Mark Latham Commodity Equity Intelligence Service

Tuesday 24th May 2016
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    Brazil's new government loses key minister to scandal

    Brazil's interim government was rocked on Monday by the loss of one of its key figures, Planning Minister Romero Juca, who stepped aside amid accusations he had conspired to obstruct the country's biggest-ever corruption investigation.

    Interim President Michel Temer was counting on Juca, a close confidant and experienced senator, to steer a budget bill through Congress to avoid a government shutdown next month.

    However, a recording of his conversation with a suspect in the investigation threatened to stain the new, center-right administration, already unsettled by a series of policy reversals during its first week in office.

    The scandal weakened Brazil's currency on fears of further instability less than two weeks after President Dilma Rousseff was suspended to stand trial in the Senate for allegedly breaking fiscal laws, leaving former Vice President Temer to lead the country.

    "Starting from tomorrow, I will step aside," Juca, appointed by Temer after Rousseff's suspension, told reporters in Brasilia. He denied any wrongdoing and insisted that his recorded comments had been distorted and taken out of context.

    In the recording, made before Rousseff was put on trial and published by newspaper Folha de S. Paulo on Monday, Juca told a friend he agreed on the need for a "national pact" to limit the graft probe rattling the political establishment.

    Asked for help by his ally, ex-senator Sergio Machado under investigation in the probe, Juca replied: "The government has to be changed in order to stop this bleeding," Folha reported, adding that the conversations were taped "secretly."

    Juca said the conversation happened either at his home or at his office but it was not clear how the hour-long recording was made. Local media reported it may be connected with Machado who has been negotiating a plea bargain deal with prosecutors. Machado was not immediately available for comment.

    Juca and other ministers in Temer's new government are under investigation for their alleged roles in the massive bribery scheme stemming from state-run oil company Petrobras.
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    Oil and Gas

    Oil will soon stage a ‘fundamental price recovery’: Analyst

    Jefferies' Jason Gammel told CNBC on Monday the oil market had swung from oversupply to undersupply in April thanks to disruptions in production in Nigeria and Alberta, Canada, taking around 2 million barrels per day out of the market.

    "I think with continued demand growth over the course of this year and continued declines in non-OPEC supply that we are already seeing in places like the United States, the market actually comes into much better balance by the end of the third quarter and that's the stage for fundamental price recovery," he told CNBC television in London.

    As global crude output fell, demand from China — a massive consumer of energy — rose in April. Its crude imports reached 8 million barrels a day, up 7.6 percent from a year earlier, according to official Chinese data cited by Reuters on Monday.

    "In the case of China, what is encouraging is that their imports are still very high, because I really think that, from a supply-and-demand standpoint, you need to have strong Chinese demand growth in order for the market to become more balanced by the end of the year," Gammel said.

    According to a UBS commodity strategists' forecast published Monday,Brent crude will trade at around $49 per barrel in the fourth quarter of 2016 and then rally further to average $55 through 2017.

    They added that a recovery in WTI oil prices to above $50 per barrel would incentivize renewed U.S. energy exploration and this projected increase in supply would limit price upside.

    Light crude futures for July traded at around $47.80 on Monday.

    Gammel agreed $50-plus prices would spur U.S. rigs back online, but said this increase would be insufficient to offset lower output from shale gas wells.

    "I think if the U.S. rig count doesn't go above, let's say, 500, that the U.S. production is going to continue to decline," he concluded.
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    Oil Traders Are Borrowing From Banks to Store Crude at a Loss

    Unlike previous oil storage trades, however, this one is unusual in that current oil prices and storage costs ought to make it unprofitable. Morgan Stanley estimates that the one-month Brent storage arbitrage currently produces a loss of $0.48 per barrel, while its six-month equivalent loses $6.11 per barrel.

    That suggests "no incentive to store oil on ships," the analysts write. "Yet, banks are seeing a sharp uptick in interest to finance storage charters. This storage is not happening for profit. Rather, the market is looking for places to store oil. To profit, traders need to hope for oil prices to rise enough to pay for the new debt incurred for this storage."

    The prospect of debt-fueled oil storage trades may raise concern should crude prices fail to rise enough to offset costs. Moreover, the 'Singapore supply glut' means the recent price rally may prove fragile.

    "The increase in floating oil comes despite disruptions in the Atlantic Basin and an out-of-the-money floating storage arb[itrage], suggesting markets are not as healthy as sentiment suggests," the Morgan Stanley analysts write. "It also highlights the speculative nature of much of the oil bounce this year."
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    Tankers Run in Circles Off China

    Tankers Run in Circles Off China

    In late February, the tanker Jag Lok loaded oil from Equatorial Guinea in western Africa and set sail for the Chinese port of Qingdao, the gateway to the world’s newest buyers of crude, a journey of more than 12,000 nautical miles.

    After reaching its destination in early April, the ship churned in circles for 20 days before it got a chance to deliver its cargo. That’s because the port in Shandong province was struggling to handle a record number of vessels arriving to supply the privately held refineries called “teapots” that dot the region, ship-tracking data compiled by Bloomberg show.

