Marubeni, Keppel, Sembcorp to Bid on Temasek Units, Bankers Say
By Denise Kee
July 23 (Bloomberg) -- Marubeni Corp., Keppel Corp. and Sembcorp Industries Ltd. plan to bid for the electric utilities being sold by Temasek Holdings Pte, Singapore's government-owned investment company, three bankers with knowledge of the deal said.
Singapore-based Keppel and Sembcorp, the world's biggest oil-rig builders, this month contacted lenders to provide financing and advice, said the bankers, who declined to be identified because the talks are private. The units, Power Senoko Ltd., Power Seraya Ltd. and Tuas Power Ltd., may be valued about S$2.5 billion ($1.7 billion) each and sold in stages over the next two years, they said.
Temasek, which said June 19 it is selling the businesses, wants to tap rising demand for power assets as economic expansion boosts energy use. The utilities account for 90 percent of Singapore's generation capacity and may attract investors in the Asia-Pacific region, where $53.5 billion of acquisitions involving energy companies have been announced this year.
Temasek ``will benefit from bullish investor sentiment in infrastructure assets,'' said Leslie Phang, who oversees $1 billion at Commonwealth Private Bank in Singapore. ``Buyers would snap it up in a jiff because historical profit growth of the three power companies supports the valuation.''
Seraya's net income rose 11 percent to S$130 million in 2006, according to the company's annual report. Senoko's profit gained about 12 percent to S$133.3 million, while Tuas Power had net income of S$104 million as sales surged 27 percent to S$1.7 billion, annual reports show.
`Natural Fit'
``As a key player in Singapore's energy market, greater involvement in the local generation companies would seem a natural fit with our core business,'' Sembcorp said in an e- mailed response to questions. ``The decision to sell the generation companies has just been announced, and we are evaluating our options.''
Keppel and Sembcorp are seeking commitments from lenders to lock them in exclusive relationships because competition for funding will intensify as the sale progresses, the bankers said.
``We are keen to evaluate the opportunities that Temasek's divestment of power plants present,'' Ong Tiong Guan, managing director of Keppel's infrastructure arm, Keppel Energy Pte, said in an e-mail. ``If it makes commercial sense, we will participate in them.''
Marubeni spokesman Daigo Noguchi declined to comment on whether it will bid.
CLP-Mitsubishi Venture
OneEnergy Ltd., a joint venture between CLP holdings Ltd. and Mitsubishi Corp., plans to request proposals this week to appoint a financial adviser, the three bankers said.
CLP Holdings ``has previously indicated that Singapore is a market CLP is interested in,'' said Carl Kitchen, public affairs manager at the company, which owns half of OneEnergy. ``But regarding the specific assets, it's too early to comment on whether CLP is bidding.''
Temasek plans to release relevant information to potential bidders and the sale process could start in September, said Wong Kim Yin, managing director for investments at the company. Temasek said in its June 19 statement that the sale will be completed by end-2008 or early 2009. Morgan Stanley and Credit Suisse Group are advising Temasek on the sale.
Singapore generates 80 percent of its electricity from natural gas imported from Malaysia and Indonesia. Blackouts in the city-state in November 2003 and June 2004 were caused by disruptions in gas supply from Indonesia, according to Energy Market Authority, the government regulator.
Gas Supply
``The biggest risk is, however, the potential supply disruption of gas from Indonesia and Malaysia,'' Commonwealth Private Bank's Phang said, and ``rising commodity costs may put a dent on profitability.''
Singapore plans to invest S$1 billion in a liquefied natural gas terminal by 2012 to meet one-third of the country's gas demand. The facility will provide an alternative supply source.
Seraya and Tuas were set up in 1995, and have generation capacity of 3,100 megawatts and 2,670 megawatts, respectively. Senoko has a capacity of 3,300 megawatts, according to Temasek's June 19 statement.
Temasek was incorporated in 1974 and manages S$129 billion of assets in various industries including telecommunications, financial services and real estates.
Showing posts with label energy. Show all posts
Showing posts with label energy. Show all posts
Monday, July 23, 2007
Friday, July 13, 2007
Energy demand in China
Energy for China
Jul 12th 2007
From the Economist Intelligence Unit ViewsWire
More diversity of supply, but demand is growing fast
China's energy challenges are monumental. The economy is in the midst of a highly energy-intensive stage of growth, but domestic reserves—especially of oil—are far from adequate to meet burgeoning demand. As a result, the government faces a series of policy challenges: to expand supply while increasing efficiency, to allow fuel prices to increase and risk more social unrest, and to acquire energy assets overseas while China's international conduct is under close scrutiny. If the government fails in any of these delicate tasks, in the medium to long term the resulting energy crunch could pose a serious threat to China's economic growth and political stability—and hence to the global economy as well.
The good news is that the government is focusing on energy issues and that progress is likely to be steady, if halting, on several fronts--from fuel-price liberalisation to diversifying energy sources and expanding imports. In the longer term, moreover, the maturation of the economy will help to enhance efficiency and ease the pressure to secure ever-greater supplies.
What is the issue?
Many countries are experiencing rapid economic growth, industrialisation and urbanisation. But China's sizzling pace of growth and its huge population make its energy needs particularly challenging. After two decades of rapid economic growth, China is now the world's second largest energy consumer (behind the US). Total energy consumption has risen by an annual average of more than 11% during the past five years, reaching 1.7bn tonnes of oil equivalent in 2006.
China is well on its way to becoming the world's biggest energy consumer. Its per-capita energy use remains relatively small—only around one-third that of Japan and one-seventh that of the US—and the potential market for cars, air-conditioners and other energy-guzzling machines is vast. The Economist Intelligence Unit estimates that China's energy consumption will continue to increase by at least 6% annually for the next several years—a more moderate rate than in some recent years, but one that will nevertheless require huge increases in supply as a consequence of China's massive size.
China's energy crunch is exacerbated by the country's high energy intensity (the ratio of energy use to economic output). This is partly due to the large share of industry in the economy, but it is also because many sectors—such as steel and cement—are plagued by over-production, waste and inefficiency. China's overwhelming reliance on coal for the bulk of its energy—around 70%—also poses problems. Coal is relatively dirty, inefficient and difficult to transport, but it is by far the most abundant energy resource in China.
