Increase in Demand forIncrease in Demand for Thermal Coal ... · between small-scale coal mines. ... Thermal Coal Mine Development and Investment - Increase in investment ratios

Increase in Demand forIncrease in Demand for Thermal Coal in Asia and Attempts to Expand Rights

September 4, 2012p ,Hiroyuki Kato

Executive Managing Officer and COO of Energy BU IExecutive Managing Officer and COO of Energy BU IMitsui & Co., Ltd.

Copyright © Mitsui & Co., Ltd. All Rights Reserved.

Contents

1. Introduction of Mitsui & Co., Ltd.

2. Thermal Coal Demand in a Growing Asia1) Prospects for Global Primary Energy Demand

2) Advantages of Coal – Comparison with other Fossil Fuels

3) Asia’s Position in the Thermal Coal Market

4) C l D d T d i Chi d I di4) Coal Demand Trends in China and India

3. Initiatives Aimed at Achieving Steady Supplies 3. a ves ed a c ev g S eady Supp es1) Initiatives by Japanese Companies in Achieving Steady Procurement of Thermal Coal

2) Expansion in Upstream Rights Investments by Japanese, Chinese and Indian Companies

3) North and South America – Potential to Export Thermal Coal to Asia

4) Japan-Australia Oxyfuel CCS Verification Project

1Copyright © Mitsui & Co., Ltd. All Rights Reserved.

Contents1. Introduction of Mitsui & Co., Ltd.

2. Thermal Coal Demand in a Growing Asia

1) Prospects for Global Primary Energy Demand

2) Ad t f C l C i ith th F il F l2) Advantages of Coal – Comparison with other Fossil Fuels


4) Coal Demand Trends in China and India)

3. Initiatives Aimed at Achieving Steady Supplies

1) Initiatives by Japanese Companies in Achieving Steady Procurement of Thermal Coal


3) N th d S th A i P t ti l t E t Th l C l t A i3) North and South America – Potential to Export Thermal Coal to Asia



Energy Segment Business Fields<Business Content>

Coal Development, production imports and trilateral trading in coal

<Business Field>

Nuclear fuel Development of uranium mines; nuclear fuel cycle

Oil and natural gas development Exploration, development and production of oil and natural gas

Oil logisticsImports, exports and trilateral trading in crude oil and petrochemical products; Japanese oil refining and Oil/LPG sales

M i d i f i i LNG b i d l fLNG

Maintenance and expansion of existing LNG business; development of new gas business

Environment and new energy

Biomass energy, emissions rights, hydrogen, CNG, NGH, etc.


Major Upstream Energy Rights

As of March 31, 2012

Thai/L10/43、L11/43

Poland Shale

Marcellus ShaleLibya Block113 201

Meleiha/Meleiha Deep/West Razzak

Qatar LNG

Sakhalin-ⅡEagle Ford Shale

Abu Dhabi LNG

Keta

Tangguh LNG

Gulf of Thailand

Thai/Block 10, 11, 12, 13, 10A, 11A, G4/48

113, 201

Tuna

Merangin 1

Oman Block3, 4, 9, 27/NOGJV

South Walker Creek/Poitrel

Kestrel

Moranbah North

Equatorial Guinea LNG

Oman LNG

Kupe▲ Coal

Dawson/Surat BasinMeridian CBM

TuiVietnam/Block B

, , , , , ,

Mozambique Area1 Enfield/Vincent/Laverda

German Creek/Lake Lindsay

Thai/Block G4/43Thai/Block 8/32&9A

Cambodia Block A

NWS LNG

Wanaea/Cossack

■ Natural gas/ LNG◆ Crude oil

Yemen Block 7West Papuwa 1&3

Casino/Henry/Netherby

Drayton

Bengalla

TuiVietnam/Block52/97

Thai/Block 14A, 15A, 16A

Thai/Block B12/27














Prospects for Global Primary Energy DemandProspects for Global Primary Energy

Demand (by energy source)(Mtce)(Mtoe)

Prospects for Coal Demand by Country or Region

Coal

Oil

OECD

Gas Other

Russia

Europe

Other sustainable

Nuclear

BiomassOther Asia

India

Hydro-powerChina

Primary energy demand, including that for a coal, is expected to continue increasing up to and beyond 2035.

