Mark Latham Commodity Equity Intelligence Service

Friday 6th November 2015
Background Stories on

News and Views:

Attached Files


    OPEC, Russia oil battle heats up as Sweden buys Saudi crude

    The Saudi-Russian battle for Europe's crude oil buyers intensified this week as Swedish refiner Preem bought its first cargo of Saudi Arabian crude oil in around two decades, trading sources said.

    The purchase from another traditional buyer of Russia's Urals crude will heat up the contest for market share that Saudi Arabia has effectively brought to Russia's backyard in the Baltic region.

    Already, Poland's two refineries, PKN Orlen and Lotos, have turned to Saudi crude at the expense of Urals.

    The deputy head of Lotos earlier this week told Reuters that the purchase "made our negotiation position much stronger" with its traditional supplier, Russia.

    State oil company Saudi Aramco on Thursday also dropped its official selling prices for crude oil to northwest Europe.

    Preem, which also predominately runs Russia's Urals crude , confirmed the purchase but declined to elaborate on details.

    Market sources said the company would run the crude through refinery units by the end of November to see if it could take Saudi crude more frequently in the future.

    Read more at Reuters

    Attached Files
    Back to Top

    Brazil speaker faces ethics hearings over Swiss bank accounts

    A Brazilian Congressional ethics committee on Thursday picked a first-term legislator to lead an investigation into secret Swiss bank accounts allegedly held by Eduardo Cunha, the speaker of the lower house.

    The investigation, part of the fallout from a kickback scandal engulfing state-run oil company Petroleo Brasileiro SA , or Petrobras, could seal the political fate of Cunha, third in the line of presidential succession.

    It is therefore a crucial piece of an ongoing political drama surrounding President Dilma Rousseff, currently facing the deepest economic and political crisis in Brazil in decades. As speaker, Cunha is the sole lawmaker with constitutional authority to take up one of the many impeachment requests filed by opponents against her.

    Ethics committee members appointed Fausto Pinato, of the Brazilian Republican Party (PRB), to lead the probe and gave him until Nov. 24 to recommend whether the committee should probe Cunha for lying about the accounts, a breach of conduct that could cost him the speakers position and his seat.

    The appointment raised eyebrows among some lawmakers because the PRB is a party of Evangelical politicians, many of whom have close ties to Cunha, himself an Evangelical Christian.

    Pinato, 38, vowed to be impartial and told reporters it was "very possible" that he would accept the complaint against Cunha. Aides to Cunha, meanwhile, said the speaker is confident he has enough support on the committee to avoid an unfavorable ruling.

    Though charged with upholding ethical standards, the committee itself is controversial in a country where corruption and politics are often inseparable.

    One third of its 21 members are being investigated for alleged crimes - from electoral and tax fraud to money laundering, according to the Estado de S. Paulo newspaper. Pinato himself is on trial on charges of giving false testimony in a case that predates his election last year.

    "The committee members will try to look good before the Brazilian public. If they give Cunha a free ride, it may become politically costly for them," said Aline Machado, a political scientist working for the Brazilian Congress.

    Cunha is under investigation for allegedly receiving a $5 million kickback in the massive corruption scandal involving Petrobras.

    After Cunha told a previous Congressional commission in March that he had no bank accounts abroad, Swiss prosecutors located four accounts in his and his wife's name at Julius Baer bank and passed the details to Brazilian authorities.

    Read more at Reuters

    Attached Files
    Back to Top

    Duke Energy profit rises on strong demand, low fuel costs

    Duke Energy Corp, the largest U.S. power company by generation capacity, reported a 5.5 percent rise in quarterly profit from continuing operations, driven by warmer-than-expected weather and lower fuel costs.

    The company lowered the top end of its 2015 adjusted earnings estimate - it now expects earnings for the period to be $4.55-$4.65 per share compared with the $4.55-$4.75 it forecast earlier.

    Duke, which sells power to 7.3 million customers across six U.S. states, has been retiring several of its coal operations and converting some of them into cheaper and less polluting natural gas-powered plants.

    The company has also been expanding its natural gas distribution business to lower dependence on power generation as demand for electricity weakens due to increased energy efficiency.

    Net income from continuing operations rose to $940 million, or $1.36 per share, in the third quarter ended Sept. 30, from $891 million, or $1.25 per share, a year earlier.

    Duke Energy Corp, the largest U.S. power company by generation capacity, cut the top end of its 2015 adjusted earnings forecast, citing a drought and a slowing economy in Brazil and a strong dollar.

    The international business, which spans Brazil, Argentina and Chile, had earned only half of what the company had expected through September, Duke said on Thursday.

    Adjusted income from international business, which accounts for about 12 percent of revenue, fell nearly 14 percent to $69 million in the quarter ended Sept. 30.

    Read more at Reuters

    Attached Files
    Back to Top

    Oil and Gas

    Saudi pilot carbon storage project may boost recovery rates at giant oilfield

    Saudi Arabia's first carbon capture and storage pilot project, located at its Ghawar oilfield, may boost oil recovery rates by 20 percentage points, oil minister Ali al-Naimi said.

    Carbon storage schemes are being promoted around the world as a way to slow global warming by preventing the release of carbon dioxide into the atmosphere. But big oil producers such as Saudi Arabia are also keen to develop the schemes as a way to extend the life of oilfields.

    By injecting carbon dioxide into depleted oil fields rather than more precious resources such as water, they can increase pressure in the fields and maximise yields, although the technology is still expensive.

    Ghawar, which has been pumping since 1951, produces over 5 million barrels per day, almost half Saudi Arabia's oil output.

