Platts Natural Gas Storage Conference. January 2012

Transcription

1 Platts Natural Gas Storage Conference January 2012

2 Changing Storage Landscape Tremendous development and expansion in last 10 years has created excess capacity in the Natural Gas Storage Sector Majority of current projects can at a minimum double their current FERC permitted capacity Expansion of currently operating capacity is still 3 to 5 fold Expansion capacity is added at pennies on the dollar of initial capacity so existing facilities will dominate all new capacity needed when the market dictates Location is more critical for new expansion Proximity to demand Need for flexibility on hourly and real time basis New gas fired generation Stress of renewable energy on traditional infrastructure LNG export potential effect on location and basis Proximity to pipeline expansions and interconnectivity to US Natural Gas Grid Need for multiple interconnections to shale expansion production Shale represents new dynamic for weather associated risk for reliability The current natural gas price environment makes the put of natural gas storage more valuable than the call not enough places to put physical flowing shale production

3 Supply: Vulnerability of Existing Production Washington Bcf/d Well Freeze-Off 2011 U.S. Daily Dry-Gas Production 2008 Tropical Storm Lee Hurricanes Gustav 35 and Ike Jan. Feb. Mar. Apr May Jun. Jul. Aug. Hurricane Dennis Sep. Oct. Nov. Dec. Hurricanes Katrina and Rita Harrison St. Tammany Hancock Orleans Event St. Bernard Plaquemines Jackson Estimated Peak Supply Distribution (Bcf/d) Hurricane Dennis 6.1 Hurricanes Katrina & Rita 12.2 Hurricanes Gustav & Ike 9.5 February, 2011 Freeze- Offs 7.5 Tropical Storm Lee

4 Supply: Change in Production Source Shale Increased supply from shale creates greater demand for natural gas infrastructure A shift in supply location and type of natural gas production will result in greater demand for infrastructure Pipelines for transport and gas storage for balancing daily fluctuations and supply interruptions will be required Current infrastructure must be flexible to meet freeze-offs that will effect the entire grid from the supply to the market areas U.S. Dry Gas, Trillion Cubic Feet per Year (trn) History % U.S. Natural Gas Supply, P 11% 14% 20% 9% 28% 8% Net Imports Shale Gas Projections Non-Associated Onshore Non-Associated Offshore Tight Gas Coalbed Methane 9% Associated with Oil Alaska 1% 0 7% P 2015P 2020P 2025P 2030P 2035P 1% 46% 8% 9% 22% 5% Source: EIA, Annual Energy Outlook

5 Demand: Regulatory Changes in U.S. Power Generation Recent legislation will cause a shift to gas-powered generation and increase the demand for natural gas storage Estimated Coal Shutdowns by 2015 (1) The EPA enacted emissions restrictions for 23 Eastern U.S. states that were planned to begin in 2012; timing questions now exist Proposed regulations will likely impact the pace of upgrades and increase planned retirements for coalfired generators, dispatch costs and, in all likelihood, the price of power in regions that depend on coal Analysts estimate that up to 53 gigawatts ( GW ) of coal capacity to be shut by 2015 as a result of supply rationalization and increased coal production costs due to strict EPA rules Equivalent to 954Bcf of natural gas that is required by gas-fired generation to replace retired coal capacity (1) The Southeast region will be disproportionately impacted by coal- and oil-fired generator shutdowns estimate that 16.4 GW of coal capacity shutdown by 2015 (2), which is equivalent to 295Bcf of natural gas As a result, gas-powered generation is expected to rise, which will increase demand for natural gas storage and balancing services 1. Assumes a 25% capacity efficiency factor of retired coal plants. 2. Wall Street equity research reports. GW of Coal EPA Analyst 1 Analyst 2 Analyst 3 Analyst 4 Analyst 5 Analyst 6 Source: Wall Street equity research estimates. MW of Coal 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: IAEA and EIA. U.S. Coal Plant Capacity by Vintage Years U.S. Coal Plant Capacity by Vintage # in Operation 140 Global Number of Nuclear Reactors in Operation Analyst Average: 43 GW

