[NGW Magazine] Energy spend switches to electricity
This article is featured in NGW Magazine Volume 2, Issue 15
The electricity sector edged ahead of the fossil fuel supply industry – coal, oil and gas – to become the largest recipient of world energy investment in 2016 for the first time ever.
Energy investment worldwide was some $1.7 trillion in 2016, 12% less than 2015 in real terms and accounting for 2.2% of global GDP. Last year was the second consecutive year of decline, according to the International Energy Agency’s latest annual World Energy Investment report, published July 11.
While total investment in fossil fuel supplies fell by 25% to just under $750mn, investments in electricity networks, renewables and thermal power plants combined were a similar amount, but down by just 1%. Investments in energy efficiency increased by 9% to just under $250mn.
China remained the biggest destination for energy investment in 2016 at $357bn (21% of the global total – chiefly on power supply and networks), ahead of the US at $276bn and Europe at $245bn. India and Russia each cornered some $88bn.
Oil & Gas
Oil and gas supply though still represented two-fifths of energy investment globally in 2016.
Global upstream oil/gas investment is expected to stabilise in 2017, following an unprecedented decline of 38% in the sector’s capital spending from 2014 to its 2016 level of $434bn. But the IEA cautions that downside risks remain. In 2016, investment in US shale grew by 53% after several lean years, while that in Russia and Middle East E&P were up by 6% and 4% respectively. But E&P investment in Latin America declined by 4% and in Africa it fell by 9%. IEA chief economist Laszlo Varro said that the E&P sector had focused on shorter-lead time projects and smaller volumes.
Whereas investment in LNG production facilities peaked at $35bn/yr in both 2014 and 2015, it fell to only $25bn in 2016. Given the glutted market, just two projects – Elba Island in the US and Coral FLNG in Mozambique – took positive final investment decisions in the 12 months since BP’s FID for Tangguh Train 3 in July 2016. LNG import capacity is less capital-intensive, with $1bn invested in floating regas units (FSRUs) last year, half the 2015 figure, in both cases chiefly in the Middle East, including Egypt and Pakistan.
Global investment in oil and gas pipes in 2016 at $130bn was 15% less than in 2015, with $40bn spent in the Middle East including on South Pars gas phases 20 & 21 in Iran. US capex last year on pipes was down by half from its 2014 peak of $50bn. Meanwhile gas pipe networks in Russia continued to expand: Gazprom commissioned almost 12,000 km in 2010-16, including in 2016 the 1,200 km Bovanenkovo-Ukhta 2 forming part of a new Yamal-Germany export route; also 2016, Russia and Turkey agreed to build the 31.5bn m3/yr Turkstream pipe system estimated by the IEA at $15bn and now work on pipelay has begun.
While the IEA report focuses on gas transmission investments in the US, Russia and the Middle East, it makes few references to such investments – including gas distribution – in Africa, southeast Asia and South America – perhaps because these were not significant, relative to other types of investment.
Power generation
Worldwide investment in power generation fell 5% to $440bn in 2016, as solar PV and wind gained, but fossil fuels, nuclear and large hydro lost ground.
Of that, fossil fuel-based power generation investments declined by 12% to $117bn in 2016, with coal at nearly $80bn still the third-largest recipient of generation investment (after solar PV and wind) but with China and Europe slowing newbuilds. Investment in gas-fired plants dipped slightly to $34bn in 2016, its lowest for a decade, with declines in China and Middle East offset by the US, Europe and Japan.
But Varro noted that FIDs in gas-fired power plants worldwide exceeded coal for the first time in a decade in 2016, and by a factor of 1.5. This comes as FIDs in coal worldwide shrank from over $130bn/yr in 2006-10, to $80bn/yr in 2011-15, but just $40bn in 2016.
World Bank Sees Little Private Investment in Non-OECD Pipelines
The World Bank meanwhile published its Private Participation in Infrastructure (PPI) annual report, covering such investments in Emergent Markets and Developing Economies (EMDEs). The bank defines ‘infrastructure’ here to include gas transmission and distribution, but exclude E&P.
Five countries, led by Brazil, followed by China, Colombia, Indonesia and the Philippines, attracted $49.1bn, or 69% of global commitments to infrastructure investment in emerging countries in 2016.
The overall $71.5bn committed across 242 projects in 2016 was down by 37% compared to 2015 and 41% lower than the annual $121.4bn average in 2011-15. Last year’s fall can be explained by a sharp decline in investment in Turkey, as well as steep declines in South Africa and Peru.
The energy sector saw more private sector investment in 2016, while other sectors – transport including airports, and water/sewerage – both fell.
At $43.9bn, investment in the energy sector with private participation increased by 12% in 2016, although nearly half of all energy projects with PPI was in just two countries: Brazil with $14.2bn and Indonesia with $6.5bn. Only 10% of that overall energy investment went on gas projects.
Electricity accounted for $33.5bn of the $43.9bn. Investment in renewable energy was $20.4bn – 61% of those in electricity generation – led by hydropower, solar PV and onshore wind, whereas investment in coal continued its downward trend for the sixth year – with just five projects with private investment reaching financial close in 2016, versus an average of 14/yr in 2011-15. But of those five, three coal-fired plants in southeast Asia were among the Top 10 investments.
Ranked number 2 among the Top 10 deals to reach financial close in 2016 included Brazil’s $5.19bn Gasoduto Sudeste gas pipeline, divested by Petrobras to Canadian find Brookfield – in other words, an equity deal, rather than fresh money going into new gas infrastructure.
The Top 10 also included three new giant coal-fired plant projects: the third-ranked $4.3bn Itochu-led Central Java IPP (2 GW) financed by a brace of Japanese commercial banks and sixth-ranked $1.8bn Java-7 coal-fired plant (2 GW) -- both in Indonesia – and the $1.115bn GNPower Dinginin coal-fired plant (1.336 GW) in the Philippines in tenth position.
A $1.5bn expansion of Tema Port in Ghana, financed with Chinese and multilateral capital, could be significant to the development of offshore E&P projects, and LNG import schemes.
Mark Smedley