Mark Latham Commodity Equity Intelligence Service

Friday 23rd September 2016
Background Stories on

News and Views:

Attached Files


    China to crack down on fake overseas M&A deals to curb money flight

    China's forex regulator said on Thursday it will crack down on fake overseas mergers and acquisitions used by some local firms and individuals to move assets out of the country, even as capital outflow pressure is easing.

    The government will support "genuine" overseas mergers and acquisitions by Chinese firms, although rapid rises in outbound investment have had an impact on cross-border capital flows, Guo Song, an official with the State Administration of Foreign Exchange (SAFE), told a Beijing news conference.

    "In the past year we found some Chinese firms and individuals moving assets overseas via outbound investment, this is certainly a key area of concern for us," Guo said, without disclosing details.

    The authorities will "definitely put high pressure" on tackling fake overseas mergers and acquisitions, he said.

    China will crack down on illegal activities to keep its foreign exchange markets stable, SAFE official Xu Weigang told the same conference.

    The Chinese government has been encouraging local firms to invest overseas under Beijing's "One Belt, One Road" program, but rapid rises in outbound direct investment (ODI) have fanned concerns over increased pressure on China's foreign exchange reserves and external payments.

    China's overall ODI jumped 18.3 percent in 2015 to a record $145.67 billion, surpassing the annual foreign direct investment that reached $135.6 billion, earlier government data showed.

    Despite the phenomenon, pressure on cross-border capital outflows is easing, which will help lower depreciation pressure on the yuan CNY=CFXS, SAFE spokeswoman Wang Chunying said.

    Du Peng, another SAFE official, however, said no "large-sized" capital outflow via fake trade deals has been detected by the supervisory body so far, and discrepancy between custom data and forex data is no proof that fake trade deals are happening.

    Recent data showed net foreign exchange sales by China's commercial banks in August fell to the lowest in about a year, but net foreign exchange sales by the People's Bank of China in August hit the highest in six months, as the central bank sought to support the yuan.

    Guo also said that the current quota on the Qualified Domestic Institutional Investor (QDII) scheme had been used up and the regulator is applying for an additional quota.
    Back to Top

    Brazil police arrest former minister in Petrobras probe: source

    Brazilian police arrested former Finance Minister Guido Mantega on Thursday as part of a sweeping corruption investigation into political kickbacks on contracts at state-run oil company Petroleo Brasiliero, according to a source close to the former minister.

    In a statement, prosecutors said they were investigating a former minister who was chairman in 2012 of Petrobras, as the company is known, a description fitting Mantega. They did not name the minister.

    Mantega served as finance minister for almost nine years under former presidents Luiz Inacio Lula da Silva and Dilma Rousseff, steering Latin America's largest economy through boom and bust at the height of the leftist Workers Party's rule.

    Attorneys for Mantega did not immediately respond to requests for comment.

    Police carried out eight arrest warrants and 32 search and seizure warrants on Thursday, according to prosecutors, as they investigated the former minister and executives of engineering groups Mendes Junior and OSX Construção Naval SA, part of a commodities empire built by former billionaire Eike Batista.

    Prosecutors said Batista had testified to a conversation in November 2012 in which the former minister presiding over the Petrobras board requested a payment of 5 million reais, or about $2.5 million at the time, to benefit the Workers Party.

    Batista eventually made an overseas payment of $2.35 million to marketing executives previously tied to money laundering operations in the two-year-old Petrobras probe, according to prosecutors.
    Back to Top

    Mining companies to build LNG plant in Fort Nelson

    Two Vancouver-based mining companies are seizing on the abundance of natural gas in the Peace region to build liquefied natural gas plants in Fort Nelson to supply new mines planned for the Yukon and Northwest Territories.

    Casino Mining Corp., a subsidiary of Western Copper and Gold and Selwyn Chihong Mining Ltd., have signed a memorandum of understanding with Calgary-based Ferus Natural Gas Fuels Inc. to build an LNG plant in Fort Nelson.

    The plant would supply LNG to new mines the companies are developing: the Casino copper-gold mine in the Yukon and Selwyn’s zinc-lead mine, which straddles the Yukon-Northwest Territories.

    The companies say using LNG instead of diesel to provide power to the mines will not only be less costly, but will reduce CO2 emissions.

    "The use of LNG instead of diesel in our operations will significantly reduce the cost of power generation and will eliminate 140,000 tonnes per year of C02 emissions over the current 22-year mine life," said Western Copper and Gold CEO Paul West-Sells.

    Selwyn Chihong project estimates using LNG instead of diesel will avoid 115,000 tonnes per year of CO2 over the mine’s estimated 11-year life.

    But lower emissions are essentially an environmental dividend. There are no incentives to use LNG rather than diesel, as the Yukon has no carbon tax or cap and trade. It's simply "signifantly cheaper" than diesel, said Maurice Albert, vice president of external affairs for Chihong Mining Ltd.

    The $200 million plant will employ 25 to 50 people during construction. Once built, the LNG will be trucked roughly 800 kilometres to the mine sites, where the LNG will be used to produce power for the mines, which are off the Yukon and NWT grid.
    Back to Top

    Oil and Gas

    Saudi - Iran meeting


    Reuters Saudi-Iran sources: "three unidentified people familiar with the discussions"

    Saudi Arabia and Iran Said to Have Ended Oil Talks in Vienna

    Back to Top

    Oil Firms Seen Spending More Next Year for First Time Since 2014

    The oil industry may be ready to open its wallet after two years of slashing investments.

    Companies will spend 2.5 percent more on capital expenditure next year than they did this year, the first yearly growth in such spending since 2014, BMI Research said in a Sept. 22 report. Spending will increase by another 7 percent to 14 percent in 2018. It will remain well below spending in 2014, before the worst oil crash in a generation caused firms to cut back on drilling and exploration to conserve cash, the researcher said.

    BMI oil spending by region

    North American independent producers, Asian state-run oil companies and Russian firms are prepared to boost investments next year, outweighing continued cuts from global oil majors such as Exxon Mobil Corp. and Total SA, BMI said, based on company guidance and its own estimates. Spending will increase to a total of $455 billion next year from $444 billion this year, BMI said.

    “We expect global spending in the oil and gas sector will reach its nadir in 2016 , returning to growth in 2017,” Christopher Haines, BMI’s head of oil and gas research, said in the report. “For now, we see stronger growth in capital expenditure in 2018 , as better forecast oil prices are building confidence behind spending outlooks.”

    BMI’s outlook is more optimistic than groups like the International Energy Agency, which said last week that the industry might cut spending in 2017 for a third year in a row as companies continue to grapple with weaker finances. Oil prices still hover around $50 a barrel, less then half the level of the summer of 2014.
    Back to Top

    Gazprom discovers new gas deposit in Sea of Okhotsk

    Gazprom said on Thursday it had discovered a new gas deposit during exploration at the Kirinskoye field in the Sea of Okhotsk near Russia's Sakhalin island.

    The field is crucial for Gazprom's plans to raise liquefied gas production at its Sakhalin-2 plant on the island. It has not disclosed the reserves of the newly discovered deposit.

