Medium and Arab Heavy grades while continuing to pump lighter crudes to compete better with U.S. shale and African supply.

    But that’s in turn boosted the cost of more sulfurous heavy crudes in Asia, creating an opportunity for relatively cheaper and similar quality U.S. supply to flow east.

    “Newer and complex refineries in Asia have no problem refining heavier crudes from the U.S. Gulf Coast, as long as the economics make sense after factoring freight and market structure,” said Tushar Tarun Bansal, director at industry consultant Ivy Global Energy in Singapore. “Arbitrage flows of heavier crudes from U.S. Gulf Coast to Asia will remain an opportunistic trade.”
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    Germany Interested in Making $12 Billion Investment in Iran’s Oil Industry

    Germany’s major oil and petrochemical companies, including BASF, have expressed their willingness to invest a total of $12 billion in the Iranian oil sector.

    The Chemical company BASF, whose managing director paid an official visit to Iran last year as a member of a delegation accompanying German Economy Minister Sigmar Gabriel, has offered to invest in a six-billion-dollar project to establish petrochemical sites in southern parts of Iran.

    Over the past year, numerous meetings have been held between Iranian oil ministry officials and German companies and if they are finalized and lead to contracts between the two sides, $12bln of investment will be made in Iran by the Western European country.

    Wintershall Holding GmbH, Germany’s largest crude oil and natural gas producer and a wholly owned subsidiary of BASF, is another company that has signed a memorandum of understanding (MoU) with the National Iranian Oil Company (NIOC) to make studies on four oil fields west of Iran.

    There has been a new wave of interest in ties with Iran since Tehran and the Group 5+1 (Russia, China, the US, Britain, France and Germany) on July 14, 2015 reached a conclusion over the text of a comprehensive 159-page deal on Tehran’s nuclear program and started implementing it in January 2016.

    The comprehensive nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), terminated all nuclear-related sanctions imposed on Iran.

    The promising prospect of trade with Iran has prompted major European countries to explore the market potential in the populous Middle East nation.
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    Papua New Guinea's PNG LNG well positioned for capacity upgrade: Oil Search

    The PNG LNG terminal project in Papua New Guinea has ample supply options to facilitate a capacity upgrade and has operated well above its nameplate capacity over October-December 2016, Australia-listed project participant Oil Search said in its quarterly report released Tuesday.

    "A likely upgrade in the PNG LNG project reserves, together with resources in Elk-Antelope, P'nyang and the new Muruk discovery, support Oil Search's view that there is more-than-sufficient discovered gas resources in PNG to supply not only to the proven expanded capacity of PNG LNG trains 1 and 2, but also to at least two, and possibly three, expansion trains," the company said in the report.

    The PNG LNG project is a two-train 6.9 million mt/year nameplate capacity integrated LNG project operated by ExxonMobil PNG Ltd., which has a 33.2% interest in the project. Oil Search has 29% stake.

    The discovery of gas by the Muruk 1 exploration well was a key hightlight during the December quarter, Oil Search's quarterly report said.

    "Given that Muruk is only 21 kilometres northwest of the nearest Hides well, it is a prime candidate to be tied into the PNG LNG project infrastructure, to support potential LNG expansion, if appraisal activities are successful," it said.

    Formal talks on an expansion are expected early this year, RBC Capital Markets analyst Ben Wilson said Tuesday.

    "One of the key upcoming catalysts we are looking for is forming commercial arrangements with ExxonMobil, Total, and Santos around expansion plans for two trains at the PNG LNG site," he said.

    "Formal talks are now expected in early-2017, contingent on ExxonMobil's acquisition of Interoil. This would put the JV partners in a good position to begin negotiations with the PNG government, following the mid-year elections," Ben said.

    PNG LNG produced at an annualised rate of approximately 8.3 million mt/year during October-December 2016, up from 8.1 million mt/year in July-September and 20% higher than the nameplate capacity of 6.9 million mt/year, Oil Search's quarterly report said.

    LNG production from PNG LNG net to Oil Search during the October-December 2016 quarter was 26,560 mmscf, compared with 24,805 mmscf a year earlier and 25,864 mmscf in the July-September 2016 quarter, the report said.

    The full-year net production from the terminal for Oil Search was 101,827 mmscf, up from 96,646 mmscf in 2015, it said. For 2017, it is expecting 101 bcf-104 bcf, Oil Search said in its guidance Tuesday.

    Other stakeholders in the PNG LNG project are: Santos (13.5%), National Petroleum Co. of PNG (16.8%), JX Nippon Oil and Gas Exporation Co. (4.7%) and Mineral Resources Development Co. (2.8%).

    Attached Files
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    Gazprom's Medvedev dismisses role of US LNG in European natural gas market

    Russia is the gas supplier of choice for European markets and will remain the most cost-effective and reliable source of gas in Europe, Alexander Medvedev, Gazprom's deputy CEO, said Tuesday.

    Speaking at the European Gas Conference in Vienna, Medvedev said US LNG had been a "big hope" for Europe, but that the record flows of Russian gas to Europe in 2016 -- almost 180 Bcm -- were evidence of Russia's position as the leading gas supplier to its European partners.

    "Russia is the only gas supplier that can reliably and flexibly supply gas in any amount. We can supply whatever Europe wants -- we have the capacity to supply an additional 150 Bcm/year," he said.

    In an apparent reference to US LNG exports starting up in February last year, Medvedev said Europe had chosen Russian gas despite there being newer supply options.

    "Our clients have a variety of diversification options, but they still buy Gazprom gas," he said. "This is a good indicator that -- in the face of new alternative gas resources -- our gas is and will be the most competitive in Europe."

    He added that LNG supplies were dependent on "volatile" prices, whereas pipeline supplies under long-term contracts were more reliable.

    Gazprom chairman Viktor Zubkov, also speaking at the Vienna conference, said the company was "not afraid of commercial competitors or other energy resources."

    European demand for Russian gas was buoyed last year by relatively low prices.

    Russian flows last year to Europe and Turkey -- but not including the countries of the former Soviet Union -- were up by 20 Bcm compared with 2015.

    Asked if Gazprom also looked to boost supplies to European hubs in a bid to raise market share, Medvedev said its supplies to its trading subsidiaries in Europe -- Gazprom Marketing & Trading in the UK and Wingas in Germany -- under their long-term contracts were reflected in the sales figures, as were the volumes sold in its 2016 gas auction for delivery into Germany.

    This suggests Gazprom could have sent maximum possible volumes to its own subsidiary companies in Europe last year, which would have boosted its market share.


    Medvedev again highlighted Gazprom's ability to react to customer demands for more gas.

    "We have very flexible contracts and very good prices, and this means we can react on a daily basis to requests from our European partners," he said.

    Asked if the long-term gas supply contract model was under any threat, Medvedev replied that the system still worked.

    "We feel comfortable -- we are delivering as much gas as needed under our long-term contracts," he said.

    He added that Gazprom had 4 Tcm of gas contracted under long-term agreements out to 2035, giving it security of demand for the next two decades and certainty for investing in new infrastructure -- especially its planned pipeline projects to Europe.

    "There is no better way to finance projects than long-term contracts -- we are ready to sign new long-term contracts to finance new infrastructure," he said.

    There has been some shift in Gazprom behavior in the past few years, including auctions and agreeing shorter term contracts.

    For 2017, Gazprom signed a one-year supply deal with Lithuania, but Medvedev said talks were ongoing about returning to a longer-term export deal.

    "Now we see a strong desire from Lithuania to sign a five- or 10-year contract. We have a one-year deal now, but we are in talks with them to go back to long-term contract," he said.


    Medvedev also urged European policymakers to encourage more gas consumption against the background of climate change policy and to allow Gazprom to build new pipeline routes to Europe.

    "Europe needs a consistent energy policy that is compliant with COP21," he said.

    He also said that reliable gas supply was a "huge political question" that needs a political answer "now".

    "Despite price volatility, Gazprom is still moving forward with its capital investments in Europe," he said.

    Medvedev's views were echoed Tuesday by Zubkov, who said Gazprom's policy was directed toward long-term reliability of supply to Europe.

    But, he said, the company could only supply gas via pipelines European politicians would allow.

    This is a reference to political opposition to Gazprom's planned Nord Stream 2 and TurkStream pipelines.

    "This is a very challenging situation for our company," Zubkov said. "It would be a pity if we would be politically forced to use routes that are not so favorable to us," he said.

    Manfred Leitner, head of downstream at Austria's OMV, also said Europe needed to shift its political attitude toward Russia.

    "Political Europe needs to urgently reconsider its neighborhood approach to Russia," he said.
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    Canadian Drillers Brave Deep Freeze as Oil Patch Revives Growth

    In the snowy prairies of Western Canada, not even temperatures below -40 degrees have stopped Stampede Drilling Ltd.’s 60 recently rehired workers from manning the oil-service provider’s rigs after a nine-month dry spell for the business.

    “Once oil hit $50, everybody started phoning again,” Bill Devins, the drilling company’s 57-year-old owner, said in a phone interview from his office in Estevan, Saskatchewan, a town bordering North Dakota right at the heart of the Bakken shale formation. “We started to have some activity come our way.”

    From the tight-oil plays of Saskatchewan to the oil sands of northern Alberta, Canada’s energy producers are returning to growth mode after more than two years enduring the worst market rout in decades. They are leaner and more efficient after cutting staff, shelving projects and reducing costs since the downturn. Cheaper crude doesn’t feel so painful any longer.

    Companies such as MEG Energy Corp., Canadian Natural Resource Ltd., Cenovus Energy Inc., Encana Corp. and Seven Generations Energy Ltd. have all announced plans to expand production. Calgary-based Precision Drilling Corp.hired and recalled about 1,000 field workers to reactivate rigs in Canada and the U.S.

    The renewed focus on expansion happens as the Organization of Petroleum Exporting Countries cuts output and after the Canadian government in November approved construction of two expanded oil pipelines that will add almost a million barrels a day of export capacity to Western Canada.

    ‘More Comfortable’

    “A lot of companies have started increasing capital budgets,” Amir Arif, a Calgary-based analyst at Cormark Securities Inc., said by phone. “They are getting more comfortable in the $45 to $60 oil world. The stability in the oil price is a key factor.”

    Crude has rallied on the back of the OPEC-led supply cuts, trading mostly above $50 a barrel in New York since a Nov. 30 agreement. While that’s nothing like the industry’s heyday years of about $100 before the crash, it’s a big improvement from the near-$25 doldrums of a year ago.

    MEG plans to spend C$590 million ($446 million) in operations this year, almost five times more than in 2016, as it expands production at the Christina Lakes oil-sands site by about 25 percent. Cenovus will proceed with a 50,000-barrel-a-day expansion of its own Christina Lake project and Canadian Natural is moving ahead with its 40,000-barrel-a-day Kirby North project. The three ventures represent the first oil-sands expansions to be announced since the downturn began.

    Economic Rebound

    The rosier outlook is filtering into Western Canada. Alberta’s economy will grow 2.1 percent this year, tying with British Columbia for second-fastest among Canadian provinces behind Ontario’s 2.3 percent, according to the median of forecasts compiled by Bloomberg. The growth follows two straight years of economic contraction in the oil-rich province and will be largely due to the rebuilding of Fort McMurray, the gateway to the oil sands that was devastated by wildfires last year. Saskatchewan, the country’s second-largest oil producing province, will also emerge from a two-year recession to grow 1.7 percent.

    Oil companies that form the backbone of the Western Canadian economy cut capital spending 50 percent in the past two years to C$17 billion in 2016, according to the Canadian Association of Petroleum Producers projections. About 110,000 jobs were lost between late 2014 and April of last year, CAPP said. The number of rigs drilling for oil and natural gas in Canada has jumped almost 40 percent from a year ago, after falling to the lowest since the early 1990s last year, according to data from Baker Hughes Inc.

    To be sure, the economy is only beginning to recover. In Alberta, holder of the world’s third-largest crude reserves, the unemployment rate dropped to 8.5 percent last month from 9 percent in November, the highest in more than 20 years.

    Empty Offices

    In Calgary, the province’s biggest city and the headquarters for most Canadian energy companies, almost 25 percent of office space was vacant in the third quarter, according to New York-based Cushman & Wakefield, a real estate service company. Vacancies are going to rise to as high as 30 percent by 2018 as downtown office buildings such as Brookfield Place and Teles Sky open their doors, Stuart Barron, the company’s Toronto-based national director of research, said by phone.

    “There is more optimism but the market is not going to turn around on a dime,” he said. “Its going to take another year or two to see strengthening.”

    For oil companies, a return to the days when 200,000-barrel-a-day new oil-sands projects were routine is unlikely, Stephen Kallir, Canada upstream research analyst at Wood Mackenzie Ltd., said by phone. Most oil-sands expansions announced in recent months were projects that had already had capital invested in them, he said. Energy companies in Canada may also focus more on shale plays, where investment returns are realized more quickly than in the oil sands.

    ‘Prudent Approach’

    “The aftershock and, for lack of a better word, hangover of the past two years is going to linger for quite a while in terms of how capital spending decisions are made,” he said. “There is going to be a lot more prudent approach.”

    Much of the growth will be concentrated in Saskatchewan, where a less challenging geology means more wells will be tapped this year than in Alberta, according to the Canadian Association of Oilwell Drilling Contractors and Petroleum Services Association of Canada. That’s good news for Stampede’s Devins, who’s watched people move away and local businesses close up including a Staples and a motel. The new year has started out good.

    “It’s probably as active as we’ve seen in two years for sure,” he said.
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    Playing games with maps.

    Image titleFifteen years ago the first shale, the Barnett was discovered, closely followed by the Fayetteville. They were big enough to be interesting, but not large enough to impact gas price.

    Then came the Marcellus. On the map above I've replaced the Marcellus with the Barnett and Fayetteville.  You can put both inside the Marcellus, worse, the Marcellus rock was simply better. 

    Natural Gas production soared, prices crashed, E&P execs and analysts were shocked, surprised and mostly went bankrupt.

    Eight years ago Oilmen made the Bakken flow, then the Eagle Ford. US production started rising. Saudi was annoyed, and crashed prices. E&P execs and analysts were shocked, surprised and mostly went bankrupt. 

    This last year, Oilmen have been transferring their skillset into the Permian. On the map I've replaced the Permian with the Bakken and Eagle Ford. You can put both inside the Permian, worse the Permian rock is simply better. 

    Now the Oil market is much bigger than the Natural Gas market, but you can see where this story ends. 

    Attached Files
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    Robots Are Taking Over Oil Rigs

    The robot on an oil drillship in the Gulf of Mexico made it easier for Mark Rodgers to do his job stringing together heavy, dirty pipes. It could also be a reason he’s not working there today.

    The Iron Roughneck, made by National Oilwell Varco Inc., automates the repetitive and dangerous task of connecting hundreds of segments of drill pipe as they’re shoved through miles of ocean water and oil-bearing rock. The machine has also cut to two from three the need for roustabouts, estimates Rodgers, who took a job repairing appliances after being laid off from Transocean Ltd.

    “I’d love to go back offshore,” he says. The odds are against him. As the global oil industry begins to climb out of a collapse that took 440,000 jobs, anywhere from a third to half may never come back. A combination of more efficient drilling rigs and increased automation is reducing the need for field hands. And therein lies a warning to U.S. President Donald Trump, who has predicted a flood of new energy-sector jobs under his watch.

    Automation, of course, has revolutionized many industries, from auto manufacturing to food and clothing makers. Energy companies, which rely on large, complex equipment for drilling and maintaining oil wells, are particularly well-positioned to benefit, says Dennis Yang, chief executive officer of Udemy, a company in San Francisco that trains workers whose careers were derailed by advanced machinery.

    “It used to be you had a toolbox full of wrenches and tubing benders,” says Donald McLain, chairman of the industrial-programs department at Victoria College in south Texas. “Now your main tool is a laptop.” McLain, who worked as a rig hand for 25 years, is helping to retrain laid-off oil workers for more technical jobs.

     Dangerous Talk

    During the boom, companies were too busy pumping oil and gas to worry about head count, says James West, an analyst at investment bank Evercore ISI: “We got fat and bloated.” He says the two-and-a-half-year downturn gave executives time to rethink the mix of human labor and automated machinery in the oil fields.

    Still, in the current political climate, they’re proceeding cautiously. More robotic drilling ultimately means lower labor costs and fewer workers near some of the most dangerous tasks. But oil companies probably will frame their cost-cutting technologies simply as a way to be more competitive around the world, says West.

    “They’ll more likely brag about the automation rather than these head counts,” West says. “It’s kind of dangerous to talk about jobs in the Trump administration.”

    Yet Trump is seen as the great hope for more shale-job creation than ever before, says Jay Colquitt, founder of, an online news portal catering to oilfield workers. As more federal lands open up for drilling, the jobs will follow, he adds.

    “Even though modern technology is great, you can’t eliminate the person,” says Rodgers. “To make sure it never fails, you’ve got to have somebody there watching it, to verify it.”

    The industry is acutely aware of the heavy reliance on manpower, after the world’s four largest oil-service companies spent $3.12 billion in severance costs during the past two years, says Art Soucy, president of global products and technology for Baker Hughes.

    Rigs have gotten so much more efficient that the shale industry can use about half as many as it did at the height of the boom in 2014 to suck the same amount of oil out of the ground, says Angie Sedita, an analyst at UBS Corp. Nabors Industries, the world’s largest onshore driller, says it expects to cut the number of workers at each well site eventually to about five from 20 by deploying more automated drilling rigs.

    The impact of technology extends well beyond the wellhead. Automation-related jobs for software specialists and data technicians are in demand as the oil industry recovers, said Janette Marx, chief operating officer of Airswift, an oilfield recruiter. She sees explorers and service companies being much more methodical and selective in their hiring this time around.

    “To me, it’s not just about automating the rig, it’s about automating everything upstream of the rig,” says Ahmed Hashmi, head of upstream technology for BP PLC. “The biggest thing will be the systems.”

    That means an engineer can design an oil well at his desk. With the press of a button, an automated system would identify the equipment needed from a supplier, create a 3D model and send instructions for building it out into the field, Hashmi says. “That is automation.”
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    Qatar Petroleum (QP) plans to integrate Qatargas and RasGas into a single entity named Qatargas.

    This will operate all the ventures currently managed by the two entities.

    Saad Sherida Al-Kaabi, QP’s president and CEO, said the aim is “to create a truly unique global energy operator in terms of size, service, and reliability…and enhance our competitive position.”

    The newly combined entity will also operate all Qatar’s onshore LNG facilities.

    Qatargas and RasGas produce gas from fields offshore Qatar. The main shareholders in the two companies are ExxonMobil, Total, ConocoPhillips, and Shell.

    The integration process is expected to be completed within 12 months – existing operations will not be impacted, QP stressed.
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    Gazprom Mulls $6 Billion Asset Sales, Dividend Freeze

    Gazprom PJSC, the world’s biggest natural gas producer, is considering asset sales, freezing dividends and increasing its borrowing as export earnings wane, according to its three-year budget.

    The state-controlled company aims to raise 350 billion rubles (around $6 billion) from asset sales this year, while borrowing may climb to 288 billion rubles and more than double from that level next year, a copy of the document obtained by Bloomberg News show. Dividend payments are forecast at the 2016 level through 2019, according to the plan, approved by the board in December.

    Despite a rebound in crude oil, which dictates the price for most of Gazprom’s export contracts, the proposed budget shows the company remains under financial pressure as it tries to finance new pipelines to Europe and Asia. Gazprom needs to increase borrowing to “ensure liquidity and cover obligations” at oil prices close to current levels, according to the budget.

    No final decision has been made on asset sales and there is no set time frame, two people with knowledge of the issue said, asking not to be identified because the information isn’t public. Gazprom’s press service declined to comment. The stock lost as much as 1.7 percent in Moscow to the lowest intraday level since Nov. 18.

    Management plans to sell Gazprom’s stake in Gascade Gastransport GmbH, which operates more than 2,400 kilometers of gas pipelines across Germany, possibly this year, Interfax reported, citing unidentified people. There are several potential bidders, the newswire said. The Moscow-based exporter acquired 49.98 percent in the grid through an asset swap with Germany’s BASF SE in 2015.

    Gazprom hasn’t sold such a large amount of assets since 2010. Back then, it disposed of 9.4 percent of its largest domestic competitor, Novatek PJSC, for 57.5 billion rubles (about $1.9 billion at the time), classifying its remaining 9.9 percent stake as an asset for sale. The shares, which currently have a market value of about 215 billion rubles based on Moscow trading, could be a candidate, said Raiffeisen Centrobank AG analyst Andrey Polischuk.

    Gazprom is considering various options for raising cash using the Novatek stake, including a possible sale, the people said. The energy giant may earmark some Novatek stock for the sale of convertible bonds, according to one of the people and another person who asked not to be named. No decisions have been made, all three said.

    Novatek has offered to buy four gas fields from Gazprom in Russia’s north, which the state-run company is now assessing. The fields could be valued at about $1 billion, RBC news service reported last month.

    Another asset, which deputy chief Andrey Kruglov said last year could be sold or used for convertible bonds, is 6.6 percent of Gazprom itself, a stake that has a market value of about 230 billion rubles now. The company bought half of those shares last year to help the government bail out a state lender.