    The backup illustrates the challenges facing the independent refiners, which have emerged as a bright spot of rising demand amid a global glut. The processors are forecast by ICIS-China to purchase a combined 1 million barrels a day of crude from overseas this year, up from 620,000 barrels in 2015. While small individually, together they account for almost a third of China’srefining capacity. Any curb on imports would threaten oil’s rebound from a 12-year low, according to Nomura Holdings Inc. and Samsung Futures Inc.

    “If teapots’ intake of crude slows down, the global oil demand and supply re-balancing might take longer,” said Gordon Kwan, head of Asia oil and gas research at Nomura in Hong Hong. “If demand from teapots is lower, then oil prices might rebound to just $55, instead of $60 a barrel next year.”

    From being dependent on state-owned energy giants for their feedstock needs as little as a year ago, teapots are now driving Chinese crude purchases after the government allowed them to buy overseas supplies directly. As of end-February, 27 of the companies had received or applied for annual import quotas totaling 89.5 million metric tons, or about 1.8 million barrels a day, according to Zhang Liucheng, chairman of the China Petroleum Purchase Federation of Independent Refinery, a group of 16 processors.

    Total purchases from overseas into the world’s second-largest oil user climbed to a near record 7.96 million barrels a day in April, while shipments to Qingdao surged to unprecedented levels in April.

    Still, with infrastructure not developing as fast as oil purchases, imports are at risk of slowing because of the ship traffic and lack of storage capacity, according to BMI Research. Concern about the creditworthiness of companies with no prior experience in international trade is also deterring some sellers. Slowing refining profits mean the plants may have to cut processing rates, weakening their appetite for cargoes from overseas, while the implementation of higher fuel quality standards could force some of them to shut.
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    Russian oil exports to China hit record high in April

    Beijing has ramped up imports of Russian oil by 52.4 percent last month compared to a year earlier. China's General Administration of Customs calculated a record 4.81 million tons.

    In March, China bought 4.65 million tons of oil from Russia.

    Russia, Saudi Arabia and Angola were China¡¯s three major oil suppliers last month.

    April imports from Saudi Arabia fell by 22 percent year-on-year to 4.12 million tons. In March, China imported 3.98 million tons of oil from the country.

    China increased year-on-year oil imports from Angola last month by 39 percent to 3.98 million tons. Imports from Iran in April fell by 5.1 percent yoy to 2.76 million tons.

    An International Energy Agency report showed that at the end of 2015 Russia overtook Saudi Arabia as the biggest crude exporter to China.

    Russian exports to China have more than doubled over the past five years, up by 550,000 barrels a day. Moscow and Beijing have significantly increased energy cooperation, with a wide range of multibillion dollar projects.

    Russian oil transport monopoly Transneft¡¯s Vice-President Sergey Andropov said in March that China is ready to import 27 million tons of Russian crude this year via the Eastern Siberia-Pacific Ocean (ESPO) pipeline. Supplies to China through the ESPO pipeline started in 2011 after Rosneft, Transneft and China National Petroleum Corporation (CNPC) signed contracts two years earlier. Currently five million tons of crude are supplied through the pipeline annually, and this is expected to rise to 15 million tons a year.

    Experts say Chinese imports of Russian oil are likely to stay high over the coming years due to long-term crude supply contracts and rising demand from the world's second biggest oil consumer.
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    Africa’s Busiest Oil Industry Is Running Hard to Stand Still

    Algeria has more drilling rigs than the rest of Africa combined, yet oil production still isn’t recovering after years of decline. It’s little wonder the nation remains one of the most vocal supporters of action to increase prices by curbing output at the OPEC meeting next month.

    The Organization of Petroleum Exporting Countries has been hit hard by the decline in oil prices. Algeria, like other members, is rolling out economic reforms to deal with the consequences of the slump, which include the nation’s first current-account deficit in more than a decade. Unlike Saudi Arabia and Iraq, it’s been unable to soften the blow by boosting output.

    “In the short term, for sure, the only hope is for prices to rise” because Algeria has little flexibility on production, said Alexandre Kateb, chief economist at Algiers-based financial services company Tell Group. “What it can do is on the level of diplomacy. Trying to influence other members within the organization and achieve some consensus.”

    Decades after the discovery of Algeria’s first major oil fields in the 1950s, the nation’s exploration success rate has fallen to less than one well in five, according to data from state oil company Sonatrach Group. Last year, it drilled 149 wells and only made 22 minor finds. Crude output for the past two years has remained at about 1.1 million barrels a day, data compiled by Bloomberg show.

    Algeria had 36 rigs drilling for oil last month, two thirds of the total for the African continent, according to data from Baker Hughes Inc. Nigeria, which produced 600,000 barrels a day more crude than Algeria in April, had just six operating rigs, the data show. While Algeria plans to buy eight more rigs this year, it isn’t making greater discoveries.

    Algeria’s income from oil and gas exports, which account for nearly 60 percent of the economy and 95 percent of foreign receipts, has plunged by almost half since crude prices tumbled. While large currency reserves and low levels of foreign debt have helped the nation to weather the storm, a prolonged slump could threaten subsidies on housing and basic foodstuffs that curbed internal dissent since the Arab Spring.

