1 the quiet but important role of natural gas in the new energy economy by: john harpole...

1

The Quiet But Important Role of Natural Gas in the New Energy EconomyBy: John Harpole

Presentation to:

Grand Junction Chamber of Commerce

August 26, 2009

4

Nancy Pelosi appeared on Meet the Press*

BROKAW: …If we work our way off carbon-based fuels, in the meantime, this is not going to happen overnight.

PELOSI: No, it isn’t, but you could – again, you could reduce the price at the pump immediately with (inaudible). You can have a transition with natural gas. That is cheap, abundant and clean compared to fossil fuels.

***PELOSI: I’m – I’m investing in something I believe in. I believe

in natural gas as a clean, cheap alternative to fossil fuels.***PELOSI: Well, that’s not – that is the marketplace. The fact is,

the supply of natural gas is so big, and you do need a transition if you’re going to go from fossil fuels, as you say, you can’t do it overnight, but you must transition.

Is Natural Gas Misunderstood?

*From the transcript of her appearance during the Democratic National Convention, 2008

5

Electric Generation by Energy Source*

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1996 2002 2007

MW

per

yea

r

Coal

Natural Gas

Source: EIA, Existing Net Summer Capacity

A 225% increase in eleven years for natural gas.

6

NYMEX Henry Hub Natural GasHistorical Price 1996*- 2008

Actual/Forecast 2009**(year on year 10% decrease in demand for natural gas)

Source: *Average of last three days of trading as published in the Platts Gas Daily Report

** Future forecasts based on Henry Hub indices in Clearport Software as of 8/17/09

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$10.00

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

7

Capacity Utilization of U.S. Natural Gas Turbines

Total Capacity MW (Utility & IPP)

2007 Generation MW 2007 Capacity Factor

396,921 701,503,676 20.18%

Source: 1. Electric Power Annual, EIA, 2007 (Washington DC, January2009)

2. EIA 860, Existing Nameplate Capacity by Energy Source, Producer Type and State

3. EIA 906, Net Generation by State by Type of Producer by Energy Source

8

Utilization of Coal-Fired Generation Utilities and IPP’s in 2007

Total Capacity MW 2007 Generation MW 2007 Capacity Factor

315,401 1,905,427,296 68.96%




9

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

Source: Energy International Agency, World Proved Natural Gas Reserves, Jan. 2008

Tcf/

year

YearTrillion

Cubic FeetAnnual Growth

2000 167.4 2.1%

2001 177.4 6.0%

2002 183.5 3.4%

2003 186.9 3.4%

2004 189.0 3.4%

2005 192.5 1.8%

2006 204.4 6.2%

2007 211.1 3.3%

Proved Natural Gas ReservesProved Natural Gas Reserves

Bigger reserves now = more production later

10

Technology Break-

through on Shale Gas

11

Estimated Ultimate Recovery

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

WoodfordArkoma Shale

FayettevilleShale

Barnett Shale HaynesvilleShale

MarcellusShale

TCF

World Class Natural Gas Reserves Now Emerging

8 TCF26 TCF

44 TCF

251 TCF 262 TCF

Nearly 600 Tcf of potential natural gas reserves in just five key U.S. shale plays, which is equivalent to 100 billion barrels of oil, or ~3x U.S. proved oil reserves

Source: Chesapeake internal estimates

12

U.S. Natural Gas Shale Basins Align with Pipeline Grid

American Clean Skies Foundation

Sources: EIA, US Natural Gas Pipeline Nework

©2008 Navigant Consulting, IncNorth American Natural Gas Supply Assessment, prepared for American Clean Skies Foundation, July 4, 2008.