    Shell, which also has a stake in the LNG plant, may also get a share in the Kirinskoye field as part of an asset swap deal with Gazprom, though the prospects for this are uncertain because of international sanctions for Russia's role in the Ukraine crisis. These bar Western companies from development of deep-sea gas deposits in Russia and from some oil fields as well.

    In 2015, the United States restricted exports, re-exports and transfers of technology and equipment to the Yuzhno-Kirinskoye field, part of the wider Kirinskoye deposit.

    Gazprom Deputy CEO Alexander Medvedev told the Reuters Russia Investment Summit last week that Gazprom had not yet chosen which assets it wanted to swap under its deal with Shell.

    The Sakhalin-2 plant, which currently produces 10 million tonnes of LNG per year, is due to add another 5 million tonnes of LNG to allow Russia to come closer to its target of 5 percent of the global LNG market.
    Back to Top

    Bharat Petroleum looks for more oil, gas assets already in production

    Indian energy group Bharat Petroleum Corp Ltd is looking at buying more stakes in oil and gas assets that are already producing to speed up investment returns, the managing director of the company's exploration business told Reuters.

    The state-run refiner had previously focused mainly on exploration assets overseas, where it has invested just over $1.5 billion.

    But the company now also looks at fields that are already producing. In March, it bought a stake in Russian oilfields that are in production via its upstream subsidiary Bharat Petro Resources Ltd.

    "That is why we looked at Russia," BPRL's managing director D. Rajkumar told Reuters in the sidelines of a news conference on Wednesday.

    "That will ensure we have a balanced portfolio of assets from exploration, development to producing. So with all this, we will be in a self-sustaining place soon."

    Pressure on oil companies to get a quick return on their investment has increased because of lower oil prices which have also hit the industry's capital spending plans.

    Bharat Petroleum was the first Indian state refiner to venture into the upstream oil business when it bought minority stakes in Brazilian blocks in 2007.

    In 2008, Bharat Petroleum invested in a gas block in Mozambique but the production has now been delayed to 2020-21 after liquefied natural gas (LNG) prices slumped.

    The purchase of the Russian assets gives Bharat Petroleum a potential for immediate revenues and bridges the gap till 2021-22 when Mozambique gas production starts, Rajkumar said.

    The company's chairman S. Varadarajan said it would also continue to look for exploration opportunities.

    "There is a strategy to look at different markets and projects which are at different phases (of exploration and production) and that is why we did the Russian acquisition," Varadarajan said.

    BPCL plans to invest 150 to 200 billion rupees ($2.25 billion to $3.00 billion) over the next five years in developing existing blocks, the company has said.
    Back to Top

    Maersk Oil eyes Shell's North Sea assets ahead of spin-off

    A.P. Moller-Maersk (MAERSKb.CO) is in talks to buy a portfolio of North Sea assets from Royal Dutch Shell as the Danish group considers adding scale to its oil and gas business ahead of a planned spin off, banking sources said.

    Maersk announced on Thursday a major overhaul that will see it focus on its core transport and logistics businesses, while looking at options for its energy division within 24 months that could include a joint venture, merger or listing.

    Maersk has said over the past year that it planned to invest several billions of dollars to expand its oil operations, although it is now likely to face bigger financial pressures given a rout in earnings from shipping, weak oil prices and the loss of a major oil contract in Qatar.

    Maersk Oil has held talks in recent weeks about buying a large part of the North Sea portfolio that Shell is seeking to sell as part of a three-year, $30 billion divestment plan following its purchase of BG Group earlier this year, banking sources involved in the talks told Reuters.

    The assets under discussion are valued at around $2 billion, they added.

    Shell and Maersk Oil declined to comment.

    Although the aging UK North Sea is considered a relatively costly oil region, Maersk - which already has assets there - believes it can reduce the costs of running Shell's fields as well as the costs of dismantling and cleaning up assets nearing the end of their production lives, the sources said.

    Explaining Maersk's options for its energy business, one source with knowledge of the process said: "They could look to bulk it up potentially with merger combinations before an exit – the key is to make it attractive to get the value they want."

    Maersk Oil is currently developing the Culzean gas field which is expected to start production in 2019 and which could supply up to 5 percent of Britain's gas demand.

    The division produces around 500,000 barrels per day of oil and gas equivalent around the world, according to its website. Barclays analysts estimate Maersk Oil would currently have a market value of around $4.7 billion as a standalone business.

    Maersk Oil has suffered a series of setbacks, first and foremost when Qatar chose not to extend its 25-year license to operate the giant Al Shaheen field. Its plans to develop a huge offshore field in Angola also stalled as it struggled to reduce costs.

    In February, Maersk tumbled to a loss after writing down Maersk Oil's assets by $2.6 billion.

    Still, many of the division's assets are considered attractive, including its stake in Norway's giant Johan Sverdrup oil field development.

    "The energy-division is sort of cut off with a 'For sale' sign in the window," Sydbank analyst Morten Imsgard said.

    "Maersk Oil is a small player in a larger context, so there are many players big enough to take in Maersk Oil. Drilling is relatively large, but its competitors are under extreme financial pressure, so Maersk is less likely to find a sell-off opportunity there."
    Back to Top

    Canacol Energy doubles natural gas drilling activity in Colombia

    Canacol Energy Ltd is pleased to provide a revised capital plan for 2016. The new capital plan accelerates the Corporation's natural gas opportunities in Colombia with three new gas wells. In addition, one new oil well will be drilled over the remainder of 2016. The revised 2016 capital plan has increased by $34 million, from $58 million to $92 million. In August, Canacol raised $35 million from long term strategic investors including follow-on investment from the Corporation's largest shareholder, Cavengas Holdings S.R.L. to accelerate gas drilling.

    Despite significant volatility in global oil prices, the Corporation anticipates near record EBITDAX of approximately $135 million for 2016. Canacol forecasts average realized gas sales pricing of $5.60 per thousand standard cubic feet ('mscf') with a netback of $4.56/mcf, representing an estimated 81% netback margin. The Corporation's fixed price gas contracts mitigate impact from oil volatility with approximately 86% of 2016 corporate production insensitive to world oil prices. The Corporation continues to reduce costs with an estimated 40% reduction in general & administrative expenses for the year. Canacol estimates oil and gas sales before royalty between 16,000 to 17,000 barrels of oil equivalent per day ('boepd') for 2016 and third quarter oil and gas sales before royalty of approximately 18,200 boepd.

