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Outlook for Natural Gas

Outlook for Natural Gas. Current Role of Natural Gas and Short-term Price Outlook. U.S. primary energy consumption was 83% fossil-fueled in 2009. Total 94.6 Quadrillion Btu. Source: EIA Annual Energy Review 2009. EIA recognizes that natural gas price forecasts are highly uncertain.

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Outlook for Natural Gas

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  1. Outlook for Natural Gas

  2. Current Role of Natural Gas and Short-term Price Outlook Richard G. Newell, American Gas Assoc. 10/11/2010

  3. U.S. primary energy consumption was 83% fossil-fueled in 2009 Total 94.6 Quadrillion Btu Richard G. Newell, American Gas Assoc. 10/11/2010 Source: EIA Annual Energy Review 2009

  4. EIA recognizes that natural gas price forecasts are highly uncertain Henry Hub natural gas pricedollars per million Btu Note: Confidence interval derived from options market information for the 5 trading days ending September 2, 2010 Intervals not calculated for months with sparse trading in "near-the-money" options contracts Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Short-Term Energy Outlook, September 2010; Reuters News Service; and CME Group

  5. The probability of January 2011 contract month natural gas price being higher than $5.50 is less than 10% dollars per million btu Richard G. Newell, American Gas Assoc. 10/11/2010 Source: EIA Oct 1, 2010; and CME Group http://www.eia.gov/emeu/steo/pub/uncertainty.html

  6. Long-term Supply and Demand for Natural Gas:Insights from the Annual Energy Outlook Richard G. Newell, American Gas Assoc. 10/11/2010

  7. Non-fossil energy use grows rapidly, but fossil fuels still provide 78 percent of total energy use in 2035 quadrillion Btu History Projections Renewables (excluding liquid biofuels) Liquid biofuels Liquid fuels Coal Natural gas Nuclear Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  8. Assuming no new policies, growth in energy-related CO2 is driven by electricity and transportation fuel use 2008 2035 Buildings and Industrial 1,571 (25%) Electric Power 2,634 (42%) Electric Power 2,359 (41%) Buildings and Industrial 1,530 (26%) 6,320 million metric tons 5,814 million metric tons 8.7% growth 0.3% per year Transportation 1,925 (33%) Transportation 2,115 (33%) Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  9. U.S. Gas Production Richard G. Newell, American Gas Assoc. 10/11/2010

  10. Import share of natural gas supply declines as domestic production grows trillion cubic feet History Projections 6% Consumption STEO 13% Net imports Domestic production Source: Annual Energy Outlook 2010 & September 2010 Short-Term Energy Outlook (STEO) values for 2009, 2010 and 2011 Richard G. Newell, American Gas Assoc. 10/11/2010

  11. Shale gas and Alaska production offset declines in other supply to meet consumption growth and reduce imports U.S. gas production + net imports trillion cubic feet History Projections Net imports Alaska Shale gas Non-associated onshore Coalbed methane Non-associated offshore Associated with oil Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  12. Fifty-five percent of active rotary rigs are now drilling horizontal wellbores active drilling rigs Source: Baker Hughes Oct 1, 2010 Richard G. Newell, American Gas Assoc. 10/11/2010

  13. Since 2006 the 6 largest shale gas plays have provided essentially all gross gas production increases in U.S. lower-48 gas production – U.S. lower-48 (includes shale) billion cubic feet per day gas production – big 6 shale plays billion cubic feet per day Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Lower 48 from EIA. Big 6 Shales from HPDI.

  14. U.S. shale gas production has increased 14-fold in 10 years annual shale gas production trillion cubic feet Source: EIA, Lippman Consulting (2010 estimated) Richard G. Newell, American Gas Assoc. 10/11/2010

  15. Shale gas production significantly lowers projected U.S. gas imports total U.S. natural gas imports trillion cubic feet Two alternate scenarios No new U.S. shale scenario allows no new onshore, lower 48 shale drilling after 2009 • High U.S. shale scenario increases unproved shale gas resources from 347 tcf to 652 tcf No new U.S. shale scenario 2035 Reference scenario High U.S. shale scenario Richard G. Newell, American Gas Assoc. 10/11/2010 Source: EIA, Annual Energy Outlook 2010

