Europe:Looking to the future
1https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf 2http://ec.europa.eu/clima/policies/strategies/2050/index_en.htm 3http://www.bloomberg.com/news/articles/2016-01-14/renewables-drew-record-329-billion-in-year-oil-prices-crashed 4http://ec.europa.eu/clima/policies/strategies/2050/index_en.htm
Europe: Looking to the future
Current low oil prices make the outlook for European oil and
gas companies (and their treasuries) as challenging as for
their international counterparts.
Whilst the current focus is to reduce capital expenditure
and costs, some differing but still important challenges may
arise in the longer term for European oil and gas companies.
In addition to a general need to restart capital expenditure
as oil prices eventually recover, there are two other areas
where the European energy market is likely to need
appreciable investment in the coming years: sustainable
energy and pipeline networks. Therefore, while corporate
treasuries may be looking for efficiencies in the short term,
they are also looking for ways in which they can improve their
flexibility, so that resources can be quickly made available
when needed in the most efficient manner possible.
In the case of sustainable energy, Europe was heavily
involved in the December 2015 Paris global climate change
agreement (COP21)1, but more specifically there is a growing
shift towards changing Europe’s energy mix. An important
factor here is the European Commission’s 2050 low-carbon
economy roadmap2 that focuses on adopting sustainable
energy for the region in the long term. While oil prices have
declined along with oil exploration investment, the same
cannot be said of renewables investment: 2015 saw a record
USD329.3bn of investment in clean energy technology3.
Given that a key milestone in the EC roadmap is achieving
a reduction of 40% in emissions by 20304, the need for
investment in renewables seems unlikely to decline.
Lance T. Kawaguchi
Managing Director
Global Sector Head – Resources
and Energy Group Payments and
Cash Management
Another area where energy company treasuries may have to
find capital resources at short notice is pipeline networks.
The EU’s own oil production continues to decline and up to
90% of oil products will need to be sourced from outside
the EU by 20205. At present, only 20% of oil imports are
transported by pipeline6, but given the EU’s long term
view of the impact on the environment of tanker shipment,
studies have been commissioned to explore the increased
of use of pipelines for the transport of oil products7. Using
an extended pipeline network for transport lessens the risk
to the environment, reduces emissions and also assists
better supply security for Eastern European nations8.
Furthermore, the current EU internal pipeline network has
limited connectivity between Western and Eastern Europe,
which leaves central and eastern European refineries
dependent on imports from the Druzhba pipeline from Russia.
Corporate treasury: balancing the short and long term
This dichotomy, between a need for immediate cost
savings and efficiency and a potential demand for significant
capital expenditure in the future, presents energy company
treasuries with a demanding balancing act. Agility is a key
part of accomplishing this, particularly in terms of supporting
corporate liquidity and working capital needs, which may
change rapidly.
This need for agility is changing the timeframe in which
treasury has to operate; where once end of month analysis and
planning were sufficient, there is now a growing need
for this to happen in or near real time. At the same time, the
complexity of the data upon which this needs to be based is
growing; treasuries have to be able to interpret increasingly
complex cash flows and operating models across markets as
de-regulation continues. This in turn throws further demands
upon treasuries’ forecasting and risk management capabilities,
which also have to be balanced against the need to improve
the yield/return on monetary assets.
5,6, 7http://www.europarl.europa.eu/document/activities/ cont/201106/20110628ATT22856/20110628ATT22856EN.pdf – Section 2.3 Oil Pipelines
8http://www.europarl.europa.eu/document/activities/ cont/201106/20110628ATT22856/20110628ATT22856EN.pdf – Section 2.3.4. Future Trends and Conclusions
Published: April 2016
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