Mark Latham Commodity Equity Intelligence Service

Monday 13th March 2017
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    ING, SocGen to test LNG trading with blockchain in months

    Banks ING and Societe Generale are in talks with traders to test liquefied natural gas (LNG) trading based on blockchain, the technology starting to shake up the traditional energy industry.

    Blockchain, which originates from digital currency bitcoin, works as an electronic transaction-processing and record-keeping system that allows all parties to track information through a secure network, with no need for third-party verification.

    While established energy suppliers and traders will continue operating as they are for the foreseeable future, blockchain is starting to break into the power market, nudging the status quo in an industry that has been slow to modernise.

    In February, ING and Societe Generale offered their blockchain platform to trading house Mercuria to sell an African oil cargo to China.

    The banks said their blockchain platform helped Mercuria reduce some processes from three hours to 25 minutes and make cost savings of up to 30 percent, supporting the case for expansion into LNG, natural gas converted to liquid form for easier storage or transport.

    “LNG is an area we definitely want to focus on because it’s a growing market but at the same time it’s controlled by a few very important players,” said ING’s managing director for trade and commodity finance, Patrick Arnaud.

    He is already talking to several companies active in the LNG market about testing a blockchain-based deal within months. He declined to name the companies.

    Mercuria Chief Executive Marco Dunand said last year blockchain payments could slash payment costs in a system stuck in the “17th or 18th century” by some 30 percent.


    Omar Rahim, a former energy trader at big utilities, founded Energi Mine in January to develop a blockchain-based trading platform linking big energy users with battery storage to buy electricity at the cheapest times.

    “For me, it’s the disruption that the energy industry has been waiting for. The companies that are going to dominate the energy sector are not the big generators, they will be the ones who understand data,” he told Reuters.

    Wien Energie is still testing the use of blockchain in wholesale gas trading together with start-up BTL and supported by consultancy EY.

    Big utilities too have started investing in blockchain, exploring the use of the technology in different parts of the sector.

    Germany’s Innogy said it is in talks with European peers Fortum, Enel and Enexis, among others, to apply blockchain technology to their networks of electric car charging stations.

    “This spring we want to offer charging infrastructure whose payment processes are based on blockchain technology,” said Carsten Stoecker, senior manager at Innogy’s innovation hub.

    Blockchain’s ‘smart contracts’, which form the base of two parties making a verified transaction automatically, are a way of enabling consumers to trade spare energy with each other. It still needs to be proven on a wider scale.

    In the U.S., engineer Siemens is cooperating with start-up LO3 Energy to develop a microgrid for blockchain-based energy trades among neighbours in Brooklyn who can sell spare electricity they produce.

    “The use of blockchain technology allows individuals and consumers to cancel out the central authorities or brokers as we’ve seen with bitcoin,” said Thierry Mortier, a partner in EY’s utilities practice.

    The replacement of central authorities in energy trading hits at the heart of exchanges that play a role in facilitating trades.

    But so far, energy exchanges see no threat from the technology.

    EEX, Europe’s largest energy exchange for electricity and gas trading, said its role of linking trading parties with each other would not be compromised.

    Even if entirely new traders emerge, the bourse’s core function to establish benchmark prices and regulate market access would remain its job, said Maximilian Rinck, a strategy and market design expert at EEX.

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    Bitcoin Soars Above $1300 For First Time Ahead Of SEC Decision

    With the SEC decision to approve a Bitcoin ETF looming, the payrolls data-inspired weakness in the USD appears to have sparked a sudden panic bid in Bitcoin, spiking the virtual currency to $1305 - new record highs.

    Hard to say if someone 'knows' something about the SEC decision or this is a kneejerk to the dollar drop...

    Additionally, as Bloomberg points ut, BitMEX, a bitcoin platform, is offering members the ability to place bets using the digital currency on whether the Winklevoss Bitcoin Trust (COIN) will be approved by the SEC. Based on the betting, the ETF has a 45% chance of approval. Odds started at about 33% a month ago and jumped to 70% last week before fading. The lawyer who worked on the initial application said it's unlikely to get approved, while some analysts call it a "coin toss."
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    Beijing to shift from coal to clean energy in 700 villages this year

    China's capital city of Beijing decides to shift from coal to clean energy for heating in 700 villages this year, in an effort to improve air quality, local media reported.

    In 2016, 663 villages in Beijing successfully changed from coal-reliant to clean energy-powered heating in winter, which helped reduce 0.68 million tonnes of coal, reported the Beijing Morning Post.

    For those villages not included in the "coal-to-clean energy" plan, premium coal use is encouraged and a total of 1.18 million tonnes such coal has been booked.

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    Workers at France's EDF to strike again starting Mar 13 evening

    Workers at France's EDF will strike for 24 hours starting Monday at 9 pm local time (2000 GMT), the company said in a note posted on the website of French grid operator RTE on Thursday.

    The strike will end at 9 pm on Tuesday, EDF said, without giving any details on how much capacity could be affected.

    The last strike began Sunday evening and ended Wednesday night, affecting supply mostly on Tuesday and leading to a combined capacity cut of 2.03 GW at four nuclear reactors. There was a limited impact on prices, however, as high wind levels and weak demand offset the reduced nuclear availability.

    EDF's 900 MW Bugey-4 reactor was running at 430 MW capacity, while its 1.3 GW reactor Penly-1 had its capacity cut by 610 MW and its 900 MW Tricastin-1 reactor saw capacity reduced by 165 MW. The strike also resulted in the 1.3 GW Belleville-1 reactor operating at half its capacity and the 900 MW Chinon-3 nuclear unit running at 760 MW capacity.

    All of them returned online as planned at 9 pm local time Tuesday, with no impact from the strike seen on the nuclear fleet Wednesday, according to French grid operator RTE.

    The notice of the latest EDF action comes as labor unions representing professionals in the energy industry called Thursday for a national action day on Tuesday. The call to strike comes against the backdrop of a proposal to freeze the national base salary this year.

    "Noting the refusal of employers to respond to employee demands, the five unions unanimously decided in favor of a new day of actions and strike on Tuesday, March 14, 2017," France's main energy trade union, FNME-CGT, said in a statement on its website.

    The statement said the unions were asking for the reopening of negotiations on the national basic salary, the closure of sites "resulting from the destructive reorganizations of the public service" and an end to "massive job cuts."

    EDF workers have joined several recent calls for national action days organized by FNME-CGT and other unions, with the strike next week the fifth for EDF workers this year.
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    Oil and Gas

    Oil industry revives quest for deepwater reserves

    Deepwater oil drilling can be expensive, time-consuming and a hard sell to investors. But the world's top energy firms are restarting their search for giant oilfields under the ocean after a two-year lull.

    A recovery in oil prices to about $50 a barrel from a 12-year low in 2016 is reviving oil majors' appetite for risk.

    Reductions in offshore production costs mean that some projects may be able to compete with North American shale fields, executives said at an energy conference in Houston this week.

    The recovery in the industry has so far been focused on onshore shale output from the largest U.S. oilfield, the Permian Basin.

    "Our competition over the past years has evolved from 'we want to be the best in deepwater' to 'we want to compete with shale' to 'we want to beat the Permian'," Wael Sawan, Royal Dutch Shell's executive vice president for deepwater, said in an interview.

    Shell is the largest deepwater producer among the world's top publicly traded oil companies and is set to pump 900,000 barrels per day (bpd) from such projects by the end of the decade.

    Firms such as Shell and Exxon Mobil, who specialize in complex offshore exploration, slashed budgets after oil prices collapsed in 2014. Spending cuts were so drastic that the Paris-based International Energy Agency warned this week of a looming supply crunch beyond 2020.

    Shell has cut well costs by at least 50 percent, reduced logistics cost by three quarters and cut staff by nearly a third to make developments in areas such as the Gulf of Mexico and Nigeria profitable at oil prices below $40 a barrel, on par with the most profitable shale wells, Sawan said.

    Other companies such as France's Total have seen similar cost cuts.


    After cutting the cost of deepwater development, companies are also reviving the search for new resources.

    They are focusing exploration efforts on areas close to existing fields to maximize the chances of discovery and minimize costs. Many such areas are in Brazil, the Gulf of Mexico and Southeast Asia.

    "It is a very selective, sniper focus," Sawan said.

    Some firms are poised to benefit from decreased competition, lower costs of marine seismic studies and drilling rigs, and cheaper opportunities to acquire exploration licenses from governments eager to attract investment.

    "Right now, we've entered the best time in the last decade to be in the exploration business," Gregory Hebertson, who heads Murphy's western hemisphere exploration, said at the CERAWeek conference in Houston. "There is probably a two- or three-year window that we can capture the cost efficiency in the market."

