European Energy Challenges

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Conference – Barcelona, March 28 2012: A view of the European energy markets (Middle East events, Fukushima accident and economic downturn are impacting the energy markets in terms of security of supply and energy mix). Plus a focus on Utilities’ situation and challenges

Text of European Energy Challenges

  • 1. European Energy ChallengesColette Lewiner, CapgeminiBarcelona ConferenceMarch 28th, 2012 | Energy, Utilities & Chemicals Global Sector

2. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: Energy mix Sustainability objectives European Utilities companies are under pressure: More energy-related investments are needed While electricity and gas prices are low and demand growth is limited Regulation changes are needed How to be a winner? Increase competitiveness Develop synergies Manage the assets portfolio Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 2 3. The rising political tensions in Iran are particularly worrying for global oil supply Italy After China, the EU is the largest importer of IranianIrans oil exports (Jan to June 2011)oil (about 20%) % of each13%countrys total 7% In response to the Irans nuclear program negotiationsoil imports OthersOther EUJan to June 2011 Spainfailure, the US and Europe decided sanctions against12%5%Iran, who, in return, threatened to close the Strait of China6%13%Hormuz: Strengthening of the US military presence in the Gulf 11% TotalJapan Oil embargo from the EU (due to start in July) which shouldIranian oil hit 450,000 to 550,000 barrels a day of Iranian oil exportsSouth Africa 22%exports 14%10% But Iran banned crude oil supply to France, the UK and 2.3 mthe EU right away 25% bl/d In addition, Japan, South Korea, Taiwan and India couldSource: Financial TimesIndiareduce their purchases (up to 250,000 bl/d). In total,Turkey13%between 25% and 35% of Irans oil exports could be 4% 11%impacted51% 7% 10%South Korea Average daily oil flow10% through the Strait ofHormuz (2011) 14 crude oil tankers Primary factors driving demand areAlmost 17 million barrels Source: Financial Timeseconomic growth and increased35%20%requirements in the developing worldIran political situations may place globalof all seaborne of oil tradedproduction and transportation at risktraded oilworldwide | Energy, Utilities & Chemicals Global Sector3 4. Oil prices in European currencies are at their highest Oil prices forecasts uncertainty is increased by In Euros, the crude oil spot price is at its highestspeculation: each barrel traded on the physical There is currently a $20 spread between WTI andmarket is traded 35 times on the financial marketsBrent, a the consequence of a localized logistic There is some consumption/price elasticityphenomenon at Cushing, Oklahoma, where WTI is High present oil prices are linked to tensions in pricedMiddle East and IranOil pricesCrude oil spot Brent in US dollars and in Euros Crude oil spot Brent vs. WTI 130 120 Brent 110 100 WTI 90 80 70March 2011July 2011 Nov 2011 Feb 2012Source: Focus Gaz, February 17, 2012Source: Ycharts Source: France inflationHigh oil prices impact economic growth (EUs oil import costs up 44% in 2011 compared to 2010) and trade exchanges balance| Energy, Utilities & Chemicals Global Sector 4 5. Gas is not a global market. Very different regional pricing systems Gas spot pricesGas prices evolution 50100 In /MWh ($4.4/MBtu=10.6 /MWh) DE - Import price NL - TTF BE - ZeebruggeUK - NBP 40DE - NCGFR - PEG Nord 80 Long-term contracts price Brent month aheadSpot priceGas prices [/MWh] 3060Brent price [/bl] 2040 102000Europe versus US gas pricesSource: Gas Exchanges web sites, SG Commodities Research, BMWI Capgemini analysis, EEMO13 US spot prices could go up on the mid-term triggered by the new EPA(Environment Protection Agency) regulation on air pollution (Cross State AirPollution Rule) that could lead to 20% of US coal-fired plants phase-out and theirreplacement by gas Beginning of 2012, Gazprom has agreed to reduce by 10% the price of itslong-term contracts to EuropeUS spot gas prices are only one third of long-termEuropean gas prices. For how long? Source: Focus Gaz January 2012 | Energy, Utilities & Chemicals Global Sector 5 6. Post-Fukushima nuclear reactors market: new builds mainlyin Asia, Russia and Middle East Worldwide, 434 reactors are in operation, 61 under construction and 495 planned or proposed(February 2012, World Nuclear Association) Overview of existing nuclear plants and project capacities (as of February 2012) The final number of planned or proposed 0 50,000 100,000150,000 200,000 250,000reactors is difficult to assess. However, two ChinaMWepoints are clear: USA Russia Provided reactors are run safely, the India consequences of the Fukushima accident Japan France should be less important than viewed just afterSouth Korea the accident