Transcript event_21-101-1-522047b04f8f0
AUGUST 2013
By:
B.M.VERMA
Advisor- Essar Power (M.P.) Ltd.
Ex- Chairman Jharkhand State Electricity Board Ex Chairman / Jharbihar Collier Ltd.
Ex Chairman/ Karanpura Energy Ltd.
Ex- CMD/ Uttarakhand Power Corporation Limited
Contact: +91- 9810588500/9899337132 Email: [email protected]
Unrestricted Demand Demand Met (Total Availability) Net Import from Grid
POWER CUT Power Cut
Date: 06-04-06 & 07-04-06 Hydro Gen.
Time in Hrs.
Hydro Gas Tapi Iran Bangladesh Nuclear Solar Wind Shale Gas
India has fifth largest coal reserves in the world with power sector consuming ~70% of domestic coal produced in the country. Coal accounts for 69% of total power generated in the country India’s coal demand increased at CAGR of 8.5% in the 11th plan. Compared to this, CIL’s domestic production during this period increased at a CAGR 4.6% only Demand Supply Gap
XI FYP (MT)
696.03 554 142.03
XII FYP (MT Projected)
980.50 715 265.5
XIII FYP (MT Projected)
1373 950 423
Particulars Coal Capacity at January 31, 2013 (MW) (A) Gas Total Capacity addition @ for balance XII th plan (MW) (B) Coal Gas Total Coal Capacity at March 31, 2017 (MW) (A+B) Gas Total Installed Capacity 122,900 18,900 141,800 71,000 * 7,500 78,500 193,900 26,400 220,300 Affected Capacity
Stranded Capacity
53,000 18,900 71,900 71,000 7,500 78,500 124,000 26,400 150,400
8,800 8,500 17,300 35,500 7,500 43,000 44,300 16,000 60,300
It is estimated that investments of about Rs 340,000 crores are impacted on account of current Affected Capacity of 71,900 MW Limited availability of coal has impacted new power plants and also existing ones. Shortage in domestic coal production estimated at 64 MPTA for 2012.
Stranded Capacity is derived from Affected Capacity and refers to the actual shortfall in generation due to non-availability of adequate coal and gas. Current Stranded Capacity is estimated at 17,300 MW. Generation loss on account of this is estimated at about Rs 42,000 crores (120 billion units @ Rs 3.50 per unit) which works out to about 0.45% of Gross Domestic Product (GDP)
Coal Reserves in India Total Resources ~ 285.90 Bt; Proved ~ 114 Bt Total Production in FY11 ~ 532 Mt, largely non coking (~93%)
Power sector is single largest coal consumer, approx 64 % supplied to the sector
Indian coal is generally high ash, low sulphur Average heat value ~ 4400 kcal/kg Power sector remains the largest consumer of coal at about 401.0 million tonnes per annum (MTPA) for FY2012 accounting for ~ 75% of total coal consumption
Coal present in 10 out of 28 states
Challenges for enhancing domestic coal production – Coal India Land Acquisition
– Land Acquisition is the biggest bottleneck in coal mining operations – CIL faced prolonged delays in implementation of its projects leading to loss of production – Even after acquisition, possession of land presents another problem to the company
Environment & Forestry Clearance Evacuation Infrastructure
Delay in conducting Public Consultations - SPCB takes considerable time to issue Consent to Establish and Consent to Operate Environment Clearance given up only to a certain capacity (projected peak production) for specific project. Further capacity expansion requires new clearance which again a prolonged process Forestry clearance takes much longer time and even being denied .
• The progress of new railway line projects related to coal evacuation have not achieved the desired progress in the last few years (Tori-Shivpur-Hazaribagh, Angul-Kalinga, Gopalpur-Manoharpur, Non-availability of sufficient number of railway rakes CCL , MCL & BCCL particularly facing the problems in dispatch of coal and increasing coal inventory levels 18
Port Logistics
WEST COAST # of Ports Gujarat 40 Maharashtra 53 Goa 5 Daman & Diu Port 2 Karnataka 10 Kerala 13 Lakshadweep Islands 10 EAST COAST # of Ports Tamilnadu 15 Pondicherry 1 Andhra Pradesh 12 Orissa 2 West Bengal 1 Andaman & Nicobar Islands 23
US / Canada / Colombia – Attractive Ocean Freight s will result into supplies into Pacific Markets including India
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China – May ban import of High Ash and High Sulphur Thermal coal with GCV (ARB) below 4,800 Kcal/Kg
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246 BT 15 BT
50 BT
32 BT 147 BT 59 BT 115 BT 20 BT 76 BT
993 68 101 674 260 335 248 589 3520 325
Indonesia
416 Asia / Pacific 65%
Asia Pacific Now dominant in Global Coal production and supply
SA Exports 2007 Europe : 42 T Million India : 9.22
MMT China: 20 MMT Rest Asia: 8.6 MMT Factors : -
Ocean Transportation cost(s) Voyage Availability & Domestic consumption Regulatory issues Economy including currency Coal Cost(s)
World Sea borne Trade 2010 Europe : 14.6
Million T SA Exports 2012 India : 22.98
MMT China: 12.8 MMT Rest Asia: 13.83 MMT
Local Issues, Mining & Labour costs Availability and cost of shale Gas, Oil prices for mining costs Change in Coal prices (Import & Export) due to appreciation / depreciation Deman d Drivers 29 M & A i.e. Glencore Xstrata Index linked spot / term contracts, Cost plus basis, Dividend Low / High CV, S, TM, VM Australian Tax for mining coal, Indian Clean Energy cess
INDIA Imported ~
107 Million
Tonnes of Thermal Coal in 2012 Other Countries : ~ 4.3 Million Tonnes
SOUTH AFRICA
India’s Thermal Coal Imports ~ 17 Million tonnes 30
INDONESIA
India’s Thermal Coal Imports ~ 83.4 Million tonnes
AUSTRALIA
India’s Thermal Coal Imports ~ 2.1 Million tonnes
- 7% + 6% - 10% + 8% 30% 34% 27.5% 37.5% 41.3%
* ARGUS FOB Prices ( 90 Days Forward)
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39.6% + 101.4% The HBA is the minimum price used for the calculation of taxes for producers pay for all future exports and domestic coal
sales. It is calculated using a basket of indices, including the price is a monthly average of the Indonesia Coal price Index (ICI-1), Platts-1, Newcastle Export Index and the globalCOAL Index from the previous month .
