NATURAL GAS REVOLUTION, MEET THE BATTERY REVOLUTION: 2017 UPDATE Ben Schlesinger, Benjamin Schlesinger and Associates, LLC Bethesda, Maryland, USA Dual Plenary Session IV: Reducing Carbon in Transport 15 th IAEE European Conference Vienna – 5 September 2017 1
Topics ■ US gas supply revolution, the search for new markets: – Coal replacement, exports, others – Natural gas vehicles (NGV) ■ Revolution vs. revolution: batteries and natural gas ■ Competition flashpoints ■ Conclusions & discussion 2
BSA – decades and decades of gas and energy advisory services! Expertise Major Assignments ■ Mid-stream economics, rates, Power generators European pipelines commodity risks, contracting. Lenders GdF Suez, Repsol, BG Pipelines/traders Eastern Europe Gas market research & training – LNG projects West African pipeline Index & contract negotiation – Regulators Sonatrach (Bechtel) Expert testimony Fuel risks/due diligence – Japan gas utilities Mitsubishi Litigation support/rate cases. – Philippine NPC ■ 600+ assignments in 28 countries since March ‘84. Clients: Energy traders, power generators, pipelines, utilities, banks, governments, universities. 3
Low-cost shale gas is now over 60% of US production, and it undercuts other E&P. US Shales and Other Gas Production Potential Est. Natural Gas 1.000 Production, Recoverable, Supplies (Dry) Bcm Tcm 900 800 Appalachian Yamal Region 310-350 16.7 700 Permian 600 Eagle Ford …of which, BCM 220 4.9 500 Bovanenkovo Haynesville 400 Niobrara 300 Appalachia (incl. 245 Bakken 200 12.8 Marcellus- Utica) (Sept. 2017) 100 Anadarko 0 Other Gas Qatar 181 (2016) 25.1 Jan-07 Mar-08 May-09 Jul-10 Sep-11 Nov-12 Jan-14 Mar-15 May-16 Source: BSA 2017, from EIA; Yamal data from Gazprom, http://www.gazprom.com/about/production/projects/mega-yamal/, incl. explored and 4 provisionally estimated; Qatar data from EIA, BP 2017 statistical review.
Creating demand at home: gas-based factories... and building > LNG export capacity than Qatar. $110 bn toward 250 new chemical, petrochemical, 70.4 mtpa of approved LNG export capacity now in con- steel and other manufacturing, # plants by region struction; another 49.6 mtpa approved/awaiting FID. 24 15 72 18 20 53 48 Gulf Coast Marcellus Region Midwest/Old Rust Belt Bakken & Northern Plains Southeast Auto Mfg All The Rest Not Specified A ‘second wave’ of US LNG export projects totaling more than 100 mtpa will depend on prices and other LNG market conditions. Source : BSA 2017, from 2015 American Chemical Society survey, US FERC LNG project info at 1 May 2017, 5
Surplus gas is fast replacing coal for power generation, lowering carbon emissions. These reduce US elec- Gas and coal are …and the US coal fleet is Gas, wind & solar for aging & inefficient (GW). gen CO2 emissions. competing closely… elec-gen are all rising. 2200 2,0 $8 1,8 Newer than 30 $7 19,0 2000 1,6 yrs, 12% $6 $/MMBty, delivered 1,4 1800 TWh x 1000 1,2 Mn tonnes $5 30-40 years, 43,6 1,0 1600 27% $4 0,8 $3 0,6 1400 40-50 years, 0,4 53,5 $2 33% 0,2 1200 $1 - 1000 2010 2011 2012 2013 2014 2015 2016 $- 50 years or 45,4 2005 2007 2009 2011 2013 2015 2017TTD 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 older, 28% Coal Gas Nuclear Hydro - 20 40 60 Coal Natural Gas Wind/solar Source : BSA 2017; data from EIA and Statistics Canada.
Gas, especially LNG, is finding a market in offsetting wind and solar production variations. Hourly Wind Production in TX, MW LNG Regas in Spain 104 LNG Storage Plants in US 5000 4500 4000 3500 3000 MW 2500 2000 1500 1000 500 0 Sources: Enagas, 2012; K. Forbes 2010, ERCOT data for 7/2009; Baltimore Gas & Electric Co.. 7
But NGVs, the clean fuel, non-petroleum dream…why aren’t there 20 million in the US? The Chrysler “flat tank” CNG Dodge Charger that never was… Since 2014, all muni buses in Los Angeles run on natural gas. Westport Cummins LNG semi will travel up to 1,200 km.
In some US regions, battery EVs are just, in effect, very highly efficient NGVs. Gas is the marginal fuel for most hours of the day in the mid-Atlantic states (shown), and Texas, California, Northeast, other US regional grids. 9 Source: Schlesinger.
