Natural Gas & Electric Power Coordination Issues and Challenges

Transcription

1 Natural Gas & Electric Power Coordination Issues and Challenges Utilities State Government Organization Conference Pointe Clear, Alabama July 9, 2013 Center for Energy Studies David E. Dismukes, Ph.D. Center for Energy Studies Louisiana State University

2 Introduction Summary and Take Away New natural gas supply availability is having considerable impacts on all energy markets today as well as on a longer term, forward-looking basis. Energy-Related Carbon Dioxide 81.2% Shale revolution is now migrating into liquids and crude oil production. Facilitating additional natural gas production despite low prices and some dry gas well shut-ins and decreased natural gas well drilling. Considerable economic development opportunities are starting to arise leading to a burst in considerable capital investment. Great opportunities for utilities/regulators (lower cost resources). However, all need to be aware of diversity sensitivities and continued natural gas resource development concerns and opposition. 2

3 Reminder The Way Things Were 3

4 Historic Trends Long Term US Crude Oil Production Forecast (2006) Relatively uninspiring U.S. crude oil production forecast Onshore (Lower 48) Offshore (Lower 48) 5.50 Million Barrels per day Source: USDOE/EIA, Annual Energy Outlook, 2006

5 Historic Trends Long Term US Natural Gas Production Forecast (2006) Natural gas production forecasted to decrease starting in Onshore (Lower 48) Offshore (Lower 48) Trillion cubic feet Source: USDOE/EIA, Annual Energy Outlook, 2006

6 Historic Trends Historic Monthly Rig Counts and Gas Production ( ) The maturing nature of US basins reflected in drilling productivity. Number of Operating Rigs 2,000 1,800 1,600 1,400 1,200 1, percent increase in production (Aug-99 to Sep-01) 158 percent increase in rigs (Apr-99 to Jul-01) Rig Count Production 4 percent decrease in production (Feb-04 to Aug-06) 131 percent increase in rigs (Apr-02 to Aug-06) Month Moving Average (Bcf/d) Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Source: Energy Information Administration, Department of Energy; and Baker-Hughes Inc. Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06

7 Historic Trends Resource Estimates: Restricted Areas (Percent Restricted) Policy advocacy focused on restricted areas as a potential solution to the resource constraint problem. ANWR = 3.5 TCF ANS = 35 TCF Source: Natural Gas: Can We Produce Enough? Independent Petroleum Association of America, website:

8 Historic Trends NPC Forecast North American Supply Disposition LNG provides 14% of the U.S. supply of natural gas by Source: National Petroleum Council

9 Historic Trends Crude Oil and Natural Gas Prices Prices reflected the state of, and outlook for, energy markets. $160 Recession $16 $140 $14 $120 First energy price crisis $12 Crude Oil ($/Bbl) $100 $80 $60 $10 $8 $6 Natural Gas ($/Mcf) $40 $4 $20 $2 $0 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 $0 Crude Oil (WTI) Natural Gas (Henry Hub) Source: Federal Reserve Bank 9

10 What Changed? The Way Things Are 1

11 Recent Trends Unconventional vs. Conventional Geological Formations 1

12 Recent Trends Domestic Shale Gas Basins and Plays Unlike conventional resources, shale plays (natural gas, liquids, and crudes) are located almost ubiquitously throughout the U.S. and are the primary reason for the decrease in overall and regional natural gas prices. Source: Energy Information Administration, U.S. Department of Energy 1

13 Recent Trends Natural Gas Proved Reserves and Production Current U.S. natural gas reserves are approaching record levels not seen since Natural gas production is at levels that surpass historic peaks Dry Natural Gas Proved Reserves (Tcf) Reserves Production Marketed Production (Tcf) Source: Energy Information Administration, U.S. Department of Energy. 13

14 Shale s Share of Natural Gas Reserves The share of shale gas relative to total U.S. natural gas proved reserves has been increasing significantly, from less than 10 percent in 2007 to over 30 percent in % 30% 31% Percent 25% 20% 15% 13% 21% 10% 9% 5% 0% Source: Energy Information Administration, U.S. Department of Energy. 14

15 U.S. Dry Natural Gas Reserve Adjustments U.S. shale gas reserves are increasing, enough to more than offset the decrease in net reserves from all other sources in both 2008 and Tcf Shale All Other Sources Source: Energy Information Administration, U.S. Department of Energy. 15

16 Recent Trends Annual Energy Outlook, Natural Gas Reserves Unconventional resources are not a flash in the pan and are anticipated to continue to increase over the next two decades or more Reserves - Tcf Source: Energy Information Administration, U.S. Department of Energy 16

