Mark Latham Commodity Equity Intelligence Service

Friday 6th January 2017
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    China says hit with record retaliatory trade measures in 2016

    China was hit with a record number of retaliatory trade measures last year, the Ministry of Commerce said on Thursday, with countries around the world claiming it had flooded global markets with cheap steel and other products.

    "Trade disputes are becoming increasingly politicised, measures are increasingly extreme and final tariff rates are relatively high," said ministry spokesman Sun Jiwen at a regular briefing, singling out measures taken against China's steel, solar panel, ceramics and tyre industries.

    Chinese policymakers are wary of U.S. President-elect Donald Trump's protectionist stance on global trade, as he has promised a hard line against China, threatening to raise tariffs on its exports to the United States once he takes office on Jan. 20.

    Sun said that in 2016, 27 countries and regions took out 119 trade remedies against China, with the relevant cases totalling $14.34 billion, up 76 percent from the previous year.

    Twenty-one countries and regions took 49 remedies against Chinese steel, costing $7.90 billion, up 63.1 percent from 2015.

    Trade remedies are trade policy tools that allow governments to take remedial action against imports which are hurting domestic industries. They include anti-dumping actions, countervailing duties and emergency measures to safeguard industries.

    The world's second-largest economy is frequently blamed for dumping cheaper goods on world markets because of subsidies.

    China will increase its targets for capacity cuts in steel and coal in 2017, while extending its campaign against overcapacity in industries such as cement and glass, state media reported in December.

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    China makes further reforms to lower energy costs

    China's top economic planner unveiled new measures to regulate electricity pricing at provincial power grids on January 4, the Xinhua News Agency reported.

    The measures clarified pricing, incentives and restraints for power grids, according to a statement released by the National Development and Reform Commission.

    The new measures came after a previous move by the commission to supervise energy prices in terms of power grid costs.

    Due to energy price decreases brought by the measures, enterprises nationwide have saved more than 180 billion yuan (about $26 billion) in energy costs since 2015, the statement said.

    Lowering corporate costs is one of the five main tasks of China's ongoing supply-side structural reform, along with cutting industrial capacity, reducing the housing inventory, cutting leverage and improving weak economic links.

    Despite difficulties, policymakers have decided to stick with supply-side structural reform in 2017 in a bid to address entrenched problems and find long-term growth momentum.
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    China issues five-year plan on saving energy, cutting emissions

    The State Council, China's cabinet, issued on Thursday a comprehensive plan on energy conservation and emission reductions for the 2016-2020 period.

    The plan listed 11 detailed measures to push forward China's energy-saving and emission-reduction work, including reducing the coal consumption rate, promoting energy consumption in key areas, intensifying pollutant emission control, developing the circular economy, improving technological support, increasing financial policy support and enhancing management.

    According to the plan, China's total energy consumption will be capped at 5 billion tonnes of coal equivalent by 2020. This will translate into a 15-percent reduction of energy use per unit of GDP by 2020.

    China's GDP grew 6.7 percent in the first three quarters of 2016, on track to achieve the government's goal, but the country is also confronted by challenges, including environmental degradation.

    Nearly 62 percent of 338 Chinese cities monitored by the Ministry of Environmental Protection suffered from air pollution on Wednesday. Coal is the main energy source in China, accounting for 64 percent of total energy consumption in 2015.

    Many Chinese cities have suffered from frequent winter smog in recent years, triggering widespread public concern. Emissions from coal are cited as a cause of the high concentration of breathable toxic particulate matter, known as PM 2.5, which causes smog.
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    Bitcoin is crashing

    Bitcoin is getting smashed.

    The cryptocurrency was down 18% to about $892 per coin as of 8:17 a.m. ET on Thursday. It is the biggest drop in two years.

    Earlier this week, on its first trading day of the new year, bitcoin crossed above the $1,000 mark for the first time since 2013, but it has now tumbled below that level.

    From the end of September through Wednesday — just before the plunge — bitcoin gained nearly 100%. It was supported by renewed interest from China, where money rushed out of the country as its currency, the yuan, continued to weaken.

    But on Thursday the yuan witnessed its biggest two-day rise since record keeping began in 2010. This happened amid the government's efforts to stop outflows from the country and after overnight borrowing costs in Hong Kong surged to a record as high as 100%. That squeezed investors who had bet that the currency would fall.

    The yuan's rise is also pressuring the US dollar, which fell against other major currencies.
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    Oil and Gas

    The Oil Trade That Shows Where OPEC’s Cuts Are Starting to Bite

    As OPEC starts to make its production cuts work, the true impact of its actions is perhaps most in evidence in an obscure part of the physical oil market.

    While Brent futures, a benchmark based on North Sea supply, are trading $4 a barrel higher than in June, the price of cheaper Middle East crude is rising faster still. The gap between the two varieties -- now the smallest in 15 months -- reveals where buyers are experiencing the greatest supply restrictions. It also has the potential to influence where oil flows.

    Saudi Arabia and its neighboring countries mostly pump lower quality oil, known in the industry as heavy crude. So when production from Organization of Petroleum Exporting Countries drops, the price difference -- or spread -- between those grades and higher quality light crude such as Brent and West Texas Intermediate typically gets smaller.

    “Heavier crudes have always been the first to get cut so that looks like the spread to watch,” said Warren Patterson, a commodity strategist at ING Bank NV.

    The best sign of how prices are converging is in the so-called Brent-Dubai exchange of futures for swaps, which lets refiners better manage their exposure to the relatively illiquid heavy crude market by allowing them to use the larger liquidity of the Brent market for hedging. The Brent-Dubai EFS spread fell to an 15-month low of $1.70 a barrel this week, down from $3.75 a barrel in June, according to data from brokerage PVM Oil Associates.

    Out of Sight

    Although oil traders such as Vitol Group and some specialized hedge funds actively trade light-heavy crude spreads, the market is relatively out of sight for mainstream oil investors, who focus on Brent and WTI. As such, the light-heavy spread usually reflects demand from refiners and physical buyers and sellers affected by OPEC cuts, rather than speculative trades.

