Mark Latham Commodity Equity Intelligence Service

Monday 8th February 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China FX reserves fall almost $100 bln to lowest since May 2012


    China's foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.

    China's foreign reserves fell $99.5 billion to $3.23 trillion in January, the lowest level since May 2012, central bank data showed, but higher than the median forecast of $3.20 trillion from economists surveyed in a Reuters poll.

    The size of the drop was second only to the $107.9 billion fall in December, the largest monthly decline on record. The central bank has intensified efforts to prop up the yuan after it staged a surprise devaluation in early August.

    China's reserves remain the world's largest despite losing around $420 billion in the last six months. In 2015, they fell by $513 billion, the largest annual drop in history.

    The country's foreign exchange regulators said on Feb. 4 that trade and investment had caused $342.3 billion of the drop in reserves in 2015, while currency and asset price changes caused another $170.3 billion fall.

    Officials said the fall had been further exacerbated by a rush by local firms to repay foreign debt and increased dollar buying by local residents as the yuan fell.

    Capital outflows have gained momentum since the yuan's August devaluation, fanned by concerns about China's economic slowdown and expectations of U.S. interest rate rises.

    "Monetary easing is highly needed amid economic slowdown, but the capital outflow will naturally tighten the monetary policy," Hao Zhou, senior emerging markets economist at Commerzbank in Singapore, said in a note after the data.

    "In the meantime, to prevent the currency from a fast depreciation, the PBOC (People's Bank of China) will have to sell its FX reserves, which will tighten the liquidity."

    The PBOC has taken recent steps to curb currency speculation, including setting a limit on yuan-based funds to invest overseas and implementing a reserve requirement ratio on offshore banks' domestic yuan deposits.

    China also eased capital rules for foreign institutional investors to buy onshore stocks and bonds.

    Economists expect Beijing to tighten capital controls and close regulatory loopholes to curb the flight of money.

    China's gold reserves rose to $63.57 billion at the end of January, from $60.19 billion at end-2015, the PBOC said.

    They stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December.

    China's International Monetary Fund reserve position was at $3.76 billion at end-January, down from $4.55 billion in December. The central bank held $10.27 billion of IMF Special Drawing Rights, compared with $10.28 billion at end-December.

    http://www.reuters.com/article/china-economy-reserves-idUSL3N15M037
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    China 2016 power consumption may up 1-2pct on year: CEC


    China’s power consumption in 2016 may increase 1-2% from 2015’s 5,500 TWh, according to a forecast report released by the China Electricity Council (CEC) on February 3.

    According to the report, power consumption by the primary industries – mainly the agricultural sector – will sustain a moderate growth rate if under normal climate conditions.

    Power consumption by the secondary industries – mainly the industrial sector – may see a slower decrease in 2016, with the decline of power consumption in building material industry and ferrous metal smelting industry to narrow.

    Power consumption by the residential segment and tertiary industries – mainly the service sector – was expected to maintain a relatively rapid growth, with the acceleration of urbanization and increase in information consumption amid China’s economic transition.

    In 2016, China will add around 100 GW of new generating capacity, expanding the total generating capacity to 1.61 TW by the end of 2016, an increase of 6.5% on year.

    In the meantime, the proportion of generating capacity from non-fossil energy will be improved to around 36%.

    The utilization of thermal power plants will drop 329 hours to around 4,000 hours, with average utilization of power generation units staying around 3,700 hours.

    By then, hydropower will accounted for 330 GW of the total, with wind power and nuclear power standing at around 150 GW and 34.5 GW, respectively.

    In 2016, overall power supply in China is surplus, with areas in northeast and northwest facing excess power capacity.

    China should enhance the interconnection of power grids with neighboring countries; further boost energy-saving and emission reduction by scientifically optimizing power industry structure, suggested the CEC.

    http://en.sxcoal.com/0/140597/DataShow.html

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    China starts investigation of Sinochem Group president Cai Xiyou


    Cai Xiyou, president of Sinochem Group, the Chinese energy and chemicals conglomerates, has been put under investigation for serious discipline violations, China's main anti-corruption agency said on Saturday, using the usual euphemism for graft.

    The ruling Communist Party's Central Commission for Discipline Inspection (CCDI) published a one-line statement on its website on Saturday, providing no other details about Cai's suspected wrongdoing.

    Cai, a 30-year oil industry veteran, was named to lead Sinochem in 2014, after a long career at China Petroleum and Chemical Corp (Sinopec) where he was previously a Communist Party committee member, senior vice president, and Sinopec Corp's general consul.

    In October, Cai also was named chairman and non-exeuctive director of Hong Kong-listed China Jinmao Holdings Group Limited 00817.HK, a Sinochem Group real estatesubsidiary.

    Sinochem Group, formerly China's monopoly oil trader until 1993, has diversified businesses in oil refining, chemicals trading, oil and gas explorations and real estate development.

    Cai is the latest state-owned enteprise executive to be caught in ruling the Communist Party's investigations into corruption. In December, CCDI said it was investigating the chairman of state-run China Telecom Corp Ltd was under investigation for alleged disciplinary violations. He later resigned.

    http://www.reuters.com/article/us-china-corruption-sinochem-idUSKCN0VF0J4
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    Oil and Gas

    World's Largest Energy Trader Sees a Decade of Low Oil Prices


    Oil prices will stay low for as long as 10 years as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to the world’s largest independent oil-trading house.

    "It’s hard to see a dramatic price increase," Vitol Group BV Chief Executive Officer Ian Taylor told Bloomberg in an interview, saying prices were likely to bounce around a band with a mid-point of $50 a barrel for the next decade.

