Mark Latham Commodity Equity Intelligence Service

Friday 6th May 2016
Background Stories on

News and Views:

Attached Files

    Oil and Gas


    Top ETF house bulls commodities and emerging.

    Emerging-market stocks and bonds have only started a rally that may last until 2018 as a new bull market takes hold in commodities, according to the best-performing exchange-traded fund focused on developing nations.

    Invesco PowerShares Capital Management LLC studied data since 1973 to show that commodities typically go through a boom-and-bust cycle every seven years, with the greatest gains ensuing in the first two. The latest round may have started in January and emerging markets will benefit most due to their reliance on exporting raw materials like oil, precious metals and agricultural goods, the Illinois-based asset manager said.

    Back to Top

    China Southern Power Grid Jan-Apr power sales up 2pct

    China Southern Power Grid, a state-owned company transmits and distributes electrical power in China's five southern provinces, saw its power sales standing at 257.8 TWh during the first four months this year, up 2% year on year, according to China’s National Development and Reform Commission.

    Of this, power consumption of Guangdong and Hainan rose 4.6% and 4.4% compared with the same period last year, respectively, while that of Guangxi declined 0.8%, Yunnan dropped 0.6%, and Guizhou fell 3.1%.

    In April, sales of the company to the five provinces reached 69.3 TWh, down 0.8% on the year, mainly due to rainy weather in southern China and low temperature in the eastern coast.

    Back to Top

    India eyes cleanup of bad debt mountain as wary state banks hesitate

    India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans, in order to shield bankers from a populist backlash they say is hobbling efforts to clean up their balance sheets.

    India's $121 billion troubled debt pile, over $100 billion of which is on the books of state-owned banks, has come under close scrutiny from prosecutors, the media and politicians. Some have blamed banks for going too easy on corporate tycoons, and do not want taxpayers propping up the struggling banking sector.

    The proposal, being examined by the government and in its early stages, would give the panel power to define the "haircut" a bank should face on a loan gone sour, protecting bankers from critics who want failed Indian firms to pay back in full, two finance ministry and two central bank officials said.

    Bad debt has hampered banks' ability to lend, threatening to throttle a nascent economic recovery.

    Prime Minister Narendra Modi has made repairing bank balance sheets his administration's "top-most priority," a senior government official said.

    "Banks have been very reluctant to take a haircut where they face newspaper criticism," said a second senior official, who is familiar with discussions on the panel. He declined to be named because he was not authorised to speak to the media.

    The second official added that the proposal had run into hurdles already, however, amid questions over how it would fit into India's existing legal framework.

    A finance ministry spokesman declined to comment. The Reserve Bank of India (RBI) did not immediately respond to requests for comment on the proposal.

    Fear of bad headlines was one reason why state-run banks declined to consider embattled tycoon Vijay Mallya's offer to pay up to $900 million in tranches to settle about $1.4 billion his defunct Kingfisher Airlines owed, two banking sources said.

    Mallya now also faces a money laundering investigation.

    Mallya told the Financial Times late last month that he wanted a "reasonable" settlement that he could afford and banks could justify. He has denied any wrongdoing.

    Bad loans have piled up as subdued consumer demand hits corporate earnings, making it harder for big businesses to repay loans.

    RBI Governor Raghuram Rajan has set a deadline of March 2017 for banks to clean up their books, and the government said it would inject $11 billion in state banks by March 2019 to help them repair their balance sheets.

    India Ratings and Research, a local affiliate of Fitch, has said the government would have to cough up as much as $45 billion if the lenders failed to raise funds from markets to address expected future capital shortfalls.
    Back to Top

    Rio's new boss focused on cost savings

    Mining giant Rio Tinto’s incoming CEO Jean-Sébastien Jacques on Thursday told shareholders at the company’s annual general meeting, in Brisbane, that his focus would remain firmly on productivity improvements. 

    Jacques, who was previously employed as Rio’s copper and coal CEO, would succeed Sam Walsh when he retires in July this year. “There is no doubt these are challenging times for the sector, and for your company. The macro-economic environment is tough, and is likely to remain so for the foreseeable future, from whichever way you look at it. 

    I am under no illusions of the task and challenges ahead,” Jacques said. He added that while it would not be an ‘easy ride’ for Rio into the future, the company had significant assets on which to build its foundations. “But these attributes alone will not deliver sector leading performance. We cannot be complacent just because we have Tier 1 assets. We must always challenge ourselves to be more productive, more performance driven and more proactive in our engagement with stakeholders and society,” he said. 

    Walsh on Thursday reiterated that Rio’s cost savings initiatives had delivered more than $6-billion in cost cuts since 2013, with the company releasing some $1.5-billion in working capital in 2015. “We reduced capital expenditure for 2015 to $4.7-billion and we are reducing capital expenditure to $4-billion in 2016 and $5-billion in 2017. We have not done this at the expense of future growth, but by re-assessing projects, lowering costs, and only investing in the highest returning projects,” Walsh said. 

    Over the next two years, Rio was targeting to cut operating costs by a further $2-billion, and would also remove $3-bilion in capital expenditure, compared with its previous guidance, while implementing a new dividend policy. “These actions are designed to ensure we maintain our balance sheet strength and deliver shareholder returns commensurate with the economic environment and supported by the quality of our world-class assets,” Walsh said.
    Back to Top

    Mobius says buy commodity stocks as rebound’s just beginning

    Mark Mobius is piling into commodity stocks in China, saying that a rebound in raw-material markets is only getting started after prices sank too far and that gains may be extreme.

    Templeton Emerging Markets Group will add more raw-material stocks from Asia’s top economy, according to Mobius, executive chairman of the group, who’s been investing in emerging markets for more than four decades. Many of them will be good holdings for the long term, he said in an e-mail interview, without identifying particular companies.

    China’s commodity producers, which were the worst mainland equity investments over almost a decade, have led this year’s rebound as China boosted stimulus and local investors swarmed into the nation’s futures markets, with bets on everything from steel bars to cotton. The Bloomberg Commodity Index rallied for a second month in April, and assessments are stacking up that the worst of the rout is now over, including from industry veteran Tom Albanese, a former head of Rio Tinto Group.

    “We have already seen how both commodity prices and the commodity stock prices went down too far, beyond realistic assessments,” Mobius said. “We can now expect movement on the upside to be extreme in percentage terms. If there is a move down, there is a good chance that we would increase.”
    Back to Top

    Brazil's Crusading Corruption Investigation Is Winding Down

    The crusading federal judge behind Brazil’s explosive corruption investigation, facing the limits of his mandate and signs of political pushback, sees his role in the case winding down by the end of the year, a turning point in a probe that has helped push the president to the brink of impeachment.

    For more than two years, Judge Sergio Moro and his team of prosecutors and police in the southern town of Curitiba have tracked the $1.8-billion graft scandal across four continents. They uncovered a crime ring so epic that it shattered Brazil’s political and economic leadership and helped tip the nation into its worst recession in a century.

    Now, legal challenges are chipping away at Moro’s jurisdiction over executives amid criticism that he’s over-reaching. Brazilian law also bars him from going after sitting politicians accused of graft. So he expects significantly fewer new operations under his watch starting next year, according to three top officials who asked not to be named relaying details from private conversations. The press-shy judge declined to comment.

    That doesn’t mean corruption investigations will end but it probably means a substantial drop in their intensity and speed. The Supreme Court has sole jurisdiction over lawmakers. Its exhaustive caseload, political ties and past aversion to prosecuting legislators are the foundation for a long-held belief that crooked leaders are all but untouchable in Brazil. While that’s beginning tochange, there’s no doubt that the top court -- responsible for ruling on everything from impeachment challenges to state debt relief -- won’t be as steadfast in its pursuit of corruption as the dogged 43-year-old judge with jet black hair.

    “Moro is a judge with a single focus -- extremely capable, very disciplined and efficient,” said Floriano Azevedo Marques, a professor of law at Sao Paulo University. “That’s why he’s been so fast.”

    Publicly, the Federal Police and prosecutors say the investigation known as Carwash will go on come hell, high water, or impeachment. Inside legal circles, however, there’s a sense that when Moro wraps up his investigation into the state-run oil giant Petrobras -- the key case under his purview and the epicenter of Carwash -- it will mark a major slowdown.

    In Brazil’s justice system, a judge is responsible for overseeing Federal Police probes, approving accusations by prosecutors, reviewing the evidence and deciding if a defendant is guilty or innocent. Other elements of the scandal thrown off by Carwash are already being sent to other federal judges.

    Curitiba, about an hour’s flight from the financial hub of Sao Paulo, is called Brazil’s green capital, but these days it’s better known as ground zero for the sprawling corruption scandal. It’s here that police investigators, working in a modern glass-and-concrete building, first connected an infamous money laundererto a Petrobras executive. From there, they pieced together an elaborate bribery scheme involving the nation’s biggest builders, lucrative public works projects and top politicians, tracing alleged million-dollar kickbacks to campaign coffers and Swiss bank accounts.

    While President Dilma Rousseff has not been accused in the scandal, it has undermined her political support and she’s now facing impeachment on allegations that she used accounting to mask the size of a budget deficit.

    Along the way, Moro became a folk hero. Masks of the judge were a favorite in Carnival celebrations; he was named one of Time Magazine’s 100 most influential people. And protesters in March waved balloons of Moro dressed as Superman that stood in stark contrast to the inflatable likeness of Rousseff and her mentor, former President Luiz Inacio Lula da Silva, in striped prison garb.

    But he has picked up detractors, too, especially after releasing transcripts from a taped phone conversation between Lula and Rousseff which suggested that she wanted to name Lula a minister to shield him from investigation.

    Following the transcript’s release, thousands of Brazilians poured into the streets from Sao Paulo to Brasilia to protest. The backlash by some of Brazil’s political and legal elite was just as fierce. Supreme Court Justice Marco Aurelio Mello, in an interview with Folha de S.Paulo newspaper, said Moro’s “show of force” overstepped his limits, and the Rio de Janeiro branch of Brazil’s bar association branded it illegal.

    In Brasilia, meanwhile, the political stand-down that has crippled Rousseff’s government is reaching its culmination, too. A special congressional committee is analyzing the request to oust her. If a simple majority of senators vote as early as next week that she should stand trial, Rousseff would be forced to step aside, at least temporarily. Her successor, Vice President Michel Temer, is already assembling an administration that investors hope will quickly address Brazil’s economic woes.

    Moro’s investigation entering a new phase is “pretty good news for Temer,” said Christopher Garman, who analyzes Brazil for Eurasia Group in Washington. “For a Temer government, the real window of risk is over the next four to five months. There are still shoes to drop in Moro’s investigation. If you get past this phase, then the risk for Temer’s government starts to diminish. The bar to undermine his administration is higher than it was under Rousseff.”
    Back to Top

    China stats investigation plunges metal markets into darkness

    In November 2013 bosses from nine of China's largest copper smelters sat down over a weekend to discuss the state of the local market.

    They did so because they had lost faith in the official copper production figures released by the National Bureau of Statistics (NBS).

    The NBS had just reported record output in the month of October, equivalent to an annualised run rate of 6.8 million tonnes.

    The smelters weren't convinced, suspecting the statistical agency was double-counting production at parent and subsidiary companies and incorrectly labeling some intermediate products such as copper blister as refined metal.

    Actually, it was more than mere suspicion. The smelters were themselves supplying the raw data to the agency in the first place, so had a good idea of what the resulting production figures should look like.

    Nor was this a case of statistical nit-picking.

    The smelters were poised to engage with international miners on terms for the supply of copper concentrates the following year and knew that the "official" production figures would be a core discussion point in the negotiations.

    The moral of the story is that it's not just Western analysts who struggle with the reliability of Chinese statistics.

    And it's a timely reminder that inconsistent data can have very real-world effects because right now there is no data at all.

    The NBS has suspended the publication of detailed metals production figures since October last year.

    Which means that everyone is now largely in the dark as to what is happening in the world's largest metallic economy.

    It's not just the monthly base metals production figures that have gone missing.

    Data on oil products such as liquefied petroleum gas, naphtha and fuel oil have been withdrawn. So too have regional figures for coal, steel and electricity output.

    This has little or nothing to do with the sort of inconsistencies in the NBS data picked up by the country's copper smelters.

    Rather, it results from an anti-corruption investigation into the agency by the Central Commission of Discipline Inspection (CCDI).

    Attached Files
    Back to Top

    EU defines high-frequency trading

    The European Commission has given details of how it will define high-frequency trading (HFT) as part of its new approach financial markets regulation, the revised Markets in Financial Instruments Directive (MiFID II).27 Apr 2016

    A high-frequency trader will be defined as one sending at least two messages per second for a single instrument on any trading venue, or at least four messages per second in respect to all instruments being traded on a venue, the Commission said in proposed regulations published this week.

    Markus Ferber, the rapporteur for the MiFID II legislation in the European Parliament, welcomed the decision, saying that the EU now had a clear and coherent set of rules.

    "The 2010 flash crash in New York has shown what can happen if high frequency trading gets out of control. Such an incident must never happen in Europe. This delegated act is an important step to reign in HFT, but … if the calibration goes wrong, the regime will be undermined. Therefore, we need to get it right the first time," Ferber said, in documents emailed to

    HFT would now be subject to more control and transparency rules, and "the European Parliament will look very closely to check that the rules cannot be circumvented," Ferber said. 

    The European Parliament and Council have three months to study the proposals. 

    Back to Top

    The Lunatics have left the Asylum!

    Robots Replace Labour:Image titleLabour participation USA: upcycles are marked. 

    Oh this sounds too good to be true. Just print the money! Well to be honest, a politician – and a central banker – should admit that increasing joblessness must be paid for somehow.

    1.     Raising taxes (not lowering them, Donald) is one way.

    2.     Issuing more and more debt via the private market is another (not a good idea either in this highly levered economy).

    3.     A third way is to sell debt to central banks and have them finance it perpetually at low interest rates that are then remitted back to their treasuries.

    Money for free! Well not exactly. The Piper that has to be paid will likely be paid for in the form of higher inflation, but that of course is what the central banks claim they want. What they don’t want is to be messed with and to become a government agency by proxy, but that may just be the price they will pay for a civilized society that is quickly becoming less civilized due to robotization. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.

    Private banks can fail but a central bank that can print money acceptable to global commerce cannot. I have long argued that this is a Ponzi scheme and it is, yet we are approaching a point of no return with negative interest rates and QE purchases of corporate bonds and stock. Still, I believe that for now central banks will print more helicopter money via QE (perhaps even the U.S. in a year or so) and reluctantly accept their increasingly dependent role in fiscal policy. That would allow governments to focus on infrastructure, health care, and introduce Universal Basic Income for displaced workers amongst other increasing needs. It will also lead to a less independent central bank, and a more permanent mingling of fiscal and monetary policy that stealthily has been in effect for over 6 years now. Chair Yellen and others will be disheartened by this change in culture. Too bad. If there is an answer, the answer is that it’s just that way.

    Investment implications: Prepare for renewed QE from the Fed. Interest rates will stay low for longer, asset prices will continue to be artificially high. At some point, monetary policy will create inflation and markets will be at risk. Not yet, but be careful in the interim. Be content with low single digit returns

    ~Bill Gross.


    Attached Files
    Back to Top

    7 Fallow Years.

    Image titleImage title

    Attached Files
    Back to Top

    Palladium/Gold: A fresh look at an old indicator.

    Image title
    Back to Top

    Glencore's Zinc, Copper, Coal Output Declines After Cutbacks

    Glencore Plc’s zinc and copper production fell in the first quarter as the company curbed mine output following last year’s slide in commodity prices. It maintained output forecasts for all products except oil, which it reduced.

    Zinc output totaled 257,100 metric tons in the three months through March, down 28 percent from a year earlier, the Baar, Switzerland-based miner and trader said in a statement on Wednesday. Copper output slipped 4 percent, while coal production declined 17 percent. The company cut its oil-output target by 300,000 barrels.

    Glencore has said it plans to reduce copper output by about 7.5 percent this year and cut zinc supply by a quarter. Some of the biggest miners have been forced to shutter unprofitable operations, trim costs and sell assets to reduce debt in response to slowing demand from top user China. The Swiss firm, led by billionaire Ivan Glasenberg, has surged in London this year after ending 2015 as the second-worst performer in the FTSE 100 Index.

    Glencore is the world’s biggest zinc miner and the move to reduce output of the metal is bringing the market closer to deficit. It’s the second-largest producer of refined copper and has suspended operations in the Democratic Republic of Congo and curtailed output in Zambia.

    While copper output dropped because of curtailments in Africa, production was partly offset by increases in South America, the company said.

    In other commodities, Glencore’s nickel production advanced 16 percent to 27,600 tons as coal production fell to 29.7 million tons.
    Back to Top

    China Presses Economists to Brighten Their Outlooks

    Chinese authorities are training their sights on a new set of targets: economists, analysts and business reporters with gloomy views on the country’s economy.

    Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements, according to government officials and commentators with knowledge of the matter.

    The stepped-up censorship, many inside and outside the ruling Communist Party say, represents an effort by China’s leadership to quell growing concerns about the country’s economic prospects as it experiences a prolonged slowdown in growth. As more citizens try to take money out of the country, officials say, regulators and censors are trying to foster an environment of what party officials have dubbed “zhengnengliang,” or “positive energy.”

    In the past, Chinese authorities have targeted mainly political dissidents while commentary about the economy and reporting on business has been left relatively unfettered in a tacit acknowledgment that a freer flow of information serves economic vitality.

    But Beijing has moved to reassert control of the country’s economic story line after policy stumbles that contributed to selloffs in China’s stock markets and its currency last year fed doubts among investors about the government’s ability to navigate the slowdown.

    Lin Caiyi, chief economist at Guotai Junan Securities Co. who has been outspoken about rising corporate debt, a glut of housing and the weakening Chinese currency, received a warning in recent weeks, officials and commentators said. It was her second.

    The first came from the securities regulator, and the later one, these people said, from her state-owned firm’s compliance department, which instructed her to avoid making overly bearish remarks about the economy, particularly the currency.

    Pressured by financial regulators bent on stabilizing the market, stock analysts at brokerage firms are becoming wary of issuing critical reports on listed companies. At least one Chinese think tank, meanwhile, was told by propaganda officials not to cast doubt on a planned government program to help state companies reduce debt, economists familiar with the matter say.

    While evidence of the clampdown is anecdotal, it appears widespread. Government departments didn’t respond to requests for comment or declined to comment.

    During the past two months, the Communist Party leadership has been talking up the economy to try to reassure global markets.

    This message control risks further constraining information about the world’s second-largest economy, thereby deepening the anxieties of investors who already doubt the reliability of official statistics and statements.
    Back to Top

    China April official PMI stands at 50.1

    China’s official manufacturing Purchasing Managers’ Index (PMI) stood at 50.1 in April, easing from March's 50.2 and barely above the 50-point mark that separates expansion in activity from contraction, showed the data from the National Bureau of Statistics on May 1.

    It showed that activity in China's manufacturing sector expanded for the second month in a row in April, but only marginally. The findings raised doubts about the sustainability of a recent pick-up in the world’s second largest economy.

    The output and new order sub-index stood at to 52.2 and 51 in April, compared with last month’s 52.3 and 51.4, respectively.

    The sub-index of new export orders, a proxy for the trade industry, stood at 50.1 in the month, compared with 50.2 in March, data showed.

    The sub-index for employment edged down 0.3 to 47.8 from the month prior, signaling a slightly faster contraction of labors in manufacturing enterprises.

    Separately, the private Caixin/Markit purchasing managers' index released on the same day showed factory activity dropped to 49.4 in April from March’s 49.7.
    Back to Top

    China Caixin April manufacturing PMI 49.4 vs 49.7 in March

    Activity in China's manufacturing sector unexpectedly declined further in April, a private survey showed Tuesday, reviving doubts over the health of the world's second-largest economy.

    The Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.4 in April from 49.7 in March, according to Markit, which compiles the index. A reading above 50 indicates expansion; one below indicates contraction.

    Economists polled by Reuters had forecast a reading of 49.9.

    The Caixin PMI, which focuses on smaller and medium-sized enterprises, was last in expansionary territory in February 2015. The official PMI, which targets larger companies, printed at 50.2 in April, the second successive month of expansion, figures released over the weekend showed.

    The survey findings follow recent economic data that appeared to suggest that China's economy was slowly regaining its poise after a torrid 12 months. China's exports rose at their fastest clip in a year in March, while industrial profits also picked up in the first quarter.

    A flurry of rate cuts and easing of reserve requirement have helped bolster sentiment, while the capital outflows that had unnerved sentiment at the start of the year have slowed.

    The Caixin survey, however, cast a more somber picture. Respondents reported stagnant new orders, while new export work fell for a fifth month running. Companies shed staff as client demand was muted.

    "The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn," said He Fan, chief economist at Caixin Insight Group.
    Back to Top

    China stats bureau halts some commodity data amid probe

    China stats bureau halts some commodity data amid probe

    China has suspended the release of output data for several key commodities amid a crackdown on the illegal sale of state statistics by government officials, raising further concerns about transparency in the world's second-largest economy.

    With Chinese economic growth at a 25-year low, the lack of such data makes it increasingly difficult for economists to gauge the strength of local demand as Beijing tries to avert a faster slowdown.

    Key monthly output numbers for several oil and metal products over the first quarter have still not been published, and the National Bureau of Statistics (NBS) has also failed to release regional data for products like coal, steel and electricity since the turn of the year.

    Officially, the NBS only releases a few key commodities statistics through its website (, though more detailed numbers have been made available through unofficial channels, including third-party distributors and industry consultancies.

    Most of those numbers have now dried up after China's corruption watchdog, the Central Commission of Discipline Inspection (CCDI), launched a probe into "disciplinary violations" at the NBS last October.

    The bureau head, Wang Baoan, was removed from his post in late February after being put under formal investigation.

    CCDI said last week that hundreds of staff working for the statistics bureau had been using official data for personal gain.
    Back to Top

    British "Spies" Among Thousands Of names Exposed Following Massive Leak At Largest Mid-East Bank

    The Panama Papers leak was for appetizers. The real leak, one which took place quietly and under the radar a few days ago, and may have exposed far more wealthy and important individuals, was that of the Qatar National Bank - the Middle East's largest lender by assets - where a massive 1.5 GB data dump posted online last week exposed the personal data of thousands of clients.

