Reuters Daily Commodities Brief · month highs in the previous session as renewed concerns over the...

CHART OF THE DAY (Click on the chart for full-size image)

FEEDBACK: To tell us how we can improve this newsletter, please email: [email protected]

Compiled on Thursday, May 14, 2009

Reuters Daily Commodities Brief

This daily newsletter is available to Reuters customers on their desktop terminals using the code [COM/BRIEF] or via email. If you would like to receive it directly, please register at https://customers.reuters.com/community/commodities/subscribe/.

• Renewables roll out needs price guarantees: John Kemp

• Carbon geography of the United States: John Kemp • Malaysia IOI sees lower palm yields • BP's US industrial customers see falling oil demand • US copper imports up, suggest better economy • Kurdish exports may signal shift in Iraq oil law feud • Norway to back Statoil on oil sands venture • Asenjo Energy to boost southern Africa power • EU carbon investors cling to signs of recovery • Increased planting may tame sugar price boom • InterOil says has strong interest for LNG project • Rotary Engineering eyes SE Asia, Saudi orders

BEYOND THE HEADLINES

MARKET NEWS (Click on the headlines below to jump to the story) TODAY’S MARKETS (Click below to read the full report if you are a 3000 Xtra or RTC user)

OIL: Oil prices fell below $58 a barrel, after a 1-percent plus decline the previous day, as equity markets slipped, weighing on optimism for eco-nomic recovery and energy demand. "There's a bit of economic data coming out of the U.S. that could add some surprise upside. We have jobless claims coming in, so in the next 24 hours that's one thing to look at," Ben Westmore, commodity analyst at National Australia Bank, said. BASE METALS: Shanghai copper fell 4 percent, chasing a decline in Lon-don metal to a two-week low in the previous session after unexpectedly gloomy U.S. retail sales data. "Investors are nervous about the uncer-tainty in the economy. If no more bearish or bullish economic indicators are released in the next week or two, copper prices will continue their sideways trend," said Lin Yuhui, deputy general manager of Jinhui Fu-tures Co. PRECIOUS METALS: Gold held steady around $925 per ounce as a recov-ery in the dollar dented sentiment, pushing prices below a six-week high touched the previous day on buying by gold-backed exchange-traded funds. "For gold prices to break above recent ranges, there has to be some fresh news about economic turmoil," he said. GRAINS: U.S. soybean futures fell nearly 1 percent after surging to seven-month highs in the previous session as renewed concerns over the global economy dragged down the stock markets. "The market was overbought and it was due for a correction," said Garry Booth, a trader at MF Global Australia. "We have seen it in the equity markets and the same is in grains...we are definitely seeing some profit-taking." GLOBAL MARKET NEWS: Asian stocks fell as weak U.S. retail sales high-lighted the long road to economic recovery, prompting profit-taking on winning bets in equities, higher-yielding currencies and commodities over the past two months. "The market needs to take a break, and any pull-backs are going to be met with some more money coming in from the sidelines," said Chris Kimber, a client adviser with Bell Potter Securi-ties in Sydney.

ENERGY • PetroChina unit hikes fuel storage capacity by 360

pct • Exxon: Point Thomson settlement talks under way • Colombia oil output up 14.6 pct in April -govt • Nigerian militants warn oil firms to evacuate staff • US crude oil, gasoline stocks fall unexpectedly-EIA • US April oil demand falls 3.6 pct vs year ago-API • OPEC sees oil use falling further, risks to price AGRICULTURE • ADM says US ethanol use rising to 12 bln gal by

2010 • Devgen signs rice distribution deal in Philippines • Colombia says has coffee to meet commitments BASE METALS • POSCO cuts domestic steel prices by 20 pct PRECIOUS METALS • Vietnam traders seek c.bank approval to import gold • Protesters block road to Peru Yanacocha gold mine

CLICK HERE FOR THE LATEST ON THE FINANCIAL CRISIS

JOHN KEMP ON THE MARKETS Renewables roll out needs price guarantees: John Kemp Power generation from renewable sources such as wind turbines, solar cells and biomass plays a small but important part in satisfying total electricity demand around the world, and is growing at an ex-ponential rate thanks to generous public subsidies and government support. John Kemp is Reuters’ columnist on commodity and energy markets. Click here to read the rest of his column

MONTH AHEAD (Click here for the events)

WEEKLY NEWS SPOTLIGHT : CLICK HERE FOR REFINERY NEWS

Contract (AS OF 06:19 GMT) Price Change Net Change YTD NYMEX light crude $57.48 -0.93% -$0.54 30.09% NYMEX RBOB gasoline $1.68 -0.34% -$0.01 67.51% NYMEX heating oil $1.48 -0.37% -$0.01 6.00% NYMEX natural gas $4.26 -1.73% -$0.08 -22.93% Spot Gold $924.45 -0.11% -$1.00 5.38% LME Copper $4,405 -1.34% -$60.00 44.66% LME Aluminium $1,520 -0.33% -$5.00 -0.84% CBOT Corn $4.16 -0.89% -$0.04 3.07% CBOT Wheat $5.74 -0.86% -$0.05 -5.24% Malaysia Palm Oil (3M) R2,734 -1.97% -R55 64.54%

Index (Total Return) Close 13 May Change YTD Change Reuters/Jefferies CRB 243.06 -1.13% 4.99% S&P GSCI 3923.018 -1.05% -1.81% Rogers International 2790.85 22.69% 14.35% Dow Jones - AIG 121.213 -1.24% 2.10% DB Liquid Commods 703.08 -0.51% 5.32% Cont Commod Indx

US STOCKS (DJI) 8469.11 -2.18% -5.60% US DOLLAR INDEX 82.566 0.32% 1.74% US BOND INDEX (DJ) 216.15 0.35% 3.57%

Other Market Performance 404.11 -1.16% 10.02%

http://graphics.thomsonreuters.com/059/JP_GSSTK0509.jpg

http://topnews.session.rservices.com/topnews/release/chr/scripts/InsightPopup.asp?usn=O/R

http://topnews.session.rservices.com/topnews/release/chr/scripts/InsightPopup.asp?usn=MET/L

http://topnews.session.rservices.com/topnews/release/chr/scripts/InsightPopup.asp?usn=GOL/

http://topnews.session.rservices.com/topnews/release/chr/scripts/InsightPopup.asp?usn=GRA/

http://topnews.session.rservices.com/topnews/release/chr/scripts/InsightPopup.asp?usn=MKTS/GLOB

Reuters Daily Commodities Brief Thursday, 14 May 2009

2 ↑ Back to first page

MARKET NEWS

Vietnam traders seek c.bank approval to import gold

HANOI, May 14 (Reuters) - Vietnam's gold traders have sought permission from the central bank to import up to $600 million worth of gold, calling for an end to a year-long ban, a state-run newspaper reported.

"It is time the government and the central bank allowed the resumption of gold imports to stabilise domestic market," the Dien Dan Doanh Nghiep quoted the Viet-nam Gold Business Association Vice Chairman Nguyen Thanh Truc as saying.

Truc said the central bank should grant quotas for im-porters to purchase about a third or a quarter of the volume they exported in the first quarter of 2009.

PetroChina unit hikes fuel storage capacity by 360 pct

BEIJING, May 14 (Reuters) - PetroChina's northwest fuel sales unit has expanded its storage capacity for refined oil products by nearly 360 percent in less than four years, a newspaper run by CNPC, PetroChina's par-ent, reported on Thursday.

The unit operated 12 fuel storage bases with total ca-pacity of 1.7 million cubic metres by 2008, up from only 5 bases and 378,400 cubic metre of storage tanks in 2005.

It handles fuel sales for 13 refineries in the northwest-ern and northeastern parts of China and serves custom-ers in 16 provinces that span three-quarters of the country.

POSCO cuts domestic steel prices by 20 pct

SEOUL, May 14 (Reuters) - POSCO, the world's No.4 steelmaker, on Thursday said it would cut prices of its domestic steel products by up to 20 percent in its big-gest-ever price reduction, which came earlier than ex-pected as it seeks to compete against cheaper imports.

The South Korean company had said it would not slash steel prices until annual negotiations to decide import prices of iron ore were completed, which was likely to be in the second half.

