New Global Energy Trends

European Gas Supply Infrastructure Platt’s

Conference

October 10, 2011

New Global Energy Trends Colette Lewiner, Energy & Utilities Global Leader

Capgemini

| Energy, Utilities & Chemicals Global Sector

2

Agenda

Recent Energy events

• Oil supply

• Fukushima

Consequences on:

• Security of supply

Short tem

Longer term

Investment in grids

• Energy Mix

Gas

Renewables

Smart Grids

Energy Prices

Conclusions


Primary factors driving demand are economic growth and increased requirements in the developing world.

Global demand for oil is increasing again

3


Reserve replacement and National Oil Companies dominant control of resources are the two main issues

Projected production capacity decline: projected new production capacity to address current decline rates alone will be 45 to 50 MBPD (million barrels /day) by 2030 • more than twice the current Middle East

production

• ~ >half today’s global production will have to be replaced

About 80% of the projected increase in oil output to 2030 is to come from the National Oil Companies

Middle East remains Critical

1109 Platt's Gas Conference.pptx 4

The Middle East and Africa account for about 2/3’s

of Global Reserves

Libya, Yemen, Syria, Egypt, Sudan, Oman … political upheaval may place significant global reserves at risk


Oil prices forecasts uncertainty is increased by speculation (a barrel is traded 35 times on the financial markets)

Following the June 8th OPEC

decision not to increase output

quotas, IEA decided on June

22nd to release 60m oil barrels

of its 6 month worldwide

consumption reserves

This decision did not revert the

oil prices trend

However there is some

consumption/ price elasticity

• At the beginning of 2008 summer,

Americans used less their cars for

vacations and consumption

started to decrease

• Gasoline consumption decreased

by 3% in France in June 2011

And ….trees don’t go to heaven.

5

Oil prices: a consequence of economy growth or a trigger to economic slowdown?

Oil prices

Source: Focus Gaz, July 1, 2011

http://www.wtrg.com/daily/cbspot.gif


Fukushima accident first safety lessons learned

Need to design plant infrastructures for really exceptional earthquakes and tsunamis

Simultaneous Natural Catastrophes have to be taken into account

Spent fuel storage and management policy to be rethought

Emergency measures to be revisited

Cooling systems redundancy to be re-assessed

Radiological permanent control on the site and around

Crisis management and crisis communication to be re-designed

Nuclear bodies and governance

6

Tokyo Electric Power Company’s plan to achieve cold shutdown by early in 2012 “could be possible” according to the International Atomic Energy

Agency Head

Exceptional circumstances: 9.0-magnitude undersea earthquake off the coast of Japan on March 11, 2011 triggering a tsunami that travelled up to 10 km inland.

Fukushima nuclear plant: with 6 boiling water reactors (BWR) maintained by TEPCO has been hit by the earthquake and tsunami:

Reactors 4, 5 and 6 were shut down prior to the earthquake for maintenance.

Remaining reactors shut down automatically after the earthquake. Grid electricity supply for cooling purposes collapsed and then the tsunami flooded the plant, knocking out emergency generators.

20km radius evacuation around the plant from March 12

Highest rating (level 7) on the International Nuclear Event Scale. Second level 7 rating in history, following Chernobyl

The accident First safety lesson learned


Political decisions

China: 27

Number of reactors

under construction

Russia: 10

India: 5

South Korea: 5

Slovakia: 2

Taiwan: 2

Canada: 2

Japan: 2

Iran: 1

Argentina: 1

Brazil: 1

Pakistan: 1

Finland: 1

France: 1

USA: 1

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Plant closure: Germany (8

oldest reactors)

New projects delayed or stopped: China, India, Taiwan (new projects assessment), India assessment;Japan (37 plants out of 54 stopped plants, possible phase out); Italy and Switzerland (moratorium); UK (confirmed with slight delay); France (confirmed, FL3 delayed)

Safety inspections of existing plants:

All countries

Image S

ourc

e: L

e F

igaro

; IAE

A

Before the accident, there were, 439 reactors in operation,

62 under construction and 484 planned or proposed

Before the accident, there were 439 reactors in

operation, 62 under construction and 484 planned or proposed. After?


