RWE AG · XETR:RWE
RWE — 5th Coaltrans South Africa 2006
13 slides from RWE's conference presentation, Mar 23, 2006
Slide 1: European Coal, Emissions Trading and the Way Markets Work
European Coal, Emissions Trading and the Way Markets Work 5th Coaltrans South Africa Johannesburg, 23rd and 24th March 2006 Peter Kreuzberg Managing Director, RWE Trading
Slide 2: The RWE Group
The RWE Group RWE AG – Group Centre RWE npower RWE Power RWE Energy RWE npower RWE Trading (UK) (Continent) (Continent) (UK) Power Generation Power Generation Power Retail Power Retail Face to Whole- Gas Burn & sale Markets Gas Retail & Gas Burn Gas Retail Production Procurement Portfolio- Oil Burn
Slide 3: RWE Trading's Role in the Group
RWE Trading’s Role in the Group Single face to competitive wholesale markets – Complete reorganisation of Coal Business in 2005, now integrating all international coal procurement for UK and continental plant Wholesale Risk and Portfolio Manager for the entire asset base – Integrating Power Gene
Slide 4: Coal Supply and Demand in 2006/07
Coal Supply and Demand in 2006/07 A Quick Look Pacific Basin to reduce its surplus … – … by demand growth eventually exceeding additional capacities in Australia and Indonesia (?) Atlantic Basin to reduce its deficit … – … with moderate demand growth in North America being overcompensated by new
Slide 5: The EU ETS and why it matters …
The EU ETS and why it matters … Physical Positions in CP1 (2005-2007) The “carbon shorts” are in the Power & Heat Sector * Data Source – Point Carbon, March 15th 2006 5 RWE Trading, March 23rd 2006
Slide 6: Traded Carbon Volumes
Traded Carbon Volumes support the Generation Spread to “walk on three legs” (Power, Fuel and Emission Allowances) 6 RWE Trading, March 23rd 2006
Slide 7: The Short Term …
The Short Term … … and Coal to suffer from high Carbon prices? The EU ETS has turned into an effective market … – … with prices for carbon following the market fundamentals The system faces a challenge in Compliance Period 1 (2005 – 2007) … – … where fuel switch from coal to gas in the existing
Slide 8: Actual (UK) Gas against Coal Prices
Actual (UK) Gas against Coal Prices still make you burn a lot of Coal 8 RWE Trading, March 23rd 2006
Slide 9: US Henry Hub Gas Prices
US Henry Hub Gas Prices and recent LNG transfers to the UK indicate the potential emergence of an international gas market, where the product may be generally scarcer than it used to be … 9 RWE Trading, March 23rd 2006
Slide 10: Much higher ETS Carbon Prices
Much higher ETS Carbon Prices could be required to push European generation back into Gas at the expense of Coal * CO2 Switching Price implied by UK Gas versus API#2 Coal 10 RWE Trading, March 23rd 2006
Slide 11: The Medium Term …
The Medium Term … … and Coal to benefit from a high Gas to Carbon differential? Coal dominates Gas “Now” “Linking” ?! Fuel Switch Gas dominates Coal * Stylised Example 11 RWE Trading, March 23rd 2006
Slide 12: Europe a Carbon Island?
Europe a Carbon Island? Maybe not … It may be tempting to believe in a rather high-priced international gas market This would support higher coal burn in the medium term, if one assumes strong linking between the EU ETS and international carbon abatement through CDM (Clean Development Mechanism)
Slide 13: So what about Coal in Europe then?
So what about Coal in Europe then? Short Term – Some fundamentals support large scale fuel switching from Coal to Gas fired generation Medium Term – Credible expectation for carbon abatement to move from fuel switching towards CDM/JI projects, providing space to breath for coal again ⇒ Carbon Tr