Welcome [] · 2019-06-07 · 8 Sensitivity: Confidential Compliance 8 0 1000 2000 3000 4000 0...
Transcript of Welcome [] · 2019-06-07 · 8 Sensitivity: Confidential Compliance 8 0 1000 2000 3000 4000 0...
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WelcomeDüsseldorf – Thursday 6th June 2019
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• 16:10 Impact of IMO2020 on Oil Price Outlook
Esa Ramasamy, Global Director - Product Strategy, S&P Global Platts
• 16:45 European Natural Gas Hubs: What next for prices?
Marina Tsygankova, Lead Analyst Gas, Refinitiv
• 17:15 Afternoon Break
• 17:30 Carbon – Back to fundamentals?
Yan Qin, Lead Analyst Carbon, Refinitiv
• 18:00 German Power - Supply Squeeze Approaching?
Nathalie Gerl, Senior Analyst Power, Refinitiv
• 18:30 Networking Drinks Reception
Agenda
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Esa RamasamyGlobal Director - Product Strategy
S&P Global Platts
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Get out your
Phone
Interactive Polling
Enter Event Code:
XXXX
Visit
slido.com
Network: TBC with hotel
Password: TBC with hotel
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IMO 2020: Market Disruptor
Esa Ramasamy
Global Director,
Market Engagement & Development
Platts-Refinitiv Partner Event
Dusseldorf June 6, 2019
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IMO 2020: Medium & Heavy Sweet Crudes
IMO
2020
Compliance
Fuel Supply
Implications
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Platts 0.5% Marine Fuel Assessments
– Jan 2019: Began assessing barge/cargo 0.5% Marine Fuels
– May 2019: Began barge/cargo 0.5% Marine Fuels Forward Curve
– July 2019: To assess 0.5% Bunker fuels
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Compliance
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Number of Ships
• 80,000 ships – 25% consume 85% of fuels
• 20-25% of big ships are owned by big companies
• Big companies expected to be more compliant
• Presence of non-compliant fuel on board ships
• Insurance coverage
• Enforcement by leading bunkering hubs
25% of ships
Source: S&P Global Platts Analytics
85% of bunkers
Demand for bunker fuels (‘000 barrels)
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HSFO Demand
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• 2200 by Jan 1 2020 less than 3% total
number of ships
• Scrubbers mostly for vessels less than 10 years & new builds (70:30)
• Open Loop Scrubbers: $2-5 mil with Closed Loop costing an extra $1 million
• Depending HSFO curve - demand may
increase after 2020
• Open loop not permitted by major
ports
• Ships without scrubbers cannot hold
non-compliant fuel after March 2020
• Total HSFO demand from scrubbers
estimated at 550 kb/d
Source: S&P Global Platts Analytics, News
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Scrubber . . .
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Operating Vessels Vessels On-Order
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No
. o
f S
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Worth 1400-2000 MB/D
HSFO
No
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f S
cru
bb
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Uncertainty on number of scrubbers installed longer term
As of Dec 2018 Vessels
Operating Vessels 1510
Fitted w scrubbers 480
Planned by 2020 1030
New Vessel Orders 550
By 2020 280
After 1/1/2020 270
2200 vessels by 1/1/2020 worth ~500 MB/D HSFO
Source: S&P Global Platts Analytics
Others say there will 3,000+ ships with
scrubbers – still only 3.75%
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(35)
(30)
(25)
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(5)
0
2000 2005 2010 2015 2020 2025 2030
$/BFuel Oil Cracks
Forecast: HSFO cracks will plunge and then quickly recover; Diesel cracks will soar
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2000 2005 2010 2015 2020 2025 2030
USG
NWE
Singapore
Diesel Cracks$/B
Source: S&P Global Platts Analytics
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MGO
MGO/HSFO 90/10Blend
MGO/LSFO 60/40Blend
Basis: Singapore Bunker Market
Low Sulfur Fuels:
Differential Versus High Sulfur Bunkers, $/Ton
Low sulfur bunkers will initially price up towards marine gasoil (MGO), before settling closer to an MGO/LSFO blend value
Source: S&P Global Platts Analytics
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Diesel-Brent & WTI Crack ($/B)
13Source: ICE (June 3)
0.00
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ICE LS Gasoil-Brent Crack
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NYMEX Heating Oil vs ICE Brent Crack
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2005 2010 2015 2020 2025
(‘000 b/d)
PRODUCTION TOTALS BY ASSAY CUT
Light Naphtha
Heavy Naphtha
Middle Distillates
VGO
Vac. Resid13% 8%
24%
15%
27%
34%
24%30%
11% 14%
0%
20%
40%
60%
80%
100%
2010-15 2015-20
5 YEAR PRODUCTION GROWTH BY ASSAY CUT
Light Naphtha
Heavy Naphtha
Middle Distillates
VGO
Vac. Resid
What products are set to gain from IMO?
