Mark Latham Commodity Equity Intelligence Service

Friday 23rd September 2016
Background Stories on

News and Views:

Attached Files

    Oil and Gas

    Steel, Iron Ore and Coal


    Brazil police arrest former minister in Petrobras probe: source

    Brazilian police arrested former Finance Minister Guido Mantega on Thursday as part of a sweeping corruption investigation into political kickbacks on contracts at state-run oil company Petroleo Brasiliero, according to a source close to the former minister.

    In a statement, prosecutors said they were investigating a former minister who was chairman in 2012 of Petrobras, as the company is known, a description fitting Mantega. They did not name the minister.

    Mantega served as finance minister for almost nine years under former presidents Luiz Inacio Lula da Silva and Dilma Rousseff, steering Latin America's largest economy through boom and bust at the height of the leftist Workers Party's rule.

    Attorneys for Mantega did not immediately respond to requests for comment.

    Police carried out eight arrest warrants and 32 search and seizure warrants on Thursday, according to prosecutors, as they investigated the former minister and executives of engineering groups Mendes Junior and OSX Construção Naval SA, part of a commodities empire built by former billionaire Eike Batista.

    Prosecutors said Batista had testified to a conversation in November 2012 in which the former minister presiding over the Petrobras board requested a payment of 5 million reais, or about $2.5 million at the time, to benefit the Workers Party.

    Batista eventually made an overseas payment of $2.35 million to marketing executives previously tied to money laundering operations in the two-year-old Petrobras probe, according to prosecutors.
    Back to Top

    China to crack down on fake overseas M&A deals to curb money flight

    China's forex regulator said on Thursday it will crack down on fake overseas mergers and acquisitions used by some local firms and individuals to move assets out of the country, even as capital outflow pressure is easing.

    The government will support "genuine" overseas mergers and acquisitions by Chinese firms, although rapid rises in outbound investment have had an impact on cross-border capital flows, Guo Song, an official with the State Administration of Foreign Exchange (SAFE), told a Beijing news conference.

    "In the past year we found some Chinese firms and individuals moving assets overseas via outbound investment, this is certainly a key area of concern for us," Guo said, without disclosing details.

    The authorities will "definitely put high pressure" on tackling fake overseas mergers and acquisitions, he said.

    China will crack down on illegal activities to keep its foreign exchange markets stable, SAFE official Xu Weigang told the same conference.

    The Chinese government has been encouraging local firms to invest overseas under Beijing's "One Belt, One Road" program, but rapid rises in outbound direct investment (ODI) have fanned concerns over increased pressure on China's foreign exchange reserves and external payments.

    China's overall ODI jumped 18.3 percent in 2015 to a record $145.67 billion, surpassing the annual foreign direct investment that reached $135.6 billion, earlier government data showed.

    Despite the phenomenon, pressure on cross-border capital outflows is easing, which will help lower depreciation pressure on the yuan CNY=CFXS, SAFE spokeswoman Wang Chunying said.

    Du Peng, another SAFE official, however, said no "large-sized" capital outflow via fake trade deals has been detected by the supervisory body so far, and discrepancy between custom data and forex data is no proof that fake trade deals are happening.

    Recent data showed net foreign exchange sales by China's commercial banks in August fell to the lowest in about a year, but net foreign exchange sales by the People's Bank of China in August hit the highest in six months, as the central bank sought to support the yuan.

    Guo also said that the current quota on the Qualified Domestic Institutional Investor (QDII) scheme had been used up and the regulator is applying for an additional quota.
    Back to Top

    Mining companies to build LNG plant in Fort Nelson

    Two Vancouver-based mining companies are seizing on the abundance of natural gas in the Peace region to build liquefied natural gas plants in Fort Nelson to supply new mines planned for the Yukon and Northwest Territories.

    Casino Mining Corp., a subsidiary of Western Copper and Gold and Selwyn Chihong Mining Ltd., have signed a memorandum of understanding with Calgary-based Ferus Natural Gas Fuels Inc. to build an LNG plant in Fort Nelson.

    The plant would supply LNG to new mines the companies are developing: the Casino copper-gold mine in the Yukon and Selwyn’s zinc-lead mine, which straddles the Yukon-Northwest Territories.

    The companies say using LNG instead of diesel to provide power to the mines will not only be less costly, but will reduce CO2 emissions.

    "The use of LNG instead of diesel in our operations will significantly reduce the cost of power generation and will eliminate 140,000 tonnes per year of C02 emissions over the current 22-year mine life," said Western Copper and Gold CEO Paul West-Sells.

    Selwyn Chihong project estimates using LNG instead of diesel will avoid 115,000 tonnes per year of CO2 over the mine’s estimated 11-year life.

    But lower emissions are essentially an environmental dividend. There are no incentives to use LNG rather than diesel, as the Yukon has no carbon tax or cap and trade. It's simply "signifantly cheaper" than diesel, said Maurice Albert, vice president of external affairs for Chihong Mining Ltd.

    The $200 million plant will employ 25 to 50 people during construction. Once built, the LNG will be trucked roughly 800 kilometres to the mine sites, where the LNG will be used to produce power for the mines, which are off the Yukon and NWT grid.
    Back to Top

    Brazil's Vale shares jump on talk of fertilizer unit sale

    Shares in Brazil's Vale SA rose the most in almost 15 weeks on Wednesday on speculation the world's largest iron ore producer would announce the partial sale of a unit to U.S. fertilizer producer Mosaic Co later in the day.

    An O Globo newspaper online blog said Vale's board was scheduled to approve the $3 billion deal that would combine its fertilizer and phosphate assets. The blog, which did not say how it obtained the information, also said that the disposal of the remaining 25 percent of Vale's agricultural chemicals assets was being negotiated with an undisclosed bidder for $1 billion.

    Rio de Janeiro-based Vale and Plymouth, Minnesota-based Mosaic declined to comment. Three people familiar with the process told Reuters that, while an announcement of the deal was unlikely on Wednesday, the transaction was in an advanced stage.

    Preferred shares of Vale rose as much as 6.3 percent to 15.27 reais, the biggest intraday rise since June 3. The stock had shed about 7 percent over the past month, on concern that weak iron ore prices and a slower-than-expected pace in planned asset sales may delay efforts to cut debt.

    Based on the information of O Globo's Lauro Jardim blog, Mosaic would pay the equivalent of 15 times the unit's operational earnings, a "very accretive multiple," according to a Banco BTG Pactual trading desk note.

    On June 17, Reuters reported that Mosaic was eyeing the totality of Vale's fertilizer assets, in a cash-and-stock deal valued at about $3 billion. Vale has fertilizer assets in Canada, Brazil, Peru, Argentina and Mozambique.

    Brazil is the world's fifth-largest fertilizer consumer, and remains a key growth spot for fertilizer and phosphate producers. People familiar with the matter told Reuters talks with Vale have regained momentum in recent weeks after Canada's Agrium Inc and Potash Corp of Saskatchewan Inc announced a planned merger on Aug. 30.
    Back to Top

    $195 Billion Asset Manager: "The Time Has Come To Leave The Dance Floor"

    Rivelle says that “the credit-fuelled expansion inevitably comes to a bad end,” Rivelle, chief investment officer for fixed income at TCW, said in a note sent to investors Tuesday. “We’ve lived this story before.”

    His other observations are just as dire in their stark admission of just how scary reality has become:

    over the course of the past 25 years, the traditional business cycle has been replaced with an asset price cycle. Rather than let recessions run their painful but necessary course, central bankers move forthwith to dispense the monetary morphine. The Fed’s playbook on this is well worn: first, policy rates are lowered. This triggers a daisy-chain of events: low or zero rates promote a reach for yield; the reach for yield lowers capitalization rates across a variety of asset classes which, in turn, spurs a rise in asset prices. Rising asset prices – the so-called wealth effect – “rescues” the economy by rebuilding balance sheets and restoring the animal spirits. And voila! Aggregate demand rises, businesses invest, and a virtuous growth process is launched.

    Well, maybe not so much. If it were all so simple, then why is it that after ninety something months of zero or near zero rates, growth is sputtering, the corporate sector is in an earnings recession, and productivity growth is negative?

    The explanation is simple: growth is not a simple function of higher asset prices.

    Which, incidentally means, that central bankers are now powerless.

    Rivelle concludes with an even more dire warning:"Face it: the central banking Emperors have no clothes... when the supposed solutions to the Fed’s dilemma are merely new “problems,” you know you are approaching the cycle’s end... successful, long-term investing is predicated on not just knowing where the happening parties are during the reflationary parts of the cycle but, even more importantly, knowing when the time has come to leave the dance floor. In our view, that time has already come."
    Back to Top

    India to fund major gas pipeline to boost eastern states

    India's government will partly fund a $2 billion gas pipeline project linking five eastern states to help kick-start economic growth in a region that has trailed the rest of the country, the oil minister said on Wednesday.

    The 2,500-km pipeline is to be built by state-run GAIL (India) Ltd, and this will be the first time the government has offered finance for such a project as part of Prime Minister Narendra Modi's plan for more balanced development.

    Oil Minister Dharmendra Pradhan said the government will meet 40 percent of the cost of the pipeline that will run through the states of Uttar Pradesh, Bihar, Jharkhand, West Bengal and Odisha, which together account for nearly 40 percent of India's 1.3 billion population.

    It will be the biggest pipeline project in the country and had won government approval in 2007 but could not move forward.

    "This will be the first time that government spending will be made for pipeline infrastructure. This will help in achieving the prime minister's vision of the economic development of the eastern states," Pradhan told reporters after a cabinet meeting.

    "The prime minister wants energy justice for all," he said.

    India's economic development has been concentrated in the western and southern states, where there is better infrastructure and more accessible energy supplies. These states get piped gas supplies for household and transportation.

    Pradhan said the government was hoping the new pipeline would help attract investment in the agro processing industry in the eastern region. The government has already removed the cap on foreign direct investment in the sector.

    The new pipeline will also help in efforts to revive three fertilizer plants, which Modi's campaign had promised to do in his 2014 election run.

    India's gas demand is expected to go up by as much as 10 million cubic meters a day once the pipeline is completed in a little more than two years.

    Natural gas accounts for about 6.5 percent of India's overall energy needs, far lower than the global average. India plans to raise the share of gas in its energy mix to 15 percent over the next three years.

    Attached Files
    Back to Top

    China's energy guzzlers Aug power use edges up on year

    Power consumption of China's four energy-intensive industries edged up 0.4% on year to 153.1 TWh in August, accounting for 27.2% of the nation's total power consumption, the China Electricity Council (CEC) said on September 18.

    Of this, the chemical industry consumed 35.7 TWh of electricity, and the ferrous metallurgy industry consumed 43.1 TWh, dropping 2.9% and 1.6% on year, respectively; while power consumption of building materials industry and non-ferrous metallurgy industry stood at 29.5 TWh and 44.7 TWh, separately, rising 3.8% and 2.8% compared to the same month last year.

    In the first eight months of the year, the four energy guzzlers consumed 1136.1 TWh of electricity in total, or 29.2% of the country's total power consumption, declining 2.2% from the year-ago level, compared to a 2.1% drop a year prior.

    The ferrous metallurgy industry consumed 312.0 TWh of electricity during January to August, falling 7.4% year on year, compared to the drop of 6.9% from the previous year; while the non-ferrous metallurgy industry used 332.9 TWh of electricity, down 2.7% year on year, against a 9.7% fall from the year prior.

    The chemical industry consumed 287.8 TWh of electricity over the same period, up 2.5% year on year, a flat growth rate from a year ago; while power consumption of building materials industry increasing 0.6% year on year to 203.4 TWh, compared to a 6.4% decline a year ago.
    Back to Top

    Coal's cost advantage over LNG slipping, but not yet enough

    Thermal coal has been one of the commodity success stories this year, but there is a risk that it becomes a victim of its own success by eating into its advantage over liquefied natural gas (LNG) in generating electricity.

    The benchmark Australian thermal coal price, the Newcastle Index, rose to $70.76 a tonne in the week to Sept. 16, its highest in 18 months and taking its gain since the start of the year to almost 40 percent.

    In contrast, the price of spot LNG in Asia LNG-AS was $5.60 per million British thermal units (mmBtu) on Sept. 16, down almost 19 percent from the end of last year.

    The two fuels are at different stages in their price cycle, with thermal coal likely to snap five years of losses in 2016, while LNG is on track to notch up a third consecutive down year.

    The difference is mainly because the market for coal used in power stations has finally started to balance, with the prior years of oversupply coming to an end as mines shut down or cut back output and demand gains in Asian markets, with China proving a standout so far this year.

    LNG is still some way from this point, with more supply expected to reach the market this year and for the next few years, coupled with question marks over whether demand growth will rise sufficiently to absorb the new production.

    Nine liquefaction trains are expected to start up in 2016, adding 35 million tonnes of LNG to the market, ANZ Banking Group said in a research note published on Sept. 13.

    The additional capacity is largely from new plants in the United States and Australia, which is poised to become the world's largest producer of the super-chilled fuel as it completes eight new projects that have been under construction.

    Between 2016 and 2020, global LNG capacity is expected to rise by about 50 percent to around 370 million tonnes a year.

    This surge in supply will challenge even the most optimistic demand forecasts, meaning that the LNG price is likely to have to decline further to make the fuel more tempting to buyers.

    Global flows data compiled by Thomson Reuters Supply Chain and Commodity Forecasts using vessel-tracking show that the LNG market is growing, but nowhere near fast enough.

    In the January-to-August period this year, the ship data showed cargoes totalling 186.6 million tonnes being delivered.

    This was 7.7 percent higher than the 173.2 million tonnes for the same period in 2015, and 10.7 percent above the 168.5 million in the first eight months of 2014.
    Back to Top

    Chinese Home Prices Jump Most On Record:

    Even before the latest Chinese home price data was released overnight, it was a pure bubble-buying frenzy.

    As Chris Watling, the CEO of Longview Economics, told CNBC Thursday, "I think what's going on in China is troubling ... some of the valuations there are really quite extraordinary... We've double checked these numbers about seven times, because I found them quite hard to believe."

    What Watling found is that housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch "Tulip Fever" bubble of 1637, according to new research by economic consultancy firm Longview Economics: the firm found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76% since the start of 2015, with the acceleration beginning in April 2015 as the country's stock market was nearing its peak. The situation in Beijing and Shanghai is similar, albeit less extreme, the company states.

    According to Watling, the typical home in Shenzhen costs approximately $800,000. Watling said that the house-income ratio in Shenzhen is now running at 70 times, compared to around 16 times in somewhere like London.

    "Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a bubble, Watling added. "The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system ... so a lot of it has gone into housing."

    China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has highlighted the vast difficulties Chinese lawmakers are now facing. Watling said Chinese housing was a story built on credit, lots of liquidity and lots of debt. He added that all bubbles, though, once established, will eventually burst and deflate.

    It will, but not yet.

    According to the latest Chinese housing data released overnight, Chinese home prices rose the most in more than six years last month, suggesting local government efforts to avert a housing bubble are having only a limited effect according to Bloomberg. Average new-home prices in the 70 cities rose 1.2% in August from July, the biggest increase since Bloomberg started tracking records in January 2010. The value of home sales jumped 33 percent last month from a year earlier, the fastest pace in four months.

    Attached Files
    Back to Top

    China speeds up approvals for infrastructure investment in Aug

    China expedited the pace of approving new fixed-asset investment for major infrastructure projects to sustain economic growth in August, said the country's top economic planner.

    The National Development and Reform Commission (NDRC) gave the green light to investment totaling 196.6 billion yuan ($29.4 billion) for 25 projects last month.

    The projects were concentrated in water conservancy, transport, energy and other social undertakings.

    The headline figures are a considerable increase from less than 60 billion yuan in July as the government ramps up spending to offset flagging private investment.

    To rein in the ongoing economic slowdown, the NDRC started to promote a package of investment projects in September 2014. As of July, it had given the go ahead to investment totaling 6.38 trillion yuan.
    Back to Top

    Egypt expects 2-3 IPOs in first year of privatisation plan - NI Capital CEO

    Egypt expects to privatise two or three state-owned companies via listings on the stock exchangein the first year of a privatisation programme, the chief executive of government-owned NI Capital said on Monday.

    The programme will last for three to five years and will start with state-owned oil companies but will also include state-owned banks, said Ashraf El-Ghazaly.

    NI Capital is a government-owned, privately managed financial institution that is part the National Investment Bank. It acts as a consulting authority for the government and manages governmental investment funds.

    The state owns vast swathes of the economy, including three of its largest banks along with much of its oil industry and huge parts of its real estate.

    The economy has been struggling to recover since a popular uprising in 2011 drove foreign investors and tourists away. Years of political instability has hit growth in the Arab world's most populous state and halved its currency reserves.

    The last time state-owned companies were listed on the exchange was in 2005 when shares were floated in Telecom Egypt, the state's landline monopoly, and oil companies Sidi Kerir Petrochemicals and AMOC.
    Back to Top

    BIS warns China banks risk crisis within three years

    Hong Kong's central financial district's (from L to R) Bank of China Tower, Cheung Kong Centre, HSBC headquarters and Standard Chartered Bank are pictured lighted up before Earth Hour March 28, 2015.REUTERS/Tyrone Siu

    Excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years, a report from the Bank for International Settlements (BIS) says.

    An early warning of financial overheating - the credit-to-GDP gap - hit 30.1 in China in the first quarter of this year, the financial watchdog said in a review of international banking and financial markets published on Sunday.

    Any level above 10 signals a crisis "occurs in any of the three years ahead," the BIS said. China's indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.

    Debt has played a key role in shoring up China's economic growth following the global financial crisis. Outstanding debt reached 255 percent of GDP in 2015, fueled in large part by a surge in corporate borrowing, up from 220 percent just two years earlier.

    China's bank lending in August more than doubled from the previous month, with much of the gain down to strong mortgage demand.

    Indeed, China's top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis.

    The credit-to-GDP gap takes into account the current credit-to-GDP and expected long-run trends. But a China strategist at an international hedge fund said international historical experience is not necessarily applicable to China. The strategist could not be identified as he is not authorized to speak to the media.

    The BIS also said the estimated debt service ratio - which measures principal and interest payments relative to income - is at 5.4, which is a "potential concern."

    This underlines the default risk as borrowers struggle to repay loans. Some analysts argue a weakening in banks' capital strength raises the prospect that the government may have to inject more than $100 billion to shore them up.

    Despite the concerns surrounding China's debt, UBS analysts said in a report earlier this year that they do not expect an imminent banking crisis.

    A high domestic savings rate, underdeveloped capital markets, a relatively closed capital account and government ownership of banks and many large borrowers mean no one can easily "pull the plug" on its credit cycle, they said.

    Debt-to-GDP could reach 300 percent before 2020, UBS said.

    Attached Files
    Back to Top

    Spotlight: Berlin vote results put Merkel under heavier pressure

    German Chancellor Angela Merkel's CDU party was hit by a second electoral blow in two weeks in the Berlin state-city vote on Sunday, highlighting an increasing pressure on her open-door refugee policy.

    The loss Merkel's conservative party suffered in the Berlin polls, following the vote in early September in the eastern state of Mecklenburg-Vorpommern, turned largely into a gain for the anti-immigrant Alternative of Germany (AfD).

    In Sunday's vote, support for the Christian Democratic Union dropped to 17.6 percent from 23.3 percent in the last election in 2011, the lowest since 1990. Meanwhile, a 14.2 percent of the vote enabled the three-year-old right-wing AfD to enter Berlin's state parliament, the 10th among Germany's 16 states.

    Berlin's traditionally strongest Social Democrats also recorded a fall in support, to a record low of 21.6 percent from 28.3 percent, and is unlikely to continue the current coalition with their junior partner, the CDU.

    With one year away from a federal election, the outcome raised pressure on Merkel as well as doubt about a fourth term for the most powerful leader in the European Union.

    It adds fuel to the dispute over Merkel's migrant policy between Christian Democrats and their traditional ruling partner, the Christian Social Union (CSU) in Bavaria, whose call for an annual cap of 200,000 refugees has been rejected by Merkel.

    The CSU's Bavarian finance minister Markus Soeder called the Berlin vote result another "massive wake-up call".

    "A long-term and massive loss in trust among traditional voters threatens the conservative bloc," he told the Bild daily, while urging changes in Merkel's migrant policy to win back support.

    Berlin hosts over 70,000 of the 1 million asylum seekers Germany took in last year. German media reported that a poll found about 22 percent of those voting for the AfD in Berlin supported the CDU in 2011.

    "From zero to double digits, that's unique for Berlin. The grand coalition has been voted out -- not yet at the national level, but that will happen next year," said AfD candidate Georg Pazderski to supporters after the Sunday results.

    Berlin's SPD Mayor Michael Mueller had warned before the vote that a strong AfD result would be "seen throughout the world as a sign of the resurgence of the right and of Nazis in Germany."
    Back to Top

    Prices are flying for the commodities Anglo wants to ditch

    Anglo American, the century-old mining firm seeking to cut debt, is getting an unexpected windfall from the commodities it wants to ditch.

    When Anglo announced a plan in February to shrink its business by more than half to weather a crisis in raw-material prices, it put coking and thermal coal as well as iron-ore on the chopping block. While it chose to focus on more profitable diamond, platinum and copper mines, it’s the commodities being shunned that are performing best this year.

    Benchmark prices for coking coal, used to make steel, have surged 153% this year to the highest since at least May 2013 amid Chinese output curbs. The thermal type has jumped 40%, while iron-ore climbed 28%. The three commodities brought in combined revenue of about $3.5-billion in the first half, a third of Anglo’s total sales.

    Anglo’s surprise earnings boost is easing the pressure of meeting a $3-billion to $4-billion asset-sales target this year. The only major sale so far is the niobium and phosphatesbusiness, which the company said in July would bring net debt to $10.3-billion when completed. That’s within touching distance of a goal to cut borrowings below $10-billion by year-end.

    “The sales target is immaterial if they can get their net debt down to targeted levels,” said Hunter Hillcoat, an analyst at Investec in London. “The sales process was a means of delivering that. The windfall they’ve gained from higher commodity prices means that’s not so necessary.”

    Higher prices may however be holding back asset sales. The process of selling coking coal mines in Australia has been hindered, with both Anglo and possible buyers concerned about the dramatic spike in prices, according to two people familiar with the matter, who asked not to be identified because talks were private. The mines had been valued at as much as $1.5-billion, people familiar with the matter have said.

    The London-based company’s attempt to offload a nickel mine in Brazil also stalled because bids from potential buyers were too low, people familiar with the matter said last month.

    Coking coal’s advance has been so rapid that it’s now more than double the current quarterly contact price agreed between some of the biggest producers and steel mills. With new rates set to be negotiated this month, Anglo stands to benefit from the recent gains.

    Along with Anglo’s plan to pull itself out of a crisis that saw its stock plunge by 75% last year, the commodities rebound has led to a share-price resurgence. The company more than doubled this year and is the best performer in the UK’s benchmark FTSE 100 Index. The shares were up 0.4% by 8:26 a.m. in London.

    Some investors are worried about sales being too hasty.South Africa’s Public Investment Corporation, Anglo’s biggest shareholder, voiced concerns that assets wouldn’t fetch their full value following the plunge in commodity prices in recent years.

    CEO Mark Cutifani has repeatedly insisted that the company is not running a firesale and will rebuff offers that don’t meet its expectations.

    “It is about value,” Cutifani said in July. “It is about having the discipline to hold and make sure we get values to the assets.”
    Back to Top

    EU Diesel Market death spiral.

    Because by 2030 diesels are forecast to account for just 9 percent of new-car sales in Europe, according to a recent study by AlixPartners, compared with about 50 percent today.

    The cause of the massive shift is the expectation that automakers will be forced to rely on electrified powertrains to meet tougher emissions rules in the future. Therefore, if I remain faithful to my beloved diesel, I will be a niche motorist.

    Automotive News Europe was probably the first publication to report the forthcoming demise of the diesel in Europe. That was more than a decade ago when diesel's rise seemed unstoppable. We were told then, however, that the introduction of stricter European emission standards would require automakers to add costly after-treatment systems to make diesels clean enough to meet new pollution regulations.

    That cost would need to be passed on to car buyers, making the diesels uncompetitive against alternatives such as gasoline-powered cars and models with electrified powertrains. This regulatory-driven change would make the gasoline king of Europe again when it came to the top-selling fuel for internal combustion engines.

    The power shift, predicted during my interview in 2005 with former Fiat powertrain guru Rinaldo Rinolfi, who is one of the fathers of the common-rail diesel, was set to happen last year. Rinolfi was off by just one year as gasoline engines are poised to take the lead again in 2016.

    I recently spoke to Rinolfi to get his next prediction for diesels, which he said would stabilize at about 40 percent of total European vehicle sales in 2020. That sounded reasonable. Then came AlixPartners' head-turning forecast that diesels would have a single-digit share of the European vehicle market 14 years from now. AlixPartners, which is a very respected U.S. consulting firm, says that diesels are on track to lose 2.7 points of market share a year starting now.

    Will this happen? I fear it will. Euro 6 emissions standards, particularly for nitrogen oxide (NOx), already have made diesel minicars a rarity because the powertrain fixes are just too costly for most customers. This trend will spread to subcompacts and could extend to compacts.

    Europe accounts for about 85 percent of global diesel demand. The powertrain is nonexistent in China and any dreams that U.S. customers would embrace diesels are probably dead because of Volkswagen Group's image-shattering emissions-cheating scandal. Diesels might have had a chance if a fast-growing, densely populated, relatively wealthy country decided to embrace the technology. But why would an emerging market want to welcome the NOx and particulate matter that the EU was willing to allow to help reduce CO2 emissions?

    Here's Why:

    BRUSSELS - The European Union will take legal action against some member states for failing to police car emission rules, its industry commissioner, Elzbieta Bienkowska, said.

    Bienkowska said she "definitely" wants to start formal infringement procedures against "not all and not one" member state for allowing an overshoot in emissions but is still gathering evidence. "It will be in the next several weeks, a few months from now because we have to complete the evidence," Bienkowska said. She declined to name which EU nations would be affected.

    "We need a very good legal basis, but I definitely want to start infringements," she said.

    The commissioner reiterated calls for VW to compensate European owners of its diesel cars along the lines of its $15 billion settlement in the United States, saying it was unfair for them to be treated differently due to the different legal system. VW has offered U.S. customers compensation for bringing in vehicles to remove cheat software and make them compliant with emissions regulations. In Europe, the carmaker only offers the technical fix.

    "It is not enough just to send your cold letters saying 'Please come on this day and we will replace these devices for a new one'," Bienkowska said in an interview with Reuters.

    "Compensation is the noisiest subject, present everywhere, and this is a really important topic."

    'Defeat devices'

    The VW scandal also highlighted an industry-wide disparity between NOx emissions recorded in regulator-approved laboratory tests and those in everyday use on roads, which is often five times more.

    NOx gases contribute to acid rain and respiratory illnesses blamed for hundreds of thousands of deaths globally each year.

    Bienkowska said starting in 2019, rules proposed by regulators in the wake of the the VW diesel scandal would tackle the widespread use of engine regimes that switch off technology designed to lower tailpipe gases, once cars are in real road conditions.

    "We have a lot of such examples, some of them are quite shocking," Bienkowska said.

    Under current EU law, the use of "defeat devices" - triggered, for instance, by outside temperatures different to those in indoor testing facilities - are legal if they can be shown to be needed to protect engines rather than cheat tests.

    Attached Files
    Back to Top

    Oil and Gas

    Saudi - Iran meeting


    Reuters Saudi-Iran sources: "three unidentified people familiar with the discussions"

    Saudi Arabia and Iran Said to Have Ended Oil Talks in Vienna

    Back to Top

    Algeria's Skikda resumes LNG exports after two-month shutdown

    Maintenance at Algeria's Skikda LNG export facility has now been completed, with the first cargoes shipped out in the past week.

    The two-month shutdown was partly to blame for a slump in exports of LNG to Spain in August, while Spanish gas demand was also lower.

    The 4.7 million mt/year Skikda plant was closed for planned maintenance in mid-July, according to industry sources, with the final cargo before the shutdown loaded on July 11, data from Platts Analytics' Eclipse Energy showed.

    The first LNG cargo to leave Skikda after the restart was aboard the Cheikh Bouamama, which took 45 million cu m of gas equivalent to the Fos Cavaou LNG import plant in southern France last weekend.

    A second cargo loaded from Skikda aboard the Cheikh el Mokrani is taking 45 million cu m of gas equivalent to the Sagunto terminal in Spain and is expected to arrive Friday, according to Platts Analytics.

    Skikda has been a steady supplier of LNG to Spain over the past 12 months, supplying close to 2 Bcm of gas equivalent to the Spanish market since September 1, 2015, according to Platts Analytics data.

    That equates to around 15% of Spain's total LNG imports of 13.3 Bcm over the past year.

    Algeria's other LNG export facility at Arzew supplied some 1.4 Bcm of gas equivalent to Spain in the period.

    Although Algeria's LNG exports dipped in August due to the Skikda outage, they had been running at five-year highs in the month before the shutdown and exports so far in 2016 are on a level with volumes sold in 2015.
    Back to Top

    Oil Firms Seen Spending More Next Year for First Time Since 2014

    The oil industry may be ready to open its wallet after two years of slashing investments.

    Companies will spend 2.5 percent more on capital expenditure next year than they did this year, the first yearly growth in such spending since 2014, BMI Research said in a Sept. 22 report. Spending will increase by another 7 percent to 14 percent in 2018. It will remain well below spending in 2014, before the worst oil crash in a generation caused firms to cut back on drilling and exploration to conserve cash, the researcher said.

    BMI oil spending by region

    North American independent producers, Asian state-run oil companies and Russian firms are prepared to boost investments next year, outweighing continued cuts from global oil majors such as Exxon Mobil Corp. and Total SA, BMI said, based on company guidance and its own estimates. Spending will increase to a total of $455 billion next year from $444 billion this year, BMI said.

    “We expect global spending in the oil and gas sector will reach its nadir in 2016 , returning to growth in 2017,” Christopher Haines, BMI’s head of oil and gas research, said in the report. “For now, we see stronger growth in capital expenditure in 2018 , as better forecast oil prices are building confidence behind spending outlooks.”

    BMI’s outlook is more optimistic than groups like the International Energy Agency, which said last week that the industry might cut spending in 2017 for a third year in a row as companies continue to grapple with weaker finances. Oil prices still hover around $50 a barrel, less then half the level of the summer of 2014.
    Back to Top

    Oil-Sands Glut Jams Pipes to U.S., Making Rail Next Option

    Canada is sending a record amount of oil to the U.S., filling pipelines to capacity and threatening to push more crude into rail cars.

    U.S. imports from its northern neighbor jumped 17 percent to 3.46 million barrels a day last week, the U.S. Energy Information Administration said Wednesday in a preliminary report. That’s the most since the agency began collecting such data in 2010. Exports have surged as Alberta recovers from wildfires that disrupted supplies earlier this year.

    Supplies from the oil sands are piling up as producers bring back output and projects that had been delayed by the fires come online. The glut highlights Canada’s dependence on the U.S. market after TransCanada Corp.’s seven-year struggle to get approval for the Keystone XL link to the Gulf of Mexico failed while its proposed Energy East line to the Atlantic Coast faces mounting opposition in Canada. The stress on existing lines means more crude will be hauled by rail at higher costs and the discount on Canadian crude will likely widen.

    “As volumes continue to build, so will the pressure on the constrained pipelines system,” Kevin Birn, a director at IHS Energy in Calgary, said by e-mail Wednesday. “At some point in the coming months those volumes could very well overtake available capacity and increased movements of rail should be expected.”

    Pipeline Capacity

    Enbridge Inc.’s mainline system, the most important conduit for shipping Canadian crude into the U.S., has been running above its 2.4 million-barrel-a-day capacity and was full in August, according to Genscape Inc. analyst Ryan Saxton. Other lines including Spectra Energy’s Express and TransCanada’s Keystone were about 89 percent full last month.

    Western Canadian Select heavy crude is trading at a discount of $14.30 a barrel to West Texas Intermediate, according to data compiled by Bloomberg. WTI for November delivery advanced 98 cents to settle at $46.32 a barrel on the New York Mercantile Exchange on Thursday. The U.S. benchmark is down almost 60 percent from its 2014 peak.

    The discount on Canadian crude could expand to a one-year high of $16 a barrel by year end as a bigger price spread will be needed to encourage the use of rail, a more expensive method of shipment, said Eric Peterson, research chief at Denver-based ARB Midstream LLC, an oil transport investor.

    Crude by Rail

    Canadian crude-by-rail exports rose to a six-month high of 109,000 barrels a day in April before declining after wildfires took about 1 million barrels a day of production off the market, National Energy Board data show.

