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Natural Gas and Intermittent Renewable Energy, A Good Match or Not?

Steven A. GabrielGroup Coordinator, Civil Systems Program, www.civilsystems.umd.edu

Co-Director, Master of Engineering and Public Policy Program, www.mepp.umd.eduAssociate Professor, Dept. of Civil & Environmental Engineering

University of Maryland, College Park, MD USA 20742

Co-Authors: Knut Einar Rosendahl, Statistics NorwaySauleh Siddiqui, University of MarylandHakob Avetisyan, University of Maryland

Ruud Egging, University of Maryland

9th Conference onApplied Infrastructure Research

8-9 October, 2010, TU Berlin

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Outline

•Objectives of Two Recent Natural Gas Studies

•Overview of Global Natural Gas Market and Interactions with Intermittent Renewables

•Brief Description of World Gas Model

•Study Results for Various Cases, Funded by U.S. Department of Energy and Statistics Norway via the Research Council of Norway

•Conclusions and Future Issues for Natural Gas

U.S. Department of Energy StudySubcontract No. AGG-0-99526-01

Prime Contract No. DE-AC36-08GO28308

• Use the World Gas Model, a large-scale engineering-economic game theory formulation to understand domestic and international gas market possible futures• Three representative cases were determined by the UMD and DOE participants

•Base Case (AEO 2009) •Increased Shale Gas Case (based on Advanced Resources International-ARI publicly available estimates)•Possible Gas Cartel Case (using the Gas Exporting Countries Forum-GECF)

Natural Gas Scenarios

Base ARI GECF

Market Structure Free Market Free Market Cartel

Shale Potential Medium High Medium

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•It was decided by the Department of Energy client (DOE) and the University of Maryland project team (UMD) that the ARI case would be used as an appropriate case for a positive future for shale gas.

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•Using those forecasts for shale but keeping coalbed methane, tight, and conventional gas at their AEO 2009-ARRA levels resulted in the forecasts in Table 1 and Table 2.

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Statistics Norway/Research Council of Norway Study Grant # 09123176

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Natural Gas Market Overview

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Natural Gas Industry Background

INDUSTRIAL

CITY GATE STATION

COMMERCIAL

RESIDENTIAL

DISTRIBUTION SYSTEM

UNDERGROUND STORAGE

TRANSMISSION SYSTEM

Cleaner

Compressor Station

GAS PROCESSING PLANT

GAS PRODUCTION

Gas Well Associated Gas and Oil Well

Impurities Gaseous Products

LiquidProducts

ELECTRIC POWER

From well-head

to burner-tip

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World Natural Gas Reserves (top twenty countries), 1 Jan 2008, www.eia.doe.gov

0 5 10 15 20 25 30

RussiaIran

QatarSaudi Arabia

United Arab EmiratesUnited States

NigeriaVenezuela

AlgeriaIraq

TurkmenistanKazakhstan

IndonesiaMalaysia

ChinaNorway

UzbekistanEgypt

CanadaKuwait

Rest of World

% of World

Global Reserves

Russia, Iran, Qatar have more than 55% of the world’s proven natural gas reserves9

Gas Exporting Countries Forum (GECF) Members

http://en.wikipedia.org/wiki/Wikipedia:Blank_maps

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Production and Consumption Highlights (BP Statistical Review of World Energy, 2008 )

• 103 Trillion cubic feet (TCF)/2916.635 billion cubic meters (BCM) of gas produced in 2007

• Russia, 20.6%• United States, 18.8%• Canada, 6.2%• Iran, 3.8%• Qatar, 2.0%

• Consumption• United States, 22.3%• EU, 16.5%,• Russia, 15.0%• Japan, 3.1%

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LNG as World Inter-Regional Natural Gas Trade by Type in the Reference Scenario

(World Energy Outlook © OECD/IEA, 2008)

• Pipeline gas trading increasing over time• Liquefied natural gas (LNG) trade increasing more dramatically

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Natural Gas Market

• Supply Security Aspects– U.S. mostly ok with

domestic or Canadian gas

– Europe, interested in supply diversity, LNG and pipelines

– Issues of potential market power for natural gas

Source: http://www.inogate.org/html/maps/mapsgas.htm

EU Pipeline and LNG Transportation

Sample of Natural Gas in the Headlines of the New York Times Dec 2005/Jan 2006

• Natural Gas and Geo-Politics-Russia– “Dispute Over Natural Gas Prices in Ukraine,” NYT 12/16/05– “Putin Offers 3-Month Extension of Ukraine’s Gas Subsidy,” NYT