    Discovering new resources is essential for oil firms to grow and to offset natural decline of fields. But deepwater exploration requires money, time, expertise - and luck.

    Some shareholders would prefer that oil firms stick to other, less risky growth options, said Federico Arisi Rota, executive vice president Americas for Italy's Eni, which operates major offshore drilling projects.

    "We must compete with alternative growth options that might be considered more attractive," such as growth through mergers and acquisitions or investing in shale oil production, Rota said.

    Pressure to limit company spending amid a slow recovery in oil prices is also putting a break on big exploration campaigns.

    "We know exploration spending is not always appreciated by investors," Kevin McLachlan, head of exploration for Total said.


    Eni is considered one of the most successful explorers after the discovery of giant gas fields in Egypt in recent years. It aims at discovering 2 to 3 billion barrels of oil and gas this year through drilling 115 offshore wells near Africa, Mexico, Norway and Asia, Rota said.

    A "more aggressive" exploration program is planned to start in 2018 in riskier and more expensive regions such as the Arctic, which offer the potential big discoveries, he said.

    Deepwater resources will be required to keep up with the growing demand, regardless of output growth in shale oil fields, Total's McLachlan said.

    Such projects are "key to our long-term plan, and we believe it is the same for the industry no matter the near-term focus on the Permian," McLachlan said, referring to the largest U.S. oilfield in west Texas.

    Hess Corp Chief Executive John Hess said the company's Liza development, off the coast of Guyana, was crucial to his company's growth potential and estimated to have as much as 2 billion barrels of oil.

    "This is one of the largest oil discoveries in the last 10 years," Hess said in an interview.

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    Libya's oil output drops to 620,000 bpd -NOC head

    Libya's oil output has fallen to 620,000 barrels per day, a drop of about 80,000 bpd since clashes erupted around some of the country's major export terminals, the head of the National Oil Corporation (NOC) said.

    Mustafa Sanalla told Reuters that production by Waha Oil Co, a joint venture between NOC and foreign partners, had been entirely halted. Waha pumps oil to Es Sider, one of two ports that the eastern-based Libyan National Army (LNA) lost control of last Friday to a rival faction.

    A port official at Ras Lanuf, a neighbouring terminal that the LNA also withdrew from, said that production by another NOC joint venture, Harouge Oil Operations, had also been affected, without giving details.

    Libyan oil officials say staff at Es Sider and Ras Lanuf have been reduced to a minimum since a faction known as the Benghazi Defence Brigades (BDB) seized them in clashes, and that the area is effectively a military zone.

    The BDB say they have handed the ports over to a Petroleum Facilities Guard (PFG) force sanctioned by the U.N.-backed government in Tripoli, and that they would allow oil to flow.

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    Rising Middle East straight-run fuel oil output displaces European flows to Asia

    Increased high sulfur and low sulfur straight-run fuel oil output in the Middle East, most specifically in the UAE, is providing competition for European straight-run flows into Asia in the second quarter, according to sources this week.

    Europe's straight-run fuel oil production is typically delivered into the US Gulf Coast or east Asia, although this latter supply pattern is being impacted by the higher output in the Middle East.

    According to sources, due to lower domestic demand in the Middle East for straight-run fuel and refineries opting not to re-use the product as feed for their own purposes, there has been a surge in production and exports recently.

    "Ruwais [in the UAE] is producing around 400,000 mt of very good quality fuel oil", said one fuel oil trader. "The vast majority of it is going to Asia, with around 70% to China."

    "This a lot more than the refinery typically produces," a second trader added.

    China is the second-biggest refiner in the world, after the US, home to a number of complex and basic refineries, and so is a key market for cheap feedstock material such as straight-run fuel oil.

    "China has a lot of demand for this stuff," said the second trader.

    In January, China imported 311,000 b/d, amounting to a total of 1.53 million mt of fuel oil per month, according to Platts China Oil Analytics. In the coming months, demand is expected to dip slightly to 265,000 b/d, but will again recover to above the 300,000 b/d mark.

    In addition, domestic European demand for the feedstock has been curtailed of late and is expected to rise once the major refineries complete their turnarounds. Producers had been looking to the east as a market for their supply, but the stiff competition has made this somewhat difficult.

    Sell tenders in the Black Sea and weak demand have already softened differentials for straight-run fuel oil in Europe, in addition to un-sold cargoes floating out in the open sea.

    A total of 300,000 mt of LSSR per month will be made available to buyers via tender, traders told S&P Global Platts.

    Some 200,000 mt will be supplied by Rosneft, with the remainder offered by the privately owned Ilsky refinery. Although not an unusual trend, weaker gasoline demand in the US has meant fewer willing buyers for the oil.

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    Kremlin says President Putin met new Exxon CEO

    Kremlin spokesman Dmitry Peskov told reporters on Friday that President Vladimir Putin had met new Exxon Mobil chief executive officer Darren Woods on Thursday.

    Russia's energy minister, Alexander Novak, and Rosneft head Igor Sechin attended the meeting, according to the spokesman.

    "This is a very big company and it is a major investor. This is why it receives special treatment," Peskov said in reference to Exxon Mobil.

    He also said Moscow will keep working on improving the environment for all foreign investors.
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    Gazprom delays Baltic LNG start

    Russia’s Gazprom has delayed the launch of its planned Baltic liquefied natural gas facility to 2022-2023.

    The project’s commissioning date could be revised once the project documentation is finalized, Reuters reported citing a prospectus for a Eurobond issue.

    The liquefaction and export plant will have a capacity of 10 million mt of LNG a year. Initially, the production was expected to start in 2021.

    In June last year, Gazprom and Hague-based LNG giant Shell signed a memorandum of understanding regarding the Baltic LNG project.

    Under the MoU, the two companies agreed to study the possibilities for the construction of an LNG export plant in the port of Ust-Luga in the Luga Bay of the Gulf of Finland.
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    Engie Seeks to Sell Stake in India's Biggest LNG Importer

    France’s Engie SA plans to sell its entire 10 percent holding in India’s biggest importer of liquefied natural gas.

    GDF International, an Engie unit, has written to the four Indian state-owned companies that together own half of Petronet LNG Ltd. to offer shares in proportion to their holding in the company, Petronet said in a stock-exchange filing Thursday.

    “It is mandatory for GDF to offer its holding to other founders as per the shareholders agreement,” R.K. Garg, finance director of Petronet LNG, said in a phone interview. “Only if the other founders don’t buy, GDF can sell it to anyone it wishes.”

    Explorer Oil and Natural Gas Corp., refiners Bharat Petroleum Corp. and Indian Oil Corp., and gas distributor GAIL India Ltd. form the founder group, with a 12.5 percent stake each in Petronet. If any of the founders buy the stake, Petronet, which operates as a joint venture, could become a wholly government-owned company that would reduce its flexibility to take independent decisions.

    The founders may not buy the stake, said A.K. Srinivasan, director finance at ONGC.

    “It is not necessary for us to buy,” he said. “The structure has to be maintained otherwise government approval is required.”

    ADB Stake

    In 2014, Asian Development Bank had sold 39 million shares of Petronet LNG. It had first offered these to the four founders, who chose not to buy the shares. It eventually sold its 5.2 percent stake in the open market.

    Engie holds 75 million shares in Petronet valued at about 29 billion rupees ($434 million) at current market prices. Petronet rose 0.3 percent at 387.55 rupees as of 2:47 p.m. after falling as much as 2.2 percent following the announcement.

    “I’m not sure they can sell a 10 percent stake easily in the market,” said Sabri Hazarika, a Mumbai-based analyst at Phillipcapital India Pvt. “Some other strategic investors can come in like companies from Qatar or the UAE.”

    Subir Purkayastha, director finance of GAIL India, A.K. Sharma, the finance head of Indian Oil and P. Balasubramanian, director finance at BPCL, couldn’t be reached for comment on their mobile phones.
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    Oil trading giant Vitol bets on fuel retail for growth

    From Pakistan to Turkey, the world's largest independent oil trader Vitol is betting on a spike in gasoline and diesel demand in young and growing nations by snapping up filling stations that disappointed oil companies are prepared to sell.

    With the sharp drop in global oil prices, major integrated oil companies have been shedding assets, including the marginally profitable retail outlets, to cut costs.

    But privately-held Vitol, which trades 6 million barrels per day of crude oil and refined products, says these assets present an opportunity to strengthen its presence in end-markets and in up-and-coming hubs.

    This month, Vitol secured more than 23 percent of Turkey's retail market after it agreed to buy Petrol Ofisi from Austrian oil firm OMV for $1.45 billion.