    “The physical market pricing in OPEC cuts is probably the main driver at the moment,” Giovanni Staunovo, commodity analyst at UBS Group AG in Zurich, said. “If OPEC target the higher cost barrels, that will remove heavier crude from the market.”

    Prior Cuts

    In 2009, the previous time OPEC cut output, Dubai traded intermittently at a premium to Brent, despite the fact the Middle East crude is normally viewed as being lower quality. At its peak, Dubai traded at a premium of 71 cents to Brent. In 2011, it traded at a discount of almost $8 a barrel.

    OPEC pumped 33.1 million barrels a day last month, down 310,000 barrels a day from November, according to a Bloomberg News survey of analysts, oil companies and monitoring of ship-tracking data.

    The decline comes as OPEC, which controls around 40 percent of global oil supply, is planning to curb output in a bid to boost prices. The organization reached a historic deal last month with Russia and other non-members to cut global production by about 1.8 million barrels a day for six months starting January.

    Saudi Arabia, Kuwait and the United Arab Emirates, whose supplies are dominated by heavy grades, will shoulder the bulk of the cuts. At the same time, supply of lighter crude oil grades, such as those produced in Libya, is increasing as the country was exempted from the OPEC deal. North Sea and U.S. output, which traditionally tends to be lighter than OPEC’s, is also increasing.

    Cargo Flows

    The global nature of the oil market means that refiners often source crude depending on prices of individual grades. Relatively cheap Brent or West Texas Intermediate crude could potentially serve as an incentive to buy more of the grades and others produced in the Atlantic Basin.

    Oil traders and analysts anticipate that heavy-light crude differentials are likely to narrow further this year, although the full extent of the tightening wouldn’t occur until late spring in the Northern Hemisphere, when refinery processing picks up after seasonal maintenance.

    “Clearly, light-heavy differentials will have to do a lot of work to entice refiners to buy light grades, although there are limits to how much of this can be done,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
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    China's Iran oil imports to hit record on new production: sources

    China's Iranian crude oil imports may rise to a record this year as state-owned oil firms lift more crude through their upstream investments while extending their current supply contracts, senior industry and trading sources said.

    Chinese firms were expected to lift between 3 million to 4 million barrels more Iranian oil each quarter in 2017 than last year, four sources with knowledge of the matter estimated. That would be about 5 percent to 7 percent higher than the 620,000 barrels per day (bpd) of Iranian crude the country has imported during the first 11 months of 2016, according to the customs data.

    Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), won an exemption from the group's production cuts agreed to on Nov. 30 and may raise output slightly.

    China's demand for foreign crude could touch new highs as state-run refiners start up new plants and as Beijing allows more independent refiners to import crude, with the country forecast to remain a key driver of 2017 demand growth.

    State refiner Sinopec Corp and state-run oil trader Zhuhai Zhenrong Corp, the two biggest Chinese lifters of Iran's oil, are set to roll over annual supply agreements with National Iranian Oil Co (NIOC), with combined volumes of about 505,000 bpd, two sources with knowledge of the agreements said.

    Additionally, China National Petroleum Corp (CNPC) and Sinopec expect to lift more oil this year from two oilfields they operate under service contracts, the sources said.

    A press official with Sinopec said the company does not comment on operational matters. CNPC and NIOC did not immediately respond to requests for comment.

    Sinopec signed a development deal for the Yadavaran field in late 2007 with CNPC signing a deal for the North Azadegan field in 2009, after Japanese and European companies pulled out of the projects, both in the southwestern Iranian province of Khuzestan, due to sanctions over Iran's nuclear program.

    Both fields started pumping oil in early 2016, with North Azadegan reaching full production in the third quarter and Yadavaran in the fourth quarter, and they are currently pumping at around 160,000 bpd.

    "The terms of return on investment are still being finalised ...but it's safe to say Sinopec is going to lift more from Yadavaran this year than last," said a Beijing-based oil executive familiar with Sinopec's operations on Yadavaran.

    A separate senior trading source estimated that Sinopec could lift about 4 million barrels of Yadavaran crude, considered a heavy grade with an API gravity rating of about 25, every quarter this year. The person did not give an earlier comparison.

    After first shipments last October, CNPC is expected to lift an average of about 3 million barrels from North Azadegan each quarter, said a second senior trader with knowledge of CNPC's Iranian production.
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    Saudi Arabia cut oil output in Jan to 10.058 mln bpd -Gulf source

    Saudi Arabia cut oil output in January by at least 486,000 barrels per day (bpd) to 10.058 million bpd, fully implementing OPEC's agreement to reduce output, according to a Gulf source familiar with Saudi oil policy.

    The Organization of the Petroleum Exporting Countries in late November agreed to cuts that take effect in the first half of 2017 to curb a global supply glut and prop up prices.

    Under the deal, Saudi Arabia agreed to cut output by 486,000 bpd, or 4.61 percent of its October production of 10.544 million bpd.

    OPEC agreed to output cuts as of Jan. 1 that would bring production to 32.50 million bpd, in the first such decision since 2008. In December, no production target was in effect.
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    Saudi Aramco explores Feb oil supply cuts of 3-7 percent to meet OPEC target

    A Saudi Aramco employee sits in the area of its stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, September 27, 2016. REUTERS/Hamad I Mohammed

    Saudi Aramco has started talks with customers globally to discuss possible cuts of 3 percent to 7 percent in February crude loadings to comply with OPEC production cuts, four sources with knowledge of the matter said on Thursday.

    The Organization of the Petroleum Exporting Countries (OPEC) agreed in late November to cut production in the first half of 2017 to reduce global oversupply and prop up prices.

    Under the deal, Saudi Arabia, the world's biggest oil exporter, agreed to cut output by 486,000 barrels per day (bpd), or 4.61 percent of its October output of 10.544 million bpd.

    "Aramco is approaching all its customers for possible cuts from February and discussing likely (supply) scenarios," one of the sources said.

