ARRC Internal Recap FEB 26th

Panamax coal freight rates in the Pacific increased. The Indonesian Coal Mining Association is expecting an increase in Indonesian production of thermal coal if prices stay at/above current levels.

According to Platts, spot business into China has not picked up since the ending of the lunar new year as some in the market expected; and traders are now looking to next week's National People's Congress (NPC) meeting as a potential catalyst. The Chinese Ministry of Finance announced something akin to a carbon tax in response to increasing pollution fear and IHS published a research report saying the Chinese market is not the "promised land" that coal companies want you to think it is.

In the U.S.A., Cloud Peak energy signed an option that would allow it to ship up to 16 million tons/year through the Gateway Pacific Cherry Point terminal (if it can get regulatory approvals); and, the mayor of Seattle and the governor of Oregon opposed export coal trains crossing their turf. The Sightline Institute, a non-profit based in Seattle, issued a report highlighting the financial and operational weakness of Ambre Energy, a major proponent of coal exports through the Pacific Northwest. 

LINKS:

Panamax coal freight rates gain as grain cargoes absorb tonnages

PLATTS 22 Feb 2013

Panamax freight rates are expected to remain strong in the coming weeks, helped by grain cargoes from the east coast of South America, sources said.

Indonesia’s 2013 Coal Output May Rise 5.2%, Association Says

BLOOMBERG

By Fitri Wulandari - Feb 19, 2013

Coal output from Indonesia, the world’s largest exporter of the fuel for power-stations, may rise by 5.2 percent this year.

The country may produce 400 million metric tons as long as prices stay above $92 a ton, Bob Kamandanu, the chairman of Indonesian Coal Mining Association, said in an interview while attending a conference in Singapore today. Output was 380 million in 2012.

Asia Thermal Coal: CFR China market rangebound ahead of Chinese parliament

PLATTS  26 Feb 2013

Buying interest stayed muted at south China's trading hubs for imported thermal coal Tuesday, and CFR delivered prices were rangebound at $86/mt and remain capped by competitively priced domestic thermal coal, traders said.

The Chinese spot market has lacked direction for several weeks, and international traders were hoping that a key meeting of the Chinese parliament next week could provide a fillip to demand.

China Carbon Tax Examined

ELLA CHOU

Practical implications: 1) it is a tax, which is better than a fee; 2) it is a pollution discharge tax, carbon is only small part of the targeted emission. Effect: don't expect too much. At the same, this could be a start in internalizing unpriced factors behind the one of the largest and most dangerous imbalances in Chinese economy.

China’s Coal Market Not the “Promised Land” for International Suppliers

Coal imports set to peak before end of the decade and decline, major new IHS study says

(February 7, 2013) – Chinese coal imports will peak before the end of the decade and enter a prolonged period of decline, challenging assumptions that the country’s demand for internationally-traded steam coal could continue to rise inexorably, according to a major new IHS study. A moderation of demand combined with a rise in domestic supply and improved transportation will bring international producers into increased competition with domestic suppliers, the study says.

 

Wyoming coal company strikes export deal to use Cherry Point terminal

ASSOCIATED PRESS AND — THE BELLINGHAM HERALD

A Wyoming mining company has signed an option agreement allowing it to ship up to 16 million tons of coal a year through Gateway Pacific Terminal at Cherry Point — if that project can get the regulatory approvals it needs. 

Cloud Peak Energy said Wednesday's deal involving Gateway Pacific Terminal, proposed by SSA Marine of Seattle, will allow it to expand overseas sales amid weak domestic demand.

Gov. Kitzhaber, Mayor McGinn: No to coal exports

SEATTLEPI.COM

Two  Northwest political leaders,  speaking 180 miles apart, sharply criticized both the local impacts and global implications of the proposed creation of export terminals in Washington and Oregon that would move huge quantities of coal to China.

“Coal trains would be a disaster for our city,” Seattle Mayor Mike McGinn declared in his annual state-of-the-city speech.  “. . . These coal trains, each over a mile long, would disrupt our traffic and freight mobility.  It would cut off our waterfront and would make it harder for first responders to get to the scene of an emergency.”

