Mark Latham Commodity Equity Intelligence Service

Wednesday 21st October 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Brazil Impeachment Papers About to Drop as Crisis Hits New Stage


    For the second time in Brazil’s 30-year-old democracy, the country finds itself lurching toward the impeachment of its president.

    A group of high-profile lawyers plans to file a request Wednesday to begin the proceedings, nudging President Dilma Rousseff closer to being ousted after months of will-she or won’t-she-be-impeached speculation that has paralyzed Congress, rattled financial markets and deepened an economic slump.

    If lower house President Eduardo Cunha, a Rousseff rival, accepts the request, it will trigger a months-long process and exacerbate the drama of corruption and political infighting that has highlighted Brazil’s fall from emerging-market darling.

    Weakened by a bribery scandal that started at the state-run oil giant and has helped push her approval ratings to record lows, Rousseff is accused of doctoring the government’s 2014 and 2015 fiscal accounts. While the outcome of the impeachment effort is far from clear, economists and investors agree: The political stalemate needs to be resolved -- and quickly.

    Without stability in the capital, they say, Latin America’s biggest country will struggle to shore up its soaring budget deficit, win back investors and rebound from what’s projected to be the longest recession since the Great Depression.

    Fast Resolution

    “A fast resolution would be good, one way or the other, but then it really depends what type of political reality emerges at the end of the process,” said Alberto Ramos, chief Latin America economist for Goldman Sachs Group Inc. “Nobody can claim to know what’s going to happen next. We just know which questions to ask, but we don’t know the answers.”

    Rousseff has maintained throughout the spreading scandal that she hasn’t done anything wrong and declined to comment for this article.

     “Government action will not be impeded by the opposition,” she told journalists in Helsinki on Tuesday. “No matter how many impeachment requests they make.”

    While at least two dozen already have been filed, this one is different because of who is submitting it: lawyer Helio Bicudo, a prominent former member of Rousseff’s Workers’ Party, and former Justice Minister Miguel Reale Junior. The nation’s largest opposition party supports the petition.

    Bicudo and Reale argue that Rousseff doctored accounts to hide the severity of a budget deficit. The country’s audit court already rejected her 2014 financial practices, which may provide legal grounds for the impeachment charges.

    Impeaching a president in Brazil requires several steps: The lower house must accept the petition, examine it and put it to a vote. Two thirds of the lawmakers must back the charges for the petition to go to the Senate, which will make the final decision.

    If Rousseff is removed from office or resigns, Vice President Michel Temer would take over and finish her term, which ends in 2018.

    http://www.bloomberg.com/news/articles/2015-10-21/brazil-impeachment-papers-about-to-drop-as-crisis-hits-new-stage
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    Vedanta Shares Drop as Company Refutes Reports of CEO Leaving


    Vedanta Resources Plc, the Indian metals and oil producer controlled by billionaire Anil Agarwal, fell to the lowest in almost two weeks as the company refuted a report that Chief Executive Officer Tom Albanese would stand down.

    Albanese will step down as head of Indian mining unit Vedanta Ltd. in March next year and will be replaced by former Anglo American Plc CEO Cynthia Carroll, whom the company hired last month as an adviser, Indian television station ET Now reported on its Twitter account. Vedanta is scheduled to report its interim earnings result on Nov. 4.

    Albanese “will continue to drive the Vedanta business and serve as the group CEO,” the London-traded parent company said in an e-mailed statement following the report. “As to some queries on the status of Ms. Cynthia Carroll, she will provide her invaluable support to the Chairman’s office on matters of strategic importance to the company.”

    Carroll, who was Anglo American CEO from 2007 to 2013, was last month appointed to chair Vedanta Resources Holdings Ltd. and advise the group-level chairman Agarwal on “corporate development and significant value-creation opportunities,” according to the statement announcing her hire.

    Albanese was appointed to head Vedanta in April last year following a six-year stint as CEO of Rio Tinto Group. He headed Rio at the same time Carroll was running Anglo before both departed after over-paying for acquisitions.

    “When Albanese joined Vedanta, it was the first time they got somebody professional from outside at the top,” Giriraj Daga, a portfolio manager at SKS Capital & Research Pvt. in Mumbai, said by phone. “The idea was that things were changing. So now people will see any management change as a negative."

    http://www.bloomberg.com/news/articles/2015-10-20/vedanta-shares-drop-as-company-refutes-reports-of-ceo-leaving
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    Yum! Brands Splits In Two: Will Spin Off China-Facing "Bad Yum"


    When just days after Yum! Brands saw its biggest earnings disappointment in years sending its shares cratering following Chinese results which cames orders of magnitude below expectations and leading to a major guidance cut, it appointed Icahn protege, activist investor Keith Meister to its board, many speculated that some major spin-off, or split of the company's China facing assets, was just a matter of time. And so it was, less than a week to be precise. Moments ago Yum! Brands announced its intention to split into two companies creating a publicly traded Yum! China or ("Bad Yum") which will contain the ongoing Chinese weakness, while keeping legacy Yum! Brands.

    How this is good for the company in the long-run is anyone's guess, but at least it confirms that in the short run, China will get much worse before/if it gets better, as the 4% jump in the stock price confirms.

    http://www.zerohedge.com/news/2015-10-20/yum-brands-splits-two-will-spin-china-facing-bad-yum
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    BHP lifts iron ore output, cuts $200 mln from petroleum unit


    BHP Billiton boosted September quarter iron ore production by 7 percent on Wednesday, while maintaining full-year guidance and shrugging off growing concerns of a mounting global supply glut.

    The mining giant also trimmed its planned capital spending in oil and gas, finding a further $200 million in cost savings as it tightens its belt during a commodities downturn driven by softer demand in China.

    "BHP Billiton remains on track to meet full-year production and cost guidance after a solid operational performance this quarter," Chief Executive Andrew Mackenzie said in the report, ahead of the company's annual meeting in London on Thursday.

