Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Coaltrans Vienna 2003
14 slides from Bhp's conference presentation, October 2003
Slide 1: Coal at the crossroads in maturing energy markets?
Coal at the crossroads in maturing energy markets? Mike Oppenheimer – President BHP Billiton Energy Coal Coaltrans Vienna October 2003
Slide 2: Europe – a maturing market undergoing considerable change
Europe – a maturing market undergoing considerable change • Demand declining – imports growing slowly • Environmental issues already being priced in • Deregulation requires risk managed approach • Emergence of spot and derivative markets • Energy market convergence – power generation growth from gas
Slide 3: The cold facts behind energy supply to the EU power industry
The cold facts behind energy supply to the EU power industry • Fossil fuels comprise 51% of total EU power industry energy consumption – approximately half of these fossil fuels are imported • 58% of fossil fuel supply to power generation is coal, 30% gas • 55% of hard coal is imported; and share is
Slide 4: Regulators and vested interests threaten coal
Regulators and vested interests threaten coal • Local deregulation processes create variable regional growth rates • Installed base of coal fired plants is ageing rapidly • Global environmental pressure will increase future generation costs What is the potential for substitution by gas or “green” fu
Slide 5: Where will the gas come from?
Where will the gas come from? Europe Europe 7,420 7,420 bcm bcm (24 (24 years) years) FSU North North America America 56,285 bcm Asia Asia 8,310 8,310 bcm bcm (82 years) 11,392 11,392 bcm bcm (11 (11 years) years) (59 (59 years) years) Middle East 53,106 bcm (292 years) Latin Latin America America 6
Slide 6: Impact of legislation – not just a CO2 issue
Impact of legislation – not just a CO2 issue Coal Imports to the UK UK Coal used in Power Generation No CO2 No CO2 Low CO2 Low CO2 Mid CO2 Mid CO2 High CO2 High CO2 2003 2005 2007 2009 2011 2013 2003 2005 2007 2009 2011 2013 • Large Combustion Directive sets emissions limits for SOx, NOx and dust •
Slide 7: EU Emissions Trading Scheme – implications for coal
EU Emissions Trading Scheme – implications for coal • Trading scheme for CO2 emissions due to start Jan 2005 • Emissions allowance for Phase 1 (2005-07) now trading at ~ €10/t • Cap and trade mechanism allows generators to purchase CO2 shorts • Market currently illiquid but expected to grow once nat
Slide 8: Coal has a legitimate commercial role in EU energy supply
Coal has a legitimate commercial role in EU energy supply • Competitive • Low price volatility • Abundant and geographically diverse • Easy to store and transport • Largest share of global generation Imported coal’s contribution to fuel supply in the EU will remain relatively stable
Slide 9: Coal competitive even at the top of the cycle
Coal competitive even at the top of the cycle Coal price history Typical European inter-fuel competition FOB South Africa US$/t 24 September 2003 $/MWh* $65 20 Real 10 0 $40 Coal Gas High 17 April 2003 $/MWh* 20 Nominal Low 10 $15 Jan-83 Jan-88 Jan-93 Jan-98 Jan-03 0 Source: McCloskey, Bloomberg Coa
Slide 10: Currency affects both producers and consumers
Currency affects both producers and consumers Squeezed margins for producers Currency margin gain for generators South Africa FOB Price Mar-01 = 100 Europe Delivered Price Mar-01 = 100 150 150 USD/t RAND/t 100 100 USD/t EUR/t 50 50 Mar-01 Mar-02 Mar-03 Mar-01 Mar-02 Mar-03 Source: McCloskey, Bloombe
Slide 11: Prospects for traditional Atlantic supply
Prospects for traditional Atlantic supply Europe Mtpa Existing Atlantic Supply Mtpa 400 200 Demand Domestic 200 Imports Supply 0 0 1990 2000 2002 2006 2010 US Mtpa Atlantic Supply & Demand Mtpa 200 Demand 1000 20 Atlantic growth Domestic Asia required 500 10 Existing Imports 0 0 0 1990 2000 2002 200
Slide 12: Can the wild cards help Europe?
Can the wild cards help Europe ? Chinese and Indonesian growth 100 CHINA: Supply from Indonesia • rapid domestic growth 50 • rational economic behaviour Supply from China • deeper new mines 0 199 0 200 3 INDONESIA: Pacific supply and demand • short term production not profit focus 300 • decline in w
Slide 13: Need for combined initiative
Need for combined initiative • Environmental and “dirty” image pressures are growing • Market mechanisms cannot be relied on to drive longer term EU energy needs • Coal industry needs to play a proactive role – technology solutions – public policy influence – innovation in production and consumption
Slide 14: We are at the crossroads
We are at the crossroads Proactive Coalition ? Status Quo ? - industry and government wins - terminal decline - commercial solutions around CO2 - industry shrinks and GHG - lose coal as a supply option forever Consumers, generators and producers cannot and must not lose the optionality of coal suppl