    "The volume we trade means integration into the distribution chain makes sense. Retail also allows you to participate in markets on an on-going basis, so it's not always ad hoc or spot," Chris Bake, a top Vitol executive, told Reuters.

    "It allows us to have different kinds of discussions with our suppliers," said Bake, who sits on Vitol's executive committee and is the chairman of retail unit Vivo Energy.

    The purchase will add another 1,700 outlets to Vitol's portfolio of 3,000 stations acquired through investments in the last few years in Viva Energy in Australia, Vivo Energy in Africa, Varo in central Europe and OVH in Nigeria.

    It has also consolidated its initial investments such as by buying Royal Dutch/Shell's stake in Vivo and Viva and its aviation business in Australia last year.

    The eastern Mediterranean is a major import market and Vitol sees Turkey as a good destination because of its proximity to transport routes from the Mediterranean, Black Sea and Red Sea.

    "With fuel and non-fuel retailing, we can optimize the system. We are able to look closely at how to streamline the assets and we are willing to invest capital. With Vivo, we have added around 100 new service stations per year," Bake said.

    Of its main trading competitors, only Trafigura is also vying for a piece of the retail pie. It has a large presence in Africa through its subsidiary Puma Energy and is set to acquire a large stake in India's Essar Oil.

    Glencore, Gunvor and Mercuria have favored upstream or midstream assets. Last year, Gunvor bought a refinery in Rotterdam, Mercuria bought oil and gas marketing and distribution assets in the United States and Glencore invested in oil deposits in Chad.

    Vitol's retail investments fit in with its view that transport will be the major driver of fuel demand growth, with aviation demand to outstrip that for cars, which is slated to peak in about 10 years time.

    "Global demand for gasoline and diesel will peak but you can't apply the macro picture to individual countries that have high growth prospects like Pakistan where the Chinese are investing tens of billions of dollars in the CPEC (China Pakistan Economic Corridor), so demand will grow compared with developed economies," Bake said.

    Last year, Vitol increased its stake in Pakistan's Hascol Petroleum Ltd that runs around 450 service stations from 15 to 25 percent.

    Like Turkey, apart from its own growth prospects, Pakistan will become even more a gateway to the rest of Asia as CPEC will see the Chinese government invest $57 billion, mainly in a network of rail, road and pipeline projects, to connect Western China to Pakistan's sea port of Gwadar.
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    Global LNG outlooks test conventional wisdom of supply glut

    Global LNG outlooks test conventional wisdom of supply glut

    When Shell last month presented its first global LNG Outlook since its 2016 acquisition of the UK's BG Group, it surprised some by effectively denying the existence of a global LNG supply glut, pointing instead to a well balanced market where all produced LNG cargoes were being consumed.

    Much of the commentary in recent months has been telling us the LNG market is already suffering a supply glut and is heading for a period of sustained oversupply until at least the start of the 2020s.

    LNG prices across the globe have fallen to multi-year lows -- other than a mostly weather-related spike in late 2016 -- and the expected slew of new project start-ups in 2017 from Australia and the US has been forecast to lead to a hugely oversupplied market with demand growth unable to keep pace.

    The report from Shell -- which is now more exposed than ever to LNG market dynamics since the BG purchase -- was in stark contrast to other views from the industry.

    Some players already talk of an oversupplied LNG market, with things only set to worsen in the coming years.

    Pablo Galente Escobar, head of LNG at global trader Vitol, said at a London conference last month his view of the LNG market was "very different" to Shell's.

    "We think the market will be significantly oversupplied over the next five years," he said, pointing to expected LNG supply growth to 400 million mt/year by 2020 from 240 million mt/year in 2015.

    This growth, he said, was unprecedented in the history of commodities, and represented the biggest "supply shock" he had ever known.

    The CEO of Italy's Eni pointed last month to a period of oversupply that would end only in time for some of its new LNG projects to start operations.

    "In LNG we have a situation of oversupply and we expect a re-balance early next decade when demand catches up," Claudio Descalzi told analysts at a London strategy presentation.

    "Then, we see a need for new supply, which is a huge opportunity for our gas projects coming on stream," Descalzi said, referring to Eni's planned Mozambique and Egypt LNG export projects, among others.

    BP, in its latest energy outlook in January, also pointed to strong LNG supply growth in the period 2017-2021, while Norway's Statoil said in its own outlook that the critical question was whether new gas supplies would be developed in time to meet future forecast demand, or if the current gas surplus would turn into a deficit and a tight market.

    "The global LNG market is exposed to boom-and-bust cycles -- the underlying growth in world LNG demand is itself not sufficient to absorb the scheduled growth in supply," Statoil said.

    But, as Statoil says, markets have to balance.

    Therefore, the LNG glut is likely to accelerate the transition of global LNG into a more regular commodity market.

    And this is an increasingly widely accepted view -- that LNG is becoming more and more commoditized and more and more of a global fuel.


    So, are these 'views' driven by the agenda of the view-giver?


    Vitol and the other global commodity traders are always on the lookout for opportunities to exploit margins, buoyed by price volatility, and over- and under-supply often lead to fast and unpredictable price movements.

    In addition, traders are more willing to trade with credit-risky countries -- the likes of Egypt -- which are using LNG imports to either replace domestic production or to kick-start a gas-to-power industry.

    A well supplied market is more likely to entice new countries into becoming LNG importers, giving traders like Vitol more room in a market that has been traditionally dominated by major oil companies.

    Likewise on the demand side, Hoegh LNG -- a leading supplier of floating storage and regasification units (FSRUs) -- said last week the "long LNG market and competitive LNG prices" had led to increasing utilization of new importing facilities, "the majority of which are FSRUs".

    No surprise there.

    As for Shell, well having spent more than $50 billion to buy BG in February 2016, it now has LNG sales of 57 million mt/year, around 22% of the global market.

    The sales price for its LNG obviously matters given its vast LNG portfolio, so the more balanced the market the better for its bottom line.

    "We read about a flood of LNG, and that is clearly not the case -- we just do not see it," Steve Hill, Shell's head of energy and gas marketing and trading, said at the London briefing in late February.

    Shell justifies its stance on LNG market dynamics by pointing to various pieces of evidence:

    1) Every cargo that could be physically produced in 2016 was produced and was consumed;

    2) LNG flows to the liquid markets of Europe -- often seen as the market of last resort in an oversupply situation -- were flat, and to Belgium and the UK down, which Shell said was a good sign and a "very clear demonstration" of the strength of demand in LNG;

    3) LNG prices were "healthily" priced as a percentage of crude oil.

    Hill said last month that demand growth would keep pace with supply growth in coming years and demand growth would be accelerated by low prices and many growing markets are those with already mature infrastructure like Egypt and Pakistan.


    Shell is not alone, meanwhile, in signaling caution over predictions of LNG market oversupply.

    The Oxford Institute for Energy Studies (OIES) last month published a paper entitled "The Forthcoming LNG Supply Wave: A Case of 'Crying Wolf'?" that warned against taking the wave of LNG supply growth for granted.

    Author Howard Rogers argued that the eventual outcome and levels of LNG supplied can be very different from expectations due to:

    1) Project construction schedule slippage (often associated with cost escalation above budget);

    2) Commissioning problems -- new plants can suffer unscheduled shutdowns and may remain offline for weeks during which modifications are carried out before commissioning is attempted again;

    3) Feed gas supply issues, which can constrain supply below nameplate capacity until upstream issues are resolved.

    The OIES echoed Shell's view that the market was not oversupplied in 2016 and that Europe did not take the bigger volumes it had been expected to absorb.

    But, despite its caution, the OIES said the wave would eventually come -- maybe more slowly than thought -- and that it would have an impact on Europe, the market of last resort for LNG.

    Platts Analytics' Eclipse Energy also sees evidence the market last year was more balanced than had been expected, due to a series of unplanned outages at the beginning of the year, coupled with the continued shutdown of the Yemen LNG plant and unexpected issues at Gorgon and Angola LNG.

    Asian LNG demand was also higher than expected, with Chinese imports up to support the drive for cleaner air and Japan and South Korea both needing more LNG than expected due to issues around nuclear generation.

    "Going forward the issues observed in 2016 remain key uncertainties to the realization of a global surplus, however the amount of new supply coming online should see the realization of an oversupplied market," Platts Analytics said.

    Looking at how much Europe -- the market of last resort -- imports is key to defining whether the global LNG market is oversupplied or not.

    Platts Analytics data showed European LNG imports remained flat in the 2014-2016 period despite the fact that a market becoming oversupplied may be expected to see European imports rise to soak up the oversupply.