    At its projected iron ore production rate, BHP will retain its world number three ranking in output and exports of the steel-making commodity, which accounts for more than half its revenue and profits.

    Iron ore miners have been on a drive to lower their iron ore production costs to close to $10-$15 a tonne to keep ahead of the deterioration in pricing.

    BHP, which posted quarterly output of 61 million tonnes, plans production of 247 million tonnes in the year to June 30, 2016, up 6 percent on a year earlier, ranking it behind Vale and Rio Tinto .

    Vale this week said it produced a record 88.2 million tonnes of iron ore in the September quarter, just ahead of Rio Tinto, and would also continue to increase output.

    In copper, BHP said quarterly production fell 3 percent to 377,000 tonnes as a strong operating performance was offset by the mining of less rich ores at its majority-owned Escondida mine in Chile.

    However, its guidance for the 2016 financial year remained unchanged at 1. 5 million tonnes.

    The petroleum division's output fell by 4 percent to 64.5 million barrels of oil equivalent, although it still expects meet a target of 237 million barrels for the year.

    In the United States, the company has cut the number of its onshore drilling rigs from 10 to seven and is deferring some development activity.

    "With lower oil prices, BHP still wants to get the barrels out the door, but at the lowest cost possible," said Stock Resource mining analyst Mark Gordon.

    Despite the output slip, analysts said the petroleum division's quarterly output was better than expected.

    http://www.reuters.com/article/2015/10/21/bhp-australia-production-idUSL3N12K5L120151021

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    Atlas Copco Profit Beats Estimates as Demand Grows in Europe


    Atlas Copco AB, the world’s largest maker of air compressors, reported higher-than-estimated profit in the third quarter and signaled demand is improving in European markets.

    For the second straight quarter, earnings at the Swedish manufacturer hit a new high,  Atlas Copco said in a statement Tuesday. Operating profit jumped 28 percent to 5.31 billion kronor ($640 million), buoyed by the Swedish krona’s weakness that’s boosting earnings of exporters. Analysts surveyed by Bloomberg estimated profit of 5.03 billion kronor.

    Atlas Copco, whose products include rock drills and assembly systems for the manufacturing, mining and construction industries, forecast demand in the coming months will hold steady. Orders jumped 7 percent in local currency in the third quarter. Swedish industrial companies, including Assa Abloy, are benefiting from their historic client bases closer to home after chasing emerging market growth and finding slowing demand in countries such as China.

    “Sectors such as aerospace and automotive showed good demand for our industrial tools and assembly systems, but mining, oil, gas sectors were weak,” Chief Executive Officer Ronnie Leten said in the statement.

    Exchange rates had a positive impact of 670 million kronor on earnings. Revenue increased 9 percent to 25.7 billion kronor, compared with the 25.4 billion-krona average of 16 analyst estimates compiled by Bloomberg. Excluding acquisitions and currency effects, revenue was unchanged.

    http://www.bloomberg.com/news/articles/2015-10-20/atlas-copco-profit-beats-estimates-as-demand-grows-in-europe

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    Oil and Gas

    OPEC view on non OPEC production, Oct 2015


    Non-OPEC oil supply development Last year, non-OPEC oil supply witnessed a record-high growth of 2.24 mb/d. OECD Americas saw the highest output of all regions with an increase of 1.92 mb/d, much of which came from non-conventional sources. Actual data for the first half of this year shows non-OPEC supply grew by 1.77 mb/d, before dropping to 0.42 mb/d in the third quarter, according to preliminary data (Graph 1). 

    This declining trend has been driven mainly by the low oil price environment, with prices down by around 50% since 3Q14. As a result, the oil industry has experienced a rapid fall in global upstream spending, down by more than 20%, with North America cutting as much as 35% (Graph 2). This has led to lower activity – less drilling and the delay or cancellation of new projects – which has put pressure on production growth. Moreover, the current price environment has incentivized the entire oil industry to become more efficient and cost effective. 


    Graph 1: Non-OPEC supply growth, y-o-y 




    Image titleThe case of tight oil supply provides a clear example. With the decline in oil prices, rig counts were reduced by half and US shale producers took steps to increase efficiency and cost saving. Smaller operators active in tight oil have been particularly impacted by low prices, as they are usually pressed for cash. Many companies have also attempted to endure by hedging their crude output, as well as securing new loans. More recently, accessing credit has become more challenging as the decline in oil prices has diminished the value of companies’ collateral. This has resulted in less cash available for capex, leading to an evident acceleration in the decline in production in 3Q15. 

    In light of these developments, US liquids output in the last quarter of this year is expected to show a contraction of 0.15 mb/d quarter-on-quarter and by 0.33 mb/d year-on-year, down from 1.91 mb/d in 4Q14. In terms of non-OPEC supply, the impact of lower oil prices on production has resulted in the supply growth forecast being downwardly revised to 0.72 mb/d in 2015, some 0.6 mb/d less than the initial forecast and well below the previous year. 

    In 2016, the postponing or cancelling of upstream projects will likely continue, resulting in contraction of 0.13 mb/d in non-OPEC supply. US oil supply in 2016 is expected to decline by 0.1 mb/d. Production in FSU, Africa, Middle East and OECD Europe is also expected to fall. In contrast, Brazil’s output is projected to increase, although at a slower pace as a number of anticipated projects have been deferred. The 2016 forecast for non-OPEC supply is associated with a high level of uncertainty. Oil price fluctuations and technical challenges – such as unplanned shutdowns and sharper-than-expected decline rates – along with geopolitical conditions could affect non-OPEC supply in the coming year. 

    While the increase in non-OPEC supply last year was more than twice that of global oil demand growth, this relationship is expected to flip this year before widening further in 2016 so that world oil demand growth exceeds the change in non-OPEC supply. This should reduce the excess supply in the market and lead to higher demand for OPEC crude. Required OPEC crude in 2016 is expected to average 30.8 mb/d, with the second half of the year reaching as high as 31.4 mb/d, resulting in more balanced oil market fundamentals.

    http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMROctober2015.pdf

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    China crude stocks up for fourth straight month


    China registered a crude stock build for the fourth straight month in September at 784,000 b/d on an increase in net imports and a decline in refinery throughput, Platts calculations based on recently released official data showed.

