Transcript Southern Natural Gas Customer Meeting Kiawah Island, South

Framing the Natural Gas Issues
Natural Gas:
Balancing Supply, Demand and the
Environment
May 24, 2005
Energy and
Environmental
Analysis, Inc.
1655 N. Fort Myer Drive
Suite 600
Arlington, Virginia 22209
Bruce B. Henning
(703) 528-1900
[email protected]
Contents

Background
– The changing balance

Imperative to address high gas price
– Natural gas utilities and pipelines
– Energy efficiency community
– National Environmental Trust and other
environmental groups

Portfolio of options
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2
The Changing Gas Balance
Lower-48 Dry Gas Production vs. Dry Gas
Productive Capacity (Bcfd)
Historical Gas Price at Henry Hub ($ per
MMBtu)
55
$10
54
$9
Hurricane Ivan
53
Rising Prices
Winter 2002-03
Price Spike
Winter 2000-01
$8
52
$7
51
$6
50
Relative Price Stability
$5
49
$4
48
$3
47
46
$2
45
$1
44
$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Productive Capacity
Gas Production
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: Platts Gas Daily
Source: Energy and Environmental Analysis, Inc.
Divergent trends in gas supply and demand have led to a tight balance between
supply and demand, higher gas prices, and increased price volatility.
TIGHT BALANCE EXPECTED TO CONTINUE
Energy and Environmental Analysis, Inc.
3
Gas Market Fundamentals:
Gas Quantity And Price Equilibrium
Energy and Environmental Analysis, Inc.
4
Gas Price Response to
Demand Shifts
Energy and Environmental Analysis, Inc.
5
U.S. Gas Directed Drilling Activity and Crude Oil
and Gas Prices
1,200
$10
$8
$7
800
$6
600
$5
$4
400
$3
$2
200
Average Price ($/MMBtu)
1,000
Average Active Rigs
$9
Needed for
Deliverability
Replacement
$1
Rigs Drilling for Gas
Average U.S. Crude Oil RACC Price
Energy and Environmental Analysis, Inc.
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
$0
Jan-95
0
Average Henry Hub Spot Price
6
Gas Demand Outlook
U.S. and Canada Gas Consumption

Gas consumption in the
power sector will grow
substantially.
– Over 200 GW’s of new
gas-based generating
capacity in the U.S. will
be used to satisfy
increasing electric load.


Modest growth in R/C
gas consumption.
Industrial gas
consumption will
fluctuate around current
levels.
– Well below pre-2000
levels.

When necessary, priceinduced demand
reductions will balance
the market.
(Trillion Cubic Feet, Tcf)
40
35
30
Power Generation
Delta
2004-2015
Delta
2004-2025
+5.7 Tcf
+7.0 Tcf
+0.3 Tcf
+1.1 Tcf
+0.4 Tcf
+0.7 Tcf
+0.7 Tcf
+1.3 Tcf
+0.2 Tcf
+0.2 Tcf
25
Industrial
20
15
Commercial
10
Residential
5
Other
0
2001
Energy and Environmental Analysis, Inc.
2006
2011
2016
2021
The North American gas market may be best
characterized as a “demand leads supply market”
for the foreseeable future.
7
Projected Annual Average Henry Hub Gas Price
Continued price
pressure likely to
11.00
persist
for next few
years.
10.00
Henry Hub gas prices will
average between $5 and
$7 per MMBtu - 1990
levels will not return.
9.00
(2004 $ per MMBtu)
Fuel Prices
8.00
7.00
6.00
5.00
4.00
Long-term prices in parity with
oil prices.
Long-term oil price of about $35
per barrel (real$) assumed.
3.00
2.00
1.00
0.00
1997
1999
2001
2003
Natural Gas
2005
2007
2009
2011
2013
2015
Residual Fuel
2017
2019
2021
2023
2025
Distillate
Sources: Historical data from Platts Gas Daily, Projection by Energy and Environmental Analysis, Inc.
Energy and Environmental Analysis, Inc.
8
Convergence of Interests

