NAVIGANT S ENERGY MARKET OUTLOOK

Transcription

1 NAVIGANT S ENERGY MARKET OUTLOOK 2017 VIEW OF THE NORTH AMERICAN ENERGY MARKETS JANUARY 25, 2017 ROB PATRYLAK MANAGING DIRECTOR GORDON PICKERING DIRECTOR 1

2 DISCLAIMER Notice Regarding Presentation This presentation was prepared by Navigant Consulting, Inc. (Navigant) for informational purposes only. Navigant makes no claim to any government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication). Navigant does not make any express or implied warranty or representation concerning the information contained in this presentation, or as to merchantability or fitness for a particular purpose or function. This presentation is incomplete without reference to, and should be viewed solely in conjunction with the oral briefing provided by Navigant. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Navigant. 2

3 AGENDA 1. Introductions 2. About Navigant and the Navigant Energy Market Outlook (NEMO) 3. Power Market Outlook 4. Gas Market Outlook 5. NEMO Key Takeaways 3

4 INTRODUCTIONS ROB PATRYLAK MANAGING DIRECTOR GORDON PICKERING DIRECTOR DAVID WALLS MANAGING DIRECTOR 4

5 ABOUT NAVIGANT AND NEMO 5

6 NAVIGANT AT A GLANCE 6

7 ENERGY PRACTICE GEOGRAPHIC PROFILE Many North American locations and an expanding global footprint. Vancouver, BC London Seattle Vancouver Folsom San Francisco Los Angeles Phoenix Boulder Austin Verona Toronto Ann Arbor Chicago Charlotte Atlanta Houston Burlington, VT Burlington Boston New York Philadelphia Washington, D.C. Hong Kong Dubai Doha Miami 7

8 MEGATRENDS THAT DRIVE POWER INDUSTRY TRANSFORMATION The following megatrends 1 underpin the industry transformation: 1. The power of customer choice and changing demands 2. Rising number of carbon emissions reduction policies and regulations 3. Shifting power-generating sources 4. Delivering shareholder value through mergers and acquisitions (M&A) 5. Regionalizing of energy resources 6. Merging industries, new entrants, and colliding giants 7. The emerging Energy Cloud: Replacement of old infrastructure and transition toward an increasingly decentralized and smarter power grid architecture The transformation includes a wide range of strategic, operational, technological, commercial, environmental, and regulatory changes that are transforming the traditional strategies and business models. 1 Take Control of Your Future: Megatrends in the Utilities Industry 8

9 NAVIGANT ENERGY MARKET OUTLOOK (NEMO) FEATURES PRODUCTS INTEGRATED POWER, GAS, ENVIRONMENTAL MODELING NODAL PRICING ENERGY PRICE FORECASTS GAS PRICE FORECASTS FULL TRANSMISSION REPRESENTATION BENCHMARKING TO CAPTURE MARKET VOLATILITY ALL CAPACITY MARKETS EMISSION ALLOWANCE PRICES REC PRICES PLANT RETIREMENT AND RETROFIT DECISIONS REPORTS FOR 10 REGIONS IN THE US SEMIANNUAL DATA SUBSCRIPTION 9

10 POWER MARKET OUTLOOK 10

11 KEY UPDATES IN THE 2017 OUTLOOK Changes in the industry outlook due to 2016 US election - Removal of carbon pricing caused by the Clean Power Plan (CPP) from the Base Case (discussed further on next slide) - Updates to natural gas supply outlook Addition of New York s Clean Energy Standard 50% renewables by 2030 goal Latest announced/planned generation additions and retirements Latest load forecasts Fresh look at all updated data 11

12 POWER MARKET OVERVIEW Incoming president and Congress will somewhat alter the view of the markets going forward, but near-term market momentum, customer demands, state policy, and technological change are likely to continue despite any changes at the federal policy level Removal of CPP from Navigant s outlook means the economics for coal are better longer term but have little impact on the near term Renewables and distributed energy resources (DER) continue to grow in areas with positive state policies and decent renewable potential Energy efficiency (EE) is more impactful in states with effective policies and robust economics Navigant sees 117 GW of renewable additions and 137 GW of gas additions across North America over the next 20 years - Compare to 153 GW of renewable additions and 140 GW of gas additions in a carbon regulation case Without carbon regulation, a larger portion of gas-fueled resources are simple-cycle needed only for capacity Fewer coal plants are retired in current case, with 18 GW of coal likely to continue operation absent carbon regulation Navigant expects to see 26 GW of DER and 46 GW of EE/demand-side management (DSM) 12