    Gazprom usually revises its budgets, which don’t include its oil arm Gazprom Neft PJSC, as well as utilities in Russia and Europe-based gas traders, twice a year. Last year, it beat its target in European exports by 10 percent, while failing to reach agreement on shipments with once a key consumer, Ukraine, amid arbitration proceedings.
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    Chinese demand helps keep ESPO blend crude oil premiums largely steady

    Baseload demand from China has kept the premium for Russian Far East ESPO blend crude for March-loading cargoes steady at around last month's traded levels, according to traders.

    The premiums for ESPO blend for March loading so far were mostly around $3.50/b to Platts front-month Dubai crude assessments, with earlier trades said to have been done at slightly lower premiums.

    Russia's Rosneft sold its cargoes for loading over March 1-6 and March 11-16 at a premium of around $3.50/b to Dubai crude assessments, traders said. Buyer details could not be confirmed.

    Surgutneftegaz sold via tender two cargoes of ESPO crude for loading over February 28-March 5 and March 3-8 at premiums of between $3.30/b and $3.50/b to Platts front-month Dubai crude assessments, FOB, traders said.

    Gazpromneft also sold a cargo for loading over March 3-13 at a premium of around $3.50/b to Platts front-month Dubai crude assessments, FOB.

    In comparison, February-loading ESPO Blend crude cargoes traded last month at premiums between $3.50/b and $3.90/b to Platts front-month Dubai crude assessments.

    Premiums for March-loading ESPO Blend crude cargoes have remained relatively steady, traders said, even though cash differentials for March-loading light Middle East sour crude cargoes have declined from last month.

    Traders attributed the steady premiums for ESPO to firm demand from Chinese refiners.

    "We cannot compare ESPO to Murban [as] ESPO demand [now comes mostly] from Chinese [refiners and they]... don't use Murban. For them, [ESPO is] where they see value," said a North Asian crude trader.

    Cash differentials for Abu Dhabi's Murban dipped on weak buying interest from Asian end-users for March-loading cargoes ahead of the peak turnaround season, traders said.

    The narrow Brent/Dubai Exchange of Futures for Swaps and the narrowing spread between WTI and Dubai have also opened up options for Asian end-users to seek competitively priced crude grades from elsewhere, traders said.

    Second-month Brent/Dubai EFS -- which enables holders of ICE Brent futures to exchange a Brent futures position for a Dubai crude swap -- was $1.50/b at 3 pm Singapore time (0700 GMT) Monday, steady from Friday.

    The second-month EFS averaged $1.74/b to date in January, compared with $2.17/b in December, Platts data showed.

    However, a Singapore-based trader said that independent Chinese refiners "should have learned ... by now not to take cargoes at such levels. It does not make sense for Sokol to [trade in the] low $4s/b and yet ESPO is still in mid-$3s/b."

    ExxonMobil last sold at least two cargoes for loading in March -- one at a premium of close to $4/b to Platts Dubai crude assessments, while the second cargo went to Unipec at a premium in the low $4s/b to Dubai crude.

    European trading house Trafigura also sold a March-loading cargo at a similar level -- Dubai crude assessments plus low $4s/b -- sources said, but buyer details could not be confirmed. Last month, February-loading Sokol barrels were sold at a premium of $4.10-$4.40/b to Platts Dubai crude assessments.
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    Chevron Slams Canadian Backdoor in $9.5 Billion Pollution Fight

    Now entering its 24th year, an international legal war seeking to hold Chevron Corp. liable for oil pollution in the Amazon has featured battles in courtrooms ranging from the U.S. to Ecuador to Canada. In a blow to Ecuadorian villagers who contend the company sullied their lands, an Ontario judge last week protected Chevron’s Canadian assets from being seized as part of the fight.

    That’s a big victory for the second-largest U.S. fossil fuel company, because in 2011 Chevron lost a court case in Ecuador over the question of liability. As far as the Ecuadorian judiciary is concerned, Chevron owes some $9.5 billion, plus interest, to the villagers. But the energy giant, contending that the enormous judgment was obtained by fraud, has refused to pay. Chevron has no assets in Ecuador, so there’s nothing there for plaintiffs to seize. That’s why the case migrated north to Canada, where a subsidiary has operations the villagers would like to liquidate to cover their verdict.

    But in a highly technical 35-page opinion, Judge Glenn Hainey of the Ontario Superior Court of Justice made a sharp distinction between Chevron the parent corporation and Chevron Canada the subsidiary. Chevron Canada wasn’t the defendant in Ecuador and as a legally separate entity, the judge held, can’t be held responsible for its parent’s liabilities.

    Chevron hailed the decision. “Once again, the plaintiffs’ attempts to enforce their fraudulent judgment have been rebuked,” R. Hewitt Pate, Chevron’s vice president and general counsel, said via email. “We are confident that any jurisdiction that examines the facts of this case and the misconduct committed by the plaintiffs will find the Ecuadorian judgment illegitimate and unenforceable.”

    Karen Hinton, a New York-based spokesperson for the villagers, said in a statement that her clients will appeal Hainey’s ruling, and predicted a swift reversal. “The villagers expect to proceed later this year with their seizure of Chevron’s assets to force the company to respect multiple [Ecuadorian] court judgments that found it” liable for massive contamination, Hinton added.

    The very long story that brings us to this moment began in 1993 with a lawsuit filed in New York federal court against Texaco (which Chevron acquired in 2001). Brought on behalf of poor rural Ecuadorians, the complaint was dismissed by U.S. courts and restarted in 2003 in Ecuador. Eight years later, it led to the multibillion-dollar verdict now at issue. Chevron countered that any pollution resulting from Texaco’s activities in the rain forest was the responsibility of the Ecuadorian government to clean up—and, in any event, the verdict was tainted by the misconduct of the villagers lawyers, led by a New York-based attorney named Steven Donziger.

    To drive home that last point, Chevron sued Donziger in 2011, obtaining a U.S. judgment that he’d violated anti-racketeering laws by turning the Ecuadorian suit into the equivalent of an extortion scheme. Last year, a federal appeals court upheld the ruling, finding that Donziger and his colleagues engaged in coercion, fraud, and bribery in Ecuador. The decisions have the effect of making it impossible for the villagers to collect on the Ecuadorian verdict in the U.S. That brings us to Canada.

    The legal complexities in this branch of the litigation proliferate. In a separate part of his Jan. 20 ruling, Judge Hainey said that if somehow the Ecuadorians succeed in moving forward with their action in Canada—for example, if a higher court reversed his finding that the subsidiary should be shielded—then the oil company would be allowed to fight asset seizures by pointing to the evidence of fraud presented in the U.S. racketeering case.
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    Naphtha surges as cold Asia weather pulls LPG to heating

    Asia's naphtha demand has surged since late 2016 as petrochemical makers are turning to the product after supplies of cheaper alternative liquefied petroleum gas (LPG) were consumed by heating demand amid cold regional weather.

    Prices for naphtha spot cargoes for sale to South Korea flipped to premiums on Jan. 6 for the first time since November because of the higher demand.

    Spot premiums hit a near 21-month high on Jan. 19 as Lotte Chemical paid $6 to $7 a tonne to Japan quotes on a cost-and-freight basis, said two traders that participate in the market.

    Asia petrochemical producers had been using LPG to swap out a portion, typically between 5 to 15 percent, of the naphtha that is normally used as a feedstock to make products such as ethylene and propylene.

    However, LPG is more commonly used as a heating and cooking fuel for Asia and, as temperatures in the region have plunged to colder-than-normal levels, the fuel has gone to meet heating demand.

    "The majority of the demand we have now is from the heating sector in a North Asian country," said a Singapore-based trader. "Given the high LPG price now, LPG sellers cannot sell the fuel to naphtha crackers. It's too expensive,"

    Some naphtha cracker operators who have LPG term barrels resold their barrels to their suppliers to cash in on the strong LPG prices and filled the void with naphtha instead, the two traders said.

    Typically, Asian ethylene makers will make the partial switch to LPG from naphtha provided LPG is about 93 percent of the naphtha price or at least $50 a tonne cheaper than naphtha.

    However, propane and butane for second-half February delivery were at about $522 a tonne and nearly $566 a tonne against prompt Asian naphtha at $517, data from brokerage Ginga showed on Jan. 20.

    "The current LPG price level is unexpected," said Ong Han Wee of energy consulting firm FGE. "The spike has been caused by short-term shortages."

    Ong sees the current LPG demand is coming largely from North China, Japan and South Korea for heating but a delay in cargoes loading from Texas in the last two weeks due to fog had affected the market supplies as well.

    Asia's naphtha strength could last at least another month as the switching away from LPG is occurring at the same time less naphtha is set to arrive from Europe.

    Asia is set to receive around 900,000 tonnes of naphtha from Western Europe and the Mediterranean in February, based on a survey of five traders in the market.

    That is about 31 percent less than the volumes reported in the survey for January and down from the 2016 monthly average of 1.2 million tonnes.

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    Halliburton warns of weakness in international markets

    Halliburton Co, the world's No. 2 oilfield services provider, on Monday warned of weakness in markets outside of North America, echoing comments made by larger rival Schlumberger last week.

    Halliburton reported a better-than-expected quarterly adjusted profit as oil producers put more rigs back to work in North American shale fields.

    Shale producers, encouraged by a rise in crude prices after a slump of more than two years, have been drilling and completing more wells in North America.

    "Despite the positive sentiment surrounding the North American land market, it is important to remember that our world is still a tale of two cycles," Chief Executive Dave Lesar said in a statement.

    "The North America market appears to have rounded the corner, but the international downward cycle is still playing out."

    International markets are yet to recover with most oil companies reluctant to increase spending on expensive deepwater and mature oilfields.

    Net loss attributable to Halliburton widened to $149 million, or 17 cents per share, in the fourth quarter ended Dec. 31, from $28 million, or 3 cents per share, a year earlier.

    The current quarter included impairment and other charges of $169 million, compared with $282 million last year.

    Excluding items, the company earned 4 cents per share in the latest reported quarter, beating the average analyst estimate of 2 cents, according to Thomson Reuters I/B/E/S.

    The company's revenue fell 20.9 percent to $4.02 billion, missing analysts' estimate of $4.09 billion.
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    LNG market re-balancing to stall until 2020s, study says

    The LNG market is expected to hit the bottom of a boom-bust cycle over the next five years, a report by Aurora Energy Research shows.

    This comes as a result of the depressed prices, a virtual halt in investment and the drop in contracts value.

    Over the five-year period, a wave of new supply, predominantly in the US and Australia, will increase the total liquefaction capacity by up to a third, only accounting for committed projects, with any upward supply-side pressure only beginning to emerge beyond 2021.

    The report further claims that even at that point weak demand is likely to impede a swift recovery. Although buyers are far more diverse than ever before, fundamental reasons will stall a full rebalancing until at least the mid-2020s.

    Gas demand growth is currently squeezed out by renewables deployment, energy efficiency gains and depressed GDP growth expectations. New windows of opportunities in the transport sector and petrochemicals, while boosting the long-term prospects, are unlikely to bring a significant uplift in the short term, according to AER.

    Largely in response to these conditions, and with growing numbers of increasingly sophisticated participants, the LNG business model is transitioning towards flexibility to unlock value. Buyers are increasingly trading to benefit from price volatility by redirecting cargoes, and shipping providers are also capturing a significant share of the value of flexibility through freight rates. Opportunities for structural changes in the market with shorter contracts, emerging supply hubs, and new pricing formulas are starting to shape new rules for the industry.

    In Europe, these emerging market dynamics boost buyers’ negotiating position against historic suppliers, as LNG is increasingly eroding Russia’s market power.
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    Kurdistan Pays Oil Companies, Breaking Seven-Week Cash Drought

    The government of Iraqi Kurdistan has paid international oil companies for the first time in seven weeks, as rising crude prices give a much-needed boost to the region’s coffers.

    DNO ASA, Genel Energy Plc and Gulf Keystone Petroleum Ltd received a combined $53.9 million for oil sold in October, the companies said on Monday. The Kurdistan Regional Government paid for their September exports on Dec. 5 and still owes them for crude sold in November and December. Shares of the companies rose.

    The KRG has struggled to keep up regular payments to international contractors as it contends with low crude prices, a dispute over revenues with the federal government in Baghdad, large numbers of internal refugees, and a long war with Islamic State militants. Oil has risen almost 20 percent since OPEC and other producers agreed last month to curb supply, easing the financial strain on the region.

    DNO shares were 1 percent higher at 9.28 kroner at 9:22 a.m. in Oslo. Genel gained 0.6 percent in London to 83.5 pence and Gulf Keystone advanced 0.2 percent to 130 pence.

    The companies and the regional authorities have now agreed on a new monthly payment schedule, according to people familiar with the matter. Producers have said they need regular payments in order to invest and boost their fields’ production. They’ve also asked to be paid back arrears for past oil sales. In the case of DNO, that amount stood at about $1 billion as of November, almost the size of the company’s market capitalization.

    DNO operates the Tawke field, which produced an average of 108,122 barrels a day in October, the company said in a statement. It received payment of $38.9 million, to be shared with its field partner Genel. Gulf Keystone received $15 million for oil sold from the Shaikan field in the same month.

    Attached Files
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    LNG Limited’s Magnolia LNG to supply India’s first East coast terminal

    Magnolia LNG, Perth-based LNG Limited’s U.S. unit, signed a heads of agreement with Vessel Gasification Solutions for a 20-year supply of 4 mtpa of liquefied natural gas from its project in Lake Charles, Louisiana.

    According to the company’s statement, the non-binding HoA provides for free-on-board deliveries to the proposed  Krishna Godavari LNG import terminal.

    The firm SPA is conditional upon the financial close of the KG LNG terminal and satisfaction by VGS of defined credit requirements underpinning their LNG purchases within agreed timeframes.

    Gaurav Tiwari, president of VGS added that the deal with Magnolia LNG would bring a “significant tranche of U.S.-produced LNG” to a new market on India’s East coast.

    The terminal being developed by VGS is located offshore at Kakinada Deepwater port in Andhra Pradesh, India. The facility aims to supply regasified natural gas to power plants with the capacity of 7000 MW as well as industrial users.

    The proposed Magnolia LNG facility would have up to four trains each with a liquefaction capacity of 2 mtpa or more, two 160,000-cbm storage tanks, ship, barge and truck loading facilities and supporting infrastructure.
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    OPEC/non-OPEC claim compliance but questions linger

    OPEC and non-OPEC producers left their meeting in Vienna Sunday claiming 100% commitment with plans to cut output, but market watchers will have to wait a little longer for hard evidence of full compliance.

    There was certainly convincing rhetoric from the oil ministers and there have been signs of significant cuts, but the market must now determine fact from fiction, given the expected natural declines from some countries, planned maintenance and how output is responding from exempt producers like Nigeria and Libya.

    Saudi oil minister Khalid al-Falih was "positive" that non-OPEC producers were taking part in the cuts, while Russia's Alexander Novak said his expectations have been "exceeded".

    But beyond the ministers' platitudes, the monitoring committee -- made up of representatives from Algeria, Kuwait, Oman, Russia and Venezuela -- still has little to work with.

    Moreover, minister claims that the market could rebalance within the first six months have many analysts wondering if the recovery in US production and shale will derail this process.

    "They claim growing US production is no issue because growing demand will absorb it. That may be true, but that sure sounds a lot like conceding market share to the US, and that OPEC will have to reconsider their game plan yet again in the coming months/years," said Tony Starkey from Platts Analytics, a unit of S&P Global Platts.

    The cut agreement only came into effect on January 1, in the aim of pinning back production by close to 1.8 million b/d. Since then the market has been anxious to gather any news on output reductions.

    Just three weeks in, with next to no published production data yet available, the producers' monitoring committee has attempted to pull together a mechanism to accurately gauge compliance.

    More data will be needed to convince skeptics that the group can keep up with its commitments, and quickly.

    According to OPEC's official statement from Sunday's meeting, each of the 24 signatories to the production cut agreement will nominate a technical representative who is to supply OPEC with production data.

    Falih, who has just taken on the role of OPEC's latest president, summed up the balance between statements of commitment from producers and the absence of cold, hard production figures.

    "We see evidence of a 1.5 [million b/d cut]. Everybody has declared their full commitment. For all I know, and I still hope we will see evidence in February, we are going to get 100% compliance, possibly more", he told journalists after the meeting.

    His "back of an envelope" calculation of compliance, was based on constant communication with customers, and through lifting and loading data, Falih added.

    Novak went even further with his own calculation. "If we take the overall number of countries, it should be 1.7 million b/d. So in my view as a result of statistics that we will have for January we will have an even bigger cut than 1.7 mil b/d", he told the Russia 24 television network.


    Russia has in fact moved ahead with its own production cuts faster than planned, he added, and production since the beginning of January has fallen by more than 100,000 b/d.

    To some extent this is due to abnormally low temperatures in some oil producing areas in early January. However, Russia has committed to a cut of 300,000 b/d over the course of the six months so it still has some way to go to make good on its pledge.

    Saudi Arabia has also exceeded its target, cutting output by more than 500,000 b/d, to less than 10 million b/d, Falih confirmed. But it is not clear how much of this is due to refinery maintenance at Yanbu and lower crude burn in the Persian Gulf winter.

    So too have some other OPEC producers, such as Kuwait. Kuwait was only required to cut output by 131,000 b/d, but having already reached that level, has reduced by a further 6,000 b/d, and plans to go down to 148,000 b/d, officials said.

    Other producers, such as Iraq and Venezuela, have not yet cut down to their quotas, but say they are committed to reaching their required levels in the coming months.

    Venezuela's production was already down by half of its commitment, newly appointed oil minister Nelson Martinez said.

    "The other 300,000 b/d [on top of the 1.5 million b/d the producers already suggest has been cut], for all I know, still happened, we just haven't seen the evidence for it", he said.

    Confirmation of these cuts will go a long way to easing concerns over compliance.

    With the monitoring mechanism now agreed, the evidence will be presented to the committee for review on February 17, with regular monthly updates thereafter on the progress of the deal.

    Novak added that the committee will judge compliance based on secondary source data, and not country self-supplied figures. These secondary sources -- including S&P Global Platts -- compile monthly estimates of each country's output for the preceding month. Their inclusion has been a contentious issue for some countries, such as Iraq, where the two figures have shown significant variance.

    Full compliance, for the entire six months of the deal, and possibly beyond, could bring global crude stock levels back to their five-year average by middle of the year, "lowering oil in storage by around 300 million barrels", Falih said.

    His view was echoed again by Novak, who said he had reassessed his outlook on the market rebalancing, bringing it forward. "Today, we see that balancing is possible at the end of first half of the year", he said.

    This appears a little optimistic especially given the impact that increased US shale production and response of global demand to higher prices may have on the market balance. Of course, the cuts could also be offset by rising output from Libya and Nigeria, which are exempt from the deal.

    "Demand is expected to be higher again this year, though there have been some worrying signs in terms of US gasoline demand in the past couple of months, as well as a generally trending higher of oil prices along with the US dollar, which may negatively impact demand growth expectations this year, and coupled with the return of OPEC supply, could spell trouble for the oil market in the latter half of 2017," Starkey cautioned.
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    Saudi's SABIC to acquire remaining 50 percent of Shell venture for $820 million

    Saudi Basic Industries Corp (SABIC) 2010.SE has signed an agreement to acquire the 50 percent that it does not already own in its petrochemical venture with Shell Arabia, a unit of Royal Dutch Shell (RDSa.L), for $820 million, SABIC said on Sunday.

    "As per the partnership agreement between the two companies that stipulates the right of SABIC to renew or end the partnership by the end of 2020...SABIC decided to acquire the full stake of Shell, which is 50 percent," it said.

    SABIC, one of the world's largest petrochemical firms, said the $820 million figure was based on the net value of the venture's assets. It said the acquisition was in line with a strategy to develop its successful investments.

    The venture, known as SADAF, was established in 1980 and operates six petrochemical plants with total annual output of over 4 million tonnes year of chemicals. It makes products including ethylene, crude industrial ethanol and styrene at a complex in Jubail, on the Gulf coast of Saudi Arabia.

    The acquisition agreement is expected to be carried out before the end of this year, SABIC said, adding that it signed another memorandum of understanding with Shell Arabia on Sunday to boost the companies' cooperation in unspecified international and local investments.

    "We will continue to explore potential future opportunities with SABIC," Graham van’t Hoff, executive vice-president of chemicals at Shell, said in an emailed statement to Reuters.

    In 2014, SABIC and Shell shelved plans to expand SADAF as the results of feasibility studies were not encouraging. The expansion was to have added production of polyols, propylene oxide and styrene monomer.

    Shell is involved in other downstream activities in Saudi Arabia; it has a crude oil refinery with Saudi Aramco in Jubail.
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    China LNG imports hit record in December

    China's liquefied natural gas (LNG) imports hit a record high in December, customs data showed on Monday, driven up as the country pushes towards cleaner fuels.

    The world's No.2 economy shipped in 3.73 million tonnes of LNG in December, topping the previous record of 2.66 million tonnes in November and up from 2.10 million tonnes a year ago, the General Administration of Customs said.

