Market Overview Jonathan Lydiard-Wilson. A Unique Perspective

Transcription

1 Market Overview Jonathan Lydiard-Wilson A Unique Perspective

2 Global GDP strengthen in 2014

3 Key risks to the global economy Risk Eurozone meltdown Oil price shock US stagnation China hard landing Signposts With the housing market, banks, and the economy spiraling downward, Spain needs a full sovereign bailout. Greece exits the Eurozone. Contagion spreads to Italy, Portugal, and France. Conflicts in the Middle East and North Africa lead to an oil supply disruption. Transportation is temporarily affected. Oil prices soar initially, until markets adapt. Policy gridlock damages confidence and stock prices. Businesses and households retrench. The housing market recovery stalls. Real estate market bubbles burst. Loan defaults by developers and local governments trigger a banking crisis and a credit squeeze. The government responds with limited fiscal stimulus.

4 The Eurozone economy will slowly recover (Real GDP, percent change)

5 Winners and Losers in Western Europe (Annual percent change)

6 Oil prices expected to decrease in 2014

7 Oil continuous front month $bbl Dec 2012 Mar 2014

8 UK Gas A Unique Perspective

9 UK Gas Short Term Drivers 2014 expected to be the low point for European demand Recovery back to previous levels not expected until 2026 Strong demand in Asia will continue to pull LNG out of Europe Increased Russian supply is expected to fill the gap we hope From a traders perspective prices s set to remain firm

10 UK Gas Longer Term Drivers Reduced growth in UK power generation: - Resulting in reduced demand for gas as an input fuel generation - At a time when high gas prices vs low coal is likely to continue until 2020 Europe s requirement for gas imports will grow substantially - Declining indigenous production in north, demand growth in south Price formation will continue to evolve - Oil indexation v gas to gas but with little impact on the long run level of prices in Europe European energy policy will be the key driver of demand growth in the longer term

11 /MWh (Real 2011) International Gas Prices Comparison Decline driven by reduction in Dutch / UK supply. Assumes no unconventional North America LNG at current exchange rates Asia Asian Term C Oil Indexation Legacy Europ Contract NBP / TTF Northwest Eu Traded Marke Henry Hub North Americ Hub) Source: IHS CERA.

12 UK Power A Unique Perspective

13 UK Power Short Term Outlook Power prices have plunged to new lows due to a combination: - Weak power demand - Continued Renewables expansion - Failure of EU Emissions Trading System (ETS) reform - Falling Global Coal prices Mild / wetter weather.

14 Coal Prices API2 ARA Apr 2012 Mar 2014

15 UK Power Longer Term Drivers Retirement / Mothballing of aging generation fleet Coal and carbon market developments Regulatory and policy developments: - Revisions to renewable subsidies - Reform of ETS carbon market

16 per MWh Power prices outlook 80 History Forecast Source: Reuters, EEX, APX, OMEL, PSE, NordPool, GME, IHS CERA Wh 011) Germany France Netherlands Great Britain Italy Spain Nordpool Poland

17 per MWh Higher UK Spot v Euro prices to continue Wh inal Historical monthly power prices Evolution: Germany: -13% France: -10% UK: +11% Italy: - 22% 20 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: IHS Cambridge Energy Research Associates. N2EX, EPEX Spot, OMEL, APX Italy Netherlands Germany Belgium Spain France Great-Britain

18 Non-Energy Costs A Unique Perspective

19 Are rising driven by.. Support for Renewable Energy Investment in Smart Grid technology and infrastructure Government Regulation linked to emission reduction

20 How do countries compare by price - power actual prices ( /MWh) ? Belgium Germany Netherlands UK Spain France Discount Transport Taxes Penalties Metering Charges Energy

21 What are I & C Companies doing? A Unique Perspective

22 Generating their own Energy CHP: Stand-by generation Alternative sources of generation Energy From Waste (yesterday s cost = today s fuel) Renewable Energy (PV, Wind, Anaerobic Digestion, Tidal etc)

23 Longer Term PPA with third parties Examples being UK Government, McDonalds, Sainsbury's, M&S etc - Price range from over last 3 years to 20 yrs - UK PLC 56 fixed 20yrs in Jul 13 - Price hedge or to secure green energy Ample Independent developers around key who who can make the commercial model work (two way street): - Price, Counterparty credit - Fuel supply, proven technology Main growth areas: - Baseload: Energy From Waste, AD, Biomass - Intermittent: Solar Wind

24 Focus on Energy Efficiency Limited Capex availability in European markets seeing significant move to Zero cost OPEX solutions Rise in: - EPC (Energy Performance Contracting) - ESCO (energy Services Companies)

25 Looking at Energy Holistically Moving away from a project / product approach to a solution delivery Looking for single expertise across: - Energy price risk - Energy Efficiency - Carbon legislation Across all 5 pillars of energy: - Power - Waste - Water - Buildings - Transportation

26 What does the future look like? A Unique Perspective

27 Energy is getting more complex

28 Key Trends Distributed generation Electric motors Energy Efficiency / EPC (energy performance contracting) Smart Grids, Grid infrastructure investment, Cyber security Fuel Cells and Storage Buildings, transportation & power demand linked together Energy Revolution similar to mobile communications will see the emergence of new business models: - Google, Apple, Lockheed Martin the next energy companies? 2010 EnergyQuote JHA. All rights reserved

29 Thank you A Unique Perspective

30 Jonathan Lydiard-Wilson CEO, International Division T: +44 (0) E: Disclaimer: Energy Management Brokers Limited and all its subsidiary companies, trading as EnergyQuote JHA, are not regulated for the purposes of giving investment advice, and we do not give investment advice. If this document and any related documents contain data relating to energy prices you should note that expectations and forecasts of out-turn prices and ranges of possible out-turn prices are based on analysis of market conditions which involve risks and uncertainties and are not guarantees of future performance. Actual out-turn prices and trends may differ materially from what is forecast due to a variety of factors. EnergyQuote JHA do not accept liability for errors and omissions in such data and in no circumstances can we be liable for losses, either direct, indirect or consequential, as a result of your use of such data. You must exercise all due diligence and rely upon your own interpretation and judgment when taking commercial decisions. A Unique Perspective