Roundtable Let s talk business: How Russian and EU companies would like to work with each other as well compete

Transcription

1 Roundtable Let s talk business: How Russian and EU companies would like to work with each other as well compete Russian Gas Society - Eurogas Conference Brussels, 30 Mai 2013 Dr. Wolfgang Peters, MBA Member of the Board, RWE Supply & Trading CZ, a.s. RWE Supply & Trading 03/06/2013 PAGE 0

2 Past and Present > Past: Division of Labour in a Monopoly World > Closed grid systems - no third party access no competition > Effective ownership of customers high off-take certainty > Access to commensurate long-term supplies was a virtue > No traded markets for gas pricing matching best substitute fuel > Import prices based on net-back from burner tip end user > Present: Massive changes created a completely New World of Choices > Regulatory changes: > unbundling, complete third party access > virtual points, entry-exit, trans-national interconnectivity > traded market-based balancing > Break-Out of highly liquid traded gas markets > No ownership of customers any more > Producer can supply end users (but also sell in traded markets) > Importer can buy gas in traded markets (and must sell there as well) > Long-term supplies (at the wrong price) turned into a massive liability RWE Supply & Trading 03/06/2013 PAGE 1

3 Example Czech Republic: - No ownership of customers anymore - Massive competition, also by producers - Everyone buys and sells at German NCG traded prices Market share 1998 RWE 100% 1 1) Shareholder SPP RWE Supply & Trading 03/06/2013 PAGE 2

4 European Traded Markets Strongly Correlated > Continental European Month-Ahead Prices show market conversion > Location Basis Differentials: transportation costs/capacity bottlenecks RWE Supply & Trading 03/06/2013 PAGE 3

5 Example Market Convergence Czech Market effectively appendix of German NCG/Gaspool Market forces (arbitrage) enabled by entry/exit and interconnectivity Converged Czech Market Gaspool Gaspool Key: VTP Virtual Trading Point (VOB in Czech) NCG NCG VTP VTP Transit flows from Lanžhot to Germany Imports from Germany to the VTP Imports from Lanžhot to the VTP Sales from VTP to Czech customers Source: ENTSOG (2012) RWE Supply & Trading 03/06/2013 PAGE 4

6 Is there still need for Long-Term Contracts? Yes, but that has nothing to do with Price! > ToP obligation effectively a cash flow assurance to underpin producer s upstream- and infrastructure investment (assured cash flow) > Cash Flow assurance logic has nothing to do with pricing (BBL, Langeled) > Note: Producer may also market volume himself to optimize portfolio Langeled & BBL pipelines Langeled Bacton Den Helder BBL RWE Supply & Trading 03/06/2013 PAGE 5

7 Price Formation Oil and Gas Permanently Decoupled - Gas pricing now entirely set by supply and demand - Note: Also oil-indexed quantities of LTCs sold at traded prices > Monthly oil-indexed price compared with NCG M+1 RWE Supply & Trading 03/06/2013 PAGE 6

8 Oil indexation for gas pricing a paradigm? > Nobody would consider indexing the price of long-term coffee supply to the traded price of frozen orange juice! Frozen Orange Price Index Long-Term Coffee Price RWE Supply & Trading 03/06/2013 PAGE 7

9 Serious Remark on the Gas-to-Oil Spread Producer s Windfall Profit = Importer s Loss Example Small Volume Price Oil Indexed Price NCG Gas-to-Oil Spread 100 TWh ~35 /MWh ~25 /MWh 10 /MWh /MWh Producer Cost to Market ~10 /MWh Producer: Netback profit + Windfall profit billion /a Importer: Nail in the coffin - 1 billion /a RWE Supply & Trading 03/06/2013 PAGE 8

10 Importer still needed? The Margin Debate - What does the importer bring to the table? > Cash Flow Commitment (Take-or-Pay) > Aggregation Risk End Users > Volume Disposal Risk Traded Markets > Multiple Counterparty Credit Risk > Indexation Risk > Transaction Cost > Force Majeure Supply Interruption Do I take: Risk or easy Cash? Buyer Seller RWE Supply & Trading 03/06/2013 PAGE 9

11 Summary and Outlook > The New World provides more choices > Producer can supply end users, sell at traded markets or sell to importers > Importer/distributor can flexibly buy at traded markets without ToP burden > but also more challenges > A wrongly priced long-term import contract can lead to bankruptcy > Long-term import contracts are still useful > To underpin investments (ToP based cash-flow assurance) > But: to compensate the importer for the risk he carries, he will ask a commensurate margin > Outlook > Both producer and importer will be active in the traded wholesale markets > Concern > Gas is even at traded prices not competitive vs. renewables > Will gas disappear from the household segment over the next few years? RWE Supply & Trading 03/06/2013 PAGE 10

12 Back-Up RWE Supply & Trading 03/06/2013 PAGE 11

13 Europe is different - European Henry Hub not possible? Also Location Basis Differentials on Henry Hub Sumas, Wash. $6.29 Malin, Ore. $6.78 PG&E Citygate $4.47 Los Angeles City Gate $4.47 Mexicali N/A AECU C Hub. n/a Kingsgate, B.C. $4.82 Topock, Ariz. $6.59 Opal, Wyo. $5.04 San Juan Basin $4.52 Waha Hub $5.89 US$/thou.ft 3, 2010 price levels Ventura, Iowa $5.69 Emerson, Manitoba $ Punhandle Field Zone $6.18 Katy Hub $ Henry Hub $4.37 Chicago City Gate $5.52 Columbia Pool n/a Niagara Falls, Ontario n/a Atlanta City Gate $5.93 PRICES AND DIFFERENTIALS FOR MAJOR HUBS AND SELECTED CITY GATES New York City Gate $6.86 Main Production areas Main demand areas Henry Hub Source: RWE Supply & Trading 03/06/2013 PAGE 12