Mark Latham Commodity Equity Intelligence Service

Friday 21st October 2016
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    China rebukes firms for breaking emission limits during heavy smog

    China's environment ministry has criticized firms in Beijing and surrounding provinces for exceeding emission limits and ignoring emergency restrictions during the region's latest smog crisis.

    As part of efforts to control hazardous air pollution, Beijing and Hebei province have implemented rapid response systems to limit traffic and force firms to cut production or slow construction work during heavy smog.

    But investigations over the past week revealed that a number of enterprises were failing to comply with emergency measures, the Ministry of Environmental Protection said in a notice on Thursday.

    The ministry said 11 enterprises in Hebei and nine in neighboring Shandong province were found to have exceeded emission limits during a recent period of heavy smog from Sunday to Wednesday.

    It identified a subsidiary of the Tangshan Thermal Power Company as well as cement and glass manufacturers in the region, and also said a number of construction sites in Beijing had failed to follow regulations to reduce dust.

    The smog covered an area of 260,000 square kilometers, including the cities of Beijing, Tangshan and Baoding, and was the result of "unfavorable weather", the ministry said.

    It said it would continue to name and shame those guilty of illegal behavior and would also impose tougher punishments.

    The environment ministry has long struggled to impose its will on polluting enterprises and the local governments that protect them.

    But since the country launched a "war on pollution" in 2014, the ministry has been granted more powers to monitor and punish offenders. This year, it was also given special powers to send out investigation teams.

    An inspection of Hebei province at the beginning of the year revealed that firms had flouted rules and engaged in fraudulent practices, and the local government subsequently promised to do better.

    According to the official Shanghai Securities News, the ministry will begin a new round of inspections on Friday in 20 regions - including Hebei, the major coal-producing regions of Shanxi and Inner Mongolia and the northwestern region of Xinjiang, a major oil and gas producer.

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    BHP chairman steps down after Samarco delayed retirement

    BHP Billiton Chairman Jac Nasser will not seek re-election at next year's annual general meeting, he announced on Thursday, saying after 10 years at the top and overseeing the initial response to the Samarco dam disaster, it was time to retire.

    Nasser said he had intended to resign last year but agreed to stay on at the world's biggest miner to provide stability as BHP responded to the disaster in Brazil.

    Now the "basic structure of the Samarco response is in place," Nasser said in a speech at this year's Annual General Meeting (AGM), he would not seek re-election, but would carry on leading the board in the interim.

    BHP's Chief Executive Andrew Mackenzie in a separate speech said the company had set a 2025 goal of achieving "gender balance at all levels of the organisation over the next decade".

    The 12-strong board has three women members.

    Mackenzie declined to be drawn on whether there might be any particular considerations in deciding the new chairman, saying the board was engaged in an ongoing succession process.

    Asked whether the new chairman might be a chairwoman, Nasser said "why not?" but he would not insist on a woman, adding changing the gender balance would take time.

    As someone who grew up in the northern suburbs of Melbourne, Australia, Nasser, 68, said he had never expected to lead global companies.

    He was named chairman of BHP in August 2009 and had joined the board as non-executive director in 2006.

    Before that, he was CEO of Ford, where his reputation as a cost-cutter earned him the nickname "Jac the Knife".

    At BHP, Nasser experienced the China-led commodities boom and the bust, which the company had weathered better than peers, he said.

    "We kept a solid A credit rating through the valley of the commodity price death," he said.

    BHP had been ahead in enforcing a shift away from unfettered spending to a focus on productivity and efficiency, he added.

    Nasser said he hadn't given much thought to what he would do next, but it was the right time to move.

    "Whenever you join a board, I think you always have some timeframe in mind. My timeframe was in the order of 9 to 10 years," he said.

    His last year has been what he described as "one of the most challenging periods" in BHP's history, largely because of the Samarco dam burst in which 19 people died. Samarco is a 50/50 joint venture between BHP and Brazil's Vale.

    Brazilians impacted by what Brazil says is its worst environmental disaster were among those who staged a protest outside Thursday's AGM in central London.

    Mackenzie said the company was working flat out to rectify the damage and compensate those affected.
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    Oil and Gas

    Nigeria Cuts Oil Prices, Sees ‘Huge Cargo Overhang’ in Market

    Nigeria cut the price of every type of crude it sells in an effort to regain share of the global oil market share at a time when there’s a “huge” glut of cargoes.

    Nigeria National Petroleum Corp. lowered by at least $1 a barrel its official selling prices, or OSPs, for 20 out of 26 oil grades monitored by Bloomberg, according to pricing lists. Qua Iboe, Nigeria’s largest export crude under normal circumstances, was reduced by the most since 2014.

    The price reductions are due to a “huge cargo overhang” as the country attempts to regain market share, Mele Kyari, group general manager for the oil-marketing division at NNPC, the state oil company, said by phone.

    Like every other producer country, Nigeria is grappling with prices that are less than half what they were in July 2014. What makes the African nation’s situation more acute is a militant campaign that resulted in export flows falling to the lowest in at least 9 years earlier this year. Shipments are gradually resuming, and lower prices are a sign Nigeria is seeking to become more competitive in an already oversupplied global market.

    “It is a bearish signal for the light, sweet market,” Eshan Ul-Haq, principal consultant at KBC Process Technology Ltd., said in an e-mail, referencing the types of crude Nigeria mostly pumps. “In order to capture a higher share of the market, OSPs have to come down.”

    NNPC cut the selling price of Qua Iboe to a 17 cent premium to the benchmark Dated Brent, according to the price list, from $1.07. It reduced the price of Bonny Light to a 7 cent premium and Forcados to a 41 cent discount to Dated Brent.

    High Prices

    Five companies that market the nation’s crude have raised the issue of high official selling prices, Kyari said earlier this week. He said Thursday that the pricing decisions were unrelated to those “complaints.”

    The reductions take place as the Organization of Petroleum Exporting Countries -- of which Nigeria is a member -- attempts to cut its combined output to 32.5 million to 33 million barrels a day in an effort to steady oil markets. Nigeria has said it will be exempt from any production cuts, though final details of such an agreement have yet to be worked out.

    Because an OPEC output cut would primarily affect medium and heavy crude grades, lower prices from Nigeria are likely to reduce the price differential between light and heavier oil, according to Ul-Haq.

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    Igor Sechin: Rosneft plans to increase production by 4% per year on average

    In medium-term perspective, Rosneft counts on 4% average annual growth of the production, president of the largest Russian oil company Igor Sechin stated at the yesterday press conference.

