Greece will not be able to get the money still available under its current bailout plan if it does not agree the outline of a reforms-for-cash deal with creditors by the end of next week, a euro zone official said.
The message was conveyed to Greek government officials in a teleconference discussion of euro zone deputy finance ministers, the Euro Working Group, who prepare the meetings of euro zone finance ministers.
The institutions representing Greece’s creditors — the European Commission, the International Monetary Fund and the European Central Bank — said progress in talks with Greece was too slow and a deal was still out of reach, the official told Reuters, speaking on condition of anonymity.
The main points of contention remain a Greek pension reform, liberalisation of the labour market and the need for Athens to sell more state assets to generate cash — none of which the left-wing government of Alexis Tsipras wants to do.
“To get a disbursement by the end of June there would have to be some kind of an agreement by the end of next week, so that it would be finalised and approved by the EWG meeting on June 11 and then by the Eurogroup and in national procedures — it would all be very tight,” one euro zone official said.
“Basically if there is no agreement by the end of next week, it is impossible to have a disbursement by the end of June. The money is lost,” the official said.
Greece is currently entitled to get 1.8 billion euros that remain under its existing bailout deal. But the arrangement expires at the end of June and with it the legal possibility of disbursement.
The existing arrangement also gives Greece the right to use almost 11 billion euros for shoring up its banks, if needed. That money, which would form the basis of a new rescue programme, would also be lost, the official said.
“There was no discussion about extending the bailout beyond the end of June,” the official said, adding that Germany, Finland and Austria would find it difficult to ask their parliaments to extend the existing programme for the third time.
Greece’s ability to repay the IMF in June, notably the first, 300 million-euro instalment on June 5, was not discussed either on Thursday.
Source: Reuters (Reporting By Jan Strupczewski; editing by William Schomberg)
Euro MPs have called for transparent and public handling of trade disputes with the US, but they have softened their stance on much-criticised commercial courts.
The MEP panel’s report on EU-US free trade talks – called the TTIP talks – goes before the full European Parliament for a vote on 10 June.
A major European consumer group, BEUC, criticised the report, as did Green and socialist MEPs.
MEPs can veto an EU-US trade deal.
The stakes are high in TTIP – it could create the world’s biggest free trade zone, giving a much-needed boost to business on both sides of the Atlantic.
The parliament’s trade committee passed the package of recommendations by 28 votes to 13 on Thursday. A German Social Democrat, Bernd Lange, was the lead MEP who drafted report.
The American Chamber of Commerce in the EU called the report “a significant positive step of support towards the trade deal” and noted the EU’s “commitment to transparency and democratic principles as key elements”.
One of the most controversial aspects of TTIP is the investment rules. It remains unclear whether a foreign investor would have access to a system known as investor state dispute settlement, or ISDS.
Critics say ISDS tribunals lack transparency and can give too much leverage to powerful corporations in disputes with states.
The original draft of the MEPs’ report said fair, non-discriminatory treatment of foreign investors “can be achieved without the inclusion of an ISDS mechanism – such a mechanism is not necessary in TTIP given the EU’s and US’ developed legal systems”.
However, a later amendment dropped that mention of ISDS. It called simply for investment cases to be treated “in a transparent manner by publicly appointed, independent professional judges in public hearings”, with respect for national courts’ jurisdiction.
BEUC said that “deplorably” the MEPs “took a very ambiguous stance” on ISDS. “We have yet to see any facts justifying its inclusion in an EU/US trade deal. We hope MEPs when voting in plenary will demand the exclusion of this outdated, discriminatory and unneeded mechanism.”
And a leading Green MEP, Yannick Jadot, said the report “does not reflect the ever growing concern among the public and civil society with the TTIP negotiations and their overt corporate agenda”.
But British Labour MEP David Martin praised the report’s demand for “strong protection of labour and environmental rules” and “bringing an end to secret investor tribunals”.
The MEPs’ views influence the European Commission’s stance in the wide-ranging trade talks, covering issues such as food safety, data protection, trademarks and competition in transport and public procurement.
China will use its New Silk Road project stretching from Asia to Europe to boost use of its currency in trade that may total $2.5 trillion in a decade, according to the vice chairman of China Securities Regulatory Commission.
The so-called One Road, One Belt plan will link the world’s biggest user of energy and industrial metals to markets across Asia, Africa, the Middle East and Europe. China’s trade with countries along the route will boost the flow of raw materials and help promote the use of the yuan, said Yao Gang of the CSRC, which regulates the country’s derivatives, futures and commodities trading.
“The commodity market will grab this historic opportunity to help expand trade,” Yao said at a conference Thursday in Shanghai. “Countries along the belt and road have great resources, while China is faced with environmental pressure and increasing dependence on foreign supplies.”
China’s seeking to reinforce trade links as its promotes use of the yuan and open its own markets to international participation. The country vies for the top spot as the world’s biggest oil importer and gold consumer, and is the largest user of everything from industrial metals and iron ore to pork and soybeans.
President Xi Jinping unveiled plans to build a Silk Road Economic Belt and a maritime Silk Road two years ago, referring to an ancient series of land routes and shipping lanes that connected China to the Mediterranean Sea. China has initially set aside $40 billion in a fund last November to finance roads and railways abroad under the plan. Yao said Thursday that China’s trade with countries along the routes could reach $2.5 trillion in 10 years.
The yuan, which floats against the greenback, only accounts for about 1.8 percent of trade settlement globally and recent data have shown its expansion slowing. The International Monetary Fund this week dropped a long-held view that the yuan was undervalued, contradicting the U.S. assessment and strengthening China’s case for the currency to win reserve status at the lender in a coming review.
