Mark Latham Commodity Equity Intelligence Service

Thursday 30th June 2016
Background Stories on

News and Views:

Attached Files


    Mongolia's opposition MPP sweeps back to power on country's economic woes

    The main opposition Mongolian People's Party (MPP) swept back to power in landslide parliamentary elections, results from Mongolia's election committee showed on Thursday, after campaigning dominated by concern over slowing economic growth.

    The transformation of the former Soviet bloc state since a peaceful revolution in 1990 has been a big draw for foreign investors eyeing its rich mineral resources, unleashing a boom from 2010 to 2012.

    But an abrupt economic slowdown since 2012 has stirred controversy over the role of global mining firms such as Rio Tinto, which last month finally approved a $5.3-billion extension plan for the Oyu Tolgoi copper mine.

    The MPP's victory will likely be a greeted as a tailwind for the economy and international miners, as the party's success in attracting investors when it last held power, from 2008-2012, led to the country being nicknamed "Mine-golia".

    The MPP, which has governed for most years since the revolution, won an 85 percent majority with 65 seats in the 76-member parliament, taking back power from the Democratic Party, an unnamed official from Mongolia's general election committee told a press briefing.

    The ruling Democratic Party won nine seats in Wednesday's vote, down from 37. Prime Minister Chimed Saikhanbileg, and the parliament's chairman, Zandaakhuu Enkhbold, were among those kicked out of their seats.

    "The Mongolian People's Party's landslide win shows the public assigning clear blame for the country's economic woes to the outgoing Democratic Party government," John Marrett, an analyst at The Economist Intelligence Unit, said in an emailed statement.

    A late change of election rules hindered independents and small parties during the short 18-day campaign period.

    One seat went to the Mongolian People's Revolutionary Party (MPRP), and one to an independent, popular folk singer Samand Javkhlan, who has taken up environmental causes.


    A vast country with just three million people, best known as the birthplace of Mongol emperor Genghis Khan, Mongolia had struggled in recent years to adapt to a downturn in fortunes.

    Demand for coal and copper from giant neighbor China, and weak commodities prices have hit Mongolia hard.

    The IMF forecasts economic growth of 0.4 percent this year, compared with 17.5 percent in 2011, the year before the Democratic Party took power.

    Since 2012, Mongolia has borrowed billions of dollars in sovereign debt. In March, rating agency Moody's gave it a negative outlook, citing the rising debt burden, a projected widening of budgetary imbalances and mining revenue shortfalls.

    The MPP has criticized the Democrats' economic management and the borrowing spree, promising to reassess spending and tighten fiscal management.

    Mongolian bonds jumped on the election results. The $500 million sovereign bonds due 2021 surged 3 points to 105.25/106 cents on the dollar, and the $500 million bonds from Trade Development Bank due 2020 rose 2.25 points to 97.75/98.75.

    More than half of Mongolia's people are under 30 and grew up in the post-Soviet period of rapid change in the land-locked democracy squeezed between autocratic China and Russia.

    Attached Files
    Back to Top

    Oil and Gas

    China gasoil demand hits near 6-year lows, gasoline reverses trend

    Apparent demand for oil in China, Asia's biggest oil consumer, headed lower in May as subdued economic activity pulled down gasoil consumption to its lowest level in nearly six years, while gasoline witnessed its first year-on-year decline in consumption since January 2014.

    Total apparent oil demand was 10.88 million b/d in May, down 2.7% year on year and 4.2% lower than April, according to S&P Global Platts calculations based on recently released official data. Analysts are of the view that the slowing pace of industrial activity will keep a lid on China's domestic demand growth over the next few months.

    While demand for gasoil and fuel oil, which has been on a downward trend for the past several months, maintained a similar pattern in May, gasoline demand also made a year-on-year retreat of 1.3%, after growing for 27 months at an average rate of 11.2%.

    The falls registered in fuel oil, gasoil and gasoline demand was enough to more than offset gains in demand for naphtha, LPG and jet fuel, pulling down overall demand numbers, Platts calculations showed.

    In May, China's real economic activity growth slowed, with value-added industrial production growing at 6% year on year, the same as in April, after posting a rise of 6.8% in March.

    "We believe real activity data for May suggests that China's economy is stable but lackluster," Standard Chartered Global Research said in a report.

    Fixed asset investment growth slowed to 9.6% in the year to date, from 10.5% a month earlier. Growth in fixed asset investment and industrial output are related to energy consumption. This meant investment growth slowed to 7.4% in May, from 10.1% in April, HSBC said in a report.

    "The slowdown in the manufacturing sector may continue," HSBC said. "Over the past few months, the pace of the slowdown has been sharper. Partly, this is due to continued capacity reduction in heavy industries."

    Over the first five months of the year, the country's cumulative apparent oil demand edged down 0.8% to 11.10 million b/d.


    Not surprisingly, the deceleration in key industrial activity and supply-side reforms weighed on gasoil demand, since it has a high correlation to industrial activity in China, as it is used to transport coal, steel and cement.

    Apparent demand for gasoil dropped 12.9% year on year to 3.14 million b/d in May, the lowest level since August 2010. It was also down 5.3% from April. Given gasoil stocks in April fell 5.44% month on month, actual demand for gasoil would be slightly higher than the implied figure, according to data compiled by state-owned news agency Xinhua.

    It attributed the stock decline to higher demand following a pick-up in agricultural activity.

    Refiners said that compared to gasoline, sales of gasoil were better in June as trading houses needed to replenish stocks.

    Fuel oil demand in May weakened by more than 17.2% year on year to 859,000 b/d, after declining 35.4% in April, which was the sharpest year-on-year decline since December 2013. But rose 27.8it represented a month-on-month increase of 27.8%.

