energy: current situation and trends. from global to local
DESCRIPTION
Presentation by Eloy Alvarez-Pelegry (PhD), Director of the Basque Institute of Competitiveness' Chair of Energy at the 71st World Foundry CongressTRANSCRIPT
1
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
71st WORLD FOUNDRY CONGRESSBilbao, 19th – 21st May, 2014
Eloy Álvarez PelegryDirector de la Cátedra de Energía.Orkestra – Basque Institute of CompetitivenessF. Deusto
2
1. AN OVERVIEW OF CURRENT SITUATION
2. ENERGY SCENARIOS AND TRENDS
3. COMPETITIVENESS AND ENERGY COSTS
4. ON ENERGY PRICES
5. SOME CONCLUSIONS AND SUGGESTIONS
INDEX
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
3
1. AN OVERVIEW OF CURRENT SITUATION
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
4
INTRODUCTION
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
• Some paradigms are beginning to change.
• Climate change continues to be a paramount issue but
other topics have come as priorities.
• Black swans in energy: shale gas developments in USA.
• Low economic growth, continuous emphasis in energy
efficiency.
• Complexity in the world of energy is increasing.
AN OVERVIEW OF CURRENT SITUATION
5
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
WORLDWIDE
AN OVERVIEW OF CURRENT SITUATION
• Continuous growth in energy consumption.
• Growth below ten years average.
• Major share of hydrocarbons and fossil fuels.
Source: BP (2013)
World consumption
6
WORLDWIDE
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
• Major and substantial differences among regions:
Middle East: Oil and gas.Coal dominates in Asia
Pacific.More balanced portfolio
in North America and Europe.
• Low percentage of renewable energies at worldwide level.
AN OVERVIEW OF CURRENT SITUATION
Source: BP (2013)
Regional consumption patterns. 2012 (%)
7
EUROPE• Crude oil and petroleum
products continue to dominate energy mix.
• Gradual decline in its share.
• Decrease in solid fuels.• Increase in the share of
renewable energy sources (from 4% to nearly 10%).
• Natural gas rose, to achieve around 25% of consumption.
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
AN OVERVIEW OF CURRENT SITUATION
Source: European Commission (2013)
Gross Inland Consumption by Fuel. EU-27 (Mtoe)
8
EUROPE
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
AN OVERVIEW OF CURRENT SITUATION
• Increase in gas and renewables.
• Decrease in oil products.
• “Slow” decrease in solid fuels that maintain a high share.
Source: European Commission (2013)
Gross electricity generation by fuel. EU-27 (TWh)
9
SPAIN
Renewables7.0%
Gas16.9%
Coal1.4%Gases derived
from coal0.3%
Electricity23.1%
Petroleum products51.3%
AN OVERVIEW OF CURRENT SITUATION
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
• Final energy consumption in 2012 (89 Mtoe).
• 4% lower than in 2011.
• Highest share of petroleum products.
• Followed by electricity and gas.
Source: Own elaboration based on La energía en España (2012)
Final energy consumption in 2012
10
AN OVERVIEW OF CURRENT SITUATION
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
• Balanced mix.
• Important growth in gas since 2000.
• Very high growth in renewable energies since 2000. 32% of production.
SPAIN
Source: Díaz, A.C.; Mosácula, C; Larrea, M;Álvarez, E. (2013) a partir de REENote: Peninsular system
Installed capacity by technology 2000-2012.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
15,000
30,000
45,000
60,000
75,000
90,000
105,000 Térmica renovableTérmica no renovableSolar ter-moeléct.Solar fo-tovoltaicaHidráulica R.EEólicaCiclo combi-nadoFuel/gasCarbónNuclearHidráulica
MW
BASQUE COUNTRY
AN OVERVIEW OF CURRENT SITUATION
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
Industry42.3%
Transport35.5%
Primary sector1.6%
Services8.9%
Residential11.7%
11
• Industry is the main final consumer.
• Transport sector is roughly one third.
• Important share of gas in power generation and industry.
Source: Own elaboration based on Marqués, J. (2014)
Energy consumption by sectors
12
2. ENERGY SCENARIOS AND TRENDS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
13
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
• WEC. Scenarios “funnel” different range of options. “Symphony & Jazz”.
• SHELL. Contribution to strategic thinking. “Mountains & Oceans”.
• WEO, IEA. Emphasis on policies. Current, New and 450 Scenario.
SCENARIOS
14
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
Primary energy demand in selected regions and share of global growth (Mtoe)
• Population growth to 9 billion in 2040.
• 75% of population will live in cities in 2040.
• Shift in energy growth.
Source: WEO, (2013)Note: Refer to the New Scenario
SCENARIOS
15
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
World primary energy demand by fuel
• Continuous growth in all types of energy.
• Greater growth in gas.
Source: WEO, (2013)Note: Refer to the New Scenario
SCENARIOS
16
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
Changes in energy demand by sector and fuel, 2011-2035
• Great growth in power generation.
• Electricity and heat, increase in industry, buildings, and to a lesser extent in transport.
