Transcript Slide 1

Analysis of the Impacts of Shale Gas
Supply under a CO2 Tax Scenario
Chris Nichols
Office of Strategic Energy Analysis and Planning
National Energy Technology Laboratory
32nd USAEE/IAEE North American Conference
July 30, 2013
NETL Pittsburgh PA and Morgantown WV
Disclaimer
This report was prepared as an account of work sponsored by an
agency of the United States Government. Neither the United
States Government nor any agency thereof, nor any of their
employees, makes any warranty, express or implied, or assumes
any legal liability or responsibility for the accuracy, completeness,
or usefulness of any information, apparatus, product, or process
disclosed, or represents that its use would not infringe privately
owned rights. Reference therein to any specific commercial
product, process, or service by trade name, trademark,
manufacturer, or otherwise does not necessarily constitute or
imply its endorsement, recommendation, or favoring by the
United States Government or any agency thereof. The views and
opinions of authors expressed therein do not necessarily state or
reflect those of the United States Government or any agency
thereof.
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Overview
• The primary objective of the analysis is to evaluate
the techno-economic impacts of the shale gas
supply and the CO2 taxation on the U.S. energy
system
• We applied the Environmental Protection Agency’s
Nine Region MARKAL Database (EPAUS9r 2012) that
was developed by EPA around the nine U.S. Census
divisions.
• The paper presents the range of findings from a
selection of different scenarios to examine the
impacts of increased shale gas supplies, increased
gas demand and a CO2 tax, based on OMB’s social
cost of carbon
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Source: ESPA Analysis
Results and insights
• Other than the electricity sector, increased gas supply
does not significantly change gas demand in the
basecase – changes to model inputs are required to
substantially increase gas use in the industrial and
transportation sectors
• Increased gas supply does lower the price, with
increased industrial demand having a minimal price
increase. Large usage of gas in the transportation
sector and a CO2 tax do increase price, though
• For deep CO2 reductions, CCS is an essential technology,
especially if an industrial renaissance increases gas
utilization
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Scenarios
Scenario
BASE9R
Descriptions
Original EPA 2012 base case scenario (resource supply
and end-use demands from AEO 2012)
BASE9R modification (new natural gas supply curve
BASE9RHG under conditions of abundant natural gas supply at
low cost; end-use demands from AEO 2012)
Natural gas supply curves changes: in EPAUS9R2012 natural
gas mining costs increase by 1.6-2.3% annually and in the
modified database costs increase by 0.9-1.3% in 2005-2055.
BASE9RHG modification (new natural gas supply
BASEHGIN curve; high industrial demand; transportation,
commercial and residential demands from AEO 2012)
We modified industrial demand and assumed that industrial
demand grows faster than in EPAUS9R2012 after 2020. The
assumptions on annual demand growth rates are: Chemical
sector (1.9%); Primary metal (1.9%); Food (1.8%);
Nonmanufacturing industry (1.4%). All other industrial
demands and other sectors demands are without changes.
BASEHGIN modification (governmental incentives
BSHCICNG enabling to invest in CNG vehicles and infrastructure)
BCNGCO2
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Database Modifications
BSHCICNG modification (in June 2013 OMB released
the revised social cost of carbon and the estimate for
2013 under the revision was $36 per ton of CO2,
compared with $22 in the previous estimate)
We modified transportation sector profile in order CNG vehicles
became a more attractive choice. In EPAUS9R 2012 investment
costs for CNG technologies are increasing, so we changed
investments costs on zero growth or decreasing rates (-0.11%) for CNG Vehicles. We also changed discount rates for few
CNG technologies (decrease from 0.44 to 0.22-0.36).
Total energy system CO2 taxes started in 2015 ($36/tCO2 in
2005 dollars with 5.8% annual growth rate).