    However, the relatively low LNG prices for much of 2016 did nothing to entice LNG into Europe despite higher demand.

    Instead, it was met by pipeline gas from Algeria, Norway and Russia.

    Of course, the main beneficiary of an oversupplied market for any commodity is the customer, not only because of cheaper prices but also to ensure security of supply.

    The International Energy Agency said in an LNG security report last November that the massive expansion of LNG export capacity was coming at a time of weaker-than-expected global gas demand, and that the temporary excess of supplies resulting from this situation "is providing a buffer that would mitigate the impact of possible supply disruptions".

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    Wood Group to takeover Amec in £2.2bn deal

    Two of the biggest North Sea services players this morning revealed plans to combine.

    Wood Group’s and Amec Foster Wheeler’s board of directors have reached an agreement on the terms of a recommended all-share offer by Wood Group to acquire the entire issued and to be issued share capital of Amec Foster Wheeler.

    The takeover is worth £2.2billion.

    Under the deal, each Amec Foster Wheeler Shareholder will receive for each Amec Foster Wheeler Share 0.75 New Wood Group Shares.

    The pair have said the deal will save $134million per annum. Of that, 40% is expected to come from operating efficiencies. An addittional 30% is expected to come from corporate efficiencies, including the reduction of duplicate costs across board and executive leadership teams.

    Robin Watson and David Kemp, currently CEO and CFO of Wood Group respectively, will continue as CEO and CFO of the combined group. Wood Group’s chairman Ian Marchant will remain the combined group’s chairman.

    Four members of the Amec Foster Wheeler Board will join the board of the combined group upon completion of the combination as non-executive directors, with Roy Franklin joining as deputy chairman and senior independent director.

    The final 30% is expected to come from administration efficiencies, including the consolidation of overlapping office locations, the elimination of duplicated IT systems and the reduction of duplicate costs across central support functions.

    Chairman Marchant said: “The Combination represents a transformational transaction for Wood Group, which accelerates our strategy and creates a global leader in project, engineering and technical services delivery across a range of industrial sectors. The Combination extends the scale and scope of our services, deepens our existing customer relationships, facilitates further development of our technology-enabled solutions and broadens our end market, geographic and customer exposure.

    “The Combination will create an asset-light, largely reimbursable business of greater scale and enhanced capability, diversified across the oil & gas, chemicals, renewables, environment & infrastructure and mining segments.

    “By leveraging Amec Foster Wheeler’s and Wood Group’s combined asset life cycle services across project delivery, engineering, modifications, construction, operations, maintenance and consulting activities, the Combined Group will be able to better capitalise on growth opportunities across a broad cross section of energy and industrial end markets.
    Delivering significant sustainable synergies will also result in a leaner and more competitive Combined Group, creating value for shareholders.

    Amec Foster Wheeler’s shareholders will become shareholders in the Combined Group, thereby gaining from the enhanced operating capabilities, and benefiting from a share of the synergies, a stronger balance sheet and Wood Group’s progressive dividend policy.

    “The Wood Group Board is confident that the Combination will build on the individual platforms of Wood Group and Amec Foster Wheeler to the benefit and advantage of customers, employees and other stakeholders.

    “The Combination has been unanimously recommended by the boards of Wood Group and Amec Foster Wheeler, and the Wood Group team looks forward to working with the Amec Foster Wheeler team to further develop the Combined Group over the longer term.”

    It comes the same day Amec reported a 8% slip in revenue to £5.4billion. Its profit fell from £374m in 2015 to £318million in 2016.

    John Connolly, chairman of Amec Foster Wheeler said: “Since the arrival of Jonathan Lewis as CEO, the executive management team has made significant progress towards the transformation of the business. This has been achieved through cost reduction initiatives, the disposal of non-core assets and a reorganisation of the business. The Board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support its standalone prospects.

    “However, the Board believes that a combination with Wood adds to the standalone prospects of the Company, by accelerating the delivery of the future value inherent in the Amec Foster Wheeler business and, at the same time, helps to realise the full potential of each of Amec Foster Wheeler and Wood. The all-share structure of the offer allows our shareholders to benefit from the significant synergies and other strategic benefits that are expected to be realised from the combination. Amec Foster Wheeler will also be well represented on the Board of the enlarged group, with four of our directors joining Wood’s board, including Roy Franklin, who will be appointed Deputy Chairman and Senior Independent Director.”

    The combination is expected to be completed in the second half of this year.

    Wood Group said it believes the combination “represents a compelling opportunity to accelerate the delivery of Wood Group’s strategy to become a global leader in project, engineering and technical services delivery across a broad platform of industrial sectors”.

    The firm also said it would afford it the ability to have a “stronger, more diversified platform better able to manage the inherent market and contract volatility that faces the oil and gas industry”.

    The combined group will employ 64,000 people globally. It will have a net debt of $1.6billion.

    The combination is expected to incur a one-off cost of £190million spread out over the first three years.

    In a company announcement Wood Group stated: “The Wood Group Board has, in addition, made the following assumptions, all of which are outside the influence of the Wood Group Board:

    there will be no material impact on the underlying operations of either company or their ability to continue to conduct their businesses;
    there will be no material change to macroeconomic, political, regulatory or legal conditions in the markets or regions in which Wood Group and Amec Foster Wheeler operate that materially impact on the implementation or costs to achieve the proposed cost savings;
    there will be no material change in current foreign exchange rates; and
    there will be no change in tax legislation or tax rates or other legislation or regulation in the countries in which Wood Group and Amec Foster Wheeler operate that could materially impact the ability to achieve any benefits.”

    Wood Group was advised by J.P. Morgan Cazenove and Credit Suisse. Amec was advised by Goldman Sachs International, BofA Merrill Lynch and Barclays.

    The combination is considered a Class 1 transaction for Wood Group. As such, the combination is conditional and will need final approval from Wood Group’s shareholders at its general meeting.

    Wood Group’s board said it considers the “combination to be in the best interests of Wood Group and the Wood Group Shareholders as a whole and intend to recommend unanimously that Wood Group Shareholders vote in favour of the relevant resolutions at the Wood Group General Meeting”.

    If approved, Amec Foster Wheeler Shareholders would own approximately 44% of the combined group.

    Attached Files
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    U.S. oil and gas rig count climbs by 12

    Drillers sent another 12 rigs this week back into oil and gas fields across the nation, Baker Hughes said Friday.

    The number of active oil-drilling rigs climbed by eight, up to 768, in the eighth consecutive weekly increase. Meanwhile, gas rigs increased by five, up to 151. One rig classified as miscellaneous was removed from the oil field service company’s go-to list of active rigs.

    Four of the oil rigs were sent to the DJ and Niobrara basins in Colorado and nearby states.

    One went to the Permian Basin in West Texas, another went to the Utica Shale in Ohio, and several more headed for regions Baker Hughes does not track.

    The nation’s rig count has climbed from 404 in late May to 768 this week, as oil prices have risen and OPEC’s oil production cut spurred drilling activity in U.S. shale plays.
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    U.S. offshore rigs climb up to 20 units

    The U.S. offshore rig count climbed up to 20 units last week, according to weekly rig count reports by the oilfield services provider Baker Hughes.

    The U.S. Offshore Rig Count is up 2 rigs from last week to 20 and down 7 rigs year over year.
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    Repsol Makes 'Largest U.S. Onshore Discovery in 30 Years'

    Repsol and partner Armstrong Energy state that they have made the largest U.S. onshore conventional hydrocarbons discovery in 30 years.

    Repsol and partner Armstrong Energy stated that they have made the largest U.S. onshore conventional hydrocarbons discovery in 30 years.

    The Horseshoe-1 and 1A wells drilled during the 2016-2017 winter campaign confirm the Nanushuk play as a significant emerging play in Alaska’s North Slope, Repsol said in a company statement.

    Contingent resources identified with the existing data in Repsol and Armstrong Energy’s blocks in the Nanushuk play in Alaska could amount to approximately 1.2 billion barrels of recoverable light oil, Repsol revealed.

    The Madrid-based energy company has been actively exploring Alaska since 2008, and since 2011 the company has drilled multiple consecutive discoveries on the North Slope along with partner Armstrong.

    “The successive campaigns in the area have added significant new potential to what was previously viewed as a mature basin,” a Repsol representative said in a company statement.

    “Additionally Alaska has significant infrastructure which allows new resources to be developed more efficiently,” the representative added.

    Repsol holds a 25 percent working interest in the Horseshoe discovery and a 49 percent working interest in the Pikka Unit. Armstrong holds the remaining working interest and is currently the operator.

