Friday, June 8, 2018

#China’s Global #Energy Interconnection aims to create world’s first global #electricity grid

China eyes role as world's power supplier
#China's Global Energy Interconnection initiative is Xi Jinping's ambitious international plan to create world's first global electricity grid.

China eyes role as world's power supplier

Beijing promotes global electricity network to absorb huge power surpluses

© FT montage / Bloomberg

James Kynge in London and Lucy Hornby in Beijing

Deep in a tangle of planning bureaucracies in western Beijing, the future of a country nearly 3,000km away is under discussion. Xie Qiuye, president of China's Electric Power Planning & Engineering Institute, has been charged with developing an electricity plan for Laos, a nation struggling with a glut of electricity supply from Chinese-built dams on the Mekong river.

Mr Xie's job is to find a rational solution for Laos, even as powerful Chinese construction companies vie for more dam contracts in China's poor southern neighbour. His answer — to make Laos into a regional power hub, exporting electricity to the rest of south-east Asia — depends on a technology that is being pushed hard by a powerful former state electricity boss with a vision for connecting world power markets.

In Laos, in Brazil, in central Africa and most of all in China itself, ultra high-voltage cable technology that allows power to be commercially transported over vast distances with lower costs and increased load is justifying the construction of massive power projects. It is dubbed the "intercontinental ballistic missile" of the power industry by Liu Zhenya, its biggest backer and for a decade the president of State Grid, China's powerful transmission utility.

UHV allowed China to binge on dam building in its mountainous hinterland, then transport the power thousands of kilometres to its wealthy, industrial east coast. But by enabling this, and other projects, UHV has left western China with such a glut of power that Mr Liu in 2016 proposed using the technology to export power as far away as Germany.

Now Mr Liu is promoting UHV internationally through his Global Energy Interconnection initiative. Designated a "national strategy" and championed by Xi Jinping, China's president, the initiative feeds into one of China's most ambitious international plans — to create the world's first global electricity grid.

"All of this fits in with Beijing's goals of expansion and being a global standard setter," says Erica Downs, an expert on China and energy at Columbia University. "It is also linked to China's intention to become an advanced industrial superpower. There is a big prestige element in this."

Graphic showing Chinese global investment in power transmission

Advocates stress that this does not mean China would control the resulting grid but networks would be linked to allow better cross-regional allocation of power surpluses. It is no coincidence that this would resolve the problem of "trapped" power resulting from some of China's mega construction projects in countries like Laos that lack a big enough domestic market.

Some western observers see a geopolitical strategy on a par with China's Belt and Road Initiative, a grand design that seeks to boost Chinese-led infrastructure investment in more than 80 countries around the world.

"While there is certainly a commercial explanation for China's rapid expansion in the power sector, it should also be recognised that Beijing is known to intertwine its economic, diplomatic and strategic initiatives," says Andrew Davenport, chief operating officer at RWR Advisory, a Washington-based consultancy. "Part of the explanation for its expansion in this area is, therefore, likely the influence — and soft power gains — that accompanies increased control over an industry so fundamental to the everyday lives of citizens."

Graphic showing Chinese global investment in power transmission

Chinese companies have announced investments of $102bn in building or acquiring power transmission infrastructure across 83 projects in Latin America, Africa, Europe and beyond over the past five years, according to RWR. Adding in loans from Chinese institutions for overseas power grid investments brings the total to $123bn.

Throw in all power-related Chinese deals overseas, including investments and loans to power plants as well as grids, and the number almost quadruples. Between 2013 and the end of February 2018, total overseas power transactions announced reached $452bn, up 92 per cent from 2013 levels, according to RWR, which strips out of its calculations deals that are announced only to be subsequently cancelled.

Officials and power industry analysts in China insist that it would be too simple to assume that such investments are all slated to be rolled up into a single international grid to achieve the GEI goal, which Mr Liu recently described as similar to the internet: global but not controlled by a single country.

