re: Ann: Completion of Due Diligence and Noti...
Indonesia Coal Producer Paints Bullish Picture 20/04/2011
On a door-to-door basis, Indonesia is a closer supply source to Asian markets than say Australia 'OLD king' coal - especially in its reincarnation as new 'green' coal - is seeing a renaissance.
Not only do coal producers, such as Indonesia's Bayan Group, project an increase in regional demand in the medium to long term in the wake of the Fukushima nuclear plant accident, they also expect a swing to greater use of environment-friendly coal in coming years.
With more customers such as Singapore's Tuas Power (TP) requiring low-ash, low-sulphur coal to fuel its power/multi-utilities plant coming up on Jurong Island - and others including in Japan and in Malaysia, such as Tenaga Nasional, also heading that direction - PT Bayan intends to ramp up its production of 'green' coal from 10-15 per cent of its total output currently to as much as 45-50 per cent, says David Low, its sales and marketing director.
Jakarta-listed Bayan - one of Indonesia's largest coal producers, with seven mines in Kalimantan - signed a deal in February to supply TP's S$2 billion Tembusu Multi-Utilities Complex with 13.36 million tonnes of environmentally friendly coal for 15 years, starting next year. As a back-up, TP also inked another, albeit smaller, supply agreement with South Korea's Samtan Co Ltd, which also operates a coal mine in East Kalimantan.
Domestic use
'Security of supply to Singapore isn't an issue at all,' assures Bayan marketing manager Edmund Tan of its upcoming coal shipments to the Republic. Unlike natural gas, which the Indonesians increasingly want to keep for increased domestic use rather than to export, Mr Tan said, Indonesian coal production far outstrips the growth in domestic coal demand.
Latest figures show that Indonesia produced 325 million tonnes of coal last year, of which 265 million tonnes was exported with less than one-fifth, or 60 million tonnes, sold for domestic consumption. This year, Indonesian coal production is forecast at 335-350 million tonnes, while exports are expected to hit 270-285 million tonnes. So no worries there.
'Furthermore, Indonesia can easily increase its coal production by about 10 per cent annually to meet demand,' said Mr Low, the scion of Bayan founder Low Tuck Kwong.
The sub-bituminous, environmentally friendly coal going to TP will come direct from its Tabang mine concessions in East Kalimantan and does not need any blending.
'This coal variety accounts for 10-15 per cent of Bayan's projected total production of 15.5-16.5 million tonnes this year, with TP's requirements accounting for just 15 per cent of this,' said Mr Tan.
The cost of production of Tabang coal (which is an open cut mine) is lower than that of an Australian underground mine as Tabang's 'stripping ratio' (or the amount of waste removed to recover the coal) is just 2:1, compared to other mines with ratios of as high as 20:1.
Besides, sailing time for the coal barges from Bayan's Balikpapan Coal Terminal to Singapore is just two to three days, he added. On a door-to-door basis, this makes Indonesia a closer supply source to Asian markets than say Australia. 'This is important as freight is sensitive to higher oil prices,' Mr Tan stressed.
In the short term, while there has been some tightening of coal supplies from Australia as recent flooding and cyclones there disrupted production, Japanese coal demand is also down as the country's power network has been hit by the earthquake and tsunami.
'But in the medium to long term, we see an increase in coal demand, as there will be greater emphasis on safety in energy production in the wake of Fukushima,' said Mr Tan.
Mr Low said that 'while the Singapore TP-specification coal is a relatively new market segment for Bayan, apart from some small quantities sold earlier to China and India, we do expect to see increasingly more demand for this from the region's power industry'.
That is why Bayan, in a joint venture with Australia's White Energy Company, has set up PT Kaltim Supacoal to construct a pioneering US$80 million coal upgrading plant in Tabang to upgrade the low-sulphur, but also lower calorific (or heating value) sub-bituminous coal there into more valuable low-sulphur, high-calorific coal.
The plant, which is the first of its kind in the world, is being commissioned and will produce one million tonnes per annum of this coal in briquet form, with this superior-quality green coal expected to command a price premium of 6-8 per cent. 'This super coal is Bayan's response to the power industry's demand for greener coal,' said Mr Low.
Super coal
The group plans to initially enhance production of its low-ash, low-sulphur coal from 10-15 per cent of its total production currently to 30-40 per cent in five years' time.
'And once the super coal project gets fully underway, we could go for five such plants, bringing Bayan's green coal production to as much as 45-50 per cent of our total output.'
Mr Low added that TP has been kept informed of the project, and will be given an option to switch to the super coal once the project is in full commercial production.
For Singapore, coal use is increasingly becoming a possibility in its energy mix. Besides TP's coal/biomass plant, the Economic Development Board, together with the Energy Market Authority and JTC Corporation, is studying coal gasification to produce synthetic gas - that is, carbon monoxide and hydrogen gas. The syngas can then become a feedstock for chemical and/or utilities plants on Jurong Island.
TP officials had earlier indicated to BT that the genco was beginning to look at the prospect of going into coal gasification as well, while chemical companies here such as Celanese Chemical, which is already using carbon monoxide as a feedstock to produce its acetic acid on Jurong Island, is said to be also interested in coal gasification.
On the line: Bayan is one of Indonesia's largest coal producers, with seven mines in Kalimantan
KRL Price at posting:
14.5¢ Sentiment: Hold Disclosure: Held
