Archive for the ‘energy’ Category

China plans to start trading carbon within five years

Wednesday, July 21st, 2010

This article comes from Reuters.

China will launch domestic carbon trading during the next five years, the China Daily reported, citing a closed-door meeting of officials from ministries, enterprises and think tanks.

Officials have reached consensus on the need for carbon trading as a way to help China meet its target to improve energy efficiency by 2020, but there is still no agreement on the mechanism that should be used, the paper said.

China is still struggling to achieve a target to cut energy intensity – defined as the amount of energy used to generate one unit of gross domestic product – by 20 percent between 2006 and the end of 2010.

Efforts to hit that target have focused on administrative tools, such as contracts in which the top 1,000 energy consumers promised the government to improve their energy efficiency, but the meeting agreed such measures would be too expensive in future, the paper said.

It quoted one participant, Tang Renhu from the low-carbon centre at China Datang Corp, a major power generator, as saying there were differences over whether pilot projects should start from one industry or a certain area.

Possible sectors for pilot carbon trading schemes were carbon-intensive industries such as coal-fired power generation, he said.

China already has some voluntary carbon trading. The plan to introduce wider carbon trading would be strictly separated from ongoing international negotiations for a successor to the Kyoto Protocol, an unnamed participant at the meeting told the paper.

China has surpassed the United States as the world’s top emitter of greenhouse gases and is struggling to reduce emissions and pollution because of its reliance on coal, a cheap but dirty fossil fuel.

It is also expected to become the world’s top energy user, although the precise moment of reaching that milestone is debated. China’s National Energy Administration this week rejected an assessment by the International Energy Agency that China was already using more energy than the United States.

China’s government has set a new target of cutting carbon emissions per unit of GDP to 40-45 per cent of the 2005 level by 2020, committing the country to doing more with less.

The five-year plan for energy, due to be unveiled within months, will push for wider use of energy sources with lower emissions, such as hydropower, wind, nuclear and gas. Coal will be expected to account for 63 per cent of energy use by 2015, down from 70 per cent now.

China will need to invest 5 trillion yuan ($834 billion) to achieve its plans for clean energy by 2020, Jiang Bing, head of the development and planning department of the National Energy Administration, said earlier this week.

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Stranded power – Malaysian music to smelter ears

Monday, July 19th, 2010

I found this article in a Malaysian newspaper, and I admit I had to go look at a map of Malaysia.   Sarawak is the big island to the east of the Malaysian peninsula.   Bakun is in the centre of Sarawak.    The original plan was to take power from Bakun’s hydroelectricity under the sea to Kuala Lumpur and the “mainland”.    Now it seems that the power will stay on the island, and the investments will happen there.   The inference in this article is that Chalco gave sufficient incentive for the authorities to reconsider the original plan.

This is the stuff of dreams for companies such as Chalco and Rio Tinto – to have stranded low cost power in a location so close to growth markets.   The surprising thing is that only 800,000 tonnes of smelting capacity has been announced.   With 2,400MW available, I am expecting more announcements.

 

KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) is awaiting clarification on the Bakun undersea cable transmission to assess the impact of a potentially larger supply of hydropower on its projects in Sarawak.

“News that the Bakun undersea cable project to Peninsular Malaysia may not take off has changed the plans and there has emerged an urgent need to pull up industries that can use all that energy,’’ said 1MDB CEO Shahrol Halmi.

Early this year, 1MDB signed an agreement with power utility giant State Grid Corp of China (SGCC) to carry out a number of multi-billion ringgit joint-venture projects in the Sarawak Corridor of Renewable Energy (Score).

According to reports, the two parties will set up a joint-venture company to pursue projects that would generate US$11bil worth of economic value.

SGCC is reported to be investing between US$6bil and US$8bil to set up one of the world’s largest aluminium smelter plants (estimated to involve US$3bil) and three hydro-electric dams in Sarawak through this cooperation with 1MDB.

“The project will take in a few new factors now,’’ said Shahrol. “We are awaiting clarification on where the Bakun Dam will supply power to.

“If the Government sees a role for us to play, we will bring more investors to Sarawak to use that power,’’ he said.

