Stocks To Watch: Energy World Corporation (EWC)


Stocks To Watch: Energy World Corporation (EWC)

Stocks To Watch: Energy World Corporation (EWC)

Energy World Corporation (EWC) is a Hong Kong-based integrated energy company, involved in the production and sale of power and natural gas.

The company owns and operates two power plants – one in Indonesia and the other in Alice Springs Australia.  It also has gas interests in the two countries.

EWC’s future lies in its ability to service Asia’s growing hunger for LNG.  By focussing on the two ends of the LNG supply chain, EWC aims to not only supply the LNG but to invest in the infrastructure needed for distribution to market.

Unlike conventional LNG projects, EWC has identified a more compact and efficient gas liquefaction process through its so-called modular LNG facilities.

Magnificent Modular

EWC has proposed an unconventional, yet intriguing, alternative to the more traditional LNG processing facilities.

The company aims to build modular LNG facilities at its sites in Australia, PNG and Indonesia.  Typically, an LNG facility is a large-scale project that requires billions of dollars in capital spending, as well as a high level of gas reserves to underpin development.

Furthermore, financing for the project is usually dependant on the company securing long-term off-take agreements with its customers.

Instead, EWC has embarked on a plan to build a higher number of smaller-scale LNG facilities that would require less gas reserves and estimated capex of only US$125 – $150 million per facility (train).

This would allow EWC to construct its facilities faster, which means quicker delivery of LNG to its markets. Moreover, the small-scale nature of the facilities allows for quicker and less costly dismantling when a gas field is depleted.

Asia all the way

EWC’s aim is to develop both ends of the LNG supply chain. This would entail sourcing the gas, to producing the LNG and then distributing to Asian markets.

Asia’s economic growth will in large part be fuelled by alternative energy such as LNG.  This growing hunger for LNG has led countries such as China and India to build LNG receiving and re-gasification facilities.  EWC is thus positioning itself to feed this hunger

EWC’s assets will be strategically placed in the Asian region, with an LNG receiving terminal in the Philippines, and modular LNG facilities in PNG and Indonesia

EWC is looking to build such a facility at its Sengkang site in Indonesia. The facility would have planned production of 2 million tons per annum (MTPA), via a combination of four 0.5 MTPA trains.

There are already indications of strong demand for EWC’s supply. An agreement has been signed with the Indonesian government for the supply of 1.5 MTPA, but this may increase to 5 MTPA if sufficient gas reserves are proven up.

In more good news, EWC recently secured approval from the Indonesian government to hike the gas price from the Senkang site.

The higher gas sales price would provide an additional $22 million in revenue and $5.2 million in net profit, for 2011.

Hong Kong listing to assist with future funding

EWC has secured the necessary funding for its Indonesian project plans, whilst discussions are ongoing regarding funding for projects in the Philippines.

EWC’s future ability to raise capital is likely to become easier once it obtains approval to list on the Hong Kong Stock Exchange. The group announced the listing application on Friday.

Listing on one of the world’s major exchanges in Hong Kong will not only broaden its shareholder base but significantly raise its global profile.

Outlook

We see inherent value in EWC given the way it has positioned itself to feed Asia’s growing hunger for energy.

Instead of large-scale LNG projects, EWC has opted to develop its modular LNG facilities. These have the potential to provide a competitive advantage through their mobility and low cost structure.

The proximity of its terminals and facilities to the higher growth Asian countries suggests EWC can be a key player in this lucrative market.

We anticipate these factors will continue to underpin EWC’s share price and as such think it’s a stock to watch in the near-to-medium term.

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