    Algeria’s economy is “facing a severe and likely long-lasting external shock,” the International Monetary Fund said May 19. The price of international benchmark Brent crude was about $48 a barrel Monday. That’s an increase of 77 percent from a 12-year low in January, but still well below the $87.60 the IMF says Algeria needs to balance its budget.
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    China Sinopec to triple Chongqing shale gas capacity to 15 Bcm/year by 2020

    China's Sinopec said Monday it targets tripling its shale gas capacity in Chongqing in southwest China to 15 Bcm/year by 2020 from the current 5 Bcm/year.

    It also aims to increase its shale gas output in Chongqing to 10 Bcm/year by 2020, the end of China's 13th five-year plan that runs 2016-2020, according to a news release on a strategic cooperation agreement signed with the Chongqing city government that was posted on Sinopec's website.

    The targets are in the line with Sinopec's plan unveiled in March to double its total domestic gas output to 40 Bcm in 2020 from 20.81 Bcm in 2015, with 10 Bcm to come from shale gas -- all of it from Chongqing -- 29.5 Bcm from conventional gas and 0.5 Bcm from coal bed methane.

    The company completed construction of the 5 Bcm/year Phase I of its flagship Fuling project in Chongqing last year and will begin building the second phase this year, Platts reported earlier.

    The proven developed reserves in Fuling stood at 28.77 Bcm at end 2015, more than doubling from 13.37 Bcm a year earlier, according to the company's annual report. Proven undeveloped reserves surged to 5.13 Bcm from 2.49 Bcm over the same period.
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    India seeks bids for oil, gas fields in first auction since 2010

    A successful auction of the small oil and gas fields is seen as crucial to a recently announced hydrocarbon policy, which India hopes will unlock energy resources worth USD 40 billion by simplifying rules and offering pricing incentives. 

    India is putting up for auction nearly four dozen small oil and gas fields in the first such sale in six years, oil ministry said in a newspaper advertisement on Tuesday. A successful auction of the small oil and gas fields is seen as crucial to a recently announced hydrocarbon policy, which India hopes will unlock energy resources worth USD 40 billion by simplifying rules and offering pricing incentives. 

    The world's fourth-biggest oil and gas consumer imports nearly three-quarters of its energy requirements, but Prime Minister Narendra Modi has set a target of cutting its fuel import dependency to two-thirds by 2022 and to half by 2030. 

    India is auctioning a total of 46 oil and gas fields, the oil ministry said, with 26 on land, 18 offshore in shallow water and two in deep water. The deadline for submitting the bids is on October 31, with companies free to try for more than one exploration block. 

    The mostly small, marginal discoveries on offer were originally controlled by two state-owned exploration companies, Oil and Natural Gas Corporation and Oil India Ltd. The fields have remained undeveloped for years due to their small size and the high cost of development. The current low crude oil prices - now around USD 48 a barrel - will also likely make it hard for the government to attract bids for the fields. 

    Some exploration consultants have also criticised the revenue-sharing model being used by India as most countries auction oil and gas blocks based on a cost-recovery model. In a revenue-sharing model a company operating an oil and gas field has to share revenue from any sales with the government from first production. 

    In a cost-recovery model a company starts sharing income with the government only once its exploration and development costs have been covered.

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    Unions dig in heels to disrupt fuel supply in France

    France's hardline CGT and FO unions launched a 24-hour strike at the Fos-Lavera oil terminals and blockaded a fuel depot in the southern port city of Marseille on Monday as they toughened their stance against labour market reforms.

    The rolling strikes, which began in March and have gathered pace in recent weeks, have disrupted fuel supplies in France since Friday with protesting workers blockading petrol depots and halting production at refineries.

    French oil and gas company Total, which operates five of the eight refineries in France, has started the process of shutting down three - at Normandy, Donges and Feyzin - while its Grandpuits refinery was running at minimum output.

    Rival Exxon Mobil said the strike has not affected output at its two refineries but striking workers had blockaded the oil terminal at Fos-sur-Mer in Southern France.

    Oil sector workers in the CGT, which is France's biggest trade union, and at the third biggest FO, said on Monday they planned to intensify the action until the government withdraws a labour reform law, because they say it will hurt workers.

    "It is clear that the dissatisfaction with the law is unwavering," the unions said in a statement.

    As part of efforts to force the government to withdraw the bill, the union launched a strike at the Fos-Lavera oil terminals on Monday.

    "No ship is operating at the installations," Pascal Galéoté, CGT Secretary General at Marseille port told Reuters.

    The terminals supply PetroIneos Lavera, Total's La Mede and Exxon's Fos refineries on the southern coast. They also supply Total's Feyzin; Varo's Cressier in Switzerland and the MiRO refinery in Karlsruhe, Germany, via pipelines.

    A similar prolonged strike at French refineries in 2010 led to a glut of crude in Europe because it could not be delivered, and a spike in refined product prices due to low output.

    The French government has moved to reassure the public that France was not running out of fuel after shortages at hundreds of petrol stations in several regions sparked panic buying.

    Finance Minister Michel Sapin accused CGT of holding France hostage, saying the government would take the necessary action to end the blockades and restart production at refineries.

    Total said in a statement it had began the procedure of shutting down its 247,000 barrels-per-day (bpd) Normandy; 220,000 bpd Donges and 117,000 bpd Feyzin refineries. Its 101,000 bpd Grandpuits refinery was running at minimum output.

