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Energy: Current Situation and Trends. From Global to Local

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Presentation by Eloy Alvarez-Pelegry (PhD), Director of the Basque Institute of Competitiveness' Chair of Energy at the 71st World Foundry Congress

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Energy: Current Situation and Trends. From Global to Local

  1. 1. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 71st WORLD FOUNDRY CONGRESS Bilbao, 19th – 21st May, 2014 1 Eloy Álvarez Pelegry Director de la Cátedra de Energía. Orkestra – Basque Institute of Competitiveness F. Deusto
  2. 2. 1. AN OVERVIEW OF CURRENT SITUATION 2. ENERGY SCENARIOS AND TRENDS 3. COMPETITIVENESS AND ENERGY COSTS 4. ON ENERGY PRICES 5. SOME CONCLUSIONS AND SUGGESTIONS INDEX ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 2
  3. 3. 1. AN OVERVIEW OF CURRENT SITUATION ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 3
  4. 4.  INTRODUCTION ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL • Some paradigms are beginning to change. • Climate change continues to be a paramount issue but other topics have come as priorities. • Black swans in energy: shale gas developments in USA. • Low economic growth, continuous emphasis in energy efficiency. • Complexity in the world of energy is increasing. AN OVERVIEW OF CURRENT SITUATION 4
  5. 5. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL  WORLDWIDE AN OVERVIEW OF CURRENT SITUATION • Continuous growth in energy consumption. • Growth below ten years average. • Major share of hydrocarbons and fossil fuels. 5 Source: BP (2013) World consumption
  6. 6.  WORLDWIDE ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL • Major and substantial differences among regions: Middle East: Oil and gas. Coal dominates in Asia Pacific. More balanced portfolio in North America and Europe. • Low percentage of renewable energies at worldwide level. AN OVERVIEW OF CURRENT SITUATION 6 Source: BP (2013) Regional consumption patterns. 2012 (%)
  7. 7.  EUROPE • Crude oil and petroleum products continue to dominate energy mix. • Gradual decline in its share. • Decrease in solid fuels. • Increase in the share of renewable energy sources (from 4% to nearly 10%). • Natural gas rose, to achieve around 25% of consumption. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL AN OVERVIEW OF CURRENT SITUATION Source: European Commission (2013) 7 Gross Inland Consumption by Fuel. EU-27 (Mtoe)
  8. 8.  EUROPE ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL AN OVERVIEW OF CURRENT SITUATION • Increase in gas and renewables. • Decrease in oil products. • “Slow” decrease in solid fuels that maintain a high share. 8 Source: European Commission (2013) Gross electricity generation by fuel. EU-27 (TWh)
  9. 9.  SPAIN Renewables 7.0% Gas 16.9% Coal 1.4% Gases derived from coal 0.3% Electricity 23.1% Petroleum products 51.3% AN OVERVIEW OF CURRENT SITUATION ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL • Final energy consumption in 2012 (89 Mtoe). • 4% lower than in 2011. • Highest share of petroleum products. • Followed by electricity and gas. 9Source: Own elaboration based on La energía en España (2012) Final energy consumption in 2012
  10. 10. AN OVERVIEW OF CURRENT SITUATION ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL • Balanced mix. • Important growth in gas since 2000. • Very high growth in renewable energies since 2000. 32% of production. 10  SPAIN Source: Díaz, A.C.; Mosácula, C; Larrea, M;Álvarez, E. (2013) a partir de REE Note: Peninsular system Installed capacity by technology 2000-2012. 0 15,000 30,000 45,000 60,000 75,000 90,000 105,000 MW Térmica renovable Térmica no renovable Solar termoeléct . Solar fotovoltaic a Hidráulica R.E Eólica
  11. 11.  BASQUE COUNTRY AN OVERVIEW OF CURRENT SITUATION ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL Industry 42.3% Transport 35.5% Primary sector 1.6% Services 8.9% Residential 11.7% 11 • Industry is the main final consumer. • Transport sector is roughly one third. • Important share of gas in power generation and industry. Source: Own elaboration based on Marqués, J. (2014) Energy consumption by sectors
