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Natural Gas Markets and Reliability Natural Gas Markets and Reliability of the Electric Power Industryof the Electric Power Industry
William Trapmann, [email protected] Trapmann, [email protected] Information Administration Energy Information Administration Natural Gas DivisionNatural Gas Division
North American Electric Reliability CouncilNorth American Electric Reliability CouncilReliability Assessment SubcommitteeReliability Assessment Subcommittee
May 4, 2000May 4, 2000
EIA’s Analysis of the Kyoto ProtocolEIA’s Analysis of the Kyoto Protocol
Requested by U.S. House of Representatives Requested by U.S. House of Representatives Committee on ScienceCommittee on Science– Analyze a range of targets for U.S. energy-related Analyze a range of targets for U.S. energy-related
carbon emissionscarbon emissions– Assume no new policies or programsAssume no new policies or programs– Use a carbon price as the mechanismUse a carbon price as the mechanism
EIA’s analysis indicates potential costs and targets of EIA’s analysis indicates potential costs and targets of opportunity for emissions reductionsopportunity for emissions reductions
1990 1995 2000 2005 2010 2015 20200
500
1,000
1,500
2,000Million Metric Tons
1990+24%
1990-3%
Reference
1990+9%1990+14%
1990
1990-7%
History Projections
Projections of Carbon Emissions, 1990-2020Projections of Carbon Emissions, 1990-2020
1995 2000 2005 2010 2015 20200
50
100
150
200
250
300
350
4001996 Dollars per Metric Ton
1990+24%
1990-3%
1990+9%
1990+14%
1990
1990-7%
Projections of Carbon Prices, 1996-2020Projections of Carbon Prices, 1996-2020
1995 2000 2005 2010 2015 20200
5
10
15
20
25
301996 Dollars per Million Btu
Oil
Natural Gas
Electricity
Coal
Average Delivered Prices for Energy FuelsAverage Delivered Prices for Energy FuelsIn the 1990+9% Case, 1996-2020In the 1990+9% Case, 1996-2020
Projections of U.S. Natural Gas Consumption,Projections of U.S. Natural Gas Consumption,1970-20201970-2020
1970 1980 1990 2000 2010 20200
5
10
15
20
25
30
35
40Trillion Cubic Feet
Reference
1990+24%
1990+14%
1990+9%
1990
1990-3%
1990-7%
Series 8
History Projections
1995 2000 2005 2010 2015 20200
6
12
18
24
Trillion Cubic Feet
Other
1990+24%
1990+9%1990-3%
Electricity Generators
Reference
Reference1990+24%
1990+9%1990-3%
Natural Gas End-Use Consumption, 1996-2020Natural Gas End-Use Consumption, 1996-2020
1990 1995 2000 2005 2010 2015 20200
800
1,600
2,400
3,200
4,000
4,800
Reference
1990+24%
1990+14%
1990+9%
1990
1990-3%
1990-7%
Electricity Generation, 1990-2020Electricity Generation, 1990-2020(billion kilowatthours)(billion kilowatthours)
Average Electricity Prices, 1970-2020Average Electricity Prices, 1970-2020(1996 cents per kilowatthour)(1996 cents per kilowatthour)
0
1
2
3
4
5
6
7
8
9
10
11
12
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Reference1990+24%1990+14%1990+9%19901990-3%1990-7%
Electricity Generation by Fuel in Two Cases,Electricity Generation by Fuel in Two Cases,1990-2020 (billion kilowatthours)1990-2020 (billion kilowatthours)
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020
Reference Case 1990+9% Case5000
4000
3000
2000
1000
0
Renewable Hydropower NuclearPetroleumNatural Gas Coal
A Vast Network of Pipelines Provides A Vast Network of Pipelines Provides Interstate TransportationInterstate Transportation
Natural Gas Supply and Disposition in the U.S., 1996Natural Gas Supply and Disposition in the U.S., 1996
(Trillion Cubic Feet)
17.5
18.8
3.0
5.2
24.1
3.0
3.2 8.9 0.0029 2.7
2.9 0.014 0.035 0.005
0.052 0.034 0.068
ParticipantsParticipants Miles of PipeMiles of Pipe Regulatory RegimeRegulatory Regime
ProducersProducers 8,000 Independents8,000 Independents 00 Phased price deregulationPhased price deregulation24 Majors24 Majors Begun in 1979, completed in 1989Begun in 1979, completed in 1989
PipelinesPipelines 140140 285,000285,000 Federal Energy RegulatoryFederal Energy RegulatoryCommission (FERC)Commission (FERC)
Natural Gas MarketersNatural Gas Marketers 260260 00 UnregulatedUnregulated
