BENGALURU – Gold prices rose for a second straight day on Thursday as risk averse sentiment amid weaker oil prices drove up the demand for the metal, with a softer dollar and weakness in US Treasury yields also lending support.
Spot gold rose 0.5% to $1 252.41/oz at 0812 GMT. It rose 0.3% in the previous session, its largest intraday percentage change since June 6.
US gold futures for August delivery rose 0.6% to $1 253.30/oz.
“A softer US dollar and a risk-off bias following the recent declines to crude saw gold turn higher during Asian hours on Thursday,” MKS PAMP trader Sam Laughlin said in a note.
Oil turned lower on Thursday after posting gains earlier in the session as traders look ready to test new lows for crude prices with worries persisting over a global glut. [O/R]
“The uncontrolled oil price spill in the futures markets may have seen some traders pushing the risk aversion button and buying gold,” said Jeffrey Halley, senior market analyst at Oanda.
“The primary driver appears to be the flattening of the longer-dated US Treasury curve.”
The US Treasury yield curve flattened to almost ten-year lows on Wednesday as investors evaluated the impact of hawkish Federal Reserve policy on the economy even as inflation measures are deteriorating.
US home resales unexpectedly rose in May to the third highest monthly level in a decade and a chronic inventory shortage pushed the median home price to an all-time high.
Gold is highly sensitive to rising rates and yields, which increase the opportunity cost of holding nonyielding assets such as bullion while boosting the dollar, in which it is priced.
“Investors are waiting for any clues on whether the timing of the next rate hike is September or December,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Spot gold may bounce more into a range of $1 257 to $1 261/oz, as it has cleared a resistance at $1 251 according to Reuters technical analyst Wang Tao.
The US dollar index, which measures the greenback against a basket of six currencies, retreated from a one-month high of 97.871 set on Tuesday.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.04% to 853.98 tonnes on Wednesday.
Among other precious metals, silver gained 1% to $16.61/oz. Platinum touched its highest in a week during the session and was up 0.6% to $929.20/oz, while palladium slipped 0.8% to $880.99/oz.
Myanmar’s government currently collects much of the trillions of kyat generated by oil, gas, gemstones and other minerals each year, primarily through its state-owned economic enterprises (SEEs). In the face of such centralized control over revenue, many ethnic groups have long asserted their right to make decisions over resource management in their states. In fact, combatants in areas of active conflict and leaders from several ethnic minority parties—particularly those associated with Kachin, Rakhine and Shan states—have openly called for greater resource revenue sharing.
These appeals are only expected to get louder as the NLD forms a new government. In its election manifesto, the party promised to “work to ensure a fair distribution across the country of the profits from natural resource extraction, in accordance with the principles of a federal union.” This statement implies at least two things: First, that the party intends to transform Myanmar into a federation, where states and regions have true sovereignty over some government responsibilities; and second, that it intends to enact a natural resource revenue sharing system.
A resource revenue sharing system will undoubtedly be on the table during evolving discussions on federalism. However, as we have seen in other countries, these systems come with considerable risks. In the most extreme cases, such as Peru, they can actually exacerbate conflict, encouraging local leaders to use violence to compel greater transfers from the central government or gain control over mine sites. While these experiences are atypical, natural resource revenue sharing often leads to financial waste, local inflation, boom-bust cycles and poor public investment decisions.
Myanmar is particularly susceptible to these risks as overall resource revenues officially recorded in the budget remain small—due to smuggling, underreporting, weak tax collection, and revenue retention by SEEs, among other causes. This means that there are limits to how much revenue sharing can help affected communities without the government first putting effort into capturing a bigger share of profits for the state.
How much money is at stake today? According to conservative estimates from Myanmar’s first Extractive Industries Transparency Initiative (EITI) report, the government collected nearly 2.6 trillion kyat in oil and gas tax and non-tax revenue and another 442 billion kyat in mining revenues in fiscal year 2013/14. Together, oil, gas and mineral revenues made up 47.5 percent of government revenues (excluding the significant sums that SEEs retain for themselves) in the same year.
However, official revenue figures vastly underestimate the true size of the non-renewable resource sector. EITI figures only cover a portion of jade sales. And illegal mining and smuggling of minerals, especially jade, has been well documented. Some independent estimates put the true size of the mineral sector at more than 10 times official figures.
Currently, the 42 percent of resource revenues that are not retained by SEEs in their own so-called “Other Accounts” are pooled with other fiscal revenues in the Union budget. Some are then distributed directly to state and regional governments, which are responsible for financing local infrastructure, agriculture and some cultural institutions.
