Mark Latham Commodity Equity Intelligence Service

Friday 4th December 2015
Background Stories on

News and Views:

Attached Files

    Oil and Gas


    BHP Billiton CEO bearish on commodities price outlook

    Top global miner BHP Billiton is bearish on the outlook for commodity prices in the long term, but remains bullish on demand growth based on the rise of Asian economies, its CE said on Thursday. 

    "The first thing I would say is we're relatively bearish about the long term projections for prices," CE Andrew Mackenzie said following a speech in Melbourne. 

    He said the only way to compete in a world where there was ample capacity to meet the needs of countries like China was to keep cutting costs, as BHP and its rivals are doing, which means prices will keep coming down. 

    "That is the spirit of competition that we play in," he said. "But, yes, I am optimistic about the long term growth in demand, because I know the kind of resources it requires to push three, four billion people into the middle classes, particularly in Asia, and the kind of consumption that will come from that.

    " While iron ore prices have slumped to decade lows as steel mills in China, the world's biggest producer and user of steel, battle a downturn, Mackenzie questioned forecasts by Chinese steel makers that production would stabilise around 500 or 600 million tonnes a year. 

    BHP and the world's other mega-producers of iron ore still expect Chinese steel production to peak around 1 billion tonnes in the next decade. "I think China will be producing a lot more steel than the 600 million tonnes a year that you're talking about, and some for a while," he said in response to a question after his speech at a University of Melbourne function. 

    "We shouldn't forget that China is turning out to be a much more effective exporter of its steel products than many people thought." China's steel consumption per head would need to roughly double to get to the typical point where an economy is self-sustaining in steel through recycling. 

    "If China really wants to get along a path towards full development, it does have to get on with further construction of a number of things, including machinery and cars, and that will require more steel to be produced," Mackenzie said. He said he would "nudge his bearishness up a bit" if China took a long time to push ahead with that construction.

    Attached Files
    Back to Top

    China says to cut power sector emissions by 60 pct by 2020

    China will cut emissions of major pollutants in the power sector by 60 percent by 2020, the cabinet announced on Wednesday, after world leaders met in Paris to address climate change.

    China will also reduce annual carbon dioxide emissions from coal-fired power generation by 180 million tonnes by 2020, according to a statement on the official government website. It did not give comparison figures but said the cuts would be made through efficiency gains. (

    In Paris, Christiana Figueres, head of the U.N. Climate Change Secretariat, said she had not seen the announcement, but linked it to expectations that China's coal use would peak by the end of the decade.

    "I can only assume they are talking about the same thing," she told Reuters.

    Researchers at Chinese government-backed think-tanks said last month that coal consumption by power stations in China would probably peak by 2020.

    An EU official, speaking on condition of anonymity, said Wednesday's announcement seemed to relate more to air pollutants than greenhouse gas emissions.

    China's capital Beijing suffered choking pollution this week, triggering an "orange" alert, the second-highest level, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors.

    The smog was caused by "unfavourable" weather, the Ministry of Environmental Protection said. Emissions in northern China soar over winter as urban heating systems are switched on and low wind speeds meant that polluted air does not get dispersed.

    The hazardous air, which cleared on Wednesday, underscores the challenge facing the government as it battles pollution caused by the coal-burning power industry and raises questions about its ability to clean up its economy.

    Reducing coal use and promoting cleaner forms of energy are set to play a crucial role in China's pledges to bring its greenhouse gas emissions to a peak by around 2030.

    Beijing has pledged to reduce the share of coal in total energy consumption to 60 percent by the end of the decade. It has banned the use of low-grade coals.

    Premier Li Keqiang has said China would set an efficiency "bottom line" of 310 grams of coal per kilowatt-hour for plants across the country, according to the government website.

    The average for the first 10 months of 2015 was 318 grams, according to official data.

    "The efficiency target is in line with earlier emissions standards announced in 2014, but it tightens things up for coal-fired plants nationwide, without regional differences," said Yuan Jiahai, a researcher with the North China Electric Power University.

    The cabinet also said that it would provide more financial support, including preferential loans, to help firms renovate. China already provides subsidies for firms that have installed the mandatory equipment.

    China's delegate at the Paris talks, Su Wei, "noted with concern" what he called a lack of commitment by the rich to make deep cuts in greenhouse gas emissions and help developing nations with new finance to tackle global warming.

    China's coal-fired power sector is notoriously inefficient. Utilisation rates have fallen nearly 8 percent this year to reach a record low, but surplus capacity could still be as high as 130 GW, or 14 percent of the total, industry estimates show.

    Also, local governments continue to approve new capacity even as the country shuts outdated ones. Around 200 GW of capacity was given the go-ahead in the first half of 2015, while only 4.9 GW of small and ageing plants were shut in 2014.
    Back to Top

    Russia says it has proof Turkey involved in Islamic State oil trade

    Russia's defence ministry said on Wednesday it had proof that Turkish President Tayyip Erdogan and his family were benefiting from the illegal smuggling of oil from Islamic State-held territory in Syria and Iraq.

    Moscow and Ankara have been locked in a war of words since last week when a Turkish air force jet shot down a Russian warplane near the Syrian-Turkish border, the most serious incident between Russia and a NATO state in half a century.

    Erdogan responded by saying no one had the right to "slander" Turkey by accusing it of buying oil from Islamic State, and that he would stand down if such allegations were proven to be true. But speaking during a visit to Qatar, he also said he did not want relations with Moscow to worsen further.

    At a briefing in Moscow, defence ministry officials displayed satellite images which they said showed columns of tanker trucks loading with oil at installations controlled by Islamic State in Syria and Iraq, and then crossing the border into neighbouring Turkey.

    The officials did not specify what direct evidence they had of the involvement of Erdogan and his family, an allegation that the Turkish president has vehemently denied.

    "Turkey is the main consumer of the oil stolen from its rightful owners, Syria and Iraq. According to information we've received, the senior political leadership of the country - President Erdogan and his family - are involved in this criminal business," said Deputy Defence Minister Anatoly Antonov.

    "Maybe I'm being too blunt, but one can only entrust control over this thieving business to one's closest associates."

    "In the West, no one has asked questions about the fact that the Turkish president's son heads one of the biggest energy companies, or that his son-in-law has been appointed energy minister. What a marvellous family business!"

    "The cynicism of the Turkish leadership knows no limits. Look what they're doing. They went into someone else's country, they are robbing it without compunction," Antonov said.

    Erdogan last week denied that Turkey procures oil from anything other than legitimate sources.

    He has said Ankara is taking active steps to prevent fuel smuggling, and he challenged anyone who accused his government of collaborating with Islamic State to prove their allegations.

    On Tuesday, U.S. President Barack Obama said Turkey had made progress in sealing its border with Syria, but Islamic State was still exploiting gaps to bring in foreign fighters and sell oil.

    The Russian defence ministry also alleged that the same criminal networks which were smuggling oil into Turkey were also supplying weapons, equipment and training to Islamic State and other Islamist groups.

    "According to our reliable intelligence data, Turkey has been carrying out such operations for a long period and on a regular basis. And most importantly, it does not plan to stop them," Sergei Rudskoy, deputy head of the Russian military's General Staff, told reporters.

    The defence ministry said its surveillance revealed that hundreds of tanker trucks were gathering in plain sight at Islamic State-controlled sites in Iraq and Syria to load up with oil, and it questioned why the U.S.-led coalition was not launching more air strikes on them.

    "It's hard not to notice them," Rudskoy said of the lines of trucks shown on satellite images.

    Officials said that the Russian air force's bombing campaign had made a significant dent in Islamic State's ability to produce, refine and sell oil.

    Ministry officials described three main routes by which they said oil and oil products were smuggled from Islamic State territory into Turkey.

    It said the Western route took oil produced at fields near the Syrian city of Raqqa to the settlement of Azaz on the border with Turkey.

    From there the columns of tanker trucks pass through the Turkish town of Reyhanli, the ministry said, citing what it said were satellite pictures of hundreds of such trucks moving through the border crossing without obstruction.

    "There is no inspection of the vehicles carried out ... on the Turkish side," said Rudskoy.

    Some of the smuggled cargoes go to the Turkish domestic market, while some is exported via the Turkish Mediterranean ports of Iskenderun and Dortyol, the ministry said.

    Another main route for smuggled oil, according to the ministry, runs from Deir Ez-zour in Syria to the Syrian border crossing at Al-Qamishli. It said the trucks then took the crude for refining at the Turkish city of Batman.

    A third route took oil from eastern Syria and western Iraq into the south-eastern corner of Turkey, the ministry said.

    It said its satellite surveillance had captured hundreds of trucks crossing the border in that area back in the summer, and that since then there had been no reduction in the flow.

    The defence ministry officials said the information they released on Wednesday was only part of the evidence they have in their possession, and that they would be releasing further intelligence in the next days and weeks.

    Read more at Reuters

    Attached Files
    Back to Top

    Germany's intelligence agency says Saudi Arabia's 'game of thrones' risks tearing the Middle East apart

    Germany's state intelligence agency says competition for influence inside the Saudi Arabian royal family is destabilising the wider Middle East, according to domestic media reports.

    Frankfurter Allgemeine Zeitung (FAZ), one of Germany's premier daily newspapers, carries the warning from the BND intelligence agency.

    According to FAZ, the BND identifies a shift toward an "impulsive intervention policy" in Yemen and elsewhere, driven by internal power struggles that pose a risk to the whole region.

    Analysts at Royal Bank of Canada have previously referred to the internal discord as Saudi Arabia's version of HBO's "Game of Thrones," since the country's political life bears more resemblance to that of the fictional world of court intrigue than it does to that of most other countries.

    Mohammad bin Salman, the country's deputy crown prince, is a major part of that dynastic battle. He is the 30-year old son of the current king, but the complex architecture of the country's stratified royal family means he is not next in line for the top job, even if he wants it. For starters, he's not the King's eldest son, even if he's the favourite.

    The appointed successor falls to Crown Prince Muhammad bin Nayef, the king's nephew, who is decades older than Mohammad bin Salman.

    Mohammad bin Salman has taken a central place in Saudi political life since his father, King Salman, ascended to the throne at the beginning of the year. He is also the country's defence minister, playing a large part in the violent intervention in Yemen's conflict this year.

    The royal family has thousands of members with differing levels of wealth and power, and any sign that the deputy crown prince is attempting to leapfrog the crown prince could provoke resentment, especially if it seems to have the blessing of King Salman.

    FAZ says BND analysts suggested a "latent risk" that the king's son tries to succeed his father directly, skipping out the crown prince. Saudi Arabia's growing proxy conflicts with Iran and a declining trust in the support of the US are also marked as destabilising factors.

    Though it's not mentioned by the BND, Saudi Arabia's economic climate is also far less stable today than it was a few years ago — the tremendous collapse in oil prices means the country's fiscal position will be tenable for around five years, after which its "fiscal buffers" — largely foreign currency reserves — will be exhausted.
    Back to Top

    Fossil-Fuel Divestment Tops $3.4 Trillion Mark, Activists Say

    Insurers, cities and other investors controlling more than $3.4 trillion in assets have pledged to keep some or all of their money out of fossil-fuel companies -- a high-water mark for the divestment movement, according to climate-change advocates.

    The number has swelled from the $2.6 trillion announced inSeptember and the $50 billion committed just last year, in a sign of the growing political stigma associated with coal, oil and natural-gas producers, according to a statement from and Divest-Invest, two groups behind the divestment campaign.

    The latest figures were announced on the third day of a United Nations conference in Paris where almost 200 nations are seeking a deal to reduce global-warming pollution. Emissions from fossil fuels are a key target, with governments at the talks pledging to reduce billions of dollars in subsidies for the industry and shift them to renewable energy.

    “Investors are reading the writing on the wall and dramatically shifting capital away from fossil fuels,” the two groups said in the statement. Investors “hope that their actions can push governments to follow suit.”

    Since the September report, the groups said, divestment pledges have come from investors including Allianz SE, Europe’s biggest insurer; a $9 billion pension fund controlled by the city of Oslo; and Australian cities representing $4 billion in investments. Some are only partial commitments, covering a particular fuel such as coal or oil-sands, the groups said. More than 500 institutions in all have made divestment commitments, according to the statement.

    Attached Files
    Back to Top

    US CEO Economic Confidence Implodes, Drops To Lowest In Three Years

    Following a relentless barrage of recessionary industrial and manufacturing data, moments ago the Business Roundtable released its latest, fourth quarter 2015 CEO Economic Outlook Survey, and it is an absolute disaster.

    According to the report, for the third quarter in a row, CEOs expressed growing caution about the U.S. economy’s near-term prospects and indicated they are moderating their plans for capital investment over the next six months, according to the Business Roundtable fourth quarter 2015 CEO Economic Outlook Survey, released today.

    The Business Roundtable CEO Economic Outlook Index – a composite of CEO projections for sales and plans for capital spending and hiring over the next six months – declined 6.6 points, from 74.1 in the third quarter of 2015 to 67.5 in the fourth quarter.

    This third consecutive quarterly decline brought the Index to its lowest level in three years. As shown in the chart below CEOs are as unconfident in the recovery as they were in late 2012. In other words, CEO confidence has just dropped to a level last seen when the Fed was about to unveil QE3.

    Image title

    Attached Files
    Back to Top

    RWE says to put renewables, grids, retail into new unit

    RWE on Tuesday confirmed plans to put its renewables, grids and retail businesses into a separate entity, about 10 percent of which it aims to place in an initial public offering (IPO) at the end of next year.

    Germany's second-largest utility said the IPO, to take place along with a capital increase, could result in the sale of additional stakes in the new subsidiary "at the same or later point in time".

    Read more at Reuters
    Back to Top

    A financial solution for China's smog problem

    As world leaders gather in Paris to debate how to combat the challenge of the climate change, China's capital city is shrouded in heavy smog. Many of Beijing’s landmarks such as the Forbidden City are not even visible from a short distance. One of the jokes going around Chinese social media is about the Beijing mayor’s promise last year to solve the smog problem, or he will serve his head on a platter. Now many people are asking for his head.

    Combating an ever-worsening environmental problem has become one of the top priorities for Chinese policymakers. Even in an authoritarian state, the government cannot ignore citizens’ strong demands for better living conditions forever.

    The chief economist of the Chinese central bank, Ma Jun, believes one of the root causes of the country’s worsening smog problem is the structure of the economy. China has a disproportionately large heavy industry sector compared to other major economies, and the heavy industry is nine times more polluting than the services sector.

    The industrial sector accounts for 41 per cent of the country’s GDP. By comparison, Australia’s industrial sector comprises only 6.8 per cent of the economy. In China, coal is responsible for two thirds of total energy production, and is ten times more polluting than renewable energy.

    Ma argues the key to addressing the structural problem of pollution is through financial innovation. The central bank economist says China needs to develop green finance to channel more money into more environmentally friendly sectors, according to an op-ed piece published on Caixin.

    “There has been too much investment in polluting industries, energy and transport projects. There are not enough investments in low emission and renewable energy projects,” he says. Like elsewhere, many of these projects face problems of low returns. Many private sector investors are reluctant to enter the field.

    China needs two to four trillion yuan in green investment every year for the foreseeable future. The Chinese government, due to its recent profligacy, can only cough up 300 billion yuan a year. Even adopting the most conservative estimates, the Chinese government can only contribute 15 per cent of the total financing needs of the country. It means the private sector has to contribute another 85 per cent.

    How to incentivise private sector investors is one of the key challenges. In September this year, the Chinese government published a policy document on building a better ecological system. Article 45 of the document specifically deals with the issue of developing a green financing system.

    For examples, it calls for interest rate subsidies and credit guarantees to encourage more lending for so-called green projects. Beijing also wants to develop a market for green bonds and a stockmarket index for sustainable companies. It also wants listed companies to disclose more environmental-related issues.

    All of these measures are designed to incentivise private sector investors to move away from polluting industries and invest in more sustainable sectors.

    Ma uses Hebei as an example to talk about the need to develop a green economy. The province is the largest producer of steel, cement and pleat glass in China. All these industries are heavily polluting and contribute to the smog problem in northern China. The province needs to cut 15 million tonnes of steel production, 15 million tonnes of iron production as well as 39 million tonnes of cement. These cuts equate to millions of job losses.

    The central bank chief argues that if the government relies on draconian administrative measures to shut up factories and steel mills, it will result in massive unemployment, which will create social problems as well put more pressure on the slowing economy. He says a better way to deal with the issue is through encouraging more private sector investors to put money into more sustainable sectors.

    He makes the following suggestions.

    He says Beijing needs to support more lending to renewable sectors through interest rate subsidies -- he thinks it should be around about 3 per cent.  For every dollar the government spends, it is likely to bring in another 33 dollars from the private sector.

    The government should also establish funds that invest directly in green projects. International experience suggests private sector investors are more willing to get involved if the government kicks in money too. In addition, a green bond market could be used to finance long-term projects such as subways and waste water treatment.

    Attached Files
    Back to Top

    China factory activity hits 3-year low in November - official PMI

    Manufacturing activity in China hit a three-year low in November, an industry survey showed Tuesday, supporting the case for more accommodative policies as authorities seek to prop up growth in the world's second largest economy.

    China's National Bureau of Statistics' official Purchasing Managers' Index (PMI) hit 49.6 in November, its lowest reading since August 2012 and down from the previous month's reading of 49.8. This was below a Reuters poll forecast of 49.8 and marked the fourth straight month of contraction in the sector.

    A reading below 50 points suggests a decline in activity on a monthly basis while a reading above signifies an expansion.

    "With soft growth momentum and deflation pressures creeping up, we expect the authorities to further ease monetary policy and continue to implement an expansionary fiscal policy in order to prevent further slowdown of the economy in 2016," Li-Gang Liu and Louis Lam, ANZ economists said in a research note released after the data.

    Separately, the Caixin/Market China Manufacturing PMI edged up to 48.6 in November, beating market expectations of 48.3, which would have been unchanged from the previous month. The index has shown contraction for nine straight months.

    The private sector Caixin survey focuses more on small-to-medium-sized private firms, which are showing more stress from the prolonged economic slowdown and high financing costs, while the official versions look more at larger, state-owned firms.

    The official PMI's sub-indexes showed widespread weakness in manufacturing with new orders - a proxy for domestic and foreign demand - down 0.5 points to 49.8 and exports contracting to 46.4 for the 14th straight month. Input prices declined 3.3 points to 41.1.

    ANZ economists said this points to persistent deflation in upstream prices, which would add pressure to factory gate prices and industrial profits.

    Service sector activity, which has helped offset the wider effects of weakness in manufacturing, improved with the official non-manufacturing PMI up half an index point to 53.6.

    "The services sector appears strong and there are some hints that accelerating credit growth and fiscal spending may have continued to support investment growth last month, following a rebound in October," Julian Evans-Pritchard, an economist at Capital Economics, wrote in a research note.

    Despite a long series of stimulus measures, including cutting interest rates six times since November last year, muted monthly data for October suggests China's economic momentum continues to slow.

    Some analysts expect China's economy will bottom out in the fourth quarter as a burst of stimulus measures rolled out by Beijing gradually takes effect, but many remain wary about the outlook.

    China's Premier Li Keqiang said last week that China was on track to reach its economic growth target of about 7 percent this year, and that the economy was going through adjustments to maintain reasonable medium- to long-term growth.

    But that would still mark China's weakest economic expansion in a quarter of a century, and some analysts believe real growth levels are much weaker than official data suggest.

    Attached Files
    Back to Top

    Linde cuts 2017 profit forecast on weak industrial gases

    Linde, the world's biggest industrial gases company by sales, cut its 2017 profit target, citing slower industrial production growth weighing on its industrial gases unit.

    Linde now expects adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) to come in between 4.2 billion euros ($4.4 billion) and 4.5 billion in 2017, down from an initial target of 4.5 to 4.7 billion, it said on Monday.

    It would also not achieve its 2017 target for return on capital employed (ROCE) of between 11 and 12 percent and now expects 9 to 10 percent.

    Linde also said its engineering division would continue to suffer from a weak order book due to the low oil price.

    It said last month that only strong growth at its U.S. healthcare gases business helped it eke out a gain in third-quarter adjusted EBITDA.

    At the engineering division, which designs and erects large plants for the oil and petrochemical industry, clients have kept holding off on large investments, with crude oil prices down about 40 percent from a year ago.

    Read more at Reuters

    Attached Files
    Back to Top

    The commodities bloodbath of 2015 in one chart

    Commodities have been getting creamed in 2015.

    And according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices, it isn't going to get any better any time soon.

    "Unfortunately for commodities, there’s no waking up from this nightmare."

    So far, 2015 has not yet been the worst year for any single commodity, Gunzberg noted in a November 30 report, but there are a number of commodities that are on pace for one of their worst years on record.

    "Aluminum is having its second worst year in history and gold is having its sixth worst year in history," Gunzberg writes.

    The S&P tracked each commodity's performance back to 1970 for its research. No fewer than 17 are having one of the their five worst years out of 45.

    Natural gas is down more than 40% this year, according to S&P, and energy is down more than 30% — making 2015 the fifth-worst year for each.

    Already, Wall Street is bracing for big fallout. Wall Street banks areexpecting more defaults in the energy sector as they see more loans underperforming.

    This is S&P's chart tracking the carnage.

    Image title

    S&P Dow Jones IndicesS&P tracks commodities' plunge in 2015.

    Attached Files
    Back to Top

    Saudi Interbank Rates Soar, Deposits Flee As Cash Crunch Intensifies

    Exactly a year ago, Riyadh decided to embark on an epic quest to send crude prices plunging on the way to, i) bankrupting the US shale complex and ii) achieving “ancillary diplomatic benefits,” like tightening the screws on Moscow’s energy-dependent economy in hopes of forcing Putin to give up Assad.

    Long story short, the kingdom’s plan didn’t work.

    Thanks to ZIRP, legions of yield-starved investors in the US ensured that capital markets remained open to otherwise insolvent drillers, allowing US producers to stay in business longer than the Saudis anticipated. Meanwhile, not only did Putin not give up Assad, he actually sent the Russian air force to Latakia and to add insult to injury, Moscow’s warplanes are now bombing Saudi-financed Sunni militias in Syria.

    Meanwhile, slumping crude prices wreaked havoc on the kingdom’s finances.As we’ve documented extensively, the Saudis are now staring down a deficit on both the fiscal and current accounts with the former amounting to some 20% of GDP and the latter representing the first negative balance in at least 15 years.

    So what's a despotic, puritanical Islamic monarchy to do? Well, you can tap the debt markets to offset the FX reserve burn and indeed Riyadh has already gone that route, but as we noted earlier this month, it's not clear how far they'll ultimately want to push that given that projections already have the country's debt-to-GDP ratio climbing from basically zero to more than 33% by 2020

    Income from oil and related products contributes more than 80 percent of Saudi government revenue, and crude’s 37 percent plunge over the past year is poised to result in a 10-fold increase in the country’s budget deficit. That’s squeezing liquidity in the banking system, with demand deposits dropping 4.7 percent in October, as those of businesses, individuals and government entities slumped.

    "The drop in deposits in October, in absolute amount, is probably the biggest since the 1990s," Murad Ansari, a bank analyst at EFG-Hermes Holding SAE, said by phone from Riyadh on Monday. "There are payment delays from the government to contractors, which is one of the reasons for the decline in private sector deposits, and public sector deposits are shrinking as the government is running a deficit."

    Well don't look now, but money markets are tightening dramatically in the kingdom as deposits dry up. The 3-month Saudi Interbank Offered Rate has jumped 13 bps in November to its highest level since early 2009.

    In short, the Saudi economy is gradually grinding to a halt, which is what happens when you deliberately tank the commodity that accounts for more than three quarters of government revenue and when government spending is the linchpin for economic growth. While it's not clear how much of this is "priced in" so to speak, you'll note that there's not a lot of breathing for the Saudis in terms of avoiding a recession in the not-so-distant future.

    Attached Files
    Back to Top

    Forget Esteves, It's the Other Brazil Bust That Worries Insiders

    When a world-renowned banker and a congressman were busted last week as part of the biggest corruption scandal in Brazil’s history, the international spotlight naturally fell on the young tycoon, Andre Esteves.