Th i d b i l l l i i d d f Chi d I di d l ill i b j f il f l

Source: IEA World Energy Outlook2011


There is expected to be a particularly large increase in demand from China and India, and coal will continue to be a major fossil fuel.

Advantages of Coal

Confirmed Recoverable Global Reserves (2008) 860.938 Billion MT

Europe147 0 billion

United States

237.73 billion MT

(27.6%)Russia157.0 billion MT(18.2%)Coal

(Unit: USD/ coal ton)

Cost Comparison by Fossil Fuel Type(converted into coal calories)

Recoverable Reserves by Coal Region and Fossil Fuels Reserve Life

Other North

6.6 billion MT (0.8%)

147.0 billion MT

(17.1%)

Canada

India60.6 billion

MT(7.0%)

( )

China114.5 billion MT(13.3%)

Japan0.35 billion MT

Oil

LNG

Crude oil

LNG


Other North and South Americas

(0.8%)

Other Africa

1.5 billion MT

(0.2%)

(7.0%)Middle East

1.2 billion MT(0.1%)


South Africa30 2 billi MT

Australia76.4 billion MT (8.9%)

MT(0.04%)

Other Asia/ Oceania

Indonesia5.5 billion MT

(0.6%)

LNG

4 times Fossil Fuel Reserve LifeCoal Oil Natural Gas*

112 yrs 54 yrs 63 yrs

* Europe include former Soviet Union countries excluding Russia

30.2 billion MT(3.5%)

Source: World Energy Council (WEC 2010): Figures as of end 2008

Coal 100 Coal 100Coal 100

Environmental Impact by Fossil FuelsCoalSource: World Energy Council 2010, BP Statistics 2012

3 times112 yrs 54 yrs 63 yrs

(*) More than 160 yrs including unconventional gas

Oil 80

Oil 70 Oil 70

Natural Gas 60 Natural Gas

40Natural Gas

0Source: BP Energy Outlook2030, JOGMEC

Carbon dioxide (CO2) Sulfur oxide (SOx)Nitrogen oxide (NOx) Coal is cheaper than other fossil fuels.

Coal has a longer reserve life than other sources and is more evenly distributed across different regions than oil

and gas.

Source: IEA Natural Gas Prospects to 2010 (1986)


However, coal has a greater environment impact in areas such as CO2 emissions.

Asia’s Position in the Thermal Coal Market

(Unit: million MT))Thermal Coal Import Volume Trends (results and forecast)

905 920859

905

750

596

43068%

50%

(Source: AME strategic market study, 2011 Q4)

There is expected to be a steady increase in the global volume of Thermal Coal imports (marine trade volume) to 2025.

The main cause of the increase will be an increase in demand from the Asia region, particularly China and India.

India in particular has the potential to become the world’s largest Thermal Coal importer by 2025.

There is the possibility of Japanese companies encountering difficulties in securing import volumes as a result of demands by new customers emerging in the growing Asian market


by new customers emerging in the growing Asian market.

Thermal Coal Demand Trends in China

Demand for power generation fuel (“coal conversion” million MT)

Coal import volume(million MT)

Demand for power generation fuel by power source and coal import volume trend

Power generation capacity (GW)

Power generation capacity by power source - forecast

(“coal conversion” million MT) (million MT)Power generation capacity (GW)

Along with an increase in coal-fired thermal power generation, by 2025 the consumption of coal is set to increase by 600 million MTagainst 2009 demands.

(Source: IEA World Energy Outlook2011) (Source: IEA World Energy Outlook2011, AME strategic market study, 2011 Q4)

against 2009 demands.

The Chinese government plans to gradually increase production from 350 million MT through efficiency measures, such as mergers between small-scale coal mines.

If domestic prices overtake international prices this will encourage a trend towards increased imports in the coastal regions.


If domestic prices overtake international prices this will encourage a trend towards increased imports in the coastal regions.

However, there is a possibility that growth in import volumes will be restricted by improvements in the domestic rail network.

Thermal Coal Demand Trends in India

Demand for power generation fuel (“coal conversion” million MT)

Coal import volume(million MT)

Demand for power generation fuel by power source and coal import volume trend

Power generation capacity (GW)

Power generation capacity by power source -forecast

Along with an increase in coal fired thermal power generation by 2025 the consumption of coal is set to increase by 200 million MT

(Source: IEA World Energy Outlook2011, AME strategic market study, 2011 Q4)(Source: IEA World Energy Outlook2011)

Along with an increase in coal-fired thermal power generation, by 2025 the consumption of coal is set to increase by 200 million MT against 2009 demands.