China's energy needs are also having geopolitical repercussions, as the country's relative paucity of domestic oil reserves prompts efforts to expand imports and secure supplies abroad. For example, energy competition is a factor in China's territorial disputes with its neighbours, particularly in the East China Sea (with Japan) and the South China Sea (with eight South-east Asian countries). Large potential reserves of oil and natural gas are at stake in these disputes. China's energy security concerns also bolster its determination to develop its naval power, and to impose its rule on Taiwan, a de facto US ally that is adjacent to the shipping lanes to northern China.
Why is it critical?
Acute energy shortages in China would have serious economic and political consequences both at home and abroad. (This was illustrated clearly in 2004 when severe energy shortages at home resulted in a sharp increase in China's demand for imported oil, causing international energy prices to soar to 20-year highs.) Access to adequate supplies of energy is necessary for China's continued economic expansion. This is especially the case with oil and natural gas, but it is also an issue for the electricity sector more broadly. Even though generating capacity has been successfully bolstered following the recent power shortages, keeping pace with demand remains a long-term challenge.
China's political stability, in turn, depends on sustained economic growth. The ruling Chinese Communist Party (CCP) has staked its legitimacy on its ability to deliver ever-wider prosperity. As a result, the government's focus on energy security is not merely an economic necessity--it is also a fight for political survival.
A Chinese economic slowdown, combined with potential political instability, would send shockwaves rippling through the global economy. The sheer size of China's economy, as well as its increasingly important role in the global economy, ensures that the effects of a serious energy-supply disruption or power shortage would be severe.
What the government is doing
To sustain rapid economic growth, the overarching priority of the government is to meet soaring demand for energy. Given China's limited domestic reserves of most fuels except coal, this will inevitably require a steady expansion of imports--imports of oil, in particular, are set to surge as industrial demand expands and sales of vehicles boom. China's widening dependence on imports, coupled with an awareness of the environmental challenges posed by soaring hydrocarbon consumption, is in turn motivating a drive to reduce energy intensity.
Reforming the pricing system is a top focus. Although domestic energy and electricity prices have started to converge with global prices, they are still distorted by subsidies, quotas and other forms of state control. For example, retail fuel subsidies have worsened energy shortages in the past by prompting refining firms to cut back domestic sales in favour of the more lucrative international market.
Artificially low energy prices also encourage waste and weaken incentives for domestic exploration and production. Recognising this, the government is slowly but systematically removing price ceilings, eliminating subsidies and opening retail-fuel markets.
An ambitious programme of investment in domestic exploration and production is also under way. Some returns on the government's investments have already been forthcoming. In May 2007 state-owned China National Petroleum Corporation announced the discovery of a 1bn-tonne offshore oilfield in Bohai Bay. If the oil is entirely recoverable, this would boost China's reserves by around 50%. However, notwithstanding discoveries like these, China is unlikely to manage to expand its domestic production fast enough to meet demand. The country even became a net importer of coal in April 2007, and coal imports—especially from Australia and South America—are set to continue to expand. Furthermore, despite the abundance of China's coal reserves, the lack of adequate internal infrastructure makes it difficult to transport coal between northern and southern China—implying that parts of the country will remain highly dependent on imported coal.
Another policy priority is the expansion and diversification of the country's energy sources, with an emphasis on hydropower, nuclear power and natural gas. For example, the government aims to raise the use of natural gas from just 2.9% of primary energy consumption in 2005 to 10% in 2020. Since China has just 1.3% of the world's natural gas reserves, meeting this target will require a big increase in imports. China is building a series of terminals on its southern coast to handle the anticipated surge in shipments from abroad.
As China's dependence on foreign oil and gas rises, efforts to secure access to multiple sources of imports will continue. Already, China has actively sought to diversify its foreign supplies, focusing not only on the Middle East and Central Asia, but also increasingly on Africa, South-east Asia and Latin America. By 2025, according to the US Energy Information Administration, foreign supplies will account for a dizzying 77% of China's total oil consumption, compared to the current level of less than 50%. Still, given the controversy created by the failed bid by China National Offshore Oil Corporation for US-based Unocal in 2005, and the limited amount of oil that can be secured through acquisitions of foreign energy companies, the emphasis is likely to remain on securing long-term supply contracts. The government is also building up strategic oil reserves, but these will be small by international standards and filling them will be a very long process—especially if international oil prices remain high.
Meanwhile, China has embarked on a massive campaign to augment its domestic power-generation capacity. An estimated 81 gw of new capacity was added in 2006, and the government plans to invest a further Rmb600bn (around US$79bn) in new power plants during 2007-12, with the goal of reaching 1,000 gw of generating capacity. The vast bulk of this—around 600 gw—will still be coal-based, but the contributions of nuclear, gas and alternative energy are targeted to rise sharply. In January 2006 a law was passed specifically to promote the solar, wind, geothermal, biofuel and hydropower sectors. Scores of dams are under construction on the upper reaches of the Yellow River in Qinghai and Ningxia, and on the Jinsha River spanning Sichuan and Yunnan. Eight nuclear power reactors are under construction in Zhejiang, Guangdong and Fujian, with another 22 on the drawing board. Large amounts of maize are also being converted into biofuels such as ethanol, although the government will remain wary of jeopardising food security.
The EIU view
China's energy policymakers face several policy dilemmas that will complicate their efforts to keep pace with demand over the next several years. For one thing, the need to maintain political stability limits the government's ability to improve efficiency. There is plenty of room for improvement—China uses around three times as much energy per unit of GDP as the US, and nine times as much as Japan—but the goal of engineering a "harmonious society" ensures that economic growth targets will almost always trump efforts to cut energy consumption. Efficiency gains are also limited by the inability of the central government fully to impose its will on local leaders.
Worries about political unrest also underscore the government's cautious approach to price liberalisation. Higher fuel prices could exacerbate rural poverty and accelerate the flood of migrants to the cities, while costing the CCP a measure of popular support among urban dwellers. In the past government efforts to increase resource prices have led to protests. These political concerns are one reason why China seems set to miss its energy-intensity targets by a long shot; the government aims to reduce energy intensity by 20% in 2005-10 but achieved a reduction of only 1.2% in 2006. Even this figure may be exaggerated, however, given the expansion of the metals and cement industries in 2006. Ultimately the key to reducing energy intensity will be a move away from investment-led economic growth—a long-term transition that is unlikely to have made much headway by 2010.