"We've decided to lower the prices of all our products earlier than we had planned, as international steel prices are falling and raw material prices are also expected to decline," POSCO said in a statement.

Exxon: Point Thomson settlement talks under way

ANCHORAGE, Alaska, May 13 (Reuters) - Settlement talks with the state of Alaska are under way to resolve differences over Point Thomson, an Exxon Mobil man-ager said Wednesday.

Point Thomson is a long-dormant oil and gas field on the eastern North Slope where Alaska officials have started the process of yanking leases but where oil companies are waging a legal battle to keep the proper-ties.

Point Thomson holds hundreds of millions of crude oil and natural gas liquids, along with an estimated 8 tril-lion to 9 trillion cubic feet of natural gas, according to Alaska officials.

ADM says US ethanol use rising to 12 bln gal by 2010

CHICAGO, May 13 (Reuters) - U.S. agricultural proces-sor and ethanol producer Archer Daniels Midland Co said on Wednesday that U.S. ethanol fuel use was rising to 12 billion gallons by 2010 from the 10.5 billion gal-lons this year.

Despite recession-dampened demand for fuel, U.S. law mandates that amount be blended into the U.S. fuel supply, said Steve Mills, ADM's chief financial officer, speaking at the BMO Capital Markets' Agriculture, Pro-tein, and Fertilizer conference in New York City.

Ethanol supporters have petitioned the U.S. Environ-mental Protection Agency to consider increasing the ethanol blend rate as high as 15 percent from the cur-rent 10 percent, but a step-up increase may be more likely.

Colombia oil output up 14.6 pct in April -govt

BOGOTA, May 13 (Reuters) - Colombia's oil output rose 14.6 percent in April from a year earlier, partly driven by increased extraction by state oil firm Ecopetrol and its partners, the government said on Wednesday.

Colombia's total production rose to 651,000 barrels per day from 568,000 bpd in the same month a year ago, the state National Hydrocarbons Agency said in a state-ment.

(Continued on page 3)

* U.S. retail sales fall * Geithner says U.S. financial system starting to recover * Euro zone industrial output drops more than 20 per-cent * China April factory output disappoints, retail sales up * World stocks drop, Dow falls more than 2 percent NEW YORK, May 13 (Reuters) - U.S. consumers took the wind from the sails of optimists looking for a swift end to the recession on Wednesday as April retail sales fell, signaling they are not yet ready to lead the world back to growth. Following a report of diving European industrial output and a Bank of England forecast saying Britain needed a long period of healing, hopes slipped for a quick re-bound for the global economy. "This would deal a considerable blow to the 'green shoots' talk and it's possible that would hit some of the recent optimism in the markets and hurt risk appetite," said Robert Blake, senior currency strategist at State Street Global Markets in Boston.

Snapshot: Financial Crisis - 0440 GMT



MARKET NEWS

Production by Ecopetrol and its partners rose 8 percent to 596.000 bpd, the agency said. Colombia has discov-ered several small oil finds in recent years and Ecopetrol is working to increase output at maturing fields.

Nigerian militants warn oil firms to evacuate staff

PORT HARCOURT, May 13 (Reuters) - Nigeria's main militant group warned oil companies in the Niger Delta to evacuate their staff within 24 hours following heavy clashes with the security forces in southern Delta state on Wednesday.

The Movement for the Emancipation of the Niger Delta (MEND) said two of its camps had come under "unprovoked attack" and that it had sunk two gunboats in retaliation and inflicted several casualties on the Ni-gerian military.

"All freedom fighters in the Niger Delta have been placed on alert to defend their positions and unleash a horrible toll on the oil industry and the Nigerian econ-omy," the MEND said in a statement.

Devgen signs rice distribution deal in Philippines

BRUSSELS, May 13 (Reuters) - Belgian agricultural tech-nology group Devgen said on Wednesday it had signed an agreement to distribute its hybrid rice products in the Philippines with local company Leads Agri.

Under this collaboration, Devgen and Leads Agri will jointly promote Devgen's hybrid rice product, to be sold under the brand name "Frontline," with Leads Agri's chemical solutions to Filipino rice farmers.

Leads Agri is the third-largest crop protection company in the Philippines.

Colombia says has coffee to meet commitments

BOGOTA, May 13 (Reuters) - Colombia has sufficient coffee to meet its commitments even though a scarcity of the country's mild arabica beans has driven up prices on international market, the national coffee federation said on Wednesday.

Colombia's coffee production has dropped due to bad weather and a short-term program to replace old trees with new ones. The federation expects Colombian out-put of 10.5 million to 11.5 million 60-kilogram bags this year.

"The country has enough coffee to meet its obliga-tions," Silva told reporters.

Protesters block road to Peru Yanacocha gold mine

LIMA, May 13 (Reuters) - Protesters in Peru, angry over the handling of a mercury spill, have blocked the road to one of Latin America's largest gold mines, Yanacocha, which is running low on crucial supplies, sector sources said on Wednesday.

Residents near the mine, run by U.S.-based Newmont Mining Corp and Peruvian precious metals miner Bue-naventura, are asking for greater compensation related to a toxic spill that occurred in 2000.

They have blocked access for about a week.

US crude oil, gasoline stocks fall unexpectedly-EIA

NEW YORK, May 13 (Reuters) - U.S. crude oil stocks fell unexpectedly last week, their first drop in 10 weeks, as imports decreased, the federal Energy Information Ad-ministration said in weekly data released Wednesday.

Gasoline stocks fell as refiners slowed production.

EIA said crude inventories in the United States fell 4.7 million barrels to 370.6 million barrels in the week ended May 8, countering a 1.4-million-barrel increase forecast by analysts polled by Reuters. The surprise drop came as imports fell 1.21 million barrels per day to 8.71 million bpd. U.S. crude oil rose about $1 after the data was released to a session high of $59.90 per barrel before pulling back.

US April oil demand falls 3.6 pct vs year ago-API

WASHINGTON, May 13 (Reuters) - U.S. demand for crude oil and oil products fell 3.6 percent in April, led by a huge drop in distillate fuel consumption be-cause of the weak economy, the American Petroleum Institute said on Wednesday.

April's total petroleum product deliveries, excluding exports, averaged 19.058 million barrels per day, down 711,000 bpd from a year ago, the API said in its monthly oil report.

Deliveries, which are a good indicator of demand, are calculated by the API to reflect petroleum products moved from refineries and bulk storage to wholesale and retail suppliers.

OPEC sees oil use falling further, risks to price

LONDON, May 13 (Reuters) - World oil demand is still shrinking as the global economy contracts, OPEC said on Wednesday, adding that a rise in oil prices reflected sentiment rather than fundamentals, which were far from balanced.

Despite falling demand for oil and promises by the Or-ganization of the Petroleum Exporting Countries to cut output, the producer group said its own production actually increased last month, suggesting rising prices may have encouraged its members to pump more.

OPEC said in its Monthly Oil Market Report that its oil output, excluding Iraq, rose to 25.81 million barrels per day (bpd) in April, up from 25.59 million bpd in March.

It was the first rise in OPEC output since July last year.



MONTH AHEAD EVENTS CALENDAR

Date GMT Events/Indicator Location Energy

Thursday, May 14 June ICE Brent Crude Futures contract expires. London

Thursday, May 14 International Energy Agency (IEA) to publish its monthly oil market report. Paris

Thursday, May 14 1430 E.I.A. issues weekly U.S. underground natgas stocks Washington Monday, May 18 Thermal Industry Middle East 2009 (to May 20). Sharjah Tuesday, May 19 NYMEX June Light Sweet Crude Oil futures contract expiry. New York Tuesday, May 19 GasMart 2009 (to May 21). Chicago Tuesday, May 19 2030 A.P.I. issues weekly national petroleum report Washington Wednesday, May 20 Santa Barbara Summit on Energy Efficiency (to May 21) Santa Barbara, CA

Wednesday, May 20 Substitute Natural Gas (SNG) 2009 : Developing Supplemental Substi-tute Natural Gas Supplies Conference. Houston, TX

Wednesday, May 20 1430 E.I.A. issues weekly petroleum stocks and output data Washington

Thursday, May 21 U.S. National Oceanic and Atmospheric Administration (NOAA) issues 2009 Atlantic Hurricane Forecast. Washington

Thursday, May 21 Turkey Energy and Infrastructure Finance Conference (to May 22). Istanbul Thursday, May 21 1430 E.I.A issues weekly U.S. underground natgas stocks Washington

Agriculture Thursday, May 14 1230 NOPA issues monthly Soybean Crushings Washington Monday, May 18 The World Agricultural Forum's Sixth Biennial World Congress (to May 20). St. Louis, MO.