    The carbon project, developed by national oil firm Saudi Aramco, started operating this year - 40 million cubic feet per day of carbon dioxide will be captured at the Hawiyah gas recovery plant and then piped 85 km (53 miles) to the Uthmaniyah area.

    At Uthmaniyah, it will be injected into flooded oil reservoirs under high pressure to enhance oil recovery, storing an estimated 800,000 tonnes of carbon dioxide every year. Aramco has previously used water injection at the field.

    "This pilot will show us whether we can take the Ghawar field from 50 percent (oil) recovery to 70 percent recovery plus or minus," Naimi told a news conference in Riyadh on Wednesday.

    The field has estimated remaining proven oil reserves of 75 billion barrels, according to the U.S. Department of Energy. Currently, Saudi oilfields have recovery rates of about 50 percent of their contents, but some fields have reached almost 70 percent through water injection, Naimi added.

    "It is hoped that this pilot project can demonstrate that it is possible to increase oil recovery at commercially sustainable costs," said Sadad al-Husseini, a former top executive at Saudi Aramco.

    There are currently 15 carbon capture and storage projects in operation worldwide, according to a report by Global CCS Institute released on Thursday.

    Read more at Reuters

    Attached Files
    Back to Top

    Petrobras reduces impact of oil workers’ strike

    Petrobras has managed to reduce the impact of this week’s oil workers’ strike.

    The Brazilian state-run oil and gas company said that, thanks to its contingency plan, the loss of production on November 4 was 134,000 barrels of oil, which means a 25% recovery with respect to that recorded the previous day.

    According to Petrobras, the estimated loss for Thursday is 127,000 barrels.

    Petrobras also said that there were isolated cases of occupation of facilities and control of production, without permission for contingency teams to operate.

    “The company is taking all the appropriate legal measures to protect its rights and will continue to do everything needed to ensure the maintenance of its operations, the preservation of its installations and the safety of its workers,” the company said.

    Petrobras added that any material facts would be timely disclosed to the market.
    Back to Top

    No Credit? No Problem! Pipe Maker Offers Oil Companies Financing

    Billionaire Paolo Rocca has a new way of keeping his cash-starved oil company clients drilling: putting
    up funding as bank credit tightens.

    Rocca’s Tenaris SA, the biggest manufacturer of seamless steel tubes for the oil industry, will use its own cash to support clients next year after crude prices collapsed, the Argentine-Italian entrepreneur said Thursday on a quarterly conference call. Tenaris is prepared to take a hit on its net cash holdings as a result.

    “We are monitoring the financial health of our customers and we are providing to many of our big customers an extension in payment conditions that is really helping in this very
    complicated environment in which part of the credit lending has been cut by banks,”
     Chief Financial Officer Edgardo Carlos said on the same call.

    Crude’s 40 percent plunge in the past year is squeezing margins and triggering billions of dollars of writedowns among producers. Even so, Rocca expects drilling levels to improve in the U.S. and Kuwait next year. Drilling in Latin America probably will fall, he said.

    Tenaris net cash position rose to $2.1 billion in the third quarter. Little changed on Thursday, the company’s shares have fallen 6 percent his year compared with the Bloomberg Energy mSubindex’s 25 percent decline.

    “We will use part of our cash to support our clients, to support some of their plans,” Rocca said.

    Attached Files
    Back to Top

    Spains's Fenosa expects to obtain first Sabine Pass LNG in 2016

    Spain's Gas Natural Fenosa expects to obtain some early quantities of LNG from the US Sabine Pass LNG terminal during 2016, according to company CEO Rafael Villaseca. 

    The company, which has a 4.8 Bcm/year contract starting in 2017, said Wednesday it expects to place some volume ahead of that date, without saying how much.

    Villaseca said the company has already made agreements to sell 3 Bcm of the annual 4.8 Bcm it has agreed to buy from the plant's operator Cheniere Energy.

    Villaseca said Gas Natural would buy US gas at an average of $6.33/MMBtu on a FOB basis for 2016.

    The company said it expects to sell 120 TWh of LNG globally in 2016, with 80% of that volume already covered.

    Attached Files
    Back to Top

    InterOil to increase interest in Triceratops and Raptor

    InterOil Corporation will increase its interest in two key licenses following the withdrawal of Pacific Exploration & Production Corporation from Papua New Guinea.

    The withdrawal of Pacific, formerly Pacific Rubiales Energy Corp., is consistent with its strategy of focusing on Latin America.

    As a consequence of Pacific's withdrawal, InterOil will increase its interest in PRL 39, which contains the Triceratops discovery, and also in PPL 475, which contains the Raptor discovery.

    InterOil Chief Executive Dr Michael Hession thanked Pacific for its support as a joint venture partner and for its investment in the discovery and appraisal of resources in Papua New Guinea.

    'We are pleased we will now own more than 78% of the Triceratops and Raptor discoveries,' he said.

    'Pacific's withdrawal simplifies license ownership for any commercialization discussions with other strategic players.'

    The 2012 farm-in agreement made certain provisions for Pacific to withdraw from the two licenses, including the right to receive a repayment of approximately US$96 million from the net cash proceeds of the commercial sale of petroleum recovered or produced from PRL 15. The repayment of US$96 million is to be made within six years from the date of withdrawal, with contributions of US$66 million from InterOil and US$30 million from minority interests. This amount has been previously disclosed in InterOil's financial statements under non-current liabilities and receivables.
    Back to Top

    Canadian Natural Resources posts 3Q loss

    Canadian Natural Resources Ltd. (CNQ) on Thursday reported a third-quarter loss of $85 million, after reporting a profit in the same period a year earlier.

