US Energy Policy: Time for a Reality Check? Lucian Pugliaresi Energy Policy Research Foundation, Inc. Open Round Columbia 2010

Transcription

1 US Energy Policy: Time for a Reality Check? Lucian Pugliaresi Energy Policy Research Foundation, Inc Open Round Columbia 2010 Columbia Petroleum Show Industrial Panel Bogota December 2, 2009 Energy Policy Research Foundation, Inc st St, NW Washington, DC

2 EPRINC Fighting Ignorance About Oil and Gas Markets Since 1944* * It s taking longer than we thought. Energy Policy Research Foundation, Inc st St, NW Washington, DC

3 What are the Energy Policies of the Obama Administration? 1 million plug-in-electric hybrid vehicles (PHEVs) on the road by million new green jobs by investing $150 billion over 10 years Reducing US oil consumption within 10 years by 2-3 mb/d Requiring 10 percent of the nation's electricity to come from renewable energy by 2012 and 25 percent by Establishing an economy-wide cap-and-trade program that cuts US greenhouse gas emissions (Waxman-Markey calls for cuts of 2 gigatons by 2030) Not a Complete List!!!!

4 A Few of the Administration s Implementation Strategies Higher taxes on upstream and downstream operations to provide more funding for renewables (US is over investing in oil and gas) Mandates -- biofuels and use of renewables in electricity generation Subsidies for Green Job Technologies Cap and Trade Expanding Nuclear and Upstream Petroleum Production?

5 Energy Policy Research Foundation, Inc st St, NW Washington, DC

6 Tax Proposals in Treasury Green Book Repeal of IDC expenses Repeal G&G Expenses Raise Corporate Income Taxes for Oil and Gas Operations Only Repeal of Percentage Depletion Allowance Fee on Non Producing Leases And Lots More.

7 Energy Subsidies Not Related to Electricity Production Category Fuel Consumption (Quadrillion BTU) FY 2007 Subsidy and Subsidy per Million Suppot (million 2007 BTU dollars) Coal Refined Coal Natural Gas and Petroleum Liquids Ethanol/Biofuels Geothermal Solar Other Renewables Hydrogen * 230 NM Total Fuel Specific Total Non-Fuel Specific NM 3597 NM Total End-Use and Non-Electricity NM 9834 NM Source: EIA Data Energy Policy Research Foundation, Inc st St, NW Washington, DC

8 Recent Trends in Oil, Gas, and Coal Prices $/million BTU Henry Hub Natural Gas Futures Contract 1 (Dollars/Mil. BTUs) Central Appalachian Coal (12,500 btu/lb) 1.2 SO2 (Dollars/Mil. BTUs) Weekly Cushing, OK WTI Spot Price FOB (Dollars/Mil. BTUs) 5 0 Source: EIA data, EPRINC Calculations

9 U.S. Crude Oil Production, Consumption, and Imports U.S. Net Imports of Crude Oil and Petroleum Products mbd 10 Imports U.S. Field Production of Crude Oil U.S. Product Supplied of Crude Oil and Petroleum Products, Minus NGLs and Liquid Refinery Gases 5 Production 0 Source: : EIA Data, EPRINC Calculation. NGLs are not included in any of these data sets. Energy Policy Research Foundation, Inc st St, NW Washington, DC

10 The Peak Oil Problem: New Supplies Will Be More Expensive, but We Are Not Running Out of Oil 10

11 San Joaquin Valley Testing Hubbard-Method Predictions for Reserves and Production (Billions of Barrels) Cumulative Discoveries Percent Attributable to 1915 Cumulative production as of % 69% 76% Year 2000 production projected in: (mb/d) (actual) Source: EPRINC, October Does the Hubbard Method Provide a Reliable Means for Predicting Future Oil Production, Richard Nehring, October 2006, Energy Policy Research Foundation, Inc st St, NW Washington, DC