Wednesday, May 20 1000 South African Grain Information Service (SAGIS) monthly bulletin with latest grain stocks and exports data Pretoria

Thrusday, May 21 1230 National Weather Service issues 30-Day Weather Forecast for June Washington

Metals Thursday, May 14 GFMS World Silver Survey 2009. Mexico City

Friday, May 22 0040 China's General Administration of Customs will release detailed trade data for commodities and energy for April 2009 Beijing

Monday, June 01 Coaltrans Asia (to June 3). Bali, Indonesia

Macroeconomic Thursday, May 14 0800 ECB publishes its monthly Bulletin Frankfurt

Friday, May 15 European Bank for Reconstruction and Development annual meeting (to May 16) London

Friday, May 15 1300 Treasury International Capital report Washington Tuesday, May 19 0130 Minutes of Monetary Policy Meeting of Reserve Bank Board Sydney Tuesday, May 19 Annual meeting of European Finance Convention (to May 20) Cascais, Portugal

Wednesday, May 20 Bank of England (BoE) to publish minutes of May 6-7 Monetary Policy London

Thursday, Jun 04 Tropical Storm Risk updates 2009 Atlantic Hurricane Activity Forecast. London

Wednesday, May 27 The 9th Annual CIS Oil and Gas Summit (to May 29). Paris

Wednesday, Jun 03 Energy Trading Central and South Eastern Europe 2009 (to June 4). Budapest

Friday, May 22 0040 China's General Administration of Customs will release detailed trade data for commodities and energy for April 2009 Beijing

Tuesday, Jun 02 Colorado State University updates 2009 Atlantic Seasonal Hurricane Forecast. Fort Collins, CO.

Thursday, May 28 EU Nuclear Forum 2009 (to May 29). Prague Thursday, May 28

Organisation of the Petroleum Exporting Countries (OPEC) ministerial meeting. Vienna

Wednesday, May 27 6th African Petroleum Frontiers Conference (to May 28). London

Wednesday, May 27 NYMEX June natural gas futures contract expiry. New York Tuesday, May 26 6th African Petroleum Week 2009 (to May 28). London Monday, May 25 WSI Corporation updates 2009 Atlantic tropical season Forecast. Andover, MA Sunday, May 24 G7 Energy ministers meeting (to May 25). Rome

Key: Meetings/Conferences; Data/Reports; Expiry of contracts

http://www.energytradingcsee.com/Default/Home_4261.aspx

http://www.tropicalstormrisk.com/

http://www.noaa.gov/

http://gasmart.com/gasmart2009/index.html



COLUMN:

Renewables roll out needs price guarantees: John Kemp -- John Kemp is a Reuters columnist. The views expressed are his own --

LONDON, May 13 (Reuters) - Power generation from re-newable sources such as wind turbines, solar cells and bio-mass plays a small but important part in satisfying total electricity demand around the world, and is growing at an exponential rate thanks to generous public subsidies and government support.

Renewable sources have increased their share of worldwide generation from just 0.4 percent in 1980 and 1.1 percent to 2.3 percent in 2006. In its "World Energy Outlook 2008", The International Energy Agency (IEA) projects their share will double to 4.9 percent by 2015, and then almost double again to 8.7 percent by 2030

(http://graphics.thomsonreuters.com/ce-insight/RENEWABLE-POWER.pdf).

Policymakers are relying heavily on renewable generation to meet projected growth in the electricity demand over the next 20 years while limiting growth in the emission of greenhouse gases.

Unlike reserves of oil and gas, which may be exhausted within the next 70 years, renewables will remain a source of power indefinitely. Much the same could be said of coal, but renewables do not contribute to increased carbon di-oxin concentrations in the atmosphere.

But with renewable sources still costing more per kilowatt hour than conventional power from nuclear or fossil fuel plants burning gas and coal, renewables have not yet reached "grid parity" with other power producers and are struggling to penetrate the power market.

Market penetration depends on subsidies, price support and quota schemes mandating power suppliers buy a mini-mum share of their electricity from renewable. But wide-spread variations between countries and even within them suggest uptake is sensitive to the form in which support is offered. In particular, guaranteed prices for renewable pro-ducers have been more effective than quota systems in en-couraging widespread development of wind and solar power.

RENEWABLES PENETRATION

Since all OECD governments are committed to increasing the share of renewables in total output, it makes sense to rank policy effectiveness in terms of market share rather than absolute watt hours generated.

On this measure, penetration ranges from 25 percent in Iceland, 20 percent in Denmark and 9 percent in both Ger-many and Spain, to 1.6 percent in the United Kingdom, 1.3 percent in Sweden and 0.6 percent in Japan.

In absolute terms, the United States is the world's largest producer of renewable energy with 72,000 gigwatt hours (GWh) last year. Only Germany (60,000 GWh) and Spain (27,000 GWh) are comparable. But it is also by far the world's largest producer and consumer of non-renewable power (more than 3.7 million GWh). The share of renewable

generation in the total was actually rather small (just 1.7 percent) and puts it in the middle of the international spec-trum.

Some country-to-country variability can be explained as the result of past policy choices and natural resource endow-ments. Iceland's high share is based on its abundant geo-thermal resources. France's low one the fact nuclear plants provide three quarters of the country's total power output, leaving little demand for renewables or power from any other source.

But historic policies and natural resources cannot explain why Denmark, Germany and Spain generate six times more renewable power (proportionately) than the United King-dom, the United States and Sweden.

PRICE GUARANTEES OR QUOTAS

The main factor determining policy success is the structure of the programme. Price-support systems (used in Den-mark, Germany and Spain) have been more effective than quota-based systems (used in the United Kingdom, Sweden and parts of the United States):

(1) Price-based feed-in-tariffs (FITs) guarantee renewable power producers the right to sell electricity into the grid at a fixed rate set by law, or in some variants at a premium over the peak market price or some average of the prices in a previous period:

* FITs guarantee priority access to the network (grid man-agers must buy power offered by renewable producers first at the agreed price, even when competing conventional generators offer power more cheaply).

* The grid pays a premium for renewable power (allowing renewable generators to recover the higher costs associ-ated with their generation).

* In the most successful schemes this price is reasonably predictable (it is either fixed in cents per kilowatt or linked to an annual average) to make it easier for renewable pro-ducers to obtain project financing.

(2) In contrast, renewable obligation certificates (ROCs) and renewable portfolio standards (RPS) are quota systems. They require power sellers to buy a minimum number of megawatt hours (MWh) or a minimum percentage of total sales from renewable sources. Power sellers receive credits for every MW of renewable power they buy and must ac-quire a set number of credits by the end of the compliance period, buy surplus credits from others, or pay a financial penalty.

Quotas have been adopted by the United Kingdom, Sweden and most state-level governments in the United States that have set renewable targets. Favoured by economists as the most efficient way to produce a given volume of renewable energy, since they encourage lowest-cost options to be developed first, they are seen as "market friendly", technol-ogy neutral, and more compatible with integrating renew-able output into the wider power system. In theory, the target volume of renewable power is guaranteed because tradable creditable prices will rise until enough renewable generation is incentivised.





Because quota systems do not guarantee a price for the power being sold to the grid, prices remain highly variable, determined by supply and demand in the wider power mar-ket, which can make it hard to obtain project financing.

Uncertainty can prove fatal to projects involving with high upfront capital costs (such as solar and offshore wind farms), long payback times (7-10 years), or where develop-ers are small technology-driven companies relying on bank-based lending rather than established power utilities which can finance projects on their balance sheets. Quota sys-tems have not tended to encourage innovation.