    China's government in 2014 launched a "war on pollution" to reverse the damage done by decades of untrammelled growth.

    Trade flow data on Thomson Reuters Eikon shows that Australia and Qatar exported the most LNG to China in December.

    Australia shipped 22 cargoes, equivalent to 1.5 million tonnes of LNG, according to that data, while Qatar exported 9 cargoes.

    For the whole of 2016, China's LNG imports rose 32.8 percent to 26.06 million tonnes, China's customs data showed.

    The nation's December diesel imports climbed 166.1 percent from the same month a year earlier to 110,000 tonnes, while kerosene imports fell 2.3 percent on the year to 290,000 tonnes.
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    Investors Bet on Oil Market Rebound

    Hedge funds are showing they have some faith in OPEC.  

    Their bets on rising West Texas Intermediate crude prices reached the highest in data going back to 2006 as the Organization of Petroleum Exporting Countries and other producers reduce output to balance the market. Saudi Arabia, Algeria and Kuwait have already made deeper cuts than required, while Russia has been able to reduce supply faster than expected, ministers from the countries said over the weekend in Vienna as they gathered for the first meeting to monitor adherence to their output-cut accord.

    Funds increased their net-long position, or the difference between wagers on a price increase and bets on a decline, by 14 percent in the week ended Jan. 17, U.S. Commodity Futures Trading Commission data show. WTI advanced 3.3 percent to $52.48 a barrel in the report week. March futures lost 6 cents to $53.16 a barrel at 2:19 p.m. Singapore time on Monday.

    "Money mangers are buying oil, as they say in Texas, like too much ain’t enough," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "They are trading based on confidence that OPEC and non-OPEC producers will reduce output enough to send prices higher."
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    U.S. Oil Producers Ramp Up Spending

    U.S. oil producers, optimistic that higher crude prices are here to stay, have issued 2017 budgets that call for dramatically greater spending to tap new wells.

    Preliminary capital-spending plans released in recent weeks by more than a dozen American shale drillers, including  Hess Corp. and Noble Energy Inc., show an average 60% budget increase for the group.

    The trend comes after two years of austere budget cuts and layoffs at shale companies to help them cope with a protracted oil bust. The price of U.S. crude started to collapse in 2014 from over $100 a barrel to below $30 in early 2016, prompting drillers to idle rigs and lay off more than 150,000 workers in the U.S.

    Many more energy firms will announce capital budgets in the coming weeks, and early indications are that they expect to spend more, as well as pump more oil and natural gas this year.

    Praveen Narra, an energy analyst with Raymond James & Associates, predicts a surge in shale spending based on an improved outlook for the sector. Raymond James is forecasting that crude prices will average $70 a barrel this year, up from a $43 average in 2016. U.S. oil prices closed at $51.37 a barrel Thursday.

    “That willingness to spend is certainly there,” Mr. Narra said. “People are just optimistic that we have put the worst behind us.”

    Wall Street darling RSP Permian Inc., which drills exclusively in West Texas, is boosting this year’s budget by 97% to $600 million. RSP’s stock price has more than doubled in the last year to a recent $42.41 per share.

    Last week, Hess, one of the biggest drillers in North Dakota, unveiled a $2.25 billion budget for 2017, an 18% increase over the $1.9 billion it spent last year. The company will spend a significant amount putting more rigs back to work in the Bakken formation, and production is expected to rise by about 10% this year, according to Greg Hill, president of Hess.

    Noble has said it would spend up to $2.5 billion this year, a potential 67% jump over last year’s $1.5 billion budget, as it doubles its rig activity from Texas to Colorado. Earlier this week, the company said it would buy Clayton Williams Energy Inc., based in West Texas, for $2.7 billion, giving it another 2,400 prospective wells to tap.

    The oil price stabilized over $50 a barrel in the fall thanks, in part, to an agreement to curb output by members of the Organization of the Petroleum Exporting Countries, such as Saudi Arabia, as well as other major producers such as Russia.

    Several U.S. oil producers, including Pioneer Natural Resources Co. and EOG Resources Inc., have said that advanced technology and efficiency gains implemented during the oil-price downturn will allow them to not just survive but thrive at $55 a barrel.

    Spending by oil and gas producers world-wide is expected to jump 7% in 2017, according to Barclays PLC, a British bank which recently surveyed 215 energy companies about their plans.

    U.S. onshore oil and gas producers will lead the way, particularly as larger shale drillers ramp back up, said J. David Anderson, a Barclays analyst. He estimates that spending among American exploration and production companies will rise more than 50%, setting off a wave of activity that may surprise OPEC and other foreign competitors. “They’re about to find out how efficient the U.S. producers have become,” Mr. Anderson said.

    There are already signs of increased U.S. oil activity. The number of oil and gas rigs drilling from Colorado to Oklahoma has been steadily on the rise in recent weeks. There were 634 rigs drilling onshore in the U.S. at the end of last week, up from a low of 380 in May. Earlier this month, U.S. oil production surpassed 8.9 million barrels a day, its highest level in nine months, and has stayed roughly at that level, according to the latest weekly federal data.

    One of the most pronounced increases in planned spending was announced by Denver-based Extraction Oil & Gas Inc. The company was the first initial public offering of a U.S. oil and gas producer in two years when it made its debut on the Nasdaq Stock Market in October.

    Extraction said it would spend about $865 million in 2017, up 137% from the $365 million it budgeted for 2016. The company expects to boost output this year by nearly 76% to 51,000 barrels of oil equivalent a day.

    Mark Erickson, Extraction’s chief executive, said $45 oil has proven to be a sweet spot for the company, and any improvement in price just means stronger returns and more activity are on the way.

    “We’re looking at this just being a very high-growth year,” he said.

    Attached Files
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    Sonatrach supplying contractual volumes of LNG to France: source

    Algeria's state-owned Sonatrach has met all its French LNG supply contractual obligations, a company source said late Thursday, despite having suffered a three-week unplanned outage at its main Skikda LNG facility.

    The source told Algeria's state news agency APS that France's Engie had requested additional LNG to meet demand during a cold spell that has coincided with saturated capacity between northern and southern France.

    But Sonatrach was unable to meet that request, the source said.

    "Sonatrach is within its rights to turn down the request to make sure it can meet its other customer obligations," the source said.

    On Wednesday, a separate Sonatrach source told S&P Global Platts that the company was in the process of restarting the Skikda LNG plant after a near three-week unplanned outage.

    The 4.7 million mt/year plant went down at the end of December due to a heat exchanger issue, the source said.

    The last LNG cargo from Skikda left the facility on December 29 aboard the Sonatrach vessel, the Cheikh el Mokrani, which was delivered to the French LNG import terminal of Fos-sur-Mer, according to cFlow, S&P Global Platts trade flow software.

    Since the outage, Sonatrach has been meeting its contractual supply obligations by sending LNG from the smaller Arzew export plant.

    Since December 29, 13 LNG cargoes have left Arzew for destinations including Fos-sur-Mer, Revithoussa in Greece and Martas in Turkey, according to cFlow.

    The unplanned outage at Skikda contributed to the recent spike in gas prices in France and Spain.

    In France, the TRS spot price reached a record high last week of Eur40.175/MWh, according to Platts assessments.

    Having fallen back this week, the price jumped again Thursday to Eur34.20/MWh due to expectations of an increased capacity restriction on the North-South link.

    Thierry Trouve, CEO of French grid operator GRTGaz, said Tuesday there had been a recurring bottleneck since the beginning of the winter due to low LNG arrivals at Fos-sur-Mer.

    But Algeria's energy minister Noureddine Boutarfa said Thursday that Algeria had no problems as it was meeting its contractual obligations.

    "It's not up to us to worry about the French," he said.
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    Nigeria's NNPC calls for tenders for oil product imports under DSDP system

    The Nigerian National Petroleum Corporation has called for tenders under its direct sale, direct purchase import model, an NNPC spokesman said Friday.

    The DSDP model, under which selected overseas refiners are allocated crude supplies in exchange for the delivery of an equal value of gasoline to NNPC, started last year, replacing the controversial crude for oil product swaps and Offshore Processing Agreements.

    "To ensure sustainable petroleum product supply across the country, NNPC has called tenders for the lifting of crude oil in return for the delivery and supply petroleum products under the direct sale of crude oil and direct purchase of petroleum products," the spokesman said.

    Submission of bids will close on February 2, while the program is expected to commence on April 1 and will be for one-year period, he said.

    The spokesman did not specify what volumes NNPC is expecting to place in the tenders.

    Nigeria imports around 1 million mt/month of petroleum products but the NNPC said January 15 that imports should drop following the recent restarts of all four of the country's state-owned oil refineries.
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    Schlumberger revenue beats on uptick in North America activity, prices

    Schlumberger NV reported better-than-expected quarterly revenue as oil producers put more land rigs back to work in North America and prices for oilfield services recovered slightly in the region.

    Shale companies, encouraged by a rise in crude oil prices after a slump of more than two years, have been drilling more wells, boosting demand for services provided by Schlumberger and other service providers.

    Schlumberger, the world's No.1 oilfield services provider, said its fourth-quarter revenue from North America rose 4 percent to $1.77 billion compared with the third quarter.

    The company said revenue from onshore operation in the United States grew double digits in percentage terms due to "higher activity and a modest pricing recovery."

    Revenue growth in international markets was slower, rising 1 percent to $5.28 billion from the third to the fourth quarter.

    Schlumberger Chief Executive Paal Kibsgaard said a recovery in international markets this year would "start off more slowly."

    Net loss attributable to Schlumberger fell to $204 million, or 15 cents per share, in the three months ended Dec. 31, from $1.02 billion, or 81 cents per share, a year earlier. (

    The latest quarter included a $536 million restructuring charge as well as a $139 million charge related to the acquisition of Cameron International and a currency devaluation loss in Egypt. It recorded more than $2 billion in restructuring and asset impairment charges in the year-ago quarter.

    Excluding items, Schlumberger earned 27 cents per share in the latest quarter, which was in-line with analysts' average estimate, according to Thomson Reuters I/B/E/S.

    Revenue fell 8.2 percent to $7.11 billion, marginally beating analysts' estimate of $7.07 billion.

    Schlumberger shares were little changed in premarket trading on Friday. They had risen a little more than 20 percent in 2016.
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    GE Misses Revenue Estimates, Weighed Down by Slump in Oil Market

    General Electric Co. reported fourth-quarter sales below analysts’ estimates as the persistent slump in the oil market weighed on sales of industrial equipment.

    “Revenue clearly was a bit light. Their cash flow was a bit light,” Nicholas Heymann, an analyst with William Blair & Co., said by telephone. “I don’t see any signs of big problems, but it was a grind quarter.”

    GE is looking to regain momentum after a sluggish economy constrained growth in 2016 and pressured the company’s efforts to sharpen its focus on machinery such as gas turbines and jet engines. Chief Executive Officer Jeffrey Immelt is building a software business to complement the manufacturing operations while pursuing major deals, such as combining GE’s oil division with Baker Hughes Inc.

    Revenue fell 2.4 percent to $33.1 billion, the Boston-based company said in a statement Friday. That was below the $33.9 billion predicted by analysts, according to the average of estimates compiled by Bloomberg.

    While GE said it is “optimistic” about the U.S. economy, it cited a “slow-growth and volatile environment” in the fourth quarter, according to slides accompanying the release.

    The shares declined 1 percent to $30.90 at 7:21 a.m. in New York before regular trading. GE gained 9.5 percent in the 12 months through Thursday, compared with a 20 percent advance for the Standard & Poor’s 500 Index.

    Adjusted earnings fell to 46 cents a share, matching analysts’ estimates. Orders rose 4.3 percent in the quarter, but declined slightly on an organic basis.

    Sales Breakdown

    Revenue climbed 20 percent in the power division, which is seeing higher shipments of a new gas turbine. GE Aviation, which is boosting production of a new jet engine, posted a 6.7 percent increase.

    Sales tumbled 22 percent in the oil and gas unit, which has struggled amid the plunge and sluggish recovery of crude prices. GE hopes to capitalize on an eventual rebound through the Baker Hughes deal, which would create the world’s second-largest oilfield service provider and equipment maker. GE would own 62.5 percent of the combined company.

    The manufacturer also is selling two divisions, water and industrial solutions, to help fund restructuring and free up cash for potential acquisitions. GE has said the water unit, which makes products for desalination and wastewater treatment, is generating significant interest from prospective buyers.

    Operating earnings in 2017 will be $1.60 to $1.70 a share, GE said, reaffirming a forecast the company gave last month. Organic revenue is expected to increase 3 percent to 5 percent.
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    Libya oil production up

    Libya oil production up to 722,000 barrels a day. Was 708.000 early January, 655,000 last week.

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    EIA: U.S. LNG exports continue to break records

    U.S. liquefied natural gas (LNG) exports are continuing to remain high in January following record high levels in the previous two months, according to the Energy Information Administration.

    To remind, Cheniere’s Sabine Pass liquefaction terminal in Louisiana exported twelve LNG cargoes in December, setting a new record for U.S. monthly exports.

    The agency said in its latest weekly report that exports from Sabine Pass in January remain high, with 8 cargoes already exported and several more vessels currently en route to the terminal.

    Feedstock gas deliveries to Sabine Pass also set a new record in January, averaging 1.7 billion cubic feet per day (Bcf/d) to-date, according to data from PointLogic.

    Since this volume exceeds the maximum combined nameplate capacity of Train 1 and Train 2 of 1.4 Bcf/d, feedstock gas deliveries may indicate the start of commissioning of Train 3, EIA said.

    Cheniere previously said that Train 3 is expected to reach “substantial completion” by June 2017 and to start exporting LNG in April 2017.

    Cheniere started exports from the Sabine Pass liquefaction plant, currently the only such facility to ship U.S. shale gas overseas, in February last year with the majority of cargoes landing in Latin America.

    However, in December this trend changed with the majority of Sabine Pass cargoes leaving for Asia where cold winter temperatures increased residential heating demand and rising spot LNG prices led to larger price spreads between the Atlantic and Pacific basins, providing greater incentive for exports from the U.S.

    The U.S. is expected to become the world’s third-largest LNG supplier by 2020 with an export capacity of 60 million mt coming from five export terminals.

    Henry Hub down

    Natural gas spot prices in the U.S. dropped in most locations in the week ending January 18, with the Henry Hub price slipping 3¢ from last Wednesday, EIA said.

    The Henry Hub spot price dropped from $3.28/MMBtu last Wednesday to $3.25/MMBtu two days ago.

    “Temperatures were relatively consistent between last Wednesday and yesterday, resulting in relatively minor price movements through the week,” EIA said.

    At the Chicago Citygate, prices decreased 3¢ to $3.22/MMBtu two days ago. By contrast, prices at PG&E Citygate in Northern California gained 8¢, rising to $3.61/MMBtu this Wednesday.
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    Asia's unquenchable thirst for oil to outpace 2017 refining growth

    Asia is gearing up to witness new refining capacity growth in at least four countries in 2017, but capacity reductions in some top consuming nations will pull down the net addition to a level that would be lower than the anticipated demand growth the region is likely to see this year.

    While China, India, Taiwan and Vietnam are expected to add to their refining capacities this year, Japan will witness closures, while some independent refiners in China might be forced to give up capacity, analysts and market participants told S&P Global Platts.

    "Oil demand growth in the Asian region is expected to exceed the net refining additions this year," said Sri Paravaikkarasu, Head of Oil, East of Suez, at Facts Global Energy. "And looking at the next five-year horizon, oil products demand growth should exceed net refining additions every single year, helping to clear product surplus somewhat."

    Growth in India is set to be one of the strongest, with the rise in oil demand expected to outpace that of China's for the third year in a row this year, according to Platts Analytics. Indian demand is expected to grow by 7% year on year to 4.13 million b/d in 2017, while China's oil consumption is expected to rise by only 3% to 11.5 million b/d in the same period.


    In China, CNPC's 260,000 b/d PetroChina Anning Refinery in landlocked Yunnan province is expected to come online in 2017, but despite this the net refining capacity addition is seen lower as independent refineries are expected to reduce capacities following government crackdowns.

    "We expect at least about 100,000 b/d of refining capacity [at various Chinese] independent refiners to possibly disappear in 2017," Paravaikkarasu said. "Their crude volumes are getting squeezed."

    In India, state-run Bharat Petroleum Corp. Ltd.'s Kochi refinery is expected to add about 113,000 b/d capacity to its existing 190,000 b/d, while capacity of the Bhatinda refinery of HPCL-Mittal Energy Ltd. is expected to rise by about 42,000 b/d from the existing 180,000 b/d.

    In addition to India and China, Taiwan's Talin refinery is expected to see capacity expansions, while Vietnam will bring online its new Nghi Son refinery this year.

    Taiwan's CPC Corp. expects to complete the construction of its new CDU, hydrotreaters and a condensate splitter at the Talin refinery in the first quarter of 2017, delayed from an initial schedule of end-2016.

    The expansion will boost Talin's total capacity to 350,000 b/d -- or 400,000 including the new condensate splitter -- from 300,000 b/d currently. The plan includes the replacement an older 100,000 b/d CDU.

    Vietnam's new Nghi Son refinery, with a capacity of around 185,000 b/d, is expected to be operational in early 2017.

    "The expansions in India, China, Taiwan and Vietnam should take new refinery capacity additions to about 690,000 b/d in 2017. But we also expect capacity cuts to the tune of 447,000 b/d in Asia, including 347,000 b/d in Japan and 100,000 b/d in China. That should take the net refinery capacity additions in Asia to nearly 250,000 b/d," Paravaikkarasu said.

    Japanese refiners are preparing to cut around 340,000-350,000 b/d of crude distillation capacity by the end of March 2017 to comply with current regulations, which require the refiners to raise their residue cracking ratio to an average of 50% by March 2017, from 45% at the end of March 2014.

    Refiners can achieve this by either adding more secondary units or cutting their nameplate crude distillation capacity, with all expected to opt for the latter. This will bring Japan's refining capacity down to 3.44 million-3.45 million b/d at the end of March 2017, from around 3.79 million b/d currently.


    Despite an anticipated rise in oil products demand in Asia, ample supply from China was seen to be a key factor influencing refining margins in 2017.

    In addition, rising crude prices would also keep margins under pressure.

    "China's oversupply could be a game-changer for Pan-Asia refining," Nomura said in a recent research note. "We expect Asian refining margins to be under downward pressure until the inventory has been drawn down."

    China in 2016 flooded the Asian markets with competitively priced oil products. Its diesel and gasoline exports in the first 11 months of 2016 grew by 112% and 74% year on year, respectively, to 303,000 b/d and 222,000 b/d, as the country aggressively pushed sales overseas amid weak demand at home, according to customs data.

    Analysts expect the trend to continue this year.

    "Margins are expected to remain positive through the first half of the year before turning slightly negative in the second half. Singapore complex margins should average $6/b," Paravaikkarasu said. "We should remember that crude oil prices are recovering too."

    Asia witnessed wild swings in gross refining margins in 2016, with GRMs climbing to above $10/b in early 2016, but weakening to as low as $3/b in August before recovering to $5/b in October, Nomura said in the note. It expects crude oil prices to rise to $60/b in 2017 on the back of OPEC's decision to cut output.

    "We may not see fantastic margins this year in Asia, which witnessed a golden period in 2015 and early 2016. But, still, there is room for margins to hold up well and be in the positive territory in 2017," said a senior Asia-based oil analyst.
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    China sets gas supply target by 2020

    China aims to increase supply capacity for natural gas to over 360 billion cubic meters by 2020, according to the 13th Five-Year Plan released by the National Development and Reform Commission and the National Energy Administration.

    The country's proven reserves of natural gas will reach 16 trillion cubic meters by 2020.

    Proved reserves of shale gas will surpass 1.5 trillion cubic meters, the plan said.

    Official data showed China's natural gas output came in at 121.1 billion cubic meters in the first 11 months of 2016. Imports of natural gas reached 63.4 billion cubic meters during the period.
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    Oil Supply

    • Global oil supplies fell by more than 0.6 mb/d in December, to 97.6 mb/d on lower OPEC and non-OPEC output. For 2016, world supply was up 0.3 mb/d from the previous year as record OPEC output more than offset a 0.9 mb/d decline in non-OPEC.
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    Alternative Energy

    India shows it's serious about solar with giant power plant

    It took 8,500 men working two shifts every day for six months - and three shifts for two months - to finish, ahead of schedule, the Adani Group's giant solar power plant in southern India.

    The vast, 10 sq km project in Ramanathapuram, in the southern state of Tamil Nadu, is the world's largest solar power station in a single location, according to the company.

    It has the capacity to power 150,000 homes - and it is one sign of how serious India is becoming about meeting its renewable energy targets.

    Considering the delays that commonly bog down infrastructure projects in India, the speed at which the 648 megawatt project was completed demonstrates the country's commitment to renewables, said an analyst.

    "The government is very clear about its solar plan, and large installations are key to this plan," said Aruna Kumarankandath of the Centre for Science and Environment in Delhi.

    Prime Minister Narendra Modi "is a real evangelist", and has prioritised solar to meet the renewables target, she said.

    As a signatory to the Paris Agreement on climate change, India is committed to ensuring that at least 40 percent of its electricity will be generated from non-fossil-fuel sources by 2030.

