Mark Latham Commodity Equity Intelligence Service

Friday 9th December 2016
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    Hogan-Lovells on US Tax reform

    In light of the presidential election victory of Republican Donald Trump, and the Republican Party's success in maintaining control of both the U.S. House and Senate for the upcoming 115th Congress, we believe that there is a very good chance that the U.S. Congress will pass, in 2017, the most significant U.S. tax reform in a generation.

    This bill will affect any individual or company — U.S. or foreign-based — with income in the U.S., and will likely completely revamp the nation's current tax code as it applies to multinational corporations. The road to enactment of this legislation will be far from smooth — there will be turf battles and disagreements, not only between the parties, but between industries and different interests — and it will take time. Given the hurdles the bill will face — notwithstanding Trump's and Chairman Brady's pledges to get tax reform done in 100 days — getting a bill to the President's desk will almost certainly take much of 2017, if not more time. Much of this reform legislation will be positive for businesses and individuals alike, but there will be trade-offs as well that may divide industries or even different companies in the same industries.

    In addition to Trump's and Chairman Brady's pledges to get tax reform done next year, Speaker of the House Paul Ryan, (now Speaker nominee for the 115th Congress) has indicated that accomplishing tax reform in 2017 is his highest priority. The starting point for tax reform is likely to be the Tax Reform Blueprint, issued by Speaker Ryan and Chairman Brady in early 2016. The Blueprint was the product of extensive work by a Republican congressional task force and represents a major re-write of the tax code; far beyond changes in rates. The Trump tax reform plan is similar in many respects to the Blueprint, and Trump and his team thus far have indicated support for Speaker Ryan's plan to start with his own bill in the House. In the Senate, Republican Majority Leader Mitch McConnell and Senate Finance Committee Chairman Hatch have also indicated strong support for moving tax reform.

    Although House and Senate Republican leaders have all indicated in recent days their hopes that Congress will be able to move a tax reform bill with bipartisan support, we believe that in the end there is a good chance that Republicans will end up moving a bill with little to no support from the Democrats. The reconciliation process under the Budget Act of 1974 would allow Republicans to do this without the risk of a Democrat filibuster in the Senate, which would otherwise require 60 votes to overcome.

    Moving a bill through reconciliation, though, will make the process much more complicated. This would require that the House and Senate pass a budget resolution, and that the Senate comply with the Byrd rule, requiring 60 votes to overcome a point of order if the bill results in any revenue loss after the years included in the Budget Resolution. In addition, if Republicans attempt to address Obamacare reforms through reconciliation, as has also been contemplated, and perhaps an infrastructure revenue source as well, the process would be even more complicated and difficult to get through. And the Republicans may have trouble maintaining support within their own caucus.

    Although Trump, during his campaign, did not express much concern about the growing national debt, the issue remains a concern among many Republican deficit hawks. Recent analysis has estimated the U.S. revenue loss associated with the Trump plan at US$4-US$6 trillion on a static basis, and the static loss associated with the Brady/Ryan Blueprint at US$2-US$3 trillion. Using dynamic scoring, as the Republicans plan, could improve these numbers considerably, but it will make the process more difficult yet again if Congress is going to try to achieve revenue neutrality.

    The following are some of the primary elements of the Trump and Ryan/Brady Blueprint tax reform proposals. Neither Trump nor Ryan/Brady released legislative language for their proposals, though the Ryan/Brady Blueprint is far more detailed than the current Trump proposal.

    Ryan/Brady Blueprint:

    • 20 percent corporate tax rate
    • 25 percent rate for pass-through business income
    • A cash-flow consumption tax structure for business –
      • Full expensing for capital investments
      • No deductibility of interest expense beyond interest income
      • Territorial tax system with one-time tax on accumulated foreign E&P (8.75 percent cash/3.75 percent non-cash rates)
      • Border adjustment mechanism: tax imports and deduct exports
    • Industry-specific tax preferences and other unspecified tax preferences would be repealed
    • Transition rules – Blueprint: "The Committee on Ways and Means will craft clear rules to serve as an appropriate bridge from the current tax system to the new system, with particular attention given to comments received from stakeholders on this important matter"
    • Individual income tax rates lowered to 12 percent, 25 percent, 33 percent
    • Individual investment income (taxed at half of earned income rates)

    Trump Tax Reform Plan:

    • 15 percent corporate tax rate
    • 15 percent rate for pass-through business income
      • Manufacturers have option to fully expense capital investments if they opt to waive deduction of interest expense
      • Campaign expressed support for a one-time tax on accumulated foreign E&P, but the plan appears to retain the U.S. extraterritorial system
      • Repeal most corporate tax expenditures, except R&D credit
    • Individual tax rates lowered to 12 percent, 25 percent, 33 percent
      • Caps itemized deductions at US$100k, US$200k


    Both the Congressional tax-writers, and (to a lesser extent, as the players are not as firmly established) the Trump transition team, have been asking for ideas, thoughts, and criticisms of their tax reform proposals. When tax reform starts moving in 2017, it will be more difficult as time goes on to influence the process. Today, the bill is being written, but there is still time for all parties to influence its direction.

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    Trump Team’s Memo Hints at Broad Shake-Up of U.S. Energy Policy

    Advisers to President-elect Donald Trump are developing plans to reshape Energy Department programs, help keep aging nuclear plants online and identify staff who played a role in promoting President Barack Obama’s climate agenda.

    The transition team has asked the agency to list employees and contractors who attended United Nations climate meetings, along with those who helped develop the Obama administration’s social cost of carbon metrics, used to estimate and justify the climate benefits of new rules. The advisers are also seeking information on agency loan programs, research activities and the basis for its statistics, according to a five-page internal document circulated by the Energy Department on Wednesday. The document lays out 65 questions from the Trump transition team, sources within the agency said.

    On the campaign trail, Trump promised to eliminate government waste, rescind "job-killing" regulations and cancel the Paris climate accord in which nearly 200 countries pledged to slash greenhouse gas emissions. Trump, though, hasn’t detailed specific plans for federal agencies. The document obtained by Bloomberg offers clues on where his administration may be headed on energy policy, based on the nature of questions involving the agency’s research agenda, nuclear program and national labs.

    Loans, Incubators

    Under Obama, the department played a major role advancing clean-energy technology through loan guarantees and incubators, while writing efficiency rules for appliances. The department leans heavily on tens of thousands of contractors, who supplement the work of its roughly 13,000 direct employees.
    Two Energy Department employees who spoke on condition of anonymity confirmed the questionnaire and said agency staff were unsettled by the Trump team’s information request.

    Tom Pyle, the head of Trump’s Energy Department landing team and president of the oil-industry-funded free-market advocacy group American Energy Alliance, didn’t immediately respond to a request for comment on the memo. Media representatives for the Trump transition and an Energy Department spokesperson also didn’t immediately respond to calls and e-mails seeking comment.

    A person close to the transition team confirmed the questions Thursday. The person, who asked not to be identified because he isn’t authorized to speak publicly about the matter, praised the caliber of the Energy Department staff and cast the transition team’s effort as designed to ensure transparency on the formation of existing, Obama-era policy.

    Social Cost

    The questions about the social cost of carbon dovetail with similar, so-far-unsuccessful requests from Republicans on Capitol Hill, who have also sought information about the analysis underpinning that policy and the people who helped develop it.

    The transition team questions includes perfunctory requests to identify current advisory committees, pending procurement decisions and positions subject to Senate confirmation — information critical to ensuring the agency’s functions before and after Trump is sworn in.

    The document also signals which of the department’s agencies could face the toughest scrutiny under the new administration. Among them: the Advanced Research Projects Agency-Energy, a 7-year-old unit that has been a critical instrument for the Obama administration to advance clean-energy technologies.

    Since going into operation in 2009, ARPA-E, as it is known, has provided about $1.3 billion in funding to more than 475 projects involving grid-scale batteries, power storage, biofuel production, wind turbines and other technology, according to a May report on the agency. Trump’s energy landing team is seeking “a complete list of ARPA-E’s projects” and wants information about the “Mission Innovation” and “Clean Energy Ministerial” efforts within the department.

    Without Subsidy

    The group also questions whether any technologies or products that have emerged from Energy Department programs “are currently offered in the market without any subsidy” and asks “what mechanisms exist to help the national laboratories commercialize their scientific and technological prowess.”

    The Energy Information Administration, the department’s statistical arm, is the subject of at least 15 questions that probe its staffing, data and analytical decisions, including whether its forecasts underestimate future U.S. oil and gas production. EIA staff also are asked how they account for added costs to transmit and back-up renewable power.

    The Trump transition advisers also want to know in what instances the EIA’s independence was most challenged over the past eight years.

    While the request for information hints at areas the Trump administration will address in terms of energy, it doesn’t actually specify policy, and administration plans may be shaped in part by the Energy Department’s responses.

    Nuclear Plants

    The document shows Trump advisers contemplating ways to keep aging U.S. nuclear power plants on line, including by addressing concerns about the long-term storage of spent radioactive material. “How can the DOE support existing reactors to continue operating,” and “what can DOE do to help prevent premature closure of plants?” the transition team asks.

    Trump advisers have been weighing how to revive a long-stalled plan to stash radioactive waste at Nevada’s Yucca Mountain. In the document, they ask if there are any statutory restrictions to restarting that project or reinvigorating an Office of Civilian Radioactive Waste Management that was responsible for disposing of spent nuclear material.

    In the transition document, Trump advisers ask for "a full accounting" of DOE liabilities associated with DOE’s Loan Program Office, criticized by Republican leaders over its part in bankrolling Solyndra, the solar panel manufacturer that went bankrupt and left taxpayers on the hook for $535 million in federal guarantees. The documents seeks lists of outstanding loans, their terms and objectives, and the parties responsible for repaying them.

    In addition to Pyle, Trump’s Energy Department landing team includes national security lawyer David Jonas; Michigan Republican Party vice chair Kelly Mitchell; Jack Spencer, vice president of the Institute for Economic Freedom and Opportunity at the conservative Heritage Foundation; Martin Dannenfelser Jr., previously with the Energy Innovation Reform Project; and Travis Fisher, with the Institute for Energy Research.
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    China economy reflating as producer prices rise at fastest pace in five years

    China's producer prices rose at the fastest pace in more than five years in November as prices of coal, steel and other building materials soared, boosting industrial profits and giving firms more cash flow to pay off mountains of debt.

    The stronger-than-expected 3.3 percent surge in prices, along with upbeat factory readings from China, the United States and Europe, add to views that the global economy may be slowly reflating again thanks to a pick-up in industrial activity.

    "This (the PPI jump) confirms our view that China has emerged from a multi-year deflationary trap," ANZ said in a note.

    While some heavy industries such as coal mining, steel mills and metal processors saw the biggest rebound, official data on Friday showed the price recovery was also becoming more broad-based, with more sectors emerging from deflation.

    Consumer inflation also picked up more than expected to 2.3 percent from a year earlier, the highest since April, due to higher food prices.

    Though the price gains were modest, they reinforced views that the central bank will be in no rush to loosen monetary policy again any time soon, and even fueled speculation as to when the People's Bank of China may start tightening conditions.

    China's central bank has not cut interest rates since October 2015, when worries about deflation were more pressing, opting instead for regular injections of funds into the financial system and targeted infusions of cash into the weakest parts of the economy, such as rural areas.

    "While there remains no immediate pressure on the central bank to raise interest rates, the uptick in inflationary pressures in November, combined with downward pressure on the renminbi-exchange rate, highlight the risk that monetary policy tightening may begin earlier than The EIU currently expects," said Dan Wang, China analyst at The Economist Intelligence Unit.

    Wang currently expects the PBOC will start to raise interest rates from the fourth quarter of next year.

    Analysts polled by Reuters had expected producer prices to rise by a more modest 2.2 percent, up from 1.2 percent in October, while consumer prices had been expected to pick up marginally to 2.2 percent from 2.1 percent.

    "Today's data shows future (PBOC) easing is even less likely. I don't see any need for a RRR cut," Capital Economics' China economist Julian Evans-Pritchard said, referring to a cut in banks' reserve requirements.

    "With what is going on with China's declining foreign reserves, if PBOC injects liquidity to replenish it, it is already kind of tightening without having to resort to such high-profile measures," he said, adding that the PBOC has plenty of tools at disposal to adjust liquidity in the market.

    The central bank said in its third-quarter monetary policy implementation report it will maintain ample liquidity in the financial system while taking steps to prevent asset bubbles in an increasingly leveraged economy.


    China's producer prices rose in September for the first time in nearly five years thanks to a rebound in commodity prices.

    A construction boom led by higher government spending and a blistering housing market rally have boosted prices for materials from steel and copper to glass and cement, with speculators adding fuel to a months-long rally in China's commodity futures markets.

    Government efforts to reduce excess capacity in industrial and mining sectors have also buoyed prices by creating shortages in some areas, such as coal. That helped boost industrial profits 9.6 percent in October from a year earlier.

    Chinese steel and iron ore futures rose for a sixth straight session on Friday, spurred by upbeat trade data on Thursday and worries over tighter supply as Beijing intensifies efforts to cut excess steel capacity.

    Futures prices for steel reinforcement bars used in construction have surged to 31-month highs, while iron ore is at its strongest since late 2014.

    China's November imports expanded 6.7 percent on-year, the fastest in more than two years, as factories replenished inventories of raw materials, helping to lift commodity prices globally.


    ANZ estimates that higher prices of metals, mainly steel, and coal account for nearly half of the PPI changes, and says prices could continue to rise well into 2017.

    ANZ market economist David Qu in Shanghai said PPI will rise by 2.5 percent next year, though momentum will wane in the second half.

    Qu said the government has shown that it is more determined to cut excessive capacity than people thought, and the property market, while cooling, would still support demand for a while longer.

    "While (home) sales may have already cooled, construction starts and property investment will still be strong in the first half of 2017, which would continue to boost steel prices," Qu said.

    ANZ maintains the broader-based producer price index has a higher correlation with economic activity and interest rates than consumer prices, which are primarily driven by food prices and underestimate housing costs.

    China's economy expanded at a steady 6.7 percent in the third quarter and looks set to hit Beijing's full-year target, fueled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.

    But the world's second-largest economy is expected to slow next year, as effects from previous stimulus start to fade.
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    International investors buy pipeline stake from National Grid for £14bn

    National Grid has agreed to sell a 61% stake in Britain’s £13.8 billion gas pipe network to a team of global investors including Chinese and Qatari buyers.

    The deal will see a consortium led by Australian investment bank Macquarie – and including China’s sovereign wealth fund – take control of the network serving 11 million homes and businesses.

    UK power network operator National Grid pledged to return £4 billion to shareholders after the deal and will hand out a £150 million payment to benefit British energy customers.

    It will receive £3.6 billion cash for the stake in its gas arm, as well as a further £1.8 billion in debt financing.

    National Grid will retain a 39% stake in the business, but said it was also in talks with the consortium over the sale of a potential further 14% shareholding.

    It comes after the Government launched a review in September of how overseas investment in UK infrastructure is scrutinised and whether ministers should have stronger powers to intervene.

    National Grid chief executive John Pettigrew sought to allay fears over security of supply and said the Government and energy regulator Ofgem had been closely involved in the sale process.

    He told the Press Association: “The consortium will have exactly the same obligations going forward in terms of security, reliability and safety as National Grid has had.

    “It involves a group of investors who have a long track record of investing in critical infrastructure in the UK.”

    National Grid has around 82,000 miles (more than 130,000km) of pipeline, which delivers gas to regions including London and the East of England, the West Midlands and north-west England.

    It employs nearly 5,700 staff.

    Mr Pettigrew said the gas network management team will remain in place, while staff will see their terms, conditions and pension rights remain the same.

    Following the deal, National Grid plans to return most of the £4 billion to shareholders through a special dividend in the second quarter of 2017.

    It will also work with Ofgem to decide how best to use the £150 million payout to benefit energy customers.

    The auction for the gas network has been running for just over a year and saw the Macquarie consortium fight off a raft of competitors, including a team led by Chinese investors.

    For the bid, Macquarie teamed up with China Investment Corporation – a subsidiary of China’s sovereign wealth fund – as well as the Qatar Investment Authority, financial services giant Allianz Capital Partners, UK-based Hermes Investment Management and British fund managers Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships.

    Macquarie and China Investment Corporation will hold the two largest stakes, at 14.5% and 10.5% respectively, followed by Allianz with a 10.2% stake.

    The Qataris will hold an 8.5% stake.

    Macquarie owns Thames Water, but is currently looking for a buyer to take on the utility giant, while others in the consortium have also invested in the Tideway Tunnel and Heathrow.

    But trade union Unison claimed Macquarie was an “unsuitable” owner given its track record with Thames Water.

    Unison general secretary Dave Prentis said: “Macquarie has poor form already – in building up huge company debt, repatriating massive dividends to the southern hemisphere and charging customers more for a much poorer service.

    “The company has already proved it can’t be trusted with the nation’s water supply, but now it is to be in charge of gas pipes to millions of homes and businesses.”
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    Trump EPA pick has sued EPA, is climate sceptic

    Donald Trump has reportedly nominated an attorney general who has sued and reviled the Environmental Protection Agency (EPA) to be the body’s new chief.

    In February, Trump – then leading the Republican primaries – said of the EPA: “We’re going to have little tidbits left but we’re going to get most of it out.”

    With his choice of Oklahoma attorney general Scott Pruitt to head the agency, he appears to be making good on another campaign pledge.

    Pruitt has been a leader in a coalition of attorneys general that has sued the EPA over its Clean Power Plan, which aims to cut pollution from power plants.

    Like his new boss, Pruitt has cast doubt over the science of climate change. In an op-ed in the National Review in May he wrote: “That debate is far from settled. Scientists continue to disagree about the degree and extent of global warming and its connection to the actions of mankind.”

    In 2014, the New York Times found Pruitt had been sending letters to the EPA accusing them of overestimating air pollution figures. They had been written by fossil fuel industry donors and copied onto his own stationary.

    In June, he signed a letter with 12 other state attorneys general addressed to their other state colleagues around the nation. They complained that lawsuits being brought around the country against fossil fuel companies for misleading investors were spurious and “not a matter for the courts”.

    In the letter, they argued that by the same logic those who ‘exaggerated’ climate risk could be sued for fraud. Pruitt called those people “climate alarmists”.

    New York state Attorney General Eric Schneiderman released a statement on Wednesday saying Pruitt was a “dangerous and unqualified choice”.

    Green groups reacted with bitter hostility calling Pruitt a “fossil fuel industry puppet” (, “an arsonist in charge of fighting fires (Sierra Club) and “destined for the environmental hall of shame” (NRDC).

    Attached Files
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    China Nov exports, imports rise unexpectedly, commodity purchases soar

    China's imports grew at the fastest pace in more than two years in November, fueled by its strong thirst for commodities from coal to iron ore, while exports also unexpectedly rose, reflecting a pick-up in both domestic and global demand.

    Imports expanded 6.7 percent from a year earlier, easily eclipsing economists' expectations for a drop of 1.3 percent and its strongest gain since September 2014, official data showed on Thursday.

    Exports rose 0.1 percent from a year earlier, defying predictions for a 5 percent slide.

    That left the country with a trade surplus of $44.61 billion for the month, the General Administration of Customs said, versus forecasts of $46.30 billion and October's $49.06 billion.

    "The improvement reflects a strengthening in global demand, with recent business surveys suggesting that developed economies are on track to end the year on a strong note," Julian Evans-Pritchard, China economist of Singapore-based Capital Economics, said in a note.

    Analysts polled by Reuters had expected a slightly more modest drop in November exports after a 7.3 percent contraction in October, while imports had been seen falling at roughly the same pace.

    But China's imports of major commodities including iron ore, crude oil, coal, soybeans and copper all surged by volume in November, despite a sharp weakening in its yuan currency.

    China imported 91.98 million tonnes of iron ore in November, up 13.8 percent from the previous month and the third highest monthly tally on record.

    It also imported its largest volume of coal in 18 months, as utilities replenished stocks to cope with higher winter demand.

    Copper imports surged 31 percent as traders stockpiled more metal amid robust construction demand.

    "The rise in copper imports reflected in part a rise in Shanghai Futures Exchange inventories and stronger demand from the Chinese power and construction sectors," said Vivek Dhar, a commodities analyst with Commonwealth Bank in Melbourne.

    "The debate dividing the market is whether this growth can be sustained into next year, or will things flatten out. This isn't necessarily clear just yet."


    Despite the upbeat November readings, the world's largest trading nation still looked set for another downbeat year.

    Exports in the first 11 months of the year fell 7.5 percent from the same period a year earlier, while imports dropped 6.2 percent.

    Weak exports have dragged on economic growth as global demand remains stubbornly sluggish, forcing policymakers to rely on higher government spending and record bank lending to boost activity, at the risk of adding to a mountain of debt.

    Recent data had suggested the world's second-largest economy was steadying as the government rushed to launch new infrastructure projects and the housing market boomed, fuelling demand for building materials from steel bars to cement.

    The official Purchasing Managers' Index (PMI) showed factory activity expanded at its strongest pace in more than two years, though a private survey pointed to more modest growth.

    But analysts have warned that a property boom which has generated a significant share of the growth may be peaking, dampening demand for raw materials

    China could also be heavily exposed to protectionist measures next year if U.S. President-elect Donald Trump follows through on campaign pledges to brand it a currency manipulator and impose heavy tariffs on imports of Chinese goods.

    However, Chinese Customs said on Thursday that pressure on exports is likely to ease at the beginning of 2017.

    Attached Files
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    Indian Economy Crashes As Modi's "Black Money" Theory Collapses

    Amid social unrest and loss of faith in the nation's currency, India's economy has ground to a halt with its Composite PMI crashing by a record in the last month as demonetization strikes.

    However, even more problematic is that Indians have validated 82% of bank notes rendered worthless by PM Modi, dramatically undermining the government’s estimate of unaccounted wealth in the economy. As Bloomberg reports,

    About 12.6 trillion rupees ($185 billion) had been deposited into bank accounts as of Dec. 3, the people said, asking not to be identified citing rules for speaking with the media. The government had estimated that about 5 trillion rupees of the 15.3 trillion rupees sucked out by Modi’s move would stay undeclared, implying that this was cash stashed away to evade taxes, known locally as black money.

    Lack of a meaningful cancellation could be a double blow for Modi as the measure was being used as a political and economic gauge of the success of his Nov. 8 move. One of Modi’s biggest campaign pledges was to expose black money in Asia’s No. 3 economy, and economists were viewing the cash as a potential windfall for the government.

     "Some of the windfall that the government was hoping for from the cancellation of notes will be dented," said Anjali Verma, chief economist at PhillipCapital Ltd. "That means the fiscal stimulus that was being expected might also take some hit. That is not good news at a time when direct consumption, private investment is not expected to pick up."

    "Markets are not too worried at the moment," said Chakri Lokapriya, Mumbai-based managing director at TCG Advisory Services, which manages about $3 billion. "But if 12-13 trillion rupees comes back into the system it defeats the whole theory of black money."

    In such a situation where the gains of demonetization aren’t apparent, individuals will more closely analyze the pain. A slump in demand due to the cash shortages will hurt company revenues and government tax collections, widening the budget deficit and ultimately weakening the rupee, Lokapriya said.

    So was the whole effort merely, as Modi admitted, a move towards a cashless society after all? And not in any way related to corruption? Either way, it is too late now as faith in the fiat currency has collapsed.

    Finally, while most shrug and say "how does that affect us?", the tumult in India is weighing heavily on the rest of the world via the oil market. India has been the world’s fastest-growing crude market and that may weaken as the government’s cash crackdown slows the economy. As Bloomberg reports,

    Diesel and gasoline use, which account for more than half of India’s oil demand, will slow or contract this month and possibly early next year, according to Ivy Global Energy Pte., FGE and Centrum Broking Ltd.

    “As the Indian economy largely depends on various cash-intensive sectors, the demonetization saga will no doubt slow down economic growth in the near term,” said Sri Paravaikkarasu, head of East of Suez oil at FGE in Singapore. “Moving into the first quarter, an expected slowdown in the economic growth should marginally drag down oil consumption, particularly that of transport fuels.”

    Diesel consumption could fall as much as 12 percent and gasoline demand as much as 7 percent this month,according to Tushar Tarun Bansal, director at Ivy Global Energy.

    “I expect to see a much smaller growth in diesel demand of about 2 percent in the first quarter,” Bansal said.

    The possible slow down this month and into next year is a reversal of the demand spike seen in November as people rushed to fill their tanks to take advantage of a rule allowing fuel retailers to accept the banned 500 and 1,000 rupee ($15) bills until Dec. 2.

    So an Indian PM 'flaps his wings' and the rest of the world may have a hiccup.
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    Mobius on commodities at an investor Q&A

    Q: I’m a shipping professional and we only see grim pictures for international trade and raw material production. Can you explain how low commodity prices impact China? – Jing in China (via LinkedIn)

    A: Commodity prices have seen a sharp rebound this year after several years of weakness, and we think prices may have bottomed. Going forward, we expect commodity prices to continue to recover, and see some attractive valuations among select sector stocks in this area. However, in my view, the immense impact China has on commodity markets—being the largest consumer of commodities for so long—will likely no longer be the factor that it was in the past. So, we can’t expect the high degree of Chinese trade in this area that we experienced in the past 10 years or so. Nevertheless, other fast-growing countries such as India may come to replace China and pick up the slack in regard to commodity demand. Demand could also come from a recovering United States, particularly with talk of increased US infrastructure spending that would require natural resources. In regard to the impact of low commodity prices directly on China, it generally has been positive since China is a big importer, and low prices help their costs.
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    China Nov forex reserves fall more than expected to lowest in nearly six years

    China's foreign exchange reserves fell far more than expected in November to the lowest level in nearly six years, as authorities struggled to stem capital outflows and shore up the sliding yuan in the face of a relentlessly rising dollar.

    Reserves fell by $69.06 billion last month, the fifth straight month of declines, to $3.052 trillion, levels not seen since March 2011, central bank data showed on Wednesday.

    Some traders believe the $3 trillion mark is a key psychological level for the People's Bank of China, but it risks rapidly churning through its still massive stockpile if the U.S. dollar continues to rise against other currencies.

    Last month's drop was the largest since January, when a sharp fall in the yuan and worries about China's slowing economy raised fears that Beijing would devalue its currency, roiling global financial markets.

    Economists polled by Reuters had expected reserves to drop $30 billion to $3.091 trillion in November, after a decline of $45.7 billion in October.

    The central bank is widely believed to have sold U.S. dollars to support the yuan currency CNY=CFXS as it sunk to more than 8-1/2 year lows last month.

    China's foreign exchange regulator said the decline in reserves was partly due to the dollar's 3 percent rally versus major currencies in November.

    But the yuan's more than 5 percent slide so far this year has sparked a flurry of bets that the currency will weaken further, leaving traders wondering how long China can maintain its yuan defence and withstand a prolonged drain on reserves if the U.S. dollar continues to rally.

    The yuan fell 1.6 percent in November alone, its worst month since August 2015 when Beijing shocked global markets by devaluing the currency by almost 2 percent overnight.

    Adding to pressure on the currency, U.S. President-elect Donald Trump has vowed to label China a currency manipulator on his first day in office on Jan. 20 and has threatened to impose huge tariffs on imports of Chinese goods.

    Though the composition of China's reserves is a state secret, analysts say the falling value of other currencies it holds against the rising U.S. dollar likely accounted for some of the fall in reserves.

    But China also has announced a string of measures in recent weeks to tighten controls on money moving out of the country, adding to market speculation that potentially destabilising capital outflows are on the rise.

    "The capital control tightening that Chinese authorities announced at end-November is a very good indicator that capital outflows continue from China and are turning threatening," analysts at Bank of Tokyo-Mitsubishi UFJ said in a note this week.

    The PBOC had sold a net $39.2 billion worth of foreign exchange in October, indicating continued official intervention to support the yuan.

    To be sure, the yuan is falling alongside other emerging market currencies in the face of the strong dollar, which is being buoyed by hopes that President-elect Donald Trump will be able to shift the U.S. economy into faster gear.

    It has been more steady lately against a basket of currencies of major trading partners.

    But China, with its huge trade surplus with the United States, is firmly in Trump's sights. He has vowed to label China a currency manipulator on his first day in office on Jan. 20 and has threatened to impose huge tariffs on imports of Chinese goods.

    A senior central bank researcher told Reuters last week that Beijing needs to break a potentially destructive feedback loop, where expectations of further yuan weakness spur outflows, and fresh capital flight in turn puts more pressure on the currency.

    The central bank is also likely to worry about a faster drawdown of its reserves, which are approaching the closely watched $3 trillion level, analysts said.

    French bank Societe Generale said earlier this year that International Monetary Fund guidelines put $2.8 trillion as the minimum prudent level for China, which is not far away if reserves keep falling at the current pace.

    Since mid-2014, China's forex reserves, which include a hefty amount of U.S. government bonds, have shrunk by more than the gross domestic product of Switzerland.

    "Our baseline is that tightened capital controls enable the authorities to stay the course during the Trump dollar rally, which on ING's forecasts will persist through the first quarter of 2017," Tim Condon, ING's chief Asia economist, wrote in a note.

    But he warned that capital outflows during the dollar rally could become "excessive".

    The State Administration of Foreign Exchange (SAFE) has begun vetting transfers abroad worth $5 million or more and is increasing scrutiny of major outbound deals, even those with prior approval, sources told Reuters last week.

    Currency analysts polled by Reuters expect the yuan to plumb its lowest level in nearly a decade next year on sustained capital outflows and further gains in the dollar.

    China's gold reserves fell to $69.785 billion at end- November from $75.348 billion at end-October.
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    BHP gas deal ends brown coal fantasy, could pave way for solar thermal

    A decision by BHP Billiton to sign an electricity supply agreement with an existing gas generator in New South Wales should bring an end to plans to restart the Northern brown coal generator in Port Augusta, and could open the path for the much touted solar tower and molten salt storage project.

    BHP confirmed on Tuesday that it had signed an agreement for gas-fired electricity to help support its Olympic Dam mining operations in South Australia.

    The decision dashes hopes by bottom-feeding energy entrepreneur Trevor St Baker to reopen Northern brown coal generator, which was closed in May because it was no longer profitable.

    Its demise has often been blamed on renewable energy and the state government’s energy policy, but that fact is that it was old, highly polluting and it was unable to find an industrial user to sign an off take agreement.

    “We have had discussions with proponents potentially looking to restart the Northern Power Station,” a BHP spokesperson said in an emailed statement to RenewEconomy.

    “However after substantial consideration we found our needs were better met by entering a supply arrangement with an existing gas generator in South Australia.”

    That gas generator is thought to be Pelican Point, the gas generator that was mothballed 10 days before the closure of the Northern brown coal power station after deciding to sell its gas supply to the LNG market.

    It was brought back into operation in July for a brief period during work on the inter-connector to Victoria in an effort to loosen the stranglehold on the market and prices by the remaining gas and diesel generators, most of which are controlled by just two companies.

    The state government was keen for it to return on a more permanent basis, and appeared to calibrate its tender for a 10-year supply contract for government departments just for that purpose. The state government even increased its emission allowance to cater for that idea.

    However, advocates of the solar tower and storage proposal in Port Augusta say that the fact that BHP has signed an off-take agreement with Pelican Point means that the government can look further afield, and ensure it is using its contract to encourage new technologies.

    Repower Port Augusta has called on the South Australian Government to rule out purchasing its power from the Pelican Point gas plant and use its energy tender to make solar thermal happen in Port Augusta following news Engie (Pelican Point’s owner) has signed a contract to supply BHP with power,” the group said in a statement.

    “Premier (Jay) Weatherill should use the State Government’s power purchase to make solar thermal happen in Port Augusta.
    The State Government has currently left the door open to gas plants but news today that BHP has signed a contract with Pelican Point shows that gas companies do not need to be propped up by the State Government.”
    The federal Coalition has led a campaign to demonise renewable energy and has suggested that 40 per cent wind and solar is too much for a state such as South Australia, because it made its energy supply too unreliable.

    But those claims are ridiculed in a new report by the CSIRO and the network owners lobby group, which outlines how South Australia could be 80 per cent powered by wind and solar by 2036, and the whole country 90 per cent powered by 2050.

    However, it says such targets require co-ordinated policies, and the curation of new technologies such as battery storage and solar towers and storage.
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    Laffer: This will work. The FT: No it won't!

