Natural Gas for Power Generation National Association of Regulatory Utility Commissioners Annual Meeting November 2010 Richard G. Smead Director, Navigant.

Natural Gas for Power Generation

National Association of

Regulatory Utility Commissioners Annual Meeting

November 2010

Richard G. Smead

Director, Navigant Consulting Inc.

Navigant Consulting Inc.30 South Wacker DriveSuite 3100Chicago, IL 60606(312) 583-5700

www.navigantconsulting.com

909 Fannin StreetSuite 1900Houston, TX(713) 646-5029

©2010 Navigant Consulting, Inc.

• Just how abundant is U.S. Natural Gas supply?

• How is gas-fired power generation doing in today’s price environment?

• What are the dynamics of gas-fired power generation in a higher-priced, carbon-constrained environment?


2

To Tell the Story of Gas-Fired Power Generation, There are Three Questions

QUESTION I—

U.S. NATURAL GAS ABUNDANCE

3©2010 Navigant Consulting, Inc.


4

Proved Reserves Plus Assessed Resources—Life of the Gas Resource

Yes, There Is a Lot of Gas Resource: The Recognition Started with the American Clean Skies Foundation

2008

82 years at 2006 Prod.

Rate


Rate


Rate

-

U.S. Total Gas Supply (Tcf)

500

1,000

1,500

2,000

2,500

PGC 2006 MeanAssessment

Navigant Study PGC 2008 Estimate

Released June 2009

tcf

ShaleResource

All Other

TechnicallyRecoverableResource

• In 2006, the Potential Gas Committee (PGC) estimated 1,530 Tcf of total Recoverable Resource.

• In 2008, the American Clean Skies Foundation had Navigant perform the North American Natural Gas Supply Assessment. This study found that shale and other unconventional supplies had increased the resource to as much as 2,247 Tcf, including 842 Tcf of shale gas.. This would be 118 years of production at 2007 levels.

• In June 2009, PGC issued its 2008 updated study—2,076 Tcf, including 616 Tcf of shale, also over 100 years’ worth.


1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Bcf

per

Day

Sources of U.S. Gas Supply, 1990 to 2010

Net LNG Imports

Net Pipeline Imports

Net Dry Gas Production

For 15 years, Domestic Production was Flat, with Growing Imports—Then in 2005, the Ramp-up Began


2005 2006 2007 2008 2009 2010 45.0

50.0

55.0

60.0

65.0

70.0 B

cf p

er D

ayThe Rapid Change from 2005

Net LNG Imports

Net Pipeline Imports

Net Dry Gas Production

Total Consumption

The Last Five Years Have Been Very Different—Thanks to Domestic Growth, Supply Now Exceeds Demand, and Imports are Shrinking


7

Jan

-05

Jun

-05

Nov-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec-0

7

May-0

8

Oct-

08

Mar-

09

Au

g-0

9

Jan

-10

Jun

-10

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

Lower 48 Production, Total and Onshore, 2005-2010

Bcf p

er D

ay, D

ry

Total Lower 48

Onshore Only

Average Total Pre-Katrina

Gust

av

and

Ike

Katr

ina

and

Rita

The Really Dramatic Story is Onshore, where Between 2005 and 2008, Enough Production Was Added to Replace Offshore

From 2005 to 2008, the

daily energy

added from onshore sources

exceeds the thermal

content of all the oil we import from Saudi Arabia.


19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

EIA Projected Shale Production Estimates

Bcf p

er D

ay, D

ry

Actuals to 2006

AEO 2008 Forecast

AEO 2010

Foreca

st

What about Shale Gas? EIA Developed a Robust Forecast in 2010


19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Shale Actual Production Through 2010

Bcf p

er D

ay, D

ry

Actu

als t

o 20

10

AEO 2010 Forecast

AEO 2008 Forecast

But Actual Production has Far Exceeded Even the 2010 Aggressive Forecast

10


19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Producer 2009 Composite Forecast

Bcf p

er D

ay, D

ry

Pro

duce

r 20

09

Fore

cast

Producers Expect the Trend to Continue if There’s a Demand for the Gas—2010 Actuals Exceeded Even the Producers’ 2009 Forecast


The Recent MIT Gas Study Sponsored by ACSF Shows Similar Rates of Increase

Source: “The Future of Natural Gas, Massachusetts Institute of Technology, 2010

12


19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

Total Supply per EIA and with Producer Estimate

Bcf p

er D

ay, D

ry

20 B

cf/D

ay

With Producer 2

009 Shale Forecast

AEO 2010Forecast

Actuals to 2010

Based on that Producer Forecast, There Would Be Enough Additional Supply by 2020 to Displace Over Half of All U.S. Coal-Fired Generation