    "We really do imagine a band, and that band would probably naturally see a $40 to $60 type of band," he said. "I can see that band lasting for five to ten years. I think it’s fundamentally different."

    The lower boundary would imply little price recovery from where Brent crude, the global price benchmark, trades at about $35 a barrel. The upper limit would put prices back to the level of July 2015, when the oil industry was already taking measures to weather the crisis.

    The forecast, made as the oil trading community’s annual IP Week gathering starts in London on Monday, would mean oil-rich countries and the energy industry would face the longest stretch of low prices since the the 1986-1999 period, when crude mostly traded between $10 and $20 a barrel.

    Vitol trades more than five million barrels a day of crude and refined products -- enough to cover the needs of Germany, France and Spain together -- and its views are closely followed in the oil industry.

    Taylor, a 59-year-old trader-cum-executive who started his career at Royal Dutch Shell Plc in the late 1970s, said he was unsure whether prices have already bottomed out, as supply continued to out-pace demand, leading to ever higher global stockpiles. However, he said that prices were likely to recover somewhat in the second half of the year, toward $45 to $50 a barrel.

    For the foreseeable future, Taylor doubts the oil market would ever see the triple-digit prices that fattened the sovereign wealth funds of Middle East countries and propelled the valuations of companies such as Exxon Mobil Corp. and BP Plc.

    The problem is that "there is so much more supply" while the global economy is more efficient in consuming crude. On top of that, Iran is returning to the market and growth in emerging markets, the biggest engine of oil demand, is slowing.

    Taylor said there could be an agreement between OPEC and non-OPEC countries like Russia to cut production. "It’s probably slightly against, 60-40 against, but it’s a real possibility," he said,

    http://www.bloomberg.com/news/articles/2016-02-08/world-s-largest-energy-trader-sees-a-decade-of-low-oil-prices

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    Saudi, Venezuela meeting on prices yields little


    A meeting between OPEC producers Saudi Arabia and Venezuela to discuss coordination on prices ended with few signs there would be steps taken to boost prices.

    Saudi Arabia's oil minister Ali al-Naimi talked about cooperation between Organisation of Petroleum Exporting Countries members and other oil producers to stabilise the global oil market with his Venezuelan counterpart on Sunday, but there was no agreement to hold an early meeting of suppliers.

    Venezuela's Oil Minister Eulogio Del Pino, who is on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was "productive."

    The prospect of a supply restraint helped oil prices rise from 12-year lows last month, even though there was widespread scepticism that a deal will happen.

    http://www.reuters.com/article/global-oil-idUSL3N15N030

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    Loss-making oil fields unlikely to be shut willingly: Wood Mackenzie


    Even as millions of barrels of oil are pumped at a loss at current prices, only a fraction of the production has been shut, industry research group Wood Mackenzie said on Friday.

    The apparent financial resilience of some producers could delay a recovery in the oil market that has seen an oversupply of 2 million barrels per day (bpd) push prices down by some 70 percent over the past 18 months.

    "Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons," said Robert Plummer, Wood Mackenzie's vice president of investment research.

    Just 100,000 bpd out of the 96.1 million bpd of oil pumped worldwide have been closed so far since the price plunge, most of it in Canada's oil sands, conventional U.S. projects and aging fields in Britain's North Sea, according to the research.

    The group's analysis showed that 3.4 million bpd of oil pumped now, 3.5 percent of worldwide production, is "cash negative" at Brent prices of $35 per barrel. Brent was trading at $34.60 per barrel on Friday morning, meaning selling this oil currently costs more than it takes to get the barrels out of the ground.

    But the hope of a rebound could keep even these from closing.

    "Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices," Plummer said.

    The bulk of the most expensive to produce oil is in Canada, where 2.2 million bpd is "cash negative" at current prices, most of it in oil sands and small conventional wells. An additional 230,000 bpd in is Venezuela's heavy oil fields, and 220,000 bpd is in the United Kingdom.

    Those operators, Wood Mackenzie said, were likely to store their oil to sell later, only shutting fields if mechanical or maintenance problems required investments they "can't rationalize" at current prices.

    In the United States the research found that aggressive cost cutting had enabled more of the shale plays to make money – and survive – at lower prices.

    "In the past year we have seen a significant lowering of production costs in the U.S., which has resulted in only 190,000 bpd being cash negative at a Brent price of $35," said Stewart Williams, vice president of upstream research at Wood Mackenzie, adding that "the majority" only become cash negative at Brent prices "well-below $30 per barrel."

    Wood Mackenzie currently forecasts Brent prices to average $41 per barrel in 2016.

    http://www.reuters.com/article/oil-drilling-prices-idUSL8N15K24J

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    International offshore rig count down by 72 units YoY


    The international offshore rig count for January 2016 was down both sequentially and year over year, according to a report by Baker Hughes, an oilfield services provider.

    The international offshore rig count for January 2016 was 242, down 8 from the 250 counted in December 2015, and down 72 from the 314 counted in January 2015.


    http://www.offshoreenergytoday.com/international-offshore-rig-count-down-by-72-units-yoy/
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    Iran's crude oil sales to Europe have reached above 300,000 bpd after sanctions: Shana


    Iranian Oil Minister Bijan Zanganeh said on Saturday that Iran's crude oil sales to Europe after the lifting of international sanctions on Tehran had already reached above 300,000 barrels per day (bpd), according to the ministry’s news agency.

    Iran's oil exports, which had peaked at more than 3 million barrels per day (bpd) in 2011, fell to a little more than 1 million bpd after tougher sanctions were imposed in 2012 because of its nuclear program.

