2014 ENERGY MARKET OUTLOOK AND INDUSTRY TRENDS

Transcription

1 21 January ENERGY MARKET OUTLOOK AND INDUSTRY TRENDS ENERGY MARKET PERSPECTIVE NATIONAL WEBCAST ROB PATRYLAK & ANN DONNELLY

2 BLACK & VEATCH STATEMENT This report was prepared for Client by Black & Veatch Corporation ( B&V ) and is largely based on information not within the control of B&V. As such, B&V has not made an analysis, verified, or rendered an independent judgment of the validity of the information provided by others, and, therefore, B&V does not guarantee the accuracy thereof. In conducting our analysis and in forming an opinion of the projection of future operations summarized in this report, B&V has made certain assumptions with respect to conditions, events, and circumstances that may occur in the future. The methodologies we utilize in performing the analysis and making these projections follow generally accepted industry practices. While we believe that such assumptions and methodologies as summarized in this report are reasonable and appropriate for the purpose for which they are used; depending upon conditions, events, and circumstances that actually occur but are unknown at this time, actual results may materially differ from those projected. Use of this report, or any information contained therein, shall constitute the user s waiver and release of B&V and Client from and against all claims and liability, including, but not limited to, any liability for special, incidental, indirect or consequential damages, in connection with such use. In addition, use of this report or any information contained therein shall constitute an agreement by the user to defend and indemnify B&V and Client from and against any claims and liability, including, but not limited to, liability for special, incidental, indirect or consequential damages, in connection with such use. To the fullest extent permitted by law, such waiver and release, and indemnification shall apply notwithstanding the negligence, strict liability, fault, or breach of warranty or contract of B&V or Client. The benefit of such releases, waivers or limitations of liability shall extend to B&V and Client s related companies, and subcontractors, and the directors, officers, partners, employees, and agents of all released or indemnified parties. USE OF THIS REPORT SHALL CONSTITUTE AGREEMENT BY THE USER THAT ITS RIGHTS, IF ANY, IN RELATION TO THIS REPORT SHALL NOT EXCEED, OR BE IN ADDITION TO, THE RIGHTS OF THE CLIENT. Readers of this report are advised that any projected or forecasted financial, operating, growth, performance, or strategy merely reflects the reasonable judgment of B&V at the time of the preparation of such information and is based on a number of factors and circumstances beyond our control. Accordingly, B&V makes no assurances that the projections or forecasts will be consistent with actual results or performance. To better reflect more current trends and reduce to chance of forecast error, we recommend that periodic updates of the forecasts contained in this report be conducted so more recent historical trends can be recognized and taken into account. Any use of this report, and the information therein, constitutes agreement that: (i) B&V makes no warranty, express or implied, relating to this report, (ii) the user accepts the sole risk of any such use, and (iii) the user waives any claim for damages of any kind against B&V. 2

3 ABOUT THE ENERGY MARKET PERSPECTIVE 3

4 OVERVIEW OF THE ENERGY MARKET PERSPECTIVE (EMP) Biannual subscription based service (Released January 2014) Provides 25 year projections Results are reported for various North American regions Key Report Deliverables Insights on industry trends and market opportunities Fundamental capacity, energy, emission and power fuel price forecasts for North American Energy Markets Easily assessable data Clients use the EMP to plan for and manage risks of North American shift to natural gas generation 4

5 INTEGRATED MARKET MODELING Energy and Environmental Policies World Oil & LNG Prices World U.S. Black & Veatch Energy Market View Commodity Market Models Fuel, Power and Allowances 5

6 KEY ISSUES AND ASSUMPTIONS THAT INFLUENCE THE BASELINE PERSPECTIVE Regulation RPS requirements and response Power demand and conservation Fuel demand and pricing LNG imports / exports Future construction costs Generation expansion plans Transmission infrastructure Unit retirements Supply and pipeline expansion plan Finding and development costs Integrates primary research, leading data sources and client consulting experience 6

7 EMP NORTH AMERICAN MARKET COVERAGE Available as a national or regional service Regions covered: Western Texas (ERCOT) Northeast Midwest Southeast 7