Energy, Green Technology and Water Minister Datuk Seri Peter Chin said in February that Bakun would initially supply Sarawak’s needs first before expanding to the peninsula.

Under the proposed plan, the cable project involving the construction of a 1,000km high-voltage direct-current transmission line and a 680-km undersea cable, was expected to be completed in 2015 with an open tender process to be launched in the first quarter of this year. Each cable would be able to transmit 800MW.

The Bakun dam project, with an installed capacity of 2,400MW, is expected to turn up some 300MW of juice by next month and to be fully commissioned by October 2011.

It was announced in February that Tan Sri Syed Mokhtar Al-Bukhary’s controlled GIIG Holdings Sdn Bhd had tied up with Aluminium Corp of China Ltd (Chalco) to develop a US$1bil smelter plant with an initial capacity of 330,000 tonnes per year in Samalaju Industrial Park in Bintulu. The plant will need some 600MW of electricity.

Another multi-billion ringgit aluminium smelter being planned in the same industrial area is by a 60:40 joint venture between Rio Tinto Alcan and Cahya Mata Sarawak Bhd with an initial capacity of 550,000 tonnes a year.

A memorandum of understanding was signed back in 2008 for Sarawak Energy Bhd (SEB) to supply between 900MW and 1,200MW of power to this smelter, presumably also from Bakun.

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China now world’s biggest energy user

Monday, July 19th, 2010

This story comes from London’s Financial Times.

China overtook the US last year to become the world’s biggest energy user, the International Energy Agency revealed on Monday.

Beijing’s new status is expected to make it even more influential in global energy markets, in determining prices and how it is used.

China clinched the top slot more quickly than had been expected because the US has over the past decade far outpaced China in using energy more efficiently. On a per capita basis, the US still uses far more energy than China and remains less efficient than Europe.

Fatih Birol, the IEA’s chief economist, said: “In the 2000, the US consumed twice as much energy as China, now China consumes more than the US.” He noted that the US had improved the efficiency with which it uses energy by 2.5 per cent annually during that time, while China managed only a 1.7 per cent annual improvement.

“On the one hand, the US has come to a certain saturation of energy use, but there have also been lots of efforts, especially since 2005, to use energy more efficiently,” he said.

China last year consumed 2,252m tons of oil equivalent of energy from sources including coal, oil, nuclear power, natural gas and hydropower, about 4 per cent more than the US, the rich countries’ watchdog said.

China’s growth has also not suffered the same setback as that of the US following the global financial crisis.

In 2008 it pushed oil prices to record highs, which helped tip the world into recession. Mr Birol said China’s increased need for imports of coal and gas could eventually have a similar impact.

A second big consequence of China’s growing heft as an energy consumer is that the country will thus increasingly determine how energy is used on a global scale – from the types of cars manufactured to the kinds of power plants built. This means China will also determine energy consumption patterns outside its boarders. “There will be a big multiplier effect,” Mr Birol said.

Though the IEA warned the data on China’s energy demand last year was still preliminary, the country’s ascendancy in energy use has been well established, with western policy makers fretting about issues such as Beijing’s agressiveness in seeking to secure oil from Kazakhstan to Sudan and to China’s growing carbon emissions.

China is already by far the world’s largest user of coal. Despite its own vast resources, its imports of thermal coal are expected to hit 105-115m tonnes this year, pushing it ahead of Japan as the world’s largest coal importer. Only three years ago China was a net coal exporter.

The trend has also been apparent in oil. Saudi Arabia, the world’s most important oil exporter, for the first time last year sold more oil to China than the US, which for decades had been its most important customer.

In March, Nobuo Tanaka, the IEA’s secretary-general, called on China to join the IEA, warning that the organisation, which represents the OECD’s largest energy consuming countries, risked losing its relevance otherwise.

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Alcoa’s Australian smelters secure new power deal

Monday, March 1st, 2010

The following article comes from the Melbourne Age in Australia.   Melbourne is the State Capital of Victoria.   This article is written with an assumption that readers understand the local issues.   What is interesting to me is that Alcoa’s Australian chief mentioned future expansions.   That could mean downstream of course, since power supply seems set to be a continuing issue.

 

THE biggest consumer of Victoria’s brown-coal-fired electricity is to continue operating for decades after the surprise announcement of a long-term power deal for Alcoa’s controversial aluminium smelters.