  16. U.S. Gas Consumption Richard G. Newell, American Gas Assoc. 10/11/2010

  17. As over the past decade, developments in the electricity sector drive changes in overall demand for natural gas trillion cubic feet History Projections Electric Power Industrial Residential Commercial Lease and Plant Fuel Transportation Pipeline Fuel Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  18. Growth in electricity use continues to slow 3-year rolling average percent growth Period Annual Growth 1950s 9.8 1960s 7.3 1970s 4.7 1980s 2.9 1990s 2.4 2000-2008 0.9 2008-2035 1.0 History Structural Change in Economy - Higher prices - Standards - Improved efficiency Projections Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  19. Renewables gain electricity market share; coal share declines billion kilowatthours and percent shares History Projections 17.0 Renewable 9.1 20.8 Natural gas 21.4 Coal 43.8 48.5 Oil and other 1.4 1.5 Nuclear 19.6 17.1 Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  20. Natural gas and renewables account for the majority of capacity additions from 2008 to 2035 2008 capacity Capacity additions 2008 to 2035 Hydropower* 99 (10%) Hydropower* 1 (0.4%) Nuclear 8 (3%) Nuclear 101 (10%) Coal 312 (31%) Coal 31 (12%) Other renewables 92 (37%) Other renewables 40 (4%) 250 gigawatts 1,008 gigawatts Other 119 (12%) Other 2 (1%) Natural gas 116 (46%) Natural gas 338 (33%) * Includes pumped storage Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  21. Climate policy and other drivers affecting the demand for natural gas in electricity generation and transportation Richard G. Newell, American Gas Assoc. 10/11/2010

  22. So, what is the impact of energy, climate, or other pollution policies on the use of natural gas for electricity generation? • What is the implicit value of carbon • What are the emissions targets? • To what extent are offsets allowed or used? • Cost, timing, and public acceptance of low/no carbon generation technologies • Value of captured CO2 for enhanced oil recovery operations? • What is the price of natural gas? • How much support will renewables, nuclear and CCS get from tax credits, mandates, feed-in tariffs, loan guarantees, depreciation provisions and “bonus” allowance allocations? • How do end-use efficiency efforts, included in or parallel to climate policies, affect load growth? • Which competitive margin (“new vs. new,” “old vs. old,” or “old vs. new”) are we looking at in each market? • How does the prospect of future climate policies affect the willingness to invest in existing plants to meet other pollution control requirements? Richard G. Newell, American Gas Assoc. 10/11/2010

  23. Climate policies affect the operating costs of both coal-fired and natural-gas-fired power plants OLD vs. OLD: The “crossover point” for least-cost dispatch of coal and natural gas capacity depends on both fuel prices and the carbon value. As natural gas prices increase, the “crossover” occurs at a higher carbon value. NEW (not shown) vs. OLD: Carbon values may eventually get high enough to make the capital plus operating costs of new no-carbon generation cheaper than the operating only costs of an existing generation unit. At that point, operators would retire the existing unit. Climate policy impact on operating costs: Existing plants Fuel cost for existing coal and combined cycle natural gas units with a value placed on carbon dioxide emissions 2008 dollars per megawatthour Natural Gas CC at $13 Coal at $2 Natural Gas CC at $5 Source: unpublished runs usingAnnual Energy Outlook 2010 Reference case capital costs Richard G. Newell, American Gas Assoc. 10/11/2010

  24. Levelized cost, which considers both capital and operating costs, is one useful metric for comparing generation technologies. The crossing points for tradeoffs among technologies in “NEW vs. NEW” capacity decisions generally occur at lower carbon dioxide values than the crossing points for “OLD vs. OLD” dispatch decisions. Levelized costs are needed to compare the impact of climate policy on investment decisions Levelized costs for new plants in 2025 with a value placed on carbon dioxide emissions 2008 dollars per megawatthour Pulverized Coal Natural Gas CC at $13 Nuclear & Biomass Wind Natural Gas CC at $5 Source: unpublished runs usingAnnual Energy Outlook 2010 Reference case capital costs Richard G. Newell, American Gas Assoc. 10/11/2010

  25. Incentives for using natural gas to fuel heavy trucks are under active discussion in Congress • AEO2010 includes sensitivity cases examining the impact of tax credits aimed at stimulating natural gas use in heavy duty (class 3 through 8) trucks. Based on pending legislation, the credits are provided through either 2019 or 2027 and cover • 100 percent vehicle incremental cost (above diesel counterpart) • $0.50 per gallon gasoline equivalent fuel credit • $100,000 per refueling facility • The penetration and acceptance of natural gas as a fuel for long-distance trucking faces two significant barriers: limited driving range without refueling and a lack of available fueling infrastructure. • The best near-term market penetration opportunity for trucks fueled with natural gas is likely in centrally fueled fleets that operate primarily within a limited distance from their base. • Impact estimates are very sensitive to assumptions made regarding the size of this market segment. Richard G. Newell, American Gas Assoc. 10/11/2010

  26. Natural gas fuel use by heavy-duty natural gas vehicles in Base Market and Expanded Market case with Reference case world oil prices, 2010-2035 trillion cubic feet 2027 Phaseout Expanded Market 2019 Phaseout Base Market Reference Richard G. Newell, American Gas Assoc. 10/11/2010 Source: Annual Energy Outlook 2010

  27. For more information • U.S. Energy Information Administration home page www.eia.gov • Short-Term Energy Outlook www.eia.gov/emeu/steo/pub/contents.html • Annual Energy Outlook www.eia.gov/oiaf/aeo/index.html • International Energy Outlook www.eia.gov/oiaf/ieo/index.html • Monthly Energy Review www.eia.gov/emeu/mer/contents.html • National Energy Information Center (202) 586-8800 Live expert from 9:00 AM – 5:00 p.m. EST Monday – Friday (excluding Federal holidays) • email: InfoCtr@eia.gov

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