    While coal still provides the lion's share of India's energy, officials forecast the country will meet its Paris Agreement renewable energy commitments three years early - and exceed them by nearly half.

    A 10-year blueprint released last month predicts that 57 percent of total electricity capacity will come from non-fossil sources by 2027.

    Solar energy is a particular focus. It makes up 16 percent of renewables capacity now, but will contribute 100 gigawatts of the renewable energy capacity target of 175 GW by 2022.

    Of that 100 GW target, 60 percent will come from large solar installations. The government is planning 33 solar parks in 21 states, with a capacity of at least 500 megawatts each.


    India's ambitious targets come at a time when renewable energy is at a turning point in the country, as generating electricity from renewables costs nearly the same as from conventional sources.

    The urgency also aims to fill a gap: India is among the world's fastest growing economies, yet one-third of its households have no access to grid power.

    The renewables goal will help ensure "uninterrupted supply of quality power to existing consumers and provide electricity access to all unconnected consumers by 2019", according to the blueprint.

    The Adani plant, built at a cost of 45.5 billion rupees ($661 million), reflects the government's ambitions. It comprises 2.5 million solar panel modules, 576 inverters and 6,000 km of cables, the company said.

    The government grants some subsidies for solar and has raised the investment target for solar energy in the country to $100 billion, with Japan's Softbank and Taiwan's Foxconn among others committing to the sector.

    But there are hurdles, with land availability for solar parks a chief concern. Conflicts related to land have stalled industrial and development projects in India, putting billions of dollars of investment at risk, according to a recent report.

    "Land is definitely a concern, and there's also the issue of transmission," said Kumarankandath.

    "It's all very well to produce all this energy, but do we have transmission lines capable of taking it up? We're also going to need large quantities of water to clean the panels."

    Some states are passing new land laws to make acquisitions easier, while the government is also exploring innovative places to install solar panels, including across the tops of irrigation canals.

    Meanwhile, the Adani group, India's biggest solar power producer and also its top coal-fired generator, may be unseated before long by China, which is building what it claims will be the biggest solar farm on earth: an 850 MW plant on 27 sq km of land.
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    Xinjiang 2016 power output rises 7.6pct, wind power surges 48.9pct

    Northwestern China's Xinjiang Uygur autonomous region generated 227.37 TWh of on-grid electricity in 2016, a rise of 7.6% from a year ago, said the provincial Development and Reform Commission.

    Of this, thermal power output edged up 3% to 175.4 TWh, or 77.2% of the total.

    This was followed by wind power output at 22 TWh, surging 48.9% on the year; hydropower at 21 TWh, rising 5.6% from the previous year; solar power at 6.66 TWh, a jump of 53% year on year; and electricity generated by other power resources at 2.31 TWh, up 10.6% on the year.

    The December power output increased 18.2% compared to the same month of 2015 to 20.74 TWh.

    In 2016, power consumption of Xinjiang reached 179.38 TWh, 12% higher than the previous year.

    Of this, 7.47 TWh was consumed by the residential segment, gaining 5.1% from the year prior.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 12.31 TWh last year, sliding 3.7% from the previous year.

    The secondary industries – mainly the industrial sector, consumed 148.92 TWh, increasing 14.4% on the year.

    Power consumption by tertiary industries – mainly the service sector – increased 5.7% year on year to 10.68 TWh.
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    UK offshore wind costs fall nearly a third in four years - report

    The cost of producing electricity from wind farms off the coast of Britain has fallen 32 percent in the past four years, meeting a government target four years early, an industry report released on Tuesday said.

    Britain plans to increase its offshore wind capacity to help bridge a looming electricity supply gap as old nuclear plants and coal-fired power stations close.

    Offshore wind farm costs fell to an average of 97 pounds ($120.82) per megawatt-hour (MWh) in the 2015-2016 financial year, from 142 pounds/MWh four years earlier, the report commissioned by the Offshore Wind Programme Board said.

    This means the industry has met ahead of schedule a government target to cut costs to below 100 pounds/MWh by 2020.

    It also puts the cost of offshore wind close to that of new nuclear plants, with the government contract awarded to France's EDF for its Hinkley C reactor project in southwest England at 92.50 pounds/MWh.

    "Thanks to the efforts of developers, the UK's vigorous supply chain and support from government, renewables costs are continuing to fall," Britain's energy minister Jesse Norman said in a statement with the report.

    "Offshore wind will continue to help the UK to meet its climate change commitments, as well as delivering jobs and growth across the country," he said.

    Britain has a legally binding target to cut emissions of harmful greenhouse gases, such as those produced by fossil-fuel-based power plants, by 80 percent from 1990 levels by 2050.

    Developers of offshore wind projects, such as DONG Energy , have driven down costs rapidly over the past few years by increasing the size of turbines.

    However, critics say that even with recent cost reductions, offshore wind remains much more expensive than traditional fossil-fuel electricity generation, while some environmental groups say the huge structures could harm marine life.

    Norman said offshore wind would be an important part of the government's new industrial strategy, which was unveiled on Monday and includes delivering affordable, low-carbon energy growth.

    More than 9.5 billion pounds ($11.8 billion) has been invested in offshore wind in the United Kingdom since 2010, the report said, with another 18 billion pounds due by 2021.
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    Lynas exceeds production guidance

    Rare earths miner Lynas Corporation on Tuesday reported that it exceeded its production guidance of neodymium-praseodymium (NdPr) during the three months ended December 31, delivering 1 331 t.

    This was also an increase from the 1 176 t it produced in the previous quarter, with total rare-earth oxides increasing to 3 913 t, from the 3 665 t in the September quarter.

    “These production increases highlight a continuation of solid production and operational performance. We expect these improvements in production to be sustainable,” the company said in a statement, noting that the improved production further underpinned better financial outcomes.

    Invoiced sales reached a new high of A$65-million, up from A$53.8-million in the previous three months, reflecting record sales of NdPr and good volume of other products. Cash receipts also reached a new high at A$58.3-million for the quarter.

    Further, the company noted that despite continued low prices for rare earth products, its operating cash flow improves significantly on a quarter-on-quarter comparison, rising from A$1.7-million to A$5-million.

    Cash flow after investing activities, primarily capital expenditure, was A$4.4-million.

    Lynas also achieved record sales during the quarter, with A$65-million in invoiced sales, up from A$53.8-million in the September quarter.

    During the December quarter, planning was also finalised for its first mining campaign at Mount Weld, in Western Australia, since 2008, which was now set to start this month.

    The total cost of the mining campaign, which should provide one-year of mill feed, is expected to be about A$3-million, with costs incurred in the March quarter and the June quarter.

    “We expect demand to remain strong over the coming period and are hopeful the recent firming in price for lanthanum and cerium may also be reflected for other rare earth products,” Lynas stated.
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    Uranium output forecast to hit 76 493 t in 2020 – report

    New analysis by research and consulting firm GlobalData has forecast global uranium output to rise at a compound yearly growth rate of 4.3%, to 76 493 t in 2020.

    The company’s latest report states that growth in production is needed to meet upcoming demand from new reactors.

    There are 22 new reactors scheduled for completion in 2017, with a total capacity of 22 444 MW. This includes eight reactors in China with a combined capacity of 8 510 MW, two reactors in South Korea with a combined capacity of 2 680 MW, two reactors in Russia with a combined capacity of 2 199 MW, and four reactors in Japan with a combined capacity of 3 598 MW.

    Global uranium consumption is forecast to rise by 5%, to reach 88 500 t of uranium oxide this year. The major expansions to nuclear capacity are projected to occur in China, India, Russia and South Korea over the next two years. The US is forecast to remain the largest producer of nuclearpower in the short term, with the recent completion of the 1 200 MW Watts Bar Unit 2 reactor, in Tennessee, Global Data said.

    “Commercial operations at the Cigar Lake project in Canadacommenced in 2014, with an annual uranium metal capacityof 6 900 t. The project produced 4 340 t of uranium in 2015, compared with 130 t in 2014. Meanwhile, production at the Four Mile project, in Australia, rose from 750 t in 2014 to 990 t in 2015,” GlobalData head of research and analysis for mining Cliff Smee stated.

    By contrast, production from the US fell by 32% in 2015, while in Namibia it decreased by 20%. “This was due to respective declines of 33% each at the Smith Ranch-Highland and Crow Butte mines in the US, and falls of 20% and 13.6% at the Rossing and Langer Heinrich mines, in Namibia,” Smee added.

    Spot uranium prices continued to rise this year and analysts believe prices have bottomed after major producer Kazakhstan said earlier this year it will curtail its uranium output by about 10%, and on growing optimism that shuttered Japanese reactors will finally be restarted.

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    Dow Chemical profit beats estimates as consumer focus pays off

    Seeds and chemical maker Dow Chemical Co (DOW.N) reported a better-than-expected quarterly adjusted profit, helped by its focus on consumer markets such as agriculture and automotive, and a move to take full control of its Dow Corning venture.

    Excluding the Dow Corning transaction, Dow's sales rose 2.5 percent to $11.75 billion in the fourth quarter ended Dec. 31, with sales increasing in four of its five businesses.

    "We are seeing early signs of positive economic momentum, with the United States in expansionary mode, driven by the ongoing strength of the consumer and the tailwind of a new incoming administration promising structural reforms," Chief Executive Andrew Liveris said in a statement.

    Liveris was appointed by U.S. President Donald Trump to lead a private-sector group on manufacturing that will advise the U.S. secretary of commerce.

    Dow Corning, previously a joint venture between Dow and Gorilla glass maker Corning Inc (GLW.N), makes silicone that are used in the manufacturing a host of products.

    Dow, which is merging with DuPont (DD.N), has continued to benefit from its strategy to focus on consumer markets by divesting billions of dollars of volatile, commodity assets over the years, including the $5 billion divestiture of most of its chlorine business.

    Net loss attributable to Dow's shareholders was $33 million, or 3 cents per share, in the fourth quarter, compared with a profit of $3.53 billion, or $2.94 per share, a year earlier.

    Excluding a one-time $1.1 billion charge, reflecting a change in the way the it accounts for legal costs associated with defending against asbestos claims, Dow's operating profit rose 6.5 percent to 99 cents per share.

    That was higher than analysts' average estimate of 88 cents, according to Thomson Reuters I/B/E/S.

    The company's net sales, including the Dow Corning deal, rose to $13.02 billion from $11.46 billion, beating analysts' average estimate of $12.38 billion.

    The $130 billion merger between Dow and DuPont has drawn scrutiny from regulators, particularly in the European Union, with concerns stemming from the overlap in the two chemical companies' seeds and crop protection businesses.

    DuPont said on Tuesday that the merger, announced in December 2015, may not close in the first quarter as planned and will now likely close in the first half of the year.

    "We are highly confident in the transaction," Howard Ungerleider, Dow's chief financial officer, told Reuters, adding that company was working with key regulators around the world.

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    Potash Corp posts lower-than-expected profit, shares fall

    Potash Corp of Saskatchewan Inc reported a lower-than-expected quarterly profit, hurt by weak prices, but said it expected potash sales volumes to rise in 2017.

    U.S.-listed shares of the company, which reported a 21.9 percent drop in fourth-quarter sales, were down 6 percent in premarket trading on Thursday.

    The company forecast 2017 potash sales volumes to rise to 8.7 million-9.4 million tonnes from 8.6 million in 2016.

    Potash prices are hovering around their lowest in nearly a decade, under pressure from bloated capacity and weakening farm incomes, but they have edged higher since summer.

    Potash Corp and rival Agrium Inc announced in September a plan to merge, combining Potash Corp's fertilizer capacity, the world's largest, and Agrium's farm retail network, North America's biggest.

    Agrium's chief executive said on Wednesday that the merger had received regulatory approval from Russia and Brazil but was awaiting approval from the United States, Canada, China and India.

    "The regulatory review and integration processes are advancing, and we expect the transaction will close mid-2017," Potash Corp CEO Jochen Tilk said in a statement on Thursday.

    The fertilizer company said it expected earnings of 35 cents to 55 cents per share in 2017, including merger-related costs of 5 cents per share.

    Potash Corp also said that it determined in the quarter that the carrying value of certain assets should be assessed for potential impairment.

    The assessment is ongoing, with a particular focus on phosphate, Potash Corp said, adding that the company expected to complete the process no later than late February.

    The company's net earnings plunged to $59 million, or 7 cents per share, in the fourth quarter ended Dec. 31, from $201 million, or 24 cents per share, a year earlier.

    Analysts on average had expected earnings of 9 cents per share, according to Thomson Reuters I/B/E/S.

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    DuPont sees Dow merger closing in first half of 2017

    Chemicals and seeds producer DuPont  said on Tuesday it expected its merger with Dow Chemical Co to close in the first half of the year, suggesting it will take longer than previously estimated to win approvals for the $130 billion deal.

    Previously, the companies said they hoped to wrap up the transaction in the first quarter of 2017.

    DuPont, which also reported a better-than-expected profit for the sixth straight quarter, said it continued to have constructive discussions with regulators in key jurisdictions.

    This is at least the second time the two companies, which have been in talks with EU antitrust regulators to save their merger, have had to push back the expected completion period.

    DuPont also said it expected its profit in the current quarter to fall 18 percent from a year earlier due to a charge of 15 cents per share related to the Dow deal.

    Operating profit, which excludes one-time charges, is expected to rise about 8 percent, helped by cost cutting and increased seed deliveries.

    Net income attributable to the company was $265 million, or 30 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $253 million, or 29 cents per share, in the same quarter of 2015.

    Excluding items, the company earned 51 cents per share, beating analysts' average estimate of 42 cents, according to Thomson Reuters I/B/E/S.

    Net sales fell 1.7 percent to $5.21 billion, missing analysts' average estimate of $5.29 billion.
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    Salmon price high

    Image titleThe culprit behind the rising price of salmon is about the size of an aspirin: a parasite known as the sea louse, or salmon louse. Acute outbreaks in Scotland and Norway this year have, er, eaten into the global supply of farmed Atlantic salmon. Norway, the planet’s biggest salmon producer, exported around 5% less by volume than in 2015. Globally, production fell around 9%. All that adds up to a problem that will increasingly put the squeeze on seafood lovers—and raises new questions about how to beat back the scourge of sea lice without hurting salmon, and the people who love to eat them, in the process.

    One technique, known as a thermolicer, plunges the salmon into a scalding-hot bath. The hot water kills off the sea lice—and also, sometimes, the fish themselves. Last year, salmon-farming giant Marine Harvest inadvertently cooked 95,000 caged salmon with a thermolicer. Though that killed 95% of the sea lice, it also left the company with 600 tonnes of dead salmon to incinerate. Along with rampant salmon deaths from pesticide treatments, the thermolicer incident caused a 16% drop in the company’s Scottish salmon output for 2016.

    There are other options in the works, including lice-zapping lasersfancy ultra-large-scale pens, and delousing vessels called hydrolicers. But even with the preponderance of government funding from leading salmon-farming countries, new technology is expensive to develop. And for the salmon-farming giants like Marine Harvest, Nova Sea, and others, scale remains a challenge. Meanwhile, a promising sea lice vaccine hasn’t yet borne fruit.

    Worse, the conditions that invite sea lice seem to be on the rise. The sea lice life cycle accelerates in warmer temperatures. So it’s hardly surprising that a recent study found that unusually balmy seas helped encourage the 2015 sea lice epidemic that swept British Columbia, Canada.

    This all adds up to a pricey problem. And given that the sea lice spread shows few signs of abating—nor does the outbreak of another salmon blight, amebic gill disease—consumers are likely to face steeper salmon prices in 2017. Analysts at the Norwegian bank Nordea expect global supply of farmed Atlantic salmon to stay below 2015 levels for the next three years.

    The sea lice epidemic isn’t just hurting fish, farmers and consumers—it also takes a toll on other sea life. Slice is poisonous to crustaceans, though its long-term effects have not been researched. In 2013, a subsidiary of Cooke Aquaculture, one of North America’s biggest salmon producers, pleaded guilty to killing hundreds of lobsters with its use of cypermethrin, a delousing chemical used in Europe but banned in Canada.

    The most egregious ecological problem, however, is the fact that the teeming sea lice reservoirs created by farming are devastating wild salmon populations. In that sense, sea lice and humans have something in common: an appetite for Atlantic salmon that nature simply can’t sustain.

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    Precious Metals

    Russia sells Sukhoi Log gold deposit to Polyus-Rostec JV

    Russia has sold the right to develop Sukhoi Log, one of the world's largest untapped gold deposits, to a joint venture of miner Polyus and state conglomerate Rostec, Russian Natural Resources Minister Sergei Donskoi said on Thursday.

    This joint venture, SL Zoloto, was widely seen by industry players as the front-runner at the auction the Russian government held on Thursday after 20 years of promises to sell the deposit.

    SL Zoloto will buy the deposit for 9.4 billion roubles ($158 million). The starting bid price was 8.6 billion roubles.

    "The development of such a large project will have a significant impact on social and economic development of Irkutsk region (where Sukhoi Log is based)," Donskoi told reporters through his representative.

    Polyus and Rostec declined immediate comment.

    According to Soviet-era research, the deposit contains 1,943 tonnes (62.5 million troy ounces) of gold in its reserves. However, the real value of the deposit is hard to estimate because the research was done in the 1960s.

    Sukhoi Log will require up to $5 billion in investments, according to industry estimates based on a 10-year-old state feasibility study.
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    Barrick Gold estimates gold output dropped 9.8 percent in 2016

    Barrick Gold estimates gold output dropped 9.8 percent in 2016

    Canadian miner Barrick Gold Corp on Wednesday estimated its gold production in 2016 fell 9.8 percent to 5.52 million ounces.

    The world's largest producer of bullion also estimated 2016 all-in sustaining costs was at or slightly below the low end of its forecast of $740-$775 per ounce of gold.

    In comparison, Barrick had all-in sustaining costs of $831 per ounce in 2015. (

    Barrick also estimated its cost of sales applicable to gold last year was at the low end of the forecast of $800-$850 per ounce it gave in October.

    The Toronto-based company estimated its full-year copper production dropped 18.8 percent to 415 million pounds, with all-in sustaining costs of $2.00-$2.20 per pound. These costs were $2.33 per pound in 2015.
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    Fresnillo forecasts higher silver production in 2017

    Fresnillo Plc forecast higher silver production in 2017, after reporting record high 2016 production.

    The company set 2017 silver production target of 58 million ounces to 61 million ounces.

    Fresnillo, which mines silver and gold from six mines in Mexico, reported a 7.1 percent rise in 2016 production to 50.3 million ounces, in line with its guidance.

    The company attributed the rise to the start of phase 1 at its San Julian mine and in part to higher silver grades at its Cienega and Fresnillo operations.

    It said it expects to attain steady inventories after inventory reductions at its Herradura operation in Mexico last year.
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    De Beers rakes in sparkling $720m in year’s first sales cycle

    Diversified mining company Anglo American on Tuesday announced $720-million as the value of rough diamond sales at De Beers’ first sales cycle of 2017, compared with $470-million and $494-million in the last two sales cycles of 2016, helped by a longer period between the final sight of 2016 and the first sight of 2017.

    De Beers reported good demand as the industry entered the period when rough diamond demand is traditionally strongest.

    “While the reopening of some diamond polishing operationsin India saw something of an increase in demand for smaller, lower quality rough diamonds, we maintain a cautious outlook for these categories as the Indian industry continues to adjust to the post-demonetisation environment,” CEO Bruce Cleaver said in a release to Creamer Media’s MiningWeekly Online.

    Last week De Beers announced that it would begin piloting fixed-price forward contracts in its auction sales, the first of which is scheduled to take place on February 16, for the grainers, smalls and near-gem categories of rough diamonds.

    Fixed-price forward contracts are expected to provide an effective supply sourcing option for small and medium-sized enterprises, which are seeking access to regular rough diamond supply at a predictable price.

    Meanwhile, diamond mining company Petra Diamonds, which operates mines formerly owned by De Beers, said on Monday that it expected stronger sales in the second half of the year. Petra's production rose 24% to 2.01-million carats in the six months to December 31.
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    Russia expected to sell Klondike gold deposit cheap amid sanctions: sources

    Russia is expected to sell discounted rights to one of the world's largest untapped gold deposits this week to a joint venture of miner Polyus and a state conglomerate, industry sources and analysts said, after sanctions and restrictions discouraged other bidders.

    The starting price in the Jan. 26 auction of the Sukhoi Log deposit is $145 million, valuing gold there at $2 per ounce, around 10 times cheaper than deposits of a similar size elsewhere in the world, according to one analyst.

    The Russian government, after 20 years of promises to sell the deposit, hopes the start of production will generate much-needed tax revenues and jobs.

    Moscow has also come under pressure from a two-year lobbying campaign by shareholders in the joint venture of Polyus and state-run Rostec, according to an industry source, who spoke on condition of anonymity.

    Rostec is headed by Sergei Chemezov, a close associate of Russian President Vladimir Putin.

    As part of a policy of keeping strategic resources in Russian hands, the government limited access of foreign investors to the auction, ordering that 25 percent of any bidder should be owned by state-controlled firms.

    Western sanctions over Russia's involvement in the conflict in Ukraine has also made it harder for Russian companies to get access to foreign debt markets, thinning out potential bidders.