    The crude stock build compared to the 47,000 b/d rise in August.

    China does not release official data on stocks. Platts calculates China's net crude stock draw or build by subtracting refinery throughput from the country's crude oil supply.

    The latter takes into account net crude oil imports and domestic crude production.

    The build in September resulted in an average of 755,000 b/d of stock build, or total 92 million barrels, over this stockbuilding wave that started in June -- higher than the 572,700 b/d, or total 68.72 million barrels, in the previous four-month wave seen over November 2014 to February 2015.

    Moreover, this wave is likely to extend to November.

    Chinaoil, the importing arm of state-owned oil giant PetroChina, alone purchased 72 crude cargoes of 500,000 barrels each during the Platts Market on Close assessment process in August.

    The delivery month for these will fall across October and November, which will likely push up imports in November.

    On the other hand, Chinese independent teapot refineries, which have been given import quotas in recent months, are in a hurry to import crude, sources have said.

    All this suggests that the country is speeding up stockbuilding.

    China is planning to have a strategic petroleum reserve to cover 90 days of its net crude imports in 2015.

    "To meet these targets, an estimated 600 million barrels of crude will be needed by the end of this year," said James Lu senior analyst from Platts China Oil Analytics.

    A total of around 8 million cu m (50.3 million barrels) of SPR storage facilities are scheduled to be put into operation by the end of this year, while more independent companies are building oil storage, which will allow more crude inflows to oil tanks in China.

    http://www.platts.com/latest-news/oil/singapore/china-crude-stocks-up-for-fourth-straight-month-27893910
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    Iran Plans 20-Year Contracts as Incentive for Energy Investments


    Iran will pay foreign oil companies larger fees than it did under previous buy-back contracts to attract $100 billion of investments needed to rebuild its energy industry.

    The Persian Gulf state, once OPEC’s second-largest crude producer, will also offer 20-year contracts on oil and natural gas projects, Roknoddin Javadi, managing director of state-run National Iranian Oil Co., said in an interview in Tehran.

    “What’s been announced so far looks like an attractive contract -- no doubt it’s a vast improvement on the buy-back contracts,’’ saidRobin Mills, a Dubai-based consultant who worked formerly for Royal Dutch Shell Plc on projects in Iran from 1998 to 2003.

    New contract terms will be introduced next month, as part of plans to boost oil production to 5.7 million barrels a day and gas output to 1.4 billion cubic meters a day by 2021, Javadi said.

    “The new contract that we’re going to present has raised the opportunity for those who invest to be able to participate in operation and production for a long term, let’s say 20 years,” he said. “This is the major incentive.”

    Iran’s previous buy-back contracts merely paid oil companies a fixed fee over five to seven years, without giving investors a share of a field’s production in the longer term. The new contract will link payments to oil companies to the quantity they produce, Javadi said.

    The new contract looks more appealing to investors than the service fees offered by neighboring Iraq, and it shares some features with the production-sharing agreements in common use elsewhere in the oil industry, Mills said. Investors will apparently have an incentive to produce more oil and develop a field for much longer than permitted under a buy-back, he said.

    “It’ll be one of the most attractive contracts in the Middle East for the size and quality of the fields that are being offered,” Mills said.

    Iran will present its new oil and gas contracts on Nov. 27-28 in Tehran, Javadi said.

    The country has already lined up buyers in Europe and Asia for increased oil production it plans as soon as sanctions are lifted, Javadi said. The country will pump and sell 500,000 barrels a day in additional oil within a week of sanctions being lifted and will raise that by at least another 500,000 barrels a day within six months, he said.

    http://www.bloomberg.com/news/articles/2015-10-20/iran-plans-20-year-contracts-as-incentive-for-energy-investments

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    Vitol sees oil struggling to break above $60/bbl by end-2016


    Vitol, the world's largest oil trader, believes the crude price will struggle to trade above $60 a barrel next year, as the effects of slowing global demand growth could be compounded by a return of Iranian and maybe even Libyan barrels.

    Ian Taylor, the chief executive of Vitol, said his company forecast global oil demand growth in 2016 to reach around 1.35 million barrels per day (bpd), slowing from this year's strong expected growth of 1.7 million bpd.

    Cheap oil encouraged record refining runs, but even this has not been enough to absorb oversupply and, as such, the price has held below $50 a barrel for much of the second half of this year .

    Taylor said he expected consumption in China to increase next year, but global demand growth would likely still fall short of the levels seen this year.

    "Will we get 1.7 million barrels a day in 2016? No. I don't think so and that's one of my worries. If we did get 1.7 million bpd in 2016, then we could easily get to $60, but I don't think we will," Taylor told the Reuters annual Commodities Summit.

    The International Energy Agency forecasts demand growth of 1.21 million bpd in 2016.

    Taylor said he did not expect OPEC's meeting in early December to yield any change to the producer group's stance of retaining market share by pumping record amounts of oil. The policy has exacerbated a global glut of crude.

    "I don't expect it, but I'm certainly not going to take any big bets, because it still could happen and all we need is 500 (500,000 bpd) less from Saudi to give the market a bit of a serious shock," he said.

    The consensus among industry players is for Iranian exports to rise by around 300,000-500,000 bpd by next spring.

    "There will be a battle for market share, particularly in Asia and a little bit in the Mediterranean. It will be difficult to place that (Iranian) oil. I think it will depend very much how far U.S. production has gone down by then," Taylor said.

    The risk to the oil market balance is that the void left by shuttered U.S. shale capacity could be quickly filled by Iran and Libya, which is producing around 400,000 bpd, a fraction of the 1.6 million bpd of its heyday prior to 2011.