    The year-on-year drop occurred as China's independent teapot refineries have increasingly switched to imported crude feedstock from fuel oil or bitumen blend. 

    Gasoline has been one of the major drivers of China's apparent oil demand growth in recent years and has supported overall oil demand over recent months, despite slowing consumption of industrial fuels. Reversing the trend in May, demand for gasoline, however, fell 1.3% year on year to 2.68 million b/d.

    At the same time, a stock build of 1.39% over May from end-April signaled that actual demand was even lower.

    "I still believe demand for the fuel will still grow at over 7% year on year in 2016, taking into account the consumption of blended gasoline," a Beijing-based trader from an oil major said, referring to gasoline.

    Some of the blended gasoline, which is not included in the official production data, contains up to 30% of imported mixed aromatics.

    Beijing does not release official data on oil demand and stocks. Platts calculates apparent demand for individual oil products by adding output, as reported by the National Bureau of Statistics, and net imports, as reported by the customs department.

    China imported 1.21 million mt of mixed aromatics in May, surging more than threefold year on year.

    It meant mixed aromatics inflows in May would add around 4 million mt, or 1.13 million b/d, of blended gasoline to supplies, in addition to production from refineries.

    Apparent demand for jet fuel rose 15.9% year on year to 788,000 b/d in May. Data from the Civil Aviation Administration of China showed overall aviation traffic continued to register growth. In April, total traffic turnover rose 12.6% year on year.

    Attached Files
    Back to Top

    Saudi Arabia appears to end oil market share war, starts balancing

    Has Saudi Arabia already switched tack and started to surreptitiously balance supply and demand in the crude oil market?

    One of the persistent themes of crude oil markets since the price crashed in mid-2014 is that top exporter Saudi Arabia decided to stop its balancing role and instead chase market share, no matter the implication for prices.

    However, there are signs that the pursuit of market share by the kingdom is no longer a top priority, especially in their buyers in Asia.

    Figures from top Asian crude buyers China, India, Japan and South Korea suggest that Saudi Arabia is effectively conceding market share to rivals such as fellow Gulf producers Iran and Iraq, as well as an increasingly assertive Russia.

    While this may not exactly be a voluntary process, it does appear that Saudi Aramco, the kingdom's state oil company, isn't pulling out the stops to reverse the loss of market share.

    For the past four months Aramco has raised the official selling price (OSP) of its benchmark Arab Light grade to refiners in Asia, which take about two-thirds of the kingdom's exports.

    The OSP for July-loading cargoes was set at a premium of 60 cents a barrel to the regional Oman-Dubai crude benchmark, up from 25 cents in June and a significant reversal of the discount of $1 as recently as March.

    It's likely the case that Aramco is simply adjusting prices to reflect moves in the Oman-Dubai timespreads and also to reflect a stronger premium for global benchmark Brent over Dubai.

    But the mere fact that the OSP has returned to what could be considered more normal patterns indicates the Saudis may be stepping back from a market share at all costs policy.

    From October 2014 to May this year the OSP for Arab Light cargoes to Asia was at a discount to Oman-Dubai for all but three of those 20 months.

    This extended period of discounting coincided with the period where the Saudis appeared determined not to cede market share to rivals.

    The recent change back to premiums for the OSP perhaps indicates that the Saudis have taken the view that it's better to give a little ground to rivals in the expectation that the market is already balancing and prices can move sustainably higher.

    Certainly the import data from major Asian consumers seems to support this view.

    China's imports from Saudi Arabia in the first five months of the year rose 3.87 percent to 21.86 million tonnes, equivalent to about 1.05 million barrels per day (bpd).

    That doesn't sound too bad, but China's total imports are up 16.5 percent in the first five months of 2016 compared to the same period last year.

    Russia has also toppled Saudi Arabia as the top supplier to China, with imports rising 41.8 percent to 22.17 million tonnes, or about 1.06 million bpd, in the January-May period.


    India, Asia's second-largest crude importer, shows a similar pattern, but with Iran and Iraq as the producers grabbing higher shares.

    India imported 856,200 bpd from Saudi Arabia in the first five months of the year, up 9.4 percent from the same period in 2015, according to trade sources and ship-tracking data compiled by Thomson Reuters Oil Research and Forecasts.

    Again, a 9.4 percent gain doesn't sound too bad, but India's imports from Iran rose 64.5 percent to 334,100 bpd and those from Iraq jumped 55.2 percent to 892,300 bpd in the first five months of the year.

    Iraq has replaced Saudi Arabia as India's top supplier, meaning that the Saudis have lost their top spots to rivals in Asia's two biggest importers, surely a sign that pursuing market share is no longer the main game.

    Iran is also having considerable success in winning back market share lost while it was under Western sanctions over its nuclear program.

    It's a slightly better story for the Saudis in Japan, the number three importer in Asia, with imports rising 12.6 percent in the first five months of 2016 to the equivalent of about 1.25 million bpd.

    Iraq has seen a far bigger percentage gain, with Japan increasing purchases by 50.9 percent, but this was off a very small base and imports in the first five months were still a modest 71,800 bpd.

    Among Japan's major suppliers, the big loser is the United Arab Emirates, which has seen its imports drop by 5.4 percent, while fellow OPEC member Qatar has increased its oil exports to Japan by 22.8 percent.

    South Korea, the fourth-biggest Asian oil importer, has bought 6.7 percent less crude from Saudi Arabia in the first five months of this year compared to the same period in 2015, although the kingdom is still the biggest supplier.

    Iran has more than doubled its exports to South Korea in the January-May period and is now the third-biggest supplier behind Saudi Arabia and Kuwait.

    The pattern that is emerging so far in 2016 is that while the Saudis are selling more oil to their major buyers, with the exception of South Korea, their rivals are doing better at building market share.

