LNG
Title : SGX to launch more LNG derivative products in Q2 2017
Medium : The Business Times
Date : 23 September 2016
SGX to launch more LNG derivative products in Q2 2017
It's on a quest for a bigger bite of the LNG pricing market; its new North Asia marker is eyeing pole position in a race that's still wide open, say analysts
Asia: battleground for LNG benchmark
Global LNG imports by region
Singapore
THE Singapore Exchange (SGX), in its bid to gain pricing dominance in liquefied natural gas (LNG), is set to launch more derivative products for the commodity in the second quarter of next year. More transparent pricing for the commodity is critical, to encourage higher demand amid a supply glut, it says.
The new contracts, expected in the second quarter, will be based on its new North Asia price index, its head of oil, power and gas derivatives Lily Chia told The Business Times.
The North Asia Sling (Singapore LNG Index Group), introduced on Monday, is based on LNG cargoes delivered to ports in Japan, Korea, Taiwan and China. These respective economies together account for 60 per cent of global LNG demand.
"After the North Asia Sling has had some time to accumulate more data, we will be looking to introduce swaps and futures (based on the marker) in the second quarter of next year," said Ms Chia.
The new derivatives contracts should stir up more interest in LNG derivatives on the exchange, and will also mean a more complete set of tools for industry participants to use for hedging, she added.
SGX's new North Asia marker is the latest in a string of price indices launched in recent years for the North-east Asia LNG market, as various players vie to create a pricing product that will gain acceptance among LNG players in the Asia-Pacific. Commodity pricing benchmarks are a winner-takes-all game; an established contract would attract even more liquidity.
The North Asia price marker was introduced based on industry feedback calling for the Sling methodology to be extended to the new market, said SGX, adding that the new index will complement the Singapore Sling unveiled in June last year.
"The Singapore Sling will serve as a reference point for the fast-growing and developing South-east Asian LNG market, and the North Asia Sling will serve as a much-needed transparent and representative price for the traditional centre of demand," it said when unveiling the new price marker on Monday.
Like the Singapore index, the North Asia Sling will be based on price quotes submitted by a pool of 22 LNG buyers, producers and traders.
The same players will be involved in contributing their price assessments for both the North Asia and Singapore Slings, said Ms Chia. 'They are all actively participating in the physical trade within the whole of Asia, so either index will be relevant for them."
Analysts say while SGX will face competition from these price indices, none of the existing ones are dominant in the market yet, and the exchange's methodology may distinguish itself from the rest. '
Wood Mackenzie analyst Chong Zhi Xin said: "It will probably face quite a bit of competition from the established players...which have been around in the industry for a number of years."
Existing price indices include Platts' Japan Korea Marker (JKM) and 1CIS' East Asia Index.
Nevertheless, it is a good step by the SGX, he said, adding that the North Asia Sling could emerge as the predominant index if the exchange is able to secure major Japanese utilities, such as Tokyo Gas or Jera on board, as Sling participants. 'The only issue is which (price index) the Japanese government wishes to support, and it could be the Tokyo Commodity Exchange."
The existing North-east Asian price indices do not enjoy the same level of liquidity as do the Henry Hub in the US and NBP, giving SGX a shot at success.
Wood Mackenzie's Mr Chong said; "I'd say it's still early days for all these indices. You haven't seen any long-term contract being priced off these contracts as well."
Jason Feer, head of global intelligence and energy and ship brokerage Poten & Partners, said what makes North Asia Sling different is the methodology; the index being constructed by the exchange, as opposed to a price reporting agency, could sit better with some market participants:
"An exchange is a highly regulated entity and that could create the perception that it is more trustworthy or more reliable, and that there's some security in terms of the prices they produce.
'The price reporting agencies have one business model and obviously the SGX has a different business model. That would make them different; some participants might prefer one over another."
Meanwhile, derivatives contracts for the Singapore Sling have only chalked up two buy-and-sell trades, the first between European trading house Trafigura and Singapore-based Pavilion Gas on its launch date in late January.
Asked whether this reflects poor market acceptance, Mr Feer said market players usually prefer to be able to review a "substantial history" of a price index before committing to it, to ensure that it is robust and captures the appropriate price levels.
"Even if people think that a given price index is robust, it'd take some time before you would see widespread adoption," he told BT. "It's not necessarily an indictment of the marker."
In a separate report on Tuesday, SGX said that the active involvement of LNG market participants means that the industry has a stake in the reputation and eventual adoption of Sling for the use of trading.