The change in yield of lighter products
Source: S&P Global Platts Analytics
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3600
633
700
810
1220
1740 2535
0
1000
2000
3000
4000
5000
60002017 2020
Distillate Bunkers New 0.5% S Blends - Distillates New 0.5% S Blends - LSFO Low Sulfur Resid Bunkers High Sulfur Resid Bunkers
HS Residue New 0.5% LSFO Blends-3m
bd
400kbd Gasoil500kbd LS
Residue
-2
mb
d
Gasoil
+2
mb
d
(‘000 b/d)
About 2 mil b/d of HSFO will shift to
Gasoil
Compliant Bunker Fuel Variations
Source: S&P Global Platts Analytics
HSFO Bunkers
LSFO Bunkers
Middle Distillates
New Dist.0.5% Blends
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What products are set to gain from IMO?
Source: S&P Global Platts Analytics
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Impact on Crude Oil
Medium/Heavy Sweet crudes demand up
Demand from
Blending & Refining
SectorsProducers of
medium/heavy sweet to see
stronger demand
17
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Eswaran (Esa) RamasamyGlobal DirectorMarket Development & EngagementTel: +1 281 818 3286Email: [email protected] 18
Thank You
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Marina TsygankovaLead Analyst Gas
Refinitiv
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The Financial and
Risk business of
Thomson Reuters
is now Refinitiv.
Gas Market Outlook
Commodities Outlook Series; June 2019
Marina Tsygankova, Senior Analyst,, European Gas Analysis,
Refinitiv
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Agenda
1.Recent price overview and drivers for downside
2. A closer look at major suppliers: Who will turn down?
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Prices: Acute change in price driven by loosening of global LNG marketBullish summer 2018 on low storage inventory, tight supply. WIN18 outturn bearish due to surge in LNG. Some spikes around colder weather forecasts. Front
Month now <€12/MWh but WIN19 has remained firm since closure of short positions in early April.
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Eu
ro/M
Wh
Select contracts since 1st March 2018
TTF FM TTF WIN20 TTF WIN18 TTF SUM19
29% upside in WIN18
between July and 24th SepSince 9th April, Front
Month down 26% whereas
WIN19 only own 8%
SUM19 fell 35% between
end of Dec and maturation
of contract
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Surge in LNG and lower consumption a key reason for oversupply Winter 18
LNG supply took over Dutch production this winter. Dutch production is declining but outweighed by other factors. Russia contributes to oversupply with
additional supply available via auctions. Norway and UKCS stable winter on winter.
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Consumption RUS ( Mallnow, Velke &NS) Norway LNG Dutch production UKCS
bcm
Total consumption and supply in NWE&UK
Winter 17 Winter 18
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LNG to Europe at record high levelGas year forecast of 50bcm sendout is highest on record. Increase on GY17 of 356 cm is key reason for collapse in prices.
Q3 arrivals higher than our initial forecast, reflecting oversupplied global LNG market.
June sendout is lower, but fall in Asian prices for July delivery do indicate a continuation of strong levels.
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LNG sendout by Gas Year (Bcm)
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LNG actuals and forecast
GY18 GY17 SUM19 F
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Storage inventory as a risk barrometerStorages are close to record high levels. A complete reversal from SUM18
Base case forecast before elasticity applied indicates that inventory will reach capacity by mid-September
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TW
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Total NWE storage inventory ( DEU, FRA, BEL, NDL), history and forecast
GY13-17 RANGE GY18 GY17 Total Capacity
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What next for balance of summer?
A closer look at major suppliers: who will turn down?
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Demand elasticity is being exhausted
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Jun 18 Jul 18 Aug18
Sep 18 Nov18
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EU
R/M
Wh
Coal switching range longer history
CSP range TTF DA
Prices tested level below coal switching floor (46% efficiency). Physical prices are struggling to hold to the Additional Fuel Switch floor , assuming additional switching from lower efficient old German gas plants.
This will become harder to hold as storages fill and LNG remains strong. The switching potential should be now exhausted.
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FSP Range (46% efficiency) TTF DA Additional Fuel Switch
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Gas to coal switching is being maximised. Not much left (at all)April - May 2018 TTF DA was €5.9/MWh above FSP floor. Only €0.4/MWh this year. Increase of 35mcm/d (2.1bcm) some of which may be weather driven
However, impact becomes weaker going into mid summer as power demand falls. Only 15mcm/d (0.5bcm) for JUN19 vs 2018
Pretty much all German gas plants operating at times of high demand
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Jun-18 JUN19 F
JUN19 non LDZ forecast vs JUN18 (mcm/d)
Total Germany Dutch non LDZ Belgian GfP French GfP
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2018 A 2019 A
Non LDZ demand in northwest Europe. Average for APR and MAY19 vs 2018 (mcm/d)
Germany non LDZ Dutch non LDZ Belgian GfP French GfP
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202184
199
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Norway: what can Equinor do with Troll?
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Norway: Troll quota is up despite this summer is at strong discount to nextSUM14 Equinor deferred Troll production insentivesed by strong DA discount to Front Summer . Prices provide even stronger incentives to defer production
this summer. Market expected deferring, though in May Equinor increased. Troll quota from 36bcm to 38bcm for GY18. This quota is unlikely to be reached, but
forces Troll to produce at max available capacity.
