2010 was a year of recovery, but for some more than others. Oil may have bounced back, but the energy complex as a whole was marked by distinct disparities between commodities and regions. But if there is one consistent factor, it is thatAsiasteals the show. Whether coal, gas, oil or electricity, recession or boom, Asia-Pacific’s rate of consumption growth outstrips all other regions by a substantial margin.
At the heart of this is one of the world’s largest mass migrations in history, from countryside to city. Even if China’s population growth may have slowed, it expects to add 16 million urban dwellers a year out to 2020, creating huge new demand for energy.
Urbanization across non-OECD Asia- Pacific is one of the key driving forces behind the region’s rapid growth in energy consumption, so it is no surprise that in the Platts 250 Asian companies are once again to the fore.
However, companies’ ability to benefit from Asia’s growth depends on location, activity type and market. While crude, coal and to some extent LNG benefit from international pricing – and thus from Asian growth — gas and power markets are more regionally based. Higher feedstock prices make profits for some, but represent costs to others. In Asia too, the impact of growth in energy demand is differentiated. Oil refiners and power producers often find themselves caught between the rock of international feedstock prices and the hard place of regulated domestic markets.
Recovery and Decline
World oil demand in 2010 grew by 3.1% on year to 87.382 million barrels a day, surpassing its former peak in 2007 and more than reversing the previous two years of contraction.
Rising demand was accompanied by rising prices: Platts’ physical crude benchmark Dated Brent averaged $79.50/barrel in 2010, its second-highest annual average ever and a big step up from the $61.67/b average seen in 2009. Asia saw the fastest on-year growth in demand, at 5.3%, as opposed to Europe’s anemic 0.1%.
World gas consumption jumped by 7.4% on year in 2010 to 3,169 billion cubic meters, also reversing the contraction of 2009 and reaching a new peak. Although demand rose in all regions, the pricing picture amply demonstrated the benefits to consumers of gas-to-gas competition, and by contrast the benefits of its absence to producers. It also illustrated the almost complete disconnection of the US gas market from trade in LNG and thus the severing of international gas price transmission mechanisms.
In the US, gas prices at Henry Hub averaged $4.09/MMBtu over 2009, rising to only $4.4/MMBtu in 2010 as supply from shale plays kept overall gas supply well above demand. This has caused a shift in drillers’ attention from shale gas itself to liquids production. By contrast, gas prices at the UK National Balancing Point jumped from an average of $4.775/MMBtu in 2009 to $6.575/MMBtu in 2010.
But the runaway gas markets were, first, spot LNG prices in the Asia-Pacific market, which increased 46.2% on year from an average of $5.28/MMBtu in 2009 to $7.72/MMBtu in 2010, and second, long-term oil-linked gas contracts. Although these rose less than spot prices, they achieved the highest absolute val , averaging, in Europe, $9.0058/MMBtu in 2010, up from $7.4038/MMBtu in 2009.
World coal consumption jumped 7.6% on year to 3,555.8 million tons of oil equivalent (mtoe) in 2010, driven by Asian demand. While this is also an all-time global high, the regional variation is stark. Coal consumption in Europe is in long-term decline.
Although consumption rose by 4.4% in 2010, and steam coal prices delivered to Northwest Europe jumped 39.6%, coal use remains well below pre-financial crisis levels. A similar trend is emerging in newly gas-rich North America. US steam coal prices on NYMEX averaged $61.60/ short ton over 2010, up 26.3% from 2009. But again, while North American coal use rose 5.3% over 2009, it remained 9.5% below 2007 levels.
In Asia, the story is very different. Consumption rose by 9.1% on year to 2,384.7 mtoe, reaching its highest-ever level. Average Chinese steam coal prices at Qinhuangdao leapt 31.6% in 2010 to $115.42/metric ton.
Top Ten
The entry of German multi-utility E.ON AG to the top ten in 2009— the only non-Integrated Oil and Gas (IOG) company to do so in the last five years—proved fleeting. The oil and gas giants reasserted their dominance of the top ten rankings, taking all ten spots despite a stricken BP dropping far from sight. On the back of higher oil prices, the top ten companies brought in a combined $178.874 billion in profits, a 20.4% increase from 2009, but still down from the bumper year of 2008, when profits hit an all-time high of $214.042 billion.