    According to IBT, the massive data dump appears to contain hundreds of thousands of records including customer transaction logs, personal identification numbers and credit card data.Additionally, dozens of separate folders consist of information on everything from Al Jazeera journalists to what appears to be the Al-Thani Qatar Royal Family and even contains a slew of records listed as Ministry of Defence, MI6 (the UK foreign intelligence service) and Qatar's State Security Bureau, also known as "Mukhabarat".

    The bank told Reuters it had taken immediate steps to ensure customers would not suffer any financial loss after the security breach although it was not clear how the bank planned to protect accounts whose details, including customer names and passwords, have already been published.

    "We are taking every measure to protect the privacy of our customers and have engaged an external third party expert to review all our systems to ensure no vulnerabilities exist," the bank said in a statement on Sunday. "All our customers’ accounts are secure."

    Except, of course, all those thousands whose data is already in the public domain.

    According to Reuters, the 1.5GB trove of leaked documents posted online included the bank details, telephone numbers and dates of birth of several journalists for satellite broadcaster Al-Jazeera, supposed members of the ruling al-Thani family and government and defense officials.
    Back to Top

    Iraq Declares State of Emergency After Green Zone Breach

    Iraq declared a state of emergency in Baghdad after supporters of Shiite Muslim cleric Moqtada al-Sadr breached Baghdad’s fortified Green Zone and stormed parliament to protest against corruption and the country’s political paralysis.

    Mobile-phone video footage broadcast on Iraqi televisions showed hundreds of al-Sadr’s supporters inside the legislature on Saturday. Al-Sadr earlier accused lawmakers of sectarianism in their selection of ministers and ordered his bloc to withdraw from the parliament session where members were preparing to finish voting on a new cabinet.

    Iraqi protesters cheer after breaking into Baghdad’s Green Zone on April 30.
    Photographer: Haidar Mohammed/ALI/AFP/Getty Images

    Storming parliament and the Green Zone, which houses ministries and foreign embassies, marks an escalation in a crisis that has undermined Prime Minister Haidar al-Abadi ’s reform push and stymied efforts to defeat Islamic State militants. Abadi’s plan to set up a cabinet of technocrats has so far failed as parties fight to preserve a system of patronage.

    “The situation in Iraq has become very dangerous,” said Wathiq al-Hashimi, a Baghdad-based political analyst. “No one will be able to control thousands of angry protesters while the rest of residents in Baghdad are in panic and living in real fear.”

    Almost two years after Islamic State captured Mosul, the country’s biggest northern city, government forces are struggling in the fight against the militant group. The war, as well as the plunge in oil prices have battered the finances of OPEC’s second-largest producer. The government is in talks to secure a loan from the International Monetary Fund, which expects the nation’s non-oil economy to contract for a third year in 2016.
    Back to Top

    Oil and Gas

    Shift in Saudi oil thinking deepens OPEC split

    As OPEC officials gathered this week to formulate a long-term strategy, few in the room expected the discussions would end without a clash. But even the most jaded delegates got more than they had bargained with.

    "OPEC is dead," declared one frustrated official, according to two sources who were present or briefed about the Vienna meeting.

    This was far from the first time that OPEC's demise has been proclaimed in its 56-year history, and the oil exporters' group itself may yet enjoy a long life in the era of cheap crude.

    Saudi Arabia, OPEC's most powerful member, still maintains that collective action by all producers is the best solution for an oil market that has dived since mid-2014.

    But events at Monday's meeting of OPEC governors suggest that if Saudi Arabia gets its way, then one of the group's central strategies - of managing global oil prices by regulating supply - will indeed go to the grave.

    In a major shift in thinking, Riyadh now believes that targetting prices has become pointless as the weak global market reflects structural changes rather than any temporary trend, according to sources familiar with its views.

    OPEC is already split over how to respond to cheap oil. Last month tensions between Saudi Arabia and its arch-rival Iran ruined the first deal in 15 years to freeze crude output and help to lift global prices.

    These resurfaced at the long-term strategy meeting of the OPEC governors, officials who report to their countries' oil ministers.

    According to the sources, it was a delegate from a non-Gulf Arab country who pronounced OPEC dead in remarks directed at the Saudi representative as they argued over whether the group should keep targeting prices.

    Iran, represented by its governor Hossein Kazempour Ardebili, has been arguing that this is precisely what OPEC was created for and hence "effective production management" should be one of its top long-term goals.

    But Saudi governor Mohammed al-Madi said he believed the world has changed so much in the past few years that it has become a futile exercise to try to do so, sources say.

    "OPEC should recognise the fact that the market has gone through a structural change, as is evident by the market becoming more competitive rather than monopolistic," al-Madi told his counterparts inside the meeting, according to sources familiar with the discussions.

    "The market has evolved since the 2010-2014 period of high prices and the challenge for OPEC now, as well as for non-OPEC (producers), is to come to grips with recent market developments," al-Madi said, according to the sources.

    Dispensing with price targets represents a massive change in Saudi thinking. This is now being driven largely by 31-year-old Deputy Crown Prince Mohammed bin Salman, who took over as the ultimate decision maker of the country's energy and economic policies last year.

    When oil was viewed as scarce, the kingdom thought it had to maximise its long-term revenues even if that meant pumping fewer barrels and yielding market share to rival producers, according to several sources familiar with the Saudi thinking.

    With the importance of oil declining, Riyadh has decided it is wiser to prioritise market share, the sources say. It believes it will be better off producing more at today's low prices than reducing output, only to sell the oil for even less in the future as global demand ebbs.

    On top of this, Riyadh has pressing short-term needs including tackling a budget deficit which hit 367 billion riyals ($97.9 billion) or 15 percent of gross domestic product in 2015.

    "The oil industry is, relatively speaking, not a growth industry any more," said one of the sources familiar with the Saudi views inside the OPEC governors' meeting.

    In the past, low oil prices used to push global demand much higher but today's rising efficiency of motor vehicles, new technology and environmental policies have put a lid on growth.

    Despite record low prices in the past year, demand is not expected to grow by more than 1 million barrels per day in 2016, just one percent of global demand.

    One thing is guaranteed: the kingdom will not go back to the old pattern of cutting output any time soon to support prices for the benefit of all producers, Saudi sources say.

    "The bottom line is that there will be no free riders any more," al-Madi said at Monday's meeting. "Some OPEC members should 'walk the talk' first," he told his colleagues.

    Even Riyadh's rivals doubt it will perform any U-turn. "Saudi Arabia doesn't give a damn about OPEC any more. They are after U.S. shale, Canadian oil sands and Russia," a non-Gulf OPEC source said.
    Back to Top

    LNG Contracts With No End in Sight Spur Buyers to Renegotiate

    For LNG buyers, 2040 is beginning to feel even further away.

    Just a few years ago, faced with limited supply and relentless demand growth, liquefied natural gas buyers were happy to lock in contracts that ran through nearly the middle of the century, often paying prices linked to the cost of oil. Now, as the market moves deeper into oversupply, being tied to a producer for the next two decades is shifting from a blessing to a curse.

    Less than 15 percent of long-term LNG supply contracts will expire in the next five years, according to data compiled by Bloomberg. Meanwhile, new projects in Australia and the U.S. are saturating the world with LNG, depressing spot prices 33 percent this year in Asia’s energy trading hub of Singapore, even as oil has risen about 20 percent. That’s giving buyers the incentive to try to renegotiate their deals with suppliers, according to analysts at Citigroup Inc. and Energy Aspects Ltd.

    “Serious tensions will be seen in the market when oil starts transitioning to higher levels, driving contracted gas prices upwards,” Trevor Sikorski, an analyst with Energy Aspects in London, said by e-mail. “At the same time, the LNG spot market should stay low -- and that wider gap between the two prices will mean a number of buyers unhappy with that spread and this will drive calls for renegotiation.”

    Buyers Emboldened

    Petronet LNG Ltd. in December renegotiated its deal with Qatar’s RasGas Co., resulting in a drop by more than half of the price the Indian importer was paying. China National Petroleum Corp. wants new prices in its deal with Qatar, Chairman Wang Yilin said in March. Cnooc Ltd. Vice President Li Hui said last month the company is negotiating within its existing contract with Royal Dutch Shell Plc’s BG Group unit for 8.6 million tons of LNG a year.

    Petronet’s negotiations allowed it to drop the price it’s paying for LNG to less than $5 per million British thermal unit, Oil Minister Dharmendra Pradhan said last week. The price was about $13 last year. In return, Petronet agreed to increase it’s purchases from Qatar.

    “For India, achieving a low LNG import price at less than $5 per million Btu, based on prevailing oil prices through contract renegotiation, should embolden other parties to press for similar or even better terms,” Citigroup analysts including Ed Morse said in a research note Thursday. “Indeed, Asian buyers appear to be waiting for LNG sellers to acquiesce amid the looming oversupply.”

    Breaking the Oil Link

    About two-thirds of 160 long-term contracts with known commercial terms are linked to oil prices, according to data compiled by Bloomberg. That includes deals signed in 2009 in which Osaka Gas Co. Ltd and Chubu Electric Power Co. Inc. agreed to pay Chevron Corp. for LNG from the Gorgon project in northwest Australia based on Japanese crude import costs through 2040.

    Buyers will try to change the basis of their deals from an oil-based index to a natural gas index such as Henry Hub in the U.S. to protect against an expected divergence in oil and gas prices, Sikorski said. The crash in energy prices has made other hedging options more affordable, said Melissa Stark, energy managing director and global LNG lead at Accenture. Importers can invest in midstream assets, like shipping and storage, or even buy stakes in U.S. shale projects and fields.

    “There are more options for buyers,” Stark said by e-mail. “But with these options come more complexity, the need for trading and risk management capability.”

    As some long-term contracts end, buyers will be looking to enter deals that are shorter in duration and smaller in volume, Gautam Sudhakar, IHS Inc.’s director of global LNG, said by e-mail. Projects that supply LNG for these expiring contracts are typically older and have paid off debts, so they will be able to add supply at competitive prices to the spot and short-term markets, he said.

    Attached Files
    Back to Top

    Apache's surprise savings signal U.S. drillers not done with cuts

    Apache Corp's cost savings in the first three months of 2016 exceeded its own expectations and are likely to continue even if oilfield services costs rise, executives of the Houston-based oil and gas producer said on Thursday.

    The cost cuts mean the company could achieve its goal of cash flow neutrality for 2016 with oil prices at $35 per barrel and natural gas prices at $2.35 per million British thermal units, Chief Executive John Christmann told investors on a conference call to discuss first quarter results.

    The surprise savings come despite concerns that U.S. shale companies might have hit a wall in cost or productivity improvements, and are the latest sign that cost reductions could allow U.S. shale producers to keep drilling and pumping even if prices fail to recover significantly from a nearly two-year rout.

    "Six quarters into the downturn, we are still achieving significant quarter on quarter cost improvements," Christmann said, noting that well cost reduction efforts "continued to exceed our expectations."

    He said these cost reductions "are more than belt-tightening efforts in response to the downturn."

    U.S. oil prices have fallen 60 percent since mid-2014 amid a global glut, but have rebounded since falling to nearly $26 per barrel in February, ending Thursday at about $44 a barrel. Natural gas futures settled at $2.08.

    Christmann acknowledged skepticism around the sustainability of the company's cost-cutting hopes, particularly if demand for oilfield services rebounds, but said Apache's structural changes would help its bottom line "regardless of where oil prices and service costs go in the future."

    Overall, the company's well costs in key North American onshore plays were 45 percent below 2014 levels, with oilfield with service cost savings making up half the decline and design and efficiency savings making up the other half.

    Chief Financial Officer Steve Riney noted that capital costs in North American regions for the quarter were lower than the company had budgeted for, led by savings in the Permian basin.

    Some steps that helped Apache save costs in the Permian included modifying fracture intensity and optimizing fluid levels.
    Back to Top

    Eclipse Res. 1Q16: Drills Longest Shale Well Ever! “Purple Hayes”

    Eclipse Resources released their first quarter 2016 update yesterday.

    Although Eclipse, a Marcellus/Utica pure play driller headquartered in State College, PA (but drilling mostly in Ohio), has curtailed or shut-in some of it’s production given low prices for gas, they still posted an impressive 26% increase in production in 1Q16 over 1Q15.

    While we’ve heard of Prince and his “Purple Rain,” we hadn’t heard of Eclipse’s “Purpose Hayes”–which is a Utica well with an underground lateral reaching out 18,500 feet–3.5 miles!

    During 1Q16 Eclipse drilled their Purple Hayes well in under 18 days. Amazing! Even more amazing–the well was completed with 124 frac stages. It is believed to be the longest onshore later well ever drilled. Kudos to Eclipse!

    On the downside, the company lost $41 million in 1Q16…
    Back to Top

    Rice Energy 1Q16: Prod. Up 53%; Drilled 19 New Wells; Lost $21M

    Rice Energy, one of the newest and brightest drillers in the Marcellus/Utica, released their first quarter 2016 update yesterday. 

    The company reports production averaged 675 million cubic feet equivalent per day (Mmcfe/d) during 1Q16, a 53% increase over 1Q15 (and up 8% from 4Q15). 

    On the financial side the company lost $21 million during 1Q16, versus making $152,000 in 1Q15. Pretty mild compared to most. 

    During 1Q16 Rice drilled 11 new Marcellus wells and 8 new Utica wells. Good to see someone is still drilling!
    Back to Top

    Chesapeake surges after Q1 earnings come in line; firm reports assets sale

    Chesapeake Energy Corp. on Thursday said its first-quarter loss narrowed as the embattled energy producer posted a smaller asset write-down than a year earlier as the result of low oil and gas prices.

    Chesapeake also reached a deal to sell acreage in the Anadarko Basin Stack play to Newfield Exploration Co. for $470 million, part of Chesapeake’s broader efforts to improve its balance sheet and ride out the commodities downturn.

    Shares rose 12% to $6.33 in recent premarket trading. The U.S. shale driller in February said was is aiming to raise as much a $1 billion this year by selling noncore assets.

    Chief Executive Doug Lawler said the deal with Newfield “accelerates value from a portion of our undeveloped acreage that currently generates very little cash flow, giving us the ability to enhance current liquidity.”

    ”This transaction contributes substantially to achieving our previously announced target of an incremental $500 million to $1 billion of asset sales by year-end,” Mr. Lawler said. “We anticipate subsequent divestitures during the second and third quarters.”

    Over all, Chesapeake Energy reported a first-quarter loss of $964 million, or $1.44 a share, compared with a year-earlier loss of $3.74 billion, or $5.72 a share. Excluding the asset write-down and other one-time items, the adjusted per-share loss was 10 cents. Revenue fell 39% to $1.95 billion.

    Analysts polled by Thomson Reuters expected a loss of 10 cents a share on revenue of $2.55 billion.

    The Oklahoma City company was co-founded in 1989 by the lateAubrey McClendon, who died in a car crash in March, a day after he was indicted on a charge of conspiring to rig bids on oil and gas leases in Oklahoma. A pioneer the shale energy boom, Mr. McClendon’s extreme risk-taking had caused him personal and professional financial hardships that spurred activist investors, including Carl Icahn, to oust him as Chesapeake’s chief executive in 2013.
    Back to Top

    Israel Minister Sees Solutions to Gas Impasse, Turkey Rift

    Israel will soon submit to Noble Energy Inc. and Delek Group Ltd. a proposal meant to unblock stalled development of the Leviathan natural gas field and allow exports to Egypt and Turkey, Energy Minister Yuval Steinitz said.

    The proposal would be a “softer” version of the government’s offer to promise the energy explorers regulatory stability for 10 years, which Israel’s highest court struck down in March, Steinitz said Wednesday in an interview in his Jerusalem office.

    “We are seeking to reach a solution soon, in a matter of weeks, no more than a couple of months,” he said. “I think we are very close and I think if both sides show some flexibility here, we can move forward.” He declined to go into details.

    The absence of a regulatory framework has held up the development of Leviathan, Israel’s largest gas reserve, discovered in 2010, and hindered production at the smaller Tamar field. It also has blocked export deals and antagonized investors, making it harder for Texas-based Noble and units of Israel’s Delek to secure financing at a time when energy prices have tumbled.

    Delek Group gained 1.3 percent at 4:55 p.m. in Tel Aviv. A company spokeswoman didn’t immediately return a request for comment and a Noble spokeswoman declined to comment on government discussions.

    Exceeded Authority

    Steinitz is leading a team of government officials trying to work around the court’s objection to the so-called stability clause, which it said exceeded the government’s authority. The government proposal that’s shaping up would provide Noble and Delek with some measure of stability, but not as much as the original commitment, Steinitz indicated.

    “We will probably see some kind of softer stability commitment, but still significant,” he said. “I want to give them something which is softer but still substantial, which according to our experts has a reasonable chance not to be rejected by the court once again.”

    Last month, Steinitz said the gas explorers may end up with a better deal as the government weighed incentives -- including debt guarantees and financial compensation -- for any damages resulting from regulatory changes. Asked on Wednesday whether those options were still on the table, he said he didn’t want to go into specifics.

    Government legal advisers think such offers would be struck down by the court, according to a Finance Ministry official who wasn’t authorized to comment on record and spoke on condition of anonymity.
    Back to Top

    New technology offers fresh bounty from existing fields, BP says

    Oil producers can expect to pump far more barrels from existing oil and gas fields than from fields yet to be discovered, two of BP plc’s energy analysts said Wednesday.

    BP, the London-based supermajor, estimates that the world will need about 2.5 trillion barrels of oil equivalent to meet its energy needs through 2050. About 4.8 trillion in reserves can technically be recovered using today’s technology and another 2.0 trillion can be unlocked through enhanced recovery techniques, such as flooding wells older with water to drive more oil to the surface. Not all of those barrels will be tapped.

    “If you apply the best technogly even in just conventional, giant fields than you can add lot of barrels over the next 20 years,” said David Eyton, group head of technology at BP.

    The shift reflects the steady march of technology that has allowed producers to recover a greater percentage of oil from discovered reservoirs, as well as the addition of vast new reserves over the past decades from onshore shale basins.

    Rrecoverable oil and gas reserves from already discovered fields vastly outnumber the roughly 700 billion additional barrels of oil and gas equivalent BP expects will be discovered through 2050.

    The largest addition of extra reserves has already come in the past decade, when oil drillers figured out how to unlock the oil and gas locked away in shale by pumping water and sand into the ground at high pressure. The discovery has had producers examining shale reserves all over the world, and added a huge amount of on-paper barrels that could be pulled to the surface.

    But shale oil has challenges too. The complex wells are often more expensive than more simple conventional ones. And while shale rocks exist all over the globe, the fracturing process has only been widely used in the U.S., and even there low prices have reduced activity to only a handful of the most productive basins. Producers are only currently able to pull a small amount of total oil and gas in the rock to the surface.

    “All the shale oil and all the shale gas around the world is now potentially exploitable,” Eyton said. “So the amount of oil and gas you can go for has jumped hugely. But the recoveries from it are very low.”

    The high cost of both unconventional reserves and exploring for new fields means that producers have been more willing to devote resources to making existing fields more productive. BP plc itself produces about 10 percent of the light oil pumped through enhanced oil recovery, or methods of squeezing more crude out of older oil wells.

    The company said it’s expecting those techniques to get better as time goes on. BP said it’s experimenting with high-tech chemical solutions that can be pumped into wells to drive more oil to the surface, as well as advanced computer models that help the company decide how to drill wells that will bring the most oil out of a reservoir.

    Ultimately, that could mean that companies hungry for oil could find it a better deal to go back to their old fields than to go searching the globe for new ones, Eyton said. Enhanced recovery is “beginning to challenge exploration as a lever on supply to the world’s consumption,” he said.

    Attached Files
    Back to Top

    Occidental Petroleum Posts Wider-than-expected Loss; Ups Production Growth View

    Occidental Petroleum Corp.reported Thursday that its first-quarter income was $78 million or $0.10 per share, compared to loss of $218 million or $0.28 per share last year.

    Core results for the first quarter of 2016 were a loss of $426 million or $0.56 per share, compared to profit of $31 million or $0.04 per share a year ago.

    On average, 23 analysts polled by Thomson Reuters expected loss of $0.40 per share for the quarter. Analysts' estimates typically exclude special items.

    Total oil and gas results reflected a loss of $388 million, compared to loss of $22 million last year.

    Total net sales declined to $2.28 billion from last year's $3.10 billion. Analysts were looking for revenues of $2.35 billion.

    Looking ahead, for fiscal 2016, the company production growth outlook increased to 4 to 6 percent with the same capital budget of $3.0 billion.

    Previously, production growth was expected to be 2 to 4 percent from ongoing operations.
    Back to Top

    Egypt to receive first LNG shipment from Rosneft in May

    Egypt will receive the first of five agreed shipments of liquefied natural gas (LNG) from Russia's Rosneft this month, an official at the state gas board EGAS told Reuters on Thursday.

    Last year Egypt and Rosneft signed a memorandum of understanding for a slew of petroleum products as well as 24 LNG cargoes. Only five of the 24 initially agreed cargoes were later inked into a final deal.

    "We're receiving the first shipments of LNG from Rosneft this month out of the five shipments that were agreed upon," said the EGAS official, declining to provide the value of the shipment or its size.

    Once an energy exporter, Egypt has turned into a net importer because of declining oil and gas production and increasing consumption. It is trying to speed up production at recent discoveries to fill its energy gap as soon as possible.

    Rosneft, Russia's biggest oil producer, does not produce its own LNG yet but plans to launch production jointly with Exxon Mobil after 2018.
    Back to Top

    Saudis Said to Boost Oil Pricing for Asia by Most in 14 Months

    Saudi Arabia was said to raise its pricing for June oil sales to Asia by the most since April 2015, in a sign that the world’s biggest exporter is expecting demand to recover as the global crude market rebalances.

    State-owned Saudi Arabian Oil Co. increased its official selling price for Arab Light crude to Asia by $1.10 a barrel to 25 cents more than regional benchmarks Oman and Dubai, said people with knowledge of the matter who asked not to be identified because the information is confidential. The company, known as Saudi Aramco, was predicted to raise its pricing for the grade by 65 cents a barrel, according to the median estimate in a Bloomberg survey of five refiners and traders.

