Thursday, October 23, 2014

Australia Says Wins China Coal Tariff Exemption in Free Trade Pact

Melbourne. Australian coal will be exempt from controversial new import tariffs imposed by China when the two countries sign a free trade pact, Treasurer Joe Hockey said after a meeting in China, although the timing of a deal has yet to be finalized.

Australia and China are trying to seal a free trade agreement (FTA) before the end of this year after nearly 10 years of negotiations, in a bid to boost two-way trade already worth more than A$150 billion ($132 billion).

Amid the talks, Beijing stunned Australia this month by imposing a 3 percent tariff on coal used in steel mills and 6 percent tariff on coal used in power stations, hitting A$9 billion worth of exports from Australian miners already reeling from a slump in prices.

“Once we have an FTA, it will be abolished. The quicker we get an FTA, the quicker the tariffs will go,” Hockey said after meeting Chinese Finance Minister Lou Jiwei in Beijing on Tuesday.

“I think on both sides we are now more determined to get this done. I suspect it has caused some embarrassment to some people in China and it is a source of frustration for us, but there is a way through.”

China took nearly a quarter of Australia’s metallurgical coal exports in the year to June 2014, and about a fifth of its thermal coal exports, used in power stations.

The tariffs will put coal exports from Australia at a disadvantage to its biggest rival, Indonesia, which is exempt under China’s free trade pact with the Association of Southeast Asian Nations.

“The immediate elimination of tariffs on Australian coal exports is a key objective for the sector and we understand the Minister for Trade Andrew Robb will be seeking to secure that outcome as negotiations come to a conclusion over the next month,” the Minerals Council of Australia’s coal director Greg Evans said in an emailed statement.

However, industry sources in China said Beijing may want to prolong free trade talks to keep the tariff in place in order to aid its domestic miners, who are struggling with weak prices in face of a big increase in exports from Indonesia and Australia.

“The question is when China and Australia can sign off on the FTA and I think there is more room for China to drag its feet,” said a senior executive at a large Western trading house.

“There is a lot more production capacity coming onstream next year and demand is still going to be weak, so I think they will need to give local miners a bit more time and more wriggle room before allowing imports in again,” he said.

Unions saw the sudden imposition of the tariffs as a bargaining tactic as Beijing presses Australia to lower foreign investment hurdles and ease limits on the number of Chinese who can be brought in to work on Chinese-owned projects.

“What do we get in return for all of this? A commitment from China to drop a tariff they had no intention of keeping in the first place,” Michael O’Connor, national secretary of the Construction, Forestry, Mining and Energy Union, said in a statement.

Trade talks have been hampered by Beijing’s concerns over opening its markets to Australian food and its worries about Australia’s tough approval process for foreign investment by China’s state-owned enterprises.

Canberra wants its biggest trading partner to give Australian businesses access to key industries in which foreign investment is currently restricted.
Robb is likely to seek to set the same thresholds for China on private investment and agricultural investment as it has established in free trade deals with Japan and South Korea, a trade official with knowledge of the talks said.

That would imply investments of up to A$1 billion would not be subject to review by Australia’s foreign investments watchdog and investments of up to A$15 million in farm land and A$53 million in agribusinesses would not face scrutiny.

“We’re taking an approach where in terms of investment, we don’t favor discriminatory trade policy,” the Australian trade official told Reuters earlier this month.


Australia Seeks to Reduce Renewable Energy Target to ‘Real’ 20%

Prime Minister Tony Abbott’s government will negotiate with the opposition to cut Australia’s renewable energy target and exempt industries such as aluminum and copper smelting.
Industry Minister Ian Macfarlane said he was “reasonably confident” the target would be reduced from the current 41,000 gigawatt hours of electricity from renewable projects to between 26,000 and 28,000. 

While negotiations with Labor will start today, legislation is unlikely to be passed this year, Macfarlane said.

A government-appointed panel recommended in August that Australia weaken or phase out the target in favor of a lower-cost approach to cutting greenhouse-gas emissions. Speculation that Australia will dismantle the RET has unsettled an industry that has seen A$20 billion ($17.6 billion) of investment since the country set goals for clean energy in 2001.

