And Then There Was Abundance: Examining Natural Gas in 2012 Bruce McDowell Director, Policy Analysis American Gas Association bmcdowell@aga.org
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From something old comes something new: Can you recognize today's gas industry?
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
Daily Natural Gas Production Source: Energy Information Administration, U.S. Department of Energy. 5
This is what the fuss is all about: Shale Source: www.wikipedia.org/wiki/utica_shale. 6
Marketed Natural Gas Production Source: Energy Information Administration. 7
Hydraulic Fracturing Source: Chesapeake Energy. 8
ExxonMobil YouTube Video on Hydraulic Fracturing 9
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
U.S. and Canada Shale Basins Source: National Energy Board, Understanding Canadian Shale Gas, 2009. 11
Natural Gas Directed Rig Count Source: Energy Information Administration, U.S. Department of Energy. 12
Bcf per day U.S. Shale Gas Production Energy information Administration 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2007 2008 2009 2010 2011 2012 est. US Shale Production Other Dry Production 13
Economic Contributions of Domestic Shale Gas Nearly $1.9 trillion in shale gas capital investments are expected between 2010 and 2035. 600,000 jobs supported by the Shale gas industry to grow to 870,000 in 2015 and 1.6 million in 2035. Shale gas contribution to GDP to grow from $76 billion in 2010 to $231 billion in 2035. Savings from lower natural gas prices may add $926 per year of disposable income per household, 2012-2015. Source: The Economic and Employment Contributions of Shale Gas in the United States, IHS Global Insight, America s Natural Gas Alliance, December 2011. 14
So What Will This Winter Bring?
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
Storage Hits Record Highs 17
Drilling Activity Moving From Gas to Liquids 1,800 1,600 Gas Rigs 1,400 1,200 Oil Rigs 1,000 800 600 400 200 0 Source: Baker Hughes: http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm 18
Weather is One of the Biggest Influences on Gas Utility Customer Bills In October of 2011, Accuweather predicted yet another brutal winter for 2011-2012 Source: Accuweather.com 19
So What Happened to the Cold Winter Last Year? Much warmer than normal 20
So What Will This Winter Bring? Source: Accuweather.com 21
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
Despite Lower Bills, Many Need Help An AGA survey of its members shows that after the winter of 2011-2012: 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
A long look into the future
U.S. Natural Gas Production, 1990-2035 (trillion cubic feet) 30 History 2010 Projections 25 20 23% 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% 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2012 Annual Energy Outlook Early Release, Energy Information Administration. 25
Quadrillion Btu U.S. Natural Gas Consumption by Sector (EIA, AEO 2010-2035 reference Case) 30.00 25.00 20.00 15.00 10.00 5.00 Power Generation CNG Pipeline Fuel Lease and Plant Fuel Industrial Commercial Residential 0.00 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 26
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
Fossil-Fired Power Generation Source: Energy Information Administration, U.S. Department of Energy. 28
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Normalized MCF per Year Declining Use per Natural Gas R&C Customer Since 1970 200 150 100 50 0 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
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
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
U. S. Natural Gas and Crude Oil Prices $ per MMBtu 25 20 Natural Gas - Henry Hub Spot Crude Oil - WTI Spot 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Energy Information Administration, U.S. DOE. 32
U.S. Net Exporter of Natural Gas? Source: Energy Information Administration, U.S. Department of Energy. 33
US Natural Gas Import/Export Points Source: Energy Information Administration, U.S. Department of Energy. 34
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
Market Stability Resource Abundance Growing Infrastructure This Is Not Your Traditional Natural Gas Industry. 36
www.aga.org 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