    The Middle East producer is increasing the cost of its supplies to the largest oil-consuming region amid unplanned outages and disruptions that have helped curb a global oversupply and as signs of demand emerge. Benchmark prices have rallied more than 60 percent since mid-February, rebounding from the biggest crash in a generation after a global glut prompted by the U.S. shale boom led to an industry downturn.

    Arab Light’s price to Asia for June is the highest since September 2015, and it’s only the third time the grade is being sold at a premium to the benchmarks since Saudi Arabia in November 2014 launched OPEC on its market strategy. The group continued to pump supplies even as prices cratered, forcing higher-cost production elsewhere to shut down.

    “Refinery demand is expected to recover,” said Ehsan Ul-Haq, a senior analyst at industry consultant KBC Energy Economics in London. “Cargoes loaded in June will arrive in Asia in July, when demand will return after the seasonal turnaround period. Saudi Arabia may also use more crude at home in the summer, when electricity usage typically rises.”

    Aramco will sell Arab Medium for June to Asia at $1.30 a barrel below benchmark prices, and Arab Heavy at a discount of $2.75 a barrel. The company also raised the premium for Arab Super Light crude to Asia by $1 a barrel to $3.95 a barrel over benchmarks, and Arab Extra Light by 80 cents a barrel to $2.60 a barrel.

    The Organization of Petroleum Exporting Countries, of which Saudi Arabia is the largest producer, abandoned its production target at its most-recent meeting in December. The group has pumped more than the previous 30 million-barrel-a-day target since June 2014. Saudi Arabia produced 10.27 million barrels a day in April, according to data compiled by Bloomberg. OPEC is scheduled to meet June 2 in Vienna.
    Back to Top

    Cimarex Permian.

    Image titleImage title
    Back to Top

    Canadian Natural Resources reports smaller quarterly loss

    Canadian Natural Resources Ltd., the nation’s largest heavy-oil producer, reported a narrower first-quarter loss as production volumes met forecasts and costs dropped.

    The net loss shrank to C$105 million ($81.9 million), or 10 cents a share, from C$252 million, or 23 cents, a year earlier, the Calgary-based company said Thursday in a statement. Excluding one-time items, the per-share loss from operations was 50 cents, beating the 58-cent loss expected by analysts, according to the average of 15 estimates compiled by Bloomberg.

    Canadian Natural has lowered costs, slowed drilling and reduced salaries as it seeks to avoid job cuts in the slump, and remains focused on completing expansions of the Horizon oil-sands mining project this year and next. The company turned off some unprofitable natural-gas supplies in the first quarter and reduced heavy-oil volumes as it conducted repairs at its Kirby and Primrose East projects.

    “Along with a cost-focused culture and track record of solid execution, one of the things we like about CNQ is its upstream growth and emerging free cash flow generation once its Horizon oil-sands expansion bears fruit in late 2017,” Greg Pardy, an analyst at RBC Dominion Securities in Toronto, wrote in an April 6 note. “CNQ’s most important potential catalyst revolves around operating performance at its Horizon oil-sands project.”

    Production fell to the equivalent of 844,531 barrels a day in the quarter from 898,053 barrels a day a year earlier, according to the statement. West Texas Intermediate crude averaged $33.63 a barrel, down 31 percent from the same period last year.
    Back to Top

    Marathon Oil announces first quarter 2016 results; reported net loss $407 million

    Marathon Oil Corporation today reported a first quarter 2016 adjusted net loss of $317 million, or $0.43 per diluted share, excluding the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. The reported net loss was $407 million, or $0.56 per diluted share.


    First quarter total Company net production averaged 388,000 net boed at the upper end of guidance; U.S. resource play production averaged 204,000 net boed
    Reduced North America E&P production costs to $6.17 per boe, or 22% below year-ago quarter
    New Eagle Ford high-GOR oil wells with tighter stage spacing continue to perform approximately 20% above offset wells; high-GOR oil wells represent approximately 60% of Eagle Ford future well inventory
    Announced $950 million in sales of non-core assets in April, bringing total to approximately $1.3 billion since August 2015, exceeding high end of targeted range
    Quarter-end liquidity of $5.4 billion comprised of $2.1 billion in cash and undrawn $3.3 billion revolving credit facility

    'Since the beginning of the year, we've made significant additional progress strengthening our balance sheet. This provides us substantial flexibility in this period of market uncertainty and prepares us to respond to more constructive and sustainable pricing,' said Marathon Oil President and CEO Lee Tillman. 'With the backdrop of crude and condensate realizations falling more than 20 percent in the first quarter, we remained focused on lowering costs, reducing our capital program consistent with our plan, and delivering production at the upper end of guidance. Additionally, we maintained our commitment to portfolio management with the recently announced $950 million of non-core asset sale transactions, exceeding our target for 2016. With these actions, we're on track to achieve our objective of living within our means in 2016.'North America E&P

    North America Exploration and Production (E&P) production available for sale averaged 239,000 net barrels of oil equivalent per day (boed) for first quarter 2016. On a divestiture-adjusted basis, it was down 5 percent from the prior quarter and down 10 percent from the year-ago period due to reduced drilling and completion activities. First quarter North America production costs were 18 percent lower than the previous quarter. On a per barrel basis, unit production costs were $6.17 per barrel of oil equivalent (boe), 11 percent lower than fourth quarter 2015 and down 22 percent from the year-ago period.

    Lots more detail:
    Back to Top

    Repsol Profit Beats Analyst Estimates on Chemicals, Refining

    Repsol SA, the worst-performing major European oil stock over the past year, beat analysts’ estimates as the performance at the refining and chemicals division compensated for low oil prices.

    First-quarter adjusted net income dropped to 572 million euros ($657 million) from 928 million euros a year earlier, the Madrid-based producer said Thursday in a statement. That beat the average 261 million-euro estimate of 11 analysts surveyed by Bloomberg. The exploration and production division, which pumped 714,000 barrels of oil equivalent per day in the quarter, posted a 17 million-euro profit, up from a 190 million-euro loss a year earlier.

    Like most of the oil industry, Repsol is slashing costs, cutting staff and seeking to divest assets to weather the slump in crude to a 12-year low. Things have been made worse by the $13 billion acquisition last May of Talisman Energy, which burdened it with debt and extra assets to offload. To cut costs further, Repsol in February announced it will cut its dividend.

    Since oil began its slide in 2014, Repsol has leaned on downstream operations, including refining and petrochemicals, to boost its results, a strategy that also helped Total SA, BP Plc and Royal Dutch Shell Plc beat quarterly estimates. Last year, the division posted the best refining margins, a measure of profitability, among European competitors.

    On the production side, the company has become more reliant on natural gas over the past decade but gets paid less for it than most of its peers, with the second-lowest realized gas price among 12 companies tracked by Bloomberg Intelligence. Gas accounted for 59 percent of Repsol’s output last year, up from 50 percent a year earlier and more than any other European integrated oil company tracked by BI.
    Back to Top

    Shell's Q1 2016 gas realizations slump 36% on year, LNG volumes rise

    Shell, which in mid-February became a much bigger player in global gas markets with the closure of its $54 billion deal to buy BG Group, saw its realized gas prices slump in the first quarter of 2016, while its LNG sales received a boost from the BG consolidation.

    CEO Ben van Beurden also said Shell would continue to reduce spending, capture cost opportunities and manage the company's financial framework in light of the continued lower price environment.

    In an earnings statement Wednesday, Shell said its Q1 gas price realizations globally fell 36% year on year to an average of $3.58/Mcf ($3.47/MMBtu) from $5.62/Mcf in Q1 2015.

    In Europe, price realizations fell below $5/Mcf for the first time in at least five years, averaging just $4.89/Mcf in Q1, down 29% year on year.

    But it was in the US where the slump continued to be keenly felt, with Shell's average gas price realizations falling to just $1.69/Mcf in Q1, compared with $2.83/Mcf in the same quarter of 2015.

    And Shell's Asian gas price realizations in Q1 fell to $4.23/Mcf from $5.75/Mcf the previous year.

    "There was a sharp decline in prices compared with a year ago -- the realized gas price was 36% lower with a strong decline in gas prices seen in all markets," Shell CFO Simon Henry said on a quarterly conference call.

    Henry said there had been a recovery in oil and gas prices recently, "but it is far too soon to be calling a break in the weaker environment."

    While Shell's sales prices slumped, LNG sales rose in Q1 on the back of its BG acquisition, reaching 12.29 million mt -- 25% higher than in the same quarter last year.

    LNG liquefaction volumes of 7.04 million mt in Q1 were 14% higher than for the same quarter a year ago, of which BG contributed some 1.58 million mt.

    Total gas production soared in the quarter to 10.905 Bcf/d compared with 9.421 Bcf/d in the same period of 2015, again boosted by BG.

    European gas output represented around 30% of the total at 3.28 Bcf/d, while North American production was 1.59 Bcf/d, or 15% of the total.

    The remainder was produced in Asia (3.54 Bcf/d), Oceania (1.25 Bcf/d), Africa (855 MMcf/d) and South America (386 MMcf/d).
    Back to Top

    Oil Majors Use Billions to Profit From Contango Before It Fades

    Oil Majors Use Billions to Profit From Contango Before It Fades

    The largest energy companies in Europe bolstered first-quarter earnings by pumping several billion dollars’ worth of oil into storage tanks and holding it there, although the trading opportunity is starting to fade.

    Royal Dutch Shell Plc said on Wednesday it employed about $1 billion of capital between January and March buying oil for storage that would be sold later at a higher price. French oil major Total SA last week said it used $750 million on the strategy -- a so-called contango trade. While BP Plc hasn’t disclosed how much it spent, the company said its working capital increased by $800 million during the quarter.

    The disclosures highlight how the European oil majors’ trading operations benefited as the oil surplus created a contango market structure -- where prices for immediate delivery are lower than future months -- even as their profits from exploration and production plunged. The trio’s sway in commodities trading, largely unknown outside the industry, paid off in 2015, but repeating the strategy as the year progresses will be trickier, according to DNB Bank ASA.

    “The contango structure has been wide enough to pay off for onshore storage,” Torbjoern Kjus, an analyst at DNB Markets, said by phone. “They’re not going to repeat that kind of trading result in the second quarter, even less so in the third quarter,” because the contango is weakening as the surplus is diminished, he said.

    The spread between front-month Brent futures and contracts expiring 12 months later was as wide as $8.35 as of Dec. 11. The gap narrowed to $3.46 at 5:05 p.m. Wednesday on the London-based ICE Futures Europe exchange.

    Although better known for their oil fields, refineries, and fueling stations, BP, Shell and Total are also the world’s biggest oil traders, handling enough crude and refined products every day to meet the combined consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.

    “The trading business is very material for us now,” Simon Henry, the chief financial officer of Shell, said on a call with analysts Wednesday. “The billion dollars is effectively a contango play, holding inventories against future delivery.”

    Total, Shell and BP all posted first-quarter earnings that beat estimates, thanks to their refining, chemicals and also trading activities.
    Back to Top

    Wildfire Cuts Canadian Oil Output as 80,000 Flee Expanding Blaze

    A fire fueled by shifting winds that forced more than 80,000 people to flee their homes and disrupted oil-sands operations in Western Canada is poised to expand.

    The fire will probably grow to about 100 square kilometers (40 square miles), from around 80 now, Chad Morrison, a wildfire official, said Wednesday. Suncor Energy Inc., Cnooc Ltd.’s Nexen, Royal Dutch Shell Plc and Husky Energy Inc. are among companies reducing production and opening work camps to residents fleeing blazes in Alberta’s biggest-ever evacuation caused by a fire. Inter Pipeline Ltd. shut part of its system in the province. No deaths or injuries have been reported although 1,600 buildings have been damaged.

    Reduced output from the world’s fourth-biggest crude producer helped lift benchmark oil prices, with West Texas Intermediate gaining as much as 2.3 percent in New York and Brent advancing 1.9 percent in London on Thursday.

    Many residents of oil-sands hub Fort McMurray fled north to nearby sites where companies are flying out workers and making room for evacuees. Shell has shut its 255,000 barrel-a-day Albian Sands mine and Suncor, Syncrude Canada Ltd. and Connacher Oil & Gas Ltd. have also reduced output from the region. More than 1 million barrels a day of oil sands production capacity may be affected by the blaze, according to company statements and data published in Alberta’s Spring Oil Sands Quarterly.

    “My house and everything I own is gone,” Mike Marchand, a crane operator for Suncor, said in a phone interview from Edmonton, where he evacuated with his family after the trailer park where he lives in Fort McMurray went up in flames. “I’ve never had anything like this happen.”

    Suncor said it brought down its base plant while cutting output from its Firebag and MacKay River oil sands operations. Nexen shut its Long Lake facility, the company said on its website. The facility had already shut its 72,000 barrel-a-day upgrader and had reduced bitumen extraction after a Jan. 15 explosion.

    Husky cut production at its Sunrise facility to 10,000 barrels a day from 30,000 after Inter Pipeline shut a diluent line to the plant, company Spokesman Mel Duvall said. Connacher cut about 4,000 barrels a day of output at its Great Divide project. Inter Pipeline said it shut part of its Corridor and Polaris systems.
    Back to Top

    Summary of Weekly Petroleum Data for the Week Ending April 29, 2016

    U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending April 29, 2016, 139,000 barrels per day more than the previous week’s average. Refineries operated at 89.7% of their operable capacity last week. Gasoline production increased last week, averaging over 9.8 million barrels per day. Distillate fuel production decreased last week, averaging 4.6 million barrels per day.

    U.S. crude oil imports averaged about 7.7 million barrels per day last week, up by 110,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 8.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 946,000 barrels per day. Distillate fuel imports averaged 126,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 543.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories increased by 0.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.3 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.7 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.

    Total products supplied over the last four-week period averaged 20.1 million barrels per day, up by 5.8% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.5 million barrels per day, up by 5.8% from the same period last year. Distillate fuel product supplied averaged over 4.0 million barrels per day over the last four weeks, up by 4.3% from the same period last year. Jet fuel product supplied is up 4.8% compared to the same four-week period last year.

    Weekly avg crude imports from Saudi Arabia rise 105% to 1.55m b/d, highest since May 2014
    Back to Top

    Big weekly drop in US oil production

                                                 Last Week    Week Before     Last Year

    Domestic Production '000........ 8,825             8,938              9,369
    Back to Top

    Devon Energy reports first quarter 2016 results

    'In spite of the challenging industry conditions, Devon achieved another high-quality operating performance in the first quarter as we continued to take the appropriate steps to deliver significant cost reductions and accelerate efficiency gains across our portfolio,' said Dave Hager, president and CEO. 'These successful efforts resulted in production exceeding the midpoint of guidance for all products and operating costs declining by more than 20 percent year over year. Additionally, G&A costs savings remain on track to reduce overhead by up to $500 million on an annual basis.'

    'Looking ahead, our top priority is to maintain a strong balance sheet,' said Hager. 'We are balancing capital requirements with cash flow and enhancing our financial strength by utilizing asset sale proceeds to reduce debt. This disciplined financial strategy positions us to take advantage of our world-class resource plays when prices incentivize higher activity levels.'

    Raising 2016 Production Guidance

    Devon's reported oil production averaged 285,000 barrels per day in the first quarter of 2016. Of this amount, 255,000 barrels per day were from the Company's core assets, where investment will be focused going forward. Oil production from these assets increased 10 percent year over year, exceeding the midpoint of guidance by 5,000 barrels per day.

    Overall, net production from Devon's core assets averaged 581,000 oil-equivalent barrels (Boe) per day during the first quarter, surpassing the midpoint of guidance by 6,000 Boe per day. With the strong growth in higher-margin production, oil is now the largest component of Devon's product mix at 44 percent of total production.Given the strong year-to-date production performance, Devon has raised the midpoint of its 2016 guidance by 15,000 Boe per day, or 3 percent. This incremental production is expected to be delivered without additional capital spending.

    Strong Operating Costs Performance in Q1; Additional Savings Expected

    The Company has several cost-reduction initiatives underway that positively impacted first-quarter results. The most significant operating cost savings came from lease operating expenses (LOE), which is Devon's largest field-level cost. LOE declined 21 percent compared to the first quarter of 2015 to $7.13 per Boe, and LOE was $6 million below the bottom-end of guidance. The decrease in LOE was primarily driven by improved power and water-handling infrastructure, declining labor expense and lower supply chain costs.

    With these outstanding results in the first quarter and additional cost savings expected throughout 2016, the Company is lowering its full-year LOE outlook by $50 million to a range of $1.75 billion to $1.85 billion. Due to these additional savings, the Company expects field-level costs, which include both LOE and production taxes, to decline by up to $400 million for the full-year 2016.

    Devon also realized significant general and administrative (G&A) cost savings in the first quarter. G&A expenses totaled $194 million, a 23 percent improvement compared to the first quarter of 2015. This decrease was driven by lower employee-related costs.

    Back to Top

    Dana Gas Profit Falls 50% as Output in Egypt to Iraq Declines

    Dana Gas PJSC, which produces natural gas in Egypt and Iraq, reported a 50 percent decline in first-quarter profit as sales slumped due to lower hydrocarbon prices and reduced output.

    Net income dropped to 22 million dirhams ($6 million) in the three months ended March 31 from 44 million dirhams in the same period a year earlier, Dana Gas said in an e-mailed statement on Wednesday. Sales dropped 29 percent to 301 million dirhams.

    Dana Gas sold condensate for an average $30 a barrel in the quarter, down 41 percent from a year earlier, and got an average $29 per barrel of oil equivalent for liquid petroleum gas, down 29 percent, according to the company. Production fell 12 percent in Egypt and 16 percent in the semi-autonomous Kurdish region in northern Iraq.

    The company and partners are discussing with the Kurdish Regional Government how it will get a $1.96 billion payment awarded to them in a November arbitration ruling,
    Chief Executive Officer Patrick Allman-Ward said on a conference call. A separate arbitration involving work in Iran on a gas import contract will begin Sept. 1 and last for two weeks, he said.

    Attached Files
    Back to Top

    Gazprom Said to Seek Exemption From Dividend Rule to Aid VEB

    Gazprom PJSC is asking the Russian government for a waiver from a new rule on dividends because the natural gas supplier may need to preserve cash to help bail out the state development bank, according to an official with knowledge of the matter.

    The energy company has asked the state to allow it to pay out less than 50 percent of its international-standard profit in dividends, two officials said, asking not to be identified as the information isn’t public. The government may support the request, according to one of the people. Gazprom said it may use the savings to buy its own shares back from the state lender, Vnesheconombank, the person said.

    Gazprom shares dropped as much as 6.1 percent to 158.25 rubles on the news, retreating from a more than three-year high.

    “The market is disappointed, though I’m personally not surprised,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. “Dividends under the new rule would be a huge burden for Gazprom amid less than perfect financial prospects.”

    Earnings Decline

    The state has been considering a rescue plan for Vnesheconombank, or VEB, which was hit with U.S. and European Union sanctions following Russia’s annexation of Crimea from Ukraine in 2014. One option is to have Gazprom purchase 2.7 percent of its own shares from VEB, people with knowledge of the matter said last month.

    At the same time, Russia is pushing for more funds from state companies as a collapse in the price of crude oil, the biggest source of budget revenue, deepens the recession and threatens to widen the deficit. While Gazprom faces a drop in its gas-export earnings to the lowest in 12 years, its shares rallied after the government’s April 18 order on boosting dividends at state companies.

    The state may support a proposal to let Gazprom distribute 50 percent of profit under Russian accounting standards instead of under international financial reporting standards, one of the officials said. Gazprom didn’t immediately comment.

    Gazprom’s management recommended an increase in the 2015 dividend by 2.8 percent to 7.4 rubles a share, which is equivalent to 50 percent of adjusted net income based on Russian accounting standards, less than a week before the government announced the new rule. That compares with a possible 16.62 rubles a share based on international-standard profit, which would be a record high.

    VEB’s stake in the gas producer had a value of 108 billion rubles ($1.6 billion), based on the most recent closing price in Moscow. Paying 50 percent of profit under Russian accounting standards, rather than international, may save Gazprom 218 billion rubles, according to Bloomberg calculations. The state should decide on a dividend recommendation before the company’s board meets on May 19.

    VEB bought the Gazprom stake from Germany’s EON SE in 2010, when the gas producer’s market capitalization was about $140 billion. It has since fallen to about $60 billion.

    Attached Files
    Back to Top

    Maersk says risks losing Qatar field, its largest oil asset

    Maersk says risks losing Qatar field, its largest oil asset

    Denmark's A.P. Moller-Maersk said for the first time on Wednesday there was a risk it could lose its largest oil producer, a 300,000 barrel per day Qatari field, and may not replace the production by buying other assets.

    Chief Executive Nils Smedegaard Andersen's comments give some insight into Maersk's view of how the oil industry will evolve, after oil prices more than halved in the past two years.

    The recently-streamlined conglomerate still considers Maersk Oil as core to its business and for years the expectation was that the Qatar field would be part of this as Maersk would renew a 25-year production agreement when its licence ran out in 2017.

    But the Gulf state surprised the company last year by putting out a tender for the Al Shaheen field, which Maersk Oil has been operating since 1992.

    "On Qatar, yes, we are in a tender process. That means, that there is a risk that we will lose Qatar but we don't feel that that should induce us to go out and do something dramatic on the M&A activity to replace volumes," Andersen told investors.

    Last year, Andersen was more upbeat about the tender process, saying Maersk had a good chance of winning it. He has also said Maersk would be interested in buying other oil assets because they have become so cheap due to falling crude prices.

    His latest comments came after the company said its Maersk Line shipping unit had returned to profit in the first quarter, surprising most analysts who had expected a loss.

    Andersen has overseen a streamlining of the sprawling conglomerate and has said Maersk would focus on shipping, port operations and oil and oil services.

    Maersk Oil's entitlement production from the Al Shaheen field was 164,000 bpd in the first quarter of this year, almost half of the company's total entitlement production of 350,000 bpd and by far the largest contributor to its portfolio.

    Maersk last year scrapped a target for the oil unit to increase entitlement production to 400,000 bpd in the coming years and slashed exploration spending due to low oil prices.

