Scorching weather across the globe makes fields too dry for crops, rivers too warm to cool power plants, and leaves wind turbines idle – and it’s pushing commodities prices higher
By
Rachel Morison
,
Marvin G Perez
, and
Nicholas Larkin
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Commodity producers are having a summer to remember, for all the wrong reasons.
A heatwave across swathes of North America, Europe and Asia, coupled with a worsening drought in some areas, is causing spikes in the prices of anything from wheat to electricity. Cotton plants are stunted in parched Texas fields, French rivers are too warm to effectively cool nuclear reactors and the Russian wheat crop is faltering.
The scorching heat is extracting a heavy human cost – contributing to floods in Japan and Laos and wildfires near Athens. Relief from soaring temperatures, which topped 30 degrees Celsius (86 degrees Fahrenheit) in the Arctic Circle, may not arrive for at least two weeks.
It’s a timely reminder of the vulnerability of global commodity markets to the changing climate, as human activity disrupts the behavior of plants, animals and the march of the seasons.
Wheat prices surge to a three-year high as the heatwave hurts Europe's crop
Source: Euronext
The heat and lack of rainfall is pummeling crops across Europe as far as the Black Sea. Output in Russia, the world’s top wheat exporter, is set to fall for the first time in six years, while concerns continue to mount about smaller crops in key growers such as France and Germany. Wheat futures for December have jumped almost 10 percent in the past month in Paris, with prices this week reaching the highest since the contract started trading in 2015.
After years of bumper harvests, global output could drop this year for the first time since the 2012 to 2013 growing season. This could have political and social ramifications. Egypt, which relies on subsidized bread to feed its almost 100 million people, is already paying the highest price for its imports in more than three years.
High temperatures are forecast to continue in France, disrupting power plants
Source: The Weather Co. using GFS model
French farmers aren’t the only ones finding the weather too hot to handle. The country’s fleet of nuclear power plants is also suffering.
Rivers have become too warm to effectively cool the reactors, and Electricite de France SA may be forced to cut output later this week at two stations. The hot weather also has forced a German coal-fired plant to curb operations and reduced the availability of some plants in Britain fired by natural gas.
France gets more than 70 percent of its power from 58 atomic stations and is a net exporter of electricity to neighboring countries. Any reductions in output would potentially boost prices across the continent.
The sultry conditions are also leaving wind turbines virtually at a standstill. In Germany, wind output over the past 10 days has been a third lower than the average for the year so far. Windmills are also becalmed in Spain, Italy, the U.K., Denmark and Sweden. Solar operators are enjoying the weather, but they can’t fill the gap left by wind and demand for natural gas is rising.
French and German day-ahead wholesale power is at the highest for the time of year for a decade, while in Britain they’re the most since at least 2009.
Electricity prices surge as Texas heat smashes records
Source: Data compiled by Bloomberg
Over in Texas, power prices are also jumping due to the heat. The northern part of the state smashed a 93-year-old daily temperature record last week, sending demand surging as people heeded advice to stay indoors and crank up their air conditioning. Wholesale prices for electricity secured a day in advance reached three-year highs, although they’ve since fallen as temperatures moderated.
Temperatures got so high that the National Weather Service was advising north Texas residents to avoid walking their dogs, lest they burn Fido’s paws. But for farmers in the west of the state, the drought was hurting even more than the heat.
The West Texas cotton belt – the world’s most productive area for the crop – is brown, baked, cracked and dusty. The dryness is so bad that close to half of the state’s crop is in poor or very poor condition, U.S. government data show. About 4.5 million acres of the fiber are planted in the region, 60 percent of which depends on rain because it isn’t irrigated.
"I lost everything in the dry land,” said Lloyd Arthur, a fourth-generation farmer in Crosby County. He’s not expecting to harvest anything from about a quarter of the 2,000 acres of cotton he sowed this season.
Cotton futures are up more than 10% this year on drought fears
Ron Harkey, the president and chief executive officer of the world’s largest cotton warehouse in Lubbock, expects to get 1.5 million bales from members of a growers cooperative in the area this year. That’s down from 2.5 million last season. Tighter supplies have helped drive cotton traded in New York up more than 10 percent this year.
— With assistance by Mathew Carr, and Jason Gale
Mitch Ingram, Anadarko Executive Vice President, International, Deepwater and Exploration, delivered a keynote address at the World Gas Conference in Washington D.C. in which he announced that he expects the Anadarko-led Mozambique LNG project to be in position to take FID (Final Investment Decision) in H1 2019.
He also announced that the project and its contractors are realising significant cost savings amounting to approximately US$4 billion over 2016 estimates. As a result of these savings, Anadarko expects to deliver the first two onshore liquefaction trains with 12.88 million tpy capacity for approximately US$7.7 billion (less than US$600/t).
In addition, the company reiterated that it has announced 6.7 million tpy of off-take agreements and has agreed to key terms for the targeted volume of 8.5 million tpy, enabling it to proceed with incremental project financing discussions with lenders. The focus now is on converting these non-binding commitments into fully termed Sale and Purchase Agreements (SPAs).
Japanese steelmakers reported little fallout in their first-quarter earnings from the U.S. import tariffs on steel, but they all voiced growing concerns over possible U.S. duties on automobiles which could hurt a wide range of Japan’s industries.
U.S. President Donald Trump ordered a national security probe into imports of automobiles in May. Similar national security investigations were the precursor to the imposition of import tariffs of 25 percent on steel and 10 percent on aluminum in March.
Nippon Steel & Sumitomo Metal (5401.T), Japan’s top steelmaker, on Thursday reported its recurring profit fell 19 percent in the April to June quarter from a year earlier, weighed down by lower appraisal gains in raw materials inventory and rising costs of secondary materials.
But it forecast a profit gain for the year to March 31 as it plans to boost steel output to meet local demand in automobiles and construction as well as raise product prices to pass on the rising costs of materials such as manganese and zinc.
“Demand for automobiles, including SUVs for North America and electric vehicles for Europe, are strong,” Nippon Steel Executive Vice President Katsuhiro Miyamoto said, adding that demand for industrial machinery and construction are also solid.
JFE Holdings (5411.T), Japan’s second-largest steelmaker, logged a 41 percent jump in first-quarter recurring profit and raised its full-year forecast by 18 percent, on higher product prices.
Both companies shrugged off the U.S. steel tariffs in their quarterly earnings, but raised concerns of weakening demand linked with U.S. tariffs on autos.
“We had only limited impact from the U.S. duties so far,” JFE Executive Vice President Shinichi Okada said.
“But if U.S. tariffs expand into autos, we will have some impact as automakers are our major customers,” he said.
Nippon Steel has seen no major ramifications from the U.S. duties as its exports to the U.S. market are only 2 percent of its total shipments, Miyamoto said.
Rather, its U.S. units, which have an annual production capacity of 7.1 million tonnes, are benefiting from higher U.S. steel prices, he said.
“But our biggest concern is over autos,” he said, noting that Japanese steelmakers supply about 3.5 million tonnes of material a year for automobiles that are exported from Japan to North America.
“If it happens, the impact will be big,” he said.
The United States signalled on Thursday it is set to push ahead on trade talks with Canada and Mexico after agreeing to suspend hostilities over tariffs with Europe in a fragile deal that may clear the way for renewed pressure on China.
A surprise deal struck on Wednesday will see Washington suspend the imposition of any new tariffs on the European Union, including a proposed 25 percent levy on auto imports, and hold talks over tariffs on imports of European steel and aluminum.
The deal boosted share markets initially, and U.S. industrial shares were stronger on Thursday as fears of a trade war with Europe ebbed.
Both sides claimed victory in the deal, reached by Trump and European Commission President Jean-Claude Juncker in Washington. In return for the talks and a suspension of auto tariffs, the EU will import more soybeans and energy from the United States.
A White House official told Reuters that Juncker had shown greater flexibility than expected in the talks and that while there was no deadline for an overall deal, Trump retained the power to impose tariffs if progress was not made.
One key aspect of the agreement, according to the official who spoke on condition of anonymity, was that the two sides had agreed to work together to tackle China’s market abuses.
“They want to work together with us on China and they want to help us reform the WTO (World Trade Organization),” said the official, adding that the Europeans came into the talks “with a real positive spirit”.
Trump has announced a series of punitive tariffs on Chinese imports in a bid to halt a Chinese surge in high-technology industries that threatens to displace U.S. dominance. Both the U.S. and the EU charge that Chinese companies steal company secrets.
On the North American Free Trade Agreement talks with Canada and Mexico, Treasury Secretary Steve Mnuchin said he was “hopeful that we’ll have an agreement in principal in the near future.”
“Whether it’s one deal or two deals, so long as we get the right agreement, we’re indifferent,” Mnuchin told CNBC.
Trump and officials from his administration said the EU had given ground by agreeing to import more American goods and to hold talks on tariff reductions including on cars, an industry in which Trump has accused Europe of imposing heavy duties.
EU officials said little had been given away by Juncker and that Europe had emerged as the winner by getting Trump to defer the threatened car tariffs which would have hit European carmakers hard.
The deal was hailed by commentators in the United States and Europe for drawing back from an escalation in a trade war that had threatened to take the world back to the kind of protectionism not seen since the 1930s, although some cautioned the relief may be only temporary.
French President Emmanuel Macron appeared to challenge the deal, saying on Thursday he would not discuss agriculture in talks with the United States.
If it holds, the US-EU pact could allow both to focus on China, whose economic rise threatens both. Lawmakers in Washington on Thursday passed legislation to slow Chinese investment in U.S. companies. In Europe, alarm bells have been sounded over China’s growing economic influence there.
“U.S. and EU will be allied in the fight against China, which has broken the world trading system, in effect,” Trump’s economic adviser Larry Kudlow said. “President Juncker made it very clear yesterday that he intended to help us, President Trump, on the China problem.”
In Beijing, Chinese Foreign Ministry spokesman Geng Shuang said trade disputes should be resolved through talks on the basis of mutual respect and equality.
“Engaging is unilateralism or protectionism is not the way out,” Geng said, when asked about Kudlow’s comments.
CASUALTIES IN TRADE FIGHT
Since taking office last year, Trump has implemented policies to restrict what he sees as unfair competition from other countries. He tore up an agreement to join a Pacific trade pact, has threatened to pull out of NAFTA, and imposed steel and aluminum tariffs aimed at China.
In an effort to rein in China’s high technology industries that he charges have stolen intellectual property from American companies, Trump has ramped up threats of tariffs on $50 billion worth of imports from China to $450 billion after China retaliated with its own duties on imports from the United States.
The impact has fallen mainly on U.S. farmers and Republican party lawmakers. A move by Trump to offset farmers’ losses with a $12 billion aid package drew criticism with farmers saying they wanted access to markets rather than subsidies.
U.S. Trade Representative Robert Lighthizer, a veteran of trade negotiations from former President Ronald Reagan’s administration in the 1980s who is Trump’s top trade official, told lawmakers in Washington that the United States could not afford to capitulate to China economically.
“I don’t think it’s a stupid fight,” Lighthizer said of the trade battle with China in heated exchanges in the Senate. “I don’t know a single person that has read this report that thinks it’s a stupid fight to say China should not be able to come in and steal the future of American industry.”
A more conciliatory tone emerged from Mnuchin, who told CNBC the United States was willing to reopen trade talks with China if Beijing was willing to make “serious changes,” as he said the EU had indicated it was willing to do.
In May, the United States and China initially appeared willing to strike a deal that would see China reduce its $350 billion surplus in the trading of goods by buying more U.S. agriculture and energy products.
That deal fell apart quickly and has been replaced with a rising tally of tariff retaliation that has led to Trump threatening tariffs on almost everything the United States imports from China.
China has threatened to retaliate dollar for dollar, and its refusal to sign off on regulatory approval caused a $44 billion deal from Qualcomm Inc (QCOM.O) to buy NXP Semiconductors (NXPI.O) to fall apart, a move that showed U.S. companies were being targeted unfairly, Mnuchin said.
Teck Resources Ltd boosted its production forecasts for copper, zinc and oil on Thursday as the diversified miner reported market-beating profits on the back of higher prices for a range of commodities.
Flush with C$2.9 billion ($2.22 billion) in cash and C$7 billion in liquidity, Teck is in “great shape” to fund growth, said Chief Executive Don Lindsay, including big Chilean developments like the $4.8 billion Quebrada Blanca Phase 2 project and $3.5 billion NuevaUnion project.
Shares in the base metal miner popped 4.5 percent higher on Thursday, in sharp contrast to broad declines for gold miners that reported lower production and higher costs.
With Quebrada Blanca Phase 2 permits expected in August, Teck said it will launch a formal process seeking a development partner, which could contribute some $2 billion for a 30 percent to 40 percent stake. It expects to close a deal in the fourth quarter.
Teck also aims to complete a feasibility study on NuevaUnion, a joint venture with Goldcorp (G.TO) to develop neighboring mines, by the third quarter of 2019.
With its new Galore Creek project partner, Newmont Mining (NEM.N), Teck plans to update a pre-feasibilty study in three to four years. Newmont agreed to pay $275 million to NovaGold Resources (NG.TO) on Thursday for its 50-percent stake in the copper-gold project.
Asked on a conference call whether oil remains a core business, Linsday said that if the value of its stake in the Fort Hill oil sands is inadequately reflected in its stock in 2020 or 2021, when operations are well established, he would consider a spin-out, sale or partnership.
Separately, family-controlled Teck appointed as its new chairman Dominic Barton, an outsider and global managing partner of consulting firm McKinsey & Co.
Current chair Norman Keevil, who joined Teck in 1962 as vice president of exploration, held the position of CEO from 1981 to 2001, when he became chairman. He retires from that role Oct. 1.
Teck, the world’s second-biggest exporter of steelmaking coal, stuck to its annual production forecast of 26 million to 27 million tonnes, but said production is now expected near the lower end of the range.
Third-quarter coal sales are seen rising to 6.8 million tonnes from 6.6 million tonnes in the second quarter, which lagged its 6.7 million tonne forecast due to two rail strikes. The average realized price rose 9.6 percent to $183 a tonne, Teck said.
Adjusted profit of C$1.12 per share beat analyst expectations of C$1.07.
Billionaire Anil Agarwal in July said he planned to offer around $1 billion to take London-listed Vedanta Resources Plc private, a move that has rekindled speculation his ultimate aim is a deal with miner Anglo American.
Agarwal’s Volcan family trust has until July 30 to make a firm offer or walk away from the deal, which would leave Vedanta listed only in India (VDAN.NS).
WHY THE SPECULATION?
In March 2017, Agarwal began amassing a stake in Anglo American through a three-year JPMorgan mandatory convertible bond named “POEMS”. He announced he was buying a second tranche in September 2017.
In total, Agarwal has 19.35 percent, making him Anglo American’s largest shareholder, although only for three years unless he acts to buy the shares or seek to roll over the arrangement, which is effectively a loan.
Agarwal has always said the stake was an investment, based on his belief in Anglo as a company, for his family trust. He said it was unrelated to Vedanta and he was not planning a takeover.
However, he has made no secret of wanting to grow Vedanta into a major diversified player or of his commitment to South Africa, Anglo America’s heartland.
Vedanta’s international operations are copper mines in Zambia and Vedanta Zinc with operations in South Africa and Namibia.
Agarwal has said he wants to buy the Indian government’s 30 percent stake in Hindustan Zinc, of which he has majority control. Anglo has declined to comment on reports it rebuffed previous approaches for a tie-up with Hindustan Zinc.
WHY THE DELISTING AND WHAT DOES IT CHANGE?
Vedanta was the first Indian company to list in London, in 2003. It raised around 500 million pounds ($657 million), giving it a market capitalization just over 1 billion pounds.
Since then, the market capitalization has roughly doubled to 2 billion pounds.
But the bigger part of the company is Indian-listed Vedanta with a market capitalization of 803.84 billion rupees ($11.66 billion). It also has significant levels of debt and is dwarfed by Anglo, with market capitalization around 24 billion pounds.
The London delisting simplifies Vedanta’s structure, potentially making it more attractive as a company, but the loss of the listing would reduce Agarwal’s deal-making capacity as potential buyers would prefer London shares to Indian ones, analysts say.
A spokesman for Agarwal said he was not giving interviews.
In his announcement of the planned delisting, Agarwal cited “the maturity of the Indian capital markets”, saying a London listing was no longer necessary.
Mark Cutifani, CEO of Anglo American, said Agarwal has been “a very supportive shareholder”.
“Our conversation is consistent with the conversation with all of our other shareholders,” he said when asked about Agarwal at the company’s interim results on Thursday.
WHAT DO THE SHAREHOLDERS THINK?
At least one significant investor has said it is unhappy with the price Agarwal has offered to buy out other shareholders.
Anglo shareholders have benefited from Agarwal’s interest, which has helped to drive up the stock, but some investors for whom ESG (Environmental, Social and Governance) issues are a concern say Vedanta’s track record would be worrying.
The most significant shareholder is South Africa’s state-run Public Investment Corporation, which was the biggest shareholder in Anglo American until Agarwal’s purchase.
Deon Botha, PIC’s head of corporate affairs, said it could not comment as “public statements to this effect will constitute market sensitive information”.
Analysts and fund managers say PIC has a commitment to ESG issues that could set it at odds with Vedanta. Others say PIC’s quest for a national champion based on separating out Anglo’s South African assets might persuade it to work with him.
IS VEDANTA’S ESG RECORD WORSE THAN OTHERS?
While most miners, including Anglo, have had issues with leaks and fatalities, Vedanta’s troubles have attracted particular criticism.
In India, the Tamil Nadu government has ordered the permanent closure of a Vedanta copper smelter and disconnected its power supply in May following protests that turned violent as police opened fire on protesters, killing 13.
Vedanta is seeking to overturn the decision.
It is also fighting a London high court judgment linked to alleged pollution from copper operations in Zambia.
IMPLICATIONS OF THE NEW CEO?
At the end of August, Srinivasan Venkatakrishnan, known as Venkat, will take up the Vedanta helm after stepping down as CEO of AngloGold Ashanti (ANGJ.J).
Before becoming chief executive in 2013, he was AngloGold’s chief financial officer, while Mark Cutifani, CEO of Anglo American since 2017, was AngloGold’s CEO.
Analysts say the two have worked well together.
At the same time, the chairman of Anglo American Stuart Chambers has a strong record of securing buyers for the companies he leads.
South Africa’s National Treasury has concluded its investigation of alleged corruption at state power utility Eskom and state logistics firm Transnet and will give the relevant parties two weeks to respond before making its findings public.
In a statement on Sunday the treasury said it had completed a draft report of its investigation into coal supply agreements between Eskom and Tegeta Exploration and Resources - a company owned by the Gupta business family which South Africa’s corruption watchdog accuses of using its relationship with former president Jacob Zuma to wield influence and win government contracts.
The report also covers allegations of misconduct concerning state logistics firm Transnet’s purchase of over 1,000 trains from China South Rail.
A judicial inquiry into what has been termed “state capture” - widespread corruption involving billions of rands worth of state contracts during Zuma’s presidency - is due to start next month. International companies affected include global consultancy McKinsey, Germany’s SAP and public relations giant Bell Pottinger.
“The report has been given to the relevant parties for comment. These parties have been given two weeks to respond,” the treasury said.
Its investigation of Eskom and Tegeta focused on the 2015 sale of Optimum Coal Mine by multinational resource giant Glencore to Tegeta.
Zuma and the Guptas have denied wrongdoing. Reuters has not been able to independently verify the allegations.
Earlier in July Zuma’s son, Duduzane, was arrested before being granted bail over allegations he took the former deputy finance minister to meeting in 2015 with the Guptas, who - according to the former deputy minister- then tried to bribe him ith 600 million rand ($45.58 million) in his presence.
China’s capital Beijing will shut around 1,000 manufacturing firms by 2020 as part of a program aimed at curbing smog and boosting income in neighboring regions, state media said on Monday.
Beijing will focus on dynamic, high-tech industries and withdraw from “ordinary” manufacturing, the Communist Party paper People’s Daily reported, citing a recent policy document published by the Beijing municipal government.
The city has already rejected registration applications from 19,500 firms, and shut down or relocated 2,465 “ordinary” manufacturers, the paper said.
China launched a plan to improve coordination in the smog-prone Beijing-Tianjin-Hebei region in 2014 amid concerns that competition between the three jurisdictions was wasting resources and creating overcapacity and pollution.
It plans to strip Beijing of manufacturing and heavy industry, as well as relocating universities and some government departments into Hebei’s new economic zone of Xiongan.
The government also wants to create an integrated transport network and unify standards in areas such as welfare and education to make Hebei, known for its heavy industry, more attractive for investors.
An official with Hebei province earlier this year said the plan has helped drive average incomes in Hebei up 41 percent since 2013, although they are still only half the level in Beijing.
The city of Changzhou in Jiangsu province is planning to implement production curbs in heavy industry, the latest case of Chinese cities scrambling to cut emissions as part of Beijing’s intensified anti-pollution campaign.
The city has issued a draft plan ordering steel mills, copper smelters, chemical makers and cement producers to shut down or cut production by as much as 50 percent by Aug. 3 at the latest, according to a city government document reviewed by Reuters.
“It is not sure when the output curbs will last...probably until the end of this year,” told Yu Le, an official at Changzhou Environmental Bureau, to Reuters on the phone, who confirmed the authenticity of the document.
Jiangsu is China’s second-largest steelmaking province.
Yu said the draft plan has been submitted to the Ministry of Ecology and Environment for review and some adjustments might be made after the city receives a response.
“Rates of production curbs are based on the operation situations and emission levels at companies and will be adjusted dynamically,” said the draft plan.
The draft plans follows Beijing’s push to adopt a more nuanced and “scientific” approach when it comes to curbing emissions from polluting firms as the country vowed to make the measures more efficient in order to meet the politically crucial targets.
More than 400 companies in Changzhou will have to enforce the compulsory production cuts though rates will vary.
Changzhou, home to steel mills and steel processing firms, mainly pipeline makers, produced 12.96 million tonnes of crude steel last year, accounting for 1.6 percent of the country’s total steel output.
Earlier this month, China’s top steelmaking city Tangshan in Hebei province ordered steel mills, coke producers and utilities to deepen output curbs for six weeks this summer in order to clear smog in one of the country’s most polluted areas.
Meanwhile, most of the steel firms in the city of Xuzhou, also in Jiangsu, remain shut due to environmental reasons.
Concerns over tight supplies in the market drove steel prices to a 5-1/2 year high on Monday.
South Korea plans to increase its tax on thermal coal, while lowering the tax on liquefied natural gas (LNG) to support the use of cleaner fuels for power generation, the finance ministry said on July 30.
The ministry said in a statement that it will increase the tax on thermal coal by 10 won to 46 won ($0.0412) per kilogram reflecting environmental costs of using the fossil fuel.
Meanwhile, the government plans to lower the tax on LNG to 23 won per kg from 91.4 won per kg.
Asia's fourth-largest economy, which imports almost all of its energy needs, has favoured coal and nuclear power to generate cheaper electricity and to ensure stable power supply.
South Korea now generates more than 70% of its power from coal and nuclear, while renewables account for 6%, but the country aims to gradually phase out coal and nuclear power.
Under the country's power supply plan, coal's share of power generation will fall to 36.1% in 2030 and nuclear to 23.9%, but those sectors will still make up more than half of the country's total power generation.
The revised tax is expected to go into effect from April 1, 2019, should the government plan be approved by parliament.
Caterpillar Inc on Monday raised its full-year profit outlook after earnings in the second quarter nearly doubled, beating market expectations, helped by global demand for its equipment.
The Deerfield, Illinois-based company now expects adjusted profit per share to be in a range of $11 to $12 in 2018, compared with $10.25 to $11.25 projected earlier.
The second increase to the profit outlook in the past two quarters helped allay investors’ concerns about the health of the global economy amid increasing trade frictions and pressure on costs. But the stock gave up early gains on worries that earnings might be approaching their peak.
“We are just stuck in this backdrop of ‘is this cycle getting toward the higher end?’ And if it is, you don’t want to own these cyclical stocks near the peak of the cycle,” said Stephen Volkmann, an analyst with Jefferies.
“Unfortunately, you can see good quarters get sold in that type of sentiment,” he said, adding that profit margins in the quarter were near the high end of the company’s own targets.
Those concerns have been weighing on the company’s stock since April, fueled in part by Caterpillar’s comments that its first-quarter performance was the “high-water mark” for the year.
Caterpillar’s shares were last up about 0.4 percent at $143.10. The stock has lost about 18 percent since January and last month fell to its lowest level since late October before recovering modestly.
Monday’s results, however, showed that a strong global economy, which is having its best run since 2011, is helping manufacturers like Caterpillar book more orders and deliver higher profits despite growing cost pressures.
For example, the company said demand for oil and gas and mining machines is so strong that it was taking orders for delivery well into 2019. At the end of the second quarter, its order backlog was $17.7 billion, up about $200 million from the first quarter.
It saw positive pricing in all of its principal business segments except construction industries.
This is in contrast to companies such as Ford Motor Co (F.N) and Harley-Davidson Inc (HOG.N), which are battling weak demand and do not enjoy the same pricing power to offset increased input costs.
Caterpillar, which serves as a bellwether for global economic activity, said tariffs could inflate material costs in the second half of the year by up to $200 million. It also expects supply chain challenges to continue to pressure freight costs.
However, it expects to take higher costs in its stride through the price increases it carried out on July 1 and through cost discipline.
In resource industries, higher commodity prices and strong global growth have helped improve the finances of mining customers, underpinning replacement demand and mine expansions.
In Caterpillar’s energy & transportation division, robust oil prices are supporting demand for well-servicing and gas compression applications in North America.
In the Asia-Pacific region, which accounted for nearly a quarter of company revenues, equipment sales were up 39 percent from a year ago, helped by increased construction activity and infrastructure investment in China.
Caterpillar reported an adjusted profit of $2.97 a share in the second quarter, compared with $1.49 a share last year. Analysts on average had expected earnings of $2.73 a share.
The company repurchased $750 million of shares in the second quarter and announced an up to $10-billion buyback authorization from January 2019.
The purchasing managers' index (PMI) for China's manufacturing sector came in at 51.2 this month, down from 51.5 in June, the National Bureau of Statistics (NBS) said Tuesday.
Activities of the country's non-manufacturing sector also expanded at a slower pace in July, with its PMI standing at 54, compared with 55 in June.
Though PMIs for both sectors dropped compared with the previous month, they still pointed to steady expansion as a reading above 50 indicates expansion, while a reading below reflects contraction.
The PMI for the manufacturing sector remained above 51 for five consecutive months while that for the non-manufacturing sector maintained at or above 54 for 11 months in a row.
The general PMI output index for July reached 53.6, down from 54.4 in June, indicating steady but slower production and operation activity expansion for the country's enterprises.
NBS senior statistician Zhao Qinghe attributed the slight drops in July's PMI figures to bad weather conditions, escalating trade tensions and a slack season for some sectors.
Vedanta Resources Plc Chairman Anil Agarwal’s family trust on Tuesday offered about $1 billion in cash to take the London-listed miner private.
Volcan, which currently holds about 67 percent of Vedanta, offered $10.89 or 825 pence per share to buy the rest of the stake. The deal valuing Vedanta at $3.07 billion represents a premium of about 6 percent to the stock’s Monday close.
An independent committee that evaluated the proposal unanimously recommended Volcan’s offer to Vedanta shareholders, the mining conglomerate said.
Shares of the company have risen 20.5 percent since Volcan made a possible offer at the same price on July 2.
Vedanta shareholders will also be entitled to receive a $0.41 dividend per Vedanta share, the company added. The offer price and dividend represent a total value of $11.30 per share.
The offer comes as the company faces scrutiny after police killed 13 people protesting Vedanta’s copper smelter in India in May.
China's energy consumption grew at a faster pace in the first half of this year, compared to the same period last year, as use of renewable energy posted steady momentum, official data showed on July 30.
Nationwide coal consumption rose 3.1% year on year, Li Fulong, an official with the National Energy Administration (NEA), said in a press briefing.
China's use of petroleum remained steady in the first half, up 2.5% year on year, while the use of natural gas saw an increase of 16.8% year on year, according to the NEA.
"China's energy mix has continued to improve, with the acceleration of greener growth and a low-carbon model," Li said.
According to Li, the share of clean energy has been increasing, and investment in overcapacity industries slowed.
In the first half, the increased installed capacity of renewable energy, including nuclear power, wind power, and solar power, accounted for 66.1% of China's total increased installed power generation capacity, according to the NEA.
The Trump administration plans to propose slapping a 25-percent tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent, in a bid to pressure Beijing into making trade concessions, a source familiar with the plan said on Tuesday.
President Donald Trump’s administration said on July 10 it would seek to impose the 10-percent tariffs on thousands of Chinese imports.
They include food products, chemicals, steel and aluminum and consumer goods ranging from dog food, furniture and carpets to car tires, bicycles, baseball gloves and beauty products.
While the tariffs would not be imposed until after a period of public comment, raising the proposed level to 25 percent could escalate the trade dispute between the world’s two biggest economies.
The source said the Trump administration could announce the tougher proposal as early as Wednesday. The plan to more than double the tariff rate was first reported by Bloomberg News.
There was no immediate reaction from the Chinese government. In July it accused the United States of bullying and warned it would hit back.
Investors fear an escalating trade war between Washington and Beijing could hit global growth, and prominent U.S. business groups have condemned Trump’s aggressive tariffs.
Stock markets edged up globally on Tuesday on a report that the United States and China were seeking to resume talks to defuse the budding trade war.
Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have been speaking privately as they seek to restart negotiations, Bloomberg reported, citing sources.
A spokeswoman for the U.S. Trade Representative’s Office declined to comment on the proposed tariff rate increase or on whether changing them would alter the deadlines laid out for comment period before implementation.
In early July, the U.S. government imposed 25-percent tariffs on an initial $34 billion of Chinese imports. Beijing retaliated with matching tariffs on the same amount of U.S. exports to China.
Washington is preparing to also impose tariffs on an extra $16 billion of goods in coming weeks, and Trump has warned he may ultimately put them on over half a billion dollars of goods - roughly the total amount of U.S. imports from China last year.
The $200 billion list of goods targeted for tariffs — which also include Chinese tilapia fish, printed circuit boards and lighting products — would have a bigger impact on consumers than previous rounds of tariffs.
Erin Ennis, senior vice president of the U.S. China Business Council, said a 10 percent tariff on these products is already problematic, but more than doubling that to 25 percent would be much worse.
“Given the scope of the products covered, about half of all imports from China are facing tariffs, including consumer goods,” Ennis said. “The cost increases will be passed on to customers, so it will affect most Americans pocketbooks.”
Trump had said he would implement the $200 billion round as punishment for China’s retaliation against the initial tariffs aimed at forcing change in China’s joint venture, technology transfer and other trade-related policies.
He also has threatened a further round of tariffs on $300 billion of Chinese goods. The combined total of over $500 billion of goods would cover virtually all Chinese imports into the United States.
The U.S. Trade Representative’s office initially had set a deadline for final public comments on the 10 percent proposed tariffs to be filed by Aug. 30, with public hearings scheduled for Aug. 20-23.
It typically has taken several weeks after the close of public comments for the tariffs to be activated.
Fifteen units are currently down at nine South African power stations, taking over 6,000 megawatts of power or 13 percent of Eskom’s output off the national grid, an internal document seen by Reuters showed on Tuesday.
Eskom provides more than 90 percent of the power for Africa’s most industrialised economy, but the state-owned utility has been hit by labour unrest over wage talks as it tries to reverse a decade of financial decline by cutting costs.
Earlier, it warned there was a high risk of electricity cuts on Tuesday because of “unplanned outages”. Power cuts during the ongoing winter are likely to cause hardship for millions.
U.S. Treasury extends time to divest from EN+, GAZ, Rusal
The U.S. Treasury Department said on Tuesday it had extended the deadline for investors to divest holdings in sanctioned Russian companies EN+, GAZ Group and Rusal to Oct. 23 from Aug. 5.
The U.S. Treasury in April imposed sanctions against billionaire Oleg Deripaska and eight companies in which he is a large shareholder, including giant aluminum exporter Rusal, in response to what it called “malign activities” by Russia.
Deripaska has held a controlling interest in En+, which in turn controls Rusal. Automaker GAZ is also part of his business empire.
Global miner Rio Tinto said on Wednesday its first half profit grew 12 percent, missing estimates and sending shares lower, but earmarked an additional $1 billion to buy back London-listed stock.
Underlying earnings for the six months to June 30 grew to $4.42 billion as higher iron ore output overcame lower prices. That was below forecasts of $4.53 billion, according to estimates in an independent survey of 15 analysts, though above $3.94 billion in the same period a year ago.
“Versus consensus, it’s a slight miss. It looks like aluminium was the problem at the divisional level,” said Jason Teh, chief investment officer at Sydney based Vertium Asset Management, which owns Rio shares.
Chief Financial Officer Chris Lynch attributed the miss partly to the market not taking into account pricing in old alumina contracts the company has, which cost Rio “a couple of hundred million” dollars as it missed out on exposure to recent price gains in alumina after the United States imposed sanctions on Rusal.
Rio declared a half-year dividend of $1.27 a share, equivalent to $2.2 billion, up 15 percent from $1.10 a share a year ago.
The increase in funds for share buybacks comes as asset sales worth $5 billion already announced in 2018 have left the world’s No. 2 iron ore miner with a cash pile well in excess of the $5.5 billion outlined for planned capital expenditure this year.
In one deal, Rio has outlined the proposed terms of the sale of its 40 percent stake in Grasberg, the world’s second biggest copper mine, to an Indonesian government-owned holding firm for $3.5 billion.
China’s southeastern province of Guangdong has issued draft guidelines that call for a ban on new industrial capacity for a range of businesses in the Pearl River Delta region, to limit air pollution.
The Delta, a manufacturing hub on the edge of the South China Sea that includes Guangdong’s main cities of Guangzhou and Shenzhen, was one of the few regions to meet China’s national air quality standard in 2017.
The Guangdong Environmental Protection Bureau said on Tuesday that the restrictions on new industrial capacity, which are subject to public consultation until Aug. 29, apply to business sectors including coal-fired power generation, steel, petroleum, petrochemicals, glass, ceramics and non-ferrous metal smelting.
No implementation date for the restrictions was mentioned.
The latest draft represents a tightening of previous guidelines, issued in April, for all new steel, petrochemical and cement plants in Guangdong to meet tougher emissions standards by December.
But, the move would match tougher action taken elsewhere. China’s State Council said in June it was banning new steel, coke and primary aluminum capacity in the Beijing-Tianjin-Hebei and Yangtze River Delta regions.
The Guangdong Environmental Protection Bureau also said it would strive to achieve concentrations of particulate matter smaller than 2.5 microns (PM2.5), a hazardous form of air pollution that can penetrate deep into the human lung, that are below 25 micrograms per cubic meter, without giving a time frame.
A separate document the Bureau released last month gave a province-wide average PM 2.5 concentration target of below 33 micrograms per cubic meter by 2020. It also said cities in the Pearl River Delta needed to eliminate no less than 10 percent of high-energy consuming companies every year until 2020. For cities outside the Delta, the target is 5 percent.
In Tuesday’s document, the bureau also said it was planning to work with Hong Kong, Macau and other nearby regions on pollution control.
Factory growth stuttered across the world in July, heightening concerns about the global economic outlook as an intensifying trade conflict between the United States and China sent shudders through trading partners.
Global economic activity remains solid, but it has already passed its peak, according to economists polled by Reuters last month. They expect protectionist policies on trade - which show no signs of abating - to tap the brakes.
But slowing growth, wilting confidence, and trade war fears are not likely to deter major central banks moving away from their ultra-loose monetary policies put in place during the last financial crisis.
“Growth overall is still there, and while there are risks, it’s holding up. The big picture of a trade war and protectionism is that it is a slow death - a death by a thousand paper cuts instead of anything sudden and shocking,” said Richard Kelly, head of global strategy at TD Securities.
“Growth is still resilient, unemployment rates are low, inflation and wages are rising - that’s the bigger picture and so they (central banks) have to keep tightening in the face of that,” he said.
Last month, China and the United States imposed tit-for-tat tariffs on $34 billion of each other’s goods and another round of tariffs on $16 billion is expected in August.
U.S. President Donald Trump’s administration, according to a source familiar with its plans, is poised to propose 25 percent tariffs on a further $200 billion of imports, up from an initial proposal of 10 percent. Its threat of tariffs on the entire $500 billion or so worth of goods imported from China still stands.
Beijing has pledged equal retaliation, although it only imports about $130 billion of U.S. goods.
World stocks fell and the dollar strengthened on Wednesday on fears of an imminent escalation in the U.S.-China tariff war. [MKTS/GLOB]
Morgan Stanley analysts estimate an 81-basis-point impact on global growth in a scenario of 25 percent tariff hikes across all imports from China and Europe, with U.S. growth slowing by 1 percentage point and China’s by 1.5 points.