    Sechin: Russia can increase oil production by 200 mln tons per year

    In the future, Russia will be able to significantly increase its oil production - in the amount of up to 200 million tons of the additional annual production, said head of Rosneft Igor Sechin

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    Tanker Rates Surge as Mideast Cargoes Rise Before OPEC Deal

    Oil tanker rates jumped to a four-month high as traders booked the most cargoes for the time of year on record, offering signs that Middle East producers could be adding barrels to the market just before OPEC embarks on its deepest output cuts in eight years.

    Day rates on shipments from the Middle East to Asia jumped to $47,479 while a surplus of crude tankers in the Persian Gulf matched the lowest level in a year, Baltic Exchange and Bloomberg surveys showed. Traders booked the most one-off, or spot, cargoes for the month of October in at least 12 years, according Galbraith’s Ltd., a London-based shipbroker.

    “The suspicion is that there’s an extraordinarily high output from the Middle East ahead of the expected cut decision in November,” Erik Stavseth, an analyst at Arctic Securities AS in Oslo covering shipping companies, said in a phone interview. “We see increased exports from Iran, Iraq, Saudi Arabia, Kuwait and also U.A.E.”

    Tanker companies are benefiting from a rare confluence of events boosting the global supply of crude before the Organization of Petroleum Exporting Countries prepares to cut output to steady markets. In addition to increased Middle Eastern production, Russia is pumping post-Soviet era record volumes, Libya and Nigeria are boosting exports, and the U.S. is returning to the global market in full for the first time in four decades.

    The 141 cargoes that traders booked are the highest for an October in at least 12 years and the most for any single month since March, Galbraith’s data show. The shipments only capture part of the market because traders also ship oil on vessels booked on long-term charters.

    At talks last month in Algiers, OPEC agreed to curb output to an average 32.5 million to 33 million barrels of crude a day. The 14-nation group in September pumped 33.39 million barrels a day, according to OPEC’s own survey of secondary sources. Each country’s allocation hasn’t been finalized, though the building blocks of the accord will be in place by the group’s November 30 meeting, OPEC Secretary-General Mohammed Barkindo said at an oil conference in London Tuesday.

    Iraq, Kuwait

    Crude exports from Kuwait and Iraq both rose in August from July, according to the Joint Organisations Data Initiative in Riyadh. While Saudi Arabia’s fell 4.2 percent to 7.31 million barrels a day, a better measure is the annual change because the country burns more crude in summer for power generation. They climbed year on year. Iran, OPEC’s third largest member, plans to increase production to 4 million barrels a day this year, from 3.89 million a day currently, according to the National Iranian Oil Co.

    The excess supply has been a boon for companies owning crude tankers. Benchmark tanker rates to Japan from the Middle East rose for the 17th session Tuesday, according to Baltic Exchange data. The $47,479 a day they are earning is the highest since June 9. On Sept. 27, the day before OPEC committed in Algiers to restraining supplies, the daily rate for the vessels was $14,779.

    Increased export activity in the Middle East and West Africa “could be enough to push rates further north,” analysts at ABN AMRO Capital Markets Solutions said in a research note Wednesday.

    Analysts surveyed by Bloomberg are anticipating rates of $35,000 a day for the ships in 2017. That would make them profitable for a fourth consecutive year, according to estimates gathered by Bloomberg and cash-break even data from Bermuda-based Frontline Ltd., one of the largest operators. Part of their bullishness is because if OPEC does cut output, increases from Nigeria and Libya could boost demand for long-distance cargoes.

    “For tankers we see limited impact from OPEC’s decision to limit output,” said Jonathan Staubo, an analyst at Fearnley Securities AS in Oslo. “As the proposed cuts allow for a recovery of output in Nigeria and Libya, we could now see the Atlantic regaining some momentum which is positive from a ton-mile perspective.”

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    OPEC Annual Statistical Bulletin

    The 51st edition of the Annual Statistical Bulletin (ASB).

    This is one of OPEC’s principal publications. Since the very first edition, published in 1965, the ASB has been a useful — and frequently cited — reference tool for academics and researchers, policy-makers and analysts, and many others working in the energy industry.

    The primary purpose of the ASB is to make reliable data about the global oil and gas industry easily and publicly available. It thus functions as an important source of data for all of the different stakeholders in the oil industry, while also ensuring greater data-sharing and data transparency about the industry and its many actors.

    This has long been one of the Organization’s objectives. The ASB focuses on OPEC’s current 13 Member Countries — Algeria, Angola, Ecuador, Indonesia, Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela (the 52nd edition of the ASB will include data of Gabon) — and their National Oil Companies.

    It also provides statistical data and important information about non-OPEC oil producing countries, bringing together useful data on exports and imports, production, refineries, pipelines and shipping. As in previous years, the 2016 ASB is available in a print edition, as a PDF file and in an interactive online version. The latter version — which includes historical time-series data going back to 1960 — is available on the OPEC website.

    The ASB is the result of close collaboration between the OPEC Secretariat and OPEC’s Member Countries. It is only through these efforts that the Organization is able to fulfill its commitment to enhancing data transparency and supporting market stability. I therefore would like to thank Secretariat staff, and our colleagues and officials in our Member Countries, for their hard work and valuable input.
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    Japan eyes acquisitions of foreign E&P firms to boost equity output

    The Japanese government is looking to give financial support to acquisitions of foreign upstream companies by domestic oil companies for the first time ever as part of its efforts to boost the country's equity oil and gas output, a senior government official said.

    The current low oil price environment has created "a significant opportunity for acquiring [upstream] stakes and assets" and there was also a need to facilitate upstream spending because of slowing global investment, director of the oil and gas division at the Ministry of Economy, Trade and Industry Yuki Sadamitsu said in an interview with S&P Global Platts on Friday.

    This also offered a window of opportunity to help develop Japan's core upstream companies by helping them take stakes in oil and gas assets via acquisitions of foreign independent E&P companies, Sadamitu said.


    The Japanese cabinet recently approved a bill to amend a part of the law that defines the capabilities of state-owned Japan Oil, Gas and Metals National Corp. (Jogmec).

    The government is hoping to obtain parliamentary approval for the bill before the end of the current Diet session at the end of November.

    Following enactment of the bill with immediate effect, Jogmec's capabilities are set to expand beyond simply acquiring stakes in exploration projects and financially supporting domestic companies' participation in exploration projects.

    Jogmec will be able to support domestic companies' acquisitions of foreign upstream firms and their capital tie-up.

    It will be able to provide companies additional financial support through the development stage of their projects. Jogmec currently does not provide any finance to Japanese companies' projects that are at the development stage, except for providing loan guarantees for the companies' development costs.

    Jogmec will also be able to acquire shares in state-owned national oil companies.