Origin Energy Ltd. and other large utilities have opposed the requirement that Australia produce 41,000 gigawatt hours of electricity from large-scale renewable projects by 2020. The government says the gigawatt-hour figure, which was supposed to represent 20 percent of the market, is actually heading toward 26 percent amid shrinking electricity demand.

“We’ve advocated a return to a true 20 percent” target, Origin Managing Director Grant King told reporters today in Sydney before Macfarlane’s comments.

The real 20 percent target “is I think what Australia signed up for,” Macfarlane told reporters in Canberra. The government doesn’t intend to stop subsidizing solar panels on rooftops, he added.

Any changes to the RET — which requires electricity retailers to buy renewable certificates from wind and solar farms or generate clean power themselves — needs the support of opposition lawmakers in the upper house Senate to become law.

Labor leader Bill Shorten today described the real 20 percent target as a “fraud 20 percent,” the Australian Associated Press reported.

“Renewable energy is part of our energy mix,” he was cited as saying.
The move to lower the RET comes after Abbott in July fulfilled his election pledge to scrap the nation’s price on carbon, leaving Australia without an approved mechanism for limiting emissions.

The Australian Conservation Foundation said in a statement the proposal to scale back the RET would crush growth in the nation’s clean energy industry.


BP Awards FEED Contracts for Indonesian LNG Project

London. BP said on Wednesday it had awarded the onshore front-end engineering and design (FEED) contracts for the $12 billion Tangguh LNG expansion project to two Indonesian consortiums.

BP and its Tangguh partners also signed a sales and purchase agreement with Indonesia’s state-owned electricity company to supply up to 1.5 million metric tons of liquefied natural gas (LNG) per year from 2015 to 2033.

The expansion of the Tangguh LNG project is expected to add 3.8 million tons per year (mtpa) liquefaction capacity to Tangguh, bringing capacity to 11.4 mtpa, BP said.

The onshore FEED is planned for 12 months covering the new LNG train, LNG jetty and associated infrastructure.

The first group that was awarded the FEED contract includes Tripatra Engineers and constructors, Tripatra Engineering, Chiyoda International Indonesia, Saipem Indonesia, Suluh Ardhi Engineering and Chiyoda Corporation Consortium.

The second group is made up of Rekayasa Industri, JGC Corporation, KBR Indonesia and JGC Indonesia Consortium, BP said in a statement.


Wednesday, October 22, 2014

Siemens sees catch-up with rivals beginning in 2018

(Reuters) - German engineering group Siemens (SIEGn.DE) may need until 2018 before it can start to catch up with major rivals in terms of sales growth, its chief executive told a German magazine.
CEO Joe Kaeser unveiled a corporate overhaul in May, dubbed "Vision 2020", that will simplify the group's structure and help the company make up ground lost to more profitable competitors such as Switzerland's ABB (ABBN.VX) and U.S.-based General Electric (GE.N).
"The growth targets under 'Vision 2020' are set out in such a way that we can grow faster than the competitors from 2018," Kaeser was quoted as saying by Manager Magazin on Wednesday, according to an excerpt of an interview to be published on Friday.
He cited product development cycles of many years for the company's gear and equipment such as gas and wind turbines, converter stations and trains.
Kaeser said in July there was "no quick fix" for the problems at its energy business.
Manager Magazin also cited company sources as saying that up to 10,000 more jobs may have to be cut over the next few years as part of the overhaul.
The company said in May that close to 12,000 jobs would be affected.

Siemens declined to comment.