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SUM14 SUM19
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/gas y
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Troll production actual and F vs. quota
Actual prod Quota
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Cumulative Troll production Actual and Forecast
2017/18 2018/19 Quota GY18 Quota GY17
Norway: Hard for Troll to produce up to the new quota given this summer maintenance Troll quota now 38bcm in GY2018 vs. 36bcm in GY17. But this summer maintenance is heavier, particularly August &September.
4bcm of Troll capacity is shutdown compared to 2bcm summer 17 .
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Troll summer capacity reduction
Planned Trolll maintenance Summer 2019
Planned Troll maintenance summer 2018
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97 89 87112
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Norwegian gas supply by fields actual and F
Troll Other fields Aasta Hansteen SUM18
Norwegian production is likely to be slightly less summer on summer.April & May Norwegian exports are in line with last year. Heavier maintenance in August & September should cut exports by more resulting in 2bcm lower
supply from last summer. This is despite higher Troll quota and new production from Aasta Hansteen.
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SUM18 SUM19 F
BC
M
Summer supply
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Gazprom Export: Where is the SRMC?
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35Sensitivity: Confidential
Russia contributes to oversupply defending its market shareRussia supply to NWE was record high ,close to maximum of LTC obligations. Gazpromexport startsed auction sales from Oct 18 on top of LTC. Stronger
winter-on winter supply supported by auctions. Flows likely to continue strong into summer with stronger demand injections ahead of end of transit
contract with Ukraine. Possibility for buyers to adjust production lower by the end of summer when storages are full.
54
37
5463 64 67
47
57
57
6368
0
20
40
60
80
100
120
140
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
bcm
Mallnow, Nord Stream, Velke
Winter supply Summer supply LTC
?
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36Sensitivity: Confidential
Gazpromexports auction sales reflect sharping competition with LNGAuction sales contribute to oversupply. 3.5bcm sold for delivery in Winter months.
Already 2.9bcm sold for delivery in summer months. Sales to Gaspool corresponds to ca.50% of all auction sales.
0
200
400
600
800
1000
1200
Oct-18 Dec-18 Feb-19 Apr-19
mcm
Auction sales per month delivery
Olbernhau II
Beregovo
TTF
Waidhaus
Arnoldstein
VTP Austria
VTP Slovakia
Gaspool VP
NetConnect Germany
250
270
290
310
330
350
370
390
410
430
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
mcm
/d
Russian supply via three lines
GY16 GY17 GY18 GY18 w/o auctions
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37Sensitivity: Confidential
Where is Gazprom Export SRMC?Production, upstream taxation and domestic pipeline shipping costs recently published by Mitrova and Boersma.
Russian government export duty is 30% of customs price. Customs price assumed as Applicable Front Month TTF.
SRMC falls as TTF Front Month declines. Minimum breakeven point is €9.50/MWh
5.0
10.0
15.0
20.0
25.0
30.0
Feb-1
5
Mar-
15
Apr-
15
May-1
5
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
Dec-
15
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
Jun-1
6
Jul-16
Aug-1
6
Sep-1
6
Oct
-16
Nov-1
6
Dec-
16
Jan-1
7
Feb-1
7
Mar-
17
Apr-
17
May-1
7
Jun-1
7
Jul-17
Aug-1
7
Sep-1
7
Oct
-17
Nov-1
7
Dec-
17
Jan-1
8
Feb-1
8
Mar-
18
Apr-
18
May-1
8
Jun-1
8
Jul-18
Aug-1
8
Sep-1
8
Oct
-18
Nov-1
8
Dec-
18
Jan-1
9
Feb-1
9
Mar-
19
Apr-
19
May-1
9
Jun-1
9
Jul-19
Aug-1
9
Sep-1
9
Applicable TTF Front Month and Gazprom Export SRMC
TTF Applicable FM AVG and Fwd Gazprom SRMC TTF
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US LNG:
At what price does Henry Hub gas not get
liquefied?
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39Sensitivity: Confidential
LNG to Europe likely to remain strong throughout summerWith recent firming LNG spot prices Asia turned to premium market for Atlantic producers. This provides a risk for diversion of LNG towards Asia. Still
global LNG market is oversupplied .
Even if Atlantic cargoes will be diverted to Asia, Europe can still see strong supply from Qatar. Record pct of Qatari prod to Europe in April and May
20
25
30
35
40
45
50
Jun-19 Jul-19 Aug-19 Sep-19
Points of Indifference: LNG producers (p/th)
TTF Fwd Asian Fwd Qatari PoI
Sabine Pass PoI Yamal West PoI Conti CSP MIN
5
10
15
20
25
30
35
Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19
Front Month for East Asian LNG and TTF (€/MWh)
TTF Front Month Asian Front Month €/MWh
Asian LNG falls as contract rolls to July.
