the future of natural gas - eprimydocs.epri.com/.../03-02_moniz_mit_natural_gas_v1.pdf · the...

Ernie MonizProfessor of PhysicsMassachusetts Institute of Technology

2011 Summer SeminarAugust 1, 2011

The Future of Natural Gas

An Interdisciplinary MIT Study

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* Cost curves based on 2007 cost bases. North America cost represent wellhead breakeven costs. All curves for regions outside North America

represent breakeven costs at export point. Cost curves calculated using 10% real discount rate and ICF Supply Models

** Assumes two 4MMT LNG trains with ~6,000 mile one-way delivery run, Jensen and Associates

Tcf of Gas

Breakeven Gas Price*

$/MMBtu

Global Gas Supply Cost Curve(Excludes unconventional gas outside North America)

3© 2011 Electric Power Research Institute, Inc. All rights reserved.

Tcf of GasTcf of Gas

* Cost curves calculated using 2007 cost bases. U.S. costs represent wellhead breakeven costs.

Cost curves calculated assuming 10% real discount rate and ICF Supply Models

Breakeven Gas Price*

$/MMBtu

Breakdown of Mean U.S. Supply Curve by Gas Type

Breakeven Gas Price*

$/MMBtu

U.S. Gas Supply Cost Curve

4© 2011 Electric Power Research Institute, Inc. All rights reserved.

* Breakeven price calculations carried out using 10% real discount rate

** Marcellus IP rates estimated based on industry announcements and available regulatory data

Source: MIT, HPDI production database and various industry sources

IP Rate Probability

(Barnett 2009 Well Vintage)

IP Rate: Mcf/day

(30-day avg.)

P20 P50 P80

Barnett IP Mcf/d

BEP $/Mcf

2,700

$4.27

1,610

$6.53

860

$11.46

Fayetteville IP Mcf/d

BEP $/Mcf

3,090

$3.85

1,960

$5.53

1,140

$8.87

Haynesville IP Mcf/d

BEP $/Mcf

12,630

$3.49

7,730

$5.12

2,600

$13.42

Marcellus** IP Mcf/d

BEP $/Mcf

5,500

$2.88

3,500

$4.02

2,000

$6.31

Woodford IP Mcf/d

BEP $/Mcf

3,920

$4.12

2,340

$6.34

790

$17.04

Impact of IP Rate Variability on Breakeven Price (BEP)*

(2009 Well Vintages)

Variation in Shale Well Performance and Per-Well Economics

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System Studies of Gas Futures

• Emissions Prediction and Policy Analysis Model

– Strength: explore market interactions

– Limitation: some industry details beneath the level of market aggregation

• Influences on U.S. Gas Futures

– Size of resource base, and cost

– Evolution of international gas markets

– Development of technology over time

– Greenhouse gas mitigation policy (?)

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U.S. Gas Use, Production, Imports and ExportsNo New Climate Policy

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Energy Mix in Electric Generation Under a Price-Based Climate Policy

Mean Natural Gas Resources and Regional Natural Gas Markets (TkWh)

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Regional Markets Global Market

7.5 $/Mcf

13.3 $/Mcf

5.7 $/Mcf

11.4 $/Mcf

With C-constraints

International Market Evolution

9© 2011 Electric Power Research Institute, Inc. All rights reserved.

―The U.S. natural gas supply situation has

enhanced the substitution possibilities for

natural gas in the electricity, industry,

buildings, and transportation sectors.‖

10© 2011 Electric Power Research Institute, Inc. All rights reserved.

Scale and Location of Fully-Dispatched NGCC Potential and Coal Generation (MWh, 2008)

TX LA

MS

AROK

NM

AZ

CA

NV

OR

WA

ID

MT

WY

ND

SD

MN

IAWI

IL

MOTN

AL

FL

GA

SC

NC

VA

WV

OH

MI

IN

PA

MD

DE

NJ

NY

CT RI

M

A

ME

NH

KY

Scale: 100,000,000 MWh

MWh coal generation, heat rate <10,000

MWh coal generation for pre-1987 plants

with >10,000 heat rate

Existing NGCC capacity operating at 85%

capacity factor minus 2008 actual MWh

generation (FDNP)

11© 2011 Electric Power Research Institute, Inc. All rights reserved.

Nationwide, Coal Generation Displacement With Surplus NGCC Would:

• Reduce CO2 emissions from power generation by 20%

• Reduce CO2 emissions nationwide by 8%

• Reduce mercury emissions by 33%

• Reduce NOX emissions by 32%

• Cost roughly $16 per ton/CO2

The displacement of coal generation with NGCC generation should be pursued as the only practical option for near term, large scale CO2 emissions reductions

12© 2011 Electric Power Research Institute, Inc. All rights reserved.

Industrial Gas Demand

Industry 35%

Manufacturing 85%

7.4Tcf

6.3 Tcf

4.5 Tcf

CHP/Cogen 14%

Conv. Boilers

22%

Process heating 42%

13© 2011 Electric Power Research Institute, Inc. All rights reserved.

0

5

10

15

20

25

Existing Natural Gas Boilers

High Efficiency Gas Boilers

Super High Efficiency Gas

Boilers

Replacement of

existing NG boilers

0

5

10

15

20

25

Existing coal boilers w/ post-

combustion controls

High efficiency gas boilers

Super high efficiency gas

boilers

NG vs. coal boilers with

MACT standards

Net Present Value Costs (millions $)

Industrial Boiler Replacement Costs

14© 2011 Electric Power Research Institute, Inc. All rights reserved.

For buildings, a move to full fuel cycle

efficiency (site vs. source) metrics will

improve how consumers, builders, policy

makers choose among energy options

(especially natural gas and electricity).