    Yet to long-time Brazil watchers, it was the detention of the legislator -- a ruling party dealmaker named Delcidio Amaral -- that marked a far more worrisome development for a country desperately seeking to contain a deepening financial and political crisis. His arrest not only delayed government efforts to resolve this year’s budget dispute, but it also dispels a long-held belief that sitting lawmakers are all but untouchable because of a quirk in Brazilian law that affords politicians special treatment in criminal investigations.

    While that can be seen as a true silver lining in the scandal -- a sign that a legislative branch rife with alleged corruption will no longer be tolerated -- it also injects a wild card into the crisis: Who will fall next and where will it all end? With the heads of both houses being investigated, it raises the possibility that Brazil’s political apparatus could unravel before ever passing the spending cuts and tax increases needed to restore investor confidence and ward off a new round of credit-rating downgrades.

    "The idea that the political leaders have a plan to pull the country out of this crisis died because their very own future is at stake," Gabriel Petrus, a political analyst at business consulting firm Barral M Jorge, said from Brasilia. "Never before in history have we had so little certainty about tomorrow."
    Back to Top

    China sees first state-owned firm default on bond

    A power company in China failed to make an interest payment on a bond on Tuesday marking the first time a state-owned firm has been allowed to default and adding to evidence that Beijing is slowly withdrawing its sovereign guarantee of low-quality bonds.

    Baoding Tianwei Group said in a statement that it was unable to make the payment on time.

    The default "might destroy the ironclad guarantee reputation of central government-owned issuers", wrote analysts at China Chengxin International Credit Rating Co in a research note before the default.

    But they added that the low grade of Tianwei and the other defaulters limits the market impact of any defaults.

    The news comes shortly after a full default on both principal and interest by Cloud Live Technologies earlier this month, and a more recent offshore default by Kaisa Group , the first Chinese developer to default on dollar bonds. Investors are now eyeing developer Glorious Property Holdings, whose bond payment comes due on Saturday.

    But defaults on bonds sold to foreigners offshore have failed in the past; what the Chinese political system has struggled with is allowing domestic defaults. The first default in 2014 by a small private solar power company ultimately ended in a bailout several months later.

    Baoding Tianwei Group is entirely owned by the Beijing-based China South Industries Group Corporation, which advertises itself as a part owner of Changan Automobile Group on its corporate website as well as a major defense equipment maker. It is directly owned by the central government.

    Calls to the company were not answered, but investors appeared to have taken the lack of a rescue in stride, with bond markets shrugging off the news.

    On April 16, the company had warned investors that it might miss an 85.5 million yuan ($13.8 million) interest payment.

    The 5-year, 1.5 billion yuan bond maturing in 2016 has a coupon of 5.7 percent. It was originally rated AA+, but was later downgraded to BB.

    Despite its links to the government, there were few signs China South Industries would rush to Baoding Tianwei's rescue.

    "This affair has no connection with us," said an employee of China South Industries when contacted, although the employee confirmed that Baoding Tianwei is a subsidiary. He suggested contacting its underwriter, China Construction Bank.

    Read more at Reuters

    Attached Files
    Back to Top

    A critical shift is taking place in China ― and it could have brutal consequences

    China is beginning to "talk the walk."

    That is according to Wei Yao, a strategist at Societe Generale, who published a note on Friday on the country's need for capacity consolidation.

    Capacity consolidation is another way of saying that China needs to cut back on heavy industry, which sucks up resources and capital.

    That sector of the economy has been allowed to continue production despite overcapacity, or a glut of supply, for too long.

    "To us, capacity consolidation holds the key to addressing China's most pressing economic issues: capital misallocation, looming growth in non-performing assets and deteriorating productivity," the note said.

    Supply-side reform is now the No. 1 catchphrase in Chinese policymaking circles, according to Yao. That marks a key change, as in the past China has focused on three areas of aggregate demand: consumption, investment, and exports.

    "It is encouraging that the authorities are no longer beating around the bush, at least rhetoric-wise, on the inevitability of some serious restructuring programmes. To us, this sudden sense of urgency is a clearly response to negative developments this year."

    To recap, negative developments this year include: A sharp drop in the mainland's stock market, a sharp drop in exports, a devaluation of the yuan, and a fresh round of stimulus measures.

    Yao even goes so far as to set out what a potential restructuring might look like. It is pretty brutal, and involves laying off 1.7 million workers. She said:

    Scale: The program could begin with the most distressed sectors. The obvious candidates are coal mining, ferrous metal mining and ferrous metal manufacturing.
    Size and time horizon for restructuring: SOEs in the three sectors above together have CNY5trn [$780 billion] in liabilities and employ 8.6 million people. Assuming 20% SOE capacity reduction as the target (that is, over average 10% for the sectors as a whole), potential non-performing debt would be CNY1trn [$156 billion] and 1.7 million workers could be made redundant, equivalent to 2% of bank loans and 0.3% of urban employment.
    Size and format of fiscal assistance: The amount of assistance would be determined by the cost of soothing unemployment pains and debt write-down. We estimate that the fiscal support needed would be CNY325bn [$50 billion], thus CNY75bn [$11 billion] per year if implemented over five years.
    Further expansion of the program: If the initial program is successful, the authorities could then adapt the restructuring model to other sectors. The total cost of restructuring of the troubled sectors could run up to CNY1trn. The pace would be subject to social stability, fiscal scope and the financial system's ability to absorb non-performing assets.

    Clearly, such a plan isn't going to be easy. Chinese policymakers and citizens alike are likely to be especially sensitive to the prospect of increased unemployment. But Yao, who is one of the leading lights on China economic analysis, said any kind of programme to speed up capacity consolidation will be a clear positive for China's outlook.

    The note said: "The restructuring programme may still come slowly, but with the authorities shifting their attention to supply from demand, a critical shift in macroeconomic management looks likely."

    Attached Files
    Back to Top

    Sichuan sends over 100 GWh of hydropower to E& NW China

    Southwestern China’s Sichuan province has sent 103.8 TWh of hydroelectricity to eastern and northwestern China through three UHV DC power transmission lines and one EHV DC transmission line by November 26 since the start of the year, registering a new high, state media reported on November 30.

    Three UHV DC power transmission lines—Jinping-Jiangsu line, Xiangjiaba-Shanghai line and Xiluodu-Zhejiang line—were key channels of the state’s “West-to-East” power transmission project, with each outbound electricity at over 30 TWh and combined volume rising 21% on year since this year.

    The EHV DC transmission line starting from Deyang in the province to Baoji in Shaanxi sent 7.61 TWh of hydroelectricity during the same period, up 67% from a year ago.

    The hydropower equaled the reduction of over 40 million tonnes in raw coal consumption, plus 150 million tonnes and 500,000 tonnes dioxide carbon and dioxide sulpur emissions, respectively, in eastern and northwestern China.

    The four DC power transmission lines realized full load operation gradually between June and November this year, with combined capacity at 24.6 GW and daily transmission electricity at 500 GWh.

    Attached Files
    Back to Top

    China gives 14 officials jail terms over 2013 oil pipeline blast

    China has sentenced 14 former officials at state energy firm Sinopec and the local government to jail for up to five years for their role in a massive oil pipeline explosion in 2013, the official Xinhua news agency said on Monday.

    The explosion in the eastern province of Shandong killed 63 people and injured 156, and caused losses worth 751.7 million yuan ($117.53 million), Xinhua said.

    It said the Sinopec officials were sentenced for violating safety regulations while the government officials had failed to fully perform their duties in dealing with the blast.

    The explosion was one of the biggest to hit infrastructure developments in China, raising questions about safety standards in the world's second largest economy. In August, explosions at port warehouses killed more than 160 people in the northeastern city of Tianjin.

    The 2013 oil pipeline explosion occurred at the Dongying-Huangdao II pipeline owned by Sinopec. The government at the time said it was caused by corrosion, irregular work practices and a tangled network of underground pipes.

    The blast highlights the risks involved as both energy pipeline networks and China's cities expand rapidly. Urban development has engulfed many existing pipelines, providing an opportunity for thieves but also leaving lines dangerously close to residents, industry and commerce.

    Read more at Reuters
    Back to Top

    VW unveils emissions fix for diesel cars in Europe

    Volkswagen has revealed its plans to fix those diesel cars in Europe affected by its cheat emissions tests.

    The measures will bring the cars into line with the clean air standards in the region, according to the company.

    The car manufacturer stated the plans to fix the EA 189 engines affected with a displacement of 1.6 and 2.0 litres will be based on a software upgrade.

    A small tube called “flow transformer” will be installed in 1.6 litre engines to allow more precise measurement of the incoming fresh air flows.

    It will also allow to measure fuel more precisely and improve emissions.

    The plan has been ratified by the Federal Motor Transport Authority (FMTA).

    The final technical solution for the 1.2 litre engine will be presented to FMTA at the end of the month, the company added.

    The car manufacturer is setting aside €6.5 billion (£4.7 billion) to cover the costs of fixing the cars to comply with pollution standards.

    A total of 11 million cars were affected by the emissions scandal worldwide out of which almost 1.2 million are in the UK.

    Volkswagen hasn’t announced any plan to fix the cars sold in the US as vehicles are subject to much more stringent emissions legislation than in other countries but it said it will compensate customers.

    However, the company won’t reward European customers, explaining the market circumstances are different.
    Back to Top

    Oil and Gas

    USA: House passes bill bringing clarity to LNG export permitting process

    The U.S. House of Representatives on Thursday passed the North American Security and Infrastructure Act, bringing regulatory certainty to the Department of Energy’s (DOE) permitting process for LNG exports.

    According to the new legislation, DOE is required to issue a final decision on any application to export LNG no later than 30 days after the conclusion of a project’s environmental review.

    The Center for liquefied natural gas welcomed the passage of H.R. 8 noting that the regulatory certainty will foster export capacity growth through efficient planning, scheduling, financing and construction of LNG projects.

    CLNG Spokesperson Casey O’Shea, commenting on the passage of the H.R. 8, urged the Senate to pass companion legislation that provides regulatory certainty for U.S. LNG exports.
    Back to Top

    Ambrose on Oil


    They are at the mercy of opaque palace politics in Riyadh that few understand. Helima Croft, a former analyst for the US Central Intelligence Agency and now at RBC Capital Markets, says the only man who now matters is the deputy crown prince, Mohammed bin Salman.

    The headstrong 30-year-old has amassed all the power as minister of defence, chairman of Aramco and head of the Kingdom's top economic council, much to the annoyance of the old guard. "He is running everything and it comes down to whether he thinks Saudi Arabia can take the pain for another year," she said.

    The pretence that all is well in the Kingdom is wearing thin. Austerity is becoming too visible. A leaked order from King Salman - marked "highly urgent" - freezes new hiring and halts public procurement, even down to cars and furniture.

    The question for Prince Mohammed is whether it is worth pushing his oil strategy to the limit, even to the point of rupturing Opec. "They want to prevent a horrible family feud breaking out into the open, but what will they do if countries threaten to revoke their Opec membership?" asked Dr Croft.

    Venezuela's president, Nicolas Maduro, says his country will lay out plans for a 5pc cut in Opec production, trimming global supply by 1.5m barrels a day (b/d).

    For months he has been in despair, protesting bitterly as the Gulf strategy cuts off half his funding and drives the Chavista revolution into its final agonies. Yet all of a sudden he is strangely cheerful.

    Attached Files
    Back to Top

    Vantage Drilling announces restructuring plan, files for Chapter 11 protection

    Deep-water contractor Vantage Drilling unveiled Thursday a restructuring plan the company said will sort out its finances and enable its affiliate Offshore Group Investment to weather the ongoing oil and gas bust.

    Vantage said it had reached an agreement with lenders and creditors holding more than $1.6 billion of its subsidiary Offshore Group Investment Limited’s debt.

    The larger company filed for Chapter 11 protection in a Delaware court on Thursday and said it will present the plan to the court in mid-January. Other branches of the drilling venture will go through similar proceedings in Cayman Islands.

    The restructuring plan includes a $75 million, second-lien financing and a swap that will have existing lenders and secured creditors convert their debt into equity and a share of $750 million in senior subordinated notes. The new notes will pay their interest in the form of another set of notes and won’t burden the company with an additional cash payment, according to a release.

    “The agreement we’ve reached with our lenders and noteholders will eliminate more than $152 million of annual cash interest expense and position us with a strong, deleveraged balance sheet expected to have more than $242 million of cash on hand,” said Paul Bragg, CEO of Vantage and OGIL, in a written statement.

    Houston-based Vantage is an offshore drilling contractor, with an owned fleet of three ultra deep-water drillships the Platinum Explorer, the Titanium Explorer and the Tungsten Explorer, as well as four jack-up drilling rigs.

    Attached Files
    Back to Top

    How Continental Could Have Made $1 Billion More by Doing Nothing

    Continental Resources Inc. could have made $1 billion more this year by doing nothing.

    Instead, the company’s executives were so bullish on oil a year ago that they cashed out the insurance they’d bought to protect the company from a crash. Then crude prices plummeted, meaning Continental is missing out on an average of $2.8 million a day this year, according to calculations by Bloomberg.

    The lost opportunity was calculated using the public disclosures Continental made about its trades, the average price when they liquidated the contracts in October 2014, and the price of crude so far in 2015. While there’s no doubt Continental is losing out on significant hedge gains, the exact amount may be higher or lower depending on the specific pricing and timing of its trades.

    "Folks saw it as a risky move, and the company’s position was that they felt oil was going to do better," said Jason Wangler, an energy analyst at Wunderlich Securities Inc. in Houston. "It was a calculated gamble and it didn’t pay off."

    While Continental still has an investment-grade credit rating, revenue has dropped 45 percent in the past year and the company is still spending more on drilling than it earns selling oil and gas, company records show.

    Kristin Thomas, a spokeswoman for Continental, declined to comment beyond the information available in Continental’s regulatory filings.

    "They definitely left money on the table," said Leo Mariani, an energy analyst with RBC Capital Markets.

    Hedge Gains

    Contracts locking in higher prices have helped many shale drillers weather the downturn. The 61 companies in the Bloomberg Intelligence North America Independent Explorers and Producers index reaped a combined $4.3 billion from their hedges in the third quarter, according to data compiled by Bloomberg.

    Devon Energy Corp. has realized almost $2 billion on its hedges in the past year through Sept. 30, and Chesapeake Energy Corp. has collected $1.1 billion, according to data compiled by Bloomberg from financial records filed with the U.S. Securities and Exchange Commission. For some companies, derivatives accounted for 40 percent or more of revenue.

    Like its competitors, Continental also bought insurance. At the end of September 2014, Continental had contracts pegged to London-traded Brent crude that guaranteed the company would get paid as much as $100.85 a barrel through 2015, SEC records show. The contracts constituted the bulk of Continental’s 2015 hedges, covering an average of 67,500 barrels a day. Including additional 2015 hedges, the company had price protection for 81,500 barrels a day, more than half of its output.

    When prices started falling last year, that insurance became increasingly valuable. In October 2014, London-traded Brent for 2015 delivery had dropped to an average of $91 a barrel, which meant the bulk of Continental’s hedges were worth about $10 a barrel.

    Liquidating Hedges

    Believing the downturn wouldn’t last, Continental’s executives decided to cash out, Harold Hamm, Continental’s founder and chief executive officer, said in a November 2014 statement. They liquidated all of the company’s oil hedges, including contracts locking in prices for 2014 and 2016 production, reaping a one-time gain of $433 million.

    "We feel like we’re at the bottom rung here on prices and we’ll see them recover pretty drastically, pretty quick," Hamm told investors during a November 2014 earnings call.
    Back to Top

    China expected to double strategic oil purchases next year

    China is likely to double its strategic crude oil purchases next year as one of the biggest ever price routs spurs a buying spree that would offer some support to battered markets for the commodity.

    Beijing will add 70-90 million barrels of crude to storage tanks in 2016 to build up its strategic petroleum reserves (SPR), according to most respondents in a poll of five analysts and data collected by Reuters analysts.

    That is the equivalent to almost a fortnight's worth of average Chinese imports and would help push the country's overall oil purchases to record levels, challenging the United States as the world's top importer.

    "Next year, stockpiling is going to play a bigger role (in China) than this year," said Wendy Yong at energy consultancy FGE.

    China's secretive SPR build-up, which the government wants to raise to OECD-standards of 90 days' worth of import demand, started in 2006 as part of a drive to become more energy independent. The government's National Development & Reform Commission did not respond to requests for comment on Friday.

    Researchers at FGE, consultancy ICIS and bank Barclays estimated that China would double crude imports for SPR facilities to 70-80 million barrels next year, versus 30-40 million barrels in 2015, while other analysts said the volume could be higher still.

    "There is still significant spare capacity in China's SPR, which can take in another 12 million tonnes of crude (88 million barrels)," said Yaw Yan Chong, Asia director at Thomson Reuters Oil Research and Forecasts, which he said the government would try to fill provided prices remain relatively low.

    He added that this was equivalent to 66 percent of remaining capacity in SPR facilities based on an analysis of China's import trade data.

    SPR imports of around 90 million barrels would take the reserve's total to over 300 million barrels, more than halfway towards the government's target of reaching 550 million barrels by 2020.

    Six new SPR sites, including some commercial assets being used for the programme, with a total capacity of 146 million barrels are under construction and experts expect most of them to be filled next year.

    But some senior Chinese traders were more cautious, arguing that a clampdown on safety after the deadly Tianjin port blast this year could delay new depots, stifling imports.

    Read more at Reuters

    Attached Files
    Back to Top

    House passes energy bill axing oil export ban, Obama veto looms

    The U.S. House of Representatives passed a wide-ranging bill on energy reforms on Thursday that includes a measure to repeal the 40-year-old oil export ban, but the legislation did not get enough votes to overturn a potential veto by President Barack Obama.

    The North American Energy Security and Infrastructure Act passed 249 to 174, but did not get the 290 votes needed to overcome a veto. The bill would also speed the permitting of liquefied natural gas (LNG) exports and improve the aging power grid.

    The White House said late last month that Obama would veto the bill as it would reduce the government's ability to consider LNG projects. That veto threat came before the lawmakers added an amendment to repeal the oil export ban, which Obama also opposes.

    The Senate is seen as unlikely to pass a bill that includes lifting the trade restriction amid concerns that more domestic drilling would harm the environment, lead to more oil being carried by trains, and hurt jobs at refineries.
    Back to Top

    Chesapeake Energy Corporation Announces Private Exchange Offers For Senior Notes

    Chesapeake Energy Corporation yesterday announced the commencement of private offers of up to $1.5 billion aggregate principal amount (the "Maximum Exchange Amount") of its new 8.00% Senior Secured Second Lien Notes due 2022 (the "Second Lien Notes") in exchange for certain outstanding senior unsecured notes of the Company, upon the terms and subject to the conditions set forth in the Company's confidential offering memorandum and related letter of transmittal, each dated December 2, 2015.

    The following table sets forth each series of outstanding senior unsecured notes subject to the exchange offers (the "Existing Notes") and indicates the acceptance priority level for such series and the applicable consideration offered for such series in the exchange offers for the Existing Notes (the "Exchange Offers").

    (in millions)

    Principal Amount of Second Lien Notes(1)

    Title of Series



    Early Tender

    Late Tender

    6.25% euro-denominated senior notes due 2017






    6.5% senior notes due 2017






    7.25% senior notes due 2018






    Floating rate senior notes due 2019






    6.625% senior notes due 2020






    6.875% senior notes due 2020






    6.125% senior notes due 2021






    5.375% senior notes due 2021






    4.875% senior notes due 2022






    5.75% senior notes due 2023






    The Exchange Offers are being made only to Eligible Holders Eligible Holders must validly tender (and not withdraw) their Existing Notes at or prior to 5:00 p.m., New York City time, on December 15, 2015 (the "Early Tender Date"), in order to be eligible to receive the applicable "Early Tender Exchange Consideration" shown in the table above. Existing Notes tendered after the Early Tender Date but prior to the Expiration Date will be eligible to receive only the applicable "Late Tender Exchange Consideration" set out in such table.
    Back to Top

    Turkey row leaves Gazprom stuck with abandoned gas pipes worth billions

    Gas pipes worth 1.8 billion euros ($1.95 billion) are to be left stranded on the shores of the Black Sea after Russia's decision to suspend work on the Turkish Stream pipeline, a potent symbol of Moscow's falling out with Ankara.

    Russia has set out to punish Turkey after it shot down a Russian warplane in Syria last week, imposing trade sanctions and releasing data it claims proves Turkish President Tayyip Erdogan is involved in illegal oil deals with Islamic State.

    Russian Energy Minister Alexander Novak told reporters on Thursday work on Turkish Stream, a pipeline intended to pump Russian gas into southeastern Europe via Turkey while bypassing Ukraine, had been suspended.

    Shortly afterwards, the head of Italian oil major Eni , slated as one of the main buyers for the pipeline's gas, said the project was dead in the water.

    The decision leaves Russian energy giant Gazprom with miles of pipes only useable in the Black Sea.

    It ordered pipes from as far afield as Japan and Germany for the 2,400-kilometre (1,491-mile) South Stream pipeline, originally slated to open in 2018, which were then reassigned to Turkish Stream after the project was axed.

    Industry sources said the pipes can only be used for projects in the Black Sea because of their specialised construction. Gazprom will now be forced to put the pipes in storage until tensions between Moscow and Turkey subside.

    "These pipes were calibrated for a specific environment, pressure and capacity," said one source in the pipe-making industry. "Accordingly, they are only suitable for underwater pipelines in the Black Sea."

    Read more at Reuters

    Attached Files
    Back to Top

    The top 20 US NatGas traders and pipelines

    Capacity Center has released its 8th Top Twenty Capacity Traders Report. During 2015, a few notable facts and several changes among the Top 20 have emerged. 

    For the past six years straight Tenaska has held the #1 position; however, for 2015 Sequent has earned top trader honors. Sequent traded an average daily equivalent pipeline capacity volume of over 5.8 Bcf/d outpacing second place Tenaska at just under 5.5 Bcf/d of pipeline capacity traded. In total transacted quantity, Sequent at 4,348 Bcf total traded in 1,440 deals nearly doubled Tenaska’s 2,214 Bcf total traded in 308 deals. 

    For the balance of the Top 5, Direct Energy and BP both retained Top 5 status each dropping one place to 3rd and 4th respectively, although they increased their daily traded quantities by 1.1 Bcf/d (Direct) and 0.5 Bcf/d (BP). 

    New to the Top 5 is NRG, which wasn’t even in the Top 20 last year, moving up 22 places within the Top 100 to earn the #5 slot. 2015 experienced much jockeying as several companies dramatically increased capacity trading to move up in the ranks of the Top 100 to earn a spot in the Top 20. 

    Among the Top 20 climbers: • Koch Industries moved up 21 places to #8 • ConocoPhillips moved up 19 places to #12 • Noble Energy moved up 32 places to #13 • BNP Paribas moved up 46 places to #14 • EDF Trading moved up 9 places to #15 • Texla moved up 18 places to #16

    Full details:
    Back to Top

    Seneca Res. Cuts Deal with IOG Capital to Fund Up to 80 PA Wells

    Yesterday National Fuel Gas Company, the utility giant headquartered in Buffalo, NY and parent of Marcellus driller Seneca Resources, announced that Seneca has partnered up with energy investor IOG Capital to essentially fund Seneca’s Marcellus drilling program in Elk, McKean and Cameron counties in north-central Pennsylvania.

    The outlines of the deal are thus: IOG will provide the cash and Seneca will do the drilling on up to 80 Marcellus wells on 10,500 acres in the Clermont/Rich Valley area of PA. IOG will get an 80% working interest in the wells. In addition to drilling the wells, National Fuel’s midstream subsidiary will connect the wells and get the gas to market. What this deal means is that Marcellus drilling activity in the Clermont/Rich Valley area will pick up over the few years.

    Attached Files
    Back to Top

    Anadarko signs deal to develop Mozambique LNG resources

    Anadarko has signed an agreement for the development of the massive natural gas resources that straddle two offshore blocks.

    The US giant, along with its partners in Offshore Areas 1 and 4 has signed a Unitisation and Unit Operating Agreement (UUOA) which will allow the blocks to be developed until 24 trillion cubic feet of natural gas reserves (12 Tcf from each area) have been developed.

