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Thursday, 29 January 15
CHINA ENERGY DEMAND MUST BE REVIEWED DUE TO FUNDAMENTAL ECONOMIC CHANGES - WOOD MACKENZIE
 New patterns emerging as energy demand growth decoupled significantly from GDP growth for the first time in 2014
Wood Mackenzie says 2014 was a significant year for China as economic rebalancing led demand growth - for a range of major energy commodities - and GDP growth decoupled significantly for the first time. Over the past two decades, commodity demand growth had maintained relatively proportionate annual increases to GDP growth. In 2014 however the pace of power, gas, coal and diesel demand increase fell more drastically than the slight GDP moderation, beyond expectations. Wood Mackenzie expects gas demand will recover in one to two years as the key drivers of slower growth are mainly cyclical but power, coal and diesel demand will see their outlook change notably over the long-term due to major structural changes in the economy and policy. Global energy sector will need to identify which changes are structural or cyclical in to determine future demand patterns and opportunities.
China's GDP grew by 7.4% in 2014 compared to 7.7% in 2013, a modest decline. Meanwhile, compared to 2013 power demand growth fell by almost half; Gas demand growth fell by more than 8%-point; Coal demand barely grew; and Diesel demand actually contracted for the first time in more than a decade. (refer to chart). Ms Cynthia Lim, Principal Asia Economist for Wood Mackenzie says, "7.4% is still a large year-on-year GDP increase for any economy so this fall in commodity demand is counter-intuitive and we have only seen the tip of the iceberg. The Chinese government is moving away from the post-2008 investment binge and gradually moving towards a more moderate but sustainable consumption-led economic growth. There are two aspects of rebalancing: one, away from investment towards consumption, particularly in the developed coastal region; and two, a shift in economic gravity away from the coast and towards the inland region. Both trends will have significant implications on commodity demand shifts. An important indicator for the energy industry to watch will be the weakness of industry versus the strength of the consumer in China."
The research company expects Industrial recovery and related investment will remain subdued in 2015-2016 but should see robust growth through the medium-term supported by urbanisation. Key sectors such as coal and steel are weighed down by overcapacity, tighter environmental regulations and the property market slowdown. While the government has relaxed both house purchase restrictions and credit conditions through 2014, recovery in real estate will be slow as inventory levels remain high and potential buyers stay on the side line due to market uncertainty.
Wood Mackenzie analyses which sectors will be most affected in the near-term (one to two years), medium term (two to seven years) and long-term (over eight years):
Power - Sustained change due to economic rebalancing
The short-term weakness in the industrial sector will continue to subdue power demand growth, especially as high inventory levels are reduced. Mr Gavin Thompson, Principal Analyst for APAC Gas & Power research says, "Industrial output will eventually recover from overcapacity and weak demand but China's rebalancing away from industry to the service sector will have a longer-term structural impact. In tandem with the geographic rebalancing of China's economy, regional power patterns will also change with higher demand growth concentrated in the western provinces where industrialisation processes are focused, compared to coastal markets." Wood Mackenzie forecasts that power demand year-on-year in the western regions will rise at around twice the pace of coastal markets through the medium term of 2-7 years, with significant implications for capacity and fuel choices.
Coal - Remains king but impacted by structural lower power demand growth
The pace of annual coal demand growth slowed to 4-5% in 2012 and 2013 from (what the previous year), particularly in coastal markets with near-zero growth in demand for power generation. However, Mr Thompson asserts, "Coal remains king in China but growth has been severely reduced, due to industrial weakness as well as cyclical weather patterns that saw higher rainfall boost hydro output. Through the short-term, coal-fired generation will likely be muted by lower power demand, environmental policies and a rise in non-coal generation including hydro. Longer-term , coal demand pace and patterns will be impacted by structural changes, with demand rising fastest from inland provinces and the acceleration of ultra high voltage (UHV) transmission lines to export power to the coast."
Gas - demand growth will rebound but cyclical low oil prices and weather will cause near-term pain
Over the past decade gas demand in China increased by 16% a year on average between 2004-2013. Last year however, gas demand growth slowed notably from over 13% in 2013 to around 8% in 2014. Mr Thompson explains, "This was influenced more by cyclical factors. In addition to slowing GDP growth, evolving environmental policies, higher hydro output, mild winter weather in northern China and high domestic gas prices relative to oil were key factors that saw gas demand growth fall sharply. In 2015, the government's decision on domestic gas price reform will be a key influence on demand. While we expect domestic demand growth over the next few years to return to historic levels, a swift return to double-digit growth may not be achievable without lower city gate gas prices."
