world energy status and outlook outlook_for... · world energy status and outlook mumbai, india...
TRANSCRIPT
World energy status
and outlook
Mumbai, India
April 14, 2016
CW Group LLC | T: +1-702-866-9474 | F: +1-928-832-4762 | Connecticut, USA
Client Confidential Information
Disclaimers
2
This Work is prepared from sources and data that the CW Group believes to be reliable, but the CW Group makes no representation as to its accuracy or completeness. All data was obtained from publically
available information, internally developed data and other third party sources believed to be reliable. The CW Group has not sought to independently verify information obtained from public and third
party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information.
The Work is provided solely for informational purposes and is not to be construed as providing advice, recommendations, endorsements, representations or warranties of any kind whatsoever. Opinions and
information provided are made as of the date of the report issue and are subject to change without notice. CW Group LLC shall not be liable for any errors in the content, or for any actions taken in
reliance thereof.
Disclaimer of warranties: The Work is provided by CW Group LLC on an "as is" and on an "as available" basis. To the fullest extent permitted by applicable law, CW Group LLC makes no representations or
warranties of any kind, express or implied, regarding the use or the results of this Work in terms of its correctness, accuracy, reliability, or otherwise. CW Group LLC, or its affiliates, shall have no
liability arising from this Work. CW Group LLC disclaims all warranties with regard to the information provided, including the implied warranties of merchantability and fitness for a particular purpose,
and non-infringement.
Limitation of Liability: CW Group LLC shall not be liable for any damages whatsoever, and in particular CW Group LLC shall not be liable for any special, indirect, consequential, or incidental damages, or
damages for lost profits, loss of revenue, or loss of use, arising out of or related to this Work or the information contained in it, whether such damages arise in contract, negligence, tort, under statute,
in equity, at law, or otherwise, even if CW Group LLC has been advised of the possibility of such damages.
Indemnification: The recipient of and other parties privy to the Work (“Clients”) agree to indemnify and hold CW Group LLC, its parents, shareholders, owners, subsidiaries, affiliates, officers and employees,
harmless from any claim or demand, including reasonable attorneys' fees and costs, made by any third party due to, or arising out of Clients‟ use of the Work, the violation of this Agreement, or
infringement by Clients, or other user of the Work using Clients‟ resources, of any intellectual property or any other right of any person or entity.
© Copyright 2015 CW Group LLC. All rights reserved. Receivers of this information shall only be entitled to copy the Work for their own personal use but may not republish nor reproduce any substantial
part of the Work in any manner whatsoever, including electronically reproducing this Work by "uploading", "downloading" or accessing the Work on to the Internet or any other local or international computer
system, without the prior written permission of CW Group LLC. An acknowledgement of the source must be included whenever CW Group LLC material is copied or published. If you require further information
on a permitted use or license to reproduce or republish any material, address your inquiry to CW Group LLC, 132 Larchmont Ave, Suite 12, Larchmont, NY 10538, USA. Any infringement of CW Group LLC's
rights will result in appropriate legal action. CW Group LLC disclaims any and all liability for any consequences that may result from any unauthorized reproduction or use of this Work whatsoever.
Client Confidential Information
Introduction
3
Client Confidential Information
CW Group: Advisory, Research & Media
4
Advisory Research Media
Strategy and M&A advisory advisory.cwgrp.com
Business decision support research.cwgrp.com
Media & meetings Various platforms
Strategic advisory
Management consulting
M&A advice
Transaction support
Due diligence
Syndicated market /
industry study reports
Reference forecasts
Data and chart-books
Commodity price
assessments
News services
Newsletters
Online data access
Publications
Meetings
Seasoned experts Business & technical Network & access Proprietary data
Cement, Building
Materials &
Construction
Steel, Metals & Mining Chemicals Dry bulk cargo, ports
and infrastructure
Power, energy and solid
fuels
Client Confidential Information
Presenter
5
Sr. Associate Analyst at CW
Group, Mumbai, India
Lead analyst on India petcoke
market and pricing services
6+ years of market research
experience in energy sectors
Sushmita Rai Sr. Associate Analyst
M: +91-9004285550
Client Confidential Information
Global energy price outlook
6
Client Confidential Information
Although traditional fossil fuels still remains the dominant energy
choice, renewables are garnering an increasing share
7 Source: BP Statistical Review, CW Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
Oil Natural Gas Coal Nuclear Energy Hydroelectricity Renewables
While the contributions of oil, coal ,and natural gas are either plateauing or declining, hydroelectricity and
renewable energy have been steadily increasing their shares in the global energy mix post 2010.