Tuesday, October 21, 2014

Total’s 'Big Mustache'- bon vivant, deal-maker and risk-taker

(Reuters) - Christophe de Margerie, the head of French oil and gas giant Total who died when his jet crashed in Moscow, was a gregarious bon vivant with a passion for risk-taking and deal-making.
Known as "The Big Mustache" for his bushy, gray mustache, de Margerie, 63, was the most charismatic and outspoken oil executive of his generation who cultivated relationships with leaders across Africa, the Middle East and Europe.
An opponent of Western economic sanctions against Russia, the Frenchman was close to President Vladimir Putin - who said on Tuesday that "Russia had lost a true friend".
There was also sadness among Gulf business partners for the loss of "Mr Middle East", along with three crew of his private jet, on Monday night.
Greeting rival business chiefs with a huge hug or networking with a glass of whisky in his hand, the burly de Margerie's gregarious nature masked an astute business sense for frontier projects and tough negotiating skills.
From a family of ambassadors and CEOs, de Margerie was the grandson of Pierre Taittinger, who founded the Taittinger champagne group. This led one associate to joke that he could have been the King of Brut but opted to be the King of Crude - brut meaning both dry champagne and crude oil in French.
De Margerie oversaw Total's Middle East operations and then joined the group's exploration and production branch, the most prestigious, in 1995. He became chief executive in 2007 but his time at the top was troubled by legal problems.
De Margerie's dominance of Total means that the group may struggle to find a chief who can fill his shoes.
"This fabric of international relationships he has are fundamental ... There are perhaps seven or eight bosses in the world who have that, no more, and certainly not at Total. His potential successors are not ready," another associate said before his death.
He called Total's recent exploration strategy "high risk, high reward" as he tried to close a gap with rival energy majors and find super-giant oil fields.
Relishing political and financial risk, de Margerie enjoyed success in Nigeria and Angola. His friendships brought loyalty when it came to deal-making and negotiations.
Before his death, he had been looking at a possible big merger or acquisition. This would have been the first under his leadership of the company, which was created in its current form by a merger of TotalFina and Elf in 1999. "A big deal would make sense," de Margerie told Reuters last month.
"Christophe was a larger-than-life character, a leader respected across the energy industry and a friend," said Ben van Beurden, CEO of Royal Dutch/Shell. "The way the oil industry is these days with its ups and downs, nobody can replace him," a close friend said.
He never shied away from big political statements in an industry where other executives often chose to be mute. Passionate about Iran and Russia, de Margerie was openly critical of sanctions against both countries.
In Russia, his position earned Total some of the biggest and most lucrative projects, as well as huge popularity there. In Iran, Total would be one of the best positioned oil majors to return when and if sanctions were to be lifted.
When Iranian President Hassan Rouhani appeared at the global economic forum in Davos in January, it was de Margerie who made sure he sat next to him, publicly illustrating Total's special relationship with the Islamic Republic.
A decade-long investigation of bribery allegations linked to Total's dealings with Iraq and Iran has been a nagging background feature of de Margerie's time at the top of the world's fourth largest investor-controlled oil company.
In May 2013, the company agreed to pay $398 million to settle U.S. criminal and civil allegations that it paid bribes to win oil and gas contracts in Iran. A French prosecutor recommended that de Margerie himself face trial, although no hearing resulted.
Two months later, de Margerie was among 18 people acquitted in court, alongside Total itself, of corruption charges related to a United Nations oil-for-food program in Iraq. They had been accused of misusing assets in a decade-old case involving the program, from which an illicit $1.8 billion flowed to Saddam Hussein's government.
"Christophe was very affected by the legal episodes in Iraq and Iran," said a close adviser and friend, who declined to be named. "He was not destroyed, but hurt."

De Margerie's rise at Total was unconventional. After graduating from the standard Ecole Superieure de Commerce business school - an anomaly in a company filled with engineers from elite French schools - de Margerie joined the financial department of Total in 1974 because, as he once quipped, the company's headquarters was the nearest to his home.

