Presentation on theme: "Key Alliance - JHA 2004 Energy - Key Issues for Today 23 rd. June 2004 John Hall Managing Director John Hall Associates Limited"— Presentation transcript:
Key Alliance - JHA 2004 Energy - Key Issues for Today 23 rd. June 2004 John Hall Managing Director John Hall Associates Limited
John Hall Associates Set up UK Oil Services to Buyers Conferences & Seminars UK Gas Market De-regulation Electricity Market De-regulated Contract Management Services Extended to Pan-European US Affiliation – Summit Energy
JHA Approach Team Focus Provision of Dedicated Resource Resource as Extension to Client’s Own Working at Site or Group Level Tailored to meet Client’s Needs
JHA Business Ethics Totally Independent & “Unique” Fixed Fee Basis – Agreed in Advance No Shared Savings No Third Party Remuneration No Affiliation with any Supplier No Sponsorship No Tele Sales or Agents!
JHA Systems In-house Development Specified to JHA/Client Requirement Host Own Web Site On & Off-Line Services Electronic Data Transfer Best Mix of People & Technology We drive systems not they us!
JHA Company Profile Around 300 clients High Retention Rate 60 – 80 Pan-European Electricity - 10 TWh Gas Billion Therms Oil Billion Litres Working with all assessed suppliers
JHA Services UK to Pan-European Electricity, Gas, Oil, Water & Telecoms Market Reports – Daily/Weekly/Monthly Bespoke Reporting Services Day-to-day Market Support Contract Management In-house Training & Client Briefing Conferences & Seminars
JHA European Energy Services Contract Management: - - Data & Information Collection - Profile Generation & Management - Invoice Management - Performance Benchmarking - Procurement Services - Environmental Services
JHA European Energy Services Continuous Market Monitoring - Market Conditions - Supplier/Market Intelligence/Gossip - Real Time On-Screen Pricing Profiles in State of Readiness - Tender or Extend or Renew? Fixed or Flexible or Mixed Pricing?
JHA Profile Management Site Consumption Reporting Comparison of Site Consumption Profiles Identification of Production Anomalies Profiles Maintained
JHA Invoice Management Invoice Simulation Compare to Supplier Invoice or Self Bill? Pay or Withhold? Anomalies Investigated Monthly & Annualised Reporting
JHA Performance Brnchmarking Internal - Site to Site - Against Budget External - Company to Company - Against Market Indicators
JHA Procurement Services Invitation to Tender (ITT) Prepared ITT Agreed with Client ITT Submitted Electronically to Suppliers On-Line Auction Facility Offers Analysed Results Selectively Viewed On/Off-line Offer Analysis to Client’s Specification
JHA Offer Analysis Offers Analysed by Site/Group/Division Site by Site or Group Overall? Also Analysed by Supplier Provision of Best Mix or Single Site
Key Market Factors Energy = Oil + Gas + Electricity Oil Prices Influence/Control Gas Prices Gas Prices Influence Electricity Prices
Key Market Factors Profile not Volume Driven Country by Country not Pan-European Terms & Conditions Significant as Price Suppliers do Make Mistakes Suppliers are not well Co-ordinated Markets more Favourable to Suppliers Timing more important than Means
Opening Views Who would have known…. Effect of Iraq Conflict on:- UK Government – Elections looming European Industrial Energy Markets The vulnerability of OPEC The threat of Oil supply disruptions The alignment of European Energy Prices
Opening Views Who would have known…. The effect of Emissions Trading on:- The Electricity-Gas market The meaning of “Spark/Dark Spread” The adverse role of both on the market
Market Irritants - Consumers Daily phone calls from consultants We can make you big savings Won’t cost you a penny! Not from JHA – we can’t do them! JHA gets them too! Lack of supplier response within contract Poor administration – all round
Market Irritants - Consultants Suppliers that try to exclude the consultant Suppliers that try to fool the consumer Suppliers that try to manipulate the data Suppliers that don’t follow procedure Consumers that appoint two consultants Consumers that appoint but ignore consultants Consumers that don’t listen
Market Myths Prices only ever fall We always achieve savings We always have the best price We employ experts so we know We just can not exceed our budget allowance So the market is rising - we still want the “wins”
Market Reality Why didn’t you warn us it was going to happen We can not accept an increase If you want to retain our business…… We want the same price again! Tell the supplier to hold his price another week We respond when it suits us not the supplier My Board will not accept this! My Board doesn’t want to hear this!
