U.S. Trade Gap Hits Low on Weak Petroleum Imports

The Commerce Department said on Tuesday the trade gap fell 22.4 percent to $34.2 billion, the smallest since October 2009. The percentage decline was the largest since February 2009. The shortfall on the trade balance was $44.1 billion in May.

When adjusted for inflation, the gap narrowed 17 percent to $43.2 billion, the smallest since January 2010. The deficit in June was far smaller than the government had estimated in its advance gross domestic product report last week.

Economists, who had expected the trade gap to narrow only to $43.5 billion in June, said second-quarter GDP growth could be revised up to as high as an annual pace of 2.5 percent from the 1.7 percent rate initially estimated by the government.

"Today's surprise implies a significant upward revision to second-quarter GDP," said Laura Rosner, an economist at BNP Paribas in New York. "Our calculations suggest an implied revision of roughly plus 0.8 percentage point and our tracking estimate of second-quarter GDP growth is now 2.5 percent."

Economists had on Friday raised their growth estimates for the April-June period by a tenth of percentage point after data on factory orders showed a slightly higher pace of inventory accumulation in June than the government had assumed in its advance GDP growth estimate.

If economists' assumptions are correct, the faster pace of economic growth could bring the Federal Reserve closer to scaling back its massive monetary stimulus program.

Economists expect an announcement on the future of the Fed's monthly bond purchases in September.

Trade subtracted 0.8 percentage point from second-quarter GDP growth, according to the first government estimate.

The three-month moving average of the trade deficit, which irons out month-to-month volatility, fell to $39.5 billion in the three months to June from $40.5 billion in the prior period.

The dollar briefly trimmed losses against the euro and the yen on the trade report. Stocks on Wall Street were lower in thin volume as investors focused on corporate earnings, while Treasury debt prices were flat.

DRAGS ON GROWTH EASING

Belt-tightening in Washington and weaker global demand weighed on the U.S. economy in the first half of the year, but analysts expect activity to regain momentum for the rest of 2013 as the fiscal policy burden eases and growth in Europe picks up.

The trade report offered a fairly decent hand-off to third-quarter U.S. growth and suggested the drag on exports from sluggish overseas growth was starting to lift, which was recently highlighted in manufacturing surveys, economists said.

Exports of goods and services increased 2.2 percent to a record $191.2 billion. The gain in exports was broad-based, with food, industrial supplies, capital goods and consumer goods rising. Motor vehicle exports, however, fell in June.

Strong export growth helped to lift the economy out of the 2007-09 recession and signs of a pickup after faltering in recent months should buoy expectations of an acceleration in GDP growth in the last six months of this year.

"There are signs in this report of an easing of the weakness in activity abroad, which we think has been a headwind for U.S. manufacturing," said John Ryding, chief economist at RDQ Economics in New York.

"Though still below year-ago levels, exports to the EU are falling at a slower rate than earlier this year and exports to both Pacific Rim countries and South America picked up in June."

U.S. exports to the 27-nation European Union rose 1.5 percent in June. Exports to the EU in the first half of the year were down 5.5 percent compared to the same period in 2012.

Exports to China increased 4.5 percent in June. They were up 4.2 percent for the first six months of 2013. There was a jump in exports to Brazil and the United Kingdom.

In June, imports of goods and services fell 2.5 percent to $225.4 billion. The drop was almost across the board.

It reflected hefty declines in petroleum imports and industrial supplies and materials, which tumbled to levels last seen in November 2010.

The drop in petroleum imports shows the U.S. is making strides in reducing its dependence on foreign oil, a trend that economists said could help to curb the nation's trade deficit.

Some, however, were skeptical the trade deficit would remain lower and expected a bounce back in July.

"This level of improvement is unlikely to be sustained, and we expect the weak global economic backdrop and rising energy prices to result in a modest widening in the deficit in the coming months," said Millan Mulraine, senior economist at TD Securities in New York.

(Reporting by Lucia Mutikani,; Editing by Andrea Ricci)

Mountain of Petroleum Coke From Oil Sands Rises in Detroit

Detroit’s ever-growing black mountain is the unloved, unwanted and long overlooked byproduct of Canada’s oil sands boom.

