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

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

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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

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SLIDE 1

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

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SLIDE 2

Overview

2

  • 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
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SLIDE 3

3

Gas Deliveries to Western States

CA CO WA AZ OR NVUTNMIDWY MT 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bcf

Source: EIA Natural Gas Monthly

Western states accounted for 21% of U.S. natural gas consumption in 2009

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SLIDE 4

2009 Natural Gas Usage in the West

Electric Generation 36% Residential 20% Commercial 12% Industrial 23% Other 9%

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

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SLIDE 5

Electricity Production in 2009

5

California Rest of West

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

  • Natural

Gas

  • Coal
  • Other

Conven onal

  • Nuclear
  • Hydroelectric
  • Renewables
  • Natural

Gas

  • Coal
  • Other

Conven onal

  • Nuclear
  • Hydroelectric
  • Renewables
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SLIDE 6

2009 Gas Deliveries

6 Source: EIA Natural Gas Monthly

  • 250
  • 500
  • 750
  • 1,000
  • 1,250
  • 1,500
  • 1,750
  • 2,000
  • 2,250
  • CA

CO WA AZ OR NV UT NM ID WY MT Bcf Gas deliveries for all

  • ther

end uses Gas deliveries for electric genera on

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SLIDE 7

Western Gas Pipelines and Utilization

Source: 2010 California Gas Report, EIA Data, and MRW Analysis

2007 Data Pipeline Capacity (MMcf/d) Average Daily Flow (MMcf/d) Average Utilization 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%

7 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

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SLIDE 8

35% 1% 63% 1% 58% 73% 20% 6% 82% 7% 91% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AZ CA CO ID MT NM NV OR UT WA WY

Percent of 2009 electric generation provided by coal-fired generators

Coal Dependence Across the West

8 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

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SLIDE 9

Coal Dependence Across the West

9 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

2009 coal-fired generation in the West: 213,899 GWh

  • 20,000
  • 40,000
  • 60,000
  • 80,000
  • 100,000
  • 120,000
  • 140,000
  • 160,000
  • 180,000
  • 200,000
  • 220,000
  • AZ

CA CO ID MT NM NV OR UT WA WY MWh Other genera on Coal-fired genera on

Electric Generation in 2009

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SLIDE 10

Gas Demand: Looking Forward

  • Incremental Demand for Gas
  • Renewable Integration Needs
  • Retirement or Repowering of Once-Through

Cooling Generation

10

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SLIDE 11

CA Incremental Gas Demand

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“[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

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SLIDE 12

New Low Capacity Factor Plants May be Needed for Renewable Integration

12

Capacity Requirements for Renewable Integration in 2020

  • 1,700
  • 3,900
  • 8,200
  • 1,700
  • 4,600
  • 1,000
  • 2,000
  • 3,000
  • 4,000
  • 5,000
  • 6,000
  • 7,000
  • 8,000
  • 9,000
  • CPUC

(Trajectory)

  • CPUC

(Environmentally Constrained)

  • CPUC

(Cost Controlled)

  • CPUC

(Time Constrained)

  • IOU

(OTC Replacement for LCR)

  • IOU

(Day-Ahead Uncertainty)

  • IOU

(OTC Compliance Schedule)

  • IOU

(Temperture Peak Sensi vity)

  • ISO

(All-Gas)

  • ISO

(High Load)

  • Capacity

(MW)

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SLIDE 13

Current Plans for Once-through Cooling Units

13

2,000 4,000 6,000 8,000 10,000 12,000 14,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cumulative Capacity (MW) C

Retired Repowered Other Measures

Year Retired Repowered Other Measures 2011 772 2012 772 2013 1,562 2014 1,562 2015 2,048 2016 2,048 2017 2,048 720 3,114 2018 2,048 720 3,114 2019 2,048 720 3,114 2020 2,048 4,920 5,064 Cumulative Capacity (MW)

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SLIDE 14

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

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SLIDE 15

Potential Issues Going Forward

  • Gas Price Stability
  • Gas Supply Reliability
  • Coal-to-Gas Conversion
  • Gas Infrastructure Issues
  • Gas Tariff Design

15

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SLIDE 16

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

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SLIDE 17

Expectations for Low Prices Assume Significant Shale Gas Production

17

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.

