35 th Annual PURC Conference

Transcription

1 35 th Annual PURC Conference The Real Climate Change: Planning & Investing Under Uncertainty Hilton University of Florida Conference Center, Gainesville Natural as a Climate Change Bridge Fuel: Storage, Reliability, and Supply Options Southern Pines Energy Center Hardy Toll Road North, Suite 125 Spring, TX (281) x13

2 Are we in the eye of an energy storm? The storm is not over! Supply disruptions? Extreme weather conditions? Alternate fuel availability? Weather sensitive demand! Declining production? Increased volatility! Greater need for deliverability!

3 Industry Comments The National Petroleum Council states in its report report The Winter peak demand of North America can average 80+ BCF/D in January with one day peaks exceeding 100 BCF/D. This number continues to get larger. The shoulder month loads average 45 BCF/D. Most energy data aggregates around US domestic production being 53 BCF/D, LNG imports averaging 2.5 BCF/D, and Canadian imports approximately 4 to 6 BCF/D with the overall demand averaging 60 BCF/D and growing. S&P s 03/08/07 report states The importance of natural gas storage is amplified by the 200 gigawatts of gas-fired electricity generation built in the past decade. These plants have helped natural gas become a 12-month fuel because gas that was previously destined for storage now has another potential path: summer cooling. Given the addition of considerable gas-fired electricity generation capacity that came on line, the gas market changed from a conventional seasonal injection and heating based withdrawal season to a market with increasingly complex timesensitive supply needs. EIA Annual Energy Outlook From , 60% of the projected growth in the lower 48 end-use consumption of natural gas occurs east of the Mississippi River.

4 Industry Comments EIA Annual Energy Outlook 2007 The largest amounts of new (additional and currently unplanned) electric generation is expected in the Southeast (FL & SERC). In the SE, electricity demand represents a relatively large share of the US electricity sales and its need for new capacity is greater than in other regions. Armando Olivera, FPL, Press Release Peak gas fired electric generation is at 50% today and is projected to be 70% by FERC SE US Market Overview and Focal Points FL is the biggest market for gas and accounts for about 30% of the overall regional demand. The power sector comprises more than 80% of FL s total demand. Overall natural gas storage capacity is the lowest of any region in the US. EIA Florida produces more petroleum-fired electricity, in absolute terms, than any other state. demand, in the US, will continue to grow as higher value gas-fired power generation should continue to displace industrial gas demand-adding more peak weather sensitive load and removing base-load the result is increasing volatility. Existing NG storage will be taxed by needing to provide LNG with the means to manage and optimize its value by capturing seasonal price arbitrage and serving the growing power market (4, 8, 12, and 16 hours per day

5 Florida Facts Florida has historically relied on power plant fuel switching capability (above ground oil storage) instead of gas storage to balance natural gas deliverability and demand. Florida s increasing reliance (environmental and economic reasons) on natural gas for power generation has reduced the ability to rely on interruptions of power plant gas use. Florida s increasing reliance on natural gas for power generation has made Florida more sensitive and vulnerable to commodity price volatility and supply disruptions. Six years ago 19% of generation was from natural gas, 37% today, FRCC forecast (from 10 year site plans) is for 50% within five years. Today 50% of Summer peak demand is met with natural gas generation.

6 New Florida Supply Sources Southeast Supply Header new 270-mile 42 and 36 pipeline from Perryville, LA to Gulfstream in AL. Jointly owned by Spectra and CenterPoint. Boardwalk Pipeline Partners East Texas to Mississippi Expansion. 242 miles of 42 pipe from Keatchie, LA to Harrisville, MS. Southeast Expansion Project will then move this gas to West Butler, AL via a new 111 mile 42 pipe that can move up to 1.2 BCF a day. Mid-Continent Express Pipeline new 500 mile pipeline (40 miles of 40, 260 miles of 42 and 200 miles of 36 ) from OK and NE Texas to Alabama with capacity of up to 1.8 BCF/d. Cypress Pipeline (I, II, & III) moving (LNG) gas into Florida (Jacksonville) from Elba Island, GA (Savannah). 165 miles of 24 and 10 miles of 30 pipe. Will move 500,000 Dth per day into FL when complete.

7 Value Drivers of Storage changing fundamentals and changing markets Flexible: Balance the fluctuating and unsynchronized needs of supply / demand React quickly to changing market and weather conditions Insurance: Insurance / Backstop for supply reduction / failures / Supply Reserve Margin Extremely reliable source of deliverability and peak day deliverability Services: Intra-season, intra-month, intra-week, intra-day Short notice / no-notice balancing, balance 24-hour flow with 16/12/8 hour needs Manage / Optimize: Transportation and supply portfolio Dispatch / storage / least cost transportation / Manpower Efficiencies-Holidays, Weekends Pipeline pressure / Line pack management / System reliability Price / risk management: Price protection, responsible risk management, manage energy price volatility Access to a broader market and supply sources (access to multiple pipelines) Pipeline imbalance penalties and punitive cash-out provisions The value drivers for storage projects have increased and shifted from the merchant s optionallity model to a reliability and balancing premium i.e Utilities, Pipelines, Producer, Power Gen. and LNG players

