Regional challenges impacting geographies


Shale price pressure in the US
Fiscal tightening in Southern Europe
Low increase of energy in some developed countries


SHale gaS PRiCe PReSSuRe in THe uS

The boom in shale gas production in the US since the mid-2000s has boosted overall gas supplies driving prices down. For this reason and due to exporting constraints, gas prices in the US market have moved in a different rhythm than in the rest of the world. According to IEA, in June 2012 spot gas was trading at as little as $0.10/M Btu per million British thermal units (M Btu) at henry hub (the most important US trading hub) compared with $9.9 in the United Kingdom, $12/M Btu for spot LNG in the Mediterranean and $17.40/M Btu for spot LNG in northeast Asia.

however, current low gas prices in the US are not sustainable in the medium to long term and are expected to increase in the future (IEA. World Economic Outlook 2012). It is also worth noting that onshore wind with robust load factors is still competitive with shale gas-fired CCGT.

Moreover, fears about its risks to human health could dent larger development. The root of the problem lies on the fact that the drilling technique that is being used to release shale gas “hydraulic fracturing” or “fracking”, shoots water, sand and toxic chemicals into the ground to break up rock and release the gas. Although the Environmental Protection Agency has declared the process to be safe, water contamination has been reported in more than a thousand places where drilling is happening, raising growing concerns about its safety.

Currently shale gas is not having the same impact in European markets. Environmental concerns, outright bans on fracking, uncertainty about the reserves and lack of infrastructure, are currently deterring shale gas development.


FiSCal TigHTening in SOuTHeRn euROPe

Over the last two years, the Eurozone crisis and the threat of debt contagion is having its sharpest impact in countries such as Portugal, Ireland, Italy, Greece and Spain. Since spring 2010, three Eurozone countries, Greece, Ireland and Portugal have been driven by sovereign debt crises into unprecedented EU-IMF programmes. These programmes include measures to provide financial aid in return for cutting high levels of public debt, with the objective of balancing public finances and setting these economies back on the path to growth.

The adjustment in public finances has resulted in tax increases in many of these countries. Spain and France introduced new taxes at a regional and state level, respectively. Additionally, limits to the deductibility of financing costs were implemented in Portugal, Spain and France.

lOw deMand inCReaSe in SOMe deVelOPed COunTRieS

As power demand is highly correlated with GDP growth and growing energy efficiency, many European countries are expected to witness in the next years lower electricity demand figures. According to IhS forecasts, Belgium, Greece, Spain, Portugal and the UK, among other countries, will even experience a decrease in power demand from 2012 to 2015.

This forecast decrease in demand has forced Spain and Portugal to announce moratoria on new renewable-energy projects. Other countries have also implemented less favourable regimes for wind operators or new taxes on renewable energy operators, as the decrease in demand impacted the sustainability of the previous remuneration schemes.

However, large new investment in the power sector will be needed, as more than half of current installed fossil generation capacity in the EU will reach the end of its lifetime within the next twenty years and must be replaced. In this context, renewables are expected to help fill this gap.