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					www.platts.com               November 2012




    2013 Asia Energy Outlook
  Platts JKM and LNG
  Spot Contracts
  page 30
                          Exclusive
                         2012 Platts
Coal Weathers          Top 250 Global
the Storm                  Energy
page 26                   Company
                         Rankings™
                                                                                                           insight

Publisher’s Note
                  Welcome to the 2012 Asia Energy Outlook issue of Platts Insight. This issue, high-
                lighted by an assessment of the 2012 Platts Top 250 Global Energy Company
                RankingsTM by Ross McCracken, Platts editor of Energy Economist, showcases
                Asia’s resilience in times of economic and political challenges.
                  In the following pages other distinguished Platts editors review some of those
                challenges and identify the most promising opportunities for shaping a new
                energy landscape.
                  Platts Top 250 Global Energy Company RankingsTM ranks the world’s top energy
                companies by financial performance, identifies who’s up and who’s down, who are
Patsy Wurster   the fastest growing, and who are biggest upward movers from the previous year.
                The Rankings also provides a breakdown of the Top 250 by industry and region
                while offering commentary on trends and movement within the list.
                  I hope you gain some new insight from this issue!
                                                                                    Patsy Wurster
                                                                          Publisher, Platts Insight




Guest Editor’s Note
                  “Ill blows the wind that profits nobody,” wrote English author William Shake-
                speare in a particularly blood-stained scene from Henry VI, Pt. 3. And the senti-
                ment remains just as true 420 years later, in an economic landscape that bears
                more than a passing resemblance to Shakespeare’s depiction of a society and polity
                under intense pressure.
                  Almost every loser has a countervailing winner, Shakespeare was saying. And
                the articles in this issue of Platts Insight bear this out in their analysis of key devel-
                opments in the Asian and global energy markets.
                  Take China’s willingness to take advantage of the opportunities thrown up by
Martin Daniel   the 2008 financial crisis and other global developments, in a story told from dif-
                ferent angles by Song Yen Ling and Henry Edwardes-Evans. The impact is also
                evident in Ross McCracken’s analysis of the rise of Chinese and other Asian enter-
                prises within the ranks of the top 250 global energy companies
                  The devastating impact of the March 2011 disaster on Japan’s nuclear indus-
                try also resulted in opportunities with, for example, renewables securing a major
                boost and a marked acceleration in the evolution of the Asian LNG market.
                  There are of course exceptions that prove the general rule. Thomas Hogue’s
                graphic analysis of the South China Sea disputes is a case in point, in a situation
                which has the potential to be a very ill wind indeed.
                  What these articles and the others carried here illustrate is that grasping market
                opportunities is impossible without seeing the whole story and its consequences—
                and this is where Platts plays an important role day in, day out. We can’t always
                promise you Shakespearean prose, but we do promise insights and analysis worthy
                of the bard himself.
                                                                                          Martin Daniel
                                                                            Editor, Platts Power in Asia




                                                                                                November 2012 insight 1
Inside
      1 Publisher’s Note                                        26 Coal Weathers the Storm
           Patsy Wurster                                             James O’Connell


      1 Guest Editor’s Note
           Martin Daniel                                        30 Platts JKM and LNG Spot Contracts
                                                                     Hong Chou Hui

      4 Europe: China’s New Backyard
           Henry Edwardes-Evans
                                                                36 Japan Looks to Renewables
                                                                     Martin Daniel
      8 South China Sea: Best Case Scenario
           Thomas Hogue
                                                                42 China’s Quest for Hydrocarbons
                                                                     Song Yen Ling
    12 Crossed Wires: India’s Power Failure
           Martin Daniel
                                                                50 Asia Gains Traction
    20 Test Year for Chinese                                       (Platts Top 250 Global Energy
       Coal-Based SNG                                              Company Rankings™)
           Ross McCracken                                            Ross McCracken




Authors




                           Martin Daniel                Henry Edwardes-Evans            Hong Chou Hui




             Thomas Hogue                  Ross McCracken             James O’Connell           Song Yen Ling




2 insight November 2012
Martin Daniel read Modern History at Oxford University. After                                    since September 2010. His work in Asia as reporter and editor
research on economic history there, he joined the Economics Unit                                 has spanned nearly 20 years, during which time he has written
of the then British Coal Corporation, following which he became                                  about oil and gas for Dow Jones and Bloomberg, covered general
head of the Supply, Transport and Markets Group at IEA Coal                                      business news for The Associated Press, and helped to launch
Research. He then worked at a UK energy media and consultancy                                    and lead the lifestyle desk for Indonesia’s English-language daily
company until 2001 when he joined Platts, where he edits the                                     Jakarta Globe. He holds an MA in mathematics from the University
newsletter Power in Asia. He is an active naturalist, specializing                               of Oklahoma.
in Asian forest birds.

                                                                                                 Ross McCracken, editor of Energy Economist, joined Platts in 1999
Henry Edwardes-Evans has a bachelor of arts degree from Oxford                                   to run the European and West African crude desk. He was previ-
University, where he studied English Literature. As a trainee                                    ously an editor with an Oxford University-based political and eco-
journalist at Financial Times Business, he worked on a number of                                 nomic consultancy, and has taught in Poland and China. He holds
energy-related publications before being appointed editor of EC                                  a master’s degree in European studies from the London School of
Energy Monthly in 1996. Henry launched and edited the FT news-                                   Economics and his undergraduate degree is from the University of
letter Power in East Europe, which subsequently became Platts                                    East Anglia.
Energy in East Europe. In 2000, he took over editorship of FT’s
flagship energy newsletter, Power in Europe, now Platts Power in
Europe, developing power plant trackers and managing three other                                 James O’Connell, international coal managing editor, joined Platts
highly-regarded Platts newsletter titles—Energy in East Europe,                                  Metals in 2001, covering global precious metals trading. He joined
Power UK and Power in Asia.                                                                      the coal team in early 2007, leading reporters in Europe and Asia
                                                                                                 producing news for the global coal, electrical and steel industries.
                                                                                                 He previously worked for Irish broadcaster RTE. He holds a BA in
Hong Chou Hui graduated from the National University of Singa-                                   English and History and a Higher Diploma in Applied Communica-
pore. He is a multiple-award winning news editor and analyst who                                 tions from the National University of Ireland.
helped launch Platts’ spot LNG Japan Korea Marker benchmark in
2009. The JKM has grown into Asia’s leading spot LNG index. He
has developed further LNG price points for Asia, while overseeing                                Song Yen Ling is Platts’ chief China correspondent covering up-
the start of Platts’ LNG market coverage in Europe.                                              stream and downstream oil, natural gas and energy policy. Based
                                                                                                 in Singapore, she joined Platts in March 2012 after over six years
                                                                                                 with Energy Intelligence, also writing about China’s energy sector.
Thomas Hogue is the associate editorial director for Asia, head-                                 She has a degree in communications from Singapore’s Nanyang
ing up and directing Platts’ oil and gas coverage for the region                                 Technological University.




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                                                                                                                                                                             November 2012 insight 3
China energy




             Europe: China’s
             New Backyard
             Henry Edwardes-Evans, Managing Editor, Platts Power in Europe




                             Chinese energy investors moved into     Hydro Marriage
                          Europe in 2012, some seeking long-           The China Three Gorges Corporation
                          term asset plays in utility and network    (CTG) set the ball rolling in December
                          operations, others new markets for         2011, defeating rival bids from E.ON of
                          thermal power generation equipment.        Germany and Brazil’s Eletrobras and
                             Beyond the value of diversifying into   CEMIG to take a 21% stake in Energias
                          well-established European businesses,      de Portugal, Portugal’s dominant power
                          Chinese entrants are keen to benefit        utility.
                          from Iberian utility positions in Latin      The Chinese company agreed to pay
                          America and hydro/renewable portfo-        Eur2.69 billion ($3.512 billion) for the
                          lios that fit with their own. Then there    stake, a premium of 53% on EDP’s stock
                          is the opportunity to gain fresh insight   price at the time, to become the group’s
                          into European research and develop-        largest single shareholder.
                          ment and benefit from the chronic             Beyond the sale price, CTG is to in-
                          need for regulated infrastructure in-      vest Eur2 billion in stakes of between
                          vestment.                                  34% and 49% in 1.5 GW of EDP’s re-
                             In return, the Chinese bring much-      newable energy capacity—Eur800 mil-
                          needed cash, excellent ratings and the     lion in 2012 and the remainder by
                          ability to raise funds cheaply. Growth     2015. EDP said 900 MW would be in
                          may have slowed in their home market       plants already in operation and 600
                          but cashflow has been strong compared       MW in ready-to-build projects. Most
                          to that of European utilities facing de-   of the investment is expected to be
                          mand destruction since 2008.               channelled into EDP’s wind power de-
                             Political considerations may yet con-   velopment pipeline in the US, Brazil
                          strain Chinese incursions into Euro-       and Europe.
                          pean energy interests. In August 2012        Further, CTG has lined up a commit-
                          both Spanish and UK authorities indi-      ment from an unnamed Chinese bank
                          cated that stakes sold in strategic as-    to provide EDP with up to Eur2 billion
                          sets would have to remain below cer-       in long-term corporate debt with ma-
                          tain thresholds. And in one specialist     turities of up to 20 years. EDP said this
                          boom market, solar PV, European sup-       would cover its financing needs by an
                          pliers are seeking anti-dumping mea-       additional two years, to mid-2015, and
                          sures to stem the tide of Chinese pan-     should raise earnings per share from
                          els. Nevertheless Chinese investment       2012 onwards.
                          already committed in Europe is signif-       Finally, the Chinese group raised
                          icant and likely to engender goodwill      the possibility of a supply chain part-
                          in economies where, frankly, beggars       nership between EDP and Goldwind,
                          cannot be choosers.                        China’s second largest wind turbine

4 insight November 2012
                                                                                                                China energy

producer, potentially installing a pro-                    Renovaveis remained a “possibility,
duction plant in Portugal with the ca-                     but not a priority” for CTG, the Lisbon
pacity to manufacture 800 turbines a                       banker said. Spain’s Iberdrola and EDF
year.                                                      of France have already bought back
  But at heart the deal makes most                         their renewable spinoffs in an effort to
sense because of shared hydro exper-                       lift their growth profile.
tise. EDP is half way though an ambi-                         Three Gorges was seen as having
tious program to increase its installed                    made “the best offer in terms of inde-
capacity by 42% to 7 GW through the                        pendence for EDP’s strategy and the de-
delivery of 2.1 GW of new hydro plant,
but has had to delay some fringe proj-                     Perhaps aware of political and public perception
ects because of financial constraints.
Those constraints may now be lifted.
                                                           issues that have arisen in Spain and the UK, CTG
                                                           has sought to portray its Portuguese investment
Strong Rating
  Speaking at an investor day in May                       as purely commercial ....
2012, EDP executive board member
Joao Marques da Cruz underlined the                        leveraging of its balance sheet,” accord-
financial benefits of having CTG as a                        ing to analysts at Banco BPI.
key shareholder. “Last time CTG went                          Perhaps aware of political and pub-
to the market was in March this year—                      lic perception issues that have arisen
for seven billion Chinese yuan, the                        in Spain and the UK, CTG has sought
coupon was 4.71%. The conclusion is                        to portray its Portuguese investment as
very strong financials, with access to                      purely commercial, supporting the cur-
long term funds,” he said.                                 rent management and saying it would
  The acquisition “marks the begin-                        not seek to increase its stake in EDP un-
ning of the end of a period of massive                     der a ‘standstill’ clause in the acquisi-
domestic investment by Chinese utili-                      tion agreement.
ties, who can now use the huge cash                           This is not to say that the Chinese
flow generated to invest internation-                       company is not an active partner in
ally,” a Lisbon banker close to the EDP/                   EDP’s investment plans.
CTG deal told Platts. “EDP now has the                        Under a joint steering committee and
funding available not only to weather                      liaison office, the partners have already
the medium-term financial storms that                       set up five teams focused on partner-
will hit Portugal, but also to invest in                   ship execution, co-investment, financ-
attractive international projects over                     ing, best practice and special initiatives.
the long term.”                                               In addition, CTG is looking at invest-
  The possibility of EDP buying back                       ing and participating in EDP’s Venture
control of renewables subsidiary EDP                       Capital system to develop technology


1. Energias de Portugal’s new hydro program.
   Plant            Start up date          Type           MW      Output (GWh)   Output net of pumping (GWh)

   Picote II          2011 Nov          Repowering         246         239                   239
   Bemposta II        2011 Dec          Repowering         191         134                   134
   Alqueva II         4Q 2012       Repowering, pumping    256         381                    30
   Ribeiradio         1H 2014           New plant           77         134                   134
   Baixo Sabor        2H 2014       New plant, pumping     171         405                   230
   Venda Nova III     Mid-2015      Repowering, pumping    740       1,337                    18
   Salamonde II       Mid-2015      Repowering, pumping    207         274                    81
   Foz Tua            2H 2015       New plant, pumping     251         585                   275
   Total                n/a                n/a            2,139      3,489                  1,141
Source: Energias de Portugal


                                                                                                               November 2012 insight 5
China energy

                          and innovation, as well as establishing     project due to be launched in 2012.
                          a joint venture for operation and main-       Joint ventures are also to be set up in
                          tenance.                                    the former Portuguese colonies of An-
                                                                      gola and Mozambique. In addition, the
                          Premium for REN Stake                       Chinese group has agreed to support
                            Two months after CTG’s deal with          investment in a research center in Por-
                          EDP, State Grid Corporation of China        tugal and to assist REN in opening up
                          took a 25% in Portugal’s transmission       new overseas markets, including China.
                          system operator Redes Energeticas Na-         State Grid is committed under the
                          cionais (REN). The Oman Oil Corpora-        deal to help REN build relationships
                          tion took a further 15% in a deal that      in China, including an initial project
                          valued the 40% sold by the Portuguese       in 2012 related to renewable energy,
                          state at Eur592 million.                    for which REN will be the sole service
                            The Chinese group agreed to pay           provider. It is also to help REN in se-
                          Eur2.9 a share for 25% of REN, valuing      curing new trans-European grid inter-
                          the stake at Eur387 million, a 40% pre-     connections.
                                                                        International expansion is a key goal
                  Joint ventures are also to be set up                for State Grid, which already owns
                                                                      transmission assets in the Philippines
        in the former Portuguese colonies of Angola                   and Brazil. The group is looking at oth-
                                                                      er transmission companies in Europe,
                                   and Mozambique.                    including stakes in Spain’s Red Electrica
                                                                      and Enagas, and Ireland’s Eirgrid.
                          mium on the February 1, 2012 closing          Spain, however, is reported to have
                          price. State-owned Oman Oil offered         already turned down two offers from
                          Eur2.56 a share for 15% of the Portu-       State Grid for a 20% stake in Red Elec-
                          guese group, a premium of 23%.              trica, the first at Eur35 ($43) per share
                            Portugal’s treasury secretary Maria       and the second at Eur43 per share. Un-
                          Luis Albuquerque said the higher pre-       der the company statutes of Red Electri-
                          mium paid by State Grid reflected its fu-    ca and its gas network counterpart Ena-
                          ture role as REN’s “principal industrial    gas, no individual shareholder with the
                          and strategic partner” and the bigger       exception of the Spanish state may hold
                          stake it was acquiring.                     more than 10% of the company given
                            “This deal opens up China for REN         the strategic nature of the business.
                          and Portuguese suppliers and will pro-
                          vide technical and financial muscle for      Franco-Sino Bid for Horizon
                          the group to develop in Africa and Bra-       Turning to opportunities in genera-
                          zil,” a Lisbon-based analyst told Platts.   tion, the Chinese are again active in
                          “In return, it will move State Grid fur-    bidding for west European opportuni-
                          ther ahead with its international ex-       ties. In July 2012 French nuclear en-
                          pansion, with a bridgehead into Europe      gineering company Areva said it was
                          and Africa.”                                considering submitting a joint bid with
                            State Grid, China’s biggest wires util-   China Guangdong Nuclear Power Cor-
                          ity, has guaranteed finance of Eur1 bil-     poration for Horizon Nuclear Power,
                          lion, to be provided through the China      the UK development company being
                          Development Bank, to help refinance          sold by Germany’s E.ON and RWE.
                          REN’s debt at competitive rates. The          Also reported to have looked at Ho-
                          Portuguese group’s short-term refinanc-      rizon are Toshiba/Westinghouse and
                          ing requirements to 2015 amount to          State Nuclear Power Technology Corpo-
                          about Eur1.6 billion.                       ration, its Chinese partner in AP1000
                            Its offer included large-scale com-       technology transfer that is building the
                          mitments to support the expansion of        first AP1000s at Sanmen and Haiyang.
                          REN in Portugal and overseas. REN is          Horizon is developing proposals to build
                          to become a strategic service provider      two nuclear power plants at Wylfa in Ang-
                          to State Grid in Brazil, with an initial    lesey and Oldbury in Gloucestershire.

6 insight November 2012
                                                                                         China energy

  Areva officials called CGNPC “a cen-       far is a Eur1 billion, 500-MW plant
tral partner for France.” The Chinese       that the China Huadian Engineering
utility is building two EPR units at        Company will build at the site of the
Taishan in China’s Guangdong prov-          Rovinari thermal complex in Romania,
ince, in a joint venture in which French    according to a July statement by the
utility EDF has a 30% stake. The two        country’s Ministry of Economy. The
1,700-MW units are on target to be the      China Huadian Corporation subsidiary
first EPRs to start up, before those at      won a tender over a rival bid from Ja-
Olkiluoto in Finland and Flamanville        pan’s Marubeni Corporation to build
in France.                                  the project. The project will be the first
  EDF, which is building Flamanville-3,     new coal-fired power plant built in Ro-
is co-applicant with Areva for Generic      mania in the last 20 years.
Design Acceptance of the EPR design in        Meanwhile China’s Gezhouba Group
the UK, and plans to build four EPRs        International Engineering is preparing
there beginning with Hinkley Point
C. At the time of writing a decision on     Meanwhile China’s Gezhouba Group
that project was scheduled before the
end of 2012.                                International Engineering is preparing a
  EDF and Areva are also working with
CGNPC to develop a third-generation
                                            feasibility study for construction of two
1,000-MW-class PWR for the Chinese          coal-fired units totalling 350 MW in
market. CGNPC and EDF favor develop-
ing the Chinese utility’s CPR1000 de-       northern Montenegro ...
sign, derived from the three-loop PWRs
in operation in France. Meanwhile Are-      a feasibility study for construction of
va has sought to promote the Atmea1         two coal-fired units totalling 350 MW
PWR, also of around 1,000 MW, it            in northern Montenegro, according to
has developed with Japan’s Mitsubishi       the country’s Ministry of Economy.
Heavy Industries.                           “The Montenegrin government and
  The UK government has made much           power company EPCG have defined the
of the potential for specialist Chinese     main parameters of the project, while
nuclear operators to foster competition     the Chinese experts will structure the
in the market. Department of Energy         project. If an agreement is reached on
and Climate Change officials, however,       implementation, the project proposal
were reported in August to have warned      will be submitted to Montenegro’s par-
that a Chinese holding in Horizon           liament for final approval,” the minis-
would be limited to a minority stake        try said.
due to public and political acceptance         Finally in neighboring Serbia, talks
issues. Going further, UK Conservative      are underway with the China National
MP Mark Pritchard, a member of the          Machinery and Equipment Import &
parliamentary joint national security       Export Corporation (CMEC) regarding
committee, said state-owned Chinese         construction of a new 350-MW unit
company involvement could create            at the Kostolac coal-fired complex and
“major security concerns.”                  the possible expansion of the feeder
                                            Drmno coalfield in eastern Serbia. TPP
East European Thermal                       Kostolac is a subsidiary of the Serbian
  Meanwhile the Balkans’ cash-              state-owned power company EPS.
strapped utilities and governments are         A preliminary agreement has been
hoping to secure a share of the $10.5       signed and a final technical proposal
billion in credit lines that Chinese Pre-   for the new unit could be forwarded to
mier Wen Jiabao announced in April          the Serbian government for approval
2012 would be available for investment      before the end of 2012, TPP Kostolac
in infrastructure projects in Central       said. Construction of the unit could
and Eastern Europe.                         start as early as 2014 with commission-
  The single biggest investment thus        ing planned in 2018 or 2019. ■

                                                                                        November 2012 insight 7
South China Sea




             South China Sea:
             Best Case Scenario
             Thomas Hogue, Associate Editorial Director for Asia, Platts

             In the South China Sea, the best case scenario is for cool heads
             and more of the same, because at least that means there hasn’t
             been an escalation beyond a war of words.

                            If this were a B-grade thriller, a su-        the east coast of Vietnam, and dueling
                          per villain would have stolen a nuclear         editorials condemning the latest insults
                          bomb, fitted it on the end of a string of        to sovereignty.
                          pipe reaching far below the ocean floor            Ostensibly, it’s all about territory and
                          in the South China Sea, and threatened          national pride. But the surmise of most
                          to blow up all the oil and gas there unless     observers is that it’s also largely about
                          the six claimants to the area paid up bil-      the oil and gas reserves that might be
                          lions of dollars.                               out there—especially considering the
                            The usual cheap and unrealistic com-          energy shortfalls expected over the com-
                          puter graphic would show the warhead            ing years in the world’s fastest-growing
                          getting closer and closer to a two-toned        economies.
                          blob representing the oil and gas, and, of        Some estimates put the potential hy-
                          course, if it were a really “smart” thriller,   drocarbon resources in the South China
                          the villain’s devious plan never would          Sea at least as high as 200 billion barrels
                          have been about blowing up the oil and          of oil equivalent—with some Chinese
                          the gas anyway.                                 estimates running higher—although
                            It would have been about driving up           due to the lack of exploratory drilling
                          oil prices by creating an energy crisis,        there are no estimates of proven oil or
                          pushing countries toward greater use of         gas reserves. But the 200 billion boe fig-
                          coal or sowing even more distrust among         ure would be enough energy to fuel the
                          those claiming sovereignty over the seas        economies of Southeast Asia and China
                          and starting a war.                             for decades and, at a monetized value
                            Unfortunately, this is not a second-tier      of $100/barrel, represents a $20 trillion
                          Hollywood movie, and an aging Steven            treasure.
                          Seagal won’t be along to shut down the            No wonder countries are loathe to give
                          warhead with seconds to spare and kick          up any fair claim to the riches.
                          the villains all about the place. What we         The mostly hotly contested disputes
                          have instead is a situation that’s just as      over the last couple of years have been
                          dangerous and volatile and in which the         between China and Vietnam, and be-
                          contenders for the prize seem ever ready        tween China and the Philippines, al-
                          to poke a finger in the eye of the other guy.    though Brunei, Malaysia and Taiwan all
                            That’s how we get naval stand-offs over       stake claim to some of the island territo-
                          atolls to the west of the Philippines, com-     ries in the region as well.
                          peting oil and gas licensing rounds off           China itself claims sovereignty over

8 insight November 2012
                                                                                              South China Sea

as much as 80% of the South China              sense of the Congress that the US should
Sea as outlined by its so-called nine-         strongly support “peaceful resolution
dashed line, which ropes in the Paracel        of maritime territorial disputes in the
and Spratly islands as well as island and      South China Sea, the Taiwan Strait, the
shoals closer to the Philippines.              East China Sea, and the Yellow Sea and
   One strategy of the Southeast Asian         pledge continued efforts to facilitate a
claimants, meanwhile, is to try to buddy       collaborative, peaceful process to resolve
up to the US to counter the weight and         these disputes.”
might of China, and the other is to try           The non-binding resolution also con-
to use regional organizations such as the      demns the use of force by China and
Association of Southeast Asian Nations         supports the role of the US military to
(ASEAN) and Asia-Pacific Economic Co-           defend navigation and air space rights
operation (APEC) to face China on the          in the area. But it’s clear that the US and
issue collectively instead of individually.    other interested parties would like to see
   Neither of those strategies has been        the regional claimants work their way to
particularly effective.                        a peaceful solution on all the disputes.
   For one thing, while the US keeps call-        While China has stressed that it has no
ing for peace, cool heads and the easing       plans to disrupt shipping in the area and
of tension in the region, the State Depart-    is committed to free navigation through
ment also officially makes it clear that it     the disputed waters, its standard response
doesn’t back any particular party’s claims.    to any other claims in the South China
   “Now is the time for everyone to            Sea is that there is no questioning its sov-
make efforts to reduce the tensions and        ereignty over the region or over other ar-
strengthen diplomatic involvement for          eas that are in dispute with Japan.
resolving these tensions,” Secretary of           The standard Chinese line is that there
State Hillary Clinton said on September        is “plentiful jurisprudential and his-
9 in Vladivostok, Russia, in a media brief-    torical evidence” of China’s sovereignty
ing at the American consulate following        over South China Sea islands and waters,
the APEC-2012 Leaders’ Week meetings.          as well as over the Diaoyu or Senkaku is-
“It’s not in the interests of any of the       land that are in dispute between China
Asian countries, it’s certainly not in the     and Japan.
interest of the United States or the rest of      Members of ASEAN—most of whom
the world to raise doubts and uncertain-       are not claimants to the seas—are wor-
ties about the stability and peace in the      ried not only that tension between China
region,” she said, according to comments       and the other contending parties might
posted on the State Department website.        break out into war, but that things might
   Ironically, some of the most recent         simply escalate to the point where ship-
heated rhetoric has come out of the            ping lanes through the seas are affected.
US. Lawmakers there in mid-September              Singapore’s Prime Minister Lee Hsien
used harsh words in a hearing held by          Loong might have been speaking for all
the House Committee on Foreign Affairs         of ASEAN when he said in a pre-APEC
that focused on China’s designs on the         speech on September 6 at the Central
region and its growing ability to intimi-      Party School in Beijing: “Trade is the
date its smaller neighbors.                    lifeblood of our economy. Our foreign
   “While the world’s attention was            trade is three times our GDP. Freedom
turned to other crises, including Iran’s       of navigation is therefore a fundamental
nuclear program and concerns over the          interest, especially along our sea lanes of
faltering Euro, China has upped the            communications.”
ante, playing the role of a schoolyard            He went on to say: “Therefore the
bully towards its maritime neighbors,”         South China Sea is strategically impor-
Committee Chairwoman Ileana Ros-               tant for our survival and development.
Lehtinen, Republican-Florida, said in an       However the South China Sea disputes
opening statement.                             play out, freedom of navigation must be
   Even that rough language was followed       maintained. Ships of many nations use
by the adoption of a bill expressing the       the South China Sea, so I am sure these

