Mark Latham Commodity Equity Intelligence Service

Monday 20th June 2016
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    Lawmakers demand new operator for UK power network

    British lawmakers called on Friday for an independent operator to take over National Grid's role running the country's energy transmission network, as more renewable power is being generated at a local level.

    National Grid owns and operates Britain's main gas network and the high-voltage electricity transmission network in England and Wales, managing flows of power onto and around the grids.

    It also owns interconnectors, which import power from continental Europe, and the UK's electricity infrastructure.

    Different companies own regional distribution networks which carry electricity at lower voltages from the main grid via powerlines, cables and substations to homes and businesses.

    There are similar regional distribution networks for gas, carrying it at ever lower pressure until it reaches customers.

    British lawmakers on parliament's Energy and Climate Change committee said in a report the system needed to be changed so regional distributors could control power flows on their networks better, as more renewable power is generated locally.

    Most of Britain's solar power is connected to local distribution networks and cannot be seen at the overall level, the report said. Instead, it is measured only as a reduction in the demand for power rather than as an input.

    The report said smart grid technology would enable distribution network operators to move from a passive role to being responsible for balancing energy flows, effectively becoming system operators at a local level.

    The committee said National Grid has conflicts of interest because it owns assets which bring in power, but also operates the system which buys the power from those assets.

    "National Grid's technical expertise in operating the national energy system must be weighed against its potential conflicts of interest," said Agnus Brendan McNeil, chairman of the committee, which called for the creation of an Independent System Operator (ISO).

    In the United States, an ISO coordinates, controls and monitors the operation of an electrical power system in one state or sometimes several states. Regional transmission organisations do the same, but cover a larger geography.

    National Grid shares were 0.9 percent lower at 953.1 pence at 0814 GMT.

    A National Grid spokeswoman said there was little evidence that the ISO model would provide any benefits which would justify the cost to households, potential disruption and the risks to security of supply.

    "We are currently working with the Government and with regulators to ensure we continue to manage potential conflicts as our role develops," she added.

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    China orders 255 Shanghai industrial facilities to shut for G20

    China ordered at least 255 Shanghai-based industrial facilities, including part of a major oil refinery operated by Sinopec Corp, to shut for 14 days to reduce pollution ahead of the G20 summit, according to an official document reviewed by Reuters.

    The document, issued by the Shanghai Environment Protection Bureau, has ordered a wide range of companies from power and petrochemical plants to logistics firms to shut down between Aug. 24 and Sept. 6 for the upcoming G20 meet in Hangzhou.

    Authorities in neighboring Zhejiang and Jiangsu province are set to issue similar orders to limit air pollution and safety hazards within a 300 km radius from Hangzhou, according to industry and government officials.

    China has previously shut down factories and limited the operation of heavy equipment ahead of high-profile diplomatic and sporting events - such as meetings of the Asia-Pacific Economic Cooperation and the Beijing Summer Olympics of 2008 - to cut the choking smog that afflicts many of its cities.

    "Longer-term China needs to work out a market-based approach to tackle pollution rather than an ad-hoc order. Apart from social responsibilities, business has its profit and loss to take care," said Jing Chunmei, a researcher with China Center for International Economic Exchanges.

    The G20 summit, hosted in the first week of September, has become China's biggest diplomatic event of the year and is expected to gather together world leaders like Chinese President Xi Jinping and U.S. President Barack Obama.

    Shanghai Petrochemical Corp, a subsidiary refinery of state refiner Sinopec Corp, will reduce its capacity by 50 percent, or about 120,000 barrels per day (bpd), for the G20 event during those two weeks, the document from the environment bureau said.

    Coal-fired power plants in the area that do not meet emissions standards will be fully closed over the two weeks, it also said, and the usage of heavy machinery will be reduced by 30 percent across Shanghai.

    An official with Sinopec's Jinling Petrochemical Corp, another major refinery based in the city of Nanjing in neighboring Jiangsu province, said his firm was also asked by local authorities to "appropriately reduce throughput", but was not given any specific reduction size.

    The ruling came from local governments, rather than from Sinopec Corp, the official said.

    Shanghai Petrochemical, according to the environment bureau's document, will be closing a 120,000 bpd crude unit, a 3.9 million tonne-per-year (tpy) residue hydrocracking unit, a 3.5 million tpy catalytic cracking unit, and another dozen or so secondary refining facilities.


    Sinopec also operates in the vicinity the 440,000 bpd Zhenhai refinery, 270,000 bpd Shanghai Gaoqiao refinery and 250,000 bpd Yangzi Petrochemical Corp. A spokesman for Sinopec said the company was not immediately able to comment.

    The 255 factories based in Shanghai, about 200 km from Hangzhou, cover sectors like chemicals, building materials, pharmaceuticals and printing, according to the document.

    Operation of heavy machinery in the Jinshan district will be cut in half during the summit period, and sailings of dry bulk ships below 200 tonnes, oil tankers above 600 tonnes and all chemical tankers will be suspended.

    The government is offering no subsidies for the shutdowns, according to four plants contacted by Reuters.

