BATTERY REVOLUTION: 2017 UPDATE Ben Schlesinger, Benjamin - - PowerPoint PPT Presentation

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 15th IAEE European Conference Vienna – 5 September 2017

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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

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BSA – decades and decades of gas and energy advisory services!

Expertise

■ Mid-stream economics, rates, commodity risks, contracting.

– Gas market research & training – Index & contract negotiation – Fuel risks/due diligence – Litigation support/rate cases.

■ 600+ assignments in 28 countries since March ‘84.

Major Assignments

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Clients: Energy traders, power generators, pipelines, utilities, banks, governments, universities.

Power generators Lenders Pipelines/traders LNG projects Regulators Expert testimony European pipelines GdF Suez, Repsol, BG Eastern Europe West African pipeline Sonatrach (Bechtel) Japan gas utilities Mitsubishi Philippine NPC

Low-cost shale gas is now over 60% of US production, and it undercuts other E&P.

100 200 300 400 500 600 700 800 900 1.000 Jan-07 Mar-08 May-09 Jul-10 Sep-11 Nov-12 Jan-14 Mar-15 May-16 BCM

US Shales and Other Gas Production

Appalachian Permian Eagle Ford Haynesville Niobrara Bakken Anadarko Other Gas

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Natural Gas Supplies (Dry) Potential Production, Bcm Est. Recoverable, Tcm Yamal Region 310-350 16.7 …of which, Bovanenkovo 220 4.9 Appalachia (incl. Marcellus- Utica) 245 (Sept. 2017) 12.8 Qatar 181 (2016) 25.1

Source: BSA 2017, from EIA; Yamal data from Gazprom, http://www.gazprom.com/about/production/projects/mega-yamal/, incl. explored and provisionally estimated; Qatar data from EIA, BP 2017 statistical review.

Creating demand at home: gas-based factories...

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Source: BSA 2017, from 2015 American Chemical Society survey, US FERC LNG project info at 1 May 2017,

72 53 48 20 18 15 24 Gulf Coast Marcellus Region Midwest/Old Rust Belt Bakken & Northern Plains Southeast Auto Mfg All The Rest Not Specified

70.4 mtpa of approved LNG export capacity now in con- struction; another 49.6 mtpa approved/awaiting FID.

A ‘second wave’ of US LNG export projects totaling more than 100 mtpa will depend on prices and other LNG market conditions.

and building > LNG export capacity than Qatar.

$110 bn toward 250 new chemical, petrochemical, steel and other manufacturing, # plants by region

Surplus gas is fast replacing coal for power generation, lowering carbon emissions.

$- $1 $2 $3 $4 $5 $6 $7 $8 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 $/MMBty, delivered

Gas and coal are competing closely…

Coal Natural Gas

• 0,2

0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 2,0 2010 2011 2012 2013 2014 2015 2016 TWh x 1000

Gas, wind & solar for elec-gen are all rising.

Coal Gas Nuclear Hydro Wind/solar

…and the US coal fleet is aging & inefficient (GW).

45,4 53,5 43,6 19,0

• 20

40 60 50 years or

• lder, 28%

40-50 years, 33% 30-40 years, 27% Newer than 30 yrs, 12%

1000 1200 1400 1600 1800 2000 2200 2005 2007 2009 2011 2013 2015 2017TTD Mn tonnes

These reduce US elec- gen CO2 emissions. Source: BSA 2017; data from EIA and Statistics Canada.

Gas, especially LNG, is finding a market in

• ffsetting wind and solar production variations.

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500 1000 1500 2000 2500 3000 3500 4000 4500 5000 MW

LNG Regas in Spain Hourly Wind Production in TX, MW

Sources: Enagas, 2012; K. Forbes 2010, ERCOT data for 7/2009; Baltimore Gas & Electric Co..

104 LNG Storage Plants in US

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.

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Source: Schlesinger.

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.

COMPETITIVENESS OF NATURAL GAS MARKETS GOING FORWARD

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Rule: Advanced technology and intensive manufacturing will slash product costs.

And global solar PV costs are decreasing as fast... The same pattern is now underway for Li-Ion batteries.

Source: BSA 2016, EIA data; graphs from JB Straubel, before EIA Annual Conference, Washington, DC, July 2015.

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10 15 20 25

• 20

40 60 80 100 120 140 160 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Utica Marcellus Rigs Needed to Produce One Bcf/day

Example: US shale drilling productivity rose dramatically…

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For power generation, most peaking fuels consist of oil and natural gas:

0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% Capacity Use (Load Factor) Natural Gas Fired Combustion Turbine Petroleum Liquids Fired Combustion Turbine Internal Combustion Engine

Source: BSA 2015, from EIA. Capacity Factors for Utility Scale Peaking Generators Primarily Using Fossil Fuels, January 2014-July 2015

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Los Angeles is the first gas-versus-batteries competitive flashpoint..