                                                                                                November 2012 insight 9
South China Sea

                           countries would share Singapore’s con-         tions to regional territorial disputes, if
                           cern on this point.”                           only by putting a positive example be-
                             Lee, however, was also clear that Singa-     fore the contending parties.
                           pore was “not a claimant country, take(s)         That was a point made on September
                           no sides in any of the territorial disputes,   8 in Vladivostok by Yutaka Yokoi, press
                           nor can (it) judge the merits of the vari-     secretary for Japan’s Ministry of Foreign
                           ous claims.”                                   Affairs. He said that APEC economic
                             He was just as clear that ASEAN should       integration might eventually make
                           remain unified in its dealings with China       countries realize that “if you have any
                           on the issue. This did not happen in July      dispute, it will just hinder your [com-
                           2012 in Cambodia, when the group could         mercial] cooperation.”
                           not agree on the language for a joint state-      Asked if there was any concrete progress
                           ment on the development of a code of           in this direction during the week’s meet-
                           conduct for the South China Sea.               ings, he said: “This is not easy, but we try.”
                             “For ASEAN not to address [the issue]           On the other hand, Yutaka also dem-
                           would severely damage its credibility,”        onstrated just how entrenched a position
                           Lee said. “ASEAN must not take sides           countries can outline for themselves
                           on the various claims, but it has to take      over some of the disputed territories. Ja-
                           and state a position which is neutral, for-    pan is involved in three territorial dis-
                           ward-looking, and encourages the peace-        putes of its own, with China, Russia and
                           ful resolution of issues.”                     South Korea.
                             “We also hope that ASEAN and China              “Senkaku is an integral part of Japan,
                           will start talks on a Code of Conduct          based on international law and historic
                           soon,” Lee said.                               facts,” he said, in response to a question
                             China, however, has been adamant             about the dispute over the islands that
                           that ASEAN and other regional organi-          China calls the Diaoyu islands.
                           zations are not the “proper” forums for           The classic solution that observers like
                           dealing with the territorial disputes. It      to throw out as the most rational solution
                           wants to deal with its counter-claimants       to maritime disputes is that reached by
                           on a bilateral basis instead of dealing        Malaysia and Thailand over a disputed
                           with any collective grouping, and fre-         section of the Gulf of Thailand, in which
                           quently makes statements to that effect,       the two countries recognized the ter-
                           as well as telling other countries that the    ritorial claims as intractable and agreed
                           territorial issues are China’s to work out     to joint commercial development while
                           with its neighbors.                            putting the question of sovereignty aside.
                             That was its clear response to ASEAN            But, so far, none of the claimants in
                           in July, and also during the recently con-     the South China Sea or other East Asia
                           cluded APEC meetings, where China’s            waters have seemed willing to accept
                           president Hu Jintao declined to meet           that as an approach.
                           with his Philippine counterpart, al-              As Singapore’s Lee said in his speech:
                           though Hu did meet with Vietnamese             “Sovereignty disputes are complex and
                           president Truong Tan Sang.                     hard to resolve. No side can easily aban-
                             “As we all know, since its inception in      don their claims without high political
                           1989, APEC is an organization to discuss       costs. The many overlapping claims by
                           economic cooperation issues instead of         multiple claimants in the South China
                           political issues or territorial disputes,”     Sea are unlikely to be resolved any time
                           said La Yifa, director general of the De-      soon. Hence in Singapore’s view, the in-
                           partment of International Organizations        volved parties must manage the disputes
                           and Conferences, a division of China’s         responsibly. All sides should avoid esca-
                           Foreign Ministry, in a press briefing dur-      lating tensions or precipitating confron-
                           ing the APEC week in Vladivostok.              tations that will affect the international
                             Nevertheless, some hope that econom-         standing of the region.”
                           ic cooperation and integration such as            And given recent events and state-
                           that advocated by APEC will eventually         ments, that’s likely the best that can be
                           lead countries toward peaceful resolu-         hoped for in the foreseeable future. ■

10 insight November 2012
India




             Crossed Wires:
             India’s Power Failure
             Martin Daniel, Editor, Platts Power in Asia

                             The grid failure that affected much            The problem of unscheduled with-
                           of India at the end of July 2012 was un-      drawals is far from new with some In-
                           precedented in scale. More than half of       dian states persistently drawing more
                           India’s 1.2 billion people were without       power from the grid than their alloca-
                           electricity after the northern regional       tion, in spite of warnings from the re-
                           grid collapsed on July 30, followed by        gional load dispatch centers (RLDCs).
                           the failure of the eastern and northeast-     The five RLDCs come under the Nation-
                           ern grids the next day.                       al Load Dispatch Center and coordinate
                             While unprecedented in scale, the           the activities of the dispatch centers in
                           failure was not unprecedented in occur-       individual states.
                           rence. And while the immediate causes            On July 10 the country’s Central Elec-
                           may differ, power transmission failures       tricity Regulatory Commission had, at the
                           in India, the rest of Asia and beyond re-     behest of the Northern RLDC, directed
                           sult from the same underlying problem—        utilities in the northern states to stop
                           insufficient transmission, generation or       overdrawing power if frequency fell below
                           power station feedstock capacity caused       49.5 Hertz. This came after June month
                           more often than not by inadequate fund-       data submitted by the Northern RLDC
                           ing and price signals in electricity mar-     showed that frequency fell below 49.5
                           kets where prices reflect the priorities of    Hertz for 70% of the time on some days.
                           politicians rather than input costs.             But data from the Northern RLDC
                                                                         showed the excessive drawdown contin-
                           Background                                    ued after July 10 and up to the time of
                              An enquiry into the grid failures or-      the outage.
                           dered by the power ministry and pub-             This was not surprising. Local analysts
                           lished in mid August found that “that no      have pointed out that the RLDCs lack in-
                           single factor was responsible for grid dis-   dependence and fail to disconnect states
                           turbances [but] identified several factors     that draw excessive power from the grid,
                           which led to the collapse of the power        particularly if they are governed by rul-
                           systems on both the days.” The fac-           ing political parties or their allies.
                           tors included weak inter-regional links          The position of the RLDCs is further
                           due to multiple outages of transmission       weakened by the fact that the main pen-
                           lines, which effectively left the 400-kilo-   alty for unscheduled withdrawals is to
                           volt Bina-Gwalior-Agra line as the only       charge a higher price for the power than
                           available line; overloading of this line      normal. However, the penalty charges
                           by unscheduled withdrawals by north-          can be less than the cost of buying elec-
                           ern region utilities, while some western      tricity from the spot market.
                           utilities were under-drawing power; the          While state indiscipline in power with-
                           failure to stop this continuing by state-     drawals from the grid may have been
                           level authorities; and the tripping of the    the immediate cause of the grid failure,
                           link and subsequent grid collapses.           it merely reflected underlying problems

12 insight November 2012
                                                                                                                                  India

in the market. On the demand side these                        The below-cost provision of a large
center on the fact that Indian electricity                   proportion of electricity supplies means
consumption consistently and substan-                        that some consumption is not economi-
tially exceeds available supplies, espe-                     cally justified. The situation is exacer-
cially at peak periods.                                      bated by high technical and economic
  The gap between peak demand and sup-                       losses in much of the country, with
ply across India in the financial year end-                   losses resulting from aging and poorly-
ing March 31, 2012 was 11.1%, up from                        maintained wires networks being com-
the 10.3% reported by the government-                        pounded by power theft.
run Central Electricity Authority (CEA)                        The upshot is that sales revenue is in-
for the previous financial year. The short-                   sufficient for many state power distribu-
fall varied across India, with the southern                  tion and supply utilities to meet their op-
and western regions seeing the highest                       erating, let alone financial costs, with the
deficits at 15.6% and 13.8%, respectively,                    debt burden of most utilities mounting
compared with a relatively modest gap of                     fast. A late 2011 government-sponsored
3.7% in the eastern region.                                  report on the utilities put their combined
  The shortfall at peak periods was par-                     losses in the year to March 2011 at Indian
alleled by the inability to meet electric-                   Rupee 277.6 billion ($5.2 billion). Worse
ity demand overall. For the year ending                      still, average costs and revenues were es-
March 2012 Indian electricity require-                       timated at the equivalent of $90/MWh
ments were 936.57 TWh, according to                          and $70/MWh, respectively in the year
the CEA, whereas the available supplies                      ending March 2010, when average trans-
were 8.5% lower at 857.24 TWh.                               mission and distribution losses were put
  Moreover, the shortfalls exclude sig-                      at 27.15%.
nificant suppressed demand, since a large
proportion of the population does not                        Supply-Side Issues
have access to grid electricity. About a                       None of this means that the strong
third of India’s 246 million households                      recent and projected growth in Indian
did not have access to grid electricity in                   electricity demand is unjustified. But the
March 2012, according to the latest cen-                     financial woes of the state power utili-
sus data, with the figure rising to 45% for                   ties—which are the wholesale buyers and
the 168 million rural households.                            onward retailers of the great majority of
  Conversely, existing electricity con-                      power in India—do have implications for
sumption is in some respects higher                          the electricity sector’s ability to invest in
than it should be. This reflects the fact                     new transmission and generation capaci-
that many customers get electricity at                       ty or pay the market rate for fuel supplies
below cost and in cases for free—with                        for fossil energy-fired generating plants.
agricultural consumers in some states                          R V Kanoria, the president of the Feder-
being notable in this regard—under a                         ation of Indian Chambers of Commerce
system where retail electricity prices are                   and Industry, has summarized the sup-
set by state agencies and regulators rath-                   ply-side issues as follows: “While main-
er than by market mechanisms.                                taining grid discipline is important, we


1. Indian electricity demand in year ending March 2012.
   Region          Peak demand      Peak supply   Deficit   Deficit   Requirement   Availablilty   Deficit   Deficit
                       MW              MW          MW        %         TWh           TWh          TWh       %
   Northern            40,248           37,117    3,131      8          276           258          18       6
   Western             42,352           36,509    5,843      14         290           257          33       11
   Southern            38,121           32,188    5,933      16         260           237          23       9
   Eastern             14,505           13,971     534       4          99            95           5        5
   Northeastern         1,920           1,782      138       7          11            10           1        10
   National           130,250          115,847    14,403     11         937           857          79       9
Source: Central Electricity Authority, India


                                                                                                                   November 2012 insight 13
India

                           [must] ramp up capacity in the power sec-                     south with 52,740 MW. In terms of own-
                           tor,” he said after the grid failure, adding                  ership, private investors held 54,276 MW
                           that “reforms that would help make coal                       of the capacity installed at March 2012,
                           and gas available as per the nation’s re-                     while central government-owned enter-
                           quirement must no longer be held back.”                       prises held 59,682 MW and state-owned
                             India has in fact added a substantial                       companies operated a further 85,919 MW.
                           amount of generating capacity in recent                       The privately-owned capacity includes in-
                           years. In the year ending March 2012 a                        dependent power producer and merchant
                           record 26,250 megawatts (MW) was com-                         projects, but not the 30,000 MW and
                           missioned, with grid-connected capacity                       more of captive generating plant.
                           nationwide now exceeding 200,000 MW.                            The impact of the recent increase in
                           The capacity installed at the end of March                    capacity can be seen from the CEA’s
                           2012 included 112,022 MW of coal,                             analysis of Indian electricity generation
                           18,381 MW of gas and almost 1,200MW                           in June 2012, which at 76.31 TWh was
                           of oil-fired plant, as well as 38,990 MW of                    8.1% higher than in June 2011—an im-
                           hydroelectric, 24,503 MW of renewable                         pressive year-on-year increase by Indian
                           and 4,780 MW of nuclear plant.                                standards. With hydroelectric output
                             By region, western India hosted most                        down 5.5% on year due to depleted dam
                           capacity at 64,394 MW, followed by the                        water levels against the background of
                           northern region with 53,925 MW and the                        low rainfall, fossil-fueled generation rose


                           2. Indian power generation in June 2012.
                                                                            TWh       % on year      % of total

                                                            Coal            52.78       16.75          69.2
                                                            Lignite         2.69        18.58           3.5
                                                            Gas             6.26       -20.28           8.2
                                                            Liquid          0.01       -84.31           0.1
                                                            Diesel          0.16        -0.05           0.1
                                                            Nuclear         2.72        8.83            3.6
                                                            Hydro           11.23       -5.47          14.7
                                                            Imports         0.44       -29.68           0.6
                                                            Total           76.31       8.08            100
                           Source: Central Electricity Authority, India


                           3. India power generation by fuel.
                                             Coal      Lignite        Gas    Liquid   Diesel      Nuclear         Hydro   Imports




                           Source: Central Electricity Authority, India


14 insight November 2012
                                                                                                           India

11.37% from June 2011 to 61.91 TWh in         been stagnant against the background of
June 2012, within which coal and lig-         surging demand. CIL’s output rose only
nite-fired production was up more than         1% to 435.8 million mt in the year to
17% on year at 55.47 TWh.                     March 2012, following unchanged pro-
                                              duction the previous year.
Fuel Supply Issues                              The problem can be seen from the fact
  However, while coal-fired generation         that 34,373 MW of coal-fired capacity was
was well up on year it could have been        commissioned in India in the three years
higher, with the CEA noting that the 33       to March 2012. That amount of capacity
million metric tons (mt) of available coal    would require some 70 to 100 million mt
during the month of June was only 82%         of coal each year, whereas CIL added only
of power plant requirements. The situa-       32 million of annual production in total
tion for gas-fired plants was even worse,      over the same period.
with national gas shortages meaning that        CIL delivered 311 million mt of coal to
the 6.26 TWh of output in June 2012 was       power plants in the year ending March
20.28% lower than in June 2011.               2012, about three-quarters of the elec-
  This situation continued into July,         tricity generation sector’s 417.56 million
with the CEA observing that just prior to     mt of coal consumption for the year.
the grid failure more than a fifth of the      While CIL is targeting the delivery of
180,361 MW of grid capacity that it moni-     about 36 million mt more in the year
tors was not operating. While 12,433 MW       ending March 2013, this is well below
was closed for scheduled maintenance or       potential requirements.
other reasons on July 29, a further 27,032      Private production of coal from re-
MW was offline because of forced outages.      sources dedicated to supplying specific
  Ashok Khurana, the director general         generation projects on a captive basis
of the Association of Power Producers         is even worse placed—while 57 blocks
(APP), amplified the position by noting        have been awarded to private power gen-
that 35,000 MW of coal-fired plant was         erators since 2004, only one has started
working at less than 40% of its design        production. Moreover, the award of the
capacity due to the lack of coal supplies     blocks faces legal and financial scrutiny
and more than 9,000 MW of gas-based           following the publication of an audit by
plant—about half the national total—          the Comptroller and Auditor General
was idle because of the lack of gas. On       of India in August 2012, meaning that
top of that, he noted that firm fuel sup-      power plants with 18,300 MW of capac-
ply agreements remain to be signed for        ity face likely further delays.
another 55,000 MW of plant which is             On the domestic gas supply front, the
scheduled to enter operation by 2015.         shortages center on problems facing the
  While both fuels fall short of demand,      KG-D6 block off the coast of Andhra
there are significant differences between      Pradesh state. Production from what was
the problems confronting the Indian           expected to be India’s biggest gas pros-
coal and gas supply sectors. On the           pect by far had reached 61 million cubic
coal front, new mines being developed         meters per day in 2010.
both by state entities such as the central      But instead of then rising to 80 mil-
government-owned Coal India Limited           lion cu m/d by April 2012, as envisaged
(CIL) and by private investors on a cap-      in the field development plan, produc-
tive mining basis have been heavily de-       tion has fallen to about half this level
layed or cancelled.                           because of the geological complexity of
  This is a result of changes to, and more    the gas reservoir.
stringent enforcement of, policies re-          Moreover KG-D6’s operator, the local
lated in particular to securing environ-      Reliance Industries Limited, has pro-
mental approvals. Land and water avail-       jected that the field’s production will fall
ability issues are also becoming acute for    further to 22 million cu m/d by 2014.
coalmine developers.                          This is less than the 32 million cu m/d
  As a result the annual output of CIL,       then allocated from the block to the
one of the world’s largest coal miners, has   power sector alone.

                                                                                            November 2012 insight 15
India

                              The collapse in KG-D6 production has       than buy electricity at the higher prices
                           dragged down overall Indian gas pro-          resulting from the use of imported coal.
                           duction. In the year ending March 2012        Evidencing this, the APP has pointed out
                           total gas output fell by 8.9% on year to      that distributors have not bought all the
                           47.549 billion cubic meters, or around        electricity offered through the country’s
                           130 million cu m/d.                           power exchanges, which for much of
                              The country’s gas-fired plants require      2012 has cost more than that supplied
                           about 82 million cu m/d of gas to run at      under long-term contract, in spite of the
                           90% capacity, but were getting less than      shortfall in national electricity supplies.
                           53 million cu m/d in early 2012. And the         Generators with firm long-term fuel
                           power ministry has said that availability     supply contracts are also unwilling to
                           is likely to drop to 28 million cu m/d in     lose their lower-priced supplies, arguing
                           the year ending March 2014, with the          that they receive fixed power sales tariffs
                           average load factor of India’s gas-fired       predicated on the contract prices. And
                           plants having already fallen from 62.46%      several states, including West Bengal,
                           in June 2011 to 46.86% in June 2012.          Chhattisgarh, Haryana and Gujarat, said
                              Not only are many operating gas-fired       in mid August that they would not pay
                           plants working at a low load factor, but      more for power generated from domestic
                           much of the sizeable amount of plant          and imported coal where priced partly
                           under construction has no committed           against international benchmarks.
                           gas in spite of having signed fuel supply        The aversion to letting imports fill the
                           agreements. This has led to an effective      widening gap between coal and gas re-
                           moratorium on the approval of new gas-        quirements and domestic fossil fuel sup-
                           fired capacity, at least where based on        plies applies in spite of the fact that, in
                           indigenous gas supplies, with the power       terms of geography, India is one of the
                           ministry seeing no approvals until at         best placed international energy import-
                           least 2015 unless the situation changes.      ers. It is located between the Gulf and
                                                                         Southeast Asian LNG exporters, among
                           Imports to the Rescue?                        others, while it is well positioned to draw
                              The problems facing India’s domestic       on thermal coal supplies from South Af-
                           gas and coal industries are multifarious      rica, Indonesia and elsewhere.
                           and only partly reflect the fact that they        Resolving the fuel supply problems will
                           sell their output to generators at regulat-   be essential if Indian electricity demand
                           ed and low prices. But the low domestic       forecasts are to be met. The base case pro-
                           feedstock prices do mean the financially-      jections in the CEA’s National Electricity
                           pressed power utilities are unwilling to      Plan issued in early 2012 see peak demand
                           replace electricity generated from indig-     reaching 199,540 MW and consumption
                           enous supplies with that produced from        rising to 1,355 TWh in the year to March
                           imported coal or liquefied natural gas,        2017, before rising to 283,470 MW and
                           whose market-set prices were respectively     1,905 TWh in the year to March 2022.
                           about double and triple those of indige-         About 210,000 MW of new capacity is
                           nous supplies in mid 2012.                    planned to enter operation in India be-
                              CIL has thus been unwilling to accede      tween April 2012 and March 2022, ac-
                           to government requests that it should         cording to the CEA, with 98,190 MW
                           import coal to meet the shortfall in do-      due to be built in the five-year period
                           mestic supplies unless the onward sales       starting April 2012. But because of the
                           are at international prices rather than       moratorium only 1,086 MW of new gas-
                           the regulated prices paid by generators.      fueled capacity is planned by March
                           It has been suggested that this could in-     2017, with no new gas-fired additions
                           volve some form of pooling of domestic        thereafter, whereas 66,600 MW of identi-
                           and imported coal prices to spread the        fied coal-fired plant is planned by March
                           cost of higher-priced imports across all      2017, with a further 49,200 MW due to
                           power producers.                              be added by March 2022.
                              But the generators argue that state           The projected additions to March 2017
                           utilities would rather impose power cuts      also include 18,500 MW of renewable,

16 insight November 2012
                                                                                                                        India

9,204 MW of hydroelectric and 2,800                         Moreover, this is in addition to the 54
MW of nuclear plant, with private in-                       million mt of overseas coal needed for
vestors expected to install about 50%                       power stations specifically designed to
of the total capacity and the overall in-                   run on imported coal, giving an overall
vestment cost put at $120 billion. The                      import requirement of 218 million mt.
109,700 MW of capacity tentatively
planned for installation from April 2017                    Recent Trends
to March 2022 also includes 18,000 MW                         Whether India will achieve its ambi-
of nuclear, 12,000 MW of hydroelectric                      tious targets for capacity additions is a
and 30,500 MW of renewable energy-                          moot point. Power purchasers with poor
based plant, with the latter including                      creditworthiness together with severe
16,000 MW of solar and 11,000 MW of                         power station fueling issues do not offer
wind turbine capacity.                                      an attractive framework for investment
  The projections also assume that hy-                      in new generating capacity.
droelectric power imported from neigh-                        The problems are apparent from a Platts’
boring Himalayan countries such as                          analysis of project activity throughout
Bhutan and Nepal will reach 1,200 MW                        Asia in the first half of 2012. This found
by March 2017 and 8,040 MW by March                         that while there was significantly less ac-
2022. In the high gas case they also as-                    tivity in Asia as a whole during the first
sume, that if gas became available, a fur-                  six months of 2012 compared with the
ther 25,000 MW of identified gas-fired                        same period of 2011, the difference was
plant could be built by March 2017—                         more than accounted for by plummeting
this would take gas supply requirements                     activity in the Indian market.
then to 188.4 million cubic meters per                        The analysis, which uses data from
day compared with 98 million cu m/day                       the project tracker published monthly
in the base case.                                           in Platts’ Power in Asia newsletter, is
  Given the emphasis on additional                          an aggregation of individual projects
coal-fired plant, CEA has unsurprising-                      which are included in the tracker for a
ly flagged up the fact that coal supply                      particular period only when they pass
issues are of particular concern. It has                    key milestones in the project develop-
projected power station coal require-                       ment pipeline (as opposed to the much
ments in the year ending March 2017 at                      larger number of total projects under de-
842 million mt.                                             velopment in Asia). The analysis found
  After taking into account the antici-                     that just over 103,800 MW of capacity
pated output from CIL and other state-                      registered a change in status throughout
owned entities such as Singareni Collier-                   Asia in the first half of 2012—down 11%
ies, as well as production from captive                     compared with the same period of 2011.
coal blocks, CEA anticipates that 164                         However, the fall in activity across
million mt of imports will be needed to                     Asia was more than accounted for by
cover a shortfall in domestic supplies.                     the near-halving of Indian activity. At


4. Indian actual and planned capacity additions.
                MW
     120,000
                     Coal   Gas     Diesel    Nuclear   Hydroelectric   Renewables
     100,000

       80,000

       60,000

       40,000

       20,000


                   1997-2002             2002-2007      2007-2012       2012-2017    2017-2022
Source: Central Electricity Authority, India


                                                                                                         November 2012 insight 17
India

                           19,558 MW, activity was down from the               riod much more gas-fi red capacity was
                           38,174 MW registered in the same peri-              predicated on the use of imports, or im-
                           od of 2011, with reduced activity at all            ports in combination with indigenous
                           points in the project development pipe-             gas supplies, than on domestic supplies
                           line apart from that of capacity entering           alone. Across Asia, about 47% of the
                           operation.                                          gas-fi red capacity had been predicated
                             Thus almost no capacity was reported              on the sole use of indigenous supplies
                           to have started construction in India               in the fi rst half of 2011, whereas the fig-
                           during the period, while the amount of              ure dropped to 22% in the same period
                           capacity which was announced or se-                 of 2012.
                           cured government and company approv-                  A similar Asia-wide trend was appar-
                           als fell by more than a half and about              ent for coal, with more generators ap-
                           four-fifths, respectively. Meanwhile                 pearing to seek multiple sources of fuel
                           the amount of Indian capacity signing               for their projects. But India was again
                           equipment or engineering, procurement               an exception to the rule, with slumping
                           and construction (EPC) contracts was                Indian activity one of the main reasons
                           down on year by about a third in the                why there was a reduction in the overall
                           first half of 2012.                                  amount of activity in the coal-fired gen-
                             India was not alone in registering a              erating sector and especially in plants
                           decline in activity with China, for in-             predicated solely on domestic supplies.
                           stance, also showing significantly less                Across Asia, the amount of coal-fired
                           activity in the first half of 2012 than in           capacity changing status throughout
                           the same period of 2011. However, there             the project development pipeline fell
                           were differences across the project de-             from 61,371 MW in the fi rst half of
                           velopment pipeline and between fuels,               2011 to 57,265 MW in the same period
                           with the dearth of Indian gas-fired activ-           of 2012, according to the Platts analy-
                           ity not repeated in China.                          sis. However, the fall was more than
                             In this respect the analysis found a              accounted for by a reduction in the
                           notable difference at the Asia-wide lev-            amount of announced capacity, which
                           el between activity in the fi rst halves             dropped from 14,100 MW in the fi rst
                           of 2011 and 2012—in the latter pe-                  half of 2011 to 8,480 MW in the same


                           5. Asian projects changing status in the first half of 2011 by fuel, MW.
                                                  Announced   Approved   Contract signed   Construction   Operation   Total

                                Coal - domestic     12500      10450         11018            6440          3760      44168
                                Coal -imported      1600        2600          8388            1400           960      14948
                                Coal - both           0         800           135             1320            0        2255
                                Oil                  370        150           505              100           560      1685
                                Gas - local           0         3412          4018             806          1132       9368
                                Gas - LNG           1900        700           1013             570            0       4183
                                Gas - either        1600        1422          2966             510            0        6498
                                Oil/gas              150         0             0               560            0        710
                                Hydro                 0         3399          5362            5253          1030      15044
                                Nuclear             3590        2000           0                0             0        5590
                                Wind                 806        809           2536            1026           700      5877
                                Solar               2040        352           229              735            0       3356
                                CSP                  200         0             0                0             0        200
                                Geothermal           302        455           171               0             0        928
                                Other                50          0             0                0             0         50
                                Total               25108      26549         36341            18720         8142      114860
                           Source: Platts

18 insight November 2012
                                                                                                                     India

period of 2012, with the drop in Indian               the generation of a large part of electricity
activity again prominent.                             by independent power producer plants.
   The analysis thus indicates that on                  Whether the July 2012 outages will
current trends India could fail to meet               have a similar transformative impact on
its ambitious program for adding gen-                 India’s electricity sector remains to be
erating capacity during the coming de-                seen. Ownership of Indian electricity
cade. With limited potential for adding               and energy assets is divided between na-
hydroelectric, renewable and nuclear                  tional, regional and state entities, with
plant, it will be reliant on building more            their operation being less than seam-
fossil-fueled capacity.                               less as a result of the plethora of agen-
   This effectively means building much               cies and companies existing even at the
more coal-fi red capacity, unless the                  same level.
moratorium on gas-fired capacity is                      Reform of the sector would thus re-
lifted. But with the indigenous coal and              quire root and branch restructuring for
gas industries both facing problems,                  which the political will and, perhaps
and an aversion on cost grounds to the                more pertinently, parliamentary support
use of imported fossil energy, building               remains unclear. And the track record
and fueling the capacity will be a big                is not promising since, while India has
ask, unless there is a thoroughgoing                  enacted sweeping energy market reforms
program of market liberalization and                  over the past two decades, implementa-
price reform.                                         tion of many of the measures has been
                                                      patchy at best.
Conclusions                                             At root, though, the outcome will de-
  Major grid failures can have a pivotal              pend on popular support for the mea-
impact on electricity markets. Blackouts              sures and there is certainly consider-
are unpopular with voters and investors,              able public outrage over the grid failure
and have on occasion led to major shifts              which will result in some form of action.
in national electricity policies. Witness             But how effective the actions are will
the severe blackouts in Malaysia in the               depend primarily on whether the same
early 1990s, which led to the shift from              public is willing to pay an economic
monopoly state electricity provision to               price for its power. ■


6. Asia power trends in the first half of 2012, MW.
                        Announced   Approved   Contract signed   Construction   Operation   Total

      Coal - domestic     3580        2835           7370             0           4875      18660
      Coal -imported      3500       11298           6820             0            800      22418
      Coal - either       1400        5732           4940           1200          2915      16187
      Oil                   0         306             0               0            0         306
      Gas - domestic       500        1900           1537             0            550      4487
      Gas - imported      2376         0             6000             0            251      8627
      Gas - either         450        4514           2587             0             0       7551
      Oil/gas              450         0              800             0            339      1589
      Hydro               9954        1300           1740             0            901      13895
      Nuclear               0          0               0            2800           650      3450
      Wind                1000        829             377            420          1028      3654
      Solar                470        266             968             5            387      2096
      CSP                   0          0              250             0             0        250
      Geothermal            5         440              0             130            0        575
      Other                 0          0              60              0             0        60
      Total               23685      29420           33449          4555          12696     103805
Source: Platts

                                                                                                      November 2012 insight 19
China energy




             Test Year for Chinese
             Coal-Based SNG
             Ross McCracken, Editor, Platts Energy Economist

             Coal-based Synthetic Natural Gas production in China may be
             on the brink of a step-change in the industry’s development.
             New projects coming on-stream this year promise the start of
             commercial scale production, moving the sector away from its
             traditional base in chemicals. SNG could provide a significant
             contribution to the country’s gas supply, one that may outstrip
             shale gas in both quantity and timing.