    Mr Laffer says the best part of his strategy is that there is no limit to the dynamic gains from lowering taxes. “Make sure you understand this is the beginning and the process never ends. Just when you think you’ve hit nirvana, something else goes on and you start the process all over again,” he adds.

    Although tax rates in most countries rose throughout the 20th century, which was by far the best century in economic history, Mr Laffer is unbowed. “When [taxes] went up [countries] did very poorly and when they went down, they did very well,” he says.

    Furthermore, the poor will gain, he insists, and whispers that incomes will “trickle down” from rich to poor — a conservative argument long maligned by liberals. “When you change the marginal rate of substitution between labour and leisure, do people choose different combinations of labour and leisure?” he asks rhetorically, “Duh — you can call that trickle down, but it’s not taxes that matter, it’s tax rates.”

    “We went from a the highest marginal rate of 70 per cent to one of 28 per cent [in the Reagan administration]. Do you see what happened to employment? Boom.”

    Trade is the one area in which Mr Laffer is concerned about the president-elect’s grip on economics, saying: “I don’t know if I’ve ever seen a politician who’s ever understood trade”.

    “I don’t believe Donald Trump is nearly as protectionist as his quotes,” he adds, and he urges the president-elect not to worry about the US trade deficit. “Which would you rather have? Capital lined up on our borders trying to get into our country or trying to get out of our country?”

    Since foreigners need to acquire dollars by selling goods and services to the US, he says, there are big benefits in a trade deficit. “Duh — you can’t have foreign investment without a trade deficit,” he says.

    Just as Mr Trump has been ferociously critical of Ms Yellen’s chairmanship of the Federal Reserve, Mr Laffer is sure central bankers have got their strategies of ultra-loose monetary policy wrong. He thinks low interest rates fail to give people incentives to supply capital for housing and businesses, thereby constraining growth.

    “Markets really know how to give you prices and Janet Yellen doesn’t. She’s never been forced to bear the consequences of her own actions,” he says, before warming to the theme. “[Central bankers] think they know better than God. She thinks she knows better how to change the economy better than the last four and a half billion years of evolution. How silly is that.”

    Invoking the spirit of Charlton Heston in Planet of the Apes he adds: “Keep your stinking monkey paws off my economy, you dirty ape. That goes for [liberal economist Paul] Krugman, that goes for Yellen, that goes for all of these would-be dictators of the economy.”

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    The funny thing about physics.

    One problem was how the wind often toppled the device on takeoff or landing. “It was a dumb thing about physics,” says Chris Anderson, chief executive of 3D Robotics Inc., which has made parts and software in Google’s drones.

    Google parent Alphabet Inc. and others in Silicon Valley are broadening their sights from the digital to the physical world in a bid to expand their influence, and their bottom lines. They promise to reinvent everything from cars to thermostats to contact lenses. Yet in a sign of how innovation is stalling broadly in the American economy, they are finding their new terrain far harder to control than their familiar digital turf.

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    China sets 2020 target for clean air in big cities

    China aims to provide clean air in its largest cities for 80% of each year, or more than 9-1/2 months, by 2020, up from a figure of 76.7% last year, Reuters reported, citing the country's cabinet.

    Amid concern that pollution was stirring social unrest, China launched a campaign in 2014 to revitalize its tainted air, water and soil, which have been ravaged by more than three decades of breakneck industrial growth.

    The clean air goal for 338 cities was laid out in a five-year development plan on ecological and environmental protection that said China would push structural reforms to cut excess capacity in polluting industries.

    Under the plan, authorities in Beijing, the capital, its neighboring city of Tianjin and the northern province of Hebei, and those along the Yangtze River economic belt will draw up eco-protection "red lines" by the end of 2017.

    Other provinces and cities will have to draw up such "red lines" by the end of 2018, the cabinet said.

    Total coal consumption in Beijing, Tianjin, Hebei, and the eastern Shandong and central Henan provinces will be cut about a tenth during the five-year plan period.

    Consumption in the commercial capital of Shanghai, and the eastern provinces of Jiangsu, Zhejiang and Anhui will be cut by around 5% in the same timeframe.

    Coal consumption in China's Pearl River Delta region will also be cut by a tenth during the period, the plan stated.

    China aims to cut emissions of sulfur dioxide and nitrogen oxide, both gases associated with acid rain, by 15% in 2020, from 2015 levels, it said.

    Chemical oxygen demand, a measure of water quality, will be cut by 10%, while ammonia nitrogen emissions will also be reduced by 10%.

    Last week, the province of Hebei, which borders Beijing, issued its first "red alert" of the year over severe pollution. The highest level alert for smog requires suspension of work in factories, with cars being pulled off the road.
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    US Tax Front and Centre: That import tax.

    The House Republicans’ tax plan to convert the corporate income tax into something akin to a consumption tax looks superficially similar to a tariff but is quite different. Their proposal would apply a border adjustment so that U.S. products would have the tax removed at the border when exported and imports would be taxed. Under the proposal, all goods sold in the U.S. would theoretically bear the same tax, regardless of where they are made, as opposed to tariffs that burden imports selectively.

    House Republican Tax Plan

    The House GOP Task Force on Tax Reform, led by Ways and Means Chairman Kevin Brady (R-TX) and overseen by Speaker Paul Ryan (R-WI), released its “blueprint” tax reform proposal on June 24, 2016. The “blueprint” cuts individual and corporate tax rates, simplifies the tax code, and promotes economic growth.

    The proposal reduces the corporate tax rate to 20%, allows for 100% full and immediate write-off of business investments, and moves towards a purely territorial taxation system in which companies would only pay tax to the U.S. government on earnings that occur within the U.S. This is accomplished via 100 percent exemption for dividends from foreign subsidiaries; a one-time repatriation tax of 8.75 percent for cash and 3.5 percent for everything else; and border tax adjustments going forward whereby imported goods are subject to a tax (equal to the corporate tax rate of 20 percent) and revenues from exports are exempt.

    The tax code would no longer provide U.S. multinational corporations “an incentive to move production overseas because the tax burden would be based on sales within the U.S. regardless of where the goods are produced.”

    The House Ways and Means Committee, led by Chairman Kevin Brady (R-TX), will continue to work out the details of a tax reform plan pursuant to the “blueprint.” Rep. Jim Renacci (R-OH) and other members of the Ways and Means Committee have introduced alternate tax reform plans centered around a consumption tax similar to a value-added tax.

    Replace the Corporate Income and Payroll Taxes with a Consumption Tax

    On the corporate side, this plan eliminates the 35 percent corporate income tax, 12.4 percent Social Security payroll tax on the worker’s first $118,500 of wages, and the 2.9 to 3.8 percent Medicare tax on all wages. These corporate and payroll taxes are replaced with a flat 16 percent value-added tax called the “Business Flat Tax.”

    This 16 percent business tax would differ significantly from the current corporate income tax, perhaps most importantly by making capital purchases fully and immediately deductible (“full expensing”) while eliminating the deductibility of wages. It appears that the the tax would apply to all employers, including non-profits and governments, and no business tax breaks would remain in law.

    Making wages non-deductible has a huge impact on revenue, since it essentially means most wage income would be taxed twice under Sen. Cruz’s plan – once at the business level and again at the individual level. This feature, in combination with full deductibility of all non-wage business expenses (capital investments), effectively makes it a consumption tax. Both the Tax Foundation and Tax Policy Center describe Cruz’s plan as a value-added tax (VAT). Although unlike European-style VATs (Sen. Cruz’s tax would not be imposed at each stage of production nor appear as a tax to consumers), it would be paid by all businesses and passed along in the form of higher prices.

    By abolishing the corporate income tax, the plan would effectively move to a territorial system where future income earned overseas by a foreign subsidiary of a U.S. corporation would not be taxed. The plan would impose a one-time deemed repatriation tax of 10 percent on past profits held overseas, which are currently tax-deferred.

    An Internationally Competitive Corporate Tax SystemThe United States has the highest corporate tax rate in the industrialized world. Given the fact that the United Statesoperates in a global economy in which capital is highly mobile across countries, having the highest corporate tax in thedeveloped world is a recipe for slower growth, weaker investment, and reduced innovation. A high corporate tax ratediscourages foreign businesses from locating and investing in the United States and puts U.S. firms at a competitivedisadvantage with the rest of the world. For these reasons, the OECD states that the corporate tax is the most economicallyharmful type of tax.31A Better Way | 33In addition to making U.S. firms less competitive than their foreign counterparts, the corporate income tax is also a hiddentax on consumers and workers. Part of this has to do with the fact that capital is mobile and labor is relatively immobile.When the corporate tax causes capital to flee the United States in order to seek a better rate of return in a more lightlytaxed jurisdiction, workers in the United States have less capital to work with and are less productive. Over time, this slowsproductivity growth and therefore reduces wages. Moreover, when capital flees it tends to take jobs with it. And those arejust the direct effects – there are indirect effects as well. Although businesses do indeed pay taxes (and a lot of them) theyare generally able to recover those costs by passing them on to consumers through higher prices and on to their employeesthrough lower wages. These effects are so well known that the JCT, the CBO, and the Treasury Department all incorporatethem in some form in their analyses. The JCT, the CBO, and the Treasury Department all conservatively assume that about25 percent of the burden of corporate taxes is borne by labor.32 However, other academic literature finds even higherburdens on labor. For example, one study by the CBO finds that domestic labor bears 70 percent of the burden of thecorporate tax.33 Other research by Hassett and Mathur finds that a 1 percent increase in corporate taxation reduces wagesby half a percent.34 And these effects are only going to grow because the more mobile capital becomes, the more labor willbear the burden.Therefore, lowering the corporate tax rate would have significant economic benefits – faster growth and higher employment,investment, productivity, and wages. One particularly noteworthy example of the benefits of reform comes from a 2013National Bureau of Economic Research (NBER) paper that simulated the repeal of the entire corporate income tax.35 Unlikemany attempts by other economists before them, these economists made an attempt to model the rest of the world in sucha way that they could accurately depict how capital would flow into the United States as a result of corporate tax repeal.According to one of the authors, “fully eliminating the corporate income tax and replacing any loss in revenues withsomewhat higher personal income tax rates leads to a huge short-run inflow of capital, raising the United States’ capital stock(machines and buildings) by 23 percent, output by 8 percent, and the real wages of unskilled and skilled workers by 12percent.”36 Under this scenario, repealing the corporate income tax would generate so much new economic activity in theUnited States that it would finance a third of the revenue lost by repealing the corporate tax. (For perspective, the CBOprojects that the corporate tax will raise $4 trillion in revenue over the next decade).37 Although repealing the corporateincome tax is clearly a pro-growth policy, simply lowering the rate to get closer to the international average would increaseU.S. competitiveness and have similar economic benefits (albeit of a lower magnitude). Moreover, because U.S. rates are sohigh relative to our international competitors, the room for growth is significant.

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    China shuts small scale recycle steel furnaces.

    During a onsite survey November 24-27 in Xuzhou, Lianyungang and Suqian, Jiangsu Province,the State Council’s environmental protection team founded low-quality steel (hereinafter means low-quality steel using scrap steel as raw material, which is melt by induction furnace or rolled steel produced with such low-quality steel) and illegal steel capacity, so executed rectification on such capacities, mainly intermediate frequency furnaces. A few plants using intermediate frequency furnaces in northern Jiangsu have been dismantled. Power supply for plants using intermediate frequency furnaces in northern Jiangsu was cut off to suspend their production. Some intermediate frequency furnaces in southern Jiangsu were also forced to cease production.

    Intermediate Frequency Furnace Not Equal to Low-Quality Steel

    Intermediate frequency furnace is a type of electric induction furnace, which uses scrap steel as raw material, with low investment, low volume and simple production requirements. It is mainly used to produce rebar, or a small part of section and strip steel.

    Economic and trade industry letter 2002 (156) defined that low-quality steel means steel using scrap steel as raw material and melt with induction furnace, whose ingredient and quality is difficult to control and rolled steel produced with the former.

    Low-quality steel can be defined by quality and production requirements:

    1. Product quality is poor, and does not have the mechanical properties of ordinary steel, with low strength, stiffness and melting point, and porosity, and is easy to break 2. Chemical composition is disordered, and can not play its due role.

    Intermediate frequency furnace’s steelmaking technique and quality of scrap steel used to produce steel have improved noticeably. Some steel plants using intermediate frequency furnaces purify by oxygen and argon blowing, or using refining devices. Some plants equipped environmental protection facilities this year given strict environmental protection requirements. Low-quality steel produced by these regular steel plants using intermediate frequency furnace still differs from that produced by small workshops.

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    China releases five-year plan for cleaner air, water, soil

    China's State Council has released a national plan on environmental improvements for the 13th Five-Year Plan period (2016-2020), detailing tasks to cleanse polluted air, water and soil.

    The plan set the goals of a more environmentally friendly way of living, considerable reduction of major pollutants, effective control of environmental risks, and a sounder ecological system by 2020.

    To achieve those targets, the State Council asked Beijing, Tianjin and Hebei, as well as regions along the Yangtze River Economic Belt to draw up a red line, or bottom line, for ecological protection by the end of 2017, while other areas should come up with a red line before the end of 2018.

    Consumption of coal, which is a major source of pollution in China, will be strictly controlled.

    Beijing, Tianjin, Hebei, Shandong, regions along the Pearl River and Yangtze River Delta, and the 10 cities with the worst air quality should realize negative growth in coal consumption, according to the plan.

    Specifically, coal use in Beijing, Tianjin, Hebei, Shandong, Henan, and regions along thePearl River Delta should drop by around 10 percent during the 2016-2020 period, while consumption in Shanghai, Jiangsu, Zhejiang and Anhui should fall 5 percent.

    China's environmental protection still lags behind its economic status, and decades of breakneck growth have left the country saddled with problems such as smog and contaminated waterways and soil.

    Northern China has frequently been choked by winter smog, showing the war on pollution is an urgent and arduous task.
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    British power producer Drax plans to buy Opus Energy for 340 mln pounds

    British power producer Drax plans to buy Opus Energy for 340 mln pounds

    British power producer Drax Group Plc plans to buy energy supplier Opus Energy for 340 million pounds ($434 million) and will also purchase four gas power plant projects as it seeks to diversify across energy markets, it said on Tuesday.

    Drax operates Britain's biggest power station in Yorkshire, which it converted so that 70 percent of the electricity produced comes from biomass rather than coal.

    In its half-year results presentation in July it said it was looking at options to improve earnings and diversify across markets it operates in - wood pellet supply, power generation and retail.

    As part of that process the company said it "has entered into a conditional agreement" to buy Opus Energy and would also pay 18.5 million pounds to buy four open cycle gas turbine (OCGT) development projects to diversify its power generation mix.

    Opus Energy is Britain's sixth-biggest business energy supplier, providing electricity and gas to over 260,000 UK locations.

    Drax said that five of its shareholders, representing more than 45 percent of its issued share capital, have said they will support the purchase of Opus.

    In a separate deal Drax will buy four OCGT projects which have a total capacity of around 1.2 gigawatts, it said.

    "The acquisition of four OCGT development projects ... will play an important role in helping government meet their ambition of new gas generation," Drax's Chief Executive Dorothy Thompson said in a statement.

    Britain faces a supply crunch over the coming winters as nuclear reactors age and coal plants are forced to close by 2025. The government is trying to encourage new gas plants to be built to help plug the supply gap.

    Drax said it could convert more units at its plant in Yorkshire to biomass from coal "with the right conditions".

    The company said it still expects full-year EBITDA to be around the bottom of the range of current market forecasts.

    Market forecasts were for 146-185 million pounds in July.

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    German spot power prices at 2016 high on low wind; curve declines continue

    German and French day-ahead power prices rose Monday amid low wind output, but contracts further out continued to fall with the mild weather outlook now stretching into the week before Christmas, while forward power fell further with EUA carbon allowances now trading just above their lowest in three years, after falling over 30% since mid-November, according to sources.

    German year-ahead baseload power, the benchmark for European power, was heard just before noon London time at Eur29.40/MWh, down 55 euro cent from Friday's close which saw the contract fall below Eur30/MWh for the first time since early October.

    EUA carbon allowances extended their decline trading below Eur4/mt for the first time since September, when the contract hit a three-year low. Carbon allowance prices have shed over 30% after trading just above Eur6/mt early November.

    Front-year coal into Europe also eased, down 60 cents on the day to $64.65/mt with the slight drop offset by a stronger euro against the dollar as markets largely shrugged off the Italian referendum.


    In Germany, day-ahead baseload was last heard OTC at Eur51.25/MWh, up Eur5.50 from Monday's price Friday as wind output was seen sharply below average levels.

    Epex Spot settled Tuesday above OTC at Eur58.33/MWh baseload and Eur70.55/MWh peakload, the highest spot settlements so far this year.

    Wind power output was forecast to dip below 2 GW Tuesday after reaching peaks above 30 GW last Friday, according to EEX Transparency and

    Further out, however, wind was again forecast to rise sharply possibly reaching peaks above 20 GW by Thursday, the forecast showed. Conventional plant availability for hard coal and lignite was pegged at 33.6 GW Tuesday with nuclear adding 10.1 GW, data from EEX Transparency showed.

    Further out on the prompt, week-ahead baseload shed Eur1.50 to trade below Eur37/MWh, with the final full working week before Christmas trading at Eur36/MWh.

    In France, day-ahead baseload power was last heard trading on the OTC market at Eur66/MWh, while peakload was last heard at Eur72.75//MWh.

    Epex Spot settled day-ahead power higher on the day with baseload at Eur66.21/MWh and peakload at Eur73.35/MWh.

    French demand for electricity was set to increase Tuesday to a high of 78.6 GW in the morning peak hours, up from 77.3 GW Monday during the same hours, data from French grid operator RTE showed, as temperatures were seen hovering just below the seasonal norm.

    Further out, however, temperatures were set to rise above the norm damping demand and confirming the bearish signal to the market with Q1 and Cal 17 registering another massive drop, falling over Eur3 from Friday's close to trade at Eur63/MWh and Eur38.50/MWh respectively.
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    Vedanta Plans $5.9 Billion India Spend on Turn in Resource Cycle

    Billionaire Anil Agarwal plans to invest $5.9 billion over the next three years across his oil production and metals businesses in India, predicting a positive turn in the commodity cycle.

    Cairn India Ltd., the nation’s largest onshore crude producer, will invest $4.4 billion to increase output by as much as 250,000 barrels a day of oil and gas from around 200,000 barrels currently, said Agarwal, chairman of London-listed parent Vedanta Resources Plc. It aims to contribute half of India’s domestic oil output, he said. The South Asian economy’s biggest base metals company Vedanta Ltd. will invest $1.5 billion, according to Agarwal.

    The spending comes as the International Energy Agency expects India to be the fastest-growing oil consumer through 2040, adding urgency to Prime Minister Narendra Modi’s push to reduce a dependence on fuel shipments. The $2-trillion economy imports more than 80 percent of its crude needs. Agarwal is in the process of combining Cairn and Vedanta to create an Indian resources heavyweight to compete with the likes of BHP Billiton Ltd., with the transaction expected to be completed by the end of March.

    “India has a lot of hydrocarbon and we want to produce more oil and gas in India,” Agarwal said. “We have explored only 10 percent of our resources and we have better resources than even China. We hardly produce anything.”

    Oil prices will be around $50 a barrel after the Organization of Petroleum Exporting Countries reached a deal to reduce output targets, Agarwal said. Brent crude traded at $53.95 a barrel at 4 p.m. in Singapore, after gaining 15 percent last week in its biggest weekly advance since January 2009.

    Cairn expects to soon get approval for a 10-year extension for a block in the northern state of Rajasthan, with plans to increase oil and gas production by 100,000 barrels a day each, Agarwal said. The company wants the government to allow it to charge international prices for crude from the block, he said.

    “We will be looking how we can partner people on the technical side, who can help us develop our resources, to develop our gas reserves,” Agarwal said. “We are open to partner with big oil companies. We have no serious talks at the moment.”
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    Libyan forces take control of Islamic State holdouts in Sirte - spokesman

    Libyan forces took control on Monday of the final cluster of buildings where Islamic State militants were holding out in their former North African stronghold of Sirte and are securing the area, a spokesman said.

    Forces led by brigades from Misrata and backed by U.S. air strikes "control all of Sirte's Ghiza Bahriya neighbourhood and are still securing the area," spokesman Rida Issa told Reuters.

    There was no official announcement that Sirte had been taken. Earlier on Monday, more than a dozen Islamic State fighters clinging on in Sirte surrendered to Libyan forces, officials said.
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    China Southern Power Grid Jan-Nov power sales up 4.6pct on year

    China Southern Power Grid, a state-owned company that transmits and distributes electricity to China's five southern provinces, reported total power sales of 829.4 TWh over January-November, up 4.6% on year, compared with an increase of 4.3% in the first ten months, showed the latest data from the National Development and Reform Commission (NDRC).

    Of this, power consumption of Hainan and Guangxi rose 6% and 5.8% on year, compared with increases of 7.1% and 4.5% over January-October.

    Guangdong and Guizhou followed with power use climbing 5.5% and 4.3% on year, compared with a rise of 5.5% and 3.6% in the first ten months, the NDRC data showed

    Yunnan posted a decline of 0.3% in its power consumption over January-November, compared with a drop of 0.4% in the first ten months.

    In November, electricity sales of the company stood at 75.9 TWh, up 8.8% from the year-ago level.

    Guizhou, Guangxi, Hainan, Guangdong and Yunnan all saw climbing power use in the month, with year-on-year growth at 14.5%, 20.8%, 2.3%, 6.1% and 6.6%, respectively.
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    EU blames China for WTO environmental trade talks collapse

    Europe's trade negotiator blamed China on Sunday for scuppering a global environmental trade deal by submitting impossible late demands at World Trade Organization talks aimed at scrapping import tariffs on exports worth more than $1 trillion.

    "China came in with their list, bringing in totally new elements of perspective, which was very late in the process," European Trade Commissioner Cecilia Malmstrom told Reuters.

    The change of U.S. president also puts a big question mark over the future prospects for a deal.

    European resistance to Chinese bicycle imports has also been a stumbling block, although Malmstrom said bicycles had become totemic for China and nobody else, and the agreement went far wider, adding that the EU had "quite cheap bicycles already".

    Malmstrom was co-chair of the talks, which aimed to cut costs for environmentally beneficial goods by removing trade tariffs applied to them, with U.S. Trade Representative Michael Froman, who declined to comment as he left.

    "Had that (China's list) come earlier we could have worked on this. But now this made it impossible to find an agreement, we were too far away from each other," Malmstrom said.

    China's Ministry of Commerce said in a statement that China had made great efforts to show the flexibility needed to effectively solve the participants' core concerns, but the meeting failed due to "differences on key issues".

    U.S. Ambassador to the WTO Michael Punke told reporters: “The United States worked hard to find a creative path to a successful EGA agreement. Unfortunately not all participants were ready to contribute to success.”

    WTO spokesman Keith Rockwell said it was disappointing that talks had not succeeded but many delegations were strongly committed to getting a deal and hoped for success in 2017.

    Malmstrom said she had no idea what U.S. President-elect Donald Trump thought about environmental matters, but she hoped the United States would be "on board". Any deal would need the backing of countries responsible for about 90 percent of the trade in the products, so a U.S. absence would kill the talks.

    But the participants, who include Canada, Japan, Israel, South Korea, Taiwan, Australia and New Zealand, have not yet decided which products should be part of the hoped-for Environmental Goods Agreement.

    The discussion included products for clean and renewable energy, energy efficiency, controlling air pollution, managing waste, treating waste water, monitoring the quality of the environment, and combating noise pollution, the WTO said.

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    Italy referendum: Matteo Renzi to resign after defeat as Austria rejects far right


    Italian prime minister Matteo Renzi has said he will resign on Monday after voters dismissed his plans for constitutional reform in a crushing referendum that saw close to 60% of voters opt for “no”:

    My experience in government ends here … I did all I could to bring this to victory. If you fight for an idea, you cannot lose.

    Renzi’s departure – and the prospect of politically uncertain months ahead – prompted the euro to fall to a 20-month low against the dollar.
    The referendum on constitutional reform was seized upon by populist groups including the Five Star movement and the anti-immigration Northern League (Lega Nord), which called for snap elections. Matteo Salvini, leader of the Northern League, bracketed the result with Donald Trump’s win in the US, Vladimir Putin, and support for France’s far-right presidential candidate Marine Le Pen:


    Far-right Freedom party candidate Norbert Hofer was beaten in the presidential election re-run by Green-turned-independent Alexander Van der Bellen.
    Hofer conceded after early results showed Van der Bellen ahead on 53.3%.
    The new president said the result was a “signal of hope and change to all the capitals in Europe”; with Green politician Werner Kogler hailing it as a small global turning of the tide in these uncertain, not to say hysterical and even stupid times.

    Hofer called the intervention of former Ukip leader Nigel Farage – who had claimed the far-right candidate would call a Brexit-style referendum for Austria to leave the EU – a “crass misjudgment”:

    It doesn’t fill me with joy when someone meddles from outside.
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    Oil and Gas

    South Korea top of the list as US' Continental mulls oil exports

    South Korea is at the top of the list for Continental Resources as it mulls over potential export destinations for crude and condensates, chairman and CEO Harold Hamm said Thursday.

    Hamm said exports of oil were a feature of Continental's longer term production growth plan, as US producers in general are looking to increase production amid higher crude oil prices.

    South Korean buyers have been among the friendliest buyers reaching out to US producers, since the US lifted an effective ban on exports at the end of 2015.

    "The first people that called me to congratulate on lifting the ban was South Korea," said Hamm, adding that the country was top of the list of possible lifters going forward.

    Hamm said Continental wouldn't completely rely on traders buying crude for export and bringing the oil to export destinations through arbitrage in the spot markets. "Continental is capable of making those deals without other parties," said Hamm.

    After hitting a record high in September, US crude exports fell 201,000 b/d to 491,000 b/d in October as Suezmax freight spiked and the Brent/WTI spread narrowed, an S&P Global Platts analysis of US Census Bureau data released earlier this week showed.

    As a result of rising freight and the narrowing Brent/WTI spread, US crude exports to Europe fell from a record 209,000 b/d in September to just 68,000 b/d in October. In September, the US recorded 99,000 b/d in shipments to Singapore -- another record -- but the flow dried up completely in October.
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    Petronas’ PFLNG Satu produces first LNG offshore Malaysia

    Petronas’ first floating LNG facility, the PFLNG Satu, has produced first drop of the chilled fuel from the Kanowit gas field offshore Sarawak, Malaysia.

    Designed to last up to 20 years without dry-docking, the 365-meter long PFLNG Satu is expected to be able to produce 1.2 million tonnes of LNG per year.

    “The operational milestone marks a decade long journey for Petronas since conceptualising a floating LNG facility to maximise the potential of remote and stranded gas reserves to deliver a game changer in the global LNG business,” the Malaysian energy giant said in a statement on Friday.

    PFLNG Satu reached its final stages of commissioning and startup with the introduction of gas from the KAKG-A central processing platform at the Kanowit gas field on November 14.

    The gas is treated and liquefied via its Nitrogen-based liquefaction unit – the heart of the FLNG, and processed into the first drop of LNG.

    PFLNG Satu is expected to lift its first cargo and achieve commercial operations in the first quarter of 2017, according to Petronas.
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    US oil production unlikely to rise much through all of 2017: Hamm

    US production of crude oil will take around 18 months to recover to the multi-decade highs seen in 2015, and total US production is unlikely to change much throughout 2017 from the current rate of around 8.6 million b/d, Harold Hamm, chairman and CEO of energy group Continental Resources, said Thursday.

    Speaking at the S&P Global Platts Global Energy Outlook Forum in New York, Hamm said OPEC appeared to be targeting a crude oil price of between $50/b and $65/b, as part of its broad agreement to curtail production from 2017, and noted that WTI and Brent crude futures had been trading at around $55/b in recent days.

    "At those prices it's going to be slow. You need about 18 months before you see some recovery [in US crude production] at $50-$55 oil," said Hamm. "I don't see it changing meaningfully from this year," he added, when asked where US production was likely to be at the end of 2017.

    The US Energy Information Administration forecast Tuesday that US crude production would average 8.86 million b/d in 2016, up 20,000 b/d from last month's forecast, and 8.78 million b/d in 2017, up 50,000 b/d from last month's prediction and 740,000 b/d higher than the Energy Information Administration's US supply forecast from April.
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    Which US Independents will increase production in 2017?

    A slow pick-up in the price of oil comes with a gradual recovery of prices.  But companies have spent much of 2016 cutting costs and de-leveraging assets.  We looked at what it will take for US Independents to grow production in 2017 and how that translates into commercial opportunities.

    Cash-flow neutrality is the name of the game

    Cash-flow neutrality means living within your means and not using any debt to fund your day-to-day operations.  Debt seems to be a way of life for companies these days.  We examined the oil price required for companies to achieve the elusive cash-flow neutrality. Growth and cash-flow neutrality are mutually exclusive goals for all but a handful at US$50/bbl WTI, but most companies could self-fund 10% growth at US$60/bbl.

    Image title

    We believe that the pace of growth of tight oil will be the biggest wild card in 2017

    -Kris Nicol, Principal Analyst Corporate Research

    A return to material self-funded growth requires >US$55/bbl

    We estimate that our peer group of the 17 largest US Independents requires an average of US$50/bbl WTI in 2017 to be cash-flow neutral and replace production declines; US$57/bbl and US$63/bbl is required to grow at 5% and 10%, respectively. Three companies can achieve self-funded double-digit growth in 2017 at
    Production could decline even with increased spending

    We estimate that half of the companies’ production would decline if capex remained flat from 2016 to 2017; several require >40% increases just to offset declines. Southwestern and Chesapeake face the biggest challenge. Companies with inventories of high-impact wells (Pioneer and Range) and those with production support from international assets (Marathon, ConocoPhillips, Hess) require less capital to generate growth. Delivering 10% growth across the peer group in 2017 would require US$19 billion more capex than 2016 and translate to a US$11 billion cash-flow deficit in our base-price scenario.

    Flexibility will be incorporated into 2017 planning process

    Several companies have already provided preliminary 2017 guidance, much of which aligns with our analysis. But we expect activity plans to remain dynamic, with activity ultimately determined by oil and gas prices, capital availability, M&A activity, hedging activity, shifting cost structures, and development optimisation.

    To find out which companies are best positioned to grow in 2017, fill in the form on this page to watch our exclusive video.

    Find out about the outlook for Diversified Independents on our post, Diversified Independents: How diverse can they remain?

    Attached Files
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    Harold Hamm om Bakken IRR's

    Harold Hamm at PlattsGEOF: Continental Resources gets 40% IRR in their core plays in the Bakken at $40/b-$50/b oil.

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    Japan's Jera says to receive first US Sabine Pass LNG cargo early Jan

    Japan's Jera says to receive first US Sabine Pass LNG cargo early Jan

    Jera Co, a joint venture between Japan's Chubu Electric and Tokyo Electric Power Co, is expected to receive its first cargo from US Sabine Pass in early January, Jera said Thursday.

    Chubu Electric in 2014 signed a short-term contract with Cheniere Marketing International to buy a total 700,000 mt of LNG from the US Sabine Pass project over July 2016-January 2018.

    The cargo loaded on the Oak Spirit left Sabine Pass on Wednesday and is expected to arrive the Joetsu terminal in Japan in early January, the utility said.

    An official at Jera said Sabine Pass cargoes have no destination restrictions and therefore some of the future Sabine Pass cargoes Jera will receive under the contract could be diverted, but he did not give details.
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    LNA retake Ben Jawad and Nufliya

    The Libyan National Army (LNA) says it has recaptured the towns of Ben Jawad and Nufliya from the military force that took them early this morning. It says that four of it soliders were killed and eight wounded in the counter-offensive and that eight of the attackers were also died.

    For its part, the Presidency Council and its defence ministry have denied any involvement in today’s moves aimed at seizing the Sirte basin oilfields and terminals from the LNA.

    Meanwhile, there has been wave of condemnations of the events from both sides of the Libyan divide and the National Oil Corporation (NOC) has ordered all non-essential staff to leave the Sidra oil terminal.

    “Our first concern is for the safety of our personnel,” said NOC chairman Mustafa Sanalla who indicated that although there has been no declaration of force majeure in relation to Sidra, it would happen if there were any deterioration in the situation.

