Mark Latham Commodity Equity Intelligence Service

Friday 27th November 2015
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    Forget Glencore: This Is The Real Problem

    Back in July, long before anyone was looking at Glencore (or Asia's largest commodity trader, Noble Group which we also warned last month was due for a major crash, precisely as happened overnight) which everyone is looking at now that its CDS is trading points upfront and anyone who followed our suggestion last March to go long its then super-cheap CDS can take a few years off, we had a rhetorical question:

    Judging by what happened less than two months later, it appears that we have our answer: for now at least, Glencore, which is now flailing and which Bloomberg reported moments ago is set to meet with its bond investors tomorrow (supposedly to allay their fears of an imminent insolvency), is firmly the "answer" to our rhetorical question.

    First, a quick look at Trafigura bonds reveals that the contagion from the Glencore commodity-trader collapse, which "nobody could possibly predict"two months ago and which has rapidly become the market's biggest black swan, has spread and we now have a new contender. And while Trafigura's equity is privately held, it does have publicly-traded bonds. They just cratered:

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    ... sending the yield soaring to junk-bond levels.

     As discussed below, this may just be the beginning for the company which, because it does not have publicly traded equity - but has publicly traded debt - has so far managed to slip under the radar.

    But who is Trafigura? Only the world's third largest private commodity trader after Vitol and Glencore.

    Trafigura, whose summary financials reveal that the company - with $127.6 billion in revenues in 2014 and $39 billion in assets - is absolutely massive. In fact, in terms of turnover, it is virtually the same size as Glencore.

    But the most important and relevant numbers are on neither of the pretty annual report grabs above. They are highlighted in red in the excerpt from the company's interim report: the $6.2 billion in non-current debt and $15.6 billion in current debt for a grand total of 21.9 billion in debt!

    Now, this is less than Glencore's $31 billion (the implication being that Trafigura has a solid $6 billion equity cushion although judging by the bond plunge the market is starting to seriously doubt this) but the problem is that Trafigura's EBITDA is lower. Much lower.

    According to CapIq, Trafigura had $1.8 billion in LTM EBITDA, suggesting a debt/EBITDA leverage ratio of a whopping 12x. If one wants to be generous and annualizes the company's disclosed 6-month EBITDA (for the period ended 3/31/2015) of $1.1 billion, the EBITDA grows to $2.2 billion. This lowers the debt/EBITDA for Trafigura to "only" 10x.

    Indicatively, Glencore's own debt/EBITDA, and the reason for so much conerns about the company's solvency, is about half of Trafigura's.

    At least on the surface, it appears that Trafigura, which is as reliant on the ups and down of commodity trading as Glencore, is far more levered, and exposed, to any commodity crush than the Swiss giant.

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    China industrial profits fall for fifth straight month

    Profits earned by Chinese industrial companies fell 4.6 percent in October from a year earlier, declining for the fifth consecutive month as the world's second-largest economy slows and industries deal with overcapacity.

    Industrial profits - which cover large enterprises with annual revenue of more than 20 million yuan ($3.13 million) from their main operations - fell 2.0 percent in the first 10 months of the year compared with the same period a year earlier, the National Bureau of Statistics (NBS) said on its website Friday.

    In September, profits fell 0.1 percent from a year earlier.

    The impact of foreign exchange and lower investment income on companies' profits were less pronounced in October than in prior months, the statistics bureau said in a statement.

    Falling sales, rising costs and hits to profit in the oil, steel and coal industries all contributed to October's disappointing industrial profits, the NBS said.

    Slower stockpiling of unsold products is helping companies' bottom lines, the NBS also said.

    Analysts, however, still see problems with overcapacity.

    "Surplus inventory is the ghost which is haunting profits," economists from Minsheng Securities wrote in a note.

    "The road ahead to destocking inventory is long and slow."

    The mining industry was the laggard with profits falling 56.3 percent in the first 10 months of the year from a year earlier, the NBS data showed.
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    Electricity generation from coal and gas falls 13%

    Electricity generation by major power producers for coal and gas has fallen by 13.2% compared to the same period last year.

    That’s according to DECC’s latest report which looked at energy trends and prices from July to September year-on-year.

    It adds the consumption of coal and other solid fuels fell by 23% whilst petroleum rose by 2.7% and natural gas fell by 0.5%.

    It also found bioenergy & waste consumption rose by 16.3%, nuclear rose by 4.7% and wind and hydro increased by more than half (52%) in the same period.

    The report went on: “Energy production was 10.8% higher in 2014 than in Q2 of last due to a boost in oil and gas production.”

    The report adds total primary energy consumption for energy uses rose by 0.6%. However when adjusted to take account of weather differences between the second quarter of 2014 and the second quarter of 2015, primary energy consumption fell by 2%.

    That’s largely due to the decreased coal use in electricity generation, it states.

