welcome [] · 2019-06-07 · 8 sensitivity: confidential compliance 8 0 1000 2000 3000 4000 0...

WelcomeDüsseldorf – Thursday 6th June 2019

2Sensitivity: Confidential

• 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

Esa RamasamyGlobal Director - Product Strategy

S&P Global Platts


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IMO 2020: Market Disruptor

Esa Ramasamy

Global Director,

Market Engagement & Development

Platts-Refinitiv Partner Event

Dusseldorf June 6, 2019


IMO 2020: Medium & Heavy Sweet Crudes

IMO

2020

Compliance

Fuel Supply

Implications

6


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

7


Compliance

8

0

1000

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3000

4000

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

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)


HSFO Demand

9

• 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


Scrubber . . .

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0

500

1000

1500

2000

2500

Operating Vessels Vessels On-Order

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1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Jan-25

No

. o

f S

cru

bb

ers

Worth 1400-2000 MB/D

HSFO

No

. o

f S

cru

bb

ers

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


Others say there will 3,000+ ships with

scrubbers – still only 3.75%


(35)

(30)

(25)

(20)

(15)

(10)

(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

0

5

10

15

20

25

30

35

2000 2005 2010 2015 2020 2025 2030

USG

NWE

Singapore

Diesel Cracks$/B



0

100

200

300

400

500

600

2010 2015 2020 2025

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



Diesel-Brent & WTI Crack ($/B)

13Source: ICE (June 3)

0.00

0.40

0.80

1.20

ICE LS Gasoil-Brent Crack

0

0.2

0.4

0.6

0.8

1

1.2

NYMEX Heating Oil vs ICE Brent Crack


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

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



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


HSFO Bunkers

LSFO Bunkers

Middle Distillates

New Dist.0.5% Blends


What products are set to gain from IMO?



Impact on Crude Oil

Medium/Heavy Sweet crudes demand up

Demand from

Blending & Refining

SectorsProducers of

medium/heavy sweet to see

stronger demand

17


Eswaran (Esa) RamasamyGlobal DirectorMarket Development & EngagementTel: +1 281 818 3286Email: [email protected] 18

Thank You

Marina TsygankovaLead Analyst Gas

Refinitiv

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


Agenda

1.Recent price overview and drivers for downside

2. A closer look at major suppliers: Who will turn down?


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.

10

12

14

16

18

20

22

24

26

28

30

01/03/2018 01/04/2018 01/05/2018 01/06/2018 01/07/2018 01/08/2018 01/09/2018 01/10/2018 01/11/2018 01/12/2018 01/01/2019 01/02/2019 01/03/2019 01/04/2019 01/05/2019

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


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.

175

6359

7

23 19

166

6759

2419 19

0

20

40

60

80

100

120

140

160

180

200

Consumption RUS ( Mallnow, Velke &NS) Norway LNG Dutch production UKCS

bcm

Total consumption and supply in NWE&UK

Winter 17 Winter 18


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.

45

28

20

17

21 20

1714

50

0

10

20

30

40

50

60

GY10 GY11 GY12 GY13 GY14 GY15 GY16 GY17 GY18

LNG sendout by Gas Year (Bcm)

0

50

100

150

200

250

mc

m/d

LNG actuals and forecast

GY18 GY17 SUM19 F


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

0

100

200

300

400

500

600

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

TW

h

Total NWE storage inventory ( DEU, FRA, BEL, NDL), history and forecast

GY13-17 RANGE GY18 GY17 Total Capacity

What next for balance of summer?

A closer look at major suppliers: who will turn down?

Demand elasticity is being exhausted


0

5

10

15

20

25

30

35

Apr 18 May18

Jun 18 Jul 18 Aug18

Sep 18 Nov18

Dec 18 Jan 19 Feb 19 Apr 19 May19

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.

10

12

14

16

18

20

22

24

26 Coal switching range shorter history

FSP Range (46% efficiency) TTF DA Additional Fuel Switch


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

0

50

100

150

200

250

Jun-18 JUN19 F

JUN19 non LDZ forecast vs JUN18 (mcm/d)

Total Germany Dutch non LDZ Belgian GfP French GfP

0

50

100

150

200

250

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

167

202184

199

Norway: what can Equinor do with Troll?