United KingdomUkraine The proportion of new, safer Generation 3Canada reactor builds will increaseUAEOperable Saudi Arabia It is worthwhile mentioning that: Germany Under construction Planned TVA in the US has decided to completeSouth Africa Vietnam Proposed Bellefonte 1 reactor, that the Nuclear Regulatory Turkey Commission has certified the design ofSweden Westinghouse Electric Co.s AP1000 reactor SpainFinland and that Southern Company is building 2 newCzech Republic nuclear plants in Vogtle, Georgia BrazilSwitzerland Finland announced a new build, the firstSource: World Nuclear Association announcement of a new site anywhere in the world since the Fukushima accidentThe vast majority of new constructions and existing Russian Rosenergoatom has received a license plants in operation should continue with some delays for building the Kaliningrad plant and more safety focus. No.1 nuclear unit in Zhejiang Sanmen (China) The IEA* forecasts that nuclear output will rise by has restarted the infrastructure constructionmore than 70% over the period to 2035 project*IEA: International Energy Agency, World Energy Outlook 2011 | Energy, Utilities & Chemicals Global Sector6 7. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: Energy mix Sustainability objectives European Utilities companies are under pressure: More energy-related investments are needed While electricity and gas prices are low and demand growth is limited Regulation changes are needed How to be a winner? Increase competitiveness Develop synergies Manage the assets portfolio Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 7 8. Electrical peak loads are increasing year-on-year threateningsecurity of supply 160,000 9.1%Peak load, generation capacity and electricity mix (2010)& 140,000Peak load 2012: Total installed capacity for Europe in 2010: 882,712 MW 101,700 MW (+3.7% compared to 2009) 3.6%& 120,000Total generation capacity and peak load [MW]2.1%CO2 emitting generation capacity 4.7%& 3.9% Non-CO2 emitting generation capacity 100,000& & Peak load 2010Total generation capacity evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%)Peak load evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%) 9.5% Source: ENTSO-E Capgemini analysis, EEMO13& 1.5%80,000 &2.6%8.8% &60,000 & 0.1% Peak load 2012:& 25,844 MW -0.1%40,000 2.2%(0.1%& 6.2% & 0.1% 3.2%9.3%&& 1.6% && 1.0% 5.8%0.3%9.3%6.8%&-1.4% 3.6% & 6.6%20,000 & &1.7% & ( & &0.2%10.3% -0.6%4.8%0.1%&&1.1%2.0%2.6% &&0.3%&1.1% 2.1%10.2% 9.3% (& & & 1.0% & 1.1%4.1%&&& & &5.1%-23.6% 7.9% 1.8% 3.0% & & & -0.4% -1.3% 1.9%4.9% 1.5%6.8% &(& && ( (& & &0 DEFR IT ES UKSEPL NO NL ATBE CH FI CZPTRODKGRBGHUIE SK LT SILVEELUNine countries registered an all-time high peak loads in 2010 due to cold temperatures.During the cold wave early 2012, France and Poland recorded all time record electricitydemands and Germany has activated its reserve coal power plants | Energy, Utilities & Chemicals Global Sector 8 9. France recorded a new peak load on February 8, 2012 due to the cold spell Generation mix on February 8, 2012 at 19:00 The French peak load reached 101,700 MW at 19:00Gas Nuclear plants availability largely contributed: 59,165 MW (55 reactorsOil-fired + Coal out of the 58 were in operation) 3% peak 5% France imported 7,845 MW from all its neighboring countries (max 9,000 MW) capacities On EPEX Spot, day-ahead electricity prices jumped to 1,938/MWh 5% RTE activated it EcoWatt demand response program in Brittany and PACAImports Nuclear regions which resulted in a consumption reduction of respectively 2% and 3% 8%58% EnergyPool curtailed 20 MW of industrial consumption which have been used for Brittany region In 2011, net new generation capacities have been added: Others Hydro 850 MW of CCGT6% 13% 1,250 MW of renewable energies Wind 450 MW of fossil-fired plant have been decommissioned Source: RTE 2% But tariff-related demand response capacities have decreasedfrom 6,000 MW in 2004 to 3,000 MW in 2011A holistic approach to manage the peak load needs to be implemented. It should encompass: Generation capacities Demand response: tariffs or other types of demand response programs Incentives to build peak generation capacities Grids reinforcement Incentives for energy savings | Energy, Utilities & Chemicals Global Sector 9 10. Several countries recorded also gas consumption peaks in February 2012 Gas supply for selected European countries (2010)CZ PLES FRUK During the first week ofFebruary, temperaturesDomestic productiondropped in average to Russia-20C, both in Europe andCZPL ESFR UK Norwayin Russia. Gas demand9.3 bcm14.3 bcm 34.5 bcm46.8 bcm94 bcm AlgeriaLNGjumped by 20% inOtherEuropeSource: BP statistical report 2011 Capgemini analysis Gas consumption peaked in several EU countries: UK: 4,428 GWh, NBP gas spot price skyrocketed at 69.175 p/th, a level not reached since November 2008 Map of gas reverse flows F