    Over the past three years, the Corporation has made four gas discoveries and added 302 BCF in 2P reserves on the Esperanza and VIM 5 E&P blocks located in the Lower Magdalena Basin, Colombia. Canacol recently added a second rig to the two blocks. The objectives of the expanded gas drilling program are to 1) target management's estimate of more than 100 billion cubic feet ('BCF') of new potential recoverable resource in 2016 to secure new gas sales contracts, and 2) increase the productive capacity of the Corporation's gas assets to more than 190 million cubic feet per day ('MMcf/d') in anticipation of new sales contracts. Canacol has a large inventory of prospects and leads targeting 2.4 - 2.8 trillion cubic feet ('TCF') of unrisked mean estimate resource potential. The Corporation's gas resource capture strategy remains balanced for the remainder of 2016 with two gas exploration wells and two gas development wells.Trombon-1 gas exploration well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    Offset to the Nispero-1 gas discovery, the Corporation spud Trombon-1 on September 13, 2016. Canacol anticipates the well will take five to six weeks to drill and flow test. In late August 2016, Nispero-1 exploration well tested 28 MMcf/d of dry gas with no water. The well encountered 79 feet measured depth (55 feet true vertical depth) of net gas pay with average porosity of 17% within the primary Cienaga de Oro ('CDO') reservoir sandstones. With success at Nispero, the Corporation spud Trombon-1 from Nispero's drilling platform. Trombon-1 exploration well is targeting the same CDO reservoir interval tested in the offsetting Nispero-1 well, but in a distinct and isolated fault block located approximately 2 kilometers south of the Nispero discovery. Management estimates Trombon-1 may contain 40 BCF of potential recoverable resource.

    Nelson-6 gas exploration well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Nelson-6 in October 2016. The well may provide the potential to book reserves against by-passed pay within the shallow Porquero sandstone reservoirs in the Nelson gas field. As of December 31, 2015, Nelson gas field had 2P reserves of 209 BCF associated with the CDO reservoir with four straight successful wells drilled into the field. Management estimates Nelson-6 may contain 31 BCF of potential recoverable resource.

    Nelson-8 gas development well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Nelson-8 in November 2016. The well offers the opportunity to reclassify reserves and an additional 8 - 12 MMcf/d of productive capacity. The well is targeting the CDO reservoir sandstones in the Nelson gas field.

    Starting in late September 2016, the Corporation plans to workover four Nelson gas wells. The objective is to extend each well's productive life and optimize reserve recovery. The Corporation also plans to upgrade the Jobo facility and Nispero-Jobo flow line.

    Clarinete-3 gas development well: VIM-5 E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Clarinete-3 in the fourth quarter of 2016. The well may provide the potential to reclassify reserves and additional 10 - 12 MMcf/d of productive capacity. Clarinete-3 well is targeting the CDO reservoir sandstones which is productive in both the Clarinete and Nelson gas fields. As of December 31, 2015, Clarinete had 2P reserves of 163 BCF with two straight successful wells drilled into the field.

    Mono Capuchino-1 oil exploration well: VMM-2 E&P contract - Middle Magdalena Basin, Colombia, 67% working interest

    Offset to the Mono Arana-1 oil discovery, the Corporation plans to spud Mono Capuchino-1 in October 2016. In January 2013, Mono Arana-1 exploration well tested approximately 600 barrels of oil per day ('bopd') from a 335 foot perforated interval in the La Luna Formation. With Mono Capuchino-1, the Corporation plans to further investigate the potential for this established play. Management estimates the Mono Capuchino-1 prospect may contain 9 million barrels ('MMbls') of potential recoverable resource.
    Back to Top

    Mexico's Pemex urged to delay Trion auction to rethink contract terms

    Mexico's state-owned Pemex should delay the December 5 auction for its deepwater Trion block because the current terms could deter interest from any potential farm-in partners, a former US State Department energy adviser said Thursday.

    David Goldwyn, president of Goldwyn Global Strategies and former special envoy for energy under President Barack Obama, said Pemex's proposed Trion terms put too much risk on the private partners.

    "It's better to have a delay than a failure," Goldwyn said. "It's a disappointment, but it's an example of where pushing Pemex and bringing them into the reform full speed is really going to be critical."

    Goldwyn made the comments during the Wilson Center's North American Energy Forum in Washington.

    "Trion is an appetizing field, but I think it's the terms that are not right," he said. "The culture of trusting the private market, the culture of opening up and operating like a real company has not yet set in at Pemex." The Trion block in the Perdido Fold Belt sits close to the maritime border with the US in the Gulf of Mexico and has certified proven, probable and possible reserves of 480 million barrels of light crude, with water depths of 2,200-2,500 meters (7,200-8,200 feet), according to Pemex.

    Under the farm-in terms, Pemex will receive $450 million for work it has already done in exploration, plus up to a 45% share in the project.

    Ten companies have applied to bid, but some watchers have doubts about how many of them will actually submit bids.

    There was no talk of delaying the Trion auction when Mexico's National Hydrocarbons Commission met Thursday. The regulators gave Pemex an additional week to respond to 100 questions submitted by prospective partners.

    Apart from the Trion terms, Goldwyn praised Mexico's energy reforms and said he expects success when it auctions 10 deepwater blocks in the Gulf of Mexico, also set for December 5.

    "I really want the farm-outs to go well because the success of the reform will largely be judged by whether Mexico can reverse declines, produce more and generate revenues," Goldwyn said. "To some extent, the near-term opportunity is all in the farm-outs."
    Back to Top

    Algeria's Skikda resumes LNG exports after two-month shutdown

    Maintenance at Algeria's Skikda LNG export facility has now been completed, with the first cargoes shipped out in the past week.

    The two-month shutdown was partly to blame for a slump in exports of LNG to Spain in August, while Spanish gas demand was also lower.

    The 4.7 million mt/year Skikda plant was closed for planned maintenance in mid-July, according to industry sources, with the final cargo before the shutdown loaded on July 11, data from Platts Analytics' Eclipse Energy showed.

    The first LNG cargo to leave Skikda after the restart was aboard the Cheikh Bouamama, which took 45 million cu m of gas equivalent to the Fos Cavaou LNG import plant in southern France last weekend.

    A second cargo loaded from Skikda aboard the Cheikh el Mokrani is taking 45 million cu m of gas equivalent to the Sagunto terminal in Spain and is expected to arrive Friday, according to Platts Analytics.

    Skikda has been a steady supplier of LNG to Spain over the past 12 months, supplying close to 2 Bcm of gas equivalent to the Spanish market since September 1, 2015, according to Platts Analytics data.

    That equates to around 15% of Spain's total LNG imports of 13.3 Bcm over the past year.

    Algeria's other LNG export facility at Arzew supplied some 1.4 Bcm of gas equivalent to Spain in the period.

    Although Algeria's LNG exports dipped in August due to the Skikda outage, they had been running at five-year highs in the month before the shutdown and exports so far in 2016 are on a level with volumes sold in 2015.
    Back to Top

    The Top Permian Oil Producer Says Rig Counts in the Region Are Going to Soar

    The biggest player in the Permian Basin, America's most coveted oil field, thinks rig counts in region are poised for explosive growth.

    In an interview with Bloomberg, Pioneer Natural Resources Co. Chief Executive Scott Sheffield predicted that 100 oil rigs will be added in the area considered to be U.S. shale drillers' version of prime real estate over the next year. Bloomberg Intelligence Analysts Vincent Piazza and Daniel Krauser note that Pioneer has the highest gross production of any driller in the Spraberry and Wolfcamp formations in the Texan oil field.