6 Demand: Coal Retirement Drives Gas Generation Regulations and natural gas prices will drive increases in natural gas-fired generation New gas-fired generation expansion will drive additional need for real time and hourly storage services to offset supply and demand imbalances. Potential Incremental Natural Gas Generation (1) Installed Generation Capacity Lower 48 Base Incremental Capacity (GW) 2007 Total 2008 to to to 2019 Oil 48 (2) (0) 0 Gas Coal (26) (14) Nuclear Hydro 99 Other Total Central 1,087 MMcf/d VACAR 970 MMcf/d Source: LDC Forum Southeast, April 12, Projected Incremental MWs of Gas Capacity (2) MWs 5,000 Southeastern 930 MMcf/d 1. El Paso Corporation, Investor Presentation. 2. Wall Street equity research reports. FRCC 350 MMcf/d (Oil) 4,000 3,000 2,000 1, ,685 4,644 3, E 2012E 2013E 2014E 2015E 2016E 2017E Source: EIA Electricity Generation; Wall Street equity research report. 13

7 Demand: Certain Regions will have Significant Changes Due to Historic Coal-Powered Generation Southeast region dominated by coal-powered generation Majority of power plants in the Southeast region are powered by coal Southeast Region Coal- and Natural Gas-Fired Power Plants (1) Electric power generation capacity expected to transition to gas-powered generation Additionally, aging nuclear power plants will drive further natural gas demand Typical design life of a nuclear reactor is approximately 40 years and average age of current U.S. nuclear reactors is 31 years Leaf River Energy Center Power Plants Coal Natural Gas Pipelines Destin SONAT KM Midcon Exp Transco TGP Gulf South 1. EIA. 14

8 Demand: Storage Driven by Increased LNG Export Increased demand for natural gas created by LNG exports Exporting LNG will create a significant demand for Global Natural Gas Prices (1) hourly deliveries of natural gas because tankers $ per million British Thermal Units are filled at a very high rate, displacing gas that 14 would otherwise be serving the domestic U.S. 12 market Quick filling and emptying of cargos vs. steady stream of production create the need for high injection / deliverability of storage facilities to balance shipments Proposed and potential LNG export facilities: Sabine, LA (Cheniere) 2.2 Bcf/d Freeport, TX (Freeport LNG) 1.4 Bcf/d Lake Charles, LA (Southern Union & BG) 2.0 Bcf/d Cove Point, MD (Dominion) 1.0 Bcf/d Coos Bay, OR (Jordan Cove) 1.2 Bcf/d Current price environment could result in LNG exports totaling 10% of the market as early as Global Natural Gas Prices, Financial Times. 2. Platts News, Macquarie, Freeport LNG Plan to Export Natural Gas from US, November 22, Jun Jun U.S. UK Asia Proposed U.S. LNG exports are currently economic to meet market demands in Asia and Europe for LNG U.S. LNG exports are economic at $4.00 to $4.50/MMBtu spread to Asia (2) Scheduled expansion of the Panama Canal in 2014 would reduce spread by at least $1.00/MMBtu U.S. LNG exports are economic at $2.50 to $3.00/MMBtu spread to Europe (2) 15

9 Demand: Market Change from Natural Gas Vehicles Vehicles using compressed natural gas could substantially increase demand Compelling economic and environmental campaigns are ongoing to increase the use of compressed natural gas in domestic transportation As little as 10% of conversion would increase demand for natural gas by over 5 Bcf/d Fuel Price Comparison (National Average) Fuel Price Comparison (National Average) (per gallon or gallon equivalent) Q Q Q Q Gasoline (regular) $3.69 $3.08 $2.78 $2.71 Diesel $4.04 $3.45 $3.07 $2.95 CNG $2.06 $1.93 $1.93 $1.91 Source: U.S. Department of Energy Total Potential Demand from Natural Gas Vehicles Vehicle Type Total Vehicles (1) Miles per Year (1) Miles per Gallon (1) Total Gallons Consumed (million) Natural Gas Equivalent Cubic feet per Gallon Total BCF Consumed, Under Full Conversion, per Year Cubic Feet Consumed per Vehicle per Year BCF/Day Under Full Conversion Passenger 245,105,574 12, , ,268 66, Bus 843,308 8, , , Truck (long haul) 2,215,856 65, , ,334 1,504, Total 248,164, Trillion , ,740 79, Federal Highway Administration,

10 Change is good? Storage depends on Change! Natural Gas Storage remains the one asset that can continue to meet the balancing injection and delivery needs of US energy infrastructure on a real time and cost effective basis.