12/31/05– “Russia Cuts Off Gas to Ukraine in Cost Dispute,” NYT 1/2/06– “Russia Restores Most of Gas Cut to Ukraine Line,” NYT 1/3/06– “A Dispute Underscoreds the New Power of Gas,” NYT 1/3/06– “Russian and Ukraine Reach Compromise on Natural Gas,” NYT 1/5/06– “Envoys Say Gas Crisis Hurt West’s Relations with Russia,” NYT 1/5/06– “Ukraine Concedes it Took Gas From Pipeline but Says it Had the

Contractual Right, “NYT 1/3/06– “Gas Halt May Produce Big Ripples in European Policy,” NYT 1/3/06– “Ex-Premier of Ukraine Attacks Gas-Price Deal,” NYT 1/7/06– “Europe Comes to Terms with Need for Russian Gas,” NYT 1/8/06– “Ukraine is Increasingly Dependent on Gas from Turkmenistan,” NYT

1/10/06– “Gazprom Builds Wealth for Itself, but Anxiety for Others,” NYT 1/13/06”

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Russia Exerting Market Power?

• Price dispute with Ukraine in 2006 and 2009• Ukraine a major transit country for gas to Western Europe

Dependence on Russian Pipeline Gas, 2007 (BP, 2008)

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The Christian Science Monitor, “Gas dispute with Russia boosts European interest in alternative pipeline,” January 27, 2009

Nabucco Pipeline Bypassing Russia

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http://www.stratfor.com/weekly/unraveling_russia_s_europe_policy/?utm_source=GWeekly&utm_campaign=none&utm_medium=email

Nord Stream and South Stream Pipelines Bypassing Ukraine

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Natural Gas Security Issues• Possible effects of market power by:

• Individual large producers (e.g., Russia, Iran, Qatar) whose agendas may differ from those of the consuming countries

• Gas Exporting Countries Forum• Algeria, Bolivia, Brunei, Venezuela, Egypt, Indonesia, Iran,

Qatar, Libya, Malaysia, Nigeria, the United Arab Emirates, Russia, Trinidad and Tobago and, as observers, Equatorial Guinea and Norway

• Together, the non-observers accounted for about 42% of production in 2007 (BP, 2008), and perhaps more importantly more than 73% of the reserves (www.eia.doe.gov) taking just the top 20 global producers

• World Gas Model (WGM) to model market power questions18

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Interactions of Natural Gas and Intermittent Renewables

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Some Renewable Energy Directives for Europe

Source: “Impacts on the Nordic Energy System of the EU 2020 Directive Proposals-A model analysis”, Thomas Unger and Bo Rydén

Some U.S. Renewable Energy Directives

• California’s Million Solar Roofs Initiative to lead to 1 million solar roofs by 2018 http://gov.ca.gov/index.php?/press-release/3588/

• Renewable Energy Portfolio Standards by state http://apps1.eere.energy.gov/states/maps/renewable_portfolio_states.cfm

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Electricity Restructuring by State (May 2010)

http://www.eia.doe.gov/cneaf/electricity/page/restructuring/restructure_elect.html

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Natural Gas and Renewables: Good Match or Mismatch?• Intermittency problem with some

renewables (e.g., wind, solar) for power generation

– Natural gas is a reliable back-up source & cleanest of the fossil fuels

– Generation assurance, wind vs. fossil fuels (WSJ article “Natural Gas Tilts at Windmills in Power Feud,” 2 March 2010)“The success of wind power in Texas has come at the expense of natural gas. If the wind build-out continues, by 2013 the amount of gas consumed to make electricity could fall by 18.5%, as gas plants sit idle for longer, according to Tudor Pickering & Holt, a Houston-based energy investment bank.”

http://online.wsj.com/article/SB10001424052748704188104575083982637451248.html#project%3DSLIDESHOW08

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Natural Gas and Renewables: Good Match or Mismatch?

• Supply Security Aspects– Natural gas future tied to

intermittent renewablesto some extent (as back-up and clean-burning aspects of gas)

– European supply security concerns

– Wall Street Journal, 10 September 2010, “Cheniere Wins Nod to Export U.S Liquefied Natural Gas”

– Terminal in Cameron Parish would be first facility to export natural gas from the Lower 48 states

Source: http://www.inogate.org/html/maps/mapsgas.htm

EU Pipeline and LNG Transportation

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Natural Gas and Renewables: Good Match or Mismatch?