    Mitch Ingram, Anadarko executive vice president of global LNG, said: “We have already made tremendous progress advancing the natural gas resources in the Golfinho and Atum fields that are fully contained within our block, and with this UUOA, we can also expect to move the Prosperidade and Mamba straddling reservoirs forward more efficiently, while capitalising on greater economies of scale.”

    All subsequent development of the unit will be pursued jointly by the Area 1 and Area 4 concessionaires through a joint-venture operator (50:50 Anadarko and Eni). The UUOA is subject to final approval by the government of Mozambique.

    Anadarko has also reached a Memorandum of Understanding (MOU) with the government to provide natural gas from its Mozambique LNG development for domestic use.

    Under the terms of the MOU, Offshore Area 1 will provide initial volumes of approximately 50 million cubic feet of natural gas per day (MMcf/d) per train (100 MMcf/d) for domestic use in Mozambique.

    The natural gas will be provided at pricing that is fair to all parties and supports local natural gas development.

    Anadarko is the operator of the Offshore Area 1 Block with a 26.5% working interest. Co-venturers include the national oil company (ENH), Mitsui E&P and Beas Rovuma Energy.

    Eni operates Offshore Area 4 with a 50% indirect interest owned through Eni East Africa (EEA), which holds 70% of Area 4. The other partners are Galp Rovuma (10%), KOGAS Mozambique (%) and ENH (10%). CNODC owns a 20% indirect participation in Area 4 through Eni East Africa.

    Attached Files
    Back to Top

    Japan set to get more LNG than it needs

    The nation is probably set to receive more LNG than it needs, potentially forcing some purchasers in the world’s biggest user of the fuel to resell cargoes and add to a glut.

    Liquefied natural gas volumes contracted by Japanese buyers may exceed their combined demand from 2017 to 2021, according to a report compiled by the Ministry of Economy, Trade and Industry.

    The report, obtained by reporters, was distributed at a closed meeting attended by officials of the government and 14 companies including Royal Dutch Shell PLC, Jera Co. and Tokyo Gas Co.

    Japan in August restarted the first of reactors idled for safety checks in the wake of the 2011 Fukushima disaster and a second in October, helping the nation reduce consumption of LNG for power generation. With more reactors expected to be back online in the coming years, the Japanese government estimates LNG demand will fall about 30 percent to 62 million metric tons by 2030, the METI report shows.

    “Given some of the contracts don’t have so-called destination clauses, it should be noted not all of the contracted volume would be necessarily supplied to Japan and Asia,”
    Junzo Tamamizu, the managing partner of Clavis Energy Partners LLC, a Tokyo-based consulting and advisory firm, wrote in an emailed reply to Bloomberg News questions.

    As LNG buyers are aware of a potential decline in future LNG demand, they will seek to secure more efficient and flexible contracts and work on developing an LNG trading business, Tamamizu wrote.

    Annual long-term LNG contracted volumes will probably peak at about 95 million tons in 2017, according to data in the METI report, which cited sources, including the International Group of Liquefied Natural Gas Importers, and press releases. The volumes are expected to fall to about 90 million tons in 2018 and about 80 million tons in 2019 and 2020, according to the report.

    The International Energy Agency estimates Japan’s LNG demand will decline to 72 million tons by 2020, according to the report. Of less than 90 million tons procured by Japan in 2014, spot and short-term deals accounted for about 30 percent, according to the report.

    Attached Files
    Back to Top

    The Liquefied Natural Gas share price is down 52% this year, is it a buy?

    The Liquefied Natural Gas Limited (ASX: LNG) (“LNGL”) share price has more than halved since the start of this year, although shares have risen 0.9% or 1 cent today to $1.19.

    The major factor playing havoc with the share price is the falling US WTI benchmark oil price, which slipped below US$40 a barrel overnight. Oil is in a state of massive global oversupply after thousands of shale oil and gas wells were brought online over the past few years, particularly in the US.

    The global LNG market is also expected to be in oversupply as 15 processing ‘trains’ have recently been completed in Australia and Papua New Guinea from the likes of

    Despite the soaring number of drilling rigs sidelined, oil prices continue to fall, with oil companies focusing on the most productive fields and lowering production costs substantially.

    For LNGL, all this has major consequences. On the up side, it’s likely to reduce their input costs (buying gas from US suppliers) for its under-development Magnolia LNG export processing plant, as well as its Canadian Bear head LNG project.

    The problem is that falling oil prices will impact on gas prices, which are usually linked to the underlying oil price. That could see forecast revenues plunge and make both LNG projects commercially unviable.

    Already oil and gas producers UK-listed BG Group, Brazil’s Petronas and US-based Excelerate Energy have all reportedly deferred plans for LNG projects, with Excelerate stating that its project no longer met its financial criteria necessary to move forward.

    AS international LNG prices fall, the economics of exporting North American gas into global markets worsens, and could eventually mean that US LNG exports are commercially unviable.

    LNGL has also failed to hit a number of milestones for its Magnolia LNG project, and a number of milestones have blown out. The US$4.35 billion engineering, procurement and construction (EPC) contract recently signed with KBR-SKE&C joint venture was originally targeted for the fourth quarter of 2014 according to fund manager, Totus Capital.

    LNGL still needs to sign legally binding tolling agreements for 75% of Magnolia’s 8 million tonnes per annum (mtpa) capacity, with just a 2 mtpa agreement with Meridian LNG so far.

    Foolish takeaway

    LNGL is looking increasingly less likely to get its flagship Magnolia project into development, let alone any of its other LNG projects. Unless the company can show some solid progress, the share price could slide ever lower.

    Attached Files
    Back to Top

    Platts report: China oil demand grew by 8% year on year in October

    China's apparent* oil demand rose 7.9% in October from a year earlier to 10.97 million barrels per day (b/d), according to the Platts China Oil Analytics report on the latest Chinese government data.

    Growth in China's apparent demand was driven by rising demand for gasoline, jet fuel/kerosene, liquefied petroleum gas (LPG) and fuel oil. Demand for gasoil declined by 3.4% year over year.

    China's refinery throughput in October averaged 10.46 million b/d, up 1.6% from a year earlier, data from the country's National Bureau of Statistics (NBS) showed November 11.

    Meanwhile, China's net imports of oil products surged 51% year on year to 503,000 b/d in October, driven by strong inflows of LPG, fuel oil and naphtha, according to data from the General Administration of Customs.

    During the first ten months of this year, China's total apparent oil demand averaged 11.11 million b/d, an increase of 7.5% from the same period of 2014.

    Platts China's oil demand to rise by 585,000 b/d or 5.6% year over year in 2015.

    "We are maintaining our view that apparent demand growth in 2016 will ease to under 2% on the back of slowing economic growth momentum," said Platts China Oil Analytics senior analyst Yen Ling Song.
    Back to Top

    Pipeline operator Enbridge raises dividend

    Enbridge Inc, Canada's largest pipeline company, raised its quarterly dividend to 53 Canadian cents per share from 46.5 Canadian cents, payable on March 1.

    The company also announced a five-year strategic plan, which includes a C$38 billion ($28.52 billion) growth program, of which C$25 billion is commercially secured and in execution.

    Calgary-based Enbridge said it expects 2016 adjusted earnings before interest and taxes in the range of C$4.4 billion to C$4.8 billion enterprise-wide.

    The company sees 2016 average annual available cash flow from operations (ACFFO) to be in the range of C$3.80 to C$4.50, up from its 2015 estimate of C$3.30 to C$4.00 per share.

    The increase in cash flow range for 2016 reflects growth from existing businesses, including projects brought on stream this year such as the Mainline Expansion Program and the Edmonton-to-Hardisty Pipeline.

    Read more at Reuters
    Back to Top

    Iran, Russia reject cuts Saudi floated

    Saudi Arabia appears to have floated the idea of a global deal to balance oil markets and lift prices from around the lowest levels in six years although fellow producers Iran and Russia on Thursday rejected its main idea of cutting output.

    A Saudi source said later the report was "baseless" but declined further comment and a source at Energy Intelligence said it stood by its story.

    Saudi Arabia has long insisted it would cut production only if fellow OPEC members and non-OPEC countries joined in. The report quoted a senior OPEC delegate as saying the Saudis would agree to cuts if Iraq freezes production rises and Iran and non-members such as Russia, Mexico, Oman and Kazakhstan contribute.

    Russia, along with important OPEC member Iran which wants to increase output after years of Western sanctions, looked unlikely to change position. OPEC will hold a policy meeting in Vienna on Friday with informal talks taking place on Thursday.

    "We do not accept any discussion about increases of Iran production after the lifting of sanctions. It is our right and anyone cannot limit us to do it. We will not accept anything in this regard," Iranian oil minister Bijan Zangeneh told reporters in Vienna.

    "And we do not expect out colleagues in OPEC to put pressure on us... It is not acceptable, it's not fair."

    Iran will raise production by up to 1 million barrels per day following years of forced curbs because of the sanctions over its atomic programme, he added.

    Russian oil minister Alexander Novak told local news agency RIA that he saw no need for Moscow to decrease oil production, adding that he did not expect OPEC to change output policies at its meeting on Friday.

    Saudi Arabia's proposal may also be seen as an attempt to head off calls for action from poorer OPEC members such as Venezuela, but the conditions are tough to implement.

    " It is very difficult to cut one million bpd collectively. The Saudis do not want to change their previous talk. No cut without cooperation," a Gulf OPEC source told Reuters.

    "We would see this (idea of a deal) as an effort to provide psychological support to the market with slim chances of realisation," JBC Energy said in a research note.

    Read more at Reuters
    Back to Top

    Saudi Light in EU breaking to new lows.

    Image title
    Back to Top

    Tanker Rates Lifting Again

    Image title
    Back to Top

    India shoots down free pricing regime for natural gas

    India shoots down free pricing regime for natural gas 

    India’s Finance Ministry has shot down a proposal for free pricing on natural gas on the grounds that the domestic market is not yet ready for such a regime. The decision has effectively derailed the Oil and Natural Gas Ministry’s move to partially dismantle the current administered pricing system and permit oil and gas exploration and production (E&P) companies to adopt market determined prices based on demand and supply, a Ministry official said. 

    The Finance Ministry’s aversion to a market-determined regime has also put under a cloud plans for dual-pricing for output from ‘difficult and challenging oil and gas fields’ and made the latter more attractive for investing by E&P majors, the official said. 

    Rationalising its opposition to freeing the natural gas market, the Finance Ministry observed that the Indian natural gas market was still in a nascent stage and, as such, did not have enough players to ensure sufficient competition in the market and fewer players would risk distortions creeping into the price discovery mechanism. 

    It also pointed out that the Oil and Natural Gas Ministry had failed to clarify sufficiently how feedstock pricing could be left to market forces when several end products, including fertilizers and electricity, were under a government-administered price regime and in some cases offered government subsidies, the official said. 

    The Oil and Gas Ministry had proposed that specified quantities of production of E&P companies would be auctioned and the price discovered based on bids received by consuming industries. In the case of ‘difficult and challenging’ oil and gas blocks, the blocks would be categorised under five divisions based on the level of difficulty in exploration and production, and output ranging from 25% to 50% of output would be priced as per bids received from consumers. However, as a concession to older oil and gas blocks, it said that a free pricing regime would only be applicable for all blocks discovered post March 2015. 

    According to government estimates, India would be able to produce about 47-million meters per day of natural gas from difficult and challenging blocks over the next five years. The country’s current natural gas production was pegged at around 90-million meters per day. 

    The government in September had announced a 15% reduction in gas prices effective October 1, 2015, at  $4.24 per million British thermal unit (mBtu) from $5.18 per mBtu, based on average global gas prices between July 2014 and June 2015. 

    It might be noted that the Cabinet Committee for Economic Affairs, the government’s apex decision-making body had recognized submissions from domestic and foreign E&P majors that it was becoming difficult for them to take up investments in new exploration and production projects in view of falling gas prices and the need for incentives specially for geologically challenging fields.
    Back to Top

    'Slim' chance of Chevron mega-merger

    Chevron is not likely to pursue any earth-shattering mergers, at least until asking prices come down, according to analysts who recently met with the company.
    Back to Top

    Enbridge Line 9B Said to Deliver Crude Oil to Eastern Canada

    One eastern Canadian refiner began receiving crude oil via Enbridge Inc.’s newly reversed Line 9B Tuesday, according to person familiar with the matter.

    About 60,000 barrels of crude was received as of Tuesday, including Bakken oil from North Dakota, said the person, who asked not to be identified because the information isn’t public.

    Enbridge began reversing the 300,000 barrel-a-day pipeline in 2011 as refineries in eastern Canada looked to tap into cheaper oil being produced in western Canada and the U.S. Midwest. Land-locked crudes typically sell at a discount to waterborne supplies.

    Companies like Suncor Energy Inc. and Valero Energy Corp. have said their refineries in Quebec could rely 100 percent on North American crude after the reversed pipeline ramps up to full capacity.

    The new flow has redirected some crude that used to go to Cushing, Oklahoma, the largest storage hub in the U.S. Enbridge’s Spearhead pipeline, which runs to Cushing from Illinois, will run below capacity in December and January, the first time that has happened in nearly two and a half years.

    Attached Files
    Back to Top

    Saudi Arabia Lowers Oil Pricing to U.S. Before OPEC Meeting

    Saudi Arabia, the world’s largest crude exporter, cut pricing for January oil sales to the U.S. before the Organization of Petroleum Exporting Countries meets to decide on production targets.

    Saudi Arabian Oil Co. lowered its official selling price for all crude grades to the U.S., the company said in an e-mailed statement Wednesday. In Asia, the discount for its Arab Light against a regional benchmark will be $1.40 a barrel, compared with $1.30 in December. It was expected to be widened by 25 cents, according to the median estimate in a Bloomberg survey of eight refiners and traders.

    "It’s a slap in the face of OPEC," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. "They are offering their crude oil at a lower price to the two most important markets, the U.S. and Asia, two days before the OPEC meeting," a clear sign the Saudis aren’t going to pull back output, he said.
    Back to Top

    Shell wins final Australian nod for $70 bln takeover of BG Group

    Royal Dutch Shell on Thursday won approval from Australia's Foreign Investment Review Board for the company's proposed $70 billion takeover of BG Group Plc, leaving China as the last regulatory hurdle to the deal.

    The approval included an unusual condition designed to prevent disputes with the Australian Taxation Office (ATO) with the merged group, amid Australia's push to clamp down on profit shifting and tax avoidance by multinationals.

    "I have approved the...proposal by Royal Dutch Shell plc (Shell) to acquire BG Group plc (BG), subject to the condition that Shell provides an ongoing commitment to engage with the ATO in a transparent manner regarding its tax affairs in relation to acquisition of BG and integration of BG into Shell's operations," Australian Treasurer Scott Morrison said in an emailed statement.

    Shell and BG said they are now awaiting clearance from China's Ministry of Commerce, adding that the deal remains on track to be sealed in early 2016.

    "I am very pleased to receive this news. The FIRB approval is an important step towards deal completion," Shell Chief Executive Ben van Beurden said in an emailed statement.

    The condition imposed by Australia requires Shell to agree with the tax office how it will approach transfer pricing, loans between different arms of the company and other issues before filing tax returns from the merged group.

    The undertaking will not affect the value of the merger, as Shell already has what is called a "cooperative compliance" approach to taxation in Australia, a spokesman said.

    "This not only ensures stability and certainty for business and the government but also reduces inefficiencies for all parties and minimises disputes," Shell Australia Chairman Andrew Smith told a Senate tax hearing on Nov. 18.

    Shell last month won approval from Australia's competition watchdog for the deal, despite concerns raised by major gas users in the country's east.

    Beijing is pressing the Anglo-Dutch company to sweeten long-term gas supply contracts worth tens of billion dollars with state-owned China National Petroleum Corp, China National Offshore Oil Corp (CNOOC) and Sinopec to secure approval for the deal, industry sources close to the talks have told Reuters.

    Read more at Reuters
    Back to Top

    Crude inches up on report of proposed Saudi oil deal

    Crude prices inched up on Thursday on a report suggesting that Saudi Arabia will propose a deal to balance oil markets, in the first sign the top OPEC producer is willing to compromise after a rout that has more than halved oil prices since June 2014.

    U.S. crude was trading 29 cents higher at $40.23 per barrel at 0517 GMT, while internationally traded Brent was up 48 cents at $42.97.

    Saudi Arabia, which has so far resisted any intervention, will propose a cut of 1 million barrels per day (bpd) in OPEC output, Energy Intelligence reported, citing a senior OPEC delegate.

    "The market will want to hear from other parties and to have greater assurance that it looked a possibility," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

    "Not only do (the other producers) have to agree to do it, they also have to stick by the agreement."

    OPEC's top producer, Saudi Arabia, wants non-OPEC counties such as Russia, Mexico, Oman and Kazakhstan to participate in the deal.

    But it will be challenging to get all parties to agree, given diverging views on which producers should cut or limit production.

    "Saudi to propose 1 million bpd cuts ... if ... Iran, Iraq and OPEC join cuts. In other words won't happen. Whoever does cut will lose market share," Asenna Wealth Solutions' senior trader Assad Tannous wrote in a tweet following the news.

    Saudi Arabia does not expect a formal deal to be reached this week, but would like the agreement to be implemented next year, Energy Intelligence reported.

    OPEC's historic decision last year to maintain high output to defend market share from other producers such as Russia and U.S. shale drillers, sent oil prices into a spiral.

    OPEC is set to meet in Vienna on Friday to discuss its policy at a time when a global glut shows no signs of abating.

    U.S. crude inventories rose for a 10th straight week, climbing 1.2 million barrels, contrasting analysts' expectations of a fall, data from the U.S. Energy Information Administration showed on Wednesday.

    Additionally, oil product supplies are also building as warmer-than-usual weather in the U.S. northeast, a major market for heating oil, limits demand. Distillate stockpiles climbed by 3.1 million barrels last week, the EIA said, far exceeding expectations of a gain of 326,000 barrels.

    Oil production already exceeds demand by 0.5-2 million barrels per day.

    Read more at Reuters

    Attached Files
    Back to Top

    US domestic oil production up last week

                                                 Last Week    Week Ago   Last Year

    Domestic Production '000....... 9,202            9,165          9,083

    Image title

    Attached Files
    Back to Top

    Summary of Weekly Petroleum Data for the Week Ending November 27, 2015

    U.S. crude oil refinery inputs averaged 16.8 million barrels per day during the week ending November 27, 2015, 423,000 barrels per day more than the previous week’s average. Refineries operated at 94.5% of their operable capacity last week. Gasoline production increased last week, averaging about 9.8 million barrels per day. Distillate fuel production increased last week, averaging about 5.2 million barrels per day.

    U.S. crude oil imports averaged over 7.7 million barrels per day last week, up by 414,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.4 million barrels per day, 0.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 433,000 barrels per day. Distillate fuel imports averaged 218,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 489.4 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.1 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.1 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories fell 2.1 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 1.8 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.6 million barrels per day, down by 1.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, down by 0.6% 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 0.9% from the same period last year. Jet fuel product supplied is up 4.0% compared to the same four-week period last year.
    Back to Top

    Rubicon Oilfield International Announces Investment Of Up To $300 Million By Warburg Pincus

    Rubicon Oilfield International, a start-up oilfield services company, today announced that Warburg Pincus, a leading global private equity firm focused on growth investing, has agreed to a line-of-equity investment of up to $300 million in the Company.

    Rubicon's strategy is to build a global enterprise in the oilfield products and equipment sector through acquisitions and organic re-investment.  The Company intends to acquire, integrate and ultimately enhance small and medium-sized businesses in the upstream oilfield technology sector with a focus on proprietary downhole tools, products and technologies.

    Today, Rubicon is comprised of five founding members led by Chief Executive Officer Michael Reeves, who brings more than two decades of oilfield experience.  Mr. Reeves most recently served as President of Sandvik - Drilling and Completions, where he oversaw all oilfield business lines, including Varel International.  Previously, Mr. Reeves held leadership positions at Schlumberger, National Oilwell Varco and XACT Downhole Telemetry, and worked in the Middle East, Europe and North America.  John Griggs, formerly a Managing Director at CSL Capital Management, serves as Chief Financial Officer of Rubicon.  Mr. Reeves, Mr. Griggs and the rest of the Rubicon leadership team, who contribute operational, commercial, technical and global manufacturing expertise, collectively have more than 85 years of industry experience as well as proven track records in acquiring and growing oilfield services businesses.

    Mr. Reeves commented, "We see a compelling opportunity to build an enterprise focused on upstream oilfield services through accretive transactions and organic growth initiatives.  With the support of Warburg Pincus, Rubicon will pursue acquisition and partnership opportunities in order to build a global platform with a relentless focus on customer satisfaction.  We will leverage current market trends and consolidation to build a business that will be well positioned for the long term."
    Back to Top

    Oil options show investors grow warier of OPEC surprise

    Oil investors are paying more to bet on a rise in the price of crude than on a decline for the first time in six weeks, as they prepare for the possibility of a surprise from OPEC, which is due to release its supply policy decision on Friday.

    Hedge funds have cut bullish bets on crude oil to their lowest in five years, with gloom deepening over the global economy's ability to grow fast enough to absorb the world's excess supply.

    A "no cut" from OPEC is comfortably built into the current oil price, which has halved this year to around $45 a barrel, given Saudi Arabia's financial ability to withstand sub-$50 crude and little likelihood of major non-OPEC producers, such as Russia, joining any coordinated effort to cut output.

    In the last three weeks, investors have increased their holdings of options to buy Brent crude futures at between $50 and $60 a barrel by more than 15 percent. <0#LCOF6++>

    The price of a near-dated out-of-the-money, call option, which offers its holder the right to buy above the current Brent futures price has surpassed that of near-dated, out-of-the-money put options, which offer the holder the right to sell below the current prompt price.

    Nearly half of total open interest in January Brent options is clustered in just six different calls, all with the option to buy at levels above $52 a barrel.

    "The question is whether some people are taking the bet, by using out-of-the money options, that OPEC pulls a rabbit out of their hat," BNP Paribas global head of commodities strategy Harry Tchilinguirian said.


    Over the last five years, out-of-the-money prompt calls have traded at a premium to puts roughly 20 percent of the time.

    In the last year, this frequency has dropped to just 4 percent of the time, reflecting investors' desire to protect against a near-term drop in the oil price is greater than their willingness to bet on a near-term rise.

    Tchilinguirian, whose bank believes the oil price has found a floor around $40 a barrel, said the consensus may be for OPEC to stick with its strategy of pumping hard to retain market share, but this shift in positioning in the options market could reflect a growing unease with trading based on that consensus.

    "The consensus is baked in for the status quo, the current situation. Maybe the devil will be in the details and for those who believe some accommodation may take place, that lessens the bearish outcome for next year," Tchilinguirian said.

    Market players have speculated that a surprise outcome of the OPEC meeting on Friday could range from a verbal intervention to pledge to accommodate additional Iranian barrels when sanctions are removed, to a very unlikely scenario of an outright Saudi-led output cut.

    In terms of what this switch in positioning means for the Brent price, Morgan Stanley said it believed a renewed decline may materialise as a result of these call options expiring unexercised, even in the event of an OPEC-driven bounce.

    The more an option inches towards profitability, the more of the underlying crude futures contract both the holder and the seller of that option must buy or sell to mitigate the risk of the market moving against them.

    This process is known as "delta hedging" and, in the case of unprofitable calls, could lead to the sellers of such options unwinding those hedges by selling the Brent crude futures they had accumulated to manage their options risk.

    "Not only could we see issues with all these calls expiring, but the drop in their value may force counterparties who were buying underlying contracts as a delta hedge to unwind those positions. The loss of this delta could put modest downward pressure on prices," analysts at Morgan Stanley said.

    Attached Files
    Back to Top

    Gulf Keystone confirms US$15mln Kurdistan payment

    Gulf Keystone Petroleum has confirmed the receipt of a US$15mln gross payment from the Kurdistan authorities.

    It said the payment satisfies the company’s invoice for the month of November, and following payment the company’s cash position will be US$54.6mln.

