Transcript www.portfolio.hu

Investment Challenges in the Energy Industry
László Varró
Senior Vice President for Strategy Development
MOL Group
October 14, 2009
Agenda
► The cycle: the effects of the global recession on the oil &
gas industry
► Long-term challenges facing the energy industry
2
A relatively mild crisis for the oil & gas industry
The crisis had a substantial effect
on global oil demand
Global Oil Demand Growth
Global GDP Growth
5%
►
4%
3%
2%
1%
0%
-1%
2003
2004
2005
2006
2007
2008
2009
2010
-2%
-3%
Source: IMF, IEA
Demand effect was consistent with expectations
based on income-elasticity
► Inflexible supply and demand translated into sudden
price and margin drops
BUT
► Prices shortly recovered due to OPEC action,
margins will remain depressed until the recovery
takes hold
► The oil industry had less exposure to the credit
USD per barrel
The short-term inelasticity of
oil supply and demand
crisis relative to other industries
► Less exposure to constrained credit availability
► Financing mainly from own cash-flow, separate
financing of different activities not typical
►
Most CAPEX cuts due to low oil price (and
deteriorating commercial viability) and not due to the
lack of capital
$140
Source: PIRA
86.5 MMbd
Million barrel per day
3
Upstream: oil price saved by OPEC, long-term gas fundamentals
intact
Oil
Gas
OPEC compliance level higher than
during prior cuts
Gas demand outlook in Europe
by country
bcm
700
OPEC-11 production
Production quota
600
35000
35000
30000
30000
25000
25000
400
20000
20000
300
15000
15000
10000
10000
5000
5000
200
100
0
2009.09.30
2009.04.30
2008.11.30
2008.06.30
2008.01.31
2007.08.31
2007.03.31
2006.10.31
2006.05.31
2005.12.31
2005.07.31
2005.02.28
2004.09.30
2004.04.30
2003.11.30
2003.06.30
2003.01.31
2002.08.31
2002.03.31
2001.10.31
2001.05.31
0
2000.12.31
0
500
Other
Spain
Source: Bloomberg
►
►
►
OPEC took on the responsibility to limit
production in order to stabilize oil prices
Most adversely affected were small independent
upstream players (due to the lack of credit
availability)
Integrated business model proved its viability
2007
Hungary
France
2015
Poland
Italy
2020
Romania
Belgium
Germany
UK
Source: CEDIGAZ, EU27 study
►
►
►
The crisis left long-term gas demand
fundamentals in Europe largely intact
Gas remains the cheapest low-carbon energy source
for power generation
EU climate policy provides an additional push for
increased gas use
4
Downstream: margins will rebound along with recovery
World gasoline demand
World diesel demand
Source: PIRA
MOL downstream has an exposure to diesel
demand, the most cyclical oil product
► Experienced both ups and downs within 12 months
► Margins will only improve once economic growth
recovers in MOL’s core markets
BUT
► Dieselization trend in Europe has not stopped due
to the crisis
Diesel and gasoline crack spreads
Diesel (10 ppm FOB ROTT)
Gasoline (10 ppm FOB ROTT)
400
350
300
250
USD/ton
►
Source: PIRA
200
150
100
50
Source: MOL
Sep-09
Jul-09
Aug-09
Jun-09
Apr-09
May-09
Mar-09
Jan-09
Feb-09
Dec-08
Oct-08
Nov-08
Sep-08
Jul-08
Aug-08
Jun-08
Apr-08
May-08
0
Mar-08
►
More complex refineries fared better during the
crisis
Timing of complexity-improving investments have
changed, but their mid-term viability is
unquestionable
Jan-08
►
Feb-08
► Complexity proved valuable during the crisis
5
Agenda
► The cycle: the effects of the global recession on the oil &
gas industry
► Long-term challenges facing the energy industry
6
Future challenges facing the energy industry
1
2
Gas infrastructure
financing
Upstream
reserve replacement
3
Alternative energy /
CO2 abatement
7
Upstream reserve replacement
Global upstream capital expenditure
500
Project cancellations since
October 2008:
Oil:
2.03 mmb/d
Gas:
8.79 bcm/y
Total value: $ 170 bn
Project delays by over 18
months since October 2008:
Oil:
4.22 mmb/d
Gas:
23.6 bcm/y
Total value: $ 70 bn
450
400
billion USD
350
300
250
200
►
In the next 20 years, more than 2.2 times more
oil has to be found than in the past 20 years
►
Continuously high oil price is needed to provide
enough incentive for investment
►
The oil industry faces a long-term skills shortage
►
A step change will be needed in petroleum
engineering education
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: IEA
200
100
CAPEX
Yet-to-find oil
reserves 2009-2030
as seen in 2009
compared to expected
2030 demand
50
lowest
150
Yet-to-find oil
reserves 1988-2008
as seen in 1988
compared to actual
2008 demand
Timing of a typical major
upstream project
highest
Production capacity evolution
1988 to 2008 and 2009 to 2030
Yet-to-find oil reserves
Other oil reserves
4-6 yrs
2 yrs
3-5 yrs
25 yrs
Exploration
AppDevelopment
raisal
Production
0
Source: CERA
2008
2030
Source: MOL
8
Corporate financing of gas infrastructure
Conditions for financing Nabucco has already
been substantially improved…
“When we hear that a project is strategic priority from the
Chinese, then it means construction will start tomorrow; when we
hear it from the EU, then it means that the Commission will put out
a Green Paper about it.”
