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15 August 2015

Press review 15-08-2015 - The dolldrums

It is the middle of August, it is a holyday in much of Europe, but also weekend and most folk are away on vacation. The media is mostly concerned with the influx of refugees, that now occupy traditional holiday destinations. The Brent index hardly moved, staying flat throughout the week at 49 $/b, just an hair off the January lows.

China budged its currency in response to internal economic difficulties ever harder to hide. In the same day the media reported actions by the Chinese Central Bank to depreciate and appreciate the Renminbi. The worrying thing is that apparently this was actually the case.

This review is just a short roundup on the some of the issues followed in this space the last year. Starting by Ukraine, where the Kiev government slowly derides and finds it increasingly difficult to keep its territory together.

Al Jazeera
Reaching the endgame in Ukraine
John Batchelor, 05-08-2015

The major concern in Berlin, Paris and Moscow is that the often violated cease-fire along the Donbass front will collapse. This is why the sudden concern for Shyrokyne, where both sides have massed first-rate troops and weapons systems.

The Kremlin understands that a return to the heavy fighting of last winter will give the U.S. and NATO proof that Russia has decided to crush Kiev.

On the other hand, Kiev understands that the longer the cease-fire continues, the more likely it is that the Donbass will be empowered as a Russian protectorate, either by voting or by the facts on the ground.

Also, Kiev knows that there is a larger risk than just losing control of Crimea and the Donbass. Other regions of the remaining state, such as the Russian-sympathetic Odessa province and the Russia-hating neo-fascist cults in western Ukraine, along the border with Poland, may go their own way rather than remain part of a weakened Ukrainian state.
Another bloody week in Iraq, where on a single day the civillian death toll hinged on 100. Some of the media convey reports on the employment of chemical weapons by the Islamic State. A war with no end in sight in one of the last bastions of "cheap oil".
Radio France International
L'Irak, «Vietnam du XXIe siècle»
Anne Bernas

« C’est un système qui s’est effondré […] La situation aujourd’hui est catastrophique, la reconstruction à zéro. » L’affirmation est sans appel pour Myriam Benraad. L’Irak est au fond du gouffre, et les répercussions se font sentir dans la région tout entière, voire à l’échelle mondiale. Parce qu’il n’y a pas de vision commune entre les membres de la « coalition arabo-occidentale », la guerre risque de perdurer encore des années. « L’Irak, c’est le Vietnam du XXIe. Un véritable bourbier qui va s’étendre sur des décennies », analyse-t-elle. Des guerres par procuration se jouent sur le terrain irakien et, plus récemment, sur le terrain syrien. En effet, l’Iran, l’Arabie saoudite, la Turquie, le Qatar, et même la Jordanie ne peuvent emmener l’Irak vers la stabilisation puisque que tout laisse à penser qu'ils jouent leur rivalité sur ces deux terrains, avec toutes les conséquences qu’on connaît. « Ce qui se passe en Irak (et aujourd’hui au Yémen) est dans une large mesure une guerre d’influence et de contrôle dans laquelle les Irakiens dans leur pluralité sont plus souvent les objets que les sujets », analyse l'anthropologue Hosham Dawod. « Il n’y a pas de coalition, renchérit Myriam Benraad, il y a des intérêts qui sont très divergents, il y a des calculs qui sont extrêmement cyniques. Et tout cela se fait au prix de milliers de morts depuis 2003. La guerre d’Irak marque un basculement du monde. »

Le Moyen-Orient ne serait-il que le reflet d’une crise mondiale beaucoup plus profonde ? Pour la spécialiste, la réponse est affirmative. « Nous,[Occidentaux, ndlr] sommes aussi le problème du Moyen-Orient », dit-elle. La donne est complexe : l’EI n’est pas seulement une simple mouvance terroriste ancrée au Moyen-Orient. Il suffit de constater la contagion de ce mouvement à l’échelle globale, ses nombreuses recrues en Occident. « Tout cela renvoie ainsi, également, à une crise mondiale beaucoup plus profonde, et à notre propre crise, politique, morale. »
The news of bankruptcies in US energy sector are becoming more frequent and affecting considerably larger companies. In some cases they are not even directly related to the so called "shale oil" industry.
Rig company Hercules Offshore files for bankruptcy
Daniel J. Graeber, 14-08-2015

Rig company Hercules Offshore announced it filed for bankruptcy as part of a financial restructuring effort in an era of lower crude oil prices.

"We are working toward a new capital structure which will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the down cycle in crude oil prices," Hercules President and Chief Executive Officer John T. Rynd said in a statement.

In its quarterly report filed last month, Hercules said its net operating days in the United States declined by more than half year-on-year and the average day rate to lease a rig declined from $108,237 during second quarter 2014 to $92,538.

