1 free markets & natural gas october 14, 2011 by: john a. harpole presentation to: crea energy...
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Free Markets&
Natural Gas
October 14, 2011By:
John A. Harpole
Presentation to:CREA Energy Innovations Summit
Denver, CO
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Forward Looking Statements/Cautionary Note
This presentation is incomplete without reference to, and should be viewed solely in conjunction with the oral briefing provided by Mercator Energy.
Except for the historical information contained herein, the matters discussed in this presentation are forward-looking statements that are based upon current expectations. Important factors that could cause actual results to differ materially from those in the forward-looking statements include risks inherent in exploratory drilling activities, the timing and extent of changed in commodity prices, unforeseen engineering and mechanical or technological difficulties in drilling wells, availability of drilling rigs and other services, land issues, federal and state regulatory developments and other risks.
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Presentation to Senate Business and Commerce Committee & Senate Natural Resources Committee, April 15, 2008.
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Lost in Beijing
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Free Markets
“Consider for a moment that any one person can only know a fraction of what is going on around him. Much of what that person believes will be false rather than true…”
- F.A. Hayek in his “The Constitution of Liberty”
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Free Markets
“It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.”
- F.A. Hayek in his “The Constitution of Liberty”
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Range of Levelized Cost of New Generating Technologies Due To Regional Cost Differences, 2016
Source: Institute for Energy Research, Levelized Cost of New Electricity Generating Technologies, Updated February 1, 2011; Energy Information Administration, Annual Energy Outlook 2011, http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html
Plant Type
Range for Total System Levelized Costs (2009 ¢/megawatt hour)
Minimum Average Maximum
Conventional Coal 8.55 9.48 11.08
Advanced Coal 10.07 10.94 12.21
Natural Gas-fired
- Conventional Combined Cycle 6.00 6.61 7.41
- Advanced Combined Cycle 5.69 6.31 7.05
Advanced Nuclear 10.97 11.39 12.14
Wind 8.19 9.70 11.50
Wind - Offshore 18.67 24.32 34.94
Solar PV 15.87 21.07 32.39
Solar Thermal 19.17 31.18 64.16
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Scientific Observation
Science is common sense at its best that is rigidly accurate in observation and merciless to fallacy in logic.
- Thomas Huxley
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Output is Not Correlated with LoadTypical 100 MW Wind Plant Generation vs. Hourly System
Load
0102030405060708090
100
12:0
0 A
M1:
00 A
M2:
00 A
M3:
00 A
M4:
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M6:
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M9:
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M10
:00
AM
11:0
0 A
M12
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PM
1:00
PM
2:00
PM
3:00
PM
4:00
PM
5:00
PM
6:00
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M11
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Win
d G
en
era
tio
n (
MW
)
2000
2500
3000
3500
4000
4500
5000
5500
Sy
ste
m L
oa
d (
MW
)
Wind Generation (MW) Load (MW)
Source: Brett Oakleaf, Invenergy LLC
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Xcel Defined Wind Event: 7/2/2008
Coal Wind
Gas
Source: PSCo Training Manual
4:00 AM 8:00 AM
When Wind Blows At Night, Coal Gen Ramps Down
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Cycling of Coal Plants Has Increased With Greater Wind Generation
Cycling event is defined as a > 5% change in generation output hour over hour
ERCOT
Incidence ofCoal Cycling
Source: Bentek Energy
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Generation Stacks Differ Across The Country
NatGas56%
NatGas47%
Nuclear11% ERCOT
CAISO
Nuclear 4%
Nuclear24%
NatGas17%
NatGas4%
MISO
BPA
Source: Bentek Energy
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Average US Cost For Saving CO2: $56/ton
Assumes tax subsidy of $22/MWh, with pre-tax value of $34/MWh
MW
of
Win
d N
eed
ed T
o S
ave
1 T
on
CO
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Source: Bentek Energy
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Colorado as a Laboratory
37Cleaner Air
Cheaper Energy
The Renewable Energy Standard Promise:
2004 Campaign Yard Sign
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Expensive Laboratory
• Bills for Xcel Energy’s 1.4 million electricity customers in Colorado are up 21 percent in the past six years
• Over the next six years, rates are expected to increase another 20 percent
Source: http://www.denverpost.com/fdcp?1297096466537
18Source: Informational Briefing before the Colorado Public Utilities Commission, HB10-1365, Clean Air/Clean Jobs Act Air Quality Implementation, Paul R. Tourangeau, Colorado Department of Public Health & Environment, April 26, 2010
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ME
NHVT
MARI
NY
NJ
DEMD
PA
VA
NC
WV
OH
MIWI
MN
IA
IL IN
KY
TNSC
FL
GAAL
MS
LA
AR
MO
TX
OK
KS
NE
NM
CO
WY
MT ND
SD
UT
AZ
NV
ID
WA
OR
CA
CT
3%4 plants
5% 3 plants
5% 3 plants
6% 5 plants
7% 6 plants
8% 6 plants
8% 8 plants
13% 9 plants
14% 8 plants
3%3 plants
3%3 plants
4%2 plants
2% 3 plants
2% 4 plants
1% 1 plant
1% 1 plant
1% 1 plant
1% 1 plant
1% 1 plant
1% 1 plant
0.4% 1 plant
0.3% 1 plant
75 Worst Coal Power PlantsPercent of Total Pollution
Sources: “Dirty Kilowatts – America’s Most Polluting Power Plants”, Environmental Integrity Project (July 2007),EIA-860 December 2008, Analysis/Summary by F.P. LeGrand
Population < 1 million 1-5 million 5-10 million10-15 million > 15 million
Population < 1 million 1-5 million 5-10 million10-15 million > 15 million Shale plays
2020Source: America’s New Natural Gas, America’s Natural Gas Alliance
EVOLUTION IN GAS WELL COMPLETION TECHNOLOGY
- THE KEY TO TODAY’S NATURAL GAS REVOLUTION
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Cody
PierreFayetteville
Haynesville
Eagle Ford
Horn River
Montney
Deep Basin
Colorado Group
Mowry
Gammon
Bakken
Baxter/Mancos
Mancos
Barnett/Woodford
Barnett
NEW SHALE PLAYS IN NORTH AMERICA
MulkyNew Albany
Antrim
Marcellus/Ohio/Huron
Utica
Woodford
Floyd-Neal
Niobrara
Lewis
Source: America’s Natural Gas Alliance website
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Eastern U.S. Gas Shale BasinsResource
Endowment (Tcf)
Produced/Proved Reserves (Tcf)*
Undeveloped Recoverable
Resource (Tcf)*
Barnett 250 19 40
Fayetteville 320 3 50
Woodford 300 2 30
Haynesville 790 1 130
Marcellus 1,760 - 220
Total 3,420 25 470
*As of end of 2008
U.S. Proved Natural Gas Reserves as of 2005: 192.5 Tcf
Source: Gas Shales Drive the Unconventional Gas Revolution, Vello A. Kuuskraa, Advanced Resources International, Inc., 3/5/2010
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Forecasts for Shale Gas Resource?