    The Horseshoe discovery extends the Nanushuk play more than 20 miles south of the existing discoveries achieved by Repsol and Armstrong in the same interval within the Pikka Unit during 2014 and 2015, where permitting for development activities are underway.

    Preliminary development concepts for Pikka anticipate first production there from 2021, with a potential rate approaching 120,000 barrels of oil per day.

    The Horseshoe-1 discovery well was drilled to a total depth of 6,000 feet and encountered more than 150 feet of net oil pay in several reservoir zones in the Nanushuk section. The Horseshoe-1A sidetrack was drilled to a total depth of 8,215 feet and encountered more than 100 feet of net oil pay in the Nanushuk interval as well.
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    Enbridge CEO says Canada only needs two more export pipelines

    Two new crude oil export pipelines will provide enough capacity to ship Canadian production to market until at least the mid 2020s, Enbridge Inc  Chief Executive Al Monaco said on Friday, making clear his company's Line 3 should be one of them.

    Monaco's comments come amid growing speculation that Canada faces pipeline overbuild after years of struggling with limited market access.

    The Canadian government approved Enbridge's Line 3 replacement project and Kinder Morgan's Trans Mountain expansion last November, while U.S. President Donald Trump invited TransCanada to reapply for a Keystone XL permit in January. TransCanada is also awaiting permits for its proposed Energy East project.

    If all four pipelines get built the 2.1 billion barrel per day surge in capacity would fast outpace industry forecasts of Canadian crude production growth of 850,000 bpd by 2021.

    "If you look at the supply profile and you look at our expansion replacement capacity for Line 3 and one other pipeline, that should suffice based on the current supply outlook, out to at least mid-next decade," Monaco said on a fourth quarter earnings call.

    Monaco said Enbridge had another 400,000 bpd of potential capacity expansion opportunities in addition to Line 3 but the company would be guided by the amount of supply coming out of western Canada.

    Wood Mackenzie analyst Mark Oberstoetter said his firm agreed with Monaco's assessment on the need for new pipelines.

    "We definitely need two of these pipelines by around 2025 and after that it depends on the supply outlook," Oberstoetter said. "There's not an evident need to get three or four pipelines built."

    Enbridge, Canada's largest pipeline company, also announced a C$1.7 billion ($1.3 billion) investment in a North Sea windfarm.

    The 50 percent ownership in EnBW's (EBKG.DE) Hohe See strengthens Enbridge's footprint in Europe's booming offshore wind power industry.

    Monaco said there could be more to come given the push towards renewable energy in a number of European countries.

    Enbridge reported fourth-quarter profit on Friday that included a C$373 million before-tax impairment charge related to its Northern Gateway pipeline, which the Canadian government blocked last year.

    Earnings attributable to the company's shareholders were C$365 million ($279 million), or 39 Canadian cents per share, in the fourth quarter, hurt by charges, including for asset impairment and restructuring.
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    Hi-Crush crashes the Permian sand boom

    A Frac Sand Mine Lands In The Permian. This Could Transform The Competitive Sandscape [Exclusive Details]

    February 24, 2017 Infill Thoughts 4 Comments

    After the market closed Thursday evening, Hi-Crush Partners quietly dropped the equivalent of an atom bomb on the frac sand business. Few seem to have noticed yet – Hi-Crush is less widely followed than some of the other large miners, yesterday was a busy earnings day, and they announced the news with little fanfare.

    But make no mistake, this is big news for and from Hi-Crush. It is yet unclear if this is the start of a trend, but if it is, then it has disruptive implications for the entire frac sand value chain.

    The First Frac Sand Mine Lands In The Permian

    In an industry first, Hi-Crush announced plans to build a frac sand plant in the heart of the Permian Basin, the world’s busiest frac market. The new $50mm plant will produce 3mmtpa of 100 mesh frac. For context, that’s approx. 10% of expected Permian proppant consumption this year. The production will come from a 55mm ton deposit Hi-Crush has just purchased for $275mm. The plant will be built between closing in 1Q17 and early-4Q17 when it is expected to open.

    Hi-Crush did not disclose the precise location of the reserves, but industry sources tell us the plant site is located just outside of Kermit TX in Winkler County off Highway 115. In a quick glance at Google Maps, the sand deposits literally jump off the map. Per their announcement, Hi-Crush bought a 1,226-acre frac sand reserve with options on additional acreage.

    (click image to view in Google maps)

    This Has The Potential To Transform The Competitive Sandscape

    If this deal is a one-off, then it’s good for Hi-Crush and won’t impact the market much. But if this new plant is the start of a trend of regional mines entering the Permian, then this news will transform the US frac sand business. If this takes off, it has implications for the entire sand value chain.

    Much of the sand consumed in the Permian originates in Wisconsin, and rail transportation is the highest cost component of this sand (see chart below). If you can eliminate rail by placing sand mines in the heart of the Permian… the possibilities get interesting.

    If Hi-Crush can built a plant capable of producing 3mmtpa in the Permian, others will try to follow. If our sources are accurate, they will follow quickly.

    Over the past several weeks, we’ve been picking up chatter from multiple industry contacts in West Texas about the descent of dozens of buyers interested in the region’s sand deposits. Land owners sitting on sand in the Permian have been approached by buyers from established miners to private equity firms. We understand this particular Hi-Crush purchase was a hotly contested bidding process where at least one other big sand mine participated.

    If others can repeat Hi-Crush’s approach, we can imagine a world where 25-50% of Permian frac sand demand is supplied locally. Here are a few implications if this trend takes off and scale in local mining capacity is achieved:

    ·         Wisconsin reserves will be devalued.

    ·         It could eliminate the biggest cost of sand (rail transportation) for a portion of proppant consumed in the Lower 48’s biggest frac sand market.

    ·         That is a game changer because the Permian is expected to consume half the frac sand produced in the US going forward.

    ·         Wisconsin minegate sand prices could face some new headwinds.

    ·         Rail transportation demand could fall shy of current expectations (implications for cars and trains)

    ·         If it takes off, Permian transload demand could be adversely impacted.

    ·         More hauling would start at the mine not the terminal.

    But there is work to be done before this becomes a trend. There are potentially limiting factors that could cap the rise of Permian mines. Here are a few that come to mind:

    ·         Transportation infrastructure. If our sources are correct about Hi-Crush’s location, then it is right off the highway in a prime location. Deposits further away from the road may be harder to develop (and more costly).

    ·         Access to water. It is essential in sand mining (perhaps especially if the mines amount to scraping dunes) and could become constrained around these sand deposits in West Texas (especially those in more remote locations).

    ·         Stubborn Owners. We’ve heard that land owners sitting on sand have been hesitant to sell – continuous acreage around infrastructure may not be for sale at a reasonable price.

    ·         Seller’s Market. Hi-Crush paid a pretty penny in a hotly contested bidding process for this sand. Will other buyers be able to float the price to play in the Permian sandbox?

    ·         Regulation. As you move south in the sand deposit chain we believe Hi-Crush bought into, you approach the Monahans State Park (see map below). This area will likely be preserved from development by state law.

    ·         Geology. Hi-Crush has identified pay that it obviously believes it can develop – they wouldn’t buy this sized deal without geological conviction in the pay. Broader West Texas geology may pose limits to this trend. There are obviously dunes in the area, but how deep is the pay in other deposits? How good is the quality of the sand? What are  the grain sizes and what does that mean for import mix in the basin? It is yet unclear if the mine capacity Hi-Crush disclosed (3mmtpa) is repeatable in scale in the Permian.

    This is HUGE. Where’s The Fanfare?

    In a busy press release that disclosed two other transactions, Hi-Crush discussed in muted tones its plans for this game changing mine. They also released the news on one of the busiest earnings days of 4Q16 reporting season.

    There is a reason Hi-Crush slipped this announcement out with little fanfare: this is a transformative development, and they are now the first mover. If our sources are correct, others will soon attempt to follow.

    The End Justifies The Means (Mostly)

    At $5/ton, the purchase price Hi-Crush paid for these reserves might seem a bit high to folks used to seeing reserves trade at half that level. But the Permian Basin is expected to consume >40% of total US sand production this year and in 2018. Permian sand demand is as close to a sure thing as you will find in the oilfield these days. The next closest frac sand mine is more than 200 miles away in Brady, TX. This mine is within 75 miles of the Midland and Delaware Basin hot spots.

    Water access may play into the price, however details are limited at this point. As a first mover, Hi-Crush will be able to charge a premium by eliminating rail costs and selling its products FOB the plant to customers that are primarily completing wells in the Midland and Delaware Basins. Or they may even try to sell at the well site given proximity.

