And Then There Was Abundance: Examining Natural Gas in Bruce McDowell Director, Policy Analysis American Gas Association

Transcription

1 And Then There Was Abundance: Examining Natural Gas in 2012 Bruce McDowell Director, Policy Analysis American Gas Association

2 NOTICE: In issuing and making this presentation and publication available, neither AGA nor any third party cited is undertaking to render professional or other services for or on behalf of any person or entity. Nor is AGA or any third party cited undertaking to perform any duty owed by any person or entity to someone else. Anyone listening to the presentation or using this document should rely on his or her own independent judgment or, as appropriate, seek the advice of a competent professional in determining the exercise of reasonable care in any given circumstances. The AGA statements and third party data cited are for general information and represent an unaudited compilation of statistical information that could contain coding or processing errors. Neither AGA nor any third party makes any warranties, express or implied, nor representations about the accuracy of the information or its appropriateness for any given purpose or situation. The statements and publication shall not be construed as including, advice, guidance, or recommendations to take, or not to take, any actions or decisions in relation to any matter, including without limitation relating to investments or the purchase or sale of any securities, shares or other assets of any kind. Should you take any such action or decision; you do so at your own risk. Information on the topics covered may be available from other sources, which the you may wish to consult for additional views or information not covered.

3 From something old comes something new: Can you recognize today's gas industry?

4 Oh How Times Have Changed Natural gas outlook Then: Bridge fuel Now: Foundation fuel Natural gas as a resource in the US Then: 60 year supply Now: 100 year supply Natural gas prices Then: Highly volatile and relatively expensive Now: Lower and stable International gas trade Then: US to become more dependent on imports Now: US to become a player in the export market? Yet challenges lay ahead 4

5 Daily Natural Gas Production Source: Energy Information Administration, U.S. Department of Energy. 5

6 This is what the fuss is all about: Shale Source: 6

7 Marketed Natural Gas Production Source: Energy Information Administration. 7

8 Hydraulic Fracturing Source: Chesapeake Energy. 8

9 ExxonMobil YouTube Video on Hydraulic Fracturing 9

10 The Debate Over The Process All of the Sudden, Natural Gas Is Evil Claims Potential supply overstated, quotes DOE official Drilling is more costly than expected Drilling damages the environment Greenhouse gases worse from shale drilling than coal use State & local bans on hydraulic fracturing DOE report on improving hydraulic fracturing practices EPA study on hydraulic fracturing In Our Defense Shale production exceeding expectations, no evidence of bubble yet DOE official quoted is actually an intern Drilling is still profitable, as evidenced by investment activity Even using revised GHG numbers from EPA, gas use causes only half the GHG as coal DOE 90 day draft calls for reasonable standards EPA draft study plan to is being reviewed by EPA s Science Advisory Board 10

11 U.S. and Canada Shale Basins Source: National Energy Board, Understanding Canadian Shale Gas,

12 Natural Gas Directed Rig Count Source: Energy Information Administration, U.S. Department of Energy. 12

13 Bcf per day U.S. Shale Gas Production Energy information Administration est. US Shale Production Other Dry Production 13

14 Economic Contributions of Domestic Shale Gas Nearly $1.9 trillion in shale gas capital investments are expected between 2010 and ,000 jobs supported by the Shale gas industry to grow to 870,000 in 2015 and 1.6 million in Shale gas contribution to GDP to grow from $76 billion in 2010 to $231 billion in Savings from lower natural gas prices may add $926 per year of disposable income per household, Source: The Economic and Employment Contributions of Shale Gas in the United States, IHS Global Insight, America s Natural Gas Alliance, December

15 So What Will This Winter Bring?

16 Gas Prices To Be Lower for Some Utilities On average, wellhead cost of gas declined since the last winter heating season Current price rising, but utilities purchased some gas when prices were lower Avista files to lower Ore. gas supply rates to near 2004 levels NSTAR Gas seeks to lower gas supply rate in Massachusetts $6.00 Wellhead Price of Gas $5.00 $4.00 $3.00 $2.00 $1.00 Forecast Report: 3 NJ utilities to lower gas rates $0.00 Jan 2010 Jan 2022 Jan 2012 Jan 2013 Source: Energy Information Administration Source: SNL Daily Gas Report 16

17 Storage Hits Record Highs 17

18 Drilling Activity Moving From Gas to Liquids 1,800 1,600 Gas Rigs 1,400 1,200 Oil Rigs 1, Source: Baker Hughes: 18

19 Weather is One of the Biggest Influences on Gas Utility Customer Bills In October of 2011, Accuweather predicted yet another brutal winter for Source: Accuweather.com 19

