david e. dismukes, ph.d. center for energy studies louisiana state university america’s natural...
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David E. Dismukes, Ph.D.Center for Energy StudiesLouisiana State University
America’s Natural Gas Advantage: Securing Benefits for Ratepayers Through Paradigm Shifts in Policy
SEARUC 2011 Annual ConferenceNashville, TennesseeJune 14, 2011
Center for Energy Studies
Center for Energy Studies
The Golden Age of Natural Gas
2© LSU Center for Energy Studies
19731975
19771979
19811983
19851987
19891991
19931995
19971999
20012003
20052007
20090
50
100
150
200
250
300
0
5
10
15
20
25
30
Reserves Production
U.S. Natural Gas Production and Proved Reserves, January 2007 to Present
Center for Energy StudiesR
eser
ves
(Tcf
)
Source: Energy Information Administration, U.S. Department of Energy. 3© LSU Center for Energy Studies
2006-2007 reserves growth is the largest in over 30 years. On average, natural gas reserves have been increasing by 5 percent per year since 2000
(except 2004-2005 tropical season, 2 percent).
Prod
uction (Tcf)
Proved gas reserves at 272.5 Tcf, their
highest level.
Proved gas reserves at 272.5 Tcf, their
highest level.
Supply Implications
Center for Energy Studies
Annual Percent Change in Base Rate versus Fuel Rate – Natural Gas
4© LSU Center for Energy Studies
Inde
xed
Rat
e (
199
5=1)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Base Rate
Fuel Rate
Source: Federal Energy Regulatory Commission.
Gas price decreases have been translated into direct bill reductions for many ratepayers.
Base rates = 28.3%Fuel rates = 88.0%
Base rates = 36.5%Fuel rates = - 25%
Crude Oil and Natural Gas Prices
Center for Energy Studies Pricing Trends
Ratepayers have also seen considerable benefits from reduced natural gas pricing volatility.
5© LSU Center for Energy StudiesSource: Intercontinental Exchange.
Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
5-year average through 2000: $2.89
(standard deviation: $1.46)
$/M
cf
average for period2000-2001 heating season
through 2008: $6.25(standard deviation: $2.40)
since 2009: $4.17(standard deviation: $0.72)
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20100%
10%
20%
30%
40%
50%
60%
70%
80%
Fuel
Non-Fuel
Per
cen
t of
Tot
al (
%)
Source: Energy Information Administration, U.S. Department of Energy.
Gas and Non-Gas Costs in U.S. Distribution Rates
Center for Energy Studies Pricing Trends
Natural gas price decreases have help reduce the overall share of ratepayers’ bills from fuel (PGA) purchases. This has important implications for future regulatory decisions.
Basin Competition
Center for Energy Studies
7© LSU Center for Energy Studies
Natural Gas Uses
ShaleResources
(Tcf)
Asia Pacific 6,155 North America 3,842 Middle East 2,548 South America 2,117 Asia 627 Europe 549 Africa 274
Worldwide 16,112
Shale production is not a domestic, “flash in the pan” supply opportunity. The opportunity spans the globe
regardless of what we do in North America.
Source: Energy Information Administration, U.S. Department of Energy
Center for Energy Studies
New Gas Uses: Threat or Opportunity?
8© LSU Center for Energy Studies
Natural Gas Consumption by Sector
Center for Energy Studies
9© LSU Center for Energy Studies
Natural Gas Uses
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Residential Commercial Industrial Electric Power NGV
Nat
ura
l Gas
Con
sum
ptio
n (T
cf)
NG
V C
onsu
mption
(Bcf)
Source: Energy Information Administration, U.S. Department of Energy
Currently, NGVs account for less than 0.18 percent of U.S. natural gas consumption, but the rate of growth in consumption (158 percent) over the past
decade has surpassed all other end-uses.
Potential Natural Gas Consumption – NGV
Center for Energy Studies
10© LSU Center for Energy Studies
Natural Gas Uses
20082010
20122014
20162018
20202022
20242026
20282030
20322034
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
Consumption Percent of Total
Nat
ura
l Gas
Con
sum
ptio
n (T
cf)
NGV consumption of natural gas is estimated to increase at an average annual rate of 7 percent through 2035. At best, this usage will be considerably less than 1 Tcf
and slightly over one-half of one percent of total natural gas market.
