Rising Energy Prices & the Challenges Qenos Response

Transcription

1 Rising Energy Prices & the Challenges Qenos Response Ai Group National Environment & Energy Forum May 2012

2 Summary Introduction to Qenos Energy consumption and Costs Carbon Price Qenos Response Key Investments

3 Qenos A Strategic Business As Australia s sole manufacturer and leading supplier of polyethylene (PE), Qenos is a cornerstone of Australia s petrochemical and plastics industry Primary focus on the Australian domestic PE market Products supplied to hundreds of plastics fabricators Manufacturing facilities at Altona (Vic) and Botany (NSW); Qenos adds significant value to ethane and LPG from Bass Strait (Victoria) and ethane from the Cooper Basin (South Australia) through conversion into high value polyethylene Owned by China National Bluestar Group (Joint Venture) 80% China National Chemical Corporation 20% The Blackstone Group Annual Turnover A$700M-A$900M

4 Adding Value to Natural Resources Adding Value Qenos adds value to Australian natural resources by applying its detailed knowledge of process chemistry. Natural Gas ~ $200T ($4 Gj) Polyethylene $ $2000T As the cornerstone of the polymer industry, Qenos is a vital link in the Australian manufacturing value chain across all major sectors.

5 Qenos Manufacturing Plant Locations Qenos manufacturing operations are located at Altona, Melbourne, Victoria, and Botany, Sydney, New South Wales Northern Territory Ethane and LPG feedstock is supplied to Altona from Bass Strait Ethane feedstock is supplied to Botany from the Cooper Basin Western Australia Moomba (Cooper Basin) South Australia Queensland New South Wales Victoria Botany Ethane feedstock is supplied via dedicated pipeline infrastructure Altona Tasmania Gippsland Basin (Bass Strait)

6 Key Polyethylene Market Sectors LDPE 20% Industrial Packaging Food Packaging Industrial Packaging Qenos HDPE: High Density PE LLDPE: Linear Low Density PE LDPE: Low Density PE HDPE 55% Food Packaging Liquid, Gas Pipe Waste Management Agriculture Water management LLDPE Industrial Packaging 25% Food Packaging Qenos is a key supplier across several industries

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8 Qenos and Sustainability Adoption of a Sustainability Framework (2009) Part of PACIA initiative Sustainability = Profitable + Corporate Social Responsibility Sustainability has always been a focus at Qenos Safety and Health 365 Days recordable injury free Environment Accredited Licence Waste Reduction of trade and prescribed waste Water Recycling projects Community Consultation committees Emissions 40% Reduction since 1995

9 Energy Consumption Polyethylene Manufacturing is labour and capital intensive Inexpensive and reliable energy costs has been a significant competitive advantage Altona and Botany each consume approximately 4Pj Natural Gas 100,000+ MWhrs per annum Pj Ethane (Feedstock) 80% converted into Finished Product Average household energy consumed per person is 17 to 20GJ Qenos gas usage is equal to 100,000 households Qenos has to be active in managing these costs, including by reducing consumption

10 Erosion of competitive advantage Botany Gas Price 40% Increase Altona Gas Price 27% Increase Scope 3 Distribution & Transmission Variable - Commodity Altona & Botany Electricity Price 32% Increase Carbon Scope 3 VEET Distribution & Transmission Variable - Commodity Green Charges (Nett) Network and Distribution Charges Carbon Price Energy Rates (incl Losses)

11 Carbon Price The most significant impact of the Carbon Price is on Energy Pricing Manufacturing polyethylene is inherently energy intensive Qenos is trade exposed and unable to pass on carbon costs Polyethylene pricing is driven by regional pricing - due to availability of imported polyethylene in Australia Carbon costs are not being imposed on import competition (Thailand, Philippines, Middle East) Qenos must remain internationally competitive to be viable Life Cycle Assessment indicates that PE will be advantaged once there is a global price on carbon emissions

12 Emissions and Impact Qenos Emissions Direct Electricity Scope 3 800,000 tonnes 250,000 tonnes (post Cogen) 400,000 tonnes 1,250,000 tonnes x $23 = $28.75M Allocation of Permits Ethylene effective allocation rate of 82% Polyethylene effective allocation rate of 60% Qenos still exposed to a significant share of the impact of the carbon price Investment in energy efficiency improves the effective allocation rate

13 Structural Response Centralised co-ordination Impacts on most functional lines Environmental, Operations, Commercial, Accounting & Finance, Legal But difficult for one function to lead Development of a cross functional team to manage compliance and liability National Greenhouse & Energy Reporting Scheme Treatment of energy information as financial information Alignment of environmental management system with NGERS Automation of emissions data

14 Commercial Response Optimised Procurement Strategy (Electricity) Hedged Exposure to Spot Market Qenos works with Energy Consultant to monitor market Retailer manages load but Qenos manages risk Has saved >$1m per annum Regular tendering of Gas Contracts Take advantage of competitive market Long Term Gas Contracts Qenos load and profile valuable to retailers to manage risk Understand risk and address in terms not price Forecast demand Self Management of Regulatory Charges

15 Operational Response Improving efficiency has always been a focus Botany Ethane conversion 1995 Closure of inefficient plants Altona Ethane/LPG conversion 2005/6 Altona Expansion Altona Cogeneration 2012 Increased polyethylene output and lower energy consumption

16 Altona Ethane Expansion Project In November 2010, with Victorian Government support, Qenos announced a $195m investment to expand and upgrade the Altona manufacturing facilities The major project is the ethane expansion project which will increase Altona s production capacity by 20% (or 34 kta) of domestic high density polyethylene (HDPE), enhancing Qenos s international cost competitiveness by improving scale and efficiency Emissions same or lower than currently 20% improve in Energy per tonne of Product Allocation of permits not affected. Replacement of steam turbine with electrical turbine Water usage per tonne of product reduced by 15% Enabled Investment in Cogeneration

17 Altona Cogeneration Project In March 2011, Qenos & AGL Energy Limited (AGL) co-announced a $45m investment to construct a state of the art cogeneration facility to be built in Altona. The Cogeneration unit will meet all of Qenos s electricity demand in Altona and will be capable of producing a third of our steam requirements. Net carbon emissions reduction of 100,000 tonnes (displacement of grid electricity with gas fired turbine) AGL will design, construct and operate the Cogeneration facility in Altona to replace an existing steam boiler. Construction has commenced with commissioning targeted for November High Voltage Electricity Gas Cogeneration Facility High Pressure Steam

18 Challenges of Cogeneration Technical Resources required to connect to the grid Current infrastructure (fault levels) disadvantages first mover Network augmentation support not available Would require duplication of unit Distributor business model provides disincentive for embedded energy Gas infrastructure also needs to be considered for large scale projects Current wholesale energy prices

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