Energy Discussion

FX News Limited
01.23.08

BEIJING (XFN-ASIA) - Coal prices on the Chinese spot market are unlikely to rise above the 75 usd/ton level reached at the end of 2007 and the beginning of 2008 amid government calls for coal producers to stabilize prices, said Citigroup analyst Thomas Wrigglesworth.

Because of concerns about rising inflation, coal enterprises have been urged to settle on prices that reflect ’structural’ factors rather than temporary market shortages, Wrigglesworth said in a note to investors.

The China Coal Transportation and Sale Society (CCTS), apparently acting on behalf of the government, issued a statement this week urging coal producers to ’stabilize prices’ and ‘consider the broader environment’.

There is no indication that this will have an impact on the contract prices negotiated by coal suppliers and consumers, and Citigroup (nyse: C - news - people ) predicts a 10-pct average rise for 2008.

Wrigglesworth said that the statement issued by the CCTS has ‘no impact on (Citigroup’s) earnings outlook, but no positives either.’

Severe shortages of coal have forced power grids to ration electricity across China in the last two weeks, with the regulator, the National Development and Reform Commission, blaming coal delivery bottlenecks, poor weather and a lack of coordination between the coal, power and transportation sectors.

Although China’s installed power capacity reached more than 700,000 megawatts last year, the current problems show that ’structural irrationalities’ continue to dog the sector, said Wang Yeping, vice-chairman of the State Electricity Regulatory Commission.

Last Updated 24/01/2008, 16:43:29

China has issued an ‘urgent’ call for the coal industry, electricity providers and government agencies to ensure adequate coal supplies as a nationwide power crisis looms.

The National Development and Reform Commission says coal and electricity supplies have fallen to emergency levels.

Businesses and government agencies are being asked to push electricity conservation and to ensure coal is brought to market quickly.

The supply shortage has reportedly caused 13 provincial power grids in central and southern China to impose restrictions on electricity use.

By CHARLES FORELLE
January 24, 2008; Page A8

BRUSSELS — European commission officials set individual country targets for renewable-energy use, a critical step in a plan to have 20% of the European Union’s energy come from renewable sources — such as wind, solar and biofuels — by 2020.

The targets aren’t likely to cool a simmering debate about how the burden of greening Europe should be divvied up among the EU’s 27 member countries. Of particular concern is the extent to which countries should be able to meet their benchmarks by trading renewable “certificates” instead of investing in renewable energy on their own soil.

The EU approved the basic 20% goal last year but left aside the politically sensitive task of fixing specific targets. The targets proposed yesterday could well change as the proposal works its way through the EU’s legislative system. France, in particular, has resisted renewable-energy targets; its preferred source of energy, nuclear, is low-carbon but not considered renewable by the EU.

The targets are part of an omnibus climate-change proposal that would also set greenhouse-gas-reduction targets, call for increased use of biofuels and revise the bloc’s carbon-trading scheme.

“I believe that this will be an important moment for Europe,” Commission President José Manuel Barroso said, adding that he hopes the bloc’s actions will spur change elsewhere.

According to the commission’s most recent data, only 8.5% of the EU’s energy consumption in 2005 came from renewable sources. But the percentages vary widely by country. Tiny Malta and Luxembourg used almost no renewable energy that year; in Sweden, almost 40% of energy consumed was renewable.

Some of the EU’s biggest countries will have to make substantial leaps, thanks to a mechanism that puts a greater burden on countries with higher per-capita gross domestic product. Britain — at 1.3% renewable in 2005, according to the commission’s figures — must reach 15%. Germany must go from 5.8% to 18%. The proposals by the commission, the EU’s executive arm, need to be ratified by the European Parliament and the Council of Ministers, which could take many months.

The United Kingdom’s business secretary, John Hutton, called the proposals “a welcome starting point” for negotiations, adding that whatever the outcome, the U.K. is committed to major expansion of offshore wind-power stations. But Britain is expected to push for greater ability to purchase renewable certificates from other countries — which it might need to reach the target.

That puts it at odds with Germany, which has worried that an open market for certificates could drive up their prices. High prices could encourage German producers of renewable energy to sell their certificates abroad instead of helping Germany meet its renewable target. Under the current proposal, countries can stop producers from selling their certificates abroad.

Germany supports renewable-energy producers through a surcharge on electric customers’ bills — a system that German officials say has been successful in increasing the use of renewable energy.

