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May, 2012:

Plasma Gasification Contract Extended by U.S. Air Force

17 May 2012

The U.S. Air Force has extended the first option period of its 18
monthcontract with Montreal based PyroGenesis Canada – a specialist in
using plasma torches for waste gasification and energy recovery.

According to the company, under its contract with the U.S. Air Force 1st
Special Operations Civil Engineering Squadron (1 SOCES) it will operate,
maintain and collect operations data on its Plasma Resource Recovery System
(PRRS) at the Air Force’s base in Hurlburt Field, Florida.

PyroGenesis said that it designed and manufactured the PRRS, which uses
plasma to convert waste into energy and other usable products.

The system began operational testing at the Florida Air Force base late
last year.

The contract includes three sequential option periods. The first option
period of performance began on October 1, 2011 and has now increased from 7
to 9.25 months in length. The second option period is five months; and the
third option period is for six months.

The company said that the 10.5 ton (9.5 tonne) per day facility at the Air
Force’s base in Florida is designed to convert solid wastes into energy and
reusable by-products.

Specifically, it combines the advanced processes of plasma gasification and
vitrification into one system to further break down solid waste into
molecular components for use as a fuel to an internal combustion engine to
produce electricity.

The company said that it believed the technology at the Hurlburt Field,
Florida site to be the only commercial plasma gasification facility in
North America that has successfully demonstrated the ability to convert
unsorted municipal solid waste into electricity.

“This extension allows us to make additional improvements to our
plasmawaste to energy technology while further validating its performance
in a commercial, land-based setting,” explained P. Peter Pascali, president
and CEO of PyroGenesis.

The objective will be to operate the PRRS system 24 hours a day, seven days
a week in a continuous, cost-effective and efficient manner, according to
the plasma specialist.

The total value of the contact is approximately $2.73 million.

Read More

Canadian Plasma Arc Gasification Ready for Take Off After U.S. Navy Trial
Canadian plasma technology manufacturer, PyroGenesis, has completed the
testing of its Plasma Arc Waste Destruction System (PAWDS) with the U.S.
Navy and is ready to roll out the process into marine and land-based
markets.

Mobile Waste Gasification Units for Military Applications
Idaho based waste to energy technology supplier, Dynamis Energy has
launched its WasteStation – a mobile waste gasification unit with military,
healthcare and hospitality applications.

$40 Million Waste to Energy Gasification Contract for Dallas Firm
Primoris Renewables will participate in the construction of two new waste
to energy facilities under a recently signed cooperative agreement with
Synergy Renewables.

Turkmenistan to boost gas exports to China

http://www.atimes.com/atimes/Central_Asia/ML01Ag01.html

By Robert M Cutler

MONTREAL – Turkmenistan has agreed to increase future natural gas exports to China from the already planned 40 billion cubic meters per year (bcm/y) to 65 bcm/y, or more than half of China’s total consumption of natural gas.

President Gurbanguly Berdimuhamedow of Turkmenistan is in Beijing this week to sign over a dozen agreements with his Chinese counterpart, Hu Jintao, including several that will provide also for increased Chinese investment and sales of drilling equipment in the energy sector, and loans for those purchases.

The agreements that Berdimuhamedow signed in Beijing provide for further Chinese investment in the South Yolotan gas field, which is the world’s second-largest, with estimated reserves between 13 trillion and 21 trillion cubic meters. Other agreements

will cover such areas as police training, and counterterrorism. Berdimuhamedow will also hold meetings with Premier Wen Jiabao and chairman of the People’s National Congress Standing Committee Wu Bangguo.
On Thursday, Berdimuhamedow will attend ceremonies marking the inauguration of a US$22 billion pipeline that will carry his country’s gas to southern China. This is the second West-East Gas Pipeline (WEGP). The first was completed in 2004 and, with a length of 4,000 kilometers, was at the time one of China’s largest energy projects. Originally carrying 12 bcm/y from the Tarim Basin in Xinjiang to Shanghai on the eastern coast, its volume was increased to 17 bcm/y through the addition of more compressors and upgrading of the industrial plant.

When gas from Turkmenistan came on line via the Turkmenistan-Uzbekistan-Kazakhstan-China natural gas pipeline in 2009, it was put into the first WEGP. The gas that originally fed it, from Xinjiang’s Tarim Basin and secondarily from Changqing (Shaanxi province), is now held in reserve for that purpose in case of emergency. The second WEGP’s western segment has been operating for roughly two years. Berdimuhamedow’s visit was timed for the ceremonial opening of the eastern segment, although it had been operating already for several months.

The second WEGP cost nearly four times as much as the $5.7 billion that the first one cost, partly due to increase expense for the raw materials required to manufacture the pipe. Its main line inside China runs 4,843 km from Khorgos in northwestern Xinjiang to Guangzhou, the capital of Guangdong province. If one begins measuring at the source of the gas in Turkmenistan, one gets an impressive length of 9,102 km, although the WEGP designates only the internal Chinese leg.