  12. 12. 2. ENERGY SCENARIOS AND TRENDS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 12
  13. 13. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS 13 • WEC. Scenarios “funnel” different range of options. “Symphony & Jazz”. • SHELL. Contribution to strategic thinking. “Mountains & Oceans”. • WEO, IEA. Emphasis on policies. Current, New and 450 Scenario.  SCENARIOS
  14. 14. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS Primary energy demand in selected regions and share of global growth (Mtoe) 14 • Population growth to 9 billion in 2040. • 75% of population will live in cities in 2040. • Shift in energy growth. Source: WEO, (2013) Note: Refer to the New Scenario  SCENARIOS
  15. 15. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS World primary energy demand by fuel 15 • Continuous growth in all types of energy. • Greater growth in gas. Source: WEO, (2013) Note: Refer to the New Scenario  SCENARIOS
  16. 16. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS Changes in energy demand by sector and fuel, 2011-2035 16 • Great growth in power generation. • Electricity and heat, increase in industry, buildings, and to a lesser extent in transport. Source: WEO, (2013) Data corresponds to the New Policies Scenario.  SCENARIOS
  17. 17. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS Electricity production by fuel typem 17 • Different outcomes depending on the role of goverment and markets. • Biggest impacts of CCGT plants in “Symphony” and solar and CCS in “Jazz”. Source: WEC, (2013).  SCENARIOS
  18. 18. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS  TECHNOLOGY 18 • Drivers Flexibility. Efficiency. Reduction of unit costs.
  19. 19. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL ENERGY SCENARIOS AND TRENDS  TECHNOLOGY Efficiency ranges for OCGTs and CCGTs 19 • Higher efficiencies. • Higher temperatures and various pressure stages. • Increase in size. Source: ETP, (2013)
  20. 20. ENERGY SCENARIOS AND TRENDS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL  TECHNOLOGY State of the art steam conditions in PC plants 20 Source: ETP, (2012) • Trend to higher temperatures and pressures. • Ultra-supercritical plants, already in commercial operation in various countries. • Importance of CCS.
  21. 21.  EUROPE • 2007: 20/20/20 targets. • 2009: “Energy/Climate Change Package” to meet 2007´s targets. • 2014: A policy framework for climate and energy 2020 to 2030. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 21 ENERGY SCENARIOS AND TRENDS
  22. 22.  EUROPEAN UNION. Key elements 2020 - 2030 • Greenhouse gas emissions target: 40% reduction in 2030 relative to 1990. • Renewable energy target: 27%. From 21% to 45% in electricity. • Energy efficiency target: 25% of energy savings by 2030. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 22 ENERGY SCENARIOS AND TRENDS
  23. 23. • Ensuring competition in integrated markets. • Competitive and affordable energy for all consumers. • Promoting security of energy supply. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 23  EUROPEAN UNION. Key elements 2020 - 2030 ENERGY SCENARIOS AND TRENDS
  24. 24. Evolution of the regulated costs ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL • Key issue: Increase of the regulated costs mainly by high volume of FIT of some renewables. • Electricity reform to solve among others the tariff deficit. • 40% of the final price related to policies such as environmental or social. Regulated activities deficitannual payment Competencetransition costs/ELCOGÁSsince2007 OutsidePeninsulacompensation Permanentcosts (CNE, OSand OMEL) Energy efficiency and energy savingplan Renewableenergies premium Commercial management Diversification and security of supply costs Distribution Transport Source: CNE (2012b)Source: CNE (2012b) Source: CNE (2012b) 24  EUROPE. Spain ENERGY SCENARIOS AND TRENDS
  25. 25. 3. COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 25
  26. 26. COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 26  COMPETITIVENESS AND COMPETITIVE ADVANTAGE COUNTRY A COUNTRY B Product I 2 10 Product II 1 2 • "Absolute" cost advantage. • Relative advantage and comparative advantage. • "Being different" • Ability to compete internationally.