The first stage, set to run until 2020, involves investment in domestic grid assets within other countries. The second phase would see the knitting together of some of those grids and that generation capacity. "From 2020 to 2030, the task will be to promote intra-continental interconnection with the interconnection of Asian, European and African grids being basically realised," Mr Liu said recently in London.

1. China power surge Brazil

© Bloomberg

China's State Grid has invested more than $21bn to become the biggest power generation and distribution company in Brazil. Its executives promise an extra $38bn in investment over the next five years. Central to their ambitions is to showcase ultra high-voltage transmission technology, which is able to transmit electricity over vast distances at sharply reduced cost. The first UHV line built by the Chinese outside the country runs 2,000km from the Belo Monte hydropower dam (above) in the Amazon region to cities in the south of Brazil.

Although Chinese companies would not necessarily own or control the regional grids, their influence, via the assets they do control, would ultimately lead to regional interconnection.

"China's state-owned power companies are pursuing an aggressive overseas expansion strategy, investing in the construction and operation of energy networks in some countries and as equity investors in others," says Xu Yi-chong, a politics professor at Griffith University, Australia and author of Sinews of Power, a book about State Grid. "[But] China's push for interconnectivity does not have to mean that Chinese companies own or operate the grid."

The ambition is huge, envisaging linking up more than 100 countries. But China has considerable organisational, financial and technological firepower.

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The state-owned power companies that are hitting the acquisition trail overseas rank as global heavyweights. State Grid is ranked as the world's second-largest company after Walmart in the 2017 Fortune 500 list. On important issues such as GEI these companies partly co-ordinate their actions through the China Electricity Council, an official body led by Mr Liu, and reporting to the State Council, China's cabinet.

The financial firepower at the disposal of these state-backed companies to sweeten bids for assets overseas is underwritten by China's policy banks, the China Development Bank and the Export-Import Bank of China.

"You have to understand, the GEI is a personal priority of Xi Jinping," says one senior power official. "Of course, Chairman Liu [Zhenya] and all the other chief executives are under great pressure. Xi does not tolerate failure."

2. China power surge Southern Europe

China is already a big presence in southern European power grids. State Grid became the biggest shareholder in REN, the Portuguese national grid company, in 2012. Another Chinese state-owned enterprise, China Three Gorges, is seeking to increase its 23 per cent stake in EDP, Portugal's biggest company whose assets include the Alqueva dam (above), to give it control over a further 220,000km of transmission lines in the country plus grid assets in Spain and Brazil. Chinese state companies also own significant grid assets in Italy and Greece, bringing the goal of a southern European grid controlled by China closer.

The biggest boon for China's global grid ambitions is UHV cable technology. While other companies such as Germany's Siemens and the Swedish-Swiss conglomerate ABB also have the technology, Chinese companies have been the first to deploy it on a grand scale, developing global industry standards.

China has already demonstrated the technology's performance at home. The 37,000km of UHV cable that is laid or under construction in China can carry a load of 150GW, equivalent to 2.5 times the maximum electricity load in the UK. And despite some pushback from the country's entrenched power generators, Mr Liu claims that the cables are particularly applicable to renewable energy.

Steven Chu, a former US secretary of energy, has called China's strides in UHV technology a "Sputnik moment" for the US, alluding to the Soviet Union's 1957 launch of the first earth-orbiting space satellite, which marked a technological leap ahead of the US.

3. China power surge Africa

The biggest geographical concentration of Chinese investment in power has come in Africa, where 39 projects were announced in the five years to the end of February 2018. Analysts talk of Chinese plans to create regional power grids across the continent. State Grid is set to take a controlling stake in a $2.8bn project to build the transmission backbone in Mozambique, which will link up with the Southern African Power Pool, an interconnected electrical system for Southern African countries. Nigeria is also a key focus with China's ExIm Bank funding the $5.8bn Mambilla hydroelectric project (above) and Chinese companies building it.

"China has the best transmission lines in terms of the highest voltage and lowest loss," Mr Chu has said. "They can transmit electricity over 2,000km and lose only 7 per cent of the energy. If we [the US] transmitted over 200km we would lose more than that."