17 Recent Trends Alternative Natural Gas Reserve Forecasts There are a wide range of unconventional shale gas reserve estimates that are as low as 436 Tcf to as high as 2,750 Tcf. This represents a range of between 18 years and over 100 years of available natural gas resources based upon current consumption levels.* 3,000 Estimated Reserves - Tcf 2,500 2,000 1,500 1, EIA AEO 2012 MIT ITG Investment Research IHS Energy Note: *Assumes an annual consumption level of 24.3 Tcf. The MIT study reached a mean estimate of technically recoverable resources of 631 Tcf with an 80 percent confidence interval of 418 to 871 Tcf. The ITG estimates of recoverable resources is for 10 overlapping plays, totaling 900 Tcf. These are the same 10 plays as estimated by the EIA s AEO (resulting in 426 Tcf). IHS Energy estimates show that total recoverable shale in the U.S. could be as high as 2,750 Tcf, significantly higher than their estimate of 1,268 in

18 Recent Trends Forecast U.S. Natural Gas Production, Shale availability will drive U.S. natural gas supply Shale Gas Production Tcf Assc. Gas Production Shale gas Tight gas Non-associated offshore Alaska Coalbed methane Associated with oil Non-associated onshore 18

19 Recent Trends Choosing Most Current Natural Gas Price Forecasts: AEO-2007 to AEO-2012 Shale availability has significant impact on future price outlook Anticipated price outlook in (2010 $/MMBTU) Anticipated price outlook today Actual Henry Hub AEO-2007 AEO-2008 AEO-2009 AEO-2010 AEO-2011 AEO-2012 Source: Energy Information Administration, U.S. Department of Energy 19

20 What s the Fuss with Liquids? 2

21 Crude Oil Trends Crude Oil and Natural Gas Price Decoupling Crude oil prices have doubled in the aftermath of the recession but natural gas prices have remained stable. Crude Oil ($/Bbl) $160 $140 $120 $100 $80 $60 $40 The price of crude oil has increased 140 percent since its low in February The price of natural gas has fallen 78 percent since June $14 $12 $10 $8 $6 $4 Natural Gas ($/Mcf) $20 $2 $0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 $0 Crude Oil (WTI) Natural Gas (Henry Hub) Source: Federal Reserve Bank of St. Louis. 21

22 U.S. Dry Natural Gas Reserve Adjustments The increase in crude oil prices has resulted in a revised emphasis in unconventional drilling. Developers are shifting rigs into basins that are expected to yield crude and liquids rather than those with dry gas. Percent of Total Rigs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Oil Gas Source: Baker Hughes. 22

23 Crude Oil Trends Can you insert a slide that shows a 2

24 Annual Production from Unconventional Reservoirs In just one year, Cheniere has revised its forecasted natural gas production in 2020 from slightly less than 8 Bcf per day to more than 12 Bcf per day; and liquids production from 6 MMBbls per day to 7 MMBbls per day Cheniere Outlook, March 2012 Cheniere Outlook, April Natural Gas (Bcf/d) Liquids (MMBbl/d) Liquids Natural Gas 0 Source: Cheniere Energy Inc,, Corporate Presentations. Available at: 24

25 Changes in Well Cost and Well Performance $18 $16 $14 $12 $10 $8 $6 Encana reports a reduction in well costs of 15-30% through use of multi-pad drilling, improved rig efficiencies, and lower hydraulic fracturing costs. The use of higher water volumes, increased frac stages, and enhanced pay selection have resulted in % increases IP rates Well Cost (million $) $25 $20 $15 $ Well Performance (MMcfe/d) $4 $2 $5 $ $ East Texas Deep Bossier Haynesville East Texas Deep Bossier Haynesville Source: U.S. Natural Gas Resources and Productive Capacity: Mid-2012, Prepared for Cheniere Energy, Advanced Resources International, Inc. August 23,

26 Natural Gas and Economic Development: Moving from Revolution to Renaissance 2

27 Economic Development U.S. Oil and Gas Employment v. Economy-wide Trends (2005 = 100) Oil 150and gas employment is almost 40 percent above its 2005 level while total U.S. employment struggles to regain four years of losses. Employment (2005 = 100) Oil and gas employment Total emplyoment Upstream oil and gas employment clearly outperforming overall economy Source: Bureau of Labor Statistics 27

28 Economic Development U.S. Employment Trends (2005=100): Total Employment, Select States The multiplier effects of upstream development have likely had significant beneficial impacts on shale-producing states Employment (2005 = 100) States with major shale activity Shale states: LA, TX, AR, ND, UT, CO, & PA Source: Bureau of Labor Statistics 28

29 Economic Development Louisiana Chemical Industry Employment and Henry Hub Spot Price The chemical industry is particularly sensitive to natural gas prices. As natural gas prices increase, chemical industry employment decreases. Number of Jobs (thousand) Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 $16 $14 $12 $10 $8 $6 $4 $2 $0 Henry Hub Price ($/Mcf) Louisiana Chemical Manufacturing Employment Natural Gas Price Source: Bureau of Economic Analysis, U.S. Department of Commerce; and Energy Information Administration, U.S. Department of Energy. 29

