POWER May 2015 - 8

Experts: Gas Could
Challenge Coal in Asian
Power Mix
Coal has dominated fuel choices in Asia
since 2010, even in gas-centric Southeast
Asian countries, and many forecasts
assume that coal will remain the region's
most economical option. But lower natural
gas prices and individual market conditions
are putting a dent in coal's future in
the region, some experts note.
According to Graham Tyler, Wood Mackenzie's
research director for Asia gas and
power, one reason that the trend is curious
is that Asia hasn't experienced as
much gas-coal competition as the U.S.
and Europe. " Spot [liquefied natural gas]
prices have fallen to around US$7 per
million British thermal units (MMBtu) in
recent months and we do not forecast any
sustained price recovery above US$10/
MMBtu with over a 100 million tonnes per
annum (Mtpa) of new LNG expected to be
operational by 2020, " he said in March.
The expected supply glut could create
an environment where coal-versus-gas
competition in Asia is " a real possibility, "
he said. Another factor is that Asia's
near-term gas demand growth is slowing,
primarily due to weaker economic growth
and structural changes in China, the region's
key market, he noted.
Prakash Sharma, Wood Mackenzie's
research director for Asia coal markets
agreed, pointing to coal prices that have
likely hit bottom. " Benchmark thermal
coal prices in the seaborne market are
trading below the marginal cost of supply
for many producers, and therefore are
unlikely to fall significantly lower in the
future, " he said. That means that coal
prices are sitting at multi-year lows due
to several factors. Among them, again,
is that demand has weakened in China.
" Delivered thermal coal prices have fallen
from a peak of around US$110 per tonne
(US$/t) in 2012 to below US$80/t in recent
months already and historically, coal
prices only fluctuated within a narrow
band of US$2-4/MMBtu, " he said.
The analysts noted that Asia is a diverse
market characterized by differing levels of
economic development, fuel resources,
market structures, and government policies,
and that environmental initiatives
and individual market influencers will determine
the points at which the scales will
tip in favor to gas.
" South Korea reflects a mature economy
with an energy market dependent on im1.
Clouds for coal's future in Asia? The 1-GW expansion of the Tanjung Bin Energy
power plant in gas-centric Malaysia is one of many coal-fired units (a total of 29 GW by some
estimates) under construction in Asia. Experts posit that market dynamics could make natural
gas a more attractive option for the continent in the near future, however. The plant's owner,
Malakoff Corp. Bhd, in March dismissed reports that the unit is expecting a six- to 12-month
delay, saying it had addressed issues bogging down construction. The plant's scheduled completion
date is March 2016. Courtesy: Malakoff Corp.
ported fuels, and therefore has relatively
high fuel costs. It has also introduced a
carbon cap and trade scheme in January,
which will favour gas due to its lower carbon
content and thus lower related carbon
costs, " Tyler explained. " Whereas in China,
air quality is a key issue and gas-fired
power generation is subsidized in some
provinces. China is also introducing a national
carbon trading scheme; and other
markets are also implementing or looking
at carbon initiatives. These factors all
make gas the more attractive option. "
The gas-coal competition is already affecting
some projects. In Malaysia, for example,
which is oversupplied with pipeline
gas-a situation that could continue until
2020, the analysts said-coal projects under
construction are seeing delays (Figure 1).
-Sonal Patel, associate editor
Egypt Moves to Boost Gas
and Wind Generation
The Egypt Economic Development Conference
(EEDC) in Sharm El-Sheikh resulted
in some big agreements for the Egyptian
government, including a reported $10.5
billion deal with Siemens and a $1.7 billion
order with GE.
The conference was held March 13-15,
2015, and was touted as a key milestone
of the government's medium-term economic
development plan, which is designed
to boost economic prosperity and
social services.
One of the EEDC's objectives was to position
Egypt as an attractive destination
on the global investment map. Siemens
announced on March 14 that it would
build a 4.4-GW combined cycle power
plant in Beni Suef, south of Cairo. It will
also install 2 GW of wind power capacity
and build a factory in Egypt to manufacture
rotor blades for wind turbines.
Siemens signed two additional memorandums
of understanding during the
event. One will see the company propose
additional combined cycle power plants
with capacity of up to 6.6 GW, while the
other would add 10 substations to the
country's grid to improve the reliability of
its power supply.
" Egypt needs a powerful and reliable
energy system to support its long-term,
sustainable economic development, and
experienced partners who understand the
specific challenges facing the country, "
Joe Kaeser, president and CEO of Sie8
www.powermag.com
POWER
| May 2015

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POWER May 2015

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