    The company added that it has now received a total of US$86mln in payments for oil export sales from the Shaikan field since December 2014.

    As a result of consecutive monthly payments - for September, October and November - Gulf Keystone said it has been able to meet its debt payment obligations.

    It also highlight public statements made by the Kurdistan authorities in which it is said that regular payments to oil companies would continue through 2016 and that amounts owed in arrears would be considered for payment.

    Gulf Keystone said it is currently owed a total of US$298.4mln.

    Jón Ferrier, Gulf Keystone chief executive, said: "We continue to drive the Company forward with three principal strategic objectives: safe and reliable operations, commercial sustainability of the business achieved through regular monthly payments and addressing of the arrears, and constructive relationships with our host government, shareholders and bondholders.”

    The company repeated production guidance of 30,000-34,000 barrels of oil per day for the full year.
    Back to Top

    Turkey agrees LNG import deal with Qatar

    Botas of Turkey reportedly signed a memorandum of understanding regarding imports of liquefied natural gas from Qatar on a long-term basis.

    The deal was agreed during Turkey’s president Recep Tayyip Erdogan’s meeting with Qatar’s Emir Sheikh Tamim bin Hamad Al Sani.

    According to local reports, the memorandum of understanding is the first step in reaching a final agreement that has been passed on to representatives of Botas and Qatar Petroleum.

    No volumes have yet been revealed, but as Turkey looks to secure gas supplies for the upcoming winter Qatar could up the delivery above the 0.81 million tons it exported to Turkey in 2014.

    Turkey imports most of its gas from Russia, but following a recent dispute, when Turkey’s air force shot down a Russian aircraft, it is expected that this trend could change, although no reports of reduced gas flows from Russia have yet been reported.

    However, according to CNN Turk, Turkey’s Prime Minister, Ahmet Davutoglu will soon visit Azerbaijan as the country looks to diversify the sources of gas supply and cut dependence on Russian gas.
    Back to Top

    Kazakhs seek up to $3 bln in advance from Vitol for crude

    Kazakh state-owned oil and gas company KazMunayGas plans to receive up to $3 billion from trader Vitol in the form of advance payments for crude from the Tengiz oilfield, it said in a statement on Wednesday.

    KazMunayGas, which has a 20 percent stake in Tengiz, said it expected to get the first tranche within 2-4 months, but provided no other details such as shipment volumes. Tengiz produced 26.7 million tonnes of crude in 2014.

    Vitol, which with the new deal has reaffirmed its position as the biggest trader in Kazakh crude aside from majors with upstream operations there, also declined to disclose any details.

    Daniyar Berlibayev, the deputy head of KazMunayGas, said in September it was considering three-year deals for such financing.

    KazMunayGas' move follows similar deals by Russia's Rosneft, which received around $10 billion from Vitol and Glencore in 2013 for future supplies spread over five years and signed a similar contract with trader Trafigura in the same year.

    The planned pre-payment is roughly the same size as KazMunayGas' bond buy-back offer announced last month and designed to reduce its leverage ratios which could otherwise drag down the firm's credit rating.

    In order to raise cash, KazMunayGas, whose consolidated net debt was $17.92 billion at the end of 2014, has also sold half of its stake in the giant Kashagan oilfield to the country's sovereign wealth fund Samruk-Kazyna for $4.7 billion.

    Read more at Reuters
    Back to Top

    Russian Oil Output Stays Near Record Level as OPEC Set to Meet

    Russian oil output in November hovered near a post-Soviet record set the previous month, shrugging off a crude-price slump before OPEC gathers for its annual meeting in Vienna.

    Production of crude and gas condensate averaged 10.779 million barrels a day during the month, according to data from the Energy Ministry’s CDU-TEK unit. That’s an increase of 1.3 percent from a year earlier and slightly beneath the 10.782 million barrels a day record in October.

    The Organization of Petroleum Exporting Countries meets on Dec. 4 to discuss its output limit a year after it chose to defend market share rather than cut production amid a supply glut. That decision compounded the price slump as Saudi Arabia pursued a policy that squeezed U.S. shale producers and other higher-cost output.

    Russia, which isn’t a member of OPEC, continues to build output as a weakened ruble reduces costs for drilling and the nation’s tax system helps compensate for the lower price.

    Crude exports reached 5.32 million barrels of oil a day in November, an 11 percent gain from the previous year and a 2.4 percent decline from the previous month.
    Back to Top

    Kerry: Exxon could lose 'billions' in climate change lawsuit

    If it’s proven that Exxon Mobil Corp. misled investors and the public on the science of climate change, Secretary of State John Kerry said he would be “outraged, furious” and predicted the company could be hit with a record lawsuit.

    “I think that Exxon Mobil stands potentially to lose billions of dollars in what I would imagine would be one of the largest class-action lawsuits in history,” Kerry told Rolling Stone in a wide-ranging interview on foreign policy and climate change.

    Asked if he would support such a lawsuit, Kerry said, “I would support the investigation into what happened, and, based on the facts, I'd pursue the facts. You pursue the truth in this kind of a situation.”

    Reports by InsideClimate News and a team of Columbia University journalists in the Los Angeles Times have accused the oil giant of quietly studying the negative impacts of carbon dioxide on the atmosphere while publicly questioning the science of climate change.

    Exxon has denied the claims. In a letter to Columbia officials earlier this month, the company accused the journalists of engaging in unethical practices and ignoring evidence from the company.

    The reports have led environmental groups and the three major Democratic presidential candidates to push the Department of Justice to investigate. New York Attorney General Eric Schneiderman has also launched a probe.

    Kerry said that, if true, Exxon’s actions would be on par with those of cigarette companies that ignored the cancer-causing nature of their products.

    “It's the same thing,” he said. “It's immoral and incredibly damaging to everybody's global interests. It's a betrayal.”
    Back to Top

    LNG Falls Faster Than Oil as U.S. Fracking Spurs Growing Glut

    Spare a thought for anyone who bet on a recovery in liquefied natural gas prices after last year’s 45 percent plunge.

    LNG to northeast Asia, home to the world’s biggest consumers, plunged 25 percent this year, outpacing Brent’s 23 percent slump as of Tuesday. While analyst estimates compiled by Bloomberg show that crude will recover in 2016, prices for the super-chilled fuel will probably extend declines by as much as 25 percent, according to a survey by Bloomberg.

    As the U.S. gears up to start a new LNG plant for the first time in more than four decades and output from Australia to Angola increases, the glut will peak in 2018, according to Sanford C. Bernstein & Co. LNG, which Goldman Sachs Group Inc. said will this year overtake iron ore as the world’s second most valuable commodity by trade, fell to its lowest level since 2010 in October, according to World Gas Intelligence in New York.

    “The biggest story is the increase in LNG export capacity,” said Mike Fulwood, principal for global gas at Nexant Inc.’s Energy and Chemicals Advisory in London. Capacity will increase 14 percent through the fourth quarter next year, “while demand is increasing much more slowly in the main LNG importing countries.”

    The outlook for prices, global demand as well as new capacity from U.S. and Australia are all topics that will be discussed by executives, traders and analysts this week at the World LNG Summit in Rome.

    As the price plunge ripples through markets, the growing output is impacting the world’s biggest producers of the fuel. Qatar waived a $1 billion penalty for lower imports under an Indian contract, while Russia’s Gazprom PJSC offered its first-ever gas auctions in Europe in September.

    LNG for delivery in the next four to eight weeks in Asia cost $7.55 per million British thermal units as of Nov. 23, according to WGI. The spot price may fall as low as $5.70 next year, according to the survey of nine traders, executives and analysts. Brent crude may average $57.30 a barrel next year, according to 48 estimates on Bloomberg. It traded at $44.30 on Tuesday.

    Cheniere Energy Inc.’s Sabine Pass will be the first U.S. export facility since ConocoPhillips started a plant in Alaska in 1969. As a result of a boom in production from shale formations, the U.S. has become the world’s biggest oil and gas producer, also set to transform itself from an importer into a net exporter of LNG.

    “The excess gas that exists in the U.S. will find its way out and will probably mean lower prices for the rest of the world,” Frank van Doorn, head of gas and LNG trading at Vattenfall AB’s trading unit, said in an interview in Barcelona on Nov. 25.

    While the U.S. export facilities will add another 4.5 million metric tons, next year’s main addition will be in Australia, where another 27.2 million tons will come online. That compares with a total planned capacity of 326 million tons. Angola will also restart a plant that’s been shut since April 2014 because of technical issues.
    Back to Top

    Santos brokers look to sell A$585 mln in unwanted stock

    Santos Ltd retail investors took up 57 percent of their entitlements in a A$1.35 billion ($987 million) share offer, the oil and gas producer said on Wednesday, better than the one-third uptake some media reports had flagged as energy prices remain weak.

    The sale to retail investors was part of a A$2.5 billion entitlement offer announced in November after Santos snubbed a takeover proposal and sold some assets to cut debt and prepare for a prolonged period of weak oil prices.

    The offer was fully underwritten by Citi, Deutsche Bank and UBS, who will put the remaining shares up for auction, due to be completed before the market opens on Thursday.

    Institutions last month took up 86 percent of their entitlements in the earlier leg of the offer which raised A$1.17 billion. The unsold shares from that offer were sold off at A$4.60 a share, a premium to the entitlement offer price of A$3.85.

    "The results of the...offer demonstrate recognition from shareholders of the long-term value in Santos and their support for the initiatives the company has taken to substantially strengthen its balance sheet," Executive Chairman Peter Coates said in a statement.

    The Australian Financial Review newspaper had said there had been talk the underwriters were left holding between A$900 million and A$1 billion worth of shares in the retail offer.

    The A$3.85 offer price was pitched at a massive 35 percent discount to Santos' closing price before it was announced.

    Read more at Reuters
    Back to Top

    America's biggest gas field finally succumbs to downturn

    The drilling rigs are gone from the hills surrounding this Pennsylvania town of 30,000. The hotels and bars are quieter too, no longer packed with the workers who flocked in their thousands to America's newest and biggest gas field.

    The drilling boom of the past seven years is over, even though thousands of existing wells in the Marcellus region still produce a fifth of U.S. natural gas supply. Now, exclusive data made available to Reuters points to a slump in drilling that could hit production next year, defying government and industry expectations of a further rise in output.

    Preliminary figures provided by DrillingInfo, which monitors rig activity, showed drilling permits issued for the 90,000-square mile (233,100 sq km) reservoir beneath Pennsylvania, Ohio, and West Virginia, slumped to 68 in October from 76 in September. There were still 160 permits issued in June and over 600 a month at the peak in 2010.

    "The fact that it is slowing and the speed at which it is slowing" sums up the state of U.S. shale gas industry, Allen Gilmer, chief executive officer of DrillingInfo, told Reuters.

    Recent months are subject to revisions, DrillingInfo said, but a retreat of such magnitude, combined with falling output from older wells, would mark a turning point for the Marcellus - and the whole U.S. gas market.

    The Energy Information Administration now forecasts overall U.S. gas output to hit a record in 2016 for the sixth year in a row. A drop in Marcellus production could snap that streak and help prop up prices that have fallen by two thirds since 2010.

    U.S. natural gas production has risen 30 percent since 2008 when the development of hydraulic fracturing, or fracking, and horizontal drilling unlocked vast shale gas reserves, swamping the market with new supply and causing a collapse in prices.

    The Marcellus area makes up nearly half of those shale reserves and the government expects the region to keep producing more in the coming years, albeit at a less furious pace.

    To be sure, the impact of the slump in drilling permits could be mitigated by other factors. New pipelines coming online in 2016 will allow hundreds of wells already drilled to be hooked up to the grid. A harsh winter could also boost heating demand for natural gas.

    Still, the retreat could weigh on Marcellus production well into next year, said Grant Nulle, an oil and gas economist at the EIA. "Those are very low numbers," Nulle said. "It is possible that producers could wait six months to drill after obtaining a permit, which could impact production into May or June," he added.

    An as yet unpublished outlook from the EIA, which does not take into account the permit numbers, anticipates lower Marcellus production only through March, and a rise for the rest of the year. The EIA does not expect a full year's decline until 2019.

    While gas keeps flowing, the drilling crews are gone and with gas prices near 14-year lows, producers have choked hundreds of wells in the region in the hope that falling supply will stem the slide.

    Several gas producers, including Chesapeake Energy and Cabot Oil and Gas, have announced production cuts in the region.

    Inflection Energy, a Denver-based privately-owned company with an office in Williamsport, has cut production from 50-70 percent of its wells, company spokesman Matt Henderson said.

    "It is better to choke back than to sell into this market," Henderson said.

    Read more at Reuters
    Back to Top

    ArcLight, Freepoint to buy Hovensa St. Croix refinery, plan storage hub

    Private equity firm ArcLight Capital, together with commodities trader Freepoint, unveiled plans on Tuesday to buy the Hovensa refinery complex in St. Croix in the Caribbean and turn it into a massive oil storage hub.

    The partners also said China's Sinopec, Asia's largest oil refiner, has leased 75 percent of Hovensa's existing crude oil storage capacity in a 10-year strategic deal for one of Asia's biggest oil market players, according to a statement on Tuesday.

    Existing capacity at Hovensa is for 13 million barrels of crude and oil products. Freepoint, which supplies fuel oil to Puerto Rico's power utility, will lease 2 million barrels of fuel oil storage at the site.

    Boston-based ArcLight, which has operated oil storage facilities around the world, will be the majority owner of Hovensa, a refinery formerly owned by Hess and Venezuela's state oil company, PDVSA, that has been shuttered in recent years.

    Stamford, Connecticut-based Freepoint, a merchant trader of oil and other commodities, said it would have a 20 percent minority stake in the venture.

    The partners have plans to invest at least $125 million to boost storage and tanker loading and unloading capacity at the site in the U.S. Virgin Islands by the end of 2016, a source familiar with the plans said.

    The investment will bring Hovensa's total oil storage capacity to as much as 30 million barrels and make it one of the premiere oil storage and trans-shipment hubs in the strategic Caribbean region, the source said. The plans also involve deepening the port to allow for fully loaded very large crude carriers to dock at the hub.

    Key to the deal is the long-term lease of most of Hovensa's 13 million in current operational oil storage capacity to Sinopec, which has rapidly become a major player in the Americas crude and oil product markets.

    The revival of Hovensa comes as competing oil traders scramble to get hold of more Caribbean oil storage capacity during the rout in oil prices.

    Current technical conditions in the oil futures market is rewarding oil traders that store oil for future profit instead of immediately selling it, creating high demand for storage assets like Hovensa's tanks.

    Hovensa could also regain its stature as a major trans-shipment and oil-blending facility perched near U.S. and Latin American markets. It could also be a staging point for crude exports to Asia, including through the Panama Canal, which is being expanded to accommodate larger tanker ships.

    For Freepoint, which leases other oil storage facilities in the Americas, the deal represents an expansion of capacity to boost its trading in the Americas. It is also an ideal staging point to deliver fuel oil to Puerto Rico, where it has a long-term supply deal with the island's utility, which uses fuel oil for power generation.

    Freepoint said it helped to negotiate the long-term lease of crude storage at Hovensa to Sinopec. Terms of the leasing deal were not disclosed.

    The Hovensa deal, including the forthcoming investments to expand the facility, is likely to expand Caribbean region merchant oil storage capacity by as much as 42 percent, ArcLight and Freepoint said. They added the deal could establish the partners as market rivals to Buckeye Partners, currently the biggest regional player.

    Read more at Reuters

    Attached Files
    Back to Top

    Texas is the most attractive place for oil & gas investment

    Separately, a Canadian think tank said that of 14 jurisdictions having large oil and natural gas reserves, Texas topped the list followed by the UAE, Alberta, Qatar, and Kuwait.

    The Fraser Institute of Calgary reported that Texas was the most attractive jurisdiction for oil and gas investment worldwide based on an annual global survey of petroleum sector executives.

    The 2015 Global Petroleum Survey rated 126 jurisdictions around the world based on barriers to investment such as high taxes, costly regulatory obligations, and uncertainty over environmental regulations as well as on estimated oil and gas reserves.

    “Texas remains a beacon of stability in the oil and gas sector with its wealth of proven reserves and clear and consistent regulatory environment,” said Kenneth Green, Fraser Institute senior director, natural resource studies, and director of the Global Petroleum Survey.

    The survey also featured an alternate ranking format, which ignored proved oil and gas reserves and focuses solely on survey responses about the extent to which government policies can deter oil and gas investment.

    In this format, seven out of the top 10 were US locations. The Netherlands ranked No. 1, followed by Alabama, Oklahoma, Texas, Mississippi, Kansas, Arkansas, Saskatchewan, North Dakota, and Manitoba.
    Back to Top

    Saudi Oil Minister Pledges to Listen to Other OPEC Members

    Saudi Arabia will discuss all issues at the OPEC meeting on Friday and listen to concerns of other members, said the nation’s Oil Minister Ali al-Naimi.

    “We have a meeting on Friday, we will discuss all these issues,” al-Naimi told reporters Tuesday. “We will listen and then decide.”

    Naimi spoke as he arrived in Vienna for a meeting that is widely expected to ratify the Organization of Petroleum Exporting Countries’ decision a year ago to defend market share rather than support prices. Some members including Iran and Venezuelacontinue to push for the group to reverse course and curb production.

    Oil prices just completed the biggest monthly decline since July as OPEC, which pumps about 40 percent of the world’s supply, showed few signs of trimming production. Crude has fallen almost 40 percent the past year as a record surplus persisted while global producers fight for market share.

    When asked if Saudi Arabia will stick to its strategy of defending its markets against competing supplies, al-Naimi said: “Who said we are keeping market share strategy? Did I ever say?”

    Iranian Oil Minister Bijan Namdar Zanganeh sent a letter to OPEC calling for a cut in excess output, Mehr news agency reported Tuesday. The group should reduce current production of 31.3 million barrels a day to come back in line with its target of 30 million, Zanganeh said.

    Attached Files
    Back to Top

    China's Fosun looks to buy Israel gas fields from Delek -Israeli source

    Chinese investment group Fosun International is interested in buying two small natural gas fields in the eastern Mediterranean from Israel's Delek Group, a source close to Delek said on Tuesday.

    Delek, which controls a number of gas fields offshore Israel, is being forced to sell off some assets by the government in an effort to open the sector to new competition.

    According to a government plan expected to be implemented in the coming weeks, the company will have 14 months to find a buyer for the undeveloped Tanin and Karish fields, which have combined gas reserves of 3 trillion cubic feet.

    "Fosun is interested in the two fields," the source told Reuters on condition of anonymity.

    A spokesperson for Fosun and officials at Delek declined to comment.

    It would not be the first big deal between the companies. In June, Fosun bought a controlling stake in insurer Phoenix Holdings from Delek for 1.8 billion shekels ($464.12 million).

    Already in the race is Italian utility Edison, which has entered talks to buy Tanin and Karish, and last month Israel's energy minister discussed a possible sale with the CEO of rival Italian group ENI.

    Earlier this month Delek paid its partner Noble Energy $67 million for the rights to sell Noble's 47 percent stake in the two fields.
    Back to Top

    Transocean’s Norway deal marks new rig-rate low in oil slump

    Transocean Ltd., the biggest offshore-rig operator, won a contract to drill four wells off Norway for Det Norske Oljeselskap ASA at a day rate of about $180,000, the lowest recorded tariff in the Nordic country since oil began to tumble last year.

    “It’s a clear sign of desperation and how bad it’s become,” Janne Kvernland, an analyst at Nordea Markets, said Monday in an e-mail.

    Det Norske, a Norwegian oil producer controlled by billionaire Kjell Inge Roekke, said last month that the tender had attracted interest from 14 rigs, an unusually high number for this type of contract. The $44.8 million deal, covering an estimated 250 days starting in December next year, corresponds to $179,000 a day.

    The interest from contract-starved offshore drillers underscores the squeeze suffered by Transocean and competitors such as Ensco Plc and Seadrill Ltd. as oil companies trim spending to weather lower crude prices just as new units expand an oversupply. Rig operators have scrapped more than 40 floating units since the end of last year. Seadrill Chief Executive Officer Per Wullf said last week that at least 60 more need to go.

    The rate for the Transocean Arctic, as the rig is called, was as expected given that the machine is almost 30 years old and the contract starts in about a year, Andreas Stubsrud, an analyst at Pareto Securities AS, said by phone. Transocean Arctic will do most of its drilling in 2017, when rig owners are hoping to capitalize on a stronger market to get better rates for more sophisticated units, he said.

    The Transocean Arctic is currently earning $373,000 a day on a contract running to March 2016, Transocean’s latest fleet- status report shows.

    “In spite of the low day rate, we view it as a positive for Transocean to secure utilization at a day rate above operating expenses” of about $130,000 a day, DNB Markets said in a note. “The announcement is on the downside for other rig owners with open exposure in the region, namely Fred Olsen Energy ASA, Songa Offshore and North Atlantic Drilling Ltd.,” a subsidiary of Seadrill.

    Attached Files
    Back to Top

    Irans new oil contracts

    Iran unveiled its hotly anticipated new petroleum contracts to dozens of international oil companies in Tehran Saturday, and the first set of new tenders could be released by late January, a senior Iranian oil official said.

    The two-day conference, that began Saturday, introduced some 52 projects, including 14 exploration and development blocks, along with major onshore and offshore fields such as South Azadegan and the North Pars gas field.

    Iran introduced some $100 billion worth of upstream projects, but only a fraction of these will be offered in its first round of tenders, National Iranian Oil Company's Managing Director Rokneddin Javadi, who is also the deputy oil minister, said on the sidelines of the conference.

    "I think we will offer around 18 exploration blocks and around 10 development projects, totally worth around $30 billion in the first round," Javadi said.

    "It's just to tell the world how big the opportunity is for work in Iran. What we will offer in the first round will be based on the feedback we see from today's conference," he added.

    The exact date when the tenders will be released would depend on feedback from international oil companies at the Tehran summit, he said. But he said he hoped to finalize the contracts by the end of next year.

    The new Iran Petroleum Contract replaces the buy-back model first introduced in the 1990s.

    Under the new model, developers and investors would get their profit from the production, unlike the buyback model that was based on an agreed interest in advance, he said.

    The contract would also continue for longer, removing the need for a re-tender after a few years as production levels start to fall.

    The launch of a new bidding round and contracts would also have a slightly new structure, he added.

    "We are going to establish a new structure in NIOC -- under the supervision of the managing director -- for the tender procedure ... evaluation, negotiation until the contract. After signing the deal, the contract will be transferred to the executive companies," Javadi explained.

    Oil Minister Bijan Zanganeh said Saturday that he was not worried about the impact of low oil prices on investment in the new contracts and that he hoped to attract around $25 billion worth of foreign investment.

    "These prices and even lower than these, because our oil production costs are low, will cause no problem with repayment on investments or profitability for foreign companies", he said, adding that the production cost in Iran was below $10/barrel for both onshore and offshore production.

    As many as 153 international oil companies from across the globe attended the event. In particular, the oil ministry held meetings with France's Total, Azerbaijan's SOCAR, Russia's Lukoil and Malaysia's Petronas on Saturday on the sidelines of the conference.

    Attached Files
    Back to Top

    Snam to snap up Statoil's TAP stake

    Italian player in exclusivity agreement over Norwegian company's 20% share in gas pipeline project

    Snam revealed Tuesday it had agreed a purchase price with Statoil of €130 million and will also enter in the term credit facility agreement currently granted by the Norwegian company to TAP for a nominal amount of €78 million.

    “TAP is crucial to the diversification of gas sources in Europe through the development of the Southern Corridor from the Republic of Azerbaijan and potentially other producing countries,” Snam chief executive Carlo Malacarne said.

    “Snam’s entry in the project will reinforce its primary role and that of Italy’s infrastructure in boosting competition among supply sources and strengthening security of supply for the European gas system.”

    The 882 kilometre pipeline will deliver gas from the Shah Deniz field in Azerbaijan to Europe and will have an initial capacity of 10 billion cubic metres per annum.

    Upstream reported earlier this year Statoil was looking to offload its stake in TAP after selling its shares in Shah Deniz as well as the South Caucasus Pipeline.

    In a separate statement on Tuesday, Statoil said it expected to wrap up the sale of its TAP stake by the end of the year.