30 Natural Gas Uses (Industrial) Natural Gas Composition and Modern Chemistry Natural gas is the basic industrial building block for many household goods. Natural Gas Stream Methane Ethane Propane Butane Ethylene Propylene Butylene Textiles Paints Cosmetics Xylene Detergents Tires Toulene Toys Dry Cleaning Pharmaceuticals 30

31 Economic Development Incremental U.S. Chemical Industry Capital Expenditures The American Chemical Council estimates that U.S. chemical industry capital investments will total $71.7 billion through These investments are based on a renewed competitiveness from shale gas. 16 $14.6 Number of Jobs (Million) $5.7 $7.8 $11.3 $12.4 $7.1 $4.4 $4.7 $ Source: American Chemistry Council. 31

32 Economic Development Louisiana Total Capital Expenditures by Sector Recent LSU-CES Study found that the total capital investment associated with all announced natural gas-driven manufacturing investments in Louisiana totals over $62 billion. Most of the investment is anticipated to occur between 2014 and $16 $14 $12 Billion $ $10 $8 $6 $4 $2 $ LNG Export Cracker/Polymer Methanol/Ammonia Other GTL Source: David E. Dismukes (2013). Unconventional Resources and Louisiana s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies. 32

33 Potential Changes in Natural Gas Usage 3

34 New Natural Gas Uses New Natural Gas End Uses & Fuel Diversity Concerns As noted earlier, the industrial renaissance is likely to lead to the first increase in industrial natural gas demand in decades. The extent and degree of this is indeterminate. Consider that a new GTL plant or a new LNG facility, use roughly 2/Bcfd alone at full capacity (730 Bcf of annual load each). However, power generation has been and will continue to be a significant natural gas end use. Environmental regulations are having a considerable impact on developers capacity development decisions. The low cost of natural gas is clearly provides a preference to new gas over new coal. 34

35 New Natural Gas Uses Electric Industry Environmental Regulations Create Uncertainty for Coal Revised Ozone NAAQS Beginning CAIR Phase I Seasonal NOx Cap CAIR Vacated CAIR Remanded Ozone Reconsidered Ozone NAAQS NO2 Primary NAAQS SO2 Primary NAAQS Proposed Transport Rule CO2 Regulation SO2/NOx Final Transport Rule Issued Effluent Guidelines proposed rule expected Transport rule (CSAPR) vacated SO2/NO2 Secondary NAAQS CAIR/CSAPR 316(b) final rule expected Effluent Guidelines Final rule expected Next Ozone NAAQS Revision Water 316(b) Compliance < 8 yrs after final rule Effluent Guidelines Compliance 3-5 yrs after final rule PM-2.5 SIPs due ( 97) CAMR & Delisting Rule vacated Begin CAIR Phase I Annual NOx Cap PM2.5 Begin CAIR Phase I Annual SO2 Cap Proposed Rule for CCRs Management Next PM- 2.5 NAAQS Revision HAPs MACT proposed rule 316(b) proposed rule CO2 Final Rule for CCRs Final EPA Nonattainment Designations Mgmt HAPS MACT final rule expected PM-2.5 SIPs due ( 06) New PM-2.5 NAAQS Designations Begin Compliance Requirements under Final CCR Rule (ground water monitoring, double monitors, closure, dry ash conversion) Ash Compliance with CSAPR Hg/HAPS HAPS MACT Compliance 3 yrs after final rule updated from Wegman (EPA 2003) 35

36 New Natural Gas Uses Coal-Fired Capacity Share by Age Category There is a considerable amount of legacy coal capacity (45 GWs) that is relatively old, and in some instances, has few to little controls to meet anticipated standards. Greater than 50 years: 45,382 MW; 12% of capacity; 72 units (averaging 630 MW) Less than 30 years: 79,876 MW; 22% of capacity; 73 plants (averaging 1,094 MW) 30 to 50 years: 238,934 MW; 66% of capacity; 208 plants (averaging 1,149 MW) Source: Energy Information Administration, U.S. Department of Energy 36

37 New Natural Gas Uses Increased Natural Gas Use from CSAPR-Induced Coal Plant Retirements The retirement of 45 gigawatts of capacity would likely have an impact on overall natural gas usage (potentially 2 TCF). 3,000 Natural Gas Consumption (Bcf) 2,500 2,000 1,500 1, New Generation (Retired Coal) Note: Assumes 160 Bcf of NGV natural gas use. Also assumes retirement of 45 GW of coal-fired capacity, replaced with new natural gas generation with an 85 percent capacity factor and a 7,600 Btu/kWh heat rate. 37

