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The Mailbag: China’s Easy Grab for Clean Coal Technology

by | published November 8th, 2010

Dear Oil & Energy Investor,

Thanks for all the questions and comments coming in. The response has been simply overwhelming. I genuinely appreciate so many of you writing in to say you enjoy my insights.

Some matters we’ve addressed here recently have occasioned considerable response, and I thought it appropriate to devote today’s Oil & Energy Investor to considering some of your E-mails.

Q: “Two Non-Carbon Regulations About to Rock the Coal Sector” (October 29th, 2010) sounds pretty damning to the coal for electricity industry in the U.S. But considering the enormous domestic supply of coal, it seems unlikely that this readily available source of power can or will be abandoned. You touched on clean coal technology “Clean Coal Technology Makes a Move – to China” (August 16th, 2010). I’ve followed a couple companies in these emerging technologies, and Clean Coal Technologies Inc. [OTC:CCTC] claims to have a commercially proven process that has been contracted for by China and India.

It’s a bit odd that an American company has to go to China and India to sign launch clients, when the U.S.A. is badly in need of their product offering. What do you think of this clean coal “trying to be?” ~ Dan V.

A: Well, Dan, the problems here are well known at the margins of new technology, certainly in energy and especially in coal – where the primary concerns remain the cost of emissions or the price of controlling them.

Companies such as CCTC and Evergreen Energy Inc. (NYSEArca:EEE) are moving to China because Beijing is providing a receptive environment in terms of joint ventures, investment, taxing, and regulations. In the case of CCTC, the agreement to set up a clean coal facility is the first of its kind with Inner Mongolia.

At issue here is a patented process for dramatically reducing pollutants. China has inferior coal (which actually increases the cost effectiveness of a process like this one) and has it in such large amounts that the constant need to increase power generation demands its usage. However, the country also must address a rapidly deteriorating pollution situation resulting from the use of that coal.

That combination has made China an excellent location to showcase new approaches. Beijing is also energetically moving in other coal applications. It has recently announced an agreement to build a large CTL (coal-to-liquids) plant with Russia that is planned to provide 500,000 tons (3.6 million barrels) of oil products annually. The downside, however, is the need to import better-grade Russian coal for the process, one that is also far too expensive for any use without heavy government subsidies.

Of course, for companies going over, there is a price to pay. They will be licensing JVs, and that means the Chinese will have access moving forward to what they need most – the technology.

In return for field testing, as well as providing investment and partners in the largest single market in the world needing to clean up coal emissions, a U.S. company going over will relinquish control over its “black box.”

These are usually companies with very little leverage. CCTC is actually a good example of companies at the forefront of some new (and not, as yet, completely demonstrated) technology, but which have few immediately available alternatives in other markets. CCTC is certainly a micro. It has less than $22 million in market cap with more than 461 million shares outstanding, trading at less than 5 cents. In fact, the stock has not been above 10 cents since May. Its 52-week high is $1.90, but it has also lost 97% of its value in the last year.

China seems its only genuine option.

Q: In relationship to LNG terminals [on which see "Natural Gas Comes Roaring Back in Western Canada" (October 25th, 2010)] that are being built for export/import around the world, is there one company that is superior to others in this area of construction? Thanks again for all the information. ~ Debby W.

A: You’re welcome, Debby. With some 80 terminals already online worldwide and another 250 under construction or in the planning stages, there are a number of companies involved here. If anything, I anticipate this market heating up over the next five years. Current indications are that more than $140 billion will be invested internationally in new LNG export plants alone by 2015.

I would suggest the play is actually to concentrate on the major providers of essential services to the LNG construction and operating companies – from FEED (front-end engineering and design) to ongoing engineering, procurement, and construction (EPC) support.

Of those well-positioned in this sector globally, those most accessible to private investors are AMEC (London Stock Exchange:AMEC.UK; OTC:AMCBF),
Aker Solutions (OTC:AKKVF), and Foster Wheeler Ltd. (NasdaqGS:FWLT).

Q: In today’s message on natural gas prospects for the U.S. market ["The New Saudi Arabia of Energy" (November 2nd, 2010)], there is one question that comes to mind regarding liquefied natural gas (LNG). Are there enough tankers available in the marketplace to handle the projected increase in LNG activity, and are there any investment opportunities in that regard? ~ Gary H.

A: Gary, we are looking at a rapid rise in LNG tanker traffic. Despite the still subdued market prices for natural gas, LNG traffic is intensifying. In only the next three years, analysts expect more than 400 tankers to be added to the current global fleet of 338.

These are hardly cheap, with top-of-the-line vessels pushing beyond $1 billion each. And there has been a developing bottleneck in slips available for shipbuilding in the traditional locations (Japan, South Korea, and Singapore). The decision by Qatar to be the first major natural gas producer to go only LNG has generated the largest orders for new tankers.

There are about two dozen main LNG tanker construction companies. The market is still dominated, however, by six. Three are Japanese – Mitsubishi Nagasaki, Mitsui Chiba, and Kawasaki Sakide – and three are Korean – Daewoo, Hyundai, and Samsung.

However, targeting only the shipbuilding component of these mega-corporations is not readily available for Western investors. If that changes, though, you’ll be among the first to know.

Sincerely,

Kent

P.S. Today oil hit a two-year high of $87.49 before retreating on a stronger dollar. If you missed my article from Friday, take a look: “What Is (and Isn’t) Driving Oil Prices Higher.”

Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at customerservice@oilandenergyinvestor.com

  1. November 8th, 2010 at 21:39 | #1

    I read the article China’s Oil Demand Is Poised to Push Up Prices, WSJ, November 8, 2010. What options do we have for capitalizing on the growing demand for refined diesel fuel? Steve Lombardi

    http://online.wsj.com/article/SB10001424052748704405704575596743559257682.html?mod=WSJ_Commodities_LEFTTopNews

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