    "We will try to reschedule plant maintenance to that two weeks to minimize the production loss," said Shi Yan, a manager at Budenheim Fine Chemicals (Shanghai) Co. Ltd.

    Other areas, including the port city Ningbo, have also issued lists of factory shutdowns ahead of the G20 summit in addition to the closures set for Shanghai, according to an official at the Ningbo Environmental Bureau.
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    ANC may lose control of capital in vote, poll shows

    The ruling African National Congress may lose control of three of South Africa’s main cities including the capital, Pretoria, and the key economic hub, Johannesburg, in the August 3 municipal elections, according to a poll released on Thursday.

    In Johannesburg, 31% of respondents said they would vote for the ANC, 29% supported the Democratic Alliance and 10% backed the Economic Freedom Fighters, the survey conducted June 6 and 7 by research company Ipsos for Johannesburg-based broadcaster eNCA found.

    The DA topped the rankings in the Tshwane municipality, which includes Pretoria, with 33% support, while the ANC polled 28% and the EFF 10%. In the southern Nelson Mandela Bay municipality, which incorporates the city of Port Elizabeth, the DA had 34% backing, the ANC 30% and the EFF 7%.

    The Ipsos poll results suggest support for the ANC has slipped following a series of scandals implicating its leader, President Jacob Zuma, and amid rising discontent grows over a lack of jobs, decent housing and education. Both the DA and EFF have said they are prepared to enter into coalitions with other opposition parties but not the ANC.

    The ANC, which has ruled Africa’s most industrialised economy since the first multiracial elections in 1994, secured an outright majority in all three cities in the last municipal vote five years ago and won 62% support in the last national election in 2014.
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    Oil and Gas

    China grants independent refiner 4.04 mln T/yr preliminary oil import quota

    China has granted independent refiner Qingyuan Group Co Ltd a preliminary oil import quota of 4.04 million tonnes per year, the country's oil industry association said on Friday.

    The government has promised to open up the crude import business, which has long been dominated by state oil giants Sinopec and PetroChina.
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    Russian Crude Losing Out as Iranian Oil Returns to Europe

    Russian Crude Losing Out as Iranian Oil Returns to Europe

    The return of Iranian oil to the international market is hurting Russia’s main crude grade, forcing it to trade at the biggest discount in two years.

    The discount of Russia’s Urals grade in the Mediterranean to global benchmark Dated Brent widened to $2.40 a barrel, according to traders monitoring the Platts window. That’s the lowest since June 2014. Vitol offered the grade again on Friday at smaller discounts. It didn’t find a buyer.

    Urals crude, which is similar to Iran’s flagship blend, became the main beneficiary when the Persian nation was barred from selling oil in Europe in 2012 because of its nuclear program. Since those sanctions were lifted in January, the Russian grade has suffered, according to four traders familiar with the market.

    “Iranian exports have been impressive,” giving refiners in Europe a wider choice of supply, Abhishek Deshpande, an analyst at Natixis SA said by e-mail.

    Challenges unloading cargoes at the Italian port of Trieste -- a major hub for refineries in Eastern and central Europe -- are also contributing to pricing pressure, traders said. Unloading at a jetty there slowed, with just four vessels each with a capacity of 1 million barrels loading since the start of April, compared with an average of four vessels a month in the first quarter.

    Meanwhile, a series of strikes at French refineries last month reduced crude intake, according to DNB Markets.

    “This development for Urals is natural when Iran ramps up at the same time as there are strikes in several European refineries, hampering physical crude demand,” Torbjoern Kjus, chief oil analyst at DNB Markets, said by e-mail.

    Three oil refineries in France have yet to restart completely, according to Total SA, which operates five plants in the country.

    Iran has wasted no time in trying to regain market share, according to the International Energy Agency. Exports of crude last month reached 2.1 million barrels a day, almost pre-sanction levels, the agency said on June 14. Before sanctions were tightened four years ago, Iran shipped 2.2 million barrels abroad, it said.

    Flow of Iranian crude grades to countries in the European Union was 355,000 barrels a day in May, compared with 330,000 in April, according to tanker-tracking data compiled by Bloomberg.

    “Iran has moved swiftly to reclaim its European customers,” the IEA said.
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    Libyan unity government condemns attack near eastern oil terminals

    Fighting erupted south of the coastal town of Ajdabiya on Saturday between military units loyal to Libya's eastern government and a group calling itself the Benghazi Defence Forces. At least three people were killed and 10 wounded, military spokesman Akram Bu Haliqa said.

    The Benghazi Defence Forces is largely composed of fighters pushed back earlier this year by brigades loyal to the eastern government commander Khalifa Haftar. Haftar has been waging a campaign for two years in Benghazi against Islamists, including some loyal to Islamic State, and other opponents.

    The condemnation by the U.N.-backed Government of National Accord (GNA) is significant because some in the east suspect the GNA - whose leadership has itself been divided - of siding with Islamist-leaning militias.

    The fighting near Ajdabiya, close to three oil terminals and north of major oil fields, risks opening a new front in the conflict between forces that backed competing governments set up in Tripoli and the east in 2014.

    Since March, the GNA has been seeking to replace the rival parliaments and governments and integrate armed groups, including forces loyal to Haftar, into national security forces.