Despite lethargic expansion rates, the European Central Bank last week reaffirmed plans to end its 2.6 trillion-euro stimulus programme this year and the Bank of England is widely expected to raise borrowing costs on Thursday [BOE/INT].
On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.
China has been cutting bank reserve requirements to ease the pain of its campaign to de-risk the financial system for smaller companies and support growth. It is also planning more spending on infrastructure to cushion the impact of trade tensions.
Nevertheless, any fiscal and monetary measures would take time to filter through.
“China’s economy is on track to slow this quarter and next,” said Julian Evans-Pritchard, senior China economist at Capital Economics in Singapore.
In the United States, growth is expected to cool slightly, but remain strong enough for the Federal Reserve to stay on track for two rate hikes this year, even if it is likely to hold rates steady this week [ECILT/US].
SIGNS OF SLOWDOWN
European factory growth remained subdued in July, with scant sign of a pick up anytime soon. Manufacturers across Asia provided evidence of a loss of momentum across the region.
IHS Markit’s July final euro zone manufacturing Purchasing Managers’ Index only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged from an initial reading and still comfortably above the 50 level that separates growth from contraction. [EUR/PMIM]
Meanwhile, British factories lost momentum and manufacturers were their most downbeat in nearly two years, likely raising fresh questions about the actual need for a Bank of England interest rate hike on Thursday [GB/PMIM].
China’s Caixin/Markit Manufacturing PMI dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.
The headline number remained above the 50-point mark for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.
“The data breakdown indicates that an uncertain demand outlook amidst the U.S.-China trade tariffs weighed on both output and sentiment,” said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.
Similar surveys revealed slowing activity from Australia to Japan. PMIs also showed a contraction in Malaysia, a slowdown in Vietnam and Taiwan, and only a modest pick-up in Indonesia. South Korea’s exports showed slower-than-expected growth.
Growth in India’s manufacturing industry also slowed last month, according to a survey released showed just before the Reserve Bank of India raised interest rates.
The shipping container market, in which the vast majority of finished manufacturing goods are imported and exported, shows a similar gloomy picture: the Harpex container index CHT-IDX-HARPX has fallen by 10 percent from the highest levels since 2011 that it hit in June.
Australia’s trade surplus blew past expectations in June as exports to China boomed to their second highest on record, a sign the commodity-leveraged country was weathering the early stages of Sino-U.S. tariff hostilities.
A report on Thursday from the Australian Bureau of Statistics showed Australia’s trade surplus swelled by 158 percent to A$1.87 billion ($1.38 billion), double the market forecast and the largest since May last year.
Exports climbed 2.6 percent on a pick-up in a broad range of goods from iron ore and gold to farm and manufactured items, the data showed. Imports fell 0.7 percent as a pullback in petrol outweighed strength in transport and telecoms equipment.
The windfall owed much to China, which has been hoovering up Australia’s iron ore and coal output even as trade tensions with the United States have escalated.
Analysts noted that much of Australia’s exports to China are primary products used in the Asian nation’s domestic economy rather than for re-export. There has also been no sign of a slowdown in the rapid growth of Chinese tourism or the flow of students from the country.
Indeed, exports of goods to China hit the second strongest on record in June at A$10.34 billion, an increase of almost 40 percent from the same month last year.
“U.S. President Donald Trump would have few concerns with the U.S.-Australia trade imbalance - it is in the U.S. favor by A$18 billion over 2017/18,” noted Craig James, chief economist at fund manager CommSec.
“By contrast Australia’s trade surplus with China stands at almost A$38 billion.”
A PLUS FOR GROWTH
Liquefied natural gas sales to China and Japan have been a major growth area, with export earnings up 14 percent in June alone at just over A$4 billion.
Shipments are set to ramp up further as the giant Ichthys field off northern Australia has finally started producing after a long wave of delays. The $40 billion project run by Inpex Corp is Japan’s biggest overseas investment.
One risk to exports is a drought currently ravaging large parts of the farm belt in Australia, which is likely to cut agricultural shipments later in the year.
For the whole of the June quarter, Australia’s trade surplus came in at a seasonally adjusted A$2.9 billion, down modestly from the first quarter when a rebound in resource shipments flattered the accounts.
Much of that pullback looked to be due to changes in prices rather than volumes and thus not a drag on gross domestic growth (GDP), said Westpac senior economist Andrew Hanlan.
“Net exports are likely to be slightly positive in Q2, adding in the order of 0.1 percentage points to activity,” he estimated.
Analysts had thought trade - exports minus imports - would subtract from GDP in the second quarter given it had added a sizable 0.4 percentage points the quarter before.
The establishment of special-purpose companies tasked with state asset investment and operation will improve the allocation efficiency of state capital while giving substantial autonomy to state-owned enterprises.
The State Council released a series of guidelines on July 30 on promoting the pilot reform of state capital investment and operation companies, aiming to inject more vitality and anti-risk capacity into SOEs.
According to the guidelines, the companies will be solely state-owned and can be set up either via restructuring or new registration. State capital investment companies will make investments that are in line with national strategies and increase industrial competitiveness while state capital operation firms will be mainly be tasked with enhancing returns and operational efficiency, it said.
Wang Shifeng, an SOE researcher, said the restructuring gives SOEs more rights to self-management and greater decision-making power, which will in turn optimize state capital.
The guidelines allow SOEs more freedom in effectively allocating the assets, bringing in the modernized enterprise system through focusing on financial benefits and capital returns, said Wang.
"Under the guidelines, state capital investment companies will focus on serving the national strategy and helping state capital increase its industrial competitiveness, especially in sectors regarding national security and key aspects of the national economy," he said.
"The mechanism also allows private capital to play a bigger role," he added.
Li Jin, chief researcher at the China Enterprise Research Institute, said state capital investment and operation companies will carry out some of the responsibilities of the State-owned Assets Supervision and Administration Commission, including SOE restructuring and equity swaps.
What's more important is that the companies undertake the important tasks of structural adjustment optimization and restructuring of some industrial sectors, and the state-owned companies can be more market-oriented, a new chapter in state-owned capital management, he said.
The focus of SOE reform in the second half of 2018 will focus on authorized operation mechanism reform as well as mixed ownership reform, he said.
According to the State Council, the program will run on a pilot basis, and good practices are expected to be expanded.
China has been injecting vitality into thousands of SOEs in recent years through a series of reforms, including mixed ownership and market-oriented management reform.
China has pledged to step up reform of state-owned enterprises in the second half of this year, as the SOE regulator plans to carry out the diversification of equity at headquarters or group level, at two to three central SOEs within the year and push forward the strategic restructuring of central SOEs in key industries including further stepping up mixed-ownership reforms, according to the State-owned Assets Supervision and Administration Commission.
The commission on July 30 also released a document aimed at avoiding state asset losses with an accountability mechanism to punish illegal business operations and investments by centrally administered SOEs.
The document detailed 72 responsibility-tracking scenarios in 11 areas, including risk control, fixed asset investment, mergers, restructuring and overseas investment.
China plans to continue imposing pollution curbs measures in its smog prone Beijing-Tianjin-Hebei region and nearby areas from Oct. 1 until March 31, 2019, a draft plan issued by the environmental ministry showed on Thursday.
It aims to cut the concentration of breathable particles, known as PM2.5, by around 5 percent year on year during the winter in the region.
Heavy industries in the steel, non-ferrous, coke and construction materials sectors will be ordered to cut output capacity in the heating season, which typically begins in mid-November.
It also plans to switch 3.92 million households in the region to gas from coal heating by end-October.
https://www.reuters.com/article/china-pollution/china-to-impose-beijing-tianjin-hebei-pollution-curbs-oct-1-to-end-march-document-idUSB9N1SZ01N
Republican and Democratic U.S. senators introduced legislation on Thursday to impose stiff new sanctions on Russia and combat cyber crime, the latest effort by lawmakers to punish Moscow over interference in U.S. elections and its activities in Syria and Ukraine.
The bill includes restrictions on new Russian sovereign debt transactions, energy and oil projects and Russian uranium imports, and new sanctions on Russian political figures and oligarchs.
It also expresses strong support for NATO and would require that two-thirds of the Senate to vote in favor of any effort to leave the alliance.
Russian markets reacted quickly to the measure, with the rouble slumping toward two-week lows.
“The current sanctions regime has failed to deter Russia from meddling in the upcoming 2018 midterm elections,” said Republican Senator Lindsey Graham, one of the measure’s lead sponsors. Earlier this week, Graham had told reporters he planned a “sanctions bill from hell” to punish Russia.
Congress passed a Russia sanctions bill last summer but some lawmakers chafed at what they saw as President Donald Trump’s reluctance to implement it; he signed it only after Congress passed it with huge majorities.
Several provisions of the measure introduced on Thursday sought to toughen that law.
Democratic Senator Bob Menendez said the administration had not fully complied with those sanctions.
“This bill is the next step in tightening the screws on the Kremlin and will bring to bear the full condemnation of the United States Congress so that Putin finally understands that the U.S. will not tolerate his behavior any longer,” Menendez said.
Republicans and Democrats united last month in repudiating Trump’s failure to publicly condemn Russian President Vladimir Putin for interfering in the 2016 U.S. elections. Still, Congress failed to pass anything before lawmakers left Washington for their weeks-long summer recess.
The latest measure’s prospects were not immediately clear.
It would have to pass both the Senate and House of Representatives and be signed by Trump to become law.
Aides to the Senate’s Republican majority leader, Mitch McConnell, referred questions about the bill to the Senate Banking Committee. A committee spokeswoman said she had no details on what measures the panel might consider.
McConnell said last month Senate committees should hold hearings on legislation to stop Russia from future election meddling.
Both the Banking and Foreign Relations Committees have since scheduled hearings relating to Russia.
Japan’s biggest electric utilities are firing up old fossil fuel power plants and ramping up others that are already operating, pushing to meet demand as power prices hit record highs amid a deadly heatwave.
The deployment of older, dirtier stations that use commodities such as crude and fuel oil highlights the lingering effects of the Fukushima nuclear disaster in 2011, which has left most of the country’s reactors offline as operators upgrade them.
Like many other regions of the world, Japan has been hit by record temperatures in a two-week heatwave, with more than 80 people dying and thousands rushed to emergency rooms.
Surging appetite for power as households and businesses crank up their air conditioning has driven utilities to start up old fossil fuel plants that had been mothballed but kept on standby or to boost output at already-operational fossil units.
Kansai Electric Power, which supplies Japan’s western industrialized heartland where the heatwave has been most persistent, has started up two old oil-fired units, with total capacity of 1.2 gigawatts (GW), a spokesman told Reuters.
The nation’s second-biggest utility has also run one station fuelled by natural gas and another fired by oil at higher than planned output levels, he said, adding that Kansai had also received 1 GW of power from five other utilities.
The sweltering weather has driven prices on the Japan Electric Power Exchange for the Kansai region to just above 100 yen ($0.90) yen per kilowatt hour this week, the highest on record.
Meanwhile, Tokyo Electric Power the country’s biggest electricity provider and the operator of the wrecked Fukushima nuclear plant, has run oil, coal and gas plants at rates higher than their typical maximum capacity, a spokesman told Reuters.
He declined to say which plants were operating at these levels.
Japan relied on nuclear power for nearly a third of its electricity supply before the Fukushima disaster, but now has just six out of 40 available nuclear reactors running.
And the scorching conditions could be set to stay as July turns to August, typically the hottest month in Japan. Western Japan has a 50 percent chance of experiencing above-average temperatures over the month, the country’s weather bureau said this week.
Chubu Electric Power, the country’s third-biggest utility, sees electricity demand in July and August potentially exceeding initial estimates, President Satoru Katsuno told reporters on July 20.
“Our old thermal power plants are working hard. We must get our act together to keep them well maintained,” he said.
The Keystone XL crude oil pipeline project cleared a hurdle on Monday as the Trump administration said in a draft environmental assessment that an alternative route through Nebraska would not do major harm to water and wildlife.
The State Department’s assessment of a plan for an alternative route through Nebraska submitted by TransCanada Corp, the company trying to complete the pipeline, said Keystone XL’s cumulative effects would be “minor to moderate” on issues including water and biological resources.
It said the pipeline would have only minor impacts on cultural resources, such as Native American graves.
The Nebraska Public Service Commission approved the pipeline, but not TransCanada’s preferred path. The alternative route will cost TransCanada millions of dollars more than its original route.
The $8 billion 1,180-mile (1,900-km) pipeline that would transport heavy crude from Canada’s oilsands in Alberta to Steele City, Nebraska, has been fought by environmentalists and ranchers for more than a decade. Canadian oil producers who face price discounts for their crude due to transportation bottlenecks, support the project.
TransCanada did not immediately respond to a request for comment on the draft assessment which will be open for 30 days of public comment by the State Department before being finalized.
TransCanada plans to start preliminary work in Montana in coming months and full construction in 2019, according a letter sent in April from the State Department to Native American tribes.
Former President Barack Obama rejected the pipeline in 2015 saying it would mainly benefit Canadian oil producers.
President Donald Trump’s State Department approved the pipeline last year based on an environmental impact statement from 2014 that environmentalists said was outdated.
The Sierra Club, an environmental group, said the State Department was attempting a short cut to get the project built and a full review is required that considers changes in oil prices and market forces.
Keystone “is a threat to our land, water, wildlife, communities, and climate, and we will continue fighting, in the courts and in the streets, to ensure that it is never built,” said Kelly Martin, the director of Sierra Club’s Beyond Dirty Fuels Campaign.
The State Department said it could not comment on the new assessment due to ongoing litigation.
As Gulf Coast marine terminal owners consider ways to at least partially load Very Large Crude Carriers (VLCCs) at their facilities, a handful of midstream companies also are planning offshore terminals in deep water that would allow the full loading of VLCCs via pipeline. Projects under development by Oiltanking and other for sites along the Texas coast would appear to have at least two legs up on the Louisiana Offshore Oil Port, or LOOP. For one, they’d have more direct access to the Permian, Eagle Ford and other crudes flowing to coastal Texas. For another, the new terminals would be focused on crude exports — no double-duty for them. Today, we begin a review of the projects vying to be the first LOOP-like project in the deep waters off the Lone Star State.
U.S. crude exports hit the 3-MMb/d mark a few weeks back (the week ending June 22), and while they’ve since retreated slightly, there’s every reason to believe that export volumes will be ratcheting up in the months and years to come. They’ll almost have to, really. As we said in Got That Swing, the three production-forecast price scenarios that we assessed in our most recent update — crude prices flat at $70/bbl or $55/bbl to 2023, or (like the forward curve) ramping down to $55/bbl over the next five years — would result in crude production growth of between 2.0 MMb/d (under the flat-at-$55 scenario) and 5.0 MMb/d (under the flat-at-$70 scenario). That’s on top of the 11 MMb/d the U.S. is already producing, which is twice the 5.5 MMb/d rate back in 2010. U.S. refineries already are operating at close to full capacity, cranking out increasing volumes of gasoline, diesel and jet fuel for export, and while at least a few refinery expansion projects are being planned, they would only be capable of absorbing a small portion of the incremental crude production we’re likely to see. So export the U.S. must.
As of the week ending July 20 (the most recent data available from the Energy Information Administration or EIA), U.S. crude exports have averaged just over 1.8 MMb/d so far in 2018, up from 1.1 MMb/d on average in 2017 and 590 Mb/d in 2016. The clear preference of many long-distance shippers is to move their barrels in VLCCs, each of which can economically transport about 2 MMbbl of crude. The VLCC is the largest of the four types of tankers that account for the vast majority of international oil shipments (see Come Sail Away), the other prominent classes being (in descending size order) Suezmax (capacity ~1MMbbl), AFRAmax (~750 Mbbl) and Panamax (350 Mbbl to 550 Mbbl). They are giants — a typical VLCC is about 1,100 feet long, with a beam (or width) of nearly 200 feet and a fully loaded draft of 72 feet. But as we said in Rock the Boat, there’s still only one terminal on the Gulf Coast that can fill a VLCC to the brim — LOOP (green diamond in Figure 1), which is located in 110-foot-deep waters 18 miles off Port Fourchon, LA — and pipeline connections from key Texas and Oklahoma plays to LOOP are limited. (More on LOOP in a moment.) Elsewhere along the coast, VLCCs need to be loaded in offshore deep water by “full reverse lightering” from smaller vessels — a slower and more costly loading process that typically involves shuttling crude out in AFRAmaxes or other smaller vessels to a VLCC in a trans-shipment area (TSA) and transferring the crude onto the larger ship. More recently, a number of companies have been testing the docking and partial loading of VLCCs at terminals along the Texas coast, with the hope of using a hybrid approach — partially loading of VLCCs at the dock, followed by partial reverse lightering offshore in TSAs (see Working on a Dream), mostly in the Galveston Offshore Lightering Area (GOLA). That would be more efficient than the full reverse lightering in common usage today, but an even more efficient alternative would be to fully load a VLCC at an onshore dock — or at an offshore terminal in deep water á la LOOP.
Figure 1. Source: RBN
Fully loading VLCCs at land-based terminals along the Texas coast would require multi-year channel-deepening projects — even the ambitious dredging program planned for Corpus Christi (deepening the channel to 54 feet from the current 45 feet by 2022) wouldn’t be nearly enough to allow fully laden VLCCs there. A potentially simpler and quicker alternative would be to develop a new, greenfield offshore loading terminal in waters deep enough to accommodate fully laden VLCCs (72 feet or more), and to connect the facility by large-diameter pipe to onshore storage and pipeline networks to allow for rapid loading.
A number of such projects are now in various stages of planning. One we’ve learned about is a joint plan by Oiltanking, Enbridge and Kinder Morgan to build a new crude storage terminal in Freeport (TX) and connecting pipelines to a new offshore crude loading facility by 2022. The loading terminal would be located in the Gulf of Mexico about 30 miles offshore (yellow diamond) in waters about 100 feet deep — enough to easily accommodate VLCCs. (There would be space for two tankers to dock simultaneously.) The storage terminal would have about 10 MMbbl of capacity, and would be interconnected with Phillips 66 Partners and Andeavor’s planned 700-Mb/d Gray Oak Pipeline (purple line) from the Permian to the Corpus Christi and Freeport/Sweeny areas, and via Kinder Morgan’s existing Crude & Condensate Pipeline (green line) from the Eagle Ford to Sweeny. [As we said in All Dressed Up With Nowhere to Go, P66 Partners currently owns 75% of Gray Oak and Andeavor (now in the process of being acquired by Marathon Petroleum) owns the other 25%; Enbridge and other third parties hold an option to acquire up to a 32.75% stake, which if exercised would reduce P66 Partners’ share to 42.25%.] The planned Freeport storage capacity would be connected by pipeline to the Texas City and Houston areas. The connection between the new storage assets and the new offshore terminal would include about three miles of pipeline on land and another 30 miles of underwater pipe — all of it 42 inches in diameter. Loading onto VLCCs could occur at a rate of up to 85 Mb/hour, or 2 MMb/d — in other words, the storage and pipeline connector would enable a VLCC to be fully loaded in 24 hours.
The Oiltanking/Enbridge/Kinder Morgan project’s biggest selling points appear to be optionality and, of course, the ability to fully load VLCCs. Pipelines from the Permian that run only to Corpus Christi can really only serve the export market — there is relatively limited refinery capacity in Corpus compared to the Upper Texas Coast — but pipes like Gray Oak that also swing up the coast to Freeport/Sweeny (and connect to pipes to Texas City and Houston) enable shippers to respond to changing market dynamics and to serve a wider variety of customers. To be determined is whether the Freeport project would benefit (economically) from the fact that it requires “only” about 30 miles of undersea pipe — one competing project would require a much longer pipe and another calls a pipe only one-fifth as long.
How would the Freeport-area offshore project stack up against LOOP from an optionality/flexibility standpoint? Well, LOOP has direct pipeline access to what is one of the U.S.’s most extensive crude blending and staging storage facilities: the 72-MMbbl Clovelly storage hub (red dot) a few miles inland from where the LOOP Pipeline makes landfall. The problem for LOOP (as we discussed in Clovelly Calling?) is that Clovelly’s access to crude from the Permian, SCOOP/STACK and some other plays is relatively limited. In addition to crude imported through LOOP, Clovelly receives crude produced in the offshore Gulf of Mexico; its only direct pipeline link from Texas and other points west, though, is Shell Midstream Partners’ Zydeco Pipeline (blue line), which can transport no more than 350 Mb/d from storage terminals in Houston and Port Arthur/Beaumont, TX, and Lake Charles, LA. In contrast, the Oiltanking/Enbridge/Kinder Morgan project would have direct, unimpeded access to the Permian, which is not only the #1 production area in North America but which is poised for another round of rapid growth as soon as more takeaway pipeline capacity comes online.
https://rbnenergy.com/deep-water-contenders-in-the-race-to-build-crude-oil-export-terminals-off-the-texas-coast
The US Gulf Coast sweet-sour crude oil spread — which represents Light Louisiana Sweet over sour benchmark Mars — is at its narrowest point since late April, with the WTI-Brent spread returning to 2018 averages after spiking wider in May and June.
The 10-day moving average LLS-Mars spread was $3.12/b at the end of last week, having not been narrower since three months earlier when the spread was at or less than $3/b, S&P Global Platts data shows. The 2018 average is about $3.55/b and has fluctuated between $2.60/b on the narrow end seen on April 17 and $6.20/b at its peak on June 24.
That sweet-sour peak coincided with a wider Brent-WTI spread and caused LLS differentials to spike at a faster rate than those of Mars. A light sweet grade, LLS tends to react with better fundamentals for US crude exports, the
majority of which is light crude, with medium sour Mars seeing sporadic exports that mostly flow to Asia and South America.
However, the Brent-WTI spread narrowed sharply in July, causing US Gulf Coast crude oil values to collapse. The 10-day moving average Platts Brent-WTI Houston swaps spread was minus $5.71/b on Friday, down by about more than $4/b from its peak between $10/b and $11/b in mid-June, Platts data shows.
The extreme peaks and valleys may be stabilizing. Within the past two weeks, the Brent-WTI spread has started widening again and has returned to a typical for 2018 spread of $5-$6/b.
September differentials for Mars, which began active trading last week, have recovered from dropping to multi-year lows earlier this month when Brent-WTI was narrow. A bid for Mars was heard Monday afternoon at WTI cash plus 10 cents while it was offered at WTI plus 25 cents/b. The Mars differential has not been assessed at a premium to WTI since June 22.
Meanwhile, the LLS market remained rather quiet. It was assessed Friday at WTI plus $3/b. It was heard bid Monday at WTI plus $2.70/b and offered at WTI plus $2.90/b.
http://blogs.platts.com/2018/07/31/us-sweet-sour-crude-spread-loop/
Economic sanctions imposed on Iran will impact maritime traffic in the Strait of Hormuz, a main oil artery, an Iranian naval commander said Tuesday.
"The cruel sanctions being imposed on Iran will affect Strait of Hormuz functions," Rear-Admiral Hossein Khanzadi was quoted by the official Islamic Republic News Agency as saying.
The waterway between Iran and Oman is among the world's most heavily trafficked oil arteries, hosting about 35 percent of all of the world's oil moving by sea, or nearly 20 percent of the global trade in oil. Iran has said that if its oil exports are isolated by U.S. sanctions that go into force in November, it would ensure that nobody's oil would flow through the strait.
"It should be remembered that decisions made in international arena would not affect just a country; rather they would influence measures by other players too," the naval commander said.
Iran's latest warning follows signs that economic pressures are already taking their toll. The nation's currency, the rial, hit an all-time low against the U.S. dollar during the weekend. Iranian officials blamed their "enemies" for tryingto collapse the economy and stoke domestic unrest.
The U.S. decision in May to pull out of the multilateral Joint Comprehensive Plan of Action, a nuclear agreement that extended sanctions relief to Iran, leaves the deal in jeopardy. Without U.S. involvement, Iranian President Hassan Rouhani said Tuesday the agreement is in the hands of European powers.
"The ball is in Europe's court in the limited time remaining," he said during a meeting with the British envoy to Tehran.
European leaders have introduced measures aimed at protecting companies doing business with Iran, though U.S. sanctions pressures in Iran's Central Bank make those efforts complicated.
On Monday, U.S. President Donald Trump said he'd be willing to talk to Rouhani without preconditions. Bahram Qasemi, a spokesman for the Iranian Foreign Ministry, said that was unlikely.
"With this United States and with its policies, there will remain no way to negotiations as Washington has already proved its untrustworthiness," he was quoted by IRNA as saying.
Sidelining Iran from the energy markets could leave about a million barrels of oil per day off the market at a time when few other producers could make up for the difference in short order. Some U.S. sanctions go into force on Wednesday and oil-related measures snap back in November.
The American Petroleum Institute reported Tuesday that U.S. crude supplies rose by 5.6 million barrels for the week ended July 27, according to sources. The API data also showed supplies of gasoline fell by 791,000 barrels, while distillate stockpiles added 2.9 million barrels, sources said.
Supply data from the Energy Information Administration will be released Wednesday. Analysts polled by S&P Global Platts expect the EIA to report a fall of 2.4 million barrels in crude supplies. They also forecast a supply decline of 1.5 million barrels for gasoline and an increase of 560,000 barrels for distillates.
Brazilian oil exports hit a record of 8.1 million tonnes in July, nearly three times its shipments in June and 50 percent higher than a year ago, Brazilian government data showed on Wednesday.
In June, exports of the commodity totaled just 2.86 million tonnes, as Petroleo Brasileiro SA, known as Petrobras, directed more of its oil output to refineries to boost fuel production.
The government did not provide an explanation for the record July export figures.
Petrobras has begun operations on two platforms this year: the P-74 platform in the Buzios field in offshore Santos Basin in April, and the Campos de Goytacazes platform in the Tartaruga Verde Field in the offshore Campos Basin, in June.
Reuters reported last month that output from Buzios would only be shipped to China, Petrobras’s top destination for exports, starting in October.
While crude oil producers in the prolific Permian Basin are living out a Shale Revolution, the Midcontinent region of the U.S. is having a Refining Renaissance. Crude takeaway constraints, mainly due to insufficient pipeline capacity, are driving the prices of crude in Western Canada and West Texas to attractive lows against the WTI NYMEX benchmark for crude at the Cushing, OK hub. Cheaper oil can contribute to bigger margins for refiners, who are supplying increasing volumes into a retail market that’s selling gasoline at the highest prices in four years. What will happen if the refiners don’t rein in their runs? Today, we’ll explore the implications of record-high run rates in the U.S. refining industry.
Refiners will push themselves to the limit if they can access cheap crude — and right now Canada’s got a lot of it. As we outlined in What Does It Take?, the Canadian glut is primarily due to capacity constraints, which drive values lower. On the whole, the Canadians’ shipping woes are a long-term problem. There’s ongoing environmentalist backlash against plans to build new pipelines, and railroads are hesitant to work with oil companies unless multi-year contracts are signed. In spite of their reluctance, Canadian crude-by-rail is moving out of the country at the highest rate ever — Canada’s National Energy Board reported a record-high 199 Mb/d of railed crude exports for May.
Weaker Western Canadian Select (WCS) crude prices were temporarily eased by an outage at the 360-Mb/d Syncrude Canada upgrader in northeastern Alberta. The outage, caused by a power failure, started on June 20, and the facility has been gradually returning to normal service since July 24; it is expected to become fully operational in mid-September. The interruption also forced refiners to turn to alternative feedstock options, which has contributed to Cushing stockpiles dropping to nearly four-year lows. Figure 1 shows crude inventory levels in Cushing — also known as the “Pipeline Crossroads of the World” — over the past four years. Total oil storage at Cushing has dropped to the lowest level since October 2014.
Figure 1. Oil stockpiles in Cushing. Sources: EIA and RBN
Nearing tank bottoms in Cushing is adding support to WTI, which accentuates an already wide spread in prices between Cushing and Midland. That’s because while stockpiles are draining down in one place, they’re stacking up in another. On August 1, WTI at Midland settled $16/bbl lower than the benchmark in Cushing, situated just under 500 miles away.
As we explained in No Time, Permian producers are now pumping out more crude than the existing infrastructure can haul away. This has revived efforts to use any mode possible to move crude from the oil field to market, including less efficient and less cost-effective methods like trucking and rail, which are no friends of economies of scale. The pricing impacts of the West Texas constraints are discussed in All Dressed Up With Nowhere to Go. But just how long will it be before these takeaway limitations are fully solved? Right now, it looks like late 2019. And if Permian takeaway remains constrained, the price of WTI at Midland should stay depressed versus the benchmark price in Cushing.
Figure 2. WCS and WTI Midland Differentials Against WTI NYMEX. Sources: Bloomberg and RBN
Figure 2 illustrates how the WCS (blue line) and WTI Midland (red line) prices have suffered in 2018 compared to prior years as a result of capacity constraints. WCS’s discount to WTI at Cushing is nearly twice as wide as Midland’s — the benchmark Western Canadian blend traded as low as $29/bbl against WTI this week. The serendipitous decline of both the Western Canadian and Midland markets at about the same time has given refiners with access to that cheap crude a reason to celebrate. Refiners know there are profits to be made if they find a way to feed the logistically disadvantaged crudes into their systems.
Those refiners with firm pipeline capacity, or access to shippers with capacity, are able to capture a portion of that sweet, sweet arbitrage. But when WCS blows out this wide, even rail can make economic sense for the refiners that can process it. For example, Phillips 66 has indicated it is taking advantage of the spread: the independent refiner is importing more than 500 Mb/d of Canadian crude in its second quarter earnings conference call. The company says the cost to rail crude into the Midcontinent (Midcon) is at about $20/bbl.
And the Midcon where a lot of the action is. The EIA reports that in Petroleum Administration for Defense District (PADD) 2, the Midwest/Midcontinent region that includes refiners with access to WCS and Midland barrels, refiners ran at 101.3% of their operating capacity in the week ended June 1. Since then, refiners cut back to utilization just below 100% — at 99.1% as of last week — which are heady numbers by historical standards.
While refineries in the Midcontinent are leading the charge, the rest of the country isn’t doing too shabby, either. The gross oil inputs of total U.S. refineries surpassed 18 MMb/d for the first time ever in June. The latest EIA data show rates are now just shy of that level at 17.88 MMb/d.
These records aren’t coming easy, refiners are havin’ to work for it. Back down south in PADD 3 (Gulf Coast), the low Midland prices have driven opportunistic refiners as far away as Louisiana to resort to any means possible, including rail and truck, to deliver low-cost WTI from West Texas to their refineries. For example, Calumet Specialty Products Partners mentioned its efforts to truck or rail Midland-based WTI all the way to Shreveport (LA) in the first quarter earnings conference call at the cost of between $12 to $15/bbl.
Clearly, crude prices are a huge factor in refiners’ utilization; but let’s not forget about the value of their products. When gasoline prices are higher (as they are now), refiners can make more money from processing crude — assuming they can keep their crude costs in check. (We’ll dive into the specific effects of products prices in a forthcoming blog.) To make sense of the push-and-pull effect that feedstock and products prices have on margins, refiners use a measure of profitability called the crack spread. We outlined how our “rule-of-thumb” 3-2-1 crack spread works in Living With a Material Surge. Put simply, the 3-2-1 crack spread represents the operation of a refinery that spits out twice as much gasoline as diesel. It’s calculated as such:
3-2-1 crack spread = [(per-gallon gasoline price * 42 * 2/3) + (per-gallon diesel price * 42 * 1/3)] – (crude price)
For the Midcontinent, our back-of-the-envelope calculation of the crack spread is shown in Figure 3 below. It’s now reached the highest level all year. For prices as of July 27, the calculation includes the spot price of WCS at Hardisty, $39.79/bbl, plus $20/bbl of crude delivery transportation costs to PADD 2 refineries, which gives a delivered price of $59.79/bbl. We subtract that value from the wholesale gasoline value, $2.12/gal, which is equivalent to $89.16/bbl, (multiplied by two-thirds makes it $59.44) and the wholesale diesel value, $2.18/gal or the equivalent of $91.59/bbl (multiplied times one-third makes it $30.53) in the Chicago spot market. The final crack spread is $30.17/bbl. In other words: ($59.44 + $30.52) - $59.79 = $30.17. That’s the highest Midwest crack spread we’ve seen since 2015.
Figure 3. Midwest 3-2-1 Crack Spread. (Shaded area shows summer driving season.) Sources: Bloomberg and RBN
Midcontinent refiners are loving low crude prices, and the 3-2-1 crack spread indicates they’re capitalizing on the market. We already know that they can’t up their utilization much higher than the current 99.1%. But is there some other way they can enhance profits, perhaps by switching their yields?
https://rbnenergy.com/runnin-down-a-dream-us-refiner-runs-up-to-an-all-time-high
South Korean refiners have paid close to $80/b on average for Russian crude oil received in June but under $75/b for US crude arrived in the same month, a stern reminder to the industry that short-haul supplies do not always come cheap and long-haul cargoes are not necessarily expensive.
South Korea has imported a total of 2.17 million barrels of crude and condensate from Russia in June and paid on average $79.24/b, latest data from state-run Korea National Oil Corp. showed. KNOC's import cost figures include freight, insurance, tax and other administrative and port charges.
On the contrary, Asia's fourth biggest energy consumer imported 3.01 million barrels from the US in June at an average cost of $74.49/b, nearly $5/b cheaper than the Russian supplies for the same month.
The latest data raised many eyebrows in the regional market as the delivery distance from Far East Russia to Northeast Asia is significantly shorter than the US-South Korea route.
Industry sources noted that the voyage time from Far East Russia's Kozmino port, the DeKastri terminal and Prigorodnoye export terminal to Northeast Asia is less than a week versus up to 50-60 days from the US Gulf Coast.
However, most of the light sweet Far East Russian grades are highly sensitive to Asian refined oil product cracking margins, with price differentials for ESPO Blend, Sakhalin Blend and Sokol often rallying in tandem with strong light and middle distillate cracks in the region.
In addition, the free trade agreement between South Korea and the US which took effect from March 2012 has completely removed import duties on energy products coming from the North American supplier.
South Korea has imported 14.1 million barrels from the US in the first half of this year at an average cost of $69.08/b, while 21.57 million barrels arrived from Russia over the same period at an average cost of $70.77/b.
Average cost comparison between Russian and US crude purchased in 2017 could not be made due mainly to the big difference in import volumes from the two producers. South Korea has only actively started to buy US crude since second half of the third quarter last year.
RUSSIAN SPOT PREMIUMS
Far East Russian crude grades are highly sensitive to Asian refining margins as majority of ESPO Blend, Sakhalin Blend and Sokol spot supplies feed into the big three Northeast Asian demand centers namely China, South Korea and Japan. Spot differentials for the distillate-rich Russian grades typically outperform rival Southeast Asian and Oceania light sweet crude when cracking margins trend up in the region.
The second-month Singapore gasoil to Dubai swap crack rallied in Q2, averaging $16.23/b during the month of May, the highest level since May 2014 when it averaged $16.66/b, S&P Global Platts data showed.
Demonstrating Far East Russian grades' strong correlation to regional product margins, middle distillate-rich Sokol crude commanded an average premium of $5/b to the average of first-line Dubai and Oman assessments on a CFR North Asia basis during Q2, the highest quarterly premium since Q3 2014 when the differential averaged $5.20/b, Platts data showed.
Furthermore, the April-June period saw the spread between WTI and Dubai crude price benchmarks widen to a steep discount, making various North American export grades loaded during the quarter extremely competitive.
Platts data showed the spread between the front-month WTI swap and same-month Dubai crude swap has averaged at minus $3.91/b in Q2, the biggest discount since averaging minus $5.13/b in Q3 2014.
TAX EXEMPTION
South Korea levies a 3% tariff on crude imports including Russia, but domestic refiners are exempted from the tax on imports from the US thanks to the FTA, industry officials based in Seoul said.
"No tariff on imports of US crude is the main reason to get more cargoes from the US because prices differences among grades are very small," said an official at SK Innovation, South Korea's biggest importer of US crude.
"This is the same reason to import more Forties on which no tariffs are imposed thanks to the FTA with the EU," the official said. "We will continue looking for US grades to take advantages of the FTA with the US."
SK Innovation has imported 8.2 million barrels of US crude over January-June this year, compared with none purchased during the same period a year earlier.
Officials from GS Caltex, the country's second biggest refiner, also said the company has been encouraged to buy more cargoes from the US to take full advantage of the import duty exemption. GS Caltex has imported 5.91 million barrels of US crude in H1, compared with just 525,000 barrels bought a year earlier.
Russian oil output rose by 150,000 barrels per day (bpd) in July from a month earlier, surpassing the amount Moscow had promised to add following a meeting of global oil producers in Vienna in June, energy ministry data showed on Thursday.