    An engineer at the terminal was reported saying that the attackers had fired rockets towards the terminal which is 30 kilomtres from Ben Jawad.

    The initial capture of the two towns was at first said to have been carried out by forces under the control of the Presidency Council’s defence minister Al-Mahdi Al-Barghathi and Petroleum Facilities Guard (PFG) chief Ibrahim Jadhran. The LNA now says that the attackers were members of the militant Benghazi Defence Brigades, the grouping of Benghazi militias that were part of the Benghazi Revolutionaries Shoura Council but forced out of the city earlier this year by the LNA and fled to Tripoli.

    According to Colonel Muftah Al-Magarief, who was appointed by the LNA as head of the PFG in place of Jadhran, the recapture of the two towns followed air strikes on the BDB. In the counter-attack, he added, equipment had been captured as well as a number of the BDB’s commanders. This included, allegedly, a member of the Temporary Security Committee (TSC) set up by the Presidency Council to provide it with an independent military force.

    The PC has denied that it was “in any way involved” in the attacks, although it also said that there has been a decision to set up an operations room to retake the oil crescent. The PC’s defence ministry similarly denied issuing any orders to retake the towns. It had, it added, launched an investigation into who had been involved in the decision to attack. It accused the BRB of undermining the legitimacy of the PC.

    The BRB is part of the alliance of hardliners supported by the grand mufti Sadeq Al-Ghariani which is firmly opposed to the PC and the Libyan Political Agreement.

    Condenation of the attacks came from House of Representatives President Ageela Saleh as well as Misratan politician Belgassem Igzeit, who is a member of the State Council and who said that if it were shown that Barghathi had been involved, he would have to resign.

    UN Special Envoy Martin Kobler has called for calm in the oil crescent area.
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    Asian LNG prices rise above $8/mmBtu

    Prices for liquefied natural gas (LNG) have increased to their highest since mid-2015 in Asia, boosted by plans by OPEC and Russia to cut crude oil production.

    Spot prices for Asian LNG increased 50 cents from last week to around US$8.1 per million British thermal units (mmBtu), Reuters reported on Thursday.

    The news agency cited traders as saying that the main drivers behind the rise in prices were a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producer Russia to slash crude output to pump up prices, as well as cold weather in northern Asia and Europe that lifted LNG demand for heating and power generation use.

    To remind, these factors also boosted last week’s prices to their highest in 2016 at that time.

    “Higher oil prices will translate into higher LNG import prices for the majority of LNG consumers,” consultancy Wood Mackenzie said in a report on the impact of the OPEC deal on the LNG markets on Thursday.

    “Currently, around 80% of LNG supply is sold on contracts that price LNG as a function of oil. But indexation varies widely. For every $1/bbl increase Brent, expect a $0.07- $0.15/mmbtu increase in oil-indexed LNG contract prices,” Wood Mackenzie said.
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    With depressed oil prices, producers find solace in the Viking play

    The Viking play in western Canada has become a staple for oil producers seeking low-cost, high-quality oil production.

    Wells producing Viking oil can been drilled for as low as $620,000–in the case of Whitecap Resource’s Saskatchewan property. Typically, wells are drilled, completed and tied-in for $0.75 – $1.2 million. These low cost wells offer lower risk opportunities for producers compared to prolific tight oil plays which get higher production rates, but at much higher costs. Viking oil is also high quality with an API of 36-40 degrees.

    These factors have kept drilling into this formation remarkably resilient during the oil price downturn. So far this year, over 1,000 Viking wells have been drilled. Teine Energy and Raging River Exploration have been dominant in the play, drilling over 300 locations each.

    The play has also experienced tremendous M&A activity with over $1.2 billion in transactions completed year to date. The average deal fetches a respectable $50,000-$60,000 per boe/d.
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    China teapots to extend oil buying spree into 2017

    China's small, independent refiners are set to raise their crude oil imports again in 2017 on expectations that Beijing will keep their intake quotas steady, market participants said, a move that should help eat up some of the global supply glut.

    Officials at three independent refineries and an official involved in national import policy said they expected the government to keep next year's crude oil import quotas for independents unchanged to slightly higher.

    Called "teapots" due to the small capacities of their plants compared with the big state-run refineries, the independents made up nearly 90 percent of China's crude oil import growth this year, helping to put the world's No.2 economy on course to challenge the United States as the top importer.

    Next year, teapots will contribute 200,000-400,000 barrels per day (bpd) to China's crude import growth, out of an overall import rise of 500,000-700,000 bpd, according to estimates from research consultancy Energy Aspects.

    "For the teapots, crude imports (and ensuing product sales and exports) are also an opportunity to expand their share of the domestic retail market and to develop a regional footprint in Asia and potentially beyond," said Michal Meidan, an Energy Aspects analyst.

    In 2016, China has raised its imports by nearly 900,000 bpd on average, more than enough to supply the whole of the Netherlands, thanks largely to 17 new teapot buyers.

    Thomson Reuters Research and Forecasts estimates teapots will import about 5 million tonnes of crude oil in December, or 1.18 million bpd, highest since the independents were allowed to staring importing crude in mid-2015.

    That compares with an average of 31.3 million tonnes of total crude imports a month for the first 11 months of the year.

    Shandong Chambroad Petrochemicals Co, a teapot granted with 3.31 million tonnes in annual import quotas (66,000 bpd), said it expects little change in quota policy for the coming year.

    "It was a major policy decision for the government to let teapots import foreign crude, and we have not noted any change," said Chambroad's spokeswoman Sun Chaoyang.

    An official with China Petroleum and Chemical Industry Federation, which screens potential new importers, agreed, saying the agency expected to grant one or two new approvals before year-end.

    Teapots now have some 1.26 million bpd in crude quotas, and their rise in the market has forced state refiners to scale back some refinery operations and sent China's fuel exports surging to record highs.
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    Brazil's audit court asks Petrobras to pause new asset sales

    Brazil's federal auditing court (TCU) asked state-controlled oil company Petrobras on Wednesday to temporarily suspend its divestiture program while the court reviews asset sales procedures.

    The decision could delay Petrobras efforts to raise $15.1 billion from asset sales by the end of 2016 as a way to reduce its huge debt -- the largest in the global oil industry.

    The company wants to raise $19.5 billion more in 2017 and 2018.

    The court said five ongoing Petrobras asset sales that are nearing conclusion can be finalized, accounting for around $3.3 billion, but asked the company to refrain from signing any new sale plans 'until new order.'

    There is no date set for a final ruling by the court.

    TCU's decision follows recommendations from its experts about procedures used by Petroleo Brasileiro SA, as the company is formally known, on the asset sales.

    According to the decision published on Wednesday, the court thinks the company should be much more transparent in its divestiture program as it is a state-controlled entity.

    Laws governing public entities in Brazil require ample disclosure of business information.

    There is a debate among lawyers regarding to what degree those laws would apply to a company that is also owned by private investors, as is the case with Petrobras.

    Petrobras said the TCU ruling is positive in a sense, since it allows the firm to close deals that were near completion. It said it plans to comply with the court's determination.

    "The company is already reviewing its divestment procedures and is committed to following the court's recommendations for improvements," Petrobras said in a statement.

    Petrobras reaffirmed its targets to raise $15.1 billion by end-2016 and $19.5 billion more in the next two years.

    Although the TCU said it would let Petrobras conclude deals that are already well-advanced, it is not clear how many of the recent transactions the oil company would be able to finalize if it strictly follows the court's order.

    Petrobras's Chief Executive Officer Pedro Parente said 10 days ago that the firm had raised close to $11 billion in asset sales so far and that it intended to reach the $15.1 billion target by the end of December.

    Brazil's audit court asks Petrobras to pause new asset sales
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    Iraq Can’t Count on Kurds or Oil Companies for Help on OPEC Cuts

    Iraq can’t count on the self-governed Kurds in the north or international oil companies to help it cut crude production as promised at an OPEC meeting last week. That may leave the country with no option but to slash state-controlled supplies to comply with its quota.

    Under the deal the Organization of Petroleum Exporting Countries reached last Wednesday, Iraq must reduce crude output by 210,000 barrels a day from October levels. But to achieve that, OPEC’s second-biggest producer may have to rely on the crude it fully controls. International companies including BP Plc and Royal Dutch Shell Plc pump most of Iraq’s oil, and the semi-autonomous Kurds contribute more than half a million barrels a day on top.

    “It looks complex for Iraq to deliver all the cuts it signed up to,” Richard Mallinson, an analyst at consultant Energy Aspects Ltd, said by phone from London. “In most cases the international oil companies will probably not be ready to do it on their fields.”

    OPEC’s first production cuts in eight years will be a shock for Iraq. The group’s second-largest producer has had no output target since the 1990s as it recovered from conflicts. Iraq resisted having a target now, arguing it needed every dollar to fight Islamic State militants, but relented under pressure from other OPEC members.

    Iraq is unique among OPEC members in sharing production with a self-governing region that accounts for about 12 percent of its total output. Iraq pumped 4.58 million barrels a day in November, according to data compiled by Bloomberg.

    Oil Minister Jabbar Al-Luaibi earlier disputed OPEC’s data on Iraqi production and insisted he wouldn’t agree to a cut. He eventually conceded on both points after coming under pressure in last month’s meeting and placing a phone call to Prime Minister Haider Al-Abadi, who supported the deal, according to two OPEC delegates.

    The Kurdistan Regional Government in northern Iraq controls about 550,000 barrels a day of oil production -- as much as OPEC member Ecuador. The KRG is so far indicating it doesn’t plan to scale back its production.

    KRG officials haven’t spoken yet to the Oil Ministry in Baghdad about the OPEC deal, Natural Resources Minister Ashti Hawrami said Monday at a conference in London. OPEC’s agreement probably won’t have much effect on the KRG, he said. Iraq’s Oil Ministry spokesman Asim Jihad declined to comment.

    The two operating companies pumping the most oil in the KRG have no plans to reduce output. KAR Group, a local company producing about three-fifths of the Kurdish region’s oil, hopes to increase its output next year by 40,000 barrels a day, President Baz Karim said at the London conference. Norway-based DNO ASA, the Kurdish region’s second-largest producer, hasn’t received any indication that it’s expected to pump less oil, Executive Chairman Bijan Mossavar-Rahmani said last week.

    Outside Iraq’s Kurdish enclave, almost 90 percent of the country’s oil production comes from fields operated by international companies, Oil Ministry data from September show. These companies could charge the ministry a curtailment fee under their contracts if they are ordered to decrease production, Deputy Oil Minister Fayyad Al-Nima said in October at a news conference in Baghdad.

    Iraqi state-run oil companies pump 440,000 barrels a day but export only 280,000 of this through the southern port of Basra. They export the remainder, from northern fields around the city of Kirkuk, to Turkey through a Kurdish-owned pipeline. The Oil Ministry shares the revenue from these sales with the KRG under a deal the two sides reached in August.

    “Cutting that off would clearly raise tensions with the KRG,” Mallinson said.
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    Crescent Point boosts 2017 capital budget to C$1.45 billion

    Dec 7 Canadian light oil and gas producer Crescent Point Energy Corp said on Wednesday it will increase its 2017 capital budget 31 percent from this year to C$1.45 billion ($1.10 billion) and boost production by 10 percent.

    The Calgary-based company, which has core operations in southwest Saskatchewan, the Williston Basin and the Uinta Basin in the United States, expects to finish 2017 producing 183,000 barrels of oil equivalent per day.

    Crescent Point previously set a preliminary 2017 budget of C$1.4 billion.

    The updated guidance is the latest sign of cautious optimism among Canadian oil and gas producers after more than 2-1/2 years of weak prices and aggressive cost cutting.

    "We've had a very successful 2016 operationally and are ahead of our budgeted December exit production of approximately 167,000 boepd," Scott Saxberg, Crescent Point's president and chief executive officer, said in a statement.

    The company plans to drill 670 wells next year and has allocated 51 percent of its budget to the Williston Basin, which spans the U.S.-Canada border and is Crescent Point's largest producing area.

    Twenty-five percent of capital expenditures are earmarked for southwest Saskatchewan, while 18 percent of the budget will be spent on the Uinta Basin in Utah.

    The remainder of the budget will cover infrastructure and seismic investments in its three core areas, Crescent Point said.

    Attached Files
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    Chevron sets 2017 capital budget, in 4th year of spending cuts

    Oil and gas major Chevron Corp  on Wednesday announced a $19.8 billion capital and exploratory investment program for 2017, down 42 percent from its outlays in 2015.

    The 2017 budget is expected to be at least 15 percent lower than projected 2016 capital investments, Chevron said.

    "This is the fourth consecutive year of spending reductions," Chief Executive John Watson said in a statement. "This combination of lower spending and growth in production revenues supports our overall objective of becoming cash balanced in 2017."

    The 2017 capital budget will target high-return investments and completion of major projects under construction, Watson said.

    Chevron said in March it would slash its capital budget by as much as 36 percent in 2017 and 2018.

    Construction is nearing completion on several major capital projects, which are now online or will come online in the next few quarters.

    San Ramon, California-based Chevron reported a drop in third-quarter profit in October, but the results beat expectations as cost cuts in the company's U.S. oil production division helped mitigate some of the impact of low crude prices.
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    Kremlin says Glencore, Qatari fund to buy 19.5 pct stake in Rosneft

    The deal, to acquire a 19.5 percent stake in Rosneft from the Russian state, suggests the lure of taking a share in one of the world's biggest oil companies outweighs the risks that come with Western sanctions imposed on Russia over the conflict in Ukraine.

    It pointed to a possible reassessment by foreign investors of the risks of dealing with Russia, at a time when the election of Donald Trump as U.S. president has heightened expectations of a thaw between Moscow and Washington.

    The deal was announced days after Russia and OPEC agreed to coordinated output cuts to support oil prices, the first time they have cut in tandem in 15 years.

    State-owned Rosneft had kept the deal a tightly-guarded secret, with the first word emerging when Russian President Vladimir Putin met Rosneft Chief Executive Igor Sechin on Wednesday evening in Moscow.

    "It is the largest privatisation deal, the largest sale and acquisition in the global oil and gas sector in 2016," Putin said in televised remarks from the meeting.

    Under the deal, according to Sechin, Glencore and Qatar's sovereign fund will take equal shares of the 19.5 percent stake in Rosneft, which is being sold by the government as part of a privatisation drive.

    Rosneft has a market value of $59.17 billion, according to Reuters data, which suggests that the deal was done with a 2 percent discount to the market price.

    Glencore said in a statement it would finance part of the deal by putting up 300 million euros of its own equity, with the rest financed by banks and by the Qatari sovereign fund, the Qatar Investment Authority.

    The Qatari fund, which could not immediately be reached for comment, is one of the biggest investors in Glencore.

    Russian officials were jubilant that Rosneft had pulled off a deal which will deliver a large chunk of the cash they need to fill gaps in the state budget caused by an economic slowdown and sanctions.

    "Money has no smell," a government source told Reuters when asked about the outcome of the deal.


    Putin congratulated Sechin, one of his closest lieutenants, on the deal and said he hoped that the consortium of new investors would improve Rosneft's governance and transparency and would raise its market value.

    "Given the very difficult economic circumstances and the extremely tight deadlines for this kind of project, I can report to you that we were able to land this deal thanks to your personal contribution, your support," Sechin told Putin.

    Glencore stands to benefit from the deal by gaining access to Rosneft's crude volumes. It said that under the deal, it would conclude a new five-year offtake agreement with Rosneft giving it an extra 220,000 barrels a day to trade.

    To date, Glencore's rival Trafigura has been the biggest long-term buyer of Urals crude oil, the grade of oil produced in Russia.

    Qatar, meanwhile, will further establish itself as a major investor in some of the world's biggest businesses. It already owns stakes in such bluechip firms as Volkswagen (VOWG_p.DE) and Credit Suisse.

    Rosneft is subject to U.S. sanctions imposed after Russia annexed Ukraine's Crimea region in 2014. But since the money from the sale of the stake will go to the Russian state, rather than to Rosneft, the sanctions do not directly apply.

    By landing the investors, Sechin will further burnish his standing within Russia's ruling elite. He was already riding high after securing a deal in October to acquire Indian refiner Essar, giving Rosneft a foothold in the world's fastest growing fuel market.

    "He said the money would come," said a second source within the government, referring to revenue from the Rosneft stake sale that was promised to the government. "He killed all the birds with one stone. He showed everyone," said the source, speaking on condition of anonymity.

    When Rosneft this week placed $9.4 billion in domestic rouble bonds, market players assumed that was to fund the buyback of its shares, absent an outside investor.

    But it now appears that, in parallel, Sechin and his aides were trying to hash out an eleventh hour deal to land a foreign investor. Ivan Glasenberg, Glencore's chief executive, was in Moscow on Tuesday, where he was spotted at a mining conference.

    The second government source said the bond issue was a safety net in case the negotiations with the outside investors fell through.

    The deal with Qatar and Glencore was so last minute that it appeared it would not close in time to meet the government's deadline for booking money in the budget from the sale.

    Asked by Putin when the state budget was going to get the money earned from the sale, Sechin said that it was going to come from Rosneft cashflow and from credit finance, organised by one of Europe's largest banks.

    After the deal was announced, the Kremlin said steps would be taken to ensure that the influx of a large volume of foreign currency from the deal would not cause volatility on the Russian forex market.

    Attached Files
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    Santos flags asset sales in turnaround strategy

    Australian oil and gas producer Santos Ltd will cut costs and put some assets up for sale as it looks to cut debt over the next three years, in a turnaround strategy announced on Thursday.

    The company, which counts China's ENN Group as its largest shareholder, has been under pressure to cut debt that peaked last year as it completed its flagship Gladstone liquefied natural gas project, just as oil and gas prices slumped.

    "Santos will target a US$1.5 billion reduction in net debt to less than US$3 billion by the end of 2019 through increased operating cash flow and releasing capital through non-core asset and infrastructure sales," the company said in a statement.

    Investors had been looking for a debt-reduction strategy after the company booked a $1 billion writedown on the Gladstone LNG project in August.

    Santos said the planned assets sales would allow to "simplify the business" and focus on five core natural gas projects in Australia and Papua New Guinea.

    It said 2016 sales volumes were expected to be at the top end of its guidance range of 81 to 83 million barrels of oil equivalent.
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    In Land of World’s Cheapest LNG, Exxon and Total Seen Teaming Up

    The Total SA-led Papua LNG project in Papua New Guinea may export gas via Exxon Mobil Corp.’s existing PNG LNG facility to avoid the expense of building a new plant, Prime Minister Peter O’Neill said. While the cost of developing the country’s natural gas resources are about half those of neighboring Australia, building a multi-billion dollar unit to export the fuel may not be viable in an era of low oil prices, he said in an interview in Sydney on Wednesday.

    “We need to continue to maintain a competitive edge in our country by maintaining cost levels that will ensure the project gets off the ground,” O’Neill said. “If there are areas where we can save costs including sharing the infrastructure there already in the current LNG project, we are quite happy to go along with that.”

    A global supply glut has pushed prices down by more than 60 percent in the past three years, raising questions over how quickly a next wave of LNG supplies will be developed. Buyers have shied away from signing long-term agreements that have historically helped fund new projects, which can take six or seven years to develop.

    The world will need an estimated 175 million metric tons of additional LNG annually by 2030 even after including all the plants that are under construction or have been approved for investment, Richard Guerrant, a vice president with the Exxon’s gas, power and marketing arm, said Tuesday. That would be more than two-thirds of all the LNG produced globally last year.

    The PNG LNG project, operated by Exxon, began production in 2014 from a two-train production unit with a capacity of 6.9 million tons of LNG per year. Exxon is also set to become a major shareholder in the Total-run group planning Papua LNG, the country’s next major gas venture, due to its impending takeover of InterOil Corp.

    LNG in PNG, including development, operational and shipping costs is the world’s cheapest and less expensive than in the U.S., Sanford C. Bernstein & Co. analysts including Neil Beveridge said in Sept. 7 note.

    A Total spokeswoman in Paris didn’t immediately respond to a phone call seeking comment. An Exxon spokeswoman for PNG didn’t immediately respond to a phone call.

    Paris-based Total, which operates the Papua LNG venture, hasn’t ruled out a separate greenfield LNG development and needs to explore the economics of supplying gas to an expansion of Exxon’s PNG LNG plant, the company’s PNG Managing Director Philippe Blanchard said Monday.

    Realistic Outlook

    O’Neill said it was vital the Papua LNG project gets off the ground but the government needs to be realistic about the best method of commercializing its gas resources. It hopes to take discussions forward with companies including Exxon and Total in early 2017.

    “I understand there is good demand for our gas because it is much cleaner than many of the others on the market,” he said. “I do not see a problem in which we will be shut out of the market. In Japan cleaner gas is much preferred to what is being sold by some of our competitors.”

    The PNG government confirmed it will hold talks with resource owners including PNG LNG about diverting some gas supplies to the domestic market, while also tweaking the fiscal terms covering future expansions.

    A sovereign wealth fund is also likely to be introduced in 2017 from energy and mining revenues although O’Neill declined to specify any targets.
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    Summary of Weekly Petroleum Data for the Week Ending December 2, 2016

    U.S. crude oil refinery inputs averaged over 16.4 million barrels per day during the week ending December 2, 2016, 134,000 barrels per day more than the previous week’s average. Refineries operated at 90.4% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.9 million barrels per day. Distillate fuel production decreased last week, averaging 5.1 million barrels per day.

    U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 755,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.0 million barrels per day, 5.9% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 652,000 barrels per day. Distillate fuel imports averaged 106,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.4 million barrels from the previous week. At 485.8 million barrels, U.S. crude oil inventories are at upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.4 million barrels last week, and are well above the upper limit of the average range. Both Finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 2.5 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 1.5 million barrels last week but are near the upper limit of the average range. Total commercial petroleum inventories increased by 1.4 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.6 million barrels per day, down by 1.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.1 million barrels per day, down by 1.2% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the last four weeks, up by 5.7% from the same period last year. Jet fuel product supplied is up 3.6% compared to the same four-week period last year.

    Cushing up 3.8 mln bbl's
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    Tiny drop in US oil production

                                                  Last Week   Week Before  Last Year

    Domestic Production '000 .....8,697           8,699           9,164
    Alaska .......................................... 522              522             525
    Lower 48 .................................. 8,175           8,177           8,639
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    Shell and Total said to sign initial oil deals with Iran

    Royal Dutch Shell Plc and Total SA will sign initial agreements on Wednesday to develop oil and gas fields in Iran, in the first European petroleum deals in the Persian Gulf country since sanctions eased earlier this year, an Oil Ministry official said.

    The companies will sign “heads of agreement,” or non-binding accords, with the ministry to develop the South Azadegan and Yadavaran oil fields and the Kish natural gas deposit, the official said, asking not to be named as he is not authorized to brief the media. He didn’t say which company would develop which of the fields.

    The deals will be the first signed by European companies to develop Iran’s oil fields since sanctions were loosened in January under a deal to curb the Islamic Republic’s disputed nuclear program. Paris-based Total signed a $4.8 billion accord last month to develop an Iranian gas project.

    Shell will sign three memoranda of understanding (MoUs) agreements in Tehran to develop the South Azadegan, Yadavaran oil fields and the Kish gas field, the Iranian Oil Ministry official said.

    The South Azadegan and Yadavaran fields both straddle Iran's border with Iraq.

    Total (TOTF.PA), which last month signed the first deal by a Western energy firm since sanctions were lifted, will start talks about new oil and gas projects but will not be signing any deals on Wednesday, the official said.

    "These preliminary agreements could mark a strong sign of confidence towards the sustainability of the nuclear deal," said Homayoun Falakshahi, Middle East research analyst at Wood Mackenzie.
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    Devon Energy Announces Resource Expansion in the Delaware Basin with Successful Leonard Shale Spacing Test

    Devon Energy Corp. announced today an increase to its risked drilling inventory in the Delaware Basin following a successful Leonard Shale stacked spacing test in southeast New Mexico.

    The Thistle spacing pilot tested 400-foot vertical spacing between the Leonard Shale “B” and “C” intervals in the southwest corner of Lea County, New Mexico. Initial 30-day production rates from this two-well pilot averaged 1,800 oil-equivalent barrels (Boe) per day per well, of which 75 percent was light oil. The Thistle wells were drilled with 7,000-foot laterals at a cost of about $6 million per well.

    Early results from the Leonard Thistle pilot also indicate minimal interference between wells, suggesting potential for joint development of multiple intervals in this portion of the Leonard play. With the success of this stacked spacing test, Devon is now raising its risked inventory in the Leonard Shale to 950 gross locations. This increase in risked inventory represents growth of nearly 20 percent from previous estimates and conservatively assumes only six wells per surface section. The company expects its risked inventory in the Leonard to continue to expand with further delineation work.

    Overall, the company has 60,000 net surface acres in the Leonard Shale play, with gross pay ranging up to 1,100 feet and as many as three different landing intervals. Adding up the Leonard leasehold by target landing interval, Devon has exposure to 160,000 net effective acres. This early-stage development play has potential for greater than 1 billion Boe of recoverable resource.

    “The strong flow rates from the Thistle spacing pilot is another example of the positive rate of change we are achieving in the Delaware Basin and is another critical step in further delineating the massive resource upside associated with our North American onshore portfolio,” said Tony Vaughn, chief operating officer. “In the upcoming year, we plan to continue to accelerate drilling in our world-class Delaware Basin and STACK assets. We expect this increased activity to deliver strong growth in high-margin production and further expand our recoverable resource in the U.S.”

    Devon has one of the best Delaware Basin positions in the industry with stacked-pay potential providing exposure to the Delaware Sands, Leonard Shale, Bone Spring, and Wolfcamp formations. The company’s position is extremely well positioned on the North American cost curve. In aggregate, the company has exposure to 670,000 net acres by formation, with nearly 6,000 risked undrilled locations and greater than 20,000 unrisked locations in this basin.

    Converting the massive and growing opportunity in the Delaware Basin into production and free cash flow is a top priority for the company. Devon remains on track to accelerate drilling activity to three operated rigs by year end 2016. Depending upon cash flow availability, the company has the potential to further ramp-up activity to as many as 10 rigs by the end of 2017. This increase in drilling activity will focus on the Bone Spring, Leonard Shale and Wolfcamp targets.
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    The OPEC Production Agreement: Genscape’s Outlook for an Uptick in U.S. Production

    With the Organization of Petroleum Exporting Countries reaching an agreement to cut production, Genscape expects resulting higher crude prices to spur U.S. producers to add 125 more rigs by mid-2017. A large number of these rigs will go back to work in the West Texas Permian Basin.      

    West Texas Intermediate prices above the 50 dollar per barrel support level should increase levels of drilling and investment, specifically in the Permian Basin, but also across other shale plays including the North Dakota Bakken, SCOOP/STACK in the Midcontinent, Niobrara mostly in Colorado, and South Texas Eagle Ford.  

    The cuts by OPEC members have stirred bullish sentiment towards U.S. producers by offering an opportunity to regain market share. At the same time, a new wave of U.S. production could cap oil prices as production rises. U.S. production is anticipated to grow again in mid-2017, and additional takeaway infrastructure will be required, particularly in the Permian Basin.

    According to RigData, since bottoming in May, oil rig counts increased from 323 to 523 rigs during the week ending December 2, 2016. In the Permian alone, oil rigs have increased by 110 rigs during this time period. This accounts for 55 percent of overall Lower 48 rig count growth and shows that the Permian Basin is presently one of the most economic oil plays.  Other areas have also seen an uptick in rigs since May, but to a lesser extent: the Eagle Ford (+17 rigs), SCOOP/STACK (+15 rigs), Bakken (+8 rigs), and the Niobrara (+6 rigs).

    Each basin, and each new well drilled within these basins, have different economics based on multiple variables, primarily drilling costs, drilling times, initial production rates, and estimated ultimate recovery.  As a result, each play has a different capacity for rigs at various prices. Also, there is a period of time, on average about six months, between a price signal and a rig movement to account for rig contracts and getting crews back to work, hedges that are in place, and cash flow concerns that pose short-term constraints to a producer.

    Considering these factors (that are baked into the lag between a price signal and rigs spudding wells and the week-over-week WTI gain of $5.09 per barrel, week ending December 2, 2016),  Genscape expects 2017 production to decline 91 Mb/d year-over-year, much less than previously thought. This decline is nearly half of the decline of 178 Mb/d expected for 2017 year-over-year that Genscape forecasted in early November (when 2016 WTI pricing fell to $44.07 per barrel in the week ending November 4, 2016). Production is now expected to grow to 8.9 MMb/d by the end of 2017 from current levels of 8.6 MMb/d. After declining since mid-2015, production is expected to grow again in Q3 2017,  the period for which Genscape's forecast has been most impacted by the recent price uptick. The Permian Basin is expected to lead the way, growing 335 Mb/d year-over-year in 2017. Other areas such as the Midcontinent, Bakken, Niobrara, and Eagle Ford will also contribute to the rise in production.

    With the growth projected in the Permian, primary outbound infrastructure could be challenged as early as mid-2017. The only new pipeline project proposed is Enbridge’s Midland, TX,-to-Houston 300 Mb/d line slated to be online in mid-2018. As Enbridge said in their third quarter earnings call, “The pipe is purchased. The right-of-way is all but done, 90 percent of the right-of-way. I think we're looking at April/May of 2018, and we’re going to build the pipe. And we think it’ll be full. Its initial capacity is 300,000 barrels and day, and we’ve got three contracts. So it’s going to be a success.”

    The OPEC agreement to cut 1.2 MMb/d of production is a welcome relief to U.S. oil producers battered since late 2014 by sharp price declines. Uncertainty remains in how quickly U.S. activity will ramp up, though U.S. upstream producers will emerge from this downturn with much leaner cost structures and more efficient operations. As production grows again in late 2017, infrastructure requirements will need to be closely assessed, particularly in the Permian, which is likely to become constrained later next year. The downside risk in the next two years is that U.S. production could ramp too quickly, sending the market toward a relapse in oversupply. But with OPEC taking approximately 1.2 MMb/d off the market, and U.S. production only falling by 800 Mb/d since December 2014, U.S. producers are poised to regain some production losses. To keep up to date on new activity, request a trial of Genscape’s U.S. Crude Oil Production Report.

    - See more at:

    Attached Files
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    Armed groups take control of Libyan town near oil ports: officials

    Armed groups took control on Wednesday of the Libyan town of Ben Jawad, close to some of Libya's major oil ports, as forces loyal to the eastern government, that seized the coastal terminals in September, defended them from the air, officials said.

    Miftah Magariaf, head of the Petrol Facilities Guard in the area, said "terrorist groups" had launched rocket attacks as ground forces advanced but the oil fields had not been affected.

    But the attacks may herald an escalation of the fight for control of the oil ports and for overall power between Libya's many armed factions, which have been at war since a 2011 uprising.

    One eastern security official said the groups approaching Libya's Oil Crescent ports were linked to the Benghazi Defence Brigades, which tried this year to launch a counter-attack against forces loyal to eastern Libyan commander Khalifa Haftar.

    Some of the armed groups' vehicles had been destroyed in air strikes south of the oil port of Es Sider, security sources said. Ben Jawad lies about 30 km (19 miles) west of Es Sider.

    Rajab al-Zwai, an engineer at Es Sider, said some oil workers had been evacuated and fighter jets could be heard overhead. Es Sider is still closed as oil workers carry out repairs to damage from previous fighting.

    A resident in the nearby port of Ras Lanuf also said jets could be heard and reported a security alert, but said the area was otherwise calm.

    Haftar's forces seized control of four Oil Crescent ports from a rival faction three months ago, allowing Libya's National Oil Corporation (NOC) to end blockades at three of the ports and double oil production to about 600,000 barrels per day (bpd).

    Output remains far below the 1.6 million bpd that the OPEC member was producing before the uprising that toppled long-time leader Muammar Gaddafi five years ago.

    Ben Jawad lies 150 km southeast of Sirte, where forces led by brigades from the city of Misrata secured the final buildings held by Islamic State on Tuesday after a military campaign against the jihadist group lasting nearly seven months.

