VERY THIN PROSPECTS FOR OIL, GAS EXPLORATIONS: Issue 18 Jan 21, 2013

 benham rise

By Rene Pastor

An acrimonious dispute with regional giant China has effectively stymied oil exploration in the South China sea, forcing the Philippines to turn to drill or explore in other areas for possible oil and gas deposits.

The two areas are the Benham Rise region in waters off the eastern portion of the main island of Luzon and the other is the Sulu Sea region near oil- producing areas of Malaysia and Brunei in the southern part of the Philippines. There is no sure thing about the two areas though. In fact, drilling in the Sulu Sea region has been downright discouraging.

Benham is a plateau-like area rising off the sea floor in waters near the island of Luzon. In April 2012, the Philippines’ long campaign to win international recognition of control over Benham succeeded when the United Nations recognized the claim.

Unlike the Spratlys, there was no coral speck for the Chinese to claim since the entire Benham Rise is under water. It was also conveniently located on the eastern side of Luzon Island so there was no one to challenge Manila’s claim to the area.

What is the crude oil or natural gas potential of Benham? Nobody knows.

The Philippines now wants to conduct a seismic survey of Benham, which in some parts is only 50 meters deep, to see if there are possible oil or gas deposits there worth drilling for. Energy department officials in Manila said four companies have offered to conduct the survey.

At the least, it would take 3-5 years for a full assessment of Benham’s potential to be finished. If something is found, a few more years would be needed to develop any deposits found there.

Sulu Sea, on the other hand, is complicated. Exploratory wells drilled by oil majors Exxon Mobil and Shell Exploration were so discouraging they quit on the area. The big boys are gone.

The Sulu Sea is bounded on the west by the long, slivery island of Palawan, on the north-northeast by the central Visayan islands, and Mindanao island directly east.

To the south is Malaysia, but for practical purposes the Sulu Sea region is an inland sea as it is surrounded by Philippine territories. It is an area safe from claims by acquisitive powers like China.

The company Total and several other smaller firms plan to drill five wells in the Sulu Sea region in 2013. A Philippine Energy Department report says the region has shown significant hydrocarbon potential. Shorthand, there is possibly oil in the area, but finding the big deposits is another question.

These are the two prime areas where the Philippines will have to explore for oil and gas in the years ahead.

Unless some company discovers an elephant-size oil find, the Philippine energy exploration sector will have slim pickings for 2013 even though crude prices remain high and oil companies are looking everywhere for new oil/gas deposits. With the South China Sea area under virtual lockdown, there are precious few areas in the Philippines which would pique the interest of oil exploration firms.

USDA data’s bullish impact lingers; Chinese livestock demand strong

By Jack Scoville, The Price Futures Group

The USDA issued its annual reports a week ago, and it created quite a reaction in the marketplace — and with good reason. The reports showed much stronger than expected domestic use for grains and especially for corn and wheat.

The quarterly stocks numbers were the big surprise on the reports. We as traders get weekly data on the use of grains for ethanol and for the export sales, but feed and residual demand can only be derived from the quarterly stocks reports.

Traders had anticipated less demand for feed due to reduced populations of hogs and cattle, but this did not appear. The drought in the U.S. Great Plains has actually increased feed demand as there is little in the way of grazing land with grass or hay in good condition in that area. Plus, animal weights have been higher as producers seek to get the most meat per animal out of the herds. The demand, especially from places like China, is just very strong.

Prices for corn and wheat should remain relatively strong for the next few months. Corn is not available yet from South America or South Africa, and the wheat will have to wait until June or July to see a measurable increase in available supply as we must wait for the harvest in northern countries. A big increase in supply is not guaranteed even then.

So much depends on the weather and high production around the world. That was the other message of the crop reports. And there is no guarantee that the weather will be good right through the U.S. summer and into the fall. It has not been good the last few years and climate change implies that there will be some pockets of problems as we move ahead.

The U.S. Great Plains remains very dry and the wheat crop in Texas, Oklahoma, and Kansas is in poor shape. Argentina has seen both weather extremes. It rained too much at wheat harvest and corn planting, causing a big loss in quality for the wheat and delayed planting in corn. It is likely that some corn area there got switched to soybeans and that there will be less corn available from Argentina.

Brazil, on the other hand, is in mostly good condition with adequate rains in the south and maybe even too much rain in some northern areas. We are also hearing of potential problems in Russia although that area could get better. Northern China has seen some extreme cold that could hurt wheat production. So, for now, there does not seem to be any reason to look for lower prices.

Prices can move quite a bit lower later this year if the weather gets better and growing conditions improve. However, prices also have the chance to explode higher if the weather stays bad and production is poor. End users should maintain a longer than normal position as we move forward.

Soybeans have held relatively well as demand for U.S. products has been strong. This trend might be about to change. Brazil appears to have strong production this year, and what was lost in wheat and corn in Argentina could mean increased soybean production there. So, the current higher soybeans prices could start to weaken as we move through February and into March and as the crops in South America find their ways into export channels.

Philippines’ biggest gold producer to pay fine for mining accident

The biggest  gold and copper producer in the Philippines, Philex Mining, has agreed to pay at least $25 million (1.034 billion pesos) after an accident at its mine caused contaminated tailings to spill into a river on northern Luzon island.

Philex said in a statement it will cooperate with government regulator Mines and Geosciences Bureau (MGB), which ordered the company to pay the penalties.

“We will work closely with the MGB on this, as we welcome its decision that the amount to be paid would be used for remediation and rehabilitation of the affected areas,” Michael Toledo, senior vice president for Corporate Affairs at Philex Mining, said.