    The Saudis have hinted that they may return to their traditional role of balancing the market once the global oil market recovers.

    "Despite the surplus in global oil production and lower prices, the focus of attention remains on countries such as Saudi Arabia which, due to its strategic importance, will be expected to balance supply and demand once market conditions recover," Energy Minister Khalid al-Falih was quoted as saying on June 22.

    The import data and the Saudi pricing moves suggest they have already started this process.
    Back to Top

    Exxon Said to Eye Gas Deal That May Ease Mozambique Debt Crisis

    Exxon Mobil Corp. is considering buying stakes in natural gas discoveries off Mozambique made by Anadarko Petroleum Corp. and Eni SpA, potentially giving a tax windfall to the African nation grappling with a deepening debt crisis, according to two people with knowledge of the matter.

    Acquiring a share of Anadarko’s Area 1 in the Rovuma Basin off Mozambique’s north coast could generate capital gains tax of about $1.3 billion for the government, one of the people said, asking not to be identified because the matter isn’t public. Exxon, the world’s largest oil and gas company, is also interested in Eni’s Area 4, the people said. Three years ago, China National Petroleum Corp. purchased 20 percent of Area 4 for $4.2 billion.

    Should Exxon decide to invest in potentially one of the world’s largest liquefied natural gas projects, the tax revenues generated would ease the southern African country’s looming credit crunch. Mozambique is struggling to balance its books after $1.4 billion of hidden debt was disclosed in April, prompting the World Bank and other donors to suspend aid.

    “We don’t comment on rumors or speculation,” Lauren Kerr, a spokeswoman for Exxon, said in an e-mail. Anadarko and Eni declined to comment.

    Eni CEO Claudio Descalzi said last month that the company is in talks on selling a stake in its Mozambique discovery and expects to reach a final investment decision on an LNG project this year.

    Exxon is already focused on Mozambique after winning three exploration licenses in October for offshore blocks to the south of the Anadarko and Eni discoveries. The company also has a working interest in Statoil’s Block 2 in Tanzania, north of the Rovuma Basin.

    Mozambique’s Minister of Natural Resources and Energy Pedro Couto declined to comment on whether Exxon was interested in taking a stake in the Anadarko and Eni discoveries.

    While the vast gas discoveries have the potential to more than triple Mozambique’s economic growth by 2021, in the short term the nation’s debt is at a high risk of distress, according to the International Monetary Fund. Government bond yields jumped to a record 18.94 percent last week and the IMF wants an international and independent audit of state-owned entities whose debt Mozambique failed to disclose to investors when arranging to convert another corporate loan into sovereign credit.

    Anadarko and Eni in December agreed on a plan to develop adjoining areas in the Rovuma basin, targeting a combined 24 trillion cubic feet of gas.

    While Anadarko has yet to make a final investment decision on its $15 billion LNG project in Mozambique, this month it appointed John Bretz as interim country manager after his predecessor retired.
    Back to Top

    China’s May LNG imports climb YoY

    Liquefied natural gas imports into China, the world’s largest energy consumer, rose 27.3 percent in May as compared to the same month a year ago, according to the General Administration of Customs data.

    China imported 1.43 million mt of the chilled fuel in May, as compared to 1.12 million mt a year before, the data shows.

    The LNG import figures in May dropped 24.3 percent as compared to April when China’s imports of LNG totalled 1.89 million mt.

    According to the customs data, imports of piped natural gas increased 17 percent on year to 2 million mt.

    China is currently the world’s third largest importer of LNG. The country is expected to require large volumes of the chilled fuel over the next decade.

    At the end of 2015, there were 13 LNG terminals in operation in China, with a total capacity of 41.3 MTPA and an average annual utilization rate of around 50%, according to GIIGNL, the International Group of Liquefied Natural Gas Importers.

    Eight terminals were under construction for a combined capacity of around 24 MTPA at the time when GIIGNL released its 2015 report, the Group said.
    Back to Top

    Statoil to keep fields operating even if Norway oil workers strike

    Statoil will initially keep oil fields operating even if negotiations set for June 30 to July 1 fail to avert a strike that would halt output at others, the Norwegian Oil and Gas Association (NOG) said on Wednesday.

    Workers at five fields operated by ExxonMobil, Engie and BASF unit Wintershall could walk off the job from July 2 if wage talks fail.

    That would cut Norway's output of oil, natural gas and natural gas liquids (NGL) by about seven percent, data from Norway's Petroleum Directorate shows.

    Trade unions said on Monday 755 workers could walk out, potentially affecting work on seven fields that account for about 17 percent of Norway's crude oil and natural gas output.

    NOG on Wednesday said eight fields in total would be affected, but output would only be affected at five of them.

    It cautioned that the three Statoil fields could be forced to also halt output if any strike that occurs is expanded.

    A final round of mandatory talks will be hosted by a state mediator on June 30 and July 1.
    Back to Top

    Iraq's oil exports set to decline in June for second month

    Iraq's oil exports are set to decline in June for a second month, according to loading data and an industry source, adding to signs that supply growth from OPEC's second-largest producer is slowing this year.

    Iraq in 2015 provided the biggest rise in supply from the Organization of the Petroleum Exporting Countries. But companies working in Iraq have warned the government that projects to boost output will be delayed if Baghdad cuts spending in response to low oil prices.

    Iraq's southern exports in the first 29 days of June have averaged 3.14 million barrels per day (bpd), according to loading data tracked by Reuters and an industry source. That would be down 60,000 bpd from May and sharply lower than the 3.47 million bpd initially expected this month.

    "At some point, we are going to see the growth curve flatten out, but it is too early to say if this is happening now," said Samuel Ciszuk, principal oil market adviser at the Swedish Energy Agency.