Source: WEO, (2013)Data corresponds to the New Policies Scenario.
SCENARIOS
17
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
Electricity production by fuel typem • Different outcomes depending on the role of goverment and markets.
• Biggest impacts of CCGT plants in “Symphony” and solar and CCS in “Jazz”.
Source: WEC, (2013).
SCENARIOS
18
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
TECHNOLOGY
• Drivers
Flexibility.Efficiency.Reduction of unit costs.
19
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
TECHNOLOGY
Efficiency ranges for OCGTs and CCGTs • Higher efficiencies.
• Higher temperatures and various pressure stages.
• Increase in size.
Source: ETP, (2013)
20
ENERGY SCENARIOS AND TRENDS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
TECHNOLOGY
State of the art steam conditions in PC plants
Source: ETP, (2012)
• Trend to higher temperatures and pressures.
• Ultra-supercritical plants, already in commercial operation in various countries.
• Importance of CCS.
21
EUROPE
• 2007: 20/20/20 targets.
• 2009: “Energy/Climate Change Package” to meet 2007´s targets.
• 2014: A policy framework for climate and energy 2020 to 2030.
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
22
EUROPEAN UNION. Key elements 2020 - 2030
• Greenhouse gas emissions target: 40% reduction in 2030 relative to 1990.
• Renewable energy target: 27%. From 21% to 45% in electricity.
• Energy efficiency target: 25% of energy savings by 2030.
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ENERGY SCENARIOS AND TRENDS
23
• Ensuring competition in integrated markets.
• Competitive and affordable energy for all consumers.
• Promoting security of energy supply.
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
EUROPEAN UNION. Key elements 2020 - 2030
ENERGY SCENARIOS AND TRENDS
24
Evolution of the regulated costs
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
• Key issue: Increase of the regulated costs mainly by high volume of FIT of some renewables.
• Electricity reform to solve among others the tariff deficit.
• 40% of the final price related to policies such as environmental or social.
Regulated activities deficit annual payment
Competence transition costs/ELCOGÁS since 2007
Outside Peninsula compensation
Permanent costs (CNE, OS and OMEL)
Energy efficiency and energy saving plan
Renewable energies premium
Commercial management
Diversification and security of supply costs
Distribution
Transport
Source: CNE (2012b)Source: CNE (2012b)
Source: CNE (2012b)
EUROPE. Spain
ENERGY SCENARIOS AND TRENDS
25
3. COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
26
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
COMPETITIVENESS AND COMPETITIVE ADVANTAGE
COUNTRY A COUNTRY B
Product I 2 10
Product II 1 2
• "Absolute" cost advantage.
• Relative advantage and comparative advantage.
• "Being different"
• Ability to compete internationally.
27
Industries Energy/resources intensive
Source: Own elaboration based on Mckinsey & Company, (2012)Note: The darker blue as well as higher numbers reflects more intensity to percentages save n labor and in value (in this case « density »).
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
MANUFACTURING. Energy intensive industries
Industries R&D Labor Capital Energy Trade ValueWood products 1 31 35 7 13 0,5
Refined petroleum, coke, nuclear 1 6 56 10 21 0,4Paper and pulp 2 18 37 10 24 1
Mineral-based products 3 20 39 11 14 0,1Basic metals 1 14 41 14 26 1
28
Structure of adquisitions (%) for the manufacturing Industry
Source: Own elaboration based on Mas M. et al, (2010)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
MANUFACTURING. Shares of energy and services
Year Energy Manufactures Services
1980 16 61 23
1995 7 56 37
2005 10 48 42
• Increase share of services.
• Significant variations in share of energy.
29
Share of energy-related cost among the production costs
Source: European Commission, (2014)Note: C2451 and C2452 casting of iron and steel.
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
MANUFACTURING. Shares of energy and services
• Iron and steel 3 – 23%
• Casting of iron and steel 3 – 17%
30
Real unit Energy costs as % of VA. Manufacturing sector (1995-2011)
Source: European Commission, (2014)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
MANUFACTURING. Unit energy costs
• Unit energy cost/VA, increase in most of the regions since 2004.
• EU in line with USA but above Japan.
31
Economic intensity of energy for industry. (Energy expenditure/Industrial VA)
Source: Díaz Mendoza; Arocena, (2012)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
MANUFACTURING. Industry in the Basque Country
Source: Díaz Mendoza; Arocena, (2012)
Average price of energy (€/toe)
32
Breakdown of economic intensity of energy
Source: Díaz Mendoza; Arocena, (2012)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
Economic intensity of energy (IEE) Price effect Quantity effect
• Energy efficiency does not offset price increases.
MANUFACTURING. Energy in the Basque Country
33
International fossil fuel prices in the Reference GEM-E3 scenario (2010 index)
Source: European Commission, (2014)
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
COMPETITIVENESS AND ENERGY COSTS
ENERGY PRICES. Effects on industry
Electricity and Gas price EU28
Source: European Commission, (2014)
• EU forecast increasing prices of oil, gas and electricity.