13 MW IMPACT OF REMOVING A CARBON REGULATION FROM THE OUTLOOK Over 5 GW of coal to remain operating over the next decade Gas prices remain low due to lower power sector demand and potentially higher supply due to the administration change Renewables driven more by state policies and economics only in high potential areas EE and DER continue to grow despite administration change 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Coal Retirements by Case Base Case Carbon Case Announced Retirements Age-based Retirements Modeled Retirements 13

14 LMP (2015 $/MWh) Gas Price (2015 $/MMBtu) PJM PJM Energy Price Comparison $60 $6 $50 $5 $40 $4 $30 $3 $20 $2 $10 $1 $- $- PJM Indicative LMP - Base PJM Indicative - Carbon PJM Indicative Gas Price - Base PJM Indicative Gas Price - Carbon 14

15 LMP (2015 $/MWh) Gas Price (2015 $/MMBtu) NEW YORK $60 NYISO Energy Price Comparison $6 $50 $40 $30 $20 $10 $- $5 $4 $3 $2 $1 $- Zone A LMP - Base Zone J LMP - Base Zone A LMP - Carbon Zone J LMP - Carbon Tennessee Z5 Gas Price - Base Iroquois Z2 Gas Price - Base Tennessee Z5 Gas Price - Carbon Iroquois Z2 Gas Price- Carbon 15

16 LMP (2015 $/MWh) Gas Price (2015 $/MMBtu) CALIFORNIA $70 $60 CAISO Energy Price Comparison $7 $6 $50 $40 $30 $20 $10 $- $5 $4 $3 $2 $1 $- NP 15 LMP - Base SP 15 LMP - Base NP 15 LMP - Carbon SP 15 LMP - Carbon PG&E City-Gate Gas Price - Base SoCal City-Gate Gas Price - Base PG&E City-Gate Gas Price - Carbon SoCal City-Gate Gas Price - Carbon 16

17 LMP (2015 $/MWh) Gas Price (2015 $/MMBtu) ERCOT ERCOT Energy Price Comparison $70 $6 $60 $50 $40 $30 $20 $10 $5 $4 $3 $2 $1 $- $- ERCOT Indicative LMP - Base ERCOT Indicative LMP - Carbon ERCOT Indicative Gas Price - Base ERCOT Indicative Gas Price - Carbon 17

18 INDICATIVE SUMMARY OF PRICE AND GENERATOR PROFITABILITY IMPACTS Removal of Carbon Regulation has implications for both energy prices and generator profitability Energy prices average around 5% lower in natural gas and renewable energy heavy markets like CAISO and ERCOT, and about 15% lower in coal influenced markets like PJM, MISO and SPP Profitability impacts on natural gas-fueled combined cycle plants are modest, as the market price increase from carbon regulation is equivalent to the generation cost impact Coal plant profitability is improved without carbon regulation, with dark spreads increasing by $8 to $12 per MWh, on average. Increases in dark spreads reach $24/MWh in later study years, in coal dominated markets Market Energy Prices (% Change) Natural Gas Coal Generation Spark-Spreads Dark-Spreads ($/MWh Change) ($/MWh Change) PJM-East -14.6% -$1.57 $8.16 ISO-NE -9.4% $1.19 $12.33 MISO-IL -16.2% -$1.48 $8.16 CAISO -4.7% $1.68 $4.76 ERCOT -5.5% $1.05 $8.16 SPP -13.2% $0.14 $

19 POWER FUELS OUTLOOK 19

20 UNITED STATES AN EMERGING ENERGY SUPERPOWER #1 Oil & Gas Producer Major Coal Exporter #1 Condensate Producer Emerging Ethane Exporter #1 Refined Products Exporter #3 LNG Exporter (By Capacity Now in Construction) Emerging Petrochemical Exporter #1 LPG Exporter 20

21 HOME TO ABUNDANT AND WIDELY DISTRIBUTED DOMESTIC NATURAL GAS RESOURCES Select North American Shale Plays (Sources: Navigant, Ventyx) 21