• Pickens Plan (U.S., http://www.pickensplan.com/theplan/)

– Wind power in the center of the country (N. Texas to Canadian border)

– Need to increase transmission lines to transport the electricity

– Use natural gas for vehicles (range issue)

– Decreasing U.S. reliance on petroleum

– Connection with electric powered cars (for example with wind-generated power)

http://www.pickensplan.com/theplan/

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Natural Gas and Renewables: Good Match or Mismatch?• CO2 Markets

– Regional Greenhouse Gas Initiative (East Coast), European ETS

– Gas will figure more prominently than say coal

– Do we have enough natural gas supply and infrastructure? Linking regional forecasts for various fuels for power generation and energy usage

LinkS Project Overviewwith Res. Council of Norway/SINTEF

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Natural Gas and Renewables: Good Match or Mismatch?• Potential Negative

Environmental Aspects of Natural Gas

– Counter to “renewable” philosophy

– Hydraulic fracturing for shale gas

– U.S. bill in Congress “Frac Act”

– Exxon Mobil purchase of XTO Energy

– Marcellus Shale water table problems?

– Wall Street Journal, 10 September, 2010 “EPA Seeks Gas-Drilling Facts”

– Gasland movieSource: http://www.eia.doe.gov/oil_gas/rpd/shale_gas.jpg

http://www.wikio.com/video/gasland-trailer-2010-3378350

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Natural Gas and Renewables: Good Match or Mismatch?• Potential Negative Environmental Aspects of Natural Gas

– Gasland movie, – http://www.wikio.com/video/gasland-trailer-2010-3378350

http://www.treehugger.com/gasland-burning-tap-water-photo1.jpg

World Gas ModelUniversity of Maryland, College Park,USA

(Gabriel, Egging)+ colleagues from DIW Berlin, Germany Technische Universität- Dresden, Berlin,

Germany

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C3

T3

K1,2,3

C1Producer

T1Trader

K1,2,3

Sectors M1

Marketer

L1

LNG Node

S3S1

Storage R3

RegasNode

Country 1 Country 3

Transit countries

Representation of Gas Market in WGM 2009

T1 T1

M3

T1

PipelineT1

Market Configuration for Cartel Case

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Some WGM Statistics

• Production/Consumption Nodes: 41 (Groups of countries, countries, regions)• Covers over 95% of worldwide consumption (2005) • Eight periods: 2005-2040• Typical decision variables

– operating levels (e.g., production, storage injection)– investment levels (e.g., pipeline, liquefaction capacity)

• Other– Market power aspects (traders in pipeline and lng markets)– LNG contracts database– Seasonality of demand: each year a low and high demand period

• Computational aspects– Large-scale complementarity problem (optimization conditions for all players +

market-clearing conditions)– ~45,000 vars. Solves in ~50 mins (2GB, 1.2 GHz)

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WGM Cases

• Base: Calibrated to • EU30: E.C. European Energy and Transport (2005,

2007) • USA: EIA AEO 2009• Other regions: E.C. World Energy & Techn Outlook

2008• GECF: Have GEC countries collaborate and enforce

maximum market power

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Selected Results From DOE Study

• North America– ARI (High Shale

Case) only positively affects the United States with increased production

– Other regions are decoupled

– Cartel Case does not affect the U.S.

Global Production

• Other Regions– Cartel Case leads to

a huge decrease in Russian production (about 1.53 TCF=43.325 BCM)

– Some other regions compensating (depends on membership in GECF)

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• U.S.– US7&US8-Unconventional,

huge increase under ARI case

– Under ARI Case, Decrease in US7- conventional (smaller decrease in US8-conventional)

– Cartel Case-no effect

U.S. Production-by U.S. Node

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• North America

– Under ARI Case, Increase to about 30.44 TCF (861.969 BCM) in 2030

– Cartel Case-no effect

Global Consumption

• Europe, Asia, other Non-North American Regions

– Under ARI Case, no change– Cartel Case-Dramatic drop

in European consumption (2.18 TCF=61.731 BCM)

– Asia Pacific, drop as well– Russian consumption

increases

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• North America

– Under ARI Case, price drop of $0.50 in 2020 and $0.82 in 2030

– Cartel Case-no effect

Global Prices

• Europe, Asia, other Non-North American Regions

– Under ARI Case, no change– Cartel Case-large price

increase in Europe ($1.06 in 2020 and $1.47 In 2030)

– Cartel Case-Asia Pacific,Caspian similarly, Russian prices drop

39• 1 million btu (MMBTU) equals about 27.5 cubic meters• Multiply the $ by 1000/27.5=36.36 to convert to $/kcm

• North America– In 2030 under ARI Case

there is large increase in total exports from U. S. , which is 0.89 TCF

– Under Cartel Case U.S exports are similar to Base Case exports at 0.204 TCF

Total Exports/Imports from U.S., Russia, Germany

• Germany and Russia– Under ARI Case for Russia the

exported amount of gas is about the same. For Germany the amount of imports stay the same.