    While Canada’s conventional oil production is declining, oil-sands output continues to grow as projects initiated before the 2014 oil rout are completed. Companies including Cenovus Energy Inc. and Canadian Natural Resources Ltd. are set to add about 390,000 barrels a day of capacity by the end of next year, according to company statements and JuneWarren-Nickle’s Energy Group’s Summer 2016 Oil Sands Quarterly.

    Crude output is expected to rise about 5 percent to more than 4 million barrels a day in 2017, above the country’s pipeline export capacity, according to the Canadian Association of Petroleum Producers.

    As getting approval for pipelines at home has become increasingly difficult, Enbridge and TransCanada have sought deals south of the border to expand. Enbridge agreed to pay $28 billion for Houston-based Spectra Energy Corp. and TransCanada is buying Columbia Pipeline Group Inc., also based in Houston, for $10.2 billion.

    “Canada is stuck with its main outlet being the U.S.,” Bloomberg Intelligence Analyst Gurpal Dosanjh said in a phone interview in New York. “This will stay in the considerable future while Canadian production grows.”

    Attached Files
    Back to Top

    U.S., Canada aboriginal tribes form alliance to stop oil pipelines

    Aboriginal tribes from Canada and the northern United States signed a treaty on Thursday to jointly fight proposals to build more pipelines to carry crude from Alberta's oil sands, saying further development would damage the environment.

    The move came as Native American tribes on Thursday took their fight to Washington to stop development of the $3.7 billion Dakota Access oil pipeline, which would cross federally managed and private lands in North Dakota, South Dakota, Iowa and Illinois.

    Last week the U.S. Justice Department intervened to delay construction of the pipeline in North Dakota.

    The Treaty Alliance Against Tar Sands Expansion was signed by 50 aboriginal groups in North America, who also plan to oppose tanker and rail projects in both countries, they said in a statement.

    Targets include projects proposed by Kinder Morgan Inc, TransCanada Corp and Enbridge Inc.

    While aboriginal groups have long opposed oil sands development, the treaty signals a more coordinated approach to fight proposals.

    Among the treaty's signatories is the Standing Rock Sioux tribe who opposes the Dakota pipeline.

    "What this treaty means is that from Quebec, we will work with allies in (British Columbia) to make sure that the Kinder Morgan pipeline does not pass," Kanesatake Grand Chief Serge Simon said in the statement.

    "And we will also work with our tribal allies in Minnesota as they take on Enbridge's Line 3 expansion, and we know they'll help us do the same against Energy East," he said, referring to TransCanada's plan to carry 1.1 million barrels of crude per day from Alberta to Canada's East Coast.

    The statement did not specify what actions the groups would take to stop development.

    The Canadian Energy Pipeline Association, whose members include the targeted companies, said in a statement that the industry would listen to aboriginal concerns.

    "The fact remains there is a critical need for pipelines in Canada," the association said, noting that they are the safest and most environmentally friendly way to move oil and gas.

    Canada is assessing oil pipeline proposals as the country's energy-rich province Alberta reels from a crash in prices, partly due to insufficient means of moving oil to lucrative international markets.
    Back to Top

    Mexico's Pemex urged to delay Trion auction to rethink contract terms

    Mexico's state-owned Pemex should delay the December 5 auction for its deepwater Trion block because the current terms could deter interest from any potential farm-in partners, a former US State Department energy adviser said Thursday.

    David Goldwyn, president of Goldwyn Global Strategies and former special envoy for energy under President Barack Obama, said Pemex's proposed Trion terms put too much risk on the private partners.

    "It's better to have a delay than a failure," Goldwyn said. "It's a disappointment, but it's an example of where pushing Pemex and bringing them into the reform full speed is really going to be critical."

    Goldwyn made the comments during the Wilson Center's North American Energy Forum in Washington.

    "Trion is an appetizing field, but I think it's the terms that are not right," he said. "The culture of trusting the private market, the culture of opening up and operating like a real company has not yet set in at Pemex." The Trion block in the Perdido Fold Belt sits close to the maritime border with the US in the Gulf of Mexico and has certified proven, probable and possible reserves of 480 million barrels of light crude, with water depths of 2,200-2,500 meters (7,200-8,200 feet), according to Pemex.

    Under the farm-in terms, Pemex will receive $450 million for work it has already done in exploration, plus up to a 45% share in the project.

    Ten companies have applied to bid, but some watchers have doubts about how many of them will actually submit bids.

    There was no talk of delaying the Trion auction when Mexico's National Hydrocarbons Commission met Thursday. The regulators gave Pemex an additional week to respond to 100 questions submitted by prospective partners.

    Apart from the Trion terms, Goldwyn praised Mexico's energy reforms and said he expects success when it auctions 10 deepwater blocks in the Gulf of Mexico, also set for December 5.

    "I really want the farm-outs to go well because the success of the reform will largely be judged by whether Mexico can reverse declines, produce more and generate revenues," Goldwyn said. "To some extent, the near-term opportunity is all in the farm-outs."
    Back to Top

    China's Sinoenergy to invest C$500 mil in Canada's Long Run Exploration

    Sinoenergy has committed to spend another C$500 million ($380 million) to support operations of Alberta-based light oil, natural gas and NGLs producer Long Run Exploration, the Canadian government said Thursday.

    The investment will be spread over the next two years and came after an early September visit to China by Canadian Prime Minister Justin Trudeau, the statement said.

    Four commercial deals were signed in Ottawa Thursday as a follow-up to the visit, it added, with Sinoenergy and Long Run being one of them. The other three deals relate to non-hydrocarbon industries.

    Sinoenergy's commitment to inject fresh capital into Long Run comes on the back of a C$780 million offer it made in February to acquire 100% interest in Long Run.

    The deal, which closed on June 29, was driven primarily by Long Run's inability to generate sufficient cash flow and develop its assets given the low oil price environment, Long Run said then.

    With a land position of over 600,000 net acres at Peace River, Redwater and Deep Basin in Western Canada, Long Run's light oil, NGL and natural gas production in first-quarter 2016 was 27,775 b/d of oil equivalent, compared with 35,602 boe/d in the same quarter the prior year, information posted on the company website said.

    A Long Run official declined to comment on Thursday's announcement, but said that production is still underway at its assets.

    "Given the continuing low oil prices, shrinking netbacks and limited pipeline access, the future of several Canadian juniors including Long Run is at risk," said Paul Pasco, an independent analyst and until recently an upstream analyst with Wood Mackenzie.

    "Although this may not be the best time for international companies to invest in debt-laden Canadian producers, the Sinoenergy deal looks like an exception. Long Run has some good assets that will need capital to be monetized."

    In their efforts to shed debt and emerge as a leaner producer with low operating costs, the way forward for smaller Canadian producers will be mergers, Pasco said.

    "We have seen several transactions this year related to the sale of midstream assets by juniors and that will likely increase further. But it will be a challenge to sell upstream oil sands assets as there is still a mismatch between the buyer and seller expectations," Pasco said.

    Sinoenergy would have carried out its due diligence before committing those dollars, said Gary Leach, president of the Explorers and Producers Association of Canada.

    "A WTI $45/b oil price could trigger investment in Western Canada's light oil plays," Leach said.
    Back to Top

    Canacol Energy doubles natural gas drilling activity in Colombia

    Canacol Energy Ltd is pleased to provide a revised capital plan for 2016. The new capital plan accelerates the Corporation's natural gas opportunities in Colombia with three new gas wells. In addition, one new oil well will be drilled over the remainder of 2016. The revised 2016 capital plan has increased by $34 million, from $58 million to $92 million. In August, Canacol raised $35 million from long term strategic investors including follow-on investment from the Corporation's largest shareholder, Cavengas Holdings S.R.L. to accelerate gas drilling.

    Despite significant volatility in global oil prices, the Corporation anticipates near record EBITDAX of approximately $135 million for 2016. Canacol forecasts average realized gas sales pricing of $5.60 per thousand standard cubic feet ('mscf') with a netback of $4.56/mcf, representing an estimated 81% netback margin. The Corporation's fixed price gas contracts mitigate impact from oil volatility with approximately 86% of 2016 corporate production insensitive to world oil prices. The Corporation continues to reduce costs with an estimated 40% reduction in general & administrative expenses for the year. Canacol estimates oil and gas sales before royalty between 16,000 to 17,000 barrels of oil equivalent per day ('boepd') for 2016 and third quarter oil and gas sales before royalty of approximately 18,200 boepd.

    Over the past three years, the Corporation has made four gas discoveries and added 302 BCF in 2P reserves on the Esperanza and VIM 5 E&P blocks located in the Lower Magdalena Basin, Colombia. Canacol recently added a second rig to the two blocks. The objectives of the expanded gas drilling program are to 1) target management's estimate of more than 100 billion cubic feet ('BCF') of new potential recoverable resource in 2016 to secure new gas sales contracts, and 2) increase the productive capacity of the Corporation's gas assets to more than 190 million cubic feet per day ('MMcf/d') in anticipation of new sales contracts. Canacol has a large inventory of prospects and leads targeting 2.4 - 2.8 trillion cubic feet ('TCF') of unrisked mean estimate resource potential. The Corporation's gas resource capture strategy remains balanced for the remainder of 2016 with two gas exploration wells and two gas development wells.Trombon-1 gas exploration well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    Offset to the Nispero-1 gas discovery, the Corporation spud Trombon-1 on September 13, 2016. Canacol anticipates the well will take five to six weeks to drill and flow test. In late August 2016, Nispero-1 exploration well tested 28 MMcf/d of dry gas with no water. The well encountered 79 feet measured depth (55 feet true vertical depth) of net gas pay with average porosity of 17% within the primary Cienaga de Oro ('CDO') reservoir sandstones. With success at Nispero, the Corporation spud Trombon-1 from Nispero's drilling platform. Trombon-1 exploration well is targeting the same CDO reservoir interval tested in the offsetting Nispero-1 well, but in a distinct and isolated fault block located approximately 2 kilometers south of the Nispero discovery. Management estimates Trombon-1 may contain 40 BCF of potential recoverable resource.

    Nelson-6 gas exploration well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Nelson-6 in October 2016. The well may provide the potential to book reserves against by-passed pay within the shallow Porquero sandstone reservoirs in the Nelson gas field. As of December 31, 2015, Nelson gas field had 2P reserves of 209 BCF associated with the CDO reservoir with four straight successful wells drilled into the field. Management estimates Nelson-6 may contain 31 BCF of potential recoverable resource.

    Nelson-8 gas development well: Esperanza E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Nelson-8 in November 2016. The well offers the opportunity to reclassify reserves and an additional 8 - 12 MMcf/d of productive capacity. The well is targeting the CDO reservoir sandstones in the Nelson gas field.

    Starting in late September 2016, the Corporation plans to workover four Nelson gas wells. The objective is to extend each well's productive life and optimize reserve recovery. The Corporation also plans to upgrade the Jobo facility and Nispero-Jobo flow line.

    Clarinete-3 gas development well: VIM-5 E&P contract - Lower Magdalena Basin, Colombia, 100% working interest

    The Corporation plans to spud Clarinete-3 in the fourth quarter of 2016. The well may provide the potential to reclassify reserves and additional 10 - 12 MMcf/d of productive capacity. Clarinete-3 well is targeting the CDO reservoir sandstones which is productive in both the Clarinete and Nelson gas fields. As of December 31, 2015, Clarinete had 2P reserves of 163 BCF with two straight successful wells drilled into the field.

    Mono Capuchino-1 oil exploration well: VMM-2 E&P contract - Middle Magdalena Basin, Colombia, 67% working interest

    Offset to the Mono Arana-1 oil discovery, the Corporation plans to spud Mono Capuchino-1 in October 2016. In January 2013, Mono Arana-1 exploration well tested approximately 600 barrels of oil per day ('bopd') from a 335 foot perforated interval in the La Luna Formation. With Mono Capuchino-1, the Corporation plans to further investigate the potential for this established play. Management estimates the Mono Capuchino-1 prospect may contain 9 million barrels ('MMbls') of potential recoverable resource.
    Back to Top

    The Top Permian Oil Producer Says Rig Counts in the Region Are Going to Soar

    The biggest player in the Permian Basin, America's most coveted oil field, thinks rig counts in region are poised for explosive growth.

    In an interview with Bloomberg, Pioneer Natural Resources Co. Chief Executive Scott Sheffield predicted that 100 oil rigs will be added in the area considered to be U.S. shale drillers' version of prime real estate over the next year. Bloomberg Intelligence Analysts Vincent Piazza and Daniel Krauser note that Pioneer has the highest gross production of any driller in the Spraberry and Wolfcamp formations in the Texan oil field.

    The shale revolution sparked a frenzied rise in U.S. crude production that eventually drove oil prices to their lowest level in more than a decade earlier this year. While prices have since recovered, they've failed to sustainably hold above $50 per barrel — and any advances may continue to be capped if drillers boost activity in the productive Permian Basin.

    Rig count data from Baker Hughes shows the number of all types of active rigs in the Permian Basin — which spans from West Texas into a portion of New Mexico — stands at 202 as of Sept. 16, with 416 active oil rigs across the U.S.

    Adding a rig in the Permian, he warned, results in an outsized boost to U.S. oil production four to six months down the road — meaning headline rig count figures wouldn't necessarily tell the full story on where aggregate production is heading.

    At a conference on Wednesday, Sheffield said he sees output in the region "really taking off" in the first half of next year, with aggregate U.S. production beginning to grow again around the end of 2017 or the following year.

    The Permian region can grow production by 300,000 barrels per day, per year, according to Sheffield.

    The decline in rig counts has been the biggest contributor to the weakness in U.S. business investment since crude prices began to collapse in the middle of 2014. During Wednesday's press conference following the Federal Reserve's announcement, Chair Janet Yellen said drilling was "now showing signs of stabilizing."
    Back to Top

    Maersk Oil eyes Shell's North Sea assets ahead of spin-off

    A.P. Moller-Maersk (MAERSKb.CO) is in talks to buy a portfolio of North Sea assets from Royal Dutch Shell as the Danish group considers adding scale to its oil and gas business ahead of a planned spin off, banking sources said.

    Maersk announced on Thursday a major overhaul that will see it focus on its core transport and logistics businesses, while looking at options for its energy division within 24 months that could include a joint venture, merger or listing.

    Maersk has said over the past year that it planned to invest several billions of dollars to expand its oil operations, although it is now likely to face bigger financial pressures given a rout in earnings from shipping, weak oil prices and the loss of a major oil contract in Qatar.

    Maersk Oil has held talks in recent weeks about buying a large part of the North Sea portfolio that Shell is seeking to sell as part of a three-year, $30 billion divestment plan following its purchase of BG Group earlier this year, banking sources involved in the talks told Reuters.

    The assets under discussion are valued at around $2 billion, they added.

    Shell and Maersk Oil declined to comment.

    Although the aging UK North Sea is considered a relatively costly oil region, Maersk - which already has assets there - believes it can reduce the costs of running Shell's fields as well as the costs of dismantling and cleaning up assets nearing the end of their production lives, the sources said.

    Explaining Maersk's options for its energy business, one source with knowledge of the process said: "They could look to bulk it up potentially with merger combinations before an exit – the key is to make it attractive to get the value they want."

    Maersk Oil is currently developing the Culzean gas field which is expected to start production in 2019 and which could supply up to 5 percent of Britain's gas demand.

    The division produces around 500,000 barrels per day of oil and gas equivalent around the world, according to its website. Barclays analysts estimate Maersk Oil would currently have a market value of around $4.7 billion as a standalone business.

    Maersk Oil has suffered a series of setbacks, first and foremost when Qatar chose not to extend its 25-year license to operate the giant Al Shaheen field. Its plans to develop a huge offshore field in Angola also stalled as it struggled to reduce costs.

    In February, Maersk tumbled to a loss after writing down Maersk Oil's assets by $2.6 billion.

    Still, many of the division's assets are considered attractive, including its stake in Norway's giant Johan Sverdrup oil field development.

    "The energy-division is sort of cut off with a 'For sale' sign in the window," Sydbank analyst Morten Imsgard said.

    "Maersk Oil is a small player in a larger context, so there are many players big enough to take in Maersk Oil. Drilling is relatively large, but its competitors are under extreme financial pressure, so Maersk is less likely to find a sell-off opportunity there."
    Back to Top

    Bharat Petroleum looks for more oil, gas assets already in production

    Indian energy group Bharat Petroleum Corp Ltd is looking at buying more stakes in oil and gas assets that are already producing to speed up investment returns, the managing director of the company's exploration business told Reuters.

    The state-run refiner had previously focused mainly on exploration assets overseas, where it has invested just over $1.5 billion.

    But the company now also looks at fields that are already producing. In March, it bought a stake in Russian oilfields that are in production via its upstream subsidiary Bharat Petro Resources Ltd.

    "That is why we looked at Russia," BPRL's managing director D. Rajkumar told Reuters in the sidelines of a news conference on Wednesday.

    "That will ensure we have a balanced portfolio of assets from exploration, development to producing. So with all this, we will be in a self-sustaining place soon."

    Pressure on oil companies to get a quick return on their investment has increased because of lower oil prices which have also hit the industry's capital spending plans.

    Bharat Petroleum was the first Indian state refiner to venture into the upstream oil business when it bought minority stakes in Brazilian blocks in 2007.

    In 2008, Bharat Petroleum invested in a gas block in Mozambique but the production has now been delayed to 2020-21 after liquefied natural gas (LNG) prices slumped.

    The purchase of the Russian assets gives Bharat Petroleum a potential for immediate revenues and bridges the gap till 2021-22 when Mozambique gas production starts, Rajkumar said.

    The company's chairman S. Varadarajan said it would also continue to look for exploration opportunities.

    "There is a strategy to look at different markets and projects which are at different phases (of exploration and production) and that is why we did the Russian acquisition," Varadarajan said.

    BPCL plans to invest 150 to 200 billion rupees ($2.25 billion to $3.00 billion) over the next five years in developing existing blocks, the company has said.
    Back to Top

    Gazprom discovers new gas deposit in Sea of Okhotsk

    Gazprom said on Thursday it had discovered a new gas deposit during exploration at the Kirinskoye field in the Sea of Okhotsk near Russia's Sakhalin island.

    The field is crucial for Gazprom's plans to raise liquefied gas production at its Sakhalin-2 plant on the island. It has not disclosed the reserves of the newly discovered deposit.

    Shell, which also has a stake in the LNG plant, may also get a share in the Kirinskoye field as part of an asset swap deal with Gazprom, though the prospects for this are uncertain because of international sanctions for Russia's role in the Ukraine crisis. These bar Western companies from development of deep-sea gas deposits in Russia and from some oil fields as well.

    In 2015, the United States restricted exports, re-exports and transfers of technology and equipment to the Yuzhno-Kirinskoye field, part of the wider Kirinskoye deposit.

    Gazprom Deputy CEO Alexander Medvedev told the Reuters Russia Investment Summit last week that Gazprom had not yet chosen which assets it wanted to swap under its deal with Shell.

    The Sakhalin-2 plant, which currently produces 10 million tonnes of LNG per year, is due to add another 5 million tonnes of LNG to allow Russia to come closer to its target of 5 percent of the global LNG market.
    Back to Top

    Property owners lobby for royalty bill

    Landowners in the Marcellus Shale drilling region are lobbying daily at the state Capitol in hopes of winning last-minute passage of a bill to prevent some gas drillers from reducing royalty payments through deductions.

    They set up a table in the Rotunda within sight of the House Republican caucus meeting room to urge support for a bill that restricts what companies can deduct in post-production costs for compressing and transporting gas from the well to market.

    The measure, supported by several Northeast region lawmakers, would buttress a 1979 state law that guarantees leaseholders receive at least 12.5 percent of the value of gas extracted.

    The lobbying effort follows several years of complaints by landowners in Bradford, Susquehanna, Wyoming and Lycoming counties about the business practices of Chesapeake Energy LLC in using deductions to cut royalty payments.

    “I am really concerned about a major injustice to the landowners of Pennsylvania,” Joe Moore, a Wyalusing landowner, said Tuesday.

    He said his mother signed gas leases to allow drilling on 90 acres of property she owns but has not received royalty payments in some months recently because of the extent of company deductions.

    Mr. Moore spoke of other landowners who report receiving no royalties and even notices saying they owe money to drilling companies.

    He said state government is losing money, too, from reduced royalty payments for drilling on state forest land and gamelands.

    County commissioners from the drilling region are expected to lobby on the bill next week. The National Association of Royalty Owners Pennsylvania Chapter is coordinating the lobbying.

    Supporters face a challenge in making headway with a bill that has drawn opposition from the gas industry and lawmakers in drilling regions in western Pennsylvania. Supporters face the hurdle of winning passage of the bill in the House and Senate with limited days left in the 2015-16 legislative session.

    “I’m hoping there will be a vote in the House,” said Rep. Sandra Majors, R-111, Bridgewater Twp., a bill co-sponsor.

    The House Environmental Resources and Energy Committee voted in June to approve the royalty bill in recognition of the issues facing landowners, said Steven Miskin, spokesman for House Majority Leader Dave Reed, R-62, Indiana. However, many lawmakers have concerns about the bill’s impact on contract language, he said.

    A royalty bill reached the House floor in the previous legislative session only to get bogged down with inconclusive debate over an amendment by a western Pennsylvania lawmaker to give landowners some remedies to pursue complaints about royalties.
    Back to Top

    Don’t be fooled by the numbers, Eagle Ford play is a sleeping giant

    The Eagle Ford shale oil patch has seen brighter days. New well permits are down, production is low (down from its 2015 peak of 1.7 million b/d, to around 980,000 b/d this year) and producers are pulling out of the region to focus their efforts elsewhere.

    Symbolic of the mood in the field, things were a little more subdued at the recent Hart Energy DUG Eagle Ford conference in San Antonio.

    Many attendees were quick to notice the smaller scale of the conference this year.  Lower oil and gas prices meant a lighter presence and scaled-back events surrounding the conference, which was held in conjunction with the Midstream Texas conference. Major players and past year exhibitors like Baker Hughes and Halliburton were obviously missing from the smaller-than-usual exhibition space and at least one attendee compared this year to past years by lamenting the absence of magicians and open bar at an after-hours mixer.

    Attendance this year was healthy, but still was a telling reminder of the current state of the Eagle Ford. Around 1,500 people were at the conference, a more than 45% decrease from last year.

    “While that’s smaller than during the ‘boom,’ it’s not down as much as the decline in crude oil price from the top to the bottom, or the fall in the US rig count, so we’re feeling pretty good about it with the current market conditions,” said Greg Salerno, vice president of marketing for conference presenter Hart Energy.

    Finding the bright spots in the darkness seemed to be a theme at this year’s conference.

    Major operators focused their presentations on their cost-cutting prowess and efficiency milestones that they’ve achieved recently (including Chesapeake Energy’s recent record of drilling a well in eight days).

    “Records today are the normal for the future,” said Jason Pigott, executive vice president of Chesapeake.

    Christopher Heinson, the COO of Sanchez Energy, said the company has focused on optimizing returns in the Eagle Ford. He said the company has managed to cut per-well drilling costs from around $4.5 million to $3.5 million. They achieved this by “debundling” services and sourcing directly from providers.

    All Eagle Ford operators who spoke mentioned technological advancements that have helped improve efficiencies such as automation, data management, longer horizontal reaches and other strategies that have allowed them to drill fewer wells, cheaply.

    “Prices have made us work harder,” Heinson said. “It’s impressive given the environment.”

    Despite the lower production numbers and languishing oil prices there is plenty of potential for the Eagle Ford basin and producers to remain optimistic.

    “I’d like to think there are a few more Champagne bottles with corks ready to pop,” said Dale Kokoski, regional vice president at Marathon Oil.

    He said that Marathon continues to work in the Eagle Ford but has shifted from “high-growth mode” to “mid-cycle focused.”

    Eagle Ford’s proximity to ports in Houston and Corpus Christi make the potential for cost-effective exports of both crude and natural gas an appealing possibility.

    And there is still plenty of oil in the ground to get.

    The University of Texas at Austin’s Bureau of Economic Geology released new, unpublished research on the field at the conference.

    Scott Tinker, bureau director, and Svetlana Ikonnikova, an energy economist there, said the Eagle Ford holds an estimated 230 billion barrels of oil, though just 10 billion is recoverable. The researchers estimate that there also is 462 trillion cubic feet of natural gas, with 34 trillion cubic feet recoverable in the Eagle Ford.

    Merger and acquisition opportunities also are attracting investments to the Eagle Ford as operators refocus on other basins, prune their portfolios or sell non-operating positions.

    “These times won’t last,” said Mark Sooby, managing director of Bank of America Merrill Lynch. “If you are going to make a transaction, you want to make it in the down cycle and the down cycle is almost over.”

    Attached Files
    Back to Top

    AGDC and ConocoPhillips sign MoU to create LNG joint venture

    Acting through Alaska Gasline Development Corp. (AGDC), the State of Alaska, US, has signed a memorandum of understanding (MoU) with ConocoPhillips Alaska Inc. to create a joint venture (JV) company. The JV would market LNG from the Alaska LNG project to global LNG markets. It would also acquire North Slope gas, with the aim of bringing both LNG buyers and wellhead sellers together. In addition to this, AGDC and ConocoPhillips are planning to support other large North Slope producers in the JV’s formation.

    AGDC claims that the MoU is part of the company’s broader plan to prepare the Alaska LNG project for a front end engineering development (FEED) decision. This plan includes the following elements:

    -Structuring for federal and state tax efficiencies, including seeking a federal ruling on tax-exempt status.
    -Advancing low cost financing and investor options.
    -Engaging engineering, procurement and contracting (EPC) companies with the ability to shoulder a significant part of the construction risk.
    -Bringing major North Slope producers on board to commit their gas to the planned JV, or tolling arrangements with the project.
    -Positioning a JV to engage the LNG market to measure the extent and timing of demand.

    AGDC claims that once the JV has been formed, sales and negotiations with global purchasers could start immediately.

    The Chairman of AGDC, Dave Cruz, said: “The AGDC board welcomes the commercial progress made by AGDC under the leadership of President Meyer as evidenced by this agreement.”

    The President of AGDC, Keith Meyer, said: “We are pleased to be working with ConocoPhillips, the leader in Alaskan LNG, in this important phase of Alaska’s major infrastructure project.”

    Once established, it is also expected that the JV would initially focus on gathering LNG market information in support of its pursuit of gas and LNG sales as the project proceeds. The JV would also look to set out terms for the reliable and sufficient supply of gas to the project, resolving longstanding project gas supply assurance issues. The MoU expects that third parties or other producers could also join the JV, make gas available through wellhead sales, or even commit to tolling arrangements with the Alaska LNG project.
    Back to Top

    Kurdistan payments 'in abeyance'

    Crude export payments have been halted to Gulf Keystone Petroleum and apparently other producers in Iraqi Kurdistan following a dispute between the regional and federal governments over exports.
    Back to Top

    Saudis Said to have Met With Iran for Oil Talks Before Algiers

    OPEC members Saudi Arabia and Iran, whose rivalry derailed an oil supply accord earlier this year, met in Vienna a week before the organization holds talks in Algeria.

    The two oil producers, along with fellow OPEC member Qatar, met at the headquarters of the Organization of Petroleum Exporting Countries in Vienna, according to three people familiar with the matter. They were making preparations for informal discussions between energy ministers from OPEC and Russia in Algiers next week, the people said, asking not to be identified because the talks were private.

    The face-to-face talks between Saudi Arabia and Iran, OPEC’s two leading members and fierce regional rivals, show diplomatic efforts to secure a meaningful deal in Algiers are still under way despite market skepticism. Prices have retreated this month amid concern there will be no serious commitment to constrain supply and all but two of 23 analysts surveyed by Bloomberg this week predict there will be no agreement next week.

    "We may be starting see a change of attitude in Riyadh," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "A positive result to the talks in Algiers is looking more likely."

    Doha Failure

    OPEC’s last attempt to reach a deal, which also involved Russia, the largest non-OPEC producer, fell apart in Doha in mid-April when Saudi Arabia insisted at the last minute that Iran also had to freeze production. Iran had refused because it was just starting to revive exports following the end of international sanctions.

    The discussions on Wednesday in Vienna marked the latest step in a flurry of shuttle diplomacy that has seen OPEC officials meet from Paris to Moscow and the Middle East. OPEC Secretary-General Mohammed Barkindo visited Qatar and Iran earlier this month to build consensus before the Algiers conference. President Vladimir Putin said on Sept. 2 that the producers can overcome their divisions to reach a deal.

    With Iran having restored lost output since international sanctions were lifted in January, the chances of a deal now are higher than at any time since OPEC launched its strategy two years ago, according to Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University in New York.

    Remaining Obstacles

    The growing pressure from low oil prices may also give Saudi Arabia, which has depleted its cash reserves to cover a budget deficit, an incentive to compromise, according to Abhishek Deshpande, chief energy analyst at Natixis SA in London. Still, a number of obstacles to securing an agreement remain, including tensions between Saudi Arabia and Iran as they continue to clash in proxy conflicts around the region from Syria to Yemen.

    OPEC also remains locked in a contest for market share, both between members and with competitors outside the group like U.S. shale drillers, making a deal difficult. Some OPEC members such as Iran and Iraq aim to boost capacity, while de facto group leader Saudi Arabia is pumping at record levels to maintain its sales volumes.

    The group is also reluctant to enter into a pact with Russia, which it doubts would deliver on any pledge to curb supply, according to Citigroup Inc.
    Back to Top

    YPF Sees Argentina Reforms Drawing Billions in Shale Investments

    Argentina’s biggest oil company sees the government removing production subsidies by the end of 2017, a step that may help lure investment as President Mauricio Macri tries to sell his vision of a more competitive economy.

    The reforms, including talks with unions and contractors to help reduce costs, may attract some $5 billion to $10 billion in additional investments into the country’s oil and gas industry through the end of next year, YPF SA Chairman Miguel Angel Gutierrez said in an interview Wednesday at Bloomberg headquarters in New York. YPF has also had conversations with “middle-market" energy producers and equity firms as it seeks to pull in even more money, the chairman said.

    “We need to demonstrate to the world that we are able to reduce costs." Gutierrez said. “With the right set of conditions, I think the investment will come."

    While support for natural gas production should remain in place for another three years after it expires next year, the direction is clear, he said. “We are moving toward a market economy, no doubt. Our industry is not an exception."

    Since taking office in December, Macri has devalued the national currency, ended foreign exchange restrictions and cut fuel subsidies, as he tries to revive Argentina’s moribund economy. State-owned YPF, meanwhile, is courting international corporations from Exxon Mobil Corp. to France’s Total SA, as it seeks help to develop the world’s second biggest shale oil and gas reserves.

    Bowing to public opinion, YPF will “no doubt" remain controlled by the government, Gutierrez said. Nonetheless, market reforms are making the company and country more competitive, helping to attract investments from major energy companies, private equity firms and other backers, the chairman said.

    Contract Negotiations

    YPF is negotiating with unions and contractors to lower costs and the national and local governments have spent billions on new roads and other infrastructure in Vaca Muerta, the country’s vast, mostly untapped shale fields, Gutierrez said. The Buenos Aires-based company expects to lower drilling costs below $10 million a well by the end of this year, he said.

    Macri ended a 15-year fight with bondholders, who had frozen the nation out of debt markets and trimmed a budget deficit that ballooned under past presidents. He also replaced YPF’s leadership this year, appointing Gutierrez, a former Telefonica SA and JPMorgan Chase & Co. executive, as chairman and Ricardo Darre as chief executive officer.

    Vaca Muerta, Spanish for dead cow, has major deposits of both oil and gas. Covering an area the size of Belgium, it has become one of the world’s top shale plays and is considered key to restoring energy self-sufficiency in Argentina. Exxon has designated the formation as one of nine “key activity” areas in the Western Hemisphere.

    YPF and Chevron Corp. are jointly developing shale there as well and BP Plc Chief Executive Officer Bob Dudley said on Sept. 14 that the U.K. producer sees “enormous potential" in the South American country.

    Domestic Focus

    While Vaca Muerta could eventually make Argentina a force on the global natural gas market, YPF’s focus for now remains on domestic use as well as sales to neighboring Bolivia and Chile, Gutierrez said. The country will likely remain a net importer of gas for at least the next five years.

    Financial index provider MSCI Inc. said in June it would review Argentina, South America’s second-largest economy, for a possible upgrade to emerging market status. Argentina has been classified in the frontier category for the last seven years.
    Back to Top

    Smart Sand, Woodlands-based frac sand company, files for IPO

    The Woodlands-based Smart Sand has filed paperwork with the Securities and Exchange Commission to go public. The company deals in sand for hydraulic fracturing, similar to what is pictured here in this AP file photo taken in the Marcellus Shale drilling region in July 2011.

    Smart Sand, The Woodlands-based company that produces sand for hydraulic fracturing, plans to go public.

    The company on Friday filed a registration statement with the Securities and Exchange Commission for an initial public offering, documents show.