    After the rubber-stamping of the nuclear deal with world powers last year, however, Tehran has ordered a 500,000 bpd increase in oil output.

    "Based on the contract signed between the National Iranian Oil Co and France's Total, it was agreed that Total will buy 160,000 bpd of crude oil from Iran to be delivered in Europe," Zanganeh was quoted as saying by news agency SHANA, adding that the contract would be finalised on Feb 16.

    Zanganeh also said Italy's Eni was interested in buying 100,000 bpd of crude oil from Iran and its representatives would visit Tehran in near future to discuss the contract.

    "Eni has voiced its interest in one of Iran's fields which will be treated like the agreement reached with Total," he said.

    Iran's oil minister said Italian refiner Saras was interested in buying 60,000 to 70,000 bpd of crude oil from Iran.

    Tehran is sweetening the terms it offers on oil development contracts to draw the interest of foreign investors deterred by sanctions and low crude prices, as its pragmatic president seeks to deliver on his promise of economic recovery.

    The new contracts, which include those in the upstream exploration and development sectors are expected to attract more than $40 billion in foreign investment.

    Iran has postponed a planned oil conference in London, which was due to have taken place in February to reveal its new contracts, until November. An Iranian official said "the U.S. urged Tehran to hold off" until a final nuclear deal was penned.

    http://www.reuters.com/article/us-oil-iran-sales-idUSKCN0VF0NE
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    U.S. oil drillers deepen cuts in seventh week of declines: Baker Hughes


    U.S. energy firms deepened their cuts in oil drilling rigs in the seventh week of declines to the lowest levels since March 2010, data showed on Friday, as they continue to cut spending due to the collapse in crude prices.

    Drillers removed 31 oil rigs in the week ended Feb. 5, the biggest cut since April last year, bringing the total rig count down to 467, oil services company Baker Hughes Inc said in its closely followed report.

    That compares with 1,140 oil rigs operating in same week a year ago. In 2015, drillers cut on average 18 rigs per week for a total of 963 oil rigs for the year, the biggest annual decline since at least 1988.

    Before this week, drillers have cut on average 10 rigs per week so far this year.

    The deepest cuts this week were seen in the most active state, Texas, where rigs declined by 19 to 262. This marks a decline to less than half the level seen in the state a year ago, when 654 rigs were active.

    The largest declines were seen in the Granite Wash formation, where rigs dropped by five to eight operating rigs, and the Eagle Ford, where four rigs were removed for a total of 60 rigs.

    But even as crude futures have remained low after by plunging some 70 percent over the past 18 months, analysts say that production cuts may not follow shortly.

    "Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons," said Robert Plummer, vice President of oil investment research at consultancy Wood Mackenzie, said in a report.

    The research found that aggressive cost cutting in the U.S. had enabled more of the shale plays to make money – and survive – at lower prices.

    "In the past year we have seen a significant lowering of production costs in the U.S., which has resulted in only 190,000 barrels per day being cash negative at a Brent price of $35," said Stewart Williams, vice president of upstream research at Wood Mackenzie, adding that "the majority" only become cash negative at Brent prices "well-below $30 per barrel."

    Other analysts have held that a recovery in drilling is needed to staunch rapid declines from shale wells.

    "Without a recovery in drilling, the fall in output will become severe given the relatively low recent pace of productivity gains," analysts at Standard Chartered said.

    "The shale oil output projections at current activity levels imply that drilling has to start to rise soon to keep the market from swinging too heavily into excess demand by the end of 2016," Standard Chartered said, noting, "This means getting prices back above $50 fairly quickly."

    U.S. crude oil production averaged about 9.4 million bpd in 2015 and was forecast to average 8.7 million bpd in 2016 and 8.5 million bpd in 2017, according to the latest U.S. Energy Information Administration's Short-Term Energy Outlook.

    http://www.reuters.com/article/us-usa-rigs-baker-hughes-idUSKCN0VE27O

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    CONSOL Energy announces reserves update


    During 2015, CONSOL Energy Inc. added 934 Bcfe (net to CONSOL) of proved reserves through extensions and discoveries. As of December 31, 2015, total proved reserves were 5.6 Tcfe, which included 583 Bcfe, or 10.3%, of oil, condensate, and liquids. Marcellus Shale reserves account for 369 Bcfe, or 14.4%, of these heavier hydrocarbons.

    CONSOL Energy replaced 284% of its 2015 production, when considering increases from extensions and discoveries of 934 Bcfe. Production in 2015 was 329 Bcfe (net to CONSOL).

    During 2015, drilling and completion costs incurred directly attributable to extensions and discoveries were $618.3 million. When divided by the extensions and discoveries of 934 Bcfe, this yields a drill bit finding and development cost of $0.66 per Mcfe, compared to $0.76 per Mcfe at year-end 2014.

    Future development costs for PUD reserves are estimated to be approximately $943 million, or $0.48 per Mcfe.

    Total net revisions are 1,790 Bcfe, which include negative price revisions of 3,159 Bcfe and net positive plan and other revisions of 1,369 Bcfe. The positive plan and other revisions are primarily driven by performance revisions resulting from CONSOL's success in reducing costs, continued improvements in type curves and EURs in the Marcellus, and focusing on developing higher internal rate of return projects across the company. Approximately 2,200 Bcfe of negative revisions included in price revisions and plan and other revisions have been removed from CONSOL's 5-year development plan.

    Proved developed reserves of 3,697 Bcfe in 2015 were 16% higher than 2014 and comprised 66% of total proved reserves, compared to 47% in 2014. Proved undeveloped reserves (PUDs) were 1,946 Bcfe at December 31, 2015, or 34% of total proved reserves, compared to 53% at year-end 2014. This reflects consistent booking of proved undeveloped reserves in 2015, as a result of the company's continued success in the Marcellus Shale and increased activity in the dry Utica. PUDs at year-end 2015 represent 78% of the total wells the company expects to drill over the next five years.