    The shale revolution sparked a frenzied rise in U.S. crude production that eventually drove oil prices to their lowest level in more than a decade earlier this year. While prices have since recovered, they've failed to sustainably hold above $50 per barrel — and any advances may continue to be capped if drillers boost activity in the productive Permian Basin.

    Rig count data from Baker Hughes shows the number of all types of active rigs in the Permian Basin — which spans from West Texas into a portion of New Mexico — stands at 202 as of Sept. 16, with 416 active oil rigs across the U.S.

    Adding a rig in the Permian, he warned, results in an outsized boost to U.S. oil production four to six months down the road — meaning headline rig count figures wouldn't necessarily tell the full story on where aggregate production is heading.

    At a conference on Wednesday, Sheffield said he sees output in the region "really taking off" in the first half of next year, with aggregate U.S. production beginning to grow again around the end of 2017 or the following year.

    The Permian region can grow production by 300,000 barrels per day, per year, according to Sheffield.

    The decline in rig counts has been the biggest contributor to the weakness in U.S. business investment since crude prices began to collapse in the middle of 2014. During Wednesday's press conference following the Federal Reserve's announcement, Chair Janet Yellen said drilling was "now showing signs of stabilizing."
    Back to Top

    Don’t be fooled by the numbers, Eagle Ford play is a sleeping giant

    The Eagle Ford shale oil patch has seen brighter days. New well permits are down, production is low (down from its 2015 peak of 1.7 million b/d, to around 980,000 b/d this year) and producers are pulling out of the region to focus their efforts elsewhere.

    Symbolic of the mood in the field, things were a little more subdued at the recent Hart Energy DUG Eagle Ford conference in San Antonio.

    Many attendees were quick to notice the smaller scale of the conference this year.  Lower oil and gas prices meant a lighter presence and scaled-back events surrounding the conference, which was held in conjunction with the Midstream Texas conference. Major players and past year exhibitors like Baker Hughes and Halliburton were obviously missing from the smaller-than-usual exhibition space and at least one attendee compared this year to past years by lamenting the absence of magicians and open bar at an after-hours mixer.

    Attendance this year was healthy, but still was a telling reminder of the current state of the Eagle Ford. Around 1,500 people were at the conference, a more than 45% decrease from last year.

    “While that’s smaller than during the ‘boom,’ it’s not down as much as the decline in crude oil price from the top to the bottom, or the fall in the US rig count, so we’re feeling pretty good about it with the current market conditions,” said Greg Salerno, vice president of marketing for conference presenter Hart Energy.

    Finding the bright spots in the darkness seemed to be a theme at this year’s conference.

    Major operators focused their presentations on their cost-cutting prowess and efficiency milestones that they’ve achieved recently (including Chesapeake Energy’s recent record of drilling a well in eight days).

    “Records today are the normal for the future,” said Jason Pigott, executive vice president of Chesapeake.

    Christopher Heinson, the COO of Sanchez Energy, said the company has focused on optimizing returns in the Eagle Ford. He said the company has managed to cut per-well drilling costs from around $4.5 million to $3.5 million. They achieved this by “debundling” services and sourcing directly from providers.

    All Eagle Ford operators who spoke mentioned technological advancements that have helped improve efficiencies such as automation, data management, longer horizontal reaches and other strategies that have allowed them to drill fewer wells, cheaply.

    “Prices have made us work harder,” Heinson said. “It’s impressive given the environment.”

    Despite the lower production numbers and languishing oil prices there is plenty of potential for the Eagle Ford basin and producers to remain optimistic.

    “I’d like to think there are a few more Champagne bottles with corks ready to pop,” said Dale Kokoski, regional vice president at Marathon Oil.

    He said that Marathon continues to work in the Eagle Ford but has shifted from “high-growth mode” to “mid-cycle focused.”

    Eagle Ford’s proximity to ports in Houston and Corpus Christi make the potential for cost-effective exports of both crude and natural gas an appealing possibility.

    And there is still plenty of oil in the ground to get.

    The University of Texas at Austin’s Bureau of Economic Geology released new, unpublished research on the field at the conference.

    Scott Tinker, bureau director, and Svetlana Ikonnikova, an energy economist there, said the Eagle Ford holds an estimated 230 billion barrels of oil, though just 10 billion is recoverable. The researchers estimate that there also is 462 trillion cubic feet of natural gas, with 34 trillion cubic feet recoverable in the Eagle Ford.

    Merger and acquisition opportunities also are attracting investments to the Eagle Ford as operators refocus on other basins, prune their portfolios or sell non-operating positions.

    “These times won’t last,” said Mark Sooby, managing director of Bank of America Merrill Lynch. “If you are going to make a transaction, you want to make it in the down cycle and the down cycle is almost over.”

    Attached Files
    Back to Top

    China's Sinoenergy to invest C$500 mil in Canada's Long Run Exploration

    Sinoenergy has committed to spend another C$500 million ($380 million) to support operations of Alberta-based light oil, natural gas and NGLs producer Long Run Exploration, the Canadian government said Thursday.

    The investment will be spread over the next two years and came after an early September visit to China by Canadian Prime Minister Justin Trudeau, the statement said.

    Four commercial deals were signed in Ottawa Thursday as a follow-up to the visit, it added, with Sinoenergy and Long Run being one of them. The other three deals relate to non-hydrocarbon industries.

    Sinoenergy's commitment to inject fresh capital into Long Run comes on the back of a C$780 million offer it made in February to acquire 100% interest in Long Run.

    The deal, which closed on June 29, was driven primarily by Long Run's inability to generate sufficient cash flow and develop its assets given the low oil price environment, Long Run said then.

    With a land position of over 600,000 net acres at Peace River, Redwater and Deep Basin in Western Canada, Long Run's light oil, NGL and natural gas production in first-quarter 2016 was 27,775 b/d of oil equivalent, compared with 35,602 boe/d in the same quarter the prior year, information posted on the company website said.

    A Long Run official declined to comment on Thursday's announcement, but said that production is still underway at its assets.

    "Given the continuing low oil prices, shrinking netbacks and limited pipeline access, the future of several Canadian juniors including Long Run is at risk," said Paul Pasco, an independent analyst and until recently an upstream analyst with Wood Mackenzie.

    "Although this may not be the best time for international companies to invest in debt-laden Canadian producers, the Sinoenergy deal looks like an exception. Long Run has some good assets that will need capital to be monetized."

    In their efforts to shed debt and emerge as a leaner producer with low operating costs, the way forward for smaller Canadian producers will be mergers, Pasco said.

    "We have seen several transactions this year related to the sale of midstream assets by juniors and that will likely increase further. But it will be a challenge to sell upstream oil sands assets as there is still a mismatch between the buyer and seller expectations," Pasco said.

    Sinoenergy would have carried out its due diligence before committing those dollars, said Gary Leach, president of the Explorers and Producers Association of Canada.