Under an initial deal between OPEC and non-OPEC producers, Moscow had agreed to cut 300,000 bpd from the production level of 11.247 million bpd Russia reached in October 2016.
When oil prices subsequently rose, the producers decided on June 22 to increase their combined output by 1 million bpd, of which Russia was to contribute 200,000 bpd starting on July 1.
According to the ministry data, Russian oil production rose to 47.429 million tonnes in July versus 45.276 million in June. In barrel terms, output reached 11.21 million bpd, up from 11.06 million bpd in June.
That brings the combined Russian increase to 263,000 bpd compared to the initial cut agreed two years ago. According to the energy ministry’s data, which excludes some of the companies units, almost all Russian firms showed an increase last month. [nEONI7Q0SN] <O/RUS1>
MARKET STABILITY
Russian Energy Minister Alexander Novak said on Wednesday higher production by Moscow was aimed at “maintaining stability of the (global) oil market within the framework of joint actions of OPEC and non-OPEC countries.”
Initially, OPEC and non-OPEC producers agreed on a combined reduction of 1.8 million bpd. However, lower production by a number of countries deepened the cuts, raising fears of global oil shortages and a potential spike in prices.
At the June 22 meeting, OPEC agreed to boost output by returning to 100 percent compliance with the oil output cuts that took effect in January 2017, after months of underproduction by countries including Venezuela and Angola.
Last week, Novak said Russia planned to increase its production by 200,000-250,000 bpd and that the OPEC+ group led by Russia and Saudi Arabia would meet in September to discuss the current deal.
Sources told Reuters last month that Russia has used stocks held in tanks at its oilfields to boost production, yet, the specific amount which may have been used was unknown. Sources estimated that Russia has a combined spare capacity of around 200,000 bpd which may be used to hold oil stocks. [nL8N1UE3MD]
Although not large compared to some countries such as the United States, which may release stocks to bring oil prices down if needed, it shows Russia still has supply flexibility.
Novak said last week that Russia did not have a huge spare capacity to hold stocks like the United States but added that Transneft, the state oil pipeline monopoly, had spare capacity for “technological processes”. He declined to give figures.
The Energy Ministry also said gas production in July came to 53.92 billion cubic meters (bcm), or 1.74 bcm a day, versus 53.57 bcm in June. On Wednesday, Russia’s Gazprom said separately its gas production last month was at 36 bcm.
Saudi Arabia is cutting the September official selling prices (OSPs) for all its grades and to all markets except for to the United States, as it aims to entice more buyers as it increases oil supply to offset production and export disruptions elsewhere.
Saudi Arabia’s state-held oil giant Saudi Aramco reduced the prices for next month for all the oil grades it sells to its biggest market, Asia. The pricing for the Saudi flagship grade, Arab Light, was reduced by US$0.70 to US$1.20 a barrel premium over the Dubai/Oman benchmark, used for pricing oil to Asia. The reduction of US$0.70 was deeper by US$0.10 than the median estimate of five traders surveyed by Bloomberg.
The cut in Arab Light prices for September was the second consecutive monthly reduction of the OSP to Asia.
In July, while it was opening the taps, Saudi Arabia also cut its official OSPs for most of its grades to the Asian markets for August, in a sign that it wants to attract more customers now that it has raised production. The OSP for Arab Light for Asia was reduced by US$0.20 to a premium of US$1.90 above the Dubai/Oman benchmark. This was the first cut in Arab Light pricing for Asia in four months and a drop from the highest OSP since July 2014.
Last month, Saudi Arabia was also said to be offering extra oil on top of its contractual volumes to some buyers in Asia, as OPEC’s largest producer boosted oil production to keep markets well-supplied amid disruptions from Venezuela and Libya and the expected reduction of Iranian oil exports.
The Saudis and other Middle Eastern oil exporters compete with North Africa, Russia, Latin America and, in recent months, the United States, for market share in the prized Asian market.
For September, Saudi Arabia also reduced the pricing for all its grades to the Mediterranean and Northwest Europe but raised all prices to the U.S. market.
Encana reported Q2 earnings and hosted its conference call, including comments about improved differentials of the Eagle Ford in comparison to the Permian.
https://www.oilandgas360.com/heard-on-the-call-encana-eagle-ford-margin-beats-permian/
The United States believes Iran has started carrying out naval exercises in the Gulf, apparently moving up the timing of annual drills amid heightened tensions with Washington, U.S. officials told Reuters on Thursday.
One U.S. official, speaking on condition of anonymity, said possibly more than 100 vessels were involved in the drills, including small boats. A second official expected the drill could be wrapped up this week.
Iran has been furious over U.S. President Donald Trump’s decision to pull out of an international nuclear deal and reimpose sanctions on Tehran. Senior Iranian officials have warned the country would not easily yield to a renewed U.S. campaign to strangle Iran’s vital oil exports.
The U.S. military’s Central Command on Wednesday confirmed it has seen an increase in Iranian naval activity, including in the Strait of Hormuz, a strategic waterway for oil shipments that Iran’s Revolutionary Guards have threatened to block.
“We are monitoring it closely, and will continue to work with our partners to ensure freedom of navigation and free flow of commerce in international waterways,” said Navy Captain Bill Urban, the chief spokesman at Central Command, which oversees U.S. forces in the Middle East.
Central Command did not update its guidance on Thursday.
A third official said the Iranian naval operations did not appear to be affecting commercial maritime activity.
U.S. officials, speaking to Reuters on condition of anonymity, said the drills appeared designed to send a message to Washington, which is intensifying its economic and diplomatic pressure on Tehran but so far stopping short of using the U.S. military to more aggressively counter Iran and its proxies.
But Iran did not appear interested in drawing attention to them. Iranian authorities have yet to comment on them and several officials contacted by Reuters declined to comment.
Trump’s policies are already putting significant pressure on the Iranian economy, although U.S. intelligence suggests they may ultimately rally Iranians against the United States and strengthen Iran’s hardline rulers, officials say.
Iran’s currency plumbed new depths this week ahead of Aug. 7, when Washington is due to reimpose a first lot of sanctions following Trump’s withdrawal from the 2015 nuclear deal.
Protests have broken out in Iran since the beginning of the year over high prices, water shortage, power cuts and alleged corruption.
On Tuesday, hundreds of people rallied in cities including Isfahan, Karaj, Shiraz and Ahvaz to protest high inflation caused in part by the weak rial.
The physical oil market -- where traders buy and sell bbl on their journey from the well-head into the global refining system -- is looking increasingly fragile.
When Saudi Arabia and Russia agreed to boost oil production in late June, they assured traders high output wouldn’t flood the market. Less than two months later and the market doesn’t appear so certain as a small but steadily growing glut emerges of light, sweet crude, high-quality oil prized for its yield of valuable gasoline and lack of polluting sulfur molecules.
"The market is feeling soggy," said Andrew Dodson, chief investment officer at the recently launched energy hedge fund Philipp Oil in London.
The market only has a few weeks to clear the glut before the summer season of peak demand ends and refiners start turning down units for seasonal maintenance, significantly reducing crude intake.
The overhang is best reflected in time spreads for Brent, the North Sea benchmark that underpins the global market.
Barrels available for delivery within weeks have started trading at a discount to cargoes for further in the future, a market situation known as contango that suggests a near-term surplus of oil. The price difference between Brent futures nearest delivery and the contract a month later moved from a premium of $0.53 in late June to a discount of $0.63 in late July.
Oil refiners have plenty of crude at hand right now with unsold cargoes of light, sweet crude in northwest Europe, the Mediterranean, China, and West Africa, traders said. While U.S. sanctions on Tehran could quickly tighten the physical market later this year, supplies are currently plentiful as the Saudis and Russians boost production before the market loses significant Iranian supply.
"The increase in supply from OPEC seems to be real and it’s already translating into an overhang in supplies of Brent," Marwan Younes, chief investment officer at commodities fund Massar Capital Management, said.
Although many traders still expect the light, sweet crude market to tighten toward the end of the year, investors increasingly seem less convinced. The price difference between Brent crude for delivery in December 2018 and December 2019 -- a popular trade known in the industry as Dec-Red-Dec -- has narrowed to $2.48/bbl, down from a peak of $6.16/bbl three months ago, suggesting a looser market.
The weakness in light, sweet crude is such that its premium over lower-quality heavy, sour crude has narrowed dramatically since May. The Brent-Dubai exchange of futures for swaps, a measure of the difference in prices between the two benchmark crudes, fell to $1.10/bbl in late July, down from more than $4.50/bbl three months earlier.
The overhang in light, sweet crude is compounded by a surge in U.S. exports into Europe as Washington’s trade war with Beijing prompts traders to divert cargoes they once hoped to sell to China. That’s putting further pressure on Brent, one of the world’s two main crude benchmarks. Total U.S. crude exports have surged to 2.2 MMbpd on average over the last four weeks, compared to 893,000 bpd in July 2017.
Adding to the problem, Riyadh is offering additional bbl of Arab Extra Light, which is adding to the glut in light crude, traders said. And Kazakhstan is also boosting output of its main export grade, known as CPC Blend, a similar grade. Libyan production, which briefly plunged in early July, has also now recovered.
"The prompt crude oversupply has taken on a life of its own," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.
Beyond trade disputes, China is making things worse on the demand side as so-called teapot refineries scale down purchases in the North Sea, traders said. They estimated that less than 7 MMbbl left the region heading to Asia in July, down from 15 MMbbl in May.
The weakness, traders say, is likely to extend in the next few weeks into the domestic U.S. oil market, which has been largely isolated from the waterborne glut. West Texas Intermediate, the U.S. benchmark crude, has been trading in a relatively healthy backwardation -- the opposite structure to contango -- suggesting a tight market.
The price has been supported by falling inventories at the storage and pipelines hub of Cushing. The Oklahoma town serves as the delivery point for the WTI oil futures contract.
Cushing crude stocks fell last week to a near four-year low of 22.4 MMbbl, putting inventories perilously close to what some consider tank bottoms at around 16 MMbbl. In June and July, American refiners tapped Cushing stocks heavily to replace the loss of 350,000 bpd from the Syncrude facility in Canada. But, with the plant, which upgrades Canadian oil sands into a synthetic light crude, returning to full operations in September, just as refineries enter maintenance season, Cushing is set to build again.
Once the Oklahoman storage hub starts to fill again, that could spell more pressure for Brent and Brent-related crude.
U.S. energy companies this week added oil rigs for the first time in the past three weeks as drillers follow though on plans to spend more on exploration and production in anticipation of higher crude prices in 2018 than recent years.
That move higher came despite recent declines in U.S. crude prices, which are on track to fall for a fourth week in a row this week on worries trade tensions between the U.S., China and Europe could hurt oil demand. [O/R]
Drillers added three oil rigs in the week to July 27, bringing the total count to 861, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday.
For the month, the oil rig count rose three in July after losing one rig in June.
More than half the total oil rigs are in the Permian basin in west Texas and eastern New Mexico, the nation’s biggest shale oil field. Active units there increased by four this week, bringing the total to 479, the same as in early June and the highest since January 2015.
The U.S. rig count, an early indicator of future output, is higher than a year ago when 766 rigs were active as energy companies have been ramping up production in anticipation of higher prices in 2018 than previous years.
So far this year, U.S. oil futures have averaged $66.11 per barrel. That compares with averages of $50.85 in 2017 and $43.47 in 2016.
Looking ahead, crude futures were trading near $68 for the balance of 2018 and about $65 for calendar 2019.
In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co this week said the exploration and production (E&P) companies they track have provided guidance indicating a 13 percent increase this year in planned capital spending.
Cowen said those E&Ps expect to spend a total of $81.7 billion in 2018, up from an estimated $72.1 billion in 2017.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week forecast average total oil and natural gas rig count would rise from 876 in 2017 to 1,033 in 2018, 1,092 in 2019 and 1,227 in 2020. That is the same as last week’s expectations.
Since 1,048 oil and gas rigs were already in service, drillers would only have to add a handful of rigs during the rest of the year to hit Simmons’ forecast for 2018.
So far this year, the total number of oil and gas rigs active in the United States has averaged 1,009. That keeps the total count for 2018 on track to be the highest since 2014, which averaged 1,862 rigs. Most rigs produce both oil and gas.
The U.S. Energy Information Administration (EIA) this month projected average annual U.S. production will rise to a record high 10.8 million barrels per day (bpd) in 2018 and 11.8 million bpd in 2019 from 9.4 million bpd in 2017. [EIA/M]
The current all-time U.S. annual output peak was in 1970 at 9.6 million bpd, according to federal energy data.
U.S. independent oil refiner Phillips 66’s quarterly profit topped analysts’ estimates on Friday as cheaper crude prices boosted refining margins by more than 45 percent.
The company’s shares rose 2.4 percent to $118.76 in afternoon trading on Friday.
Like its rivals Valero Energy Corp and Marathon Petroleum Corp, Phillips 66 processes heavy crude from countries including Venezuela and Canada into diesel, gasoline, jet fuel and other products. But booming U.S. shale production has forced refiners to retrofit the distillation process to handle more of the very light crude from the oilfields of Texas and North Dakota.
“With roughly one-third of their crude slate being light crude, I would suspect Phillips 66 benefited significantly during the quarter as did the other refiners,” said Jennifer Rowland, an energy analyst at Edward Jones.
Phillips 66 said earnings from refining, its biggest business, increased to $910 million in the second quarter from $224 million a year earlier.
On Thursday, Valero and Marathon Petroleum also topped Wall Street profit estimates as greater processing of cheap, light crude from West Texas boosted margins.
The spread between U.S light crude and Brent crude has widened this year with a rise U.S. oil production, which lowered WTI prices, while Brent crude has climbed on Middle East tensions and OPEC supply cuts.
U.S. crude production has been rising to record high levels since late last year, hitting a record 11 million barrels per day this month.
The widening of the Brent–WTI spread, larger discounts on U.S. inland crudes and improved heavy crude differentials all contributed to increased realized margins, Phillips 66 said.
“We expect Western Canadian Select discounts to be attractive for at least the next 18 months and potentially longer,” Chief Executive Officer Greg Garland said on a post- earnings report call, adding that the refiner has no major turnaround overhauls planned at its nine refineries in the third quarter of 2018.
Prices for Canadian crude have also dropped against benchmark oil as a surge in production has led to transportation bottlenecks.
Realized refining margin was $12.28 per barrel compared with $8.44 per barrel a year earlier, the company said in a statement. The refiner’s utilization rate, which is defined as the percentage of the total equipment or refinery involved in processing crude, reached 100 percent.
Chief Financial Officer Kevin Mitchell said in a call with Wall Street analysts that capital expenditure for the rest of the year will be between $2 billion and $3 billion.
Earnings from the company’s midstream business also doubled to $202 million while profit at its chemicals business, which manufactures and markets petrochemicals and plastics, rose nearly 34 percent.
The Houston, Texas-based company said its adjusted earnings rose to $1.32 billion, or $2.80 per share, in the three months ended June 30, from $569 million, or $1.09 per share, a year earlier.
Analysts on average had expected a profit of $2.19, according to Thomson Reuters I/B/E/S.
Exxon Mobil Corp and Chevron Corp, two of the world’s largest oil producers, reported quarterly profit on Friday that fell far short of Wall Street’s expectations.
The disappointing results come as much of the U.S. oil industry has been recovering from a three-year downturn in the energy sector, bolstered by higher production and crude prices.
Exxon’s troubles highlight ongoing issues the company has been having to boost operations, whereas Chevron’s miss was fueled by a slight rise in expenses that likely will not be repeated, analysts said.
Exxon shares fell 2.5 percent to $82.09 shortly after midday, while Chevron’s recovered from an early drop and were up about 2 percent at $126.34. Both stocks are components of the Dow Jones Industrial Average.
The results were particularly weak at Exxon, which has been trying to boost operations in a bid to revive a stock price trading at about the same level it was a decade ago.
“Exxon’s definitely sticking out like a sore thumb right now,” said Edward Jones energy analyst Brian Youngberg. “It’s just hard to find anything good in the quarter.”
Despite rising oil prices, Exxon’s production dropped 7 percent and it spent more than $600 million to upgrade refineries in France, Canada, Texas and Saudi Arabia.
Exxon called the quarter a “challenging” one for its operations and “well below market expectations.”
Neil Chapman, an Exxon executive and member of the company’s management committee, said he is “not happy” about the ongoing refinery maintenance, adding there is “nothing systemic” about the repairs that would reveal weakness in the refining division.
“We are absolutely all over these reliability incidents,” Chapman said on a conference call with investors.
Exxon earned 92 cents per share, while analysts expected earnings of $1.27 per share, according to Thomson Reuters I/B/E/S.
At Chevron, oil production rose 2 percent and profit spiked, but higher corporate expenses surprised Wall Street. Still, the company announced a $3 billion stock buyback program, long awaited by Wall Street.
“We believe annual share repurchases of $3 billion can be sustained over most reasonable price scenarios,” Chevron Chief Financial Officer Pat Yarrington told investors on a conference call.
Chevron earned $1.78 per share, while analysts expected $2.09 per share, according to Thomson Reuters I/B/E/S.
Chesapeake Energy Corp plans to sell all of its Ohio natural gas acreage to privately owned Encino Acquisition Partners for about $2 billion, the company said on Thursday.
The Oklahoma City-based oil and gas producer said it will use the proceeds to pay off debts, which totaled about $9.83 billion at the end of March. The deal is expected to close in the fourth quarter.
Chesapeake has been shedding assets and employees since a 2013 governance crisis led to the departure of co-founder and former Chief Executive Officer Aubrey McClendon, who died in an auto accident in 2016.
The sale of Chesapeake’s entire stake in the Utica shale will strengthen the company’s balance sheet and further shift its focus from gas production to oil, Chesapeake CEO Doug Lawler said in an interview.
“We will absolutely be driving for a greater percentage of oil production in our portfolio,” Lawler said. “We hope to achieve that through organic growth, exploration and future acquisitions.”
The sale to Houston-based Encino Acquisition Partners includes 320,000 net acres in Ohio’s Utica shale and 920 wells that currently produce about 107,000 barrels of oil equivalent per day. Encino is backed by the Canadian Pension Plan Investment Board and Encino Energy.
The purchase price includes a $100 million contingent payment based on future natural gas prices.
The transaction is part of Chesapeake’s plan to pay down debts that had ballooned to as much as $16 billion in 2012 after a string of land acquisitions just before U.S. natural gas prices tumbled.
The company, which had said it expected to cut debt by between $2 billion and $3 billion this year, plans additional small asset sales and expects to use cash flow from higher output at existing fields to shave debt, Lawler said.
Chesapeake expects it will be able to replace the cash flow from its acreage in the Utica within a year by investing in other assets, particularly in the Powder River Basin in Wyoming. Those assets, which the company acquired about a decade ago, had once been on Chesapeake’s chopping block.
By drilling longer horizontal wells and using better completion technology, the Powder River Basin has proven a lucrative investment, Lawler said. Chesapeake also is considering growing output by acquiring new acreage elsewhere.
“We’ll look for opportunity,” Lawler said.
Chesapeake also said its 2019 oil production is expected to rise about 10 percent from 2018, adjusted for asset sales, with additional oil growth anticipated in 2020.
Italian oil producer reported a 66 percent jump in second quarter profit on Friday on higher oil prices and production but fell short of analyst forecasts.
Adjusted net profit rose to 767 million euros ($893.3 million), but fell short of an analyst consensus forecast of 1.0 billion euros.
Eni faced higher taxes than a year earlier and its investment returns fell, its earnings showed.
Eni shares were down 0.5 percent at 0701 GMT while the European oil and gas index was up 0.07 percent.
Cash flow from operations rose 12 percent to 3 billion euros, the state-controlled company said.
It will pay an interim dividend of 0.42 euros per share having earlier flagged it would pay an annual dividend of 0.83 euros per share.
As the industry recovers from a three-year downturn some companies are starting to look for ways to reward shareholders.
On Thursday Royal Dutch Shell (RDSa.AS) launched a $25 billion share buyback while France’s Total (TOTF.PA) has begun a $5 billion purchase program.
Eni, which saw a 5 percent rise in oil and gas output in the quarter, stuck to its outlook for 4 percent growth in production for the year.
The group, which has enjoyed one of the best discovery records in the sector in recent years, said it expected output to driven by ramp-ups in Egypt, Indonesia and Ghana as well as higher production at the giant Kashagan oilfield in Norway.
Shares of oilfield services provider Patterson-UTI Energy Inc fell on Thursday after the company reported weaker-than-expected results in its pressure pumping business, stoking investor concerns that the market is over supplied.
Patterson said it would temporarily stop deploying new pressure pumping fleets to hydraulically fracture oil and gas wells due to oversupply of such gear. The company pointed to a sharp uptick in deployment by rivals and a slowdown in spending by some exploration and production companies.
The pressure pumping business in North America had been expanding as a result of growing U.S. shale production, which in July hit 7.3 million barrels per day, according to government estimates. However, pipeline constraints in the Permian Basin and additions to hydraulic fracturing fleets earlier this year have threatened to undermine some of those gains.
Patterson’s shares fell as much as 7 percent shortly after the market opened, hitting a two-and-a-half-year low. They later rebounded, trading around $16.03 at 11:45 a.m. ET (1545 GMT), off about 1 percent.
“Patterson-UTI’s pressure pumping results in the second quarter will likely add to investor concerns around a slowing of growth trajectory of the U.S. pressure pumping market,” James West, a senior managing director for Evercore ISI, wrote in a note on Thursday.
Patterson-UTI’s decision to halt additions comes after leading pressure pumping provider Halliburton Co (HAL.N) saw its shares plummet more than 8 percent this week on a forecast of moderating growth in the Permian Basin, the largest U.S. shale field.
Patterson’s expects pressure pumping revenue for the third quarter to decline by 5 percent, while gross margins in that business to fall 7.5 percent, the company said.
It said oversupply issues were not limited to the Permian Basin.
“It’s disappointing to hear our peers are continuing to add additional horsepower,” one executive said on the call with analysts.
“It’s made it difficult for us to fill the white space in our calendar when we had delays. Normally we’d be able to shift some spreads and do some fracks for other companies,” the executive added.
U.S. oil and gas producer ConocoPhillips posted better-than-expected quarterly profit on Thursday thanks to rising crude prices, prompting executives to boost capital spending and production targets for the year.
The new targets are a bullish bet that oil prices CLc1, which have surged more than 15 percent since January, are not likely to drop in the near future, helping Conoco exploit its lucrative shale acreage around the United States.
Houston-based ConocoPhillips, the world’s largest independent oil and gas producer, is one of the first major U.S. oil producers to report earnings for the second quarter. Its shares were up 0.3 percent at $71.74 on Thursday afternoon.
The company said it expects to produce between 1.23 million barrels of oil equivalent per day (boe/d) and 1.26 million boe/d in 2018. It had previously forecast production of between 1.2 million boe/d and 1.24 million boe/d.
ConocoPhillips forecast capital spending of $6 billion this year, reflecting growing expenses from a higher U.S. oil price of $65 per barrel. It had initially budgeted $5.5 billion for 2018 capital expenditures and said the additional spending would be on well completions, work with production partners, and inflation.
“We’re executing our operating plan and remain committed to our disciplined approach to the business,” Chief Executive Ryan Lance said in a statement.
The company posted net income of $1.6 billion or $1.39 per share, compared with a loss of $3.4 billion or $2.78 per share a year earlier.
Excluding one-time items, ConocoPhillips earned $1.09 per share, edging past analysts’ average estimate of $1.08 per share, according to Thomson Reuters I/B/E/S.
Conoco said it realized an average price of $54.32 per barrel of oil equivalent in the three months ended June 30, from $36.08 a year earlier.
Higher prices also are lifting its cash generation. Cash flow from operations will run between $11.5 billion and $12 billion this year with U.S. crude prices at $65 a barrel, finance chief Don Wallette told analysts on a conference call. That is up from an earlier estimate of about $7 billion at $50 a barrel.
“The market hasn’t yet fully appreciated the cash-generating capability of our assets,” he said.
Higher crude prices are driving cost inflation and U.S. tariffs on imported steel also are “a fairly significant item for us,” Alan Hirshberg, executive vice president for production, drilling and projects, said on the same call.
ConocoPhillips’ second-quarter production, excluding Libya, fell 214,000 boe/d year-over-year to 1.2 million boe/d, largely due to asset sales.
Asian spot liquefied natural gas (LNG) prices rose this week as a heatwave gripped Japan and high temperatures swept across South Korea and parts of China boosting cooling demand though relief is set to come from new Russian supplies.
Spot prices for September LNG-AS delivery in Asia were assessed at $9.75 per million British thermal units (Btu), up 25 cents from the previous week.
Contrary to previous forecasts, temperatures in Japan stayed above average in a prolonged heatwave that killed dozens of people. It also prompted electric utilities to fire up mothballed oil and gas-fired power plants left on standby.
The heat hit South Korea too but any increase in gas demand may be muted by the start-up of the 950-megawatt Hanul No.2 nuclear reactor, which is expected to by fully operational by Sunday.
LNG imports into South Korea hit record levels in the first half of the year but such volumes will not be sustainable as anticipated nuclear start-ups will leave an average of only six reactors offline over the rest of the year.
The second train at Novatek’s Arctic Russian operations in Yamal has started operations, one trader said. Novatek said last year that the second train would start operations in the third quarter of this year.
“The start of Yamal’s Train 2 is easing the pain for buyers but demand due to the heatwave seems to be picking up,” said one trader.
Papua New Guinea launched a tender offering a cargo for Aug. 22-29 and the bids were seen to be bullish although the result is not yet known, the trader said.
However, Russia’s Sakhalin II cargo offered in the first half of September was sold to a shareholder of the plant for an estimated $9.70 per mmBtu. Another trader cited a potential transaction range of $9.65-$9.70 per mmBtu.
He sees September prices around the $9.75 per mmBtu mark.
Aside from Yamal, traders were also waiting on new supplies from Japan’s Inpex, which expects its Ichthys plant in Australia to start up in September.
European spot prices so far remain uncompetitive with Asia in drawing away Qatari cargoes, as storage inventories recover across the continent.
After idling near the 4.6-Bcf/d level for months, piped gas flows to Mexico raced to a record of more than 5 Bcf/d for the first time earlier in July, and have hung on to that level since. This new export volume signifies incremental demand for the U.S. gas market at a time when the domestic storage inventory is already approaching the five-year low. At the same time, it would also signify some much-needed relief for Permian producers hoping to avert disastrous takeaway constraints — that is, if the export growth is happening where it’s needed the most, from West Texas. However, that’s not exactly the case. What’s behind the sudden increase, where is it happening and what are the prospects for continued growth near-term? Today, we analyze the recent trends in exports to Mexico.
Watching gas export flows to Mexico in recent months have been a bit like turning the crank on a jack-in-the-box — pipeline exports were primed to explode, with West Texas’s Permian gas production at record levels and ample available pipeline capacity to the border. But the lid had yet to pop up. After initially gaining on 2016 levels, volumes moving across the border had been hovering near the 4.5-Bcf/d level since mid-2017, as indicated by the tight relationship between the 2017 (medium blue) and 2018 (dark blue) lines in Figure 1. However, that shifted dramatically this month.
In July, deliveries to Mexico jolted higher in a vertical ascent past the 5-Bcf/d mark for the first time ever (orange-dashed oval). This could be observed in near-real time using daily pipeline flow data, which RBN tracks in its NATGAS Permianreport. From July 1 to July 3, export volumes jumped by 200 MMcf/d to 4.9 Bcf/d, and by July 5 they got another bump to just over 5 Bcf/d. That record was then surpassed two days later, when deliveries to Mexico posted at nearly 5.3 Bcf/d. Since then, the volumes have stayed squarely in 5-Bcf/d territory, which amounts to a 400-MMcf/d gain from the prior month and 600 MMcf/d above last year at this time.
Figure 1. Source: RBN NATGAS Permian
A deeper dive into the pipeline data tells us the regional breakdown of where these gains have occurred and what’s behind them. It also shows that as Permian gas supply and export pipe capacity from Texas have increased over the past couple of years, the regional distribution of exports to Mexico also has shifted.
Piped gas from the U.S. is delivered to Mexico from three border regions — the Desert Southwest, West Texas and South Texas. The map in Figure 2 provides a look at the various export interconnects at the U.S.-Mexico border from each of these regions.
Figure 2. Source: RBN Energy
From the Desert Southwest, there are seven legacy interconnects that flow gas across the border, all but one of them on Kinder Morgan’s El Paso Natural Gas’s (EPNG) South Mainline system (violet system at the top of the map). One of the EPNG points — the Samalayuca interconnect with Sempra Energy’s IEnova gas pipeline system on the Mexico side (purple circle D) — is in West Texas, closer to the Permian supply growth. The remaining points are strung farther west along Arizona’s border with Mexico, including four interconnects in Cochise County, AZ: the Agua Prieta and Mexicana de Cobra points near the border towns of Douglas, AZ, and Agua Prieta, Sonora (location E on the map); and then the Wilmex and Monument 90 points near the town of Naco, AZ (location F on the map). Farther west, near the border town of Nogales, is the EPNG’s interconnect with the Sierrita Pipeline (at location G). The seventh border crossing — location H — involves EPNG delivering gas to TransCanada’s North Baja pipeline at the California-Arizona border, which then extends south into northwestern Mexico.
Figure 3. Source: RBN NATGAS Permian
Exports from these points have some seasonality but, as the Figure 3 graph illustrates, they’ve otherwise have been fairly consistent, ranging from 800-900 MMcf/d during the winter and shoulder months to as much as 1.1 Bcf/d during the peak summer months when power generation kicks up. So, while exports from the Desert Southwest jumped in July (2018), volumes were in line with the previous July (see the yellow 2018 line versus 2017 gray line in the graph). That said, volumes from this region on a percentage basis have dropped from about 25% of total exports in the first half of 2016, to less than 20% this year to date, as expectations of supply growth in Texas combined with demand growth on the Mexico side has pushed a build-out of export capacity from the Lone Star State (see No Surprises).
Prior to April 2016, exports from West Texas and the Waha Hub were near zero. However, that month, ONEOK launched the initial phase of its new Roadrunner Gas Transmission Pipeline (pink line moving west from Waha), adding export capacity from Waha to an interconnect with the Tarahumara Pipeline near San Elizario, TX (circle B in pink). Those exports primarily serve two combined-cycle plants: the 420-MW Norte II and the 600-MW Chihuahua II. By January 2017, Energy Transfer Partners (ETP) brought online its Comanche Trail Pipeline (green line), with a connection (circle A in green) to the San Isidro-Samalayuca line, which also serves power plants in the Samalayuca area, just south of Juárez. In March 2017, ETP also completed the Trans-Pecos Pipeline (brown line), which added capacity between Waha and a border point near Presidio, TX (C, brown circle), where it connects to Mexico’s Ojinaga-El Encino pipeline (yellow line).
These three pipes combined added 3 Bcf/d of export capacity from Waha to Mexico, but as indicated by the Figure 4 flow graph, actual exports from West Texas hadn’t gotten much higher than 200 MMcf/d prior to June (2018), as shippers awaited pipeline and demand infrastructure on the Mexico side. The bulk of these exports have been on Roadrunner (orange layer in Figure 3 below) and Comanche Trail, (blue layer) while Trans-Pecos (purple) has been at zero most days since it launched service. As of now, flows still remain well below capacity. However, as we discussed in No Surprises, pipeline data indicates some of the delayed downstream capacity is finally beginning to materialize, allowing small increases in exports from this region. Export flows from Waha have increased to an average 340 MMcf/d so far in July, compared with 200 MMcf/d two months ago and about 130 MMcf/d this time a year ago.
Figure 4. Source: RBN NATGAS Permian
In late June (2018), Roadrunner began delivering incremental volumes to Tarahumara, as a downstream expansion in interior Mexico — the El Encino-Topolobampo Pipeline — began introducing initial volumes in preparation for full start-up. Since then, TransCanada has announced full in-service for Topolobampo in northern Mexico, opening up 670 MMcf/d of capacity downstream of the U.S.-Mexico border, primarily destined for existing and upcoming gas-fired power generation plants. With that, Roadrunner’s flows have ticked up to 270 MMcf/d in recent days, from an average of 190 MMcf/d in June, while Comanche Trail is consistently delivering at the 90-MMcf/d level to the border and Trans-Pecos remains at zero.
So, the Desert Southwest and Waha have both contributed to the record export flows this month, with the former being typical seasonal gains. But the biggest bump this month has come from South Texas, where more capacity was added recently on the U.S. side. Going back to the map above, there are six pipes that deliver gas to the border from South Texas — Kinder Morgan’s 90-mile, 640-MMcf/d Mier-Monterrey Pipeline from Starr County, TX, to Monterrey, Mexico (I, purple circle); Kinder’s Border Pipeline (J, green circle), a short-haul pipe fed by the KM Tejas intrastate line that moves gas from Kleberg County, TX, to the border just west of Reynosa; ETP’s intrastate system (K, red circle); NET Mexico, which moves gas from numerous interconnects near Agua Dulce, TX to the border near Rio Grande City, TX in Starr County (L, yellow circle); Tennessee Gas Pipeline (TGP; M, darker blue circle) at the Rio Bravo and PEMEX interconnects; and Texas Eastern Transmission (TETCO; N, sky blue circle).
Figure 5. Source: RBN NATGAS Permian
As the flow graph in Figure 5 shows, exports from South Texas in 2017 averaged 3.3 Bcf/d, about 60% of that on NET Mexico (green layer). By December, those volumes had increased to more than 3.5 Bcf/d. Since then, they have leveled off — that is, until July, when flows rose to nearly 3.7 Bcf/d, with increases on the KM Border line (yellow layer), as well as on NET Mexico. For its part, Kinder expanded capacity on the Border pipe by 100 MMcf/d starting July 1, 2018, naming TGP as the shipper on behalf of an unnamed Mexican customer.
Capacity on the Mexico side also got a boost last month from the new 600-MMcf/d Nueva Era Pipeline co-developed by Howard Energy Partners (HEP) and Grupo CLISA to serve a number of existing and new power plants in northeastern Mexico. Nueva Era is an extension of HEP’s gathering and processing system in Webb County, TX, which also connects with NET Mexico via NET Midstream’s Eagle Ford Midstream pipeline (see Oh, The Places You’ll Go! for more on the Nueva Era project and downstream demand). Note that there are currently no flows on Nueva Era so far, other than for line fill.
In summary, not all of the incremental pipeline exports we’ve seen this month are new volumes; a portion — particularly from the Desert Southwest — was due to a seasonal increase in gas-fired power generation demand. However, it’s the new pipeline and generation capacity that led volumes to sprint past the 5-Bcf/d mark to record levels in recent weeks, and there’s more of that expected over the next few years as additional capacity is built. In fact, there are a number of expansions we’re tracking in the NATGAS Permian report that are coming due and could trigger another watershed in Mexican gas imports by this fall. Mexico’s build-out is expected to progress with the addition of Fermaca’s 1.2-Bcf/d La Laguna-Aguascalientes line, designed to serve CFE’s power generation plants in the States of Durango, Zacatecas and Aguascalientes, as well as the Central and Western regions of the country. The segment will pull gas from the Tarahumara and El Encino-La Laguna lines and is due online by September 2018. By October, the Carso Group is also expected to complete the ~500-MMcf/d east-to-west Samalayuca-Sasabe line, an extension of the Comanche Trail and San Isidro-Samalayuca that’s meant to serve other new power generation plants in western Chihuahua state as well as in the state of Sonora in northwestern Mexico.
From South Texas, we should also see the in-service of the 2.6-Bcf/d Valley Crossing and Sur de Texas-Tuxpan combination by this fall. In conjunction, the two will flow gas south from Agua Dulce hub to the Gulf of Mexico off the coast of the southern tip of Texas (near Brownsville), and from there to Tuxpan in the state of Vera Cruz, on Mexico’s central GOM coast.
These projects signify incremental takeaway capacity for Permian and Eagle Ford supply and new pipeline export demand, and as such their timing will continue to be the driving factor in the Texas — as well as the U.S. — gas market balance over the next few years. The precipitous increase in recent weeks is a reminder that, given the wild-card effect of the downstream projects, the growth is likely to occur in fits and starts. For now, pipeline exports seem to have leveled off just above the 5-Bcf mark. But with more Mexican infrastructure scheduled to come online, get ready — that jack-in-the-box is winding up again.
https://rbnenergy.com/breakthru-infrastructure-additions-send-us-gas-exports-to-mexico-soaring-above-5-bcfd-for-the-first-time-ever
In the pine forests of eastern Texas, oilfield workers equipped with virtual-reality goggles are helping BP’s shale business turn a profit for the first time.