    Jogmec will have a framework to borrow up to Yen 324.8 billion ($3.12 billion) from commercial banks in a fiscal year (April-March) with a government debt guarantee to support Japanese companies' acquisitions and upstream developments from the exploration stage through to the development stage.

    Sadamitsu said Jogmec's new capability to provide financial support for Japanese companies' acquisitions of foreign upstream companies and capital tie-up was a key highlight of the amendments.

    Asked about Jogmec's rationale for acquiring shares in foreign state-owned national oil companies, Sadamitsu said that the move was meant to establish medium- to long-term partnerships and help Japanese companies acquire upstream assets in those countries, Sadamitsu said.

    Acquiring upstream stakes for domestic oil companies would be the main driving force behind Jogmec taking a stake in a foreign national oil company, he added.


    In a related development, METI has also secured a supplementary budget of Yen 162.4 billion for the upstream oil and gas sector in fiscal 2016-17, with Yen 150 billion earmarked to support Japanese companies' acquisition of foreign upstream companies.

    "We are hearing that various Japanese upstream companies are exploring specific projects," Sadamitsu said, adding that the supplementary budget reflected this.

    The supplementary budget combined with the previously approved Yen 92 billion budget and ability to borrow Yen 324.8 billion once the bill is ratified will take Jogmec's maximum finance available in the current fiscal year to Yen 579.2 billion.

    While various projects are currently being studied by Japanese companies, "there is a reasonable chance that this much money can be invested in the current fiscal year," Sadamitsu said, adding that this budget did not have to be used within the fiscal year.

    Japan hosted the Group of Seven industrialized nations summit in May when the leaders committed to play a leading role in facilitating upstream investment to stabilize energy prices and ensure economic growth.

    Japan aims to increase its share of oil and gas equity liftings to 40% by 2030 from 27.2% in fiscal 2015-16.

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    Indonesia sees 63 uncommitted LNG cargoes in 2017

    There are currently 63 uncommitted cargoes of liquefied natural gas (LNG) for 2017 delivery from Indonesia's Tangguh and Bontang projects, Wiratmaja Puja, the country's Director General of Oil and Gas, said on Thursday.

    "We want these to be sold to committed buyers," Puja said, noting deals for 13 of the cargoes were currently being negotiated.

    "It would be real pity if we had to cut production."

    In 2018, there were still "more than 60" uncommitted cargoes, he said. "We are still oversupplied."

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    Skangas awarded framework agreement with Statoil

    Skangas has entered into an agreement with Statoil for delivery of liquefied natural gas (LNG) fuel for their platform supply vessels (PSV). The LNG will be delivered to several bases along the Norwegian west coast by ship.

    Skangas will in addition deliver LNG to Statoil’s tugs at Kårstø. The agreement is valid from 1 April 2017 until the end of 2020 with an option for two plus two years. The supply bases are located at Mongstad, Florø (Saga Fjordbase) and Kristiansund (Vestbase). The agreement between Statoil and Skangas was a result of a comprehensive tendering process involving several LNG suppliers in the Norwegian market.

    “We see this agreement as a recognition of our daily work and a confirmation of a good relationship with Statoil”, says Tor Morten Osmundsen, CEO of Skangas. “It is important to have customers that emphasize the necessity of more sustainable operations enabling the use of a more environmentally friendly energy. We are depending on front runners to develop the market for LNG and further for liquefied biogas (LBG)”.


    The LNG will be delivered from the LNG plant in Risavika to the supply bases along the Norwegian coast by Skangas’ new LNG feeder and bunker ship Coralius. The design of the 5800 m3Coralius has been optimized for safe and reliable bunkering operations and is expected to be available Spring 2017. Supplying LNG by ship is supporting the Norwegian initiative to move transportation of goods from the roads to the sea.

    LNG is the most environmentally friendly shipping fuel and meets the requirements set by the Sulphur Directive for shipping as well as the stricter future limits set for emissions such as NOx, particulates and CO2. Consequently, by using LNG for supply vessels Skangas’ customer is experiencing considerably less emission than when using other fossil fuels. Skangas is helping their customer to reach their goals of being the most carbon effective company.

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    China Sept LNG imports up 95.5 pct on yr at 2.53 mln t - customs

    Oct 21 China's imports of liquefied natural gas (LNG) rose 95.5 percent on year in September to 2.53 million tonnes, Chinese customs data showed on Friday.

    China's kerosene imports last month were down 23.6 percent on year at 300,000 tonnes.
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    PetroChina Said to Mull Raising Gas Prices as NDRC Urges Supply

    PetroChina Co. is considering raising non-residential natural gas prices, while China’s top economic planner has urged major suppliers to raise output, as the country seeks to avoid shortages during the peak winter season.

    The country’s biggest gas producer and distributor plans to boost prices for industrial and commercial users from as soon as Nov. 20, the earliest possible date it’s allowed to under regulations issued by the National Development and Reform Commission, according to people with knowledge of the plan. PetroChina plans to raise prices by between 10 percent and 20 percent, the people said, asking not to be named as the information isn’t public.

    Separately on Thursday, the NDRC called on China’s major natural gas producers, including China National Petroleum Corp., China Petrochemical Corp. and China National Offshore Oil Corp., to increase output to alleviate tight supplies in the north and northwest regions, according to a statement published on its website. CNPC is PetroChina’s state-owned parent.

    Winter shortages have become a concern in northern China, where the government has been encouraging the use of gas instead of coal for heating to reduce pollution, according to Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong.

    Winter Tightness

    “The price hike can help alleviate the gas supply situation a bit for the peak season by limiting some industrial gas consumption,” Yu said. “The price hike will help PetroChina’s gas margin in the short term, but it will be hard to keep prices high when the weather turns warmer.”

    PetroChina’s planned price increase is partially designed to alleviate gas shortages in the northern provinces, where PetroChina expects to see tight supplies because of high winter-heating demand, said the people. The company didn’t respond to requests for comment.

    China’s natural-gas imports surged to a record last month. China imported 5.73 million metric tons of the fuel in September, the General Administration of Customs said earlier this month. That’s up more than 70 percent from both August and the same month last year.

    Northern China experienced the lowest temperatures in 64 yearslast year and Beijing officials ordered offices to cut heating to as low as 14 degrees Celsius (57 degrees Fahrenheit) in response to a natural-gas shortage.

    PetroChina shares jumped as much as 3.9 percent in Hong Kong, after Chinese newspaper 21st Century Business Herald reportedthe news on Thursday, citing unidentified people.]

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    Santos Quarterly Sales Rise 11% on Production Boost, LNG Volumes

    Santos Ltd., the Australian oil and gas company, reported a 11 percent rise in third-quarter sales due to a boost in production.