    In the Marcellus Shale CONSOL Energy and its joint venture (JV) partner turned in line 81 gross wells with an average completed lateral length of approximately 7,600 feet and expected ultimate recoveries (EUR) averaging approximately 2 Bcfe per thousand feet of completed lateral. Max 24-hour production rates were as high as 19 MMcf per day, with 31 wells peaking at rates greater than 10 MMcf per day and 12 wells peaking at rates greater than 15 MMcf per day. As of December 31, 2015, the Marcellus Shale proved reserves were 2,573 Bcfe, which included 1,689 Bcfe of proved developed reserves.

    In the Utica Shale, during 2015 CONSOL Energy and its JV partner turned in line 32 gross wells with an average completed lateral length of approximately 7,600 feet and EURs ranging up to 3 Bcfe per thousand feet of completed lateral. In the Dry Utica Shale, four 100% CONSOL-owned wells peaked at over 20 MMcf per day with the Westmoreland County, PA Gaut 4I testing at a 24-hour flow rate of 61 MMcf per day and the Monroe County, Ohio Switz 6D testing at a 24-hour flow rate in excess of 44 MMcf per day. In 2015, CONSOL booked 876 Bcfe of Utica PUDs, which is an increase of 262% from the 334 Bcfe booked during 2014 and includes 523 Bcfe of offset Dry Utica PUDs in Monroe County, Ohio, due to successful drilling results and cost reductions.

    As of December 31, 2015, CONSOL Energy has total proved, probable, and possible reserves (also known as '3P reserves') of 38.3 Tcfe, which is an increase of 1.7 Tcfe, or 5%, in 3P reserves from the 36.6 Tcfe reported at year-end 2014. The increase in 3P reserves is primarily attributed to more certainty in the success of the Ohio Utica Shale, as well as continued success and optimization in the Marcellus Shale. The company has had strong initial success in the Pennsylvania dry Utica Shale, but it is still early in the play and reserve bookings are currently limited to one PDP well in the 2015 reserve report. The company continues testing Upper Devonian and dry Utica potential in Pennsylvania, Ohio, and West Virginia and believes that these areas will provide additional opportunities for CONSOL's proved reserves over time. The company's 3P reserves have been determined in accordance with the guidelines of the Society of Petroleum Engineers Petroleum Resources Management System.

    http://www.oilvoice.com/n/CONSOL-Energy-announces-reserves-update/f6e1747069e5.aspx

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    Suncor Wins Over Majority of Canadian Oil Sands Shareholders


    Suncor Energy Ltd. said Canadian Oil Sands Ltd. shareholders holding more than two-thirds of the stock tendered their shares in a C$4.3 billion ($3.2 billion) takeover that will make the country’s biggest crude producer also the largest owner of the Syncrude project in northern Alberta.

    A total of 72.9 percent of shares were tendered, and the offer will be extended to Feb. 22 to allow those who didn’t have enough time to do so, Calgary-based Suncor said in a statement after the offer expired Friday.

    Suncor succeeded in winning over resistant Canadian Oil Sands management and shareholders after sweetening the offer last month, following a war of words between the companies over the fate of the Syncrude stake. Suncor made two offers before making a hostile bid in October and finally secured Canadian Oil Sands management’s green light for the takeover in January.

    “We’re pleased with the strong level of support from COS shareholders,” Chief Executive Officer Steve Williams said in Friday’s statement. Canadian Oil Sands officials couldn’t immediately be reached Friday evening.

    http://www.bloomberg.com/news/articles/2016-02-06/suncor-wins-over-majority-of-canadian-oil-sands-shareholders
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    After rapid growth, U.S. energy MLPs running out of road


    Investment vehicles that funneled more than $100 billion into U.S. pipelines, storage and other facilities during the shale boom now face an existential crisis after oil tumbled so low that it upended assumptions about risks and returns they offer.

    Those tax-protected structures were the Holy Grail of energy investing during the upswing, combining hefty payouts made possible by fast growing energy bloodstream with some protection against oil's ups and downs offered by the "midstream" segment.

    The collapse in stock prices of such master limited partnerships as Plains All American and Energy Transfer Partners shows such protection proved illusory once global oil prices reached depths that began threatening survival of their customers - oil and gas producers.

    A sharp selloff at the start of the year left crude prices hovering around $30 per barrel, below break-even levels for most drillers, fuelling expectations that many may seek protection from creditors this year.


    "That means they will have an opportunity to renegotiate or cancel many of the long term contracts they've signed with midstream players," said John Castellano, of Chicago-based AlixPartners. "I think that is the next shoe to drop."

    The Alerian MLP Index, which includes 50 MLPs, more than doubled in value between the start of 2013 and September 2014 when shale oil production growth was peaking. It fell by more than a third in 2015, compared with a drop of just under 3 percent for the S&P index. (Graphic: tmsnrt.rs/1TGzIPG)

    Mutual and exchange traded funds' investment in MLPs fell to $3.4 billion last year from 16.1 billion in 2014, the lowest since 2010, according to Morningstar. (Graphic:tmsnrt.rs/1Pg380K)

    Described as the energy highway's toll takers, pipeline and storage companies get paid by shippers who move crude oil and refined products through their networks that include more than 12,000 miles (19,312 km)of new oil pipelines built since 2010.

