Mark Latham Commodity Equity Intelligence Service

Wednesday 17th May 2017
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    Smog in key northern China region rises in first four months of year

    Air pollution in a key Chinese region surrounding Beijing worsened in the first four months of this year, despite tough new campaigns to enforce green regulations and punish offenders, official data published on Tuesday showed.

    In the Beijing-Tianjin-Hebei region, average concentrations of small breathable particles known as PM2.5 rose nearly 20 percent year-on-year to 85 micrograms per cubic meter from January to April, said the Ministry of Environmental Protection.

    China has launched campaigns aimed at ensuring the region meets a series of politically significant 2017 air pollution targets set by the central government in 2013.

    The region is under pressure to cut 2012 levels of small particulate matter by around 25 percent by the end of this year, with the capital Beijing aiming to keep average PM2.5 rates at below 60 micrograms per cubic meter, down from 73 micrograms in 2016.

    Beijing has already promised "extraordinary measures" to ensure the target is met, but its average PM2.5 reading stood at 76 micrograms in the first four months of 2017, up 11.8 percent from the same period of 2016.

    There were improvements in April alone, with average PM2.5 readings in the region falling 5.2 percent to 55 micrograms, while the number for Beijing was 53 micrograms, down 22.1 percent.

    But those were not enough to offset the outbreaks of near-record smog that hit the region in January, prompting dozens of cities to issue "red alerts" to curb industrial activity and thin traffic.

    Chinese cities need to cut average PM2.5 readings to 35 micrograms in order to meet state standards, while the World Health Organization recommends concentrations of no more than 10 micrograms.

    Hebei province accounted for six of China's 10 smoggiest cities over the first four months of the year, with the steel city of Handan in the province's south ranking the worst over the period.

    The environment ministry said last month it would dispatch 5,600 inspectors to look into the sources of air pollution in 28 cities in and around the Beijing-Tianjin-Hebei region. Violations have been uncovered at more than two thirds of the firms that have been inspected.

    Hebei, which produces more steel in a year than the whole of the European Union, admitted last week that it was still failing to implement policies aimed at curbing pollution and industrial overcapacity.

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    Belt and Road Forum transition from blueprint to roadmap -- U.S. expert

    The two-day Belt and Road Forum for International Cooperation has just concluded, with some 1,500 guests from over 130 countries attending, among them Dr. Robert Lawrence Kuhn, a prolific U.S. expert on China issues.

    Kuhn, who has written and edited more than 25 books and is a much sought-after commentator on China, had some compelling things to say about the Belt and Road Initiative, which aims to build a trade and infrastructure network connecting Asia with Europe and Africa along the ancient trade routes.

    The forum was the fourth event on the Belt and Road Initiative Kuhn attended, and he has been following the initiative's progress closely since it was first proposed in 2013 by Chinese President Xi Jinping. He sat down with Xinhua on the sidelines of the forum to speak about this historic event.

    Kuhn called Xi's keynote speech at the opening of the forum on Sunday "a grand vision for the Belt and Road."

    "This is a change of the Belt and Road from theory and preliminary ideas, from a blueprint to a roadmap, from ideas on paper to projects on the ground," he said, adding that Xi put the initiative in its historical context of East meets West on the Silk Road and showed how much the world needed the Belt and Road Initiative to combat poverty and extreme inequalities that breed instability.

    However, Kuhn stressed that the Belt and Road Initiative was not charity by any means. "It is not foreign aid, which is good at times, but it is often not sustainable," he said.

    "The Belt and Road starts at the foundation, and builds infrastructure, so it enables the host countries, the developing countries, some very poor countries, to be able to develop their own economies ... You can't develop an economy without a foundation of infrastructure," he said.

    He found the cooperation potential under the Belt and Road Initiative especially appealing. "He (Xi) showed that people who have differences in geography, race, religion, ethnicity, different views can work together for common development. But it needs to start with infrastructure."

    The expert was especially impressed that China "is making a creative, proactive effort" with this initiative.

    As Kuhn was listening to Xi's speech, he was pondering the potential challenges the Belt and Road Initiative faces in its implementation, a topic he is particularly interested in exploring.

    "You have to start with a vision, but unless you appreciate all the challenges, the difficulties, it's going to have problems in the future," the expert said.

    When asked how other countries can better benefit from China's wisdom and solutions, Kuhn said the countries would derive a dual benefit.

    The first benefit would be the projects themselves, which would provide the "desperately needed" infrastructure for an economy to grow and become integrated into the global economy.

    The second one would be the "more subtle benefit" of China's reform and opening-up experience that other countries could learn from, for example how to avoid pollution.

    The expert also had a lot to say on how the initiative would help the world recover from the economic sluggishness.

    "I think you have to look at the Belt and Road Initiative in the long term. I think it's a mistake to try to say the Belt and Road is going to have an immediate benefit," as haste makes waste where infrastructure projects are concerned.

    "Infrastructure projects are not measured in years, they are measured in decades," Kuhn said.

    "You need to understand the Belt and Road in terms of the real economic matching between risk, reward, investment and return. And it's not short term," he said.

    Kuhn remarked on the large turnout at the forum, which underscores the initiative's importance. "The world is collectively agreeing to build infrastructure, recognizing all the challenges involved, and I think that is the most important element that we have here, the results of which we will see over time," Kuhn said.

    He suggested that think tanks would play a role in guiding the initiative in the right direction.

    The expert also addressed a common misconception about the Belt and Road Initiative, which has been occasionally compared to the Marshall Plan that provided aid to Europe after World War II, or chequebook diplomacy. By contrast, the Belt and Road Initiative is truly win-win, he argued.

    "Belt and Road is not foreign aid, which is giving charity ... it is truly win-win. The benefit of win-win is that it's sustainable," Kuhn said, adding that China has been open about the fact that the initiative would benefit its own country as well.

    What's more, in Xi's speech at the forum, the Chinese president said that China has neither the intention of interfering in other countries' internal affairs nor would it export its own social system or model of development. Kuhn agreed with that approach.

    While implementing the Belt and Road Initiative, participating countries need to respect each others' local cultures and governmental structures while at the same time applying the highest international standards, he suggested.

    In sum, "the forum is a milestone in a big transition" from theory to "a major world commitment led by China" to promote global connectivity.

    "This makes the commitment absolutely definitive," Kuhn said.
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    R3, Apple, Google, Amazon, Paypal, Intuit: Blockchain, again.


    The consortium started on September 15, 2015 with nine financial companies:[5][6][7][8] BarclaysBBVACommonwealth Bank of AustraliaCredit SuisseGoldman SachsJ.P. Morgan,[9] Royal Bank of ScotlandState Street, and UBS.

    On September 29, 2015 an additional 13 financial companies joined:[10] Bank of AmericaBNY MellonCitiCommerzbankDeutsche BankHSBCMitsubishi UFJ Financial GroupMorgan StanleyNational Australia BankRoyal Bank of CanadaSkandinaviska Enskilda Banken,[11] Société Générale, and Toronto-Dominion BankFinancial Times reporter Kadhim Shubber wrote that the new additions are "a sign the industry is gathering behind R3 in one potential implementation of the distributed ledger technology behind the currency bitcoin."[12]

    On October 28, 2015 an additional three financial companies joined:[13] Mizuho BankNordea, and UniCredit.

    On November 19, 2015 an additional five financial companies joined :[14] BNP ParibasWells FargoINGMacquarie Group and the Canadian Imperial Bank of Commerce.

    On December 17, 2015, an additional 12 financial companies joined :[15] BMO Financial GroupDanske BankIntesa SanpaoloNatixisNomuraNorthern TrustOP Financial GroupBanco SantanderScotiabankSumitomo Mitsui Banking CorporationU.S. Bancorp and Westpac Banking Corporation.

    As of April 25, 2016, three additional financial companies had joined:[16] SBI Holdings of Japan, Hana Financial of South Korea, and Bank Itau of Brazil.

