December 16, 2014 Read More →

Nervous in Tar-Sands Country; Utility-Company Existentialism; Australia Coal Outlook Dims

SNOWMOBILE SALES AND HOUSE PRICES ARE DOWN IN FORT MCMURRAY, ALBERTA, Reuters reports, as residents of the heart of Canada’s tar-sands region grow uneasy about whether the industry can deliver as promised.

Nia Williams reports a “sense of unease” across the economy as lower global oil prices cast the future of tar-sands development in doubt. She notes also that even before U.S. crude oil prices dipped to around $55 this week, well below the break-even point for tar-sands developers, some investors were thinking twice about the viability of the industry.

Excerpts:

  • Fort MacMurray“Suncor Energy Inc, Total SA and Statoil ASA had already canceled or deferred major high-cost oil sands projects before the price slide.”
  •  “New housing starts in the municipality of Wood Buffalo comprising Fort McMurray and nine surrounding hamlets are forecast to fall 62 percent this year, according to the Canada Mortgage and Housing Corporation.”
  • “Store owners say business is not as brisk as it used to be and many locals expect oil-related jobs to become less abundant.”

Here’s the full article.

“UTILITY COMPANIES THEMSELVES HAVE BEGUN TO QUESTION HOW MUCH THEY AND THEIR ASSETS WILL BE NEED IN THE FUTURE, SNL reports from an energy conference it is hosting this week in Washington.

The SNL article, by Andrew Engblom, says U.S. utilities that had assumed they would always prosper are now facing hurdles they seem unprepared for, including aging infrastructure, environmental rules, and pressure to do a better job of incorporating renewable energy, distributed generation and demand response into business models.

Among those quoted: Russell Feingold, a rate-design consultant with Black & Veatch Vice; David Parker, a senior utility analyst with Robert W. Baird & Co.; and Russell Ernst, an SNL senior analyst.

Excerpts:

  • “Fifty years ago most utilities would have been able to assume strong demand growth, ensuring a need for their investments as the country managed through the baby boom and suburbanization … But today that story is very different.”
  • “Feingold pointed to several aspects of rate design that utilities and their regulators should be considering, namely, making sure that utilities address unique circumstances — such as a distributed generation customer with unique load characteristics — and an unbundling of their costs and services to align fixed costs with more fixed charges.”
  • “‘Investors do believe that the genie is out of the bottle, and utilities are going to have to demonstrate why you ought to exist,’” Parker said. “’I do believe it is a real risk,” he added, noting, though, that he is more concerned with some sort of fuel cell technology that could burn natural gas.’”

Here’s the full article (subscription required).

THE AUSTRALIAN GOVERNMENT’S DIM NEW OUTLOOK FOR METALLURGICAL COAL PRICES gets wide attention this week and raises more questions about the prudence of developing costly infrastructure to support development of greenfield coal deposits in Queensland.

The Asian press takes particular note of the government’s forecast that prices will remain flat at about $63 a ton through 2016. The Economic Times of India in its coverage notes that metallurgical coal—used in the production of steel—is Australia’s biggest export to Indian but that analysts see metallurgical coal markets in “structural decline.”

As a result, the Queensland projects—in which GVK Hancock and Adani Group are investors—are at risk.

On a related Asian-markets note, the German news site Deutsche Welle has posted an article under the headline “China’s Long Farewell to Coal,” in which it notes that a recent slowdown in Chinese coal consumption could “be the beginning of an ambitious turnaround.”

Excerpts from the Economic Times piece, by By Shuchi Srivastava:

  • “’We have long argued that once the $10-14 billion of capital costs are taken into account, the Galilee coal projects are commercially unviable given the structural decline of thermal coal,’” said Tim Buckley, director of energy finance studies Australasia at IEEFA. “’It now seems the Australian Treasury agrees with us.’”
  • “Global coal prices have crashed to five-year lows, and major U.S. and European banks including Citigroup, Morgan Stanley, Goldman Sachs, Deutsche Bank, Barclays and HSBC have refused to finance Galilee projects … Last week, Societe Generale, one of the lenders to GVK Group’s $10-billion investments in Australian mines, said it has pulled out of the project.”
  • “IEEFA said global mining majors are increasingly moving away from coal. Global mining major Anglo American Plc last week announced plans to exit its Australian and South African thermal coal mining activities, while Rio Tinto and BHP Billiton have cut capital expenditure and sold or spun off coal assets across Mozambique, Mongolia, South Africa and Australia, and Vale SA has initiated moves to exit Australian coal mining,”

Here’s the full article.

Karl Cates
[email protected]
Twitter @ieefa_institute

Comments are closed.