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1、,SFC CE Ref:AVL084,Investment Focus,January 8,2013,Energy,RESEARCH,Bin GUANSFC CE Ref:AGL,Hongyu CAI,CFA CAIASFC CE Ref:ATX,A China Energy Symphony,Stephen Yu ZHANG Bing GAO,Between Replacing&Being Replaced,Investment highlightsThe structural changes in the energy sector will both promote and constr
2、ain Chinas economic restructuring.In this report weexamine the strengthening interactions between different sources of energy and explore the medium-/long-term investmentopportunities and risks based on the changing structures of consumption,regional layout,and price.At the core of the changing ener
3、gy consumption structure is the replacement of coal with clean energy and the cleanerutilization of coal.We believe energy savings can contribute more to the achievement of energy and emission reduction targetsthan structural changes in consumption.The government may put more emphasis on demand-side
4、 management in the future,such as to promote provincial gas pipeline construction;incentivize gas-fired power generation(incl distributed generation);and restrict energy-intensive and highly-polluting industries.Natural gas consumption is expected to maintain 12%CAGRfor a long time,and coal consumpt
5、ion slowdown could fall short of government targets.We reiterate positive view on the sustainable growth opportunities from the natural gas industry.We expect natural gassupply in China to reach 260bcm by 2015 and nearly 500bcm by 2020.Gas consumption would post a CAGR 17%duringthe 12th FYP(to reach
6、 240bcm in 2015),and a CAGR 11%during the 13th FYP(to reach 400bcm in 2020),albeit slowingalong with other energies.We are more confident than before about the gas demand potential from the electricity andtransportation sectors,which together could make up 50%of Chinas total gas consumption by 2020.
7、Tight primary energy supply will ease over next 510 years.Supply capacity expansion in coal,oil,natural gas andelectricity will generally outpace consumption growth.Primary energy supply will be more secured as both domestic andforeign sources expand.We expect Chinas primary energy import dependence
8、 will slightly decrease to 15%by 2020.Easedsupply will enable the government to find better opportunities to promote energy structural changes and achieve targets forefficiency gain and emission reduction.In the new dynamics,domestic provinces with abundant energy resources mayincreasingly compete w
9、ith foreign energy-rich countries for priorities to be Chinas energy supplier.Chinas energy products prices are expected to level out before 2015 as domestic energy market turns into a buyersmarket.This is mainly due to expected stable international crude oil prices for a relatively long time(Brent
10、at US$110/bbl inthe next two years)and easing supply in Chinas domestic markets.Even for natural gas prices,which are widely expected torise,we think the upside are limited,esp for industry users in the southeast who are paying the most expensive gas prices.Coalprices lack upwards momentum as supply
11、 is ample and transportation bottlenecks are to be eased.A sharp fall in coal price inmedium-term is also unlikely however.We expect power tariff to remain largely stable.National average retail tariff isexpected to rise slightly from the current Rmb614/MWh to Rmb624/MWh in 2015,and rise another 4%b
12、y 2020.Some may fear signs of overcapacity could lead to significantly slower capacity building.We think coal chemicals,unconventional natural gas and gas-fired power generation may all have the potential for sustained development.First,arbitrage opportunities between regions and products will conti
13、nue to drive funds into coal chemical projects.Second,pricingreform will incentivize investment in unconventional gas resources.Third,construction of the new capacity may come alongwith closure of the obsolete.Last,utilization rate of traditional petrochemical capacity,which may face the biggest thr
14、eat,remains above 80%with high market concentration.In short,the overcapacity risk may not scare away new investment.Coal chemicals still make sense in China.We favor Shenhua,Yitai and Guanghui on significant cost advantages and uniquebusiness models.In oil&gas,we like Anton,SPT Energy,Honghua,Hilon
15、g,and Chu Kong Steel Pipe among H-shares,and A-shares Tong Oil Tools,China Oil HBP,Jereh,GI Technologies,and LandOcean.We recommend BeijingEnterprises Holdings on its gas sales growth to power producers and ENN Energy which should benefit from gas use intransportation.Huaneng Power could see profit
16、improve on possible tariff increases in east China and weak coal prices.Among chemical engineering companies,we are positive about China National Chemical Engineering,the industry leader,East China Engineering Science&Technology,and Wison Engineering Services given order book growth potential.Please
17、 read carefully the important disclosures at the end of this report,CICC Research:January 8,2013,Contents,Structural changes of Chinas energy industry.4New economic objectives.4Changing consumption structure and volume control.4Coal,between replacing and being replaced.7Overall capacity utilization