China’s factories struggled to expand in May despite recent interest rate cuts and other policy stimulus, a Reuters poll showed, suggesting the government may have to do more to halt a protracted slowdown in the economy.
The official manufacturing Purchasing Managers’ Index, or PMI, is forecast to inch up to 50.2 from April’s 50.1, according to the median forecast of 14 economists in the poll.
A reading above 50 points indicates an expansion in activity while one below that shows a contraction on a monthly basis.
“Although the government has unveiled a series of policy stimulus measures, the effect has yet to show up,” said Nie Wen, an economist at Hwabao Trust in Shanghai.
The flash HSBC/Markit PMI released last week showed factory activity contracted for a third month in May and output shrank at the fastest rate in just over a year, indicating persistent weakness in the world’s second-largest economy that requires increased policy support.
The private survey focuses on small and mid-sized firms, while the official one looks at larger, state-owned companies.
China’s annual economic growth slowed to a six-year-low of 7 percent in the first quarter, and recent data showed a further loss of momentum heading into the second quarter.
Economists at HSBC lowered their forecast this week for China’s 2015 GDP growth to 7.1 percent from 7.3 percent, and cut their export growth forecast to 4.2 percent from 7.1 percent.
“Weaker exports will weigh on corporate spending and sentiment. Meanwhile, policy easing is behind the curve, further cutting into investment growth,” they said in a research note. Given weak conditions, HSBC has doubled down on its projections for further policy easing this year.
It now expects the central bank to cut interest rates two more times this year, by a total of 50 basis points (bps), and slash banks’ required reserve ratio by a total of 250 bps in cuts to encourage more lending.
HSBC had previously forecast a further 25 bp cut in interest rates and 100 bps of RRR cuts for the rest of the year.
In a bid to spur growth and reduce borrowing costs, the central bank already has delivered three interest rate cuts since November, lowering the benchmark lending rate by 90 basis points, and cut bank reserve ratio by 150 bps this year.
Weighed down by a property downturn, factory overcapacity and high levels of local debt, China’s economic growth is expected to slow to a quarter-century low of around 7 percent
this year from 7.4 percent in 2014.
The PMI factory numbers will be released on Monday, June 1, alongside the official services PMI and the final HSBC/Markit PMI.
Source: Reuters (Reporting by Yixin Chen and Kevin Yao; Editing by Kim Coghill)
While Prime Minister Narendra Modi has been pitching India as a manufacturing destination globally with the Make in India initiative, export growth has been slowing in the past three years. India’s exports have declined not because of commodity prices falling but because of sluggish demand.
Resource-intensive exports have declined not just in terms of value but also in volume (see chart 1). Interestingly, domestic factors are responsible for half of the export slowdown, according to HSBC Global Markets Research (see chart 2), and the rest can be attributed to sluggish world growth and the exchange rate. That the impact of domestic bottlenecks has remained firm across the two periods since 2008 and 2012 is worrying.
While most economists are of the view that the government has made some efforts such as speeding up clearances and processes and allowing easier availability of credit for exporters, things have moved at a snail’s pace in the past year.
Domestic problems such as an electricity shortage continue to hamper export manufacturers. Sonal Varma, economist from Nomura Financial Advisory and Securities (India) Pvt. Ltd, said, “A textile company could get a large order inflow but if they don’t have power production, then they cannot operate at full capacity.”
Over two-thirds of Indian exporters are small producers and are unable to benefit from alternatives such as having a captive power plant. Other infrastructure issues such as rail, road and port connectivity are not keeping up with demands of the day, said HSBC in a research note dated 26 May.
Analysts say despite strong rhetoric, not much has changed on the ground in manufacturing. D.K. Nair, secretary general of lobby group Confederation of Indian Textile Industry, said, “In the capital-intensive segments of the textile industry like spinning, weaving and processing, cost of money is also an issue. Our interest rates are too high and the technology upgradation scheme, which was introduced to address cost of capital, is virtually non-operative now for lack of sufficient budget allocation.”
How important is the exchange rate in boosting exports? Chief economic advisor Arvind Subramanian on Tuesday spoke about how India needs a competitive exchange rate for manufactured exports to flourish. But a weak currency alone cannot boost exports. Inflation through increases in imported input costs and higher wages can easily offset the benefits gained from currency depreciation.
“Improving competitiveness by investing in infrastructure such as better connectivity through roads and ports, coal availability, labour reforms and flexibility in factor markets will aid in sustainable export growth,” said Nomura’s Varma.
In the world’s most pressing financial crisis, Greece’s potential default on its debt, the U.S. has adopted a quiet, behind-the-scenes role. That’s changing.
Until recently, President Barack Obama and his top financial advisers have made few public statements on Greece’s debt crisis, which threatens to drive the country out of the euro zone. Yet this week U.S. Treasury Secretary Jacob J. Lew voiced frustration over a stalemate in the talks between Greece and its European creditors.
“It’s a mistake to think that a failure is of no consequence outside of Greece,” Lew said in a speech at the London School of Economics on Tuesday. “We don’t know the exact scope.”
U.S. officials are mindful that European leaders, who have chastised Americans for meddling in the past, consider Greece’s debt an internal matter. They also recognize that the continent is better situated to resolve the dispute than is the U.S., after Europe’s experience weathering a succession of sovereign debt crises at the end of the last decade.
Germany, Greece’s primary creditor, has said it doesn’t want the situation discussed at a meeting of the Group of Seven industrialized nations next weekend near Munich.
“The United States has been pretty heavily involved from the beginning, but most of it has been behind the scenes,” said Edwin Truman, who was assistant Treasury secretary for international affairs under former President Bill Clinton.