1313

US Population Distribution 2000

14

Renewables and Natural Gas

•State of Colorado Policy

•Federal Policy

15

Mandates for Renewables in Colorado/Does Colorado presage

the national debate?• Colorado’s Amendment #37 – 1st state to

adopt a renewable energy standard by ballot– Passed November 2, 2004

• For: 1,066,023 (53%)• Against: 922,577 (47%)

– Required 3% of electricity sales to be derived from renewable sources by 2007, 10% by 2015

16

Mandates for Renewables in Colorado (cont’d)

• Legislative response to Amendment #37– Renewable energy standard is adopted– Retail rate impact increased to 1% of retail

sales as compared to conventional resources

17


• 2007 Renewable Energy Standard is amended– Investor Owned Utilities ie: PSCo & Black Hills

• 3% for 2007• 5% for 2008 – 2010• 10% for 2011 – 2014• 15% for 2015 – 2019• 20% for 2020 – thereafter

– Increased the retail rate impact to 2%

Source: Judy Matlock of Davis, Graham and Stubbs

18


• Does PUC Section 123 order effectively exclude costs related to wind and solar from 2% retail rate impact?

• Least cost planning by utilities is effectively eliminated by renewable mandates

An issue that deserves an informed and vigorous critique:

What is the real cost to each Colorado household/ratepayer for renewable mandates?

19

Renewables at the Colorado State Level – It’s about scale.

• 2005 electric generation broken out as follows:– 72% coal-fired generation– 24% natural gas fired generation– 4% hydro, wind and solar generation

• To meet the 2020 goal, up to 2,700 MW of existing coal generation, out of about 4,900 MW operating may need to be retired.

Source: Reducing Colorado’s Electric Sector Greenhouse Gas Emissions: The Difficulty of “Running Down and Up Escalator” A White Paper, Holy Cross Energy, February 2009

20

Cost to Meet the Governor’s Climate Action Plan: 2050 Goal?

“Today every 1,000 kilowatt-hours sold in Colorado comes bundled with nearly 2,000 pounds of carbon dioxide. A tenfold decrease in that ratio would be needed to achieve 80% reductions by 2050. In that year, almost all of the state’s electricity would have to be produced from non-emitting sources.


21

Cost to Meet 2020 Reduction Target?

• For Holy Cross Energy: “This would raise wholesale electric rates 19-45% above normal cost escalation, depending on which scenario was implemented.”


22

Remember: Gas Turbine Utilization in Colorado

Utility Nameplate Capacity, MW

IPP Nameplate Capacity, MW

Total Capacity MW

2007 Generation MWh

2007 Capacity Factor, %

1,973 3,224 5,197 13,425,779 29.49%




23

Renewables at the Federal Level – It’s about scale

• Total MW generated in one year in U.S.

• Total MW generated by wind & solar

• % of total for wind & solar renewables

4,118,198,000 MW/hrs

45,493,000 MW/hrs

1.1%

Source: EIA Data, December 1, 2007 – November 30, 2008

24

Federal View - Will “Cap & Trade” Become a Reality?

• President Obama’s 2010 budget estimates $79 billion in “cap & trade” income in 2012 an amount that would hit $646 billion in 2019.

• The President furthermore states that a “cap & trade” proviso would reduce CO2 emissions by 14% by 2020 and by 83% by 2050 all based on 2005 levels.

• That’s one Gigaton of CO2 reduction in emissions which is equal to:– 132 nuclear plants or– 127,000 wind turbines

25

Federal View - Will “Cap & Trade” Become a Reality? (cont’d)

• Duke Energy’s Chief Executive, Jim Rogers (who supported Obama and who backs “cap & trade”) fears that if credits are auctioned off, it could cause electricity rates to jump 40% in some regions.

• Estimate of “cap & trade” cost to the average American family is $3,100 per year.

Source: Congressman Doc Hastings, WA

26

The Goal

“A reduction in the levels of carbon dioxide being emitted into the global atmosphere is the most important environmental benefit from wind power generation.”

- Global Wind Energy Council

Global Wind Energy Council, “Global Wind Energy Outlook 2008,” 46. Available: http://www.gwec.net/index.php?id=92

http://www.gwec.net/index.php?id=92

27

The Reality

“…wind power will cut global annual carbon dioxide emissions by 731 million tons by 2030.”



28

However…

“Under this scenario, carbon dioxide savings under wind would be negligible, compared with the 18,708 millions tons of carbon dioxide that the IEA (International Energy Agency) expects the global power sector will emit every year by 2030.”