12 Permian Basin Testing Hubbard-Method Predictions for Reserves and Production (Billions of Barrels) Cumulative Discoveries Percent Attributable to 1950 Cumulative production as of % 86% 84% Year 2000 production projected in: (mb/d) (actual) Source: EPRINC, October Does the Hubbard Method Provide a Reliable Means for Predicting Future Oil Production, Richard Nehring, October 2006, Energy Policy Research Foundation, Inc st St, NW Washington, DC

13 25 Projected Petroleum Imports -- US History Projections 20 million barrels per day Consumption Domestic Supply 60% Net Imports 54% 5 0 Source: EIA/AEO Energy Policy Research Foundation, Inc st St, NW Washington, DC

14 Stripper Well Production Percent of Oil Production Percent of Oil Wells Source: EIA Data, Energy Policy Research Foundation, Inc st St, NW Washington, DC

15 U.S. Natural Gas Marketed Production trillion cubic feet Jan-1973 Jan-1974 Jan-1975 Jan-1976 Jan-1977 Jan-1978 Jan-1979 Jan-1980 Jan-1981 Jan-1982 Jan-1983 Jan-1984 Jan-1985 Jan-1986 Jan-1987 Jan-1988 Jan-1989 Jan-1990 Jan-1991 Jan-1992 Jan-1993 Jan-1994 Jan-1995 Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Energy Policy Research Foundation, Inc st St, NW Washington, DC

16 Lost Production Breakeven Points for Repeal of Percentage Depletion Where Increased Revenue to Treasury = Financial Loss to U.S. Economy from Higher Crude Oil Imports, bd of Lost Production Baseline Historical Natural Decline Rate ( ), 3%/yr 4%/yr decline, +1% over base 13%/yr decline, +10% over base Revenue Neutral Breakeven Point for Percentage Depletion Source: Source: EPRINC calculations. Marginal oil wells tend to decline at about 3 percent per year. The loss in the depletion allowance will likely increase this rate of decline to anywhere from 4 to 13 percent per year. Natural gas production, which has experienced very low prices as gas values, at least for the near term have decoupled from crude oil, is probably even more at risk. Energy Policy Research Foundation, Inc st St, NW Washington, DC

17 Waxman-Markey Cap and Trade It May Not be the Most Costly Approach for Removing Carbon But its Close Or How to End Refining as We Know It

18 What it takes to offset 1 gigaton of carbon TODAY S TECHNOLOGY Coal-fired power plants Geologic sequestration Nuclear Efficiency Wind energy Solar photovoltaics Biofuels for transport CO 2 storage in forests Actions providing 1 Gt mitigation/year Build 1,000 zero-emission 500 MW coal-fired power plants Install 3,700 sequestration sites like Norway s Sleipner project (0.27 MtC/year) Build 500 new nuclear plants, each 1 GW in size Deploy 1 billion new cars at 40 miles per gallon (mpg) instead of 20 mpg Install capacity to supply 50 times the current global wind generation Install capacity to supply 1000 times the current global solar PV generation Convert a barren area 15 times the size of Iowa s farmland (30 million acres) to biomass production Convert a barren area 30 times the size of Iowa s farmland to new forest Source: DOE Climate Change Technology Program Energy Policy Research Foundation, Inc st St, NW Washington, DC

19 Number of U.S. Refineries and Capacity mbd Refineries Capacity Refineries Source: EPRINC calculations, EIA data

20 18% Gasoline Imports to U S % 14% 12% 10% 8% 6% Gasoline Imports Share 4% 2% 0% Jan-1970 Jul-1971 Jan-1973 Jul-1974 Jan-1976 Jul-1977 Jan-1979 Jul-1980 Jan-1982 Jul-1983 Jan-1985 Jul-1986 Jan-1988 Jul-1989 Jan-1991 Jul-1992 Jan-1994 Jul-1995 Jan-1997 Jul-1998 Jan-2000 Jul-2001 Jan-2003 Jul-2004 Jan-2006 Jul-2007 Jan-2009 Source: EIA data, EPRINC calculations