    Only two bids, from SL Zoloto - the joint venture between Polyus and Rostec - and Zoloto Bodaibo - a joint venture between Polyus creditor VTB Bank and businessman Ibragim Palankoyev - were submitted to the auction.

    Polyus is owned by the family of Russian billionaire Suleiman Kerimov.

    "Polyus is the front-runner because it is able to cope with the project in terms of financial resources," said Oleg Petropavlovskiy at BCS Investment Bank. "Having a state partner allows it to split risks and to reckon on state support with infrastructure building."

    Palankoyev's relatives have done business with Kerimov in previous years, Vedomosti newspaper reported in December. He has no known background in mining and has never held significant mining assets. The auction would be declared void if there was only one bidder.

    The sale of Sukhoi Log is unlikely to affect gold markets because the start of production is still years away.

    Adding Sukhoi Log to Polyus's portfolio could make it more attractive for deals long under consideration. These include a secondary public offering in Moscow and talks with Chinese investors, which, sources have said, are considering an acquisition of a stake in Polyus.

    "It (Sukhoi Log) brings a saleable story," another senior industry source said.

    Polyus declined to comment.

    The auction will start at a price of 8.6 billion roubles ($144 million) for the deposit, which, according to Soviet-era research, contains 1,943 tonnes (62.5 million troy ounces) of gold in its reserves.

    Deposits of a similar size elsewhere in the world are 10 times more expensive, said Nikolay Sosnovskiy at Prosperity Capital Management said.

    However, the real value of the deposit is hard to estimate because its reserves, based on Soviet research done in the 1960s when it was discovered, require further exploration.

    Sukhoi Log will require up to $5 billion in investments, according to industry estimates based on a 10-year-old state feasibility study.
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    Miner Centamin won't bid in Egypt gold tender, terms not viable

    Centamin Plc, which runs Egypt's only commercial gold mine, said it would not bid in the country's new gold exploration tender because the terms are not commercially viable.

    Egypt, which is hoping that gold production can be a future source of growth for its struggling economy, began accepting bids last week for five concessions in its first tender for new gold exploration since 2009. The deadline for bids is April 20.

    Centamin, which last year produced 551,036 ounces from its Egyptian Sukari mine, said the terms were less attractive than previous rounds.

    "Whilst Egypt contains many areas that are highly prospective for gold, Centamin will not bid for further ground under the latest terms proposed by EMRA (Egypt's mining agency) in the 2017 bid round," Centamin chairman Josef El-Raghy told Reuters.

    The bid round's terms have not been made public but were seen by Reuters.

    They include a 6 percent royalty payment, an at least 50 percent production share, partial cost recovery before the start of production sharing, and three bonus payments to EMRA, including one of at least $1 million.

    "The proposed 6 percent royalty rate... is one of the highest globally... Furthermore, the onerous production-sharing terms, the partial cost recovery and the various bonuses due to EMRA create a non-commercial operating environment for any mining investor," said Raghy.

    "Combined, the proposed terms result in an effective tax rate that is by far one of the highest for mining globally."

    Mining companies have long called for Egypt to abandon its production-sharing agreement model, which has garnered little interest in past bid rounds, in favor of a more streamlined royalty and tax regime common in mining jurisdictions worldwide.

    Centamin said it stands ready to reinvest if a modern mining law is introduced.

    "Egypt needs a modern and competitive mining law and then there will be many mines like Sukari, which was created after over $1bn of investment and now employs directly and indirectly approximately 5,000 people," said Raghi.

    "This bid round should be canceled otherwise ground will be held by small companies for many years with no significant investment as was the case with all areas offered in 2006 and 2008."

    EMRA said it expects high turnout for the latest tender based on early indications but did not provide further details.

    "Egypt's potential will put it, in under 10 years, among the biggest producers of gold in the world based on our level of gold reserves and the studies and expertise we have," EMRA head Omar Teama told Reuters.

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    Palladium price surges to 22-month high

    The Palladium price continued its strong run with Nymex contracts jumping 5% to $794 an ounce, bringing gains for the precious metal so far in January to 18% or more than some $120 an ounce. Sister metal platinum has also gained year-to-date, exchanging hands for $980 an ounce on Friday.

    PGM price strength comes on the back of declining output from top producer South Africa, which together with Russia is responsible for more than 80% of global supply of the metals.

    Top consumer China in December extended tax breaks on purchases of small vehicles

    Data released this week showed South African output fell by 8.9% year on year and 3.4% month on month in November. In the January to November period, PGM production was down by 2.1% compared to 2015.

    Despite a safety stoppage at the world's number one PGM producer Amplats at the start of the year in general disruptions to supply were limited in 2016 a research note by Capital Economics points out.

    In 2014 labour unions embarked on a gruelling five-month strike, but last year wage negotiations were concluded without disruptions:

    What’s more, the average platinum price in South African rand terms rose 9% last year. This means that producers had no incentive to voluntarily cut output. This is also evident when looking at the revenue from PGM sales which were up 5% y/y in October and 3.5% in the first ten months of 2016.

    Instead, we think that underinvestment over the past five years could be starting to negatively impact production. That said, any upside for PGM prices should be fairly limited as above-ground stocks remain abundant.

    On the demand side the outlook for palladium and to a lesser extent platinum is also positive. Top consumer China in December extended tax breaks on purchases of small vehicles which were due to expire at the end of 2016 through this year. Roughly 75% of palladium demand is from the autocatalyst sector.

    Palladium finds application in gasoline engines and is more exposed to the Chinese and US markets where diesel (platinum's main industrial application) hardly features in the passenger vehicle segment.

    Underinvestment over the past five years could be starting to negatively impact production in South Africa

    While the Chinese tax will be lifted to 7.5% from the 5% (usual rate is 10%) where it has been since October 2015, the extension should keep vehicle-purchase prices in the world number one auto market chugging along.

    The tax cut stimulated sales, as indicated by a 14% year-on-year increase in combined passenger and commercial vehicle sales during the first 11 months of 2016, according to the China Association of Automobile Manufacturers. The growth was driven by a 16% rise in passenger vehicles sales in the same period, which accounted for 87% of China’s combined passenger and commercial vehicle sales.

    In a vote of confidence for the PGM market South Africa’s Sibanye Gold  is buying Stillwater Mining, the only US platinum and palladium producer, at a premium. The cash deal worth $2.2 billion cleared a major hurdle on Friday.
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    Base Metals

    Freeport says it will challenge $469m Indonesia water tax case

    Mining giant Freeport McMoRan Inc said its Indonesian unit, facing $469 million in water taxes and penalties in Papua province dating back to 2011, will contest a ruling by a local tax court that rejected its lawsuit on the matter.

    Freeport said in documents accompanying earnings disclosure on Wednesday it "expects to challenge this decision at Indonesia's Supreme Court and is evaluating its options".

    A spokesman for PT Freeport Indonesia declined to comment on the matter. The unit is currently in talks with the Indonesian government about changing the terms of its mining rights, a move whereby Indonesia expects the company to pay more taxes than under its existing contract.

    The miner is one of Indonesia's biggest taxpayers, with direct contributions of more than $16 billion to Southeast Asia's biggest economy in taxes, royalties, dividends and other payments between 1992 and 2015 according to company data.

    Freeport said the court had issued a ruling "for additional taxes and penalties related to surface water taxes for the period from January 2011 through July 2015 in the amount of $376 million", including $227 million in penalties.

    The company is also being asked to pay a further $93 million for similar taxes and penalties for August 2015 to December 2016, it said.

    Earlier, Indonesia's Papua province, home of Freeport's giant Grasberg copper mine, said it had won a court battle in a claim against the company for 2.51 trillion rupiah ($188 million) in outstanding surface water taxes from 2011 to mid-2015. There was no mention of penalties.

    Indonesia's tax court rejected a lawsuit lodged by PT Freeport Indonesia over claims for taxes on water the company used from the Aghawagon and Otomona rivers, it said, referring to a verdict from Indonesia's Tax Court on January 18. [ ]

    Freeport, which used the water to suspend its tailings in the Ajkwa River, about 120 kilometres (75 miles) away, had argued that a substantially lower tax rate should be applied, as set out in its contract of work signed in 1991, it said.

    Freeport-McMoRan Inc reported a fourth-quarter profit, compared with a year-ago loss, when it recorded $4.1 billion in one-time charges.

    The company said on Wednesday net income attributable to shareholders was $292 million, or 21 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $4.08 billion, or $3.47 per share, a year earlier.

    Revenue for the world's biggest publicly listed copper producer rose 24.5 percent to $4.38 billion.
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    Russia's Norilsk to sell stake in Bystrinskiy copper-gold project

    Norilsk Nickel has approved the sale of a stake of up to 39.32% in its Bystrinskiy copper-gold project to CIS Natural Resources Fund, a Russia-focused natural resources fund established by Interros Group and ESN Group, the Russian metals producer said Wednesday.

    The Bystrinsky deposit in Russia's Chita region is one of the world's largest in terms of copper, gold, silver and iron reserves. The Bystrinsky mining and processing plant is scheduled to produce and process 10 million mt/year of ore on reaching full capacity in 2018.

    As a basis for the transaction, the project is being valued at $730 million on a 100% equity basis that corresponds to the valuation used for the acquisition of a 10.67% stake in the project by Highland Fund, a group of Chinese investors, in June 2016, the company said.

    "Divestment of an additional stake in Bystrinskiy project is fully in line with our corporate strategy of de-risking the project and 'clustering' our operations outside of core production chain. We welcome a major capital commitment from large strategic investors to the project amid volatile and challenging commodity markets," said Sergey Malyshev, Nornickel senior vice president and CFO, in a statement.

    The transaction will be subject to a right of first refusal by Highland Fund, as well as certain other pre-conditions and necessary regulatory approvals, and is expected to close by the end of 2017, Nornickel said.

    Following the closing of the transaction, Nornickel will retain a stake of above 50% and remain the operator of the project.
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    Antofagasta churns out strong fourth quarter production and costs

    Chilean copper and gold miner Antofagasta enjoyed a strong fourth quarter performance and kept cash costs for the year below its guided level.

    The final quarter of 2016 saw copper production 205,500 tonnes, up 13.8% versus the previous quarter to lift production for the full year to just under 710,000 tonnes, 12.5% higher than the prior year.

    Net cash costs for the year fell by 20.0% to $1.20/lb, below the $1.25/lb expectations from October and $1.30/lb at the half-year stage, which chief executive Iván Arriagada said was down to rigorous cost control, increased production and lower input prices.

    With gold production up 29.7% quarter-on-quarter due to continued improvements in grades and throughput at the Centinela mine, full year production hit 270,900 ounces, a 26.6% gain on 2015.

    Roughly 2,000 tonnes of molybdenum were produced from the Los Pelambres mine in the quarter to make 7,100 tonnes for the full year, a small increase for the quarter and a 3,000 tonne decrease for the full year as grades and recoveries fell.

    Arriagada said the new Antucoya mine and latest acquisition Zaldívar were now fully integrated and operating well.

    "Looking ahead into 2017 we remain focused on operating and cost efficiencies, and achieving our production targets. Although we believe the industry has passed the low point in this commodity cycle, uncertainty persists and we need to build carefully on the solid foundations of our existing operations."

    Production guidance for 2017 was reiterated as a range of 685-720,000 tonnes of copper, 185-205,000 oz of gold and 8,500-9,500 tonnes of molybdenum.

    Net cash cost are expected to be approximately $1.30/lb.
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    Copper price jumps to highest since June 2015

    On Tuesday copper for delivery in March closed more than 2% higher in New York at $2.7085 per pound or just under $6,000 a tonne. It was the highest close since June 2015 and in after hours trade the metal added to gains, last trading at $2.72.

    Copper has advanced 40% since hitting near-six year lows this time last year, with most of those gains coming in the last four months.

    Copper's latest leg up was spurred by worries over a possible production outage at the Escondida mine in Chile. Majority owner and operator BHP Billiton expects full-year production at Escondida of 1.07 million tonnes, which gives the mine a nearly 5% shares of global mine production.

    The current collective agreement with the main union at the mine expires at the end of January and according to a Reuters report workers have rejected BHP's latest revised offer and union leaders have told members "to vote for a strike and prepare for an extended conflict."

    The previous labour deal was signed four years ago when copper was trading around $3.40 a pound. Given Escondida's size a prolonged outage could have a meaningful impact on the price.

    BHP's copper production for the half year to end December fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP also cut full year guidance by 40,000 tonnes to 1.62m tonnes.

    Chile produces 28% of the world's copper and the country's output dropped by 3.9% in 2016, mainly due to lower production at Escondida and Anglo American Sur.

    Production in the South American nation is expected to grow by 4.3% according to the Chilean government forecaster adding that Escondida would account for almost all of the expected increased output.
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    Workers at Chile's Escondida reject wage offer, strike looms

    Unionized workers at BHP Billiton-run Escondida, the world's biggest copper mine, said on Tuesday they rejected the company's latest wage offer and asked workers to vote for a strike and prepare for an extended conflict.

    The Escondida workers' union, which represents about 2,500 laborers at the Chilean mine, has been in collective wage talks with the company since December to replace the current contract which expires at the end of January.

    The tough bargaining at Escondida, seen as a benchmark for the copper industry, follows a more than 25 percent drop in copper prices since the last wage deal was reached four years ago. At the same time costs have risen as more rock has to be dug up to maintain copper yields, with the grade declining.

    Talks four years ago ended with Escondida offering each worker a bonus worth some $49,000, the highest offered in Chile's mining industry. The company is now offering much lower bonuses of around $12,000 per worker.

    The union has warned that if talks with the company are unsuccessful they could go on strike.

    "The company has presented its last offer today, which eliminates or modifies a series of benefits our union has fought for and won over the years," the union said in a statement.

    "Considering this, the union's board has asked all of its members to vote en masse for a legal strike and to prepare themselves for an extended conflict," it said.

    "The offer is absurd," union president Patricio Tapia told Reuters.

    Workers will have between Jan. 27 and Jan. 31 to vote on the company's wage and benefits proposal.

    "We reiterate the company's willingness to undertake a process that places emphasis on understanding and consensus, as the mission of both parties is to ensure that we maintain instances in which respect, calm and good faith prevail at all times," BHP said in a statement emailed to Reuters.

    Under Chilean labor law, if direct talks between the company and workers fail, both sides can then request government mediation.

    Escondida is controlled by BHP Billiton with a 57.5 percent stake, while Rio Tinto owns 30 percent. The rest is owned by Japan's JECO.

    The mine's output for the half year ending Dec. 31 stood at 452,0000 tonnes, unchanged from the same period a year earlier, BHP said in its latest operational review. It still expects Escondida to produce 1.07 million tonnes for the year to June.
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    US demand growth to push copper market into deficit

    The surge in the copper price to near 18-month highs following Donald Trump's win in the US presidential election came as a surprise to an industry under pressure since 2011 over growing supply.

    Bullishness about the impact of Trump's $500 billion infrastructure plans has cooled down considerably since then, but at $2.6430 per pound ($5,872 a tonne) in New York on Monday the bellwether metal is up by more than a third in value since hitting near-six year lows this time last year.

    The Chilean Copper Commission upped its price estimates for this year and 2018 from its previous forecast in a report released on Monday, but the government forecaster for the world's top exporting country, still sees copper averaging below today's ruling price.

    After contracting in 2016, US copper demand will grow 2.5% this year, offsetting slower growth in China

    Cochilco said it projected average copper prices of $2.40 per pound in 2017, up from its prior estimate of $2.20, citing expectations that proposed increased fiscal spending in the US will boost demand for the metal widely used in construction and manufacturing. Prices should improve further to average $2.50 per pound in 2018. The copper price averaged $2.21 in 2016.

    Cochilco's prediction for global refined copper demand growth in 2017 is adjusted upward from 1.9% to 2.6% to a total of 24.3 million tonnes  of refined copper globally. After contracting by an estimated 1.9% last year, US demand will grow 2.5% this year, offsetting slower growth in China which is still to expected to consumer 3% or 356kt more copper in 2017 compared to last year.

    At the same time the government forecaster expects supply growth to moderate to 2.9% or 583kt this year to 20.76m tonnes as Chile which produces nearly 30% of the world's copper increases output by 4.3% or 306kt and Peruvian output continues to grow.

    Last year the organization estimated growth in supply was a significant 4.7% or more than 900kt, mainly on the back of a 42% surge in production from Peru and huge jumps in Mexico and Iran which offset declines in the DRC and Chile.

    Cochilco revised downwards its 2016 market surplus to 60,000 tonnes compared with the 128,000 tonnes it forecast in September. The organization now sees a market deficit in 2017 compared to a forecast oversupply of 114,000 tonnes it predicted previously. The market will stay in a slight deficit in 2018 of 34,000 tonnes.
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    Asia alumina: Australia static as participants stay on sidelines ahead of holidays

    There were few bids and offers Monday. With the Lunar New Year just days away, market participants in Asia were already in holiday mode.

    India's Nalco is slated to close on January 24 a sell tender for a 30,000-mt shipment between February 16-20, FOB Visakhapatnam basis. Bids will be required to be valid until January 27. The sale price has the potential to be a key indicator for global market participants, should it become public information promptly upon settlement.

    In the meantime, two Chinese producer and trader sources said they would consider $339.50/mt FOB Australia a reasonable price for shipment in the second half of February.

    In recent weeks, participants have said they didn't expect the price of alumina to tumble in the immediate term despite lackluster trade, because while tons were available, the global market did not appear to be excessively long.

    An alumina spot trade was done on January 13 between a trader and smelter, at $339.50/mt FOB Western Australia with 30 days credit, for a 30,000-mt cargo, shipment in late-February.

    S&P Global Platts assessed the Handysize freight rate at $14.25/mt on Monday for moving a 30,000-mt shipment in the second half of February from Western Australia to Lianyungang.


    The Platts ex-works Shanxi daily spot alumina assessment softened Monday to Yuan 2,960/mt ($432/mt) full cash terms, down Yuan 10/mt from Friday, as demand slowed further, ahead of the Lunar New Year holidays from January 27 through February 2.

    The assessment was down Yuan 10/mt week on week, and Yuan 20/mt from the month before.

    A Southwest China smelter source said he bought 20,000-30,000 mt of Shanxi spot alumina late last week at around Yuan 2,950/mt cash, and had no plans to buy more until after the holidays.

    A Shanxi refiner put current tradeable spot prices at Yuan 2,950-2,970/mt cash, with traders likely willing to sell at the lower end, while refiners stayed closer to the higher level.

    "Demand is very weak now, so prices are softening ... most people will stop trading now until after the break," the Shanxi refiner said.

    A Henan refiner agreed, saying that he had also heard Shanxi prices had slipped Monday to around Yuan 2,950-2,970/mt cash.

    "We have heard even lower discussion levels, that prices can soon reach around Yuan 2,900/mt cash and below, in Shanxi and Guangxi regions, but these are all not confirmed," a western refiner/trader source said.

    Multiple participants have been saying since last week that they will not be trading spot alumina till after the Lunar New Year holidays, and trade is expected to come to a standstill this week.

    The market is eyeing clearer direction after the holidays, as there is too many uncertainties at the moment -- particularly how the environmental impact will pan out, and if the current rebound on the domestic aluminum prices will sustain, sources said.

    On Monday, the front-month aluminum contract on the Shanghai Futures Exchange closed at Yuan 13,620/mt ($1,986), up from Yuan 13,215/mt a week ago, and also from Yuan 12,700/mt a month before.

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    China halting 3.3mtpa of Al production?

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    Teck eyes sharing port with Anglo American in Chile

    Teck Resources has held talks with fellow miner Anglo American Plc about sharing port infrastructure at their neighboring copper mines in Chile, Teck's chief executive officer said on Monday, arguing for more industry partnerships.

    Sharing infrastructure between Teck's Quebrada Blanca copper mine and Anglo's Collahausi copper mine, both of which are weighing expansions, would help reduce costs for both companies as well as reduce their environmental footprint, Teck CEO Don Lindsay said.

    "They are looking at expansion. We are too. We are building two ports 5 kilometers (3 miles) apart. This is ridiculous," Lindsay said, speaking at a mining conference in Vancouver.

    "We've got to stop doing that as an industry," he said, adding that host countries appreciate miners working together to reduce their environmental impact.

    There are clusters of ore bodies all over the world owned by different companies but well suited for joint development, Lindsay said.

    Teck, which also mines coal and gold, formed a joint venture with fellow Vancouver-based gold producer, Goldcorp in 2015 to jointly develop their neighboring mines, Relincho and El Morro, which are also in Chile.

    Lindsay said he had spoken with Anglo CEO Mark Cutifani about sharing infrastructure.

    "We'll sort something out," he said.

    Last week, Goldcorp CEO David Garofalo said the world's biggest gold miners need to forge partnerships to share the financial and other risks of developing large gold deposits.
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    World’s Copper King Is Finally Kicking the Habit After 50 Years

    President Michelle Bachelet says her administration has laid the basis to achieve what no other Chilean government has managed to do for half a century -- break the nation’s copper addiction.

