FFF Council
“The changing world of coal trade and utilisation and its effect at home and abroad”
25 July 2012
Andrew “Rocky” KinghornTel: +27 83 7011388
e-mail: [email protected]
Shava Mining Enterprise
Coal’s Current Value Proposition
Transnet?~10 Mt at
US$100/tonne~US$1 billion~ZAR8 billion
1
2
2
171.2
2011 87.8 83.9 68.921
THE DOMESTIC vs EXPORT DEBATEShould coal be declared a strategic
resource?
SA Coal Resources and Reserves
?
The way forward for coal - drivers
Low
High
Forget the high road and the low road, that imagery is so eighties. These days scenario-planner Clem Sunter points to three potential courses for South Africa:
Clem Sunter points to three potential courses for South Africa
none of the ducks in a row
all the ducks in a row
the failed state
To provide potential courses?
The shale oil boom is causing a steep price drop in Natural Gas Liquids (NGLs) in North America, hurting gas producers.
Natural Gas Liquids are the raw, associated gases and liquids that come up along with oil and natural gas from the well. NGLs are very important—vital even—now for regular, dry gas (methane) producers, as they are separated and sold as more expensive products like ethane, propane, butane and condensate.
But for shale oil producers—especially in the new prolific Texas oil shales—they’re just a byproduct. The oil pays for the well and the NGLs are just gravy.
For the last two years, many natural gas producers have been acquiring and drilling gas plays with high liquids content. NGLs are typically valued as a percentage of crude oil prices, and are worth 2-10x what dry gas is worth.
In fact, junior Canadian and American gas producers have been desperately trying to portray themselves as “liquid rich” gas producers. Analyst reports from brokerage firms promote their increasing NGL production.
The problem for the gas producers is—the oil producers have been acquiring and drilling them, too.
Between oil and gas NGL production, supply has overwhelmed the petrochemical industry, which uses most of these NGLs as feedstock.
Prices have rebounded from lows seen in late June, but are still down a lot from last year:• Ethane at 31 cents/US gallon is down 61% from last July• Propane at 85 cents/US gallon is down 44%• Butane at 121 cents/US gallon is down 31%• Condensate at 192 cents/US gallon is down 24%
Here's what the Shale Revolution Is Doing to NGL Prices
Profitability is down even more—add another 15% to each of those numbers. (This means ethane profits are down 70% or more.)
These prices come from Mont Belvieu, Texas, which is the main pricing hub for NGLs in the US. What Cushing is to oil in the US, Mont Belvieu is to NGLs.
Even these numbers don’t tell all the pain—some gas processing plants aren’t accepting ethane at all, which of course lowers the price to crazy levels—the 2nd NGL hub in the US, in Conway Kansas, has seen ethane prices fall to 8 cents a gallon.
Here’s a rough guide on these products. The “C2” type number you see beside each entry is how many carbon atoms a
molecule of each product has, and the industry interchanges the names Ethane and C2 (Propane and C3 etc) all the time.
Ethane (C2) – Demand is primarily driven by the ethylene production industry, which uses ethane to meet nearly half of its feedstock needs to produce chemical compounds used in making plastics.
Propane (C3) – Propane use is predominantly split between heating, which is seasonal, and for certain petrochemical applications.
Butane (C4) – Demand for butane is usually quite robust since it has a wide range of uses. It has both industrial and residential heating uses and is often blended with propane to produce liquid petroleum gas. Butane pricing is most similar to that of crude oil.
Pentanes or Natural gasoline (C5-C9) – The heaviest of the non-condensate liquids. It's frequently used as a fuel additive and blended with regular gasoline as well as a petrochemical feedstock. Receives a premium to crude oil at times.
Condensates (C10+) - It is basically equivalent to crude oil with many of the same end markets. Its pricing is also similar to crude oil.
