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32nd USAEE/IAEE North American Conference July 30, 2013. Analysis of the Impacts of Shale Gas Supply under a CO2 Tax Scenario. NETL Pittsburgh PA and Morgantown WV. Chris Nichols Office of Strategic Energy Analysis and Planning National Energy Technology Laboratory. Disclaimer. - PowerPoint PPT Presentation
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32nd USAEE/IAEE North American ConferenceJuly 30, 2013
Analysis of the Impacts of Shale Gas Supply under a CO2 Tax Scenario
NETL Pittsburgh PA and Morgantown WV
Chris NicholsOffice of Strategic Energy Analysis and PlanningNational Energy Technology Laboratory
2
This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference therein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed therein do not necessarily state or reflect those of the United States Government or any agency thereof.
Disclaimer
3
• The primary objective of the analysis is to evaluate the techno-economic impacts of the shale gas supply and the CO2 taxation on the U.S. energy system
• We applied the Environmental Protection Agency’s Nine Region MARKAL Database (EPAUS9r 2012) that was developed by EPA around the nine U.S. Census divisions.
• The paper presents the range of findings from a selection of different scenarios to examine the impacts of increased shale gas supplies, increased gas demand and a CO2 tax, based on OMB’s social cost of carbon
Overview
Source: ESPA Analysis
4
• Other than the electricity sector, increased gas supply does not significantly change gas demand in the basecase – changes to model inputs are required to substantially increase gas use in the industrial and transportation sectors
• Increased gas supply does lower the price, with increased industrial demand having a minimal price increase. Large usage of gas in the transportation sector and a CO2 tax do increase price, though
• For deep CO2 reductions, CCS is an essential technology, especially if an industrial renaissance increases gas utilization
Results and insights
5
Scenario Descriptions Database Modifications
BASE9R Original EPA 2012 base case scenario (resource supply and end-use demands from AEO 2012)
BASE9RHGBASE9R modification (new natural gas supply curve under conditions of abundant natural gas supply at low cost; end-use demands from AEO 2012)
Natural gas supply curves changes: in EPAUS9R2012 natural gas mining costs increase by 1.6-2.3% annually and in the modified database costs increase by 0.9-1.3% in 2005-2055.
BASEHGINBASE9RHG modification (new natural gas supply curve; high industrial demand; transportation, commercial and residential demands from AEO 2012)
We modified industrial demand and assumed that industrial demand grows faster than in EPAUS9R2012 after 2020. The assumptions on annual demand growth rates are: Chemical sector (1.9%); Primary metal (1.9%); Food (1.8%); Nonmanufacturing industry (1.4%). All other industrial demands and other sectors demands are without changes.
BSHCICNG BASEHGIN modification (governmental incentives enabling to invest in CNG vehicles and infrastructure)
We modified transportation sector profile in order CNG vehicles became a more attractive choice. In EPAUS9R 2012 investment costs for CNG technologies are increasing, so we changed investments costs on zero growth or decreasing rates (-0.1-1%) for CNG Vehicles. We also changed discount rates for few CNG technologies (decrease from 0.44 to 0.22-0.36).
BCNGCO2BSHCICNG modification (in June 2013 OMB released the revised social cost of carbon and the estimate for 2013 under the revision was $36 per ton of CO2, compared with $22 in the previous estimate)
Total energy system CO2 taxes started in 2015 ($36/tCO2 in 2005 dollars with 5.8% annual growth rate).