    There have been rumors in recent weeks about a possible counter-attack against the oil ports by forces including the faction that was ousted in September, Islamist-leaning brigades with support from Misrata, and a Haftar rival who was named as defence minister by a U.N.-backed government in Tripoli.
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    BP boss Bob Dudley says firm will double North Sea production, hails “crown jewel”

    BP’s top boss said the oil major would double its North Sea production as he hailed the region as one of the company’s “crown jewels”.

    Bob Dudley sat down exclusively with Energy Voice in his first trip to Aberdeen since 2011.

    The chief executive said: “The North Sea is not only our backyard, it is one of four crown jewels.”

    The oil major will drill five exploration wells next year and 50 new development wells over the next three. Its production is also set to double by 2020 to 200,000 barrels of oil a day. The increase is in comparison to 2015’s output figures.

    The oil boss said: “There’s some hope on the exploration programme, because any one of those wells or prospects could lead to yet another hub of development.

    “You will see portfolio changes for us in the North Sea, but you may see us invest in other projects as people approach us about joining them. So I think there’s a mix, but we should double our production by 2020 from where it was in 2015.

    “We should be over 200,000 barrels a day in 2020 and by then I’m hopeful our exploration programme will lead to more things to do.”

    The operator is expecting first oil form two of its major developments, Quad 204 early next year and Clair Ridge in 2018. It currently has two billion barrels of resource potential in the UKCS, split evenly between its planned production, discovered, and future prospects.

    BP’s production figures have steadily declined since its peak in 2000. However, 2015 marked the start of its five-year turnaround. Production will climb to 209,000 in 2020.

    The global leader also dispelled the “myth” that North Sea industry was over, insisting BP would be pumping oil until 2050.

    “The myth that the North Sea is finished is absolutely that. It’s a wrong myth,” he said.

    “There’s a demonstration of new activity and new big fields coming on stream. It’s not just BP fields. There are others as well, so there’s real economic activity that will support thousands of jobs. And there is an active exploration programme that could create something really new and exciting. I think it will be ‘good’ exciting – not necessarily the silver bullet.

    “The reality is that the North Sea is a mature basin so some of the structural changes will stay.
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    In mammoth task, BP sends almost 3 million barrels of U.S. oil to Asia

    Oil major BP is shipping almost 3 million barrels of U.S. crude to customers across Asia, pioneering a lengthy and complex operation likely to become more popular after OPEC last week announced deep production cuts.

    BP's efforts, involving one of the world's longest sea routes, seven tankers and a series of ship-to-ship transfers, underscore a desire among oil traders to develop new routes to sell swelling supplies of cheap U.S. shale oil to Asia, the world's biggest consumer region.

    While exports of U.S. crude have been allowed since a 40-year ban was lifted a year ago, the distance, cost and complexity of shipping to Asia has so far kept the flow to a trickle.

    Now, using its global shipping and trading network, BP was able to grapple with U.S. port limitations and the need to transfer oil between ships off Malaysia to split cargoes for customers across Asia, according to trade sources and shipping data in Thomson Reuters Eikon.

    "Keeping regional price differentials, different tanker rates, and the forward price curve in mind while considering the delivery needs and schedules of your counterparties is not something many oil trading firms can do," said a shipping source in Singapore, who had knowledge of the operations.

    "BP is one of perhaps half a dozen firms capable of doing so," he added, speaking on condition of anonymity as he was not authorised to publicly discuss operations.

    BP declined to comment.


    While BP's operations are currently the most sophisticated, others have also begun developing U.S./Asia trade.

    China's Unipec, the trading arm of Asia's largest refiner Sinopec, is shipping about 2 million barrels of WTI to China this month, while trading house Trafigura is also exporting some 2 million barrels of U.S. oil to Asia.

    Incentives to bring U.S. crude into Asia have risen after the Middle East-led producer club of the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to cut output, encouraging refiners across the region to seek alternatives to offset potential supply shortfalls.

    "OPEC is putting U.S. shale oil to the test... (and) we will truly see what it can deliver," said Bjarne Schieldrop, chief commodity analyst at SEB. He predicted 2017 would be a "shale oil party" with a surge in U.S. exports after the OPEC production cuts.


    BP's operations to Asia kicked off in mid-September, when it chartered the large Suezmax-class tanker Felicity to load crude from the smaller Aframax-class vessel Eagle Stavanger in the Galveston Offshore Lightering Area (GOLA) off Texas.

    Days later, also at GOLA, BP transferred oil from three Aframax-class tankers to the C. Excellency, a Very Large Crude Carrier (VLCC).

    The transfers were necessary as American ports cannot load oil on the biggest tankers.

    A VLCC can carry 2 million barrels of oil, enough to meet two days' worth of Britain's consumption, while a Suezmax and an Aframax can load 1 million barrels and 800,000 barrels, respectively.

    Too big for the Panama Canal, the Felicity and C. Excellency sailed around South Africa to the Linggi International Transhipment Hub in Malaysia where their cargoes were split up again for delivery across Asia-Pacific.

    In late October, the Felicity transferred part of its oil to the smaller Aframax Taurus Sun, which then delivered 300,000 barrels of WTI Midland crude to Thailand, according to shipping data.

    The C. Excellency received the rest of the Felicity's cargo in Malaysia, then transferred oil to Aframax-class British Gannet in November.

    On Wednesday, shipping data shows that the British Gannet docked at BP's Kwinana refinery in Perth, Australia to make its final delivery. The cargo will have travelled more than 16,000 nautical miles (30,000 km) from GOLA.

    Meanwhile, C. Excellency received some fuel from another super-tanker, the Gener8 Andriotis, and this week headed to Sriracha in Thailand to deliver 300,000 barrels of WTI, shipping data showed. Sources involved with the shipment said some of that oil would likely proceed to Japan.

    While BP's operation stands out size and complexity, more long-haul trades are likely.

    "As Middle East producers and Russia are due to cut their output, large crude buyers (in Asia)... will likely import an incremental amount from longer-haul sources," said Erik Nikolai Stavseth from Norway's Arctic Securities.
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    US EIA lowers expected 2017 gas marketed output to 79.94 Bcf/d

    The US Energy Information Administration Tuesday lowered its natural gas marketed production estimate for 2017 by 310 MMcf/d to an average 79.94 Bcf/d.

    Gas production is forecast to average 77.5 Bcf/d in 2016, a 1.3 Bcf/d decline from the 2015 level, marking the first annual decline since 2005, the agency said in its December Short-Term Energy Outlook. But EIA expected production to pick up starting in November because of drilling activity increases and new infrastructure coming online to bring gas to demand centers.

    "In 2017, forecast natural gas production increases by an average of 2.5 Bcf/d from the 2016 level," the agency said.

    The agency raised its projections for gas marketed production for the fourth quarter by 450 MMcf/d to 76.89 Bcf/d, and raised its full 2016 estimate 150 MMcf/d to average of 77.48 Bcf/d.

    For the Q4, EIA lowered its estimate for US natural gas consumption by 1.33 Bcf/d to 75.57 Bcf/d.

    The agency said that demand for US gas for 2016 is expected to average 75.22 Bcf/d -- 44 MMcf/d below last month's estimate -- compared with 74.65 Bcf/d in 2015.

    The report noted, however, that natural gas consumption for December 2016 through March 2017 is likely to be 4% above the same time last year, driven by temperatures projected to be 3% higher than normal but still 13% below the same period a year earlier.

    Turning to prices, EIA raised its Q1 2017 Henry Hub spot natural gas price forecast to $3.36/MMBtu, 11 cents above its estimate in November, even as it lowered its Q4 estimate 6 cents to $2.93/MMBtu.

    The agency noted that warmer-than-normal weather in the first half of November helped push inventories to near-record levels. Spot prices "were more greatly affected by the record-high inventories and fell by a larger percentage than the futures price," the report said.

    "US natural gas inventories were at their highest level ever at the beginning of the current heating season, but stronger gas demand this winter and increased exports are expected to reduce natural gas inventories to more normal levels by the end of winter in late March," EIA Administrator Adam Sieminski said in a statement.

    The report reflected upon price volatility in the futures market in November, and it attributed the wide range of prices seen in November to market players balancing the current high inventory "with expectations of narrowing supply and demand fundamentals going forward."

    EIA said Henry Hub prices are projected to average $2.49/MMBtu in 2016 and $3.27/MMBtu in 2017. The 2016 projection was down 1 cent from the estimate in last month's report, while the 2017 projection was up 15 cents.

    "Growing domestic natural gas consumption, along with higher pipeline exports to Mexico and liquefied natural gas exports, contribute to the Henry Hub natural gas spot price rising from an average of $2.49[/MMBtu] in 2016 to $3.27/MMBtu in 2017," the report said.

    On the power side, Sieminski noted that more US electricity is expected to be generated from coal than gas this winter, but he said the share of total annual generation from gas is forecast to exceed coal during 2016 and 2017.

    The report projected that gas will continue to make up an average of 34% of total US utility-scale power generation this year, while the share from coal will average 30%. In 2017, EIA estimates that gas and coal will generate 33% and 31% of electricity, respectively.

    In all, the agency predicted power from utility-scale plants in the US will tick up 0.2% this year from 2015, to reach 11.2 TWh in full-year 2016.
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    India pushes Nigeria for more oil term contract volumes

    Indian state-run oil refiners have called for Nigeria to increase its total term contract volumes next year by more than 20% as demand from the South Asian country climbs, an official from Nigeria's state-owned Nigerian National Petroleum Corporation said.

    This request comes a few weeks before Nigeria's crude oil term lifting contracts for 2017 are finalized, which will be decided by mid-December.

    India as the largest buyer of Nigerian crude, has always said it should have a longer-term arrangement with NNPC to ensure security of supply.

    "Three Indian companies mentioned that they are looking for a combined total of 11 million mt [in 2017] from 9 million mt [this year]," Anibor O. Kragha, group executive director at NNPC, told S&P Global Platts in an interview on the sidelines of the Petrotech conference in New Delhi late Monday.

    "Now what they will get is a balance between term contracts and [spot] sales contracts," he added.

    The Nigerian crude oil term contracts involve the export of around 1.17 million b/d of Nigerian crude, out of the 2.2 million b/d the country can theoretically produce. They are then sold by contract holders to end-users, refiners and other buyers.

    But with Nigerian oil output sharply down due to renewed militancy, the term volumes could be much lower for 2017 if output does not rebound.

    Nigerian oil output had recovered sharply after it fell to a 30-year low in early summer but renewed attacks on oil infrastructure in the Niger Delta have shut in production of popular export grade Forcados in the past month.

    Total oil and condensate production was around 1.9 million b/d, including 300,000 b/d of condensates, oil minister Emmanuel Kachikwu said last week.

    He said output could reach 2.2 million b/d if the militancy issues were resolved by early next year. NEGOTIATIONS ONGOING

    Kragha said that negotiations are ongoing and that he was not sure if the deal would materialize, but he added that once Nigerian output recovers, it will "increasingly look towards India" as the major buyer of its crude.

    "Indian demand is very positive for us. A vibrant Indian economy is good for us," he said.

    The two countries have been working on a memorandum of understanding in the past month to enable the participation of Indian companies in Nigeria's upstream and downstream oil and gas sectors.

    The deal being negotiated by Nigeria will also have the Indian government make an upfront payment for the purchase of Nigeria's crude on a long-term basis as well as Indian public sector companies investing in Nigerian refineries.

    Indian state-owned refiners tend to buy most of their crude on term contracts while their remaining requirements are sought via tenders.

    "We just came out of a meeting with key Indian oil companies and they are pushing to get incremental allocations for the term contracts," said Kragha. "We explained to them that there needs to be a balance." INDIA'S RELIANCE ON NIGERIAN CRUDE

    India is a significant buyer of Nigerian crude, which is largely light and sweet, rich in gasoline and diesel and low in sulfur, and meets the needs of Indian refiners.

    State-owned refiners like Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd are major regular buyers of Nigerian crudes like Qua Iboe, Bonny Light, Escravos, EA Blend, Erha, Usan and Agbami.

    A source from an Indian refiner told Platts that Nigerian crude is a must for most of its refineries, especially the older ones, which have been designed to run light sweet crudes.

    "Despite all the militancy issues, we still buy Nigerian crude, as our refineries need it. We will continue to buy Nigerian crude, but we want them to supply us with more," he said.

    India, which is currently among the world's fastest growing economies, has seen its gasoline and gasoil demand climb sharply over the past few years. This has encouraged Indian refineries to buy more Nigerian crudes.

    In 2015-16, India imported nearly 23.7 million mt of Nigerian crude, nearly 12% of India's overall oil imports, according to official Indian data.

    The South Asian country also imports some 2 million mt/year of LNG from Nigeria.

    Every month almost 20-25% of total Nigerian crude exports travel to India, particularly to IOC, which is the main recipient of Nigerian crude.

    Indian refiners like IOC, HPCL and BPCL are currently on crude oil term lifting contracts for 2016 with NNPC.
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    Investors Are Pricing Junk-Energy Bonds Like $80 Per-Barrel Oil Is Back

    Investors are treating high-yield bonds issued by energy firms like it's the good old days for black gold. Yields on the securities have have dropped to 6.73 percent, a level last seen at the end of 2014 when oil was trading around $80 a barrel.

    "The market seems to be pricing in perfection for a number of reasons," according to Bloomberg Intelligence Senior Credit Analyst Spencer Cutter. "Part of it has just been the reach for yield throughout the entire fixed-income market, so even bonds from distressed credits get bid up," he said. Add to that the fact that drilling costs are falling, and the sustained (if modest) recovery in oil prices is causing some to bet that the worst is over.  

    "There was a view back in the first quarter when it felt like the world was going to end, and that given how much carnage there had been in the sector eventually things would bounce back, and being long energy bonds was at some point going to be the play of a career," Cutter said. Companies including Halcon Resources Corp. and Linn Energy LLC went bankrupt in the first half of 2016 and were removed from the index, he said, meaning their bonds are no longer dragging the index down.

    Investors' embrace of riskier energy debt is likely to make life easier for oil and gas companies that had found themselves shut out of markets when oil prices plummeted — but they might want to hurry and get those deals done.

    "There are a lot of things that have to go right to justify the market being where it is today," Cutter said. "If those expectations or assumptions don't come to pass, then there could be another wave of restructuring in a year or two," he concluded.
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    Glencore raises money for Kurdish oil deal, likely short of target: sources

    Glencore will likely fall short of its target of raising $550 million to pre-finance the purchase of Kurdish oil, with investors exercising caution despite the offer of a 12 percent bond yield, industry sources told Reuters.

    Two sources familiar with the plans said that commodities giant Glencore will price the bond at 12 percent on Tuesday, having received investor commitments for between $200 million and $400 million. Glencore would have to cover the rest itself, though there is no obligation to hit the full $550 million.

    European traders contending with a protracted oil industry downturn have targeted Kurdish oil since the government of the autonomous Kurdish region in Erbil began selling independently from Baghdad.

    The oil has been relatively cheap because of potential supply disruptions and the opposition of Iraq's central government to independent Kurdish oil sales, though Baghdad has softened its tone on Erbil in recent months.

    Rivals such as Vitol, Petraco and Trafigura have lent Erbil about $2 billion in total, to be repaid in oil. The traders have borrowed from banks and lent it to Erbil at their own risk.

    Glencore also loaned $300 million to Erbil this year, with the money repaid by way of one mid-sized oil cargo a month, worth about $25 million.

    The new bond should allow Glencore to split the risks by selling debt notes to a small number of investors and hedge funds who specialize in high-risk, high-yield investments and emerging markets.

    Technically, the money would be raised by a special-purpose vehicle and the debt will be non-recourse, meaning that Glencore will not be liable should problems occur.

    Glencore has told investors it expects to enter a new five-year agreement with the government of Kurdistan to buy its crude, with deliveries rising from one cargo in January, to two in February-March, four in April and six from May onwards.

    Six cargoes a month would represent a quarter of overall exports from Kurdistan. Industry sources have said that Kurdistan has yet to finalize its export plans for 2017.

    Glencore declined to comment.

    Kurdistan exports its oil via the Turkish Mediterranean port of Ceyhan. Flows have been running at more than 600,000 barrels per day since September after being occasionally disrupted in 2015 and at the start of this year by militant attacks in Turkey and Kurdistan.
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    New Spot Market Aims to Make Trading Gas More Like Oil

    Two U.S. exchanges plan to launch derivatives that could make it easier to trade shipped gas, potentially revolutionising this market in the way that the Brent and West Texas Intermediate benchmarks did for crude oil, according to people familiar with the matter.

    The moves by CME Group Inc. and Intercontinental Exchange Inc.come as increasing shipments of liquefied natural gas from the U.S. and elsewhere have helped create a spot, or short term market, for this commodity, which is transported on ships in liquid form.

    Having a spot market makes it easier to launch futures contracts, which will attract a wider pool of investors while offering the sort of real-time prices currently available in oil, gold and many other major commodities. Companies and investors use commodities-futures markets to speculate on the price of a commodity and to hedge its risk against turns in the market.

    Currently, buyers and sellers mainly agree to yearslong LNG contracts priced off oil, gas that is piped, and price reporting agencies’ data. There is no global price benchmark for LNG.

    Since the late 1990s, the majority of the world’s oil has been priced off Brent, the international benchmark, and WTI, its U.S. equivalent. There are already several benchmarks for pipeline gas including the U.S.’s Henry Hub and Europe’s NBP and TTF markets.

    In LNG, “you’re seeing an evolution toward more market-based pricing, but there hasn’t been that real consolidation around a couple of benchmarks yet,“ said Jason Feer, head of business intelligence at consultancy Poten & Partners. ”Oil was a fragmented market and then over time it consolidated around Brent and it consolidated around WTI,” he said.

    To be sure, companies have already tried before to create LNG pricing benchmarks with limited success, including Japan OTC Exchange and the Singapore Exchange, better known as SGX.

    But industry analysts say that the chance of success is greater with an increasingly large spot market underpinning the futures contract—an agreement to buy or sell an underlying asset.

    The CME wants to launch a futures contract next year underpinned by U.S. Gulf Coast LNG exports, two people familiar with the matter said. ICE is also working on a U.S. Gulf Coast LNG futures contract, one of the people said.

    Peter Keavey, managing director of energy products at CME Group, declined to comment on specific plans, but said the exchange is constantly talking to its customers about new products.

    "There’s definitely an interest in creating a liquid and transparent spot market and then further down the road, from an exchange standpoint, a liquid futures contract would have to follow that liquid spot market,” Mr. Keavey said.

    That spot market is being driven by a number of factors.

    For a start, there is just more gas being consumed. Gas is expected to make up around one quarter of the world’s primary energy mix by 2040, up from around a fifth, according to the International Energy Agency. New buyers, including Jordan, Egypt and Pakistan emerged in 2015. Meanwhile, supply has exploded, mainly due to the U.S. shale boom and through new projects in Australia.

    Earlier this year, Cheniere Energy Inc. exported the first U.S. LNG in decades through a terminal it converted for this purpose in Louisiana.

    At least another four LNG export terminals are expected to start up on the U.S. Gulf coast in the next three years. That would bring U.S. capacity to over 60 million metric tons annually, compared with the world’s top exporter Qatar’s 77 million metric tons a year.

    Energy major BP PLC predicts LNG will overtake pipeline gas as the dominant form of traded gas within the next two decades.

    “The market will need to evolve and come up with different pricing mechanisms,” said Anatol Feygin, Cheniere’s chief commercial officer.

    The new pool of gas and people to buy it has created a more actively traded spot market.

    The spot market, defined as cargoes delivered within 90 days of a sale being agreed, made up around 15% of LNG trade in 2015, according to the International Group of Liquefied Natural Gas Importers.

    There are signs that spot trades rose sharply this year. Bookings of LNG ships for less than a year—one indicator of spot market activity—have risen by 60% for the January-August period, compared with the same period last year, according to data from gas-shipping company GasLog Ltd.

    Another factor boosting the LNG spot market is the growing participation of large trade houses. These giant commodities traders also helped create a global spot market in oil in the 1980s, earning U.S. trader Marc Rich the title ’the king of oil.’

    Trade houses, including Trafigura Group Pte., Vitol Group and Gunvor Group, are buying and selling LNG in the spot market, adding liquidity.

    “Traders have made a difference in boosting liquidity, we’re not the only factor but we’ve played a role,” said Hadi Hallouche, head of LNG at Trafigura.
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    Venezuela says Shell to provide $400 million financing for oil venture

    Royal Dutch Shell Plc will provide some $400 million in financing to boost oil output at Venezuela's Petroregional del Lago, a joint venture with state-run PDVSA, the South American country announced on Tuesday.

    Petroregional, which operates the Urdaneta oilfield in Venezuela's western Maracaibo Lake, produces between 30,000 barrels per day and 35,000 bpd, according to Shell's website. Shell holds a 40 percent stake in the venture.

    The agreement aims to increase total production to 344 million barrels between the 2017 and 2035 period, PDVSA said in a statement, or an average of around 52,400 bpd.

    "As a minority partner, (Shell) has decided to start a financing of $400 million for the joint venture we have in the lake," Venezuela's oil minister and PDVSA president, Eulogio Del Pino, said in an interview broadcast over PDVSA's radio station.

    Shell did not immediately respond to a request for details on the financing arrangement.

    Recession-hit OPEC nation Venezuela is seeking to recover its oil production after a nearly 10 percent tumble in output this year. Operations have been crimped by a lack of investment, shortages of equipment and spare parts, a brain drain, and crime.
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    New England natural gas pipeline capacity increases for the first time since 2010

    Spectra Energy Corporation has almost completed the first two natural gas pipeline projects in New England since 2010. On November 1, Spectra placed part of the Algonquin Incremental Market (AIM) project into service, following the late-October approval from the Federal Energy Regulatory Commission (FERC). The remainder of the project is expected to be completed this month. Spectra placed another pipeline project—Salem Lateral—into service on October 28, according to PointLogic Energy, but it is not expected to be used until June 2017.

    The $972 million AIM project will bring additional natural gas from the Appalachian Basin into New England. The project is the largest pipeline project since 2007 to transport natural gas into New England from outside the region. The pipeline will provide an additional 342 million cubic feet per day (MMcf/d) of pipeline capacity to the New England market.

    The $63 million Salem Lateral Project will provide capacity for the Salem Harbor Power Plant, a converted coal-to-gas electric power plant due to be in service in June 2017. Once completed, the 674 megawatt power plant will use up to 115 MMcf/d of natural gas to generate electricity for New England consumers.

    The AIM project entered commercial service in November 2016 and added capacity to a constrained New England pipeline infrastructure system ahead of upcoming winter demand and ahead of the anticipated increase in demand from the Salem Lateral project.

    The increase in pipeline capacity is expected to continue offsetting decreasing natural gas imports into New England. Liquefied natural gas (LNG) imports into New England have typically met a significant portion of natural gas demand, but they have declined because of a variety of market conditions, including demand for LNG from other markets, and the expiration of previous long-term LNG contracts. LNG shipments to the Algonquin Northeast Gateway Lateral project (built in 2007 to deliver regasified LNG into the metropolitan Boston and New England market) and shipments to the LNG terminal in Everett, Massachusetts (built in 1971) have decreased over the past several years.

    For many years, some points along the natural gas pipelines in New England have reached full capacity utilization rates during the winter months. The Algonquin Gas Transmission pipeline is the major pipeline delivering Appalachian gas into New England. Even as capacity has remained relatively flat, deliveries have been growing since 2010 because the pipeline has been operating at capacity for a longer portion of the winter season and higher levels of summer use. Over the past several years, natural gas flows through the Stony Point compressor station—a key entry point for natural gas destined for New England—have reached their operating capacity throughout the year, even in non-winter months.

    New England natural gas pipeline constraints have contributed to relatively volatile natural gas spot prices. Average monthly natural gas prices at the Algonquin Citygate, a trading hub indicative of Boston wholesale natural gas prices, reached $15 per million British thermal units (MMBtu) during the winters of 2013 and 2015 and $25/MMBtu during the winter of 2014.

    For the nation as a whole, 10 U.S. natural gas pipeline projects have been completed or are expected to be completed before the end of 2016. In all, nearly 5.9 Bcf/d of additional pipeline capacity will be placed in service throughout 2016. More information about existing natural gas pipeline infrastructure is available in EIA's spreadsheet of State-to-State Capacity. Projects that are planned or under construction are listed in the Pipeline Projects spreadsheet.
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    RasGas says seeing preference for short term LNG contracts in India

    Qatar's RasGas is seeing preference for short-term LNG contracts from customers in India, its chief executive said on Tuesday at the Petrotech energy conference in New Delhi.

    Hamad Mubarak Al Muhannadi also said that India needs more LNG terminals to unlock demand. Asia's third-largest economy will become the world's second-largest spot and long-term LNG buyer this year, Muhannadi said.
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    India to get three more LNG terminals on east coast

    New Delhi: India expects to build three more liquefied natural gas (LNG) terminals on its east coast, a senior oil ministry official said on Tuesday, as the country tries to increase consumption of the cleaner-burning fuel.

    A.P. Sawhney of the Oil and Natural Gas Corporation (ONGC), said the three new terminals will be located at Ennore, Kakinada and Dhamra ports on the east coast. Sawhney was speaking at the Petrotech energy conference in New Delhi.

    The country was also looking at reviving stranded gas-based power generation capacity, Sawhney said.
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    Saudi Arabia cuts Jan oil price to Asia to 4-month low to keep market share

    Saudi Aramco has cut the January price for its Arab Light crude for Asian customers to the lowest in four months as it holds to a strategy of preserving market share in the world's fastest-growing demand centre.

    The price cuts are meant to ensure that Aramco can still sell more oil into Asia even after going along with the Opec-Russia deal to cut output. The Saudis have been struggling over the last two years to fight off increased competition from other producers in the Middle East, Russia and the Atlantic Basin.

    Saudi Aramco said on Tuesday it cut the price of Arab Light crude sales to Asia by US$1.20 a barrel versus December to a discount of US$0.75 a barrel to the Oman/Dubai average.

    January's price cuts of US$0.60-US$1.50 across all Saudi crude grades are small compared with a near US$10 a barrel gain in global benchmark Brent futures in the past week. Brent hit 16-month high on Monday after Opec and Russia struck a deal last week to cut production from January.

    "Ahead of the Opec cut, producers are pumping at maximum output, so they must price to sell," said a trader with a North Asian refiner who declined to be named due to company policy.

    Russian oil production hit an all time high in November, according to official energy ministry data, while a Reuters survey found that output from the Organization of the Petroleum Exporting Countries (Opec) was also at a record for the month.

    Prior to the Opec output deal, Saudi Aramco agreed to supply some customers in Asia with additional oil that will load in January to help them meet winter demand.


    The company raised its Arab Light OSP to Northwest Europe by US$0.30 a barrel for January from the previous month at a discount of US$4.20 a barrel to the Brent Weighted Average (Bwave).

    The Arab Light OSP to the United States was set at a premium of US$0.05 a barrel to the Argus Sour Crude Index (ASCI) for January, down US$0.30 a barrel from the previous month.

    Because the Brent to Dubai Arab Light prompt month spread rose to US$3.15 a barrel from US$2.55 after the Opec deal, Saudi Arabia had more leeway to raise their OSPs to Europe and remain competitive, said Jeff Quigley, Energy Markets Director at Stratas Advisors, a Houston-based consultancy.

    "They are trying to capitalise on the Opec deal-driven price increase in Europe while not losing market share in Asia," Mr Quigley said.
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    Indonesia cuts gas prices for some companies from 2017 - energy ministry

    Indonesia on Tuesday told energy companies to cut natural gas prices for fertilizer, steel and petrochemical industries starting Jan. 1, 2017, in a renewed effort to bring down domestic gas prices.

    Earlier this year, the government had introduced regulations to cut domestic gas prices to help to spur economic growth and improve the competitiveness of domestic industry.

    But some contractors have continued to sell natural gas above the price the government had planned for, according to government data.

    New rules from the energy ministry published on its official website on Tuesday, require gas contractors like PT Pertamina EP and Kangean Energy Indonesia Ltd, among others, to use new price formulas for contracts with PT Krakatau Steel Tbk, PT Petrokimia Gresik and several fertilizer makers.

    Based on the new formulas, gas buyers would only pay around $6 per million British thermal units (mmBtu), compared to a range of prices they currently pay of between $5.73 to $7.54.

    There will be no change for companies with contract terms already below $6 per mmBtu.

    Suryaningsih, a senior official at the ministry's directorate general of oil and gas, said the new formulas would mean less revenue for gas producers as well as the government, but "all contractors have agreed."

    There were no more details available on how much revenue gas companies and the government could expect to lose.

    "(Gas) contractors are asked to make their operational costs more efficient in order to maintain their businesses' viability and their return of investment," the energy ministry's spokesman Sujatmiko said.

    In addition to cheaper gas prices, Krakatau Steel and Petrokimia Gresik will also get a reduction in transport fees for their gas purchase.
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    Iran floating storage



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    Frigstad exits deepwater rig market

    Offshore drilling contractor Frigstad Offshore has decided to exit from an investment in Frigstad Deepwater’s newbuilds to position itself for the industry recovery, the company said on Tuesday.

    Frigstad Deepwater Holding Ltd, a subsidiary of Frigstad Offshore Group, has decided to sell all of its shares in Frigstad Deepwater Ltd to a subsidiary of China International Maritime Containers Group (CIMC) with effect from December 6, 2016.

    Frigstad Deepwater Ltd, which has been jointly owned by Frigstad Offshore Group and CIMC since 2012, has two 7th generation ultra deepwater drilling units of the Frigstad D90 design under construction at the Yantai CIMC Raffles shipyard in Shandong, China. The units, Frigstad Shekou and Frigstad Kristiansand, are scheduled for delivery in 1Q 2017 and 3Q 2017, respectively.

    As a consequence of Frigstad Offshore’s exit, Frigstad Deepwater will become a wholly owned subsidiary of CIMC and be renamed “CIMC Bluewhale Rig Ltd”. The operational management of the rigs will be taken over by Bluewhale Offshore Pte Ltd, also a subsidiary of CIMC, and the rigs will be renamed Bluewhale I and Bluewhale II. A team from Frigstad Offshore, the current manager of the rigs, will continue to supervise the construction of the two rigs until completion, the company said.

    Challenging market

    Harald Frigstad, Chairman and founder of the Frigstad Group, says in a comment: “The ultra deepwater market has been extremely challenging for a while and we have agreed with CIMC that it is in the best interests of both parties that our group exit from the investment in Frigstad Deepwater Ltd at this moment. We are doing this on friendly terms and will remain a close partner of CIMC also in the future. Our exit from Frigstad Deepwater Ltd gives us a good foundation to position the Frigstad Group for the industry recovery which we believe will come.

    “As part of this, we are reorganizing the group and strengthening the organization in key areas, which includes expansion at our office in Kristiansand, Norway. We are investing heavily in research and development, and will be launching the next generation of our ultra deep‐water semi‐submersible rig design in 2017 to keep up with industry requirements for new technology and higher efficiency. We strongly believe that offshore oil and gas will still play a very important role in the global energy supply for a long time, and we will be a part of this promising industry in the years to come, both as rig designer and drilling contractor.”
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    Arab producers to keep Asia term crude oil, apply OPEC cut to extra supplies: sources

    Major Arab oil producing countries are looking to keep their term crude supplies into Asia at least for January loadings, while coping with OPEC's production cut agreement first with their incremental supply volumes, sources with direct knowledge of the matter said Monday.

    A number of major Arab oil producers told S&P Global Platts that producers intend to keep their term crude supply volumes with Asian customers and implement last week's OPEC agreement with their incremental supply volumes where necessary.

    The Arab producers' intended move came to light as some Asian refiners were trying to assess if OPEC's announced production cut would go beyond the tolerance flexibility clause in their term contracts with Middle East suppliers.

    While major national oil companies in the Middle East sell the majority of their crude production on a term basis, there are typically incremental volumes sold to refiners on a case by case basis.


    With OPEC looking to maintain its policy of keeping market share balanced by cutting surplus oil supplied into the market, national oil companies are seeking to minimize any impact to their key buyers across Asia, sources said.

    "Most [term] contracts [have been] renewed already [for 2017], [I] don't think the term commitments will be affected," a source at a national oil company within the Gulf Cooperation Council said.

    This was echoed by another major oil producer within the GCC. "We are still working through [the cuts] right now, we will protect the term [sales] the rest [incremental sales] will not be possible [due to the cuts]," the source said.