Ambre Energy’s PNW Coal Export Plans Face Financial Problems

By Bill DiBenedetto | February 26th, 2013 

Australia’s Ambre Energy has big plans to open two coal train export terminals in Washington and Oregon, but does it have the financial wherewithal to pull it off? Maybe not, according a report from the non-profit Sightline Institute. The report “Ambre Energy: Caveat Investor,” catalogs a number of financial woes for the company, including money-losing coal mines, large write-offs for failed overseas ventures, major liabilities for mine cleanup and pensions, troubled assets, high borrowing costs, and a need for $1 billion in new capital to make its coal projects financially viable.

Indonesia’s 2013 Coal Output May Rise 5.2%, Association Says

BLOOMBERG
By Fitri Wulandari - Feb 19, 2013

Coal output from Indonesia, the world’s largest exporter of the fuel for power-stations, may rise by 5.2 percent this year.
The country may produce 400 million metric tons as long as prices stay above $92 a ton, Bob Kamandanu, the chairman of Indonesian Coal Mining Association, said in an interview while attending a conference in Singapore today. Output was 380 million in 2012.

China Carbon Tax Examined
ELLA CHOU BLOG
Practical implications: 1) it is a tax, which is better than a fee (apparently); 2) it is a pollution tax, carbon is only part of the targeted emission

Wyoming coal company strikes export deal to use Cherry Point terminal

By ASSOCIATED PRESS AND — THE BELLINGHAM HERALD

A Wyoming mining company has signed an option agreement allowing it to ship up to 16 million tons of coal a year through Gateway Pacific Terminal at Cherry Point — if that project can get the regulatory approvals it needs. 

Cloud Peak Energy said Wednesday's deal involving Gateway Pacific Terminal, proposed by SSA Marine of Seattle, will allow it to expand overseas sales amid weak domestic demand.

 Gov. Kitzhaber, Mayor McGinn: No to coal exports

SEATTLEPI.COM

Two  Northwest political leaders,  speaking 180 miles apart, sharply criticized both the local impacts and global implications of the proposed creation of export terminals in Washington and Oregon that would move huge quantities of coal to China.

“Coal trains would be a disaster for our city,” Seattle Mayor Mike McGinn declared in his annual state-of-the-city speech.  “. . . These coal trains, each over a mile long, would disrupt our traffic and freight mobility.  It would cut off our waterfront and would make it harder for first responders to get to the scene of an emergency.”

As McGinn was acting locally, Oregon Gov. John Kitzhaber was thinking nationally and globally in a Portland speech to the American Wind Energy Association. “One of the largest concerns I have about coal exports out of the West Coast, in addition to all the environmental implications, is the lack of any larger federal energy policy that speaks to what this means,” said Kitzhaber.

China’s Coal Market Not the “Promised Land” for International Suppliers
Coal imports set to peak before end of the decade and decline, major new IHS study says


(February 7, 2013) – Chinese coal imports will peak before the end of the decade and enter a prolonged period of decline, challenging assumptions that the country’s demand for internationally-traded steam coal could continue to rise inexorably, according to a major new IHS study. A moderation of demand combined with a rise in domestic supply and improved transportation will bring international producers into increased competition with domestic suppliers, the study says.

ARRC Internal Update Jan 29 2013

1) Indonesia dropped its plan to curtail the export of low-calorie thermal coal

2) Dry bulk panamax market heavily oversupplied, unlikely to find support in 2013

3) Tom Albanese: another mining chief bites the dust as sector negotiates different era

University of Alaska Fairbanks graduate Tom Albanese was shown the door at Rio Tinto after he was assigned responsibility for $14 BN in write-downs (that's just this year!). Also leaving are the CFO and the head of Strategery. After two acquisitions totaling $40BN were written down to $10BN (in part because of incompetent due diligence in the purchase of a coal property in Mozambique) someone had to be held to account. It turns out the Mozambique coal was actually somewhere other than where they thought it was; and even had the coal been in the right place they couldn't have transported it out when it came time to actually do so. Perhaps the most notable thing about this story is that Albanese will walk away with the blame and only a few million dollars. Typically in cases when CEOs waste more than a billion dollars they are paid at least $50 million. That's the market rate according to the compensation consultants. 

4) China's new contracting system for power plant coal got off to a good start (China Daily) and rail authorities said they will add 1,800 miles of coal-transporting capacity this year (Business Week); both developments are expected to add downward pressure to coal prices. 