Policymakers must also juggle the aims of energy independence and energy efficiency. China's most abundant domestic energy resource (coal) is highly polluting and relatively inefficient, yet diversification into more efficient, less polluting sources of energy will require expanded imports. Price reforms could also increase import-dependence as domestic energy becomes more expensive. Plans to increase the use of natural gas will depend on reducing its current high cost.
China's import-dependence will in turn continue to undermine its efforts to be seen as a responsible stakeholder in the international system. As a relative latecomer to the global scramble to secure energy supplies, China's overseas investment options are limited. Its involvement in pariah states such as Sudan (where oil reserves are still relatively untapped) will expand, as the fear of the domestic political consequences of an economic slowdown—as well as the commercial interests of China's state-owned energy firms—will continue to trump the desire to avoid international opprobrium.
Given China's apprehensions about import-dependence and its colossal pollution problems, the prospects for China's fledgling alternative energy industry should be bright. In reality, however, the government's targets will be difficult to achieve, and the industry faces so many impediments that even its most ardent advocates are at best only cautiously optimistic about its future. The main hurdle continues to be cost. Although technologies needed to generate electricity from alternative energy sources are getting cheaper and more efficient in China, production remains relatively expensive, particularly when compared with coal-based energy.
The government's target for hydroelectricity—240 gw by 2020—looks particularly problematic, as it would require the construction of the equivalent of the huge Three Gorges dam project every two years. The target for nuclear-generated electricity looks similarly daunting, implying the need to invest more than US$3bn annually for the next 20 years. Meanwhile, the central government will continue to face difficulties preventing local authorities and township enterprises from building cheap, inefficient coal-fired power plants.
Despite these challenges, China is likely to make steady progress towards its energy goals. We expect energy consumption growth to slow to around 6% a year by 2010, down from 16% as recently as 2004. Meeting this lower level of demand growth will be no small feat, and a heavy dependence on energy imports seems inevitable. However, looking beyond the government's immediate policy dilemmas, China's energy crunch is set to ease as the economy matures. In the long run, structural changes already under way—such as price liberalisation, the consolidation of inefficient industries, the expansion of the services sector and the transition from investment-driven to consumption-driven growth—should help to moderate the energy intensity of the economy.
Jul 12th 2007
From the Economist Intelligence Unit ViewsWire
More diversity of supply, but demand is growing fast
China's energy challenges are monumental. The economy is in the midst of a highly energy-intensive stage of growth, but domestic reserves—especially of oil—are far from adequate to meet burgeoning demand. As a result, the government faces a series of policy challenges: to expand supply while increasing efficiency, to allow fuel prices to increase and risk more social unrest, and to acquire energy assets overseas while China's international conduct is under close scrutiny. If the government fails in any of these delicate tasks, in the medium to long term the resulting energy crunch could pose a serious threat to China's economic growth and political stability—and hence to the global economy as well.
The good news is that the government is focusing on energy issues and that progress is likely to be steady, if halting, on several fronts--from fuel-price liberalisation to diversifying energy sources and expanding imports. In the longer term, moreover, the maturation of the economy will help to enhance efficiency and ease the pressure to secure ever-greater supplies.
What is the issue?
Many countries are experiencing rapid economic growth, industrialisation and urbanisation. But China's sizzling pace of growth and its huge population make its energy needs particularly challenging. After two decades of rapid economic growth, China is now the world's second largest energy consumer (behind the US). Total energy consumption has risen by an annual average of more than 11% during the past five years, reaching 1.7bn tonnes of oil equivalent in 2006.
China is well on its way to becoming the world's biggest energy consumer. Its per-capita energy use remains relatively small—only around one-third that of Japan and one-seventh that of the US—and the potential market for cars, air-conditioners and other energy-guzzling machines is vast. The Economist Intelligence Unit estimates that China's energy consumption will continue to increase by at least 6% annually for the next several years—a more moderate rate than in some recent years, but one that will nevertheless require huge increases in supply as a consequence of China's massive size.
China's energy crunch is exacerbated by the country's high energy intensity (the ratio of energy use to economic output). This is partly due to the large share of industry in the economy, but it is also because many sectors—such as steel and cement—are plagued by over-production, waste and inefficiency. China's overwhelming reliance on coal for the bulk of its energy—around 70%—also poses problems. Coal is relatively dirty, inefficient and difficult to transport, but it is by far the most abundant energy resource in China.
China's energy needs are also having geopolitical repercussions, as the country's relative paucity of domestic oil reserves prompts efforts to expand imports and secure supplies abroad. For example, energy competition is a factor in China's territorial disputes with its neighbours, particularly in the East China Sea (with Japan) and the South China Sea (with eight South-east Asian countries). Large potential reserves of oil and natural gas are at stake in these disputes. China's energy security concerns also bolster its determination to develop its naval power, and to impose its rule on Taiwan, a de facto US ally that is adjacent to the shipping lanes to northern China.
Why is it critical?
Acute energy shortages in China would have serious economic and political consequences both at home and abroad. (This was illustrated clearly in 2004 when severe energy shortages at home resulted in a sharp increase in China's demand for imported oil, causing international energy prices to soar to 20-year highs.) Access to adequate supplies of energy is necessary for China's continued economic expansion. This is especially the case with oil and natural gas, but it is also an issue for the electricity sector more broadly. Even though generating capacity has been successfully bolstered following the recent power shortages, keeping pace with demand remains a long-term challenge.
China's political stability, in turn, depends on sustained economic growth. The ruling Chinese Communist Party (CCP) has staked its legitimacy on its ability to deliver ever-wider prosperity. As a result, the government's focus on energy security is not merely an economic necessity--it is also a fight for political survival.
A Chinese economic slowdown, combined with potential political instability, would send shockwaves rippling through the global economy. The sheer size of China's economy, as well as its increasingly important role in the global economy, ensures that the effects of a serious energy-supply disruption or power shortage would be severe.
What the government is doing
To sustain rapid economic growth, the overarching priority of the government is to meet soaring demand for energy. Given China's limited domestic reserves of most fuels except coal, this will inevitably require a steady expansion of imports--imports of oil, in particular, are set to surge as industrial demand expands and sales of vehicles boom. China's widening dependence on imports, coupled with an awareness of the environmental challenges posed by soaring hydrocarbon consumption, is in turn motivating a drive to reduce energy intensity.
