A View of the European Energy Markets


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Conference – Paris, March 5 2012:
A view of the European energy markets (Middle East events, Fukushima accident and economic downturn are impacting the energy markets in terms of security of supply and energy mix).

Plus a focus on the French oil & gas market
A review on the state of the European energy market by Colette Lewiner Energy, Utilities and ChemicalGlobal s Leader, Capgemini.

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A View of the European Energy Markets

  1. 1. A view of the European Energy MarketsColette LewinerParis - March 5, 2012 | Energy, Utilities & Chemicals Global Sector
  2. 2. A view of the European energy markets Recent events are impacting the energy markets They are changing the electricity and gas short- and longer-term security of supply Present and future energy mix is evolving Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 2
  3. 3. A view of the European energy markets Recent events are impacting the energy markets • Middle East events • Fukushima accident • Economic downturn They are changing the electricity and gas short- and longer-term security of supply Present and future energy mix is evolving Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 3
  4. 4. Global demand for oil has increased in 2011 World oil demand increased in 2011 by 0.88 million barrels per day (mbpd), i.e. +1.01% (to 87.82 mbpd) compared with 2010 (86.94 mbpd) World oil demand outlook According to the latest OPEC projections, worldwide oil mbpd mbpd consumption is expected to increase by 1.07% in 120.0 120.0 2012 (to 88.76 mbdp) 100.0 110.0 Other transition economies Russia„000 b/d Quarterly world oil demand growth „000 b/d OPEC 80.0 100.0 China Southeast Asia South Asia 60.0 90.0 Middle East & Africa Latin America OECD Pacific 40.0 80.0 Western Europe North America World (right axis) 20.0 70.0 0.0 60.0 2010 2015 2020 2025 2030 2035 Source: OPEC Monthly Oil Market Report – February 2011 Source: World Oil Outlook 2011, OPEC Primary factors driving demand are economic growth and increased requirements in the developing world Libya, Yemen, Syria, Egypt and Iran… political situation may place global production and transportation at risk | Energy, Utilities & Chemicals Global Sector 4
  5. 5. The rising political tensions in Iran are particularly worrying for global oil supply Iran‟s oil exports (Jan to June 2011) After China, the EU is the largest importer of Iranian oil (about 20%) In response to the failure of the negotiations on Iran’s nuclear program, the US and Europe decided sanctions against Iran, who threatened to close the Strait of Hormuz: • Strengthening of the US military presence in the Gulf • Oil embargo from the EU (decided in January 2012 and due to start in July) which should hit 450,000 to 550,000 barrels a day of Iranian oil exports But Iran banned crude oil supply to France and the UK right away In addition, Japan, South Korea, Taiwan and India could reduce their purchases (up to 250,000 bl/d). In total, between 25% and 35% of Iran‟s oil exports could be impacted Source: Financial Times Average daily oil flow through the Strait of Hormuz (2011) 14 crude oil tankers This situation is benefitting notably Russia and keeps oil prices high. Source: Financial Times Almost 17 million barrels Traders estimate that if the situation deteriorates, oil prices could rise 35% 20% towards $150/bl or beyond of all seaborne of oil traded traded oil worldwide | Energy, Utilities & Chemicals Global Sector 5
  6. 6. Refineries closures are putting pressure on oil price volatility The refinery industry in developed countries Global refining capacity (mainly the US and Europe) is facing an unprecedented crisis: • Since the 2008-2009 financial crisis, 2.6 mbd of refining capacities have disappeared in developed countries • An additional cut of 1 mbd* in 2012 is expected • In the US, refineries currently run at 86% of their capacity vs. 93% in 2001 • Since mid 2008, nine refineries have closed in Europe • Refinery margin have been mostly negative in 2011 On the contrary, due to their strong economic growth, emerging countries are developing their refinery capacities • Between 2008 and 20011, 36 new refinery facilities were commissioned in India, China, Middle East and Brazil • 25 new other refineries are expected to be built US fuel suppliers could be forced to import by 2015 gasoline from Europe due to the US refineries‟ closure while Europe may need Petroplus (a pure refinery player) bankruptcy to buy diesel from the US, increasing is highlighting refineries difficulties transportation costs *Merril Lynch estimation | Energy, Utilities & Chemicals Global Sector 6
