Tuesday, March 31, 2015

India skips Iran oil imports in March under U.S. pressure

NEW DELHI,  (Reuters) - India halted oil imports from Iran for the first time in at least a decade in March as New Delhi responded to U.S. pressure to keep its shipments from Tehran within sanction limits during the last month of negotiations on a preliminary nuclear deal.
Iran and six world powers have ramped up the pace of negotiations this week ahead of the Tuesday deadline for reaching an initial accord on a final nuclear agreement. Both sides have warned it was crucial to overcome differences that could still wreck any chance at a deal.
India is Iran's second-biggest buyer on an annual basis after China, yet it did not take any crude from Tehran in March, according to tanker arrival data from trade sources and ship tracking services on the Thomson Reuters terminal.
Refinery sources said this was the first time in at least a decade that no imports were made over the space of a month - indicating how Washington is trying to maximise economic pressure on Tehran amid the talks aimed at stopping Iran from gaining the capacity to develop a nuclear bomb.
"There is pressure from the U.S. on all Asian buyers to stick to the sanctions regime," said Johannes Benigni, chairman of JBC Energy GmbH in Vienna.
The halt in March comes after February imports hit a 1-1/2-year low for monthly imports, which together brought India's annual crude and condensate purchases from Iran in the year to March 31 to an average 220,000 barrels per day (bpd) or 11 million tonnes, slightly below shipments in the previous year.
Days ahead of a visit by U.S. President Barack Obama to India in January, the oil ministry had told Essar Oil, Mangalore Refinery and Petrochemicals Ltd and Indian Oil Corp - the Indian refiners that buy from Iran - to cut their imports over February and March to keep the fiscal-year figure in line with sanctions limits.
Refiners in India had raised imports during the April-December period by more than 40 percent, leading U.S. authorities to raise the alarm with India's foreign ministry ahead of Obama's visit.
The sanctions currently restrict Iran's overall exports to 1 million-1.1 million bpd, with Asian buyers required to keep their purchases near end-2013 levels.
In February, imports by Iran's four biggest buyers - China, India, Japan and South Korea - though down on-year, bounced back to average 1.02 million bpd, a two-month high, government and tanker-tracking data showed.
Despite India's import halt in March, shipments are expected to resume next month, with at least MRPL and Essar loading Iranian oil, trade sources said.
India's oil imports from Iran could sharply rise if sanctions are lifted and the Islamic nation continues to give oil on current terms, company officials said.
National Iranian Oil Co (NIOC) officials told Indian refiners it would continue to offer crude on 90-day credit terms and at a discount to the official selling price if sanctions were lifted, two sources said, although NIOC executives indicated Iran may stop offering free shipping.
"I will definitely consider Iranian oil based on economics. If current terms and conditions are retained, then we may buy," said B. K. Namdeo, head of refining at Hindustan Petroleum Corp Ltd.
HPCL has not received any Iranian crude since May 2013, after first halting its purchases fromIran in 2012 because insurance companies under pressure from Western sanctions had stopped covering installations processing Iranian oil.
MRPL, which has continued to buy Iranian crude, said it would import more oil from Tehran if sanctions are lifted.
"Subject to approval by the oil ministry ... we will increase the supply," said Vijay Joshi, head of refinery operations at MRPL.

Commentary: Who Took My Gas? Australia’s LNG Boom Hurts Locals

Launceston, Australia. It’s somewhat ironic that as Australia ramps up to being the world’s biggest exporter of liquefied natural gas (LNG), domestic industries are under threat from not being able to source the fuel.

A combination of new LNG plants, exploration moratoriums and a successful anti-gas campaign means that industry and residential users in the three most populous states, New South Wales, Victoria and Queensland, may struggle for natural gas supplies within the next two years.

The first of three coal seam gas to LNG plants in Queensland starting shipping cargoes in December last year, and the others are due to start producing later this year.

These are the first LNG plants in the world to be supplied from gas extracted from coal seams, a process that requires hundreds of wells dotted across what is a predominantly farming landscape in the hinterland of Australia’s east coast.

There are four more LNG projects under construction in the north and west of Australia, but these use conventional offshore wells and those regions aren’t linked by pipeline to the eastern seaboard, where more than 80 percent of Australians reside.