    Toyota Financial Services joined in June[17] and MetLife joined in August 2016.[citation needed]

    On March 3, 2016, R3 announced that it had completed a trial involving 40 banks held in the last two weeks of February, testing the use of blockchain solutions offered by Eris IndustriesIBMIntel and Chain to facilitate the trading of debt instruments. This was a follow-on to an 11-bank trial conducted earlier in January which used Ethereum hosted on Microsoft Azure.[18]

    In November 2016, Goldman Sachs, Santander and Morgan Stanley each withdrew from the consortium.[19][20][21]

    On December 14, 2016, Credicorp becomes the first Spanish-speaking Latin American member of R3.[22][23]

    JPMorgan has become the latest sell-side institution to withdraw from the R3 blockchain consortium, following the exits of Goldman Sachs, Morgan Stanley and Santander in November last year.

    Reuters reports that JPMorgan has withdrawn from the consortium led by New-York based R3 CEV, which is currently in the process of a fundraising drive to raise $150 million from its members and strategic investors in return for a 60 percent stake in the business.

    In November last year, Goldman SachsMorgan Stanley and Santander all left the consortium, as banks seek to streamline the number of blockchain-based ventures they are involved in as interest in the technology cools.

    While the cryptocurrency industry may see Apple and PayPal as competitors, those two tech companies are among a group pushing for regulatory reforms in the US that could provide a boost to the nascent industry.

    For those that missed the news, Apple and PayPal have joined forces with Google, Amazon and Intuit in Washington, DC, to push for reforms to spur innovation in the financial system. Notably, a core item on their agenda is a federal money transmission license that would supersede the existing state-by-state regime.

    Further, Financial Innovation Now (FIN), the lobby group representing the five companies, sent a letter to the Senate Banking Committee last month proposing a series of recommendations that, among other items, called for the establishment of a national money transmission requirement to be managed by the Treasury Department.

    "Consumer protection is a critical part of payments regulation, but it makes no sense for different states to regulate digital money differently from one state to another," the letter explained.

    Brian Peters, executive director of FIN, stressed to CoinDesk the group is taking the money transmission issue seriously and is seeking a legislative solution.

    A New York-based broker-dealer has asked the Securities and Exchange Commission (SEC) to propose rules to cover blockchain-based assets.

    According to the petition, Ouisa Capital wants the SEC to weigh in on the use of crypto tokens and resolve “the lack of regulatory clarity with respect to the regulation of digital assets and blockchain technology”.

    The firm went on to write:

    "Ouisa encourages the SEC to engage in a meaningful discussion of how to regulate FinTech companies that are issuing digital assets that may be deemed securities and the platforms and broker-dealers that facilitate the issuance and trading of those digital assets. We believe digital assets in several contexts are securities and that existing laws provide a mechanism for regulation of the issuance and trading of digital assets."

    Additionally, Ouisa asked the SEC to create a so-called 'regulatory sandbox', through which startups and financial firms can test new products in limited settings.

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    Oil and Gas

    IEA expects speedier oil market rebalancing in H2 but 'much work remains'

    The International Energy Agency expects the global oil market's rebalancing to accelerate in the short term, having "almost balanced" in the first quarter as OECD commercial stocks fell for a second consecutive month in March, it said Tuesday in its monthly Oil Market Report.

    But the agency also cautioned that "much work remains to be done" in the second half of 2017 to drain inventories further as the diversity and dynamism of the US shale sector continues to surprise.

    OPEC compliance with its output restraint agreement "loosened a touch" in April however, with production rising by 65,000 b/d in April to 31.78 million b/d as increased flows from Nigeria and Saudi Arabia offset lower production from Libya and Iran.

    The IEA said OPEC's year-to-date compliance with the production cuts remained robust at 96% but stressed the "need to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably."

    OPEC and non-OPEC participants will meet on May 25 to review its production agreements, and signs suggest the deal is likely to be extended.

    This report was published a day after Saudi Arabia and Russia agreed on the need for a rollover of their output cuts by nine months to March 2018, as the world's top two crude producers step up their commitments to pare back the global oil stock glut.

    Overall though, the IEA said that if OPEC's April crude oil production levels of 31.78 million b/d are maintained, and nothing changes elsewhere in the balance that would imply a stock draw of 700,000 b/d.

    "Adopting the same scenario approach for the second half of 2017. The stock draws are likely to be even greater. Even if this turns out to be the case, stocks at the end of 2017 might not have fallen to the five-year average, suggesting that much work remains to be done in the second half of 2017 to drain them further," it said.

    OECD inventories of crude and oil products fell for a second straight month in March by 32.9 million barrels to 3,025 million barrels, as product stocks fell sharply on lower refinery output and increased exports.

    But preliminary data from the IEA suggests oil stocks in the OECD will have risen by 16.2 million barrels in April, "which helps to explain the fall in oil prices seen in the second half of April."

    The report also said the call on OPEC crude is expected to rise steadily and reach 33.4 million b/d during the final quarter of the year, implying sharp stock draws if output cuts are extended.

    Data also showed OPEC is estimated to have earned more in Q1, 2017 while pumping fewer barrels.

    "Supply fell by around 4% versus a record-setting Q4, 2016 while estimated daily revenue was up nearly 5%," it said. "As OPEC turned down the taps from record Q4, 2016 production, the average OPEC basket price of crudes rose from $47.59/b in Q4, 2016 to $52.03/b in Q1, 2017."

    Iran saw the most substantial rise, earning an extra $15.2 million a day during Q1 while Saudi Arabia, which is shouldering the bulk of the reduction, made an estimated $12.5 million a day more. Iraq earned an extra $10.5 million a day, according to the report.


    Overall global oil supply fell by 140,000 b/d in April to 96.17 million b/d, "as non-OPEC, and especially Canada, pumped less, with production down 90,000 b/d from the same period last year," it said.

    Non-OPEC oil production dropped by 255,000 b/d in April, as producers subject to the output cut agreement stepped up compliance and Canadian oil sands output slipped on unscheduled shutdowns.

    But non-OPEC output was still 310,000 b/d above year-earlier levels, with renewed growth in the US adding to gains from Brazil, Canada, Kazakhstan and Russia.

    However, the agency noted an improving outlook for US crude oil production, which is seen rising by 345,000 b/d from the previous year, and up 790,000 b/d from the end of 2016.

    The IEA said US operators have sharply stepped up spending and drilling activity since last year against a backdrop of the coordinated supply cut agreement and higher prices.

    It also noted that, alongside production cuts and steady demand growth, a rise in global refinery runs should start to contribute to the rebalancing.

    "A major contribution to falling crude stocks in the next few months will be a ramp-up in global crude oil runs. Starting in March, refinery activity is building up and by July global crude throughputs will have increased by 2.7 million b/d," it said.

    The IEA maintained its 2017 global oil demand growth forecast at 1.3 million b/d, with demand reaching 97.9 million b/d.

    This is despite relative weakness in a number of previously solid countries -- India, the US, Germany and Turkey -- which curtailed the H1, 2017 global demand growth estimate by 115,000 b/d.

    The report noted Chinese demand remains relatively strong even as India's demonetisation policy continues to cast a long shadow over oil demand, with US demand expected to be flat in 2017.

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    Asian refiners get minimal nomination cuts for Saudi crude in Jun: sources

    Saudi Aramco's major buyers in Asia are receiving minimal allocation cuts for crude oil loading in June, according to traders this week.

    The cuts, however, differ from buyer to buyer, while some were heard to have received additional or replacement barrels from the Middle Eastern producer, they said.

    At least two Northeast Asian traders noted that lesser allocations for Arab Medium and Arab Heavy crudes were heard for June, while more Arab Extra Light crude was allocated instead.

    "[There is] more or less no cut [overall]," said a Singapore-based crude trader with a Northeast Asian refiner.

    "The cuts were less than 2% [for Arab Medium and Arab Heavy] and we requested for more Arab Medium and got it. So in the end it was all OK," said a fourth trader with an Northeast Asian refiner.