    The report adds final consumption rose by 2.9% compared to the second quarter of 2014.

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    Stockpiling, probes, coordinated cuts – Beijing to the rescue?

    On Thursday, base metals rebounded from financial crisis levels hit earlier this week on speculation of output cuts in China, hopes a new program of stockpiling by the state and a possible probe by Beijing into short-selling by Chinese hedge funds.

    In New York trade on Thursday  copper for delivery in March gained more than 2% to $2.09 per pound. On Monday the red metal hit its lowest level since March 2009, stopping just short of falling through the psychologically important $2 a pound level.

    Nickel also gained 2% climbing back above $9,000 a tonne on the LME, recovering from a 12-year low of $8,145 a tonne earlier this week while strong gains were also seen in tin, zinc and aluminum in London and Shanghai.

    I don’t see China fighting too hard to sustain an industry which is high-cost, uncompetitive and deeply polluting

    In Shanghai nickel soared as much as 7% on reports the country's nickel producers – nearly three-quarters of which are unprofitable at current prices – are set to meet to agree on long overdue production cuts according to Reuters.

    The China Nonferrous Metals Industry Association has asked for a probe into short selling of metals on the Shanghai Futures Exchange, blamed for double-digit price decline in percentage terms in November according to Bloomberg.

    Base metals producers and refiners have also pleaded with Beijing to intervene in markets and stockpile metals. A similar program in 2008–2009 at the height of the financial crisis did shore up prices, but  some analysts are skeptical about its prospects today

    David Humphreys, an author and former chief economist at miner Rio Tinto, told the FT that expectations are that "quite a lot of this capacity is likely to exit the market and play quite an important part in the whole balancing process because it is high-cost”:

    “The constraint is the employment issue, but I don’t see China fighting too hard to sustain an industry which is high-cost, uncompetitive and deeply polluting,” he said.

    Others see non-intervention by Chinese government as a positive for the market with theFinancial Review quoting traders as saying "government purchases would only postpone the output cuts needed to reduce supplies and would be bearish. A refusal could actually be bullish as it could force cutbacks."

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    Killing Zone: Update.

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    Oil and Gas

    Saudi counters ‘lower for longer’ oil mantra - FT

    A year on, as Opec ministers prepare to meet next week with oil languishing near $45 a barrel, senior Saudi officials have a different message. In recent weeks, in public forums and private briefings, they have emphasised the dangers of future supply shortages as the oil industry has slashed investment in new projects.

    Prices fell further than they ever anticipated, they say, remarks that for many in the oil market imply the Opec kingpin wants the year-long oil rout to come to a close.

    Saudi officials say they are not about to reverse the policy that saw them open the taps and prioritise their long-term exports over short-term financial gain. But behind closed doors they say they want prices to stabilise between $60 and $80 a barrel.

    That level, they believe, would foster oil demand but not encourage too much supply growth from alternative sources — a goldilocks scenario. Market watchers say that by focusing on the future outlook the kingdom can slowly coax the price higher without abandoning its strategy.

    “They have made their point and no one in the world has missed it,” says Nat Kern, at Washington DC-based consultancy Foreign Reports. “Prices have fallen a lot lower than they wanted to go and investment cuts are far steeper than they expected.”

    Prince Abdulaziz bin Salman al-Saud, Saudi Arabia’s deputy oil minister and son of the king, has been at the forefront of the shift in messaging. In a speech in Doha this month he warned that the investment needed to ensure future oil supplies could not be achieved “at any price”.

    “The scars from a sustained period of low oil prices can’t be easily erased,” he said.

    Demand for Opec’s crude is expected to rise next year as production outside the cartel falls — a key pillar of the strategy. But Saudi officials are keen to temper the industry’s response to the price crash after more than $200bn in energy investments have been scrapped.

    Mr Naimi said last week that the world will need $700bn in investment over the next decade to meet growing oil demand, which it estimates will increase by at least 1m barrels a day each year.

    In many ways, Saudi Arabia is now being forced to present a counter narrative to the oil industry’s new mantra of “lower for longer” prices — that has taken hold as a result of Riyadh’s own policy and is being pushed by influential banks such as Goldman Sachs.

    “The Saudis want to warn the market not to overdo it,” says Amrita Sen at consultancy Energy Aspects in London.

    The kingdom is also showing signs of easing off. After raising production to a record 10.6m barrels a day in June — almost 1m b/d above the 2014 average — output was cut to 10.3m b/d by October, the latest data from Opec show.

    While the reduction is partly driven by falling domestic demand, some question why the kingdom has not ramped up output further if winning customers is its main priority.

    The kingdom is vying with Russia to be the top oil supplier to China and must prepare for the return of higher Iranian oil exports next year if sanctions are lifted. It already faces increased competition in India and Europe from record Iraqi exports, while the US could become a growing market again as shale production tails off. Saudi oil exports to the US have dropped 29 per cent in three years.

