Energy & Resources Talking Points | 03-08-2016


In today’s Talking Points: Merger of major Chinese steel companies under consideration; overcapacity reductions boost profits for Shaanxi Coal Industry Co and China Coal Energy Co; new study suggests carbon capture and storage may be more safe than first thought; CNOOC forecasts loss of 8 billion yuan, its first since it started trading.


China considering merger of major steel companies

A major overhaul of China’s steel industry is in the pipeline according to some sources who report the plans involve a merger of Shanghai Baosteel Group Corp and Wuhan Iron & Steel Group Corp to form a Southern China Steel Group, and a merger of Shougang Group and Hebei Iron & Steel Group to form a Northern China Steel Group. Trading in Baoshan Iron & Steel Co and Wuhan Iron & Steel Co is currently suspended pending discussion of a restructuring. Analysts say the plans would help to reduce overcapacity and increase efficiency by eliminating duplicate products and allow China’s steel companies to compete with global giants.  China’s steel output peaked at 1.2 billion tons in 2015 but the domestic market remains saturated leading to record export levels which has generated criticism from global competitors.

Source: The Business Times


Reductions in overcapacity help coal industry profit

The National Development and Reform Commission yesterday reported that major Chinese coal companies are recording profits in 2016 as a result of reductions in coal capacity,  Shaanxi Coal Industry Co yesterday reported a profit of 280 million yuan in the year to date and China Coal Energy Co has predicted half year earnings of 520 million yuan.  Coal output in China in 2016 is down 9.6 percent on the same time last year, and prices on the Bohai-Rim Steam-Coal price index have risen 15.9 percent and analysts forecast this trend will continue as overcapacity reductions continue.

Source: Shanghai Daily


Carbon capture and storage may be safer than first thought

A new study by the Cambridge Center for Carbon Capture and Storage, partly funded by Shell and published in journal Nature Communications suggests that concerns stored carbon dioxide may corrode rock layers above and eventually escape may be overblown.  Keeping the gas trapped underground requires an impermeable layer of rock above it known as a “cap rock” and it is this rock that critics have argued may wear down over time, a concern which has been supported by modelling and laboratory experiments.  However researchers in the new study examined a natural carbon dioxide reservoir near Green River in Utah and found the carbon had been trapped for about 100,000 years.  The researchers collected cap rock samples, and measured corrosion through a seven centimeter layer, significantly less than predicted by earlier models due to other chemical reactions acting as a buffer, however the presence of this buffer is dependent on the conditions and types of minerals at the particular storage site.

Source: Washington Post


CNOOC forecasts first ever loss as crude oil prices fall

China National Offshore Oil Corp (CNOOC) yesterday issued a statement to the Hong Kong stock exchange forecasting losses of 8 billion yuan in the first half of 2016, the first loss reported by the company since it started trading in 2000. CNOOC made a 14.7 billion yuan profit In the same period last year.  The results are due to the drop in oil prices and a write down in the value of Nexen’s oil sands assets purchased in 2013.  Other Chinese energy companies have also reported 2016 losses including PetroChina which reported a Q1 loss of 13.79 billion yuan.

Source: Shanghai Daily