                             While China’s shale gas prospects             methods of post-combustion separation
                           have grabbed the headlines recently,            from power plant flue gas. As a result,
                           less attention has been paid to the coun-       coal gasification reduces the overall cost
                           try’s efforts in coal gasification. Coal is      of Carbon Capture, Storage. However,
                           China’s number one hydrocarbon re-              for coal gasification to be classified as
                           source and the Chinese coal industry is         low carbon it must be combined with
                           the largest in the world. Further exploit-      CCS, an as yet unproven and economi-
                           ing the country’s reserves, particularly        cally challenging process.
                           coals unsuitable for power generation
                           or inaccessible with traditional mining         Supply Contribution
                           techniques, provides China with an ad-            According to data from the state-
                           ditional means of offsetting its growing        owned China National Petroleum Cor-
                           import dependency on oil and gas.               poration, China’s annual gas demand is
                             The syngas produced by coal gasifica-          expected to rise to 350 Bcm by 2020 and
                           tion is versatile. It can be used as a direct   550 Bcm by 2030 from 130 Bcm in 2011.
                           burn energy source for power and heat,          Other forecasts suggest demand could
                           or be upgraded to Synthetic Natural Gas         top 400 Bcm by 2020, while estimates
                           that can be fed into existing natural gas       made by the National Development and
                           pipelines. It can also be used to make          Reform Commission’s Energy Research
                           chemicals and via Fischer-Tropsch pro-          Institute last year put the 2020 figure
                           cesses into liquid fuels.                       lower at 270-330 Bcm.
                             There is also an environmental angle.           China has contracted for imports of
                           Coal gasification allows pre-combustion          Central Asian pipeline gas to rise to 65
                           separation of carbon dioxide from the           Bcm/yr by the end of the decade and ex-
                           syngas, which is cheaper than current           pects to receive a further 12 Bcm/yr from

20 insight November 2012
                                                                                                     China energy

Myanmar by pipeline. Domestic output                  a marked slowdown in new projects, the
is expected to double between 2009 and                last being built in 2009 and the one be-
2020, with unconventional gas sources                 fore that in 2003. However, 2012 should
playing a key role. Based on the NDRC                 mark a new direction for the gasification
figures—which are at the conservative                  sector in China, with the start up of two
end of the spectrum—LNG should be                     projects designed to produce upgraded gas
able to fill the gap between expected sup-             that can be put into natural gas pipelines.
ply and demand in 2020.                                  JP Morgan’s research lists 15 coal gas-
   It is unclear where SNG sits within                ification projects under construction in
this framework. CNPC does not appear                  China through to 2016. If first phase
to take SNG production into account,                  completion is achieved under the time-
focusing instead on conventional gas,                 tables described, total SNG output would
tight gas, shale gas and coalbed meth-                reach 21.24 Bcm/yr of pipeline qual-
ane. US bank JP Morgan provides a mod-                ity gas by 2016. If full target capacity
el which assumes Chinese gas demand of                is reached, coal gasification could sup-
400 Bcm in 2020, but specifically omits                ply 89-96 Bcm/yr, not far short of 25%
SNG production, owing to the technical,               of total gas demand in 2020. According
economic and infrastructural risks as-                to the World Clean Coal Week confer-
sociated with the sector’s development.               ence total projects under construction,
However, the bank does see a potentially              planned and proposed amount to some
significant additional contribution to                 150 Bcm/yr gas, although many of these
China’s domestic gas supply from SNG,                 projects are unlikely to be realized.
one currently not incorporated within                    The first two commercial coal gasifica-
the bank’s models.                                    tion projects are Qinghua Coal Group’s
                                                      project in Yili, Xinjiang. First phase ca-
Existing Gasification                                  pacity is 1.38 Bcm/yr, rising eventually to
  China already produces significant                   full potential capacity of 5.5 Bcm/yr, al-
amounts of coal gas, but the syngas pro-              though the timeline for future expansion
duced is used almost entirely in the chem-            is unclear. The second project is Xinjiang
icals industry. Of total installed capacity,          Guanghui’s 0.5 Bcm/yr capacity plant,
66 of 69 gasification facilities are directed          also in Xinjiang. Four more projects are
towards syngas for chemicals production,              slated for completion in 2013, two in In-
representing 95% of syngas output by                  ner Mongolia and two more in Xinjiang.
nameplate capacity, according to the Gas-             Combined, these represent first-phase ca-
ification Technologies Council database.               pacity of an additional 7.36 Bcm/yr, with
  The predominant gasification feedstock               scope for expansion to 22 Bcm/yr.
is coal, which accounts for 55 projects                  Although it is hard to assess the timing
or 89% of syngas output capacity. The                 of project completion, as many of the
remainder is made up primarily of pe-                 proposed projects lack approvals, as well
troleum residues, where there has been                as likely operational levels, there have


1. Number of Chinese gasification projects by feedstock (cumulative).
         75
                  Gas     Petroleum     Coal


         50



         25




            1983        1987         1991      1995     1999      2003      2007      2011
Source: Gasification Technologies Council

                                                                                                    November 2012 insight 21
China energy

                           been some concrete developments in ad-                    would serve 13 provinces and municipali-
                           dition to the two plants expected to start                ties including Gansu, Ningxia, Shaanxi,
                           up this year. The China Power Invest-                     Shandong, Jiangxi, Zhejiang, Guangdong
                           ment Corporation’s 2-6 Bcm/yr project                     and Fujian, while the second pipe will pass
                           in Yili, for example, which is expected                   through seven major areas, including He-
                           to produce first SNG in 2015, has eight                    han, Anhui, Tianjin, Jiangsu and Beijing.
                           coal gasifiers on order from Siemens En-                      Sinopec signed a deal with the Xinji-
                           ergy. Each gasifier uses up to 2,000 tons                  ang government and nine local compa-
                           of coal a day.                                            nies—including state power company
                                                                                     Huaneng—in December to procure syn-
                           Transportation                                            thetic gas for the pipelines. Of the 15
                              A notable aspect of these projects is                  projects listed by JP Morgan that are ex-
                           the high level of involvement in the                      pected to complete by 2016, seven are in
                           SNG upstream of coal and power com-                       Xinjiang, with one each in Shanxi and
                           panies rather than China’s traditional                    Gansu, which could be connected to the
                           oil and gas producers. However, China’s                   longer of Sinopec’s two proposed pipes.
                           big state oil and gas companies do have a                 Sinopec is also interested in SNG produc-
                           crucial role to play. Producing potential-                tion itself and has a project in Xinjiang
                           ly large volumes of SNG in Inner Mongo-                   which is slated to start up in 2015—the
                           lia and Xinjiang—areas far from China’s                   same schedule as for the pipeline—with
                           demand centers—means the gas has to                       capacity of 8.0 Bcm/yr.
                           be piped long distances to consumers.                        Sinopec’s Xinjiang SNG pipeline
                           Neither the coal nor power companies                      project was reported by local media to
                           involved have the capacity to build the                   have been submitted to the NDRC for
                           necessary pipelines.                                      approval in August 2011. The pipeline
                              Sinopec announced last year that it                    appears to have fi rst been proposed in
                           would invest in two pipelines with to-                    2009, but no mention is made of it in
                           tal transmission capacity of 30 Bcm/yr                    the group’s 2011 annual report as a
                           to transport coal-based synthetic gas to                  company priority. It is not clear wheth-
                           China’s eastern coast. The first will be                   er it forms part of the blueprint for the
                           7,373 kilometers long and link Xinjiang                   natural gas sector under the 12th Five
                           with Guangdong and Zhejiang provinc-                      Year Plan, which was submitted for ap-
                           es. The expected cost is over Yuan 130                    proval by the NDRC to the State Coun-
                           billion ($20.4 billion), including five                    cil in May, but has yet to be publicly
                           trunk lines. The second pipeline will also                released. SNG production comes under
                           start in Xinjiang and run to Shandong                     the chemical coal sector in the 12th
                           and Jiangsu provinces, spanning over                      Five Year Plan, which was released in
                           4,463 km. The pipelines are expected to                   March. It only mentioned that syngas
                           be operational by 2015.                                   from coal should be developed but did
                              Sinopec said that the longer pipeline                  not specify any output targets.


                           2. Number of Chinese gasification projects by product (cumulative).
                                    75
                                             Motor fuels    Gaseous Fuels    Chemicals


                                    50



                                    25




                                      1983         1987         1991        1995         1999    2003     2007      2011
                           Source: Gasification Technologies Council

22 insight November 2012
                                                                                                                         China energy

Supply Competition                                          line will be more than 5,000 km long,
   Media reports give the impression that                   according to CNPC.
there is some competition between Sino-                       Construction of the third West-East
pec and CNPC in Xinjiang to secure SNG                      pipeline may provide capacity for SNG to
volumes. Xinjiang has traditionally been                    be taken east. CNPC signed framework
the preserve of CNPC. The company’s                         agreements with local state-owned and
subsidiary PetroChina built the West-                       private companies to secure funding for
East pipelines that take Central Asian                      the 30 Bcm/yr Third West-East pipeline
imports and Xinjiang’s own production                       end-May. The company said then that
to China’s east.                                            construction would begin within a year,
   The first West-East pipeline has capacity                 with commercial operations targeted to
of 12 Bcm/yr and runs 3,843 km from the                     begin in 2015.
western Tarim Basin in Xinjiang to Shang-                     According to a report in July from Inter-
hai. It started operations in 2003. The 30                  fax, quoting a company source, the King-
Bcm/yr Second West-East pipeline brings                     ho Energy Group will start trial output
in Turkmen gas. It was fully commis-                        from its coal-to-gas project in Xinjiang
sioned in May, when the link to Shenzhen                    this year before moving to the produc-
city in southern Guangdong province was                     tion phase in 2013. The project has even-
launched. It was built at a cost of Yuan                    tual capacity of 5.5 Bcm/yr. The report
142.2 billion, with a total length, includ-                 said key equipment for the first phase of
ing trunk lines, of 8,704 km and is already                 the project has been installed. According
said to be operating close to capacity.                     to the report, CNPC’s West-East gas pipe-
   The third line is expected to cost Yuan                  line network will take the output. Other
116 billion, according to The China Secu-                   local media sources say 14 coal-to-gas
rities Journal. The new pipeline will link                  projects were started in 2011 in Xinjiang.
with the Central Asia-China gas pipeline                      The China National Offshore Oil Com-
network and start in Horgos in western                      pany also has an interest in coal gasifica-
Xinjiang province on the border with                        tion, both upstream production and in
Kazakhstan—the same start point as the                      transportation. Local media have report-
Second West-East pipeline. It will pass                     ed that the company wants to build a 30
through 10 provinces. The main trunk                        Bcm/yr capacity pipeline to take SNG from



3. Coal gasification projects—under construction and proposed.
Operator                               Location           First phase (Bcm/yr)   Target (Bcm/yr)   Year of first phase

Qinghua                               Yili, Xinjiang              1.38                 5.50              2012
Xinjiang Guanghui                       Xinjiang                  0.50                 0.50              2012
Datang                               Inner Mongolia               1.40                 4.00              2013
Xinwen                                Yili, Xinjiang              2.00                10.00              2013
Huineng                           Ordos, Inner Mongolia             na                 2.00              2013
Huaneng                            Zhundong, Xinjiang             4.00                 6.00              2013
Shenhua                           Ordos, Inner Mongolia             na                 2.00              2015
Sinopec                                 Xinjiang                    na                 8.00              2015
Guodian                       Ulanhot, Inner Mongolia             2.00                10.00              2014
Xinjiang Guanghui                   Fuwen, Xinjiang               4.00                 4.00              2015
Datang                               Fuxin ,Liaoning                na                 4.00              2016
China Power Investment Corp           Yili, Xinjiang              2.00                 6.00              2015
CNOOC New Energy Investment              Shanxi                   4.00               6 to 15             2015
Gansu Hongshengqi                        Gansu                      na                 4.00              2015
Sichuan Petrochemical/Linde             Sichuan                     na                15.00              MOU

Source: Company data, JP Morgan

                                                                                                                        November 2012 insight 23
China energy

                           Inner Mongolia to more central and east-         Complementary Technologies
                           ern demand centers. CNOOC New Energy                China’s initial push for SNG produc-
                           Investment has plans for a first phase coal-      tion is based on traditional coal min-
                           to-gas project with capacity of 4.0 Bcm/yr       ing, with the innovative phase coming
                           in Shanxi, a province south of Inner Mon-        in the gasification and methanization
                           golia, starting up in 2015.                      that produces syngas and then upgrades
                                                                            it to SNG. The advantages include the
                           Comparison with Shale                            more efficient extraction of coal’s energy
                              Based on the projects outlined by JP          value, the potential use of poorer quality
                           Morgan, SNG output from coal gasifica-            coals and the prevention of pollution in
                           tion could outstrip the contribution of          densely-populated areas.
                           shale gas to Chinese gas supply in the              Piping gas produced in Xinjiang or In-
                           period to 2020. According to CEO Chris           ner Mongolia to eastern and southern
                           Faulkner of US independent Breitling             demand centres saves on rail and truck
                           Oil and Gas, China’s shale gas targets are       transport of coal to power stations in those
                           over ambitious, owing to the size of the         areas. However, any SNG produced is as
                           investments required and infrastructural         likely to displace oil products as much as
                           constraints such as pipeline connections         direct coal burn because China’s expects
                           and water supply and disposal. These             a rapid increase in city gas consumption
                           concerns have also been highlighted by           over the next decade and is putting the
                           officials from China’s state-owned oil            infrastructure in place to facilitate this.
                           and gas companies.                                  Other technologies complement the
                              Beijing is targeting annual output of         expansion of coal gasification. Foreign
                           6.5 Bcm/yr of shale gas output by end-           companies involved in Underground
                           2015, although state oil companies Pet-          Coal Gasification, for example, ap-
                           roChina and Sinopec have only outlined           pear to be migrating from their home
                           output targets of less than half that.           patches, where resistance to coal-relat-
                           Sinopec’s target of 2 Bcm includes shale,        ed technologies is stronger and envi-
                           coalbed methane and tight gas.                   ronmental controls more stringent, to
                              Investment capital is also likely to be       jurisdictions in Asia.
                           a constraint. Despite a number of coop-             Australia’s Linc Energy, a leader in
                           eration agreements with International Oil        the UCG sector, recently agreed a joint
                           Companies, China’s Ministry of Land and          venture with GCL Projects, a subsidiary
                           Resources, which controls the country’s          of Hong Kong-based Golden Concord
                           shale acreage, launched its first bid round       Holdings, to build its first multi-gasifier
                           last year, with only a handful of local state-   project in China. Linc offers integrated
                           related companies allowed to participate.        UCG to Gas-to-Liquids technology to
                              Of the four areas offered, only two at-       produce transport fuels from coal.
                           tracted bids, and those were awarded                Another Australian firm, Cougar En-
                           to Sinopec and Henan Provincial Coal             ergy, is also reported to be in talks with
                           Seam Gas Development and Utilization             local Chinese partners to use its UCG
                           Co. A second round is expected this year,        technology on prospective coal areas in
                           but participation is again expected to be        Inner Mongolia. Focusing on UCG for
                           limited to domestic companies.                   power generation, Cougar is currently
                              Speaking at the Shale Gas World confer-       involved in site selection for a UCG proj-
                           ence in Singapore in July, Faulkner said,        ect in the Wu Ni Te coal basin. Cougar
                           “There’s a massive gap between the activ-        saw its Kingaroy UCG pilot project in
                           ity in the country and full-scale develop-       Australia shut down in July 2010 on en-
                           ment … That’s why I really don’t think           vironmental grounds that it is still con-
                           China is going to get anywhere by 2015           testing in court.
                           or 2020, for that matter. It’s going to be a        In July last year, at a UK-China sum-
                           2022, 2025 play for them … The pace at           mit, a $1.5 billion partnership was an-
                           which China is moving is not going to al-        nounced between UK UCG developer
                           low it to create the amount of production        Seamwell International and the state-
                           it needs by 2015.”                               owned China Energy Conservation and

24 insight November 2012
                                                                                               China energy

Environmental Protection Group to de-           billion. Similarly, the Tianjin GreenGen
velop a 1,000 MW UCG project in China           coal gasification plant is behind sched-
on the Yi He coal field in Inner Mongo-          ule and is only the first of three phases,
lia. If built, the project would be the larg-   the last being a CCS project, which is
est of its kind.                                scheduled for 2015-2020.
   UCG involves the combustion of coal            Two projects announced in 2011 were
underground to produce syngas. It avoids        also based on CCS enabling projects
the need both for traditional mining            rather than CCS itself. Alstom Power in
and an above ground gasification plant,          July last year said it was in discussion
but is struggling to prove itself on envi-      with China Datang Power to build a
ronmental and operational grounds. If it        350 MW Oxyfuel plant in Daqing, Hei-
can be made to work reliably at scale, it       longjiang, China’s historic center of oil
could hugely extend the exploitable coal        production. The plan is to use CO2 for
resource. Given China’s vast coal reserves,     enhanced oil recovery.
UCG could represent a second develop-             A second project under discussion was
ment phase to complement current ef-            a partial post-combustion capture proj-
forts in SNG production that, in theory         ect for a proposed 1,000 MW plant in
at least, could create a new industry on        Dongying, Shandong, near the Shengli
a scale commensurate with existing con-         oil field. At the time, Climate Change
ventional gas production.                       Minister Xie Zhenhua noted that cost
   The second complementary technol-            effective uses for CO2 were essential and
ogy is Carbon Capture and Storage. Ow-          that anything beyond that would require
ing in part to its heavy coal use, China’s      international finance.
greenhouse gas emissions are rising fast.         As a result, coal-based SNG production
As a developing country, China is not           can be seen from two viewpoints. First,
bound by any emissions reduction tar-           as a means for China to exploit more ful-
gets other than those it sets itself. Coal      ly its coal resource and thus ultimately to
gasification is often portrayed as a ‘clean      use more coal and make more emissions.
coal’ technology, but its main claim in         Second, as a preliminary stage on the
this area is its efficiency and its sepa-        road to creating a genuinely low carbon
ration of CO2 pre combustion, which             process for the use of coal, which in its
makes it easier to capture and store CO2.       initial phase makes some emission gains
Without CCS, it represents a means of           through using coal more efficiently.
extending coal use rather than lowering           Clearly, as in other countries, other
its carbon impact. It may produce clean         motivations ride alongside environmen-
burning gas, but the CO2 is emitted ear-        tal concerns. China needs energy to de-
lier on in the process.                         velop and economic development is a
   China has a number of CCS projects, but      key priority. It also wishes to reduce its
as in Europe and the United States, com-        growing dependence on imported oil
mercial deployment remains at least a de-       and gas. As a domestic resource, SNG
cade away. For projects such as the Seam-       allows it to do both by substituting for
well joint venture or that announced with       imported gas and oil products in heating
US company CoalTek last year for a ‘clean       and cooking.
coal’ processing facility in Inner Mongo-         Based on the projects under construc-
lia, the focus is on energy production and      tion, the next 18 months are likely to
the efficient use of coal rather than cap-       demonstrate whether coal-based SNG
turing and storing CO2.                         can deliver commercial scale quantities
   According to an MIT report on one            of pipeline quality gas. If they do, and
of the most advanced projects, Shen-            the oil and gas companies are sufficiently
hua’s Direct Coal Liquefaction Produc-          confident to move ahead with their am-
tion Line at Ordos, Inner Mongolia, CO2         bitious pipeline proposals, there is a real
liquefaction in preparation for storage,        possibility that SNG will make as big, if
as well as some pilot storage, has been         not a larger, contribution to Chinese gas
achieved, but full-scale operation is not       supply than shale gas out to 2020, and
expected until 2020 at a cost of $1.46          possibly beyond. ■

                                                                                              November 2012 insight 25
coal




             Coal Weathers
             the Storm
             James O’Connell, Senior Managing Editor, Platts Coal

             What a difference a year makes. This time last year the coal
             industry was on a high—China and India were voracious
             consumers of the fuel and even up to February 2012 the
             market was characterized by traditionally high spot prices.



                              But as we enter the final stretch of     cise. But India, China and Korea now
                           2012 news of a far more depressing na-     dominate this market.
                           ture is dominating the headlines—col-        This year has seen the trend of ex-
                           lapsing demand, rising costs and addi-     ports from Richards Bay to Asia accen-
                           tional taxes find the industry in a state   tuate with an interesting angle—more
                           of turmoil. Add to this the declining      and more of the tonnage is not standard
                           reliability of long established bench-     specification 6,000 kilocalories per ki-
                           marks as liquidity shifts to lower calo-   logram net as received (NAR) material.
                           rific value (CV) or ‘off-spec’ markets      There has been a huge increase in the
                           and the winds of change have twisted       ‘off-spec’ market—material with a value
                           into a Category 5 hurricane.               of 5700 kcal/kg NAR or even lower.
                              It’s not all doom and gloom. 2012 has     Some sources suggest that this now
                           seen the launch of several assessments     accounts for between 40% and 50% of
                           that underpin the new lower CV mar-        the total. And when you consider that
                           kets, buyers are increasingly happy that   this is a 65-70 million metric ton an-
                           after several years of ‘runaway prices’    nual export business, this represents a
                           the tables have turned in their direc-     significant amount of coal that is under
                           tion and, as the fourth quarter gets un-   represented in the pricing market.
                           der way, market sentiment is turning a       Much of this specific product is find-
                           little more positive, looking forward to   ing its way to India which has been
                           an increase in Chinese consumer buy-       quietly active and possibly one of the
                           ing and a more stable Indian Rupee.        stronger drivers of the lower calorific
                           Maybe it is time to downgrade that         value markets.
                           storm to a Category 4?                       2012 also saw a huge surge behind
                              The changing trade flows in recent       an ‘off-spec’ Australian product—FOB
                           years have been well documented. Eu-       Newcastle 5500 NAR or the higher-
                           rope had long been the destination of      ash Newcastle coal that has complete-
                           a majority of thermal coal from South      ly taken over in the spot market from
                           Africa, or Richards Bay to be more pre-    the traditional 6000 NAR benchmark.