    A source at another GCC member state's national oil company noted that they had been preparing for the potential of an OPEC cut for a number of months and there should be no major impact on key term buyers.

    "At least for the core countries...[those within the] GCC - have been preparing [for a cut] for quite a while...[the cuts] should be factored in for those countries," the source said.

    "[We will] work on the tolerance it should be ok [it] won't affect any term volume" the source added

    A source at another GCC national oil company said: "Each member has to do his own way [implement the cuts]... we haven't decided anything [yet] it's too soon."


    Sources at refiners in Asia said Monday the companies do not see any impact on their term crude loading volumes with Middle Eastern suppliers so far in January.

    "We have been told that our term allocation for January will be executed as contracted," said an Asian refiner source but added that it would still need to keep an eye on a possible 5% cut in its operational tolerance supply volumes.

    Another Asian refiner source said the refiner does not see any immediate impact from OPEC's cut on its term and spot crude procurements for January.

    "We have not got received any notice on a term supply cut," the source said.

    OPEC's decision on November 30 to hold production at 32.5 million b/d starting January 1, 2017 -- the first coordinated cut since the depths of the global financial crisis in 2008 -- amounts to an approximate 1.2 million b/d cut from the producer group's current output levels. The deal exempts Libya and Nigeria and is contingent on key non-OPEC producers also agreeing to cut 600,000 b/d in total.
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    Suncor Energy successfully resolves $1.3 billion tax dispute with Canada Revenue Agency

    Suncor today reports that the Tax Court of Canada has issued a favourable Order resolving the previously disclosed dispute with the Canada Revenue Agency (CRA). The dispute was in regards to the income tax treatment of realized losses in 2007 on the settlement of certain derivative contracts.

    The Tax Court Order confirms the successful resolution of this matter between Suncor and the CRA, resulting in no additional taxes, interest or penalties. Suncor's original filing position on this issue is therefore maintained and all taxation matters related to this issue are now closed.

    As is customary in disputes of this nature, Suncor had provided security to the CRA and the Provinces of Quebec and Ontario for approximately $657 million in respect of this issue. The company is taking steps for the return of this security.
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    OECD oil stocks at historic highs

    OECD oil stocks at historic highs, 380mln bbls above 5 yr avg ADIA's Ruhl tells SPGlobalPlatts

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    OPEC Target Gets Harder as African Members Boost November Output

    OPEC’s mission to implement last week’s historic deal to curb production for the first time in eight years just got a little bit harder after three of its African members increased output in November.

    Crude production from the Organization of Petroleum Exporting Countries rose to a record 34.16 million barrels a day in November with gains led by Angola, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. That’s up from a revised 33.96 million barrels a day in October.

    Nigeria and Libya -- which aren’t bound by the OPEC cuts because their output has suffered from sanctions and oil infrastructure sabotage -- also boosted production by a combined 140,000 barrels a day last month.

    Although OPEC uses independent estimates known as secondary sources that differ from the estimates of the Bloomberg survey, the resurgence in production from these two exempt African countries shows the other members will have to make deeper cuts to reach the group’s goal of 32.5 million barrels a day.

    OPEC will implement those cuts from Jan. 1 with the help of Russia, which has vowed to slash its own output by 300,000 barrels a day, the same as the combined reduction proposed for other non-OPEC nations. OPEC is holding talks with non-OPEC nations on Dec. 10 in Vienna to ink a deal.

    Angola’s output increased by 170,000 barrels a day, with volumes rebounding following field maintenance in October. Iran’s output stayed relatively steady at 3.67 million barrels a day while Saudi Arabia’s, OPEC’s de-facto leader, lowered its daily production by 50,000 barrels to 10.53 million.
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    Beijing expected to end oil product export quotas for independent refiners

    China's independent refineries are likely have to rely on state-owned trading companies to export oil products in 2017 as Beijing is likely to stop awarding them quotas to export directly, informed sources said Friday.

    "It [stopping awarding quotas] is to restrict the growth of exports from independent refineries," said a source from a state-owned trading company, adding that the Ministry of Commerce had already held talks with the state-owned company about matter.

    "The independent refineries are still allowed to export, but need to sell through the state-owned trading houses which have normal trade permission," he added.

    The normal trade permissions were expected to be awarded only to the trading arms of Sinopec, CNPC, CNOOC and Sinochem, sources said.

    The ministry was not available to comment on Friday.

    But several factors support the suspension, the foremost of which is that the policy of allocating export quotas to independent refiners is temporary.

    "We are not sure whether the government would still allow us to export after the end of this year," said Zhang Liucheng, VP of Dongming, the country's biggest independent refinery.

    During the APPEC meeting in September, Zhang said oil product exports by independent refineries were expected to rise with more investment for better infrastructure if the government continued to issue them with export quotas.

    The Ministry of Commerce in mid-November last year said it would allow independent refiners that had already won crude import quotas the right to export oil products, but the permission only ran until the end of 2016.

    This year, 12 independent refineries hold a total 1.675 million mt of oil products export quotas.

    Under the quotas, they are allowed to directly sell their oil products -- which must be processed from imported crude oil -- to overseas buyers.

    Over January-November, exports from the sector were around 750,000 mt, data from S&P Global Platts' showed.

    At the same time, China exported a total of 30.2 million mt of gasoline, gasoil and jet fuel, up 36% on the year.

    "In addition, there is some scent of export policy changes next year as the quota application has been delayed for more than half a month," a policy observer said. "It is possible that the authorities need time to consider changes."

    Normally, oil companies submit their export quota application to MOFCOM by mid-November, with the quota for the first quarter of the following year allocated by the end of December.

    "We have been preparing for the quota application since late October, but don't know when the government will start to collect and process them," said a Shandong-based independent refiner.

    But while independent refiners may be barred next year from direct exports of oil products, they will still be able to export indirectly by selling products via normal trade permission holders.

    Beijing in early November resumed tax rebates on exports of gasoline, gasoil and jet fuel under normal trade, making them competitive.

    CNPC's trading arm Chinaoil was said to export the first cargo of oil products under normal trade in December.

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    Brazil's Petrobras raises diesel, gasoline prices

    Brazil's state-run oil company Petróleo Brasileiro SA (Petrobras) said on Monday it will raise prices for diesel and gasoline at its refineries in the country as of Dec. 6.

    Petrobras said it will increase diesel prices by 9.5 percent and gasoline by 8.1 percent. The company said the adjustments were made after a spike on international oil prices and due to the recent weakening of Brazilian real.
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    Origin Energy to spin off some assets in IPO, cut debt

    Australia's top energy retailer Origin Energy Ltd plans to sell some oil and gas producing assets in a listing tipped to fetch A$1 billion ($750 million), cutting debt and joining its main rival in reducing exposure to upstream production.

    The move by newly installed CEO Frank Calabria sets up Australia's biggest initial public offering since 2014 and underscores the desire of the country's energy companies to refocus on their more stable retail gas and power businesses.

    It also gives a sense of the speed at which Calabria plans to put his stamp on the company he took over in October. A month before Calabria started, Origin Chairman Gordon Cairns told Reuters the company had no plans to demerge.

    "The decision is my decision but ... it is also something we've done quite bit of work around," Calabria told journalists on a teleconference on Tuesday, noting that his predecessor, Grant King, planned to sell A$800 million of assets by 2017 to cut debt.

    He denied the company was forced to abandon King's all-in-one energy strategy because of weak oil and gas prices, saying he decided on the IPO because "we needed to reduce debt and focus on the underlying performance of the business".

    Australia's No. 2 energy retailer AGL Energy Ltd said in February it was quitting the coal-seam gas business because the plunging oil price had undermined the economics of its projects. It has also said it will exit coal-fired power stations by 2050.

    Origin will keep a stake in Australia Pacific LNG, a 9 million-tonnes-a-year project co-owned by ConocoPhillips and China's Sinopec off Australia's east coast, which the company cannot spin off until it has met all of its project finance commitments, expected in mid-2017.

    Origin and AGL, which together sell electricity to a third of Australia's 24 million population, have meanwhile ramped up plans to sell rooftop and industrial-grade solar power, as well as storage batteries from makers like Tesla Motors Inc.

    Origin did not say how much it hopes to raise in the 2017 IPO, but its shares rose as much as 5 percent, hitting their highest intraday level in a year, as investors took a positive view of the simplified company structure. The broader market was up 0.8 percent.

    "We think Origin's strategy is logical," Morgan Stanley analysts wrote in a note to clients.

    Morgan Stanley estimated the assets being sold were worth A$1.3 billion, while Standard and Poor's estimated the spin-off to be worth at least A$1 billion and Royal Bank of Canada said the business would have an enterprise value, which includes debt, of between A$1.6 billion and A$1.8 billion.

    The proposed IPO will not require shareholder approval, Origin said.
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    China stakes claim in Mexico oil opening at deep water auction

    Mexico on Monday auctioned eight out of ten deep water oil and gas blocks up for grabs in the Gulf of Mexico, and scored a joint venture for a major crude field in the most hotly-anticipated round of the country's energy opening so far.

    China's Offshore Oil Corporation took two of the eight blocks, while Australia's BHP Billiton outbid Britain's BP in a bid to partner with Mexican state oil firm Pemex in the promising Trion light oil field in the Gulf of Mexico.

    France's Total also made three winning bids, teaming up with U.S. major ExxonMobil in the Perdido Fold Belt close to the U.S.-Mexico maritime border for one and with Norway's Statoil and BP for two blocks in the Salina Basin further south.

    U.S. oil major Chevron, Pemex and Japan's Inpex combined to win a block while Malaysia's Petronas Carigali and private equity backed start-up Sierra Offshore Exploration also featured in two winning consortia, one fronted by U.S. independent Murphy and Britain's Ophir.

    "This underlines Mexico is very competitive in the oil and gas sector," said Energy Minister Pedro Joaquin Coldwell.

    Before the current administration ends in two years, Mexico will likely hold three more oil auctions for shallow and deep waters, as well as onshore areas, probably including tenders for so-called non-conventional fields like shale, the minister said.

    Over the next decade, the fields auctioned on Monday could add some 900,000 barrels per day (bpd) to Mexican output, said Juan Carlos Zepeda, head of the national oil regulator.

    All told, fields containing an estimated 8.4 billion barrels of oil equivalent (boe) were awarded.

    Almost 1.2 billion of those were areas rich in most-valuable light and super light crude secured by China Offshore, a unit of the Chinese giant CNOOC, in the Perdido Fold Belt, where output on the U.S. side of the formation has been booming for years.

    Joaquin Coldwell extended a "warm welcome" to the Chinese oil firm, which easily won the two blocks they sought. China Offshore's entry into Mexico looks set to mark the biggest investment by a Chinese company in the country.


    The Mexican unit of BHP Billiton secured the rights to tie-up with Pemex in Trion, less than 50 miles (80 km) from the U.S.-Mexico maritime border.

    BHP outbid BP by some $18 million with a $624 million offer to complement its 4 percent additional royalty bid.

    Pemex estimates Trion will require an $11 billion investment to successfully develop. The competition marks the first time the ailing Mexican oil giant will join forces with a private company to drill since losing its monopoly in 2013.

    Pemex chief executive Jose Antonio Gonzalez Anaya said the Trion field would produce 120,000 barrels per day (bpd) by 2025, though the company has often missed output targets in the past.

    The government had said it would be content if four of the 10 blocks went, so the auction was welcome news for Latin America's No. 2 economy, which has been roiled by fears of economic turmoil by Donald Trump's election as U.S. president.

    The peso currency has slumped amid fears Trump will make good on threats to tear up a joint trade deal with Mexico or impose hefty tariffs on Mexican-made goods. It strengthened slightly during the auctions on Monday.

    Trion is nearly 500 square miles (1,285 sq km) in size and is sandwiched between other blocks in border-straddling Perdido.

    New investments in the project are expected to begin next year, almost entirely from BHP's commitment to spend $1.12 billion, while commercial production is not seen coming online until 2022 at the earliest.
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    Weatherford Shutting Down US Fracking Operations in 2017

    Recently MDN brought you an article from the Seeking Alphainvestors website, written by an analyst/investor pointing out the financial troubles at the world’s fourth largest oilfield services company, Weatherford . 

    The investor writing the piece is “short” on Weatherford, meaning he’s invested money betting Weatherford’s stock price will go down–so there is a built-in conflict of interest in the article. But a few days after that article was published came the news that Weatherford’s CEO is suddenly gone , which seems to lend credibility to the Seeking Alpha writer’s thesis that the company is in trouble. 

    Now comes word that Weatherford has suspended their U.S. “pressure pumping” (i.e. fracking) activities beginning next year. Oilfield services companies do more work than just fracking, but fracking is a a big part of what they do. According to the Upstream news service, a Weatherford official is saying the decision is a “temporary pull back”…
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    Genscape see massive increase in Cushing inventory

    Genscape Cushing inventory week ending Dec2: +3,347,961 bbl w/w

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    Saudi Arabia discussed oil output cut with traders ahead of Opec

    Saudi Arabia convened private talks with the world’s largest oil traders in Vienna before Opec’s crunch meeting on whether to cut oil output, seeking views about the likely market reaction should they fail to clinch a deal, it has emerged.

    Mark Couling, head of crude oil at Vitol, the world’s biggest independent oil trading company, was invited to Vienna by the Saudi delegation, according to people with knowledge of the talks.

    Pierre Andurand, who runs the $1.5bn Andurand Capital fund, one of the world’s biggest oil hedge funds, was also invited, alongside at least one trader from Russian independent oil company, Lukoil.

    The meetings between Saudi Arabia and the traders came just a day before Opec’s official talks in Vienna last week, which saw the cartel reduce production by more than 1m barrels a day in an attempt to end a two-year price rout that has hit oil producers’ economies — the first such supply deal since 2008.

    While Saudi Arabia routinely gives private briefings to energy analysts in the days leading up to an Opec meeting, it is rarer, but not untoward, for the kingdom to call together the traders responsible for shipping millions of barrels of oil or trading thousands of futures and options contracts.

    Saudi delegates have previously done so on occasion when they were looking to get a better feel for the market, said one person who has been attending Opec meetings for more than a decade.

    The talks highlight the deep concern within the Saudi camp right to the last minute, despite months of shuttle diplomacy between Opec members, with the world’s top oil exporter worried about further price falls if they failed to secure a cut.

    Brent, the international oil benchmark, did fall 4 per cent on Tuesday as the market bet that a deal was slipping beyond Opec’s reach. Prices then rocketed more than 15 per cent between Wednesday and Friday after Opec members reached an output reduction deal.

    Mr Couling and Mr Andurand attended a meeting with the Saudi delegation on Tuesday morning, before the kingdom’s oil minister Khalid al Falih arrived in Vienna, people familiar with the meeting said. A trader from Litasco, Lukoil’s trading arm, also attended, they said.

    Lukoil did not respond to a request for comment. Vitol and Andurand declined to comment.

    Mr Andurand declined to comment on the meetings, but said in an earlier interview that he had been betting on rising prices since January and had not changed his position.

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    China to gas up energy mix with clean coalbed methane

    China expects to increase its proved coalbed methane reserves by 420 billion cubic meters during the 13th Five Year Plan period (2016-2020), Xinhua reported, citing the National Energy Administration (NEA) as said.

    The country seeks to extract 24 billion cubic meters of the clean energy and own three industrialization bases in 2020, according to a development plan released by the NEA on December 2.

    The target would mean that coalbed methane accounted for 13% of the country's natural gas output by 2020. Tapping the resource will boost colliery safety, increase clean energy supply and cut greenhouse gas emissions, the NEA said.

    Some 18 billion cubic meters were extracted last year, with 47% utilized, this rate will be lifted over 66%, the plan predicted.

    By 2020, deaths in colliery gas accidents will be reduced by at least 15% compared with 2015, said the NEA. During last year, a total of 171 people were killed in 45 coal mine gas accidents.

    To support the country's coalbed gas development and gas management in coal mines, China will exempt certain equipment and parts for coalbed gas exploration and development from import tariffs and VAT during the 2016-2020 period, the Ministry of Finance said on December 1.

    China's coalbed gas reserves are estimated at 36.8 trillion cubic meters, ranking third in the world after Russia and Canada.
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    Chesapeake to sell Haynesville asset for $450 million

    U.S. natural gas producer Chesapeake Energy Corp said it would sell a part of its acreage in the Haynesville Shale area for $450 million to a private company.

    Chesapeake shares were up more than 5 percent in premarket trading on Monday.

    The company said the asset, which is located in northern Louisiana, includes about 78,000 net acres, 40,000 of which is core acreage. The sale also includes 250 wells with a current net production of about 30 million cubic feet of gas per day.

    Oklahoma City-based Chesapeake also said that including this transaction, it has reached about $2 billion in gross proceeds from divestitures either signed or closed in 2016, excluding certain volumetric production payment repurchase transactions.

    The company, which has been trying to reduce its crippling debt load of nearly $9 billion, expects the transaction to close in the first quarter of 2017.

    Chesapeake in November said it planned to sell more assets this year, including about 126,000 net acres in the Haynesville Shale field in Louisiana.
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    Invited to non-OPEC meeting

    Invited to non-OPEC meeting: Mexico, Oman, Kazakhstan, Bahrain, Colombio, Congo, Egypt, Russia, Azerbaijan, Bolivia, Uzbekistan, Brunei, Turkmenisatan, Trinidad & Tobago.

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    GasLog moving forward with FSRU conversion

    Monaco-based LNG shipper, GasLog on Monday said that Singapore’s Keppel shipyard begun ordering equipment required for the conversion of an LNG carrier to a floating storage and re-gasification unit.

    GasLog aims to convert one of its LNG tankers or one from the company’s MLP, GasLog Partners to an FSRU.

    The long lead items (LLI’s) Keppel ordered include pumps, vaporizers, heat exchangers and low duty compressors, which are vital equipment for the conversion process.

    These items take approximately 12 months to deliver at a total cost of around $16 million, GasLog said in its statement.

    According to the shipping company, ordering this equipment reduces the time necessary to convert an LNG carrier from between 18-20 months to 6-8 months once these items are delivered.

    “Securing the LLI’s at this time, puts GasLog in a position to offer a fast track solution for FSRU projects in the future,” the company noted in the statement.

    GasLog said it is working on a number of potential projects where the LLI’s could be used in a vessel conversion and has a number of well suited candidates for conversion in its fleet of LNG carriers.

    To remind, GasLog announced in March this year it had named Bruno Larsen as head of FSRU development as the company is making its first steps in the FSRU market.

    Many new markets are choosing FSRUs to use them as import terminals as it is the quickest and the cheapest way to get access to the worldwide LNG supplies.

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    Shell sells interest in Gulf of Mexico assets

    Japanese Mitsui & Co., Ltd. has reached an agreement with Shell to acquire 20% working interest of Shell’s Kaikias and Circius 100% owned assets located in four blocks in the Mississippi Canyon in the Gulf of Mexico.

    Mitsui will buy the interest in four blocks in the Gulf of Mexico, MC-767 block (Circius), MC-768 block, MC-811 block and  MC-812 block (together Kaikias) through its subsidiary Mitsui Oil Exploration Co., Ltd. (MOECO), in which Mitsui has 74.26% equity interest.

    According to the company, the four blocks, encompassing 93 km2, are located approximately 100 kilometers south-southeast of New Orleans, offshore Louisiana.

    Production of crude oil and gas would utilize the existing near field infrastructure, presenting opportunities for early commercialization at reduced development costs. The recoverable resources of the entire blocks are estimated to be over 100 million barrels of oil equivalent.

    In addition, Mitsui said, there is further exploration potential within the blocks which may contribute to further build up the reserves and continue production over the long term.

    To remind, Shell confirmed in November last year that the development potential of Kaikias could exceed 100 million barrels of oil equivalent recoverable.
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    Oil Market Turns Upside Down as Shale Rushes to Hedge Post-OPEC

    U.S. shale oil companies are using the post-OPEC rally to hedge their oil price risk for next year and 2018 above $50 a barrel, bankers, merchants and brokers said, pushing the forward oil curve upside down.

    The rush to hedge -- locking in future cash flows and sales prices -- could translate into higher U.S. oil production next year, offsetting the first output cut by the Organization of Petroleum Exporting Countries in eight years. As such, the producer group could end throwing a life-line to a sector it once tried to crush.

    “Right after OPEC, U.S. producers were very active hedging," said Ben Freeman, founder of HudsonField LLC, a boutique oil merchant with offices in New York and Houston. "We are going to see a significant amount of producer hedging at this levels."

    The hedging pressure triggered violent movements across the price curve. As shale firms sold oil for delivery next year and early 2018, the shape of the curve flattened. "The curve is screaming producer hedging," said Adam Ritchie, founder of consultant AR Oil Consulting and a former trading executive at Caltex Australia Ltd. and Royal Dutch Shell Plc.

    West Texas Intermediate crude for delivery in December 2017 is now more expensive than in June 2018 -- a condition known as backwardation. A week ago, the forward curve was in the opposite shape, known as contango.

    “The longer dated flattening in the futures curve does indeed reflect to a large extent increased producers activity, hedging on the back of the pop up in spot prices that followed the announcement of an output cut by OPEC,” said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA.

    The latest surge in prices extends U.S. shale drillers’ pattern of adding hedges when crude rises into the mid-$50s. Pioneer Natural Resources Inc., for example, said in early November that it increased its hedges for next year to 75 percent of production from 50 percent. In the third quarter, Devon Energy Corp. more than quadrupled its 2017 positions from the prior three months.

    WTI oil prices gained 12 percent last week -- the biggest weekly gain in almost six years -- after OPEC announced its cut and Russia promised to reduce output too. WTI ended Friday at a 17-month high of $51.68 a barrel.

    U.S. shale companies and other independent exploration and production companies usually reveal their level of hedging with a quarter delay. Nonetheless, anecdotal pricing activity already suggests their presence in the market. U.S-based oil bankers and brokers also said they handled significant volumes after OPEC agreed to cut production on Thursday.

    A record 580,000 crude options contracts traded on the New York Mercantile Exchange that day, while the number of puts -- used by producers to guarantee a minimum price -- hit the highest since 2012.

    As the oil curve flipped, inter-month spreads, which move about 5 to 10 cents a day in normal times, swung eight times as much. The spread between December 2017 and December 2018 -- a popular trade known in the industry as “Dec-Red-Dec” -- jumped from minus $1.35 a barrel early on Wednesday before OPEC announced the deal, to plus 49 cents on Friday.

    Another factor keeping pressure on forwards prices is doubt about whether OPEC and Russia will continue to curb supply when the deal ends in six months.

    “Two things might be priced in this change -- the first one is that shale producers are hedging and the second one is that the deal is for six months and then no one knows what’s going to happen,” said Tamas Varga, analyst at brokerage PVM Oil Associates Ltd.
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    Mexico deep water oil push taps data that solved dinosaur riddle

    A long-awaited auction of Mexico's untapped deep water oil fields on Monday has been fueled by a nearly $3 billion boom in geological data mapping almost inaccessible deposits to open up what the industry sees as the world's "last great proven frontier."

    The data rush of the past two years by many top geophysical companies has sparked some of the biggest imaging projects ever for technology also used to hunt for the ruins of ancient civilizations and explain the fate of the dinosaurs.

    "What they're doing is literally rewriting the geological model of the Gulf of Mexico," Juan Carlos Zepeda, head of the national hydrocarbons commission (CNH), Mexico's oil regulator, said ahead of Monday's deep water auctions where the likes of Chevron and BP are expected to participate.

    Aside from more than $2 billion invested since 2015, the companies have already raked in data sales of $520 million, Zepeda said.

    The data bonanza has been an early success of a 2013 energy reform that ended the 75-year old monopoly of Mexican state oil company Pemex in a bid to reverse a 1.2 million barrel per day (bpd) slide in crude production over the past dozen years.

    Crude output on the U.S. side of the Gulf of Mexico is forecast to hit a record 1.79 million bpd next year. Mexico has yet to sell a single deep water barrel.

    The auction of a total of 11 projects could attract investment in the tens of billions of dollars over the lifetime of the contracts, although the first new streams of oil output, expected from Pemex's deep water Trion project, is not expected until 2022 at the earliest.

    The latest geological surveys come from shooting electronic and sound waves deep into the sea floor, which bounce back and are collected by sensors. The data is then processed and re-processed by some of the world's most powerful supercomputers.

    They yield detailed models of rock layers dating back millions of years that help oil majors avoid dry wells, a vital step at a time of depressed crude prices given that a single deep water well in the Gulf can cost $200 million.

    "The competition has been fierce," said Karim Lassel, country manager for French geophysical firm CGG, which obtained five seismic permits from the CNH over the past couple years.

    CGG has been mapping Mexican rock formations for 30 years, mostly as a Pemex contractor, having acquired all of the company's data for its Perdido Fold Belt acreage, where five potentially lucrative projects are up for grabs on Monday.

    "I think the deep water Mexico opportunity is one of the greatest opportunities at the moment globally," said Lassel.


    In the past two years, fleets of boats pulling miles-long floating cables dotted with sensors have crisscrossed Mexico's Gulf waters numerous times, teasing out secrets far below.

    One survey by U.S. oil services firm Schlumberger covered an area nearly the size of Ireland in just one year with its largest-ever 3D wide-azimuth mapping project.

    It explored the Salina, or salt, basin in the Gulf's southern waters, where six blocks are up for auction.

    Salt structures are especially promising for oil explorers because they often seal off oil deposits.

    Another survey, by Norway's TGS, recently finished the largest-ever 2D survey done at one time, an 18-month project that mapped all of Mexico's Gulf waters using five ships pulling 7-mile-long (12 km) sensor-studded cables.

    "Geology does not stop at the border," said TGS executive Will Ashby.

    The TGS survey can be merged with well-known deep water trends on the U.S. side of the Gulf, a first for the industry.

    The same type of data-gathering has also been applied for a less commercial end: confirming the asteroid strike 65 million years ago just off Mexico's Yucatan peninsula that killed off the dinosaurs and most life on earth.

    The first evidence of the 110-mile (176-km) wide crater the asteroid left behind was produced in the 1970s when Pemex engineers extracted drill cores from an unusual circular structure they found in rock dating back to the final dinosaur era.

    Since then, nearby discoveries in shallow waters have been the mainstay of Pemex's crude production, contributing nearly 80 percent of the company's 2.1 million bpd of current output.

    While oil companies continue to rely on better data to make increasingly expensive decisions, there is still no guarantee a well will produce.

    "No matter how far technology has reached," said the CNH's Zepeda, "you cannot be sure what is down there until you drill."
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    Centrica’s $200 Million Problem Throws Traders Another Curveball

    For five months the natural gas market has had to live without the U.K.’s biggest storage site off England’s east coast. When it returns from emergency maintenance by Friday, traders are facing a whole new challenge.

    Rough’s halt has left the Centrica Plc facility with less than half the gas it typically holds going into the peak heating season. That means less pressure than normal in the rock underground that holds the fuel. So when the gas is extracted from 20 of its wells to meet demand from homes to hospitals, it will flow at a pace closer to a walk than a run.

    Coupled with a dearth of liquefied natural gas supplies to northwest Europe, that’s increasing the risk of price jumps during freezing weather, according to Ira Joseph, head of global gas and power at Pira Energy Group in New York, an industry consultant. Volatility reached a 5-year high in September after Centrica extended works at the facility.

    “In case of peak demand, the picture looks really tight and with lower Rough flows than expected the situation will be even more challenging,” said Pierluigi Frison, a gas trader at Green Network UK Plc in London. “I believe it will be a problem later in the winter.”

    Rough, which accounts for about 70 percent of the country’s overall gas storage capacity, will open for withdrawals next week after being closed for urgent maintenance since June. The low pressure “isn’t the optimum point” for cycling gas in and out of the facility, Ross Davidson, a company spokesman in Aberdeen, Scotland said by e-mail. A third of Rough’s 30 wells will still be offline for more works.

    Under current conditions, Centrica can withdraw about 33 million cubic meters of gas a day, about 77 percent of what it can normally extract this time of year, according to withdrawal curves provided by Centrica. Continuous depletion of the facility, and thus even lower pressure, means that by the end of the winter that will fall to less than 20 million cubic meters a day.

    “This is an event that very few people in the industry have seen, if any,” said Guillermo Baena Gomez, a senior energy trader and market analyst at Advantage Utilities Ltd. in London. “The current stock level is considerably lower than historical levels for this time of year. Actually we are at a level equivalent to the second half of February.”

    Traders may get tested on the new market dynamics already this month, with the U.K.’s Met Office predicting temperatures below average in December.

    “If I was a trader, I’m in trouble, because I can’t do much about it at all,” said David Aron, the London-based founder of Petroleum Development Consultants, referring to the physical restraints at Rough. And for Centrica, “the consequences could be quite great,” because it’s pumping less gas.

    The company took an impairment charge of 176 million pounds ($222 million) related to Rough in the six months through June 30. Davidson declined to provide further details.

    The market’s first reaction when Rough’s new schedule was published on late Tuesday was bearish because the facility is initially adding to supplies, and gas for January has fallen 4.4 percent since the news. Warnings of fuel shortages are more relevant for later this winter, as other U.K. storage facilities operated by SSE Plc and Electricite de France SA will also get depleted.

    Gas prices in the U.K. for delivery in the first quarter are trading at a premium to next summer that’s three times as large as the same measure this year, indicating that Britain will be more reliant on imports.

    “I believe that U.K. is better prepared for a mild or even normal winter, but not for protracted colder-than-normal weather,” said Zach Allen, president of Pan Eurasian Enterprises, in an e-mail from Rhode Island. “Given that Rough is starting from a very low point, that gives limited comfort to the markets.”
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    Western Canada added 26 rigs to its weekly count according to Baker Hughes. It’s the biggest weekly gain since January this year.

    20 gas rigs were added along with 6 oil rigs. The number of rigs drilling is up 13% year over year as prices begin to improve for both crude oil and natural gas. Alberta saw the biggest gain, adding 20 drilling rigs to a total active fleet of 128.
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    Argentina oil workers to strike next week after YPF suspends rigs

    Oil workers in one of Argentina's most productive basins will go on strike for 48 hours next week to protest a decision by state-run YPF to not return 33 rigs to the field, which could cost 1,700 jobs, union leaders said Friday.

    Guillermo Pereyra, a national senator who doubles as the secretary general of the Union of Private Oil Workers in Neuquen, Rio Negro and La Pampa, said the strike is to start Monday at 8 am local time.

    "The strike will affect all activities" in the Neuquen Basin, he said in a televised news conference.

    The southwestern basin produces 40% of the country's 513,000 b/d of crude and 57% of its 124 million cu m/d of gas, according to data from the Argentine Oil and Gas Institute, an industry group.

    Pereyra said the action is the start of a campaign to resolve worker complaints of layoffs, poor work conditions, an increase in the number of accidents in the fields and inadequate responses from YPF.

    If things do not improve, 'we will deepen this measure and it will be for 72 hours," Pereyra said, suggesting that it could even be extended for longer.

    Separately, Manuel Arevalo, secretary general of a union for field managers that will also participate in the strike, said YPF's decision to not bring back the rigs has made it harder to negotiate with the company.

    "You cannot negotiate when there is a threat of layoffs," he said on LU5, a radio station in Neuquen.

    The decisions to walk off the job comes a day after YPF, the country's biggest oil and gas producer, said it would not bring 33 rigs back into the field after sidelining them in February. The company had been paying the 1,700 rig workers since.

    YPF said it could no longer afford to pay the suspended workers, which totalled an annualized amount of $100 million, and would instead focus its drilling on fields with the best potential for production.

    The 33 rigs had been working in maturing conventional fields, and the company has said it will focus on assets with the greatest growth prospects, such as in the Vaca Muerta shale play and the Lajas and Mulichinco tight plays.

    "We have to concentrate on investments where it pays and pays quick," YPF CEO Ricardo Darre said in August.

    YPF has slashed its capital-expenditures plan by 20%-25% for this year, leading it to forecast flat production for 2016 on the year.

    It has since said the outlook for no growth in its overall hydrocarbon output could continue through 2017, as a decline in international oil prices for much of this year has brought down local crude prices, cutting profit margins. At the same time, a recession in the nation has left little margin to raise diesel and gasoline pump prices to finance exploration and production. There also is little margin for YPF the take on more debt, according to the company.

    YPF produces 45% of the country's oil and 31% of its gas, according to industry data.