The Treasury Department said that over the past week Lew had made two phone calls, on May 22 and May 27, to Greece’s prime minister, Alexis Tsipras, reflecting rising U.S. concern.
Greece is scheduled next month to repay about $1.7 billion in loans from the International Monetary Fund — where the U.S. is the largest shareholder — with the first payment due June 5. Plagued by unemployment and low tax revenue, the country doesn’t have the money and is negotiating with the European Central Bank, European Commission and the IMF for better terms to avoid default.
European leaders have publicly dismissed claims by Greek officials that a deal is near.
Failure to reach an agreement would drive yields higher on bonds issued by other “vulnerable” euro-area countries, the European Central Bank said Thursday. U.S. officials haven’t publicly sounded an alarm in the same way as in 2012, when Obama said that European debt crises of the time were a “cloud that’s coming over from the Atlantic.”
Prominent U.S. involvement in the earlier crises at times provoked a backlash. European finance ministers rebuffed then-Treasury Secretary Timothy Geithner’s entreaties to resolve their debts when he made an unusual appearance at a meeting they held in September 2011. Several openly criticized him for meddling.
The Obama administration’s leverage with key actors in the current Greek crisis is limited, and U.S. persuasiveness with European leaders has diminished as they’ve dug in on their positions, said Robert Kahn, a former IMF and U.S. Treasury official. That has dissuaded Obama from taking a more public role.
“Why make a public push and have it fall flat?” Kahn said by phone. “European views firmed up and hardened. The frustration with Greece grew over time.”
There is also less urgency than four years ago. The U.S. economy is better positioned to withstand external shocks. Europe itself has taken measures to protect its banking systems and financial institutions from risks in Greece.
Still, the Obama administration has misgivings about Europe’s approach to the standoff. There is “a lot of anxiety” within the Treasury Department that European leaders have grown overconfident and underestimate the danger of a Greek default, Kahn said.
That concern is beginning to surface.
“Brinksmanship is a dangerous thing when it only takes one accident,” Lew said in his London speech, his strongest public remarks yet on the negotiations. He warned European leaders against a “false sense of confidence” in maneuvers since 2012 intended to insulate their economies from Greece, such as the movement of most of the country’s debt from private financial institutions to euro-zone governments.
Lew has urged all sides to reach a deal quickly, Treasury officials said, warning that failure to do so would deepen Greece’s hardship and introduce broad uncertainty for Europe and the global economy.
The announcement of his two calls is itself a subtle way of signaling the Obama administration’s concern, Truman said.
“Has the Treasury secretary spent the same number of hours over the last six months on the telephone as Secretary Geithner did in 2010 and 2011?” Truman said. “I would be surprised if he hasn’t spent a lot of time on it.”
Greece’s benchmark Athens Stock Exchange closed down 1.7 percent on Thursday. It is impossible to know whether the June 5 deadline for the country’s first IMF payment marks the date at which Greece would default, because no one outside Athens knows exactly how much cash the government has on hand.
The news was bittersweet for Canada’s Northwest Territories.
While the region found out last week that its Canol and Bluefish formations hold Canada’s largest shale oil reserves, the slump in prices means no one’s drilling there any more.
Exploration in Canol shale costs three to four times more than in northeast British Columbia, as the remote region lacks roads and infrastructure, said John Hogg, former vice president of exploration and operations for MGM and current president of Skybattle Resources Ltd., a consulting company. A 500 to 800 barrel-a-day horizontal well may be profitable with oil at $75, he said in a phone interview Monday. Benchmark West Texas Intermediate oil traded near $58 a barrel Tuesday.
“What this really sets us up for is the long game,” Dave Ramsay, the territory’s industry minister, said in a phone interview from Yellowknife, late Friday. “People are noticing the assessment and the numbers are staggering.”
The formations, in the centre of the arctic territory, hold about 190 billion barrels of oil in place, more than any other shale play that has so far been assessed by the National Energy Board, the agency said Friday.
ConocoPhillips and Husky Energy Inc., two companies that were exploring the Canol, say they have suspended further work in the area after oil prices plummeted. In December, Chevron Corp. put on hold drilling in the Beaufort Sea, another blow for the territory.
The National Energy Board’s report pushes the Canol and Bluefish formations ahead of Alberta and British Columbia’s Montney shale, which holds 141 billion barrels, as well as the 71 billion barrels on the Canadian side of Bakken, Stacey Squires, an NEB spokeswoman, said in an e-mail Friday. Other Canadian shale formations, including the Duvernay, haven’t yet been assessed, she said.
Earlier estimates were that Canol and Bluefish held no more than 7 billion barrels in place, Mr. Ramsay said.
The amount of oil that could be recovered and sold wasn’t estimated as well-test results aren’t yet publicly available, the NEB said. The formation is most similar to the Permian Basin of Texas, which has a recovery rate of 3 per cent, the agency said.
Energy producers have been cutting capital expenditure as oil prices tumbled after the Organization of Petroleum Exporting Countries failed to reduce production quotas amid a surge of U.S. shale-oil production. WTI crude fell as low as $42.03 in March from last year’s high of $107.73 in June. It slipped $1.69 to settle at $58.03 a barrel on the New York Mercantile Exchange Tuesday.
ConocoPhillips doesn’t plan further exploration in the Canol shale play “for the foreseeable future” after drilling four wells in the 2013-14 season, Kristen Ashcroft a company spokeswoman, said in a May 24 e-mail.
While remaining part of the company’s “long-term growth portfolio,” Husky suspended its exploration plans in spring last year, Mel Duvall, a company spokesman, said in an e-mail Monday. The new assessment hasn’t changed the companies’ outlooks, Ms. Ashcroft and Mr. Duvall said.