Source: Energy Information Administration, U.S. Department of Energy
NG
V C
onsu
mption
(% of Total)
NGV use of natural gas will stay below
one percent of total U.S. natural gas consumption.
NGV use of natural gas will stay below
one percent of total U.S. natural gas consumption.
Center for Energy Studies
Considerable Underutilized LNG Regasification Capacity along GOM
A
B
C
D
E
Existing
JF
ExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 BcfdE. Energy Bridge, GOM: 0.5 BcfdF. Northeast Gateway, Offshore MA: 0.8 BcfdG. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)H. Sabine, LA: 4.0 BcfdI. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion)J. Neptune, Offshore MA: 0.4 BcfdK. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion)Under ConstructionL. Pascagoula, MS: 1.0 BcfdApprovedM. Corpus Christi, TX: 1.0 BcfdN. Corpus Christi, TX: 2.6 BcfdO. Fall River, MA: 0.8 BcfdP. Port Arthur, TX: 3.0 BcfdQ. Logan, NJ: 1.2 BcfdR. Port Lavaca, TX: 1.0 BcfdS. Baltimore, MD: 1.5 BcfdT. LI Sound, NY: 1.0 Bcfd
HIK
Regasification
Under ConstructionApproved
ExistingLiquefaction
Under Construction
Approved
G
L
MN
OT
P
Q
R
S
Center for Energy Studies
Policy Conflicts
12© LSU Center for Energy Studies
Policy Arguments and Debate
Center for Energy Studies
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Natural Gas Producers’ Viewpoint:
• Industry has stepped up to the plate and applied significant cash into sub-surface mineral rights and advanced drilling techniques to deliver a historic record level of natural gas reserves that has the strong potential to provide over a century’s worth of lower cost, environmentally friendly resources.
• However, producers need some price growth to ensure continued drilling profitability, otherwise, markets will revert to their traditional “boom-bust” cycles leading to increased costs and price volatility for consumers.
• New markets in the transportation sector and abroad, through natural gas exports, could be important tools.
Natural Gas Uses
Policy Arguments and Debate
Center for Energy Studies
14© LSU Center for Energy Studies
Natural Gas Consumers’ Viewpoint:
• Consumers (and industries) have paid through the nose over the past decade for their energy resources.
• It is likely that high energy costs led to, or at least contributed to, the most significant economic recession in U.S. history.
• American consumers (and industries) need this period of low-cost energy resources (particularly natural gas) to facilitate a meaningful economic recovery.
• Subsidizing new end uses for natural gas, and facilitating the export of any low-cost energy resource, is likely to jeopardize the current economic recovery.
Natural Gas Uses
Policy Arguments and Debate
Center for Energy Studies
15© LSU Center for Energy Studies
Who’s Right? – Does it Matter? – What is the Reality of the Situation:
• New uses for natural gas transportation may be inevitable, regardless of subsidies, given recent and projected crude oil and refine product prices. The relative economics already favor these applications and are moving more in that direction.
• The U.S. has a long history of exporting a variety of energy resources. Trade restrictions would set a slippery slope and, regardless, are unlikely given past and recent approvals.
• Becomes incumbent upon consumers and regulators to reassess current policies relative to these changes in order to avoid negative longer-run outcomes. Large number of current policies are based upon 2005-2006 energy market imperatives that have questionable bearing today.