– Under Cartel Case Russia will face huge decrease in exports. As total its exports would be 5.38 TCF (152.345 BCM), which is a drop of 2.83 TCF (80.137 BCM) compared to Base Case 8.22 TCF (232.766 BCM)

Flows in TCF/Y (2030) Base Case ARI Case GECF CaseUNITED STATES -0.1779624 -0.89546 -0.204092RUSSIA -8.2169901 -8.19616 -5.385481GERMANY 4.0355799 4.04123 3.7439193

-10

-8

-6

-4

-2

0

2

4

6

UNITED STATES RUSSIA GERMANY

Pipeline and LNG Imports(+) and Exports(-) 2030

(TCF/Y)

Base Case

ARI Case

GECF Case

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Selected Results from Statistics Norway/Research Council of Norway Study

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Production in 2030

• European production compensates somewhat for less gas from the cartel, North America largely unaffected (2020 similar results)

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Prices in 2030

• Europe affected most, highest prices, North America largely unaffected (2020 similar results)

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Consumption in 2030

• Europe affected most by cartel, North America largely unaffected (2020 similar results)

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Imports/Exports in 2030

• Europe largest importer, North America very little net trade (2020 similar results)

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Summary and Future Work

• Renewables and natural gas a complicated relationship• Sometimes a good match sometimes not

• If natural gas cartel forms based on GECF, Europe will feel the brunt of most of the cartel’s actions, North America mostly immune

• North America gets the benefit of shale surplus, maybe an increased level of export?

• Natural gas a key fuel though in CO2 reduction, shale gale changing the marketplace (in the U.S. at least)

• LinkS project to see if we have enough energy infrastructure

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Extra Slides

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Energy Consumption by Energy Source, 2006

Data from BP Statistical Review of World Energy June 2007, graph by Lionel Mestre.

http://www.beodom.com/en/education/entries/peak-oil-the-energy-crisis-is-here-and-it-will-last

• North America

– U.S. imports drop to 0.47 TCF under ARI and Cartel Cases

LNG Imports and Exports

• Non-North America– Russia’s exports would be

the same under ARI and will drop to 0.55 in Cartel Case

– In Germany the imports would be the same under ARI and will drop to 0.26 TCF under Cartel Case

-1,5

-1

-0,5

0

0,5

1

UNITED STATES RUSSIA GERMANY

LNG Imports(+) and Exports(-) 2030 (TCF/Y)

Base Case

ARI Case

GECF Case

LNG in TCF/Y (2030) Base Case ARI Case GECF CaseUNITED STATES 0.819192 0.46645 0.4706823RUSSIA -1.2734589 -1.26057 -0.550836GERMANY 0.3220272 0.32203 0.2591754

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• North America

– U.S. exports are basically due to pipelines and under ARI it will rise up to 1.36 TCF and will be about 0.7 TCF under Cartel Case

Pipeline Imports and Exports

• Non-North America– Russia’s export are mostly

by pipelines and are steady under ARI Case but drop to 4.84 TCF under Cartel Case

– Germany’s imports are also through pipelines and under ARI Case it is the same as in Base Case (3.71 TCF), but goes down under Cartel Case by reaching 3.48 TCF

-8

-6

-4

-2

0

2

4

6

UNITED STATES RUSSIA GERMANY

Pipeline Imports(+) and Exports(-) 2030 (TCF/Y)

Base Case

ARI Case

GECF Case

Pipe flow in TCF/Y (2030) Base Case ARI Case GECF CaseUNITED STATES -0.9971544 -1.36191 -0.674774RUSSIA -6.9437115 -6.93559 -4.834645GERMANY 3.7135527 3.7192 3.4847439

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5151

5252

5353

• U.S.– Steady increase of

production– Rising to 21.87 TCF

(WGM accounting used) in 2030

U.S. Production-Base Case by Year

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• U.S.– Steady increase of

production– Rising to about

23.65 TCF in 2030

U.S. Production-ARI Case by Year

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• U.S.– Steady increase of

production (21.88 TCF)

– Almost exactly the same level as Base Case

U.S. Production-GECF Case by Year

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