Transcript Slide 1
Global Warming and the Great Climate Debate The possible economic impact on the US and Louisiana Presentation to the Councilors in Real Estate Convention October 14, 2009 Presented by: Eric N. Smith
Barrels per capita 403
Oil consumption and income
(2005 Data) 54.6
7.4
1.0
0.14
Saudi Arabia Japan Djibouti South Korea Jordan Jamaica Mexico Iran Russia Indonesia Egypt China Brazil South Af rica Zimbabwe Liberia Congo Sierra Leone Ghana Haiti India Nigeria Nepal Bangladesh Ethiopia Af ghanistan Equatorial Guinea UK Singapore USA USA Luxembourg Qatar 0.02
148 403 1,097 2,981 8,103 22,026 59,874 2 162,755
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Non-fossil energy use grows rapidly, but fossil fuels still provide 79 percent of total energy use in 2030
quadrillion Btu 120 History Projection 100 Coal 80 Natural Gas 60
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40 20 0 1980 1990 Liquid Fuels Liquid Biofuels 2010 Renewables (excl liquid biofuels) Nuclear 2000
EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008
2020 2030
US CO 2 Emissions from all fuel sources Top 20 Emitting States
700,0 600,0 500,0 400,0 300,0 200,0 Number 11 Petroleum Natural Gas * Coal 100,0 0,0 TX CA PA OH FL IL IN NY MI GA LA NC KY MO AL
Note: This data represents72.1% of all CO2 emissions
Source: EIA, Released October 2008 (Data for 2005)
NJ VA TN WV WI 7
Refinery Locations in Texas and Louisiana account for ~50% of total US capacity 8
Gasoline Prices are inversely proportional to the distance from Refineries California also has the added costs of more stringent air quality standards Figure 3. 2007 Average Regular Grade Gasoline Prices at Retail Outlets by Region (dollars per gallon, including taxes).
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Petroleum-based liquids consumption is projected to be flat as biofuels use grows
million barrels per day 25 History Projections Biofuels 20 15 Transportation 10 5 0 1970
12
Electric Power 1980 Industrial Residential and Commercial 1990 2000 2010
EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008
2020 2030
CO 2 Emissions from Petroleum Top 20 Emitting States
300,0 250,0 Number 7 200,0 150,0 100,0 50,0 0,0 TX CA FL NY PA IL LA NJ OH GA VA MI NC WA IN MA TN MO KY MN
Note: This data represents 75.0% of all CO2 emissions due to petroleum consumption
Source: EIA, Released October 2008 (Data for 2005)
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Liquid Fuel Alternatives: costs and emissions vary widely
Cellulosic ethanol Biodiesel (soybean) Range of crude oil prices Corn ethanol Oil shale Tar sands Coal-to-liquids
Percent of Greenhouse Gas Emissions Relative to Conventional Oil
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How do we compare to other Tax regimes?
15 Source New York times
Transportation Fuel and Taxes
Source: Economist.com 6/26/09
Proposed Direct New Taxes
• • •
The average direct tax on transportation fuels of $3.3 billion/year equates to about 1% of gross revenue from domestic production for the upstream oil and gas industry in 2010.
The direct program is equivalent to a new 1% royalty on domestic production. Companies which are domestically based and/or pursuing an aggressive drilling program fare worse than the average upstream player.
17 Source: Raymond James 3/30/09
BREAK-UP OF Upstream $32,632 MM ESTIMATED TAX REVENUE: 2010 - 2019
16% 10% 0% 4% 4% 25% 41% Repeal of mfg tax deduction Repeal of % depletion Excise tax on Gulf of Mexico oil and gas Repeal of expensing of intangible drilling costs Increase of geological and geophysical amort. period Fee on non-producing federal oil and gas leases Repeal of deduction for tert. injectants Repeal of passive loss exception for working int.
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Historical impact of Crude Oil cost on Gasoline Prices
What about Coal?