    The Calgary, Alberta-based company said it had a loss of 8 cents per share. Earnings, adjusted for one-time gains and costs, were 8 cents per share.

    The oil and natural gas company posted revenue of $2.54 billion in the period.

    Commenting on third quarter results, Steve Laut, President of Canadian Natural stated, "The third quarter was a very strong operational quarter, as we continue to make significant progress in reducing costs while maintaining effective, efficient and reliable operations across our business segments. Our disciplined approach has led to operating costs per barrel equivalent reductions in 2015 equating to approximately $945 million. At the same time our average production has increased 11% despite a very significant drop in capital program spending. We look to maintain this positive momentum into 2016, with 2016 production volumes targeted at roughly the same level as in 2015. We currently anticipate 2016 cash flows to cover 2016 capital expenditures between $4.5 and $5.0 billion, which includes approximately $2.1 billion of Horizon expansion project expenditures. Importantly, we target to exit 2016 with Horizon production volumes at 170,000 bbl/d and the Phase 3 expansion well advanced toward completion in Q4/17. For 2017, Horizon expansion project expenditure levels are targeted between $1.0 and $1.3 billion, as we complete the Horizon expansion."

    Canadian Natural's Chief Financial Officer, Corey Bieber, continued, "In 2015, we have been exceptionally proactive in managing our balance sheet and exhibiting capital discipline, given the significant decline in commodity prices. To date, and including the most recent reduction in capital expenditure guidance of $65 million, we have reduced our targeted capital expenditures by approximately $3.2 billion in 2015 from the original budget, while at the same time increasing crude oil and natural gas production by a targeted 9% year over year. For the first nine months, our cash flow funded all but $300 million of our capital expenditures and dividends paid, including over $1.6 billion of Horizon Phase 2/3 expansion costs. Our liquidity remains robust at $3.4 billion, and the balance sheet remains resilient through this commodity price cycle with our solid access to debt capital markets, as we maintain strong investment grade credit ratings."
    Back to Top

    U.S. refineries start to return from maintenance

    Total stocks of crude oil and refined products in commercial storage across the United States dropped for the second week running last week, the first back-to-back fall since May, according to the U.S. EIA.

    More than 1.4 million barrels per day (bpd) of refinery capacity is still offline for routine maintenance and upgrades after the end of the summer driving season.

    Turnarounds have contributed to the accumulation of crude inventories but resulted in a big draw down in stocks of refined products including gasoline and distillate fuel oil.

    Stocks of crude rose by 2.8 million barrels in the week ending on Oct. 30, and have increased in each of the last six weeks, by a total of almost 29 million barrels.

    Crude stocks are now nearly 103 million barrels, about 27 percent, higher than they were at the same point last year ("Weekly Petroleum Status Report" published on Nov. 4).

    But the stock of refined fuels has fallen for seven consecutive weeks by a total of 25 million barrels, or about 500,000 bpd.

    Gasoline stocks have fallen more than 8 million barrels over the last four weeks while distillate stocks have been down for seven consecutive weeks by a total of more than 13 million barrels.

    At the end of the summer there were widespread predictions that the United States was headed for a glut of refined products once the driving season finished.

    But the threatened oversupply has not materialised as refineries have successfully matched runs with lower seasonal demand.

    The total surplus of refined products over prior-year levels has remained steady at around 95 million barrels since August.

    The increase in product stocks is concentrated in propane (22 million barrels) and distillate fuel oil (21 million barrels) with smaller rises in finished gasoline (14 million barrels) and gasoline blending components (13 million barrels).

    Proportionately, the surplus is much larger in propane, where stocks are up 28 percent, and distillates, up 18 percent, than gasoline, up just 6 percent, and blending components, up 7 percent.

    The result has been a big counter-seasonal shift in the relative prices of distillates and gasoline.

    With winter approaching, distillates, would normally command a premium of around 36 cents per gallon, $15 per barrel, over gasoline, and the premium would normally rise through year-end and into January.

    However, this year the premium has been falling and shrunk to just a third of its normal level, around 12 cents per gallon.

    U.S. refineries have passed the half-way point of the maintenance season. Crude processing has already increased by more than 350,000 bpd over the last three weeks.

    Runs are likely to rise by a further 500,000 to 900,000 bpd over the course of November and December based on prior experience.

    Increased processing should limit any further increase in crude oil stocks before the year-end while stabilising gasoline inventories. The main challenge for refiners will be marketing surplus propane and middle distillates.

    U.S. propane exports have been increasing rapidly and competing in markets much further afield than was the case in the past, according to the EIA ("U.S. propane exports increasing, reaching more distant markets" Nov. 3).

    Propane exports were initially directed towards neighbouring markets in Mexico, the Caribbean and South America but are now reaching Europe and Asia, where they compete with supplies from Saudi Arabia and the Middle East.

    Marketing surplus distillate is more challenging because diesel demand in the United States and China has been sluggish, and big new refineries in the Middle East and Asia are geared to maximise diesel production.

    However, fears that storage space for diesel will run out and force refinery slowdowns are overblown.

    Read more at Reuters

    Attached Files
    Back to Top

    EOG Resources posts $4.1 billion loss on impairment

    EOG Resources Corp.’s oil production sank in the third quarter and it lost $4.1 billion, largely because it wrote down the value of large but older oil property.

    The oil slump also has brought EOG some benefits. It cut lease and well expenses by 17 percent as it wrung out costs and got better deals from equipment suppliers, the company said. And its costs to move its oil fell 11 percent as general and administrative costs declined 6 percent.