    Revenue rose to $650 million from $585 million a year ago, Adelaide-based Santos said in a statement Friday. The company switched to reporting in U.S. dollars at its interim results in August. Production increased to 15.5 million barrels of oil equivalent from 14.5 million barrels of oil equivalent in the corresponding period of 2015.

    Forecast capital expenditure for 2016 has been trimmed to $700 million from $750 million previously. The producer narrowed its 2016 production guidance to a range of 60 million to 62 million barrels of oil equivalent from the previous band of 57 million to 63 million barrels. It will also start an oil hedging program "to reduce the effect of commodity price volatility and support annual capital expenditure plans".

    Santos is among companies grappling with a slump in energy prices amid a surge in liquefied natural gas supply. The International Energy Agency says an oversupply in natural gas won’t disappear until the end of the decade as LNG capacity jumps 45 percent through 2021 with 90 percent of that supply due to come from Australia and the U.S.

    The company’s main assets include a 13.5 percent stake in Exxon Mobil Corp.’s $19 billion LNG venture in Papua New Guinea and a 30 percent stake in the $18.5 billion Gladstone LNG project in Australia, which it said produced 1.3 million tons of LNG in the quarter.
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    India's Reliance sees strong refining margins backed by solid demand

    India's oil-to-telecoms conglomerate Reliance Industries Ltd (RELI.NS) reported quarterly results on Thursday that were in-line with expectations, and said it expects refining margins to remain strong, driven by rising fuel demand.

    Reliance, controlled by India's richest man, Mukesh Ambani, said its fiscal second-quarter profit was 72.06 billion rupees ($1.1 billion) for the quarter to Sept. 30. That roughly matched analysts' estimates of 72.2 billion rupees, and was well above its year-ago profit of 50.35 billion rupees on the same basis.

    On a net basis, the country's largest refiner reported a 23 percent drop in its quarterly profit, as its year-ago profit was boosted by a 45.74 billion rupee gain from an asset sale.

    It said gross refining margin, or profit earned on each barrel of crude processed -- a key profitability gauge for a refiner -- came in at $10.1 per barrel for the three months to Sept. 30, accelerating its lead over the regional benchmark Singapore GRM.

    A senior company executive defended the refining margins saying they could be sustained.

    "These are not one quarter numbers, the margins are improving consistently every quarter," said V. Srikanth, joint chief financial officer of Reliance.

    Reliance operates the world's biggest refining complex in western India and analysts expect an upgrade currently underway to improve margins by $2 to $3.

    The company's refinery upgrade plan is at "advanced stages of mechanical completion and pre-commissioning," said Ambani in a statement, adding this would further strengthen the company's position.

    Fuel demand in India, the world's third-largest consumer, is rising fast as higher income levels and cheaper credit boost vehicle sales. The International Energy Agency estimates India's fuel demand will be 10 million barrels per day (bpd) by 2040.

    Reliance gets 95 percent of its profit from oil refining and petrochemicals, but has been spending aggressively to expand in retail, telecoms and e-commerce.

    Its Jio 4G telecoms unit has spent more than $20 billion to build a nationwide network that started commercial operations in September, reaching 16 million customers in the first month. Reliance Jio is giving telecoms services free until the end of the year, triggering a price war among rivals.

    Jio is adding about half a million subscribers a day, Anshuman Thakur, head of strategy, told reporters on Thursday.

    For the September quarter, Reliance's revenue rose 9.6 percent from a year earlier to 816.51 billion rupees.

    Its outstanding debt rose to 1.89 trillion rupees as of end-September, while it had 825.33 billion rupees of cash and cash equivalent, it said.
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    Keppel Sees More Job Cuts After Profit Slumps 38% on Weak Oil

    Keppel Corp., which has already eliminated more than a quarter of its workforce this year, said "painful measures" and job cuts will continue as profit at the world’s biggest oil-rig builder drops.

    Senior managers at the Singapore-based company have taken a cut in their monthly pay and directors will propose lower fees, Keppel said in a stock exchange statement Thursday. Keppel, which also builds properties, slashed workforce at its offshore and marine business 26 percent, or about 8,000 jobs, in the nine months through September.

    Oil-rig makers like Keppel and its closest rival Sembcorp Marine Ltd. and ship builders have fired thousands of workers in the past two years and are planning more cuts amid weak demand for equipment to explore and transport oil. Companies in the oil and natural gas sector have slashed more than 350,000 jobs since crude prices started to fall in 2014 and explorers slashed hundreds of billions of dollars in investment to weather the rout.

    "Given that our expectations are that the market is going to be slow for the foreseeable future, we have to continue to rightsize," Keppel Chief Executive Officer Loh Chin Hua said Thursday. "We have been relying on natural attrition until now. So going forward, we have to look at ending contracts a bit earlier and possibly look at retrenchment."

    For a story on job losses at Singapore’s oil & gas sector, click here.

    Shares of Keppel rose 0.4 to close at S$5.44 in Singapore before the earnings announcement. The stock has fallen 16 percent this year, the second-worst performer on the 30-member Straits Times Index.

    Keppel’s comments came after the company Thursday reported third-quarter net income dropped 38 percent on year to S$224.5 million ($162 million), mainly because of the difficulties at its offshore and marine sector.

    Profit at the real-estate business of Keppel jumped 23 percent to S$157 million, according to a statement to the stock exchange. The offshore marine unit’s net income tumbled 93 percent to S$11 million.

    Keppel is looking at cutting yard capacity by scrapping some facilities, Keppel Offshore & Marine CEO Chow Yew Yuen said in a post-earnings webcast Thursday. The company is on track to deliver four more projects in the current quarter and Keppel received no deferment requests last quarter, he said.

    Keppel has also been hit by non-payment by one of its biggest clients, Sete Brasil Participacoes SA, which filed for bankruptcy protection in April. A provision of S$230 million it made earlier is “adequate,” Keppel said Thursday.

    Demand in the offshore and marine market will remain tepid despite a recovery in oil to above $50 a barrel because of oversupply, Loh said.

    “Rightsizing of our offshore and marine business will continue as we prepare for an extended period of weaker demand for new oil rigs,” Loh said. “Our aim has always been to emerge from this downturn stronger.”
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    China diesel, gasoline exports rise again in Sept-customs

    China's diesel and gasoline exports jumped again in September from a year earlier, customs data showed on Friday, as the world's top energy market continued to look to international markets to sell its domestic fuel excess.

