Business Trends

The European Commission has presented its ‘EU steel action plan’, aimed at supporting a revival of the industry in Europe. It is the first comprehensive plan for the region’s steel industry since the Davignon Plan of the 1970s, reflecting the seriousness with which the industry’s position is viewed.

According to Reuters, the plan is aimed at reducing red tape, increasing innovation and apprenticeship schemes, and reducing the burden of energy costs borne by manufacturers (typically 40% of operating expenses).  For increasing demand, the plan relies on the EC’s existing plans to boost car production and increase construction.

Eurofer, the European steelmakers’ association, welcomed the plan, but said there was still a lot of work to be done to ensure that the industry will benefit from the proposals.  Criticisms included the lack of concrete measures in the plan, and that it did not properly address the issue of overcapacity.  There was also criticism that it was vague about climate and energy policy (including the cost of carbon).

The Financial Times has reported on analysts’ predictions of a rapid rise in biomass firing across Europe.  With biomass recognised as a renewable energy, policies in various European countries, and at the EU level, have been set to incentivise the use of the fuel in power generation.  A recent example has been the UK’s decision to give a full renewables obligation certificate (ROC) to power generators for firing biomass, up from the previous half ROC.  As 2020, the date of the EU 20% renewable power generation target approaches, investment in coal to biomass conversions is expected to grow, as this is a less capital-intensive means of achieving a higher renewables proportion.

Last year, Bloomberg New Energy Finance predicted that between 3.6 and 6.8 GW of biomass-fired capacity would be added by 2016; several investment decisions since then have supported the prediction.  Drax’s decision to convert three of six of its coal-fired units to wood pellets has been known since late last year; in early June this year, SSE and Forth Ports won approval to build a 120 MW electricity/200 MW heat plant fired by wood pellets at the Port of Grangemouth, central Scotland (a £465 million/€547 million/$US 729 million project, expected to commence operation in 2017). Wood pellet demand is expected to rise from the current ~12 million tonnes/annum to 25-30 million/annum by 2020, with most pellets being imported from the USA and Canada.  Dorothy Thomspon, CEO of Drax, says that biomass firing is 70-80% less carbon intensive than coal, with much of the emissions coming from the transport of the wood pellets, particularly by road, from their sources to North American ports.

Legislation and Regulation

The delay in the appointment of a new head for the US Environmental Protection Agency has sparked speculation about the agency’s new power plant emissions rule, which was due to have been finished in April.  The US Senate must endorse the new head, Gina McCarthy, but wishes to complete other business before turning to the endorsement, meaning it could be delayed by a month or more.

The new rule, titled the New Source Performance Standard, will limit new power plants to carbon emissions of 454 kg CO₂/MWh, effectively requiring carbon capture technology in new coal-fired power plants.  The deadline to finalise the rule was 13 April, but the date has passed and the EPA has been silent on the matter since, according to Reuters.  This has fuelled speculation that the agency is tweaking the rule; the National Mining Association, for instance, says it had a meeting to discuss the rule with McCarthy in early June.  The implication in the Reuter’s report is that some Republican representatives may be delaying McCarthy’s appointment as a means of exerting pressure to change the rule.

The European Commission is to lodge a complaint to the World Trade Organisation over duties which China charges on imports from Europe of stainless steel tubes used in the manufacture of power plants.  In doing so, the EC will join Japan in an escalating trade dispute with China over a range of goods and the duties charged on them. “There are rules, they must be respected,” the EC industry commissioner, Antonio Tajani, was reported by Reuters as saying. Tajani’s statement came a day after the presentation of recommendations aimed at supporting the European steel industry (see Business Trends above).

Environment

Conservationists have claimed that the capture, in May, of the largest ever recorded trout in Silver Lake, in the Adirondack mountains of the USA, is a sign that the region’s aquatic environment is recovering from the effects of years of acid rain caused by emissions from power plants and other industry in the region.

According to the New York Department of Environmental Conservation, by 1969 there were no trout in Silver Lake; in 2002, a restocking program commenced, following decades of work to reduce emissions.  The trout captured in May was 56 grams larger than the previous record.

Company News

In a sign that business knows no borders, the Palestinian Power Generating Company, which is planning to build a 200 MW gas-fired plant in the northern Palestinian city of Jenin, is in discussions with the Israeli company IC Power to supply it power.

At 200 MW, power generation from the planned plant will exceed Palestinian demand, meaning a surplus of electricity, which sparked IC Power’s interest.  Now, if an agreement is reached, the plant may be doubled in size to 400 MW, such would be the extra demand.  The larger size and the prospect of a large commercial agreement have made the plant more feasible.

Investment in the plant would fall under the $US 4 billion (€3 billion) of development money proposed by the Quartet on the Middle East (which comprises the UN, the EU, the US and Russia). Peace activists hope a successful deal will foster better relations between Palestine and Israel, but political considerations may yet hamper the deal.  The companies on both sides of the Green Line are not discussing the matter publically.

In Poland, the government has announced that the plan for two additional 900 MW hard coal-fired units (a total of 1.8 GW) at the Opole power plant in the country’s south-west has been revived.  This comes after the plan was cancelled by the state-owned power company PGE in April because of poor commercial prospects.

In early June, Donald Tusk, the Polish president, announced the readiness of the government to build the power plant in Opole.  He said the government would find the funds and a way for the investment to be carried out.

In February last year, PGE signed an agreement with a consortium led by boiler maker Rafeko, worth 9.4 billion zloty ($US 2.9 billion/€2.18 billion).  However low energy prices and weak demand persuaded them that the additional units would not return a sufficient profit.  The intervention of the Polish government has been made on the grounds of energy security.  It is assumed that the job of building the plants will still go to PGE, though this has not yet been confirmed.

The Wall Street Journal has carried an opinion piece on the decline of Gazprom in Europe.  According to the piece, while the company’s fortunes in the Asian region look bright, with exploration in Russia’s Far East progressing, and the prospects of supplying gas to China good, on the European side, where the bulk of the company’s money is made, it is facing serious challenges.  One of these is the knock-on effect of the North American shale boom, which has driven down coal prices such that many European power generators have chosen to fire coal rather than gas.  Also, there is the prospect that in the near future, Europe will begin to import LNG from North America – for example, E.ON has recently signed an agreement with Canadian firm Pieridae Energy.

It appears Gazprom was not properly anticipating the challenges that others saw it would face from the North American shale boom.  WSJ quotes Gazprom CEO Alexei Miller as having spoken in 2010 of the “myths” of “shale fever”.  An associated challenge comes from some of its traditional customers, for instance Lithuania, building infrastructure.  As such they will be able to source alternative gas supplies, a response to years of high prices  from Gazprom.

Furthermore, the EC has taken a firmer stance against what it sees as regulatory transgressions on the part of Gazprom, opening an antitrust investigation into the company.  Internally, in Russia, Gazprom is also losing market share, as competition is opened up.  A critic quoted in the report also accused the company of large investments in projects that do not add value.

Gazprom’s problems may be summed up by a comparison: in 2008, when the company was valued at $US 250 billion (€187.5 billion), Mr. Miller predicted that the company would have a market valuation of $US 1 trillion by 2015; in 2013, its market valuation stands at $US 90 billion.