    "Nothing is confirmed yet," he said, adding that the scenarios were for 3 percent to 7 percent cuts.

    State oil giant Saudi Aramco will be receiving nominations for February crude supplies from its customers and is assessing which grades it could cut, a second source said.

    Saudi oil buyers will be notified by Jan. 10 of their respective crude allocations for February.
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    Shell Pipeline Fire Threatens to Deepen Nigerian Oil Output Drop

    Royal Dutch Shell Plc shut the Trans Niger oil pipeline after a fire, threatening to worsen a drop in Nigerian output due to unplanned disruptions.

    The line can transport about 180,000 barrels a day to the Bonny Export Terminal in the Niger Delta was halted Tuesday due to a blaze at Kpor in Ogoniland, Precious Okolobo, a company spokesman in Lagos, said Thursday by phone. Shell declined to comment on the impact on production.

    Nigeria’s daily output dropped by 200,000 barrels to 1.45 million in December, ending three months of gains as the African nation struggled to restore capacity after a year of militant attacks on oil infrastructure. Production fell to 1.39 million barrels in August, the lowest level since 1988, according to data compiled by Bloomberg.
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    Turkey to halve its supply to private plants due to cold weather -sources

    Turkey's state pipeline operator Botas will cut supply to gas-fired power plants by 50 percent as of Friday due to increased household demand in cold weather, energy industry sources said on Thursday, in a bid to free up more gas for households.

    Three industrial sources said private gas-fired power plants were informed of Botas' measures, before a cold wave, expected to cause heavy snow, hits Turkey over the weekend.
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    Manufacturing helps China oil demand post fastest growth in 15 months

    China's apparent oil demand surged more than 4% year on year in November, the fastest pace of growth in 15 months, buoyed by a sharp expansion in manufacturing activity, which helped to drive the country's appetite for gasoil to a year's high and LPG consumption to record levels.

    The surprise acceleration in manufacturing to hit the highest level in a year lifted demand for goods transport, pushing up gasoil consumption. LPG demand was driven by consumption by propane dehydrogenation plants. Together, it more than offset a 5% year-on-year drop in apparent demand for gasoline.

    "The positive growth momentum should continue on the back of fiscal support. With the economy having just emerged out of deflation, and with the recovery still looking quite uneven, policy support should remain in place until the recovery becomes more broad-based," HSBC said in a research note.

    The 4.1% year-on-year growth in total apparent oil demand to 11.44 million b/d in November was the second consecutive monthly increase since October when demand rose 1.1%, data compiled by S&P Global Platts using official numbers showed.

    November demand was also up 2.8% from October, and higher than the average of 11.07 million b/d over the first 11 months.

    Manufacturing investment grew at the fastest pace in a year at 8.4% in November, with broad-based recovery becoming increasingly visible in heavy industries, machinery and auto, data from the National Bureau of Statistics showed.

    Industrial production grew 6.2% year on year in November, compared with 6.1% in October. PMI also climbed to 51.7 in November from 51.2 in October. All this improved the outlook for oil demand.

    A slight decline in oil product stocks also supported actual demand. Total oil product stocks -- gasoline, gasoil and jet fuel/kerosene -- edged down 0.07% month on month at the end of November, data from state-owned news agency Xinhua showed.

    Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly throughput at Chinese refineries and net product imports. But the official data fails to reflect some of the crude throughput increases from the new crude oil consumers, the independent refineries. 


    November apparent demand for gasoil rose to a 12-month high to 3.43 million b/d, up 0.9% from October, although it fell 2% year on year. Gasoil accounts for around 30% of the country's overall oil products demand.

    Transportation accounts for nearly 70% of gasoil demand, while agriculture and construction sectors account for the rest.

    Gasoil demand recovery was also supported by a draw in stocks for the fourth consecutive month. Gasoil stocks at the end of November were 3.9% lower month on month, following decreases of 2.88%, 12.81% and 16.81% in the previous three months, respectively, data from Xinhua showed.

    The high apparent demand was also a result of lower supply from the blending pool, which pushed up production at refineries to make up for the loss.

    Blended barrels, with imported light cycle oil and domestic kerosene as the main components, are not included in gasoil apparent demand calculations because of the absence of official data.

    China's imports of light cycle oil remained relatively low at 384,549 mt in November, compared with an average of 445,906 mt over July-September. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil, which is mainly used in the construction and fishing sectors. 


    Apparent demand for gasoline fell 4.7% year on year in November after a 5.2% increase in October. It was 3.3% lower from the previous month. Gasoline stocks at the end of November edged up for the second consecutive month by 0.87% from October.

    However, market sources said the actual fall in demand would probably not be that sharp if blended barrels were taken into consideration.

    No official data reflects the blended gasoline barrels. But sales of imported mixed aromatics, which are used mainly as a blending material for gasoline, provide an indication of demand.

    Data from the General Administration of Customs showed that China's imports of mixed aromatics jumped 23.7% month on month to 868,190 million mt, suggesting a rise in blending activity.

    The fall in gasoline demand was also capped by a 17% year-on-year rise in gasoline-fueled vehicle sales in November, data from the China Association of Automobile Manufacturers showed. Sales of gasoline-guzzling sport utility vehicles surged 42% year on year. 


    LPG demand surged to a historical high of 1.8 million b/d in November, up 38.5% year on year and 12.3% month on month. The previous high of 1.66 million b/d recorded in March last year. Over the first 11 months of 2016, demand for LPG averaged 1.55 million b/d.

    Market sources attributed the growth to plentiful volumes imported to feed the country's propane dehydrogenation plants, which increased their run rate significantly to meet incremental industrial demand.

    Seven major PDH plants in China were estimated to have run at an average of 77% of their capacity in November, up from around 67% in October, a Platts survey showed earlier. In addition, two new PDH plants -- the Hebei Haiwei and Oriental Energy's Ningbo Fuji Petrochemical -- started operations, respectively, in October and November.

