European energy transition

1. European Energy Transition: challenges to suppliers

© World Energy Council 2014
European Energy Transition:
challenges to suppliers
Ged Davis
Executive Chair, Scenarios
World Energy Council
Astana September 30 2015

2. Table of contents

▶
Status of natural gas in Europe
▶
Forces for change
▶
Challenges for natural gas suppliers
© World Energy Council 2014

3. European Natural Gas Infrastructure

Incoming gas pipeline routes:
Existing
Planned
(selected)
(by Russia)
Planned/Upgraded (bu others)
OPAL
TAP
Write
TransStream
Caspian
Interconnectors
(planned or built)
LNG Terminals
Selected planned
© World Energy Council 2014

4. European Natural Gas Demand/Supply

© World Energy Council 2014

5. EU sets ambitious targets for 2030

27%
20%
13%
Renewable targets – as % of renewable energy in
the EU’s total energy mix
Renewbale Energy
40%
18%
Carbon reduction targets – % reduction compared
to 1990 emission levels
20%
Carbon Reduction
25%
20%
Energy Efficiency
Energy efficiency targets – % reduction in energy
consumption compared to reference levels (varies by
member state, usually established based on peak
year consumption in 2005-2007
Current
Targets for 2020
Targets for 2030 (proposed, not yet approved)
© World Energy Council 2014
Source: EU Commission
5

6.

Natural Gas Contract Duration Changes
There is evidence of both an increased overall amount of short/
medium-term natural gas trade.
Non Long-Term Trade
% Share
MTPA
MTPA
% of Total LNG Trade
(right axis)
Spot and Short-term
Medium-term
Long-term
% Spot and Short-term (right)
Source: IGU- World LNG Report – 2015 Edition
►Over
Source: IGU- World LNG Report – 2015 Edition
the past 10 years there has been a large increase in the in the number of
contracts with a duration of less than 5 years. 1
© World Energy Council 2014

7. Table of contents

▶
Status of natural gas in Europe
▶
Forces for change
▶
Challenges for natural gas suppliers
© World Energy Council 2014

8. Despite the recent turmoil, the outlook for the world economy in 2020 remains unclear

▶ The current recovery continues to lack momentum …
▶ Recent indicators point to tepid economic growth in
most advanced economies
-
Confidence indicators and order books are up
Monetary conditions are still loose, investment is picking up
« Austerity » stances are giving way to more neutral policy stances
Some concerns about possible recession before 2020
▶ Yet, several emerging markets are in difficulty
-
Overemphasis on commodities, lack of reforms, socio-political
mismanagement ?
8
© World Energy Council 2014

9.

In Europe, national energy regulation more
important for investment mood than overall growth
Question 2: Which factors are contributing most to the energy infrastructure investment mood?
(please select maximum two that apply best)
National energy regulation (i.e. taxes, subsidies)
Overall economic growth prospects
Profit outlook
Private consumption (of energy efficient goods etc.)
Multilateral energy regulation
Others, please specify
Europe
Rest of World
- National energy regulation more important in Europe than in rest of world, while outside
Europe, overall economic growth prospects more important than regulation
- Higher influence of multilateral energy regulation reflects special European situation
orld Energy Council 2014
Will national regulation become more predictable in a European framework?
©W

10.

Energy transition is happening in a weak
market and challenging regulatory environment
Regulatory challenges – Examples
Weak macroeconomics
GDP-forecast EU1
2013
2014
2.2%
1.7%
1.0%
1.2%
0.7%
0.0%
0.0%
-0.3%
Forecast
Oct
2011
Forecast
Oct 2012
Forecast
May 2013
Forecast
Nov 2013
Further decreasing power prices
Power Price Germany Base (y+1, €/MWh)2
70
<60
60
<50
50
<40
40
30
1/11
Jun 2010
Nuclear fuel tax
Sep 2010
Preferential treatment Spanish coal
Nov 2010
Retroactive tax on solar power
Feb 2011
Reduction of solar subsidies
Mar 2011
“Retail Market Review”
Mar 2011
Tax increase North Sea oil and gas
May 2011
Withdrawal of nuc. lifetime extension
Aug 2011
Increase “Robin Hood” tax
Nov 2011
Doubling of nuclear tax
Mar 2012
1. tax package to finance tariff deficit
Apr 2012
Coal tax increase
Jul 2012
Adjustments of RES promotion
Feb 2013
Energy tax
Apr 2013
Tariff cut for grid business
Jun 2013
Robin-Hood Tax on PV
Nov 2013
Change in promotion scheme for RES
10
7/11
© World Energy Council 2014
1/12
7/12
1. Source: IHS Global Insight
2. Price for delivery next year
1/13
7/13

11. EU places high priority on improving energy security

▶ Increasing energy efficiency and reaching the proposed 2030
▶
▶
▶
▶
energy and climate goals.
Increasing energy production in the EU and diversifying
supplier countries and routes. This includes further deployment
of renewables, sustainable production of fossil fuels, and safe
nuclear where the option is chosen. It also entails working
effectively with current major energy partners, as well as
developing new partners such as countries in the Caspian Basin
region.
Completing the internal energy market and building missing
infrastructure links to quickly respond to supply disruptions
Strengthening emergency and solidarity mechanisms and
protecting critical infrastructure.
Speaking with one voice in external energy policy
11
© World Energy Council 2014

12. Dynamic innovation and technology are driving changes on energy markets

Examples
Renewable energy: substantial size
global
wind
318 GW
global
PV
139 GW
PV: cost decrease beyond expectations
Price decreased by 20%
each time the installed capacity doubled
1 GW
2000 2013
Module price
Europe 2014: 72% of new installations (22% in 2000)
1980
17 GW
2000 2013
1990
2000
2010
Cumulative production
Shale gas: technology „Hydraulic fracturing”
Increasing gas resources
change global macro economics
© World Energy Council 2014
Source: www.iea.org
2012
Net importer
with 42 bcm
US Gas
2040
Net exporter
with 165 bcm

13. Table of contents

▶
Status of natural gas in Europe
▶
Forces for change
▶
Challenges for natural gas suppliers
© World Energy Council 2014

14. The Economics of Unconventionals are Preferred in times of Uncertainty

EOG Eagle Ford Operations
Conoco Phillips: Flexibility vs. Returns by Asset Type
Completed Well Costs
(MM USD)
6.1
2014
5.5
North American
Unconventionals
5.3
2015 Current Target
Plan
Average Drilling Days
Spud to TD
14.2
10.9
8.9
Full-Cycle Project Returns
5.7
North American
Conventional Oil
Deepwater
International Oil
and Gas
LNG
7.4
4.3
Low Flexibility
Long-Cycle
Flexibility
High Flexibility
Short-Cycle
2012 2013 2014 Current Record
Source: EOG Investor Presentation, May 2015
© World Energy Council 2014
Source: Conoco Phillips Investor Presentation, May 2015

15.

LNG Capacity 2008, 2014, and
expected 2020 (bcm)
Legend
*Anticipated based on projects
Under Construction Only
© World Energy Council 2014
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