    "Can the market make room for (Iran)? Probably yes, but I'm not sure the market can make room for that and a doubling or tripling of Libyan production, which is my other big worry," Taylor said.

    "The Libyans could easily get back 300,000 or 400,000 bpd. If you have 500,000 from Iran and 400,000 from Libya and you lose 1 million barrels from the Americans, you're back to where you started, which is why I don't see the market moving hugely."

    http://www.reuters.com/article/2015/10/20/commodities-summit-vitol-reuters-summit-idUSL8N12K2HG20151020
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    'Costs cut' on Johan Castberg


    Statoil has reportedly cut costs by more than 30% on the stalled Johan Castberg field project in the Barents Sea off Norway, with the state-owned operator still on course for a concept decision next year.

    http://www.upstreamonline.com/live/1414471/costs-cut-on-johan-castberg?utm_source=twitterfeed&utm_medium=twitter
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    Genel Cuts 2015 Oil Output Forecast on Iraq Payment Delays


    Genel Energy Plc, an oil producer in Iraqi Kurdistan, reduced its output forecast for this year after suffering delays to payments for its exports.

    The London-based company said Tuesday it expects to pump 85,000 to 90,000 barrels a day in 2015, compared with a previous forecast of 90,000 to 100,000. It also lowered guidance for spending and revenue. Shares of the company dropped 5.8 percent.

    Oil producers in Kurdistan including Genel, Gulf Keystone Petroleum Plc and DNO ASA have been caught for years in a spat over revenue-sharing between the regional authorities and Iraq’s federal government. In December, both parties agreed to allow increased oil shipments, yet payment eluded the companies untillast month as the oil-price slump and the costs of fighting Islamic State militants put pressure on government resources.

    “Given the payment situation has been irregular, we stopped investing in the drilling of the fields,” Genel’s Chief Financial Officer Ben Monaghan said in a phone interview. “Inevitably with conventional oil fields, if you stop investing, the production will begin to decline.”

    The Kurdish authorities resumed payments to oil companies in September. Genel said in a separate filing Tuesday that partners in the Taq Taq oil field received a gross payment of $30 million for exports, of which its own share was $16.5 million, matching the amount received last month.

    The company is still awaiting a payment for its share of the Tawke field which should be “imminent,” Andrew Benbow, a Genel spokesman said. Genel received a payment of $8 million for its share in the Tawke field last month.

    “The reduction of production at Taq Taq and Tawke in the current uncertain political context in Kurdistan is an issue,” FirstEnergy Capital LLP wrote in an e-mailed note. “We appreciate this is likely to be a way to put pressure” on the Kurdish authorities to boost payments, it said.

    Genel lowered its capital-expenditure forecast for this year to $150 million to $175 million from previous guidance of $150 million to $200 million. The company also narrowed its forecast range for 2015 sales to $350 million to $375 million from $350 million to $400 million, based on a Brent price of $50 a barrel in the fourth quarter. Brent is currently trading at about $48.50.

    http://www.bloomberg.com/news/articles/2015-10-20/genel-cuts-2015-oil-production-forecast-on-iraq-payment-delays

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    Russia's Gazprom Says 2015 Investment Program Revised to 1.043 Trillion Roubles


    Russia's Gazprom has revised its 2015 investment programme to 1.043 trillion roubles ($16.8 billion), the state gas company said in a statement on Tuesday.

    It said that represented an increase of 238.7 billion roubles compared with a preliminary figure given late last year.

    - See more at: http://www.rigzone.com/news/oil_gas/a/141178/Russias_Gazprom_Says_2015_Investment_Program_Revised_to_1043_Trillion_Rou?rss=true#sthash.aXTmWGmn.dpuf
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    Saudi Arabia’s SABIC reports 9.4pct drop in Q3 profit


    Image Source: presstvSaudi Arabia’s petrochemicals giant, Saudi Basic Industries Corp. (SABIC), has reported a 9.4-percent profit loss in the Q3 of this year as a result of a decline in the price of its products.

    SABIC, which is the Middle East's largest listed company, posted a net profit of SAR 5.6 billion in the July to September period this year compared with SAR 6.18 billion in the corresponding period last year.

    The company, however, did not provide any explanation for the price drop.

    According to the statement, SABIC’s net profit in the first nine months of the year also dropped 17.7 percent. It net income in the first three quarters of 2015 stood at SAR 15.7 billion compared to SAR 19.1 billion in the same period in 2014.

    Mr Yousef Abdullah al-Benyan, the company’s acting chief executive, said that SABIC, which is 70-percent state-owned took steps to cut costs by an average of 22 percent during the first three quarters of this year.

    Mr Benyan said that cost reduction helped mitigate the impact of a 22-percent fall in the company’s third-quarter sales to SAR 37.3 billion from SAR 48.7 billion a year earlier, but did not explain on how SABIC reduced costs.

    http://steelguru.com/infra/saudi-arabia-s-sabic-reports-9-4pct-drop-in-q3-profit/437237#tag
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    U.S. oil output slide looms as shale firms hit productivity wall


    Stagnating rig productivity shows U.S. shale oil producers are running out of tricks to pump more with less in the face of crashing prices and points to a slide in output that should help rebalance global markets.

    Over the 16 months of the crude price rout, production from new wells drilled by each rig has risen about 30 percent as companies refined their techniques, idled slower rigs and shifted crews and high-speed rigs to "sweet spots" with the most oil.

    Such "high-grading" helped shale oil firms push U.S. output to the loftiest levels in decades even as oil tumbled by half to less than $50 a barrel and firms slashed rig fleets by 60 percent.

    But recent government and private data show output per rig is now flatlining as the industry reaches the limits of what existing tools, technology and strategies can accomplish.

    "We believe that the majority of the uplift from high-grading is beginning to wane," said Ted Harper, fund manager and senior research analyst at Frost Investment Advisors in Houston. "As a result, we expect North American production volumes to post accelerating declines through year-end."