    "There might be several issues affecting Iraqi exports - technical constraints, slower production growth and possibly some competition in the market from Iran."

    The head of Iraq's state-owned South Oil Company, speaking to Reuters on Sunday, gave similar exports figures and said the decline was due to maintenance work and as higher domestic demand limits the volume available for export.

    Iraqi officials could not immediately be reached for further comment on Wednesday.

    The south pumps most of Iraq's oil. Iraq also exports smaller amounts of crude from the north by pipeline to Turkey.

    Northern shipments of crude from fields in the semi-autonomous Kurdistan region have fallen to 480,000 bpd so far in June, according to loading data, from 510,000 bpd in May.

    The shipments were running at 600,000 bpd at the start of the year but have slowed due to pipeline sabotage and a decision by the central government in Baghdad to suspend pumping Kirkuk crude into the line.

    Iraq last year boosted production by more than 500,000 bpd, surprising industry observers, despite spending cuts by companies working at the southern fields and conflict with Islamic State militants.

    Iraqi officials still expect further growth in the country's exports this year, but at a slower rate than 2015.

    This year, Iran has provided OPEC's largest supply boost as it recovers from Western sanctions that were lifted in January.

    Attached Files
    Back to Top

    Snam to list Italgas unit to help Europe push

    Snam, Europe's biggest gas pipeline operator, will spin off and list its 5.7 billion euro ($6.3 billion) domestic distribution unit as it sets its sights on growth in European gas transport to help boost shareholder returns.

    Snam, which makes more than half of its revenues from gas transmission, is looking to play a leading role in integrating Europe's grids and making Italy a European gas hub.

    Snam, controlled by state lender Cassa Depositi e Prestiti (CDP), will list 86.5 percent of Italgas by the end of the year by distributing Italgas shares to its own investors in a deal that will cut its net debt by 1.5 billion euros to an expected 3.7 billion euros by the end of 2016.

    While it will raise no money from the listing, its lightened debt and sharper focus will give it more room to access funding.

    "It will have about 1 billion euros for acquisitions now and in a few years could even sell its residual Italgas stake," said Oliver Salvesen of Jefferies.

    The company, which has a strategic alliance with Belgium's Fluxys, already controls French grid TIGF and Austrian pipeline TAG and recently bought a 20 percent stake in the Trans Adriatic Pipeline that will bring Azeri gas into Europe.

    It is interested in Austria's Gas Connect Austria as well as a stake in Greece's DESFA.

    In a call on the group's 2016-2020 plan, CEO Marco Alvera said the 13.5 percent stake Snam would keep in Italgas was strategic.

    "But we're not committed to holding on to it forever," he added.

    Alvera declined to put a value on Italgas but said such companies normally commanded a premium to their regulated asset base (RAB), possibly in the region of 18-20 percent.

    Italgas, Italy's biggest gas distributor, had a RAB of 5.7 billion euros at the end of 2015 which will grow to more than 7 billion euros as it buys new concessions.

    Under new rules Italy's fragmented gas distribution sector is set to enter a period of consolidation, favouring companies with strong balance sheets.

    In January sources told Reuters CDP was considering a merger of Italgas with nearest rival 2i Rete Gas to create a group with joint assets of more than 8 billion euros.

    "While Italgas will be a major player in the consolidation of the distribution sector in Italy, Snam will focus on its strong growth potential, leveraging its leadership in the European market," Alverà said.

    Snam, controlled by CDP through a vehicle that also includes State Grid Corporation of China, has earmarked 4.3 billion euros in transport and storage businesses in Italy and abroad to 2020.

    Dividends will remain stable this year, if adjusted to include the dividend from Italgas, but will grow 2.5 percent a year in the following two years.

    Snam will also spend up to 500 million euros in buying back shares.

    "The main surprise is the share buyback which in our view could limit the possible cannibalisation between Italgas and Snam shares later this year," Credit Suisse said.
    Back to Top

    Gunvor Said to Plan U.S. Office as Oil Trader Sheds Russian Ties

    Gunvor Group Ltd. plans to open a U.S. office as the oil trader moves away from its Russian roots, according to people with knowledge of the matter.

    Gunvor is looking for more staff after hiring at least one senior energy trader for the planned Houston office, two of the people said, asking not to be identified because the matter is private. The company is considering opening an office with 20 to 30 people before the end of the year, trading petroleum products and possibly crude, one person said.

    The plans to establish the U.S. office come after the company severed links to Gennady Timchenko, the Russian oligarch who co-founded Gunvor with Swedish national Torbjorn Tornqvist more than a decade ago. Timchenko struck a deal to sell his 44 percent stake in the trading house to CEO Tornqvist in March 2014, the day before the U.S. imposed sanctions on the Russian for his ties to Vladimir Putin.

    A Gunvor spokesman wasn’t immediately available for comment on the plans for a U.S. office. The company has previously denied it has ever had links to Putin.

    Asset Sales

    Gunvor, one of the world’s five largest independent oil traders, would join rivals such as Vitol Group and Trafigura Group with a Houston presence. The company reported record profit of $1.25 billion in 2015.

    Over the last year, Gunvor has sold the bulk of its Russian assets, including its majority stake in the Ust-Luga oil-products terminal, according to company statements. Russian crude and oil products account now account for 12 percent of Gunvor’s trading activity. The company has said 40 percent of the crude it handles originates from North and South America, including the U.S.

    Gunvor, which has its main trading operations in Geneva, hired gasoline trader James Hutchinson from Valero Energy to join the new office, two of the people said. Hutchinson was formerly a trader at Trafigura.

    Founded 16 years ago by Timchenko and Tornqvist, a former BP trader, Gunvor got its start trading Russian crude oil. At one point it handled about a third of Russian seaborne crude exports, according to the company.