Local Gas UtilitiesLocal Gas Utilities 1,4001,400 833,000833,000 State Utility CommissionsState Utility Commissions
End UsersEnd Users Residential 53 millionResidential 53 million 00 UnregulatedUnregulatedCommercial 4.5 millionCommercial 4.5 millionIndustrial 40 thousandIndustrial 40 thousand
Electric Utilities 500Electric Utilities 500 00 Interstate - FERCInterstate - FERC
Intrastate - State CommissionsIntrastate - State Commissions
The Industry At A GlanceThe Industry At A Glance
U.S. Natural Gas Production, Consumption, U.S. Natural Gas Production, Consumption, and Imports, 1970 - 2020 (trillion cubic feet)and Imports, 1970 - 2020 (trillion cubic feet)
0
5
10
15
20
25
30
35
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Consumption
Net ImportsProduction
History Projections
}
1990 1995 2000 2005 2010
0
2
4
6
8
10
Natural Gas Consumption is Expected to Natural Gas Consumption is Expected to Increase for Each Consumer GroupIncrease for Each Consumer Group
ProjectionsHistory
Commercial
Residential
IndustrialElectric
Generator
Tri
llio
n C
ub
ic F
eet
Natural Gas Market OutlookNatural Gas Market Outlook
Short-Term (Through 2001)Short-Term (Through 2001)– Wellhead prices average $2.48 per Mcf in 2000 (March Wellhead prices average $2.48 per Mcf in 2000 (March
STEO, $2.57 in 2001) compared to last year’s average STEO, $2.57 in 2001) compared to last year’s average price of $2.09price of $2.09
– Industrial and electric utility growth continue but slowsIndustrial and electric utility growth continue but slows
Long Term (through 2020)Long Term (through 2020)– Continued optimism about market growth (32 Tcf in Continued optimism about market growth (32 Tcf in
2020)2020)– Increasing wellhead prices to $2.81 Mcf ($98) in 2020 Increasing wellhead prices to $2.81 Mcf ($98) in 2020 – Declining margins/prices to small customers Declining margins/prices to small customers – Imports increase to 5.1 Tcf in 2020Imports increase to 5.1 Tcf in 2020– Rising prices and lower drilling costs increase reserve Rising prices and lower drilling costs increase reserve
additions and productionadditions and production
The Supply Process Consists of a The Supply Process Consists of a Number of ElementsNumber of Elements
CommodityCommodity Transmission (long-haul)Transmission (long-haul) Local deliveryLocal delivery StorageStorage Major Issues Related to Supply Acquisition Major Issues Related to Supply Acquisition
– Supply reliabilitySupply reliability– Cost controlCost control
0 100 200 300 400
OnshoreOffshore
Undiscovered nonassociated
Inferred nonassociated
Unconventional
Other unproved
Proved
Shale gas Coalbed methane
Tight gas
Lower 48 associated-dissolvedAlaska
OnshoreOffshore
Technically Recoverable U.S. Natural Gas ResourcesTechnically Recoverable U.S. Natural Gas Resourcesas of January 1, 1998 (trillion cubic feet)as of January 1, 1998 (trillion cubic feet)
Proved Reserves
Conventional Resources
Nonconventional Resources
Resources (trillion cubic feet)
Mexico
East Coast
Alaska
WesternRegion
Midcontinent
Gulf Coast
Eastern Region
70
180
0
1 0
107
9
114
57
149
101
58
36
93
286
58
319
36
55
95
WCSB*
71
133
218
Northern
210
00
Frontier
*WCSB = Western Canadian Sedimentary Basin
Technically Recoverable Gas Resources in North Technically Recoverable Gas Resources in North America Comprise Almost 2,500 Trillion Cubic FeetAmerica Comprise Almost 2,500 Trillion Cubic Feet
1970 1980 1990 2000 2010 20200
5
10
15
Lower 48 NAconventional
History Projections
Lower 48 AD Alaska
Lower 48 NAunconventional
Lower 48 offshore
U.S. Natural Gas Production by Source, 1970-2020U.S. Natural Gas Production by Source, 1970-2020(trillion cubic feet)(trillion cubic feet)
1970 1980 1990 2000 2010 2020
0
1
2
3
4
5
6
-1
Canada
LNG
Mexico
History Projections
U.S. Natural Gas Net Imports, 1970-2020U.S. Natural Gas Net Imports, 1970-2020(trillion cubic feet)(trillion cubic feet)
LNG Trade Is Important in U.S. Regional MarketsLNG Trade Is Important in U.S. Regional Markets
Source: Energy Information Administration, Natural Gas Monthly (June 1999).