Industry groups are also wary of the proposals. A spokesman for the electricity-industry lobby, Eurelectric, said the group is “disappointed” that cross-border certificate trading was presented “only as a limited secondary possibility.”

Thursday, January 24, 2008
By Jason Subik (Contact)
Gazette Reporter

SCHENECTADY — GE Energy on Wednesday announced a $1 billion deal with Chicago-based Invenergy LLC to sell wind turbines capable of generating 800 megawatts of electricity.

Company officials touted the deal as one of the largest commitments for wind turbines to be delivered in a single year in the short history of the global wind energy industry.

“With this milestone agreement, Invenergy will have secured more than two gigawatts of GE wind turbines for the 2007-2009 time frame,” stated Victor Abate, vice president of GE Energy’s Renewable Energy division, headquartered in Schenectady. “The use of our proven technology by an experienced developer and fleet operator will help individual states, provinces and countries meet their renewable energy standards.”

The deal has direct implications for the GE Wind Product Management and Customer Support Center, located at the conglomerate’s Erie Boulevard campus.

“Our wind product management and customer center here in Schenectady is going to help monitor the performance of those turbines globally,” GE Energy spokeswoman Kristin Schwarz said.

Expansion of GE’s wind turbine business, spurred by international government concerns about carbon dioxide emissions linked to global warming, led directly to a $39 million expansion of its Renewables Global Headquarters in Schenectady, announced in November, and announcements last year to locally hire 500 engineers and 150 white collar workers to staff the Wind Product Management and Customer Support Center.

Since 2004, GE has increased wind turbine production by 500 percent, with its wind business revenues exceeding $4 billion in 2007.

For its $1 billion, Invenergy will get 1.5-megawatt wind turbines capable of a combined output of 600 megawatts for projects in North America and 200 megawatts worth of GE’s 2.5xl wind turbines for European applications, according to information released by the two companies.

According to company officials, GE has more than 7,700 of its 1.5 megawatt turbines installed worldwide, while its 2.5xl model is the “next evolution of the company’s wind turbine fleet” and is the largest GE wind turbine available for onshore applications, useful for markets in the European Union, where lack of available land constrains the size of projects.

All of the wind turbines are slated for shipment during 2009.

Invenergy CEO Michael Polsky praised the GE wind turbines.

“The high availability and reliability and grid-integration features offered by GE wind turbines help to position our installed fleet as an industry leader for grid performance,” Polsky stated in a news release.

Wednesday, January 23, 2008

by Steve Platt of Archer Financial Services

January 22, 2008

Focus: IEA Monthly Report

This past week the IEA (International Energy Agency) released their monthly energy report.  The IEA, which is a cooperative effort of OECD countries, focuses on the global supply demand situation and has been one of the more vocal proponents of increases in OPEC production levels. .

The report once again focused on the relatively tight supply situation and prospective drawdown in stocks, which they see as the major factors supporting energy values this year. Highlights and analysis of key components of the report:

* The strength to energy prices which saw crude as high as $100/bbl in early January was traced to falling stocks, cold weather and tight fundamentals. Geopolitical tensions in Nigeria and the Middle East also continue to be mentioned as supportive influences. Fund positioning to a large extent was downplayed, although we suspect this has played a larger role in the support to values than what has been alleged. This is a key argument of OPEC members against an increase in quotas, as they allege that some of the excesses in the market can be attributed to speculative forces rather than supply/demand fundamentals.

* Another key behind the strength to values is the decline in OECD industry stocks. Stock levels in the U.S., Japan and the EU fell by 38.1 mb/d from October, while the decline year over year was substantial at 123.8 mb. Another 30.7 mb decline was forecast for December. For January, we are looking for a slowing to persist, with a more balanced situation developing as we move into the 2nd quarter. These pressures might build if demand softens more than currently expected given the global economic concerns linked to the subprime crisis.

* It appears that an expansion in supply has occurred, with world supply in December reaching 87 mb/d compared to 86 mb/d a year ago. However, the bulk of the increase continues to be accounted for by OPEC, where production rose by 825 tb/d to 32 mb/d in December.
* They revised upward 2007 world oil demand by 150 tb/d to 85.8 mb/d. Surprisingly 2008 demand was maintained at 87.8. The forecast assumes that the subprime crisis will not have an impact on demand. Given recent movement in global equity markets, this appears overly optimistic.