    Diesel exports rose 44 percent to 1.6 million tonnes, gasoline shipments increased 37 percent to 840,000, while kerosene slipped 13.2 percent to 1.08 million tonnes, the data showed.
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    PDVSA Default Would Spell Trouble for U.S. Refiners’ Oil Supply

    A potential default by Petroleos de Venezuela SA would cause trouble for U.S. Gulf Coast refineries, as the Latin American country is the main supplier of foreign oil to the region.

    Venezuela’s state-controlled oil company PDVSA has been trying to persuade bondholders to exchange as much as $5.325 billion of outstanding notes maturing in 2017 for longer-term securities that are due in 2020. The deadline for the swap was extended three times and is due Friday, according to a company statement. A failure in exchanging the bonds could make it “difficult” for the company to make payments on its existing debt, PDVSA said.

    A default would not only rattle bondholders, but also PDVSA’s suppliers and customers, with U.S. refineries among the first to feel the hit, said Lucas Aristizabal, a senior director at Fitch Ratings. Last year the OPEC member supplied almost a third of all crude oil imported on the Gulf Coast, home to the largest cluster of refineries in the world, according to the U.S. Energy Information Administration.

    “If PDVSA defaults, there could be a disruption of oil supply to the U.S. as creditors may try to seize payments made in the U.S.,” Aristizabal said in a phone interview from Chicago. “Bondholders will definitely try to stake a claim on those dollars,” he said.

    PDVSA subsidiary Citgo Petroleum Corp., Phillips 66, Valero Energy Corp. and PBF Energy Inc. are among the largest buyers of heavy Venezuelan crude. A number of Gulf Coast refineries have been reconfigured in the past decade to increase their ability to process cheaper, heavier oil into gasoline and diesel.

    It’s likely the company will retain control of its assets such as the refineries in Venezuela, said Mara Roberts, a New York-based analyst at BMI Research. The story is different when it comes to oil being exported, she said.

    “Oil tankers could also potentially be at risk, with those carrying Venezuelan crude likely to face attachment claims upon arrival,” Roberts said by e-mail. “This could discourage take up of PDVSA’s shipments.”

    While supply to the U.S. may be at stake, the same may not happen to other buyers including China, which has loaned some $45 billion to Venezuela in the past decade in return for repayment in oil. In the case of China, creditors would have a hard time seizing cargoes, as the oil changes ownership when it’s put on tankers, Aristizabal said. China charters the ships, and PDVSA repays the loans by loading the vessels.

    “Once the crude is on board, it belongs to the buyer,” he said. “Because of the way the contracts were written, it would be very hard to have any claims on the oil.”

    China imported 298,247 barrels a day of oil from Venezuela last year, up 16 percent from 2014, Chinese customs data show. The U.S., China and India are the main buyers of Venezuelan crude, according to data compiled by Bloomberg.

    Oil Production

    Venezuela’s production could still rebound amid a credit default scenario if recently announced investments from Repsol SA and drilling companies materialize, Roberts said. Earlier this month, PDVSA signed a $1.2 billion deal with Repsol to increase output at the Petroquiriquire project, and also announced last month investments of $3.2 billion to drill 480 wells and add 250,000 barrels a day of new oil.

    “Output is unlikely to improve until some of the financing and oilfield service-related agreements signed in recent weeks begin to take effect,” she said. “But if the investments don’t follow through, we are going to see further declines of output and exports would be at risk as well.”

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    What's behind these surprising crude stockpile declines

    "Refiners are importing less crude oil and are really just starting to draw down onshore inventory," Andrew Lipow, president of Lipow Oil Associates, told CNBC. "Week in and week out we're seeing lower amounts of imports than one might expect given the amount of crude oil we're processing."

    Lipow expects inventories to continue to decline as refiners and traders begin to draw down their stockpiles to avoid a bigger tax bill, rather than buying new imported barrels. Taxes on stored barrels are assessed in parts of Texas and Louisiana at year-end.

    Fuel inventories also remain elevated, and the surprise 2.5 million barrel build in gasoline stocks on Wednesday is disconcerting for refiners, Lipow said.

    John Kilduff, founding partner at energy hedge fund Again Capital, agrees that refiners appear to have little need for imports. Refining margins have also eroded as oil prices rebound, prompting refiners to burn off their stocks while they wait to see if prices slide, he said. Refiners typically see profits rise when crude oil, the raw material for many fuels, falls.

    Ultimately though, Kilduff said he believes barrels sitting in floating storage will finally come onshore and cause inventories to creep higher once again.

    "Refinery run rates are just too low not to see substantial crude builds," he said.

    Crude inputs into refineries have fallen by more than 1.5 million barrels per day since the beginning of September.

    It is not unusual for 12 million barrels of crude to sit off the shore of the refinery-lined Gulf Coast, but ClipperData has tracked 22 million barrels in floating storage in the past week, according to Matt Smith, head of commodity research at the firm.

    Smith said Wednesday's data marked an inflection point as refiners exit the peak of refinery maintenance season.

    "Going forward, we should see refinery runs starting to increase, these refineries coming out of maintenance, and then a return to imports and a return to builds," he said.
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    Schlumberger posts steep drop in 3Q profit. No V-shape recovery, CEO said

    World’s largest oilfield company Schlumberger has reported a steep drop in its third quarter profit.

    Namely, the company’s net income for the quarter was $176 million, an 82 percent drop from the same quarter a year ago, when it posted a net income of $989 million. Revenue fell some 17 percent to $7 billion, down from $8.47 billion in the third quarter of 2015.

    Cash flow from operations was $1.4 billion for the third quarter of 2016 and included approximately $170 million of severance payments during the quarter.

    Schlumberger Chairman and CEO Paal Kibsgaard said that working capital was negatively affected by lower than expected collections as the company is seeing “widespread delays” in payments from customers in all geographies.

    Kibsgaard said that in the global oil market, the supply and demand of crude is now more or less balanced as evidenced by flattening petroleum inventory levels and the start of consistent draws toward the end of the quarter—particularly in North America.

    “At the same time, oil demand for 2017 was again revised upward in October and if combined with OPEC’s announced intention to cut production, this suggests further inventory draws in the coming quarters that should lead to upward movement in prices,” he said.

    No V shape recovery

    The CEO said: “In terms of 2017 E&P investment, visibility remains limited as our customers are still in the planning process. We maintain that a broad-based V-shaped recovery is unlikely given the fragile financial state of the industry, although we do see activity upside in 2017 in North America land, the Middle East and Russia markets. We are therefore ensuring that we are optimally positioned to capture a large share of this upside that we can subsequently turn it into positive earnings contributions.