8

Agenda


• Oil supply

• Fukushima

Consequences on:


Short tem

Longer term

Investment in grids

• Energy Mix

Gas

Renewables

Smart Grids

Energy Prices

Conclusions


The immediate German nuclear plants closure is threatening European electricity security of supply

DE

FR

IT

ES

UK

SE

PLNO

NL

AT

BE

CH

FI

CZ

PT

RO

DK

GR

BG

HU

IE

SK

LT

SI

LV

EELU

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-20%

-10%

0%

10%

20%

30%

40%

10% 20% 30% 40% 50% 60%

Re

al m

arg

in a

t p

ea

k lo

ad

[%

]

Theoretical margin [%]

Increase of theoretical marginIncrease of real margin

Decrease of theoretical marginDecrease of real margin

Increase of theoretical marginDecrease of real margin

Decrease of theoretical marginIncrease of real margin

Technically impossible

California syndrome: lack of capacity

Fragile areas:theoretical overcapacity but lack of

production availability at peak times

Overcapacity

Secure areas

Sourc

e: E

NT

SO

-E –

Capgem

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, EE

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Presently, Germany is importing electricity from France. However, winter peaks due to electrical heating (1° temperature less triggers additional 2300 MW need), put France in the

red zone. During peak times France imports up to 8000 MW mainly from Germany. What will happen this winter?

9


10

IE

NL DE

CH

SE

DK

NO

FI

EE

LT

LV

PL

SK

CZ

AT

HU

SI

UK

PT ES IT

GR

FR

LU

BE

BG

RO Level of interconnections Below 10% EU threshold Above 10% EU threshold Bottlenecks (> 80% occurrence of congestion) Cross-border interconnections commissioned in 2010 and H1 2011 Projects of cross-border interconnections by 2015

Countries Projects of interconnections Expected

date

Capacity

increase

FI - SE Fennoscan submarine cable End of 2011 550 MW

SL-HU/HR Cirkovce - Heviz (HU) / Zerjavenec (HR) Short term n.c.

IE - UK Woodland (IE) / Deeside (UK) 2012 500 MW

DE - PL Vierraden (DE) / Krajnik (PL) 2012 n.c.

IE - UK Moyhill (IE) / Turleenan (UK) 2012 > 550 MW

FR - LU Moulaine (FR) / Belval (LU) 2012 n.c.

FR - IT Cornier (FR) / Piossasco (IT) 2012 600 MW

IE - UK Moyhill (IE) / Turleenan (UK) 2012 > 1,000 MW

IT - AT Prati di Vizze (IT) / Steinach (AT) 2013 n.c.

EE - FI Püssi (EE) / Anttila (FI) 2013 650 MW

LU - BE Bascharage (LU) / Aubange (BE) 2013 n.c.

DE - NL Niederrhein (DE) / Doetinchem (NL) 2013 > 1,000 MW

FR - ES Baixas (FR) / Sta.Llogaia (ES) 2014 > 1,000 MW

14%

11%

44%

11%

1%

57%

26%

108%

17%

33%

3% 4%

25%

52%

17%

4%

84%

41%

12%

3%

10%

21%

8%

13%

82%

24%

12%

23%

Source: ENTSO-E – Capgemini analysis, EEMO13

Despite progress in interconnections, significant bottlenecks remain. A more fluid electricity grid would

improve security of supply


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47 Total net imports (in bcm)

Piped gas imports (net)

LNG imports (net)

Exporting country

Importing country

Piped gas flows

Existing LNG terminal

QATAR

LNG: 28 bcm EGYPT

LNG: 4 bcm

LNG flows DK

FR

PT

ES

GR

IT

RO

BG

PL

SK

HU

DE

CH

FI

EE

3

LV

IE

BE

SE

UK

47

NORWAY

Piped gas: 96 bcm

LNG: 3 bcm

ALGERIA

Piped gas: 35 bcm

LNG: 15 bcm

35

5

38

21 LU

1

AT 7

SI

6

2

2

CZ 12

10

78

8

4

LT

1

5

2

5

75

4

LIBYA

Piped gas: 9 bcm

LNG: 0.3 bcm

Russia

Piped gas: 113 bcm

NIGERIA

LNG: 15 bcm 1

-3

NL

-36

OTHERS

LNG: 1.9 bcm

Source: BP statistical review of world energy 2011 – Capgemini analysis, EEMO13

TRINIDAD & TOB.

