E.ON PowerPoint

Recent Developments in the European Gas
Market
EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
Agenda
1
Recent Developments in European Gas Markets:
 Trading: Recent developments
 Supply: Impact of LNG
 Demand: Challenges for further demand development
2
2
Conclusions - Discussion
1
Gas liquidity increased significantly until 2012 – trend
continued also in 2013
Trading volumes are increasing
Major Trading Volumes (TWh)
TWh
35,000
30,000
27,597
25,000
20,000
15,000
10,000
6,495
21,660
19,740
32,295
2,652
2,117
 Total trading volumes (exchanges + OTC) in
major EU markets increased 73% over the
last five years.
34,080
2,851
2,535
7,616
Others
4,892
Germany
3,394
2,185
16,080
15,740
2008
2009
Netherlands
18,842
21,031
21,078
2010
2011
2012
UK
 First data for 2013 indicate a further growth
for contitental markets whereas NPB is
stagnating on a high level
5,000
0
Major Market Churn Factors in 2012
Italy
France
Germany
Belgium
Austria
Major Markets Total
UK stays the leading market in 2012
 Trading activity in UK reached a record level
of nearly 25 times physical consumption
0.9
1.3
 Average churn in Europe increased from 6.3
to 6.8 in 2012
2.8
4.1
5.5
6.8
Netherlands
UK
20.0
24.9
3
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
Source: Prospex
1
With liberalization of transport capacities in the last
years a real European Gas Market developed
Degree of price convergence of European Hubs
Observations
 Price correlations across hubs are strong
and has been increasing overtime
100%
95%
 European gas prices are already part of
the same integrated market and deliver
therefore a reliable reference for gas in
Europe
90%
85%
80%
75%
70%
65%
60%
2007
2008
2009
2010
2011
2012 H1
all
all wo PSV
NBP, ZEE, WE hubs
ZEE, WE hubs
WE hubs
TTF, GSL, NCG
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
Source: Oxford Institute for Energy Studies
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In Europe significant changes in price formation
mechanisms have taken place
Gas Price Formation NW-Europe 2005 - 2012
Observations
 Trend towards GOG by the continued
decline in domestic production in the UK
bound to old OPI contracts being replaced
by pipeline and LNG imports, all at GOG
80%
70%
60%
50%
 Netherlands price formation has risen to
almost 100% GOG in 2012, from 10% in
2005
40%
30%
 Only <10% of E.ON’s customer demand is
oil indexed
20%
10%
0%
OPI
2005
GOG
2007
2009
others
2010
2012
NW Europe: Belgium, Denmark, France, Germany, Ireland, Netherlands, UK
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
Source IGU
1
Second wave of liquefaction capacity will boost LNG
market and increase imports in Europe
Global liquefaction capacity (left) and annual capacity additions (right)]
bcm
bcm
1,200
280
2nd
1,000
wave
1st wave
800
200
30%
600
 More LNG in Europe will
lead to further
convergence of
European prices
240
160
35%
120
400
?
200
80
40
0
2005
0
2010
2015
2020
2015 2016 2017 2018 2019 2020
Potential
Other
Africa
Existing & Committed
Russia
Australia
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
 Many LNG deliveries
will not have oil
indexation but are linked
to hub prices (netback,
HH etc.)
US
Source: IHS CERA
Gas demand development in Europe remains unclear –
predicted golden age of gas is currently no reality
1
Power [EUR/MWh]
Spread [EUR/MWh]
DE FY Clean Dark and Spark spreads vs. DE baseload power
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Baseload power
Clean Dark Spread
baseload @ 39% eff.
Clean Spark Spread
peakload @ 55% eff.
Gas spreads are deeply negative in Germany and
more and more gas plants are being switched off
or mothballed
Sources: IHS Cera and E.ON
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1
There is also fierce competition for gas demand from
coal, renewables and other decentral technologies
Coal prices to remain on low levels
EUA prices will not sky rocket
Renewables efficiency to increase
 Coal expected to stay on
low price levels (mainly
Chinese consumption under
pressure)
 Even with backloading CO2
price will stay on low levels
 RES get more and more
cost efficient and will grow
 Trend for decentral and
clean energy production will
continue
,
 State subsidized housing
insulation (e.g. UK, D) and
heat pumps
Coal prices CIF ARA
EUA Forward Curve
140
,
LCOE in US$ / MW
100
EUR/t
US$ per mt
120
100
80
60
40
20
10
80
8
60
6
40
4
0
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
2010 2010 2011 2012 2013 2013 2014 2015
CCGT
20
2
0
2014 2015 2016 2017 2018 2019 2020
0
2009
On shore wind
2010
2011
Sources: IHS CERA, Bloomberg E.ON
LCOE= Levelized cost of energy
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
2012
2013
1
Additional Risk to European Demand: Very low US gas
prices gas may attract gas intensive industry
Asian price benchmarks vs. TTF vs. US Henry Hub (monthly averages EUR/MWh)
Japanese Crude
Cocktail (JCC)
Japan Korea Marker
(JKM)
TTF
Henry Hub
“US shale revolution puts squeeze on European Chemical
groups” Financial Times in Dec. 2013
“Chemical Companies Rush to the U.S. thanks to
Cheap Natural Gas” Bloomberg Businessweek, July 2013
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE
2
Conclusions – Questions for discussion
 Hub based pricing is a reality – Why is oil
indexation needed apart from that it increases
hedging cost?
 How to make money in European markets with
decreasing demand, price spreads and volatility?
 How to face the European demand challenges and
make gas a more attractive commodity again?
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EBC WORKING COMMITTEE „ENERGY“, London, March 21, 2014
Ingo Schroers, E.ON Global Commodities SE

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