Future of Coal in Russia

Future of Coal in Russia
OJSC SUEK
Strategy and Corporate Development Department,
Andrey Butenko
March 2011
Place of coal in the world energy mix
Coal is one of the dominating energy sources worldwide and its
consumption is most rapidly growing compared to other energy
sources
Coal consumption is increasing as a result of the fast economic
growth in China, India and other Asian countries that base their
power production primarily on coal as well as the growing
demand in USA
Energy consumption growth, 2001-2009
Nuclear energy
Primary Energy use structure in Russia in comparison
with the world, 2009
-15%
Oil
19,7%
2%
Oil
23,8%
Natural Gas
8%
Natural gas
+31%
20 %
Hydro energy
26 %
Coal
-16%
Coal
10 %
20 %
30 %
40 %
50 %
Nuclear Energy
Global Coal Consumption, 1990-2030F (mt)
8,996
8,312
5,5%
5,8%
7,691
7,194
6,720
6,118
4,763
4,935
Hydroelectricity
29,4%
13,0%
40 %
0%
4,780
34,8%
World
Russian Federation
6,6%
6,3%
Source: BP statistical review
1990
2002
2003
2006
2010
2015
2020
2025
2030
55,2%
Russia has unique coal reserves available
Russia has the second largest coal reserves in the world:
Largest coal deposits in Russia are in Kuzbass and Krasnoyarsk regions
Wide variety of different types of hard and brown coal
Fair environmental characteristics including one of the world lowest sulphur and ash components
Practically unlimited potential for deposits development using modern technologies
Russia is in top 7 world coal production leaders
Export volume is about 100 mln. tonnes and growing as a result of timely transport infrastructure expansion
With current production volume the reserves in Russia are sufficient for nearly 500 years
World coal reserves distribution
51.8
44.4
38.3
Germany
Ukraine
South
Africa
56.4
Kazakhstan
Source: BP Statistical Review of World Energy, 2010,
Russian
Federation
China
Russian Federation
211.5 155.3 140.9 140.7
Indonesia
14%
USA
19%
China
9%
Australia
Australia
228
India 7%
Poland
539.9
India
Other Latin America
Poland
South Africa
2%
Kazakhstan
4%
US
Ukraine
3%
4%
4%
29%
1%
EU
5%
Leading coal producers
1552
3
Main Russian Coal Regions: Production
Favourable geographic positions of Russian coal mines and openpits
allow to respond to commercial dynamics in Europe, Asia-Pacific and
Russia
Podmoscowni Basin
Brown = 0,3 m.t.
Pechorski Basin
Hard = 11,9 m.t.
Buryatia region
Hard = 5,9 m.t.
Brown = 8,4 m.t.
Donetski Basin
Hard = 4,7 m.t.
Kansko-Achinski Basin
Brown = 36,7 m.t.
Kuznetski Basin
Hard = 177,1 m.t.
Source: Rosinformugol
Yakutia region
Hard = 6,7 m. t.
Brown = 0,3 m.t.
Minusinski Basin
Hard = 10,5 m.t. Irkutski Basin
Brown = 6,0 m.t.
Hard = 4,0 m.t.
Khabarovsk region
Hard 2,7 m.t.
Chita region
Brown = 8,4 m.t.
Primorsk Region
Hard = 1,1 m.t.
Brown = 9,2 m.t.
Global thermal coal market
Russia
West
20%
East
64
77
2010
2020
100%
27
54
2010
2020
South Korea
39%
China
Europe
North America
14%
151
172
2010
2020
19%
31
29%
25
2010
42
54
2010
2020
82
114
2010
2020
Japan
2020
Atlantic basin demand
154%
211mt
42
Latin America
24% 72
615mt
India
248mt
58
4%
Pacific
basin demand
2010
107
117
123
2010
2020
Rest of Asia
410mt
2020
South Africa
72
149% 179
Indonesia
2010
2020
16%
68
79
2010
2020
2010
41%
Key net exporting regions / countries
Key net importing regions / countries
220
309
2010
2020
Australia
73%
Size of seaborne import market in 2010
119
Size of seaborne import market in 2020
2010
Russian exports to benefit from growing tightness in the Asia-Pacific seaborne market
Source: Wood Mackenzie, April 2010.