And no one knows quite what to do about it, except Koch Carbon, which owns it.

The company is controlled by Charles and David Koch, wealthy industrialists who back a number of conservative and libertarian causes including activist groups that challenge the science behind climate change. The company sells the high-sulfur, high-carbon waste, usually overseas, where it is burned as fuel.

The coke comes from a refinery alongside the river owned by Marathon Petroleum, which has been there since 1930. But it began refining exports from the Canadian oil sands — and producing the waste that is sold to Koch — only in November.

“What is really, really disturbing to me is how some companies treat the city of Detroit as a dumping ground,” said Rashida Tlaib, the Michigan state representative for that part of Detroit. “Nobody knew this was going to happen.” Almost 56 percent of Canada’s oil production is from the petroleum-soaked oil sands of northern Alberta, more than 2,000 miles north.

An initial refining process known as coking, which releases the oil from the tarlike bitumen in the oil sands, also leaves the petroleum coke, of which Canada has 79.8 million tons stockpiled. Some is dumped in open-pit oil sands mines and tailing ponds in Alberta. Much is just piled up there.

Detroit’s pile will not be the only one. Canada’s efforts to sell more products derived from oil sands to the United States, which include transporting it through the proposed Keystone XL pipeline, have pulled more coking south to American refineries, creating more waste product here.

Marathon Petroleum’s plant in Detroit processes 28,000 barrels a day of the oil sands bitumen.

Residents on both sides of the Detroit River are concerned that the coke mountain is both an environmental threat and an eyesore.

“Here’s a little bit of Alberta,” said Brian Masse, one of Windsor’s Parliament members. “For those that thought they were immune from the oil sands and the consequences of them, we’re now seeing up front and center that we’re not.”

Mr. Masse wants the International Joint Commission, the bilateral agency that governs the Great Lakes, to investigate the pile. Michigan’s state environmental regulatory agency has submitted a formal request to Detroit Bulk Storage, the company holding the material for Koch Carbon, to change its storage methods. Michigan politicians and environmental groups have also joined cause with Windsor residents. Paul Baltzer, a spokesman for Koch’s parent company, Koch Companies Public Sector, did not respond to questions about its storage or the ultimate destination of the petroleum coke.

Coke, which is mainly carbon, is an essential ingredient in steelmaking as well as producing the electrical anodes used to make aluminum.

While there is high demand from both those industries, the small grains and high sulfur content of this petroleum coke make it largely unusable for those purposes, said Kerry Satterthwaite, a petroleum coke analyst at Roskill Information Services, a commodities analysis company based in London.

“It is worse than a byproduct,” Ms. Satterthwaite said.“It’s a waste byproduct that is costly and inconvenient to store, but effectively costs nothing to produce.”

Murray Gray, the scientific director for the Center for Oil Sands Innovation at the University of Alberta, said that about two years ago, Alberta backed away from plans to use the petroleum coke as a fuel source, partly over concerns about greenhouse-gas emissions. Some of it is burned there, however, to power coking plants.

The Keystone XL pipeline will provide Gulf Coast refineries with a steady supply of diluted bitumen from the oil sands. The plants on the coast, like the coking refineries concentrated in California to deal with that state’s heavy crude oil, are positioned to ship the waste to China or Mexico, where it is burned as a fuel. California exports about 128,000 barrels of petroleum coke a day, mainly to China.

Tony McCallum, a spokesman for the Canadian Association of Petroleum Producers, played down the impact of Keystone XL. “Most of the Canadian oil earmarked for the U.S. Gulf Coast is to replace declining heavy oil imports from Mexico and Venezuela that produces the same amount of petcoke, so it doesn’t create a new issue,” he wrote in an e-mail.

Much of the new coking investment has gone into refineries in the Midwest to allow them to take advantage of the oil sands. BP, the British energy company, is building what it describes as the second-largest coke refinery in Whiting, Ind. When completed, the unit will be able to process about 102,000 barrels of bitumen or other heavy oils a day.

And what about the leftover coke? The Environmental Protection Agency will no longer allow any new licenses permitting the burning of petroleum coke in the United States. But D. Mark Routt, a staff energy consultant at KBC Advanced Technologies in Houston, said that overseas companies saw it as a cheap alternative to low-grade coal. In China, it is used to generate electricity, adding to that country’s air-quality problems. There is also strong demand from India and Latin America for American petroleum coke, where it mainly fuels cement-making kilns.