Indication of well supplied global market
Even if Atlantic producers are not incentivised to ship to
Europe, Yamal plus dislocated Qatari volumes are strong
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40Sensitivity: Confidential
Uncommitted Atlantic volumes driven by netbacksAlmost no US LNG to NWE in GY17, with Asian being a premium market for Atlantic producers. Netback overturn in GY17 and new US LNG insentivises US
cargoes to Europe.
0
200
400
600
800
1000
1200
2
3
4
5
6
7
8
9
10
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20
mcm
$/M
mb
tu
US netbacks to Japan and UK vs supplies to NWE
Japan United Kingdom
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41Sensitivity: Confidential
US LNG arbitrage to Europe falling sharply in 2019US Henry Hub unmoved as European hubs moved higher with short squeeze in early April 2019
Sabine Pass SRMC: 115% of Henry Hub + costs of shipping and transit. This is roughly $0.6/MMBtu (~€1.9/MWh)
Latest SRMC for JUN19 is €10.4/MWh. Risks to this are: cost of shut in; sunk shipping; and bearish impact on HH of liquefaction shut in
5.0
7.0
9.0
11.0
13.0
15.0
17.0
19.0
21.0
23.0
25.0
TTF Front Month and Sabine Pass SRMC to northwest Europe (€/MWh)
Sabine Pass SRMC to northwest Europe €/MWh TTF Front Month
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42Sensitivity: Confidential
European prices likely to fall further in Q3Second half of Q3 has clear premium to JUN19: €1.8/MWh. SEP19 has downside potential if storage fill quickly
AUG19 and SEP19 could fall toward SRMC of Sabine Pass or even Gazprom Export, especially since Equinor increased Troll quota
SEP19 has 26% downside to Sabine SRMC of (~€10.4/MWh) and 37% to Gazprom SRMC of €9.5/MWh, but even Sabine could end up around €9.5/MWh
8
10
12
14
16
18
20
22
24
26TTF AVG DA, Fwd and key price anchors (€/MWh)
FSP Range TTF DA & Fwd Additional Fuel Switch (<40%) Russian Piped SRMC Sabine Pass SRMC (HH)
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What about WIN19:
Do we expect major changes to fundamentals?
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44Sensitivity: Confidential
WIN19: what are the risks to current price levels
Bullish risk:
• Dutch production declines quicker
•Colder winter and stronger demand in
Asia
•Any major supply outages
Bearish risk :
•Global LNG oversupply continues into
next gas year
•Russia-Ukraine transit contracts
signed
•Stronger Norwegian supply into next
winter ( start of Martin Linge in Q1,
stronger Oseberg and high Troll quota)
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General Conclusions
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46Sensitivity: Confidential
Conclusion: Bearish view on this summer with prices possibly testing below CSP
Conclusions on balance of summer
• Price floor for this summer may only be established by suppliers cutting production
• Storage inventory to reach maximum capacity in early September unless something changes
• SRMC of Russian piped exports ~€9.50/MWh
• SRMC of Sabine Pass around ~€10.40/MWh but would fall toward €9.50/MWh if two trains offline for
three months
• Therefore, decision needs to be taken already in July or risk not having desired impact
• Costs of cutting liquefaction likely to be greater for Cheniere than production cuts for Gazprom
• Equinor have shown no willingness to withdraw Troll gas; production has hastened downside
• Demand elasticity has been exhausted
• These bearish drivers have helped widen spread to WIN19 substantially
• There are geopolitical and domestic production concerns for WIN19, but contracts looks overvalued
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47Sensitivity: Confidential
Correlations by month going back to 2013
Gas better correlated with coal since falling within the fuel switch range in 2013
Disconnection with oil historically lasted one month; now has continued for several months
-1.00-0.80-0.60-0.40-0.200.000.200.400.600.801.00
Jan-1
3
Apr-
13
Jul-13
Oct
-13
Jan-1
4
Apr-
14
Jul-14
Oct
-14
Jan-1
5
Apr-
15
Jul-15
Oct
-15
Jan-1
6
Apr-
16
Jul-16
Oct
-16
Jan-1
7
Apr-
17
Jul-17
Oct
-17
Jan-1
8
Apr-
18
Jul-18
Oct
-18
Jan-1
9
Apr-
19
TTF FM to Brent FM
-1.00-0.80-0.60-0.40-0.200.000.200.400.600.801.00
Jan-1
3
Apr-
13
Jul-13
Oct
-13
Jan-1
4
Apr-
14
Jul-14
Oct
-14
Jan-1
5
Apr-
15
Jul-15
Oct
-15
Jan-1
6
Apr-
16
Jul-16
Oct
-16
Jan-1
7
Apr-
17
Jul-17
Oct
-17
Jan-1
8
Apr-
18
Jul-18
Oct
-18
Jan-1
9
Apr-
19
TTF FM to API2 FC
-1.00-0.80-0.60-0.40-0.200.000.200.400.600.801.00
Jan-1
3
Apr-
13
Jul-13
Oct
-13
Jan-1
4
Apr-
14
Jul-14
Oct
-14
Jan-1
5
Apr-
15
Jul-15
Oct
-15
Jan-1
6
Apr-
16
Jul-16
Oct
-16
Jan-1
7
Apr-
17
Jul-17
Oct
-17
Jan-1
8
Apr-
18
Jul-18
Oct
-18
Jan-1
9
Apr-
19
TTF S+1 to Brent M+12
-1.00-0.80-0.60-0.40-0.200.000.200.400.600.801.00
Jan-1
3
Apr-
13
Jul-13
Oct
-13
Jan-1
4
Apr-
14
Jul-14
Oct
-14
Jan-1
5
Apr-
15
Jul-15
Oct
-15
Jan-1
6
Apr-
16
Jul-16
Oct
-16
Jan-1
7
Apr-
17
Jul-17
Oct
-17
Jan-1
8
Apr-
18
Jul-18
Oct
-18
Jan-1
9
Apr-
19
TTF FM to Carbon Front CAL
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48Sensitivity: Confidential