    “With the unparalleled cost and cash discipline we have established, we are confident in our capability to deliver incremental margins north of 65% and a free cash conversion rate above 75%. Going forward, this will give us significant flexibility to both re-invest in our business and steadily return cash to our shareholders. This capability, together with our unmatched scale and our unique ability to drive change throughout our company, clearly sets us apart from other industry players.”
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    Chesapeake Energy declares ‘propageddon’ with record shale frack

    The era of the monster frack has arrived in North America, and Chesapeake Energy Corp. is singing its praises.

    Chesapeake said Thursday at an analyst conference that it set a new record for fracking by pumping more than 25 000 t of sand down one Louisiana natural gas well, a process the shale driller christened "propageddon.” The super-sized dose of sand – known as "proppant" – is able to prop open bigger and more numerous cracks in the rock for oil and gas to flow. Output from the well increased 70% over traditional fracking techniques, Jason Pigott, VP of operations, said during a presentation.

    “What we’re doing is unleashing hell on every gas molecule downhole,” Pigott said.

    Shale drillers aren’t holding back in North American shale fields, where the average amount of sand used for each well has doubled since 2014, according to Evercore ISI. At the same time, the length that wells are drilled sideways underground has grown by 50%, and the number of zones for hydraulic fracking are also up by half. Each zone of the well isolated for each frack is also growing larger as servicecompanies attempt to break down more of the oil-soaked rock into rubble and cram more sand into the crevices for thehydrocarbons to escape.


    The more massive and complex wells are helping producers manage through the worst financial crisis in a generation by drawing more oil and gas at reduced costs. The price of West Texas Intermediate, the US crude benchmark, cratered to a 12-year low in February and still trades at less than half the $100-plus prices of June 2014. To cope with the market crash companies slashed billions in spending and cut more than 350 000 workers around the globe.

    The fracking process, which is part of completing a well after it’s drilled, continued to get bigger even as the industry was strapped for cash, James West, an analyst at Evercore, said Thursday in a phone interview. "We expect as the recovery for commodity prices unfolds and people have more money to spend, completions will only rise further."

    Explorers are taking advantage of the larger frack jobs while prices for oilfield work remains low. Halliburton, the world’s largest fracking provider, told analysts and investors Wednesday on a conference call that about 70% of the industry’s fleet of frack pumps are being put to use.Halliburton confirmed it executed the record frack for Chesapeake.
    Haynesville Well

    The amount of proppant used in Chesapeake’s record-setting well was more than twice the amount used on a per-foot basis in traditional frack jobs, according to a slide presentation that accompanied Pigott’s remarks. The company used 50.185 million pounds (22.76 million kilograms) of sand in its Black 2&11-15-11 1H well in the Haynesville shale region ofLouisiana earlier this month. The well had a lateral length of 9,764 feet.

    "This Chesapeake well is further evidence that more proppant, more stages and longer laterals is the right way to go," West said. "Clearly it’s increasing productivity per well substantially.
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    Alternative Energy

    Official calls for ramping up China's photovoltaic industry

    China's photovoltaic industry must develop a core technological edge to gain a stronger standing in the overseas market, instead of relying on low prices, said Liu Danyang, deputy director of the Ministry of Commerce's trade remedy and investigation bureau, at the opening ceremony of the Photovoltaic Conference & Exhibition of China on October 19.

    According to the national strategic plan (2016-20), the commercialized new energy power installed capacity should reach 680 GW by 2020, with annual power generation of 1.9 GWh, accounting for 27% of the total power generation.

    The target photovoltaic installed capacity by 2020 is 150 GW, up from 43.2 GW at the end of 2015. China has the largest photovoltaic installed capacity in the world.

    Some of the challenges of China's photovoltaic industry are limited business models and lack of matching policies and facility. According to Wu Shengwu, deputy director of the Ministry of Industry and Information Technology's electronic information department, the ministry will help the industry to have more application in industrial parks, infrastructure for civil use and urban transportation.

    The conference, held from October 18 to 21, also includes discussion and exhibition of wind power.

    China's wind power energy industry must be free of subsidies to grow strong in the real sense, said Li Peng, director of the new and renewable energy department of the National Energy Administration.

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    Get Ready for the Rooftop Solar Stall

    This was supposed to be solar’s moment. Residential panel installations in the U.S. grew 71 percent in 2015 as the falling cost of panels made the power they generate more competitive. In December, Congress unexpectedly extended a tax credit set to expire at the end of 2016. Panel buyers will get reimbursed for 30 percent of the cost of new solar panels through 2019 and at least 22 percent through 2021.

    Yet instead of energizing the industry, the extension has hurt growth, as solar companies no longer rush to meet a deadline. After jumping more than 1,000 percent since 2010, panel installations are projected to grow by only 0.3 percent in 2017, according to Bloomberg New Energy Finance. Faced with the industry’s first major slowdown, companies are figuring out their next move. “You’re selling the urgency to get in while the tax credits are available,” says Hugh Bromley, an analyst at BNEF. “Once you have long-term subsidy certainty, solar companies may struggle to reimagine their sales pitches.”

    Falling power prices in some markets don’t help. Consumers looking to lower their bill might not get the savings they used to by installing a solar system. There’s also doubt over net-metering laws that require utilities to pay rooftop customers for the power they sell to the grid. Although 43 states have some version of net metering, according to BNEF, last year Nevada, one of the fastest-growing states for solar, added a fee for homes with panels and cut the amount utilities pay them for the power they add to the grid. The two top U.S. panel installers, Elon Musk’s SolarCity and Sunrun, promptly left the state, which in September agreed to grandfather prior rates for 32,000 existing customers.

    Investors are demanding a reset of solar’s business model. “It was growth at all costs,” says Michael Morosi, an analyst at Avondale Partners. Now that the market isn’t paying for that growth, companies can “go for the most profitable customers,” he says. Solar companies have long relied on a leasing model, signing homeowners to 20-year contracts that require no money down. This ensured growth, but it also spread out revenue over decades. Now, solar companies are selling more units, which ensures they get paid sooner.

    For SolarCity, the country’s top installer, cash sales and loan payments accounted for more than 30 percent of revenue in September, up from about 20 percent in the second quarter, says Chief Executive Officer Lyndon Rive. GTM Research, which conducts green tech market analysis, expects leasing to account for less than half of new installations in 2017, down from more than 70 percent in 2014. This is a mark of maturity for the $7.8 billion U.S. residential solar industry, says Benjamin Cohen, chairman of renewable-energy financing company T-Rex. “Installers can focus on what is the most efficient use of their balance sheet,” he says. “Maybe this moment says these companies shouldn’t be behemoths.”