A diverse group of interests find it important to work
to find mechanisms to address the fundamentals that
are driving gas prices.
– Consumer groups in all sectors.
– Natural gas utilities and pipelines.
– Energy efficiency research and advocacy groups.
– Environmental groups that view gas as an important
element of programs to improve air quality and address
climate change.
Energy and Environmental Analysis, Inc.
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Natural Gas & A Clean Air Future

High NG prices are negatively affecting clean air
outcomes now and will do so in the future.
– “Economic dispatch” policies led to a 400,000 ton
increase in SO2 emissions last year from utilities.
– More than 100 new “traditional” coal-fired power
plants are under development.
– Given current prices, coal – not NG - is expected
to fill the void that will be created with impending
nuclear unit retirement.
– Future carbon reductions are far more difficult
without increased reliance on NG for base-load
electricity generation.
Energy and Environmental Analysis, Inc.
10
CO2 & Electricity Production




Fossil plants - largest US source: 2.6 billion tpy,
40% of US & 10% of world total.
1990-2001: 24% increase; economy as a whole
posted a 16% increase.
DOE projects 41% additional increase by 2025.
Projected carbon growth does not include “CO2
Jump” associated with nuclear unit retirements by
2025.

State-of-the art NGCC turbine produces 60%
less CO2 per unit of electricity produced.

CONCLUSION: NG needs to remain as a fuel
option in a carbon-constrained future.
Energy and Environmental Analysis, Inc.
11
COAL'S KNOCKOUT BLOW TO KYOTO
According to EIA and industry
estimates, by 2012, expected
cuts in greenhouse-gas
emissions under the Kyoto
treaty will be swamped by
emissions from a surge of
new coal-fired plants built in
China, India, and the United
States
Prepared by National Environmental Trust
Energy and Environmental Analysis, Inc.
12
Natural Gas Supply
Relying On New Frontiers
 Production
from
mature producing
areas will decline
by about 1% per
year.
U.S. & Canada Gas Supply
40
Tcf Per Year
35
Rockies
Alaska
30
44%
25
frontier
supplies will
account for 44%
and 53% of total
U.S. and Canada
gas supply in
2015 and 2025,
respectively,
versus only 20%
today.
20%
 New
5.2
14.5
53%
18.8
MacKenzie Delta
Maritimes
New Supply
Tcf
Tcf
LNG Imports
Tcf
20
Deep Gulf
15
80%
10
20.6
Tcf
56%
18.5
Tcf
47%
16.7
Tcf
Traditional
Supply
Sources
5
0
Energy and Environmental Analysis, Inc.
2004
2015
2025
13
U.S. and Canada Gas Supply
“Abundant… But Potentially Costly”
Regional Gas Supply Curves
Current Technology
$9
$8
2004$/MMBtu
$7
$6
$5
With today’s technologies,
about 500 Tcf of supply
remains to be developed at
gas prices around $4 per
MMBtu.
$4
$3
$2
$1
0
30,000
60,000
90,000
120,000
150,000
Bcf Undiscovered Gas
West Coast Onshore Gas Supply Curve
Rockies Gas Supply Curve
Gulf Coast Onshore Gas Supply Curve
Eastern Interior Gas Supply Curve
US Atlantic Offshore Gas Supply Curve
WCSB Gas Supply Curve
Eastern Canada Offshore Gas Supply Curve
Energy and Environmental Analysis, Inc.
180,000
210,000
240,000
Curves more elastic
at $3, yielding a
“support level” on
gas prices.
Great Basin Gas Supply Curve
West Texas Gas Supply Curve
Midcontinent Gas Supply Curve
Gulf of Mexico Gas Supply Curve
US Pacific Offshore Gas Supply Curve
Eastern Canada Onshore Gas Supply Curve
14
Alaska Gas and (Not Or) LNG Imports
Playing a Major Role
U.S. & Canada LNG Imports, Bcfd
16
LNG Imports Total 2.2
Bcfd by 2005,
16.3 Bcfd by 2015, and
24.7 Bcfd by 2025
14
Alaska Gas Pipeline
12
4,000 MMcfd Added
November 2014
Gulf Coast
10
East Coast
8
6
Alaska
4
British
Columbia
Alberta
West Coast
2
0
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
LNG Imports and Alaska gas will
provide about 30% of the U.S. and
Canada’s gas supply by 2025. There
would be little growth in supply
without these new sources of supply.
Energy and Environmental Analysis, Inc.
15
World LNG Supply
Planned LNG Liquefaction Projects
 Oil
and gas producers
throughout the world
have proposed
building as many 50
new liquefaction
projects in the next
five years.
Number
4
16
7
12
5
5
49
Russia/Norway
Africa
South America
Middle East
Pacific Rim
Australia
World Total
Trillion Btu
per Year
915
4,105
1,825
5,041
1,287
1,411
14,585
LNG Supply Curves to US
 About
$4.50
$4.25
Delivered Cost with Regas ($/Mcf)
6 Tcf per year
or 16.5 Bcfd of
liquefied gas is
pointed toward U.S.
markets at delivered
prices under $4.50 per
MMBtu.
$4.00
$3.75
$3.50
$3.25
$3.00
US Only No Speculative Projects
US Only With Speculative Projects
$2.75
All Current New Projects
$2.50
Energy and Environmental Analysis, Inc.
0
2,000
4,000
6,000
8,000
Bcf per Year
10,000
12,000
14,000
16
The Fundamental Question
Can Gas Supply Support a Growing Market?
Yes!