In December, Chevron said it delayed indefinitely a project to drill in the Beaufort Sea because of “economic uncertainty.”
Another company that was exploring the Canol, MGM Energy Corp., said last year it suspended drilling after failing to find a partner to assist in funding further work. MGM was later fully acquired by Paramount Resources Ltd.
Enbridge Inc.’s 50,000 barrel-a-day pipeline extending from Norman Wells in the territories into Zama, Alta., isn’t sufficient for developing shale resources and a new pipeline would take 8 to 10 years to develop, said Mr. Hogg of Skybattle Resources.
While the drop in oil prices hasn’t helped, the biggest impediment in the NWT are the environmental assessments that create uncertainty for investors and are more burdensome than in other regions, such as Alberta, Mr. Hogg said.
“Most people will walk away because the risk of seeing a successful exploration project move to development is too high due to the regulatory current process,” Mr. Hogg said in a May 25 e-mail. “They really need reform of their process so that they have a clear line of site from exploration to production.”
OPEC will maintain its production target next week, Libya’s deputy vice prime minister said, joining Kuwait in predicting no policy change when oil ministers from the 12-member group meet in Vienna next week.
The output target will remain 30 million barrels a day, Mohammad Oun, Libya’s deputy vice prime minister for energy, said by phone Thursday from al-Bayda, eastern Libya. Oun will be part of Libya’s delegation to the June 5 meeting. OPEC is working on a long-term strategy draft to present next week that is likely to show projections of crude supply from non-OPEC producers are the same as those forecast in 2014, he said.
“The target number will not change,” Oun said. Libya is pumping 400,000 barrels of oil a day, state-run National Oil Corp. spokesman Mohamed Elharari said in a phone interview Thursday. That makes Libya the smallest producer in OPEC.
The Organization of Petroleum Exporting Countries will be meeting to decide on the group’s production target for the next six months amid a glut that sent prices down about 50 percent last year. Saudi Arabia, the group’s biggest exporter, led OPEC’s decision in November to maintain its output target to defend market share amid booming U.S. shale supplies.
Brent crude has climbed 7.3 percent this year with U.S. producers scaling back. It was trading at $61.50 a barrel on Thursday.
Libya joined Kuwait in predicting no change to policy after Abdulmajeed Al-Shatti, a member of Kuwait’s Supreme Petroleum Council, said on May 12 that the organization will “stick with” its present strategy. Kuwait is OPEC’s fourth biggest crude producer, according to data compiled by Bloomberg. Iran’s Oil Minister Bijan Namdar Zanganeh has only said it’s “unlikely” OPEC’s output ceiling will change, according to Mehr news agency.
The European Central Bank left the ceiling on emergency funding for Greek banks unchanged for the first time since February, maintaining pressure on Athens and its creditors to reach an aid-for-reforms deal.
The move came as deposit outflows spiked again in the past week over fears Greece may default on a loan repayment to the International Monetary Fund next month and worries over potential capital controls, bankers told Reuters.
A senior banker and a government official said liquidity conditions did not require raising the ceiling of the so-called ELA funding from 80.2 billion euros.
“The ECB will not be the one to unplug the respirator. It knows the tolerance and the buffers of the banking system and closely monitors the situation,” a senior banker said, declining to be named.
“It will lend support to any liquidity imbalance problem that emerges in the system, but will not provide comfort to the Greek state to play with its money via the ELA,” the banker added.
Greek banks have survived on the emergency liquidity assistance since largely losing access to capital markets and the ECB’s less costly main funding window. The started tapping ELA in February.
A banking source said the ceiling was left unchanged because deposit outflows had slowed to low levels, leaving a sufficient liquidity cushion untapped.
“This leaves an unused liquidity buffer of 3 billion euros,” the banking source said. “The reason for not raising the ceiling was that deposit outflows stabilized at very low levels.”
“An increase was not requested since the 80.2 billion euro ceiling is considered adequate following the stabilization of deposit outflows,” a Greek government official added.
While the ECB has been accommodating their liquidity needs, raising the ELA cap in increments, there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government.
The ECB declined to comment.
Greek bankers told Reuters deposit outflows accelerated over the past week as the protracted talks on worries of a debt default and capital controls.
Three bankers said outflows picked up in April to about 5 billion euros ($5.44 billion) from 1.91 billion euros in March, Official data on April deposits will be released by the Bank of Greece on Friday.
While the ECB has been propping up the banking system with incremental hikes in ELA each week, criticism of its stance has grown among the central bankers in its Governing Council.
The head of Germany’s Bundesbank criticized the ECB earlier this month, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn’t in the euro zone.
Hawks on the Governing Council have also pushed for raising the haircut – or valuation discount – on the collateral Greek lenders submit to draw ELA funding but there was no decision taken at Wednesday’s teleconference, the banking source said.
Increasing the haircut would effectively reduce the value of security that Greek banks can offer and consequently the amount of ELA they can draw down.
“The ECB is not raising the haircut as this could potentially create collateral-adequacy problems for Greek banks. It is indirectly pressing for the main objective – a reforms deal with creditors,” the senior banker said.
Beaten down bank shares were gaining more than 5 percent on Wednesday, with bankers saying the market was discounting a deal would soon be concluded.
A potential default by Athens on IMF loan repayments next month could be a trigger for the ECB to raise the haircut as it would signal a deterioration in creditworthiness.
