Natural Gas Markets and Reliability Natural Gas Markets and Reliability of the Electric Power Industryof the Electric Power Industry

William Trapmann, william.trapmann@eia.doe.govWilliam Trapmann, william.trapmann@eia.doe.govEnergy 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

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