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.

0

2

4

6

8

10

12

14

16

18

20

01 Apr 30 Apr 30 May 25 Jun 23 Jul 20 Aug 17 Sep

p/th

Front summer - DA spread

SUM14 SUM19

31

26

3331

3537

35

0

5

10

15

20

25

30

35

40

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 F

Bcm

/gas y

ear

Troll production actual and F vs. quota

Actual prod Quota


0

5

10

15

20

25

30

35

40

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

bcm

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 .

0

20

40

60

80

100

120

140

mcm

Troll summer capacity reduction

Planned Trolll maintenance Summer 2019

Planned Troll maintenance summer 2018


97 89 87112

85 74

197179 179

194

175

153

13

19 19

20

20

7

0

50

100

150

200

250

300

350

APR MAY JUN JUL AUG SEP

mc

m/d

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.

54 52

0

10

20

30

40

50

60

SUM18 SUM19 F

BC

M

Summer supply

Gazprom Export: Where is the SRMC?


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

?


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


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

US LNG:

At what price does Henry Hub gas not get

liquefied?


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


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

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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


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


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)

What about WIN19:

Do we expect major changes to fundamentals?


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)

General Conclusions


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


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


Commodities Outlook Series 2019

Thank You

[email protected]



No Giveaways Here

Yan QinLead Analyst Carbon

Refinitiv

Carbon Market Outlook

Commodities Outlook

6 June 2019, Düsseldorf

Yan Qin, Lead Carbon Analyst, Refinitiv

Agenda

• Carbon price so far

• 2019: Back to fundamentals

• Brexit and EU ETS

• Price outlook and main price drives

• German coal phase-out


Carbon price development 2008-2019Back to where it started off


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


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


Carbon goes back to fundamentals EUA price converging to fuel switching prices, partly driven by low gas prices

EUA price above fuel switching prices


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)


Carbon moves with energy complex in tandemDec-19 EUA vs front-year Power/Coal/Gas since January 2019 (=100)


...but Brexit is still playing a part


Brexit - All options still on the table

Flexible Brexit deadline 31 October

Deal with EU?

Hard Brexit?

New referendu

m?

New election?


• 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


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


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


• 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


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


• 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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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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2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

EU

A p

rice

, e

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/t

What if?

MSR review?

Electric vehicles?

Energy efficiency?

Coal phase-out?

Renewables growth beyond 32% target?

Brexit?

Brexit?

Climate ambition?

Thank You

[email protected]

mailto:[email protected]

Nathalie GerlSenior Analyst Power

Refinitiv

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


German Power

A reshuffled Merit Order 2020

Nuclear Lignite Gas

GasCoal

CoalCoal GasCoal Gas


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

Review German Power 2018


• 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

2019: Fuel and Carbon price environmentShifting relative costs – shifting plant economies


• 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


• 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


• 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


• 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

Base Case and Flat Fuel Scenario


• 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


• 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


• Front month / front quarter PnL improving

German Power

Model Performance


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


• 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


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


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


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


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


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


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?

Policy-Driven Capacity Phase-outs in Germany


• …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:


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


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


PEAKLOAD

€/MWh 2020 2021 Cal21-Cal20

BaseCase 56,40 54,60 -1,80

Market 57,80 57,40 -0,40



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


• 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?


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



PEAKLOAD

€/MWh 2020 2021 Cal21-Cal20

BaseCase 56,40 54,60 -1,80

Market 57,80 57,40 -0,40




PEAK-BASE

€/MWh 2020 2021 Cal21-Cal20

BaseCase 6,60 5,70 -0,90

Market 9,40 10,00 0,60


• 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



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



PEAKLOAD

€/MWh 2020 2021 Cal21-Cal20

BaseCase 56,40 54,60 -1,80

Market 57,80 57,40 -0,40




PEAK-BASE

€/MWh 2020 2021 Cal21-Cal20

BaseCase 6,60 5,70 -0,90

Market 9,40 10,00 0,60


• 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



German Power

...and Germany would still be a net exporter...


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.

Conclusions


• 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

Thank You

[email protected]

Thank You

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