Reforming the pricing system is a top focus. Although domestic energy and electricity prices have started to converge with global prices, they are still distorted by subsidies, quotas and other forms of state control. For example, retail fuel subsidies have worsened energy shortages in the past by prompting refining firms to cut back domestic sales in favour of the more lucrative international market.
Artificially low energy prices also encourage waste and weaken incentives for domestic exploration and production. Recognising this, the government is slowly but systematically removing price ceilings, eliminating subsidies and opening retail-fuel markets.
An ambitious programme of investment in domestic exploration and production is also under way. Some returns on the government's investments have already been forthcoming. In May 2007 state-owned China National Petroleum Corporation announced the discovery of a 1bn-tonne offshore oilfield in Bohai Bay. If the oil is entirely recoverable, this would boost China's reserves by around 50%. However, notwithstanding discoveries like these, China is unlikely to manage to expand its domestic production fast enough to meet demand. The country even became a net importer of coal in April 2007, and coal imports—especially from Australia and South America—are set to continue to expand. Furthermore, despite the abundance of China's coal reserves, the lack of adequate internal infrastructure makes it difficult to transport coal between northern and southern China—implying that parts of the country will remain highly dependent on imported coal.
Another policy priority is the expansion and diversification of the country's energy sources, with an emphasis on hydropower, nuclear power and natural gas. For example, the government aims to raise the use of natural gas from just 2.9% of primary energy consumption in 2005 to 10% in 2020. Since China has just 1.3% of the world's natural gas reserves, meeting this target will require a big increase in imports. China is building a series of terminals on its southern coast to handle the anticipated surge in shipments from abroad.
As China's dependence on foreign oil and gas rises, efforts to secure access to multiple sources of imports will continue. Already, China has actively sought to diversify its foreign supplies, focusing not only on the Middle East and Central Asia, but also increasingly on Africa, South-east Asia and Latin America. By 2025, according to the US Energy Information Administration, foreign supplies will account for a dizzying 77% of China's total oil consumption, compared to the current level of less than 50%. Still, given the controversy created by the failed bid by China National Offshore Oil Corporation for US-based Unocal in 2005, and the limited amount of oil that can be secured through acquisitions of foreign energy companies, the emphasis is likely to remain on securing long-term supply contracts. The government is also building up strategic oil reserves, but these will be small by international standards and filling them will be a very long process—especially if international oil prices remain high.
Meanwhile, China has embarked on a massive campaign to augment its domestic power-generation capacity. An estimated 81 gw of new capacity was added in 2006, and the government plans to invest a further Rmb600bn (around US$79bn) in new power plants during 2007-12, with the goal of reaching 1,000 gw of generating capacity. The vast bulk of this—around 600 gw—will still be coal-based, but the contributions of nuclear, gas and alternative energy are targeted to rise sharply. In January 2006 a law was passed specifically to promote the solar, wind, geothermal, biofuel and hydropower sectors. Scores of dams are under construction on the upper reaches of the Yellow River in Qinghai and Ningxia, and on the Jinsha River spanning Sichuan and Yunnan. Eight nuclear power reactors are under construction in Zhejiang, Guangdong and Fujian, with another 22 on the drawing board. Large amounts of maize are also being converted into biofuels such as ethanol, although the government will remain wary of jeopardising food security.
The EIU view
China's energy policymakers face several policy dilemmas that will complicate their efforts to keep pace with demand over the next several years. For one thing, the need to maintain political stability limits the government's ability to improve efficiency. There is plenty of room for improvement—China uses around three times as much energy per unit of GDP as the US, and nine times as much as Japan—but the goal of engineering a "harmonious society" ensures that economic growth targets will almost always trump efforts to cut energy consumption. Efficiency gains are also limited by the inability of the central government fully to impose its will on local leaders.
Worries about political unrest also underscore the government's cautious approach to price liberalisation. Higher fuel prices could exacerbate rural poverty and accelerate the flood of migrants to the cities, while costing the CCP a measure of popular support among urban dwellers. In the past government efforts to increase resource prices have led to protests. These political concerns are one reason why China seems set to miss its energy-intensity targets by a long shot; the government aims to reduce energy intensity by 20% in 2005-10 but achieved a reduction of only 1.2% in 2006. Even this figure may be exaggerated, however, given the expansion of the metals and cement industries in 2006. Ultimately the key to reducing energy intensity will be a move away from investment-led economic growth—a long-term transition that is unlikely to have made much headway by 2010.
Policymakers must also juggle the aims of energy independence and energy efficiency. China's most abundant domestic energy resource (coal) is highly polluting and relatively inefficient, yet diversification into more efficient, less polluting sources of energy will require expanded imports. Price reforms could also increase import-dependence as domestic energy becomes more expensive. Plans to increase the use of natural gas will depend on reducing its current high cost.
China's import-dependence will in turn continue to undermine its efforts to be seen as a responsible stakeholder in the international system. As a relative latecomer to the global scramble to secure energy supplies, China's overseas investment options are limited. Its involvement in pariah states such as Sudan (where oil reserves are still relatively untapped) will expand, as the fear of the domestic political consequences of an economic slowdown—as well as the commercial interests of China's state-owned energy firms—will continue to trump the desire to avoid international opprobrium.
Given China's apprehensions about import-dependence and its colossal pollution problems, the prospects for China's fledgling alternative energy industry should be bright. In reality, however, the government's targets will be difficult to achieve, and the industry faces so many impediments that even its most ardent advocates are at best only cautiously optimistic about its future. The main hurdle continues to be cost. Although technologies needed to generate electricity from alternative energy sources are getting cheaper and more efficient in China, production remains relatively expensive, particularly when compared with coal-based energy.
The government's target for hydroelectricity—240 gw by 2020—looks particularly problematic, as it would require the construction of the equivalent of the huge Three Gorges dam project every two years. The target for nuclear-generated electricity looks similarly daunting, implying the need to invest more than US$3bn annually for the next 20 years. Meanwhile, the central government will continue to face difficulties preventing local authorities and township enterprises from building cheap, inefficient coal-fired power plants.