This increase in coal transport capacity does not include the new Xinjiang - Luohan line to be completed by the end of this year. Xinjiang has relatively unexploited cheap-to-produce reserves of thermal coal (i.e., strip-minable) of more that 2TN tonnes (twice as big as the Powder River Basin). Should China decide to use Xinjiang coal in the eastern part of the country by building up rail links and transmission capacity, it is difficult to imagine the export coal market in the Pacific sustaining its recent development much longer. We'll see if laissez-faire economic policy or long-term Western China development policy will decide what happens to all that coal -- although given the size of the reserves it is possible that both policies will work.

5) After my update two weeks ago a flurry of downbeat articles on export coal in the Pacific appeared:

Reuters:record China imports unlikely to excite coal market; 

Barrons: More Export Coal Won't Stoke Demand for US Coal; 

Nemo: RIP Seaborn Coal; 

China Daily: Surplus Supply Keeps Prices in a Low Ebb; 

ARRC Update Feb 12th

USA:

Interior Responds to Wyden, Murkowski Coal Letter 

The Department of the Interior (DOI) has developed an action plan and convened a task force – with a focus on sales to overseas markets – to ensure that coal companies are properly reporting and paying royalties.  

Coal exports a major focus for US producers as supply needs change: execs 

A lack of global supply to meet projected overseas demand for thermal coal has US coal producers shifting their focus to exports, said executives Thursday at the Coaltrans USA conference in Miami, Florida.

INDONESIA:

1) Komatsu cuts forecast on Indonesia coal mining slump

Japan's Komatsu Ltd, the world's second-biggest maker of construction machinery, cut its annual profit for a second time as demand for mining equipment in Indonesia tumbled on the back of steep declines in thermal coal prices

2) Risk persists for Indonesian coal miners - S&P 

According to recent research by rating agency Standard & Poor’s, Indonesian coal miners will continue to feel the pinch of last year’s price weakness which in turn could erode their profitability for 2013.

CHINA:

1) Is China Big Coal's Cash Cow? Maybe Not

Increasing domestic supply could mean U.S. coal suppliers get the slip. IHS CERA came out with a long-term forecast that says China coal demand will peak soon and that its usable supply will increase as transportation capacity begins to catch up with the growth of domestic output.

2) Survey predicts 10% fall in coal imports 

China's coal imports will decline 10 percent year-on-year in 2013, the first drop in five years, due to increasing domestic supply and the country's improved transportation network, according to a Thomson Reuters survey.

3)  Great chart from EIA  that appeared in many articles:

4a) Time for change: China flags peak in coal usage

John Garnaut, a journalist who writes about Chinese politics and seems to have better access to Chinese leadership circles than most other journalists, wrote this short piece saying that Chinese experts saw their coal use is having peaked. The stats came from the energy research institute of NRDC, which has more power to act than the separate environmental bureau. The numbers don't seem to add up; but still this means that the Chinese government is paying attention. In a more concrete signal that Chinesepolicymakers cannot ignore the air pollution problem, China announced new emissions standards that had been stalled over the last three years as a result of disagreements between refiners and automakers. See 5).

4b) 'Too late' for China to cap coal use at 4b tonnes

An apparent response to John Garnaut's piece in the same publication. Article quotes UBS commodity analyst Tom Price ‘‘It’s highly likely their coal consumption rate will continue to lift by at least a couple of per cent,’’ he said, describing the 4 billion-tonne target as a ‘‘nice academic exercise’’.

5) China acts to combat air pollution

China has announced aggressive new standards for vehicle fuel in an effort to combat air pollution, its first concrete response to the heavy smog that has blanketed many Chinese cities this winter.  On Wednesday night the state council said that a new, low-sulphur standard for automotive diesel would become mandatory by the end of 2014. A stricter ultra low sulphur standard for both gasoline and diesel will take effect by 2017.  In addition to showing determination to address air pollution, this was also seen as a possible sign of the new government's willingness to limit the influence of SOEs.

Is China Big Coal's Cash Cow? Maybe Not
Increasing domestic supply could mean U.S. coal suppliers get the slip

USA Today

MEG HANDLEY

Although China's ravenous appetite for energy continues to grow, the East Asian nation might not be the limitless cash cow Big Coal was hoping for according to a new study.
Recent research from analytics firm IHS CERA shows that while China gobbles up about as much coal as the rest of the world combined, demand for the fuel will peak before the end of the decade and decline steadily through 2035.