8 Natural Storage - Types of Storage Four types of Natural Storage: Salt cavern Depleted reservoir Aquifer storage Tanks (as liquid) Salt Cavern Depleted Reservoir Aquifer To Pipeline To Pipeline To Pipeline M M M Injection Facilities Withdrawal Facilities Injection Facilities Withdrawal Facilities Injection Facilities Withdrawal Facilities Compressors Heater Dehydrator Pressure Reduction Valve Compressors Heater Dehydrator Pressure Reduction Valve Compressors Heater Dehydrator Pressure Reduction Valve Water Water

9 Natural Volatility $25 $20 Rate per Dt $15 $10 $5 $0 1/1/2005 7/1/2005 1/1/2006 7/1/2006 1/1/2007 7/1/2007 1/1/2008 Years FGTZ3 Hub

10 Hurricanes Isadore and Lili Offshore Supply Disruptions (Example Destin Pipeline) 1,000, ,000 Scheduled : Petal Storage EFFECT OF HURRICANES "ISIDORE AND LILI" ON OFFSHORE PRODUCTION PROFILE 800, ,000 Scheduled : Transco Pipeline Southern Natural Tennessee Pipeline MNBtu/day 600, , , , , ,000 0 Scheduled : Florida Transmission Gulf South Pipeline Gulfstream Pipeline Scheduled : Pascagoula Processing Plant Chevron Refinery Plant Daniel DESTIN SUPPLY DISRUPTION FROM 9/24/02 to 10/24/02 Total Volum e: Bcf Average Daily Volume: -357 MMcf/d Total Florida Volum e: -5.5 Bcf Average Daily Florida Volume: -172 MMcf/d 8/29/2002 9/5/2002 9/12/2002 9/19/2002 9/26/ /3/2002 Source: Destin Pipeline: 10/10/ /17/ /24/ /31/ /7/ /14/ /21/ /28/2002

11 1,200,000 Hurricanes Frances and Ivan Offshore Supply Disruptions (Example Destin Pipeline) Destin Pipeline 2005 SGR estimated average flow day 1,000,000 Destin Pipeline 2003 average flow day (FERC Form 2) 800,000 Partial Production Resumed MMBtu/day 600,000 Production Shut In - Hurricane 400,000 Supplied by Chandeleur Pipeline 200,000 - Source: Destin Pipeline: 9/13/2004 9/15/2004 9/17/2004 9/19/2004 9/21/2004 9/23/2004 9/25/2004 9/27/2004 9/29/ /1/ /3/ /5/ /7/ /9/ /11/ /13/2004 Florida Transmission and Gulfstream Natural System Transco, Sonat and Tennessee Pipeline ChevronTexaco Pascagoula Refinery - Plant Daniel

12 Hurricanes Katrina and Rita 1,200,000 Offshore Supply Disruptions (Example Destin Pipeline) Destin Pipeline 2005 SGR estimated average flow day 1,200,000 1,000,000 Destin Pipeline 2003 average flow day (FERC Form 2) 1,000,000 Partial Production Resumed 800,000 Production Shut In - Hurricane Katrina 800,000 MMNtu/Day 600, ,000 Supplied by Resor Ridge Facility & Chandeleur Pipeline Production Shut In - Hurricane Rita 600, , , ,000 8/24/2005 Source: Destin Pipeline: 0 8/26/2005 8/28/2005 8/30/2005 9/1/2005 9/3/2005 9/5/2005 9/7/2005 9/9/2005 9/11/2005 9/13/2005 9/15/2005 9/17/2005 9/19/2005 9/21/2005 9/23/2005 9/25/2005 9/27/2005 9/29/ /1/ /3/ /5/ /7/ Transco, Sonat and Tennessee Pipeline Florida Transmission & Gulfstream Natural System

13 Benefits Incremental Storage Can Provide Florida Energy Consumers Reliability of Supply Help manage and reduce price volatility Lower energy costs through: New and improved gas purchasing strategies Greater utilization of contracted transportation capacity Enhanced flexibility (Florida Transmission & Gulfstream Natural System interconnects) Improved access to a more diverse & reliable supply of natural gas Avoiding peak day market and financial impacts of the dump market Improved and responsible hedging strategies Support planning for long term growth and reliable access to supply Maintain and manage fuel reserve margin (oil, coal, and gas storage) A more stable and confident energy service area

14 Storage Service Example Working Capacity 1,200,000 Dth Firm Daily Injection Rights 40,000 Dth Firm Daily Withdrawal Rights 40,000 Dth Term usually from 3 years to 15 years-could adjust seasonally Monthly Demand Charge (on the Working Capacity) $0.18-$0.20 Commodity or Usage Charges per Dth inj or wd $0.01-$0.03 A customer (utility-generator) would have the right to inj or wd any volume up to 40,000 Dth per day and store up to 1,200,000 Dth. This service would allow the customer to swing 80,000 Dth per day. The inj and wd rights are on the pipelines in which the customer buys, sells, or transports its natural gas. A customer decides how much of its daily volume (minimum, peak, average) it wants to insure and be able to balance daily. They can choose a percentage of daily flow, a volume for a particular unit, or a historical analysis supported volume needing replaced or needing a home during an event.