Sunday, December 02, 2012

Energy and Infrastructure Forecast for new year 2013, Risks and Opportunities

Dear Energy Professional, Dear Colleagues,

We would like to make forecast in our local energy markets in the New Year 2013.  Economy and business future is always shaped by expectations. This is evaluated by economists, and there is one Nobel price given in year 1995 for shaping future with expectations. Market expectations are important in economic forecasts globally as well as locally.  

At the beginning of each year, there are many economic forecasts made by the nationwide daily newspaper columnists, however as we all see there are almost none made in energy markets.  Within our capacity, we tried to outline draft forecast albeit maybe somewhat irrational/ unfair for the New Year. Anyhow it is better to have one, rather than none. Here are expectations for the New Year 2013;

In early days of 2013, Iran will again cut-off Natural Gas flow due to excessive needs of her own domestic market due to harsh winter conditions for at least 1-month. Russians will increase supply capacity in the Blue Stream for a substantial premium as usual.

"Gold for Gas" barter between Iran and Turkey may end due to US sanctions over Iranian exports. That may stop gas from Iran for the long term. Turkey should look for alternative energy sources for supply security.

Iranian Nuclear strike capability makes MiddleEast countries nervous. So Rival Countries may initiate direct surprise attack(s) which may lead to global energy crises in the world. So we should have increased underground gas storage capability and bigger fuel storage facilities for short term 90-days emergency. Any conflict which will last more than 90-days will be a catastrophe.

“Each and every incentive/ every good intention are abused with extreme care”, so political power is expected to be reluctant to issue new energy incentives. 

Russians will outsource in Akkuyu Nuclear Power plant, starting from local civil works, high capacity steam turbines, instrumentation and controls, due to experience on serious shortage of available commercial financing. Since the project is not commercial, but now purely political, it is only possible through political project financing. Hence it is not so easy to finance the complete project from one source. Political risks of a nuclear power plant project cannot be properly estimated; hence non-commercial project has no commercial meaning.

Sinop Nuclear power plant project will be evaluated by interested parties including Chinese, South Koreans, Canadians, French and again Russian counterparts. We suspect if commercial companies can secure approx. 20 billion US Dollar project financing during Euro Zone credit crunch days and fiscal cliff in the USA.

We expect new investment initiatives on new found coal mine fields in order to build new thermal power plants under locally developed clean coal technologies.

Hamitabat 1120 MWe (1154 MW after rehab) output capacity gas fired combined cycle power plant sale date is twice postponed, and now new auction is scheduled on 14 January 2013. There are 4 pre-qualified groups. 

Kütahya Seyitömer 4x150 MWe local coal fired plant auction is scheduled for privatization on 20th December 2012. Sivas Kangal coal fired 3x150 MW thermal power plant will be sold on 17th January 2013. These dates could be postponed if two or more pre-qualified participants ask for  new time extension.

Next Manisa Soma 1034 MWe power plant, then Çanakkale Çan 2x160 MWe CFB are expected to be auctioned shortly. These thermal power plants auctions are property sales, but coal basin are in transfer of operating rights for next  30 or more years.

Local coal firing new thermal power plant constructions are in progress. Kütahya Domaniç coal fields for construction of new 300 MWe Thermal Power plant will be leased on 26 March 2013. New tenders for operating coal fields of Konya Karapınar, Eskişehir Alpu, and Tekirdağ Saray will follow

Russian Natural gas price at German border was 419 US Dollars per 1000 standard cubic meter or 10.56 USD/MMBTU as of November 2012. For European customers, the price soon is expected to exceed 500 US Dollars per 1000 standard cubic meter in year 2013. That is approximately 13.00 USDollars/MMBTU.  We surely have same figure for our local market. Hence we expect less number of investments for new natural gas fired  Combined Cycle power plants due to increasing Current Account Deficiency (CAD).

Thermal power plant investments in NorthWest BlackSea coast are expected to be on hold for a while due to  ongoing EIA scheme, and high reaction of local environmentalists. 

Local Regulation of foreign personnel employment is changed, so cheap foreign employment will not be possible.

Situation in Gerze seems getting out of control. Smart investor should stop further push and direct available investment funds to some other sectors.

BlackSea hard coal underground mine fields leasing scheme is finalized. Companies will look for a nearby seaside empty land to build new  thermal power plants.

Spot imported coal price for 12,000 BTU per lb HHV is currently around 85-89 US Dollars per metric ton FOB seaport basis. That is approximately 3.30 US Dollars/ MMBTU. We presume that price will be kept at that  level in year 2013. Current account deficit (CAD) is in severe situation due to increased spending on imported coal and imported natural gas purchases at intolerable levels. Increased use of domestic coal / energy sources  will be encouraged..

Almost all existing thermal power plants are in privatization, but investment appetite is low because of the ongoing global economic crisis. Privatization tendering process will continue in second half of next year.