"This methodology democratises price discovery, where power is shifted towards market participants who have intimate knowledge and understanding of real-time market dynamics."
In the report, SGX also noted that future LNG demand in Asia remains shrouded in uncertainty amid a supply glut, and that LNG's price competitiveness vis-a-vis other fuel sources, as well as policy decisions across the region, will be important swing factors.
SGX's head of commodities research, Adrian Lunt, and its oil, gas and power director, Cheong Jin Yu, wrote: "While there is clear potential for LNG to significantly increase market share in the Asian energy mix, the lack of genuine LNG pricing could in turn hinder the market's ability to compete effectively with other fuel sources for future demand."
Asian buyers have traditionally bought LNG with long-term contracts, using oil or western gas prices. But oil and LNG prices have diverged significantly this year. SGX said that, as they continue moving apart on differing supply-demand prospects, strains on existing oil-linked pricing mechanisms are bound to intensify.
The SGX report said: "The traditional oil-linked pricing model has essentially decoupled price from both demand and cost in the LNG market, which, over time, could result in the build-up of significant supply-demand imbalances in LNG. Ultimately, the persistence of oil-indexation in LNG may merely be setting the stage for a crash scene at a later date."
Solar Energy
Title : High costs slowing Sri Lanka push toward solar energy
Medium : Eco-Business
Date : 22 September 2016
High costs slowing Sri Lanka push toward solar energy
An ambitious plan by the Sri Lankan government to outfit 100,000 homes with solar panels, to turn them into power producers for the national grid, may be too expensive for many families to afford, experts warn.
Sri Lanka’s government this month launched a “battle for solar energy” that aims to add 220 megawatts of clean power to the country’s energy grid by 2020, or about 10 per cent of the country’s current daily electricity demand.
By 2025, the country hopes to boost its solar power output to 1,000 megawatts to meet fast-growing power needs, said President Maithripala Sirisena.
The president, who launched the initiative, said the plan called for solar panels to supply all the energy needed at the president’s residence, and that the country was committed to meeting growing energy demand with clean energy.
But shifting away from coal and other fossil fuel power to renewables - the country’s goal, according to Ranjith Siyambalapitiya, its power and energy minister - will be a challenge, the officials admitted.
Solar power has the potential to meet 32 per cent of Sri Lanka’s annual power demand of around 10,500 gigawatts - but so far just 0.01 per cent of that potential has been developed, according to the Sri Lanka energy sector development plan for 2015-2025.
Today about 3 per cent of Sri Lanka’s energy demand is met by renewables such as wind and solar. Hydropower provides about half of the country’s electricity during the wet season but during the dry season, between August and October, 81 per cent of the island’s power needs are met by fossil fuels, over half of that from coal.
“Solar is still not very popular because entry level costs are high and it does not make economic sense to low-end consumers,” said Thusitha Sugathapala, an energy specialist at the University of Moratuwa.
The cheapest entry-level home solar panel installation costs over 200,000 Sri Lanka rupees, or about $1,370. That’s because the materials must be imported, and face import duties, Sugathapala said.
Even larger users of household power, by comparison, pay only around Rs 5,000 ($34) a month in electricity bills.
The subsidy problem
Sugathapala, who previously worked on energy issues in the government, said household that use small amounts of electricity are also heavily subsidised by richer households.
For the smallest-scale users, of 1 to 30 units of electricity a month, electricity costs Rs. 7.85 a unit, while large household consumers - those above 180 units - pay Rs. 45 per unit.
The potential loss of that subsidy for poor households is one barrier to faster uptake of solar energy, Sugathapala said.
Tharanga Dissanayake, a computer programmer whose household in Moratuwa, south of Colombo, uses an average of 200 units of electricity per month, said that investing several hundred thousands rupees on solar energy panels was not a smart option for him.
“It would be at least four years before I recoup my investments. That is too long and I may have to spend on repairs,” he said.
Under the current effort to promote household solar installation, the government has offered to buy electricity generated by household solar panels at about Rs. 22 per unit. The scheme also offers households low-interest bank loans to buy the equipment, with a repayment period of seven years.
But experts like Sugathapala feel that more incentives will be needed to persuade families to shift to solar.
“If we are to make solar attractive, then ideally there needs to be more attractive incentives,” he said, including things like cheaper costs for panels, free installation, government help in maintaining panels and a higher government payment for solar energy produced for the national grid.