26 insight November 2012
                                                                                                                              coal

With thermal coal exports of around                        thermal coal exports. These have hit a
110 million mt, and with Japan taking                      20-year high.
more than 50 million mt of the stan-                         The high quality US coal comes at
dard grade, the ‘off-spec’ market consti-                  a price in the international markets—
tutes the greater majority of the most                     high sulfur. With the US coal-fired pow-
liquid high quality coal market in Asia.                   er generation industry in what is popu-
  With Japan buying almost exclusive-                      larly described as terminal decline, US
ly on an annual or term contract ba-                       producers have actively sought export
sis, the change has left the traditional                   markets and discovered that Europe
benchmark spot market devoid of both                       likes their product.
customers and liquidity. The new New-                        The US miners have also turned to
castle 5500 NAR market is most active                      Asia and to their delight China has
and favored by Chinese, Korean and                         also enthusiastically embraced the
Taiwanese buyers.                                          specifications. Employing their exper-
  The other lower calorific value market                    tise at blending coal varieties they dis-
that bloomed in 2012 is for Indonesian                     covered that high calorific value, high
coal with an FOB value of 4200 gross                       sulfur US coal and low calorific value,
as received (GAR). The market has been                     low sulfur Indonesian coal are good
growing steadily in recent years, and                      boiler buddies.
as higher quality material gets sucked                       Since the end of the fi rst quarter of
up into contracts liquidity has shifted                    2012, end users have been spoiled for
down to 5000 GAR and lower material.                       choice in terms of coal origin. With
  As long ago as 2010, Platts was asked                    the US, Colombia, South Africa, Indo-
by major industry players to launch a                      nesia and Australia all competing for
3,600 GAR Indonesia marker, but the                        the same few buyers, something had
transparency and liquidity in this seg-                    to give.
ment was, and remains, too opaque                            Just as strained relations and defaults
for truly accurate pricing. The market                     occurred at the top of the market, when
at the 4200 GAR level has, however,                        the floor fell out of the price boom the
matured significantly in the last 12                        relative newcomers to the international
months and Platts has been publishing                      seaborne coal trade—the Chinese—
pricing at this level since mid-2012.                      were quick to spot an opportunity to
  Another change blowing in the wind                       knock a few more dollars off the price.
is the huge increase in United States                      A trickle of defaults turned into a tor-


1. Daily coal price trends (physical).
         ($/mt)
   105
                  CIF ARA      Richards Bay   Kalimantan       Newcastle 6300       Newcastle 5500


    95




    85




    75




    65
     26-Jun           09-Jul        20-Jul    02-Aug         15-Aug        29-Aug        11-Sep      24-Sep
Source: Platts


                                                                                                              November 2012 insight 27
coal

                           rent and, while it may have affected        cesses and should also experience labor
                           only US producers at the start, the flood    and capital expenditure economies of
                           enveloped Colombian, Indonesian and         scale in the short term. A well-respect-
                           eventually even Australian producers.       ed industry analyst has crunched the
                             With literally dozens of defaults on      numbers and, after taking lower royalty
                           coals of all varieties, a separate mar-     payments into consideration, estimated
                           ket as good as cropped up for a num-        a production cost saving of $7/mt for
                           ber of months up to mid-2012, with          Newcastle 5500 higher-ash material
                           sources constantly telling Platts that      over the benchmark grade product. A
                           “we’re only interested in defaulted         not inconsiderable amount, especially
                           cargoes.” The demand was there, it          in these straitened times.
                           was just opportunistic.                       It must also be noted that Australian
                             With a hefty year-on-year jump in         producers benefit from annual contract
                           Chinese imports, stockpiles at the          sales in Japan. Agreed in February 2012
                                                                       at $115/mt, the deliveries made at this
            Once upon a time, when serious volatility                  annual contract price cushion the steep
                                                                       falls seen since for other sales. Even
         in the coal markets was but a figment of the                   more so since the March 2011 earth-
                                                                       quake and tsunami, and the subsequent
              imagination, a 180-day window existed.                   nuclear disaster, Japanese utilities place
                   And it wasn’t that long ago, either.                a significant premium on security of
                                                                       supply and would appear to be content
                                                                       to pay a 20-30% premium to spot pric-
                           country’s ports were at historic highs—     es for this benefit.
                           and overflowing onto adjacent roads            Given this kaleidoscope of frenetic
                           in many instances. Meanwhile stocks         and rapidly-evolving activity it is ap-
                           at utilities were good for a record 30+     parent that the thermal coal market is
                           days, twice the norm, with one utility      maturing, and another indication of
                           reporting enough stock for an incred-       this is that the spot window is short-
                           ible 72 days.                               ening. Once upon a time, when serious
                             Indeed, having paid high prices the       volatility in the coal markets was but a
                           last couple of years and more there was     figment of the imagination, a 180-day
                           an element of frustration that, at a time   window existed. And it wasn’t that long
                           when prices were falling, China-based       ago, either.
                           end users couldn’t take full advantage.       The 90-day spot window has domi-
                             Not only have the traditionally high      nated the market for the last decade
                           prices seen in recent years been instru-    or so. But the increasing hand-to-
                           mental in creating the off-spec market,     mouth buying trend that now prevails
                           they have also contributed to wide-         amongst the major consumers dictates
                           spread price sensitivity. Where once In-    that this is going to shorten.
                           dia was the only country where ‘price         In fact, the two thermal coal price
                           sensitive’ buyers were reported, now        assessments launched by Platts in
                           purchasers in Korea, Taiwan and China       2012 have specified a seven- to 45-
                           have swelled the ranks.                     day forward window. Truly replicating
                             In mid-2011 one major Singapore-          buying behavior and embracing the
                           based trader dismissed the Newcastle        need for change, Korean and Taiwan-
                           5,500 NAR market, suggesting that it        ese utilities are launching prompt ten-
                           was a flash in the pan. Once prices of       ders that are allowing two weeks’ no-
                           the standard Newcastle spec fell back       tice for the winners to begin shipping
                           to more realistic levels, consumers         their cargos. China as a very prompt
                           would return to the quality material,       buyer needs no introduction.
                           the argument went.                            As the sun sets on 2012, the weather
                             While producers are not earning a         forecast is suggesting the storm may
                           premium for this specific material, they     well just blow itself out. But it might
                           are saving money on treatment pro-          take a little longer than expected. ■

28 insight November 2012
liquefied natural gas




             Platts JKM and LNG
             Spot Contracts
             Hong Chou Hui, Managing Editor, Platts Asia LNG




                              Platts daily Asian spot LNG price as-    tracts that typically run from 10 to 30
                           sessment, the Japan Korea Marker, is        years. By contrast, in many other ener-
                           used as the outright pricing basis for up   gy commodity markets, such as crude
                           to two-fifths of the spot LNG deals in       oil and naphtha, spot trades typically
                           the region. About 25% to 40% of Asian       make up about 10% of the total vol-
                           spot LNG deals are now priced off the       umes transacted.
                           JKM assessment and, if the marker is          Before Platts started assessing the
                           used in deals, they are priced directly     JKM, spot trades were reported at prices
                           to the JKM rather than in combination       as high as $25/MMBtu at the end of
                           with other assessments, according to a      2008, representing a significant premi-
                           prominent industry energy lawyer.           um over oil-linked term contract prices
                              Platts launched the JKM on Febru-        of $15/MMBtu for shipments sent to Ja-
                           ary 2, 2009. The marker assesses the        pan at the same time. Long-term LNG
                           delivered price of spot LNG to Japan or     contracts in Asia have traditionally
                           South Korea on a daily basis.               been priced against oil, with many in
                              The two north Asian nations bought       the last few years yielding a delivered
                           almost half the 221 million metric          LNG price at about 15% of the JCC
                           tons (mt) of LNG sold worldwide in          crude oil price.
                           2010. Japan bought more than 30% of           The JKM was thus launched to serve
                           the total, at about 70 million mt, while    an unfulfilled segment of the LNG mar-
                           South Korea purchased around 15%,           ket that did not have a clearly defined
                           or 33 million mt.                           pricing mechanism, while providing
                              Market observers estimate that spot      market participants with an index that
                           LNG deals account for up to 20% of          would allow them to trade LNG ship-
                           LNG volumes produced each year. The         ments at prices based purely on the
                           trade includes bilateral deals, inter-      fundamentals of the LNG market. The
                           regional diversions, tenders, chained       new index enabled the nascent spot
                           cargoes and a variety of other trans-       LNG market to break away from the
                           actions. As much as 45 million mt of        industry’s long-established links to oil
                           LNG, equivalent to 750 cargoes a year,      production and prices that arguably are
                           is being traded on a spot basis.            no longer relevant to LNG.
                              The remaining 80% in volume terms          The JKM began to gain traction in
                           is transacted under long-term con-          2010 when Taiwan’s CPC Corporation

30 insight November 2012
                                                                                                                   liquefied natural gas

awarded some spot buy tenders for car-                     December 16, 2011 through January 15,
goes delivered across that summer at                       and then rolled over to the March JKM
prices matching or close to the JKM                        on January 16.
values for the same month of delivery.                       An analysis of JKM spot monthly av-
                                                           erage assessments and Japan customs
Matching Assessments to Market                             data for the past three years showed a
Prices                                                     high correlation of spot cargo prices
  Platts assesses the JKM for physical                     matching the published JKM values for
LNG cargoes delivered to Japan and                         the same month of delivery.
South Korea in the third, fourth and                         Prices of spot cargoes from Peru, Ye-
fifth half-month cycles forward from                        men, Trinidad & Tobago, Algeria, and
the date of trade. For example on Jan-                     Norway coincided closely with JKM
uary 3, the first working day of 2012,                      values for the same physical month of
Platts assessed cargoes for delivery in H1                 delivery. Peru LNG, Yemen LNG, Trini-
February, H2 February and H1 March,                        dad’s Atlantic LNG, Norway’s Snohvit
with the JKM assessment being the av-                      LNG and Algeria’s Sonatrach do not
erage of the two half-month cycles that                    have any term contracts with Japanese
comprise the first full month of deliv-                     buyers, limiting their commercial op-
ery. On January 3, the JKM month as-                       portunities to the spot market.
sessed was thus February 2012.                               Nigeria LNG does have offtakers such
  In the case of Japan, the country’s                      as the UK-based BG and the Anglo-
customs authorities release data regard-                   Dutch Shell who have term contracts
ing LNG imports almost three months                        with Japanese buyers, but the project
after Platts completes the assessment                      held several spot sell tenders in 2011 for
for a particular month. In the example                     cargoes that were originally meant for
of February 2012, Japanese customs                         delivery to Atlantic destinations.
published the data for LNG shipments                         Japan lost 12 gigawatts of nuclear
delivered to Japan at the end of March.                    plant in the immediate aftermath of
Platts assessed the February JKM from                      the March 11, 2011 earthquake and


1. JKM vs Japan.
20
        JKM spot (against delivery)      Equatorial Guinea customs       USA customs
        Algeria customs               Nigeria customs                Trinidad customs
18
        Yemen customs                 Peru customs                   Norway customs

16


14


12


10


 8


 6


 4


 2
  3/09 5/09 7/09 9/09 11/09 1/10        3/10   5/10 7/10     9/10 11/10 1/11 3/11       5/11   7/11   9/11 11/11
Source: Platts


                                                                                                                         November 2012 insight 31
liquefied natural gas

                           tsunami and replaced much of the re-                         as the spot prices and shipments were
                           actor output with gas-fired capacity,                         mingled within the larger contract vol-
                           resulting in additional spot demand of                       umes and values.
                           15 cargoes every month. Some nuclear                           In South Korea an analysis of JKM
                           plants located close to earthquake fault                     spot monthly average assessments and
                           lines were shut down from June 2011,                         South Korean customs data from late
                           while facilities that were shut for main-                    2009 through end 2011 similarly re-
                           tenance before the disaster and subse-                       vealed a high incidence of spot cargo
                           quently were not allowed to restart due                      prices matching the published JKM
                           to safety concerns.                                          values for the same month of delivery.
                              By the end of 2011 this left Japan                        The South Korean customs authorities
                           with 7.98 GW, or 16.3% of the pre-crisis                     publish the data for imported LNG car-
                           nuclear capacity of 48.96 GW at 54 re-                       goes two months after Platts completes
                           actors. By May 2012 this capacity had                        the assessment for a particular month
                           been shuttered too, with only two re-                        of delivery.
                           actors allowed to restart by September                         Prices of 28 spot cargoes from Nige-
                           2012, leaving a very large gap to be                         ria, Peru, Norway, Algeria and the US
                           filled with oil and LNG.                                      mostly matched JKM values for the
                              As Japanese power generation de-                          same physical month of delivery. Nige-
                           mand for LNG increased, the JKM                              ria LNG, Peru LNG, Snohvit LNG and
                           commanded a premium of more than                             Sonatrach do not have term contracts
                           $8/MMBtu over UK National Balanc-                            with the South Korean buyers—Korea
                           ing Point gas hub prices on several                          Gas Corporation, POSCO, SK E&S and
                           occasions. Japanese buyers purchased                         GS Caltex—limiting their commercial
                           spot cargoes from Nigeria at or close to                     opportunities to the spot market.
                           the JKM values for the same month of                           Five reloaded LNG cargoes from Loui-
                           delivery.                                                    siana’s Sabine Pass terminal in the US
                              Japan also bought spot cargoes from                       were delivered to South Korea at or
                           its term LNG suppliers in Russia, Qa-                        close to the JKM values for the same
                           tar, Indonesia and Australia. However,                       month of delivery.
                           these are not considered in this analysis                      Spot LNG buying activity in South


                           2. JKM vs Korea.
                           18

                                    JKM spot (against delivery)        Equatorial Guinea customs     USA customs
                           16       Algeria customs               Nigeria customs                   Trinidad customs
                                    Yemen customs                 Peru customs                      Norway customs

                           14


                           12


                           10


                            8


                            6


                            4


                            2
                             3/09 5/09 7/09 9/09 11/09 1/10         3/10   5/10 7/10     9/10 11/10 1/11 3/11    5/11   7/11   9/11 11/11
                           Source: Platts


32 insight November 2012
                                                                                                               liquefied natural gas

Korea was especially intensive during                       ducers in southeast Asia, the Middle
the winter months of late 2009 and ear-                     East and Australia. Despite the dis-
ly 2010. Thirteen cargoes from Nigeria,                     count, Taiwanese and Chinese buyers
the US, Peru and Norway were delivered                      have paid prices close to or matching
to the country as freezing temperatures                     the JKM over the past three years to
swept across north Asia.                                    secure shipments.
  This was repeated during the win-                            Taiwan with a 5% share and China
ter of late 2010 and early 2011. South                      with 4% of the market together ac-
Korean buyers purchased several spot                        counted for purchases of almost 20
cargoes from Nigeria, the US, Peru and                      million mt of global LNG supplies in
Norway matching the JKM values for                          2010. Taiwan’s Directorate General of
the same month of delivery.                                 Customs publishes its LNG import data
  Thus Nigerian cargoes sent to South                       two months after Platts completes the
Korea in November 2010 and Febru-                           assessment for a particular month of
ary 2011 at $9.25/MMBtu and $9.84/                          delivery, while China releases the same
MMBtu, respectively were virtually                          information three months later.
an exact match to the assessed JKM of                          Taiwan’s CPC issued several buy ten-
$9.25/MMBtu and $9.85/MMBtu for                             ders for more than a dozen cargoes de-
the same periods.                                           livered across the summer months of
  In December 2010, South Korea re-                         April through August 2010. Customs
ceived a Norwegian cargo at $9.49/                          data from the country revealed that car-
MMBtu, priced only slightly below the                       goes from Trinidad & Tobago, Russia,
December average JKM assessment of                          the United Arab Emirates and Norway
$9.55/MMBtu.                                                were transacted at or close to JKM values
  In Taiwan and China Platts includes                       for the same physical month of delivery.
a $0.1/MMBtu freight discount from                             Prior to the country’s peak summer de-
the JKM for cargoes delivered to the                        mand of 2010, CPC bought two Russian
two jurisdictions, as both Taiwan and                       cargoes delivered in October and No-
China are slightly closer to LNG pro-                       vember 2009 at prices of $5.14/MMBtu


3. JKM vs Taiwan.
20
         JKM spot (against delivery)          Equatorial Guinea customs
         Trinidad customs            UAE customs                 Yemen customs
18
         Norway customs            Russian customs             Spain customs
         Nigeria customs           Peru customs                Egypt customs
16


14


12


10


 8


 6


 4


 2
 3/09 5/09 7/09 9/09 11/09 1/10         3/10   5/10 7/10     9/10 11/10 1/11 3/11   5/11   7/11   9/11 11/11
Source: Platts


                                                                                                                     November 2012 insight 33
liquefied natural gas

                           and $5.43/MMBtu, respectively. These                             in 2012—Angola LNG’s 5.3 million mt/
                           lined up with JKM monthly average val-                           year facility in Angola and Woodside
                           ues of $5.13/MMBtu and $5.39/MMBtu                               Petroleum’s 4.8 million mt/year Pluto
                           for the same periods.                                            project in western Australia.
                             China imported cargoes across a                                   Moreover, Woodside Petroleum’s ex-
                           three-year period from the UAE, Peru,                            isting North West Shelf (NWS) LNG
                           Belgium, Russia, the US and Oman at                              project introduced the JKM as one of its
                           values matching or close to JKM val-                             pricing bases in June 2012 for the first
                           ues for the same physical month of                               time. It tendered three LNG cargoes for
                           delivery. Neither of the country’s state-                        delivery in August, September and late
                           owned buyers, the China National Off-                            October to early November.
                           shore Oil Corporation and PetroChina,                               Previous NWS sell tenders have not
                           have long-term supply contracts with                             listed JKM before, according to a Japa-
                           the UAE’s Adgas, Peru LNG, Oman’s                                nese trader, although buyers still had
                           Oman LNG and Qalhat LNG projects                                 the final decision on which pricing ba-
                           or Russia’s Sakhalin 2 facility.                                 sis they wanted to use.
                             Two reloaded spot LNG cargoes from                                Bidders into the NWS tender had the
                           Louisiana’s Sabine Pass terminal in the                          option of bidding on the basis of Platts
                           US and one reloaded spot shipment                                Asian Dated Brent, the JKM or a fixed
                           from Belgium’s Zeebrugge terminal                                price, a Singapore-based trader said. The
                           were also sold to China.                                         use of JKM in sell tenders could be not
                                                                                            only the first for NWS, but also a first
                           Use of JKM in Spot and Term Contracts                            for the LNG industry. “This is the first
                             An upcoming liquefaction project,                              time I have seen JKM in an LNG tender
                           which would serve Asia, would price                              document. It has never happened be-
                           all its commissioning cargoes directly                           fore,” the Singapore-based trader said.
                           to the JKM, according to the earlier-                               “Besides crude oil, [the UK’s] National
                           cited industry energy lawyer. Two liq-                           Balancing Point and [NYMEX] Henry
                           uefaction projects are coming online                             Hub, this is probably the first time I’m


                           4. JKM vs China.
                           20
                                         JKM spot (against delivery)   Nigeria customs          Trinidad customs
                           18            Yemen customs                 Peru customs             Egypt customs
                                         Equatorial Guinea customs     USA customs              UAE customs
                                         Belgium customs               Russian customs          Oman customs
                           16


                           14


                           12


                           10


                            8


                            6


                            4


                            2
                                3/09   5/09   7/09   9/09 11/09 1/10   3/10   5/10   7/10    9/10 11/10 1/11 3/11   5/11   7/11   9/11 11/11
                           Source: Platts


34 insight November 2012
                                                                                         liquefied natural gas

hearing JKM being quoted in a tender,”        year, 500,000-mt LNG supply agree-
Tony Regan, principal consultant at Sin-      ment in 2011 with Spain’s Repsol. The
gapore-based Tri-Zen International, said.     contract, which started delivery in July
  In another indication of its increas-       2011, was concluded using a formula of
ing usage, Japan’s Chubu Electric Power       the JKM plus 50 US cents per MMBtu,
Company signed a sales and purchase           various sources said.
agreement with BP Singapore in Febru-
ary 2012 for the supply of around eight       The JKM in Financial Transactions
million mt of LNG over a 16-year pe-            The first financial LNG swap settled
riod on an ex-ship delivery basis. The        against the JKM was done by CitiBank
contract uses JKM spot prices for up to       with an international oil major in Janu-
10% of supply volumes.                        ary 2011. Several more such JKM swaps
  Deliveries will start from the Japa-        have since been concluded by Citi with
nese fiscal year ending March 2013             various other counterparties.
with the LNG being sourced from BP’s            The LNG swaps have been transact-
global LNG portfolio. A Chubu Electric        ed using small parcels in the range of
spokesman declined to comment on              100,000 to 500,000 MMBtu. A full-sized
any details of the term contract as part      LNG cargo has 3.5 million MMBtu.
of its confidentiality agreement with            Platts started assessing JKM swaps
BP, while a BP spokesman in London            assessments for three forward months
declined to comment on “commercial-           from June 1, 2012. And the CME Group
ly confidential information” when con-         and ICE started to clear JKM swaps from
tacted by Platts.                             August 13 and August 28, respectively.
  Sources said the deal could be the first       Besides north Asia, the JKM has had
time Chubu Electric and BP have used          an impact on spot prices in India,
spot LNG prices in their mid-term con-        which bought around 5% [11 million
tracts. Market sources also said the deal     mt] of the world’s LNG in 2010. Before
includes a price linkage to the JKM for       Platts launched the DES West India as-
5-10% of the Nagoya-based power util-         sessment on August 1, 2011, buyers and
ity’s lifting volumes.                        sellers in India would typically apply a
  A further indication was provided by        discount of around $2/MMBtu to the
Thailand’s PTT, which concluded a one-        JKM for their spot LNG transactions. ■



5. JKM monthly average.
      $/MMBtu
 20
                2009   2010     2011   2012
 18

 16

 14

 12

 10

  8

  6

  4

  2


      January           March          May     July      September     November
Source: Platts


                                                                                               November 2012 insight 35
renewables




             Japan Looks
             to Renewables
             Martin Daniel, Editor, Platts Power in Asia


                             With overcapacity in the global solar       pacity would generate 52.6% of the 1,012
                           and wind power equipment manufac-             TWh of overall output forecast for 2030.
                           turing sectors, and with many of the            The strong growth expectations for
                           countries that previously led in the pro-     atomic energy ended with the March 11,
                           motion of renewable energy now slash-         2011 earthquake and tsunami, and sub-
                           ing their targets and tariffs, Japan’s in-    sequent disaster at the Fukushima nucle-
                           troduction of generous feed-in tariffs in     ar complex, which saw a substantial shift
                           July 2012 has made it one of the hottest      in public and political opinion against
                           renewable energy markets worldwide.           nuclear power. While the country’s elec-
                           Solar projects are expected to benefit in      tric power companies remain supportive
                           particular, given that the feed-in tariffs    of a significant, albeit reduced role for
                           are higher than for some other Japanese       nuclear power, a large proportion of the
                           renewable sources and technologies, and       population is opposed to a long-term role
                           are much higher than for solar installa-      for nuclear power and in cases even to
                           tions in most European, North American        the resumption of operations at existing
                           and other Asian economies.                    nuclear plants.
                             Japan is well placed to host renew-           Most mainstream politicians are in
                           able energy projects, with its high retail    favor of the resumed operation of some
                           electricity tariffs allowing the accom-       or all of the fifty existing nuclear plants,
                           modation of capital-intensive renewable       although only after stringent stress tests.
                           energy systems. And it has a dearth of        All fifty plants had stopped operating in
                           indigenous fossil fuel resources, making      May 2012 after their mandatory closure
                           renewable energy an attractive option         for scheduled maintenance, but the first
                           for supply diversity and increased energy     reactors reopened in July 2012 after two
                           self-sufficiency.                              units at the Kansai Electric Power Com-
                             However, renewable energy has tradi-        pany’s Oi nuclear complex passed the
                           tionally played second fiddle in Japan to      tests and received reactor restart approv-
                           nuclear power, which up to 2011 provid-       al from the relevant local authorities.
                           ed about 30% of total electricity supplies      However, many politicians are skepti-
                           compared with well under 10% for re-          cal about the longer term role of nuclear
                           newable energy. And nuclear power was         power, and are against building new reac-
                           seen as the main way of achieving more        tors or operating existing ones for more
                           diversified, secure and low carbon energy      than forty years. In September 2012 a
                           supplies in the future.                       government paper confirmed this posi-
                             The Strategic Energy Plan issued by the     tion, saying that it wanted to see nuclear
                           Ministry of Economy, Trade and Industry       power phased out over the next three
                           (Meti) in June 2010 envisaged that at least   decades with the reactor output to be
                           14 more nuclear plants would be built by      replaced by production from renewables
                           2030. The plan expected that the 68,060       and clean energy technologies as well as
                           megawatts of total projected nuclear ca-      demand-side conservation measures.