The three new coal-seam LNG plants will result in a more than tripling of natural gas demand in eastern Australia by 2016, with data from utility AGL Energy saying it will rise to 2,100 petajoules (PJ) per annum from 694 PJ in 2013.

The 2016 demand forecast equates to about 37.8 million metric tons of LNG, and the three new coal-seam supplied plants have a combined capacity of about 25.8 million tons per annum.

Up to now the domestic gas market in eastern Australia has largely been supplied from conventional wells in central Australia, and offshore platforms in the Bass Strait between the mainland and the island state of Tasmania.

The eastern states are linked by a pipeline network and the market has been characterised by long-term contracts at fixed prices, which has helped underpin industrial users such as glass and paper manufacturers, as well as retail customers.

Prices for domestic gas have also been below that for LNG in Asian markets, although the collapse of spot LNG prices to record lows of $6.70 per million British thermal units (mmBtu) last month has brought the two closer together.

The problem for domestic users is that many of the long-term contracts are expiring in the next few years and they have found that suppliers are unwilling to enter new long-term contracts, or will only do so at prices that are higher than equivalent LNG costs.

One manufacturer at last week’s Australian Domestic Gas Outlook conference in Sydney was adamant that the market has failed and his business is at risk of closure without certainty and stability of natural gas supply.

From his perspective, natural gas was being diverted away from the domestic market and to the export-focused LNG plants, even though the companies running these projects claim to have sufficient reserves to meet their supply needs.

What became clear at the conference was that domestic prices will inevitably rise to meet LNG prices, although whether these are long-term, oil-linked LNG prices or the more volatile spot price is something that remains to be determined.

New supply blocked

The other main problem for domestic users is the lack of new supply being developed that is aimed at the local market.

Part of this is because of onshore exploration and production moratoriums in New South Wales, Victoria and Tasmania.

These bans have been put in place by politicians nervous over the impact of anti-coal seam gas and hydraulic fracturing campaigns run by a combination of environmental and farming groups.

With no new production slated to come onstream, there is the real risk that as the LNG plants ramp up, natural gas that previously supplied the domestic market will be sucked up by LNG, leaving domestic users unable to obtain supplies at what they would consider competitive prices.

New South Wales had a state election at the weekend where the ruling Liberal Party was returned to power.

But the opposition Labor Party had campaigned on halting a major coal-seam gas project run by Santos, Australia’s largest onshore producer.

While Labor’s defeat ensures the immediate safety of the project, it may be that Santos assesses the political risks of continuing as too great, given the chance that the opposition party may win the next election, due in four years.

The key for Australia’s domestic gas market is to develop new sources of supply that will ensure that the needs of LNG plants and local users will be met.

The only way to do this is to get politicians in New South Wales and Victoria to stand up to the environmental and farming lobbies, by convincing communities that the science and regulation of extracting gas from coal seams is sound and reliable.

Other than that, the domestic gas industry, from producers to consumers, has to convince the community and politicians that the cost of losing what remains of Australia’s manufacturing industry outweighs the negligible risks of extracting gas.


ANA Interested in Investing in Asian Airlines By Maki Shiraki on 11:03 am Mar 31, 2015

Tokyo. ANA Holdings is still seeking opportunities to invest in Asian airlines to expand its network and spread the risk of declining traffic from economic downturns, natural disasters and other unforeseen events, the incoming president of Japan’s largest airline said.

ANA last year scrapped a plan to buy a 49 percent stake in Myanmar carrier Asian Wings Airways (AWA), citing intensifying competition in the southeast Asian country.

But Vice President Shinya Katanozaka, who will be promoted to the chief executive post on Wednesday, said ANA continues to look for other partners as it aims to speed up expansion plans, particularly before rival Japan Airlines Co is allowed to resume new investments in April 2017, after limitations set by the government as part of its taxpayer-funded bailout expire.

“We haven’t stopped approaching Asian airlines,” Katanozaka told Reuters in an interview on Monday.

“It’s important to have a wide-reaching network to be able to overcome any hurdles,” he said, noting that ANA was also considering flights to Russia, the Middle East and Africa to that end.
“I’m taking over a company that’s in very good shape. I want to make sure we don’t lose momentum,” he said.