    “It’s unclear to me why they would hold any barrel that they could produce back,” says Bob McNally, a former White House adviser and consultant at Rapidan Group.

    One explanation is that Saudi officials are concerned that the world’s cushion of spare production capacity — that they largely maintain — has shrunk to about 2 per cent of world demand. They also question if the US shale industry can replicate the kingdom’s so-called “swing producer” role.

    Saudi Arabia may also have good reason to talk up the price. An oil price averaging almost half the level enjoyed for the first four years of this decade has put pressure on domestic finances.

    The kingdom has drawn on its foreign exchange reserves and plans to tap international debt markets to maintain social spending and meet higher defence costs as its war in Yemen drags on.

    It also has to placate Opec peers, especially economically weaker members like Venezuela and Ecuador, which were struggling to balance their budgets even when oil was above $100 a barrel.

    “They don’t want to see oil below $40 [when Opec meets] on December 4,” says Ole Hansen at Saxo Bank, adding that he believes the kingdom is trying to make a “verbal intervention” in the market, as it has done in the past.

    “This is all really about buying time,” he adds. “Demand growth will eventually start to work off the glut, but there’s no point going bankrupt in the meantime.”

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    Saudi Aramco to invest more in Indonesia's oil and gas sector

    Saudi Aramco is looking for further investment opportunities in Indonesia's downstream refining and petrochemicals industry, the company's CEO said on Thursday, after initiating a $5.5 billion project to upgrade the country's largest refinery.

    The Saudi Aramco CEO's comments are positive for Indonesian President Joko Widodo's efforts to attract investment after a clean-up of the country's oil and gas sector that followed a series of scandals.

    "Indonesia is an important country for Saudi Arabia, a rising global economy, we would like to be a part of the growth of Indonesia," Saudi Aramco CEO Amin H Al-Nasser said at the signing of the initial agreement to upgrade the Cilacap refinery in Indonesia's Central Java province.

    Indonesia will rejoin OPEC as its 13th member nation next month.

    The project is expected to increase the refinery's crude processing capacity to 370,000 barrels per day (bpd) from 348,000 bpd at present, and is also likely to include an agreement to import crude from Saudi Arabia, the world's top crude exporter.

    The upgrade will include a new hydro cracker unit, as well as units to increase production of paraxylene and polypropylene production, according to a Pertamina statement.

    "It's a great opportunity for growth in a global market," Nasser said. "We're hoping this is the start."

    Aramco was also expected to join a tender to develop a greenfield refinery project in East Java, Wiratmaja Puja, Indonesia's director general of oil and gas, said.

    Further details on a strategic partnership between Aramco and Indonesia's state energy company Pertamina have yet to be finalised, including how a joint venture between the two will be shared.

    Indonesia broke off talks on building two refineries with Aramco and Kuwait Petroleum in 2014 due to a disagreement over taxes and fiscal terms.

    Brent crude trading at $45 a barrel may have helped restore investor interest in Indonesia's downstream sector as Saudi Arabia and other oil companies move to secure markets.

    Saudi Arabia, OPEC's top producer, has rebuffed calls to cut output in an effort to support prices, and is instead focused on defending market share.

    Nasser said Aramco would meet its customers' demands.

    Read more at Reuters
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    Glencore Says Disputed Libyan Oil Deal Has Global Support

    Glencore Plc oil chief Alex Beard defended the company’s crude-export contract with Libya’s National Oil Corp. in the west of the divided country after the competing administration in the east threatened to block its tankers.

    “International oil companies and the international community fully support NOC’s position,” Beard said in a statement, confirming for the first time the September deal with the Islamist-backed government to ship oil from the Marsa al-Hariga port. “They have made it very clear there is no alternative to the NOC at its legal address in Tripoli as the only recognized marketer of Libyan oil.”

    The comments follow claims earlier this week from the competing NOC arm in the internationally recognized government in eastern Libya that it will try to stop any tanker operating for Glencore from loading oil at the nation’s ports. The NOC in eastern Libya in the east had sent a letter to Glencore seeking to confirm whether an accord had been signed with the administration based in Tripoli.

    Mustafa Sanalla, chairman of the oil operator in the western region, said it’s legally entitled to sign a contract with the Swiss commodities trader.

    “The NOC, at its legal address in Tripoli, remains the only legally empowered oil contracting authority of the Libyan state,” Sanalla said in the joint statement distributed by Glencore. “It remains the seat of contracts for all the production, transportation and sale of Libyan oil. The Board of NOC is committed to protecting the integrity and viability of the NOC.”
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    More floaters scrapped in one year than in previous two decades

    Offshore drillers have scrapped forty-four floating drilling rigs in a little over a year, due to a combination of persisting low oil prices, reduced drilling activity, and oversupply in the rig market.