    Drillinginfo, a consultancy with proprietary data, told Reuters well productivity has fallen or stabilized in the top three U.S. shale fields - the Permian Basin and Eagle Ford of Texas and the Bakken of North Dakota - since July or August.

    The U.S. Energy Information Administration, whose benchmark drilling productivity index is based in part on Drillinginfo data, forecasts next month's new oil production per rig in U.S. shale fields to stay at October levels, which it estimates at 465 barrels per day (bpd).

    The big challenge of shale oil work is that well output drops off quickly - often more than 70 percent in the first year alone. So producers need to keep squeezing more oil out of new wells drilled by the currently deployed rig fleet just to offset steep declines in what existing wells produce.

    OLD WELL DRAG

    If that is no longer possible and firms remain reluctant to add rigs because of low crude prices and an uncertain outlook, overall production is set to sink. (Graphic:link.reuters.com/jem85w)

    Chip Davis, managing partner at energy venture capital firm Houston Ventures, says the downward pull of declining output from older wells is getting stronger.

    In the Eagle Ford, production from so-called legacy wells fell by 145,485 bpd last month, a drop that was 23 times larger than the 6,293 bpd lost in September of 2010, before the fracking boom brought thousands more wells online.

    "The boulder that is decline is much bigger in size and rolling much faster than before," Davis said. "We've got very few rigs to buttress the rate of decline."

    That growing drag suggests the fall in U.S. output could be sharper than a 10 percent drop the EIA sees between a peak of 9.6 million bpd in April and next August, when it expects production to bottom at 8.66 million bpd before starting to recover.

    Producers' coping strategies with the worst cash crunch in years could be also hurting productivity of new wells.

    To save money, many have started drilling shorter and cheaper vertical wells. They have also cut back in some cases on the size of multi-million dollar hydraulic fracturing jobs for long horizontal wells. Both factors can hurt the average amount of oil being added by new wells.

    Analysts say it is hard to predict how much U.S. output will fall and whether it will undershoot official forecasts because lower production could lift prices and that in turn might prompt producers to redeploy idle rigs to pump more.

    But for now, most companies are budgeting less next year for new drilling work and the U.S. rig count has tumbled to 595, according to Baker Hughes.

    Analysts at Bernstein Research have said that productivity gains so far in this downturn have come from improved efficiency rather than fundamental leaps in technology.

    Yet such advances, which are hard to predict, would be necessary to boost productivity again because analysts say shale firms seem to have fully exploited techniques such as drilling multiple wells from one location, drilling longer horizontally, and more intensive fracturing along a well bore.

    Initial production rates for new wells in major oil basins also appear to be slowing, Bernstein analysts said, citing their analysis of peak rates dating back to 2009.

    "Shale inefficiencies will be unable to overcome rig count collapse, leading to a roll in production which is bullish for oil price," they said.

    http://www.reuters.com/article/2015/10/21/usa-oil-productivity-idUSL1N12J2K220151021

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    U.S. lawmakers in deal on extending rail safety deadline -senator


    U.S. lawmakers from the House of Representatives and Senate have reached an agreement to extend a Dec. 31 deadline for railroads to implement new safety technology, a leading Republican senator said on Tuesday.

    Senate Commerce Committee Chairman John Thune, a South Dakota Republican, said that talks between the two chambers have successfully bridged differences on a three-year extension of the deadline for railroads to implement positive train control, or PTC.

    "Congress now needs to pass this plan in the coming weeks to avoid service disruptions that will impact shippers across the country and commuter railroad passengers," Thune said in a statement issued by the committee. "This PTC extension will keep the pressure on freight and passenger railroads to ensure safety benefits are realized as soon as possible."

    PTC is a complex communications system that can avoid derailments and other accidents by automatically slowing or stopping a train. U.S. safety officials say the technology would have avoided the May 12 Amtrak derailment that killed eight people and injured more than 200 in Philadelphia.

    Most U.S. railroads are expected to miss the Dec. 31 deadline for adopting the technology and have threatened to suspend freight and passenger service on major lines after Jan. 1, 2016, if lawmakers fail to grant an extension.

    Railroads say PTC implementation has been hampered by high costs, bureaucratic delays and technological hurdles.

    House lawmakers introduced legislation last month to extend the deadline for at least another three years.

    Senators enacted their own bipartisan measure in July that would allow the U.S. Transportation Department to approve extensions on a case-by-case basis.

    Rail operators have warned that they could begin notifying customers of possible service suspensions as early as the end of October.

    http://www.reuters.com/article/2015/10/21/usa-trains-safety-idUSL1N12L01Y20151021
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    Hess Quietly Shops the Rest of Their Ohio Utica Acreage


    In January 2014 Hess Corporation sold 74,000 of its 95,000 100%-owned Utica Shale acreage leases to Aubrey McClendon’s American Energy Partners for $924 million

    After the sale, Hess still owned 21,000 acres of leases plus a 50% share of a joint venture with CONSOL Energy in another 65,000 acres. In January of this year, Hess (like other drillers) cut way back on their budget for Utica drilling.

    It appeared that Hess was still in love with the Utica as recently as August when Hess’ top managers said some flattering things about their Utica acreage. Perhaps that was a buildup to selling their remaining position–because that’s exactly what they’re now doing.

    According to unnamed sources who have seen an offering document being circulated, Hess is shopping all of their remaining Utica acreage, including the jv with CONSOL Energy.

    http://marcellusdrilling.com/2015/10/hess-quietly-shops-the-rest-of-their-ohio-utica-acreage/?utm_source=dlvr.it&utm_medium=twitter
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    Schlumberger in $125-million deal for Vorteq hydraulic fracturing technology


    Schlumberger Technology Corp. has signed a 15-year deal with Energy Recovery, Inc., which grants Schlumberger exclusive rights to Energy Recovery’s VorTeq hydraulic pumping system, the first hydraulic fracturing manifold (“missile”) built to isolate hydraulic fracturing pumps from abrasive proppants that cause pump failure.