    Another two traders with Northeast Asian refiners noted that there were some cuts to allocations of the lighter Saudi crude grades, including Arab Extra Light, but they added that the cuts were "very minimal."

    Meanwhile, two Northeast Asian refiners were heard to have received allocation cuts of less than 5% while details were unclear for South and Southeast Asian refiners.

    Earlier this month, Aramco cut the June official selling price differentials of its Asian-bound crude grades by 20-70 cents/b. The cuts were mostly bigger than expected, traders have said.

    Saudi Arabia and Russia jointly said Monday that they agreed that the oil output cut agreement needed to be extended by nine months until the end of March 2018 to achieve the desired balancing effect on oil markets.

    Saudi Arabia, OPEC's largest producer, produced 9.954 million b/d in April, a rise of 49,200 b/d from March, according to secondary sources. The kingdom self-reported output of 9.946 million b/d in April, up 46,400 b/d from March.

    Saudi Arabia has now cut more than its quota for four months in a row, the only country to do so. The kingdom was allocated a quota of 10.058 million b/d under the OPEC agreement which ends in June.
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    LNG players may need to curtail supply

    Following the LNG price collapse, Wood Mackenzie sees high-cost players in Qld needing to curb output.

    Following the LNG price collapse over the past couple of years, energy analysis firm Wood Mackenzie sees high-cost players in Queensland needing to curb output.

    Speaking with Sky News Business at the APPEA Oil and Gas Conference in Perth, Wood Mackenzie analyst Saul Kavonic said project survival is now the key question for the industry.

    'With structural oversupply of LNG forecast over the next five to seven years, we're going to have to see supply curtailed and that's going to happen where it's got the highest short-run cost, and that's in the US and Queensland,' said Mr Kavonic.

    Mr Kavonic said international gas buyers in the domestic market, who have been used to relatively low prices for decades, now have to readjust.

    'Gas prices are becoming increasingly linked to international prices, so even though international prices are at record lows, that's still a big step up for a lot of gas buyers.'

    Wood Mackenzie sees any gas shortages in the domestic market being made up by diversions from Queensland, but Mr Kavonic told Sky News Business that's only half of the equation.

    'The second issue is how you actually get the gas from Queensland down into the Southern states where it's needed.'

    Mr Kavonic said the gas will most likely come from the players in Queensland who have the most flexibility, particularly Shell.

    'We're actually going to see Shell probably do most of the heavy lifting there, diverting gas to the domestic market in response to price signals.'

    - See more at:

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    China's Norinco and Saudi Aramco line up $10 billion refinery plan

    Chinese defense conglomerate China North Industries Group Corp (Norinco) has signed a framework agreement with state-run oil company Saudi Aramco to build a refinery and chemicals complex in northeast China, industry and government officials said on Tuesday.

    The planned projects -- including a 300,000 barrels per day refinery and an ethylene complex with annual capacity of 1 million tonnes -- are to be built at an estimated cost of 69.5 billion yuan ($10.09 billion), according to one industry official with knowledge of the agreement.

    The framework pact, which follows a memorandum of understanding in March, marks one of the high-profile agreements signed during China's Belt and Road Forum, the first summit under President Xi Jinping's ambitious plan to promote global trade and investment.

    The investment would boost Aramco's presence in China's massive refining industry, adding to its 25 percent stake in the Fujian refinery in southeast China operated by state refiner Sinopec Corp.

    Aramco could not immediately comment on the report and a Norinco representative was not immediately available for comment.

    Norinco, the state defense giant that also runs oil and gas businesses, won regulatory approval in 2015 to build the refinery and petrochemicals complex in Panjin, Liaoning province, Reuters has reported.

    Industry analysts have cast doubt over the feasibility of adding a large plant in the region, which traditionally has surplus refining capacity and is far from the main consuming regions
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    Exxon Mobil announces positive Muruk-1 sidetrack well results

    Exxon Mobil Corporation has announced positive results on the Muruk-1 sidetrack well in the Papua New Guinea North Highlands, 13 mi (21 km) northwest of the Hides gas field.

    The Muruk-1 sidetrack well encountered high-quality sandstone reservoirs southwest of the Muruk-1 natural gas discovery announced in late 2016. The sidetrack well was safely drilled to 13,550 ft (4,130 m).

    “This important discovery confirms the extent of the Muruk area and further establishes Muruk as a potentially significant new discovery with the same high-quality sandstone reservoirs as the Hides field that underpins the PNG LNG project,” said Steve Greenlee, president of Exxon Mobil Exploration Company.

    Exxon Mobil has a long and successful history of exploring, developing and commercializing assets in PNG.

    “The diversity of our onshore and offshore portfolio demonstrates the strength of Exxon Mobil’s long-term investment approach and the opportunities that exist to grow our business in Papua New Guinea,” Greenlee said.

    Oil Search began drilling the Muruk-1 well on Nov. 2, 2016.

    Petroleum prospecting license 402 covers 126,000 acres in the Papua New Guinea Highlands.
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    Russia's Rosneft says could send 10 billion cubic meters of gas to China each year

    Russian energy firm Rosneft said on Tuesday it could supply about 10 billion cubic meters of natural gas to China per year.

    Rosneft added in a report on its website that it saw opportunities for gas supplies to China following the sale of a stake in its subsidiary Verkhnechonskneftegaz to Chinese firm Beijing Gas.
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    Japan to buy up to 100,000 T LPG for national stockpiles

    Japan will likely conduct a tender in the autumn to buy up to 100,000 tonnes of liquefied petroleum gas (LPG) for national stockpiles, a trade ministry official with direct knowledge of the matter said on Tuesday.

    The fuel, often referred to as butane or propane, will be stored at a stockpiling base in Kurashiki in the country's west by the end of November.

    The step comes as Japan looks to boost its LPG state stockpile to at least 50 days' worth of national imports, or about 1.38 million tonnes.

    It wants to reduce the impact from any supply disruptions in the Middle East, which it relies on for supplies of the fuel, commonly used in heaters or stoves.

    Japan currently has a total of 1.35 million tonnes in five LPG stockpiling bases with a total capacity of 1.5 million tonnes.

    The trade ministry's Agency for Natural Resources and Energy has budgeted 4.84 billion yen ($42.7 million) for this fiscal year to buy 100,000 tonnes of LPG, the official said, declining to be identified. He did not say how much LPG would be purchased in the November tender.

    Meanwhile, the trade ministry has approved lowering the commercial sector's LPG reserve requirements to 40 days' worth of the nation's imports from 50 as state stocks are being increased.
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    Egypt paid $750 mln in oil company arrears, to pay same in June

    Egypt has paid off $750 million of its debt to international oil companies and will make a second payment of the same amount at the start of next month, Central Bank Governor Tarek Amer said on Tuesday.

    Egypt has struggled to pay arrears to foreign oil and gas companies operating in the country, with outstanding debt at $3.5 billion before the latest payment.

    "Today $750 million was paid to international oil companies and another $750 million will be paid on June 1, meaning that there is $1.5 billion the government has committed to pay to the international companies," Amer told a news conference.

    The payments are the first since Egypt paid about $100 million in the last quarter of 2016.

    Cairo has pledged to eliminate the arrears by the end of June 2019 and not accumulate more, part of its drive to draw new foreign investment to an energy sector that is attracting interest following several major gas discoveries.

    Amer said separately that Egypt has received $8 billion in investment from 150 global investment funds over the past six months.
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    TAQA studies solutions for outages at Bergermeer gas storage site

    Abu Dhabi National Energy Company (TAQA) said on Tuesday it was studying solutions for ongoing outages at its Bergermeer gas storage site in the Netherlands, which have halted gas withdrawals and reduced injection capacity.

    Bergermeer is in its second year of full operation. However, the site has suffered significant outages this year.

    On March 2, gas withdrawals were halted at Bergermeer after a problem with a heating element forced the shutdown of a drying train, which is used to withdraw gas from the site.

    Injection capacity has also been reduced by 30 percent until mid-July due to issues with compressors, which allow gas injection into the site's reservoir.

