Recent events impact energy markets
Electricity and gas short-term and longer-term supply security is changing
Present and future energy mix is evolving
Sustainability objectives should be revisited
More energy-related investment is needed
Utilities companies are facing difficult times
Conclusions

Recent events impact energy markets

Global demand for oil increased in 2010 due to economic growth and increased energy needs in the developing world. In early 2011, the Arab Spring brought turbulence to the oil and gas supply markets in several areas, including Libya, Yemen, Syria, Egypt, Sudan and Oman. Political upheaval may continue to place global oil production at risk.

Although nuclear production is set to continue globally, the Fukushima accident had a significant impact on nuclear energy supply. The disaster occurred under exceptional circumstances: a 9.0-magnitude undersea earthquake followed by a tsunami that traveled 10 kilometers inland. Existing and future plants in all countries are now subject to stress tests and new reactor construction projects are being delayed. In addition, some countries have decided to phase out nuclear production.

Electricity and gas short-term and longer-term supply security is changing

The immediate closure of some German nuclear plants is threatening the security of supply of European electricity. Following its reactor shutdowns, Germany began to import electricity from its neighbors, including more than 2,000 MW per day from France. During the winter electricity peak, France mainly imports electricity from Germany and this will no longer be possible in coming years. This represents a real threat to some countries “keeping the lights on” for winter 2011/2012 and future winters. To add to the problem, electricity peak demand is increasing year on year: demand rose 9.5% in Germany and 4.7% in France last year.

In 2010, the EU imported 113 bcm of gas by pipeline from Russia, representing 33% of total gas imports. In 2030, gas flowing through Gazprom pipelines is expected to represent 50% of all European gas supplies. This poses concern for gas security of supply. New pipeline projects and LNG terminals and exploitation of unconventional gas – if permitted and accepted by public opinion – should improve the situation.

Present and future energy mix is evolving

The Fukushima accident triggered debate on the present and future energy mix. The International Energy Agency forecasts that worldwide gas consumption will increase by 50% between 2011 and 2035 and the energy market share of gas will reach rise to 25% from 21% today (only slightly lower than oil at 27%). The consequences of Fukushima are also expected to boost the development of renewable energies. However, the gas industry is likely to benefit more due to its lower cost.

Sustainability objectives should be revisited

Future CO2 emissions and primary energy consumption are heavily linked to the global economic situation. In the short-term, as in 2009, an economic slowdown would push CO2 emissions and energy consumption down, but would negatively impact renewable energies’ share in the end energy consumption. Over the longer-term, with gas taking a larger share in the energy mix, the International Energy Agency estimates that CO2 emissions will not meet climate change objectives, leading to a 3.5°C temperature increase over the long-term instead of the existing forecast of +2°C.

More energy-related investment is needed

Before the Fukushima accident, the European Commission estimated that more than €1 trillion in infrastructure investment would be needed between 2010 and 2020. With the decision of some governments to phase out nuclear and with the development of renewable energies, this estimation should be revisited. Governments and regulators have a key role to play in ensuring necessary investments are put in place.

Utilities companies are facing difficult times

Negatively affected by the 2008-09 economic and financial crisis, utilities companies have launched cost cutting and operational performance programs to restore their balance sheets. Most have sold their grid activities and are currently adapting their portfolio of assets and activities.

Conclusions

Recent events are putting key energy issues in the spotlight:

• Energy consumption grows steadily following the 2008-09 economic crisis
• Gulf of Mexico BP accident highlights deepwater production difficulties and tightens regulations
• Fukushima accident slows the “nuclear renaissance”
• Political instability in Middle Eastern and Arab countries threatens oil and gas supply

In the short-term, energy consumption growth following the 2008-09 economic crisis could be stalled if EU countries’ debt problems lead to a second economic dip.

In the long-term, the industry can expect:

• Higher energy prices
• Lower security of supply
• Increased greenhouse gases emissions
• Increased need for investments