The second WEGP has a design capacity of 30 bcm/y, which may be upgraded to 40 bcm/y in order to receive gas contracted also from Kazakhstan, through which the pipeline runs. In the beginning, the Kazakhstani gas will come from Aqtobe in the west of the country, whence a feeder pipeline runs to Kyzl-Orda and then to Shymkent in the south.

The Chinese have been active in Aqtobe for well over a decade in anticipation of this opportunity, and the pipeline inside Kazakhstan will make the southern part of the country independent of imports (mainly from Uzbekistan) for the first time in its history. The pipeline will then turn east towards Almaty and the Chinese border.

Work on a third WEGP has begun. This pipeline will start in Xinjiang and take mainly Central Asian gas to the Yangtze and Pearl River deltas in Fujian province in the southeast. It looks to be roughly as long as the second WEGP. A fourth WEGP is on the drawing boards, and even a fifth is being talked up.

The Russian newspaper Kommersant quoted an unnamed Chinese diplomat as saying that “Beijing will do its best to make sure the Trans-Caspian [Gas] Pipeline project [from Turkmenistan to Azerbaijan] is not developed,” because China does not want Turkmenistan to use European prices to bargain for an increase in prices to China.

Consequently, China will “contract more and more gas volumes in Turkmenistan” as the Chinese gas market expands, and as soon as possible, in order to draw supplies away from a possible Western direction for Turkmenistan’s exports.

Russia already wishes to charge European prices to China for Siberian gas that has been under discussion between the two sides since 2004. The gas would have two routes, one in western Siberia (30 bcm/y) and one in the east (38 bcm/y). A Siberian contract could be worth as much as $1 trillion, but whereas China has preferred that the former route be developed first, Russia concentrated on the latter and opened the Sakhalin-Khabarovsk-Vladivostok pipeline two months ago.

Russia shares with China the wish to prevent Turkmenistan’s gas from reaching Europe, so that Gazprom may maintain its already large market share, which is set to grow further if the capacity of the Nord Stream pipeline under the Baltic Sea to Germany is doubled, as has been bruited.

However, one result of the China’s increasing purchase contracts with Turkmenistan may be a further diminution in Chinese interest in Russian gas from Siberia, which Kommersant cites sources as saying is offered by Moscow at $400 per thousand cubic meters (tcm). The price of Ashgabat’s gas to Beijing, according to the newspaper, is about $250/tcm. A Chinese press leak a year ago had put the difference between the two sides in the range of $100/tcm.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

How best to reform Hong Kong’s electricity sector?

SCMP

Stephen Cheung looks at some of the options to overhaul Hong Kong’s electricity sector and make price changes more transparent for consumers. Each, he says, carries its own risks

May 15, 2012

Michael Kadoorie, chairman of CLP, announced last week that the utility’s rates could rise by 40 per cent by the end of 2015 due to an estimated 250 per cent hike in fuel costs. This projection is based on higher use of natural gas at prices that are expected to escalate over the next four years.

In response, several legislators have recommended open access to power transmission. That would introduce competition among generators, including those on the mainland, and fundamentally restructure Hong Kong’s electricity sector.

The sector is governed by a scheme of control, an agreement signed by the Hong Kong government, CLP and Hong Kong Electric (SEHK: 0006) in 2008. Set to expire in 2018, it allows the power companies to earn 9.9 per cent on net assets and 11 per cent on net renewable energy assets, as well as fully recover fuel costs via periodic rate adjustments.

In this context, how can we change Hong Kong’s electricity future? In addition to restructuring, we can make fuel cost-driven rate increases more transparent, or invest public funds in generation units and strengthen price regulations. To select the best option, we need to consider the following questions:

  • Should Hong Kong have a public hearing process? Commonly used in North America, this would enable various stakeholders (for example, consumer groups, environmentalists and the government) to examine the evidence presented by utilities in support of their applications for fuel procurement, capacity expansion, renewable energy development and other actions.

As it invites wide participation, the process can become litigious, time-consuming and unmanageable. But, without it, how can consumers be confident that rate rises are based solely on CLP’s cost increases? Moreover, if CLP has bought fuel and managed costs efficiently, it should welcome this transparent process.

  • Should Hong Kong have an independent regulatory commission? Such a commission could be necessary to manage the potentially voluminous filings by regulated companies, including CLP. It would facilitate the public hearing process with the participation of various stakeholders. But it may be seen as just another unwanted, wasteful and ineffective government bureaucracy.
  • Should Hong Kong restructure its electricity sector? Restructuring has taken place in Europe, parts of North America, parts of South America, Australia and New Zealand. Competition in the electricity-generation market is designed to cut prices by reducing the sector’s cost inefficiencies and excessive earnings.