    The emphasis on productivity, innovation, education and research is changing the economic culture of the country, Bachelet said in an interview in the presidential palace in Santiago Friday. The Socialist party-member spoke as she enters into the last year of her second four-year term.

    “I am convinced that in 10 years, and hopefully before, with all the things we are doing with the productivity agenda, with growth, Chile is going to be a far more diversified economy,” Bachelet said. “We can make that jump towards development.”

    The decade-long copper boom that ended in 2014 pushed Chile to the edge of developed-nation status, with gross domestic product per capita approaching levels seen in countries such as Portugal. Then copper prices tumbled and the forecast of former President Sebastian Pinera that Chile would be a developed nation by 2018 suddenly looked hopelessly ambitious. Now, says Bachelet, Chile is laying the groundwork to make that final leap.

    As part of an ambitious education reform, Bachelet’s government has guaranteed free higher education for all starting in 2020, stepped up public-private partnerships, encouraged the commercialization of university research and only last week, created a Ministry of Science. The Finance Ministry’s productivity agenda alone has 47 different measures, 10 congressional bills and 37 administrative initiatives, involving an investment of $1.5 billion.

    “The way to develop is not to do more of the same,” Bachelet said. “The way to do it is exactly what we have been trying to do -- develop an ambitious productivity agenda.”

    After copper prices tumbled, Chile has posted its slowest three years of growth since the economic collapse of 1981. At the same time, copper grades are falling, making Chile less competitive with other commodity-rich nations such as Peru.

    The state-owned copper giant Codelco is in the middle of an $18 billion investment plan, just to maintain production at current levels.

    Social Pressures

    While Bachelet’s administration has stressed the productivity drive, many in industry have criticized her for focusing on redistributing wealth, rather than creating it. A 2014 tax law raised fiscal revenue by 3 percentage points of GDP to finance education and health spending. At the same time, labor laws have strengthened the bargaining rights of trade unions.

    Bachelet says it was impossible to ignore mounting social demands. Chile has changed since the end of Augusto Pinochet’s dictatorship in 1990, she said.

    “The children of democracy are far more demanding, conscious of their rights; they want greater transparency, more accountability,” Bachelet said. “That is called development. You can approve of it or not, but there will always be greater expectations.”

    Industry leaders blame her reform program for undermining business confidence, damping investment and growth and exacerbating the impact of lower copper prices. Bachelet’s popularity slumped to 19 percent in August last year, the lowest approval rating for any Chilean president since at least 2006, according to polls by GfK-Adimark, dragged down by a graft allegations involving her son.

    Another Year

    The central bank cut its growth forecast for 2017 to between 1.5 percent and 2.5 percent last month, from 1.75 percent to 2.75 percent. That will make a fourth year of sluggish growth in a country that has expanded 5.4 percent on average since 1987.

    Bachelet said she remains determined to push through her remaining reform package; overhauling the private-pension system, passing two more education bills, finalizing proposals for a new constitution and legalizing abortion in some cases.

    Under Chile’s $172 billion pension system, created during Pinochet’s dictatorship, every Chilean pays 10 percent of their wages into a privately-managed fund. While the government has proposed an extra 5 percent levy on wages paid by employers, so far, there are no proposals to take existing funds away from the private fund managers, Bachelet said.

    "What is clear to everybody is that pensions in Chile aren’t good," Bachelet said. "The system is good for the market, for the economy, but it’s not good for the people that retire."

    EU Ties

    Boosting ties with the EU is also on the agenda as the government reinforces its commitment to free trade, even with the arrival of Donald Trump to the U.S. presidency and the “America First” policy outlined in his inaugural speech.

    “I believe in free trade not just for theoretical reasons, but also for practical ones,” Bachelet said. “Chile is a country of 17 million people; we can’t depend on the internal market.”

    Neither is Bachelet afraid to court unpopularity over immigration. An influx of immigrants last year from Haiti pushed the number of foreigners in Chile to record highs and created a backlash in some cities.

    Chileans will choose their next president in November of this year, with the new head of state taking over in March 2018.

    “I hope they choose someone that allows us to continue advancing toward a country in which the economy can develop, but in which the fruits of that economy are better shared,” Bachelet said.
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    China Moly to help BHR acquire stake in Congo's Tenke copper mine

    China Molybdenum Co (CMOC) said on Sunday that it has signed an agreement with Chinese private equity firm BHR to support BHR's acquisition of a 24% stake in Democratic Republic of Congo's giant Tenke copper mine.

    CMOC says it is the majority owner of Tenke after completing a $2.65-billion purchase of a 56% stake in the mine, one of the world's largest, from Freeport McMoRan Inc in November. BHR agreed to buy a minority stake from Canada's Lundin Mining in November for about $1.14-billion.

    Congo state mining company Gecamines, which has a 20% stake, has tried for months to block both sales, arguing it has a right to pre-empt them.

    Gecamines representatives and Congo's mines minister could not be immediately reached for comment on Sunday.

    "CMOC will provide financial guarantees and other assistance to BHR to ensure that BHR's acquisition of Lundin's 24% indirect stake in (Tenke) completes successfully in a timely manner," CMOC said in a statement.

    It added that CMOC and BHR have entered into an agreement, which would give CMOC the right to purchase BHR's stake at a pre-agreed price if BHR leaves the project.

    Congo is Africa's largest copper producer, mining about 1 million tonnes of the metal in 2014 and 2015. Tenke has proven and probable reserves of 3.8 million tonnes of contained copper, according to CMOC.
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    Curb your copper price enthusiasm – report

    Moody's issued a new report on the global base metal sector, noting that "a couple of weeks into 2017, we have witnessed a starkly different picture, with higher metal prices and, for the most part, stronger company balance sheets, better liquidity, and better debt-maturity profiles."

    But Carol Cowan, a Moody’s Senior Vice President and the author of the report added a warning that "the run-up in base metal prices, particularly after the US Presidential election, may be getting ahead of fundamentals":

    "[Base metal prices] will fall back over the course of the year. With the exception of zinc, the higher prices do not stem from meaningful improvement in supply/demand fundamentals.

    "Nonetheless, we anticipate political issues and speculation will continue to drive shorter-term market activity and high volatility."

    The major driver of the rally in base metals and positive investor sentiment towards mining came on the back of improving data from China that largely reflects stimulus spending by the Beijing government last year and expectations that the new US administration will increase infrastructure spending according to the report:

    "We do not believe this level of optimism is justified but rather reflects trading activities and increased demand expectations that may not materialize.

    On a fundamental basis, with the exception of zinc, there has not been material improvement in supply/demand fundamentals in the base metals complex."

    Moody's expects prices, including for zinc, to fall back over the course of the year. However, despite expectations for more pronounced volatility, "some level of improvement in base metal prices is expected to hold."

    Moody's recently revised upwards expectations for Chinese GDP expansion to 6.6% and 6.3% in 2016 and 2017 respectively from 6.3% and 6.1% before, but the authors need to see further improvement in global economic conditions before it would change its outlook for base metals to positive:

    “On a fundamental basis, with the exception of zinc, there has not been material improvement in supply/demand fundamentals"

    "Moody’s global GDP growth forecast would need to be higher than 4% and purchasing managers' indices for the US, Europe and China would need to exceed 55 for at least three consecutive months. But while its Global Macro Outlook for 2017-18 predicts G20 economic growth of about 3% and the three major PMI indexes are all above the breakeven growth point of 50, none has yet reached the 55 mark."

    Moody's has adjusted upwards the price sensitivities by which it measures mining companies' operating performance over the medium term and the agency now sees copper trading in a range of $2.15 – $2.40 a pound ($4,740–$5,291 a tonne) through 2018, up slightly from previous bands. Moody's does not rate to the spot price which for copper on Thursday was well above its range at $2.60 a pound.

    Moody's view of the nickel price has improved more than bellwether copper and the firm now sees the steelmaking raw material priced at between $4.75 and $5.00 a pound ($10,472–$11,025 a tonne) this year and next. Aluminum should move between $0.70 and $0.80 ($1,540–$1,764) and zinc at $0.90–$1.10 ($1,985–$2,425).
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    Steel, Iron Ore and Coal

    Peabody gets U.S. court approval to pursue reorganisation

    Peabody Energy Corp, the world's largest private-sector coal miner, can begin seeking creditor votes for a plan to cut $5 billion of debt and exit its Chapter 11 bankruptcy, a U.S. bankruptcy judge said on Thursday.

    U.S. Bankruptcy Judge Barry Schermer overruled objections from opponents including state regulators, shareholders, environmental activists and even former executives. Their complaints can still be debated at a confirmation trial on March 16.

    Peabody has said it hopes to emerge from its $8 billion bankruptcy in April with a plan that will raise what lawyers called "a monster" $1.5 billion in private capital and leave it with under $2 billion of debt.

    Judge Schermer also approved the private capital raising over objections regarding some terms of the offering, including large fees to be awarded to certain creditors as part of the deal.

    Peabody's biggest creditors support the plan, which the company defended in court over competing proposals by a small group of creditors that would see Peabody exit bankruptcy with about $2.4 billion of debt.

    Testifying in a packed courtroom, Peabody Chief Financial Officer Amy Schwetz said it would be "irresponsible" to take on more debt given the cyclical nature of the coal industry and put it at risk of another Chapter 11.

    "We only want to do this once," Schwetz said.

    Peabody resolved objections from certain noteholders, the United Mine Workers of America and federal bankruptcy watchdog the U.S. Trustee before Thursday's hearing.

    Indiana and environmental groups opposed the plan, saying that it fails to address whether Peabody can cover $1 billion in future mine cleanup costs with third-party bonds.

    Until now, Peabody has covered cleanup liabilities under "self-bonding." This federal program is under scrutiny for exempting presumably healthy coal companies from providing financial guarantees to cover their legal obligation to return mined land to its natural setting.

    Other objectors are generally upset about the way Peabody is allocating its value, which has fluctuated with swings in coal prices.

    Shareholders have said the company is worth more than it acknowledges and that their stock should not be cancelled.

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    Tata Steel UK's pensions trustee expects 1-2 bln pound deficit

    The trustee for Tata Steel UK's pension scheme is set to tell its members it expects to report a scheme deficit of between 1 billion and 2 billion pounds at its next actuarial valuation at end-March.

    In a letter to members seen by Reuters, the trustee said Tata Steel UK has confirmed that it does not expect to be able to pay contributions needed to close the deficit.

    The trustee added that the deficit estimate had increased sharply because the actuary has to take into account the fact that Tata Steel UK might no longer be able to access extra capital from the wider Tata Steel group, which is based in India.
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    Brazil plans flexible iron ore royalty rate of 2-4 percent: report

    Brazil's government plans to introduce a bill to set a flexible royalty rate for iron ore that would be between 2 percent and 4 percent depending on international prices for the steelmaking raw material, Broadcast reported on Thursday.

    The current iron ore royalty rate is 2 percent.

    In an interview with Broadcast, the real-time news service of newspaper Estado de S.Paulo, Mines and Energy Minister Fernando Coelho Filho said the government plans to review the country's mining royalty scheme as part of a wider reform of the sector.

    The ministry's press office was not immediately able to confirm the information.

    Brazil has been in the process of reforming its mining code since 2009, with a bill put to Congress in 2013. That proposal, which has been stalled due to Brazil's political crisis and a collapse in commodity prices, sought to double iron ore royalty rates to 4 percent.

    Coelho Filho has previously said he wants to break the current bill into three pieces whose passage can more easily be negotiated through Congress.

    Most of the details of exactly what the revised proposal will seek to change are still unknown, though the three strands of legislation will focus on a new regulator, government revenue from the industry and wider rules governing mineral extraction.
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    Thyssenkrupp CEO says steel solution will take time

    Thyssenkrupp Chief Executive Heinrich Hiesinger warned shareholders that it would take time to forge a deal for its Steel Europe business with a rival such as Tata Steel.

    "We too would like a speedy solution, but it has to be a good solution. A solution that secures the future of steel production in Germany and Europe - and that takes time," he said, according to the prepared text of a speech for the industrial group's annual general meeting on Friday.

    The German company and Tata have been in talks for about a year to merge their European steel operations to cut costs and overcapacity, but negotiations have been complicated by Tata's huge pension deficit in the UK.

    "We are conducting talks with Tata with great care. For example Tata would have to find a viable solution for its high pension obligations in the UK," Hiesinger said. "We will not be pressured by external factors."

    Thyssenkrupp - whose other business include car parts, submarines and materials distribution - is almost 20 percent owned by activist shareholder Cevian, which would like to split off parts of the group to increase its financial value.

    Hiesinger added that Thyssenkrupp's fiscal first quarter to end-December had been in line with the company's expectations.

    "It is too early yet to provide a detailed view of our business performance in the first quarter. But the way things are going I can say that the first quarter will be in line with our guidance. So we are well on track to achieving our full-year targets," he said.

    For its current year, Thyssenkrupp has forecast an increase in adjusted operating profit to around 1.7 billion euros ($1.8 billion) from 1.5 billion last year, a "clear improvement in net income" from last year's 261 million euros and slightly positive free cash flow before mergers and acquisitions.
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    Merafe increases FY output, reduces debt

    JSE-listed Merafe Resources’ attributable ferrochrome production from the GlencoreMerafe Chrome Venture for the year ended December 31, increased by 4% to 107 t, compared with the 101 t produced in 2015.

    Merafe on Thursday said that it expects to report basic earnings a share of between 20c and 23.5c for the full year, compared with the 13.7c recorded in the prior year, which would be an increase of between 46% and 72%.

    Headline earnings a share are also expected to increase by 44% to 69% to between 20c and 23.5c compared with 13.9c in the prior year.

    Merafe expects its net cash balance will decline to R263-million at December 31, compared with R310-million at the end of 2015, while its debt is expected to decrease to R409-million from R660-million the year before.
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    Gerdau raises prices for most US steel beam products $40/st

    Gerdau Long Steel North America is raising published prices for most beam products $40/st ($2.00/cwt), effective with new orders January 30.

    The increase is an effort to recover escalating raw material production costs, Gerdau said in a letter sent to customers Tuesday.

    "This price increase is a result of AMM Chicago Shred scrap prices rising over $100/st in 2016, while the published price of beams has only increased a net of $35/st, Gerdau said.

    Orders confirmed by January 27 will be price protected if shipped before March 1, the company said.

    Following the increase, Gerdau's list price for medium wide flange beams will be $755/st ($37.75/cwt). This is up from a list price of $715/st ($35.75/cwt) set in December when US mills announced a $35/st increase in beam products. US producers previously announced a $30/st increase in beam products in November.
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    China's steel sector back in the black

    China's steel sector swung back into the black last year as capacity reduction pushed up steel prices, the top economic planner said on January 25.

    The profits of 373 steel companies are expected to reach 35 billion yuan (around $5.1 billion) in 2016, compared with a loss of 84.7 billion yuan in 2015, according to the National Development and Reform Commission website.

    Major coal companies will likely see profits more than double to 95 billion yuan last year.

    China has been reducing capacity since the beginning of 2016, shutting down inefficient mines and factories, and stopping new projects.

    Steel and coal, the two most troubled sectors, made great strides in cutting capacity. A large number of zombie coal mills were shut down. Two major steel companies -- Baosteel, and Wuhan Iron and Steel -- merged into a more competitive corporation.

    By the end of October, a total of 45 million tonnes of steel and 250 million tonnes of coal capacity had been cut, meeting annual targets ahead of schedule.

    From 2016 to 2020, steel capacity will be cut by 100 to 150 million tonnes, and coal capacity will be cut by about a half billion tonnes.
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    US withdrawal from TTP to impact steel sector — Wood Mackenzie

    US President Trump's decision to leave the Trans-Pacific Partnership free-trade deal earlier this week will have little immediate impact on the country’s steel industry, though the long-term effects are likely to be significant, Wood Mackenzie is warning.

    Despite intense lobbying from Japan and other nations part of the deal, which never entered into force but was signed by the US, Japan, Canada, Mexico, Australia, New Zealand and six other countries, Trump officially removed the US on Monday citing concerns that multilateral deals were harming American industries.

    The kind of steel the US has traditionally exported to the TTP countries is high in value–added, the kind of product that helps keeping the high-cost local steelmaking business afloat.

    But analysts at Wood Mackenzie argue that not having easy access to the market such partnership provided will be a loss for the US steel industry:

    In 2015, around 30%, or 11 million tonnes, of all steel imported into the US came from the countries in the agreement at a value of approximately US$11 billion. At the same time, 89% or around 9 million tonnes of all steel exported from the US was destined to these countries – at a value of approximately US$12 billion.

    “This shows that the US steel industry made more money by selling steel to these trading partners than it lost by importing from them,” Wood Mackenzie says in a note released Wednesday.

    What’s more critical, the analysts argue, is that the kind of steel the US exported to the TTP countries was high in value–added, which is exactly the kind of product that helps to keep the high-cost US steelmaking business afloat.

    They do acknowledge the move will have a very minor immediate impact on steel as the majority of ‘TPP trade’ was done with Mexico and Canada (both under NAFTA) — accounting for 72% of ‘TPP-sourced imports’ and 99% of ‘TPP-destined exports’.

    “Ultimately, NAFTA plays a more important role for the sector,” they say, adding that it's important to keep in mind that US steel and manufacturing industries are heavily reliant on imports.

    As much as 60% of total steel consumed in the country, including imports in the form of manufactured goods, comes from foreign markets. But it remains unclear whether Trump would seek individual deals with the countries in the TPP, a group that represents about 13.5% of the global economy, according to World Bank figures.

    “Weaning itself off 'imported steel' will put pressure on manufacturers' costs and ultimately the US consumer will suffer,” Wood Mackenzie concludes.
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    Pa. met coal production expected to continue rebound in 2017: group

    Pennsylvania's coal industry -- particularly metallurgical coal producers -- performed better than expected in the latter half of 2016 and that trend is expected to continue in 2017, according to Rachel Gleason, executive director of the Pennsylvania Coal Alliance.

    The start of 2016 was "dismal," Gleason said in an email this week. However, the third and fourth quarters were better than forecast, "with the uptick in the met coal market. Pennsylvania outpaced Kentucky, and is now ranked third in the nation in production."

    Pennsylvania's production estimate is based mostly on anecdotal evidence, as the state Department of Environmental Protection is not expected to have final 2016 coal production figures for several months.

    State production had averaged more than 60 million st in recent years before falling to 51 million st in 2015. It is unclear if that figure was reached in 2016.

    The PCA represents only the state's bituminous region and does not include anthracite producers in northeast Pennsylvania. Moreover, not all Pennsylvania bituminous coal producers belong to the PCA. For instance, the former Alpha Natural Resources, now operating as Contura Energy following Alpha's bankruptcy, has not joined the PCA.

    Gleason said she believes the new Trump administration "gives coal a chance. We look forward to the Stream Protection Rule being addressed with the Congressional Review Act, and the end of unnecessary regulatory overreach that was designed to attack the industry from every angle."

    As many as three new underground met coal mines could open this year in Pennsylvania.

    Rosebud Mining and Corsa Coal are expected to open new room-and-pillar operations in 2017, Cresson in Cambria County and Acosta in Somerset County, respectively.

    In addition, AK Coal Resources could develop its new Polaris underground met coal mine in Somerset County.

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    China's coal industry 2016 profits more than triple on year

    China's coal mining and washing industry profits soared 223.6% from the year-ago level to 109.09 billion yuan last year, showed data released by the National Bureau of Statistics (NBS) on January 26.

    The industry realized revenue of 2.32 trillion yuan in 2016, sliding 1.6% from 2015.

    Total profit of the country's entire mining industry declined 27.5% on the year to 182.52 billion yuan during 2016, with total revenue at 4.96 trillion yuan, a decrease of 4.0% from a year prior.

    China's above-sized industrial enterprises generated profits of 6.88 trillion yuan last year, increasing 8.5% from the previous year.
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    China's major steel city allocates funds to slash production

    China's major steel making city of Tangshan will continue to channel funding this year to help reduce excess steel and iron production, authorities said.

    A total of 100 million yuan (about $15 million) has been earmarked this year to support the steel and iron industries in further cutting overcapacity, according to Tangshan government in the northern province of Hebei.

    The funds will be used to support those workers made redundant to find new jobs, as well as assisting firms with restructuring and upgrading.

    It will be also used to reward steel and iron enterprises that meet this year's capacity-cut targets.

    In early January, Tangshan committed to cutting steel capacity by 8.61 million tonnes and iron capacity by 9.33 million tonnes.

    Since excess capacity has weighed on China's overall economic performance, cutting overcapacity is high on the reform agenda. The city has phased out a total of 18.67 million tonnes of iron capacity and 31.86 million tonnes of steel capacity in the past four years.
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    BHP Billiton's Oct-Dec thermal coal output falls 4% on year to 6.65 mil mt

    Australia-listed BHP Billiton's thermal coal production was down year on year for the second successive quarter due to lower rates from its Australian assets, the company said in its operational review Wednesday.

    Its thermal coal production from it Australian and Colombian mines was down 4% year on year and 3% from the previous quarter at 6.65 million mt, BHP said.

    Its Mt Arthur Coal open-cut thermal coal mine in the Hunter Valley region in New South Wales produced 3.85 million mt of thermal coal during the October-December quarter, down from 4.28 million mt a year earlier and 3.95 million mt in the July-September quarter, it said.

