California Energy Commission Integrated Energy Policy Report Lead Commissioner Workshop: Preliminary Results Natural Gas Common Cases California Energy.

California Energy CommissionIntegrated Energy Policy Report

Lead Commissioner Workshop:Preliminary Results

Natural Gas Common Cases

California Energy Commission1516 9th Street

Sacramento, CA 95824

May 21, 2015

Leon D. BrathwaiteSupply Analysis Office

Energy Assessment [email protected]//916-654-4771

California Energy Commission

Purpose

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• Key elements of the natural gas model– How the model was run

• Integrated Energy Policy Report (IEPR) Common Cases– Elements of the common cases

• Preliminary Results– Present demand, supply, and prices– Discuss trends


Major Model Inputs:Demand

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• Demand in Five Disaggregated Sectors: Residential

Key factors: recent historical demand for natural gas, population, natural gas price, income, heating oil price, and cold weather

Commercial Key factors: recent historical demand for natural gas, income, natural gas

price, population, heating oil price, and cold weather

Industrial Key factors: recent historical demand for natural gas, natural gas price,

coal price, industrial production, and cold weather

Power Generation Key factors: total electricity generation, weather, natural gas price, fuel oil

price, renewable electricity generation, and coal price

Transportation Key Factors: recent historical demand for natural gas, income, natural gas

price, and population Applied outside California

• Estimated Elasticity Residential, Commercial, Industrial, Power Gen, and Transportation Range of elasticity ~ 0.5298 – 1.2365


Major Model Inputs:Supply

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• Marginal cost profile is a major input parameter for the natural gas model:− Technology is shifting the marginal cost profile− Overall, the shifting of the marginal cost supply profile results in more resources available at lower

cost

Sources: California Energy Commission; Baker Institute; National Petroleum Council

Cost Curves rightward shift


North American Market Gas-trade (NAMGas) Model

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• Simplified View:

• Produces estimates of supply, demand, and hub prices

• Generates end-use burner-tip prices from hub prices

Natural gas supply basins

Connected to

Interstate and Intrastate PipelinesConnected to

Demand centers

Model iterates through all time periods and all regions


IEPR Natural Gas Common Cases

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• Staff constructed the following outlooks:

Mid Energy Demand Case Reference Case

Low Energy Demand (LD) Case

High Energy Demand (HD) Case

HD High Demand

LD Low Demand


Natural Gas Common Cases: Key Assumptions 2015

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Major change since last workshop


Preliminary Results

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Performance of Cases:United States


Preliminary Results:Henry Hub Prices

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• Annual growth rates between 2018 and 2030 vary 1.9% and 2.0%

• 2030 prices vary between $3.59 and $6.36 per Mcf

• Price rebound 2016-2018 driven by demand growth faster than supply

On the dashed line, the 2015 and 2016 values are EIA's published estimates.

On the dashed line, the 2015 and 2016 values are EIA's published estimates.


Preliminary Results:US Natural Gas Demand

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• US natural gas demand growing steadily Annual growth rate in Reference Case about 1.4% By 2030 demand surpasses 80 bcf/d


Preliminary Results: US Power Generation Demand for Natural Gas

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• Aggressive coal retirement pushing demand in the power generation sector higher

In high demand case, by 2030, natural gas demand surpasses 40 bcf/d


Preliminary Results: US Natural Gas Production

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Highest natural gas production in Low Demand Case Less imports enter the Lower 48 Lower 48 production more competitive with Canadian imports

More imports in the high cost environment (LD Case)


Comparison of Results: Energy Commission vs EIA

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EIA’s long term prices are higher than CEC’s CEC cases reflect higher supply expectations relative to demand This tends to lower prices


Preliminary Results

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Performance of Cases:California


Price PerformanceTopock Hub

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• Topock and Malin price projections mirror that of Henry Hub Growth rates are about the same

Malin

Topock


Price Differentials

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• In general, differentials turn positive after 2013: Resource abundance more evident in the eastern US Access to shale and ‘tight’ gas resources re-ordering supply

portfolio, impacting eastern prices more than western• Negative differential between Malin and Henry Hub

expected to continue

Point of Interest - Henry Hub


Preliminary Results:California Natural Gas Demand

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• The implementation of renewable generation suppresses California’s natural gas demand Decline at an annual rate of 0.63% between 2015 and 2026 Overall natural gas climbs to 5.84 bcf/d by 2030, but remains

below the 2015 level

California Energy Commission Preliminary Results:

California Power Generation Demand for Natural Gas

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No significant coal retirements in California High input natural gas demands return high final output natural gas

demands Low input demands return low final output natural gas demand

Implementation of renewable generation suppress demand until around 2025

Demand rebounds after the full implementation of the renewable portfolio standard


California Supply Portfolio2025

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Displays the reconfiguration of the supply portfolio under the conditions of each case Each wedge of pie represents percent of demand satisfied by the

supply region Flows at Malin composed of flows on both Ruby and GTN pipelines In-state share of the supply portfolio remains relatively constant over

the three casesVariations in Malin supplies suggest that this source is the marginal supplier

Low Demand CaseDemand: 5.18 Bcf/d

High Demand Case

Demand: 6.25 Bcf/d

Reference CaseDemand: 5.67 Bcf/d


Preliminary ResultsConclusions

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• US natural gas demand grows at an annual rate of 1.4% between 2015 and 2030, reaching 31.1 bcf/d in the Reference case

• The implementation of renewable generation suppresses California’s natural gas demand, declining at an annual rate of 0.63% between 2015 and 2026. Overall natural gas climbs to 5.84 bcf/d by 2030, but remains below the 2015 level

• Henry Hub prices reach $5.42 (2010$)/Mcf by 2030, representing an annual growth rate of 1.80% between 2017 and 2030

• Aggressive coal retirements outside of California contribute to higher natural gas demand and prices

• California’s share of the supply portfolio remains relatively constant across cases– In-state production declines in all three cases

• Malin supplies display the most fluctuations across the cases, suggesting that this California supply source is the marginal supplier.


Preliminary ResultsNext Steps

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• Further investigate the issue of coal retirements– Incorporate any added information from US EPA – Impact on demand and price

• Further investigate the development of the Renewable Portfolio Standard– Incorporate any added information from US EPA

• Incorporate data from Demand Analysis Office and Transportation Office

• Examine Canadian supply cost curves– Impact on flows into the Lower 48

• Develop and produce the revised cases– Schedule for August, 2015


Preliminary Results Common Cases

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Questions and Comments

California Energy Commission Integrated Energy Policy Report Lead Commissioner Workshop: Preliminary Results Natural Gas Common Cases California Energy.

Documents

natural gas price

natural gas model

us natural gas demand

demand growth

recent historical demand

demand centers model

workshop slide

heating oil price