27th March 2008

Business Times - 27 Mar 2008

Tuas Power may build $2b coal-fired plant

By RONNIE LIM

(SINGAPORE) Tuas Power is looking at building a $2 billion coal-fired plant - the first here - its president and CEO Lim Kong Puay told The Business Times. For this, it will tap on new owner China Huaneng Group's experience with the fuel.

As part of a plan to re-power its current steam plants, Tuas Power is also studying another option, which is to convert them to natural gas-fired plants.

Separately, the power generating company, or genco, plans to invest in a cogeneration plant on Jurong Island, which will supply steam and cooling water to petrochemical plants there, as well as produce electricity.

Speaking to BT after Huaneng completed its $4.2 billion purchase of Tuas Power earlier this week, Mr Lim said: 'It's business as usual.' The genco's name remains unchanged and the current Singapore management has been asked to continue running the company. But Huaneng officials will sit on Tuas Power's board, which meets next month for the first time since the purchase.

But what is clearly different is the company's plan to consider coal-firing. Singapore gencos looked at the option several years ago, but it has not resurfaced until now.

Still, the move is not surprising as Tuas Power, which produces about 26 per cent of Singapore's electricity, has to brace itself for keener competition from bigger rivals Senoko Power and PowerSeraya, especially once they are also sold to new owners with deep pockets, not unlike Huaneng.

Besides, Huaneng, China's largest coal-fuelled power producer, has expertise in techniques to reduce emissions, such as using enclosed storage to minimise pollution. It also recently joined an international coalition of power utility and coal companies which plans to design and build the world's first zero-emission, coal-fuelled power plant.

With a total licensed capacity of 2,670 megawatts (MW), Tuas Power now operates 1,460 MW of combined cycle gas turbines (CCGT) which use natural gas to produce electricity more efficiently and economically than conventional steam plants.

As standby capacity, Tuas Power also has 1,200 MW available from two 600 MW steam plants - and it is these which it is now looking to convert to either two CCGT units with a total capacity of 800 MW, or two 500 MW coal-firing units giving a total capacity of 1,000 MW.

'The coal-firing option would probably cost around $2 billion. By comparison, going the CCGT route would involve about $700-800 million of capital investment,' Mr Lim said. 'But coal-firing overall is cheaper than gas. While it involves higher capital costs, it will result in lower operating costs.'

Huaneng, which has installed generating capacity of more than 71,000 MW in China - eight times the combined 9,070 MW of the three biggest generators here - has considerable experience and expertise in coal-firing.

But ahead of the plan to re-power its steam plants, Tuas Power intends to proceed with a cogeneration (cogen) plant on Jurong Island first, although Mr Lim declined to go into details.

He disclosed the cogen plan to BT last September, after news of rival PowerSeraya's plan to go big on cogen by building some 1,550 MW of new cogen capacity by 2010.

Industry sources say that, typically, cogen plants should comprise at least 200 MW of electricity generating capacity and another 200 MW of steam capacity, and can cost as least $400 million to build.

'It's still early days though. We expect to decide on the plant investment some time this year,' Mr Lim said.

Separately, TPGS Green Energy - a 75-25 joint venture between Tuas Power and gas importer Gas Supply Pte Ltd - said on Tuesday that it had signed up titanium dioxide producer Ishihara Sangyo Kaisha (ISK) to use its small cogen plants.

The $20 million combined heat and power project, involving two 5 MW cogen plants at ISK's Tuas plant, is TPGS's third, after it installed cogen plants at Tuas pharmaceutical giants Schering-Plough and Pfizer.

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The implied fuel supplies may be low due to the low refinery run becasue of low margin, the other reason for oil to rally is the weak dollar and unstable equity market that initiate investors to long in oil to protect their value of investment.

Dollar weaken overnight as orders for U.S. durable goods unexpectedly fell in February.

Expecting volatile year ahead with U.S. recession looming and more writedowns by Banks from mortgage debt.

Oil Trades Near $106 After Gaining on Decline in Fuel Supplies

2008-03-26 21:39 (New York)

By Nesa Subrahmaniyan

March 27 (Bloomberg) -- Crude oil traded near $106 a barrel in New York after rising almost 5 percent yesterday as gasoline surged to a record on a U.S. government report that showed supplies dropped more than forecast.

U.S. gasoline inventories fell 3.29 million barrels to 229.2 million barrels last week, the Energy Department said in its weekly report yesterday. Stockpiles were expected to drop 1.5 million barrels, according to the median of 13 responses in a Bloomberg News survey of analysts. Refineries operated at 82.2 percent of their capacity, the lowest since October 2005.

``The Energy Department report is a key driver for the rally,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``Weaker refining margins have prompted refiners to cut back and that's impacted gasoline supplies.''

Crude oil for May delivery was at $106.13 a barrel, up 23 cents, at 9:19 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange. Oil is up 69 percent from a year ago.

Yesterday, futures rose $4.68, or 4.6 percent, to settle at $105.90 a barrel. It was the biggest one-day gain since March 5.

Prices climbed to a record $111.80 a barrel on March 17.

``The most striking figure in the report was the pitiful refinery utilization rate,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``This shows that refiners are in no hurry to produce gasoline because of low margins and high gasoline supplies. Also, the demand just isn't there.''

Gasoline Rises

Gasoline for April delivery was at $2.7450 a gallon, up 0.21 cent, in New York at 9:19 a.m. Singapore time. Yesterday, it rose 2.3 percent to $2.7429 a gallon, a record close. Futures touched $2.7752, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

Valero Energy Corp., the largest U.S. refiner, said this week that it cut output from its catalytic cracking units, the primary gasoline-making devices at its 15 U.S. refineries, to 73 percent because of ``uneconomic'' margins.

Total implied fuel demand averaged 20.3 million barrels a day in the past four weeks, down 2.2 percent from a year earlier, the Energy Department report showed.

Falling Imports

Crude oil inventories climbed 88,000 barrels to 311.8 million barrels last week, according to the department. A 1.8 million barrel gain was expected. Imports dropped 6 percent to 8.9 million barrels a day, the lowest since March 2007.

Prices were rising before the report's release because the dollar weakened against the euro, prompting investors to buy commodities as an inflation hedge.

The dollar fell after European Central Bank President Jean- Claude Trichet said interest rates at a six-year high will help curb inflation in the 15 nations sharing the currency, suggesting he sees no immediate need to cut borrowing costs.

The Federal Reserve reduced the U.S. overnight-lending rate by 75 basis points to 2.25 percent on March 18.

Iraq Exports

Iraq hasn't experienced a disruption to southern oil exports because of clashes between Iraqi forces and fighters loyal to Shiite Muslim cleric Moqtada al-Sadr in Basra, the country's oil ministry said. Iraq holds the world's third- biggest oil reserves.

Crude oil will average $92.30 a barrel this year, according to analysts at Sanford C. Bernstein & Co., who raised their forecast by 27 percent from last year as declining reserves increase extraction costs.

Brent crude for May settlement rose 35 cents to $104.34 a barrel on London's ICE Futures Europe exchange at 9:25 a.m Singapore time. Yesterday, it gained $3.39, or 3.4 percent, to settle at $103.99 a barrel. Brent crude futures reached a record $107.97 a barrel on March 17.

--With reporting by Mark Shenk in New York. Editors: John Viljoen, Jane Lee.

To contact the reporter on this story:
Nesa Subrahmaniyan in Singapore at +65-6212-1509 or nesas@bloomberg.net.

To contact the editor responsible for this story:
Clyde Russell at +61-2-9777-8624 or crussell7@bloomberg.net.