LNG: 6 bcm

Russia is a dominant source for Europe Gas imports

LNG Supply (18% in 2010) increase would improve the European gas security of supply.


Utilities are divesting to restore their balance sheet and to comply with the 3rd EU directive

Networks, having long term recurrent revenues, are attractive for funds.

• E.ON sold its electrical transmission grid to TenneT (NL) for €885m

• Vattenfall Germany sold its electrical transmission grid to Elia (BE)/IFM for €810 m

• RWE Germany sold 75% of its transmission grid (Amprion) to a financial investors group for 1.3bn€

• RTE, France transmission grid: 50% transferred to the French nuclear decommissioning fund

• GRTGaz, French gas transportation grid: CDC and CNP should take 25% shares

• ENI (IT) to sell stakes in two major pipelines (Transitgas and TENP). Value estimated at €1.5bn

• ENEL sold 80% of its Endesa gas distribution grid to Goldman Sachs’ infrastructures funds for €800m

• Enel Rete Gas, E.ON Rete Gas and G6 Rete Gas (GDF Suez): Italy’s distribution networks were sold between 2009 and 2011 to F2i and partners funds

• EDF Energy UK electrical distribution networks sold to a Hong Kong consortium for £5.8 bn

• E.ON sold its UK distribution electrical grid to PPL (US) for £4 bn

How to incentivize private investment funds to meet the needed networks

investments?

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Hong Kong Consortium (headed

by Li Ka-Shing)

TENP

French nuclear decommissioning

fund

€885M

€810M

€1.5bn €800M

£5.8bn

£4bn

Investor group led by

Commerzbank

€ 1.3bn

€800M €290M

€480M

Utilities are selling their networks to investment funds

http://www.eon-uk.com/default.aspx

http://www2.goldmansachs.com/

http://www.eon-uk.com/default.aspx


13

Agenda


• Oil supply

• Fukushima

Consequences on:


Short tem

Longer term

Investment in grids

• Energy Mix

Gas

Renewables

Smart Grids

Energy Prices

Conclusions


Fukushima is triggering a debate on present and future Energy Mix

Media and some anti-nuclear groups are asking for a nuclear phase out. Before asking ourselves if it is feasible, one needs to ask if it is desirable. An immediate nuclear phase out while keeping the lights on, is challenging.

A long term phase out is possible but needs to be assessed against the following criteria: • Sustained development: global warming and greenhouse gas

emissions decrease • Security of supply • Electricity generation costs

14

World electricity generation by type (2010 Scenario)

Source: IEA: World Energy Outlook 2010

Results of nuclear opinion survey in France (March 2011)

Source: L’express, SIA, Opinion Way, Published April 2011


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Unconventional gas has had a spectacular development in the US

• Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global production (2008).

• The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990 (300 bcm in 2008).

• 12% of global production (2008).

• The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990 (300 bcm in 2008). Global unconventional natural gas resources in place (tcm)

IEA World Energy Outlook 2009

Gas long term perspective has changed as IEA estimates now the total gas reserves to 250 years.

• The latest IEA report shows significantly larger unconventional gas reserves in Europe

• In France, reserves are estimated at 5000 Gm (around 100 years of consumption). They are equally situated in two basins (North and South-East)

• German reserves amount to 20 times less and British reserves to 9 times less

• Only Poland would have equivalent reserves to France.

• It would be regrettable if French opposition to shale gas prevents its exploitation


Power plant’s consumption is the main cause for gas demand growth

Previous assumptions: European Gas consumption decreased during the crisis by

6.1% and increased again (in 2010) by 7.4%.

The pre-Fukushima 2011-2016 growth was forecasted at 2.4% CAGR.

The EU gas market was oversupplied and had an overhang between 10-30 billion cubic meters (bcm)

More recently:

Missing Libya* gas to Italy will lead to a 3 bcm EU gas overhang reduction in 2011 with a further1.1 bcm reduction in 2012

Fukushima accident consequences has generated additional short term demand**:

• For Japan a 5 bcm/year

• For Germany: 2.1bcm in 2014 and 4.2 bcm in 2015

• New forecast lead to European markets returning to physical balance by early 2014 versus 2015- 2020 previously forecasted.