Kinder Morgan Canada pipeline plans hits a mountain of opposition

(Reuters) - A Western Canadian pipeline once seen as the best near-term hope for sending more of the country's controversial tar sands crude to Asia has hit another snag: aboriginal communities intent on using the courts to block the proposed expansion.
Kinder Morgan Energy Partners' C$5.4 billion ($4.8 billion) Trans Mountain expansion would twin a 60-year-old line running from the oil-rich province of Alberta to the coastal city of Vancouver, tripling its capacity.
The pipeline expansion had been seen as sure bet because it uses an existing route. But a surge in municipal opposition in recent months has fueled industry worries that it will enter legal and regulatory limbo along with the unbuilt TransCanada Corp Keystone XL and Enbridge Inc Northern Gateway pipelines.
The odds against the expansion are growing. Aboriginal communities along the route, angered by a consultation process they call unfair, are strategizing as a group on legal tactics they hope will stop the project dead.
The expansion would help open international markets for Canadian oil producers, delivering billions in revenues. The National Energy Board is hearing traditional evidence from Aboriginal groups as part of the regulatory review this week.
"The opposition is widespread and it is vehement, so we're going to continue this fight until the bitter end," said Grand Chief Stewart Phillip of the Union of B.C. Indian Chiefs. "We're looking at a very litigious future."
Two aboriginal communities have already filed lawsuits. Others are banding together to develop strategies around negotiations, litigation and possibly direct protest. Aboriginal leaders call it a "new era" of opposition.
Other opponents include environmental groups and municipal leaders like the mayor of Burnaby, the Vancouver suburb that houses the pipeline terminus and its marine facilities. Mayor Derek Corrigan has pledged his city will exercise every legal option to fight any increase in capacity.
"People say to me: you've already got a pipeline, you've already got a terminal and you've already got a tank farm, what's the big deal," Corrigan said. "Between the time those were built 60 years ago and today ... we've built up communities all around that area."
Objections from local politicians and activists have already prompted the National Energy Board to delay its final report on the project by more than six months to January, 2016.
Kinder Morgan is now pushing to run the final leg of the pipeline under the 1200-foot (370 meter) Burnaby Mountain, a conservation area.
The city challenged the company's right to cut down a few trees to complete surveying work on that route, a battle that ended up in British Columbia's Supreme Court. Kinder Morgan won that ruling, which is being appealed.
Despite the challenges, the company expects it will bring the project online in 2018 and says it is confident it will stay on budget.
While municipalities can slow pipeline work with red tape, Kinder Morgan has one major factor in its favor: inter-provincial pipelines fall under federal jurisdiction.
"If you've got valid provincial or municipal legislation that conflicts with valid federal legislation, then the provincial or municipal legislation has to give way," said Robin Elliot, a law professor at the University of British Columbia.
This is how governments make it easier to carry out major "nation building" projects like highways, airports and pipelines.
Aboriginal groups, on the other hand, have constitutional rights around consultation and accommodation when projects directly affect their reserves and traditional territories.
Kinder Morgan Canada President Ian Anderson said this month the company has had success in meeting with chiefs, but that maintaining those relationships takes daily work.
The existing Trans Mountain pipeline passes through 15 aboriginal reserves, with the new twin line expected to pass through roughly nine. Both affect many more traditional territories.
While the company has signed mutual benefit agreements with some aboriginal groups, three in the Vancouver area have publicly opposed the project, as have the Coast Salish in Washington State and other communities along the route.
Opponents are looking at challenging the impact the project would have on their aboriginal rights, which include hunting and fishing on traditional territories, their lawyers say.
Even if the federal government ultimately approves the project, those same groups could argue that Canada did not meet its duty to protect their interests. This could result in years of crippling court actions and appeals.

The challenges to the project will come "through negotiations, through litigation or, worse case scenario, through blockading," said Chief Ian Campbell of the Squamish Nation. "The position of the Squamish is that no means no."