8 INCORPORATES FINDINGS FROM OUR STRATEGIC DIRECTIONS SURVEYS 8

9 ENERGY MARKET PERSPECTIVE BASELINE VIEW 9

10 TOP 7 ELECTRIC INDUSTRY ISSUES Reliability, environmental regulation and economic regulation are the industry s top issues 10

11 NATIONAL PROJECTIONS During the next 25 years: Overall electric generation capacity will increase by 30% Natural gas generation 100+% Renewable generation 150% Nuclear capacity 35% Conventional coal 40% Overall market share will also shift Natural gas = more than half of all electricity consumed Coal market share 20% Nuclear market share 10% Nuclear and coal retirements will vary by region 11

12 Coincident Peak Demand (GW) Annual Growth rate (%) Energy Market Perspective: 2014 Energy Market Outlook 21 January 2014 BLACK & VEATCH OUTLOOK ON U.S. POWER DEMAND Peak Demand - United States Coincident Peak Demand (GW) Annual Growth Rate (%) 1, % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Source: EIA, Black & Veatch Energy Market Perspective Analysis -5.0% 12

13 RULEMAKINGS COMPLIANCE PLANNING & DEADLINES REGULATORY DRIVER Hour NAAQS Designate NAs Develop SIPs Compliance Cross State Air Pollution Rule Develop Rule Legal Challenge CAIR CAIR Replacement Mercury and Air Toxics Standards Develop Rule Compliance Prep Period Compliance Clean Water Act 316B Develop Rule Compliance Prep Period Compliance Effluent Guidelines Develop Rule Compliance Prep Period Compliance Coal Combustion Residuals Develop Rule Compliance Prep Period Compliance 13

14 GHG Emission Allowance Price (2013 $/short ton) Energy Market Perspective: 2014 Energy Market Outlook 21 January 2014 IMPLICATIONS OF BASELINE GHG ASSUMPTIONS $40 Projected Greenhouse Gas Emission Allowance Prices $35 $30 $25 $20 $15 $10 $5 $

15 STATE RENEWABLE PORTFOLIO STANDARDS 15% by % by % by % by 2025, 6% solar by % by % by % by % by % by % by % by % goal 20% by % by % by 2025 (Xcel 30%) 10% by MW 15% by % by % by 25% 2025 by % by % (16% new Gen) By 2025 VT Goal: All New Gen, 10% cap 8/10% Tier I/II by % by % by % by % by % by 2000; 7% new by % by 2020, +1%/yr after RI: 16% by 2020 CT: 27% by 2020 NJ: 22.5% by 2021 DE: 25% by 2025 MD: 20% by 2022 DC: 20% by ,000 MW by % by 2030 States with RPS Requirements States with RPS Goals 15

16 NATURAL GAS AND POWER FUELS OUTLOOK 16

17 2013$/MMBtu Energy Market Perspective: 2014 Energy Market Outlook 21 January 2014 NATURAL GAS PRICE FORECAST $10 Projected Henry Hub Natural Gas Spot Price Historical (Nominal) B&V Projection (Mid-Year 2013) B&V Projection (End of Year 2013) $8 $6 $ Price growth is driven by LNG exports, coal capacity retirements and GHG legislation Prices stabilize as production rises to meet demand growth Price trajectory tracks continued growth in power generation demand $ Growth in lowcost supplies dampens price growth $

18 NORTH AMERICAN NATURAL GAS PRODUCTION 18

19 RISING OIL AND NGL PRICES WILL CONTINUE TO SUPPORT ROBUST GAS PRODUCTION 19

20 ELECTRIC SECTOR DRIVES FUTURE NATURAL GAS DEMAND GROWTH Projected Compound Annual Growth Rate Electric Residential Commercial Industrial 3.10% 0.83% 1.29% 0.39% 20

21 U.S. NATURAL GAS DEMAND FOR POWER GENERATION IS EXPECTED TO GROW BY MORE THAN 20 BCF/D BY 2035 Overall growth is driven by regional demand in the Midwest, Southeast and Texas Demand growth prior to 2020 is driven by coal-fired capacity retirements Post-2020 demand growth is driven by a Federal CO 2 emissions program Incremental Lower 48 Gas Demand for Power Generation from