A second economic downturn would push gas consumption down again

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On the longer term, increased gas consumption for power plants will require more flexibility in storage and pipeline management

* If the Libyan outage lasts only until the end of 2011 **According to Deutsche Bank forecast.

World primary Natural Gas Demand by sector and scenario

Source: World Energy Outlook 2011: Golden Age of Gas Report


Golden Age for Gas (GAS) June 2011 IEA Scenario

2035 horizon New assumptions*:

• Ambitious policy for gas use, implemented

by China

• Lower growth of nuclear power following the

Fukushima accident

• Ample availability of gas

• Gas prices stays low and trigger more

usages notably in road transports

• 3.4% worldwide CAGR over the period.

Main findings:

• Gas consumption rises more than 50%, its

share reaches 25% in the global energy mix

• Production growth equivalent to three times

Russian production is required (40% from

unconventional gas)

• Trade between the main world regions

doubles (up to 620bcm) evenly split

between pipeline gas and LNG

• Carbon emissions in the atmosphere

reaches 650 ppm, equivalent to a long term

temperature increase of 3.5°

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Primary Natural Gas Demand by region and scenario

World primary energy demand by fuel

*policies scenario * Compared to WE2010 “new policies” scenario


Golden Age for Gas (GAS) Main comments

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World cumulative investment in gas-supply infrastructure by scenario

CO2 emissions in the GAS relative to the New Policies ,2035

Positive trends for gas development:

• Large sovereign debts in Euro-zone and USA will

lead to renewable funding decrease more

room for gas

• Japan new Prime Minister is in favor of a nuclear

phase out more LNG

• New EPA (Environment Protection Agency)

regulation on air pollution (Cross State air Pollution

Rule) could lead to 20% of US coal fired plants

phase out. Replacement by gas?New legislations

in other countries?

Concerns

• Assumed 3.4% worldwide CAGR over the period

could be ambitious

• Huge investment needed, will they happen on

time?

• CO2 emissions are not compliant wit EU

objectives. Would need CCS for gas plants Will it

be ready at competitive costs?

• Gas prices assumptions for unconventional gas are

low (3 to 7$/MBtus). A few reasons for increase:

environmental issues, massive coal to gas switch,

sector consolidation, decreased exploration

spending.

This scenario needs to handled cautiously as its results are very sensitive to the assumptions. However the forecasted trends should be right


During the last three years the LNG market has considerably changed

New liquefaction plants were commissioned: • Yemen: additional 6,7 Mt/y • Qatar: plant# 7: 7,8 M/y

additional capacity

… increasing worldwide liquefaction capacity to 594.1 bcm/y in 2010 (vs. 540.1 bcm/y end 2009).

New re-gas terminals were commissioned in 2009 and early 2010 in Europe: • UK: South Hook LNG and

Dragon LNG • Italy: Adriatic LNG (floating

terminal) • France: Fos Cavaou

The average European re-gas terminals utilization factor is only 50%: • ~ 30% in UK • ~ 75% in France • ~ 77% in Italy

The 2009 economic crisis had an impact on the 30 re-gas terminal projects. Many projects were delayed or cancelled.

19

Pipeline and LNG terminals projects (2010)

With the LNG market quicker rebalance, new projects Return On Investment should improve, provided that there will not be a new

economy slowdown in H2 2011/2012


Gas is not a global market. Very different regional pricing systems

20

Spot gas markets prices are below long term continental European prices(indexed on oil prices). For how long?

4.4$/MBtu=10.6 €/MWh

Source: Focus Gaz September 2011

Indexed prices Europe


Will renewables increase their long term market share?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

Gro

wth

(%

)

Electricity production (TWh)

Geothermal

IT

PT

FR AT

IT

FR

Solar PV

Growth (abs.) Capacity Growth (%)

DE

ES

CZ

SK

FR

SI

DE

CZ

FR

Top 3 countries ranked by:

Capacity installed* Growth** (absolute)

2. ES

1. DE

3. CZ

2. FR

1. SK

3. SI

* Volume for wind, small hydro, geothermal and solar PV in MW and for biogas and biomass in TWh

** Relative growth additionally displayed for solar PV and wind

Small hydro

IT

FR

ES

RO

IT

DE

Wind

Growth (abs.) Capacity Growth (%)