“I’m not making a value statement, but it comes down to emission controls,” Mr. Routt said. “Other people don’t seem to have a problem, which is why it is going to Mexico, which is why it is going to China.”

“One man’s junk is another man’s treasure,” he said. One of the world’s largest dealers of petroleum coke is the Oxbow Corporation, which sells about 11 million tons of fuel-grade coke a year. It is owned by William I. Koch, a brother of David and Charles.

Lorne Stockman, who recently published a study on petroleum coke for the environmental group Oil Change International, says, “It’s really the dirtiest residue from the dirtiest oil on earth,” he said.

Rhonda Anderson, an organizing representative of the Sierra Club in Detroit, said that the mountain’s rise took her group by surprise, but it had one benefit.

“Those piles kind of hit us upside to the head,” she said. “But it also triggered a kind of relationship between Canada and the United States that’s allowed us to work together.”

Woodside Petroleum Cancels Onshore L.N.G. Project in Australia

Global energy companies have invested $140 billion in six L.N.G. plants in just two and one-half years as Australia has increased production on its way to becoming the largest exporter of the gas in the world.

But investors’ interest in the sector in Australia has cooled recently because of huge costs overruns and in the face of rising competition from North America, where huge new supplies of gas have been tapped from shale.

Woodside’s canceled onshore project, called Browse, had been expected to export enormous amounts of liquified gas to Asia. The shelving of Browse as an onshore plant could spell an end to new onshore gas projects in Australia in favor of offshore plants that can be built at a lower cost and face fewer environmental and landowner hurdles.

“This decision will surprise few, as the proposed onshore development always looked too economically, technically, environmentally and socially risky for too little reward,” analysts at the bank Macquarie said in a research note.

Woodside also appears to be pivoting its focus toward North America, confirming Friday that it had lodged an expression of interest in developing a Canadian L.N.G. project.

Browse was to be Woodside’s biggest such onshore L.N.G. development yet, but it had been plagued by controversy over its proposed location at James Price Point on Australia’s northwest coast, coming under fire from environmentalists and some indigenous landowners.

The site is home to the world’s largest dinosaur footprints and sacred Aboriginal sites.

Peter Coleman, the chief executive of Woodside, said any new development would have to provide significant cost savings, adding: “Our customers are saying to us very clearly, ‘No longer can we pay for your expensive projects.”’

Many in the industry consider a floating L.N.G. plant to be the most likely fallback plan.

Analysts at JP Morgan have estimated that a floating project would mean a 20 percent saving in costs, resulting in a capital expenditure of $35.5 billion, versus $44.6 billion for the onshore development option.

Estimates of the cost of the onshore plant vary, but some analysts had said it could be as much as $48 billion.

Of seven L.N.G. plants under construction in Australia, all of which are due to come online in 2014 or later, four have already announced budget blowouts ranging from 15 percent to 40 percent.

Woodside owns a 31 percent stake in Browse, which it is developing with Royal Dutch Shell, BP, PetroChina, Mitsui and Mitsubishi.

Shares in Woodside, which has a market value of about $30 billion, rose 3 percent on expectations it would develop a less expensive option, but Chiyoda of Japan, which has a contract for the Browse project, tumbled 11 percent.

Building a floating plant in Asia and towing it into place off the coast of Western Australia would be likely to save billions of dollars in construction costs.

Earlier this month, Exxon Mobil and BHP Billiton disclosed plans to build the world’s largest floating L.N.G. vessel off northwestern Australia, producing six million to seven million tons of liquified gas per year, starting in 2020 or 2021.

Browse had been aiming for 12 million tons per year.

Shell, which owns 24 percent of Woodside, has not publicly supported a floating L.N.G. plant for Browse, but Ann Pickard, chairwoman of Shell Australia, has backed floating L.N.G. plants as a good solution for the problems with high costs in Australia.

Ms. Pickard has also championed the plants as a way for Australia to make revenues faster, though unions and politicians in Australia are worried about job losses from going offshore.