    But the eastern parliament has held back from endorsing the new government, accusing it of legitimizing militias in western Libya whilst undermining the eastern military.

    "The Presidential Council (of the GNA) strongly condemns this criminal act and holds the leaders and members of these militias fully responsible," said a statement published on the Presidential Council's Facebook page on Sunday.

    "These militias are attacking to assist the remnants of the Islamic State terrorist organization in Benghazi and Ajdabiya which have faded and had their strength sapped by the strikes by our brave military."

    Clashes erupted again early on Sunday, a resident said.

    Armed groups in Libya have remained highly fragmented in the political turmoil that followed the toppling of Muammar Gaddafi in 2011.

    Islamic State established a presence in several parts of the country from 2014, and has been active between Benghazi and the militants group's coastal stronghold of Sirte, about 380 km (240 miles) to the west.

    In recent weeks, however, the ultra-hardline group has retreated into the center of Sirte after GNA-aligned forces advanced from the western city of Misrata.

    The Petroleum Facilities Guard (PFG), a separate force that controls the oil terminals near Ajdabiya and is also aligned with the GNA, has pushed Islamic State back to the east of Sirte.

    A PFG spokesman said the fresh outbreak of fighting did not immediately threaten oil facilities, but the PFG was ready to protect them if necessary.
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    Sinopec serves $5.5 bln arbitration notice to Repsol

    Chinese energy conglomerate Sinopec has served an arbitration notice to Spain's Repsol demanding around $5.5 billion in compensation over a 2012 joint venture, Repsol said on Friday.

    Sinopec and subsidiary Addax Petroleum UK are seeking compensation for their initial investment and lost investment opportunities stemming from a North Sea oil and gas fields venture deal with a firm called Talisman which Repsol bought in 2014.

    The claim has no foundation and is deemed a remote risk by legal advisers, Repsol said.

    "The arbitration notice is unfounded and does not reflect the loyal attitude one would expect from a partner," it said in a statement.

    Repsol reported a loss last year and has slashed its dividend. It has announced a 40 percent cut in exploration and production investment and asset sales in a bid to protect its investment grade credit rating.

    Talisman has cut hundreds of jobs at loss-making joint venture Talisman Sinopec Energy UK due to falling production and rising operating costs.
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    BP Can Keep Reduced Spending Level for Another 3 Years, CEO Says

    BP Plc can keep spending at a reduced rate of about $17 billion for another three years without affecting growth, Chief Executive Officer Bob Dudley said.

    The explorer has enough projects at hand to be able to continue producing fuel, he said in a Bloomberg TV interview in St. Petersburg, Russia. “Being a low-cost producer is the name of the game,” Dudley said. “We’re getting very disciplined about capital.”

    While oil’s slump has forced companies to slash spending and defer new projects to protect their balance sheets, they still must ensure enough investment for future growth. The industry will cut more than $1 trillion of expenditure by the end of this decade, in part because of the declining cost of doing business, consultant Wood Mackenzie said this week.

    “Costs are coming down very fast,” Dudley said. “The industry has to get its cost structure right.”

    BP plans $17 billion of capital expenditure this year, down from about $27 billion a few years ago, Dudley said. The company is ready to cut spending to as little as $15 billion if the slump persists, it said in April. Dudley has signaled BP is driving down costs to ensure it can maintain payouts to shareholders.

    The key for the oil majors is to be able to pay dividends without having to borrow. BP said in April it will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel next year, down from a previous estimate of $60.

    Investors are looking for spending discipline in this downturn. Royal Dutch Shell Plc, Europe’s biggest oil company, this month announced deeper cuts and set an upper spending limit of $30 billion a year until 2020, even if oil prices rise. If crude remains at the current level of about $50 a barrel, Shell can go lower, cutting expenditure to below the bottom end of its range of $25 billion, it said.
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    BP and Rosneft create joint venture to develop prospective resources in East and West Siberia

    Rosneft and BP have today signed final binding agreements to create a new joint venture, Yermak Neftegaz LLC, to conduct exploration in the West Siberian and Yenisey-Khatanga basins in the Russian Federation. The document was signed at the XX St. Petersburg International Economic Forum (SPIEF) by Rosneft CEO Igor Sechin and President of BP Russia David Campbell.

    The joint venture will focus on onshore exploration of two Areas of Mutual Interest (AMIs) in the West Siberian and Yenisey-Khatanga basins covering a combined area of about 260,000 square kilometers. Yermak Neftegaz will be owned 51 per cent by Rosneft and 49 per cent by BP. In the initial stage, the joint venture will carry out further appraisal work on the 2009 Rosneft-discovered Baikalovskiy field inside the Yenisey-Khatanga AMI and on exploration of Zapadno-Yarudeiskoye, Kheiginskoye and Anomalnoye licenses in the West Siberian AMI.

    Exploration activities in the two AMIs will include regional research, acquisition of seismic data and drilling of exploration wells, with the beginning of field works anticipated in the winter season of 2016 / 2017. The preliminary agreement relating to this project was signed at SPIEF in 2015.