US giant Exxon Mobil Corp retained the top spot in 2010, while Chevron Corp moved up from ninth in 2009 to second place as it boosted its return on invested capital (ROIC) to 16% from 10.2% in the previous year. Gazprom OAO, PetroChina Co Ltd, Total SA and the China Petroleum & Chemical Corp took third, fourth, fifth and eighth places, respectively, while Royal Dutch Shell climbed from tenth to sixth.
Three re-entrants to the top ten in 2010 included ConocoPhillips—now the subject of an innovative demerger into upstream and downstream businesses— which moved up from 24th place to seventh. Meanwhile Russia’s OJSC Rosneft Oil Company and Lukoil Oil Company rose from 14th and 11th places, respectively to take the ninth and tenth spots.
E.ON dropped back to 13th from sixth, and Brazil’s Petrobras-Petroleo Brasilier fell from fourth in 2009 to 12th in 2010. But the biggest omission from the top ten was UK major BP. Ranked second in 2009, BP dropped to 118th on account of the cost of the Macondo oil spill in the US Gulf of Mexico. Although in dollar terms its asset base expanded, as did its revenues, BP’s profits were wiped out. The company posted a loss for 2010 of $3.719 billion.
Here Come the Russians
Although the year-to-year changes in the top ten companies can be small, the big trends can be seen from longer term comparisons. In 2006, the top ten consisted of five west European integrated oil and gas companies, three US majors, PetroChina and Petrobras. In 2010, there were still three US majors but now two Chinese and three Russian companies, with only two European companies remaining.
But among the top 20, there were still eight European companies, including three utilities, just one less than in 2006. US representation dropped from six to three, while Russia had four companies in the top 20 compared with three in 2006. China is represented by three companies compared with only two five years earlier.
The entry of Russian companies into the ranks of the world’s top energy enterprises is a striking feature of the 2010 list, and features not only oil and gas, but also electricity industry companies as a result of privatization in the sector. Of the top ten fastest-growing companies, three are Russian: RusHydro JSC, Bashneft OJSC and Moscow United Electric Grid OJSC, with RusHydro recording a giant three-year CGR of 106.1%. There are now 15 Russian companies in the top 250, compared with 11 in 2009 and nine in 2006.
Mighty Gazprom’s position remains pre-eminent in natural gas, based on its huge production volumes and monopoly grip on Russia’s gas pipelines and exports. However, it may one day have a challenger in the form of private gas company Novatek OAO, which is operator of the planned Yamal LNG project. Novatek has moved up from 126th position in 2009 to 104th in 2010. Profits rose from $854 million to $1,358 million with an impressive ROIC of 19% in 2010—the twelfth-highest ROIC out of the entire top 250. It is also the 34th fastest-growing company based on its three-year CGR. Including AK Transneft OAO, the country’s oil pipeline monopoly, Russia now has eight companies primarily focused on oil in the top 250 as well as two gas and five power sector companies.
Returns and Growth
The ROIC rankings are revealing. The oil majors and big European utilities may dominate in terms of asset base, revenues and profits, but when it comes to return on invested capital only one OECD-based company makes the frame—the US E&P company Cimarex Energy Co, which is a new entrant to the list with an overall ranking of 170. Instead, this is where Latin America really makes its mark. Top of the board is Colombia’s rejuvenated Ecopetrol SA with a staggering ROIC of 98%. Argentina’s YPF SA is third with an ROIC of 28%, while Brazil’s Eletropaulo-Metropolitana Eletricidade de Sao Paulo SA is seventh ranked with an ROIC of 22%.
Russian and Chinese companies are also well represented, while Kazakhstan’s oil and gas company KazMunaigas Exploration and Production JSC takes the tenth spot with an ROIC of 19%. Coal India Ltd, newly listed in 2010, is second with an ROIC of 31%. Distinct trends also emerge from the top 50 fastest growing companies, the leader of which is Essar Energy plc. Although Essar Energy is incorporated in the UK, the credit for its three-year CGR of 199.5% has to go to India, as this is an Indian-owned and led company.
Out of the top 50 fastest growers, 40 are from outside the OECD compared with 36 in 2009. And while the oil industry is out in front in terms of absolute size, when it comes to growth it is Electric Utilities, Independent Power Producers and Coal & Consumable Fuels companies that dominate the top 50 list of fastest growers.