  7. 7. Oil prices are still driving many other energy prices Oil prices forecasts uncertainty is increased by  In euros, the crude oil spot price is at its highest speculation: each barrel traded on the physical  There is currently a $20 spread between WTI and market is traded 35 times on the financial markets Brent, a the consequence of a localized logistic There is some consumption/price elasticity phenomenon at Cushing, Oklahoma, where WTI is High present oil prices are linked to tensions in priced Middle East and Iran Oil prices Crude oil spot – Brent in US dollars and in Euros Crude oil spot – Brent vs. WTI 130 120 Brent 110 100 WTI 90 80 70 March 2011 July 2011 Nov 2011 Feb 2012Source: Focus Gaz, February 17, 2012 Source: Ycharts Source: France inflation High oil prices impact economic growth (EU‟s oil import costs up 44% in 2011 compared to 2010) and trade exchanges balance | Energy, Utilities & Chemicals Global Sector 7
  8. 8. Fukushima accident first safety lessons learned The accident First safety lessons learned Exceptional circumstances: 9.0-magnitude undersea  Need to design plant infrastructures for really exceptional earthquake off the coast of Japan on March 11, 2011 earthquakes and tsunamis triggering a tsunami that travelled up to 10 km inland.  Simultaneous Natural Catastrophes have to be taken Fukushima nuclear plant: 6 boiling water reactors into account (BWR) maintained by TEPCO have been hit by the  Spent fuel storage and management policy to be earthquake and tsunami: rethought • Reactors 4, 5 and 6 were shut down prior to the earthquake  Emergency measures to be revisited for maintenance. • Remaining reactors shut down automatically after the  Cooling systems redundancy to be re-assessed earthquake. Grid electricity supply for cooling purposes  Radiological permanent control on the site and around collapsed and then the tsunami flooded the plant, knocking  Crisis management and crisis communication to be re- out emergency generators. designed • 20 km radius evacuation around the plant from March 12  Nuclear bodies and governance Highest rating (level 7) on the International Nuclear Event Scale. Second level 7 rating in history, following Chernobyl In December 2011, the Japanese Prime Minister, Yoshihiko Noda, confirmed that the four Fukushima Daiichi nuclear units of Tokyo Electric Power Company have been brought to a condition “equivalent to „cold shutdown‟” | Energy, Utilities & Chemicals Global Sector 8
  9. 9. Nuclear new build: the vast majority in Asia, Russia and Middle East Worldwide, 434 reactors are in operation, 61 under construction and 495 planned or proposed (February 2012, World Nuclear Association) Overview of existing nuclear plants and project capacities (as of February 2012) The final number of planned or proposed reactors is difficult to assess. However, two points are clear: 0 50,000 100,000 150,000 200,000 250,000 MWe • The proportion of new, safer “Generation 3 reactor” China builds will increase USA Russia • The new projects will also be impacted by economic India factors (low gas prices) Japan France It is worthwhile mentioning that: South Korea • TVA in the US has decided to complete Bellefonte 1 United Kingdom reactor, that the Nuclear Regulatory Commission has Ukraine Canada certified the design of Westinghouse Electric Co.s UAE Operable AP1000 reactor and that Southern Company is Saudi Arabia Under construction building 2 new nuclear plants in Vogtle, Georgia Germany South Africa Planned • Argentina inaugurated its third nuclear power plant, Vietnam Proposed Atucha II Turkey • Finland announced a new build, the first Sweden Spain announcement of a new site anywhere in the world Finland since the Fukushima accident Czech Republic • Russian Rosenergoatom has received a license for Brazil Switzerland building the Kaliningrad plant Source: World Nuclear Association • No.1 nuclear unit in Zhejiang Sanmen (China) has *IEA: International Energy Agency restarted the infrastructure construction project **World Energy Outlook 2011 The vast majority of new constructions and existing plants in operation should continue with some delays and more safety focus. In addition, lifetime extension of Spanish and French reactors has been authorized The IEA** forecasts that nuclear output will rise by more than 70% over the period to 2035 | Energy, Utilities & Chemicals Global Sector 9