    Igor Sechin, Rosneft CEO, said after signing: 'These agreements serve as an example of full scale cooperation with BP, Rosneft's strategic partner and largest minority shareholder. After creation of the Taas-Yuryakh Neftegazodobycha LLC joint venture we are now broadening the geography of our cooperation and creating a precedent which allows us to pursue cooperation in partnership with leading international companies to implement upstream projects at the largest Rosneft greenfield sites in West and East Siberia.'

    David Campbell, President BP Russia, said: 'This agreement and creation of a new joint venture reinforces BP's commitment to our strategic investment in Russia and our long term partnership with Rosneft. In the current low oil price environment we continue to look for opportunities for future growth.'

    BP has committed to provide up to $300 million in two phases as its contribution to the cost of the JV's activities at the exploration stage. Rosneft will contribute licenses and operational experience in West Siberia and Yenisey-Khatanga with initial drilling to be performed by Rosneft subsidiaries.
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    Kogas posts lower sales in May

    South Korea’s Kogas, the world’s largest corporate buyer of LNG, reported a decline of 8.6 percent in its sales volume in May.

    Kogas sold 1.91 million tonnes of LNG in May, compared with 2.09 million tonnes a year ago, the company said in a filing to the stock exchange.

    Gas sales into the power sector reached 925,000mt, a decrease of 15.8 percent from the same month in 2015.

    City gas sales fell 0.6 percent on year, reaching 980,000mt of LNG, Kogas said.
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    Egypt targets 120 cargoes in 2017, grabs 11 for June

    The Egyptian Natural Gas Holding company (EGAS) could import up to 120 cargoes of liquefied natural gas in 2017.

    The state that turned from a net exporter to a net importer over the course of last year, due to increased domestic consumption and falling production, has secured 11 cargoes earlier in June, Reuters reports, citing trade sources.

    Out of the 11 cargoes, 10 will be delivered by the commodity trading house Trafigura with the remaining cargo to be delivered by PetroChina.

    Egypt has deployed two FSRUs in Ain Sokhna that serve as the country’s import terminals, and is looking to charter a third FSRU by the second quarter of next year to up its import capacity up to 2 billion cubic feet per day, the country’s oil minister Tarek El Molla recently said.

    The Höegh Gallant FSRU, provided by Höegh LNG, began operations in April last year, while the FSRU BW Singapore, provided by BW, has been in full operation since October 2015.

    In addition to around 1.1 billion cubic feet per day LNG imports currently, Egypt is looking to increase its domestic gas production by 2019 up to between 5.5 and 6 billion cubic feet per day. The Zohr gas field discovered by Eni could bring 4.6 billion cubic feet of gas online on its own by 2019.
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    Norway: Deal reached on offshore supply bases wages. Strike averted

    Norwegian oil and gas employers have reached a collective wages settlement with workers employed in offshore supply bases, thus avoiding a strike.

    To remind, the talks had broken down between the parties, and then went to national mediation. The mediation between the Norwegian Oil and Gas and the Norwegian Union of Industry and Energy Workers (Industry Energy) was conducted on Thursday 16 and Friday 17 June.

    According to Norwegian Oil and Gas the mediation on the land base settlement was successfully concluded two and a half hours past the deadline.

    “Although we would have preferred to secure acceptance for more of our demands for changes to the agreement, we’re pleased that a consensus could be achieved,” says Jan Hodneland, chief negotiator for the Norwegian Oil and Gas Association.

    Hodneland said that the framework for this settlement will protect the profitability and flexibility of the companies at a demanding time.

    No general pay rise will be given. Furthermore, minor adjustments will be made to the rates for minimum pay and subsistence allowances as well as to decentralised funds.

    Some of the demanding issues, such as shift allowances and travel provisions, will be discussed by the employers and the unions in a separate committee.

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    Wood Group buys assets of collapsed Aberdeen engineer

    Oil and gas services giant Wood Group has snapped up the trade and assets of a fellow Aberdeen firm that fell into administration last month.

    Wood said the deal for the fabrication business of Enterprise Engineering Services (EESL) would expand its range of capabilities as it seeks to drive down costs in the North Sea.

    Dave Stewart, chief executive of the group’s PSN arm, said: “Wood Group’s relentless focus is on enhancing value and driving cost efficiencies in the technical solutions we provide to our clients. The acquisition of EESL’s fabrication and manufacturing business broadens our repair order capabilities, enabling us to offer a fully integrated, end-to-end service that supports our clients in assuring the integrity of their assets.”

    He added: “We will leverage EESL’s more than 40 years of expertise providing manufacturing and fabrication solutions to the oil and gas sector, securing jobs for the company’s current Aberdeen fabrication workforce with a view to creating new employment opportunities as we deepen and broaden our fabrication capability in the future.”

    EESL called in administrators from KPMG last month, triggering about 100 job losses. The firm had been trading for 50 years and worked with a large number of oil and gas and utility clients, but suffered a fall in orders amid the sustained drop in crude oil prices.

    The remaining ten employees will be kept on at EESL’s 4,000 square foot Craigshaw Road fabrication facility in Aberdeen when they transfer over to Wood Group.