That said, oil companies still make up six of the top ten spots. Perhaps surprisingly, three of these are oil and gas refining and marketing companies—all non-OECD and all export-orientated. They are India’s Essar Energy, Saudi Arabia’s Rabigh Refining & Petrochemical Co and Thailand’s PTT Aromatics & Refining Plc. A fourth—El Paso Pipeline Partners LP—is from the oil and gas storage and transportation segment. There are three such companies among the top 50 fastest-growing companies, as well as four refining and marketing businesses, compared with five E&P and three IOG companies.
The E&P companies lead the IOGs.
The E&P companies posting the fastest growth are Cairn India Ltd, with a three-year CGR of 116.5%, followed by Russia’s Bashneft (57.9%) and then Texan company Southwestern Energy Co. (27.7%). Close on their heels are China’s CNOOC Ltd (26.2%) and Russian gas player Novatek (23.6%). By contrast, the fastest-growing IOG is Canada’s Suncor Energy Inc, with a three-year CGR of 27.5%. The only other two IOGs to make it into the top 50 fastest-growing companies are Colombia’s Ecopetrol (23.4%) and PetroChina (20.6%).
C&CF
Chinese companies increasingly dominate the coal and consumable fuels category, reflecting a number of factors. First,China has the largest and most rapidly-expanding coal industry in the world. Second, the industry is undergoing a state-led process of consolidation that is pushing smaller operations into major conglomerations. And third, as the country’s coal imports continue to increase, Chinese companies are looking to expand beyond their own borders for supplies. While there were three Chinese companies in the C&CF top ten in 2009, there are now five, the two new entrants being Shanxi Lu’an two new entrants being Shanxi Lu’an Environmental Energy Development Co Ltd. and Shanxi Xishan Coal and Electricity Power Co Ltd.
Another new entrant is Coal India, which in 2010 undertook a massive initial public offering which was more than 15 times oversubscribed. As India’s primary coal producer in the world’s third largest coal market, this puts the company second behind only China Shenhua Energy Co Ltd. It also puts it 51st in the overall rankings. In addition, Thailand’s Banpu Pcl has emerged in the C&CF group at number six, reflecting the company’s expansion into China, Laos and Indonesia.
The emergence of these companies has pushed Indonesia’s Adaro Energy Tbk and Bumi Resources Tbk Pt out of the top 10 C&CF companies, while the US’s Patriot Coal Corp has also dropped out to be replaced by Consol Energy Inc. In terms of growth, there are eight C&CF companies in the top 50 fastest growing list. They are all Asian; five from China, two from Indonesia and Thailand’s Banpu. Adaro Energy and Bumi Resources may have dropped out of the top ten C&CF companies, but they can still claim to be amongst the fastest growing energy companies in the world.
Utilities
The Electric Utilities category remains dominated by the European giants. Of the top ten, eight are European and two American. While there have been slight changes in relative positions, the group remains largely as in 2009. However, two companies have disappeared from the top ten—France’s EDF and US company NextEra Energy Inc—with the latter performing well but just being edged out into 11th place. Replacing them are Germany’s EnBW Energie Baden-Württemberg AG and the US’s Southern Co.
Nuclear giant EDF has dropped from 22nd in the overall Platts’ rankings in 2009 to 64th in 2010, the third year in a row it has slipped. While still ranking top in terms of assets, the decline in the company’s financial performance reflects €2.9 billion ($3.9 billion) in non-recurring risks and impairments in 2010, owing to deterioration in international power and gas market conditions.
Most of the impairments relate to the US and Italian markets, but EDF is also struggling with cost and construction overruns with its new model nuclear reactor at Flamanville in France. In the IPP sector, the results are much more internationally diversified. India’s NTPC Ltd has moved to the top of the leader board, while the US’s Constellation Energy Group Inc has dropped from first in 2009 to disappear from the list altogether, following a net income loss of $931.8 million in 2010.
The company is likely to re-emerge in 2011, but in a new guise, if a proposed merger with Exelon is completed. There are now four Chinese companies in the IPP top ten compared with two in 2009. This group shows the largest change in composition with the new entrants including China Yangtze Power Co. Ltd in third, Datang International Power Generation Co. Ltd in eighth and Enel Green Power SpA in tenth place. In addition to Constellation Energy, the UK’s International Power Plc has dropped out of the top ten.