QUESTION II—

GAS-FIRED GENERATION TODAY

13


14


Dec 0

8Ja

n 0

9F

eb

09

Mar

09

Ap

r 0

9M

ay

09

Jun

e 0

9Ju

ly 0

9A

ug

09

Sep

t 0

9O

ct

09

Nov

09

Dec 0

9Ja

n 1

0F

eb

10

Mar

10

Ap

r 1

0M

ay

10

Jun

e 1

0Ju

ly 1

0

18.5

19.0

19.5

20.0

20.5 Bc

f per

Day

, Dry

Gas Use for U.S. Power Generation,Rolling 12-Month Totals 2008 - 2010

Gas Use for Power Generation Has Been on a Steady Increase

15


Dec

08

Jan

09

Feb

09

Mar

09

Apr

09

May

09

Jun

e 09

July

09

Au

g 0

9S

ept

09

Oct

09

Nov

09

Dec

09

Jan

10

Feb

10

Mar

10

Apr

10

May

10

Jun

e 10

July

10

19.0%

20.0%

21.0%

22.0%

23.0%

24.0%

44.0%

45.0%

46.0%

47.0%

48.0%

49.0%

Gas and Coal Generation Market ShareRolling 12-Month Totals 2008 - 2010

Gas M

arke

t Sha

re

Coal

Mar

ket S

hare

Gas Generation

Coal Generation

Gas Has Gained Market Share vs. Coal, A Little Over 2 Percent

16


Why? For the last two years, this is mostly just a matter of price

Delivered Eastern Coal vs. Appalachian Gas

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Dominion, South Point Central Appalachian Coal

Deli

vere

d P

rice

per

MM

Btu

QUESTION III—

GAS-FIRED GENERATION WITH HIGHER PRICES

AND CARBON CONSTRAINTS

17


18


• More than one-half of U.S. Gas fired-electric generation is generated by peaking facilities that operate at extremely low capacity factors and high heat rates.

• It is High-Efficiency Combined Cycle Capacity that is critical to examine.

U.S. Generation—What Do We Have, and What Do We Use?

2009 U.S. Total Generation and Capacity for Gas, Coal and Other

CapacityPct. of TotalGeneration Pct. Of Capacity Heat Rate

MW Capacity 1,000 MWhTotal Gen. Factor Btu/kWh

Other Gas 202,335 20% 175,217 4% 10% 10,011

Combined Cycle196,175 19% 745,161 19% 43% 7,423

Coal Generation 312,887 31% 1,764,486 45% 64% 10,386

Other Generation302,044 30% 1,268,247 32% 48% -

US Total 2009 1,013,441 100% 3,953,111 100% 45% -

But $3 to $4 is not a Sustainable Range for Gas Prices—So What Are the Economics vs. Coal if Gas is $6 at the Wellhead and $7 at the Plant?


19

Fuel Cost

Price Heat Rates $ per Mwh

Gas $7.00 per MMBtu 7000 $49.00

Coal $50.00 per Ton 10000 $25.00

Difference $24.00

Carbon

CO2 load per EIA Heat Rateslb per Mwh

Gas 115 lb/MMBtu 7000 805 lb/MwhCoal 213 lb/MMBtu 10000 2,130 lb/Mwh

Difference 1,325 lb/Mwhor, 0.60 Tonnes/Mwh

Break-even Carbon Price

Fuel Price Difference: $24.00 per Mwh Divided by CO2 Difference: 0.60 Tonnes/Mwh Equals $40 per Tonne

20


Cap Factor Generation Heat Rate Fuel Used Carbon

2009 Pct 1000 MWh Btu/Kwh TBtu MMTGas CC 43% 745,161 7,423 5,531 289

Coal 64% 1,764,486 10,386 18,326 1,7722,061

Same Capacity FactorGas CC 56% 967,132 7,423 7,179 375

Coal 56% 1,542,515 10,386 16,021 1,5491,924

Difference: 137

Coal and Gas CO2 Emissions, 1990 1,822Coal and Gas CO2 Emissions, 2008 2,415

Increase: 593

Share of Increase Relieved by Gen Shift: 23%

Carbon Dioxide—How Much Could Be Done with Existing Facilities (Realistically)?

KeyC O N T A C T S

21©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y

Rick Smead | [email protected] direct

Gordon Pickering \ [email protected] direct

Natural Gas for Power Generation National Association of Regulatory Utility Commissioners Annual Meeting November 2010 Richard G. Smead Director, Navigant.

Documents

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