22 ABUNDANT RESOURCES HAVE SHIFTED MARKET DYNAMICS Changes in North American Flows: Pre-Shale to Date ( ) STRONG SUPPLY 2008 Northeast production near zero 2016 Northeast production 20.5 Bcfd DISPLACED GAS EXPORTS Less flows from Canada to the United States Less flows from the Gulf to demand areas New markets for displaced gas US pipeline and liquefied natural gas (LNG) exports *Units in Mmcfd (Source: Navigant analysis) 22

23 RESOURCES ABUNDANT ENOUGH TO PROMOTE LNG EXPORTS BY SHIP North American Proposed/Under Construction LNG Export Projects 20 liquefaction plants proposed (Canada and US) 3.1 Bcfd by 2022 (Source: Navigant analysis) 25 liquefaction plants proposed 8.6 Bcfd by liquefaction plants proposed 0.8 Bcfd by

24 US LNG EXPORT OUTLOOK Sabine Pass, LA Two trains on stream in 2016 (1.38 Bcfd) Around 60 cargoes of LNG in 2016; most went to Asia and Latin America Three more trains between 2017 and 2019 NAVIGANT FORECASTS 10 Bcfd US LNG exports by 2022 US LNG exports to represent about 12% of US total NG demand by 2022 Other US LNG projects appear promising Cameron LNG, LA Freeport LNG,TX Corpus Christi, TX Three trains under construction; two additional trains approved by the Federal Energy Regulatory Commission (FERC) in May 2016 Department of Energy (DOE) export approval July 2016 (1.4 Bcfd) On stream 2018 Three trains under construction (1.7 Bcfd) One additional train filed to the FERC in May 2015 (0.9 Bcfd) On stream 2019 Two trains under construction (1.1 Bcfd) Three other trains planned On stream 2018 Cove Point, MD One train under construction (0.77 Bcfd) On stream

25 bcm bcm bcm bcm bcm bcm LNG EXPORT CAPACITY EXPANDING IN NORTH AMERICA, TO APPROACH CAPACITY IN MIDDLE EAST AND ASIA Global LNG Export Capacity: North America 250 Middle East Total Europe and Eurasia 0 0 * About 400 bcm/y of LNG are proposed in North America Asia and Australia 250 Africa 250 South America (Source: Navigant s Global Natural Gas Outlook using the G2M2 global market model) 25

26 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 (Real2015$/MMBtu) (Real2015$/MMBtu) NG PRICES IN THE UNITED STATES On increased supply, NG prices have declined since 2008, which has lowered energy costs to US consumers in all sectors Yet, NG prices have shown signs of recovery in 2016 in the future, how much higher? Historical Henry Hub Natural Gas Prices $18.00 $16.00 $14.00 $4.00 $3.50 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $- $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- (Sources: Navigant analysis, Ventyx, ICE) 26

27 Bcfd WINTER 2017 OUTLOOK HIGHLIGHTS: US GAS SUPPLY 27.6% of US production now comes from the Marcellus and Utica shale plays, which is up from 0.2% of US production just 8 years ago Shale: 65% of US production by US Natural Gas Supply Outlook Shale 20 Non-Shale (Source: Navigant analysis)

28 Bcfd WINTER 2017 OUTLOOK HIGHLIGHTS: NORTHEAST SHALE 40 Northeast Shale Gas Production (Source: Navigant Analysis/RBAC) Marcellus Shale Utica Shale Almost 55% of shale production growth has come from shale plays in the Northeast Northeast production is expected to continue to grow, increasing 84% by / NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

29 Bcfd WINTER 2017 OUTLOOK HIGHLIGHTS: SHALE COMPARISON US Yearly Shale Production Navigant s Outlook again shows supply abundance NCI Winter 2017 NCI Fall 2016 AEO 2017* AEO 2016* After major upward adjustment in 2016 (+33%), EIA AEO 2017 has shale supply down by 8% YOR over the term Curious! *Note: AEO includes tight oil with shale (Sources: Navigant analysis, EIA) 29

30 (2015$/MMBtu) WINTER 2017 OUTLOOK HIGHLIGHTS: PRICE GROWTH HOW HIGH/FAST $12.00 Henry Hub Natural Gas Price Outlook $10.00 $8.00 $6.00 $4.00 $2.00 $- 35% price rebound (Source: Navigant analysis) 30