  10. 10. The safety inspections launched on existing plants should lead to additional investments Distribution of reactors under operations by age (EU-27) 20 18 Source: World Nuclear Association Safety tests aim to assess: • Plants’ resistance to simultaneous and exceptional catastrophes Number of units 15 (flooding and earthquakes) 11 11 10 10 10 • On site emergency preparedness and information 10 9 7 • Radiation protection of people and the environment 5 5 5 5 4 • And in Japan, change of governance around nuclear safety questions 3 3 3 3 3 3 2 2 2 1 1 1 1 1 1 1 1 1 1 For all 14 EU nuclearized Member States, national nuclear 0 regulators have released their “stress tests” reports 4 9 11 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 38 39 40 42 44 • No country will be required to take any of its plants off line Reactors age (in years) • France: ASN (French Safety Authorities) stated in December 2011 that no plants needed to be immediately shut down, but that steps should be taken as "soon as possible" to improve safety at the 58 reactors (investments estimated between €10 to 15 billion) • UK: “No fundamental weaknesses in design and resilience at UK nuclear power plants“ according to the Office for Nuclear Regulation • Spain: according to the Nuclear Safety Council (CSN), all reactors would be able to withstand earthquakes and floods Outside Europe, nuclear stress tests are also on-going: • China: 34 reactors passed the safety checks of which 26 were being built. A new China National Plan for Nuclear Safety is being formulated, and approval for new projects should follow its adoption, at a pace of three or four per year, which represents slower growth than before. • US: inspections carried out at all 104 operating nuclear reactors. The nuclear regulator (NRC) stated that “every plant has the capability to effectively cool down reactor cores and spent fuel pools following extreme events” • Japan: stress tests consistent with IAEA standards. For the first 2 examined units (Ohi 3 & 4), the nuclear regulator (NISA) stated that the Utility (Kansai Electric Power) has taken sufficient measures to prevent a similar accident to the one at the Fukushima Daiichi plant. Still, 52 reactors out of 54 are stopped Additional CAPEX and OPEX will push nuclear electricity costs up. Nevertheless, nuclear energy stays competitive. Provided reactors are run safely, the consequences of the Fukushima accident should be less important than viewed just after the accident | Energy, Utilities & Chemicals Global Sector 10
  11. 11. There is some elasticity between the economic situation and the energy consumption EU electricity and gas consumption Evolution of electricity and gas consumption (M/M-12) non-weather-adjusted (non-weather-adjusted) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 -6.1% +7.0% -8-9% 5,336 5,010 5,363 1% 4,880 0% +4.1% -2.7% -4.7% 0% -4% 3,265 -2% -1% -2% -3% -3% -2% -2% 3,294 3,136 3,177 -4% -4% -6% -5% -8% -7% -10% -10% -12% -12% Electricity -14% -16% Gas Electricity Gas -22% 2008 2009 2010 2011 Source: SG Energy Pulse – Capgemini analysis, EEMO13 Source: ENTSO-E, BP – Capgemini analysis, EEMO13 In 2009, electricity and gas consumption dropped in Europe (-4.7% and -6.1% respectively) due to the crisis, in 2010, they increased again (+4.1% and +7.0%) thanks to the economic recovery and colder than average winter temperatures. Wholesale electricity and gas prices followed the same trend. In 2011, European electricity and gas consumption decreased respectively by 2.7%* and 8-9%**, mainly due to a mild weather. In France, electricity consumption decreased by 6.8% (weather-adjusted: +0.8%) and gas consumption by 13.4% (weather-adjusted: -1.9%). A second economic slowdown would impact negatively the energy consumption and prices * Société Générale Energy Pulss (Focus group representing 63% of European electricity consumption) **Cedigaz provisional figure | Energy, Utilities & Chemicals Global Sector 11