Oil products - weaker diesel demand outlook to stay
2014 was the fourth straight year of a decoupling relationship between China's GDP and oil demand growth as the effects of the 2009 stimulus began to fade. However, growth in oil demand has varied by oil product since then given each product's distinct drivers: Diesel demand is estimated to have contracted 0.7% in 2014 as commercial transportation demand reduced. Mr Thompson explains, "We believe we are now witnessing a structural change in China's diesel demand as the economy rebalances away from heavy industry. In contrast, gasoline demand, which reflects personal car ownership, maintained a robust growth of 8% in 2014. Healthy growth momentum for gasoline demand will likely be sustained as the economy shifts further towards consumption."
Ms Lim concludes, "The rebalancing of China's economy will play an important role in shaping the energy demand outlook for 2015 and beyond. We believe a recovery in demand for power, coal and diesel in particular is closely tied to the industrial demand outlook. While these commodities will experience a moderate recovery in the medium term as over-capacity is reduced, the on-going transition of China's economy away from an industry-led model suggests their relationship with GDP growth will weaken permanently in the longer-run. As a result, the energy sector must keep attuned to both China's underlying changes and also shorter-term developments to position it for the changing opportunities the market offers."
About Wood Mackenzie
Wood Mackenzie is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insights they need to make better strategic decisions. For more information visit: www.woodmac.com
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Monday, 24 June 24
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Friday, 14 June 24
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Friday, 14 June 24
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Thursday, 13 June 24
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- Sical Logistics Limited - India
- Eastern Coal Council - USA
- Formosa Plastics Group - Taiwan
- AsiaOL BioFuels Corp., Philippines
- Essar Steel Hazira Ltd - India
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Lanco Infratech Ltd - India
- New Zealand Coal & Carbon
- Kartika Selabumi Mining - Indonesia
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Antam Resourcindo - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Grasim Industreis Ltd - India
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- Jaiprakash Power Ventures ltd
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- PTC India Limited - India
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- Thiess Contractors Indonesia
- Oldendorff Carriers - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Goldman Sachs - Singapore
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- LBH Netherlands Bv - Netherlands
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Borneo Indobara - Indonesia
- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
- Larsen & Toubro Limited - India
- Jindal Steel & Power Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Madhucon Powers Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- TeaM Sual Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Australian Coal Association
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Videocon Industries ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- McConnell Dowell - Australia
- Chamber of Mines of South Africa
- Economic Council, Georgia
- Planning Commission, India
- Rio Tinto Coal - Australia
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Chettinad Cement Corporation Ltd - India
- SMC Global Power, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Riau Bara Harum - Indonesia
- Indonesian Coal Mining Association
- Uttam Galva Steels Limited - India
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- ASAPP Information Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Attock Cement Pakistan Limited
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- Power Finance Corporation Ltd., India
- India Bulls Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Bharathi Cement Corporation - India
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Carbofer General Trading SA - India
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Edison Trading Spa - Italy
- VISA Power Limited - India
- Mercator Lines Limited - India
- Energy Link Ltd, New Zealand
- Independent Power Producers Association of India
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- GVK Power & Infra Limited - India
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Globalindo Alam Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- The State Trading Corporation of India Ltd
- Indian Energy Exchange, India
- White Energy Company Limited
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Indo Tambangraya Megah - Indonesia
- European Bulk Services B.V. - Netherlands
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Baiduri Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Makarim & Taira - Indonesia
- Vedanta Resources Plc - India
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- Ministry of Transport, Egypt
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Medco Energi Mining Internasional
- Altura Mining Limited, Indonesia
- Siam City Cement - Thailand
- Bangladesh Power Developement Board
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Anglo American - United Kingdom
- Deloitte Consulting - India
- ICICI Bank Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- Semirara Mining Corp, Philippines
- Savvy Resources Ltd - HongKong
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
- Sojitz Corporation - Japan
- Minerals Council of Australia
- San Jose City I Power Corp, Philippines
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Intertek Mineral Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- IEA Clean Coal Centre - UK
- Manunggal Multi Energi - Indonesia
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Thai Mozambique Logistica
- Meenaskhi Energy Private Limited - India
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- GMR Energy Limited - India
- PNOC Exploration Corporation - Philippines
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
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