Unions were celebrating and environmentalists reeling last night with the news that aluminium giant Alcoa, Victoria’s biggest exporter, had signed electricity contracts with generator Loy Yang Power for the smelters at Portland and Point Henry, near Geelong, until 2036. The existing power contracts expire in 2016 and 2014.

The cost of the new deal to Victorian taxpayers, if any, was unclear. But after decades of subsidising Alcoa’s cheap power, the government said last night that it was not involved in the new deal and that subsidies would end in 2016.

Loy Yang’s brown-coal power station will supply the Alcoa aluminium power smelter until 2036. Photo: Rebecca Hallas

”The Victorian Government subsidy will no longer be required,” said Emma Tyner, a spokeswoman for Energy Minister Peter Batchelor.

The government also would not pick up Alcoa’s costs in the event of an emissions trading scheme being introduced, Ms Tyner said. Late last year Alcoa pressed the government to shield it from the costs of an emissions trading scheme in Victoria due to the state’s reliance on brown coal, the dirtiest of the major energy sources.

Senior figures in the energy industry and government last night told The Age they found it hard to believe that Spring Street was not involved somehow in the latest deal.

One by-product of the deal is the weakening position of International Power, owner of the Hazelwood and Loy Yang B stations. The deal in effect transfers business away from International Power, a move that may bring forward the closure of the much-maligned Hazelwood, the oldest and most polluting of Victoria’s major power stations.

The ALP is understood to be keen on an announcement about Hazelwood ahead of the November state election.

Taxpayers have been subsidising the smelters since the Cain government finalised a deal with Alcoa in the mid-1980s to build and operate the Portland plant. Last year an analysis by The Age found that the eventual cost of subsidies could be more than $4.5 billion by the time the contracts expire in 2014 and 2016.

In October Rob Maclellan, a former minister in the Hamer Liberal government, which drew up the original Portland deal, described the decision to build the smelter 500 kilometres from its power source as ”absolute madness” and a costly ”disaster” for the state.

Together, Alcoa and Loy Yang Power employ more than 2500 people in Victoria. Australian Workers Union state secretary Cesar Melhem said the deal would secure thousands of jobs that would have been jeopardised if the contracts were not renewed. ”That’s now put to bed, that’s really put people’s minds to ease that for the next 20 years they will hopefully continue to smelt there.”

Environment groups were shocked by the news about a facility that at times consumes as much as 20 per cent of the state’s electricity. Environment Victoria spokesman Mark Wakeham said: “In a time of climate change it is insane to power aluminum smelters with brown coal. Locking this behaviour in until 2036 defies belief.”

Alcoa general manager Alan Cransberg said the contracts would allow the company to expand in Victoria.

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China’s Power Struggle, part 1.

Monday, February 1st, 2010

Here is an article from the China Daily which illustrates some of the present difficulty that Chalco is experiencing.   Unusually frank for a Chinese newspaper.

Mainland power producers could continue to face a tough operating environment in the first half, with profit margins being squeezed as coal prices rise, while a mechanism that allows them to pass on increasing coal costs is unlikely to be implemented any earlier than the second half.

Power producers, who normally negotiate and enter into supply contracts with coal producers in January for most of their coal needs for the coming year, have settled for a 5.6 percent increase in coal prices over the previous year.

Meanwhile, spot coal prices keep on rising, with an over 30 percent increase since the fourth quarter of last year. Increasing coal costs will squeeze the profit margins of power producers, as coal-fired generators produce nearly 70 percent of the country’s electricity, analysts warn.

“Surging spot coal prices will adversely affect profitability in 2010 in our view,” Fan Yunfeng, a power sector analyst at Guoco Capital Ltd, said in a research note.

“We estimate the average fuel cost in 2010 will increase by more than 8 percent year-on-year, while the chance of another tariff increase is relatively small,” she said.

Meanwhile, BOC International estimates in a research report that electricity producers are likely to incur an 8 percent to 10 percent increase in their unit fuel cost this year, which may significantly affect their earnings if they can’t pass on the added cost.

According to a cost pass-through mechanism initiated by regulators in 2005, power producers are allowed to hike power prices in response to coal price rises.