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    A Laggard in Brazil Oil Frenzy Is Now a Favorite in the Bust

    In the saga of Brazil’s oil industry, QGEP Participacoes SA has always flown mostly under investors’ radar. It’s no heavyweight like state-run Petrobras, nor has it ever been as flashy as OGX, ex-billionaire Eike Batista’s startup.

    But among producers that sold more than $77 billion in stock after Brazil discovered massive offshore crude deposits in 2007, QGEP now stands out: It has the best track record of meeting its output targets almost a decade later.

    That hasn’t stopped investors from dumping the stock along with its peers. QGEP is down more than 80 percent since its 2011 peak as oil prices collapsed, OGX filed for bankruptcy protection and Petrobras was ensnared in a crushing corruption probe. QGEP Chief Executive Officer Lincoln Guardado says it’s time for investors to take a second look. And analysts agree.

    “Brazil will return as a global hot spot,” said Guardado, a geologist and former Petrobras executive. And when it does, analysts from Grupo BTG Pactual to Itau BBA say QGEP will be investors’ best bet.

    The company is a favorite among local stock pickers, with nine out of 11 analysts recommending that clients add it to their portfolios. BTG analyst Antonio Junqueira said QGEP is the “only buy” in his coverage universe of Brazil oil and gas producers.

    ‘Balanced Risk Taking’

    “After so much frustration in recent years, Brazil’s energy sector seemed all but over,” said Marcos Peixoto, the head of XP Investimentos’s asset management unit who’s analyzing whether to buy the stock. “QGEP stands out because it’s more conservative than the other producers.”

    Guardado said the company’s strategy is best described not so much as conservative as “balanced risk taking.”

    “We distribute risk” by partnering with bigger players, Guardado said in an interview at the company’s offices, which occupy a few floors in a downtown Rio de Janeiro building that looks modest in comparison to OGX’s old art-deco headquarters several blocks away. “It’s not our practice to maintain 100 percent stakes anywhere.”

    Back in 2011, when QGEP sold shares in an initial public offering, that strategy hardly made it a darling among investors. The company eventually raised about $890 million after cutting its offering price by 34 percent below the top end of its target range.
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    U.S. oil drillers add rigs for third week in a row: Baker Hughes

    U.S. drillers this week added oil rigs for a third week in a row for the first time since August, according to a closely followed report on Friday, as producers seek more drilling permits after crude prices hit an 11-week high over $51 a barrel last week.

    Despite a decline in U.S. crude futures to one-month lows to under $47 this week, analysts and producers have said oil over $50 was a key level that would trigger a return to the well pad and drilling permits are a leading indicator of future drilling.

    Drillers added nine oil rigs in the week to June 17, bringing the total rig count up to 337, compared with 631 a year ago, energy services firm Baker Hughes Inc said.

    Before this week, drillers added rigs in only three out of 23 weeks this year, cutting on average nine oil rigs per week for a total of 208.

    That compares with cuts of 18 rigs per week on average in 2015 for a total decline of 963, the biggest annual decline since at least 1988 amid the biggest rout in crude prices in a generation.

    The rig count has declined since hitting a peak of 1,609 in October 2014. The slide came three months after U.S. crude futures began crumbling from a high of around $107 in July 2014 to reach a near 13-year low of about $26 in February this year.

    Since the February price low, U.S. crude futures have almost recouped half their losses. On Friday, they were trading at around $47, or 3 percent lower on the week, amid anxiety over Britain's possible exit from the European Union. [O/R]

    To figure out how many rigs U.S. producers will likely add, analysts said they look to drilling permits, which they forecast rising.

    In most states, producers drill a land well about two months after the state issues a permit because the firm has already incurred significant expenses to secure the acreage and conduct geologic surveys, among other things, analysts at U.S. investment banking advisory Evercore ISI said this week.

    "Land operators are restless after a year and a half of declining activity, and we expect the recent crude rally to bolster permit application totals heading into the warmer (and dryer) months," Evercore said, noting the Permian and Eagle Ford will likely be the first-move shale plays for producers looking to put rigs back to work in 2017.

    After falling to 1,807 permits in February, the lowest monthly level since at least 2006, Evercore forecast the number of land permits would rise to a year-to-date high around 2,119 in June from 2,033 in May.

    That put total annual land permits on track this year to fall below 2015's lows. Land permits peaked at 86,955 in 2008 and bottomed at 43,940 in 2015, according to Evercore data going back to 2006.

    Pioneer Natural Resources Co said this week it expects to boost its 2016 capital budget by about $100 million to $2.1 billion as a result of rig additions.
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    Speculators boost U.S. natural gas net longs for 3rd week -CFTC

    U.S. natural gas speculators boosted their net longs for a third consecutive week, betting prices will rise as production eases and power demand picks up to
    absorb some of the record high amount of fuel left in inventories after a warm winter.

    Speculators in four major NYMEX and ICE markets added to their bullish bets by 27,431 contracts to 81,821 in the week to June 14, the U.S. Commodity Futures Trading Commission said on Friday.

    Gas futures on the NYMEX averaged $2.57 per mmBtu during the five trading days ended June 14 versus $2.42 during the five trading days ended June 7.

