Natural Gas for Power Generation
National Association of
Regulatory Utility Commissioners Annual Meeting
November 2010
Richard G. Smead
Director, Navigant Consulting Inc.
Navigant Consulting Inc.30 South Wacker DriveSuite 3100Chicago, IL 60606(312) 583-5700
www.navigantconsulting.com
909 Fannin StreetSuite 1900Houston, TX(713) 646-5029
©2010 Navigant Consulting, Inc.
• Just how abundant is U.S. Natural Gas supply?
• How is gas-fired power generation doing in today’s price environment?
• What are the dynamics of gas-fired power generation in a higher-priced, carbon-constrained environment?
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To Tell the Story of Gas-Fired Power Generation, There are Three Questions
QUESTION I—
U.S. NATURAL GAS ABUNDANCE
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Proved Reserves Plus Assessed Resources—Life of the Gas Resource
Yes, There Is a Lot of Gas Resource: The Recognition Started with the American Clean Skies Foundation
2008
82 years at 2006 Prod.
Rate
88 years at 2007 Prod.
Rate
118 years at 2007 Prod.
Rate
-
U.S. Total Gas Supply (Tcf)
500
1,000
1,500
2,000
2,500
PGC 2006 MeanAssessment
Navigant Study PGC 2008 Estimate
Released June 2009
tcf
ShaleResource
All Other
TechnicallyRecoverableResource
• In 2006, the Potential Gas Committee (PGC) estimated 1,530 Tcf of total Recoverable Resource.
• In 2008, the American Clean Skies Foundation had Navigant perform the North American Natural Gas Supply Assessment. This study found that shale and other unconventional supplies had increased the resource to as much as 2,247 Tcf, including 842 Tcf of shale gas.. This would be 118 years of production at 2007 levels.
• In June 2009, PGC issued its 2008 updated study—2,076 Tcf, including 616 Tcf of shale, also over 100 years’ worth.
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1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Bcf
per
Day
Sources of U.S. Gas Supply, 1990 to 2010
Net LNG Imports
Net Pipeline Imports
Net Dry Gas Production
For 15 years, Domestic Production was Flat, with Growing Imports—Then in 2005, the Ramp-up Began
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2005 2006 2007 2008 2009 2010 45.0
50.0
55.0
60.0
65.0
70.0 B
cf p
er D
ayThe Rapid Change from 2005
Net LNG Imports
Net Pipeline Imports
Net Dry Gas Production
Total Consumption
The Last Five Years Have Been Very Different—Thanks to Domestic Growth, Supply Now Exceeds Demand, and Imports are Shrinking
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Jan
-05
Jun
-05
Nov-0
5
Ap
r-0
6
Sep
-06
Feb
-07
Jul-
07
Dec-0
7
May-0
8
Oct-
08
Mar-
09
Au
g-0
9
Jan
-10
Jun
-10
40.0
42.0
44.0
46.0
48.0
50.0
52.0
54.0
56.0
58.0
60.0
Lower 48 Production, Total and Onshore, 2005-2010
Bcf p
er D
ay, D
ry
Total Lower 48
Onshore Only
Average Total Pre-Katrina
Gust
av
and
Ike
Katr
ina
and
Rita
The Really Dramatic Story is Onshore, where Between 2005 and 2008, Enough Production Was Added to Replace Offshore
From 2005 to 2008, the
daily energy
added from onshore sources
exceeds the thermal
content of all the oil we import from Saudi Arabia.