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    Permian leads latest increase in oil rigs, Baker Hughes says

    West Texas’ active Permian Basin added seven rigs actively drilling for oil this week.

    While the Permian begins to boom, the net rig count in the rest of the country declined. The U.S. rig count grew by just four overall this week, including three drilling for oil and one seeking natural gas, according to Baker Hughes.

    The Williston Basin, which is mostly in North Dakota, lost two rigs, while two rigs were removed from Colorado’s DJ-Niobrara basins. Louisiana lost four.

    South Texas’ Eagle Ford shale, however, tacked on two.

    The total count is 587 rigs, up from a low of 404 in May, according to Baker Hughes. Of the total, 477 are primarily drilling for oil.

    The Permian now accounts for 235 rigs, almost half of the nation’s oil rigs. The next most active area is Texas’ Eagle Ford shale with 40 rigs, according to the Baker Hughes data.

    Despite this week’s increase, the oil rig count is down 70 percent from its peak of 1,609 in October 2014, before oil prices began plummeting. But U.S. oil prices have risen above $51 a barrel after OPEC agreed Wednesday to curb oil production.

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    Crippled Latin Oil Giants Get No Miracle Cure in Post-OPEC Rally

    For the three titans of Latin American oil -- Pemex, PDVSA and Petrobras -- last week’s OPEC-driven price rally won’t be enough to halt a slow descent from the ranks of international crude heavyweights.

    Even as news of the cartel’s 1.2 million-barrel-a-day output cut spurred the steepest three-day oil gain in 15 months, the biggest Latin American producers remain hobbled by financial, political, technical and structural problems. Mexico and Brazil have been turning to outside investors to help boost output, with Mexico on Monday offering up stakes for the first time to drill in its deep waters.

    Oil prices are an especially pressing issue for the behemoths responsible for large chunks of their local and national economies, all while supplying one of every 13 barrels of crude produced around the globe every day. Unlike North American explorers who were free to fire workers and abandon costly, high-risk projects as crude collapsed, the Latin companies operate under close bureaucratic controls that hinder their ability to respond to market forces, said Thomas McNulty of Navigant Consulting Inc.

    “Higher prices are always a good thing but these are state-owned quasi-companies that have tremendous social obligations to their countries and little freedom to take rational cost-cutting steps,” said McNulty, director of Navigant’s valuations and financial risk management practice. “U.S. companies have to pay taxes, sure, but they don’t have to build schools.”

    Petroleo Brasileiro SA said it isn’t changing its business plan in response to OPEC’s production agreement. Mexico’s Energy Ministry said it won’t change its auction plans because of OPEC. Petroleos de Venezuela SA, as the Venezuelan state-oil company is formally known, didn’t respond to requests for comment.

    Brent Surge

    Brent crude, the international benchmark, surged as much as 15 percent in the three trading sessions following a Nov. 30 meeting at which the Organization of Petroleum Exporting Countries agreed to individual production cuts for the first time in eight years. The three-day rally was the largest since August 2015. Brent dipped to a 12-year low around $27 a barrel as recently as January; since then, the price has doubled to more than $54.

    “Higher prices are positive for these companies to varying degrees,” said Lucas Aristizabal, a senior director at credit-rating company Fitch Inc. For Petroleos Mexicanos and PDVSA, the benefits are diminished by staggering debt loads that eat up cash that could otherwise go toward drilling to sustain production and replenish spent reserves, he said.

    “Pemex needs much higher prices than this under the current taxation scheme to become cash-flow neutral while investing enough to replenish reserves,” Aristizabal said.

    Mexican Oil

    Once the world’s third-largest oil producer, Mexico now pumps less than the U.S. state of Texas, thanks to dwindling output from the once-gargantuan Cantarell field and lack of investment in new drilling technology. Aristizabal estimated the Mexican company, whose nearly $100 billion in debt is more than twice that of Exxon Mobil Corp., needs crude to fetch $80 a barrel to $100 a barrel to escape it downward spiral.

    Mexico’s deep-water oil auction is designed to attract international oil giants to develop offshore production. It’s a crucial test of foreign investment, with Mexican oil output forecast to fall below 2 million barrels a day next year, the lowest level since 1980.

    To read more on Mexico’s oil auction, click here

    Pemex CEO Jose Antonio Gonzalez Anaya praised the OPEC agreement and price rise as “a breath of fresh air.

    “It’s a good development for the energy market and for Pemex,” he said in a Dec. 1 interview on Bloomberg Television.

    PDVSA Payments

    PDVSA, facing $6.4 billion in debts coming due next year, won’t get much relief from its liquidity crisis, despite the nascent crude rally, Aristizabal said. Company Chairman Eulogio Del Pino said the cut may push oil prices to $70 in six months. Added cash is important as the producer uses a 30-day grace period to pay interest due on a 2035 bond. Venezuelan President Nicolas Maduro has blamed the U.S. Treasury and Citigroup Inc. for the delayed payment.

    Venezuela is one of only two cartel members in the Western Hemisphere, and PDVSA will be required to cut some output. That means abandoning some of the potential upside from the price increase, Aristizabal said.

    Petrobras, which has been enmeshed in Brazil’s biggest corruption scandal, is in a better position to take advantage of rising prices than it was in 2011 when crude surged past $100 a barrel. The previous Brazilian administration of Dilma Rousseff pressured the state-controlled company to keep domestic gasoline and diesel prices below international levels in an effort to contain inflation, costing an estimated $35 billion in fuel subsidies in the middle of a commodities boom.

    Fuel Sales

    The Rio de Janeiro-based producer has been selling fuel at a premium for the past two years, partially recovering the losses from import subsidies. In October, the company set a policy of monthly revisions to guarantee prices remain above import costs. Petrobras reiterated its commitment to keep fuel prices above international parity in an e-mailed response to questions.

    Rising prices will also guarantee the viability of deep-water fields that are estimated to hold billions of barrels of oil. Chief Executive Officer Pedro Parente has said the company’s break-even cost is around $40 a barrel. Petrobras has been in talks with potential bidders, including Total SA, for joint ventures to get oil from the so-called pre-salt areas offshore.

    Brazil’s energy ministry has said it has no authority to set production limits for Petrobras and other companies producing in Latin America’s largest economy, offering the potential for it to capitalize with more output as OPEC members scale back.

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    ExxonMobil expects to deliver 7.9 mln tonnes from PNG LNG this year

    ExxonMobil expects to deliver 7.9 million tonnes of liquefied natural gas from Papua New Guinea this year, around 14 percent above nameplate capacity of its PNG LNG plant, the company's PNG head said on Monday.

    The company, which operates PNG LNG and is the biggest owner, said it expects to be able to produce at 16 percent above nameplate capacity of 6.9 million tonnes a year, ExxonMobil's PNG managing director Andrew Barry said at a conference in Sydney.
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    With Dakota denial, outlook for U.S. pipelines turns murky

    The U.S. Army's denial of an easement for the Dakota Access Pipeline, after permitting and legal obligations were followed, sets an uncertain precedent for new projects despite President-elect Donald Trump's promise to support energy infrastructure.

    The decision came after months of protests by the Standing Rock Sioux tribe and others who said the line could desecrate tribal grounds, or a spill could contaminate drinking water.

    While most of the 1,172-mile (1,885-km) pipeline is complete, Energy Transfer Partners, the line's owner, needed an easement from the U.S. Army Corps of Engineers (USACE) to drill under Lake Oahe. The lake, a water source formed by a dam on the Missouri River, has been the focus of protesters.

    The Army's intervention sets an unsettling precedent, analysts and industry groups told Reuters, because Energy Transfer had undergone the necessary environmental reviews and permitting processes to move ahead with construction.

    "I think it sends a horrible signal to anyone wanting to invest in a project and I strongly suspect those policies will be discontinued on Jan. 20th," said Brigham McCown, the former head of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) under George W. Bush, referring to the inauguration of President-elect Donald Trump.

    Still, the decision to deny the easement tempers some of the optimism pipeline companies assumed following the election of Trump, who is seen as more supportive of oil and gas projects.

    Energy Transfer Partners said in a statement the decision was politically motivated and it did not intend to reroute the line.


    Beyond the federal approval issues, state and local governments have also mobilized against pipelines. Earlier this year, Georgia's state legislature passed a bill to restrict pipeline developments, stopping a gasoline line from Florida to South Carolina from being built.

    Energy Transfer chief executive Kelcy Warren, a donor to Trump's campaign, said his election was a positive. Last week Trump for the first time voiced support for the Dakota Access project.

    Trump has also said he would support TransCanada Corp's Keystone XL, which the Obama Administration rejected last year.

    Denying permits for an already-approved pipeline adds a new level of uncertainty to projects. Oil companies have already been facing growing resistance from environmental groups that have resulted in delays or unanticipated costs.

    Equipment used for the Dakota Access line has been set on fire, and in October, a group of protesters turned off valves on pipelines transporting oil from Canada to the United States. Together, those lines had capacity to move some 2.8 million barrels per day of oil.

    "Until you see that Trump has a track record of approving things and showing that things can get built in time, it's tough to say it's not a murky environment for pipelines," said Sarp Ozkan, manager of energy analytics for Drillinginfo.

    That means pipelines could face higher risk premiums and have a harder time getting volume commitments from shippers that underpin such projects, Ozkan said.

    Energy Transfer has said it expects to lose almost $84 million each month the Dakota Access pipeline is delayed, and that losing shippers could result in its cancellation, according to a court filing.

    "I think midstream companies will hope that each project can be decided based on necessary permitting approvals, but there will be increased risk where agencies like USACE are involved," said Sandy Fielden, director of research in commodities and energy at Morningstar.

    While the Standing Rock Sioux have said they would support a rerouting of the line, others, such as the Indigenous Environmental Network (IEN), want it canceled.

    "Given Trump's support of the Dakota Access, and the Keystone XL, we remain cautious," said Dallas Goldtooth, a spokesman for IEN.
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    India prioritizing shift to become natural gas-based economy, Modi says

    India is giving priority to moving toward a natural gas-based economy and efforts must be made to raise local production of the fuel while also creating infrastructure to import it, Prime Minister Narendra Modi told an energy conference on Monday.

    "Natural gas is the next-generation fossil fuel, cheaper and less polluting," Modi said in an address at India's flagship energy event, Petrotech.

    "Efforts must be made to increase natural gas production whole also creating import infrastructure to meet the growing domestic demand," Modi said.
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    UK gas-for-power demand rises above 80 million cu m/d

    The amount of gas used by UK natural gas-fired power plants to generate electricity has risen above 80 million cu m/d in recent days for the first time in at least six years, data from National Grid showed Friday.

    Some 84 million cu m of gas was used to generate electricity in the UK on both Tuesday and Thursday, marking the first time the 80 million cu m/d barrier was breached since at least October 2010.

    Gas-for-power demand in the UK has been significantly higher year on year in 2016 due to the closure of coal-fired power plants and more favorable generation economics in recent years.

    Indeed, the total gas-for-power demand for November breached the 2 Bcm mark for the second successive month, rising 7% month on month and 69% year on year to 2.14 Bcm at an average 71 million cu m/d.

    The last time UK gas-for-power demand was above 2 Bcm for a calendar month was January 2011.

    With gas-fired generation economics more favorable than in recent years - - despite NBP prices having rallied since the beginning of the winter-delivery period -- gas-for-power demand was expected to remain elevated for the remainder of December and into early 2017.

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    Gas supply issues could force Australia's largest domestic wool producer to close its doors

    Australia's largest domestic wool producer may have to close its doors because it is unable to get a new natural gas deal, potentially putting 40 people out of work.

    Several suppliers told Victoria Wool Processors at Laverton North, in Melbourne's western suburbs, they were unable to meet the business's demands for gas next year because of a supply shortage.

    It takes 110,000 gigajoules of gas to heat and treat the 12,000 tonnes of greasy wool the company produces every year.

    David Richie, the company's general manager, said the current contract with Energy Australia expires at the end of the year.

    "It's a scary thought to go into Christmas not knowing that you've secured a vital ingredient," he said. "You can't run these plants without gas."

    The business is not large enough to buy gas wholesale and retailers have offered quotes for double the current price, which Mr Richie says will make the company unviable.

    In a statement, Energy Australia said conditions in the gas market have made it harder to secure supply.

    "Australia depends on reliable and affordable supplies of gas to warm homes, power businesses and to sustain jobs, but today there is less gas available in the market, despite Australia's abundant natural resources," a statement read. 'If you believe in manufacturing, this needs to be sorted out'

    Mr Ritchie called on the Government to limit the amount of gas exported from Victoria.

    "Australia has just become the biggest exporter of gas in the world. If you believe in manufacturing, this needs to be sorted out quickly," he said.

    Victorian Energy Minister Lily D'Ambrosio said there was no shortage of gas in Victoria, but prices were rising.

    "We have more than sufficient gas right now. Victoria will remain a net exporter of gas. And the future is a sure one," she said.

    "We are seeing gas prices that are increasing as a result of the fact that we are having gas from Australia for the first time exported globally from Queensland."

    Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said Australia would run out of gas by the end of the decade unless there was new exploration soon.

    "The East Coast gas market is very tight and is becoming tighter and by 2019 there is expected to be a shortfall of supply on the East Coast and that's going to have an impact on households and industry," he said.

    The Victorian Government introduced legislation banning exploration and development of unconventional gas, including fracking, earlier this year.

    "Gas is obviously widely used in industry and it's critical for the plastics and chemicals industry, the paper industry, fertilisers, the production of a host of products," Mr Roberts said.

    Victorians use about four times the amount of gas of residents in Queensland and New South Wales, he added.
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    OPEC non-OPEC meeting in Moscow

    Meeting between OPEC & non-OPEC to take place in Moscow on Dec 10. sources.

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    OPEC deal pushes Asian LNG prices to $7.40/mmBtu

    OPEC’s recent announcement it would cut crude oil production has boosted Asian spot LNG prices to their highest this year so far.

    Spot prices for Asian LNG increased 30 cents from last week to around $7.40 per million British thermal units (mmBtu), Reuters reported on Friday citing trade sources.

    Driving the price up was the agreement reached between OPEC and Russia to cut the output in order to tackle the oversupply that put pressure on the market for over two years.

    Following the deal, oil prices jumped over 10 percent, reaching $53 per barrel.

    The rise had an effect on Asian spot LNG prices that hit the highest level since November 2015. The report notes that 80 percent of Asian LNG supply contracts are linked to the price of crude and the cost of shipping has also been a contributor to the rise of the spot LNG price.

    However, the cut in crude output could have another effect on the spot market as the price difference between oil linked contracts and spot cargoes could increase significantly.

    Reuters cited Wood Mackenzie’s analyst Chong Zhi Xin as saying that the buyers could start opting for spot cargoes instead of their long-term contracted supplies.

    The cold weather is also playing a significant role in the spot LNG price jump since it is expected that Asian utilities start purchasing cargoes from the spot market in order to meet the winter demand.

    Attached Files
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    Ahead of promised cut, Russia's oil output hits record high

    Russia plans to use its post-Soviet era record high November oil production as its baseline when it cuts output under this week's deal with OPEC, Deputy Energy Minister Kirill Molodtsov said on Friday.

    Russia has promised to gradually cut output by up to 300,000 barrels per day (bpd) in the first half of 2017 as part of a deal with other producers aimed at supporting oil prices.

    Its daily oil production rose to an average of 11.21 million bpd in November, a new post-Soviet era high, energy ministry data showed on Friday.

    That was 500,000 bpd higher than in August, the month before Russia and OPEC reached a preliminary agreement in Algiers to cut production.

    Under this week's follow-up agreement, the first between OPEC and Russia since 2001, specific cuts for individual states were set, with almost all OPEC members agreeing to cut from October levels.

    But Russia will use its November-December output levels, Energy Minister Alexander Novak told reporters on Thursday.

    November's production rose only slightly from October, by just 10,000 bpd, ministry data showed.

    "The peak of daily production for November was 11.231 million barrels," Deputy Energy Minister Molodtsov told a conference in Moscow.

    "All our agreements will clearly be formed around this figure, he said.

    Lukoil and Surgutneftegas raised output in November while production slipped at fields operated by Rosneft, Gazprom Neft and their joint venture Slavneft, preliminary data showed.

    Rosneft, Gazprom Neft and Lukoil have all launched new fields this year and increased drilling, despite low oil prices.

    Energy Minister Novak said on Thursday that all Russian companies would contribute to Russia's planned output cut.

    Novak also said Azerbaijan, Kazakhstan, Mexico, Oman, Bahrain and other non-OPEC producers could join the deal and that he expected them to jointly match Russia's cut of 300,000 bpd.
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    Asia sees OPEC deal could spark arb crude flows from west

    Asian crude importers could see their Middle East term supplies affected by OPEC's agreement to cut production, but tighter sour crude supply may open up arbitrage opportunities for moving more sweet crude from the Atlantic, market sources said Thursday.

    OPEC's plan to hold production at 32.5 million b/d starting January 1, 2017 -- the first coordinated cut since the depths of the global financial crisis in 2008 -- amounts to an approximate 1.2 million b/d cut from the producer group's current output levels. The deal exempts Libya and Nigeria and is contingent on key non-OPEC producers also agreeing to cut 600,000 b/d.

    "This could have a big impact [on Asian refiners] as it's Middle East crude [most affected by the] cuts. So if fulfilled, Middle East crude [supply] gets a lot tighter," a Singapore-based trader said.

    But North Asian refiners said OPEC's announced production cut could be absorbed within the tolerance flexibility clause in their term contracts with Middle East suppliers.

    "We will need to pay attention to whether suppliers will keep their supplies at 100% against contracts," a North Asian refiner source said. "A focal point is whether [OPEC's output deal] will be absorbed within [contractual] tolerance or [results in] deeper cuts."

    Asian crude importers will be able to assess the seriousness of OPEC's intention to cut output by around mid-December when they nominate VLCCs for January crude loadings, a North Asian refiner said, adding that that is when importers will be informed about any cuts in term supply volumes from the Middle East suppliers.


    The Middle East sour crude market had been under upwward pressure in the lead up to the OPEC meeting amid expectations that the group would agree to a production cut that will tighten sour crude supply.

    The M1 Brent-Dubai exchange of futures for swaps, or EFS, a key spread watched by the market to evaluate the value of sweet crudes against sour crudes, was at its narrowest in 13 months Monday at $1.79/b, according to S&P Global Platts data.

    The M1 EFS was last narrower on October 29, 2015, at $1.72/b. A narrow Brent-Dubai EFS opens up arbitrage opportunities for Asian importers to bring in sweet crudes from the West instead of Middle East sour grades. The EFS averaged $2.11/b in November, down from $2.64/b in October.

    The OPEC deal, when implemented, could potentially further narrow the spread between sour crudes in the Middle East and sweet crudes in Northwest Europe, making arbitrage barrels from the West attractive to Asian refiners, a trader said.


    Under the OPEC deal, Saudi Arabia agreed to cut its production by 486,000 b/d from October levels, as estimated by OPEC's secondary sources, to 10.046 million b/d. That would be in line with its typical season decline in production, as its domestic consumption typically shrinks in the winter.

    Iraq, which had agitated in the weeks leading up to the meeting for an exemption, agreed to cut 209,000 b/d from its October levels to 4.351 million b/d.

    Iran, meanwhile, will be allowed to produce 3.797 million b/d, an increase from its October production level of 3.69 million b/d, according to OPEC's secondary source estimates.

    Iran had long insisted on regaining its pre-sanctions output of some 4 million b/d before agreeing any output restraints.

    Despite questioning the compliance and execution of the OPEC and non-OPEC output deal, market sources and analysts said the deal would speed up rebalancing of the oil markets when implemented.

    "There's execution risk," IG Chief Market Strategist Chris Weston said. "Will they stick to their quotas?"

    But Weston said the OPEC deal was "a catalyst for the rebalancing process. It will help address the excess inventories of oil sloshing around."

    Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said the global oil markets could be rebalanced "as early as in the third quarter of 2017" if OPEC implements its agreed production cut and oil production from Libya and Nigeria stays at current levels.
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    Alternative Energy

    Solar buzz: QUT team inspired by fly’s eye to boost solar cell efficiency

    Queensland University of Technology researchers have taken inspiration from the humble fly, in the eternal quest to boost the efficiency of solar cells.

    As Dr Karl Kruszelnicki explained on ABC Radio late last year, “some 45 million years ago, on our planet there was a fly that (we think) was active in the dim light around dawn and dusk.

    “One particular fly got caught in the slowly flowing sap of a tree, and ended up both dying and being almost perfectly preserved in what became a block of solid amber.

    “Some 45 million years after it died, modern scientists looked at it with a high-powered electron microscope …(and) noticed some very fine regular corrugations on the front of the fly’s eyes. These corrugations were a regular 250 nanometres apart — less than half the wavelength of blue light.”

    The effect these nano-structures, he added, was that when light was shined on the fly’s eye, no colours were emitted and no light at all was reflected. All the light landing on the front surface of the fly’s eye was entering the eye.

    And, as Dr Karl put it, “here’s where we can learn from nature.”

    The QUT researchers have mimicked the fly eye design to create a three-zone nanomaterial that captures energy across a wider solar spectrum than conventional solar cells, using only one material – zinc oxide.

    According to Dr Ziqi Sun, a senior research fellow at QUT’s Science and Engineering Faculty, the fly-eye solution comes “very close to perfection,” and could readily be incorporated into modern solar cells for an impressive boost in energy harvesting.

    Dr Sun is talking about the underlying technology that he and his colleagues have developed to make nano-structures using sheets of metal oxides at this week’s Physics Congress in Brisbane, and the new solar cell design will be published in Materials Today Chemistry.
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    Japan's CO2 emissions drop 3pct to 5-yr low in FY2015

    Japan's greenhouse gas emissions fell 3% to a five-year low in the financial year through March due to lower power demand, growing renewable energy and the restart of nuclear power plants, government figures showed on December 6.

    Emissions fell for a second straight year to 1.321 billion tonnes of CO2 equivalent, hitting the lowest since fiscal 2010, according to Ministry of Environment preliminary data.

    Japan's emissions rose after the March 2011 Fukushima disaster that led to the closure of nuclear power plants and an increased reliance on coal.

    The world's fifth-biggest carbon emitter, Japan, has set a goal to cut its emissions by 26% from 2013 levels by 2030, and last month ratified the 2015 Paris Climate Change Agreement to prevent climate change.

    The 2015 figure was down 6.0% from 2013, due to power saving and a cooler summer and warmer 2015/2016 winter.

    Wider use of renewable energy in the wake of Fukushima and the restart of Kyushu Electric Power's two reactors at Sendai nuclear power station also lent support, said Madoka Konishi, chief official at the ministry's low carbon society promotion office.

    Two of Japan's 43 reactors were restarted during the year through March 2016, marking the nation's first nuclear power generation since September 2013.

    Currently, only two reactors are generating power and the pace of restarts has been slower than many expected as all units need to be relicensed after being idled in the wake of the meltdown at Tokyo Electric Power's Fukushima Daiichi nuclear plant in March 2011.
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    China to boost biomass energy development in 2016-2020

    China will boost the development of biomass energy in the next five years to reduce coal consumption and improve air quality, the National Energy Administration said Monday.

    China will achieve biomass energy equivalent of 58 million of tonnes by 2020, according to the administration's 2016-2020 biomass energy development plan.

    The use of biomass energy will be more commercialized and industrialized by 2020, the plan said.

    Biomass is defined as biological material--generally farm or forestry byproducts--that can be used directly to produce heat via combustion or indirectly after being converted to various biofuels.

    Although China produces the biomass energy equivalent of about 460 million tonnes of coal annually, mostly for biogas, biomass power generation and biomass heating,the vast majority is not harnessed as the proper technology is not fully in place.

    China is promoting non-fossil energy, including biomass energy, to power its economy in a cleaner, more sustainable fashion. The government aims to lift the proportion of non-fossil energy in the energy mix to 20 percent by 2030 from the current level of around 11 percent.

    China's energy mix is currently dominated by coal.
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    Seven French Nuclear power plants to restart

    French nuclear regulators have approved the restart of seven EDF reactors after completing safety checks

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    Ukraine PM says Odessa fertilizer plant sale has failed

    Ukraine's Prime Minister blamed the State Property Fund for the failure of a second attempt to sell a state-owned fertilizer plant in Odessa, seen as a test of a Western-backed push for privatization and reform.

    "The auction for the privatization of OPZ has shown that the institution (the State Property Fund) is not capable of carrying out effective privatization," Prime Minister Volodymyr Groysman said in a government meeting.

    The Odessa Portside Plant was meant to be the centerpiece of the privatization drive, but an initial attempt in July did not attract a single buyer partly due to a starting price above $500 million.
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    Precious Metals

    Big drop in South Africa platinum output

    On Friday, palladium and platinum prices continued to drift lower with Nymex contracts for March delivery down slightly to exchange hands for $736 and $934 an ounce respectively.

    While gold is down nearly $180 an ounce since Donald Trump's victory in the US presidential elections and silver and platinum have both dropped, palladium has gained more than 10% over the same period. Measured from its January low palladium is up more than 56%.

    Platinum has underperformed the precious metals complex and now trades only 7.7% for the better in 2016 following a 28% slide over the course of last year.

    Together Russia and South Africa control between 70% and 80% of the world’s supply of PGMs, with the latter dominating platinum and rhodium output.

    Statistics released on Thursday show South African PGM production fell by 5.7% year on year and 4.5% month on month in October, but a new note from Capital Economics sees the fall in output doing little to support prices:

    It is possible that the recent weakness in platinum prices – prices were 9% m/m lower in rand terms and 8% m/m lower in US dollar terms on average during the month – is starting to weigh on miners’ profitability, incentivising them to cut output.

    Indeed, there were no reports of any major disruption that could justify such a big drop in production. That said, output is now only down 1.2% year-to-date, which might not be sufficient to rebalance the market. Above-ground stocks remain abundant and demand might not grow as strongly once the effects of China’s stimulus in the first half of this year start fading.
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    South Africa's Sibanye Gold to buy Stillwater Mining for $2.2 bln

    Sibanye has entered into a definitive agreement to acquire all of the outstanding common stock of Stillwater Mining for $18.00 per share in cash, a 23 percent premium on the firm's closing price on Thursday, the South African firm said in a statement.
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    China bank ICBC seals first debt-for-equity swap with Shandong Gold

    Industrial and Commercial Bank of China (ICBC) , the country's biggest lender by assets, said on Friday it has signed a 10 billion yuan ($1.45 billion) debt-for-equity swap with Shandong Gold Group to reduce the company's debt burden.

    This deal marked ICBC's first debt-for-equity swap since Beijing launched the scheme in October in a bid to reduce its $18 trillion in corporate debt, equivalent to 169 percent of domestic output.

    Shandong Gold Group, China's second biggest in terms of gold production and gold reserves, will see its corporate leverage lowered by 10 percentage points after the debt swap, ICBC said in a statement.
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    Agnico Eagle buys shares in gold explorer

    Canadian gold miner Agnico Eagle has entered into a share purchase agreement with G4G Capital to earn 19.93% of its total issued and outstanding common shares at $1.20 apiece.

    On closing of the transaction, which is expected on or around December 13, Agnico Eagle and G4G, which will be renamed White Gold Corp, will enter into an investor rights agreement.

    This will give Agnico Eagle the right to participate in certain equity financings to maintain its 19.93% interest, as well as the right to nominate one person to the board of directors.

    The agreement will also give G4G the right to designate a buyer in the event that Agnico Eagle wishes to sell more than 5% of its common shares.

    Further, Agnico Eagle will be subject to a two-year standstill, which will prohibit it from taking certain actions, including acquiring more than 19.99% of the issued and outstanding common shares, subject to certain exceptions.

    G4G has an option to acquire 12 301 claims across 21 properties, covering about 249 000 ha and representing about 30% of the White Gold district in the Yukon Territory from Wildwood Exploration and G4G’s chief technical adviser Shawn Ryan.
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    Barrick Gold says Latam key to growth as it adds director

    Latin America will play an increasingly important role in Barrick Gold's growth strategy, the world's biggest gold miner said on Tuesday as it named a new director with decades of mining experience in that region.

    The company said it had appointed Pablo Marcet to its board.

    Marcet worked for 15 years for global miner BHP Billiton and was president of Northern Orion Resources' South American operations before the company was acquired by Yamana Gold.

    "Mr. Marcet's deep operational and geopolitical experience in Latin America will be a vital asset as the company evaluates new investments in the region," Toronto-based Barrick said.

    Several of Barrick's biggest gold projects are in Argentina and Chile, including the large, stalled Pascua-Lama venture, its more recent Alturas discovery and the Cerro Casale deposit. The projects are located along the gold-rich El Indio belt, where Barrick's existing Veladero mine is located.

    Barrick said in September that it planned to work on a scaled-back development plan for Pascua-Lama, an $8.5 billion project that was put on hold in 2013 in response to a slump in gold prices, political opposition to the project, environmental issues and labor unrest.
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    Environment group takes De Beers Canada to court over mercury

    An environmental group said on Tuesday it filed a lawsuit against De Beers Canada, accusing the diamond producer of failing to report toxic levels of mercury and methylmercury at its Victor diamond mine in northern Ontario.

    The Wildlands League alleged that De Beers Canada failed to report mercury levels from five of nine surface water monitoring stations for the creeks next to its open pit mine between 2009 and 2016.

    This was an offense under the Ontario Water Resources Act, the group said in a statement. It said it had alerted the province of Ontario and De Beers Canada to the failures more than 18 months ago.

    The remote fly-in/fly-out Victor mine in the James Bay Lowlands of Ontario is about 90 km (56 miles) west of the Attawapiskat First Nation.

    "After months and months of silence from Ontario, we felt we had no choice but to file charges," said Trevor Hesselink, Wildlands League's director of policy and research.

    De Beers Canada said in a statement that while it could not comment specifically on the allegations while they were before the courts, the suggestions that its environmental reporting had not been appropriate for seven years were inaccurate.

    "Our reporting requirements were expanded to a more robust and comprehensive program when the mine began operations in mid‐2008," the Calgary-based company said.

    The miner also said that mercury was naturally occurring and had been present in the region long before mine construction. Mercury is not used in the mining process, it added.

    Ontario's ministry of environment and climate change said it had previously "provided direction" to De Beers Canada regarding monitoring and reporting requirements at the mine.

    "As a result, improvements were made to the 2016 reporting process," the ministry said in an emailed statement. It added that it has remained in close contact with De Beers to ensure the company follows all the conditions of its permits.

    California EPA says settled with Apple on hazardous waste claims

    Methylmercury is created when mercury, a metal that poses health risks, is dissolved in freshwater and seawater.

    The Victor mine is set to close in 2018 unless De Beers Canada, a unit of global diamond producer De Beers, proceeds with an expansion.

    De Beers is 85 percent owned by miner Anglo American Plc.

    Attached Files
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    New Islamic banking rules make gold an accepted investment

    Gold transactions must be fully backed by physical metal and settled on the same day, the developers of the new guidance said, to observe Islam's distinction between real economic activity and speculation. 

    Gold has become an accepted investment in the Islamic world for the first time as it can now be used as a commodity to back Sharia-based financial products, thanks to new standards announced Monday.

    The fresh rules, said the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council (WGC), pave the way for Islamic institutions to trade not just gold but also silver in a much more actively fashion.

    Transactions must be fully backed by physical metal and settled on the same day to observe Islam's distinction between real economic activity and speculation.

    Until now, there were no specific rules for the use of gold as an investment in the Islamic finance industry, they noted.

    AAOIFI spent about a year working out the new guidelines on gold trading with the WGC, and agreed them last month.

    "The complexity of Islamic attitudes toward gold products has led to a scattered and fragmented set of rulings," the council said in a statement.

    "This lack of uniformity is a major impediment to the development of gold financial products in Islamic finance. Creating harmonized and authoritative Sharia guidance for gold is imperative therefore, if the asset class is to become more widely accepted by Islamic investors."

    Gold transactions must be fully backed by physical metal and settled on the same day, the developers of the new guidance said, to observe Islam's distinction between real economic activity and speculation.

    Gold joins equities, real estate, Islamic bonds (sukuk) and takaful (insurance) as vehicles approved for Islamic finance, said AAOIFI. Sukuk volume slipped 1.4 percent in 2015 after the Malaysian central bank terminated its short-term sukuk issuance program, it noted.