Restructuring could work under the right conditions: notably, where there is surplus capacity, many suppliers, easy entry and price-responsive demand. Integration of the electricity markets in Hong Kong and southern China could potentially lead to lower prices.

Without such conditions, however, restructuring has traditionally not succeeded in cutting prices or improving reliability. Thus, with its potentially large risks, restructuring may not be the most suitable path for Hong Kong.

  • Should the Hong Kong government become a direct shareholder in CLP? Establishing an electricity fund to hold CLP stock would address the frequent complaint that CLP makes too much profit at the expense of consumers. The fund would recoup some of this profit to help pay the bills of CLP customers.

Yet many unanswered questions remain. Would the fund be financed through the budget surplus, the reserves or long-term bonds? What if CLP stopped paying dividends? Would the fund set a bad precedent for government intervention? And, if an electricity fund is so desirable, why not a real estate fund?

  • Should Hong Kong municipalise its electricity sector? Some US cities (for example, Seattle and Los Angeles) and some Canadian provinces (British Columbia and Quebec) own their electricity utilities. To do this, the Hong Kong government would need to buy the local physical assets of CLP and Hongkong Electric. It could fund the purchase by issuing long-term revenue bonds, not affecting its fiscal spending or reserves. Since the bond rate is lower than the permitted returns of CLP and Hongkong Electric, such a move could mitigate the trend of rising rates.

There are a number of obstacles, however. First, CLP and Hongkong Electric could assert their property rights and refuse to sell at any price. Second, even if they were amenable to selling, they could demand a very high price. Third, the government could be unable to operate the electricity facilities safely and reliably. Finally, the purchase might be seen as anti-business, discouraging investment in Hong Kong – one of the most competitive and business-friendly cities in the world.

Each of these choices has its own implementation challenges and cost-risk trade-offs. Establishing a public hearing process, possibly administered by a regulatory commission, is easier and less risky than the other choices. In any case, the question of how Hong Kong’s electricity sector should evolve over the next few years is a critical issue that deserves collective scrutiny.

Professor Stephen Y. L. Cheung is dean of the School of Business and professor (chair) of finance at Hong Kong Baptist University

CLP chief urges ‘transparent’ energy policy

SCMP

Power firm wants government to admit to public that rise in energy bills is down to its requirement that generators cut their carbon emissions

Denise Tsang
May 15, 2012

CLP’s group chief executive, Andrew Brandler, has called on the incoming administration of Leung Chun-ying to be more transparent over energy policy than its predecessor has been.

Brandler’s comments come as the 80 per cent of the city’s population who depend on CLP for electricity brace for a sharp rise in their energy bills starting from next year.

The expected rate increase stems from a deal CLP has struck through Capco, a joint venture of its subsidiary CLP Power (SEHK: 0002), with the National Development and Reform Commission and the state-owned fuel suppliers PetroChina (SEHK: 0857announcements,news) and CNOOC (SEHK: 0883).

Brandler disclosed in an exclusive interview with the South China Morning Post (SEHK:0583announcementsnews) yesterday that the terms of the gas supply contract were agreed six months ago. But he said Chief Executive Donald Tsang Yam-kuen’s administration had yet to approve the deal. The slowness of the approval process angered CLP’s chairman, Michael Kadoorie, who attacked the government last week for its inefficiency but did not then disclose the delay in approving the contract. It was Tsang who agreed to the contract with Beijing in 2008.

The new contract provides for the purchase of clean fuel in the form of gas to generate electricity over the next 20 years from 2013. PetroChina will import gas from Turkmenistan to the mainland and funnel it through a submarine pipeline to the Black Point power station.

The new contract price, about three times more expensive than the existing gas contract price set 20 years ago, will lift fuel costs by 40 per cent.

The existing contract, which expires soon as a result of the depletion of the gas reserve in theYacheng field off Hainan Island, charges US$6 per unit, according to a source. That is roughly one third of what other places, such as Japan, pay.

“It is a reasonable price linked to [current] market levels,” Brandler said. “People are angry at CLP and said it’s ripping off customers, but we are not going to make any profit out of it.”

Regulations say the city’s two power producers, CLP and Hongkong Electric (SEHK: 0006), must pass fuel costs on to their customers.

Brandler blamed the Hong Kong government for failing to explain to the public the consequences of its energy policy, which requires CLP and Hongkong Electric to lower carbon emissions by up to 64 per cent by 2015 from 2010 levels. That means CLP needs to double its gas consumption.

“We want more transparency from the new administration,” Brandler said. “The government needs to explain to people about the impact of the energy policy on tariffs.”