    The VorTeq system is a hydraulic pumping system that replaces the missiles traditionally used in hydraulic fracturing. In current operations, the missile routes water, proppants (sand or ceramics) and chemicals downhole at treating pressures up to 15,000 psi.

    However, the proppants cause frequent failures in the high pressure hydraulic fracturing pumps. With VorTeq, high-pressure hydraulic fracturing pumps will process clean or proppant-free water and transfer the hydraulic energy to the hydraulic fracturing fluid within the VorTeq missile.

    Under the terms of the agreement, Schlumberger will pay a $75-million exclusivity fee immediately. Schlumberger will also pay two separate $25-million milestone payments (for a total of $50 million) subject to the satisfaction of certain key performance indicators, which are expected to occur in 2016. The agreement also includes continuing annual royalties for the duration of the license agreement, subject to the satisfaction of certain key performance indicators.

    “We believe VorTeq is a paradigm shift for the hydraulic fracturing industry as it significantly reduces maintenance costs associated with pumping downtimes and provides considerable redundancy efficiencies,” Energy Recovery’s President and CEO Joel Gay said.

    “We believe this technology offers Schlumberger the immediate benefit of reducing wear and tear on its pumps, as well as reducing downtime. In the medium-term, we believe it provides Schlumberger additional savings associated with eliminating redundant equipment onsite,” said Gay. “For a company in this market who wants to keep producing but needs to be mindful of costs, this technology tackles these challenges and delivers meaningful results.”

    The heart of the VorTeq system is Energy Recovery’s Pressure Exchanger technology, which is the leading pressure energy recovery device in desalination with over 16,000 devices deployed globally.

    The technology works by capturing and recycling otherwise wasted pressure energy in fluid flows, by a clean liquid-to-liquid energy exchange between high pressure and low pressure fluids. With a single moving part made of tungsten carbide, one of the most abrasion resistant materials on the planet, the system has been engineered to withstand tremendous pressure and harsh conditions, and transfers up to 95% of the hydraulic energy from one fluid to the next.

    http://www.worldoil.com/news/2015/10/20/schlumberger-in-125-million-deal-for-vorteq-hydraulic-fracturing-technology
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    Kinder Morgan buys some U.S. terminals from BP in $350 mln deal


    Pipeline company Kinder Morgan Inc said it would buy 15 refined products terminals in the United States from a unit of BP Plc in a deal valued at about $350 million.

    Kinder Morgan said on Tuesday that it would hold 14 of the acquired assets under a joint venture with BP.

    Kinder Morgan, which will own 75 percent of the joint venture, will be the sole owner of one of the terminals.

    http://www.reuters.com/article/2015/10/20/kinder-morgan-de-bp-jv-idUSL3N12K4CT20151020
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    Alternative Energy

    1,000 jobs in Holyhead and Port Talbot with £2bn Chinese biomass investment


    A Chinese company is to invest £2bn in two eco-parks in north and south west Wales creating 1,000 jobs.

    SinoFortone Group said the investment would build two 299MWe biomass power stations on Anglesey and in Port Talbot.

    Heat from the plants will be recycled by hydroponic and aquaculture centres, producing prawns and vegetables.

    The announcement was made as Chinese President Xi Jinping started his UK visit.

    Development company SinoFortone Group said it had the support of the Chinese government and it would be the largest biomass power project in the world.

    The project will take three years.

    A co-operation agreement has been signed with the British Orthios Group, whose chief executive Sean McCormick said the "core objective" of the project was to increase the UK biomass energy supply while reducing carbon emissions and increasing food supply.

    A Welsh government spokesman said: "We welcome any further progress on these two projects, which have the potential to create hundreds of jobs and provide a major boost for the local economy."

    A spokesman for Anglesey council said: "This investment will bring a tremendous boost to the economy of the area.

    "This news moves the project considerably closer to being realised."

    http://www.bbc.co.uk/news/uk-wales-34571043
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    GM, LG partnership on Chevy Bolt may be roadmap for future deals


    General Motors Co on Tuesday outlined a wide-ranging partnership with Korean electronics firm LG Corp for production of the 2017 Chevrolet Bolt electric car that could establish a blueprint for such collaborations in the future.

    Several LG subsidiaries, including LG Electronics and LG Chem, have worked closely with GM to develop electric motors, battery cells, dashboard displays and other electronic systems for the Bolt, which goes into production late next year in Michigan.

    The two companies are highlighting their partnership at a time when GM is under pressure from Fiat Chrysler Automobiles NV Chief Executive Sergio Marchionne to explore an alliance to spread the costs of developing electric vehicles and other new technology. GM Chief Executive Officer Mary Barra has rebuffed Fiat Chrysler, saying GM can improve economies of scale and advance new technology strategies in other ways.

    The GM-LG partnership is one of the most extensive yet between a U.S. automaker and an overseas supplier, and will shift more of the development and production cost for the new Chevrolet to a partner with considerable technical expertise.

    The Bolt is designed to be an affordable electric car, priced from around $35,000, with a 200-mile range between charges. The vehicle would compete against BMW AG's i3, the Nissan Leaf and Tesla Motors Inc 's future Model 3.

    LG's initial engagement with GM began in 2007, when LG Electronics provided the vehicle communications module for GM's OnStar telematics system. LG Chem supplied battery cells for the Chevrolet Volt, a plug-in hybrid launched in 2010.

    With the Bolt, GM was able to shift some costs to LG, a consumer electronics company that has been building its connections in the auto industry.

    LG invested more than $250 million in an engineering and manufacturing facility in Incheon, outside Seoul, to develop and build components and systems for the Bolt, according to a source familiar with the deal.

    The supply agreement is a coup for LG Electronics, which is trying to boost its autobusiness amid growing headwinds for its television and smartphone businesses.

    The broad range of products being supplied to GM could enhance LG Electronics' auto business, which recently won contracts to supply information displays to Honda Motor Co and Volkswagen AG's Porsche.