    The standards authorize acquiring gold through agents, which will allow for exchange-traded funds (ETFs) and online retail platforms, the WGC said.

    After becoming one of the best-performing assets in the first half of the year, gold has had a rough ride, recently dropped back to below $1,200, which has tempered interest in safe haven investments.

    Attached Files
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    Lukoil sells Russian diamond mine for $1.45bn

    Lukoil has sold its 100% stake in a joint stock company (JSC) that controls a diamond mine in the north of Russia for $1.45billion.

    The sale of Arkhangelskgeoldobycha to the holding company behind Otkritie Financial Corporation Bank is expected to go through early next year.

    The JSC is developing the VP Grib diamond mine in the Arkhangelsk region, which was discovered in 1995.

    Alexander Matytsyn, senior vice president for finance at Lukoil, said: “We successfully developed a major diamond project from its very early stage and brought the Grib diamond mine to almost full capacity on time and within budget.

    “Spinning-off of this non-core asset allows us to effectively monetize the significant shareholder value that we have created over the past five years.”

    Dmitry Romaev, a board member at Otkritie Holding, said: “The acquisition of a 100% stake in Arkhangelskgeoldobycha is a strategic investment in an attractive asset with potential for further development.

    “This acquisition diversifies Otkritie’s range of business interests as the largest privately-owned financial company in Russia.”
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    Base Metals

    China ex-works Shanxi alumina rallies Yuan 50/mt to Yuan 2,900/mt

    Chinese spot alumina prices rallied further on Wednesday as offers continued to rise on strong sentiment, driven by a combination of tight spot supply, prevailing transport issues, increased costs, seasonal restocking, environmental inspections, and anticipated heavy snow this winter.

    The Platts China daily alumina assessment ex-works Shanxi basis stood at Yuan 2,900/mt ($421/mt) full cash terms on Wednesday, up Yuan 50/mt from Tuesday, and also up Yuan 100/mt on the week and Yuan 220/mt on the month.

    On Wednesday, a south central China smelter reported buying 20,000-30,000 mt at Yuan 2,900/mt cash ex-works Shanxi basis.

    "We have no choice, offers are all going up and prices will likely reach Yuan 3,000/mt soon, and we'll probably have to keep paying," a source from the south central China smelter said.

    A Shanxi refiner agreed, indicating offer levels in Shanxi ranging at Yuan 2,950-3,000/mt cash currently, up from Yuan 2,900-2,950/mt.

    "We are also offering Yuan 3,000/mt cash now, and we believe tradeable levels will reach that by end-December," the refiner said.

    Tradeable spot alumina prices in Henan province were also indicated higher Wednesday at Yuan 2,900-2,950/mt cash, up from mostly around Yuan 2,900/mt cash previously.

    A Henan refiner said he heard a trade done at Yuan 2,970/mt ex-works Henan at partial credit terms, while a South China smelter heard deals may have been concluded even higher around Yuan 3,000/mt cash. Both potential deals were unconfirmed Wednesday.

    "Nothing is available below Yuan 2,900/mt now, prices are all about the same, be it in Shanxi, Henan or Guangxi ... demand is just very strong while spot supply is tight," the South China smelter said.

    Another South China smelter agreed, adding that, "We've even been approached by Xinjiang smelters recently, asking if we had extra alumina to sell ... we have some, which we are now quoting Yuan 3,000/mt cash as well."

    Ex-works Guangxi alumina prices were heard tradeable at Yuan 2,900-2,950/mt cash on Wednesday, up from Yuan 2,850-2,900/mt.

    The front-month primary aluminum contract on the Shanghai Futures Exchange closed at Yuan 13,450 mt on Wednesday, down from Yuan 13,680/mt last week, and also from Yuan 13,960/mt a month ago.
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    Stars may align for giant Papua New Guinea copper mine

    After nearly 50 years on the drawing board, the latest backers of Papua New Guinea's $3.6 billion Frieda River copper project say the time may finally be right for the giant mine - even if some hurdles remain.

    Regarded as one of world's largest untapped copper-gold resources, the deposit has sat dormant as successive owners, including some of the world's biggest mining houses, proved unwilling or unable to spend the billions of dollars needed to construct a mine in remote jungle far from the country's coast.

    Current owner PanAust Ltd, a former listed Australian miner now a unit of China's Guangdong Rising Assets Management (GRAM) [GDRAM.UL], has submitted an application for a special mining license to the PNG government for an initial $3.6 billion project.

    PanAust managing Director Fred Hess points to the success of ExxonMobil's $19 billion liquefied natural gas plant, which has been running for two years in a country known for its difficult terrain, lack of infrastructure and sometimes fractious landowners.

    "It gives the backers of Frieda River the confidence that we can get all of this together and finally make it a reality," Hess told Reuters at a mining conference on investment in the Pacific country.

    Bankers, too, are penciling in Frieda River as one of a number of projects likely to be needing financing.

    "The first stage of Frieda River is $3.6 billion. The second phase is another $2.3 billion on top of it," said Wai Mun Lum, ANZ's head of mining and resources infrastructure, project and export finance.

    "We do really feel quite excited about opportunities in PNG that will be coming up in the project financing space."

    Analysts say factors in the project's favor include a forecast world shortage of copper in coming years, China's desire to secure supplies and the sheer scale of the project.

    "Now more than any time before, Frieda River could see the light of day," said Gavin Wendt, analyst for MineLife in Sydney, who ranks the deposit among the next generation of mega-projects.


    Papua New Guinea once supplied millions of tonnes of copper ore to smelters in Asia and Europe in the 1980s and 1990s.

    Rio Tinto was run off the restive Bougainville Island in 1990 by residents who wanted to reintroduce an agrarian society.

    A decade later BHP Billiton relinquished ownership in the Ok Tedi mine to a government trust following claims by landowners over toxic mine waste in local waterways.

    PNG Prime Minister Peter O'Neill, facing an election in mid-2017, has made foreign investment in new resource projects a priority for his administration as he seeks to boost growth .

    "Frieda River is a very important project for my country," O'Neill told Reuters at the conference.

    But hardheaded financing decisions are still to be made.

    PanAust says it is unlikely to be issued a special mining license needed to proceed to the initial phase of development, before next year's election.

    "Our timing hasn't been all that good," said Hess. "Once the election is over and there is a mandate from the government, things will begin to move smoothly," he said, but added the caveat that there was "quite a way to go" before an investment decision was made.

    Bankers also cautioned that proposed changes to mining laws are creating uncertainty, while the project will need deep pockets to build port and power facilities and an air strip, with the likely backers unlikely to have the funding capacity of an ExxonMobil.

    Even with a quick go-ahead, Highlands Pacific, which has a 20 percent stake in the project, says the current timeline would include two years for approvals and six years for construction, meaning first production no earlier than 2024/25.
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    Peru asks Las Bambas copper mine to resubmit environmental plan

    The government of Pedro Pablo Kuczynski has asked MMG Ltd's copper mine Las Bambas to seek fresh approval for its environmental plan to correct any possible shortcomings, the vice president said Wednesday.

    Martin Vizcarra said Las Bambas, one of the world's biggest copper pits, would be able to operate as usual while it prepares an "integral" environmental impact study - part of the new government's bid to rebuild trust with local communities following deadly protests that suspended exports in October.

    Previous governments approved the mine's original environmental plan and subsequent modifications that allowed its concentrates to be transported to port on local roads instead of through a pipeline as initially proposed.

    But residents in the highland region of Apurimac have said they were not consulted on the revisions and have protested pollution from hundreds of trucks carrying copper concentrates on unpaved roads near their communities every day.

    "We've asked the company to start the process of modifying its environmental impact study within three months," Vizcarra told Reuters after visiting Apurimac to hold talks with local leaders. "We want to prevent and correct all the mistakes or deficiencies that may have occurred."

    Vizcarra has been leading the government's efforts to ease tensions near the Chinese-owned mine but said it was too early to specify how its environmental plan might be revised, saying only that "everything that has been changed" was on the table and that local communities would be involved.

    Las Bambas representatives did not immediately respond to requests for comment outside of normal working hours.

    Vizcarra, who is credited with helping resolve a dispute over another large copper project when he was governor of an important mining region, helped end a stalemate with protesters near Las Bambas in October when a province-wide road blockage threatened to shut the mine down completely.

    A key road has remained blocked by four Quechua-speaking communities but the company has continued to use alternate routes to transport its concentrates, Vizcarra said.

    The government has proposed buying the land that the blocked road passes through from the towns for about 17 million soles ($5 million), Vizcarra said. That road and two others would then be paved.

    The centrist government of former investment banker Kuczynski, who took office in July, has also proposed about 2 billion soles ($588 million) in social and development plans to help poverty-stricken towns near Las Bambas, Vizcarra said.

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    Nevsun off to the races after eye-popping Serbia assays

    Nevsun Resources Timok copper project continues to boost the stock of the Vancouver-based company with a 5% jump on Wednesday following the latest set of drilling results from the Serbian property.

    By the close in New York, Nevsun shares changed hands at $3.30, up 4.8% on the day, and in after hours trade investors continued to chase the counter higher affording it a market capitalization of $987 million. Nevsun is up 21.8% in value this year.

    Nevsun highlighted new assay results from on-going drilling of the super high-grade Upper Zone at Timok, part of 50,000 metres $40 million program through 2017:

    Drilling continues to confirm continuity and the high-grade nature of the Upper Zone
    New massive and semi-massive sulphide intersections include:

    TC160121:  182.3m @ 4.17% Cu, 4.80g/t Au, including 40.5m @ 11.61% Cu, 12.9g/t Au
    TC160119:  86.2m @ 9.47% Cu, 8.83g/t Au, including 46.5m @ 15.61% Cu, 11.29g/t Au
    TC160117:  98.8m @ 9.82% Cu, 8.86g/t Au, including 33.0m @ 20.04% Cu, 14.35g/t Au
    TC160114:  171.0m @ 4.94% Cu, 5.21g/t Au, including 10.5m @ 11.09% Cu, 17.82g/t Au and 24.0m @ 10.27% Cu, 6.71g/t Au, and 7.5m @ 7.88% Cu, 3.78g/t Au

    Additional 18,500m of drilling in progress to further improve confidence in the resource

    Nevsun CEO, Cliff Davis said the assays represent about 25% of the planned in-fill drilling designed to confirm and upgrade the resource of the Upper Zone mineralization and that the pre-feasibility study scheduled for September 2017 is "progressing well":

    "Recent meetings with both the Prime Minister of Serbia and the Minister of Mines and Energy have demonstrated the State’s very strong support for international investment and in particular, the development of the Timok Project.”

    The Upper Zone at Timok, located in the eastern part of the Eastern European country near the Bor mining and smelting complex, boasts copper and gold content consisting of 1.7 million tonnes of indicated resource grading 13.5% copper and 10.4 g/t gold and 35.0 million tonnes of inferred resource grading 2.9% copper and 1.7 g/t gold.

    Nevsun completed a takeover of Reservoir Minerals in June in a $440 million cash and shares deal which provided the companies 100% ownership in the upper zone of Timok, which had previously been owned by Reservoir and Freeport McMoRan. Nevsun shareholders own two-thirds of the combined company.

    Nevsun and joint venture partner Freeport is also undertaking a $20 million drill program at the Lower Zone at Timok which is characterized by porphyry-style mineralization.

    Nevsun's sole operating mine is the Bisha complex in Eritrea. Nevsun owns 60% (the Eritrean government owns the rest) of the $250 million Bisha mine which started operations as a gold-silver producer in 2010. Three years later Bisha underwent a $110 million expansion to switch to copper concentrate production from supergene ore.

    This year the company pivoted again to expand flotation capacity to produce zinc concentrate with shipments starting in September. Zinc is the best performing metal this year with a 70% jump in price in 2016 to $2,760 a tonne, near levels last seen in 2008.

    Attached Files
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    Copper Mountain expects to exceed production guidance

    Continued mining activities at CopperMountain Mining’s eponymous mine, in southern British Columbia, during October and November, have seen the company achieve an above-average mining rate of 193 550 t/d, against its 174 000 t/d budget.

    The TSX-listed miner said in a statement on Tuesday that its yearly production was on track, with year-to-date copper production totalling 76-million pounds of copper, which is slightly ahead of guidance for the year. The company also produced 14.4-million pounds of copper during the months of October and November.

    A total of 12.4-million tonnes of material was mined, including 4.4-million tonnes of ore and 8-million tonnes of waste, resulting in a strip ratio of 1.8:1 from its Pit 2 area, the Saddle area, and the newly developed Oriole deposit just south of the mine’s Pit 3. High equipment mechanical availability was also maintained during the quarter, which helped contribute to the above-average mining ratesachieved.

    Meanwhile, the miner noted that its mill continued to operate above design capacity rates, averaging 42 079 t/d for the months of October and November. Total tonnes milled during the period was 2.6-million, with an operating time of 93.6%.

    Copper recovery for the two months averaged 80% as initial oxidised ore from Oriole was starting to be processed through the concentrator. The average grade for the two months was as planned at 0.32% copper.

    Further, Copper Mountain noted that gold and silver production from the mine continued to provide a favourable contribution to the operation, accounting for over 20% of the mine revenue.

    "The new production records being achieved at the mine have greatly strengthened our operating base and our balance sheet,” said CEO Jim O'Rourke, adding that the recent rise in the copper price was a welcome change and that gold production continued to provide a strong by-product credit.
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    Glencore producing zinc at minus cost

    Diversified mining and marketing company Glencore is producing zinc at negative cost.

    This year it has been doing so at -3c/lb and next year it expects to do so at an even better -14c/lb, supported by healthy lead by-product credits.

    Zinc, which was one of the last base metal prices to fall, was also one of the first to recover, and so far this year the zinc price has shown a dramatic  price appreciation.

    Bloomberg reports that zinc is headed for its highest close in more than nine years, while lead is set for its strongest finish since 2011.

    Earlier this year, the London-, Hong Kong- and Johannesburg-listed company cut its own zinc production by 500 000 t as it did not make sense to keep producing zinc at a price where it was not generating sufficient margins. It latest zinc price expectation for 2017 is 131 c/lb

    Now the company is committed to bringing that production back in a manner that does not negatively impact the zinc market, allowing its smart zinc traders to dictate the timing.

    “We’re going to be very careful. The demand has to be there,” Glencore CEO Ivan Glasenberg said in response to Macquarie mining analyst Alon Olsha during an investor day conference call in which Creamer Media’s MiningWeekly Online took part.

    Glasenberg does not see increased zinc supply coming from China and points out that supply from new projects is merely replacing material lost to mine closures.

    On the basis of new zinc demand growing by 2% in 2017, 280 000 t of new zinc supply needs to be introduced into what is a 14-million tonne a year market.

    “We don’t see where that’s going to come from,” said Glasenberg.

    The new Gamsberg zinc project being built by Vedanta subsidiary Zinc International in the Northern Cape is replacing the company’s depleted Lisheen zinc operation in Ireland as well as the associated Skorpion in Nambia that is coming to the end of its life.

    The Dugald River coming on stream in Australia also fails to fill the supply gap left by closed Australian zinc mines, notably Century.

    Glencore’s own-sourced zinc is produced mainly in Australiaand Peru, and the company is guiding lower zinc at 1 100 000 t for the year.

    The company is projecting $14-billion of earnings before interest taxation depreciation and amortisation at current productions and capex and costs, with the zinc component of that $2.9-billion. A big plus is the movement of the lead by-product credits.
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    Chile's Codelco plans investments of $3.8 billion in 2017 – CEO

    Chile's state-owned Codelco, the world's largest copper producer, plans investments of about $3.8-billion in 2017 and more cost cutting, CEO Nelson Pizarro said in an interview published on Sunday.

    "Of that, $3.143-billion is in projects, and $651-million is in mine development, which compares to almost $3-billion in 2016," Pizarro told Chile's El Mercurio newspaper.

    Codelco would prioritize an expansion at its massive Chuquicamata mine, he said, while plans to expand its Andina and Radomiro Tomic mines would be delayed. Projects deemed most profitable would take priority, he said.

    Pizarro also said that he hoped for savings from cost cuts of around $400 million in 2016.

    "In the year 2015 ... we saved between $500 and $600 million," he said.

    "This year we hope that there's another $400 million, and in 2017 we hope to reach savings of $200 million as a first phase. We have a goal of structural savings of $2 billion by 2020."
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    Turquoise Hill stops shipments from Mongolian mine to China

    Canadian copper miner Turquoise Hill Resources Ltd said on Friday it had suspended shipments from its Oyu Tolgoi mine in Mongolia across the Chinese border, a day after the imposition of new fees on commodity shipments between the two countries.

    The fee was imposed following a diplomatic row sparked by last week's visit of Tibetan spiritual leader, the Dalai Lama, to Ulaanbaatar.

    The Dalai Lama is cherished as a spiritual leader in predominantly Buddhist Mongolia, but China regards him as a dangerous separatist and warned the visit could damage bilateral relations.

    Turquoise Hill said on Friday that a new requirement at the Chinese-Mongolian border to use one joint coal-and-concentrate crossing route had led to safety and securityconcerns as well as long waiting times.

    The company said it was not clear for how long it would suspend shipments and that it was seeking to clarify the situation with authorities in Mongolia and China.

    Rio Tinto Plc operates the copper-gold Oyu Tolgoi mine, which is 66 percent owned by its Turquoise Hill arm and 34 percent owned by the Mongolian government.
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    Glencore sees nickel shortage as electric vehicle demand burgeons

    Glencore sees nickel shortage as electric vehicle demand burgeons

    Diversified mining and marketing company Glencore sees a shortage in nickel arising as a result of burgeoning demand from electric vehicle (EV) production.

    Batteries used in EVs are consuming about 100 000 t of nickel demand and if 10% of the world’s vehicle fleet transitions to electric power, 400 000 t of nickel would be required on current yearly production of 1.95-million tonnes.

    “We see a shortage in nickel,” Glencore CEO Ivan Glasenberg said in response to BNP Paribas analyst Sylvain Brunet during a conference call in which Creamer Media’s Mining Weekly Online took part.

    Analysis by Fitch Group research arm BMI anticipates nickel prices averaging $10 500/t in 2017, moving up to $13 000/t by 2020.

    “The market does look tight,” said Glasenberg.

    Nickel ore exports are not occurring from Indonesia, where it is taking time for the nickel pig iron plants to be built.

    Also, the Philippines is cutting back on the amount of nickel ore being exported, which has resulted in China producing far less nickel pig iron at a time when demand is increasing considerably and global nickel supply is down year-on-year on price-induced closures.

    By the time Glencore’s Koniambo nickel project in New Caledonia gets into full production of 55 000 t/y in 2020, Glasenberg believes the world will definitely be needing that quantity of nickel.

    In the year to date, the performance at Koniambo’s redesigned Line 1 has demonstrated operational integrity, providing confidence for the go-ahead next month of the construction of Line 2. The full 55 000 t/y capacity will be at an estimated cash cost of $3.75/lb to $4.10/lb.

    A year ago, French President François Hollande officially opened Koniambo, as New Caledonia – located 1 210 km east of Australia, in the south-west Pacific Ocean – is a territory of France. According to Radio France, the power plant for the Koniambo smelter will benefit from concessions worth more than $200-million.

    BMI reports that nickel-cobalt-aluminium and nickel-cobalt-manganese lithium-ion technologies are establishing themselves as the battery chemistry of choice for EVs.

    Its analysts foresee battery demand potentially creating 300 000 t worth of nickel demand in the next five years.
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    Steel, Iron Ore and Coal

    Coking coal price savaged – biggest drop in 17 months

    While the price of futures trading in China and Singapore were swinging wildly in recent weeks, the benchmark for the seaborne market – Australia free-on-board premium hard coking coal tracked by the Steel Index – seemed to consolidate above $300 a tonne.

    Japanese steel mills will be wary of making panic buys during this period in order to avoid pushing the indices higher

    But now it seems volatility has returned to the spot market and the multi-year high of $308.80 for PHCC first hit a month ago may have been the peak. On Thursday the price dropped 2.5% to $291.70 a tonne. It was the steepest decline since July 2015.

    Still, the steelmaking raw material is up fourfold in value over the past year and quarterly contract negotiations between producers and steelmakers could turn out to be the best indicator of where coking coal is heading.

    In its monthly coking coal review TSI says December will mark the start of the quarterly benchmark negotiations, with rumours are floating around that teams from the major miners will arrive in Japan around the second week of the month to kick-off discussions:

    On the 1st Dec 2016, the spread between the FOB PHCC index and Q4’16 benchmark differed by US$108/t, and the Japanese steel mills—”JSMs” – will be wary of making panic buys during this period in order to avoid pushing the indices higher.

    A quick survey revealed that market participants expect the Q1’17 benchmark price to range anywhere between US$250-280/t.
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    Russia posts rises in coal output, exports over Jan-Nov

    Coal-rich Russia produced 348.73 million tonnes of coal over January-November this year, a year-on-year rise of 5.13%, showed data from the Energy Ministry of Russian Federation.

    The country's coal output in November edged up 1.36% from October to 33.9 million tonnes. But the volume was 3.24% lower from the year-ago level, data showed.

    During the first eleven months, the country exported 149.05 million tonnes of coal, increasing 13.2% compared to the corresponding period a year ago.

    Its coal exports stood at 13.83 million tonnes in October, rising 8.98% from the year-ago level but down 2.12% from October.

    Coal output and exports of Russia in 2015 totaled 371.67 million and 151.42 million tonnes, respectively.
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    China banks agree debt restructuring deal with Sinosteel -Bank of China

    Bank of China and five other Chinese banks have signed a debt restructuring deal with troubled steelmaker Sinosteel, in what is among the first significant restructuring deals involving a state-owned enterprise.

    In a statement on Friday, Bank of China outlined details of the agreement with Sinosteel, which could be the formula used for other major overhauls of struggling state-owned enterprises.

    Sinosteel became one of the first state-owned firms to encounter bond repayment problems in 2015. The State Council approved the deal in September, according to an announcement by a Sinosteel unit at the time.

    Debt has emerged as one of China's biggest challenges, with the country's total load rising to 250 percent of GDP last year. Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of GDP, according to figures from the Bank for International Settlements. Most of it is held by state-owned firms.

    Sinosteel's bailout will be divided into two parts, including a business rehabilitation plan and a debt restructuring plan, the bank said.

    The first phase of the debt restructuring will be for more than 60 billion yuan ($8.70 billion) of debt, including principal and interest. That debt will be divided into two parts. One part will be kept by financial creditors.

    For the rest, Sinosteel will set up a stake holding vehicle to issue convertible debt to creditors to swap existing debt, and creditors will have the option to swap convertible debt into equity under certain conditions.

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    Asian steel makers' profitability to weaken in 2017, Moody's

    Asian steel makers are likely to see weakening profitability in 2017 amid spiraling oversupply, after favorable earnings recorded in mid-2016, according to a report released lately by Moody's Investors Service.

    The region's steelmakers will find it difficult to pass on rising raw material costs to customers as demand is expected to slow down during the course of the year, it said.

    The steel production in Asia is expected to decline in 2017, mainly due to contraction in steel demand from China, which accounts for three fourths of total output in the region.

    The proposed tightening of regulatory measures by the Chinese administration may impact property sales volumes in the country, and a drop in China's GDP may stall manufacturing activities, which in turn will curtail steel demand.

    The trade restriction by other regions including the Europe and the U.S. is likely to curb exports from the Asian region. Asian countries, including Japan, South Korea among others, export nearly 40-50% of their steel output.

    Yet Moody's predict that India will turn out to be a bright spot amid all worries. The country will see domestic demand rising significantly in the next year, and the steel protectionist measures such as Minimum Import Price (MIP) and imposition of anti-dumping duties will contribute to an increase in its steel output, said Jiming Zou, vice president and senior analyst of Moody's.

    It must be noted that the country's government has imposed MIP on 66 steel products and anti-dumping duties on various grades of imported steel, he added.

    The increased steel output by India will be inadequate to offset the decline in Asian output, as the country accounts for only around 8% of the regional steel production.
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    China Nov coal exports soar 133pct on year

    China exported 0.82 million tonnes of coal in November, soaring 132.95% year on year but down 8.89% from October, showed data from the General Administration of Customs (GAC) on December 8.

    The value of coal exports was $73.42 million, increasing 166.5% from a year ago and gaining 17.67% from the previous month. That translated to an average price of $89.54/t, up $19.48/t year on year and $12.71/t from October.

    Over January-November, coal exports of the country surged 63.7% from the year before to 8.02 million tonnes. The value totaled $610.66 million, up 33% from a year ago.
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    ThyssenKrupp secrets stolen in 'massive' cyber attack

    Technical trade secrets were stolen from the steel production and manufacturing plant design divisions of ThyssenKrupp AG (TKAG.DE) in cyber attacks earlier this year, the German company said on Thursday.

    "ThyssenKrupp has become the target of a massive cyber attack," the industrial conglomerate said in a statement.

    In breaches discovered by the company's internal security team in April and traced back to February, hackers stole project data from ThyssenKrupp's plant engineering division and from other areas yet to be determined, the company said.

    ThyssenKrupp, one of the world's largest steel makers, attributed the breaches to unnamed attackers located in southeast Asia engaged in what it said were "organized, highly professional hacker activities".

    Globally, cyber attacks on banks, retailers and other businesses have led to widespread consumer data breaches and mounting financial losses in recent years, but revelations of industrial espionage are rare.

    ThyssenKrupp's belated disclosure came a week after an attack on nearly 1 million routers caused outages for Deutsche Telekom customers.

    German business magazine Wirtschafts Woche reported the attacks hit sites in Europe, India, Argentina and the United States run by the Industrial Solutions division, which builds large production plants. The Hagen Hohenlimburg specialty steel mill in western Germany was also targeted, the report added.

    The company declined to identify specific locations which were infected or why it had not previously disclosed the attack. It said it could not estimate the scale of the intellectual property losses.

    A criminal complaint was filed with police in the state of North Rhine-Westphalia and an investigation is ongoing, it said. State and federal cyber security and data protection authorities have been kept informed, as well as Thyssen's board.

    Secured systems operating steel blast furnaces and power plants in Duisburg, in Germany's industrial heartland in the Ruhr Valley, were unaffected, the company said.

    No breaches were found at its marine systems unit, which produces military submarines and warships. The infected computer systems have been cleansed and are now subject to constant monitoring against further cyber attacks.

    A previous cyber attack caused physical damage to an unidentified German steel plant and prevented the mill's blast furnace from shutting down properly.

    The country's Federal Office for Information Security (BSI) revealed two years ago that the attack caused "massive damage", but gave no further technical details and the location of the plant has remained shrouded in mystery.

    Subsequent media reports identified the target as a ThyssenKrupp facility, but the company has denied it was hit.

    The company, a major supplier of steel to Germany's automotive sector and other manufacturers, is looking to merge its European steel operations with Indian-owned Tata Steel (TISC.NS) to combat over-capacity in the sector.
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    U.S. Steel could restore up to 10,000 U.S. jobs

    United States Steel Corp could be looking at restoring up to 10,000 jobs in the United States, Chief Executive Mario Longhi told CNBC on Wednesday, without providing a timeline for the additions.

    "I'm more than happy to bring back the employees that we were forced to lay off during the depressing period," Longhi said in an interview on CNBC.

    U.S. President-elect Donald Trump emphasized his desire to renegotiate trade deals and restore jobs during his election campaign.

    U.S. Steel has cut jobs and idled plants in the country as it tried to keep a lid on costs to tackle a steep fall in steel prices due to a global surplus.

    The company had about 21,000 employees in North America as of Dec. 31, down from about 28,000 in 2007.

    The steelmaker is hoping to accelerate its investments in the United States in near future as improvements to regulation and tax laws would significantly drive growth, Longhi said in the interview.

    Trump put forth a plan in September to simplify the tax code and slash the corporate tax rate to 15 percent from 35 percent.

    Investors have put fresh bets on steel company shares on a positive sentiment in the industry that has been fueled by the Nov. 8 election.

    "I have not felt an environment of positive optimism, where forces are converging to provide for better environment in quite a while," Longhi was quoted as saying in the interview.

    U.S. Steel did not immediately respond to a request for a comment on the job restoration plan.

    The company's shares closed up 4.3 percent at $37.49 on Wednesday. The stock has risen 79 percent since Trump's victory.
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    Tata Steel sweetens offer to UK workers, moves closer to merger

    Tata Steel UK on Wednesday offered British unions a deal guaranteeing jobs and investment in return for cutbacks to pensions, moving the company a step closer to merging its European assets with Germany's Thyssenkrupp (TKAG.DE).

    Britain's largest steelmaker offered to keep production at the country's largest steel plant in Port Talbot, Wales, going for at least five years, with a commitment to try to avoid any compulsory redundancies for five years, steel unions said.

    It also offered to invest 1 billion pounds in its UK business over the next 10 years.

    In return however, Tata, which employs some 4,000 people at the Welsh plant and 11,000 in the UK as a whole, wants to close employees' costly final salary pension scheme to future accruals and replace it with a defined contribution scheme.

    Unions will ballot on the plan in January next year.

    They are concerned that should they agree to let Tata close the current pension scheme, the company will look to spin it off into a standalone entity that could eventually fall into the Pension Protection Fund (PPF) if necessary.

    The PPF is a life-boat for failing schemes that would cut benefits by 10 percent for employees below retirement age.

    "These significant commitments on production, jobs and investment are welcome, however the move to close the British Steel Pension Scheme will clearly be of serious concern to all members," said the Community union in a statement.

    The union noted, however, that Tata was now offering to contribute up to 10 percent to a new pension scheme for workers, versus a previous offer of 3 percent.

    Still worries over the company's pensions and merger plan remain.

    Industrial group Thyssenkrupp, which has long been seeking a solution for its ailing steel business, has insisted it is not prepared to take on Tata's pension liabilities in the event of a merger.

    Moreover, the company has made clear that its primary aim in merging with Tata is to combat overcapacity in the steel sector.
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    China Nov coke exports up 10.7pct on year

    China exported 0.93 million tonnes of coke in November, rising 10.7% year on year and up 6.9% month on month, showed data from the General Administration of Customs (GAC) on December 8.

    Total export value of the steelmaking material in the month increased 56.3% from a year ago and up 35.5% from October to $185.07 million, equivalent to an average export price of $199/t, up $41.95/t month on month.

    Over January-November, China's coke exports were 9.22 million tonnes, rising 12.4% year on year, with value dropping 5.5% from the year prior to $1.25 billion.
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    China's coal imports from Newcastle terminals gain 48pct in Nov

    Australian coal exports from the Port Waratah Coal Services (PWCS) terminals (Carrington and Kooragang) at Newcastle to China rose 48% from October and surged 123% from a year ago to 1.56 million tonnes in November, PWCS said in the latest performance report.

    Chinese buyers imported more coal to meet demand and offset shortfall in domestic market, as miners produced less amid the government's de-capacity drive. Data showed China's coal output dropped 12.3% and 12% in September and October, respectively.

    The coal terminals exported a total 9.28 million tonnes of coal in November, rising 6.73% from October and up 16.2% from the same month last year. Of the total shipments in November, 86% were thermal coal and the remainder was coking coal, PWCS said.

    Of this, 4.67 million tonnes were shipped to Japan, an increase of 6.73% from October, mainly due to strong replenishing demand after the end of term contract talks with Australian miners.

    South Korea received 1.15 million tonnes of coal in November, up 24.53% from the month before, driven by a strengthened demand for winter heating. Yet the volume was also 22.77% lower than November last year, as the country began to take other sources like Indonesia and Colombia amid high cost of Australian coal.

    Exports to Taiwan slumped 24.62% month on month to 0.94 million tonnes in November, data showed.

    Over January-November, PWCS exported a total 99.03 million tonnes of coal, the operator said.

    By the end of November, the PWCS terminals had 21 vessels waiting to load coal, flat from a month ago.

    Coal stockpiles at these two terminals stood at 1.57 million tonnes at the end of November, down 27.6% from end-October, of which 0.25 million tonnes were at Carrington and 1.32 million tonnes were at Kooragang.

    Coal exports at Newcastle are likely to rise in the short run, as the Asian-Pacific region needs more coal to burn for winter heating, and Australian coal prices are expected to fall back to a reasonable level, following the signing of mid- and long-term contracts between Chinese miners and end users in early December.

