Market Overview Jonathan Lydiard-Wilson A Unique Perspective
Global GDP strengthen in 2014
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.
The Eurozone economy will slowly recover (Real GDP, percent change)
Winners and Losers in Western Europe (Annual percent change)
Oil prices expected to decrease in 2014
Oil continuous front month $bbl Dec 2012 Mar 2014
UK Gas A Unique Perspective
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
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
/MWh (Real 2011) International Gas Prices Comparison 50 45 40 35 30 25 20 15 10 5 Decline driven by reduction in Dutch / UK supply. Assumes no unconventional North America LNG at current exchange rates 0 2000 2005 2010 2015 2020 2025 2030 2035 Asia Asian Term C Oil Indexation Legacy Europ Contract NBP / TTF Northwest Eu Traded Marke Henry Hub North Americ Hub) Source: IHS CERA.
UK Power A Unique Perspective
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.
Coal Prices API2 ARA Apr 2012 Mar 2014
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
per MWh Power prices outlook 80 History Forecast Source: Reuters, EEX, APX, OMEL, PSE, NordPool, GME, IHS CERA. 70 60 Wh 011) 50 40 30 20 10 0 2010 2015 2020 2025 2030 2035 Germany France Netherlands Great Britain Italy Spain Nordpool Poland
per MWh Higher UK Spot v Euro prices to continue Wh inal 120 100 80 60 40 Historical monthly power prices Evolution: 2012 2013 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
Non-Energy Costs A Unique Perspective
Are rising driven by.. Support for Renewable Energy Investment in Smart Grid technology and infrastructure Government Regulation linked to emission reduction
How do countries compare by price - power 140.00 2012 actual prices ( /MWh) 120.00 100.00 80.00 60.00 40.00 20.00 0.00-20.00? Belgium Germany Netherlands UK Spain France Discount Transport Taxes Penalties Metering Charges Energy
What are I & C Companies doing? A Unique Perspective
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)
Longer Term PPA with third parties Examples being UK Government, McDonalds, Sainsbury's, M&S etc - Price range from 52-70 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
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)
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
What does the future look like? A Unique Perspective
Energy is getting more complex
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
Thank you A Unique Perspective
Jonathan Lydiard-Wilson CEO, International Division T: +44 (0)7802 863778 E: j.wilson@energyquote.com 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