    It said 612 out of its 2,200 petrol stations across France had partially or completely ran out of fuel, while striking workers were blockading two out of its nine fuel depots. There are 78 primary fuel depots in mainland France.
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    France's CGT says will block Elengy's LNG terminals

    France's hardline CGT union said on Monday that workers at Elengy, which operates three liquefied natural gas (LNG) terminals in France, will go on strike from midnight until May 26 midnight included.

    The union said that from Tuesday morning, its members will block two out of three Elengy terminals at Montoir-de-Bretagne on the Atlantic coast and at Fos Tonkin on the Mediterranean coast, where no trucks or vessels will be allowed to load or unload.

    The CGT said its members at Elengy will be joining oil sector workers, whose rolling strikes over planned labour reforms have intensified in recent weeks and led to fuel supply disruptions in France.
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    A fracking license in England!

    An English county government on Monday approved an application for what could be the first permit to frack for shale gas in Western Europe since 2011.

    The North Yorkshire County Council voted 7-4 to allow U.K.-based Third Energy to use hydraulic fracturing to extract shale gas from an existing natural gas well in Kirby Misperton in northern England.

    “This approval is a huge responsibility. We will have to deliver on our commitment…to undertake this operation safely and without impacting on the local environment,” said Rasik Valand, chief executive of privately held Third Energy.

    Attached Files
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    U.S. refiners see surprise surge in diesel demand

    U.S. refiners are enjoying their strongest diesel margins in months as surprisingly robust overseas demand, combined with lower domestic production has triggered an unusually large drawdown in inventories for this time of year.

    The surge in appetite for U.S. diesel comes on the heels of a mild winter that sapped demand for heating oil and punished margins as products went straight into bulging storage tanks. U.S. independent refiner profits dropped 74 percent in the first quarter compared with last year.

    The strong demand for diesel comes at an odd time for U.S. refiners, who have shifted their production focus on gasoline ahead of the busy summer driving season that kicks off with the upcoming Memorial Day holiday weekend.

    Notably, the U.S. diesel crack spread 1HOc1-CLc1, a measure of how much refiners profit from converting crude oil into diesel, has risen by roughly 40 percent since early this month, touching $14.90 a barrel on Monday, the highest level since February when strong demand for heating oil boosts profits.

    Last week, U.S. distillate inventories dropped by an estimated 3.2 million barrels, the fifth consecutive week of declining inventories and the second largest weekly draw for the month of May since the U.S. Energy Information Administration began collecting the data in 1982.

    Philadelphia Energy Solutions, the largest East Coast refiner, has recently booked at least six cargoes of diesel totaling 1.8 million barrels for exports in June, with vessels bound for Europe and South America, according to a source familiar with the plant's operations.

    The refiner booked 9 cargoes for export in May and April, totaling 2.7 million barrels, which represent about a fifth of the diesel volumes the region exported all of last year.

    "Demand from India is very strong," the source said, noting that India is pulling barrels away from Latin America and Europe. "I am not sure this refinery has ever seen a run of diesel exports like this."

    Inventories USOILD=ECI, which include heating oil and diesel fuel, are expected to fall by another million barrels when new EIA figures are released Wednesday, a Reuters poll of six analysts released Monday shows.

    Diesel prices react more globally when there is a disruption in one region, such as elevated demand in India or in Europe, where refining strikes have cut local production.

    Mark Broadbent, a analyst with Wood Mackenzie, said refiners switched to gasoline mode earlier this year as gasoline margins significantly outpaced diesel. As a result, refiners produced roughly 300,000 fewer barrels-per-day of diesel in April compared to last year, Broadbent said.

    He said the combination of decreased supply and the uptick in demand has the market pulling barrels out of storage to meet the gap, supporting cracks.

    "The most important factor to watch will be crude runs," Broadbent said. "Refiners will likely increase runs over the summer and push (production) to record rates once again, which should close the gap between supply and demand and put a stop to the storage draw."

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    Genscape sees 1mln bbl draw on Cushing last week

    Market intelligence firm Genscape reported a drawdown of nearly 1 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures in the week to May 20, traders said.
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    Suncor Energy provides update on restart of operations in Regional Municipality of Wood Buffalo

    Suncor today announced it has begun the remobilization process of its employees to support the staged restart of its operations in the Regional Municipality of Wood Buffalo (RMWB). The evacuation order was lifted by the Regional Emergency Operations Centre the evening of May 20, 2016.

    In addition, Suncor continues to assess the situation, including fire risk, air quality, employee mobility, accommodations and services for employees and contractors.

    'Given our current assessment, we are confident we can safely return people to the region to begin the process of restarting operations,' said Steve Williams, Suncor president and chief executive officer. 'We believe that getting our employees back to work is an important part of the process to get things back to normal in Fort McMurray.'

    Suncor employees currently in the region are completing the pre-work necessary for the safe and staged restart of our operations.

    There has been no damage to Suncor's assets and enhanced fire mitigation work has been conducted at all of our sites. Fire risk close to our base plant facility has been significantly mitigated as little fuel to support a fire remains in the area. Critical third party pipeline and power infrastructure have largely been restored and we expect lodges near our base plant facility to be ready to house workers within a few days.

