Datang International Power Generation (0991.HK)
Keqi Coal-to-Gas Project Likely to Be Loss-Making in 1H14E
27 November 2013 ¦ 21 pages ir.citi.com
excerpt:
Loss-Making Keqi Coal-to-Gas Project
Datang’s Keqi coal-to-gas project phase 1 is set to start operation on 15 Dec
2013, pending completion of PetroChina pipeline, so that it could supply NG to
Beijing for heat supply in winter. Phases 2 and 3 of this project are scheduled to
start operation in 3Q14E and FY15E, respectively. The gas production capacity of
each phase is 1.3bcm pa. NG from this project would be transmitted via a pipeline
of around 100-km, being built by PetroChina, before selling to Beijing Gas at the
city-gate in Beijing.
The project would be loss making at current NG sales prices estimated by
Beijing Enterprises at a post China Gas 1H14 results analyst meeting. The city-gate
price of NG from this project to be paid by Beijing Gas would be Rmb2.01/m3
according to Beijing Enterprises, the same as the city-gate price paid by Beijing Gas
for NG supplying to Beijing currently, and lower than our previous estimate of
Rmb2.70/m3. And the NG sales prices of this project would be lower than the city-
gate prices by Rmb0.1-0.2/m3 netting the transmission fee to be collected by
PetroChina to transmit the NG via pipelines for about 100km. The NG sales volume
of this project in 4Q13 would be small and rise to 1bcm in 2014E, as Datang targets
the utilization of its phase 1 to reach over 70% in 2014E.
This coal-to-gas project should turn profitable after next city-gate price hike
probably in mid 2014, as forecast by Beijing Enterprises. To recap, the last city-gate
price hike in Beijing took place on 10 July, raising the price by Rmb0.35/m3 from
Rmb1.66/m3 to Rmb2.01/m3, +21%. The commissioning of phases 2 and 3 in FY14-
15 might also trim the unit cost with larger scale to share the fixed investment. This
project is held 51% by Datang and 34% by Beijing Enterprises, 10% by its China
Datang Group, and 5% by Tianjin Jinneng Investment Company.
Delay in Commissioning of Fuxin Coal-to-Gas Project
Datang has postponed the commissioning of Fuxin coal to gas project Ph.1 to
supply NG to Shenyang to 3Q14E. Construction of Ph.2-3 of the same project has
not been started. The delay was due to relative low local demand of the city gas
project in Shenyang, which consumes NG of only 10bcm pa. Datang’s Fuxin coal-
to-gas project has a designed NG production capacity of 4bcm pa, including
1.33bcm for each phase. This project is owned 90% by Datang and 10% by its
parent, China Datang Group.
Loss Making of Duolun Coal-to-Chemical Project
Datang’s Duolun coal-to-chemical project will have an attributable net loss
close to Rmb200m in 4Q13E, versus Rmb600m in 9M13. While utilization has
increased after a major overhaul in July and the first half of August, so that its
polypropylene production volume was up from 157,000 tonnes (or average 46%
utilization against production capacity of 460,000 tonnes pa) in 9M13 to 210,000
tonnes (or 46% utilization) in FY13E, depreciation has augmented as all fixed
assets of this projects have commenced commercial operation since 1 Oct 2013,
from 60% before. The incremental depreciation expense is about Rmb425m pa,
based on incremental fixed assets of Rmb8.5bn to be depreciated over 20 years on
a straight-line basis. The losses were due to (i) unstable coal gasification using
Shell technology, leading to high fixed cost per unit of output; and (ii) high energy
consumption cost resulting in high variable cost per unit of output. The product
sales prices were up from Rmb10,235/tonne in 9M13 to Rmb10,936/tonne in 3Q13
and Rmb11,700/tonne on 23 Oct 2013. This project is owned 60% by Datang and
40% by its parent, China Datang Group. |