    The numbers above were revealed this week by Seadrill, one of the largest providers of ultra-deepwater drilling rigs, who expects the challenging market situation for drillers in 2016 as well.
    In its report, Seadrill said that the 44 rigs scrapped over the past 14 months, represent more retirements than over the past 20 years combined.

    According to Seadrill, scrapping spree will most likely continue as older and less capable drilling rigs that are coming off contracts in the near term, will have a difficult time securing new work. Why? Because the older units will be priced out of the market by newer, more capable rigs.

    Drilling rigs that are 15 or 20 years old require significant capital investments to remain part of the active fleet and very few rig owners will find economic justification to keep these old assets working, Seadrill explained.

    When a rig is out of work, the owner has three option: warm stacking, cold stacking, or scrapyard.

    Warm stacking means a rig will be idle, but with crew on board, ready for quick redeployment; cold stacking is done when the owner thinks a rig will be unable to get a meaningful contract for a considerable amount of time.

    Seadrill is rooting for more cold stacking: “Significant cold stacking activity would represent a positive development in the market, effectively reducing marketed supply and helping to stabilize utilization and pricing until a more fundamental recovery is in place.”

    The driller also highlighted the fact that under the current market condition, it will be challenging to return a cold stacked rig to the market: “Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply.“

    However, Seadrill doesn’t see much improvement in the drilling market conditions, at least in the near term, as oil companies are slashing their drilling budgets and pressing drillers to lower dayrates.

    In addition, there is an issue of the already mentioned oversupply, in a market that currently doesn’t need any more rigs.

    Currently, Seadrill says, 205 rigs are working, representing 73% marketed utilization. It is estimated that 180-200 rigs are needed in the floater fleet to maintain current decline curves. On the assumption that no new contracts are signed the market is expected to reach this level by Q1 2016.

    “After two significant year on year declines, there is some recovery in spending is expected in 2017, but forward visibility continues to be challenged and the timing and extent of the recovery remains uncertain,” the company said.

    As for the floater orderbook, the driller says, there are currently approximately 70 units on order, of which 29 are Sete new builds.

    “A significant number of these newbuild orders have been delayed or cancelled and we expect this trend to continue. Delayed or cancelled newbuilds will ultimately be added to the fleet, however until an improved market justifies taking deliveries, the vast majority will likely remain in the shipyards,” the company said.

    Seadrill expects, between now and 2018, to see an overall contraction in the floater fleet due to delivery delays and scrapping activity.

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    Sinopec offers refineries bonus to export surplus diesel -sources

    China's Sinopec Corp is offering its subsidiary refineries big incentives
    to export their diesel fuel, sources said, in a rare move that reflects the top Asian refiner's deepening concerns about a growing domestic glut.

    The internal bonus scheme marks the latest step by the state-owned refiner to battle local oversupply of the industrial fuel as slowing economic growth curbs diesel use in mining, construction and transportation.

    The company has maintained relatively high production in order to feed growing domestic demand for kerosene and gasoline, thus exacerbating the diesel surplus, oil sources say. Sinopec's crude runs were up 1.4 percent in the first three quarters of 2015 compared with a year ago, according to corporate filings.

    About a half-dozen of Sinopec's refineries are being offered around 240 yuan ($37.60) for each tonne of diesel exported, under a scheme that started in September and has been extended to December, said two people familiar with the bonus plan.

    That's an additional 6 percent on top of domestic pre-tax wholesale prices, worth some $80 million over four months, according to Reuters' calculations based on estimates of Sinopec's exports.

    "Sinopec is anticipating China's robust gasoline demand growth will sustain in 2016. To produce more gasoline means more diesel output from refineries," said Gordon Kwan, head of oil and gas research with Nomura in Hong Kong.
    "Diesel demand in China will remain subdued, thus the potential for diesel exports to rise further ahead."

    The growing overseas sales from Sinopec, representing roughly 60 percent of China's diesel exports, comes as the government prepares to allow smaller, independent refineries to export refined fuel for the first time.

    Read more at Reuters

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    Gazprom to purchase all Perenco project LNG

    Gazprom has agreed to purchase all of the LNG from the Perenco project in Cameroon. The project is owned by the Norwegian shipping company, Golar LNG, and is scheduled to begin operations in 2017.

    Gazprom Marketing & Trading (GM&T) will buy 1.2 million tpy of LNG from the facility, which Reuters claims it will try to sell to Atlantic markets and China.

    Reuters claims that Gazprom had also previously tried to purchase all available LNG from a production plant in Colombia, but this has not gone through due to project delays.
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    Norway government on spot over Statoil

    Norway waits for a response, as cost cuts, unemployment and fears for future projects take their toll

    Statoil is behaving like most major oil companies these days — delaying projects, cutting costs and reducing its workforce. But how much longer will its major stakeholder, the Norwegian government, sit idly by and allow this to carry on?

