Trading / Gas Midstream Investor Lunch. Dr. Markus Krebber CEO, RWE Supply & Trading 14 April 2015

Transcription

1 Trading / Gas Midstream Investor Lunch Dr. Markus Krebber CEO, RWE Supply & Trading 14 April 2015

2 Overview of RWE Supply & Trading RWE Supply & Trading 14 April 2015 PAGE 1

3 Trading / Gas Midstream comprises five business lines not all results are shown in the segment > Global energy and commodity trading Trading & Origination > Origination deals related to energy & commodities > Organic expansion into new markets and commodities, e.g. US Power & Gas, Metals Principal Investments Commodity Solutions Commercial Asset Optimisation Legacy portfolio gas midstream > Equity/equity-like investments in companies and assets related to energy & commodities > Supply of European industrial customers with power & gas, as well as providing commodity risk management solutions > Commercial asset optimisation of RWE Group s power and gas positions (Generation, Innogy, Retail) > Result fully transferred to sister companies > Long-term gas supply contracts > Storage and transport capacity contracts > Management of Gate position RWE Supply & Trading 14 April 2015 PAGE 2

4 Stable operating result (excl. legacy effects) while funding requirement significantly reduced millions IAS Operating result Thereof Legacy portfolio gas midstream IAS Operating result (excl. legacy effects) Tangible Asset Base (Working Capital, Investments) 2,600 1, RWE Supply & Trading 14 April 2015 PAGE 3

5 Focus Topic: Principal Investments targets capital-light high return investments across commodity markets > Focus: Private equity-type investments with attractive returns and fast capital recycling in combination with leveraging RWE s energy commodity expertise and market access > Main investment themes: Renewable investments, arbitrage opportunities (e.g. shale gas/lng) and commodity price recovery plays Selected Projects Lynemouth Power Kencot Hill Conergy Description > Purchase of a UK coal-fired power station and conversion to biomass using RWE engineering knowledge > Acquisition, construction, and financing of a UK ground-mounted photovoltaic project (37 MWp) and post-construction sale on preagreed terms > Financial investment in the Conergy Group, a global photovoltaic EPC/O&M provider and developer Status > Technical conversion project is in progress > Awaiting EU State Aid approval for Investment Contract > Kencot Hill was acquired in April 2014 and constructed successfully > Exit to end-investor Foresight was completed in March 2015 > Completion of minority share acquisition in March 2015 Blackhawk > 25 % participation in US Central Appalachian coal mining company, including exclusive coal marketing rights and coal offtake options > Although coal price remains at low levels, investment is attractive due to embedded commodity trades RWE Supply & Trading 14 April 2015 PAGE 4

6 2017 forward 2016 forward 2015 forward Back-up: RWE s forward hedging of conventional electricity production (German, Dutch and UK portfolio) As of 31 December 2014 >30% >10% >40% >10% >40% >20% >50% >30% >60% >40% >60% >50% >80% >60% >90% >70% >90% >70% >30% >20% >40% >10% >40% >10% >60% >10% >60% >20% >30% <10% Months before delivery of forward contract Outright (GER nuclear and lignite based power generation) Spread (GER, UK and NL/B hard coal and gas based power generation) -0 RWE Supply & Trading 14 April 2015 PAGE 5

7 Energy Wholesale Market Update RWE Supply & Trading 14 April 2015 PAGE 6

8 Various fundamental factors influence power prices on the long-term forward market Fuel forward curves CO 2 prices Gas prices Crude prices Coal prices D Reservoir level Subsidies & technical progress Seasonal temperature forecast Reservoir hydro plants Wind capacity growth PV capacity growth B Renewable power generation Air conditioning / Electric heating Marginal costs of thermal plants Thermal power generation Power price Available capacity Residential demand Power plant new build Power plant closures Comfort of living Supply C Cross-border exchange balance Weather impacts Industrial demand Energy efficiency Demand Macro cycle A RWE Supply & Trading 14 April 2015 PAGE 7

9 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 A: German Power Demand: Power demand is stabilising on low level 15% 10% Post-crisis recovery Average Load YoY Change 5% 0% -5% -10% -15% -20% Demand declined sharply in the wake of the financial crisis Demand destruction ongoing but slowing down > Efficiency measures continue to weigh on power consumption, with the EU proposing an energy efficiency target of 30% until > Demand destruction prevails since the post-crisis recovery in However, it was slowing down in the recent months. > Data quality issues are increasing as the growing residential self-consumption of PV is based on estimates. RWE Supply & Trading 14 April 2015 PAGE 8