COMPETITIVENESS OF NATURAL GAS MARKETS GOING FORWARD 10
Rule: Advanced technology and intensive manufacturing will slash product costs. Example: US shale drilling And global solar PV costs are The same pattern is now productivity rose dramatically… decreasing as fast... underway for Li-Ion batteries. 160 25 Rigs Needed 140 to Produce 20 120 One Bcf/day 100 15 80 10 60 40 5 20 - - Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Utica Marcellus Source: BSA 2016, EIA data; graphs from JB Straubel, before EIA Annual Conference, Washington, DC, July 2015. 11
For power generation, most peaking fuels consist of oil and natural gas: 12,0% Capacity Use (Load Factor) 10,0% 8,0% Natural Gas Fired Combustion Turbine 6,0% Petroleum Liquids Fired 4,0% Combustion Turbine Internal Combustion 2,0% Engine 0,0% Source: BSA 2015, from EIA. Capacity Factors for Utility Scale Peaking Generators Primarily Using Fossil Fuels, January 2014-July 2015 12
Los Angeles is the first gas-versus-batteries competitive flashpoint.. 2015 California Net Power Generation, TWh Especially Intensifies Socal 0 12,2 Forces 13,9 the Stresses Gas’s fast and 15,6 evening the Aliso Rising use extensive 103,3 18,5 power region’s Canyon of solar demand supply gas (largest 20,3 energy… for ramp-up infrastruc- UGS west OCGT/ require- ture … of the CCGT’s.… Wind ment … Mississip- Hydro pi) Solar Nuclear Geothermal/Biomass Natural gas
Every time the sun sets, demand for battery storage is created! Giga- Major LA factories That is leakage region’s are Forcing already forced electric ramping an urgent lowering closure of utilities up to turn to costs to Aliso are facing meet batteries produce Canyon in peak demant … batteries 2015 shortages for … … batteries …
Estimated cost and value of electricity storage ($/kWh): Tesla Model 3, 2016 Tesla 2012 Tesla Maybe 2020 and 2018 Model S VW? Ampera Arb PJM Arb NYC Arb NYS Arb US Arb CA '03 Arb CA '10-'11 Arb CA '11 Regn NYISO Regn USA Regn CAISO Combined CA '10-'11 Combined CA '11 Combined US 0 50 100 150 200 250 300 350 400 450 500 Source: BSA 2017, BSA $/kwh estimates; other info from NREL, 2013; “Arb” value reflects peak -offpeak basis; “ Regn ” refers to load regulation. 15
What does all this have to do with gas demand, let alone petroleum? US Horse and Car Population, The most vulnerable markets will get hit first. ■ 1870-1970 Indeed, small CNG vehicles may already ■ have fallen victim! 100.000.000 In 2015, Honda stopped selling the last CNG – 80.000.000 passenger car sold in the US. In contrast, automakers are rushing to build EVs. – 60.000.000 But large-scale NGVs will not be affected soon, I – 40.000.000 think... Next comes peak shaving, and offsetting ■ 20.000.000 wind and solar production variations. - For example, in the US Sunbelt, solar & battery – 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 systems could replace gas in homes and buildings. Ultimately, the petroleum vehicle stock would ■ Horses Cars convert. How long will that take? Source: BSA 2016, interpolated from USDA, USDOE Oak Ridge National Lab data. 16
But meanwhile, US transportation carbon emissions are in a 6-year rising trend... Carbon Emissions from the US Transportation Sector: 1400 1200 1000 Mn Tonnes Motor Gasoline 800 Diesel 600 Jet Fuel 400 All Other Fuels 200 0
Cheap batteries could maul natural gas markets... Low Fuel Prices High Fuel Prices High Battery Current US situation (Hittinger & Lueken) Currently Europe & Asia-Pacific Costs Cheap fuel retards battery markets. Steady outlook for gas demand, main Batteries threatening CNG vehicles competition is from renewables and coal as auto manufacturers shift niche in power generation markets. production to EVs. Both EVs and NGVs growing per national Gas demand remains steady or taxation policies favoring carbon and oil rising in its traditional markets. replacement. Low Battery Anticipated by California regulators. Tesla’s World Costs Batteries teamed with solar dis- May emerge in Europe and Asia. place gas in buildings. Regulators and industry begin to favor Batteries threaten gas-fired battery development and sales at the peakers, then intermediate load? expense of gas & coal. Larger NGVs threatened if Significant opportunities for batteries to manufacturers pursue EV arbitrage electricity markets. development and batteries really EV growth limited only by availability and improve. infrastructure. ZEVs in green states and countries. ZEVs rise quickly. 18
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