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    Peabody wants to repay term loan early thanks to improving coal prices

    US coal producer Peabody Energy Corp said it would seek court approval to repay a $500 million term loan ahead of schedule because it has enough cash to operate in bankruptcy thanks to a rise in coal prices, Reuters reported.

    Peabody obtained an $800 million debtor-in-possession or DIP financing from both secured and unsecured creditors when it joined other large US coal producers in bankruptcy in April, hit by a drop in coal prices.

    The financing included a $500 million term loan, which the company is planning to repay, along with a $200 million bonding accommodation facility for cleanup costs and a letter of credit worth $100 million.

    Since April there has been a significant increase in the price of both the seaborne thermal and metallurgical coal sold by Peabody, one of the world's leading coal producers.

    If Peabody repays the term loan before mid-January, its bankruptcy estate will save more than $12 million in interest payments per quarter, the company said in a filing with the US Bankruptcy Court in Saint Louis. The court must approve the request.

    "Early repayment of the term loan would result in increased savings and flexibility as we move through the later stages of the bankruptcy," Peabody spokesman Vic Svec was cited by Reuters as said.

    Peabody has said it hopes to exit bankruptcy within a year of its 2016 filing, and the recent improvement in coal prices has made a consensual bankruptcy reorganization more likely.

    Peabody's shares, which fell to a record low of $0.55 after its Chapter 11 filing in April, closed at $8.60 in over-the-counter trading on December 2.
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    China Nov iron ore imports jump to 3rd highest month on record

    China imported 91.98 million tonnes of iron ore in November, up 13.8 percent from the previous month and reaching one of the highest volumes on record, official data from the country's customs authority showed on Thursday.

    The total was an increase of 12 percent from 80.8 million tonnes in November last year and was the third highest month on record, behind September's total of 93 million tonnes and the all-time high of 96.26 million tonnes set in December 2015.

    The jump was unexpected as steel mills have slowed output ahead of the winter months, when demand for rebar for use in construction typically slows.

    Steel mills in the world's top steelmaking country have also curbed output as surging costs of raw materials like coking coal and iron ore have eroded profits.

    "I think (the rise) just reflects some adjustments in terms of arrivals after the holidays in October when some shipments may have been postponed," said Helen Lau, analyst at Argonaut Securities in Hong Kong.

    "Otherwise there's no reason for a big rebound in iron ore imports," she said.

    Imports of iron ore hit 935 million tonnes in January-November, setting it up to top 1 billion tonnes this year and surpass the 2015 record of 952.84 million tonnes.

    Imports of steel products rose 2.8 percent from the month before to 1.11 million tonnes, while exports climbed 5.5 percent to 8.12 million tonnes.
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    The ‘weird’ commodity that’s hurting bears as prices double

    Iron-ore’s probably heading for a retreat in 2017 as new mine supply comes online and a surplus builds, according to UBS Group, which acknowledged that the commodity’s recent surge was unexpected and had torpedoed an earlier forecast for a slump this quarter.

    “It’s just surprised me,” Wayne Gordon, executive director for commodities and foreign exchange at the bank’s wealth-management unit, said in an interview in Singapore on Wednesday.

    In early October, Gordon told Bloomberg Television the final two months of the year may mark a “death knell” for the raw material as stockpiles climb. “Iron ore is weird because the inventories are very high in China and it’s got to be pure spec flows,” he said.

    The raw material has doubled since bottoming 12 months ago on growing optimism that demand would remain steady in China and rising speculative interest. The advance, which has persisted even as China’s exchanges sought to curb investors’ enthusiasm, has wrong-footed analysts as well as miners. This week, Barry Fitzgerald, chief executive officer of Australia’s Roy Hill Holdings, said every time he makes a price forecast, he gets it wrong.

    “We’ve had a tough year in 2016,” said Gordon, who now sees the price back down at about $60 a metric ton in six months. “The market’s been balanced, if not in a slight deficit for iron ore, which is remarkable because we had that massive surplus the previous year. But next year, you’ll start to see that building up with a surplus again.”


    Ore with 62% content delivered to Qingdao advanced to $79.73 a dry ton on Tuesday, near the level of $80.83 hit on November 28, which was the highest price since October 2014, according to Metal Bulletin. It’s up 83% in 2016 and heading for the first annual increase in four years. Prices bottomed out at $38.30 in December 2015.

    Iron-ore futures in Dalian climbed 6.6% on Wednesday to close at the highest level since August 2014, presaging further gains in the benchmark price. Steel reinforcement bar in Shanghai also advanced to the best mark in more than two years after authorities in the biggest steel-making province launched a crackdown on illegal production.

    UBS’s views on iron-ore are in sync with Barclays and Citigroup, both of which said this week that prices are expected to fall again as supply expands and demand in China fails to grow. Citigroup sees prices dropping every quarter next year, from $60 in the first three months to $53 in the final period. Barclays put iron ore at $48 in the second half of 2017.

    The inability of the bears to call iron ore prices right this year has been highlighted by Cliffs Natural Resources CEO Lourenco Goncalves. “Do you know what they’re going to say next? They’ll say it’ll be next year,” Goncalves said in September. “That’s the reason I don’t believe them. They don’t know anything.”

    Australia and Brazil are the world’s largest iron-ore shippers, and new projects are being ramped up in both countries, with Vale SA poised to start exports from its S11D venture and Fitzgerald’s mine in the Pilbara building up toward capacity. Australian Trade Minister Steven Ciobo told Bloomberg on Wednesday he doesn’t try to predict where prices are headed.

    “Well, I’m not in the business of crystal-ball gazing on commodity prices,” Ciobo said in an interview in Jakarta. “They are what they are, and as the government, of course, we deal with that. Obviously if the price is better, that’s good for Australia.”

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    China railway bureaus to sign long-term coal transport contracts

    China's state-owned railway departments will sign long-term transport contracts with coal suppliers and buyers to help implement annual coal supply deals, in the latest bid to meet winter demand and tame a months-long price surge, the China Securities Journal reported on December 7.

    For annual supply contracts of more than 200,000 tonnes, railway bureaus will sign transport deals with key miners, the paper cited a senior railway official as saying, following a coal trade fair at the largest coal port city Qinhuangdao last week.

    For larger contracts, with annual supply of over half a million tonnes that have fixed departure and arrival points, railway departments will look at signing deals with both the coal miners and buyers.

    Miners and buyers this month started executing term supply agreements, with one of the first contracts priced at 580 yuan/t ($84.19/t) for 5,500 Kcal/kg NAR thermal coal, Shanghai Securities Journal reported on the same day, a level still significantly below spot rates.

    China, the world's top coal producer and consumer, has in recent months been putting in place measures to prevent a winter shortage of coal, a concern following earlier government-enforced mine closures.

    The government has told key miners to restart production and encouraged miners and utilities to sign contracts below prevailing spot rates.
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    China's coke price hits record high in late Nov, NBS

    China's Grade II met coke price rose 72.9 yuan/t from ten days ago to 2,019.8 yuan/t in late November, hitting record high entering 2016, showed data from the National Bureau of Statistics (NBS) released on December 5.

    China's coke prices have been rising since March of the year, especially during the third quarter, as coke supply fell short of demand affected by low operating rate amid environmental checks and constrained coking coal supply under 276-working day regulation.

    In October, China produced 39.93 million tonnes of coke, up 1.63% from September and 7.3% year on year; total coke output over January-October dipped 0.8% on year to 371.76 million tonnes, the NBS data showed.

    Coke prices in the country may be steady in the short run considering stabilizing coal prices.

    Separately, the price of 1/3 coking coal stood at 1,170 yuan/t during November 21-30, up 60 yuan/t from November 11-20; and the rebar price also increased 23.9 yuan/t to 3,056.8 yuan/t, the data showed.
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    Indonesia's Dec HBA thermal coal price hits record high since 2012

    Indonesia's Ministry of Energy and Mineral Resources has set its December thermal coal reference price, also known as Harga Batubara Acuan or HBA, at $101.69/t, up nearly 20% from the HBA in the preceding month.

    It is now at its highest level since May 2012, with record high year-on-year growth at 90.04%. Moreover, price growth between November and December was the steepest monthly rise ever in the history of the HBA.

    The rally in HBA prices since May this year has been largely driven by a mix of supply cuts and strong demand from China. However, analysts predicted the soar of HBA to be out of steam soon, amid bearish international coal market.

    China now is determined to curb rapid rise of coal prices by allowing all coal mines to operate 330 working days a year till the end of the heating season in late March or early April, boosting thermal coal rail transport, as well as pushing for term contracts between coal producers and utilities.

    By doing so, coal stocks at the country's ports climbed notably. As of December 2, the inventory at six ports of the Bohai Rim totaled 19.57 million tonnes, a gain of 4.95 million tonnes compared to a year prior.

    Meanwhile, China's newly-implemented 2017 coal contract price effective on December 1 has been set at around 585 yuan/t, FOB basis, lower than spot prices, which will result in falling back of the alternative Indonesia material.

    The offer for Indonesian 6000 Kcal/kg NAR coal was heard to be $94/t in the beginning of December, down $12/t from a month ago. The downward was predicted to remain in the rest of 2016 affected by falling Chinese coal prices, thus impacting on HBA prices.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg GAR assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

    The HBA price for thermal coal is the basis for determining the prices of 75 Indonesian coal products and for calculating the royalties producers have to pay for each metric ton of coal they sell locally or overseas.

    It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.

    In 2016, the HBA coal price averaged $61.84/t, slightly higher compared to the average of $60.13/t in 2015.
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    Beijing cuts 2.5 mln of coal consumption in 2016

    Beijing has cut coal burning by more than 2.5 million tonnes of this year, reducing the proportion of coal in the city's total energy consumption to around 14%, the municipal environmental protection bureau announced on December 5.

    Beijing used around 10 million tonnes of coal this year, and the number is expected to be reduced to nine million tonnes by 2020, according to the bureau.

    Beijing has made great efforts to replace rural coal use with cleaner fuels and residential coal-burning management this year, which is estimated to have reduced 39,000 tonnes of soot, 21,000 tonnes of sulfur dioxide and 10,000 tonnes of nitrogen oxide from the atmosphere, according to the bureau.

    Beijing has almost closed all coal-fired boilers in its six core districts as of the end of 2015, and plans to make all of its seven districts in the plain area coal-free by 2017.

    In Beijing, coal is mainly used in industrial facilities and large heating boilers. The capital started to convert coal-fired boilers to clean-energy boilers from 1998.
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    India’s coal export plans heading for the backburner

    India’s nascent plans to export its way out of a domestic coal glut may be heading for the backburner.

    Domestic coal miners, primarily Coal India Limited (CIL), are failing to make much headway with plans to export their coal, with few buyers in neighbouring countries for the low-grade, high-ash content coal that is on offer.

    At the same time, the Coal Ministry is reconsidering its position on exports and is looking to back off from pushing too fast into it export markets, on the grounds that the current coal glut may be a short-term trend.

    Some government policy makers have expressed their views that, should there be a sudden revival of demand from the domestic thermal power sector, there could be sharp drawdown on the surplus, placing commitments to international markets at risk.

    Media reports in Bangladesh have stated that that country’s Energy Minister had ruled out any coal purchases from CIL.

    Bangladesh, which is planning to float global tenders for coal, is keen to clinch deals with miners in South Africa, where it will secure higher grade coal than what is available from India, the Minister has been quoted as saying.

    India’s Coal Ministry has interpreted the comments as Bangladesh voicing its disinterest in sourcing Indian coal for a proposed 1 320 MW thermal power plant, which is being constructed under a bilateral agreement between the two countries.

    In statement last month, CIL said it had achieved coal production of 50-million tons, or about 93% of its target for the month, and off-take agreements of 48-million tons, or about 97% of its monthly target.

    During the April to November period, the miner produced 323.57-million tons, achieving 90%  of the target set by the Coal Ministry with offtake of 340.32-million tons.

    Among the triggers for optimism in the Ministry that the glut might be easing was the fact that pithead stocks with CIL was down 39-million tons in November, from 53.9-million tons in April.
    At the same time, coal stocks with thermal power plants too were on a downward curve and an indication that their off-take from the miner would rise over the next few months.

    Government data indicated that in November coal stocks with thermal power plants were down to 19-million tons, against an estimated demand of 30-million tons, which would prompt these  power plants to make fresh off-takes from CIL.

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    Shenshuo rail line's coal transport exceeds 2016 target

    Shenshuo rail line, which starts from Daliuta in Shaanxi province and ends in Shuozhou in neighboring Shanxi province, hauled 225.08 million tonnes of coal as of December 2, exceeding its target of 224.35 million tonnes for 2016, said operator China Shenhua Group on December 5.

    This is the fifth consecutive year for its coal transport to stay above 200 million tonnes, after reaching 207 million tonnes in 2012.

    Since 2016, the rail line has reduceed coal transport time between Daliuta and Shuozhou from 0.83 day to 0.78 day, releasing tight transport capacity.

    The 266-km line, the second largest coal dedicated railway after Daqin line transporting coal from western production areas to eastern consumption areas, mainly delivers coal from Shenfu and Dongsheng coal fields owned by Shenhua Group.
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    Jiangxi slashes 4.33 Mtpa steel capacity this year

    Jiangxi province in southeastern China has slashed 4.33 million tonnes per annum (Mtpa) of crude steel making capacity and 0.5 Mtpa of pig iron making capacity so far this year, local media reported.

    This means the province has completed its de-capacity target set for the 13th Five-Year Plan period (2016-2020) four years earlier, thanks to great efforts made by the provincial government and steel makers.

    The provincial government provided a series of financial support, including special funds and subsidies, to seven steel makers in the province to cut capacity.

    Jiangxi province also vowed to eliminate 12.79 Mtpa of coal capacity in 2016 by shutting down 205 coal mines.

    More than 283 coal mines in the province will be shut over 2016-2020, slashing over 18.68 Mtpa of coal capacity.

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    Nucor, SDI raise US merchant bar prices $30/st

    Nucor and Steel Dynamics have raised published prices for most merchant bar and structural products by $30/st, effective with new orders Monday, according to newly published price lists.

    If absorbed into the market, the increase would represent the first price hike for MBQ products since May. The increase raises the published price for 2x2x1/4 angles to $631/st ($31.55/cwt), up from a previous list price of $601/st ($30.05/cwt).

    Gerdau previously announced a $50/st increase on merchant bar products November 23, but put the increase on hold December 1 until "input markets settle and a clearer picture is in view," the company said.
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    Glencore acquires full control of Newlands, Collinsville coal mines in Australia

    Glencore has acquired its joint venture partners' interests in the Newlands and Collinsville coal mines in Australia's Queensland, Platts reported on December 5, citing a Glencore spokesman.

    The deal "met the strategic objectives of the respective partners," he said, but did not disclose details.

    The partners in the mines were Japan's Itochu (35%) and Sumisho (10%), and the transaction completed at the end of September, he said.

    Glencore announced in October that it planned to resume production at the Collinsville coal mine due to increased demand for the product.

    The spokesman said that Collinsville is likely to return to production in early 2017 and that it would be "business as usual" at the Newlands open-cut mine.

    There has been very little active mining from the Collinsville pit throughout 2016 with most of the activities focused on drawing down on stockpiles and in-pit inventories which had built up significantly when demand for coal waned.

    Collinsville has 6 Mtpa of coal production capacity and Newlands has 11 Mtpa. Both mines produce thermal and metallurgical coal and export through the Abbot Point Coal Terminal.

    Along with Collinsville, Glencore also plans to restart its Integra coal mine in Australia's New South Wales in early 2017, it said last month.

    Glencore acquired Integra -- formerly Glennies Creek -- last year from Vale and planned to run the mine for two years.

    "The Integra underground mine has been on care and maintenance since July 2014, and Glencore has continued to assess options for a restart against global coal market conditions," it said.

    It expects to produce 1.3 million tonnes of high-fluidity saleable metallurgical coal at Integra in 2017, Glencore said.
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    Mongolia hikes coal prices, points to recovery

    Erdenes Tavan Tolgoi (ETT), Mongolian state-owned miner of the world's largest undeveloped coal deposit, announced it had negotiated an 85% price jump in its average selling price to $50/t from December, rising to $60/t for 2017, Frontera News reported on December 5.

    ETT had been selling its coal at only $32/t as part of a settlement for debt owed to the Aluminum Corporation of China, or Chalco.

    In another part of Tavan Tolgoi, Mongolia Mining Corporation had already struck a deal to sell its premium washed variety of coal at $107/t.

    The price hike, reached by a newly installed government in Ulaanbaatar, was regarded as a way to get the country out of the economic crisis it inherited. Mounting debt has driven Mongolian government into talks with the International Monetary Fund. It's been whacked with two credit rating downgrades in as many weeks.

    Yet, sales of coal – coupled with rising earnings from the country's other main resources, namely copper, gold and iron ore – appear destined to rescue this nation of 3 million people, with or without foreign handouts.

    It is reported that tailback of coal-laden trucks has been building for months, which sometimes stretches over 60 kilometers, the world's longest one, mainly shipping to China.

    Around half – or 1,500 trucks – make it across the border each day, Frontera News cited drivers and border guards as said. That equates to around 135,000 tonnes every day, or 48.60 million tonnes annually.

    This will bring over $4 billion of annual revenue to Mongolia – based on a mid-price between the $60/t and $107/t so far achieved at Tavan Tolgoi, the consignment at $83/t – just from coal.

    For Mongolia's $12 billion economy, this would mean a 25% jump in GDP, returning the economy to the type of dizzying growth rates seen last decade, said Nick Cousyn, the Chief Operating Officer for BDSec, Mongolia's largest broker and investment bank, in a report with similar conclusion.

    Coal prices have been rising entering 2016, especially coking coal used for making steel, mainly supported by China's government-led overcapacity slash drive. Amid the nationwide campaign, domestic coal supply fell short of demand from downstream sectors, boosting coal imports from coal-rich countries including neighboring Mongolia.

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    Adani secures milestone in planned $16 billion Australian coal project

    India's Adani Enterprises Ltd reached a milestone on Monday in its bid to build a controversial $16 billion coal project in northern Australia, winning approval for part of a rail link to service the planned mine.

    The mine has now secured all major state and federal government approvals, said the Queensland state government, whose premier will meet with chairman and founder Gautam Adani in the northern city of Townsville on Tuesday.

    Adani was also expected to meet with Prime Minister Malcolm Turnbull on Monday, amid local media speculation the federal government could contribute A$1 billion (583.55 million pounds)in rail funding.

    "I do expect to meet Mr Adani and I have got no doubt we will be discussing his proposed substantial investment in Queensland," Turnbull told reporters in Melbourne.

    The Carmichael mine has faced years of legal delays and rollercoaster coal prices, amid strident opposition from environmentalists opposed to coal mining and concerned at the impact the mine will have on the Great Barrier Reef.

    Adani, India's biggest solar power producer and top coal-fired generator, said in October it was preparing to start construction of the mine in 2017, although it still faces several court challenges and appeals.

    Queensland state premier Annastacia Palaszczuk said she will meet Gautam Adani on Tuesday to gain an assurance the firm will use local labor for the coal, rail and port project, rather than foreign workers.

    The mine would be twice the size of Australia's current largest coal mine and would yield as much as 60 million tonnes of coal per year from the site for 60 years.

    Prices for the thermal coal Adani would mine have doubled since June to more than $100 a tonne last month as electricity generators across Asia clamor for limited supplies, but have recently eased back to around $90.

    Adani last month said it had secured land to build two solar farms in Australia, together worth A$400 million ($300 million) as part of a five-year drive to construct 1,500 megawatts of solar energy plants in the country.
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    US mills raise rebar prices $25/st

    US mills are raising transaction prices for rebar $25/st, effective with new orders Friday.

    Nucor, Gerdau Long Steel America, Steel Dynamics Inc. and Commercial Metals Co. independently announced higher pricing in letters sent to customers Thursday and Friday.

    If absorbed into the market, the increase would mark the third price hike in as many months. US producers previously raised rebar prices $30/st in November and $20/st in October.

    Buy-side sources said they had been expecting rebar prices to rise in December, as raw material costs continue to climb. US scrap dealers on Thursday resisted mill bids of up $30/lt for December scrap commitments.
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    China asks for immediate halt at coal mines earmarked for closure

    China ordered all the coal mines earmarked for closure to suspend production immediately, as safety watchdog put safety on the top agenda following recent high accident frequency.

    The latest mining accident occurring at a mine in Chifeng of Inner Mongolia on December 3 caused 32 deaths.

    At an emergency meeting on December 4, the State Administration of Work Safety (SAWS) said serious violation of production rules found in recent three fatal accidents, all of which were caused by gas explosion, heighted the safety issue at coal mines.

    All these mines are outdated mines that have been blacklisted for shutdown, said Yang Huanning, head of the SAWS.

    He promised to take effective measures to immediately halt coal mines listed for closure this year or in the next two years.

    Mines without all required licenses or certificates must stop production immediately, Yang said.

    Those mines with annual production capacity below 90,000 tonnes but don't meet safe production rules should apply to local governments voluntarily for inclusion into the closure list, he added.

    China had ordered coal mines to conduct safety overhaul to prevent major accidents on December 2, when 21 people died after a mine blast in the northeastern province of Heilongjiang.

    On October 31, a gas explosion at a mine in the southwestern city of Chongqing caused 33 deaths.

    Early this year, China issued a list of coal mines for closure amid a national move to cut overcapacity. But, a shortage of supply has prompted the government to relax production restrictions since late September.
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    Hebei coal industry turns profitable after two-yr loss

    The coal industry of North China's Hebei province returned to profit for the first time since 2014, Xinhua reported, citing provincial authorities.

    From January to October, Hebei's major coal mining and washing industry registered a profit of 140 million yuan ($20 million), reversing the 4.5 billion yuan loss over the same period in 2015, according to the Hebei Provincial Bureau of Statistics.

    It is the first time that the heavy-industry province has seen profits in its coal sector since early 2014 when the whole industry plunged into loss due to declining prices, structural adjustment of energy supply, and pressure in cutting redundant production capacity for environmental protection.

    Experts said Hebei's coal industry has turned profitable, after ending a two-year-plus loss, responsible for a 2.7 percentage-point growth in the provincial economy in 2016.

    China is the world's largest consumer of coal. The industry has long been plagued by overcapacity and has felt the pinch over the past two years as the economy cooled and demand fell.

    In the first ten months of 2016, Hebei closed a total of 54 coal mines, cutting coal production capacity by 14 million tons. As of late November, China's coal production capacity had been reduced by about 250 million tonnes.

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    Coking coal surge may extend if China cracks down on North Korea

    The already elevated price of coking coal could be boosted further if China decides to crack down on coal imports from its nuclear-armed neighbour North Korea.

    The United Nations Security Council last week imposed fresh sanctions on North Korea, limiting its annual coal exports to 7.5 million tonnes, or a value of $400.9 million, after the isolated communist regime conducted a fifth nuclear weapons test.

    This is significant for China's imports of high-quality coal used to make steel, as North Korea is one of its top suppliers.

    Chinese customs data show that China imported 18.517 million tonnes of North Korean coal in the first 10 months of the year, a gain of 12.8 percent on the same period last year.

    The jump in imports from North Korea this year came in spite of earlier Chinese commitments to ban the coal trade with Pyongyang.

    So far, the official line from Beijing is that China will meet its obligations under the U.N. Security Council sanctions, but as was the case earlier this year, it appears the commitment may not be absolute.

    Earlier sanctions banning coal purchases from North Korea were not enforced by China due to an exemption allowing imports for what was translated as "the people's well-being," or "livelihood purposes."

    With coking coal in strong demand in China, the potential loss of as much as 12 million tonnes of North Korean coal in 2017 would be a very bullish signal for prices.

    It's possible that Beijing will force domestic coking coal miners to ramp up output, and it's also possible that imports from North Korean won't be cut by as much as implied by the new U.N. sanctions.

    But for now, coking coal's extraordinary rally this year has just been given another reason to continue.
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    Coal exports from Australia's NSW drop for 1st time in 15 years in FY 2015-2016

    Coal exports from the Australian state of New South Wales fell for the first time in 15 years in fiscal 2015-16 (July-June), industry-owned organisation Coal Services said Thursday.

    The exports were down 3.4 million mt, or 1.9%, year on year at 169.6 million mt, from record exports in fiscal 2014-15 of 172.9 million mt, it added.

    The drop was driven by lower volumes of thermal coal exports, which fell 3.3% year on year in fiscal 2015-16 to 144 million mt, accounting for 84.9% of all NSW coal shipments during the year, Coal Services said.

    On the other hand, metallurgical coal exports -- which cover hard coking coal, semi-soft coking and non-coking metallurgical PCI -- increased, rising 6.2% year on year, or 1.5 million mt, to 25.6 million mt for fiscal 2015-16.

    "Hard coking coal exports, which had increased to a record 8.2 million mt in fiscal year 2014-15, fell by 9% to 7.5 million mt in fiscal 2015-16, while other coking coal shipments rose 14% to 18.1 million mt," it said.

    NSW coal was shipped to 24 countries during the year, with the top four markets -- Japan, South Korea, China and Taiwan -- accounting for 84.5% of the total tonnage, it said.

    Japan remained the largest buyer of NSW coal with 74.8 million mt shipped to the country in fiscal 2015-16, up 4.6 million mt from the previous year. South Korea was the second largest market for NSW coal exports, relegating China to third place after four successive years as the second largest destination, it said.

    South Korea was sent 28.4 million mt during the fiscal year, down 1.1 million mt year on year, while shipments to China slipped 9.9 million mt to 20.5 million mt after peaking at 37.8 million mt in fiscal 2013-14, it added.

    Domestic sales of NSW coal, meanwhile, rose after years of falls.

    "Deliveries of NSW coal within Australia had been decreasing steadily since 2007-08 with coal-powered electricity generation becoming more efficient or replaced by natural gas and renewable energy sources. However, to meet market demand, 2015-16 saw sales to domestic markets rise by 2.7% or 0.7 million mt to 26.5 million mt," Coal Services said.

    The coal was produced by 42 coal mines across the state in fiscal 2015-16, down from 44 the previous year, and from a peak of 62 in fiscal 2009-10, it said. Raw coal production totalled 246.8 million mt, down from 253.2 million mt a year earlier and from a peak of 261 million mt in fiscal 2013-14.

    Saleable coal production had also peaked in fiscal 2013-14 at 196.6 million mt, before falling to 196.4 million mt in fiscal 2014-15 and then 191 million mt in fiscal 2015-16, it said.
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    China orders coal mine safety overhaul

    China's coal mines have been ordered to conduct a safety overhaul to prevent major accidents as their frequency has surged in the past month, the official Xinhua News Agency reported on December 2, citing a senior official of the country's work safety watchdog.

    Mines should not be operating over capacity and miners should not be asked to work overtime as mines pushed to the limits are prone to accidents, Song Yuanming, deputy director of the State Administration of Coal Mine Safety, said at an annual coal trade summit in Hebei province, Xinhua reported.

    Song said there were on average two colliery accidents a month this year, but the rate peaked in November with five cases, which have alarmed regulators over the past month as China ramps up coal production to meet winter demand.

    In one serious case, 33 people died in a gas explosion at a coal mine in the southwestern city of Chongqing on October 31.

    He also reiterated that no mines should operate without a license.
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    Shenhua further cuts spot coal price for Dec, sources

    China's coal giant Shenhua Group has announced further cut in spot price of thermal coal for sales in December, in a bid to help avoid big fluctuation in the market, sources said.

    The company would offer 5,500 Kcal/kg NAR coal at 675 yuan/t FOB with VAT in the spot market, down 5 yuan/t from late November.

    It would cut December contract price by 5 yuan/t to 580 yuan/t FOB for 5,500 Kcal NAR coal sold to key customers except for the nation's top five utilities.

    But, the volume of contract coal supplied to such key customers should not exceed 40% of the January-July average or 40% of the monthly contract volume. While, the rest 60% would be priced at spot price of 675 yuan/t.

    For the top five utilities, as agreed in term contracts signed in early November, the price would be adjusted with market changes from a base price of 535 yuan/t.

    Trade customers could only gain access to spot coal this month, without limitation on volumes.

    If long-term customers fail to fulfill 90% of this month's contract volumes, they would need to pay 10% penalty for breach of contract.
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    China to phase out coal imports

    our new study, An Analysis of Coal Price Trends in China, shows that the rapid increase in China’s coal prices since June 2016 was mainly driven by shrinking domestic supply due to China’s effort to cut overcapacity in the coal industry.

    In order to stabilize coal prices, the Chinese government is taking measures to increase supply and is encouraging coal and power companies to sign long-term supply contracts.

    In the long term, China’s coal demand will stabilize at around 4 billion tonnes, which can be fully met by domestic supply. As China reaches a balance in domestic coal demand and supply, the coal price and coal imports will decline.

    Driving factors behind China’s recent coal price surge

    There was no obvious growth in demand or production costs to support the recent price increase. The main cause was government policies designed to combat overcapacity that eliminated more than 200 million tonnes of supply and cut annual work days for coal companies from 330 to 276. As a result, coal output dropped by over 10%, creating a 222 million tonne gap between production and consumption in the first three quarters of 2016.
    High temperatures across China since July 2016 caused an increase in domestic power consumption which further contributed to the price increase.
    Transportation issues caused by heavy rainfall and strict rules on road overloading limited transportation of coal.

    Analysis of future coal consumption in China

    China’s coal consumption has been steadily declining in the past few years with the first decline of 2.9% in 2014 followed by 3.7% in 2015. In the first three quarters of 2016, this trend continued and coal consumption decreased by 68 million tonnes or 2.4%. China’s energy consumption per unit GDP has also been declining. China will gradually shift away from high energy consumption and increase the proportion of non-fossil fuels in its energy mix.

    China has increased regulation in the thermal power sector, which accounts for around half of China’s coal consumption. The approval of planned thermal power projects and projects that have not yet started construction will be suspended.
    In 2015, the steel sector accounted for 15.8% of total coal consumption. Crude steel capacity will be cut by 12% to 19% in the next five years, which means coal demand will decline as well.
    Coal demand in the construction materials sector, which accounted for 13.2% China’s total coal consumption in 2015, has already begun to peak and will gradually decline.

    Forecast of China’s coal import demand

    In the long run, China’s coal demand will stabilize, and domestic coal supply will meet the country’s demand. This analysis shows that China’s demand for imported coal will decline in the years to come. China’s coal capacity is currently around 5.7 billion tonnes, of which 800 million tonnes are illegal projects. About 310 million tonnes have been closed, leaving 4.6 billion tonnes of compliance capacity in 2015, which can fully meet China’s projected 4 billion tonnes of consumption demand.

    As the policy on capping total coal consumption in southeastern coastal areas is implemented and coal consumption shifts west towards China’s coal production sites, the market for imported coal will decrease.
    China has introduced several measures to control sulphur and heavy metal content in commercial coal. These measures extend to customs clearance and increases operational risk for countries exporting coal to China. Furthermore, Tariff rates implemented in 2014 and RMB devaluation have weakened the price advantage of imported coal.
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    No proposal to split CIL, Indian gov't

    Putting to rest speculations that Coal India Ltd may be broken up, Indian government on December 1 said there is no such proposal for the state-run behemoth, local media reported.

    There is neither any such proposal to break CIL nor is the government contemplating it, Coal Secretary Susheel Kumar told Press Trust Of India when asked whether the government is planning to split the world's largest coal miner.

    Reuters reported earlier on the same day that senior Indian government officials tasked by Prime Minister Narendra Modi with reviewing energy security are recommending the break up of CIL within a year.

    According to the report, Indian government officials recommend that CIL - with a stock market valuation of $28 billion - should be broken up into seven companies, which they say would make it more competitive and efficient.

    In June 2014, Coal Minister Piyush Goyal too had said that the government will not split the coal miner but will work to smoothen the edges and improve its performance.

    CIL is a holding company with seven producing units and a planning and consultancy firm. The producing units have their own administrative set-up led by a chairman, so breaking them up to run as individual companies may not be difficult, analysts said.

    The company, which accounts for over 80% of the domestic coal production, is eyeing 598 million tonne production in the fiscal year of 2016-17 (April-March) and targets to produce a billion tonnes of the fossil fuel by 2020.

    CIL is the country's second-biggest employer, but critics say it is bloated and inefficient. Its output-per-man shift is estimated at one-eighth of Peabody Energy, the world's largest private coal producer, filed for bankruptcy protection this year.
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