10 Installed GW New installed GW p.a. B: German Power Supply (I): Higher renewables growth in 2015 due to offshore wind > Solar installation growth was relatively low with only about 1.9 GW installed until the end of PV and Wind Capacity Growth Wind Onshore Wind Offshore Solar > Our 2015 capacity expansion forecast for PV is set at 1.8 GW, but may vary depending on the success of the newly introduced tender process for ground-mounted PV. However, we do not expect the official target of 2.5 GW to be reached. > On the other hand, German onshore wind installations surprised to the upside in 2014, partly as producers accelerated their projects in anticipation of the EEG reform. In total 4.1 GW were installed from January to December > The wind capacity growth forecast is set at 4.7 GW for 2015, thereof 1.9 GW wind offshore capacity Total Installed PV and Wind Capacity Wind Onshore Wind Offshore Solar Installed Capacity (Dec 14): - PV GW - Wind GW (thereof 0.95 GW offshore) RWE Supply & Trading 14 April 2015 PAGE 9

11 Mothballed/closed New build C: German Power Supply (II): Balance of capacity closures and new-builds tightens New-build vs. mothballed/closed fossil generation capacity -1.7 GW -1.0 GW Hard Coal Natural Gas -1.2 GW Lignite Nuclear -0.8 GW > Taking into account recent updates, closures planned for exceed new builds by 4.7 GW. > The hard coal unit Mannheim 9 with a capacity of 845 MW will be commissioned in June Additionally, Vattenfall s coal unit Moorburg A with 800 MW capacity will commence operations this summer. > Europe s most efficient gas plant units, Irsching 4 and 5, with capacities of 550 MW and 846 MW, have been scheduled to be decommissioned on 1 st April 2016 as operations are not profitable. > If a capacity market will not be implemented, further gas and coal closures are expected. Moreover, additional lignite closures are anticipated in the long-term, if the extra climate levy (proposal from economics minister Gabriel) for old lignite plants is realised. RWE Supply & Trading 14 April 2015 PAGE 10

12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 /EUA D: Emission Allowances: Trilogue discussions supportive EUA Y > Trilogue* discussions about the implementation of the Market Stability Reserve (MSR) started. The next meeting is scheduled for 5 May. > Controversial topics remain the start date and the amount of unallocated allowances in the MSR. > A compromise solution would suggest a start date in 2019 or 2020 in return for less unallocated allowances to be placed in the MSR. * Trilateral meeting with EU Council, Parliament and Commission RWE Supply & Trading 14 April 2015 PAGE 11

13 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 TTF [ /MWh] Spread [ /MWh] D: European Gas Calendar Spread: TTF curve flattens as prompt supply gets tighter TTF Gas Front Year (FY1) vs. Second Front Year (FY2) Spread TTF FY1 TTF FY > An unexpected production cut of the Dutch Groningen field by 4.4 bcm in Q2 led to an extreme short squeeze in February. In July 2015, the government will decide whether to cut the yearly target of 39.4 bcm to 35 bcm or whether to catch up on the production backlog in H2 15. > An unexpected jump in Russian gas exports by ca. 100 mcm/d in March led to an abrupt stop to the rally. > A technical problem at the UK Rough storage results in 1 bcm less storage capacity increasing the UK sum/win spread. > The forward curve could flip further into backwardation due to more LNG supply and storage capacities. RWE Supply & Trading 14 April 2015 PAGE 12

14 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 $/t D: European Coal: API#2 remains weak after a rebound from the 5y low Month Ahead Coal Prices ARA DES (Columbia sets price) South Africa DES USA DES > The strong USD increases the margins for coal mining companies in their domestic currency. This implies more downside potential in USD terms as effectively the marginal costs measured in USD dropped. > The Columbian railway company Fenoco is not allowed to transport coal at night from the mines to the harbour anymore. Since this was already the bottleneck of Columbian exports, the market will receive m tonnes less coal per month until the noise pollution problem is solved. > Glencore contemplates shutting down some South African mines, potentially decreasing supply by 5 mt/year. It also outlined vague plans for mine closures in Australia. However, after the Japanese negotiations where finished coal prices collapsed, unmasking all supply cut attempts as useless so far. RWE Supply & Trading 14 April 2015 PAGE 13

15 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 $/t Spread [$/t] D: European Coal Calendar Spread: API#2 contango stable API#2 Front Year (FY1) vs. Second Front Year (FY2) Spread API#2 FY1 API#2 FY > Despite dropping prices the contango did not steepen again between FY1 and FY2, implying that the current oversupply situation is expected to be a long-term issue. Only minor improvements are priced in. > However, due to seasonally weak demand the current prompt strength seems overdone. If the Fenoco problem is solved and the current oversupply situations worsens, a higher contango in API#2 could be re-established on the front end of the curve. RWE Supply & Trading 14 April 2015 PAGE 14