As part of the government’s effort to decentralize fiscal responsibilities, the amount of the overall budget allocated to all states and regions has increased in recent years, from 3.4 percent in 2013/14 to 7.6 percent in 2014/15 to 8.7 percent in 2015/16. The government now says that it is using population, poverty and regional GDP indicators to determine how much it gives each state or region from this pool of money.
Research from the Natural Resource Governance Institute’s (NRGI) new report “Sharing the Wealth: A Roadmap for Distributing Myanmar’s Natural Resource Revenues,” generally corroborates this claim, but with qualifications. Our research indicates that, in practice, the Union sends more money per capita to regions and states that have greater development needs, are conflict-affected, and whose politicians are more assertive. This year, for instance, Chin, Kayah, Tanintharyi and Kachin received the highest per capita allocations, while Ayeyarwady, Bago, Mandalay, and Yangon received the lowest.
But just because more money is going to states and regions does not mean that there is more accountability or that social services and infrastructure are improved relative to other parts of the country. Nor does this fiscal decentralization address local demands for greater autonomy over natural resource revenues.
Most state and regional officials still report to Union authorities in Naypyitaw. Furthermore, state and regional governments still have low capacity to develop and implement budgets effectively. This means that state and regional spending is not necessarily efficient or linked to a coherent economic development plan.
While true federalism—partial sovereignty for states and regions—would require constitutional reform, there are three steps the new government can take now to “ensure a fair distribution across the country of the profits from natural resource extraction.”
First, the government can start building national consensus on a natural resource revenue sharing formula. This way, all parties would have clarity on the issues and feel a sense of ownership over natural resource governance. This is the principle means through which resource revenue sharing can help stop violent conflicts. Indonesia spent nearly two years negotiating a resource revenue sharing deal with conflict-affected Aceh before coming to an agreement. The ongoing Union Peace Dialogue could be one forum for discussion of how a revenue sharing system could be administered. This discussion would not be a substitute for formal parliamentary and public discussions, but could support government efforts to build peace.
Second, the government could further decentralize by making state and regional politicians and officials accountable to local residents. It could also delegate resource management and expenditure responsibilities to these officials slowly, so they have time to learn how to perform these new roles. This can be done even without constitutional change. The Colombian and South African experiences offer some lessons for how decentralization can be achieved in unitary states (though neither case is an unmitigated success).
Third, the government could improve the transparency and oversight of natural resource revenues by cracking down on smuggling and illegal mining and publishing project-level information on all extractive projects. Without this information, state and regional governments cannot verify the value of minerals being extracted on their land and therefore cannot trust that they would receive their due under any revenue sharing formula. Myanmar could look to Bolivia and Mongolia, which lead the way when it comes to extractive sector transparency. For instance, the Bolivian government publishes, in a clear and understandable format, online data on transfers to and between subnational authorities and on hydrocarbon production by province, field and company.
Natural resource revenue sharing can be a key component of peace-building and decentralization in Myanmar. Mineral-rich Kachin, Mandalay, Sagaing and Shan, and onshore oil-rich Magway and Bago would undoubtedly benefit. Governments in other states and regions with pipelines that transport offshore gas may also profit. But unless done properly, resource revenue sharing can help perpetuate conflicts that have gone on for far too long.
Cape Town – South Africa is still catching up to the rest of the world when it comes to renewable energy for transport, according to Carel Snyman, the green transport senior manager at the South African National Energy Development Institute (Sanedi).
Snyman was speaking at a session on eco-mobility and the shift to public transport at the South African International Renewable Energy Conference.
“The idea is still that vehicles need to be powered by oil. I know with new programmes like the Bus Rapid Transport (BRT) systems it is alternative transport. But this does not address alternative energy use,” he said.
Snyman said when it came to burning energy inside an engine you had major losses in terms of heat.
Normal petrol-driven cars were not very fuel-efficient, with 64 percent of the fuel being used up in heat and only 20 percent going into the actual forward motion.
“The change in South Africa is not being pushed as it should be. But this is why I am happy that we have this first session in South Africa that focuses on renewable energy in transport,” he said.
He added that alternative transport using gas and electricity had been discussed with their partners, so the seed to grow renewable energy in transport in South Africa had been planted.
Sustainable Low Carbon Transport secretary general Cornie Huizenga said countries and cities were starting to regulate the use of cars.