Commodities Outlook Series 2019
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50Sensitivity: Confidential
Commodities Outlook Series 2019
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51Sensitivity: Confidential
Commodities Outlook Series 2019
No Giveaways Here
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52Sensitivity: Confidential
No Giveaways Here
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Yan QinLead Analyst Carbon
Refinitiv
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Carbon Market Outlook
Commodities Outlook
6 June 2019, Düsseldorf
Yan Qin, Lead Carbon Analyst, Refinitiv
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Agenda
• Carbon price so far
• 2019: Back to fundamentals
• Brexit and EU ETS
• Price outlook and main price drives
• German coal phase-out
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56Sensitivity: Confidential
Carbon price development 2008-2019Back to where it started off
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57Sensitivity: Confidential
Annual shortages return to focusMarket Stability Reserve started in 2019
-500
0
500
1 000
1 500
2 000
2 500
3 000
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030E
U E
TS
an
nu
al
an
d c
um
ula
tive b
ala
nces a
nd
M
SR
(i
n M
t)
MSR Annual Balance Cumulative Balance
MSR 24%
intake rate
Started in 2019
Removes 24% of surplus
Removes EUAs from auctions
2019: ~40% auction supply
Instrument to tackle oversupply
EU ETS surplus (TNAC): 1.65 Gt by 2018
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58Sensitivity: Confidential
Carbon price in 2019: upward move and volatility continuesDecember-2019 EUA contract traded between €19-27/t so far in 2019
EUA price averaged €22/t in Q1 and €23.5/t y-t-d
New 11-year high of €27.85/t
Daily trading ranges still above recent years, but have
narrowed compared to last autumn
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59Sensitivity: Confidential
Carbon goes back to fundamentals EUA price converging to fuel switching prices, partly driven by low gas prices
EUA price above fuel switching prices
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60Sensitivity: Confidential
Fuel switching a reality CO2 price of €27/t switches the merit order
Source: Refinitiv Power Curve in Eikon
German front-month merit order shows gas plants are even favored over lignite (fuel prices on 31 May, FM TTF €11/MWh)
We estimate that EU ETS emissions are -30Mt so far in 2019 due to coal switching to gas generation (+60TWh)
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61Sensitivity: Confidential
Carbon moves with energy complex in tandemDec-19 EUA vs front-year Power/Coal/Gas since January 2019 (=100)
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62Sensitivity: Confidential
...but Brexit is still playing a part
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63Sensitivity: Confidential
Brexit - All options still on the table
Flexible Brexit deadline 31 October
Deal with EU?
Hard Brexit?
New referendu
m?
New election?
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64Sensitivity: Confidential
• UK-issued EUAs suspended until a deal
with EU.
• Uncertainty if UK installation will need to
comply with EU ETS for their 2019
emissions
• Likely UK installations need to plan for
2019 emissions
• Increased demand from UK without UK
supply coming to the market
UK Supply-demand mismatch 2019: Support for EUA prices in Q2
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Mill
ions
of
EU
As
Spread-out (reference) Medium (Scenario 1) Concentrated (Scenario 2)
How will 75 Mt UK auctions be distributed?
Some risks for selloff in No DealBrexit slighlty bullish for EU ETS in long term
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65Sensitivity: Confidential
Carbon market outlook: changes in market participants’ behavior in 2019?
2018: aggressive hedging
2019: slowing down?
Major utilities seems well on track with hedging in Q1 2019
Most adjusted down expected generation for 2019 and 2020
RWE ‘financially’ hedged carbon into mid 2020s.
2018: awakening to carbon costs
2019: catching up with carbon risk management
Widely reported of ‘borrowing’ future allocation
In contrast to cumulative surplus of 600Mt
Financials
2018: re-entering carbon market and seeing carbon as an attractive assests
2019: some might have exit
positions in Q1 due to persisting Brexit limbo and capped prices
Signs of new investors?
FinancialsUtilities
Industry
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66Sensitivity: Confidential
Short-term market outlook
• Tightened supply with MSR in place will continue to support prices
• Annual shortage and abatement cost (Fuelswitching price) still in focus
• Overall little changes to EU ETS balances in 2019 (compared to January forecast)
• Slightly lower emissions (-50Mt) due to higher fuelswitching
• But some of EEA auction supply are spreaded to 2020
• Movements in gas prices will be key to watch
• Will the spread between Cal20 and front-month TTF narrow or widen?