    BHP achieved an average price of $74/mt for its Australian thermal coal exports over July-December, up 51% year on year, it said.

    Its equity production from its 33.3%-owned Colombian Cerrejon mine was 2.8 million mt in the December quarter, up from 2.63 million mt a year earlier, but down from 2.93 million mt in the September quarter, it said.

    For calendar 2016, BHP's Australian coal production fell 13% year on year to 7.8 million mt, while Colombian production edged up 0.1% to 5.73 million mt, it said.

    Its thermal coal production guidance for fiscal 2016-2017 remains unchanged at 30 million mt, BHP added.

    BHP's Australian metallurgical coal production guidance also remained on track while the company logged marginally higher production in the December quarter.

    Metallurgical coal from its mines in Queensland, totaled 10.61 million mt in the December quarter, up 2% year on year and 1% from the July-September quarter.

    "Strong performances at Broadmeadow, Peak Downs, Saraji and Caval Ridge, underpinned by additional stripping and higher wash-plant utilisation, more than offset the completion of longwall mining at Crinum in the December 2015 quarter, adverse weather conditions in the September 2016 quarter and lower yield at South Walker Creek," it said.

    "Record production at Peak Downs was achieved during the December 2016 quarter with coal opportunistically trucked to Caval Ridge in order to utilise latent wash-plant capacity," it added.

    It achieved an average hard coking coal price of $179/mt in H2 2016, up 118% year on year and 116% from H1, it said.

    Coking coal prices averaged $122/mt in H1, up 82% year on year and 74% from H1, it added.

    The company's guidance for Australian metallurgical coal production for fiscal 2016-2017 remains at 44 million mt.

    BHP produced 8.68 million mt of metallurgical coal through its 50% interest in the BHP Billiton Mitsubishi Alliance joint venture in the December quarter, compared with 8.21 million mt a year earlier, and 1.93 million mt from the 80% stake in BHP Billiton Mitsui Coal, down from 2.19 million mt a year ago.

    BMA operations include Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge. It also owns and operates the Hay Point Coal Terminal.

    BMC owns and operates two open-cut mines in the Bowen Basin -- South Walker Creek and Poitrel.

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    South Africa's Kumba Iron Ore profit forecast lifts shares

    Kumba Iron Ore, which Anglo American has put up for sale, said on Wednesday its profit more than doubled for the year, setting it up to outstrip forecasts when it reports earnings next month.

    Africa's biggest miner of iron ore, which is used in steel-making, is one of the assets Anglo is jettisoning as part of a sweeping overhaul to cope with a rout in commodity prices.

    Anglo owns 70 percent of Kumba, which a year ago cut output and jobs to cope with weaker iron ore prices at the time.

    Kumba said headline earnings per share (EPS) for the year to end-December would likely be in a range of 26.36 rand to 27.72 rand, between 123 percent and 125 percent higher on a year ago basis, when it reports on 14 Feb.

    Kumba's forecast is well above a 22.32 rand estimate in a poll of 14 analysts by Reuters and its shares, which have surged nearly 20 percent so far this year, climbed 7.18 percent to 187.57 rand, a level last seen five weeks ago.

    It said the results were boosted by a weaker rand currency and higher iron ore prices.

    Unlike oil, gold and copper, whose benchmark pricing is set in London and New York, iron ore is one of the few commodities whose global pricing takes its cue from China.
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    POSCO Q4 operating profit climbs nearly 40 pct, but misses market forecast

    Jan 25 South Korean steelmaker POSCO posted fourth-quarter operating profit that jumped 40 percent but was still well below market forecasts, according to Reuters' calculations, reflecting raw material costs that rose faster than steel prices.

    The world's fourth-biggest steelmaker reported 2016 earnings on Wednesday without disclosing numbers for October-December. Reuters' calculations showed consolidated operating profit for the quarter climbed to 472 billion won ($405 million), including affiliates' earnings, from 341 billion won a year earlier.

    The consensus operating profit forecast for the period compiled by Thomson Reuters I/B/E/S was for 717 billion won. ($1 = 1,165.1100 won)
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    China 2016 coking coal imports up 23.8pct

    China's coking coal imports rose 23.8% from a year ago to 59.23 million tonnes in 2016, mainly owing to limited domestic coking coal output and edged up crude steel output, showed the latest data from the General Administration of Customs (GAC).

    Value of the imports totaled $4.70 billion, up 23% on the year.

    In December, the country imported 5.86 million tonnes of coking coal, increasing 31.9% year on year and 23.4% month on month, with value soaring 192.7% on the year and 83.9% on the month to $817.25 million.

    Major suppliers of the steelmaking material included Australia and Mongolia last year. China imported 26.82 million tonnes of Australian coking coal in 2016, up 3.7% from the year-ago level; the country imported 23.56 million tonnes of Mongolian coking coal, surging 85.8% on the year.

    By contrast, China's imports of Canadian and Russian coking coal slid due to long distance and high mining cost.
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    China 2016 thermal coal imports rise 17.35pct

    China imported 97.65 million tonnes of thermal coal (including bituminous and sub-bituminous coal) in 2016, rising 17.35% year on year, showed the latest data released by the General Administration of Customs.

    The value of the imports totaled $5.32 billion, climbing 9.62% year on year.

    In December, the country imported 10.72 million tonnes of thermal coal, surging 44.28% from the year-ago level but edging down 2.63% from the previous month.

    Imports value stood at $801.11 million in December, translating to an average import price of $74.73/t, rising $23.76/t from a year ago and up $16.47/t from the month prior.

    Meanwhile, China imported 72.18 million tonnes of lignite last year, surging 49.56% year on year, with the value increasing 33.71% from the preceding year to $2.64 billion.

    Lignite imports in December reached 7.58 million tonnes, more than doubling year on year while dropping 15.31% from November, with value at $352.19 million, soaring 190.17% year on year.

    Separately, the country exported 369,000 tonnes of thermal coal in December, with value at $29.00 million. Thermal coal exports during 2016 stood at 3.90 million tonnes, with value at $273.73 million.

    China's exports of lignite gained 14.3% on the year to 4,409 tonnes over January-December 2016, with values at $312,000; lignite exports in December was 1,030 tonnes, with value at $73,000.
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    Lower US utility coal stockpiles helping support OTC coal pricing

    US coal stockpiles continue to decline, which has helped support domestic thermal coal prices despite the recent pullback in natural gas, according to data from Platts Analytics' Bentek Energy.

    Power sector coal stockpiles stood at an estimated 155.7 million st as of January 19, roughly 17% below the year-ago figure and down 6.7% from the five-year average for the month.

    Through January 19, utility stockpiles have declined by 10.3 million st since the end of December, compared with a five-year average drawdown of 3.6 million st.

    Utility stockpiles have declined for the past two months compared with the five-year average, which hasn't happened since the early summer of 2015.

    Prices for over-the-counter Powder River Basin 8,800 Btu/lb coal have largely increased in the last few months with increased coal demand.

    S&P Global Platts assessed PRB 8,800 coal on Tuesday for February delivery at $12.55/st, the highest price since December 10, 2014. It also represents a 53% surge in price since PRB 8,800 coal was assessed at a multi-year low of $8.20/st on May 25.

    Central Appalachia rail (CSX) coal has also seen a steady increase in pricing, climbing to a recent peak of $64.45/st on January 18 from an all-time low of $33.30/st on May 31.

    At the end of May, utility stockpiles stood at 193.4 million st, up 11.9% compared with the five-year average for the month.

    Utility stockpiles have been pulled down by increased coal demand due to lower coal prices as well as higher natural gas prices.

    The NYMEX Henry Hub natural gas futures contract bottomed at $1.639/MMBtu on March 3, when utility coal stockpiles were roughly 19.3% higher than the five-year average for the month.

    But prices have largely rallied since, partly due to declining US dry natural gas production, which averaged 72.1 Bcf/d in 2016, down 0.6% from 2015. Cold weather also helped push up prices, which peaked at a multi-year high of $3.93/MMBtu on December 28, an increase of nearly 140% from the March low.
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    Indonesia 2017 coal production may surpass 413 mln T

    Indonesian coal production is predicted to surpass 413 million tonnes this year, higher than the coal production target set in the government's 2015-2019 medium term national development plan, said Bambang Gatot, director general of Mineral and Coal at the Ministry of Energy and Mineral Resources.

    Bambang said the production hike will be triggered by the many mining permit holders that have entered production phase. Almost half of the 6,000 clean and clear mining permit holders will start production this year, local media reported, citing Bambang as saying.

    According to Bambang, the Ministry of Energy could not control the production plans of the mining permit holders, since the regional governments have the authority to set these holders' productions. The Ministry can only control companies that own coal mining concession agreements (PKP2B).

    In addition, Bambang said the Ministry will soon complete the 2017 Work and Budget plan of the PKP2B holders, albeit not disclosing the production rates proposed by the mining concession holders.

    Meanwhile, Hendra Sinadia, deputy executive director of the Indonesian Coal Mining Association, earlier said the increase of commodity prices brought fresh air for investment upgrades in the coal sector. However, Hendra could not yet estimate the percentage of production hike for this year, adding that there will be a rise of overall production.

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    BHP iron ore output breaks records

    The world's number one mining company BHP Billiton reported record half-year production at its Western Australia iron ore division on Tuesday.

    The Melbourne-based giant said thanks to the continued ramp up of additional capacity at its Jimblebar operations in Western Australia production at its iron ore unit rose 4% year-on-year to 117.6m tonnes for the six months to end-December.

    For the quarter output was 60m tonnes, ahead of market expectations and BHP is sticking to its full-year production guidance of 265m–275m tonnes.

    Coking coal production improved to 21m tonnes for the six-month period on the back of a strong performance at the company's four Queensland mines which more than offset the closure of its Crinum operations. For the year BHP expects to produce 44m tonnes of met coal.

    Copper production for the half year fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP cut full year guidance by 40,000 tonnes to 1.62m tonnes, but maintained its guidance for its majority-owned Escondida mine.

    Escondida is the world's largest copper mine by a large margin and BHP expects the pits to producer 1.07m tonnes during its 2017 financial year. Production increased 8% quarter on quarter and BHP said mechanical completion was achieved at the Escondida Water Supply project with first water expected in the March 2017 quarter.
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    Shanxi Coking 2016 net profit estimated at 40-60 mln yuan

    Shanxi Coking Group Co., Ltd., Shanxi's leading coke producer, predicted its net profit to be 40-60 million yuan ($5.8-8.7 million) in 2016, reserving a loss of 830.21 million yuan in the year prior, it announced in a statement on January 24.

    The increase was mainly impacted by the government's de-capacity directive and the company's cost cut measures.

    The company mainly produces coke and methanol, with revenue from these products accounting for 60% and 20% of the total revenue.

    The group has coke production capacity of 3.6 Mtpa. It produced 1.55 million tonnes of coke in the first half of 2016, up 5.8% year on year.

    Shanxi Coking Group would buy stake of ChinaCoal Huajin Energy Co., Ltd. from its parent Shanxi Coking Coal Group – China's top producer of the material -- with 4.892 billion yuan, it said in early December.

    After the transaction, Shanxi Coking will get considerable investment income from ChinaCoal Huajin Energy.
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    Australia's BlueScope Steel raises earnings guidance

    Australia's BlueScope Steel said on Tuesday it expected to report first-half earnings higher than previously forecast due to a combination of stronger steel prices, higher iron ore export prices and cost reductions.

    The company said earnings before interest and tax for the six months ended Dec. 31 would be around A$600 million ($455.22 million), up from previous guidance of at least A$510 million, representing a 160 percent increase from the same period the prior year.

    BlueScope also said it would recognise a A$65 million impairment charge alongside its first-half results on Feb. 20 after reviewing the carrying value of its businesses.

    The company cited stronger steel prices that in particular benefited its Australian Steel Products and New Zealand and Pacific Steel divisions.

    The positive impact of stronger than expected iron ore prices on export iron sands exports also boosted profitability, according to the company.

    International spot iron ore prices rose by more than 80 percent in 2016, mostly on the back of stronger-than-expected steel production in China.

    The impairment charge relates to the company's China buildings business, where manufacturing sites are being reconfigured or closed, coupled with capital expenditure in iron sands and restructuring of the India engineered buildings business, Bluescope said.
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    Rio Tinto announces sale of Coal & Allied

    Rio Tinto has reached a binding agreement for the sale of its wholly-owned Australian subsidiary Coal & Allied Industries Limited to Yancoal Australia Limited for up to US$2.45 billion including:

    An initial US$1.95 billion cash payment, payable at completion; and US$500 million in aggregate deferred cash payments, payable as annual of US$100 million over five years following completion.

    Before 24 February 2017, Yancoal Australia is entitled to elect an alternative purchase price structure of a single cash payment at completion of US$2.35 billion.

    After the sale is completed, Rio Tinto will also be entitled to potential royalties.

    Rio Tinto Executive J-S Jacques said:

    “This sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of our capital.”

    Meanwhile, Yancoal Chairman Xiyoung Li said:

    “This is a transformative and exciting acquisition for Yancoal shareholders and will form the basis for the future growth and success as Australia’s largest pure-play coal company.

    “Via the acquisition of Coal & Allied’s high-quality asset portfolio, we will be delivering substantial cash flow to the company, quality coal products and long-term relationships with end-uses in key global markets.

    In addition to the sale consideration and potential royalties linked to the coal price, Rio Tinto will continue to benefit from earnings and cashflow generated by Coal& Allied until completion of the transaction. The Coal & Allied operations will also continue to use Rio Tinto freight survives following completion of the transaction.

    Subject to all approvals and other conditions precedent being satisfied, it is expected that the transaction will complete in the second half of 2017.
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    China steel mills resist Rio's demand for 'ridiculous' iron-ore premium

    Chinese steel mills have balked at global miner Rio Tinto's plan to charge a premium in long-term contracts for its highest grade of iron-ore, rekindling the conflicts that caused the collapse of an annual pricing system seven years ago.

    The world's second-biggest iron-ore miner is seeking a premium of at least 15c/t above the index price for its flagship Pilbara Blend iron-ore product, or PB fines, for all new long-term contracts, according to sources at two Chinese steelmills with knowledge of the talks.

    Rio sells about 85% of its iron ore to China through contracts that can run up to five years, so a premium for its top productwould boost earnings as the market builds on last year's unexpected price revival.

    But Rio risks a backlash from its Chinese customers, who provide nearly half of its revenue. Those mills are just recovering from years of losses.

    "As far as we know, none of the steel mills have accepted this," said a source from a Chinese mill that produces 10-million tonnes of steel a year and has a long-term contract with Rio.

    "I think it's not fair to add some premium, it's not reasonable, it's ridiculous."

    This is the first time Rio has sought a premium on its long-term contracts with Chinese mills since the industry ditched a four-decade system of pricing contracts annually in 2010. Since then, the contracts use indexes derived from spot market deals published by agencies including Platts and Metal Bulletin.

    With iron ore prices tumbling to below $40 a tonne in 2015 from almost $200 four years earlier, miners have sought new ways to boost revenue.

    Rivals BHP Billiton and Vale SA have in the past secured premiums for their high-grade products, the source said. But unlike Rio, which is seeking the premium from all Chineseclients, BHP and Vale only asked certain customers, the source added.

    "It couldn't be accepted by the market," said the head of iron ore purchasing at one of China's biggest steel producers, of Rio's demand.

    Top iron ore miner Vale said premiums for its high-grade iron ore such as Carajas fines are determined by the market.

    "It is the market who decides the premium daily and the premium is also published in indexes," Vale said in response to Reuters' query.

    Officials at Rio and BHP did not respond to requests for comment.

    PB fines is popular in China for its low impurity levels as the country has stepped up anti-pollution efforts in the steelindustry. Amid strong demand, it sold between $1/t and $3/t above the index price last year in the spot market, and the current premium is $2, two traders said.

    Rio earlier sought a premium of up to $1/t from Chinese mills renewing contracts.

    Rio secured a record $2.50/t premium for PB fines for January to April 2017 from trading firms, up from $1.50 in September to December 2016, two trading sources said.


    Chinese mills contend the issue is not about the premium being big or small. "It's about whether it's reasonable," said the first source at a mill, adding that accepting a premium now means it can be negotiated higher in future."They can't ask for a special premium because we don't have a special discount when the market is bad," he said.

    "Before this, pricing is negotiated every year. If the iron oresupplier now asks for a premium then we go back to the previous pricing system. So both iron ore suppliers and steelmills face a difficult situation."

    Because of oversupply, it is difficult for foreign miners to fix a premium for iron ore, said Li Xinchuang, vice-secretary general of the China Iron and Steel Association. Scrap steel supply is also rising as China tackles a glut.

    "All outdated facilities will be closed very quickly. Then there will be a lot of scrap and this will reduce iron ore demand," Li told Reuters by phone.
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    Shanxi to increase advanced coal capacity by 70 Mtpa in 2017

    North China's coal-rich Shanxi planned to add advanced coal capacity by 70 Mtpa in 2017, local media reported, citing the provincial coal work conference on January 20.

    The province will boost advanced capacity by implementing capacity replacement and capacity cut, boosting coal mines regrouping, further improving per unit yield, mechanization and automatization levels, and carrying out safety production at mines.

    Shanxi planned to continue to eliminate outdated capacity and ease overcapacity in the coal industry, targeting coal capacity cut of around 20 Mtpa in 2017.

    It aimed to build 150 modern coal mines by 2020, in order to improve mining efficiency and protect the environment. In 2017, it will build five 10-Mtpa coal mines.
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    China's key steel mills daily output up 2.7pct in early Jan

    China's key steel mills daily output up 2.7pct in early Jan

    Daily crude steel output of China's key steel mills gained 2.72% from ten days ago to 1.71 million tonnes over January 1-10, according to data released by the China Iron and Steel Association (CISA).

    The country's total crude steel output was estimated at 2.24 million tonnes each day on average during the same period, climbing 2.89% from ten days ago, the CISA said.

    By January 10, stocks of steel products at key steel mills stood at 12.6 million tonnes, up 2.35% from ten days ago, the CISA data showed.

    The increased steel stocks were mainly due to weak purchase interest from downstream construction sector in winter and active replenishment by traders amid bullishness toward the future market.

    In mid-January, rebar price increased 2.7% from ten days ago to 3,299.2 yuan/t; wire price climbed 2.9% from ten days ago to 3,397.7 yuan/t, showed data from the National Bureau of Statistics.

    Domestic steel market is expected to remain sluggish after the Chinese Lantern Festival (February 11), and steel prices will still lack support to go up.
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    Powder River Basin 2016 coal output at 283 mln T

    Miners in Wyoming-based Powder River Basin produced 283 million tonnes of coal last year, falling 22.1% from the year-ago level, according to the latest federal data.

    The entire state produced 293 million tonnes of coal in 2016. State economists had set a likely 300 million tonnes of coal for 2016 in October projections.

    Though 7 million tonnes short of forecast, the volume was higher than expectations earlier in the year, when the coal sector appeared to have hit rock bottom.

    Since 2013, competition from natural gas, the retirement of coal-fired power plants and environmental regulations have led to slowing production of coal, leading to 30-year price lows and the mass Wyoming layoffs of last spring.

    Some coal companies had invested in metallurgical coal, used for making steel, but that market plummeted leaving Alpha Natural Resources, Arch Coal and Peabody Energy burdened by debt and declaring bankruptcy between late 2015 and early 2016.

    Production generally averages around 100 million tonnes per quarter in Wyoming, but that figure dipped to 86 million tonnes in the second quarter of 2015 before the bankruptcy run. By the spring of last year, coal production in Wyoming had hit a record low of 60 million tonnes.

    The bounce back at the end of 2016 has been credited to the seasonal increase in natural gas prices, making coal more competitive. It's also a sign of a stabilizing market, experts say. Two of the three bankrupt companies have emerged, wiping most or all of their bad debt.

    Forecasts for the future of the coal industry have been varied, but most show an eventual decline as natural gas competition and utility demand changes the landscape for U.S. electricity generation.

    There is some hope in the coal community for the new administration in Washington, D.C., and political promises to roll back the Clean Power Plan, an emissions-reduction rule that would steadily erode coal's strength in the electricity market.
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    Peabody reorganisation at risk from Wyoming litigation -court paper

    Peabody Energy Corp's plan to emerge from Chapter 11 bankruptcy faces a "material risk" that the U.S. coal producer could suffer a $1 billion revenue loss due to a disputed lease at the world's largest coal mine, according to an objection filed to its reorganization plan.

    The plan by Peabody, the world's largest private-sector coal company, to cut $5 billion of debt and emerge from bankruptcy in April is supported by most of its creditors, but has faced a series of official objections from other parties.

    Oil and gas driller Berenergy Corp and Peabody hold overlapping federal mineral leases in Wyoming's Powder River Basin, where Peabody operates the North Antelope Rochelle mine that provides the bulk of its coal production.

    In October a Wyoming District Court ruled that Peabody was entitled to mine through Berenergy's wells as long as it made certain payments to the oil and gas company. An appeal is pending before the state's Supreme Court.

    Berenergy said in a court filing that an adverse decision by Wyoming's high court would prevent Peabody from mining near its wells, potentially causing the coal producer to lose more than $1 billion in revenues it projects in the first five years of its emergence from Chapter 11.