Turkey is still at very low annual per capita electricity / production / consumption with approximately 3000 kWh, EU current average is 10K; North American average is 12K. Local markets need more generation.

Western Foreign investors have lost their appetite; domestic investors do not have money, however investors of rich Middle East countries may have increased appetite.

Local design, local production, local engineering do not exist yet..

Western natural gas pipeline supply by Russia's Gazprom will be placed to local companies.

HEPP and thermal projects receive severe reactions of local people, and reactions will continue on all legal platforms. 

In recent popular social media, investors are more or less incorrectly/ but implicitly represented as negative profiles, it is alarmingly too deceptive. How that profile will be corrected in public image?? That is to be worked on.

Due to ongoing high environmental pollution, no sufficient filters, no desulphurization, no rehab, therefore we recommend that  Unit Afsin Elbistan-A, should be shut down, dismantled and sold as scrap. However there is still ongoing negotiations for privatization.

On the other hand Elbistan Çöllolar landslide disaster was forgotten after the event. Reutilization should be enforced after legal procedures.

Afsin Elbistan C-E tendering is in document preparation in central procurement department of the authority with foreign consultant, anyhow too much time/ effort/ money is consumed if not wasted.

Rehabilitation of public thermal power plants are almost completed,  their privatization will be completed in year 2013.

Construction of Thracian Submarine energy transmission which will cross Dardalennes Channel will be completed in year 2013.

East Med Cyprus offshore drilling work did not reveal expected results. Offshore Contractor Company is not comfortable with the early results. South Cyprus media and government still push positive expectations, trying to keep the case in agenda, but the situation seems not so promising, the investor does not want to gamble any more, return is not earlier than 10 years in time...

No hostility foreseen between Greece, Israel and Turkey, however pushing for fair share of nearby natural resources is the rule of the game in international politics.

Black Sea drilling is a never-ending story, everyone is talking about very large reserves, but there is nothing in reality.

Investment appetite in Wind capacity is almost saturated, Environmental concerns will be on the agenda. We have no utility size pumping storage HEPP capacity yet.

Investment in Solar energy is still very little, without making local fabrication of the solar equipment; one cannot go further with expensive electricity generation.

Electric cars / buses are in agenda, but we shall all ask who will be paying high cost of new transformers due to additional heavy pulse load.

How do we run away the climate change obligations? We shall have low profile participations of the public sector.

TransAnatolian Pipeline project is in fast-track agenda. Nabucco is almost forgotten.

Oil prices per barrel may rise next year due to ongoing financial risks.

Slowdown in demand for electricity in the first quarter is more likely.

Construction activities for Submarine HVDC cable, gas and water supply pipelines from Turkey to Northern Cyprus will continue.

Change of power in Syria is not foreseen in the short term. However influx of refugee number will get increased to almost 1 million by the end of year 2013. It is too alarming situation. We shall need approximately 4 billion US Dollars to be spent for the incoming refugees within our territory per year. This is a great burden on our economy.

In case of Assad leaving Syria in future, there could be misfortunate massacres of thousands if not millions by  Al-Qaida insurgents. 

Turkish natural gas demand will begin to fall, probably by the second half of the year.

Accelerated increase in local fuel prices, is expected,

Due to low investor appetite, Privatization strategy will be reconsidered in order to increase the ongoing high income based tendering process.

Turkish oil law will be reevaluated, again,

Ministry of Environment will be  in restructuring. The secondary legislation is still pending.

We expect reorganization as well as restructuring in Ministry of Energy and Natural Resources in order to reduce staff, to reassess duties and responsibilities...

Similarly EMRA also needs to be reorganized and restructured, and Agency may be divided into two, maybe three. EMRA licensing will go on with reduced speed, copy / paste applications for license overrun archives. Rejection is less than 2%.

Euro and US Dolar both are expected to depreciate. USA fiscal cliff will be on the annual agenda.

Turkey will enter into a period of nationwide frenzy general elections in year 2014. In new general elections, all of 3-term MPs will leave Parliament and from Ministerial posts. Ministers of  Energy, Finance, Treasury will leave. Economy will miss strong leadership, and public experience. That is an important risk.

Euro Zone crisis and US fiscal cliff will continue in 2013. So reduce your expenditures, reduce your spending, reduce your borrowing, stay cash, stay liquid. 

We were able to predict this much. Everyone in business environment says that 2013 will be another difficult year.  We shall be too pleased to receive your comments/ contributions in the New Year. Happy and Prosperous New Year to you all!

HalukDireskeneli  at, Munich, Germany

Haluk Direskeneli is a graduate of the METU Mechanical Engineering department (1973). He worked in public, private enterprises, U.S. and Turkish JV companies (B&W, CSWI, AEP), in the fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant and energy analyst with thermal power plant basic and detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of the Chamber of Turkish Mechanical Engineers Energy Working Group. 


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