    Industry observers are waiting for the government to respond to Statoil and others cutting more than 35,000 jobs from the oil and gas sector over the past year, almost singlehandedly increasing the country’s unemployment rate by nearly 2%.

    The budget cuts even spurred wholly-owned state player Petoro to warn the Ministry of Petroleum & Energy that constrained access to capital may mean some of the country’s time-sensitive hydrocarbon resources will never be developed.

    Statoil argues that project postponements are just part of a drive to reduce costs in Norway, but the logic can be questioned.

    So far four drilling rigs on long-term charters to Statoil have been cold-stacked, earning dayrates of between 70% and 80% of the contractually agreed sums, even though the operator has several profitable drilling targets on existing fields.

    Petoro believes Statoil is stalling or scaling-down several profitable projects at fields including Snorre, Oseberg, Heidrun, Johan Sverdrup 2 and Johan Castberg.

    Energy advisor Hans Henrik Ramm argues that capital restraints should not be accepted as a valid excuse to avoid investments, as this is purely a question of priorities.

    He believes the government — which is highly dependent on petroleum revenues — will be forced to act if there is a risk that profitable, time-sensitive resources are at stake. The government, however, cannot use its 67% ownership to force Statoil to make investments that its management opposes without causing a stock market uproar and possible legal action by minority shareholders.

    Some argue the time has come to allow Petoro to act as an operator, having been established in 2001 at the same time as Statoil was listed on the Oslo and New York stock exchanges.

    Petoro, with only 68 employees, handles the state’s direct financial interest in Norwegian offshore licences and is supposed to function as a counter-weight to Statoil.

    However, this role is made all the more difficult if the government continues to give Statoil’s views on oil and gas policy more weight than Petoro’s.

    Another way for Statoil to raise cash and boost spending is by divesting stakes in producing fields, but those such as Snorre, Oseberg and Heidrun have a strong symbolic value for Norway and are extremely profitable.

    Neither the government nor Statoil may be keen to sell stakes in these fields to foreign investors, and the company would probably prefer to sacrifice a few hundred million barrels in future production. Then there is the question of Statoil’s dividend payments, with some, including Norwegian Business School professor Oystein Noreng, arguing they should not be prioritised given current circumstances.

    “But management bonuses are tied to the share price. Curiously, the major owner, the state, does not intervene,” he said.

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    Frontline says 20-30 VLCCs currently storing oil globally

    Leading operator Frontline said that less than five percent of the global fleet of supertankers is currently used for storing oil as the cost of renting the ships, known as very large crude carriers or VLCCs, is too high to make this profitable.

    Frontline Management Chief Executive Robert Hvide Macleod said that around 20-30 VLCCs, or between 3.1-4.7 percent of the global fleet of 645 ships, is now used for storage.

    The vessels now used for storage could typically store a combined 40-60 million barrels of oil.

    Oil traders who expect crude prices to rise will often buy cargoes and store them on ships, but the cost of renting the vessels has risen sharply this year thanks to rising output from leading producers.
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    B.C. natural gas drilling suffers decline: report

    As of mid November, drillers had punched 462 natural gas wells in the ground in B.C., down 32 per cent from the end of November a year ago, according to the B.C. Oil & Gas Commission.

    Natural gas drilling activity has dropped off sharply in British Columbia’s northeast this year and 2016 doesn’t promise to be any better, according to a new report by the Canadian Association of Oilwell Drilling Contractors.

    The situation will continue as long as North America’s energy markets remain depressed and producers wait out decisions on whether or not liquefied natural gas export proposals will proceed.

    As of mid November, drillers had punched 462 wells in the ground in B.C., which isn’t the worst result in the last five years, but is down 32 per cent from the end of November a year ago, according to the B.C. Oil & Gas Commission.

    And the CAODC doesn’t see conditions changing much for 2016, said John Bayko, the association’s vice-president of communications.

    “By all indications, B.C. is trending downward just like the rest of Western Canada,” Boyko said. “I think we’ve seen a (big) decrease in operating days year-to-date in B.C. and we don’t anticipate that being any different moving into 2016.”

    The association doesn’t have a specific forecast for B.C., but predicts across Western Canada contractors will drill 4,728 wells in 2016. Without complete figures for 2015 yet, the organization cast the figure as a 58-per-cent decline from 11,226 wells in 2014.

    “The key (drivers), obviously, are commodity prices, and those have been down for quite some time,” Bayko said.

    For B.C., natural gas prices have wavered up and down at depressed levels that have made profitability a difficult proposition for many companies.

    Natural gas prices dipped again Wednesday as long-term weather forecasts in the eastern U.S. continue to call for temperatures well above seasonal norms, which has led American stores of the fuel to grow to a four-year seasonal high, according to the U.S. Energy Information Administration.