    The evolving auto/tech partnerships could cut both ways. Apple Inc has talked with German automaker BMW AG about collaborating on an Apple-designed electric car, and Google said it is talking to vehicle manufacturers about partnering on a self-driving car.

    http://www.reuters.com/article/2015/10/20/gm-bolt-lg-corp-idUSL1N12G0SD20151020
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    Uranium

    CNNP Jan-Sept power output soar 52pct on yr


    China National Nuclear Power Co., Ltd (CNNP) produced a total 56.89 TWh of electricity in the first three quarters this year, posting a year-on-year increase of 52.08%, showed data in its quarterly report released on October 19.

    The on-grid electricity output stood at 52.96 TWh during the same period, rising 51.66% from the year prior, it said.

    The increase was mainly due to successive operation of new nuclear power generating units from November 2014 to February 2015, including Fuqing nuclear power plant 1# unit, Fangjiashan nuclear power plant 1# and 2# units.

    The company expected its net profit over January-September to rise 30-70% year on year. The net profit generated during the first half of the year posted a year-on-year rise of 149.55%, thanks to the operation of new generating units.

    CNNP, listed in June this year, will put the raised fund into five nuclear power projects with combined installed capacity totaling 10.37GW per annum. As scheduled, the installed capacity of the company would amount to 17.89GW per annum by 2017, a rise of 61.59% year on year.

    http://en.sxcoal.com/0/133320/DataShow.html
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    Agriculture

    Monsanto asks California to pull plan to list herbicide as cancer cause


    A plan by California environmental officials to list a commonly used herbicide as cancer-causing should be withdrawn, Monsanto Co told state regulators on Tuesday, saying California's actions could be considered illegal because they are not considering valid scientific evidence.

    The formal comments were filed by Monsanto with the state's Office of Environmental Health Hazard Assessment (OEHHA), part of California's environmental regulatory office, on the final day the state accepted public comments about its intention to list glyphosate as a cause of cancer.

    The OEHHA gave notice in September that it intended to list glyphosate under Proposition 65, a state initiative enacted in 1986 to inform residents about cancer-causing chemicals. State officials said the action is required after the World Health Organization's (WHO) cancer research committee in March classified glyphosate as a probable human carcinogen.

    The WHO's research unit said it reviewed many scientific studies, including two out of Sweden, one out of Canada and at least three in the United States before making its classification.

    Roughly 8,000 comments were filed regarding the state action, according to officials, including those from Monsanto.

    Listing glyphosate as a cancer cause "has the potential to deny farmers and public agencies the use of this highly effective herbicide," Monsanto said in its public filing. "Global regulatory authorities... agree that glyphosate is not carcinogenic."

    Glyphosate was introduced in 1974 and is the key ingredient in Monsanto's branded Roundup line of herbicides, as well as hundreds of other products. It is registered in more than 160 countries, and has been embraced by farmers, homeowners and others because of its efficacy in killing tough weeds.

    But many scientific studies have raised questions about the health impacts of glyphosate and consumer and medical groups have expressed worries about glyphosate residues on food.

    Since the WHO classification, the New York-based mass-tort firm of Weitz & Luxenberg and other firms representing U.S. farm workers have filed lawsuits against Monsanto, accusing the company of knowing of the dangers of glyphosate for decades.

    Monsanto has said the claims are without merit.

    http://www.reuters.com/article/2015/10/20/usa-monsanto-glyphosate-idUSL1N12K2P820151020
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    Yara profit doubles on GrowHow UK sale; expects natural-gas boost soon


    Norwegian fertilizer producer Yara International ASA said Wednesday it expected a boost from cheap European natural gas in the coming quarters, as third-quarter net profit more than doubled on the year, helped by a sales gain and cheaper energy.

    Net profit was 4.04 billion Norwegian kroner ($496.84 million) compared with NOK1.71 billion a year earlier, as a NOK1.34 billion foreign exchange loss due to the stronger dollar was offset by the NOK3.20 billion gain from the sale of GrowHow U.K. Revenue rose to NOK30.48 billion from NOK24.10 billion a year earlier.

    Excluding special items and foreign exchange losses, earnings-per-share were NOK7.41, compared with NOK7.62 a year earlier, the company said.

    Third-quarter fertilizer prices fell on the year but were countered by higher deliveries, lower energy costs, and a stronger dollar, Yara said. Deliveries grew 1% on the year, mainly due to the acquisitions of OFD in Latin America and Galvani in Brazil.

    The company expects European energy costs to be NOK550 million lower on the year in the first quarter, and NOK300 million lower on the year in the first quarter.

    http://www.marketwatch.com/story/yara-profit-doubles-expects-natural-gas-boost-2015-10-21
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    Precious Metals

    China’s weak demand for diamonds drags sector into slump


    Cooling demand for diamond jewellery in China has come at the same time that prices for rough gems began to dip.

    Weaning demand for diamonds in China, the second largest consumer of precious gems after the U.S., has dragged the seemingly immune-to-the-commodities-rout sector down the slippery slope.

    According to Zimnisky Global Rough Diamond Price Index, prices for the precious rocks have fallen almost 12% in the past year, squeezing producers profits.

    Conditions deteriorated sharply in the second half of this year, when diamond prices took a steep dive. The carnage deepened troubles in the sector, as dealers had already began facing difficulties to sell their existing inventory into softening markets, while also facing tougher financing conditions.

    At the same time, Anglo American-owned De Beers, the world’s No.1 diamond producer, has been increasing spending on marketing in China. The goal, says the company, is to prop up growth and attract new consumers, targeting women between the ages of 18 and 29, and buyers in third- and fourth-tier cities.

    De Beers is saying it’s business as usual; it’s not,” said Guy Harari, co-founder of rough-diamond trading platform Bluedax

    “De Beers is saying it’s business as usual; it’s not,” said Guy Harari, co-founder of rough-diamond trading platform Bluedaxto Bloomberg. “The market is much weaker than what De Beers tries to show the world.”