    "A WTI $45/b oil price could trigger investment in Western Canada's light oil plays," Leach said.
    Back to Top

    U.S., Canada aboriginal tribes form alliance to stop oil pipelines

    Aboriginal tribes from Canada and the northern United States signed a treaty on Thursday to jointly fight proposals to build more pipelines to carry crude from Alberta's oil sands, saying further development would damage the environment.

    The move came as Native American tribes on Thursday took their fight to Washington to stop development of the $3.7 billion Dakota Access oil pipeline, which would cross federally managed and private lands in North Dakota, South Dakota, Iowa and Illinois.

    Last week the U.S. Justice Department intervened to delay construction of the pipeline in North Dakota.

    The Treaty Alliance Against Tar Sands Expansion was signed by 50 aboriginal groups in North America, who also plan to oppose tanker and rail projects in both countries, they said in a statement.

    Targets include projects proposed by Kinder Morgan Inc, TransCanada Corp and Enbridge Inc.

    While aboriginal groups have long opposed oil sands development, the treaty signals a more coordinated approach to fight proposals.

    Among the treaty's signatories is the Standing Rock Sioux tribe who opposes the Dakota pipeline.

    "What this treaty means is that from Quebec, we will work with allies in (British Columbia) to make sure that the Kinder Morgan pipeline does not pass," Kanesatake Grand Chief Serge Simon said in the statement.

    "And we will also work with our tribal allies in Minnesota as they take on Enbridge's Line 3 expansion, and we know they'll help us do the same against Energy East," he said, referring to TransCanada's plan to carry 1.1 million barrels of crude per day from Alberta to Canada's East Coast.

    The statement did not specify what actions the groups would take to stop development.

    The Canadian Energy Pipeline Association, whose members include the targeted companies, said in a statement that the industry would listen to aboriginal concerns.

    "The fact remains there is a critical need for pipelines in Canada," the association said, noting that they are the safest and most environmentally friendly way to move oil and gas.

    Canada is assessing oil pipeline proposals as the country's energy-rich province Alberta reels from a crash in prices, partly due to insufficient means of moving oil to lucrative international markets.
    Back to Top

    Oil-Sands Glut Jams Pipes to U.S., Making Rail Next Option

    Canada is sending a record amount of oil to the U.S., filling pipelines to capacity and threatening to push more crude into rail cars.

    U.S. imports from its northern neighbor jumped 17 percent to 3.46 million barrels a day last week, the U.S. Energy Information Administration said Wednesday in a preliminary report. That’s the most since the agency began collecting such data in 2010. Exports have surged as Alberta recovers from wildfires that disrupted supplies earlier this year.

    Supplies from the oil sands are piling up as producers bring back output and projects that had been delayed by the fires come online. The glut highlights Canada’s dependence on the U.S. market after TransCanada Corp.’s seven-year struggle to get approval for the Keystone XL link to the Gulf of Mexico failed while its proposed Energy East line to the Atlantic Coast faces mounting opposition in Canada. The stress on existing lines means more crude will be hauled by rail at higher costs and the discount on Canadian crude will likely widen.

    “As volumes continue to build, so will the pressure on the constrained pipelines system,” Kevin Birn, a director at IHS Energy in Calgary, said by e-mail Wednesday. “At some point in the coming months those volumes could very well overtake available capacity and increased movements of rail should be expected.”

    Pipeline Capacity

    Enbridge Inc.’s mainline system, the most important conduit for shipping Canadian crude into the U.S., has been running above its 2.4 million-barrel-a-day capacity and was full in August, according to Genscape Inc. analyst Ryan Saxton. Other lines including Spectra Energy’s Express and TransCanada’s Keystone were about 89 percent full last month.

    Western Canadian Select heavy crude is trading at a discount of $14.30 a barrel to West Texas Intermediate, according to data compiled by Bloomberg. WTI for November delivery advanced 98 cents to settle at $46.32 a barrel on the New York Mercantile Exchange on Thursday. The U.S. benchmark is down almost 60 percent from its 2014 peak.

    The discount on Canadian crude could expand to a one-year high of $16 a barrel by year end as a bigger price spread will be needed to encourage the use of rail, a more expensive method of shipment, said Eric Peterson, research chief at Denver-based ARB Midstream LLC, an oil transport investor.

    Crude by Rail

    Canadian crude-by-rail exports rose to a six-month high of 109,000 barrels a day in April before declining after wildfires took about 1 million barrels a day of production off the market, National Energy Board data show.

    While Canada’s conventional oil production is declining, oil-sands output continues to grow as projects initiated before the 2014 oil rout are completed. Companies including Cenovus Energy Inc. and Canadian Natural Resources Ltd. are set to add about 390,000 barrels a day of capacity by the end of next year, according to company statements and JuneWarren-Nickle’s Energy Group’s Summer 2016 Oil Sands Quarterly.

    Crude output is expected to rise about 5 percent to more than 4 million barrels a day in 2017, above the country’s pipeline export capacity, according to the Canadian Association of Petroleum Producers.

    As getting approval for pipelines at home has become increasingly difficult, Enbridge and TransCanada have sought deals south of the border to expand. Enbridge agreed to pay $28 billion for Houston-based Spectra Energy Corp. and TransCanada is buying Columbia Pipeline Group Inc., also based in Houston, for $10.2 billion.

    “Canada is stuck with its main outlet being the U.S.,” Bloomberg Intelligence Analyst Gurpal Dosanjh said in a phone interview in New York. “This will stay in the considerable future while Canadian production grows.”

    Attached Files
    Back to Top

    AGDC and ConocoPhillips sign MoU to create LNG joint venture

    Acting through Alaska Gasline Development Corp. (AGDC), the State of Alaska, US, has signed a memorandum of understanding (MoU) with ConocoPhillips Alaska Inc. to create a joint venture (JV) company. The JV would market LNG from the Alaska LNG project to global LNG markets. It would also acquire North Slope gas, with the aim of bringing both LNG buyers and wellhead sellers together. In addition to this, AGDC and ConocoPhillips are planning to support other large North Slope producers in the JV’s formation.

    AGDC claims that the MoU is part of the company’s broader plan to prepare the Alaska LNG project for a front end engineering development (FEED) decision. This plan includes the following elements:

    -Structuring for federal and state tax efficiencies, including seeking a federal ruling on tax-exempt status.
    -Advancing low cost financing and investor options.
    -Engaging engineering, procurement and contracting (EPC) companies with the ability to shoulder a significant part of the construction risk.
    -Bringing major North Slope producers on board to commit their gas to the planned JV, or tolling arrangements with the project.
    -Positioning a JV to engage the LNG market to measure the extent and timing of demand.

    AGDC claims that once the JV has been formed, sales and negotiations with global purchasers could start immediately.

    The Chairman of AGDC, Dave Cruz, said: “The AGDC board welcomes the commercial progress made by AGDC under the leadership of President Meyer as evidenced by this agreement.”

    The President of AGDC, Keith Meyer, said: “We are pleased to be working with ConocoPhillips, the leader in Alaskan LNG, in this important phase of Alaska’s major infrastructure project.”