Coal Production by Coal-Producing Region, 2007 (Million Short Tons and Percent Change from 2006) U.S. Total: 1,145.6 Million Short Tons (-1.5%) 21 Source: Energy Information Administration, Quarterly Coal Report, October-December 2007
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Electricity Profile
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CO2 Emissions from Coal Top 20 Emitting States
160,0 140,0 120,0 100,0 80,0 60,0 40,0 20,0 0,0 TX IN PA OH IL KY WV GA AL MO NC MI FL TN WI WY VA ND SC IA
Note: This data represents 76.6% of all CO2 emissions due to coal consumption
Source: EIA, Released October 2008 (Data for 2005)
Number 30 LA (#30) 30
Natural Gas
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Components of Natural Gas and where they end up
Wet Natural Gas
Center for Energy Studies
Methane Methane Ethane Propane Butane Residential, Commercial, Industrial & Power Plants Ethylene Propylene Butylenes Xylene Toluene
Agricultural Chemicals Foam Paints Food Packaging Dry Cleaning Carpeting Pipe & Fittings Textiles Bottles Furniture Fiber Insulation Resins Auto Parts Cements Pharmaceuticals Cosmetics Detergents Lubricants Tires Adhesives Toys
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End Use Consumption by Sector And Region, 2002
Conventional Gas Production History by Vintage Year, An Accelerating Decline Rate
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Louisiana leads in per capita Consumption of Natural Gas
State
Hawaii Maine Florida Vermont Arizona New Hampshire North Carolina Connecticut South Carolina Virginia Washington Nevada Maryland Rhode Island Massachusetts Tennessee Georgia Oregon Missouri Idaho Delaware
California
South Dakota New Mexico New York Pennsylvania Utah
Population (thousands)
Consumption by State in 2005*
Therms (millions) Therms per capita State Population (thousands)
1,273 1,318 17,768 622 5,953 1,307 8,672 3,501 4,247 7,564 6,292 2,412 5,590 1,074 6,433 5,956 9,133 3,639 5,798 1,429 842
36,154
775 1,926 19,316 12,405 2,490 367 2,275 2,197 3,382 1,398 2,382 588 347
15,272
333 839 8,588 5,863 1,202 28 88 1,397 85 863 250 2,024 1,028 1,271 2,294 1,940 782 1,828 22 67 79 136 145 191 233 294 299 303 308 324 327 342 354 369 370 384 411 412 412
422
430 436 445 473 483 Mississippi Alabama West Virginia Kentucky
United States
North Dakota District of Columbia New Jersey Arkansas Montana Nebraska Minnesota Wisconsin Colorado Ohio Oklahoma Kansas Iowa Illinois Michigan Indiana
Texas
Wyoming Alaska
Louisiana
2,908 4,548 1,814 4,173
296,507
635 582 8,703 2,776 935 1,758 5,127 5,528 4,663 11,471 3,543 2,748 2,966 12,765 10,101 6,266
22,929
509 663
4,507 Therms (millions)
1,406 2,238 899 2,091
149,466
331 322 4,853 1,570 561 1,084 3,259 3,548 3,189 7,990 2,502 1,962 2,126 9,180 7,597 4,970
18,478
653 896
8,845 Therms per capita
483 492 496 501
504
522 553 558 566 600 617 636 642 684 697 706 714 717 719 752 793
806
1,284 1,351
1,962 Sources:
Population - http://www.census.gov/popest/states/tables/NST-EST2006-01.xls
Therms - http://tonto.eia.doe.gov/dnav/ng/ng_cons_sum_a_EPG0_vgt_mmcf_a.htm 37
CO2 Emissions from Natural Gas Top 20 Emitting States
200,0 180,0 160,0 140,0 120,0 100,0 80,0 60,0 40,0 20,0 0,0 Number 3 TX CA LA NY IL MI OH FL PA NJ OK IN CO AK GA WI MA MN AL AZ
Note: This data represents 78.2% of all CO2 emissions due to natural gas consumption
Source: EIA, Released October 2008 (Data for 2005)
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Unconventional production can meets growth in natural gas demand and offset the decline in conventional production