38 New Natural Gas Uses U.S. Generation Capacity by Fuel Type: 2011, 2025 and 2040 EIA estimates the growth in new generation to come primarily from natural gas (~170 GWs) and renewables (~75 GWs) Down Down Up Up Wishful thinking Up Capacity (GW) Coal Oil/gas steam Source: Energy Information Administration, U.S. Department of Energy. Natural gas combined cycle Natural gas combustion turbine Nuclear Renewable/ other 38

39 Natural Gas Uses What About Gas Exports? 39

40 Natural Gas Uses (LNG) Considerable Underutilized LNG Regasification Capacity along GOM Regasification Existing T O A F J Under Construction Approved Liquefaction Existing Under Construction Approved P H N I K G D M R E L C B S Q Existing A. Everett, MA: Bcfd B. Cove Point, MD: 1.8 Bcfd C. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion) D. Lake Charles, LA: 2.1 Bcfd E. Energy Bridge, GOM: 0.5 Bcfd F. Northeast Gateway, Offshore MA: 0.8 Bcfd G. Freeport, TX: 1.5 Bcfd (+2.5 Expansion) H. Sabine, LA: 4.0 Bcfd I. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion) J. Neptune, Offshore MA: 0.4 Bcfd K. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion) Under Construction L. Pascagoula, MS: 1.0 Bcfd Approved M. Corpus Christi, TX: 1.0 Bcfd N. Corpus Christi, TX: 2.6 Bcfd O. Fall River, MA: 0.8 Bcfd P. Port Arthur, TX: 3.0 Bcfd Q. Logan, NJ: 1.2 Bcfd R. Port Lavaca, TX: 1.0 Bcfd S. Baltimore, MD: 1.5 Bcfd T. LI Sound, NY: 1.0 Bcfd 40

41 Natural Gas Uses (LNG) LNG Value Chain Feedstock (production) costs will be critical in determining the location of basinspecific production along the global LNG supply curve. Europe: Feedgas 56% ($/MMBtu) Liquefaction 11%-17% ($/MMBtu) Shipping & Fuel 20%-29% ($/MMBtu) Regas 4%-7% ($/MMBtu) Delivered Cost ($/MMBtu) Equivalent Oil Price* ($/BOE) Low High $4.00 $6.50 $1.25 $1.25 $1.40 $1.65 $0.50 $0.50 $7.15 $9.90 $41.47 $57.42 Asia: Low High $4.00 $6.50 $1.25 $1.25 $2.90 $3.45 $0.50 $0.50 $8.95 $11.70 $51.91 $67.86 Note: *uses a BOE conversion of 5.8 Mcf/BOE. Source: Cheniere. Henry Hub: $4.50 $5.00 WTI: $97.00 $

42 Natural Gas Uses (LNG) FOB Gas Price Necessary to Yield 12 Percent Return (Atlantic Delivery) 12 U.S. is likely to be at the upper end of the global LNG supply chain $/MMBtu ADGAS Qatargas-4 Arun Liquid Niugini Gas Altantic LNG Bontang Qatargas Altantic LNG 2&3 Qalhat LNG Atlantic LNG 4 EG LNG ELNG 2 Damietta ELNG 1 Darwin Brunei LNG OLNG MLNG Tiga Tangguh Brass LNG MLNG Yemen LNG MLNG Dua Peru LNG North West Shelf Angola LNG Kenai US Shale Gas Snohvit QCLNG PNG LNG Pluto Gorgon Sakhalin 2 Source: Pacific LNG. 42

43 Natural Gas Uses (LNG) Basin Competition Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcf in conventional suggest a potentially solid resource base for many decades. Canada 388 Tcf U.S. 862 Tcf Mexico 681 Tcf Brazil 226 Tcf Argentina 774 Tcf France 180 Tcf Algeria 231 Tcf South Africa 485 Tcf Poland 187 Tcf Libya 290 Tcf China 1,275 Tcf Australia 396 Tcf 43 Source: MIT Energy Initiative.

44 Conclusions 4

45 Conclusions Conclusions Natural Gas Markets Natural gas markets continue to be resilient. Prices anticipated to remain affordable and less volatile. While some (dry methane) wells have shut/back or are shut-in, this has not been enough to stall the increases in production. Natural gas supply growth increasingly driven by associated natural gas a byproduct of increasing production coming from higher hydrocarbon-based production (Marcellus, Eagle Ford, Bakken). Economic growth is tepid and likely to not upset this balance however, a big upward swing in economy-driven demand could make that change happen. New end uses are a blessing (new manufacturing, more efficient/cleaner power generation) but need to be watched for unanticipated consequences. 45

46 Questions, Comments and Discussion 46