    In some years, Maersk Oil has contributed a third to half of group profits, though that dropped when oil prices fell.

    A Qatari oil source told Reuters the Gulf state had invited international majors to the tender because it wanted to raise production at the field to 500,000 bpd. The source said Exxon Mobil and Royal Dutch Shell were already long-standing partners. Total has also been invited to tender.

    Maersk Oil had originally planned for Al Shaheen's production to reach 525,000 bpd by 2010, after a 2005 field development plan was approved, but output remained at about 300,000 bpd. The oil reservoirs are notoriously thin and spread out across a vast area, making production difficult.
    Back to Top

    Algeria's gas exports to EU set to rise 15 percent in 2016: official

    Algeria expects to increase natural gas exports to Europe by 15 percent to over 50 billion cubic meters this year, more than recovering from the drop since 2013 as output rises from existing and new fields, a top industry official said.

    The North African OPEC member, the fifth-largest supplier of gas to Europe, is due to host talks with European Union officials and oil companies later this month on future gas supplies, as current contracts are due to expire in 2019-2021.

    Algerian gas exports to the European Union have been increasing since the fourth quarter of 2015, with the pace stepped up this year, said Omar Maaliou, the national oil company Sonatrach's deputy general manager in charge of marketing.

    "We anticipate a 15 percent increase in our exports (to Europe) in 2016 compared to 2015," he told Reuters.

    "We already recorded significant growth in the first four months of 2016 as exports by pipeline and LNG recorded a growth of over 30 percent compared to the same period in 2015."

    Two new liquefied natural gas plants were commissioned in 2013 and 2014 in addition to the existing plants. It also uses three export pipelines, two to Spain and one to Italy.

    Algeria exported over 44 billion cubic meters of gas in 2015 to Italy, Spain, France, Turkey, Portugal and Greece, the official said, down from 48 billion cubic meters in 2013 and 45 billion cubic meters in 2014.

    "The decline in recent years (between 2011 and 2015) is mainly due to the international economic crisis and the overall decline in consumption of natural gas in our core markets in Europe," Maaliou said.

    "In parallel, we recorded an increase in internal consumption."

    He said that 2016 will be a year of growth in hydrocarbon production with the start of production from new fields and increased volumes from existing fields.

    Four fields in the southwest and southeast are expected to come online in 2016.

    Longer term, Algeria, with the world's third-largest potential shale gas reserves, may turn to developing those non-conventional sources to sustain deliveries to the EU market, energy analysts say. But shale remains a politically sensitive subject in Algeria and even exploration is in its infancy.

    Algerian government and industry officials are due to meet with their European counterparts on May 23 and 24 in Algiers to discuss how to continue cooperation on gas, renewable energy and energy efficiency.

    Most of the current long-term gas export contracts between Algeria and European customers are due to start coming to an end in 2019 and 2020.
    Back to Top

    Ecopetrol Group Announces Its Results for the First Quarter of 2016

    - Amid the lowest Brent price of the last 12 years, in the first quarter of 2016 the Group achieved a net income attributable to shareholders of Ecopetrol of COP$363 billion.
    - Net income attributable to shareholders of Ecopetrol, increased 127% as compared to the first quarter of 2015.
    - Solid cash flow generation with an Ebitda margin of 39.5%, resulting in an Ebitda of COP$4.1 trillion for the first quarter of 2016.
    - Group's savings amounted COP$421 billion during the first quarter of 2016. The Company continues to demonstrate its capacity to adapt under an adverse price scenario.

    "The price environment in the first quarter of 2016 continued to defy the oil industry, which saw the value of crude reach US$28/barrel, a 12 year record low. Ecopetrol, however, managed to generate profits amid this challenging environment, focusing its efforts on reducing costs, increasing efficiency, producing profitable barrels and prioritizing cash generation.

    During the first quarter of 2016 the price of Ecopetrol´s crude basket fell 43% and its refining margin fell 24% in comparison to those of the same period of 2015. The actions undertaken to operate more efficiently and with lower costs, coupled with the positive impact of the devaluation of the exchange rate over our revenues and the recording of a lower financial net loss allowed to register a growth of 127% in net profit attributable to shareholders and to improve the EBITDA margin compared to those of the first quarter of 2015. Additionally, the Company maintained its operating margins and EBITDA at approximately COP$4,000 billion compared to the same quarter.

    Savings in costs and expenses contributed to the obtained results, these amounted to COP$421 billion in the first quarter of the year, against a target of COP$1,600 billion for all 2016. The efficiencies are mainly due to the optimization of purchasing and contracting plans, better procurement strategies and renegotiation of contracts.

    The reduction of the lifting cost, cash cost of refining and transportation costs, reported in the first quarter of 2016, compared to the same period last year, are a result of the progress made by the company pursuant to the Transformation Plan, the devaluation of the COP/USD exchange rate and austerity and activity reduction measures implemented in all business segments. Ecopetrol is working so that the obtained efficiencies become structural even in an environment of increasing prices in order to ensure profitable operations and financial sustainability.

    The adjustments in CAPEX and OPEX implemented since 2015, in line with lower oil prices and the strategic prioritization of value over volume led to programmed lower activity and lower production in the first quarter of 2016, which came to 737 thousand barrels equivalent per day, compared to 773 thousand in the first quarter of 2015. This fall also reflects the natural decline and the temporary closure of some fields caused by low profitability or judicial decisions. Once market conditions and cash availability improve, the Company expects to increase levels of investment in exploration and production and give way to investments that have been postponed in this low crude oil price environment.

    In exploration, the deep water appraisal well Leon 2 in the Gulf of Mexico of the United States was completed. This one is operated by Repsol, which holds a 60% stake. The remaining 40% belongs to Ecopetrol America Inc. The Company is awaiting the results of the evaluation of the information provided by the well, located in one of the regions with the greatest potential for hydrocarbons in deep waters in the world.

    Between the first quarter of 2015 and 2016 the gross margin of the refining segment decreased by US$4.5per barrel mainly as a result of market conditions marked by lower spreads between prices of middle distillates and the price of oil.

    The Cartagena refinery continued its boot and stabilization process, obtaining a regular operation of the delayed coking, catalytic cracking and diesel hydro-treaters units. As of March 31, 28 units of a total of 34 were operational. It is expected that all units in the complex will be in full operation by the second half of 2016. Additionally, loads of crude up to 140 thousand barrels of oil a day have been achieved.

    Test of high viscosity crude transportation were started in February 2016. Satisfactory results were obtained moving oil with a viscosity of 405 centistokes (cSt). This project, along with the expansion of capacity in Ocensa (P-135) will reduce the cost of dilution which is key to the production of heavy crudes, which today represent about 58% of the total production of the Group.

    In December 2015 the Company imposed a significant cut on its 2016 investments compared to the levels of previous years with the approval of a budget of US$4,800 million. The need to preserve the financial sustainability of the Company with the low oil prices environment prompted a further cut in the investment plan for 2016, which now will range between US$3,000 and US$3,400 million. The expected production was adjusted to this new reality from 755 thousand barrels per day to approximately 715 thousand barrels of oil equivalent per day.
    Back to Top

    Carrizo Oil & Gas announces first quarter 2016 results

    Carrizo reported a first quarter of 2016 loss from continuing operations of $311.4 million, or $5.34 per basic and diluted share compared to a loss from continuing operations of $21.5 million, or $0.46 per basic and diluted share in the first quarter of 2015. The loss from continuing operations for the first quarter of 2016 includes certain items typically excluded from published estimates by the investment community, including the full cost ceiling test impairment recognized this quarter. Adjusted net income, which excludes the impact of these items as described in the statements of operations included below, for the first quarter of 2016 was $9.2 million, or $0.16 per basic and diluted share compared to $6.4 million, or $0.14 per basic and diluted share in the first quarter of 2015.

    For the first quarter of 2016, adjusted earnings before interest, income taxes, depreciation, depletion, and amortization, as described in the statements of operations included below ('Adjusted EBITDA'), was $92.5 million, a decrease of 9% from the prior year quarter as the impact of lower commodity prices more than offset the impact of higher production volumes.

    Production volumes during the first quarter of 2016 were 3,824 MBoe, or 42,025 Boe/d, an increase of 21% versus the first quarter of 2015. The year-over-year production growth was driven by strong results from the Company's Eagle Ford assets. Oil production during the first quarter of 2016 averaged 25,806 Bbls/d, an increase of 21% versus the first quarter of 2015 and 3% versus the prior quarter; natural gas and NGL production averaged 70,033 Mcf/d and 4,547 Bbls/d, respectively, during the first quarter of 2016. First quarter of 2016 production exceeded the high end of Company guidance due primarily to stronger-than-expected performance from the Company's Eagle Ford Shale assets as well as higher-than-expected non-operated production.Drilling and completion capital expenditures for the first quarter of 2016 were $84.8 million. More than 85% of the first quarter drilling and completion spending was in the Eagle Ford Shale, with the balance weighted towards the Delaware Basin. Land and seismic expenditures during the quarter were $5.9 million. For the year, Carrizo is maintaining its drilling and completion capital expenditure guidance of $270-$290 million. However, given additional efficiencies and cost reductions realized during the first quarter, the Company has been able to increase its planned drilling activity in the Eagle Ford Shale and Delaware Basin during the year. As the Company does not currently plan to increase completion activity in 2016, the additional activity is not expected to have a material impact on 2016 production. The Company is increasing its land and seismic capital expenditure guidance to $20 million from $15 million for the year based on its outlook for continued bolt-on acquisitions. Additionally, the Company recently acquired approximately 4,000 net bolt-on acres in the Eagle Ford Shale, which was funded by the simultaneous sale of undeveloped acreage in a non-core exploration play.

    Carrizo is increasing its 2016 oil production guidance to 24,800-25,300 Bbls/d from 24,700-25,300 Bbls/d previously. Using the midpoint of this range, the Company's 2016 oil production growth guidance is 9%. For natural gas and NGLs, Carrizo is increasing its 2016 guidance to 54-60 MMcf/d and 4,000-4,200 Bbls/d, respectively, from 45-60 MMcf/d and 3,700-4,000 Bbls/d. For the second quarter of 2016, Carrizo expects oil production to be 23,600-24,000 Bbls/d, and natural gas and NGL production to be 56-60 MMcf/d and 3,700-3,900 Bbls/d, respectively. The forecast sequential decline in production during the second quarter results from the planned shut-in of a significant number of wells in the Eagle Ford Shale due to offsetting completion activity coupled with a limited number of wells brought online in the prior quarter.

    Attached Files
    Back to Top

    Austria's OMV signs MoU to revive activities in Iran

    Austria's OMV signed a memorandum of understanding (MoU) with the National Iranian Oil Company (NIOC) on Wednesday as it looks to revive its activities in Iran.

    OMV Chief Executive Rainer Seele, who took the helm at Austria's biggest company last July, has singled out Iran, Russia and the United Arab Emirates in a push away from expensive North Sea field exploration.

    Wednesday's deal signed in Tehran covers several areas from oil and gas field evaluation to crude oil and petroleum product swaps.

    Most sanctions on Iran were lifted in January after Tehran reached a deal with world powers under which it agreed to shrink its nuclear programme.

    OMV's envisaged projects are located in the Zagros area in western Iran, including the Cheshmeh Khosh and Band-E-Karkheh fields where OMV had started operations in 2001, and the Fars field in the south, OMV said.

    "This Memorandum of Understanding is an important first step in resuming OMV's activities in Iran and in the long-term cooperation with the NIOC," Seele, who is also pushing for closer ties with Russia's Gazprom, said in a statement.

    "We look forward to evaluating the opportunities of OMV in Iran and the cooperation with NIOC to evaluate whether there are areas of potential cooperation in the exploration and development of oil and gas," Seele said.

    Last November, Seele said OMV was not interested in gas projects in Iran, citing high costs.
    Back to Top

    HollyFrontier's quarterly profit plunges 91 pct

    May 4 U.S. refiner HollyFrontier Corp reported a 91 percent fall in quarterly profit hurt by a steep fall in refining margins and lower refinery utilization rate.

    The net profit attributable to the company's shareholders fell to $21.3 million, or 12 cents per share, in the first quarter ended March 31, from $226.9 million, or $1.16 per share, a year earlier.

    Sales and other revenue fell 33 percent to $2.02 billion.
    Back to Top

    Noble Energy sells certain Greeley Crescent acreage in DJ Basin for $505 million

    Noble Energy, Inc. today announced that it has signed a definitive agreement to divest certain oil and natural gas properties in the Greeley Crescent area of Weld County, Colorado. The transaction includes the sale of approximately 33,100 primarily undeveloped net acres within the DJ Basin to Synergy Resources (NYSE: SYRG) for $505 million. The effective date of the transaction is April 1, 2016, and closing is expected to occur as early as June 2016, subject to customary terms and conditions.

    David L. Stover, Noble Energy's Chairman, President and CEO, commented, 'The Greeley Crescent sale signifies Noble Energy's continued portfolio management efforts and accelerates the value of these assets to the Company. This transaction also highlights the strong value of undeveloped acreage throughout the DJ Basin. Our DJ Basin development activities are currently focused on Wells Ranch and East Pony, where we have a deep inventory of long lateral drilling opportunities in an oily part of the basin. In addition, our existing infrastructure in these areas provides a competitive advantage. Combined with other asset sales, we have now announced transactions totaling more than $775 million in proceeds this year, which further enhances our flexibility to strengthen our investment-grade balance sheet and accelerate activity levels once justified by higher commodity prices.'

    Average daily production on the assets divested is approximately 2,400 barrels of oil equivalent per day, net to Noble Energy, with approximately two-thirds operated and one-third non-operated. The acreage and production sold represent approximately eight percent and two percent, respectively, of the Company's totals in the DJ Basin. Several hundred vertical wells have been drilled on the assets by multiple operators. Noble Energy has drilled 14 horizontal wells on the acreage over the past four years. Post transaction close, Noble Energy's DJ Basin position will total 363,100 net acres, including 111,600 combined acres in Wells Ranch/East Pony and 31,800 acres remaining in the Greeley Crescent area.

    The acreage included in the transaction remains dedicated to Noble Energy's midstream business for oil and water gathering, as well as freshwater services.
    Back to Top

    Shell Q1 income plunges on low prices

    LNG giant Royal Dutch Shell on Wednesday posted it first results since the multi-billion takeover of BG, revealing a sharp decline in its first-quarter profit on low oil, gas and LNG prices.

    Shell’s first quarter earnings on a current cost of supplies (CCS) basis were $0.8 billion, down 83% as compared with $4.8 billion for the same quarter a year ago.

    The company’s adjusted earnings, excluding one-off items such as proceeds from divestments, dropped 57 percent to $1.6 billion from $3.7 billion a year earlier, beating analysts’ expectations.

    Shell’s CEO Ben van Beurden said the company is continuing to reduce its spending levels, as it manages the financial framework in the low oil price environment.

    “The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction. This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out,” the CEO said.

    “Putting all of this together, capital investment in 2016 is clearly trending toward $30 billion, compared to previous guidance of $33 billion, and some 36% lower than combined Shell and BG investment in 2014,” van Beurden said.

    According to van Beurden, Shell expects to absorb BG’s capital investment and operating expenses during 2016, with no net increase overall, compared with Shell stand alone in 2015.

    He added that Shell would continue to manage spend, through “dynamic decision-making across the organisation, taking advantage of opportunities from both the deflating market and the two companies coming together.”

    Royal Dutch Shell Plc’s first-quarter profit beat analysts’ estimates as better-than-expected earnings from oil refining and chemicals production countered crude prices at a 12-year low.
    Back to Top

    Petrobras sells Argentina, Chile assets

    Brazil's state-run oil firm Petroleo Brasileiro SA said on Tuesday it concluded the sale of a 67.2 percent stake in Petrobras Argentina SA to Argentina's Pampa Energia for $892 million, according to a securities filing.

    Petrobras also sold all of Petrobras Chile Distribucion Ltda to Southern Cross Group for about $490 million, the company said.
    Back to Top

    Venezuela Oil Output Slumps in First Quarter as Drilling Slows

    Venezuela’s oil production dropped across all regions in the first quarter for the first time since 2008, according to energy consultant IPD Latin America.

    The country’s output totaled 2.59 million barrels a day in the first three months of the year, down 188,000 barrels from an average of 2.78 million in 2015, IPD said in an e-mailed statement. “For the first time since Q3 2008 oil production from all districts fell, including that of the Orinoco Oil Belt, where production had been on the rise since Q1 2009,” IPD said.

    Venezuela, which relies on crude shipments for 95 percent of export revenue, is facing the worst recession in decades amid the slump in crude prices. IPD attributed the production declines to factors including drilling challenges, natural gas compression issues and well maintenance difficulties due to restriction of field services and theft.

    IPD has lowered its 2016 output forecast due to the drop in first-quarter output. The consultancy, which had expected 2016 annual production of 2.62 million barrels a day, is now forecasting an average annual rate of about 2.35 million, it said. Completing a well now takes as long as 60 days, compared with a previous average of around 15, according to IPD.

    The consultant said there is “minimal correlation” between the country’s power crisis and the oil output reduction as the national oil company, Petroleos de Venezuela SA, generates about 90 percent of the electricity required for the country’s upstream operations.

    “Downstream operations have the potential to be more affected than upstream by power crisis. El Palito and Paraguana power supply is most precarious. Primary and ancillary operations at the Jose industrial park depend on National Electric System, resulting in potential service interruptions,” IPD said.

    Power outages have led to Venezuela offering more diluted crude oil, known as DCO, and fewer synthetic grades, Joe Gorder, CEO of refiner Valero, said today on the company’s first quarter earnings call. Gorder also said there had been no decrease in Venezuelan oil volumes imported into the U.S.
    Back to Top

    All of Fort McMurray now evacuating as wildfire spreads

    The whole city of Fort McMurray, Alberta, the gateway to Canada's oil sands region, is under a mandatory evacuation order because of an uncontrolled wildfire that is rapidly spreading, local authorities said on Tuesday.

    Evacuees are being told to head north toward the oil sands camps after the fire breached the highway south of the city of about 80,000 people.
    Back to Top

    Record low volumes in oil and gas hurts Vallourec in Q1

    French steel pipe maker Vallourec on Tuesday reported a net loss and fall in revenues in the first quarter as volumes plummeted to record lows mainly in the oil and gas businesses, but it said results will be better in the next quarter.

    The company, which supplies the oil and gas industry, said revenues in the quarter fell 36.2 percent to 671 million euros ($771.99 million) compared with the same quarter in 2015, while its net loss was 284 million euros.

    Oil, gas and petrochemicals contribute to about a third of Vallourec's business.

    "As expected, the first quarter of 2016 was marked by a decrease in volumes. This new record low level illustrates the extent of the crisis the oil & gas markets are going through," said Philippe Crouzet, Chairman of the Management Board.
    Back to Top

    Critical Project for Canadian LNG Exports Gets Favourable FERC Review

    Spectra Energy’s Atlantic Bridge project has just gotten an important “favourable” Environmental Assessment (EA) from the Federal Energy Regulatory Commission.

    A favorable EA is a signal that FERC will, later this year, grant a full approval for the project. And that’s really good news for Canadian LNG export plants–and equally good news for Marcellus drillers.

    Here’s how this news all ties together. The Atlantic Bridge project is a series of upgrades to two different pipeline systems already in existence: the Algonquin Gas Transmission (AGT) pipeline and the Maritimes & Northeast Pipeline (M&NE).

    The two pipelines will be connected along the coast of Massachusetts, near Boston. Thing is, right now the M&NE flow gas from north to south, from Canada to the U.S. Part of the Atlantic Bridge project is to make M&NE bidirectional, able to flow gas from south to north. The AGT will collect gas from the prolific Marcellus via a third Spectra-owned pipeline–the Texas Eastern Transmission Company (TETCO) pipeline–delivering Marcellus gas to New England.

    Yes, much/most of the gas will go to New England, but excess gas produced during periods of the year when not as much gas is used in New England will then be available to flow on up to Canada and to one of several new LNG export facilities either in planning or under construction. It all starts with a favourable EA…
    Back to Top

    Venture Global LNG raises capital

    Venture Global LNG Inc. has announced that it has successfully closed its fourth round of equity investments through a private Reg. D transaction.

    This round added to the group of high profile, very large institutional investors in the company. The offering raised additional capital of US$55 million, bringing the total capital raised to date to over US$265 million.  

    Venture Global LNG confirmed that the proceeds will be used to fund development activities for its proposed LNG export facilities in Louisiana, US.

    In a joint statement, Co-CEOs Mike Sabel and Bob Pender, said: “This latest equity raise is further affirmation that the market and investors recognise and value our company’s continued execution on significant project milestones, as well as our competitive advantage as the low-cost provider of North American LNG.”

    Venture Global LNG is developing the 10 million tpy Venture Global Calcasieu Pass facility on a site located at the intersection of the Calcasieu Ship Channel and the Gulf of Mexico. It is also developing the 20 million tpy Venture Global Plaquemines LNG facility in Plaquemines Parish, Louisiana on a site located 30 miles south of New Orleans, Louisiana.
    Back to Top

    Encana Corp dives into the red as revenue drops 40%

    Calgary-based Encana Corp. has reported a US$379-million net loss for the first quarter as revenue fell 40 per cent compared with the same time last year.

    Encana is adjusting to persistently low commodity prices and recorded $607 million in asset writedowns and $22 million for restructuring charges during the quarter ended March 31.

    Its operating loss was $130 million or 15 cents per share — three cents worse than analyst estimates from Thomson Reuters.

    Net loss including the writedowns amounted to 45 cents per share, compared with $1.71 billion or $2.25 per share a year earlier and an estimate of 20 cents per share.

    Revenue after royalty payments fell to $753 million from $1.25 billion in the first quarter of 2015. Analysts had estimated about $657 million of revenue, according to Thomson Reuters.

    A year earlier, Encana had an operating profit of $19 million or three cents per share after eliminating the impact of $1.2 billion in asset writedowns and other items.

    The quarterly results were issued several hours ahead of Encana’s annual shareholders meeting today in Calgary.

    Although dismal, Encana says the latest financial report showed some signs of improvement in operating efficiency.