The Environment Bureau said CLP had been involved in commercial negotiations with its mainland counterparts on the provision of natural gas. It said the bureau would monitor the developments to ensure the arrangements would be in line with its energy policy objectives.

CLP raised tariffs by 4.9 per cent in January instead of an originally proposed 9.2 per cent, after pressure from the government and the public.

denise.tsang@scmp.com

Electricity Prices / Call for public bodies to lower CEOs’ wages

Backchat today -Clear the Air was onair from 0900-0915

http://programme.rthk.hk/channel/radio/programme.php?name=radio3/backchat&d=2012-05-10&p=514&e=177844&m=episode

Electricity Prices / Call for public bodies to lower CEOs’ wages

On Backchat we’ll be talking about electricity prices, as CLP warns of soaring prices in a few year’s time. Is it too cheap in HK and should the government be giving more subsidy? How can the next administration safeguard people’s livelihood? After 9.15, a discussion on the fat cats and their pay. (8.30am-9.30am, facebook and backchat@rthk.hk)
8:30 – 9:15 Electricity Prices

Prentice Koo, Campaigner, Greenpeace

Richard Tsoi, Spokesman, Coalition to Monitor Transport and Utilities

Dr. Ronnie Hui, Member, Energy Advisory Committee

Saving energy ‘the only solution’

Academic says rising gas prices leave consumers just two choices – use less power, or pay much more
Cheung Chi-fai and Denise Tsang
May 10, 2012

As gas prices rise and utilities strive to cut emissions, consumers must save energy or see their power bills rise by more than half by 2015, an energy specialist has warned.

Professor Tso Che-wah said higher natural-gas prices and greater use of gas to generate cleaner power were inevitable, and the best thing consumers could do to reduce the impact as the costs were passed on to them was to use less.

“The most effective way for us, as consumers who wish to have clean electricity without paying significantly more, is to opt for behavioural change, such as reducing consumption,” he said.

Tso, an adjunct professor at the School of Energy and Environment at City University, retired from Hongkong Electric (SEHK: 0006) in 2009. His comments came a day after CLP Power (SEHK: 0002) sparked outrage by saying it might have to raise tariffs by 40 per cent in four years to meet rising gas prices.

Tso said this was no surprise – his estimates indicated the increase could in fact be as much as 60 per cent in three years.

This took into account extra investments to be made by CLP to meet the 2015 emission caps imposed by the government, as well as rising international gas prices.

Tso also estimated that the power firm would have to make an investment of HK$6 billion to retrofit two new gas-fired generation units, and perhaps another HK$6 billion for an offshore wind farm, as CLP made gas the basis of half of its total capacity and adopted zero-emission means of generation.

He said this meant CLP users would eventually pay HK$1.60 per kW, compared to 98 cents now. Even then, the price would be lower than in many developed nations.

On Tuesday, CLP warned of substantial future tariff increases as a result of it having to use much more expensive natural gas from Central Asia, piped through the mainland. This warning spurred demands for more measures to curb tariffs, such as a liberalisation of the energy market.

But Tso said the gas price, four times that set out in a procurement contract 20 years ago for a Hainan gas field that is now running out, was beyond the control of the power firm.

While some politicians have vowed to press for the allowable rate of return on investment for CLP and Hongkong Electric to be lowered, Tso said this would have no impact on fuel costs, which would be passed on to consumers anyway.

Under a 10-year agreement known as the scheme of control, which was signed in 2008 and ties profits to spending on assets, the maximum return for power utilities was set at 9.99 per cent.

Tso said the tariff structure could be adjusted to allow for cheaper power at night.

Another practical approach would be to step up the interconnection between CLP Power, which serves the New Territories, and Hongkong Electric, which serves Hong Kong and Lamma Island, to minimise the amount of power overproduced for reserve capacity.

“There is no technical difficulty in introducing this. All we lack is the political will to do it,” Tso said.

Other energy analysts were less pessimistic than Tso about the likely tariff increases.

Pierre Lau of Citigroup thought CLP’s price would rise by about 26 per cent, an average of 8.66 per cent a year, between next year and 2015. This would pass on fuel cost rises and earn the maximum 9.99 per cent return for the power firm.

Hongkong Electric was expected to lift tariffs less over the three years – by 19 per cent, or 6.33 per cent a year.

Amid resistance to bigger electricity bills, CLP lifted its tariff by 4.9 per cent on January 1, after stepping back from its original proposal of 9.2 per cent. Hongkong Electric raised its rates by 6.3 per cent, after first proposing an almost 8 per cent increase.

Federation of Hong Kong Industries deputy chairman Stanley Lau Chin-ho said many Hong Kong companies were shocked by the tariff increases CLP predicted.

He said bigger power bills would add to companies’ cost burden. “The administration under the new chief executive [Leung Chun-ying] must sort out a long-term solution to keep tariffs stable,” he said.