    As a result, propane imports in November jumped 95% year on year and 30% from October.

    Apparent demand for naphtha in November fell 4.9% year on year but it was up 7.6% from October at 980,000 b/d in November. It was higher than the average of 964,000 b/d over the first 11 months.

    China's ethylene production from naphtha-fed crackers edged down 1.4% from October and 0.5% year on year to 1.45 million mt in November. 


    Apparent demand for jet fuel in November rose 29% year on year to 800,000 b/d, the highest in 21 months. Month on month, it rose 8.2%.

    Actual consumption in November should be lower because of a month-on-month rise in stocks of 9.89%, data from Xinhua showed.

    Latest data from the Civil Aviation Administration of China showed that aviation traffic rose 12.7% year on year in October, although it slowed from the 14% growth in September. In the first 10 months, turnover increased 12.6% year on year.

    Apparent demand for fuel oil recovered to a five-month high of 687,000 b/d in November, rising 7.3% from October despite falling 1.2% year on year.

    Customs data showed that imports of bitumen blend -- which refers to heavy residual blends such as 380 CST fuel oil, bitumen or heavy gasoil -- surged 286% from October. The grade is used as feedstock by independent refineries.

    Consumption of bitumen blend at Shandong, home of most of the independent refineries, rose 55% month on month in November.

    Imports of fuel oil in November rose 6.1% month on month because of high demand from the bunkering sector.

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    ExxonMobil reveals new technology to dehydrate natural gas

    U.S. oil and gas major ExxonMobil revealed on Thursday a new technology that dehydrates natural gas, which could be deployed at both land-based and offshore natural gas production operations.

    The company announced its development of cMIST technology, which dehydrates natural gas using a patented absorption system inside pipes and replaces the need for conventional dehydration tower technology. This “in-line” technology could be deployed at both land-based and offshore natural gas production operations, the company noted.

    According to Exxon, the new technology, developed and field-tested by the company, more efficiently removes water vapor present during the production of natural gas. Removing water vapor through the use of dehydration technology, typically accomplished using large and expensive dehydration towers, reduces corrosion and equipment interference helping to ensure the safe and efficient transport of natural gas through the supply infrastructure and ultimately to consumers, the company explained.

    Exxon also claimed that cMIST reduces the size, weight and cost of dehydration, resulting in reductions of surface footprint by 70 percent and the overall dehydration system’s weight by half, which has significant added benefits on offshore applications.

    “By leveraging our industry-leading experience with upstream applications, our researchers were able to create this advanced natural gas dehydration technology, which represents a step-change in operational efficiency and a significant reduction in footprint,” said Tom Schuessler, president of ExxonMobil Upstream Research Company.

    ExxonMobil’s cMIST technology relies on a proprietary droplet generator to break up conventional solvent into tiny droplets that become well dispersed in the gas flow thereby increasing the surface area for the absorption of water from the gas. This is followed by an inline separator that coalesces the water-rich glycol droplets and moves them to the outside wall of the pipe for effective separation from the dehydrated natural gas. The water-rich glycol is regenerated using a conventional system and is sent back to the droplet generator to be used again. The droplet generator uses the energy from the flowing natural gas to create droplets of the right size.

    New tech licensed to Sulzer

    ExxonMobil has licensed cMIST technology to the Chemtech division of Sulzer, a player in separation technologies, to facilitate deployment across the oil and gas industry.
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    Summary of Weekly Petroleum Data for the Week Ending December 30, 2016

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending December 30, 2016, 132,000 barrels per day more than the previous week’s average. Refineries operated at 92.0% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.5 million barrels per day. Distillate fuel production increased last week, averaging over 5.3 million barrels per day.

    U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 984,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, 0.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 722,000 barrels per day. Distillate fuel imports averaged 99,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.1 million barrels from the previous week. At 479.0 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 8.3 million barrels last week, and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 10.1 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 2.7 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 6.1 million barrels last week.

    Total products supplied over the last four-week period averaged 19.6 million barrels per day, down by 0.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.0 million barrels per day, down by 0.2% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, up by 8.1% from the same period last year. Jet fuel product supplied is up 4.0% compared to the same four-week period last year

    Cushing up 1.1 mln bbls

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    Crew Energy Announces a 2017 Capital Budget of $200 Million Targeting Montney Production Growth of Over 40%

    Crew Energy Inc. is pleased to announce that our Board of Directors has approved a 2017 capital expenditure program of $200 million designed to achieve production growth to over 30,000 boe per day in the fourth quarter of 2017. This growth represents a greater than 40% increase in Montney production, funded through a combination of internally generated funds from operations and draws on our credit facility leading to an exit 2017 debt to trailing fourth quarter 2017 annualized funds from operations ratio of less than 1.5 times.

    With over 300,000 net acres of Montney rights and over 110 Tcfe of Total Petroleum Initially in Place (“TPIIP”), Crew has access to a massive resource for development and significant long-term growth potential. To date, the Company has focused on the Upper Montney at our Septimus and West Septimus areas (“Greater Septimus”) and continued development at our Tower light oil area. Our 2017 capital program will be predominantly focused on West Septimus development, including further delineation of the ultra liquids-rich region and includes approximately $40 million of infrastructure investments highlighted by the doubling of our West Septimus facility’s capacity to 120 mmcf per day. Production additions will be back end loaded with the West Septimus plant expansion expected to be completed in the fourth quarter. Further delineation of Upper and Lower Montney stratigraphic intervals at West Septimus and Tower will further support our growth plan designed to achieve production of over 60,000 boe per day by the end of 2019.