* Refinery throughput remains high and is expected to reach 75.2 mb/d in January compared to 73.9 mb/d a year ago. Given the higher levels and potential for demand being restrained, refinery margins should continue to be squeezed.

Given concerns over the global economic situation, the prospects for the crude oil market appear limited until these factors work through the markets. Risks still appear on the downside as the supply/demand balance improves in the first half of 2008. The more aggressive easing by the U.S. Federal Reserve seems to confirm that the economy has them very concerned, which has the potential to put risk on the downside in crude toward the 84.00 area basis March, provided rallies do not carry values back above the 92.30 level. Toward the lower end of this range better support should emerge in the back months in anticipation of renewed tightness in late 2008.  The information and comments contained herein are provided as general commentary of market conditions and are not and should not be interpreted as trading advice or recommendation.  The information and comments contained herein are not and should not be interpreted to be predictive of any future market event or condition.  The information and comments contained herein is provided by ADM Investor Services, Inc. and not Archer Daniels Midland Company.  Copyright © ADM Investor Services, Inc.

EUROPE/BRAZIL:  Major producers in the biofuel sector have welcomed the new sustainability criteria on biofuel imposed by the European Commission and the economic bloc’s continued commitment to promote biofuel use.  The European Commission on Jan. 23 reiterated its commitment to the goal of using biomass to produce 10 per cent of its transport fuels, but also set up sustainability criteria to mandate targets on carbon savings from biofuel and control environmental damage and social problems stemming from a rush to produce biofuel.

Risto Rinne, president and CEO of Neste Oil Corp., said, “Bio-feedstock producers, producing countries and users should work towards enforceable rules that simply make unsustainable biofuels production bad business.  Sustainability should create the basis for profitable business operations in biofuels.  These ideas should be built into legislation.  The European Commission’s proposal is a positive move towards this direction.

“We believe that high standards of sustainability are essential to the long term success of the renewable fuels industry. Renewable fuels made from sustainable feedstocks can make an important contribution to reducing transport carbon dioxide emissions.”

Brazil’s sugarcane industry had hailed the European Commission’s goal of having 10 per cent of transport fuels coming from biomass by 2020 as a “sensible approach,” the Brazilian Sugar Cane Industry Association (UNICA) said in a statement.  UNICA also “welcomes the fact that criteria for sustainability in the EC proposal does not discriminate against imported biofuels.”

However, Neste Oil has called on the European Union (EU) to promote technology neutrality for biofuels, an issue that is not covered in the European Commission’s proposal.  Neste Oil said the EU should evaluate technologies and feedstocks based on sound science, that is on their efficiency and greenhouse gas balance.  The EU should keep the door open to technologies and feedstocks which do not even exist today to encourage further innovation, the biodiesel producer added, the company said.

Neste Oil, a major Finnish biodiesel producer, is planning to set up an 800,000-tonne (880,000-ton) biodiesel plant in Singapore.  Brazil is the world’s largest sugar cane-based ethanol producer.
http://www.energycurrent.com/index.php?id=3&storyid=8417

 January 26, 2008

Europe is ready to help South Africa with its electricity crisis. The European Commission says it is following the energy situation in South Africa very closely through its delegation in Pretoria and via direct contacts.

An EU official says Europe is ready to assist South Africa in this field as best as it can. Commission spokesman, Amadeu Tardio, says at a meeting in October last year, Energy Security, at the request of South Africa, was identified as one of the areas for enhanced co-operation between the EU and South Africa.

Tardo says efforts are underway to extend this cooperation to the broader field of energy security in general. This co-operation could include capacity building, exchanges of officials and providing information on best practices and experience.

Tadrio says a first exploratory mission on Clean Coal Technology has taken place and a working group has been established.

http://www.sabcnews.com/south_africa/general/0,2172,163096,00.html

http://www.miningweekly.co.za/article.php?a_id=124596

More price hikes are expected owing to global supply and demand shortages, Wood Mackenzie senior analyst Xavier Prevost tells Mining Weekly.

The coal price started to soar from the $50-t mark in May 2007, bringing the price to the current $100-t mark.
“For only the fourth time in the past 100 years, we are in the midst of a significant coal price hike, this time driven by strong demand,” says International Energy Agency energy analyst Brian Ricketts.