In a letter to Philex Mining President and COO Eulalio Austin, MGB Acting Director Leo Jasareno reiterated the bureau’s earlier decision for the company to pay the penalty over the August 1 accident.

Philex Mining voluntarily suspended operations at its Padcal Mine in Benguet on Aug. 1, when there was an accidental discharge of nontoxic sediment from its Tailings Pond No. 3 in Itogon town, following heavy rains brought about by two successive typhoons.

Jasareno said the money will be remitted to the Mine Wastes and Tailings Reserve Fund, which will be used to compensate for damages caused by the spill and  rehabilitation of areas affected by the accident.

Philex was also asked to submit a workplan on how withdrawals from the Fund could be used, Jasareno said in his two-page letter.

Mining in the Philippines has ground to a virtual standstill due to strong opposition from tribal groups and the influential Catholic Church. The government is now wrestling to come up with revised rules to allow mining to go ahead in one of the most mineralized countries in Asia, with large deposits of industrial metals such as copper and nickel, and precious metals like gold.

Philex Mining, the biggest gold producer in the Philippines, recently said it is studying the possibility of reopening a mothballed mine due to the continued strong rise in gold prices.

Gold prices have climbed every year for the past 10 years. At the end of 2001, the price of the yellow metal was under $300 an ounce. Now, it stands above $1,600 per ounce at the end of 2012, and market players are talking about the price springing to the psychological $2,000 an ounce level.

Gold is normally used by investors as a hedge in volatile economic conditions, luring safe-haven buying from investors leery of stocks, bonds or treasury notes.

Palm oil outlook: Demand will hold in many regions

By Jack Scoville, The Price Futures Group

Soft demand weakens palm oil prices, but interest should soon pick up

Palm oil has been the weak sister of the oilseeds complex over the last few weeks. Much of the problem has been from the demand side. Palm oil production has seen its seasonal increase in Malaysia and Indonesia so production has been big, but for normal reasons. Both countries have kept export taxes low or have waived them in order to keep prices low and the exports flowing.

But China has changed its quality specifications and the flow of palm oil to that country has dropped. The good news is that Chinese officials have begun to visit the exporting countries and to get the issue worked out so the palm oil can start moving. They need it for biofuels and for human consumption, so the issues will get resolved soon.

Then, just last week, India imposed an import tax of 2.5 percent on vegetable oils imports. The good news for palm oil is that the tax was not selective, that is, the tax did not apply to some products like palm oil and not others like soybean oil. It was for all vegetable oils. That implies that palm oil will remain the lowest-priced alternative. There has been some selling as well due to the economic situation in Europe and the U.S., where palm oil is used for industrial uses.

The worry has been that this industrial demand will drop due to the situation in both areas. Southeast Asian production should be at a seasonal peak and should start to drop. We think that the Indian demand will hold well and that Chinese demand will return sooner rather than later. We also think that the demand concerns for Europe and the U.S. are a little overdone and that demand will hold in both regions of the world.

So we are not demand bears here. Palm oil seems to be trying to form a bottom on the charts right now. It will take moves above 2,400 ringgit and 2,500 ringgit per ton on the weekly charts to confirm the low. The targets for the bulls if and when that happens will be 2,800-2,900 ringgit first, with eventual targets of 3,200 to 3,300 ringgit.

Vietnam rice exports to surge in Q1 2013

The Vietnam Food Association said first quarter rice exports by the country are seen jumping almost 40 percent to 1.4 million metric tons.

The VFA said Vietnam will export 400,000 tons each in January and February, and the amount will hit 600,000 tons in March.

The export comes after a record setting 2012 when a total of 7.7 million tons of rice was exported by Vietnam’s farmers. Vietnam rice stocks now total about 1 million tons, the government said.

The Southeast Asian country is the world’s third biggest exporter of rice. It is a rival of top rice exporter Thailand. Among its chief customers is the Philippines, the world’s biggest rice importer.

Vietnam 2012/13 coffee production seen falling 30 pct

Coffee production in the 2012/13 season is expected to fall 30 percent in Vietnam, the world’s No. 2 coffee producer, due to poor weather, industry and official estimates said.

“Coffee production in 2012-2013 crop year is likely to decrease 30 percent over the previous year,” according to the Departments of Agriculture and Rural Development.

In 2011/12, Vietnam’s coffee production hit 1.5 million tons.

The industry group Vietnam Coffee and Cocoa Association said coffee flowers in the 2012-2013 crop year bore small and round fruits.

“Even in clean and sustainable coffee-growing model plantations, less fruits have been born than last year. Also, the time of the harvest is in the rainy season with high humidity. This is a good chance for insect development which is harmful to coffee production. Currently, many coffee area (are in) danger of mealy bug diseases,” it said.

The government said coffee yields in the top growing province of Daklak in 2012/13 stood at 24.27 kg per hectare, down by 0.88 kg, and coffee production was estimated to be 465,000 tons, down by 22,748 tons from the previous season.

“The main reason for this yield and production reduction is unfavorable weather conditions, especially hard rains when coffee (trees were) flowering,” an agriculture ministry statement said.

The key coffee-growing districts of the province including Ea H’Leo, Krong Pak, Krong Nang, Krong Buk, Buon Ho town this year are all in severe drought, causing coffee productivity and production to likewise decline.

Currently, most of the coffee beans in the province have begun to ripen. The province authority has directed the local businesses to focus on protecting coffee plantations to hit the ripe bean rate of 90 percent or above so that the quality of coffee can meet export requirements.

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