Thousands of automated wells feed data on their performance into the firm’s supercomputers each evening. If they show a need for maintenance, an Uber-style system summons a subcontracted repair firm to keep the shale wells flowing at optimal output and minimal cost.
Such technology has helped slash BP’s shale oil and natural gas production costs by 34 percent over five years. The shale business turned a profit for the first time in 2017, BP said, although the company declined to disclose the figure.
BP’s progress in shale underpinned its $10.5 billion acquisition last week of BHP Billiton’s U.S. shale operations. The deal highlighted BP’s newfound confidence in a sector that has challenged oil majors, which initially struggled to adjust to the quick pace and fast-evolving methods used to tap shale with horizontal drilling and hydraulic fracturing.
BP and other majors that had traditionally focused on large, multi-year conventional drilling projects - such as Royal Dutch Shell and Chevron - were left behind when the shale boom took off a decade ago.
The British energy giant is now catching up with smaller rivals, using technology and its institutional knowledge from global operations to push shale into a second phase that it hopes will reward its massive scale over the agility of smaller competitors.
“We spent the last four years retooling our business and getting ready for this opportunity,” David Lawler, who heads BP’s shale business, said in a call with analysts after the BHP deal announcement. “We’re at the lowest production costs we’ve seen in many years. We’ll take that model, put that to work on these (BHP) assets and dramatically improve production and performance.”
BP faces other large rivals in the race to grow U.S. shale production and profits, including Exxon Mobil Corp, Chevron, Shell and Norway’s Equinor. All are expanding drilling and acquisitions, particularly in the Permian Basin of West Texas and New Mexico, the largest U.S. oil field and the center of the shale revolution.
They aim to capitalize on the vast resources unearthed by new drilling technologies, which also allow companies to start and stop production quickly in response to market shifts. That’s a key advantage over the long-term commitments of billions of dollars required by offshore oil or liquefied natural gas (LNG) projects.
The BHP deal will transform BP into one of the world’s biggest shale oil and gas producers. BP’s total shale output will increase from 315,000 barrels of oil equivalent per day (boed) to more than 500,000 boed. Its reserves will jump 57 percent to 12.7 billion barrels of oil equivalent.
BP’s output of shale oil - which is worth more than natural gas - is poised to rise from about 10,000 barrels of oil per day (bpd) to about 200,000 bpd by the middle of the next decade.
The deal, BP’s first major acquisition in 20 years, also marked a watershed moment for the company in the United States as it looks to leave behind the $65 billion fallout from the deadly 2010 explosion of its Deepwater Horizon rig in the U.S. Gulf of Mexico.
The BHP deal will also re-establish BP as a major player in the Permian Basin. BP had sold all of its assets there to Apache Corp in August 2010, right after the Gulf disaster.
UBER, POKEMON AND OIL
Today, BP operates more than 1,000 shale wells that produce mostly natural gas in the Haynesville basin, which straddles eastern Texas, Arkansas and Louisiana.
It has used the data from its automated wells to create a streamlined system that farms out maintenance to a fleet of lower-cost contractors. The firm now orders up repairs much in the same way a homeowner uses a mobile app to hire a maintenance person or a passenger summons an Uber for a ride.
BP puts repair work out for bid to pre-approved contractors, who then compete for jobs. Each contractor is rated after completing the work, and those with high rankings have a better chance of getting hired again.
“This means we’re not hiring and firing staff all the time depending on market conditions,” said Brian Pugh, chief operating office of BP’s shale division, which the company created as a stand-alone unit in 2015.
BP equips field staff and contractors with augmented reality goggles to make repairs more efficient, modeling its methods in part on “Pokemon Go,” a popular video game where virtual images appear to be in real-world surroundings on the player’s screen.
The field workers are connected through their headsets to BP’s Houston offices, where experts can see and show staff how to perform repairs while they work.
BP has started to collect many of these fixes in a video library so staff can call up videos, much like YouTube, to fix problems themselves without expert consultation.
The company’s algorithms crunch data compiled from its wells each evening. Operators wake up each morning to a report telling them which wells may need repair, a task that once took hours each day as workers drove from well to well in search of problems.
The systems, BP said, cut downtime for wells needing repairs by 50 percent, boosting production last year by 70 million cubic feet of natural gas across its shale portfolio.
The technology provides a panoramic view into the ongoing needs of the oilfield, said Kimberly Krieger, who overseas BP’s shale operations in eastern Texas.
“It’s like looking into a crystal ball,” Krieger said.
SLASHING COSTS, TURNING PROFITS
The firm’s success in reducing costs reflects its ability to spend money automating its oil fields and overhaul work processes to drive down service and equipment costs. BP also separated its shale business from the main company to allow the business, now headquartered in Denver, to form its own culture.
“We’re able to leverage the best parts of our global business to boost our shale operations,” Pugh said. “Our smaller shale rivals in the U.S. don’t necessarily have that.”
Other majors are shooting for the same results.
Exxon expects its shale operations to produce $5 billion in profit by 2022, compared to a $2 billion loss in 2016.
Chevron expects 10 percent of its profit to come from the Permian by 2020 after it lost money there during the oil downturn of 2014 to 2016.
Shell forecasts that shale operations will make money for the first time next year and cash flow will hit $1 billion by 2020.
“We use our global size to our advantage when we negotiate with suppliers.” Greg Guidry, who recently retired as Shell’s shale boss, told Reuters in March. “Costs keep coming down.”
BP Plc has agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton for $10.5 billion, expanding the British oil major’s footprint in some of the nation’s most productive oil basins in its biggest deal in nearly 20 years.
The acquisition of about 500,000 producing acres marks a turning point for BP since the Deepwater Horizon rig disaster in the Gulf of Mexico in 2010, for which the company is still paying off more than $65 billion in penalties and clean-up costs.
“This is a transformational acquisition for our (onshore U.S.) business, a major step in delivering our upstream strategy and a world-class addition to BP’s distinctive portfolio,” BP Chief Executive Bob Dudley said in a statement.
In a further sign of the upturn in its fortunes, BP said it would increase its quarterly dividend for the first time in nearly four years and announced a $6 billion share buyback, to be partly funded by selling some upstream assets.
BP’s London-listed shares were trading 0.4 percent higher at 1400 GMT, compared with a 0.8 percent gain in the broader European energy index .SXEP.
The sale ends a disastrous seven-year foray by BHP into shale on which the company effectively blew up $19 billion of shareholders’ funds. Investors led by U.S. hedge fund Elliott Management have been pressing the mining company to jettison the onshore assets for the past 18 months. BHP put the business up for sale last August.
The sale price was better than the $8 billion to $10 billion that analysts had expected, and investors were pleased that BHP planned to return the proceeds to shareholders.
“It was the wrong environment to have bought the assets when they did but this is the right market to have sold them in,” said Craig Evans, co-portfolio manager of the Tribeca Global Natural Resources Fund.
BHP first acquired shale assets in 2011 for more than $20 billion with the takeover of Petrohawk Energy and shale gas interests from Chesapeake Energy Corp at the peak of the oil boom. It spent a further $20 billion developing the assets, but suffered as gas and oil prices collapsed, triggering massive writedowns.
The world’s biggest miner said it would record a further one-off shale charge of about $2.8 billion post-tax in its 2018 financial year results.
U.S. BOOST FOR BP
The deal, BP’s biggest since it bought oil company Atlantic Richfield Co in 1999, will increase its U.S. onshore oil and gas resources by 57 percent.
BP will acquire BHP’s unit holding Eagle Ford, Haynesville and Permian Basin shale assets for $10.5 billion, giving it “some of the best acreage in some of the best basins in the onshore U.S.,” the company said.
(For a graphic on U.S. oil production, click: tmsnrt.rs/2K1EjdY)
FILE PHOTO: BHP Billiton Chief Executive Andrew Mackenzie is silhouetted against a screen projecting the company's logo at a round table meeting with journalists in Tokyo, Japan June 5, 2017. REUTERS/Kim Kyung-Hoon/File Photo
Its bid beat rivals including Royal Dutch Shell (RDSa.L) and Chevron Corp (CVX.N) for the assets, which have combined production of 190,000 barrels of oil equivalent per day (boe/d)and 4.6 billion barrels of oil equivalent resources.
The acquisition could push BP’s total U.S. production to 1 million barrels of oil equivalent per day (boe/d) in two years and close to 1.4 million boe/d by 2025, said Maxim Petrov, a Wood Mackenzie analyst.
“The Permian acreage offers the biggest longer-term upside, with some of the best breakevens in the play, well below $50 per barrel,” said Petrov.
The deal would turn the onshore United States into “a heartland business in the company,” Bernard Looney, BP’s head of upstream, said in a call with analysts.
It will bring BP into the oil-rich Permian basin in West Texas, where production has surged in recent years. With it, BP’s onshore oil production will jump from 10,000 barrels per day to 200,000 bpd by the mid-2020s, Looney said.
BP said the transaction would boost its earnings and cash flow per share and it would still be able to maintain its gearing within a 20-30 percent range.
The company also said it would increase its quarterly dividend by 2.5 percent to 10.25 cents a share, the first rise in 15 quarters.
Meanwhile, a unit of Merit Energy Company will buy BHP Billiton Petroleum (Arkansas) Inc and the Fayetteville assets, for $0.3 billion.
Tribeca’s Evans welcomed the clean exit for cash, rather than asset swaps which BHP had flagged as a possibility.
“It leaves the company good scope to focus on their far better offshore oil business,” he said.
BHP Chief Executive Andrew Mackenzie said the company had delivered on its promise to get value for its shale assets, while the sale was consistent with a long-term plan to simplify and strengthen its portfolio.
BHP (BHP.AX) shares rose 2.3 percent after the announcement, outperforming the broader market and rival Rio Tinto (RIO.AX)(RIO.L).
BP said it would pay the $10.5 billion in installments over six months from the date of completion, with $5.25 billion of the consideration to be raised through the sale of new shares.
Inpex Corp said on Monday it has begun producing gas at its giant Ichthys field off northern Australia, putting it a big step closer toward shipping its first liquefied natural gas (LNG) cargo from the long-delayed $40 billion project.
Start-up of gas production is a major milestone for the project, Japan’s biggest overseas investment and first major energy development to be operated by the country’s top oil and gas producer.
Inpex said it now expects to start exporting products by the end of September, with condensate to be shipped first, then LNG and liquefied petroleum gas (LPG), nearly two years later than its initial target.
“The project expects to begin the shipment of products towards the end of the first half of the current fiscal year,” Inpex said in a statement. The first half ends in September.
The project is expected to take two or three years to reach its full capacity of 8.9 million tonnes of LNG a year, along with about 1.7 million tonnes of LPG and around 100,000 barrels per day of condensate, an ultra-light form of crude oil.
Inpex said it was reviewing expected revenue contributions from the Ichthys project for the year to March 2019, taking into account the oil price outlook and other factors, and would inform the market if its forecasts are revised.
Inpex owns just over 62 percent of Ichthys LNG, with France’s Total SA holding 30 percent. The remainder is owned by Taiwan’s CPC Corp and Japanese utilities.
Severe natural gas shortfalls that occurred in parts of China last winter are still fresh in people's memories, but officials from the country's major energy companies recently assured the public they have taken various actions to ensure the same thing will not happen again this year.
PetroChina is fully ready with gas supplies this winter, China Securities Journal reported, citing Wang Duohong, deputy general manager of its eastern China natural gas sales unit.
"What happened last year is the result of multiple factors, and our infrastructure facilities including gas depots, liquefied natural gas receiving stations and pipe networks were seriously lagging," Wang noted.
PetroChina is fully prepared this year, he stated. For example, it has made various preparations in response to equipment issues caused by extreme weather in the transmission of natural gas imported from Central Asia last year. The company has also scaled up its own natural gas production, he added.
"The events of last year have steeled people for [possible] short supplies, at least at the psychological level. Gas supplies are still expected to be tight this winter, but the situation should be better than last year," he explained.
CNOOC Gas & Power, an affiliate of China National Offshore Oil Corporation (CNOOC), has equipped all key points throughout the national pipe network with compressors to ensure reliable natural gas transmission, said Jin Shuping, its deputy general manager, adding it started pumping gas into storage depots this summer to maintain adequate reserves in winter.
"CNOOC is also collaborating with shipping companies to deliver surplus gas from Hainan, Guangdong and other southern regions to Hebei and Shandong, where natural gas tends to be in short supply, by both water and road," Jin noted.
As the first pilot project this year, CNOOC will ship 1,000 standard containers of liquefied natural gas from Hainan to Hebei. If the project is successful, another 500 to 1,000 LNG tankers will be sent to Shandong using the same method, it stated.
The Chinese government has encouraged local authorities in recent years to lower coal consumption and use natural gas instead to improve air quality. However, infrastructure renovation has not kept pace with the rather abrupt shift.
Last winter's frigid temperatures compounded the difficulties of this transformation and produced severe gas shortages in many parts of the country, especially northern regions. The resulting spike in gas prices prompted local governments to impose production bans and restrictions on large industrial gas consumers.
The Port of Corpus Christi sold more than $216 million in bonds this week to fund energy export projects.
Port officials on Friday morning said the money will be used to deepen and widen the Corpus Christi Ship Channel and fund upcoming capital projects within the Port.
The channel improvement project isn't the only one that could receive the money. A new crude oil export terminal that would be able to take in the world's largest tankers, the 2 million barrel very large crude carriers or VLCCs, is being eyed by the port for Harbor Island, just two miles inland from the Gulf of Mexico.
Summer vacations are in full swing so consider taking a drive to the beach and Port Aransas. Jeffrey Hentz with the Port Aransas/Mustang Island Chamber has more.
That project and another one being proposed by the port on Harbor Island, a water desalination plant, has run into opposition in the town of Port Aransas, located just 1,000 feet across the channel from where the proposed terminal would be.
Some there are concerned that the project would pose a risk to the area's vital tourism industry and are concerned about the potential terminal's location, which took a direct hit from Hurricane Harvey in August 2017.
The channel deepening and widening project has been pushed for by the port for decades. The $327 million project is being conducted by the U.S. Army Corps of Engineers with the port paying roughly $102 million of the cost.
The project, when completed, would allow the port to bring in and fully load larger crude oil tankers, further boosting the port's status as a leading crude oil exporter.
Some of the largest crude oil tankers — the 1 million barrel Suezmax and 2 million barrel very large crude carriers — are only able to partially load in the port. They then finish loading in the Gulf of Mexico.
When complete most of the channel will be 530 feet wide and 54 feet deep.
Private equity firm KKR and Co (KKR.N) said on Monday it will form a joint venture with pipeline company Williams Cos Inc (WMB.N) to buy Discovery Midstream from TPG Growth for about $1.2 billion.
Assets of Discovery, located in Colorado’s Denver-Julesburg Basin, include a 60 million cubic feet per day (MMcf/d) gas processing plant, with an extra 200 MMcf/d plant that is under construction and is expected to be in service by the end of 2018, KKR said.
KKR will own 60 percent stake in Discovery and the remaining will be held by Williams upon close of the deal, expected in the third quarter of this year. Discovery will continue to be led by its existing management.
Williams will also fund additional capital, when required, to bring its total ownership of Discovery to 50 percent.
KKR said it will fund the deal primarily through its energy and infrastructure funds.
Last year, TPG Growth, a sister company of asset management firm TPG, bought Dallas, Houston-based oil and gas producer Discovery Midstream.
Separately, privately-held Harvest Midstream Company said it would buy Williams Partners LP’s pipeline and storage assets in Colorado and New Mexico for $1.13 billion.
Brazilian oil giant Petrobras has confirmed that Ouro Preto Óleo e Gás company was the best bidder in its tender to buy Petrobras’ Enchova and Pampo fields in the Campos basin.
To remind, the binding phase for the assignment of all of Petrobras’ exploration, development and production rights in Enchova and Pampo Clusters, located in Rio de Janeiro state began late in February 2018.
Responding to media reports that Ouro Preto Óleo e Gás has won the bidding race, Petrobras has issued a statement confirming the reports.
However, Brazilian oil giant stressed the fields have yet to be sold, as Ouro Preto Óleo e Gás has now been invited to participate in the negotiation of contracts, although no agreement of exclusivity has been signed.
“Petrobras reports that the company Ouro Preto Óleo e Gás submitted the best proposal in the binding phase of the disinvestment process, and therefore was invited to participate in the negotiation of contracts, although no agreement of exclusivity has been signed,” the Brazilian oil giant said.
Petrobras added: “It should be noted that…the start of negotiations with the first-placed entity is a defined step in divestment projects, as is the possibility of successive negotiations with the remaining tenderers, in compliance with their classification order, in addition to any new rounds of binding proposals, if applicable.”
Enchova & Pampo clusters
The Enchova package is located in shallow water at a distance of about 90 km from the coast with reservoir depth between c.1,800 to 2,600m.
The Enchova cluster contains Bicudo, Bonito, Enchova, Enchova Oeste, Marimbá and Piraúna concessions and Pampo Cluster includes Badejo, Linguado, Pampo and Trilha concessions.
Enchova is currently producing from 32 wells with five platforms, one fixed and four floating. Oil and gas are exported through pipelines to Cabiúnas, the gas processing plant, located onshore.
The Pampo package is located in shallow water at a distance of about 80 km from the coast with reservoir depth between c.950 to 2,950m.
This package of assets is currently producing from 27 wells with two platforms, one fixed and one floating.
Oil and gas are transported through pipelines to platform PCE-1 in the Enchova field, and subsequently to the Cabiúnas gas processing plant located onshore
Both Enchiva and Pampo licenses expire in 2025 with the potential to extend.
https://www.offshoreenergytoday.com/ouro-preto-files-best-bid-for-petrobras-campos-basin-fields/
Australia’s tropical city of Darwin wants to establish itself as a world-scale energy export hub, building on its closeness to demand centres in Asia and abundant nearby natural gas resources.
With the imminent start-up of Inpex Corp’s US$40 billion Ichthys LNG project, the capital of the Northern Territory will be home to two LNG exporting facilities, with a total capacity of 12.6 million tpy, including ConocoPhillips’ Darwin LNG plant that opened in 2006.
Darwin is poised to become the nucleus of the Northern Territory’s push to expand LNG exports by tapping 30 trillion ft3 of gas offshore northern Australia. Perched at the top of the continent in a region known for saltwater crocodiles, Darwin is closer to Jakarta than Sydney.
The city will vie with projects from Alaska to Qatar that will beef up global LNG supply from 2022 onwards to meet growing demand in Asia, the world’s top consuming region.
“We have the gas, location and proximity to markets — whether it’s China, India, Japan or Indonesia,” said Paul Tyrrell, chairman of the Northern Territory Gas Taskforce, appointed to lead the region’s gas push.
Ichthys and Darwin LNG have the space to add five more LNG production units, know as trains, with a feasibility study at Darwin LNG suggesting another unit producing 4 million tpy of the fuel would be optimal.
Darwin LNG’s expansion would build off existing facilities, an advantage over the US$200 billion of projects built from scratch in Australia over the past decade, said Graeme Bethune, chief executive of advisory firm EnergyQuest.
“There’s a reasonable chance an expansion decision could be made within the next five years,” Bethune said.
A second train at Darwin LNG would raise the Northern Territory’s LNG output to nearly 17 million tpy, equivalent to Indonesia, the world’s fifth-biggest exporter, according to data from the International Gas Union (IGU).
“We remain open to all options” for a potential expansion of Darwin LNG, a spokesman for ConocoPhillips Australia said, adding the company wanted to get the most out of the region’s reserves.
But first Conoco wants to secure gas to keep the original train filled when supply from its current source, the Bayu Undan field in the Timor Sea north of Darwin, runs out in 2023.
Conoco and its partners Santos and South Korea’s SK E&S have agreed to conduct preliminary design work to develop the Barossa field, 300 km north of Darwin, to supply Darwin LNG.
“Darwin excites the heck out of me,” said Santos Chief Executive Kevin Gallagher at an industry conference in May.
Santos also has stakes in the Petrel Tern and Crown Lasseter fields that could also feed Darwin LNG.
Other reserves offshore Darwin are Evans Shoal, operated by Italy’s Eni, Greater Sunrise, operated by Woodside Petroleum, Cash Maple, operated by Thailand’s PTTEP , and ConocoPhillips’ Poseidon.
Inpex would only make a decision to expand exports after getting the initial Ichthys trains up and running after the project has missed several deadlines for first production.
“We have to produce 8.9 million t first and then examine whether there is demand. At this stage, there is no concrete plan,” Inpex Chief Executive Officer Takayuki Ueda told Reuters earlier this month.
Still, Ueda said the infrastructure for an expansion is in place.
"We can develop new gas fields nearby and send gas through the current pipeline,” he said.
In addition to the offshore gas, the Northern Territory holds 200 trillion ft3 of onshore shale gas resources that could fuel manufacturing around Darwin.
The territory lifted a ban on fracking in April and is developing strict environmental rule before exploration starts. However, environmental groups, farmers and indigenous communities are concerned about damage to water supplies.
“We don’t think the government here is up to the task of managing this high risk industry,” said Lauren Mellor, a spokeswoman for the Frack Free NT Alliance.
https://www.lngindustry.com/liquefaction/30072018/darwin-seeks-to-become-world-class-lng-export-hub/
BP’s boss praised the oil major’s “steady progress” today as profits soared in the first-half of 2018.
UK-headquartered BP chalked up pre-tax profits totalled £6.7 billion, up 190% year-on-year, while revenues increased to £111bn from £86bn.
The firm’s underlying replacement cost profits more than doubled to £4.1bn.
Buoyed by the improvement, BP is increasing its dividend 2.5% to 10.25 cents (7.81p) per share, the first rise since the third quarter of 2014.
The company also bought back 29 million ordinary shares in the first six months of 2018 at a cost of £150 million.
Payments linked to the Gulf of Mexico oil spill in 2010 totalled £1.8bn in the first half.
Highlights from the period under review include a deal to buy Chargemaster, UK’s largest electric vehicle (EV) charging company, and an investment in ultra-fast charging battery developer StoreDot.
BP also committed to developing the Alligin and Vorlich are satellite fields in the UK North Sea. They are expected to produce 30,000 barrels gross of oil equivalent a day, starting in 2020.
Since the period ended, BP has announced the £8bn purchase of BHP Billiton’s US shale assets, first gas from the Shah Deniz 2 project in Azerbaijan, and a deal to buy 16.5% of the Clair field, west of Shetland, from ConocoPhillips.
BP chief executive Bob Dudley said: “We continue to make steady progress against our strategy and plans, delivering another quarter of strong operational and financial performance.
“We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in the future with the creation of BP Chargemaster.
“Given this momentum and the strength of our financial frame, we are increasing our dividend for the first time in almost four years.
“This reflects not just our commitment to growing distributions to shareholder but our confidence in the future.”
Mexico’s incoming president named a new chief executive officer for Pemex and promised government investment of 75 billion pesos ($4 billion) in the oil sector, in a bid to revive the state-owned oil company.
Andres Manuel Lopez Obrador tapped longtime political ally Octavio Romero Oropeza, who has no oil background, as the next CEO of Petroleos Mexicanos. Romero will take over when the new government comes in this December. The announcement came at an event in which the president-elect promised to boost crude output as part of a 175-billion-peso rescue plan for the industry. He said 49 billion pesos will be spent on refinery upgrades.
Romero, 59, was a government official during Lopez Obrador’s five-year term as the mayor of Mexico City from 2000 to 2005. He also shares the same birthplace as the leftist leader, the oil hub of Tabasco. Lopez Obrador has said he wants to to revitalize oil ghost towns there and build a new refinery near the port of Dos Bocas at a cost of 160 billion pesos.
For a career politician with a degree in agronomy, turning around the beleaguered oil company won’t be easy.
“It’s a political appointment for an entity whose debt represents about 14% of gross domestic product,” John Padilla, managing director of energy consultant IPD Latin America LLC, said in a phone interview. “Whether that’s going to give markets a lot of confidence at this stage, at a point when Pemex is in such a debilitated state, remains to be seen.”
Romero, who replaces Carlos Trevino, will inherit a mountain of debt -- more than $100 billion -- and oil production that is in free-fall. Pemex pumped 1.866 MMbbl of crude a day during the second quarter, its 13th consecutive decline compared to the same period in previous years. And even as oil prices rise, the company on Friday reported a 163-billion-peso loss, the worst quarterly result since 2016.
The company expects to average 1.9 MMbpd in the third quarter of the year and 1.95 MMbbl in the fourth quarter, Luis Ramos, deputy director of exploration and production at Pemex, said on a conference call with investors. Pemex’s proven and probable reserves have dropped by more than half since 2012, as older fields become depleted and the company fails to develop ones.
Refinery upgrades
Pemex’s refining business is in such poor condition, with aging units struggling to process less expensive heavier crudes, that it loses money if it raises output. The problem has created a reverse incentive to refine less and import more. The plants, which processed 22% less crude than last year at 704,000 bpd, operated at 43% of capacity between April and June, company data show.
Lopez Obrador, who won a landslide victory in national elections on July 1, has promised to change that. He said he will prioritize raising refinery output to full capacity in two years, and build the new refinery in Tabasco.
He also named Manuel Bartlett as head of the Federal Electricity Commission, Rocio Nahle to the post of energy minister and Alberto Montoya as deputy energy minister.
Under Lopez Obrador’s predecessor, international oil companies had recently been allowed to re-enter Mexico’s production areas after being banned for more than 70 years. The new president could suspend oil auctions and review contracts already awarded for signs of corruption. The National Hydrocarbons Commission said last week that an auction to develop seven onshore areas in partnership with Pemex will now be held on February 14, from October 31 previously. A competitive bid for over 40 onshore areas will take place the same day after being pushed back from September 27.
The company is also seeking to raise an additional $3 billion to $3.5 billion in debt before the end of the year “if market conditions are favorable,” Pemex CFO David Ruelas said on a conference call with investors. Pemex’s total debt was 2.07 trillion pesos as of June 30 an increase from 1.95 trillion pesos three months earlier.
Norwegian oil company Aker BP has entered into an agreement with Total E&P Norge to acquire its interests in a portfolio of 11 licenses on the Norwegian Continental Shelf for a cash consideration of $205 million.
The portfolio includes four discoveries with net recoverable resources of 83 million barrels oil equivalents (mmboe), based on estimates from the Norwegian Petroleum Directorate, Aker BP said on Tuesday.
Two of the discoveries, Trell and Trine, are located near the Aker BP-operated Alvheim field and are expected to be produced through the Alvheim FPSO.
The Alve Nord discovery is located north of the Aker BP-operated Skarv field, and can be produced through the Skarv FPSO.
The Rind discovery is part of the NOAKA area where the total recoverable resources are estimated to more than 500 mmboe, and where Aker BP is working towards a new area development.
In addition to these discoveries, the transaction also provides the company with increased interest in exploration acreage near the Aker BP-operated Ula field.
The transaction is subject to approval by Norwegian authorities.
Karl Johnny Hersvik, CEO of Aker BP commented: “We see a huge value creation potential in maximizing production through our operated production hubs. This requires continuous development and optimization of the existing reserves and resources, as well as adding new resources through exploration and acquisitions of existing discoveries.”
Hersvik added: “With this transaction, we get access to new tie-back opportunities in the Alvheim and Skarv areas, we strengthen our resource base in the NOAKA area, and we increase our interest in exploration acreage near the Ula field. These new resources will further strengthen our long-term production profile and contribute positively to future earnings.”
https://www.offshoreenergytoday.com/aker-bp-to-buy-11-licenses-from-total-for-205-million/
Origin Energy has achieved record production and revenue in the June quarter courtesy of boosted production from its joint-owned APLNG project and higher oil prices.
Revenue rose to $570.2 million in the quarter ended June 30, up from $464.4 million a year earlier.
Production for the quarter rose 4 per cent to a record of 64 petajoules equivalent from a year earlier.
Production for the quarter rose 4 per cent to a record of 64 petajoules equivalent from a year earlier.
The 4 per cent gain came mostly from increased production from APLNG's gasfields in the Bowen and Surat Basins.
Origin CEO Frank Calabria said 125 LNG cargoes had been shipped from APLNG's plant - located in Gladstone, Queensland - during the year.
"Across FY18, we saw strong uplifts in production, sales and revenue, reflecting a full year's contribution from Australia Pacific LNG's Train Two and assisted by strengthening commodity prices," Mr Calabria said.
Origin shares were 2¢, or 0.2 per cent, higher at $9.69 at 1032 AEST, with the energy sector up following a lift in global oil prices overnight.
https://www.smh.com.au/business/companies/aplng-helps-origin-to-record-quarter-20180731-p4zukr.html
An increase in orders from oil and gas clients steered Scottish engineering firm Weir Group to a strong first half of 2018.
Glasgow-headquartered Weir, which makes pumps, wellheads and valves, enjoyed a 35% increase in orders at its oil division.
Weir, which employs about 14,000 people in more than 70 countries and has a number of bases in north-east Scotland, announced the £900 million acquisition of US mining tools firm Esco Corporation in the first half.
The deal went through in July.
Weir expects to sell its flow control business late in the third quarter.
First-half pre-tax profits rose 38% to £143m, excluding exceptional items of £53m, while revenues went up 15% to £1.06 billion.
Weir chief executive Jon Stanton said: “This is a strong set of results with total group operating profits up by more than 60% and all our divisions showing good momentum.
“It reflects the hard work of our people and the benefits of investing early to take full advantage of positive long term fundamentals in our main markets.
“With the acquisition of Esco and decision to sell flow control, we began the transformation of Weir into a stronger group focused on leading positions in highly abrasive, aftermarket intensive mining and upstream oil and gas markets.
“Looking to the full year we continue to anticipate strong constant currency revenue and profit growth in addition to further strong cash generation and balance sheet deleveraging. Reflecting confidence in our long term growth outlook the Board has approved a 5% increase in the interim dividend.”
https://www.energyvoice.com/oilandgas/178058/weir-group-bolstered-by-uptick-in-oil-and-gas-orders/
There is a saying in the startup world that "you can mine for gold or you can sell pickaxes." This is of course an allusion to the California Gold Rush where some of the most successful business people such as Levi Strauss and Samuel Brannan didn't mine for gold themselves but instead sold supplies to miners - wheelbarrows, tents, jeans, pickaxes etc. Mining for gold was the more glamorous path but actually turned out, in aggregate, to be a worse return on capital and labor than selling supplies.
Denver — Upcoming maintenance on Millennium Pipeline could put downward pressure on natural gas production and prices in northeast Pennsylvania starting Wednesday with impacts intensifying through the weekend.
On Friday, Millennium said gas transmission through its Wagoner West segment would be restricted to 759 MMcf/d from August 1 to August 2, followed by a further restriction to just 600 MMcf/d from August 3 to August 6, according to a revised critical notice posted to the company's electronic bulletin board.
FLOWS
In July, flows on Millennium through Wagoner West have averaged 941 MMcf/d, rising to a high of 954 MMcf/d on four days over the past month, according to S&P Global Platts Analytics data.
Maintenance work at Wagoner West will reduce takeaway optionality for gas producers in northeast Pennsylvania, likely rerouting at least some production from the Bluestone Gathering and Laser Gathering systems to Tennessee Gas Pipeline.
PRODUCTION
Upstream production on Millennium from the Bluestone and Laser systems has averaged nearly 1.1 Bcf/d in July.
Approaching maintenance on Millennium has the potential to suppress upstream production by as much as 340 MMcf/d, based on scheduled volume restrictions and recent flow data.
Total gas production from the Northeast Pennsylvania dry gas window has averaged nearly 9.7 Bcf/d in July, according to sample data from Platts Analytics.
PRICES
On Monday, upstream gas prices at Millennium East receipts and Tennessee Zone 4 300-leg, both of which could be impacted by the maintenance, were trading higher along with other points across Appalachia.
Preliminary data from the Intercontinental Exchanged showed Millennium East up nearly 11 cents to $2.39/MMBtu; Tennessee Zone 4 300 was up 7 cents to $2.32/MMBtu.
In July, basis prices at Millennium East and Tennessee Zone 4 300 have averaged roughly 60 cents/MMBtu and 54 cents/MMBtu, respectively, below the benchmark Henry Hub, according to S&P Global Platts data.
U.S. oil producer Devon Energy Corp (DVN.N) on Tuesday missed Wall Street estimates for quarterly profit as expenses rose and a misplaced bet on the direction of oil prices offset higher oil output.
Devon’s stock fell as much as 4.6 percent to $43 in after-hours trading on Tuesday. Its shares had been up 9 percent this year at 4 p.m. EDT, compared with a 13 percent increase in U.S. crude futures.
The Oklahoma City-based company said costs rose 39 percent to $2.73 billion in the three months ended June 30, as marketing expenses increased.
It said revenue realized from producing oil and gas fell 20 percent from a year earlier to $1.07 billion. At the same time, expenses on that production rose 26 percent, the company said.
Oil prices were higher in the quarter than the company had hedged its production, costing $131 million to settle the derivatives, a spokesman said.
Ben Montalbano, co-founder of energy researcher PetroNerds, which tracks hedging by oil and gas firms, said Devon hedged about 57 percent of its second-quarter oil production at prices about $5.80 a barrel below average prices.
Oil producers typically use hedges to lock in a price for their oil, guaranteeing a fixed amount for their output. But some independent oil producers this year hedged production at about $55 per barrel, giving up much of the quarter’s increase in oil prices, Montalbano said.
Devon produced 541,000 barrels of oil-equivalent per day (boep/d) in the second quarter of 2018, compared with 536,000 boep/d a year ago. The results were largely higher than its expected 524,000-to-549,000 boep/d range.
But its realized revenue from oil and gas output fell 20 percent to $1.07 billion because of the derivatives, the company reported.
Devon also took a $154 million asset impairment charge during the quarter on land in Oklahoma it no longer expects to develop, the spokesman said.
The company also cut its yearly oil production target to account for discontinued operations following the more than $3 billion sale of its interest in oil pipeline company EnLink Midstream.
Net loss attributable to Devon was $425 million, or 83 cents per share, in the quarter, compared with a profit of $219 million, or 41 cents per share, a year earlier.
Excluding one-time items, the company earned 34 cents per share, below analysts’ average estimate of 36 cents, according to Thomson Reuters I/B/E/S.
Revenue rose to $2.25 billion from $2.17 billion.
Anadarko Petroleum Corp on Tuesday missed Wall Street quarterly profit estimates but beat expectations on revenue as production increased and margins improved in its U.S. shale operations.
Revenue rose to $3.29 billion in the second quarter from $1.4 billion a year ago, topping analysts’ consensus estimate of $3.07 billion, according to Thomson Reuters I/B/E/S.
Adjusting for divestitures, U.S. onshore oil volumes rose by 54,000 barrels per day from a year ago, and per-barrel margins totaled close to $31.60, Chief Executive Al Walker said in a statement.
U.S. oil producers have benefited from a roughly 40 percent jump in crude prices in the past year to around $70 a barrel as major oil producers agreed to cut output to stabilize prices and some countries faced supply disruptions.
This month, U.S. oil production hit a record 11 million barrels per day, aided by surging production in the Permian Basin of West Texas and New Mexico.
Anadarko grew its Delaware Basin production in West Texas by 88 percent from the previous year, averaging a record 62,000 barrels per day during the second quarter.
The company earned 5 cents per share in the quarter, missing Wall Street estimates for 54 cents, according to Thomson Reuters I/B/E/S. The company reported $267 million in pre-tax losses on the settlement of commodity derivatives, which resulted in a 40-cent per share hit to earnings.
Adjusted net income for the quarter was $278 million, or 54 cents per share, 2 cents per share below analysts’ expectations.
Total sales volumes for the quarter, including crude, natural gas and natural gas liquids, averaged 637,000 barrels of oil equivalent per day, up only slightly from the prior year.
The company increased full-year capital investment expectations by $250 million from prior guidance to between $4.5 billion and $4.8 billion.
Nabors Industries Ltd. reported second quarter 2018 operating revenue of $762 million, compared to operating revenue of $734 millionin the first quarter, a 4% increase. Net income from continuing operations attributable to Nabors common shareholders for the quarter was a loss of $202 million, or $0.61 per share, compared to a loss of $144 million, or $0.46 per share, in the prior quarter. Results for the second quarter included a loss on the sale of Middle East offshore rigs of $63.7 million (or $0.20 per share, after tax) and transaction charges of $5.9 million ($0.02 per share, after tax).
Anthony Petrello, Nabors Chairman and CEO, commented, "The second quarter either largely matched or exceeded our expectations. We continued to make significant progress in all of our segments, with especially strong results in U.S. Drilling. The main highlights of the quarter were numerous rate increases in the Lower 48, as contracts rolled over, with a corresponding increase in daily margins to $7,400; the startup of our MODSTM 400 platform rig in the Gulf of Mexico; and a sharp rebound in Rig Technologies.
