Gas Market Demand side dynamics Jon Fieldsend Total Gas & Power Ltd
Total Gas & Pow er in the UK • Gas and Power Supplier • Operated under the Elf Business Energy brand. • Industrial and Commercial customer base across all I&C segments. • 2005 gas deliveries c. 5.6 Bcm (2 billion therms). • Growing niche position in power with flexible products. • Gas and Power Trader • Significant UK, USA and European trading activities in Gas & Power. • LNG Trading from London • UK operating locations • Head office in Canary Wharf London. • Elf Business Energy main administration centre in Redhill, Surrey • Sales office in Leeds, Thorpe Park. 1
Presentation contents • Market and environmental characteristics • Prices and volatility. • Weather winter 2005 / 06. • System demand overall. • Demand side response, what have EBE seen occur in winter 2005/6. • Elf Business Energy DM portfolio experience. • Elf Business Energy large NDM portfolio experience. • Demand side response - choices and issues • Choosing when and how to buy, linked to demand management. • Making demand side response and energy management a way of creating competitive advantage for customers. • Potential barriers to further demand side response. • Supplier response - innovation, flexible products and ways of buying. 2
Market and environmental characteristics 3
Market and Environment - Prices and volatility W inter 05/06 Day Ahead price assessm ent to date and forward flat m onthly prices for the year ahead (a s s e ss e d 0 2 /0 3 /0 6 ) Prices 125 - 165 125.00 Cold period in 6 month high 115.00 November 105.00 Cold period in Cold period in November 95.00 February coupled 85.00 w ith Rough outage PPT 75.00 65.00 55.00 6 month low 45.00 Warmer periods 35.00 25.00 Jun-06 Oct-05 Nov-05 Jan-06 Mar-06 Apr-06 May-06 Jul-06 Aug-06 Oct-06 Nov-06 Jan-07 Mar-07 Dec-05 Feb-06 Sep-06 Dec-06 Feb-07 D elivery period • Prompt prices have been volatile in winter 2005 / 06, with periods of strong prices and periods of comparatively softer prices. • The current forward flat curve for gas delivery in the coming winter (2006 / 07) has (i) been very volatile, trading in a wide range, (ii) is currently higher than 05/06 winter curve traded forward during the majority of 2005 pre the new gas year. 4
Market and environment - The UK w eather - w inter 2005/06 • Consistently through the late Summer, Autumn and through into mid winter official weather forecasting bodies predicted a colder than average winter. Seized upon by the media this became a public domain topic of debate. What has occurred to date? Winter 2005/2006 out-turn 7 6 Temperature variance to derived SNT 5 4 3 2 1 - 5 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -1 / / / / / / / / / / / / / / / / / / / / / / 0 0 0 0 0 1 1 1 1 2 2 2 2 2 1 1 1 1 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 / / / / / / / / / / / / / / / / / / / / / / 1 8 5 2 9 5 2 9 6 3 0 7 4 1 7 4 1 8 4 1 8 5 0 0 1 2 2 0 1 1 2 0 1 1 2 3 0 1 2 2 0 1 1 2 -2 -3 -4 -5 -6 -7 Date • A very warm start In October and early November, with a sudden shock entry to winter in November, returning to an average December, warmer January and cool February. • A colder winter than in recent years, averaging around SNT overall to date. 5
Market and environment: Overall estimated system demand compared to SND and w eather Cold w eather but demand Demand and Temperature compared winter 2005/6 only around SND levels 475 8.00 450 6.00 425 400 4.00 375 2.00 350 Temp MCM 325 - Diff to SNT 300 -2.00 275 250 -4.00 225 SND Projected Demand -6.00 Actual demand 200 Temperature difference to SNT 175 -8.00 Nov-05 Nov-05 Nov-05 Nov-05 Nov-05 Nov-05 Dec-05 Dec-05 Dec-05 Dec-05 Dec-05 Dec-05 Jan-06 Jan-06 Jan-06 Jan-06 Jan-06 Jan-06 Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Oct-05 Oct-05 Oct-05 Oct-05 Oct-05 Oct-05 Oct-05 Date • There does appear to have been significant demand response / reduction, during winter 2005 / 06 from what would have been expected, but where has it come from? 6
Demand side response what have EBE seen occur in winter 2005/6 7