31 (2015$/MMBtu) WINTER 2017 OUTLOOK HIGHLIGHTS: NAVIGANT VS. EIA PRICE $6.00 Henry Hub Price Comparison $5.00 $4.00 $3.00 $2.00 $1.00 $ NCI Winter 2017 AEO 2017 AEO 2016 (Source: Navigant analysis) 31

32 Bcfd WINTER 2017 OUTLOOK HIGHLIGHTS: A THRESHOLD EVENT By the end of 2016, the United States became a net exporter (by pipe and ship) of NG for the first time since 1957 (60 years ago) Net Imports US Lower FORECASTED Pipeline LNG 14.6 Bcfd export (Source: Navigant analysis) 32

33 CASE STUDY: NORTHEAST INFRASTRUCTURE INCREASED PRODUCTION STRANDED GAS PROPOSED PROJECTS UNCERTAINTY Appalachian shale from 0% to 28% of US production Appalachia had traditionally been a demand region 22 Bcfd of pipeline expansions and additions proposed Political and regulatory challenges; although Trump factor looms What happens when just 17% of the takeaway capacity (pipeline) in Appalachia (Marcellus/Utica) does not come online? (Source: Navigant analysis) 33

34 2015$/MMBtu 2015$/MMBtu CASE STUDY: INFRASTRUCTURE IMPACT ON NG PEAK PRICE Winter Peak Day Price Changes in Nearby Demand Areas $ $ $15.00 $15.00 $13.00 $13.00 $11.00 $11.00 $9.00 $9.00 $7.00 $7.00 $5.00 Navigant Ref Case Reduced Capacity Case $5.00 Navigant Ref Case Reduced Capacity Case (Source: Navigant analysis) A 17% (3.1 Bcfd) reduction in proposed takeaway capacity (pipeline) can increase peak day natural gas costs by around $14 billion over the next 24 years The increase of annual natural gas costs under same situation would be a lot higher 34

35 POWER FUEL OUTLOOK SUMMARY The North American NG market is in transition many changes already, more to come Increasing demand and infrastructure challenges may drive real price escalation in NG prices, even with abundant shale resources. Will 2016 gas price increases be a trend or merely a short term blip? Time will tell US NG supply security has promoted expanded gas use for electric generation Increased gas supply has grown the market for gas generally and holds for more growth in the future Inexpensive NG has spurred a revival in American manufacturing and fostered LNG exports that will continue to shrink the trade deficit, strengthen the dollar, and bolster employment Supply assurance, even abundance, means that gas may play a larger role in the near- to midterm in response to CO 2 emissions assisting in addressing climate change even though some stringent emissions regulations in the long term could limit all fossil fuels The effects of the new administration stand largely unknown, yet early Trump camp pronouncements and administration nominees appear to be positive/for NG and infrastructure the clean fossil fuel In sum, Navigant sees a vastly different North American and global gas market, with expanding gas markets generally highlighted by LNG exports and NG exports by pipe to Canada and Mexico 35

36 NAVIGANT ENERGY MARKET OUTLOOK KEY TAKEAWAYS 36

37 KEY TAKEAWAYS Incoming president and Congress will somewhat alter the view of the markets going forward, but near-term market momentum, customer demands, state policy, and technological change are likely to continue despite any changes at the federal policy level The effects of the new administration stand largely unknown, yet early Trump camp pronouncements and administration nominees appear to be positive for NG and infrastructure expansion Renewables (117 GW) and DER (26 GW) continue to grow in areas with positive state policies and decent renewable potential EE (46 GW) is more impactful in states with effective policies and robust economics Removal of the CPP from Navigant s outlook means the economics for coal are better longer term but have little impact on the near term Navigant sees 137 GW of gas additions, with a larger portion of gas-fueled resources being simple-cycle needed only for capacity and fewer coal plants retired Increasing demand and infrastructure challenges may drive real price escalation in NG prices even with abundant shale resources Navigant sees expanding gas markets in North America, generally highlighted by LNG exports and NG exports by pipe to Canada and Mexico 37

38 CONTACTS ROBERT PATRYLAK Managing Director Phone: GORDON PICKERING Director Phone: DAVID WALLS Managing Director Phone: