Outlook on economic viability of gas-fired power generation Session: Price formation and contractual trends

Transcription

1 Outlook on economic viability of gas-fired power generation Session: Price formation and contractual trends Gabrielle Seeling-Hochmuth Head of Gas Strategy Vattenfall EMART Energy November 2012

2 Vattenfall today A European energy company Vattenfall markets Facts 2011 Number of employees (fte) Net Sales (EUR m) Operating profit (EUR m) Electricity generation (TWh) Heat Sales (TWh) 41.6 Number of customers (million) - Electricity Gas Network % owned by the Swedish state Vattenfall a leading European energy company Operations in eight markets - Concentrating on 3 core countries Number 6 in electricity generation Number 1 in heat production Presence in all important trading markets 2 EMART energy November 2012 Amsterdam Vattenfall Source: 2011 numbers, exchange rate SEK 8.94 SEK = EUR 1

3 Gas in Vattenfall 2011 Installed gas capacity (GW) 4,8 GW (12% of total) Electricity generated from gas 7.5% Heat generated from gas 25% Gas Sales (TWh) 54 Diversified gas portfolio: Gas trades on gas hubs: Storage Transmission rights Netherlands: Long-term, short-term and hub market Most active in UK, Netherlands Equity, contracted NL, GER and UK 70% of gas generation 92% of gas sales 3 EMART energy November 2012 Amsterdam Vattenfall

4 Agenda - Uncertainties affecting price formation - Market signals challenging for gas fired power generation - Under which scenarios will gas fired power generation become viable? 4 EMART energy November 2012 Amsterdam Vattenfall

5 Dealing with Uncertainties Market signals reflect demand/supply and impact of unpredictable events Market Signals Gas surge Financial crisis Fukushima Economic Recovery 5 EMART energy November 2012 Amsterdam Vattenfall

6 Dealing with Uncertainties Market signals reflect demand/supply and impact of unpredictable events Future Uncertainties captured as sensitivities or market scenarios Market Signals Sensitivities 6 EMART energy November 2012 Amsterdam Vattenfall

7 Dealing with Uncertainties Market signals reflect demand/supply and impact of unpredictable events Future Uncertainties captured as sensitivities or market scenarios Stress Test Market scenarios to stress-test portfolios Market Signals Stress-Test Sensitivities 7 EMART energy November 2012 Amsterdam Vattenfall

8 Economic Uncertainty Industrial Output Below long-term trend in ECA region Euro area GDP forecasts Source: European Economic Forecast, Autumn 2012, European Commission 8 EMART energy November 2012 Amsterdam Vattenfall

9 Regulatory Uncertainty: Government incentives impact the merit order 2000: predictable supply and stable baseload 2020: more intermittent supply and thus reduced baseload Path to reducing carbon intensity is a key regulatory uncertainty 9 EMART energy November 2012 Amsterdam Vattenfall Source: Vattenfall analysis

10 Gas demand and intermittency needs for power uncertain Poyry study Germany in 2012 and 2030 with weather of Feb Generation (GW) Gas powered Generation (GW) Gas demand for power (NL) Gas demand for power scenarios (Ge) 10 EMART energy November 2012 Amsterdam Vattenfall Sources: Poyry, Gas Strategies, WoodMac, CERA

11 Supply Uncertainty Europe: Asian demand growth, Timing of New Supplies and.. Asia demand growth (IEA 2011 New policies and golden age of scenario demand) Source: IEA LNG supply growth USA Russia Nigeria Australia Source: IEA Source: Poyry Also uncertain timing of new supply from stan region 11 EMART energy November 2012 Amsterdam Vattenfall

12 Supply Uncertainty Europe: growth in Unconventional Gas Six unconventional gas producers European Unconventional Gas Europe Mexico Australia Canada China United States IEA Golden Rule Scenario bcm By 2010 By 2020 By EMART energy November 2012 Amsterdam Vattenfall

13 Gas Pricing Uncertainty or Certainty: Shorter contracts, less volume and hub indexed? 13 EMART energy November 2012 Amsterdam Vattenfall

14 Unpredictability: (Geo-political) Black Swans 14 EMART energy November 2012 Amsterdam Vattenfall

15 Agenda - Uncertainties affecting price formation - Market signals challenging for gas fired power generation - Under which scenarios will gas fired power generation become viable? 15 EMART energy November 2012 Amsterdam Vattenfall

16 Gas prices traditionally driven by oil indices 2009 Oil indexation UK Western Europe Central& Eastern Europe Source: Anthony J Melling; Natural gas markets and its future, 2010 EnergyQuote JHA Currently, about 90% of UK gas is spot indexed 16 EMART energy November 2012 Amsterdam Vattenfall

17 Increasing Hub Liquidity - attracts Liquidity 700 bcm Development of Continental hubs OTC Volumes 600 bcm CEGH TTF GRTgaz TIGF PSV huberator GasPool NCG 500 bcm 400 bcm 300 bcm 200 bcm 100 bcm 0 bcm EMART energy November 2012 Amsterdam Vattenfall Sources: CEGH from TSO data, P Heather OIES

18 NBP very liquid and leads the market 18 EMART energy November 2012 Amsterdam Vattenfall Source: Intercontinental exchange, P. Heather OIES

19 Spot prices driven by supply and demand fundamentals working market signals pence/therm Cold spell Cold spell, Rough outage 4 Collapsed export due to maintenance Cold spell 2 3 Pipe testing floods UK market Financial crisis, loose LNG market Cold spell EMART energy November 2012 Amsterdam Vattenfall *EU border price estimate based on Gas Strategies data

20 Europe lower hub price levels starting to impact long-term contract prices 20 EMART energy November 2012 Amsterdam Vattenfall Data sources: Brattle Group

21 Recently strong diversion between gas and coal Oil Indexed Contract estimate 12 $/mmbtu BAFA NBP Gas Price Competitive with Coal in Power generation 4 2 Henry Hub 0 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul EMART energy November 2012 Amsterdam Vattenfall Data sources: H. Rogers OIES, IEA

22 Market signals support increasingly coal fired generation.. making gas fired generation less attractive 30 Day Ahead Clean Dark / Spark Spreads (30d MovAvg) Coal NL /MWh Gas Ge Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 NL Ge CSS (EEX) CSS (APX) CDS (EEX) CDS (APX) 22 EMART energy November 2012 Amsterdam Vattenfall Source: Vattenfall analysis

23 Agenda - Uncertainties affecting price formation - Market signals challenging for gas fired power generation - Under which scenarios will gas fired power generation become viable? 23 EMART energy November 2012 Amsterdam Vattenfall

24 Boom Boost - new gas capacity follows market signals Spark Spread UK New gas generation capacity US 24 EMART energy November 2012 Amsterdam Vattenfall Source:Digest of United Kingdom Energy Statistics 2012, IEA

25 Boom Boost - new gas capacity follows market signals Spark Spread UK New gas generation capacity US 25 EMART energy November 2012 Amsterdam Vattenfall Source:Digest of United Kingdom Energy Statistics 2012, IEA

26 Scenarios can test asset portfolio robustness and flexibility Sensitivities - +/- ranges from current trend - often based on historic data and correlation; Scenarios - Storylines how fundamentals drivers may evolve - Portfolio robustness evaluation Economy Supply Competing Demand Competing Fuels Regulation 26 EMART energy November 2012 Amsterdam Vattenfall

27 Building scenarios with fundamental drivers Example: demand for new generation high Regulatory Uncertainty Investments on hold Scale up / abandon later New plants to CCS Stable to transformational No new investments Abandon/ Bet Some investments Small projects Regulatory and economic drivers Demand scenarios low low Economic uncertainty high Supply / price scenarios Asset portfolio scenarios Source: Alexander van de Putte, Cambridge University, EMART energy November 2012 Amsterdam Vattenfall

28 Example Gas Supply / Price Scenarios Lower hub prices Mid hub prices High Low Demand in Asia Development of shale in Europe/China Southern Corridor (Azerbeidjan) High demand in Asia Residual LNG market for Europe Supply Limited shale gas developments Delays in Australian projects High demand in Asia Delays in Australian projects No major shale gas developments Low High Demand Mid hub prices Low Gas Demand in Europe No major demand increase for gas capacity High uncertainty, low CO2 prices High hub prices High Gas Demand in Europe Increased demand for gas generation capacity High certainty, high CO2 prices 28 EMART energy November 2012 Amsterdam Vattenfall

29 Gas will take a low share in a robust asset portfolio Phase outs, high CO2 prices, and abundant gas could raise this share Example High Market Focus High Focus on Regulatory Measures CONCEPTUAL high SPARK guided Gas abundance CO2 taking off Coal dominance Highly DIVERSIFIED Low CO2 Low sparks General uncertainty Regulator Uncertainty Some Investments or on hold CENTRIC Approach RES-centric Low Footprint centric Transition-centric? No new gas REGULATORY Focus Nuclear, coal phase out CO2 mechanism Grid debottlenecking Transition projects? Some Investments or on hold share of gas in asset portfolio low low Economic Uncertainty high 29 EMART energy November 2012 Amsterdam Vattenfall

30 Vattenfall s gas products can help navigate uncertainty Gas origination Vattenfall has a large and flexible gas portfolio and offers Base load supply Gas flexibility supply Temperature dependent supply Vattenfall trading Netherlands (TTF) - Belgium (Zeebrugge) - Germany (NCG & Gaspool) - Czech Republic (OTF) Gas trading Vattenfall is active in gas trading in a large number of European gas markets. Trade related products are offered on all active markets such as Buy and sell virtual storage Virtual power plant trading Execution of gas trading for industrials Gas delivery From France (PEG) - Austria (CEGH) In Future - Italy (PSV) - Poland - Slovakia 30 EMART energy November 2012 Amsterdam Vattenfall

31 Summary Gas can complement increasing intermittency from renewables with a relatively low footprint but Current market signals not attractive for gas fired generation Trust and liquidity in gas hubs has been increasing Functioning markets are a key element in reducing carbon footprint and are key to guide investment plans in the power sector Scenarios can help test asset portfolio robustness for an uncertain outlook Currently well diversified portfolio required to deal with uncertainties 31 EMART energy November 2012 Amsterdam Vattenfall

32 Thank You For Your Attention! Questions? Gabrielle Seeling-Hochmuth