18、may fall.7Adjustments in geographical structure hinge on transportation expansion.8Price movements.12Changes in investor structure.14Supply&demand analysis and price forecast for energy products in China.15From coal to natural gas.19The switch from coal to natural gas in power generation.20China wil
19、l develop the CTG industry to an appropriate extent in selected regions.20Natural gas industry will see the most sustainable rapid development.23From oil to coal.26The impact of coal chemical on petrochemicals.26Coal chemicals face water shortages and environmental constraints.28From oil to natural
20、gas.31Oil replacement with natural gas in transportation.32Impact of the shale gas revolution on Chinas petrochemical industry.32Impact of the international markets evolution on the Chinese market.37Investment recommendations.39Coal.39Oil&gas.41IPP and gas distributors.42Chemicals.43,Please read car
21、efully the important disclosures at the end of this report,2,CICC Research:January 8,2013,Figures,Figure 1:Assumptions on sector growth and economic structure.4,Figure 2:Energy saving was achieved through a reduction in energy intensity in the 11th FYP and to be achievedthrough consumption slowdown
22、of fossil fuel in the 12th FYP.5,Figure 3:Economic restructuring and energy saving are more important than structural changes in realizingnational energy targets(left);scenario simulation if the policy targets are achieved(right).5Figure 4:CICC energy forecast model:structural changes are easier job
23、s than volume control and energy saving.6Figure 5:Energy consumption by sector in 2010.7Figure 6:Net outbound electricity transmission from each province in 2002 coal chemicals have significant cost advantage(right).28Figure 29:High water consumption and high emissions will constrain the development
24、 of coal chemicals.28,Figure 30:The 15 new coal chemical demonstration projects approved under 12th FYP.29,Figure 31:Estimated investment scale of coal chemical projects in China during 2012-2020.29Figure 32:In China,the long-term planned capacity of coal-to-oil is only 1/5 that of net imports.30Fig
25、ure 33:Scenario analysis on substitution of natural gas for oil.31Figure 34:Global ethylene capacity in 2011 by region(left)and feedstock(center);utilization forecast(right).33Figure 35:Switch to ethane to continue in North America:2004(left)vs.2011(center)vs.2015(right).33Figure 36:Global ethylene
26、cost curve migration(baseline scenario).34Figure 37:Chinas PDH projects at a glance.35Figure 38:Chinas annual propylene equivalent consumption and growth rate(left);propane demand from ChinasPDH projects as%of the global trading volume(right).35Figure 39:Production cost comparison between propane de
27、hydrogenation and MTP.36Figure 40:US NGL supply from gas processing outlook(left);US NGL production by type(center);US NGLproduction from gas processing(right).36Figure 41:Major flow directions of US NGL(left);four major US propane export ports(right).36,Please read carefully the important disclosur
28、es at the end of this report,3,11%,CICC Research:January 8,2013Structural changes of Chinas energy industryNew economic objectivesTepid economic recovery expected for 2013 and medium-/long-term growth to moderate.Given the faster infrastructureinvestment and business restocking,CICC macro team predi
29、cts Chinas economic growth will accelerate from this years7.7%to 8.1%in 2013.Medium-/long-term,Chinas potential growth is falling as growth of the labor force slows down,thedividend of entering the WTO subsides and housing bubbles are pressing the real economy.The growth objective has beencut from 2
30、011s 8.0%to 7.5%this year.The medium-/long-term objectives set in the 18th CPC Congress suggest the GDPCAGR in the next eight years is 6.8%,or 7.5%in the 12th FYP and 6.5%in the 13th FYP.Amid the trends of urbanization andindustrial upgrading,the tertiary industry will increase its weight in the eco
31、nomy while the primary industrys share will fall.Figure 1:Assumptions on sector growth and economic structure,25%20%,%,Estimates2020e,Primary IndustryConstruction,2010A27%,9%,7%,15%10%5%,MiningManufacturingElectricity,Gas and WaterTransport,Storage and PostWholesale and Retail,9%,6%,0%,1991,1995,199
32、9,2003,2007,2011e,2015e,Other,5%,3%,34%,Grand Total,Primary Industry,Secondary Industry,Tertiary Industry,Primary Industry,2015E,7%,7%,Primary Industry,2020E25%,6%,8%,ConstructionMiningManufacturingElectricity,Gas and WaterTransport,Storage and Post,26%,6%,ConstructionMiningManufacturingElectricity,
33、Gas and WaterTransport,Storage and Post 13%,6%,Wholesale and RetailOther,5%,3%,35%,Wholesale and RetailOther,5%,3%,34%,Source:CEIC,CICC ResearchChanging consumption structure and volume controlIn 2012,China contributed 9%of the worlds GDP,but accounted for 20%of global energy consumption and 25%of g