    Smart Sand operates two white sand processing sites in Wisconsin with a combined 344 million tons of "proven recoverable" sand reserves. In its SEC filing, the company said the two sites give it a large reserve base of sand with good access to Class I railroads.

    Company officials also stated they could likely expand capacity of their larger processing facility to meet increased demand, citing projections that demand for frac sand will grow 23 percent per year through 2020.

    In hydraulic fracturing, drillers shoot millions of gallons of water into horizontal wells to fracture the rock and free the hydrocarbons. To keep those fractures open, they add "proppant" — sand.

    The company plans to raise up to $100 million during its IPO, according to Renaissance Capital.
    Back to Top

    Russian oil output surges as Opec talks loom

    Russian oil output rose to a record ahead of talks on supply with Saudi Arabia and other members of the Organization of Petroleum Exporting Countries next week.

    Output in September has been about 11.09 million barrels a day, the highest monthly average since the Soviet era, and reached about 11.18 million on Tuesday, Energy Ministry data show. Maintenance at Sakhalin Island in August capped output that month at just over 10.7 million barrels a day.

    Russia will meet fellow oil producers in Algiers on Sept. 28 to discuss the market as the global crude surplus keeps prices below $50 a barrel. President Vladimir Putin said Sept. 1 he’s confident producers can overcome differences that derailed a proposal to freeze supply in April. Yet the start of new Russian fields shows the country is keen to squeeze as much revenue from its oil resources while it can.

    “Russia keeps posting new record highs because neither Russia nor OPEC managed to agree upon freezing,” said Alexander Kornilov, an oil analyst at Aton LLC. “Production is profitable.”

    The April agreement collapsed when Saudi Arabia insisted on the participation of Iran, which refused to join as it ramped up output following the removal of international sanctions. Putin has said he’d like Russia and OPEC to reach an accord on freezing supply while exempting Iran until it restores production to pre-sanctions levels.

    Russia would be ready to cap output at the level of any month in the second half of this year, Energy Minister Alexander Novak said two weeks ago in China.

    Russian oil producers have been able to weather the commodities rout as a weaker ruble reduced costs and taxes eased with lower crude prices. That has helped support output at existing projects as new fields come on line.

    Putin on Wednesday oversaw the start of Siberia’s East Messoyakha oil field, run by Rosneft PJSC and Gazprom Neft PJSC. The deposit is expected to produce 577,000 tons of oil this year and reach a peak of 5.6 million tons, or 112,000 barrels a day, at the end of the decade, according to the Kremlin.

    Rosneft, Russia’s largest oil producer, also plans to start its Siberian Suzun field in a month’s time, Chief Executive Officer Igor Sechin said Wednesday. The company expects output from the deposit to peak at 4.5 million tons of oil, or 90,000 barrels a day, in 2017, according to a presentation last month.

    Russia’s second-largest producer, Lukoil PJSC, started test production at the Caspian Sea’s Filanovsky field at the beginning of August, pumping 20,000 barrels a day, it said Aug. 30. The company’s press service didn’t immediately comment on Filanovsky’s current output when contacted on Wednesday.
    Back to Top

    India boosts LNG imports in August

    India’s imports of liquefied natural gas rose 34.6 percent in August as compared to the same month a year ago, according to the data from oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

    India imported 2,144 million metric standard cubic metres (mmscm) of LNG in August compared with 1,593 mmscm in the same month last year, PPAC said.

    The country imported 10,348 mmscm of LNG in April-August, up by 25.7 percent as compared with the corresponding period of the previous year.

    India’s LNG imports have been rising steadily this year boosted by low prices of the chilled fuel with the exception of July when the country’s LNG imports marked the first monthly decline as gas consumption remained flat and domestic gas production rose.

    Costs of importing LNG into India have dropped sharply in 2016 after India’s largest LNG importer, Petronet signed a revised long-term contract with RasGas of Qatar.

    The country’s prime minister Narendra Modi said last month that the world’s fourth-largest importer of the chilled fuel could save up to US$3 billion due to the renegotiated import deal.

    India imports LNG via Petronet’s Dahej and Kochi LNG terminals, Shell’s Hazira plant, and the Dabhol terminal operated by Ratnagiri Gas and Power.

    Attached Files
    Back to Top

    Summary of Weekly Petroleum Data for the Week Ending September 16, 2016

    U.S. crude oil refinery inputs averaged 16.6 million barrels per day during the week ending September 16, 2016, 143,000 barrels per day less than the previous week’s average. Refineries operated at 92.0% of their operable capacity last week. Gasoline production increased last week, averaging 10.1 million barrels per day. Distillate fuel production increased last week, averaging about 5.0 million barrels per day.

    U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 247,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 9.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 569,000 barrels per day. Distillate fuel imports averaged 76,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.2 million barrels from the previous week. At 504.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 3.2 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 2.2 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.7 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories decreased by 6.0 million barrels last week.

    Total products supplied over the last four-week period averaged 20.3 million barrels per day, up by 3.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.5 million barrels per day, up by 4.1% from the same period last year. Distillate fuel product supplied averaged about 3.6 million barrels per day over the last four weeks, down by 5.9% from the same period last year. Jet fuel product supplied is up 8.1% compared to the same four-week period last year.

    Cushing up 500,000 bbl

    Attached Files
    Back to Top

    Small increase in US oil production

                                                                           Last Week    Week before      Last year

    Domestic Production '000................. 8,512                8,493              9,136
    Alaska ............................................    464                   458                  488
    Lower 48 ........................................ 8,048               8,035              8,648
    Exports ...........................................     588                  418                 477
    Back to Top

    Saudi Aramco plans maintenance at two refineries in Nov-Dec

    Saudi Aramco plans to shut two refineries towards the end of this year for scheduled maintenance, four sources close to the matter said, which could free up more of the state oil company’s crude for export.

    Saudi Aramco has scheduled maintenance at its refinery in Yanbu and its largest refinery in Ras Tanura in November and December, the sources said.

    Each shutdown could add 4 million to 8 million barrels of crude into global markets, depending on the extent of the shutdowns and their duration, according to Reuters’ calculations.

    A rise in Saudi crude exports on top of a recovery in Nigerian production would add to global supply which is likely to weigh on oil prices and push a potential market rebalancing further out into 2017.

    “It’s bullish for refining margins but very bearish for crude,” said an oil analyst who declined to be named due to company policy.

    “Saudi crude exports will climb.” Saudi Arabia’s fuel output will also fall during the maintenance, in particular middle distillates such as diesel and jet fuel, helping to tighten the market during peak winter demand in the northern hemisphere.

    Yanbu Aramco Sinopec Refining Co (Yasref), owned 62.5 per cent by Aramco and the rest by China’s Sinopec, is expected to shut its 400,000 barrel-per-day refinery complex for maintenance in November, the sources said.

    This could last for 10-15 days, one of the sources said.

    Separately, Saudi Aramco plans to carry out maintenance at the Ras Tanura refinery in December for 20-25 days, which may involve only the 325,000-bpd crude distillation unit (CDU), the sources added.

    Saudi Aramco and Sinopec do not comment on refinery operations.

    Saudi Aramco could export more Arab Light and Arab Heavy crude during the refinery shutdowns, trade sources said, although the producer also has the option to move excess barrels into storage if supply exceeds demand.
    Back to Top

    Venezuela PDVSA awards $3.2 billion oil service contracts to boost output

    Venezuela's state oil company PDVSA has awarded $3.2 billion in contracts to drill wells in the Orinoco Belt with the aim of increasing production by 250,000 barrels per day in the next 30 months, the Caracas-based company said in a statement on Wednesday.

    Schlumberger NV, Oklahoma-based contractor Horizontal Well Drillers and Venezuelan contractor Y&V won contracts to service three joint ventures between PDVSA [PDVSA.UL] and foreign partners.
    Back to Top

    TransCanada Plan to Vie With U.S. Gas Stirs Fear of 10-Year Toll

    TransCanada Corp. and Alberta natural gas producers agree they need a new pipeline deal to fend off rival U.S. supplies. The challenge is to agree on how long it should last.

    The pipeline operator is striving to get commitments for decade-long contracts to ship fuel east to Central Canada in exchange for lower tolls. The idea is to help Canadian supplies remain competitive even as two rival pipelines are set to link giant shale plays in the eastern U.S. to markets in Ontario and Quebec. But the length of the contracts is becoming a point of contention.

    “What’s really got some of these guys concerned is how long you have to commit to,” Jeff Tonken, chief executive officer of gas producer Birchcliff Energy Ltd., said in a phone interview. While TransCanada aims to start a formal bidding process in October to sign up producers, Tonken said it may take until the end of the year before there’s enough support to move ahead.

    Holding on to clients in Canada’s two most populous provinces is becoming critical for western gas producers as the U.S. meets more of its own demand, while projects to liquefy and export gas from the Pacific Coast struggle for approval. Competition is set to become tighter with the proposed Rover and Nexus pipelines from the Marcellus and Utica shales.

    Long Discussions

    The mainline ships a significant amount of Canada’s gas to market. The country produced about 15 billion cubic feet a day last year, and the mainline carried about 3 billion of that -- or one-fifth -- from the West. It was the largest single source of adjusted earnings in TransCanada’s gas pipelines business in the second quarter. The company’s stock has gained 37 percent this year and is hovering near a record high after it made a big bet on gas with the purchase of Columbia Pipeline Group Inc. for $10.2 billion, which closed in July.

    TransCanada has proposed tolls 40 to 50 percent cheaper than the current rates for new firm, 10-year contracts, to as low as 82 cents a gigajoule if it can secure 2 billion cubic feet a day of commitments to ship from Empress, Alberta, to the Dawn hub in Ontario.

    Currently, local distribution companies in Ontario and Quebec and gas marketers hold contracts to move gas east from Western Canada, many of which expire in 2022. Those distributors are increasingly looking to buy gas at the Dawn hub near Sarnia, Ontario, and elsewhere in the province, as more supply options emerge.

    Currency Risk

    The requirement to sign up for a decade means producers would need to line up buyers for the fuel and would face fluctuating currency exchange rates affecting the viability of the tolls, said Tonken. Tonken is on a sub-committee of the Canadian Association of Petroleum Producers in talks with TransCanada.

    TransCanada is optimistic it can overcome the producers’ concerns in time to start a so-called open season for the tolls next month, said Steve Clark, the company’s senior vice-president of Canadian & Eastern U.S. Pipelines. That timeline is necessary for regulators to approve the tolls so they can take effect in November, 2017, in line with the shipping calendar, he said. Competitors of the Canadian producers are prepared to sign up for terms exceeding 10 years on other pipelines, he said.

    “That’s the nature of the pipeline business these days,” Clark said.

    There’s the added question of whether the 82-cent rate will be low enough to hold onto Central Canada.

    Price Clarity

    “It’s also not clear how much U.S. Northeast producers would be prepared to undercut Canadian producers to capture the market,” said Randy Ollenberger, an analyst at BMO Capital Markets in Calgary.

    Gas producer Peyto Exploration & Development Corp. has also raised the issue of a spate of outages over the last year-and-a-half on TransCanada’s Alberta system while the operator was conducting maintenance. The work hindered shipments and cost producers about C$25 million for firm transportation service they weren’t able to access, according to an estimate from Peyto. Darren Gee, Peyto’s chief executive officer, said that type of “unpredictable risk” is preventing him from signing up for a long-term mainline contract.

    TransCanada’s Clark said the Alberta system work is wrapping up and the company is confident it will be able to make the necessary firm transportation service available. He declined to comment on Peyto’s estimate on the cost to producers for the work.

    Consultants hired by TransCanada have shown that the 82-cent rate would allow Canadian gas producers to compete with U.S. rivals, he said.

    “Given we don’t have to build anything here, we just have to get a rate approved, we think we have a timing advantage,” Clark said. “But we can’t wait forever. We need to move quickly.”
    Back to Top

    LNG players under pump as Qatar goes all out to lift output

    LNG powerhouse Qatar is pushing its massive export facilities at beyond capacity production levels as it moves to protect market share from Australia and other upstarts amid low prices, in a move analysts have described as similar to Saudi Arabia’s tactics in oil.

    The increased output comes as Qatar, the world’s biggest LNG producer, revealed it would pursue a strategy to maintain its share of global production amid low prices. Last year, it renegotiated a key Indian contract that had left the buyer severely out of the money.

    Analysts say the moves could further hit prices and Australian LNG projects struggling to ramp up in the low-priced environment, which recently caused Santos to announce it would hold back production from its Gladstone plant.

    Qatar’s mantle as the world’s biggest LNG producer is under threat from $200 billion of new Australian projects approved over the past decade.

    The investment is bringing on a wave of supply that has overtaken demand growth and is hitting prices that are already much lower than expected when the projects were committed to.

    But instead of easing off production of uncontracted LNG, Qatar appears to be following a similar strategy to that of Saudi Arabia in oil by running full tilt.

    Credit Suisse analysts say Qatar has the lowest cash costs in the world.

    “Qatar again ran at over 100 per cent capacity in 2015, and has been talking in 2016 about considering ‘innovative marketing strategies to protect its market share’,” Credit Suisse co-head of global oil and gas research, David Hewitt, told The Australian.

    “If that were to translate to lower prices to secure volume in the spot market, it would put additional pressure on other suppliers, including Australian projects, into the already fragile spot market.”

    In the sheikdom’s latest economic outlook, released in June, Qatar revealed concerns about new LNG market entrants that was not visible in its previous reports.

    “In a context of surplus shipping capacity and a looming glut in global LNG supplies, Qatar intends to consider and follow innovative marketing policies to protect its market share,” the country’s Ministry of Development Planning and Statistics said.

    Neither the Ministry nor Qatar gas responded to requests from The Australian for more details on the policies.

    Last year, Qatar exported a ­record 106.4 billion cubic metres of gas as LNG (77.1 million tonnes), stretching production beyond its capacity of 77 million tonnes.

    According to the Platts news service, Qatar’s 2016 first-half ­production for this year was 3 per cent higher than for the same ­period last year, indicating this year could see another record.

    Credit Suisse, citing industry sources, says only about 60 million tonnes of Qatar’s annual exports are contracted.

    “It could clear the potential excess from 2018 onwards on its own,” the bank says of the coming global oversupply.

    “That, however, looks unlikely, as Qatar has the lowest cash costs and could pursue the more recent policy of Saudi Arabia for oil.”

    On top of producing flat out, Qatar’s state-owned RasGas last year agreed to cut the price of a contract with India’s Petronet LNG to $US6 to $US7 per MMBtu, up to 50 per cent lower than the $US12 to $US13 agreed earlier, according to Reuters news agency. Qatar also waived a $US1.5bn penalty for taking less LNG than agreed.

    Wood Mackenzie analyst Saul Kavonic said the Petronet deal highlighted the risk that LNG contracts would need to be renegotiated, especially if oil prices (which LNG contracts are linked to) rose while spot LNG stayed low.

    “If you see it with India, that’s one thing, but if you start to see it with the more traditional buyers, like Japan, South Korea, or even China, that could be more meaningful,” Mr Kavonic said.

    “It’s a big risk out there in the market that is keeping some of the big LNG players awake at night.”

    Australia produced about 25 million tonnes of LNG last year but is forecast to increase production to 85 million tonnes by the end of the decade as projects approved during the boom continue to ramp up.

    While the returns will be low after development cost blowouts and lower-than-expected prices, most should generate cash at current spot prices of $US5 per MMBtu because of low operating costs.

    The Santos-run Gladstone LNG project and Shell’s Queensland Curtis LNG projects are two of the higher-cost plants, with Credit Suisse-estimated cash costs of $US7.50 to $US8 per MMBtu.

    Attached Files
    Back to Top

    NatGas Trades Above $3/Mcf 1st Time in > 1 Yr, Still Low in M-U

    We’ve just hit a milestone worth mentioning. The price of natural gas as traded at the benchmark Henry Hub delivery point (in southern Louisiana) closed at over $3 per thousand cubic feet (Mcf) for two days.

    It’s an important psychological barrier that gives traders (and drillers) hope for higher prices. However, before we begin popping the champagne corks here in the Marcellus/Utica, you should understand that there is no “the price” in natural gas.

    Gas is traded at hundreds of locations along major gas pipelines. The venerable Henry Hub is important because it is the benchmark, setting prices that many gas contracts are tied to.

    But the reality of natural gas prices for the Marcellus and Utica is one of low prices due to lack of pipeline capacity to move our oversupply to other markets. So while the price of gas trading at the Henry Hub yesterday closed at $3.08/Mcf (according to price experts Natural Gas Intelligence), the price of gas trading at the Tennessee Gas Pipeline Zone 5 300L in northeastern PA closed yesterday at $1.26/Mcf (NGI).
    Back to Top

    Oil service workers go on strike in Norway

    Over 300 oil service workers in Norway went on a strike on Wednesday morning after mediation between the Norwegian Oil and Gas Association and the Norwegian Union of Industri Energi failed.

    To remind, mediation over the collective oil service agreement between the employers’ organization in Norway and the workers’ union took place on Tuesday. The negotiations ended almost four hours past the original, midnight deadline but the agreement has not been reached.

    The strike affects the following companies, Schlumberger Norge, Baker Hughes Norge, Halliburton Norge, Oceaneering, and Oceaneering Asset Integrity.

    The walkout primarily affects environmental treatment of drilling waste, and could call a halt to some drilling operations, but it does not immediately affect oil and gas production on the NCS.

    Industri Energi’s negotiator Ommund Stokka said the employers’ association did not show any willingness to meet the union’s demands. The union believes that by accepting the employers’ proposal, the gap between the operator / drilling / catering and oil service staff would increase dramatically.

    The employers’ organization, on the other hand, said the union’s demands were unreasonably high. Karl Eirik Schjøtt-Pedersen, CEO of Norwegian Oil and Gas Association, said it was irresponsible to strike for a wage increase in a year when 40,000 people lost their jobs in the oil industry and while companies are still considering further downsizing.

    The union secretary Einar Johannessen stated that at the beginning only a limited number of workers will participate but, if necessary, the strike will escalate unless the deal is reached.

    Jan Hodneland, a chief negotiator at the Norwegian Oil and Gas Association, noted the strike is not showing solidarity to those who have lost their jobs.
    Back to Top

    A $24 Billion China Refinery Sees a Great Future in Plastics

    A new $24 billion Chinese refinery that’ll use as much crude oil as some of Asia’s biggest plants is set to take on rivals by helping make plastic bottles rather than fuel for cars.

    Rongsheng Petrochemical Co. has cleared more than 10,000 acres of land in Zhoushan island to build a 400,000 barrel-per-day facility by 2018, and will double that capacity by 2020, said Shou Bochun, a general manager at the trading arm of the privately owned company. Once the plant in eastern China reaches it expanded size by the end of the decade, it would rank among the top refineries in Asia, rivaling those of India’s Reliance Industries Ltd. and South Korea’s SK Innovation Co.

    Hangzhou-based Rongsheng plans to consume all of the plant’s output of naphtha, a key ingredient in the manufacture of petrochemicals, while minimizing production of diesel and fuels, Shou said. At maximum capacity, the refinery will be able to produce 10.4 million metric tons a year of aromatics including paraxylene and 2.8 million tons of ethylene, both of which are used to make plastics, according to a proposal posted on the website of the Zhoushan government.

    The company’s ambition underlines China’s increasing appetite for petrochemicals, used to make everything from sportwear to soda bottles. That will also help drive oil demand in the world’s second-biggest consumer amid a global glut and weak prices. Chinese petrochemical makers will need 90 percent more crude oil in 2030 than last year, while diesel demand growth is entering “a 10-year plateau”, according to Li Zhenguang, a senior analyst at China Petroleum & Chemical Corp., known as Sinopec.

    “It is chemicals really that is driving China’s oil-demand growth,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong. “Going forward, gasoline and chemicals will be very important when it comes to driving crude oil demand in China.”

    The nation’s oil consumption will rise to 700 million tons in 2030, or 14 million barrels a day, from 540 million tons in 2015, according to Li at Sinopec, which is China’s biggest refiner. He estimated the petrochemical sector will account for 19 percent of the country’s crude demand by the end of the next decade from 13 percent last year, which suggests consumption by the industry will almost double to 133 million tons.

    China imported 11.6 million tons of paraxylene last year from countries including South Korea, Japan, Taiwan and India, up 17 percent from a year earlier and compared with 3.5 million in 2010, customs data show. That’s about half of its requirements for the product, according to Shou.

    Polyester T-shirts

    The Zhoushan project by Rongsheng, a polyester fabric producer, may add a blow to other Asian refiners competing for the fast-growing Chinese petrochemical market amid a supply glut in the region. The Asian nation’s factories are forecast to make about 25 million tons of synthetic fibers this year, according to Salmon Aidan Lee, a Singapore-based consultant at Wood Mackenzie Ltd. That’s enough to produce 208 billion T-shirts.

    “Not only will this private petrochemical plant take market share away from PetroChina and Sinopec, but it will also take away market share from South Korean refiners and other regional competition,” said Nomura’s Kwan.

    Apart from Rongsheng’s 51 percent, privately owned Tongkun Group Co. and state-owned Juhua Group each control 20 percent of the project. Zhoushan Marine Comprehensive Development and Investment holds the remainder. The companies will fund the plant, estimated to cost about 160 billion yuan ($24 billion), by raising debt and selling equity, said Shou.
    Back to Top

    China August LNG imports rise 60.1 pct on year -customs

    China's imports of liquefied natural gas grew 60.1 percent in August over the same month last year to 2.26 million tonnes, data from Chinese customs showed on Wednesday.

    August imports of kerosene gained 21.3 percent on year to 320,000 tonnes, the data showed.
    Back to Top

    China August diesel exports up 47.6 pct on yr -customs

    China's diesel exports rose 47.6 percent in August over the same year-ago level to 1.07 million tonnes, data from the Chinese customs showed on Wednesday.

    Gasoline exports were up 44 percent on year to 670,000 tonnes while kerosene exports rose 16.8 percent to 1.13 million tonnes, the data showed.
    Back to Top

    New fields to boost Algerian gas output in 2017

    Algeria is on track for more than 9 billion cubic meters a year additional gas output next year when three delayed projects in its south west come online, a source at state energy company Sonatrach said.

    The third largest gas supplier to the Europe Union, Algeria has struggled in recent years to increase production of crude and natural gas because of low foreign investment to boost output at maturing fields and work new production.

    For a year, European Union officials and energy firms have been pushing Algeria to adapt to more competitive markets, especially with the fall in crude prices, to attract the investment needed to pump more gas north again.

    Three projects

    Among the projects are Touat Gas set for February 2017 with an estimated output of 12.8 million cubic meters per day, Timimoun in March 2017 with 4.6 million cubic meters per day, and Reggane will provide 8 million cubic meters per day in June.

    “The three projects will come online on time, the outcome will reinforce our position as a reliable gas exporter to Europe. No delays, the projects will be delivered in 2017,” the Sonatrach source told Reuters.

    “Further in the south, we have found a huge potential of gas around the fields of Akabli and Tidikelt, in addition to Alrar’s project in the east that will deliver gas and oil,” the source said.

    Dent in exports

    A drop in European gas demand dented Algerian exports that were squeezed by slowing production at mature fields, low investment and s rapidly increasing domestic need for gas to generate power.

    Still, Sonatrach has invested to stabilize and increase production at its large, mature fields and expects to bring five new gas fields online in the south of the country despite delays from state bureaucracy.

    Gas output is expected to reach 141.3 bcm in 2017, 143.9 bcm in 2018, 150 bcm in 2019 and 165 bcm in 2020, according to a Sonatrach document.

    In another advance, Algeria’s Tiguentourine gas plant resumed full production for the first time since a militant attack in 2013, after its third train came back online. The plant, operated with BP and Statoil with a full capacity of 9 billion cubic meters a year.

    At its huge, mature Hassi R'mel field, Sonatrach has engaged in boosting operations to help bolster production.

    Sonatrach is also due to recuperate by the end of 2017 important volumes of gas that have been injected in the past decades in Hassi Messaoud and its region.

    Algeria is expected to export 50 billion cubic meters in 2016 to Europe, an increase of 15 per cent in comparison with 2015, according to Sonatrach.

    Algeria is seen as a natural partner for the European Union as it looks to diversify energy supplies after the Ukraine conflict exposed the risks of relying too much on the bloc’s top gas supplier, Russia.

    Attached Files
    Back to Top

    Crude Spikes After API Reports Massive Crude Draw

    The American Petroleum Institute reported a 7.5 million barrel draw in U.S. crude oil supplies on Tuesday, instead of the build that many expected.

    American crude inventories were slated to increase by 2.3 million barrels over the past week, according to a survey by Reuters, and 2.8 million barrels were expected to be added according to S&P Global Platts. Zero Hedge’s sources had anticipated an even bigger 3.25 million barrel build.

    Gasoline supplies declined by 2.5 million barrels, surpassing forecasts of a 1.4 million barrel draw. Zero Hedge attributed the draw to the250,000-gallon leak in Helena, Alabama, which caused severe gasoline supply shortages along the East Coast. The pipeline’s holding company completed construction on a bypass line on Tuesday and told shippers to expect supplies starting tomorrow.

    Distillate inventories rose by 1.4 million barrels, marking six weeks of consecutive increases.

    Last week, EIA reported that U.S. crude oil inventories fell 600,000 barrels, after the biggest inventory draw of the century in the week prior, which was a 14.5 million barrel draw.

    Tuesday’s API report will either be validated or discredited by the U.S. Energy Information Administration's official crude supplies report Wednesday morning.

    Brent futures were down 0.30 percent or 14 cents at $45.80 a barrel one hour before the API report was released. Similarly, West Texas Intermediate futures were down by half a percent or 23 cents at $45.63 a barrel. Nearly 50 minutes after reporting, WTI was trading up 1.3% at $44.43 and Brent up 0.39% at $46.13. Gasoline was down 2.96% at 1.3788.

    Zero Hedge noted that barrel prices are expected to remain “rangebound” until the Organization of Petroleum Exporting Countries’ unofficial meeting in Algiers next week, which many are hoping will end with some sort of agreement to curb OPEC’s crude oil production.
    Back to Top

    Painted Pony Petroleum announces 30,000 boe/d production milestone

    Painted Pony Petroleum Ltd. is pleased to announce 180 MMcfe/d (30,000 boe/d) of production volumes were averaged over the previous five days, based on field estimates. The Corporation's production increase represents both absolute and per share production growth of greater than 80% over second quarter 2016 average daily production volumes of 99.8 MMcfe/d (16,634 boe/d).

    Painted Pony's production volumes at the Townsend Facilty averaged in excess of 100 MMcfe/d (16,670 boe/d) based on field estimates over the previous five days.

    As per previous guidance, Painted Pony anticipates increasing production volumes by an incremental 50 MMcfe/d (8,330 boe/d) to the Townsend Facility in early October 2016. Painted Pony expects total daily production volumes for the third quarter of 2016 to average approximately 138 MMcfe/d (23,000 boe/d) and 2016 exit production volumes to be approximately 240 MMcfe/d (40,000 boe/d).

    The recent increase in production volumes is consistent with Painted Pony's strategic 5-year plan and represents a significant milestone in the growth of the Corporation. Painted Pony continues to focus on growing production per share while working to lower capital and operating costs.

    Asset Swap Update

    Painted Pony anticipates closing the previously announced (press release dated July 27, 2016) asset swap with an industry partner on or about September 26, 2016.
    Back to Top

    Encana Sells $1 Billion of Shares as It Eyes Permian Expansion

    Encana Corp., the Canadian oil and natural gas producer, is selling about $1 billion of shares to fund drilling in Texas next year and repay debt.

    The company agreed to sell 107 million shares at $9.35 apiece through underwriters led by units of Credit Suisse Group AG and JPMorgan Chase & Co., Calgary-based Encana said in a statement on Monday after the close of regular trading on North American markets. An additional 16.05 million shares can also be purchased, as part of the deal.

    Encana joins producers including Crescent Point Energy Corp. in selling shares in recent weeks to fund drilling as U.S. crude is up 65 percent from its February low. Most of the company’s investment next year will be targeted toward increasing output in the Permian Basin in West Texas, the largest U.S. oil field.

    One of Canada’s largest gas producers, Encana has increasingly focused its attention on boosting oil and petroleum liquids production from shales including the Permian, where it established a position with the 2014 purchase of Athlon Energy for $7.1 billion. The company said it aims to double the number of wells on stream in the Permian in 2017, compared to this year.

    Shares of the producer, which were halted in Toronto after the announcement, are up 85 percent this year. Encana’s U.S.-listed stock dropped in after-hours trading and was down 4.8 percent to $9.39 as of 7:59 p.m. in New York.
    Back to Top

    Cheniere Shuts Down LNG Terminal for Repairs

    Gas deliveries from Cheniere Energy, the operator of the Sabine Pass LNG export terminal, dropped on Monday and Tuesday, signaling they may now be shutting down for repairs to fix gas flares that had not performed as expected, according to reports.

    Cheniere had said earlier this month that the planned shutdown would begin “later this month” and would last four weeks, but no specific date had been given.

    Even while the repairs are going on, LNG from the terminal could continue being shipped to various export destinations, Argus Media notes, because it also includes a number of storage tanks capable of holding a combined 17 billion cu ft of gas, and according to Argus, they are full to capacity at the moment. These 17 bcf of gas can be divided into four or five export cargos, with the typical average load of an LNG tanker ranging between 3 and 3.5 bcf.

    The terminal received a daily average of 1.18 bcf in the first two weeks of September, but on Monday it only received 20.8 million cubic feet, and the same amount was scheduled for delivery on Tuesday. This indicates that the two operating liquefaction trains at Sabine Pass have been shut down in preparation for the repairs. The terminal is planned to have a total of five trains, each with a daily capacity of 694 million cubic feet of LNG.

    At the end of last month, the first cargo of LNG from Sabine Pass reached China, media reported at the time. This was the first cargo of U.S. LNG to be exported to Asia. The continent is the most attractive market for LNG producers worldwide because of ample demand. This demand, however, has slackened recently, as more and more LNG projects came on stream, pushing prices down.

    The Sabine Pass project is worth US$20 billion and is one of several such projects being built around the U.S. in a bid to make better use of the abundance of natural gas extracted across the country’s shale plays. So far, however, U.S. LNG has faced stiff competition abroad, more specifically in Europe and Asia, where LNG exporters with a presence are prepared to cut their prices in order to preserve their market share – something not so easily achievable for U.S. exporters.
    Back to Top

    Petrobras Reduces its Five-Year Investment Plan

    Brazilian state-run oil company Petróleo Brasileiro SA,or Petrobras, cut its investment budget for the coming years and plans to raise more cash from the sale of assets, amid efforts to reduce its huge debt.

    Petrobras on Tuesday said it would invest $74.1 billion in the 2017-21 period, down from $98.4 billion projected for the 2015-19 period, which was announced in January.

    Meanwhile, the company said it would seek to accelerate the sale of assets to reduce its debt.

    For 2017 and 2018, Petrobras is planning to sell a total of $19.5 billion in assets. By comparison, for 2015-16 period, the company had planned to sell a total of $15.1 billion in assets.

    With less investments and more assets sales planned, Petrobras said it seeks to reduce its net debt to Ebitda ratio to 2.5 times in 2018, from 5.3 times at the end of 2015.

    Petrobras ended the second quarter with a total debt of $123.92 billion.
    Back to Top

    How upstream exploration economics are recovering

    Oil and gas exploration economics were broken, even while oil prices were above US$100. Our new research shows that the upstream exploration sector is poised to emerge from the current slump leaner, more efficient and more profitable. Here we look at how they're changing their approach, and what that means for the future.

    The oil price downturn has been a catalyst for the industry to fix exploration economics. Rising costs, reducing returns combined with high-risk exploration strategies meant that the sector could not continue to operate in the same manner.

    Where does the industry go from here?

    Our research shows that the majors have started to look at exploration differently, and they've cut investment more drastically than other sectors. As the industry readjusts, there are now fewer wells being drilled. It's not that there's less oil to find – they're simply investing in less-risky operations. A lot of recent discoveries were not getting commercialised. And the economics of exploration were already broken back in 2014, when oil was at $100 per barrel.

    One of the positive findings that we have seen from the majors changing the way they approach exploration is improved returns even at lower prices.

    Image title

    Focussing on high-yield options

    Dr Andrew Latham, Vice President of exploration research at Wood Mackenzie says: "The new economics of exploration mean that rather than pursuing high-cost, high-risk exploration strategies – elephant hunting in the Arctic, for example – the majors have become more conscious of costs. Smaller budgets have required them to choose only their best prospects for drilling, including more wells close to existing fields. The industry now has in prospect a different – and potentially more profitable – future."

    We've identified five ways that explorers can recover:

    1. Focussed investment
    Reduced exploration investment has forced only the best-quality prospects to be drilled.

    2. Focus on returns and value over volume
    A shift towards lower-cost locations, more emphasis on tax shelters against existing production, more focus on near-term opportunities and generally less above and below ground risk.