However, the mechanism has lapsed into idleness in the past three years due to inflationary pressure in 2007 and the economic downturn last year that saw many factories – key electricity users – scrambling to survive.

Analysts believe the mechanism will remain idle at least until the second half of this year, as inflation in the country has accelerated recently.

The country’s consumer price index (CPI), the main inflation gauge, climbed 1.9 percent year-on-year in December last year, the National Bureau of Statistics announced last week. The rise beat the market forecast and is the strongest increase in 13 months. “We think the strong inflation trend is likely to continue,” Credit Suisse economist Dong Tao said in a report.

Many analysts believe that with the pace of inflation picking up, the government will be reluctant to have power producers charging higher tariffs. But they remain optimistic about the long-term prospects for the sector, citing ever-increasing demand for power. “The long-term growth prospect for the sector remains strong due to relatively low per capita coverage of the power supply,” JP Morgan said in a research note.

The sector should benefit from a robust economy, as rising demand for electricity and surging power output growth would help boost the capacity utilization of the power producers as well as their earnings.

Total electricity consumption in the country is likely to increase 7 percent this year if the economy manages to grow 8 percent as targeted by the central government, Wang Xudong, chief of the State Electricity Regulatory Commission (SERC), said last week.

The country’s power consumption rose 6.0 percent to 3.64 trillion kilowatt-hours (kWhs) in 2009 after the domestic economy rebounded strongly in the second half from the slump in first half, the National Energy Administration said earlier this month.

Meanwhile, analysts believe regulators will ultimately reform the pricing mechanism for electricity in the future. “There are seemingly more efforts by the Chinese government trying to rationalize the power tariffs, which we think should benefit the sector in the long run,” Credit Suisse said in a research report.

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China depending more on imported oil

Sunday, January 24th, 2010

This article appeared in last week’s China Daily.   Economists looking for reasons why China’s bubble might eventually burst may need to look at the future of global crude oil pricing.   A rise to pre-GFC levels could have disastrous consequences for inflation in China, which in turn is probably the chief threat to the general health of the economy today. Here is the article.

China’s oil imports will continue to see solid growth this year, with more than half of the country’s total oil consumption coming from abroad, industry insiders said.

It is inevitable for the country – the world’s second largest oil consumer – to see a robust increase of imports, as domestic production cannot keep up with rising demand, they said. China’s oil dependency reached alarming levels last year with imports accounting for 52 percent of total consumption, China Business News reported yesterday, citing Zhang Xiaoqiang, vice-minister of the National Development and Reform Commission.Importing more than 50 percent is a globally recognized level for an energy security alert.

The country’s oil imports in 2010 are expected to grow five percent from a year earlier, and the proportion of imported oil consumed may further rise to 54 percent this year, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. “Domestic production is already at its peak,” he said. “Although domestic companies have accelerated their overseas expansion, the resources they already gain are still limited.”

Customs figures showed that China imported 204 million tons of oil last year, while the country’s total production was 190 million tons.

Lin’s views are echoed by Han Xiaoping, chief information officer of china5e.com, a leading energy website in the country, saying oil imports would maintain a brisk growth in the future. However, importing too much would hurt energy security, he added.

According to a report by the Chinese Academy of Social Sciences (CASS), 64.5 percent of China’s oil consumption is likely to be met by imports in 2020, with the gap between domestic consumption and production as the main reason. Statistics from CASS showed that China’s oil production is expected to stand at 177 to 198 million tons in 2010, and the figure would reach 182 to 200 million tons in 2015. China’s oil production will see a gradual decline after 2020, according to CASS.

China National Petroleum Corp, the country’s largest oil and gas producer, said in a commentary in its online newsletter yesterday that the country’s oil imports would be affected by many factors, such as rising global competition and volatile energy prices.

Chinese companies should avoid competing with their domestic peers in the international market, said the report. Analysts said that China should further diversify its sources for importing oil to find a more sustainable supply. At present the Middle East, Africa and the Asia-Pacific are the three main regions that supply oil for China.

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China coal imports to remain strong in 2010

Monday, December 7th, 2009

The following brief article appeared in yesterday’s China Daily.    Rising imports of coal are a harbinger of rising energy costs, putting further strain on China’s aluminium industry.