Survey predicts 10% fall in coal imports (CHINA)
China Daily

Du Juan

China's coal imports will decline 10 percent year-on-year in 2013, the first drop in five years, due to increasing domestic supply and the country's improved transportation network, a Thomson Reuters survey showed.

China - the world's largest coal importer - will import up to 210.8 million metric tons of the commodity in 2013, it said.

激斗油品国标
财新《新世纪》
记者 王小聪

Caixin's in depth analysis of China's fuel standards (especially Beijings new V standard) and a description of the how the automotive manufacturers and the oil refiners are at odds on what to do, and on the evolution of new standards in the standard setting body. Contains thorough analysis of the refining fundamentals that put the car mfg and the refiners in oppostion, i.e., how 降硫禁锰 (jiang4 liu2 jin1 meng3) decreasing sulfur and removing manganese lowers octane ratings (辛烷值 xin1wan2zhi2) which decreases fuel efficiency and causes knocking. This is because 70% of China's refining capacity is for heavier crude. At present the Octane ratings are being overstated in Beijing although the prices were not dropped. It was a hidden price increase. Who bears the costs of having cleaner fuel in the long run? The consumer.



China acts to combat air pollution
FT
Leslie Hook in Beijing


China has announced aggressive new standards for vehicle fuel in an effort to combat air pollution, its first concrete response to the heavy smog that has blanketed many Chinese cities this winter.
On Wednesday night the state council said that a new, low-sulphur standard for automotive diesel would become mandatory by the end of 2014. A stricter ultra low sulphur standard for both gasoline and diesel will take effect by 2017.

Wednesday’s announcement singles out the oil companies – CNPC, Sinopec and Cnooc – and mandates that they complete the necessary upgrades to their refineries on time.

Because low-sulphur fuel is more expensive to produce, Chinese oil companies had lobbied for years to delay stricter fuel and vehicle emissions standards. One example is a new standard for exhaust emissions for diesel trucks that was supposed to go into effect in 2011, but was delayed several times because the oil companies did not produce compliant fuel.

Vehicle emissions, along with coal burning, are a major cause of air pollution. In Beijing at least 19 per cent of small particulate matter – the kind that can trigger respiratory and heart disease – comes from vehicles, according to the Chinese Academy of Sciences.

The state council said in its statement: “With vehicle ownership growing quickly, the impact of tailgas emissions on air pollution increases every day.”

As public anger over pollution has grown, China’s oil companies have had to go on the offensive to address the criticism. Fu Chengyu, head of Sinopec, China’s biggest oil refiner, admitted last week that oil refineries bore some of the responsibility for air pollution, but defended Sinopec’s oil products as fully compliant with national standards.

By choosing to target fuel standards, the state council has effectively called the oil companies to task, an approach that could signal a tougher attitude towards state-owned enterprises from China’s leadership. It represents a major victory for China’s relatively toothless environment ministry, which has often found its policies and regulations stymied or ignored by more powerful government bodies.

Politics of pollution: China's oil giants take a choke-hold on power

Reuters

By Sui-Lee Wee and Hui Li

BEIJING | Sat Feb 2, 2013 6:10pm EST

The search for culprits behind the rancid haze enveloping China's capital has turned a spotlight on the country's two largest oil companies and their resistance to tougher fuel standards.

Bureaucratic fighting between the environment ministry on the one hand and China National Petroleum Corp (CNPC) and Sinopec Group on the other has thwarted stricter emission standards for diesel trucks and buses -- a main cause of air pollution blanketing dozens of China's cities.

To be sure, many sources contribute to air pollution levels that hit records in January, but analysts say the oil companies' foot-dragging and disregard of environmental regulations underscore a critical challenge facing a toothless environment ministry in its mission to curb air pollution.

With widespread and rising public anger changing the political calculus, it also poses a broader question of whether the incoming administration led by Communist Party chief Xi Jinping will stand up to powerful vested interests in a country where state-owned enterprises have long trumped certain ministries in the quest for economic growth at all costs.

"I think the Communist Party's new government should weaken CNPC and Sinopec," said Wang Yukai, a professor from the National School of Administration. "These interest groups have too much power."

Delays in implementing stricter emission standards are rooted in money -- chiefly, who should pay for the price of refining cleaner fuels? By some estimates, auto emissions contribute as much as a quarter of the most dangerous particles in Beijing's air.