    Read more:

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    Gas Driller Hits a Gusher—and Sinks Its Own Stock

    EQT Corp. this summer drilled what by some measures is the biggest natural-gas gusher ever. The Pittsburgh energy company’s reward: a tumbling stock price.

    The well, in southwestern Pennsylvania’s Greene County, spewed enough gas in its first 24 hours to power every home in Pittsburgh for nearly three days. Named Scotts Run 591340 after a historic coal field that sparked a regional energy boom after World War I, the well has continued to produce at unusually high rates with no signs of fading soon.

    That would sound like good news. But in a glutted industry in which natural-gas prices are plunging as record amounts of unused gas build up in storage, it is a problem. Since EQT finished drilling the gusher in July, its shares have lost 29%, while U.S. natural-gas prices have fallen 24%.

    Scotts Run 591340 taps part of a rock formation called the Utica Shale that has only been lightly explored so far because it sits almost 3 miles below the Earth’s surface.

    Situated beneath Pennsylvania, West Virginia and Ohio, the Utica is close to gas-consuming regions of the Northeast. If it proves as productive as EQT’s well and a few nearby wells suggest, it could mean trouble for billions of dollars of wells and pipelines built in and from more established regions like north Louisiana and the Rocky Mountains.

    “Because the Utica is a big unknown, fear has overtaken the market,” said Matt Portillo, managing director at energy-focused investment bank Tudor, Pickering, Holt & Co.

    EQT said last month that it would suspend drilling projects in other parts of Pennsylvania to concentrate on the Utica, where it thinks wells have the potential to be so prolific that they could lower natural-gas prices and make competing projects uneconomical.

    “Some of our other inventory that requires higher prices to make economic returns would be deferred, possibly for many years,”David Porges, EQT’s chief executive, told investors on a conference call last month.

    The Utica is already starting to alter the U.S. natural-gas balance. The U.S. Energy Information Administration said this week that the country’s proved reserves of natural gas rose 10% in 2014 to a record of 388.8 trillion cubic feet. Ohio’s reserves nearly tripled thanks to finds in portions of the Utica Shale, a big factor in the higher total, the government agency said.

    Meanwhile, gas stockpiled in the contiguous 48 states exceeded four trillion cubic feet for the first time ever last week, as producers continue to drill new wells despite depressed prices and forecasts for a mild winter that would limit demand for the heating fuel.

    Shares of EQT rivals Range Resources Corp. and Consol EnergyInc. have slid 44% and 54%, respectively, since those companies disclosed their own prolific Utica wells in December and July.

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    Alternative Energy

    French businesses pledge funds to fight global warming

    A group of 39 French firms, including oil and gas major Total and nuclear group Areva, pledged to invest at least 45 billion euros ($48 billion) during the next five years in renewable energy and low-carbon technologies.

    The promise, made on Thursday, comes as world leaders gather in Paris ahead of a two-week climate summit in the French capital from Nov. 30 to Dec. 11.

    The meeting aims to agree on a plan to curb global warming by keeping the temperature rise below a ceiling of 2 degrees Celsius.

    The group of businesses, including utility EDF, telecoms company Orange and bank Societe Generale have a combined revenue of about 1.2 trillion euros ($1.3 trillion).

    The companies said signing the pledge was their contribution in the fight against climate change.

    "It is a commitment to a low-carbon economy, and these are all new funds that will be invested," Total Chief Executive Officer Patrick Pouyanne said at a joint news conference.

    "Out of the 45 billion, we as Total intend to invest more than 4 billion euros in the next five years, particularly in solar, but also in bio fuels," Pouyanne added.

    The companies said they also plan to provide bank and bond financing of at least 80 billion euros for climate change projects, and foresaw around 15 billion investments in new nuclear capacities and 30 billion euros in gas as an energy transition solution.
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    Spanish renewable energy firm in bankruptcy protection steps

    Spanish renewable energy and engineering giant Abengoa says it has begun bankruptcy protection proceedings in a bid to avoid what could be one of the country's largest insolvencies.

    Abengoa told Spain's market regulator in a statement Wednesday that it will be seeking preliminary protection from creditors with the aim of reaching a deal on its debts within four months.

    The statement came after a Spanish technology firm announced it was pulling out of an agreement to help invest in the Seville-based firm.

    Abengoa, which has some 24,000 employees worldwide, has debts worth some 9 billion euros ($9.5 billion).

    Abengoa shares were down by nearly 50 percent at 0.47 euros in early afternoon trading in Madrid.
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    Unilever aims to use only renewable energy by 2030

    Consumer goods maker Unilever said it would switch to using only renewable energy by 2030 and would stop using energy from coal by 2020, as businesses jostle to highlight their green credentials ahead of a global climate summit.

    World leaders were set to meet in Paris from Nov. 30 to Dec. 11 to agree on a plan to curb global warming.