Sufficient gas resource is available in North America
and around the world.
These resources can be developed and delivered to
the North American market at prices that will allow
the gas demand to continue to grow.
But not without the construction of new facilities
to access and deliver new frontier gas supplies.
– Pipelines, storage, and LNG infrastructure.
But what if the facilities are not
built or delayed.
Energy and Environmental Analysis, Inc.
17
Obstacles For Supply Growth
 Large
Capital
Requirements
 Recent
Liquidity
Crunch
 “Wall
Street”
Recognition of
Opportunities
 Price
Volatility
Creates Uncertainty
 Uncertainty
About
Future Gas Demand
 Access
Restrictions
 Cumbersome
Approvals Process
 Environmental
and
Siting Issues
 Contracting
Issues
There is much uncertainty about future
gas supply development.
Energy and Environmental Analysis, Inc.
18
LNG Imports - A Wildcard
 LNG
imports will likely become the most important determinant of market conditions in the
next 10 years.
 Many different scenarios are possible:
–
–
–
“NIMBY Wins” - Existing terminals are expanded, but no new terminals are completed.
Base Case - Approximately 16 Bcfd of imports by 2015.
“Turbocharged LNG” - 10 Bcfd of LNG added to the Base Case by 2015.
27.0
(Billion cubic feet per day)
U.S. and Canada Imports
24.0
21.0
18.0
15.0
12.0
9.0
6.0
3.0
0.0
2003
2005
Base Case
Energy and Environmental Analysis, Inc.
2007
2009
NIMBY Wins
2011
2013
2015
Turbocharged LNG
19
Gas Demand and Prices with Different
Levels of LNG
 Different
levels of LNG import yield very different “worlds” over time.
 Excessively
high growth of LNG imports in the Gulf Coast may push gas prices at
Henry Hub down toward $3 and push domestic supplies out of the market.
–
Gulf Coast infrastructure will be a constraining factor and localized price depression is likely
in high import scenarios.
 Little
growth in LNG imports would constrain the market, keeping demand near today’s
level and yielding $10+ gas at Henry Hub.
–
Expect healthy market growth in both the Base and Turbocharged cases.
$15.00
30.0
27.0
Henry Hub Gas
Prices
$12.00
(Real 2004$ per MMBtu)
Henry Hub Gas Prices
U.S. and Canada
Gas Consumption
33.0
(Trillion cubic feet)
U.S. and Canada Gas Demand
36.0
$9.00
$6.00
$3.00
$0.00
24.0
2003
2005
Base Case
2007
2009
NIMBY Wins
Energy and Environmental Analysis, Inc.
2011
2013
2015
Turbocharged LNG
2003
2005
Base Case
2007
2009
NIMBY Wins
2011
2013
2015
Turbocharged LNG
20
Role for Energy Efficiency

Supply solutions take years to come to market.

