Natural Gas and U.S.
Electric Power Futures
Yale Center for Environmental Law and Policy
Jeffrey Logan
February 12, 2013
1
Today’s Talk
•  About JISEA
•  Background on JISEA Study
•  Electric Power Market Snapshot
•  Electric Power Futures Evaluated in the Study
–
–
–
–
Baseline
Coal Retirements
Clean Energy Standard
NG Supply: Social License to Operate Costs
2
Today’s Talk
•  About JISEA
•  Background on JISEA Study
•  Electric Power Market Snapshot
•  Electric Power Futures
–
–
–
–
Baseline
Coal Retirements
Clean Energy Standard
NG Supply: Social License to Operate Costs
3
Joint Institute for Strategic Energy Analysis
•  JISEA conducts advanced interdisciplinary research and
provides objective and credible data, tools, and analysis to
guide global energy investment and policy decisions.
•  JISEA is operated by the Alliance for Sustainable Energy,
LLC, on behalf of its founding partners:
4
Today’s Talk
•  About JISEA
•  Background on JISEA Study
•  Electric Power Market Snapshot
•  Electric Power Futures
–
–
–
–
Baseline
Coal Retirements
Clean Energy Standard
NG Supply: Social License to Operate Costs
5
Background on Study
•  Multi-client sponsor group composed of natural gas
producers, utilities, transmission companies, investors,
researchers, and environmental NGOs
•  Scoping workshop in Spring 2011 prioritized research
questions
•  Work began in Summer 2011 with 3 research thrusts:
–  Lifecycle GHG attributes of shale gas (NREL)
–  Regulatory and best management practice trends in key shale gas
plays (CU School of Law; CSU Engineering; CSM; Stanford)
–  Modeling of various power sector futures using ReEDS (NREL)
•  Study released in January 2013
•  Available at: http://www.jisea.org
6
Today’s Talk
•  About JISEA
•  Background on JISEA Study
•  Electric Power Market Snapshot
•  Electric Power Futures
–
–
–
–
Baseline
Coal Retirements
Clean Energy Standard
NG Supply: Social License to Operate Costs
7
U.S. Power Sector Dynamics
Coal Percentage Down from 48% in 2008 to 37% in 2012;
300 Million Tons of annual CO2 mitigation (13% of total power sector)
Source: EIA “Electric Power Monthly,” January 2013; final month of 2012 estimated.
8
Changing Natural Gas Supply and Price
Shale Gas Now Accounts for 30% of Total U.S. NG Production;
Oil/Gas Price Ratio at Historic High (arbitrage)
Source: EIA “Monthly Energy Review,” January 2013; final 2 months of 2012 estimated.
9
Net Change in U.S. Generating Capacity
Recent Deployment of New Natural Gas Generators is Modest, but Rising;
Over 17,000 Megawatts of Renewables Installed in 2012
Source: EIA “Electric Power Annual,” January 2013; Values for 2012 are estimated.
10
Natural Gas Price Dynamics
Market is responding
Rigs have moved out
of dry gas, into oil and
NGLs
LNG export projects
under development
Prices need to rise for
producers to be
profitable
New regulations raise
prices
Souuce: Banker Hughes Rig Count, January 2013.
Wildcard: Associated Gas from Booming Tight Oil Plays
11
Natural Gas Price Forecasts
Range of Recent Natural Gas Price Forecasts
(All prices converted to 2010$)
10
9
Henry Hub Price, 2010$/MMBTU
8
AEO 2012 Low EUR
WEO 2012
AEO 2012
AEO 2013
AEO 2012 w/ $25/t-CO2
7
6
AEO 2012 High EUR
5
4
NYMEX Strip
3
2
Short Term Energy Outlook 12/2012
1
0
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
AEO 2013 NG Price Forecast Similar to AEO 2012 Optimistic Trend
Source: EIA, NYMEX, IEA.