In contrast, price-based FITs have proved extremely suc-cessful in encouraging widespread installation of wind tur-bines (Denmark and Germany) and solar cells (Germany and Spain). Because they guarantee prices and revenues for an extended period, up to 20 years in some cases, loan finance is readily available, even for projects on a fairly small scale. In Germany and Spain, banks will provide loans for solar cells at household level.

TILTING THE PLAYING FIELD

The most common objection is that FITs may not be effi-cient because they do not promote the sequential uptake of lowest-cost options first. Most FITs are designed so higher-cost forms of renewable generation receive higher guaranteed prices to encourage the uptake of a diverse range of technologies. But there is a risk that power con-sumers can be forced to pay high prices for extended peri-ods even if the generation cost eventually declines.

Most FITs have some flexibility built into them. While prices for existing producers of renewable energy are guaranteed for the lifetime of the FIT, the terms on which new FITs are offered to new projects can be adjusted periodically in re-sponse to changes in uptake rates and costs.

In Germany, increases in uptake and cost reductions result in "degression" -- a cut in the guaranteed price offered to new producers once certain target levels are met (previous guaranteed tariffs are not altered).

The objection remains that FITs involve the government picking winners rather than allowing technologies to emerge through market-based competition.

But the need to recover high upfront capital costs over long timescales in volatile power markets means that large-scale renewable power generation may not be consistent with private financing unless some form of price support is forthcoming.

If policymakers want to encourage it, with all the associated costs, recent experience suggests feed in tariffs and price guarantees will prove far more effective than the quota sys-tems favoured so far in the United States and United King-dom.

COLUMN:

Carbon geography of the United States: John Kemp -- John Kemp is a Reuters columnist. The views expressed are his own --

LONDON, May 13 (Reuters) - Unless advocates of a cap-and-trade emissions scheme can design a credible and well-funded compensation mechanism to compensate the losers (including coal miners, heavy industrial workers, and their communities) carbon control policy risks becoming mired in the same controversy as trade liberalisation.

In a report published this month, Michael Cragg of the Brattle Group consultancy and Professor Matthew Kahn of UCLA Institute of the Environment illustrate how the "carbon geography" of the United States affects congres-sional votes on carbon control legislation

(http://mek1966.googlepages.com/cragg_kahn_5_7_09.pdf).

While the basic conclusion is not surprising (representatives in states and counties with high carbon intensity are least likely to vote for tough control meas-ures), the paper provides a wealth of supporting detail and comprehensive statistical analysis.

In particular, Cragg and Kahn find:

(1) The variation in intensity of carbon emissions is ex-treme. Across 1,559 counties with at least 25,000 residents in 2002, the average carbon emissions per capita was 7.66 tons but with a median of 3.28 tons and a standard devia-tion of 16.9 tons. Whether through a carbon tax or a cap-and-trade programme, the impact of emissions control and pricing will not be anything like uniform across the United States. It will result in large distributive consequences and income shifts, hitting some groups far harder than others.

(2) Counties with high emissions per capita are likely to be poorer and represented by a more conservative legislator. According to the report, "Conservative, poor, rural areas will face a higher carbon bill under a cap and trade system than liberal, rich, urban areas. This compounds the regres-siveness of any energy tax or cost increase, making it a po-litical necessity that some offset by designed".

(3) Representatives in high-carbon districts are more likely to vote against regulation (after controlling for other ef-fects). Liberal representatives with constituents on high per capita incomes and with low per capita emissions are more likely to vote in favour of carbon control legislation.

At the end of the paper, the authors provide an elegant set of charts showing total carbon emissions per capita for each state, as well as a breakdown of emissions from differ-ent sources (commercial, industrial, transportation, resi-dential and power utilities).

The division between high-carbon and low-carbon states closely mirrors the divisions within the Democratic Party displayed when 26 senators from mostly Midwestern indus-trial and Appalachian coal states broke ranks with 31 of their colleagues last month to prevent use of the expedited budget reconciliation process to pass a cap and trade pro-gramme as part of the regular budget .





As the authors note, "In mid-2009, the direction of carbon regulation is unclear and as this paper shows will certainly be constrained by the political reality that the incidence of regulatory costs arising from carbon regulation is highly skewed".

So far, most attention has focused on how to soften the impact of a cap and trade programme on industrial and coal-producing states to secure a 60-vote super-majority in the Senate to pass the legislation, through a combination of free emissions permit allocations, grandfathering and long phase-in periods.

But while these measures can soften or delay the blow, they do not alter the fact that a binding carbon tax or cap-and-trade programme will eventually impose highly skewed bur-dens across the United States. Cap-and-trade advocates will come under pressure to develop compensatory mecha-nisms designed to level the playing field.

The problem is similar to the debate over free trade. Free trade has reasonably clear theoretical advantages over pro-tectionism via tariffs and other measures.

In aggregate, the static benefits to consumers from cheaper imports and dynamic benefits from increased com-petition should outweigh the costs borne by some domes-tic producers and workers. In principle the "winners" can compensate the "losers" and still have benefits left over (free trade is "Pareto optimal").

In practice, though, such income transfers rarely happen on any significant scale. The problem with free trade is that winners do not in fact compensate losers so the policy im-poses a highly uneven pattern of burdens and benefits, even if it is beneficial for the country as a whole. The federal government's Trade Adjustment Assistance (TAA) pro-gramme is tiny. In fiscal 2007, funding was just $900 mil-lion.

It is the failure to implement an effective compensation programme for the losers that has gradually undercut po-litical support for trade liberalisation in recent decades.

In a development that should worry advocates, many of the losers under cap-and-trade systems overlap with groups that have been hit hard by free trade and the hollowing out of the U.S. manufacturing base.

The Obama administration has proposed using most of the revenues from the sale of emissions permits to provide tax breaks to low-income groups. But the design of these tax breaks is uncertain. It is not clear whether they would be targeted as hard hit communities or simply be general anti-poverty programmes. Nor is it clear whether there would be enough money to fully compensate for the huge costs of re-orienting the industrial and employment base of affected states.

Malaysia IOI sees lower palm yields By Niluksi Koswanage and Julie Goh

KUALA LUMPUR, May 13 (Reuters) - IOI Corp, Malaysia's No 2. planter, said palm oil yields would fall by 5 percent due to a warm spell and that might push prices to 3,000 ringgit in the near term if there was an uptick in overseas demand.

Planters struggled to boost output in Malaysia last month and may continue to do so as oil palms also suffered bio-logical stress after last year's strong harvests and low fertil-iser use, IOI Executive Chairman Lee Shin Cheng said.

Malaysia, the world's second largest palm oil supplier, achieved yields at between 4-5 tonnes per hectare in 2008, government data showed. IOI, regarded as one of the most efficient estate owners in Malaysia, managed a yield of 6.1 tonnes.

Hot weather leads to higher oil extraction rates as there is less water contamination but yields dry up as fresh fruit bunches are smaller and do not fully develop, plantation officials and traders have said.

"Weather will be a crucial factor. Already people are talking about a possible El Nino. The market will be very explosive if poor weather sets in during the second half of 2009," Lee told Reuters in an interview late on Wednesday.

"Prices may go higher if there is a strong uptick in demand. We will not discount that 3,000 ringgit is achievable in the near term," said Lee, who was the founder of the company and whose views are watched closely by analysts and vege-table oil traders.

The benchmark July contract on Bursa Malaysia's Deriva-tives Exchange settled up 64 ringgit at 2,789 ringgit ($793.7) per tonne on rising hot weather fears in Malaysia and rival soyoil producing South America.

Palm oil output in Malaysia and top supplier Indonesia gen-erally registers double digit growth in the second half of the year, building up stocks for the Asian festival season when top buyers India and China lock in supplies from June or July onwards.

But China appears to have started its buying spree much earlier this year, with a 41.3 percent rise in May 1-10 palm oil purchases compared to a month ago, cargo surveyor data showed early this week.

"Barring weather, it is likely that crude palm oil prices could be lower in the second half (due to higher production)," Lee said. "But we still do not expect prices to decline a lot and they should remain comfortably above 2,500 ringgit."

OTHER BUSINESSES

IOI, which runs property and chemical businesses, saw its first-half earnings hit by one-off charges of 282 million ringgit for forex losses, customer defaults and the termina-tion of the Menara Citibank building acquisition.