    All of the above factors support the price Hi-Crush paid. On the flip side, while finer grains have been en vogue lately, 100 mesh may be too fine in some cases. And 100 mesh is what Hi-Crush says they’ve bought here. We’ve recently heard talk of conductivity issues at 100 mesh, which has caused some E&Ps to mix slightly coarser grades into the blend. That said, these issues have been one-offs, and Hi-Crush can address with Permian imports.

    What’s The Over / Under On Permian Mine Capacity Announced By June?

    There’s big potential for a Permian mine trend to develop here, and the Hi-Crush deal proves it. This isn’t the last we’ll hear about it, but whether it marks the start of a Permian sand grab remains unclear at this point. If the E&P industry is an analog, perhaps the next acreage valuation bubble will form around Permian sand deposits.

    If you are familiar with West Texas then you know these sand deposits in the heart of the play as recreational areas where families play and camp out on the weekends among the sand dunes.

    On a personal note, this author spent plenty of time riding the dunes among the sand hills of the Monahans State Park as a kid growing up in Odessa, TX. In those carefree days, we never could have anticipated a more productive use for the sand than the quick adrenaline rush from whizzing down a dune on a perfectly waxed board.

    But the guys in suits have been knocking on land owner’s doors out in West Texas in growing numbers this year. We’ve heard of some property owners getting as many as 20 inquiries for their sand.

    There is a large sand formation that spans about 30 miles from Monahans in the south up to Kermit in the North. The deposits around Monahans are part of a state park and would-be exploiters will likely face regulatory challenges there. But the further up you go, the more these deposits are held by private interests with discretion over the mineral rights.

    There are also a few other deposits around the Permian that may have some potential, but it looks like Hi-Crush took the sweet spot in the first sand deal in the area.

    Will the Hi-Crush transaction thaw the new Permian dune market resulting in a rash of transactions, or freeze it because they took the sweet spot and priced others out of the marekt? It’s too early to tell, but this may be the beginning of a highly disruptive trend in the competitive landscape for sand supply.

    Now just imagine if US-style hydraulic fracturing starts to take off in Saudi Arabia… they’ve got an ocean of sand… 100-mesh you think?

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    Precious Metals

    Diamond analyst Zimnisky sees buoyant Q1 diamond demand

    First-quarter demand for rough diamonds has increased over the preceding three-month period, and also relative to a year earlier, as a comparatively mediocre Christmas season 2016 was offset by strong 2017 Chinese New Year sales that have driven seasonal restocking demand.

    Most, but not all, Indian cutters have also started to show signs of recovery after the initial shock of the demonetisation in the country last year, independent diamond analyst Paul Zimnisky said in his latest market commentary.

    According to the New York-based analyst most miners had last year liquidated excess rough inventories which they accumulated in 2015, and have since ramped-up production into 2017, resuming more normal “pre-indigestion” output levels of three years ago.

    “Demand growth this year is likely to come from a post-election US market, where employment is stable and the stock market is at an all-time-high, driving positive sentiment that should translate into discretionary spending,” the analyst said, noting that the US is the largest diamond jewellery market in the world, representing 45% of global demand.

    China, the world’s second largest jewellery market, at 16% of global demand, should be driven by continued government stimulus and an ever-expanding middle-class consumer. India, representing 8% of the market, is forecast to show improvement year-over-year, as domestic demand for jewellery returns as the demonetisation impact is digested, especially in the second half of the year.

    Near-to-medium term risks to the industry are primarily tied to macro factors in the industry’s most important markets. For instance: the US economy struggling to absorb tighter monetary policy; Chinese economic deleveraging; a longer-than-expected recovery in the Indian market post-demonetisation; signs of further disintegration of the Euro-zone; and protectionist pressure on global trade, the analyst cautioned.

    Year-to-date, rough diamond prices are up 0.9%, and polished prices are down 4.1%. In full-year 2016, rough and polished were both up, 13.2% and 2.1%, respectively.

    In a statement to Mining Weekly Online, Zimnisky noted that the Zimnisky Rough Diamond Index is up 1.27% year to date (through the first week of March). The internal polished diamond index is down 1.3%.

    "Rough has been driven by a 4% to 5% price increase by De Beers in January in diamond sizes greater-than 0.75 ct. In February, there were small single-digit-percentage increases in diamonds 2 ct to 4 ct by both De Beers and Alrosa. Also, there are indications of demand picking up in smaller, lower-quality goods, the stones that have been affected by the demonetisation – parcels are now selling, but no price increases yet," he said.


    Early-2016 diamond manufacturer restocking demand, after a stronger than expected 2015 holiday season, combined with De Beers' and ALROSA's production curtailment, alleviated most of the industry-wide inventory indigestion by the second half of 2016.

    However, just as diamond supply/demand dynamics were beginning to normalise, India’s surprise demonetisation in November threw another blow at the already recovering industry. Over 90% of diamonds, by volume, are cut in India, a business that is heavily reliant on cash transactions. Indiahas also become the third largest end-consumer of diamond jewellery in the world, so the restriction also impacted domestic jewellery consumption as most Indian consumers are accustom to cash purchases, Zimnisky stated.

    The implication has primarily been felt on lower-quality rough diamonds, those that sell for less than $100/ct, produced at mines like Rio Tinto’s Argyle, Dominion’s Ekati, Petra’s Finsch, Alrosa’s Aikhal, and alluvial operationsaround the world.

    “Demand for these stones are typically driven by the hundreds of small, independent, cash-reliant Indianmanufactures, which buy on the secondary market; a lot of stones in this category eventually end up being purchased domestically by Indian jewellery consumers,” he explained.

    The larger manufacturers have been much less affected by the demonetisation, as they have a global presence, more structured businesses, adhere to more formal accounting measures, and are not reliant on cash for their Indianbusiness.

    Most of the smaller and medium sized Indian business that will survive are expected to have integrated more-transparent, digital payment processes by the second half of the year. The result will be a pickup in demand for lower priced rough, as these manufacturers bid to restock, competing to fill a pending shortage of smaller, lower-quality polished in the market that will be felt around the second quarter, the analyst noted.
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    Base Metals

    Copper bulls get a stocks reality check

    The world's two biggest mines, Escondida in Chile and Grasberg in Indonesia, are losing production daily due to a strike and an export ban respectively.

    But the bullish ardour has also been dampened by a surge in copper "arrivals" at LME warehouses.

    In the space of just four days, 141,625 tonnes have hit the LME storage system. Headline inventory has risen to 325,500 tonnes from 196,425 tonnes a week ago.

    The coordinated nature of this inflow suggests the bear-bull battle that raged sporadically across the London market last year has started again.

    But it is also a timely reminder that commodities markets don't just flip from bearish surplus to bullish shortfall at the flick of a switch.

    The bulk of last week's inflow of copper into LME sheds was at three locations. Singapore received 52,700 tonnes, the South Korean port of Busan 39,025 tonnes and the Taiwanese port of Kaohsiung 22,000 tonnes.

    Such heavy warranting activity normally implies a degree of premeditation.

    This isn't metal that has just happened to arrive over the course of a couple of days. Rather, it was in all probability sitting in LME-approved warehouses waiting to be warranted, a process that can now be done with the stroke of a keyboard.

    And if you're experiencing a certain sense of deja vu, that's understandable.

    There were similar heavy "surprise" inflows of copper in June, August and December last year, with the same locations featuring.

    They were just one manifestation of a big bear-big bull confrontation that raged across LME spreads, outright price and, of course, the physical market, particularly that in Asia.

    The most recent LME stocks surge has all the hallmarks of a resumption of this long-running tussle for supremacy.

    The bear has just swamped the market with metal, sending the price sliding from its lofty perch above $6,000 per tonne.

    If last year's pattern repeats itself, expect the bull to steadily chip away at those "arrivals" with cancellations followed by physical load-out.

    The reaction may already have started.

    Singapore has already seen 13,250 tonnes of copper warrants cancelled in preparation for load-out over the last five days. South Korea's Busan has seen 16,650 tonnes and Kaohsiung 9,375 tonnes.

    The merry-go-round of refined copper between China and LME good-delivery locations has just been relaunched, it seems.

    The main casualty of this shuffling of metal is visibility, any trading signal from LME stock movements being obscured by the fog of merchant warfare.


    The bear who has just dumped so much metal into the LME system, however, has served up a timely reminder to copper bulls that there is still a lot of refined copper around.

    Away from the smoke and mirrors of the LME storage system, other visible inventory has also been rising.