    Gas storage provides security and flexibility of supply. In the summer, when demand and so prices are low, gas can be put into storage for withdrawal when demand rises in the winter.

    In a market update on Tuesday, TAQA said there were occasional element and electrical connector failures and it was working with the equipment manufacturer to understand the cause, carry out repairs and/or improve the reliability of the heater elements.

    "TAQA is looking at structural solutions which will address the current challenges," it said.

    "This could be in the form of modifications to the existing equipment and installations, or a full replacement of any equipment that cannot be assured to be reliable for the next 25 years."

    Regarding the compressor issue affecting injection capacity, TAQA said three of six compressors were currently in operation and the other three were undergoing maintenance or repair.

    One compressor will be back in operation during the week of May 22. Another will be back online mid-July and the sixth will be available in early September, TAQA said.

    Bergermeer is currently around 33 percent full. Customer requirements of 5 gigawatts (GW) can be met with one compressor, 9 GW with two compressors and 12.5 GW with three, TAQA said.

    "Based on past actual usage of these contractual rights, forecast of future rights and available alternative measures to satisfy customer requests, (Bergermeer) can opt to either keep customers whole or (partly) curtail contractually," TAQA said.

    "Without giving any guarantees, and based on current variables, three compressors currently do not curtail customers contractual rights," it added.

    In Britain, which imports some of its gas from the Netherlands, the country's largest gas storage site, Rough, is not available for injection until the end of April next year due to an ongoing outage.
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    Oil Prices Slip After U.S. API Reports Build In Crude Stocks

    The American Petroleum Institute (API) reported a build of 882,000 barrels in United States crude oil inventories, compared to analyst expectations that markets would see a draw of 2.3 million barrels for the week ending May 12. This week’s build ends a run of five draws over the last six weeks, using API data.

    Gasoline inventories fell by 1.88 million barrels, according to the API. Gasoline inventories continue to worry markets, as refiners continue to turn crude oil into gasoline above demand for the fuel.

    While there was tough talk from Saudi Arabia and Russia this week, which dangled the idea of extending the oil production cuts into 2018—followed by dutiful member support for the extended extension, including Oman, Venezuela, Kuwait, Iran (with conditions), and even non-compliant Iraq—prices were unable to hold any significant gains.

    Further dampening spirits, the IEA’s Oil Market Report on Tuesday foretold of a 2017 that would not see oil inventories return to its five-year average—an important milestone that many equate with the rebalancing.

    While prices this week have gained over last week, oil prices fell again on Tuesday despite OPEC’s efforts. WTI was trading down 0.18% at 2:14pm EST at $48.76 (+$2.89 over last week) and Brent Crude was trading down 0.08% at $51.78 (+$3.09 over last week).

    Distillate inventories rose this week by 1.8 million barrels, and inventories at the Cushing, Oklahoma, site fell by 500,000 barrels.
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    In America's largest oilfield, whirr of activity confounds OPEC

    As oilfield workers for Lilis Energy Inc threaded together drill pipes one recent morning in the Permian Basin, a bulldozer cleared sagebrush to make way for the company's fifth well since January.

    Lilis aims to expand production sevenfold this year in America's most active oilfield.

    The whir of activity is all the more impressive after the small firm nearly collapsed in late 2015 - amid unrestrained production from the Organization of the Petroleum Exporting Countries (OPEC). As per-barrel prices plummeted, Lilis piled on debt and struggled to pay workers.

    Now - with prices higher after a November OPEC decision to cut output - Lilis can't grow fast enough.

    Such resurrections are common these days in the Permian, which stretches across West Texas and eastern New Mexico. They tell the story of the U.S. shale resurgence and the quandary it poses for OPEC as it struggles to tame a global glut.

    Surging U.S. production has stalled OPEC's effort to cut supply. Inventories in industrialized nations totaled 3.05 billion barrels in February - about 330 million barrels above the five-year average, according to the International Energy Agency.

    The Permian boom will be high on the agenda as OPEC oil ministers begin gathering in Vienna ahead of a May 25 policy meeting to decide whether to extend output cuts.

    In the long term, too much U.S. output could spur OPEC to open the spigots again - setting off another price war - but for now its member nations' need for revenue makes that unlikely.

    On Monday, the world's top two oil producers - OPEC heavyweight Saudi Arabia and Russia, a non-OPEC nation - said they had agreed in principle on the need to continue output cuts for an additional nine months, through March 2018.

    That would extend the initial agreement, which took effect in January and reduced production by 1.2 barrels per day (bpd) from OPEC nations and another 600,000 bpd from non-OPEC producers, including Russia.

    The pledge to extend cuts marked an evolution in the thinking of Saudi Arabia Oil Minister Khalid al-Falih - in response to surging U.S. output.

    After OPEC's decision in November, Al-Falih expressed confidence that no further supply curbs would be needed because of rising demand.

    Then in March, Al-Falih told a Houston energy conference that the "green shoots" in U.S. shale might be "growing too fast" - and warned there would be no "free rides" for U.S. producers benefiting from OPEC production cuts.

    But by last week, Al-Falih vowed OPEC would do "whatever it takes" to control oversupply.

    Unlike OPEC nations, U.S. firms are barred by anti-trust laws from colluding to control output or prices, leaving market demand as the only check on production.

    "I'm really proud American production is offsetting those OPEC cuts," said Lilis Chief Executive Avi Mirman.


    Now it appears the free ride for U.S. shale producers will continue at least into next year.

    U.S. oil output has jumped to 9.31 million bpd this year, up 440,000 bpd from 2016, according to U.S. Energy Information Agency estimates.

    About a quarter of that production comes from the Permian, where broad-based growth comes from small firms like Lilis, global majors including Exxon Mobil Corp and large independents such as  Parsley Energy Inc .

    OPEC's two-year price war sank hundreds of companies and forced majors including Exxon and Chevron Corp to retrench - but it also and stirred their interest in shale.

    Exxon paid nearly $7 billion in February to double its acreage in the Permian.

    Earlier this month, about 20 miles (32 km) south of Midland, Texas - the center of the basin's industry - a crew from ProPetro Holding Corp (PUMP.N) was hydraulically fracturing, or fracking, an Exxon well.

    Silver silos held 18 million pounds of sand, which would be mixed with 22 million gallons of water and forced into the well, unlocking oil trapped in rock.

    "We're really approaching the Permian as a major project," Sara Ortwein, president of Exxon's shale-focused subsidiary, XTO Energy, said in an interview.

    Across the Permian, the number of rigs this year has risen 30 percent and the number of fracking crews has jumped 40 percent, according to Primary Vision, which tracks oilfield service equipment usage.

    That won't change soon, said Mark Papa, CEO of Centennial Resource Development Inc (CDEV.O), which added to its Permian land holdings this month with a $350 million deal.

    "A disproportionate amount of U.S. production growth between now and the end of the decade will come from the Permian," Papa said in an interview.


    In a reversal from the thousands of layoffs here in 2015, oil companies are hiring briskly.

    Fracking service provider Keane Group Inc, for instance, has plans to hire at least 240 workers this year.

    For the growth to continue, however, prices will have to rise for rigs and other services, executives and analysts have said.

    Paul Mosvold, president of drilling contractor Scandrill Inc, has more business than he can handle.

    "We're out of rigs," he said. "We have been since January."

    But he won't add more rigs unless producers pay more - maybe $25,000 per day, instead of the current $15,000 to $19,000.
    That may depend on per-barrel prices going up, an unlikely prospect amid expanding supply.

    Oil drillers, meanwhile, continue to hunt for new cost-cutting technologies - after already halving the cost of extracting a barrel since 2014.

    Parsley is cutting labor costs with sensors on wells that transmit production and maintenance data to its headquarters in Austin, Texas.

    "We're constantly getting more efficient," Mark Timmons, Parsley's vice president of field operations.

    The Lilis revival started last year with debt-for-equity swaps and a merger with another troubled oil producer, giving Lilis access to Permian acreage.