    Unilever was among 81 companies, along with rivals Nestle and Procter & Gamble, that have signed up to set emissions targets for their businesses with the aim of limiting global warming to less than 2 degrees Celsius.

    Unilever Chief Executive Paul Polman is a leading advocate for the idea that there is a business case for sustainability even as his company's sales have slowed under the weight of a weak margarine business and slowing emerging market economies.

    "If we don't tackle climate change we won't achieve economic growth. This is an issue for all businesses, not just Unilever. We all have to act," Polman, who will attend the talks in Paris, said in a statement.

    Polman is part of a group of business leaders who want governments to commit to zero net emissions by 2050.

    Under targets set in 2010, Unilever said it aimed to be eventually wholly powered by renewable energy, setting an interim target for renewables to meet 40 percent of its energy needs by 2020. It is now raising the 2020 target to 50 percent and aiming for 100 percent by 2030, up from 28 percent in 2014.

    Unilever said it wants all the electricity it buys from the grid to come from renewable sources by 2020 and will seek to support renewable energy generation, so by 2030 it can make a surplus available to markets and communities where it operates.

    Earlier this year, IKEA, the world's biggest furniture retailer, said it plans to invest heavily in renewable energy as it seeks to generate all the energy used in its shops and factories from clean sources by 2020.

    Unilever says it has saved over 400 million euros ($424 million) through eco-friendly measures taken at its factories since 2008 and says its brands that most fully embrace sustainability - such as Dove, Lifebuoy, Ben & Jerry's and Comfort - perform the best.

    Read more at Reuters
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    Germany's Solar output: towards december lows.

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    Base Metals

    Rio Tinto to go ahead with $1.9 bln bauxite expansion

    Rio Tinto gave the go-ahead on Friday to expand its bauxite output in northern Australia with a $1.9 billion project, approving a major mine at a time when most miners worldwide are slashing spending.

    The Amrun project in Queensland state will initially produce 22.8 million tonnes of bauxite a year, replacing output from Rio's East Weipa mine, as the company aims to meet soaring demand from Chinese aluminium makers.

    With mining costs in the lowest quartile for bauxite mines worldwide, Rio said it planned to eventually expand production at Amrun, previously called South of Embley, to produce 50 million tonnes a year.

    "Amrun is one of the highest quality bauxite projects in the world," Chief Executive Sam Walsh said in a statement.

    "This long-life, low-cost, expandable asset offers a wide variety of development options and pathways over the coming decades," he said.

    Read more at Reuters
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    Tin market deficit as production drops 8%

    Along with the rest of the base metals complex tin enjoyed a nice bump on Thursday on speculation that Chinese miners are getting serious about production cuts and Beijing may start stockpiling metals to make the most of low prices.

    Tin gained nearly 2% to trade just under $15,000 on Thursday, recovering from a low of $14,200 a tonne hit earlier this week. The metal is still trading down more than 20% in 2015.

    The market is set for a 6,000 tonne deficit in 2015, despite a decline in demand from top consumer China, the International Tin Research Institute announced today.

    Platts News reports demand is expected to fall by 3% this year, and remain flat in 2016 at around 347,000 tonnes. The shortfall comes on the back of a steep in decline in primary production with world tin production likely to decline by around 8%. That will push the 2016 deficit to 10,000 tonne:

    "The tin market has been in deficit for eight out of the last 10 years and it appears likely that structural deficits will continue in the near future," said Peter Kettle, ITRI's markets manager.

    "Looking further ahead we see the possibility of a new growth spurt in tin use, most probably driven by existing and new applications linked to energy conservation and storage."
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    Steel, Iron Ore and Coal

    Indonesia's Nov HBA thermal coal price hit a new low

    Indonesia's November thermal coal reference price, also known as Harga Batubara Acuan (HBA), was set at $54.43/t FOB, the lowest ever recorded since its inception in January 2009, said the Ministry of Energy and Mineral Resources on November 12.

    The November HBA price represents a drop of 5.15% from October and down 17.15% from the same period last year.

    The weakening price is expected to continue until the end of the year, said Adhi Wibowo, director of Development and Utilization of Coal Ministry of Energy and Mineral Resources on November 24, but he was not sure how much the closing price of coal this year.

    Adhi explain the fall in coal prices this November because global demand has declined again.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on 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. “All index has decreased,” he said.

    The index today does not reflect the price of domestic coal because most describe high calorie coal prices. Though Indonesia is the biggest producer of low-grade coal. Therefore, Ministry of Energy and Mineral Resources continues to create new Indonesian Coal Price Reference (ICPR) formula and expected to be completed in December 2015.
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    Arsenic and mercury found in river days after Brazil dam burst

    Illegal levels of arsenic and mercury polluted the Rio Doce river in the days after a dam burst at an iron ore mine in early November in Brazil's worst-ever environmental disaster, according to tests by a state water agency.