    To avoid filling storage caverns to their maximum capacity after a warm winter left stockpiles at record highs, analysts said prices will likely remain low this year to pressure producers to cut output and encourage power generators to burn
    more gas instead of coal.

    Spot gas prices at the Henry Hub benchmark GT-HH-IDX have averaged $1.99 so far this year, while futures for the balance of 2016 were fetching $2.77. That compares with an average of $2.61 in 2015, the lowest since 1999.

    Analysts said, however, they expect gas prices in 2017 to rise enough to encourage drillers to boost output again to meet forecast growth in U.S. pipeline and liquefied natural gas exports and industrial demand.

    Gas futures for calendar 2017 were trading around $3.05.
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    Shell puts revamped shale arm at heart of growth drive

    Having turned round its North American shale business, Royal Dutch Shell is putting so-called unconventional energy at the heart of its growth plans, and believes lessons from the revamp can be applied across the company.

    Greg Guidry, head of the Anglo-Dutch group's unconventionals business, told Reuters a drive to slash costs and streamline decision-making had put his division largely on a par with leading rivals in terms of productivity and efficiency.

    And now the rest of Shell could reap the benefits too.

    "The executive committee charged us to be a catalyst for change within the broader Shell," Guidry said in an interview.

    He also said Shell planned to make small acquisitions near its existing North American shale areas, notably from producers struggling in the current industry downturn, and hoped to launch an early production well this year in Argentina's Vaca Muerta, considered the world's No.2 shale resource after North America.

    That's quite a change in fortunes.

    As recently as late last year, Shell Chief Executive Ben van Beurden was considering jettisoning the unconventionals business over concerns it would drag down group profitability after the group's $54 billion acquisition of BG Group in February.

    Shell and rivals including Chevron and Exxon Mobil were late to the shale revolution at the end of the last decade and struggled to match the success of smaller independent producers that increased U.S. output by around 4 million barrels per day between 2008 and 2015.

    Oil majors' often cautious pace in complex, high-risk projects was ill-suited to the nimble needs of shale, which requires drilling hundreds of wells and injecting water at high pressure to break the rock that holds oil and gas.

    So Shell moved to adapt.

    In recent years, it has shed half of its North American unconventional assets for around $4 billion to focus on four areas in the United States and Canada.

    It has cut its technical check-list for drilling shale wells from 20,000 requirements to less than 200 and given managers "end-to-end" control of the production process from well exploration through to well abandonment, Guidry said.

    The division's efficiency has risen by 50 percent over the past three years, production has grown by 35 percent and capital spending is down by 60 percent to around $2.0-$2.5 billion.


    Today, Shell makes a profit from shale oil production in "sweet spots" in the Permian or Duvernay in Canada with crude prices of $40 a barrel, Guidry said. After dipping below $30 in January, Brent crude is currently trading around $48.

    "In terms of execution, we are completely competitive and have aspirations to be leading," Guidry said, adding the business could now compete with leading shale producers such as Pioneer Natural Resources and EOG Resources, though costs still could be reduced.

    Advances in technology meant there was scope to increase oil recovery from shale rock from today's 7-9 percent by another 1-3 percent over the coming years, Guidry added.

    "That is billions of barrels. We absolutely can reach that," the 55-year-old American said.

    And unlike multi-billion deepwater projects, shale can be turned on "with the drop of a hat," Guidry said.

    At around 300,000 barrels per day, shale today represents around 8 percent of Shell's overall production. However, Shell holds shale reserves of around 12 billion barrels, roughly as much as its deepwater resources, Guidry said.


    The shale business got its reward earlier this month when Van Beurden identified it as a key growth priority for Shell in the next decade along with renewable energy.

    What's more, Shell engineers are now using the experience in the shale business to improve deepwater projects, which helped knock out $1.5 billion in costs for the development of the Stones field in the Gulf of Mexico.

    As oil producers scrap costly and complex projects such as deepwater fields and sharply reduce budgets in the face of the oil price downturn, they are turning again to onshore shale which offers quicker returns and lower investments.

    Some analysts, including at Bernstein, still argue Shell should divest the shale business to focus on core strengths such as deepwater and liquefied natural gas (LNG), which are generating larger profits.

    "Surely private equity would have offered some healthy cash proceeds for this business today," said Bernstein analyst Oswald Clint, who rates Shell shares "outperform".

    But analysts at U.S. investment bank Tudor Pickering, Halt and Co. see growing value in Shell's unconventional portfolio, particularly in the Permian basin, which they value at $13 billion if oil hits $75 a barrel.

    "We believe Shell's North American unconventional portfolio is less core relative to global deepwater and LNG but we do see additional value that should command a premium multiple when compared to its European supermajor peers," they said.
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    Energy Transfer and Williams Head to Court Ahead of Merger Vote

    One week before Williams Cos. shareholders are set to vote on whether to accept Energy Transfer Equity LP’s takeover bid, the two companies will meet in Delaware to tell a judge how each has violated the terms of the agreement.

