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Government’s Role in Industry Growth

Government’s Role in Industry Growth. Gordon Slack Business Director – Energy April 29, 2005. *. *Trademark of The Dow Chemical Company. Breaking News!. Commodity Industry Competes Based On Price. Winner: Low Cost Producer. Liquid vs. Gas Ethylene Feedstocks (% of total).

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Government’s Role in Industry Growth

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  1. Government’s Role inIndustry Growth Gordon Slack Business Director – Energy April 29, 2005 * *Trademark of The Dow Chemical Company

  2. Breaking News! Commodity Industry Competes Based On Price Winner:Low Cost Producer

  3. Liquid vs. GasEthylene Feedstocks(% of total) And most power needs tied to natural gas! Source: American Chemistry Council

  4. Key Questions • What is the problem? • How did we get here? • How do we get there? What is Government’s Role in Solution?

  5. Russia $0.95 W. Europe $5.25 Ukraine $1.70 U. S. $6.30 China $4.00-5.00 N. Africa $0.80 Trinidad $1.60 Middle East $0.75-1.00 Venezuela $0.90 Indonesia $2.70 Argentina $1.50 TheProblem The U.S. hashighest natural gas pricesin the world ! NG Price $U.S./MMbtu

  6. 16% 2003 12% 2004 Basic industrial chemical imports Chemical industry transition: netexporter net importer

  7. Volatility! Source: DOE, The Wall Street Journal

  8. Key Questions How did we get “here”? Those who don’t know history…

  9. Overwhelming Consumption Incentives Natural Gas

  10. Cheap Natural Gas • Little incentive to conserve • U.S. lags well behind in energy efficiency • High economic incentive to use gas

  11. Regulatory Incentives for GT Power • Clean Air restrictions on coal-fired power production • Nuclear shut out • Easy gas-fired permitting • + Low GT capital costs

  12. U.S. Natural GasConsumption by Sector “Consumption in most sectors flat but demand in electric sector strong…”

  13. Power consumption grows relentlessly -- Projected Growthin U.S.PowerProduction Source: EEI

  14. ThePower Debacle The new 200,000 MW of GT power - - • battles its customers for fuel! • causes unmeetable 2005-2007 U.S. gas demand except by having a factory shutdown. • requires 62% of all U.S. gas production to run all 200,000 MW at the same time. • operated at 40% of capacity in 2003. • consumed over $100 Billion in new investment which is severely impaired or bankrupt.

  15. Industry and Utilities Battle Over Gas Supply Industry competes in global marketplace Industry can move – jobs move too • Utilities can automatically pass through high costs and volatility • (When it gets dispatched)

  16. Overwhelming Overwhelming Production Disincentives Natural Gas

  17. Cheap Natural Gas • Little incentive to explore • Little incentive for storage • Little incentive to build pipelines

  18. Regulatory Disincentivesfor NG Supply • OCS Moratoria • Inter-mountain restrictions • LNG terminal siting restrictions

  19. 2004 1994 U.S. Dry Natural Gas Production “Domestic production has done nothing … and peaked back in 1972.” Source: EIA

  20. Canada ImportsDecline Canadian Natural Gas Production by Consumption and Net Exports Source: Canadian Association of Petroleum Producers

  21. Exports to MexicoIncrease Mexican Consumption by Production and Imports, 1994 - 2003 Source: 1994-2002 - Energy Information Administration, International Energy Annual 2002 2003 - International Energy Agency, Natural Gas Monthly Survey

  22. Supply / Demand Imbalance Supply Demand

  23. Russia $0.95 W. Europe $5.25 Ukraine $1.70 U. S. $6.30 China $4.00-5.00 N. Africa $0.80 Trinidad $1.60 Middle East $0.75-1.00 Venezuela $0.90 Indonesia $2.70 Argentina $1.50 TheProblem The U.S. hashighest natural gas pricesin the world ! NG Price $U.S./MMbtu

  24. Key Questions How do we get“there”? “There” = Return to competitive feedstock/energy costs… What is Government’s Role in Solution?

  25. Rebalancethe Imbalance Efficiency/ Conservation Clear Skies Act OCS access On-shore access Renewables/ Alternatives Alaska pipeline Coal Gasification Incentives LNG Expedited Siting Storage/ Infrastructure Nuclear Now Supply Demand

  26. Demand: Efficiency & Conservation • Public education • Appliance/equipment efficiency standards • Efficient dispatch of NG • Smart metering

  27. Demand: Clear Skies Act • Reasoned approach to emissions • Regulatory clarity for investment decisions • Flexible mechanisms bring efficiency • Retains coal power competitiveness • Inclusion of CO2 would push NG demand

  28. Demand: Coal Gasification • U.S. must take advantage of hugeresource • Power and feedstock use • Coal/lignite/petcoke feeds • “Clean” can include CO2, NOx, Sox, Hg • National Gasification Strategy includes financial incentives

  29. Demand: Renewables/Alternatives • Economically sound encouragement • R&D funding • Production Tax Credits • Hydrogen mixed bag • Avoid Europe situation • Forced use at above-market rates

  30. Demand: Nuclear Now • Need national priority on Nuclear • Permits, licensing • Generation III reactor deployment • Generation IV technology development • Public confidence and support

  31. Supply: OCS Access • States’ rights • Gather reserves data • Governor request lifting moratoria • Bonus bids, enhanced royalties • Coastal restoration assistance • Access to remaining LeaseSale 181 • Gas only leases

  32. Supply: On-shore Access • Efficient permit processing • Timely agency action • Interagency cooperation • Hydraulic fracturing states’responsibility

  33. Supply: LNG Siting • Clarify FERC siting jurisdiction • One-year processing deadline • Codify “Hackberry Decision” • Pipeline liquids content rules

  34. Supply: Alaska Pipeline • Resolve permit impediments • Limited federal financial support

  35. Supply: Storage/Infrastructure • Market based rates for new storage • Streamline pipeline permitting

  36. Less Effectual Measures • Trade policy: Anti-dumping • Too late – must attack core competitiveness • FOREX • Inherently short-term • Gas trading limits • Only affects short-term volatility • Treating a hangnail during a heart attack

  37. Public Policy • Changed the energy policy debate Consumer-focused • Alliance with non-traditional allies • Creation of the Consumers Alliance for Affordable Natural Gas (CAANG) • Position papers, issue education • Growing grassroots support for change • Senator Alexander natural gas bill

  38. CAANG Goal: Comprehensive Natural Gas Bill in 2005 - Four Pillars • Energy Efficiency and Conservation emphasized. • Greater Fuel Diversity. Promote increased use of clean coal, nuclear, and renewable energy. • Additional gas supply. LNG imports, coal-bed methane, a new political consensus on development of domestic natural gas resources. • Improved Infrastructure.Increased transmission and storage capacity.

  39. Russia $0.95 W. Europe $5.25 Ukraine $1.70 U. S. $x.xx? China $4.00-5.00 N. Africa $0.80 Trinidad $1.60 Middle East $0.75-1.00 Venezuela $0.90 Indonesia $2.70 Argentina $1.50 TheEndpoint The U.S. hascompetitive natural gas prices NG Price $U.S./MMbtu

  40. Living.Improved Daily. * *Trademark of The Dow Chemical Company

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