An overview of the European Energy Markets

Transcription

1 An overview of the European Energy Markets The European energy markets remain very unsettled Despite positive achievements, many challenges have to be overcome at COP21 conference Utilities financial performances continues to reflect an enduringly unfavorable context Energy transitions and digital revolution involve a change in Utilities business models Conclusions 1

2 Since July 2014, Brent prices have dropped to around $50/bl 140 Crude oil price evolution (2014-YTD 2015) After peaking at $115/bl in June 2014, the Brent price evolved in a $45-66/bl range during H (with an average at $58/bl). It even dropped below $50/bl in September 2015 This decrease is linked to OPEC s decision not to lower its quotas despite less growth in oil demand due to: Economic slowdown in developing countries (especially in China where H GDP was at 6.3% compared to 7% expected and in Brazil, with -1.9% GDP in Q2 2015) Steady US oil production until May 2015 (reaching almost 14 Mb/d* in April 2015). While EIA** forecasts a stabilization for 2016, other institutes foresee a decrease The oil price drop triggered productivity gains of 15-20% in the shale oil industry Experts forecasted that at an oil price below $70/bl, shale oil production would stop. This threshold has recently been revised down to $60/bl Iran oil production could resume to Mb/d after sanctions are eased (vs. 2.8 Mb/d in average over 2015) Jan 2014 Feb 2014 Mar 2014 Source: BP Million barrel per day16 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014 Jan 2015 EUR USD Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 US crude oil production (2013 to 2016e) US oil production Forecast Sep 2015 Oct 2015 Experts forecast low oil prices in the near future Source: EIA *: Mb/d: million barrel per day **: EIA: US Energy Information Administration 2

3 The current low oil prices are impacting the coal market Coal prices halved since 2011 (from about $120/t in 2012 to $59/t in 2015). This decline has been reinforced since 2014 by a context of global overcapacity due to: Global economic slowdown Commissioning of new mines Lower imports from China (-42% in Q year-on-year) Currency depreciation in several exporting countries such as Russia With oil being used in various transport and production activities for coal production, low oil prices have triggered further declines in coal prices, especially for globally exported coal products In Europe, cheap coal prices and low carbon prices have favored the use of coal-fired plants to produce electricity (especially in the UK and Germany) Recent commitments from large emitting countries (the US and China) to cut greenhouse gas emissions should lower global coal demand in the long term Coal price (US$/t) Source: Focus Gaz Coal prices (2011 to YTD 2015) Coal s share of global energy, now 30%, should fall to 25% by

4 Following oil prices, gas prices have decreased The drop of oil prices is particularly reflected in the Japan gas price (the Japanese index collapsed by 65% between 2014 and 2015) In 2014, Asian gas prices were about 3 times European gas prices. In 2015, this spread narrowed to about 1.5 The Asian market is currently wellsupplied: Japan restarted 2 nuclear plants (Sendai 1&2 in August and October) China s LNG imports decreased by 3.5% in 2015 (vs. +10% in 2014) In Europe: Consumption is depressed (-11.2%* in 2014 compared to 2013; -23% below its peak in 2010) Long-term prices are very close to spot prices since they include an increasing share of spot prices and since oil prices are low Source: Focus Gaz Gas monthly average prices (2011 to 2016e) LT indexed % spot Germany import average price NBP Henry Hub Japan - monthly Regional gas prices are expected to re-connect further in the future *: source Eurogas 4

5 Electricity wholesale prices are still depressed and retail prices continue to increase Average European electricity spot price (2009 to H1 2015) Electricity and gas consumption have decreased (-1.6% and -11.2% respectively* in 2014 compared to 2013) Average electricity wholesale prices decreased since 2011 and were below 40/MWh during H mainly due to the decrease of gas prices and the rise of the renewables share in the electricity mix Retail electricity price rose annually by 5.9%, 7.2% and 7.5% between 2009 and 2014 in Germany, France and Spain respectively; mainly due to subsidies to support the development of renewables. However, since feed-in tariffs were abolished in Spain, retail prices have stabilized Residential electricity prices, all taxes included [ /MWh, Purchasing Power Parity] Evolution of residential electricity prices in Germany, Spain and France (2009 to 2014) Subsidies to renewables, that explain the increase of retail prices, are being revised by governments DE ES FR Source: Eurostat *: non weather-corrected data CAGR: Compound Annual Growth Rate 5

6 An overview of the European Energy Markets The European energy markets remain very unsettled Despite positive achievements, many challenges have to be overcome at COP21 conference Utilities financial performances continues to reflect an enduringly unfavorable context Energy transitions and digital revolution involve a change in Utilities business models Conclusions 6

7 The European energy markets remain very unsettled Wholesale electricity prices are low Retail electricity prices continue to increase CO 2 price on the Emissions Trading Scheme is far too low Security of supply questions are focused on gas OUR RECOMMENDATIONS To restore market stability, the following measures should be implemented: Accelerate the Emissions Trading System reform Implement stronger market management in order to attain higher prices and give the right signal for lowcarbon investment For all intermittent renewables (especially solar and wind), quickly abolish feed-in tariffs and replace them with selling prices linked to the market To improve security of supply, the following measures should be implemented: Develop capacity remuneration mechanisms more quickly and consistently throughout Europe Continue to search for domestic gas sources including shale gas Study and finance the implementation of a truly unified and smarter high voltage grid 7

8 Despite positive achievements, many challenges have to be overcome at COP21 conference US CN BR IN Committed to reduce its greenhouse gas emissions by 26-28% below its 2005 level in 2025 Committed to reduce its carbon intensity per unit of GDP by 60-65% by 2030 compared to 2005 Committed to reduce its greenhouse gas emissions by 37% below its 2005 level in 2025 Committed to reduce its greenhouse gas emissions per unit of GDP by at least 1/3 in 2030 compared to 2005 Between $40 and $175 billion per year* in financial transfers from developed countries to developing countries (vs. a target of $100 billion per year until 2020) OUR RECOMMENDATIONS Europe is to some extent the model student, but in order to maintain the decrease in CO 2 emissions when the economy improves, it must ensure consistency in the various measures taken to reduce CO 2 emissions (Emissions Trading Scheme, renewables, energy efficiency) because they generate very different costs for the community and give inconsistent signals to the market Whatever the success of the COP21 conference, it is unlikely that it will lead to strong enough measures to limit the global temperature increase to 2 C (as of October 2015, the UN estimated that collective pledges of 146 countries i.e. covering 86% of global emissions will lead to a 2.7 C temperature rise) In addition to mitigation measures, adaptation measures must be designed and implemented *: based on various scopes, some including private financing and others not 8

9 It is a luck that energy transitions and digital revolution come at the same time Smart grids PROSUMERS RENEWABLES INCREASE NEW ENERGY MIX BATTERIES COMPLEX GRID MANAGEMENT DISTRIBUTED GENERATION ENERGY SOLAR DECREASE DEMAND SIDE PRICES MANAGEMENT CUSTOMER KNOWLEDGE DATA MINING EFFICIENCY OUR RECOMMENDATIONS Utilities remain in a difficult financial situation and they need to significantly improve their competitiveness In this dual context of managing energy transition while improving profitability, it is imperative that Utilities fully and rapidly implement digital transformation 9