12
Today’s Talk
•  About JISEA
•  Background on JISEA Study
•  Electric Power Market Snapshot
•  Electric Power Futures
–
–
–
–
Baseline
Coal Retirements
Clean Energy Standard
NG Supply: Social License to Operate Costs
13
Scenario Framework
Coal Scenarios
Clean Electricity Standard Scenarios
CES – Low-EUR
CES – High-EUR
CES – High-EUR, No-CCS
Coal Retire (80 GW by 2020)
No New Coal (NSPS)
Reference Scenarios
Baseline – Mid-EUR
•  No New Policy
•  Conservative Technology Costs (B&V 2012)
•  AEO 2010 electricity demand, reference
case non-electric sector gas demand
•  Mid-EUR
•  Standard Retirements
Baseline – Low-EUR
Baseline – Low-Demand
Advanced RE
Advanced Nuclear – Low-EUR
Technology Improvement Scenarios
Preliminary Material – Do Not Copy or Distribute
Dash To Gas – High-EUR
Price Ramp +$0.5 +$1 +$1.5 +$2
Natural Gas Supply-Demand Scenarios
14
Regional Energy Deployment Systems (ReEDS)
•
Capacity expansion & dispatch for the contiguous US electricity sector including
transmission & all major generator types
•
Minimize total system cost (20 year net present value)
o  All constraints (e.g. balance load, planning & operating reserves, etc.) must be
satisfied
o  Linear program (w/ non-linear statistical calculations for variability)
o  Sequential optimization (2-year investment period 2010-2050)
•
Multi-regional (356 wind/solar resource regions, 134 BAs)
o  regional resource characterization
o  variability of wind/solar
o  transmission capacity expansion
•
Temporal Resolution
o  17 timeslices in each year
o  each season = 1 typical day = 4 timeslices
o  1 summer peak timeslice
Preliminary Material – Do Not Copy or Distribute
15
Baseline Scenarios – Capacity Expansion
1,600
1,600
Baseline
1,600
Baseline Low-EUR
1,400
1,400
Baseline Low-Demand
1,400
Storage
Offshore Wind
Installed Capacity (GW)
Installed Capacity (GW)
1,000
800
600
1,000
800
600
400
400
Onshore Wind
1,200
Installed Capacity (GW)
1,200
1,200
PV
CSP
1,000
Other RE
Hydropower
800
NG-CCS
NG-CT
600
NG-CC
Oil/Gas Steam
Coal-CCS
400
Coal-New
200
200
0
2010
•
•
•
•
•
2020
2030
2040
2050
0
2010
Coal-Existing
200
2020
2030
2040
2050
0
2010
Nuclear
2020
2030
2040
2050
Results reflect no new policies (e.g. no clean electricity standard, no national RPS, no
extension of renewable tax credits)
Doubling of natural gas capacity by 2050
Low EUR reduces NG capacity growth and increases coal and RE growth
Approximately 30 GW of coal retirements by 2025; age-based retirements and load
growth require significant new capacity additions in latter years
Are we currently on the low-demand trajectory?
Preliminary Material – Do Not Copy or Distribute
16
Baseline Scenarios – Generation Expansion
6,000
Baseline
5,000
Annual Electricity Generation (TWh)
Annual Electricity Generation (TWh)
5,000
6,000
Baseline Low-EUR
4,000
3,000
2,000
1,000
Baseline Low-Demand
Offshore Wind
5,000
Annual Electricity Generation (TWh)
6,000
4,000
3,000
2,000
1,000
Onshore Wind
PV
CSP
4,000
Other RE
Hydropower
NG-CCS
3,000
NG-CT
NG-CC
Oil/Gas Steam
2,000
Coal-CCS
Coal-New
Coal-Existing
1,000
Nuclear
Demand
0
2010
2020
2030
2040
2050
0
2010
2020
2030
2040
2050
0
2010
2020
2030
2040
2050
•  In vanilla baseline, NGCC generation nearly triples by 2050; wind quadruples
•  Low-EUR sees additional coal, wind after 2030; NGCC gen only doubles
Preliminary Material – Do Not Copy or Distribute
17
Power Sector NG Consumption and Price
Power Sector Natural Gas Price
16
$14
14
$12
12
$10
2009$/MMBtu
Annual Consumption (Quads)
Power Sector Natural Gas Consumption
10
8
6
Baseline
4
0
•
•
•
•
2020
2030
Baseline
2040
Baseline Low-EUR
$2
Baseline Low-Demand
2010
$6
$4
Baseline Low-EUR
2
$8
2050
$0
2010
Baseline Low-Demand
2020
2030
2040
2050
In the Baseline scenario, power sector NG consumption nearly triples over the 40-year
period, while NG prices double
In low-EUR scenario, power sector NG consumption doubles by 2050, while NG prices
are $1-$1.50/MMBtu higher than the Mid-EUR Baseline
With low demand, power sector NG consumption grows slowly until 2030, then
accelerates given age-based coal and nuclear retirements
Under Low-Demand growth, NG prices remain <$6/MMBtu for the next decade,
and <$8/MMBtu for most years
Preliminary Material – Do Not Copy or Distribute
18
Emissions and Electricity Prices
•
•
•
•
National Average Retail Electricity Price
2,500
$140
$130
2,000
$120
2009$/MWh
Annual Emissions (million metric tons)
Power Sector CO2 Emissions
1,500
1,000
Baseline
Baseline Low-EUR
500
0
2010
2030
2040
$100
$90
Baseline
$80
Baseline Low-Demand
2020
$110
Baseline Low-EUR
$70
2050
$60
2010
Baseline Low-Demand
2020
2030
2040
2050
Even with standard load growth (~1%/year), power sector CO2 (combustion-only)
emissions are nearly flat over time due to fuel switching from coal to NG (+RE)