    The company's market value has risen to $210 million from about $3 million two years ago.

    At the company's newest well site, Lilis CEO Mirman checked drilling progress on his iPhone and shrugged off any worries about OPEC’s next move.

    "We're using every tool at our disposal to grow," he said.

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    Trapped Canadian natural gas producers find a way to reach LNG markets – via the U.S.

    American liquefied natural gas exporters have been courting Canadian producers of the commodity, and analysts expect more domestic gas will move south in the absence of Canadian LNG projects.

    Advantage Oil and Gas president and CEO Andy Mah says there have been conversations between Canadian gas producers and U.S. LNG proponents about shipping more Canadian gas to American export facilities.

    “The North American gas market is going to be one market,” Mah said, adding that pipeline connections between various gas basins and demand centres are improving.

    At a recent industry conference, Painted Pony Petroleum Ltd. president and CEO Patrick Ward said demand for Canadian gas is growing, in part because of sizeable exports from LNG terminals in the U.S.

    “The U.S. guys started on LNG when we started on LNG (on the British Columbia coast) and the U.S. is already exporting over 10 billion cubic feet a day,” Ward said. “They are buying our Canadian gas for $2.50 Canadian and selling it to the Mexicans for US$3.50.”


    Southern Discomfort: How the U.S. helped quash Canada’s ambitions to become an LNG superpower
    Why Canada may have missed the boat on building a viable LNG industry

    Calgary-based Seven Generations Energy Ltd., a gas producer, has an agreement to send its gas through a Cheniere terminal and had previously announced it was delivering gas from Canada to the Henry Hub pricing point in Erath, La.

    Seven Generations president and CEO Marty Proctor said on a recent earnings call the company was sending 100 million cubic feet per day to the hub but added, “Ultimately, we are still keen to find a way to backstop, use our resources to underpin investment in West Coast LNG.”

    Cheniere Energy Inc. spokesperson Eben Burnham-Snyder wouldn’t name specific Canadian natural gas companies but confirmed that his company has been in talks with multiple producers about sourcing their product for its two LNG terminals on the U.S. Gulf Coast. “We’ve had talks with every supplier you can think of,” Burnham-Snyder said. “We’re willing to talk to any supplier we can access – in Canada and the U.S.”

    GMP FirstEnergy director of institutional research Martin King says he expects similar discussions in the coming months as American companies start to shop around for more gas for those plants. “The LNG plants in the U.S. are going to need U.S. domestic supplies, they might need Canadian supplies as well,” King said.

    King also said that no new LNG export terminals on the West Coast have been sanctioned in the last 18 months, and he is bearish on the prospects of Canadian LNG proposals. “I would love to be proven wrong.”

    Stream Asset Financial Management’s Dan Tsubouchi says he is aware of Canadian companies considering using American LNG facilities. “I know that a number of Montney producers are trying to figure out what the opportunity is,” he said.

    Domestic producers are trying to move more of their gas out of Alberta, as they’re concerned the local AECO gas price hub could be oversupplied with gas if no LNG projects are built.

    “The last thing you want to do is have your gas trapped in Alberta,” Tsubouchi said.

    Even without American LNG terminals processing Canadian gas, King said producers would benefit from the growth of the U.S. LNG industry even as the domestic industry has stalled.

    “Whatever is being shifted out of the southern U.S. for exports needs to be backfilled, either by U.S. supplies or Canadian supplies so there’s lots of opportunities to get that gas to market,” King said.

    King told oil and gas executives in Calgary that the discount domestic producers are forced to accept for their gas should tighten relative to the NYMEX price as demand for Canadian gas grows south of the border.

    “Once that call goes out for more Canadian gas, you’re going to see these AECO prices get more of a lift, and we’ll see that differential tighten up,” he said. “The U.S. is coming up short of gas supply. They will buy it and they will pay more for it as a necessary consequence. That’s going to help tighten up that differential.”
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    Shale Play `Left for Dead’ Gets Some Love as U.S. Gas Rises

    Haynesville Shale Natural Gas Drilling Rig in LouisianaA natural gas basin that helped kickstart the shale boom a decade ago is getting a new lease on life as the market recovers.

    Production in the Haynesville reservoir will climb for the seventh straight month in June, reaching the highest since October 2014, government data show. Output in the play, located in Louisiana and east Texas, fell to a six-year low last March, pressured by tumbling gas prices and competition from gushier, more profitable wells in Pennsylvania and West Virginia.

    As pipeline bottlenecks strand gas supplies in the eastern U.S., the vast network linking the Haynesville to the rest of the country — along with a new export terminal shipping American gas overseas — has made production in the play more valuable. Drillers from Exco Resources Inc. to Chesapeake Energy Corp. have refocused resources there to slash production costs, while private-equity backed companies bought assets to do the same.

    “Once left for dead, the Haynesville Shale in Louisiana and East Texas is in the midst of a resurgence as new well designs bring natural gas gushers to life,” William Foiles, a New York-based analyst for Bloomberg Intelligence said in a May 12 report. “Redesigned wells have since expanded the Haynesville’s untapped potential, with output expected to rise as capital and rigs return.”

    Chesapeake has boosted well productivity by using “massive amounts” of sand to extract gas from deeply-buried shale, according to Foiles. Exco has drilled longer horizontal well sections and is fracturing the rock in more places.

    The gas market’s rebound has created strong economics to drill in the Haynesville, Hal Hickey, Exco’s chief executive officer, said on a call May 10. Gas futures on the New York Mercantile Exchange have jumped 61 percent over the past year.

    While Pennsylvania and West Virginia have “some really good reserves,” the need for more pipelines and processing plants is “really restricting us at this point relative to our opportunities down in the South,” Hickey said.
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    SM Keeping Bakken Assets

    Bids for Divide County acreage didn’t add up

    SM Energy announced that it has postponed indefinitely the sale of its Divide County North Dakota assets.

    SM expressed its desire to sell its Divide County assets in January, and expected to close the transaction around mid-year.

    Goal was to reduce leverage

    According to analysts at Wells Fargo, expected valuations were around $400 million. However, the bids the company received were too low and would not allow SM to meaningfully reduce its leverage. With this in mind, SM has decided to retain its 123,570 net acres in North Dakota.

    SM’s Divide County assets are producing about 10.7 MBOEPD. SM did not drill or complete any wells in the area in Q1, but reports 17 net DUCs (drilled uncompleted wells) in inventory.

    SM wants to focus on Midland, Eagle Ford

    SM Energy has already completed a series of divestitures, as it focuses on its Midland basin and Eagle Ford properties. In December the company sold its Williston basin assets outside of Divide County to Oasis Petroleum (ticker: OAS) for $765.8 million. In January the company sold its non-operated Eagle Ford assets for $800 million to an affiliate of KKR (ticker: KKR).

    SM used the Williston basin sale to fund its acquisition of acreage in the Midland basin, and has now accumulated 88,000 net acres in the area. The company plans to use the proceeds from its Eagle Ford sale to fund its projected 2017-2018 spending, which will exceed cash flows. The Divide County sale would have been used to reduce debt, as the company’s 3-year objective is net debt to EBITDAX of 2.0x. SM’s net debt to total 2016 EBITDA was 5.6x, for reference.

    No sale increases immediate net debt to EBITDAX, but reduces outspending

    The failure of the sale means that net debt to EBITDAX will not decrease as quickly, but the funds from this asset will decrease projected outspending over time.

    Wells Fargo reports that without a Divide County sale net debt to EBITDAX will climb to 4.4x in Q1 2018 before beginning to decrease. The lack of a sale increased KLR’s net debt to EBITDA projection from 3.4x to 3.8x. Stifel now projects year-end 2017/2018/2019 net debt to EBITDA of 3.4x/2.6x/1.9x vs 3.1x/2.7x/2.0x.

    SM President and CEO Jay Ottoson commented on the sale, saying, “We have successfully pre-funded the expected outspend for our capital program for 2017 and 2018 with the completed sale of our third party operated Eagle Ford assets, and we do not need to sell our Divide County assets.