Power talks urged soon in price outcry

Eddie Luk HK Standard

Thursday, May 10, 2012

Lawmakers have called for the mid-term review of the scheme of control agreement be advanced after CLP Power warned of a substantial rise in electricity bills.

Democratic Alliance for the Betterment and Progress of Hong Kong lawmaker Gary Chan Hak-kan said yesterday the review should cover both CLP and Hongkong Electric.

It should study the possibility of lowering the utilities’ permitted rate of return and opening the market to other suppliers.

Twenty DAB members staged a rally outside CLP headquarters on Argyle Street in Mong Kok against the company’s move to raise tariffs substantially in the next four years.

“I am outraged and deeply disappointed that CLP management have threatened and intimidated citizens by saying that they plan to raise tariffs sharply,” Chan said.

“The government should negotiate next year’s tariff increase with the two power companies as soon as possible.”

Starry Lee Wai-king said Chief Executive-elect Leung Chun-ying should order his Cabinet to start the review of the agreement with the firms when he takes office on July 1.

Federation of Trade Unions lawmaker Pan Pey-chyou said the government should adjust the suppliers’ permitted rate of return from 9.99percent to around 4 to 5percent.

Meanwhile, Energy Advisory Committee member Ronnie Hui Ka-wah said the government should open up the electricity market in an attempt to lower tariffs.

But Hui expects it might take at least five years to allow other suppliers to use the power companies’ network.

In another protest outside CLP headquarters, about a dozen New Territories Association of Societies members criticized CLP for shrugging off its social responsibility.

On Tuesday, CLP chairman Michael Kadoorie warned the public should brace for higher power bills as the cost of natural gas is forecast to triple.

Kadoorie said the government clean energy drive will force his company to double the volume of natural gas it uses.

He expects fuel costs to increase by around 250percent by 2015, equivalent to a 40percent increase in overall costs to consumers

CLP tariff warning puts C.Y. Leung on the spot over his energy policy

May 10, 2012 SCMP

Just months after the painful wrangling with the government over the new electricity tariffs, CLP appears to be in a warring mood again. The power company warns that energy bills will be “materially” higher by 2015 due to a 40 per cent increase in fuel costs. Chairman Michael Kadoorie also fired a rare broadside against government’s inefficiency in projects like the arts hub and Kai Tak redevelopment, saying there might be complete darkness in the city if CLP’s management and operation met those standards. Not surprisingly, people felt provoked and even threatened by the remarks. Different theories have been offered as to why CLP chose to make itself an enemy of the public when the next tariff adjustment is not due until the end of the year. Some say it was still aggrieved by the political pressure to cut back this year’s increase from the proposed 9.2 per cent to 4.9 per cent. Others believed the power giant was acting tough in a political gesture to incoming chief executive Leung Chun-ying, and possibly a new environment minister in charge of the energy portfolio.

Objectively speaking, CLP is just being frank about the difficult years ahead. It is true that clean energy comes at a price. Under the user-pays principle, customers should be prepared to pay more for a better environment. But it is not going to help if the public felt they were intimidated to pay more. A provocative approach is hardly the right way forward.

Arguably, a listed company like CLP is duty bound to defend shareholders’ interest and try to maximise profits. Under the so-called scheme of control, which runs until 2018, the two power companies have been guaranteed a near 10 per cent rate of return annually on their investments until 2018. It seems too sweet a deal in a society where calls for government monitoring and intervention in public utilities have become increasingly vocal. The scheme may have served Hong Kong well in the past when there was a need to increase energy supply to meet a booming economy, but a guaranteed-profit agreement should be history now. A better mechanism is needed to ensure public utilities are commercially viable while socially responsible at the same time.

The public outcry shows any tariff adjustment should be handled with great sensitivity, especially when the two power suppliers are protected by a profit scheme that puts consumers in a vulnerable situation. How to tackle the problem will be a major test for the new chief executive. So far Leung has been vague about his policy on the energy market. He should not shy away from adopting a tougher stance if needed. Until the scheme of control can be abolished, there should be better ways to handle the annual adjustment.

The controversy has renewed momentum for a thorough debate in the community on the way forward. This includes whether the market should be opened up to new players to enhance competition.

CLP’s price scare is just so much gas

Fast-growing supply of cheaper LNG puts paid to claim that higher fuel costs are driving up bills
JAKE’S VIEW
Jake van der Kamp
May 10, 2012

“The era of cheap gas is over, [CLP chief executive Andrew] Brandler said.
SCMP, May 9

I have time for China Light (the old name still rings better than CLP). It runs an excellent power service, it has kept its tariffs well below those of Hongkong Electric (SEHK: 0006) and I think its people are genuine in their commitment to the community.