He said Sri Lanka has historically looked to the least expensive option to generate power, to hold down costs for consumers. Currently, because the cost of imported solar equipment is high and coal is relatively cheap, coal is the cheapest option - as long as issues like the environment and health aren’t taken into account.
At current rates, a kilowatt of electricity generated using solar panels costs Rs 23 while an average coal-generated kilowatt costs Rs 15, according to Sugathapala and data from the Ceylon Electricity Board.
Energy minister Siyambalapitiya said pressure to keep electricity prices low for consumers meant shifting to cleaner energy was unlikely to be cost-effective in the short run.
Renewable Energy
Title : Carrington gas plant comes online with promise to provide renewables back up
Medium : Business Green
Date : 22 September 2016
Carrington gas plant comes online with promise to provide renewables back up
The UK government's plans for a new wave of highly efficient gas power plants received a major boost this week, after it emerged that the Carrington plant near Manchester has become the first new gas power station to come online since 2013.
Reuters reported the 880MW facility, which is capable of providing power to around one million homes, began electricity generation earlier this week.
In a statement emailed to the news agency the plant's owner ESB said the plant will have an important role to play as more renewable energy capacity comes onto the UK's grid.
"Carrington Power Station is the first large-scale gas-fired power plant to come online in Great Britain since 2013," it said. "As well as providing 880MW of reliable baseload electricity, Carrington Power Station will be one of the most flexible plants providing fast back-up to intermittent wind and solar generation when it is needed most."
The project is significant as it is one of the first new energy projects to be supported by the government's capacity market, which offers generators payments to ensure back up power capacity is available. ESB has secured a contract under the scheme to provide capacity during the winter of 2019/20.
The initial auction rounds for the capacity market where criticised for not bringing forward investment in new gas capacity and instead providing subsidies for existing and more carbon intensive coal and diesel power plants.
The government maintains it wants to see new gas capacity to come online to replace coal plants, which it is aiming to phase out by 2025, and provide back up for intermittent renewable energy projects.
However, critics have warned excessive investment in unabated gas plants could undermine the UK's long term carbon targets and insist demand response initiatives, smart grid technologies, energy storage capacity, and baseload renewable energy projects offer a more sustainable alternative to new gas facilities.
Carbon Emissions
Title : China to launch pilot energy trading programme
Medium : Business Green
Date : 22 September 2016
China to launch pilot energy trading programme
China is planning to use a pilot programme for energy trading between companies next year as it seeks to curb carbon emissions by forcing companies to use energy more efficiently.
The pilot programme will allocate energy consumption quotas to companies, who will have to pay if they exceed the limit. It will be introduced in four provinces initially: Zhejiang, Fujian, Henan and Sichuan, and pending a review in 2020 then be rolled out nationally.
In a statement released yesterday, the National Development and Reform Commission (NRDC) also said the government aims to cap national energy consumption at five billion tonnes of standard coal equivalent by 2020.
Money paid by companies for exceeding quota limits in the pilot programme will be used to tackle emissions in their local areas, the Chinese government said. Renewable energy used by a company for its own operations will not be counted in the energy cap, it added.
The quotas will be handed out for free to each company, and firms are free to sell on surplus allowances at a profit during the same year.
The energy trading programme is set to be introduced in the same year as China is expected to launch its long-awaited cap-and-trade programme for emissions.
The Chinese system is expected to create the world's largest national carbon market, imposing carbon prices on the country's giant industrial sector in a bid to incentivise firms to step up investment in emissions reduction measures.
Climate Change
Title : ‘There is no time to waste’ Ban says, as Paris climate accord crosses first threshold for entry into force
Medium : Eco-Business
Date : 22 September 2016
‘There is no time to waste’ Ban says, as Paris climate accord crosses first threshold for entry into force
United Nations Secretary-General Ban Ki-moon declared on 21 September that more than 55 countries have formally joined the Paris Agreement on climate change signed by world leaders this past April, officially crossing one of the two thresholds required to bring into force the landmark pact that seeks to put the world on a path towards low-carbon growth and a more sustainable future.
“I am confident that, by the time I leave office, the Paris Agreement will have entered into force,” the UN chief said in remarks following a high-level event on the Agreement’s entry into force at UN Headquarters in New York this morning. “This will be a major achievement for multilateralism.”
At the meeting, 31 additional countries deposited their instruments of ratification for the Agreement, bringing the total to 60 countries that together represent more than 47.5 per cent of global greenhouse gas emissions.