22 MULTITUDE OF LNG EXPORT PROJECTS AWAIT DOE LICENSE APPROVAL Applications for 30+ Bcf/d in export capacity have been filed in the U.S. This capacity would comprise nearly all of current and more than half of future global demand H I Export Import Source: FERC; Black & Veatch Analysis 22

23 OUTLOOK FOR NORTH AMERICAN LNG EXPORTS 23

24 SHALE GAS REDEFINES PIPELINE FLOWS & ASSET VALUES Flows Increase Flows Decrease Flows Stable Natural Gas Pipelines 24

25 2013$/MMBtu Energy Market Perspective: 2014 Energy Market Outlook 21 January 2014 NEAR-TERM CONVERGENCE WILL BE FOLLOWED BY A RETURN OF REGIONAL BASIS DIFFERENTIALS $2.00 $1.50 $1.00 $0.50 $0.00 -$0.50 -$1.00 -$1.50 Chicago, City-gates Dominion, South Transco Zone 6, New York Algonquin, City-Gates PG&E, City-Gates Houston Ship Channel Carthage Projected Basis to Henry Hub Major Natural Gas Pricing Points -$

26 MM Tons Energy Market Perspective: 2014 Energy Market Outlook 21 January 2014 ELECTRIC SECTOR DEMAND FOR COAL WILL TREND DOWNWARD 900 Thermal Coal Demand By Basin Powder River Basin Central App Illinois Basin Northern App Lignite Rockies Other jtboyd.com 26

27 COAL PRICE TRENDS BOYD projects U.S. coal prices will remain relatively flat 100 BOYD Coal Price Forecast Constant (2013 $/Ton FOB Mine) Pitt 8 Rail Medium Sulfur CAPP Low Sulfur ILB 5 lb Rail Gillette High Btu However, prices will rise to levels necessary to sustain an ongoing industry in the face of deteriorating reserves, rising costs and required new mine replacement jtboyd.com 27

28 POWER MARKET IMPLICATIONS 28

29 COAL RETIREMENTS OF 60 GW PROJECTED BY 2020 Near-term retirements are driven by MATS compliance 29

30 NATURAL GAS-FUELED GENERATION WILL CONTINUE TO GROW Power sector demand for gas expected to grow 3.1% annually More than 348,000 MW of new capacity expected before 2038 Technology advances in combined cycle with advances in combustion turbine technology Emporia Energy Center - Kansas Coal retirements and decline in regional reserve margins will drive continued capacity growth 30

31 ECONOMY, GAS PRICES SLOW NUCLEAR DEVELOPMENT Deferrals and cancellations of new units to continue Utilities will work to get the most of existing units with up-rates Increasing regulatory compliance, and Fukushima related safety costs Continued economic challenges for smaller nuclear plants Black & Veatch forecasts a decline in nuclear resources over the next 25 years Refueling Nuclear Reactor In the near-term, budget deficit and waste disposal concerns limit federal loan guarantee programs 31

32 NEARLY 100 GW OF RENEWABLE CAPACITY ADDITIONS EXPECTED BY

33 THE CHANGING U.S. GENERATION CAPACITY MIX 2014 Capacity Mix (MW)

34 THE CHANGING U.S. ENERGY GENERATION MIX Energy Market Perspective: 2014 Energy Market Outlook 21 January Generation Mix (GWh)

35 INDUSTRY TRENDS West County Energy Center Florida Reliability, environmental regulation and economic regulation are the top issues Electric power pricing will increasingly be tied to natural gas prices as natural gas evolves into the predominant fuel for generation Coal will continue its significant role in resource mix, even with the anticipated 60 GW retirement of smaller, older plants Continued economic challenges for smaller nuclear plants Increased focus on electric grid and natural gas infrastructure network reliability 35

36 QUESTIONS? 36

37 CONTACT ROB PATRYLAK Managing Director Planning and Energy Markets Office: ANN DONNELLY Director Natural Gas & Power Fuels Office: