Future of Indonesia in The Asian Coal Markets

The Future of Indonesia in the
Asian Coal Market
Rodrigo Echeverri
DEPARTMENT HEAD - REGIONAL MARKETING
PT ADARO INDONESIA
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2
The Future of Indonesia in the Asian Coal Market
Presentation Outline
CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

CHINA AND INDONESIA GROWING TOGETHER
THE GROWING ROLE OF IMPORTS
COAL DEMAND FORECASTS FOR CHINA
CHINA A GROWTH SENSITIVITY
PROJECTION FOR INDONESIAN COAL SUPPLY
PROJECTIONS FOR SUPPLY AND DEMAND IN EMERGING ASIAN COUNTRIES
INDIA AND SOUTHEAST ASIA
THE WHOLE GROWTH PICTURE
INTRODUCTION TO ADARO
CONCLUSIONS
3

CONCLUSIONS
4
China and Indonesia Coal Trade: 2008
Growing Together
(In Million Tonnes)
In 2008, China
imported almost as
CHINA EXPORTS much as it exported
CHINA The main International

supplier to the Chinese
market was Vietnam
Indonesian lower-CV
CHINA IMPORTS coals were not
technically accepted by
many power plants in
INDONESIA EXPORTS China
The main market for
Indonesian coal was
INDONESIA Northeast Asia
The Indonesian
Domestic Coal market
was 49 million tonnes
3
Source: McCloskey, 2014, Ministry Energy and Mineral Resources, 2014, Indonesia Coal Mining Association, 2014
Growing Together
(In Million Tonnes)
By 2013, China had
become the biggest coal
CHINA EXPORTS importer in the world
CHINA Indonesia became the

biggest coal exporter in
the world by far
Most power plants along
CHINA IMPORTS the cost of China adapted
to use Indonesian low-CV
coals
INDONESIA EXPORTS Indonesia became the
biggest source of imported
coal for China and India
INDONESIA The Indonesian Domestic
Coal market had grown to
approximately 78 million
tonnes
6
Source: McCloskey, 2014, Ministry Energy and Mineral Resources, 2014, Indonesia Coal Mining Association, 2014

CONCLUSIONS
7
China Coastal Demand
Domestic and Imported Coal in Coastal China
Since 2008, imports have
steadily gained market share in
China
The success of imports in the
Chinese coastal market is due to
their favorable delivered cost
compared to coals mined in
Shanxi, Shaanxi and Inner
Mongolia
Other origins have resorted to
sell off-Spec coals to the
Chinese market to be able to
compete with domestic Chinese
coals and Indonesian coals
Before 2014, due to
infrastructure constraints,
Chinese coal supply did not
grow at the same pace as
Source: WoodMackenzie, Coal Market Service, 2013 demand 8
China Production
Switching Basins in China
Before year 2000, coastal Chinese
power plants were designed
mainly for coals from old mines in
Shanxi and Shaanxi province
(typically 5000-5500 kcal/kg NAR
However, low mining costs and
significant resources have
motivated the development of
mega-mines in Inner Mongolia.
To support this development, the
Chinese government decided to
develop new railway links to
connect the coal producing
regions to coastal ports
The CV of coals from Inner
Mongolia is typically 4000-4800
Source: China Coal Resource, 2014; WoodMackenzie, Coal Market Service, 2013 NAR similar to the CV of
Indonesian coal
9
The Transition to Lower CV
Driven by the Chinese Domestic Market
Due to the change in the mix of

basins supplying the Chinese
domestic coal market the CV of
domestic coal is dropping
Power plants built in the last 10
years have taken this into
account for the design CV of the
boilers
This trend has made Chinese
demand converge in CV
preference with Indonesian
coals
However, most of the
environmental attributes of
Indonesian coals are better than
domestic Chinese coals (NOx,
Source: WoodMackenzie, Coal Market Service, 2013
SOx, trace elements, ash)
10
Comparison of Coal Logistics in China and Indonesia
For southern China, the domestic Qinhuangdao
coal logistics chain is not very Shanxi
different from Indonesia
Coal from the main coal
producing regions in China is
transported by either rail or truck Guangzhou Domestic Coal
to the ports in the Bohai area
arrives in 8-9 Days
Then, the coal is moved in small
coastal vessels to the main Imported Coal
demand centers in Guangdong, arrives in 7-8 Days
Fujian, Jiangsu, Shanghai,
Zhejiang and Shandong
From Indonesia, most of the coal
is barged within one day to an South
ocean anchorage and then Kalimantan
transported by sea-going vessel to
South China
11
The Growing Role of Imports
Comparison of Logistics of Indonesia vs Others
Australian and South African coals

need to be transported much Qinhuangdao
farther than Indonesian coal in
Shanxi
order to reach the demand
centers in the south of China
Guangzhou
This logistics disadvantage will
remain crucial in the future,
8 Days
making coal imports from those
origins only arbitrage coals
Indonesia, on the other hand, has
South
secured a place as a base supplier Kalimantan
in spite of price movements
South
Africa Australia
12
Production Costs in Indonesia
Seaborne Export Thermal Curve 2012

FOB Costs of Major Exporting Countries (Mt)
Nominal terms basis 6000 kcal/kg NAR
(US$/Tonne) 2015 2030 % Change
Indonesia 58.12 73.93 27%

Russia 91.27 122.31 34%
Colombia 53.91 74.78 39%
In the next 20 years, Indonesia
South Africa 62.58 89.25 43%
production cost will increase less
USA 70.99 109.1 54%
than the other major exporters.
Australia 72.74 112.54 55%
Source: WoodMackenzie, Coal Market Service, 2013; Bernstein 2013 13


CONCLUSIONS
14
Growing Together The Challenges
(In Million Tonnes)
CHINA EXPORTS
Will China coal production capacity
CHINA IMPORTS continue to grow beyond the domestic
CHINA needs?
Will China ban certain
grades of coal? Will the government eliminate the
suggested cap in domestic production?
?
Will economics favor
Will China allow exports to grow again
domestic Chinese coal
again as infrastructure is
improved?
? in a bid to support local producers?
INDONESIA EXPORTS
Will China find a way to
Will the Indonesian Government allow
become less dependent on growth to continue at the same rate?
coal?
Will the International markets continue
Will China succeed in its
current coal to gas /liquids
to embrace Indonesian coal?
Will the Indonesian domestic market
?
development efforts? INDONESIA absorb the growth of Indonesia coal
production?
15
China Coal Market Projections
Fuel Mix - WoodMackenzie and IEA
In spite of using different sets of
assumptions, both IEA and
WoodMackenzie project similar
growth electricity capacity in
China
Both models coincide in
predicting limited development
in Nuclear Energy in China
Also, gas is a consensus point,
highlighting the challenge in
accessing domestic shale
deposits and the limited potential
A big unknown is to what extend
China will be successful in its
conversion of coal to liquids and
Source: WoodMackenzie, Coal Market Service, 2013
gas 16
Coal Demand Models for China
WoodMackenzie projects that coal demand in
China will grow by over one billion tonnes by
2020
The IEA New Policies model provides a forecast
which assumes many political and technical
challenges can be overcome
However, even in IEA New Policies scenario, coal
demand in China continues to grow steadily into
2020.
Hence, the range of forecasts for the additional
supply needed is very wide: 300 to 1000 million
tonnes of new production required by 2020
Forecasting where the coal is going to come
from is an even bigger challenge
Source: WoodMackenzie, Coal Market Service, 2013 However, in all cases Coal will remain the main
alternative and growth will continue at a strong
rate 17
Imports Projections
In spite of the all the

challenges in the coal
market, both IEA and
WoodMackenzie
estimate that coal
imports will remain the
most important fuel in
the mix in China
These sources estimate
that demand for
thermal coal imports
will reach between 300
and 400 million tonnes
by 2020
Source: WoodMackenzie, Coal Market Service, 2013 18


CONCLUSIONS
19
China Coal Demand
Coastal Coal-Fired Generation Growth
According to
WoodMackenzie,
coastal coal-fired
electricity generation
will continue to grow
at an average rate of
3% until 2020
We decided to study
the implication in coal
imports of assuming
lower average growth
in coastal coal-fired
generation capacity:
2% CAGR until 2020
Source: WoodMackenzie, Coal Market Service, 2013 20

Coastal China Demand
Sensitivity with 2% CAGR
Using 2% average
growth on coal-fired
capacity, we can see
that all other
factors being equal-
, coastal coal
demand will grow
over 100 million
tonnes
However, it is
important to also
consider that the
average CV is
declining
significantly this
will also increase
volume
Source: WoodMackenzie, Coal Market Service, 2013; China Coal Resource, 2014; Adaro Analysis 21
Coastal China Demand
Sensitivity with 2% CAGR
Some of the new power plants in
the south of China have been
designed for low-CV imported
coal, mainly from Indonesia
Indonesian coal will remain
extremely competitive, being able
to retain market share (or even
perhaps increase slightly)
The general decline in CV will also
increase the required traded
volumes of coal
We conclude that China will need
to import between 300 and 400
million tonnes of thermal coal by
2020
Source: WoodMackenzie, Coal Market Service, 2013; China Coal Resource, 2014; Adaro Analysis 22