    Invest $140 million into Montney drilling, completions, equip and tie-in activities, including the planned drilling of 28 (26.3 net) and the completion of 39 (37.3 net) Montney wells through the year;
    Direct $40 million of capital into key infrastructure projects including expansion of Crew’s West Septimus facility to 120 mmcf per day of gas processing capacity that in aggregate with Septimus and Tower will provide Crew with 45,000 boe per day of processing capacity for Montney gas and liquids production. Pipeline construction will also begin to provide physical access to the Trans-Canada Pipeline (“TCPL”) system by the second quarter of 2018, further diversifying Crew’s marketing strategy and to support our three year growth plan to over 60,000 boe per day;
    Forecast Q4 2017 exit Montney production greater than 26,000 boe per day achieving year-over-year exit growth of over 40%;
    Target annual corporate production growth of approximately 15% with volumes averaging between 25,000 and 27,000 boe per day (weighted 72% to natural gas) with a corporate exit rate of greater than 30,000 boe per day;
    Continue to focus on cost control with corporate operating costs per boe in 2017 expected to be between $5.50 and $6.00 per boe, transportation costs of $2.25 to $2.50 per boe, and G&A costs of between $1.25 and $1.50 per boe. At our Greater Septimus area, Crew anticipates continued low operating costs of between $3.50 and $4.00 per boe; and
    Preserve balance sheet strength and maintain a conservative 2017 year end debt to trailing 2017 funds from operations ratio of approximately two times, and debt to annualized fourth quarter 2017 funds from operations of 1.5 times.
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    Antero Resources Pulls Curtain Back on Plans for 2017

    Ladies and gentleman: Start your drill bits! Yesterday Antero Resources, one of the biggest drillers in the Marcellus/Utica, released their road map for what lies ahead in 2017 for the company.

    Among the gems: The company plans to do a serious amount of drilling. They will have drilled 170 new wells, bringing them online, by the end of the year, with another 30 drilled but not completed.

    Antero will spend $1.3 billion to do it–with another $200 million spent on land deals. Daily production is forecast to average somewhere around 2.1 to 2.2 billion cubic feet (Bcf) per day, up 20-25% over production in 2016.

    Observation: Antero will spend about what it spent last year, but still goose production by nearly a quarter more than last year. Talented folks! Antero, as we’ve previously highlighted, has what we consider to be the best hedging in the business.

    They announced two-thirds of their production for 2017 is hedged at $3.68/Mcf (thousand cubic feet). In fact, all of their production for this year is hedged, at various price points. The spot price of natural gas today, as this was being written, was $3.27/Mcf.
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    Patterson-UTI Dec Rig Count, Big 9% Jump Up from Nov

    As we do every month, MDN tracks how many rigs oilfield services company Patterson-UTI Energy reports operating–as a proxy for when/if the drop in rig counts for the Marcellus/Utica will turn around.

    Patterson operates a number of rigs in the northeast, as well as other areas of the continental United States (and Canada). Month by month Paterson’s rig count has declined over the past year plus–until June.

    June was the first time in over a year that Patterson’s rig count reversed and began to climb once again. Since June the count has steadily risen. The latest count, for December, saw the biggest month over month increase since the trend reversed. In December, Patterson’s rig count hit 71, up 6 from 65 in November. That’s a big 9% jump!…
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    Painted Pony Achieves 2016 Exit Production of more than 240 MMcfe/d (40,000 boe/d)

    Painted Pony Petroleum Ltd. is pleased to announce that production volumes, based on field estimates, averaged over 240 MMcfe/d (40,000 boe/d) during the month of December 2016 with liquids making up approximately 9% of total production volumes or more than 3,600 bbls/d.  Exiting 2016 with production volumes at these levels was a significant goal for Painted Pony and one which, in conjunction with the commissioning of the AltaGas Townsend Facility (the “Townsend Facility“), marked a significant milestone for the Corporation.

    Mr. Pat Ward, President and CEO of Painted Pony said, “The production growth we achieved during 2015 and 2016 was generated solely through drilling on our industry-leading Montney property.  Between the fourth quarter of 2013 with production of 9,312 boe/d and our fourth quarter exit production volumes in 2016 of more than 40,000 boe/d, we have organically grown our production by 330%.” Mr. Ward continued by saying, “When Painted Pony first introduced the concept of growing to 240 MMcfe/d or 40,000 boe/d in the third year of our initial five-year plan, we believed it to be a very ambitious but achievable goal. However, when you carefully plan the development of a world class asset, and have a great group of dedicated people, you can accomplish exceptional things.”
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    Weekly Natural Gas Storage Report

    Working gas in underground storage, Lower 48 statesSummary text CSV JSN
        Historical Comparisons
    billion cubic feet (Bcf)
      Year ago
    5-year average
    Region 12/30/16 12/23/16 net change implied flow   Bcf % change Bcf % change
    East 737     757     -20     -20       862     -14.5     795     -7.3    
    Midwest 921     946     -25     -25       995     -7.4     904     1.9    
    Mountain 207     217     -10     -10       188     10.1     181     14.4    
    Pacific 275     283     -8     -8       320     -14.1     314     -12.4    
    South Central 1,171     1,157     14     14       1,310     -10.6     1,138     2.9    
       Salt 343     324     19     19       379     -9.5     309     11.0    
       Nonsalt 828     833     -5     -5       930     -11.0     829     -0.1    
    Total 3,311     3,360     -49     -49       3,675     -9.9     3,332     -0.6    


    Working gas in storage was 3,311 Bcf as of Friday, December 30, 2016, according to EIA estimates. This represents a net decline of 49 Bcf from the previous week. Stocks were 364 Bcf less than last year at this time and 21 Bcf below the five-year average of 3,332 Bcf. At 3,311 Bcf, total working gas is within the five-year historical range.

    Working Gas in Underground Storage Compared with Five-Year Range

    Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2011 through 2015. The dashed vertical lines indicate current and year-ago weekly periods.
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    Alternative Energy

    Giant Wind Turbines Now At Eight Megawatts, And Getting Larger

    News arrived in late December from the waters off the United Kingdom that the first of MHI Vestas (a joint venture between Vests and Mitsubishi Heavy Industries) 8.0 megawatt (MW) turbines is now delivering commercial power to Dong Energy’s Burbo Bank Extension. The entire 258 MW project – to be completed in Q1 of 2017 – will need only 32 such turbines. This is a significant milestone, as wind turbines have become increasingly more powerful over a relatively short timeframe. This 8 MW machine is currently the largest commercial turbine in the world. Less than ten years ago, at the original Burbo Bank project, a 3.6 MW turbine was inaugurated, the largest in the industry at the time.