The firm may write down 250 million ringgit for its Sentosa Cove residential project in Singapore in the second half of the year, said analysts at CLSA, as the property market slumps in the island republic.





Lee declined to discuss provisions for Sentosa Cove, saying the project was being valued.

"We are confident of the medium and long-term prospect of our investments in Sentosa ... (the project) should bene-fit once the recovery of the property market takes place," he said.

IOI will announce its third-quarter results on Friday, he said. Its shares closed up 0.5 percent at 4.46 ringgit, outper-forming the broader market which slipped.

BP's US industrial customers see falling oil de-mand By Robert Campbell and Bernie Woodall

LA JOLLA, Calif., May 13 (Reuters) - U.S. industrial custom-ers are still seeing falling oil demand with a return to nor-mal operations not coming until late this year or early 2010, the chief executive officer of oil major BP Plc said on Wednesday.

"Most of our industrial customers are still seeing declining demand. It's not at the pace it was in the first quarter," said CEO Tony Hayward.

Demand will decline until the fourth quarter of 2009 and the return to relative normalcy will be gradual, he added during a speech to the Latin American Energy Conference held by the Institute of the Americas in La Jolla, California, north of San Diego.

Hayward said that his company's and global oil demand is obviously linked to the current global financial crisis, which includes a credit crunch.

"I'm optimistic that by the end of this year or the early part of next year the financial system will have returned to a relatively normal way of operating," he said. "That is to say, small- and medium-sized companies will be able to find the credit they need."

Demand destruction will be slowed by economic stimulus plans in both the United States and China, he said.

Hayward said China's stimulus programs to boost con-sumer demand will be quicker because the government and Chinese companies can synchronize their actions easier than can U.S. companies and its government.

"At the end of the day, there are only two countries that matter in dragging us out of this (global recession) and that is this (the United States) country and China," Hay-ward said.

The party's over for highflying financial risk-takers, he said.

"When you've had such a big party like we've had for the last 20 years," it will take some time to clean up after the revelers, he said. "There are going to be a lot of storms in this as we come out of this recession."

Hayward pointed out that the International Energy Agency EIA said that by 2030, the world will need 40 percent more energy than is consumed today.

"The demand for energy will continue to grow and we need to be prepared to respond," said Hayward.

Latin America will play a significant role in developing more oil reserves and advancing alternatives to fossil fuels such as ethanol. Latin America currently produces 12 percent of the world's oil and 7 percent of its natural gas, he said.

Hayward said BP sees an ever-increasing share of biofuels in the gasoline market.

"I think it's quite conceivable over the next decade of hav-ing biofuel penetration into gasoline pool in both Europe and the United States reaching as much as 20 percent."

Hayward said that ethanol made from sugar cane, in which Brazil is the leader, is going to be more influential than corn-based ethanol that is currently the most widely used in the United States.

Sugar cane ethanol "is the piece of the first-generation bio-fuels that makes the most sense."

The British oil major entered the Brazilian biofuels industry a year ago, taking a 50-percent stake in Tropical Bioenergia SA, a joint venture between Brazilian sugar and ethanol pro-ducer Santelisa Vale and Maeda, which grows cotton and grains.

WAITING FOR THE SUN

While ethanol may be a fifth of gasoline supply in a decade, solar power won't compete with conventional energy sources until its technology is developed, the BP chief said.

"I think solar is probably the most challenged of all of BP's alternative energy interests," Hayward said. "It is not going to make the transition to be competitive with more conven-tional power. The gap is too big. ...If solar is going to make a breakthrough, there will be a technology disintermediation step," he added.

It will be the "second half of the 21st century" before solar energy will truly compete with conventional power sources, he said. Those sources currently are coal, natural gas, fuel oil, hydro power and nuclear power.

Wind is further along in its development, he said. Hayward said that he agrees with wind industry advocates who say that 20 percent of U.S. power generation will be from wind by 2020.

US copper imports up, suggest better economy By Jasmin Melvin

WASHINGTON, May 13 (Reuters) - U.S. copper imports rose in March and should remain strong for the rest of year, boosted by a revival in the moribund housing sector.

The uptrend in imports of the key industrial metal, widely used in construction and automobile manufacturing, is ex-pected to continue in the coming months. Analysts see it as a good sign for the economy.

"You're starting to see some of the stimulus taking place," said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

Imports of copper jumped 18 percent to 79,975 tonnes in March from 67,725 tonnes in February, the U.S. Interna-tional Trade Commission said.





For the first three months of 2009, U.S. refined copper im-ports surged nearly 32 percent from a year ago.

Federal stimulus money is reaching communities across the country as part of the Obama administration's $787 billion spending and tax cut package. The U.S. Congress approved the stimulus in February to kick start the economy.

Signs of economic recovery should make U.S. manufactur-ers more optimistic, boosting boost demand for copper and leading to strong second-half growth, Gross predicted.

Warmer spring and summer weather will also mean a pick up in U.S. construction, which should also boost copper imports.

The U.S. Commerce Department reported this month that construction spending rose in March for the first time in six months.

The data lifts hopes that the housing industry slump could be moderating. Building construction accounts for more than 40 percent of all copper use, with the average U.S. family home containing 439 pounds of copper.

But Sterling Smith, vice president of FuturesOne in Chi-cago, puts more faith in the auto industry "to be the next big story in copper."

Smith said there are 250 million vehicles on the road, and only 9.2 million new vehicles are expected to be manufac-tured this year.

"We're going to end up with a lot of old cars on the road very quickly," he said. "There's going to be latent demand that's going to build up."

He said auto demand should pick up as early as September but possibly as late as January, as old cars give out. Cars use copper for everything from the radiator to break lines.

SCRAP MARKET ADDS DEMAND

The tight scrap market is also putting pressure on U.S. cop-per supplies.

"There's not a lot of scrap being generated, which is the reason why some people are using cathodes in substitution for high grade scrap," said Marc Kaplan, president of Mews Metals Trading.

Slower industrial output sharply cut scrap metal availability, he said, so more people are turning to refined copper, or cathode.

Rising U.S. copper demand coincides with China's growing appetite for the red metal, which could add price pressure.

China reported that its copper imports rose 6.6 percent to a record 399,833 tonnes in April, as it continues to stock-pile metals.

"When a recovery starts, it will start in China, and that ap-pears to be happening now," Gross said.

Gross said it was not unreasonable to expect copper prices to push higher through 2009.

Smith said he could see copper reaching $2.50 a pound from about $2.01 now "without much trouble."

Kurdish exports may signal shift in Iraq oil law feud By Missy Ryan and Shamal Aqrawi

SALAHUDDIN, Iraq, May 13 (Reuters) - The launch of oil exports from Iraq's Kurdish north might nudge a long standoff over vital Iraqi energy legislation closer towards resolution, the president of Iraqi Kurds said on Wednesday.

"It was a very important step, which goes along with imple-mentation of the constitution and is in the interest of the Iraqi people," Masoud Barzani, president of the largely autonomous Kurdistan region, said in an interview.

An end to the fierce impasse over national oil and gas laws, which would set out rules for investing in Iraq and decide how to mete out revenues, would be a boon for Iraq as it seeks to boost output and repair decades of sanctions, war and neglect.

The legislation was stalled for over three years in parlia-ment, not only making oil sector investors nervous about sinking billions in Iraq, but deterring investment in other Iraqi sectors that need foreign capital even more.

Barzani spoke proudly of news last week that the Iraqi Oil Ministry will finally begin exports from Kurdistan's Tawke and Taq Taq fields, the first official sales from promising fields officials here say may hold at least 40 billion barrels of oil.

"It's a victory for all Iraqis, but the victory was achieved by the Kurds. It's like when an individual soccer player scores a goal, the whole team benefits," he said, speaking from his vast hilltop headquarters outside the Kurdish capital, Arbil.

But Iraqi Oil Minister Hussain al-Shahristani was quick to stress the decision did not mean he was backing down from Baghdad's condemnation of contracts Kurds have signed with foreign firms, which he calls "illegal and illegiti-mate."