    Growth should resume by 2018, BNEF says. Only 1 percent of U.S. households have panels on their roofs. “Every other solar market during its period of retooling has faced a collapse of 20 to 90 percent,” says BNEF’s Bromley. “So for the U.S. to face a year or two of stagnation before continued growth is an overwhelmingly positive outcome.”

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    Scientists accidentally turn pollution into renewable energy

    Scientists have accidentally discovered a way to reverse the combustion process, turning carbon dioxide back into a fuel.

    Researchers at the Oak Ridge National Laboratory in the US used complex nanotechnology techniques to turn the dissolved gas into ethanol.

    Because the materials used are relatively cheap, they believe the process could be used in industrial processes, for example to store excess electricity generated by wind and solar power.

    The researchers had hoped the technique would turn carbon dioxide into methanol, but ethanol came out instead.

    Dr Adam Rondinone, lead author of a paper about the experiment that was published in the journal ChemistrySelect, said: “We’re taking carbon dioxide, a waste product of combustion, and we’re pushing that combustion reaction backwards with very high selectivity to a useful fuel.

    “You can use it [ethanol] in the current vehicle fleet, right now, with no modifications.

    “Carbon dioxide is a problem right now. If we can use it, then we’re preventing it from going into the atmosphere.”

    The team made a catalyst made from carbon, copper and nitrogen and an electric current was then used to trigger a reaction.

    They had expected the process to be much more complicated.

    “We discovered somewhat by accident that this material worked,” Dr Rondinone said.

    “We were trying to study the first step of a proposed reaction when we realised that the catalyst was doing the entire reaction on its own.

    “Ethanol was a surprise. It’s extremely difficult to go straight from carbon dioxide to ethanol with a single catalyst.”

    The solution of carbon dioxide dissolved in water was turned into ethanol, with a yield of 63 to 70 per cent.

    “That means that of all the carbon dioxide and electricity going into it, you don’t waste much of it. The majority of it ends up converted into ethanol,” Dr Rondinone said.

    The researchers are now working to improve the efficiency of the process and find out more about the catalyst’s properties.
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    EDF ordered to switch off five reactors

    The company building Britain’s first nuclear power station for 21 years has been ordered to shut down five more reactors in France for emergency tests.

    The order from the French Nuclear Safety Agency is a further blow to the finances and reputation of EDF, the state-owned company behind plans to build an £18 billion nuclear power plant at Hinkley Point in Somerset.

    It brings to 12 the total number of French reactors being examined by experts to determine whether they contain hidden weaknesses in their reactor pressure vessels, a key component that houses the reactor.
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    Seed firm Vilmorin doubts farmer appetite for all-in offerings

    Seed firm Vilmorin doubts farmer appetite for all-in offerings

    Vilmorin will remain a specialist seed maker and is sceptical farmers will take to the bundled agricultural product offerings that have encouraged multi-billion merger deals in the farm supplies sector, the French firm's chief executive said.

    Bayer's planned $66 billion purchase of Monsanto , unveiled last month, followed ChemChina's deal to acquire Syngenta and a merger agreement between Dow Chemical and DuPont - moves designed to bring scale and broader product ranges during a downturn in many agricultural markets.

    Vilmorin, the world's fourth-largest seed maker by sales, wants to stick to its priorities of vegetable seeds, maize (corn) and wheat, CEO Emmanuel Rougier told Reuters.

    "We're a pure play seed company, unlike the other players," he said following a press conference. "We have plenty to do with our three priorities, without getting dispersed."

    Like BASF, which has cast doubt on the one-stop shop logic pursued by Bayer in acquiring Monsanto, Vilmorin said the case had yet to be proven that farmers want to buy services from pesticides to weather data from one provider.

    "As part of a farmer cooperative group, we find it hard to imagine that farmers will want to have someone dictate to them how to run their farms from A to Z," Rougier said.

    Vilmorin, majority owned by French cooperative Limagrain, had a team looking at ways to develop information services for clients to support seed sales, but had no plans to invest massively in so-called big data projects, he said.

    The trio of mega-merger deals would on paper reinforce the current position of Monsanto, Dupont and Syngenta as the world's biggest seed makers, but it could take two or three years for the companies both to obtain regulatory approval and reorganise their activities, he said.

    Vilmorin did not see obvious acquisition opportunities for itself arising from asset sales required for regulatory clearance, Rougier said earlier during a presentation of the group's 2015/16 results.

    Likely markets for regulatory scrutiny would be cotton in the United States and canola in Canada, two markets which Vilmorin had no plans to enter, he said.

    In vegetable seeds, the multitude of varieties would make it hard for regulators to see a dominant position, while Vilmorin itself already had large positions as the world's second-largest producer behind Monsanto, he added.

    Vilmorin reported on Wednesday that its net profit for the year to June 30 fell to 60.8 million euros from 75.9 million in 2014/15.

    Its field crop division, which had been a drag on 2015/16 profits, would continue to face difficult conditions in Europe due to low grain prices for farmers, it said.
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    Base Metals

    China says will limit non-ferrous metals expansion in 5-year plan

    China's government said it would strictly control the expansion of its non-ferrous metals industry, encourage continued consolidation and boost proven ore reserves by 2020 as part of its five-year development plan for the industry.

    In a statement released late on Tuesday, the Ministry of Industry and Information Technology (MIIT) said it will limit new production capacity expansions in the copper, aluminium, zinc and lead sectors.
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    Top copper miner gets reprieve as Chile signals more funding

    Codelco’s prospect of remaining as the world’s biggest copperminer received a boost on Thursday as Chile signalled it will increase funding for the state company to overhaul aging mines and head off a slump in output.

    Chile is already investing a lot in Codelco and will have to provide “slightly more” as a law that gives 10% of its sales to the military drains reserves, Finance Minister Rodrigo Valdes said in an interview in New York. A funding decision is scheduled for next month.

    "President Bachelet decided we need to mitigate as much as possible this year and next year the effect of this law on Codelco’s debt, and that will mean we need to capitalize Codelco slightly more,” Valdes said. “How much? We are doing the calculations."

    Codelco is racking up debt as it attempts to complete a $19-billion investment program in its aging mines after copper prices tumbled more than 50% since 2011. Complicating the situation still further, Valdes is trying to find money for Codelco as the budget deficit reaches its second-highest since the return to democracy 26 years ago amid mounting social demands. The copper slump has deprived the government of revenue equivalent to 4% of gross domestic product, he said.

    In that context, Chile must discuss the four-decades-old law that gives the Chilean armed forces revenue from a tenth of its sales, Valdes said.

    The ratio of Codelco’s net debt to earnings before interest, depreciation and amortization, or Ebitda, surged to 8.8 at the end of last year, from 3.4 times a year earlier as it sold bonds to finance the investment plans.