CONCLUSIONS
23
Indonesia Coal Reserves and Resources 2013
Large and Accessible
3
2
4
1
(in Billion Tonnes) Total

Total Reserves 31.4
Low Rank 12.0
Medium Rank 17.5 Indonesia is blessed with a rich resource base of coal,
High Rank 1.5
Very High Rank 0.4 which can be easily transported to the coast
Total Resources 159.0
However, most of the reserves are low-CV coals
Source: Indonesian Geological Agency, Ministry of Energy and Mineral Resources, 2013 24
Indonesia Production
Potential Plateau in two years?
However, the mines currently operating Current market conditions do not support
might plateau in 2-3 years, requiring the further project development
development of new projects
Market support will be required for the
Probable and Possible projects to come
online
Source: WoodMackenzie, Coal Supply Service, 2013 25

CONCLUSIONS
26
INDIA
Installed Capacity by Fuel
Installed capacity for electricity

generation in India is expected
to double by 2030.
The growth in electricity
demand will be underpinned
by GDP and Industrial
Production growth of more
than 6%.
Out of the expected total
growth of 250 GW by 2030,
around 160 GW will come
from coal-fired plants capacity.
Source: WoodMackenzie, Coal Market Service 2013
27
INDIA
Coal Supply: Domestic and Imports
WoodMackenzie expects that Indian domestic
production will reach more than one billion
tonnes by 2030, increasing more than 600
million tonnes from 2013 with 4.38% CAGR
(base year=2011).
However, in order to achieve that level of
domestic production, significant reforms will be
needed before the end of the current decade.
Social and political constrains might also limit
the upside of domestic production.
On the other hand, IEA New Policies Scenario
expects that India production will only grow
with 2.03% CAGR (base year=2011), which is
only half of WoodMackenzie growth forecast.
However, even if all plans come forward,
? ? ? ? domestic supply will not be able to cope with

the demand.
A natural consequence of Indias energy
shortage is that supply from other countries
will continue to rise.
Source: WoodMackenzie, Coal Market Service 2013
IEA and WoodMackenzie estimate that coal
imports will at least double by 2030 from
28
current levels.
INDIA
Coal Imports by Grade
Low CV coals will remain the

preferred choice in India for the
next 20 years. The majority of
low-rank coal imports will be
fulfilled by Indonesia.
India will need to compete with
other major importers, such as
China and Southeast Asian
countries, to be able to procure
Indonesian low-CV coals.
In the next decade, Indonesian
low-rank coals will not be
sufficient to fulfill the increasing
demand in India.
Imports of Higher-CV, higher-cost
coals will be needed in India. This
will be a supporting factor for coal
Source: WoodMackenzie, Coal Market Service 2013 prices in the long-term.
29
SOUTHEAST ASIA COAL REQUIREMENTS FOR ELECTRICITY
Coal Demand by Country
Myanmar Vietnam
Southeast Asia is
expected to remain
one of the fastest-
growing regions in
Thailand Cambodia the world well into
Philippines
the next decade
Access to gas and
other resources is
Malaysia
and will continue to
be limited
The only country
Indonesia capable of producing
enough coal to
Imports support the
Domestic demands of the
region is Indonesia
Source: WoodMackenzie Energy Market Service, 2013; Adaro Analysis 30
SOUTHEAST ASIA COAL REQUIREMENTS FOR ELECTRICITY
Coal Demand by Country
Southeast Asian
Total countries (other than
361 MT Indonesia) will need to
import more than 130
million tonnes of coal
Total
212 MT by 2020
Indonesian domestic
demand will continue
to grow at a steady rate,
reaching over 130
million tonnes by 2020
Imports Domestic production in

Domestic (Indonesia)
other ASEAN countries
is not expected to grow
Domestic (Ex-Indonesia)
significantly

CONCLUSIONS
32
SUMMARY
Too much demand for Indonesian coal?
Indonesian Coal Availability China, India, Indonesia, and SEA

is Limited TOTAL
Demand
961 MT China Demand
TOTAL
India Demand
817 MT
TOTAL Indonesia Domestic Demand
TOTAL 580 MT Southeast Asia Demand (excl. Indonesia)

~450MT
Indonesia Production by Status
Operating Mines
Highly Probable Projects
Probable Projects
Possible Projects