The technology promises to reshape the way in which the world consumes power, Mr Liu told his London audience. He used the hypothetical scenario of hydropower generated in the Democratic Republic of Congo for $0.03 per kWh being transmitted to Europe through Chinese UHV cables at a cost on delivery of just $0.07-0.08 per kWh. This compares with an average cost of €0.20 ($0.23) per kWh to households in the EU, according to Eurostat, the data agency.

Mr Chu's rosy assessment is not shared by everyone. Although the percentage of power lost is lower than through other transmission technologies, the distances over which China deploys the cables means that total power losses are still significant. Meanwhile, the technology has allowed China to prioritise massive projects with disproportionately high environmental impact, both at home and abroad.

Listen: Gideon Rachman — The dawn of the Chinese century

At the same time State Grid has yet to win many UHV construction projects abroad. Its main success has been in Brazil, where its acquisitions have made it the country's largest generation and distribution company, paving the way for it to install UHV cables from a hydropower dam deep in the Amazon to cities 2,000km to the south. It now has ambitions to build more UHV lines as part of an estimated $38bn in extra investment in Brazil over the next five years.

For now, China's power companies are more focused on building their international generation and transmission assets. China Three Gorges, one of the world's largest electricity groups, last month bid to take control of Portugal's biggest company, the power utility Energias de Portugal. Regulators rejected the initial Chinese offer of €9bn, but it is expected to follow up with more attractive bids.

If successful, the deal will bring one step closer a proposal to create an interconnected southern European grid, says Prof Xu. That would involve linking power assets largely built up in the wake of the financial crisis. China Three Gorges first bought into EDP in 2011 and has invested in its renewables arm. In 2012, State Grid became the largest shareholder in Redes Energ├ęticas Nacionais, Portugal's national power grid. In 2014, State Grid took a stake in Italy's CDP Reti, which owns gas and power transmission networks. In 2017, the Chinese utility completed its purchase of 24 per cent of ADMIE, an independent grid operator in Greece.

The interconnection ambitions combined with the aggressive acquisition strategies of Chinese state-owned actors have met more opposition in northern Europe. State Grid failed in a bid to buy 14 per cent of Eandis, a public distributor of gas and electricity in Flanders, after the city of Antwerp blocked the bid. In May it made a fresh attempt to buy a 20 per cent stake in Germany high-voltage energy network 50 Hertz after an earlier bid failed, according to people close to the deal.

With its great distances, hunger for energy and increasing reliance on renewables, Prof Xu believes the most likely place for the first interconnected grid is Africa. It has attracted 39 power deals since 2013, more than any other region, according to data from RWR.

"There are a number of Chinese companies doing big power generation projects, which need to be connected with new transmission and distribution systems," Prof Xu adds.

In south-east Asia Mr Xie, the state planner, takes his responsibilities seriously, including making a visit to Laos in 2017. He sees regional power integration as an economically and environmentally efficient solution to the problem of "everyone wanting to build their own".

He adds: "It's against everyone's interests to build [power plants] and not sell the power. We want to avoid future problems."

Additional reporting by Archie Zhang



Friday, May 11, 2018

#PDVSA to shut #Curacao refinery amid fight with @Conoco - @Reuters

After #Conoco's seizure in #Curacao was "enforced on Thursday, and inventories' custody was transferred," #PDVSA's "refinery will eventually stop (operations),"

In its first official comments since Conoco's actions started, #Venezuela on Thursday suggested it was ready to pay the U.S. oil company. Conoco said it was looking forward to PDVSA's proposals but added that absent any agreement or payment it would continue its enforcement actions 


PDVSA has told customers they must send their own ships to pick up oil cargoes in Venezuelan waters, rather than wait for it to deliver. That keeps PDVSA's ships out of Conoco's grasp.


PDVSA, which was already struggling to export its oil amid falling output and a lack of maintenance, is looking for a place in Venezuelan waters to start transferring oil from small to larger tankers, which is typically done for large cargoes bound for Asian destinations.