Scenarios
6
10
15
20
25
30
35
40
45
50
55
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055
TCF
Natural Gas in Primary Energy Mix
1949-2011
AEO2013
BASE9R
BASE9RHIG
BS9HIGIN
BHGINCNG
BCNGCO2T
Increased utilization in
electricity sector
Increased industrial growth
Lowered capital costs for CNG
vehicles
CO2 tax based on current social
cost of carbon
7
-
5,000
10,000
15,000
20,000
25,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Qua
ntity
(PJ)
Year
BASE9R: Electricity Production by Technology Distributed Solar PV
Central Solar PV
Wind Power
Hydropower
Geothermal Power
Municipal Waste to Steam
Biomass to IGCC
Conventional Nuclear Power
Residual Fuel Oil to Steam
NGA to Combined-Cycle
NGA to Combustion Turbine
NGA to Steam Electric
Coal to Steam
Coal to Existing Steam
Electricity growth in the Basecase is driven by natural gas and some loss in coal generation from EPA regulations
8
-
5,000
10,000
15,000
20,000
25,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Qua
ntity
(PJ)
Year
BASE9RHG: Electricity Production by Technology
Distributed Solar PV
Central Solar PV
Wind Power
Hydropower
Geothermal Power
Municipal Waste to Steam
Biomass to IGCC
Conventional Nuclear Power
Residual Fuel Oil to Steam
Diesel to Combustion Turbine
NGA to Combined-Cycle
NGA to Combustion Turbine
Coal to Steam
Coal to Existing Steam
BASE9RHG
With higher gas supplies, more coal is economically pushed out and overall generation is slightly higher
9
-
5,000
10,000
15,000
20,000
25,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Qua
ntity
(PJ)
Year
BASE9RHG: Industrial Fuel Use
Electricity
Biomass
Biodiesel
Other
Kerosene
LPG
Natural Gas
Gasoline
Distillate Oil
Fuel Oil-Low S
Coal
BASE9R
Increasing gas supplies alone does not change industrial gas use substantially – modifications to industrial end-demand are
required to model an industrial renaissance
10
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Qua
ntity
(PJ)
Year
BASE9RHG: Transportation Fuels
Electricity
Jet Fuel
LPG
Compressed Natural Gas
Ethanol
Gasoline
Diesel
CTL Diesel
BASE9R
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055Q
uant
ity (P
J)
Year
BHGICNG: Transportation Fuels
Electricity
Jet Fuel
LPG
Compressed Natural Gas
Ethanol
Gasoline
Diesel
CTL Diesel
BASE9R
Increased gas supplies are not enough to change use of NG in transportation sector – changes to capital cost assumptions for CNG
vehicles were required to move from gasoline to NG
11
0
2
4
6
8
10
12
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055
$200
5/m
mcf
Wellhead Price Historical (1949-2011) and Natural Gas Marginal Costs Scenarios Projections (2010-2055)
2005-2011
BASE9R
BAS9RHIG
BSHIGIN
BHGICNG
BCNGCO2T
05
1015202530
1945 1965 1985 2005
TCF
Natural Gas Consumption
More abundant gas lowers the
price pathIndustrial use only increases
price minimally
NG use in transportation drives a large price increase
CO2 tax pushes prices back to
baseline
12
0
1000
2000
3000
4000
5000
6000
7000
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055
MtC
O2
Total CO2 Emissions: Historical and Projections
1973-2012
AEO2013, REFERENCE
BASE9R
BAS9RHIG
BASEHGIN
BHGICNG
BCNGCO2T
Various non-CO2 control scenarios do not move overall CO2 emissions much
CO2 tax reduces emissions by 30%, much less than the 80% reduction from 2005 levels (~1,2000 Mt)
13
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 -
5,000
10,000
15,000
20,000
25,000 Electricity Production by Fuel & Type
Solar
Wind
Hydro
Geothermal
Municipal Solid Waste
Biomass
Nuclear
Oil
Natural Gas w/CCS
Natural Gas
Coal w/CCS
Coal
Year
Qua
ntity
(PJ)
In the CO2 Tax case, CCS-based electricity provides a large portion of electricity generation
14
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 -
1,000
2,000
3,000
4,000
5,000
6,000
7,000 CO2 Emissions
Electricity Production
Industry
Commercial
Residential
Transportation
Resources
Year
Qua
ntity
(KTo
nnes
)
CCS allows the electricity sector to substantially reduce its CO2 footprint, but increased gas use in the industrial and transportation
sectors limits the total CO2 reduction potential
15
Conclusions• “Socially optimal” reduction of CO2 may only be 30% by 2050,
according to the model• Energy market forecasting models may not “be ready” for shale
gas– Changes to model inputs are required to make the industrial and
transportation sectors able to accept more gas• More abundant gas shifts the price path lower, but layering new
demand shows that the price could increase substantially (not including the impacts of LNG exports)
• Natural gas can be a “bridge” to a lower-carbon future, but CCS will be required:– A large build-out of uncontrolled NG combined cycle plants in the
near-term may be a long-term problem• Mitigation options are needed in the industrial and transportation
sectors, even when natural gas supplants higher-CO2 fuels
16
Primary contributors:Nadja Victor, Booz Allen
Peter Balash, NETL
Chris [email protected]
304 877-8087