    Many of them revived the three-decade old tax-beneficial MLP structure during the shale boom to exploit the surge in U.S. oil production. The current MLP legislation was signed into law in 1986 by Ronald Reagan as way to spur investment in energy infrastructure.

    TAX BENEFITS AND DISTRIBUTIONS

    MLPs do not pay corporate taxes and must pay out most of their profits to investors in dividend-style distributions, which until recently were growing as much as 8 percent a year. Yield-seeking investors often treat MLPs like fixed-income instruments, such as bonds, and many flee if a company is considering cutting or suspending its distribution.

    That was not a problem when U.S. oil output was rising: companies kept raising billions of dollars selling new shares to build fee-generating pipelines or terminals that kept distributions rising.

    When the oil rout began in mid-2014 and a slowdown in production followed, it called into question that model of brisk investment growth and rising payouts.

    "There's been a rapid build out of capacity and it kind of overshot the production growth," Plains All American CEO Greg Armstrong told investors in December.

    The latest leg down in the 19-month crude slide is also casting doubt over the perceived safety offered by so-called minimum volume commitments, where customers pay pipeline operators whether they move any oil or not.

    Such contracts may not amount to much if producers end up in a bankruptcy court fighting for their survival, says Ed Hirs, an energy economist at the University of Houston and advises investors to pay attention to what MLPs are funding.

    "If you were the last one to build a pipeline in the Bakken or the last guy to build a processing area in the Eagle Ford, it could be painful," Hirs says. "If your producer goes bankrupt, then the court can reject the contract."

    SURVIVAL SKILLS

    Since the sell-off made it harder for the pipeline operators to raise money by issuing new shares and the downturn made viable new projects scarce, many MLPs will have to sell assets, and cut investor payouts, analysts say. Some may even abandon the tax-friendly MLP structure to reduce the investor pressure to grow payouts, while others will not survive, they say.

    "History tells us that not everyone will make it through this cycle, at least not in their current form," Jim Teauge, CEO of Enterprise Partners, said on a Jan. 28 earnings call.

    Plains All American recently turned to private equity firms rather than the stock market to raise $1.5 billion in financing for capital projects already underway and to maintain its 70 cents per share distribution.

    Energy Transfer Partners $40 billion deal to buy William Cos is at risk after their stocks have taken a nosedive, falling by roughly 60 percent before recovering a bit.

    One strategy that most MLPs have adopted to maintain investor payouts is to slash capital spending. Williams Cos cut its 2016 spending plan by $1 billion, or nearly a third, while Kinder Morgan, which abandoned the MLP model in 2014 but remains a top pipeline operator, slashed its long term spending plans by $3.1 billion, including a $900 million cut this year.

    Brian Kessens, who helps manage a $13.2 billion MLP fund at Tortoise Capital Advisors, said reduced spending will slow the growth of investor payouts to 4-6 percent from 6 to 8 percent during the upswing.

    The sell-off, however, may have already pushed valuations low enough to attract private equity firms, according to Jay Hatfield, portfolio manager of New York-based InfraCap.

    "It's already happening," he says, noting a recent $350 million acquisition of TransMontaigne GP by private equity firm Arclight Capital. "They look at these trophy pipeline assets like they would look at real estate in New York City - a long term asset that delivers discounted cash flow."

    http://www.reuters.com/article/usa-energy-mlps-idUSL2N15J3LV

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    US Sen. Markey faults feds on natural gas export decision


    U.S. Sen. Edward Markey says a decision by the federal Department of Energy to allow the export of nearly a billion cubic feet a day of natural gas out of New England is misguided.

    The Massachusetts Democrat says the decision announced Friday will allow gas to be exported to Canada through the Maritimes and Northeast Pipeline where it will be exported overseas. The pipeline currently flows from Canada into New England.

    Markey says the ultimate goal of some natural gas pipeline proposals in New England is not to help local residents with expanded infrastructure but to use New England as a throughway to export U.S. natural gas to Canada and overseas markets.

    Markey has cited those export concerns as part of his opposition to the proposed Kinder Morgan gas pipeline.

    http://fuelfix.com/blog/2016/02/06/us-sen-markey-faults-feds-on-natural-gas-export-decision/
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    Uranium

    Uranium producer Cameco reports quarterly loss


    Canadian uranium producer Cameco Corp reported a quarterly loss, hurt by a higher impairment charge and weakness in the Canadian dollar and forecast a fall in uranium sales for 2016.

    The company expects 2016 uranium sales to fall up to 5 percent compared with 2015.

    "We are still waiting on a market recovery that was expected to come sooner," Chief Executive Tim Gitzel said in a statement.

    Cameco's uranium sales rose to 11.2 million pounds in the fourth quarter compared with 10.7 million pounds a year earlier. Average realized prices fell 8 percent to $46.36 per pound.

    The company reported a net loss of C$10 million ($7.19 million), or 3 Canadian cents per share, attributable to shareholders for the fourth quarter ended Dec. 31. Cameco had a profit of C$73 million, or 18 Canadian cents per share, in the year-earlier quarter.

    The company took an impairment charge of $210 million related to the Rabbit Lake operation in the fourth quarter compared with $131 million a year earlier.

    Excluding items, the company earned 38 Canadian cents per share.

    Revenue rose 9.7 percent to C$975 million.

    http://www.reuters.com/article/us-cameco-results-idUSKCN0VE2PJ

    Canada’s top uranium producer has a significant new discovery nearby to one of its largest existing mines.

    Cameco Corporation revealed in its quarterly MDA filing on SEDAR Friday initial figures for the Fox Lake deposit at the Read Lake project in Saskatchewan’s Athabasca Basin, which has seen continuous drilling since 2008.