Market Reality Where are the fundamentals? What are they? Weather/Stocks/Supply/Demand/Exchange Do they really matter? In part, but not in entirety What does matter? Rumour/Perception/Trading Activity
UK Weather Pattern
UK Monthly Temperature Pattern
Market Reality Three months on – market prices still rising Media Attention solely on “petrol prices”! Energy Costs now a Boardroom Agenda If not, make it one! UK Government “unaware” of any issue! Energy still part-time for UK Minister
Market Reality EU Emissions Trading Scheme Bad for UK within Europe Bad for Europe within World UK Climate Change Levy Electricity ppkwh & Gas +0.15ppkwh UK Renewables Obligation +£1.49 pMWH
Market Concerns - Geo Political Shortage of Oil, Gas & Electricity supplies Terrorist attack Producer cut back Inability/Ability of OPEC to manage Oil market Effect of higher Oil prices on consumers Effect of higher Oil prices on producers
Market Concerns Decreasing number of suppliers Each Supplier with limited capacity Buyer/Supplier risk awareness – price/supply Can supplier deliver – can buyer pay?
Market Interest - Consumers Better Supplier Administration Accurate Consumption Data Flow Awareness to buyer needs Clear Understanding of price structure Flexible & Fixed Price options Financial Tools Take opportunity to manage own risk
Market Interest - Consumers Understand Best Practice Price competition is still fierce! Evaluate Suppliers before seeking price Ensure that they can provide required service Then, Consider Energy Management
Market Needs - Consumers Pan-European Support New or Old EU Members? Country by Country or Overall? Same supplier - Different deals in each country Improved pan-European Supplier Integration Transparency/Harmonisation on Taxation Common views across organisations Same language – different culture!
Market Rumblings - Consumers What does the UK offer? Higher Energy Taxation Higher Environmental Controls Higher Delivery Charges Higher Energy Costs Higher Labour costs Benefit of weaker Dollar-Sterling Exchange UK Government aware on Labour Costs only! Are they moving away and if so, where to?
Market Prices Relativity between different sources Duty has played a major role Oil – back up to the 1985 levels Gas – back to the levels Electricity – Moving up!
UK Annualised Price Index
UK Oil Market Prices
UK Gas Market Prices
UK Electricity Market Price
Oil-Gas-Electricity Link Oil drives Gas which drives Electricity Continental Gas prices linked to Oil Price UK Gas price linked to Continental Gas Price 40% UK Generation fired by Gas By 2010 UK Generation will be 50% Gas fired Oil-Gas Relationship Electricity-Gas Relationship
UK prices 1 January – 21 June 2004
Oil-Gas-Electricity Link Gas follows Oil up Electricity follows Gas But Gas is slow to follow when Oil falls Realistic lag or market manipulation?
Understanding Spark Spread Which drives the other – Gas or Electricity? If Spread is above £6.00 per MWH Electricity is generated If Spread is below £6.00 per MWH Gas can be sold back in to system Electricity is not generated Higher return for selling gas than generating!
Spark Spread – Day Ahead
Spark Spread – Month Ahead
Spark Spread – Season Ahead
European Electricity Prices All moving up UK prices based on Year from specific month Continental prices based on calendar year France & Germany at bottom end UK has overtaken Holland to hit the top spot
European Market Prices 2004
European Market Opportunities Analyse requirement by site and by country Understand supplier coverage Talk to suppliers in each country Cross reference them to get optimum fit Investigate Tax Reduction Benefits Potential CCL Exemption in UK
Issues For Today What is the outlook for energy supplies? Are we going to run out soon? Will UK Government make it’s decision? UK – with or without Nuclear? Take out 20% - Replace it with what?