ANA has also expressed interest in participating in a rescue package for bankrupt Japanese budget carrier Skymark Airlines, which has yet to finalize its selection for an operational sponsor for its rehabilitation. That decision had initially been expected in February.

Katanozaka said ANA’s participation in Skymark would have to involve a stake in the carrier — a potential sticking point with Tokyo-based fund Integral, which has signed a 9 billion yen ($75 million) sponsorship deal with Skymark to keep the business going while it seeks co-sponsors for its turnaround.

Integral chief Nobuo Sayama has said Skymark does not need capital participation from any other sponsor.

“We’re just waiting to be selected,” Katanozaka said, declining to comment on the discussions with Integral and Skymark.


Philips sells 80 percent of lighting components unit for $2.8 billion

(Reuters) - Philips (PHG.AS) has agreed to sell an 80.1 percent stake in its lighting components division for $2.8 billion to Go Scale Capital, a technology fund that will seek to expand the company's automotive and LED businesses.
The deal announced on Tuesday is a prelude to an even bigger strategic move for Philips: spinning off its main lighting division, the world’s largest lighting maker, via a stock market flotation, as the Dutch group focuses on medical technology and selected consumer products.
Philips said the deal values the components business, which comprises an automotive lighting unit and the "Lumileds" LED manufacturing business, at $3.3 billion including debt.
ABN Amro analyst Marc Hesselink said the sale price was "considerably above market expectations". The unit made a profit of 141 million euros on sales of 1.42 billion in 2014.
Go Capital was advised by London-based Zaoui & Co, while Philips was advised by Morgan Stanley.
Philips shares, which had hit a 14-month high of 27.675 euros earlier this month, eased 0.4 percent to 26.53 euros by 0952 GMT.
Go Scale, which beat off competition from private equity firms to seal the deal, has previously invested in Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a Eco-EV company in China.
It said it plans to expand the business, building on Philips' customer base which includes the likes of Volkswagen (VOWG_p.DE), BMW (BMWG.DE) and Audi.
"We expect to see significant growth and unparalleled inroads into new opportunities such as electric vehicles,” Go Scale chairman Sonny Wu said.
Go Scale is funded by GSR Ventures, with offices in Hong Kong, Beijing and Silicon Valley, and by Oak Investment Partners. Consortium partners include Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital.
"There were other bidders, also good bidders, perhaps with fewer connections in the industry of semiconductors and the ability to help in building out scale," Philips CEO Frans van Houten told reporters.
Reuters had reported that rival bidding groups led by private equity firms CVC-KKR and Bain Capital had been vying for Lumileds until the Asian-oriented group entered the bidding in mid-March.
LEDs, or light-emitting diodes, are semiconductor devices that emit light when an electric current passes through them.
Although their use has boomed in recent years, the industry has suffered from overcapacity and price erosion. Philips has said its LED business has operating margins above 10 percent after a 2012 restructuring under Pierre-Yves Lesaicherre, but needs further investment to improve scale.
Philips said it wanted to sell the subsidiary, which will be called "Lumileds," because so many of its customers compete with Philips itself. Approximately 20 percent of component sales are to Philips' own main lighting business.