  27. 27. Industries Energy/resources intensive Source: Own elaboration based on Mckinsey & Company, (2012) Note: The darker blue as well as higher numbers reflects more intensity to percentages save n labor and in value (in this case « density »). COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 27  MANUFACTURING. Energy intensive industries Industries R&D Labor Capital Energy Trade Value Wood products 1 31 35 7 13 0,5 Refined petroleum, coke, nuclear 1 6 56 10 21 0,4 Paper and pulp 2 18 37 10 24 1 Mineral-based products 3 20 39 11 14 0,1 Basic metals 1 14 41 14 26 1
  28. 28. Structure of adquisitions (%) for the manufacturing Industry Source: Own elaboration based on Mas M. et al, (2010) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 28  MANUFACTURING. Shares of energy and services Year Energy Manufactures Services 1980 16 61 23 1995 7 56 37 2005 10 48 42 • Increase share of services. • Significant variations in share of energy.
  29. 29. Share of energy-related cost among the production costs Source: European Commission, (2014) Note: C2451 and C2452 casting of iron and steel. COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 29  MANUFACTURING. Shares of energy and services • Iron and steel 3 – 23% • Casting of iron and steel 3 – 17%
  30. 30. Real unit Energy costs as % of VA. Manufacturing sector (1995-2011) Source: European Commission, (2014) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 30  MANUFACTURING. Unit energy costs • Unit energy cost/VA, increase in most of the regions since 2004. • EU in line with USA but above Japan.
  31. 31. Economic intensity of energy for industry. (Energy expenditure/Industrial VA) Source: Díaz Mendoza; Arocena, (2012) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 31  MANUFACTURING. Industry in the Basque Country Source: Díaz Mendoza; Arocena, (2012) Average price of energy (€/toe)
  32. 32. Breakdown of economic intensity of energy Source: Díaz Mendoza; Arocena, (2012) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 32 Economic intensity of energy (IEE) Price effect Quantity effect • Energy efficiency does not offset price increases.  MANUFACTURING. Energy in the Basque Country
  33. 33. International fossil fuel prices in the Reference GEM-E3 scenario (2010 index) Source: European Commission, (2014) ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL COMPETITIVENESS AND ENERGY COSTS 33  ENERGY PRICES. Effects on industry Electricity and Gas price EU28 Source: European Commission, (2014) • EU forecast increasing prices of oil, gas and electricity.
  34. 34. Impacts of taxation on trade of energy intensive products Source: European Commission, (2014) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 34 EU28 % change of exports % change of imports 2020 2050 2020 2050 Ferrous metals -7.85 -9.05 6.42 7.49 Non ferrous metals -5.75 -6.66 5.12 5.87 Chemical products -1.96 -2.36 1.94 2.29 Paper products -1.57 -1.81 1.37 1.56 Non metallic minerals -0.81 -1.02 0.42 0.48 Entire economy -0.22 -0.25 0.00 0.00  ENERGY PRICES. Effects on industry
  35. 35. Impacts of taxation and generation mix on production of energy-intensive industries Source: European Commission, (2014) COMPETITIVENESS AND ENERGY COSTS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 35 (% change from reference cumulatively over 2015-2050) Ferrous metals Non ferrous metals Chemical products Paper products Non metallic minerals Taxation case -2.98 -1.73 -1.17 -0.59 -0.86 Generation Mix -1.34 -0.88 -0.67 -0.50 -0.41  ENERGY PRICES. Effects on industry
  36. 36. 4. ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 36
  37. 37. Oil price and oil demand trajectories Source: WEO, (2013) Note: Low Oil-Price case compared with the New Policies Scenario ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 37  OIL • Oil prices will continue to be a key reference for the energy business. • Oil prices are expected to be/remain high. • Prices determined globally at international level.