    Based in Cyprus, with major trading offices in Geneva and Singapore and smaller trading arms in Shanghai, Nassau and Dubai, the company has reduced its dependence on Russian oil in recent years. In 2015, Gunvor said it handled about 2.5 million barrels of crude and petroleum products a day.

    Between 2009 and 2011, the company operated a small Houston office that came with its acquisition of trading house Castor. Gunvor later relocated its Houston-based traders to the Bahamas.

    Attached Files
    Back to Top

    Egypt's launches tender for third floating re-gasification unit

    Egypt has launched a tender to hire a third floating and storage regasification unit (FSRU) to import liquefied natural gas (LNG), an official from state-run energy firm EGAS told Reuters.

    Egypt, a former energy exporter but now net importer due to falling production and rising consumption, began LNG imports last year to help avert blackouts on its overworked power grid.

    The official said the tender was launched on Tuesday seeking an FSRU with a capacity of 750 million cubic feet per day and would close in two weeks.

    Egypt's gas shortfall has led to rationing among energy-intensive industries such as steel mills and fertiliser plants and caused some output disruption last year.

    Egypt took delivery of its first FSRU from Norway's Hoegh in April 2015 and a second from Singapore-based Norwegian firm BW Gas last September.
    Back to Top

    RasGas signs new LNG deal with EDF to supply 2mn tonnes a year

    Ras Laffan Liquefied Natural Gas Company - 3 has entered into a new liquefied natural gas sales and purchase agreement (SPA) with French energy company, EDF under which RasGas will deliver up to 2mn tonnes a year to EDF’s new terminal in Dunkerque, France from 2017.
    The agreement was signed by RasGas chief executive officer Hamad Mubarak al-Muhannadi and Marc Benayoun, EDF group senior executive, vice president gas and CEO of Edison.  

    This agreement complements three existing long term SPAs between RasGas ventures and EDF group subsidiaries for delivery of up to 4.6mn tonnes per year to Edison in Italy and up 3.5mn tonnes per year to EDF Trading in Belgium.

    Al-Muhannadi said, “This latest agreement is an excellent example of RasGas’ continued commitment to developing and executing opportunities that respond to our customer’s needs. We are proud that, together with EDF, we have played a significant role in continuing to provide a safe and reliable supply of energy to the homes, businesses and communities of Europe.”

    Benayoun said, “This agreement with RasGas reflects EDF’s growing interest in the LNG markets.  The group is proud to add this significant contract to its global LNG portfolio and to reach a new important milestone in the excellent relationship with RasGas, who already delivers LNG cargoes to the group under long-term contracts in both Rovigo and Zeebrugge terminals.

    “At a time when Dunkerque LNG is due to receive its first commissioning cargo early July, this new contract demonstrates Dunkerque LNG’s outstanding position in the North West European gas markets.”
    Back to Top

    Oil giant CNPC seals plan to restructure oilfield services

    China's top energy group China National Petroleum Corp (CNPC) has approved plans to restructure its oilfield services business, the company said on Wednesday.

    The move came one day after filings showed the company is ready to sell some of its largest oilfield subsidiaries which have reported declining revenues over the past few years.

    On June 28, Xinjiang Dushanzi Tianli High & New Tech Co. Ltd said it was in talks to buy CNPC's oilfield services assets, which may include China Petroleum Pipeline Bureau and China Petroleum Engineering and Construction Corp, according to a filing to the Shanghai stock exchange.

    Neither CNPC or Xinjiang Dushanzi gave further details regarding the restructure.

    CNPC's upstream business has been crippled by a decline in global crude prices, putting pressure on China's biggest oil producer to cut costs and spin off money-losing businesses.

    CNPC President Wang Yilin said the company would "make efforts to streamline the oilfield services business and improve its efficiency".

    CNPC's listed unit PetroChina also sold off its pipeline assets earlier this year.

    Beijing has been seeking to gradually open up its massive energy sector to private investors.

    State companies such as CNPC and Sinopec have been a breeding ground for corruption and have been criticised for their monopoly in the oil and gas market.

    Despite calls for state-owned enterprises to improve efficiency, many industry insiders and experts say the sprawling oil sector will opt only for incremental changes rather than for a radical shake-up.
    Back to Top

    South African State Company Offers to Buy Chevron Refinery

    South Africa’s state-owned Strategic Fuel Fund said it has expressed interest in buying Chevron Corp.’s stake in a Cape Town oil refinery and downstream assets in the country and in neighboring states.

    An offer has been made by the SFF for the 75 percent stake on offer, it said in a statement on Wednesday.

    The refinery has a capacity of 110,000 barrels-per-day.
    Back to Top

    US oil production falls for another week

                                                 Last Week    Week Before    Last Year

    Domestic Production '000....... 8,622               8,677             9,595
    Back to Top

    Summary of Weekly Petroleum Data for the Week Ending June 24, 2016

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending June 24, 2016, 190,000 barrels per day more than the previous week’s average. Refineries operated at 93.0% of their operable capacity last week. Gasoline production decreased last week, averaging about 10.0 million barrels per day. Distillate fuel production increased last week, averaging over 5.0 million barrels per day.

    U.S. crude oil imports averaged about 7.6 million barrels per day last week, down by 884,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 12.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 904,000 barrels per day. Distillate fuel imports averaged 25,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.1 million barrels from the previous week. At 526.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 1.4 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.8 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.5 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week.

    Total products supplied over the last four-week period averaged over 20.4 million barrels per day, up by 2.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.7 million barrels per day, up by 1.8% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, down by 2.9% from the same period last year. Jet fuel product supplied is up 7.2% compared to the same four-week period last year.