    “Our teams are drilling some of the fastest, highest performing and lowest cost wells in our core four assets and we continue to find greater efficiency in every part of the business,” Encana chief executive and president Doug Suttles said.

    “We are on track to deliver $550 million of year-over-year cost savings.”
    Back to Top

    W. African oil sailing east down in May on cooled Chinese buying

    Chinese loadings of West African crude oil fell back from 19-month highs in May as delivery delays, port congestion and full tanks scuppered interest from private oil refineries, according to a Reuters survey of shipping fixtures and traders on Tuesday.

    China's bookings of West African crude fell to 981,000 barrels per day (bpd) for May loading, down from a 19-month high in April of 1.14 million bpd. Traders had warned for weeks that logistical bottlenecks and port congestion at Qingdao would make it difficult for the frenzied purchases from so-called teapot refiners to continue.  

    An increase in India's purchases, to a four-month high of roughly 613,000 bpd helped to offset the decline. But overall bookings still slipped to 1.81 million bpd, their lowest level since January.    

    Weaker demand from the independent, or teapot, refineries in China, the world's largest energy consumer, is a red flag not just for West African oil producers, but for the broader market.

    These private refiners were granted licenses to import crude only last year, and their keen buying was a key source of support for the roughly 70 percent rally in oil benchmarks since the beginning of the year.

    In an interview with Reuters, a senior official from China's biggest private refiner warned that port congestion and logistical issues would cut into the teapot buying.

    Reliance, a private Indian refiner, booked several cargoes, including Angola's Pazflor, Cabinda and Dalia, Gabon's Olowi and a cargo of Cameroonian crude. This, along with tenders from state-run Indian Oil Corp., helped boost the country's purchases.

    But Reliance processes a diverse mix of crude, and is constantly looking to maximise revenue by buying the most cost effective grades, making it a fickle buyer. It is also looking to increase purchases from Iran, which could dent its other bookings.
    Back to Top

    Halliburton Loss Grows as It Takes Baker Hughes Deal Charges

    Halliburton Co.’s first-quarter loss widened as customers slashed budgets in half and the company took charges related to the failed $28 billion merger with Baker Hughes Inc.

    The merger was called off Sunday in the face of stiff resistance from global regulators over antitrust concerns. Halliburton, the world’s largest provider of fracking services, recorded first-quarter costs of $378 million, or 44 cents a share, related to the Baker Hughes bid, according to a statement Tuesday. That’s higher than the $79 million, or 9 cents a share, acquisition-related costs in the final three months of the year.

    Overall, Halliburton reported a loss of $2.4 billion, or $2.81 a share, deeper than a loss of $643 million, or 76 cents, a year earlier. Excluding certain items, profit was 7 cents a share, higher than the 4-cent average of 36 analysts’ estimates compiled by Bloomberg. The company also eliminated 6,000 more jobs in the quarter to reduce costs, according to a statement April 22.

    The oil services industry is operating at a loss in North America, home to the world’s largest market for hydraulic fracturing. Schlumberger Ltd., the biggest oil servicer, lost $10 million in the U.S. and Canada, excluding taxes, during the first three months of the year. Halliburton, the world’s No. 2 provider, reported an operating loss of $39 million in North America, its largest region, on revenue of $1.8 billion, according to an April 22 statement announcing preliminary results.

    The second- and third-largest oil-service firms had set a deadline for the end of April to complete the deal or walk away. The U.S. Justice Department heard concerns from dozens of companies and ultimately concluded that the deal was "not fixable at all," David Gelfand, deputy assistant attorney general, told reporters Monday on a conference call.

    “In accordance with Generally Accepted Accounting Principles, and in conjunction with the termination of its merger agreement with Baker Hughes, Halliburton determined that its proposed businesses to be divested no longer meet the assets held for sale criteria as of March 31, 2016,” the company said in the statement.

    Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger. The U.S. Justice Department filed a lawsuit in early April to stop the merger, saying it threatened to eliminate head-to-head competition in 23 products and services used in oil exploration.

    The statement was released before the start of regular trading in New York.
    Back to Top

    Risks rise as hedge funds place record bet on oil

    Hedge funds increased their net long positions in Brent and WTI derivatives by 7 million barrels to a record 663 million barrels in the week ending April 26.

    Even though oil prices have already risen by roughly $20 per barrel (70 percent) from their low in January, hedge funds are more bullish than at any time since oil prices started slumping in the summer of 2014.

    Hedge funds and other money managers held futures and options contracts equivalent to 791 million barrels of crude betting on a further rise in prices and just 128 million barrels gambling on a fall.

    The record net long position in crude easily surpasses previous peaks set in May 2015 (572 million barrels) and June 2014 as ISIS fighters threatened the oilfields of Iraq (626 million barrels).

    Large concentrations of long or short positions are often followed by a sharp reversal in prices when holders try to lock in their profits by liquidating some of their positions, triggering a rush for the exit.

    The accumulation of such a large net long position over the last 17 weeks could indicate an increasing risk crude prices will pull back and give up at least some of their recent gains in the short term.

    Crude prices have been closely correlated with the accumulation and liquidation of hedge fund positions in Brent and especially WTI since the start of 2015 (

    Traders and analysts are divided over whether hedge funds and other money managers are now fully invested in crude, heightening the risk of reversal, or could still increase their position further.

    Since the start of the year, hedge funds have added almost 195 million barrels of additional long positions in Brent and WTI, while cutting short positions by 235 million.

    The brutal squeeze on former hedge fund short positions has been at least as important as the emergence of fresh long positions in pushing prices higher.

    But with hedge fund short positions down from a recent peak of 392 million barrels in the second week of January to just 128 million barrels there are not many more short positions to squeeze.

    On the long side, hedge funds have already amassed a record number of contracts. Past experience indicates that this could be a close to their maximum position.

    But oil prices are less than half of the level that they were in June 2014, so the dollar amount of hedge fund positions is still relatively modest, which could indicate they have further scope to add long positions.

    On balance, the hedge funds' record net long position has shifted the balance of price risks towards the downside in the short term.

    Attached Files
    Back to Top

    Valero's profit nearly halves on lower margins

    U.S. refiner Valero Energy Corp reported a 49 percent fall in profit, hurt by weak margins and higher inventories.

    Refiners ramped up production in 2015, leading to higher inventories and weaker margins this year as demand softened during the mild winter.

    Valero's refining throughput margin fell to $7.96 per barrel in the first quarter, from $12.39 per barrel last year.

    Net income attributable to shareholders fell to $495 million, or $1.05 per share, in the first quarter ended March 31, from $964 million, or $1.87 per share, a year earlier.

    Operating revenue fell 26.3 percent to $15.71 billion in the quarter.

    Up to Monday's close of $59.82, Valero's New York-listed shares have fallen 15.4 percent this year, while the S&P 500 oil & gas refining & marketing sub-index has fallen 13.3 percent over the same period.

    Attached Files
    Back to Top

    Minister: revised Qatar LNG deal slashes price to below $5 per MMBtu

    Minister: revised Qatar LNG deal slashes price to below $5 per MMBtu

    Costs of liquefied natural gas imports from Qatar have dropped below $5 per MMBtu due to the revised long-term deal Petronet LNG signed with RasGas, according to India’s minister for petroleum and natural gas, Dharmendra Pradhan.

    India’s largest LNG importer, Petronet and RasGas of Qatar signed the deal in December to revise the 7.5 mtpa LNG import agreement the two companies had. Under the initial 25-year deal signed in 1999, Petronet agreed to pay about $12 per MMBtu.

    “The current price applicable under the contract works out to less than $5MMBtu based on prevailing crude prices. This revision has led to making LNG cheaper for the end consumers,” minister Pradhan said on Tuesday in a written reply to a question in the Lok Sabha.

    Petronet has avoided paying the $1.5 billion penalty for taking less LNG from RasGas than it contracted for 2015, but under the new agreement, it will have to take and pay for all of the volumes it has not taken last year during the remaining term of the long-term deal.

    Petronet also agreed to buy additional 1 mtpa of LNG from RasGas for further sale to Indian Oil, Bharat Petroleum, GAIL and Gujarat State Petroleum.
    Back to Top

    Anadarko’s Loss Narrows on Cost Cuts

    Anadarko Petroleum Corp. on Monday posted weaker-than-expected sales for its latest quarter as the rout in the oil sector continued, though its quarterly loss wasn’t as bad as analysts had forecast.

    Shares of Anadarko, down about 45% in the past year, fell 2.8% to $50.50 in after-hours trading.

    The company, one of the largest independent oil and gas producers in the U.S., along with the broader sector, has been pressured bycollapsing energy prices. Some analysts expect oil prices to hover between $20 and $40 a barrel until the second half of the year, with crude prices remaining highly volatile.

    The company, like many energy-related firms, has worked to cut costs amid the downturn. On Monday, Anadarko said it improved its cost structure by $800 million by reducing its dividend and staffing. Total costs and expenses plunged 61% to $2.54 billion.

    For the latest quarter, Anadarko posted a loss of $1.03 billion, or $2.03 a share, compared with a loss of $3.26 billion, or $6.45 a share, a year earlier. Excluding certain items, the company posted a loss of $1.12 a share, compared with a year-earlier loss of 72 cents a share.

    Revenue fell 28% to $1.67 billion.

    Analysts polled by Thomson Reuters expected a loss of $1.16 on revenue of $1.81 billion.
    Back to Top

    Big Cushing Build

    Following last week's shocking 1.75mm barrel build at Cushing,Genscape just reported an estimated 821k build which has stunned market participants apparently, sending WTI tumbling back to a $44 handle. Will this be the summer of 2015 oil re-run?

    A 2nd week in a row of builds at Cushing..

    Image title

    Attached Files
    Back to Top

    Heeding history, Saudi set to raise oil production

    After the failure of the Doha deal to freeze oil production, Saudi Arabia's output is now almost certain to rise in the coming months. It wants to regain market share in China and meet the summer peak in its own domestic demand without cutting exports.

    As I wrote a couple of weeks ago, it's no surprise that Saudi Arabia refused to join the output freeze championed by Venezuela and Russia. It has little interest in seeing oil prices rise far enough to throw a lifeline to high-cost producers, who are beginning to buckle.

    With the failure in Doha, the kingdom will probably lift production over the summer, helping prolong the oil glut. The use of crude for Saudi's domestic power generation usually rises more than 400,000 barrels per day between winter and summer, and we can expect oil production to follow a similar path this year to preserve the volume available to export.

    Saudi Arabia has seen its share of the key China market being squeezed. While its sales to China have stagnated, those of arch-rival Russia have soared. At the end of 2013 Saudi Arabia was selling about twice as much oil to China as Russia was. Now they're vying for top spot with Russian sales exceeding Saudi Arabia's in several recent months.

    Saudi Aramco, the state-owned producer, appears poised to adopt a new sales strategy to help compete. In a movedescribed by Citibank analysts as 'dramatic', it made a rare one-off sale of crude to a small refiner in China. This seemingly minor change is a striking break from the Saudi policy of only selling oil under long contracts to established refiners with excellent credit ratings. Small Chinese refiners, known as "teapots", have driven a surge in the country's crude imports after being allowed to buy foreign supplies.

    We can expect more sales from Aramco's storage tanks in Okinawa and Rotterdam as the kingdom steps up competition with Russia and a resurgent Iran for markets in Asia and Europe. Aramco might also store more oil at the Sidi Kerir terminal on Egypt's Mediterranean coast, letting it make similar spot sales to buyers in the region.

    Saudi Arabia's determination to keep pumping more oil into global markets brings to mind its former oil minister Sheikh Yamani, who said back in 2000 that the Stone Age did not end for a lack of stones, and the oil age will not end for a lack of oil.

    Those working for him at the time (including me), interpreted this as a warning to OPEC about the pursuit of high oil prices: namely, that it would just speed up the development of alternative technologies and drive away customers, leaving oil sitting beneath the ground without buyers.

    Sixteen years later, the kingdom's leaders seem to have heeded his warning. Both Deputy Crown Prince Mohammed bin Salman and oil minister Ali al-Naimi have said they will no longer subsidize high-cost oil production by limiting supply. If there's oil to be left under the ground, they're determined it won't be Saudi Arabia's.
    Back to Top

    U.S. oil rig count falls by more than 3 percent in a week

    The number of rigs actively drilling for oil dropped by 11 this week as the industry continues to scale back its exploration and production efforts during a time of ongoing layoffs and spending cuts.

    The oil rig count dipped down to 332 rigs nationwide on Friday, while the overall rig count, including natural gas-seeking rigs, stands at just 420, according to weekly data collected by Baker Hughes. That represents the lowest total count since the oil field services company first began compiling the data in 1944.

    Texas lost a cumulative total of just two rigs on the week, including small losses in both the Permian Basin and Eagle Ford shale plays, while Oklahoma and New Mexico lost three rigs each. Texas is still home to 44 percent of the nation’s operating rigs.

    The oil rig count alone is now down nearly 79 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

    Analysts have projected the rig count would dip through most of the first half of 2016.

    The benchmark price for U.S. oil was down slightly on Friday, but still trading at about than $45.70 per barrel. That’s almost a 75 percent gain from a low of $26.21 a barrel on Feb. 11.

    While many companies have stopped actively drilling new wells, it hasn’t stopped them from producing oil from existing wells. So oil production is taking much longer to fall than the rig count.
    Back to Top

    Ultra Petroleum Files for Bankruptcy, Citing $3.9 Billion Debt

    Ultra Petroleum Corp. filed for bankruptcy protection, the latest oil and gas explorer to fall victim to the prolonged slump in energy prices.

    Ultra listed $1.3 billion in assets and $3.9 billion in debt in court papers filed in Houston on Friday. The Houston-based company has 159 employees and its main assets are gas-producing properties in Wyoming, as well as some assets in Pennsylvania and crude oil properties in Utah, according to court papers.

    “The low commodity prices, and especially the low natural gas prices that prevailed throughout 2015 and have continued through the first four months of 2016 have had a devastating impact,” Chief Financial Officer Garland Shaw said in a filing explaining events that led to the bankruptcy.

    Among its first requests to the court will be for permission to continue a surety bonding program that had $12.6 million outstanding as of the bankruptcy date, and that secures its obligations on environmental, road damage, and plugging of wells, according to court records.

    Between March and early April, Ultra missed a series of principal and interest payments owed to lenders and bondholders. And on April 14, the company was sued by pipeline operator Sempra Rockies Marketing LLC for failing to pay transport fees.
    Back to Top

    Baker Hughes to buy back stock, debt after Halliburton deal fails

    Baker Hughes Inc said it planned to buy back $1.5 billion of shares and $1 billion of debt, using the breakup fee it will receive following the collapse of its proposed buyout by fellow oilfield services provider Halliburton Inc.

    The merger, valued at $35 billion when it was first announced in November 2014, would have created North America's largest oilfield services company to take on global market leader Schlumberger Ltd.

    Baker Hughes will get $3.5 billion as part of the merger agreement, which the companies terminated on Sunday after opposition from U.S. and European antitrust regulators.

    The U.S. Justice Department filed a lawsuit last month to stop the deal, arguing that it would leave only two dominant oilfield services companies.

    Baker Hughes, which is focusing on the development of products that lower costs and maximize production for oil and gas producers, also said on Monday it planned to refinance a $2.5 billion credit facility, which expires in September 2016.

    The company said an initial phase of cost-cutting was expected to result in $500 million of annualized savings by the end of 2016.

    In a separate regulatory filing on Monday, Baker Hughes said it cut 2,000 more jobs in the first quarter, adding to the 18,000 cut worldwide last year. The company had about 43,000 employees as of Dec. 31. (

    Baker Hughes said last Wednesday it recorded "merger-retained" costs of $110 million, after tax, in the first quarter, leading to a bigger net loss for the period.

    The Houston-based company also said then that it was limiting its exposure to the unprofitable onshore pressure pumping business in North America.

    Halliburton, which will release its results on Tuesday, said on April 22 that revenue in the quarter slumped 40.4 percent.

    Baker Hughes's shares were down about 1.6 percent at $47.60 in premarket trading.

    The company's shares have fallen 25 percent since Halliburton first agreed to buy Baker Hughes in November 2014. Halliburton's shares have fallen more than 19 percent in the same period.
    Back to Top

    Gorgon LNG repairs nearing completion, production restart expected in May

    Chevron said on Friday it expects to resume production at its US$54 billion Gorgon LNG project in Australia in May after the Barrow Island facility was shut down due to mechanical problems.

    Repair works on the propane refrigerant circuit on Train 1 at the plant site are nearing completion, Joe Geagea, Chevron’s executive vice president for technology, projects and services, told analysts during the company’s first-quarter earnings conference call.

    “We are in the process of reinstating the propane refrigerant circuit,” Geagea said, adding that Chevron expects to restart Train 1 in the next few weeks.

    Chevron announced in April that a mechanical issue in the propane refrigerant circuit on Train 1 at the plant site halted production soon after the first cargo departed from the facility on March 21.

    US-based Chevron said it expected that the repair works would last 30-60 days. The company did not elaborate on how much the repair works would cost.

    “We still expect to achieve Train 1 ramp-up within the previous guidance of six to eight months from initial start-up,” Geagea added.

    At full capacity, the plant on Barrow Island will have the capacity to produce 15.6 mtpa of LNG using feedgas from the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 80 miles (130 km) and 136 miles (220 km) off the northwest coast of Western Australia.

    The largest single resource project ever developed in Australia is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
    Back to Top

    Exxon Posts Smallest Profit Since 1999 Amid Global Oil Slump

    Exxon Mobil Corp. beat analyst estimates as a jump in earnings from its chemicals segment cushioned the blow from tumbling prices for oil and natural gas.

    First-quarter net income fell to $1.81 billion, or 43 cents a share, from $4.94 billion, or $1.17, a year earlier, Exxon said in a statement on Friday. The quarterly profit was the lowest since March of 1999, before Exxon merged with Mobil Corp. Still, the per-share result was 15 cents above the 28-cent average of 19 analyst estimates tracked by Bloomberg.

    The company was boosted by a 38 percent increase in its petrochemicals division, to $1.4 billion, as well as a 33 percent cut in capital expenditures as it pulled back on drilling and exploration amid weak commodity prices. The world’s biggest non-state oil explorer joined energy giants BP Plc, Statoil ASA and Total SA this week in beating analyst expectations on the back of massive cost cuts and strong refining and chemical results even as oil profits vanished.

    “I look at this and say is this an oil company?" Pavel Molchanov, a Raymond James Financial Inc. analyst, said of Exxon’s results. “All of its earnings came from refining and chemicals. It did not make any money, for the first time in modern history, on exploration and production."

    The quarter showed the strength of Exxon’s diversification, a factor that would limit the company’s appeal to investors as oil prices recover, Molchanov said.

    “This company is very refining- and chemicals-centric and those sectors do not benefit from an oil price recovery," he said in a telephone interview.

    Rating Cut

    Standard & Poor’s on Tuesday stripped Exxon of its the AAA credit rating the company had held since the Great Depression, citing a swelling debt level. The company was cut to AA+, the same as the U.S. government.

    The chemicals division benefited from stronger margins and higher sales volumes, as the price of raw materials -- oil and gas -- plunged compared to last year’s first quarter. The downstream segment earned $906 million as global gasoline demand remained strong, according to the statement.

    “It’s the value of the integrated model," Roger Read, a Wells Fargo Securities LLC analyst in Houston, said in a phone interview. “You buy Exxon for its ability to take advantage in all sorts of commodity environments."

    Quarterly Payout

    Exxon rose 1 percent to $88.91 at 9:32 a.m. in New York. Shares are up 14 percent this year. Among analysts who follow the company, Exxon has eight buy rating, 13 holds and six sells.

    The 2016 capital budget has been cut by about 33 percent from last year, a bigger decline than earlier estimated. Despite those measures, full-year profit is expected to dip below $10 billion in 2016 for the first time since the company’s historic acquisition of Mobil Corp. in 1999.

    Brent crude, the benchmark for international oil sales, fell 36 percent to an average of $35.21 a barrel during the quarter from a year earlier, according to data compiled by Bloomberg. U.S. gas averaged $1.982 per million British thermal units, down 29 percent from the first quarter of 2015.

    Despite the rout in crude markets, Exxon earlier this week raised its quarterly payout to stockholders by almost 3 percent to 75 cents a share. The pledge will cost the company $3.1 billion when the dividend is paid in June.

    “The organization continues to respond effectively to challenging industry conditions, capturing enhancements to operational performance and creating margin uplift despite low prices,” Rex W. Tillerson, chairman and chief executive officer said in the statement. “The scale and integrated nature of our cash flow provide competitive advantage and support consistent strategy execution.”
    Back to Top

    Chevron posts a wider-than-expected loss

    Chevron Corp. lost money during the first quarter for the first time in almost a quarter century amid an oil-market collapse that’s sparked currency crises, corporate bankruptcies, credit downgrades and hundreds of thousands of layoffs across the industry.

    Chevron swung to a loss of $725 million, or 39 cents a share, from a profit of $2.6 billion, or $1.37 a year earlier, the San Ramon, California-based company said in a statement on Friday. The result was worse than the average 19-cent loss expected by 19 analysts in a Bloomberg survey. Sales dropped by almost a third to $23.6 billion.

    The last time the world’s third-largest oil explorer by market value posted a first-quarter loss was 1992, when crude traded for about $18 a barrel. Chairman and Chief Executive Officer John Watson has cut one of every 10 jobs, lowered production targets and written off some discoveries that would cost too much to bring to fruition as shrinking cash flow prompted Standard & Poor’s a Moody’s Investors Service to cut Chevron’s credit ratings.

    “We continue to lower our cost structure with better pricing, work flow efficiencies and matching our organizational size to expected future activity levels,” Watson said in the statement. “Our capital spending is coming down. We are moving our focus to high-return, shorter-cycle projects and pacing longer-cycle investments.”

    Despite the squeeze, Chevron this week committed to pay $1.07 to investors for every share they own, a dividend that will cost the company about $2 billion when the checks are cut in June. Spending on capital projects is expected to range from $25 billion to $28 billion this year, Chevron said last month. That would exceed the budget of bigger rival Exxon Mobil Corp. Watson has said capital outlays will drop to the $17 billion to $22 billion range annually in 2017 and 2018.
    Back to Top

    Portugese LNG cargo no signal of US impact

    Portugese LNG cargo no signal of US impact

    It was the question that the European gas industry was asking for months -- when would the first LNG from the US land in Europe?