34
Impacts of taxation on trade of energy intensive products
Source: European Commission, (2014)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
EU28% change of exports % change of imports
2020 2050 2020 2050Ferrous metals -7.85 -9.05 6.42 7.49Non ferrous metals
-5.75 -6.66 5.12 5.87
Chemical products
-1.96 -2.36 1.94 2.29
Paper products -1.57 -1.81 1.37 1.56Non metallic minerals
-0.81 -1.02 0.42 0.48
Entire economy -0.22 -0.25 0.00 0.00
ENERGY PRICES. Effects on industry
35
Impacts of taxation and generation mix on production of energy-intensive industries
Source: European Commission, (2014)
COMPETITIVENESS AND ENERGY COSTS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
(% change from reference cumulatively over 2015-2050)
Ferrous metals
Non ferrous metals
Chemical products
Paper products
Non metallic minerals
Taxation case -2.98 -1.73 -1.17 -0.59 -0.86
Generation Mix -1.34 -0.88 -0.67 -0.50 -0.41
ENERGY PRICES. Effects on industry
36
4. ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
37
Oil price and oil demand trajectories
Source: WEO, (2013)Note: Low Oil-Price case compared with the New Policies Scenario
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
OIL
• Oil prices will continue to be a key reference for the energy business.
• Oil prices are expected to be/remain high.
• Prices determined globally at international level.
38
Overview of global spot gas prices for LNG in the first half of 2013 (USD/mmbtu)
Source: European Commission, (2014)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. Three main characteristics
• Prices are determined at regional level.
39
Wholesale gas price formation mechanisms in Europe
Source: International Gas Union, (2013)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. Three main characteristics
• Close relation with oil in a greater percentage of gas prices.
40
Traded volumes an European gas hubs
Source: Quarterly Report Energy on European Gas Markets, (2013)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. Three main characteristics
• Hubs de gas
Major differences USA vs Continental Europe.
Development of gas hubs in Europe mainly in UK.
41
Henry Hub natural gas spot prices
Source: EIA
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. The Shale gas revolution
• Gas prices in the 4$/MMBtu level
42
Estimated Breakeven Gas Price with Varying Condensate Ratio
Source: MIT, (2013)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. The Shale gas revolution
• Tight oil and condensates key to lower the gas prices.
• Trend is to increase.
43
Natural gas prices by region in the New Policies Scenario
Source: WEO, (2013)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. The Shale gas revolution
• Differences USA, Europe, Japan will remain.
• USA improves competitiveness, in chemical and manufacturing.
• Shale gas exploration in Europe should be very positive.
44
Evolution of prices in different organized markets
Source: BCG & Orkestra, (2013)
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
GAS. Hubs of gas
• Price differences. Trend to convergence.
• Hubs are key to increase competition. Transparency and decoupling oil/gas.
• Gas interconnections are essential.
• Iberian gas, a very positive and necessary initiative.
45
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ELECTRICITY
• Geography, infrastructure and mix make markets “regional”.
• Fragmented markets in Europe.
• Costs/prices more local dependent.
• Development of European Exchanges and the Organized Electricity Markets.
46
ON ENERGY PRICES
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
ELECTRICITY
• Generation prices competitive. Some differences in Europe.
• Trends toward Price Coupling.
• But infrastructure are key. Spain a “case” (3% vs 10% minimum)
• Final price. Not only generation, transmission, distribution. Environmental and social costs key in certain cases, i.e. mainly Europe.
47
5. SOME CONCLUSIONS AND SUGGESTIONS
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
48
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
SOME CONCLUSIONS AND CONCLUSIONS
• Energy demand will continue to grow, driven by population, urbanization and economic growth.
• Major changes are expected. Major role of emerging economies.
• Fossil fuels will continue to have a great share and influence in the energy world.
• Natural gas and renewable energies are expected to have the greater growth.
49
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
SOME CONCLUSIONS AND CONCLUSIONS
• Electrification will gain pace in the following years.
• Electricity mix will experience profound changes. The mix of technologies will be much influenced by the role of government and markets.
• Flexibility and improvement in efficiency will be the main drivers to develop technologies and to decrease specific costs.
50
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
SOME CONCLUSIONS AND CONCLUSIONS
• Competitive advantage goes further that cost.• Energy cost is key in those energy intensive
industries, (commodity type) which compete mainly in terms of cost.
• Operational and energy efficiency is a “must”.
ENERGY: CURRENT SITUATION AND TRENDS. FROM GLOBAL TO LOCAL
SOME CONCLUSIONS AND CONCLUSIONS
• Gas prices differences between USA, Europe and Japan will probably remain. Gas prices will be high in Europe and Japan as long as oil price are high.
• In Europe shale gas development and the gas hubs (particularly in Iberia) can play a significant role for improving gas to gas competition.
• Electricity prices may continue to increase if the cost of social and environmental policies are not addressed in the right way.
51
52
THANK YOU VERY MUCH!
ESKERRIK ASKO
Eloy Álvarez PelegryDirector de la Cátedra de Energía.Orkestra – Basque Institute of CompetitivenessF. Deusto