    3. Redirecting investment
    Focussing on areas where government support and fiscal terms are most appropriate.

    4. Reduce costs
    Ongoing efforts to reduce the costs of developing discoveries through project re-design, standardisation and innovation.

    5. Lower-cost renewals
    Longer-term acreage inventory renewals at a low cost.

    Lower costs and more targeted investment

    To achieve these aims, the majors have started to change the way they operate. They've cut conventional exploration spend by 53% in 2015 vs 2014. But the number of exploration wells completed fell by just 11% compared to the average of the previous four years. The average spend per well is back down to levels not seen since 2008. They've also refocused exploration on proven basins, nearer to existing production infrastructure, and reduced activity in high-risk frontiers.

    Conventional versus unconventional spend

    Image title

    As the majors trim spend and refocus, they will discover smaller conventional volumes. This will lead to them relying more on other renewal options – unconventionals, discovered resource opportunities, enhanced recovery and M&A. We estimate that only 50% of production will be replaced by conventional exploration. This means that unconventionals are now attracting over 15% of exploration spend and have outperformed returns from conventional exploration since 2013. The end result will be a leaner, more fit-for-purpose sector, and will see the majors and the rest of the industry returning exploration to profitability at US$60 oil price.

    Attached Files
    Back to Top

    Oil Majors Must Count on M&A to Replenish Reserves, WoodMac Says

     Major oil producers will rely on acquisitions for about half their reserve replacement in the future after cutting exploration budgets to weather the crude-price collapse, according to Wood Mackenzie Ltd.

    Big oil companies are no longer trying to replace all their production through conventional exploration, the energy consulting company said in a report published Tuesday.

    "Now their reserves replacement will also require inorganic, brownfield or shale investments," Andrew Latham, vice president of exploration research at Edinburgh-based WoodMac, said in an interview. "Exploration has become incremental."

    Investors often use the reserve-replacement ratio -- the proportion of oil and gas production offset by new resources -- to value companies since it forms the basis for future output. Among seven oil majors, only three added more oil than they pumped last year. Exploration spending dropped by half from a year earlier to $7 billion, according to WoodMac, whichsees the industry slashing $1 trillion from exploration and development until the end of the decade.

    Acquisitions Push

    “The need for M&A in exploration is likely to be here for a considerable time," Latham said. The focus “will be on assets rather than on taking over companies.”

    Woodside Petroleum Ltd. is among those snapping up exploration assets. The Australian company agreed to buy ConocoPhillips’ interests off Senegal for $350 million in July. The purchase included the deep-water SNE discovery, which operator Cairn Energy Plc estimates has 473 million barrels in resources.

    Exxon Mobil Corp. was also said to be intalks with Anadarko Petroleum Corp. for a stake in a natural-gas discovery off Mozambique, and in advanced discussions with Eni SpA over a stake in another prospect in the same area.

    Lower oil prices have taken a toll on majors’ reserves, with some of them -- such as Royal Dutch Shell Plc -- forced to write down as much as 200 million barrels. Shell had the worst reserve-replacement ratio last year at minus 20 percent, the lowest in 12 years, it said in February.

    The companies are also disposing of costly assets as oil prices below $50 a barrel curb revenue. The Hague-based Shell aims to raise $30 billion from asset sales in three years following its $54 billion acquisition of BG Group in 2015. Among the assets it may sell are aging North Sea fields.

    Attached Files
    Back to Top

    India’s Oil Imports Touch Highest on Record as Demand Booms

    India’s crude oil imports peaked in August as refineries stepped up purchases to meet record domestic fuel consumption.

    Indian refiners imported 18.81 million metric tons (about 4.45 million barrels a day) of crude oil during the month, a 9.1 percent increase over last year, according to the oil ministry’s Petroleum Planning & Analysis Cell. That is the highest level in data on thePPAC’s website going back to April 2009.

    The South Asian nation of 1.3 billion people, which meets over 80 percent of its crude oil requirements through imports, has emerged as a bright spot for global oil demand as the the fastest economic expansion among major economies spurs increased use of trucks, cars and motorbikes. The International Energy Agency expects India to be the fastest-growing crude consumer in the world through 2040.

    “India’s domestic fuel demand has been rising at a scorching pace,” according to Tushar Tarun Bansal, director at Singapore-based Ivy Global Energy. “To meet this strong growth, India’s refinery runs have been on an uptrend, leading to higher imports.”

    The nation’s gasoline consumption reached a record in August, surging 25 percent from a year earlier, while demand for diesel rose 13 percent, the fastest pace since March. Virendra Chauhan, an oil analyst at Singapore-based consulting firm Energy Aspects Ltd., expects India’s oil demand to grow by 0.4 million barrels a day this year and by 0.2-0.3 million barrels a day next year.

    Indian refiners are racing to add capacity, spending billions of dollars amid rising fuel consumption. State-run Indian Oil Corp., the country’s biggest refiner, aims to increase its capacity by 30 percent, or about 2 million barrels per day, over the next six years by expanding its existing refineries across the country.

    The country’s 23 refineries have a total capacity of 230 million tons a year, while total fuel demand was 183.5 million tons during the financial year that ended March 31, according to the oil ministry.

    “There has been strong demand -- gasoline growth is unprecedented and diesel growth will rise after monsoon,” Sanjiv Singh, director of refineries at Indian Oil, said.
    Back to Top

    Libya's AGOCO raises output to 210,000 bpd as two fields restart - spokesman

    Libya's Arabian Gulf Oil Company (AGOCO) said on Tuesday its output had risen to 210,000 barrels per day (bpd) after production resumed at the Nafoura and Hamada fields.

    "We will maintain production at this level and we are capable of increasing it, though we are suffering from a financial crisis at the moment," AGOCO spokesman Omran al-Zwai told Reuters.
    Back to Top

    At $500 Million A Pop, It's An Oil Gamble That Has No Precedent

    At $500 Million A Pop, It's An Oil Gamble That Has No Precedent

    In a far corner of the Caribbean Sea, one of those idyllic spots touched most days by little more than a fisherman chasing blue marlin, billions of dollars worth of the world’s finest oil equipment bobs quietly in the water.

    They are high-tech, deepwater drillships -- big, hulking things with giant rigs that tower high above the deck. They’re packed tight in a cluster, nine of them in all. The engines are off. The 20-ton anchors are down. The crews are gone. For months now, they’ve been parked here, 12 miles off the coast of Trinidad & Tobago, waiting for the global oil market to recover.

    The ships are owned by a company called Transocean Ltd., the biggest offshore-rig operator in the world. And while the decision to idle a chunk of its fleet would seem logical enough given the collapse in oil drilling activity, Transocean is in truth taking an enormous, and unprecedented, risk. No one, it turns out, had ever shut off these ships before. In the two decades since the newest models hit the market, there never had really been a need to. And no one can tell you, with any certainty or precision, what will happen when they flip the switch back on.

    It’s a gamble that Transocean, and a couple smaller rig operators, felt compelled to take after having shelled out millions of dollars to keep the motors running on ships not in use. That technique is called warm-stacking. Parked in a safe harbor and manned by a skeleton crew, it typically costs about $40,000 a day. Cold-stacking -- when the engines are cut -- costs as little as $15,000 a day. Huge savings, yes, but the angst runs high.

    “These drillships were not designed to sit idle,” said Willard Duffey Jr., an electrician who spent two decades with Transocean. The Deepwater Pathfinder, a ship he had served on for four years, was among the first to be parked off the Trinidad coast. The ship made the voyage there from the Gulf of Mexico about a year ago. Duffey was one of the last men aboard before the engines were turned off. He fretted constantly -- “did I do everything I could?” -- as he flew back home to Ore City, Texas. “To get the Pathfinder back up would be very difficult to guess actually,” he said.

    All of these fancy elements, though, are what make turning the ships back on so daunting. Chip Keener, whose rig-storage consulting firm advises Transocean, compares it to what would happen if you left a high-tech new car parked in the garage for months. The battery would be dead, sure, but then there’d also be a slew of pre-sets to reprogram. On a drillship, there are thousands and thousands of pre-sets. And unlike your car, those on a ship are essential to its proper functioning. “It’s a big deal,” says Keener.
    Back to Top

    Saudi Arabia crude exports rise to 7.622 mln bpd in July

    Saudi Arabia's oil exports rose in July as the kingdom pumped record high levels of crude, keeping the global market well supplied.

    The world's largest oil exporter has been maintaining high output levels since mid-2014 despite a global supply glut, in line with a strategy of defending market share against rival producers.

    Saudi Arabia's crude oil exports in July rose to 7.622 million barrels per day from 7.456 million bpd in June, official data showed on Monday.

    The kingdom produced a record high 10.673 million bpd in July, up from 10.550 million bpd in June with the increase due to summer demand and requests from customers. However, its output slipped in August to 10.63 million bpd, industry sources have said. Export data for August is not yet available.

    Several members of the Organization of the Petroleum Exporting Countries have called for an output freeze to rein in an oil glut that triggered a price collapse in the last two years, hitting the revenues of major producers.

    In the past, analysts have persistently discounted the possibility that OPEC members such as Saudi Arabia, Iran, Nigeria and Libya will agree to production curbs as they protected market share, but some analysts have become more hopeful an agreement can be reached.

    Venezuelan President Nicolas Maduro said on Sunday that OPEC and other major oil producers were close to reaching a deal on price stability that could be announced later this month.

    Saudi Arabia's domestic crude inventories totalled 281.463 million barrels in July, down from 289.445 million in June, data provided by the Joint Organisations Data Initiative (JODI) showed.

    JODI compiles data supplied from oil-producing members of global organisations including the International Energy Agency and the Organization of the Petroleum Exporting Countries.

    Saudi Arabia's oil inventories peaked last October at a record high 329.430 million barrels but have declined since as the country has drawn down its stockpile to meet domestic demand without impacting its exports.

    As it expands oil product exports, the kingdom has been feeding more crude to domestic refineries.

    Domestic refineries processed 2.611 million bpd of crude in July, up from 2.381 million in June. Exports of refined oil products in July totalled 1.367 million bpd versus 1.371 million in June.

    State oil firm Saudi Aramco has stakes in more than 5 million bpd of refining capacity at home and abroad, placing it among the global leaders in making oil products.

    In July, crude oil used to generate power fell to 697,000 bpd from 704,000 bpd in June, the JODI data showed.
    Back to Top

    Militants claim attack on NPDC oil pipeline in Niger Delta

    Militants have blown up a crude oil pipeline operated by Nigeria's state oil firm NNPC in the Niger Delta, a group claiming responsibility for the attack and a youth leader said on Monday.

    The Niger Delta Greenland Justice Mandate group said it carried out the attack on the Afiesere-Ekiugbo delivery line, in the town of Ughelli in Delta state, on Sunday night at around 11:30 p.m. (6.30 p.m. ET). The line is operated by NPDC, a unit of NNPC, and Nigerian energy company Shoreline.

    It is the latest in a series of attacks on energy facilities in the restive region that have cut Nigeria's oil production by 700,000 bpd.

    "The Niger Delta Greenland Justice Mandate is just starting, you are yet to see what we are about," said the group which, unlike other militants in the region, is not taking part in a ceasefire to hold talks with the government.

    Lucky Solue, a youth leader, confirmed the attack took place. An NNPC spokesman could not immediately be reached for comment.

    There was no immediate information on any impact on production.

    The Niger Delta Avengers group, whose attacks on oil pipelines in the southern region crippled crude output earlier this year and pushed Africa's biggest economy into recession, said in August it agreed to a ceasefire.

    The government has held out the prospect of holding talks on the grievances of people in the Delta with militant groups that maintain a truce.
    Back to Top

    Venezuala comments on oversupply worries markets

    Venezuala comments on oversupply worries markets

    Oil prices fell on Tuesday after Venezuela said that global supplies needed to fall by 10% in order to bring production down to consumption levels, and technical indicators also pointed to cheaper crude futures.

    Global oil supply of 94 million barrels per day needs to fall by about a tenth if it is to match consumption, Venezuela's Oil Minister Eulogio Del Pino said on Monday.

    International benchmark Brent crude oil futures were trading at $45.81 per barrel early on Tuesday, down 17 cents from their last close.

    US West Texas Intermediate crude futures were down 22 cents at $43.08 a barrel.

    "Global production is at 94 million barrels per day, of which we need to go down 9 million barrels per day to sustain the level of consumption," Del Pino said in an interview with state oil company PDVSA's internal TV station.

    Del Pino is also president of PDVSA.

    The statements came the same day as credit ratings agency Standard & Poor's said that a proposed bond swap by PDVSA was a "distressed exchange" that would be "tantamount to default" if completed, a blow to the cash-strapped firm's effort to seek a financial lifeline.

    Technical market indicators were also weak, with WTI likely to test support at $42.78 per barrel soon, after which a fall toward $42 would be likely, according to Reuters analyst Wang Tao.
    Back to Top

    Sabine Pass Train 2 achieves substantial completion

    Cheniere Energy Partners L.P. has announced that Train 2 at the Sabine Pass liquefaction project in Cameron Parish, Louisiana, US, has achieved substantial completion. Commissioning has been completed and Cheniere’s engineering, procurement and construction (EPC) partner, Bechtel Oil, Gas and Chemicals Inc., has turned over care, custody and control of Train 2 to Cheniere Partners. This turnover will be done in coordination with the previously-announced planned outage to improve the flare systems’ performance at the project, as well as to carry out scheduled maintenance work on both Train 1 and other facilities.

    As set out in a sales and purchase agreement (SPA) with Gas Natural Fenosa LNG GOM Ltd, Train 2’s first delivery is expected to occur in August 2017. At this point, the 20-year term of the SPA will commence. Before this occurs, Gas Natural Fenosa holds certain rights to early cargoes that Train 2 produces.

    Cheniere Partners, through Sabine Pass Liquefaction, is planning to construct up to six liquefaction trains at the facility. Trains 1 and 2 have achieved substantial completion; Train 3 is undergoing commissioning; Trains 4 and 5 are under construction; and Train 6 has been fully permitted. Each Train is expected to have a nominal production capacity of approximately 4.5 million tpy of LNG.
    Back to Top

    North Dakota shale on slow recovery

    Oil and natural gas activity in shale-rich North Dakota is on a steady increase, though operators are still cautious about recovery, state data show.

    State data show 32 rigs are actively exploring for or producing oil and natural gas in North Dakota, down one from last week but relatively in line with levels since July. Rig counts serve as a loose metric for investor confidence in the energy sector and a reflection of the appetite for spending from oil and gas companies.

    Crude oil prices rallied earlier this year above the $50 mark on suggestions the gap between supply and demand had narrowed to the point of balance. Monthly market reports from the Organization of Petroleum Exporting Countries and the International Energy Agency said an expected balance had yet to materialize.

    Lynn Helms, a director at the North Dakota Department of Mineral Resources, said in a statement that rig counts have seen a steady increase since June, though caution was the prevailing mood in state shale deposits.

    "Operators remain committed to running the minimum number of rigs while oil prices remain below $60/barrel. ... Oil price weakness is the primary reason for the slow-down and is now anticipated to last into at least the fourth quarter of this year and perhaps into the second quarter of 2017."

    North Dakota oil production in July was around 1.03 million barrels per day, a slight increase from June, but still 16 percent below the all-time high set in December 2014. Natural gas production increased 2 percent in July, but was about 0.6 percent below the record high established in March.

    Helms said drilling permit activity was moving higher in response to an expected recovery in crude oil prices by later next year.

    "Operators have a significant permit inventory should a return to the drilling price point occur in the next 12 months," he said.
    Back to Top

    Steelhead, 7G join forces on LNG projects supporting infrastructure

    Steelhead LNG and Seven Generations Energy of Canada on Monday signed an agreement to explore midstream supply chain infrastructure that would link natural gas resources to Steelhead proposed LNG export projects on Vancouver Island.

    The two companies also agreed to engage Aboriginal groups during the development of the infrastructure, according to a joint statement.

    Steelhead LNG proposed to build the Malahat LNG project on the Bamberton Industrial Lands, south of Mill Bay and the Sarita LNG project at Sarita Bay at the southern end of the Alberni Inlet.

    The arrangement, through which Seven Generations has also acquired a minority interest in Steelhead LNG, is expected to provide potential new markets for Seven Generations’ production as well as increased certainty of natural gas supply for Steelhead LNG, the joint statement reads.

    “This agreement with Seven Generations is a positive step toward realizing our sustainable and economic delivery model for LNG. At the same time the economic circumstances are challenging and there is more work to do and milestones to achieve for our projects to succeed,” said Steelhead LNG CEO, Nigel Kuzemko.

    The company is additionally looking to refine its at-shore LNG concept design that uses floating LNG production and storage units moored to marine jetties. The concept can be replicated enabling scalable production capacity at Steelhead LNG’s proposed facilities.

    The National Energy Board has granted Steelhead LNG five licenses to export in the aggregate of up to 30 million tonnes of liquefied natural gas per year for 25 years.

    Steelhead LNG is also exploring ways of accessing newly emerging LNG markets such as the conversion of international shipping vessels to LNG from bunker fuel and diesel, Steelhead LNG said.
    Back to Top

    Oil, gas stacks make Permian deals costly in spite of downturn

    A recent spate of land deals in the sprawling Permian Basin illustrates a counter-intuitive trend: Real estate in the country’s most active oil field is even more expensive today than it was before commodity prices crashed.

    QEP Resources Inc. agreed to pay a price that works out to close to $60,000 per net acre in June for a slice of the Permian, in the basin’s priciest land deal on record.

    That’s more than double the average $30,000 per net acre explorers paid for Permian land during the first nine months of 2014, when oil topped $100 a barrel, according to data from Citigroup Inc. Oil has been hovering at $45 to $50 per barrel since mid-August.

    Over the past few months, at least four other explorers agreed to pay more than $30,000 per net acre to expand in the Permian: Concho Resources Inc., Parsley Energy Inc., SM Energy Co., and Silver Run Acquisition Corp., according to data compiled by Bloomberg.

    “The valuations are pretty lofty,” said Bryan Lastrapes, managing director at Moelis & Co. “When you look at the prices being paid for a flowing barrel, they are higher than when oil was at $100.”

    Unusual geography

    The obvious question: With oil so much cheaper today, why has Permian land become so pricey? There are a few explanations. The first comes down to the same reason a dingy is more valuable on a sinking ship.

    “It’s about scarcity,” said Bruce Cox, global head of energy acquisitions and divestitures with Credit Suisse Group AG.

    The Permian is one of the few places in the U.S. where drilling remains profitable amid low prices, thanks to its unusual geography, in which different layers of oil- and gas-soaked rock are stacked like layers in a cake, he said. An explorer can drill multiple horizontal wells after digging straight down.

    “What you can’t find in most plays is the Permian hydrocarbon column,” Cox said. “Companies can drill two to four times as many wells over a 10-year development period” in the Permian than in other basins.

    QEP rationale

    This is a key part of the rationale QEP used to justify the price it agreed to pay for the 9,400 net acres in the Permian in June.

    The company told investors it sees a chance to drill more than 400 horizontal wells along four different benches of shale, more than a half-mile down, where it has already determined there is oil. It sees additional upside potential drilling riskier, wildcat wells on three other benches. So it isn’t buying just one field, but as many as seven.

    That deal also addresses a perpetual critique from investors that QEP isn’t big enough in the Permian, by increasing its position there by 50 percent, Richard Doleshek, QEP’s chief financial officer, said in August.

    “From a dollar-per-acre standpoint, we heard a lot of conversation about how that was a big number,” Doleshek said during a presentation at an oil and gas conference sponsored by Enercom Inc., according to a transcript compiled by Bloomberg.

    “When you look at it on a target basis, it’s relatively reasonable,” he said. “It’s pristine acreage.”

    Lower costs

    Another factor driving up Permian land prices is the fact that it has some of the lowest break-even costs in the world. The area has more than a half-dozen fields where drilling can stay profitable even when oil falls below $30 a barrel, according to data compiled by Bloomberg.

    The oil rout has set off a land grab for that reason, said Ron Gajdica, co-head of energy acquisitions and divestitures with Citigroup.

    “When oil prices were high, there was a high supply of acreage with economic drilling opportunities,” he said. “Now, in a $40 to $50 oil price environment, acreage with economic locations is scarcer. There are only a limited amount of opportunities and many of them are in the Permian.”

    A couple of other things are driving up the price of Permian land. First, development costs have come down sharply during the downturn, thanks to lower service costs, technological advances and more efficient techniques, Gajdica said. That means explorers can justify paying higher prices for land.

    Second, Wall Street is helping the trend. Publicly traded Permian explorers such as Concho and Parsley trade at a premium to other shale players. They paid for their recent acquisitions with stock. Since their currency is worth more, they can afford to pay up.

    In addition, other explorers with operations elsewhere, such as QEP and SM, saw their share prices spike after striking deals in the Permian, which could spur even more dealmaking in the area.

    “The market tends to respond favourably when these Permian deals are announced,” Gajdica said.

    Attached Files
    Back to Top

    Genscape shows Cushing inventory build

    Genscape shows Cushing inventory build of 180,000 bbls in latest week

    Back to Top

    Hedge funds turn strongly bullish on U.S. natural gas

    Hedge funds have built their largest bullish position in U.S. natural gas for more than two years amid signs the gas glut is being eroded quickly and the market could tighten in 2017.

    Hedge funds and other money managers have amassed a net long position in the two main futures and options contracts on NYMEX and ICE equivalent to 2,293 billion cubic feet of gas.

    The net long position has almost quadrupled over the last four weeks, and is now at the highest level since June 2014, according to an analysis of data released on Friday by the U.S. Commodity Futures Trading Commission.

    Positioning has been shifting steadily from bearish to bullish since November 2015 but the pace of adjustment has accelerated sharply.

    The most recent weekly increase in the net long position was the third-largest since the start of 2010.

    The majority of the adjustment has come from the short side of the market, where hedge funds with bearish short positions betting a fall in gas prices have scaled them back.

    Hedge fund short positions have declined by the equivalent of 1,127 billion cubic feet, or 40 percent, in the last four weeks. By contrast, long positions have risen just 544 billion cubic feet, or 16 percent.

    Hedge funds are reacting to signs the gas market is rapidly rebalancing from oversupply in 2015 towards a potential deficit in 2017 (“U.S. natural gas market rebalancing well underway”, Reuters, Sep 16).

    Low gas prices have gradually eroded the excess supply by causing production growth to stall and go into reverse while encouraging record consumption by power producers.

    Rebalancing has been accelerated by unusually hot weather across the most populous parts of the United States this summer.

    Temperatures and airconditioning demand have been far above normal almost continuously since the end of May (“U.S. natural gas market rebalances on hot weather, low prices”, Reuters, Aug 19).

    Working gas stocks have risen by just 1,022 billion cubic feet so far this injection season, compared with an average increase of 1,594 billion cubic feet at this point during the previous five years.

    Stocks have risen by just 160 billion cubic feet in the last four weeks compared with 309 billion cubic feet over the same period in 2015 and a five-year average of 266 billion cubic feet.


    Winter 2016/17 is likely to be colder than the record warm winter of 2015/16 which should increase gas consumption.

    Looking to 2017, more gas-fired power plants are scheduled to come into service, according to the U.S. Energy Information Administration (U.S. power producers maximize gas burn at expense of coal”, Reuters, Aug 31).

    Most of the new gas-fired generating capacity will be combined cycle power plants designed for baseloading rather than steam turbines or combustion turbines operating at peak times.

    The implied increase in gas consumption will tighten the market even further unless gas prices rise to stimulate more drilling and stimulate some shift from gas combustion back to coal in 2017.

    Hedge funds have already anticipated and likely accelerated the price rise by accumulating a large long position in futures and options.

    The calendar average futures price for gas delivered in 2017 has risen to $3.14 per million British thermal units from a low of $2.14 back in December 2015.

    The fundamental outlook for prices looks fairly strong at present, but the emergence of a large hedge-fund long position has increased the risk of a price reversal if position holders try to take some profits.

    The net long position amassed by hedge funds over recent weeks is large by the standard of the last five years, though below the peaks reported in 2013/14.

    So, while fundamentals should continue to support higher gas prices into 2017, liquidation risk has increased substantially and is a negative factor for prices in the short to medium term.

    Attached Files
    Back to Top

    Bullish bets on Brent return to mid-August levels

    Hedge funds and other large money managers have raised their weekly bets on rising crude oil prices, with net long positions in Brent stabilizing around levels seen in mid-August when the market got the first indications of a possible OPEC output deal.

    Investors increased their net long positions in Brent by 8,192 contracts to 359,173 lots in the week to Sept. 13, ICE reported.

    That is pretty much in line with the levels of 354,915 lots seen in the week to Aug. 16 but still far off record highs of over 419,000 lots seen at the end of April.

    Bullish bets on Brent have risen and then fallen again since mid-August, mainly driven by concerns over whether OPEC and non-OPEC Russia can clinch a meaningful deal to stabilize the oil market, amid returning supplies from Libya and Nigeria and a worsening global oil glut.

    OPEC and non-OPEC Russia are due to meet next week in Algiers.
    Back to Top

    Eni: Laarich East-1 Well Onshore Tunisia Has 2,000Bpd Capacity

    Eni revealed Monday that the Laarich East-1 well onshore Tunisia has a delivery capacity of approximately 2,000 barrels of oil per day.

    The Laarich East-1 well, which was spudded in June, has already been connected to production. In the meantime, exploration activities in Tunisia are continuing with the drilling of additional prospects, which have been already identified on 3D Seismic, according to an Eni statement.

    Laarich East-1 reached a final depth of 13,487 feet, discovering hydrocarbons in sandstone layers of Silurian and Ordovician age. The drilling of Laarich East-1 is part of Eni’s near field strategy, adopted to cope with the low oil price environment, which aims to conduct exploration activities in the proximity of existing infrastructures with available spare capacity.

    Eni owns a 50 percent stake in the Makhrouga-Laarich-Debbech license, where Laarich East 1 is located, with the Tunisian state company ETAP holding the remaining 50 percent stake.
    Back to Top

    Sabine Pass LNG exports reach 63.47 Bcf in Feb-July

    Liquefied natural gas exports from Cheniere’s Sabine Pass facility reached 63.47 billion cubic feet for the February-July period.

    Data from the United States Department of Energy shows that, including the first cargo shipped from the facility in Louisiana on February 24, Cheniere dispatched 21 cargoes during the period under review.

    The cargoes were delivered to a number of locations including, Brazil, India, U.A.E., Argentina, Portugal, Kuwait and Chile with first cargoes delivered to Spain, China and Jordan in July.

    Export point prices were ranging from US$3.12 per MMBtu to $5.60 per MMBtu.

    DoE’s July report also shows that American LNG Marketing exported 19,330 Mcf of domestically produced LNG in ISO containers in the February-July period. LNG was shipped from Miami, Fla. to Barbados with export point prices ranging from $10.00 per mmBtu to $15.78 per mmBtu.

    LNG imports into the U.S. reached 53.06 Bcf in the period from February to July, all sourced from Trinidad and Tobago, the report showed.

    Attached Files
    Back to Top

    DW: new developments to shake up LNG market

    Recent development in the LNG market is expected to have a significant impact on both the construction of LNG carriers and the primary LNG trading routes, according to Douglas-Westwood (DW).

    The LNG carrier market currently faces over-supply and a combination of low commodity prices and a reduction in imports from key consumers such as Japan (following the re-start of its nuclear power stations), has resulted in a substantial decline in charter rates for LNG carriers.

    Rates have been pushed down to approximately US$25,000 a day, considerably below typical breakeven costs of $40,000, as DW notes that 36 carriers were delivered in 2015, and only four newbuilds having been ordered in 2016 so far.

    However, this trend is expected to change over the 2017-2021 period, due predominantly to liquefaction projects expected onstream in Australasia and North America. The USA is forecast to increase its LNG export capacity from 11 mmtpa in 2016 to 77 mmtpa by 2021. In the World LNG Market Forecast Report 2017-2021, DW forecasts the delivery of over 150 units yet to be ordered over the 2017-2021 period, in addition to the current order book, in order to satisfy this additional supply.

    DW forecasts the delivery of over 150 units yet to be ordered over the 2017-2021 period, in addition to the current order book, in order to satisfy this additional supply.

    With the increase in U.S. LNG exports, DW expects the diversification of the primary trade routes for LNG transportation. The recent expansion of the Panama Canal also provides a means for vessels travelling to Asia and South America from the Gulf Coast to reduce their voyage times. This is ultimately expected to introduce greater competition to LNG trading routes, DW says.
    Back to Top

    Gazprom export volume data points to strong natural gas flows to Europe in September

    Russian gas exports via pipeline to Europe and Turkey in the year to date are up by 9.4%, or 10.3 Bcm, compared with the same period last year, state-controlled gas giant Gazprom said Friday, pointing to continued strong flows so far in September.

    After a slump in exports in July, Gazprom's supplies to Europe and Turkey -- but not including the former Soviet Union countries -- recovered in August.

    Supplies in the first eight months of 2016 were 10 Bcm higher than in the same period last year.

    That implies year-on-year growth in the first half of September of 0.3 Bcm.

    Gazprom's gas exports in the first six months of 2016 were up 10.6 Bcm year on year, so exports in the second half are still down year on year.

    Gazprom's most recently stated target of total exports to Europe and Turkey in 2016 is 166-170 Bcm, though Miller, speaking in Moscow on June 30, said Gazprom's gas sales in Europe could even exceed that amount if the upcoming winter was cold and the sales dynamics seen earlier in the year persisted.

    Gazprom -- while not giving absolute volumes -- broke out the year-on-year supply growth for some of its European customers.

    Russian gas supplies to Germany rose by almost 28% year on year from January 1 to September 15, while exports to Austria were up 40% and to Denmark by a huge 222%.

    "We continue to record strong demand for Russian gas in the countries along the route of the planned Nord Stream 2," Miller said.

    "Nord Stream 2 is being developed in line with the schedule," he added.

    Russian gas exports to the UK rose by 55%, to France by 27%, to Poland by 20%, to the Netherlands by nearly 92%, to Greece by 59% and to Macedonia by 20%.

    Exports to the countries of the former Soviet Union are also up by 9.4% in the year to date compared with the same period of 2015.


    With Europe remaining Gazprom's absolute key focus -- especially given the prospect of a large wave of US LNG headed for the continent -- Gazprom is also working quickly to realize new gas pipeline projects.

    As well as Nord Stream 2, which still faces intense political opposition, Gazprom is making quick progress on the planned TurkStream line to Turkey.

    This week, it was granted by Ankara the first permits for the offshore section of the pipeline in Turkish waters.

    It followed the first permits earlier this month, which came just one week after a meeting between Miller and Turkish energy minister Berat Albayrak in Istanbul.

    Gazprom has also now opted to build the TurkStream line -- which is expected to have two strings of 15.75 Bcm/year capacity -- right up to the Greek border.

    From there it can link in with the once defunct, but now revived, ITGI Poseidon project to pipe Russian gas onward to Greece and Italy. Gazprom in February signed a memorandum of understanding in Rome with Edison and Greece's DEPA outlining the interest of the three parties in the route to Greece and Italy.

    On Wednesday, Miller met with EDF CEO Jean-Bernard Levy in Paris where they discussed the creation of new routes for Russian gas exports to Europe "in light of the resumed TurkStream project."

    Miller also met with Engie Chairman Gerard Mestrallet to discuss "ongoing and future cooperation", including joint efforts within the Nord Stream 2 project.

    Engie was a member of the Nord Stream 2 operating consortium along with four other European partners until August when the companies dropped out of the JV because of Polish competition objections.
    Back to Top

    EIA: Recent mergers change the landscape of natural gas pipeline ownership

     Enbridge Inc. announced its purchase of Spectra Energy Corp. Enbridge currently operates 1,800 miles of large-diameter (24 inches or greater) natural gas pipelines in the United States. Before its acquisition of Spectra Energy, Enbridge was the 15th-largest holder of large-diameter U.S. natural gas pipeline miles (including co-owned pipeline), and Spectra ranked fourth in the nation with nearly 9,800 miles. Their newly combined pipeline holdings are still the fourth-largest overall.

    Nearly 82% of large-diameter pipeline miles and 62% of all pipeline miles in the United States are owned by 10 companies. Kinder Morgan Inc., with 32,000 miles of large-diameter pipeline, has more than double the mileage of TransCanada Corporation, which acquired Columbia Pipeline Group in July 2015. The merger of Energy Transfer Equity LP (third-largest holder) and Williams Companies, Inc. (fifth-largest holder) that was recently canceled would have resulted in a large natural gas pipeline conglomerate ranked second to Kinder Morgan, which owns about 19% of all U.S. pipeline.

    Most of the top-10 companies, which includes some large regional players, are common carrier pipelines regulated by the Federal Energy Regulatory Commission (FERC). The top five companies have national or international scale operations.

    Image title

    Attached Files
    Back to Top

    ConocoPhillips finds buyer for offshore block in Indonesia

    ConocoPhillips finds buyer for offshore block in Indonesia

    Indonesian energy company Medco is reportedly on the verge of acquiring ConocoPhillips’ stake in the Natuna Sea offshore block in Indonesia.

    ConocoPhillips operates the offshore South Natuna Sea Block B with a 40 percent stake. The area has three producing oil fields and 16 natural gas fields in various stages of development.

    Reuters based its story on accounts of three people familiar to the matter, who did not wish to be identified. They reportedly said that Medco would announce the deal soon. No financial details were given.

    When asked for a comment by Offshore Energy Today, a ConocoPhillips’ spokesperson said: “Unless formally announced by our company, ConocoPhillips does not comment on ongoing business development or commercial activities.”
    To remind, ConocoPhillips has been working on asset sales, primarily deepwater fields in the U.S. Gulf of Mexico, but it also mentioned Indonesia in one of its previous quarterly reports.

    The company is working to achieve a goal of $1 billion of proceeds from asset sales in 2016, aiming to use the obtained cash to service debt.

    ConocoPhillips CEO has previously said the company’s aim is to reduce debt as it matures, adding that debt payment could be accelerated as assets sales progress.

    As for the soon to be sold offshore block in Indonesia, natural gas production from it is sold under international sales agreements to Malaysia and Singapore, and liquefied petroleum gas is sold locally for domestic consumption.
    Back to Top

    Oil rig count ticks up slightly

    The activity in U.S. oilfields inched up  with the number of drilling rigs looking for oil increasing by two in the last week. Those gains though were more than offset by the amount of natural gas-seeking rigs shrinking by three.

    The oil rig count gains primarily came in Oklahoma. Texas’s Permian Basin saw two rigs added, but North Texas’ Barnett Shale losing two rigs negated those gains for the state, according to weekly data collected by the Baker Hughes oilfield services firm.

    The total count of 506 rigs is up from an all-time low of 404 in May, according to Baker Hughes. Of the total, 416 of them are primarily drilling for oil. But the oil rig count is down 74 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.
    Back to Top

    Libya Clashes Halt First Oil Cargo From Ras Lanuf Since 2014

    Libya halted loading what would be the first overseas crude shipment from the port of Ras Lanuf since 2014 as rival armed forces fought for control of the facility, complicating efforts to end a five-year conflict that has slashed oil exports from the OPEC country.

    Forces loyal to eastern-based military commander Khalifa Haftar repulsed a local Petroleum Facilities Guard unit that tried on Sunday to seize control of Ras Lanuf and the country’s largest oil port of Es Sider in east Libya, Mohammad Al-Azoumi, spokesman for a battalion under Haftar’s command, said by phone. Five petroleum guards were killed during the clashes, he said.

    The fighting forced the tanker Seadelta to suspend the loading of 781,000 barrels of oil for shipment to Italy, Nasser Delaab, petroleum operations inspector at Harouge Oil Operations, said by phone. The tanker, which began loading earlier Sunday, sailed away from Ras Lanuf and may return to the port to finish taking on oil on Monday, he said. Another tanker, the Syra, will arrive soon in Ras Lanuf to ship 600,000 barrels of crude to Italy, he said.

    Output Slashed

    Libya is seeking to boost crude exports after fighting among rival militias slashed oil production following the 2011 ouster of former dictator Moammar Al Qaddafi. The conflict halted exports from the nation’s main oil ports of Es Sider, Zueitina and Ras Lanuf as the country struggled to form a unified national government. The National Oil Corp. planned to resume exports from the ports after reaching an accord with Haftar, who seized control of the facilities last week.

    Brent crude gained as much as 1.9 percent to $46.62 a barrel and traded at $46.52 as of 9:08 a.m. in Dubai on Monday. Haftar took Ras Lanuf and Es Sider from Ibrahim Jadran, leader of local Petroleum Facilities Guard units, giving the eastern region’s powerful military chief control of both shipping terminals and oil fields in Libya’s main producing areas.

    The Seadelta had been loading crude from onshore storage tanks before being interrupted, said Delaab, who helps organize oil movements at Ras Lanuf, Libya’s third-largest oil port. The vessel arrived there early Sunday from Trieste, Italy, according to tanker tracking data compiled by Bloomberg. Both the Seadelta and Syra were navigating off the Libyan coast as of Sunday evening local time, according to the tracking data.

    Libya, if it succeeds in shipping the Seadelta cargo from Ras Lanuf, will be selling into an oversupplied market in which crude is trading at about half its 2014 levels. The country holds Africa’s largest oil reserves and pumped 1.6 million barrels of crude a day before Qaddafi’s ouster. Production has tumbled since then to 260,000 barrels a day in August, according to data compiled by Bloomberg, and Libya now ranks as the second-smallest producer in the Organization of Petroleum Exporting Countries, after Gabon.

    Harouge Oil pumped about 100,000 barrels a day through the end of 2014 but halted operations due to fighting in the country, Delaab said. The company has production rights to at least five oil fields around Ras Lanuf, according to its website.
    Back to Top

    Oil climbs as Venezuela sees output deal, Libya suffers clashes

    Oil prices rose almost 2 percent on Monday, after Venezuela said OPEC and non-OPEC producers were close to reaching an output stabilizing deal and as clashes in Libya raised concerns that efforts to restart crude exports could be disrupted.

    Venezuelan President Nicolas Maduro has said that a deal could be announced this month to stabilize oil markets, which have come under pressure due to a persistent glut and a price collapse over the past two years.

    Brent crude futures were at $46.59 per barrel at 0301 GMT (11:01 p.m. EDT), up 82 cents, or 1.8 percent, from their previous settlement. U.S. crude was up 88 cents, or about 2 percent, at $43.91 a barrel.

    The rise in oil prices is a reaction to Venezuelan comments about producers reaching a possible output agreement, said Ric Spooner, CMC Markets' chief market analyst. Loading disruptions in Libya were also underpinning the market, Spooner added.

    "(Libya) unable to get their first ship loaded is a reminder that it may be difficult for Libya to increase production."

    Clashes in Libya have halted the loading of the first oil cargo from the port of Ras Lanuf in close to two years, while also raising fears of a new conflict over Libya's oil resources.

    Brent and WTI prices had been dragged to multi-week lows on Friday amid worries returning supplies from Libya would add to the global supply glut.

    Concerns over rising supplies remain a bugbear on sentiment.

    Crude exports from No.3 OPEC producer Iran in August jumped 15 percent from a month ago to more than 2 million barrels per day, according to a source with knowledge of its tanker loading schedule, closing in on Tehran's pre-sanctions shipment levels of five years ago.

    In the United States, drillers have added oil rigs for 11 out of the past 12 weeks. Drillers added two oil rigs in the week to Sept. 16, bringing the total rig count up to 416, the most since February.
    Back to Top

    Against All Odds, North Sea Proves Resilient to Oil-Price Slump

    Oil producers in the North Sea were supposed to be among the first victims of OPEC’s battle for market share. Instead their high-cost, decades-old facilities are proving surprisingly resilient to the price slump.

    Crude oil and condensate output is likely to continue rising in the U.K. North Sea until 2018 as projects that were sanctioned before crude’s plunge four years ago start up, according to estimates by industry consultant Wood Mackenzie Ltd. Even though production dips after that, output by the end of the decade will still be roughly equal to the 2015 level.

    Since 2014, the Organization of Petroleum Exporting Countries has pumped without limits and allowed prices to plunge to 12-year lows to squeeze higher-cost rivals. While the strategy is expected to reduce non-OPEC output by 840,000 barrels a day this year, the battle is far from over. The unexpected stamina of areas like the North Sea, where operators have proved adept at keeping the taps open to keep cash flowing, is adding to the global glut and keeping prices lower for longer.

    “Production has stayed resilient,” said Ian Thom, an Edinburgh-based senior research manager for U.K. upstream at Wood Mackenzie. “We saw a record number of dollars invested in the high-oil price environment,” and that is still delivering new production.

    OPEC and the International Energy Agency have said they expect production from some countries to increase, deferring a return to balance in the market. OPEC, responsible for more than 40 percent of the world’s oil, said Sept. 12 it expectsproduction from outside the group will grow by 200,000 barrels a day next year, raising it from an earlier projection of a drop of 150,000 a day.

    A day later, the IEA said it estimates supplies outside OPEC will rise by 380,000 barrels a day, rebounding from a sharp decline this year. Coupled with slowing demand, increasing output will delay the rebalancing of the market until the second half of next year, the Paris-based agency said. Only last month it predicted a return to equilibrium this year.

    “There are pockets of resilience across the world,” IEA’s Executive Director Fatih Birol said in an interview in London. “Some companies were able to bring costs down substantially and this provides some resilience.”

    Production of crude and condensate, a type of light oil, will top 1 million barrels a day in the U.K. North Sea this year, about 8 percent higher than last year, according to Wood Mackenzie. Output will reach 1.07 million barrels a day in 2017 and 1.11 million the next year before falling to about 956,000 barrels at the end of the decade.

    Post-Soviet High

    When oil prices started their decline in the middle of 2014, some countries found it easier and cheaper to keep the fields running instead of shutting them now and starting again later. In Russia, production has been running at a post-Soviet high all year, Energy Ministry data show. The plunge in the ruble has reduced costs, offsetting the decline in oil prices.

    In Norway, companies have brought down costs and become more efficient. Output in Western Europe’s biggest producer has exceeded 2015 levels in six of this year’s first seven months, according to the Norwegian Petroleum Directorate. Efficiency gains and new field start-ups have helped the country beat the government’s own forecasts.

    In the U.S. Gulf of Mexico, output is projected to reach a record high in 2017, according to the Energy Information Administration. However, narrowing profit margins have forced many operators to pull back on future exploration spending, and they are putting fewer rigs to use, according to the agency.

    Losing Steam

    With oil’s downturn now running into its third year, companies’ and producing countries around the world are seeing their balance sheets getting weaker. Drillers have been cutting investments in exploration, contributing to a drop in discoveries to the lowest in seven decades. This will affect supply at some point in the future and, potentially, prices.

    If oil prices continue to be low “the general trend is high-cost areas will lose steam sooner or later,” Birol said.

    For now, operators in the U.K.’s North Sea are seeking to weather the price slump by cutting costs and even collaborating in ways they never thought possible. Earlier this year, some including Royal Dutch Shell Plc started pooling spare parts and tools, and are even sharing plans on how to drill wells so they can work faster and cheaper.

    Companies are “working on cost efficiency reductions which seems to be going fairly well” in the North Sea, said Philipp Chladek, a senior industry analyst for Bloomberg Intelligence in London. “But without new investments in exploration, you will see the effects on production levels in three to five years.”
    Back to Top

    Iran crude exports hit five-year high near pre-sanctions levels

    Iran's August crude oil exports jumped 15 percent from July to more than 2 million barrels per day (bpd), according to a source with knowledge of its tanker loading schedule, closing in on Tehran's pre-sanctions shipment levels of five years ago.

    The No. 3 OPEC producer has more than doubled its crude exports, excluding the ultra light oil condensate, since December. Economic sanctions targeting Iran's disputed nuclear program were lifted in January, and it has been battling since then to regain market share lost to other Middle East producers over the previous four years.

    The strong demand for Iran's crude in Asia and Europe has enabled it to raise its oil output to just over 3.8 million bpd as of this month, still shy of the 4 million bpd level Tehran says is a precondition for discussing output limits with Saudi Arabia and Russia.

    Members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia are expected to meet during the International Energy Forum in Algeria over Sept. 26-28 to discuss a possible output freeze to stabilize oil prices LCOc1 CLc1 that are still down around 60 percent since mid-2014.

    "The only way for producers to maximize their revenues in a low oil price environment to meet budget requirements is to raise production," said Victor Shum, an oil analyst at consultancy IHS. "So there is unlikely to be any supply deal ... in late September," he said.

    "We can expect Iran to continue to raise production."

    August crude exports from Iran excluding condensate roughly doubled from a year ago to 2.11 million bpd, the source said, based on data compiled from tanker loading schedules.

    The crude exports have climbed from 1.9 million bpd in June and 1.83 million bpd in July, the schedules showed.

    Iran's August exports are the highest since January 2012, boosted by record purchases from the world's third-largest oil importer India and a 48 percent jump that brought European sales to 630,000 bpd, tanker loadings for last month also showed.

    Other sources who track Iran's shipping data or who are familiar with its tanker loadings have slightly different figures for Iran's crude exports in August, but still show a near doubling since January.

    For countries like Iran that do not report official trade data, counting tankers is the primary means of estimating their oil trade, although counts may vary from tracker to tracker.

    Details on condensate loadings for August remain unclear. But if shipments of the ultra light oil were steady with this year's average of nearly 310,000 bpd, the total crude and condensate exports last month would be this year's highest at 2.41 million bpd, still short of average pre-sanctions exports of 2.5 million to 2.6 million bpd in 2011, according to figures from the U.S. Energy Information Administration.

    Iran's crude exports excluding condensate to Asia in August were 1.48 million bpd, up from 1.40 million bpd in July and roughly steady to this year's previous peak in April.

    Loadings headed for India reached a likely record of nearly 600,000 bpd last month, according to data stretching back at least 15 years, up 150,000 bpd from July, and topping 564,000 bpd loaded for China.

    Japanese loadings were nearly 230,000 bpd, compared with about 92,000 bpd for South Korea.

    Iranian oil was also loaded for Turkey, Greece, and Spain, and exports to Italy more than doubled from the previous month to 87,000 bpd, according to the schedules.

    To further boost its exports, Iran expects to complete the building of a terminal by year-end for a new grade.
    Back to Top

    Naftogaz says charter change threatens gas purchases from Europe

    Ukraine has changed the charter of Naftogaz in violation of a deal with foreign creditors, in a move that could hold up a $500 million loan for vital gas purchases from Europe, the state-run energy firm said on Friday.

    "These funds are essential for gas purchases that will allow Ukraine to get through the winter season in a stable manner," Naftogaz said in emailed comments.

    The European Bank for Reconstruction and Development (EBRD) expressed concern on Friday after Naftogaz said the economy ministry transferred control of the company's gas transport arm last week, in violation of corporate governance principles.

    The ministry did not immediately respond to a request for comment.

    Last October, the government approved a plan to reform the corporate governance of Naftogaz in exchange for loans worth $800 million from the World Bank and the EBRD to buy gas from Europe for the winter.

    Naftogaz said on Friday that the charter change imposed by the ministry violated the terms of the energy firm's loan agreement with the EBRD and could lead to a default on the debt.

    The EBRD, which along with Ukraine's other Western backers has urged the authorities to prioritise the restructuring of the graft-ridden energy sector, said Naftogaz must stick to the terms of the deal.

    "The EBRD is looking into this, if the development is confirmed, this is a very serious matter. We do expect that our partners (Naftogaz Ukraine) will honour their commitments and continue building Naftogaz into an example of corporate governance reform," an EBRD spokesman said.

    Naftogaz, Ukraine's largest energy company, operates in every part of the gas sector, from production to transport to sales.

    Since last December, Ukraine has not bought any gas from traditional supplier Russia, instead importing gas from Europe. Last year, Ukraine produced 19.9 billion cubic metres of gas and imported 16.5 bcm, including 10.3 bcm from Europe.

    Naftogaz says charter change threatens gas purchases from Europe

    Ukraine has changed the charter of Naftogaz in violation of a deal with foreign creditors, in a move that could hold up a $500 million loan for vital gas purchases from Europe, the state-run energy firm said on Friday.

    "These funds are essential for gas purchases that will allow Ukraine to get through the winter season in a stable manner," Naftogaz said in emailed comments.

    The European Bank for Reconstruction and Development (EBRD) expressed concern on Friday after Naftogaz said the economy ministry transferred control of the company's gas transport arm last week, in violation of corporate governance principles.

    The ministry did not immediately respond to a request for comment.

    Last October, the government approved a plan to reform the corporate governance of Naftogaz in exchange for loans worth $800 million from the World Bank and the EBRD to buy gas from Europe for the winter.

    Naftogaz said on Friday that the charter change imposed by the ministry violated the terms of the energy firm's loan agreement with the EBRD and could lead to a default on the debt.

    The EBRD, which along with Ukraine's other Western backers has urged the authorities to prioritise the restructuring of the graft-ridden energy sector, said Naftogaz must stick to the terms of the deal.

    Naftogaz, Ukraine's largest energy company, operates in every part of the gas sector, from production to transport to sales.

    Since last December, Ukraine has not bought any gas from traditional supplier Russia, instead importing gas from Europe. Last year, Ukraine produced 19.9 billion cubic metres of gas and imported 16.5 bcm, including 10.3 bcm from Europe.

    Attached Files
    Back to Top

    Funding Nigerian oil cash calls from debt key for economy - minister

    Nigeria must get out of paying so-called cash calls to joint ventures with oil and gas companies to stand a chance of pulling its ailing economy out of recession, Finance Minister Kemi Adeosun said on Friday.

    The minister said the Nigerian National Petroleum Corporation (NNPC) had spent 110 billion naira ($360 million) on cash calls this month, which dwarfed the country's 41 billion naira income from oil production over the same period.

    NNPC also owes several billion in back debt to oil companies from unpaid cash calls, which oil worker unions say is stalling the creation of jobs and investment.

    "We are already working to see how we can get out of the cash calls. And that is very fundamental to the economy," Adeosun told a press conference.

    "We are working with the Ministry of Petroleum Resources and NNPC ... that's a long-term plan: To allow those joint ventures to borrow money that they need rather than taking money out of the federation account."

    Sub-Saharan Africa's largest economy is trying to boost tax revenues and the non-oil income to fund a record $30 billion 2016 budget aimed at reviving the West African country that has been hit by lower oil prices.

    Adeosun told Reuters in April the government was thinking of forcing the cash calls, which are for international and local joint venture partners, out of budget funding and into so-called modified carrier arrangements.

    Modified carry agreements are loans provided by large international oil companies to the NNPC for investing in oil exploration and production projects.
    Back to Top

    Leak from biggest US gasoline pipe sparks supplier ‘red alert’

    Gasoline prices are set to jump across the eastern U.S. after a spill from the country’s largest fuel pipeline choked off supplies.

    A leak in Alabama Sept. 9 shut the main gasoline pipeline delivering fuel from refineries along the Gulf Coast to 50 million Americans in states from Mississippi to New Jersey. Colonial Pipeline Co. said on Thursday it pushed back the estimate for a complete startup of its Line 1 to next week from this weekend, citing adverse weather conditions overnight that slowed the cleanup and repair.

    Suppliers are moving gasoline and diesel by sea and sending trucks to distant terminals to bring fuel to consumers, but it won’t come close to the 1.3 million barrels a day that the shuttered line normally carries.

    “The thing is that there is a time pressure. No one is exactly sure when the pipeline will be completely fixed,” Patricia Hemsworth, senior vice president at Paragon Global Markets in New York, said by message.

    Colonial is delivering some gasoline through a pipe that typically carries jet fuel and diesel, though the company hasn’t said how much. The U.S. Environmental Protection Agency temporarily lifted requirements on fuel quality amid what it described as “extreme and unusual fuel supply circumstance,” and Georgia, Alabama and North Carolina governors lifted rules that limit how many hours fuel truckers can work.

    Red Alert

    North American fuel distributor Mansfield Oil Co. on Thursday urged its customers to take fuel-saving measures over the next week and place orders early as its supply distribution network was impacted from Mississippi to Maryland.

    “Mansfield’s Supply and Logistics Teams are meeting daily and treating this situation with the same importance and urgency as a natural disaster and moving to Red Alert,” the company said in its online daily newsletter to customers.

    Prices may rise as much as 15 cents a gallon over the next week in parts of the eastern U.S. due to the shutdown, Patrick DeHaan, an analyst with GasBuddy, said in a tweet.

    “It’s likely to get worse before it gets any better,” he said by phone. “It’s really a race against the clock — will there be gasoline available to replenish those terminals before they draw down?”

    Retailers in Nashville and Atlanta were required to sell summer-grade gasoline, which carries a lower vapor pressure than fuels used in the winter, through Thursday. The EPA is waiving the federal mandates to distribute the fuel with low volatility amid the regional shortages.

    Gasoline futures jumped 6.87 cents a gallon Thursday and the premium of October contracts over November widened on concern that prompt supply at the delivery point for the New York Mercantile Exchange will become scarce. The eastern U.S. relies on imports, primarily from refineries in Texas and Louisiana, eastern Canada and Europe, to help meet demand.

    “What is truly extraordinary and really the main barometer of this Colonial Pipeline disaster is the spread action,” Hemsworth said. “Right now logistics are limiting the supply at the futures contracts’ deliverable point. You realize how dependent we are on our infrastructure.”
    Back to Top

    Exxon’s Accounting Practices Are Investigated

    New York Attorney General Eric Schneiderman is investigating why Exxon Mobil Corp. hasn’t written down the value of its assets, two years into a pronounced crash in oil prices.

    Mr. Schneiderman’s office, which has been probing Exxon’s past knowledge of the impact of climate change and how it could affect its future business, is also examining the company’s accounting practices, according to people familiar with the matter.

    An Exxon spokesman declined to comment about the investigation by the Democratic attorney general but said Exxon follows all rules and regulations.

    Since 2014, oil producers world-wide have been forced to recognize that wells they plan to drill in the future are worth $200 billion less than they once thought, according to consultancy Rystad Energy. Because the fall in prices means billions of barrels cannot be economically tapped, such revisions have become a staple of oil-patch earnings, helping to push losses to record levels in recent years.

    Exxon hasn’t taken any write-downs—the only major oil producer not to do so—which has led some analysts to question its accounting practices.

    The company has played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduces its exposure to write-downs if the assets later prove to be worth less than expected, it says.

    Exxon’s ability to avoid write-downs—and potential losses that come with them—has been among the factors helping the company outperform rivals since prices began falling in mid-2014. Exxon shares have fallen by about half of the average of top peers  Chevron Corp., Royal Dutch Shell PLC, Total SA andBP PLC. Since 2014, those companies have booked more than $50 billion overall in write-downs and impairments.

    Yet Exxon has lost money for six straight quarters in its U.S. drilling business. The company had to remove the equivalent of more than 900 million barrels of U.S. natural gas reserves from its books in 2015, an acknowledgment that wells on those properties cannot currently be economically drilled. When it agreed to purchase shale explorer XTO Energy Inc. in 2009 for $31 billion, natural gas sold for almost double what it does now.

    For many producers, such losses in net income and reserves would make write-downs inevitable, but Exxon didn’t write down the overall value of its reserves. The lack of such a step at Exxon “raises serious questions of financial stewardship,” Paul Sankey, an oil analyst at Wolfe Research, wrote last month.

    “It is impossible to believe that no assets have been impaired,” he said.

    The process for booking oil and gas reserves, and recognizing when they fall, is separate from accounting for how the value of those reserves changes over time on a company balance sheet.

    John Herrlin, an analyst at Société Générale, came to a different conclusion in an investor note last month, writing that about three fourths of Exxon’s reserves are from areas with producing wells, a factor that makes impairments less likely than in undeveloped areas.

    Exxon Chief Executive Rex Tillerson told trade publication Energy Intelligence last year that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.

    “We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”

    Out of the 40 biggest publicly traded oil companies in the world, Exxon is the only one that hasn’t booked any impairments in the last 10 years, according to S&P Global Market Intelligence.

    In 2013, the U.S. Securities and Exchange Commission asked Exxon why it hadn’t booked any impairments in the previous year, citing a speech Mr. Tillerson gave in June 2012 in which he said the company was making “no money” due to declining natural-gas prices.

    Exxon’s response then mirrors its position now: That short-term price fluctuations aren’t enough to render worthless wells that would potentially be drilled over decades. Another key to the company’s assessment is the view that its assets will hold value when prices eventually rebound.

    Natural gas rose substantially in 2013 after the SEC’s inquiry, but many oil executives and forecasters have said they expect prices to remain low for some time.

    Last year, Exxon scrutinized its assets most at risk for impairment and found that future cash flows anticipated from its fields were “substantially” higher than the book value of the asset. Exxon “does not view temporarily low prices or margins as a trigger event for conducting impairment tests,” according to a company filing.

    The company is known for its conservatism in recognizing the value of reserves, a practice that results in lower write-downs, said Sean Heinroth, a principal in the energy practice at management consultancy A.T. Kearney. Exxon is also known for rigidly interpreting regulations and sometimes pushing back against regulators if company leaders feel their practices follow the law, he said.

    “I would have expected some write-downs, even to avoid being called out on it, on being the last company not to have write-downs,” he said.

    Exxon has previously faced a lawsuit over its impairment practices. Plaintiffs including the Ohio state pension system alleged in a 2004 class-action suit that the company’s failure to impair its properties undercut shareholders of Mobil Corp. in the 1999 deal that combined the companies.

    The suit alleged that Exxon should have seen write-downs of between $3 billion to $7 billion in the late 1990s, another period of historically low prices. It included an allegation from a former Exxon insider that the company “operated under an order” by former Chief Executive Lee Raymond that “no impairment would be recorded.”

    Exxon denied the allegations. The lawsuit was dismissed because the statute of limitations on such claims had passed.
    Back to Top

    Alternative Energy

    China on a wind power frenzy

    China has been building two wind turbines every hour, being the world's biggest program of turbine installation which doubles that of its nearest rival -- the US, BBC News reported, citing the International Energy Agency (IEA).

    The nation's entire annual increase in energy demand has been fulfilled from the wind. But the IEA warned China has built so much coal-fired generating capacity that it is turning off wind turbines for 15% of the time, the report said.

    In the province of Gansu, 39% of wind energy has to be turned off because there is not enough capacity on the grid.

    A sustainable development in wind power will need strong policy decisions, including the construction of many more grid lines and a phase-out policy for older, more inefficient coal power plants. China has planned to impose a moratorium on all new coal-fired plants until 2018.

    China installed more than 30 GW of new wind energy in 2015 – partly thanks to a rush driven by the Chinese government making its existing subsidies less attractive.

    Construction has slackened in 2016, but only to a level of more than one turbine per hour.
    Back to Top

    Panasonic Provides the "Power Supply Station"; a Stand-Alone Photovoltaic Power Package to Off-Grid Areas in Myanmar

    Panasonic Corporation provided the Power Supply Station; a stand-alone photovoltaic power package, to the village of Yin Ma Chaung, a Magway Region of the Republic of the Union of Myanmar. The Power Supply Station is installed as part of a CSR effort by the Sustainable Alternative Livelihood Development Project, supported by the Mae Fah Luang Foundation under Royal Patronage (MFL Foundation) of the Kingdom of Thailand. This project was rolled out in partnership with Mitsui & Co., Ltd as one of their CSR activities, and funded by donations to support the mission of the MFL Foundation's activities.

    Panasonic provides the "Power Supply Station"; a stand-alone photovoltaic power package to off-grid areas in Myanmar

    Panasonic’s power supply station consists of solar modules and storage batteries, which enables energy to be created, stored and managed efficiently. The whole system is able to supply electricity to the entire village, relieving approximately 140 households in the non-electrified mountainous village by powering up electrical appliances and lights, which are essential and important in daily lives.

    The presence of lightings in the village makes it possible for villagers to move around during the night, as prior to that; they were unable to do so since the area is inhabited by poisonous snakes. In addition, all the street lights have time-switch LED bulbs that could also make use of limited electricity, efficiently.

    In Myanmar, its off-grid areas are said to be at the highest level among the ASEAN countries, at approximately 68%1 across the nation. In its countryside, the number reaches to an estimate of 84%2households being unconnected to electricity. To step up on its efforts, Panasonic also installed a refrigerator in the village’s meeting area to store anti-venom drugs. With a well-powered point, the meeting area has thus serves as a center for welfare, entertainment and other purposes.
    Back to Top

    Making Money with Batteries

    Venture capital investments in the energy storage sector topped $175 million in the first half of 2016, according to Mercom Capital Group, whose analysis shows that lithium-ion and sodium-based batteries received the lion's share of that money. There is no doubt that batteries will be a large part of the renewable energy future because they enable greater amounts of renewables to be connected to the grid. However, that future may be farther away than one might think, especially after visiting energy storage conferences and trade shows and talking to vendors.

    "What you are up against is the wishful thinking that this is right around the corner but they're just not," said Andy Skumanich, founder of SolarVision Consulting and author of a recent report on energy storage.

    Skumanich was referring to the residential energy storage technology vendors that were on display at Intersolar's EES North America in July.

    "Resi solar really isn't a real market and the reason for that is because a diesel generator is just so cheap," he said.

    He added: "To some extent if you are getting repeated blackouts, you buy this capital equipment that sits there for 99 percent of the time and then for one percent of the time you use it. So to me, it just doesn't make a compelling business prospect."

    Skumanich believes that in the developed and industrialized world, where we already have a fairly robust grid, energy storage such as batteries will not be economically viable until storage costs come down considerably or grid power becomes overly expensive.

    Image: Redflow's LSB [large-scale battery] product installed at an office building in Adelaide, Australia. Credit: Redflow.

    Money-making Markets

    There are some markets where energy storage does make economic sense, according to Skumanich, who said the military is always willing to look at new technologies that could save the lives of soldiers in the field who have to carry fuel.

    "The military is definitely interested in mobile electric capability and they don't want to be hauling diesel around. They don't mind paying extra for batteries," he said.

    In addition, in places where the grid is unreliable or non-existent, batteries are well-suited to solve problems of electricity supply.

    Mio Dart, Systems Integrator Engineer with Redflow, an Australian company that manufactures a zinc-bromide flow battery, said that she sees a lot of promise for battery manufacturers to make money in markets where the grid is unstable.

    "A lot of cities in the developing world only get power 6 or 8 hours a day and you have to deal with not having grid power the rest of the time and that's just part of everyday life," she explained.

    Attached Files
    Back to Top

    Barrick sees ‘perfect storm’ brewing around cost-effective renewables

    Renewable energy sources have reached the stage, where they can reduce energy costs as well as emissions,Barrick Gold’s senior manager of energy and greenhouse gases (GHGs), Russell Blades, tellsEnergy and Mines.

    “We are seeing a ‘perfect storm’ brewing around renewables.Solar and energy storage are improving in efficiencies and reducing in costs. Renewables are already cost-effective in many areas compared to traditional fossil fuel poweroptions,” Blades says. “In terms of further reducing ourenergy costs and emissions, we see that renewables have an important role to play alongside our energy management and fuel switching initiatives.”

    Moreover, with governments, investors and stakeholders more focused on carbon emissions, pricing and climate change, mines are moving more towards electrification andautomation. “Barrick recognises this global trend and is trying to get ahead of the curve to be a market leader to benefit our shareholders and other stakeholders,” Blades notes.

    The gold mining leader sees the benefits of power price stability that renewables offer, along with a host of other key attributes. “Although price stability is a major driver, we equally see the benefits of lower energy prices, reduced emissions and improved sustainability,” Blades says.

    As a senior manager at one of the world's largest gold miningcompanies, Blades’ responsibilities include effectively managing the company’s energy portfolio in order “to reduce operating costs and impact on climate change.”

    Barrick’s energy programme looks at how energymanagement, fuel switching and renewable-based strategies can reduce energy usage, costs and GHG emissions, Blades explains.

    “The majority of our GHG emissions come from our choice ofenergy sources (diesel, electricity, natural gas, heavy fuel oil(HFO), explosives, biofuels, renewables, etc). Not only does my work involve improving our active mine sites, but new mines and legacy sites as well. We try to incorporate sound energy management and renewable strategies into our new mine designs and are looking to develop renewable energyprojects at our closed mine sites,” Blades reports.

    When addressing carbon exposure, Barrick examines variousenergy options for existing or future mines, calculating GHG emissions as well as the capex and opex costs associated with these options. “To help select the best option we also run sensitivities on various projected prices for carbon to see what the impact might be to the project’s economics,” Blades adds.

    Almost 18% of Barrick’s power was sourced from renewables in 2015, but the company hopes to see that number climb in the future. “We have just finished a study that looked at all our sites (operating, legacy and new projects) and provided preliminary assessments for renewable resources at those sites and their potential economics.”

    Moreover, Blades says that Barrick is looking at renewables not just for power. Instead, the company adopts a much broader application of renewables, including heating andbiofuels.

    “It’s important to also understand that renewables for us isn’t limited to just electrical power. We also see the benefits of using renewables to provide heat to our processes like electrowinning (electrolyte), cathode wash water and heap leaching (solutions) and biofuels to replace diesel and HFO in our haul trucks, underground vehicles, power plants, lime kilns, etc. For example, we operate our UG vehicles at ourNevada mines on B50-B75 in order to reduce GHG and particulate matter emissions.”

    There are many positives to replacing diesel trucks andequipment with electrical counterparts, including better air quality and reducing ventilation and cooling requirements in the underground mines.