I also think it has unfairly been getting the short end of the stick from the government in the last few years in matters ranging from pollution control to independence of operations and, most significantly, in pressure recently to set tariffs at levels below those earlier agreed with the authorities.

In fact, it seems to me that our government wants a dominant power supplier in Hong Kong more Chinese in origin than China Light with its founding Kadoorie family. Our bureaucrats may tell me I’m wrong about this, but it’s my guess that they are waiting for a chance to give the franchise to a mainland power supplier … and won’t negotiate the terms too strenuously.

Thus I can fully understand why the firm should be busy diversifying itself abroad as much as possible, even to the regrettable extent of changing its name.

But at the same time I have to say that the way Andrew Brandler (CLP’s CEO) and his colleagues were harrumphing on Tuesday about higher fuel prices driving up power bills amounts to just so much scaremongering, and they ought to know it.

Look at the chart of the difference that has now opened up in the United States between oil and natural gas prices. It is unprecedented. The new technology of fracking – extracting gas under pressure from graphite – is now rapidly changing the dynamics of energy pricing.

And before anyone protests that we are not located in the US, let me point out that only two days ago the Singapore government’s investment vehicle, Temasek, took a 19 per cent state in Cheniere Energy, a Texas-based gas distributor. The gas will now flow the other way. It’s coming to Asia.

It inevitably would do so anyway. The number of liquefied natural gas terminals built across the world is rising rapidly and traditional producers of gas are already finding themselves under pressure to reduce their prices in line with the revolution in gas extraction.

In fact, Brandler may soon find reason to congratulate himself that China Light’s proposal for an LNG receiving terminal on the Soko Islands was rejected a few years ago. The firm did not after all find itself signing a 20-year supply deal with Malaysian producers on terms that would now be very costly to escape.

The spot price for gas increasingly determines contract prices these days. It has become a buyer’s market. Those costly long-term supply contracts with China are now unlikely to prove either so costly or so long-term as the firm’s scaremongering would lead us to believe.

Bear in mind that gas-powered generation plants are not only much cleaner but much more fuel efficient than coal-burning plants. Instead of grinding the coal to burn the coal dust to make the steam to turn the turbine to crank the generator, you skip the grinder and the furnace and burn the fuel directly in the turbine. This can raise the energy conversion ratio of fuel to electricity to well over 50 per cent, much better than any coal plant can do.

But coal prices now also show signs of crumbling under the assault of the abundance of gas flowing from the new wells. Put it all together and what you have is a suddenly brightened picture for power-generation firms the world over, just when it seemed gloom would prevail because of heightened fears about nuclear power.

There is no way that Brandler could be unaware of these developments and, if he claims so, he should step down as not being up to speed on his job.

I say it again. It’s just scaremongering to talk doom talk on gas prices with the fracking revolution under way.

jake.vanderkamp@scmp.com

CLP’s price scare is just so much gas

Fast-growing supply of cheaper LNG puts paid to claim that higher fuel costs are driving up bills
JAKE’S VIEW
Jake van der Kamp
May 10, 2012

“The era of cheap gas is over, [CLP chief executive Andrew] Brandler said.
SCMP, May 9

I have time for China Light (the old name still rings better than CLP). It runs an excellent power service, it has kept its tariffs well below those of Hongkong Electric (SEHK: 0006) and I think its people are genuine in their commitment to the community.

I also think it has unfairly been getting the short end of the stick from the government in the last few years in matters ranging from pollution control to independence of operations and, most significantly, in pressure recently to set tariffs at levels below those earlier agreed with the authorities.

In fact, it seems to me that our government wants a dominant power supplier in Hong Kong more Chinese in origin than China Light with its founding Kadoorie family. Our bureaucrats may tell me I’m wrong about this, but it’s my guess that they are waiting for a chance to give the franchise to a mainland power supplier … and won’t negotiate the terms too strenuously.

Thus I can fully understand why the firm should be busy diversifying itself abroad as much as possible, even to the regrettable extent of changing its name.

But at the same time I have to say that the way Andrew Brandler (CLP’s CEO) and his colleagues were harrumphing on Tuesday about higher fuel prices driving up power bills amounts to just so much scaremongering, and they ought to know it.

Look at the chart of the difference that has now opened up in the United States between oil and natural gas prices. It is unprecedented. The new technology of fracking – extracting gas under pressure from graphite – is now rapidly changing the dynamics of energy pricing.

And before anyone protests that we are not located in the US, let me point out that only two days ago the Singapore government’s investment vehicle, Temasek, took a 19 per cent state in Cheniere Energy, a Texas-based gas distributor. The gas will now flow the other way. It’s coming to Asia.

It inevitably would do so anyway. The number of liquefied natural gas terminals built across the world is rising rapidly and traditional producers of gas are already finding themselves under pressure to reduce their prices in line with the revolution in gas extraction.