    “… first time reporting for the Fox Lake deposit, on the Read Lake property near McArthur River, adding 53 million pounds U3O8 to inferred resources …”

    Cameco’s interest in the project is 78%, meaning Fox Lake is roughly 68 million pounds U3O8 overall. This is based on about 387,000 tonnes at 8% U3O8.

    http://www.mining.com/web/camecos-new-uranium-discovery-revealed/

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    Agriculture

    Bayer rejects EPA request to pull insecticide from U.S. market


    The agricultural unit of German chemicals company Bayer AG said on Friday it will fight a U.S. Environmental Protection Agency (EPA) request to pull one of its insecticides from the marketplace amid concerns that it could harm organisms in streams and ponds.

    Bayer CropScience will instead ask for an administrative law hearing from the EPA's Office of General Counsel to review the registration of flubendiamide, the active ingredient in Bayer's Belt pesticide.

    The registration, granted in 2008, was a limited-time conditional registration that could be canceled if additional studies found the chemical to be damaging, the EPA said in a statement.

    "EPA concluded that continued use of the product will result in unreasonable adverse effects on the environment," the agency said.

    Flubendiamide products are used to control yield-damaging moths and worms in more than 200 crops including almonds, oranges and soybeans.

    Bayer's own tests have found that the pesticide is toxic in high doses to invertebrates in river and pond sediment. The organisms can be an important food source for fish.

    However, the company's field studies showed that doses in waters near agricultural fields never reached high enough levels to be toxic.

    But the EPA's risk assessment disagreed so the agency sent Bayer the request on Jan. 29.

    "We are disappointed the EPA places so much trust on computer modeling and predictive capabilities when real-world monitoring shows no evidence of concern after seven years of safe use," said Peter Coody, Bayer vice president of environmental safety.

    The EPA said after Bayer's refusal that it will issue a formal request to cancel the pesticide's registration. After a comment period mandated by U.S. pesticide regulation law, Bayer will ask for a formal hearing to determine the pesticide's fate.

    Belt will remain on the market throughout the process.

    Bayer reported 471 million euros ($527.5 million) in insecticide sales globally in its most recent quarter. The company declined to provide sales details of Belt.

    The EPA's move follows the agency's unsuccessful attempt to withdraw its registration for Dow Chemical Co's Enlist Duo weed killer.

    http://www.reuters.com/article/us-bayer-cropscience-epa-idUSKCN0VE1M4

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    Base Metals

    UK scientists develop new method to find copper deposits


    English researchers at the University of Exeter have developed a new, inexpensive method to uncover copper deposits.

    Dr Ben Williamson, of the university’s Camborne School of Mines, and Dr Richard Herrington from the London Natural History Museum, worked together to develop the new technique, which they say could become a very cost-effective way of discovering porphyry-type copper deposits.

    These kinds of deposits provide around 75% of the world’s copper and a significant amount of molybdenum and gold. Porphyry-type copper deposits, which originally form at several kilometres depth below the Earth’s surface, above large magma chambers, are relatively rare, particularly the largest ones, which make sense to mine. In addition, most near-surface deposits have already been discovered.

    The project, funded by Anglo American, compared the chemical compositions of minerals from magmatic rocks that host porphyry deposits against those which are barren.

    That is why any new method to locate deeper deposits is of great interest to the mining industry.

    The project, funded by Anglo American (LON:AAL), compared the chemical compositions of minerals from magmatic rocks that host porphyry deposits against those which are barren.

    A case study was then undertaken of a major new porphyry discovery in Chile, to test their theory.

    The trial unveiled that the magma chamber below the porphyry undergoes discrete injections of water-rich melts or watery fluids, which improve its ability to transfer copper and other metals upwards to form a copper deposit.

    “This new method will add to the range of tools available to exploration companies to discover new porphyry copper deposits,” Williamson said. “Our findings also provide important insights into why some magmas are more likely to produce porphyry copper deposits than others.”

    http://www.mining.com/uk-scientists-develop-new-method-to-find-copper-deposits/?utm_source=twitterfeed&utm_medium=twitter
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    Nyrstar to wind down zinc marketing agreement with Noble


    Belgian zinc producer Nyrstar NV plans to wind down a marketing agreement with Noble Group at the end of the year and has agreed instead to provide zinc on a pre-paid basis to Trafigura, its main shareholder.

    Under the supply deal, Europe's largest zinc smelter will ship physical zinc to Trafigura over three years, in return for a prepayment of $150 million, Nyrstar Chief Executive Bill Scotting said in an interview with Bloomberg.

    A spokesman for Nyrstar confirmed the Bloomberg story.

    A spokeswoman for Trafigura also confirmed the $150 million prepayment, but declined to comment on whether the it would tender for Nyrstar's European marketing rights when the current contract, held by embattled Hong Kong based trading house Noble, expires at the end of the year.

    Since Trafigura built up its stake in Nyrstar to about 20 percent the Belgian firm has replaced its chief executive and chief financial officer and shifted its strategy away from its loss-making mining business.

    A spokesman for Noble said the company does not comment on trading arrangements. Nyrstar had appointed Deutsche Bank to arrange a 150-200 million euros pre-payment for a physical delivery of zinc in November.

    Noble won a hotly contested tender for the marketing contract with Nyrstar in 2013 to the smelter at the height of its push into metals and ahead of an expected shortfall in zinc supply.

    But instead the zinc market softened as China's economy slowed and demand for metals slumped at the same time Noble shares declined amid scrutiny of its accounting practices.

    Trafigura raised its stake in Nyrstar during this period, while Noble scaled back its metals business.

    "Now, Noble doesn't have the manpower and it doesn't have the financing capabilities to take that business on. It's also no longer strategic for them," said a person with knowledge of the Noble contract.