    Cushing down 1.0 mln bbls

    Attached Files
    Back to Top

    U.S. Natural Gas Futures Surge to 13-Month High on Warm Outlook

    U.S. natural gas futures rose to a 13-month high as temperatures were forecast to be above normal in the contiguous U.S.

    Readings may be broadly above normal from July 9 through July 13, with even hotter weather in the Southwest and from Texas to Indiana, according to MDA Weather Services. The high in Dallas July 9 may be 101 degrees Fahrenheit (38 Celsius), 5 more than average, data from AccuWeather Inc. show.

    “The forecast is expected to get some warmer weather here at the start of July,” said Gene McGillian, senior analyst and broker at Tradition Energy in Stamford, Conn. “So here we are basically back to where we haven’t been since last summer. I think it’s a little premature to say whether or not the market has topped out, however.”

    Gas has risen about 80 percent after reaching a 17-year low in March as summer heat boosted demand for the power plant-fuel, eroding a stockpile glut. An explosion at a gas plant in southern Mississippi that closed two offshore platforms, combined with flooding in West Virginia, may have also helped narrow the surplus.

    “Some of the drillers who have been off on the sideline might start coming back and start ratcheting up output to try to take advantage of the increase in price,” McGillian said. “Right now it looks like it’s full steam ahead.”

    Natural gas for August delivery rose 0.1 cent to $2.891 per million British thermal units at 9:34 a.m. on the New York Mercantile Exchange. Prices touched 2.974, the the highest intraday level since May 21, 2015.
    Back to Top

    Eclipse Resources Ramps Up Drilling; Floats More Stock to Raise $

    Yesterday Eclipse Resources, a Marcellus/Utica pure play driller headquartered in State College, PA (but drilling mostly in Ohio) released a mid-year update on its drilling program.

    It’s good news, for a change! Earlier this year Eclipse said they would drill only one new well and that they were curtailing, or shutting in, production from some of their wells.

    This latest update changes that. Eclipse says given the expected higher price for natural gas as reflected by the forward market, they now intend to drill 10-12 new wells this year, and they’re turning the spigots back on for the curtailed wells.

    The Eclipse board has also voted to increase the capital expenditures budget by $28 million. No doubt that money will come from a new stock offering the company also announced yesterday–floating 37.5 million shares of stock, looking to raise $131 million…

    Attached Files
    Back to Top

    USGC sour crudes rise on reported Thunder Horse production outage

    The US Gulf Coast crude market saw regional sour grades strengthen Wednesday after reports of shuttered production at the BP-operated Thunder Horse platform in the US Gulf of Mexico.

    Crude production at Thunder Horse was halted following the explosion and fire Monday night at Enterprise Products Partners' Pascagoula, Mississippi, natural gas processing facility, Gulf Coast crude market sources said.

    BP has not yet responded to queries for confirmation about Thunder Horse.

    The shuttering of the Mississippi gas processing facility led to the shutting in of gas production at the Thunder Hawk platform on Tuesday, operator Murphy Oil said then.

    "Last time the gas line was shut in [at Thunder Hawk], the liquids production on Thunder Horse dried up as well," a trader said.

    According to Platts assessments Wednesday, Gulf Coast sour crude grades rose following speculation of the platform's outage.

    Regional benchmark Mars rose 15 cents to an assessment of WTI cash minus $3.35/b, and Thunder Horse gained 15 cents to be assessed at WTI cash minus $1.05/b, although no spot trades were heard for the offshore crude grade. In addition, the August/September spread on Mars widened out, with second-month values assessed 20 cents/b lower than front-month values indicating higher immediate demand from any loss of production in the Gulf of Mexico.
    Back to Top

    Sale Under Way on Well Stimulation Company’s Assets: Daily Rant!

    Tiger Liquidity Services Energy Partners (TLSEP), in cooperation with Century Services Corp., has been retained by court appointed receiver KPMG to sell late-model, low-hour pressure pump and fracking fleet assets formerly owned by Millennium Stimulation Services.

    The sale is the latest project for the partnership betweenTiger Capital Group and Liquidity Services (NASDAQ: LQDT), which was formed in January 2016 to help insolvency and turnaround professionals ramp up their services to the turbulent oil and gas market, and to directly assist companies seeking to sell surplus assets.

    Assets currently available for sale from Medicine Hat-based Millennium – which provided pressure pumping, well stimulation and hydraulic fracturing services – include a well stimulation and coil tubing fleet consisting of more than 100 units, including a 2014 NOV HydraRig masted coil tubing unit, pumper, blender and hydration trailers, chemical vans, and sand delivery units. The pressure pumping fleet includes six quintiplex fracturing pump trailers: four 2013 Charlton & Hill MFP-1701 units, and two from 2014 manufactured by Stewart & Stevenson.

    Rolling stock offered includes more than 20 Kenworth T800 T/A truck tractors – none older than 2013, with some as new as 2015 – and 2014 Kenworth T800 Tri/A Crane Trucks. An assortment of four-wheel drive crew cab pickup trucks includes five 2014 Dodge Ram 3500 Laramies, two 2014 Dodge Ram 1500 Laramies, two 2014 Dodge Ram 3500 SLT LWBs, and a 2014 Dodge Ram 2500 Laramie mega cab. A Manitou MH25-4T K-Series 5,500-lb capacity diesel forklift is also available.

    “This asset sale represents a unique opportunity for pressure pumping, well stimulation or hydraulic fracturing equipment rental companies or servicing companies to acquire top-of-the-line equipment in exceptional condition at attractive prices,” said Dan Beck, vice president of global sales for Liquidity Services. “These assets are ready to be placed into operation at any site in North America or internationally.”

    Attached Files
    Back to Top


    Monsanto in talks with Bayer for 'alternative strategic options'

    Monsanto Co said it was in talks with Bayer AG's management and others regarding "alternative strategic options," a month after the U.S. seed producer rejected the German company's $62 billion takeover offer.