CONCLUSIONS
34
Our Model Introduction to Adaro
Pit-to-Port Integration
The second largest

coal producer in
Indonesia
80 Km
haul road
Integrated, reliable
coal supplier 230 Km
barging
Domestic
supply
South
Kalimantan
35
Pit-to-Power Integration
PT Adaro Energy
Adaro Mining Adaro Mining Adaro

Adaro Power
Assets (ATA) Services Logistics
Adaro Indonesia (AI) 100% Saptaindra 100% Maritim Barito 100% Makmur Sejahtera 100%
Coal mining, S Kalimantan Sejati (SIS) Perkasa (MBP) Wisesa (MSW)
Balangan 75% Coal mining and Coal barging and 2x30MW mine-
Coal mining, S Kalimantan hauling contractor shiploading operator mouth power plant
operation in
Harapan Bahtera
Mustika Indah Permai (MIP) Jasapower 100% 100% S Kalimantan
Internusa (HBI)
Coal mining, S Sumatra 75% Indonesia (JPI)
Third-party barging
Overburden crusher Bhimasena Power 34%
Bukit Enim Energi (BEE) and shiploading
and conveyor 2x1000MW power
Coal mining, S Sumatra 61% operator Sarana Daya 51.2% plant operator in
IndoMet Coal 25% Mandiri (SDM) Central Java
Project (IMC), BHP JV Channel dredging
Coal mining, C Kalimantan contractor South Kalimantan 65%
Power Project
Bhakti Energi Indonesia Bulk 100%
10.2% 2x100MW power
Persada (BEP) Terminal (IBT)
plant operator in
Coal mining, E Kalimantan Coal and fuel terminal
S Kalimantan
*Simplified Corporate Structure
36
Focus on Two Product Ranges
ENVIROCOAL SPECIFICATIONS
E5000 E4000
Unit
Typical Typical
Calorific Value NAR 4,600 kcal/kg 3,700 kcal/kg
Total Moisture ARB 28% - 30.0% 38.0% - 40.0%
Ash ADB 2% - 3% 3% - 4%
Sulphur ADB 0.15% - 0.25% 0.15% - 0.25%
Volatile Matter ADB 40.0% 40.0%
HGI - 45 65
Initial
Ash Fusion Temperature
deformation 1,150 1,150
(reducing atmosphere)
deg. C
37
Proven Track Record of Production Growth
2013 2012 2011 2010
Units Actual Actual Actual Actual
Production volume Mt 52.3 47.2 47.7 42.2
E5000 Mt 37 39.5 42.3 39.7
E4700 & E4900 Mt 8 n.a. n.a. n.a.
E4000 Mt 8 7.6 5.4 2.5
Strip ratio bcm/tonne 5.75 6.4 5.9 5.5
38

CONCLUSIONS
39
Presentation Conclusions
A lot of uncertainty in China power growth and energy mix

extremely difficult to predict as not only economics, but
also regulations play a role
Indonesian coal production will peak in two years if the
market does not support the development of new projects
Additionally, there is the potential that the Indonesian
government might limit production
Southeast Asia and India will will continue to need
Indonesian coal these regions are likely to become the
main destination for Indonesian exports in the near future
40
Presentation Conclusions
ADARO WILL CONTINUE TO DELIVER

POSITIVE ENERGY TO THE ASIAN MARKET
41

Future of Indonesia in The Asian Coal Markets

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The Future of Indonesia in the

Asian Coal Market

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

CHINA The main International

CHINA Indonesia became the

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

Due to the change in the mix of

Australian and South African coals

Seaborne Export Thermal Curve 2012

(US$/Tonne) 2015 2030 % Change

Indonesia 58.12 73.93 27%

Source: WoodMackenzie, Coal Market Service, 2013; Bernstein 2013 13

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

In spite of the all the

Source: WoodMackenzie, Coal Market Service, 2013 18

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

Source: WoodMackenzie, Coal Market Service, 2013 20

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

(in Billion Tonnes) Total

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

Installed capacity for electricity

Source: WoodMackenzie, Coal Market Service 2013

? ? ? ? domestic supply will not be able to cope with

Low CV coals will remain the

Imports Domestic production in

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

Indonesian Coal Availability China, India, Indonesia, and SEA

TOTAL 580 MT Southeast Asia Demand (excl. Indonesia)

Highly Probable Projects

Source: WoodMackenzie Energy Market Service, 2013; Adaro Analysis 33

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

The second largest

Adaro Mining Adaro Mining Adaro

*Simplified Corporate Structure

CHINA IMPORTS GROWTH HISTORY AND PROJECTIONS

A lot of uncertainty in China power growth and energy mix

ADARO WILL CONTINUE TO DELIVER

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