    In the end it only took two months since the first exports departed from Cheniere's Sabine Pass terminal for the US LNG to hit European shores, with the Creole Spirit landing at Portugal's Sines terminal late April 26.

    The receiving party of the cargo is understood to be Portugal's gas and power grid operator Redes Energeticas Nacionais (REN), owner of Sines.

    But while much of the attention has been on when US LNG would come to Europe, the bigger question really is how much US LNG will come.

    The significance of Portugal being the first European country to import LNG from the US should not be overplayed.

    It is only a small market -- with just 4.7 Bcm of consumption in 2015 -- and it is entirely dependent on imports, so the delivery of US LNG into Portugal should not be seen as a sign that US LNG will take hold in the wider European market.

    In addition, the biggest suppliers to Europe -- Russia and Norway -- do not supply the Portuguese market with their pipeline gas so they are likely to be non-plussed about the first US LNG landing in Portugal.

    This suggests that the much-anticipated European gas market share war will not be waged on the Iberian peninsula.

    "Iberia is an island market with no liquid hub, so it's semi-historic," a London-based LNG trader said April 27 of the first cargo arriving in Portugal.

    "I think it would be more of a landmark if it went to Northwest Europe, signaling a link between the hubs," the trader said.

    Algeria threat

    For Algeria, and a lesser extent Nigeria, it is a different matter.

    Portuguese gas imports come mainly from a few long-term contracts held by the Galp group with Algeria (through Spain) and Nigeria (imported as LNG).

    Pipeline gas from Algeria via Spain makes up around 70% of total imports, according to data from the International Energy Agency. This suggests imports via pipeline of around 3.3 Bcm.

    For Algeria, that is a significant market -- its total exports by pipeline were estimated at around 27 Bcm in 2015, so Portugal can account for as much as 12% of Algeria's gas exports by pipeline.

    And the situation for Algeria could get even worse if US LNG heads for Spain and Italy, its two key export markets.

    Algeria's response to the threat of US LNG imports into southwest Europe seems to have been strong.

    So far this year Algerian gas flows to Italy have averaged 38.4 million cu m/d -- more than double the 2015 average of 19 million cu m/d and the 2014 average of 18 million cu m/d, according to data from Platts analytics unit Eclipse Energy.

    And since the start of April, exports to Italy have averaged more than 60 million cu m/d, Eclipse data shows.

    For Spain, Algerian pipeline exports in Q1 averaged 37 million cu m/d, up slightly on the same period of 2015, but again in April have soared to an average of 44 million cu m/d.

    Certainly any US LNG exports to Spain would be seen as a direct threat to Algeria's market share and you wouldn't bet against it given Spain's significant underused LNG import capacity.

    Targeted exports

    Elsewhere on the continent, it looks like Russia and Norway are also headed down the route of defending market share at the expense of price -- mirroring the strategy still being played out by Saudi Arabia in the oil markets.

    In the first quarter supplies from Russia and Norway to Western Europe have been running at record highs despite low prices.

    Total Russian gas exports to Europe via the Nord Stream, Yamal, and Brotherhood pipelines in Q1 were 28.33 Bcm, 53% higher in comparison with the 18.56 Bcm from Q1 2015.
    Back to Top

    Canada's Imperial Oil posts bigger-than-expected loss

    Imperial Oil Ltd, Canada's integrated oil producer and refiner, reported a slightly bigger-than-expected quarterly loss, hurt by continued weakness in crude prices.

    Net loss in the company's exploration and production business more than doubled in the first quarter as the lower crude prices offset benefits from a weak Canadian dollar.

    Imperial and other Canadian oil producers record expenses in Canadian dollars, while the price of oil is tied to the U.S. dollar, making the weak loonie a positive at a time when oil prices remain persistently low.

    Imperial said gross production rose 26 percent and averaged at 421,000 barrels of oil equivalent per day.

    Income from the company's refining business dropped by 43 percent as margins fell.

    Exxon Mobil Corp, which owns a majority stake in Imperial, reported a 63 percent drop in quarterly profit on Friday, citing weak prices and lower refining margins.

    Imperial's net loss was C$101 million ($81 million), or 12 Canadian cents per share, in the first quarter ended March 31, compared with net income of C$421 million, or 50 Canadian cents per share, a year earlier.

    The company's adjusted loss was 15 Canadian cents per share, bigger than the average analyst estimate of 14 Canadian cents, according to Thomson Reuters I/B/E/S.

    Total revenue fell 15.8 percent to C$5.22 billion, but beat analysts' average expectation of C$4.66 billion. 

    Attached Files
    Back to Top

    As Iran Ramps Oil Sales, Landmark Cargo Proves Tough to Deliver

    As the speed and scale of Iran’s return to the global crude market shows signs of surprising oil analysts, one shipment from the Persian Gulf country that was meant to be a milestone cargo isn’t proving straightforward to shift.

    Iran shipped more than 2 million barrels a day in early April, according to ship-tracking data compiled by Bloomberg and the country’s own figures. Added to the amount the nation refines itself, that implies production is already close to pre-sanctions levels. But it hasn’t all proved plain sailing: a tanker that was supposed to be hauling one of the first post-sanctions cargoes has gotten stuck near Romania and it’s not clear exactly why.

    The Distya Akula, a 21-year-old vessel, still hasn’t unloaded its 1 million-barrel cargo and has been bobbing for weeks off the eastern European country’s coast, tracking data show. Shortly after the vessel left Iran at the start of February, its owner initially celebrated what could have been the very first cargo delivered to Europe since sanctions were lifted against Iran.

    The vessel’s owner at first said Litasco SA, a unit of Lukoil, had booked it. The shipping company also initially said the carrier would go to Constanta on Romania’s Black Sea coast, where Lukoil has a refinery. While that’s where the vessel has indeed ended up, the owner corrected its initial statement and said Litasco wasn’t the buyer and Constanta wasn’t the destination.

    Throughout its odyssey, Distya Akula has spent time waiting. It was near the southern entrance of Egypt’s Suez Canal for more than 30 days. Now it’s been near Romania for more than three weeks.

    Tehseen Chauhan, an external spokeswoman for Elektrans Shipping, the Mumbai-based owner, declined to comment on why the ship’s voyage has been longer than normal.

    A normal shipment to Constanta from Kharg Island, Iran’s biggest export terminal, should take about 17 days. This one has already lasted more than 80. Shipping officials in both Romania and Egypt have so far been unable to provide details of the owner of the ship’s consignment. Traders specialized in Mediterranean oil cargoes have also been unable to identify the buyer of this one.
    Back to Top

    Russia's Yamal LNG gets round sanctions with $12 bln Chinese loan deal

    Russia's Yamal liquefied natural gas (LNG) project has signed loan agreements with Chinese banks worth over $12 billion, it said on Friday, circumventing Western sanctions in a major boost for the project led by gas producer Novatek.

    Talks with European and Chinese lenders had dragged on for months, complicated by Western sanctions against Novatek and its major shareholder Gennady Timchenko, a friend of Russian President Vladimir Putin, over Moscow's role in the Ukraine crisis.

    With the deal, Yamal LNG's external financing needs, seen at $18-$19 billion, are fully covered.

    The project has already secured state funds worth 150 billion roubles ($2.3 billion) from a rainy day fund and 3.6 billion euros from state-controlled lender Sberbank and Gazprombank.

    Yamal LNG's future had been in jeopardy due to the lack of access to Western capital markets. Plunging oil prices, the benchmark for gas prices, had also clouded its prospects.

    Several other global LNG projects, notably the proposed $30 billion Browse floating LNG project off Australia, have been shelved due to global oversupply.

    "The project is progressing in accordance with the approved schedule. With the first train of the LNG plant 65 percent complete we are currently at the most intensive phase of construction and assembly works," Yevgeny Kot, director general of Yamal LNG, said in a statement.

    The loan deals, the third-largest in Russian corporate history, are likely to be presented in Russia as a victory over what are seen as Western attempts to curb Russia's energy expansion to punish it for its role in the Ukraine crisis.

    The new funds will help the $27 billion Yamal LNG project to start producing liquefied gas next year. Three LNG production lines are envisaged, each with an annual capacity of 5.5 million tonnes.

    About 95 percent of future production has been pre-sold.

    Yamal LNG, the world's most northerly project of its kind, is located beyond the Arctic circle. The gas, frozen at a temperature of around minus 160 Celsius (minus 320 Fahrenheit)will be shipped to global markets including China.

    Russia wants to double its share in the global LNG market by 2020 from 4.5 percent currently. Kremlin-controlled Gazprom and Royal Dutch Shell are key shareholders in Russia's only LNG plant, located on the Pacific island of Sakhalin. It produces over 10 million tonnes of LNG per year.

    The 15-year loan deals of 9.3 billion euros ($10.6 billion) and 9.8 billion yuan ($1.5 billion) were signed with Export-Import Bank of China and the China Development Bank.

    The euro-denominated part of the loan is being made at 3.3 percent above the European benchmark 6-month EURIBOR rate at the construction stage and 3.55 percent above thereafter, Yamal LNG said. The renminbi loan is being made at 3.3 percent above China's 6-month SHIBOR benchmark, and then 3.55 percent above.

    Novatek holds 50.1 percent of Yamal LNG. France's Total and China National Petroleum Corp control 20 percent each while China's Silk Road Fund owns 9.9 percent.
    Back to Top

    China's first private-led mega-refinery planned off east coast

    A private-led Chinese group is planning to build a $15 billion mega-petrochemical complex on an island near Shanghai, in what would be the country's first and largest energy installation to be built by a non-state investor, industry sources said.

    Zhejiang Petrochemical, 51 percent owned by textile giant Rongsheng Holding Group, last month awarded a key design contract for the project, which could compete head-to-head with state-owned firms such as Sinopec that dominate the market.

    The project is one of the first concrete signs of Beijing's stated desire to experiment with "mixed ownership" - or partial privatisation - in its massive state-controlled energy sector to boost efficiency and drive greener growth.

    "The project was inspired by Premier Li Keqiang's visit in 2014 that called for a pilot 'mixed ownership' project led by private companies," said a senior industry source close to Rongsheng, referring to Li's visit to the city of Zhoushan, where the project will be located.

    Rongsheng has partnered with local firms, including a state-owned chemical producer, to build the complex, which would include a 400,000 barrels per day refinery and a 1.4 million tonnes a year ethylene plant.

    Details of how the project would be funded were not available.

    Zhejiang Petrochemical has awarded the designing contract to three firms, including China Huanqiu Contracting and Engineering Corp and Sinopec's Luoyang Petrochemical Engineering Corp, for the project, to be built on the 6.25 sq km (2.4 sq mile) Dayushan Island, off eastern China, near the ports of Shanghai and Ningbo.

    The project, which needs Beijing's approvals including environmental clearances, is likely to start up around 2020, according to two sources with knowledge of the plan.

    Rongsheng's press department was not immediately available for comment. Local Zhoushan city officials declined to comment.

    Beijing has since July 2015 allowed more than 20 small independent refineries, nicknamed "teapots", to import crude oil for the first time, leading to refining overcapacity that has resulted in China exporting record volumes of oil products.

    "The entry of private firms into the refining business was a fruit of the sector reform, but the capacity surplus is a reality to face," said Li Shousheng, chairman of China Petroleum and Chemical Industry Federation.

    Rongsheng, founded in 1989 as a small textile firm, has grown into a conglomerate that is also involved in property and logistics with more than 50 billion yuan ($7.7 billion) worth of assets.

    It is China's largest independent producer of PTA, a synthetic fibre derived from petroleum for making textile and packaging materials.

    Despite being a refining giant, China replies on imports for more than 40 percent of its petrochemical needs.

    Rongsheng is among a group of independent petrochemical manufacturers long interested in expanding into the oil refining business that provides the industry's feedstocks.

    "That is China's industry dilemma: surplus in fuel capacity, but short in petrochemicals," said Wu Kang, vice chairman for Asia at energy consultancy FGE.
    Back to Top

    Oil Producers hedges +25% y-o-y.

    Image title
    Back to Top

    Breakeven for quoted Oil?

    The global energy industry can keep its debt levels steady if Brent holds at $53 a barrel or higher, according to energy consulting firm Wood Mackenzie. For the U.S. shale industry, the price needed to stop bleeding cash is $45 a barrel, down from $90 a barrel a year ago, helped by cost-cutting, increased efficiency, equity offerings and other measures, the consulting firm said.
    Back to Top

    Alternative Energy

    Adani’s big boost to solar means no financial capacity for new coal mines

    Given Adani is part way into a new US$5-10 billion solar investment program – and given the plunging cost of solar in last week’s auction in the Middle East, Adani appears to have no capacity to concurrently undertake the high risk A$10bn Carmichael coal proposal.

    Adani Enterprises this week reported its 2015/16 financial year to March 2016 result.[i] Net profit was US$158m. Results are not comparable to the previous year given the deconsolidation of Adani Power, Adani Transmission and Adani Ports, which halved the book value of shareholders equity to US$2.0 billion.

    Adani Enterprises remains relatively heavily geared, with net debt of US$2.6bn representing 1.3x book value of shareholders equity (and double the market value of equity of just US$1.3bn).

    The earnings before interest and tax (EBIT) relative to net interest is a relatively skinny 1.8x (albeit better than Adani Power at just 1.1x).

    Given Adani is part way into a new US$5-10bn solar investment program. Going ahead full steam on solar (in our view) leaves AEL absolutely no financial capacity to concurrently undertake the high risk A$10bn Carmichael coal proposal.

    Adani Enterprises massively stepped up its a new renewable energy division over FY2016. In June 2016 Adani Enterprises will fully commission its new 648MW solar project in Tamil Nadu (60% complete to-date) – which on commissioning will be the largest solar project in the world (to-date).

    Adani Enterprises reports it has established a further 700MW solar and wind project pipeline over the last 12 months. Additionally, Adani has recently signed a joint venture with the Rajasthan government to develop a 10,000MW solar park. Adani Enterprises has also started construction of a greenfield 1.2GW solar module manufacturing facility in Gujarat, due for completion by March 2017.

    IEEFA would reference the world record low US$30/MWh (US$3c/kWh or Rs2.00/kWh) solar tariff announced in Dubai this week, down almost 50% year-on-year (yoy).[ii] This landmark transaction is below the cost of even new domestic coal-fired power generation anywhere in the world even before considering internalizing any price on carbon emissions or water wastage.

    While India is currently some way behind Dubai given solar PPAs in India are currently Rs4.34-5.00/kWh,[iii] the double digit annual solar cost reductions expected through to 2020 will soon rectify this. New solar in India is already lower cost that new imported coal fired power generation in India.

    Attached Files
    Back to Top

    Exxon, fighting climate change charges, plans fuel cell venture

    Exxon Mobil Corp, which has been fighting accusations it misled investors and the public for years about the risks of climate change, said on Thursday it will expand a research project with FuelCell Energy Inc that aims to cut the cost of collecting carbon emissions from power plants.

    The companies hope to use fuel cells, rather than exhaust scrubbers, the industry standard, to capture emissions from natural gas-fired plants and at the same time generate electricity. Scrubbers typically consume power as they filter carbon.

    Exxon has announced several alternative energy projects in recent years. The company says the projects have nothing to do with recent public outcry over its climate change disclosures, but are part of research into carbon sequestration and alternative fuels.

    Exxon, the largest natural gas producer in the United States, and FuelCell Energy declined to provide financial details of the project.

    A fuel cell generates power from gas, hydrogen or other fuels and converts it to electricity.

    Exxon investors and attorneys general around the United States have alleged the oil giant withheld internal studies on carbon emissions and global temperature change for decades.

    Exxon has repeatedly denied the allegations. Vijay Swarup, Exxon's vice president for research and development, said the FuelCell Energy joint venture is not a reaction to public pressure.

    "This is one component of a research portfolio that has been in place for several years," Swarup said.

    FuelCell Energy, whose market value is less than 1 percent of Exxon's, said it will provide 15 to 20 scientists for the project, which will take place at the company's Danbury, Conn., headquarters.

    Exxon said it would devote as many of its scientists as needed. Executives declined to provide a specific number.

    Both companies will share patents on any developed technology.

    FuelCell Energy, whose second-largest shareholder is utility NRG Energy Inc, makes small-scale power plants across the United States. Exxon contacted the company in 2011 to begin research, said Chip Bottone, FuelCell Energy's chief executive.

    "It's critical that we have someone like Exxon, with their expertise, to create this market opportunity," said Bottone.

    Exxon, which last week reported its smallest quarterly profit since 1999, sponsors other carbon and alternative energy projects.

    Last year, Exxon gave $1 million to the Colorado School of Mines to study algal biofuels. In January, Exxon said it would partner with the Renewable Energy Group to find ways cellulosic sugars can be used to make biodiesel.
    Back to Top

    EFG-Hermes to more than double renewable energy investments it manages

    Egypt's EFG-Hermes is planning to increase the investments it manages in renewable energy to 1.5-2 billion euros in the next two years from 730 million currently, said Bakr Abdel-Wahab, its managing director of infrastructure private equity.

    EFG-Hermes, one of the Middle East's largest investment banks, has a renewable energy portfolio concentrated in Europe, but Abdel-Wahab said the firm was seeking to manage investments in the sector in Egypt within the next two years.

    "We have spoken to Egyptian and foreign companies working in the local market which have projects that need capital. We will provide them with the capital and help them to manage," he told Reuters in an interview.

    "We are initially targeting projects of around 500 megawatts of solar and wind energy in Egypt", he added.

    Last month, EFG-Hermes's Vortex business signed an agreement with EDP Renewables Europe SL to acquire a 49 percent equity shareholding and outstanding shareholder loans in a portfolio of onshore wind assets in Spain, Portugal, Belgium and France for a total of 550 million euros ($629 million).

    Abdel-Wahab said Vortex may acquire shares in other companies in Europe this year and had submitted letters of intent to two companies.

    "We aim to increase the investments managed by EFG-Hermes in renewable energy to 1.5-2 billion euros ($1.7-2.3 billion) within the next two years to 2018," Abdel-Wahab said, adding the firm also planned to increase its production capacity to 1,000 megawatts of wind and solar energy from 460 megawatts currently.

    Abdel-Wahab said EFG-Hermes was planning on expanding to manage renewable energy investments in other markets as well, including the United States and eastern Europe.
    Back to Top

    China solar equipment firm warns may miss bond payment

    A Chinese solar equipment firm, Baoding Tianwei Yingli New Energy Resources Co Ltd, said it may be miss payment on a 1.4 billion yuan ($215.2 million) five-year note maturing on May 12.

    The unlisted firm, a subsidiary of New York-listed Yingli Green Energy Holdings Co Ltd, cited consecutive losses as the reason for the potential default. It issued the warning in a statement posted on China's interbank bond market operator's website late on Wednesday.

    Prices for solar power equipment have fallen rapidly in recent years, causing financial problems for several manufacturers. China's first public bond default in 2014 was by Chaori Solar.

    Bond defaults have been accelerating in China over the past year and a half, with around 20 firms running into repayment trouble in 2016. Defaults have been concentrated in industries with overcapacity such as steel and cement, but firms in a wide range of sectors have now defaulted as the economy has slowed.

    Onshore bond yields rose rapidly in April as investors eyed mounting defaults amid less aggressive moves by the central bank to stimulate the economy following better than expected economic data. Chinese firms delayed or cancelled more than $15 billion of new bond issuance in April.

    Nonetheless, bond and money market yields have retreated somewhat in recent days following large cash injections by the central bank.

    Last week, the People's Bank of China injected 267 billion yuan into 18 financial institutions through three- and six-month medium-term lending facility (MLF) loans. The MLF is a supplementary policy tool the central bank uses to direct liquidity conditions and medium-term interest rates in the banking system and money markets.

    Tianwei Yingli New Energy has been in financial trouble for some time and the note in question was rated C as of October 2015 by Shanghai Brilliance Long-term Issue Credit Rating.
    Back to Top

    Mainstream Renewable plans 100 mln euro equity fundraising for expansion

    Mainstream Renewable Power, a developer that builds wind and solar plants for clients such as IKEA, has appointed PJT Partners to raise at least 100 million euros ($114 million) through an equity sale, it said on Tuesday.

    The green energy company, created in 2008 from the proceeds of the 2 billion euro sale of renewable energy firm Airtricity to utilities SSE and E.ON, wants to raise capital from one or more investors to finance its expansion in South America, Africa and southeast Asia, it said in a statement.

    The company also announced a profit after tax of 96 million euros for 2015, the first time the company has made an annual profit. In 2014, it made a loss of 46.6 million euros.

    Mainstream has largely wrapped up its involvement in renewable energy projects in Europe, where green subsidies are being reined in after huge growth, and is instead banking on developing markets to find new business.
    Back to Top

    GE wants to become big player in offshore wind, eyes Adwen takeover

    General Electric wants to become a major player in the offshore wind industry and is interested in buying the Areva-Gamesa offshore joint venture Adwen, GE's new head of renewables said on Tuesday.

    Following its takeover of the energy assets of the French group Alstom, GE in November 2015 created a global renewable energy business unit with sales of 9 billion euros ($10.42 billion), staff of 13,000, and its headquarters in France.

    The resulting enlarged unit has built about 25 percent of the world's installed base of hydropower and more than 20 percent of global onshore wind capacity, but has virtually no presence in the capital-intensive offshore business, which GE had always steered clear of.

    "We have the ambition to become one of the three major players in the offshore wind market," GE renewables head Jerome Pecresse told reporters in Paris on Tuesday.

    He added that it was too soon to discuss a market share target. Germany's Siemens is European market leader for offshore wind with 63.5 percent of installed capacity in Europe at the end 2015, followed by MHI Vestas with 18.5 pct.
    Back to Top

    Vestas has record Q1 order intake, shares rise 4 pct

    The world's largest wind turbine maker Vestas received record orders and posted forecast-beating operating profit in the first quarter, lifting the Danish company's share price by as much as 4 percent on Friday.

    Vestas, the world's largest wind turbine maker, is benefitting from a new focus on renewable energy generation, encouraged by the Paris global climate summit last year.

