Rambu Energy Pathway to Indonesia’s energy and energy related industries
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JAKARTA (rambuenergy.com) – PT Adaro Energy Tbk (IDX:ADRO] is currently in talks with its partner Shenhua Overseas Development and Investment Co., Ltd of China, to develop coal-to-gas and coal-to-liquid project, as part of move to improve value added of its coal assets.
President Director and CEO of Adaro Energy Garibaldi Thohir told rambuenergy.com on Monday (Feb. 22) on sideline of press conference, held by the Indonesian Chamber of Commerce and Industry (Kadin) that the project is also part of the company’s commitment to develop downstream projects of coal.
“We are currently in intense talks with Shenhua to develop coal-to-gas and coal-t0-liquid projects,” he said.
A senior official at the Industry Minisry said recently that a number of investors are seeking permit to develop coal to synthetic gas, however the official did not disclose the name of the invstors.
At present, there is no such coal-to-gas and coal-to-liquid projects in Indonesia. Given the country’s huge coal reserves, coupled with lower coal price at present, such projects could be viable to be developed in Indonesia.
China and US have been quite advanced in developing coal-to-gas business.
Last September, Sinopec, whose flagship listed entity is Sinopec Corp, said it would push ahead with plans to build a coal-to-gas plant in Xinjiang with a capacity of 8 bcm a year – the country’s largest.
Coal-to-gas technology, similar to that used in South Africa to make oil from coal, uses vast volumes of water and produces a large amount of carbon dioxide.
Last year, the Chinese government approved a pipeline to transport synethic gas from coal-to-gas projects in the country’s far west to the southern coast, as stated by energy giant Sinopec..
The pipeline, which would run 8,400 kilometers (5,200 miles) from the restive region of Xinjiang to the manufacturing hub of Guangdong province, carrying up to 30 billion cubic meters (bcm) gas a year, has a price tag of over 130 billion yuan ($20.5 billion).
China, the world’s largest energy consumer, has made largely untested coal-to-gas technology a key part of its strategy to boost the use of cleaner fuels as it battles pollution in its big cities. (*)
The battle for resources between India and China has arrived in Indonesia, where Asia’s emerging giants are scrambling to secure the vast supplies of thermal coal needed to fire their electricity plants and power economic expansion.
But a shortage of attractive, large-scale producers for sale and restrictive business conditions are driving fierce competition for assets in the world’s leading exporter of the commodity.
Often unable to buy mines outright, Indian and Chinese companies have secured a series of billion-dollar deals in recent months, agreeing to invest heavily in the construction of railways, power plants and ports, in exchange for coal.
Such long-term commitments show just how eager they are to buy into Indonesia.
Analysts say the model is likely to become more common as India and China aggressively try to make up a shortage of hundreds of millions of tonnes of coal in coming years. It is also a logical fit for their southern neighbour, which is trying to attract $160bn in foreign investment to revamp crumbling roads, power plants, ports and bridges.
Indonesia’s vast reserves of thermal coal are a cheap and relatively close source for Asian buyers, but government red tape, corruption and a lack of buying opportunities are hampering possible mergers and acquisitions.
Still, there has been no shortage of activity in the sector this year, as India has made strong inroads.
Adani Group, the Indian conglomerate, said in August it was investing $1.6bn to build a railway line and coal terminal in remote Sumatra. That deal, which trumped an earlier Chinese bid, will increase Adani’s Indonesian supplies, although it did not say by how much.
India’s state-controlled power generator, NTPC, the country’s largest power producer, also said it aimed to acquire stakes in two, as yet unnamed, Indonesian coal mines.
Tom Aaker, Standard Chartered’s chief executive in Indonesia, expects the “huge appetite from overseas” to drive a wave of buying in the sector in the near future.
“They are trying to build their economy … so they are looking for a source of raw material and if they can own that source, it’s even more secure,” Mr Aaker said. “So, they are coming here all the time saying: ‘Do you know anyone who has a coal concession for sale, because we want to buy it’.”
And while China and India are leading the charge, Thai, Korean, Italian and Japanese companies are also on the lookout for acquisitions or coal-sourcing deals.
Churchill Mining, listed in London, is looking to sell a $1bn coal asset on Borneo and says it has received strong interest from the Indian coal majors, including Coal India, that have yet to complete any deals in Indonesia.
China became a net importer of coal in 2007 and a shift towards Indonesia followed soon thereafter. In July Shenhua, China’s largest coal producer, announced a $331m coal project in Sumatra, and last October China’s sovereign wealth fund injected $1.9bn into Bumi Resources, Indonesia’s largest coal producer.
Rather than just mine resources, China is building two 150MW power generators, which will supply the local grid. “It’s a win-win, since Shenhua gets the coal and the local economy gets the power,” says Bai Zhongyi, an analyst at UBS.
Shenhua operates power stations and railways in China, and is expanding coal production abroad with the goal of producing 15m tonnes overseas by 2015, up from none last year.
The tie-up between Bumi and China Investment Corp, the sovereign fund, was seen as a further sign of China’s interest in the sector. Bumi said it expected to sell 13m tonnes of coal to China this year. China’s coal consumption was almost half of the global total last year, according to the BP statistical review.
It is poised to overtake Japan as the largest importer of thermal coal. India, meanwhile, consumes about 7.5 per cent of global exports, but that number is set to grow. “If India ramps up and starts competing with China for resources [abroad], things could get quite heated up in terms of the price,” Mr Bai said.
Indonesia recently overtook Australia as the world’s largest supplier of thermal coal. Exports jumped fourfold between 2000 and 2010. Production was projected to rise 7 per cent to 280m tonnes in 2010, led by purchases from China, India, South Korea, Japan and Taiwan, said the Indonesian Coal Mining Association.
“The industry as a whole is gearing up for exports,” said Rudi Vann, a regional coal analyst for Wood Mackenzie, an energy consultancy, citing the recent investments in Indonesia. “We are talking about quite a lot of activity. A major chunk of it is to China and India.”