• 2008 - 347 TCF - Energy Information Administration (EIA)
• 2008 - 840 TCF - Navigant for Clean Skies Foundation
• 2009 - 616 TCF - Potential Gas Committee (PGC)
• 2011 - 827 TCF - Energy Information Administration (EIA)
“In 2010, U.S. shale gas production reached 4.87 Tcf, up from 0.39 Tcf in 2000, and total domestic natural gas production was 21.2 Tcf.”*
Source: Various resource estimates
*Docket No. 10-161 LNG, In the Matter of: Freeport LNG Expansion, L.P., FLNG Liquefaction, LLC; Motion for Leave to Answer and Answer of Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC to Motion for Leave to Intervene and Protest of the American Public Gas Association
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Concerns About Fracing Are Misplaced
Water Aquifer
Several ThousandFeet of
ImpermeableRock
Fracture Stimulation
Cement Casing
Upper Well Close-upSource: BENTEK
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$3.4B
$1.3B
$1.7B
$1.3B
$1.0B
$1.3B
$5.4B
$2.1B
$1.5B
$4.8B
$.4B$1.3B
PetroChina/Encana
ITOCHU/MDU Resources
CNOOC/Chesapeake
CNOOC/Chesapeake
BHP/Chesapeake
KNOC/Anadarko
BG/EXCO
BG/EXCO
Reliance/Pioneer
Reliance/Atlas
Statoil/Chesapeake
Statoil/Talisman
$12.1 B
BHP Plans to Acquire Petrohawk
Foreign Investment in U.S. Shale
Source: Dr. Jim Duncan, ConocoPhillips, Decoding the Relevance of Abundant Supply, 2011 COGA Presentation
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Conclusions• Coal: The free market and the regulatory
environment have spoken…coal fired electric generation will never again see the dominant market share that it has enjoyed over the last century.
• Wind and Solar: In tough economic times, there will be much more ratepayer scrutiny on the real economics and subsidies of both forms of renewable energy.
• Emission savings due to wind generation vary by territory based on fuel mix of offset. The greater the market share of natural gas, the lower the savings potential.
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• Cost of offsetting carbon through wind generation is far above values implied by recent legislative efforts for most of US suggesting that subsidizing wind generation is not a cost-effective means of reducing CO2
• Emission savings rates from wind will decline as the market share of natural gas increases. Therefore, policies to promote wind are in conflict with efforts by the EPA to tighten limits on air pollution.
Conclusions (cont’d)
Source: BENTEK, The Wind Energy Paradox, 2011 MITEI Symposium
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Conclusions (cont’d)• Natural Gas: An overabundance of supply will create
new demand in U.S. and overseas export markets.
• Analysts in the U.S. gas market have historically utilized linear model forecasts to predict the long term price for natural gas. The fundamental assumptions behind those static linear projections have been incomplete in the past and are subject to the same deficiencies in the future.
• The ever changing “human element” behind natural gas supply and demand does not fit a smooth, predictable linear curve.
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Citations for ReportAll of the information utilized for this report is a compilation of information pulled from the following data sources: Bentek Energy Institute for Energy Research (IER) Energy Information Administration (EIA)Bernstein ResearchDr. Jim Duncan, ConocoPhillipsElectric Power Research Institute (EPRI)EnCanaSteve Mufson, Washington Post, 01/02/2011America’s Natural Gas AllianceJames Dominick, Xcel EnergyRobert BryceAmerican Wind Energy AssociationWestern Energy AllianceJohn Eagleton, Kinder MorganBill Bradley, EnterprisePaul R. TourangeauBrett Oakleaf, Invenergy LLCTad TrueStephen Moore, Wall Street JournalGeorge H. Wayne, El Paso Pipeline Group
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John A. HarpolePresident
Mercator Energy LLC26 W. Dry Creek Circle, Suite 410
Littleton, CO [email protected]
(303) 825-1100 (work)(303) 478-3233 (cell)
Contact Information