DE

ES

IT

ES

DE

FR

RO

BG

PL

Biomass

DE

FI

SE

PL

SE

NL

+

Biogas

DE

UK

IT

DE

UK

NL

Municipal waste

DE

FR

IT

UK

NL

FR

2005

2010

2009

2008

2007

2006

2005 2006

2007 2008 2009

2010

2009

2009

2009

2009

2009

Sourc

e: E

ur’O

bserv

er b

aro

mete

rs –

Capgem

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Some governments have started to increase again their subsidies for renewables. This trend could be reverted again by the public deficit problems

21


Renewable energies impact the grid management. The Spanish Example

August 27, 2009 November 8, 2009

Source: Enagas, Outlook for LNG

Existing systems cannot predict output of wind power will be 24 to 48 h in advance. The grid operators have to react to changes in power output on a very short timeline. To date there are no good answers for massive storage.


Smart Grid Investments

23

Network Device and Events Ops Management

Back Office Applications

Enhanced Power Grid Digital Communications and Control

Smart Meters & Building Automation Control

Interface

Communication Technologies

Renewables

Advanced Metering

Plug-In Hybrids

New challenges have to be

addressed: renewable share

increase, decentralized generation,

new consumption patterns…

A grid with more intelligence has to

be built requiring large investments

Worldwide Smart grid investments:

from 2008-2015: 200bn$ (53bn$ in the

US). (Pike Research source).

ICT (Information and Communication

Technologies) systems investments:

Cisco sees15-20 bn$ investment

opportunities to link smart grids with ICT

systems over the next 7 years. John

Chamber, Cisco CEO, says that it

might be bigger than internet.

However it’s not going to happen overnight. A lot of regulatory and

standardisation issues have to be worked out


Electricity generation costs will increase

Estimated costs of electricity in France:

• Nuclear: 45 €/MWh

• Gas fired plants: 50 to 60 €/MWh (with today relatively low gas prices)

• Hydropower: >50 €/MWh but highly dependent on sites and construction conditions

• On-shore wind: 80 to 90 €/MWh

• Off-shore wind: 150 to 200 €/MWh (including grid connection)

• Biomass: 130€/MWh but very variable according to production conditions.

• Photovoltaic solar electricity from 300 €/MWh (farms) to 600 €/MWh (home roofs)

24

Regional ranges of levelised costs of electricity for nuclear, coal, gas and onshore wind power plants

• Assumption: carbon price of USD 30/tCO2

• Cost of CC(S) is still in the development stage

5% Discount Rate

Source: IEA: Projected Costs of Generating Electricity, 2010 Edition

Post Fukushima increased safety requests will result in nuclear energy cost increase. Following the nuclear

phase out, German electricity base load wholesale prices to increase by 5-6

€/MWh per year over 2012-15*.

*Deutsche Bank Forecast


25

Agenda


• Oil supply

• Fukushima

Consequences on:


Short tem

Longer term

Investment in grids

• Energy Mix

Gas

Renewables

Smart Grids

Energy Prices

Conclusions


Conclusions

Recent events are putting Energy questions in the spot light

• Solid energy consumption growth after the economic and financial 2009 crisis

• BP accident in Gulf of Mexico highlighting the deepwater production difficulties and strengthening regulations

• Nuclear Fukushima plant accident slowing down the nuclear « renaissance »

• Middle East and Arab countries political instability threatening oil and gas supply

In the short term: the energy consumption (post 2009 economic crisis) growth could be stalled if the EU country’s debt problems lead to a second economy dip

In the long term, we can expect: • Higher energy prices

• Decreased security of supply

• More Green Houses Gases emissions

• Increased need for investments (Total EU investment needs in the electricity and gas sector in the next ten years: over 1 trillion €)

Customers should increase their energy savings focus

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Governments and Regulators have a key role to play: • To make the needed investments happen

• To implement a sound energy and CO2 savings policy

Energy Orb » (PG&E) gives visual indications to clients involved in energy

demand management programs

www.capgemini.com/energy

Together. Free your energies

2

New Global Energy Trends

Technology

global unconventional output

unconventional gas

global production

turleenan

uk moyhill

golden age

utilities

shore wind