Increased focus on the effects of climate change is driving the adoption of environmentally friendly energy
sources, while instituting policies aimed at reducing carbon emissions from the burning of traditional fuels.
In spite of the above, coal and oil are expected to remain important sources of energy at least for the next couple
of decades.
Client Confidential Information
Collapse of crude prices: a symptom of oversupply or realignment of
demand in accordance with slower economic growth?
8
The drop in oil prices has led to significant revenue shortfalls in many energy exporting nations
This decline can be attributed to insipid economic growth in developed markets, contraction in
Chinese consumption, in additional to increased production from the US, Iran, and Iraq
Increased inventory levels globally are also playing a role in keeping oil prices low
Note: Production based on EIA
Source: CW Research
0
20
40
60
80
100
120
140Cushing, OK WTI Spot Price FOB Europe Brent Crude Spot Price FOB
Q4 2014 – Q4 2015
Cushing WTI : -42.7%
Europe Brent : -43.0%
Crude Spot FOB Price (Dollars per Barrel)
CAGR 2010-2015
Cushing WTI : -19.7%
Europe Brent : -22.3%
Client Confidential Information
Crude/solid fuel prices: correlation remains broken?
9
Historically coal prices have not tracked crude prices closely
Reduced production of petroleum and derived products in China and pre-monsoon deals in
India are likely to result in reduced raw petroleum coke availability
This decline in Chinese supply, however, will be offset by new capacities elsewhere (Saudi
Aramco, BHP and Pemex)
Note: Production based on EIA
Source: CW Research
Q1 2014 – Q1 2015
Steam Coal : -28.2%
Petcoke : -28.9%
Cushing WTI : -42.7%
0
10
20
30
40
50
60
70
80
90
100
Steam Coal (US) US Petcoke 14,200 btu/lb Cushing, OK WTI Spot Price FOB (Dollars per Barrel)
CAGR 2012-2015
Steam Coal : -10.2%
Petcoke : -9.5%
Cushing WTI : -19.7%
Crude Spot FOB Price (Dollars per Barrel)
Client Confidential Information
10
In 2015, India displaced China to emerge as leading importer of coal
10
Import region
CFR JAPAN /
KOREA / TAIWAN
FOB NEWC
Import/export region
Export region
FOB RBCT
FOB INDO
CFR S. CHNA
FOB QHD
Higher output of domestic
coal in India may see the
country’s imports to decline.
Demand from power
generation companies for
imported coal has reduced.
Slowing economic growth,
reduced energy intensity of
economic activity and a
rapid diversification in
electricity towards
renewables are reducing
China’s historic dependence
on coal
Source: CW Research
75 M MT
(2015)
204 M MT
(2015)
CFR INDIA
155 M MT
(2015) 20 M MT
(2015)
75 M MT
(2015)
Client Confidential Information
11
Thermal coal price futures have dimmed markedly in early 2016 with
notable back-end weakness
11
Source: CME, CW Research
CIF ARA (API 2 US$ / metric ton) FOB Richards Bay (API 4 US$ / metric ton)
35
40
45
50
55
60
65
Apr-15 Feb-16
-32%
35
40
45
50
55
60
65
Apr-15 Feb-16
-29%
Client Confidential Information
Steam coal prices have plateaued after reaching a possible price
floor, adoption of “green coal” a driver for coal use going forward
-
20
40
60
80
100
120
140
Coal, South Africa Coal, Australia Coal, Colombia
Demand
contraction in
most markets
2016-2020 Forecast
CAGR %
2016-2020
SA 5%
Aus 4%
Col 5%
Prices remain „subdued‟ in 2015 as
demand remains sluggish coupled
with an abundance in supply
Global thermal coal prices are expected to remain range-bound due to weak demand, competition from natural gas
and renewables, and changes in environmental policy focusing on carbon emissions.
Volatility in prices is expected to be low as the trends affecting coal consumption are all long-term, and the markets
have to a large extent factored their impact.
Major consumers including India and China are reducing coal consumption for varying reasons, creating an over-
supply scenario. New low emissions coal technologies are expected to play an important role in meeting
environmental concerns allowing coal to continue as vital energy source.
