Interaction of Natural Gas and Electricity Markets: A California - PowerPoint PPT Presentation

Interaction of Natural Gas and Electricity Markets: A California Perspective Bill Monsen MRW & Associates, LLC. Oakland, California (510) 834-1999 mrw@mrwassoc.com October 26, 2011

Overview • Natural Gas Market in the Western Region • Electric Generation Market in the Western Region • Future Natural Gas Demand • Potential Issues Going Forward • Questions to Consider 2

Gas Deliveries to Western States 5,000� Western states accounted for 21% of U.S. natural gas consumption in 2009 4,500� NV�UT�NM�ID�WY� MT� 4,000� 3,500� OR� 3,000� AZ� Bcf� WA� 2,500� CO� 2,000� CA� 1,500� 1,000� 500� 0� 2000� 2001� 2002� 2003� 2004� 2005� 2006� 2007� 2008� 2009� 3 Source: EIA Natural Gas Monthly

2009 Natural Gas Usage in the West Other 9% Electric Generation 36% Industrial 23% Commercial Residential 12% 20% Source: EIA data, Natural Gas Consumption by End Use, http://www.eia.gov/dnav/ng/ng_cons_sum_a_EPG0_VC0_mmcf_a.htm 4

Electricity Production in 2009 California Rest of West � Renewables� � � Renewables� � � Natural� Gas� � � Natural� Gas� � � � Hydroelectric� � Hydroelectric� � � Nuclear� � � Nuclear� � � Coal� � � Other� � Other� Conven onal� � Conven onal� � � Coal� � Natural gas fuels a large proportion of electricity generation throughout the West and especially in California Source: EIA, Electric Power Annual 2009 Data Tables, 1990 – 2009 Net Generation by State by Type of Energy Source, http://www.eia.gov/cneaf/electricity/epa/epa_sprdshts.html 5

2009 Gas Deliveries � 2,250� � � 2,000� � Gas� deliveries� for� all� other� end� uses� � 1,750� � Gas� deliveries� for� electric� genera on� � 1,500� � Bcf� � 1,250� � � 1,000� � � 750� � � 500� � � 250� � � -� � � � CA� CO� WA� AZ� OR� NV� UT� NM� ID� WY� MT� 6 Source: EIA Natural Gas Monthly

Western Gas Pipelines and Utilization Average Pipeline Daily Average Capacity Flow Utilization 2007 Data (MMcf/d) (MMcf/d) Ratio AZ 6,489 4,039 62% CA 10,530 5,689 54% CO 7,005 3,508 50% ID 4,116 2,629 64% MT 3,251 2,301 71% NV 2,648 2,160 82% NM 6,834 1,871 27% OR 4,744 2,207 47% UT 4,420 2,810 64% WA 5,630 2,747 49% WY 4,624 1,531 33% Source: EIA, Interstate Pipeline Capacity on a State-to-State Level, http://www.eia.gov/pub/oil_gas/natural_gas/a nalysis_publications/ngpipeline/usage.html Source: 2010 California Gas Report, EIA Data, and MRW Analysis 7

Coal Dependence Across the West Percent of 2009 electric generation provided by coal-fired generators 100%� 91%� 90%� 82%� 80%� 73%� 70%� 63%� 58%� 60%� 50%� 40%� 35%� 30%� 20%� 20%� 7%� 6%� 10%� 1%� 1%� 0%� AZ� CA� CO� ID� MT� NM� NV� OR� UT� WA� WY� Source: EIA, Electric Power Annual 2009 Data Tables, 1990 – 2009 Net Generation by State by Type of Energy Source, http://www.eia.gov/cneaf/electricity/epa/epa_sprdshts.html 8

Coal Dependence Across the West Electric Generation in 2009 � 220,000� � � 200,000� � � 180,000� � Other� genera on� � 160,000� � Coal-fired� genera on� � 140,000� � MWh� � 120,000� � � 100,000� � � 80,000� � � 60,000� � � 40,000� � � 20,000� � � -� � � � AZ� CA� CO� ID� MT� NM� NV� OR� UT� WA� WY� 2009 coal-fired generation in the West: 213,899 GWh Source: EIA, Electric Power Annual 2009 Data Tables, 1990 – 2009 Net Generation by State by Type of Energy Source, http://www.eia.gov/cneaf/electricity/epa/epa_sprdshts.html 9

Gas Demand: Looking Forward • Incremental Demand for Gas • Renewable Integration Needs • Retirement or Repowering of Once-Through Cooling Generation 10