To supply cleaner diesel, the oil firms must invest tens of billions of yuan (billions of dollars) to remove the sulfur content, said Xiaoyi Mu, a senior lecturer in energy economics at the University of Dundee in Scotland.

PetroChina, the listed arm of CNPC, said in a statement sent to Reuters that all automotive diesel produced by PetroChina in 2012 met existing Chinese emissions standards.

It added PetroChina would "push forward upgrading of fuel quality, and supply clean, good quality and diversified products".

Sinopec did not respond to repeated phone calls from Reuters seeking comment.

Sinopec chairman Fu Chengyu, quoted in state news agency Xinhua last week, acknowledged that China's refineries are one of the main parties that should bear responsibility for air pollution. Even so, he added that was not because fuel failed to meet standards but rather because fuel standards were not sufficient.

ONGOING FEUD

The bureaucratic tug-of-war has been going on for years.

Frustrated by the repeated delays in enforcing existing environmental standards, China's deputy environment minister, Zhang Lijun, called a meeting in late 2011 with officials from the country's two biggest oil companies.

In unequivocal statements, he sought to lay down the law: The ministry was not going to further delay the cleaner China IV emission standard for trucks and buses, despite reluctance by CNPC and Sinopec to supply the fuel that would cost more to produce.

"If the sulfur content in your oil is too high and does not meet the standards, and if cars break down, it'll be your responsibility. The environment ministry will have nothing to do with it," Zhang said, according to Tang Dagang, director of the Vehicle Emission Control Center, who was present at the meeting.

The officials from the oil companies responded by promising to supply the cleaner fuel after the Lunar New Year in 2012, a traditional holiday that fell in January that year.

But a few months later, a spot check by the environment ministry showed the companies were still supplying ordinary diesel, said Tang, whose policy research group is affiliated with the ministry.

With media focusing on a sudden worsening of the air quality in Beijing at the start of 2013 -- 21 days in January recorded "heavily polluted" levels or worse -- urban residents are increasingly impatient with the political wrangling.

"The air pollution is terrible," said Beijing resident Zhang Shuqing on a recent very polluted day. "They need to sort it out, the department responsible needs to sort out the environment."

The environment ministry, however, faces formidable odds in the face of China's complex bureaucracy and weak enforcement of laws.

BUREAUCRATIC MAZE

At least 10 government entities such as the powerful National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) shape policies that affect the environment.

Unlike the U.S. Environmental Protection Agency, the environment ministry has no power to set fuel emission standards, and sometimes it is not even consulted on decisions taken by other government departments that would affect the environment.

For example, when the MIIT and the NDRC held a meeting to deliberate on a policy subsidizing energy-saving cars, they never contacted the environment ministry, said Ding Yan, deputy director of the Vehicle Emissions Control Center. As it turns out, some of these cars are actually relatively heavy polluters.

In 2008, China promoted the State Environmental Protection Administration to a full ministry in a bid to give it more weight in the country's fight against pollution.

Yet the ministry still lacks the authority to force big state-owned enterprises and local governments to toe the line. The ministry did not respond to a request for comment.

"Even a powerful environment minister is of no use," Ding said. "You need the highest leaders like Xi Jinping and Li Keqiang to really value the work of the environment ministry."

THE COST OF CLEAN AIR

Excessive pollution levels have already prompted the Beijing government to roll out a series of temporary emergency measures such as shutting down 103 heavily polluting factories and taking 30 percent of government vehicles off roads, but the capital's air has remained hazardous.

It remains unclear whether Xi will restrain the influence of the oil firms, but with public anger rising, and with a normally compliant media joining in the calls for action, political pressure is growing.

The problem for oil firms such as PetroChina, the listed arm of CNPC, and Sinopec is that central planners set prices at the pump, even when global energy costs remain high.

Tang said both CNPC and Sinopec have told the environment ministry that they would have supplied the fuels "if they had gotten a reasonable price".

Jiang Kejun, research professor at the NDRC's Energy Research Institute, says it is unreasonable to demand that CNPC and Sinopec bear the cost of refining cleaner fuels.

"I'm an environmentalist and I also hate the actions of CNPC and Sinopec," Jiang said. "But we have to tell the public: energy prices will rise significantly. To enjoy both low energy prices and also fresh air, there's no way you can have both."

With no supply of cleaner diesel fuel, Beijing had to delay the implementation of the China IV emission standard for diesel trucks and buses twice -- first in 2011 and then later in 2012, when it was extended to this July.