    “We are pleased to announce this agreement with Snam which will realise value from our stake in TAP, of which we have been a part-owner since 2008,” Statoil's executive vice president for marketing, midstream and processing, Jens Okland, said.

    “This divestment increases our financial flexibility and is in line with our strategy of portfolio optimisation and capital prioritisation.”

    The deal is still conditional on the remaining TAP partners, which includes BP, Socar, Fluxys, Enagas and Axpo, not exercising their pre-emptive rights over Statoil's stake in the gas pipeline project.

    Attached Files
    Back to Top

    Iran LPG exports surge

    Iran's Nov LPG exports at 501,000 mt, largest monthly volume since exports resumed May 2013, shipping sources say - Platts Oil
    Back to Top

    OPEC November oil output rises, led by Iraq, Saudi - Reuters survey

    OPEC oil output has risen in November from the previous month, a Reuters survey found on Monday, led by a rebound in Iraqi exports after bad weather had temporarily halted supply growth from the group's second-largest producer.

    The increase indicates the Organization of the Petroleum Exporting Countries is again pumping close to a record high as Saudi Arabia and other big producers focus on market share. OPEC meets this week to review the policy, with no change expected.

    OPEC supply has risen in November to 31.77 million barrels per day (bpd) from 31.64 million in October, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants.

    The OPEC meeting on Friday comes almost a year after its historic decision, led by Saudi Arabia, to refuse to prop up prices. Oil has more than halved in 18 months due to persistent oversupply, but even those in OPEC who want a change in approach do not expect one.

    "I am seeing that Saudi Arabia will not change its position," said an OPEC delegate from a non-Gulf country which favours supply restraint. "No favorable outcome will be reached at the next meeting."

    OPEC has boosted production by about 1.50 million bpd since its November 2014 policy shift. Output is not far below July's 31.88 million bpd, the highest since Reuters records began in 1997.

    The biggest monthly rise in output has come from Iraq, the world's fastest growing source of supply growth this year.

    Exports from Iraq's main outlet, its southern terminals, have risen in November to at least 3.06 million bpd and could top that and set a record if tankers currently waiting depart before Tuesday, according to loading data and industry sources.

    October's figure was lower than expected as bad weather delayed shiptments. Southern exports of 3.064 mbpd in July are the latest record.

    Exports from Iraq's north by the Kurdistan Regional Government via Ceyhan in Turkey have edged lower, while those by Iraq's State Oil Marketing Organisation have remained zero for a second month, the survey found.

    An increase has also come from Saudi Arabia, sources in the survey said, as the kingdom sent more crude abroad and used more in refineries, outweighing a seasonal drop in usage in domestic power plants.

    "November exports and refinery runs are up compared to October by more than direct burn was down," said one of the sources who tracks Saudi output. "So, supply to the market is up in November."

    Saudi output, at 10.25 million bpd in this survey, is not far from the record high of 10.56 million bpd it pumped in June.

    Output declined in OPEC's two West African producers, Angola and Nigeria, the survey found. Libyan output, which was already at a fraction of the pre-conflict rate, edged lower in November.

    Supply from Iran, OPEC's second-largest producer until sanctions forced a cut in exports in 2012, stayed flat in November, the survey found. A lifting of sanctions on Iran has the potential to boost OPEC output further in 2016.

    Read more at Reuters

    Attached Files
    Back to Top

    North Dakota rig count flirts with historic low

    North Dakota rig activity indicates the No. 2 oil producer in the nation is still flirting with an all-time low in the exploration and production sector.

    State data show 64 rigs in the active process of exploring for or producing natural reserves in shale-rich North Dakota. That's down one from last week and one above the historic low of 63, set in November 2009. Rig counts for November are down about 8.5 percent.

    Lower crude oil prices, off about 9.5 percent for the month, are forcing energy companies to spend less on exploration and production. Last week, oil field services company Baker Hughes reported a total U.S. rig loss of 13, or 1.7 percent, from the week ending Nov. 20. Year-on-year, total U.S. rig counts are down 61 percent and off 65 percent for North Dakota.

    North Dakota's rig loss is comparable to Texas, the No. 1 oil producer in the nation, which recorded a 65 percent drop in activity year-on-year.

    More than 90 percent of new oil production in North Dakota comes from the Bakken shale reserve. Of all shale basins contributing to new growth in the United States, only the Permian shale basin in Texas is expected to report an increase for December, according to the U.S. Energy Information Administration. Bakken production next month is expected to decline by 27,000 barrels per day.

    Oil production in North Dakota in September, the last full month for which data are available, was 1.16 million bpd, down about 2 percent from the previous month.

    The North Dakota Industrial Commission said in its latest monthly report that operators are running fewer rigs, though they're more efficient than in the past. Rig counts may drop further, however, as the weakened oil economy persists.
    Back to Top

    Golar LNG posts loss in Q3

    Bermuda-based Golar LNG on Monday posted a net loss of $143 million for the third quarter of this year.

    Golar LNG’s charter revenues rose to $24.3 million in the third quarter from $16.9 due to an increase in utilization of the company’s fleet that was at 44 percent compared to 33 percent in the previous quarter, the company’s quarterly report reveals.

    Cool Pool

    The “Cool Pool” formation comprising Golar, Gaslog and Dynagas was completed and commenced operations on October 1, with 10 of the 17 spot voyage charters concluded globally during October being with the Cool Pool.

    According to Golar’s report, the LNG carrier spot market is now showing the first real signs of recovery on the back of new production capacity starting up and the “very welcome acceptance” by the market of the Cool Pool. The speed of this recovery will in part be a function of how trade patterns evolve over the coming months.


    The market for FSRU’s has entered into a new phase. Whereas, previously, potential new FSRU projects were frustrated by the inability to secure LNG supply, Golar said the holders of uncontracted LNG supply are motivated to accelerate FSRU projects in an effort to reduce their exposure.

    The company expects the uncontracted FSRU capacity to be absorbed shortly based on the customer inquiries.

    Earnings increase

    Golar LNG  forecasts an improvement in its operating earnings in the coming quarters, driven by an improved shipping market and Golar Tundra commencing operations in the second quarter of 2016.

    It also expects positive outcomes from the ongoing contract discussions in the FLNG business within the next six months.

    GoFLNG conversion

    GoFLNG Hilli conversion progress remains on schedule as during the quarter the vessel re-entered Keppel drydock and prefabricated sponsons are in the process of being attached to the hull which will continue for the remainder of this year.

    Pre-fabrication of the process topside modules and pipe racks has now commenced with most major equipment items for the conversion now delivered to the shipyard.

    Attached Files
    Back to Top

    Kurdistan Pays Oil Companies for Third Month to Maintain Output

    The Kurdistan Regional Government paid international oil companies operating in the Iraqi autonomous region for a third consecutive month, disbursing funds that it says will allow production to be maintained.

    Payments will improve when exports increase or the oil price rebounds, the KRG said Monday in an e-mailed statement. The government said the release of funds was in line with those in September and October, which both saw disbursements of $75 million.

    Gulf Keystone Petroleum Ltd., Genel Energy Plc and DNO ASA were awaiting a November payment for the roughly 300,000 barrels a day they jointly produce. Shares of Gulf Keystone pared their losses in London, ending 1.2 percent down after earlier dropping as much as 15 percent. Genel declined 2.8 percent while DNO rose 2.4 percent in Oslo.

    The KRG vowed to re-establish regular monthly payments in August, following an eight-month hiatus after disagreements with Iraq’s central government in Baghdad over how the region should be remunerated for its oil output. The collapse in crude prices and the cost of fighting Islamic State is making it harder for the KRG to balance its books.

    “Any payment they make at this point is encouraging but it’s not transformational,” Shola Labinjo, a London-based analyst at Tudor, Pickering, Holt & Co said by phone. These payments allow the companies to manage their costs, but they’re not enough to reduce the amount that the KRG owes the oil companies, he said.

    The three companies are owed about $1.7 billion from past crude exports, based on their last regulatory filings. Unless this is paid, an increase in crude production isn’t possible, according to top executives at DNO, Genel and Gulf Keystone.

    The announcement comes as the KRG’s prime minister and oil minister are due to speak at an investor conference in London on Tuesday. It also follows a ruling by a U.K. court ordering the KRG to pay $1.98 billion to Dana Gas PJSC and two other energy companies in a dispute over development rights for two oil and natural gas fields in Iraq’s self-governing Kurdish region.

    While the KRG has been supportive of Gulf Keystone, the Dana Gas ruling has caused some concerns in the market, James Midgley, an analyst at Mirabaud Securities LLP, said by phone. “It’s just more stretch on the balance sheet of the KRG, which was already stretched,” he said.

    Kurdistan is a major driver behind Iraq’s record crude production this year, with the region exporting 595,528 barrels a day in October, according to the Kurdish Ministry of Natural Resources. That’s 22 percent of total Iraqi exports and almost double the level it was shipping in November last year.
    Back to Top

    Lukoil Third-Quarter Profit Falls 62% After Oil Price Declines

    Lukoil PJSC, Russia’s second largest oil producer, said third-quarter profit dropped 62 percent, a bigger decline than estimated, after crude prices fell amid a global supply glut.

    Net income fell to $623 million in the third quarter compared to $1.62 billion the previous year, according to the Moscow-based company. That was below the $826 million average estimate in a survey of nine analysts by Bloomberg News. Sales fell 40 percent to $23.4 billion.

    Crude prices have fallen to about half the previous year’s level after the Organization of Petroleum Exporting countries reacted to a global supply glut by defending market share rather than cutting output. Russian oil and gas producers Bashneft PJSC, Gazprom Neft PJSC and OAO Novatek also reported a decline in profit or a loss in this period.

    Oil and gas production in the first nine months of the year rose 3.5 percent to 2.37 million barrels a day. Oil and liquids output increased 3.9 percent to an average 2.05 million barrels a day, mainly due to growth in Iraq, Lukoil said in the statement.
    Back to Top

    More Russian oil drilling shows its resolve to OPEC

    Russian oil firms are drilling more, showing the world's top crude producer is ready for a longer fight for market share with OPEC, as its industry can carry on even if oil prices reach $35 per barrel.

    As OPEC prepares to meet on Friday in Vienna, Russia is sending a low key delegation for talks which are very unlikely to result in any output deal.

    OPEC oil ministers have repeatedly said they would only cut production in tandem with non-OPEC.

    According to Eurasia Drilling Company (EDC), the largest provider of land drilling services in Russia and offshore in the Caspian Sea, Russian drilling measured in metres rose 10 percent in the first six months of this year from a year ago, despite a decline in oil prices to less than $50 per barrel from their peaks of $115 in June 2014.

    "Despite the recent fall in oil prices, Russian production continued to accelerate as oil producers remained profitable even in the lower oil price environment, helped by the effect of a weak rouble on costs and lower taxes, which decline in a lower oil price environment," Bank of America Merrill Lynch said in recent research.

    Moscow has surprised the Organization of the Petroleum Exporting Countries by ramping up output to new record highs this year despite low oil prices, which OPEC had hoped would depress production from higher cost producers.

    Moscow responded by steeply devaluing the rouble, giving an edge to its exporters. In many OPEC Gulf producers currencies are firmly pegged to the dollar.

    According to EDC, the Russian drilling market is based on long-term contracting, which results in lower pricing and less margins volatility, as compared to other countries more subject to the spot market.

    Total drilling has more than doubled over the past decade to more than 22 million metres per year.

    Russian oil production, which together with sales of natural gas account for half of state budget revenues, has been steadily rising since 1998, apart from a marginal decline in 2008.

    According to official data, the number of producing wells in Russia has increased in 2014 to 146,279 from 143,875 in 2013.

    The number of horizontal wells - a more efficient method of extracting oil - has increased by more than six times since 2005.

    The number of wells in the Middle East, including in Saudi Arabia, has also risen over the past year, according to data from OPEC - in steep contrast to fast declines in many other producing areas as a result of low oil prices.

    In the United States, the number of oil rigs has fallen by 1,173 over the past year to 744 as the shale oil boom cools due to lower oil prices, according to oil services company Baker Hughes.

    Merrill Lynch said that most Russian oil companies break even at an oil price as low as $35 per barrel comparing to $40-$50 for Latin America's producers.

    Read more at Reuters
    Back to Top

    Iran gives CNPC priority to develop giant oil field

    Iran has given priority to China National Petroleum Corp. for the second phase of the development of its onshore North Azadegan oil field, a senior Iranian oil official said Saturday.

    Speaking ahead of the launch of Iran's new petroleum contract in Tehran Saturday, state-owned National Iranian Oil Company's Managing Director Rokneddin Javadi outlined CNPC's extended involvement in the field.

    "Based on the original contract of North Azadegan with China's CNPC, the company has been given priority to carry out the second phase of the development of the field," Javadi said.

    The first phase was now complete and commissioning was underway, he said. It has the capacity to produce around 75,000 b/d of crude oil.

    CNPC, which was awarded the project in 2009, was to have completed the first phase late last year. Its performance at North Azadegan is under scrutiny after it was removed from the South Azadegan development because of delays.

    Under a buyback contract signed October 2010, the contractor was to be reimbursed from the field's own production.

    "We are negotiating with it and as soon as we can finalize it, we will proceed. Otherwise, in the second round of the tenders, we will put it out. The same applies to Sinopec in the Yadavaran oil field," Javadi said.

    Sinopec signed a contract in 2007 for the field and was to produce 85,000 b/d in the first phase and 100,000 b/d in the second phase.

    Reserves at Yadavaran have been estimated at 17 billion barrels. Once all three phases of development are completed, the field is expected to produce 300,000 b/d of crude oil.

    North Azadegan has 6.5 billion barrels of oil reserves in place and covers around 460 sq km of the whole Azadegan field, straddling Iran and Iraq.

    International sanctions over Iran's nuclear program -- including a ban on oil and gas investment -- led Tehran to turn to Chinese companies to develop key oil fields.

    Despite complaints about performance, Chinese state-owned oil companies are considered "strategic partners," Javadi said, adding that Iran hoped to maintain this relationship for future upstream projects.
    Back to Top

    Move to free natural gas pricing won't help 15-17 Tcf of gas discoveries - Report

    Image Source: EconomictimesPTI reported that government move to free natural gas pricing will not resolve the issue of economically developing already discovered 15-17 trillion cubic feet of gas reserves as the policy will only apply to future finds.

    Industry officials said that the Oil Ministry's proposal to make natural gas prices market driven for blocks or areas awarded in future exploration licensing rounds/auctions is a forward looking policy framework.

    A senior executive at a multinational energy firm said that it "promotes key principles of 'ease of doing business' and 'minimum government maximum governance."

    Another executive at a leading private explorer said that pricing and marketing freedom will help develop and manage a vibrant oil and gas market. Its a very big step forward.

    The executive however, said that it does not resolve the issue of economically developing the already discovered 15-17 Tcf of natural gas, which can yield an additional 100 million standard cubic meters per day by 2022 to help reduce import dependency.

    The existing capped natural gas price of USD 4.24 per million British thermal unit is not enough to support multi-billion dollar investment for developing the gas finds, most of which are in deepsea and difficult areas.

    Market rates are nearly double of the current price.

    The executive said that "Allowing a pricing policy that support developing these finds. It will also brings much needed revenue (USD 30-40 billion), investment (USD 50-60 billion), skills and employment (100,000 during construction)."

    Several discoveries of Reliance Industries-BP combine, state-owned Oil and Natural Gas Corp (ONGC) and Gujarat State Petroleum Corp (GSPC) in Bay of Bengal are economically unviable to produce at current gas price.

    Finding current rates too low to support exploration and production cost, the Oil Ministry on November 6 proposed to free natural gas pricing, bring in open acreage licensing and replace the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime for all future field auctions.

    In September, the government had allowed pricing freedom for the gas produced from 69 small and marginal fields it plans to auction shortly.

    The Ministry said that "In the recently announced marginal field policy, the government has provided pricing and marketing freedom for the natural gas. On similar lines, it is proposed to provide pricing and marketing freedom for the natural gas to be produced from the areas to be awarded under the new contractual and fiscal regime in order to incentivise production from these areas."

    An executive added that "Economic development of existing discoveries in difficult environment need similar market and price freedom to meet Prime Minister's goal of reducing import dependency by 10 per cent."

    Attached Files
    Back to Top

    OPEC officials question upbeat outlook ahead of policy meeting

    OPEC officials questioned an upbeat forecast from the group's researchers in a meeting ahead of next week's gathering of oil ministers, with some sceptical there will be a quick easing of the supply glut in 2016.

    The comments point to a less jubilant mood in the Organization of the Petroleum Exporting Countries, whose oil ministers meet to set policy on Dec. 4, than during their last meeting in June. Oil has fallen to $45 a barrel on oversupply concerns compared to $65 last time.

    "Market data is showing loads of uncertainties," said one source.

    OPEC's national representatives - officials representing the 12 member-countries - plus officials from OPEC's Vienna secretariat - met to discuss the market. The two-day meeting, called the Economic Commission Board, finished on Friday.

    A year ago, OPEC made its historic decision to refuse to prop up prices by cutting supply and focus on defending market share. The shift was led by Saudi Arabia, supported by other Gulf OPEC members. Doubts about the policy among less wealthy members are growing.

    OPEC's research team expects higher demand for the group's oil in 2016 as supply from rival producers declines, reducing the global supply glut. World oil demand is expected to rise by 1.25 million barrels per day.

    One of the differences in views, an OPEC delegate said, was around whether OPEC's demand forecast is too optimistic, while another non-Gulf delegate was downbeat about the outlook.

    "No, it is not," the second delegate said, asked if the market outlook appeared better. "It is complicated."

    "We think it will take a longer time for the market to go back to stability. Maybe another year and half," another delegate said before the ECB meeting.

    Nonetheless, OPEC is widely expected to leave its current policy in place when ministers meet.

    Delegates from Gulf OPEC members have made clear that any U-turn would be possible only if large producers outside OPEC, notably Russia, were to join coordinated output cuts. The chance of that happening currently looks slim.

    "I am not very optimistic any breakthrough will happen during the coming OPEC meeting," said a delegate from a country that wants supply cuts who is yet to arrive in Vienna. "I hope I will be proved wrong."

    Read more at Reuters

    Attached Files
    Back to Top

    UAE's Dana Gas says wins $1.98 bln Kurdistan judgement

    An international arbitration tribunal in London, ruling in a dispute that has lasted six years, ordered the Kurdistan Regional Government (KRG) in Iraq to pay $1.98 billion to a consortium including Dana Gas, the company said on Sunday.

    The tribunal of the London Court of International Arbitration directed that the payment be made within 28 days. The judgement is final, binding and internationally enforceable, Dana said in a statement to the Abu Dhabi stock exchange.

    If enforced, the award could have a major impact on the fortunes of United Arab Emirates-based Dana and other natural gas firms operating in Iraqi Kurdistan, as well as on the KRG, whose finances have been strained by its fight against Islamic State militants.

    Dana's share price soared its 15 percent daily limit on Sunday. Later in the day, however, the KRG issued its own statement saying Dana's description of the ruling was misleading and incomplete.

    "This is a partial award that does not finally determine all issues in the arbitration, and leaves many issues unresolved," the KRG said, adding that it would continue pursuing claims against Dana and affiliates "in all appropriate fora".

    The KRG added that it still had counter-claims worth over $3 billion against Dana, and that the tribunal would hear these claims in the next phase of arbitration.

    In 2007, Kurdistan awarded Dana and the UAE's Crescent Petroleum a 25-year deal to develop the Khor Mor and Chemchamal gas fields. Austria's OMV and Hungary's MOL subsequently each took 10 percent of the venture.

    But the project became entangled in a dispute over legal rights to the fields and allegations that the consortium had been underpaid for condensate and liquefied petroleum gas products supplied from Khor Mor.

    The consortium filed an international arbitration case in London in October 2013. Legal action has also taken place in other courts; last week, Dana said the British High Court had ordered the KRG to pay the consortium $100 million within 14 days.

    "The clear rights of the consortium to both fields for long-term development and production, including title, and of course payment, have now been confirmed beyond any doubt," Majid Jafar, chief executive of Crescent and managing director of Dana's board, told Reuters on Sunday.

    "After almost seven years delay caused by this unnecessary dispute, we hope that with respect for contract we will now finally be able to move forward and prevent further losses for all sides by developing these world class resources as originally envisaged for the benefit of Kurdistan and all of Iraq, as well as the wider region."

    Dana said it had further, substantial damage claims for wrongfully delayed development of the gas fields that would be heard in 2016, along with the KRG's counter-claims.

    It said the consortium had so far invested over $1.2 billion in the project and produced the equivalent of over 150 million barrels of gas and petroleum liquids. 
    Read more at Reuters
    Back to Top

    The drop in natural gas prices has caused this exporter to become an importer

    The natural gas market is growing interesting. Not in North America where prices continue to languish — but internationally, where the fall in oil has caused a knock-on drop in E&P valuations even as many gas markets are getting tighter.

    News this week suggests that’s the case in northern South America. Where one nation officially announced it will become an importer of natural gas for the first time ever.

    That’s Colombia. Where state oil company Ecopetrol told local press Monday that the firm has struck a groundbreaking deal to import natgas from Venezuela starting in January.

    As reported by Platts, Ecopetrol’s head Juan Carlos Echeverry told reporters that Colombia will start importing 39 million cubic feet per day of natural gas from Venezuela in the new year.

    The move is aimed at shoring up domestic natgas demand. Which is rising in Colombia due to increased use of gas for power generation, as hydroelectric output across the country has been falling.

    At the same time, Ecopetrol’s gas production has stagnated. With output dropping 6% in the third quarter as compared the same period of 2014, to 128,900 boe/d.

    The move toward imports in Colombia is important for a number reasons.

    First because it shows a shift in market dynamics in this part of South America. Where Colombia used to be an important exporter — but is now flipping to being a net consumer.

    That’s happening at the same time as other big markets like Brazil are also struggling with hydropower generation. And Pacific nations like Chile are rapidly increasing gas use via sources like liquefied natural gas.

    There are potential exporters here — Venezuela to some degree, and also countries like Bolivia and Ecuador. Supply in these places could get tighter quickly.

    It will now be critical to watch natural gas prices in Colombia — which could drive up power costs in the country (for industries like mining), but could also provide an unexpected opportunity for E&Ps here.
    Back to Top

    UK to use new powers to rule on Cuadrilla shale gas permits

    Britain will use new powers to determine whether to allow shale gas firm Cuadrilla Resources to carry out fracking at two sites in northwest England, overruling local planning decisions.

    Britain is estimated to have substantial amounts of shale gas trapped in underground rocks and Prime Minister Cameron has pledged to go all out to extract these reserves, to help offset declining North Sea oil and gas output.

    Yet fracking applications have struggled to find approval from local communities, concerned about noise and environmental impacts, and to address this the government has changed planning rules to make its own decisions on shale gas appeals.

    Local government minister Greg Clark has informed Lancashire County Council of the minister's intention to himself determine Cuadrilla's appeal on two rejected permits in the area in northwest England.

    "Ministers have decided to recover Cuadrilla's appeals for shale exploration in Lancashire," the government said in a letter to the council dated Nov. 26.

    Cuadrilla's wells in Lancashire would be the first British shale gas wells where fracking is applied since hydraulic fracturing at a separate project near Blackpool, in Lancashire, triggered an earth tremor that resulted in an 18-month ban on the technology in 2011.

    John Williams, senior principal consultant at the consultancy Poyry Management said a decision on the appeal could be made by the second half of 2016 but rules requiring the company to monitor water supplies at the site for 12 months before fracking can start would delay any gas extraction.

    "We could see some drilling in the second half of 2017 but they still have to determine whether there are reserves that can be extracted economically and it would likely be 2018 at the earliest before a decision to move into full production would be taken," he said.

    A spokesperson for Cuadrilla said if the projects are given approval the company would begin water monitoring at the sites as soon as possible.

    Britain changed its planning rules in August to allow government intervention to approve or reject shale gas drilling permits and give priority to appeals involving shale gas projects.

    Lancashire Council earlier this year rejected two Cuadrilla applications for fracking, or hydraulic fracturing, underscoring some local community concerns about the technique.

    Cuadrilla appealed against the rejections.