The picture is different when it comes to growth rather than absolute size. If western Europe dominates the top rankings for EUs, Russia has the fastest growth in the form of RusHydro JSC, Moscow United Electric Power Grid, Mosenergo Ao and the Federal Grid Company of Unified Energy System JSC. India’s Reliance Infrastructure Ltd and Power Grid Corp of India are also amongst the fastest growing EUs.
There are no US companies in the fastest- growing top ten, but Europe continues to provide opportunities. The UK’s Scottish and Southern Energy plc and Spain’s Iberdrola SA and Endesa SA are present, while South Africa’s Eskom completes the leader board.
There are seven IPPs in the fastest growing top 50 companies, with six coming from China. The non-Chinese company is Spain’s Iberdrola Renovables SA with a three-year CGR of 33.0%. A notable absence from the growth list are Chilean IPPs, with companies such as AES Gener SA and Colbun SA, which were represented in 2009, failing to maintain their places in 2010.
Asian Leaders
The number of Asian companies in the top 250 continues to rise, reaching 70 in 2010, up from 67 in 2009 and 56 in 2006. In addition, despite having more companies represented, the average ranking of Asian companies has also improved from 135.2 in 2006 to 134.9 in 2009 and 131.3 in 2010 (a lower number denotes a higher ranking). Asian companies are not just increasing in number, but are increasing their rankings relative to their international peers.
Within Asia, the average ranking of Japanese companies overall has improved from 145.9 to 132.1. This partly reflects the Japan Petroleum Exploration company dropping out of the top 250, but the improvement is notable given the sharp fall in the ranking of the Tokyo Electric Power Co (Tepco) which was ranked 54th in 2009, but 131st in 2010.
This is the result of the financial impact of the Fukushima nuclear disaster in March 2011 and Japanese reporting of financial data based on fiscal years running from April-March. Tepco recorded a loss of $14,881 billion in fiscal 2010. Other Japanese companies dropping down the rankings include Tohoku Electric Power Co, which fell from 119th to 156th and Chugoku Electric Power Co, which dropped from 134th to 178th.
By contrast, Japan’s oil and gas companies performed well. JX Holdings was the shining star, rising from 129th in 2009 to 18th in 2010. Idemitsu Kosan Co Ltd increased its ranking from 144th to 70th. Tokyo Gas Company Ltd upped its place in the list from 108th to 74th. For China, most change was seen within the power sector. The number of Chinese companies in the top 250 was the same in 2010 as in 2009, but the Shenzhen Energy Group, Huadian Power Intl Corp and Shenergy Co. Ltd were displaced by Shanxi Lu’an Environmental Energy Development Co., Shanxi Xishan Coal and Electricity Power Co. and China Longyuan Power Group. In the oil sector, PetroChina moved up from seventh in the rankings to fourth, and CNOOC from 29th to 15th. The biggest mover, however, was China Yangtze Power Co., which jumped from 163rd in 2009 to 112th in 2010.
By contrast,India saw three new companies join the top 250 list—the newly listed Coal India, oil and gas producer Cairn India Ltd and the IPP company NHPC Ltd. As in Japan, the oil sector also gave India its strongest movers. The Indian Oil Corp Ltd jumped from 78th in 2009 to 42nd in 2010, while the Hindustan Petroleum Corp Ltd rose from 174th to 142nd.
The improvement in oil companies vis-à-vis EUs and IPPs largely reflects the difference between being on the cost or profit side of rising feedstock prices. But in terms of revenue growth, Asia comes out on top. Taking all Asian companies in the top 250 into account, revenues jumped 32.1% from 2009 to 2010. This compares with an increase of 21.4% in South America, 19% in EMEA and just 10.7% in North America.
However, the picture for company profits was rather different. These rose by 9.1% in EMEA and by 15.5% in Asia- Pacific. By contrast, they jumped 32.6% in South America and a huge 56.6% in North America. Asia-Pacific’s relatively poor performance reflects write-downs amongst Japanese electric utilities and regulated prices in key domestic markets such as China and India. By contrast, the 2010 figures for North America are flattered by hefty write-downs in 2009 by companies such asChesapeake, Devon Energy and Talisman, all of which bounced back to profitability in 2010.
View the full list at www.platts.com