16 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 $/bbl Spread [$/bbl] D: Oil Calendar Spread: Contango declining while prices rebound Brent Front Month (FM1) vs. Front Year (FM12) Spread FM1 FM > During the last 9 months, oil prices dropped significantly as the global oversupply became more imminent. Main factors are the declining power of the OPEC and the increasing US shale gas production. > Oil rebounded sharply in Jan/Feb 2015 when the attention shifted towards the rig count decline in the US, as a result of lower oil prices. However, as storage levels kept increasing prices eased again. Currently, worries about the Saudi intervention in Yemen were quickly compensated by hopes on a resolution of the Iranian sanctions. > From a fundamental point of view oil prices could drop more before a sufficient supply cut takes place. RWE Supply & Trading 14 April 2015 PAGE 15

17 Marginal cost ( /MWh) German merit order in 2014: prices and volatilities for different hours of the year Renewables Nuclear 1 Lignite Coal Gas Oil Others Capacity (GW) A average hour with low intraday volatility A cold winter hour with low intraday volatility A winter hour with high intraday volatility Announced for closure or closure candidates System services A sunny hour with high intraday volatility A sunny and windy hour 1 Excluding nuclear fuel tax 1 Source: RWE RWE Supply & Trading 14 April 2015 PAGE 16

18 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 Price [ /MWh] European Power Overview: European power prices falter Cal16 Baseload Prices DE Cal16 FR Cal16 NL Cal16 BE Cal16 UK Cal16 NP Cal16 UK: Coal to gas switch, coal plant reliability very high this winter, all nukes back online BE: 2 GW nukes (Tihange-2 and Doel-3) still closed due to serious safety concerns and respective repairs NL: Gas dependent, hard coal plants finally commissioned FR: ARENH decision postponed DE: Renewables feed-in, fossil mothballing NP: Improved hydro balance > The recent price hike, which was caused by a price recovery across coal, gas, oil and carbon, has stopped. > Belgian power prices decoupled again due to uncertainty about the return of the damaged nukes. > UK power prices had been pushed up by gas prices as Norwegian outages and Dutch supply cuts for H1 have resulted in below seasonal gas storage levels. However, increased Russian flows helped prices down again. > German power prices have mostly decreased due to shut-in renewable feed-in *. Nevertheless, flow-based market coupling and more fossil closures provide some medium-term upside potential for German power. * In times of high renewables generation, cross-border constraints limit exports RWE Supply & Trading 14 April 2015 PAGE 17

19 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 DE Base [ /MWh] Spread [ /MWh] German Power Calendar Spread: Forward curve backwardation decline continued 50 German Power Baseload Front Year(FY1) vs. Second Front Year (FY2) vs. Third Front Year (FY3) 6 45 Y3-Y1 Front Year (FY1) Second Front Year (FY2) Third Front Year (FY3) > In the beginning of 2015 the backwardation in the forward curve decreased, as the extra climate levy (proposal from economics minister Gabriel) for old lignite plants is planned to come into effect in > Ongoing fossil plant closures and returning risk premiums (as a result of increasing volatility in the prompt) should lead to further relative strength in the back of the German forward curve. RWE Supply & Trading 14 April 2015 PAGE 18

20 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 Clean Dark Spread [ /MWh] Difference Cal'16 - Cal'17 Darks [ /MWh] Generation margin for hard coal plants surged reflecting plant closures in 2016/ Clean Dark Spreads Germany Cal'16 - Cal'17 Cal'15 Cal'16 Cal'17 > German clean dark spreads increased further while the backwardation is flattening. The recent rise was caused by Gabriel s proposal, as it would curtail power supply while decreasing coal demand. > Tightening supply/demand balance is getting priced into Cal 16 and even more into Cal 17. RWE Supply & Trading 14 April 2015 PAGE 19

21 Summary & Conclusion 1 What are the power fundamentals telling us? > Electricity demand stabilised on a low level. > Despite reduction in subsidies, solar and wind generation will continue to grow in Germany. > From 2015 onwards, plant closures will reduce the current generous capacity margin. Gabriel s proposal for an extra climate levy might trigger additional lignite plant closures What are the primary fuel markets telling us? What can we observe in the power and fuel spreads markets? Conclusions > Carbon markets are supported by MSR discussions and the Gabriel proposal. > The global hard coal markets continue to suffer from oversupply. Bullish news in the prompt were shrugged off quickly. > The Groningen production cut and less UK storage capacity tightened European gas prices, but were partly offset by high Russian nominations. > Crude oil markets remain fragile despite recent rebounds. > Outright front-year power prices moved sideways. Additional plant closures and the introduction of flow-based market coupling are supportive for German power prices. > The backwardation on the power forward curve declined inducing a higher risk premium. > Clean dark spreads in the back end of the forward curve are further increasing due to the tightening fundamental picture. > Fossil plant closures overcompensating renewable capacity additions support outright prices. > Power prices outperforming coal prices drive dark spreads up. > Gabriel s proposal for an extra climate levy might further tighten the supply-demand balance and introduce more risk premium. RWE Supply & Trading 14 April 2015 PAGE 20