36 insight November 2012
                                                                                                       renewables

  At the time of writing, Meti had not             wind farms with more or less than 20 kW
issued detailed revisions to the Strategic         of capacity will both run for 20 years. But
Energy Plan to achieve these policy goals.         the tariff is only Yen 23.1/kWh for the
But the pursuit of more renewable energy           larger plants whereas facilities smaller
was kick-started by the introduction of            than 20 kW will get Yen 57.75/kWh.
very generous feed-in tariffs in July 2012.          Tariffs were also set for geothermal,
  Under the tariff rules, Japan’s incum-           small hydro, biogas and biomass-fired
bent power companies must buy the out-             plants as tabulated in exhibit one. The
put from solar, wind, geothermal, small            government has also indicated that it
hydro and some biogas and biomass-fu-              will ease the usually stringent restric-
eled plants at premium prices. The addi-           tions on land use for some renewable en-
tional cost to the power companies can             ergy technologies, including solar, wind
be passed on to final users.                        and small hydropower projects.
  The feed-in tariffs vary by energy                 While the feed-in tariffs may be high,
source, contract duration and plant size.          the prospect of a substantial stock of gen-
The tariffs will be reviewed annually by           erating capacity that does not rely on im-
Meti, although once an individual proj-            ported fossil fuels is currently very attrac-
ect has signed a power purchase agree-             tive to Japanese politicians and planners.
ment the tariff will be fi xed at the speci-        The temporary, and in four cases perma-
fied level for that year for the duration of        nent, closure of nuclear reactors following
the contract.                                      the March 11, 2011 disaster has thrown
  Meti approved tariffs in June 2012 for           Japan’s reliance on internationally-traded
an initial period running from July 2012           oil, gas and coal into sharp relief, with
to the end of March 2013. They include             particular emphasis on oil and gas.
a 20-year tariff of Yen 42/kWh ($530/                Coal is less at issue because the coun-
MWh) for solar photovoltaic plants with            try’s coal-fired plants generally already
more than 10 kilowatts of capacity, while          operate on baseload and have thus been
the same tariff will apply to smaller solar        unable to increase production and help
facilities, but only for 10 years.                 replace the lost nuclear output. The
  The tariffs for electricity generated from       members of the Federation of Electric


1. Japanese feed-in tariffs to March 31, 2013.
                        Size, kW                 Years      Yen/kWh

                        Solar photovoltaic:
                        <10                       10           42
                        >10                       20           42
                        Wind:
                        <20                       20         57.75
                        >20                       20          23.1
                        Geothermal:
                        <15,000                   15           42
                        >15,000                   15          27.3
                        Hydro:
                        <200                      20          35.7
                        200-1,000                 20         30.45
                        1,000-30,000              20          25.2
                        Biogas:                   20         40.95
                        Waste (excluding wood)    20         17.85
                        Wood waste, various       20       13.65-33.60
Source: Meti


                                                                                                   November 2012 insight 37
renewables

                           Power Companies Japan (FEPC) burnt                              ous incentives—at least in the initial
                           3.559 million metric tons (mt) of coal in                       years—to renewable plants that may be
                           June 2012, much the same as the 3.963                           expensive to build but will replace power
                           million mt they consumed in June 2010                           generated from imported fuels with in-
                           prior to the disaster.                                          digenous energy. The government esti-
                             Instead, the output lost from the closed                      mated in April 2012 that renewable ca-
                           reactors has been replaced by liquefied                          pacity could increase by 2,500 MW as
                           natural gas (LNG) and crude and fuel                            early as March 2013, with about 2,000
                           oil, as well as by energy savings on the                        MW of the capacity projected to come
                           demand side. The International Energy                           from solar power complexes.
                           Agency noted in the first half of 2012 that                         And the approval of the high solar tar-
                           LNG had replaced 56% of the lost nuclear                        iffs—around double those paid in Ger-
                           output in 2011, rather than the 40% it had                      many—has resulted in a surge in project
                           originally projected. But the Paris, France-                    announcements. For instance the local
                           based agency added that gas constraints—                        Toshiba Corporation said after the an-
                           including both LNG import capacity and                          nouncement that it would install 100
                           gas-fired generating plant—would put an                          MW of solar photovoltaic capacity by
                           effective cap on LNG usage and require                          March 2015.
                           more oil use as 2012 progressed.                                   Toshiba will install the capacity at
                             This was borne out by FEPC members’                           Minami Soma city in Fukushima prefec-
                           use of 4.262 million mt of LNG in June                          ture, which suffered severe damage as a
                           2012, or about 38% more than in June                            result of the March 11, 2011 earthquake
                           2010. But their fuel oil use increased al-                      and tsunami. The company said the so-
                           most threefold to 1.177 million kiloliters                      lar plants will cost about Yen 30 billion,
                           in June 2012 compared with June 2010,                           equivalent to $3,800/kW.
                           while crude oil consumption jumped                                 Meanwhile the SB Energy Corporation,
                           more than fourfold to 1.060 million kl.                         the energy subsidiary of the local Soft-
                             The use of more fossil fuels for power                        bank Corporation, has said it will build at
                           generation was a key reason why Japan                           least 200 MW of capacity at Tomakomai
                           posted a record trade deficit of Yen 2.9                         on Hokkaido. And a 70-MW complex is
                           trillion ($37.3 billion) in the first half of                    planned by a consortium led by the local
                           2012. Much of the increased burden of                           Kyocera Corporation at Kagoshima City in
                           imports occurred because of rising LNG                          Kagoshima prefecture at an estimated cost
                           and oil purchases.                                              of about Yen 27 billion, or $4,930/kW.
                             Hence the willingness to offer gener-                            Some of the proposed projects involve


                           2. FEPC generation and purchases.
                                                                                  Jun-10        Jun-12   Difference

                                                    Power generation, TWh:
                                                    Thermal                       35.653        49.569     13.916
                                                    Nuclear                       22.479          0       -22.479
                                                    Hydroelectric                 6.732         5.612      -1.12
                                                    New energy etc                0.195         0.206      0.011
                                                    Purchases                     13.352        15.493     2.141
                                                    Total                         77.712        70.459     -7.253
                                                    Fossil fuel use:
                                                    Coal (million mt)             3.963         3.559      -0.404
                                                    LNG (million mt)              3.083         4.263       1.18
                                                    Heavy fuel oil (million kl)   0.401         1.177      0.776
                                                    Crude oil (million kl)        0.263          1.06      0.797
                           Source: Federation of Electric Power Companies


38 insight November 2012
                                                                                                renewables

dispersed installations rather than “mega-    ing their entry into the Japanese solar
solar” plants at one location. For instance   market both as investors in solar genera-
the local Mitsubishi Corporation and Na-      tion plants and manufacturing facilities.
tional Federation of Agricultural Coop-       For instance Canadian Solar Inc has said
erative Associations have agreed to install   it plans to build a manufacturing plant
solar plants on the rooftops of facilities    with up to 150 MW/year of capacity, pos-
owned by farmers and on shared facili-        sibly in Fukushima prefecture.
ties owned by the Federation.                    The scale of the solar proposals can be
   Mitsubishi said it will cost about Yen     gauged from the fact that in September
60 billion—or $3,835/kW—to install up         2008 the ten electric power companies
to 200 MW of solar capacity on facilities     grouped under the FEPC together com-
owned by the Federation at up to 600 lo-      mitted to build only 140 MW of large-
cations in every prefecture from Hokkai-      scale solar plant at thirty sites by 2020—
do to Okinawa by the end of 2014. And,        a fraction of the capacity proposed under
as with Toshiba’s plan to site its project    the current plans.
in the disaster-hit Fukushima prefecture,        Solar capacity apart, high feed-in tar-
Mitsubishi said the initiative will have a    iffs are expected to result in additional
socio-economic element since it will seek     geothermal and especially wind capac-
to “reactivate the agricultural sector and    ity. Japan hosted 537 MW of geothermal
revitalize farming communities as well        capacity and 2,557 MW of wind capacity
as to expand renewable energy options.”       at March 2012.
   Mitsubishi also said that, given Japan’s      The Environment Ministry said in
land space constraints, the “effective use    late August that it is targeting a six-fold
of the roofs of existing facilities would     increase in offshore wind, geothermal,
be a very desirable way to enter the solar    tidal, wave and biomass-fired capacity to
power business, while at the same time        19,410 MW by 2030. The targets include
conserving agricultural land.”                8,030 MW of offshore wind, 3,880 MW of
   Elsewhere the Tokyo-based leasing and      geothermal power, 6,000 MW of biomass
financial services conglomerate Orix           plant and 1,500 MW of ocean energy.
Corporation said in late August that it          The Japan Wind Power Association
plans to spend Yen 54 billion ($680 mil-      (JWPA) said in February 2012 that wind
lion) on both solar power stations and        capacity could rise to 50,000 MW in
rooftop projects over a three-year period.    2050, split equally between onshore and
The 200 MW of proposed capacity will          offshore capacity and supplying more
be split about equally in capacity terms      than 10% of national power demand.
between mega-scale plants costing about       Prior to that, it estimates that the capac-
Yen 30 billion and PV arrays costing          ity could reach 11,300 MW by 2020 and
about Yen 24 billion.                         28,800 MW by 2030.
   In late August the Tottori Yonago So-         However, the JWPA said in June 2012
lar Park Corporation, a consortium com-       that additions will be limited until at
prising SB Energy and Mitsui & Co., Ltd,      least 2015. The ending in 2010 of a pre-
said it had agreed to build and operate a     vious subsidy payment system for new
39.5-MW solar plant. The Softbank Tot-        wind farms meant that only 85.1 MW
tori-Yonago Solar Park in the Sakitsu dis-    of new capacity was installed in the year
trict of Yonago City in Tottori prefecture    ending March 2012, compared with
is scheduled to operate from July 2013.       303.6 MW in the year ending March
   Tottori Yonago Solar said that it had      2010. The JWPA added that planning
concluded agreements pertaining to the        and construction requirements mean
534,000-square-meter plant with Tottori       that the new feed-in tariffs will only re-
prefecture, Yonago city and the Tottori       sult in capacity being added to the grid
Prefecture Housing Supply Public Cor-         from the middle of the decade.
poration. The power will be sold to the          Hence the emphasis on solar power
Chugoku Electric Power Company with           projects, which can be installed rela-
output estimated at 39.5 GWh/year.            tively quickly. The large number of near-
   Foreign companies are also announc-        term solar proposals is both intended,

                                                                                            November 2012 insight 39
renewables

                           given that the government wants to add                        through its control of feed-in tariff levels.
                           a large amount of renewable capacity as                       In this context figures published by the
                           soon as possible, and expected, given the                     Cost Review Committee of the Energy
                           high level of the feed-in tariffs and possi-                  and Environment Council in December
                           bility that Meti will reduce the tariffs of-                  2011 have been used by proponents of
                           fered for projects agreed in future years.                    both nuclear power and renewable energy
                           But some in the electricity industry are                      to argue their case.
                           urging caution over the extent of the po-                       The figures indicate the lifetime cost of
                           tential additions.                                            output from nuclear plants could remain
                             For instance the chairman of the FEPC,                      low up to 2030. At the same time the cost
                           Makoto Yagi, has said the government’s                        of the output from solar installations
                           renewable energy goals are “very ambi-                        in particular is projected to fall sharply
                           tious.” He added that “I find their feasi-                     over the period. However, analyses by lo-
                           bility questionable.”                                         cal bodies such as the Institute of Energy
                             He noted that “estimating grid stabili-                     Economics Japan note that the figures
                           zation costs to accommodate the large-                        in all cases are critically dependent on
                           scale introduction of photovoltaic and                        assumptions such as the discount rate,
                           wind power generation requires more                           plant life and capacity factor, and do not
                           detailed research, and comprehensive                          include extraneous expenses such as grid
                           discussions are needed on the heavy ad-                       integration costs.
                           ditional burden that would be placed on                         How much renewable capacity Japan
                           the public, specifically a significant in-                      will install in the longer term is thus
                           crease in electricity rates and a negative                    unclear, as are the long-term implica-
                           impact on the micro economy.” Yagi also                       tions and outlook for the country’s nu-
                           said that nuclear’s share of total pow-                       clear and fossil-fueled generating sectors.
                           er supplies should be “in the 20–25%                          However, it is certain that the amount
                           range as the minimum requirement.”                            will be substantial in the first few years at
                             Much of the debate has revolved around                      least, with the competition to enter what
                           the cost of renewable energy, and in the                      could potentially be one of the most lu-
                           long run that will certainly influence how                     crative global renewable energy markets
                           much capacity Meti allows to be built                         now well and truly under way. ■


                           3. Estimated generation costs for new plants, Yen/kWh.
                                                                              2010          2020           2030

                                                     Nuclear (70% load)       9.0+          9.0+           9.0+
                                                     Coal (80%)                9.5          10.2           10.3
                                                     LNG (80%)                10.7          10.4           10.9
                                                     Oil (10% load)            36           36.4           34.9
                                                     Oil (50% load)           22.1          22.5            21
                                                     Hydro                    10.6          10.6           10.6
                                                     Small hydro              20.6          20.6           20.6
                                                     Solar (mega)              38           19.1            16
                                                     Solar (residential)      35.9          15.4            12
                                                     Onshore wind             13.6          13.3           13.1
                                                     Offshore wind              -           16.2           15.9
                                                     Biomass                  24.8          24.8           24.8
                                                     Gas cogneration          10.6          11.1           11.5
                                                     Oil cogeneration         17.1          18.6           19.6
                                                     Fuel cells               101.9         20.4           11.5
                           Source: Energy & Environment Council Decision June 29, 2012 (National Policy Unit)


40 insight November 2012
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China energy




             China’s Quest
             for Hydrocarbons
             Song Yen Ling, Senior Writer, China, Platts




                             There is no rest for the weary in         year. But they then tapered off as in-
                           China. The country’s state-controlled       ternational oil prices rose above $140/
                           oil and gas companies have been busy        barrel in 2007-2008 and the companies
                           acquiring assets all over the globe,        retreated to focus instead on domestic
                           from Australia to Africa, from Europe       projects and increasing output from
                           to North America, with no sign of any       mature fields.
                           satiation.                                    All that changed with the global fi-
                             The fruit of their labor has been         nancial crisis. This was seen as repre-
                           significant. China’s three state com-        senting a unique opportunity for the
                           panies—China National Petroleum             companies to take advantage of lower
                           Corp. (CNPC) and its listed entity Pet-     asset prices and reduced competition
                           roChina, Sinopec and China National         from other buyers, and acquisitions in-
                           Offshore Oil Corp.—more than tripled        creased significantly.
                           their overseas oil and gas equity output      “The escalation in oil prices since the
                           from just over 500,000 barrels of oil       2008-2009 recession has strengthened
                           equivalent/day in the mid-2000s to al-      conditions for increased corporate con-
                           most 1.7 million boe/d in 2011, accord-     solidation, particularly with the diver-
                           ing to Platts estimates.                    gence between strong crude oil and in-
                             The expansion program is driven by        ternational LNG prices, and depressed
                           China’s desire both to internationalize     North American natural gas prices,”
                           and offset declining domestic hydrocar-     said IHS Herold in a July 2012 report.
                           bon production, and is backed by strong       In 2010, close to $25 billion worth of
                           cash reserves, the deep pockets of state-   Chinese acquisitions were announced.
                           linked banks and a government eager         Almost $15 billion was spent in Latin
                           to secure foreign energy resources at a     America and much of the rest on the
                           time when crude imports account for         acquisition of North American oil
                           over half of total Chinese oil demand.      sands and shale.
                             Overseas oil and gas acquisitions           Acquisitions in 2012 up to the time
                           started gathering pace in 2005, the         of writing (September) have already
                           same year that CNOOC made its am-           racked up a record total of $26.1 bil-
                           bitious but ultimately unsuccessful         lion. According to financial analytics
                           $18.4-billion bid for the US-based and      company Dealogic this compares with
                           Asian-focused Unocal Corp.                  $17 billion in 2011 and has been largely
                             Total transactions almost doubled to      driven by CNOOC’s proposed acquisi-
                           more than $11 billion the following         tion—announced in July and valued at

42 insight November 2012
                                                                                                              China energy

almost $17 billion including debt—of                          boe/d by 2015. In the first half of 2012,
the Calgary, Canada-based Nexen.                              its equity output rose by 24% on year to
   The China Petroleum and Chemical                           523,600 boe/d.
Corp., known commonly as Sinopec,                                CNOOC is the smallest of the three
has been the most active of the three                         companies, but its listed unit has maxi-
companies in the last few years. This                         mized profitability because it has no
is primarily because, as the dominant                         downstream exposure and does not suf-
refi ner at home, its upstream growth                          fer poor margins like its compatriots. It
is limited.                                                   is now (late September) in the process
   Most of its overseas activities are un-                    of closing the Nexen deal, which is be-
dertaken through subsidiary Sinopec                           ing reviewed by the US, Canadian and
International Petroleum Exploration                           other governments.
and Production Corporation (SIPC). Its                           CNOOC’s target is for a third of its to-
overseas production has been heavily                          tal output to come from foreign projects
skewed towards crude, but turned more                         by 2015. Analysts say that this would
toward unconventional gas and LNG in                          translate to 400,000 boe/d, double the
the last two years.                                           current production of 200,000 boe/d.
   Since early 2010, Sinopec has spent                           Meanwhile PetroChina’s aim is that
over $22 billion on acquisitions. This                        production from foreign projects will
included the $7.1 billion purchase of                         make up about half its total output
deepwater assets in Brazil from YPF in                        within the next five years—up from the
2011; buying a 9% stake in Syncrude                           current 9.4% and the 5% or so posted
from ConocoPhillips for $4.7 billion;                         in 2005. This could mean that over-
the purchase of producing proper-                             seas production will potentially reach 2
ties in Argentina from Occidental                             million boe/d compared with 343,400
Petroleum for $2.5 billion; and a to-                         boe/d in the first half of 2012.
tal investment of $3.6 billion in the                            In 2012 alone, PetroChina plans to
Australia-Pacific LNG project in the                           invest a third of its Yuan 300 billion
Australian state of Queensland.                               ($47.3 billion) capital expenditure bud-
   Sinopec wants to more than double                          get on foreign projects.
its overseas equity production from                              PetroChina is owned 86.4% by
475,000 boe/d in 2011 to 1 million                            CNPC, which owns and operates assets


1. China outbound M&A volume in oil and gas sector.
      $ billion
 30                                                                                                    120
                    total deal value          brent price
                                                                                                       110
 25
                                                                                                       100
 20
                                                                                                       90

 15                                                                                                    80

                                                                                                       70
 10
                                                                                                       60
  5
                                                                                                       50

                                                                                                       40
           2005             2006       2007            2008    2009      2010      2011     2012 YTD
Deal values include debt.

Source: Dealogic, Platts


                                                                                                             November 2012 insight 43
China energy

                           in potentially politically risky coun-       nese companies are warming to West-
                           tries such as Sudan and Venezuela.           ern-style wheeling and dealing to help
                           CNPC said that its total overseas equity     them meet their ambitious growth
                           oil and gas output—including its share       plans overseas. Their strategies have
                           in PetroChina—hit 1 million boe/day          evolved in various ways over the years.
                           in 2011, up from under 500,000 boe/            Following the failure of the Unocal
                           day in 2005.                                 bid, Chinese companies briefly flirted
                             Given these lofty targets, acquisi-        with the idea of teaming up for deals.
                           tions have increased despite oil prices      Sinopec and CNPC formed Andes Pe-
                           staying high.                                troleum to acquire projects in Ecuador,
                             In 2011, Sinopec was the fourth-larg-      while the latter company and CNOOC
                           est oil and gas sector spender globally,     agreed to explore offshore Kazakhstan
                           splashing out more than $8.5 billion to      in 2006.
                           acquire 413 million boe of proved and          The companies also formed consor-
                                                                        tiums with other Asian national oil
             While the visible backing of the Chinese                   companies (NOCs) for joint bids, al-
                                                                        though in India’s case this was more
          government and other state institutions has                   a consequence of its state-owned com-
                                                                        panies not being able to match the
             proved useful ... Chinese companies are                    Chinese companies in competitive
             warming to Western-style wheeling and                      bids. CNPC and India’s Oil and Natu-
                                                                        ral Gas Corp. (ONGC) jointly acquired
            dealing to help them meet their ambitious                   Petro-Canada’s assets in Syria for $575
                                                                        million in 2006, while Sinopec and
                               growth plans overseas.                   ONGC later teamed up to buy Omi-
                                                                        mex in Colombia.
                           probable (2P) reserves, according to IHS       In 2010, PetroChina formed an alli-
                           Herold. CNOOC ranked eighth with             ance with Shell to acquire Arrow Ener-
                           $4.8 billion of expenditure to buy 543       gy’s Australian coalseam gas assets for
                           million boe of 2P reserves.                  an LNG export project in Queensland.
                             The IHS Herold data indicates that         The deal was seen as mutually benefi-
                           Chinese companies are not paying ex-         cial, allowing the Chinese company to
                           cessively for assets compared with their     make inroads in the unconventional
                           peers. PetroChina’s reserve replacement      gas business while giving Shell a ready
                           cost, which includes acquisitions, aver-     market into which to sell LNG.
                           aged almost $20/boe in 2011, while             PetroChina’s president and vice-
                           CNOOC’s was more than $22/boe. This          chairman, Zhou Jiping, summarized
                           compares with $19.50/boe for Royal           the company’s modus operandi in Au-
                           Dutch Shell, but was higher than the         gust 2012. He said it would increase
                           $16.30/boe for the US’s Exxon Mobil          overseas production in three ways—
                           and $17/boe for the UK-based BP, ac-         corporate acquisitions, organic growth
                           cording to IHS.                              from existing assets and joint ventures
                             Information for Sinopec is unavail-        with other companies.
                           able. SIPC is held by the parent com-          Eschewing outright competition with
                           pany rather than the listed unit, and        other companies, China’s NOCs origi-
                           data on its foreign assets is not publicly   nally targeted projects in regions their
                           available.                                   western rivals found too politically
                                                                        risky to operate, including countries in
                           Evolving Strategies                          Central Asian, Africa and Latin Ameri-
                             While the visible backing of the Chi-      ca. While they are now targeting more
                           nese government and other state in-          regions and resource plays, their ap-
                           stitutions has proved useful, as with        proach is unlike the haphazard, scatter-
                           numerous oil-for-loans deals in Russia       gun strategy of before.
                           and Latin America as well as gas sup-          Prior to Nexen, CNOOC had shied
                           ply agreements in Central Asia, Chi-         away from corporate deals. It chose

44 insight November 2012
                                                                                                                               China energy

instead to made gradual inroads into                                              reach 200,000 b/d by 2013. PetroChina
North America through asset deals—                                                is also a partner with BP in the Rumai-
both onshore US and in the Gulf of                                                la oil field and operates the Al-Ahdab
Mexico—to familiarize itself with the                                             project on its own.
operating environment and host gov-                                                  In 2011, PetroChina also acquired the
ernment as well as its partners and                                               remaining interest in the MacKay River
competitors.                                                                      oil sands project in Canada, becoming
  Aware of China’s increasing impor-                                              the first Chinese company to fully con-
tance in the global geopolitical sphere,                                          trol an oil sands project overseas.
there is also an increasing desire for                                               While previously their interest was
acreage in politically stable environ-                                            in producing or development projects,
ments with relatively little regulatory                                           the Chinese companies recognize the
and fiscal risk.                                                                   value that exploration breakthroughs
  Sinopec’s Talisman deal marked not                                              can have in boosting reserves. This is
only its entry into the UK’s North Sea                                            evidenced by the large swathe of off-
but also displayed its opportunistic ap-                                          shore and deepwater blocks they have
proach in targeting smaller companies                                             acquired in the last few years.
with stated divestiture plans for their                                              The companies are also becoming
conventional assets in order to focus on                                          more adept at post-merger integration
newer, more valuable unconventional                                               and operational management. More
plays, according to Christopher Shee-                                             importantly, they are seeking to dispel
han, IHS Herold’s M&A Director. In a                                              the stereotype of China as a predator
presentation made in July 2012, Shee-                                             intent on stripping foreign countries of
han said that “Sinopec’s deal ... was at a                                        their energy resources, and instead to
favorable price per boe and does high-                                            educate stakeholders about the benefits
light that larger international compa-                                            of the deals to the countries and their
nies have pricing leverage when buying                                            governments.
conventional assets from smaller E&Ps                                                Zhou has said that PetroChina is now
with stated divestiture plans.”                                                   focused on building three central op-
  The companies are also not content                                              erational hubs to oversee its foreign as-
to be silent minority stakeholders in                                             sets. And CNOOC’s chief executive, Li
projects and are striving for wholly- or                                          Fanrong, said in August 2012 that the
majority-owned operated stakes.                                                   Nexen acquisition would be of ben-
  In Iraq, PetroChina has shown that                                              efit to local communities, adding that
it can work alongside—and compete                                                 CNOOC would retain Nexen’s opera-
with—its western peers. It is operator                                            tional team and pledging to make To-
of the Halfaya field partnering France’s                                           ronto CNOOC’s North American base.
Total and Malaysia’s Petronas.                                                       Unconventional resources have be-
  The field started production in June                                             come a decided target. All three Chi-
2012 at 70,000 b/d and is expected to                                             nese companies have a growing pres-


2. Chinese national oil companies overseas production (kboed).
                                              CNPC              PetroChina          Sinopec*    CNOOC

                         2005                  453.3                 147.5              NA        40.5
                         2006                  630.7                 156.1              NA        47.8
                         2007                  663.9                 159.9             138         62
                         2008                  694.7                 252.7            180.9        64
                         2009                  786.5                 287.8            256.9       108
                         2010                  906.7                 273.4            369.3       149
                         2011                1059.7                    331            443.2       145
*Sinopec data refers only to equity crude output, data unavailable for 2005-06.