    Its oil production also slipped, falling 5 percent compared to the same period last year. But that’s a small figure compared to the 36 percent it cut from spending on drilling projects. It didn’t lower its annual spending guidance.

    “We are executing on our 2015 plan to reset the company to be successful in a low commodity price environment,” EOG CEO William Thomas said in a written statement.

    The Houston oil producer’s $4.1 billion loss, about $7.47 a share, was down from a $1.12 billion profit, or $2.01 a share, in the July-August quarter last year. Quarterly revenue sank from $5.1 billion to $2.2 billion.

    EOG said, it bolstered its collection of oil resources in West Texas by 1 billion barrels of oil equivalent as it scouted out 950 new drilling locations. It has been able to push its wells closer together as technology has advanced, giving it a way to tap stacked layers of oil-soaked shale rock. It also bought $368 million in acreage in the Delaware Basin across Texas and New Mexico.

    At its key acreage in the core of the Eagle Ford Shale in South Texas, EOG added more hefty payloads of sand into 95 percent of its wells, a technique to boost oil production from hydraulic fracturing, the process of blasting water, chemicals and sand underground to break open shale rocks.

    Attached Files
    Back to Top

    Fed's Harker says Marcellus natural gas boom likely has peaked

    The U.S. natural gas boom centered around the Marcellus shale fields has probably hit a peak for now, Philadelphia Federal Reserve President Patrick Harker said on Thursday.

    "The robust natural gas drilling that carried this region through the worst of the Great Recession has likely plateaued in the past few years," Harker said in prepared remarks to be delivered in Philadelphia.

    Harker did not otherwise comment on the outlook for the U.S. economy or monetary policy.

    Read more at Reuters
    Back to Top

    Enbridge sees hit from delay in start of Line 9 pipeline

    Enbridge Inc, Canada's largest pipeline company, said a delay in starting up a pipeline that will move crude from Ontario to Quebec will hurt its adjusted earnings for the year.

    The company said it now expects full-year adjusted earnings to fall within the lower half of the estimated range of C$2.05-C$2.35 per share.

    Canadian regulators approved the additional test results of Enbridge Line 9 crude oil pipeline in September, clearing the way for the delayed 300,000 barrel-per-day route to the east of the country.

    The 639-km (400-mile) pipeline, which will replace supplies currently shipped by rail or imported from abroad, was expected to start operating in early 2015.

    Calgary-based Enbridge's adjusted earnings rose 15.7 percent to C$399 million ($303.4 million), or 47 Canadian cents per share, in the third quarter ended Sept. 30, from a year earlier.

    Analysts on average were expecting earnings of 48 cents per share, according to Thomson Reuters I/B/E/S.

    The company's Mainline system, which moves the bulk of Canadian crude exports to the United States, shipped an average of 2.2 million barrels per day (bpd) in the third quarter ended Sept. 30, compared with 2.0 million bpd a year earlier.

    Separately, Enbridge said on Thursday it had bought a 24.9 percent stake in an offshore wind energy project in the United Kingdom for C$750 million.
    Back to Top

    U.S. oil producer Apache raises production forecast

    Apache Corp reported a much smaller-than-expected quarterly loss and joined a growing list of U.S. oil producers in raising full-year production forecast even as many of them cut spending.

    Increased efficiencies, a drop in service costs and low break-even levels in core U.S. shale fields are all helping U.S. oil companies increase production on reduced budgets.

    U.S. producers ranging from Oasis Petroleum Inc to Devon Energy Corp have forecast higher production in their latest quarterly reports.

    Apache on Thursday raised its full-year North American onshore production forecast to 307,000-309,000 barrels of oil equivalent per day (boepd), from 305,000-308,000 boepd.

    The company also increased its international and offshore production forecast to 172,000-174,000 boepd, from 164,000- 168,000 boepd.

    "As we turn to 2016, prudent capital allocation will continue to be our primary focus...," Chief Executive John Christmann said in a statement.

    Oil producers are keeping a tight leash on spending to cope with a near-60 percent drop in global oil prices since June last year that has sapped profitability.

    The net loss attributable to Apache's common shareholders widened to $5.56 billion, or $14.95 per share, in the third quarter ended Sept. 30, from $1.33 billion, or $3.50 per share, a year earlier.

    The latest quarter included a $1.5 billion charge related to deferred tax assets and a $3.7 billion writedown due to the oil slump.

    Adjusted loss was 5 cents per share, much lower than the average analyst estimate of 36 cents.

    Revenue more than halved to $1.5 billion.

    Read more at Reuters

    Attached Files
    Back to Top

    Northern Oil and Gas announces 2015 third quarter results, still has hedges

    - Production averaged 15,844 barrels of oil equivalent ('Boe') per day, for a total of 1,457,610 Boe
    - Oil and gas sales, including settled derivatives (hedges), totaled $92.7 million
    - Northern's credit facility balance was paid down by $18 million during the quarter, to $170 million, as a result of positive cash flow from operations
    - Northern added 85 gross (2.7 net) wells to production during the third quarter
    - Approximately 2.3 million barrels of oil are hedged for the next four calendar quarters at an average price of approximately $85.00 per barrel
    - Northern's adjusted net income for the third quarter of 2015 was $14.6 million, or $0.24 per diluted share. GAAP net loss for the third quarter of 2015, which was impacted by a $354.4 million non-cash impairment charge, was $323.2 million, or a loss of $5.33 per diluted share.
    - Adjusted EBITDA for the third quarter of 2015 was $71.7 million.