    “For openpit, the use of electrical-based material movement technologies like conveyors, Railveyor and Ropecon can cost-effectively replace traditional diesel haul trucks. We are also seeing some interesting development in large-scale electric vehicles that would provide us with another electric-based option to move materials at the mine site. Electric-based systems are much more efficient (electric motor 90% vs diesel engine 36%), have lower rolling resistance and improved payload to total weight ratios than diesel haul trucks,” Blades says.

    Barrick is also interested in “better leveraging mine design, topography, elevation and gravity at the mine site to produce regenerative energy and storage.”

    Attached Files
    Back to Top

    Brazil's Petrobras says to exit biofuels production

    Brazil's Petrobras says to exit biofuels production

    Brazil's state-controlled oil company Petróleo Brasileiro SA said on Tuesday it will exit the biofuels sector, as the heavily indebted company seeks to prioritize investment in crude oil and gas production.

    Petrobras, as the company is known, said biofuels would be one sector it plans to unload as part of sweeping asset sales plan. The company reaffirmed a $15.1 billion in asset sales for the 2015-2016 period and fetch an additional $19.5 billion through divestments and partnerships between 2017 and 2018.

    Petrobras has a significant portfolio in biofuels. No specifics were provided on what years the sales were planned for.

    Its largest asset is a 45.9 percent stake in Guarani Tereos Açúcar e Energia Brasil, which owns seven mills with a combined production capacity of 1.7 million tonnes of sugar and 900 million liters (237.8 million U.S. gallons) of ethanol per year.

    Petrobras also owns 49 percent of Boa Vista mill in Goias state, a joint venture with Brazilian sugar and ethanol company Sao Martinho, and a 40 percent stake in the Bambui mill in the Sao Paulo state.

    Reuters reported last year that Petrobras was trying to sell its stake in Guarani Tereos, but talks hit a snag regarding price.

    Other media reports said Petrobras was also trying to sell stakes in the other mills, but the company never confirmed this.

    Petrobras also fully owns three biodiesel plants in Minas Gerais, Bahia and Ceara states and has a 50 percent stake in local biodiesel producer BSBIOS, which manages two large plants in the states of Parana and Rio Grande do Sul.

    Sugar and ethanol prices have recovered strongly since Petrobras since the media began reporting the company planned to leave the biofuels sector early last year. Raw sugar prices hit the highest level since 2012 on Monday in New York, lifted by expectations of at least two years of a global supply deficit.
    Back to Top

    South Korea in $27bn renewables spree

    South Korea will invest $27bn in renewables and from next year begin to retire 10 coal-fired power plants.

    The dramatic statement of intent on sustainability was revealed this morning by the country’s Second Vice-Minister of Energy, Taehee Woo.

    Delivering the opening speech at Asia Power Week in Seoul, he said that South Korea had set an ambitious target to cut its greenhouse gas emissions by 37 per cent by 2030, and added that energy storage, windpower and solar would all play a key role.

    Woo said that “the power industry is undergoing profound transformation”.

    “The traditional power business model cannot maintain its competitiveness”, he said. “The grid has to become smarter.”

    He said another key strand of Korea’s emissions-reduction would involve retrofitting its existing plants with supercritical technology.

    The retrofitting theme was taken up by Heung-Gweon Park of Doosan who said that retrofitting “could be the stepping stone” for Asia’s decarbonisation.

    “I understand that extending the life of a coal plant does not sound very attractive,” he said, but added that all coal plants in South Korea will be supercritical by the end of the next decade.

    And after stating that developed countries such as those in Europe had “relatively well-managed the transition to renewables”, he warned that “such a drastic transition in Asia could prove to be an unbearable shock”.

    At a press conference later in the morning, GE Power president Steve Bolze also stressed the importance of overhauling South Korea’s existing plants for the country to meet its greenhouse gas reduction target.

    But Bolze went to on say that GE would also be installing its most cutting-edge technology in the next generation of Korea’s combined-cycle plants.

    He referenced GE’s new plant for EDF at Bouchain in France, which this year entered the Guinness Book of Records for the most efficient gas turbine, and said: “We have a project in Korea that will be at the same performance – if not higher.”

    Attached Files
    Back to Top

    Chinese solar firms defy growing competition in Middle East

    China's solar technology producers manage to secure market shares across the Middle East, despite growing competition in the region, state media Xinhua reported, citing an industry exhibition opening in Dubai on September 19.

    At the three-day annual Intersolar Middle East exhibition, dozens of companies from China showcase their latest innovations like solar panels or solar power transmitting technology.

    "In 2015, a price war in the region started and we are exhibiting for the first time at the Intersolar Middle East in order to reach out to new clients," Anne Zheng, sales manager from Zhejiang Longchi Technology, was cited as saying.

    Jimmy Wang, vice general manager with Cixi City Rixing Electronics, was cited as confirming that pressure on sales prices increased.

    "We managed in recent years to spread our wings across the Middle East as we found new clients even in remote markets like Syria, Afghanistan or Yemen. Dubai is the perfect distribution hub for the region and we also reach out to Africa and India," he was also quoted as saying.

    Attached Files
    Back to Top

    Solar price hits record low of 2.42c/kWh, and may fall further

    The price of solar PV continues to fall. On Monday, a new record low of US2.42c/kWh ($A0.032c/kWh) was set in a tender for a large solar park in Abu Dhabi, not by an industry outlier but but by the biggest manufacturer of solar modules in the world, JinkoSolar.

    The tender handsomely beats the previous record of US2.91c/kW set just last month in Chile, andprevious sub-3c/kWh markers set in Dubai in an earlier tender.

    And it continues the stunning cost reductions across renewable energy technologies, with new records set in recent months for on-shore and off-shore wind and solar thermal and storage in particular.

    And, it seems, even this bid could be beaten, with the local National newspaper reporting that a local consortium, possibly Masdar Energy, submitting an offer of just US2.3c/kWh if the local authority agrees to write a contract for a solar farm of more than 1.1GW.

    It was only 18 months ago that Saudia Arabia-based ACWA Power stunned the solar world, and the broader energy industry, with a bid of less than 6c/kWh in a Abu Dhabi tender.

    That price was deemed “impossible” by many doubters, but that plant is being built – at even lower cost after it achieved cheaper than expected finance – and it has been bettered numerous times in the US, the Middle East, and South America.

    Paddy Padmanathan, the CEO of ACWA Power, says prices can still fall:  “We haven’t reached the bottom yet, but we’re close,” he told The National.

    The fall in the cost of renewable energy technologies – 80 per cent in five years for solar and 60 per cent for wind – was cited as a major reason why agreement was reached in Paris last year for a landmark and an ambitious climate target, or well under 2°C and possibly 1.5°C. Now prices have fallen dramatically again.

    PV Magazine described the latest solar bid as “astonishing”. It said it was entered into a tender conducted by the Abu Dhabi Electricity and Water Authority’s (ADWEA) for a solar park of at least 350MW. The price was offered by a consortium of JinkoSolar and Japanese industrial giant Marubeni.

    PV Magazine reported that the plant is to be built in the town of Swaihan northwest of Abu Dhabi. A new settlement is being built in the region and it is need of quick, affordable electricity.

    “Understanding that solar could be the cheapest option, ADWEA invited bids for a 350MW, but allowed bidders to increase the size of the development,” the website says. There were six bids in all, the National said, including the proposed offer of US2.3c/kWh.

    Attached Files
    Back to Top

    Tesla Wins Massive Contract to Help Power the California Grid

    Tesla just won a bid to supply grid-scale power in Southern California to help prevent electricity shortages following the biggest natural gas leak in U.S. history. The Powerpacks, worth tens of millions of dollars, will be operational in record time—by the end of this year.

    Tesla Motors Inc. will supply 20 megawatts (80 megawatt-hours) of energy storage to Southern California Edison as part of a wider effort to prevent blackouts by replacing fossil-fuel electricity generation with lithium-ion batteries. Tesla's contribution is enough to power about 2,500 homes for a full day, the company said in a blog post on Thursday. But the real significance of the deal is the speed with which lithium-ion battery packs are being deployed.

    "The storage is being procured in a record time frame," months instead of years, said Yayoi Sekine, a battery analyst at Bloomberg New Energy Finance. "It highlights the maturity of advanced technologies like energy storage to be contracted as a reliable resource in an emergency situation."

    The deal fits into Tesla Chief Executive Officer Elon Musk's long-term vision of transforming Tesla from an an electric car company to a clean-energy company. That's the same motivation behind his pending deal to acquire SolarCity Corp., the rooftop solar company founded by his cousins, of which he is also chairman and the largest shareholder.

    In total megawatt hours, the Tesla batteries will make up the biggest lithium-ion battery project in the world, though it will soon be surpassed by others under contract, according to data compiled by Bloomberg New Energy Finance.1 A Tesla spokeswoman declined to comment on the value of the 20 megawatt deal. According to Tesla's website, a 2-megawatt Tesla battery system costs about $2.9 million, and any contracts greater than 2.5 megawatts must be negotiated directly with the company.

    Last fall's natural gas leak at Aliso Canyon, near the Los Angeles neighborhood of Porter Ranch, released thousands of tons of methane before it was sealed in February. In its wake, SCE and other utilities are pursuing energy storage deals. To alleviate the risk of blackouts, regulators ordered the installation of systems to store electricity when demand is low and deploy it when usage spikes, especially during the winter heating season.

    Although Sempra Energy plugged its massive gas leak in February, use of its Aliso Canyon complex, California’s biggest gas storage field, remains restricted. Grid-storage projects are now being fast-tracked and built in less than four months, compared to an average of three and a half years in previous procurements, according to data compiled by Bloomberg New Energy Finance.

    In August, California regulators approved two contracts for AES Corp. to build 37 megawatts of grid-scale energy storage systems to address anticipated power shortfalls stemming from the Aliso Canyon leak. Canadian energy company AltaGas Ltd. also won a 20 megawatt (80 megawatt-hour) contract with Southern California Edison to be completed this year.

    "This isn’t a Tesla-only story," Sekine said. "This is a broader energy win."
    Back to Top

    Total's venture arm acquires stake in smart grids firm Autogrid

    Total Energy Ventures, the venture capital arm of oil and gas company Total said on Friday has acquired an interest in Autogrid, a company that develops solutions to manage and energy supplied to and from power grids.

    * Total said in the statement that Autogrid's customers include utilities and equipment manufacturers that produce electricity from solar panels, batteries and other sources.

    * It said the funding was intended to finance California-based Autogrid's expansion.

    * It did not disclose financial terms of the investment.

    * The oil and gas company has said it aims to become a top renewables and electricity trading player within 20 years.
    Back to Top


    Japan signals end for $10 billion nuclear prototype

    Japan signaled on Wednesday it would scrap a costly prototype nuclear reactor that has operated for less than a year in more than two decades at a cost of 1 trillion yen ($9.84 billion).

    Tokyo believes it would be difficult to gain public support to spend several hundreds of billion yen to upgrade the Monju facility, which has been plagued by accidents, missteps and falsification of documents.

    There is also a strong anti-nuclear sentiment in Japan in reaction to the 2011 Fukushima atomic disaster and calls to decommission Monju have been growing in the ruling Liberal Democratic Party, with scant results from using around 20 billion yen of pubic money a year for maintenance alone.

    Monju was designed to burn plutonium from spent fuel at conventional reactors to create more fuel than it consumes. The process is appealing to a country whose limited resources force it to rely on imports for virtually all its oil and gas needs.

    Science Minister Hirokazu Matsuno, Trade Minister Hiroshige Seko and others had decided to shift policy away from developing Monju, a fast-breeder nuclear reactor in the west of the country, the government said.

    They had also agreed to keep the nuclear fuel cycle intact and would set up a committee to decide a policy for future fast-breeder development by the end of the year.

    A formal decision to decommission Monju is likely to be made by the end of the year, government officials said.

    The decision would have no impact on Japan's nuclear recycling policy as Tokyo would continue to co-develop a fast-breeder demonstration reactor that has been proposed in France, while research will continue at another experimental fast-breeder reactor, Joyo, which was a predecessor of Monju.

    "The move will not have an impact on nuclear fuel balance or nuclear fuel cycle technology development or Japan's international cooperation," Tomoko Murakami, nuclear energy manager at the Institute of Energy Economics, Japan, said.

    Attached Files
    Back to Top

    China nuclear developers must seek public consent: draft rules

    China's nuclear developers must seek the consent of local stakeholders before going ahead with new projects, according to draft rules published by the country's cabinet on Monday.

    Developers will need to assess the impact a nuclear project will have on social stability and solicit public opinion through hearings or announcements, the Legislative Affairs Office of the State Council said.

    China is in the middle of a rapid nuclear reactor building program and aims to have 58 gigawatts (GW) of capacity in full commercial operation by the end of 2020, up from 30.7 GW at the end of July.

    But despite a strong safety record at existing plants, the government has struggled to convince the public about the safety of nuclear power.

    Protests in the eastern coastal city of Lianyungang last month led to the cancellation of a proposed $15 billion nuclear waste processing plant.

    "Japan's Fukushima accident once again created doubt about the safety of nuclear power among the public, and also caused feelings of fear and opposition to occur from time to time," the Legislative Affairs Office said in a statement.

    It said the new draft rules would improve information disclosure and allow the public to participate more actively in the construction and supervision of nuclear projects.

    The Legislative Affairs Office has made the draft guidelines available to the public and will accept suggestions until Oct. 19, it said in a notice posted on its website (

    A team of experts from the International Atomic Energy Agency said this month that China's "unparalleled" nuclear expansion would pose challenges for its regulators, and more work needed to be done in areas such as waste management and the handling of ageing reactors.

    Attached Files
    Back to Top


    China slaps anti-dumping duties on U.S. distillers grains

    China said on Friday it is slapping anti-dumping duties on U.S. distillers' dried grains (DDGS) shipped by some of the biggest suppliers of the animal feed ingredient, including Louis Dreyfus [AKIRAU.UL] and Archer Daniels Midland.

    The duties of 33.8 percent are effective immediately, the Ministry of Commerce said in a preliminary ruling. The move comes after a months-long probe following complaints by China's ethanol producers that the U.S. industry was unfairly benefiting from subsidies.

    It did not give a timing for a final decision.

    China is the world's top buyer of DDGS, a by-product of corn ethanol that is used by feed mills as a substitute for corn and soymeal. China imports almost all of its needs from the United States, the largest exporter.

    The move could intensify a spat between the world's two-largest economies over agricultural trade policy, and also comes as the countries are embroiled in disputes over China's exports of steel and aluminium.

    In the near term, the impact on trade may be limited as exporters have already curbed shipments into China since the investigation started in January to avoid any retroactive penalties, traders said.

    Some traders said they had feared duties would be higher, between 40 percent and 60 percent.

    Still the long-awaited decision is a major blow to some of the biggest players in the U.S. ethanol industry, including Poet LLC, Patriot Renewable Fuels LLC, ADM, Louis Dreyfus, Valero Energy Corp and Andersons Inc.

    "The problem is this is just the preliminary result. People are worried that the final one could be even higher," said one Shanghai-based trader.

    China previously launched an anti-dumping investigation into DDGS imports from the United States in late 2010, later extending the probe before dropping it in mid-2012.

    The earlier investigation slowed China's imports of the feed ingredient but did not stop them entirely.

    U.S. farm cooperative CHS Inc. was excluded from the ruling because the information submitted by the company to the government was inconclusive, the ministry said.

    Other companies included in the ruling are: Big River Resources LLC, Marquis Energy LLC; Absolute Energy LLC; Ace Ethanol LLC; Elkhorn Valley Ethanol; Flint Hills Resources LP; Goldan Grain Energy LLC; Illinois River Energy LLC; Louis Dreyfus Commodities Grand Junction LLC.
    Back to Top

    La Nina forecast downgraded as trade winds remain moderate

    Sea surface temperatures in the central Pacific have been significantly below the seasonal average for the last 10 weeks, consistent with the formation of mild La Nina conditions.

    But U.S. government forecasters have cut the probability of La Nina occurring this winter to 36 percent, down from an estimated probability of 76 percent at the time of their May forecast.

    The U.S. government now predicts conditions this winter are likely to be neutral, with neither La Nina or El Nino evident, and puts this probability at 56 percent, up from 21 percent in May.

    Surface temperatures in the central Pacific have cooled but not as fast or as far as expected earlier in the year, which has caused the forecast probability of La Nina developing to drop (

    Many other phenomena associated with La Nina are either absent or only weakly present, which has also caused forecasters to downgrade their predictions.

    Some models indicate a borderline La Nina this winter. But the consensus among U.S. forecasters is for neutral conditions based on the lack of significant support from other indicators.

    The National Oceanic and Atmospheric Administration dropped its “La Nina watch” in September, having been on the lookout since April, according to the agency’s latest forecast

    Attached Files
    Back to Top

    EPA says glyphosate, used in Monsanto herbicide, likely not carcinogenic

    Glyphosate, the key ingredient in Monsanto Co's Roundup herbicide, is not likely carcinogenic to humans, the U.S. Environmental Protection Agency said on Friday as it outlined its current position on the controversial chemical.

    The EPA has been involved in a decades-long process to assess human and animal health risks, as well as ecological risks, of glyphosate. Various agencies around the world have offered conflicting opinions on whether glyphosate causes cancer.

    The EPA's "proposed" position on glyphosate was outlined in a 227-page paper it published on the website, which the EPA manages.

    After reviewing the available data, the paper states, "The strongest support is for 'not likely to be carcinogenic to humans' at doses relevant to human health risk assessment."

    The paper was among 86 documents, which included dozens of research studies about glyphosate. All the material is to be reviewed next month by an advisory group of scientists known as the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) Scientific Advisory Panel.

    "Meeting materials are being shared with the public in advance of the FIFRA Scientific Advisory Panel who will use these materials for the meeting and their report," the agency said to Reuters in an email statement.

    The panel is tasked with reviewing scientific issues related to the agency's ongoing evaluation of whether the herbicide does - or does not - have the potential to cause cancer in humans. It will also comment on the agency's review and evaluation process in how it reached its conclusions.

    Last year, the World Health Organization's cancer arm, the International Agency for Research on Cancer, classified glyphosate as "probably carcinogenic to humans."

    Other government authorities have issued a variety of opinions. The European Food Safety Authority last November said glyphosate was "unlikely to pose a carcinogenic hazard to humans."

    The EPA also republished a paper from its cancer assessment review committee, which found that glyphosate was "not likely carcinogenic" to humans. In May, the agency published the CARC paper online, but then removed it and other related documents, saying it had inadvertently published the document prior to finishing its review of the controversial chemical. [nL2N17Z1TZ]

    The EPA said on Friday that it expects to publish its final assessment of glyphosate in the spring of 2017. Previously, the agency had said the review could be done by the end of this year.
    Back to Top

    China to invest $450 billion modernizing agriculture by 2020

    The Agricultural Development Bank of China [AGDBC.UL], one of the country's main policy lenders, agreed to loan at least 3 trillion yuan ($450 billion) by 2020 for the modernization of China's agriculture industry, state media said on Sunday.

    The Ministry of Agriculture and the bank, which lends in line with government policy, signed an agreement to protect national food security, support the sector doing business overseas and develop China's seed industry, according to the official Xinhua news agency.

    It was not immediately clear whether this commitment is separate from the bank's plan announced in May to lend 3 trillion yuan for poverty reduction via agricultural investments.

    The move reported on Sunday also aims to increase the agriculture industry's efficiency and foster rural income growth.

    The Agricultural Development Bank of China will be responsible for managing financial services, including offering financial products and setting interest rates, said Xinhua.

    Chinese state-owned company ChemChina earlier this month extended its offer to buy Swiss pesticides and seeds group Syngenta (SYNN.S) for $43 billion, a deal which sparked food security concerns in the U.S., though it later cleared regulatory hurdles there.
    Back to Top

    Agrium to woo uneasy investors over Potash merger deal

    Canada's Agrium Inc will woo reluctant shareholders next week in Toronto to support its proposed merger with Potash Corp of Saskatchewan Inc, and seek to appease concerns that it has little to gain by marrying its fertilizer rival.

    The $26-billion, all-stock merger would combine Potash's crop nutrient production capacity, the world's largest, with Agrium's farm retail network, North America's biggest.

    It represents a major shift for Agrium Chief Executive Chuck Magro, who at its annual meeting in May sounded neutral at best on potash, said John Goldsmith, vice-president of Montrusco Bolton Investments, a top 20 Agrium investor.

    "Something must have happened to make him bet the farm on the potash commodity," Goldsmith said, adding that he is concerned the new company would be too linked to the slumping commodity. On Monday, Magro said potash will be "a terrific business longer term."

    Montrusco would need a compelling new rationale from Agrium for it to vote for the deal, Goldsmith said.

    Shareholders, including Montrusco, plan to meet with Agrium on Tuesday in Toronto. Agrium shareholders generally dislike the deal, while Potash investors are pleased, Scotiabank analyst Ben Isaacson said in a note on Tuesday.

    Agrium stock fell 6 percent in Toronto from the deal announcement on Monday, to Wednesday, before recovering ground on Thursday.

    The deal, scheduled to close in mid-2017, would give Potash investors 52 percent of the new company and requires two-thirds approval from shareholders of each company.

    Agrium and Potash said in a joint statement on Thursday that they were "very pleased with the overwhelming support" from many of their biggest shareholders.

    The crop nutrient potash, which has fallen this year to decade lows on oversupply and tumbling crop prices, is worth 10 percent of Agrium's EBITDA on average, but would account for 35 percent of the merged company's earnings before interest, taxes, depreciation and amortization.

    Agrium's farm retail business, currently worth 48 percent of EBITDA, would account for just 19 percent of the new company, a level that dismays shareholders like Michael Sprung.

    "We really liked the balance between retail (and) wholesale," said Sprung, president of Sprung Investment Management, of Agrium's existing business.

    He said he is considering whether to vote against the merger or sell his shares over concerns about prospects for potash.

    "We're not sure that the net benefit is there for Agrium," he said.

    Cidel Asset Management, also meeting with Agrium on Tuesday, is concerned about dilution of the retail business and that Potash investors would benefit from a higher dividend, said portfolio manager Robert Spafford.

    To be sure, creating a crop nutrient champion with almost triple the enterprise value of the next biggest fertilizer company, appeals to some.

    "Agrium gets the benefit of scale. In a fiercely competitive environmentthat gives them an advantage," said Mohsin Bashir, portfolio manager at Stone Asset Management, another Agrium investor. "They're getting a larger network when the price for potash is rock bottom."

    If either Agrium or Potash were to terminate the deal, the company backing out of the merger would pay a hefty $485 million break up fee.

    The penalty may discourage another suitor for Agrium, as would protectionist Canadian sentiment. In 2010, Ottawa blocked a foreign takeover approach for Potash Corp.
    Back to Top

    Precious Metals

    De Beers, partner officially open Gahcho Kué mine

    De Beers and its joint venture partner Mountain Province Diamonds have officially opened the Gahcho Kué diamond mine, in Canada, which will produce about 54-million carats of rough diamonds over its 12-year mine life.

    Gahcho Kué is the world’s largest new diamond mine to have been developed in the last 13 years and is located in theNorthwest Territories of Canada. It is De Beers’ third mine inCanada.

    The mine, which comprises three openpits, will employ about 530 full-time employees and is expected to reach full commercial operation in the first quarter of 2017.

    It cost about C$1-billion to build.

    The mine was opened officially by De Beers Groupchairperson and Anglo American CE Mark Cutifani, De Beers Group CEO Bruce Cleaver, De Beers Canada CEOKim Truter, Mountain Province Diamonds CEO Patrick Evans and representatives of First Nations and Metis communities in the Northwest Territories.

    “As millions of new consumers enter the middle classes in the coming years, consumer demand for diamond jewellery is set to see continued medium- to long-term growth. I’m therefore delighted with the official opening of Gahcho Kué, our largest ever mine outside of Southern Africa, as it will help to meet this increasing demand.

    “Allied to our major investments in production capacity expansion in the Southern African region, the opening of Gahcho Kué positions De Beers and its partners strongly to capitalise on the industry’s positive demand outlook,” commented Cleaver.

    Attached Files
    Back to Top

    Panaf registers record R300m payout, weighs new gold mine

    PAN African Gold (Panaf) is to pay its largest final dividend yet of R300m, a 42% increase on last year’s payout following a strong showing in its 2016 financial year in which gold output increased 16.5% to just over 200,000 ounces.

    The gold and coal group’s CEO, Cobus Loots, said the record dividend was acknowledgement of shareholders’ desire for an attractive payout and added that the firm had also reviewed its dividend policy.

    As a result, the company will recommend a payout ratio of 40% of net cash generated from operating activities after stay in business capital and capital for debt service.

    Panaf’s single largest shareholder is PAF Gold, (previously Shanduka Gold) which has a 22.5% stake. This follows a transaction in which Panaf bought a minority stake in Shanduka Gold – an effort informed by the need to preserve its black economic empowerment status following the merger of Shanduka Group with Pembani.

    Financially, Panaf reported full-year share earnings some 163% higher at 30.20 cents per share (2015: 11.48c/share). The figures were underpinned by a strong operational performance with increases in grades at Barberton Mines and especially at Evander Mines, up roughly a gram per tonne, ending its low grade intersections that had negatively affected the company.

    The Evander gold retreatment operations were at nameplate capacity whilst Uitkomst, a coal mine in KwaZulu-Natal province, also made a contribution to the bottom line.

    A one quarter increase in the dollar gold price, however, gave significant impetus to Pan African’s results and with the prospect of low interest rate and geopolitical uncertainty, the outlook remained solid for the group.

    Loots added that growth through acquisition remained a strategic goal as a result of its strong margins as it positioned “… the group to capitalise on potential acquisition opportunities”.

    The company has been weighing up a number of growth options including a surface gold mining project in Mpumalanga province known as Elikhulu.

    If approved the project could increase group output to 250,000 oz/year for the first eight years of its life, although Loots said in the past it requires a competitive capital number of about R1bn. The project was currently the subject of a definitive feasibility study by DRA with results of the study due by November.

    Speaking at the presentation of the group’s results today, Loots said Elikhulu would cost R1.7bn which he acknowledged was “significant”. However, relative to the firm’s market capitalisation, this was not a greater investment that at its BTRP facilities at its Barberton operations.

    “We have underwritten termsheets for the full amount [of the capital cost] from a number of financial institutions,” said Loots in respect of financing Elikhulu.

    Panaf also has expansion options at Evander including the so-called Evander 2010 pay channel which can be accessed through Evander Mines 7 shaft, previously worked by Harmony Gold.

    Surface drilling of the pay channel is underway although when Harmony stopped mining at 7 shaft it allowed for flooding of infrastructure to 18 level, the company said.

    Panaf said it was involved in a study of this expansion prospect with results also due November. “The 2010 pay channel may offer Evander Mines the possibility of establishing a new mine area without having to incur the cost of sinking a new shaft from surface,” it said.

    “During the next year we will also investigate further medium- to long-term underground production increases from sources such as 9 Shaft and projects such as Evander South at Evander Mines,” the company said.

    Loots said the company remained interested in merger and acquisition and had considered three gold operating companies in West Africa. “However, they didn’t meet our investment hurdles. We are quite conservative,” he said.
    Back to Top

    World’s top diamond producer Alrosa doesn’t like synthetics

    Russia’s Alrosa, the world's top diamond producer by output, is concerned about the increasing threat than cheaper man-made gems entering the supply chain represent to those who mine the real thing.

    Speaking to clients and partners at the September Hong Kong Jewellery & Gem fair, the company said it is becoming imperative for the industry to find effective ways to defend the market from illegal substitutions by synthetic gems that are passed off as real diamonds.

    While the diamond industry needs to protect itself from attempts to sell synthetic diamonds as natural ones, Alrosa doesn't want to start a battle between the two sides.

    “The basis [for protecting the diamond industry] is the disclosure of the information about diamond production and further movement of rough and polished diamonds to end consumers,” Galina Platonova, adviser to Alrosa’s President, told the audience.

    A critical aspect of this protection, she said, is to secure that consumers prefer natural diamond jewellery to mock alternatives, and to develop and manufacture devices to easily identify natural and synthetic polished diamonds.

    In recent years, diamond miners have seen the rise of man-made gems entering the supply chain with some producers accusing those synthetic stones of weighing in their reduced sales of late.

    Technological leaps have allowed companies to make larger numbers of gem-quality stones inexpensively, with traders able to attempt to pass them off as mined, or natural, diamonds.

    To avoid that increasing problem, Alrosa also said that is developing a series of programs aimed to highlight the value of Russian polished diamonds and to promote ALROSA’s brand.

    Attached Files
    Back to Top

    NUM joins AMCU in declaring platinum wage talks dispute

    Wage talks in the platinum sector look set to drag on into a third month after the National Union of Mineworkers (NUM) today announced a dispute with Anglo American Platinum (Amplats).

    The NUM joins rival the Association of Mineworkers & Construction Union (AMCU) which earlier this month declared a deadlock with Amplats as well as with Impala Platinum (Implats) and Lonmin.

    Wage talks officially opened on July 12 when AMCU met with representatives from Implats. The union was asking for a R12,500/month basic wage for entry level employees.

    The NUM said it had declared a wage dispute after talks with Amplats deadlocked. It is demanding an increase of 14.5% against an offer of 6.75% from Amplats.

    “The NUM view the offer by Anglo Platinum as an insult to thousands of helpless employees and the union has also observed the attitude by the company vehemently refusing to close the apartheid wage gap,” the union said in a statement.

    It said it remained “unshakeable” on its demands and criticised Amplats for alleged “dirty tactics”. A deadlock and dispute are the first steps towards strike action.

    AMCU led a five-and-a-half month strike in 2014 which cost the platinum sector about R20bn in lost wages. However, analysts believe there is less chance of a prolonged strike this time around.

    Producer price inflation is about 6%.

    Roger Baxter, CEO of the Chamber of Mines, said at a presentation today that cost increases over the last five years in the mining sector was out of hand.

    “There has been a 13% increase in the cost of diesel, 11% in reinforcing steel, and 11% in wages versus PPI of 6% so our inflation basket has been increasing at a much quicker pace than our competitors,” he said.

    “We need more effective problem-solving between business, government and labour. We have a hole in the canoe and we’re in the rapids. The waterfall that’s ahead of us is a ratings downgrade,” he added.

    Asked if AMCU members had the appetite for a lengthy strike in the event of not agreeing a wage deal, Mathunjwa said in July that: “We will give them [platinum companies] a strike if they demand it”.
    Back to Top

    Newmont's aggressive expansion plans

    Newmont Mining is on an aggressive investment (and divestment) program which could see it catapult the company to the top of gold production stakes.

    In a presentation at the Gold Forum in the city, Denver-based Newmont outlined projects that will add around 1 million ounces of gold to its portfolio and do so as soon as the middle of next year.

    The company sports one of the stronger balance sheets in the sector having embarked on a debt reduction program earlier than its rivals.

    Newmont sold its Indonesian operations for $1.3 billion at the end of June. The company says it's reinvesting the proceeds in the Merian mine in South America, the Cripple Creek & Victor gold mine in Colorado it bought last year and at Long Canyon, a Nevada oxide deposit it acquired in 2011.

    By doing so the company is doubling average mine life and pushing done all-in costs by$100 an ounce.

    With the release of its second quarter results Newmont also said unapproved projects "represent upside of between 200,000 and 300,000 ounces of gold production beginning in 2018."
    Back to Top

    Integra Gold Intersects 70.59 g/t Gold Over 12.7 m

    Press Release Highlights:

    Other results include 54.43 g/t gold ("Au") over 3.6 metres ("m") in C5 step-out drill hole and 68.97 g/t Au over 2.2 m in C4 structure infill drill hole (all results uncapped)
    Highest gold intercepts ever reported in C2 structure

    12.7 m (8.8 m estimated true thickness) intersection in drill hole TM-16-152 occurs 150 m below surface and is in close proximity to the planned route of the exploration decline now underway

    246 m of development completed in exploration decline as of Sept. 16, 2016
    5 drill rigs are currently active on the Lamaque Gold Project

    Integra Gold Corp. is pleased to announce additional assay results from its 2016 drill program on the Triangle deposit ("Triangle") situated on the Lamaque South Gold Project ("Lamaque") in Val-d'Or, Québec. Results continue to support internal gold zone continuity and lateral expansion potential with infill and step out drill holes intersecting significant high grade gold mineralization. Results announced today are from 16,950 m of drilling conducted in 2016 and assays are currently pending from an additional 40,400 m (133 drill holes) of diamond drilling at Triangle.

    "We are excited to have one of the best intersections ever drilled at Triangle located near surface and in an area of the deposit we will soon have access to via the exploration ramp now being constructed," commented Company President and CEO, Stephen de Jong. "In addition to the near surface success we are encouraged by the impressive growth potential the C5 structure is now exhibiting with mineralization over meaningful widths discovered in multiple drill holes beyond the limit of the previous resource estimate."

    Lots more:
    Back to Top

    Petra Diamonds expects up to 24 pct rise in 2017 production

    Petra Diamonds Ltd said it expected production to rise up to 24.3 percent in 2017 from a year earlier and grow further to hit 5 million carats (mcts) in 2018, a year earlier than expected.

