Transcript presentation - Bureau of Economic Geology

Bureau of Economic Geology,
The University of Texas at Austin
Gas-Power Linkages
2011 Electric Market Forecasting Conference, EPIS, Inc
San Antonio, October 26-28, 2011
Gürcan Gülen, Ph.D., Senior Energy Economist
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, 2
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, 3
Gürcan Gülen, Ph.D.
Shale Gas is a Hedge for Offshore
651
TCF
Source: NPC 2007
©CEE-BEG-UT, 4
Gürcan Gülen, Ph.D.
Production Can Be Expensive
$12
10% Return
U.S. 09 Cash Operating Costs $/MCFE
$10
U.S. All Source FD Costs 07-09 $/MCFE
Ave. Henry Hub Spot Price (Feb '11)
$8
Ave. All
$6
$4
$2
$1
2
3
4
5
6
7
8
9
10
11
12
Compiled by CEE based on company financial reports
13
14
©CEE-BEG-UT, 5
Gürcan Gülen, Ph.D.
25
Oil Price Helps if Liquids Rich
Actual Ratio, Crude Oil:Gas Prices
20
Discount to Oil
Traditional 6:1 Ratio
15
10
5
0
CEE based on CME price data
©CEE-BEG-UT, 6
Gürcan Gülen, Ph.D.
*Price volatility ($2005)
Wellhead City Gate
Res
Com
Before
99:12
7.2% a
6.0% b
6.3% c
2.5% b
00:0109:11
12.2%
10.5%
7.7%
5.3%
Change
71%
74%
22%
110%
a
Ind
Elec.
Power
11.4% d
10.6% e
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, 7
Gürcan Gülen, Ph.D.
Changing Demand Structure (TCF)
Compiled by CEE based on EIA data
©CEE-BEG-UT, 8
Gürcan Gülen, Ph.D.
Impact of wind – high wind ‘13
Source: ERCOT
©CEE-BEG-UT, 9
Gürcan Gülen, Ph.D.
Compiled by Dr. Foss (CEE) based on EIA data
©CEE-BEG-UT, 10
Gürcan Gülen, Ph.D.
CEE Model (cents/kWh)
30
27.9
25
20
15
10
9.0
10.2
10.8
Nuclear
Wind (onshore)
6.4
5
0
Coal
Natural gas
Solar (CSP)
NOTE: Excludes grid costs
Capital and O&M costs are based on U.S. EIA’s Nov 2010 report:
http://www.eia.gov/oiaf/beck_plantcosts/index.html
©CEE-BEG-UT, 11
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, 12
Gürcan Gülen, Ph.D.
EPA Regulations  Coal Retirement
Source: World Resources Institute
©CEE-BEG-UT, 13
Smart grid
Demand side response
Lower power demand
Higher power demand
Electricity storage
Water scarcity
More renewables
Gas price > $7
Gas price < $6
Nuclear retirement
Coal retirement
Methane
GHG
Ash
Mercury
NO x (EPA CSAPR)
SO x (EPA CSAPR)
Factors Impacting Gas Use for Power
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)