Moody's has placed 175 oil, gas and mining companies on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed for some time.

Warning of possible downgrades for 120 energy companies, the rating agency said there was a "substantial risk" of a slow recovery in oil that would compound the stress on firms already pummelled by a 75 percent drop in prices since June 2014.

It said it was likely to conclude the review by the end of the first quarter which could include multiple-notch downgrades for some companies, particularly in North America.

Moody's also cut its oil price forecasts. In 2016, it now expects the global benchmark Brent crude and the West Texas Intermediate (WTI) crude, the North American benchmark, to average $33 a barrel. This marks a $10 a barrel cut for Brent from its previous forecast and a $7 a barrel reduction for WTI.

Both contracts are expected to rise by $5 a barrel on average in 2017 and in 2018.

The sweeping global review includes all major regions and ranges from the world's top international oil and gas companies such as Royal Dutch Shell and France's Total to 69 U.S. exploration and production (E&P) and services firms.

It nevertheless does not include the two top U.S. oil companies ExxonMobil and Chevron.

"We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further," Moody's said.

"Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows," it said.

Oil, gas and mining companies have been forced to cut thousands of jobs, scrap new projects and slash spending.

Rival credit rating agency Standard & Poor's signalled in an interview on Friday that oil-exporting countries also face fresh downgrades and that it could repeat last year's move when it made a big group of cuts all at once.

Multi-notch downgrades are particularly likely among issuers whose activities are centred in North America, where natural gas prices have declined dramatically along with oil prices, Moody's said.

Moody's also placed 55 mining companies on review for downgrade as they battle a slump in commodity prices due to oversupply and slowing growth in China.

"Moody's believes that this downturn will mark an unprecedented shift for the mining industry. Whereas previous downturns have been cyclical, the effect of slowing growth in China indicates a fundamental change that will heighten credit risk for mining companies."

http://www.reuters.com/article/energy-ratings-idUSL3N1563J7

Bernanke: Don't Worry, China's $28 Trillion Debt is an "Internal Problem"

The blue ribbon award for ridiculous comment of the day goes to Ben Bernanke who dismissed China's $28 trillion debt pile as an "internal problem" only.

This revelation came from the Asian Financial Forum held in Hong Kong where Bernanke Downplayed China Impact on World Economy.
"I don't think China's economic slowdown is that severe to threaten the global economy," said Bernanke at the Asian Financial Forum held in Hong Kong.

Bernanke argued that the global economy was more troubled by a global savings glut, which had long been a drag on investments.

Bernanke also said the $28 trillion debt pile facing China was an "internal" problem, given the majority of the borrowings was issued in local currency. According to consultancy McKinsey & Co., government, corporate, and household debt in China had already hit 282% of the country's gross domestic product as of mid-2014.

Bernanke said the correlation between different markets is higher than that between markets and the economy. He pointed out that worldwide market selloffs in times of distress was natural due to global asset allocations. "The U.S. and China are not as closely tied as the market thinks," Bernanke said.

Contrary to Bernanke's views on the global impact of a Chinese slowdown, the IMF said in its latest World Economic Outlook Update released on Tuesday that "a sharper-than expected slowdown in China" was a significant risk that would bring "international spillovers through trade, commodity prices, and waning confidence."
Savings Glut Question

Actually, I have to ask: Which is more ridiculous: Dismissing $28 trillion debt as an "internal problem" or proposing $28 trillion debt is indicative of a "savings glut"?

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.co.uk/2016/01/bernanke-dont-worry-chinas-28-trillion.html?m=1

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Japan's 2015 oil imports fell to the lowest since 1988, reflecting the country's declining population and low economic growth while at the same time its natural gas imports fell for the first time since the Fukushima nuclear disaster.

Yet in the same year that the world agreed to combat climate change, Japan's utilities continued to increase the use of the cheapest but dirtiest fossil fuel, ramping up coal imports to a record.

Continuing a steady decline since the mid-1990s, Japan's crude oil imports last year fell 2.3 percent to 3.37 million barrels per day (195.499 million kilolitres), official figures released on Monday showed.

Similarly, Japan's power generation fell for a fifth straight year in 2015 to 866.26 billion kilowatt hours, the lowest since at least 1998.

The declines reflect deep changes in Japanese society since an asset bubble burst in the 1990s and its population declines and people change the way they consume energy.

Young Japanese drive less than their parents, and many new cars are electric-gasoline hybrids, cutting oil demand.

"The fall in consumption in Japan is mainly down to slower economic growth," said Jeremy Wilcox, managing director of consultancy Energy Partnership.

"At the same time, increased focus on energy efficiency is really starting to constrain imports," he added.

"Japan's energy market is entering a new phase.... Utilities are having to become more cost competitive. Running old steam turbine gas and oil units no longer makes sense," said Michael Jones, senior analyst at energy consultancy Wood Mackenzie.

Japan's changing energy profile has hit LNG the hardest, of which it is the world's biggest consumer, using it mainly for power generation and heating.

LNG imports fell 3.9 percent to 85.046 million tonnes in 2015 from a record 88.51 million tonnes the year before, marking the first drop in six years and the lowest since 2011.

LNG usage should fall further as overall energy demand declines and the country reopens nuclear reactors.

This will put further pressure on LNG prices that have already tumbled by two-thirds to under $6 per million British thermal units since 2014 LNG-AS as supplies soar from newexports from Australia and the United States.

"LNG demand is getting hit from all sides," Jones said. "Power demand is weak, solar capacity is increasing at breakneck speeds, nuclear capacity is returning, and coal-fired generation is rising."

As a result, LNG imports are expected to fall to a five-year low of 79.6 million tonnes in the year starting in April, according to the government-associated Institute of Energy Economics Japan.

Japan's LNG imports surged following the meltdowns at the Fukushima Daiichi nuclear plant in 2011 and the ensuing shutdown of all reactors, pushing utilities to the brink of financial ruin as gas prices surged.

To save cash, Japan's utilities are increasingly switching to cheap coal.

In 2000, Japan's coal demand was only slightly bigger than LNG consumption, around 60 million tonnes a year versus some 55 million tonnes for LNG, but gas use has now stalled while coal imports have nearly doubled since then.

Thermal coal imports rose 4.8 percent to a record 114.145 million tonnes in 2015, the same year as the world reached a climate deal to combat global warming caused in large part by coal burning.

"The rise in coal imports comes down to economics," said Energy Partnership's Wilcox.

"The figures are consistent with the government's 2030 basic energy plan which aims to reduce LNG usage and maintain coal," said Tom O'Sullivan of energy consultancy Mathyos Japan.

http://www.reuters.com/article/japan-energy-demand-idUSL3N15900U

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