FOSSIL FUELS

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Introduction

Oil

China, the USA, India and Japan are the largest consumers of energy globally. Over the past 5 years, 87% of the demand growth for oil came from the Asia Pacific region. Whilst the US continues to lead the world in increasing oil production, developing countries – in particular the Asia Pacific region – have added the vast majority of oil demand in recent years.

In 2011, expenditures on energy totalled over USD6 trillion, or about 10% of the world gross domestic product (GDP). Europe spends close to one quarter of the world energy expenditures, Americans close to 20%, and Japan 6%.

It has been reported that global demand for liquid hydrocarbons will continue togrow. The growth of population and the consumer class inAsia will support oil demand increase. The main increase in consumption will come from transportation sectors in developing countries. It is forecast that gas consumption will grow faster than oil consumption the greatest potential for gas consumption growth is in China.

Oil accounted for 33% of all the energy consumed in the world in 2013.

Double-digit percentage increases in oil consumption were recorded in Pakistan, Venezuela, and Azerbaijan from 2012 to 2013, and over the past five years double-digit percentage consumption increases were recorded by Central and South America (15.2%), the Middle East (18.3%), Africa (12%), Asia Pacific (17.4%), and the former Soviet Union (12.8%). Oil demand in the developed countries belonging to the Organisation for Economic Co-operation and Development (OECD) decreased 5.3% over the past five years, while demand in non-OECD countries increased 20.3%.

The global oil and gas exploration and production industry has a very high level of capital intensity. In 2015, wages are estimated to account for 4.5% of total industry revenue. Meanwhile, depreciation costs, which serve as a proxy for capital investments, are estimated to total 21.7% of revenue. The discrepancy occurs because the industry relies more on large-scale capital equipment (including offshore drilling and production platforms) for its output relative to human labour. Funding such costs can be challenging without the right partners.

Gas

The build-out of LNG import and export capacity has accelerated over the past decade, with global shipments increasing at an average annual rate of about 13% between 2001 and 2011.Australia accounts for about 60% of this forthcoming liquefaction capacity , a trend that reflects the resource-rich nation’s proximity to China and other key demand centres in Asia.

Japan accounts for 37% of the global LNG market, and remains the world’s leading importer by a wide margin. Over the past decade, the country has provided a source of steady demand growth, posting larger jumps in imports whenever a slug of new liquefaction capacity comes on-stream.

Over the past five years, mainland China’s consumption of natural gas has grown at an average annual rate of 22%, reaching 16.4 billion cubic feet per (BCF) day in 2013. This trend should accelerate over the next half-decade. The National Development and Reform Commission’s (NDRC) 12th five-year plan called for annual gas consumption to hit 22.2 Bcf per day by the end of 2015. To meet this goal, Chinese demand would need to expand by 17.5% in each of the next two years.

Massive investments in pipeline, generation and liquefaction capacity will abet this upsurge in the mainland’s gas consumption. Based on planned projects, China’s network of gas pipelines will grow to more than 90,000 kms, from about 50,000 kms in 2012. Meanwhile, the country also continues to build out power plants to burn thermal fuel supplied by these pipelines.

Australia

Energy production in Australia is also a significant primary industry and contributor to the Australian economy. Australia is a net energy exporter.

Australia produces coal, oil, gas and has the potential to develop a significant contribution to the production of renewable energy. These include the development of solar, wind and further development of hydro power sources.The petroleum industry in Western Australia is the largest contributor to Australia’s production of most petroleum products.

Wind power is currently the cheapest source of large-scale renewable energy. It involves generating electricity from the naturally occurring power of the wind.Energy constitutes a large portion of Australia’s total exports.

The most recently published Clean Energy Australia Report 2014 shows more than 15,000 businesses have now installed a solar power system, helping them save a collective AUD64 million on their power bills every year.

13.47% of Australia’s electricity came from renewable sources in 2014, enough to power 4.5 million average homes for a year. This was a fall from 14.76% the year before, mainly due to lower rainfall in hydro catchment areas.

Other key findings from the Clean Energy Australia Report 2014 are:

  • Bundaberg in Queensland was Australia’s solar capital in 2014, followed by Mandurah in Western Australia and Hervey Bay, which is just over 100 km from Bundaberg
  • Approximately 40% of South Australia’s power came from renewable energy during 2014, while about 95% of the electricity used by Tasmanians came from renewables. The next best was Western Australia (13%).

ASX – Energy

Energy stocks make up 4.4% of the ASX 200 index and 4.7% of the All Ordinaries index. In September 2010 the Clean Technology Sector fact sheet illustrated that the index comprised 76 companies with a market cap of AUD10 billion. These companies operated in the renewable energy, alternative fuels, waste & recycling, energy efficiency and carbon sectors.

China

China is the world’s most populous country with a fast-growing economy that has led it to be the largest energy consumer and producer in the world. Rapidly increasing energy demand, especially for petroleum and other liquids, has made China influential in world energy markets.

China became the largest global energy consumer in 2011 and is the world’s second-largest oil consumer behind the US. China is the world’s most populous country (1.36 billion people in 2013) and has a rapidly growing economy, which has driven the country’s high overall energy demand and the quest for securing energy resources.

In its latest World Energy Outlook, the International Energy Agency (IEA) says that “China dominates energy demand growth until the mid-2020s,” becoming the biggest oil user by the early 2030s. BP plc, in its own forecasts, predicts that by 2035, Chinese oil demand will climb 67%, while its gas use will rise 270%.

