Business Trends

The Financial Times has carried a report into how financial analysts have been identifying risks to traditional thermal power generation businesses arising from the increase in power generation from renewable energies. The mandating of renewable energy contributions across numerous countries means that the rise will continue medium term. The credit rating agency Moody’s has warned of pressure on the credit quality of thermal power generators, while Swiss bank UBS said in July that European utilities risked having up to half of their profits wiped out by 2020, and downgraded the credit ratings of EDF and RWE. (This somewhat ignores the fact, however, that most utilities have signficant renewables arms.) According to Moody’s, power generation from renewables now accounts for over a third of Europe’s power generation capacity, and is set to rise to one half by 2020. The low operating costs of many renewables can displace the use of gas and coal power plants, pushing wholesale prices down, according to the report. The intermittent nature of renewable power generation requires traditional power plants to remain online, though their hours of operation may be reduced, leading to lower profits. However, the need to retain a baseline from traditional power generation has led regulators in several European countries to consider bringing in ‘capacity’ payments to encourage traditional generators to remain online. Utilities, of course, are well aware of the situation, and are monitoring it closely.

The town of Medicine Bow, Wyoming, USA, home to fewer than 300 people, has been chosen by DKRW Advanced Fuels as the site for an advanced coal to liquid fuel plant, the building of which has been contracted to China Petrochemical Corp (also known as Sinopec). The project has previously been described by DKRW as costing around $US 2 billion/€1.57 billion, although the size of the deal with Sinopec has not been publicised. For DKRW, Sinopec brings procurement at a very competitive cost, and the possibility of tapping into Chinese capital; for Sinopec, the deal is a step on its path to build a globally recognised Chinese engineering brand. It forms part of a wider push by Chinese firms into international markets, which is seen as an effort not only to increase revenues but to utilise China’s materials production capacity.

Europe’s manufacturing industry has been voicing its concerns over the growing gap in energy costs between Europe and the US, which is giving US manufacturers a significant competitive advantage. BASF and Bayer are two companies amongst those concerned, with a BASF executive telling the Financial Times “We Europeans are currently paying up to four or five times more for natural gas than the Americans … Of course that means increased competition for all the European manufacturing sites.” The German industry group BDI projects that the gap will be present until at least 2020, and suspects that investment in manufacturing will shift to the US from Europe.

Environment

Over 20 activists from the ‘No Dash for Gas’ group, which protests the intention to increase the number of gas-fired power plants in the UK, broke into EDF’s West Burton gas-fired power plant in early November. Seventeen of their number managed to climb the stacks of the partially operational (and still under construction) plant, which they then abseiled down inside of, forcing an immediate shut-down of the equipment. Five of the group were arrested, but those not arrested announced their intention to stay protesting at the plant for a week, having brought enough food to do so. They released a statement saying “We are here to challenge corporate power and the rush to further ingrain an energy system that puts short-term profits of the few, above the collective needs of the many.” The group may or may not have read the Financial Times’ article on the hold up of new gas-fired power plant projects because of hesitant government policy, and the resulting fears of an energy generation shortfall over the coming years.

Research, Development and Technology

The UK Department of Energy and Climate Change announced at the end of October that it had chosen four projects in its shortlist for the £1 billion/€1.27 billion/$US 1.59 billion carbon capture and storage competition it is running, and which aims to support the development of CCS technology. Eight bids had been received. The four shortlisted are Captain Clean Energy Project, involving Summit Power, Petrofac, National Grid and Siemens; Peterhead, involving Shell and SSE; Teesside Low Carbon Project, involving Progressive Energy, GDF Suez, Premier Oil, and BOC; and White Rose Project, involving Alstom, Drax, BOC and National Grid. The UK government will chose which of these projects it will support in the new year, after commercial negotiations with the teams. Three of the teams also applied for European Commission funding as part of the New Entrant Reserve allowances, and the UK has informed the EC it will support its chosen projects in obtaining EC funding.

Norwegian shipping firm Golar LNG announced at the start of November that it will convert one of its existing LNG tankers into a floating LNG vessel (FLNGV), capable of collecting gas that would be flared at offshore oil platforms and processing it into LNG. The move is seen as a major one, with entry of the shipping firm into the upstream process that is dominated by traditional oil and gas firms. The conversion is due to be completed by 2015, and Golar has also announced it has options to convert another two of its existing fleet into FLNGVs. Golar appears likely to be competing with micro gas to liquids conversion technology that other firms have been pursuing, giving oil and gas companies a further option in dealing with the GHG problem posed by flaring.

Company News

The chief financial officer of GDF Suez has stated that the company may look to sell assets in an attempt to reduce its debt and maintain its credit rating during what it expects to be a difficult 2013. GDF Suez’s debt rose by €8.3 billion/$US 10.55 billion to €45.9 billion/$US 58.3 billion in the first nine months of 2012, due to shareholder buyouts, and the rise has threatened its grade A debt rating, which allows it to borrow at lower interest rates. However, the company’s financial performance has otherwise been strong, meeting its profit target of a rise of 5.8% for the year, thanks to higher gas tariffs in France. Russia’s Gazprom has been suggested as a possible buyer in any asset sales, although which assets to be sold are yet to be identified.

Holcim Philippines is planning to invest in new production facilities in the country to service an expected growth in domestic demand. It is to spend $US 350 – 450 million (€275 – 354 million) on the facility, to be up and running by 2016, and which will have an annual production capacity of 2 – 2.5 million tonnes of cement. Holcim Philippines reported a fall in profits in the third quarter of this year, due to an unusually large amount of plant downtime for maintenance, and due to the typically wet time of year.

Bosnia’s largest power utility, EPHiB, has shortlisted 11 candidates bidding to build a 450 MW coal-fired unit at its Tuzla power plant, with an expected cost of $US 997 million/€784 million. They are China Machinery Engineering Corporation (CMEC), Harbin Electric International, Sepco Electric Power Construction Corp., two consortia led by China Gezhouba Group Corp and Sepco III Electric Power Construction Corporation, Siemens, Hitachi, a consortium led by Toshiba, Hungary’s MVM OVIT National Power Line Company, Cobra Instalaciones y Servicios and Turkish Cengiz Enerji Sanayii. The new plant is to add to EPBiH’s current 1,165 MW capacity from coal-firing and 517 MW from hydropower. Bosnia is a net power exporter.

Israel’s Bank Leumi has announced that it is leading a consortium of banks to finance a 870 MW natural-gas fired power plant to be built for Dalia Power Energies, with the finance expected to be around $US 825 million/€649 million. The plant is expected to open in 2015, and will be fed by natural gas from the Tamar natural gas fields, which are located in Israeli waters in the Mediterranean Sea.