bureau of economic geology, the university of texas at austin gas-power linkages 2011 electric...
TRANSCRIPT
Bureau of Economic Geology, The University of Texas at Austin
Gas-Power Linkages2011 Electric Market Forecasting Conference, EPIS, Inc
San Antonio, October 26-28, 2011Gürcan Gülen, Ph.D., Senior Energy Economist
©CEE-BEG-UT, 2
Gürcan Gülen, Ph.D.
The Boom-Bust Cycle for NG• 35 years ago, we were running out of gas• 25-30 years ago, we were in a “bubble” • Ten years ago, we thought we needed LNG• Today, we are “drowning in natural gas” and some wants
to export LNG• Shale is the “game changer” but still lots to learn• Even without GHG policy, move to gas seems inevitable
(we consumed >24 TCF in 2010 – first time in history)• Drilling is essential but challenged (cost, environmental
regulations, tax policies)
©CEE-BEG-UT, 3
Gürcan Gülen, Ph.D.
Natural Gas Resource Assessments
Technically recoverable assessments of the U.S. natural gas endowment 1970 to 2009 increased four to six
times: 2,084 Tcf in 2009
Source: Modified from Bill Fisher et. al., BEG-UT; GTI
©CEE-BEG-UT, 4
Gürcan Gülen, Ph.D.
Shale Gas is a Hedge for Offshore
Source: NPC 2007
651 TCF
©CEE-BEG-UT, 5
Gürcan Gülen, Ph.D.
Production Can Be Expensive
Compiled by CEE based on company financial reports
$-
$2
$4
$6
$8
$10
$12
1 2 3 4 5 6 7 8 9 10 11 12 13 14
10% Return
U.S. 09 Cash Operating Costs $/MCFE
U.S. All Source FD Costs 07-09 $/MCFE
Ave. Henry Hub Spot Price (Feb '11)
Ave. All
©CEE-BEG-UT, 6
Gürcan Gülen, Ph.D.
Oil Price Helps if Liquids Rich
Discount to Oil
CEE based on CME price data
0
5
10
15
20
25
Actual Ratio, Crude Oil:Gas Prices
Traditional 6:1 Ratio
©CEE-BEG-UT, 7
Gürcan Gülen, Ph.D.
*Price volatility ($2005)
Wellhead City Gate Res Com Ind Elec.Power
Before99:12
7.2% a 6.0% b 6.3% c 2.5% b
00:01-09:11
12.2% 10.5% 7.7% 5.3% 11.4% d 10.6% e
Change 71% 74% 22% 110%
a 76:01-99:12; b 83:10-99:12; c 81:01-99:12; d 01:01-09:12; e 02:01-09:12
* Std dev of change in price
CEE analysis
©CEE-BEG-UT, 8
Gürcan Gülen, Ph.D.
Changing Demand Structure (TCF)
Compiled by CEE based on EIA data
©CEE-BEG-UT, 9
Gürcan Gülen, Ph.D.
Impact of wind – high wind ‘13
Source: ERCOT
©CEE-BEG-UT, 10
Gürcan Gülen, Ph.D.
Compiled by Dr. Foss (CEE) based on EIA data
©CEE-BEG-UT, 11
Gürcan Gülen, Ph.D.
CEE Model (cents/kWh)
Coal Natural gas Nuclear Wind (onshore) Solar (CSP)0
5
10
15
20
25
30
9.06.4
10.2 10.8
27.9
Capital and O&M costs are based on U.S. EIA’s Nov 2010 report: http://www.eia.gov/oiaf/beck_plantcosts/index.html
NOTE: Excludes grid costs
©CEE-BEG-UT, 12
Gürcan Gülen, Ph.D.
More Risk for Coal
• Pending EPA regulations on CO2, SO2/NOX, mercury, ash
• 6 GW to 65 GW of coal capacity may retire 2011-15*
39 GW
*World Resources Institute, review of various studies.
Compiled by CEE based on EIA data
©CEE-BEG-UT, 13
Gürcan Gülen, Ph.D.
EPA Regulations Coal Retirement
Source: World Resources Institute
Assessment of probabilities and time frames for each factor
Evaluation of second or higher order drivers (environmental regulations – air, water; renewables – mandates, tax credits, feed-in-tariffs; coal mining costs & exports; nuclear policies and finance; smart grid & consumer
behavior; macroeconomics & demographics)
SO x
(EPA
CSA
PR)
NO
x (E
PA C
SAPR
)
Mer
cury
Ash
GHG
Met
hane
Coal
retir
emen
t
Nuc
lear
retir
emen
t
Gas p
rice
< $6
Gas p
rice
> $7
Mor
e re
new
able
s
Wat
er sc
arci
ty
Elec
tric
ity st
orag
e
High
er p
ower
dem
and
Low
er p
ower
dem
and
Dem
and
side
resp
onse
Smar
t grid
Factors Impacting Gas Use for Power