From UAE, Algeria, and Australia
67
LNG Terminal Facilities
To JapanInactive, planned
for late 2000 reopening
GasStorage
96
64
(1998, Billion Cubic Feet)
Major Natural Gas Producing Basins and Major Natural Gas Producing Basins and Associated Transportation CorridorsAssociated Transportation Corridors
San Joaquin Basin
Sacramento Basin
Western CanadaSedimentary Basin
San Juan Basin
Uinta/Piceance Basin
Green River Basin
Williston Basin
Permian Basin
Powder River Basin Denver-
Julesberg Basin
Anadarko/Arkoma Basins
South Texas Basin
Illinois Basin
Michigan Basin
Gulf Coast Basin
Black Warrior Basin
East Texas/North Louisiana Basins
Appalachian Basin
3,0006,0009,000
12,00015,000
0
Capacity(Million Cubic Feet per Day (MMcf/d)
Trends in Transportation ContractsTrends in Transportation Contracts
LDCs hold the bulk of contracted capacity.LDCs hold the bulk of contracted capacity.
Contract expirations are significant over the next Contract expirations are significant over the next
few years. (46% of current capacity will expire few years. (46% of current capacity will expire
before 2002.)before 2002.)
In the aggregate total commitments have increased In the aggregate total commitments have increased
slightly.slightly.
The length and size of long-term contracts have The length and size of long-term contracts have
decreased. Shippers want flexibility.decreased. Shippers want flexibility.
Locations of U.S. Underground Storage Sites Locations of U.S. Underground Storage Sites and Working Gas Capacity, 1996and Working Gas Capacity, 1996
= Underground Storage Sites.
Monthly Natural Gas Storage Levels Have Monthly Natural Gas Storage Levels Have Varied Significantly Over the Past Few YearsVaried Significantly Over the Past Few Years
0
0.5
1
1.5
2
2.5
3
3.5
Jan- Jul-96 Jan- Jul-97 Jan- Jul-98 Jan- Jul-99 Jan-
Tri
llio
n C
ub
ic F
ee
t
5 year averages, 1993-1997
Supply ReliabilitySupply Reliability
Commodity AvailabilityCommodity Availability
Delivery SystemDelivery System
– transportation transportation
– local distributionlocal distribution
– storagestorage
PricePrice
Increased Price Volatility has Become Increased Price Volatility has Become Common in the Gas IndustryCommon in the Gas Industry
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Do
llars
pe
r M
cf
Nominal Dollars
1999 Dollars
January 1980 - January 2000
Differences in Spot Prices -- July-December 1999Differences in Spot Prices -- July-December 1999
($1.00)
$0.00
$1.00
$2.00
$3.00
Dol
lars
per
MM
Btu
01/01/9901/31/99
03/02/9904/01/99
04/30/9905/28/99
06/30/9907/30/99
08/27/9909/28/99
10/28/9911/27/99
12/27/99
Transco-Henry Hub
Chicago-Henry Hub
Differences in Spot Prices, Winter 1999-2000Differences in Spot Prices, Winter 1999-2000
($2)
$0
$2
$4
$6
$8
$10
$12
$14
$16
Dol
lars
per
MM
Btu
11/01/9911/11/99
11/21/9912/01/99
12/11/9912/21/99
12/31/9901/10/2000
01/20/200001/30/2000
02/09/200002/19/2000
02/29/2000
Transco minus Henry Hub
Chicago minus Henry Hub
Jan Jun Nov Jan Jun Nov Jan Jun Nov0
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Total
Electricutilities
1998 2010 2020
Total Natural Gas Use and Use for Electricity GenerationTotal Natural Gas Use and Use for Electricity Generationby Month in the Mid-Atlantic Census Division, 1998-2020by Month in the Mid-Atlantic Census Division, 1998-2020
(quadrillion Btu)(quadrillion Btu)
ConclusionsConclusions
Kyoto provisions likely to have a strong impact on electric Kyoto provisions likely to have a strong impact on electric
generation industry and marketsgeneration industry and markets
Gas and electric generation will be heavily interdependent Gas and electric generation will be heavily interdependent
in the futurein the future
The natural gas resource base is abundantThe natural gas resource base is abundant
Short-term supplies and adequacy of delivery system are Short-term supplies and adequacy of delivery system are
key issueskey issues
Price security will be a critical element for successPrice security will be a critical element for success
Backup supplies may become increasingly importantBackup supplies may become increasingly important
WeeklyWeeklyMarketMarket
UpdateUpdate
EIA's SpecializedNatural GasGeographicInformation
System(EIAGIS-NG)
NaturalNatural Gas Gas
http://www.eia.doe.gov
EIA Web and Natural Gas Products Links