    The order intake for the quarter was 2,403 megawatts (MW), up from 1,750 MW the year before, with large orders from countries including the United States, China and Norway.

    Operating profit before special items was 85 million euros ($96.8 million), up from 79 million euros a year ago. Analysts polled by Reuters had on average expected 60.8 million euros.

    "These are strong results, also looking at the order intake, which turned out better than what I and the market had expected. That supports the visibility going into 2017," Jyske Bank senior analyst Janne Vincent Kjaer said.

    Vestas' shares rose 4 percent to 465 crowns, making it the third-biggest gainer on the Stoxx 600 index.

    While Vestas is the market leader, it would be pushed off that pedestal if rivals Siemens and Gamesa go through with a planned merger.

    Vestas also said it broke its own record with combined order backlog and service agreements between January and March of 18 billion euros ($20.50 billion), 3 billion more than a year earlier.

    The wind turbine backlog order was 8.6 billion euros and service agreements with contractual future revenue was 9.4 billion at the end of March 2016.

    Vestas maintained its full-year guidance for a minimum 9 billion euro revenue, an operating profit margin before special items of 11 percent and a free cash flow of a minimum 600 million euros.

    The company's free cash flow turned negative in the first quarter at minus 296 million euros compared with positive free cash flow of 146 million euros a year ago.
    Back to Top

    Chinese solar company Yingli delays annual report

    Chinese solar panel maker Yingli Green Energy Holding Co Ltd said on Friday it was delaying filing its annual report with U.S. regulators as it said it needed more time to finalize its financial statements.

    The solar company said it expects gross profit in 2015 to have nearly halved due to lower production of solar panels.

    The company it was delaying by 15 days filing its annual report with the U.S. Securities and Exchange Commission and expects to raise substantial doubt about its ability to continue as a going concern in the filing.

    The company had earlier flagged "going concern" doubts under the risk factors section in its annual U.S. regulatory filing last May.

    Yingli later said that time the company's statement had been taken out of context and it was confident of its ability to service the global solar market and had taken substantive steps related to its debt repayments.

    The company said on Friday it needs more time to prepare and review its financial statements to finalize assessment of internal controls and other disclosures, including those related to liquidity.

    The company said 2015 net revenue is expected to have fallen nearly 22 percent to 10 billion yuan ($1.54 billion)-10.2 billion yuan ($1.57 billion).
    Back to Top


    Rio Tinto's ERA to sell stockpiled uranium to cover mine closure

    Rio Tinto's Energy Resources of Australia said on Wednesday it plans to sell uranium from a stockpile over the next four years to fund the closure of its Ranger mine, while it tries to keep options open to develop a new mine.

    ERA's prospects beyond 2021 are bleak after Aboriginal land owners refused to back a renewal of its mining authority beyond 2021 and its parent, Rio Tinto, last year declined to invest in further studies on its Ranger 3 Deeps project.

    Uranium prices have collapsed more than 60 percent since Japan's Fukushima nuclear plant disaster in 2011.

    Following a strategic review, ERA said on Wednesday it would spend about A$4 million ($3 million) a year keeping alive the option of developing Ranger 3 Deeps, which would require an extension of its processing license that expires in January 2021.

    "ERA will maintain its dialogue with all stakeholders to ensure it continues to understand their perspectives in relation to an Authority extension," ERA Chairman Peter Mansell said in a speech prepared for the group's annual meeting.

    He warned that the project's viability might be hurt if it were reactivated later than mid-2018, as there would be a gap in sales from its stockpile, due to run down in late 2020, and the start of production from Ranger 3 Deeps.

    "Maximisation of cash flow from the processing of stockpiled ore enables the company to strengthen its financial position, build confidence in its delivery of high quality rehabilitation outcomes and provides a foundation for the company to examine future growth options," ERA said in a statement.

    The company says it expects rehabilitation of Ranger, including filling up the the mine pits, will cost around A$509 million, after having spent more than A$405 million over the past four years.

    ERA's shares were steady on Wednesday but have plunged 73 percent since last June when Rio decided to stop funding work on Ranger 3 Deeps.
    Back to Top

    Cameco posts surprise loss

    Uranium miner Cameco reported Friday an adjusted loss for its first quarter financial results as both prices and demand remains low, which has forced the Canadian company to lower its output forecast for the year.

    While the Saskatoon-based miner sees a bright long-term future for nuclear power, it noted it's been challenging so far for the uranium market.

    As a result, it posted a loss oft $408 million as compared to $566 million in 2015, or 2 cents per share versus 18 cents per share in 2015.

    Sales dropped 16% to 5.9 million pounds in the quarter, with the average realized price per pound down 3%.

    After being one of the best performing commodities in 2015 in terms of prices, uranium has been having a terrible year so far.

    The firm’s new production forecast for the year is now 25.7 million pounds, down from the 30 million pounds previously estimated. Output was 28.4 million pounds in 2015.

    Last week, Cameco announced it wassuspending production at its Rabbit Lakeoperation in Saskatchewan, as well as and slashing output in the US and at McArthur River, Saskatchewan, the world’s biggest uranium mine.

    After being one of the best performing commodities in 2015 in terms of prices, uranium has been having a terrible year so far. The nuclear fuel is down roughly 25% in 2016 with the UxC broker average price sitting at $27.50 a pound as of April 25. That's one of the lowest prices uranium has been in the last decade.

    Five years after the Fukushima disaster in Japan, only two of the country's 50 nuclear reactors are back on line. In other developed markets, such as France and Germany, nuclear power is also in retreat.

    Stockpiles at utilities were estimated at an already elevated 217,000 tonnes uranium at the end of 2014. That translates into more than three years' worth of feedstock for the world's installed nuclear power capacity.
    Back to Top


    Beijing Pulls Cork on Pork Stockpile

    China’s capital city will release some of its frozen-pork reserves into the market for the first time, in a bid to contain inflation and satisfy surging demand.

    More than 3 million kilograms (6.1 million pounds) of frozen pork, which the government stockpiled for this purpose, will be released to more than 100 supermarkets in Beijing from May 5 to July 4, according to a statement issued by the city’s Municipal Commission of Commerce.

    The agency also encouraged the city’s slaughterhouses to increase supply, saying those that comply will receive a government subsidy.

    Pork prices in China have risen about 50% over the past year, fueling worries of sustained inflation and prompting the Beijing government to tap its reserves. The average price of pork for the week ended April 24 reached 26.24 yuan ($4.04) a kilogram, rising for the sixth straight week, according to China’s Ministry of Agriculture.

    The sharp increase in prices was due to a shortage of pigs in China, as lower profits before the recent run-up had prompted many farmers to give up on raising the animals, while others were forced out by tougher environmental rules. In addition, an outbreak of disease earlier this year wiped out many of China’s piglets.

    High pork prices were felt in the latest inflation data out of China.Consumer prices were up 2.3% in March from a year earlier, matching February’s level. The food-price component of the index rose 7.6% in March, led by higher pork and vegetable prices.

    Pork continues to hold a significant weighting—about 3%, according to Rabobank—in the price of the basket of goods and services that is used to calculate the consumer-price index.

    The Beijing government’s measure marks the first time it has released pork into the market since it created the stockpile in 1992 as a way to stabilize prices for key goods.
    Back to Top

    Fertiliser company Mosaic's sales beat estimates

    US fertiliser company Mosaic Co forecast higher phosphate and potash sales for the current quarter after it reported higher-than-expected first quarter sales. The company's net sales fell 21.7% in the first quarter to $1.67-billion, but beat the average analyst estimate of $1.56-billion. 

    Mosaic's Brazil unit said in March that the country's fertiliser sales had doubled in the first ten weeks, compared with the volume seen in a similar period in 2015, with sales reaching 7.5-million tonnes considering deals from all suppliers. 

    Plymouth, Minnesota-based Mosaic forecast current-quarter phosphate sales of 2.3-million to 2.6-million tonnes, higher than the 2.2-million tonnes it sold in the first quarter. The company said it expected potash sales of 1.9-million to 2.2-million tonnes in the current quarter, higher than the 1.5-million tonnes it sold in the first quarter. 

    Larger rival Potash Corp of Saskatchewan last month reported an 80% drop in profit and cut its full-year profit forecast on weak demand and lower prices. 

    Mosaic, which cut 8% of its workforce at a Canadian mine in October, on Wednesday lowered its 2016 capital expenditures to the range of $800-million to $900-million from its previous estimate of $900-million to $1.1-billion. Net profit attributable to the world's largest producer of finished phosphate products fell nearly 13% to $256.8-million, or $0.73 a share, in the first quarter ended March 31 from a year earlier. Excluding items, it earned $0.14 a share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.
    Back to Top


    Image title
    Back to Top

    Digital farming could spell shake-up for crop chemicals sector

    Global pesticides, seeds and fertiliser companies may be forced to re-engineer their business models as farmers adopt specialist technology that helps maximise harvests while reducing the use of crop chemicals.

    New businesses are springing up that promise to tell farmers how and when to till, sow, spray, fertilise or pick crops based on algorithms using data from their own fields.

    Their emphasis on reducing the use of chemicals and minerals known as farming inputs is a further challenge for an industry already struggling with weak agricultural markets worldwide.

    "If our only goal is to sell as much inputs as possible by the litres of chemicals, I think we would have a real problem going forward," said Liam Condon, head of Crop Science at Bayer , the world's second-largest pesticides supplier.

    Bayer bought proPlant, a developer of software for plant health diagnostics, earlier this year. Rivals are also investing in digital farming with the aim of generating service revenues that could offset any future drop in chemicals volumes.

    "If you only spray half of the field that's much less inputs," Condon added. "The knowledge to get to the fact that you only spray that part of the field -- that, you can sell."

    After an aborted takeover move for Syngenta, U.S. seeds giant Monsanto says data science and services are the "glue that holds the pieces together" of its strategy for future growth.

    Monsanto's $1 billion purchase in 2013 of the Climate Corporation, which analyses weather conditions, was the digital farming sector's biggest deal to date.

    DuPont is investing in digital farm management services under its Encirca brand, which it said in March had customers representing more than 1 million acres of farmland.

    At the 970-hectare farm in Bavaria where Juergen Schwarzensteiner rotates corn, potatoes and grains, satellite maps and software supplied three years ago by a unit of farming goods distributor BayWa have prompted many changes.

    These include reducing the overuse of nitrogen fertiliser -- a risk to drinking water quality and the environment -- and cutting down on other fertilisers.

    As well as BayWa's FarmFacts, farm management software startups include Iowa-based Farmers Business Network Inc, backed by Alphabet Inc and investor Kleiner Perkins, and Missouri-based FarmLink LLC.

    All aim to provide farmers with individualised prescriptions on how to work each field down to a fraction of an acre, using data they have collected on soil and weather conditions, the use of crop chemicals and crop yields. Feedback from the farmers they have advised in turn allows the companies to fine-tune their computer models of plant growth.

    According to market research firm AgFunder, venture capital investments in food and agriculture technology nearly doubled to $4.6 billion last year, with "precision agriculture" startups raising $661 million in 2015, up 140 percent from 2014.

    Syngenta bought seven agricultural technology firms last year alone, AgFunder said.

    For now, the main aim of these companies is to help farmers using their drones, field robots, decision support software and smart irrigation systems to boost yields, said Carsten Gerhardt, a chemicals industry specialist at advisors A.T. Kearney.

    "But in the mid- to longer-term, I also expect there to be a reduction in the use of input factors by about 30 to 40 percent," he added.

    "There's a risk for established players if digital services providers can convince farmers that they can settle for the second-best herbicide and show what really counts is a more precise way of using it."

    Attached Files
    Back to Top

    Base Metals

    Biggest undeveloped copper deposit in Australia gets greenlight

    OZ Minerals Ltd. aims to begin output from the Australia’s  biggest undeveloped copper deposit by 2019 under a revised A$975 million ($729 million) construction plan, another signal that the metal is the hottest play in a burgeoning mining industry rebound.

    The Carrapateena project in South Australia will have annual production of about 67,000 metric tons of copper and 76,000 ounces of gold over its first three full years, Australia’s third-largest copper producer said in a statement Friday. The proposal replaces plans for a smaller-scale development outlined in February.

    Copper demand may catch up with supply next year and a deficit will then widen on a lack of new mines, according to Freeport-McMoRan Inc., the largest publicly traded producer. Companies and project financiers are growing increasingly confident about the metal’s outlook, Gavin Wendt, Sydney-based founding director at MineLife Pty, said by phone.

    Carrapateena’s development plan compares with the initial proposal for a larger scale mine, which had an estimated cost in 2014 of as much as A$3 billion. OZ Minerals will fund the new option from existing cash and cash flow, the producer said in the statement.
    Back to Top

    Oyu Tolgoi underground development approved

    Mining major Rio Tinto and its joint venture partners in the Oyu Tolgoi copper-gold mine, in Mongolia, have approved the development of an underground operation. The development of the underground mine was slated to start in mid-2016 and would require a capital investment of $5.3-billion. First production from the underground mine was expected in 2020. 

    Rio’s deputy CEO Jean-Sébastien Jacques said that the investment would transform the Oyu Tolgloi operation into one of the most significant copper mines globally, unlocking 80% of its value. “Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit. 

    In line with Rio’s other tier one assets, Oyu Tolgoi offers opportunities for further expansions, leveraging existing infrastructure and supply chains, and will provide attractive returns for all shareholders and Mongolia more broadly, for decades to come.” 

    The Oyu Tolgoi mine is jointly owned by Rio, the government of Mongolia and Turquoise Hill Resources. The openpit operation has been producing since 2013, and to date, more than 440 000 t of copper has been sold from the operation. 

    Oyu Tolgoi was expected to produce an average 560 000 t/y of copper between 2025 and 2030. The project currently has a workforce of around 3 000 and has paid more than $1.4-billion in taxes, fees and other payments to the government of Mongolia. 

    Mongolian PM Chimediin Saikhanbileg said on Friday that the significant investment into the underground operation at Ouy Tolgoi demonstrated the confidence of all the partners in both the mine and the country. “It also demonstrates the attractiveness of Mongolia as a place to do business and invest, which will be a catalyst for future investments that will strengthen Mongolia’s economy.” 

    The decision to start underground mining at Ouy Tolgoi followed a December signing of a $4.4-billion project financing agreement with a number of financial institutions and export credit agencies in the US, Canada and Australia. Meanwhile, 

    Rio has reduced its near-term maturing gross debt by $1.5-billion after accepting a total of $141-million of debt under its Dutch Auction offer and a further $1.35-billion under its any and all offer.
    Back to Top

    Copper to reach $2.50/lb by 2017: Wood Mackenzie

    Copper prices are likely to remain steady at current levels around $2.20/lb in the near term, but rise to $2.50/lb by 2017 on the back of electricity infrastructure growth in China and other developing nations, plus non-residential building construction globally, Wood Mackenzie senior researcher Nick Pickens said Thursday.

    "We're looking at grid spending as being the driver of growth," Pickens said in a presentation at the American Copper Council Spring Meeting.

    "Despite the fall we've seen in 2016, much like we saw in 2015, the actual investment -- because of the lower prices -- flowed through to higher volumes. So we think that the electrical network will be the strongest end-user sector this year, with growth of around 7%," Pickens said.

    Though residential construction has weakened, non-residential construction, which includes office buildings, hotels, shopping centers and hospitals is "going to be a key source of [demand] growth over the next five years," Pickens said.

    Non-residential construction growth is expected to level off and begin easing in 2020 as developing nation non-residential units reach the same per capita levels seen in the developed world, he added.

    Other end-user sectors expected to increase their copper demand include hybrid-electric vehicles, which use nearly 63 times more copper than a conventional vehicle.

    Looking forward, Pickens said China will be significant part of refined copper demand growth over the next 20 years, with Chinese demand expected to grow at 1.1%/year over that period. Global copper demand growth is expected to be 1.3%/year over that period.

    Mine supply is likely to begin moving into a deficit in 2021, but prices will need to rise to around $3.30/lb for additional mine projects to come online to meet that demand.

    Wood MacKenzie expects mine supply to total just above 19 million mt this year, but rise to more than 21 million mt by 2019, Pickens said.
    Back to Top

    Alcoa strikes power accord to keep Intalco smelter open

    Alcoa strikes power accord to keep Intalco smelter open 

    US specialty alloys producer Alcoa has struck an agreement with the Bonneville Power Administration (BPA) that would help improve the competitiveness of its 279 000 t/y Intalco smelter, in Washington state. 

    As a result, the smelter will not close at the end of June, as previously planned by the company. Alcoa advised Monday that the amendment to the power contract was effective July 1, through to February 14, 2018, and provided Alcoa with more access to market power. 

    According to the company, this short-term amendment with BPA, combined with the state funding of $3-million for workforce training, were among key factors to help keep Intalco competitive. 

    Alcoa, which expected to separate its main upstream and beneficiating downstream business units later this year, had so far this year shuttered its 269 000 t/y Warrick smelter at the end of March, bringing US aluminium output to its lowest in more than 65 years as an expected zinc supply gap failed to materialise and industry struggled with low metal prices.

    Attached Files
    Back to Top

    Hudbay, sales and cash flows rise

    Hudbay Minerals reported strong sales growth despite lower metals prices during the March quarter. The Toronto-based miner, with operations in Peru and Canada’s Manitoba province, reported a marginally smaller first-quarter net loss of $15.8-million, or $0.07 a share, as the company booked a $23-million interest expense that was no longer capitalised after its declaration of commercial production at the Constancia mine on April 30, 2015. 

    The quarter represented the company’s fifth consecutive quarterly loss in a year. Hudbay advised that liquidity was expected to increase over the rest of 2016 at current metals prices, as it generated free cash flow from its operations at full production and benefit from ongoing cost reduction initiatives, all the while also collecting refundable Peruvian sales tax receivables. 

    Despite lower metals prices, revenues nearly doubled in the period to $253.6-million, $124.9-million higher than the same period in 2015. Higher sales volumes were partially offset by lower prices for copper and zinc, the company advised. 

    Realised prices for copper were slightly higher than the LME average for the quarter mainly owing to the timing of sales, which occurred in the latter part of the quarter when copper prices increased. 

    The consolidated all-in sustaining cash cost, net of by-product credits, declined to $1.80/lb in, from $2.67/lb in the first quarter a year earlier. “Since achieving commercial production last year, Constancia’s operating performance, coupled with our stable Manitoba operations, have enabled us to generate increasing cash flows, despite the sharp declines in metals prices. 

    Based on our operating and cost performance to date, we are on track to meet the cost reduction targets of over $100-million we announced last quarter, as well as our production, operating and capital cost guidance,” CEO Alan Hair advised in a statement. 

    Hudbay reported that during the first quarter, Constancia mining operations continued as planned and cost optimisation was underway. Ore milled decreased to 6.2-million tonnes from 7.4-million tonnes in the fourth quarter of 2015, owing to lower mill capacity during the replacement of the trunnions on one of the grinding circuits. The average milled copper grade had also declined somewhat to 0.57%. Hudbay advised that the planned replacement of the damaged trunnions at the Constancia mill was completed without incident and ahead of schedule by late March, reducing plant down time. 

    Meanwhile, ore mined at Hudbay’s Manitoba mines increased by 12% year-over-year, as a result of increased production at the company’s Lalor and 777 mines, however, copper, zinc, gold and silver grades were lower than the first quarter of 2015. Hudbay advised that 777 grades were in line with mine plan expectations, but Lalor zinc grades were lower as a result of stope sequencing. 

    Hudbay said ore processed in Flin Flon was 8% lower than the same period in 2015 as a result of unscheduled maintenance, with the shortfall expected to be made up over the balance of 2016. Copper, zinc and silver recoveries at the Flin Flon concentrator were generally consistent in the first quarter of 2016 compared to the same period in 2015.
    Back to Top

    Russia's Norilsk says Q1 nickel output down 6 pct y/y

    Russia's Norilsk Nickel said on Friday its first-quarter nickel output fell 6
    percent year-on-year to 63,631 tonnes due to a reconfiguration of production facilities at its Polar assets.

    Norilsk, the world's second-largest nickel producer after Brazilian miner Vale SA, also said it was on track to meet its 2016 metals production guidance.

    The company, also the world's largest palladium producer, added its first-quarter palladium output rose 1 percent year-on-year to 642,000 troy ounces, while platinum production gained 4 percent to 171,000 ounces thanks to the processing of work-in-progress materials.

    Its copper output fell 3 percent to 87,255 tonnes due to lower metal content in mined ore, added the company, part owned by Russian tycoon Vladimir Potanin and aluminium producer Rusal
    Back to Top

    Steel, Iron Ore and Coal

    Iron ore price drops below $60

    On Thursday the Northern China benchmark iron ore price fell 2.5% to $59.50 per dry metric tonne (62% Fe CFR Tianjin port) according to data supplied by The Steel Index bringing losses so far this week to 8.7% as commodity investment fever among Chinese speculators begin to cool.

    Two weeks ago iron ore hit a 16-month high following an 11% jump over just two trading days amid frenzied trading on the Dalian Commodities Exchange where the world's most active iron ore price futures are traded.

    "Some people can see a bit of an uptick, and I don’t know whether it's hope. You have to look at fundamentals"

    On Tuesday, Dalian iron ore futures closed 5.3% lower at 412.50 yuan or $63.35 a tonne after earlier in the day triggering so-called circuit breakers  to curb excessive price movement for the umpteenth time in recent weeks. Volume on the day was a robust 217 million tonnes worth $7 billion, but things have quietened down from torrid levels in March and April when one billion tonnes in a single day was recorded.

    The more subdued trading is the result of a clampdown on rogue traders, higher margin requirements and trading fees, but volumes are up five-fold compared to last year.

    Speaking to reporters in Australia on Thursday outgoing Rio Tinto CEO Sam Walsh, who for years headed up the Melbourne-based miners iron ore division, said the huge quantities of iron ore being traded in Dalian were impacting “people’s view of iron ore pricing” reports the FT:

    “Iron ore bounced up to $70 a tonne and I said I didn’t expect it to stay there … guess what — today it’s down at $60. Some people can see a bit of an uptick, and I don’t [know] whether it's hope. You have to look at fundamentals.”