The new standard aims to cut emissions of particulate matter and nitrogen oxides -- two key components of urban smog -- from trucks and buses by 80 percent and 30 percent, respectively, said Vance Wagner, a senior researcher at the International Council on Clean Transportation.

"Diesel vehicles, especially trucks and buses, are a disproportionately large source of emissions," Wagner said in emailed comments. He cited environment ministry data that showed large trucks comprise only about 5 percent of China's vehicle fleet, but emit over 60 percent of particulate matter emissions.

In response, China's finance ministry has stepped in to negotiate preferential tax policies with the oil firms to help offset the higher costs of producing cleaner diesel fuel, say people close to the environment ministry.

Chinese media reported last week that new cleaner diesel fuel standards, similar to Euro IV standards that restrict sulfur content, could be issued soon in addition to the existing emissions standards. Even the new requirements, however, could give oil companies a two-year window for full compliance.

Without intervention at a higher level, the delays are likely to go on.

Yue Xin, head of the vehicle fuels and emissions lab at the Chinese Research Academy of Environmental Sciences, has spent more than three years sparring with CNPC and Sinopec on a committee that sets fuel standards.

Yue is one of two members representing the environment ministry on the panel while about 70 percent of the representatives are from the oil firms.

Now, Yue, whose group is affiliated with the environment ministry, is lobbying for the oil firms to put "detergents" in its gasoline, which will burn fuel cleanly.

The oil firms oppose it because of the costs, Yue said.

(Additional reporting by Maxim Duncan, Jimmy Jian, Terril Yue Jones and Beijing Newsroom; Editing by Ken Wills)

Sinopec boss passes the buck to government
Shanghai Ri Bao
Fu Chenghao


SINOPEC Corp Chairman Fu Chengyu's recent remarks on the worsening air quality in parts of China since the beginning of 2013 is not only a massive public relations disaster but also highlighted a serious lack of responsibility.

Fu, head of China's largest fuel supplier, acknowledged that the nation's refineries were among the culprits for the toxic smog that is choking Beijing and other cities. But he told Xinhua news agency last week that it was not that the refineries failed to meet the air-quality standards in the country but the government standards were rather lax.

In other words: "It's not our fault."

Fu was responding to media reports that pointed to the high sulfur content in fuels sold by his company and others.

Maybe what Fu said was true but it seems a bit disingenuous of him to just shirk the whole responsibility by blaming the government, the company's ultimate parent.

Let's face it, oil majors like Sinopec wouldn't want tougher fuel standards because that would mean upgrading their refining facilities, leading to higher costs and smaller margins in a system where the government still caps fuel prices to keep inflation in check.

These state oil majors, in their quest for growth at all costs, have strong lobbying power to resist tougher emissions standards, even trumping over government agencies such as the Ministry of Environmental Protection.

Currently, Beijing has the strictest emission standards among cities on the Chinese mainland, the so-called National V - similar to Euro V standards. Yet the nation's capital is among the worst hit by air pollution, largely due to its huge car population, the burning of dirty coal for heating and even its geography.

Surrounding mountains form a semi-circular basin that traps pollutants in a city that managed to clean up the air long enough to host the 2008 Olympic Games.

The pollution has been so severe some days that Beijing municipal officials have had to warn residents to stay indoors and issue rulings forcing some government vehicles off the roads.

Much of China still uses the National III vehicle emissions standards, which are similar to the Euro III standard - allowing the sulfur content in gasoline to be as high as 150 parts per million.

The Euro V standard caps the sulfur content at below 10 ppm.

Shanghai and some relatively developed regions like Jiangsu and Guangdong use the National IV standard.

Sinopec is not violating any rule or law in supplying most of China with National III standard fuel. But it does benefit from relatively low fuel quality standards.

Fu's response to hazardous levels of air pollution hardly reflects the image of a major state company fond of touting its corporate social responsibility.

Not surprisingly, his remarks unleashed a flurry of criticism from the media and on the Internet.

"Sinopec has acknowledged fuel is one of the culprits behind the bad air quality, but it's also good at evading the responsibility," one online post read.

Trying to dispel the public backlash, the company last Friday said it will upgrade desulfurization facilities at 12 subsidiaries by the end of this year, and will start selling cleaner gasoline that meets the National IV standard from next year. But that only triggered concerns about higher fuel prices.

