Energy Market Fundamentals & Procurement
description
Transcript of Energy Market Fundamentals & Procurement
Energy Market Fundamentals& Procurement
Dean Marsh - Senior Account Executive (North)
Gary Ward - Senior Account Executive (South)
Energy Markets – what you need to know
Content
Energy price build up
Market Overview
Gas
Electricity
What Influences price
Current market conditions
Why use a third party?
Fixed vs. Flex
Energy price build up- Gas
100%MeteringMargin
LDZ Charges
NTS Charges
Commodity
Swing
Energy price build up-Electricity
Energy 77%
Margin & Imbalance 1%
BSUoS 1%
RO 3%
Tlosses 1%
TUoS 2%
Dlosses 3%
DUoS 8%
Other 0%
CCL 4%
Market overview - Gas
Where does our gas come from?Gas pipeline imports from Norway (Langeled) Netherlands (BBL) Belgium (IUK)Gas LNG imports from -Trinidad &TobagoQatarAlgeriaEgypt
Imports History2000 UKCS 99% 1% imports2005 UKCS 82.7% imports 17.3%2008 UKCS 61% imports 38.8%(LNG 1.1%,pipeline 37.7%) 2009 UKCS 41.6% imports 58.4%
Market overview - ElectricityHow is our electricity generated?Coal fired power plants Gas fired power plants Nuclear Renewable Percentage of generation can and does change dependent on generation fuel costs (Coal & Gas) primarily
Forward supply issuesDecrease in coal fired power plants due to EU carbon directives LCPD (More information at http://www.defra.gov.uk/environment/airquality/eu-int/eu-directives/lcpd/index.htm)Less capacity ( Non compliant power stations will have to close by 2015)
Market fundamentals
Fundamentals drive supply and demand
Do not always dictate price
Prices can disconnect themselves from fundamentals
Speculation can play large part in market movements
What Influences Price?
Oil – Can Influence gas prices (Due to indexation)
Coal –used for generation
Supply & demand- positive & negative GDP
EU carbon price- feeds into the cost of power generation
Exchange rates- Crude oil/ Freight/ Coal
Global tensions – political/economic etc
Transportation cost of shipping LNG and coal
Weather- can dictate demand on the NTS and the grid
Maintenance- Gas field outages/power station maintenance
Market volatilityM-1 Gas Index
0
10
20
30
40
50
60
70
80
90
100
110
Sep
-01
De
c-0
1
Mar
-02
Jun
-02
Sep
-02
De
c-0
2
Mar
-03
Jun
-03
Sep
-03
De
c-0
3
Mar
-04
Jun
-04
Sep
-04
De
c-0
4
Mar
-05
Jun
-05
Sep
-05
De
c-0
5
Mar
-06
Jun
-06
Sep
-06
De
c-0
6
Mar
-07
Jun
-07
Sep
-07
De
c-0
7
Mar
-08
Jun
-08
Sep
-08
De
c-0
8
Mar
-09
Jun
-09
Sep
-09
De
c-0
9
Mar
-10
p/t
he
rm
Index ICE p/therm latest close p/therm
Spot prices are more volatile than forward prices
Spot prices more closely reflect genuine supply and demand
Gas - UK October Gas Year Price (Flat Cost) p/therm
May 2006 – May 2010
Electricity - Annual Forward Baseload Price £MW/h
(Flat Cost)
May 2006 - May 2010
Brent Forward Curve
80
82
84
86
88
90
92
94
96
98
Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
$/bb
l
Source: Bloomberg, analysis Utilyx
Smr10 Gas Correlation with FTSE 100
0
20
40
60
80
100
120
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
Sm10
Gas
(p/t
herm
)
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Smr10 G
as Co
rrelatio
n with FTSE 100
Smr10 Gas Correlation
Current Situation
Oil-Oil prices remain supported above $85/bbl on a bullish economic outlook, strong equities and growth in emerging market demandSupply remains healthy but demand from China is the most bullish fundamental driver
Gas-If oil remains at $85 we could expect to see continued support to gas prices on longer dated contractsFurther potential upside can come from an upturn in demand as we come out of recession, supported by increased continental demand
Power-Prompt power prices have firmed in line with the upturn in gas prices last weekStrong prices in underlying fuel markets have supported the curve, with corresponding contracts in both gas and coal having gained over the last week. This remains a risk to the upside in the near-term.
· CarbonCarbon prices have reached a 10 month high adding support to the curve, in particular the 2012 contracts and beyond
· Bearish factors remain however - demand is significantly below pre-recessionary levels and a drop back down in oil and gas would feed through to have a bearish affect on the power curve· Supply side issues also represent a longer-term risk to the UK power market e.g. governmental policy with respect to nuclear build
ENERGY PROCUREMENT-WHY USE A THIRD PARTY?
Electricity-Complex price structures
DUOS –Distribution Use of System Charges
TUOS- Transmission Use of System Charges
BSUOS- Balance System use of System Charges
T-Losses Transmission Losses
D-Losses Distribution Losses
CCL- Climate Change Levy
Renewable Obligation (supplier)
Available Capacity
Green/Renewable Premiums
ENERGY PROCUREMENT-WHY USE A THIRD PARTY?
Gas-Complex price structures
LDZ – Local Distribution Charges
NTS – National Transmission Charges
Balancing (swing) – charges
CCL – Climate Change Levy
ENERGY PROCUREMENT-WHY USE A THIRD PARTY?
Additional Services
OJEU Compliance
E-Procurement
Market Intelligence
Bureau Services – Bill validation
EUETS/CRC – Guidance & advise
Retrospective Cost Auditing
Best Practice - Flexible Risk Managed contracts gas/power
Dedicated Account Management
ENERGY PROCUREMENT-WHY USE AN APPROVED
PBO?
Fixed or Flex?
ENERGY PROCUREMENT-WHY USE AN APPROVED
PBO?
Fixed
Fixed on a single dayAdvantages Fix and forgetKnown budget price
Disadvantages1 in 250 chanceHigh risk premiumExposed budgets
ENERGY PROCUREMENT-WHY USE AN APPROVED PBO?
Flex
Purchasing prior to and during contractAdvantages Discount on forward priceAccess to market falls Protection from market highs
Budget management & planning
DisadvantagesReconciliationsSkills required Size requirements
Useful Links
www.ogc.gov.uk/energy_gas_and_electricity.asp
www.energyconsortium.org.uk
Thank you for listening
Any questions?