Natural Gas Uses
Center for Energy Studies
RPS States (April 2011)
16
ME40% by
2017
VT Goal:25% by 2025
NH: 23.8%by 2025
WI: 10%by 2015
MT: 15%by 2015
IA: 105 MW
MN: 25%by 2025
WA: 15%by 2020
CA: 33%by 2020
NV: 25%by 2025
AZ: 15%by 2025
NM: 20%by 2020
UT: 20%by 2025
TX: 5,880 MWby 2015
MO:15%
by 2021
IL: 25%by 2025
NC: 12.5% by 2021
VA: 15%by 2025
PA*: 18%by 2020
NY: 30% by 2015
State RPS
State Goal
OR: 25%by 2025
CO: 30%by 2020
ND: 10%by 2015
SD: 10%by 2015
OH*: 25%by 2025
MA: 22% by 2020RI: 16% by 2020CT: 23% by 2020NJ: 22.5% by 2021MD: 20% by 2022DE: 25% by 2026DC: 20% by 2020
Note: As of April 2011; *Ohio and Pennsylvania include separate tier of non-renewable ‘alternative’ energy resources.Source: Database of State Incentives for Renewables and Efficiency; Pew Center on Global Climate Change
MI: 10%+1,100 MW
by 2015
AK Goal: 50% by 2025
HI: 40%by 2030
WV: 25% by 2025
Currently 37 states have RPS policies in place. Together these states account for over 60 percent of electricity sales in the U.S. This will likely displace a considerable amount of natural gas generation.
OK: 15%by 2015
KS: 20%by 2020
Center for Energy Studies
Policy Conflicts, RPS Adoption and Revisions
17
Major Revisions (below timeline)
( ) Year of First Requirement
Enactment (above timeline)
CO (2007)
HI (2005)
IL (2008)
MA (2003)
CT (2000)
MD (2006)
DC (2007)
NH (2008)
MI (2012)
ME (2000)
PA (2001)
NJ (2001)
NY (2006)
DE (2007)
NC (2010)
MO (2011)
MN (2002)
AZ (1999)
NV (2001)
WI (2000)
TX (2002)
NM (2002)
CA (2003)
RI (2007)
MT (2008)
WA (2012)
OR (2011)
OH (2009)
KS (2011)
•
1983 1991 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
IA MN AZ MN NM CT NJ CT AZ CA DC DC CO
WI NV MN NM CO CA CO DE HI DE
NV PA NV CT CT MA IL IL
TX HI DE MD ME MA
NJ MD NJ MN MD
WI ME NV NJ
MN OR NY
NJ RI
NM
PA
TX
XX
XX
Most state RPS revisions have been to increase overall requirements (or extend and expand over time). Works to displace natural
gas generation at the margin, and potential lead to less efficient operation of the gas
generation that does operate.Source: Ryan Wiser, State of the States: Update on RPS Policies (2010).
AD
OP
TIO
NR
EV
ISIO
N
Policy Conflicts, Energy Efficiency Mandates
Center for Energy Studies
18© LSU Center for Energy Studies
Natural Gas Uses
CT: 1.5% annual utility savings, 10% peak
RI: reduce consumption 10% by 2022
NJ: BPU proceeding to reduce consumption, peak
DE: reduce consumption 15%; peak 10% by 2015
PA: reduce consumption 3%; peak 4.5% by 2013
MD: reduce electricity use and peak 15% by 2015
VA: reduce electric use 10% by 2022
WV: EE & DR earn credits in A&RES
AR: 0.75% electricity savings by 2013
NC: EE to meet up to 25% of RPS by 2011
FL: 3.5% energy savings and summer and winter peak reductions by 2019
OR: 1% annual savings by 2013
CA: save 1,500 MW, 7,000 GWh; reduce peak 1,537 MW: 2010-12
NV: 0.6% annual savings (~5%) to 2015; EE to 25% of RPS
UT: PUC examining 1% annual
CO: 11.5% energy savings by 2020
AZ: at least 22% cumulative savings by 2020; peak credits
NM: 10% retail electric sales savings by 2020 .
OK: EE up to 25% of renewable goal
TX: 25% annual savings in 2012; 30% in 2013 and beyond
HI: 30% electricity reduction by 2030
WA: pursue all cost effective conservation: ~10% by 2025
MN: 1.5% annual savings to 2015
IA: 1.5% annual; 5.4% cumulative savings by 2020
WI: 1.5% electric savings by 2014; 15% peak reductions
MI: 1% annual energy savings
IL: 2% energy reduction, 0.1% peak by 2015
IN: 2% energy savings by 2019
OH: 22% energy savings by 2025 ; 8% peak by 2018
Note: As of April 15, 2011.Source: Federal Energy Regulatory Commission.