    The Institute for Water Management in Minas Gerais (IGAM), found arsenic levels more than ten times above the legal limit in one place along the Rio Doce after the dam burst on Nov. 5, killing at least 13 people and flooding thick mud across two states. Mercury slightly above the permitted level was also found in one area.

    In total, IGAM found unacceptable levels of arsenic on one or more days between Nov. 7 and Nov. 12 at seven places on the Rio Doce, which stretches over 800 km (500 miles) from the mineral-rich state of Minas Gerais to Espirito Santo on the Atlantic coast.

    The report, dated Nov. 17 but only released on IGAM's website on Tuesday after pressure from prosecutors, appears to contradict claims by the companies responsible for the mine.

    Samarco, the mine operator, and its co-owners, BHP Billiton PLC and Vale SA, have repeatedly said the water and mineral waste unleashed by the dam burst are not toxic.

    Samarco said in a statement on Thursday that their own tests showed the mine waste in the dam, known as tailings, did not pose any harm to humans.

    On Wednesday, the United Nations human rights agency said "new evidence" showed the mud "contained high levels of toxic heavy metals and other chemicals," without specifying what the chemicals were or where the evidence came from.

    Leonardo Castro Maia, a prosecutor in the city of Governador Valadares, which had its water supply cut off by the mud, told Reuters he had been pushing IGAM to publish its findings on its website. After a delay, he said the agency had complied.

    "There's been a real lack of communication between the bodies testing the water and the wider population. The distribution of information needs to be improved," Maia said.

    Tommasi Laboratorio, a company hired by Espirito Santo's environmental agency to do tests on the water, said it had also found arsenic above legal levels but quantities had fallen in recent days.

    "It's arsenic that wasn't there before the dam burst," said lab owner Bruno Tommasi. He said his tests had found no mercury or uranium and also urged caution about how to interpret the arsenic results.

    "Different types of arsenic cause varying levels of harm and our tests did not specify what type of arsenic was in the water," he said.

    Biologists working along the river and coastline have been shocked by the impact of the burst dam.

    The mud has killed thousands of fish, but BHP said they most likely choked to death on the sheer volume of sediment released by the dam, rather than the chemical composition of the sludge.

    Read more at Reuters
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    Western German steelworkers to get 2.3 pct pay increase

    Steelworkers in the western German state of North Rhine-Westphalia will receive a pay rise of 2.3 percent next year, despite tough conditions in the industry, union IG Metall said on Thursday.

    The talks on a pay deal for 75,000 workers lasted 11 hours and an agreement was reached in the early hours of Thursday morning, said the union, which had initially called for a pay increase of 5 percent.

    "Despite difficult conditions in the steel industry, our workers will not miss out on the overall positive economic climate," Knut Giesler, IG Metall negotiator said in a statement.

    The steel industry has been severely hit by a global crisis in the sector that is fast rising up the political agenda in Europe, where many steelmakers lay much of the blame for their predicament on record steel exports from China.

    ArcelorMittal, the world's largest steel producer, cut its full-year profit forecast this month and in Britain, weak steel prices have led to heavy job losses and the liquidation of the country's second-largest steelmaker.

    IG Metall said it and employers had agreed to discuss how to secure jobs in the industry with politicians.

    "Secure jobs and fair wages in the steel industry require fair competition. Politicians in European must contribute to that," Giesler said.

    The new pay deal runs until the end of February 2017 and also includes a one-off payment of 200 euros ($212.40) for November and December 2015.

    Read more at Reuters
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    Chinese HBIS Tanshan Group plans 3 million tonnes steel plant in Oyo state in Nigeria

    CAJ News reported that Chinese company, HBIS Tanshan Group, has proposed the establishment of a 3 million tonne steel plant in Oyo State in Nigeria.

    The group disclosed this at a meeting with the state government officials, represented by the State Deputy Governor, Moses Alake-Adeyemo, and other top government officials were also present. One of the directors, Zhao Lishu, and the current Special Adviser to the Minister for Steel in China, Gu Lin, led the Chinese delegation.

    The HBIS delegation from China was led by Alake-Adeyemo assured the company the state was one of the largest in Nigeria with the largest land mass. Oyo is the 14th largest of the 36 states.

    He said proposed partnership with the HBIS group was a strategic one. He said “We cannot quantify the merits of this proposed partnership between HBIS and Oyo state. This partnership will definitely increase Oyo state’s IGR, employment, investment etc. Oyo state is prepared to partner with HBIS in establishing the 3 Million MT Steel Plant. For any country to develop, iron and still will be core to their development.”

    The Chinese HBIS Group Han-Steel was established in 1958. It has developed into one important high-quality plate and strip production base in China after over half a century of hard work and has comprehensively possessed an annual steel production capacity of 10 million tonnes.

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