Source: Company data


                                                                                                                              November 2012 insight 45
China energy

                           ence in oil sands and shale acreage,        hedge against inflation and currency
                           particularly in liquids-rich areas in       depreciation.
                           North America.                                Sinochem, which is commonly known
                             According to Dealogic, oil and gas has    as China’s fourth state oil and gas com-
                           been the top sector for Chinese acquisi-    pany, has also ventured overseas, albeit
                           tions in the US since 2011. In the first     starting from a relatively modest base.
                           eight months of 2012, the value of Chi-     While new to the upstream sector, in
                           nese oil and gas deals in the US totaled    2009 it acquired the UK-listed Emerald
                           $2.9 billion, more than double the $1.3     Energy for $875 million.
                           billion recorded during the same pe-          A big chunk of Sinochem’s over-
                           riod of 2011.                               seas production now comes from the
                             The focus on unconventional re-           100,000 b/d Peregrino field offshore
                           sources will also increasingly skew their   from Brazil, where it acquired a 40%
                                                                       stake from Norway’s Statoil in 2011 for
        In the first eight months of 2012, the value of                 $3 billion. It said in 2010 that it want-
                                                                       ed to almost quadruple its output to
          Chinese oil and gas deals in the US totaled                  300,000 b/d by the end of the decade.
                                                                         Despite their successes, there have
        $2.9 billion, more than double the $1.3 billion                been speed bumps along the way, with
            recorded during the same period of 2011.                   a few significant deals failing to take
                                                                       off. In 2011 PetroChina cancelled its
                                                                       $5.5-billion offer to farm into Encana’s
                           incremental reserves towards gas. The       Cutbank Ridge assets in Canada after
                           fuel accounted for almost half of Petro-    both sides reportedly could not agree
                           China’s reserves at the end of 2011, as     on post-merger operations and other
                           well as a third of CNOOC’s reserves and     terms. In Africa, too, China has failed
                           over a fifth of Sinopec’s.                   to conclude a number of deals follow-
                                                                       ing opposition from governments and
                           Beyond the Big Three                        other stakeholders.
                              While the three state companies have       New regulations and oversight im-
                           led the majority of mergers and acqui-      posed by the Chinese government on
                           sition activity, sovereign wealth fund      outbound deals could also complicate
                           China Investment Corp. (CIC) has also       matters. The State-owned Assets Su-
                           come to the fore. In August 2012 it         pervision and Administration Com-
                           agreed to pump $500 million into the        mission said in 2011 that it planned to
                           US-based Cheniere Energy’s planned          issue more rules on outbound invest-
                           LNG export project.                         ments in order to protect the value of
                              In 2011, CIC took a 30% stake in GDF     state-owned enterprises and assets.
                           Suez’s upstream division, which in-           “Sometimes overseas targets are a bit
                           cludes significant assets in Europe, for     cautious about the approvals processes
                           $3.2 billion. Its other investments since   in China, because they don’t neces-
                           2009 have included stakes in the Singa-     sarily understand it and the process,”
                           pore-based trader Noble, Kazakhstan’s       says David Clinch, who is head of the
                           Kazmunaigas Exploration Production          China energy practice at international
                           and Russia’s Nobel Oil. It also has pow-    law firm Herbert Smith. The firm has
                           er and mining holdings.                     advised the Chinese companies on nu-
                              Worth more than $480 billion, CIC        merous transactions.
                           was created in 2007 and has part of           Another Beijing-based M&A lawyer
                           China’s $3.2 trillion of foreign ex-        noted that “they have developed a
                           change reserves at its disposal. But        perceived reputation for being eager
                           Chairman Lou Jiwei has said that,           to pay so they receive hundreds of op-
                           rather than acting as a vehicle for         portunities every year. But that means
                           Beijing to control foreign energy re-       they need to invest more in due dili-
                           sources, the fund’s main aim is to se-      gence in order to sieve out the value-
                           cure long-term investments to act as a      accretive deals.” ■

46 insight November 2012
SPECIAL ADVERTISING SECTION




                                                                                    P. Elango
                                                                                    CEO
                                                                                    Cairn India Limited


                                                           ates. The company’s Health, Safety, and Environment
Cairn India Limited                                        (HSE) philosophy is based on commitment to protect
                                                           its people, assets and the environment. All production
   Cairn India is one of the largest independent oil
                                                           sites operated by Cairn are ISO 14001 certiÀed. Cairn
and gas exploration and production companies in
                                                           India maintains good relationships with local govern-
India with a market capitalization of approximately
                                                           ments, its joint venture partners and employees.
US$ 12 billion. Cairn India and its joint venture
partners account for ~25% of India’s domestic crude        P. Elango, CEO




                                                                                                                                GLOBAL LEADERS PROFILE
oil production.                                               Mr. Elango has over 25 years of experience in the oil
   Cairn has been operating in India for more than 15      and gas sector. He started his career with ONGC in
years and has played an active role in developing oil      1985 and over a span of 10-years had served in diverse
and gas resources. The company discovered the Man-         roles. He has been with Cairn since 1996.
gala Àeld in Barmer, Rajasthan in 2004. This discovery        Elango has spearheaded the planning for the stra-
is considered to be the largest onshore oil discovery in   tegic growth of the company and led various depart-
India in more than two decades.                            ments including Procurement and Supply Chain
   Cairn has a strong record of exploration Àrsts to its   Management, Corporate Communications, Corporate
credit. To date, the company has opened three new          Social Responsibility, Health, Safety, Environment and
frontier basins with over 40 discoveries, including 25     Quality, Security, Land Acquisition, Commercial &
in the Rajasthan block. Four out of the eight signiÀcant   New Business and Business Transformation. He is on
discoveries in India since 2000 were made by Cairn.        the boards of various fully-owned subsidiary groups
Cairn India has over 1 billion barrels of reserves/        of companies of Cairn India Ltd.
resources base. The company is focused on exploiting          Mr. Elango holds an MBA from Annamalai Univer-
their full potential.                                      sity and is a well known name in the oil & gas sector
   The company has always been a front runner in           and various industry forums. He is a strong believer
innovative application of advanced technologies to         in people and ‘values’ based decision making for cor-
mitigate risks as well as maximizing hydrocarbon           porate excellence.
recovery. Cairn introduced for the Àrst time in India         For more information visit us at www.cairnindia.com.
the campaign of hydraulic fracturing for enhanced
productivity, drilling Extended Reach Drilling wells
in shallow unconsolidated formations, drilling with
casing technology and usage of non-damaging mud            Milestones
systems amongst other innovations.                         ■   Mangala—Largest onshore discovery in India since 1985,
   Cairn India has a portfolio of 10 blocks—one block          largest in the world for the year 2004
in Rajasthan, two on the west coast, Àve on the east       ■   Responsible for 4 out of 8 signiÀcant discoveries in
coast of Indiaand one each in Sri Lanka and South              India since 2000
                                                           ■   KG-ONN-2003/1 Block discovery is the largest onshore
Africa (Farm-in agreement signed on 16 August 2012;
                                                               discovery in the KG Basin to date
subject to South African regulatory approvals).
                                                           ■   Built the world’s longest continuously heated and
   Cairn India produces oil and gas from three assets
                                                               insulated pipeline ~590 km from Rajasthan to
in India: Rajasthan and Cambay on the west coast of            Gujarat in India
India and Ravva on the east coast of India. It is one of
                                                           ■   First company in the world to discover hydrocarbons
the lowest cost producers in South Asia.Cairn India            in Sri Lanka
places huge emphasis on health, safety and environ-
                                                           ■   Potential resource for the Rajasthan block now
ment and is committed towards making a positive                estimated at 7.3 bn boe in-place
contribution to the local community, wherever it oper-




                                                                                                     November 2012 insight 47
SPECIAL ADVERTISING SECTION




                                    “Shaping a New Energy Landscape”
                                    at Singapore International
                                    Energy Week 2012
  The Singapore International Energy Week (SIEW)               Room; and Ruth Cairnie, Executive Vice-Presi-
2012, in its Àfth year, continues to address pertinent         dent Strategy and Planning, Royal Dutch Shell.
global energy issues facing the world today. Held at the       These eminent speakers come together to share
Sands Expo and Convention Centre, Marina Bay Sands,            their views on the following topics:
on 22-25 October 2012, SIEW brings together top gov-           ■ Options for the Future Energy Mix
ernment leaders, industry captains and academics to            ■ Financing Tomorrow’s Energy Needs
debate how governments and private companies could             ■ Keeping the Door to 2°C Open
work together to “Shape a New Energy Landscape”.               ■ Connecting the Dots: Energy–Water–Food Nexus
  Global growth, expanding populations and in-
                                                             3. Specialist and Think-Tank Roundtable sessions
creased urbanisation will drive up energy needs in
                                                                on opportunities and challenges in the electric-
coming decades. Asia’s energy demand is expected to
                                                                ity sector in Asia and the world; the potential
double over the next 20 years. Emerging trends in the
                                                                of LNG hubs in Asia; the latest developments
energy space, like the unconventional gas revolution
                                                                and technologies in offshore renewable energy
in North America, are expected to change the global
                                                                generation, transmission and distribution; and
energy mix. Advances in technology are also reshap-
                                                                natural gas in transportation.
ing our views on energy use and deployment.
                                                             4. Business-to-Business conferences & exhibitions
  As with previous SIEW events, the SIEW 2012
                                                                covering the entire spectrum of the energy in-
programme encompasses high-level strategic discus-
                                                                dustry from oil and gas to clean and renewable
sions held on the Àrst day, and industry-level business
                                                                energy, smart grids, electricity markets, carbon
activities, including conferences, roundtable discus-
                                                                abatement and energy trading:
sions, trade exhibitions and networking events, which
run concurrently throughout the week.                          ■ Asia Future Energy Forum—23 to 24 October
                                                               ■ Asia Smart Grid—23 to 24 October
  Highlights from SIEW 2012 include:                           ■ Downstream Asia—24 to 25 October
  1. The SIEW Opening Keynote Address, where                   ■ EMART Asia—23 to 24 October
     Maria van der Hoeven, Executive Director of               ■ PV Asia PaciÀc Expo—23 to 25 October
     the International Energy Agency (IEA), shares             ■ Gas Summit Asia—24 to 25 October
     her perspectives on new policy frameworks and
     policy directions needed to tackle the world’s          5. Networking receptions and online business-
     energy challenges, as well as steps which govern-          matching systems for delegates to strengthen
     ments and businesses can take to shape a new               existing relationships and foster new contacts.
     energy landscape.
                                                             The Energy Market Authority (EMA) hosts the Singa-
  2. The Singapore Energy Summit, a senior-level           pore International Energy Week, which runs from 22 to 25
     forum bringing together Ministers, policymak-         October 2012 at the Sands Expo and Convention Centre,
     ers, business leaders and academics, including        Marina Bay Sands, Singapore. More information can be
     Jose Maria Figueres, President of the Carbon War      found at www.siew.sg.




48 insight November 2012
top 250 global energy companies



                                                 Asia Gains
                                                 Traction
                                                 Platts Top 250 Global Energy
                                                 Company Rankings™ Reviewed

                                                 Ross McCracken, Editor,
                                                 Platts Energy Economist

                             Asia-Pacific’s energy companies have       the new entrants. Two were from the
                           improved their relative position in the     coal sector—Inner Mongolia Yitai Coal
                           Platts 2012 top 250 rankings, placing       Co Ltd and Yangquan Coal Industry
                           12 companies in the top 50 in com-          (Group) Co Ltd; there were two inde-
                           parison with 9 in the 2011 listing. De-     pendent power producers (IPPs)—Hua-
                           spite the number of Asian companies         dian Power International Corp Ltd and
                           remaining the same, at 70, their aver-      Shenergy Co Ltd; and one Hong Kong-
                           age rank rose to 130.6 in 2011 from         listed E&P company, Kunlun Energy
                           131.3 in 2010, a lower number denot-        Co Ltd, which is controlled by majority
                           ing a better score.                         shareholder PetroChina Co Ltd.
                             There was a significant shift in com-         Out of the eight industry categories,
                           position within the 70 companies rep-       Chinese companies are the regional
                           resented. The number of Chinese com-        leaders in no less than four. PetroChi-
                           panies has increased every year since       na tops the Asia-Pacific leader board
                           2008, but in 2011 it leapt from 18 to 23,   for integrated oil and gas companies,
                           making it by far the best represented       CNOOC Ltd in the E&P field, China
                           country in Asia-Pacific. China now has       Shenhua Energy Co Ltd in coal and
                           more companies in the top 250 than          consumable fuels, and Hong Kong’s
                           any other country except the United         CLP Holdings Ltd in electric utilities.
                           States, overtaking both Canada and Ja-         Perhaps more indicative of the re-
                           pan in 2011.                                gion’s performance than overall posi-
                             The strength of Chinese representa-       tion in the top 250 is its total domina-
                           tion is evident from the diversity of       tion of the category of fastest-growing
                                                                       companies. Asia-Pacific accounts for 30
                                                                       of the top 50 companies in this catego-
                               Platts Top 250 Global Energy            ry, based on 3-year compound growth
                             Company Rankings™ measures                rates (CGRs), showing that if it is fast
                             financial performance by examin-           and sustainable growth that is required,
                             ing each company’s assets, revenue,       Asia is the place to be.
                             profits and return on invested capi-          Of China’s 23 companies in the top
                             tal. All ranked companies have as-        250, no less than 20 appear in the top
                             sets greater than (US) $4 billion.        50 fastest-growing company list. This
                             The underlying data comes from            provides almost too many rising stars
                             S&P Capital IQ, a business line of        to mention, but high amongst a strong
                             the McGraw-Hill Companies.                field in terms of growth is the 44.9%
                                                                       3-year CGR delivered by independent

50 insight November 2012
                                                                                                                                       top 250 global energy companies

power producer and trader GD Power                                                 CNOOC, in particular, recorded a 3-yr
Development Co Ltd.                                                                CGR of 38.5%, while PetroChina post-
  China is exceptional in more ways                                                ed 23.2% and Sinopec 20%, all well
than one, but key aspects that stand                                               above the global industry average.
out include the astonishing growth of                                                Smaller companies are also breaking
the country’s IPPs, which make up five                                              into the scene. Hong Kong’s Kunlun En-
of China’s eight fastest-growing com-                                              ergy recorded a remarkable 69.6% 3-year
panies based on 3-yr CGRs. Second, is                                              CGR, making it China’s fastest-growing
the leading position of China’s coal and                                           company by this measure, not just in oil
consumable fuels (C&CF) companies.                                                 and gas but across the country’s energy
Occupying a central role in the world’s                                            sector as a whole.
largest coal industry, these companies
demonstrate growth rates seemingly un-                                             Indian Honors
achievable elsewhere.                                                                India took honors in both the IPP and
  Top performer in terms of growth is                                              Gas Utility categories, with NTPC Ltd
Shanxi Xishan Coal and Electricity Pow-                                            and GAIL (India) Ltd coming top of their
er Co Ltd with a 3-year CGR of 31.1%.                                              respective regional segments. India also
This enabled the company to move up                                                took honors with the fastest-growing
the overall top 250 rankings from 192nd                                            company not just in Asia but the world.
to 158th place.                                                                    Cairn India Ltd posted an astonishing
  Success is not limited to the coal and                                           119.8% 3-yr CGR to put it far in front of
power sectors. In oil and gas, China’s                                             the field.
three giants—PetroChina, China Pe-                                                   In total, of the 12 Indian companies
troleum & Chemical Corp (Sinopec)                                                  represented in the top 250, six are in the
and CNOOC—have all performed                                                       top 50 list of fastest-growing companies.
well. These companies’ growth rates                                                Of all Indian companies in the top 250,
stand out amongst their global peers.                                              Power Grid Corp of India Ltd has im-


1. Fastest growing Asia companies.
                                                                                                                            3-year       Platts
             Rank Company                                                                   Country          Industry       CGR %        Rank
                1     Cairn India Ltd                                                        India              E&P          119.8        121
                2     Kunlun Energy Co Ltd                                                   Hong Kong          E&P           69.6         133
                3     YTL Power International Bhd                                            Malaysia            DU           51.2         173
                4     GD Power Development Co Ltd                                            China               IPP          44.9         132
                5     YTL Corp Bhd                                                           Malaysia            DU              41        196
                6     CNOOC Ltd                                                              Hong Kong          E&P           38.5           13
                7     Reliance Industries Ltd                                                India             R&M            33.3           27
                8     China Resources Power Holdings Co Ltd                                  Hong Kong           IPP          31.4         134
                9     Shanxi Xishan Coal & Electricity Power Co Ltd                          China             C&CF           31.1         158
               10     Banpu Pcl                                                              Thailand          C&CF           30.5         149
               11     China Yangtze Power Co Ltd                                             China               IPP          30.2         120
               12     PT Adaro Energy Tbk                                                    Indonesia         C&CF           28.7         154
               13     Huaneng Power International Inc                                        China               IPP          25.2         143
               14     Datang International Power Generation Co Ltd                           China               IPP          25.1         145
               15     NHPC Ltd                                                               India               IPP          24.7         195
               16     China Longyuan Power Group Corp Ltd                                    China               IPP          23.6         213
               17     China Shenhua Energy Co Ltd                                            China             C&CF           23.4           16
               18     PetroChina Co Ltd                                                      China              IOG           23.2            9
               19     Reliance Infrastructure Ltd                                            India               EU           23.2         215
               20     Yanzhou Coal Mining Co Ltd                                             China             C&CF              23          86
Fastest Growing is based on a three year compound growth rate (CGR) for revenues. The compound growth rate (CGR) is based on the companies revenue
numbers for the past four years (current year included). If only three years of data was available then it is a two year CGR. All rankings are computed from
data assessed on June 22, 2012.
Source: S&P Capital IQ/Platts


                                                                                                                                                               November 2012 insight 51
top 250 global energy companies
 Platts                                                                                                                                          Return on
 Rank                                                                                                Assets        Revenues        Profits     invested capital 3-year Industry
  2012 Company                                  State or country             Region              $ million Rank $ million Rank $ million Rank ROIC % Rank CGR% code
   1    Exxon Mobil Corp                        Texas                     Americas                331052     2   433526     2    41060     1      23        9      1    IOG
    2     Royal Dutch Shell plc                 Netherlands               EMEA                     345257          1      470171           1        30918         3          15          28           1       IOG
    3     Chevron Corp                          California                Americas                 209474         10      236286           6        26895         4          20          13          -2       IOG
    4     BP plc                                United Kingdom            EMEA                     293068          5      375917           4        25698         5          16          21           1       IOG
    5     OJSC Gazprom                          Russia                    EMEA                     327675          3      139391         10         39289         2          14          31          12       IOG
    6     Statoil ASA                           Norway                    EMEA                     128698         17      108101         17         13192         9          19          14          -0       IOG
    7     Total SA                              France                    EMEA                     205485         11      208618           8        15377         8          12          42           1       IOG
    8     ConocoPhillips                        Texas                     Americas                 153230         16      235265           7        12436        11          13          36           1       E&P
    9     PetroChina Co Ltd                     China                     Asia/Pacific Rim          301261          4      310291           5        20889         6          10          65          23       IOG
   10     Rosneft Oil Co                        Russia                    EMEA                     105968         21       90102         19         12452        10          14          34          10       IOG
   11     OJSC LUKOIL Oil Co                    Russia                    EMEA                      91192         23      133650         12         10357        14          14          35           8       IOG
   12     China Petroleum & Chemical Corp China                           Asia/Pacific Rim          179810         14      393585           3        11504        12          10          60          20       IOG
   13     CNOOC Ltd                             Hong Kong                 Asia/Pacific Rim           60370         34       37853         39         11037        13          23            7         38       E&P
   14     Ecopetrol SA                          Colombia                  Americas                  51609         49       36774         43          8642        16          24            6         25       IOG
   15     OAO TNK-BP Holding                    Russia                    EMEA                      35057         75       53404         30          9098        15          32            3         16       IOG
   16     China Shenhua Energy Co Ltd China                               Asia/Pacific Rim           63011         31       32709         49          7176        18          14          31          23      C&CF
   17     Eni SpA                               Italy                     EMEA                     179051         15      137931         11          8593        17            8         91           0       IOG
   18     Petróleo Brasileiro SA - Petrobras Brazil                       Americas                 290582          6      118423         15         16156         7            7        107           4       IOG
   19     Occidental Petroleum Corp California                            Americas                  60044         35       23939         61          6629        20          15          24           0       IOG
   20     Surgutneftegaz                        Russia                    EMEA                      49701         51       22678         67          7009        19          15          25           9       IOG
   21     Suncor Energy Inc                     Canada                    Americas                  72797         28       38295         38          4190        27            9         73          11       IOG
   22     Oil & Natural Gas Corp Ltd India                                Asia/Pacific Rim           40551         65       25623         59          4927        24          18          18          12       E&P
   23     PTT Plc                               Thailand                  Asia/Pacific Rim           44080         59       76321         22          3310        32          10          59           7       IOG
   24     Marathon Petroleum Corp Ohio                                    Americas                  25745       103        73583         23          2385        41          19          16           7      R&M
   25     OAO AK Transneft                      Russia                    EMEA                      55858         41       20148         75          5640        21          12          48          35       S&T
   26     SK Innovation Co Ltd                  South Korea               Asia/Pacific Rim           30232         89       59012         28          2735        36          13          36           9      R&M
   27     Reliance Industries Ltd               India                     Asia/Pacific Rim           57276         38       62757         26          3453        31            8         97          33      R&M
   28     BG Group plc                          United Kingdom            EMEA                      61382         33       21073         72          4236        26          10          65           2       IOG
   29     Valero Energy Corp                    Texas                     Americas                  42783         60      125095         14          2096        49            9         73           6      R&M
   30     Apache Corp                           Texas                     Americas                  52051         46       16672         87          4508        25          12          41          11       E&P
   31     Imperial Oil Ltd                      Canada                    Americas                  24756       109        28382         54          3282        33          23            8         -1       IOG
   32     Exelon Corp                           Illinois                  Americas                  55092         42       18924         79          2495        39            9         71           0        EU
   33     RWE AG                                Germany                   EMEA                     116059         20       61963         27          2336        43            5        147           1        DU
   34     Repsol SA                             Spain                     EMEA                      88880         24       77036         21          2747        35            4        165           5       IOG
   35     National Grid plc                     United Kingdom            EMEA                      73656         27       21523         70          3168        34            6        118          -4        DU
   36     Enterprise Products Partners LP Texas                           Americas                  34125         77       44313         33          2047        50            8         91           8       S&T
   37     Enel SpA                              Italy                     EMEA                     212695          9       98459         18          5196        22            4        203           9        EU
   38     Husky Energy Inc                      Canada                    Americas                  31567         82       22745         66          2165        46          10          58          -2       IOG
   39     Iberdrola SA                          Spain                     EMEA                     121381         18       39642         35          3513        30            4        173           8        EU
   40     Electricite de France SA              France                    EMEA                     290232          7       81802         20          3770        28            4        203           1        EU
   41     Hess Corp                             New York                  Americas                  39136         68       38513         37          1703        57            7        106          -2       IOG
   42     GDF Suez SA                           France                    EMEA                     267314          8      113576         16          5014        23            3        224          10        DU
   43     JX Holdings Inc                       Japan                     Asia/Pacific Rim           83064         25      133142         13          2118        47            4        187                  R&M
   44     Sasol Ltd                             South Africa              EMEA                      21101       121        16888         86          2347        42          16          23           3       IOG
   45     TonenGeneral Sekiyu KK                Japan                     Asia/Pacific Rim           13825       166        33238         48          1649        60          31            4         -6      R&M
   46     Canadian Natural Resources Ltd Canada                           Americas                  46026         55       13427        108          2573        38            8         78          -1       E&P
   47     Southern Co                           Georgia                   Americas                  59267         36       17657         84          2203        45            6        125           1        EU
   48     Coal India Ltd                        India                     Asia/Pacific Rim           18722       131        10926        123          2587        37          35            2         15      C&CF
   49     Inpex Corp                            Japan                     Asia/Pacific Rim           38071         71       14734         98          2409        40            7         98           3       E&P
   50     OAO Tatneft                           Russia                    EMEA                      18872       130        18495         82          1847        53          12          42          12       E&P
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.


52 insight November 2012
                                                                                                                                        top 250 global energy companies
 Platts                                                                                                                                          Return on
 Rank                                                                                                Assets        Revenues        Profits     invested capital 3-year Industry
  2012 Company                                       State or country        Region              $ million Rank $ million Rank $ million Rank ROIC % Rank CGR% code
   51 OMV Aktiengesellschaft                         Austria              EMEA                     35590    73    42654    34     1332    79        6    122      10    IOG
   52     Marathon Oil Corp                          Texas                Americas                  31371         83       14717         99          1707        56             8        85         -41       E&P
   53     NextEra Energy Inc                         Florida              Americas                  57188         39       15341         92          1923        52             5       143          -2        EU
   54     CEZ, a.s.                                  Czech Republic       EMEA                      29079         92         9914       132          1982        51            10        62           4        EU
   55     Cenovus Energy Inc                         Canada               Americas                  21606       120        15280         93          1439        70            10        61          -4       IOG
   56     JSOC Bashneft                              Russia               EMEA                      13573       170        16549         88          1572        61            15        25          63       E&P
   57     Devon Energy Corp                          Oklahoma             Americas                  41117         63       10573        127          2111        48             7       107          -9       E&P
   58     Gas Natural SDG SA                         Spain                EMEA                      58248         37       26399         58          1660        59             4       196          16        GU
   59     American Electric Power Co Inc Ohio                             Americas                  52223         44       15116         94          1568        63             5       151           2        EU
   60     Fortum Oyj                                 Finland              EMEA                      28807         93         7717       158          2216        44            10        62           3        EU
   61     China Coal Energy Co Ltd                   China                Asia/Pacific Rim           25126       105        13790        106          1540        64             8        85          20      C&CF
   62     NTPC Ltd                                   India                Asia/Pacific Rim           27179         97       11371        118          1718        55             8        91          15        IPP
   63     S-Oil Corp                                 South Korea          Asia/Pacific Rim           11395       186        27545         56          1028        89            13        38          11      R&M
   64     Chesapeake Energy Corp                     Oklahoma             Americas                  41835         62       11635        117          1570        62             5       129           0       E&P
   65     Public Service Enterprise Group Inc New Jersey                  Americas                  29821         90       11079        122          1407        73             8        88          -4        DU
   66     Entergy Corp                               Louisiana            Americas                  40702         64       11229        121          1346        78             6       114          -5        EU
   67     Duke Energy Corp                           North Carolina       Americas                  62526         32       14236        104          1702        58             4       187           3        EU
   68     Idemitsu Kosan Co Ltd                      Japan                Asia/Pacific Rim           33300         81       53515         29            799     100              4       173           4      R&M
   69     PPL Corp                                   Pennsylvania         Americas                  42648         61       12737        114          1487        66             5       143          18        EU
   70     YPF SA                                     Argentina            Americas                  12599       177        12894        112          1204        81            17        20          18       IOG
   71     EDP-Energias de Portugal SA Portugal                            EMEA                      51707         48       18940         78          1409        71             4       196           3        EU
   72     Dominion Resources Inc                     Virginia             Americas                  45614         56       14379        101          1408        72             4       165          -3        DU
   73     Sempra Energy                              California           Americas                  33356         80       10036        131          1357        77             6       109          -2        DU
   74     OAO Novatek                                Russia               EMEA                      11526       184          5292       187          3597        29            36          1         30       E&P
   75     Centrais Elétricas Brasileiras SA Eletrobras Brazil             Americas                  79122         26       14323        103          1810        54             3       221          -0        EU
   76     Polska Grupa Energetyczna SA Poland                             EMEA                      17207       136          8232       150          1445        69            11        50          13        EU
   77     Centrica plc                               United Kingdom       EMEA                      30450         88       35515         44            688     117              4       157           3        DU
   78     Murphy Oil Corp                            Arkansas             Americas                  14138       163        27689         55            741     110              8        83           0       IOG
   79     HollyFrontier Corp                         Texas                Americas                  10315       200        15440         91          1023        90            14        30          38      R&M
   80     Consolidated Edison Inc                    New York             Americas                  39214         67       12938        111          1051        88             5       151          -2        DU
   81     Plains All American Pipeline LP Texas                           Americas                  15381       153        34275         47            730     112              6       109           4       S&T
   82     Indian Oil Corp Ltd                        India                Asia/Pacific Rim           38482         69       71288         24            740     111              3       218          12      R&M
   83     Polski Koncern Naftowy Orlen SA Poland                          EMEA                      17198       138        31324         51            692     116              6       119          10      R&M
   84     CLP Holdings Ltd                           Hong Kong            Asia/Pacific Rim           27610         96       11807        115          1197        82             5       132          19        EU
   85     Turkiye Petrol Rafinerileri AS Turkey                            EMEA                        8124      236        22814         65            684     118             18        17          11      R&M
   86     Yanzhou Coal Mining Co Ltd China                                Asia/Pacific Rim           15263       154          7394       162          1403        74            12        49          23      C&CF
   87     EOG Resources Inc                          Texas                Americas                  24839       108          9007       137          1091        87             6       114          12       E&P
   88     Cia Energetica de Minas Gerais Brazil                           Americas                  18118       134          7670       160          1171        83             9        72          13        EU
   89     Formosa Petrochemical Corp Taiwan                               Asia/Pacific Rim           15435       152        26713         57            751     108              5       132          -3      R&M
   90     Enbridge Inc                               Canada               Americas                  33434         79       18888         80            965       95             4       196           6       S&T
   91     Woodside Petroleum Ltd                     Australia            Asia/Pacific Rim           22740       116          4802       191          1507        65             8        81          -8       E&P
   92     TransCanada Corp                           Canada               Americas                  47698         53         8897       139          1487        67             4       196           2       S&T
   93     MOL Hungarian Oil & Gas Co Hungary                              EMEA                      21732       117        23258         64            669     121              4       157          15       IOG
   94     PG&E Corp                                  California           Americas                  49750         50       14956         95            844       98             3       217           1        DU
   95     OJSC RusHydro                              Russia               EMEA                      24402       110        10900        125          1013        92             5       135          50        EU
   96     Peabody Energy Corp                        Missouri             Americas                  16733       140          7974       153          1017        91             8        78           7      C&CF
   97     FirstEnergy Corp                           Ohio                 Americas                  47326         54       15772         90            885       96             3       224           6        EU
   98     Tesoro Corp                                Texas                Americas                    9892      206        29927         53            546     142             10        64           2      R&M
   99     Xcel Energy Inc                            Minnesota            Americas                  29497         91       10655        126            835       99             4       157          -2        EU
  100     JSC KazMunaiGas Exploration Production Kazakhstan               EMEA                      10327       199          4833       190          1400        75            15        25           6       E&P
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.