    Once established, it is also expected that the JV would initially focus on gathering LNG market information in support of its pursuit of gas and LNG sales as the project proceeds. The JV would also look to set out terms for the reliable and sufficient supply of gas to the project, resolving longstanding project gas supply assurance issues. The MoU expects that third parties or other producers could also join the JV, make gas available through wellhead sales, or even commit to tolling arrangements with the Alaska LNG project.
    Back to Top

    Property owners lobby for royalty bill

    Landowners in the Marcellus Shale drilling region are lobbying daily at the state Capitol in hopes of winning last-minute passage of a bill to prevent some gas drillers from reducing royalty payments through deductions.

    They set up a table in the Rotunda within sight of the House Republican caucus meeting room to urge support for a bill that restricts what companies can deduct in post-production costs for compressing and transporting gas from the well to market.

    The measure, supported by several Northeast region lawmakers, would buttress a 1979 state law that guarantees leaseholders receive at least 12.5 percent of the value of gas extracted.

    The lobbying effort follows several years of complaints by landowners in Bradford, Susquehanna, Wyoming and Lycoming counties about the business practices of Chesapeake Energy LLC in using deductions to cut royalty payments.

    “I am really concerned about a major injustice to the landowners of Pennsylvania,” Joe Moore, a Wyalusing landowner, said Tuesday.

    He said his mother signed gas leases to allow drilling on 90 acres of property she owns but has not received royalty payments in some months recently because of the extent of company deductions.

    Mr. Moore spoke of other landowners who report receiving no royalties and even notices saying they owe money to drilling companies.

    He said state government is losing money, too, from reduced royalty payments for drilling on state forest land and gamelands.

    County commissioners from the drilling region are expected to lobby on the bill next week. The National Association of Royalty Owners Pennsylvania Chapter is coordinating the lobbying.

    Supporters face a challenge in making headway with a bill that has drawn opposition from the gas industry and lawmakers in drilling regions in western Pennsylvania. Supporters face the hurdle of winning passage of the bill in the House and Senate with limited days left in the 2015-16 legislative session.

    “I’m hoping there will be a vote in the House,” said Rep. Sandra Majors, R-111, Bridgewater Twp., a bill co-sponsor.

    The House Environmental Resources and Energy Committee voted in June to approve the royalty bill in recognition of the issues facing landowners, said Steven Miskin, spokesman for House Majority Leader Dave Reed, R-62, Indiana. However, many lawmakers have concerns about the bill’s impact on contract language, he said.

    A royalty bill reached the House floor in the previous legislative session only to get bogged down with inconclusive debate over an amendment by a western Pennsylvania lawmaker to give landowners some remedies to pursue complaints about royalties.
    Back to Top

    Alternative Energy

    China on a wind power frenzy

    China has been building two wind turbines every hour, being the world's biggest program of turbine installation which doubles that of its nearest rival -- the US, BBC News reported, citing the International Energy Agency (IEA).

    The nation's entire annual increase in energy demand has been fulfilled from the wind. But the IEA warned China has built so much coal-fired generating capacity that it is turning off wind turbines for 15% of the time, the report said.

    In the province of Gansu, 39% of wind energy has to be turned off because there is not enough capacity on the grid.

    A sustainable development in wind power will need strong policy decisions, including the construction of many more grid lines and a phase-out policy for older, more inefficient coal power plants. China has planned to impose a moratorium on all new coal-fired plants until 2018.

    China installed more than 30 GW of new wind energy in 2015 – partly thanks to a rush driven by the Chinese government making its existing subsidies less attractive.

    Construction has slackened in 2016, but only to a level of more than one turbine per hour.
    Back to Top

    Panasonic Provides the "Power Supply Station"; a Stand-Alone Photovoltaic Power Package to Off-Grid Areas in Myanmar

    Panasonic Corporation provided the Power Supply Station; a stand-alone photovoltaic power package, to the village of Yin Ma Chaung, a Magway Region of the Republic of the Union of Myanmar. The Power Supply Station is installed as part of a CSR effort by the Sustainable Alternative Livelihood Development Project, supported by the Mae Fah Luang Foundation under Royal Patronage (MFL Foundation) of the Kingdom of Thailand. This project was rolled out in partnership with Mitsui & Co., Ltd as one of their CSR activities, and funded by donations to support the mission of the MFL Foundation's activities.

    Panasonic provides the "Power Supply Station"; a stand-alone photovoltaic power package to off-grid areas in Myanmar

    Panasonic’s power supply station consists of solar modules and storage batteries, which enables energy to be created, stored and managed efficiently. The whole system is able to supply electricity to the entire village, relieving approximately 140 households in the non-electrified mountainous village by powering up electrical appliances and lights, which are essential and important in daily lives.

    The presence of lightings in the village makes it possible for villagers to move around during the night, as prior to that; they were unable to do so since the area is inhabited by poisonous snakes. In addition, all the street lights have time-switch LED bulbs that could also make use of limited electricity, efficiently.

    In Myanmar, its off-grid areas are said to be at the highest level among the ASEAN countries, at approximately 68%1 across the nation. In its countryside, the number reaches to an estimate of 84%2households being unconnected to electricity. To step up on its efforts, Panasonic also installed a refrigerator in the village’s meeting area to store anti-venom drugs. With a well-powered point, the meeting area has thus serves as a center for welfare, entertainment and other purposes.
    Back to Top

    Making Money with Batteries

    Venture capital investments in the energy storage sector topped $175 million in the first half of 2016, according to Mercom Capital Group, whose analysis shows that lithium-ion and sodium-based batteries received the lion's share of that money. There is no doubt that batteries will be a large part of the renewable energy future because they enable greater amounts of renewables to be connected to the grid. However, that future may be farther away than one might think, especially after visiting energy storage conferences and trade shows and talking to vendors.

    "What you are up against is the wishful thinking that this is right around the corner but they're just not," said Andy Skumanich, founder of SolarVision Consulting and author of a recent report on energy storage.

    Skumanich was referring to the residential energy storage technology vendors that were on display at Intersolar's EES North America in July.

    "Resi solar really isn't a real market and the reason for that is because a diesel generator is just so cheap," he said.

    He added: "To some extent if you are getting repeated blackouts, you buy this capital equipment that sits there for 99 percent of the time and then for one percent of the time you use it. So to me, it just doesn't make a compelling business prospect."

    Skumanich believes that in the developed and industrialized world, where we already have a fairly robust grid, energy storage such as batteries will not be economically viable until storage costs come down considerably or grid power becomes overly expensive.

    Image: Redflow's LSB [large-scale battery] product installed at an office building in Adelaide, Australia. Credit: Redflow.

    Money-making Markets

    There are some markets where energy storage does make economic sense, according to Skumanich, who said the military is always willing to look at new technologies that could save the lives of soldiers in the field who have to carry fuel.

    "The military is definitely interested in mobile electric capability and they don't want to be hauling diesel around. They don't mind paying extra for batteries," he said.

    In addition, in places where the grid is unreliable or non-existent, batteries are well-suited to solve problems of electricity supply.