Internationally, Hercules recorded an operating loss of $40.5 million compared with income of $6.7 million in second quarter 2014. The company posted a first quarter net loss of $57.1 million, compared to net income of $19.9 million during the first quarter of 2014.
And not only with petroleum, natural gas companies are also going under, leaving behind fat numbers in losses. Closing the third quarter of the year, September should see this sort of news accelerate further.
Wolf Street
Big Natural Gas Driller Bites Dust, ‘Smart Money’ Gets Crushed
Wolf Richter, 11-08-2015

Natural gas driller Samson Resources is planning to file for Chapter 11 bankruptcy by August 15, when a $110 million interest payment comes due on $2.25 billion of senior unsecured junk bonds, Bloomberg reported, citing “two people with knowledge of the matter.” Samson doesn’t have the money, can’t pay, and won’t pay.

The 9.75% bonds maturing February 2020 aren’t traded anymore. The last trade was on July 29 for a quarter of a cent on the dollar. They’re part of the vast high-yield bond pile, and they have become worthless. These kinds of bonds are nicknamed “junk” for a reason.

Stockholders – private equity firms, the ultimate “smart money” – are getting wiped out too.

Samson was acquired in 2011 by a KKR-led group of private equity firms for $7.2 billion. They invested $4.1 billion of equity in the deal. Debt piled on the company made up the rest. Then Samson went on to drill this cash into the ground to produce lots of natural gas and sell it below cost, losing money all along. Now its cash is running out, and new cash to drill into the ground isn’t readily forthcoming.
Returning to China, there is one more information bit on the Chinese steel industry. Production stills has a good way down to go, dragging with it coal consumption and naturally CO2 emissions. This can evolve into one of the most important stories of 2015.
China Steel Flood Deepens as Mills Face Slowing Local Demand
Martin Ritchie and Jasmine Ng, 09-08-2015

China is shipping ever more steel into world markets as its economy slows, leading to lower prices, reduced earnings at global producers and more trade disputes.

Mills in the country that produces half the world’s steel are maintaining output as domestic demand falters, exporting the surplus. Overseas sales surged 9.5 percent to 9.73 million metric tons in July, the highest level in six months, customs data released on Saturday showed. Exports expanded 27 percent to 62.13 million tons in the first seven months, the highest ever for the period, according to data compiled by Bloomberg.

China’s shipments are about the same as output in Japan, the world’s second-biggest producer, World Steel Association data show, and Credit Suisse Group AG says they that have reached extraordinary levels. Citigroup Inc. raised its forecast for net steel shipments from China to 100 million tons this year from 79 million last year, according to a report on Monday.
The cost of PV electricity continues breaking records at an amazing pace - there seems to be one every month or so. This time is a purchase agreament in Saudi Arabia was inked for 0.044 €/kWh; within European standards, this is a price unreacheble to any newly-built fossil fuel power plant today.
Another Low-Solar-Price Record: Saudi Electric Company Lands Solar PPA Under 5¢/kWh
James Ayre, 12-08-2015

Solar energy prices are continuing to fall rather rapidly around the world, but especially in the Middle East, as evidenced by a new deal that will see the Saudi Electric Company develop a 50 megawatt (MW) solar energy project that already has a power purchase agreement (PPA) secured for 0.1875 Riyals ($0.049) per kilowatt-hour (kWh).

[...] As Saudi Arabia is currently aiming to invest upwards of $109 billion into solar energy in the coming years — as a means of keeping up with growing electricity demand, and as a means of decreasing local oil use (thereby increasing exports) — it’ll be interesting to see how low future PPAs in the region can get.
Also record lows to register for Wind power in the US. Beyond the wind resource, this country has one of the best solar resources in the world, and should start tapping electricity for less than 0.05 $/kWh in the following months. Soon enough these cheap electricity sources will be forbidden there too.
With Wind Prices at a Record Low, Is the Clean Energy Revolution Upon Us?
Lauren McCauley, 11-08-2015

With the amount of wind-generated power in the United States reaching record highs and its cost dropping to new lows, two Department of Energy reports released Monday suggest that the renewable energy revolution might be upon us.

According to the 2014 Wind Technologies Market Report, wind saw the most growth of any power source in the U.S. last year with total installed wind power capacity reaching a total of 65.9 gigawatts (GW) in 2014—enough capacity to power over 17.5 million homes.

Further, the study found, the cost of wind energy reached an all-time low last year, falling to 2.35 cents per kilowatt hour (kWh), making this renewable resource competitive with so-called traditional power sources across much of the U.S.
And next week is my turn to go on vaccation. To where I am going there is no internet connection, therefore there will be no new posts for a while.

Thanks for reading. See you by September the latest.

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