Natural Gas in Primary Energy Mix
55
50
Lowered capital
costs for CNG
vehicles
45
CO2 tax based
on current social
cost of carbon
1949-2011
TCF
40
Increased
industrial
growth
35
AEO2013
BASE9R
BASE9RHIG
BS9HIGIN
BHGINCNG
30
BCNGCO2T
25
Increased
utilization in
electricity
sector
20
15
10
1965
6
1975
1985
1995
2005
2015
2025
2035
2045
2055
Electricity growth in the Basecase is driven by natural gas and
some loss in coal generation from EPA regulations
BASE9R: Electricity Production by Technology
Distributed Solar PV
Central Solar PV
25,000
Wind Power
Hydropower
20,000
Quantity (PJ)
Geothermal Power
Municipal Waste to Steam
15,000
Biomass to IGCC
Conventional Nuclear Power
10,000
Residual Fuel Oil to Steam
NGA to Combined-Cycle
NGA to Combustion Turbine
5,000
NGA to Steam Electric
Coal to Steam
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
7
Coal to Existing Steam
With higher gas supplies, more coal is economically pushed out
and overall generation is slightly higher
BASE9RHG: Electricity Production by Technology
25,000
Distributed Solar PV
Central Solar PV
Wind Power
20,000
Quantity (PJ)
Hydropower
Geothermal Power
Municipal Waste to Steam
15,000
Biomass to IGCC
Conventional Nuclear Power
Residual Fuel Oil to Steam
10,000
Diesel to Combustion Turbine
NGA to Combined-Cycle
NGA to Combustion Turbine
5,000
Coal to Steam
Coal to Existing Steam
BASE9RHG
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
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Increasing gas supplies alone does not change industrial gas use
substantially – modifications to industrial end-demand are
required to model an industrial renaissance
BASE9RHG: Industrial Fuel Use
25,000
Electricity
20,000
Biomass
Biodiesel
Quantity (PJ)
Other
15,000
Kerosene
LPG
Natural Gas
10,000
Gasoline
Distillate Oil
Fuel Oil-Low S
5,000
Coal
BASE9R
-
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
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Increased gas supplies are not enough to change use of NG in
transportation sector – changes to capital cost assumptions for CNG
vehicles were required to move from gasoline to NG
BHGICNG: Transportation Fuels
BASE9RHG: Transportation Fuels
40,000
40,000
35,000
35,000
Electricity
Jet Fuel
30,000
30,000
LPG
Quantity (PJ)
Compressed Natural
Gas
20,000
Ethanol
Gasoline
15,000
Quantity (PJ)
25,000
25,000
20,000
15,000
Diesel
10,000
10,000
CTL Diesel
5,000
BASE9R
-
-
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
10
5,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
12
TCF
10
Wellhead Price Historical (1949-2011) and Natural Gas Marginal Costs
Scenarios Projections (2010-2055)
CO2 tax pushes
Natural Gas Consumption
prices back to
30
NG use in
25
baseline
20
transportation
15
drives a large
10
price increase
$2005/mmcf
8
5
0
1945
1965
1985
2005
2005-2011
BASE9R
6
BAS9RHIG
BSHIGIN
BHGICNG
4
BCNGCO2T
2
0
1965
11
More abundant
gas lowers the
price path
Industrial use
only increases
price minimally
1975
1985
1995
2005
2015
2025
2035
2045
2055
Total CO2 Emissions: Historical and Projections
7000
Various non-CO2 control scenarios do
not move overall CO2 emissions much
6000
MtCO2
5000
4000
1973-2012
3000
AEO2013, REFERENCE
BASE9R
BAS9RHIG
2000
BASEHGIN
BHGICNG
BCNGCO2T
1000
0
1965
12
1975
1985
1995
2005
2015
CO2 tax reduces
emissions by 30%, much
less than the 80%
reduction from 2005
levels (~1,2000 Mt)
2025
2035
2045
2055
In the CO2 Tax case, CCS-based electricity provides a large
portion of electricity generation
Electricity Production by Fuel & Type
25,000
Solar
20,000
Wind
Hydro
Geothermal
Quantity (PJ)
15,000
Municipal Solid
Waste
Biomass
10,000
Nuclear
Oil
Natural Gas w/CCS
5,000
Natural Gas
Coal w/CCS
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
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Coal
CCS allows the electricity sector to substantially reduce its CO2
footprint, but increased gas use in the industrial and transportation
sectors limits the total CO2 reduction potential
CO2 Emissions
7,000
6,000
Quantity (KTonnes)
5,000
Electricity Production
4,000
Industry
Commercial
3,000
Residential
Transportation
2,000
Resources
1,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Year
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Conclusions
• “Socially optimal” reduction of CO2 may only be 30% by
2050, according to the model
• Energy market forecasting models may not “be ready” for
shale gas
– Changes to model inputs are required to make the industrial
and transportation sectors able to accept more gas
• More abundant gas shifts the price path lower, but layering
new demand shows that the price could increase
substantially (not including the impacts of LNG exports)
• Natural gas can be a “bridge” to a lower-carbon future, but
CCS will be required:
– A large build-out of uncontrolled NG combined cycle plants in
the near-term may be a long-term problem
• Mitigation options are needed in the industrial and
transportation sectors, even when natural gas supplants
higher-CO2 fuels
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Primary contributors:
Nadja Victor, Booz Allen
Peter Balash, NETL
Chris Nichols
[email protected]
304 877-8087
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