The ministry, out of principle, opposes production sharing contracts that Kurds have inked with firms like Norway's DNO International and Addax Petroleum, which are devel-oping Kurdistan's Tawke and Taq Taq fields.

UNCERTAINTY

The Shi'ite Arab-led government in Baghdad has barred foreign firms that have signed deals with Kurdistan from pursuing oil deals elsewhere in Iraq and from buying Iraqi oil.

Its refusal to recognize Kurdish deals, even as it backs Kurdish exports, brings a cloud of uncertainty to the situa-tion.

Still unclear is how Kurdistan plans to reimburse companies such as DNO and Addax. Barzani referred the issue to his natural resources minister, who could not be reached im-mediately.

Kurds say the contracts give them favourable terms and, more importantly, have allowed them to quickly ramp up production while fields in other parts of Iraq await develop-ment.





"I don't think he personally understands himself or what he does, but it isn't important for us what he says," Barzani said of Shahristani.

Iraq, with the world's third largest reserves, is courting top firms in two bidding rounds for long-term contracts.

Critics say the oil ministry has moved far too slowly and has failed to take the steps required to boost output, which stands at 2.3-2.4 million barrels per day (bpd), still below where it was before the U.S.-led invasion in 2003.

The feuds over contracts and legislation are part of a wid-ening rift between Kurdish and Arab officials, a worrying trend as Iraq struggles to stamp out violence, foster recon-ciliation and rebuild a country shattered by years of war.

The most polarizing issue is the uncertain fate of Kirkuk, the disputed northern region which U.S. officials say could hold 4 percent of world oil reserves.

Arabs and Turkmen are against allowing Kurds to absorb such valuable real estate into their northern enclave, mostly independent under international protection since 1991.

Contrary to what some analysts foresee, Barzani said he did not expect the status of Kurdish oil contracts to be left to a final "grand bargain" on Kirkuk in which Kurds and Arabs would trade concessions over a host of disputed issues.

Norway to back Statoil on oil sands venture By Wojciech Moskwa

OSLO, May 13 (Reuters) - Norwegian oil major StatoilHydro ASA will be given free rein to develop Canadian oil sands despite action by environmentalists to block the multi-billion dollar investment.

The Norwegian government, which owns two-thirds of Scandinavia's biggest company, will not back a resolution by Greenpeace at Statoil's May 19 shareholders' meeting calling on the group to "withdraw...from tar sands activities in Canada".

"It would be unnatural for us to overrule a decision by the board (and back Greenpeace's motion)," Deputy Petroleum and Energy Minister Robin Kaass told Reuters on Wednes-day.

"This is a decision for the board, and we hold its actions against the highest standards for ethics and the environ-ment."

The government believes that good corporate governance prevents it from directing Statoil's actions on any specific business issue beyond the usual checks made by the board.

Kaass said there were no plans for the government to ask its board representatives to delve into "one particular is-sue" such as Statoil's $2 billion oil sands investment.

Statoil bought 257,000 acres of oil sands leases in Alberta in 2007 to diversify from its ageing North Sea oilfields. Last year it dropped plans for a $12 billion refinery upgrader there.

Greenpeace and other activists have long said tar sands are devastating for the environment and use too much energy.

It takes the energy equivalent of a barrel of oil to produce three barrels from oil sands. According to Greenpeace data, Statoil plans to emit 60-180 kg of CO2 per barrel from oil sands against some 7.8 kg per barrel from Statoil's North Sea fields.

The Canadian government has been tightening rules on oil sands investments, including a requirement for new pro-jects to include facilities to capture and store carbon emis-sions. Statoil rejected claims its investment was not respon-sible.

"We have known from the start that some will oppose this but with our experience and environmental approach we can contribute positively," Statoil spokesman Ola Morten Aanestad said.

Blaming prohibitive costs, weak oil prices, economic tur-moil and a lack of legislative clarity, Statoil scrapped plans for an "upgrader" to convert the bitumen stripped from oil sands into synthetic crude. It will sell bitumen to others to refine.

MOBILISING ACTIVISM

Despite the government's opposition, Greenpeace said its motion was gaining more and more support among Nordic institutional investors before next week's vote.

"A number of Swedish institutional investors and Nordic funds in general have been very receptive towards this ini-tiative," Greenpeace Norway boss Truls Gulowsen told Reuters.

"Without government support we realise there is no chance for the resolution to pass, but a large dissenting minority may still force Statoil to rethink its strategy."

Gulowsen said Greenpeace has been able to mobilise tradi-tionally passive financial investors by appealing to the Nor-dic funds' principles on ethical investment. "We show in-vestors that what's happening with the tar sands often con-tradicts their own views on investment," he said.

Swedish pension fund KPA, which has $7 billion under management but would not detail its Statoil stake, said it would back Greenpeace's motion at next week's sharehold-ers meeting.

"We will back the motion. We feel that if Statoil cannot protect the environment it should withdraw from Alberta -- this goes with our criteria for environmental investments," KPA environmental manager Kerstin Gronwall told Reuters.

If the resolution does not push the issue further, a sale of Statoil shares by KPA "could be the answer", Gronwall said.

Fellow Nordic investor Danske Bank, which owns Statoil shares worth $58 million, said it was checking whether the oil sands engagement breached its responsible investment rules.

"We are investigating this case together with our adviser, which is a normal procedure," said Thomas Kjaergaard, in charge of socially responsible investments at Danske Capi-tal.

"If it should violate international norms, we will seek dia-logue with the company," Kjaergaard said.





Asenjo Energy to boost southern Africa power By Agnieszka Flak

JOHANNESBURG, May 13 (Reuters) - Exploration company Asenjo Energy is developing various Botswana coal re-sources, and hopes to help ease a power shortage in the region as soon as 2015, Chief Operating Officer Malcolm Campbell said on Wednesday.

Botswana-based Asenjo expects to end the pre-feasibility study for its 1 billion tonne resource at Dukwe by the mid-dle of next year. It would sell coal domestically and to neighbouring countries, and supply a 300-600 MW power station.

"Probably in a year's time, by mid 2010, the pre-feasibility study will be completed," Campbell told Reuters in an inter-view.

"There is a lot of scope for selling coal both in Botswana and to the neighbours, and in southern Africa there is a massive power deficit that needs to be filled."

He said the date when Dukwe, in the north-east of Bot-swana near the border with Zimbabwe, will move to the feasibility stage depends on Asenjo's ability to raise fund-ing.

The pre-feasbility phase, estimated at $15 million, is funded by the joint venture behind Asenjo, comprised of Sentula Mining of South Africa, Aquila Resources of Australia and private African investment firm Jonah Capital.

While the global financial crisis has not affected the project up to now, Botswana-based Asenjo decided not to list as planned in June to raise parts of the funding for the next stage of the project.

"Now is not the right time, but we are reviewing the situa-tion every three months," Campbell said.

If all goes well, the power station could start producing power by 2015, Campbell said.

"We could have a mine operating much quicker than that, if we manage to secure some offtake agreements domesti-cally and regionally," he said.

Depending on the deals, the coal mine could produce up to 20 million tonnes per year over a lifespan of up to 40 years.

The size of the power station could be raised as well.

"Some 600 MW is a nice size to establish credibility, and it takes a lot of money to build... then you can expand," he said.

Campbell said the company was working closely with the Botswana government, which has realised the need for the country to diversify its economy away from the diamond industry, which has suffered greatly as a result of the eco-nomic slowdown.

Asenjo is also conducting exploration work in other areas around Botswana, but Campbell said the company expects to develop Dukwe first because of its proximity to adequate infrastructure to rail the coal and supply power to the grid.

Its total coal resources in the country amount to around 6.7 billion tonnes of coal, including export-grade quality coal in some of the areas, Campbell said.

"The issue is the infrastructure and getting the coal to the sea ... in the future I would envision some type of public-private partnership to develop the infrastructure."

EU carbon investors cling to signs of recovery By Nina Chestney

LONDON, May 13 (Reuters) - The European carbon market, like its peers across energy and commodities, appears to be pinning its hopes on big-picture economic recovery and ignoring a weak demand outlook closer to home.

Prices for permits under the European Union's Emissions Trading Scheme have nearly doubled since hitting a low of 8 euros ($10.90) in February.