Efficiency metrics need to be tailored to

regional variations in climate and the

electricity supply mix.

15© 2011 Electric Power Research Institute, Inc. All rights reserved.

Gas-Oil Price Differential

If the current trend of large oil-gas price ratios continues, it could have significant implications for the use of natural gas in transportation.

Tradeoffs between fuel cost, vehicle cost, fuel infrastructure needs, operational implications?

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Years Payback for CNG Light Duty Vehicles

5 years

1.8 years

17 years

5.9 years

$ 3,0000

12,000 miles per year 35,000 miles per year

$10,0000

Payback times for U.S. light duty

vehicles are attractive when—

• used in high mileage operations

• have sufficiently low

incremental costs

($1.50 gallon of gasoline equivalent spread)

17© 2011 Electric Power Research Institute, Inc. All rights reserved.

LNG Long Haul Truck Limitations

• Low temp onboard fuel storage

• Fueling infrastructure with competitive pricing

• High incremental cost and lower resale value

• Mitigation in hub-to-hub

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Conversion of Natural Gas to Liquid Fuels

CatalystSynthesis

Gas

ReformerNatural

Gas

Ethanol

Diesel

DME

Methanol

Gasoline

Mixed

Alcohols

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The potential for gas to reduce oil

dependence could be increased by its

conversion…into liquid fuels…methanol is

the only one that has been produced from

natural gas for a long period at large

industrial scale.

The U.S. government should implement an

open fuel standard, requiring tri-flex-fuel

capability for light-duty vehicles.

20© 2011 Electric Power Research Institute, Inc. All rights reserved.

Large Scale Penetration of Intermittent Wind in Short Term for ERCOT

Coal

Wind

The principal impacts of increased deployment of

intermittent renewable energy sources in the short term

are –

• the displacement of NGCC generation

• increased utilization of operating reserves

• more frequent cycling of mid-range or even base

load plants.

Gas

Peakers

NGCC

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To view a full copy of this report, please visit

www.web.mit.edu/mitei/research/studies/natural-

gas-2011.shtml

For hard copy, email or business card

Supplementary papers only on website

(Future of Fuel Cycle study also)

22© 2011 Electric Power Research Institute, Inc. All rights reserved.

Backup

23© 2011 Electric Power Research Institute, Inc. All rights reserved.

Tcf of Gas

Remaining Recoverable Natural Gas Resources

(Excludes

unconventional

gas outside

North America)

24© 2011 Electric Power Research Institute, Inc. All rights reserved.

Global Gas Supply Cost Curve by EPPA Region

2007 Cost Base

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Primary environmental risks

associated with shale gas

development

1. Contamination of groundwater

aquifers with drilling fluids or

natural gas

2. On-site surface spills of drilling

fluids, fracture fluids and

wastewater

3. Contamination as the result of

inappropriate off-site wastewater

disposal

4. Excessive water withdrawals for

use in high-volume fracturing

operations

5. Excessive road traffic and

degraded air quality

47%

33%

9%

4%

2%

4%

Methane in groundwater On-site surface spills

Off-site disposal issues Water withdrawal issues

Air quality issues Well blowouts

Breakdown of Widely-Reported Environmental Incidents

Involving Gas Drilling; 2005-2009

Key Environmental Issues Associated with Shale Gas Development

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Fracture Growth in the Marcellus

Marcellus Shale Mapped Fracture Treatments (TVD)

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Recommendations

• For optimum long-term development, need to improve understanding of shale gas science and technology

– Government-funded fundamental research

– Industry/gov’t. collaboration on applied research

– Should also cover environmental research

• Determine and mandate best practice for gas well design and construction

• Create transparency around gas development

– Mandatory disclosure of frac fluid components

– Integrated water usage and disposal plans

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Global Gas Market and Geopolitics

Global Gas Market in 2030

Canada

388(3.0)U.S.

862(22.8)

Brazil

226(0.7)

France

180(1.73)

Libya

290(0.2)

Algeria

231(1.02)

S. Africa

485(0.2)

Poland

187(0.6) China

1,275(3.1)

Australia

396(1.1)

Mexico

681(2.2)

Argentina

774(1.5)

Recoverable Shale (2009 use)

• More liquid, integrated global markets

– In U.S. economic interest

– Reduce security concerns

• Recommendations

– Support market integration, supply diversity

– Aid transfer of shale technology

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Levelized Cost of Electricity at Different Carbon Prices

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Buildings: Full Fuel Cycle Energy/CO2

Energy Consumption

CO2 Emissions

Electric Furnaces

Oil-Fired Furnaces Gas-Fired

Furnaces Air Source Heat Pumps Ground

Source Heat Pumps

101.0 120.5 111.1

41.7 30.3

213.2

16.3 9.6

87.9

64.0

Fu

el E

ne

rgy p

er

10

0 M

Wh

of

Us

efu

l E

ne

rgy

Site Energy

Source Energy

Electric Furnaces

Oil-Fired Furnaces

Gas-Fired Furnaces Air Source

Heat Pumps Ground Source Heat

Pumps

74

45

27 31

22

To

n C

O2

pe

r 1

00

MW

h o

f U

se

ful

En

erg

y

Site: Gas +10%

2.7X

+ =

Source: Electricity + 194%

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Price Benchmarks Vs. Observed Prices1991–2010

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RD&D Spending

Federal

Funding

GRI Funding

Steady over 15 years

Time limited tax creditGas

produced

under tax

credit

Gas

produced

after tax

credit

33© 2011 Electric Power Research Institute, Inc. All rights reserved.

Shale Gas RD&D Spending and Supporting Policy Mechanisms