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90
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98
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00
20
02
20
04
20
06
20
08
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10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
EIA Projected Shale Production Estimates
Bcf p
er D
ay, D
ry
Actuals to 2006
AEO 2008 Forecast
AEO 2010
Foreca
st
What about Shale Gas? EIA Developed a Robust Forecast in 2010
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20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Shale Actual Production Through 2010
Bcf p
er D
ay, D
ry
Actu
als t
o 20
10
AEO 2010 Forecast
AEO 2008 Forecast
But Actual Production has Far Exceeded Even the 2010 Aggressive Forecast
10
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00
20
02
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04
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06
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10
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14
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16
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18
20
20
20
22
20
24
20
26
20
28
20
30
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Producer 2009 Composite Forecast
Bcf p
er D
ay, D
ry
Pro
duce
r 20
09
Fore
cast
Producers Expect the Trend to Continue if There’s a Demand for the Gas—2010 Actuals Exceeded Even the Producers’ 2009 Forecast
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The Recent MIT Gas Study Sponsored by ACSF Shows Similar Rates of Increase
Source: “The Future of Natural Gas, Massachusetts Institute of Technology, 2010
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20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
Total Supply per EIA and with Producer Estimate
Bcf p
er D
ay, D
ry
20 B
cf/D
ay
With Producer 2
009 Shale Forecast
AEO 2010Forecast
Actuals to 2010
Based on that Producer Forecast, There Would Be Enough Additional Supply by 2020 to Displace Over Half of All U.S. Coal-Fired Generation
QUESTION II—
GAS-FIRED GENERATION TODAY
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Dec 0
8Ja
n 0
9F
eb
09
Mar
09
Ap
r 0
9M
ay
09
Jun
e 0
9Ju
ly 0
9A
ug
09
Sep
t 0
9O
ct
09
Nov
09
Dec 0
9Ja
n 1
0F
eb
10
Mar
10
Ap
r 1
0M
ay
10
Jun
e 1
0Ju
ly 1
0
18.5
19.0
19.5
20.0
20.5 Bc
f per
Day
, Dry
Gas Use for U.S. Power Generation,Rolling 12-Month Totals 2008 - 2010
Gas Use for Power Generation Has Been on a Steady Increase
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Dec
08
Jan
09
Feb
09
Mar
09
Apr
09
May
09
Jun
e 09
July
09
Au
g 0
9S
ept
09
Oct
09
Nov
09
Dec
09
Jan
10
Feb
10
Mar
10
Apr
10
May
10
Jun
e 10
July
10
19.0%
20.0%
21.0%
22.0%
23.0%
24.0%
44.0%
45.0%
46.0%
47.0%
48.0%
49.0%
Gas and Coal Generation Market ShareRolling 12-Month Totals 2008 - 2010
Gas M
arke
t Sha
re
Coal
Mar
ket S
hare
Gas Generation
Coal Generation
Gas Has Gained Market Share vs. Coal, A Little Over 2 Percent
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Why? For the last two years, this is mostly just a matter of price
Delivered Eastern Coal vs. Appalachian Gas
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Dominion, South Point Central Appalachian Coal
Deli
vere
d P
rice
per
MM
Btu
QUESTION III—
GAS-FIRED GENERATION WITH HIGHER PRICES
AND CARBON CONSTRAINTS
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• More than one-half of U.S. Gas fired-electric generation is generated by peaking facilities that operate at extremely low capacity factors and high heat rates.
• It is High-Efficiency Combined Cycle Capacity that is critical to examine.
U.S. Generation—What Do We Have, and What Do We Use?
2009 U.S. Total Generation and Capacity for Gas, Coal and Other
CapacityPct. of TotalGeneration Pct. Of Capacity Heat Rate
MW Capacity 1,000 MWhTotal Gen. Factor Btu/kWh
Other Gas 202,335 20% 175,217 4% 10% 10,011
Combined Cycle196,175 19% 745,161 19% 43% 7,423
Coal Generation 312,887 31% 1,764,486 45% 64% 10,386
Other Generation302,044 30% 1,268,247 32% 48% -
US Total 2009 1,013,441 100% 3,953,111 100% 45% -
But $3 to $4 is not a Sustainable Range for Gas Prices—So What Are the Economics vs. Coal if Gas is $6 at the Wellhead and $7 at the Plant?
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Fuel Cost
Price Heat Rates $ per Mwh
Gas $7.00 per MMBtu 7000 $49.00
Coal $50.00 per Ton 10000 $25.00
Difference $24.00
Carbon
CO2 load per EIA Heat Rateslb per Mwh
Gas 115 lb/MMBtu 7000 805 lb/MwhCoal 213 lb/MMBtu 10000 2,130 lb/Mwh
Difference 1,325 lb/Mwhor, 0.60 Tonnes/Mwh
Break-even Carbon Price
Fuel Price Difference: $24.00 per Mwh Divided by CO2 Difference: 0.60 Tonnes/Mwh Equals $40 per Tonne
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Cap Factor Generation Heat Rate Fuel Used Carbon
2009 Pct 1000 MWh Btu/Kwh TBtu MMTGas CC 43% 745,161 7,423 5,531 289
Coal 64% 1,764,486 10,386 18,326 1,7722,061
Same Capacity FactorGas CC 56% 967,132 7,423 7,179 375
Coal 56% 1,542,515 10,386 16,021 1,5491,924
Difference: 137
Coal and Gas CO2 Emissions, 1990 1,822Coal and Gas CO2 Emissions, 2008 2,415
Increase: 593
Share of Increase Relieved by Gen Shift: 23%
Carbon Dioxide—How Much Could Be Done with Existing Facilities (Realistically)?
KeyC O N T A C T S
21©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y
Rick Smead | [email protected] direct
Gordon Pickering \ [email protected] direct