Despite these challenges, China is likely to make steady progress towards its energy goals. We expect energy consumption growth to slow to around 6% a year by 2010, down from 16% as recently as 2004. Meeting this lower level of demand growth will be no small feat, and a heavy dependence on energy imports seems inevitable. However, looking beyond the government's immediate policy dilemmas, China's energy crunch is set to ease as the economy matures. In the long run, structural changes already under way—such as price liberalisation, the consolidation of inefficient industries, the expansion of the services sector and the transition from investment-driven to consumption-driven growth—should help to moderate the energy intensity of the economy.
Wednesday, July 4, 2007
China Shenhua plans to raise $6.7 billion to fill vacuum in domestic coal mining infrastructure
Shenhua Energy May Raise $6.7 Billion in Share Sale (Update6)
By Ying Lou
July 3 (Bloomberg) -- China Shenhua Energy Co. is planning the world's biggest share sale by a coal mining company to raise as much as $6.7 billion as demand for the fuel surges.
The nation's largest coal producer plans to sell as many as 1.8 billion yuan-denominated shares in Shanghai, Shenhua said in a statement to Hong Kong's stock exchange yesterday. The Beijing-based company will spend the money on coal, power and transport operations and on domestic and overseas acquisitions.
The sale may set a record for Shanghai and would rival one planned by PetroChina Co. as the world's second-largest this year. China, the biggest energy user after the U.S., is pushing its companies listed in Hong Kong to sell shares in the mainland to cool a market that's quadrupled in value since the start of 2006.
``A share sale will give domestic investors more choices to participate and benefit from China's unquenched thirst for energy,'' said Lei Wang, co-portfolio manager of more than $13 billion at Thornburg International Value Fund in Santa Fe, New Mexico. ``I remain positive on China's coal industry, which might see multiple years of uptrend, because of the ability to pass on costs and a favorable demand-supply balance.''
China became a net importer of coal for the first time this year because of rising energy needs in the world's fastest- growing major economy, where the fuel generates 78 percent of electricity. Coal prices at Qinhuangdao, China's largest port for the fuel, rose to a record last week as increased use of air conditioners in the summer season boosts power demand.
Shares at Record
Shenhua shares rose 6.6 percent to a record HK$29.10 at the 4 p.m. market close in Hong Kong. The stock is the sixth-best performer in the past three months among the 20 members of the Bloomberg World Coal Index.
The share sale would be the second largest in the world this year after an $8 billion sale by VTB Group, Russia's second-biggest bank, in May, according to data compiled by Bloomberg. It would eclipse the $6.1 billion Industrial & Commercial Bank of China Ltd. raised in Shanghai last year.
The coal producer's plan brings to about $20 billion the value of China share sales announced or completed by Hong Kong- listed companies within the past three weeks.
China Construction Bank Corp. said June 15 it plans to sell $5.5 billion of shares in Shanghai, while China Cosco Holdings Co. raised 15 billion yuan last week selling stock. PetroChina said June 20 it will raise as much as $6 billion selling shares to mainland investors for the first time.
Shareholder Meeting
Shenhua's Chinese stock, known as A shares, would be worth 50.9 billion yuan, based on today's closing price in Hong Kong. That would exceed the company's HK$25.49 billion ($3.3 billion) initial public offering in Hong Kong in 2005, a record for a coal producer. Shenhua, the world's largest coal company by market value, gave no price range or timing for the sale, saying shareholders will meet to vote on it ``soon.'' The plan must also be approved by the state.
Chairman Chen Biting wants to gain from an equity boom that has driven shares to 42 times earnings in China, the most expensive in the Asia-Pacific region. Shenhua stock has gained almost fourfold since making their debut at HK$7.30 in June 2005 and now trades at 22 times estimated earnings.
A cut in coal exports from China, the largest producer and consumer of the fuel, has benefited producers including PT Adaro Indonesia, the Southeast Asian nation's second-largest coal supplier. Adaro plans to raise as much as $600 million in what would be Indonesia's biggest initial public offering, said three people with knowledge of the plan.
Parent's Assets
In a separate statement yesterday, Shenhua said it agreed to pay 3.33 billion yuan ($438 million) to acquire Shenhua Group Shenfu Dongsheng Coal Co. and Shenhua Shendong Power Co. from parent Shenhua Group Corp.
``This acquisition is very positive to Shenhua, which needs to both rejuvenate its growth profile among peers and offset investors' concerns about cost margins,'' Thornburg's Wang said.
Shenhua's net income rose 12 percent to 17.5 billion yuan last year. Rival China Energy reported a profit of 3.17 billion yuan for 2006 and Yanzhou Coal Mining Co. earned 2.37 billion yuan.
Shenhua, which has coal reserves second only to Peabody Energy Corp., plans to spend 25 billion yuan annually in the next three years to expand coal mining and power generating capacity.
Coal Price
The price of coal for immediate delivery, excluding shipping costs, climbed 2.98 yuan a metric ton to a record 563.38 yuan for the week ended June 29, according to the McCloskey Group. The price of coal at Qinhuangdao has risen almost threefold in the past five years.
The nation's coal output rose 7.1 percent in the first half of this year, the China Securities Journal said today.
China's 2007 coal production may rise 8.6 percent to 2.52 billion tons and demand may gain 8.5 percent to 2.51 billion tons, the China Economic Information Network said Nov. 4. The network is a unit of the State Information Center, part of the National Development and Reform Commission.
By Ying Lou
July 3 (Bloomberg) -- China Shenhua Energy Co. is planning the world's biggest share sale by a coal mining company to raise as much as $6.7 billion as demand for the fuel surges.
The nation's largest coal producer plans to sell as many as 1.8 billion yuan-denominated shares in Shanghai, Shenhua said in a statement to Hong Kong's stock exchange yesterday. The Beijing-based company will spend the money on coal, power and transport operations and on domestic and overseas acquisitions.
The sale may set a record for Shanghai and would rival one planned by PetroChina Co. as the world's second-largest this year. China, the biggest energy user after the U.S., is pushing its companies listed in Hong Kong to sell shares in the mainland to cool a market that's quadrupled in value since the start of 2006.
``A share sale will give domestic investors more choices to participate and benefit from China's unquenched thirst for energy,'' said Lei Wang, co-portfolio manager of more than $13 billion at Thornburg International Value Fund in Santa Fe, New Mexico. ``I remain positive on China's coal industry, which might see multiple years of uptrend, because of the ability to pass on costs and a favorable demand-supply balance.''