Oil drops to $55 as Iran nuclear talks intensify

(Reuters) - Brent crude oil dropped towards $55 a barrel on Tuesday as Iran and six world powers entered a final day of talks over a nuclear deal that could see the energy-rich country increase oil exports to world markets.
With a self-imposed deadline set for the end of the day, the United States, Britain, France,Germany, Russia and China ramped up the pace of negotiations with Iran in Switzerland over an outline deal on Tehran's nuclear programme.
Disagreements on enrichment research and the pace of lifting sanctions remained as hurdles that could scupper a deal to end a 12-year standoff between Iran and the West.
Russian Foreign Minister Sergei Lavrov told reporters in Moscow he believed the talks had a good chance of success.
"The chances are high. They are probably not 100 percent but you can never be 100 percent certain of anything," Lavrov said.
Western diplomats however played down expectations for the talks in the Swiss city of Lausanne.
Brent LCOc1 was $1.14 lower at $55.15 a barrel by 1335 GMT and was heading for a monthly drop of around 12 percent. U.S. crude CLc1 was down 67 cents at $48.01 a barrel.
Both benchmark contracts were heading for a third consecutive quarter of declines.
Oil prices extended two days of falls as investors said a deal in Lausanne could lead to an increase in Iranian crude supply to a market already oversupplied due to U.S. shale production.
"If the flood gates to Iranian crude open, (prices) will probably test this year's lows again," Daniel Ang, analyst at Singapore-based brokerage Phillip Futures, told Reuters Global Oil Forum.
Iran could increase oil production by around 500,000 barrels per day (bpd) within six months if sanctions are removed, and by an additional 700,000 bpd within another year, according to estimates by Facts Global Energy.
Western sanctions have limited Iranian crude oil exports to around 1 million bpd, and shipping sources say Iran is storing at least 30 million barrels of oil on a supertankers.
BNP Paribas nevertheless did not expect a large increase in Iranian oil exports.
"Whether or not there is a deal, we do not expect a flood of oil on the market as consequence. Which sanctions will be lifted and the uncertainty in the timing of lifting suggest that Iran will not be in position to significantly add to the current oversupply in the market," BNP chief oil andcommodities strategist Harry Tchilinguirian told Reuters Global Oil Forum.
Oil prices came under further pressure after a Reuters survey showed OPEC oil supply had jumped in March to its highest since October as Iraq's exports rebounded after bad weather and Saudi Arabia pumped at close to record rates, a sign key members are sticking to their effort to regain market share.

U.S. commercial crude oil stocks are likely to have risen by 4.2 million barrels last week to a record high for a 12th week, a Reuters poll showed ahead of weekly data by the American Petroleum Institute. [EIA/S]

Monday, March 30, 2015

Once-Bullish Fund Managers Start to Capitulate on Oil Prices

New York. Last fall, when the price of oil started dropping, fund manager Craig Hodges figured crude would rebound in 2015 and began buying shares of companies he thought would be unfairly hit, including construction company Primoris Services and Eagle Materials, which produces sand used in fracked wells.

Hodges, who runs the $2.1 billion Hodges Small Cap fund, is now starting to concede that oil prices will stay low for as long as a year or more because of a global glut. Even the air strikes on Thursday in Yemen by Saudi Arabia and its Gulf Arab allies, which prompted a one-day 5 percent boost to the price of oil, presented “a traders move” and doesn’t signal a sustained move up, Hodges said. Oil fell 6 percent on Sunday to about $48 a barrel.

Instead of looking for a bounce back this year, Hodges is now on the hunt for companies that can take advantage of low prices and are strong enough to withstand a year or more of waiting for oil to be more profitable for producers. It could be two or three years before oil goes back above $70 a barrel, he said.

While his fund is top-loaded with companies like American Airlines Group Inc and affordable footwear retailer Shoe Carnival Inc that are benefiting from cheap gas prices, he is also buying stakes in companies such as Matador Resources — an energy company that has been using the slow market to negotiate lower-priced contracts with its suppliers to lower costs. Matador shares are down 16 percent over the last six months, but are up 5.8 percent for the year through Thursday.

Primoris Services is down 24 percent this year, while Eagle Materials is up about 8 percent. Hodges’ fund as a whole is up 2.7 percent this year, better than 62 percent of its peers. The benchmark Standard & Poor’s 500 Index is little changed since the beginning of the year.

“Oil could stay down longer than anyone is anticipating,” Hodges said.

He began buying exploration and production company Comstock Resources Inc after it fell from about $28 a share in July to $4 in early March. The company changed plans and stopped drilling in its most expensive fields to focus on lower-cost acreage and on natural gas, Hodges said. Its recent $700 million bond issue also gives it a financial backstop through at least 2019, he said.

Persistent glut

Increasingly, mutual fund managers don’t see the oil glut going away any time soon. Lord Abbett’s Thomas O’Halloran, for example, last year was calling fracking stocks one of the pillars of his $3.6 billion Developing Growth fund, among the top-performing small cap funds over the last decade. He is now shifting more money into solar companies.

“We think that there’s another leg down” to oil prices, O’Halloran said. His fund is up 4.1 percent this year, better than 60 percent of its peers.

At London-based Guinness Atkinson fund managers have been adding more natural gas exposure to their portfolios, out of the theory that a slump in oil production following price declines will over time boost natural gas commodity prices. The firm is keeping some oil exposure in light of political factors such as the Yemen airstrike, but it doesn’t expect a recovery based on fundamentals until at least the end of the year.