    The gloomy conditions, however, are set to fade soon, says Rio Tinto, the third-biggest diamond producer. The company believes that China’s demand for diamonds will pick up pace faster than the global average as gains in household wealth drive a demographic and cultural shift across the nation.

    Alan Davies, Rio’s diamonds and minerals chief executive officer, said that as China moves toward a consumption-based economy, sales are likely to grow 8% a year in the next five to 10 years, exceeding the 3% to 5% per annum forecast for the world, he said in an interview withBloomberg.

    De Beers agrees and anticipates an improvement by 2017 at the latest. In the meantime, the company has cut production twice this year by as much as 15%, and lowered prices at its sales, known as sights.

    Russia's Alrosa, the world's top diamond producer by output in carats, is even more optimistic. CEO Andrey Zharkov told Rapaport earlier this month that his company expects rough diamond prices to stabilize by the end of the year.

    http://www.mining.com/chinas-weak-demand-for-diamonds-drags-sector-into-slump/?utm_source=twitterfeed&utm_medium=twitter

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    Steel, Iron Ore and Coal

    Inner Mongolia Oct coal prices continue to dip


    Coal prices at China’s Inner Mongolia Autonomous Region averaged 120 yuan/t in October this year, falling 2 yuan/t from September and down 40 yuan/t from the year prior, showed the latest data from the regional Coal Industry Bureau.

    Of this, the average coal price at eastern region stood at 109 yuan/t, down 14 yuan/t on year and unchanged from September; that at western region decreased 2 yuan/t on month and down 50 yuan/t on year to 124 yuan/t, data showed.

    The average price of western high-vol thermal coals stood at 146 yuan/t, falling 3 yuan/t from September and down 64 yuan/t from a year ago; while the price of western low-vol thermal coals averaged 88 yuan/t, falling 1 yuan/t on month and down 26 yuan/t on year.

    The coking coal price averaged 240 yuan/t, 10 yuan/t lower than September and down 60 yuan/t from the year prior; anthracite price stood at 520 yuan/t in October, falling 10 yuan/t on year and unchanged from September.

    The average ex-plant price of Grade II met coke at Wuhai region—one major production base in western Inner Mongolia—dropped 30 yuan/t from September and down 230 yuan/t on year to 600 yuan/t; the washed coal prices in Wuhai averaged 440 yuan/t, down 14 yuan/t on year and unchanged from last month.

    Lignite prices at eastern Inner Mongolia averaged 109 yuan/t, decreasing 14 yuan/t on year and unchanged from September, said the bureau.

    The imported coking coal price from neighboring Mongolia averaged 260 yuan/t at Ceke border crossing in October, unchanged from September and down 45 yuan/t on year; while imported primary coking coal prices at Ganqimaodu border crossing averaged 430 yuan/t, dropping 20 yuan/t on month and down 58 yuan/t on year.

    http://en.sxcoal.com/0/133289/DataShow.html
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    Yankuang Q3 coal sales down 35pct on yr; outsourced coal sales slump


    Shandong-based Yankuang Group Co., Ltd., parent of Yanzhou Coal Mining Co., Ltd., saw its commercial coal sales fall 34.7% on year to 20.34 million tonnes in the third quarter of the year, it said in the latest announcement on October 20.

    Of this, sales of self-produced commercial coals reached 15.08 million tonnes, down 3.9% on year, while that of outsourced coals plunged 66% on year to 5.26 million tonnes.

    The decline of outsourced coal sales was largely attributed to its higher cost and lower sales prices compared with self-produced coals, with sales price averaging 465.98 yuan/t during the first half of the year.

    In the first three quarters of the year, the company sold a total 63.33 million tonnes of commercial coals, accounting for 51.9% of its annual target. Self-produced coal sales realized 66.4% of its annual target at 69.08 million tonnes, data showed.

    Meanwhile, the company produced 15.29 commercial coals in the third quarter, down 8.3% year on year.

    http://en.sxcoal.com/0/133290/DataShow.html
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    Sinosteel Misses Payment


    China bond defaults are forecast to climb after a state-owned steelmaker missed an interest payment, raising questions about the government’s commitment to stand behind such firms.

    Sinosteel Co. failed to pay interest due Tuesday on 2 billion yuan ($315 million) of 5.3 percent notes maturing in 2017 after saying it will extend the deadline as it plans to add a unit’s stock as collateral. That came after the National Development and Reform Commission planned to meet noteholders and ask them not to exercise a redemption option on Tuesday to force full repayment, people familiar with the matter said last week.

    Chinese authorities are weeding out weak state firms that Premier Li Keqiang called zombies. Australia & New Zealand Banking Group Ltd. warned that rising debt in the sector may drag economic growth down to as low as 3 percent. Two state-owned companies, Baoding Tianwei Group Co. and China National Erzhong Group Co., reneged on obligations earlier this year, according to China International Capital Corp. and China Bond Rating Co.

    “Sinosteel’s default means we will see more and more real bond defaults, in which investors may not get full repayment, in China,” said Ivan Chung, an associate managing director at Moody’s Investors Service in Hong Kong. “The government may want to reduce its intervention in default cases and let market forces play a bigger role.”

    Sinosteel’s failure to pay interest on time constitutes a default, according to Industrial Securities Co., Haitong Securities Co. and China Merchants Securities Co. China Bond Rating Co. said in a report Wednesday if Sinosteel bond investors had agreed to the delay of interest payment, it didn’t constitute a default, whereas if they hadn’t, it did. Sinosteel hasn’t said in its statements whether it got permission from investors, and two calls to the company Wednesday went unanswered.

    Flagging authorities’ balancing act as they try to liberalize markets while preventing turbulence, Li said last week the government will prevent systemic risks and banks should not cut or withdraw lending to companies which are in “temporary” difficulties.

    http://www.bloomberg.com/news/articles/2015-10-21/china-bond-defaults-seen-rising-after-sinosteel-misses-payment

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