China became a net importer of coal for the first time this year because of rising energy needs in the world's fastest- growing major economy, where the fuel generates 78 percent of electricity. Coal prices at Qinhuangdao, China's largest port for the fuel, rose to a record last week as increased use of air conditioners in the summer season boosts power demand.
Shares at Record
Shenhua shares rose 6.6 percent to a record HK$29.10 at the 4 p.m. market close in Hong Kong. The stock is the sixth-best performer in the past three months among the 20 members of the Bloomberg World Coal Index.
The share sale would be the second largest in the world this year after an $8 billion sale by VTB Group, Russia's second-biggest bank, in May, according to data compiled by Bloomberg. It would eclipse the $6.1 billion Industrial & Commercial Bank of China Ltd. raised in Shanghai last year.
The coal producer's plan brings to about $20 billion the value of China share sales announced or completed by Hong Kong- listed companies within the past three weeks.
China Construction Bank Corp. said June 15 it plans to sell $5.5 billion of shares in Shanghai, while China Cosco Holdings Co. raised 15 billion yuan last week selling stock. PetroChina said June 20 it will raise as much as $6 billion selling shares to mainland investors for the first time.
Shareholder Meeting
Shenhua's Chinese stock, known as A shares, would be worth 50.9 billion yuan, based on today's closing price in Hong Kong. That would exceed the company's HK$25.49 billion ($3.3 billion) initial public offering in Hong Kong in 2005, a record for a coal producer. Shenhua, the world's largest coal company by market value, gave no price range or timing for the sale, saying shareholders will meet to vote on it ``soon.'' The plan must also be approved by the state.
Chairman Chen Biting wants to gain from an equity boom that has driven shares to 42 times earnings in China, the most expensive in the Asia-Pacific region. Shenhua stock has gained almost fourfold since making their debut at HK$7.30 in June 2005 and now trades at 22 times estimated earnings.
A cut in coal exports from China, the largest producer and consumer of the fuel, has benefited producers including PT Adaro Indonesia, the Southeast Asian nation's second-largest coal supplier. Adaro plans to raise as much as $600 million in what would be Indonesia's biggest initial public offering, said three people with knowledge of the plan.
Parent's Assets
In a separate statement yesterday, Shenhua said it agreed to pay 3.33 billion yuan ($438 million) to acquire Shenhua Group Shenfu Dongsheng Coal Co. and Shenhua Shendong Power Co. from parent Shenhua Group Corp.
``This acquisition is very positive to Shenhua, which needs to both rejuvenate its growth profile among peers and offset investors' concerns about cost margins,'' Thornburg's Wang said.
Shenhua's net income rose 12 percent to 17.5 billion yuan last year. Rival China Energy reported a profit of 3.17 billion yuan for 2006 and Yanzhou Coal Mining Co. earned 2.37 billion yuan.
Shenhua, which has coal reserves second only to Peabody Energy Corp., plans to spend 25 billion yuan annually in the next three years to expand coal mining and power generating capacity.
Coal Price
The price of coal for immediate delivery, excluding shipping costs, climbed 2.98 yuan a metric ton to a record 563.38 yuan for the week ended June 29, according to the McCloskey Group. The price of coal at Qinhuangdao has risen almost threefold in the past five years.
The nation's coal output rose 7.1 percent in the first half of this year, the China Securities Journal said today.
China's 2007 coal production may rise 8.6 percent to 2.52 billion tons and demand may gain 8.5 percent to 2.51 billion tons, the China Economic Information Network said Nov. 4. The network is a unit of the State Information Center, part of the National Development and Reform Commission.
Friday, June 15, 2007
Growing Presence of Energy Hedge Funds in Europe
Hedge Funds Forecast Windfall in Europe's Growing Power Market
By Lars Paulsson
June 15 (Bloomberg) -- Hedge fund manager Marcel Melis ignores stock charts, commodities reports and bond prices as he sips his morning coffee. All his attention is focused on one thing: the weather.
Melis analyzes forecasts for areas from the snowcapped mountains of Norway to the beaches of Spain's Costa del Sol to predict changes in demand for power and gas. The founder of Energy Capital Management BV, which has raised $60 million and started trading in October, targets returns of 25 to 30 percent.
``If you don't know what the weather is doing you have no chance making money trading energy,'' Melis, 38, says in his ninth-floor office overlooking Amsterdam's biggest power plant.
The number of hedge funds with more than a quarter of their capital in European energy jumped fivefold to 50 last year as German utilities began releasing data on plant outages, helping traders forecast supply in the region's largest market, according to Energy Hedge Fund Center LLC. The value of derivatives traded on the European Energy Exchange in Germany more than doubled to 58.75 billion euros ($78.08 billion).
European power prices are on the rise after falling to records following the mildest winter in more than 100 years.
Germany's third-quarter power contract has been the focus of traders ever since April 11, when the U.K.'s Met Office said the summer in northwest Europe would probably be hotter than average, boosting demand for power and increasing the risk of price spikes.
The contract rose as high as 49.30 euros a megawatt hour on May 18, after dropping to 36.40 in February. It closed at 44.25 euros on June 14.
Price Controls
Government interference may threaten the development of European markets. Price controls in France, Spain and Italy deter investors, said Peter Styles, chairman of the European Federation of Energy Traders' electricity committee.
``At worst, price caps could not only distort the market but also destroy it,'' Styles said.
Traded power volume in France, Europe's second-biggest market, is about the same as consumption, compared with six times demand in Germany, said Peter Krembel, head of continental power trading at RWE AG's trading unit.
Hedge funds gained a toehold in Europe's power markets in 2001, when Norway's Interkraft Capital Management ASA began trading in the Nordic region. It was joined by U.S. firms D.E Shaw & Co., Tudor Investment Corp. and Amaranth Advisors Inc., which collapsed in September under $6.6 billion of energy-trading losses. D.E. Shaw and Tudor declined to comment for this article.
Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested.
Investors are turning to Germany after generators began releasing aggregated power supply data last year. In addition, E.ON AG, the country's largest utility, now publishes planned outages. RWE AG, the second biggest, says it will do the same.