    These new machines are big. At 113 meters (370 feet), the towers stand 64 feet taller than the Statue of Liberty, while the blades come in at 80 meters (262 feet). This scale recently enabled MHI Vestas to snare the world record for energy production by a turbine in a 24-hour span: 192 megawatt-hours (MWh) - enough energy  to power approximately 18 American-sized homes for an entire year.

    As large as they are, turbine expansions have not yet fully maxed out. The industry is already eyeing machines in the 10-12 MW range in order to future cut costs. And while MHI Vestas is the first out of the block with its deployment of an 8 MW machine, two other manufacturers have 8 MW machines in the offing. Meanwhile, here in the U.S., Deepwater Wind just energized five of its 6 MW GE turbines. So the big machines are not just limited to offshore Europe.

    Onshore, the wind turbines are not nearly as large. Many turbines in this country’s most recently built wind farms are in the 1.5 to 2.0 MW range. In part, this is caused by existing terrestrial infrastructure constraints, such as highway bridges that limit the size of towers that can be transported.

    However, these limitations can be overcome as new technologies are brought to bear, such as taller towers that access stronger and more dependable winds. MidAmerican Energy recently built a 2.4 MW turbine on a 379 foot concrete tower, putting it 100 feet taller than its steel-based counterpart. This monster used 70 truckloads of concrete and 90 tons of steel rebar, and is currently the largest turbine on the continental U.S.  Expect more to come.

    Estimates are that deployment of taller towers can open up vast new areas of the U.S. to wind energy development, particularly the southeastern U.S. For example, an increase in tower height from 80 to 140 meters (from just over 260 to 460 feet) could increase the land area open to onshore wind development by two-thirds, while increasing the economics of existing areas.

    As technologies continue to advance and economies of scale result in bigger machines delivering energy at lower costs, we should expect to see even larger wind turbines towering over landscapes and oceans, pumping clean electrons into power grids in the U.S. and across the planet.
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    Tesla’s Gigafactory starts mass-producing batteries

    Tesla’s Gigafactory has started mass production of its lithium-ion batteries.

    The start of operations at the massive plant in Nevada is an important moment for Tesla and its partner Panasonic as a delay in battery production could have proved a chokepoint for the roll-out of the new ‘Model 3’ electric vehicles (EV), ‘Powerwall 2’ home energy supply units and ‘Powerpack 2’ commercial energy storage products.

    The cylindrical ‘2170’ battery cell has been specifically designed to work with each of the above products whilst maximising performance and minimising cost.

    It is predicted that by 2018, the Gigafactory will manufacture 35GWh of batteries every year – this is said to be nearly as much as the rest of the world’s battery production combined.

    Tesla claims the huge economies of scale that can be achieved by focusing this volume into one site means the cost can be kept significantly lower.

    The factory is being built in stages, with battery manufacture starting immediately as each section is finished.

    Tesla has said it will open a second Gigafactory in Europe.
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    China Southern Power Grid 2016 power transmission 8% above target

    China Southern Power Grid, a state-owned company that transmits and distributes electricity to China's five southern provinces, realized power transmission of 194.4 TWh in 2016, 8.06% higher than the target set for the year.

    That represented an increase of 3% from a year prior and hit a record high for the fifth consecutive year.

    China Southern Power Grid has been working to boost clean energy. In 2016, 75% of the electricity was generated from hydropower, equivalent to reducing 130 million tonnes of greenhouse gas emissions from the burning of 50 million tonnes of coal.

    Southwestern China's Yunnan province transmitted 110 TWh of electricity to eastern cities of the country last year, increasing 16% from the year-ago level and firstly exceeding 100 TWh.

    Yunnan's "West-to-East" power transmission capacity has reached 25.2 GW, a rise of 5 GW from 2015, accounting for 59% of the total capacity of "West-to-East" power transmission projects under China Southern Power Grid.
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    Monsanto swings to profit on higher South America demand

    U.S. seeds and agrochemicals company Monsanto Co, which is in the process of being bought by Germany's Bayer AG (BAYGn.DE) for $66 billion, swung to a quarterly profit, helped by higher demand from South America.

    Sales of soybean seeds and traits jumped 37 percent as more farmers in South America sowed the company's genetically modified soybean seed Intacta RR2 Pro.

    But how Monsanto is navigating through a souring U.S. agricultural market has been closely watched by Bayer's investors, who have backed the German pharmaceutical conglomerate’s bid to acquire the world’s largest seed company.

    Monsanto shareholders voted in December to approve a sweetened $128-per-share offer from Bayer that, if approved by regulators, would create a company commanding more than a quarter of the world market for seeds and pesticides and be the largest-ever cash takeover of a U.S. company.

    Both companies have filed notice of the merger plan to U.S. antitrust officials and plan to submit similar documents to the European Union by the end of March, Chief Executive Officer Hugh Grant told analysts on a conference call on Thursday for Monsanto's first fiscal 2017 quarterly results.

    Bayer and Monsanto executives have repeatedly said they are confident the deal will pass regulatory muster, a necessary step in order to close the sale as expected in late 2017. Bayer has said it is committed to divest up to $1.6 billion of its portfolio to win approval.

    Still, some farm groups, rival seed companies and U.S. lawmakers have raised concerns about the Monsanto-Bayer deal, saying it could raise prices and reduce choices for farmers.

    While Grant did not discuss what business units or assets might be sold off to appease regulators, he did tell analysts on Thursday that "where overlaps do exist, Bayer anticipates and is committed to undertake a certain level of divestitures as required by regulatory agencies."

    Increased research and development spending by the combined companies and plans to develop a global seeds and biotechnology hub in St. Louis fuel hopes regulators will not block the deal, which was agreed in September, Monsanto CEO Hugh Grant told Reuters.