This is not the first time Sinopec has run into trouble. In 2011, the company used its own workers to post online comments, supporting a rise in refined fuel prices, that would benefit the company's bottom line while making it dearer for motorists.

Fu might be advised to hire a new public relations team and think twice before commenting on sensitive issues.

Time for change: China flags peak in coal usage
John Garnaut

China’s decade-long boom in coal-driven heavy industry is about to end as the leadership shifts priorities towards energy conservation, say officials and policy advisers.

The advisers predict China’s coal consumption will peak at only a fraction above current levels after the State Council, or cabinet, last week set an ambitious new total energy use target for the five-year plan ending 2015.

“Coal consumption will peak below 4 billion tonnes,” Jiang Kejun, who led the modelling team that advised the State Council on energy use scenarios, told Fairfax Media.

“It’s time to make change,” said Dr Jiang, who is director of the Energy Research Institute under the National Development and Reform Commission (NDRC). “There’s no market for further development of energy-intensive industry.”

The imminent stabilisation of coal usage, if broadly achieved, would mark a stunning turn-around for a nation that is estimated to have burned 3.9 billion tonnes last year, which is nearly as much as the rest of the world combined.

The move would also bring some relief in the fight against global warming.

Income shock for Australia

And it would trigger a negative income shock to Australia, the world’s biggest exporter or coal and iron ore, with significant implications for government budget forecasts.

Dr Jiang said the energy targets would bite hardest with energy-intensive heavy industries such as steel - dependent on iron ore and coking coal - which he said had saturated their potential markets and could no longer make money.

Thermal coal-powered electricity generation would continue to expand at a low pace, he said.

In the first 12 years of this millennium, China increased annual coal use by a staggering 2.4 billion tonnes, or 163 per cent, accounting for more than four-fifths of global coal consumption growth.

In five years China’s net coal imports have surged from negligible levels to about 200 million tonnes, driving up the international price.

Last year China bought 19.5 per cent of Australia’s thermal coal exports worth $2.8 billion; 17.5 per cent of coking coal ($3.5 billion) and 72.5 per cent of iron ore ($38.6 billion), according to estimates by Kieran Davies, an economist at Barclays Bank.

Foreign energy analysts are mostly sceptical that China can meet its “non-binding” energy goal, pointing out that it missed its 2010 target by a large margin.

They are broadly unconvinced that the energy targets can be achieved without an intolerable drop in the GDP growth rate.

Chinese officials and analysts acknowledge that state-owned enterprises, regional leaders and their political patrons have resisted or ignored previous edicts.

'Political requirement'

But they say the economic growth is now ready to be weaned from its addiction to coal and the State Council decision - including to apportion responsibilities to local governments and enterprises - shows a stronger political consensus has been reached to mobilise the bureaucracy.

Pan Jiahua, who heads a team of climate change economists at China's leading think tank, the Chinese Academy of Social Sciences, told Fairfax Media that the State Council’s endorsement of the energy target had the effect of elevating it into a “political requirement”.

He said officials in local governments and state-owned enterprises would now be judged partly on their ability to meet energy targets while a long list of green slogans, incentives and policies were translating into concrete measures.

Professor Pan said energy security remained the primary motivation behind the measures but last month’s record pollution readings in North China had contributed to the hardening of political will.

“Chinese people have done enough tolerating such bad air,” he said.

The State Council last week set a total primary energy consumption target (including renewable energy and transport fuel) of 4 billion tonnes of “standard coal equivalent” in the five years to 2015. Confusingly, 1 tonne of actual coal equates to about 0.68 tonnes of coal equivalent, according to Dr Jiang.

With two years of the plan period already used up, the target translates to annual growth in energy consumption of about 3.5 per cent over the next three years, down from 6.6 per cent per year in the five years to 2010.

A proportion of the increase will be absorbed by hydro, wind, solar and nuclear – which are all benefiting from strong government assistance - at the expense of coal.

Officials at NDRC have been telling visiting delegations in recent days that coal consumption will peak below 4 billion tonnes and the government would do “whatever it takes” to hit the overall energy use targets.

Professor Pan predicted coal consumption would peak at less than 4.2 billion tonnes by 2015 while other global commodities markets would be hit at least as hard.

He said a continuing increase in coal-powered electricity generation would be offset by a production plateau in key heavy industries.

“I don’t think there will be further scope for expanding iron and steel production, or cement,” he said.