• Brexit...
Price outlook: Q2: € 25/t 2019: €23/t 2020: €24/t
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67Sensitivity: Confidential
• EU wide policy changes:
– Market Stability Reserve review
– 2050 Climate debate
– Increase climate target in light of Paris Agreement
• National climate policy measures:
– Growing momentum in coal phase-out across Europe
– German coal phase-out
Mid-term and long-term: National and EU-wide policies
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68Sensitivity: Confidential
German coal phase-out by 2038: lower emissions in power sector
German power sector on path to 60% renewables share in 2030 Coal Commission’s
recommendation
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69Sensitivity: Confidential
• Coal plants closures will reduce German power sector emissions
– 2020-2030: -250 Mt in cumulative emissions
• Reduced demand for EUAs would have a bearish impact on prices
• Current setup of the MSR is not sufficient to counteract the effects of coal phase-out
• Voluntary cancellation of EUAs would only partially offset the the bearish effect
– Coal Commission recommends EUA cancellation to be fully exploited
– We estimate a maximum of 170 Mt for the closures 2020-2030 can be cancelled
How will the EU ETS cope with German coal phase-out?
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70Sensitivity: Confidential
10
12
14
16
18
20
22
24
26
28
30
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
EU
A p
rice
, e
uro
/t
2019-2020: Annual shortages in focus, front running of EUA hedges to weigh on prices.
2021-2027:Effects of lower MSR intake at 12%, higher prices lead to more abatement,drop in power sector emissions due to renewables.
2028-2030:Power sector emissions continue to fall, abatement costs are higher, additional abatement needed in industry sectors.
Carbon price forecast to 2030: calmer waters ahead
2019 Q2: €25/t2019: €23/t2020: €24/t
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71Sensitivity: Confidential
10
12
14
16
18
20
22
24
26
28
30
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
EU
A p
rice
, e
uro
/t
What if?
MSR review?
Electric vehicles?
Energy efficiency?
Coal phase-out?
Renewables growth beyond 32% target?
Brexit?
Brexit?
Climate ambition?
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Nathalie GerlSenior Analyst Power
Refinitiv
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The Financial and
Risk business of
Thomson Reuters
is now Refinitiv.
German Power
Supply Squeeze
Approaching?
Nathalie Gerl, Senior Analyst, Continental Power
Düsseldorf, June 6th 2019
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75Sensitivity: Confidential
German Power
A reshuffled Merit Order 2020
Nuclear Lignite Gas
GasCoal
CoalCoal GasCoal Gas
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76Sensitivity: Confidential
German Power
Agenda
Review of German Power 2018
Fuel and Carbon price environment: Shifting relative costs – shifting plant economies
Base Case and Flat Fuel Scenario
Policy-driven Capacity Phase-outs in Germany
Conclusions
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Review German Power 2018
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78Sensitivity: Confidential
• Cal-19: Fuels and Carbon drive an increase by around 50%
• We expected that the Cal-20/Cal-19 spread would narrow due to decreasing baseload capacity. Instead, the
backwardation of gas/coal led to a widening of the spread
German Power
German Power 2018
2017 2018
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2019: Fuel and Carbon price environmentShifting relative costs – shifting plant economies
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80Sensitivity: Confidential
• Cal-20: very bearish coal and gas prices have brought power on a downward path
• The time spread has narrowed again
German Power
German Power in 2019
2019
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81Sensitivity: Confidential
• Strong EUA and declining coal&gas: lignite plants give up the comfortable “cost gap” until the next efficient
coal/gas plants
German Power
Carbon Rally
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82Sensitivity: Confidential
• Cal-21/20 time spreads for coal/gas narrowing/ turning positive
• Fuels have recently moved from backwardation to contango
German Power
Coal and Gas Forward
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83Sensitivity: Confidential
• The continued rally for EUA carbon brings gas plants back into
the money
• High-efficiency gas plants are now right after the lignite stack in
merit order and replacing coal-fired generation
• The share of gas-fired power of the combined coal and gas-fired
power production has risen strongly since Sep-18
German Power
Coal to Gas shift 2019
Source: EEX production data
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Base Case and Flat Fuel Scenario
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85Sensitivity: Confidential
• Datteln 4 coal plant (1.1 GW): scheduled to come online in Q4-2020, although the likelihood for a complete
write-off is increasing
• Wind:
• lower additions of onshore wind due to weaknesses of new auction scheme in the next few years
• No additions of offshore wind parks after this year
• Solar: strong growth until FIT-cap of 52GW
German Power
Supply stack assumptions
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86Sensitivity: Confidential
• Base Case:
• First 46 days ahead: EC monthly forecast based on 51 ensemble members (paths) – we produce the
forecast for each ensemble member and then draw the average of all
• After first 46 days: Weather scenarios based on the CFSR hourly actuals for temperature, wind speed and
solar radiation from the years 1991-2015
• 51 / 25 price forecasts are the basis for the mean (=base case) and build the scenario range around our
base case
German Power
Base Case: Weather Scenario-based Forecast Model
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87Sensitivity: Confidential
• Front month / front quarter PnL improving
German Power
Model Performance
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88Sensitivity: Confidential
2020 2021 Cal21-Cal20
Coal API2 ($/t) 66,65 69,68 3,03
EUA (€/t) 25,78 26,10 0,32
TTF Gas (€/MWh) 19,05 19,05 0
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
delta to Market 1,40 1,50
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
delta to Market -1,40 -2,80
PEAK-BASE
€/MWh 2020 2021 Cal21-Cal20
BaseCase 6,60 5,70 -0,90
Market 9,40 10,00 0,60
BaseCase Fuel Prices (Close May 29th)• Bullish on Cal-20 & Cal-21 Baseload
• Bearish on peakload, i.e. on Peak-Base spread
German Power
Base Case: Weather Scenario-based Forecast
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89Sensitivity: Confidential
• The Base-Peak show seasonal differences: in summer, the stronger solar bring peak and off-peak closer to one
another
• Average last 12 months: 7.20 EUR/MWh
German Power
Why does the market price the Base-Peak spread above 10 EUR?