    “We have concluded that current market uncertainty around forward oil prices is not conducive to realizing a sales price that meets our deleveraging objective. We remain committed to our long-term financial strategy, which is best served by retaining the cash flow generated by the Divide County assets.”

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    Alternative Energy

    China, India surpass U.S. as most attractive renewables markets: report

    China and India have surpassed the United States to become the two most attractive countries for renewable energy investment, a report by UK accountancy firm Ernst & Young showed on Tuesday.

    In an annual ranking of the top 40 renewable energy markets worldwide in terms of allure, China was the top country, followed by India.

    The United States, which ranked the highest last year, slumped to third place, due to a shift in U.S. energy policy under President Donald Trump.

    Trump has issued orders to roll back many of the previous administration's climate change policies, revive the U.S. coal industry and review the Clean Power Plan, which requires states to cut carbon emissions from power plants.

    Meanwhile, China announced this year that it would spend $363 billion on developing renewable power capacity by 2020. India's government has unveiled plans to build 175 gigawatts of renewable energy generation by 2022.

    Among European countries, Germany ranked fourth, France eighth and Britain moved to 10th place, from 14th last year.

    While Britain's renewable investment environment is more settled than in recent years, which were beset by subsidy cuts, future energy policy after it leaves the European Union is uncertain, the report said.

    "The UK's reappearance in the top 10 is the result of other countries falling away – notably Brazil, which cancelled a wind and solar auction in December - rather than any particularly encouraging resurgence," said Ben Warren, EY's head of energy corporate finance.
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    How cheap is solar? Cheap enough to cool the air outside

    How cheap is solar? Cheap enough, says the head of the Australian Renewable Energy Agency, to drive the transformation of our grid to zero emissions. Cheap enough, he says, to inspire some people to install air conditioners on their verandah to cool the air outside the house, as well as inside.

    Source: Wendy Miller, Senior Research Fellow, Queensland University of Technology (via The Conversation)

    The latter, quite bizarre example was given by ARENA CEO Ivor Frischknecht at the recent Emissions Reduction conference in Melbourne to illustrate just how cheap solar has become.

    He came across a home owner in Townsville, north-eastern Queensland, who had installed a very large rooftop solar system, and planned to use it to power an air conditioning unit on the verandah.

    “He likes to have cool air on his face while he is sitting outside outside,” Frischknecht said. “And this is fine, because if you are only running it in middle of day, and using the solar, the energy is free.”

    Indeed, noted Frischknecht, solar was becoming so cheap, and will become so abundant, that we will reach the situation where the kilowatt hours of use (i.e. the production) are effectively free. The cost will come in managing the variability, and integrating it into the grid.

    But even here, contrary to much that is written, Frischknecht says the technologies to do that are available now, in the form of battery storage, demand response, pumped hydro and a “whole bunch of solutions that can ensure that the lights stay on.”

    The challenge comes down to rewriting the market rules and regulations, and reframing business models, so that these technologies are rewarded for their services, and not punished.

    He cited the use of battery storage.

     “If you have a battery today and charge it up –you have to pay transmission costs and distribution costs and a share of RET, and when you discharge it again and sell the output, you pay all those costs again,” Frischknecht said.

    “You are adding 50 per cent to the cost of energy getting stored. That’s a pretty big barrier to put in place of a mechanism we need.”

    Frischknecht says it is not hard to look forward and imagine a world where many things would be quite different, and when a lot of centralised fossil fuel generation is made redundant by the falling costs of renewables.

    “The cost of solar PV will be so cheap it will literally cover every surface – packaging, buildings, cars, roads. Energy will be cheap, but we will still got this variable output issue. We are going to have to figure out different ways of pricing and dealing with variable output.”

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    12 from 12: ARENA’s big solar plans take off across the country

    The Australian Renewable Energy Agency has announced that all 12 of the projects that won funding under its large-scale solar program have now reached financial close and will begin construction shortly, if they haven’t already.

    The last of the 12 projects to get to financial close – the 20MW White Rock solar farm in northern NSW – did so late last week. Funding was never really in doubt considering that the project is owned by Chinese giant Goldwind, which is building a 175MW wind farm by the same name at the same place.

    ARENA, however, used the milestone to hail its $90 million initiative as a huge success, helping to bring down the cost of large-scale solar to the level of wind energy – and five years ahead of what had been expected.

    The 12 projects have also benefited from $320 million in low-cost finance from the Clean Energy Finance Corporation, as the country’s major banks tried to wrap their mind around this new technology.

    But there is every sign that they have, and have lowered the risk quotient on their financing, at least for those with long-term power purchase agreements. While the ARENA program will deliver 490MW of large-scale solar, another 1,500MW is thought to be also under construction, or about to begin, around the country.

    “This competitive round is the perfect demonstration of how ARENA is accelerating Australia’s shift to a low emission, renewable energy future,” Frischknecht said in a statement.

    “From zero to more than 20 plants in five years, Australia’s large-scale solar industry has grown at a tremendous pace thanks to concerted efforts by ARENA and the CEFC.

    “We know of at least six new plants that are being developed without any ARENA grant funding support.”

    He said the ARENA program had unlocked $1 billion in investment from other sources and regional economies would benefit, with an estimated 2,300 direct jobs and thousands more indirect jobs expected to be created by these plants.

    Frischknecht said planning, developing and financing large-scale solar projects remained a complex task involving multiple different parties. That’s why the knowledge gained from the project is so valuable.

    “ARENA believes in the power of shared knowledge. That’s why we require project developers to share the learning from each stage of development, construction and connection with the renewable energy sector,” Mr Frischknecht said.

    “Our support for Whitsunday Solar Farm assisted project developer Edify Energy to secure debt finance for two additional plants, Hamilton Solar Farm in Queensland and Gannawarra Solar Farm in Victoria. ARENA is benefitting from knowledge sharing activities across the three projects.”

    The projects are expected to be completed between late-2017 and mid-2018, and will help reduce wholesale prices in all three states where these projects will be built when they come on stream.
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    BHP likely to open Jansen potash mine in Canada by 2023

    BHP, the largest mining company by market capitalization, sees potash as a key commodity in which to base its future growth despite prices are still hovering around $230 a tonne, less than half what they were only five years ago.

    Speaking at the Bank of Merrill Lynch mining conference in Barcelona, Spain, chief executive Andrew Mackenzie confirmed the company's commitment to the crop nutrient by announcing that the first phase for the company’s massive Jansen potash mine will be completed within six years.

    BHP could seek approval from the board for Jansen's expansion as early as June 2018, said chief executive Andrew Mackenzie.

    “As we currently see it, we’re looking at a phased expansion into Jansen with an initial stage of four million tonnes per annum, and that will generate competitive returns,” Mackenzie said.

    He added the company could seek approval from the board for such expansion as early as June 2018, with production beginning in 2023.

    “As we progress this project we continue to optimize the development path as to how we might add a mine to those shafts so we can reduce risk and unlock value,” Mackenzie noted.

    The world's number one mining company has committed to date a total investment of $3.8 billion to move Jansen into production. From that total, $2.6 billion have been set aside for surface construction and the sinking of shafts, though analysts predict the total cost will be close to $14 billion.

    According to BHP’s leader, a phased expansion of Jansen — which is projected to produce generate 8 million tonnes of potash a year or nearly 15% of the world's total — is expected to generate competitive returns in stage 1, with significant potential upside in subsequent stages.

    However, he didn’t seem in any rush to finish the project. Instead, he said that, as with every venture BHP embarks on, the company will only develop it “when the time is right.”
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    Base Metals

    Turquoise Hill revenue surprise lifts shares 6%

    Shares in Turquoise Hill rose sharply on Tuesday after the company announced better than expected revenues amid declining production at its massive Oyu Tolgoi copper and gold mine in Mongolia.

    By the close in New York Turquoise Hill stock was changing hands at $2.81, up 6.2% on the day, bringing its year-to-date gains to more than 21%.