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Coal imports up 30% in Q1 Coal generation up 4% Q1 7.7% GDP growth exceeds government targets Urbanization expected to send 15 to 20 million people to cities each year ~250 GW of new coal generation by 2017 Coal imports up 25% in Q1 Coal generation up 9% Domestic coal production below targets; Minister of Coal calling for increased imports New port projects underway to enable greater imports ~70 GW of new coal generation by 2017 33
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Demand Growth 7 -8% (5 year CAGR) as against ~ 5% production growth In overall terms, GAP between projected demand of 980.50 MT and the projected domestic availability of 715 MT works out to be 265.5 MT in year 2016-17. (235 MT Thermal Coal and 30.5 MT Coking Coal) 36
INDIA: Fastest Growing Coal Importer
Long – term coal use could quadruple to 2 billion TPA.
Heavy reliance on imported coal.
Bridge between Atlantic and Pacific markets.
Segmented between
public & private sector.
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CHINA : Largest & Fastest Growing Coal Market
Tight supply – demand balance.
Production costs increasing
Small mine closures continuing.
Transportation & taxes encourages imports.
Thermal coal prices face downside risk. Thermal coal prices to drift lower in the coming months. Supply remains strong overall. However, Atlantic demand is thinning, while Pacific demand is not robust enough to absorb market excesses.
Atlantic demand is fading as summer approaches, and demand from China is lower on potentially strong hydropower generation and, above all, strong overall supply.
China’s hydropower generation, up 15% y/y in March, looks set to outperform again this summer as reservoirs remain at above-average levels; this will be a drag on thermal coal demand.
Coal inventory restocking in China is unlikely to see a corresponding increase in seaborne coal prices.
Standard Chartered has lowered their 2013 Newcastle price forecast to USD 89/tonne (t) (from USD 94/t previously) and their 2014 forecast to USD 91/t (from USD 96/t) to reflect current market sentiment.
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Tough times ahead for producers – near/mid term buyers market.
Indonesian and Australia face competition from each other and the wider market.
Demand will be there and continue to grow, however, market [prices] will recover when demand over takes supply again.
China being largely a spot market means business is increasingly being pushed towards the prompt.
Indian will buy when the price works, which should be ok for the near term, especially as freight is relatively cheap.
Whilst prices may remain relatively soft in the near term, they will become increasingly volatile in the prompt.
Indonesia maintains almost monopoly on sub-bituminous and low rank exports, ideally situated between the growth markets of India and China.
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Queries to Be Answered.
Affect of Currency Depreciation Current Account Deficit 41
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Coal futures contracts are not yet liquid and it is risky to lock price for long term.
There is no depth in futures markets as very low participation of Speculators.
Most of coal future contracts are cash settled (financial settlement) and delivery happens for few U.S. Coal contracts and API 2 (CIF ARA) on CME.
On intraday basis, there is not much volatility which stops speculators to enter the markets as they look at an opportunity with change in intra day prices.
Coal prices depends upon logistics / ocean transportation, customer base, local issues i.e. regulatory, economy, weather, demand - supply etc. and it is not necessary that increase in Indonesian coal price will lead to increase in SA and / or Australian and / or U.S. coal(s) too.
Coal forward prices are mostly determined by financial institutions and brokers as trade happens through OTC. Coal end-users hardly participate to mitigate price risks.
THANK YOU
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India has fifth largest coal reserves in the world with power sector consuming ~70% of domestic coal produced in the country. Coal accounts for 69% of total power generated in the country India’s coal demand increased at CAGR of 8.5% in the 11th plan. Compared to this, CIL’s domestic production during this period increased at a CAGR 4.6% only Demand Supply Gap
XI FYP (MT)
696.03 554 142.03
XII FYP (MT Projected)
980.50 715 265.5
XIII FYP (MT Projected)
1373 950 423
Most of the Indian Power Sectors are now looking for imported Coal India’s coal imports have more than doubled over the last five years There is a huge price difference between domestic and imported coal In addition the dynamism in the regulations of the countries from where coal is being imported pose further hurdles by way of political risks.
The Indonesian government implemented the Indonesian Coal Price Regulation, which requires prices for all transactions to be benchmarked against a set of international and domestic indices and all sale contracts to be modified retrospectively by September. Several developers have already entered into long term PPA’s with distribution utilities based on fuel tied up from Indonesian mines which have now been covered under the new law posing uncertainty over the operational viability of the affected plants
Reserves Proven 91 billion Tons Indicated 116 billion Tons Inferred TOTAL 37 billion Tons 245 billion Tons Coal reserves: > 250 years at present levels of consumption Others 13% Madhya Pradesh 7% Chattisgarh 16% West Bengal 11% Concentrated in Eastern India Jharkhand 29% Orissa 24%