Professor Pan said there was no question the State Council would meet its target but he noted that  measurement methods were not robust.

“In some cases statistics may not be able to provide accurate information and some numbers may have to be estimates, which gives a certain degree of flexibility.”


'Too late' for China to cap coal use at 4b tonnes
Australia’s coal industry doubts China will be able to cap its coal use by 2015, without abandoning its commitment to economic growth.

There’s a long way to go before (China's) coal demand peaks. It’s certainly not going to peak in this five-year plan.

BusinessDay today reported that China’s coal consumption was predicted to peak close to current levels as the leadership in Beijing shifted priorities towards energy conservation.

But UBS commodities analyst Tom Price said it was ‘‘too late’’ for China to cap coal use at 4 billion tonnes, as in 2012 it consumed 4.05 billion tonnes, counting raw production of 3.8 billion tonnes plus net imports of 227 million tonnes. China’s gross coal imports jumped 32 per cent last year, he said.
Mr Price said China’s monthly raw coal production statistics did not factor in coal washing which could reduce yields and increase calorific values.

Mr Price said the National Development and Reform Commission’s targets basically called for ‘‘flatlining’’ energy use, an unreasonable forecast because China depended on coal for 80 per cent of its power.

One senior energy industry executive based in Australia said China’s aim of achieving a peak in energy demand below 4 billion standard coal equivalent tonnes was an ‘‘aspirational target’’.
The real question, he said, was whether China’s leaders were ‘‘ever going to ration energy in order to achieve some emissions objective ... (and) throttle economic growth’’.

While much of the media coverage of the recent air pollution in China’s north concentrated on emissions from burning coal, about a third of the pollution was from transport fuels and Beijing’s electricity came mostly from gas-fired power stations.

* China’s ‘standard coal equivalent’ measure assumes coal has a calorific value of 7000kcal per tonne. In reality Chinese thermal coal has a much lower calorific value, about 5000-5500kcal/t, while thermal coal shipped from Newcastle typically has a calorific value of 6000-6300kcal/t - meaning it takes more than a tonne of coal to generate the energy of one standard coal equivalent.

Coal exports a major focus for US producers as supply needs change: execs
Miami (Platts)--31Jan2013/501 pm EST/2201 GMT

A lack of global supply to meet projected overseas demand for thermal coal has US coal producers shifting their focus to exports, said executives Thursday at the Coaltrans USA conference in Miami, Florida.
"When you look at demand growth around the world, and try to match that with supply, they don't match up, so there is clearly a gap," said John Eaves, CEO of St. Louis-based Arch Coal.
...
Overseas prices are down currently and as a result, export margins are tight, said Kevin Crutchfield, CEO of Alpha Natural Resources.
But based on long-term projections made by the company and the US Energy Information Administration, which predicts coal will become the world's primary fuel for electricity generation within the next few years, Crutchfield said the company is changing its strategy.
...
WEST COAST TERMINALS WILL HAPPEN: ARCH
"We think we'll win this fight," said Eaves, commenting on the proposed terminals in Washington and Oregon. "It will take a while but -- I think port capacity on the West Coast is important, because over time we think more Western coals will be going into Asian markets."
Eaves said planned US port expansion could push the nation's export capacity to 250 million tons by 2017.
Five terminals have been proposed in Washington and Oregon. A sixth coal export terminal at Port of Grays Harbor's Terminal 3 in Hoquiam, Washington, was proposed by RailAmerica, but the short-line railroad decided to shelve plans for the 5.5 million st facility in August 2012.
...
2013 EXPORT OUTLOOK
Exports were strong in 2012 but this year, it's "not quite competitive," said Beyer. "The netbacks today into China and India are not there, so we saw a drop-off in the fourth quarter," he said.
He added that Illinois Basin coal seems competitive into Europe, but that with the sulfur discount, the netback is actually not competitive. "But as those markets improve, [we] will see IB participate more in the market," he said.
US coal exports are likely to remain flat in 2013 compared with 2012 but are likely to grow in 2014 and beyond, said J. Christopher Haberlin, vice president of research for Davenport & Co.
Haberlin, like Eaves, said new export terminals in the Pacific Northwest would be a "game changer" that would likely boost US coal exports past 200 million tons annually.

--Andrew Moore, andrew_moore@platts.com 

--Edited by Lisa Miller, lisa_miller@platts.com