ave. Jun-18 to May-19: 7,20
Base Peak B/P spread
201710 28,40 39,50 11,10
201711 40,37 55,09 14,72
201712 30,77 44,62 13,85
201801 29,46 37,86 8,39
201802 40,12 48,29 8,17
201803 37,36 46,37 9,01
201804 32,01 36,33 4,32
201805 33,60 37,18 3,58
201806 42,41 47,80 5,39
201807 49,56 55,14 5,58
201808 56,20 62,45 6,25
201809 54,80 62,21 7,40
201810 53,13 60,75 7,63
201811 56,68 68,51 11,83
201812 48,13 62,43 14,30
201901 49,39 60,75 11,36
201902 42,82 49,41 6,59
201903 30,63 37,48 6,85
201904 36,96 37,39 0,43
201905 38,51 41,26 2,75
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90Sensitivity: Confidential
2020 2021 Cal21-Cal20
Coal API2 ($/t) 66,65 69,68 3,03
EUA (€/t) 25,78 26,10 0,32
TTF Gas (€/MWh) 19,05 19,05 0
2020 2021 time spread
Coal API2 ($/t) 66,65 66,65 0
EUA (€/t) 25,78 25,78 0
TTF Gas (€/MWh) 19,05 19,05 0
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
FlatFuels2020 49,80 48,35 -1,45
delta to BaseCase 0,00 -0,55
delta to Market 1,40 0,95
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
FlatFuels2020 56,40 54,09 -2,31
delta to BaseCase 0,00 -0,51
delta to Market -1,40 -3,31
BaseCase Fuel Prices (Close May 29th)
FlatFuels Scenario (Close May 29th)
• Removing the contango in fuel prices lowers the power price forecast
for Cal-21
• Assuming the same fuel price levels for 2021 as in 2020, we can
focus on how the demand-supply factors impact the 2021 price: the
market is actually less tight in 2021
• The addition of Datteln 4, renewable power additions and no nuclear
decommissioning makes Cal-21 less tight compared to Cal-20
German Power
Flat Fuel Scenario
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91Sensitivity: Confidential
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
NoDatteln4 49,92 49,36 -0,56
delta to BaseCase 0,12 0,46
delta to Market 1,52 1,96
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
NoDatteln4 56,69 55,49 -1,20
delta to BaseCase 0,29 0,89
delta to Market -1,11 -1,91
PEAK-BASE
€/MWh 2020 2021 Cal21-Cal20
BaseCase 6,60 5,70 -0,90
Market 9,40 10,00 0,60
NoDatteln4 6,78 6,14 -0,64
• Assuming no start of Datteln 4 in Q4-20, all else equal to base case
German Power
No Datteln 4?