If modest increases in gas demand produced large
price increases, then small decreases should
produce large price reductions.

Efficiency energy and renewable energy can
produce savings in both the near-term and longerterm.
Energy and Environmental Analysis, Inc.
21
Using EEA Natural Gas Model

EEA utilized as independent natural gas analysts.
– Model used was also used for NPC Natural Gas studies, AGF
2020 study and INGAA Infrastructure studies.

Fully integrated natural gas market model incorporating
supply, transmission, storage and consumption at 106
nodes.

Using July 2003 projection as base case.

ACEEE modified consumption and renewable
penetration only – model handles other issues. (e.g.,
fuel switching, demand destruction, addition resource
choices)
Energy and Environmental Analysis, Inc.
22
Gas Consumption Reductions from
Energy Efficiency
Energy ACEEE
and Environmental
Analysis, Inc.
Source:
2005
23
Impact of Energy Efficiency on
Henry Hub Natural Gas Pricing
7.5
7
6.5
EEA May 2004
National EE only
Midwest EE only
NatGas Price ($/MMcf)
6
Historic
5.5
5
4.5
4
3.5
3
2.5
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
2
Energy EEA
and Environmental
Analysis,
Inc.
Source:
2004 and ACEEE
2005
24
Benefits and Costs from Reductions in Energy
Expenditures 2004-2008
Total Benefits = $142,800 Million
Total Investment and Program Costs = $22,441 Million
Power Gen. Gas
39.3%
Industrial Elec.
0.6%
Commercial Elec.
26.5%
Industrial Elec.
15.1%
Commercial Elec.
1.2%
Residential Elec.
1.2%
Residential Gas
9.5%
Commercial Gas
1.8%
Industrial Gas
3.2%
Industrial Gas
27.0%
Residential Gas
28.8%
Commercial Gas
2.0%
Benefits
Energy and Environmental Analysis, Inc.
Residential Elec.
44.0%
Costs
25
American Gas Foundation: Natural Gas Outlook to 2020
Actual and Projected Natural Gas Prices
(Henry Hub)
Nominal $/MMBtu
$14
$12
$10
$8
$6
$4
$2
$0
1996-2000
2001-2005
2006-2010
2011-2015
2016-2020
Five Year Averages
Expected Policies
Energy and Environmental Analysis, Inc.
Expanded Policies
Existing Policies
26
American Gas Foundation: Natural Gas Outlook to 2020
Study Implications
 Under
no scenario will natural gas markets
return to the 80’s-90’s era of supply surplus
and low, stable prices
 Policy makers and industry decision makers
need to act immediately
 Failure to take action will lead to more
instability
and cost U.S. consumers billions of dollars
in additional energy costs
Energy and Environmental Analysis, Inc.
27
Key Findings
 Gas
supply/demand balance will
remain tight.
 Gas
consumption is posed to
grow, mostly as a result of
growth in gas-based power
generation.
 “New
frontier” gas supplies are
necessary.
 Supply
development is likely to
face many obstacles and will
take time.
 LNG
imports will be an important
determinant of gas prices.
 Energy
efficiency and renewables
can moderate gas prices if the
technologies can be deployed.
– Historically consumers have
under-invested in efficiency.
 A portfolio
of “frontier” gas supply
development and energy
efficiency/renewable deployment
provides the most effective relief
from high gas prices.
 In
virtually all analyses of carbon
constrained scenarios, natural
gas demand is significantly above
baseline levels.
– Often 3 to 5 Tcf per year or
more.
Energy and Environmental Analysis, Inc.
28