  12. 12. A view of the European energy markets Recent events are impacting the energy markets They are changing the electricity and gas short- and longer-term security of supply • Electricity • Gas Present and future energy mix is evolving Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 12
  13. 13. Peak loads are increasing year-on-year threatening security of supply on cold days 160,000 9.1% Peak load, generation capacity and electricity mix (2010) & 140,000 Peak load 2012: Total installed capacity for Europe in 2010: 882,712 MW 101,700 MW (+3.7% compared to 2009) 3.6% & 120,000Total generation capacity and peak load [MW] 2.1% CO2 emitting generation capacity 4.7% & 3.9% Non-CO2 emitting generation capacity 100,000 & & Peak load 2010 Total generation capacity evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%) Peak load evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%) 9.5% Source: ENTSO-E – Capgemini analysis, EEMO13 & 1.5% 80,000 & 2.6% 8.8% & 60,000 & 0.1% Peak load 2012: & 25,844 MW -0.1% 40,000 2.2% ( 0.1% & 6.2% & 0.1% 3.2% 9.3% & & 1.6% & & 1.0% 5.8% 0.3% 9.3% 6.8% & -1.4% 3.6% & 6.6% 20,000 & &1.7% & ( & & 0.2% 10.3% -0.6% 4.8% 0.1% & & 1.1% 2.0% 2.6% & &0.3% &1.1% 2.1% 10.2% 9.3% ( & & & 1.0% & 1.1% 4.1% & & & & &5.1%-23.6% 7.9% 1.8% 3.0% & & & -0.4% -1.3% 1.9% 4.9% 1.5% 6.8% & ( & & & ( ( & & & 0 DE FR IT ES UK SE PL NO NL AT BE CH FI CZ PT RO DK GR BG HU IE SK LT SI LV EE LU Nine countries registered an all-time high peak loads in 2010 due to cold temperatures. During the cold wave early 2012, France and Poland recorded all time record electricity demands and Germany has activated its reserve coal power plants | Energy, Utilities & Chemicals Global Sector 13
  14. 14. France recorded a new peak load on February 8, 2012 due to the cold spell Generation mix on February 8, 2012 at 19:00 The French peak load reached 101,700 MW at 19:00 Gas • Nuclear plants‟ availability largely contributed: 59,165 MW (55 reactors Oil-fired + Coal out of the 58 were in operation) 3% peak 5% • France imported 7,845 MW from all its neighboring countries capacities • On EPEX Spot, day-ahead electricity prices jumped to €1,938/MWh 5% • RTE activated it EcoWatt demand response program in Brittany and PACA regions which resulted in a consumption reduction of respectively 2% and 3% Imports Nuclear • EnergyPool curtailed 20 MW of industrial consumption which have been 8% 58% used for Brittany region In 2011, net new generation capacities have been added: Others • 850 MW of CCGT Hydro 6% 13% • 1,250 MW of renewable energies • 450 MW of fossil-fired plant have been decommissioned Wind In the meantime, tariff-related demand response capacities have Source: RTE 2% decreased from 6,000 MW in 2004 to 2,000 MW in 2011 A holistic approach to manage the peak load needs to be implemented. It should encompass: • Generation capacities • Demand response: tariffs or other types of demand response programs • Incentives to build peak generation capacities • Grids reinforcement • Incentives for energy savings | Energy, Utilities & Chemicals Global Sector 14
  15. 15. New pipelines and LNG terminals are increasing gas security of supply Pipeline projects Map of pipelines and LNG Projects of new pipelines BALTIC & terminals projects (2010) (planned or under Nord Stream delivers NORTH SEA construction) 108.7 Russian gas since November NO FI Built segments of pipelines under SE construction 2011 (27.5 bcm/year 33.1 RUSSIA Interconnection projects capacity, to double by the ATLANTIC EE GALSI financially supported by the European Energy end of 2012) 123.3 IE DK LV Recovery Plan (EERP) LT South Stream (63 bcm/year, 65.9 UK Interconnector projects – NORTH- EAST EUROPE LNG terminals BBL Nord Stream Existing to be finalized in 2015) NL PL Capacity 2 x 27.5 bcm End 2011 Under construction BE DE To be commissioned • March 2011: EDF and LU and 2012 and/or included within Mandatory Planning CZ Wintershall (BASF subsidiary) FR SK