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World energy status

and outlook

Mumbai, India

April 14, 2016

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Introduction

3


CW Group: Advisory, Research & Media

4

Advisory Research Media

Strategy and M&A advisory advisory.cwgrp.com

Business decision support research.cwgrp.com

Media & meetings Various platforms

Strategic advisory

Management consulting

M&A advice

Transaction support

Due diligence

Syndicated market /

industry study reports

Reference forecasts

Data and chart-books

Commodity price

assessments

News services

Newsletters

Online data access

Publications

Meetings

Seasoned experts Business & technical Network & access Proprietary data

Cement, Building

Materials &

Construction

Steel, Metals & Mining Chemicals Dry bulk cargo, ports

and infrastructure

Power, energy and solid

fuels


Presenter

5

Sr. Associate Analyst at CW

Group, Mumbai, India

Lead analyst on India petcoke

market and pricing services

6+ years of market research

experience in energy sectors

Sushmita Rai Sr. Associate Analyst

[email protected]

M: +91-9004285550

mailto:[email protected]


Global energy price outlook

6


Although traditional fossil fuels still remains the dominant energy

choice, renewables are garnering an increasing share

7 Source: BP Statistical Review, CW Research

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E

Oil Natural Gas Coal Nuclear Energy Hydroelectricity Renewables

While the contributions of oil, coal ,and natural gas are either plateauing or declining, hydroelectricity and

renewable energy have been steadily increasing their shares in the global energy mix post 2010.

Increased focus on the effects of climate change is driving the adoption of environmentally friendly energy

sources, while instituting policies aimed at reducing carbon emissions from the burning of traditional fuels.

In spite of the above, coal and oil are expected to remain important sources of energy at least for the next couple

of decades.


Collapse of crude prices: a symptom of oversupply or realignment of

demand in accordance with slower economic growth?

8

The drop in oil prices has led to significant revenue shortfalls in many energy exporting nations

This decline can be attributed to insipid economic growth in developed markets, contraction in

Chinese consumption, in additional to increased production from the US, Iran, and Iraq

Increased inventory levels globally are also playing a role in keeping oil prices low

Note: Production based on EIA

Source: CW Research

0

20

40

60

80

100

120

140Cushing, OK WTI Spot Price FOB Europe Brent Crude Spot Price FOB

Q4 2014 – Q4 2015

Cushing WTI : -42.7%

Europe Brent : -43.0%

Crude Spot FOB Price (Dollars per Barrel)

CAGR 2010-2015


Europe Brent : -22.3%


Crude/solid fuel prices: correlation remains broken?

9

Historically coal prices have not tracked crude prices closely

Reduced production of petroleum and derived products in China and pre-monsoon deals in

India are likely to result in reduced raw petroleum coke availability

This decline in Chinese supply, however, will be offset by new capacities elsewhere (Saudi

Aramco, BHP and Pemex)

Note: Production based on EIA

Source: CW Research

Q1 2014 – Q1 2015

Steam Coal : -28.2%

Petcoke : -28.9%


0

10

20

30

40

50

60

70

80

90

100

Steam Coal (US) US Petcoke 14,200 btu/lb Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

CAGR 2012-2015

Steam Coal : -10.2%

Petcoke : -9.5%


Crude Spot FOB Price (Dollars per Barrel)


10

In 2015, India displaced China to emerge as leading importer of coal

10

Import region

CFR JAPAN /

KOREA / TAIWAN

FOB NEWC

Import/export region

Export region

FOB RBCT

FOB INDO

CFR S. CHNA

FOB QHD

Higher output of domestic

coal in India may see the

country’s imports to decline.

Demand from power

generation companies for

imported coal has reduced.

Slowing economic growth,

reduced energy intensity of

economic activity and a

rapid diversification in

electricity towards

renewables are reducing

China’s historic dependence

on coal

Source: CW Research

75 M MT

(2015)

204 M MT

(2015)

CFR INDIA

155 M MT

(2015) 20 M MT

(2015)

75 M MT

(2015)


11

Thermal coal price futures have dimmed markedly in early 2016 with

notable back-end weakness

11

Source: CME, CW Research

CIF ARA (API 2 US$ / metric ton) FOB Richards Bay (API 4 US$ / metric ton)

35

40

45

50

55

60

65

Apr-15 Feb-16

-32%

35

40

45

50

55

60

65

Apr-15 Feb-16

-29%


Steam coal prices have plateaued after reaching a possible price

floor, adoption of “green coal” a driver for coal use going forward

-

20

40

60

80

100

120

140

Coal, South Africa Coal, Australia Coal, Colombia

Demand

contraction in

most markets

2016-2020 Forecast

CAGR %

2016-2020

SA 5%

Aus 4%

Col 5%

Prices remain „subdued‟ in 2015 as

demand remains sluggish coupled

with an abundance in supply

Global thermal coal prices are expected to remain range-bound due to weak demand, competition from natural gas

and renewables, and changes in environmental policy focusing on carbon emissions.