    The diamond miner forecast production to rise to 4.4-4.6 mcts in the year ending June 30, 2017 from 3.7 mcts in the corresponding period a year earlier.

    Higher volumes at its joint venture with Kimberley Ekapa Mining in South Africa was helping boost total production, the company said.
    Back to Top

    World's gold miners stick close to home in hunt for more metal

    The world's biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money to explore around existing mines rather than new territory in a strategy that may have short-term gains but risks future production growth.

    Top producers are relying more than ever on small companies to do the heavy lifting of searching for new deposits and increasingly taking 10 to 20 percent equity stakes in the junior miners.

    Exploring close to home is more cost efficient and improves the odds of discoveries. But the chances of making major new finds are limited, diminishing global gold output, which is expected to decline by nearly 9 percent in the next three years.

    "It only makes sense to be looking in your own backyard first before exploring elsewhere," said Paul Rollinson, Chief Executive of Kinross Gold, which spends about 90 percent of its exploration budget around existing sites.

    "We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with."

    The world's 10 biggest gold miners are bumping up the share of exploration budgets earmarked for land around existing mines, or brownfield exploration, increasing the spending to 56 percent in 2015 from 45 percent in 2013.

    In the meantime, they curbed spending on greenfield exploration in new territory to 21 percent from 25 percent of their budgets, data from SNL Metals & Mining, a unit of S&P Global Market Intelligence, shows.

    "They say the best place to discover a mine is in the shadow of a headframe," atop mine shafts, said Maria Smirnova, portfolio manager at Sprott Asset Management.

    "The rate of failure in exploration is staggering, so it is always better to try and improve what you have already."


    Barrick Gold, the world's largest producer by output, looks to near-mine discoveries because plants and equipment are already in place and the deposit is well known, said its president, Kelvin Dushnisky.

    Finding affordable and reliable deposits became vital in the last three years as miners slashed spending amid a slump in gold prices. Miners have kept a lid on spending this year despite a partial recovery in bullion prices and income.

    Exploration spending by the world's 10 biggest gold miners, such as South Africa's AngloGold Ashanti, sank 37 percent to $1.075 billion between 2013 and 2015, the last year for which data is available, SNL Metals & Mining data shows.

    Newmont Mining the world's top gold miner by market valuation, cut its exploration budget by nearly 40 percent in 2013 and prioritized areas expected to deliver higher-margin ounces, said Chief Executive Gary Goldberg.

    "That's first of all around our existing operations," he said, adding that Newmont has earmarked about 80 percent of its approximately $200 million budget in 2016 for brownfield exploration.

    Longer-term, Newmont is eyeing Ethiopia, Cote d'Ivoire and Queensland, Australia for greenfield exploration, he said.

        "Any management team in the industry would consider brownfields expansions first," before committing to big new projects, given capital is still limited, said David J. Christensen, CEO of mining fund ASA Gold & Precious Metals.

    Goldcorp Chief Executive David Garofalo said there was little available to throw even that limited capital at.

    "We are a supply-challenged industry," he said. "We've had a very poor track record over the last few years of exploration success."

    Global gold mine production peaked in 2015 and is estimated to fall nearly 9 percent by 2018, to 2,903 tonnes, Thomson Reuters GFMS data shows.

    Big gold miners have always relied on small exploration companies for discoveries, acquiring them to access their big finds. But they are increasingly hedging their bets with 10-20 percent equity stakes in juniors, said RBC Capital Markets analyst Sam Crittenden in a report earlier this year.

    Barrick plans to be more active partnering with juniors going forward, Executive Vice President for Exploration and Growth, Rob Krcmarov, said in June.

    Mid-tier producer Agnico Eagle Mines, which has bucked the industry trend by boosting its drilling budget over the past five years, plans to continue investing in juniors even as it adds to its drilling budget.

    Agnico last week increased its gold estimate for its Amaruq project, a new deposit close to its existing Meadowbank mine in Canada's Arctic, by 13 percent to 3.71 million ounces.

    "Greenfields is tough. I think the general consensus amongst gold producers is that the real greenfields is best left to the juniors," said Chief Executive Sean Boyd.

    Attached Files
    Back to Top

    Base Metals

    Philippines to suspend over ten more mines in environmental crackdown: minister

    The Philippines will suspend more than 10 additional mines in an ongoing environmental crackdown on the sector but the announcement of who will be shut has been moved to Sept. 26, the minister in charge of mining said on Wednesday.

    Environment and Natural Resources Secretary Regina Lopez said more than 10 mines will "definitely" be suspended "because of the many violations."

    Other details, including the identities of those to be suspended, will be announced on Sept. 26, she said.
    Back to Top

    Court in China declares state-run metals firm bankrupt

    A court in southern China has formally declared bankrupt Guangxi Nonferrous Metals Group Co Ltd, an unlisted state-run metals producer that defaulted on a bond in February and missed a payment in April.

    The firm, which is owned by the Guangxi regional government, had failed to propose a court-ordered reorganization plan within a six month window, the intermediate court in Guangxi's capital Nanning ruled on Sept. 12 according to a statement posted online on Monday.

    As such, the restructuring period was brought to a close and the company was declared bankrupt, it said.

    Steel producers and metals smelters have been among the hardest hit of China's industrial firms amid a slowing economy and extended real estate downturn, which bottomed out in the second half of 2015 bolstered by government support measures.

    Calls to Guangxi Nonferrous were not answered.

    In April it missed a payment on a 500 million yuan ($77 million) three-year private placement note with a 5.56 percent coupon rated BB.

    The metals producer cited in the notice "consecutive losses and the fact that it has already entered bankruptcy reorganization procedures" as reasons for the missed payment.
    Back to Top

    China freezes Trafigura's investment in copper smelter as part of oil probe

    The Chinese authorities have frozen part of commodity trader Trafigura's investment in a Chinese copper smelter as part of a years-long probe into the Swiss firm's oil trading, according to documents from the police and banks reviewed by Reuters.

    In October last year, police in the northern Chinese city of Cangzhou, froze $32.9 million Trafigura Pte Ltd had injected into the metals project, a joint venture with Chinese metals producer Jinchuan Group Co Ltd in the southwestern city of Fangchenggang, documents dated Oct. 28, 2015 show.

    The documents were from the Cangzhou Police Bureau and a Bank of China branch in Fangchenggang, which authorized the move. The frozen funds represented just over a third of the $94.4 million investment Trafigura Pte Ltd had pledged.

    Investigators arrested Tian Meng, Trafigura's Beijing-based oil marketer in August 2014, following a complaint to police by private Chinese trader Qingdao United Energy, alleging it had lost $32 million from trade financing deals arranged by Tian without its knowledge.

    Tian was released on bail last month - without being charged - after more than two years in detention. Reuters couldn't reach Tian for comment.

    Trafigura declined to comment on the fund freeze. The Cangzhou Police Bureau and Cangzhou prosecutors' office declined comment. Jinchuan did not respond to requests for comment. Li Yixing, founder of Qingdao United Energy, said he was briefed by the police of the fund freeze, but declined to comment further.

    The events highlight the complexity of doing business in China, a key market for the Swiss merchant which deals in everything from oil to copper. Trafigura's investment in the smelter was seen as an important step for Trafigura in expanding its footprint in the copper concentrates and metal market in the world's top commodities consumer.

    Senior sources at Trafigura have repeatedly said the company believes the dispute is a commercial one and is not a matter for police or state prosecutors.

    The Fangchenggang smelter, in Guangxi province, is not connected to the trading being investigated.

    Senior industry sources said the freezing of Trafigura's investment should not have a material impact on the Swiss firm given it reported $97.2 billion in revenue and $2.6 billion of gross profit in 2015 as shown in Trafigura's annual report.

    The one-year freeze expires next month, the documents showed.

    Authorities also detained Li Bo, head of Trafigura's Beijing-based oil operation, in June 2015, as part of the investigation into the same case. Li was released later on bail last February and has not been charged.

    Police targeted Trafigura Pte Ltd because it was the counterparty of the Qingdao firm in the alleged trade financing deals, according to Qingdao United Energy's Li and another source with direct knowledge of the probe.
    Back to Top

    Zinc demand set to outpace production

    Global zinc demand growth is set to marginally outpace production growth between now and 2020, averaging 1.7% and 1.3%, respectively, advisory firm BMI Research said on Monday.

    Refined zinc production is slowing as weak prices and an ore shortage force major producers to curb output.

    “We expect global mined zinc output to drop by 6.8% year-on-year; as such, we forecast global output to decline slightly this year by 0.9% and remain muted at an average yearly growth rate of 1.8% between 2017 and 2020,” BMI noted.

    Further, it highlighted that China’s refined zinc output will fall by 2% to 6.1-million tons as the Chinese government continues to consolidate the sector and refiners start to feel the supply constraints.

    “Zinc refiners, particularly those in China, will scramble to secure zinc concentrates over the coming quarters, on the back of major producers implementing production cuts and two key mines coming offline permanently.”

    Zinc prices on the London Metal Exchange are expected to average $2 000/t for the next three months, implying prices will finish the year at around $2 130/t, the advisory firm said.

    “High-frequency data bolsters our view that the zinc price rally will fade over the coming months, despite maintaining a bullish long-term view.”

    Zinc prices had reached a floor of $1 500/t in January. “Zinc's year-to-date price gains of about 50% and clear outperformance among base metals will continue to be supported by strong fundamentals, namely a global ore shortage and production cuts,” BMI stated.

    It added that zinc would continue to test resistance at a key trendline around $2 300/t, although BMI does not expect it to break through quite yet, as a strong US dollar and tepid global demand growth cap prices.

    The company further forecast zinc prices to increase by a yearly average of 3.9% to 2020, following an average yearly contraction of 2.2% over the previous five-year period.

    Outside of China, other major zinc markets will see a 3% to 4% decline in output. South Korea and Japan will experience refined zinc output declines, owing to the global shortage and subdued prices.

    In contrast, India’s consumption was expected to increase from 690 000 t this year to 966 000 t by 2020, averaging growth of 9.6% a year.

    “The key downside risks to our price outlook include stronger-than-expected government support to maintain refined zinc production in China or producers restarting stalled capacity earlier than expected.

    “If local government lend further support to Chinese zinc smelters to avoid labour unrest and meet growth targets, China will prolong the global market oversupply.

    “Further, if improving zinc prices encourage producers to ramp up output rather than maintain planned cuts, the global market will remain oversupplied, keeping a lid on prices,” BMI said.
    Back to Top

    London tin market a small and shrinking space

    The London tin market is becoming increasingly prone to spread tightness.

    At one stage last week the London Metal Exchange (LME) cash price flared out to a $250-per tonne premium over the three-month price.

    It was the third time in a year the front part of the LME curve has contracted sharply and there may be more to come.

    LME inventory holds the key and right now it looks very depleted. Open tonnage, that which is available for the settlement of positions, touched a 12-year low of 2,705 tonnes earlier this month.

    It has recovered to a current 2,985 tonnes, albeit through movement of previously cancelled tonnage back into the open tonnage category rather than through fresh arrivals of metal.

    Low stocks can be seen in part as a sign of genuine supply pressures, particularly in Indonesia. Tin is the second best performer among the LME base metals pack this year, eclipsed only by zinc, another metal with an enticing bull narrative of market deficit.

    But there is also a sense that low LME stocks are a sign of a changing tin trading landscape, one in which the London exchange is shrinking even while the upstart Shanghai contract is growing.


    Providing the backdrop to last week's spreads spasm was a dominant long position holder.

    It is still there, holding 50-80 percent of available stocks and cash positions as of the close of business Wednesday.

    But given stocks are so low, that could translate into a position of just 1,500 tonnes at the lower end of that spectrum.

    Hardly the stuff of world domination, but enough to dominate the London tin market.

    Last week's flare-out in the cash premium should in theory have enticed more metal into LME sheds. So far none has shown up.

    Until it does, the small room that is the London tin market will feel ever more constricted.

    The LME's market positioning reports <0#LME-FBR> show both significant long and short position holders liberally sprinkled over the next three main monthly prompt dates, Sep. 21, Oct. 19 and Nov. 16.

    On the first of those, which under the LME's two-day prompt system will trade out on Monday, six shorts are jostling against five longs. In November nine shorts are facing off against four longs.

    That doesn't mean that all or indeed any of these positions will be physically settled but everyone will have to step very carefully if another spread spasm is going to be avoided.


    Low LME stocks are in part a manifestation of real-world supply issues.

    Indonesia is the largest supplier of the soldering metal to the rest of the world and its exports are on track to decline for the fourth consecutive year.

    At a cumulative 38,343 tonnes over the January-August period they are down 16 percent on last year and look on track to meet tin industry body ITRI's full-year forecast of 60,000-65,000 tonnes.

    As recently as 2012 Indonesia's exports were close to 100,000 tonnes.

    In the interim, repeated government crackdowns on the independent producers clustered on the islands of Bangka and Belitung, natural attrition of easily accessible resources and last year's low price environment have combined to deal a heavy blow to the country's operators.

    Indonesia's own energy and resources ministry reported in May that only 29 out of 47 audited smelters were still operational, according to ITRI.

    Long-term decline in the world's largest exporter is the core driver of tin's bull.

    Some short-term spice has been added by the closure of several big Chinese smelters for environmental audits and maintenance overhauls.

    However, this has not translated into any noticeable acceleration in net imports, which at 4,000 tonnes in the first seven months of this year were down by 26 percent on last year.

    If Chinese smelter outages are having an impact, it is evidently a drama playing out within the domestic not the international market-place.

    Indeed, the effect may simply be to help draw down local stocks which have accumulated thanks to the raw materials boost to China's smelters from the tin mining boom taking place just over the border in Myanmar.

    Myanmar's emergence as a major supplier is the bearish spectre hovering over tin's bull story of chronic supply shortfall.


    But when it comes to tin, what's made in China still largely stays in China thanks to a 10-percent export duty on exports of refined metal.

    And more of it is being drawn into warehouses registered with the Shanghai Futures Exchange (ShFE).

    The ShFe's tin contract hasn't attracted the same amount of attention as the nickel contract, which exploded into life when it was first launch in March last year.

    Tin, which started trading at the same time, has been more of a slow fuse affair but activity has picked up sharply this year.

    Volumes totaled 4.47 million lots in the first eight months, compared with 1.03 million in the March-December 2015 period.

    Open interest was 14,198 lots at the end of last month, up from 1,998 lots a year ago.

    As with the ShFE's nickel offering, rising trading liquidity has been accompanied by rising stocks liquidity.

    There are currently 3,633 tonnes of tin in ShFE warehouses and most of it, around 87 percent, is warranted.


    None of this metal is going to bring any relief to short position holders in London, where chronically low stocks risk translating into structural spread tightness.

    But those low stocks are a sign that the tin market is increasingly bipolar.

    While the world outside China is characterised by shortfall, China itself seems to have ample amounts of the stuff to the point that on current trends ShFE warehouses will soon hold more than LME ones.

    And on current trends Shanghai volumes will keep growing while LME volumes will keep shrinking. They have been falling every month since the start of 2015.

    This shrinkage is as much part of the London market's increasingly frequent bouts of tightness as underlying supply-demand dynamics.

    The small room is getting smaller and it's getting increasingly crowded.
    Back to Top

    Steel, Iron Ore and Coal

    Goldman lifts coal price view after frenzied rally on China's reform push

    Goldman Sachs has sharply raised its price forecasts for coking coal for the next two years, after this year's frenzied rally fueled by a shortage in China that should revive idled mines from Mozambique to the United States.

    China's push to tackle a coal glut by imposing a 276-day cap on domestic coal mines earlier this year created a significant deficit, lifting the country's coking coal imports by 18 percent over January to August. [MTL/CHINA9]

    The spot price of Australian premium hard coking coal has surged 164 percent this year to $206.40 a tonne on Thursday, making the commodity the best performing among those covered by Goldman.

    Goldman has increased its 2017 forecast for premium hard coking coal from Australia's Queensland by 64 percent to $135 a tonne. It raised its 2018 estimate by 47 percent to $125.

    "In our view, the impact of Chinese government policies on the global market will continue long after production volumes have recovered," Goldman analysts Christian Lelong and Callum Bruce said in a report.

    While Chinese policy makers will eventually have to relax production limits, supply-side reforms aimed at ensuring the survival of domestic miners should result in a higher equilibrium price for seaborne coal, they said.

    "The main beneficiaries of higher-than-expected seaborne demand are the United States, Australia and Mozambique."

    The resumption of idled U.S. mines is likely to boost export volumes and help reverse a multi-year drop, while higher prices should encourage a 22-million-tonne coal project in Moatize, Mozambique to be fully operational, the analysts said.

    Surging coal prices are prompting many Chinese steel mills to opt for higher grade iron ore to boost efficiency and use less coal, forcing suppliers of low-grade ore from India and Iran to offer deep discounts to attract buyers.
    Back to Top

    EU clears Vattenfall sale of German lignite assets to Czech EPH

    EU regulators cleared on Thursday Swedish utility Vattenfall's sale of German lignite power plants and coal mines in a deal that will see it divest some of the most polluting fossil fuel generation.

    The deal has whipped up controversy because the operations are being sold to a new operator rather than closed down. Environmentalists say lignite, the most carbon-intensive form of coal, should no longer be burnt.

    Vattenfall has said it will become one of the greenest utilities in Europe and is also planning to sell another coal asset in the next five years.

    The European Commission said it had found the sale to Czech energy group EPH and private equity group PPF Investments would not adversely affect competition in the relevant markets.

    Analysts say the economics of fossil fuel versus renewables have shifted as sources such as wind and solar become cheaper and the regulatory pressure mounts to scrap carbon-intensive coal.

    But many of those still supporting coal say it will have a role as backup for intermittent renewables for years to come and its life-time could be extended if technology to capture and bury emissions becomes commercially viable.

    EPH teamed up with Czech private equity group PPF Investments, to buy the lignite coal assets from Vattenfall for a nominal fee.

    EPH has said the assets were among Germany's most efficient lignite operations and would be among the last to closed without indicating when that might be.

    Once they are shut down, the owners will have to rehabilitate the area, which Vattenfall estimated would cost 1.4 billion euros. ($1.6 billion)

    A report from the Institute for Energy Economics and Financial analysis published on Thursday concluded that could be an underestimate and suggested an upper cost of 2.6 billion euros based on previous clean-up bill.

    EPH and PPF could still make a profit, especially as the price of pollution permits, stuck at around 4 euros a tonne , is very low.

    The Vattenfall sale demonstrates investors will continue in coal until there is regulatory certainty coal-fired generation must end, analysts say.

    "The EPH sale highlights the lack of clarity over the role of lignite, the dirtiest form of coal, in Europe, and the broader regulatory uncertainty over any phase-out," IEEFA analyst Gerard Wynn said.

    Attached Files
    Back to Top

    China's Baosteel details Wuhan deal to forge ArcelorMittal rival

    China's Baosteel Group fleshed out its plans to buy rival Wuhan to create the world's second-largest steelmaker behind ArcelorMittal on Thursday, part of Beijing’s effort to consolidate its fragmented steel industry.

    Earlier, the government gave the long-awaited deal its approval and in a detailed statement, Baosteel said it will buy Wuhan Steel at 2.56 yuan ($0.3839) per share by issuing new shares at 4.6 yuan per share, valuing Wuhan at 3 billion yuan.

    The new entity will be named China Baowu Steel Group, Baosteel Group's listed units Bayi Iron & Steel and Baosteel Packaging said in a filing.

    Based on 2015 capacity, the two companies will produce about 60 million tonnes a year, leapfrogging Hebei Iron and Steel into the top spot among China's steelmakers.

    Baoshan Iron & Steel, Baosteel Group's main listed unit, will issue new shares to shareholders of Wuhan Iron & Steel to absorb the company, a plan that is subject to government approval.

    The government wants 60 percent of national output to come from the top 10 steel makers by 2025, up from less than 40 percent now as well as to build 3 to 5 giant steel mills.

    The move is also part of Beijing's efforts to streamline its inefficient state-owned enterprises in industries from shipbuilding to materials and railways.

    The creation of Baowu Steel will cut to 103 the number of companies run directly by the central government, down from 111 at the start of the year, and the figure could eventually reach 40, state media have reported.

    Amid concerns about plunging profits, soaring debt and chronic inefficiency, China's reform program aims to eliminate duplication, waste and "cut-throat competition" between firms with nearly identical business structures.

    China's delayed merger of Angang and Benxi Steel would be next on the list of priorities, following the restructuring of Baoshan Iron and Steel and Wuhan Iron and Steel.
    Back to Top

    China's state planner to meet with coal industry on supply, prices

    China has called regulators and company executives from the country's major coal producing regions to an "urgent" meeting on Friday, the second in as many weeks as Beijing tries to overhaul the industry while maintaining supplies to major consumers.

    China is trying to cut inefficient coal production as part of efforts to reduce pollution and trim excess capacity. But tighter supplies and increased consumption during the summer have pushed up prices.

    In a letter dated Sept. 22 and seen by Reuters on Thursday, the National Development and Reform Commission (NDRC) scheduled the meeting in Beijing for regulators from China's top three coal producing regions, Shanxi and Shaanxi provinces and the autonomous region of Inner Mongolia.

    Executives from Shenhua Group Corp and ChinaCoal , along with the China Iron and Steel Association (CISA) and the China National Coal Association will also attend.

    Participants will discuss the industry's "latest problems" as well as supply and demand in the following months, it said.

    "We will study and analyse the latest outlook in coal production, transportation, demand, price and problems," the NDRC said.

    The NDRC did not repond to Reuters' calls seeking comment.

    It is not clear what will be decided at the meeting, but CISA sent a request to the NDRC earlier this month pleading for more supplies of coking coal used for steelmaking, according to a document seen by Reuters.

    The recent production cuts that are part of the NRDC's efforts to get rid of inefficient coal output have choked off supplies of raw material to domestic steelmakers.

    At an industry meeting two weeks ago, producers discussed increasing thermal coal output, partially reversing those cuts, but measures have so far not included coking coal.

    Friday's meeting comes just days after some major producers including Shenhua started ramping up output, putting up to 15 million tonnes of new supply each month on to the market.

    In its letter to the NDRC, CISA noted that coking coal prices have soared 20 percent in the past two months, while imports have climbed sharply.
    Back to Top

    Ex-limo firm, billionaires bet on iron-ore with mines, M&A

    The global iron-ore market is awash with supply and prices remain volatile, but a former Chinese limousine rental service and a billionaire New Zealand family are among producers and developers wagering new mines will be needed.

    Their focus is Western Australia, the industry heartland in the world’s top exporting nation, where there’s about A$10.5-billion ($7.9-billion) of possible or planned developments and a further A$1.9-billion committed to or under construction, according to state government data.

    Prices have steadied after three straight annual declines, advancing about 28% this year on improved steel demand in China, supported by construction and infrastructure spending, and as domestic output wanes, boosting imports. A surplus in the seaborne market will peak in 2017, with a deficit emerging by 2019 even as major projects including billionaire Gina Rinehart’s Roy Hill deliver new supply, according to RBC Capital Markets.

    “We missed the boom, when a lot of people made money – but we also missed the collapse,” said  Hendrianto Tee,business development director for Brockman Mining, which is targeting shipments in early 2018 from a planned 2.5-million metric ton-a-year mine. “We’ve kept working on it, and with some opportunities coming up, we’re taking advantage of that to move into production.”

    Hong Kong-based Brockman, which sold its limousine hire and airport transfer unit in 2013, joins a range of companies planning or studying projects or restarts in Australia, including BC Iron, Mount Gibson Iron and Iron Road. New Zealand’s Todd Corporation last month took control of Flinders Mines, which has a planned project in Western Australia with an estimated initial cost of A$800.

    Brockman, which changed its name from Wah Nam International Holdings in 2012 after  acquiring an Australianiron-ore producer, this year won a court ruling to secure potential access to a Pilbara railroad and in March signed an agreement for logistics services with Sydney-based Qube Holdings.

    The iron-ore developer is in talks over funding options for its proposed A$60-million Maverick project and negotiating access to Port Hedland’s Utah Point, Tee said. Constructionmay begin in the first quarter of 2017. Brockman insists Chinese domestic iron ore production will continue to decline, boosting the prospects for exporters.


    Brockman is targeting free-on-board costs of $35 a ton for Maverick, hoping to reap savings from lower contractor rates after commodities cratered to a 25-year low in January. The developer is also now able to use an existing road network totransport its ore, according to Tee. “At the current price, it’s a very good margin,” he said. Benchmark iron-ore rose 0.2% Wednesday to $55.87 a ton, according to Metal Bulletin data.

    Iron-ore for January delivery rose 3.3% to 412 yuan ($61.78) a ton on the Dalian Commodity Exchange at 4:11 pm inSydney, set for the biggest advance for a most-active contract since August 16.

    New Zealand’s billionaire Todd family, which has interests ranging from energy retailing to property, is studying development of the proposed A$2.8-billion Balla Ballainfrastructure project, which could be integrated with Flinders’ potential 25-million tons-a-year mine, according to filings.

    Todd sees the central Pilbara region as an attractive source of supply “if and when the conditions in the iron ore market recover and stabilise” to make its port, conveyor and railproject feasible, it said in a March exchange filing. The company declined to comment further on its plans.

    With iron ore trading more than 70% lower than its 2011 peak, others have instead chosen to mothball plans for newoperations. China’s Baosteel Group, the nation’s second-largest steelmaker, and partners in December halted a proposed A$6.8-billion iron-ore project in Australia.

    “The idea of new developments was totally quiet in the first half, until things started taking off and people got a feeling that the price might hold up for longer,” Tony Hespe,Sydney-based iron-ore industry director at researcher AME Group, said by phone.

    Small-sized developers need to remain wary, as the largest exporters could quickly raise low-cost supply to squeeze out new entrants, he said.
    Back to Top

    China's August ferroalloy output falls 9% on year to 3 mil mt: NBS

    China's August output of ferroalloys stood at 2.95 million mt, down 9% year on year, according to latest data from the National Bureau of Statistics.

    The August figure also was down 4.8% month on month.

    The report did not provide a breakdown on the export of the various ferroalloys. Some of the commonly exported ferroalloys include ferrosilicon, silicomanganese, ferrochrome, ferromolybdenum and ferrotungsten.

    Ferroalloys are used in the production of steels and alloys.

    Over January-August, output totaled 23.45 million mt, down 2% year on year.

    NBS updates its production figures without prior notice from time to time.

    Attached Files
    Back to Top

    Taiwan Taipower's move to buy more Indonesian thermal coal hits suppliers amid tightness

    Taiwanese utility Taiwan Power Company, or Taipower, has exercised its option to procure additional thermal coal cargoes this year under existing contracts, leaving Indonesian suppliers gasping amid supply tightness and a significant rise in prices in recent months, sources said this week.

    Taipower is seeking an additional volume of 8.4 million mt of Indonesian coal for delivery between the fourth quarter of 2016 and Q1 2017, a source at Taipower said.

    The utility plans to import 15 million mt of Indonesian thermal coal this year, up from about 14 million mt in 2015.

    Taipower's total coal requirement for 2016 is estimated at 28 million mt, which includes an additional 7 million mt from Australia, another major supplier to the utility.

    Some of the Indonesian thermal coal miners are struggling to cater to the utility's additional requirement under their term contracts for the year, sources said, adding that some of Taipower's suppliers are deferring Q4 shipments to Q1 2017. "Indonesian supply is way tighter than Australian coal. Most of the Indonesian suppliers said they cannot supply within the fourth quarter of 2016 so we had to extend [the shipping schedules]," the Taipower source said.

    "A stable supply and better price is what we were looking for," he added.

    The utility has exercised its option to procure additional tonnages as contracts awarded through tenders earlier this year were on a fixed price basis, said a major Indonesia-based producer source.

    Thermal coal prices have seen a significant rebound so far in the latter half of this year amid supply tightness in Indonesia as well as the return of Chinese demand for seaborne cargoes due to a cut in domestic supply.

    The price of 5,000 kcal/kg GAR coal has surged 32% since the start of the year, S&P Global Platts data showed.

    Some of the miners involved in this contract are impacted "pretty badly," the Indonesian producer source added, with some term suppliers heard having had to lower their spot supply to meet their contractual obligations to Taipower.

    The Taiwanese utility is finding it difficult to get offers in the spot market, another Indonesian producer said.

    He said that his company has to supply an additional 10%-20% of the annual requirement of 1 million mt in Q4 2016.

    "Even though this volume is not huge, it is still big now especially when people are chasing tons. Even 200,000-250,000 mt matter these days," he added. "We do not have any shipments to offer for the rest of the year [in the spot market] as we have to fulfill the additional volume requirement from Taipower," said a third Indonesia-based producer.

    He said he has to supply an additional volume of 400,000 mt during August to December 2016 over and above the 800,000 mt he is obligated to supply to the utility.

    "The contract price is relatively cheaper. Probably [Taipower] had some spot requirement so they exercised the additional volume option," he added.

    The company plans to import 30 million mt of thermal coal in 2017 and Indonesian coal is seen catering to nearly 60% of that requirement.
    Back to Top

    Shenhua approved to boost output from Sept, report

    China's coal giant Shenhua Group has been approved to increase production from September this year, in a bid to curb fast rise of domestic coal prices caused mainly by persisting tight supply, the China Securities Journal reported on September 21, citing an anonymous source.

    14 coal mines of the company were allowed to boost output by combined 2.79 million tonnes a month, the report said.

    The move followed a meeting earlier this month to draw up a draft proposal that would allow miners to raise daily output up to 500,000 tonnes, or 15 million tonnes a month, if prices hit 500 yuan/t ($74.94/t) for two weeks.

    The latest Bohai Rim index, on which the production adjustments are based, put 5,500 Kcal/kg NAR coal at 554 yuan/t, up from 537 yuan/t a week ago.

    Some mines under Inner Mongolia Yitai Group and Huadian Group were also given the green light to increase coal output as the latest coal price increased to 537 yuan per tonnes from 515 yuan two weeks ago, the report said, without elaborating on details.

    This would and likely stall a sharp thermal coal price rally, which has seen Asian benchmark Australian prices soar by over 50% this year to $73.9/t, showed the globalCOAL index.

    In addition, supply of coking coal continued to be tight in domestic market, with stocks staying low at steel mills. The China Iron and Steel Association has recently proposed the National Development and Reform Commission to ask miners to boost supply and honor contracts so as to guarantee normal steel production.

    China's coking coal prices have been spiking in recent two months, with prices of main varieties up 100-150 yuan/t or over 20%. The price of Australian premium coking coal was more than doubled to $178.5/t FOB on September 21, compared with $86.2/t at the end of June.
    Back to Top

    China's steel demand seen shrinking for a third straight year -CISA

    China's steel demand is likely to drop for a third year in a row, an industry official said on Thursday, as mills in the world's top producer focus on reducing capacity.

    China's crude steel consumption slipped 1.9 percent over January to July and there may be a slight drop for the year, said Wang Liqun, vice chairman of the China Iron and Steel Association (CISA).

    "For the whole year, the rate of decline may be smaller," Wang said on the sidelines of an industry conference.

    Driven by a drop in China's steel inventory levels amid shutdowns in the past year, steel prices have rallied more than 40 percent from end-May to mid-August, but have since fallen back as output recovered.

    The price rally helped boost steel margins among member mills of CISA, which includes major producers such as Baoshan Iron and Steel (Baosteel).

    On average, profit margins among mills stood at around 1 percent in January-July, Wang said. Data from Baosteel shows margins were at minus 2.2 percent for China's large and medium-sized steel mills last year.

    For the rest of 2016, it would be very difficult for the margin to rise further "but if we can keep it at 1 percent it would be very good", CISA's Wang said.

    Ji Chao, assistant to Baosteel's president, said the market needs to "get used to this new scenario of slower, steady growth in demand".

    At the moment, the priority for China's biggest listed steelmaker is to reduce capacity, in line with Beijing's efforts to tackle a chronic glut, Ji said at the conference.

    Baosteel has pledged to cut its production capacity by 9.2 million tonnes in three years. It is also taking over loss-making Wuhan Iron and Steel to create the world's No. 2 steelmaker as part of Beijing's push to overhaul the stricken industry.

    Faced with global anger from Asia to the United States and Europe over a flood of cheap Chinese steel products, Beijing has promised to cut steel capacity this year by 45 million tonnes and by 100-150 million tonnes over five years.

    By the end of July, China had only achieved 47 percent of its 2016 target and steel exports in the first eight months had risen 6.3 percent from a year ago to 76.35 million tonnes.

    The consolidation and capacity cuts in China's steel sector are meant to strengthen the competitiveness of domestic producers and should not just be a matter of meeting target numbers, said Wang.
    Back to Top

    Ontario strikes deal with Bedrock to restructure U.S. Steel Canada

    The province of Ontario said on Wednesday that it has signed an agreement with equity fund Bedrock Industries LP to restructure U.S. Steel Canada, but the deal still requires approval from other stakeholders and a Canadian court.