German Power
Germany's size and increasing liquidity may boost profits, said Daniel Dahlin, chief investment officer at Bermuda-based Electris Energy Fund Ltd., which has raised $25 million. Electris returned 7.3 percent in its first 12 months of trading on Nord Pool, Europe's biggest power exchange, and plans to expand into Germany this year.
``If you're active in more than one market you have the possibility of higher returns with a lower risk,'' said Dahlin, 36, the former head of Nordic power trading at Vattenfall AB, Sweden's state-owned utility.
Banks are also competing for a slice of the market. Citigroup Inc., the biggest U.S. bank, plans to add 10 traders for the European power and gas and carbon allowance markets.
``When you're looking to get established, it's important to hire key traders with experience that you can build a team around,'' said Paul Mead, Citigroup's managing director for power, gas and emissions in London.
Traders in Demand
Competition for experienced traders is driving up salaries.
Compensation for European power traders started rising about three years ago and top performers now receive $4 million to $5 million a year, recruiters said.
``Bonuses of 300 percent are not limited to the banking community any longer as we are seeing similar deals adopted by the energy companies,'' said Jakob Bloch, managing director of Hampshire, England-based Commodity Appointments Ltd.
Commodities hedge funds returned 13 percent to 23 percent last year, based on 100 funds tracked by London-based NewFinance Capital LLP. The Standard & Poor's Goldman Sachs Commodity Index of 24 futures prices fell 15 percent last year.
Melis's MMT Energy Fund seeks to profit on the difference between energy prices in various markets and time periods.
``We're doing well,'' he says, declining further comment on whether the fund is meeting its target for annual returns.
Amsterdam Garages
Melis got his start in the Amsterdam real estate market, where he's been buying and selling houses and garages since the mid-1990s. He developed his energy trading skills at BP Plc, Statkraft SF, Reliant Energy Inc. and Delta Energy NV.
That experience helps him oversee the MMT fund's positions in German, Dutch and Belgian power and U.K. and Dutch natural gas as well as European carbon allowances and coal contracts.
Melis and his four colleagues spend their days in an office decorated with maps of the European power and gas distribution networks, along with charts showing generation capacity and fuel sources used in countries throughout the region.
At a communal work table, weather reports and prices for energy contracts stream across banks of metal-edged, flat-panel screens. Melis plans to add French, Nordic and U.K. power, along with Brent crude and gasoil to the fund's portfolio this year.
``The nice thing about energy is that it's very complex, difficult to understand and very volatile,'' Melis said. ``That's what makes it interesting.''
Long, Hot Summer
Melis and energy trader Olaf Ter Bille make deals on the exchanges and in the over-the-counter markets, where brokers such as Icap Plc and GFI Group Inc. match buyers and sellers.
Over-the-counter trades still account for more than 75 percent of the volume in the seven biggest electricity markets, according to Prospex Research Ltd.
``Europe's power markets are beginning to mature, but are still relatively untapped by hedge fund traders and they are growing rapidly,'' said Gary Vasey, co-principal at Energy Hedge Fund Center in New York.
For now, traders are focusing on how the weather will affect prices in the next few months.
``Everyone's afraid of a hot summer,'' Melis says.
By Lars Paulsson
June 15 (Bloomberg) -- Hedge fund manager Marcel Melis ignores stock charts, commodities reports and bond prices as he sips his morning coffee. All his attention is focused on one thing: the weather.
Melis analyzes forecasts for areas from the snowcapped mountains of Norway to the beaches of Spain's Costa del Sol to predict changes in demand for power and gas. The founder of Energy Capital Management BV, which has raised $60 million and started trading in October, targets returns of 25 to 30 percent.
``If you don't know what the weather is doing you have no chance making money trading energy,'' Melis, 38, says in his ninth-floor office overlooking Amsterdam's biggest power plant.
The number of hedge funds with more than a quarter of their capital in European energy jumped fivefold to 50 last year as German utilities began releasing data on plant outages, helping traders forecast supply in the region's largest market, according to Energy Hedge Fund Center LLC. The value of derivatives traded on the European Energy Exchange in Germany more than doubled to 58.75 billion euros ($78.08 billion).
European power prices are on the rise after falling to records following the mildest winter in more than 100 years.
Germany's third-quarter power contract has been the focus of traders ever since April 11, when the U.K.'s Met Office said the summer in northwest Europe would probably be hotter than average, boosting demand for power and increasing the risk of price spikes.
The contract rose as high as 49.30 euros a megawatt hour on May 18, after dropping to 36.40 in February. It closed at 44.25 euros on June 14.
Price Controls
Government interference may threaten the development of European markets. Price controls in France, Spain and Italy deter investors, said Peter Styles, chairman of the European Federation of Energy Traders' electricity committee.
``At worst, price caps could not only distort the market but also destroy it,'' Styles said.
Traded power volume in France, Europe's second-biggest market, is about the same as consumption, compared with six times demand in Germany, said Peter Krembel, head of continental power trading at RWE AG's trading unit.
Hedge funds gained a toehold in Europe's power markets in 2001, when Norway's Interkraft Capital Management ASA began trading in the Nordic region. It was joined by U.S. firms D.E Shaw & Co., Tudor Investment Corp. and Amaranth Advisors Inc., which collapsed in September under $6.6 billion of energy-trading losses. D.E. Shaw and Tudor declined to comment for this article.
Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested.
Investors are turning to Germany after generators began releasing aggregated power supply data last year. In addition, E.ON AG, the country's largest utility, now publishes planned outages. RWE AG, the second biggest, says it will do the same.
German Power
Germany's size and increasing liquidity may boost profits, said Daniel Dahlin, chief investment officer at Bermuda-based Electris Energy Fund Ltd., which has raised $25 million. Electris returned 7.3 percent in its first 12 months of trading on Nord Pool, Europe's biggest power exchange, and plans to expand into Germany this year.
``If you're active in more than one market you have the possibility of higher returns with a lower risk,'' said Dahlin, 36, the former head of Nordic power trading at Vattenfall AB, Sweden's state-owned utility.
Banks are also competing for a slice of the market. Citigroup Inc., the biggest U.S. bank, plans to add 10 traders for the European power and gas and carbon allowance markets.
``When you're looking to get established, it's important to hire key traders with experience that you can build a team around,'' said Paul Mead, Citigroup's managing director for power, gas and emissions in London.