Demand side response - EBE DM experience • There has been significant Power generation Have we seen any DM demand side response during winter 2005 / 06 reflecting response? relative gas prices and coal / other 105 100 alternative fuel prices 95 90 % of profiled demand • In addition to the Power Generation 85 80 response seen in the market during winter 75 2005 / 06, EBE have seen significant Daily 70 Metered demand reduction from expected % of profiled AQ 65 profiled usage. 60 55 50 • Some of this demand reduction appears to have 45 been proactively managed by the customers 40 35 before the onset of winter, through production 30 scheduling, flexible buying and flexible 25 products, use of alternative fuels etc, whilst 20 some has been more reactive in its nature. 15 10 5 • The main reduction in demand appears to have 0 come from manufacturing and chemicals Oct-05 Nov-05 Dec-05 Jan-06 sectors, rather than service sector, Delivery Month lighter industry or heating load. (Analysis taken from EBE portfolio, sample of DM consumption meters) 8
Demand side response - EBE NDM experience Maybe recently…. Have we seen any NDM demand side response? 105.00 From analysis of consumption from our larger NDM customers the following patterns seem 100.00 to have emerged during winter 05/06 95.00 • Heating load has behaved as expected, 90.00 reacting to temperature and holiday periods, 85.00 % of profiled AQ with no obvious behaviour change. 80.00 • Manufacturing load behaved as expected in 75.00 November and December, but in January and it appears February gas consumption 70.00 has been lower than we would have 65.00 expected from these customers. 60.00 • The change could of course be co- % Heating 55.00 % Manufacturing incidental, driven by economics conditions 50.00 or the sample not being representative. Nov-05 Dec-05 Jan-06 Delivery Month (Analysis taken from EBE portfolio, sample of larger NDM consumption meters) 9
Demand side response choices and issues 10
Choosing w hen and how you buy. Buying range - flat gas fixed during period 01/07/05 to 30/09/05 Delivery month Low ppt High ppt Oct-05 35.0 45.5 Nov-05 48.9 63.5 Dec-05 60.1 87.0 ? ? Jan-06 67.2 106.5 Feb-06 65.3 104.8 (26/09) (12/07) Buying individual flat gas months during the period 01/07/05 to the last Buying Flat Day Ahead w orking day of the month prior to delivery for the w hole volume Delivery month Low ppt High ppt Delivery month Flat DA Oct-05 34.7 47.0 Oct-05 31.5 Nov-05 43.8 63.8 Nov-05 75.0 Dec-05 56.6 116.3 Dec-05 80.8 Jan-06 67.2 117.5 Jan-06 64.6 Feb-06 61.4 110.1 Feb-06 63.2 BEST BUYING CHOICE WORST BUYING CHOICE Delivery month Flat price Instrument Delivery month Flat price Instrument Oct-05 31.5 Day Ahead Oct-05 47.0 buying in 01/07 - 30/09 Nov-05 43.8 individual month close to delivery Nov-05 63.8 buying in 01/07 - 30/09 Dec-05 56.6 individual month close to delivery Dec-05 116.3 individual month buying in Nov Jan-06 64.6 Day Ahead Jan-06 117.5 individual month buying in Nov Feb-06 63.2 individual month close to delivery Feb-06 110.1 individual month buying in Nov 1k therms per day = £78k 1k therms per day = £140k 11
Benefit of hindsight or a crystal ball w ould be useful, but in their absence... Theoretical Example of a 1,000 therms per day, none weather sensitive company • Buying fixed price during the period 01/07 to 30/09 for delivery October 05 to February 06 means the best and worst a buyer would have paid is: £83k to £123k • Buts lets say they know they will use at least 500 therms each day and want certainty. They think they will use another 250 therms each day but can wait to closer to the month to buy, finally they can be flexible and move production around during the month up or down from 750 per day to 1250 per day by working longer or shorter production shifts etc • So they create a proactive, flexible buying strategy and production schedule that fits their business. (i) They buy 500 therms per day at the average of the period 01/07 to 30/09 (ii) They buy 250 per day on the month ahead before delivery (iii) They buy 250 per day on Day Ahead but avoid the high price days and run 15 days per month *500. What price do they pay? 500 per day purchased fixed price: Range £41.5k to £61.5k / average £51.5k 250 per day purchased on month ahead average Price £24.5k 500 per day for 15 low price days in each month Price £18.6k Min price £84.6k average price achieved £94.6k Max price 104.6k If a customer combines flexible buying strategies and flexible energy use,they can achieve both cost efficiency AND demand side response in constrained periods 12
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