Guido Custers
Speaking about EXPLORING THE ROLE AND THE VALUE OF FLEXIBILITY WITHIN A TRADING PORTFOLIO ENERGY POLICIES A FUTURE CHALLENGE FOR THE GAS MARKETS 2
Energy Policies Liberalisation Regulation Schizophrenic 3
Overview Energy policies Flexibility requirements change over time Shifts in gas production Shifts in power generation capacity A new era - LNG Flexibility in the new era Flexibility tools Filling the toolbox The future challenge 4
Energy policies Europe: Low carbon economy Increased competition Increased security of (European) supply Today: Uncertainty about future policies & targets Uncertainty about EU ETS Uncertainty about demand supply balances Energy markets need to adopt to schizophrenic energy policies 5
Flexibility 6
The old world Limited requirement for flexibility tools: Sufficient European indigenous production Groningen field provided ample flexibility as swing producer for NW-European market Sufficient underground storage for normal conditions Strong, predictable growth in gas power generation Predominantly pipeline based Extensive experience with demand fluctuations due to weather 7
The old toolbox - Shift in power generation Power generation market in transition: Past growth of gas generation capacity will continue in the future Strong growth renewables based on share of investment Source: IEA World Energy Outlook 2011, press launch London 8
The old world - Shift in gas production Strong impact: decline swing producer Groningen Proportional profiling production Groningen deposit (2011-2020) Expected production Groningen field based on exploitation plan (from 2021) Expected supply from deposits to be identified Expected supply from deposits to be developed Expected supply from developed deposits Historic supply Groningen deposit Historic supply small fields Source: Delfstoffen en aardwarmte in Nederland, Jaarverslag 2010 9
The old world - Shift in power generation Power generation market in transition: Strong growth in gas generation and renewables Relative clean fuel Right characteristics to backup renewables Strong pricing relationship gas - power Growing impact of renewable generation on gas Gas demand will fluctuate sharply due to intermittence EU27 Net increase in installed Generating capacity per fuel, 2000-10 Source: IEA The impact of wind Power on European Natural Gas Markets 10
The old world - Shift in power generation Power generation market in transition: Past growth of gas generation capacity will continue in the future Strong growth renewables based on share of investment Source: IEA World Energy Outlook 2011, press launch London 11
The old world fusing into the new era European gas market changing rapidly: Increasing divers gas supplies New gas extraction technologies Shifting supplier base conventional gas, more remote sources Strong growth LNG supplies Potential (indigenous) shale gas Dominance pipelines reduced Additional sources of demand: road haulage, shipping Increasing global competition for gas Changing pricing patterns Matured trading hubs Regulation (Third Energy Package, TPA) The old world has transitioned into a new era 12
A new era Gas supplies Substantial share for gas Final Energy Consumption by fuel (EU 2010) Source: Eurogas Growing share of LNG (2009 19% - 2010 24%) Net imports EU 27 from non EU countries Source: Eurogas 13
A new era - LNG European, North-American and Asian markets moving closer together Asian demand sets the scene (China becoming dominant player) Australia set to become the largest exporter of LNG Level of flexibility depends on the LNG volume Europe can attract Limited short term flexibility offered by storage at terminal Source: ENTSOG 10 year Network Development Plan 14
A new era - LNG Strong growth in short term ( 4 years) and spot trading More than a quarter of LNG trades is short term/spot Spot provides substantial flexibility to a volatile market Storage enabler for realising value flexibility spot trades Source: GIIGNL Source: GIIGNL 15
A new era LNG Europe Strong growth in LNG imports 0,6 Mt delivered to Dutch Gate terminal in 2011 16
A new era LNG Europe European imports in 2011 stable (+0,4%) Source: GIIGNL 17
A new era - Flexibility The Flexibility Paradox Getting flexibility right, a future challenge for the gas markets Energy transition & shift in gas production require more flexibility!! Past levels of flexibility will not suffice More short term flexibility required Adaptation to an integrated NW-European gas & power market Combination of different sources of flexibility will be a pre-requisite to increasing volatility 18
A new era - Flexibility Flexibility tools: Contractual arrangements Interruptible demand Production flexibility Import flexibility Line pack LNG Shale gas (Underground) Gas storage 19
Flexibility Contractual arrangements More volatile gas demand requires contractual (and physical) adjustments: Interruptible demand has been defined in contracts before but: Theory will become practice Production & import flexibility Long term contracts have recently seen adjustments to take-or-pay arrangements Flexibility in supply source Pricing oil indexation versus gas - to gas Maturity hubs and current supply situation puts pressure on long term contracts based on oil indexation 20
Flexibility (Underground) Storage Gas storage Strategic (supply disruptions) Seasonal (winter-summer spread) Short term Single-cycle / multi-cycle Virtual storage (APX-Endex) Growing demand for short term storage 21
Flexibility (Underground) Storage Source: Gas Storage Europe, European Gas Markets Summit 22
Flexibility: a future challenge Strong growth demand for flexibility tools No tool fits all requirements Requires continuous infrastructure investments Pipelines/Line-pack/Underground storage Long term & short term contractual arrangements will gear more towards flexibility Fitting customer base (interruptible) Growing role for integrators in the gas value chain Flexibility will be challenging for all parties concerned as flexibility tools are merely pieces of a complex puzzle 23
Energy Policies Schizophrenic policies: Less More Investments Uncertain policies Gas production No-brainer CO 2 reduction Gas to Power 24
Questions? 25