Traders in Demand
Competition for experienced traders is driving up salaries.
Compensation for European power traders started rising about three years ago and top performers now receive $4 million to $5 million a year, recruiters said.
``Bonuses of 300 percent are not limited to the banking community any longer as we are seeing similar deals adopted by the energy companies,'' said Jakob Bloch, managing director of Hampshire, England-based Commodity Appointments Ltd.
Commodities hedge funds returned 13 percent to 23 percent last year, based on 100 funds tracked by London-based NewFinance Capital LLP. The Standard & Poor's Goldman Sachs Commodity Index of 24 futures prices fell 15 percent last year.
Melis's MMT Energy Fund seeks to profit on the difference between energy prices in various markets and time periods.
``We're doing well,'' he says, declining further comment on whether the fund is meeting its target for annual returns.
Amsterdam Garages
Melis got his start in the Amsterdam real estate market, where he's been buying and selling houses and garages since the mid-1990s. He developed his energy trading skills at BP Plc, Statkraft SF, Reliant Energy Inc. and Delta Energy NV.
That experience helps him oversee the MMT fund's positions in German, Dutch and Belgian power and U.K. and Dutch natural gas as well as European carbon allowances and coal contracts.
Melis and his four colleagues spend their days in an office decorated with maps of the European power and gas distribution networks, along with charts showing generation capacity and fuel sources used in countries throughout the region.
At a communal work table, weather reports and prices for energy contracts stream across banks of metal-edged, flat-panel screens. Melis plans to add French, Nordic and U.K. power, along with Brent crude and gasoil to the fund's portfolio this year.
``The nice thing about energy is that it's very complex, difficult to understand and very volatile,'' Melis said. ``That's what makes it interesting.''
Long, Hot Summer
Melis and energy trader Olaf Ter Bille make deals on the exchanges and in the over-the-counter markets, where brokers such as Icap Plc and GFI Group Inc. match buyers and sellers.
Over-the-counter trades still account for more than 75 percent of the volume in the seven biggest electricity markets, according to Prospex Research Ltd.
``Europe's power markets are beginning to mature, but are still relatively untapped by hedge fund traders and they are growing rapidly,'' said Gary Vasey, co-principal at Energy Hedge Fund Center in New York.
For now, traders are focusing on how the weather will affect prices in the next few months.
``Everyone's afraid of a hot summer,'' Melis says.
Monday, May 28, 2007
Another Carbon Credit Fund created
South Korea to Start State-Led Carbon Fund in July (Update1)
By Meeyoung Song
May 28 (Bloomberg) -- South Korea, which imports 97 percent of its energy and mineral needs, plans to set up the nation's first government-led carbon fund in July.
The fund may be as large as 200 billion won ($215 million), the Ministry of Commerce, Industry and Energy said in an e-mailed statement today. It will invest in carbon-reducing businesses approved by the United Nations and profit from selling carbon credits these businesses produce, the ministry said.
South Korea wants to reduce reliance on oil and diversify energy sources after crude oil prices more than doubled since 2001. The country joins Japan and China in trying to expand the use of cleaner fuels to address concerns that power generation is harming the environment. Energy and industrial activity account for more than 90 percent of the country's greenhouse gas emissions, the ministry said.
The Clean Development Mechanism under the 1997 Kyoto Protocol allows companies in industrialized nations including Japan and most of Europe to buy carbon credits from developing countries to comply with requirements to cut emissions. The credits are derived from projects such as wind farms that are approved by the UN.
The fund will be managed by Korea Investment Trust Management Co., while Korea Energy Management Corporation will invest an initial 20 billion won and act as an adviser, the ministry said.
Kookmin Bank
Kookmin Bank, South Korea's largest lender, will establish a 330 billion won fund that will invest in companies dealing with renewable energy such as solar power, the ministry said on May 20.
Kookmin Bank's fund will be in operation for 15 years, with a yield of more than 7 percent annually after exemptions, the ministry said at the time.
There are more than 30 carbon funds worldwide, valued at at least 2.5 billion euros ($3.4 billion), the ministry said today.
South Korea is among 21 Asia-Pacific Economic Cooperation member nations meeting in Darwin this week to discuss energy- supply security and climate change. The group is responsible for 60 percent of world energy use.
Global energy demand is set to increase by 50 percent by 2030, resulting in an increase in carbon dioxide emissions of between 35 percent and 55 percent, according to International Energy Agency forecasts.
By Meeyoung Song
May 28 (Bloomberg) -- South Korea, which imports 97 percent of its energy and mineral needs, plans to set up the nation's first government-led carbon fund in July.
The fund may be as large as 200 billion won ($215 million), the Ministry of Commerce, Industry and Energy said in an e-mailed statement today. It will invest in carbon-reducing businesses approved by the United Nations and profit from selling carbon credits these businesses produce, the ministry said.
South Korea wants to reduce reliance on oil and diversify energy sources after crude oil prices more than doubled since 2001. The country joins Japan and China in trying to expand the use of cleaner fuels to address concerns that power generation is harming the environment. Energy and industrial activity account for more than 90 percent of the country's greenhouse gas emissions, the ministry said.
The Clean Development Mechanism under the 1997 Kyoto Protocol allows companies in industrialized nations including Japan and most of Europe to buy carbon credits from developing countries to comply with requirements to cut emissions. The credits are derived from projects such as wind farms that are approved by the UN.
The fund will be managed by Korea Investment Trust Management Co., while Korea Energy Management Corporation will invest an initial 20 billion won and act as an adviser, the ministry said.
Kookmin Bank
Kookmin Bank, South Korea's largest lender, will establish a 330 billion won fund that will invest in companies dealing with renewable energy such as solar power, the ministry said on May 20.
Kookmin Bank's fund will be in operation for 15 years, with a yield of more than 7 percent annually after exemptions, the ministry said at the time.
There are more than 30 carbon funds worldwide, valued at at least 2.5 billion euros ($3.4 billion), the ministry said today.
South Korea is among 21 Asia-Pacific Economic Cooperation member nations meeting in Darwin this week to discuss energy- supply security and climate change. The group is responsible for 60 percent of world energy use.
Global energy demand is set to increase by 50 percent by 2030, resulting in an increase in carbon dioxide emissions of between 35 percent and 55 percent, according to International Energy Agency forecasts.
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