29

Put Another Way…

“...while wind energy promoters claim that the CO2 emission reductions are a key benefit of adding new wind power, the industry’s own projections are showing that all of the wind turbines on the planet will only reduce electricity-related carbon dioxide emissions by about 4% by 2030. That’s nowhere near the 80% reductions that have been put forward in the US and elsewhere as being necessary to avert catastrophic climate change.”



30

Can renewables supplant fossil fuels?

• Large amounts of electricity cannot be stored

• Electricity production in U.S. is predicated on reliability, affordability and security

• Wind is an energy resource not a capacity resource

31

Wind Turbine Farm

32

The Colorado Wind Model

• 12.5% load factor (capacity credit) at peak hours* (A nameplate 600MW facility is = to 75 MW at peak hours)

• Requires natural gas back-up, nearly 1MW of gas peaking generation for each MW of wind

*Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”)

33

Typical 100 MW Wind Plant Generation vs. Hourly System Load

0102030405060708090

10012

:00

AM

1:00

AM

2:00

AM

3:00

AM

4:00

AM

5:00

AM

6:00

AM

7:00

AM

8:00

AM

9:00

AM

10:0

0 A

M11

:00

AM

12:0

0 P

M1:

00 P

M2:

00 P

M3:

00 P

M4:

00 P

M5:

00 P

M6:

00 P

M7:

00 P

M8:

00 P

M9:

00 P

M10

:00

PM

11:0

0 P

M

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)

34

Typical 50 MW PV Solar plant vs. System Load

0

10

20

30

40

50

6012

:00

AM

1:00

AM

2:00

AM

3:00

AM

4:00

AM

5:00

AM

6:00

AM

7:00

AM

8:00

AM

9:00

AM

10:0

0 A

M

11:0

0 A

M12

:00

PM

1:00

PM

2:00

PM

3:00

PM

4:00

PM

5:00

PM

6:00

PM

7:00

PM

8:00

PM

9:00

PM

10:0

0 P

M

11:0

0 P

M

PV

So

lar

(MW

)

2000

2500

3000

3500

4000

4500

5000

5500

Sy

ste

m L

oa

d (

MW

)

Solar PV Generation (MW) Load (MW)

35

The Colorado Wind Model (cont’d)• Colorado Interstate Gas Co (CIG)/Public Service

Company of Colorado (PSCo) are building the $200 million High Plains Gas Pipeline Project and a $150 million natural gas storage field (Totem) to back-up wind generation

• “Ten-minute” instant on natural gas fired simple cycle (exhausts directly to atmosphere) combustion turbines are the only effective way to integrate wind resources

*Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”)

37

Coal Plant

38

Nuclear Plant

39

Solar

40

Hydro-Electric Facility

41

Simple Cycle (CT) vs. Combined Cycle (CT)

• CO2 emissions are an unavoidable by-product of any power generation that utilizes a fossil fuel.

• A newer combined cycle combustion turbine (CT) power plant will produce approx. 0.7lb CO2 per kW output. (That is 35% less than a simple cycle combustion turbine (CT)* and 60% less than a coal-fired plant.)

• A simple cycle combustion turbine (CT) plant (exhausts directly to the atmosphere) will produce approx. 1.035lb CO2 per kW output.***Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”) **Source: Black Hills Colorado 2008 Resource Plan, page 62, Table 10-1

42

Simple Cycle Combustion Turbine

http://en.wikiversity.org/wiki/File:GE_H_series_Gas_Turbine.jpg

43

Simple Cycle Combustion Turbine (CT) Pros/Cons

Pros Quick start-up (10 to 20

minutes) Clean Well-proven technology Highly reliable Fast construction Good peaking resource Low O&M costs Can use small site 1 to 10

acres Lower $/kW than combined

cycle

Cons Lower efficiencies Gas prices

44

Combined Cycle Combustion Turbine

http://en.wikiversity.org/wiki/File:IGCC_diagram.svg

45

Cons Can take 1 to 5 hours

to start up Normally only base

loaded Needs larger site - up

to 40 acres Gas prices Higher $/k than

simple cycle

Pros Highly efficient Clean Good baseload

resource

Combined Cycle Combustion Turbine (CT) Pros/Cons

46

Independent Power Producer Demand Profile* (Instant-On Gas) at Fountain Valley Midway Simple