Under study or proposed acquired 15% stake each. Eni CH AT HU Nominal annual capacity SI has 20% and Gazprom 50%. RO by receiving zone (in bcm) Nabucco (31 bcm/year PT ES BG Existing Forecast IT by 2015 expected capacity by 2018) TAP • Budget of €7.9 billion to GALSI GR WEST. MED Medgaz TGI potentially rise to €15 billion 87.9 ALGERIA Trans Adriatic Pipeline 56.2 EAST. MED Interconnector projects - SOUTH-EAST EUROPE Interconnector projects – 62.3 (TAP), supported by Statoil AFRICA-EUROPE 21.3 Nabucco South Stream White Stream TGI TAP South-East Europe GALSI Capacity (bcm) 26-31 63 32 12 10+10 10 TGI, supported by Edison Capacity (bcm) To be commissioned 8 2015 LIBYA To be commissioned 2017 End 2015 2016 2017 2017 n.a. and DEPA Source: GIE gle, IEA WEO 2011 – Gas, Capgemini analysis, EEMO13 South-East Europe (10 bcm/year), Multiple southern pipelines routes are in competition. Their supported by BP future will depend on gas substitution to nuclear generation, unconventional gas development pace and economy | Energy, Utilities & Chemicals Global Sector 15
  16. 16. Unconventional gas is changing the picture Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global production in 2010 (to increase to 30% by 2040*). The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990 (420 bcm in 2010). Global unconventional natural gas resources (tcm)  The latest US Energy Information Administration report shows significantly larger NO: 2,324 SE: 1,148 unconventional gas resources in Europe PL: 5,236 • France: resources estimated at 5,000 bcm (around 100 years of consumption). They are FR: 5,040 equally situated in two basins (North and South- East) • Germany: resources amount to 20 times less and British resources to 9 times less • Only Poland would have equivalent resources to France  It would be regrettable if the present French decision to cancel exploration permits prevents shale gas exploration FR: 5,040 Largest technically recoverable shale gas resources (bcm) * ExxonMobil Energy Outlook, December 2011 Source: EIA Shale gas changes the gas perspective: • It increases the total gas resources to 250 years of consumption • It is widely distributed • It is cheap ($3/Mbtu in the US) • It allows to repatriate gas consuming industries as chemicals and to fight against deindustrialization | Energy, Utilities & Chemicals Global Sector 16
  17. 17. A view of the European energy markets Recent events are impacting the energy markets They are changing the electricity and gas short- and longer-term security of supply Present and future energy mix is evolving • Gas • Renewables • Electricity costs Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 17
  18. 18. The Fukushima accident has triggered a debate on the present and future energy mix 2010 and 2025 electricity mix (as of June 2011) There is a debate on nuclear phase- 100% out. Before asking ourselves if it is feasible, one needs to ask if it is 90% desirable. An immediate nuclear phase-out is challenging. 80% A long-term phase-out is possible but needs to be assessed against the 70% Solar + Biomass following criteria: Wind • Sustained development: global 60% Hydro Other f ossil warming / greenhouse gas emissions Gas decrease 50% Lignite + Coal • Security of supply Nuclear 40% • Electricity generation costs 2010 mix: lef t- • Social acceptance 30% hand side bar The IEA* has examined a Low Nuclear 2025 mix: right- hand side bar Scenario (no new nuclear plant is built 20% in OECD countries, non-OECD countries build only half of the projected 10% nuclear plants and the operating lifespan of existing nuclear plants is 0% BE BG CH CZ DE ES FI FR UK HU IT LT NL PL RO SE SI SK limited to 45 years) which Source: ENTSO-E – Capgemini analysis and estimations, EEMO13 consequences would be to: • Put additional upward pressure on energy prices Nuclear energy should slightly decrease its • Raise additional concerns about energy security worldwide share while gas and renewables should • Make it harder and more expensive to combat increase theirs, leading to electricity costs increase climate change: * AIE: Agence Internationale de l‟énergie , WEO 2011 | Energy, Utilities & Chemicals Global Sector 18