    'As we continue to focus our investments on our highest rate of return opportunities, we are seeing the added benefit of lower costs and innovative completion designs driving productivity,' commented Northern's Chairman and Chief Executive Officer, Michael Reger. 'In addition, the net effect of our capital spending discipline, hedge book and high-grade well additions allowed us to maintain our borrowing base at $550 million, generate free cash flow and reduce debt during the quarter.'

    Attached Files
    Back to Top

    Denbury Resources reports third-quarter loss of $2.24 billion

     Denbury Resources Inc. (DNR) on Thursday reported a third-quarter loss of $2.24 billion, after reporting a profit in the same period a year earlier.

    The Plano, Texas-based company said it had a loss of $6.41 per share. Earnings, adjusted for asset impairment costs and non-recurring costs, came to 18 cents per share.

    The results beat Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 14 cents per share.

    The independent oil and gas company posted revenue of $303.6 million in the period, which fell short of Street forecasts. Four analysts surveyed by Zacks expected $454 million.
    Back to Top

    Linn Energy announces third quarter 2015 results

    Linn reported the following third quarter 2015 results:

    - Average daily production of approximately 1,198 MMcfe/d for the third quarter 2015;
    - Total revenues of approximately $998 million for the third quarter 2015, which includes gains on oil and natural gas derivatives of approximately $549 million;
    - Lease operating expenses of approximately $154 million, or $1.40 per Mcfe, for the third quarter 2015;
    - Net loss of approximately $1.6 billion, or $4.47 per unit, for the third quarter 2015, which includes non-cash impairment charges of approximately $2.3 billion, or $6.43 per unit, non-cash gains related to changes in fair value of unsettled commodity derivatives of approximately $235 million, or $0.67 per unit, non-cash gains on extinguishment of debt of approximately $198 million, or $0.56 per unit, and gains on sale of assets and other of approximately $167 million, or $0.48 per unit;
    - Excess of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors, including total development of oil and natural gas properties, of approximately $111 million for the third quarter 2015;
    - Estimated net positive mark-to-market hedge book value of approximately $1.9 billion as of September 30, 2015;
    - Non-cash impairment of long-lived assets of approximately $2.3 billion for the third quarter 2015, primarily driven by lower commodity prices and the Company's estimates of proved reserves; and
    - Exceeded guidance expectations for average daily production, lease operating expenses, general and administrative expenses and excess of net cash provided by operating activities for the third quarter 2015.

    The Company highlighted the following significant accomplishments:

    - As previously announced, completed the semi-annual borrowing base redetermination in October 2015 with undrawn capacity of approximately $790 million as of September 30, 2015, pro forma for the redetermination;
    - As previously announced, repurchased approximately $783 million of outstanding senior notes during the nine months ended September 30, 2015, for approximately $557 million in cash;
    - Revised the 2015 oil and natural gas capital budget to approximately $470 million from the prior level of $530 million as a result of additional cost savings and a reduction in non-operated activity in the Williston Basin and Jonah Field;
    - Anticipate full-year cost reductions in lease operating expenses of approximately $135 million;
    - Anticipate general and administrative expense reductions of approximately $30 million on an annualized basis;
    Back to Top

    Alternative Energy

    Vestas: higher 2015 forecasts and share buyback

    Vestas Wind Systems raised its 2015 profit forecast on Thursday and said it would buy back shares after stronger than expected third-quarter results, sending its shares to their highest in over six years.

    The world's largest wind turbine maker said operating profit rose 50 percent from a year ago to 232 million euros ($252 million), helped by a 17 percent rise in revenue and higher turbine prices, beating analyst forecasts of 201 million.

    The company also said it would buy back shares of up to 1.12 billion Danish crowns ($163.2 million) starting on Thursday, sending its stock as much as 6 percent to 419.6 crowns, the highest since May 20, 2009.

    "The share buy-back programme comes sooner than I had expected. Its a clear-cut signal of Vestas feeling very confident about the future," said Sydbank analyst Jacob Pedersen.

    The results and outlook mark a complete turnaround for the Danish company. It was hit hard by the global financial crisis and subsequent economic slump when renewable energy projects, often boosted by state funding, took a back seat.

    The company ousted Chief Executive Ditlev Engel two years ago after a string of profit warnings, slashed its workforce and shut down some facilities. Engel was replaced by Anders Runevad who made turbines more price competitive.

    "With greater clarity on deliveries for the remainder of the year and a very solid financial position, we are raising our guidance," Runevad said in the company's results statement.

    Vestas said it now expected a profit margin on earnings before interest and tax of 9-10 percent, up from 8.5 percent previously, and for revenue of 8-8.5 billion euros this year instead of a minimum 7.5 billion.

    In the third quarter, its revenue rose to 2.12 billion euros while the combined backlog of wind turbine orders and service agreements stood at 16.4 billion euros.

    Vestas managed to get a higher price for its wind turbines in the quarter, said Alm. Brand Markets analyst Michael Friis Jorgensen.

    The company's results showed that one megawatt generated 0.99 million euros in the third quarter this year compared with 0.85 million in the same period a year ago.

    Read more at Reuters

    Attached Files
    Back to Top

    Solar energy costs continue to plunge across the world

    Two stunning auction results in India and Chile in the last week have underscored the extraordinary gains that large-scale solar has made against its fossil fuel competitors.

    In both countries, solar is now clearly the cheapest option compared to new coal-fired power stations. In Chile, where the auction was open to all technologies, fossil fuel projects did not win a single megawatt of capacity. And the auction produced the lowest ever price for unsubsidised solar – US6.5c/kWh.

