CBI energy conference: Ashley Almanza


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Ashley Almanza, chief financial officer, BG Group, at the CBI's energy conference. London, September 2010.

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CBI energy conference: Ashley Almanza

  1. 1. The role of gas in meeting the UK’s energy and decarbonisation goals<br />Ashley Almanza, Chief Financial Officer, BG Group<br />15 September 2010<br />
  2. 2. 2<br />Legal notice<br />Certain statements included in this presentation contain forward-looking information concerning BG Group’s strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which BG Group operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within BG Group's control or can be predicted by BG Group. Although BG Group believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the “Risk Factors” included in BG Group plc’s Annual Report and Accounts 2009. Nothing in these results should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in BG Group plc or any other entity, and must not be relied upon in any way in connection with any investment decision. BG Group undertakes no obligation to update any forward-looking statements.<br />
  3. 3. Volatility and relative gas prices<br />3<br />UK Spot Prices vs German BAFA Contract Price<br /><ul><li>Increase in import capacity and gas availability resulted in lower and less volatile gas prices in the UK</li></ul>Source: Wood Mackenzie<br />
  4. 4. 4<br />Gas from Mixed source<br />Gas from Norway<br />Gas from Russia<br />Gas from Algeria<br />Other Pipeline source<br />Gas Intersection<br />Norway, not Russia, supplies most of UK’s gas<br />Source: Wood Mackenzie<br />Pipeline thickness representative of historical flows<br />
  5. 5. DECC central case: 15 GW of new gas build by 2025<br />5<br /><ul><li>40% of UK’s existing generation capacity will shut down over the next 15 years
  6. 6. DECC central case envisions this will mainly be replaced by wind and CCGTs over the next decade
  7. 7. New nuclear and CCS plant will start to come online post 2020</li></ul>Source: DECC, 2010 Energy and Emission Projections, Central Case <br />
  8. 8. DECC central case enables meeting carbon targets<br />6<br /><ul><li>This power mix meets CCC’s targets for 2020 (300g/KWh) and 2030 (100g/KWh)
  9. 9. It puts the UK power sector on the right trajectory to fully decarbonise by 2050
  10. 10. Post 2030 gas with CCS together with other low and zero carbon sources will become part of the mix</li></ul>Source: Redpoint,<br />DECC, 2010 Energy and Emission Projections, Central Case <br />
  11. 11. New gas build ensures security of power supply<br />7<br /><ul><li>Investment in CCGTs and wind during the next decade ensures the capacity margin remains at comfortable levels (ie. over 20%)</li></ul>Source: DECC, 2010 Energy and Emission Projections, Central Case <br />
  12. 12. New CCGT investment is challenging<br />8<br /><ul><li>New CCGTs will have to operate at low and highly uncertain loads
  13. 13. Under the current market arrangements the likely returns do not appear good
  14. 14. This is also recognized in Energy Market Assessment and Project Discovery</li></ul>Source: Redpoint,<br />DECC, 2010 Energy and Emission Projections, Central Case <br />
  15. 15. CCGTs will need to monetise flexibility value<br />9<br /><ul><li>Gross margins earned by CCGT plant from wholesale market erode as low carbon generation grows
  16. 16. Successful projects will realise value beyond wholesale market
  17. 17. Flexibility
  18. 18. Location
  19. 19. Grid services
  20. 20. Market mechanisms such as capacity payments or long term contracts (from grid) can provide revenue certainty and lower investment risk</li></ul>Source: Redpoint,<br />DECC, 2010 Energy and Emission Projections, Central Case <br />
  21. 21. Natural gas: more than a transition fuel<br />Natural gas is secure, flexible, available<br />Natural gas can help meet renewables targets<br />Natural gas can act as an insurance policy<br />Natural gas is more than a transition fuel<br />10<br />
  22. 22. Thank you<br />11<br />