Source: Reuters (Reporting by George Georgiopoulos, editing by Deepa Babington/Jeremy Gaunt)
Rating agency ICRA today said the Indian economy will grow in the range of 7.6-7.8 per cent in the current fiscal, despite the headwinds posed by muted global growth and an unfavourable monsoon outlook.
Two years post the currency crisis of 2013 and one year into the tenure of Prime Minister Narendra Modi’s government, moderation in inflation, external account vulnerability and the central government’s fiscal deficit have bolstered the Indian economy’s ability to withstand bouts of global volatility and fluctuation in investor sentiment, it said.
“The improvement in macroeconomic fundamentals reflects the policy actions taken by the government and the central bank, which have been supplemented by tailwinds such as benign commodity prices,” it said.
Higher government spending on infrastructure, simplification of clearances, easing of norms for foreign direct investment, continued reform momentum and further monetary easing of 0.5 per cent are expected to support a revival in investment activity in the current fiscal, led by sectors such as roads, urban infrastructure and freight corridors, it said.
Moreover, moderating inflation is expected to boost urban consumer demand, while rural demand may post an improvement, it said.
Nevertheless, it said, the pace of fresh investment in some sectors such as thermal power and steel is likely to remain sluggish on account of continuing constraints posed by the lingering sector-specific issues.
India’s current account deficit to print at 0.9 per cent of GDP in 2015-16, a substantial improvement from the alarming levels above 4 per cent of the GDP recorded in 2011-12 and 2012-13, it said.
While a recovery in domestic demand and investment conditions is expected to expand import volumes, lower average commodity prices would restrain growth in value terms, it said.
Notwithstanding the long-term benefits expected from the Make in India programme, and the government’s focus on improving ease of doing business, enhancing infrastructure and moderating inflation, muted improvement in global growth and the rupee appreciation will lead to modest economic growth of India, and act as a drag on overall economic expansion, it added.
It further said that “growth of gross value added (GVA) at basic prices is estimated to decline to 7 per cent in Q4 FY15 from 7.5 per cent in Q3 FY15, on account of factors such as crop damage caused by unseasonal rainfall, decline in growth of electricity, contraction in non-POL merchandise exports and moderation in the pace of expansion of central government spending.
Asian stocks closed mostly lower on Thursday, although a slight pause in the dollar and hopes of a Greek debt deal helped to cushion the impact of a major selloff in Chinese and Hong Kong shares. A weak yen and some solid economic data helped drive Japanese stocks to a fresh 15-year high, while Seoul shares posted modest gains after sharp losses the day before.
Chinese shares plunged on profit taking following recent sharp gains as more brokerages tightened rules on margin financing ahead of a wave of initial public offerings next week, including nuclear giant China National Nuclear Power that could freeze up to 5 trillion yuan of liquidity. The benchmark Shanghai Composite index closed down 321.45 points or 6.5 percent at a near one-week low of 4,620.27, snapping an eight-session winning streaking and posting its biggest single-day loss since January 19. Hong Kong’s Hang Seng index tumbled 626.90 points or 2.23 percent to 27,454.31, weighed down by the selloff in mainland shares.
Japanese shares extended gains for the 10th straight day to close at a fresh 15-year high, after government data showed retail sales jumped 5.0 percent in the year to April, marking the first increase in four months. However, that was less than forecasts for a 5.4 percent increase. The benchmark Nikkei average gained 78.88 points or 0.39 percent to finish at 20,551.46, marking its longest winning streak since a 13-day run in February 1988.
The broader Topix index rose 0.7 percent to close at 1,672.76, with sentiment aided by a weaker yen, which fell to a 12-year low versus the dollar on expectations that the Bank of Japan might take additional easing steps later this year, once the Fed starts tightening. Automaker Honda Motors advanced 1.7 percent after expanding its Takata-related recalls in Japan to 340,000 cars. Toyota Motor also rose 1.7 percent, Nissan Motor added 1.4 percent and Fuji Heavy Industries, the maker of Subaru cars, closed 0.8 percent higher.
Mitsubishi UFJ Financial Group, Japan’s largest bank, rallied 2.3 percent, Mizuho Financial soared 5.9 percent and Sumitomo Mitsui Financial climbed 2.8 percent. Electronics giant Sony Corp edged up 0.2 percent after buying the startup Optical Archive Inc. from Frank Frankovsky. Panasonic gained half a percent on reports it will roll out PV battery storage systems in Australia next week.
Australian shares gave up early gains after official figures showed that new private capital expenditure in the country fell by 4.4 percent sequentially in the first quarter of 2015, missing expectations for a 2.2 percent decline. On a yearly basis, private capital expenditure fell 5.3 percent, bolstering the case for further interest rate cuts later this year. The benchmark S&P/ASX 200 index closed down 12.2 points or 0.2 percent at 5,713.1, a one-week low.
Mining stocks turned in a mixed performance, with BHP Billiton losing half a percent while Rio Tinto advanced 0.6 percent, drawing support from a rise in iron ore prices overnight. Fortescue Metals rallied 3 percent after denying claims that it has set up a “secret” Singapore trading hub. Gold miner Newcrest Mining plunged 5.4 percent as gold hovered near two-week lows on a firmer dollar.
Oil & gas producer Woodside Petroleum dropped 0.6 percent and Santos declined 0.7 percent, while Oil Search closed 0.3 percent higher. Oil prices held steady in Asian deals after another round of losses overnight. In the banking sector, Westpac, NAB and Commonwealth fell between 0.2 percent and 0.8 percent, while ANZ rose 0.6 percent.
Seoul shares rebounded on bargain hunting after two successive days of losses. The benchmark Kospi average closed up 3.39 points or 0.16 percent at 2,110.89 after falling nearly 1.7 percent yesterday to close at a one-week low.