    "If Cuadrilla is given permission to frack in Lancashire, it will be against the wishes of its residents, and its council, both of which have made their views against this risky process very clear," said Donna Hume, senior energy campaigner at environmental group Friends of the Earth.

    British Finance minister George Osborne on Wednesday confirmed the creation of a shale wealth fund that would receive up to 10 percent of tax revenue from shale gas developments for investments in communities affected by the projects.

    Read more at Reuters
    Back to Top

    Alternative Energy

    Europe’s biggest solar farm opens in France, cheaper than nuclear

    It was a long time in the making, but this week Europe’s largest solar PV plant was finally brought online.

    The Cestas solar farm, which is 300MW and covers a 250-hectare site near to the French city of Bordeaux, was connected to the grid earlier this month and has already begun producing solar power at a price cheaper than that offered by new nuclear plants.

    Developed by Neoen for a cost of €360 million ($382 million), Cestas will see its solar energy for a price of €105/MWh ($111/MWh) for 20 years, which is on a par with wind power and cheaper than the cost of new nuclear energy, confirmed Neoen chief executive, Xavier Barbaro.

    France’s older nuclear plants, built in the 1970s and ‘80s, deliver nuclear energy for around €55/MWh, but newer nuclear plants – such as the controversial Hinkley Point development in the U.K., which is being built by French utility EDF – are set to deliver energy for a government-guaranteed price of around €130/MWh.

    Barbaro told reporters at the plant’s inauguration that its east-west orientation (solar farms at this latitude are usually oriented with a southern azimuth) means it can produce three-to-four times more power for the same surface area. This also means early morning and late-afternoon production is higher, mirroring more closely typical demand patterns from the French grid.
    Back to Top

    China says to start claiming compensation from polluters

    The Chinese government plans to begin claiming compensation from polluting companies and individuals, particularly those who damage state property, over the next two years, China's cabinet has said.

    The State Council said on its website late on Thursday it would trial the policy in a few provinces before rolling it out nationwide in 2018. The plan would cover air, water and soil pollution, as well as damage to plants and animals.

    China already allows government-registered environmental organizations that have been operating for at least five years to launch legal action against polluters.

    High pollution levels have sparked widespread social unrest and become a major concern for China's leadership. Environmentalists say China's big polluters routinely exceed government emission limits.

    China's capital Beijing suffered choking pollution this week, triggering an "orange" alert, the second-highest level, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors.

    That coincided with a meeting of world leaders in Paris to address climate change. China said after the meeting on Wednesday it would cut emissions of major pollutants in its power sector by 2020.

    Read more at Reuters
    Back to Top

    Beijing-Tianjin-Hebei realize first near zero emissions coal-fired power plant

    Beijing-Tianjin-Hebei region saw Shenhua Guohua Sanhe power plant first realize near zero emission, after its 3# unit realizing near zero emissions on November 24, local media reported lately.

    The 1.3 GW plant has started comprehensive upgrade on its four units before two years ago, with investment totaling 976 million yuan.

    At present, the emission of smoke, sulfur dioxide and nitrogen oxide of the plant was 508 tonnes, 1,169 tonnes and 2,185 tonnes lesser than the standard emission, falling 85.3%, 60.5% and 88.9% from the prior-upgrade level.

    Coal consumption of the plant dropped 11.3g/KWh, and saved standard coal use of 67,700 tonnes and water use of 60,000 tonnes per year.

    Shenhua Guohua Power Co. has realized near zero emissions upgrade on its 16 units, and it will expand this to 21 by end-2015. By the end of June 2016, the company will realize ultra-low emission in its all units at Beijing-Tianjin-Hebei region.

    The company planned to make all units realize ultra-low emission by 2017, reaching coal consumption to 297g/KWh.

    Analyst said the near zero emissions and 0.001 yuan/t per KWh cost would help coal-fired plants get rid of the main resource of air pollution.
    Back to Top

    Solar, wind power output to surpass shale in five years, says Goldman

    New solar and wind capacity additions between 2015 and 2020 will add more power globally than U.S. shale-oil production did during 2010-2015, according to a new report by Goldman Sachs.

    A new equity research report published this week by U.S. investment bank Goldman Sachs examines the low carbon economy and forecasts solar PV and onshore wind will add more to the global energy supply over the next five years than U.S. shale managed over the previous five.

    The report, titled The Low Carbon Economy and produced by Goldman Sachs environmental division GS Sustain, expects a wider transition towards greener and cleaner technologies over the next decade, including LEDs accounting for six out of ten lightbulbs; electric and hybrid vehicles to number 25 million worldwide by 2025 (a ten-fold increase on today’s number), and a reduction of >5 gigatonnes (Gt) of C02 per year by that date.

    However, it is the field of renewable energy that is poised to have the greatest positive impact on our climate, the report finds. Analysts Brian Lee and Jaakko Kooroshy, who worked on the report, believe that solar PV and onshore wind power combined will add the equivalent energy of 6.2 million barrels of oil a day to the world’s energy supply, outstripping the 5.7 million barrels a day of U.S. shale oil produced from the nation’s wells since 2010.

    “Wind and solar are on track to exceed 100 GW in new installations for the first time,” they wrote, delivering more than 1 Gt of carbon emission savings annually and comprising two of the ‘big four’ low carbon technologies that Goldman Sachs believe will drive this lower emissions transition.

    “We identify LEDs, solar PV, onshore wind and electric and hybrid vehicles as clear front-runners in the emerging low-carbon economy.”
    Back to Top

    France to spend billions of euros on African green projects

    France plans to spend billions of euros in renewable energy and other environmental projects in its former west African colonies and across Africa over the next five years, President Francois Hollande said on Tuesday.

    Africa produces little of the greenhouse gases such as carbon dioxide, produced by burning fossil fuels, linked by scientists to rapid climate change. But it is particularly vulnerable to a changing climate, as much of its population is poor, rural and dependent on rain-fed agriculture.

    Hollande told a conference on Africa, held as part of climate change talks in Paris, that his government would double investments in renewable energy generation, ranging from wind farms to solar power and hydroelectric projects, across the continent to 2 billion euros ($2 billion) between 2016 and 2020.

    In addition, he said Paris would triple to 1 billion euros a year by 2020 its contribution to Africa's battle with desertification and other climate change challenges.

    Most of that investment will be directed at some former West African colonies, where Paris has significant security interests and has deployed thousands of troops to fight Islamist militants.

    One project, dubbed the "Great Green Wall", was initially intended to create a barrier of trees reaching from the Sahel in west Africa to the Sahara in the east, but will now focus on creating pockets of trees to revive the soil.

    Another aims to protect Lake Chad, which is threatened by pollution.

    African leaders want the biggest polluting nations to commit to financing as part of contributions to an internationally administered Green Climate Fund, that hopes to dispense $100 billion a year after 2020 as a way to finance the developing world's shift towards renewables.

    Read more at Reuters
    Back to Top

    EU approves UK state aid for RWE biomass-fired power plant

    The European Commission has approved British plans to subsidise the conversion of RWE's Lynemouth coal-fired power plant in northern England to burning biomass, sending the German utility company's shares higher.

    The European Commission said on Tuesday a nine-month investigation showed that the project accords with European environmental and energy goals, giving the green light to an agreement struck under Britain's contracts-for-difference (CfD) electricity pricing mechanism to support the project until 2027.

    RWE, which bought the coal-fired power plant in 2012, said it would now take 18 months to adapt the station to run 100 percent on biomass with a generation capacity of 420 megawatts.

    Shares in RWE rose by up to 8.5 percent following the approval, which also coincided with news the company was considering spinning off its retail, networks and renewables units.

    State aid approval for Lynemouth was also positive for Drax , the operator of Britain's biggest coal-fired plant whose conversion of a third unit to biomass is still awaiting state aid approval by the European Commission.

    CfD contracts for the two biomass conversion projects are comparable, analysts said, increasing Drax's chances for its plans to also gain state aid approval.

    "This is positive news for the company, and it could even potentially lead to the government having a more positive outlook on the base load potential of biomass," said Angelos Anastasiou, utilities analyst at Whitman Howard.

    A Drax spokesman said the decision was "encouraging" but the two contracts had differerent underlying technical and economic assumptions.

    The company is considering converting a fourth of the six units at Drax to run on biomass.

    Britain will hold its next auction of renewable energy subsidies by the end of 2016 and a further two over the course of the current government's term, energy minister Amber Rudd said last month.

    It is unclear whether biomass projects will be able to participate in the next rounds but Andrew Koss, chief executive of Drax's operating subsidiary Drax Power, said conversion plans for a fourth biomass unit could be among the most competitive bidders in the scheme.

    "If that happens (full competition under the scheme) we believe our fourth unit would be one of the cheapest," he said during a cross-party Energy and Climate Change Committee hearing in Parliament on Tuesday.

    Read more at Reuters
    Back to Top

    India’s solar power cos’ funding struggle slows transition to green tech

    Business Line reported that Indian solar power developers are struggling to find cheap sources of finance, slowing the process of switching to greener technologies.

    Mr Vinay Rustagi, Managing Director at consultancy firm Bridge To India, said that “There are very limited options for raising debt financing from abroad (for solar power developers in India). Typical sources include multi or bilateral agencies such as IFC, ADB, US Exim, KFW, OPIC and others. But all these agencies have long and costly credit assessment processes and that’s why such financing is usually viable only for large projects of over 100 MW.”

    Mr Rustagi said that typically, while foreign money has been coming into the solar power sector from the US and Western Europe, recently Japan and China have also showed interest.

    Most India-based solar power developers get financing at 11 per cent while those with access to foreign funds get it at much cheaper rate of 7-8 per cent; sometimes even lower.

    As a result, India is insisting that climate funding be an integral part of any agreement as part of the 2015 Paris Climate Conference so that companies have access to cheaper finance.

    Attached Files
    Back to Top

    Africa's largest wind farm inaugurated in Egypt

    The African continent's largest wind farm with 100 turbines and a total capacity of 200 megawatts has been inaugurated in Egypt, the media reported on Monday.

    The project has been financed by the European Union (EU), German Development Bank, and European Investment Bank, EFE news reported.

    "The wind farm in the Gulf of El Zeit is a leading source of renewable energy that will help bolster Egypt's economy, create jobs and reduce pollution from greenhouse gases," said EU ambassador to Egypt James Moran, who inaugurated the plant along with Egypt's Minister of Electricity and Renewable Energy Mohamed Shaker on Sunday.

    The plant can generate up to 800 gigawatt per year, which is equivalent to the electricity consumption of 500,000 people with savings of up to 400,000 tonnes of carbon dioxide.

    "The new wind farm will increase Egypt's wind capacity by 35 percent and will reduce carbon emissions by 400,000 tonnes a year," said Moran.

    The EU contributed $32 million in the project while the European Investment Bank put in $53 million and the German Development Bank, the project's main donor, invested $203 million.

    The project is part of the Egyptian government's plans to encourage renewable energy to control fuel shortages and diversify energy sources with technical and economic support from Europe.

    EU released a statement saying Egypt has great potential in the field of solar and wind power whose development is fundamental to solving the country's energy crisis, and limit pollution especially in populated areas of the Nile Delta and Cairo.

    The EU also confirmed that another wind farm is being built with European funding in the Gulf of Suez, northeast of Cairo, which will be ready in 2016.
    Back to Top


    Food Prices Fall as Abundant Stockpiles Cut Grain, Dairy Costs

    Global food prices resumed their march lower last month as big stockpiles and the strengthening dollar led to declines in grains, dairy, meat and vegetable oils.

    An index of 73 food prices fell 1.6 percent in November, the United Nations Food & Agriculture Organization wrote in a report Thursday. Prices had climbed in the previous two months, raising speculation that bad weather from El Nino was driving up costs for milk, sugar and palm oil.

    Food prices have fallen 18 percent in the past year as farmers harvested bumper crops worldwide and demand slowed for some meat and dairy products. Sugar was the only major commodity in the FAO’s index that saw higher prices last month, with costs climbing 4.6 percent, according to the report.

    All other sectors saw declines, led by a 3.1 percent drop for vegetable oils and a 2.9 percent slide in dairy.

    Grains also fell, even as the FAO lowered its outlook for production this season. Global output was pegged at 2.527 billion metric tons, slightly lower than last month’s forecast of 2.53 billion tons. Prospects have deteriorated for China’s corn crop because of dry weather, according to the report.
    Back to Top

    Global soil loss a rising threat to food production - scientists

    One third of the world's arable land has been lost to soil erosion or pollution in the last 40 years, and preserving topsoil is crucial for feeding a growing population, scientists said in research published during climate change talks in Paris.

    It takes about 500 years to generate 2.5 cm (one inch) of topsoil under normal agricultural conditions, and soil loss has accelerated as demand for food rises, biologists from Britain's Sheffield University said in a report published on Wednesday.

    Preserving valuable topsoil is crucial if the world is to produce enough food for more than 9 billion people by 2050, the scientists said.

    "Soil is lost rapidly but replaced over millennia, and this represents one of the greatest global threats to agriculture," Sheffield University biology Professor Duncan Cameron said in a statement with the report.

    He recommends that farmers engage in "conservation agriculture" where crops are rotated more frequently, organic matter is restored to the soil and less energy is spent on nitrogen fertilizers.

    At present, intensive farming maintains crop yields through the heavy use of fertilizers, made by an industrial process that consumes five percent of the world's natural gas production and two percent of the world's annual energy supply, the report said.

    On Tuesday French officials launched a plan to raise soil carbon levels in order to take carbon dioxide out of the atmosphere, presenting the scheme at international climate change negotiations in the French capital.

    The French-led plan, backed by the U.N. Food and Agriculture Organization (FAO), aims to increase soil carbon stocks by 0.4 percent annually to boost soil fertility while combating global warming.

    Read more at Reuters
    Back to Top

    Dow sells portfolio of herbicides amid consolidation drive

    Dow Chemical Co has struck a deal to sell a part of its global herbicide business, as low crop prices continue to drive talk of consolidation in the agriculture industry.

    Dow on Monday said it agreed to sell a portfolio of weed killers known as dinitroanilines to privately held Gowan Company. The deal comes a month after Dow said it was reviewing all options for its farm chemicals and seeds unit, which has reported falling sales for nearly a year.

    The companies did not disclose terms of the deal. It is expected to close by the end of the year, they said.

    The farm sector is struggling to cope with falling crop prices and diminished demand for crop protection products, which have hurt sales in the agricultural businesses at companies including Dow, Monsanto Co and EI du Pont de Nemours & Co.

    Dow's sale includes global product registrations and trademarks for herbicides including Treflan, which can be sprayed on field corn, cotton and some fruit and vegetables, according to a statement. A formulation and packaging facility in Alberta, Canada, is also part of the deal.

    Dinitroanilines, or DNA herbicides, have been a part of weed management programs for more than 50 years, according to Dow. The company will "invest in innovative and differentiated products," Ramiro De La Cruz, vice president of crop protection for Dow AgroSciences, said in the statement.

    A company spokeswoman did not immediately answer questions seeking more information.

    "We are grateful for the opportunity to defend and evolve the DNAs for niches that have long been our sweet spot, such as vegetables and turf," said Juli Jessen, chief executive of Gowan Group.

    Dow rival Monsanto has said it is studying every possibility for consolidation in the seed and agrochemical sectors.

    Monsanto, the world's largest seed company, abandoned a $45 billion bid for Syngenta AG in August and since then, nearly all of the major players in the farm chemicals and seeds business have been the subject of consolidation talk.

    Read more at Reuters
    Back to Top

    Precious Metals

    De Beers considering closing Canada's Snap Lake diamond mine

    De Beers Canada said on Thursday that it may consider closing its Snap Lake diamond mine in the Northwest Territories, alongside other options, as it grapples with falling prices and costly operations at the unprofitable Arctic mine.

    De Beers Canada, which employed 747 staff and contractors at Snap Lake last year, has not turned a profit at the underground mine since it began production in 2008. The company had planned for operations to continue until 2028.

    Groundwater problems at the mine, which extracts diamonds from beneath Snap Lake, have added to high costs at the site, which is accessible only by air and an ice road that operates for two months of the year. It produced 1.2 million carats last year.

    "Any time these scenarios come forward, where the cycle is challenging, everything's on the table and everything's looked at including the option of what would we do if we had to go into any kind of a care and maintenance or closure situation," said De Beers spokesman Tom Ormsby. "Nothing's off the table."

    Global diamond miners have cut output and lowered prices in the face of slowing demand growth in China and a glut of supply.

    Prices for rough stones are down 18 percent from last year, data from shows, while polished diamond prices are down 20 percent year-to-date, the Rapaport Group said.

    De Beers, which is 85 percent owned by Anglo American Plc and 15 percent owned by the government of Botswana, is the world's largest diamond producer. It has cut global production three times this year.

    De Beers Canada said in October that its new Chief Executive Kim Truter would relocate the company headquarters to Calgary as part of a restructuring to cut costs.

    The company, which also operates the Victor diamond mine in Ontario, continues to build the Gahcho Kue mine in the Northwest Territories, with 49 percent partner Mountain Province Diamonds Inc. Gahcho Kue is expected to start production in late 2016 and operate for 11 years.

    The company is also reviewing Victor and Gahcho Kue, Ormsby said, to determine if efficiency or operations could improve.

    Read more at Reuters
    Back to Top

    Canada's Iamgold says workers go on strike at its Suriname mine

    Workers at Iamgold Corp's Rosebel gold mine in Suriname have gone on strike over the company laying off about 10 percent of the mine's employees, Iamgold said on Wednesday.

    The mid-sized Canadian-based miner said Rosebel had followed the process required by law for the lay-offs, offering a fair severance package, which more than 50 percent of affected employees have accepted.

    Iamgold announced the lay offs in October as part of efforts to reduce costs at Rosebel.

    In the first nine months of 2015 Rosebel produced 217,000 ounces of gold on an attributable basis at an all-in sustaining cost of $1,082 per ounce. The gold price was last at $1,053.

    Iamgold said it still expects Rosebel to produce between 290,000 and 300,000 ounces of gold this year but this could be re-assessed depending on the length of the strike.

    Read more at Reuters
    Back to Top

    Hedge funds have never bet this much on a falling gold price

    Image title
    On Tuesday on the Comex market in New York, gold futures with February delivery dates eked out a small gain in brisk post-holiday trade, but remains not far off near five-and-half year lows hit last week.

    Exchanging hands for $1,067.40 gold is down more than $100 an ounce or just under 10% from where it was trading just before the Federal Reserve's interest rate announcement in October which opened the door for a rate rise – which would be the first in nine years – when the bank next meets in two weeks time.

    Last week gold touched $1,053 an ounce, the lowest since February 2010 and November has been the worst month for gold since mid-2013, a year during which the metal fell 28% in value.

    The likelihood that Fed will raise rates from near zero where they have been since December 2008, before the end of the year prompted large futures speculators or "managed money" investors such as hedge funds to dramatically raise bearish bets on the metal.

    Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and futures traders have been hammering this home by dumping nearly 140,000 lots or the equivalent of just under 400 tonnes of gold over just four weeks weeks.

    According to the CFTC's weekly Commitment of Traders data speculators cut back long positions – bets that prices will rise – and added to their short positions. That raised bets that gold will be cheaper in future to nearly 11 million ounces.

    At 1.4 million ounces the market is now in its biggest net short position ever, surpassing bearish positions entered into in July and early August. That was the first time hedge funds were net negative since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.

    It's not just gold that is being swamped by negative sentiment. According to the CFTC, 15 of the 24 commodities tracked turned more bearish last week.

    Those include the major commodities like crude oil, copper, soybeans, cotton, corn and wheat where speculators are betting that these commodities will be cheaper in future. Like gold US benchmark oil West Texas Intermediate and North Sea Brent Crude were pushed to the most bearish positioning on record.

    Attached Files
    Back to Top

    Gold Rout Oversold?

    Image title

    One week ago, gold market observers were surprised when in the span of four days, gold held in the JPM Comex vault declined by nearly 50%, starting on November 16 when the 668,498 ounces held in the vault below 1 Chase Manhattan Plaza declined precipitously to just 347,899 ounces, a new all time low.

    Furthermore, as of the latest Comex activity update, on Friday the Registered gold held by JPM dropped another 2,802 ounces to a record low and virtually negligible 7,975 ounces, essentially equivalent to zero as shown in the chart below, even as JPM's eligible gold has also been seeing a substantial decline in recent months.


    But while the decline of JPM gold has long been noted, it was the latest drop in total Comex registered gold which has again raised eyebrows, and which contrary to expectations it would be replenished either from external inflows or by conversion from Eligible both of which have not happened, has instead continued to decline. According to the latest data, total Registered gold dropped by another 11% overnight to just 134,877 ounces, just over 4 tonnes and another all time low...

    . and since the gold open interest remains largely unchanged, the physical gold coverage ratio, or the ratio of gold claims to Registered gold, has just hit an all time high of 294 ounces of paper for every ounces of physical.
    Back to Top

    India to discuss changes to gold monetisation scheme after muted response

    India is set to discuss changes to a scheme to unlock the country's massive stash of gold at a high-level meeting on Tuesday, after a muted response to the programme in the first month of its launch, according to banking sources.

    Prime Minister Narendra Modi launched the scheme on Nov. 5 to lure an estimated 20,000 tonnes of gold hoarded in households and temples into the banking system. But only 400 grams trickled in over the first two weeks as low returns and worries over income tax kept Indians away.

    Last week, the government announced several steps to make the scheme more attractive for consumers, including measures such as eliminating capital gains and income taxes on the interest earned. The meeting on Tuesday is expected to focus on incentives for banks.

    Officials from the finance ministry, the central bank, and banks that will play host to the gold deposit scheme will attend the meeting in Mumbai, said the sources, did not want to identified as they were not authorised to speak to media.

    "They would like to see if we (banks) require incentives to make it work," said a banking source, who will be attending the meeting. "Senior (government) officials are getting involved a bit more now to make it work. They are open to feedback."

    Support from banks is crucial for the success of the gold monetisation scheme. Similar programmes in the past have failed as they were not profitable for the banks.

    Under the current scheme, Indians are encouraged to deposit jewellery, bars or coins with banks so it can be refined to meet fresh demand and cut the need for imports. The consumer would earn an interest and, at the end of the deposit term, get the gold back in the form of bars.

    But public response has been lacklustre. Indians' penchant for bullion spans centuries and they would not part with their gold, which is seen as providing financial security, unless they are offered incentives such as higher interest rates.

    Banks, however, say they cannot offer attractive rates.

    "For a deposit accepted at a higher rate, you should always have a borrower who is willing to pay you an even higher rate," said a second banking source. "If we disturb the equilibrium, somebody has to be willing to pay higher."

    Bankers are hoping the government can compensate them for the loss from higher rates - a topic likely to be discussed on Tuesday, the sources said.

    "There can be recommendations (from the government) on this. I won't be very surprised," said the first source.

    Meanwhile, India's sovereign gold bond programme, which was launched along with the deposit scheme and meant to reduce investment demand for the physical metal, has seen an "overwhelming" response, according to the government.

    About 63,000 applications were received as of Friday for a total of 917 kg of gold.

    Read more at Reuters

    Attached Files
    Back to Top

    China gold reserves 55.38 mln fine troy ounces at end-Oct

    China's gold reserves stood at 55.38 million fine troy ounces at the end of October, up from 54.93 million at the end of September, the central bank said on Monday.

    China began updating its reserve figures on a monthly basis in June, after reporting an unchanged level for more than six years.

    Read more at Reuters
    Back to Top

    Weak currency encourages Australia's gold miners to dig deeper

    Gold miners in Australia, emboldened by a weakening currency, have been increasing production in the face of a global rout in the precious metal, figures released on Sunday showed.

    Output by the world's no. 2 producer behind China climbed to 72 tonnes in the third quarter, up 1 percent up on the previous quarter and 2 percent higher than the same period a year ago, according to a survey by sector consultants Surbiton Associates.

    "The declining value of the Australian dollar has once again been the great saviour of our gold sector and of the local resources industry in general," Surbiton director Sandra Close said.

    The value of Australian dollar over the third quarter declined from around 77 U.S. cents to around 70 U.S. cents.