“I live in Xinhua in China where since 1998 you need to bid for the right to drive a car,” he told the conference.
Huizenga said a car licence in Xinhua cost between $7 000 and $8 000 (about R105 000), a fee that generated close to a billion dollars a year.
He added that this type of income generated would be especially useful to further develop the BRT system in Cape Town.
Another issue to focus on was how to sustain a model of public transport in countries that were often under pressure.
“(With) public transport there must also be a focus on reducing the environmental footprint and making it as clean as possible,” he said.
Environmentally friendly electric vehicles were being looked at but Huizenga said this was not the only solution.
Transport contributed more than a quarter of CO2 emissions. Huizenga said this proved that more needed to be done around using renewable energy for transport.
Cape Town – The petrol price could drop by between 71 and 77 cents a litre next week, but the decrease could have been an additional 25c/litre had the rand remained stable, the Automobile Association (AA) said on Friday.
Commenting on unaudited fuel price data released by the Central Energy Fund this week, the AA said: “Petrol is set for a drop of between 71 and 77 cents a litre, diesel will be lower by 50 to 53 cents, and illuminating paraffin down by about 56 cents.”
It warned however that underlying fundamentals pose a threat to motorists. The weak rand is extracting a heavy toll on consumers, said the AA: “(The) rand’s weakness against the US dollar has been expensive for motorists; fuel prices would have dropped by an additional 25c/litre if our currency had remained at its late July levels.”
On Friday morning the rand was up 0.12% at R13.1400/$, extending its recovery after tumbling to an all-time low of R14.00 at the start of the week, while Brent crude for October gained 23c to $47.79.
International petroleum prices have recently reached six-year lows, and the AA is concerned over the trajectory the oil price could take when it reaches the bottom of the cycle. “If and when the oil price flattens out, or increases, motorists will be fully exposed to any rand weakness,” said the AA.
Overall activity in the oil & gas industry across the African continent has slowed in the wake of the declining oil price in late 2014.
“While the oil price has caused activity to drop, it has also served as a wake-up call to many African governments, which are working hard to pass favourable oil & gas legislation in order to attract investment into the sector,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader. Countries such as Kenya, South Africa and Tanzania have been taking a serious look at legislation currently in place with a view to making it more investor-friendly.
PwC’s ‘Africa oil & gas review, 2015’ analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging African markets. As oil prices declined in 2014, the industry response has been far-reaching with significant reduction in headcount and other cost cutting measures. Capital budgets have also been cut, and frontier exploration activity has decreased. “While response to such a drastic decline is necessary, we have seen the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices, which will inevitably come. Africa should be no exception as many of the frontier exploration plays lie on the continent,” adds Bredenhann.
As at the end of 2014, Africa has proven natural gas reserves of just under 500 trillion cubic feet (Tcf) with 90% of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
The main challenges identified by organisations in the oil & gas industry have remained largely unchanged with the top three issues of uncertain regulatory framework, corruption and poor physical infrastructure also identified as the biggest challenges in 2014. Uncertain regulatory frameworks remain a concern across the industry, with more than 80% of Tanzanian respondents regarding regulatory uncertainty as the top challenge facing the business. Other countries where respondents cited concern about regulatory uncertainty include Nigeria, Kenya and Angola.
The inadequacy of basic infrastructure ranked much higher in the current review than in 2013. Areas in which infrastructure remains limited are likely to see the development of existing discoveries stalled unless there is a domestic need for the resource.
Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years. “This is not surprising given the current uncertainty around the market,” says Brendenhann. “Fortunately industry players are looking beyond current prices when planning for the longer term.” The results of the report show that a high 90% of respondents expect the oil price to increase gradually over the next three years.
People skills and skills retention is rated the second most likely factor to impact business over the next three years. Community/social activism, instability and unstoppable political events, ranked fourth, are a noteworthy concern in the oil & gas industry. Organisations from South Africa, Mozambique, Nigeria and Kenya, in particular, expected community/social activism/instability and unstoppable political events to have a significant impact on their business.
Asset management and optimisation also remains a top strategic focus area for oil & gas companies over the next three years.
Financing and investing
After a rush of bidding rounds in 2014, 2015 and 2016 appear to be comparatively quiet with only a handful of bidding rounds expected. This is partly due to the flurry of bidding rounds in the previous couple of years and a consolidation of these agreements together with the lower oil price and lower interest to invest.
While it seems that the temporary meltdown is receding, African governments have shifted into gear to promulgate and ratify oil & gas regulations that are intended to encourage the monetisation of assets, while doing away with policy uncertainties.