Here's what the Shale Revolution Is Doing to NGL Prices 2
IRP 2010 only sees the retirement of ~25% of the existing Eskom generating fleet and whilst this plan clearly shows a shift towards renewables the full extent of this shift can only be demonstrated with a 50 year plan
75,400 MW requirement by 2030(!!!) OR ~15 Medupi size power stations
The possibility of the emergence in future of
clean coal technologies cannot be ignored
NPC actions for electricity
NPC improving infrastructure
all the ducks in a row
the failed state?
none of the ducks in a row?
NPC believes that the following investments should be prioritised
TFR – Credibility?
Siyabonga Gama was appointed as Chief Executive of TFR
Siyabonga Gama was
Suspended/dismissed
Siyabonga Gama was reinstalled
Is TFR adequately
funded?
Does TFR have the technical expertise to
meet their commitments?
What needs to be done?
none of the ducks in a row
all the ducks in a row
the failed state?
2012 TFR Update
Source RBCT web site
THROUGHPUT
April 2012 TONNAGE
YEAR TO DATE TONS
ANNUALISED RATE MT/a
Received 5 969 534 23 830 953 71.69Shipped 5 174 739 21 965 483 66.26
SHIPPING
48Number of VesselsTRAINS
778Number of TrainsSTOCK 3 611 261
THROUGHPUT
May 2012 TONNAGE
YEAR TO DATE TONS
ANNUALISED RATE Mt/a
Received 3 887 253 27 718 206 66.38Shipped 4 627 648 26 593 131 63.86
SHIPPING
46Number of VesselsTRAINS
509Number of TrainsSTOCK 3 119 309
THROUGHPUTMarch 2012 TONNAGE
YEAR TO DATE TONS
ANNUALISED RATE MT/a
Received 6 325 740 17 861 419 71.45Shipped 6 239 646 16 790 744 67.35
SHIPPING
58Number of Vessels
TRAINS
810Number of Trains
STOCK 3 028 620
NPC energy sector: Empowering South Africa Vision
NPC the energy reality
During the six months to the end of September, the group’s primary energy costs increased to 19.2c/kWh, from 15.2c/kWh in the corresponding period during the 2010/11 financial year. Primary energy was, thus, the largest single contributor to overall operating costs of 33c/kWh for the period.
The utility received an average price of 55c/kWh on sales of 114 043 GWh, which resulted in revenues of R63.8-billion and profits of R12.8-billion.
Eskom costs and prices (c/kWh) - 2011
Source: Terence Creamer 23rd November 2011
South Africa’s electricity prices rise to high end of China and India. NB: This
not including a Carbon Tax
~R0.50/kWh
~R0.75/kWh
• China and India Prices by Frost and Sullivan• RSA historic Price path Eskom• IRP Prices by DoEIRP TTT
Area of Industrial Prices China & India
Area of IRP 2010 Comparative Prices for South Africa
SA “energy gap”
Average Industrial Prices (2009 REAL)
Source: Subject concepts and issue outline, M Rossouw and R Baxter
~R0.98/kWh
Job creation and protectionSouth Africa needs a transparent affordable
price
Eskom's profit on operations before finance costs and tax increased from R16,4-billion for the year ending 31 March 2012 to R22,3-billlion for the year ending 31 March 2011. With net finance costs of R4-billion for the year, and income tax of R5,2-billion, the net profit after interest and tax was R13,2-billion (R8,4-billion in 2010/11). No dividend was declared for this year or the previous year.
While revenue from electricity sales increased by 25% from R91,5-billion (2010/11) to R114,8-billion (2011/12), this was almost entirely attributable to Eskom's 26% average price increase for the year commencing 1 April 2011.
Eskom also disclosed that its average selling price of electricity was 50,3c per kWh (40,3c per kWh in 2010/11) against an average cost or producing and delivering this electricity of 41,3c per kWh (32,8c in 2010/11), and that its primary energy cost per kWh amounted to 20,6c per kWh, making up about half of the total cost of 41,3c per kWh.
Eskom paid ferro-chrome smelters R1,8-billion not to produce (thereby reducing national peak demand by some 1000 MW), plus a further R400-million on other demand market participation (DMP) activities, and R1,5-billion in operating its emergency diesel-driven open-cycle gas turbines (OCGTs) in the Western Cape for much longer than usual to cope with peak demand.