Forecasted North American Shale Gas Production

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SLIDE 18

Increasing Interest in Exporting LNG

18

Source: Center for Liquefied Natural Gas; http://www.lngfacts.org/LNG-Today/Import-Terminals.asp

Current LNG Export Terminals

  • Kenai Peninsula, Alaska

Import Terminals Adding Capacity to Export LNG

  • Freeport, Texas
  • Sabine, Louisiana
  • Hackberry, Louisiana
  • 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

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SLIDE 19

Gas Supplies Affected by Major Events

  • Natural gas reliability and stability will

19 Source: EIA, Today in Energy, http://205.254.135.24/todayinenergy/detail.cfm?id=3390

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SLIDE 20

Gas Consumption if Coal Plants are Converted to Gas Units

20 Source: EIA, CPUC MPR heat rate

Illustrative scenario of gas demand if all Western coal usage is replaced by natural gas usage by 2020

EIA Projected Gas Consump on Coal Plant Re rement

  • 1,000
  • 2,000
  • 3,000
  • 4,000
  • 5,000
  • 6,000
  • 7,000
  • 2010

2015 2020 2025 2030 2035

Bcf

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SLIDE 21

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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

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SLIDE 22

22

Interstate Pipeline Utilization after Coal-to-Gas Conversions

Source: Implications of Greater Reliance on Natural Gas for Electricity Generation, Aspen Environmental Group, July 2010, page 54.

Load Factor in the Peak Demand Month*

*Based on 2008 gas usage and conversion of all in-state coal units to gas-fired units

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SLIDE 23

23

California Pipeline Projects

  • California utilities have proposed major upgrades

in response to the San Bruno incident

  • These upgrades will not increase pipeline capacity

and they could result in pressure modifications and/or disruptions that will need to be coordinated

  • The upgrades may also have significant rate

impacts

– Transportation rates could increase by 11 - 25% for SoCalGas non-core customers, including the increase from SoCalGas’s recent rate case – Transportation rates could increase by 25% for PG&E backbone customers and by 86% for local transmission and distribution customers

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SLIDE 24

California is Adding Flexible Natural Gas Storage

  • Gill Ranch began service

in Oct. 2010 and will provide 20 Bcf of working gas capacity

  • In Sept. 2011, FERC

approved an application for the Tricor Ten Section Hub storage facility, which would have 22 Bcf

  • f working gas and would

connect with Kern River/Mojave at Wheeler Ridge

24

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SLIDE 25

Gas Transportation Tariffs

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  • Current tariffs for backbone service in California

can have fixed reservation and variable usage components

  • This structure could be problematic for low

capacity factor EG customers with highly variable usage during “non-traditional” operating periods

  • Electric generators typically avoid fixed

reservation charges by purchasing interruptible service or by purchasing firm service from marketers

  • Use of interruptible service raises potential

reliability issues for integrating resources

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SLIDE 26

Questions to Consider

  • Gas prices could be much higher than

anticipated if shale gas expectations are not met

  • r if new supply is matched by increases in

exports and domestic demand. What should be done now to ensure price stability under such a scenario?

  • Gas pressure, reliability, and transportation costs

could become issues in light of the recent proposals in California to test and upgrade gas transmission systems as a result of the San Bruno tragedy. What steps can be taken to mitigate these concerns?

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SLIDE 27

Questions to Consider (cont’d)

  • The fixed component of firm gas transportation

rates is costly for peakers, whose gas requirements will become more uncertain in the

  • future. However, reliance on interruptible gas

transportation service poses reliability concerns. These conflicting issues are particularly acute for units that are needed for renewable integration, as these units will likely be called to operate during the winter and shoulder months. How should gas transportation rates for electric generators be designed to ensure reliable power supplies for renewable integration? Can gas storage mitigate reliability concerns?

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SLIDE 28

Questions to Consider (cont’d)

  • What additional pipelines are needed to

accommodate coal-to-gas conversions? Would these pipelines be utilized if gas prices rose to pre-shale and pre-recession levels?

28