    In India, US firm SunEdison won the entire 500MW of solar capacity on auction in the state of Andhra Pradesh, quoting a record low tariff for India of INR 4.63/kWh (US7.1c/kWh). Again, this was unsubsidised. And again, it beats new coal generation, particularly generation using imported coal.

    These bids follow an auction in the US last month by the Texas city of Austin, which contracted to build 300MW of large-scale solar PV at a price of less than US4c/kWh. Even after backing out a tax credit, this is still less than US6c/kWh, and still beats gas and new coal plants, if anyone was planning to build one.

    As Greentech Media reported last month, and we have signalled in the past, that means utilities are choosing large-scale solar over new peaking gas plants. Solar PV is beating gas on fuel costs alone, and is acting as a safe hedge against fuel price volatility.

    The significance of the India auction was not just in the price, but in the quality of the bidder. Far from being an unheard of upstart who has bid low in previous auctions, SunEdison is the biggest renewable energy development company in the world.

    Other close bidders are also substantial names. Second place went to Japanese firm Softbank, much-touted for its announcement of investing US$20 billion in India’s renewables market, which is thought to have offered INR 4.80/kWh.

    Other parties to beat the previous record (of 5.05/kWh) and bid below the 5/kWh mark were Italian giant Enel Green, Reliance Power, the Indian power group that recently announced it was selling its coal mines to focus on solar, and Renew (no relation to this website), along with three others

    Such prices were predicted just last week by analysts including from Deutsche Bank, who predicted prices of 4.7/kWh and predicted that the India solar market was “ready to take off.”

    Still, the actual bidding results still took some analysts by surprise, with some suggesting that the prices will not allow for significant returns.

    The same thing was said about the ground-breaking solar result in Dubai earlier this year, but companies are clearly grabbing territory to develop supply chains that can further reduce costs. It is a story that has been repeated over and over across the world, and underlines the power of the auction system.

    And these results certainly have major implications for future energy choices in India, and elsewhere.

    Attached Files
    Back to Top


    CF Industries: More Ugly.

    CF Industries Holding Inc., the largest U.S. producer of nitrogen fertilizer, fell the most in almost four
    years after posting lower-than-expected third-quarter earnings amid lower prices and concern that the market will be awash with surplus supplies.

    The shares tumbled 9.5 percent to $46.84 in New York. After the close of trading on Wednesday, Deerfield, Illinois-based CF reported profit excluding one-time items of 49 cents a share, mtrailing the 73-cent average estimate of 17 analysts in a Bloomberg survey.

    CF prices were pressured by the “significant availability” of nitrogen fertilizer on global markets combined with lower demand. That slashed gross profit in the quarter to 18 percent of sales from 33 percent a year earlier. The company is one of several expanding in the U.S. to take advantage of low-cost
    natural gas, the main raw material used to make nitrogen-based crop nutrients.

    "We remain concerned that rising capacity in addition to a lower global cost curve are lowering the floor for North American nitrogen prices, implying narrower margins for domestic producers going forward," Paul A. Massoud, a Washington-based analyst at Stifel Nicolaus & Co. who recommends holding CF shares, said Wednesday in a note.

    In August, CF agreed to pay $5.4 billion for some assets of competitor OCI NV and move its headquarters to the U.K. in a deal that it said will make it the world’s largest producer of nitrogen fertilizer.

    Attached Files
    Back to Top

    Base Metals

    China aluminium smelters seek power fee cuts as metal price hits lows

    Emboldened by a state-owned aluminium smelter winning a cut in its electricity costs last month, other smelters in China are making a pitch to local authorities for similar cuts to cope with metal prices at record lows, people with knowledge of the matter said.

    In meetings with local governments and power suppliers, smelter executives are saying a bleak outlook for aluminium prices will leave them with no choice but to cut or halt production of the metal if power prices are not reduced, the people said.

    Power tariffs account for about 40 percent of production costs of aluminium smelters in China, the world's top producer and consumer of the metal. Any output reduction in China will help support weak prices of the metal.

    With power suppliers' costs expected to fall due to low coal prices, and local governments wanting smelters to keep producing to support jobs amid the slowing domestic economy, there's a good chance that at least some provincial local governments will agree to the smelters' requests, the people said.

    The pleas came after state-owned Liancheng smelter in Gansu province won a cut last month, although it may still stop production by the end of this year as its gross production costs are still higher than metal prices. The charges to Liancheng was cut to 0.25 yuan per kilowatt hour, from about 0.375 yuan.

    Private aluminium smelters in the southwestern province of Guizhou are asking for power charges below 0.3 yuan from about 0.35 yuan currently and state-owned smelters are seeking 0.25 yuan due to higher costs, said an executive at one of the smelters and an industry source.

    State-owned smelters in China typically provide more social benefits to workers, adding to their gross costs.

    "Below 0.3 yuan should not be a problem in Guizhou and Guangxi," the executive said of the private firm's operations in Guizhou and the southwestern region of Guangxi, adding that the new fees could start from January 1.

    He said his firm's production costs would be around 10,000 yuan per tonne if the power charges were 0.25 yuan.

    The most-active aluminium futures contract in Shanghai hit a contract low of below 10,300 yuan per tonne late last month. The price has risen slightly since then due to mounting production cuts, trading at 10,545 yuan on Friday.

    Smelters in northwestern provinces of Ningxia and Qinghai and southwestern province of Yunnan also were seeking lower electricity tariffs of around 0.25 yuan, Xu Hongping, analyst at China Merchants Futures said.