The Indian government is promoting plans to build large-scale coal-fired thermal power plants (Ultra Mega Power Project).

There is expected to be an increase in production of domestic coal in response to the increased demand, but difficulties in covering th ti i i d d t d i th d l i l d i iti d i i t l th i ti d th


the entire increase in demand are expected given the delay in land acquisitions and in environmental authorizations, and the insufficient logistic capacity in India.













Initiatives by Japanese Companies in Achieving Steady Procurement of Thermal Coal

Mine Development and Investment

- Increase in investment ratios

- Build and strengthen relations with newly emerging countries and newly-emerging suppliers

- Use of coal technicians and a proactive contribution to decision-ki

E i l

makingActively secure steady supply sources

Logistics Environmental Technology

- Develop new supply sources - Reduce environmental impact by controlling CO2 emissions, etc.

- Strengthen logistics and finance functions

Develop trading company functions to answer needs

,

- Increase and diversify usable brandsDevelop a coal-use environment that meets the needs of the times

Use “three-in-one” management system initiatives to secure coal resources and achieve a steady supply


and achieve a steady supply

Expansion in Upstream Rights Investments by Japanese, Chinese and Indian Companies

Number of upstream investment projects in the last 10 years

Amount of upstream investment in the last 10 years

(USD 100 million)

2008 20122008 2012

Japan2003-2007

2008-2012

IndiaChinaJapan2003-2007

2008-2012

IndiaChina

Investment in resources in China and India has become increasingly active since 2008, when there was a major rise in the coal price.

The amount spent on investment by China and India over the 5-year period from 2008-2012 is approximately USD 10 billion per country.

Despite the number of investment projects undertaken by Japan (17) over the past 5 years being approximately the Chi d I di th i t t t i l h lf W th t Chi d I di h b i


same as China and India, the investment amount is only half. We can see that China and India have been carrying out large-scale investments.

Upstream Rights Investments by Japanese, Chinese and Indian Companies

Japan

China

India

Securing supply sources in preparation for an increase in demand from Asia Diversification of projects invested in


North and South America - Potential to Export Thermal Coal to Asiap

1. Development of Shale Gas in United States

There has been an increasing shift to gas as a source of power generation as a result of falling domestic gas pricesdomestic gas prices.

The closure of coal-fired thermal power stations has been promoted along with stronger domestic emission controls in CO2, mercury, etc.

At the same time, issues still need to be resolved concerning exports of United States coal to Asia.

Moreover, there have been moves towards strengthening export controls on energy resources including coal from the perspective of securing domestic energy resources and implementingincluding coal from the perspective of securing domestic energy resources and implementing stronger environmental controls.

2. Expansion in Panama Canalk #3 i d l d i j C l i l d f 2014

New Gate #3 (Pacific Ocean side) Lock #3 construction and canal deepening project. Completion planned for 2014.

Allowable ship size to expand from Panamax to Post-Panamax((>100,000 dwt)

New Gate #3

Current gates #1 & #2(above photograph)

However, after the expansion plan an increase in canal passage charges is planned, and there is a need for prices to be set at a level that makes an expansion in exports competitive.


New Gate #3 (under construction)

Japan-Australia Oxyfuel CCS Verification Project(Callide-A CCS)

Flagship Project* – a joint Japan-Australia project at an Australian coal-fired thermal power plant as the world’s first project to verify oxyfuel operation and the collection and underground storage of emitted CO2

(*) Participants: Mitsui & Co., Ltd., J-POWER, IHI, CS Energy, Xstrata, Sohlumberger Australian Coal Association

By introducing this technology, it will become possible to restrict atmospheric emissions of CO2 (a major problem with existing coal-fired power plants) almost to zero thereby making clean power generationproblem with existing coal fired power plants) almost to zero, thereby making clean power generation possible.

- In 2008, work was launched to replace a suspended boiler

at CS Energy’s Callide-A coal-fired power plant in Queensland

(located approximately 200km northwest of Brisbane)

with an IHI oxyfuel boiler.

- In March 2012, the world’s first oxyfuel operation was launched.


Thank you for your kind attention!


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Increase in Demand forIncrease in Demand for Thermal Coal ... · between small-scale coal mines. ... Thermal Coal Mine Development and Investment - Increase in investment ratios