Rising use

• f solar

energy… Intensifies the evening power supply ramp-up require- ment… Forces fast and extensive demand for OCGT/ CCGT’s.… Stresses the region’s gas infrastruc- ture… Especially Socal Gas’s Aliso Canyon (largest UGS west

• f the

Mississip- pi) 12,2 13,9 15,6 18,5 20,3 103,3

2015 California Net Power Generation, TWh

Wind Hydro Solar Nuclear Geothermal/Biomass Natural gas

Every time the sun sets, demand for battery storage is created!

Major leakage forced closure of Aliso Canyon in 2015 LA region’s electric utilities are facing peak shortages … Forcing an urgent turn to batteries … Giga- factories are ramping up to meet demant for batteries … That is already lowering costs to produce batteries …

Estimated cost and value of electricity storage ($/kWh):

50 100 150 200 250 300 350 400 450 500 Combined US Combined CA '11 Combined CA '10-'11 Regn CAISO Regn USA Regn NYISO Arb CA '11 Arb CA '10-'11 Arb CA '03 Arb US Arb NYS Arb NYC Arb PJM

Source: BSA 2017, BSA $/kwh estimates; other info from NREL, 2013; “Arb” value reflects peak-offpeak basis; “Regn” refers to load regulation.

2012 Tesla Model S 2016 Tesla and 2018 Ampera Tesla Model 3, Maybe 2020 VW?

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What does all this have to do with gas demand, let alone petroleum?

■ The most vulnerable markets will get hit first. ■ Indeed, small CNG vehicles may already have fallen victim!

– In 2015, Honda stopped selling the last CNG passenger car sold in the US. – In contrast, automakers are rushing to build EVs. – But large-scale NGVs will not be affected soon, I think...

■ Next comes peak shaving, and offsetting wind and solar production variations.

– For example, in the US Sunbelt, solar & battery systems could replace gas in homes and buildings.

■ Ultimately, the petroleum vehicle stock would

• convert. How long will that take?
• 20.000.000

40.000.000 60.000.000 80.000.000 100.000.000 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970

US Horse and Car Population, 1870-1970

Horses Cars

Source: BSA 2016, interpolated from USDA, USDOE Oak Ridge National Lab data.

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But meanwhile, US transportation carbon emissions are in a 6-year rising trend...

200 400 600 800 1000 1200 1400 Mn Tonnes

Carbon Emissions from the US Transportation Sector:

Motor Gasoline Diesel Jet Fuel All Other Fuels

Cheap batteries could maul natural gas markets...

Low Fuel Prices High Fuel Prices High Battery Costs Current US situation (Hittinger & Lueken)  Cheap fuel retards battery markets.  Batteries threatening CNG vehicles as auto manufacturers shift niche production to EVs.  Gas demand remains steady or rising in its traditional markets. Currently Europe & Asia-Pacific  Steady outlook for gas demand, main competition is from renewables and coal in power generation markets.  Both EVs and NGVs growing per national taxation policies favoring carbon and oil replacement. Low Battery Costs Anticipated by California regulators.  Batteries teamed with solar dis- place gas in buildings.  Batteries threaten gas-fired peakers, then intermediate load?  Larger NGVs threatened if manufacturers pursue EV development and batteries really improve.  ZEVs in green states and countries. Tesla’s World  May emerge in Europe and Asia.  Regulators and industry begin to favor battery development and sales at the expense of gas & coal.  Significant opportunities for batteries to arbitrage electricity markets.  EV growth limited only by availability and infrastructure.  ZEVs rise quickly.

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Summary/Conclusions

■ US natural gas supplies stay long for at least two decades – prices remain competitive, but rise to rebalance markets.

– Coal replacement will keep reducing US CO2 emissions through the early- 2020s, when we run out of ancient, inefficient coal-fired plants to replace. – Newly created domestic gas demands (and pipeline exports to Canada and Mexico) will probably outpace US LNG exports. – Mid-stream gas infrastructure (pipelines, gathering/processing, distribution) will expand to serve gas growth throughout most of North America, but not all.

■ Private investment and public/municipal investment will continue stimulating large-scale NGV markets, but for how long? ■ EVs/ZEVs (long-range, superfast charging) will grow into the millions – how long can EVs feed off declining traditional electricity sales, and how will electricity distribution grids cope with this?

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Benjamin Schlesinger and Associates, LLC (BSA) 3 Bethesda Metro Center, Suite 700 Bethesda, MD 20814-6300, USA (301) 951-7266 Fax (301) 951-3381 bschles@bsaenergy.com Visit us at BSAenergy.com

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