    Read more at Reuters

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    China to cap coal use at 2.72 bln T of standard coal by 2020

    China’s coal consumption should be controlled below 2.72 billion tonnes of standard coal equivalent, according to a report released in an international seminar for the 13th Five-Year Plan on November 4.

    As a large energy consumer around the world, China’s energy consumption in 2014 totaled 4.26 billion tonnes of standard coal equivalent, accounting for 25% of the global volume, with coal consumption taking even more than 50% of the global total.

    Specifically, coal use for power sector will be controlled within 1.39 billion tonnes of standard coal equivalent or 51% of the total; that of manufacture and building sectors will be controlled below 1.17 billion tonnes and 240 million tonnes, accounting for 40.2% and 8.8%, separately.

    This move may force over half of the nation’s coal producers to withdraw from the market within five years, industry insiders said.

    The number of coal mining and washing enterprises across the country should be reduced from 6,390 in 2015 to 3,000 or less during the “13th Five-Year Plan” period ended in 2020, resulting in 671,000 and 191,000 lay-off workers from coal mining and washing industries, respectively.

    To realize the coal consumption control goal, the share of coal consumption will drop 8.6 percentage points from a year ago to 57.4% in the total energy consumption; while the share of natural gas use will be increased to 10%, and that of non-fossil energy use will up to 15.2%.

    China has promised to the world to peak carbon emission in 2030, and vowed to control coal use below 3.8 billion and 3.4 billion tonnes by 2020 and 2030, respectively.

    Additionally, the realization of coal consumption control should be based on a sound withdraw system for coal producers, especially the reemployment guarantee system for laid-off staffs in coal industry.

    Meanwhile, total energy consumption of the country should be or no more than 4.74 billion tonnes of standard coal equivalent by 2020, according to the report.

    Attached Files
    Back to Top

    Indonesian Sep coal exports down 31pct on year

    Indonesia saw its coal exports fall 31% year on year to 24 million tonnes in September, the latest data showed.

    Over January-September, the country exported a total 235 million tonnes of coal, falling 19.8% year on year.

    Falling coal prices and sluggish demand from major importer China have driven many miners of Indonesia to cut output and even withdraw from the market.

    During the first three quarters of the year, the country produced 308 million tonnes of coal, down 14.4% year on year, with September output down 8% on year to 45 million tonnes.

    The Ministry of Energy and Mineral Resources has adjusted the country’s annual output target for many times, finalizing at 425 million tonnes, compared with the 460 million tonnes target set at the start of the year.

    The country has completed 72.5% of the annual target by end-September.

    In early-August, the government started to levy coal export tariffs, resulting in a rise at production cost and losses at enterprises.

    Sources said many medium and large mines at eastern Kalimantan were closed, with large miners starting to withdraw capital.

    85% mines at Jambi were forced to suspend operation. The province mainly produces 3,800 Kcal/kg NAR thermal coals, mainly exporting to China, Japan and India. The province could produce 8.5 million tonnes of coal each year.

    Over January-October, Jambi’ coal output plunged 65% on year to 2.8 million tonnes.

    Attached Files
    Back to Top

    Dam burst at Vale, BHP mine devastates Brazilian town

    A dam holding back waste water from an iron ore mine in Brazil that is owned by Vale and BHP Billiton burst on Thursday, devastating a nearby town with mudslides and leaving officials in the remote region scrambling to assess casualties.

    The mining company Samarco, a joint venture between top iron ore miners Brazil's Vale and Australia's BHP, said in a statement it had not yet determined why the dam burst or the extent of the disaster at its Germano mine near the town of Mariana in Minas Gerais, south eastern Brazil.

    Civil defense authorities in Mariana said it was evacuating about 600 people to higher ground from the village of Bento Rodrigues, where television footage showed dozens of homes destroyed by the mudslide. A car rested on top of a wall where the roof of a building had been ripped off.

    They said the flood had also reached another village further down the hill, called Paracatú de Baixo, and that inhabitants there were being evacuated.

    The dam was holding tailings, a mining waste product of metal filings, water and occasionally chemicals. It was located near the Gualaxo do Norte river, adding to fears of potential water contamination.

    The G1 news service of the Globo Media group reported that between 15 and 16 people died and 45 others were missing, citing the local union.

    Civil defense authorities could not confirm casualties and said numbers reported in Brazilian media were speculative. A city hall official confirmed one death and 16 injuries, adding that dozens more were missing.

    Rescue crews continued to search the muddy waters after nightfall.

    Brazilian army units nearby stood ready to help the search and rescue effort and the minister of national integration, Gilberto Occhi, planned to visit the state on Friday to provide assistance, according to a note from the presidency.

    Miners are struggling amid a collapse in prices of iron ore and other commodities due to concerns about demand from China, the world's top consumer of industrial raw materials.

    Samarco produces about 30 million tonnes per year of iron ore, just under 10 percent of Brazil's output. Iron ore is transported down a slurry pipe from Germano to Espirito Santo, where it is turned into pellets.

    BHP said it was pressing Samarco for more information and expressed concern in a statement for the safety of employees and the nearby community. Vale directed media questions to Samarco.

    Read more at Reuters
    Back to Top

    Brazil's Vale cuts budget for S11D project by as much as $2.6bn

    Brazilian miner Vale SA expects its flagship S11D iron-ore project to be completed on time and as much as $2.6-billion below budget, the company said in an analyst presentation. 