While much has been made of a slowdown in China, oil demand there still increased by 390,000 bpd (following a 500,000 bpd increase from 2011-2012). Despite the slowdown in the rate of growth from the previous year, this represented a 3.8% consumption increase for China, 2.5 times the global increase of 1.4%.

Together the US and China were responsible for 56% of the global increase in oil demand in 2013. The big difference between the two countries is that US oil production was up far in excess of our increase in consumption, while oil production in China edged up by only 24,000 bpd. This means that while US oil imports declined and finished product exports (e.g., gasoline, diesel, jet fuel) increased, China’s dependence on oil imports continued to increase.

Japan

Japanese trading companies operate a large supply chain. Their coal, nuclear fuel & solar divisions promote the key lifelines of electric power and power generation and support the steel industry through development and trade in fuel coal, coking coal and uranium. They are involved in the global trade of coal and uranium as well as the development and trade of new fuels for power generation, including biomass. Solar power generation is another important segment. They are consequently active within the extensive sphere of worldwide electric power and power generation.

Oil is Japan’s top import valued atUSD151 billion (23.3% of total Japanese imports) in 2011.Japan’s top export partners include China and the USA. In 2015 petroleum oils, petroleum gases and smartphones led the 20 highest value Japanese import products in 2015.

South Korea

South Korea is the eighth-largest trading nation in the world, with its recent trade volume reaching USD 1 trillion for two consecutive years. South Korea’s rapid economic growth over a short period of time has been backed up by a stable energy supply. However, the country has practically no natural resources and for this reason, the government has faced consistent challenges in setting its energy policy objectives in order to meet diversified demands.

In the past, South Korea’s energy policy focused on developing energy and securing are liable energy supply in order to support economic growth. However, the oil crisis of the1970s and the environmental problems which emerged on the world’s radar in the late 1980s have led to renewed calls for policies that can tackle the issues surrounding energy security.

Simultaneously, with the onset of neoliberalism in the 1990s, discussions on adopting a market mechanism and competition in the energy market have become brisk. The early 2000s saw a focus on new and renewable forms of energy as a way to respond to the challenge of climate change while driving green growth. Recently, however, existing policy frameworks in South Korea, which focused on expanding supply whenever consumption increased have proved to be unsustainable in matching energy supply and demand. What is called for is a paradigm shift in its energy policies, shifting its attention from the supply side to the consumption side.

South Korea ranks tenth in the world in terms of energy consumption, but lacking natural resources, a staggering 96% of the country’s energy consumption relies on imports, amounting to USD184.8 billion in 2012, the monetary equivalent to nearly one-third of its total imports. Imports of oil, LNG and coal add up to nearly 99% of energy imports.Nonetheless, energy consumption has continued to increase in line with economic growth.With traditional energy-intensive industries such as petrochemicals and steel, energy intensity is relatively high in South Korea compared with that of other countries.

South Korea’s Cabinet in mid-January approved the country’s Second Basic Energy Plan, an energy policy framework covering the period 2014-2035. This marked the first comprehensive statement of new President Park Geun-hye’s energy ambitions. Minister for Trade, Industry and Energy Yoon Sang-jick called it a decisive shift from “conventional supply control to demand-side control”.

The key measures set out in the plan were as follows:

  • The target for nuclear power generation would be reduced from 41% by 2030 to 29% by 2035
  • A target to reduce electricity consumption by 15% below Business as Usual (BAU) by 2035 through energy tax and electricity price reform.
  • The renewable energy target of 11% by would be delivered by 2035 rather than the previous plan of 2030. A shift in focus towards solar and wind, less on bio energy and energy from waste
  • A target of 15% of electricity from distributed power generation by 2035, up from the current 5%. Where long distance power transmission was unavoidable, greater consideration would be given to underground lines.
  • New coal power stations should apply ‘best available technology”. The government would invest in clean coal, including Coal to Liquid (CTL) and Carbon Capture and Storage (CCS) pilot plants. [Comment: but no requirement for new coal plants to be CCS-ready.]
  • All new buildings should be “zero energy” by 2025
  • The introduction of a Renewable Heat Obligation for large buildings (10% of heat energy consumption to come from renewables)
  • Pursuit of an East Asia grid network, potentially linking electricity generation in Russia through North Korea to South Korea.

 

GC Partners Asia Capabilities

GC Partners Asia Capabilities

  1. GCP is uniquely positioned and committed, with experienced tertiary qualified bi-lingual staff, to provide investment banking, corporate finance and advisory services to companies involved with the global mining industry.
  2. We act for private companies and companies listed on the LSE & AIM, ASX and TSX & TSXV stock exchanges. Being located “on the ground” amongst the key Asian markets, GCP is attuned to local business practices, conduct, processes & culture, as well as news flow, corporate announcements, government policy and economic initiatives. Combined with regular contact and our long standing relationships with key industry participants, we are equipped with an understanding of the demand and the potential for sources of corporate equity investment, project equity & debt, joint ventures, and for product offtake.
  3. With Australia’s proximity to the key Asian markets, and combined with GCP’s strong differentiation, we are able to assist a variety of mining & resource companies with their financing requirements who have projects along the full value chain,from exploration, to development& production.
  4. Our current and past clients have projects in iron ore, copper, gold, nickel, graphite, kaolin, potash and phosphate. These projects are located in Australia, Africa, Central Asia and SE Asia.