The country's oil ports increasingly are snarled with vessels waiting to load for exports.




Monday, April 30, 2018

#Marathon- #Andeavour $MPC $ANDV #Oil merger details #OOTT

- Combined company would be largest independent #refiner in the US, with ~$92B EV
- MPC expects to realize +$1b in annual run rate cost savings & operating synergies within first 3 years
- $600MM termination fee, 2.6% of transaction value


Comments below from BMO energy trader Brad Pavelka:

M&A cycle continues to accelerate in energy-land.

Following WSJ indication last night, MPC announced this morning acquisition of ANDV for $35.6B EV, including $23.3B of total equity value. ANDV holders will receive 1.87 MPC shares or $152.27 in cash, a 24.4% premium to Friday's close. MPC will offer up to 15% of deal size in cash. Transaction is expected to close in 2H18. 

·       MPC expects to realize > $1b in annual run rate cost savings and operating synergies within the first three years.

·       MPC board has authorized an incremental $5b share repurchases

·       ANDV CEO/Chairman Greg Goff will join MPC as Executive Vice Chairman

·       $600MM termination fee, 2.6% of transaction value

 

Quick Thoughts: M&A continues to heat up in the sector and MPC is clearly looking to expand its portfolio leverage to key assets in West Texas (WNR) where the majority of US production growth is expected to occur along with premier West Coast refining and logistics assets. Combined company would be the largest independent refiner in the US, with ~$92B EV. Likely increases discussions about further consolidation within downstream, DK looking the most likely target. ANDV G&A in 2017 was $742MM, making the run rate synergies look relatively conservative and the increased repurchase authorization is a strong indication of confidence from the MPC board and should satisfy pushback from the 'return of capital' bulls'. After a monster 2017, ANDV has underperformed MPC by 16% YTD18, which likely helped to facilitate the transaction and ANDV is trading at the 29th percentile vs MPC on a 5yr basis and 19th over the past year. Both stocks are relative longs in terms of positioning, so the 'street impacts' should be relatively positive. Anti-trust concerns are always front of mind with consumer sensitive industries, especially in California but the asset overlap is minimal. Combined entity would be 50% larger than the second largest US refiner now.

 

Feedback appreciated as always.

 

ANDV a timely acquisition?

 

 

Wednesday, April 25, 2018

Further 1MM BOPD may come offline as #Venezuela’s @PDVSA implodes and if Trump reimposes #Iran #Oil #sanctions #OOTT

The world risks a full-blown oil shock within months | Financial Post

World risks a full-blown oil shock within months as 3 geostrategic crises come to the boil 


'We are pretty confident that oil will be in triple digits by next year'

The world risks a full-blown oil shock within months as three geostrategic crises come to the boil and Saudi Arabia hints at US$100 crude, setting off a speculative scramble by commodity hedge funds.

Brent crude has surged this week to a 40-month high of almost US$75 a barrel even though the global economy is losing momentum. This price spike is different from earlier China-driven episodes over the past 15 years. It reflects a constriction of supply and a rising "political premium." Such a context makes it more threatening.

We are pretty confident that oil will be in triple digits by next year

It is now highly likely that Donald Trump will reinstate oil sanctions against Iran on May 12, this time adding extra curbs on distillates. Japan and South Korea will almost certainly join the Americans. Most European firms will fall into line whatever the policy of their own governments since it is dangerous to defy the U.S. Treasury. Most insurers and shippers will steer clear of Iranian cargoes.

"We are pretty confident that oil will be in triple digits by next year," said Jean-Louis Le Mee from Westbeck Capital. By then the oil market will be feeling the delayed effects of a 40 per cent slump in investment from late 2014 to early 2017, storing up a structural shortfall of 8 million barrels a day (b/d).

Le Mee said the Iranian sanctions alone will take up to 500,000 b/d off the global market by the fourth quarter, rising to 700,000 in 2019.

This is happening just as the proxy-war between Saudi Arabia and Iran over Yemen reaches a lethal crescendo.

