Energy and commodity price benchmarking and market insights

Transcription

1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg Market Reporting Consulting Events

2 Gas and coal competition in the power markets from a long-term sustainability perspective Overview of trends and policies Paris, 30 th October 2014

3 General wisdom Coal is dirty but cheap Gas is clean(er) but expensive

4 Coal is inexpensive $/mn Btu Nov 2008 Jan 2009 Mar 2009 May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 API 2 API 4 API 6

5 relative to European and Asian gas $/mn Btu Nov 2008 Jan 2009 Mar 2009 May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 API 2 API 4 API 6 NBP ANEA

6 but not so clear-cut compared to US gas $/mn Btu Nov 2008 Jan 2009 Mar 2009 May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 API 2 API 4 API 6 Henry Hub

7 US

8 The US is an exception globally Gas has competed successfully with coal in recent years largely without a CO2 reduction incentive system although other Nox and SO2 legislation is helpful to gas The US shale gas revolution may not be replicable anywhere in the world but it might (the energy industry is a notoriously bad predictor of the future) It would make logical sense for the US, with its cheap domestic gas, to push aggressively for a binding global CO2 deal

9 Europe

10 Where we are in Europe politically? UK Technology neutral capacity market from ; first auctions this year But CfDs favour renewables and nuclear (at very high cost) Carbon levy promotes gas over coal Germany Government producing a green paper on a capacity market Want any capacity market to be supra-national Nuclear banned; enthusiasm for supporting renewables has waned No discrimination between gas and coal France Capacity market launching imminently; likely to be in operation Long-term planning favours renewables and nuclear Netherlands Has a coal tax which favours gas over (old) coal

11 A reminder from the UK past /MWh Feb 2003 Apr 2003 Jun 2003 Aug 2003 Oct 2003 Dec 2003 Feb 2004 Apr 2004 Jun 2004 Aug 2004 Oct 2004 Dec 2004 Feb 2005 Apr 2005 Jun 2005 Aug 2005 Oct 2005 Dec 2005 Feb 2006 Apr 2006 Jun 2006 Aug 2006 Oct 2006 Dec 2006 Feb 2007 Apr 2007 Jun 2007 Aug 2007 Oct 2007 Dec 2007 Feb 2008 Apr 2008 Jun 2008 Aug 2008 Oct 2008 Dec 2008 Feb 2009 Apr 2009 Jun 2009 Aug 2009 Oct 2009 Dec 2009 Feb 2010 Apr 2010 Jun 2010 Gross spark spread (55pc) Gross dark spread (38pc)

12 an interesting summer in Germany /MWh Switching price cap for coal Coal price discount to cap

13 and in the UK Jan 02-Feb 02-Mar 02-Apr 02-May 02-Jun 02-Jul 02-Aug 02-Sep 02-Oct spark spread day-ahead (55pc) dark spread day-ahead (38pc)

14 Is imported coal cheaper than European gas? $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- Colombian coal into Europe including freight and royalties Ormen Lange break-even delivery into NBP (2007 adjusted for inflation) Erik Johnsen, Norwegian Ministry of Petroleum and Energy Ormen Lange is very profitable; the southern Norwegian North Sea fields are very, very profitable

15 Russian gas costs are uncertain Production cost estimates vary from $0.50/mn Btu up to around $3/mn Btu for new, remote fields Additional costs including taxes and transit provide even greater divergent estimates Anywhere from $5/mn Btu up to $11.50/mn Btu! Reducing these costs is to a large extent in the hands of authorities and pipeline operators

16 Asia

17 Summary Asia is almost entirely devoid of competitive electricity markets, meaning that the generation economics at play in US/European markets is much less of a factor Asia is seen as a hugely promising growth market by both the coal and gas industries Policy drivers price, but also environmental factors (e.g. China) and supply security/diversity tend to play the major role in determining the fuel mix

18 Supply diversity Coal China Indonesia Australia South Africa Russia India Colombia US LNG Australia Qatar Indonesia/Malaysia/Brunei (for now) Other Mid-East Gulf Russia West Africa Norway European reloads US? Canada? East Africa?

19 Environment

20 Environment

21 Price $2.50 $2.00 $1.50 $1.00 $0.50 $- Australian coal costs Tangguh LNG (2002 adjusted for inflation)

22 Peter Ramsay Managing Editor, Generating Fuels Phone: Office: London URL: Copyright notice Copyright 2013 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, DeWitt, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.