Note 1: Values for each country / region represent the net export / import figures in given years. All values are in metric tonnes in millions (unless stated otherwise). Figures for China include Hong Kong.
Note 2: Calculation of imported volumes for each given country / region in given years includes both seaborne and landborne trade.
5
206
2020
2020
Russian Coal Market Structure
Thermal Coal Consumption in Russia
(In Millions Metric Tonnes)
Other
Industry
Military districts
Russian Railway
Communal Utilities
Power
Source: INKRU
Russian domestic coal producers
SUEK – leading position in domestic market in 2009
#1 Russian coal producer (30% share of production), biggest domestic supplier of thermal coal (33% market share) (1)
Largest Russian exporter of thermal coal (28% market share) (1)
Power companies account for 74% of SUEK’s total domestic sales volumes
Source: SUEK estimates based on CDU-TEK data from December 2009.
(1)
Excludes sales of 3rd party coal.
Total coal production in Russia (2) – 2009
Russian thermal coal market by share – 2009
(million tonnes)
88.0
73.9
80
60
46.1
40
25.6
5.8
B elon
8.5
Russian
C oal
11.3
Severstal
11.4
Sibuglemet
15.0
SDS C oal
Evraz
KRU
SUEK
0
Mechel
15.2
20
O thers
100
Source: SUEK estimates based on CDU-TEK data from December 2009.
Note:
“Others” include small (total production < 5.0mtpa) privately owned Russian coal producers.
(2)
Includes production of both thermal and coking coal.
Domestic sales
(Total: 162mt)
SDS Coal
Russian Coal 3%
(3)
SUEK
5%
Others
34%
KRU
35%
11%
Imports from
Kazakhstan
14%
Others
33%
Export sales
(Total: 98mt)
(3)
SUEK
28%
Mechel
5%
KRU
25%
SDS Coal
7%
Source: SUEK estimates based on CDU-TEK data from December 2009.
(3)
Excludes sales of 3rd party coal.
SUEK is Russia’s largest thermal coal producer, exporter and supplier to the Russian coal-fired power market
7
SUEK - world class coal miner
Favourable geographic position – maximising revenues by redirecting coal sales volumes between the Atlantic and Pacific basins
Developed infrastructure in place – captive rolling stock and own port terminal (Vanino)
World class, large-scale mining operations – 17 opencast and 13 underground mines in 7 regions of Russia
Largest reserve base in Russia, Russia’s leading producer and exporter
Global coal reserves by company– 2009
(billion tonnes)
Murmansk
Ust-Luga
8,2
Peabody
Shenhua
6,9
SUEK
5,8
Xstrata
4,7
China Coal
Moscow
3,4
BHP Billiton
2,9
Bumi Resources
2,9
Yanzhou
Bureinski Basin
Vanino
Kansko-Achinski Basin
Azov
2,4
Anglo American
Banpu
St. Petersburg
Vostochny
2,0
0,6
Maly
Coal Assets
Ports of Shipment
Major Railways
Irkutsk Basin
Kuznetski Basin
Strategic asset location in Southern Siberia facilitates access to both European and Asian markets – a competitive advantage
Source: SUEK.