Issues For Today UK Government still advocating Renewables If Renewables are to take such a large share Who will invest in back-up power supply? Are prices high enough to safeguard supply? Are new investors coming in? Where should investment come from? Can consumers afford to pay higher prices?
Issues For Today Is the UK truly disadvantaged? Why are UK Gas prices the highest in Europe Will new supplies arrive in time? From Norway & Netherlands but at what price? What will stimulate generation investment? Energy Taxation:- How will the UK cope in Europe? How will Europe cope in the World?
EU Emissions Trading Scheme Kyoto Agreement EU ETS to begin in January 2005 Direct emissions backed up by tradable allowances Price of allowance will impact on power price Generators may generate or sell allowance!
EU Emissions Trading Scheme Kyoto Agreement EU to reduce emissions by 8% of 1990 level UK accounts for 12% of this UK Government to go further it seems UK Phase at 15.20% by 2010 UK Phase at 20% by 2010
EU Emissions Trading Scheme National Allocation Plans – NAPs 14 member States have submitted to EC 3 published internally but 6 not published Some Allocations too “generous” EU will demand more from certain member States EU allowances for 2005 around €10 MtCO 2 (Updates in JHA Daily Bulletin) Result - Higher prices but disproportionate sharing
Issues For Tomorrow Planning ahead is more critical How far? 1, 2 or 3 years or more? What are the tools that are needed? Fundamentals – Market Awareness Business Acumen – Brinkmanship?
Daily Briefing Report MARKET COMMENT – Oil, Gas Electricity JHA Recommendations Pan European Pricing A daily update Supported by telephone dialogue
Conclusion - Whatever Your View Expect the unexpected Monitor Weekly or Daily but don’t lose contact Listen to whatever advice is being given Don’t ignore market gossip – talk to people Don’t make wild claims Keep everyone informed! No one likes a surprise!
JHA - Key Alliance GETTING THE STRATEGY RIGHT 23 rd June 2004 Noreen Guy Director of Operations
Getting the Strategy Right Wholesale price movements / consumer costs Best practice for energy procurement Constructing a strategy Conclusions
Background – Costs and Price Wholesale Electricity for April 2003 and 2004 –Consumer price – cost breakdown Wholesale Gas for October 2002 and 2003 –Consumer price – cost breakdown
Wholesale Electricity – April Year Price
Consumer Price – April Cost Breakdown
Wholesale Gas – October Year Price
Consumer Price – October Price Breakdown
Best Practice in Energy Procurement Timing Data Analysis Process Approach to Market
Timing Constraints –Contract start date –Customer Expectation –Supplier Response The major element of cost Variance – October 2004 Electricity –Lowest point – Dec ‘03 – £21.00/MWh –Highest point – May ‘04 - £27.50/MWh Difference - £6.50/MWh Rising market – cost avoidance
Data Completeness and credibility –Minimise risk premium Predictability –Penalties for imbalance Forecasting Maintained at all times –Readiness for market –Offer and cost variance analysis
Offer Analysis Offers –Structures –Rates Evaluate added value Like for like comparison Validity –Time to analyse –What if Approval process
Approach to Market Consider requirements Supplier selection Notify / gauge interest in advance Provide credible material Monitor market – final bid or auction Re-bidding Consolidated buying? –Profile –Access to more sophisticated contract structures –Common objectives and decision process
Process Renewal –Market movement exceeds value of competition –Confident in incumbent Conventional Tender –Negotiation based on compromise –Low to moderate competition Auction –Price is dominant factor –High competition
Constructing Strategy Objectives Price risk Supplier performance Key elements to consider
Electricity – April Year Price
Gas – October Year Price
Key Elements Price risk –Contract structures and pricing mechanisms Suppliers –Single or multiple –Performance –Selection Review process Implications of change –Resource –Performance Measurement
Fixed Price Contract Fixed price for a fixed period Set review frequency Tender or Auction Support –Analysis –Timing
Floating Prices Moves with market Not necessarily a set frequency Supplier Evaluation –Charges –Flexibility Contract Structure Index Support –Buying Points –Performance Measurement