New Zealand shares rose modestly in the wake of firm cues from the U.S. and European markets overnight. The benchmark NZX-50 index gained 19.70 points or 0.34 percent to close at 5,777.64. Spark New Zealand recovered from the previous session’s losses, climbing 3.8 percent to $2.74, and retirement village operators Ryman Healthcare and Summerset Group Holdings rose 1-2 percent, while Fonterra Shareholders’ Fund eased 0.6 percent after lowering its 2014-15 payout by 10 cents to NZ$4.40 per kg. Pacific Edge paced the decliners on the exchange, falling 8.3 percent to 66 cents.
Elsewhere, Indonesian shares were little changed, Singapore’s Straits Times index was declining 0.2 percent and India’s Sensex was losing half a percent, while Malaysian shares were marginally higher and the Taiwan Weighted average rose 0.2 percent.
U.S. stocks rebounded from the previous session’s losses on Wednesday, as the dollar’s rally eased and investors grew more optimistic that Greece would avoid defaulting on its debt. The Dow rose 0.7 percent and the S&P 500 advanced 0.9 percent, while the tech-heavy Nasdaq rallied 1.5 percent to reach a fresh record closing high.
The dollar took a breather on Thursday after hitting its highest level against the yen since 2002, and stocks stuttered as high-flying Chinese shares tumbled and European officials downplayed talk of an imminent deal to keep Greece afloat.
Commodity markets rebounded as the dollar’s momentum waned and though the euro clung to hopes of an agreement on Greece, the bloc’s shares and lower-rated government bonds all lost ground.
A Greek government official had sparked speculation late on Wednesday that a deal had been drawn up. But a string of immediate denials by top European officials was followed by one from IMF chief Christine Lagarde as G7 leaders met in Germany.
“We are all in the process of working towards a solution for Greece, and I would not say that we already have reached substantial results,” she said in a German TV interview.
“Things have moved, but there is still a lot of work to do,” she said, adding that she believed Greece would fulfil its commitments.
Britain’s FTSE, Germany’s DAX and France’s CAC 40 were down 0.2, 0.4 and 0.5 percent respectively in early trading, Greek stocks dropped 0.7 percent, while yields on Italian, Spanish and Portuguese government bonds all rose.
But the euro was up for a second day, adding 0.3 percent against the dollar at $1.0935 after positive signs from Spain, where the economy grew at its fastest quarterly pace in over seven years in the first quarter as consumer spending recovered.
“There is a little bit of better sentiment towards Greece after we saw some reports yesterday of a deal,” said Manuel Oliveri, an FX market strategist at Credit Agricole in London. “Even if there is no confirmation, it shows to the market that some progress is being made.”
Asian trading overnight was dominated by a heavy tumble for Chinese shares which dropped almost 7 percent. It was their biggest fall since January but follows a 50 percent surge since March.
Regional investors cited several major brokerages tightening requirements on margin financing, which triggered fears of further regulatory steps to reduce leverage in the red-hot market.
Next week will also see more than 20 initial public stock offerings by new companies.
“The brokerages are front running what the regulator wants to do,” said Bernard Aw, an analyst at ING Markets in Singapore. “This is no longer an individual case, but an industry-wide campaign,” added Zhang Chen, an analyst at Shanghai-based hedge fund Hongyi Investment.
Hong Kong shares plunged 2.3 percent too and Australian shares also fell with the S&P/ASX 200 index losing 0.2 percent after weaker than expected business spending data.
Japan’s Nikkei bucked the downtrend as the weaker yen helped the index log its 10th consecutive rise, the longest winning streak since February 1988 to notch another 15-year closing high.
The dollar hit its highest level against the yen since late 2002, rising as high as 124.30 yen, and was slightly higher on the day in Europe at 123.96.
But with it lower against the majority of major currencies, commodity prices rose. Oil recovered after a two-day slide, with Brent futures up 0.7 percent to $62.50 a barrel and U.S. crude fetching $57.70 per barrel.
Gold was also higher at $1,190 an ounce having hit a two-week low of $1,183.76 in the previous session.
Source: Reuters (Additional Reporting by the Shanghai Newsroom; Editing by Hugh Lawson)
The Canadian oil patch is undergoing an existential moment as low oil prices have scared off investors and thrown the future of further oil sands projects into disarray.
The whisper mill says that Suncor’s Fort Hills will be the last of the multi-billion dollar mega projects the industry ever builds, said Arc Financial’s Chief Energy Economist Peter Tertzakian in a May report.
Long payback periods, uncertain returns, volatile oil prices and carbon baggage are no longer business-as-usual scenarios that can be inserted into corporate planning binders, Tertzakian said.
A mega project is defined as a facility with output of about 150,000 b/d.
With a nameplate capacity of 180,000 b/d and a capital expenditure of C$27 billion ($23 billion) over its 30-year life (including initial outlays, maintenance and sustaining capex and abandonment), the Fort Hills bitumen mining project falls into that category.
Along with Fort Hills, construction is also underway for two more mega projects in Canada: second phase of the in-situ Surmont oil sands in Alberta that will increase production capacity to 148,000 b/d; and the 150,000 b/d Hebron heavy oil project in offshore Newfoundland and Labrador.
All three facilities are due to be commissioned in 2017 and were sold to investors with a guaranteed a 15% return on investment.
Fort Hills will unlikely be the last of its kind, but future final investment decisions of its size will certainly be under scrutiny, said Woodmac analyst Michael Hebert, alluding to changing times politically and financially for Alberta’s oil sands patch.
After 44 years of the status quo, a new political party stormed into power in early May grabbing 54 out of 87 seats in the provincial legislature.