Low-Demand reduces power sector CO2 emissions by 250 MMTons/year in 2030 and
630 MMTons/year in 2050. Cumulative (2011-2050) reductions exceed 10 Gtons CO2.
Electricity prices (in real dollars) increase over time for all baseline scenarios, primarily
as a result of load growth, coal and nuclear capacity retirements, and corresponding
reliance on natural gas.
Demand growth has a bigger influence on electricity price trajectories than EUR
Preliminary Material – Do Not Copy or Distribute
19
Clean Electricity Standard Scenarios
•
Clean Electricity Standard
–
–
•
80% clean electricity by 2035, 95% by 2050
Crediting: 100% for nuclear/RE, 50% for NG-CC, 95% for NGCCS, 90% for Coal-CCS, 0% all others
Three CES scenarios:
–
–
–
High EUR
High EUR, No CCS
Low EUR
Preliminary Material – Do Not Copy or Distribute
20
Clean Electricity Standard Scenarios
6,000
CES High-EUR
5,000
Annual Electricity Generation (TWh)
Annual Electricity Generation (TWh)
5,000
6,000
CES High-EUR, No-CCS
4,000
3,000
2,000
1,000
CES Low-EUR
Offshore Wind
5,000
Annual Electricity Generation (TWh)
6,000
4,000
3,000
2,000
1,000
Onshore Wind
PV
CSP
4,000
Other RE
Hydropower
NG-CCS
3,000
NG-CT
NG-CC
Oil/Gas Steam
2,000
Coal-CCS
Coal-New
Coal-Existing
1,000
Nuclear
Demand
0
2010
•
•
•
2020
2030
2040
2050
0
2010
2020
2030
2040
2050
0
2010
2020
2030
2040
2050
A CES generally leads to greater NG power generation in the near-term followed by
reliance on RE (and to a lesser degree, CCS and nuclear) in the long-term
Under a CES, 2050 RE power generation is significant even with high EUR and CCS
deployment: 38% wind, 9% solar, 7% hydro, 3% other RE
New nuclear capacity expansion is more limited under cost assumptions used
Preliminary Material – Do Not Copy or Distribute
21
Clean Electricity Standard Scenarios
Power Sector Natural Gas Consumption
Power Sector Natural Gas Price
$12
14
$10
12
10
8
6
Baseline
4
CES High-EUR
2
CES High-EUR No-CCS
CES Low-EUR
0
2010
•
•
•
2009$/MMBtu
Annual Consumption (Quads)
16
2020
2030
2040
2050
$8
$6
Baseline
$4
CES High-EUR
$2
$0
2010
CES High-EUR No-CCS
CES Low-EUR
2020
2030
2040
2050
Under a CES, sustained power sector NG consumption growth depends on the
viability of CCS
With Low-EUR, NG consumption grows slowly (compared to Baseline); RE, coal-CCS,
and nuclear are much bigger contributors
With High-EUR, NG prices remain relatively low even with significant growth in
consumption
Preliminary Material – Do Not Copy or Distribute
22
Clean Electricity Standard Scenarios
National Average Retail Electricity Price
•
•
•
$150
2,500
$140
2,000
$130
2009$/MWh
Annual Emissions (million metric tons)
Power Sector CO2 Emissions
1,500
1,000
Baseline
CES High-EUR
500
0
2010
$120
$110
$100
Baseline
$90
CES High-EUR
CES Low-EUR
$80
CES High-EUR No-CCS
2020
$70
2010
CES High-EUR No-CCS
2030
2040
2050
CES Low-EUR
2020
2030
2040
2050
CES can lead to deep cuts in carbon emissions (upstream and downstream emissions
should also be considered)
Abundant low cost NG (High-EUR) can help lower the cost of meeting a CES
Availability of a greater number of clean technology options (e.g. CCS and RE) can
lower the cost of meeting a CES
Preliminary Material – Do Not Copy or Distribute
23
Clean Electricity Standard Scenarios
CES High-EUR No-CCS
New Transmission
140
Million MW-mile
120
100
80
Baseline
CES High-EUR
CES High-EUR No-CCS
CES Low-EUR
60
40
20
0
2010