  19. 19. Power plant’s consumption is the main cause for gas demand growth World primary natural gas demand by sector and scenario In the new IEA GAS* scenario: • Gas share of primary energy consumption reaches 25% in 2035 (more than coal, slightly less than oil) • CO2 emissions are not compliant with climate change objectives and lead to a high +3.5°C temperature increase instead of an acceptable +2°C CO2 emissions in the GAS relative to the New Policies, 2035 Source: World Energy Outlook 2011: Golden Age of Gas Report On the longer term, increased gas consumption for flexible electricity generation will require more flexibility in storage and pipeline management Source: World Energy Outlook 2011: Golden Age of Gas Report * GAS: Golden Age of Gas, IEA WEO 2011 | Energy, Utilities & Chemicals Global Sector 19
  20. 20. Gas is not a global market. Very different regional pricing systems Gas spot prices Gas prices evolution 50 100 In €/MWh ($4.4/MBtu=€10.6 /MWh) DE - Import price NL - TTF BE - Zeebrugge UK - NBP 40 DE - NCG FR - PEG Nord 80 Long-term contracts price Brent month ahead Spot priceGas prices [€/MWh] 30 60 Brent price [€/bl] 20 40 10 20 0 0 Europe versus US gas pricesSource: Gas Exchanges web sites, SG Commodities Research, BMWI – Capgemini analysis, EEMO13  US spot prices could go up on the mid-term triggered by the new EPA (Environment Protection Agency) regulation on air pollution (Cross State Air Pollution Rule) that could lead to 20% of US coal-fired plants phase-out and their replacement by gas  Beginning of 2012, Gazprom has agreed to reduce by 10% the price of its long-term contracts to Europe US spot gas prices are 1/3 of long-term European gas prices. For how long? Source: Focus Gaz January 2012 | Energy, Utilities & Chemicals Global Sector 20
  21. 21. Renewable energies have continued their development As of May 2011, 10% of the Growth rate of renewable energy sources 110% generation plants under 2008 Solar PV Top 3 countries ranked by: construction are from renewable Source: Eur’Observer barometers – Capgemini analysis, EEMO13 100% Capacity Growth (abs.) Growth (%) Capacity installed* Growth** (absolute) energy sources (vs. 7% in 2009) DE DE SK 1. DE 1. SK In 2010, wind power provided the 90% 2005 IT CZ FR 2. ES 2. FR CZ FR SI largest output (147 TWh) but had a 3. IT 3. SI declining growth due to onshore 80% 2010 * Volume for wind, small hydro, geothermal and solar PV favorable sites saturation and local in MW and for biogas and biomass in TWh ** Relative growth additionally displayed for solar PV and negative reactions 70% wind Many governments have or are Growth (%) 60% launching large offshore wind 2007 2009 programs 50% • September 2010: 300 MW offshore 2006 wind farm inaugurated in the UK 40% Wind Capacity Growth (abs.) Growth (%) • In July 2011, France launched a DE ES RO 30% tender for 3,000 MW ES DE BG • North Sea: 400 MW (Germany) and 2005 IT FR PL 20% 2006 325 MW (Belgium) under 2007 2008 2009 2010 construction + Biomass 10% 2009 • Nuclear phase out in Germany should DE PL boost wind power FI SE 0% 70 SE 80 NL 90 In 2010, solar PV power had the 0 10 20 30 40 50 60 100 110 120 130 140 150 fastest growth (+80%) Electricity production (TWh) Fluctuating governmental policies A stable governmental policy is key for renewables on solar subsidies are damageable development as they still need governmental subsidies. (Germany, Spain, France, Italy, …). The eurozone sovereign debt issues should lead to a Several solar companies went bust decrease of those subsidies and China is dominating the market | Energy, Utilities & Chemicals Global Sector 21
  22. 22. Status on the 2020 EU objectives 110 EU-27 GHG emissions Source: BP statistical report 2011, European Environment Agency, Eur’Observer – Capgemini analysis, EEMO13 The 2009 economic crisis and its consumption reduction Historical evolution of GHG emissions EU-27 GHG emissions [base year=100] had a positive effect on EU greenhouse gases (GHG) 105 Path to reach 2020 target 2020 target f or EU-27 emissions that dropped by 7.1% 100 In 2010, with the economic recovery, GHG emissions increased by 2.4% (+3.8% for the ETS sectors). For 95 2011, experts project a slight increase of the CO2 emissions for the ETS sector (+2.6%*) 90 In its March 2011 Energy Efficiency plan, the EU estimated that with current measures