trillion cubic feet 30 History Projections 25 20 Unconventional 15 10 Non-associated offshore Associated-dissolved Net imports 5
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0 1990 Non-associated conventional 1995 2000 2005 2010 2015
EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008
2020 Alaska 2025 2030
Shale Growth Drivers
Declining conventional gas production Increased need for power load following capacity Gas “Farming” 18 months => 80% of cumulative production Changes in technology Horizontal Drilling Improved Well Completion Techniques Well perforation Sequential Hydraulic fracturing 40
Unconventional Shale Gas Drilling, Vertical vs. Horizontal
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Haynesville Shale Marginal Cost
Haynesville
F&D LOE G&A Interest Basis Cash Drill Total with 15% ROCE 4Q08 $ 1.62
$ 1.12
$ 0.25
$ 0.10
$ 1.25
$ 2.72
$ 4.34
$ 5.49
2009 $ 1.30
$ 0.87
$ 0.25
$ 0.10
$ 0.75
$ 1.97
$ 3.27
$ 5.49
2010 $ 1.22
$ 0.92
$ 0.24
$ 0.10
$ 0.50
$ 1.76
$ 2.97
$ 5.49
2011 $ 1.14
$ 0.90
$ 0.23
$ 0.10
$ 0.50
$ 1.72
$ 2.86
$ 5.49
2012 $ 1.14
$ 0.89
$ 0.22
$ 0.10
$ 0.50
$ 1.71
$ 2.84
$ 5.49
Haynesville Shale Marginal Cost
$7,00 $6,00 $5,00 $4,00 $3,00 $2,00 $1,00 $ 4Q08 15% ROCE 2009 F&D 2010 2011 Cash 2012
World Natural Gas Prices for Industry ($US/MMBtu) Industries may be forced to other countries where natural gas can be considerably cheaper U. S.
$6.95
Mexico $4.12
Cuba $3.34
Venezuela $0.65
Argentina $1.09
Netherlands $4.25
W. Europe Slovakia $3.35
$4.12
Russia $0.80
N.
Africa $0.40
Middle East $0. 60 S.
Africa $5.36
China $6.85
Indonesia $1.13
Australia $3.42
Source: Energy Information Administration
Renewable Energy’s Image
Wind and Solar
PV Applications: Grid-connected homes
•
PV systems for homes
– Essentially reduces energy consumed from electrical grid – Use grid as a giant “battery” – Net metering is key to grid connected applications 46
Renewable Energy’s Fact #1- Hydropower
West African Deepwater Development Scheme
The Minor Role of Renewable Energy Consumption and Energy Supply, 2007 The Very Small Role of Solar and Wind
Solar and Wind = (.01+.07)*.07 =.56% Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels
COSTS:
As a general trend, clean-energy costs are falling as the costs of fossil fuel energy are going up. The future of clean tech is going to be, in some cases, about scaling up manufacturing and driving down costs.
Capital Costs for Electricity Production
4500 4000 3500
$/kW
3000 2500 2000 1500 1000 500 0
Technology
Source: EIA Annual Energy Outlook 2007, Assumptions, Table 39
Hydroelectric Power
• • •
Well-established technology Produces power reliably and at a competitive price Provides about 1/6 of the world’s energy and 90% of electricity from renewables
Hoover Dam, Nevada-Arizona 51
U.S. Technical Potential
Region
Asia S. America Europe Africa N. America Oceania World
Technical Potential (TWh/yr) Annual Output* (TWh/yr)
5093 2792 2706 1888 1668 232 14379 572 507 729 80 665 40 2593 *Based on average output for the four years 1999-2002 Source: Adapted from WEC, 2003b and BP, 2003
Output as % of Technical Potential
11% 18% 27% 4.2% 40% 17% 18% 52
Three Gorges dam, China 20 Gigawatts = 20,000 megawatts
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Environmental/Social Issues
Lines on sign show future water level New housing on cliff 54
CO 2 Emission Cuts – Costs of the EPA’s Proposed ANPR 55
IPCC-2007 FAQ
Ice Age Forcing and Response
[After Figure 6.3, ©IPCC 2007: WG1-AR4] IPCC-2007 FAQ T = Tilt in Earth’s axis P = Precession E = Eccentricity
IPCC-2007 FAQ
What Causes Global Warming?