    The cost reduction primarily reflects the dramatic devaluation of the real, which has lost about 35% to the dollar over the past year. Vale said the cost of the project, which is the largest in the company's history and will add 90-million tonnes per year of iron ore production, has fallen to $14.4-billion. The previous forecast, given in December, was between $16-billion and $17-billion. The savings come partly because 90 percent of future costs for the project are denominated in reais, Vale said in the presentation uploaded to its website on Wednesday. 

    The project is on track for completion by the end of next year and could bring Vale's overall iron ore production costs down to $10/t, depending on currency fluctuations, Peter Poppinga, the company's head of iron-ore, said recently.

    Attached Files
    Back to Top

    Britain's steel sector significantly worse-India's Tata

    Tata Steel Ltd, Europe's second-largest steel producer, said on Thursday market conditions in Britain had "significantly worsened" during its second quarter due to a slump in prices and more cheap Chinese imports.

    Tata Steel, which has cut thousands of jobs since it bought Anglo-Dutch producer Corus in 2007, has been working on turning around its struggling operations in Britain.

    The crisis in Britain's steel sector escalated further last week as Tata Steel blamed its decision to cut British jobs on a flood of cheap imports, particularly from China.

    Tata said on Thursday the "rapid and sharp deterioration" in the British business
    had forced it to take a non-cash impairment charge which, together with restructuring charges and other provisions, totalled 87 billion rupees ($1.3 billion).

    "Our operating result has turned negative this year, reflecting the huge challenges the global steel industry is facing. In the UK these issues have been compounded by unhelpful exchange rates and regulatory costs that are destroying competitiveness," Karl-Ulrich Köhler, CEO of Tata Steel in Europe, said in a statement.

    Tata, which also operates in India and South East Asia, reported a surprise 22 percent rise in its quarterly consolidated net profit, as one-time gains helped offset cheaper imports from the world's top steel producer China.

    Net profit at Tata Steel, a unit of a hotels-to-automobiles conglomerate, rose to 15.29 billion rupees ($232.9 million) on a consolidated basis in the quarter ended Sept. 30, compared to 12.54 billion rupees in the year ago period.

    Analysts had forecast a net profit of 11.8 billion rupees, data compiled by Thomson Reuters shows.

    The profit was helped by 28 billion rupees earned from the sale of quoted investments during the quarter, Tata said in a regulatory statement.

    Read more at Reuters

    Attached Files
    Back to Top

    Tata Steel to press ahead with cuts as China exports bite

    Tata Steel Ltd, Europe's second-largest steel producer, said on Thursday it will press ahead with cost cuts and restructuring to cope with a surge in cheap Chinese exports to Europe and India, its two key markets.

    Tata, which posted a surprise 22 percent rise in second-quarter net profit after selling some non- essential holdings, is trying to revive its struggling British operation and has cut thousands of jobs since buying Anglo-Dutch Corus in 2007.

    "We have seen huge pressure on (steel) prices ongoing and the strong pound has exasperated  the point," Karl-Ulrich Koehler, CEO of Tata Steel in Europe, told reporters. "Our focus on cost reductions and restructuring will have to continue."

    Koehler said Tata would look at all options for its European long products business

    The crisis in Britain's steel sector escalated last week as Tata Steel blamed its decision to cut British jobs on a flood of cheap imports, particularly from China, as well as tumbling steel prices.

    Net profit at Tata Steel, a division of a hotels-to-automobiles conglomerate, rose to 15.29 billion rupees ($232.9 million) on a consolidated basis in the quarter ended Sept. 30 from 12.54 billion rupees a year earlier.

    Analysts had forecast a net profit of 11.8 billion rupees, according to data compiled by Thomson Reuters.

    Tata's profit was boosted by 28 billion rupees earned from the sale of quoted investments during the quarter, including part of its stake in Tata Motors.

    Tata also said the "rapid and sharp deterioration" in the British business environment had forced it to take a non-cash charge in the period which, together with restructuring charges and other provisions, totalled 87 billion rupees.

    China makes nearly half the world's 1.6 billion tonnes of steel. With growth slowingat home, it is expected to export a record 100 million tonnes to world markets this year to help address its spare steel making capacity.

    India imposed a 20 percent import tax on some steel products in September to mitigate the damage to domestic companies.

    Despite this, steel prices in India will remain under pressure until there is a "meaningful uptick" in demand in Asia's third-largest economy, said T.V. Narendran, Tata Steel's managing director for India and Southeast Asia.

    Read more at Reuters
    Back to Top

    Nine steel associations question China’s treatment as a non market economy

    The American Iron and Steel Institute (AISI), the Steel Manufacturers Association (SMA), the Canadian Steel Producers Association (CSPA), CANACERO (the Mexican steel association), Alacero (the Latin American steel association), EUROFER (the European steel association), Instituto AcoBrasil (the Brazil Steel Institute), the Specialty Steel Industry of North America and the Committee on Pipe and Tube Imports have released a joint statement regarding concerns about China’s attempt to gain market economy status in December 2016:

    The release said “The global steel industry is currently suffering from a crisis of overcapacity and the Chinese steel industry is the predominant global contributor to this problem. Estimates from the OECD Steel Committee indicate that there is almost 700 million metric tons of excess steel capacity globally today.

    China’s overwhelmingly state owned and state supported steel industry has an overcapacity ranging from 336 to 425 million tonnes and it is expected to grow in the coming years. This situation, together with a declining steel consumption, has resulted in record levels of steel exports from China to the rest of the world in 2014 and which are on track to exceed 100 million metric tonnes this year.”
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

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

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

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

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

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

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

    © 2018 - Commodity Intelligence LLP