    The Vancouver-based company said in a statement copper production at Oyu Tolgoi  fell 16.3% during the first quarter compared to the final quarter 2016 while gold production declined 49%. Turquoise Hill said the drop was expected due to lower grade and recoveries at the lower end of the grade recovery curve.

    Sales went in the other direction and the company recorded revenue of $237.5 million in Q1 which was 5.7% higher than Q4 last year reflecting a higher average selling price for copper and higher volumes of copper in concentrates sold. The Oyu Tolgoi concentrator amassed record average daily throughput for the quarter of 112,100 tonnes, up 5.1% compared to the December quarter.

    Turquoise Hill is forecasting lower output at the open pit compared to last year of 130,000 – 160,000 tonnes of copper in concentrates during 2017. Gold in concentrate output of 100,000 ounces – 140,000 ounces is forecast for the full year.

    $136.4 million was spent on the Oyu Tolgoi underground expansion during the quarter and the company awarded several large contracts during the quarter, with the largest for the decline material handling system.

    More than $363 million has been spent on construction of the new mine so far and capital commitments for the year is an additional $872 million. Total capital outlay is around $5.3 billion with first production from the underground operation expected mid-2020.

    Oyu Tolgoi is expected to be world's third-largest copper mine at peak production in 2025 with output of over 550,000 tonnes per year.

    Turquoise Hill owns a 66% interest in Oyu Tolgoi in the Gobi Desert close to Mongolia's border with China with the government of the Asian nation holding the rest. Turquoise Hill is controlled by Anglo-Australian giant Rio Tinto
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    Deripaska's group bets on improving aluminium, Russian outlook

    A deepening global shortage of aluminium and an improving outlook for Russian equities should make tycoon Oleg Deripaska's En+ company attractive to investors seeking exposure to emerging markets free of foreign exchange risks, its chief told Reuters.

    Chief Executive Maxim Sokov said En+ is billing itself as a Russian aluminium and hydropower conglomerate similar to Norway's Norsk Hydro but with the benefit of lower-cost Siberian power, a boon for highly energy-intensive aluminium smelting.

    "We convert power into aluminium and sell it to the world. We believe the aluminium market has a significant upside," said Sokov, whose company owns Siberian power assets and a 48 percent stake in Rusal, the world's second-largest aluminium producer.

    In a Reuters poll published this month, analysts slashed their estimates of a global aluminium surplus this year by 74 percent to 82,000 tonnes from 317,000 tonnes in the previous poll in January. They have pegged in a deficit of 200,000 tonnes for 2018, mostly due to a crackdown in top producer China to reduce smog.

    The metal, mainly used in transport and packaging, has been the best performer on the London Metal Exchange, rising 13 percent this year and touching 28-month highs.

    En+ predicts demand for aluminium will exceed production by 0.7 million tonnes this year even before China caps winter power generation to reduce pollution.

    That should lead to a further decline in aluminium production globally by about 1.2 million tonnes, beginning from the winter months of 2017, Sokov said. En+ is considering an initial public offering (IPO) in 2017, possibly as early as June, market sources have said.

    Sokov declined to comment on any IPO, saying the group "is considering various instruments, including public capital markets" to raise funds as it is seeking to cut its debt.


    En+ has amassed debts of around $5 billion during the last decade when it was consolidating power assets in Siberia and wants to reduce the leverage to around three times its core earnings from the current ratio of around six.

    Deripaska, who started as a metals trader in the 1990s, was Russia's richest and the world's ninth richest person, according to Forbes, before the markets crashed in 2008.

    The tycoon spent the next decade successfully renegotiating his debts although he never fully recovered and with an estimated wealth of $5.1 billion he ranks today as Russia's 23rd richest man.

    The debt is mainly with top Russian state banks Sberbank and VTB, of which two thirds is rouble denominated and one third is dollar denominated. Sokov said rouble revenues from power sales support repayment of rouble debts, while Rusal's dollar-denominated dividend supports dollar debt payments, thus limiting foreign exchange risks which often put off investors in Russian companies.

    "We effectively have a natural hedge thanks to aluminium and power generation. If the dollar weakens, we get stronger rouble revenues from power sales. If the rouble weakens, then we gain from higher dollar aluminium revenues," Sokov said.

    Besides an improving outlook for the sector, the outlook for Russia is also getting better as geopolitical and sanctions concerns subside.

    "The outlook for Russia will depend on the meeting between (Russian President Vladimir) Putin and (U.S. President Donald) Trump. But even among this uncertainty, Russian assets have considerably gone up in price," said Sokov.

    He gave as an example yields on Russian corporate bonds, which used to trade above 10 percent but have lately declined to 4-6 percent on renewed appetite from investors, including for Rusal's debt.

    "I think a similar story will happen with Russian equities" he said, predicting the narrowing of valuations gaps with Western rivals.
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    Vale to shutter nickel mine in Canada; up to 200 jobs at stake

    Vale Canada said on Tuesday it would suspend operations at its Birchtree nickel mine in the province of Manitoba on Oct. 1 because of weak nickel prices and declining ore grades as the small, 51-year-old mine nears the end of its life.

    The suspension will result in up to 200 job losses and a 6,000 tonne-a-year reduction in nickel from Vale's Manitoba operations, Vale Canada said in a statement.

    Brazil's Vale, the world's biggest nickel producer, also operates the Thompson mine, mill, smelter and refinery in Manitoba. It also operates nickel mines elsewhere in Canada, notably in Sudbury in Northern Ontario.

    Vale is looking at offsetting the lost production with increased output at the Thompson mine.

    "We remain committed to a long-term mining and milling future in Thompson," Mark Scott, vice president of Vale's Manitoba operations said, detailing around $100 million of planned investments in upgrades at the complex.

    Nickel prices have fallen nearly 70 percent in the past six years on a supply glut.
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    Steel, Iron Ore and Coal

    Adani to begin producing coal from Australian project in FY21

    Indian conglomerate Adani Group plans to begin extracting coal from the $16.5 billion Carmichael project in Australia in 2020-21, PTI reported on May 14, citing Chairman Gautam Adani.

    The group, which has interests from ports to power, would finalise by June an investment decision for the project, which has been delayed due to protests from environmental groups.

    Adani expressed his group is not just investing in coal but also in renewable energy in Australia, seeking to develop 1,500 MW of solar projects by 2022.

    It has signed pacts to build two solar farms, each with capacity of 100-200MW in Queensland and South Australia.

    Adani said the company has scaled down the coal mine capacity in the first phase. Originally seen producing 60 million tons a year from six open-cut pits and five underground mines, a scaled-down first stage is now planned to produce 25 million tons a year of coal and will cost over USD 4 billion.

    "We will begin work within months after getting final approval from the Australian government," he said.

    Projections of a global glut of coal and prolonged low prices notwithstanding, Adani is pushing ahead with plans to build the mine that would produce thermal coal to generate electricity and operate for six decades.

    "About 15 million tons of coal produced from the project (in the northern Australian state of Queensland) will be shipped to India for generating electricity," he said.

    The group has for more than five years battled opposition from green groups, who insist any expansion of the port will cut into the Great Barrier Reef World Heritage Area. The port is to be used for exporting coal to India.

    "A port already exists with capacity to handle coal from phase-one," he said adding a rail line will have to be built for transporting coal from the mines to the port.

    The group has so far invested A$3.4 billion on the Abbot Point port and preparatory work for the Carmichael coal mine. It has applied for an Australian government agency loan to finance the railway line.

    Adani said he is expecting Australian federal and state government nods for the coal project soon.

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    Indonesia tenders to build remaining 12 GW of 35 GW power project by end-2017

    Indonesia is tendering to build 12 gigawatts of electricity generating capacity as the final plank in Jakarta's plan to increase the country's power sector capacity by 35 GW by 2019, sources said at the 23rd Coaltrans Asia Conference in Bali this week.