"We completed an equity issuance which reduced our leverage. We also sold three of our Saudi Arabia jackups. For these two transactions, the combined proceeds and corresponding net debt reduction was approximately $660 million. As we had forecasted, we generated positive cash flow before these two transactions, demonstrating our commitment to capital discipline, cash generation and reducing our leverage.
"During the second quarter, we secured awards for 13 incremental rigs globally. We signed three-year contracts for six upgraded rigs with one operator to be deployed progressively through January 2019, and received awards for three more, all for operations in the Permian. We are in discussions for additional upgraded rigs with operators in multiple basins in the Lower 48. In the international markets, we were awarded four incremental rigs and are negotiating with customers for additional rigs. Across our global markets, demand for high-specification rigs is increasing. With our inventory of readily available rigs internationally and upgradable rigs in the Lower 48, this should translate into a high success rate."
Consolidated and Segment Results
Adjusted operating income for the Company was a loss of $31 million during the quarter, compared to a loss of $45 million in the first quarter. Quarterly consolidated adjusted EBITDA increased to $188 million compared to $168 millionin the previous quarter, an 11% increase. During the second quarter, the Company averaged 215 rigs operating at an average gross margin of $12,262 per rig day. This compares to 228 rigs at $11,470 per rig day in the first quarter. The reduction in rig count primarily reflects reduced seasonal activity in Canada.
The U.S. Drilling segment reported a 19% sequential increase in adjusted EBITDA, to $87 million. Much of the increase is attributable to the April 1 commencement of full operating rate on the MODSTM 400 deepwater platform rig in the Gulf of Mexico. In the Lower 48, average daily gross margin increased by more than $450 to $7,400, while rig count was stable. Higher daily operating rates and improved rig-move efficiency accounted for the margin increase.
International Drilling adjusted EBITDA decreased sequentially by $1.4 million, to $123 million. Quarterly rig count declined by 1.5 to 93. The sale of the jackups in early June accounted for just under a one rig reduction. The expiration of the contract for a rig in India was partially offset by the start of four rigs in Colombia, very late in the quarter. Margin per day decreased from $16,600 to $16,350 on the partial absence of the Saudi jackup activity, including one jackup which was off rate in the shipyard. During the third quarter, Nabors will experience the full quarter impact of the Saudi jackup sale.
Canada Drilling operations posted a seasonal decline in adjusted EBITDA to $5.0 million from $9.3 million in the first quarter. Daily gross margin increased 14% to $6,600, due primarily to the shift toward higher-spec rigs during the spring breakup period.
In Drilling Solutions, adjusted EBITDA of $14.8 million was essentially in line with the prior quarter, despite a $2.8 millionreduction in revenue. The seasonal decline in Canada rig count had a negative impact on performance software revenue. During the quarter the Company made significant advances on its plans to rationalize its presence in various low-margin geographies and product lines added with the Tesco acquisition. Next quarter, the Company expects to increase adjusted EBITDA on its way to achieving its fourth quarter target.
In the Rig Technologies segment, second quarter adjusted EBITDA improved to $0.4 million compared to a loss of $8.7 million in the first quarter. Several shipments of capital equipment – six top drives – were delayed during the first quarter and shipped during the second quarter. Aftermarket sales also increased during the second quarter.
William Restrepo, Nabors Chief Financial Officer, stated, "Net debt decreased by $681 million in the second quarter to just under $3.2 billion, primarily due to the proceeds from the issuance of equity which amounted to $581 million. We ended the quarter with the revolving credit facility undrawn. The sale of offshore rigs in the Middle East netted proceeds of approximately $82 million, including approximately $62 million in cash. Excluding the impact of these transactions, Nabors generated cash flow of $18 million during the second quarter. In early July, we redeemed the remaining $303 million of our 9.25% senior notes outstanding. Our next debt maturities are not until the second half of 2020. For the balance of 2018, we expect our operating results and other favorable developments will lead to positive cash flow for the full year 2018."
Mr. Petrello concluded, "Our results should continue to improve. We are optimistic that demand in our global markets will continue to strengthen. In the near term, Lower-48 pricing continues to increase. We expect to add rigs to our global fleet by year end, in addition to the seasonal recovery in Canada. Our integration and automation initiatives should continue to drive growth in our Nabors Drilling Solutions and Rig Technologies Segments."
Argentinian energy industry participants are set to meet August 13 in Neuquen with labour leaders and politicians to discuss the future of the Vaca Muerta, as issues mount that could slow development of one of the world's largest shale plays.
Omar Gutierrez, the governor of Neuquen, the southwestern province that holds most of the play's potential, said the meeting in Neuquen City will bring together national and provincial authorities as well as labor leaders and the executives from operators, rig suppliers and other services companies.
Among those set to attend the meeting are the country's energy minister, Javier Iguacel, and its production minister, Dante Sica, Gutierrez said in a statement late Monday.
"The objective of the meeting will be to articulate what is necessary in terms of credit, logistics and all those recurrent areas that make it possible for a working plan to be carried out," in order to make sure the play can develop and jobs be created, Gutierrez said.
Tension has been mounting since the exit of Juan Jose Aranguren as the country's energy minister in June, raising concerns that changes in energy policy could cut the potential for profit, leading companies to trim investments.
His replacement has said wellhead gas prices will rise in line with inflation, now at about 30%. That is slower than previously established by Aranguren.
At the same time, a 50% devaluation of the currency against the dollar since the start of the year has pushed down earnings in dollar terms in the sector and pushed up some costs like importing rigs. An increase in the benchmark interest rate to 40% as well has made it harder to finance projects, from importing rigs to building infrastructure such as a revamped train line for lowering logistics costs in Vaca Muerta, a key to speeding up the pace of investment.
IGUACEL'S OPTIMISM
Despite the challenges, Iguacel expressed cheer about the growth potential of Vaca Muerta during a two-day visit to Neuquen last week.
"We are growing by leaps and bounds in Vaca Muerta," he said in a tweet after visiting the shale oil drilling sites of Mexico's Vista Oil & Gas and France's Total July 27.
Iguacel said more independent companies like Vista are needed to speed up and widen exploration and production.
But with production growth as forecast today, oil exports from the play will reach 500,000 barrels a year by 2023, or nearly 1,400 b/d.
That would be in addition to the around 28,700 b/d the country exported in 2017 of its heavier crude, according to energy ministry data.
Gas exports are due to restart in September, with the first heading to Chile, he added.
LABOUR CHALLENGES
Even so, there are more immediate concerns for the play's development stemming from the country's financial problems.
A leading labour union in the Neuquen Basin has warned of walkouts and other measures if services companies continue to pay workers late.
"We are working so that the employees get paid before the fifth business day of each month," Ricardo Dewey, a leader of the union's branch in Anelo, a town at the heart of the play's current development, said in a statement Monday. "Otherwise we will make the corresponding complaints and we will take the measures that we have to take."
This could involve workers showing up at drilling sites but refraining from doing their tasks.
"We are very busy in Vaca Muerta and we know that investments will come permanently, but we also have this big problem with some contractors who cannot pay, who say they are in financial trouble," Dewey added.
The latest numbers from the Neuquen government show Vaca Muerta produced 50,098 b/d of crude in April, compared with production of 57,519 b/d of conventional oil and 3,854 b/d of associated oil from tight gas wells. Gas production from the play averaged 13.9 million cu m/d in April, compared with 22 million cu m/d from tight plays and 30.4 million cu m/d from conventional reserves, the data show.
Argentina is betting on Vaca Muerta to turn around years of sagging oil production as conventional reserves mature. The energy ministry estimates the play will lead a recovery in total oil production to 750,000 b/d in 2030, up from 478,000 b/d this year. Over the same period, total gas production is expected to reach as much as 200 million cu m/d in 2030, up from 125 million cu m/d this year.
China National Petroleum Corp (CNPC) said on Wednesday its first-half overseas equity oil and gas production rose 7.3 percent from the same period a year earlier, with profit from those operations increasing “substantially”.
The state-owned company, China’s biggest oil and gas producer, said on its website that its share of January-June output at overseas projects in which it has investments came in at over 47 million tonnes of oil equivalent, or around 1.9 million barrels of oil equivalent per day. {nL3N1KI1HE]
The period saw CNPC’s listed unit PetroChina , whose domestic oil output is declining, ship in its first equity crude from the sub-salt Ribera project in Brazil, and lift the first barrels from two 40-year offshore concessions in Abu Dhabi.
CNPC said its overseas business had focused on low-cost development in 2018, which has so far seen benchmark Brent crude prices rise around 10.5 percent. Various overseas projects are taking full advantage of the oil price recovery by increasing workloads and improving efficiency, the company said.
It added that construction work on key projects was progressing in an orderly manner. This includes the second phase of the Yamal liquefied natural gas (LNG) project in Russia, from which CNPC recently took delivery of its first LNG cargo in China, and the third phase of the Halfaya oil field in Iraq.
Whiting Petroleum Corp on Tuesday reported a second-quarter adjusted profit that missed Wall Street expectations despite higher oil prices and production.
U.S. shale operators have increased output across the nation to record levels as U.S. oil prices have climbed toward $70 per barrel.
The Denver-based oil producer reported adjusted net of $57.2 million, or 62 cents per share, as both crude prices and its oil production rose. Wall Street had expected the company to report adjusted profit of 65 cents per share.
One of the largest oil producers in North Dakota’s Bakken shale boosted its production 12 percent to an average of 126,180 barrels of oil equivalent per day (boepd), near the high end of its guidance.
Its output totalled 11.5 million boepd for the quarter. The company drilled 33 wells in the Williston Basin in North Dakota, where its output averaged more than 103,000 boepd. It spent $203 million in capital expenditures in the quarter.
Whiting’s operating revenue rose to $526.4 million in the second quarter, compared with $311.5 million year-on-year. Its average sales price rose to $67.91 per barrel of oil, up from $48.32 per barrel in the second quarter of 2017.
The company during the quarter closed a $130 million purchase of almost 55,000 acres (22,258 hectares) of properties in the Williston Basin that currently produce 1,290 boepd.
The acquisition “fits well with our current core acreage position in the western Williston Basin,” Whiting Chief Executive Bradley Holly said in a statement.
Kuwait Foreign Petroleum Exploration Co. is borrowing $1.1 billion to spend on oil and natural gas projects as the company plans to expand its shale operations, CEO Sheikh Nawaf Saud Al-Sabah said.
Sumitomo Mitsui Banking Corp. and Societe Generale SA were the joint lead arrangers of the five-year loan for Kufpec, a unit of state-run Kuwait Petroleum Corp., Al-Sabah said at a news conference in Kuwait City. The new financing includes a two-year grace period and is in addition to $3.5 billion that Kufpec has borrowed from banks since 2013. The company will finish repaying the $3.5 billion next year, he said.
Kuwait, fifth-biggest producer in the Organization of Petroleum Exporting Countries, has long planned to increase its global capacity to produce oil and gas. The Persian Gulf nation currently can pump as much as 3.15 MMbopd from its wholly owned fields, and KPC targets a daily capacity of 4 MMbpd by 2020 and 4.75 MMbpd by 2040.
Kufpec, which currently produces 100,000 boed, expects to pump 119,000 next month and 150,000 in 2020, a level it will maintain until 2040, it said in a statement. The company’s plan coincides with OPEC’s campaign, together with allied producers such as Russia, to pump more oil to offset supply disruptions in Venezuela and Libya and anticipated losses from Iran due to looming U.S. sanctions.
Achieving Kufpec’s foreign production target has been a multinational effort. The company is producing 38,000 boed in Australia and 30,000 in Norway, and it has drilled 120 wells to produce gas and condensates at shale fields in Canada’s Alberta province. Kufpec is currently producing 8,000 boed in Canada and plans to gradually increase output there by drilling a total of 2,000 wells, Al-Sabah said.
The company’s total reserves comprise 494 MMboe, and the Canadian project will add 28 million to that, Al-Sabah said. Kufpec is also considering investing in U.S. shale deposits but is waiting for a more attractive price. “Finding a strategic partner is not a problem for us, and there are many opportunities there, but the current valuations are too high for us,” he said on the sidelines of the conference.
https://www.worldoil.com/news/2018/7/31/opec-producer-taps-banks-for-11-billion-loan-in-shale-push
Howard Energy Partners, LLC announced that its wholly-owned subsidiary, Maverick Terminals Corpus, LLC, is conducting a binding open season for its 12-inch Maverick Channel Pipeline, which will deliver refined petroleum products from refineries in the Corpus Christi area to Maverick’s bulk liquids terminal facility in the Port of Corpus Christi. The open season commenced, July 30, 2018 at 4:00 p.m. CDT and will close on Thursday, August 30, 2018 at 5:00 p.m. CDT.
Expected to be in service by the end of the year, the Maverick Channel Pipeline will have an initial capacity of 48,000 barrels per day and will connect to NuStar Energy’s Origin Station in Corpus Christi. The Maverick Channel Pipeline will facilitate access to global markets by providing transportation services of ultra-low sulfur diesel and gasoline blend stock from local refineries to the Terminal. Refined product arriving to the Terminal via the Maverick Channel Pipeline can be stored in the Terminal’s six tanks with an aggregate storage capacity of 480,000 barrels.
https://www.oilandgas360.com/howard-energy-announces-maverick-channel-pipeline-open-season/
China's northeastern province Heilongjiang on July 31 launched a natural gas pipeline company to build and operate a grid in the province to transport gas from Russia, China News Service reported.
Russia is slated to start pumping gas via Power of Siberia into the Heilongjiang province around end of 2019 with annual capacity of 38 billion cubic metres.
The new provincial pipeline company plans to spend more than 13 billion yuan ($1.90 billion) laying 36 pipelines with total length of more than 2,600 kilometres (1,616 miles).
The company is now laying out construction plans and aims to start work before the end of this year.
U.S. crude oil refinery inputs averaged 17.5 million barrels per day during the week ending July 27, 2018, which was 195,000 barrels per day more than the previous week’s average. Refineries operated at 96.1% of their operable capacity last week. Gasoline production increased last week, averaging 10.5 million barrels per day. Distillate fuel production increased last week, averaging 5.2 million barrels per day.
U.S. crude oil imports averaged 7.7 million barrels per day last week, down by 21,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 8.0 million barrels per day, 0.4% more than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 752,000 barrels per day, and distillate fuel imports averaged 157,000 barrels per day.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.8 million barrels from the previous week. At 408.7 million barrels, U.S. crude oil inventories are about 1% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.5 million barrels last week and are about 3% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 3.0 million barrels last week and are about 11% below the five year average for this time of year. Propane/propylene inventories increased by 1.8 million barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 10.6 million barrels last week.
Total products supplied over the last four-week period averaged 20.9 million barrels per day, up by 0.6% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.7 million barrels per day, down by 0.9% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day more than the past four weeks, down by 5.9% from the same period last year. Jet fuel product supplied was down 1.7% compared with the same four-week period last year.
Last Week Week Before Last Year
Domestic Production '000...... 10,900 11,000 9,430
Alaska ........................................ 331 399 400
Lower 48 ............................... 10,600 10,600 9,030
Imports .................................... 7,749 7,770 8,253
Exports .................................... 1,310 2,683 702
Cushing down 1.3 mln bbls
U.S. natural gas producer Chesapeake Energy Corp posted a quarterly loss on Wednesday as a drop in natural gas prices and higher expenses ate into the company’s margins.
Shares of the company, which reported an 18.2 percent rise in total operating expenses, were down 4.5 percent at $4.51 in premarket trading.
The company sold natural gas, its prime revenue generator, at an average sales price of $2.56 per thousand cubic feet (mcf), down from $2.88 per mcf a year ago.
Natural gas prices have fallen about 4 percent this quarter from year-ago levels, as production has reached a record high.Chesapeake’s average daily production rose 0.5 percent to 530,000 barrels of oil equivalent per day (boe/d), while average sales price rose 13.8 percent to $25.56 per barrel of oil equivalent per day.
Chesapeake has cut jobs in the past and tried containing costs as it seeks to repair its balance sheet, loaded down with $9.83 billion in debt. Last week, the company said it plans to sell its Ohio natural gas acreage to reduce debts and looks to shift focus to oil from gas.
The Oklahoma-based company said net loss available to shareholders was $40 million, or 4 cents per share, in the second quarter ended June 30, compared with a profit of $470 million, or 47 cents per share, a year earlier.
Excluding items, the company earned 15 cents per share in-line with analysts’ average estimate, according to Thomson Reuters I/B/E/S.
Canadian oil and gas producer Encana Corp (ECA.TO) on Wednesday posted a 10 percent rise in adjusted operating profit, helped by an increase in production and higher selling prices for crude.
Total oil and gas production rose 7 percent to 337,900 barrels of oil equivalent per day (boe/d).
Its four core assets - Montney and Duvernay oilfields in western Canada and Eagle Ford and Permian in the United States - contributed 96 percent of total volumes in the second quarter, the company said.
Realized prices for oil rose about 20 percent to $58 per barrel.
The Calgary-based company reported net loss of $151 million, or 16 cents per share, in the quarter ended June 30, compared with a profit of $331 million, or 34 cents per share, a year earlier.
Adjusted operating earnings rose 10 percent to $198 million.
China National Offshore Oil Corporation (CNOOC) has launched its ninth liquefied natural gas (LNG) terminal in Shenzhen, south China's Guangdong Province to boost the supply of clean energy.
The new terminal, situated in Dapeng New District, is expected to supply some 17 million cubic meters of natural gas on a daily basis to north China this winter, CNOOC said Wednesday.
The facility is equipped with four 160,000-cubic-meters storage tanks and a specially designed berth for large LNG ships, and can handle 4 million tonnes of LNG a year.
"It will play an important role in ensuring the supply of clean energy, improving China's energy consumption structure, and increasing the inter-connectivity of its natural gas pipeline network," the company said.
So far, CNOOC has built nine LNG terminals in provinces including Guangdong, Fujian, and Zhejiang with a total annual processing capacity of 33.8 million tonnes.
According to an industry report, China is likely to become the world's largest natural gas importer by 2019 on domestic short supply, with imports expected to reach 171 billion cubic meters by 2023, most of which are LNG.
A series of natural gas pipeline explosions in Midland County, Texas sent five people to hospital with critical burn injuries, and interrupted energy pipeline operations in the area, officials said.
The region is the home to the Permian Basin, the largest U.S. oilfield, and is crisscrossed by oil and gas pipelines. The cause of the explosion and fire were not immediately known.
Five workers with critical injuries were airlifted to University Medical Center in Lubbock, Texas, and were being treated at the center’s burn unit, said University Medical Center spokesman Eric Finley.
Pipeline operator Kinder Morgan said on Wednesday it had isolated a portion of its El Paso Natural Gas Pipeline (EPNG) as a precaution, after being alerted to the fire near its line. One of its employees was injured and taken to hospital, spokeswoman Sara Hughes said.
“There was a third-party pipeline involved that also experienced a failure, and preliminary indications are that the third-party line failure occurred before the EPNG line failure,” Kinder Morgan’s Hughes said in an email.
The company is investigating the cause of the fire and evaluating any damage to its property. Regulatory agencies and customers were notified of the incident, she added.
“Fire Department personnel suppressed the fire, however approximately one hour later a second and third small explosion followed,” said Elana Ladd, public information officer for the city of Midland, in emailed comments.
Multiple pipelines are located near the site, Ladd said, adding that first responders were focusing on shutting off pressure and flow to the pipelines at the site.
The pipeline explosion occurred on a rural road, FM 1379, about five miles south of Highway 158 at around 11:30 a.m. local time (1630 GMT), Ladd said, adding that the road had been closed.
No further information on the injured was immediately available.
Ladd identified one of the injured as a firefighter.
U.S. oil producer Marathon Oil Corp on Wednesday reported a quarterly profit, compared with a year-ago loss, helped by higher production and rising crude prices.
The company reported a net income of $96 million, or 11 cents per share, in the second quarter ended June 30, compared with a net loss of $139 million, or 16 cents per share, a year earlier.
Production rose to 419,000 barrels of oil equivalent per day (boepd) from 349,000 boepd.
Marathon Oil Corp raised its annual production forecast on Wednesday, after a surge in U.S quarterly output helped the oil producer top its own estimates.
The Houston-based company bumped up its annual total production forecast to between 400,000 and 415,000 net barrels of oil equivalent per day (boepd) from an earlier range of 390,000 to 410,000 net boepd.
The results missed Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of 21 cents per share.
The energy company posted revenue of $1.42 billion in the period, which also did not meet Street forecasts. Six analysts surveyed by Zacks expected $1.5 billion.
Marathon Oil shares have risen 20 percent since the beginning of the year, while the Standard & Poor's 500 index has climbed 5 percent. In the final minutes of trading on Wednesday, shares hit $20.32, a climb of 71 percent in the last 12 months.
https://www.houstonchronicle.com/news/texas/article/Marathon-Oil-2Q-Earnings-Snapshot-13124211.php
Concho Resources Inc. today reported financial and operating results for second-quarter 2018.
Second-Quarter 2018 Highlights
- Produced a record 229 MBoepd, in line with the high end of the Company’s guidance range.
Increased oil production 26% year over year.
- Advanced large-scale development in the Northern Delaware Basin, with impressive results from the Company’s Wolfcamp development project.
- Delivered excellent performance in the Midland Basin, where the Company is realizing cost savings and productivity improvements.
- Reduced controllable cash costs quarter over quarter, led by an 8% decrease in cash interest expense.
- Executed a disciplined capital program, with cash flow from operating activities exceeding capital expenditures, excluding acquisitions.
- Reported net income of $137 million, or $0.92 per diluted share. Adjusted net income totalled $185 million, or $1.24 per diluted share (non-GAAP).
- Generated $592 million of EBITDAX (non-GAAP).
Recent Events & 2018 Outlook
Completed the acquisition of RSP Permian, Inc., which enhances the Company’s scale advantage and development platform, enabling Concho to deliver continued performance and returns over the long term.
Refinanced $1.2 billion of RSP’s senior notes, resulting in pro forma annual interest expense savings of more than $15 million.
Updated the Company’s 2018 outlook to reflect the RSP transaction.
See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted net income per diluted share and EBITDAX as well as a reconciliation of these measures to the associated GAAP measure.
Tim Leach, Chairman and Chief Executive Officer, commented, “We delivered a solid second quarter as our teams advance large-scale development across the portfolio. Through our outstanding asset performance and focus on cost control, we continue to drive strong cash flow that again exceeded our drilling and completion capital. The RSP transaction is consistent with our strategy of acquiring large, contiguous, high-quality assets in the Permian Basin. With the transaction complete, we are excited about bringing together the talent from both organizations to capture the benefits of this powerful combination.”
Second-Quarter 2018 Operations Summary
Production for second-quarter 2018 was 21 million barrels of oil equivalent (MMBoe), or an average of 229 thousand Boe per day (MBoepd), an increase of approximately 24% from second-quarter 2017. Average daily crude oil production for second-quarter 2018 totaled 143 thousand barrels per day (MBopd), an increase of approximately 26% from second-quarter 2017. Natural gas production for second-quarter 2018 totaled 515 million cubic feet per day (MMcfpd).
During second-quarter 2018, Concho averaged 21 rigs, compared to 20 rigs in first-quarter 2018.
Following the closing of the RSP transaction, Concho is running 32 horizontal rigs, including 16 rigs in the Northern Delaware Basin, six rigs in the Southern Delaware Basin, nine rigs in the Midland Basin and one in the New Mexico Shelf. Additionally, Concho is currently utilizing ten completion crews.
Northern Delaware Basin
In the Northern Delaware Basin, Concho added 16 wells with at least 60 days of production as of the end of second-quarter 2018. The average 30-day and 60-day peak rates for these wells were 1,987 Boepd (73% oil) and 1,859 Boepd (72% oil), respectively, from an average lateral length of 7,326 feet.
Quickly Advancing Large-Scale Development
Following the strong success of the Vast and Windward development projects, Concho recently completed a four-well development project, the Columbus, targeting the Wolfcamp A zone with long-laterals. The average per well 30-day peak rate for the Columbus project was 3,163 Boepd (77% oil) from an average lateral length of approximately 9,550 feet.
Current drilling activity is also focused on large-scale development of the Company’s assets in the Northern Delaware Basin, with nine out of 16 rigs working on multi-well projects. The largest project underway is the Dominator, which consists of 23 wells targeting five distinct landings within a single section. Concho is currently running six rigs on this project.
Southern Delaware Basin
In the Southern Delaware Basin, Concho added five wells with at least 60 days of production as of the end of second-quarter 2018. The average 30-day and 60-day peak rates for these wells were 1,463 Boepd (80% oil) and 1,297 Boepd (80% oil), respectively. The lateral length for these wells averaged 7,461 feet.
Midland Basin
In the Midland Basin, Concho added 21 wells with at least 60 days of production as of the end of second-quarter 2018. The average 30-day and 60-day peak rates for these wells were 1,294 Boepd (86% oil) and 1,137 Boepd (86% oil), respectively, with an average lateral length of 9,800 feet.
Maximizing Scale Advantage
Several factors underpin Concho’s shift to manufacturing mode in the Midland Basin, including the large, contiguous nature of the Company’s assets, Concho’s strategic infrastructure systems and the broad extent of the Company’s impressive well performance.
The Vanessa and Karen project highlights Concho’s success with optimizing lateral placement and completion design to improve project economics and performance. The project includes a total of six wells. The average per well 30-day and 60-day peak rates for these wells were 1,250 Boepd (87% oil) and 1,076 Boepd (86% oil), respectively, with an average lateral length of 10,261 feet. Right-sizing key completion design variables, including stage spacing and fluid volumes, drove outstanding results, and Concho expects to capture well cost savings as a result of the design changes.
Second-Quarter 2018 Financial Summary
Concho’s average realized price for crude oil and natural gas for second-quarter 2018, excluding the effect of commodity derivatives, was $60.98 per Bbl and $3.19 per Mcf, respectively, compared to $44.75 per Bbl and $2.71 per Mcf, respectively, for second-quarter 2017.
Net income for second-quarter 2018 was $137 million, or $0.92 per diluted share, compared to net income of $152 million, or $1.02 per diluted share, for second-quarter 2017. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for second-quarter 2018 was $185 million, or $1.24 per diluted share, compared with adjusted net income for second-quarter 2017 was $77 million, or $0.52 per diluted share.
EBITDAX (non-GAAP) for second-quarter 2018 totaled $592 million, compared to $461 million for second-quarter 2017.
Concho’s effective income tax rate for second-quarter 2018 was 23%, compared to 38% for second-quarter 2017, primarily due to the reduction of the U.S. federal statutory corporate income tax rate from 35% to 21%.
In the six months ended June 30, 2018, cash flow from operating activities was approximately $1.1 billion, exceeding $941 million in capital expenditures (additions to oil and natural gas properties).
Maintaining a Strong Financial Position
At June 30, 2018, Concho had cash of $55 million and long-term debt of $2.4 billion, with no outstanding borrowings under its credit facility.
As previously reported, in July 2018, Concho closed its offering of $1.6 billion aggregate principal amount of senior unsecured notes, consisting of $1.0 billion aggregate principal amount of 4.3% senior unsecured notes due 2028 and $600 million aggregate principal amount of 4.85% senior unsecured notes due 2048. The proceeds from the offering were used to redeem RSP’s 6.625% senior notes due 2022 and 5.25% senior notes due 2025 for approximately $1.2 billion, as well as repay a portion of the outstanding balance under RSP’s existing credit facility. Concho repaid the remaining balance under RSP’s credit facility with borrowings under Concho’s $2.0 billion credit facility. After giving effect to this use of proceeds upon the closing of the RSP transaction and associated transaction costs, the Company had long-term debt of $4.2 billion at June 30, 2018, including approximately $160 million of outstanding borrowings under its credit facility.
Concho maintains a strong financial position following the RSP transaction, with investment-grade ratings, a low leverage ratio and substantial liquidity.
Outlook
Concho updated its 2018 production and capital program outlook to reflect the RSP transaction. The Company’s guidance for third-quarter and full-year 2018 includes production (on a two-stream basis) and capital from RSP beginning on the acquisition closing date of July 19, 2018. For third-quarter 2018, Concho expects production to average 280 to 285 MBoepd (65% oil); and for full-year 2018, Concho expects production to average 260 to 263 MBoepd (64% oil).
A key benefit of the RSP transaction lies in the large-scale development potential of the assets. Concho plans to begin drilling several development projects on the acquired acreage in the second half of 2018. In addition, Concho will complete several infrastructure and facility projects in Loving County, Texas, that facilitate large-scale development. The Company’s updated full-year 2018 capital program of $2.5 billion to $2.6 billion includes this activity. Importantly, Concho’s framework for executing a disciplined capital program within cash flow remains unchanged, and the Company expects 2018 capital spending to be fully funded with cash flow from operating activities.
Detailed guidance for full-year 2018 is provided under “2018 Guidance” at the end of the release. The Company’s capital guidance for 2018 excludes acquisitions and is subject to change without notice depending upon a number of factors, including commodity prices and industry conditions.
Commodity Derivatives Update
The Company enters into commodity derivatives to manage its exposure to commodity price fluctuations, including regional price dislocations such as the Midland/Cushing crude oil price differential. Please see the table under “Derivatives Information” below for detailed information about Concho’s current derivatives positions, including the commodity derivatives contracts assumed by the Company in connection with the RSP transaction.
The Permian basin continues to be a hotbed of drilling activity, bolstering North American output to record levels. The need for profitability and greater efficiencies in the region is driving operators to implement solutions that will drive their project costs down, yet wells are also growing in complexity. In challenging wells, proven solutions that unite downhole tools and technologies will be the differentiator.
NOV's agitator system
NOV’s agitator system has surpassed 10,000 runs in the Permian basin. The downhole tool increases ROP, improves weight transfer, and decreases stick-slip by reducing downhole friction in directional drilling applications. ERT power sections dramatically improve motor ROP by providing up to two times more power to the drill bit than conventional power sections of the same length. The Vector Series 50 drilling motor provides strength and reliability with a short bit-to-bend length, allowing superior directional performance and the ability to drill a curve and lateral in a single run.
The technology, equipment and service provider recently worked with a major operator in the Permian to increase their drilling performance, with the operator using a 6¾-in. agitator system to drill the complete lateral interval to total depth (TD). Though one trip in the lateral section was made to swap BHA components, the Agitator system was reused to reach TD. The total footage drilled was 7,167 ft and the well was completed in 76.8 hr, which was 12.42 hr less when compared to the same interval as the offset well. The offset well used a similar BHA with a competitor vibration tool. The strong performance using the system led the operator to switch to NOV’s tool in other wells.
Another operator in the Permian reported the longest one-run, conventional run in the Midland Basin on the Wolfcamp formation using an integrated equipment and technology package. By implementing a combination of a Vector Series 50 motor with ERT power section and agitator system, the operator was able to drill the total 10,520-ft lateral at an ROP of 126.3 ft/hr. The operator noted that the tools were consistent in improving drilling performance and that the service being provided exceeded their expectations. On a separate project with the same operator, the objective was set as increasing ROP while minimizing bit damage on a two-well pad. In the first run using an ERT power section, the operator drilled the 12¼-in. intermediate section, from 500 ft to 9,200 ft, and achieved an average ROP of 160 ft/hr. The section was completed in one run and the bit was pulled in excellent condition.
The Permian will continue to be an area of interest as horizontal drilling accelerates, and for onshore shale drilling in North America, the necessity of performance increases and efficiency gains is apparent. As companies ramp up their drilling operations and work to optimize horizontal drilling performance from well to well, the role of downhole tools as drivers of ROP increases and consistency gains will be solidified. Identifying the best technologies and techniques will be critical, and proven solutions will outperform the competition.
India’s cabinet approved on Wednesday a policy to allow companies to explore and exploit unconventional oil and gas resources such as shale oil and gas and coalbed methane under the existing production sharing contracts, as it aims to reduce its dependency on energy imports.
The uniform oil and gas exploration policy will encourage the current contractors in the licensed and/or leased areas to unlock the potential of unconventional hydrocarbons in the existing acreages, the government said in a statement today.
The policy is expected to bring in new investment in exploration and production (E&P) and raise the chances for new oil and gas discoveries that could potentially increase India’s domestic production.
Unconventional oil and gas exploration under existing production sharing contracts (PSCs) “will provide a major boost towards ensuring energy security for India,” India’s Petroleum Minister Dharmendra Pradhan said on Twitter. The new policy is a complete shift from the ‘one hydrocarbon resource type’ to ‘uniform licensing policy’ for simultaneous exploration and exploitation of oil and gas in an area of 72,027 square kilometers (27,810 square miles) under PSCs.
The policy envisages utilizing “E&P facilities to full potential by unlocking exploration & exploitation of unconventional hydrocarbon reserves like shale gas & CBM which could not be explored earlier due to policy restrictions. New discoveries will also boost domestic production,” the minister said.
India, which imports around 80 percent of the oil it consumes, is one of the world’s biggest oil importers, and its oil demand continues to grow.
Earlier this year, when oil prices hit $80 a barrel in May, India’s Pradhan reiterated the need for “stable and moderate” prices in a phone conversation with Khalid al-Falih, the Energy Minister of OPEC’s largest producer and de facto leader Saudi Arabia.
India and China discussed in June creating an ‘oil buyers’ club’ to be able to negotiate better prices with oil exporting countries to reduce OPEC’s sway, both over the global oil market and over prices.
EOG Resources profit jumps, but falls below analysts' forecast
Oil and gas producer EOG Resources Inc on Thursday reported sharply higher second-quarter profit, but missed Wall Street per-share estimates, earning $1.20 compared with analysts’ expectations for $1.23.
EOG grew its total crude production by 15 percent from a year ago to a company record of 384,600 barrels per day, pushing profit for the quarter to $696.7 million from $23.1 million a year earlier.
The company said it was targeting 18 percent growth in its crude production for the year.
U.S. producers are benefiting from a bump in oil activity, as benchmark U.S. crude futures have climbed almost 40 percent in the past year to around $70 a barrel. EOG said it increased crude derivative contracts during the second quarter, and received an average crude and condensate price of $67.91, up from $47.51 a year ago.
Results at rivals including Devon Energy Corp and Anadarko Petroleum Corp took a hit during the quarter because of the settlement of commodity derivatives. Companies hedged production at about $55 a barrel, losing out on revenue gains from market prices that rose above $70 a barrel last quarter.
EOG also said it increased its estimated resource potential in Wyoming’s Powder River Basin oil field to 2.1 billion barrels of oil equivalent. That basin is now its third largest asset, the company said.
EOG said it would operate a two-rig program in the Powder River Basin during 2018 and would expand its drilling activity next year. It is targeting well costs between $4.5 million and $6.1 million per well.
The company reported net operating revenues of $4.24 billion, up from $2.61 billion a year ago.
Anadarko said this week it had grown its footprint in the Powder River Basin to 300,000 acres (121,400 hectares) and had begun an appraisal effort for the development of oil production there.
https://www.reuters.com/article/eog-resources-results/update-1-eog-resources-profit-jumps-but-falls-below-analysts-forecast-idUSL1N1UT20S
A heavy weighting in the Eagle Ford, and in the Oil section.
But the Permian 'surge' hits marginal pipe constraints.(20% now at Midland vs 10% end of 2017)
Profits for Houston-based frac sand company Hi-Crush Partners LP skyrocketed more than 300 percent in the second quarter as its sand sales topped 3 million tons.
The company earned $68 million or 68 cents a unit in the three months that ended June 30, up 315.2 percent compared to the $16.4 million or 18 cents a unit it earned in the second quarter of 2017.
Sales of frac sand, which when combined with chemicals and water is used in the oil and gas industry to produce petroleum from shale rock, for the company topped 3 million tons, a 43.8 percent increase over the 2.1 million tons of sand it sold in the second quarter of 2017.
The company operates mines in West Texas near Kermit and Wisconsin. The company is active in many U.S. shale plays including the Permian Basin in West Texas, Eagle Ford Shale in South Texas, and Marcellus gas play in Ohio and Pennsylvania.
Sales of sand in the second quarter increased 16 percent over the first quarter, when the company sold just over 2.6 million tons of sand.
Houston's Enterprise Products Partners said it earned $674 million in net profits during the second quarter, up from the same time last year.
Enterprise's second quarter revenues jumped 28 percent from last year up to nearly $8.5 billion.
The pipeline and export terminal giant said it missed out on more than $300 million in additional profits by hedging on lower oil prices before they rose to near $70 a barrel in the U.S.
The quarter saw Enterprise bring its new Midland-to-Sealy oil pipeline into service that stretches from West Texas' booming Permian Basin to the Houston area. Enterprise also expanded its processing facilities in both West Texas and in the Houston region at its massive Mont Belvieu hub.
Enterprise Chief Executive Jim Teague said he was pleased with the overall performance in the quarter, and he noted that Enterprise has more than $5 billion in additional projects currently under construction.