    Grant also told analysts that he and Chief Technology Officer Robb Fraley have been taking an active role in talking to farmers about the proposed deal, as well as talking to "key policymakers and politicians" to assuage concerns.

    Monsanto announced Thursday it had recently signed an agreement with Japanese trading firm Mitsui & Co. to sell its Latitude wheat and barley fungicide seed treatment business for $140 million - and expects to receive an EBIT benefit of approximately $85 million in that business segment in the second quarter.

    Monsanto told Reuters that the agreement is part of ongoing restructuring efforts, and not tied to the Bayer deal.

    Net profit attributable to Monsanto was $29 million, or 7 cents per share, in the first quarter ended Nov. 30, compared with a loss of $253 million, or 56 cents per share, a year earlier.

    Excluding items, the company earned 21 cents per share. Net sales rose more than 19 percent to $2.65 billion.
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    Steel, Iron Ore and Coal

    Coking coal price correction turns into rout

    It's only the 5th, but the year to date fall in the price of coking coal has already reached 8%. The steelmaking raw material is also a round $100 below its multi-year high of $308.80 per tonne (Australia free-on-board premium hard coking coal tracked by the Steel Index) hit in November.

    On Thursday the price dropped another 4.5% to $208.10 a tonne, the lowest since September 29 and one of the biggest declines (for the spot price) on record. In 2011 floods in key export region in Queensland saw the coking coal price briefly trade at an all-time high $335 a tonne.

    With demand both more diverse and less predictable, the increasingly widespread transition towards market-based pricing couldn’t be more timely

    Still, metallurgical coal is up 150% over the past year  and averaged $143 a tonne in 2016 (about the same as it did in 2013). There was a more than $100 differential between the spot price average and the fourth quarter contract benchmark.

    Quarterly contracts are negotiated between suppliers from Australia and Japanese steel mills and it's how most of the seaborne trade is still conducted. Spot is now at or even below Q1 contracts, but according to a new note from the Singapore Exchange, 2017 may prove a landmark year in the development of the international coking coal derivatives market:

    Following a volatile H2 2016, the evolution of coking coal pricing is at an important inflection point. In recent months, spot market pricing and the quarterly price fix have frequently diverged to unprecedented levels, placing what may prove to be fatal strains on the legacy bilaterally-negotiated mechanism. The international market has seen structural change in recent years, with Chinese and Indian imports now representing key components of seaborne demand. With demand both more diverse and less predictable, the increasingly widespread transition towards market-based pricing couldn’t be more timely.

    Attached Files
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    Indonesia's January HBA thermal coal price slumps 15% on month

    Indonesia's Ministry of Energy and Mineral Resources set its January thermal coal reference price, also known as Harga Batubara Acuan or HBA, at $86.23/mt, falling 15.2% from December and recording its first drop in seven months.

    The ministry had set the December 2016 HBA price at $101.69/mt, the highest level seen since May 2012.

    Since May 2016, the HBA had seen continuous month-on-month increases as thermal coal prices rose amid supply tightness and strong Chinese demand for seaborne cargoes.

    The January HBA, however, represents a jump of 62% compared with the same month a year ago.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg GAR assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

    In December, the daily Platts FOB Kalimantan 5,900 kcal/kg GAR coal assessment averaged $75.94/mt, down from $89.58/mt in November, while the daily 90-day Platts Newcastle FOB price for coal with a calorific value of 6,300 kcal/kg GAR averaged $86.31/mt, down from $101.01/mt in November.

    The HBA price for thermal coal is the basis for determining the prices of 75 Indonesian coal products and calculating the royalty producers have to pay for each metric ton of coal they sell.

    It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.
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    US coal carloads counts fall 12.5% week on week, drop 20.1% year on year: AAR

    US coal carload volumes fell in the final week of 2016, putting year-end totals 20.1% below 2015 counts, railroad and Association of American Railroads data showed Wednesday.

    For the week that ended Saturday, the AAR reported 68,939 coal carloads traveled US railways, down 12.5% from the previous week but up 3.3% from the same week a year ago.

    Total 2016 volumes of nearly 4.1 million carloads slid 1.03 million st, or 20.1%, from the previous year.

    Canadian railroads -- which include the US operations of Canadian National, which serves several mines in the Illinois Basin, and Canadian Pacific -- originated 7,176 coal carloads for the week, up 2.7% from the prior week and 6.4% from the same week a year ago.

    Total 2016 Canadian volumes of about 365,000 carloads fell 11% from the previous year.


    While coal volumes for the four major US railroads were down, the late-summer revitalization of the export metallurgical market brought more coal business to railroads -- especially CSX and Norfolk Southern, serving the eastern ports -- in the second half of the year. Those coal volume increases were magnified further compared with counts from the year-ago period, as in late 2015 thermal coal demand plummeted with historically low natural gas prices and seasonably warm winter weather.

    Many utilities in late 2015, especially in the East, deferred coal shipments as cheap gas from the Marcellus and Utica shales flooded the market and limited coal generation. Coal stockpiles grew and continued to limit railroad shipments through the first-half 2016.

    Total CSX coal volumes for 2016 slid 19.5% year on year to 765,846 carloads from 951,155 carloads. but fourth-quarter volumes for CSX actually topped 2015 totals as carloads increased 7.6% to 207,961.

    CSX was the only major US railroad to show coal volume growth in any quarter compared with the previous year.

    CSX second-half coal volumes of 403,379 carloads fell only 6.6% compared with 2015, while first-half volumes of 362,467 carloads dropped 30.2%.

    NS coal shipments were down 17.8% year on year to 835,622 carloads from about 1 million. Second-half volumes slid 10.9% to 440,105 carloads, while first-half volumes fell 24.3% to 395,517 carloads.

    In Q4, NS coal counts of 220,340 carloads dipped only 3.6% compared with Q4 2015.

    In the West, BNSF and Union Pacific also saw coal business improvement in the second half of the year on a healthier thermal market for Powder River Basin coal.