 

China’s position as a net importer of coal is unlikely to change although domestic supply is expected to increase next year, said an industry expert. The prediction is based on exorbitant cost of domestic transportation and the current export and import policy, said Jiang Zhimin, vice chairman of the China National Coal Association at an industrial forum held in Jinan, the capital city of eastern Shandong province.

The economic recovery led by aggressive investment will continue to drive up coal consumption, Jiang said. China’s coal exports declined 50.6 percent year-on-year to 18.9 million tons in the first ten months, while imports nearly tripled to 97.68 million tons.

To meet the growing domestic coal demand, China established export quotas and lowered import tariff to offset dwindling domestic output after the government shut down a number of illegal small pits. As a result, China became a net importer of coal for the first time in the first quarter of 2007, with net import hitting 2.91 million tons.

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Electricity prices rise

Monday, November 23rd, 2009

The following article appeared in China Mining.

 

China’s National Development and Reform Commission, the top economic planning agency, announced on Thursday an electricity price rise for non-residential use of 0.028 yuan (0.4 US cents) per kilowatt hour on average nationwide effective Friday. The electricity tariff rise is estimated to increase the production costs of electrolytic aluminum by nearly 400 yuan per metric ton (tonne).

Currently, producing one tonne of electrolytic aluminum consumes about 14,500 kWh of electricity. Thus, given an average price rise of 0.028 yuan/kWh, the production costs for electrolytic aluminum will be raised by around 400 yuan/tonne.

“The power adjustment scheme of each province hasn’t come out yet, so the influence on aluminum producers in different regions cannot yet be estimated,” said Lan Ke, analyst of the nonferrous industry with Southwest Securities.

This is definitely not good news for large power consumers such as Chalco and Jiangxi Copper.

China’s current production costs of electrolytic aluminum stand at around 13,500 yuan/tonne, almost half of which is attributed to power.

For producers with captive power plants, including Shenhuo, Zhongfu, and Jiaozuo Wanfang, the power price hike won’t have such a strong negative impact. Furthermore, those producers will enjoy the benefit of rising aluminum prices caused by the power price hike.

Aluminum prices in the near future probably will be affected by the costs hike.  Lan said that the higher production costs caused by the electricity price rise, in turn, will push aluminum prices higher.

On Thursday, Chalco, the listed arm of China’s top aluminum producer Chinalco, raised its ex-factory price for aluminum ingots by 100 yuan/tonne to 15,200 yuan/tonne. The price has risen by 200 yuan/tonne since the beginning of November.
Meanwhile, the benchmark aluminum contract on the Shanghai Futures Exchange (SHFE) closed up 0.62 percent to 15,651 yuan/tonne on Friday.

However, market watchers also say the power price rise was widely anticipated, and has been priced into futures contracts for the power-hungry metal over the past two weeks. “Along with gains in other metals, the official announcement just became a lame duck,” Tong Changzhen, an analyst with Great Wall Futures, told Dow Jones on Friday.

Meanwhile, analysts said high stocks and an oversupply are the main factors that could slow or reserve aluminum’s upward momentum in the near and medium future.

China’s aluminum capacity currently under operation stands at around 15 million tonnes, according to statistics from Southwest Securities. As the aluminum price stabilizes above 15,000 yuan/tonne, there will be more production capacity entering into operation. Chalco forecasted in its Q3 report that China would see about 18 million tonnes of production capacity under operation by the end of this year, returning to its pre-financial crisis level.

Direct power supply talks unclear nowIn late October, Fushun Aluminum, a subsidiary of Chinalco, was approved of direct power purchase from Huaneng Yimin power plant, saving Fushun Aluminum about 0.07 yuan/kWh in electricity consumption.

It was the first trial direct power purchase in China since the Chinese government announced to carry out direct power purchase on a trial basis in 15 aluminum enterprises, 9 of which are Chinalco subsidiaries.

Chinalco achieved a cooperative agreement for direct power purchases with China Guodian Corporation on October 13. Chinalco, the largest aluminum producer in China, revealed a strong desire to achieve direct power supply for other subsidiaries by the end of 2009.
“However, at this time, even if they get direct power supply, the preferential margin won’t be large,” said an industry analyst.

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