ME: 1.4% annual energy savings by 2013
VT: 2% annual; 11% cumulative energy reductions by 2011
MA: 2.4% annual electricity savings by 2012
NY: reduce electric use 15% by 2015
EE in renewable goal
EERS by regulation or law (stand-alone)
EE in RPS (hybrid)
EE regulations pending
The economics of energy efficiency should be re-evaluated – difficult to argue that a standard based
upon natural gas prices in excess of $10/MMBtu can lead to large reductions in sales.
Policy Conflicts, Revenue Decoupling
Center for Energy Studies
19© LSU Center for Energy Studies
Natural Gas Uses
Decoupling is pending (2 states)
Decoupling has been rejected (3 states)
Decoupling has been approved (26 states)
No decoupling in place (18 states)
Note: The Connecticut and Rhode Island legislatures have required decoupling, but all natural gas proposals have been rejected thus far. In Montana, decoupling was approved by the PSC, but the utility (NorthWestern Energy) has asked a court to void the rate structure.
Decoupling is mandated by legislature, but not yet approved by Commission. (1 state)
Adopted DecouplingNatural gas: 21 statesElectric: 12 states
Several states have adopted policies intentionally designed to encourage utilities to sell less gas
(throughput incentive) not consistent with pushing new cost-effective/efficient natural gas uses.
Policy Conflicts, Fuel Diversity
Center for Energy Studies
20© LSU Center for Energy Studies
Natural Gas Uses
Note: Nuclear plants include companies that have announced the intent to submit applications to the U.S. Nuclear Regulatory Commission for new plant licenses.Source: Nuclear Energy Institute; and Sierra Club.
Nuclear plants under development (14)
IGCC plants under development (2)
Proposed IGCC plants, likely suspended/cancelled (7)
The economics of very high cost per kW generation for new solid fuel resources are moving
very quickly away from their development.
Center for Energy Studies
Conclusions
21© LSU Center for Energy Studies
Conclusions: Gas Markets, Consumers, and Regulators
Center for Energy Studies
22© LSU Center for Energy Studies
2010 natural gas consumption totaled 22.2 Tcf. Regulators still influence a big part of this market.
Natural Gas Uses
Residen-tial
22.3%
Com-mercial14.5%
Industrial29.8%
Vehicle Fuel0.1%
Electric Power33.3%
Center for Energy Studies
Conclusions
23© LSU Center for Energy Studies
• Paradigm shifts require re-evaluation of prior goals and priorities, many of which were established in a period when natural gas prices were high, supplies were limited, and imports were likely to serve ever increasing shares of the market.
• Natural gas price points and supply availability need to be re-evaluated relative to energy efficiency goals, renewable rate impacts, new baseload generation technologies (IGCC and nuclear) and rate design.
• Not an argument to “stick” utilities with the costs for resources initiated under prior regulatory or legislative direction.
• But it is an argument to begin the process of evaluating changing market conditions and make necessary mid-course changes now in order to reduce ratepayer costs and the likely stakeholder conflicts that will arise if the current paths are pursued.
Conclusions
Policy Changes Already in the Wind?
Center for Energy Studies
24© LSU Center for Energy Studies
Natural Gas Uses
Under the revised natural gas usage forecast, maintaining the goal set in the 2008 EMP would result in reducing natural gas consumption by 231 Bcf in 2020. This amount represents 32% of the revised baseline level. For reasons discussed below, the State does not believe that this goal is reasonable, realistic, or consistent with the environmental or energy security goals delineated elsewhere in this document. The natural gas reduction goal must be reviewed … the Christie Administration does not support the 231 Bcf target natural gas reduction set forth in the 2008 EMP. Economic and environmental goals will be served better by increasing rather than decreasing total natural gas use throughout New Jersey, while striving for more efficient use of natural gas for each application. [New Jersey Draft 2011 Energy Master Plan, emphasis added].
Center for Energy Studies
Questions, Comments and Discussion
25