Last interglacial Last Ice age [After Figure 6.3, ©IPCC 2007: WG1-AR4]
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2005 State Emissions by Sector
(Million Metric Tons of Carbon Dioxide)/year HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE State AK AL AR AZ CA CO CT DC DE FL GA Commercial 2.1
1.8
2.1
2.0
13.9
4.1
3.7
1.3
0.7
5.4
3.5
0.3
3.6
1.0
11.8
5.5
1.8
3.0
2.0
6.6
4.9
1.9
10.9
6.1
4.2
1.4
1.1
4.8
1.1
1.7
Electric Power 3.2
Residential Industrial Transportation 1.8
22.2
18.7
81.6
25.3
50.9
42.1
40.8
2.8
2.1
2.1
28.2
7.6
21.3
11.1
5.0
76.9
13.7
34.8
20.5
37.7
234.4
29.9
10.0
0.2
6.4
127.5
85.3
9.3
0.9
1.2
1.9
7.6
3.0
0.1
4.1
13.8
20.2
18.5
1.4
5.2
114.0
69.1
8.3
35.8
0.6
93.6
122.6
37.2
92.6
43.0
24.6
32.3
3.8
75.9
35.6
78.3
25.1
19.3
74.7
31.7
21.4
0.1
4.7
1.6
24.7
9.4
4.0
3.9
2.5
14.8
7.2
4.8
23.4
8.9
7.0
1.8
1.6
6.7
1.2
2.5
2.0
15.9
3.8
41.9
54.4
11.9
20.3
84.7
4.8
6.7
3.0
25.4
14.9
11.2
9.8
5.9
15.9
12.5
5.8
12.8
21.3
8.7
78.3
46.0
17.9
33.9
50.9
34.3
32.3
9.4
56.6
37.5
42.1
25.2
8.3
53.4
6.3
12.3
Total 48.1
142.2
61.2
97.7
395.5
96.0
44.4
3.9
17.7
262.6
185.7
23.4
81.3
15.7
250.4
237.9
72.8
153.8
183.1
85.1
83.4
22.9
192.3
103.0
142.8
63.1
36.2
155.6
52.8
43.6
State NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV* WY
Subt otal
Commercial 1.9
11.2
1.7
1.7
28.7
10.9
2.4
1.8
12.7
1.2
1.6
0.7
3.5
10.4
2.2
5.5
0.7
3.3
6.3
1.8
0.8
225.1
Electric Power 7.8
Residential Industrial Transportation 3.2
1.0
7.4
19.3
32.1
26.4
16.9
2.3
2.3
15.9
8.0
2.7
70.0
15.3
17.0
56.1
133.0
49.4
8.2
124.8
2.4
40.1
39.1
20.5
3.7
2.7
23.9
2.7
2.3
14.4
37.6
21.4
6.3
49.9
0.4
11.4
73.9
72.0
30.8
23.5
72.7
4.4
30.6
3.3
55.0
229.3
35.9
41.9
0.0
14.1
48.8
85.3
43.4
1.0
4.4
12.1
3.5
8.5
1.7
5.0
9.7
2.1
0.9
2.2
17.1
179.4
8.9
19.0
0.6
17.4
16.3
12.6
9.5
6.2
45.9
194.0
16.7
55.7
3.9
43.9
31.1
12.5
8.3
2,386.4
364.8
994.1
2,007.6 5,978.0
3.8% 39.9% 6.1% 16.6% 33.6% 100%
Total 21.3
133.4
59.5
50.1
212.2
274.0
107.7
42.5
284.0
11.1
86.0
13.3
125.9
625.2
67.2
130.6
6.8
83.8
112.1
114.3
62.9
EIA Energy Emissions Data - 10/2009
U.S. Carbon Dioxide Emissions By sector and fuel for 2007 actual and 2030 projected (million metric tons) EIA Energy Emissions Data- 10/2009
Climate: McKinsey’s Power Sector Emissions Reductions Estimate
Source: McKinsey Quarterly 1, 2007. “A cost curve for greenhouse gas reduction”
Economic Analysis of the EPA’s Advance Notice of Proposed Rulemaking
• • • • • • • Proposes to reduce CO 2 emissions levels to 70% below the levels that existed in 2005, by 2050 Implies a cumulative loss in GDP of $ 6.8 trillion by 2029 Implies annual non-farm job losses that peak at ~800,000/year Manufacturing jobs decline by 22.6% or 2,880,000 on top of a built in loss of 980,000 due to efficiency gains.