Another joint venture partner, PetroChina, said Friday that it was still deciding whether it would invest in Browse and that it was studying the project’s feasibility.

Prime Minister Julia Gillard said the decision had been a commercial one and was not the end of the nearly decade-long boom in resources in the country.

“We haven’t seen the peak of the investment phase into resources yet. And we are yet to see the peak of the production phase,” Mr. Gillard said in Sydney. “So we will be seeing the resources boom at work in our economy for a long time to come.”

Fair Game: A Shareholder Challenges an Occidental Petroleum Move

Or it was until mid-February, when a bit of boardroom weirdness erupted at Occidental Petroleum, the oil and gas exploration and production company based in Los Angeles and one of Mr. Romick’s holdings.

On Feb. 14, out of the blue, Occidental issued a terse, two-paragraph news release. In it, the company announced the creation of a search committee to identify possible successors for Stephen I. Chazen, the C.E.O. It was the first that shareholders had heard about replacing Mr. Chazen, and Mr. Romick said he felt that there was more to the story than Occidental stated.

Then a Wall Street Journal article pointed to boardroom intrigue at the company and suggested Mr. Chazen was being pushed out. Mr. Romick took action.

“I don’t disagree with the idea that there has to be better succession planning at the company,” Mr. Romick, 49, said last week, “but it was putting the wrong guy out to pasture.” The right guy, he contended, would have been Ray R. Irani, the executive chairman of Occidental’s board and its chief executive before Mr. Chazen for 21 years.

Dr. Irani, 78, has ignited controversy at Occidental before. When he was C.E.O., his rich compensation was criticized, and three years ago, 53 percent of Occidental shares voted at the annual meeting rejected the company’s pay policies. A group of shareholders also threatened to mount a proxy fight to oust four independent directors at the company. Afterward, in 2011, Dr. Irani stepped down as C.E.O., and Mr. Chazen took over.

The current plan is for Dr. Irani to retire altogether from the company in 2014. But when the board released its surprise succession statement regarding Mr. Chazen, some investors became concerned that removing him would allow Dr. Irani to postpone his exit. Trying to tamp down this speculation, the company in early April denied any boardroom strife and said Dr. Irani would retire next year, on schedule.

“This is not the time to ask Dr. Irani to step down,” said Dale Petroskey, a spokesman for Occidental. “He can help to ensure continuity and good execution during this period of transition.” He declined to make any board members available for comment.

Nevertheless, the boardroom imbroglio has drawn investor scrutiny to Occidental’s directors just ahead of its annual meeting on May 3 in Santa Monica, Calif. Under its bylaws, any board member who does not receive support from a majority of voted shares has to resign.

Mr. Romick is among the investors who say it’s about time that Occidental’s board is scrutinized. Its directors are among the most highly paid in corporate America: the nine current directors who served for all of 2012 received an average of $640,000 in annual compensation, most of it in stock.

Aziz D. Syriani, 71, is the lead independent director. The C.E.O. of the Olayan Group, a global trading, services and investment organization, he received stock and cash worth $879,000 last year as an Occidental director.

This year’s proxy statement says the board as a whole met five times in 2012. (The audit committee, which Mr. Syriani heads, met eight times.)

“There is no justification for what they earn,” Mr. Romick said. Moreover, the rich pay may induce directors to put managements’ interests ahead of shareholders’, he said.

Mr. Petroskey of Occidental disagrees. “Directors’ compensation is primarily based on an annual stock grant,” he said. “While the directors have not voted themselves an increase in the amount of shares awarded in the annual grant in more than a decade, the value of the grant has increased in recent years due to the very strong performance of Oxy stock.”

Then there is the lengthy tenure of Occidental’s directors — an average of 12 years. Mr. Syriani has served since 1983, which raises questions among some investors about whether his allegiances lie more with the company than with shareholders. As an April 7 research report by Deutsche Bank noted, under governance guidelines in Britain, such longevity would deem the Occidental board “not independent.”

Mr. Petroskey noted that the New York Stock Exchange, where the company’s shares trade, has no such measure of independence. “There are advantages to having a long-serving director with deep knowledge of the company and its operations,” he said. “The board is united under Mr. Syriani’s leadership on continuing to make the difficult but necessary decisions to move this company toward a strong future.”