    The plan, in a memorandum of understanding, must still be accepted by U.S. Steel Canada, which has been in creditor protection since September 2014, and the court supervising the company's credit protection proceeding, Ontario's government said in a statement.

    Bedrock, a private equity fund focused on metals, mining and natural resources, must also complete negotiations for new collective agreements for workers at Hamilton and Nanticoke facilities for the deal to proceed, said the United Steelworkers union.

    Under the agreement, Bedrock will purchase and continue operating U.S. Steel Canada's plants in Hamilton and Nanticoke, said the union, which has been briefed on the agreement.

    The province, which made loans to former U.S. Steel Canada parent United States Steel Corp (X.N), said terms of the agreement are confidential.

    U.S. Steel Canada employs nearly 2,000 workers in Ontario and has the capacity to produce 2.6 million tons of steel annually.

    "The deal announced today is far from perfect, given the challenges that arise from such a lengthy and complex insolvency process," said United Steelworkers Ontario director Marty Warren, in a statement. "However, we believe this could lead to a good final deal for the union's members and retirees."

    William Aziz, U.S. Steel Canada's chief restructuring officer, said the company welcomed the "constructive engagement."

    In early August, U.S. Steel Canada rejected a buyout offer from Ontario Steel Investments, a group including shareholders of Essar Global. It said that Essar, an Indian energy and resources conglomerate, failed to demonstrate its financial ability to own and operate the company and did not gain support from all stakeholders.

    That offer included the assumption of C$954 million ($722.51 million) in liabilities under U.S. Steel Canada's pension plan and a commitment of C$25 million for post-employment benefits for U.S. Steel Canada's staff.

    Attached Files
    Back to Top

    China Focus: China deepens steel industry restructuring

    For employees of Wuhan Iron and Steel Group, the company's merger plan, announced Tuesday, means the end of the 58-year-old steel mill, the first to be built after New China was founded in 1949.

    According to the Shanghai bourse, Baosteel Group will provide existing shareholders of Wuhan Iron and Steel with stock compensation.

    Wuhan Iron and Steel was China's first special steel maker when it started production in 1958. In 2015, 25.7 million tonnes of crude steel rolled off its production lines, ranking it sixth among the nation's steel makers.

    However, its listed arm posted a net loss of 7.5 billion yuan (1.1 billion U.S. dollars) in 2015, with a total debt of 70 billion yuan.

    Under the merger plan, Baosteel will acquire the production arm of Wuhan Iron and Steel. While, Wuhan Iron and Steel Group will retain all non-steel business.

    Those that work at Wuhan Iron and Steel generally welcomed the merger plan, as Baosteel is known to be well managed.

    "The merger is a market-oriented operation driven by a need to restructure rather than a mandated move to overhaul the lumbering production," said Zhang Chunxiao, a professor with the Chinese Academy of Governance.

    He said the new entity after the merger would have more incentive to integrate its market resources, which could lower costs in the upcoming steel production cut.

    China plans to cut its steel production capacity by 150 million tonnes by 2020, according to a government plan unveiled February.

    The combined production capacity of the two firms was 60.7 million tonnes last year, which would make the new entity the world's second biggest producer by capacity -- behind ArcelorMittal.

    "Being the world's second largest steel maker is not the most important thing. The merger will coordinate various aspects of the business, such as logistics and R&D," said Chen Derong, president of Baosteel.

    Baosteel has vowed to cut its steel production by 9.2 million tonnes between 2016 and 2018.

    He said production upgrading is the priority in the restructuring drive.

    The merger is a milestone in China's steel industry restructuring. It aims to improve efficiency through reshuffles to form a dozen powerful steel mills with advanced steel making technology. Following this merger plan, more restructuring of steel makers is expected. Next on the agenda is the restructuring of Ansteel and Benxi Steel Group, both steel giants based in the northeastern province of Liaoning.

    Attached Files
    Back to Top

    Brazil’s looming wet season poses new Samarco risks, BHP warns

    BHP Billiton, the world’s biggest miner, warns Brazil’s impending wet season may result in further environmental damage due to the failed Samarco dam, carrying the risk of new fines and legal claims.

    Work is underway to reinforce dam structures to help contain tailings as the November-to-April rainy season arrives inBrazil, BHP said Wednesday in its annual report. New releases or movement of tailings could result in further harm to the environment and have an effect on the feasibility and timing of a restart of the Samarco joint venture, it said.

    “A large portion of the works are scheduled to be completed before the next wet season commences,” BHP said in its report. “The potential nonetheless remains for further release, or downstream movement, of tailings material during this season, which may result in additional claims, fines and proceedings.”

    At least 19 people were killed and 700 people made homeless when a tailings dam failed last November at Samarco inBrazil’s Minas Gerais state, an incident described by authorities as the country’s worst-ever environmentaldisaster.

    BHP and joint Samarco owner Brazil’s Vale SA said in July they would book charges totaling more than $2-billion related to cleanup work. Total potential liabilities related to legal proceedings and enforcement actions “cannot be reliably estimated at this time,” BHP said in its report. The Samarco joint venture has been named in more than 23 000 small claims in addition to public civil claims made by federal and regional authorities in Brazil, it said.

    Vale regards a restart of Samarco operations as likely by the end of next year, head of ferrous minerals Peter Poppingasaid in an interview this month.
    Back to Top

    Shanxi Coking Coal further raises September prices

    Shanxi Coking Coal Group, China's top producer of the steelmaking material, decided to further raise washed coking coal prices transported by railways by 50-95 yuan/t ($7.50/t-$14.24/t), effective September 21, after a price hike on September 1.

    Coking coal prices were on a rise in September, supported by robust demand from coke and especially steel producers who tried to boost steel output amid resilient market and build up stocks ahead of a cold winter.

    The state-owned company raised washed coal prices of Tunlan, Xiqu, Jiexiu, Liuwan, Shuiyu and Zhongxing mines by 90 yuan/t, that of Lishi by 95 yuan/t, and washed coal price of Zhanglan mine by 85 yuan/t.

    While for washed fat coal produced in Zhenchengdi, Malan, Shuangliu, Yixing and Shuguang mines, prices will rise by 95 yuan/t. The group raised prices of washed fat coal of Xinzhi and Liyazhuang mines by 80 yuan/t, and those of Bailong and Zhaocheng mines by 85 yuan/t.

    Shanxi Coking Coal Group adjusted up its washed lean coal price by 50 yuan/t, washed 1/3 coking coal price by 70 yuan/t in northern Shanxi and 80 yuan/t in other part of the province, and washed gas coal by 50 yuan/t.

    Besides, the company lifted up the washed thermal coal price of Yumengou mine by 50 yuan/t, and that of Liangdu mine by 30 yuan/t.

    Attached Files
    Back to Top

    China Benxi Steel no longer in stake auction list amid talk of merger

    China's Benxi Iron and Steel Group is no longer part of an auction to sell stakes in state-owned firms to strategic investors, an official list shows, amid rumours that a long postponed merger with local rival Anshan Iron and Steel (Angang) is set to resume.

    The Liaoning Shenyang United Assets and Equity Exchange, a government-backed investment platform, said last month that stakes in nine government-run enterprises would be put up for sale to help promote mixed ownership, one of the main goals of China's ambitious reform programme for state-owned firms. Benxi Steel was one of the nine firms, according to the exchange's notice.

    But Benxi Steel, one of China's oldest mills, is not part of the auction list anymore, according to a revised list of participants released by the exchange on its website. (

    Chi Jingdong, the vice secretary general of the China Iron and Steel Association (CISA), said on Monday that Benxi Steel's merger with Angang would be next on the list of priorities following the restructuring of Baoshan Iron and Steel and Wuhan Iron and Steel.

    "I can tell you today that the next merger target promoted by the state is the Anben merger," he said. "Research will begin immediately and we will know by the end of the year."

    Benxi Steel could not immediately be reached for comment, but the listed unit of the Angang Group, Angang Steel , said on Tuesday that it had no knowledge of any new plans to restructure the two firms.

    The proposal to merge the two northeast Chinese steel firms appeared as early as 2005, but negotiations soon foundered as a result of bureaucratic complications and concerns that it would cause damaging job and revenue losses in the city of Benxi.

    Benxi Iron and Steel has total assets of 141 billion yuan ($21.14 billion) and liabilities of 105.6 billion yuan, a liability-to-asset ratio of 75 percent. It made losses of 7.95 billion yuan in 2015, according to the Shenyang exchange.

    China's five-year plan for the steel industry published in 2011 said that 60 percent of the country's total steel output should be controlled by the 10 biggest firms by 2015, but the rate actually fell to 34.2 percent, down from 48.6 percent in 2010, with officials blaming stiff competition from small private producers for the failure. China now aims to reach the 60 percent threshold by 2025.

    Attached Files
    Back to Top

    Indian government plans to phase out aged coal-based plants: source

    The Indian government is planning to phase out coal-based power plants that are more than 25 years old and are inefficient in order to reduce carbon emissions, a Central Electricity Authority (CEA) source said Tuesday.

    Power plants with capacity of around 30,000 MW that burn around 100 million mt/year of coal are likely to be retired in a phased manner, the source said.

    A committee has been formed that will hold consultations with state governments and will formulate a list by December of the plants that need to be closed down, he said.

    The Ministry of Environment, Forest and Climate Change recently issued new emission regulations for coal-based power plants, which will become effective from January 1, 2017.

    Sources said around 6,000 MW of capacity is expected to be shut down in a first round by March 2017.

    According to the CEA source, the coal linkages of these old plants could be used for new capacity.

    However, he said there is already adequate coal production by state-run Coal India Limited and power plants are running at 60% of the plant load factor because of low power demand.

    The government is also focusing more on non-conventional sources of power generation at the expense of coal-based power capacity, he said.

    Coal currently accounts for around 62% of India's total power generation, according to CEA data.

    A Mumbai-based power sector analyst said coal-fired generation is likely to remain the mainstay of the Indian power generation mix as the country needs cheaper power to fuel its industrial growth and renewables will only be part of the mix alongside coal-fired generation.

    Attached Files
    Back to Top

    China's major coal producers start raising output -media

    Major Chinese coal producers have started raising production, the China Securities Journal reported on Wednesday, potentially unleashing 11 million tonnes of new supply each month onto the market and derailing the meteoric rally in Asian prices.

    The move followed a meeting earlier this month to draw up a draft proposal that would allow miner to raise daily output by 500,000 tonnes if prices hit 500 yuan ($74.94) per tonne for two weeks. China's coal production this year may drop to between 3.15 to 3.35 billion tonnes, down by 6 to 12 percent from a year ago, said two coal analysts, who declined to be named because they are not authorized to speak to the media.

    The China steel industrial association sent a request to increase the coking coal supply to the National Development and Reform Commission (NDRC) on Sept. 4, according to a document seen by Reuters.

    "Some smaller mines have furtively added production since August, the agreement is a big push. We see the (coal) shortage at 1 million tonnes a day, double the increases (set at the meeting)", said one of the coal analysts.

    Major coal producers, including Shenhua Group Corp , Inner Mongolia Yitai Coal Corp and Huadian Coal Industrial Group were allowed to raise production as the latest coal price increased to 537 yuan per tonnes, up from 515 yuan two weeks ago, the Securities Journal said, citing an unnamed official.

    China's biggest coal producer Shenhua Group has been given the green light to increase output by 2.79 million tonnes a month from 14 mines, said the paper.

    The companies involved did not respond to requests for comment.

    Traders said that the moves, which partially reverse government efforts to cut excess capacity, would likely end, or at least interrupt, a sharp thermal coal price rally which has seen Asian benchmark Australian physical prices soar by almost 50 percent this year.

    "China gives, and China takes. First, they push up prices by capping mining output, now they will pull down prices by raising output," said one coal trader with a merchant house.

    Australia's Macquarie bank this week sharply raised its thermal coal price forecasts through to 2018 as a result of China's capacity cuts announced in April.
    Back to Top

    Banks in Shanxi boost funding to coal firms by 23pct

    Banking institutions in northern China's Shanxi province have underwritten or bought 38 billion yuan in corporate bonds from coal companies so far in 2016 versus last year, bringing total funding for the sector to 206.5 billion yuan ($31 billion), the Shanxi branch of China's banking regulator said in a press release on September 20.

    It aims to boost funding to coal firms in the province via underwriting or purchases of corporate bonds by 23% since the start of the year, according to the statement.

    Heavy industries such as coal and steel have languished in China due to an industry downturn, and the companies are under pressure from the central government to cut excess capacity by shutting down mines and plants.

    While banks have grown wary of lending to the two sectors, the China Banking Regulatory Commission (CBRC), the country's banking regulator, has given lenders some latitude to manage their lending.

    The industry ministry has also said China would provide 100 billion yuan this year to help handle layoffs. Shanxi has awarded 947.78 million yuan to six major coal enterprises this year for shutting down surplus capacity, according to a statement previously released by Shanxi Finance Bureau.

    The capacity cuts in coal industry do not have a great impact on the province's banks, said Wang Zhigang, vice president of the provincial banking regulator on September 20.
    Back to Top

    SDIC aims to shut 1.353 GW coal-fired capacity over 2016-2020

    State Power Investment Corporation (SDIC), a giant energy company in China, aims to close 1.353 GW coal-fired power capacity involving 23 generating units during the 13th Five-Year Plan period (2016-2020), in response to the government-led supply-side reform and de-capacity drive, president Wang Binghua told media recently.

    The company also resolves to eliminate 2.4 Mtpa coal capacity this year, and altogether 4.8 Mtpa coal capacity from 2016-2020 through closure of eight mines in Guizhou with 3.3 Mtpa capacity and two mines in Xinjiang with 1.5 Mtpa capacity, he said.

    SDIC is the only conglomerate in China owning coal, coal-fired power, wind power, nuclear power and new energy businesses.
    Back to Top

    India's Adani buys Australian port operator from Glencore

    A unit of India's Adani Enterprises Ltd will buy the company that operates Australia's Abbot Point Coal Terminal from Glencore Plc for A$19.25 million dollars ($14.52 million), ending a legal wrangle over control of the port.

    The statement from Adani and Glencore said Adani Ports and Special Economic Zone would purchase the port operator, Abbot Point BulkCoal Pty Ltd, pending regulatory approvals.

    Adani Enterprises, India's biggest private sector coal trader, acquired the Abbot Point Coal Terminal port from the Queensland government in 2011, considering it a key part of its plan to ship coal from Australia to India and for other exports.

    However, Glencore retained control of the actual operations of the port through its ownership of Abbot Point BulkCoal, sparking a legal dispute between the global miner and Adani that effectively will now end as the Indian company will assume full control of the port.

    Adani Australia CEO Jeyakumar Janakaraj called the deal "a key milestone in our well advanced plans for Abbot Point," according to the joint statement by the two companies.
    Back to Top

    China Baosteel's takeover of Wuhan to create world's No. 2 steelmaker

    China's Baosteel Iron and Steel will acquire its smaller debt-laden rival, Wuhan Iron and Steel, in a deal that will create the world's second-largest steel producer as part of Beijing's push to overhaul the stricken industry.

    In a statement on Tuesday offering the first details of the long-anticipated deal, Wuhan said Baosteel will issue new shares to its shareholders to absorb the company. The proposal, which had previously been touted as a merger, is still subject to government approval.

    Based on 2015 capacity, the two companies will produce about 60 million tonnes a year, leapfrogging Hebei Iron and Steel into the top spot among China's steelmakers.

    First announced in June, the plan to combine the two state-owned enterprises is part of the Chinese government's push to consolidate its vast, fragmented steel industry to remove excess capacity.

    How the final agreement looks may offer a blueprint for other similar proposals announced in recent months, including a merger of Anshan Steel and Benxi Steel.

    "This is part of the government’s efforts to push through supply-side reform and will have a model effect for the new round of mergers and acquisitions," said Hu Yanping, an analyst with industry website

    Luxembourg-based ArcelorMittal SA is the world's biggest steelmaker by capacity.

    While China wants to boost efficiency in its steel industry, Baosteel faces the tough task of integrating its loss-making competitor.

    "Baosteel is a profitable company and Wuhan is heavily indebted and just needs someone to save it," said Richard Lu, an analyst at CRU consultancy in Beijing.
    Back to Top

    Sinosteel debt-to-equity swap plan approved - report

    China's state-owned metals trader Sinosteel will be permitted to swap 27 billion yuan ($4.05 billion) of debt into equity convertible bonds, the online financial magazine Caixin reported on Tuesday citing anonymous sources.

    It marks the first swap this year under a wider debt-to-equity swap programme mooted by policymakers as one solution to reducing China's corporate debt overhang.

    Policymakers hope the swap plan will help clean up a bad debt problem that is increasingly worrying global investors amid warnings that a banking crisis is looming.

    Debt has emerged as one of China's biggest challenges, with the country's total load rising to 250 percent of GDP last year. At about 145 percent of GDP, corporate debt "is high by any measure", China IMF Mission Chief for China James Daniel said in the fund's annual review of China in August.

    China's vast state-owned sector had accumulated total liabilities of 83.74 trillion yuan by the end of July, up 17.6 percent on the year and representing 66.2 percent of total assets, official data showed.

    Caixin said Sinosteel's 27 billion yuan swap plan would represent nearly half of the 60 billion yuan of debt owed directly to financial institutions. That debt would be changed into convertible bonds, which could be exchanged for equity in the company at a later date.

    Officials at Sinosteel could not be immediately reached for comment.

    Sinosteel would set up a special subsidiary to handle the conversions, which would also receive a 10 billion yuan capital injection from a Chinese central government body responsible for managing state-owned assets, the magazine said.

    The remaining debt would still need to be repaid but at a low interest rate of around 3 percent, Caixin said.

    The publication had previously reported that Sinosteel and its subsidiaries had more than 100 billion yuan of debt at the end of 2014.

    In October 2015, Sinosteel asked bondholders not to exercise an early redemption option on one of its bonds maturing in 2017 as the firm would not be able to make full payment.


    China has floated plans to introduce more market tools for managing the country's rising debt load, including credit default swaps and debt securitisation.

    In March, Reuters reported that Chinese policymakers were planning a debt-to-equity swap programme that would convert some non-performing bank debt into equity. It was later confirmed by regulators.

    Officials have insisted the programme would be used to restructure competitive companies suffering temporary operational challenges, and would not prop up so-called "zombie enterprises", those that would not survive without life support from local banks and governments.

    China experimented with debt-to-equity swaps in the late 1990s as part of sweeping reforms to the state sector that led to around 28 million layoffs over five years. But experts said the programme created perverse incentives and made state-owned firms less willing to find ways to pay back debts.

    Wang Hongzhang, chairman of the China Construction Bank , one of the country's biggest banks, warned earlier this year there was a danger the programme would simply convert "bad debt into bad equity".

    Caixin reported on Monday that some of the liabilities of another debt-stricken steel conglomerate, the Tianjin-based Bohai Steel Group, would be converted into bonds as part of a proposed rescue plan for the firm.

    It owes 192 billion yuan to 105 creditors, and Caixin quoted an unidentified banker as saying that the proposals could lead to bank losses of at least 60 billion yuan.

    Xie Duo, head of the China Interbank Market Trade Association, told a forum at the end of August that China's previous debt-to-equity swap programme "played a positive role" in the restructuring the country's economy, but it also posed risks.

    "If used improperly, the simplistic implementation of asset restructuring by sacrificing the interests of creditors is not in accordance with the rules of development," he said.

    Attached Files
    Back to Top

    Ten large groups to contribute over 60% of China's steel capacity, CISA

    Ten large steel groups will be responsible for 60-70% of China's total steelmaking capacity by 2025, including three or four firms each with capacity of 80 million tonnes per annum (Mtpa) and six to eight companies each with capacity of 40 Mtpa, said Chi Jingdong, vice president of China Iron and Steel Association (CISA), on September 19.

    To fulfill the target, China will focus on elimination of surplus capacity in steel industry while introducing preliminary regrouping policies over 2016-2018, and further improve these policies over 2018-2020, and then massively promote regroupings over 2020-2025, Chi said.  

    Wuhan Iron and Steel Group said in an interim statement that it planned to reorganize the assets of its iron and steel business with one of its rivals Baoshan Iron and Steel Group. The companies are large, state-owned steelmakers that could form the backbone of the steel industry in southern China.

    The plan, contributing to higher competitiveness of both companies and less unhealthy competition between them, also marks a key part of the country's SOE reform, as the government has identified it as an essential step in the structural transformation of China's economy.

    Chi also pointed out the regional imbalance and structural issues of China's steel industry. Data from the National Bureau of Statistics showed that steel production in southern China stayed at a high level in the past seven months this year, while that in northwestern and northeastern China was on the decline.

    It further calls for restructurings while mergers of steel firms are pushed ahead, and various factors that may bring influences should be taken into account, he added.
    Back to Top

    Tokyo Steel cuts October prices by up to 13 pct amid soft demand

    Tokyo Steel Manufacturing Co Ltd , Japan's top electric arc furnace steelmaker, said it would slash prices of its products for October delivery by up to 13 percent to reflect soft local demand and weakening overseas prices.

    The company will cut prices by between 3,000 yen to 7,000 yen ($29 to $69) per tonne, it said in a press briefing on Tuesday. That is between 4 percent and 13 percent, Reuters calculations show.

    This is Toyko Steel's first across-the-board cut in seven months and comes five months after the company's attempt to bolster product prices.

    Tokyo Steel's pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which export to Japan.

    Prices for the company's main product, H-shaped beams, which are used in construction, will fall by 7,000 yen, or 10 percent, to 65,000 yen ($638) per tonne in October. Prices for steel bars, including rebar, will drop by 7,000 yen, or 13 percent, to 47,000 yen a tonne.

    "The price cut is to reflect the current market condition and to send a signal to the market that the prices will be bottoming out next month," Tokyo Steel's Managing Director Kiyoshi Imamura told reporters.

    "We had expected to see a pick-up in local demand this year, but the delay in construction projects for the 2020 Summer Olympic Games and redevelopment works in the Tokyo metropolitan area has slowed a demand recovery," Imamura said.

    Export demand is also under pressure, he said, due to cheaper export prices from Chinese mills.

    "Basically, oversupply from China has not changed."
    Back to Top

    China Aug coke output rises 5pct on year

    China produced 39.13 million tonnes of coke in August, rising 4.9% from July and 5.0% compared to the same month last year, showed data from the National Bureau of Statistics.

    Total coke output over January-August dropped 2.7% on year to 292.38 million tonnes, data showed.

    In August, China's coke producers boosted coke output, in response to rising prices and good sales in the domestic market, supported by robust demand from steel makers and tight supply amid pressure from environmental authorities.
    Back to Top

    Hebei private steel makers report robust profit rise

    Private steel makers of North China's Hebei Province, home to a quarter of China's steel manufacturing, posted a total profit of 17.11 billion yuan ($2.56 billion) over January to July, soaring 282.95%, according to the Hebei Metallurgical Industry Association.

    Over the period, the top 10 private steel producers by profit realized profits above 540 million yuan, with average profits above 183 yuan/t.

    Among these enterprises, Jinxi Group ranked first with a profit of 1.38 billion yuan; while the largest average profit was reported by Delong Steel at 347 yuan/t.

    In the first six months, the profit of Hebei's steel industry totaled 15.01 billion yuan, surging 181.35% on year, with the profit margin stood at 3.02%, the association said on September 17.

    63 of the 78 steel producers surveyed in Hebei were in profit during the period, increasing 15.39% year on year.

    According to Song Jijun, deputy head of the association, a restorative rebound after the price plunge contributed to the remarkable growth this year.

    Though Hebei's steel output rose on the year entering 2016, the total revenue declined, indicating a lower price compared to last year, due to serious overcapacity and sluggish demand amid a slowing economy, Song said.

    The province, home to seven of China's top 10 most polluted cities, plans to cut 49.89 Mtpa (million tonnes per annual) of iron capacity, 49.13 Mtpa of steel capacity and 51.03 Mtpa of coal capacity over 2016-2020.
    Back to Top

    Coal India Q1 net profit falls in FY 2016-17

    Coal India posted a 14.7% dip in net profit during the first quarter of fiscal year 2016-17 (April-March) on the back of a near 6% fall in income from operations.

    The company reported Rs 3,065.26 crore ($457 million) net profit for the period against Rs 3,596.92 crore in the previous corresponding period.

    During April-June this year, the company produced 125.67 million tonnes of coal, a 3.5% growth year on year. Sales during the period also soared to 133.24 million tonnes from 129.39 million tonnes in the corresponding period last year, up nearly 3% year on year.

    Despite a growth in coal production and offtake, the Maharatna company's net sales during the quarter fell 6.12% on year to Rs17,796.05 crore from Rs 18,955.75 crore in the same period a year ago, according to a stock exchange filing. Its total income from operation also decreased to Rs 18,421.87 crore in the first quarter of this fiscal from Rs 19,518.08 crore in the year-ago period.

    Although there was about 3% higher offtake, sales in value terms decreased during the quarter as average realization from e-auction has dropped to Rs 1,570/t during the first quarter of the current fiscal from Rs 2,184/t a year-ago due to low market interest.

    Quantity under FSA has also declined by about one million tonnes during the quarter. The company's interest income from bank deposit has also decreased during this period, according to a senior CIL official.

    CIL managed to reduce its total expenses by 3% during the period to Rs 14,834.20 crore against Rs 15,320.81 crore in the previous corresponding period. However, outgo on account of contractual expenses increased to Rs 2,800.55 crore during the period against Rs 2488.70 crore in the previous corresponding period.
    Back to Top

    China steel falls to lowest since June amid property curbs

    Chinese steel prices dropped to their lowest in nearly three months on Monday on worries that fresh efforts to curb home purchases could slow demand in the top global steel consumer.

    Financial markets reopened in the country on Monday after closing on Thursday and Friday for China's Mid-Autumn Festival.

    Home prices there rose at a faster pace in August, data showed, with the buying frenzy spilling over from first-tier cities to other parts of the country. Second- and third-tier cities such as Xiamen, Nanjing and Wuhan are now stepping up measures to cool overheated markets.

    Housing authorities from the eastern city of Hangzhou announced on Sunday it will begin to restrict home purchases from Sept. 19. Families who are not registered as residents and already own one or more houses in certain districts will not be able to purchase another home, new or pre-owned.

    The most-traded rebar on the Shanghai Futures Exchange touched a session low of 2,190 yuan ($328) a tonne, the weakest since June 29. The construction steel product was down 1 percent at 2,237 yuan by midday.

    "The supply of steel is quite big and demand is at risk because of the new restrictions on real estate purchases," said a Shanghai-based iron ore trader.

    "This will affect new property projects and eventually it will affect demand for steel."

    A surge in Chinese steel prices spurred by Beijing's efforts to stimulate the economy caused domestic crude steel output to rise for a sixth straight month in August.

    The decline in China's steel prices in September came after a three-month gain.

    Tracking losses in steel, raw material iron ore traded on the Dalian Commodity Exchange was last down 0.6 percent at 390.50 yuan a tonne. It fell as far as 383 yuan, the lowest since July 26.

    Spot iron ore prices were flat on Thursday and Friday owing to the Chinese holidays.

    Iron ore for delivery to China's Tianjin port was unchanged at $55.50 a tonne on Friday, according to The Steel Index.

    The spot benchmark has slid 10 percent since touching a 3-1/2-month peak of $61.80 on Aug. 16.
    Back to Top

    Australia's coal industry outlook ignites dispute

    Australia's coal industry outlook ignites dispute

    A report commissioned by The Australia Institute is causing some bickering between the mining industry, the scientific community, and policy-makers as it states that the country’s economy would not be hurt by a gradual phasing out of coal production.

    Economist Philip Adams, who led the research at Victoria University’s Centre of Policy Studies, saidin an interview with The Australian Broadcasting Corporation there would be minimal economic impact if the Government imposed a moratorium on new coal mines or the expansion of existing ones.

    According to Adams, "the world outlook for coal is fairly bleak,” as world leaders impose moratoriums on new coal mines or the expansion of existing ones. The effects of such decisions, however, will not be seen just yet.

    "Our modeling suggests that the impacts will not start for 10 to 15 years. There is enough coal in mines that are operating or will be operating to continue the level of exports that we see now,” Adams told ABC.

    Annual coal exports reached $38 billion in 2014/15, almost twice those of beef, wheat, wool and wine combined so following the report's logic, eliminating those great industries would also have negligible consequences — Minerals Council of Australia.

    Once that time window has passed, the economist said, the Australian economy will continue to grow with a difference of 0.06% in 2040. The impact on jobs wouldn’t be significant either since the industry's share of employment is 0.04% of the Australian workforce or some 44,000 workers.

    But not everything is “good news.” An in-depth look into how the phase-out would affect specific regions in the world’s second biggest producer of coal shows a grimmer picture. Real Gross State Product in the Fitzroy area in Queensland, for example, will fall to be around 40% of its Reference case value in 2040, while real GSP in Mackay will be down 25% and real GSP in the Hunter Valley of New South Wales will be down 31%.

    Nevertheless, TAI’s study concludes that “Australia can and should impose a moratorium on new coal mines and mine expansions, as part of climate and wider environmental policy, and should expect minimal economic disruption from doing so.”

    But the Malcolm Turnbull administration doesn’t seem to be moving towards such direction. Despitehaving received calls from his counterparts in other nations to reconsider his position, the Prime Minister has said that global emissions wouldn’t change “one iota” if his country stopped all coal exports.

    Source: The Australia Institute.

    "Only the green movement and their mouthpieces such as the Australia Institute (TAI) would be able to contend shutting down Australia’s second largest export industry would have limited economic impact," Greg Evans, executive director of coal at the Minerals Council of Australia said in an e-mailed statement.

    It's not realistic to think the world is moving away from a resource that provides 41% of its electricity— World Coal Association.

    He noted that annual coal exports at $38 billion in 2014/15 were almost twice those of beef, wheat, wool and wine combined so under the institute's logic, eliminating those great industries would also have negligible consequences.

    The coal industry also reacted to the think tank’s document. Benjamin Sporton, Chief Executive of the World Coal Association, told ABC that he doesn’t think it is realistic to think the world is moving away from the resource that provides 41% of its electricity.

    “Coal is going to play a big role in the world's economy and the world's electricity mix for decades to come and it's incredibly important that we focus on a role for low-emission coal technology,” he said.

    Meanwhile, 2016 has seen an unexpected surge in coal prices mainly driven by slowing supply growth from China.
    Back to Top

    Zhangjiagang steel company enjoying strong momentum

    Zhangjiagang steel company enjoying strong momentum
    Shagang Group, a private steel firm headquartered in Zhangjiagang, Jiangsu province, ranked ninth on the list of China's top 500 private companies for 2016, giving it the highest rank for a steel firm. The company has achieved total sales revenue of 205.84 billion yuan ($30.82 billion) in 2015, Zhangjiagang Daily reported.

    Jinfeng-based Jiangsu Shagang Group was the only firm in Zhangjiagang that made the top ten. It is China's largest iron and steel manufacturer and is also a member of the Fortune 500.

    According to Shagang Group, the firm produced 31.63 million tons of iron, 34.21 million tons of steel and 33.88 million tons of rolled metal products in 2015. Meanwhile, Shagang achieved success in foreign markets, with a total export volume of 6.88 million tons.

    Despite the slump in the domestic steel market, which nowadays has high production costs and low market prices, Shagang Group has worked out a business strategy based on research into new technologies and development, putting priority on quality and efficiency. The firm takes full advantage of its scientific research platform, advanced equipment and regional logistics, in order to lower production costs and strengthen production power.

    The All-China Federation of Industry and Commerce released its latest list of China's 500 largest private firms on Aug 25, with six companies from Zhangjiagang making the cut in 2016. The list featured more companies from Zhangjiagang than any other county-level city in Suzhou, highlighting the rapid growth of the area's economy. Twenty companies from Suzhou appeared in the top 500 for 2016.
    Back to Top

    China draws up restructuring plans for Bohai Steel - Caixin

    Financial authorities in the city of Tianjin plan to convert a portion of debt-stricken Bohai Steel Group's liabilities into bonds, according to rescue plans drawn up recently, the online financial magazine Caixin reported on Monday.

    Officials met on Sept. 11 to discuss a comprehensive restructuring plan for the firm, which has liabilities of 192 billion yuan ($28.78 billion) from 105 creditors.

    According to the plan, high-quality assets from Bohai Steel will be restructured to form a new company, which will take on 50 billion yuan of the total debt.

    Another 60 billion yuan will be issued as bonds by the original holding company, with the local government set to inject an additional 10 billion yuan into the firm. The remaining 80 billion yuan will be retained by the original holding firm or written off.

    The proposals are currently being assessed by financial institutions, the report said, citing unidentified sources.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

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

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

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

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

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

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

    © 2018 - Commodity Intelligence LLP