    Stocks of copper registered with the Shanghai Futures Exchange jumped 12,859 tonnes over the course of the last week and at 326,732 tonnes they are now 180,134 tonnes higher than at the start of January.

    Metal is also hitting the COMEX warehouse network in the United States on a daily basis. The headline figure, adjusted to metric tonnes, stands at 120,401 tonnes, up 40,288 tonnes so far this year.

    There are, quite evidently, plenty of surplus units floating around. Most of them are in the Asian region, but the LME system has also seen inflow at both Rotterdam and the British port of Hull, while the COMEX system reflects the state of play only in the U.S. market.

    This might seem to undermine the newly minted bull consensus among analysts that copper is heading for a year of supply shortfall.
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    Strike halts output at top Peru copper mine Cerro Verde: union

    Workers at Freeport-McMoRan's Cerro Verde started an indefinite strike on Friday that halted output of about 40,000 tonnes per month at Peru's top copper mine, a union official said on Friday.

    The 1,300 unionized workers at Cerro Verde downed tools at 7:30 a.m. (12:30 GMT), said union leader Cesar Fernandez.

    According to Fernandez, the company plans to mitigate the effects of the strike using non-unionized workers. He said 300 or 400 employees at the mine do not belong to the union and do not normally work in areas key to production.

    Cerro Verde and Freeport representatives did not immediately respond to requests for comment.

    Three-month copper on the London Metal Exchange was up 1.2 percent at $5,760 a tonne. Prices had fallen to $5,652, their lowest since Jan. 10, in the previous session.

    The Cerro Verde union initially scheduled a five-day strike but voted this week to stop work indefinitely to push for family health benefits and a bigger share of the mine's profits, Fernandez said.

    Freeport-McMoRan owns a 53.56 percent stake in Cerro Verde, which more than doubled its production to nearly 500,000 tonnes of copper last year because of an expansion.

    Sumitomo Metal Mining Company Ltd controls a 21 percent stake in the mine, and Buenaventura has 19.58 percent.
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    BHP's Escondida approaches striking union, eyes new offer

    Chile's Escondida coppermine, the largest in the world, has invited its union to resume talks as a first step towards ending a month-long strike, it said Friday.

    The strike, which began February 9 and has lasted for 30 days, is the longest in Escondida's history. With stoppages also in place at other important copper mines worldwide, global copper prices have risen on tighter supply expectations.

    "The company is insistent in its call to the union to restart talks, in order to arrive at a deal that will allow the strike to end as soon as possible," Escondida said in a statement late Friday.

    Escondida, controlled by BHP Billiton, has spoken to the union and is preparing a new contract offer that seeks to address some of their concerns, a source with knowledge of the situation told Reuters, without giving details on the fresh offer.

    The union did not give an immediate response to Escondida's statement. Union spokesperson Carlos Allendes said earlier Friday that the company had not been in contact with the union.

    The company has the right to use temporary replacement workers, but has previously said it would not exercise that right for the first 30 days, as it seeks to keep a lid on simmering tensions.

    It said Friday it "would evaluate day by day" whether it may begin to use temporary workers. However, there were no immediate plans to do so, the source said.

    After 30 days, workers can also break from the union and individually agree to accept the company offer. But the strikers remained determined to push for a good deal, Allendes said, and were unlikely to take the bait.

    When Escondida does restart, the initial focus will be on maintenance and projects such as the construction of a desalination plant and concentrator expansion, Escondidasaid. "We are not thinking of producing from day one," said corporate affairs head Patricio Vilaplana.

    Escondida produced over one-million tonnes of copper last year, around 5% of the world's total, and economists are expecting an impact to Chile's economy in February as a result of the strike, which has meant that no copper is leaving the site.

    Contract talks collapsed after the union and company disagreed on a number of points, including the treatment of new workers, changes to shift patterns, and the level of a one-off bonus.

    Rio Tinto and Japanese companies including Mitsubishi Corp hold minority interests in the mine.
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    Steel, Iron Ore and Coal

    Regional authority blocks plans for Chile's largest iron ore mine

    Authorities in northern Chile have rejected plans to build the country's largest iron ore mine, citing flaws with its environmental plan.

    In a meeting Thursday, the environmental commission for Coquimbo region decided against approving the environmental impact study for the $2.5 billion Dominga project, with seven votes against versus six for as regional government head Claudio Ibanez cast the deciding vote.

    If it goes ahead, the project, which included open pit mining, a processing plant, a desalination plant and a port, would produce 12 million mt of iron ore annually, compared with the 10.4 million mt/year produced by CAP's Los Colorados mine.

    It would also produce 150,000 mt/year of copper in concentrates over its 22-year mine life.

    The project was the largest of a series of iron ore mines in development in Chile before a collapse in the price from 2014 onwards froze investment.

    Construction of the mine and infrastructure would have created almost 10,000 jobs.

    But a majority of commissioners decide to block its development, citing a series of irregularities, including the project's proximity to a popular national marine reserve and the failure to consult local communities over its impact.

    Politicians had already called on the project to thrown out given its links to a political scandal.

    The project is majority controlled by Chilean businessman Carlos Alberto Delano, who is under investigation for tax fraud and bribery after contributing millions of dollars to the election campaigns of dozens of politicians.

    Delano put the project up for sale in 2016, but has yet to find a buyer.

    Meanwhile, government supporters have accused former president Sebastian Pinera, who is planning to run in this year's presidential elections, of intervening on behalf of the project during his first term in government, when his family were shareholders in the project. The billionaire businessman has rejected the suggestions.
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    Shaanxi Binchang Mining Feb rail coal delivery hit record

    Shaanxi Binchang Mining Feb rail coal delivery hit record

    Shaanxi Binchang Mining Group, a large coal producer owned and operated by Shaanxi Coal and Chemical Industry Group, reported its rail coal deliveries to other provinces at 1.09 million tonnes in February, hitting a record high on monthly basis, said Shaanxi Coal and Chemical Industry Group on its website.

    In the first two months, the company's outbound coal transport via railways exceeded 2 million tonnes, mainly attributed to the enhancement of coal quality and sufficient transport capacity in Shaanxi province during the Spring Festival holidays.

    The rail coal delivery accounted for as much as 60% of the company's total coal transport over January-February, converting its previous dependence on trucks.
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    Shanxi contributes nearly 80 pct of China's 2016 coke exports

    Northern China's coal-rich Shanxi province exported 7.65 million tonnes of coke in 2016, down 7.9% from the previous year, accounting for 75.6% of China's total coke exports, showed data from Taiyuan Customs.

    Shanxi exported 54,000 tonnes of coke in December 2016, surging 30.4% year on year and 598.7% from November. The value of December coke exports stood at 93.33 million yuan, rising 159.9% from the year-ago level and 736.2% month on month.

    Japan was the largest buyer of Shanxi coke, accounting for 57% of Shanxi's total coke exports in 2016. The UK took 19.6% of Shanxi's coke exports last year, followed by India at 9.1% and Australia at 4.4%, data showed.
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    Israel cancels coal-fired power plant plans

    Israel's Energy and Water and Finance Ministries have decided to cancel plans to build a fifth coal-fired plant, the Energy and Water Ministry confirmed on Thursday.

    The project was first approved in 2001 prior to the discovery of huge offshore natural gas reserves.

    The two ministries agreed to remove the proposed project -- delayed for years -- from the development program of the state-owned Israel Electric Corp.

    Following the discovery of the offshore gas environmental, groups and residents of Ashkelon, where the 1150 MW plant was to have been built, mounted a campaign against building a new coal plant.

    The latest decision is in line with moves by Energy and Water Minister Yuval Steinmetz to reduce coal use in Israel.

    The ministry mandated a 15% reduction in coal consumption at the country's four coal plants in 2016 and a further 5% reduction this year.

    Coal consumption in the first half of 2016 totaled 4.3 million mt from 5.315 million mt in H1 2015.

    Israel Electric has not yet released its 2016 annual report but energy sources said the company's coal consumption was less than 10 million mt last year and is expected to drop further still this year.

    In addition, the ministry decided last year that beginning in 2021 the four Orot Rabin units (1440 MW) will be shut down and or converted to natural gas.
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    China iron ore eyes worst week in nearly 3 months as port stocks climb

    Iron-ore futures in China were little changed on Friday, but were headed for their biggest weekly drop since December as the rally in steel prices lost steam and stockpiles of iron ore at Chinese portsrose to the most in at least 13 years.

    Iron-ore prices have rallied with steel this year despite a sustained increase in stocks of imported ore at China's ports. But as steel prices pulled back, concerns emerged in the market over the growing mountain of the steelmaking raw material that could increase further.