    Bloomberg reports Rio on Wednesday re-iterated the company's commitment to produce 360 million tonnes on annual basis and Walsh repeated his warnings about oversupply in the market:

    “There is additional supply coming on, Vale are bringing on more supply, Roy Hill is bringing on more supply, FMG seems to be increasing their volumes. Those will have an impact on supply and demand.”

    The giant mine with annual capacity of more than 90 million tonnes is 85% complete and is expected to start shipping in the second half of 2016

    The big three – Vale, Rio Tinto and BHP Billiton – last month lowered future production guidance, but the aggregate 35 million tonnes in possible lost production hardly changes the supply picture and the giants would still hit actual annual output records even at these lowered levels.

    Attached Files
    Back to Top

    Indian utilities may import 48 mln T coal this FY, CEA

    Indian power utilities that have plants based on imported thermal coal are likely to import around 48 million tonnes of coal in the fiscal year 2016-17 ending March 31 next year, Platts reported, citing an official from the Central Electricity Authority.

    The CEA has not assigned any imported coal quantities to power utilities that used to import coal for blending with domestic coal this fiscal year, because of adequate availability of domestic coal along with sufficient inventories at power plants, the official said.

    In FY 2015-16, power utilities had imported around 37 million tonnes for blending purpose while 43 million tonnes was imported by those plants that use only imported coal.

    If the need arises and imported coal prices are found to be cheaper than domestic coal, some utilities may import for blending but the quantity would be a lot lower compared with last fiscal year, the CEA official was cited as saying.

    Coastal power plants, however, will import 48 million tonnes of coal, as imports are more economically viable for them compared with domestic supply, he said.

    India presently has sufficient supply of coal, with stocks at state-run Coal India Limited's mines are at around 55 million tonnes, the official said.

    The official doesn't expect India’s power demand to go up this year, and said forecast of an above-normal monsoon season will boost hydro power. He expected the country's electricity demand would be easily met.

    While coal output by CIL has risen 8.5% last fiscal year, power generation has gone up by 5.5% of which 7.6% is coal-based, according to CEA data.

    Attached Files
    Back to Top

    China vows stronger action against illegal coal mining

    China will take stronger action against illegal coal projects as it tries to tackle a massive capacity glut in the sector, the country's state planning agency said, after ordering the closure of 38 projects.

    The National Development and Reform Commission (NDRC) had ordered the immediate closure of the projects for breaching industry policies, it said in a notice posted on its website ( on Friday.

    "Recent results of a special inspection of illegal coal mine construction showed that there are still a small number of illegal projects under construction or in operation, and (we) must pursue rectification work with a more resolute attitude, stronger measures and stricter punishments," it said.

    It said it would set up special inspection teams to tackle illegal coal production and, together with media outlets, would also make unannounced visits to coal mine regions.

    The NDRC has been holding regular meetings on cutting excess coal capacity in sector hit by an economic slowdown and with a concerted campaign by the state government to switch to cleaner sources of energy.

    Loss-making coal firms have been forced to cut salaries and lay off workers, and the energy regulator said in February that it expected more than 1,000 mines to be shut down this year alone.

    According to the China National Coal Association, the country has enough mines in operation to produce as much as 5.7 billion tonnes of coal a year. Production in 2015 stood at 3.68 billion tonnes, down 3.5 percent from the previous year.

    China said in February that it aims to shut 500 million tonnes of surplus coal capacity in the coming three to five years, and it also pledged to ban all new mine construction for the next three years.

    It has also cut the statutory working hours for miners to help control supplies.
    Back to Top

    Brazil judge approves Samarco dam burst settlement with government

    A Brazilian judge on Thursday ratified the settlement Samarco and its owners, BHP Billiton and Vale SA, signed with Brazil's government in March to cover damages for a deadly dam spill last year, Vale said in a statement.

    The move potentially saps some of the energy from a separate $44 billion lawsuit filed by federal prosecutors on Tuesday who criticized the settlement as insufficient.

    The agreement will see Samarco, BHP and Vale pay a government-estimated 20 billion reais ($5.6 billion) over 15 years to cover and repair damages. Vale, however, has outlined it expects to pay less than that due to the way the deal is structured, calculating future payments depending on how much work remains to be done.

    "It's a very important step because you remove any uncertainty about the agreement's validity," said Marilene Ramos, President of Brazil's federal environment agency Ibama which formed part of the settlement.

    "The programs outlined in the agreement can now be implemented by the companies," Ramos added, referring to the environmental reparation plan which includes work on sewage, landfill, reforestation and water treatment.

    The settlement has been strongly criticized by federal prosecutors who called it little more than a "letter of intent" in their lawsuit. "It is absolutely insufficient," said Jorge Munhós de Souza, one of the prosecutors working on the case.

    Samarco Chief Executive Roberto Carvalho told Reuters the settlement and the lawsuit filed by prosecutors covers the same ground.

    "The agreement ratified today already carries all the socio-economic and environmental reparations which this other lawsuit proposes," Carvalho said.

    He reiterated that he expects the Samarco mine, closed after the disaster, to restart later this year, and that a return to production is vital for the company to afford the terms of the agreement. The settlement specifies that if Samarco cannot meet its obligations, the cost of doing so falls to Vale and BHP.

    BHP said on Friday progress was being made to rebuild the communities worst-hit by the massive spill, and more than 5,2000 people affected in Mariana, Barra Longa and Rio Doce had received emergency support cards.
    Back to Top

    Regional de-capacity standards rolled out to tackle capacity glut

    Relevant authorities of China’s major coal production bases released new capacity standard for local coal mines in succession, in response to the national de-capacity polity to tackle the woes of domestic coal market troubled by surplus capacity.

    Shandong province pledged to cut annual coal capacity of 143 local mines from the previous 170.32 million tonnes to 141.95 million tonnes, a decline of 16.7%.

    Of this, key provincial-owned mines will see annual capacity reduced to 95.35 million tonnes from previous 114.43 million tonnes; capacity of municipal and prefecture-owned coal mines is expected to drop to 47.16 million tonnes per year, compared with the previous 50.13 million tonnes.

    Also, annual capacity of eight mines under construction in the province will be cut to 6.44 million tonnes from previous 7.65 million tonnes.

    Meanwhile, Inner Mongolia Autonomous Region authorities rolled out new coal capacity standard based on the newly-implemented 276-workday regulation for coal miners, asking those production coal mines not owned by central government to cut capacity by 16.05% to 325.15 million tonnes per year.

    The Energy Administration of Guizhou province in southwestern China also required a total 709 production miners to eliminate combined coal capacity by 15.63% to 151.59 million tonnes per year, yet the coal mines owned by central government are not included.
    Back to Top

    Hebei steel industry Q1 profit triples on year

    Hebei province, a major steel production base in China, posted a year-on-year increase of 215.8% in profit of its steel industry to 4.07 billion yuan ($626.4 million) in the first quarter, thanks to rising steel prices at domestic market, showed data from the provincial Metallurgical Industry Association.

    The revenue of core businesses of the province’s steel industry stood at 233.6 billion yuan during the same period, sliding 3.15% from a year ago.

    The steel market gained upward strength mainly from the eased oversupply as well as the national favorable policies, analysts said.

    In the first quarter, the province’s output of iron pig and crude steel amounted to 45.71 million and 48.89 million tonnes, falling 0.67% and 0.84% on year, respectively; that of steel products climbed 4.87% on year to 61.91 million tonnes.

    At present, a total of over 60 blast furnaces have resumed production, mainly spurred by tempting profit, contributing to a 5% monthly rise in China’s daily output of crude steel to 2.16 million tonnes since mid-March.

    Production recovery, however, may intensify price competition among steel mills, bringing the steel market back into the previously bad situation.

    The province has cut iron and steel capacity of 33.91 million and 41.06 million tonnes, respectively, during 2010-2015 period. The de-capacity target for 2016 is set at 10 million and 8 million tonnes for iron and steel, respectively, and the province’s steel capacity is expected to be within 200 million tonnes during the 13th "Five-Year Plan".

    Attached Files
    Back to Top

    A glut faces Indian iron-ore miners

    India was facing an imminent glut in iron-ore with production forecast at 180-million tonnes in 2016-17 and a current carryover stockpile of 140-million tonnes. The increase in stockpiles has come despite a 63% fall in imports during 2015-16, at 5.6-million tonnes, with miners apprehending a problem of plenty in the months ahead.

    Final figures of current stocks were yet to be collated but indications available from Federation of Indian Mineral Industries (FIMI) show stocks have climbed to 140-million tonnes at the end of March, from levels of around 128-million tonnes in the previous corresponding period, across major producing provinces of Odisha, Jharkhand, Goa and Karnataka. 

    According to FIMI, of the total stockpile an estimated 85-million tonnes were low-grade fines which were not finding any takers among domestic raw material consumers. To make matters worse, according to the FIMI, dispatches from mines in Odisha was failing to take-off since the local government charged the same rate of royalty for all grades of iron-ore, making it unviable for consumers to lift low grade ores. 

    The existing stockpile and glut in the market was expected to worsen since mines in Odisha had a cap for production of up to 80-million tonnes for 2016-17, set by the Environmental Ministry, but were still operating at 50% capacity. FIMI maintained that with mines in Odisha still having headroom to ramp up production in the coming months and with a slow-down in mine dispatches, the oversupply situation would aggravate over the current year. 

    The Federation has also flayed the Odisha government for continuing with its policy that half of iron-ore production should be earmarked for steel mills located within the province even though the aggregate average off-take by the latter did not exceed 20-million tonnes, leading to local miners getting saddled with rising volumes of stocks. 

    In the medium term, Indian iron ore production was forecast to hit the 200-million tonnes mark by 2020, the first time since 2010-11 and falling steadily since then. FIMI has cautioned that with mine dispatches unlikely to show an uptick considering depressed prices of steel and the financial stress facing most domestic steel mills, the only option to prevent worsening of over-supply and stock-pile up at pitheads was to step up exports. 

    It was pointed out that despite falling iron ore exports from the country, the government had steadfastly refused to scrap or reduce the 30% export tax on high-grade ore though the same had been scrapped in case of low grade ore. Last fiscal, Indian iron ore exports touched an all time low of 4.8-million tonnes, down from the heydays of 2010-11 when exports were recorded at 97-million tonnes.
    Back to Top

    Fortescue wipes out more debt

    Iron-ore major Fortescue Metals has issued a $650-million repayment issue for its 2019 senior secured term loan. 

    The repayment comes just days after the miner announced a $577-million repayment of senior unsecured notes. CEO Nev Power said on Wednesday t hat the $650-million term loan repayment would be made at par from accumulated cash on May 16, and would generate interest savings of around $28-million a year. 

    “We are committed to ongoing debt reduction and have accelerated the repayment of the term loan and notes on the back of strong cash flows from sustainable operational efficiencies and cost reductions,” Power said. 

    With the latest repayments, Fortescue’s total 2016 debt repayments have increased to $2.3-billion, generating annual interest savings of around $164-million.
    Back to Top

    China’s key steel mills daily output up 0.09pct in mid-April

    The daily crude steel output of China’s key steel mills edged up 0.09% from ten days ago to 1.69 million tonnes in mid-April, posting the second ten-day increase in a row, according to data released by the China Iron and Steel Association (CISA).

    China’s daily crude steel output is expected to be 2.28 million tonnes in mid-April, up 0.79% from ten days ago, CISA forecasted.

    The supply of crude steel at steel mills continued to climb in mid-April after the accelerated production in early April, and China’s daily supply of crude steel came to be the highest level since mid-May last year.

    Daily output of steel products in key steel mills gained 5.33% from March to 1.67 million tonnes in mid-April; that of iron pig and coke stood at 1.64 million and 0.33 million tonnes, falling 0.4% on month and rising 1.05% from ten days ago, respectively.

    By April 20, stocks of steel products in key steel mills rose 0.69% from ten days ago to 13 million tonnes, yet it was still 22.03% lower than the same period last year.

    Meanwhile, social stocks of steel products stood at 9.96 million tonnes, sliding 5.26% on month.

    In mid-April, sales price of crude steel rose 11.01% from ten days ago to 2,376 yuan/t on average; that of steel products increased 7.18% from ten days ago to 2,920 yuan/t.

    Analysts still expect new upward trend in steel prices amid the peak season for building industry in May, yet they also acknowledge the great negative impacts of oversupply and high inventories on prices once the demand slides.
    Back to Top

    Brazil Seeks $44 Billion in Suit Over Spill at BHP-Vale Mine Dam

    Brazilian prosecutors filed a 155 billion reais ($44 billion) civil suit against Vale SA, BHP Billiton Ltd. and their iron-ore venture over a November dam rupture that killed as many as 19 people and caused severe environmental damage.

    The prosecuting task force is demanding the two companies and Samarco Mineracao SA provide initial payment of 7.8 billion reais within 30 days, according to a statement from the prosecutor’s office. The civil suit also challenges a previous agreement the companies signed with Brazil’s federal government and the Minas Gerais and Espirito Santo state governments.

    Samarco had been making progress at overcoming what authorities describe as Brazil’s biggest environmental disaster before the lawsuit was filed. In March, Samarco, Rio de Janeiro-based Vale and Melbourne-based BHP struck a deal with the Brazilian governments, committing to pay as much as 12 billion reais over 15 years. President Dilma Rousseff officially presided over the event, praising the companies and the administration for reacting quickly to address the damage caused.

    The prosecutors allege in Tuesday’s statement that state and federal agencies failed to provide the oversight necessary to avoid such a disaster.

    “This action is much more extensive” than the previous agreement with the governments, prosecutor Eduardo Aguiar said Tuesday in a telephone interview. “It includes not just the three companies but the federal government, both state governments and also various agencies.”

    The amount sought in the prosecutors’ civil suit was based on costs to repair the damage caused by the 2010 Deepwater Horizon oil-spill disaster in the Gulf of Mexico, according to the statement. The Brazilian suit includes more than 10,000 pages of technical reports and more than 200 claims related to ecological, economic and social damages.

    Prosecutors said the total value of the damages is an estimate and will be assessed by an independent technical team. In Brazil, prosecutors have a history of demanding large reparations for environmental disasters that are then reduced. Chevron Corp. was one party targeted by multibillion-dollar suits for 2011-2012 offshore oil spills, and eventually settled for a fraction of that amount.
    Back to Top

    Fortescue sees iron ore steadying as China aligns trading curbs, investment needs

    Australia's Fortescue Metals Group expects iron ore prices to stabilise as China walks a fine line to curb market speculation, which triggered a recent run-up the price of iron ore futures, the miner's chief executive said on Wednesday

    "The Chinese government wants more market forces to drive the economy and they are encouraging those processes," Fortescue CEO Nev Power told reporters on the sidelines of a conference.

    "On the one hand the Chinese government wants to drive the economy with that process. But on the other hand, they do not want it to get out of control," he said.

    Iron ore prices have jumped more than 45 percent since the start of the year on the back of a pick-up in demand from Chinese steel mills and futures' speculation, but major miners expect prices to fall back later this year due to oversupply.

    The China Securities Regulatory Commission has said it would not allow the futures market to become a "hot-bed" for speculators and urged commodity exchanges to curb excessive speculation following a surge in prices.

    Power said he expected some volatility to continue in iron ore trading but said much of the world's higher cost production was eliminated during last year's period of low ore prices, enabling fundamental market forces to exert greater influence.

    "We are pleased to see the Chinese government starting to say this is not designed to be a highly speculative exchange, we want producers and users to be the main participants," Power said.

    Power said Fortescue, the world's fourth-biggest iron ore miner, was mining and shipping ore for an average price of around $30 a tonne - roughly half the current benchmark spot price.

    "The positive we are seeing is the underlying strong demand in China," Power said, adding steel mill margins were also robust.
    Back to Top

    Iron ore price plummets as Chinese stockpiles rise

    Iron ore prices lost more than 4% of their value on Tuesday, as China’s port inventories have started piling up.

    The drop comes as stockpiles in China, the world’s main buyer, climbed 1.2% to 98.5 million tons last week.

    The steel-making material traded 4.3% lower to $63.41 a ton, reversing the large gain seen last Friday and reducing gains this year to 46%, according to Metal Bulletin Ltd.

    The drop comes as stockpiles in China, the world’s biggest buyer, climbed 1.2% to 98.5 million tons last week, the highest in more than a year, according to Shanghai Steelhome Information Technology Co.

    Analysts called the end of the iron rally last month. Goldman Sachs Group, for one, said the price was likely going back down to $35 during the fourth quarter of the year.

    China's securities regulator on Friday urged commodity futures exchanges to curb excessive speculation following the surge in prices that sparked fears markets were heading for a risky boom-and-bust cycle.
    Back to Top

    Germany to exit coal power "well before 2050" - draft document

    Coal-fired power production in Germany should come to an end "well before 2050", according to a draft environment ministry document seen by Reuters on Tuesday on how Europe's biggest economy can achieve its climate goals.

    Calls have grown for Berlin to set out a timetable to withdraw from coal in power production, after global leaders clinched a climate-protection deal in Paris last December to transform the world's fossil-fuel driven economy.

    The government is due to decide on a national climate action plan for 2050 by mid-2016 which will lay out how it plans to move away from fossil fuels and achieve its goal of cutting CO2 emissions by up to 95 percent compared to 1990 levels by the middle of the century.

    The draft document, which still needs to be rubber-stamped by other ministries and has not yet been approved by Environment Minister Barbara Hendricks, says CO2 emissions from the energy sector will need to be halved by 2030 compared to 2014 levels.

    The paper proposes setting up a committee to come up with recommendations on how to phase out coal while averting economic hardship for those working in coal-producing regions.

    The coal sector still accounts for around 40 percent of electricity generated in Germany and is viewed as an important pillar for a stable power supply as the country exits nuclear power and moves towards renewable sources of energy.

    The document calls for a faster expansion of renewables than currently envisaged and says support for solar power needs to be increased.

    Germany generated more than a quarter of its electricity from renewable sources - such as wind and solar power - in 2014. The document said the amount of energy produced by green sources should increase by around 75 percent by 2030.

    Support for research into energy-storage technologies should be doubled over the next 10 years, the paper says.

    The government will also push for a stricter European emissions trading system and is considering whether an additional levy on petrol, heating oil and gas would increase demand for green technologies.
    Back to Top

    Shenhua Q1 net profit falls 21pct on year

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, realized net profit of 4.61 billion yuan ($711.8 million) in the first quarter of the year, falling 21.4% from the year prior, said the company in its quarterly report released on April 30.

    The operating revenue declined 4.6% year on year to 39.4 billion yuan during the same period, it said.

    In the first quarter, the company intensified sales of outsourced coal amid rebounded coal demand from downstream sector. Total coal sales reached 92.5 million tonnes or 27.2% of the year’s target, up 27.1% on year; while output of commercial coal stood at 71.3 million tonnes or 25.5% of the year’s target, up 2.9% on year.

    China Shenhua said it will continue to maximum the sale of coal traded at northern ports, and increase the sales of outsourced and exported coal properly in 2016.

    Data showed that sales of coal shipped via northern ports stood at 54.4 million tonnes in the first quarter, accounting for 58.8% of total sales.

    The production cost of the company’s self-produced coal stood at 106.3 yuan/t during the same period, sliding 7.5% from a year ago.

    Domestic coal demand may stabilize in traditional slack season under China’s policy of steady economic growth, and the supply glut will gradually be eased in the long run, said China Shenhua.
    Back to Top

    China Steel PMI signals expansion in April

    The purchasing managers' index (PMI) tracking China's iron and steel sector increased for the 5th consecutive month to 57.3 percent in April, up 7.6 percentage points from March, an industry federation said on Sunday.

    It is the highest monthly reading since March 2013 and also the first time for the index to climb above 50 percent in two years, indicating the expansion of the steel industry, according to the China Federation of Logistics & Purchasing (CFLP).

    In a breakdown, the sub-index of new order hit 65.6 percent, a 62-month high; that of purchase price has surged to 75.3 percent, the highest level since August 2013; and the production sub-index has rebounded to a 38-month high, the CFLP's Steel Logistics Professional Committee said in a report.

    The committee expected a rising steel demand as economy warms.

    Chinese steel producers experienced their worst year in 2015 as overcapacity and tumbling steel prices squeezed profit margins, with combined losses in primary business soaring 24-fold from 2014 to over 100 billion yuan (15.5 billion U.S. dollars), China Iron and Steel Association (CISA) said in April.

    China's steel industry, the world's largest, is a major target of nationwide campaigns to reduce overcapacity and upgrade production as part of the country's efforts to battle economic headwinds.
    Back to Top

    Shanxi issues capacity cut plan to save long-suffering coal industry

    China’s coal-rich Shanxi province officially issued a coal industry supply-side structural reform plan, in order to save the beleaguered sector that has been struggling with excess capacity.

    The province’s coal industry has suffered from falling prices and rising stocks, and coal enterprises faced low profit and climbing debt ratio.

    The imbalance between supply and demand is the basic reason for the consequence. Backward management, low clean utilization, and falling international commodity prices also constrained development of the industry.

    The provincial government reiterated that no new coal mines will be approved in principle over the next five years.

    In the first quarter, Shanxi’s coal sales increased above 6 million tonnes on year, but the revenue fell more than 70 billion yuan ($10.8 billion).

    The top seven state-run coal enterprises in Shanxi -- Shanxi Coking Coal, Datong Coal Mine Group, Lu’an Group, etc. – saw combined debt excess 1 trillion yuan, and debt ration over 80%.

    The provincial government has announced to cut coal capacity by more than 100 Mtpa by 2020, and no more new coal projects will be approved in the next five years, according to the plan.

    Shanxi has reset coal capacity for its 562 mines from 909.25 Mtpa to 763.77 Mtpa, a decrease of 145.48 Mtpa, based on 276 days of working time compared with previous 330 days.

    Meanwhile, Shanxi has closed 16 illegal mines with combined capacity at 79.4 Mtpa, and another 207 consolidated mines were asked to suspend for at least one month.

    The province has started a three-month safety check in mines across the province.

    Based on all the measures, analysts predicted the province may reduce at least 100 million tonnes of coal output in 2016.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC344951 Registered address: Commodity Intelligence LLP The Wellsprings Wellsprings Brightwell-Cum-Sotwell Oxford OX10 0RN.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2024 - Commodity Intelligence LLP