“It may take even longer than that,” said Will Riley, one of the portfolio managers of the Guinness Atkinson Global Energy fund. The fund is down 2.1 percent this year, better than 48 percent of its peers.

Riley, has been buying natural gas companies such as Southwestern Energy Co, thinking the price of natural gas should rise as the amount of so-called associated natural gas, the by-product of crude oil wells, falls as firms cut back on drilling, he said. “The oversupply in the US natural gas market should moderate a bit later this year,” he said.

Fundamental questions

The capitulation of fund managers comes at a time when retail and professional investors are diverging when it comes to predicting the price of oil. Retail investors have been pouring billions into exchanged traded funds that track the price of oil in an attempt to call the bottom, even as the pros have suggested that bottom isn’t here yet, and may last for some time..

The US Oil Fund, the best-known of several exchange traded funds that have a long position in oil prices, has netted $2.1 billion in new investor dollars this year, according to Lipper data, more than all but seven other funds. Most of that money appears to come from retail investors and speculators in an attempt to call the bottom for oil prices, analysts said. The fund is down 15.8 percent this year.

Dwindling storage capacity in the US, along with the possibility that sanctions are lifted that brings more oil from Iran or Russia onto the market, could lead to an even greater glut on the market, several analysts said.

“The people who think that this is a great chance to get into the energy patch are a little premature,” said Charles Smith, portfolio manager of the Fort Pitt Capital Total Return fund. He has only has one energy company, pipeline company Kinder Morgan Inc, in his portfolio, and isn’t tempted to add more — he is waiting until oil prices slip to the high $20s before he would buy into the sector, he told Reuters.

Unless demand picks up in China, oil could fall as low as $20 a barrel from its current price, and stay in a long-term range between $20 and $40 a barrel, said Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management.
As for a return to the $100 a barrel prices from last spring, Fort Pitt’s Smith said that the growth of renewable energy such as solar and the fracking boom have rendered that unlikely.

“We’re not expecting to see $100 a barrel for the next 10 years,” he said.


Singapore. Oil pricing agency Platts said on Monday it will include the Pengerang oil terminal in the southern Malaysian state of Johor in its Singapore price assessment process from May 1.

The move is expected to offer traders more flexibility in loading cargoes and improve market liquidity, traders said.

Apart from landed storage tanks in Singapore, Platts currently recognizes loadings from Pasir Gudang, Tanjung Langsat, Tanjung Bin and certain floating storage units in nearby waters for its Singapore price assessment process.

And while Singapore is Asia’s largest oil trading hub, a scarcity of land has hit growth of the business there.

This has spurred billions of dollars of investment on the construction of storage facilities in neighboring Malaysia and Indonesia.

Following positive feedback from the industry to the proposal that Pengerang deliveries be included in the assessments for middle distillates and gasoline, it will go ahead with the move effective May 1, Platts, a unit of McGraw Hill Financial, said in a note to its subscribers.

Platts, which provides Asian benchmark assessments for most oil products traded in the region, is also planning to change the loading points in its pricing assessments for fuel oil, gasoil, jet fuel and gasoline from July 1.

Platts said it will introduce a free-on-board (FOB) Straits benchmark to replace the existing FOB Singapore benchmark.

In the new benchmark, traders will not be obliged to specify a loading port at the time of placing a bid or offer and can include cargoes to be loaded from approved terminals in either Singapore or southern Malaysia.

The Pengerang terminal, majority owned by a 51-49 joint venture of Dialog and Dutch oil and chemicals storage company Vopak, started operations last year.

The facility is in the process of being filled but is not yet at full capacity, said a source with Vopak, declining to be named because he wasn’t cleared to speak with the press.

“With the Platts approval, we expect interest to pick up,” he said.

The Pengerang site is able to accommodate very large crude carriers (VLCCs) and will have an initial storage capacity of about 1.3 million cubic meters, according to Vopak’s website.

The terminal is one of several upcoming energy projects in Pengerang, including a refinery and petrochemical integrated development by Malaysia’s Petronas, although some of these may be delayed by the 50 percent slump in oil prices since June of last year.