    Mio Dart, Systems Integrator Engineer with Redflow, an Australian company that manufactures a zinc-bromide flow battery, said that she sees a lot of promise for battery manufacturers to make money in markets where the grid is unstable.

    "A lot of cities in the developing world only get power 6 or 8 hours a day and you have to deal with not having grid power the rest of the time and that's just part of everyday life," she explained.

    Attached Files
    Back to Top


    China slaps anti-dumping duties on U.S. distillers grains

    China said on Friday it is slapping anti-dumping duties on U.S. distillers' dried grains (DDGS) shipped by some of the biggest suppliers of the animal feed ingredient, including Louis Dreyfus [AKIRAU.UL] and Archer Daniels Midland.

    The duties of 33.8 percent are effective immediately, the Ministry of Commerce said in a preliminary ruling. The move comes after a months-long probe following complaints by China's ethanol producers that the U.S. industry was unfairly benefiting from subsidies.

    It did not give a timing for a final decision.

    China is the world's top buyer of DDGS, a by-product of corn ethanol that is used by feed mills as a substitute for corn and soymeal. China imports almost all of its needs from the United States, the largest exporter.

    The move could intensify a spat between the world's two-largest economies over agricultural trade policy, and also comes as the countries are embroiled in disputes over China's exports of steel and aluminium.

    In the near term, the impact on trade may be limited as exporters have already curbed shipments into China since the investigation started in January to avoid any retroactive penalties, traders said.

    Some traders said they had feared duties would be higher, between 40 percent and 60 percent.

    Still the long-awaited decision is a major blow to some of the biggest players in the U.S. ethanol industry, including Poet LLC, Patriot Renewable Fuels LLC, ADM, Louis Dreyfus, Valero Energy Corp and Andersons Inc.

    "The problem is this is just the preliminary result. People are worried that the final one could be even higher," said one Shanghai-based trader.

    China previously launched an anti-dumping investigation into DDGS imports from the United States in late 2010, later extending the probe before dropping it in mid-2012.

    The earlier investigation slowed China's imports of the feed ingredient but did not stop them entirely.

    U.S. farm cooperative CHS Inc. was excluded from the ruling because the information submitted by the company to the government was inconclusive, the ministry said.

    Other companies included in the ruling are: Big River Resources LLC, Marquis Energy LLC; Absolute Energy LLC; Ace Ethanol LLC; Elkhorn Valley Ethanol; Flint Hills Resources LP; Goldan Grain Energy LLC; Illinois River Energy LLC; Louis Dreyfus Commodities Grand Junction LLC.
    Back to Top

    Steel, Iron Ore and Coal

    China's state planner to meet with coal industry on supply, prices

    China has called regulators and company executives from the country's major coal producing regions to an "urgent" meeting on Friday, the second in as many weeks as Beijing tries to overhaul the industry while maintaining supplies to major consumers.

    China is trying to cut inefficient coal production as part of efforts to reduce pollution and trim excess capacity. But tighter supplies and increased consumption during the summer have pushed up prices.

    In a letter dated Sept. 22 and seen by Reuters on Thursday, the National Development and Reform Commission (NDRC) scheduled the meeting in Beijing for regulators from China's top three coal producing regions, Shanxi and Shaanxi provinces and the autonomous region of Inner Mongolia.

    Executives from Shenhua Group Corp and ChinaCoal , along with the China Iron and Steel Association (CISA) and the China National Coal Association will also attend.

    Participants will discuss the industry's "latest problems" as well as supply and demand in the following months, it said.

    "We will study and analyse the latest outlook in coal production, transportation, demand, price and problems," the NDRC said.

    The NDRC did not repond to Reuters' calls seeking comment.

    It is not clear what will be decided at the meeting, but CISA sent a request to the NDRC earlier this month pleading for more supplies of coking coal used for steelmaking, according to a document seen by Reuters.

    The recent production cuts that are part of the NRDC's efforts to get rid of inefficient coal output have choked off supplies of raw material to domestic steelmakers.

    At an industry meeting two weeks ago, producers discussed increasing thermal coal output, partially reversing those cuts, but measures have so far not included coking coal.

    Friday's meeting comes just days after some major producers including Shenhua started ramping up output, putting up to 15 million tonnes of new supply each month on to the market.

    In its letter to the NDRC, CISA noted that coking coal prices have soared 20 percent in the past two months, while imports have climbed sharply.
    Back to Top

    EU clears Vattenfall sale of German lignite assets to Czech EPH

    EU regulators cleared on Thursday Swedish utility Vattenfall's sale of German lignite power plants and coal mines in a deal that will see it divest some of the most polluting fossil fuel generation.

    The deal has whipped up controversy because the operations are being sold to a new operator rather than closed down. Environmentalists say lignite, the most carbon-intensive form of coal, should no longer be burnt.

    Vattenfall has said it will become one of the greenest utilities in Europe and is also planning to sell another coal asset in the next five years.

    The European Commission said it had found the sale to Czech energy group EPH and private equity group PPF Investments would not adversely affect competition in the relevant markets.

    Analysts say the economics of fossil fuel versus renewables have shifted as sources such as wind and solar become cheaper and the regulatory pressure mounts to scrap carbon-intensive coal.

    But many of those still supporting coal say it will have a role as backup for intermittent renewables for years to come and its life-time could be extended if technology to capture and bury emissions becomes commercially viable.

    EPH teamed up with Czech private equity group PPF Investments, to buy the lignite coal assets from Vattenfall for a nominal fee.

    EPH has said the assets were among Germany's most efficient lignite operations and would be among the last to closed without indicating when that might be.

    Once they are shut down, the owners will have to rehabilitate the area, which Vattenfall estimated would cost 1.4 billion euros. ($1.6 billion)

    A report from the Institute for Energy Economics and Financial analysis published on Thursday concluded that could be an underestimate and suggested an upper cost of 2.6 billion euros based on previous clean-up bill.

    EPH and PPF could still make a profit, especially as the price of pollution permits, stuck at around 4 euros a tonne , is very low.

    The Vattenfall sale demonstrates investors will continue in coal until there is regulatory certainty coal-fired generation must end, analysts say.

    "The EPH sale highlights the lack of clarity over the role of lignite, the dirtiest form of coal, in Europe, and the broader regulatory uncertainty over any phase-out," IEEFA analyst Gerard Wynn said.

    Attached Files
    Back to Top

    Goldman lifts coal price view after frenzied rally on China's reform push

    Goldman Sachs has sharply raised its price forecasts for coking coal for the next two years, after this year's frenzied rally fueled by a shortage in China that should revive idled mines from Mozambique to the United States.

    China's push to tackle a coal glut by imposing a 276-day cap on domestic coal mines earlier this year created a significant deficit, lifting the country's coking coal imports by 18 percent over January to August. [MTL/CHINA9]

    The spot price of Australian premium hard coking coal has surged 164 percent this year to $206.40 a tonne on Thursday, making the commodity the best performing among those covered by Goldman.

    Goldman has increased its 2017 forecast for premium hard coking coal from Australia's Queensland by 64 percent to $135 a tonne. It raised its 2018 estimate by 47 percent to $125.