•
•
•
2020
2030
2040
2050
RE technologies can contribute significantly to meeting a CES
Among the CES scenarios, non-hydro RE annual electricity reaches 35%-43% in 2036
and 51%-69% in 2050
With increased RE deployment, transmission needs are increased and operational
challenges (e.g. curtailment) are increased
Preliminary Material – Do Not Copy or Distribute
24
NG Supply Variation Scenario
•
NG supply-demand sensitivity scenarios
–
Raise supply curve by $0.5/MMBtu increment up to +$2/MMBtu
for each year starting in 2012
–
Motivation: Explore how additional supplier costs would effect
power sector evolution (e.g. costs of best practices, regulations,
social license to operate: well set-backs, greener frack-fluids,
water recycling, green completions, well completions/monitoring,
etc.)
Preliminary Material – Do Not Copy or Distribute
25
NG Price Variations
New Coal Capacity
180
160
140
120
GW
Power Sector Natural Gas Consumption
40
12
20
0
2010
10
8
4
2
2030
2040
2030
160
140
120
2050
100
Baseline
+$0.5/MMBtu
+$1/MMBtu
+$1.5/MMBtu
+$2/MMBtu
60
•
•
Increased NG prices led to slower growth in power sector
NG demand
Long-term NG demand still significantly higher than today
even with prices exceeding $10/MMBtu
NG deployment replaced primarily by new coal and wind
Preliminary Material – Do Not Copy or Distribute
2050
180
80
•
2040
200
0
2020
2020
Wind Capacity
Baseline
+$0.5/MMBtu
+$1/MMBtu
+$1.5/MMBtu
+$2/MMBtu
6
2010
80
60
14
GW
Annual Consumption (Quads)
16
100
Baseline
+$0.5/MMBtu
+$1/MMBtu
+$1.5/MMBtu
+$2/MMBtu
40
20
0
2010
2020
2030
2040
2050
26
Conclusions
•  Recent coal-to-gas fuel switching and strong growth in wind power has cut
U.S. power sector CO2 emissions substantially; at least some fuel switching
will reverse itself with rising NG prices.
•  Future power sector evolution is highly sensitive to assumptions of EUR,
price, technology and policy.
•  Natural gas can play an important role in carbon mitigation through the midterm, but without CCS, it cannot continue growing beyond 2030 if we are to
move on a more sustainable greenhouse gas pathway.
•  Gas producers can absorb higher costs associated with greater
environmental protection without losing long-term power sector market share.
•  Power generation diversity remains key to long-term risk mitigation.
Preliminary Material – Do Not Copy or Distribute
27
Discussion
Questions?
28
(Cents/kWh)
New generation issues
Comparative wind/gas economics
Wind 32% CF
Under low gas capacity
factor (40%) scenario:
1.  With PTC, wind at 32%
CF is price competitive
at delivered gas prices
above ~$3.90/MMBtu
1
2
2.  Without PTC, wind is
competitive above ~
$5.50/MMBtu
Source: NREL, System Advisor Model
29
(Cents/kWh)
New generation issues
Comparative wind/gas economics
Under baseload gas capacity
factor (70%) scenario:
Wind 32% CF
1.  With PTC, wind at 32% CF
is price competitive at
delivered gas prices above
~$6.10/MMBtu
Wind 38% CF
3
1
2
2.  Without PTC, wind is
competitive above ~$7.90/
MMBtu
3.  Without PTC, strong wind
resource (38% CF) is
competitive above ~$6.00/
MMBtu
Source: NREL, System Advisor Model
30
(Cents/kWh)
New generation issues
Comparative wind/gas economics
Wind 32% CF
Wind 38% CF
3
1
2
Comparative wind/gas
economics are highly
dependent upon CF of
gas plants (rising) and
the continuation of the
PTC (in doubt).
Source: NREL, System Advisor Model
31