    "Out of 35 GW, we are likely to close tenders for 11.7-11.8 GW by the end of the year," said Harlen En, head of the coal division at PLN (Persero) at the conference on Monday.

    Tendering process takes a lot of time, as does financial closure, Harlen said, adding it takes at least three-four years to commission a power plant. Harlen said PLN has long-term contracts with the some of the major miners, like Adaro, Kideco, Berau Coal, and Kaltim Prima Coal, until 2025.

    Moreover, to support both the success of the 35 GW project and to secure coal supply, PLN intends to partner in mine-mouth coal projects, Harlen said.

    According to market sources, around 60% of the 35 GW project's generating capacity will be fueled by coal. The move is likely to see a spark increase in domestic demand for Indonesian thermal coal, sources said.

    M. Arsajad Rasjid P.M., CEO of Indika Energy, said, the 35 GW power project would result in extra coal demand of around 110 million-120 million mt and progressively 140 million-150 million mt.

    Indonesia intends to raise its share of domestic thermal coal production to around 60% by 2019 from 22% in 2017, said Satry Nuguraha from the Ministry of Energy and Mineral Resources on Monday.


    Land issues have been deterring the progress of the project, said Dharma Djojonegoro, deputy CEO at Adaro power, on Tuesday.

    "Various regulation licenses and permits have to be synced in, so it takes a lot of patience to do that. It took us about three-four years to sort land issues and the change in the transaction currency to Indonesian Rupiah was also a setback. Then we had to deal with the land zoning issue too, which took us around six months," Djojonegoro added.

    "The cost factor is also very important," Harlen said, adding the pricing for the project should be "comfortable" for both suppliers and PLN.

    Given the current volatility in energy prices, he added they intend to discuss with the government to peg a floor and a celling price.
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    Chinalco wants to be sole owner of world’s largest iron ore deposit

    Chinalco has sent the Guinean government a draft agreement that included a proposal to take over blocks 1 and 2 before it starts developing 3 and 4. (Image courtesy of Rio Tinto Simandou)

    Aluminum Corp. of China, better known as Chinalco, is said to have approached the Guinean government with a proposal to take over the entire Simandou iron ore project, the world’s largest untapped resource of the steelmaking ingredient.

    The moves comes about seven months after Rio Tinto (ASX, LON:RIO) agreed to sell to the Chinese company its 46.6% stake in the giant project for up to $1.3bn. The deal gave Chinalco almost 80% of the project, with the Guinean government holding the rest.

    While the requested parts of the project belong to Guinea, they are at the centre of litigation between it and Israeli billionaire Benny Steinmetz's BSGR.

    The state-owned miner's written proposal for Simandou, Reuters reports, was sent to the government in March and included a motion to take over blocks 1 and 2 before it starts developing 3 and 4.

    While the requested parts of the project belong to Guinea, they are at the centre of litigation between it and Israeli billionaire Benny Steinmetz's BSGR.

    Simandou with over 2 billion tonnes of reserves and some of the highest grades for direct-shipping-ore in the industry (66% – 68% Fe which attracts premium pricing) has a chequered history.

    It was originally discovered by Rio Tinto, which held the licence for the entire deposit since the early 1990s. In 2008 the firm was stripped of the northern blocks by a former dictator of the country.

    BSG Resources acquired the concession later that year after spending $160 million exploring the property. In 2010, it sold 51% to Vale for $2.5 billion.

    The Rio de Janeiro-based company stopped paying after the first $500 million after missing a number of development milestones. Then the new Guinean government launched a review of all mining contracts awarded under previous regimes, including an investigation into the Vale-BSGR joint venture which concluded the later had won its mining rights through corruption.

    The Guinean inquiry cleared Vale of any involvement in the alleged corruption.

    To date BSGR denies the allegations and even launched arbitration proceedings against Guinea last year.

    Shortly after, Rio —the world's number two producer of iron ore — officially pulled the plug on the project. Following an internal probe, the company alerted US and UK authorities in November of a $10.5 million payment made in 2011 to a French investment banker involved in helping Rio obtain its mining rights over Simandou.

    With complete control over Simandou, Beijing would be a step closer to securing iron ore supply for its vast economy for decades to come.

    China consumes more than 70% of the world's seaborne iron ore and imports have been gradually displacing domestic production, which has pushed dozens of local iron ore mines into bankruptcy in the past two years.
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    Hong Kong-listed IRC says could reopen Russia iron ore mine

    Commodity company IRC Ltd on Wednesday said it was considering restarting its 1.1-million tonnes per year iron ore mine in the far east of Russia, the latest sign of revival in a sector shaking a years-long downturn.

    "Following the positive price movements in 2017 and the recent stabilisation in the bulk commodity market, the board is considering restarting Kuranakh, including options of potential cooperation with other parties," the Hong Kong-listed company said in a statement.

    The Kuranakh mine, in Russia's Amur region, was producing about 1.1 million tonnes of iron ore concentrate each year before it was put under 'care and maintenance' in early 2016. It was also churning out about 200,000 tonnes a year of ilmenite, a titanium ore.

    Iron ore prices have surged 30 percent and ilmenite by 150 percent since the mine was suspended, the company said.

    However, the statement comes at a time when futures prices in China have toppled off record highs hit in recent months, dampened by concerns about a slowdown in demand in the world's top importing nation and a growing glut as stockpiles have ballooned.

    The most-active Chinese iron ore futures have fallen by about 30 percent since hitting record highs of 650.5 yuan ($94.49) per tonne in February.

    Rocketing prices prompted some Chinese producers to reopen mines after suffering years of tepid demand.

    Attached Files
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    China's Shagang cuts ferrous scrap buying price for fourth time in May

    China's largest ferrous scrap user Jiangsu Shagang Group, has lowered its buying prices for heavy melting scrap by Yuan 40-60/mt ($6-$10/mt) Tuesday -- its fourth reduction this month.

    Shagang will now pay Yuan 1,470/mt ($213/mt), including 17% value added tax, delivered to Zhangjiagang, for heavy melting scrap with a minimum width of 6 mm.

    The company last lowered its buying prices for scrap by Yuan 50-70/mt on May 12. The latest cut brings the cumulative fall in Shagang's buying price for that specification by Yuan 140/mt (8.7%) this month.

    Also on Tuesday, two major mills in eastern China -- Zenith and Magang -- cut their scrap buying prices by Yuan 40/mt.
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    U.S. finds Japanese, Turkish rebar exports dumped

    U.S. Commerce Department Secretary Wilbur Ross said on Tuesday the department had made a final finding of dumping of steel concrete reinforcing bar (rebar) exports from Japan and Turkey, as well as subsidization by Turkey.

    The decision, announced in a statement, could lead to anti-dumping duties being slapped on Japanese exporters ranging from 206.43 percent to 209.46 percent, and on Turkish exporters of 5.39 percent to 8.17 percent. In addition, Turkish exporters face anti-subsidy duties of 16.21 percent.

    "The United States can no longer sit back and watch as its essential industries like steel are destroyed by foreign companies unfairly selling their products in the U.S. markets,” Ross said in the statement.

    Its investigation followed a petition from the Rebar Trade Action Coalition and members Bayou Steel Group, Byer Steel Group Inc, Commercial Metals Co, Gerdau Ameristeel U.S. Inc, Nucor Corp and Steel Dynamics Inc.

    In a March preliminary anti-dumping decision, the department assigned preliminary dumping margins of 209.46 percent for Japanese exporters, including Jonan Steel Corp and Kyoei Steel Ltd, and 5.29 percent to 7.07 percent for Turkish producers.

    It also assigned margins ranging from 3.48 percent to 29.47 percent for Taiwanese exporters. Final determinations for Taiwan are expected in July.

    For the margins to take final effect, the U.S. International Trade Commission must find the exports cause harm to U.S. producers. It is expected to make its final injury determinations for Japan and Turkey in June, and for Taiwan in August.

    In 2016, imports of steel concrete reinforcing bar from Japan were estimated at $96.1 million, and from Turkey at $511.9 million, department figures show
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