Volatility in prices is expected to be low as the trends affecting coal consumption are all long-term, and the markets

have to a large extent factored their impact.

Major consumers including India and China are reducing coal consumption for varying reasons, creating an over-

supply scenario. New low emissions coal technologies are expected to play an important role in meeting

environmental concerns allowing coal to continue as vital energy source.

Source: World Bank, CW Research

Global coal FOB prices (US$ / metric ton)


13

Petcoke (blended contract and spot) prices trended downwards

through 2015

13

Petcoke Trading Prices in 2015, top markets (US$/ton) US Petcoke FOB Export Price (US$/ton)

Source: CW Research

35

45

55

65

75

85

0

20

40

60

80

100

120

CIF import price US FOB export price

-47%


India: Solid fuel prices to remain flat, fall slightly in monsoons

14

Seasonal

decline

$0

$30

$60

$90

$120

CFR Petcoke CFR RB Coal

Petcoke prices are expected to increase in the next quarter due to the increasing demand for petcoke from the

cement industry as well as captive power plants

Domestic refiners are currently overbooked with tight supply

Prices in India are expected to decline with the arrival of the monsoon season, as demand dips during that period

Coal prices are subdued and are expected to remain so due to supply glut and falling demand

On a calorific value basis price comparison, petcoke will continue to remain the price effective fuel option

Source: CW Research

Solid fuels price outlook


Gasification expected to alter demand dynamics for petcoke in India

15

Petcoke industry-wise consumption Coal industry-wise consumption

Source: Ministry of Coal, World Energy Council

2015 2020E

Calcini

ng

Ceme

nt

Industr

ial

Boilers

Steel

&

Glass Others

Gasific

ation

9%

60%

24%

3%

4%

7%

52%

18%

2% 2%

19%

100% 100% Totals

2015 2020E

Electri

city

Iron&

Steel

Ceme

nt

Others

62%

4%

8%

26%

60%

5%

5%

30%

100% 100% Totals


Fundamental forces drive tactical and strategic outlooks

Coal prices to remain under pressure due to new sources of supply from countries like Mozambique, Mongolia, Colombia; and reduced imports by China

Coal import trends:

– Coal imports in Japan and South Korea are expected to remain at the same level as were in last 5 years

– Coal supply is expected to overtake demand, putting further pressure on prices.

Twenty new coking plants are expected on line worldwide between 2015 and 2020. The USA is still by far the largest producer, but US dominance of world production has continued to fall.

Natural gas is expected to surpass coal in the fuel mix used for US power generation in 2016

16


17

Declining freight rates affected delivered solid fuel prices in H2-2015

BDI index has dropped to

302 end of February 2016

from a high of 1,066

points in August 2015

Weakness in price follows

slowing down of the

Chinese economy and

commodity (coal and iron

ore) imports

Of the BDI component

ships, demand for

capesizes has been flat,

while demand for the

other ships: panamaxes,

handysize and supramax

has been stronger

17

-

2,000

4,000

6,000

8,000

10,000

12,000

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

Ju

l-1

2

Ja

n-1

3

Ju

l-1

3

Ja

n-1

4

Ju

l-1

4

Ja

n-1

5

Ju

l-1

5

Ja

n-1

6

BDI Index Min Max Median

10,720

302

1,511

Source: Lltoyds


18

Closing remarks

18

With new sources of supply in the market, prices remain weak globally

China‟s impending ban on “unqualified” petcoke has impacted the demand-

supply scenario, creating huge volatility in USGC prices

The plunge in global prices has been the main factor driving the increase in

petcoke imports by India

Increasing consumption of petcoke by cement industry and captive power

plants in India is offsetting the loss of demand from China

Coal remains a dominant source of power generation worldwide, however,

natural gas and renewables are eating away coal‟s share at a rapid pace.

Longer-term outlook for growth in European coal demand remain bleak, as

government policies continue to support a shift away from coal power

generation

Indian coal demand outlook remains strong. Supported by government

reforms and strong growth in output, Indian coal production is expected to

rise to 1.01 billion tons in 2020.

Steam Coal

Petcoke

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