only half of the 85 objective would be attained and developed a new draft -20% 80 Directive in June 2011 focusing on: 1990 1995 2000 2005 2010 2015 2020 • Triggering better energy efficiency of public buildings 1,850 EU-27 primary energy consumption • Demand response programs through smart meters roll out EU-27 Primary energy consumption [Mtoe] 1,800 • White Certificates mechanisms • Better usage of cogeneration especially for district heating 1,750 • In 2013, the EU will re-assess the situation 1,700 -9% 1,650 An economic slowdown would push CO2 emissions and energy consumption 1,600 down but would negatively impact Historical evolution of primary energy consumption renewable‟s share in the final 1,550 Path to reach 2020 target 2020 target f or EU-27 Projection with current measures in place consumption 1,500 (as per the March 2011 EU Energy Ef f iciency Plan) -20% *Deutsche Bank Forecast 1,450 1990 1995 2000 2005 2010 2015 2020 | Energy, Utilities & Chemicals Global Sector 22
  23. 23. Extensive analysis have been carried out on the nuclear generation costs and energy mix scenarios in France €/MWh Nuclear generation costs in France 80 75 A working group, Energies 2050, set up by the Decommissioning Radioactive waste 70 management French Minister of Industry, Energy and the Digital Lifetime 60 extension 0.5 Economy examined four energy scenarios: 2011-25 2.5 4.95 1. Lifespan extension of existing reactors 50 55 43 2. Quicker adoption of 3rd generation nuclear reactors 40 3. Progressive reduction of nuclear energy in the mix 35 30 57.5 4. a. Nuclear phase out (more fossil fuel energy) 49.5 49.5 54.45 56.95 4. b. Nuclear phase out (more RES) 20 39 42 The final price to end-customers is a combination of: 10 • Energy generation: 40% 0 Champsaur ARENH 2010 Full cost Historical New • Transportation and distribution: 33% nuclear nuclear • Taxes: 27% French Court of Auditors 2030 2030 Energies 2050 Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 – Capgemini analysis Assumptions on electricity generation costs by 2030 (€/MWh w/o taxes) 1 Lifespan extension of existing nuclear reactors2 Quicker adoption of 3rd generation nuclear reactors Energies 2050 commission 3 Progressive reduction of nuclear energy in the mix recommends extending nuclear 4a Nuclear phase out (more fossil fuel energy) reactors lifespan 4b Nuclear phase out (more RES)Source: Energies 2050, February 2012 – Capgemini analysis 50 60 70 80 90 100 110 | Energy, Utilities & Chemicals Global Sector 23
  24. 24. A view of the European energy markets Recent events are impacting the energy markets They are changing the electricity and gas short- and longer-term security of supply Present and future energy mix is evolving Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 24
  25. 25. France produces only a fraction of its oil and gas consumption Oil production by company as of Oil and gas fields in France In addition to Total, foreign players are January 2011 Oil operating on the oil and gas E&P Natural gas French market: • Vermilion (Canadian-based company) already the first E&P operator in France, has increased its market share (reaching 75% of the French oil production) thanks to the purchase of a large part of Total’s assets in November 2011 French oil and natural gas production covers respectively only 1% and 2% of Source: UFIP the country‟s needs (annual oil production of 896,000 t and natural gas production of 745 mcm, however: • Recent discovery made by Tullow, Total, Shell and Northpet off the French Final energy consumption in France (2010) Guiana coast could multiply by 5 the current oil production • Shale gas reserves could be of 5,000 bcm, i.e. 100 years of consumption. The figure is still theoretical since the government repealed all shale gas permits for Oil exploration in October 2011 Natural gas Coal Providing hydraulic fracturing prohibition law is revisited, Electricity (81% from nuclear energy) allowing shale gas exploration and production and the Other discovery off the French Guiana materializes, France could improve its energy security Source: UFIP | Energy, Utilities & Chemicals Global Sector 25