In fact, Brandler may soon find reason to congratulate himself that China Light’s proposal for an LNG receiving terminal on the Soko Islands was rejected a few years ago. The firm did not after all find itself signing a 20-year supply deal with Malaysian producers on terms that would now be very costly to escape.

The spot price for gas increasingly determines contract prices these days. It has become a buyer’s market. Those costly long-term supply contracts with China are now unlikely to prove either so costly or so long-term as the firm’s scaremongering would lead us to believe.

Bear in mind that gas-powered generation plants are not only much cleaner but much more fuel efficient than coal-burning plants. Instead of grinding the coal to burn the coal dust to make the steam to turn the turbine to crank the generator, you skip the grinder and the furnace and burn the fuel directly in the turbine. This can raise the energy conversion ratio of fuel to electricity to well over 50 per cent, much better than any coal plant can do.

But coal prices now also show signs of crumbling under the assault of the abundance of gas flowing from the new wells. Put it all together and what you have is a suddenly brightened picture for power-generation firms the world over, just when it seemed gloom would prevail because of heightened fears about nuclear power.

There is no way that Brandler could be unaware of these developments and, if he claims so, he should step down as not being up to speed on his job.

I say it again. It’s just scaremongering to talk doom talk on gas prices with the fracking revolution under way.

jake.vanderkamp@scmp.com

Analysis – China gas reforms spark investment boom

http://uk.reuters.com/article/2012/05/09/uk-china-gas-idUKBRE84803T20120509

Description: A worker performs a routine check to the valves at a natural gas appraisal well of Sinopec in Langzhong county, Sichuan province March 1, 2011. REUTERS/Stringer

A worker performs a routine check to the valves at a natural gas appraisal well of Sinopec in Langzhong county, Sichuan province March 1, 2011.

Credit: Reuters/Stringer

By Charlie Zhu

HONG KONG | Wed May 9, 2012 6:39am BST

HONG KONG (Reuters) – China‘s big state companies, confident on the outlook for domestic natural gas reforms, are buying up local distributors and raising fresh capital – and making gas the hottest prospect for energy investment in the world’s top energy consumer.

The prospects for expansion and acquisitions also have China’s natural gas distributors trading like growth stocks, instead of bog-standard utilities.

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China is pushing energy price reforms and spending billions of dollars on gas imports and infrastructure to cut the use of coal, which supplies over 70 percent of its energy but has made it the world leader in mine accidents and greenhouse emissions, and among the worst in air pollution.

While nuclear power and renewables such as solar and wind are also benefiting from the shift, for now gas looks set to gain the most, since plentiful supplies and its use in industrial production and conventional thermal power plants mean it can be developed quickly and efficiently.

“Natural gas is clean energy that is enjoying a lot of state policy support,” said Liu Yang, chief investment officer of regional fund house Atlantis, which manages $4 billion (2 billion pounds) and holds shares of Hong Kong-listed Chinese city gas distributors.

“The city gas sector has been under-invested and is just about to take off,” she said.

Shares of Hong Kong-listed distributors, which include ENN (2688.HK), China Gas Holdings (0384.HK), China Resources Gas (1193.HK), Kunlun Energy (0135.HK) and Beijing Enterprises (0392.HK), have risen as much as 37 percent over the past 12 months.

The sector, with a combined market value around $32 billion, boasts valuations of more than 20 times historical earnings, and investors and analysts remain upbeat about its prospects.

STATE FORAY

State oil giants such as Sinopec (0386.HK) and PetroChina (0857.HK) are also swooping in on the sector, threatening to squeeze out non-state firms such as China Gas that entered the business more than a decade ago and have since dominated it.

Sinopec and ENN recently made a $2.2 billion cash bid for China Gas and a bidding war may be brewing with state-run conglomerate Beijing Enterprises Group — parent of Hong Kong-listed distributor Beijing Enterprises Holding.

Beijing Enterprises snapped up about 9 percent of China Gas in deals on Monday and last Friday, including buying a 5.4 percent holding from Oman Oil, to take its stake to 12.65 percent.

The bid for China Gas, which also counts SK Holdings (003600.KS) and Gail India (GAIL.NS) among its key shareholders, will spark further consolidation in the sector, bankers say.

Kunlun, PetroChina’s gas distributor arm, has just raised $1.3 billion via an international share sale to expand its LNG distribution business, partly via acquisitions.

By leveraging their financial muscle and grips on upstream supplies, Chinese oil majors, which also include CNOOC Group, parent of offshore producer CNOOC Ltd (0883.HK), are well-placed to take over more smaller rivals, including unlisted companies.

“All the small city gas companies will be swallowed up by PetroChina or Sinopec one day,” said an executive at a Hong Kong-listed gas distributor. He requested anonymity as his company purchases natural gas from PetroChina.