Specific sectors will be severely impacted Specific states will be severely impacted Louisiana loses on both fronts 64
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Economic Analysis of the EPA’s Advance Notice of Proposed Rulemaking II
• • • • • • • • Durable Manufacturing down by 28% Machinery mfg. down by 57% Textile mill employment down 27.5% Electrical equipment and appliance mfg. down 22% Paper business down by 36% Plastics and Rubber products down by 54% States with manufacturing intensity >1 will experience more severe losses.
Manufacturing intensity in Louisiana is #2 in the nation at 1.95
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•
What’s the Government Strategy?
Politicians want to reduce consumption of hydrocarbon transportation and power generation fuels • Since these are the most economically efficient fuels, they need to raise and enforce taxes, both direct and indirect, in order to favor less economic alternatives.
• However, taxing consumers directly, results in the rapid replacement of lawmakers.
• The latest government plan suggests $33 billion of higher indirect taxes on the upstream sector. In addition, EPA plans to also use the Clean Air Act to go after downstream industry and utilities at an initial annual cost of $79 billion rising to over $600 billion by 2030.
• The hope is that indirect taxes achieve the same results (higher prices for fuel and power) but with voter ire directed at suppliers, not policy makers.
• The Game Plan depends on the collective culpability of the voting population 70
Estimated effects of the EPA’s ANPR
(Advance Notice of Proposed Rulemaking) • • • • • • • • Proposal is to reduce CO 2 emissions levels to 70% below the levels that existed in 2005, by 2050 Implies a cumulative loss in GDP of $ 6.8 trillion by 2029 Implies annual “non-farm” job losses that peak at ~800,000/year Manufacturing jobs decline by 22.6% or 2,880,000 on top of a built in loss of 980,000 due to forecasted efficiency gains. “Cap and Trade” would add a climate related tax to the total tax bill in 2012 of ~$79 billion or about .5% of GDP. This would escalate to over $600 billion by 2029 Specific sectors will be severely impacted Multiple states will be severely impacted Louisiana will be severely Impacted 71
•
”Cap and binge”
Combating climate change will be expensive, swapping cheap fuels for cleaner but dearer ones. • It also requires building new power plants to replace older ones.
• The public and business will pay more for energy supplies required to run the country.
• Bottom line is that the cost per ton of CO covered. 2 removed will escalate from approximately $15/ton for a pure cap and trade system with no exemptions to somewhere between $69 and $137/ton once all of the “special” situations are • You would expect states that rely on coal will suffer the most, unless protected by government exemptions. Those that produce and refine petroleum will also
suffer and will not be protected by exemptions.
• Far better for the government to focus on handouts for low tech energy efficiency improvements (doors, windows, insulation etc.) as well as on enhanced R&D spending on new technology. In both the latter cases the stimulus effect is
almost immediate.
72 Source- The Economist
Cost: Impact of a Carbon “Tax”
10.
00 Levelized Cost of Electricity by Source 9.
0
Wind @ 29% CF
8.
0 7.
0
NGCC @ $6 gas IGCC w/o CCS Biomass
6.
0 5.
0 4.
0 3.
0 0
Pulverized Coal w/o CCS
10
Nuclear
Energy Efficiency 20 30 40
Carbon price: Dollars per ton Source: ACEEE, 2007
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1) 2) 3) 4) 5) 6) 7) 8)
Alternative Policy Recommendations
Reduce the rhetoric on CO 2 and plan on having a sustainable economic environment. (That’s what China and India are doing). Return the CO 2 climate models.
debate to a discussion of time frame and causality. Do more work on the Spend stimulus money on low tech solutions and on high tech research.
If politically necessary, increase direct taxes on gasoline and diesel to reduce consumption and increase the viability of renewable fuels, but don’t hide behind mandates and regulatory administrative interpretations. Just tax the fuel at the pump. The mechanism exists and the tax rate can be varied easily to meet unpredictable changes in crude cost.
Whatever the political decisions “grandfather” in investments that result from those decisions. Otherwise there won’t be any investments.
Use science and economics to set standards and regulate industry. These long term issues should not be subject to re-election cycles ranging from 2 to 6 years. Nothing is going to be approved, installed or amortized if policy continues to change every two years. Beware unintended consequences, most recently seen with the food vs. fuel debate.
Beware IPCC and NASA climatology models. They come with an agenda. 74
Questions?
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