    Suncor will continue to work closely with the province, region and industry to monitor and manage the fire risk.
    Construction activities at Suncor's Fort Hills mine continued ramping up over the weekend.

    Syncrude is also in the process of planning its return to operations.
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    DJ Basin beats 'Big Three' plays on the commerciality of the fracklog

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    The heart of the DJ Basin, Weld County, exhibits the most commercial fracklog with an average completion cost per barrel of 4.7 USD/bbl, a study by Rystad Energy has shown.

    Simultaneously, Weld County also tops the ranking list by inventory size with almost 600 oil wells awaiting completion crews. The large size of the inventory is primarily driven by intentional completion delays initiated by Anadarko Petroleum, which operates almost half of Weld County's fracklog. PDC Energy, Noble Energy and Whiting Petroleum operate ~10% of the fracklog each.

    Rystad Energy estimates that the DUC inventory in the Weld County turns economical at an average WTI price of just ~30 USD/bbl. Other counties that exhibit favorable fracklog economics are Reeves County in Permian Delaware and McKenzie County in Bakken, with an average completion cost per barrel of 4.8 and 5.1 USD/bbl, respectively. This implies that the major part of the US shale DUC inventory is commercial in the current oil price environment, and significant support to the US Lower 48 oil supply can be expected in the near months as market sentiment gradually moves in a positive direction.

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    Chesapeake swaps debt for equity for second time in May

    Chesapeake Energy Corp, the second-largest U.S. natural gas producer, said on Monday it had issued or agreed to issue about 5 percent of its outstanding shares in exchange for debt over the past week, the second such transaction this month.

    Chesapeake and other oil and gas producers have been undertaking debt-for-equity swaps or bond swaps to reduce interest payments and debt, taken on during a frenzy of shale development.

    The company, which has more than $9 billion in debt, said on Monday it issued or agreed to issue about 37.1 million shares between May 16 and May 23 in exchange for senior notes worth about $166 million. The notes are due in 2017, 2019, 2037 and 2038.

    Chesapeake swapped $153 million of debt for about 4 percent of its equity earlier this month.

    Up to Monday's close of $3.67, Chesapeake's stock had lost more than three-fourths of its value over the past year.
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    Alternative Energy

    Could UAE solar push lead a trend for the Gulf?

    As the Gulf states take steps to expand their use of clean energy, a bold plan by the United Arab Emirates to boost its use of renewable electricity from less than 1 percent to 24 percent in the next five years could be a game-changer for the region, experts say.

    The IEA predicts that by 2019, the region – which holds one-third of the world's proven crude oil reserves – will still be generating nearly one-third of its electricity from oil, with Kuwait and Saudi Arabia leading the way.

    But dropping oil prices and growing concerns about climate change have exposed the downsides of relying on oil. As the Gulf's demand for power continues to rise, the UAE is leading the way in shifting to greener energy resources.

    At the Middle East and North Africa Renewable Energy Conference in Kuwait last month, the Gulf Cooperation Council (GCC) states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – pledged to mobilize $100 billion into renewable energy projects over the next 20 years.

    One of the projects in the UAE's renewables push is the $13.6 billion Mohammed bin Rashid Al Maktoum Solar Park in Dubai, which aims to become the biggest solar power plant in the Middle East.

    It is expected to generate 5 gigawatts of electricity – enough to power 1.5 million homes – by 2030.

    Dubai also plans to install around 100 electric car charging stations as part of its Green Charger Initiative.

    By 2050, Dubai wants to reduce its carbon emissions by 6.5 million tons every year, with the aim of becoming the city with the world's lowest carbon footprint, according to the Dubai Electricity and Water Authority.

    Meanwhile, Saudi Arabia has said it wants to add another 9.5 GW of renewable energy capacity to its current capacity of 80 GW by 2030, And Oman's power sector regulator, the Authority for Electricity Regulation Oman, has announced it will expand rooftop soar installations across residential homes, industrial and commercial buildings.

    In Qatar, French energy giant Total SA has announced a joint venture worth $500 million with state-run petroleum, electricity and water companies to develop a solar-power project with a capacity of 1,000 megawatts (MW).

    And with a 70 MW solar project due to be operational by 2017, Kuwait plans to meet 15 percent of its energy needs with renewables by 2030, according to the Kuwait Institute of Scientific Research.

    It won't be easy for the Gulf to wean itself off of fossil fuels. In a report released earlier this month, the Arab Petroleum Investments Corporation, a multilateral development bank, said the Gulf Cooperation Council states need to add 69 GW of electrical production to their current total capacity of 148 GW in the next five years to meet demand.

    But experts say the sunny region is in a prime position to use renewable energy – particularly solar power – both to meet its own energy needs and bring in much-needed revenue.

    Experts said they hope the rest of the Gulf States will look to the UAE as an example of how to tap into clean energy's potential.

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    Hounslow Council expects to save £145k a year through solar

    The London Borough of Hounslow has installed more than 6,000 solar panels on a wholesale market rooftop.

    The £2 billion project is a “great scheme” for the public sector, according to Energy Manager Charles Pipe.