New Total boss must overhaul exploration strategy, pursue cost cuts

(Reuters) - The sudden death of Total's top executive may make it even trickier for the French oil major to overhaul its expensive exploration strategy while simultaneously cutting costs to please shareholders as oil prices fall.
Total had recently taken the unusual step of naming an outsider to devise a new strategy after a costly three-year drive to increase drilling spending failed to yield significant results - the main blot on Christophe de Margerie's legacy.
It had also started to cut capital expenditure after years of record-high investments, under pressure from shareholders demanding bigger payouts.
With Brent crude now around $85, executing this plan becomes even more critical, and investors are hoping that the group has a plan of action following de Margerie's death.
"We have the feeling that a group like Total has the organization in place to deal with an emergency situation, and this is an emergency situation," said Renaud Murail, a fund manager at Barclays Bourse, who is advising clients to buy Total shares.
The company had been officially planning to take stock of its exploration strategy next year. Total raised its exploration budget by 12 percent between 2012 and 2014 in what it called a "high-risk, high-reward" strategy to find new sources of oil - but about 40 percent of wells drilled in 2012 were dry, and that proportion rose to almost 60 percent last year, according to company figures.
Insiders say a major re-think is already underway, and analysts are hoping the arrival of Kevin McLachlan, an executive from one of the nimbler oil firms Murphy Oil, as head of exploration, will herald a more entrepreneurial spirit.
Big oil firms like Total have struggled to replicate the success of Murphy Oil or Tullow, another independent oil exploration firm, because of their complex decision-making process and their more risk-adverse culture.
That's not something likely to change overnight, one analyst warned.
"I don't think there's a kind of magic solution, that when you bring in a new head of exploration you suddenly start finding," said Anish Kapadia, at Tudor Pickering Holt Energy.
However, de Margerie had been praised for initiating a reduction in capital spending earlier than many rivals, delivering on a $30 billion assets sale program since 2010 - one of the most ambitious sell-off programs in the industry alongside BP's $50 billion sell-off plan - and announcing a new cost-cutting drive.
That boosted Total's share price and helped its valuation catch up with European peers after years at a discount - the French firm had been struggling to shake off a reputation for setting over-ambitious oil production targets and failing to meet them.
Total is now valued at 9.5 times 12-month forward earnings, in line with BP's (BP.L) 9.4 and Shell's (RDSa.L) 9.6 forward P/E ratios, but below U.S. peers Chevron (CVX.N) at 11.1 and ExxonMobil's (XOM.N) at 12.7.
"In terms of capex reduction, the recent cost-cutting program, they're always the first movers, and that's something investors like," Ahmed Ben Salem, an analyst at Oddo Securities in Paris said.
The group's asset sale program, key to maintain acceptable dividends for investors, is also likely to progress smoothly despite de Margerie's death, analysts said.
"You're talking about a very well-run company, very methodical, it's a good machine. It took them a while to decide on asset disposals but now that the list is clear, they will execute it very well," said a Paris-based banker who spoke on condition of anonymity because he knows Total well.
On the domestic front, de Margerie's successor will have to deal with a politically sensitive situation: the group's promise, made in 2010, to avoid closing down refineries in France for five years comes to an end next year.
Patrick Pouyanne, the head of refining, told worried unions earlier this year that the group would unveil its strategy for its loss-making French refining industry in the spring.
He added that it would not shut down sites completely but would seek to cut capacity. The company will be hoping to avoid a repeat of its problems in 2010 when Total's decision to close down the Dunkirk refinery entirely prompted weeks of strikes by angry unions and disrupted French oil supplies.
Pouyanne's forthcoming key role would seem to favor his ascent to the top job, some observers said.
"(Pouyanne) has already made great strides in improving the financial performance of his business unit, whilst he also has an extensive E&P (exploration and production) background, both clear qualifications for the role," BMO analyst Iain Reid said.
Philippe Boisseau, at the helm of the group's new energies unit, and Arnaud Breuillac from the exploration and production branch, are also seen as possible successors.
However there is no guarantee that de Margerie's successor will walk into the same job he left. In previous periods of transition the group has split the chairman and chief executive roles - de Margerie himself served as CEO for three years under the chairmanship of Thierry Desmarest.
De Margerie had said the board would prefer an insider to succeed him - traditional among top-investor controlled oil groups - in order to ensure a smoother process.
But if the company does not lack good managers, it will find it hard to replace its former leader's larger-than-life personality and extensive contact book.
"The way the oil industry is these days with its ups and downs, nobody can replace him," a close friend and adviser told Reuters last year.

"This fabric of international relationships he has is fundamental.. There are perhaps seven or eight bosses in the world who have that. His potential successors are not ready."