                                                                                                                                                                                    November 2012 insight 53
top 250 global energy companies
 Platts                                                                                                                                           Return on
 Rank                                                                                                 Assets        Revenues        Profits     invested capital 3-year Industry
  2012 Company                                               State or country      Region         $ million Rank $ million Rank $ million Rank ROIC % Rank CGR% code
  101 Spectra Energy Corp                                    Texas              Americas            28138    95     5351 185       1159    85        6    125       2    S&T
  102     CenterPoint Energy Inc                             Texas              Americas            21703       118          8450       146            770     105              6       124          -9        DU
  103     Talisman Energy Inc                                Canada             Americas            24226       111          8266       147            776     104              5       135          -1       E&P
  104     Federal Grid Co of Unified Energy System JSC Russia                    EMEA                34980         76         4233       208          1477        68             5       147          25        EU
  105     Galp Energia SGPS SA                               Portugal           EMEA                12721       176        21176         71            542     143              6       109           4       IOG
  106     Williams Companies Inc                             Oklahoma           Americas            16502       142          7930       154            793     101              7       103         -13       S&T
  107     JSC Interregional Distribution Grid Companies Holding Russia          EMEA                26425       101        19076         77            672     120              4       203          17        EU
  108     DTE Energy Co                                      Michigan           Americas            26009       102          8897       139            711     115              5       151          -2        DU
  109     GAIL (India) Ltd                                   India              Asia/Pacific Rim       8934      221          7713       159            778     103             12        42          21        GU
  110     ONEOK Partners LP                                  Oklahoma           Americas              8947      220        11323        120            682     119              9        68          14       S&T
  111     Tokyo Gas Co Ltd                                   Japan              Asia/Pacific Rim     23141       115        21780         69            572     136              3       218           2        GU
  112     Canadian Oil Sands Ltd                             Canada             Americas              8392      233          3772       219          1114        86            21        11          -5       E&P
  113     Snam S.p.A.                                        Italy              EMEA                26492       100          4486       201            990       94             5       155          23        GU
  114     CONSOL Energy Inc                                  Pennsylvania       Americas            12526       178          5991       180            632     125              9        67           9      C&CF
  115     CPFL Energia SA                                    Brazil             Americas            13295       172          6190       175            742     109              7       103          10        EU
  116     SSE plc                                            United Kingdom     EMEA                30631         87       49364         31            308     186              2       256           8        EU
  117     Osaka Gas Co Ltd                                   Japan              Asia/Pacific Rim     18322       132        16075         89            561     138              4       202          -1        GU
  118     Saudi Electricity Co                               Saudi Arabia       EMEA                56912         40         8151       151            590     129              2       247          11        EU
  119     The AES Corp                                       Virginia           Americas            45333         57       17274         85            458     158              1       267           4        IPP
  120     China Yangtze Power Co Ltd China                                      Asia/Pacific Rim     24883       107          3250       234          1210        80             5       146          30        IPP
  121     Cairn India Ltd                                    India              Asia/Pacific Rim       9357      213          2076       264          1390        76            16        21        120        E&P
  122     Showa Shell Sekiyu KK                              Japan              Asia/Pacific Rim     15003       157        34408         46            287     192              4       182          -5      R&M
  123     Progress Energy Inc                                North Carolina     Americas            35059         74         8907       138            580     130              2       239          -1        EU
  124     GS Holdings Corp                                   South Korea        Asia/Pacific Rim       8998      218          7331       165            668     122              8        76         -40      R&M
  125     Ultrapar Holdings Inc                              Brazil             Americas              6665      261        23600         63            412     171              8        91          20       S&T
  126     ELETROPAULO-Metropolitana Eletricidade de Sao Paulo SA Brazil         Americas              5221      299          4770       192            762     106             24          5          9        EU
  127     Enbridge Energy Partners LP Texas                                     Americas            11370       187          9110       135            520     147              5       141          -3       S&T
  128     AGL Energy Ltd                                     Australia          Asia/Pacific Rim       9738      208          7103       166            561     139              7        98           9        DU
  129     The Hong Kong & China Gas Co Ltd Hong Kong                            Asia/Pacific Rim     10963       192          2890       242            792     102              8        76          22        GU
  130     Power Assets Holdings Ltd Hong Kong                                   Asia/Pacific Rim     12206       180          1314       298          1169        84            11        52          -7        EU
  131     Santos Ltd                                         Australia          Asia/Pacific Rim     15883       149          2541       249            756     107              6       114          -3       E&P
  132     GD Power Development Co Ltd China                                     Asia/Pacific Rim     28622         94         7852       156            573     135              2       243          45        IPP
  133     Kunlun Energy Co Ltd                               Hong Kong          Asia/Pacific Rim     10832       194          3272       233            723     113              8        88          70       E&P
  134     China Resources Power Holdings Co Ltd Hong Kong                       Asia/Pacific Rim     21693       119          7822       157            573     133              3       221          31        IPP
  135     Thai Oil Pcl                                       Thailand           Asia/Pacific Rim       4875      314        13130        110            467     156             11        50           2      R&M
  136     Ameren Corp                                        Missouri           Americas            23645       112          7337       164            519     148              3       210          -2        DU
  137     ONEOK Inc                                          Oklahoma           Americas            13697       167        14806         97            358     177              4       194          -3        GU
  138     Polskie Gornictwo Naftowe I Gazownictwo SA Poland                     EMEA                11117       189          6736       170            476     154              6       125           8       IOG
  139     Wisconsin Energy Corp                              Wisconsin          Americas            13862       165          4486       200            513     150              6       125           1        DU
  140     Kinder Morgan Inc                                  Texas              Americas            30717         86         8265       148            478     153              2       256         -12       S&T
  141     Southwestern Energy Co                             Texas              Americas              7903      240          2953       239            638     124             12        46           8       E&P
  142     Companhia Paranaense de Energia Brazil                                Americas              9274      214          3771       220            561     137              8        81          12        EU
  143     Huaneng Power International Inc China                                 Asia/Pacific Rim     40441         66       20885         74            185     230              0       285          25        IPP
  144     E.ON AG                                            Germany            EMEA               191485         13      142134           9        -2797      327             -3       309           9        DU
  145     Datang International Power Generation Co Ltd China                    Asia/Pacific Rim     38344         70       11354        119            300     190              1       279          25        IPP
  146     Penn West Petroleum Ltd Canada                                        Americas            15171       155          2926       241            621     127              5       135         -10       E&P
  147     Tullow Oil plc                                     United Kingdom     EMEA                10634       196          2304       259            649     123              8        80          21       E&P
  148     OJSC Moscow United Electric Grid Co Russia                            EMEA                  7502      244          3889       215            540     145             11        56          26        EU
  149     Banpu Pcl                                          Thailand           Asia/Pacific Rim       7072      253          3533       226            631     126             11        55          30      C&CF
  150     Shanxi Lu'an Environmental Energy Development Co Ltd China            Asia/Pacific Rim       5431      294          3441       227            603     128             19        15          10      C&CF
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.


54 insight November 2012
                                                                                                                                        top 250 global energy companies
 Platts                                                                                                                                          Return on
 Rank                                                                                                Assets        Revenues        Profits     invested capital 3-year Industry
  2012 Company                                       State or country        Region              $ million Rank $ million Rank $ million Rank ROIC % Rank CGR% code
  151 CMS Energy Corp                                Michigan             Americas                 16452 144       6503 173         413 170         4    184      -2     DU
  152     Inner Mongolia Yitai Coal Co Ltd China                          Asia/Pacific Rim             4698      318          2664       245            863       97            20        12          21      C&CF
  153     Korea Gas Corp                             South Korea          Asia/Pacific Rim           31081         85       24593         60            157     245              1       284           7        GU
  154     PT Adaro Energy Tbk                        Indonesia            Asia/Pacific Rim             5659      282          3987       213            550     141             12        42          29      C&CF
  155     Cheung Kong Infrastructure Holdings Ltd Hong Kong               Asia/Pacific Rim             9898      205           525       325            998       93            10        57          13        EU
  156     Sunoco Logistics Partners LP Pennsylvania                       Americas                    5477      291        10905        124            259     200              9        69           2       S&T
  157     Denbury Resources Inc                      Texas                Americas                  10184       202          2292       261            573     134              8        88          19       E&P
  158     Shanxi Xishan Coal & Electricity Power Co Ltd China             Asia/Pacific Rim             6071      274          4689       195            442     162             11        54          31      C&CF
  159     Veolia Environnement SA France                                  EMEA                      63137         30       37136         41           -611     315             -2       300          -6        DU
  160     Red Eléctrica Corporación SA Spain                              EMEA                      10979       191          2074       265            577     132              7       103          14        EU
  161     Tokyo Electric Power Co Inc Japan                               Asia/Pacific Rim          192892         12       66416         25         -9704      331             -9       326          -3        EU
  162     Pacific Rubiales Energy Corp Canada                              Americas                    5449      293          3381       230            554     140             14        31          80       E&P
  163     Nexen Inc                                  Canada               Americas                  19537       128          6260       174            385     176              3       218          -3       E&P
  164     Korea Electric Power Corp South Korea                           Asia/Pacific Rim          117787         19       37573         40         -2909      329             -3       310          11        EU
  165     Northeast Utilities                        Connecticut          Americas                  15647       151          4466       202            395     174              4       173          -8        EU
  166     VERBUND AG                                 Austria              EMEA                      14855       161          4882       189            442     163              4       187           1        EU
  167     Newfield Exploration Co                     Texas                Americas                    8991      219          2471       252            539     146              8        85           4       E&P
  168     Chubu Electric Power Co Inc Japan                               Asia/Pacific Rim           70112         29       30409         52         -1145      321             -2       302          -1        EU
  169     Acciona SA                                 Spain                EMEA                      25461       104          9267       134            253     203              1       267          -5        EU
  170     Tauron Polska Energia SA Poland                                 EMEA                        8320      234          6066       178            357     178              6       119                    EU
  171     Kansai Electric Power Co Inc Japan                              Asia/Pacific Rim           93381         22       34905         45         -3008      330             -4       314           0        EU
  172     PowerGrid Corp of India Ltd India                               Asia/Pacific Rim           16480       143          1805       274            578     131              4       163          22        EU
  173     YTL Power International Bhd Malaysia                            Asia/Pacific Rim           11037       190          4591       198            427     168              5       155          51        DU
  174     Yangquan Coal Industry (Group) Co Ltd China                     Asia/Pacific Rim             4385      327          4427       203            442     164             17        19          18      C&CF
  175     Energy Transfer Equity LP Texas                                 Americas                  20897       122          8241       149            309     185              2       262          -4       S&T
  176     Noble Energy Inc                           Texas                Americas                  16444       145          3568       225            453     161              4       187          -1       E&P
  177     Manila Electric Co                         Philippines          Asia/Pacific Rim             4950      310          6043       179            288     191             13        39          10        EU
  178     Bharat Petroleum Corp Ltd India                                 Asia/Pacific Rim           13622       168        37105         42            137     256              2       258          16      R&M
  179     Origin Energy Ltd                          Australia            Asia/Pacific Rim           26756         98       10389        128            187     229              1       273           8       IOG
  180     NRG Energy Inc                             New Jersey           Americas                  26715         99         9079       136            188     227              1       270          10        IPP
  181     SCANA Corp                                 South Carolina       Americas                  13534       171          4409       204            387     175              4       182          -6        DU
  182     Neste Oil Corp                             Finland              EMEA                        9109      216        17799         83            198     221              3       215           1      R&M
  183     OGE Energy Corp                            Oklahoma             Americas                    8906      222          3916       214            343     180              6       119          -1        EU
  184     NiSource Inc                               Indiana              Americas                  20708       125          5956       182            304     187              2       243         -12        DU
  185     Exxaro Resources Ltd                       South Africa         EMEA                        4377      328          1479       289            720     114             23        10          -3      C&CF
  186     Chugoku Electric Power Co Inc Japan                             Asia/Pacific Rim           35846         72       14667        100             31     288              0       289           0        EU
  187     Whiting Petroleum Corp                     Colorado             Americas                    6046      275          1860       272            491     151             11        52          12       E&P
  188     Edison International                       California           Americas                  48039         52       12760        113            -34     294             -0       292          -3        EU
  189     Cimarex Energy Co                          Colorado             Americas                    5429      295          1758       278            518     149             15        29          -4       E&P
  190     EQT Corp                                   Pennsylvania         Americas                    8773      225          1640       284            480     152              8        91           1       E&P
  191     Cosmo Oil Co Ltd                           Japan                Asia/Pacific Rim           20797       124        38609         36           -113     298             -1       296          -3      R&M
  192     The Abu Dhabi National Energy Co PJSC United Arab Emirates EMEA                           31224         84         6585       171            203     218              1       282          13        DU
  193     Pinnacle West Capital Corp Arizona                              Americas                  13111       175          3241       237            328     181              4       163           0        EU
  194     Electric Power Development Co Ltd Japan                         Asia/Pacific Rim           25034       106          8127       152            200     220              1       279          -2        IPP
  195     NHPC Ltd                                   India                Asia/Pacific Rim           10554       197          1186       304            540     144              6       112          25        IPP
  196     YTL Corp Bhd                               Malaysia             Asia/Pacific Rim           15114       156          5748       184            324     182              2       236          41        DU
  197     Pioneer Natural Resources Co Texas                              Americas                  11524       185          2347       254            396     173              5       147           5       E&P
  198     EnBW Energie Baden-Wuerttemberg AG Germany                      EMEA                      44868         58       23610         62         -1086      320             -6       321           5        EU
  199     Alliant Energy Corp                        Wisconsin            Americas                    9688      209          3665       221            302     188              5       143           0        DU
  200     Concho Resources Inc                       Texas                Americas                    6850      256          1740       279            461     157              9        69          52       E&P
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.


                                                                                                                                                                                    November 2012 insight 55
top 250 global energy companies
 Platts                                                                                                                                   Return on
 Rank                                                                                         Assets        Revenues        Profits     invested capital 3-year Industry
  2012 Company                                  State or country              Region      $ million Rank $ million Rank $ million Rank ROIC % Rank CGR% code
  201 Tenaga Nasional Bhd                       Malaysia                  Asia/Pacific Rim   23364 114      10085 130         156 246         1    273       9     EU
  202     Cameco Corp                           Canada                    Americas                    7595      242          2321       257            438     165              7       100           3      C&CF
  203     Kyushu Electric Power Co Inc Japan                              Asia/Pacific Rim           54977         43       18724         81         -2066      325             -5       316          -0        EU
  204     Encana Corp                           Canada                    Americas                  33918         78         8467       145            128     258              0       285         -26       E&P
  205     Tohoku Electric Power Co Inc Japan                              Asia/Pacific Rim           52105         45       20919         73         -2879      328             -8       323          -3        EU
  206     Pepco Holdings Inc                    District of Columbia Americas                       14910       160          5920       183            260     198              3       228         -10        EU
  207     INA-Industrija nafte d.d.             Croatia                   EMEA                        5128      304          5047       188            302     189              8        91           3       IOG
  208     Continental Resources Inc Oklahoma                              Americas                    5646      283          1680       282            429     167             12        46          20       E&P
  209     Integrys Energy Group Inc Illinois                              Americas                    9983      203          4709       194            228     211              4       173         -30        DU
  210     UGI Corp                              Pennsylvania              Americas                    6663      262          6091       177            233     208              5       135          -3        GU
  211     ATCO Ltd                              Canada                    Americas                  12123       181          3885       216            318     183              4       203           7        DU
  212     Hindustan Petroleum Corp Ltd India                              Asia/Pacific Rim           14981       158        32400         50             31     289              0       287          13      R&M
  213     China Longyuan Power Group Corp Ltd China                       Asia/Pacific Rim           14156       162          2539       250            414     169              3       210          24        IPP
  214     Enagas SA                             Spain                     EMEA                        9667      210          1401       296            457     159              5       129          -3        GU
  215     Reliance Infrastructure Ltd India                               Asia/Pacific Rim           10750       195          4138       209            278     195              4       196          23        EU
  216     Terna SpA                             Italy                     EMEA                      15891       148          1998       268            410     172              3       210          11        EU
  217     El Paso Pipeline Partners LP Texas                              Americas                    6297      267          1425       293            472     155              8        83          10       S&T
  218     Anadarko Petroleum Corp Texas                                   Americas                  51779         47       13882        105         -2649      326             -8       323          -0       E&P
  219     Fortis Inc                            Canada                    Americas                  13203       174          3648       222            310     184              3       224          -1        EU
  220     QEP Resources Inc                     Colorado                  Americas                    7443      246          3159       238            267     197              5       132          11       E&P
  221     MDU Resources Group Inc North Dakota                            Americas                    6556      265          4050       210            225     212              5       129          -7        DU
  222     Grupa Lotos SA                        Poland                    EMEA                        5980      277          8568       142            190     225              4       173          22      R&M
  223     TECO Energy Inc                       Florida                   Americas                    7322      250          3343       232            271     196              5       141          -0        DU
  224     Ultra Petroleum Corp                  Texas                     Americas                    4870      315          1102       311            453     160             13        40           0       E&P
  225     Hellenic Petroleum SA                 Greece                    EMEA                        9005      217        11659        116            143     252              2       245          -3      R&M
  226     Linn Energy LLC                       Texas                     Americas                    8000      239          1173       306            434     166              6       122          15       E&P
  227     Huadian Power International Corp Ltd China                      Asia/Pacific Rim           23418       113          8512       143             12     290              0       289          22        IPP
  228     Edison SpA                            Italy                     EMEA                      19837       127        14336        102           -333     309             -2       306           4        IPP
  229     TransAlta Corp                        Canada                    Americas                    9502      212          2592       248            282     193              4       194          -5        IPP
  230     National Fuel Gas Co                  New York                  Americas                    5285      297          1779       276            258     201              9        73         -10        GU
  231     Atmos Energy Corp                     Texas                     Americas                    7283      252          4348       205            197     222              4       173         -16        GU
  232     EVN AG                                Austria                   EMEA                        8606      230          3419       228            238     206              4       196           4        EU
  233     Qatar Electricity & Water Co Q.S.C Qatar                        EMEA                        6175      271          1228       299            357     179              6       112          25        DU
  234     PT Bumi Resources Tbk                 Indonesia                 Asia/Pacific Rim             7368      249          4001       212            221     214              4       187           6      C&CF
  235     EDP - Energias do Brasil SA Brazil                              Americas                    6626      263          2620       247            238     205              5       147           5        EU
  236     Hawaiian Electric Industries Inc Hawaii                         Americas                    9593      211          3242       236            138     255              4       165           0        EU
  237     Sunoco Inc                            Pennsylvania              Americas                  11982       182        44610         32         -1528      323            -29       331          -2      R&M
  238     Essar Energy Plc                      United Kingdom            EMEA                      16259       147        14905         96           -509     313             -5       315                  R&M
  239     NuStar Energy LP                      Texas                     Americas                    5881      278          6575       172            181     231              4       203          11      R&M
  240     Westar Energy Inc                     Kansas                    Americas                    8683      227          2171       263            228     210              4       187           6        EU
  241     Energen Corp                          Alabama                   Americas                    5237      298          1458       290            260     199              7       102          -2       E&P
  242     Esso SAF                              France                    EMEA                        5197      302        19946         76             58     280              3       231           2      R&M
  243     Acea SpA                              Italy                     EMEA                        8289      235          4032       211            177     234              3       210           2        DU
  244     Emera Inc                             Canada                    Americas                    6740      259          2010       267            235     207              4       157          16        EU
  245     Public Power Corp SA                  Greece                    EMEA                      20849       123          6906       168           -187     302             -1       298          -2        EU
  246     Alpiq Holding AG                      Switzerland               EMEA                      18197       133        13291        109         -1422      322            -11       327          -1        EU
  247     Shenergy Co Ltd                       China                     Asia/Pacific Rim             5538      289          3586       224            223     213              4       165          21        IPP
  248     Interconexión Eléctrica SA E.S.P. Colombia                      Americas                  14910       159          2443       253            188     226              2       258          11        EU
  249     Shikoku Electric Power Co Inc Japan                             Asia/Pacific Rim           17074       139          7352       163           -116     299             -1       296          -2        EU
  250     ARC Resources Ltd                     Canada                    Americas                    5183      303          1187       303            279     194              7       100          -4       E&P
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.


56 insight November 2012
                                                                                                                                       top 250 global energy companies

proved its overall ranking most, rising                                             In contrast to Indian advances, Ja-
from 232nd in 2010 to 172nd in 2011, a                                            pan saw two of its smaller electric
gain of 60 places.                                                                utilities leave the top 250. The num-
  Other significant moves include a                                                ber of Japanese companies in the list
rise of 21 places for leading power pro-                                          fell from 18 to 16, and the average
ducer NHPC Ltd to 195th and amongst                                               ranking of those companies dropped
the electric utilities Reliance Infra-                                            from 132.1 in 2010 to 142.7 in 2011.
structure Ltd gained 17 places to come                                            Seven of the companies are electric
215th in the overall top 250. Although                                            utilities, which showed a negative or
these represent the bright spots for fi-                                           zero return on equity invested in the
nancial performance in 2011, 2012                                                 Japanese fiscal year 2011, which ended
may prove more challenging for In-                                                in March 2012.
dia’s power generators. Faced by fuel                                               The country’s power generation com-
shortages, growing dependency on ex-                                              panies continue to suffer from the af-
pensive imports and regulated domes-                                              termath of the devastating earthquake
tic retail electricity prices, the widely                                         and tsunami that hit the country in
reported blackouts in northern India                                              March 2011, and which resulted in the
in July suggest 2011’s performance                                                country’s entire nuclear fleet coming
may prove hard to sustain.                                                        off-line by May 2012. Without doubt
  The resilience of Indian companies                                              worst hit was Tokyo Electric Power Co
should, however, not be underestimat-                                             Inc, which has fallen to 161st in the
ed. A perhaps surprising entry at num-                                            current rankings from 131st in the pre-
ber 2 in the return on invested capital                                           vious year.
(ROIC) rankings is Coal India Ltd with                                              However, other Japanese companies
an ROIC of 35.3%. A new entrant to                                                have managed to improve their posi-
the rankings in 2010, when the compa-                                             tions. Despite high crude prices and
ny listed, Coal India has posted strong                                           an enormously competitive environ-
returns on invested capital in both                                               ment that saw a swathe of refinery
years, a remarkable achievement given                                             closures in the US and Europe, Ja-
the challenges it faces. Dominating as                                            pan’s biggest movers are both from
a near monopoly its domestic market,                                              the oil refining and marketing sector.
Coal India is struggling to keep pace                                             Showa Shell Sekiyu KK was the big-
with output targets, while its overall                                            gest improver, gaining 43 places in
profitability is constrained by regulated                                          the overall top 250 rankings to come
domestic coal prices, which is forcing it                                         122nd, while TonenGeneral Sekiyu
to look abroad for new assets and also                                            KK moved up an impressive 36 spots
to import more expensive coal.                                                    to 45th.