That does not include Enterprise's recent announcement that it plans to build a big offshore oil exporting terminal off of the Texas Gulf Coast.
Monaco-based LNG shipper GasLog plunged into a loss during the second quarter following a profit in the first quarter of the year.
Gaslog reported a $3.6 million net loss for the second quarter, after posting a $19.3 million profit in the first quarter, although the loss narrowed compared to the $7.5 million loss in the corresponding quarter in 2017.
Speaking of the results, GasLog’s CEO, Paul Wogan said that there was an expected seasonal weakening in demand for LNG and LNG shipping during the quarter.
“LNG shipping spot rates troughed in late April but then more than doubled through June, driven by counter seasonal strength in LNG demand and Asian pricing that provided a clear arbitrage opportunity between the Atlantic and Pacific Basins,” he said.
Should the trend carry over into the 2018/19 winter period, GasLog expects future financial performance to show a boost over the quarter currently under review.
“The longer-term supply and demand fundamentals for LNG remain very positive, with China’s LNG imports, in particular, increasing 50% year-on-year in the first half of 2018,” Wogan noted.
GasLog said the demand for natural gas and LNG remained robust, underpinned in the second quarter by significant increases in demand from major Asian consumers.
The company added that in terms of vessels, excluding the current orderbook, 28-56 additional vessels may be needed by 2022 to satisfy projected market growth, with this range increasing to 105-137 additional vessels by 2025.
https://www.lngworldnews.com/gaslog-posts-second-quarter-loss/
China’s state planner issued new draft rules on Friday to give private investors access to the country’s oil and gas infrastructure including crude oil pipelines, gas pipelines, liquefied natural gas terminals and underground gas storage.
The new draft rules followed requests from the country’s energy operators, especially in natural gas, that asked for equal access to natural gas pipelines and interconnection of the pipes, the National Development and Reform Commission said.
Brazil’s Petrobras Distribuidora SA, the fuel distribution unit of state-controlled oil company Petroleo Brasileiro, missed estimates in the second quarter, hit by a May truckers’ strike.
BR Distribuidora, as the company is known, posted net income of 263 million reais ($70.02 million), nearly quadruple the year-ago figure but below a consensus estimate compiled by Thomson Reuters of 365.87 million reais.
Earnings before interest, taxes, depreciation and amortization (EBITDA) - a common gauge of operational profitability - totaled 508 million reais in the period, below a consensus estimate of 689.62 million reais but up 5.6 percent above its EBITDA in the same period last year.
“The effect of the strike can be summarized as an adjustment in diesel inventories, generating a loss of about 200 million reais,” the company said.
In an earnings call on Thursday, an executive at the company said it was in the final phase of contracting a financial advisor for adopting a new model for its convenience stores, called “BR Mania,” which could include seeking a partner.
Petrobras raked in north of 5 billion reais late last year when it floated a 30 percent stake in the unit as part of a bid to reduce the heftiest debt load among oil majors worldwide.
The company posted a 21.2 percent rise in revenue to 23.6 billion reais, below forecasts for 25.472 billion reais.
Authorities on Thursday were investigating what caused a fire and a series of natural gas pipeline explosions in Midland County, Texas, that sent seven people to hospital and shut down five lines before being extinguished.
Workers from two companies with adjacent pipelines were sent to the area Wednesday morning because of an underground gas leak when one pipeline caught fire and exploded, said Midland County Fire Marshal Dale Little, who is conducting an investigation.
The blast affected lines that furnish gas processing plants in the area but outages were not significantly impacting pricing or supplies, analysts said.
Pipelines operated by Kinder Morgan Inc and Navitas Midstream Partners LLC both suffered damage, said Little. No cause for the blast has yet been determined.
Navitas Chief Operating Officer Bryan Neskora said in a statement that company employees were among the injured.
A pipeline explosion erupts in this image captured from video by a field worker in Midland County, the home to the Permian Basin and the largest U.S. oilfield, in Texas, U.S., August 1, 2018. Courtesy Marty Baeza/Handout via REUTERS
Five workers with critical injuries were treated at the burns unit of the University Medical Center in Lubbock, Texas.
One man remained in critical condition and three others were upgraded to serious condition, all with burn injuries, medical center spokesman Eric Finley said on Thursday. A fifth worker was released after treatment.
Two firefighters who were at the site when the explosions occurred also were taken to hospital on Wednesday for treatment of burns, said Elana Ladd, public information officer for the city of Midland.
Ladd said the explosions occurred just outside Midland on a rural road.
Oil and gas pipelines crisscross Midland County, which is located in the Permian Basin, the largest U.S. oilfield. The explosions affected five pipelines that share a transit channel and which were all shut in by operators, a Midland city official said on Wednesday.
Marty Baeza, a Fort Stockton, Texas, oilfield worker who was at a site about a half mile (0.8 km) from the explosion, said the blast shook the water-treatment unit where he was working.
A pipeline explosion erupts in this image captured from video by a field worker in Midland County, the home to the Permian Basin and the largest U.S. oilfield, in Texas, U.S., August 1, 2018. Courtesy Marty Baeza/Handout via REUTERS
“It felt like someone had bumped us,” said Baeza. A large fireball lit up the sky for about five minutes, and firefighters arrived quickly, he said.
Kinder Morgan’s El Paso Natural Gas (EPNG) line was damaged but service impacts were expected to be minimal, spokeswoman Sara Hughes said in an email. The company believes the problem started with a nearby pipeline.
“There was a third-party pipeline involved that also experienced a failure, and preliminary indications are that the third-party line failure occurred before the EPNG line failure,” Hughes said.
The outage on the EPNG line will affect less than 10 million cubic feet per day of flows, estimated Joseph Bernardi, research analyst, natural gas at energy data provider Genscape.
Gas prices at the Waha hub, in the Permian Basin, increased by 31 cents, or about 14 percent, at midday on Thursday to $2.54 per million British thermal units.
Tyler Jubert, an energy analyst at S&P Global Platts, said the relatively small volumes affected should have little influence on hub prices. Some of Thursday’s gain could be attributed to strong demand in the West where temperatures are hotter than normal.
Anyone following clean energy knew this could be a tough year for solar. Goldman Sachs Group Inc. just put a grim number on how bad.
The pace of global installations will contract by 24 percent in 2018, Goldman analysts led by Brian Lee said in a research note late Wednesday. That’s far more dire than the 3 percent decline forecast by Bloomberg NEF in the bleakest of three scenarios outlined in a report earlier this month. Credit Suisse Group AG is forecasting a 17 percent contraction.
Installations are going to shrink, but no consensus on how much
Sources: Analyst reports
The anticipated slowdown would mark the first time the solar market has shrunk. It comes after China announced in late May it was curbing utility-scale development in the world’s biggest market, pulling the plug on about 20 gigawatts of projects. That will reduce global installations to 75 gigawatts, down from 99 gigawatts in 2017, Lee said in an email.
“Lowering our coverage view to cautious, we believe oversupply is set to continue in the near-to-medium term as demand from the largest solar markets remains tepid,” Lee wrote in the research note.
JinkoSolar Holding Co., the world’s largest panel maker, fell as much as 3.2 percent, the most intraday in a week. The Bloomberg Intelligence Global Large Solar index declined as much as 2.1 percent.
Australia’s Jervois Mining has bought almost 5 percent of shares in Ecobalt Solutions Inc , which is developing a high grade cobalt mine in the United States, days after two of its biggest shareholders called for management overhaul.
Jervois Mining has bought about 4.54 percent of shares in the company, it said in a filing to the Australian Securities Exchange on Monday.
The purchase suggests a bidding war may be beginning for one of a handful of projects outside the Democratic Republic of Congo (DRC) which are close to starting production of cobalt, which is in hot demand for use in rechargeable batteries.
“Jervois acquired shares in Ecobalt to facilitate discussing how it may support Ecobalt’s board and management in the financing, construction and successful commissioning of Ecobalt’s advanced primary cobalt development project in the United States,” Jervois said in a statement.
Ecobalt owns 100 percent of the Idaho Cobalt project, a high grade cobalt deposit with a partially completed mine site and mill, and which has full environmental permitting in what Jervois called “the only near-term domestic cobalt production potential in the United States”.
Demand for cobalt is soaring for use in batteries for electric vehicles, but around two thirds of the world’s supply comes from the DRC which has been tarnished by child labour and political risk concerns.
President Donald Trump has also put cobalt on a list of critical minerals that the United States will prioritise developing at home.
Two large shareholders, Australia-based funds Tribeca Investment Partners and Regal Funds Management last week called for management change at Ecobalt or the launch of a sales process, saying ongoing mine development delays were wasting a windfall from high battery sector demand.
Analysts have raised their forecasts for carbon prices in the EU Emission Trading System (ETS) to 2020 after a bullish start to the year and on expectations that plans to reform the market will significantly curb oversupply.
Analysts expect EU Allowances (EUAs) to average 18.59 euros/ton in 2019 and 20.76 euros/ton in 2020, according to the survey of eight analysts by Reuters published on Monday.
The forecasts were up 34 percent and 13 percent, respectively, from prices given in April, when the forecasts were for 13.86 euros for 2019 and 18.36 euros for 2020.
Analysts also for the first time gave forecasts for 2021 which averaged 21.88 euro/ton, almost 30 percent higher than current trading levels for the benchmark European carbon contract.
The European Union’s Emissions Trading System (ETS) charges power plants and factories for every ton of carbon dioxide (CO2) they emit.
The ETS has suffered from excess supply since the financial crisis, but this will be addressed by new measures starting from 2019, such as the Market Stability Reserve which will remove some of the surplus allowances from the market.
“We see the anticipation of the Market Stability Reserve curbing supply from 2019 as the fundamental driver behind the price rise,” said Hege Fjellheim, Head of Carbon analysis at Thomson Reuters.
“We could also see increased buying interest from the industry on the back of compliance needs and uncertainty of the final decisions on free allocation for the fourth trading phase,” she said.
Under the ETS some industries are eligible for free permits if they are deemed to be vulnerable to competition from countries with looser environmental regulations, known as “carbon leakage.”
The number of sectors and companies eligible for this support will be reduced in the fourth trading phase of the scheme which runs from 2021-2030, meaning more firms will need to buy carbon allowances.
The benchmark contract has more than doubled since the beginning of the year to around 17 euros/ton.
In the shorter-term analysts said there could be a correction from recent high prices as some market participants look to lock in profits.
“We still predict some consolidation in the last part of the year that may shake the market on the downside,” said Nomisma Energia analyst Matteo Mazzoni.
Amid sluggish downstream demand, China's spot cobalt and lithium markets stayed in a downward trend last week with cobalt smelters unwilling to resume production after environmental restriction.
Meanwhile, a lithium company told SMM that it planned to re-evaluate the economic benefits and feasibility of its new project due to falling prices.
SMM forecasts that cobalt price to rebound in the next two to three months on current low inventory. However, fundamentals and consumption are still key things to watch for the price movement in the long term.
SMM assessed spot refined cobalt price at 495,000-530,000 yuan/mt as of Friday July 27, down 11,500 yuan/mt from a week ago. This was dragged by accelerated drops in international spot prices, which have dipped to approach that in domestic market. While producers lowered offers amid bearish sentiment, downstream buyers adopted a watch-and-wait approach and mostly purchased as needed.
Last Friday, spot prices of cobalt sulphate stood at 102,000-106,000 yuan/mt, and spot prices of cobalt chloride were at 125,000-127,000 yuan/mt, both down 2,000 yuan/mt from a week ago, according to SMM assessment.
Inventory of cobalt salt at smelters and downstream plants shrank as suspension at most smelters remained. Although enquiries from downstream increased on the week, actual procurements were limited as buyers purchased only small amounts.
SMM assessed nickel sulphate at 26,500-28,500 yuan/mt last Friday, down 500 yuan/mt on the week due to weakened refined nickel prices. Supply increased at Guangxi Yinyi last week as it resumed production.
In the cobalt (II, III) oxide market, slow season weighed on overall prices although some large-sized plant tried to hold offers at 380,000 yuan/mt. Some producers utilised scrap-made cobalt salt as raw materials. Their offers were therefore more competitive than those using primary raw materials. SMM assessed cobalt (II, III) oxide at 375,000-385,000 yuan/mt last Friday, 5,000 yuan/mt lower from a week earlier.
SMM assessed cobalt oxide at 360,000-370,000 yuan/mt as of last Friday, flat from a week ago, and cobalt powder at 610,000-620,000 yuan/mt, 10,000 yuan/mt lower on the week. Dipping price of refined nickel depressed trading activities of cobalt oxide, and weak downstream demand from hard alloy industry pushed down cobalt powder prices.
Prices of ternary precursor NCM 523 was assessed at 120,000-122,000 yuan/mt as of last Friday, down 2,000 yuan/mt from a week ago, and prices of ternary precursor NCM622 at 128,000-130,000 yuan/mt, 1,000 yuan/mt lower on the week. Lacklustre demand from the digital market and falling prices of refined cobalt and nickel accounted for the decline.
Similarly, SMM prices of ternary materials also slid with that of NCM 523 at 197,000-207,000 yuan/mt, 3,000 yuan/mt lower on the week. Price of ternary material NCM 622 stood at 217,000-227,000 yuan/mt, flat from a week ago.
SMM assessed lithium carbonate price 4,000 yuan/mt lower on the week to stand at 101,000-106,000 yuan/mt as of last Friday. As the market has been in a downward trend for four months, a large-sized domestic producer planned to cut output of lithium carbonate and to start trial production of lithium hydroxide next month. Price of battery-grade lithium hydroxide went flat at 135,000-145,000 yuan/mt last Friday, with that of micro powder lithium hydroxide hitting a high of 150,000 yuan/mt, SMM assessed. Firm demand from downstream customer and booming high-nickel ternary materials industry provided support.
SMM prices of 4.35V lithium cobalt oxide (LCO) went flat on the week to stand at 410,000-420,000 yuan/mt last Friday. However, weakened prices of cobalt and lithium are expected to depress LCO price in the short run.
SMM assessed lithium iron phosphate (LFP), used in motive lithium-ion battery, at 68,000-73,000 yuan/mt, down 2,000 yuan/mt on the week. The decline was slower as orders resumed a bit from the energy storage market and large-sized plants.
Plunged lithium prices and slack season dragged down the price of lithium manganese oxide (LMO) last week. SMM assessed LMO, used in high-energy-density lithium-ion battery, at 44,000-54,000 yuan/mt, and LMO used in motive battery at 60,000-66,000 yuan/mt, both 3,000 yuan/mt lower on the week.
A steep global decline in the price of solar modules in recent weeks is nearly offsetting the effect of the Trump administration’s 30 percent tariff on imported panels, the chief executive of a major U.S. solar company said on Monday.
While the price drop is trimming the profit margins of manufacturers, it is welcome news for purchasers of solar systems, who had been facing higher prices since the tariffs went into effect in February.
“If you are building a large power plant your pricing has certainly come back at least halfway to what it was pre-tariff if not all the way,” Tom Werner, the CEO of SunPower Corp (SPWR.O), said in an interview following the company’s second-quarter financial results announcement. “It’s muting the impact of tariffs.”
Solar module prices are down about 12 percent globally since China announced changes to its incentives for solar power on June 1 that have led to an oversupply of panels that had been intended for installation in China, the world’s largest solar market.
SunPower is both a manufacturer of solar panels and an installer of solar power systems. The San Jose, California-based company makes its products primarily in the Philippines and Mexico and is seeking an exclusion from the U.S. tariffs.
SunPower makes high-efficiency, premium-priced panels, and Werner told analysts on a conference call that the company was “responding” to the price declines and would not allow its premium to expand.
The company is in the process of buying rival SolarWorld Americas, expanding its domestic manufacturing in Oregon to stem the impact of the tariffs.
The price decline “makes domestic manufacturing that much more challenging,” Werner said, adding that SunPower was committed to closing its deal to acquire SolarWorld.
“We’re going to have to increase scale to compete,” he said.
SunPower expects to spend $51 million on tariffs in the second half of this year, an amount the company would prefer to invest in its next-generation technology and scaling up its U.S. manufacturing, Werner said on a conference call with analysts.
SunPower reported a narrower-than-expected second-quarter loss and revenue that topped estimates due to strength in its rooftop solar business and cost controls. The company also said it would begin manufacturing its next-generation technology later this year.
Levels of wasted power in China’s renewable sector fell in the first half of this year, but securing grid access for many new clean energy projects remains a challenge for the industry, an energy bureau official said.
China’s renewable energy capacity has soared thanks to generous subsidies and ambitious targets, but the country does not have enough transmission capacity to deliver all the new power to customers, a problem known as curtailment.
To resolve the issue, the government has been trying to adjust the timing of construction and has set up an early warning system forcing regions suffering from excess capacity growth to slow down the pace of new approvals.
“From this year, the situation has improved,” said Liang Zhipeng, vice-director of the renewable energy office of the National Energy Administration during a media briefing on Monday. “But absorbing renewable power remains a long term problem.”
China’s total renewable energy capacity reached 680 gigawatts by the end of June, up 13 percent on the year, accounting for nearly 40 of total energy capacity.
Non-fossil fuel power - renewables and nuclear - accounted for 66.1 percent of China’s new installed energy capacity in the first half, up 5.4 percentage points compared to a year earlier.
Wind curtailment rates stood at 8.7 percent, down 5 percentage points on the year, while solar curtailment also fell 3.2 percentage points to 3.6 percent during the first half.
Liang said new demand had created more favorable conditions for the renewable sector, but it still faced big challenges.
“Over the long term, it is very important to establish an effective mechanism to absorb and utilize renewable energy,” he said.
Amid overcapacity fears, China has already taken action to restrict the number of new solar power generation projects this year after record growth in 2017.
The state planning agency said at the end of June that it would cap new capacity at 30 GW in 2018, compared to 53 GW last year.
India has imposed a 25 percent safeguard duty on solar cell imports for a year to July 29, 2019, a government order published on Monday said, as the country tries to protect the domestic solar industry.
The safeguard duty will not be imposed on imports from developing countries except China and Malaysia, according to the notification.
The federal trade ministry earlier this month recommended imposing a 25 percent duty on imports of solar cells and modules from China for one year to try to counter what it sees as a threat to domestic solar equipment manufacturing.
India imports over 90 percent of its solar equipment from China.
The safeguard duty on imports would be applicable for two years. It would be reduced in the second year to 20 percent for six months, and would be charged at 15 percent for the next six months, the order said.
China’s finance ministry said on Tuesday it will scrap vehicle and vessel taxes on new energy vehicles and ships powered by natural gas, as part of its efforts to encourage cleaner energy consumption.
The ministry will also cut the tax on some small engine vehicles by half, according to a statement on its website.
The vehicle and vessel tax is paid by the owner of cars and ships, the ministry added.
The tax cut takes effect on the date of publication on the ministry’s website.
Jinkunlun Lithium in Qinghai province put 3,000 mt of lithium metal capacity into trial production on July 28. This is the largest lithium metal project in the world.
Located in Golmud city, the project extracts anhydrous lithium chloride from local salt lake brines and produces lithium through a molten salt electrolysis process.
The company plans to invest 1.4 billion yuan to build 15,000 mt of lithium salt capacity. This will include 8,000 mt of high-purity lithium chloride capacity, 2,000 mt of battery-grade lithium carbonate capacity, 2,000 mt of lithium-magnesium alloy capacity and 3,000 mt of lithium metal capacity.
Sherritt International Corp said on Tuesday that recent weakness in the price of cobalt, a key material in rechargeable batteries, is expected to be temporary as demand continues to grow from the electric vehicle market.
Toronto-based Sherritt said prices softened in the second quarter on growing market sentiment that price gains had outpaced an increase in demand. Consumers then began delaying purchases, waiting for prices to bottom, the miner said.
The average price of cobalt rose 66 percent over the same three-month period in 2017, said Sherritt, to $42.93 a pound, marking an eighth consecutive quarter of higher prices.
Prices are also likely to strengthen on supply risk concerns linked to the Democratic Republic of Congo (DRC), said the company. The DRC supplies some two thirds of the world’s cobalt, but has issues with child labor and political risk.
“As cobalt prices have a limited impact on overall battery pack costs, high prices are not expected to cause supply-chain disruptions or delay the growth of the electric vehicle market,” the diversified miner said.
“The risk of cobalt substitution in electric vehicle battery production in the near term is relatively low given cobalt’s unique energy transference properties,” it added.
Cobalt customer Panasonic Corp recently suspended ties with Sherritt, Reuters exclusively reported, due to concerns that its cobalt, used in batteries made for Tesla cars, came from Cuba, a country subject to U.S. sanctions.
Sherritt had declined to comment on questions about whether it sold cobalt to Panasonic.
Sherritt, which has power, oil and metal investments in Canada, Cuba and Madagascar, reported a net profit of C$2.8 million or 1 Canadian cent a share in the quarter. That compares to a net loss of C$101.9 million, or 35 Canadian cents a share, in the same period last year.
Revenue slipped to C$201.1 million from C$231 million.
Bloom Energy Corp.’s chief executive sat down with MarketWatch for a phone interview on the day his company’s stock debuted on Wall Street, to answer questions about an initial public offering that this column had openly questioned.
His answers only did more damage.
When asked about the company’s profitability, KR Sridhar told three MarketWatch staffers that Bloom was “a profitable company as of [the second quarter],” and he expected that to continue going forward. When asked in a follow-up question whether he meant profitable in GAAP terms — in accordance with generally accepted accounting principles — Sridhar answered affirmatively. MarketWatch led with those comments in a story published July 25, when Bloom Energy’s stock was rocketing upward in its post-IPO debut on the New York Stock Exchange.
Hours later, past midnight on the West Coast, a Bloom Energy spokesman reached out with a “clarification,” explaining that Bloom expected to be GAAP-profitable on an operating basis this year, but not on a net basis. MarketWatch updated its story with a clarification the next day.
But it turns out that more of that statement, as well as the clarification, was misleading, as Bloom Energy quietly disclosed in a filing with the Securities and Exchange Commission on Friday that was brought to light Tuesday morning by Axios. Bloom, in reality, was not profitable on a standard operating basis in the second quarter, only on an adjusted operating basis, and does not stand by any forecast Sridhar made.
“The Company disclaims any statement regarding its expectations for future profitability or cash flows, makes no such forecast or prediction at this time regarding its future operating results, and undertakes no obligation to do so in the future,” reads the filing, which explicitly walks back several of the CEO’s comments in the July 25 interview with MarketWatch. A spokesman for Bloom declined to comment beyond the SEC filing.
Sridhar’s seeming inability to honestly discuss core financial performance of his company should be another red flag for this company, though its stock-market momentum is unimpeded so far. Bloom priced its shares at the high end of its estimated range on the evening of July 24, at $15 a share, and its stock had increased more than 40% through Monday’s close. After gaining more than 10% early in Tuesday’s session, shares retreated to decline 3.4%.
Bloom, a maker of fuel cells it calls “energy servers,” which use natural gas, is a company with many risky attributes from an investment standpoint. The company is what’s called a controlled company, with a dual-class share structure, under which Sridhar, fellow board members, executives and certain other investors hold 95% of the voting power, leaving public-market investors with little to no power. That is especially troublesome in light of Sridhar’s seeming incapacity to frankly discuss important financial metrics.
The company is also heavily reliant on federal tax credits to offset the cost to customers of its energy servers. Those tax credits were allowed to expire in 2016, and in 2017, Bloom lowered the price of its servers to make up the difference, and revenue declined. The tax credits were later reinstated by President Donald Trump in a retroactive manner, leading to a revenue surge in the first quarter of 2018 that Bloom highlighted in its well-timed IPO prospectus as proof of growth.
Here's what most investors get wrong about disruption
Additionally, 53% of Bloom’s 2017 revenue came from just two customers, Southern Co. SO, +1.44% and Delmarva Power of Delaware, which has deployed enough Bloom Box energy servers to power 22,000 homes, the largest full utility-scale deployment of fuel cells in the U.S. But last year, Bloom had to repay $1.5 million to the state of Delaware, after its economic-incentive deal with the state did not pan out as promised.
Bloom took over a defunct Chrysler automobile plant in Newark, Del.,for a new manufacturing center, but it did not create the 900 jobs in the state that it had promised. In fact, it delivered only about a third as many jobs. Delmarva Power customers also have a surcharge on their utility bills to cover certain costs of fuel-cell energy providers. In 2012, the statute that approved the surcharge became the subject of a lawsuit claiming that Delaware had discriminated against out-of-state fuel-cell companies. Sunnyvale, Calif.–based Bloom was not a party in the case, which was settled in 2015.
Those are just some of the issues Bloom faces — massive debt and a continuing dispute over an EPA fine could also make the list — so it was surprising that Bloom was able to sell so much stock, and even more surprising that it received such a warm welcome from Wall Street. Then again, Sridhar admitted in the MarketWatch interview that nearly one-third of the IPO shares were earmarked for people close to the company, such as board members and employees. Bloom also disavowed those comments in Friday’s filing.
Bloom Energy was a troubling investment before the stock skyrocketed, and it is more so after the admission that its chief executive misled MarketWatch on its current and future financial performance less than two hours after it became a publicly traded company. Investors who have bought in can only hope that Sridhar and Bloom can build some trust after a bewildering and inauspicious beginning.
https://www.marketwatch.com/story/bloom-energy-proves-it-should-not-be-trusted-2018-07-31
America’s first commercial-scale offshore wind farm is expected to save electricity consumers in the state of Massachusetts around $1.4 billion over 20 years, by supplying power about 18 per cent cheaper than any alternative sources.
Bloomberg reports that the 800MW Vineyard Wind project – a yet-to-be-built joint effort of Avangrid and Copenhagen Infrastructure Partners – is expected to provide electricity and renewable energy credits for 6.5 cents a kilowatt-hour (8.5c/kWh AUD) over the life of its 20-year contract.
“This total price is materially below the levelized projected costs of buying the same amount of wholesale energy and RECs in the market, which is projected to be a total levelized price of 7.9 cents/KWh,” a letter from the state Department of Energy Resources said on Wednesday.
This was confirmed by the CEO of the project, Lars Thaaning Pedersen, who said in a statement that federal tax credits and a long-term power-purchase agreement had helped the wind farm “offer an attractive price” to consumers.
“At a total levelized price of 6.5c/kWh for energy and RECs, the Vineyard Wind offshore wind generation long-term contracts provide a highly cost-effective source of clean energy generation for Massachusetts customers,” the letter said.
“As shown in the EDCs’ filings,” the letter continues, “on average, these contracts are expected to reduce customers’ monthly bills, all else being equal, approximately 0.1 per cent to 1.5 per cent.”
According to Bloomberg, that makes the wind farm – off the coast of Martha’s Vineyard – about 18 per cent cheaper than other generation alternatives, and lower in cost than even the wind industry expected.
“That’s pretty shocking for us,” said Bloomberg NEF wind analyst Tom Harries. “I think the wider industry expected much higher prices.
“The general consensus was that it would take a while for new markets to reach levels we’ve seen in Europe and the U.S. seems to be doing this pretty fast,” he said.
“The repercussions of this are it will probably awaken a lot of other coastal states to the value of offshore wind.”
Offshore wind, while nowhere near as well established as its onshore cousin, has been slowly catching up, both on price and installations.
According to a 2018 report by the International Renewable Energy Agency, IRENA, auction results in 2016 and 2017, for offshore wind projects due to be commissioned in 2020 and beyond, signalled a step-change that would take costs down to between 6-10c/KWh (USD).
Last year, a UK renewables auction saw two developers win the rights to build offshore wind farms for around USD 7.5c/kWh; a price – as we reported here – that was 50 per cent below the guaranteed development price for offshore wind of just two years before, and well below the cost of nuclear in the UK.
As prices continue to fall, Bloomberg NEF has forecast installation growth of around 16 per cent a year, through 2030, driven by the UK, Germany, Netherlands and China.
FMC Corp, which is spinning off its lithium division as a publicly traded company later this year, said on Thursday that prices for the light metal continue to rise on strong demand from electric vehicle battery makers.
There are growing worries about oversupply in the lithium sector, with several new production facilities under construction around the globe.
Philadelphia-based FMC on Wednesday posted a better-than-expected second-quarter profit, helped in part by a 20 percent increase in sales of lithium hydroxide and carbonate, the two most common derivations of lithium used by battery suppliers for Tesla Inc and others.
“We are seeing sequential pricing as well as very strong year-on-year pricing,” FMC Chief Executive Pierre Brondeau said on a conference call with investors.
Spot market prices in China for lithium have plunged this year due in part to the oversupply concerns, though the Chinese spot market is relatively small. FMC, like competitor Albemarle Corp, has annual contracts with customers that it renegotiates annually.
The company is able to charge more under those contracts as demand rises for the metal, a critical battery component, Brondeau said.
FMC, which also produces agricultural chemicals, plans to spin off its lithium division in an initial public offering in October under the “Livent Corp” name.
For 2018, FMC expects lithium sales of $430 million to $460 million, in what would be at least a 20 percent increase from last year, though executives noted that not all of that is spread out equally among all quarters.
FMC’s main lithium production facility is in Argentina, where the country’s peso currency has been dropping in value to the U.S. dollar this year due in part to weakness in emerging markets and uncertainty about the local economy. That devaluation actually boosted exports from the lithium division in the second quarter, Brondeau said.
Shares of FMC fell 2.6 percent to $85.99 on Thursday as U.S. markets were mixed.
Israel Chemicals (ICL) reported an increase in profit and revenue in the second quarter, boosted by higher prices for potash and phosphate fertilisers and rising sales of bromine products.
The world’s sixth-largest producer of potash earned an adjusted net profit of $113 million, up from $64 million a year earlier, which excludes the fire safety and oil additives businesses sold off in March. Revenue rose 3.7 percent to $1.37 billion.
A Reuters poll of analysts had forecast quarterly revenue of $1.37 billion and adjusted net profit of $88 million.
The company’s shares were up 3.5 pct in early trade in Tel Aviv on Wednesday.
ICL Chief Executive Raviv Zoller said results in the quarter exceeded management’s expectations, following a record-breaking performance in June in its bromine and phosphate business.
“The company’s growth and profitability during the quarter are attributable to improving market conditions and cost controls, as well as the company’s ongoing efforts to optimise potash production,” he said.
Potash sales in the quarter rose to $330 million from $302 million. The average selling price per tonne rose to $247 from $216.
ICL, which has exclusive rights in Israel to extract minerals from the Dead Sea, said it would pay a dividend of 4.3 cents per share, or about $56 million.
ICL said it will divide its operations into four: potash; phosphate; industrial products including bromine; and agricultural products.
This will enable the company to focus on less developed markets, such as advanced crop nutrition, said ICL, which produces about a third of the world’s bromine.
Canadian fertilizer and farm supply dealer Nutrien Ltd posted a better-than-expected quarterly profit on Wednesday, driven by higher prices for potash and nitrogen fertilizers.
The company raised its forecast for potash sales volumes to between 12.3 and 12.8 million tonnes, citing strong global potash demand. This compares to a May projection in the range of 12 million tonnes to 12.5 million tonnes.
However, Nutrien said that most U.S. crop prices have declined over the quarter, driven by a combination of favorable U.S. crop prospects and uncertainty over escalating trade restrictions.
The company, formed by the merger of Agrium Inc and Potash Corp of Saskatchewan in January, on Wednesday reported a net income of $741 million in the three months ended June 30. On a pro forma basis, Nutrien earned $705 million in net income a year earlier.
Sales rose 10.8 percent to $8.15 billion.
Excluding items, the company earned C$1.48 per share. Analysts were expecting a profit of C$1.38 per share, according to Thomson Reuters I/B/E/S.
Global demand for gold fell 6 percent in the first half of this year due mainly to a sharp
decline in purchases by exchange traded funds (ETFs), the World Gold Council said in a report on Thursday.
Total global demand for gold was 1,959.9 tonnes over January-June, down from 2,086.5 tonnes in the same period last year and the lowest first-half total since 2009, the industry-funded WGC said in its latest Gold Demand Trends report.
For the second quarter, demand was down 4 percent year on year at 964.3 tonnes. Purchases of gold for investment fell 9 percent, driven by a 46 percent decline in ETF buying.
Central bank purchases dipped 7 percent over April-June and a weak Indian market dragged use for jewellery, the biggest source of demand, down 2 percent.
"It's been a soft start to the year and that's largely because of lower investment demand," said Alistair Hewitt, the WGC's head of market intelligence.
ETF investment was weakest in the United States, where a strong economy gave little incentive to buy gold, traditionally used as a safe place to store assets during political and economic uncertainty.
But in Europe, demand was bolstered by the rise of eurosceptic parties in Italian elections and uncertainty over European Central Bank policy, Hewitt said. In China an escalating trade dispute with Washington and falling stock markets drove investment demand.
"Towards the end of the second quarter we actually saw outflows from U.S. listed funds," Hewitt said. "It really was the European inflows that meant we saw modest global inflows over the quarter."
In Iran, meanwhile, sales of gold bars and coin surged 202 percent as the United States pulled out of a deal on the country's nuclear programme.
Jewellery demand failed to gain from a 5.4 percent fall in the price of gold over April-June because the currencies of key consumers including China, India and Turkey weakened, making dollar-priced gold more expensive for local buyers, the
WGC said.
Jewellery consumption in India fell 8 percent in the second quarter to 147.9 tonnes, in part because of the weaker rupee. Demand in China was more resilient, rising 5 percent to 144.9
tonnes.
On the other side of the market, increased mine production and recycling helped lift overall supply by 3 percent to 1,120.2 tonnes in the second quarter.
Platinum producer Impala Platinum will slash about a third of its workforce over two years in one of the biggest rounds of job cuts by one mining company in living memory in South Africa as the platinum industry faces a day of reckoning.
The number of platinum miners employed in the world’s largest producer of the precious metal has fallen from a peak of almost 200,000 in 2008 to 175,000 in the face of depressed prices and soaring costs, fuelling labor and social unrest.
Implats’ planned lay-offs announced on Thursday are focused on its labor-intensive, conventional Rustenburg operations, where the number of shafts will be reduced to six from 11 with production cut to 520,000 ounces per annum from 750,000 ounces.
Its shares were around 4 percent higher at midday after earlier rising 6 percent, reflecting investor support for the tough moves.
The company clarified that the number of planned job cuts was 13,400, not the 13,000 specified in its statement earlier, which it said was a rounded figure.
SPONSORED
The number of jobs on the line over two years, out of a workforce of about 40,000, is even steeper than plans by miner Sibanye-Stillwater to cut 12,600 at Lonmin over three years.
Most of South Africa’s conventional platinum shafts are losing money, according to the Minerals Council South Africa, while the handful of mechanized ones are profitable. But an unforgiving geology makes mechanization challenging in South Africa and is not an option at Rustenburg.
“The only option for conventional producers today is to
fundamentally restructure loss-making operations to address cash-burn and create lower-cost, profitable businesses that are able to sustain operations and employment in a lower metal price
environment,” Chief Executive Nico Muller said.
POLITICALLY SENSITIVE
The company narrowed its first-half loss in March by 70 percent to 21 cents per share and warned then that steep cost cuts were on the horizon as it reviewed Rustenburg, which has been a flashpoint of labor violence in the past. The company has not made a profit in six years.
Muller told journalists an alternative would be to sell shafts it plans to close if buyers could be found, but that would not be easy.
Sibanye-Stillwater is in the process of acquiring Lonmin’s nearby operations but is unlikely to have the appetite for further acquisitions as it grapples with the fall-out from a spate of deaths at its gold mines.
Job cuts are politically sensitive in South Africa, where data this week showed the unemployment rate rose to 27.2 percent in the second quarter from 26.7 percent in the first quarter.
And the typical South African mine worker has around eight dependants, multiplying the social hardships associated with lay-offs in an economy still defined by glaring racial income disparities. Black workers will account for the vast majority of the job cuts.
AMCU, the majority union at Implats, was not immediately available for comment. The union led a five-month strike in 2014 at the operations of the world’s three largest platinum miners, including Implats.
“We are very concerned about the social implications,” Muller said.
He said an initial 1,500 jobs will be cut in the first round, confirming a Reuters report on Wednesday.
India’s Hindalco Industries Ltd said its U.S. unit Novelis Inc has agreed to buy aluminium processor Aleris Corp for $2.6 billion, giving it a foothold in supplying the aerospace industry and other value-added businesses globally.
Hindalco, which is owned by Indian conglomerate Aditya Birla Group, expanded into the value-added aluminium business when it acquired aluminium re-rolling company Novelis for $5.9 billion in 2007.
The deal for Aleris will be the group’s biggest acquisition since then and will increase the production capacity of Novelis - one of the world’s biggest suppliers of aluminium sheets for beverage cans and car parts - by nearly a quarter to 4.4 million tonnes, Hindalco said at a press conference on Thursday to announce the deal.