    He told ELN the 1.7MW solar installation will lead to significant savings: “By installing the solar panels we can cut the consumption by nearly half – 40% to 45% – which is huge and we are probably looking at a saving of £145,000 in electricity bills.

    “That coupled up a FiTs [Feed-in Tariff) incentive gives us a saving and an income of about a quarter of a million pounds a year. So knowing all of these in the background we knew we had to go ahead with it but in terms of austerity, in terms of budget cuts, where are we going to get the money from? With various discussions in the council and finance they actually came up and said look we can fund this from our capital reserve so that was fantastic.”

    The council expects to get returns in five years’ time.

    The solar panels are connected to a battery storage system which stores the electricity generated during the day to power the market at night.

    Mr Pipe added the project will also help the region achieve it’s carbon reduction target as it saves 780 tonnes of emissions per year.
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    Base Metals

    Indonesia renews Newmont Mining's copper export licence for six months

    May 24 Indonesia's mining ministry has issued the local unit of U.S. copper and gold miner Newmont Mining Corp with a recommendation to continue copper concentrate exports for the next six months, a ministry official said on Tuesday.

    Newmont, Indonesia's second-biggest copper miner, will be allowed to export "around 400,000" tonnes of copper concentrate from its mine in eastern Indonesia, Coal and Minerals Director General Bambang Gatot told reporters, without providing further details.
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    India’s Hindustan Copper reduces capex to $59m

    India’s sole State-owned integrated copper producer Hindustan Copper Limited (HCL) has lowered its capital expenditure (capex) for the current financial year, owing to delayed clearances for reopening and expanding three of its captive copper mines. 

    Data sourced from the government showed that HCL had planned capex of $100-million for 2016/17, when it developed its strategic plan last year. However, two months into the new financial year, HCL had reduced its capex to $59-million as the expansion of the three mines was not expected to gain momentum during the current year. 

    In the previous financial year, HCL had also failed to deploy its entire planned funds for capex. Government data showed that HCL only spent $43-million during 2015/16, compared with planned capex of $70-million. 

    A Parliamentary Committee, designated to oversee government-owned companies, at a recent meeting criticised HCL, saying the company should review the practice followed in framing yearly capex targets. 

    The delays in securing the mandatory approvals, including environmental approval, to reopen the Rakha, Chapri Siddeswar and Kendadhi mines, in Jharkhand, The three mines were forced to close down almost a decade and half ago in the face of depressed global copper price and HCL's high production costs.
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    China's aluminium market shrouded by statistical smoke and mirrors

    The latest figures from the International Aluminium Institute (IAI) showed a collective annualised run-rate outside of China of 25.1 million tonnes in April. That was the lowest level since August last year, reflecting the ramp-down of capacity in the U.S., where local producer Alcoa has shuttered its Warrick and Wenatchee smelters.

    The world outside of China is widely believed to be in supply deficit.

    China, on the other hand, is widely believed to be still in production surplus, the resulting imbalance generating continued flows of semi-manufactured products into international markets.

    There were signs that Chinese smelters were also curtailing capacity at the end of last year but with Shanghai aluminium prices staging an impressive rally, the fear is that production discipline will be lost and that Chinese exports will increase again to fill any supply gap in the rest of the world.

    So is Chinese production going up, going down or is it largely unchanged?

    It should be an easy question to answer but unfortunately it's not because of the volatility in the recent figures supplied to the IAI by China's Nonferrous Metals Industry Association (CNIA).

    If the figures are to be believed, Chinese output slumped by an annualised 6.6 million tonnes in the December-February period only to surge back by 5.2 million tonnes in March and April.

    Except anyone who knows how an aluminium smelter works will tell you the figures don't make any sense.

    Looking for example at the apparent 4.8-million tonne increase between run-rates in February and March, Paul Adkins of consultancy AZ China noted wryly that the month-on-month jump was equivalent to "10 smelters running at full speed on March 1 after being idle on February 29".

    Volatility is nothing new to these Chinese aluminium production figures, particularly around the turn of the year, both calendar and lunar, but this year's variance is unprecedented.

    Perhaps the best way to penetrate the statistical smoke is to look at annualised production over a longer period.

    On this basis April's run rate was 31.3 million tonnes, down a net 1.79 million tonnes from September last year.

    That would tally with the anecdotal evidence that capacity was indeed curtailed as local prices fell below 10,000 yuan per tonne in November, lower even than during the worst of the Global Financial Crisis in 2008-2009.

    The figures for March and April would also suggest, however, that restarts may already be happening, albeit not on a scale implied by that month-on-month explosion in output in March.

    And Chinese smelters right now have every incentive to lift output rates, given the strength of the rally in Shanghai prices.

    The strength of the rally since November's trough has dispelled all the earlier talk of coordinated production cutbacks in return for government help in setting up an aluminium stockpile.

    There is no hard evidence that the proposed scheme ever got off the ground, although it may have played a part in deterring the short-sellers who were swarming over the Shanghai market at the end of last year.

    But while other over-heating commodities such as steel rebar and iron ore have collapsed in the wake of the regulatory intervention, Shanghai aluminium has recouped most of its immediate losses and is trending upwards again.

    This does in part reflect an improving demand picture in China, AZ China's Adkins for example noting that "several sectors are showing good growth signals, including high voltage cables, automobiles, white goods and consumer durables".