    Nyrstar said on Friday it would raise 274 million euros ($306.6 million), more than half of its current market capitalisation, in new shares to beef up its balance sheet. Shares tumbled 9 percent.

    Trafigura had said in November it would subscribe in any rights offering for up to a maximum of 125 million euros.

    Nyrstar this week posted an increase in 2015 core profit, boosted by a stronger dollar and an improved performance in its metal processing unit as it announced a formal sale process for its mining assets.

    It said it expected to produce 1 to 1.1 million tonnes of zinc in 2016, compared with 1.115 million tonnes in 2015.

    Reuters reported in October 2014 that Trafigura was considering lifting its stake in Nyrstar to tighten its grip on zinc supply.

    http://www.reuters.com/article/nyrstar-zinc-marketing-idUSL3N15K2L9
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    Nickel drops to lowest since ’03


    Nickel fell to the lowest level in almost 13 years on concern that global production cuts are insufficient to counter faltering demand in China, the world’s biggest consumer. Copper and zinc declined.

    The metal used in stainless steel dropped as much as 3.2% to $7 900 a metric ton on the London Metal Exchange before trading at $8 125 by 2:54pm in Singapore. Copper lost 0.4% after a 1.2% drop on Friday. Markets in China are closed this week for the Lunar New Year holiday.

    China consumes more than 50% of the world’s nickel and the country is growing at the slowest pace in a generation as the government steers the economy away from heavy industry. The nation’s stainless steel production fell 7.2% to 1.49 million tons in December from a month earlier, data from Antaike Information Development Company show.

    Morgan Stanley and Standard Chartered have said large amounts of production are losing money, and Russia’s GMK Norilsk Nickel says global output needs to be reduced by as much as 30% to ease the surplus.

    “The fundamentals for nickel are still poor, with abundant supply coinciding with a continued weak demand outlook,” Gavin Wendt, founding director at MineLife in Sydney, said by e-mail.

    While the LME index of six metals has declined 1% this year, nickel has lost 7.9% and is the worst performer. The gauge had the biggest daily decline in almost four weeks on Friday as the dollar surged after US employment data showed a tightening labour market, which signalled increased chances of an interest rate rise.

    http://www.mineweb.com/news/industrial-metals-and-minerals/nickel-drops-to-lowest-since-03/
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    Noranda Aluminum files for bankruptcy


    Noranda Aluminum Holding Corp, a producer of primary aluminium and rolled aluminium coils, filed for Chapter 11 bankruptcy protection on Monday and said it will evaluate its various business operations.

    The Franklin, Tennessee-based company said challenging market conditions for the aluminium industry and recent disruptions in its primary business operations led to the decision.

    Noranda listed both assets and liabilities in the range of $1 billion to $10 billion.

    The company and its subsidiaries also entered into an agreement in principle with its existing asset-based loan lenders for up to $130 million in debtor-in-possession (DIP)financing, wherein the company will remain in possession of property upon which creditors have an interest.

    Noranda said it has already received a commitment for up to $35 million in DIP financing.

    The company said it will use its cash from operations and the new financing to support business during the court-supervised process, if the plans are approved.

    Noranda will curtail production at its 253,000 tonne-per-year New Madrid, Missouri smelter if it cannot secure a more favourable price for electrical power, the company said last month.

    http://www.reuters.com/article/norandaaluminum-bankruptcy-idUSL3N15N1Z2
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    Steel, Iron Ore and Coal

    China aims to cut 1bln T coal capacity in 3-5 years


    China seeks to eliminate some 1 billion tonnes of coal production capacity in three to five years, with half of the cuts through mine closures and the other half through company consolidations, the State Council said in a statement on February 5.

    That accounts for 17% of the country’s total coal capacity as part of government efforts to cut industrial overcapacity and use cleaner energy sources amid sliding demand for the fuel.

    The country also plans to ramp up financial support for some coal companies and encourage mergers, according to the statement.

    By end-2015, China had a combined coal capacity of 5.7 billion tonnes per year, with 3.9 billion tonnes is in operation and the remaining under construction, showed data from the China National Coal Association.

    By end-2015, there were 10,800 mines across the country, of which 7,000 mines at capacity below 0.3 million tonnes each, while combined taking 10% the national total. The vast number of mines and low degree of industry concentration will be a key problem in eliminating coal overcapacity.

    From 2011 to 2015 -- the 12th Five-Year Plan period -- China closed 7,250 outdated mines with combined capacity at 560 million tonnes.

    The document does set some aggressive targets, which highlights the determination of the central government to ease oversupply, said experts. There will still be some tug-of-war between the central and local governments on when and how those targets can be achieved.

    Coal demand has slid as China's economy slows and the government seeks to curb pollution in the world's biggest producer of carbon emissions. China will also suspend approvals of new coal mines for the next three years, according to the statement from the State Council, the country's highest administrative body.

    Shares of Chinese coal mining companies such as China Shenhua Energy surged last month after Premier Li Keqiang urged support for the industry and said production should be cut and costs reduced. The government plans to set up a fund to help coal miners and steelmakers cut workers and dispose of bad assets, Li said during a meeting in Shanxi on January 7.

    The Ministry of Finance issued a statement on January 22 to levy special funds for industrial enterprises’ structural adjustment, mainly for laid-off workers resettlement amid capacity cut in steel and coal sectors.

    The funds will be collected on the output of electricity nationwide, either coal-fired or renewables sold to the grids or self uses. That was estimated at 46.75 billion yuan ($7.13 billion) a year, based on the 2015 power output of 5,618.4 TWh.

