Seth!Blumsack! - Pennsylvania State UniversityWestward, Ho! 15 0" 20" 40" 60" 80" 100" 120" 140"...
Transcript of Seth!Blumsack! - Pennsylvania State UniversityWestward, Ho! 15 0" 20" 40" 60" 80" 100" 120" 140"...
-
Dash for Gas, 21st Century Style!
Seth Blumsack
John and Willie Leone Family Department of Energy and Mineral Engineering, Pennsylvania State University
Vermont Law School, 4 June 2013
1
-
2
-
An Old Joke
3
An oil execuKve walks into a bar and sees a wildcaMer staring at his drink. “What’s the maMer?” says the execuKve, “Another dry hole? “Worse than that,” the wildcaMer says…
…we found gas.”
Joke courtesy of Fereidun Fesharaki
-
A New Joke?
4
An oil execuKve walks into a bar and sees a wind execuKve staring at his drink. “What’s the maMer?” says the execuKve, “Was the PTC not renewed?” “Worse than that,” the wind execuKve says…
…they found more gas.”
Today, there appear to be many more opportuniKes in gas, which causes some headaches for renewables. Living in the land of plenty, however, does not necessarily mean a smooth ride.
-
5
3,497
-
6
10,000
-
Dash for Gas: Jolly Old(e) Style
7
• Rapid shiZ towards gas-‐fired power generaKon in the UK following electricity privaKzaKon
• Kept power prices low…unKl it didn’t!
• Lessons: 1. There is always
compeKKon! (Coal demand dropped, so coal got cheaper)
2. Don’t bet the farm! (Unclear whether New England has learned from Olde England)
-
Dash for Gas: 20th Century Style
8
0
2
4
6
8
10
12
14 19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
Nat
ural
Gas
Cit
y G
ate
Pri
ce (
$/M
CF)
Electricity)Deregulation) Shale)gas)takes)off)
-
Dash for Gas: 20th Century Style
9
0
2
4
6
8
10
12
14 19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
Nat
ural
Gas
Cit
y G
ate
Pri
ce (
$/M
CF)
0
1
2
3
4
5
6
7
8
Nat
ural
Gas
for
Pow
er G
ener
atio
n (T
CF)
Electricity)Deregulation) Shale)gas)takes)off)
Natural'Gas'for'Power'Generation'
Natural'Gas'Citygate'Price'
-
Renewables Dis-integration?
10
0
2
4
6
8
10
12
14 19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
Nat
ural
Gas
Cit
y G
ate
Pri
ce (
$/M
CF)
Electricity)Deregulation) Shale)gas)takes)off)
Average electricity price in PJM: $70
-
Renewables Dis-integration?
11
0
2
4
6
8
10
12
14 19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
Nat
ural
Gas
Cit
y G
ate
Pri
ce (
$/M
CF)
Electricity)Deregulation) Shale)gas)takes)off)
Average electricity price in PJM: $70
Average electricity price in PJM: $35
-
Land of Plenty!
12
• At this point nearly 1/3 of all gas produced in the U.S. is from shales (even more if you add in Kght sands which require fracking).
• Even with rising extracKon costs, current economics of natural gas are compelling. Growth will probably be driven by electricity and industry.
-
Not Dead Yet?
13
-
Path Dependency? It Depends
14
• LNG terminal build-‐out in anKcipaKon of increased imports of natural gas, which never materialized.
• They were built but the gas never came! (Because we found it in Texas and Pennsylvania).
• Owners, seeing money flushed away, are now keen to retrofit terminals to export natural gas.
-
Westward, Ho!
15
0"
20"
40"
60"
80"
100"
120"
140"
160"
180"
200"
0"
20"
40"
60"
80"
100"
120"
2005" 2006" 2007" 2008" 2009" 2010" 2011" 2012"
North
&Dakota&Rig&C
ount&
Crud
e&Oil&Pric
e&($/bbl)&
North&Dakota&Rig&Count&
NYMEX&Crude&Oil&Price&
Pennsylvania*Rig*Count*
Natural*Gas*Wellhead*Price*
0"
20"
40"
60"
80"
100"
120"
0"
1"
2"
3"
4"
5"
6"
7"
8"
9"
2005" 2006" 2007" 2008" 2009" 2010" 2011" 2012"
Penn
sylvan
ia*Rig*Cou
nt*
Natural*G
as*Pric
e*($*per*m
illion*BT
U)*
• Despite some reports, the market recognizes that it is very far out of equilibrium.
• Drillers are “spudding” wells to maintain lease holdings and then scrambling to the Bakken oil patch or the wet gas areas.
-
Westward, Ho!
16
“Dry gas” in Northeastern PA, Southern New York
“Wet gas” in Southwestern PA
-
Spoils for the Victors?
17
• State governments, wanKng to maintain jobs and tax revenue, do not like disequilibrium.
• Old ideas (natural gas vehicles) and new ideas (ethane crackers in wet gas areas) are awash in subsidy and incenKve dollars.
Images courtesy ANGA
-
Hub Pricing for Natural Gas
18
The benchmark natural gas price for all of North America is the price of the “Henry Hub” natural gas futures contract traded on the New York MercanKle Exchange (NYMEX). Henry Hub is a physical pipeline in Louisiana that connects to several major pipeline systems.
Henry Hub
-
Hub Pricing for Natural Gas
19
North America is unique in having this type of pricing system for natural gas. Most of the rest of the world indexes natural gas contracts to oil prices.
Henry Hub
-
Gas/Oil Pricing Disconnect
20
0"
2"
4"
6"
8"
10"
12"
14"
0"
20"
40"
60"
80"
100"
120"
140"
160"Jan+1994"
Dec+19
94"
Nov+1995"
Oct+199
6"
Sep+1997"
Aug+1998"
Jul+1
999"
Jun+2000"
May+2001"
Apr+2
002"
Mar+2003"
Feb+2004"
Jan+2005"
Dec+20
05"
Nov+2006"
Oct+200
7"
Sep+2008"
Aug+2009"
Jul+2
010"
Jun+2011"
May+2012"
Henry&Hu
b&Price&($/M
MBT
U)&
WTI&Pric
e&($/bbl)&
WTI$Crude$Oil$
Henry$Hub$Natural$Gas$
-
Getting Oilier…
21
• LNG supply chain costs are immense ($50b or more for greenfield project), leaving both buyers and sellers exposed.
• Spot LNG volumes are growing but will have to conKnue to be dominated by long-‐term contracts.
• Indexed to what? Henry Hub or the world oil price?
Image courtesy of Fereidun Fesharaki
-
…And Oilier Still…
22
• Major North American gas exports would serve to link global gas markets that are currently separated (basically Asia and Europe)
• This would likely break the “gas-‐to-‐oil” indexing paradigm but introduce other risks as “gas-‐to-‐gas” indexing predominates.
Image courtesy of Fereidun Fesharaki
-
Global Supply
23
-
Whither Wind?
24
• Unlike previous dashes for gas, the current rush is driven by poliKcal desires to engineer large-‐scale markets for newly-‐discovered mineral wealth.
• Currently, the implicaKons for other forms of power generaKon are bleak…but there are more binding constraints affecKng renewable energy projects now (like transmission).
• Renewables and gas are in some ways symbioKc – renewables need backup power and gas needs the emissions offsets. Energy efficiency may be under a bigger threat.
• But the gas market is getng oilier…
-
Thank You!
Seth Blumsack [email protected]
25