    The weaker currency translated into a A$20 lift in the average gold price over the quarter for Australian producers versus the previous period to A$1,550 per ounce, Close said.

    At the current exchange rate of about 72 U.S. cents, the local gold price sits at A$1,468.99 per ounce.

    U.S.-dollar spot gold fell nearly 2 percent to a near six-year low of $1,052.46 an ounce on Friday, which analysts attributed to a strong U.S. dollar and prospects of a U.S. interest rate rise in December..

    Some of Australia's biggest mines increased output over the quarter, according to Close.

    These included the Super Pit mine in Western Australia, a joint venture between Newmont Mining Corp and Barrick Gold Corp, which lifted production by 32,000 ounces in the third quarter versus the second quarter.

    The Newmont-owned Tanami mine recorded a 10,000-ounce rise in output, while the Gwalia lode owned by St Barbara Ltd upped its yield by 15,000 ounces.

    Australia last year produced 285 tonnes of gold, a distant second to the roughly 450 tonnes dug out of mines in China in 2014, according to industry data.

    A decade ago, South Africa was the top gold producer followed by the United States, Australia and then China.

    Read more at Reuters

    Attached Files
    Back to Top

    Base Metals

    New doubts about Freeport's Grasberg licence

    The deposit was first discovered in the 1930s and Freeport McMoRan has been mining copper, silver and gold at Grasberg in remote Indonesia since the 1970s. In terms of reserves, Grasberg is still the richest deposit on the planet

    Shares in copper and gold giant Freeport-McMoRan were trending lower on Thursday after reports that Indonesia is likely to delay a decision on extending the licence for its giant Grasberg mine beyond 2021.

    Luhut Panjaitan, co-ordinating minister for political, legal and security affairs, and one of president Joko Widodo’s closest aides, told the Financial Times a decision would only be made in 2019 according to local regulations, seemingly contradicting promises made in October to extend “the same rights and the same level of legal and fiscal certainty provided under its contract of work." Those assurances from Jakarta came in the run-up to a visit by Widodo to Washington.

    Indonesia represents more than 8% of Freeport's revenue, but the company expects lower production this year due to the effects of the El Nino weather phenomenon

    The extension of the licence is also part of a requirement by Jakarta that Freeport sell more than 10% of its operating unit inside the country to the government of the South East Asian nation, which already owns 9.4%.

    That offer had a deadline of October 14, but the matter was further complicated by reports Indonesia has began investigating claims that senior officials extorted payments from the Arizona-based company in return for safeguards about its right to mine. It's alleged that the speaker of the parliament wanted a 20% stake in Freeport Indonesia to be sold to Widodo and the country's vice president.

    The company  said in January it planned to invest $17 billion to build a smelter following new laws banning the export of unprocessed ore and steep concentrate export taxes. Last year Freeport and Denver-based Newmont Mining's exports were halted for more than six months during negotiations over compliance with the new regulations. Indonesia, the region's second largest economy after China, represents more than 8% of Freeport's revenue, but the company expects lower production this year due to the effects of the El Nino weather phenomenon. Together the US mining companies account for more than 90% of the country's copper exports.

    Attached Files
    Back to Top

    Norsk Hydro to cut costs to cope with aluminium price slide

    Norsk Hydro, one of the world's largest aluminium producers, launched new cost cuts on Thursday to combat a sharp decline in prices triggered by an oversupply of metal from China.

    By the end of 2019, the company aims to reduce its annual costs by 2.9 billion Norwegian crowns ($335.70 million), of which 1.1 billion would come in 2016, it said in a statement ahead of a two day investor conference in London.

    The new plan follows cost cuts of 4.5 billion crowns since 2011.

    The benchmark three-month aluminium price has tumbled nearly 30 percent in the past year to six and a half year lows, pressured by output exceeding demand.

    China's production of aluminium is expected to be 2-2.5 million tonnes higher than the country's consumption in 2016, resulting in a global oversupply of up to 1 million tonnes, Norsk Hydro said.

    "Market conditions have deteriorated compared to a year ago," Chief Executive Svein Richard Brandtzaeg said.

    But the company also said the market outlook for 2017 was better and could potentially see a return to a global undersupply of aluminium.

    "At today's prices, around 50 percent of global smelter capacity is expected to be incurring cash losses, making curtailments, which are needed to balance the market in the medium term, more likely," Brandtzaeg said.

    Norsk Hydro predicted global demand would rise by around four percent this year and four to five percent in 2016, and by three to four percent per year over the next decade.

    The company plans to increase its overall investments next year to 8.6 billion crowns from 5.8 billion in 2015 as it moves ahead with building a pilot plant in Norway aimed at producing aluminium using less power.

    It also said the estimated capital expenditure necessary to sustain its current business was raised to 3.5-4 billion crowns from a previous forecast of 3.5 billion, reflecting inflationary pressures and an update to the company's portfolio.

    Read more at Reuters
    Back to Top

    BHP to lower copper production costs, increase output

    BHP Billiton plans to lower production costs and increase output at its copper business, remaining optimistic about rising demand in the long term, the company's president of copper said on Tuesday.

    Daniel Malchuk said BHP would lower production costs to $1.08 per pound in its 2017 financial year, from a projected $1.21 per pound in the year ending June 2016.

    "Over this period, the release of latent capacity across the portfolio will also help annual group copper production grow to approximately 1.7 million tonnes at very low cost," Malchuk said in a presentation.

    BHP has said it expects to produce 1.5 million tonnes in the 2016 financial year, down from 1.7 million tonnes in 2015.

    Malchuk said while near-term oversupply in the copper market was weighing on spot prices, attractive long-term fundamentals supported the company's positive outlook.

    He said grade declines, falling investment across the sector, the lack of greenfield projects and expected demand growth in China were likely to constrain industry supply in the long term.

    "At some point in time the copper market will need additional production and probably that is going to happen later in this decade or early in the next decade," Malchuk told reporters on a conference call, adding BHP was not "too fascinated by the spot copper price".

    Copper prices slumped 10 percent in November, the biggest monthly loss since January, and have fallen nearly 27 percent so far this year.

    "If you look at our copper portfolio, these are assets that will be operating for decades. So the value of our assets is not dependent on what happens today or in six months time. It is dependent on what is going to happen in the next 10 or 20 years," Malchuk said.

    Read more at Reuters
    Back to Top

    Weiqiao now largest Chinese Al producer

    Image title
    Back to Top

    Codelco production up but profits slump

    Codelco lifted copper production during the first nine months of the year but earnings were almost halved by the slump in copper and molybdenum prices, CEO Nelson Pizarro said Friday.

    The state-owned mining company produced 1.259 million mt from its own mines during the first nine months, up 2.3% from 1.231 million mt in the same period of 2014.

    Codelco said it had a profit of $1.22 billion in the January to September period, compared with $2.3 billion in the year-earlier period

    The increase reflected improved out from the Ministro Hales mine (172,000 mt vs 109,000 mt) after the normalization of operations at the mine's roaster plant and higher ore grades.

    But lower ore grades at the giant Chuquicamata pit caused production to fall to 209,000 mt from 255,000 mt a year ago.

    Including Codelco's minority stakes in mines operated by Anglo American and Freeport McMoRan, production rose to 1.379 million mt from 1.36 million mt.

    The company also sold 18,823 mt of molybdenum, down 2.2% from last year.

    Profits fell 47% to $1.218 billion in the same period, as margins were squeezed the sharp drop the prices of copper and molybdenum.

    Copper averaged $2.59/lb, down 18% from the same period last year. Prices have since hit six-year lows below $2.10/lb. Molybdenum prices averaged $16/kg, down 40%.

    "Things have been much worse than we expected," said Pizarro, warning that the company could face even lower prices in the coming weeks if the US Federal Reserve lifts interest rates for the first time in several years.

    As a result, management is planning to continue efforts to boost productivity and reduce production costs.

    A plan to slim expenditures by $1 billion is running ahead of schedule thanks to the appreciation of the US dollar and lower energy and steel prices.

    If these efforts are insufficient, Codelco could be forced to consider halting some operations, starting with its loss-making smelters.

    Pizarro said this is prohibitively expensive unless the company were convinced that prices would remain at rock-bottom levels for an extended period.

    Current expectations are that the market will return to backwardation, indicating a shortage of physical metal, by late 2017.

    Attached Files
    Back to Top

    Large China copper smelters agree to cut production in 2016

    Nine large copper producers in China have agreed an initial plan to cut refined metal production by more than 200,000 tonnes in 2016 or around 5 percent from this year's level, an executive at one of the producers said on Saturday.

    The agreement followed a meeting by the producers on Saturday in Shanghai to discuss coordinated output cuts to support the market after prices in Shanghai and the London Metal Exchange plunged to their lowest in more than 6 years.

    China, the world's second biggest economy, is the top refined copper producer and consumer but is suffering an economic slowdown adding pressure on the global market.

    The nine producers also will ask the state-controlled industry body, the China Nonferrous Metals Industry Association (CNIA), to request Beijing to investigate high-speed trading and malicious short selling of copper contracts traded on the Shanghai Futures Exchange, the executive said.

    The producers made the initial plan in the morning. In an afternoon meeting, they further agreed that the companies would consider bigger output cuts and would finalise the amounts next week, said the executive.

    He was speaking on condition of anonymity but on behalf of the China Smelters Purchase Team (CSPT) group.

    Chinese growth dipped to 6.9 percent in the third quarter, the weakest since the global financial crisis.

    Zinc smelters and nickel smelters also called for production cuts earlier this week. Sources said on Friday China's state stockpiler was considering buying more than 1 million tonnes of aluminium from local smelters, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

    The nine copper producers involved in the planned cut are members of the CSPT and include Jiangxi Copper Company Ltd and Tongling Nonferrous Metals Group .

    Their production accounted with about 60 percent of China's refined copper production in the first 10 months of this year.

    "We prepare to cut production by at least 200,000 tonnes," the executive told Reuters, adding that the cut could be expanded if copper prices fell further.

    The companies will produce about 4.4-4.5 million tonnes of refined copper this year, he added

    The proposed cut is equal to about a third of China's production in October.

    The producers would mainly cut output that uses scrap as feedstock, the executive said. The firms also use copper concentrates as feedstock.

    "We are very serious about cutting production. We will have a meeting every two weeks to follow up proposed cuts by each company," he said.

    The copper smelters, whose production is mostly registered for the delivery of the copper contract in Shanghai <0#SCF:>, would restrict sales of their metal to players that hold massive short positions, the executive also said.

    CNIA, supported by some large metals producers, has already called for a short-selling probe on metals futures, sources said earlier this week.
    Back to Top

    Steel, Iron Ore and Coal

    Desperate Chinese steel makers dump iron ore stocks

    Cash-strapped Chinese steel mills are dumping iron ore stocks, selling at a loss to shore up cash flow in the latest sign of the sector's worsening crisis, steel mill and trader sources said.

    The sale of port inventories is deepening a rout in iron ore prices which have already tumbled 25 percent over the past two months as the sector struggles with overcapacity, falling demand for steel from real estate to shipbuilding, and tight credit.

    This week, prices for the raw material hit their lowest in a decade at $40.30 a tonne .IO62-CNI=SI, while futures contracts <0#SZZF:> fell to record lows of $33 a tonne for 2016. Shanghai rebar steel prices also sank to all-time lows.

    "The market declines have been accelerated by steel mills who are selling iron ore at low prices because they are short of cash," said an iron ore trader in Beijing.

    Steel mills are facing a cash crunch after authorities urged banks to cut credit to oversupplied industries, with privately owned mills hardest hit. Tangshan Songting Iron & Steel, one of the country's big privately owned steel mills, last month closed its doors, but others are desperate to hang on.

    Mills with long-term supply contracts with big miners have already cut stockpiles of the steelmaking raw material at their factories to a minimum, preferring to buy hand to mouth due to shaky downstream demand and to minimize cash use.

    Now, loss-making mills are resorting to selling iron ore bought with letters of credit in a last-ditch effort to maintain cashflow for production as they seek to repay bank loans, many due at year-end, four traders and steel mill executives said.

    Mills that survive will try to get new credit facilities for next year, they said.

    In Tangshan, in China's top steel producing Hebei province, mills started offloading stock last month, an iron ore sales executive at a private steel mill there said.

    "More mills, in more regions, are doing the same now, only to collect cashflow to survive and they don't care much about prices," he said.

    Selling is also being spurred by the relentless fall in prices, as factories seek to reduce their exposure to further losses, he said.

    Di Wang, analyst at CRU in Beijing, cautioned the selling could last into the new year as steel producers prepare for another round of painful output cuts as the outlook for orders looks bleak.

    "Steelmakers will still sell their iron ore stocks before the February Chinese Spring Festival because there are also expectations of further production cuts," Wang said.

    There is no estimate of how much iron ore mills have sold, but port inventories have kept rising, implying that appetite is weakening as steel mills step up output cuts.

    Inventories at main Chinese ports swelled to above 90 million tonnes at the end of November, their highest since April, and up from this year's low of 77 million tonnes in June as steel mills curbed production, according to industry consultancy Umetal.

    Read more at Reuters

    Attached Files
    Back to Top

    China Nov coal imports from Newcastle down 5.8pct on mth

    China’s coal imports from Port Waratah’s export terminals at Newcastle port in eastern Australia stood at 795,900 tonnes in November, 5.82% lower from the month before, the latest data from Port Waratah Coal Services (PWCS) showed.

    This was the sixth consecutive month below 1 million tonne after reaching 2.16 million tonnes in January.

    Over January-November, China imported a total 11.56 million tonnes of coal from Waratah’s export terminals, according to PWCS data.

    In November, the terminals exported 4.2 million tonnes of coal to Japan, down 16.19% on month; total export in the first eleven months was 48.96 million tonnes.

    South Korea imported 1.72 million tonnes of coal from Waratah’s export terminals at Newcastle port, up 14.79% from October; total imports reached 16.26 million tonnes over January-November.

    The PWCS data showed its 1# and2# terminals at Newcastle port exported 7.02 million tonnes and 958,000 tonnes of thermal coal and coking coal in November, respectively, accounting for 88% and 12% of the total exports.

    Attached Files
    Back to Top

    Rio's secret weapon as $30s iron ore price nears

    Rio Tinto did not make a song and dance when it started mining at its Silvergrass project in Australia's Pilbara in August.

    After getting flak from politicians and competitors alike about its aggressive expansion strategy, the Melbourne-based giant probably thought it prudent not to.

    At the moment Silvergrass's high grade ore is being shipped to "retain the integrity and quality" of Rio's flagship Pilbara blend, CEO Sam Walsh told investors with the release of the company's half-year results.

    The project hasn't received board approval yet although CEO Sam Walsh sounded pretty confident that the go-ahead would come early in 2016.

    "We would expect them to be rational, and use it to replace higher-cost ore rather than add more product into an oversupplied market

    Silvergrass has a lot going for it. It's cheap to build and expected to be completed at the lower end – or below – its $700 million to $1 billion forecast costs (a steal compared to a Rinehart's Roy Hill or Anglo's Minas Rio).

    Capacity of over 20 million tonnes per year would easily plug into Rio's existing Pilbara infrastructure and the project could be completed in just nine months.

    Just in time for Rio to hit (or likely exceed) its  target of 360 million tonnes per year in 2017 and come very close to overtaking Vale, which is cutting production in Brazil.

    Thanks to breakeven costs of less than $30 a tonne, Rio Tinto (and BHP for that matter) could afford to add more tonnage.

    Or perhaps cooler heads will prevail. Michelle Lopez, senior investment manager Aberdeen Asset Management, told the Australian Financial Review  the miner "could look to use production from Silvergrass to replace some of its higher-cost iron ore, which it could shut down if market dynamics don't change":

    "We would expect them to be rational, and use it to replace higher-cost ore rather than add more product into an oversupplied market. Silvergrass is more marginal [as a growth option] but a premium product."
    Back to Top

    More China steel mills halt output on demand woes -consultancy

    More steel mills in the Chinese province of Shanxi have halted production due to shrinking demand and a shortage of cash, according to industry consultancy Custeel, a move that could further deepen a rout in prices for raw ingredient iron ore.

    Among the main 23 steel mills in the northern province, 10 including Linfen Iron & Steel, a unit of state-owned Taiyuan Iron & Steel Group, have shut down all blast furnaces, with a total annual capacity of 19.7 million tonnes, with the rest running at very low utilisation rates, Custeel said.

    The growing output cutbacks underscored that China's steel industry is grappling with declining demand, overcapacity and tight credit. The massive sector has an annual crude steel capacity of about 1.25 billion tonnes.

    "Driven by the continuous fall in steel prices and weakening steel demand, steel production is expected to fall further, so iron ore demand will keep weakening," the China Iron & Steel Association (CISA) said in a report on Friday.

    Declining steel production and rising iron ore port inventory drove down iron ore prices by 2.7 percent on Friday to a record low of 284 yuan ($44.43) a tonne. Shanghai rebar prices also sank to all-time lows this week.

    CISA members - about 100 big and large-sized steel mills, have made a loss of 38.64 billion yuan ($6 billion) for the first ten months of this year.

    "With huge losses and sluggish steel prices, steel mills will face more difficulties in production, and iron ore prices are unlikely to rise," CISA said.

    Read more at Reuters

    Attached Files
    Back to Top

    World’s two biggest miners walking away from coal, but they are not telling

    BHP Billiton and Rio Tinto, the world’s largest and second biggest mining companies respectively, have been steadily cutting their exposure to thermal coal over the past two years, but without making any big announcements about it.

    Pushed by slack demand, prices at multiyear lows, andrelentless opposition to new coal projects, the companies are seeking to reduce their investments in coal used for power stations.

    But according to analysts interviewed by the Australian Financial Review, they want to do so without making too much noise about it, as they don’t want to jeopardize the sale of some of their coal mines by signalling they think poorly of the commodity.

    "Rio and BHP are still out there flying the flag for coal, but I think they are repositioning behind the scenes," Pengana Global Resources Fund analyst Tim Schroeders told the paper.

    In fact, the companies have managed to keep a neutral stance by singing coal’s praises when asked about it. A couple of weeks ago, Jean-Sebastien Jacques, Rio Tinto’s chief executive for copper and coal, told a Bloomberg conference in Sydney that coal demand was not going to disappear. But he added later the company had “better options” than to spend money on the commodity.

    There is a future for coal. Now the question is, should it be Rio or not Rio” that owns the mines, Jacques told the audience. “If you have a big checkbook, I’m more than happy to take your name.”

    Coal assets from North America to Australia have been up for sale by the world’s biggest miners, which are seeking to protect profits from sharply lower commodity prices. Producers have also been a frequent a target for environmental campaigners, who have stepped up campaigns for a moratorium on coal mines and for investors to sell their shares in fossil fuel companies.

    Last month, 52 leading scientists, economists and experts from around the world published an open letter calling for a moratorium on new mines ahead of the climate change talks in being held in Paris this week.

    This is how they've done it

    Last year Rio sold its Mozambique coal assets to India’s International Coal Venture Private Ltd (ICVL), marking the end of a dreadful venture for the miner. (Image courtesy of Rio Tinto)

    So far, Rio Tinto seems to be leading the coal exiting game. In February, the company folded its coal operations into its copper division, a step that was widely seen as signalling a reduced focus on the fossil fuel.

    Later in the year, it announced the sale of a 40% stake in its Australian Bengalla mine as part of a divestment aimed at ditching coal operations in New South Wales, which could be worth between $3bn and $4bn. When revealing the sale, Rio also said it had restructured one of its main Australian coal businesses —Coal & Allied—, where Mitsubishi Development of Japan previously held a 20% stake, and it is now solely owned by the Anglo-Australian miner.

    Rio has also unloaded Mongolian coal miner South Gobi Resources and the unsuccessful Riversdale project in Mozambique.

    BHP Billiton has done its part too. While it has kept some major assets such as Mt Arthur mine in the Hunter Valley, Cerrejón Coal in Colombia, and a group of metallurgical coal assets in Queensland, the firm sold its thermal coal business in South Africa after spinning-off assets into a separate company, South32.

    The firm has also said it may reconsider its push into coal mining in Borneo, depending on the what comes out of the Indonesian government ongoing review of the sector’s regulations.

    The coal business doesn’t look nearly as promising as it did two years ago, when miners were looking for mines to buy hoping to meet China’s demand, the world’s top coal consumer. But with economic growth weakening many power generators shifting to gas or renewable energy, global coal shipments are falling for the first time in 21 years, the U.S. Energy Information Administration said last month.

    Attached Files
    Back to Top

    Shandong to close all small coal mines before end-2015

    Eastern China’s Shandong province planned to shut all the small coal mines across the province before the end of year, local media reported on December 3.

    The province had closed 26 small coal mines or 74% of the annual target since the start of the year.

    That was in response to the requirement from National Bureau of Statistics (NBS) and State Administration of Coal Mine Safety in March, which ordered the province to shut 35 and upgrade 21 small coal mines in 2015.

    Shandong had closed a total 248 small coal mines since 2005, with outdated annual capacity at 14.85 million tonnes.

    The province’s coal firms decreased from 249 in 2005 to the current 78, with single shaft capacity enhancing from the previous 400,000 tonnes to 910,000 tonnes per year.

    The province had kept its total coal output at 150 million tonnes or so for twelve consecutive years. It produced 148 million tonnes of coal in 2014, down 1.8% on year.

    The move would be a crucial step for Shandong’s coal industry in fitting into the “new normal” development.
    Back to Top

    Shenhua tops the list of Jan-Oct raw coal output

    China’s coal giant Shenhua Group ranked the No. 1 of top ten coal producers based on their raw coal output over January-October this year, with its coal output falling 9.6% on year to 357.72 million tonnes during the period, showed data from China National Coal Association (CNCA) on December 2.

    The following coal producers included Datong Coal Group, Shandong Energy Group, China Coal Group, Shaanxi Coal & Chemical Industry Group, Yankuang Group, Shanxi Coking Coal Group, Henan Energy & Chemical Industry Group, Jizhong Energy Group and Kailuan Group, data showed.

    Seven of the ten enterprises posted decreased output, with sharpest decline seen in China Coal Group and Shenhua Group – falling 14.8% and 9.6% to 104.8 million and 357.7 million tonnes, respectively.

    While Yanzhou Mining Group and Datong Coal witnessed the greatest rise in coal output of 6.4% and 5.9% to 89.33 million and 143.4 million tonnes during the same period.

    Total coal output of top ten coal producers during the period decreased 3.9% on year to 1.24 billion tonnes, accounting for 59.65% of total output from large coal producers across the country, 0.71 percentage points higher than last year.

    China’s large coal producers produced a total 2.08 billion tonnes over January-October this year, a year-on-year drop of 5%.

    Attached Files
    Back to Top

    The iron ore price is in free-fall

    Iron ore fell to a record low on a spot price basis on Wednesday with the Northern China 62% Fe import price including freight and insurance (CFR) dropping 2.4% to $40.60 a tonne.

    After a strong recovery from its July low, the steelmaking raw material has been on a relentless decline since mid-October. Losses so so far this year come to 43% following. Today's price compare to $190 a tonne hit February 2011 and an average of $135 a tonne in 2013 and $97 last year.

    For an iron ore price below $40 you have to go back to 2007 when annual contract pricing between the Big 3 producers – Vale, Rio Tinto and BHP Billiton – and Chinese and Japanese steelmakers were still the industry norm.

    The iron ore price has become a one way bet as an ever deepening glut combine with slumping demand to push down the price.

    Vale this week lowered its forecast for 2016 shipments by 10% due to outages at Samarco,  but the world's top producer  remains on track to add 100 million tonnes of capacity compared with 2015 levels within just three years.

    Number two Rio Tinto is well on its way to reach 360 million tonnes in the next few years, while BHP Billiton is on target to grow capacity to 290 million tonnes per year some time during 2017. World number four producer Fortescue Metals added 5% to its targeted output hitting a rate 165 million tonnes per year in July. Together with Anglo American, the big five is set to command nearly 85% of the seaborne market

    That has not deterred others from entering the market with Gina Rinehart's Roy Hill  mine in Australia  starting shipments just this week. The operator, a joint venture with Korean, Japanese and Taiwanese steelmakers, plans to produce 35 million mt/year of iron ore in 2016 and 45 million mt/year in 2017 before ramping up to full capacity of 55 million mt/year in 2018.