34、lobalCO2 emissions.Energy saving and emission reduction are in Chinas own interests as well as a serious commitment made toboth its people and the world.Since energy saving and emission reduction have been unanimously agreed upon,increasingthe portion of clean energy in total consumption has become
35、a policy target.Recently,the State Council passed the 12th FYPProgram for Energy Development,which stipulates that primary energy consumption shall be controlled at 4.1bt of standardcoal equivalent and electricity consumption at 6.3trn kWh by 2015;the share of non-fossil energy shall be raised to 11
36、.4%,the share of installed electricity capacity based on non-fossil energy to 30%,the share of natural gas consumption up to 7.5%and the share of coal consumption down to 65%;total capacity of primary energy supply shall reach 4.3bt of standard coalPlease read carefully the important disclosures at
37、the end of this report4,CICC Research:January 8,2013equivalent,3.66bt of which shall be produced domestically with a self sufficiency ratio of 85%;the dependency on importedoil shall be controlled below 62%.In Chinas Energy Policy(2012)recently published by the State Council,the governmentpromises t
38、hat non-fossil energy will increase its share of total primary energy consumption to 15%by 2020 and carbonemissions per unit of GDP in 2020 will be 4045%lower than the 2005 figure.In the medium-/long-term,the growth of energy consumption will moderate as the economy,as well as industrialization andu
39、rbanization,slows down.Given the efforts in economic restructuring and environmental protection,overall energyconsumption will decelerate.For example,the government expect the urbanization ratio to reach 60%by 2020(51.3%in2011),suggesting that the average annual increase is 1ppt,lower than the avera
40、ge pace of 1.4ppt since 2000.In the meantime,investment-related industries such as steel,construction materials and nonferrous metals will see continued slowdown inproduction and energy intensity.Specific targets are set:unit coal consumption of thermal plants shall fall 0.5%per annum,and unit energ
41、y consumption of cement clinker/steel/synthetic ammonia production shall drop 0.5%/0.8%/0.8%per annum.Figure 2:Energy saving was achieved through a reduction in energy intensity in the 11th FYP and to be achievedthrough consumption slowdown of fossil fuel in the 12th FYP,Energy Consumption,Unit,per
42、unit ofRmb10,000 GDPCoal-fired electricitySteelCementAmmonia,(stanrdard coal)TonnesGram/KwhKg/tKg/tKg/t,2005A1.283706881611,636,2010A1.033336051151,402,2015E0.873255801121,350,2005-2010 CAGR-4.2%-2.1%-2.5%-6.5%-3.0%,2010-2015 CAGR-3.4%-0.5%-0.8%-0.5%-0.8%,Source:NDRC,CICC ResearchAt the core of the
43、restructuring of energy consumption is the replacement of coal with clean energy and the cleaner way ofutilizing coal.We believe energy saving can contribute more to the achievement of energy and emission reduction targetsthan structural changes in consumption.The government could put more emphasis
44、on demand side management;promoteprovincial gas pipeline construction,incentivize gas-fired power generation,support distributed energy and restrictenergy-intensive and highly-polluting industries.We expect social energy consumption will grow 5.4%per annum in the 12thFYP and 4.1%per annum in the 13t
45、h FYP.Natural gas consumption is expected to post a 17%growth per annum in the 12thFYP,reach 240bcm by 2015,and maintain fast growth of 11%in the 13th FYP,albeit slowing along with other energies.Figure 3:Economic restructuring and energy saving are more important than structural changes in realizin
46、gnational energy targets(left);scenario simulation if the policy targets are achieved(right),Scenario ICO2 Emission(bn ton)2010A,No savings;No Structural ShiftGDP growth6%8%10%8.5 8.5 8.5,Primary energyConsumption(mn ton std coal)2000ACoal 1,007,2005A1,671,2009A2,159,2010A2,210,2015E2,527,2020E2,627
47、,2015E2020E%chg vs 2010A2015E2020E,11.315.134%79%,12.418.347%116%,13.621.961%159%,OilGasNon-fossil energyTotal,32332931,455,467611602,360,5491202393,066,6171432793,249,7263014574,011,7985637044,691,Scenario II,Savings Only,Consumption breakdown,2000A,2005 2009A 2010A 2015E 2020E,CO2 Emission,GDP gro
48、wth,Coal,69.2%70.8%70.4%68.0%63.0%56.0%,(bn ton)2010A2015E,6%8.59.5,8%8.510.4,10%8.511.4,OilGas,22.2%19.8%17.9%19.0%18.1%17.0%2.2%2.6%3.9%4.4%7.5%12.0%,2020E,10.6,12.8,15.4,Non-fossil energy,6.4%,6.8%,7.8%,8.6%11.4%15.0%,%chg vs 2010A,Total,100.0%100.0%100.0%100.0%100.0%100.0%,2015E2020E,12%25%,23%5
49、1%,35%82%,Scenario IIICO2 Emission,Savings+Structural ShiftGDP growth,Note:Above estimates based on assumed economic growth of 8%during 12th FYPand 7%during 13th FYP;unit GDP energy intensity to fall 16%by 2015 and 16.6%,(bn ton)2010A2015E2020E,6%8.59.09.4,8%8.59.911.3,10%8.510.913.6,by 2020.,%chg v
50、s 2010A,2015E2020E,7%11%,17%34%,29%61%,Source:CEIC,NDRC,Industry data,CICC ResearchPlease read carefully the important disclosures at the end of this report5,CICC Research:January 8,2013We believe Chinas gas-fired power generation capacity will grow rapidly at a CAGR of 26%in 201115,only behind theg