The permits, called EU Allowances (EUAs), reached a new 4-month high of 16 euros this week, before easing to around 15 euros on Wednesday.

European Central Bank President Jean-Claude Trichet said this week that European economic growth was at a turning point and some countries were seeing a rise in gross do-mestic product.

Dec-09 EUAs show a daily correlation with the MSCI's World Index for 23 developed country stock markets of 0.91 since April 13, near a perfect value of 1, Reuters data show. Analysts said the carbon market has mirrored equity and oil gains over the past month in reaction to some signs of an improving global economy, but the underlying factors affecting carbon's supply and demand balance are still bearish.

A reinvigorated world economy would imply more energy consumption and industrial output, and therefore higher greenhouse gas emissions and more demand for carbon permits such as EUAs. "We are all a bit puzzled why EUAs have rallied so much," SocGen/orbeo analyst Emmanuel Fages told Reuters.

"For oil, as for carbon, price levels seem increasingly dis-connected from fundamentals," he wrote in a research note this week.

U.S. crude oil futures touched a 6-month high of $60.08 a barrel on Tuesday as traders focused on expectations of economic recovery rather than underlying inventory levels which are historically very high.

Many carbon analysts foresee a market surplus in EUAs in 2009 and 2010 as the global downturn has crippled Euro-pean industrial production, prompting them to reassess EUA demand.

A surplus in the scheme's first phase (2005-2007) caused EUA prices to crash to zero. Data from the EU executive Commission published in April showed that companies emitted more CO2 then their allocated EUA quota in 2008.

FUNDAMENTALS STILL WEAK

"From a fundamental macro-economic point of view, the news has continued to be unrelentingly negative over the last three months," Deutsche Bank analyst Mark. C. Lewis said in a report.





Lewis said utilities and speculators could start to buy EUAs before the middle of next year in anticipation of a tighter market in the third phase (2013-2020), when many installa-tions will have to buy a majority of their permits at auction.

"We think that EUAs will only start to reflect fundamentals when generators' Phase 3 compliance buying begins in ear-nest (mid to late 2010)," he said.

EUA prices have also not reacted as expected to recent bearish news, and that could affect an EU vision for a linked global market.

That could be a big plank of a new international climate treaty to replace the Kyoto Protocol after 2012, which faces a tight deadline for agreement in Copenhagen this Decem-ber.

"We have had some bad news like the Australia delay and low cement and steel output but the market has not paid attention to that," said Jean-Francois Cauvet, trader at France's Sagacarbon.

Australia announced last week it would delay the start of its trading scheme to July 2011 to ease the burden on indus-try during a recession.

"I think most analysts have missed why we've moved up to these levels. We could see some consolidation (and) drop-ping back to 13 or 14 euros is not impossible," said Fages.

In a recent report, Point Carbon analysts said prices are likely to fall again as utilities' hedging activity dies down. It forecasts an average EUA price of 12 euros for 2009.

Increased planting may tame sugar price boom By David Brough

LONDON, May 13 (Reuters) - Raw sugar futures, which have surged by over 30 percent this year, risk bolting higher on tight supplies, but growers are likely to respond to high prices by planting more cane which would prevent a price explosion.

Sugar prices have stormed higher as India, the world's top consumer, swung to a net importer from exporter after a dismal 2008/09 crop estimated by analysts at around 15 million tonnes, far short of domestic consumption of 23 million tonnes.

In 2007/08, India produced an estimated 26.5 million ton-nes of sugar, according to India's sugar mills group ISMA.

"Price is the best fertiliser," Jonathan Kingsman, managing director of Lausanne-based sugar and ethanol consultancy Kingsman SA, told Reuters Television on Tuesday.

"These high prices for sugar are giving extremely high re-turns for producers around the world and they will be look-ing to expand," he said.

Kingsman said he expected India to add 5-6 million tonnes of sugar output next season, compared to the 2008/09 season, in response to the high prices.

Benchmark ICE raw sugar futures, which touched a near three-year high of 16.03 cents per lb on Tuesday, eased on Wednesday to trade around 15.55 cents.

Traders said they recalled the rapid increase in plantings around the world after the last major surge in raw sugar futures to a 25-year high of 19.73 cents per lb in February 2006.

They said privately that 20 cents would be the next psy-chological target if the supply outlook tightened.

BULLISH MOOD AT SUGAR DINNER

The mood at the New York sugar dinner last week, a major gathering of industry leaders, was bullish overall, dealers said.

Some traders spoke privately in New York of potential for the market to power higher to a key chart-based resistance level of 47 cents per lb, but several participants were scep-tical that the market would rise that high.

Analysts said a supply shock could lead sugar prices to go much higher, but the market was likely to consolidate in the near term below Tuesday's peak.

"Sugar has got a story and it's one of the best stories among the commodities group," Kingsman, a high-profile figure in the global sugar industry, told Reuters Television.

He said a supply shock in Brazil, the world's top producer and exporter of the sweetener, could send prices soaring. Brazilian sugar mills are struggling financially due to the credit crunch.

"If things go wrong, prices will explode," Kingsman said.

Sterling Smith, senior analyst for brokers FuturesOne in Chicago, said that there was still good demand for sugar.

"India is kind of a moving target. The question is how much of an importer are they. Sugar is a magnet for spec money," he said.

Smith said there may be a pull-back in raw sugar prices to 14.75-14.25 cents per lb as the market retreats from its peak, but that the sweetener could regroup and march to-ward 15 and possibly 16 cents per lb in coming months.

The International Sugar Organization (ISO) this week raised its forecast for the 2008/09 global sugar deficit to 7.5-7.8 million tonnes, from a previous estimate of a 4.3 million tonne shortfall.

In a market report, the ISO forecast that sugar import de-mand for India would be 2.4 million tonnes in 2008/09 (October/September.)

On Reuters Television this week, sugar merchant Czarnikow predicted a 5 million tonne global sugar deficit next season, compared with Kingsman's forecast for a 2.5 million tonne deficit after a 12 million tonne shortfall this crop year.





InterOil says has strong interest for LNG project By Fayen Wong and Sharon Klyne

PERTH/MELBOURNE, May 13 (Reuters) - Canadian oil firm InterOil Corp has received strong interest from global oil majors and utilities to invest in its proposed $4.5 billion liquefied natural gas (LNG) project in Papua New Guinea, it said on Wednesday.

InterOil and its project partner, Pacific LNG Operations Ltd, are looking to sell a stake of between 20-35 percent in the project, as well as stakes in the upstream gas assets, In-terOil's Chief Executive Phil Mulacek said.

"People that want to have a strategic interest in Asia and who want to be LNG operators have been knocking on our doors," Mulacek told Reuters in a telephone interview from the PNG capital Port Moresby.

"We've got a premium quality onshore asset so a lot of the conventional LNG players and offtakers are interested in investing in this project."

Companies that have expressed interest include France's Total, Italy's ENI SpA, U.S. Marathon Oil, Thailand's PTT PCL, Japan's Mitsui & Co and Osaka Gas, said a banking source familiar with the deal who requested anonymity due to the sensitive nature of the process.

Mulacek declined to comment on the list of companies interested in participating in the project.

The joint venture partners are also looking to sell up to 35 percent of their gas assets, which comprise of the Elk and Antelope gas fields which will fully underpin the LNG ex-port facility.

Mulacek said a global energy major that has the ability to operate an LNG plant might consider a larger stake of around 25 percent or more.

Indicative bids are expected by June or July, he said.

Interoil currently holds an 87 percent stake in the project while privately-owned Pacific LNG Operations has 13 per-cent.

InterOil said in March the project would cost about $4.5 billion with targeted production of about 3.5 million tonnes a year, with shipments due to start in 2014.

Rotary Engineering eyes SE Asia, Saudi orders By Eveline Danubrata

SINGAPORE, May 13 (Reuters) - Singapore oil and gas in-frastructure services firm Rotary Engineering said it expects to maintain steady revenues in the second quarter and is bidding for projects in Southeast Asia and Saudi Arabia.

A slump in oil and gas prices has led energy firms to scrap projects and slow spending, but Rotary told Reuters it was bidding for projects over S$100 million ($69 million) that could add to an existing orderbook of S$360 million.