    "This year and next year we have to take debt out of Codelco, of this excess debt they had to issue because of the copperlaw,” Valdes said.

    A bill to scrap the copper law, which was created in its current form by late dictator Augusto Pinochet, has been languishing in Congress since 2011, when copper traded above $4 a pound amid surging Chinese demand. Now the metal is about $2.09 a pound.

    Codelco gave the military as much as $14.3-billion between 2000 and 2015 -- money the company could have used to invest in its aging mines, Codelco chairperson Oscar Landerretche told a committee. Codelco reinvested 9.6% of its profits over the last ten years, compared with an industry average of 38.5%, he said.
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    China's aluminium producer Chalco returns to profit in Jan-Sept

    Oct 20 China's state-owned Aluminum Corporation of China Ltd (Chalco) swung back to profitability in the first nine months, buoyed by higher metal prices and continued cost-cutting efforts, the company said on Thursday.

    Chalco posted a net profit of 107.9 million yuan ($16.02 million) in the January-September period, compared with a net loss of 974.6 million yuan a year earlier, it said in a filing to the Hong Kong stock exchange.

    The gains came as the company, one of the world's top producers, benefited from the continued rise in aluminium prices .

    Prices rose 1.5 percent for their third straight quarterly rise, hitting one-year highs of $1,710 a tonne in August, as global capacity cuts helped erode excess output.

    The improvement was also partly attributable to the recent sale of some assets.

    The second-largest aluminium producer in China, Chalco accounts for just under a quarter of the country's alumina output and over 10 percent of its aluminium output.

    The global market has been plagued by oversupply for the past five years, depressing prices and hurting producers' profits.

    Aluminium smelters in China, the world's top producer and consumer of the metal, cut output late last year, reducing supply in the hope of supporting prices.
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    Steel, Iron Ore and Coal

    Does This Secret $150 Million Payment Show A Coal Rebound Coming?

    Big week for coal. With prices for Australian thermal jumping above $100 per tonne for the first time since 2012.

    That marks a 100% rise in thermal coal since June. A move that’s been driven by declining production from China — as that country shuts down excess capacity. As well as surprisingly strong demand from Asian consumers.

    And news in a further afield location this past week shows it’s not just Asia that’s driving consumption. Demand is in fact surging in Western markets — even in places that have vowed to get rid of coal power.

    One of those spots is Britain. Where reports showed that plans to scrap coal power entirely have not gone well — and in fact coal plants are seeing a resurgence in interest from power buyers, to help head off blackouts.

    The Telegraph reported over the weekend that Britain’s National Grid is actually making a move back to coal power. After lawmakers had attempted to do away with such power sources earlier this year.

    The problem is that, with coal out of the mix, Britain’s power supply has been stretched to the limit. As the chart below shows, spare electricity capacity (“margin” — dark red) is at its lowest level in over a decade.

    Image title

    But the chart also shows how Britain’s power generators are meeting this challenge. By using “emergency measures” — namely, calling old coal plants back into service.

    The Telegraph found that National Grid is actually paying 10 “retired” coal plants to be ready on standby — in case they need to fire up again to prevent a blackout. All told, the utility is forking over 122 million pounds ($150 million) just to have this capacity available, with millions more in payments expected if the plants are actually called into service.

    All of which shows that the dream of clean energy is meeting some hard realities in this key market. Which may give lawmakers here and elsewhere a pause when they consider getting rid of coal-fired capacity.

    That could mean the much-touted demise of coal is not quite happening yet. Watch for a potential rebound in demand, which may sustain prices higher and longer than many observers are anticipating.

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    Russian SUEK Jan-Sep coal output rises 15pct

    SUEK, one of the largest coal companies in the world and the number one coal producer in Russia, has announced that it produced 78.9 million tonnes of coal during the January to September 2016 period, which represents a 15% increase from the year-ago level.

    Sales for the first nine months of the year increased by 5% year-on-year and amounted to 74.1 million tonnes of coal.

    Domestic coal sales remained the same as last year. 36.1 million tonnes were sold to Russian customers, of which 29.2 million tonnes were shipped to Russian electric power plants.

    International sales increased by 10% on the year and amounted to 38 million tonnes of coal. China, South Korea, Japan, the Netherlands, Taiwan, India, and Germany were the main international markets for SUEK in the reporting period.

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    Brazil prosecutors charge 21 with homicide for Samarco dam spill

    Brazilian prosecutors charged 21 people with qualified homicide on Thursday for their roles in the collapse of a tailings dam at the Samarco Mineração SA iron ore mine last November that killed 19 people.

    The charges follow what is now considered to be the largest environmental disaster in Brazil's history. The dam collapse released millions of tonnes of muddy mine waste, wiping out several small communities.

    Samarco, its co-owners Vale SA and BHP Billiton Ltd, and Brazilian engineering company VOGBR Recursos Hidricos e Geotecnica Ltd which certified the dam's safety, were charged with environmental crimes.

    BHP, Vale and Samarco officials said in statements that they rejected the charges and would defend their employees and executives. VOGBR declined to comment.

    Vale, BHP and Samarco agreed in March to pay an estimated 20 billion reais ($6.37 billion) over 15 years in civil damages, but the accord is being challenged by state prosecutors.

    Prosecutor Jose Leite Sampaio told reporters at a briefing in Belo Horizonte, broadcast live by GloboNews, that executives at Samarco had clear awareness the dam could fail but ignored the risks and prioritized profit.

    There were signs that the dam was unsafe for several years before its collapse, but Samarco officials, executives, employees and board members appointed by Vale and BHP failed to take proper action, Sampaio said.

    Prosecutors also said safety and regulatory procedures were not properly followed, including those in the company's own operating manual.

    If convicted the accused, who include 16 Brazilians, two Americans, a Briton, a South African, an Australian and a French citizen, could face sentences of up to 54 years, prosecutors said. The former chief executive of Samarco, Ricardo Viscovi, is among the accused. Charges against one of the suspects did not include homicide.

    Under Brazil's criminal code, qualified homicide is homicide aggravated by certain factors.

    Following the collapse, thick reddish-brown sludge flowed into one of Brazil's main rivers, the Rio Doce, killing fish and fouling water supplies for hundreds of km (miles) before reaching the Atlantic Ocean.

    Before the case goes to trial, the charges need to be approved by a judge. Prosecutors filed the charges with a judge in Belo Horizonte, Brazil earlier in the day.

    "These people were murdered," Eduardo Santos de Oliveira, one of the prosecutors in the case, said of those who died.

    Vale said in a statement that prosecutors ignored evidence that executives were unaware the dam could fail before the disaster occurred.

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