CBI NI energy conference: Andrew Greer
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Presentation by Andrew Greer (Airtricity) at the CBI NI energy conference. February 2012

Presentation by Andrew Greer (Airtricity) at the CBI NI energy conference. February 2012

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CBI NI energy conference: Andrew Greer Presentation Transcript

  • 1. CBI Northern Ireland Energy Conference29th February 2012“Suppliers perspective on Energy Supply in NI”Andrew GreerAirtricity
  • 2. 1. NORTHERN IRELAND IN CONTEXT2. CHANGES IN GB MARKET3. KEY ISSUES FOR CUSTOMERS
  • 3. With recent market volatility thePurchasing Dilemmas for 2012; Buy Now or Wait? Fixed or flexible? Length of Contract?All in the context of;•Internal pressure to reduce costs•Budget Risk v Market Risk•Commodity & FX volatility
  • 4. NORTHERN IRELAND IN CONTEXTFUEL MIXNORTHERN IRELAND UK SEM Fuel Mix 2010-2011 UK fuel mix 2010-2011 Renewables Oil 2% Other 1.7% Renewables 7.9% 12% Coal 28.9% Nuclear 17.3%Coal 16% Peat 6% Gas 64% Natural Gas 44.2%
  • 5. Historic Average Monthly SMP and GB Gas (NBP) 100 80 90 70 80 60 Monthly NBP average (GBp/therm)Monthly SMP Average (€/MWh) 70 50 60 50 40 40 30 30 20 20 10 10 Average monthly SMP (€/MWh) Average monthly GB gas (GBp/therm) 0 0 SMP values are highly correlated to GB gas prices
  • 6. Fuel Mix for 2011 outlines Ireland’s Addiction to Gas
  • 7. NORTHERN IRELAND IN CONTEXTGB GAS INFRASTRUCTURE
  • 8. NORTHERN IRELAND IN CONTEXTGAS INFRASTRUCTURESource: Gazprom UGSS
  • 9. GB Natural Gas Production & Gross Imports (TWh)• GB Net Production lowest level in 17 years • 2011 production c 40% of peak production in 2000• 2011 - Imports exceed Production for the first time
  • 10. GB Natural Gas Consumption & Gross Exports (TWh) 1,400 1,200 1,000 800 Exports 600 GB Net Consumption 400 200 - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 p• 2011 Net Consumption lowest level since 1995 • Combination of milder weather & reduced gas generation • 17% lower consumption than 2010• 2011 – Record exports – higher than during peak GB Production
  • 11. GB Natural Gas Imports(TWh) 700 600 500 Other LNG 400 Qatar 300 Norway Pipeline Other Pipeline 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 p• Imports Rise to offset reducing GB Production • Norway key Pipeline flow (c40% of imports) Liquefied Natural Gas (LNG) increase substantially in the last 2 years • Qatar now accounts for c 40% of total imports
  • 12. GB Natural Gas Exports(TWh) 200 180 160 140 120 Ireland 100 Netherland 80 Belgium 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 p• • 2011 GB Exports Rise to record levels • Exports to ROI increase 80% since 2000 – 2011 – 58.3 TWh c 64% for power generation
  • 13. •Gas cooled to -162C•Volume reduction – 1/600th•Largest Importer – Japan•Largest Exporter - Qatar
  • 14. ENERGY PRICE TRENDS LNG - Price Setter. • Tightening global LNG Market – Increased re-Gasification Plants – High Plant Utilisation – Next 4 years will only see limited production increases • Around 30% of LNG cargos on spot market ie non contract , balance largely shipped to Asia on oil-indexed long term contracts – Behaviour of Qatar crucial on availability of spot cargos • Other Key Factors include – Japanese Market & extent of gas generation substitution v Nuclear – Availability of LNG tankers – Availability of spot cargos – UK long term contract position – Iran
  • 15. UK LNG GAS SUPPLIES PASS THROUGH GULF
  • 16. Future Issues Impacting Pricing•Producer behaviour – in particular Qatar – Maintenance schedules & unscheduled outages•Gazprom (Russia)/Statoil(Norway) reaction to market ie productionv price•Economic factors – Global slowdown, Greek debt, Europeanuncertainty, Asian Growth – China & India• Geopolitical events eg Middle East, Earthquakes•Northern Hemisphere weather•Oil indexation (European Pricing) & future FX volatility•Germany & a non – nuclear future•Trading Sentiment - UK market traded 17 times physical demand