Although merger and acquisition (M&A) activity was low in 2014/15, around one-fifth of respondents have been targeted, and a third of respondents has targeted or intends targeting companies for acquisition. This suggests that an increase in M&A activity can be expected in the near future.
Forty-one percent of E&P companies said that they would be investing in the development of drilling or exploration programmes, which is significantly lower than in 2014 when 70% reported this as a key strategic focus.
Combatting fraud and corruption
Over 98% of organisations indicated that they have an anti-fraud and anti-corruption programme in place – of these, more than 60% believe that the programme is very effective at preventing and/or detecting fraud. Only 8% of respondents indicated that they did not have a compliance programme.
Over 43% of respondents indicated that fraud and corruption would have a severe effect on their businesses. Government officials continue to be implicated in a number of fraudulent activities across the continent.
Recent research conducted by PwC shows that bribery and procurement fraud remain some of the top types of economic crimes in the broader energy, mining and utilities sectors. Despite pervasive fraud, some governments around the continent have made significant efforts to increase transparency in the industry.
Under the current economic climate, oil & gas companies are looking to increasing production potential through improving efficiencies and operational excellence. In addition, they are also looking towards exploration and finding new resources as an alternative for sustainability. A vast majority of respondents (71%) reported that they will be looking at formal cost reduction measures in the next three years. In as much as businesses are considering other measures to ensure their sustainability over and above monetising natural resources, they are also expecting the commodity price to increase in the future. And despite development in renewable and alternative sources of energy across Africa, respondents do not expect demand for these to have a significant impact on oil & gas businesses over the next three years.
The presence of an uncertain regulatory framework is one of the biggest issues in developing the oil & gas business in Africa. South Africa’s uncertain regulatory framework for the oil & gas industry is mainly due to unclear and overlapping mandates between the Government and state-owned companies. Furthermore, the enforcement of the Minerals and Petroleum Resources Development Act (MPRDA) has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the Act.
The facility would comprise 12 in-ground concrete tanks and was set for completion in the first quarter of 2017, Oiltanking MOGS Saldanha reported. MORE INSIGHT Oiltanking MOGS Saldanha Commences Front End Engineering Design of its Storage Terminal in Saldanha Bay, South Africa Ngqura liquid-bulk terminal storage, South Africa Grindrod moves to expand Richards Bay coal, magnetite terminal.
“The start of the front-end engineering design (Feed) is a major milestone and demonstrates significant progress for
the Saldanha Bay project,” the company, a joint venture between Grindrod subsidiary Oiltanking Grindrod Calulo Holdings and black-owned Mining, Oil and Gas Services, said on Wednesday.
The scope included the earthworks, as well as civil, mechanical and electrical components of the crude oil terminal and associated infrastructure. The Feed was estimated to be completed in six months and would immediately be followed by the construction phase.
The terminal in the Port of Saldanha Bay would be built as a state-of-the-art facility in accordance with the highest safety and environmental standards. The terminal would be connected to an existing jetty which could handle vessels up to very large crude carrier size. Oiltanking MOGS Saldanha was also at an advanced stage of securing the initial customer base load for the terminal.
Oiltanking MOGS Saldanha was also at an advanced stage of securing the initial customer base load for the terminal.
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South Africa hopes to restore energy ties with Iran, its energy minister said on Sunday, according to Iran’s Shana news agency, three years after international sanctions halted oil trade between the two countries.
“South Africa is aiming for a framework of cooperation with Iran regarding crude oil, liquefied natural gas, liquefied petroleum gas, gas and petrochemicals,” Tina Joemat-Pettersson was quoted as saying by Shana during a visit to Tehran. Print Send to Friend 0 “South Africa’s private sector can invest in various parts of Iran’s oil industry,” she added. Mohsen Ghamsari, director of international affairs at the National Iranian Oil Company (NIOC), said on Saturday that South Africa was hoping to import crude oil and other energy products from Iran, state news agency IRNA reported. South Africa bought around 68,000 barrels per day (bpd) of crude from Iran in May 2012.
Last September, Africa’s second-largest crude consumer expressed interest in resuming imports. Iran’s exports of crude have fallen to around 1.1-million barrels a day, from a high of 2.5-million barrels a day in 2012, as Western sanctions have made it difficult to find buyers. Iran is negotiating with world powers to lift sanctions in exchange for more stringent controls on its disputed nuclear programme.
Source: Engineering News
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