    The two-day trial, which consolidates several lawsuits the companies filed against each other related to the deal, opens Monday, with Delaware Chancery Court Judge Sam Glasscock set to rule before the June 27 vote. Essentially, each says the other has done things that breached the terms they had agreed to. Williams wants Energy Transfer held to its original offer -- valued then at $32.9 billion -- and Energy Transfer would like Glasscock to rule the violations were grave enough to kill the deal.

    It’s “high-stakes M&A poker,” according to a Wednesday clients note by Timm Schneider, an analyst for Evercore ISI. If Energy Transfer is held to the agreement’s now-unfavorable terms, Williams would have a stronger bargaining position to force a settlement, he wrote.

    What looked like a good deal in September to create a massive empire of oil and gas networks spanning the U.S. has turned into a nightmare for both as plummeting oil prices upended the logic of their marriage. Three former Williams chief executive officers have urged shareholders to reject the merger, saying the structure of the deal benefits Energy Transfer. Kelcy Warren, CEO of Energy Transfer, has been blunt as well, saying on an earnings call last month that “we can’t close.”

    For more on Energy Transfer’s queasiness over the deal, click here.

    If Energy Transfer is forced to stick to its original offer, Schneider said it could cost the Dallas-based firm as much as $2 billion to get out of the deal. That would cover Williams’ “entire 2016 capital budget and help pre-fund 2017,” he wrote.

    Lance Latham, a spokesman for Williams, declined to comment ahead of the hearing and Vicki Granado, an Energy Transfer spokeswoman, didn’t respond to requests for comment.

    Since Energy Transfer offered to buy Tulsa, Oklahoma-based Williams for $43.50 a share in either cash or stock in September, the global glut of crude has wiped out nearly half the value of both companies and forced the energy firms to twice slash the expected earnings boost from the merger.

    “There’s no way the original deal is going to fly and the Williams folks are going to want to get something out of this mess,” said Chad Ruback, a Dallas-based lawyer who has been following the flurry of lawsuits over the merger. He isn’t representing either of the companies. “There will be either a re-negotiation of the deal or a large-dollar settlement.”

    Under the merger agreement, Energy Transfer gets to walk away with little cost. But Williams would have to pay a $1.5 billion breakup fee if it’s the one to terminate the deal. While that’s rare, it’s not unheard of, said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance.
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    Alternative Energy

    Apple’s energy bombshell: Why it may sell you electricity

    Apple will soon be selling more than MacBooks, iPhones, iPads and watches to consumers. It may also be selling electricity.

    In what is being regarded as something of a bombshell in the energy markets – albeit a long predicted one – Apple has quietly has created a new subsidiary called Apple Energy, and asked to obtain a licence to sell electricity directly to consumers, rather than back to the grid via the wholesale market.

    The software giant’s intent is clear. Apple has vowed to source all of its electricity from renewable energy sources. It has already reached 93 per cent, buying the output of a host of large-scale solar projects in the US, wind projects, its own rooftop arrays, as well as a 1.1MW rooftop array in Singapore and aggregating the output from 800 different solar arrays.

    The next step is to sell the output of its contracted and owned solar, hydro and biogas plants to its suppliers, to ensure that its supply chain is also sourcing all of its energy needs from renewables.

    A further step, say analysts, will be to sell that output to consumers, possibly in conjunction with purchases of products such as iPhone and iPads, or even with electric vehicles. As we reported last month, Apple is spending more on research into EVs and autonomous vehicles than it did on iPhones, iPads and Apple watches combined.

    There’s two good reasons for this. One is corporate reputation; Apple, like so many other major US and European companies, has signed up to become 100 per cent renewable. That is what the millennial generation expects of them.

    The second is economic. Apple currently sells its excess electricity back into the grid at wholesale rates. If it can sell that electricity to its suppliers, and then to its customers, it is likely to get a significantly higher rate.

    Apple already has contracts with 521MW of solar projects worldwide announced to date, making it one of the largest solar power end-users in the world.

    Apple has sought permission to operate as an energy company from the FERC, the main US federal regulator. It filed its request on June 6 and wants an answer by August 6.

    Tim Healy, the co-founder, CEO and chairman of EnerNoc, describes the move as a fundamental shift in the energy world and says its implications are vast.

    “Essentially, Apple is seeking the ability to sell the renewable energy it generates to other businesses and consumers at retail prices,” he writes.

    “Without FERC’s approval, Apple will only be able to sell its energy to energy providers and utilities at wholesale prices. Apple Energy would more or less act as an energy provider itself, enabling the company to leverage its investments in renewable energy like wind and solar to generate new revenue from an entirely new market.

    Attached Files
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    Mosaic in talks to acquire Vale fertilizer unit in $3bn deal — report

    US-based Mosaic Co., the world’s largest producer of phosphate fertilizer, is said to be in talks with Vale to acquire the Brazilian mining giant’s fertilizer unit, in a deal worth about $3 billion.

    According to sources quoted by Reuters, a cash-and-stock deal remains the favourite option at this point, though the parties are also discussing other alternatives.

    Vale is the biggest producer of phosphate in Brazil, which in turn is the planet's fifth-biggest user of fertilizer.