    The most-traded iron ore on the Dalian Commodity Exchange was flat at 654.50 yuan ($95) a tonne by midday. The contract, which touched a record high of 741.50 yuan last month, has lost 3.5% this week, the most since the week ending December 23.

    The most-active rebar on the Shanghai Futures Exchange was up 0.2% at 3,396 yuan per tonne. The construction steel has dropped 7% since scaling a three-year high on February 27.

    Stockpiles of iron ore at major Chinese ports reached 130.05-million tonnes as of March 3, SteelHome said, the most since 2004 when the consultancy began tracking the data.

    The continued inventory buildup shows Chinese "demand is failing to consume the surplus volumes," UK steelconsultancy MEPS said in a note.

    "With reduced export opportunities, as a result of trade actions in various countries, China now looks to its own domestic market and its investment in infrastructure to consume the oversupply," it said.

    China's steel exports fell to a three-year low of 5.75-million tonnes in February.

    As iron ore futures slid this week, so did spot prices with deals slow in physical markets, traders said.

    Iron ore for delivery to China's Qingdao port fell 0.5% to $86.79 a tonne on Thursday, the lowest since February 10, according to Metal Bulletin.

    The spot benchmark was down 5% so far this week, on course for its biggest such loss since mid-November.
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    Proposed curbs to free pricing of iron-ore triggers face-off with India's miners

    The Indian government has started working on measures to curb free pricing in the iron-ore sector, triggering fears of another face-off with miners.

    The government, as per statements emanating from the Steeland Mines Ministries, has taken a policy stance that iron-oreshould be made available to domestic steel producers at a cheaper rate to ensure steel producers' competitiveness.

    To that end, the government believes checks on iron-orepricing would be useful in countering the inflow of cheap steel products into the country.

    The detailed contours of methodology to check the current free pricing regime in the iron-ore sector were yet to be disclosed, with government officials claiming that, while the "principle has been laid down, the details are in the works".

    However, at least two other officials and sources in standalone mining companies said that, while a definitive cap on the selling price of iron-ore was unlikely, several other options to curb free pricing were "up for discussion by the Steel and Mines Ministries".

    Other options included setting a price band within which iron prices would be allowed to fluctuate or laying down a cost plus formula, which would be mandatory for all iron-oreminers to adopt in setting their market selling price, the sources said.

    In a media statement earlier this week, Steel Secretary Aruna Sharma said, “ there should be some sharing of profits by iron-ore producers. We are working on the end-formula and will come up with the logic very shortly”.

    Iron-ore miners have termed the government's move to check prices as "foolish".

    Clearly, the battle lines were being drawn between the government and miners at a time when India is poised to record a five-year high in iron-ore production at 180-million tonnes at close of current financial year on March 31.

    The Federation of Indian Mineral Industries (FIMI), the representative body of miners, in a statement pointed out that India had recently adopted the auction route for the allocation of all mineral resources.

    According to FIMI, the very rationale of the auction process was based on investors putting in bids and compete to secure natural resource and bids were based on returns assumed on free pricing ability of the investor for the produce. Curbs on free pricing or limits to profit margins would negate the very basis of competing for natural resource allocation and would be a throwback to times when commodity prices in Indiawere administered by the government.

    An official in FIMI also pointed out that if the government’s contention was that iron-ore miners were making very high profits and needed to share it with steel producers, then it was hard to explain why steel producers seldom put in bids to secure their own iron-ore blocks which were put up for auction but instead complained of high domestic prices for the raw material.

    As per industry estimates, in the case of steel producers with captive iron-ore source, the cost of iron-ore constitutes about 10% of the cost of production of steel. The cost moves up to around 25% for those steel mills based on merchant purchase of the raw material.

    In a submission to the government, miners said curbs on free pricing on one segment of the industry, namely raw material suppliers, and pricing freedom to another downstream player, namely steel producers, belied any economic logic.

    Attached Files
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    China's steel mills race for profits as rally looks vulnerable

    China's steel mills are churning out as much metal as possible, enjoying their best profits in years, even as they worry the months-long rally in prices in the world's top steelmaking market is running out of steam, executives said.

    The strategy to pump out more may threaten the bull market, during which prices for steel rebar used in construction have skyrocketed to their highest since 2014 in recent weeks.

    As metal piles up in the country's major cities, executives say the price surge has mainly been fuelled by another bout of speculative buying rather than underpinned by a pick up in industrial demand.

    Speculators have splurged on futures for iron ore and steel, betting on higher prices after Beijing has pledged billions of dollars in construction and infrastructure projects as part of its stimulus programme.

    But Zhang Wuzong, president of Shiheng Special Steel Group in Shandong province, reckons the market is on the verge of dropping sharply.

    "I think the current rally in steel price is a mentality issue and it cannot last," he said on the sidelines of the annual meeting this week of China's parliament, the National People's Congress.

    Last year, the majority of steel companies were bleeding cash, said Zhang.

    Steel mills are currently making a profit of up to 800 yuan ($115.74) a tonne producing rebar, the highest since 2011, spurring them to fire up furnaces, analysts said.

    On Feb. 27, steel rebar futures rocketed to 3,648 yuan ($527.41) per tonne, their highest in three years. That's up 60 percent since September.

    The burst of activity and soaring prices are undermining the government's years-long push to cut capacity in its bloated steel sector to make the industry more efficient and tackle smog. Beijing's crackdown has mainly targeted low-grade products like rebar.

    On Sunday, the government announced plans to slash another 50 million tonnes of capacity this year, on top of the 65 million removed last year.

    However, many of the plants closed last year were already idled and output from the still-open plants actually rose 1.2 percent to 808.4 million tonnes.


    The tailwinds are about to turn into headwinds as rising inventories point to oversupply.

    Last month, rebar stockpiles across 35 major cities MYSTL-IRBC-35CT hit 8.7 million tonnes, their highest in almost three years, data from consultants Mysteel showed.

    Dong Caiping, chairman of Zenith Steel in eastern Jiangsu province, said he is "worried" the market will be in oversupply by the second half as mills increase output due to bumper margins.

    Soaring stockpiles of iron ore, a key ingredient in steelmaking, also highlight the trend, analysts say. Inventories CUS-STKTOT-IORE hit 127.9 million tonnes, their highest in at least a decade and equivalent to 1-1/2 months of imports, Custeel reported.

    Most of that is low-grade ore, sidelined while mills rush to use higher-quality feed to maximise product and offset higher coking coal prices, according to Wood Mackenzie.

    "Steel margins are quite healthy, so mills are trying to produce as much as possible. And using high grade ore will maximise steel production," said Rohan Kendall, principal iron ore analyst at Wood Mackenzie.

    "We're not seeing enough government stimulus to justify the surge in prices."

    Attached Files
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    Molybdenum climbs further as sellers hold back units

    Tight availability of molybdenum units continued to push molybdenum prices higher.

    In Asia, a Chinese trader source said it had received a flurry of inquiries following the higher overnight prices led by buying in Europe and India. Deals in Busan were concluded at $8.10/lb and $8.20/lb.

    Offers were made at $8.25-$8.30/lb in Asia, with one Chinese trader rejecting bids at $8.10/lb.

    European market participants said they had seen no change in supply and were receiving higher offers for limited quantities. One seller source said he had sold several lots of briquettes and had run out of material to offer.

    Oxide powder sales were reported at $8.40 and $8.50/lb CIF India, $8.25/lb in Rotterdam. Briquettes in Europe were reported at $8.40/lb and $8.50/lb in Rotterdam as well to consumers at $8.50/lb DDP 45 days and $8.45/lb DDP 30 days.

    Ferromolybdenum prices were also higher, with traders reporting offers above $20.50/kg.

    "There is not too much Korean material in the market and the Russians are doing well in consuming their own production," one seller said.

    Others agreed there had been little South Korean material exported to Europe over the last few months because of lower conversion rates and competitively priced Chinese ferromolybdenum.

    "Nobody has bought anything from over there. South Korean prices were too high and nobody had the guts to take a position," a European trader said.

    Market participants agreed the lack of briquettes and ferromolybdenum has been pulling up the oxide price. Offers for oxide powder were at $8.65/lb in Rotterdam at the end of the European day while sellers held back briquettes.

    Ferromolybdenum sales were reported up to $20.35/lb for 20 mt lots in Rotterdam, a European steel mill was heard to have bought at $19.95/kg DDP with payment terms.

    The Platts daily dealer oxide assessment climbed to $8.10-$8.50/lb from $7.95-$8.25/lb while Platts daily European ferromolybdenum assessment was at $19.15-$19.80/kg from $19.90-$20.35/kg.
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