"We should stil be able to achieve the same kind of reve-nue," Rotary's Chairman Chia Kim Piow said in an interview on Wednesday, given S$250-S$280 million of its orderbook contracts were for this year.

Rotary reported earlier on Wednesday a 13 percent in-crease in first quarter revenue to S$131.9 million, but net profit fell 57 percent to S$4.3 million after provisions for debt.

Its shares were up 10 percent by 0830 GMT, outperforming a 0.5 percent rise in the broader Singapore market. Its share price has more than doubled this year.

Rotary has a market cap of $215 million and its existing projects include a petrochemical plant for ExxonMobil and a biofuel plant for Neste Oil.

Chia said he is confident of winning bids for both engineer-ing, procurement and construction (EPC) and construction projects in Indonesia, Malaysia and Thailand, as well as in Saudi Arabia. Project activity was "awakening" in the Mid-dle East, he said.

He said Rotary had nearly doubled its workforce in the past two years to 7,000 and could raise it further to 10,000, as it was looking to expand its construction business and make this account for 50 percent of revenues, up from around 30 percent.

Chia said China, where it currently does not have any pro-jects, is a difficult market to penetrate because state-owned enterprises might enjoy preferential treatment, especially in hard times. But it aims to break into China within two to five years.

"Our initiative is to use as many Chinese workers or engi-neers overseas, giving them exposure to international mar-kets and globalisation," he said. "We expect them to be different than the locals we'll be competing with in the fu-ture."

Rotary is also looking to invest about S$30 million into a waste-to-energy plant if an opportunity arises, as it sees potential revenue flow of S$20-S$30 million per year from treating waste and supplying energy.

Rotary had S$160 million in cash at the end of March.




Total reduced FCC rates at Port Arthur refinery NEW YORK, May 13 (Reuters) - Total SA reduced rates to a gasoline-making fluid catalytic cracking unit at its 174,000-barrel-per-day Port Arthur, Texas, refinery on Tuesday due to an upset, the company said in a filing with state regulators Wednesday.

In addition, the refinery boosted crude unit rates to help minimize emissions for the upset, the company said.

On Tuesday, the company reported cutting production rates to a gasoline unit and a diesel unit at the refinery on Monday due to a malfunction of a Shell Claus Off-gas treating (SCOT) unit.

Shell says most units at Deer Park at planned rates NEW YORK, May 13 (Reuters) - Shell Oil Co said on Wednesday that most operating units at its 332,000-barrel-per-day Deer Park, Texas, refinery are at planned rates after a power outage on Monday.

The units include the crude units, coker, gasoline-making fluid catalytic cracker and hydrotreater, Shell spokeswoman Chris Bozman said.

The refinery's hydrotreater will be restarted Wednesday and Thursday, she said.

Aramco restarts Riyadh refinery after maintenance AL-KHOBAR, Saudi Arabia (Reuters) - State oil firm Saudi Aramco has restarted its 120,000 barrels per day (bpd) Riyadh refinery following planned maintenance in the first quarter, Aramco said in a statement released on Wednesday.

The Riyadh plant was shut down for work towards the end of of the first quarter. The last time the refinery was completely shut down for maintenance was in 2003.

The refinery work included the addition of a new cata-lyst into the hydrocracking unit, the statement said.

Conoco to begin restart of several Borger units NEW YORK, May 13 (Reuters) - ConocoPhillips plans to restart several units between May 13-23 following maintenance at its 124,000 barrel-per-day Borger, Texas refinery, it said in an environmental filing on Wednes-day.

"Several units (50, 51, 9, 10, and 19) are scheduled for start-up on between 5/13/09 and 5/23/09. During the start-up there may be periods of high emissions," Conoco said in the filing with the Texas Commission on Environmental Quality.

It identified the units by their numbers only.

Pakistan says IPIC refinery plan on course DUBAI, May 13 (Reuters) - Abu Dhabi government-owned International Petroleum Investment Company's (IPIC) plan to build a refinery in Pakistan is on track, Pakistan's minister of investment said on Wednesday.

"I just had a meeting with IPIC two days ago and they told me the project is on track," Waqar Ahmed Khan told reporters at a news conference.

Executives from IPIC declined to comment. In January IPIC said it had delayed plans to set up a $5 billion refin-ery which will run 250,000 barrels per day in Pakistan.

Sinclair continues cleanup at Wyoming refinery HOUSTON, May 12 (Reuters) - Sinclair Oil Corp contin-ues to clean up a 65,000-barrel spill of "gasoline-grade material" from a storage tank at its 66,000 barrel per day (bpd) Sinclair, Wyoming, refinery, the company said on Tuesday.

The release of the liquid was discovered on May 3. The material was contained by secondary dikes surrounding the tank, Sinclair said.

An investigation is under way to determine the cause of the leak.

Total refinery workers out of hospital -company HOUSTON, May 12 (Reuters) - Five contract workers were released from the hospital just hours after becom-ing ill on Tuesday while working at Total Petrochemicals USA's Port Arthur, Texas, refinery, a company spokes-woman said.

Chemical detectors at the site where the workers were laboring before becoming ill have not revealed elevated levels of substances that would make the workers sick, said Total's Pat Avery.

Total has launched an investigation into the incident.

Samsung Engineering wins $1.2 bln Algeria refinery deal ALGIERS, May 12 (Reuters) - South Korea's Samsung Engineering has won a contract worth $1.2 billion to modernise Algeria's biggest refinery, Algerian state en-ergy group Sonatrach said.

The South Korean firm will complete rehabilitation and modernisation works at the refinery in the Mediterra-nean port of Skikda within 36 months, Sonatrach said.

The contract was worth 93.038 billion Algerian dinars ($1.2 billion), the Algerian company said on its Internet site, www.sonatrach-dz.com.

Harvest says Newfoundland refinery work complete CALGARY, Alberta, May 12 (Reuters) - Harvest Energy Trust said it has completed a major maintenance turn-around at its 115,000 barrel a day refinery at Come by Chance, Newfoundland and Labrador.

In its first-quarter earnings release issued late on Mon-day, the trust said it has wrapped up the maintenance work, which included at catalyst replacement in the hydrocracker and distillate hydrotreater, and regenera-tion of a platformer catalyst.

WEEKLY NEWS SPOTLIGHT: REFINERY NEWS

(Compiled by Commodities and Energy team in Bangalore; email:[email protected]; +91 80 6677 3545)



If you have not already registered and would like to receive future copies of this newsletter, please register at: https://customers.reuters.com/community/commodities/subscribe/

For more information: Send us a sales enquiry at: http://about.reuters.com/productinfo/salesenquiry/ Read more about our products at: http://about.reuters.com/productinfo/ Find out how to contact your local office: https://customers.reuters.com/Home/Default.aspx Access customer services at: http://www.reuters.com/customers Visit the Thomson Reuters Commodities & Energy Community Site at: https://customers.reuters.com/community/commodities/

Privacy Statement: To find out more about how we may collect, use and share your personal information please read the statement at http://thomsonreuters.com/business_units/financial/integration/privacy/ You may instruct us to remove you from our marketing programs by going to: www.thomsonreuters-mail.com/unsubscribe.cfm © 2008 Thomson Reuters. All rights reserved. Republica-tion or redistribution of Thomson Reuters content, includ-ing by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. "Thomson Reuters" and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies. Published by Thomson Reuters, Thomson Reuters Building, 30 South Colonnade, Canary Wharf, London, E14 5EP, UK 16329-04-06

Editorial Richard Mably (Global Editor, Commodities & Energy) +44-207-542-6280, [email protected] Alden Bentley (Editor, Commodities Americas) 1-646-223-6041, [email protected] Richard Valdmanis (Editor, Energy, Americas) 1-646-223-6056, [email protected] Camila Reed (Editor, Commodities and Energy, EMEA) +44-20-7542-8065, [email protected] Jonathan Leff (Editor, Asia Commodities & Energy) +65-6870-3836, [email protected]

Reuters Daily Commodities Brief · month highs in the previous session as renewed concerns over the...

Documents

Transcript of Reuters Daily Commodities Brief · month highs in the previous session as renewed concerns over the...