2. Fastest growing Americas companies.
                                                                                                                             3-year       Platts
             Rank Company                                                             State or country Industry              CGR %        Rank
               1      Pacific Rubiales Energy Corp                                      Canada                    E&P           80.1        162
               2      Concho Resources Inc                                             Texas                     E&P            52.3        200
               3      HollyFrontier Corp                                               Texas                    R&M             38.1          79
               4      Ecopetrol SA                                                     Colombia                  IOG            24.7          14
               5      Continental Resources Inc                                        Oklahoma                  E&P            20.2        208
               6      Ultrapar Holdings Inc                                            Brazil                    S&T            19.8        125
               7      Denbury Resources Inc                                            Texas                     E&P              19        157
               8      YPF SA                                                           Argentina                 IOG            17.6          70
               9      PPL Corp                                                         Pennsylvania               EU            17.5          69
               10     Emera Inc                                                        Canada                     EU            15.7        244
Fastest Growing is based on a 3 year compound growth rate (CGR) for revenues. The compound growth rate (CGR) is based on the companies revenue
numbers for the past four years (current year included). If only three years of data was available then it is a two year CGR. All rankings are computed from
data assessed on June 22, 2012.
Source: S&P Capital IQ/Platts


                                                                                                                                                               November 2012 insight 57
top 250 global energy companies
Asian companies in 2012 Top 250
           Platts                                                                                                                                  Return on
 Top       Rank                                                                                        Assets        Revenues        Profits     invested capital Industry
 Asia       2012 Company                                                          State or country $ million Rank $ million Rank $ million Rank ROIC % Rank code
  1           9 PetroChina Co Ltd                                                   China           301261     4   310291     5    20889     6       10      65    IOG
    2         12     China Petroleum & Chemical Corp                                China                   179810          14      393585            3        11504        12            10         60       IOG
    3         13     CNOOC Ltd                                                      Hong Kong                 60370         34        37853         39         11037        13            23          7       E&P
    4         16     China Shenhua Energy Co Ltd                                    China                     63011         31        32709         49          7176        18            14         31      C&CF
    5         22     Oil & Natural Gas Corp Ltd                                     India                     40551         65        25623         59          4927        24            18         18       E&P
    6         23     PTT Plc                                                        Thailand                  44080         59        76321         22          3310        32            10         59       IOG
    7         26     SK Innovation Co Ltd                                           South Korea               30232         89        59012         28          2735        36            13         36      R&M
    8         27     Reliance Industries Ltd                                        India                     57276         38        62757         26          3453        31             8         97      R&M
    9         43     JX Holdings Inc                                                Japan                     83064         25      133142          13          2118        47             4       187       R&M
   10         45     TonenGeneral Sekiyu KK                                         Japan                     13825       166         33238         48          1649        60            31          4      R&M
   11         48     Coal India Ltd                                                 India                     18722       131         10926        123          2587        37            35          2      C&CF
   12         49     Inpex Corp                                                     Japan                     38071         71        14734         98          2409        40             7         98       E&P
   13         61     China Coal Energy Co Ltd                                       China                     25126       105         13790        106          1540        64             8         85      C&CF
   14         62     NTPC Ltd                                                       India                     27179         97        11371        118          1718        55             8         91        IPP
   15         63     S-Oil Corp                                                     South Korea               11395       186         27545         56          1028        89            13         38      R&M
   16         68     Idemitsu Kosan Co Ltd                                          Japan                     33300         81        53515         29            799     100              4       173       R&M
   17         82     Indian Oil Corp Ltd                                            India                     38482         69        71288         24            740     111              3       218       R&M
   18         84     CLP Holdings Ltd                                               Hong Kong                 27610         96        11807        115          1197        82             5       132         EU
   19         86     Yanzhou Coal Mining Co Ltd                                     China                     15263       154          7394        162          1403        74            12         49      C&CF
   20         89     Formosa Petrochemical Corp                                     Taiwan                    15435       152         26713         57            751     108              5       132       R&M
   21         91     Woodside Petroleum Ltd                                         Australia                 22740       116          4802        191          1507        65             8         81       E&P
   22       109      GAIL (India) Ltd                                               India                      8934       221          7713        159            778     103             12         42        GU
   23       111      Tokyo Gas Co Ltd                                               Japan                     23141       115         21780         69            572     136              3       218         GU
   24       117      Osaka Gas Co Ltd                                               Japan                     18322       132         16075         89            561     138              4       202         GU
   25       120      China Yangtze Power Co Ltd                                     China                     24883       107          3250        234          1210        80             5       146         IPP
   26       121      Cairn India Ltd                                                India                      9357       213          2076        264          1390        76            16         21       E&P
   27       122      Showa Shell Sekiyu KK                                          Japan                     15003       157         34408         46            287     192              4       182       R&M
   28       124      GS Holdings Corp                                               South Korea                8998       218          7331        165            668     122              8         76      R&M
   29       128      AGL Energy Ltd                                                 Australia                  9738       208          7103        166            561     139              7         98        DU
   30       129      The Hong Kong & China Gas Co Ltd                               Hong Kong                 10963       192          2890        242            792     102              8         76        GU
   31       130      Power Assets Holdings Ltd                                      Hong Kong                 12206       180          1314        298          1169        84            11         52        EU
   32       131      Santos Ltd                                                     Australia                 15883       149          2541        249            756     107              6       114        E&P
   33       132      GD Power Development Co Ltd                                    China                     28622         94         7852        156            573     135              2       243         IPP
   34       133      Kunlun Energy Co Ltd                                           Hong Kong                 10832       194          3272        233            723     113              8         88       E&P
   35       134      China Resources Power Holdings Co Ltd                          Hong Kong                 21693       119          7822        157            573     133              3       221         IPP
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.




                                                        Refi ners in South Korea also proved                                              moving up from 176th in 2010 to 153rd
                                                      to be their country’s star performers.                                             in 2011. Meanwhile back in Japan, Osa-
                                                      SK Innovation Co Ltd gained a full 30                                              ka Gas Co Ltd also bucked the trend
                                                      places to come 26th overall in the top                                             in the gas sector by gaining 23 places
                                                      250, and in the R&M segment came                                                   to come 117th, while in the E&P seg-
                                                      second only to the newly demerged                                                  ment Inpex Corp put in a strong perfor-
                                                      US company Marathon Petroleum                                                      mance to move from 76th place in 2010
                                                      Corp. While SK Innovation was South                                                to 49th in 2011.
                                                      Korea’s top mover, S-Oil Corp came a                                                 However, some of Asia Pacific’s big-
                                                      close second, gaining 28 places to 63rd                                            gest movers come from further south.
                                                      overall.                                                                           Although it was a mixed picture over-
                                                        The Korea Gas Corp also did well,                                                all for Southeast Asia, Indonesia’s PT

58 insight November 2012
                                                                                                                                        top 250 global energy companies
Asian companies in 2012 Top 250 (continued)
           Platts                                                                                                                                  Return on
 Top       Rank                                                                                        Assets        Revenues        Profits     invested capital Industry
 Asia       2012 Company                                                          State or country $ million Rank $ million Rank $ million Rank ROIC % Rank code
  36        135 Thai Oil Pcl                                                        Thailand          4875 314      13130    110      467 156        11      50    R&M
   37       143      Huaneng Power International Inc                                China                     40441         66        20885         74            185      230             0       285         IPP
   38       145      Datang International Power Generation Co Ltd                   China                     38344         70        11354        119            300      190             1       279         IPP
   39       149      Banpu Pcl                                                      Thailand                   7072       253          3533        226            631      126            11         55      C&CF
   40       150      Shanxi Lu'an Environmental Energy Development Co Ltd           China                      5431       294          3441        227            603      128            19         15      C&CF
   41       152      Inner Mongolia Yitai Coal Co Ltd                               China                      4698       318          2664        245            863       97            20         12      C&CF
   42       153      Korea Gas Corp                                                 South Korea               31081         85        24593         60            157      245             1       284         GU
   43       154      PT Adaro Energy Tbk                                            Indonesia                  5659       282          3987        213            550      141            12         42      C&CF
   44       155      Cheung Kong Infrastructure Holdings Ltd                        Hong Kong                  9898       205            525       325            998       93            10         57        EU
   45       158      Shanxi Xishan Coal & Electricity Power Co Ltd                  China                      6071       274          4689        195            442      162            11         54      C&CF
   46       161      Tokyo Electric Power Co Inc                                    Japan                   192892          12        66416         25         -9704       331             -9      326         EU
   47       164      Korea Electric Power Corp                                      South Korea             117787          19        37573         40         -2909       329             -3      310         EU
   48       168      Chubu Electric Power Co Inc                                    Japan                     70112         29        30409         52         -1145       321             -2      302         EU
   49       171      Kansai Electric Power Co Inc                                   Japan                     93381         22        34905         45         -3008       330             -4      314         EU
   50       172      PowerGrid Corp of India Ltd                                    India                     16480       143          1805        274            578      131             4       163         EU
   51       173      YTL Power International Bhd                                    Malaysia                  11037       190          4591        198            427      168             5       155         DU
   52       174      Yangquan Coal Industry (Group) Co Ltd                          China                      4385       327          4427        203            442      164            17         19      C&CF
   53       177      Manila Electric Co                                             Philippines                4950       310          6043        179            288      191            13         39        EU
   54       178      Bharat Petroleum Corp Ltd                                      India                     13622       168         37105         42            137      256             2       258       R&M
   55       179      Origin Energy Ltd                                              Australia                 26756         98        10389        128            187      229             1       273        IOG
   56       186      Chugoku Electric Power Co Inc                                  Japan                     35846         72        14667        100             31      288             0       289         EU
   57       191      Cosmo Oil Co Ltd                                               Japan                     20797       124         38609         36           -113      298             -1      296       R&M
   58       194      Electric Power Development Co Ltd                              Japan                     25034       106          8127        152            200      220             1       279         IPP
   59       195      NHPC Ltd                                                       India                     10554       197          1186        304            540      144             6       112         IPP
   60       196      YTL Corp Bhd                                                   Malaysia                  15114       156          5748        184            324      182             2       236         DU
   61       201      Tenaga Nasional Bhd                                            Malaysia                  23364       114         10085        130            156      246             1       273         EU
   62       203      Kyushu Electric Power Co Inc                                   Japan                     54977         43        18724         81         -2066       325             -5      316         EU
   63       205      Tohoku Electric Power Co Inc                                   Japan                     52105         45        20919         73         -2879       328             -8      323         EU
   64       212      Hindustan Petroleum Corp Ltd                                   India                     14981       158         32400         50             31      289             0       287       R&M
   65       213      China Longyuan Power Group Corp Ltd                            China                     14156       162          2539        250            414      169             3       210         IPP
   66       215      Reliance Infrastructure Ltd                                    India                     10750       195          4138        209            278      195             4       196         EU
   67       227      Huadian Power International Corp Ltd                           China                     23418       113          8512        143             12      290             0       289         IPP
   68       234      PT Bumi Resources Tbk                                          Indonesia                  7368       249          4001        212            221      214             4       187       C&CF
   69       247      Shenergy Co Ltd                                                China                      5538       289          3586        224            223      213             4       165         IPP
   70       249      Shikoku Electric Power Co Inc                                  Japan                     17074       139          7352        163           -116      299             -1      296         EU
Notes: C&CF = coal and consumable fuels, DNR = data not reported, DU = diversified utility, E&P = exploration and production, EU = electric utility, GU = gas utility, IOG = integrated oil and gas, IPP = independent
power producer and energy trader, R&M = refining and marketing, S&T = storage and transfer. All rankings are computed from data assessed on June 22, 2012.




Adaro Energy Tbk managed to gain 84                                                provers. YTL Power International Bhd
places, moving up to 154th place and                                               gained 36 places to come 173rd overall,
grabbing the title of most-improved                                                while YTL Corp Bhd jumped 31 spots
ranking in Asia-Pacific. Although                                                   to 196th. In Thailand, it was again the
up against tough competition from                                                  refining and marketing sector that gave
China, the Indonesia coal miner also                                               the country its star performer; Thai Oil
managed to edge itself into the last                                               Pcl came in at 135th in 2011, up from
spot in the top ten in the C&CF seg-                                               182nd in 2010.
ment, a major achievement compared                                                   But it was the emergent LNG giant
with 2010.                                                                         Santos Ltd and multi utility AGL En-
  The power sector in Malaysia pro-                                                ergy Ltd in Australia that proved to be
vided that country with some big im-                                               the second and third biggest movers

                                                                                                                                                                                    November 2012 insight 59
top 250 global energy companies

                                                   in Asia-Pacific. The former jumped 76                             mains Russia’s and one of the world’s
                                                   spots to 131st position and the latter 71                        leading energy companies. Overall,
                                                   places to 128th.                                                 Russian companies performed well on
                                                                                                                    both a global and regional basis. The
                                                   Russia Sustains Momentum                                         average ranking of the 13 companies
                                                     The representation of companies                                has improved to 55.4, with eight mov-
                                                   from Europe, Middle East and Africa                              ing up and only one company losing
                                                   in the Platts 2012 top 250 ranking                               any significant ground. OJSC RusHy-
                                                   fell to 67 from 79 the year before. Two                          dro was the country’s best improver,
                                                   Russian companies dropped from the                               gaining 68 places to come 95th, ow-
                                                   table, but only because Gazprom Neft                             ing to a sharp jump in profits despite
                                                   and Mosenergo—both full or nearly                                lower revenues, which also improved
                                                   full subsidiaries of OJSC Gazprom—                               its ROIC.
                                                   have been incorporated within the                                  Independent gas company OAO No-
                                                   latter’s fi nancial results. The most se-                         vatek, which has risen in the rankings
                                                   vere attrition came in other parts of                            progressively in recent years and has
                                                   Europe, where ten companies left the                             just signed a raft of new gas supply
                                                   rankings as a result of mergers and the                          agreements, jumped 30 places to 74th.
                                                   stronger performance overall of com-                             In terms of ROIC, the company came
                                                   panies elsewhere.                                                not simply first in Russia but in the
                                                     Gas giant Gazprom slipped two                                  world, posting a 36% return. JSC Inter-
                                                   places in the rankings to fi fth, but re-                         regional Distribution Grid Companies
                                                                                                                    Holding also put in a strong perfor-
                                                                                                                    mance in the overall rankings, moving
3. #1 in Asia by industry.                                                                                          up 26 places to 107th.
                 Industry     Company                               Country          Platts Rank 2012                 State oil producer Rosneft Oil Co
                                                                                                                    again proved the top performer
                  IOG         PetroChina Co Ltd                     China                       9
                                                                                                                    amongst the country’s oil majors,
                  E&P         CNOOC Ltd                             Hong Kong                 13
                                                                                                                    placing 10th in the overall rankings,
                  C&CF        China Shenhua Energy Co Ltd           China                     16                    followed closely by OJSC Lukoil Oil
                  R&M         SK Innovation Co Ltd                  South Korea               26                    Co at 11th. Both slipped one place
                  IPP         NTPC Ltd                              India                     62                    from last year, but perhaps only be-
                  EU          CLP Holdings Ltd                      Hong Kong                 84
                                                                                                                    cause of the re-emergence of BP in
                                                                                                                    the top ten. Surgutneftegaz was top
                  GU          GAIL (India) Ltd                      India                    109
                                                                                                                    performer in terms of improvement
                  DU          AGL Energy Ltd                        Australia                128                    in the oil and gas sector, jumping 15
All rankings are computed from data assessed on June 22, 2012.                                                      places from 2011 to secure itself a po-
Source: S&P Capital IQ/Platts                                                                                       sition in the top 20 energy companies
                                                                                                                    globally. OAO Tatneft and JSOC Bash-
4. Fastest growing Asian companies by industry.                                                                     neft also improved their standings,
                                                                                                                    while oil pipeline monopoly OAO AK
      Industry      Company                                Country          3-year CGR %        Platts Rank 2012    Transneft moved up an impressive 16
        E&P         Cairn India Ltd                        India                 119.8                  121         places to 25th.
        DU          YTL Power International Bhd            Malaysia               51.2                  173           OAO TNK-BP Holding claimed sec-
        IPP         GD Power Development Co Ltd            China                  44.9                  132
                                                                                                                    ond place in terms of ROIC, posting
                                                                                                                    32%, which also meant it came third by
        R&M         Reliance Industries Ltd                India                  33.3                    27
                                                                                                                    this measure in the entire top 250. The
        C&CF        Shanxi Xishan Coal &                   China                  31.1                  158         company’s revenues jumped in 2011
                    Electricity Power Co Ltd
                                                                                                                    to $53,404 million from $40,280 mil-
        IOG         PetroChina Co Ltd                      China                  23.2                     9        lion in 2010, while its profits increased
        EU          Reliance Infrastructure Ltd            India                  23.2                  215         to $9,098 million from $6,540 million.
        GU          The Hong Kong & China Gas              Hong Kong              22.0                  129         Overall, TNK-BP’s performance earned
                    Co Ltd                                                                                          it an extra five places in the overall
Fastest Growing is based on a 3 year compound growth rate (CGR) for revenues. All rankings are computed from data   rankings, moving it into the top 20 en-
assessed on June 22, 2012.
Source: S&P Capital IQ/Platts                                                                                       ergy companies worldwide.

60 insight November 2012
                                                                                                                                      top 250 global energy companies

North America                                                                     the next year to 34th, but has since
  North America’s stellar list of per-                                            made significant headway on the back
formers remains pretty much the same                                              of strong gains in crude output.
at the top end of the rankings, led by                                              Ecopetrol was ranked 23rd in 2010
global number one, Exxon Mobil Corp,                                              and has now moved into the top 20
but the real shift in the region’s repre-                                         overall to become the 14th highest
sentation came further down the list.                                             ranked company globally. Petrobras, by
The total number of North American                                                contrast, slipped six places in the rank-
companies fell in last year’s rankings                                            ings to 18th.
to 84 from 91 the year before. But this                                             A further oil and gas success for Co-
year, North American companies have                                               lombia was Canada-listed Pacific Rubia-
come back in force, with a total of 102                                           les Energy Corp. The company, which
companies in the top 250. Six names                                               operates mainly in Colombia, is a new
have slipped from the list, but there                                             entrant to the Platts top 250 rankings
were 23 new entrants and returnees.                                               and posted ROIC of 14%, placing it 31st
  Of these, reflecting the strength of oil                                         by that measure and 162nd overall.
prices in 2011, 16 were in oil and gas.                                             The number of South American
These included ten E&P, four refining                                              companies represented in the top 250
and marketing, and two storage and                                                fell from 17 to 11 as a swathe of Chil-
transportation companies. Of the oth-                                             ean, Brazilian and Colombian electric
ers, six were utilities—four electric, one                                        utilities slipped from the list. Others
diversified and one gas—while the final                                             moved down, but Interconexion Elec-
new North American entrant was an                                                 trica SA E.S.P. of Colombia became a
IPP. Canada provided five of the new                                               new entrant at 248th. Centrais Eletri-
entrants and the United States the oth-                                           cas Brasileiras SA—Eletrobras gained 4
er 18. Texas alone accounted for nine,                                            places to place 75th.
all in the oil and gas segments.                                                    However, the biggest mover across
                                                                                  the continent was Brazil’s Companhia
South America                                                                     Paranaense de Energia which jumped
  Colombia’s national oil company                                                 19 places to 142nd. Another notable
Ecopetrol SA has grabbed the highest                                              strong performer was oil and gas stor-
ranking amongst South American en-                                                age and transportation company Ultra-
ergy companies for the first time, push-                                           par Holdings Inc. The company gained
ing long-time record holder Brazil’s                                              nine places to move into 125th position
Petrobras into second place. The Co-                                              in what represents a succession of up-
lombian oil company first entered the                                              ward moves since the company entered
Platts rankings in 2009 at 30th, slipped                                          the rankings at 202nd in 2009.


5. Fastest growing EMEA companies.
                                                                                                                           3-year     Platts
                 Rank Company                                                   Country                     Industry       CGR %      Rank
                   1      JSOC Bashneft                                          Russia                        E&P           63.3        56
                   2      OJSC RusHydro                                          Russia                         EU           49.9       95
                   3      OAO AK Transneft                                       Russia                        S&T           34.6       25
                   4      OAO Novatek                                            Russia                        E&P           30.5       74
                   5      OJSC Moscow United Electric Grid Co Russia                                            EU           25.6      148
                   6      Qatar Electricity & Water Co Q.S.C                     Qatar                          DU           25.3      233
                   7      Federal Grid Co of Unified Energy System JSC Russia                                    EU           24.7      104
                   8      Snam S.p.A.                                            Italy                          GU           23.4      113
                   9      Grupa Lotos SA                                         Poland                       R&M            21.5      222
                   10     Tullow Oil plc                                         United Kingdom                E&P           20.7      147
Fastest Growing is based on a 3 year compound growth rate (CGR) for revenues. The compound growth rate (CGR) is based on
the companies revenue numbers for the past four years (current year included). If only three years of data was available then it is
a two year CGR. All rankings are computed from data assessed on June 22, 2012.
Source: S&P Capital IQ/Platts


                                                                                                                                                       November 2012 insight 61
top 250 global energy companies

                           Oil to the Fore                                                               er energy sector came close to match-
                             Throughout the foregoing regional                                           ing oil and gas for revenues and profits.
                           analysis it is apparent that the oil and                                      The revenue and profit growth of the
                           gas sector extended its lead-ranks com-                                       top ten companies in 2011—all of them
                           mand of the world’s top 250 energy                                            in oil and gas—stands apart, with the
                           companies in 2011, and a single fact                                          companies showing $2.6 trillion in rev-
                           does much to explain why. The average                                         enue, up 21.8% on 2010 and 11.6% up
                           price for the international Dated Brent                                       on the former record year of 2008.
                           crude marker was $111.26/barrel.                                                Profits showed a similar noteworthy
                             That may not sound much when set                                            year-on-year rise. At $238 billion, the
                           against the financial panic of 2008,                                           top ten companies saw their profits ad-
                           which saw Dated Brent soar momen-                                             vance 28.5% from the previous year
                           tarily to a record $144.23/b. But profits                                      and exceed the 2008 level by 11.3%.
                           over the year depend on 365 days of                                           The higher plateau in oil prices also
                           production, rather than headline-grab-                                        had an impact on the companies’ asset
                           bing price spikes.                                                            valuations, as these are based primarily
                             Contrast the average price for 2011                                         on hydrocarbon reserves. The top ten’s
                           with that of 2008. In 2008, the aver-                                         asset value in 2011 was $2.4 trillion, up
                           age price of Dated Brent was $97.26/b,                                        8.7% from 2010 and 28.7% higher than
                           then a record. In 2011, average crude                                         in 2008.
                           prices were 14.4% higher than 2008,                                             Looking beyond the top 10 to the
                           and 39.9% up on 2010.                                                         top 50 and the dominance of the oil
                             Given price trend differences, no oth-                                      and gas sector becomes even clearer. In


                           6. Top 50 fastest growing companies.
                                                                                3-year Platts                                                                          3-year Platts
                                  Company                                       CGR % Rank                        Company                                              CGR % Rank
                             1    Cairn India Ltd                                119.8  121                 26 NHPC Ltd                                                  24.7  195
                             2    Pacific Rubiales Energy Corp                     80.1       162            27 China Longyuan Power Group Corp Ltd                       23.6   213
                             3    Kunlun Energy Co Ltd                            69.6       133            28 China Shenhua Energy Co Ltd                               23.4    16
                             4    JSOC Bashneft                                   63.3        56            29 Snam S.p.A.                                               23.4   113
                             5    Concho Resources, Inc                           52.3       200            30 PetroChina Co Ltd                                         23.2    9
                             6    YTL Power International Bhd                     51.2       173            31 Reliance Infrastructure Ltd                               23.2   215
                             7    OJSC RusHydro                                   49.9        95            32 Yanzhou Coal Mining Co Ltd                                 23     86
                             8    GD Power Development Co Ltd                     44.9       132            33 The Hong Kong & China Gas Co Ltd                           22    129
                             9    YTL Corp Bhd                                      41       196            34 PowerGrid Corp of India Ltd                               21.9   172
                             10 CNOOC Ltd                                         38.5        13            35 Huadian Power International Corp Ltd                      21.8   227
                             11 HollyFrontier Corp                                38.1        79            36 Grupa Lotos SA                                            21.5   222
                             12 OAO AK Transneft                                  34.6        25            37 GAIL (India) Ltd                                          21.1   109
                             13 Reliance Industries Ltd                           33.3        27            38 Shenergy Co Ltd                                           20.9   247
                             14 China Resources Power Holdings Co Ltd             31.4       134            39 Tullow Oil plc                                            20.7   147
                             15 Shanxi Xishan Coal & Electricity Power Co Ltd     31.1       158            40 Inner Mongolia Yitai Coal Co Ltd                          20.6   152
                             16 OAO Novatek                                       30.5        74            41 China Petroleum & Chemical Corp                           20.2    12
                             17 Banpu Pcl                                         30.5       149            42 Continental Resources Inc                                 20.2   208
                             18 China Yangtze Power Co Ltd                        30.2       120            43 China Coal Energy Co Ltd                                  19.8    61
                             19 PT Adaro Energy Tbk                               28.7       154            44 Ultrapar Holdings Inc                                     19.8   125
                             20 OJSC Moscow United Electric Grid Co               25.6       148            45 CLP Holdings Ltd                                          19.1    84
                             21 Qatar Electricity & Water Co Q.S.C                25.3       233            46 Denbury Resources Inc                                      19    157
                             22 Huaneng Power International Inc                   25.2       143            47 Yangquan Coal Industry (Group) Co Ltd                     18.3   174
                             23 Datang International Power Generation Co Ltd      25.1       145            48 YPF SA                                                    17.6    70
                             24 Ecopetrol SA                                      24.7        14            49 PPL Corp                                                  17.5    69
                             25 Federal Grid Co of Unified Energy System JSC       24.7       104            50 JSC Interregional Distribution Grid Companies Holding     16.8   107
                           Fastest Growing is based on a 3 year compound growth rate (CGR) for revenues. All rankings are computed from data assessed on June 22, 2012.
                           Source: S&P Capital IQ/Platts

62 insight November 2012
                                                                                   top 250 global energy companies

2010, 16 electric and diversified utilities        Number one in the rankings, as in the
figured in the top 50, but in 2011 only            previous year, was China Shenhua En-
eight were left. All five that made the            ergy, while in all China had five of the
top 30 in 2010 have sunk to the latter            companies in the top ten. Coal India
regions of the top 50. Gains were evi-            came in second, while there were also
dent across the board in oil and gas, not         a Thai and an Indonesian company
just from integrated oil and gas compa-           and two US miners, demonstrating the
nies and those focused on exploration             Asian dominance of the sector. ■
and production, but also in the refining
and marketing and in the transporta-
tion and storage segments. All served to              S&P Capital IQ, a business line of the McGraw-Hill Compa-
edge out the utilities.                             nies (NYSE:MHP), is a leading provider of multi-asset class and
  While oil and gas companies led, coal             real time data, research and analytics to institutional inves-
suppliers followed them up the rank-                tors, investment and commercial banks, investment advisors
ings buoyed by high international and,              and wealth managers, corporations and universities around the
in cases, domestic prices. The most                 world. We provide a broad suite of capabilities designed to help
notable aspect of the C&CF segment                  track performance, generate alpha, and identify new trading
in 2011 was that, almost without ex-                and investment ideas, and perform risk analysis and mitigation
ception, each company in the top ten                strategies. Through leading desktop solutions such as the S&P
improved their position significantly                Capital IQ, Global Credit Portal and MarketScope Advisor desk-
in the overall 250 rankings, indicating             tops; enterprise solutions such as S&P Capital IQ Valuations,
the strong performance in the segment               and Compustat; and research offerings, including Leveraged
relative to many other parts of the en-             Commentary & Data, Global Markets Intelligence, and com-
ergy industry.                                      pany and funds research, S&P Capital IQ sharpens financial
  The leaders in the C&CF segment re-               intelligence into the wisdom today’s investors need. For more
flected above all the continued strong               information visit www.spcapitaliq.com.
growth of the Chinese coal industry.




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                                                                                                              November 2012 insight 63
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Description: 2013 Asia Energy Outlook