21 US Refinery Capacity Utilization mbd % Utilization U.S. Percent Utilization of Refinery Operable Capacity U. S. Operable Crude Oil Distillation Capacity (Thousand Barrels per Day) Source: EIA data, EPRINC Calculations

22 Compliance Costs: US Refining Industry billion $ annually Cost of Allowances to Cover Product Combustion Cost of Allowances to Cover Stationary Source Emissions Total Cost of Allowances, Stationary Source and Product Combustion net of 2 % allocation

23 Effective Cost of Production: US Product Slate 10 9 $/bbl mbd 10 mbd 15 mbd EPRINC COST EFFECTIVE COMPLEXITY INDEX Source: EPRINC Calculations from OGJ and proprietary refinery data sets of complexity, product slate valuations, and location. Product slate standardized to common EPRINC product/cost value index.

24 U.S. Refiners' Future Cost of Production ( ) Blend Wall Costs $/bbl Stationary Emissions $40/ton Stationary Emissions $20/ton Section 199 Costs 10 Most Complex Generally Larger Least Complex Generally Smaller Product Combustion $20/ton Effective Production Cost mbd 10 mbd 15 mbd Source: EPRINC Calculations, EIA Data Energy Policy Research Foundation, Inc st St, NW Washington, DC

25 Pass Through or Capacity Losses Source: Forthcoming EPRINC report on Capacity Consequences of Waxman-Markey Cap and Trade Program. EPRINC calculations.

26 Conclusions Administration Still Running on Belief System i.e., Oil is Bad and Renewables Are Good, but Numbers are Disturbing. Trade and Implementation Risks Associated with Waxman Markey Not Well Understood, and a Long Fight is Ahead

27 Extra Slides for Questions and Answers

28 FFVs and E85 Usage % Million Vehicles % 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% Light Duty E85 FFV's In Use % of FFV's Actually Operating on E % Source: EIA Data, DOE Data, EPRINC Calculations Energy Policy Research Foundation, Inc st St, NW Washington, DC

29 The Blend Wall in a low RBOB World 2.5 Estimated all-in cost for ethanol: corn + operating costs + capital costs 2 $/gallon Price difference between ethanol and RBOB After serving its role as an oxygenate, ethanol must compete directly with gasoline % of Gasoline Pool Ethanol loses significant value as it moves into E85 Blender's Credit: $0.45/gallon Falling values for ethanol will be mirrored by rising values for RINs RBOB (NYMEX Futures: March Delivery) Ethanol's Value Relative to Gasoline Ethanol (CBOT Futures: March Delivery) Corn Feedstock - $ per gallon of Ethanol All In-Cost of Ethanol Production 29

30 EISA 07 Renewable Fuels Standard Biomass based Diesel Billion Gallons Any Advanced Cellulosic Advanced Corn Ethanol / Other EPACT % Ethanol Penetration (The Blend Wall) Source: DOE, EIA Data and June 2009 STEO. Blend wall assumes projected 2009 gasoline consumption found in the June 2009 EIA STEO. Energy Policy Research Foundation, Inc st St, NW Washington, DC

31 95 A Series of Unfortunate Events Leading to New Expectations Positive Expectations Expectations Shift Negative Expectations Oil development in Iraq delayed Yukos -- Kremlin taking control of Russian oil development Russia takes over Sakhalin II, Chavez Nationalizes Projects Global Production, million b/d Continuing civil strife in Sudan, Nigeria $/bbl 75 Outlook positive for expanded output from Nigeria, Mexico, Venez., Russia, North Slope OPEC Excess Capacity remains limited Congress continues ban on ANWR and offshore development Nigeria rebels hurt output e World Oil Production (EIA) OPEC Excess Capacity (EIA) Expected Production (EIA 2001 Predictions) Crude Oil Price