Rachel Notley, leader of the New Democratic Party and Alberta’s premier designate, is talking of a 2% increase in corporate taxes to an annual 12% and revising the existing royalty regime for the energy industry.
Without mincing words, she has also spoken about her government’s desire to stop backing TransCanada’s 830,000 b/d Keystone XL and Enbridge’s 525,000 b/d Northern Gateway crude oil pipelines, labelling them as long-standing ‘eyesores.’
With a gestation period of nearly 10 years, there is logic in Notley’s claim, as both export pipelines are still facing political hurdles and are miles away from being built.
On the investment front, Alberta’s oil sands producers have cut back on nearly 1.3 million b/d of new output planned by 2020 in light of the low price environment.
The reduced investments have meant more than 4,500 layoffs since Christmas and an additional 23,000 jobs lost as a result of lower drilling activity.
The situation is also not made any better with oil and gas producers planning to invest some C$46 billion ($41 billion) in 2015, down C$23 billion compared with last year, according to a Canadian Association of Petroleum Producers forecast.
In a further sign of waning industry interest, earnings from the province’s auction of Crown oil and gas drilling rights and lands yielded just C$3.03 million on its May 14 sale – the lowest in a single auction in three years, compared with revenues of C$3.54 billion and C$1.11 billion in 2011 and 2012, respectively.
“So far this year, the near-term reality is that oil and gas revenues are down 45%; royalty is down by half; and cash flows have evaporated to levels not seen since the early 2000s,” Tertzakian said.
Consequently, Canada’s oil and gas industry is bifurcating into two camps: strategic companies that are able to adapt to lower prices; and those that cannot (or do not know how), Tertzakian said.
Not coincidentally companies with deep pockets, like ExxonMobil and Suncor, can wait out low prices, but there are a number of smaller players who don’t have such luxury.
An example of how some producers are coping with the challenges was in hand last week when oil sands start-up and junior player, Southern Pacific Resources, said it was it going into ‘hibernation’ mode for its 12,000 b/d STP-McKay in-situ project in Alberta, rather than mothballing the project.
Hibernation, or turning off the steam and pressure entirely in the underground reservoir, is unheard of in the oil sands sector and is a signal of desperate times for the producer.
“The hibernation plans are thorough and are intended to enable preservation of the assets for an extended period, if required,” Southern Pacific said.
“With the current low-priced crude market, the property continues to generate negative cash flow and thus this measure was deemed necessary to preserve capital.”
With a growing number of major players unveiling mounting first quarter financial losses – and Tertzakian warning the upstream industry as a whole will not make money for the first time since 1998 – the time is right for Alberta’s producers to rethink about its next round of mega projects, if they want them at all.
Venezuela and Russia’s top oil producer, Rosneft, have agreed on around $14 billion in investment in the South American OPEC country’s oil and gas sector, President Nicolas Maduro said.
Maduro said he met with the chief executive of state-owned Rosneft, Igor Sechin, earlier on Wednesday, in the company of PDVSA President Eulogio del Pino and National Assembly boss and Socialist Party No. 2 Diosdado Cabello.
“We had a great meeting and agreed on investment of over $14 billion,” said Maduro during a televised broadcast, adding the funds would go toward doubling Venezuela’s oil production.
PDVSA has formal ambitious targets to double national production to 6 million barrels a day by 2019, with 4 million of that projected to come from the Orinoco Belt, but few industry experts or foreign investors expect those goals to be met.
Speaking at a Socialist Party event broadcast on state television, Maduro did not provide a breakdown of the investment plan, and it remained unclear who would fund it.
PDVSA and the Venezuelan Oil Ministry did not immediately respond to requests for details. It was not immediately possible to contact Rosneft.
Fresh investment would be a boon for cash-strapped Venezuela, which is seeking to ramp up oil output to counter an economic crisis and the recent tumble in oil prices.
Russia was also tipped into crisis by last year’s sharp drop in oil prices, which was compounded by Western sanctions for the annexation of Crimea and alleged support for rebels in eastern Ukraine, causing sharp falls in the value of the rouble currency.
Rosneft and PDVSA signed a new contract for supplies of oil and oil products of Venezuelan production, the Russian company said in November. The document envisages the supplies of over 1.6 million tonnes of oil and 9 million tonnes of oil products to Rosneft within five years.
PDVSA said on Twitter the two countries on Wednesday had agreed to “create companies together” to boost crude production, adding both nations want to expand crude extraction in the oil-rich Orinoco Belt, where Rosneft already has joint ventures with PDVSA.
The Venezuelan company said in a statement later on Wednesday Rosneft had proposed increasing its stake in the Petromonagas joint venture from the current 16.7 percent to reach 40 percent, the maximum allowed for a foreign partner in oil joint ventures in the South American country.
Source: Reuters (Reporting by Alexandra Ulmer and Eyanir Chinea; Editing by Cynthia Osterman and Leslie Adler)
The key to an energy boom is simple: Build a technology to get at the oil and gas that geologists already know is trapped in various subterranean, or subsea, formations.
The fracking boom in the U.S. is the obvious example. Extracting seabed methane hydrate is another huge bet—energy-starved Japan has made that.
Saudi Arabia could be next to use new technology to get at currently trapped gigantic reserves of oil and gas. A small pilot project about to get under way is the energy market equivalent of a moonshot, but it could allow a Saudi fracking boom to move one step closer to reality.
All over the world, there are naturally fractured oil and gas reservoirs called carbonite formations, and no region has as much oil and gas trapped in carbonate formations as the Middle East. Carbonates are areas of sedimentary rock—limestone, for instance—that contain many natural cracks inside them.