  26. 26. The French refinery industry is facing an unprecedented crisis with negative refining margins The five operators (Total, Esso, Petroplus, Petrochina-Ineos and Final oil products consumption in France (2010) LyondellBasell) have a total refining capacity of 81.8 Mt/year, in line Gasoline with the demand (82 Mt/year) but unbalanced (France produces mainly Jet fuel gasoline but consumes mainly diesel fuel) Diesel fuel • In 2010, France imported 18 Mt of diesel fuel (i.e. half of its consumption) and Heating fuel Heavy fuel exported 5 Mt of gasoline (i.e. 39% of its production) Naphtha • France implemented the most favorable fiscal policy to diesel fuel in Europe, resulting in 2010 in 73% of registration of diesel vehicles (vs. 50% in Europe) Source: UFIP Overcapacity in refinery due to energy efficiency improvements, oil European oil products demand in 2030 vs. products substitution and industrial activity decrease has worsened refinery production in 2007 since 2009 in Europe and in France • Refined products are sometimes sold at a price close to the crude oil price LPG on the Rotterdam market Naphtha Gasoline • In Europe, refining margins dropped by 60% since 2009 • In France, the refining margin stood at €14/t in 2011 vs. fixed and variable Jet fuel costs between €20 and €25/t • The US is a traditional importer of European gasoline but the demand is expected to decrease by 2020 and US refineries turned again competitive due to the rapid shale gas development Diesel fuel / Shell has agreed to help Petroplus French refinery of Petite Couronne Heating fuel to restart activity for six months Lubricants and Source: UFIP Since 2009, the French refining industry lost over €2 billion. specialties Heavy fuel It is estimated that over €8 billion are needed to transform the European refinery facilities to produce more diesel European production in 2007 European demand in 2030 | Energy, Utilities & Chemicals Global Sector 26
  27. 27. A view of the European energy markets Recent events are impacting the energy markets They are changing the electricity and gas short- and longer-term security of supply Present and future energy mix is evolving Focus on the French Oil & Gas industry Conclusions | Energy, Utilities & Chemicals Global Sector 27
  28. 28. Conclusions Recent events are putting Energy questions in the spot light « Energy Orb » (PG&E) gives visual • BP accident in Gulf of Mexico highlighting the deepwater production indications to clients involved in energy difficulties and strengthening regulations demand management programs • Nuclear Fukushima plant accident slowing down the nuclear « renaissance » • Middle East and Arab countries political instability threatening oil and gas supply In the short-term: the energy consumption (post 2009 economic crisis) growth could be stalled by EU country’s recession In the long-term, we can expect: • Higher energy prices • Decreased security of supply • More greenhouse gases emissions • Increased need for investments In all cases, customers in developed countries should change their behavior and increase their energy savings focus Governments and Regulators have a key role to play: • To make the needed investments happen • To implement a sound energy and CO2 savings policy | Energy, Utilities & Chemicals Global Sector 28
  29. 29. About CapgeminiWith around 120,000 people in 40 countries, Capgemini is one of the worlds foremost providers ofconsulting, technology and outsourcing services. The Group reported 2011 global revenues of EUR 9.7billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fittheir needs and drive the results they want.A deeply multicultural organization, Capgemini has developed its own way of working, the CollaborativeBusiness ExperienceTM, and draws on Rightshore ®, its worldwide delivery model.With EUR 670 million revenue in 2011 and 8,400 dedicated consultants engaged in Utilities projectsacross Europe, North & South America and Asia Pacific, Capgeminis Global Utilities Sector serves thebusiness consulting and information technology needs of many of the world’s largest players of thisindustry.More information is available at www.capgemini.com/energy.Rightshore® is a trademark belonging to Capgemini | Energy, Utilities & Chemicals Global Sector Rightshore® is a trademark belonging to Capgemini 29
  30. 30. Q & As | Energy, Utilities & Chemicals Global Sector