    Monsanto, which also reported lower-than-expected quarterly sales for the sixth straight quarter, said on Wednesday there was "no formal update on the Bayer proposal," but talks were on for the past several weeks.

    The U.S. company had not opened its books more than two weeks after rejecting the offer but left the door open to a possible deal after the companies reached an impasse over valuation, Reuters reported this month, citing sources.

    Bayer, however, has no plans to raise its offer without reviewing Monsanto's confidential information, the sources said.

    The seed and agriculture chemical industry has seen several deals in the past year as low crop prices and belt-tightening by farmers put pressure on earnings.

    The net income attributable to Monsanto plunged more than 37 percent to $717 million, or $1.63 per share, in the third quarter ended May 31.

    Monsanto reported earnings of $2.17 per share from continuing operations, well below the average analyst estimate of $2.40, according to Thomson Reuters I/B/E/S.

    Net sales of the company, known for its genetically engineered corn, soybean and the Roundup herbicide, declined 8.5 percent to $4.19 billion, missing estimate of $4.49 billion.

    Monsanto shares were little changed at $101.01 in premarket trading. Up to Tuesday's close, the stock had risen about 12 percent since Bayer's takeover bid was first reported on May 12.
    Back to Top

    Monsanto's quarterly sales fall 8.5 pct

    Seed company Monsanto Co, which rejected a $62 billion takeover offer from Germany's Bayer AG last month, reported a 8.5 percent fall in quarterly sales as demand declined due to low commodity prices.

    The net income attributable to Monsanto fell to $717 million, or $1.63 per share, in the third quarter ended May 31 from $1.14 billion, or $2.39 per share, a year earlier.

    Net sales of the company, known for its genetically engineered corn, soybean and the Roundup herbicide, slid to $4.19 billion from $4.58 billion.

    Attached Files
    Back to Top

    Base Metals

    Q1 Escondida copper production falls 23% year on year

    Production at the world's largest copper mine, Escondida in northern Chile, fell 23% year on year in the first three months of the year to 265,597 mt, the BHP Billiton-controlled operation said Wednesday.

    The mine said a 10% year-on-year rise in production of copper cathode to 84,778 mt was unable to offset a 33% drop in concentrates production to 180,819 mt.

    Mine revenues fell 33% to $1.374 billion, largely due to the fall in copper prices, while profits fell 47% to $265 million.

    The mine is 57.5% owned by BHP Billiton, Rio Tinto owns a 30% stake while the balance of shares is held by two Japanese consortia.
    Back to Top

    RTZ gives 53.8% of BCL to PNG/ABG. Stunning!

     Bougainville Copper Limited shareholding30 June 2016Rio Tinto has today transferred its 53.8 per cent shareholding in Bougainville Copper Limited (BCL) to anindependent trustee.Equity Trustees Limited will manage the distribution of these shares between the AutonomousBougainville Government (ABG) for the benefit of all the Panguna landowners and the people ofBougainville, and the Independent State of Papua New Guinea (PNG).Under the trust deed, the ABG has the opportunity to receive 68 per cent of Rio Tinto’s shareholding(which equates to 36.4 per cent of BCL’s shares) from the independent trustee for no consideration andPNG is entitled to the remaining 32 per cent (which equates to 17.4 per cent of BCL’s shares).The ABG and PNG will both hold an equal share in BCL of 36.4 per cent if the transfers are completed.This ensures both parties are equally involved in any consideration and decision-making around thefuture of the Panguna mine.Rio Tinto Copper & Coal chief executive Chris Salisbury said “Our review looked at a broad range ofoptions and by distributing our shares in this way we aim to provide landowners, those closest to themine, and all the people of Bougainville a greater say in the future of Panguna. The ultimate distribution ofour shares also provides a platform for the ABG and PNG Government to work together on future optionsfor the resource.”In accordance with the existing management agreement with BCL, Rio Tinto will today give the requiredsix months’ notice to terminate the arrangement. Although Rio Tinto will no longer hold any interest inBCL, Rio Tinto will continue to meet its obligations under the agreement during that period to ensure anorderly transition in the shareholdings of the company. BCL chairman Peter Taylor will resign withimmediate effect but he will continue to be available to provide services to the board during this transitionperiod.Note to editorsThe Trust Deed determines that should either beneficiary of the trust not apply for the transfer of the BCLshares attributable to them from the trustee within two months, then those shares will be made available to the other party.
    Back to Top

    Alcoa, 3D printing, and the Angel of the North.

    Metals company Alcoa Inc said on Wednesday that its planned split will consist of a spinoff of its traditional upstream smelting business, and that up to 19.9 percent of the new company will be owned by its value-added business that serves the aerospace and automotive industries.

    The company to be spun off will be named Alcoa Corp and the value-added business Arconic Inc, Alcoa said in a regulatory filing. The split is due to take place in the second half of this year.

    The spinoff comes at a time when aluminum prices have hovered around historic lows. Many producers have accused China of selling metal into oversupplied global markets below market rates. China denies this and says excess capacity is a global issue.

    Amid that downturn, Alcoa has been reducing its refining and smelting capacity and has focused on more advanced aerospace and automotive products.

    In recent months the company has announced deals to provide a light but tough aluminum alloy for Ford Motor Co's (F.N) high-selling F-150 pickup and aerospace contracts including titanium seat track assemblies for Boeing Co's.

    Australia's Alumina Ltd has raised concerns over the impact of Alcoa's planned split on the pair's bauxite and alumina production joint venture, Alcoa Worldwide Alumina and Chemicals.

    In May, Alcoa filed a lawsuit seeking a declaration that Alumina has no right to block the plan.