Prevost says that the $100/t mark is still sustainable, but continuous increases could be foreseen.
“South Africa faces the issue that we have come to a point in our coal mining history where coal reserves are difficult to obtain,” he adds.

Because the Asian market also faces a severe shortage of coal, China has become a net importer of coal since 2007, which led to global coal supplies being pushed into that market.

“China’s changing coal demand has had a big impact on international coal trade over the last few years,” adds Bricketts.

Prevost also attributes the price increase to a number of other global coal shortage issues, namely the Indonesian market being plagued by heavy rains, and logistical difficulties in Australia’s New Castle port, causing ship vessels to queue at the port, affecting its ability for timely supply to the market. In South Africa, lightning caused severe disruptions at one of the coal substations, which affected the weighing of coal material.

For the industry, the sharp climb over the past few months means that all coal producers will be able to reap greater benefits, as it makes marginal coal extraction operations feasible, as some mines operate at these levels. And, while the cash rolls in, it means that they will have more capital available for expansions.

As a result of the global demand for more coal, South African coal producers are exporting most of their high-quality coal while the lower-quality coal is being sold locally to Eskom, which uses more than 44% of the total produced saleable coal in South Africa, and Sasol, which is the second-biggest coal user.

Prevost continues that the export of high-quality coal creates an incredible demand for South African coal, causing the local market to feel the strain of international demand.

Even though Eskom procures most of its coal from mines located close to the power stations, Prevost says that they are struggling to obtain additional coal.

“Projected global energy trends raise serious concerns of increased vulnerability to supply disruptions and rising carbon dioxide emissions,” says Bricketts.

“If major local coal shortages occur, Eskom might need to import coal from Botswana or Mozam-bique, and the coal industry will once again see radical price hikes,” Prevost warns.

Bricketts raises the concern that global energy needs will increase by more than 50% leading up to 2030.

Fri Jan 25, 2008
By Fayen Wong and Niu Shuping

SYDNEY/BEIJING, Jan 25 (Reuters) - China told its miners and port authorities on Friday to stop coal exports for the next two months to help end its most severe power crisis yet, sending benchmark coal swap prices sharply above $100 a tonne.

Some traders had been bracing for a possible clamp-down by Beijing after regional electricity shortages built this week into a nationwide crisis, with some generators struggling to secure increasingly costly coal and others shutting down capacity to avoid producing cheap electricity at a loss.

“During the Chinese New Year and parliamentary meeting, all thermal coal exports will be suspended,” the Ministry of Communication said in a notice posted on its Web site.

“Where there is a need, all international shipping capacity will be diverted for domestic transportation requirements,” the ministry said.

China is an important supplier of thermal coal to power plants in Japan and South Korea, shipping an average of about 5 million tonnes a month in the second half of 2007. Indonesia, the world’s biggest exporter, ships over 12 million tonnes monthly.

Paper coal swaps for February surged 8 percent to trade at $106 a tonne on electronic trading platform globalCOAL on Friday, adding to recent gains fuelled by production cuts in Australia caused by heavy rains in Queensland.

The ministry statement added that officials and heads of “irresponsible companies” that do not abide by the latest regulations would face serious investigations.
The Chinese New Year holiday begins on Feb. 7 with celebrations usually lasting for 15 days, while the parliamentary meeting begins in early March and is held for about two weeks.

Singapore-listed Straits Asia Resources, a unit of Australia’s Straits Resources that operates coal mines in Indonesia, soared Monday as it is seen as a key beneficiary of the coal shortage in China.

The Chinese authorities have already ordered a freeze on coal exports to ensure an ample supply for domestic power utilities and other key industries.

At 11.45 am (0345 GMT), Straits Asia was up 7.4 percent at 3.35 Singapore dollars, with 46,000 shares traded.

“The short-term supply for coal is very tight,” said Credit Suisse analyst Haider Ali.

Flooding in key Australian coal mines and power outages in South African mines are exacerbating the shortage of coal in the market, he said.

Coal prices may go up by another 10-15 percent or more this year if the tight supply situation becomes protracted, he said.

It will be difficult for China to haggle with coal miners to make them lower or maintain prices, Ali said.

China has been playing hardball with suppliers of coal and other commodities such as steel since late last year, but the negotiations are expected to be wrapped up soon.

(1 US dollar = 1.42 Singapore dollars)