20 So What Happened to the Cold Winter Last Year? Much warmer than normal 20

21 So What Will This Winter Bring? Source: Accuweather.com 21

22 A peek into the future: Average Winter Bill May Change 7% higher than last year The reason: The winter is bound to be colder than last year, overcoming the savings generated by lower prices and increased conservation Specifically: Weather Change -- 14% colder, increases bill Price Change -- 2% lower, reduces bill Conservation Change -- 4% increase, reduces bill Bills will still be among the lowest in the past decade 22

23 Despite Lower Bills, Many Need Help An AGA survey of its members shows that after the winter of : The number of customers disconnected fell 7.5% from the previous year The amount of money in arrears and owed by disconnected customers declined 15% But 2.4% of customers were disconnected The number of customers late on their bills increased slightly to 18% LIHEAP is still critically important to those in need. With the economy in limbo and an increasing number of families falling below the poverty line, all assistance programs are needed. 23

24 A long look into the future

25 U.S. Natural Gas Production, (trillion cubic feet) 30 History 2010 Projections % Shale gas 49% 15 26% Alaska Tight gas 21% 10 2% 9% Non-associated offshore 9% 7% Coalbed methane 5 10% 1% Associated with oil 7% 21% 7% Non-associated onshore 9% Annual Energy Outlook Early Release, Energy Information Administration. 25

26 Quadrillion Btu U.S. Natural Gas Consumption by Sector (EIA, AEO reference Case) Power Generation CNG Pipeline Fuel Lease and Plant Fuel Industrial Commercial Residential

27 Natural Gas Utility Sales Are Flat but Is Growth on the Way? Sales to electricity generators up Most new fossil-fuel plants run on gas Gas prices causing some coal displacement But 2/3 of these deliveries bypass local utilities Industrial sales rising about ½ use local utility systems. Gas sales to residential and commercial customers are flat Will high oil prices give impetus to natural gas vehicles? 27

28 Fossil-Fired Power Generation Source: Energy Information Administration, U.S. Department of Energy. 28

29 Normalized MCF per Year Declining Use per Natural Gas R&C Customer Since Sources: U.S. Energy Information Administration and American Gas Association Note: Data is weather normalized or adjusted to reduce the impact of abnormally warm or cold weather. 29

30 Benefits of Gas Customer Conservation Saves energy 71 Tcf by R&C customers since 1970 Saves money compared to 1970 usage: Residential customers save $620 per year Commercial customers save $1,416 per year Reduces greenhouse gasses Source: Based on data from Energy Information Administration 30

31 Combined Benefits of Gas Customer Conservation and Lower Prices Residential U.S. Average Conservation, using 1970 consumption = $620/yr Price, assuming 2008 levels = $178/yr Total = $798/yr savings compared to $762/yr actually paid Commercial U.S. Average Conservation, using 1970 consumption = $1,416/yr Price, assuming 2008 levels = $1,106/yr Total = $2,521/yr savings compared to $3,618/yr actually paid Source: Based on data from Energy Information Administration 31

32 U. S. Natural Gas and Crude Oil Prices $ per MMBtu Natural Gas - Henry Hub Spot Crude Oil - WTI Spot Source: Energy Information Administration, U.S. DOE. 32

33 U.S. Net Exporter of Natural Gas? Source: Energy Information Administration, U.S. Department of Energy. 33

34 US Natural Gas Import/Export Points Source: Energy Information Administration, U.S. Department of Energy. 34

35 U.S. LNG Export Terminal Projects Jordan Cove (Oregon) proposed 1.2 Bcf/d bi-directional greenfield facility Cheniere (Corpus Christi, TX) proposed 1.8 Bcf/d greenfield facility Gulf Coast LNG (Brownsville, TX) proposed 3.0 Bcf/d greenfield facility Sempra (Cameron, LA) 1.7 Bcf/d at existing regas facility Dominion (Cove Point, MD) 1.0 Bcf/d at existing regas facility BG and Energy Transfer (Lake Charles, LA) 2.1 Bcf/d at regas facility Cheniere (Sabine Pass, TX) 2.2 Bcf/day at existing regas facility Freeport LNG (Freeport, TX) 2.8 Bcf/d at existing regas Recent proposals including Elba Island 0.5 Bcf/d at existing brownfield facility 35

36 Market Stability Resource Abundance Growing Infrastructure This Is Not Your Traditional Natural Gas Industry. 36

37 The American Gas Association, founded in 1918, represents over 200 local energy companies that deliver clean natural gas throughout the United States. There are more than 70 million residential, commercial and industrial natural gas customers in the United States, of which 91% more than 64 million customers receive their gas from AGA members. Today, natural gas meets one-fourth of the United States energy needs. 37