Presentation CTI China Report 5 June 2014 HK
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Transcript of Presentation CTI China Report 5 June 2014 HK
The Great Coal Cap
China’s energy policies
and the financial implications
for thermal coalLuke SussamsSenior ResearcherCarbon Tracker Initiative
Hong Kong, 5th June 2014
The role of China in the global coal consumption
The dynamics of China’s thermal coal sector are changing
Lowering power demand growth
Lowering competitiveness of thermal coal
Air pollution Water scarcity
Increasing competitiveness of non-coal power sources
Drivers Peaking China’s Thermal Coal Demand
Asset stranding from ‘early-peaking’ of thermal coal demand
However timing still debated with forecasts ranging from 2015 to 2030
Stranding of assets would entail financial consequences for market actors
great level of ‘asset stranding’ because the difference between the expected trajectory of demand on which investments were based and the realised pathway of lower demand and pricing would be greatest.
‘early-peaking’ scenario
Investors Policymakers
Coal-fired power capacity at risk of stranding with near-termpeaking coal demand
The report provides analysis to support a reassessment of exposure to assets with the greatest value-at-risk as a result of stranding
China has significant future supply that could be at risk from an early-peaking demand future.
Over two decades of proven coal supply
Over two decades of proven coal supply
Shanghai, Shenzhen and Hong Kong stock exchanges are potentially vulnerable to value destruction.
Over 80% of non-state owned assets attributable to companies listed on these exchanges.
Hong Kong Stock Exchange runs the greatest exposure.
Coal capital expenditure by stock exchange (CNY bn)
Identifying wasted capital expenditure (CAPEX)
Debt levels
Factors investors should consider when determining potential exposures
Coal quality
Geographic location
Political support
Revenue sources
Risks to the international coal market
Over the past 10 years, China has transitioned from being a net-exporter of coal to the largest net-importer globally and the biggest influencer on the
future demand and price of traded thermal coal.
Are they at risk of being left with excess supply?
Australian and Indonesian exporters heavily rely on China’s demand growth
‘early-peaking’ scenario
Recommendations
Investors
Policy- makers
Companies
Recommendations
Investors
• Require improved disclosures from coal companies with regards to future capital expenditure strategies in thermal coal sector and quality of resources and reserves.
• Ensure risk factors that determine resilience to lower demand are clearly and accurately factored into investment decision-making
• Implement effective risk monitoring processes to ensure timely response to market upheavals
Policy-makers
• Requiring stress-testing of banks and other financial institutions for potential on balance sheet exposure to stranded asset risk
• Financial market impact analyses of major environmental policies and developments to determine likely impact on financial institutions
• Set up a framework to assess risks to the future stock of financial assets
• International cooperation to enhance broader risk management of stranded assets
Recommendations
Recommendations
Companies
• Provide markets with information and analysis on potential exposures and resilience to the risk of stranded assets (Exxon, Shell, Total)
• Adopt more conservative capital spending strategies
• Stress-test the benefits of diversifying revenues sources from pure coal to a broader range of prospering technologies
Thank you.Luke Sussams
Senior ResearcherCarbon Tracker Initiative
@carbonbubblewww.carbontracker.org