• Combustion Industry News

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      Patrick Lavery

      Combustion Industry News Editor

CEO and five top executives resign from Petrobras as corruption scandal intensifies

A search for a new CEO and executive team for Petrobras has begun, after former chief Maria das Graças Foster and five other top managers resigned last Wednesday. As the Financial Times reports, the state-controlled Petrobras faces a number of serious challenges at the moment, namely “the largest corruption scandal in Brazilian history” and a very high level of indebtedness.  The corruption allegations relate to inflated contractual prices agreed with construction firms, the excess money going to executives to fund expensive lifestyles as well as for other bribes and political donations. With Ms Graças Foster being a close friend of Brazilian President Dilma Rousseff (who was chair of Petrobras until 2010), the scandal has threatened to tarnish the government, though the president has denied any knowledge of improper activity. The Brazilian government’s task of finding a new CEO is made difficult because of Petrobras’ situation, but the market has already decided that any change must be a good change, with the company’s share price rising.

Ukraine conflict depresses domestic steel sector

The ongoing conflict in Ukraine has hit the country’s steel sector hard, according to a report by the Financial Times. Before the start of the conflict the steel sector, which is centred in the Donbas region, contributed  around 15% of economic output; over the last year, with fighting spreading to the Donbas in August, annual steel output declined by almost 17% to 27.2 million tonnes. A lack of raw materials and other logistical problems compounded the need to close some plants temporarily because of sheer physical danger. The outlook for the Ukrainian steel sector has been made worse by China’s aggressive steel export policy and Russia’s efforts to protect its own steel industry – exports from Ukraine to Russia and the Far East dropped 35% (while exports to the Middle East and Europe remained relatively stable). Unfortunately for all involved, it appears that pro-separatist forces will launch an offensive in the Donbas area in the near future, threatening the sector even further.

Chinese domestic coal price dropped after negotiations with power sector

The price for domestically-produced coal in China has dropped, following negotiations between the coal mining industry and the power generation industry. The price has fallen from 539 Yuan ($US 86/€75) per tonne of 5,500-kcal coal to 520 Yuan ($US 83/€73), a 3.5% decrease; this compares unfavourably to imports of Australian coal, which cost around $US 74 (€64) per tonne, including transportation costs. Because of cheaper imported coal, domestic spot prices are expected to continue to fall, which compounds headaches for the Chinese coal industry, which has been facing tough times over the past year. More than 70% of coal miners suffered losses in the first 11 months of 2014, with a fall in profits of 44%.

US coal industry struggling amidst gas glut

The US coal industry is also facing stiff challenges, with the CEO of coal mining company Alpha Natural Resources describing the situation as “unprecedented”. Cheap gas prices and record gas production have made coal uneconomic to mine in many parts of the US, and many coal companies are struggling to stay afloat. Demand for metallurgical coal has dampened as steel output in China slows, and the strengthening US dollar is also not helping exports. On top of this, more stringent environmental regulations for coal plants have made the prospect of firing coal less appealing.  As a consequence of all this, Alpha has idled production at two plants and cut the workforce at a further two. A fortnight ago, Peabody Energy reported an after-tax annual loss of $US 597 million (€526 million), and Peabody expects coal demand to fall around 5% this year. Share prices are falling drastically (Peabody by 59% in the last six months, Alpha by 69%), and analysts Nomura have suggested multiple bankruptcies will come in the next year to eighteen months. In the words of analyst Curt Woodworth, “the outlook isn’t good: the outlook is getting worse.”

South Africa’s contingency plans for grid collapse revealed

Reuters has run an arresting article on the plight of South African power generation and transmission infrastructure and the contingency plans in place in the event of a grid collapse. Underinvestment in infrastructure over decades has resulted in an under supply of electricity, as well as deteriorating conditions of the existing infrastructure. Rolling blackouts have been employed across the nation over the past year to ration electricity and prevent a grid collapse. The blackouts haven taken a toll on business, but the alternative of grid collapse would be worse: as the article describes it, the country would shut down within days, after diesel generators which many facilities have run out of fuel. The state power utility, Eskom, believes that it would be able to restart supply of electricity within two to four weeks of a collapse, but there are plans in place to transport the president, Jacob Zuma, to a secret, safe location during the interim, and to position soldiers to guard key institutions such as the central bank and the state broadcaster. With unemployment at 25% and the country blighted with high levels of inequality, there are fears that social chaos would reign during the period of a grid collapse, especially as security fences might be unpowered. What the article entirely fails to mention is that two enormous power plants are currently being built that will ease capacity generation issues within a few years. Nevertheless, South Africa appears to be facing tense times.

US joins Canada in investing in Shell’s Quest CCS project; Australian government provides more funding for CCS research

The decision by the US Department of Energy to invest $US 500,000 (€437,000) to test monitoring technology at Shell’s Quest CCS project in Alberta, Canada, has been warmly welcomed by the Canadian government. Canada has invested $CAN 580 million ($US 465 million/€407 million) in CCS projects since 2008, with a large part going to the now operational Boundary Dam Unit 3, the world’s first commercial scale coal-fired CCS-enabled unit. The Quest CCS project, which will be an oil-upgrader facility converting tar sands bitumen to refinery-ready crude, has received $CAN 120 million, and so the DoE’s investment may seem negligible, yet it is symbolic, signalling closer ties between the two countries in working on energy technology. Mexico is also part of the broader development coalition.

Another country pursuing CCS technology is Australia, with the federal government giving $AUD 25 million ($US 20 million/€17 million) for the Cooperative Research Centre for Greenhouse Gas Technologies, which conducts CCS-related research, particularly into storage. Announcing the decision, Minister for Industry and Science Ian Macfarlane said “Given Australia’s reliance on coal-fired electricity and our abundance of fossil fuels, funding this scientific research into CCS is a sensible investment in the nation’s future.”

Voestalpine’s US investment plans unchanged despite headwinds

Austrian steelmaker Voestalpine has said that it will not change its plans to invest in the US despite low oil prices and the falling value of the Euro. The company is to invest €250 million ($US 287 million) per year over each of the next two years, with the major project being the construction of a sponge-iron plant in Texas. Further investment is planned to follow. Because some of the output of the plant was to supply the shale gas industry, there has been speculation that the falling oil price would endanger business prospects because of a corresponding fall in investment in the oil sector. At the same time, with the value of the Euro dropping against the US dollar, investment effectively becomes more expensive. Chief executive Wolfgang Eder has told reporters, however, that the Texas plant would find other customers for its steel, and that the impact of oil prices tends to be exaggerated. In addition, the lower value of the Euro would be neutral to the business overall, as it would make exports from its European plants cheaper. Voestalpine is also investing in China as it seeks to globalise its business.

South Hook combined heat and power plant shelved

The planned 500 MW South Hook combined heat and power plant, to be built near Milford Haven, Pembrokeshire, in Wales, has been put on hold due to market conditions. The plans were first announced in 2012, with the project being a joint venture between Qatar’s QPI Global Ventures Limited, ExxonMobil Power Limited and Total’s subsidiary Elf Petroleum UK Limited. It is one of the casualties of capital project budget cuts in the oil and gas sector as a result of the lower oil price, which has risen slightly in recent weeks to around $53/barrel.