    What is not in doubt is the outperformance of the Shanghai aluminium contract relative to the London market this year.

    The Shanghai price has risen by 16 percent, while the price of three-month aluminium on the London Metal Exchange (LME) is up by a far more modest 6 percent.

    That doesn't bode well for producer discipline since Chinese smelters have in the past responded first and foremost to domestic price signals in terms of capacity utilisation.

    It in turn will depend on the underlying supply-demand drivers in the country. Just a shame they are currently so obscured by statistical smoke and market mirrors.
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    First permanent infrastructure being built at new DRC tin mine

    The first permanent infrastructure is being built at the proposed new tin mine at Bisie, in the Democratic Republic of Congo (DRC), for which $130-million is being raised. 

    Alphamin Resources CEO Boris Kamstra said the return airway drive being built would be used to acclimatise mining crews to safety at the Mpama North prospect in North Kivu, where a definitive feasibility study points to a 380-employee operation that will produce at a rate of 9 000 t of tin in concentrate a year from 2019. 

    Kamstra said the company would make use of the infrastructure to allow 26 artisanal miners to undergo training in hazard identification and risk mitigation, ahead of the full development of what will be an underground mine. 

    To date, about $50-million has been invested in the project, which will require capital expenditure of $120-million and working capital of $10-million. “$130-million will be the final hurdle we have to get over,” Kamstra told Mining Weekly Online. 

    The all-in cost of production of $8 448/t compares with a tin price of $16 465/t at the time of going to press and a definitive feasibility study tin price of $14 800/t, which allows for payback in 22 months. Results of a drilling programme have lifted the quantum of contained tin to 230 000 t at an in situ grade of 4.5% from a previous 194 000 t at 3.5%. 

    At the current tin price, it has a probable 18-month payback for a mine that will have a life of ten to 12 years. “We’ve got terrific margin, just as a consequence of this most extraordinary grade and this really unique deposit,” Kamstra commented. 

    The supply charts of the tin industry currently resemble those drawn up during South Africa’s energy crisis to depict the coal supply cliff that Eskom was facing. The only difference in Kamstra’s view is that this time, the tin supply cliff is going to eventuate, owing to major tin producers experiencing grade deterioration, greater mine depths, ore reserve depletion and profitability challenges. 

    Even if the supply from Myanmar, which has been unpredictable, remains at 40 000 t/y, Kamstra’s view is that question marks over supply adequacy will remain. He insists that new operations are desperately needed to fill the supply gap.

    Bisie’s past has been one of the reasons why tin was included in the Dodd-Frank legislation, which was introduced by the US to stop DRC warlords from using metals to finance their conflicts. The legislation means that Alphamin will now be forced to demonstrate to the likes of Apple, Microsoft and Samsung that its tin is 100% conflict-free. 

    “We will comply,” Kamstra assured Mining Weekly Online.
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    Steel, Iron Ore and Coal

    CIL implements new pricing strategy, slashes e-auction reserve price

    Reacting to oversupply pressures and rising stockpiles, Coal India Limited (CIL) has taken the first step to adjust the price of coal and meet the volume demand of consumers. 

    In a significant change in pricing strategy, Western Coalfields Limited (WCL), a wholly owned subsidiary of CIL, has decided to reduce the reserve price of coal sold through e-auctions to attract higher-volume bids from consumers. Instead of pegging the e-auction price 20% higher than the notified price for coal supplied to thermal coal plants under supply agreements, 

    WCL has decided to peg the reserve price for e-auction at 20% less than the notified price. The benefit of a lower price would apply to both e-auctions and forward e-auctions for captive and noncaptive power plants, WCL said in a statement. 

    Last month, Mining Weekly Online reported that CIL had slashed the price of high-grade coal by up to 40%, also scrapping the system of charging consumers a premium once supplies exceeded 90% of contracted volumes under fuel-supply agreements with large consumers. 

    To cope with rising production and stockpiles, CIL now planned for a higher-volume offering of up to 120-million tons through e-auction sales during the current fiscal year, which was expected to benefit captive and noncaptive thermal power producers by ensuring there were fuel supplies without the need to get into long-term fuel-supply agreements. 

    Responding to oversupply in the market, CIL was forced to prune its April dispatch to 42.5-million tons during April, which was about 1.5-million tons lower year-on-year. Stockpiles at its pitheads during April were estimated at 53-million tons, only marginally down from the 55-million estimated tons in January. 

    CIL officials said that, while increasing production from the company’s mines would not be difficult, the current priority of the miner was to hasten liquidation of existing stockpiles, as there had been several incidents of stocks self-igniting during the peak summer temperatures and heatwave conditions in several parts of India.
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    China’s eight ministries issue notice to substitute power for coal-fired heating

    China’s eight ministries including the National Development & Reform Commission jointly issued a notice lately, aiming to prompt the substitution of electricity for coal burns in four major sectors –residential heating in northern China, manufacturing, transportation, power supply and consumption.

    It will help alleviate severe air pollution haunting the country for a long period, which is mainly caused by the wide coal burns and fuel use. It, in line with the energy consumption reform and national energy strategy, will also push for the development of clean energies.