The $2.6 billion deal will include $775 million of equity and $1.8 billion of debt which will be funded through Novelis, Kumar Mangalam Birla, chairman of Aditya Birla Group said.
“This also diversifies our product mix to include some premium segments where we have not been present such as the high-end aerospace domain,” Birla told the press conference.
As well as aerospace, the deal will give Novelis a presence in the construction market in the United States and a broader base of customers in the car industry, Hindalco said.
The combined entity, comprising Novelis and Aleris, will have annual revenues of $15 billion while its parent company Hindalco, which is India’s biggest flat-rolled aluminium producer, will have annual revenues of $21 billion including the contribution from the merged entity, Birla said in the conference.
Aleris had revenues of $3 billion in 2017.
The combined entity’s net debt to adjusted EBITDA, a gauge of its debt repaying ability, will rise to about four times at the close of the deal and fall back to three times within two years, Hindalco said.
Workers at Chile’s Escondida copper mine, the world’s largest, have rejected the company’s final contract offer and agreed to vote on whether to go on strike, according to an internal union document seen by Reuters on Friday.
After several meetings in recent days, the workers at the mine owned by BHP concluded that the company’s offer does not meet union demands and creates “prejudicial” labour conditions, according to the document. Chile is the world’s largest producer and exporter of copper.
The vote will begin on Saturday and continue through the middle of next week. That comes just over a year after a 44-day strike at the mine last year that jolted global copper markets and harmed economic growth in the South American country.
“In all the meetings, members overwhelmingly voiced their desire to reject this offer and vote on a legal strike,” the document read.
The company’s final offer, presented to workers this week, had included a $27,700 signing bonus for each worker, and a salary adjustment to link wages to inflation.
That offer, which is equivalent to roughly 18 million pesos, also includes a one-time payment as compensation for the end of a housing benefits plan. That amount was less than the 23 million pesos unionized workers received in a previous negotiation in 2013.
The Quellaveco copper project, 60% owned by Anglo American and 40% by Mitsubishi and located in Peru, was approved yesterday.
Anglo American stock was mostly unchanged at GBP1,691.40 (US$22.15) a share.
The estimated capital cost for the project ranges between $5.0 to $5.3 billion.
The company expects a post tax IRR of greater than 15% with a four-year payback and an EBITDA margin of more than 50%.
The company believes it can expand Quellaveco beyond its current 30-year reserve life as well as to increase throughput above the initial capacity of 127,500 tonnes per day.
First production of copper is expected in 2022, ramping up to full production in 2023. During the first ten years of full production Quellaveco is expected to produce approximately 300,000 tonnes per year at a cash cost of $1.05 per pound of copper.
Peru’s National Society of Mining, Petroleum, and Energy released a statement approving the project.
http://www.mining.com/anglo-american-approves-5-billion-copper-project-peru/
The U.S. Army Corps of Engineers announced that a Draft Environmental Impact Statement for Northern Dynasty Minerals’ Pebble mine will be completed in January 2019.
During a press conference held this week at its Alaska division, representatives for the Corps said that the document will be open for public comment for 90 days rather than the usual 45 days.
Prior to this, a “scoping report” will be published in August 2018. The report is a compilation of the 175,000 comments gathered during the Draft Environmental Impact Statement scoping sessions that ended June 29.
Right before the scoping sessions were finalized, Alaska Governor Bill Walker asked the Army Corps to suspend the process. He said that, as it stands today, Pebble is not a “feasible and realistic” project.
However, the Corps was unable to comply with his request because Pebble Partnership, the subsidiary of Vancouver-based Northern Dynasty that is making the proposal for the mine, has not submitted a feasibility study or evidence that the project is viable.
Shane McCoy, the Army Corps’ Alaska district Pebble program manager, explained in this week’s media event that a demonstration of economic feasibility is not a requirement of the National Environmental Policy Act, which focuses on the environmental effects of a proposed action.
McCoy also said that once an Environmental Impact Statement process is launched it cannot be suspended unless that is asked for by the proponent or if the company is unable to supply additional information requested by the Corps.
Pebble is the world’s biggest undeveloped copper-gold-molybdenum porphyry deposit. It is located in Alaska’s Bristol Bay region, which also hosts the largest sockeye salmon fishery on the planet.
Given its location, Pebble has drawn opposition from environmentalists, some native groups and fishers. Their strong stands led operators to redesign the project by reducing its development footprint by less than half the size previously envisaged, banning the use of cyanide, and restricting primary activities in the Upper Talarik watershed, among other measures.
Within this context, the approval process for the project has been dragging on for over a decade.
By 2020, however, Pebble should be getting a Record of Decision clearing the way for federal permits to be issued, McCoy said.
Such schedule is based on the current plan laid out by Pebble, considering it has not yet filed applications for state permits.
http://www.mining.com/pebbles-draft-environmental-impact-statement-ready-january/
There are approximately 1 million electric vehicles on the road today. By 2035, there will be 140 million. The key enabler behind this revolution in green transportation? Copper.
As we highlighted in our new eBook Industry in Focus: Copper, the red metal is set to enjoy an unprecedented surge in demand over the coming years. A resilient, durable and recyclable metal, copper is the ideal material to help drive a more sustainable future.
Among the sectors most invested in copper use is the electric vehicle (EV) industry. It’s a market enjoying rapid growth thanks to high-profile innovation, environmental reform, and soaring consumer interest in hybrid technology. And for the manufacturers, copper is the secret sauce.
EVs need copper
A low-carbon vehicle economy is heavily reliant on copper, with EV manufacturing making use of the metal for everything from key components to batteries and engines. Compared to a traditional internal combustion engine which requires 23kg of copper, EVs require substantially more:
40kg: Hybrid electric vehicles (HEV)
60kg: Plug-in hybrid electric vehicles (PHEV)
83kg: Battery electric vehicles (BEV)
89kg: Hybrid electric bus (Ebus HEV)
As EV technology advances, the need for copper in the automotive industry will only grow. Emerging tech such as energy independent vehicles (EIV) which use copper-powered solar photovoltaic panels to stay running are just one example.
But is it too early to start thinking about the impact this may have on copper suppliers?
Green upheaval
At a Reuters event in 2016, BHP Chief Commercial Officer Arnoud Balhuizen said, “copper miners will be the first metal producers to feel the impact of the electric vehicle boom”, and he has the stats to back it up. By 2035, BHP forecasts that the global electric car fleet could rise to 140 million vehicles.
Catalysts for this growth can already been seen taking root across Europe, including the UK which plans to ban all sales of fossil fuel cars by 2040. The mayors of Paris, Madrid, Mexico City, and Athens have also proposed bans of diesel vehicles in their respective cities by 2025.
In a world first, the Swedish government embedded 1.2 miles of electric rail in a public road to charge electric vehicles as they drive. Plans for expansion are already underway as Sweden acts on its pledge to be independent from fossil fuel by 2030.
Put simply: the demand for copper will soar sooner rather than later.
Market pressure
In terms of supplier demand, research by IDTechEx in 2017 predicted that the proliferation of EVs will see the sector’s copper use increase from 185,000 tonnes to 1.74 million tonnes in 2027. In terms of the global copper market, this prediction means EVs could account for approximately 6% of all copper demand in a decade’s time.
On the other hand, some analysts believe the impact of EVs on the copper market is ‘overrated’. The reason for this is the lack of infrastructure in place to support such rapid adoption, and if demand were to grow, it would only be when there are enough charging stations and electric grids to support them.
However, research by the International Copper Association (ICA) found that an additional 40 million charging stations will need to be installed over the coming decade. This alone will account for an additional 100,000 tonnes in demand for copper, and when we consider ICA’s prediction that global EV numbers will reach 27 million by 2027, the long-term outlook for copper demand looks very healthy.
Workers at Codelco’s Chuquicamata copper mine in Chile, the state miner’s second largest by output, walked off the job on Monday morning in protest at the “unjustified layoff” of two workers, union leaders told Reuters.
Chuquicamata Union No. 1, 2, and 3, as well as Antofagasta Union No. 1 agreed to cease operations and blocked access to the mine early Monday morning, according to the union leaders and an internal communication viewed by Reuters.
“All of the unions have ceased operations,” said Liliana Ugarte, president of Union No. 2 at Chuquicamata. “How long the walk-off lasts depends on how negotiations go with management.”
Codelco, the world’s top copper miner, declined to comment on the situation.
The walk-off comes as workers at BHP’s Escondida mine, Chile’s biggest by output, last week rejected the company’s final contract offer, raising the specter of labor action at two of the largest copper mines in Chile, the world’s top copper producer.
Unions at Codelco’s Chuquicamata have protested for months over plans to transform the century-old open pit into an underground mine.
Workers say Codelco’s plans to overhaul the operation - a key part of its $39 billion 10-year drive to update its aging deposits - failed to address the concerns of the division’s nearly 5,664 workers.
Codelco signed 27-month contracts in December 2016 with six Chuquicamata unions after relatively rapid talks but the labor situation has worsened recently as the mine overhaul encounters delays for technical reasons and rising costs.
Chuquicamata produced 330,900 tonnes of copper in 2017, out of Codelco’s total of 1.734 million tonnes.
The Malaysian government said it has prolonged its 2016 moratorium on bauxite mining until year-end as large stockpiles of the aluminium-making raw material remain uncleared.
“The moratorium is until December 31, as there is still half a million tonnes of (bauxite) stockpiled at the ports,” a spokesman for the Ministry of Water, Land and Natural Resources said on Tuesday.
Malaysia was once the biggest supplier of bauxite to top buyer China, but unregulated mining and run-offs from unsecured stockpiles in the eastern state of Pahang contaminated water sources, turning roads, rivers and coastal waters red.
This led to a ban on all bauxite mining activity since early 2016.
Malaysia was briefly the largest bauxite supplier to China, with shipments peaking at nearly 3.5 million tonnes a month at the end of 2015 as miners rushed to fill a supply gap that opened up after neighbouring Indonesia banned ore exports.
Former natural resources and environment minister Wan Junaidi Tuanku Jaafar estimated in March that there were still 10 million tonnes of uncleared bauxite stockpiled in the state.
Canadian base metal miner First Quantum Minerals Ltd (FM.TO) said on Monday it had extended its hedging program for copper sales, as trade war worries push prices lower despite “excess demand” for its production.
The miner, whose second-quarter results included a $45 million loss from copper hedging, said it aims to ensure a level of cash flow for its $6.3 billion Cobre Panama project ahead of commercial production.
The Toronto-based company said it has 25,000 tonnes of copper under forward sales contracts, at an average price of $3.15 per pound, maturing out to December 2018. A further 98,000 tonnes, at average prices of $3.04-$3.45 per pound, mature out to June 2019.
“We continue to sell all of our production into a market where there is excess demand,” said Chief Executive Philip Pascall in a statement.
“Nevertheless, in light of current conditions, we think it is prudent to extend our copper sales hedge program on a limited basis. The intent is to ensure a certain level of cash flow during Cobre Panama’s commissioning and ramp-up phases that precede commercial operations.”
Cobre Panama, with proven reserves of 3.18 billion tonnes and a 40-year mine life, is 80 percent owned by First Quantum and 20 percent owned by Korea Panama Mining Corp, a partnership of Korea Resources Corp [KOREC.UL] and LS-Nikko Copper.
Mine commissioning is starting this year with operations ramping up over 2019. In 2020, the mine is expected to process 85 million tonnes of ore.
First Quantum, primarily a copper miner that also produces nickel and gold, reported second-quarter earnings of $128 million, or 19 cents per share, slightly lagging analysts’ expectations for a profit of 21 cents a share, on average, according to Thomson Reuters I/B/E/S.
Copper prices are down about 15 percent from a mid-June peak as uncertainty over tariffs and trade wars rattles markets.
First Quantum also said it had filed documents with the Zambia Revenue Authority challenging an $8 billion tax fine imposed in March, while it continues to work with the agency.
Copper was trading down for a third day on Monday as metal traders in New York shrug off the increasing likelihood of a strike at the world's largest copper mine and the impact of fiscal stimulus in top metal consumer China.
Copper touched $2.76 or $6,080 a tonne on the Comex market, down a stomach churning 17% or $1,270 a tonne since hitting four-year highs early June.
Labour action in Chile and Peru was flagged at the beginning of the year as a catalyst for a higher copper price in 2018, but so far talks have been uncharacteristically smooth, with most agreements reached during early negotiations.
Together with Escondida, the Chilean operations have a capacity of 3m tonnes per year or roughly 15% annual global output
However, a strike at Chile's Escondida, responsible for nearly 5% of primary global copper supply, now looks all but certain. A 44-day strike in February-March last year crippled production at Escondida, which part-owner operator BHP expects will produce more than 1.2m tonnes in 2018.
Reuters reports the union at Escondida is expected to overwhelmingly reject the final contract offer from the Anglo-Australian miner.
Union members have until Wednesday to finish voting on the company's proposal, when the union will conduct an official count. After that, either party can call for a period of government-mediated arbitration that could last as many as 10 days.
"Half our members have voted," said union spokesman Carlos Allendes. "We hope for positive and overwhelming results, with around 80 percent rejecting the offer from Escondida."
Upcoming contract negotiations could also lead to outages at Chile's state-owned Codelco operations which include the Andina, El Teniente, Salvador, Ministro Hales and Gaby mines and the Caletones smelter.
Just today workers at Chuquicamata, Codelco's second largest mine with output of more than 330kt last year downed tools over a dispute with management.
Together with Escondida, the Chilean operations have a capacity of 3m tonnes per year or roughly 15% annual global output. Chile introduced new labour laws in April last year which most industry analysts consider worker-friendly.
BHP, which owns 57.5% of the mine, has spent nearly $8 billion expanding the mine (including a $3.4bn water plant) in the past five years to maintain output above one million tonnes.
Beijing boost
A week ago Chinese authorities announced a set of measures to ease fiscal and monetary policy conditions in an effort to soften the economic impact of trade tariffs imposed by the US.
The threat of an all-out trade war between the world's largest economies has been the main reason for copper's recent weakness. Copper is seen as a barometer of economic activity given the metal's widespread use in industry and infrastructure. China consumes half the world's copper.
China's State Council will speed up issuance of $200 billion special bonds for local governments to support infrastructure projects this year
Ratings agency Moody's in a research note said Bejing's announcements represent "a significant change towards more accommodative policy" and points out that the measures constitute more than $280 billion in stimulus measures:
In particular, the State Council said it would focus on deeper tax and fee cuts, including by making more companies eligible for additional tax deductions on research and development (R&D) spending. The government expects the latter measure to cut tax by RMB65.0 billion ($9.5 billion) in 2018.
It additionally said it would aim to speed up issuance of a planned RMB1.35 trillion of special bonds for local governments to support infrastructure projects this year and delivery of loans to small businesses through the state financing guarantee fund.
Also on Monday, the PBOC made a record injection of RMB502.0 billion into the financial system via its medium-term lending facility, which provides loans to commercial banks.
Performance enhancing
In a recent widely-quoted research note Citigroup argued for a rosy longer term outlook for copper telling investors in the sector to "prepare for a decade of Dr. Copper on steroids”:
“We look beyond the potential trade war to longer-term copper market fundamentals and we find that current prices of $6,200 a ton are nowhere near high enough to enable the market to clear.”
“Copper is set to outperform most other commodities under our coverage over the coming decade on a lack of mine supply growth.”
The bank sees average annual prices at $8,000 a tonne in 2022, passing $9,000 a tonne by 2028 under its baseline scenario according to a Bloomberg report.
Citigroup added a note of caution for the near term in its report, noting that if a full-blown trade war materializes, copper will fall “materially lower before it goes higher again.”
http://www.mining.com/copper-price-bears-shrug-280b-china-stimulus-package/
The ramp up of diversified miner Glencore’s Katanga mine, in the Democratic Republic of Congo (DRC), has delivered increased copper and cobalt for the first half of this year, in line with full-year guidance, which is 1.4-million tonnes of copper and 39 000 t of cobalt.
Financial services company Credit Suisse commented that Glencore’s organic volume growth is driving earnings growth over the next one to two years, owing to a ramp-up in production at its copper operations in the DRC and its zinc operations in Australia.
Glencore expects to report interim earnings before interest, taxation, depreciation and amortisation of $8.3-billion, and earnings a share of $0.18.
The company reported own-sourced copper production of 696 200 t for the first half of this year, which is 8%, or 53 300 t, higher than the first half of 2017. Cobalt production of 16 700 t for the period was 31%, or 4 000 t, higher than the first half of 2017.
Adjusting for the African zinc assets sold to Trevali Mining in August 2017, own-sourced zinc production of 498 200 t was in line with the first half of 2017. Mining operations have restarted at Lady Loretta (Mount Isa, in Australia), supporting an increased full-year production run-rate.
Own-sourced nickel production of 62 200 t was 21%, or 11 000 t, higher than the first half of 2017, as a result of the second processing line at the Koniambo mine, in New Caledonia, having entered production.
Attributable ferrochrome production of 818 000 t was in line with that of the first half of 2017.
Coal production of 62-million tonnes was also in line with the first half of 2017, reflecting certain offsetting factors. Cyclone Debbie in Australia disrupted production in the first half of 2017, while the current period includes production from the recently acquired Hunter Valley Operations joint venture, from May.
The company previously indicated that Prodeco, in Colombia, is undertaking significant additional overburden removal, affecting nearby production volumes of coal.
Entitlement interest oil production of 2.3-million barrels was 13% below the mark set in the first quarter of 2017, mainly reflecting expected declines in the liquids phase of the Equatorial Guinea offshore fields. The Chad drilling campaign that started mid-2017 delivered increased production of 9% over the second half of 2017, whereas it remained stable in the first half of 2017.
Credit Suisse said Glencore is on track to deliver peer-leading volume growth over the next three years, as well as earnings growth. The agency estimates a compounded yearly growth rate in volumes of around 7% for Glencore over the next three years.
Alumina is having a turbulent year.
The intermediate product sitting between bauxite and refined metal on the aluminium production chain doesn’t normally grab the headlines.
But it did in April, when the spot price doubled to over $700 per tonne as the market reacted to U.S. sanctions on Oleg Deripaska and his Rusal empire.
The sanctions threw into doubt the future of Rusal’s Aughinish alumina plant in Ireland, threatening a second blow to global production after the part closure of the Alunorte refinery in Brazil.
Aughinish won a reprieve as the U.S. Administration extended the sanctions deadline and the betting is that a political deal to lift the sanctions altogether will be achieved very shortly.
However, while the aluminium price is now trading back at pre-sanctions levels, that of alumina isn’t.
Alunorte remains part suspended and Chinese alumina refineries have started cutting production.
The latter may be a sign of things to come, promising further turbulence ahead.
SANCTIONS SPIKE
When the United States announced the imposition of sanctions on Rusal on April 6, it was the aluminium price that reacted first. London Metal Exchange (LME) three-month metal rocketed from $2,000 per tonne to a seven-year high of $2,718 in the space of a couple of weeks.
It took around a week for alumina to follow because that’s how long it took the market to unravel Rusal’s internal supply chains.
On paper the company looks vertically integrated with its own bauxite mines, alumina refineries and aluminium smelters.
The reality is a bit more complicated.
Aughinish, it turns out, largely runs off bauxite supplied by Rio Tinto, which in turn takes a good part of the plant’s two million tonnes of annual production to feed aluminium smelters in Europe.
Rio Tinto declared force majeure on supplies of alumina to some customers on April 18, which is when the alumina price exploded higher.
It turned out to be only a notional force majeure since the extension of the sanctions deadline to Oct. 23 meant no interruption to actual deliveries, the company said in its Q2 operations report.
But even the threat was enough to trigger a panic in the physical alumina market, which was already trying to adjust to the loss of half the output at Hydro’s Alunorte refinery.
Alunorte, the world’s largest single alumina plant with annual capacity of 6.3 million tonnes, was ordered partially to curtail operations by a Brazilian court in February on environmental grounds.
The operational wind-down and any associated spot market buying by Hydro was still happening when the sanctions shock hit the market.
NO RETURN TO BUSINESS AS USUAL
Alunorte is still operating at only 50 percent of capacity.
This explains why the CME’s front-month alumina contract , indexed against S&P Global Platts’ assessment of the spot market, is currently valued at $481 per tonne, compared with under $400 at the start of the year.
Indeed, Hydro has dampened expectations of any quick fix with the Brazilian authorities.
“The process to resolve the situation in Brazil is challenging and has taken longer than expected,” said Chief Executive Officer Svein Richard Brandtzaeg. “The timing for resuming full production remains uncertain.”
The company’s best guess is that a restart will take place sometime between October this year and the middle of next year.
The uncertainty hanging over such a big component of global alumina supply is evident in the CME alumina contract’s forward curve.
The price of alumina for three months forward is currently sitting at $515, higher than it was at the peak of the Rusal sanctions scare.
That’s also because the market has something new to worry about in the form of falling Chinese alumina production.
State-owned Chalco warned early July that around 770,000 tonnes of its annual alumina capacity would be subject to “flexible” output arrangements. Or output curtailments, as everyone else would call them.
A day later another producer, Luoyang Heungkong Wanji Aluminium, said it too would be cutting output to the tune of an annualised 680,000 tonnes.
Others have followed.
Five major Chinese refineries have now significantly cut output, according to specialist research house AZ China.
That raises the prospect of China, which has historically tended to be a net importer of alumina, having to tap the international market for more material precisely at a time when there is little or no supply slack.
BLUE SKIES, RED ALERT
The problem for the alumina market is that these Chinese cuts are down to an environmental crackdown that is only going to get more punitive in the weeks and months ahead.
Beijing’s “blue skies” war on smog has embraced the entire aluminium production process chain in China but it’s only recently that environmental investigators have turned their attention to the bauxite mines that feed the chain.
Bauxite operators in Henan province have already been hit and the crackdown is in full swing in Shanxi province, causing a shortage of raw material that in turn is forcing the shuttering of alumina capacity.
“This is just the beginning of the process,” according to researchers at Wood MacKenzie. The outlook is for further closures to “exacerbate bauxite shortages, which in turn could lead to further refining cuts.” (“Why is the Chinese aluminium industry feeling blue?”, 26/07/2018)
Alumina refineries are themselves also likely to be directly impacted by the coming winter heating season restrictions, particularly since the government’s latest three-year plan to reduce air pollution vastly expands the targeted area and extends it beyond last year’s November-March time frame.
This year the curtailments will kick in from September and last year’s “26+2” target zone around Beijing and Tianjin will be expanded to include the Yangtze River Delta and the Fenwei Plain, comprising parts of Shaanxi, Henan and Shanxi provinces.
Since around 70 percent of China’s alumina capacity is located in this year’s targeted areas, the impact is going to be much greater than last year.
Throw in the intensifying scrutiny of the bauxite sector and the pressure on alumina refineries to switch from coal to gas power over the winter months and, to quote WoodMac, “there could be more chaos to come”.
They mean chaos in China’s giant aluminium sector.
But more chaos in China will easily translate into more price chaos in the international alumina market.
Some 30,000 mt of primary aluminium consumption is expected to be affected in Gongyi city of Henan, as local downstream processors were required to stagger suspensions during July and August.
Excluding the top 30 enterprises, all gas emission-related industrial plants in the city are required to suspend their smelting furnaces for a month. Most local producers chose to cut output by 50% each in July and August. Plants will determine their suspension schedule in that period.
Smelting capacity across cast coil producers was cut by half and this drove producers to use cast coil billet for production instead of aluminium ingots.
Cast coil plants were more significantly affected in the first half of July, as they had to procure billet and step up production at the same time. Pressure eased in the second half of July as billet purchases arrived and the number of orders fell.
SMM data showed that there are 215 cast coil production lines in Gongyi, 86 of which belong to the top 30 enterprises. In the remaining 129 production lines, 67 were ordered to suspend.
Slower consumption depressed local aluminium prices and the price spread between spot aluminium ingot in Gongyi and Shanghai widened to 100 yuan/mt as of Tuesday July 31, from 50 yuan/mt two month ago.
SMM assessed A00 aluminium ingot in Gongyi at 14,260-14,280 yuan/mt on July 31.
Russia's Norilsk Nickel (Nornickel) said on Tuesday its consolidated nickel production was at 49 460 t in the second quarter of 2018, broadly flat year-on-year.
Nornickel, one of the world's largest nickel and palladium producers, also said its palladium production totalled 813 000 troy ounces, up 4% year-on-year. Platinum output rose 3.7% to 197 000 troy ounces, the company said.
http://www.miningweekly.com/article/nornickel-says-q2-nickel-output-flat-yy-2018-07-31
The union at BHP Billiton Ltd’s Escondida mine in Chile, the world’s largest copper mine, said on Tuesday that an early, partial vote count on a final contract offer from the Anglo-Australian miner suggests its members will reject the offer and approve a strike.
The union said in a statement that 2,046 of 2,459 union members had already voted in several Chilean cities.
About 90 percent of votes tallied in a partial count of the 2,046 ballots support a strike, the union said.
“We have conducted a partial count in the cities of Arica, Iquique, Calama, Vallenar, Copiapo, La Serena, Vina del Mar and Santiago, and have found overwhelming approval of a strike, around 90 percent of voters,” the statement said.
The partial count of votes conducted by the union did not include the key cities of Antofagasta and votes registered at the mine itself, according to the statement.
Workers have until Wednesday to finish voting on the company’s proposal, when the union will conduct its official count. After that, either party can call for a period of government-mediated arbitration that could last as long as 10 days.
BHP declined to comment on the results of the partial count.
The union vote at Escondida comes little more than a year after a 44-day strike at the mine in 2017 jolted global copper markets and slowed economic growth in the South American country, which is the world’s top copper producer.
The company’s final offer, presented to workers last week, had included an approximately $18,000 signing bonus, and a 1.5 percent boost to salaries, with increases for inflation, according to a BHP summary of the contract offer viewed by Reuters.
The union in June asked for a signing bonus around twice that now offered by the company, and a salary increase of 5 percent.
A final vote count is expected early on Thursday morning, a union official told Reuters.
The main union at Chile’s Caserones mine has rejected operator Lumina Copper’s final contract offer and workers have approved strike action, the union’s president said on Tuesday.
The strike was scheduled to begin on August 7 after a compulsory mediation period. Lumina is controlled by a partnership of JX Holding and Mitsui Mining and produces just over two per cent of Chile’s total annual copper output.
The company did not reply to a request for comment.
The strike vote coincided with the threat of a strike at the country’s biggest copper mine, Escondida, and a walkout by workers at state miner Codelco’s Chuquicamata facility.
Canada's First Quantum Minerals saw an increase in copper output in the second quarter and is now bracing for a month-long power supply reduction at its Kansanshi and Sentinel copper mines in Zambia, CEO Clive Newall said Tuesday.
Newall also told analysts during a conference call that a brief strike by contract workers at the company's Las Cruces open pit copper mine in southern Spain had ended earlier this week.
He said First Quantum's current focus was on completing and fully commissioning its large Cobre Panama open pit copper project in Panama, where commercial production is scheduled to begin in 2019.
The company produced 150,950 mt of copper over April-June, up from 141,912 mt a year earlier. First half production totaled 296,308 mt, up from 274,268 mt in H1 2017.
"Our copper production exceeded last year's comparable period as drier weather conditions in Zambia returned," Newall said. "While metal prices are being negatively affected by global political concerns, demand for copper remains robust. We continue to sell all of our production into a market where there is excess demand."
Newall said his company has been advised by Zambia's state-run power company that electricity to First Quantum's Kansanshi and Sentinel mines will be reduced from around end July to facilitate maintenance and upgrades to the electricity network.
However, the power cuts are expected to be "only marginally below what we need to run optimally," he said. "It's not going to have a material impact on our guidance going forward and we're doing what we can to make the most of the power that is available," he added.
Once the major Cobre Panama project is completed, First Quantum will turn its attention over the next 2-3 years to new endeavors, most likely its Taca Taca copper-gold-molybdenum porphyry deposit in Argentina, Newall said.
Century is restarting three potlines at Hawesville that were curtailed in the third quarter of 2015. The company will begin restarting the other two potlines in Q4, with the plant fully operational in early 2019, Bless said during a conference call to discuss quarterly earnings.
Century is spending about $75 million to rebuild the three Hawesville potlines, including installing new cell technology in the aluminium-making pots to improve production.
In South Carolina, Century's 224,000 mt/year Mt Holly smelter on Goose Creek in Berkeley County remains in limbo.
A partial power supply contract between Century and Santee Cooper expires at year end for 50 MW of the 200 MW needed to operate one of the smelter's two potlines, and negotiations have yet to produce a new arrangement, Bless said.
However, he added: "We do remain absolutely convinced a solution exists that will allow for the entire plant to run at some point in time, hopefully sooner than later."
The smelter has been operating at 50% capacity for more than two years because of a longstanding dispute over electricity costs.
Chicago-based Century posted earnings of $19.4 million, or 20 cents/share, for the second quarter, up from $7.1 million, or 7 cents/share, a year earlier.
The Sebree equipment failure negatively impacted quarterly earnings by $8.5 million, and expenses related to the Hawesville restart by $3 million.
Bless said the Trump administration's 10% tariffs on imported aluminium from some countries, notably China, "have accomplished the administration's goals to create conditions to support the restart of US primary aluminium capacity" and to ensure the industry will be competitive over the long term.
Kaz Minerals, a low-cost copper producer until now focused on Kazakhstan, said it has agreed to buy the Baimskaya copper project in the Chukotka region of Russia for $900 million in cash and shares.
The deal is comprised of an initial $675 million and a deferred payment of $225 million.
Kaz Minerals Chairman Oleg Novachuk said the acquisition of Baimskaya marked “the next stage of the transformation of Kaz”.
“The development of this new project in Russia will enable the group to continue its industry leading growth, delivering both value and volume as the copper market is forecast to enter a period of significant supply deficit,” he said in a statement.
Kaz Minerals said Baimskaya was one of the world’s most significant undeveloped copper assets with the potential to become a large scale, low cost, open pit copper mine.
It holds 9.5 million tonnes of copper and 16.5 million ounces of gold and is expected to yield average annual production over the first 10 years of operations of 250,000 of copper and 400,000 tonnes of gold, with a mine life of approximately 25 years.
The Philippines confirmed on Thursday that 23 of 27 mines reviewed for compliance with state regulations will continue to operate, while the remaining four in the world’s No. 2 nickel supplier that failed the audit could face closure.
The government review panel issued its final report after studying mines that were ordered closed or suspended last year by former minister Regina Lopez, a staunch environmentalist, in a move that upset the industry and led to her replacement.
The decision will bring more certainty for miners, along with moves by her successor as Environment and Natural Resources Secretary, Roy Cimatu, to wind back restrictions on small-scale mining projects and exploration permits.
However, mining remains a deeply contentious issue in the Philippines after past examples of environmental mismanagement.
Cimatu told reporters a decision on the fate of the four mines that failed the review of legal, technical, economic, social and environmental compliance - three nickel projects and a chromite mine - would be made as soon as possible.
“The DENR (Department of Environment and Natural Resources) will meet to decide whether to pursue the closure or give (them) a second chance,” Wilfredo Moncano, head of the Mines and Geosciences Bureau, told Reuters.
Cimatu declined to identify the four mines because they have not been informed yet of the review outcome.
He said the final decision on the mines would be up to President Rodrigo Duterte, who warned miners to follow tighter environmental rules or shut down shortly after he took office in 2016.
Mining contributes less than 1 percent to the Philippines economy, with only 3 percent of the 9 million hectares identified by the state as having high mineral reserves being mined.
There are 50 operating mines in the Philippines, 30 of which extract nickel ore, most of which is shipped to top buyer China where it is used to make stainless steel.
The union at BHP Billiton’s Escondida mine in Chile, the world’s biggest copper mine, told the company on Thursday that it should improve its contract offer by August 6 or it would begin preparations for a strike.
Union workers announced earlier on Thursday that they had voted to reject the company’s final wage offer, issued by the Anglo-Australian miner last week, and had approved a strike.
Last year, a 44-day walk-off at the mine jolted global copper markets and docked economic growth in the South American country, which is the world’s top copper producer.
Chilean labor law allows either party to call for a five-day period of government mediation that can be extended an additional five days ahead of a potential strike.
“The union has taken the decision not to ask for the mediation ... however, we are willing to talk with the company beginning today in order to gauge whether there exists a real willingness to negotiate,” union head Patricio Tapia told reporters.
“If we don’t see a change in attitude on the part of the company by Monday, August 6, we will conclude that it doesn’t make sense to extend the talks,” Tapia added.
BHP said in a statement that the rejected wage offer was the “best collective labor contract at a private mine in the country.”
It said it had begun to review contingency plans ahead of a possible strike.
Chile’s government asked both sides to negotiate.
“I call on them to talk and come together because otherwise this will definitively harm our country,” Finance Minister Felipe Larrain told reporters.
BHP’s final offer was rejected by 84 percent of union workers, an outcome that was widely expected following a partial count of votes earlier this week.
The deal offered by BHP included an approximately $18,000 signing bonus, and a 1.5 percent boost to salaries, with increases for inflation.
But the union had asked for a signing bonus around twice that offered by the company, and had requested a salary increase of 5 percent, leaving a wide gap between the two sides.
Despite the mounting tensions at Escondida, copper hit a two-week low on Thursday as investors focused their attention on the flare-up in a trade dispute between the United States and top metals consumer China.
Escondida produced 925,000 tonnes of copper in 2017.
China’s construction steel rebar prices rose more than 3 percent on Friday to their highest since February 2013, buoyed by strong demand, dwindling stocks and signs of more production curbs in the country’s top steelmaking center.
The most-active rebar contract on the Shanghai Futures Exchange ended up 3.1 percent at 4,126 yuan ($606.54) a tonne, its highest close since Feb. 18 2013.
The market has been betting on tighter supplies due to stringent production curbs in Tangshan, the country’s top steelmaking city in Hebei province, which has imposed a series of temporary restrictions this month.
Industry website SMM reported on Friday that all sintering machines and shaft furnaces in Tangshan would have to shut down from noon on July 27 until midnight on July 31 due to pollution, sending prices higher.
Falling inventories were also fuelling the rally. Chinese steel product inventories fell by 104,700 tonnes to 9.89 million tonnes as of Friday from a week earlier, data from Mysteel consultancy showed.
Stocks of construction steel rebar fell by 1.8 percent to 4.48 million tonnes and hot-rolled coil stocks slipped by 0.7 percent to 2.11 million tonnes.
Iron ore on the Dalian Commodity Exchange rose as much as 3.7 percent on Friday to its highest since May 15 before closing up 3.5 percent at 491.5 yuan a tonne.
Spot iron ore for delivery to China rose 0.4 percent to $66.3 a tonne on Thursday, according to Metal Bulletin.
Other steelmaking materials also advanced on Friday. Coke ended up 4.1 percent at 2,221 yuan a tonne, its highest close since March 1, and coking coal ended up 0.4 percent at 1,195.50 yuan a tonne.
For the week, rebar posted a gain of 2.2 percent while iron ore added 3.4 percent.
“The China Iron & Steel Association warned that the industry had enjoyed much stability in the first half, however it warned that this wasn’t guaranteed to continue,” ANZ said in a note.
“It did point out that demand remains strong, with production at high levels, which is forcing inventories to fall.”
Brazil’s Vale, the world’s top iron ore producer, forecast steady prices for the mineral and rising premiums for its top quality ore, thanks to strong demand from China and despite global trade tensions.
Brazilian mining company Vale S.A.'s CEO Fabio Schvartsman speaks speaks during the 2018 Latin America Investment Conference in Sao Paulo, Brazil, January 30, 2018. REUTERS/Nacho Doce
Vale Chief Executive Officer Fabio Schvartsman said a scarcity of Vale’s trademark top quality ore protects the miner for the foreseeable future from the impact of a global trade war, which has hurt other minerals.
“It would take a cataclysm for this to change,” Schvartsman told analysts on a conference call, a day after posting solid second-quarter results. [nL1N1UL2BJ] Those results came despite a slump in Brazil’s real currency and a May truckers’ strike which hit growth in Latin America’s top economy. Vale’s shares were up 2.15 percent on Thursday.
Trade war declarations “have not led to any significant reduction in iron ore prices ... Under normal scenarios, we have a very large probability that prices will be reasonably well anchored,” he said.
China’s campaign to clean its skies by clamping down on polluting steel mills has fueled a need for high-grade iron ore to boost productivity and limit emissions, opening the door wider for suppliers of better quality ore to the world’s biggest buyer.
Though iron ore prices slid in the second quarter, the Chinese push has helped Vale lock in rising premiums for its high quality ore, even as a trade war between the United States and China has sent copper prices to seven-month lows.
Executives also said a business plan for Samarco, a joint venture with BHP that was the site of a fatal dam burst, was being finalized and would shed light on when operations there could restart.