Cycle Combustion Turbine (CT) Plant

0

5000

10000

15000

20000

25000

30000

MM

Btu

6/28/2008 6/29/2008 6/30/2008 7/1/2008

*CIG Electronic Bulletin Board – For Fountain Valley Midway – 6 combustion turbines

47

Colorado’s Simple Cycle Combustion Turbines

FACILITY NAME MAXIMUM CAPACITY

Fountain Valley Power Plant 6 simple cycle combustion turbines

38.8 MW

Blue Spruce Energy Center 2 natural gas fired simple cycle combustion turbines

151.9 MW each

Manchief Generating Station 2 natural gas fired simple cycle combustion turbines

142 MW each

Valmont Combustion Turbine Facility – The Black Hills Colorado facility

2 simple cycle combustion turbines

38.153 MW

40.746 MW

Brush 3 1 simple cycle combustion turbine

28.5 MW

Ft. Lupton Combustion Turbines

2 simple cycle combustion turbines

100 MW gross

Limon Generating Station 2 natural gas fired simple cycle combustion turbines

48

Colorado’s Simple Cycle/Combine Cycle Combustion Turbines


Arapahoe Combustion Turbine Facility – The Black Hills Colorado facility

2 combustion turbines configured to operate in simple cycle mode or combined cycle mode

Simple cycle mode: 38 MW each

Combined cycle mode: 130 MW each

Brush 1 1 combustion turbine - either simple or combined cycle

28.5 MW

Brush 2 1 combined cycle combustion turbine

32 MW

Rocky Mountain Energy Center 2 combined cycle combustion turbines

152 MW each

49

Colorado’s Simple Cycle/Combine Cycle Combustion Turbines


Thermo Power & Electric LLC 2 combustion turbines 42.5 MW each

Ft. St. Vrain Station 3 natural gas fired combustion turbines

411.7 MW total

Ft. Lupton Cogeneration Facility 5 combustion turbines 57.412 MW each

50

Irony #1

“The integration of wind resources in Colorado has resulted in a higher CO2 footprint than there would be if the same amount of natural gas (currently utilized by simple cycle combustion turbines) was instead utilized by more efficient baseload combined-cycle power plants. That “externality” and the higher costs of “peaking” natural gas should be considered and accounted for when calculating the “life-cycle” cost of wind energy.”

-John Harpole

51

Irony #2 – What is the benefit?

•There are no measurable net benefits or any reduction to CO2 emissions in Colorado as a result of integrating wind energy into our generation and transmission grid.•Globally, in 2003 humankind emitted 25,780 million metric tons of carbon dioxide of which emissions from Colorado accounted for 89.7 million metric tons or only 0.35%. Less than 4/100ths of 1%.•That’s 1.26 inches on a football field.

Source: EIA, 2007b

52

Conclusions A sound, secure and reliable energy policy can only

be realized when politicians and public utility commissions consider the full-life cycle cost and benefit of each electric utility generation resource.

The “peak gas” argument has been obliterated. As long as the domestic natural gas industry is allowed to maintain a healthy rig count, the United States has plentiful reserves (for the next 50 years) to make natural gas the focus of our energy economy.

53

Conclusions (cont’d) The United States should immediately increase the

demand for natural gas to help preserve a domestic industry that is critical to the nation’s energy security. Natural gas peaking plants should be utilized at a higher capacity rating.

To maintain our energy security, we need an energy policy: That does not increase taxes. That recognizes the costs to back-up the renewable energy

“future”. That does not continually reduce or eliminate access to

federal lands, onshore and offshore.

54

Conclusions (cont’d) Natural gas should be THE key to a lower

carbon emitting society and the key to energy independence.

All Btu’s are needed – all supply sources are intertwined in resource solutions.

55

John A. HarpolePresident

Mercator Energy LLC

www.mercatorenergy.com (303) 825-1100 (work)(303) 478-3233 (cell)

Contact Information

1 the quiet but important role of natural gas in the new energy economy by: john harpole...

Documents