Escalating missile attacks on Saudi targets by the Iranian-backed Houthis threaten to detonate an epic clash between the rival Sunni and Shia alliance systems.

"The Houthis are not backing off. My fear for contagion is that one of these missiles will get through Saudi air defences and then we will be in a Mid-East war," said Helima Croft from RBC Capital. "If a Saudi tanker is sunk with 2 million barrels of oil, people are going to start worrying about the security of the sea lanes. Markets have been far too complacent," she said.

A Houthi fighter inspects the site of an air strike in the Yemeni capital Sanaa in November. Mohammed Huwais/AFP/Getty Images

It is also happening as Venezuela's oil industry goes into near-terminal collapse, with drilling parts running out and thousands of long-suffering staff at the state energy group PDVSA walking off the job in protest over pay arrears. Output has crashed by 550,000 b/d since early 2017.

There is a clear risk that Washington will impose tighter curbs on the Maduro regime after the elections on May 20. "We would end the year down another 1m b/d if the crisis metastasises," said Ms Croft.

Residents sit at a closed Petroleos de Venezuela SA (PDVSA) gas station near Puerto Ordaz, Bolivar State, Venezuela in February. Manaure Quintero/Bloomberg

The OPEC-Russia cartel can at last declare "mission accomplished" though it has taken much longer than they ever imagined. Joint cuts of 1.8 million b/d have reduced OECD oil inventories towards their five-year average and cleared most of the global glut, with the Saudis cutting even deeper than agreed in an attempt to lift prices well above US$80 before selling off shares in Aramco.

Saudi Arabia and Russia are now signalling that they aim to extend the cuts deep into 2019. This has been the green light for hedge funds and ETF commodity investors. Ole Hansen from Saxo Bank said the speculative rush has pushed "long" commodity contracts to a five-year high of US$1.09 trillion.

The oil surge has pushed U.S. petrol prices to US$3 a gallon, prompting Trump to tweet in an unexpected outburst last Friday that OPEC is keeping prices "artificially very high."

U.S. shale output can no longer keep up with the global shortfall. Although U.S. production has rocketed by 800,000 b/d this year to a modern-era high of 10.5 million b/d in April, a lack of pipelines is increasingly leaving "stranded barrels" in the Permian basin of east Texas. The new infrastructure will not be in place until mid-2019. The logjams are even worse in Canada.

America's refineries are geared to mixing sulphurous imports from Venezuela. They cannot cope with the volume of quality "super-light" grades from shale. This chronic mismatch will remain until new refineries are built.

Strictly speaking, Trump's criticism of OPEC is correct. Bjarne Schieldrop from SEB says prices would slide to the low US$50s without the cartel cuts.

Nikolaos Panigirtzoglou from JP Morgan says global consumers enjoyed a US$1.8 trillion annual windfall — worth 2.2 per cent of global GDP — when oil prices crashed. This acted as a "tax cut" stimulus. The process is now going into reverse. Consumers have seen an US$800 billion squeeze. On cue, JP Morgan's instant "Nowcast" tracker of world growth has dropped from 4 per cent to 3.2 per cent since the start of the year, far below estimates of the International Monetary Fund.

It is hard to separate cause and effect. China has been cooling as credit curbs bite. Monetary tightening by the US Federal Reserve is lifting global borrowing costs. The slowdown may prove to be nothing more than a soft patch but late-cycle pathologies abound and there are reasons for caution. The rest of the commodity nexus has yet to show much sign of life. Metals have been lacklustre after stripping out price spikes in both aluminium and nickel, caused by US sanctions against Russia.

In the end, OPEC and Russia are walking a tightrope. They risk a serious misjudgment if they push prices too high. "It was US$100 oil from 2011 to 2014 that kicked off the renewable revolution that we have seen," said Hansen from Saxo. A return to US$100 oil would accelerate investment in electric vehicles and bring forward the moment of cost parity with petrol and diesel engines, at which point the oil industry risks losing its footing forever and going into run-off.

Whatever happened to those Saudi counsellors sagely warning last year that any sustained move above US$60 was short-sighted folly.



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