    BNSF, the largest US coal shipper, saw total volumes drop 20.9% year on year to 1.8 million carloads from almost 2.3 million carloads. Second-half volumes were down 8.3% to 1.04 million carloads, while first half volumes fell 33.3% to 765,666 carloads.

    UP coal volumes fell 21.8% year on year to 1.1 million carloads from 1.4 million carloads. Second-half volumes were down 13.5% to 623,080 carloads, while first-half volumes fell 30.4% to 481,961 carloads.
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    China's miners gamble on spot coal despite Beijing pressure

    China's top coal miners have mostly resisted pressure from Beijing to sign long-term fixed-price deals this year, in a bet that there's more money to be made in the spot market before government efforts to ease a supply crunch take effect.

    Miners including two of the nation's largest, China Coal and Shenhua, have signed deals with utilities, the top consumers of thermal coal, for only about 40 percent of their 2017 output at discounts to the spot market, according to four sources familiar with the contracts.

    Getting miners to agree fixed-price deals - a break with their usual practice - was a major part of the government's months-long scramble to avert a winter energy crisis and protect power companies' profits from runaway thermal coal prices.

    Electricity companies pushed for more such deals, but the miners, which sometimes assign as much as 60 percent of their output to the utilities but at variable prices, dug in their heels.

    "Utilities would love to sign more long-term contracts because the price is cheaper, whereas Shenhua wants to cut the share on contract," said a purchasing manager with one of the top utilities, China Resources Power Holdings Co., who declined to be named due to company policy.

    Initially, Shenhua asked some coal-fired power companies to agree to as little as 30 percent of their annual tonnage on fixed-price terms, he said.

    The supply crisis and soaring prices were largely a problem of Beijing's own making after it closed mines and limited output earlier in the year as part of its drive to tackle overcapacity and inefficiency in state-owned heavy industry.

    The effects were felt across the world, as China is the world's largest consumer and importer of coal, with spot prices in Australia, the Pacific benchmark, doubling in just four months to $120 per ton by mid-November, their highest in 2-1/2 years.

    In China, domestic physical prices shot to 607 yuan ($88.30) per ton in the first week of November, up from around 400 yuan in April.

    The government's reversal of policy to let miners re-open mothballed capacity and the securing of some fixed-price deals have helped bring spot prices down 20 percent since then, but they remain high by historical standards.

    When the first fixed-price contracts were sealed in early November, they were at around 585 yuan per ton, two traders and a miner said, a 100-yuan discount to the futures and physical markets.

    ChinaCoal and Shenhua declined to comment.


    But miners have kept a lot of tonnage available for sale at spot prices because they hope prices will either rise again or at least stay strong for longer, as it takes time for production to pick up.

    China's Coal Association has said the miners are struggling to ramp up output quickly because they have to rehire staff and comply with stiffer safety standards.

    "They believe the forward curve coupled with the price negotiated during the last negotiation is undervalued versus their opportunities in the spot market," said Patrick Markey, managing director of commodity advisory Sierra Vista Resources in Singapore.

    Nearby domestic futures prices are around 600 yuan/ton, but they slip to around 488 yuan by July, which suggests the market thinks the miners, who have only just returned to profit after a few lean years, are taking quite a risk.

    China Coal Energy Co Ltd returned to profitability in the second quarter with its best quarterly earnings in three years, while China Shenhua Energy Co Ltd reported its best quarterly profit since the final quarter of 2014.

    If the miners have misjudged, however, it could be welcome news to the utilities, many of which are unprofitable above 600 yuan/ton. CR Power Group's breakeven in Jiangsu province is as high as 685 yuan/ton, but in Inner Mongolia it is as low as 430.

    BMI Research analysts believe the fourth quarter of 2016 was the peak, as domestic output increases after falling 10 percent in the first half.

    It forecasts prices from Australia's Newcastle port will be around $60-70 per ton for 2017, down from four-year highs above $100 in November.

    Demand growth from utilities is also likely to stagnate this year as Beijing resumes its drive for a more efficient state sector and shifts toward cleaner, renewable power sources, the analysts said.

    Attached Files
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    China's 90 large coal producers post a 11.4% drop in raw coal output

    China's 90 large coal producers produced a total of 2.08 billion tonnes of raw coal over January-November last year, falling 11.4% year on year, showed data from the China National Coal Association (CNCA).

    The top ten coal enterprises produced a total 1.24 billion tonnes of raw coal over the same period, accounting for 59.6% of the total output produced by 90 coal producers, the CNCA data showed.

    Of this, raw coal output of Shenhua Group, China National Coal Group and Shandong Energy Group stood at 382.13 million, 122.26 million and 119.63 million tonnes during the period.

    Shaanxi Coal & Chemical Industry Group, Datong Coal Mine Group and Yankuang Group followed with raw coal output at 112.74 million, 106.28 million and 104.74 million tonnes.

    Shanxi Coking Coal Group, Jizhong Energy Group, Kailuan Group and Lu'an Group produced 82.12 million, 74.6 million, 65.97 million and 65.24 million tonnes, respectively.

    Output of the top ten was also some 40.62% of China's total raw coal output of 3.05 billion tonnes in the first eleven months of 2016, down from a share of 40.72% over January-October this year, according to data from the National Bureau of Statistics.
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    Safety watchdog warns Yulin of seven illegal mines

    The State Administration of Work Safety (SAWS) warned Yulin, a major coal production base in northwestern China's Shaanxi province, of illegal coal mines, following a sudden unannounced safety inspection at mines in the city during December 27-28.

    The SAWS publicized seven illegal coal mines that were producing coal or being built illegally without gaining approval.

    With designed production capacity totaling 4.2 million tonnes per annum, the seven coal mines were Changsheng, Xichagou, Puhe, Shandong, Eershike, Shibize and Zhujiamao.

    The investigation team discovered various of safety loopholes and management problems at these mines.  

    To ensure safety, the administration had ordered these illegal mines to halt production.
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