    In 2015, Alcoa's traditional upstream business had pro forma revenue of $11.2 billion, while its value-added business had revenue of $12.5 billion, the company said.

    As part of the split, the new upstream business will have around $236 million in outstanding long-term debt. The new company will raise approximately $1 billion in new debt and provide for up to $1.5 billion in funding through a revolving credit facility.

    Alcoa's total debt in the first quarter was around $9 billion, so the lion's share will remain with Arconic, the larger of the two companies post-split.

    On a conference call with analysts, Alcoa Chief Executive Klaus Kleinfeld said the pension obligations of the new upstream business as of the end of 2015 will be around $2.6 billion, while the value-added business Arconic will have pension obligations of around $3 billion.

    The company reiterated that Arconic will be an investment-grade entity, while the new Alcoa will be a "strong non-investment grade" firm.

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    China's coal output declines 8.4 pct

    China's coal output fell 8.4 percent year on year to 1.34 billion tonnes during the first five months of the year, the top economic planning body said Wednesday.

    Coal imports rose 3.7 percent from one year earlier to 86.28 million tonnes during the five-month period, according to a statement on the website of the National Development and Reform Commission.

    Exports more than doubled to 4.01 million tonnes.

    Coal storage in major power plants totaled 54.32 million tonnes.

    The statement added that stockpiles at coal companies amounted to 120 million tonnes at the end of May, down 9.2 percent year on year.
    Back to Top

    India allows flexibility in utilization of coal

    In order to reduce the cost of electricity generation the Indian government has allowed the power utilities of the central government and state governments to have flexibility in utilization of coal by swapping coal supplies.

    Early this month, the Central Electricity Authority (CEA) issued the methodology for swapping coal linkages for efficient usage and reduction in transportation charges.

    Under this, coal linkages from state-run Coal India Limited and Singareni Collieries Company Limited will get transferred from inefficient power stations to efficient ones and from plants situated away from coal mines to pitheads to reduce the coal transportation cost, according to CEA guidelines.

    At present, there are several power plants running at a very low plant load factor but the coal linkages allotted to them remain the same while some of the very efficient plants are facing a severe shortage of coal, a CEA official said.

    The new scheme will help end this anomaly along with bringing down the cost of power.

    He added that once the scheme is successfully implemented by government-owned utilities, it will be extended to the private sector as well.

    The methodology for transferring or swapping of coal linkages with private power plants will be drawn out soon and there is a possibility of imported coal-based plants being included in the scheme, the CEA official said.
    Back to Top

    Rio Tinto reduces exposure in tax havens, paid $4.5bn in taxes last year

    Diversified mining group Rio Tinto has reduced its exposure to tax havens, with only 17 of its more than 600 controlled entities currently resident in countries with a with a general income tax rate of 10% of less. Eight of the 17 entities were dormant and either in liquidation or scheduled for liquidation, 

    Rio Tinto reported on Wednesday in its ‘Taxes paid in 2015’ report, which showed that the mining company had paid $4.5-billion in taxes and royalties last year. 

    Of the remaining nine entities, four were established as investment holding companies to hold shares in operating companies prior to becoming part of the Rio Tinto group through acquisition. The company did not obtain tax benefits from these entities, but said that liquidating them would incur unnecessary costs. 

    Three entities provided interest-free loan funding to the group operating companies, while one entity held investments for the benefit of a community in a region of a mine, which had ceased to operate. One entity was established to provide in-country services prior to becoming part of the Rio Tinto group through an acquisition. This business had been reduced so that it had only $1-million turnover and about $50 000 profit. 

    CFO Chris Lynch used the 2015 tax report to explain how the group’s tax strategy applied to entities resident in tax haven jurisdictions. This followed increased public and media interest in the use of entities resident in tax havens in recent years, after Rio Tinto and BHP Billiton have been accused of avoiding taxes in Australia. 

    Rio Tinto also provided details about its operations in Singapore, where the general corporate income tax rate was 17%, but the company qualified through significant business activity for a lower tax rate. The mining group stated that it had a “small number” of Singapore resident companies, which essentially paid an effective corporate income tax rate of 10% or less, owing to the incentive scheme. 

    The transactions with the Singaporean entities were undertaken on an arm’s length basis and were priced in accordance with Organisation for Economic Cooperation and Development (OECD) guidelines and local legal requirements. “While we are satisfied these transactions align with tax requirements, differences of interpretation between companies and tax authorities can occur. In order to reduce the risk of dispute, we enter into Advance Pricing Agreements (APAs), which operate to agree the price charged with tax authorities. 

    We have entered into APAs with the Australian Tax Office (ATO), Canada Revenue Authority and Singapore Revenue Authority in relation to some of the transactions involving the Singapore commercial centre.” Rio Tinto said it was engaged in discussions with the ATO in relation to the pricing of iron-ore marketing services.

    Lynch said that 2015 had been a year of significant change in the international tax landscape, as a result of the OECD’s project on Base Erosion and Profit Shifting (BEPS).  He said that Rio Tinto agreed with the primary aims of BEPS, which were to prevent aggressive tax avoidance and to update tax rules on a consistent basis to cater for modern, globalised business structures. “We have engaged constructively with the OECD BEPS process.

    We accept the recommendation to share country by country reporting with tax authorities. “Care must be taken not to inadvertently damage the investment environment when implementing BEPS recommendations. We are also concerned about the potential for double taxation resulting from this initiative, and about the additional compliance costs that will result from actions being taken by governments and tax authorities in response,” said Lynch. ‘32% 

    Rio Tinto reported that the $4.5-billion it had paid in taxes and royalties last year was a 32% decrease on that of 2014, owing to lower underlying earnings. Of the total, Rio Tinto paid $3.3-billion in taxes in Australia.
    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