    The largest producer of iron ore and nickel, Vale had long vowed to hold on to world-class operations in these and other key areas.

    But in February, the Rio de Janeiro-based firm announced it was putting its core assets on the block in a bid to reduce its net debt to $15 billion within 18 months, from $25.23 billion at the end of 2015.

    Talks with Mosaic come on the heels of Vale’s failed attempt to partner with US private equity firm to bid for Anglo American's (LON:AAL) niobium and phosphates business in Brazil, which were acquired by China Molybdenum in April.

    Vale is the biggest producer of phosphate in Brazil, which in turn is the planet's fifth-biggest user of fertilizer. It currently operates two potash mines, one in Brazil and one in Peru, and has developing projects in Canada and Mozambique.

    According to a recent report by BMI Research, Brazil is set to recover its long-lost appeal to mining investors and see a fresh wave of mergers and acquisitions this year.

    The experts predict the windfall will benefit several sectors, beyond iron ore and potash, giving a renewed boost to the country’s gold industry. Higher gold prices will push miners to restart or speed up development of projects in Brazil, they say.
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    Chinese bank allocates $1.4 bln loan for potash project in Belarus

    Belarusbank and China Development Bank (CDB) have signed a credit agreement of 1.4 billion U.S. dollars for a potash project in Belarus, the state-owned Belarusian bank said in a statement.

    The agreement, signed on Friday, stipulates the procedure for financing the project of building the mining and processing factory Slavkaliy, using raw materials of the Nezhinskoye section of the Starobinskoye potash salt deposit in Minsk region of Belarus.

    The factory will be able to produce 2 million tonnes of chloride a year.

    "The beginning of such a large-scale project demonstrates the big potential of our cooperation (with Chinese banks)," said Sergei Pisarik, Chairman of the Board of Belarusbank.
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    Precious Metals

    Record revenues for Gemfields at its Singapore rubies auction

    Coloured gems specialist Gemfields PLC notched up record revenues in its recent auction of rough rubies held in Singapore.

    The auction generated record total revenues of US$44.3 million at an average realised price of US$29.21 per carat.

    Given the quality mix offered at this auction comprised a blend of varying qualities and sizes of material, a direct comparison with previous auction results is not possible, Gemfields said.

    On a quality-for-quality basis, however, the per carat prices achieved were indicative of improved overall global demand when compared to previous auctions, it added.

    In all, 71 of the 75 lots up for auction were sold, with 44 companies placing bids.

    The proceeds of this auction will be repatriated to Montepuez Ruby Mining Limitada, which is 75%-owned by Gemfields, in Mozambique, with the royalties due to the Government of Mozambique being paid on the full sales price achieved at the auction.

    In total, the six auctions of gems from Montepuez held since June 2014 have generated US$195.1mln in aggregate revenues.

    "We are pleased with the results of Gemfields' sixth Montepuez ruby auction. The prices achieved and the high percentage of goods sold fully support our analysis of the market conditions, the quality of Mozambique's rubies and the increasing levels of demand across various markets and categories,” said Ian Harebottle, chief executive officer (CEO) of Gemfields.

    The CEO revealed that the company is to launch a new global marketing campaign in London on 22 June focusing on Mozambican rubies.

    Attendees of the Singapore auction were given a sneak preview of the campaign.

    “The overwhelmingly positive response underpinned the clients' confidence in Gemfields marketing efforts and is further supported in the Company's ongoing success in growing demand for Zambian emeralds,” Harebottle said.

    “The five ruby and emerald auctions Gemfields has hosted so far this financial year have yielded aggregate revenues of US$174.4 million,” Harebottle noted, adding this represented a superb performance by the company.
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    Steel, Iron Ore and Coal

    Brazil fines Samarco 142 million reais for damages to protected areas

    Brazil's Environment Ministry fined mining company Samarco 142 million reais ($41.6 million) for damages to three protected areas resulting from a tailings dam burst in November, the ministry said on Friday.

    The ministry said in a statement the three areas on the coast of Espirito Santo state were contaminated by metals such as lead, coper and cadmium. The metals spilled from the dam and were carried all the way from Minas Gerais through the Doce River to the ocean.

    Experts from the Environmental Ministry found several species had been wiped out in the contaminated areas, the statement said.

    Samarco, a joint venture between Brazil's Vale SA and BHP Billiton, has shut its iron ore operation in Mariana, Minas Gerais state, since the accident late last year.

    The company sealed a deal with the Brazilian government in March to pay as much as $5.1 billion over 15 years for damages resulting from the dam burst.

    In a statement late on Friday, Samarco confirmed the new fines and said it was evaluating a possible appeal.

    It said all necessary works and associated costs to mitigate damages resulting from the spill were already included in the March deal, which was also signed by the ministry.
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    China to re-investigate anti-dumping case into stainless steel tubes from EU, Japan

    China's Commerce Ministry said on Monday it would re-investigate its anti-dumping case into imports of high performance, seamless stainless steel tubes from Japan and the European Union.

    China lost an appeal ruling in October at the World Trade Organization in a dispute in which Japan and the European Union had complained about Chinese use of anti-dumping duties on the steel products.
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