However, they noted resuming operations would require licenses from authorities that are beyond the companies’ control.
Operations at Samarco were halted after a November 2015 dam collapse which killed 19 people and unleashed Brazil’s worst environmental disaster on record. In June, Samarco, Vale and BHP signed a deal with Brazilian authorities to settle a 20 billion real ($5.35 billion) lawsuit relating to the tragedy.
Vale executives on Thursday kept a net debt goal of $10 billion after cutting debt to $11.5 billion in the second quarter. Schvartsman had previously said he hoped to reach the $10 billion target by the middle of the year.
Brazilian mining major Vale has reported significantly higher production at its Moatize coal operation during the second quarter of 2018, compared with the first quarter. However, 2Q18 production was still lower than production for the same quarter in 2017.
Total coal production at Moatize came to 2.9 million tonnes in 2Q18, up 18.1% compared with 1Q18 but down 5.5% year on year. This, the company explained, was because "the adverse conditions in the mine site in 1Q18 were only overcome during the first part of 2Q18, preventing a faster recovery in the quarter and the lower production compared with 2Q17, was mainly due to the difference in the coal seams fed to the plants".
Moatize produces both metallurgical coal (its primary product) and thermal coal. Metallurgical coal output during 2Q18 was 1.6 million tonnes, which was an 11.3% increase on 1Q18, but a 23.9% drop on 2Q17. Thermal coal production totaled 1.3 million tonnes in 2Q18, which was 27.3% higher than in 1Q18 and, compared with 2Q17, 32.9% higher.
Regarding the first half of this year, total coal production at Moatize came to 5.3 million tonnes, which was 3.1% lower than in the first half of last year. Metallurgical coal production during 1H18 totalled 2.96 million tonnes, a decline of 19.6% compared with 1H17. Regarding thermal coal, 1H18 output totalled 2.34 million tonnes, which was 30.9% up on 1H17.
Production volumes are programmed to increase during the second half of this year. To this end, new trucks and excavators were delivered to the mine site during 2Q18 and are being assembled.
Total coal sales in 2Q18 came to just over 2.5 million tonnes, fractionally (0.5%) more than 1Q18's, but 19.6% down on 2Q17, "as the lagged impact of higher production in 2Q18 will be felt in 3Q18", stated Vale.
Metallurgical sales in 2Q18 were slightly more than 1.4 million tonnes, a 1.7% decline compared with 1Q18, and a 31.6% drop in relation to 2Q17. Thermal coal sales were a little over 1.1 million tonnes, a 3.4% increase on 1Q18 and a 3.5% increase on 2Q17.
Total coal sales in 1H18 were just over 5 million tonnes, a 12% fall compared with 1H17. Metallurgical coal sales came to 2.84 million tonnes, down 21% in relation to 1H17. Thermal coal sales totalled 2.17 million tonnes, an increase of 3.4% over 1H17.
Moatize is located in the inland Tete province of Mozambique and its production is conveyed by railway to the coast for export. "Although there is a railway line (the Sena line) from Tete to the coastal city of Beira, the main route for coal from Moatize is along the newer Nacala Logistics Corridor, through Malawi to the Mozambique port city of Nacala.
Ursula Gather, head of the Thyssenkrupp foundation, ruled out a break-up of the German steel-to-submarines conglomerate and rejected allegations she is responsible for a leadership crisis, Der Spiegel newsmagazine reported.
Thyssenkrupp’s chief executive and chairman quit this month citing a lack of support from “major shareholders” at a time when activist investors Cevian, which holds an 18 percent stake, and Elliott, are pushing for a deeper restructuring.
Gather finds such allegations “unjustified and painful,” Der Spiegel said, quoting Gather.
“A break-up of the company will not happen under my watch,” Gather said, adding that securing jobs and an adherence to the principles of the social market economy, which emphasize stability and continuity over profit, take precedence.
Gather plans to raise profits by accelerating steps to strengthen some business areas, and advocates slimming down administrative costs, Der Spiegel said.
Gather and Cevian aim to find a consensus over the choice of candidates for a new supervisory board chairman, Der Spiegel said.
The Alfried Krupp von Bohlen and Halbach foundation could not be reached for comment.
Hyundai Steel Co., South Korea’s second-biggest steelmaker by sales, said Friday its second-quarter net profit jumped 37 percent on robust sales of high-end products.
Net profit for the April-June quarter jumped to 177 billion won (US$158 million) from 138.5 billion won a year earlier, the company said in a statement.
“In the second quarter, the sales of high-end products rose 6.9 percent from a year earlier and company-wide cost reduction efforts helped improved profitability,” the statement said.
Operating profit climbed 7 percent to 375.6 billion won in the second quarter from 351 billion won a year ago. Sales were up 16 percent to 5.448 trillion won from 4.693 trillion won during the same period.
https://www.hellenicshippingnews.com/hyundai-steel-q2-net-jumps-37-pct-on-high-end-products/
The coal-to-liquids project in Northwest China's Ningxia autonomous region has overcome technical difficulties and developed large-scale processing technology for the indirect liquefaction of coal in China.
"Through collaborative innovation, the localization rate of the coal-to-liquids project reached 98.5%. It has undertaken 37 independent localization tasks for key technologies, major equipment and materials," said Yao Min, deputy general manager of Shenhua Ningxia Coal Industry Group Co Ltd.
The direct and indirect liquefaction technology can generally be used for petroleum production from coal.
The project has been completed and put into production at the end of 2016. It is of great significance for solving China's oil and gas shortages, balancing the energy structure, reducing external dependence and ensuring national energy security, said Yao.
On December 17, 2017, the coal-to-liquids project achieved operation at full capacity for the entire plant. It now still maintains an average load of 85% and has produced 2.89 million tonnes of oil products with multiple indicators reaching advanced values.
The project is located at Ningdong Energy and Chemical Industry Base in central and eastern Ningxia.
In 2017, the base's total industrial output value reached 100.48 billion yuan ($14.77 billion) with a year-on-year increase of 41.1%, accounting for 24.2% of that of Ningxia.
The base became the first industrial park in Ningxia that has a total output value of more than 100 billion yuan, and became a main source of industrial economic growth for Ningxia.
Ningdong Energy and Chemical Industry Base, covering a planned area of 3,500 square kilometers, is a major national base for large-scale coal, the "West-to-East Electricity Transmission" project and the coal-to-chemical industry, and is also a national demonstration zone for the circular economy.
The base started construction in 2003 and has currently developed three leading industries: coal, electricity and chemical. It has seen fast development in petrochemicals, nonferrous metals, energy savings and environmental protection, new energy vehicles, new materials, machining and equipment manufacturing, light industrial textiles, and production-related services.
Revenue from Mongolia’s giant Tavan Tolgoi coal mine surged in the first half of the year due to higher commodity prices and a big jump in coal exports, the project’s owner said on Monday, raising prospects for a planned overseas listing.
Tavan Tolgoi, located in the Gobi desert about 250 kilometres (155 miles) from the Chinese border, is one of the world’s largest coking coal mines, but it has not yet fulfilled its massive potential.
Development has been held back by financing and infrastructure challenges, as well as political disputes over the role played by foreign investors in Mongolia’s economy.
Gankhuyag Battulga, chief executive of the state-owned Erdenes Tavan Tolgoi JSC in charge of the project, told a press briefing that rising revenues and production could finally kickstart the mine’s expansion.
The project exported 6.9 million tonnes of coal in the first six months of the year, up 28 percent compared to the same period in 2017, while net profits increased 31 percent from the same period a year ago to reach 373.3 billion tugrik ($151.75 million).
“The increase in revenues allow us to finance some parts of the project,” said Gankhuyag, adding that the company has also restarted exploration after a long suspension, a move that could raise estimated reserves and overall market value.
The improvement in Tavan Tolgoi’s fortunes follows a resolution that Mongolia’s parliament passed to raise funds for the further development of the project on overseas stock exchanges.
Analysts said Tavan Tolgoi still needs to overcome the severe infrastructure problems in the remote south Gobi region, including the construction of a rail link to China, Mongolia’s main export market.
“Being profitable is only the first step. The railway issue is obviously the main hurdle to a successful IPO,” said Munkhdul Badral Bontoi, chief executive of Mongolia-based market intelligence group Cover Mongolia.
MMK, one of Russia’s largest steel producers, has postponed the launch of a lucrative project in Turkey due to uncertainty created by global trade wars, Andrey Eremin, the company’s director for economics, told Reuters in an interview.
The project - the re-launch of hot-rolled steel production at its Turkish site - was expected to add between $90 million and $100 million to MMK’s core earnings, Eremin said, but a sudden surge in global trade barriers caught the company off guard, forcing it to delay.
“We had completely restored equipment at the plant to working condition, had figured out all the contracts for supplying energy and raw materials,” Eremin said.
“Unfortunately, we made this decision before the U.S. introduced tariffs against metallurgical companies. We did not know that this would happen.”
The MMK Metalurji complex, located near Iskanderun on Turkey’s Mediterranean coast and in Istanbul, was built by MMK between 2007 and 2010, at a cost of over $2 billion.
Hot-rolled steel production at the site was put on hold in 2012 amid a global slump in steel prices, but was due to restart this summer as the market recovered.
Now MMK has put the re-launch on hold, and plans to decide its fate in November, when the dust has settled on a wave of protectionist measures introduced by the United States and Europe in recent months.
“We hope that by that point, the transformation on global markets will have ended and there will be clarity,” Eremin said.
U.S. President Donald Trump imposed tariffs of 25 percent on steel and 10 percent on aluminum in March in a move mainly aimed at curbing imports from China.
Last week, the European Union introduced a quota and tariff policy in response, fearing the impact on its own producers of a surge of steel imports following Trump’s decision.
MMK is not affected directly by these measures as it does not export steel to the U.S. and EU markets, but 30 percent of production at its Turkish plant was intended for the European market and neighboring countries.
IRAN SANCTIONS ALSO BITE
Tariffs are not the only Trump policy to affect MMK’s strategy. The steelmaker has also stopped deliveries to Iran, Eremin said, against the backdrop of new sanctions Washington has promised to impose on Tehran.
The U.S. measures, announced soon after Trump pulled out of an international nuclear deal negotiated by his predecessor Barack Obama, are due to kick in next month and include a ban on the sale, supply and transfer to or from Iran of raw or semi-finished metals.
Although the Kremlin opposes the move and says that unilateral U.S. actions against a third country should not affect how Russia does business, steel traders told Reuters earlier this month that Russian metals firms were cutting back on sales to Iran for fear, at least in part, of falling foul of the sanctions.
MMK, which previously shipped hot-rolled steel coils to Iran along with its Russian competitor Severstal (CHMF.MM), was not affected by the move, Eremin said, as it had already redirected deliveries to other markets.
This was the result of Iran’s growing domestic production and consequent reduction in the volume of its imports.
“Even before the introduction of sanctions, deliveries were insignificant,” Eremin said. “We even cleared out the port warehouses where stocks were intended for delivery in that direction, and sold off supplies,” he said.
DOWNGRADING DEMAND
In terms of the Russian domestic steel market, MMK has halved its forecast of growth in demand this year, from 4 to 2 percent, Eremin said.
“Last year, demand for steel products in our range grew around 6.5 percent in Russia,” he said.
“This year, the pace has slowed, and we assess it to be around 2 percent this year, despite the fact that just recently we expected growth to be at 4 percent,” Eremin said.
MMK changed its forecast following the government’s proposal to raise value-added tax (VAT), from 18 percent to 20 percent.
“In essence, VAT may increase. We believe that this could slow down the pace of growth in demand for steel in Russia,” Eremin said.
What was meant to be a summer party for coal is quickly turning into something more of a hangover.
Even with China's peak demand season in full swing as hot weather boosts air-conditioning use, benchmark spot prices are on course for their first monthly loss in three, and futures on the Zhengzhou Commodity Exchange have tumbled below 600 yuan/t ($87.89/t) for the first time since May.
Coal has retreated after a heat wave in May and June sent prices to nearly 700 yuan/t and spurred the world's largest user and producer to warn it may run short of power this summer. But now, as mine inspections end, port inventories jump and higher hydropower supply restricts coal demand, analysts from Morgan Stanley to Daiwa Securities Group Inc. are predicting further weakness.
''Expectations that record coal burn at power plants would cause shortages and boost prices are going up in smoke,'' said Zeng Hao, an analyst at Shanxi Fenwei Energy Information Services Co.
Thermal coal futures in Zhengzhou slumped 1.6% to close at 592.4 yuan/t on July 30, the lowest level since May 25. Spot prices at Qinhuangdao port have fallen about 5% this month to 646 yuan/t as of July 23, according to China Coal Resource.
Heavy rainfall across China is contributing to coal's losses as it lowers temperatures and adds to competing hydropower supply, according to a note from Morgan Stanley received Monday. Prices are forecast to drop 5% this year, analysts including Simon H. Y. Lee said.
Daiwa Capital also highlighted that current prices are weaker than expected for the traditional peak season for demand when they cut their target for China Shenhua Energy Co. by 19% and downgraded the stock to hold from outperform. There's sufficient inventory at the ports and power plants, analysts including Dennis Ip wrote.
Adding further headwinds is the spontaneous combustion of stockpiles at some northern ports, which are spurring traders to sell their holdings at lower prices amid safety concerns, according to China Coal Resource and brokerage Shanghai Cifco Futures Co. Last week, inventories across mainland ports climbed 5.2% to the highest since November 2015, according to Shanghai Steelhome E-Commerce Co.
Prices will probably sink below 570 yuan/t in the second half of the year, a level targeted by the government, Li Xuegang, vice general manager at China Coal Market website, said earlier this month. That's partly due to a series of measures announced by policy makers in May to cool prices, including improving transport capacity and boosting output from efficient mines.
''We do not expect the coal price to see a large upside in August,'' Daiwa analysts said in the note. ''It may see a more significant decline in the low demand season of September to October.''
Fresh production cuts across local steel mills in Changzhou, Jiangsu province will affect daily pig iron output of some 22,800 mt. Local authorities introduced a new round of cuts on Wednesday July 25 to fight severe air pollution.
This will affect daily rebar output of 19,800 mt, SMM calculated from the required cut imposed on each plant. There is likely to be upward room in rebar prices in the short run, given firm downstream demand currently.
At Zenith Steel, two blast furnaces of 510 m³, one of 660 m³, and one of 1580 m³, were suspended from July 25. Other blast furnaces at the plant will cut production by 20%. Sintering machines were required to halve production. Two rebar rolling lines and a one wire rod rolling line were also suspended.
Production of blast furnaces and sintering machines was cut by 50% at Jiangsu Shente Iron and Steel, and Dongfang Special Steel. Several steel rolling mills in Liyang of Changzhou are also likely to cut production by 50%.
This round of cuts is expected to have limited impact on Zenith and Shente as they have undergone months of recurring suspensions. For local steel rolling mills, however, cuts are likely to have significant impact.
It is unclear when restrictions will be lifted, and production cuts in Jiangsu are likely to be a regular occurrence, SMM learned.
Chinese rebar steel futures rose to a 5-1/2 year high on Monday, as markets worried about tight supplies due to an increase in production curbs aimed at combating pollution.
The most-active construction rebar futures on the Shanghai Futures Exchange rose as much as 1.9 percent to 4,146 yuan ($607.92) a tonne, a level last seen in mid-February 2013. Rebar closed up 1.5 percent at 4,130 yuan a tonne on Monday.
All sintering machines and shaft furnaces at steel mills in Tangshan, the country’s top steelmaking city in Hebei province, have been ordered to shut down from July 27 to July 31, to check pollution, according to reports from industry websites.
The latest curbs come on top of a government order cutting production from sintering and blast furnaces for six weeks during the summer season.
The weekly utilisation rate at blast furnaces at steel mills across China fell 3.59 percentage points to 67.4 percent in the week to July.27, the lowest level since late April, according to data compiled by Mysteel consultancy.
According to industry websites, the city of Changzhou in Jiangsu, China’s No.2 largest steelmaking province, is planning to cut emissions at industrial plants in steel, non-ferrous and cement sectors by 50-100 percent. No timeframe was given for the production curbs.
Spot rebar prices rose 0.5 percent to 4,394.38 yuan a tonne on Friday, according to Mysteel.
The most-traded iron ore contract on the Dalian Commodity Exchange climbed 0.6 percent to 488.5 yuan a tonne on Monday after reaching as peak as 493.5 yuan, its highest since May 15.
Stockpiles of imported ore continued to fall last week. Inventories declined by 197,500 tonnes to 153.45 million tonnes on Friday, data compiled by Mysteel showed.
China’s major coal-producing province of Shanxi is also carrying out regional environmental checks ahead of intensified central inspections next month, which could curb operations in steel mills and coal mines.
Other steelmaking raw materials also rose alongside steel rebar. Dalian coke futures soared as much as 4.9 percent to 2,287 yuan a tonne, their highest since September 2017, before market close.
https://www.hellenicshippingnews.com/shanghai-rebar-hits-5-1-2-year-high-on-supply-worries/
Indonesia is unlikely to change its rules on domestic coal supply and pricing until 2019, Coordinating Maritime Minister Luhut Pandjaitan said on Monday, amid government discussions on how Southeast Asia’s biggest economy can increase its export revenues.
“Even if this happens it will probably next year at the earliest we can do it,” he said. “Because we need time to socialise regulations (and) to calculate the impacts on state revenue.”
Pandjaitan referred to proposed revisions to rules introduced in March requiring Indonesian coal miners to sell 25 percent of their thermal coal output to domestic buyers, with a price capped at $70 per tonne for coal sold to state electricity utility Perusahaan Listrik Negara (PLN).
Yuxi city in Yunnan province plans to replace 8.68 million mt of outdated iron-smelting capacity and 11.15 million mt of steelmaking capacity, until 2023, according to a document issued by the municipal government last week.
The document reviewed the city's steel industry and detailed targets for future development. Yuxi will replace the outdated capacity with newly-built, iron-making capacity of 8.13 million mt and steelmaking capacity of 11 million mt by 2023.
By 2023, the city will eliminate 13 iron-making blast furnaces with capacity below 1,100 m³, 14 steelmaking converters with capacity less than 100 mt, and an electric furnace of 40 mt. At the same time, seven new iron-making blast furnaces of 1200 m³, five steelmaking converters with capacity above 100 mt, and four electric furnaces above 50 mt will installed, according to the document.
Separately, the city's steel industry grew rapidly in the first half of the year, driven by rising prices of steel products.
From January to June, Yuxi produced 2.37 million mt of pig iron, up 24.7% from last year, and 3.56 million mt of crude steel, up 29.6% on the year. For the first half of 2018, the city's output value in the steel industry registered 18.09 billion yuan, 39.7% higher from a year ago, the document showed.
The Central Empowered Committee (CEC), the body appointed by India’s Supreme Court on all matters related to mining, has recommended lifting restrictions on iron-ore pellet exports from the southern province of Karnataka, bringing to the fore the conflict between producers and consumers of the raw material.
The committee of the apex court justifies the export of iron-ore pellets from Karnataka using the premise that it will tackle a glut of raw material at pitheads, but steel companies have flayed the move to export the raw materials as many of the mills have to either source the raw material from neighboring states, incurring higher transport costs, or resort to imports to keep their steel mills running.
The ban on iron-ore exports had been a corollary to the Supreme Court verdict on illegal mining in Karnataka and closing down all mines in the region in 2011. While mining operations have since resumed, the ban of shipments of iron-ore from the province remained in place.
The CEC recommendation for resumption of exports would have to be ratified by the apex court before overseas shipment contracts could be concluded by miners and traders. However, the move has triggered another face-off between raw material producers and consumers.
Miners and traders pointing out the glut in the market, cited that in 2017/18 a total of 44-million tons of iron-ore, production plus carryover stocks, were made available for merchant sale but only about 30-million tons of sales were concluded during the year.
At the same time, the nine iron-ore pelletisation plants in Karnataka, with aggregate installed capacity of ten-million tons, were operating at only 50% to 60% capacity utilisation in the absence of offtake by domestic consumers and the absence of any export window.
However, steel companies with mills located in Karnataka have contested the premise of a iron-ore glut stating that prices of the raw material sourced from the regions had surged 17% for fines and 11% for lumps during the current month forcing the steel mills to source their requirement from mines in Odisha and Jharkhand, which even after factoring in transportation costs were lower than locally sourced iron-ore.
Companies like JSW have blamed the continuation of a high base price at the e-auctions conducted by the local government for merchant sale of iron-ore, and government miner NMDC, charging a premium for its produce.
However, miners have claimed that a skewed distribution policy was responsible for imperfect market conditions.
The Federation of Indian Mineral Industries, the representative body of miners has pointed out iron-ore miners in Karnataka were bound to effect sales through e-auctions conducted by the government. However, while miners were restricted in widening their base of buyers, steel companies were free to source their raw material requirements from anywhere — mines in neighbouring provinces or even imports.
China's steelmakers are smashing production records by pushing furnaces beyond their typical limits, offsetting nationwide closures that may be even more swingeing than government estimates, according to Goldman Sachs Group Inc.
The world's top producer has trumpeted sweeping reforms in the past two years that have shuttered aging and illegal plants, and shackled winter output in the dirtiest regions. At the same time, official data shows output at record highs. That's partly because, with demand robust and margins high, mills have rewritten their steel-making recipes to push output beyond normal capacity, says Goldman's Hong Kong-based analyst Trina Chen.
"For the same blast furnace, mills can deliver an extra 10% or more steel than before," Chen said by email. Operators are using iron-rich ores to boost productivity, and raising the portion of steel scrap in their feed-stock to as much as 30% from about 10% historically. "The trend is continuing this year but they are approaching their stretchable limit," she said.
China's average daily output was a record in June, taking first-half volumes to a best-ever 451 million metric tons, more than half world production. The unprecedented run-rate has yet to trouble a prolonged period of profitability that most analysts attribute to steady demand growth, on top of the reforms driven by President Xi Jinping as a pillar of his economic agenda.
Industry profits rose 151% in the first half, according to the China Iron & Steel Association, and Goldman reckons stocks could rally another 60% in the next year, according to a report in early July.
China's capacity has shrunk by about 200 million tonnes to around 800 million tonnes, taking into account state-ordered closures and the long-term idling of facilities after the global steel market collapse of late 2015, according to Goldman. Those figures are out of step with the consensus, though. Consultancies Kallanish Commodities Ltd. and Shanghai Steelhome E-Commerce Co. estimate net cuts have been deeper, but that capacity remains at about 1 billion tonnes, a figure supported by government data.
"We have taken account of steel capacity that went into 'long-term maintenance' in early 2016 due to poor profit conditions and bank credit withdrawal," Chen said. "They remain 'under maintenance' until now, which suggests most would not recover despite the improved profit of the industry. This is the major difference between our numbers versus official reported numbers."
CITIC Pacific Mining boss Chen Zeng says he sees discounting for lower-grade iron ore in China as a fundamental change in the market because the government's push to reduce pollution would ''go on forever''.
Queried at a WestBusiness Leadership Matters function on July 31 on the growing spread of iron ore prices across varying grades, Mr Zeng said it had become a credibility issue for the Chinese government to provide clean air and water for its citizens.
He said the government was determined to implement the right policy, stick to it and see the results.
''So I cannot see this as a reversible trend, no matter whether it's five years, 10 years, '' he said. ''Going forward there will be a very consistent policy in that regard.''
The Chinese government's recent crackdown on pollution has forced inefficient steel mills to close and those remaining to seek higher-grade inputs to reduce emissions.
The strong demand for higher-grade ore has led to big premiums for ore above the 62% benchmark price and steep discounts for lower-grade ores.
However, some analysts argue the phenomenon is a cyclical one and will moderate when prevailing high profit margins for steel producers ease.
CPM's $16 billion Sino Iron project in the Pilbara produces a 65% magnetite concentrate product, which benefits from the high premiums being paid.
But Sino Iron continues to struggle to operate profitably because existing output is below its 24Mtpa nameplate capacity, the high cost of processing the ore and the steep royalties it must pay to tenement holder Clive Palmer.
Mr Zeng said there was a carbon dioxide emission saving of 108kg for every tonne of steel produced from magnetite ore compared with hematite fines.
He said the spread between 65% and 62% ore ranged from 5-15% in the four years to mid-2016, but since 2017, it had averaged 25%.
''It is obvious, going forward — grade is king,'' he said.
''Given this shift in the market, Sino Iron and the development of Australia's vast, largely untouched magnetite deposits will help enhance the long-term international competitiveness of our local industry, hedging WA from the risks associated with a lower-grade/high-volume focus.''
China produced 13.64 million mt of stainless crude steel in the first half of the year, up 13.23% from the same period last year, according to data from China Special Steel Enterprises Association.
Production of Cr-Mn grades stainless crude steel, including some products short of international standards, stood at 4.77 million mt, up 30.37% on the year. Its share in total output rose 4.59 percentage points to 34.94%.
Cr-Mn grades have greater tensile strength because of their higher nitrogen levels. However, their lower nickel content makes them more susceptible to cracking after they undergo metal forming processes.
https://news.metal.com/newscontent/all_all_100825194/stainless-crude-steel-output-up-13-in-h1/
ArcelorMittal, the world’s largest steel producer, posted forecast-beating core profit in the second quarter after keeping costs low, and said an improving global market and trade protection were feeding into an upbeat full-year outlook.
U.S. President Donald Trump introduced a 25 percent tariff on steel imports in March, initially excluding the European Union and Canada but lifting those exemptions in June.
ArcelorMittal South Africa swings to first-half profit
While the group’s imports into the United States from Brazil and Canada were hit by the measures, ArcelorMittal said that on balance it had benefited from the tariffs as they had fed into higher steel prices.
“We see a significant positive impact of the tariffs in our NAFTA segment results and we will continue to see this into the second half of 2018,” Chief Financial Officer Aditya Mittal told a conference call.
The group also upgraded its forecast for global apparent steel consumption, which excludes the impact of inventory changes, buoyed by a rebound in Chinese demand due to an improved housing market and strong automotive and machinery industries.
ArcelorMittal’s shares were 1.8 percent higher in early Wednesday trading, though they were little changed from the start of the year.
ArcelorMittal has long complained about cheap exports from China and elsewhere flooding its markets in the United States and Europe.
Mittal said he was not worried that a further ratcheting up of trade tensions would derail the global economic outlook, given much improved sentiment in the steel industry.
“We believe the discussion on tariffs is not impacting the level of trade (to the extent) that it would take global GDP into negative territory,” Mittal said.
“Clearly it is a risk, but perhaps we need to appreciate a bit more the improvements that have occurred and the size of this risk,” he added.
The company’s second-quarter core profit surged 45 percent to $3.073 billion from $2.112 billion a year ago. That was well above the $2.892 billion expected in a Reuters survey of nine analysts.
ArcelorMittal said this was because of improved margins as it kept costs low.
The group said global apparent steel consumption would increase by 2.0 to 3.0 percent in 2018, up from the 1.5 to 2.5 percent growth expected in its May forecast.
The upward revision was driven by a more positive market outlook in China, the world’s largest producer and consumer of steel, while the company slightly moderated its forecast for a rebound in Brazil ahead of presidential elections.
ArcelorMittal said its net debt decreased to $10.5 billion from $11.1 billion in March and added it expected to accelerate progress towards its net debt target of $6 billion.
Kobe Steel Ltd on Wednesday reported a 55 percent drop in recurring profit for the April to June quarter as glitches at some plants disrupted steel output, but raised its annual sales estimate on stronger Chinese demand for construction machinery.
Japan’s third-biggest steelmaker, whose data fraud shook global faith in Japanese manufacturing prowess last year, said its quarterly recurring profit slumped to 12.75 billion yen ($114 million) from 28.25 billion yen a year earlier.
The company increased its sales forecast for the year to March by 40 billion yen to 2.03 trillion yen on solid demand for construction machinery. However it stuck to its profit guidance of 35 billion yen, below a mean estimate of 53 billion yen among 9 analysts surveyed by Thomson Reuters I/B/E/S.
Kobe Steel’s data-tampering scandal cut its profit by 2.5 billion yen during the quarter, the company said, adding that it still expects the issue will have a profit impact of 10 billion yen for the year.
“Our market share in some areas, such as aluminum products, has fallen due to the data falsification,” Yoshihiko Katsukawa, senior managing executive officer at Kobe Steel, told a news conference.
Kobe Steel, which supplies steel and aluminum parts to manufacturers of cars, planes and trains around the world, admitted to supplying products with falsified specifications to more than 600 customers and that the data falsification occurred for nearly five decades.
Last month, the steelmaker said it has been indicted by prosecutors over the data tampering.
It is also undergoing a U.S. Justice Department probe, meaning it still faces legal and financial risk.
Katsukawa said no developments have been made in the probe.
Japanese steelmakers are enjoying healthy market conditions at home, with steel prices rising on increased production by automakers and as construction is in full swing for Tokyo’s 2020 Olympics and on a number of redevelopment projects in the Tokyo metropolitan area.
However, the country’s steelmakers have dealt with repeated technical problems at their plants because of their age, which has capped gains in steel output.
Kobe Steel trimmed its crude steel output outlook for the current year by 100,000 tonnes to 6.9 million tonnes as technical glitches at an iron ore sinter plant and other facilities have delayed production, Katsukawa said.
U.S. Steel Corp. sees better days ahead. Investors may be looking for more evidence.
The Pittsburgh-based steelmaker, which just hosted President Donald Trump at one of its restarted mills, said Wednesday it expects its 2018 earnings before interest, taxes, depreciation and amortization to be higher than previously forecast. The company cited success revitalizing its aging facilities as well as strong demand.
“The success to date of our ongoing $2 billion asset revitalization program, as well as our earnings power in the current market, makes us increasingly optimistic about future investments that will drive long-term profitable growth,” Chief Executive Officer David Burritt said in the company’s second-quarter earnings release.
U.S. Steel raised its full-year adjusted Ebitda forecast to a range of about $1.85 billion to $1.9 billion, up from earlier guidance of $1.7 billion to $1.8 billion.
To be sure, U.S. Steel said it expects adjusted Ebitda of $525 million in the third quarter, less than the $589.8 million average of nine analysts’ estimatestracked by Bloomberg. The company also expects results of its European segment to be lower in the third quarter mainly due to planned outages.
The results were released after the close of regular trading in New York, where U.S. Steel initially rose about 6 percent before paring most of those gains by 5:15 p.m. Despite the imposition of 25 percent U.S. tariffs on steel imports, the shares are up only 1.8 percent this year.
China’s steel sector profits more than doubled from a year earlier during January-June, with outlooks pointing to similar firm gains in the second half of the year as well.
January-June profits were 187.5bn yuan ($27.52bn) on revenues of Yn3.19 trillion that grew by 15.4pc from the previous year, according to China’s national bureau of statistics. But June profit fell back by 16pc to Yn34.92bn from Yn41.55bn in May.
Steel profits have been driven higher since late April on robust demand for construction steel products and environmental restrictions on steel production. Profits have remained stable since last month at around Yn1,000/t on average.
A meeting of China communist party’s politburo, presided by President Xi Jinping, yesterday announced the country will continue to follow proactive fiscal and prudent monetary policies to ensure sufficient liquidity for the economy and strengthen infrastructure building in this year’s second half. Infrastructure sector growth has slowed to 7.3pc in the first half of the year compared with 19pc growth last year. Steps to revitalise the sector will add to steel demand.
But steel demand and profitability could be affected if Beijing follows through with the politburo’s decision to “resolutely curb rise in home prices”. Real estate investment has grown by 9.7pc in the first half of the year, leading to acceleration in new project start-ups and land acquisitions.
Most of the steel price gains this year have been because of higher demand from real estate projects. As more of the new projects enter their construction phase during rest of the year, construction steel sales could accelerate, especially in the seasonal peak sales months of September and October.
Beijing’s efforts to cool the property market since late last year has slowed price gains in 15 largest markets but prices are increasing in second- and third-tier cities. If Beijing turns to curbing gains in these markets as well, it could slow investment growth and affect steel market sentiment.
Steel profitability could also be supported by continued environmental restrictions on steel production. Such restrictions are in force in the cities of Tangshan, Xuzhou, Handan, Xingtai, Wu’an and Changzhou. Total steel capacity taken out by the cuts in thes first four cities are around 20.57mn t, according to investment bank Goldman Sachs. China’s winter output cuts are poised to be rolled out in up to 80 cities during November-March compared with 28 cities last year.
Construction steel demand usually slows in winter but still remains active enough for demand to easily outstrip the expected sharp fall in supplies during the winter months. Steel supplies last year did not fall in winter as mills stocked up on crude steel in advance, while using more scrap in the basic oxygen furnace to compensate for lower pig iron output in the blast furnace. South China steel mills, such as those in Jiangsu province, increased output. But Jiangsu is to face production cuts this winter, along with fellow steel producing provinces Shandong and Hebei in north China.
Mills’ profits are also to get support from a slower increase in raw material costs, as iron ore prices are unlikely to spike sharply in the short term. While mills’ profitability doubled in this year’s first half, operating costs increased by 12.5pc as iron ore prices have been largely stable in a $63-69/dry metric tonne range since late March.
Portside iron ore stocks are currently high, so steel mills are mostly buying based on immediate demand. Scrap is being increasingly used to substitute iron ore to save costs and to meet environmental regulations. The depreciation of the yuan against the US dollar has also soured iron ore fundamentals, said an analyst report by China Investment Futures.
Profit margins could face some pressure from higher environmental protection costs, which Goldman Sachs forecasts could hit $30-40/t in the short term as mills race to comply with ultra-low emissions regulations. These will be made compulsory in Hebei province this year and the rest of China over the next several months. Environmental costs were $23/t in 2017.
https://www.hellenicshippingnews.com/china-steel-sectors-1h-2018-profits-post-gains/
Shanghai rebar steel futures edged higher on Friday, trading back near a 5-1/2-year high, amid China’s plans to impose industrial production curbs during winter for the second year in a row.
Coke prices also spiked on the planned restrictions, hitting their strongest level since mid-September.
In the latest plan to be implemented from Oct. 1 to March 31, 2019, steel mills in six key cities - Tianjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang - will be asked to cut 50 percent of their capacity during the heating season.
Those in the rest of the smog-prone Beijing-Tianjin-Hebei region will need to shut no less than 30 percent, according to a draft proposal.
The steps would be largely similar to those imposed last winter, which was operational between Nov. 15, 2017 and March 15, 2018, that forced steel mills, coke producers, smelters and other industrial plants to cut output to limit pollution.
The most active rebar on the Shanghai Futures Exchange was up 1.2 percent at 4,170 yuan ($607) a tonne, as of 0210 GMT, after initially peaking at 4,186 yuan, near Wednesday’s 5-1/2-year high of 4,243 yuan.
The construction steel product has risen more than 2 percent so far this week, the most in three weeks.
“Assuming key focus areas cut 50 percent of capacity while the rest of the areas ... cut 30 percent, we estimate the steel production impact at 78 million tonnes during the winter period,” Morgan Stanley analysts said in a note.
That volume corresponds to 9 percent of China’s crude steel output in 2017.
Prices of coke, the processed form of coking coal, also jumped amid the planned production restrictions. The most-traded September coke on the Dalian Commodity Exchange climbed as far as 2,402 yuan a tonne, the highest since Sept. 14. It was last up 3.5 percent at 2,383 yuan.
Iron ore futures rose 1.3 percent to 479.50 yuan per tonne, and coking coal inched up 0.3 percent to 1,187.50 yuan.
Spot iron ore for delivery to China’s Qingdao port gained 0.5 percent to $66.87 a tonne on Thursday, according to Metal Bulletin.
MMK, one of Russia’s biggest steelmakers, said on Thursday its second-quarter core earnings soared to their highest in a decade thanks to an improved sales mix, stronger prices and a lower cost of sales.
The company reported earnings before interest, taxation, depreciation and amortisation (EBITDA) up 43 percent compared to the same period the previous year, hitting $650 million, the highest level since 2008.
The results beat an average forecast of $628 million in a Reuters poll of analysts.
Net profit rose 32 percent year-on-year to $392 million, the company said, while revenue rose to $2.1 billion, up from $1.9 billion in the same period last year.
Free cashflow almost doubled quarter-on-quarter to $281 million, the company said, adding that its board had recommended paying this out in full in dividends of 1.589 roubles per share.
MMK’s shares on the Moscow exchange rose 1.3 percent in early trade.
“Free cashflow for the period almost doubled year-on-year, which reflects both improved conditions in the company’s key markets and increased operational efficiency,” MMK said in a statement.
Looking ahead, the company said it expected a correction in steel prices which could affect its third-quarter financial performance.
In an interview with Reuters ahead of the results, MMK’s economics director Andrey Eremin said the company had halved its forecast of demand growth in 2018, from 4 to 2 percent.
https://www.hellenicshippingnews.com/russias-mmk-reports-highest-earnings-since-2008/
