Harvest 4 Energy Fundamentals Dec 2014 EU

INTRODUCTION TO GLOBAL ENERGY BUSINESS

DECEMBER 2014

Presented by: Andy Varoshiotis BSc, MBA, IAFP, MSDT, EITCEnergy & Strategy Advisor - Licenced Investment Manager

Harvest 4 Energy LtdEnergy - Innovation - Strategy – New Technologies - Market Research - Global Investment Management

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H4E (Global Energy Trends)

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(Global Energy Trends)

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Energy Market Components


Energy Market Components


Financial Marketsi.e. markets for claims on cash flows of a businessi.e. markets for debt and markets for equity

Why are Financial Markets particularly important for energy business?

significant share of costs are fixed (economies of scale) => energy business is capital intensiveenergy business is risky

Political Marketspolitical agents – make decisions that structure exchange among participants in real markets, financial marketsTaxesRegulationpermittingpolitical decisions are influenced through political marketsElectionsLobbyingcomments contributed during legislativedebate and regulatory rulemakingcourt cases

FUEL MIX


FUEL MIX


Energy | and Trends

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Energy | Trends


Energy | Trends


Typology of primary energy resources


Typology of primary energy resources


Energy resources Use


Coal Production and Use


Energy Suppliers


Oil Producers


Non Traditional Oil Producers


Global Solar


Global Wind


Determinants of Supply

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• What motivates producers to supply a particular level of primary energy resources?

A: benefits and costs of production

- price

- costs

- labor, operating expenses, etc.

- weather disruptions

- technology

Supply: the Free Cash Flows


value of operations = free cash flows available to financial claims holders (i.e. equity and debt)

• operating revenue

• - cost of good sold

• - other operating expenses

• - taxes

• - capital expenditures

• Free Cash Flows from Operations

Supply: the Free Cash Flows


Equilibrium in energy markets


• What determines a particular level of price and output for a particular good?

A1: what is a good?

a product (or service) of

- a particular quality

- at a particular place

- at a particular time

A2: market price is that which equates quantity demanded with quantity supplied

Equilibrium in energy markets


• What determines the price of natural gas?

A1: what is ‘natural gas’? – need to be specific – e.g. if quoting ‘Henry Hub’ gas

• traded in 10,000 MMBtu increments, quoted in MMBtu’s

• a particular quality:

– energy content (BTU’s), typically determined via in-line GC

– also in-line measures to verify no H2S, little moisture

• at a particular place:

– Henry Hub = Sabine Pass Pipe Line LLC, near Erath, LA

• at a particular time:

– spot market

– futures contracts for various months, up to 10 yrs out

Wind POWER Generation and loss


PV Generation loss


PV Generation and Drawbacks


Future Smart Grids


We hope for a better and Brighter Future


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Economy & Finance

Harvest 4 Energy Fundamentals Dec 2014 EU