  • 17. Current Issues• Dec & Jan unseasonably mild – reduced consumption • Prices trended downwards• Feb saw exceptional cold weather hit mainland Europe& Eastern GB • Prices reacted with large increases & 6 year day-ahead highs• Higher oil prices and weaker dollar have contributed toincreasing forward prices • S12 hit a 3 month high over 62p/therm• Storage being replenished after cold snap • Supporting prices as storage injection continues • Exports to Europe to replenish storage• Concern over LNG shipments to Europe
  • 18. Other factors Influencing SEM Prices• Other Fuel costs eg Coal• Demand Forecast• Temperature• FX• Wind generation• Unplanned outages• Maintenance• System Constraints• Carbon costs• Interconnectors
  • 19. Key Issues for Customers toConsider When Considering Energy Procurement
  • 20. 1. Understanding the key market drivers and their fundamentals2. What is your risk appetite ? - Timing is everything3. Understanding the products available – Energy Pricing strategy including small print – Pass-through costs – Greenness4. Shopping Around5. Managing Use6. Energy Brokers
  • 21. Risk AppetiteEnergy Procurement Strategy is dependent on the appetitefor risk within an organisation • What strategy will your current corporate governance permit? • Have you looked at alternative products? • Internal skill base v external consultancy?• Risk Management Strategy reflected in the energy productselected Budget Risk v Market Risk • Relative Priority of Budget Risk v Cost CompetitivenessDilemma 1: Fix prices and set Dilemma 2: Price linked to wholesalebudget: market:What if market falls? What if market rises?
  • 22. Fixed Price Contract – Timing is Everything Apr-12 Apr -12 07/01/11 07/03/11 07/05/11 07/07/11Date 07/09/11 07/11/11 07/01/12 Pricing of 12 Month contract Commencing 1 April 2012
  • 23. Products Available to Meet Your Risk Appetite • Fixed Price Contract • Index Linked eg ICE • Pool Price Pass-through • Flexible fix/unfix
  • 24. Don’t forget about the Pass-through costs• Duos, Tuos, SEMO, PSO, SSS, NIROCS • Over 40% % of total bill – Future investment in network upgrades to support decarbonisation – Inflation – Smaller volumes to recover fixed costs – Impact of EU targets/legislation e.g. Carbon• 2010 & 2011 have seen changes in Duos & Tuos shape • More cost reflective • Has changed pricing signals particularly around winter peak• NIROC increasing to 0.081 ROC per MWh from 1 April • Currently 0.055 ROC per MWh
  • 25. SHOP AROUND - WHAT CAN AIRTRICITY OFFER?Offer a range of competitive electricity products –Fixed price contracts of varying durations –Ability to advance purchase –Flexible purchasing options including –Gas linked electricity pricing –Fix/unfixWork with you or your appointed broker in deliveringyour agreed procurement strategy
  • 26. MANAGING YOUR ENERGY USEREDUCING ENERGY USAGE• ADVICE Number of independent organisations offer energy management advice (Invest NI + Carbon Trust)• AUDITS AND SURVEYS Each Business is different – savings can be found in places ranging from:Simple Behavioural Changes Major Energy Efficiency Investments
  • 27. Credit• Tough economic environment• Credit is just another risk to manage• Each supplier will have their own criteria• Security could be requested
  • 28. Stop Press - Shale Gas or “Fracking”• Transformed US Natural Gas Market• USA basically self sufficient in gas • Taken out of acquisition market• Considering exporting gas as LNG• Dramatic reduction in gas pricing (27/2/12) • Henry Hub Spot $2.59/Mmbtu ( 16.4p/therm) • UK Day ahead c 61p/therm• Pricing at levels which is deterring further investment• Gives US large energy users a huge cost advantage• What will the UK do?
  • 29. Conclusions• Prices have a global dimension• Prices are volatile• Keep an eye on the fundamentals• Review your procurement approach & strategy• Consider doing something different• Shop around
  • 30. Thank youAndrew.Greer@airtricity.com 02890 437470