CA Incremental Gas Demand “ [G]as demand for electric generation is expected to grow at a modest 0.35% per year for the next 21 years due to more efficient power plants, statewide efforts to minimize greenhouse gas emissions...and the acquisition of preferred resources that produce little or no carbon emissions. ” Source: 2010 California Gas Report 11

New Low Capacity Factor Plants May be Needed for Renewable Integration Capacity Requirements for Renewable Integration in 2020 � 9,000� � � 8,200� � � 8,000� � � 7,000� � (MW)� � 6,000� � � 4,600� � � 5,000� � Capacity� � 3,900� � � 4,000� � � 3,000� � � 1,700� � � 1,700� � � 2,000� � � 1,000� � � -� � � � � � � � � � � � � � � � � � � � � � � � (Trajectory)� Constrained)� Controlled)� Constrained)� LCR)� Uncertainty)� Schedule)� Sensi vity)� (All-Gas)� Load)� for� (High� Replacement� ISO� Compliance� Peak� (Cost� CPUC� ISO� (Day-Ahead� (Environmentally� (Time� (Temperture� CPUC� CPUC� (OTC� (OTC� IOU� IOU� IOU� IOU� CPUC� 12

Current Plans for Once-through Cooling Units Cumulative Capacity (MW) 14,000 Year Retired Repowered Other Measures 2011 772 0 0 12,000 2012 772 0 0 Cumulative Capacity (MW) C 2013 1,562 0 0 2014 1,562 0 0 10,000 2015 2,048 0 0 2016 2,048 0 0 8,000 2017 2,048 720 3,114 2018 2,048 720 3,114 6,000 2019 2,048 720 3,114 2020 2,048 4,920 5,064 4,000 2,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Retired Repowered Other Measures 13

Impacts of RPS and OTC Policies • Resources needed for renewable integration will provide load following and regulation services, not baseload power – Peaking plants will run at any time during the year, not just the summer months • Repowered OTC units will likely have lower heat rates than existing plants but will not run significantly more hours • Conclusions: – No significant increases in overall gas demand – Very different gas demand profile for EG fleet 14

Potential Issues Going Forward • Gas Price Stability • Gas Supply Reliability • Coal-to-Gas Conversion • Gas Infrastructure Issues • Gas Tariff Design 15

Gas Price Stability • Natural gas prices significantly influence electricity market prices in much of the western region • Gas prices will be affected by a variety of supply and demand factors – Shale gas and environmental considerations – Potential LNG exports – Gas production – Renewable development – Weather 16

Expectations for Low Prices Assume Significant Shale Gas Production Forecasted North American Shale Gas Production Source: Kenneth B. Medlock III. Rice University. “ The Rice World Gas Trade Model: A Discussion of Reference Case Results. ” 2011 CEC IEPR Staff Workshop on Natural Gas. April 19, 2011. 17

Increasing Interest in Exporting LNG • Expectations of low domestic gas prices are fueling interest in exporting LNG • New LNG exports would reduce domestic supplies and exert upward pressure on domestic gas prices Current LNG Export Terminals • Kenai Peninsula, Alaska Import Terminals Adding Capacity to Export LNG • Freeport, Texas • Sabine, Louisiana • Hackberry, Louisiana Source: Center for Liquefied Natural Gas; http://www.lngfacts.org/LNG-Today/Import-Terminals.asp 18

Gas Supplies Affected by Major Events • Natural gas reliability and stability will Source: EIA, Today in Energy, http://205.254.135.24/todayinenergy/detail.cfm?id=3390 19

Gas Consumption if Coal Plants are Converted to Gas Units � 7,000� � � 6,000� � Coal� Plant� � 5,000� � Re rement� � � 4,000� � � Bcf� � 3,000� � EIA� Projected� Gas� � 2,000� � Consump on� � 1,000� � � -� � � � 2010� 2015� 2020� 2025� 2030� 2035� Illustrative scenario of gas demand if all Western coal usage is replaced by natural gas usage by 2020 20 Source: EIA, CPUC MPR heat rate

Coal-to-Gas Conversion • Coal plants are unlikely to shut down early due to GHG regulations • However, coal plants may go out of service (and be replaced by gas-fired generation) because of poor project economics – Higher coal costs are anticipated due to lower production and greater exports • California has sufficient gas infrastructure to meet electricity demand, even taking into consideration coal-to-gas conversions – However, some western states may not 21

Interstate Pipeline Utilization after Coal-to-Gas Conversions Load Factor in the Peak Demand Month* *Based on 2008 gas usage and conversion of all in-state coal units to gas-fired units Source: Implications of Greater Reliance on Natural Gas for Electricity Generation , Aspen Environmental Group, July 2010, page 54. 22