    "Thus, that litigation creates a material risk to Peabody's post-reorganization financial viability," Berenergy said in an objection to Peabody's reorganization plan filed with the U.S. Bankruptcy Court in St. Louis.

    In an emailed statement, Peabody spokesman said the company was evaluating the objection and would respond in due course.

    Indiana and several environmental groups also objected to Peabody's reorganization plan on concerns over how it would cover about $1 billion in future mine cleanup costs.

    At issue is whether Peabody will use third-party bonds to cover future environmental liabilities in place of "self-bonding," a federal practice that exempts large coal companies from setting aside cash or collateral to ensure that mined land is returned to its natural setting, as required by law.

    A hearing to approve Peabody's reorganization was scheduled in St. Louis on Thursday.

    Among other objections, certain creditors and shareholders have opposed the proposed recoveries granted under the plan. And four former executives, including former chief executive officer Gregory Boyce, filed a complaint about their retirement packages.

    The U.S. Trustee, a government watchdog for bankruptcies, has also objected to parts of the reorganization plan.
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    China safety agency says 'illegal' output led to fatalities at state coal mine

    China's State Administration of Work Safety said on Tuesday that "illegal" ramped-up output and poor maintenance at a state-owned coal mine in Shanxi province led to an accident that killed 10 workers last week.

    The Danshuigou coal mine, near Shuozhou city and owned by China's second-largest producer China National Coal Group, has a quota from the provincial government to produce 900,000 tonnes of coal a year - or 75,000 tonnes per month.

    But the mine has been producing up to five times that amount, at 400,000 tonnes in November and 260,000 tonnes in December, the work safety regulator said.

    The over-quota output and poor maintenance at the mine contributed to a tunnel collapse on Jan. 17 last week that killed 10 workers, it also said.

    "The lack of maintenance for coal workers' safety, the use of fake safety measurement data and ramped-out production rates all led to an accident with this coal mine that been granted a whole set of mining licenses," the work safety watchdog said.

    The company has also been digging new tunnels that it knows are not seismically stable, the agency said.

    ChinaCoal's spokesman Jiang Chun said in a phone call that the company has learned a lesson from the mine accident.

    "ChinaCoal Group is seriously dealing with the case of illegal mining, and has started a company-wide investigation of over 50 mines on illegal output," he said.

    ChinaCoal said the Danshuigou coal mine has already been closed until the company can address all the issues at the site.

    Any coal mine that produces 10 percent more than its government quota will be shut down for an indefinite period, the safety agency said.

    The statement from the safety agency is the first official acknowledgement that state-owned coal mines are involved in what it terms illegal mining since prices began to rally in mid-2016.

    Price of thermal coal at the key northern port of Qinghuadao SH-QHA-TRMCOAL have soared 54 percent in the past 12 months to around $86 per tonne.

    Attached Files
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    China Shenhua 2016 coal sales gains 6.6pct on year

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 394.9 million tonnes of coal in 2016, gaining 6.6% year on year, the company announced in a statement late January 22.

    The growth was mainly bolstered by a 34.7% year-on-year rise in sales of outsourced coal, which stood at 109.4 million tonnes, said the statement.

    The company sold 34.7 million tonnes of coal in December, increasing 4.8% from the year prior but down 4.7% from November.

    During the same period, coal sales price averaged 317 yuan/t, exclusive of VAT, a rise of 8.2% from the year-ago level.

    The company produced 289.8 million tonnes of commercial coal last year, climbing 3.2% year on year. The production in December stood at 25.3 million tonnes, rising 0.4% year on year but dipping 1.9% month on month.

    In the first three quarters, China Shenhua realized net profit of 17.31 billion yuan ($2.52 billion), edging up 0.7% from the preceding year, with net profit increasing from 4.61 billion yuan over January-March to 7.48 billion yuan over July-September.

    The upward profitability would continue in the fourth quarter, backed mainly by the loosening of coal capacity caps, truck overload rules and increased rail coal delivery, the company said.
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    New $5B iron ore mine in the works for WA

    Western Australia is poised to sign an agreement with a wealthy New Zealand family whose multi-pronged business empire includes a large, undeveloped iron ore deposit.

    WA Premier Colin Barnett said the Balla Balla Infrastructure Group would build the six to 10 million-tonnes-a-year iron ore mine on the Pilbara coast between Karratha and Port Hedland, WAtoday reported on Monday. The project is worth an estimated AUD$5.6 billion.

    "This State agreement includes a requirement for local industry participation and community development plans to be submitted to the government for approval, maximising the benefits of the project for West Australians," the premier was quoted saying. The new mine is expected to create 3,300 jobs during construction and 910 once in operation.

    The project also involves construction of a 160-kilometre railway and port, which would unlock the Balla Balla magnetite ore deposit along with billions of tonnes of hematite ore further inland that currently has no way of getting to market, notes The West Australian. The publication adds that other mining companies owning nearby deposits could also use the new rail link, "breaking the transport stranglehold enjoyed by BHP Billiton, Rio Tinto and Fortescue Metals Group."

    The parent company of the Balla Balla Infrastructure Group is the Todd Corporation, whose interests include mining, energy, health care, and property development.

    According to a page on its website, Todd Minerals in 2015 acquired Rutila Resources Ltd., thus increasing its ownership in the Balla Balla Infrastructure Group (BBIG) to 90%. BBIG's projects in the Pilbara region of Australia include:

    A 6-10 million tonne per annum iron ore project at Balla Balla.
    An approved port facility at Balla Balla.
    The development of a 160km railway line to the central Pilbara.

    The Todd Corporation has a 52.6% interest in Flinders Mines Limited (ASX:FMS), which is developing the Pilbara Iron Ore Project, a 24.1% interest in tungsten company Wolf Minerals (ASX:WLF), and an 11.5% stake in a Canadian tungsten-molybdenum joint venture with Northcliff Resources (TSX:NCF).

    Iron ore recently climbed to $83.50 a tonne, the highest the steelmaking ingredient has been since September 2014, on strong import figures from China.
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    US coal train loadings increase again from all major basins: railroads

    For the second straight week, US coal train loadings increased across all major basins, with nationwide volumes rising 8.8% week on week.

    Data filed by the four major US railroads -- CSX, Union Pacific, BNSF and Norfolk Southern -- with the Surface Transportation Board for the week ending January 13 shows US coal train loadings averaged 97.3 trains/day, up from 89.4 in the first week of 2017.

    Powder River Basin loadings were up to 59.5 trains/d from 55.1 the previous week. PRB loadings had dipped to 50.3 trains/d during the Christmas holiday week.

    Central Appalachian loadings increased to 13.8 trains/d from 12.5 the prior week, and Northern Appalachian volumes grew to 10.7 trains/d from 9.2.

    Illinois Basin loadings climbed to 7.3 trains/d from 6.7.

    Utica Basin coal train loadings slipped to 4.1 trains/d from 4.6 the previous week, and loadings from outside the primary basins increased to 1.9 trains/d from 1.3.
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    Newcastle Dec coal exports hit record high

    Coal exports from Australian Newcastle port hit a record high of 15.9 million tonnes in December 2016.

    During last year, coal exported through Newcastle port reached 161 million tonnes, confirming the strong global demand for New South Wales coal, particularly high quality thermal coal from the Hunter, said Stephen Galilee NSW Minerals Council CEO.

    In its most recent report, the independent International Energy Agency (IEA) has forecast an increase in Asian demand for Australian coal - a rise of 0.8% year on year. Indian and South East Asian demand is forecast to grow by 3.6% and 4.4% yearly.

    In the same report, NSW's coal exports are forecast to increase from 350 million tonnes to 410 million tonnes by 2040 and Australia's share of the international coal trade is expected to grow from 32% to 36%, according to Galilee.

    "Many of our trading partners in Asia are building more and more new technology coal-fired power plants so this high level of demand for NSW coal is anticipated to continue for many years to come," Galilee said.
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    International coking coal price drops further

    The year to date fall in the price of International coking coal has already topped 23%, reported on January 20.

    As of January 20, price of the steelmaking raw material stood at $172.6/t, $136/t or 44.1% below its multi-year high of $308.8/t (Australia free-on-board premium hard coking coal tracked by the Steel Index) hit in November.

    There was a more than $100/t differential between the spot price average and the fourth quarter contract benchmark, but that situation has now completely reversed. Benchmark contract prices for the first quarter of 2017 were settled between Australian miners and Japanese steelmakers at $285/t.

    A recent note from the Singapore Exchange predicts that volatility in the met coal market will continue even after average daily spot price volatility for coking coal more than doubled in 2016 from 2015.

    With uncertainty around Chinese policy decisions over implementation of the 276-day rule, and with its primary focus being on thermal coal, price volatility may remain one of the themes in the international coking coal market this year.

    Quarterly price fix settlements generally following spot pricing, and greater spot price volatility has resulted in major divergences between what different regional steelmakers are now paying for their coking coal, which is likely to cause strains for some market participants.

    The Steel Index monthly review noted that supply is beginning to respond to higher prices.

    The US is expected to increase its coking coal production in 2017 and that around 9 million tonnes of US met coal will be added to the export market. Companies such as Warrior Met Coal, Rosebud Mining and Ramaco already plan to start operations in the new year.

    Australian coking coal mines owned by miners South32 and Anglo American are expected to once again produce at full capacity in 2017 following force majeure stoppages in late 2016, while Conuma Coal Resources is restarting production at its Wolverine mine in BC, Canada exporting around 1.5 million tonnes of coking coal a year starting in April.

    Despite the pullback metallurgical coal is up 130% from multi-year lows reached in February last year. Coking coal averaged $143/t in 2016 (about the same as it did in 2013). Consensus forecast is for the price to average about the same in 2017.
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    CRC, China major miners and power generators sign tripartite agreement

    China Railway Cooperation (CRC) signed a tripartite arrangement with four leading miners and the top five power generators in the country to ensure coal supply and transport in 2017, CRC said on January 22.

    Three local railway bureaus under CRC signed the agreement, including Beijing, Shanxi-based Taiyuan and Shaanxi-based Xi'an bureaus.

    Coal suppliers were Shenhua Group, China National Coal Group, Yangquan Coal Industry Group and Shaanxi Coal and Chemical Industry Group, and buyers included State Power Investment Corporation, China Huaneng Group, China Huadian Corporation, China Datang Corporation and China Guodian Corporation.

    The agreement stipulated 2017 supply and transport volumes along with rights and responsibilities from the three sides. It particularly elaborated economic responsibility of default, which will effectively ensure thermal coal supply and stabilization of domestic market.
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    Yancoal posts YOY rise in coal output, sales

    Australia-listed Yancoal Australia (Yancoal) posted year-on-year rise in both its coal output and sales for 2016, showed data from the latest quarterly announcement released by the parent company Yanzhou Coal Mining Co., Ltd. on January 19.

    In 2016, Yancoal produced 19.81 million tonnes of saleable coal, rising 7% from the previous year. Of this, output of coal in equity interest rose 5% year on year to 15.99 million tonnes.

    The company's coal sales also climbed 8% on the year to 19.31 million tonnes last year, showed the announcement.

    Yancoal announced its fourth quarter saleable coal production jumped 25% to 5.52 million tonnes, and sales of coal in equity interest increased 25% to 6.18 million tonnes.

    Production was largely bolstered by efficiency at Yancoal's open cut mine in the Moolarben complex, which is near Mudgee in New South Wales.

    The coal producer says Chinese and Indian demand also continued to drive positive improvements in global metallurgical and thermal coal prices.
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    China crude steel output up 1.2 pct in 2016

    China produced 808.37 million tonnes of crude steel in 2016, an increase of 1.2% from a year earlier, showed data from the National Bureau of Statistics (NBS) on January 20.

    The output growth was curbed last year, as China enforced supply-side structural reform in steel industry. The average annual growth rate once hit 5% over 2010-2015, with output at 800 million tonnes in 2015, a slight pullback from the peak of 820 million tonnes in 2014.

    Last year a total of 45 million tonnes steel capacity was eliminated in the country. And the de-capacity move may progress at a faster pace in 2017, adding the chances of decline in steel output.

    China's crude steel output is forecast to contract to 750-800 million tonnes by 2020.

    The December output was at 67.22 million tonnes, nudging up 3.2% from the preceding year and up 1.4% from the month prior, the data showed.

    In 2016, China produced 1.14 billion tonnes of steel products, up 2.3% compared to the previous year; pig iron output increased 0.7% on the year to 700.74 million tonnes.

    Production of steel products lost 0.2% on the year to 95.71 million tonnes in December, up 0.3% from November; pig iron output stood at 57.47 million tonnes, rising 4.1% from the year prior and up 0.4% from a month ago.
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    Holiday on ice as coal mines get skates on to beat Beijing curbs

    Chinese coal miners are so determined to cash in on a window of high prices that many are slashing holiday leave for workers and raising pay through the Lunar New Year celebrations before government introduces limits on output again.

    Prices in China, the world's biggest coal user, have slipped back 16 percent from their two-year peak of 610 yuan ($88.83) per tonne two months ago, but they are still profitably high after a couple of barren years for miners.

     "At current price levels, we would love to have 73 hours in a day, so that we can produce as much as possible," a private coal mine owner based in Wuhai, Inner Mongolia, told Reuters.

    That urgency reflects a broad expectation among analysts and mining executives that Beijing will order them to reduce output after the festivities, once winter heating demand has peaked.

    In April 2016, with many miners failing to turn a profit, government ordered mines to limit the number of days they operate each year to 276 days from 330 as part of its effort to cut inefficient surplus capacity.

    By November, however, it was forced to ditch that policy to avert a winter energy crisis after a double-digit percentage drop in output triggered a sharp rally in prices.

    Now miners are determined not to be caught on the hop, and are racing to get their coal to market, aware that Beijing still aims to slash 500 million tonnes of output by 2020, just over 16 percent of current levels.

    Major producers including Shanxi Kaijia Energy Group, ChinaCoal and Shandong Yulong Group in Shandong, Hebei, Shanxi and Shaanxi, are allowing workers an average of seven days' leave for the festival this year, according to China Sublime Information Group, which surveyed 30 companies.

    That is well down on the last two years, when prices were below break-even for many miners, who in response typically gave workers a generous 45-60 days off for the occasion, mining executives and analysts said.

    "In 2015 and 2016, most of the coal mines we visited were shut down starting Jan. 1. This year, they are postponing the holiday to as late as January 27," said Zhang Min, coal analyst at Sublime.


    Reuters spoke to five coal mines in Inner Mongolia, China's largest producing region, and they, too, said they had cut leave to around 10-20 days for the festivities, which officially begin on Jan. 27 and last for a week, down from about 30 days in 2016.

    Two of them said they were raising wages by 30 and 50 percent through the period, too.

    The consequences for such price fluctuations are felt globally, as the fundamentals of China's coal market determine world prices. Last year international miners boosted shipments to China by a quarter as Beijing's output restraints drained supply.

    "Price fluctuations in the domestic Chinese market as policymakers adjust output and prices to their desired levels will likely be a key driver of the international markets over the months ahead," said Adrian Lunt, commodities research head at Singapore Exchange, in a note.

    But this year, though analysts and mining executives expect government to announce restraints again before March, they think policymakers will take a more flexible approach, chastened by the wild price lurches in 2016.

    Lunt said Beijing may be prepared to tweak the limits if prices breach certain thresholds around 535 yuan per tonne, which was the basis price for annual supply contracts that miners signed with utilities.

    In the meantime, workers in the industry are in two minds about their employers' big push.

    “I cannot make the reunion with my family until the Lunar New Year eve. That’s unusually late for me," said Li Zhuang, a coal worker in Inner Mongolia, who will travel about 1,000 kilometers (625 miles) back to his family home in Shandong province.

    "The good thing is each of us get around 6,000-9,000 yuan in extra bonus this year,” he added.
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    Japan threatens India with WTO on steel as Trump era heralds rising trade tensions

    Japan is threatening to take India to the WTO over restrictions that nearly halved its steel exports to the South Asian nation over the past year, a step that could trigger more trade spats as global tensions over steel and other commodities run high.

    Such action is rare for Japan. The world's second-biggest steel producer typically tries to smooth disputes quietly through bilateral talks, but with global trade friction increasing, Japan's defense of an industry that sells nearly half of its products overseas is getting more vigorous.

    Besides concern over India's protection of its domestic steel industry, Japan is also worried about the more rough and tumble climate for global trade being engendered by incoming U.S. President Donald Trump, and feels it must make a strong stand for open and fair international markets.

    "We need to stop unfair trade actions from spreading," said a Japanese industry ministry official, explaining a Dec. 20 request for WTO dispute consultations with India over steel safeguard duties and a minimum import price for iron and steel products.

    India imposed duties of up to 20 percent on some hot-rolled flat steel products in September 2015, and set a floor price in February 2016 for steel product imports to deter countries such as China, Japan and South Korea from undercutting local mills.

    "If consultations fail to resolve the dispute, we may ask adjudication by a WTO panel," the industry ministry official said. Such action could come as soon as 60 days - in February - after its consultation request was filed in December.

    Tokyo says India's actions are inconsistent with WTO rules and contributed to the plunge in its steel exports to India, which dropped to 11th-largest on Japan's buyer list in 2016 through November, down from sixth-largest in 2015.

    "We are following the WTO guidelines," said a top official at India's steel ministry, though adding that New Delhi is ready to sit across the table for trade talks.

    As of Friday, the date of a WTO-led consultation had not been set.


    There has been a series of trade disputes over the past few years amid massive exports of cheap steel products from China, the world's top producer, with Vietnam, Malaysia and South Africa taking or planning measures to block incoming shipments.

    China's steel exports dropped by 3.5 percent in 2016 to 108 million tonnes, still about as much as Japan produces in a year.

    Japan is also monitoring its small volume of imports for signs of dumping, fearing that steel products with nowhere to turn because of import restrictions may head to it own market.

    "All trade need to be fair. If there are trades that violate the rules, we will take necessary actions while consulting with our government," Kosei Shindo, chairman of the Japan Iron and Steel Federation, told a news conference on Friday.

    But in an environment where a new U.S. president is threatening to tear up trade treaties and impose import duties in the world's biggest economy, Tokyo may be at risk of helping to set off a trade war it is trying to avoid.

    "We may see a battle of trade litigations especially after Trump takes the helm in the U.S.," said Kazuhito Yamashita, research director at Canon Institute for Global Studies.
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    China 2016 coal industry FAI drops 24.2pct on yr

    China's fixed-asset investment (FAI) in coal mining and washing industry amounted to 303.8 billion yuan ($44.16 billion) in 2016, with the year-on-year fall further expanding 1 percentage points from a month ago to 24.2%, showed data from the National Bureau of Statistics (NBS) on January 20.

    By December, the FAI in coal mining and washing industry has been declining on a year-on-year basis since April 2014, the NBS data showed.

    Private investment in the sector stood at 186.4 billion yuan, falling 18.3% year on year, compared to a drop of 16.5% a month ago.

    During the same period, fixed-asset investment in all mining industry in the country posted a yearly decline of 20.4% to 1.03 trillion yuan; of this, private investment in mining industry stood at 616.2 billion yuan, dropping 13% from the previous year.

    Meanwhile, the total fixed-asset investment in ferrous mining industry in the first eleven months witnessed a yearly drop of 28.4% to 97.8 billion yuan; while that in oil and natural gas industry dropped 31.9% on year to 233.1 billion yuan, according to the NBS data.

    The fixed-asset investment in non-ferrous mining industry stood at 142.9 billion yuan during the same period, down 10% from the year-ago level, data showed.
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    A$900m New Hope’s Acland expansion gains federal approval

    The federal government has approved coal miner New Hope’s A$900-million New Acland Stage 3 continuation project, .

    The New Acland Stage 3 project will expand the mine’s yearly output from 4.8-million tonnes to 7.5-million tonnes and will extend the operation’s life beyond the current end-date of 2017/18.

    The expanded operation will see a further 260 people employed at the mine, and could inject some A$12-billion in local, state and federal revenues over the life of the project.

    The federal environmental nod takes the project approval process one step closer to completion. However, Queenslandstill has to grant an environmental authority, a mining lease and associated water licences before the company can make a final investment decision.

    New Hope said on Friday that expected that the application for the Mining Lease and Environmental Authority to be finalised by April.

    New Hope last year warned that the expansion of the Acland mine was in jeopardy following the passing of new environmental legislation, which could stall the expansion by as much as two years as the company would have to apply for an associated water license, which would require a mininglease approval and baseline assessment.

    The Queensland Resources Council (QRC) on Friday welcomed the federal government approval for the New Acland Stage 3 continuation project, with CEO Ian Macfarlane describing the decision as a “relief” after years of delays.

    “The federal government has stepped up today to help create up to 260 construction jobs and ongoing employment of up to 435 jobs and indirectly 2 300, worth about A$12-billion in economic benefits over the life of the project,” Macfarlane said.

    “This project has been scrutinised by both state and federal governments, and has held up under the scrutiny of experts to meet some of the highest environmental standards in the world.

    “We now call on the state government to do its part to help New Hope gain the remaining critical approvals before the current resource runs out.”
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