By a senior Central Asian policymaker
►
Gas import needs in Europe will inevitably
increase
►
Political push for supply security will lead to
improving environment for financing gas
infrastructure projects
►
Risks of gas infrastructure development
Source: Nabucco Gas Pipeline International GmbH
…but financing conditions for other crucial
infrastructure projects are still unfavorable
►
►
Existing high pressure grid
Countries to form the Joint Venture
Ongoing and planned crossborder interconnections
Observer status
Nabucco
Source: MOL
Other interested Countries
►
Uncertain demand
►
Exchange rate risk
►
Uncertain regulation
The EU’s energy security agenda has already
translated into improved conditions for corporate
financing in case of Nabucco
►
Approved business model
►
Approved unified tariff system
►
Approved rules on exemptions
Investment climate for other crucial infrastructure
projects must still substantially improve to attract
private capital
(e.g. HU-CRO interconnector)
9
Alternative energy and CO2 emissions
Global new investment in clean energy
2004-2009
►
Alternative energy investments were hit
particularly hard by the economic crisis
$155 bn
160
$148 bn
140
$105-115 bn
Capital-hungry
►
Primarily credit-financed
►
High exposure to energy prices
►
Long-term investment
$93 bn
100
80
$60 bn
Strong political determination in the developed
world to reduce carbon emissions
60
40
$35 bn
20
►
Global green stimulus spending at least partly
offsets lost incentives and capital shortage
►
Regardless of what happens in Copenhagen,
alternative energy sources / energy efficiency
will remain a long-term investment opportunity
0
2004
2005
2006
2007
2008
2009e
Source: New Energy Finance
World energy-related CO2 emissions abatement
Annual global clean stimulus spending
2009-2013
450 scenario is a World Energy Outlook 2009 scenario where
concentration of greenhouse gases in the atmosphere stabilise
at 450 parts per million of CO2 equivalent
70
60
50
billion USD
billion USD
120
►
40
30
20
10
0
2009
Source: IEA
2010
Source: New Energy Finance
2011
2012
2013
10
The cost of CO2 abatement within the EU
World cumulative new investment in total energy
supply and renewables (2010-2030)
45
40
►
Under IEA’s 450 ppm scenario, the EU will have
to provide nearly 10% of total additional energy
investment and 14% of total global renewable
investment
►
More than 2/3 of new investment by the EU will
occur between 2020 and 2030
►
Nearly half of total additional costs will occur in
the transportation sector
trillion USD
35
450 ppm scenario
30
Reference scenario
25
20
15
10
5
0
Total Energy
Renewables
Source: IEA
European Union CO2 abatement cost
in the 450 ppm scenario (2010-2030)
Source: IEA
Total addtional cost:
USD 1,800 billion
Of which renewables:
USD 380 billion
Breakdown of the additional cost of the 450 ppm
scenario in the European Union by sector
Source: IEA
11
Conclusions
►
Time horizon of projects aimed at solving long-term challenges
is longer than that of the capital markets
►
Equity investors usually look ahead 3.5 years at most (shorter
than the lead time of a typical project in the energy industry)
►
Shortsightedness: Projects with long lead time are not valued at
their true NPV
►
Policy uncertainty increases investment risks and makes it
harder to finance strategic projects
12
Thank you for your attention!
László Varró
[email protected]
13
Overview of Allowed Return of Regulated Networks Across Europe
Pre-Tax Real Return on Asset (%)
15.0%
12.0%
11.50%
11.10%
10.50%
10.25%
9.70% 9.60%
9.90%
9.00%
9.0%
9.25%
7.32%
6.91%
6.25%
6.25%
5.99%
6.0%
7.85%
7.85%
6.91%
6.86%
6.86%
7.00%
7.25%
5.85% 5.85%
5.50%
5.50% 5.40%
8.00%
5.15% 5.15%
5.49% 5.49%
5.88%
7.20%
7.60%
6.70%
7.25% 7.10%
7.36%
7.28%
7.00%
6.90%
Average = 6.58%
5.44%
5.50%
5.06%5.06%
3.0%
UK
Gas
Source
Netherlands
Electricity
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Germany
France
Spain
Portugal
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Finland
Premium for Development Capex
National Regulating Authorities
14