Source: World Bank, CW Research
Global coal FOB prices (US$ / metric ton)
Client Confidential Information
13
Petcoke (blended contract and spot) prices trended downwards
through 2015
13
Petcoke Trading Prices in 2015, top markets (US$/ton) US Petcoke FOB Export Price (US$/ton)
Source: CW Research
35
45
55
65
75
85
0
20
40
60
80
100
120
CIF import price US FOB export price
-47%
Client Confidential Information
India: Solid fuel prices to remain flat, fall slightly in monsoons
14
Seasonal
decline
$0
$30
$60
$90
$120
CFR Petcoke CFR RB Coal
Petcoke prices are expected to increase in the next quarter due to the increasing demand for petcoke from the
cement industry as well as captive power plants
Domestic refiners are currently overbooked with tight supply
Prices in India are expected to decline with the arrival of the monsoon season, as demand dips during that period
Coal prices are subdued and are expected to remain so due to supply glut and falling demand
On a calorific value basis price comparison, petcoke will continue to remain the price effective fuel option
Source: CW Research
Solid fuels price outlook
Client Confidential Information
Gasification expected to alter demand dynamics for petcoke in India
15
Petcoke industry-wise consumption Coal industry-wise consumption
Source: Ministry of Coal, World Energy Council
2015 2020E
Calcini
ng
Ceme
nt
Industr
ial
Boilers
Steel
&
Glass Others
Gasific
ation
9%
60%
24%
3%
4%
7%
52%
18%
2% 2%
19%
100% 100% Totals
2015 2020E
Electri
city
Iron&
Steel
Ceme
nt
Others
62%
4%
8%
26%
60%
5%
5%
30%
100% 100% Totals
Client Confidential Information
Fundamental forces drive tactical and strategic outlooks
Coal prices to remain under pressure due to new sources of supply from countries like Mozambique, Mongolia, Colombia; and reduced imports by China
Coal import trends:
– Coal imports in Japan and South Korea are expected to remain at the same level as were in last 5 years
– Coal supply is expected to overtake demand, putting further pressure on prices.
Twenty new coking plants are expected on line worldwide between 2015 and 2020. The USA is still by far the largest producer, but US dominance of world production has continued to fall.
Natural gas is expected to surpass coal in the fuel mix used for US power generation in 2016
16
Client Confidential Information
17
Declining freight rates affected delivered solid fuel prices in H2-2015
BDI index has dropped to
302 end of February 2016
from a high of 1,066
points in August 2015
Weakness in price follows
slowing down of the
Chinese economy and
commodity (coal and iron
ore) imports
Of the BDI component
ships, demand for
capesizes has been flat,
while demand for the
other ships: panamaxes,
handysize and supramax
has been stronger
17
-
2,000
4,000
6,000
8,000
10,000
12,000
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
BDI Index Min Max Median
10,720
302
1,511
Source: Lltoyds
Client Confidential Information
18
Closing remarks
18
With new sources of supply in the market, prices remain weak globally
China‟s impending ban on “unqualified” petcoke has impacted the demand-
supply scenario, creating huge volatility in USGC prices
The plunge in global prices has been the main factor driving the increase in
petcoke imports by India
Increasing consumption of petcoke by cement industry and captive power
plants in India is offsetting the loss of demand from China
Coal remains a dominant source of power generation worldwide, however,
natural gas and renewables are eating away coal‟s share at a rapid pace.
Longer-term outlook for growth in European coal demand remain bleak, as
government policies continue to support a shift away from coal power
generation
Indian coal demand outlook remains strong. Supported by government
reforms and strong growth in output, Indian coal production is expected to
rise to 1.01 billion tons in 2020.
Steam Coal
Petcoke
CW Advisory is a global consultancy
specializing in M&A and transaction advisory,
strategic advisory, management and operations
consulting. Our deep sector expertise covers
industrial, cyclical, utility and infrastructure.
CW Advisory works with boards and senior
management addressing the most complex
issues, including those in functional areas
spanning the value chain, including fuels &
energy, logistics, organizational, operational due
diligence, feasibility assessments, among
others.
CW Advisory is part of the CW Group, a leading
advisory, research and media boutique aligned
along three pillars: Advisory, Research and
Media, with headquarters in Greenwich,
Connecticut, USA.
advisory.cwgrp.com
CW Group LLC | USA | India | Brazil | Romania