    The levy of special funds took effect from January 1 this year, while deadline unspecified in the statement, spurring speculations that it will be set over the long term.

    If collection of the special funds lasts two or three years, it corresponds exactly with the government’s aim to pour 100 billion yuan to push ahead with overcapacity elimination set at the central economic work conference earlier.

    The nation's coal imports fell the most on record to the lowest in four years last year amid weak domestic demand, down to 204.06 million tonnes, including lignite, thermal and metallurgical coal, falling 29.9% from a year ago, showed customs data.

    Similar scheme for the country's steel industry was unveiled by the State Council, in which China said it will close between 100 million and 150 million tonnes of annual crude steel capacity by 2020, amounting to 13% of the national capacity at most.

    http://en.sxcoal.com/0/140612/DataShow.html

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    China Shenhua estimates 0.0312 yuan/kWh drop in coal-fired power tariffs


    China Shenhua Energy Co., Ltd., the country’s top listed coal producer and a major power generator, estimated the tariffs on power output dispatched by its coal-fired power generating units will be lowered by an average of approximately 0.0312 yuan/kWh ($0.0048/KWh), tax inclusive.

    That represents a downward adjustment to the average tariff on power output dispatched by China Shenhua over January-September 2015 by approximately 8%, which will corresponding reduce the operating revenues and gross profits of the company for 2016, showed a company statement on February 3.

    The estimation, followed the government’s tariff cut of 0.03 yuan/kWh for coal-fired electricity sold to the grid since January 1, was made with reference to the structure of actual power sales of the company in 2015, Shenhua said, noting it is for investors’ reference only.

    With the intensive reform of the mechanisms for the power industry, there may be relatively considerable differences in the structure of actual power sales volume of the company this year compared to that in 2015, according to the statement.

    Based on preliminary statistics, as of 31 December 2015, the company’s capacity of coal-fired power generating units that have passed the acceptance checks and in conformity with the requirements on the ultra-low emission limits was 13.7 GW, while the capacity of coal-fired power generating units with ultra-low emission that were in operation but were undergoing the process of acceptance checks was 6.61 GW.

    The company is planning for further refurbishment and establishment of new coal-fired power generating units with ultra-low emission on an ongoing basis in 2016.

    On 1 January 2016, China made downward adjustments to on-grid tariffs for coal-fired power generation by an average of approximately 0.03/KWh (tax inclusive) nationwide, according to a notice issued by the National Development and Reform Commission.

    The notice stipulates that in order to promote “ultra-low emission” refurbishment at coal-fired power plants, China will implement tariff support for the coal-fired power generating units which have passed the acceptance checks and are in conformity with the requirements on ultra-low emission limits.

    For the existing generating units which have been in grid connection prior to 1 January 2016, the tariffs shall be increased by 0.01/KWh (tax inclusive) under unified purchase of output dispatch. Whilst for the newly-established generating units which have been in grid connection after 1 January 2016, the tariffs shall be increased by 0.005/KWh (tax inclusive) under unified purchase of output dispatch.

    http://en.sxcoal.com/0/140610/DataShow.html

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    EU trade chief urges China to cut steel overcapacity


    The European Union's top trade official has urged China to take measures to curb overcapacity of its steel industry and warned it that it will open three new anti-dumping investigations this month on steel imports from China.

    European Commissioner for Trade Cecilia Malmstrom wrote a letter to China's minister of commerce, Gao Hucheng, saying she welcomed Chinese plans to cut steel production, but adding they would need to be translated into concrete action.

    The call comes as the European Union begins a debate into whether to relax tradedefences against China as Beijing demands, with a recommendation from the Commission set to come around July after public consultations.

    Malmstrom said she was concerned about a surge of Chinese exports last year of some 50 percent and resultant price declines of certain products by up to a half. Thousands of EU jobs had gone and tens of thousands more were threatened.

    "In the wake of a worrying trend, I urge you to take all appropriate measures to curb the steel overcapacity and other causes aggravating the situation," she said in the letter seen by Reuters and dated Jan. 29.

    She also said that the Commission was set to open three investigations in February into Chinese steel dumping, selling at excessively cheap or below cost price. EU steel prices have hit a 12-year low.

    ArcelorMittal, the world's largest steelmaker said that 2015 had been a very difficult year for the steel and mining industries despite strong demand in its core markets as excess capacity in China depressed prices.

    Britain's largest steelmaker Tata Steel Ltd said last month it would cut 1,050 UK jobs, adding to some 4,000 British steel jobs lost in October alone.

    China, which makes half the world's steel, exported a record 112 million tonnes last year, equivalent to total North American output, upsetting trade partners who argue it is dumping on world markets.

    The European Union has in place 35 trade defence measures on steel product imports, 15 concerning China directly, along with six ongoing investigations, three involving China. New complaints have increased.

    It has also instituted registration of Chinese steel imports, meaning that any measures can be backdated and so offering quicker relief to EU industry.

    http://www.reuters.com/article/eu-china-steel-idUSL8N15K1NO

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    India sets minimum import price for some steel products


    India on Friday imposed a minimum price on the import of some steel products to stem the tide of cheaper overseas purchases and bolster its distressed domestic steel sector.

    The duties on various steel products range between $341 per tonne and $752 a tonne, the government said in a statement.

    Rising imports, especially from China, have been a concern for India. Overseas steel purchases shot up by 22.8 percent in December 2015 over the previous month.

    China produces nearly half the world's 1.6 billion tonnes of steel, and exported more than 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union's largest producer, Germany.

    The floor price on steel imports will be valid for six months.

    http://www.reuters.com/article/india-steel-idUSD8N13502Q

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