Smaller players such as Tian Lun Gas (1600.HK) and Binhai Investment (8035.HK), which serve regions in north China, may find it hard to expand beyond their home turf and end up as acquisition targets, analysts say.

Kunlun, which has vowed to become China’s largest gas distributor, has spent heavily buying pipelines and LNG terminals from its state parent, including a gas transmission facility in Beijing it bought in 2009 for $2.85 billion.

GROWTH STOCKS

China is moving to double the share of gas in its overall energy supply to more than 8 percent by 2015, when consumption should reach 260 billion cubic metres (bcm), while coal will be cut to just over 60 percent. By 2030, gas use will hit 500 bcm, about what the European Union consumes today, according to industry forecasts.

The lion’s share of that additional supply will go to new gas-fired power plants.

China’s installed gas-fired capacity will more than quadruple to 220 gigawatts by 2020 from 40 gigawatts last year, creating a gas power equipment market worth 26.5 billion yuan ($4.2 billion) a year for 2011-2020, nearly seven times the average size of the market in the prior five years, Barclays estimates.

That would benefit a host of domestic and foreign manufacturers, including General Electric (GE.N), Siemens (SIEGn.DE), Shanghai Electric (2727.HK), Dongfang Electric (1072.HK) and Harbin Electric (1133.HK), it said.

China also has vast gas supplies to tap both at home, where coal bed methane and shale could boost its resources to among the world’s largest, and abroad, where it has a pipeline to Turkmenistan and has been importing liquefied natural gas (LNG) from Australia, Indonesia, Malaysia and Qatar. Gas will also be flowing to China next year via a pipeline to a Myanmar field.

The gas sector was virtually non-existent in China until the late 1990s, and while billions of dollars have been poured into construction of pipelines and terminals over the past decade, more than two-thirds of China’s 600-plus cities still have no access to gas supplies.

Driving the state firms’ push into the gas distribution sector is a government decision to bite the bullet and start freeing up state-controlled domestic prices, to encourage gas importers and producers.

Gas prices are linked to crude oil in the Asia market but inside China have been strictly controlled – like electricity and petroleum product prices – since the authorities fear volatile energy costs could hinder industrial development and create hardships for households.

But rising crude oil prices have saddled state-run energy companies with losses on gas they buy abroad and supply into the domestic market, making them reluctant to expand their business.

PetroChina (PTR.N)(601857.SS), which has been lobbying Beijing to reform the domestic gas pricing system, lost $3.4 billion in its gas importing business last year. In the first quarter of this year, the loss reached $1.62 billion.

PILOT SCHEME

In December, China launched a pilot scheme in Guangdong and Guangxi provinces, which include southern China’s export-focused manufacturing heartland, to link city-gate natural gas prices with prices of imported fuel oil and liquefied petroleum gas.

Analysts say this will inevitably boost gas prices, which had already been raised sharply in recent years but in some major Chinese provinces are still 30 to 50 percent below crude oil-linked prices for LNG or pipeline gas from Central Asia.

Analysts and industry executives, including PetroChina President Zhou Jiping, believe price reforms will gradually work their way across China, although prices may be held low and raised only gradually for certain regions or for households.

Price increases will likely come sooner for industrial and commercial users, making shares of distributors serving that sector such as China Resources Gas and ENN a safer bet, analysts said. They also doubted higher prices would dent demand, with gas likely to remain affordable for industrial users even with 20 to 30 percent price increases.

Helping to spur the drive for reform will be a steady rise in gas imports, which the Chinese government is encouraging to reduce the country’s reliance on coal.

The energy majors, as state-owned companies, are obliged to cooperate with government policy, but have been dragging their feet on boosting imports due to the losses from the price gap, and are stepping up the pressure for reforms.

“If the import of generally more expensive LNG and this fairly expensive piped gas continues to rise, the government will finally face up to the problem of increasing the price of domestic onshore gas,” said Al Troner, president of Houston-based Asia Pacific Energy Consulting.

In a virtuous circle, higher prices will also encourage more imports, which are forecast by industry experts to account for half of China’s total natural gas consumption by 2030, compared with 30 percent now. That would likely make China the world’s largest importer of natural gas, displacing Japan.

Rising prices will also encourage China to produce more gas domestically, where its proven reserves were 2.8 trillion cubic metres (tcm) at the end of 2010, similar to Australia’s 2.9 tcm and Indonesia’s 3.1 tcm, according to BP. Shale gas reserves could boost that sharply, with China’s Ministry of Land and Resources revealing in March that China may hold 25.08 tcm of potentially recoverable shale gas resources.

“You will have much more motivation for the incumbent, whether it is Sinopec, PetroChina or others, to develop the vast domestic reserves faster,” said James Hubbard, head of Asia oil and gas research at Macquarie.

(Editing by Edmund Klamann)