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Policy-Driven Capacity Phase-outs in Germany
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93Sensitivity: Confidential
• …refer to the capacity in operation at the end of 2017
• Result from the target of 15 / 15 GW of hard coal / lignite installed by Dec-22
• There are already several hard coal and lignite units that are already scheduled for decommissioning within that
time, which are included in the 12.5 GW
• Reference capacity development (before shutdowns) (values by year-end)
• Lignite
• 1.9 GW are scheduled for decommissioning
(after 4 years in cold reserve) according to § 13g EnWG
• 3.0 GW have to be decommissioned additionally (18 - 15 GW)
• Hard Coal
• Datteln 4 assumed to start Oct-20 (BNetzA list)
• With planned (de-)commsissionings there would be 4.3 GW left
• Assuming a non-start of Datteln 4: 3.2 GW additional shutdowns
German Power
Coal Commission Report: “12.5 GW decommissioning by end of 2022”
Source: Coal Commission Report Jan-19, p.29
Capacity Development before Coal Commission’s
recommendations:
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94Sensitivity: Confidential
German Power
Planned Capacity Development vs. Coal Commission Target
Nuclear Closures MW latest shutdown date
Phillipsburg 1400 Dec-19
Brokdorf 1400 Dec-21
Gundremmingen C 1300 Dec-21
Grohnde 1350 Dec-21
Emsland 1400 Dec-22
Neckarwestweim 2 1400 Dec-22
Isar 2 1400 Dec-22
Lignite Closures MW shutdown
Jänschwalde F 465 Sep-18
Niederaußem E 295 Sep-18
Niederaußem F 300 Sep-18
Jänschwalde E 465 Sep-19
Neurath C 292 Sep-19
Total by Sep-19 1817
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95Sensitivity: Confidential
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
WithoutCoalLig 49,74 53,39 3,65
delta to BaseCase -0,06 4,49
delta to Market 1,34 5,99
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
WithoutCoalLig 56,36 62,79 6,43
delta to BaseCase -0,04 8,19
delta to Market -1,44 5,39
PEAK-BASE
€/MWh 2020 2021 Cal21-Cal20
BaseCase 6,60 5,70 -0,90
Market 9,40 10,00 0,60
WithoutCoalLig 6,62 9,39 2,77
• To assess the future impact of the retirement of baseload
plants we model a without-coal & lignite scenario for
2021 already:
Datteln 4: no start
3.2 GW hard coal plants removed
3.1 GW lignite plants removed
• Price impact of 4.50 EUR if the plants were “missing” in
2021 already, even stronger for Peakload
German Power
What would be the impact of decommissioning if it already happened in 2021?
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96Sensitivity: Confidential
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
WithoutNukes 49,74 57,05 7,31
delta to BaseCase -0,06 8,15
delta to Market 1,34 9,65
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
WithoutNukes 56,36 67,65 11,29
delta to BaseCase -0,04 13,05
delta to Market -1,44 10,25
PEAK-BASE
€/MWh 2020 2021 Cal21-Cal20
BaseCase 6,60 5,70 -0,90
Market 9,40 10,00 0,60
WithoutNukes 6,62 9,39 2,77
• To assess the future impact of the bundled retirement of
lignite hard coal and nuclear plants we model a without-
nuclear scenario for 2021 already:
Removal of 8.25 GW nuclear capacity
• Price impact over 8.00 EUR if the plants were “missing”
in 2021 already, even stronger for Peakload
German Power
What would be the impact of decommissioning if it already happened in 2021?
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97Sensitivity: Confidential
BASELOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 49,80 48,90 -0,90
Market 48,40 47,40 -1,00
WithoutNukeCoalLig 49,74 66,61 16,87
delta to BaseCase -0,06 17,71
delta to Market 1,34 19,21
PEAKLOAD
€/MWh 2020 2021 Cal21-Cal20
BaseCase 56,40 54,60 -1,80
Market 57,80 57,40 -0,40
WithoutNukeCoalLig 56,36 82,73 26,37
delta to BaseCase -0,04 28,13
delta to Market -1,44 25,33
PEAK-BASE
€/MWh 2020 2021 Cal21-Cal20
BaseCase 6,60 5,70 -0,90
Market 9,40 10,00 0,60
WithoutNukeCoalLig 6,62 9,39 2,77
• To assess the future impact of the bundled retirement
of both phase-out plans we model a without-
coal/lignite/nuclear for 2021 already:
Datteln 4: no start
3.2 GW hard coal plants removed
3.1 GW lignite plants removed
8.25 GW nuclear units removed (last three units to
be decommissioned Dec-22)
• Price impact over 17 EUR if the plants were “missing” in
2021 already, even stronger for Peakload
German Power
What would be the impact of decommissioning if it already happened in 2021?
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98Sensitivity: Confidential
German Power
...and Germany would still be a net exporter...
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99Sensitivity: Confidential
German Power
Caveats to phase-out sensitivities
• We keep gas prices constant (19.05 EUR/MWh for 2021). A drastic shift of gas-for-power demand would most likely drive gas
prices (upside!) and carbon prices (mixed!)
• Our model is calibrated under a very different (and less tight) market structure – this rather extreme scenario would possibly
have a different impact than what is implied by the model
• We imply that the market structure of neighboring countries remains unchanged
• This sensitivity implies that if the impact would be so strong in 2021, that it will probably be equally impactful in 2023. The
supply&demand structure will need to make strong efforts to adapt.
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Conclusions
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101Sensitivity: Confidential
• We see the role of gas-fired production increasing for German power
• We have a bullish view on the baseload Cal-20 and Cal-21
• We expect the Peakload prices, i.e. the Base-Peak spreads to turn out lower than currently implied by market
forward curves
• The German power sector is losing a significant part of its Baseload production capacity with too little new-
builds to fill the gap
• The baseload capacity which will be removed by 2022 would make a >17 EUR/MWh price difference if it was
already decommissioned in 2021
German Power
There is no significant policy measure meeting the upcoming supply squeeze by 2023
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102Sensitivity: Confidential
Commodities Outlook Series 2019
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Thank You