  38. 38. Overview of global spot gas prices for LNG in the first half of 2013 (USD/mmbtu) Source: European Commission, (2014) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 38  GAS. Three main characteristics • Prices are determined at regional level.
  39. 39. Wholesale gas price formation mechanisms in Europe Source: International Gas Union, (2013) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 39  GAS. Three main characteristics • Close relation with oil in a greater percentage of gas prices.
  40. 40. Traded volumes an European gas hubs Source: Quarterly Report Energy on European Gas Markets, (2013) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 40  GAS. Three main characteristics • Hubs de gas  Major differences USA vs Continental Europe.  Development of gas hubs in Europe mainly in UK.
  41. 41. Henry Hub natural gas spot prices Source: EIA ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 41  GAS. The Shale gas revolution • Gas prices in the 4$/MMBtu level
  42. 42. Estimated Breakeven Gas Price with Varying Condensate Ratio Source: MIT, (2013) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 42  GAS. The Shale gas revolution • Tight oil and condensates key to lower the gas prices. • Trend is to increase.
  43. 43. Natural gas prices by region in the New Policies Scenario Source: WEO, (2013) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 43  GAS. The Shale gas revolution • Differences USA, Europe, Japan will remain. • USA improves competitiveness, in chemical and manufacturing. • Shale gas exploration in Europe should be very positive.
  44. 44. Evolution of prices in different organized markets Source: BCG & Orkestra, (2013) ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 44  GAS. Hubs of gas • Price differences. Trend to convergence. • Hubs are key to increase competition. Transparency and decoupling oil/gas. • Gas interconnections are essential. • Iberian gas, a very positive and necessary initiative.
  45. 45. ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 45  ELECTRICITY • Geography, infrastructure and mix make markets “regional”. • Fragmented markets in Europe. • Costs/prices more local dependent. • Development of European Exchanges and the Organized Electricity Markets.
  46. 46. ON ENERGY PRICES ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 46  ELECTRICITY • Generation prices competitive. Some differences in Europe. • Trends toward Price Coupling. • But infrastructure are key. Spain a “case” (3% vs 10% minimum) • Final price. Not only generation, transmission, distribution. Environmental and social costs key in certain cases, i.e. mainly Europe.
  47. 47. 5. SOME CONCLUSIONS AND SUGGESTIONS ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL 47
  48. 48. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL SOME CONCLUSIONS AND CONCLUSIONS • Energy demand will continue to grow, driven by population, urbanization and economic growth. • Major changes are expected. Major role of emerging economies. • Fossil fuels will continue to have a great share and influence in the energy world. • Natural gas and renewable energies are expected to have the greater growth. 48
  49. 49. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL SOME CONCLUSIONS AND CONCLUSIONS • Electrification will gain pace in the following years. • Electricity mix will experience profound changes. The mix of technologies will be much influenced by the role of government and markets. • Flexibility and improvement in efficiency will be the main drivers to develop technologies and to decrease specific costs. 49
  50. 50. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL SOME CONCLUSIONS AND CONCLUSIONS • Competitive advantage goes further that cost. • Energy cost is key in those energy intensive industries, (commodity type) which compete mainly in terms of cost. • Operational and energy efficiency is a “must”. 50
  51. 51. ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL SOME CONCLUSIONS AND CONCLUSIONS • Gas prices differences between USA, Europe and Japan will probably remain. Gas prices will be high in Europe and Japan as long as oil price are high. • In Europe shale gas development and the gas hubs (particularly in Iberia) can play a significant role for improving gas to gas competition. • Electricity prices may continue to increase if the cost of social and environmental policies are not addressed in the right way. 51
  52. 52. THANK YOU VERY MUCH! ESKERRIK ASKO Eloy Álvarez Pelegry Director de la Cátedra de Energía. Orkestra – Basque Institute of Competitiveness F. Deusto 52

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