    The electricity used to substitute coal mainly comes from renewable energies and some coal-fired power units with ultra-low emissions, according to the notice.

    Residents in suburbs, rural areas as well as those urban areas where heating network is not yet available in northern China are encouraged to use regenerative electric boilers, regenerative electric heaters and other electric heating facilities.

    The notice guides industrial and agricultural sectors to generalize the use of electric boilers and other facilities fuelled by power.

    The substitution of electricity will be comprehensively promoted in the above four sectors during the "13th Five-Year Plan" Period (2016-2020), and consumption equivalent of 130 million tonnes of standard coal will be saved.

    The share of power coal consumption is expected to rise 1.9% of the total coal use, and that of power energy will increase 1.5% to around 27% of the total energy consumption of end users.

    The electricity use is likely to increase 450 TWh, and emissions of dust, sulphur dioxide and nitric oxide will be reduced by 0.3 million, 2.1 million and 0.7 million tones, respectively, during the period.
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    Shanxi April raw coal output drops 21.3pct on year

    Shanxi April raw coal output drops 21.3pct on year

    Shanxi province, a major coal production base in northern China, produced 58.19 million tonnes of raw coal in April, falling 21.3% on year, the local government said on its official website on May 23.

    Coal output over January-April stood at 260.51 million tonnes, sliding 7.3% from the previous year, data showed.

    Meanwhile, Shanxi produced 11.02 million tonnes of pig iron during the same period, down 9.8% year on year, with April output down 7% on year to 3.07 million tonnes.

    Shanxi’s crude steel output in the first four months was 11.58 million tonnes, down 10.1% on year, with April output down 7.3% to 3.23 million tonnes. Steel products output fell 12.2% on year to 12.17 million tonnes, with April output down 6.9% to 3.59 million tonnes.

    The falling output hinted the resolution of the province to tackle the oversupply haunting the whole market led by the national supply-side structural reform.

    A work document was released by provincial government and Party committee on April 24, to require the capacity elimination of over 100 million tonnes per year in an ordered way by 2020, and further reaffirm the decision of not approving new coal projects in next five years.

    Attached Files
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    US thermal coal market to drop to 500 million-550 million st/year: CEO

    The US thermal coal market will shrink to about 500 million to 550 million st/year from roughly 800 million in 2015, Murray Energy CEO Bob Murray said Monday.

    Murray, speaking at the 37th annual Virginia Coal and Energy Alliance conference in Kingsport, Tennessee, said in a wide-ranging keynote speech that he also met last Monday with presumptive Republican nominee Donald Trump in the candidate's New York office to discuss energy policy.

    "I said we need to get these 20 permits for LNG ports, get that [natural] gas out of the country, then he said, "What's LNG?" said Murray. "He'll get there. He'll surround himself with people that know the industry. But he's all we've got, he's the horse to ride, and he's got his head on right."

    With regard to the current coal market, Murray said he believes the market remains oversupplied and further turmoil is likely, given that producers aren't doing more to shut down mines.

    Murray said he thinks 2017 will be worse than 2016, and "I don't know about 2018 because I can't see that far."

    Murray said he thinks the Powder River Basin "is going to be hit very hard" by market dynamics, partly because he doesn't believe the economics of moving low-heat coal with lots of moisture great distances across the country by railroad. "It's [an artificial market] created by the Clean Air Act of 1990," Murray said.

    Murray said he believes Central Appalachian coal production will drop to 60 million st from 200 million st as recently as 2011, that both Northern Appalachia and Illinois Basin will show declines, and the Western coal market has been "destroyed" by West Coast states moving away from coal-fired power. Murray owns mines in CAPP, NAPP, the Illinois Basin and Utah.

    The outspoken CEO said he expects to mine 60 million st this year, down from early projections of roughly 90 million st, and that he's working Sundays to keep his company out of bankruptcy.

    "Our electricity power generators cannot dispatch their power plants and we cannot sell our coal," said Murray.

    Murray said bankruptcies strip away employer liabilities and push coal prices lower, "and we all get sucked into the bankruptcy sewer." But because producers who file for bankruptcy aren't shutting down mines, "these zombie mines, I call them, still exist," he said. "They are being unloaded of all their obligations and makes it so none of us can stay out of bankruptcy."

    Murray said he's hopeful several of his lawsuits against the Environmental Protection Agency and other government agencies will be successful, but that he plans to be around whatever the future holds.

    "I'll be 100 million st, I can be one-sixth of the coal industry," said Murray. "I have low-cost mines with 17 longwalls, and good reserves, so my plan is to be in there, with one-sixth of what's left."

    Attached Files
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    Techint pours $54 mln into Brazil's Usiminas in capital plan

    May 23 Italian industrial conglomerate Techint Group on Monday bought 193.5 million reais ($54 million) worth of shares in Usinas Siderúrgicas de Minas Gerais, as part of a capital plan aimed at shoring up the Brazilian steelmaker.

    Techint, through several units, including steelmaker Ternium SA, bought 38.7 million shares in Usiminas, as the company is known, to help bolster the ailing steelmaker, as it struggles with slumping sales and a swelling debt burden. Techint and Japan s Nippon Steel & Sumitomo Metal Corp are the two top shareholders in Usiminas.
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