Eskom 1 (2012)
"The purpose of Telkom is not to make a profit, it's to provide electricity..." - Julius Malema on Radio 702 TODAY (on August 2, 2011)
Chris Yelland, EE Publishers 13 June 2012
In fact DMP, power buy-back and cogeneration costs increased by 923%, while OCGT operating costs increased by 281% over those of the previous year, which together knocked some R3,7-billion off Eskom's bottom line. This surely indicates just how "tight" the system really is, and that without these expensive measures, the country would have been back into load-shedding.
Eskom failed in its efforts to renegotiate the secret commodity-linked electricity price deals with BHP Billiton, and a liability of R4,6-billion therefore remained on the balance sheet as the estimated forward loss on these long-term contracts, which are said to expire in 2028. (Lets not forget the ~R5.5-billion pebble bed loss)
Eskom spent some R3,3-billion procuring power from independent power producers (IPPs), an increase of 154% on the previous year, with the cheapest such power being 80c per kWh. However Eskom did not disclose what the price per kWh was likely to be from its new Medupi and Kusile coal-fired power stations, which are currently under construction.
Eskom intends to share in the capital costs of both expanding production at existing "cost-plus" coal mines feeding Eskom, as well as for the construction of new green-field coal mines built to deliver coal for electricity generation, and is currently paying an average of R230 per tonne for its coal requirements.
There was no decision yet from government as to Eskom's role in the 9600 MW nuclear build programme proposed in the national integrated resource plan for electricity, IRP 2011 - 2030.
Eskom 2
A capital budget has been set aside for such investment under its ‘future fuel’ programme, which forms a modest part of a larger R340-billion capital programme to add 17 082 MW to the South African grid by 2018.
The utility’s primary energy costs have increased sharply over the past few years and have been a key contributor to the recent series of tariff increases that had resulted in Eskom’s selling prices rising from around 22c/kWh in 2005 to the last year’s average of over 50c/kWh.
In 2011/12, the group’s primary energy costs rose by 29.2%, from 15.9c/kWh to 20.6c/kWh, with coal contributing 33%, or 1.54c/kWh, to the increase, with the cost of coal burnt rising 17.7%. Eskom burnt 125.5-million tons of coal last year, which enabled it to sell 224 785 GWh, only 0.2% more than 224 446 GWh produced in 2010/11.
Eskom 3
Source Mining Weekly 14 June
South African power utility Eskom has applied to raise electricity rates by 14.6% per year over five years, a confidential document obtained by Reuters showed on Friday.
Eskom said the increases could be as much as an annual average increase of 19% over the same period, depending on certain government decisions.
Eskom needs to fund an expansion drive and build new power plants to keep the lights on in Africa's largest economy.
Sharply rising power rates have added hugely to the costs of key sectors such as mining in the world's biggest platinum producer.
One of the world's lowest-cost electricity producers, Eskom, which provides 95 % of the country's power, was granted three years of 25 % power tariff hikes in 2010.
"In the base case Eskom requests revenues totalling R1.07-trillion over the five-year period, which translates into annual average price increases of 14.6%," Brian Dames, Eskom's CEO, said in the document marked "strictly confidential".
But this could climb to 19% if the government brings in a carbon tax or builds new plants beyond those currently under construction, the document says
Eskom’s next 5 years
Source : Reuters 13th July 2012
Comparison of scenarios before and after consultation process – pressure
on renuables
Effect of the 2 year nuclear
delay?An opportunity
for other energy
Policy adjusted IRP 2010
?
Strategy is about making choices…
“Strategy means making clear-cut choices about
how to compete”~ Jack Welsch
The cost to transition to a new generation mix
GasFrac
GasFrac Fracturing site
Conventional fracturing length versus LPG fracturing length
The LPG while being pumped during the frac job is viscous (after the frac closes the fluid returns to a low viscosity)
and can support sand.
These differences explain why 100% of
the propane is typically recovered on LPG stimulations and
only ~20% of the water is recovered on
water based stimulations.
DiscussionThe end
Closure