8
Developed infrastructure in Europe
Access to a broad range of export ports
Murmansk
Russian coal companies benefit from:
1,700 miles
Access to wider set of ports
Flexible terms and conditions of service
(size of shipments, timing, blend) due to close geographic
proximity
Finland
Almost 1/3 of total volume of coal shipped in 2009 to UK / Cont &
N Europe / Baltic was delivered to ports with < 35kt handling
capacity
Russian coal companies competitive edge as competition from other
seaborne suppliers is limited and trans-loading at intermediary ports
adds cost
Suppliers from South Africa and Colombia can only access major
hubs
Average shipping distance of 4,500-5,250 miles means only large
vessels (Capesize, Panamax) are used
Russia
St-Petersburg
Ust-Luga
500-700 miles
Redcar
Flushing
Kaliningrad
Holland
Immingham
Gdynia
Liverpool UK
Amsterdam Poland
Newport
Germany
Antwerp
Belgium
Tilbury
Hunterston
Dunkirk
South Africa: 5,250 miles
Colombia: 4,500 miles
Moscow
France
Azov
Spain
Portugal
Turkey
South Africa and Colombia are
panamax / capesize only
Morocco
Israel
Major Railways
Shipment routes
Russian ports
Ports with > 35kt handling capacity
Ports with < 35kt handling capacity
Favourable geographic position and close proximity to European market (flexibility in shipments) provides Russian coal
companies with a competitive advantage over exporters from South Africa and Colombia (large vessels only)
Source: SUEK.
9
Significant investment program – transforming SUEK
into a world class mining company
Safety
Improve
infrastructure
Ventilation system,
degassing
Construction of own
terminal in Vanino port
Complex automation
of technological
processes and airgas control (Davis
Derby, Mikon,
Grunch)
Reconstruction of rail
stations in Kuzbass and
other investments
Environmental impact
reduction
Rail cars, locomotives
Increase export
sales
Maintenance and
modernisation of
existing washing
facilities
Improvement of
the efficiency of
mine rock
transportation
Improvement of the
quality of export coal
in Kuzbass,
Khakasiya, Tugnui
Modernisation of
processing and
washing facilities in
Kuzbass
Acquisition of heavyduty dump trucks
(220 tonnes)
Increase of
production at
Kuzbass mines
Modernisation of
Khakasiya washing
plant
Acquisitions of
excavators with
higher dipper weights
(Bucyrus, PH)
Further development
of Urgal
Construction of
Tugnui washing plant
Modernisation of
conveyor belts
Source: SUEK.
10
Other
investments
Various other
investments in
SUEK’s coal
business
SUEK’s charitable activities
In 2007, SUEK launched the non-profit organisation known as the "Regional social and economic support fund"
aka. "SUEK FOR REGIONS".
The Fund serves to help to create new opportunities for launching modern territorial development mechanisms in
partnership with the authorities and existing public organisations.
Main directions of SUEK’s charitable activities:
Social infrastructure development
Support of educational, cultural, health services and sport organisations
Assistance to the reform of housing and communal services
Small businesses support
Youth initiatives support
Development of working models of public-private partnerships
Main regions of SUEK’s charitable activities:
Khakasia region
Krasnoyarsk region
Khabarovsk region
Kemerovo region
Buryatia region
11
Environmental security, Health and Safety, Social partnership
Environmental security and high safety standards are an integral part of SUEK’s business and one of its strategic priorities.
One of the main principles of SUEK’s activities is the principle of social partnership. Collaboration and social partnership
with labor unions allows SUEK to strengthen stable social environment in labor communities, discover optimal decisions of
disputable issues, set up rights and liabilities of both parties.
Collaboration with labor unions is established at the following levels:
• industrial (with central authorities of labor unions, acting at SUEK’s enterprises)
• territorial (with territorial authorities of labor unions);
• on the level of enterprises (with primary labor unions);
Labor union agreements, Collective Labor contracts
Regulate social and economical employment relationships
between employees and employer
Systemize social guarantees for employees
Fix the content of social package
Strengthen social stability in labor communities
Determine mechanisms of disputable issues solving
Establish social partnership environment between parties
Main directions of social benefits
implementation
Payment for round-trip tickets to the vacation areas;
Payment for tourist vouchers for employees and their
families;
Lump-sum grant to employees after retirement
Financial support to employees;
Voluntary medical insurance for employees.
Financial support to retirees