    The demand side is not looking much better either with Shanghai rebar prices dropping to a fresh record low with the most active May futures contract exchanging hands for 1,652 yuan or $258 a tonne on Wednesday.
    Back to Top

    China Nov steel sector PMI hits a 7-yr low

    The Purchasing Managers Index (PMI) for China’s steel industry further slumped 5.2 on month to 37 in November, hitting a 7-year low and the 19th straight month below the 50-point threshold, showed the latest data from the China Federation of Logistics and Purchasing (CFLP).

    The dropping index presented an increasing contraction in the sector, which further indicated a tougher status and dim future in domestic steel market, calling for the implementation of industrial transformation and upgrading.

    The output sub-index dropped 7.7 from October to 35.4 in November, the 15th consecutive month below the 50 mark, and nearly the lowest of recent five months.

    China’s steel products output may continue to decline in December, as steel mills still suffered greater losses and flat demand at domestic market.

    The new order sub-index decreased 8.2 from October to 29.7 in November – the lowest since July, and the new export order index slightly rebounded 1.9 from October to 41.2 in the same month, yet still below the 50-point threshold, reflecting a contraction trend of steel exports in the short run.

    The sub-index for steel products stocks increased 3.5 to 49.2 in November, after the fourth successive monthly drop last month, as some unsold steel products of steel mills were directly turned to stocks amid shrinking demand and falling orders.

    As of November 20, total stocks in key steel mills stood at 15.19 million tonnes, rising 1.13% from ten days ago but down 7.04% from October, said the CFLP.

    Domestic steel prices is expected to fall in December, as the effect of intensified production cut of steel mills will not show in the short run amid current shrinking demand and sluggish market.

    Attached Files
    Back to Top

    China to ban private coal-fired power plants construction in some areas

    China’s new construction or expansion of private coal-fired power plants would be banned in Beijing-Tianjin-Hebei, Yangtze River delta and Pearl River delta zones, according to one of the six official documents jointly released by National Development and Reform Commission (NDRC) and National Energy Administration (NEA) on November 30.

    The document further specified that new coal-fired power plants would not be approved to construct in regions with excess installed capacity and low utilization hours.

    Private coal-fired power plants are served as the supporting facilities for both industrial production and neighboring residential use. They’re an important part of domestic thermal power industry, according to the document.

    The move was to cater to the national trend in enhancing energy utilization rates and easing domestic air pollution, as well as optimizing resources allocation.

    The document highlighted strict control on efficiency, environmental protection and water resource management on newly-added private thermal power plants construction, and further eliminated and upgraded outdated plants.

    Besides, all the newly-added private power plants across the country are to be included in China’s total amount control for thermal power construction, and the construction should start after gaining the approval from local governments, it said.

    Meanwhile, the construction of newly-added private power plants should meet the standard of national energy industry policies and power layout, and they would equally participate in competition with state-owned thermal plants, it added.

    Attached Files
    Back to Top

    EU steel sector faces EUR 28 per tonne cost under ETS obligations by 2030

    Carbon Pulse reported that European steelmakers face costs of EUR 28 per tonne of steel to comply with ETS obligations by 2030, according to a study commissioned by steel lobby Eurofer, which said the burden could destroy the industry’s economic viability.

    The analysis carried out by Dutch consultancy Ecofys found that the total net carbon costs for the EU’s steel sector in the period 2021-2030 are projected to amount to EUR 34.2 billion. This translates into EUR 10 per tonne of steel in 2021, and EUR 28 per tonnet crude steel in 2030, when taking into account both the need to buy EUAs beyond those allocated freely and higher electricity prices due to utilities passing on their ETS costs.

    The study was presented at the EU Parliament’s full plenary session in Strasbourg last week and could put pressure on lawmakers to scale back the European Commission’s proposal for post-2020 EU ETS reforms, despite other analyses suggesting that industries including steel are able to manage ETS costs.

    The analysis and subsequent warnings represent the first major effort by industry to respond to the Commission’s proposal, as lawmakers prepare to debate potential changes to it over the next 12 months.
    Back to Top

    Brazil's Vale estimates $443 mln Samarco impact in 2016

    Brazilian miner Vale SA said in a Tuesday presentation that the impact of the Samarco dam burst could be $443 million in 2016 and that it planned to reduce investments by around $6 billion next year.

    Vale also said it expected to produce between 340 million and 350 million tonnes of iron ore in 2016, an amount that could increase to between 380 million and 400 million tonnes in 2017 and to 420 million and 450 million tonnes in 2020.

    Read more at Reuters
    Back to Top

    Iron Ore swaps plunge leaves 2016 FOB Brazil near $20 dmt

    Falling iron ore swaps prices Monday after a recent run of daily falls has left benchmark FOB Brazil prices potentially hedge-able into the low $20s/dry mt for loading in 2016, according to Platts analysis.

    The Calendar-2016 swap based on the IODEX 62% Fe fines assessment was assessed by Platts at $36.45/dmt CFR China on Monday, the lowest ever price so far for the contract.

    Bid-to-offer levels for Cal-16 on the more liquid TSI 62% Fe fines CFR China contract was at $36.25-$37.00/dmt around 5:30 pm Singapore time, with TSI assessing the contract at $38.25/dmt as of 6:30 pm Singapore.

    As industry formulas in long-term multi-year contracts between miners and steel mills use fixed freight rates and bunker fuel oil adjustments to netback CFR China iron ore references to an FOB Brazil basis, the slide in iron ore swaps has made new lows in FOB prices visible.

    This type of netback formula is similarly extended and adapted for loading points around the Atlantic.

    Some contracts are now said to be referencing a fixed freight factor of around $17/mt, with 380 CST bunker fuel oil prices in Singapore used for further adjustments.

    For 2016, an iron ore FOB Brazil price below $25/dmt is now hedgeable, according to market swaps values, with Singapore 380 CST bunker swaps for first quarter 2016 at $218.25/mt Monday, indicating a new low for the quoted period.

    Even in the low $20s/dmt, there may be margin left as Vale brings on further new capacity in its Carajas system later next year. The weak Brazilian real and cost improvements took Vale's average iron ore FOB costs down to $12.70/mt in the third quarter.

    In the freight market, reference Brazil, Tubarao-China, Qingdao Capesize rates were assessed Monday at $9.40/mt, recovering after breaching below $8/mt around November 20.

    For contract iron ore buyers exposed to the main China CFR fines indexes in purchases of varying fines, concentrates, pellets and lump ores, the gap between netting back on industry freight formulas, or using spot freight rates, may leave the former longer-term accords preferential.

    Attached Files
    Back to Top

    Indian utilities’ thermal coal imports down 7.5pct on yr in Apr-Oct

    Indian power utilities’ imports of thermal coal over April-October fell to 47.6 million tonnes, down 7.5% from the same period a year ago, according to the latest data from the Central Electricity Authority (CEA).

    Of the total, 22.4 million tonnes coal was imported by 34 utilities for blending with domestic coal while 25.2 million tonnes was imported by eight utilities for power plants using only imported coal.

    Seven utilities did not import any coal during the first seven months of the current April-March fiscal year.

    Private sector power producer Adani Power imported the most thermal coal shipments during the period at around 10 million tonnes, followed by state-run power generator NTPC Limited at 7 million tonnes and Tata’s Mundra ultra mega power project at around 6 million tonnes.

    On a monthly basis, India’s October thermal imports were 6.3 million tonnes, down 21% from the corresponding month a year ago.

    Utilities are expected to import 84 million tonnes during the current fiscal year ending March 2016. Of the total, 42 million tonnes will be imported for blending with domestic coal and an equal amount for those plants which use only imported coal.
    Back to Top

    Shenhua said it was forced to lower prices, not a market disturber

    Shenhua Group, China’s top coal miner, said on November 26 that its price cuts this year were forced by the market, and it has been working to reduce output and stabilize the price.

    The statement, published on its official Wechat account, was a response to recent claims by some established coal firms that Shenhua’s successive price cuts have left them into great trouble.

    "Our price downward policy has always lagged behind market changes and stayed higher than market levels, leading to shrinking profits," Shenhua said.

    Since the start of this year, Shenhua has adjusted its pricing by month for 11 months, with three times of stabilization in July, October and November, six times of decline and two times of rise in June and September.

    Take the 5,500 Kcal/kg NAR coal as example, Shenhua lowered its price to 390 yuan/t in November, down 139 yuan/t from 529 yuan/t at the beginning of 2015, with the declining extent smaller than 154 yuan/t for the Fenwei CCI 5500 Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port, which was assessed at 352 yuan/t with VAT on November 30, FOB basis, down from 506 yuan/t at the start of the year.

    During the peak time of the coal industry over 2002-2011, coal firms in Shandong, Anhui, Hebei, Henan, Liaoning, Heilongjiang, Jiangsu and Shanxi marched into main production areas in Inner Mongolia, Shaanxi, Ningxia and Xinjiang to explore coal, with their combined added capacity in Inner Mongolia during that period exceeding 200 million tonnes per annum.

    Large power firms also expanded investment in coal projects in those years to raise their self-sufficiency rates.

    Shenhua seemed more far-sighted, putting more efforts into diversifying its business in power and transport businesses when profit of coal mining was sizable. And thanks to its large scale and high modernization, Shenhua’s coal production cost was far lower than its peers.

    So, even in today’s sliding coal market, Shenhua is still lucky to earn profit on low costs and good performance in other business segments like power.

    Shenhua has been responding to government’s call to cut coal production, with its listed arm -- China Shenhua Energy – posting a 9.2% year-on-year drop in total commercial coal output to 233.8 million tonnes over January-October.

    But it was still far from easing oversupply in the country. From January to October, China’s coal consumption amounted to 3.23 billion tonnes, equating to 3.9 million tonens for the whole year. By contrast, China’s coal capacity may have surpassed 5 billion tonnes per year so far.

    Actually, both established miners including Heilongjiang Longmay Jixi Mining, Huaibei Mining, etc., and Shenhua, as well as large comprehensive power firms should be blamed for the deterioration of the Chinese coal market.

    Attached Files
    Back to Top

    Vale CEO Ferreira quits as chairman of Brazil's Petrobras

    Murilo Ferreira quit as chairman of Brazil's Petroleo Brasileiro SA, the state-controlled oil company said on Monday, without disclosing the reason for his decision.

    Ferreira had been on a leave of absence since Sept. 14, and Nelson Carvalho replaced him on an interim basis. In a securities filing, the company known as Petrobras said Carvalho would stay in that position until the board convened to elect a new chairman.

    Ferreira, who has been chief executive officer of Brazilian iron ore miner Vale SA since 2011, became Petrobras chairman of Petrobras in April, as the company was sinking deeper into its the worst crisis in history.

    Prosecutors have accused Brazil's leading engineering firms of colluding to fix prices on contracts with Petrobras and other state companies and kicking back bribes to members of the ruling coalition, in what is considered as the country's worst corruption scandal ever.
    Back to Top

    Iron Ore futures sink below $40 in Singapore

    Most-active iron ore futures in Singapore sank below $40 a metric ton for the first time on concern that the economic slowdown in China will cut demand as supplies from the largest miners climb.

    The SGX AsiaClear contract for January fell 2.6% to $39.74 a ton at 2:38pm in Singapore, heading for the lowest close since trading started in April 2013. On the Dalian Commodity Exchange, futures for May delivery sank as much as 3.1% to 293 yuan ($45.81) a ton, a record low.

    The raw material has been pummeled since the start of 2014 as surging supplies from low-cost producers including BHP Billiton and Rio Tinto Group in Australia and Brazil’s Vale combine with faltering demand in China to spur a glut. Losses in Singapore and Dalian could presage a drop in the benchmark price for spot ore in Qingdao, which will be updated later in the day. The latest sign of new supply came from Australia, with a vessel waiting offshore on Monday to load the first cargo from Gina Rinehart’s Roy Hill mine.

    “Supply continues to rise while port inventories are starting to climb, weighing on iron ore prices,” analysts at Maike Futures Co said in a note on Monday. “The overseas producers are still profitable and are greatly reducing costs.”

    The top miners are betting that higher output will enable them to cut unit costs and defend market share while smaller rivals shut. Mills in China, contending with overcapacity and depressed margins, will cut steel production by almost 3% next year, according to the China Iron & Steel Association.

    Attached Files
    Back to Top

    Rinehart’s iron ore shipments to commence as vessel nears

    A Capesize carrier scheduled to be loaded with the first shipment from billionaire Gina Rinehart’s Roy Hill iron ore mine has arrived off Australia’s coast, signaling the start of further supply for a global market grappling with shrinking demand and prices at multiyear lows.

    The 289-meter (948-foot) Anangel Explorer is anchored off the Western Australia coast close to Port Hedland, the world’s biggest bulk-export terminal, according to data complied by Bloomberg. The vessel is scheduled to collect Roy Hill’s first export cargo, Roy Hill Holdings confirmed in an e-mail.

    Iron ore is headed for a third annual drop as demand contracts in China for the first time in a generation and the biggest miners, including Australia’s BHP Billiton and Rio Tinto Group, boost low-cost output. The Anangel Explorer is set to be loaded about two months after Rinehart’s $10 billion operation missed an initial deadline to begin shipments.

    According to Australia & New Zealand Banking Group, the pace at which the project comes onstream will determine its impact on prices. Roy Hill is targeting output of 55 million metric tons a year. By comparison, Brazil’s Vale, the biggest exporter, reported total iron ore production of 332 million tons in 2014.

    Rinehart’s mine in the country’s Pilbara region had been scheduled to begin exports on September 30, though indicated in July that it was experiencing delays. Almost 90% of its output is under long-term contract, meaning that it won’t directly pressure prices, the producer said last month.

    The operation’s first fine ore has been loaded onto trains and sent to Port Hedland, Rinehart, chairman of Hancock Prospecting which controls Roy Hill, said in a November 26 speech in Melbourne after visiting the site. “This ore will be loaded onto the first ship when she arrives in Port Hedland in the next few days,” Rinehart said.
    Back to Top

    China’s coal-fired power producers face tougher times

    China’s coal-fired power producers face tougher times

    China’s coal-fired power generation industry faces a double whammy of overcapacity and rising competition as a result of gradual power price liberalization, even though profitability has been propped up by sinking coal prices in the past few years, the South China Morning Post reported on November 30.

    Analysts say power producers will have to exercise restraint on new capacity expansion, or else risk seeing utilization fall below last year’s 15-year low and eat into profit margins, especially if coal prices find a bottom after four years of precipitous falls.

    “Power plants built this year were planned four to five years ago, so it will take some time for the large supply of new plants proposed and approved when demand was good to be digested,” the director of Xiamen University’s Centre for China Energy Economics Research, Lin Boqiang, said. “It will be up to the power firms to control the actual amount of plants to be built.”

    Based on recent months’ growth figures on power demand and generating capacity, the trend of worsening over-supply has yet to turn the corner.

    According to a joint research paper by environmental protection campaigners Greenpeace and North China Electric Power University, the mainland’s coal-fired power industry’s capacity utilization is likely to fall 8% year on year to 4,330 hours this year. In the first 10 months of the year it declined 7.9% year on year to 3,563 hours.

    The full-year estimate compares with last year’s 4,706 hours, which was 6.1% lower than in 2013, and is much lower than the 4,719 hours recorded in 1999 in the depths of the previous industry down-cycle and the global financial crisis.

    Lower utilization squeezes producers’ profit margins as more fixed costs like depreciation and plant maintenance have to be borne by the same amount of power sold.

    As Beijing steers the nation from investment and labor intensive manufacturing-led economic growth to a more balanced model with greater emphasis on services and technology-based economic activities, year-on-year power demand growth slowed to 0.7% in the first 10 months of this year.

    This compares to 3.8% last year, and 12% in 2011 when the economy recovered on the back of Beijing’s 4 trillion yuan stimulus programme. Industrial power consumption, which accounted for 72% of the mainland total in the first 10 months of the year, fell 1.1% year on year in October, steeper than the 1% fall in September.

    However, on the supply side, the mainland’s total power generating capacity grew by 82.6 GW in the first 10 months of the year, 43% higher than 57.7 GW in the same period last year.

    Of the total, newly installed coal-fired capacity amounted to 43.4 GW, up 54% year on year from 28.1 GW.

    China Resources Power (CRP) and Huaneng Power International (HPI), the two most profitable mainland power generators listed in Hong Kong, have seen their share prices fall 18-20% in the past month, underperforming a 3.6% decline in the Hang Seng Index, despite the main benchmark power-station coal price index having fallen a further 2.5% in the period.

    Both firms generate 90% or more of their power output from coal.

    But the room for further falls in coal prices is increasingly limited as more high-cost mines are forced to shut down, with the vast majority of China’s coal miners loss-making,

    Even the coal industry’s most profitable firm, China Shenhua Energy, is expected to post a small fourth-quarter net loss, despite having substantial, profitable power generation and coal logistics operations to offset any losses from coal mining, according to a research report by Barclays.

    The mainland’s coal-fired power producers are, however, expected to see their power selling prices cut soon, under Beijing’s pricing mechanism that links price movements for power to coal prices on a lagged annual basis.

    According to Beijing’s price reform guidelines, energy prices are supposed to be liberated by 2017, which means power prices would at least be partially determined by market forces. Currently, the vast majority of power sold is based at state-stipulated prices, except for a small but rising amount sold at prices directly negotiated between producers and large industrial users.

    The coal-fired power industry is also expected to face higher environmental compliance costs from 2017 when carbon emission caps are expected to be slapped on the mainland’s biggest industrial polluters.

    Attached Files
    Back to Top

    Brazil to sue BHP, Vale for $5 bln in damages for dam burst

    Brazil's federal and state governments plan to sue the owners of the Samarco iron ore miner for 20 billion reais ($5.24 billion)in damages caused by the burst of a tailings dam, Environment Minister Izabella Teixeira told reporters on Friday.

    Samarco is a joint venture between the world's largest mining company, BHP Billiton Ltd , and the biggest iron ore miner, Vale SA .

    The dam burst earlier this month unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted a major river valley.

    Teixeira said the suit will be filed on Monday. The proceeds will be put in a fund and used for environmental cleanup in the Rio Doce valley over 10 years, Attorney General Luís Inácio Adams said.

    Samarco has already been fined 250 million reais by Brazil's environmental agency, Ibama, for the disaster, which covered the flood plain in mud for 80 kilometers as well as polluting the river. Fish died and drinking water supplies for a quarter of a million people had to be closed off.

    Ibama is planning additional fines against Samarco on top of the 20 billion reais in damages and clean-up charges the government is seeking, Adams said, but he did not specify an amount.

    The dense orange sediment in the river reached the ocean on the weekend, hurting local tourist businesses.

    The United Nations' human rights agency said on Wednesday that the mud from the dam burst was toxic, contradicting claims by Samarco and mine co-owner BHP Billiton that the water and mineral waste posed no risk to human health.

    The minister announced the lawsuit after the close of the Sao Paulo stock market. The share price of co-owner Vale fell 5.78 percent on Friday.

    Vale and BHP announced earlier on Friday that they would create a fund with Samarco to help in the clean-up of the Rio Doce and its tributaries affected by the disaster. They did not detail the size of the recovery fund.

    Read more at Reuters

    Attached Files
    Back to Top

    Vale confirms arsenic found in water days after Brazil dam burst

    Toxic materials such as arsenic were found in the water of the Rio Doce river days after a dam burst at a mine in Brazil earlier this month, an executive for Vale, the co-owner of the mine operator, confirmed on Friday.

    Vania Somavilla, sustainability chief at Vale, cited a report by the Institute for Water Management in Minas Gerais, which found levels of arsenic above legal limits.

    Vale is the first of the co-owners of iron-ore miner Samarco to admit that some tests had found toxic elements in the water of the Rio Doce river after the dam was breached. Samarco was operating dam when it burst on Nov. 5, triggering a mudslide that wiped out the nearby town of Mariana and flooded the Rio Doce river.

    The Brazilian federal government and two states affected by the disaster said on Friday they will sue Samarco, also owned by the world's biggest miner BHP Billiton Ltd , for 20 billion reais ($5.20 billion) in damages and clean up costs.

    The Minas Gerais state prosecutor's office on Friday said that results from another laboratory study showed levels of heavy metals above legal limits in the river.

    The clean up of one of Brazil's main rivers could take a decade or more, authorities and environmentalists said.

    Somavilla told a news conference in Rio de Janeiro that the material had not been in the mining waste stored in the dam but might have been flushed into the river from the surrounding area by the mud flow.

    Read more at Reuters

    Attached Files
    Back to Top

    Brazil's Samarco stops salary, supplier payments as assets frozen

    Brazilian iron ore miner Samarco has suspended payments to employees and suppliers because its funds have been frozen by courts in the wake of a deadly dam burst and destructive flood of muddy mine waste, the company said in a statement on Saturday.

    The company, a joint venture between Australia's BHP Billiton Ltd, the world's largest mining company, and the largest iron ore producer Brazil's Vale SA, has also asked for permission to delay payments to a compensation fund ordered by the government because it cannot access its accounts, the statement said.

    In the statement, the company apologized to its employees and suppliers and promised to resume payments as soon as possible.

    Brazil's federal and state governments plan to sue Samarco and its owners for 20 billion reais ($5.24 billion) for damages caused by the Nov. 5 burst of a tailings dam, Environment Minister Izabella Teixeira told reporters on Friday.

    The dam burst earlier this month unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted hundreds of kilometers of a major river valley.
    Back to Top

    Jiangsu and Xinjiang to further promote coal-to-gas project

    Jiangsu province and Xinjiang Uygur Autonomous Region to further promote the development of the coal-to-gas project operated by Suxin Energy Co., Ltd., local media reported, citing the recent conference jointly held by both sides on November 24.

    Suxin Energy Co., Ltd, a state-owned company jointly invested by top five provincial enterprises, was built as the main body of the Clean Energy Strategic Cooperation Agreement signed by Jiangsu and Xinjiang.

    According to the agreement, Jiangsu province would complete the coal-to-gas project by 2020, with investment totaling 180 billion yuan. The project was designed to have coal-to-gas annual capacity of 26 billion cubic meters and coal production capacity of 130 billion tonnes.

    The first phase of the project was expected to complete construction by 2018, with gas and coal capacity at 4 billion cubic meters and 16.9 million tonnes per year, respectively.

    On June 26 this year, Suxin Energy signed a sales agreement with the Natural Gas Company under Sinopec Co., Ltd.

    Sinopec would buy all the coal-to-gas resources produced by the project after its operation, with volume specified at 1 billion cubic meters per year in 2019, and 4 billion cubic meters per year afterwards, according to the deal.
    Back to Top

    Japan says advanced coal technology can help global CO2 cut

    Japanese exports of advanced technology for coal-fired power plants will help fight global warming, the environment minister Tamayo Marukawa told Reuters in an interview on November 24, even though the world's richest nations had decided to restrict subsidies on such exports.

    Many developing countries will continue to look to coal-fired power plants to meet their energy requirements and the key issue was to use efficient technology to curb greenhouse gas emissions.

    Her comments came a week after members of the Organization of Economic Cooperation and Development (OECD) struck a deal to restrict subsidies used to export technology for coal-fired power plants.

    Japan, wary of regional competition from China, had been at the vanguard of opposition to phasing out coal export credits that benefit companies such as Toshiba Corp.

    But Marukawa suggested the final deal to restrict export credits for inefficient coal plant technology may actually help Japan."The OECD agreement basically approved the use of high-efficiency coal-fired power plants," she said.

    "There are countries that have no choice but to build coal-fired power stations due to cost. Countries other than Japan have also been exporting coal-fired power stations to these countries," she said.

    Marukawa said Japan can make "enough contributions" to the global push to trim greenhouse gas emissions by providing the country's coal technology that is more efficient than others.

    Japanese Prime Minister Shinzo Abe pledged in 2013 to triple the country's export of infrastructure that includes power stations to about 30 trillion yen ($244.88 billion) by 2020.

    Asked whether Japan's export of coal-fired power stations will rise further, Marukawa said: "It may rise, but it may not if we lose in cost competition against other countries. It depends on the market."

    Attached Files
    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