Carbonite formations are estimated to hold 60 percent of the world’s oil and 40 percent of the world’s gas reserves. In the Middle East, roughly 70 percent of oil and 90 percent of gas reserves are trapped in the carbonite, according to oil services giant Schlumberger.
In hydraulic fracturing, water and other chemicals are injected underground through a well bore to extract oil and gas. The norm today is to use hydraulic pressure on a huge volume of undirected fluid, mostly water, to actually crack open the earth.
Extracting oil and gas trapped in carbonate formations has been done through a process known as acidization. Water mixed with hydrochloric acid (it’s about an 85 percent water solution) is pumped into a well bore and then branches out into the carbonate formation and etches patterns in the rock formation—think of an image of roots underneath a tree.
But the conventional approach has some big problems. The acid may not make contact with areas of the rock formation that need to be dissolved in order to access trapped oil and gas. In other cases, the acid might just wash along the inside of the well bore and not make it out into the rock formation itself.
Higher recovery rate, lower cost
Enter Fishbones, a Norway-based oil services start-up founded by Rune Freyer, a former Schlumberger executive who is considered a technical wizard in the oil business.
“Rune is a genius,” said Richard Spears,v.p. at oil and gas services consultant Spears and Associates. “He has an incredible history of developing really cool technology for oil fields,” he said.
Over the next six months, Fishbones plans to complete installations of its technology in Saudi Arabia for a client it can’t disclose.
Oil services company Baker Hughes estimates Saudia Arabia is fifth in the world when it comes to recoverable gas reserves. Much of that is in carbonate formation. What Saudia Arabia doesn’t have is a lot of water, which you need in fracking. Fishbones technology uses 95 percent less fluids and is designed for recovering oil and gas from carbonate formations.
Emma Richards, an oil and gas analyst with London-based BMI Research, said, “Saudi Arabia has an absolute dire need for gas. They want to shift their power more toward gas-based sources so they can free up oil for exports. One of the big areas they’re targeting is gas reserves in carbonate formations, and they’ve been investing quite heavily over the last few years in R&D in different kinds of fracturing technologies.”
The problem with gas recovery in Saudi Arabia mirrors some of the shale-fracking problems of the U.S.: Production costs are high, while sales costs are low. So gaining access to a technology like Fishbones potentially means higher recovery rates and boosted production at a lower cost, which improves sales.
The Saudi project is the most intriguing, but Fishbones is at work on additional projects in Norway and Texas.
“These are reservoirs that are found all over the world,” said Kevin Rice, the Houston-based North America region manager for Fishbones.
In Norway, it is working directly for Norway oil and gas giant Statoil, which is an investor in Fishbones.
“When it comes to the advancement of technology, Norway and the Middle East are right there,” Spears said.
A 2014 pilot project in Texas—an installation in the Austin Chalk Formation—was backed by a group called the Joint Chalk Research group based in Denmark. The members of this group are BP, ConocoPhillips, the Danish North Sea Fund, Danish state-owned oil company Dong, Hess, Maersk, Royal Dutch Shell, Statoil and Total.
In a Fishbones system, pipes containing needles are connected together as they’re installed in horizontal or vertical well bores. When the solution of water and acid is pumped through this piping system, the pressure of the solution pushes the needles out into the rock formation underground. Those needles, which extend 40 feet in four directions from the main well bore, create tiny tunnels in the rock known as laterals.
After about five hours, the acid is done being pumped, and what’s left underground is a large system of lateral tunnels—not to mention the main well bore—from which oil and gas can be pumped. It’s for this reason the company is named Fishbones, since the end result of what it creates resembles the skeletal structure of a skinned fish, with the main well bore representing the spine and the lateral tunnels representing the fish’s ribs. By pushing acid deep into carbonate formations while creating lateral tunnels, Fishbones ensures that acid comes into contact with more of the natural cracks within carbonate formations.
“Creating the laterals is something very new that we’ve introduced,” Rice said. “It’s a simpler process to get access into the formation. It’s more accurate because you’re controlling where it goes.”
Fundamentally different yet promising
It’s still too soon to say whether Fishbones succeeds in the market. Although it was founded eight years ago, the company is only now beginning to commercialize its technology, having installed two pilot systems in 2013 (in Indonesia) and 2014 (the Austin Chalk project). But some who study the fracking industry think Fishbones’ approach shows promise.
“You can be hitting natural fracture systems that don’t interact with the well bore. It’s exactly the thing that we need in the extraction industry these days to strategically access resources,” said John McLennan, an associate professor in the department of chemical engineering at the University of Utah. “You’re focusing your efforts; you’re not overusing your treatment fluids. Ultimately, something like this could be successful.”
Spears said that in the U.S. and Canadian shale plays, the companies are using what amounts to “a very large sledgehammer” on a big frack job.
“You need to move a lot of rock and crack a lot of rocks open a thousand feet away from the well bore,” he said. “The approach to these big frack jobs is not appropriate for big lush reservoirs that something a little more precise might address,” Spears added.
Fishbones’ approach to the natural fractures and permeability in rock is attempting to do something fundamentally different than what the industry does, Spears said, and even though the oil and gas business is a high-risk one, these kinds of innovations can take a lot of time to be embraced, if ever.
“We’re not saying forget hydraulic fracturing,” Rice said. “But we have a specific niche in the market where we fit well. … And we have a unique way to tap into that market.”
“This is an industry that, even though it’s made up of gamblers, we aren’t gamblers. We do something once and wait a year to see how it worked out,” Spears said, adding, “There will be some market for it. I just can’t tell how big that might be.”