    "In our view, the impact of Chinese government policies on the global market will continue long after production volumes have recovered," Goldman analysts Christian Lelong and Callum Bruce said in a report.

    While Chinese policy makers will eventually have to relax production limits, supply-side reforms aimed at ensuring the survival of domestic miners should result in a higher equilibrium price for seaborne coal, they said.

    "The main beneficiaries of higher-than-expected seaborne demand are the United States, Australia and Mozambique."

    The resumption of idled U.S. mines is likely to boost export volumes and help reverse a multi-year drop, while higher prices should encourage a 22-million-tonne coal project in Moatize, Mozambique to be fully operational, the analysts said.

    Surging coal prices are prompting many Chinese steel mills to opt for higher grade iron ore to boost efficiency and use less coal, forcing suppliers of low-grade ore from India and Iran to offer deep discounts to attract buyers.
    Back to Top

    Ex-limo firm, billionaires bet on iron-ore with mines, M&A

    The global iron-ore market is awash with supply and prices remain volatile, but a former Chinese limousine rental service and a billionaire New Zealand family are among producers and developers wagering new mines will be needed.

    Their focus is Western Australia, the industry heartland in the world’s top exporting nation, where there’s about A$10.5-billion ($7.9-billion) of possible or planned developments and a further A$1.9-billion committed to or under construction, according to state government data.

    Prices have steadied after three straight annual declines, advancing about 28% this year on improved steel demand in China, supported by construction and infrastructure spending, and as domestic output wanes, boosting imports. A surplus in the seaborne market will peak in 2017, with a deficit emerging by 2019 even as major projects including billionaire Gina Rinehart’s Roy Hill deliver new supply, according to RBC Capital Markets.

    “We missed the boom, when a lot of people made money – but we also missed the collapse,” said  Hendrianto Tee,business development director for Brockman Mining, which is targeting shipments in early 2018 from a planned 2.5-million metric ton-a-year mine. “We’ve kept working on it, and with some opportunities coming up, we’re taking advantage of that to move into production.”

    Hong Kong-based Brockman, which sold its limousine hire and airport transfer unit in 2013, joins a range of companies planning or studying projects or restarts in Australia, including BC Iron, Mount Gibson Iron and Iron Road. New Zealand’s Todd Corporation last month took control of Flinders Mines, which has a planned project in Western Australia with an estimated initial cost of A$800.

    Brockman, which changed its name from Wah Nam International Holdings in 2012 after  acquiring an Australianiron-ore producer, this year won a court ruling to secure potential access to a Pilbara railroad and in March signed an agreement for logistics services with Sydney-based Qube Holdings.

    The iron-ore developer is in talks over funding options for its proposed A$60-million Maverick project and negotiating access to Port Hedland’s Utah Point, Tee said. Constructionmay begin in the first quarter of 2017. Brockman insists Chinese domestic iron ore production will continue to decline, boosting the prospects for exporters.


    Brockman is targeting free-on-board costs of $35 a ton for Maverick, hoping to reap savings from lower contractor rates after commodities cratered to a 25-year low in January. The developer is also now able to use an existing road network totransport its ore, according to Tee. “At the current price, it’s a very good margin,” he said. Benchmark iron-ore rose 0.2% Wednesday to $55.87 a ton, according to Metal Bulletin data.

    Iron-ore for January delivery rose 3.3% to 412 yuan ($61.78) a ton on the Dalian Commodity Exchange at 4:11 pm inSydney, set for the biggest advance for a most-active contract since August 16.

    New Zealand’s billionaire Todd family, which has interests ranging from energy retailing to property, is studying development of the proposed A$2.8-billion Balla Ballainfrastructure project, which could be integrated with Flinders’ potential 25-million tons-a-year mine, according to filings.

    Todd sees the central Pilbara region as an attractive source of supply “if and when the conditions in the iron ore market recover and stabilise” to make its port, conveyor and railproject feasible, it said in a March exchange filing. The company declined to comment further on its plans.

    With iron ore trading more than 70% lower than its 2011 peak, others have instead chosen to mothball plans for newoperations. China’s Baosteel Group, the nation’s second-largest steelmaker, and partners in December halted a proposed A$6.8-billion iron-ore project in Australia.

    “The idea of new developments was totally quiet in the first half, until things started taking off and people got a feeling that the price might hold up for longer,” Tony Hespe,Sydney-based iron-ore industry director at researcher AME Group, said by phone.

    Small-sized developers need to remain wary, as the largest exporters could quickly raise low-cost supply to squeeze out new entrants, he said.
    Back to Top

    China's Baosteel details Wuhan deal to forge ArcelorMittal rival

    China's Baosteel Group fleshed out its plans to buy rival Wuhan to create the world's second-largest steelmaker behind ArcelorMittal on Thursday, part of Beijing’s effort to consolidate its fragmented steel industry.

    Earlier, the government gave the long-awaited deal its approval and in a detailed statement, Baosteel said it will buy Wuhan Steel at 2.56 yuan ($0.3839) per share by issuing new shares at 4.6 yuan per share, valuing Wuhan at 3 billion yuan.

    The new entity will be named China Baowu Steel Group, Baosteel Group's listed units Bayi Iron & Steel and Baosteel Packaging said in a filing.

    Based on 2015 capacity, the two companies will produce about 60 million tonnes a year, leapfrogging Hebei Iron and Steel into the top spot among China's steelmakers.

    Baoshan Iron & Steel, Baosteel Group's main listed unit, will issue new shares to shareholders of Wuhan Iron & Steel to absorb the company, a plan that is subject to government approval.

    The government wants 60 percent of national output to come from the top 10 steel makers by 2025, up from less than 40 percent now as well as to build 3 to 5 giant steel mills.

    The move is also part of Beijing's efforts to streamline its inefficient state-owned enterprises in industries from shipbuilding to materials and railways.

    The creation of Baowu Steel will cut to 103 the number of companies run directly by the central government, down from 111 at the start of the year, and the figure could eventually reach 40, state media have reported.

    Amid concerns about plunging profits, soaring debt and chronic inefficiency, China's reform program aims to eliminate duplication, waste and "cut-throat competition" between firms with nearly identical business structures.

    China's delayed merger of Angang and Benxi Steel would be next on the list of priorities, following the restructuring of Baoshan Iron and Steel and Wuhan Iron and Steel.
    Back to Top

    China's August ferroalloy output falls 9% on year to 3 mil mt: NBS

    China's August output of ferroalloys stood at 2.95 million mt, down 9% year on year, according to latest data from the National Bureau of Statistics.

    The August figure also was down 4.8% month on month.

    The report did not provide a breakdown on the export of the various ferroalloys. Some of the commonly exported ferroalloys include ferrosilicon, silicomanganese, ferrochrome, ferromolybdenum and ferrotungsten.

    Ferroalloys are used in the production of steels and alloys.

    Over January-August, output totaled 23.45 million mt, down 2% year on year.

    NBS updates its production figures without prior notice from time to time.

    Attached Files
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP