Contemplations about the future of natural gas: the good ...€¦ · Sources: GE Power Marketing, Platts, McCoy Power Reports, BNEF, IHS, MAKE Industry volatility New plant orders

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Contemplations about the future of natural gas:the good, the bad and the ugly

Charles F. Mason

H.A. True Chair in Petroleum and Natural Gas EconomicsDepartment of Economics

Associate Dean, College of Business University of WyomingLaramie, Wyoming

December 13, 2017

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The View Today

Total US Energy Production (Quadrillion BTU)

Figure 1.2 Primary Energy Production(Quadrillion Btu)

By Source, 1949–2016

By Source, Monthly

Total, January–August By Source, August 2017

a Natural gas plant liquids. Web Page: http://www.eia.gov/totalenergy/data/monthly/#summary.Source: Table 1.2.

4 U.S. Energy Information Administration / Monthly Energy Review November 2017

2015 2016 2017

RenewableEnergy

Crude Oiland NGPLa

NuclearElectric Power

Coal

Natural Gas

Crude Oil and NGPLa

Renewable Energy

Nuclear Electric Power

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20150

5

10

15

20

25

30

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D0.0

0.5

1.0

1.5

2.0

2.5

Coal

Natural Gas

Crude Oil and NGPLa

Nuclear Electric Power

Renewable Energy

59.03556.091 57.811

2015 2016 20170

12

24

36

48

60

72

2.362

2.059

1.477

0.842

0.757

Natural Gas

Coal

0.0 0.5 1.0 1.5 2.0 2.5 3.0

source: EIA

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Emerging Global NG Demand and LNG

1.2

2.0

2.6

3.0

4.8

8.4

10.5

0.8

0.7

2.3

3.0

5.0

10.8

10.0

Malaysia

Indonesia

Mexico

Japan

Saudi

US

China

Short-term volatility … navigating pockets of growth

Note: New plant orders includes utility scale and distributed solar PV, partial coverage of smaller sizes of GT,ST and Hydro – excludes oil recip. Engines, Storage and Industrial Mechanical Drive; 2016 data is still preliminary

Sources: GE Power Marketing, Platts, McCoy Power Reports, BNEF, IHS, MAKE

Industry volatilityNew plant orders (GW/y)

• Coal new build down but still 36 GWs

• Gas flat over time with some peaks & valleys … 68 GWs

• Renewable capacity increasing with high intermittency

Gas generation remains stable in the long-term … positioned to win in short-term

Gas plant orders (select countries)

Avg. GW/y

Avg. last 5 years

Avg. next 5 years(forecast)

China3,600 kWh/capita

U.S.A.12,000 kWh/capita

Saudi Arabia9,300 kWh/capita

Japan7,400 kWh/capita

Mexico2,100 kWh/capita

Indonesia800 kWh/capita

Malaysia4,400 kWh/capita

World avg. = 3,000 kWh/capita

16

0

100

200

300

400

'95 '00 '05 '10 '15

Re

ne

wa

ble

s

Gas boom

Gas 15-yr avg =68 GW/yr

Ga

sC

oa

lNuc.

‘17-’26F

26%

56%

12%4%

~300GW/Yr.Battery 2%

emergence of global NG trade

22

24

26

28

30

32

pe

rce

nt o

f G

lob

al N

G c

on

sum

ptio

n v

ia im

po

rts

15

20

25

30

35

40

Glo

ba

l NG

imp

ort

s, T

rilli

on

cu

bic

fe

et

1990 1995 2000 2005 2010year

Global NG imports, Trillion cubic feetpercent of Global NG consumption via imports

ECON 4430, C. Mason Recent developments in Natural Gas Markets 20/25

source: GE, EIA

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Variability in Renewables

Background Good Bad Ugly Final Throughts

Variation in renewables

Good Bad Ugly

Hourly solar energy, San Francisco

Good, Bad & Ugly (Mason) Feria Destaca 2016 7 July, 2016 5 / 24

20

02

50

30

03

50

Tota

l po

we

r d

em

an

d le

ss r

en

ew

ab

les,

Tw

hJul2001 Jan2009 Jul2016

date

� large fluctuation with renewables� over 24 hour period� over course of the year

� implies need for flexible power supply to fill in gapsGood, Bad & Ugly (Mason) Feria Destaca 2016 25 November, 2016 8 / 26

05

01

00

15

02

00

25

0W

ind

en

erg

y p

rod

uct

ion

(T

rilli

on

BT

U)

Jan2014 Jan2015 Jan2016 Jan2017month

source: EIA

• large fluctuation with renewables• over 24 hour period• over course of year

• implies need for flexible power supply to fill in gaps – NG

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The Fracking Boom


US natural gas production; monthly spot price

1800

2000

2200

2400

2600

2800

Bill

ion

cubi

c fe

et p

er m

onth

Jan2000 Jan2005 Jan2010 Jan2015Month

05

1015

US

D p

er th

ousa

nd c

ubic

feet

- av

erag

e pe

r mon

th


Good, Bad & Ugly (Mason) Feria Destaca 2016 25 November, 2016 4 / 26

Natural Gas Production Henry Hub Spot Price

• US Natural Gas production took off after 2007• led to steady decline in NG spot prices

• major driver in shift from Coal to Gas in electricity• motivated push for LNG exports

• (how long) will this persist?

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The Fracking Boom


US natural gas production; monthly spot price

1800

2000

2200

2400

2600

2800

Bill

ion

cubi

c fe

et p

er m

onth


05

1015

US

D p

er th

ousa

nd c

ubic

feet

- av

erag

e pe

r mon

th


Good, Bad & Ugly (Mason) Feria Destaca 2016 25 November, 2016 4 / 26

Natural Gas Production Henry Hub Spot Price

• US Natural Gas production took off after 2007• led to steady decline in NG spot prices

• major driver in shift from Coal to Gas in electricity• motivated push for LNG exports

• (how long) will this persist?

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Fracking: A new approach to extraction

Conventional/Unconventional Geology

http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

MSEEL - Microseismic

Thomas Wilson - WVU

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Natural gas production from major U.S. shale plays

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Natural gas production: geography

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WY NG distribution, basis effects

• pricing distortions when deliveries approach pipeline capacity

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NG spot prices: Henry Hub vs. Dominion South

difference between spot prices at Dominion South and Henry Hub

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Pipeline Infrastructure in New England

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Natural Gas Prices vs. Algonquin Pipeline Utilization

0

10

20

30

40

50

60

70

$/MMBtu

0

100,000

200,000

300,000

400,000

MMBtu

1/1/14 7/1/14 1/1/15 7/1/15

Unused CapacityAlgonquin Citygate Price

Despite high prices, the Algonquin pipeline was often not fully utilized duringthe winters of 2013-14 and 2014-15

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Natural Gas Prices vs. Algonquin Pipeline Utilization

0

10

20

30

40

50

60

70

$/MMBtu

0

100,000

200,000

300,000

400,000

MMBtu

1/1/14 7/1/14 1/1/15 7/1/15

Unused CapacityAlgonquin Citygate Price

Aggregating the same data by week more clearly shows levels. On average, 78,000MMBtu (roughly 7%) of the pipeline’s capacity goes unused on days when the price ofnatural gas exceeds $10/MMBtu.

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Patterns in average production per-well

020

4060

8010

0m

onth

ly pr

oduc

tion

in M

Mcf

0 10 20 30 40month

pre 2000 20072008 20092010 2011

• Natural gas production subject to “decline curve” effects• production rate falls off rapidly during first several months

• suggests need for “rolling frontier” of new wells

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Aggregate production and the number of wells

010

0020

0030

0040

00nu

mbe

r of o

pera

ting

wells

020

4060

80qu

antity

gas

, milli

on M

cf

Jul1992 Jul1999 Jul2006 Jul2013month

quantity gas, million Mcfnumber of operating wells

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Drilling Rig Counts: US and Marcellus

050

100

150

Gas

Dril

ling

Rigs

in th

e M

arce

llus

020

040

060

080

010

00G

as D

rillin

g Ri

gs in

the

US

1Jan2010 1Jan2012 1Jan2014 1Jan2016Date

Gas Drilling Rigs in the USGas Drilling Rigs in the Marcellus

1520

2530

Stoc

ks /

Refi

nery

rece

ipts

Jan1985 Jan1990 Jan1995 Jan2000 Jan2005 Jan2010 Jan2015Date

12

34

56

NG

Sto

cks

/ Con

sum

ptio

n

Jan2000 Jan2005 Jan2010 Jan2015Date

-.6-.4

-.20

.2.4

.6W

TI c

rude

pric

e re

turn

1Jul1997 1Jan2002 1Jul2006 1Jan2011 1Jul2015Date

-.6-.4

-.20

.2.4

.6H

enry

Hub

NG

pric

e re

turn

1Jul1997 1Jan2002 1Jul2006 1Jan2011 1Jul2015Date

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Water concerns?

Shale Energy Technology Assessment: Current and Emerging Water Practices

Congressional Research Service 18

Table 2. Salinity of Produced Water from Different U.S. Shale Formations

Shale Formation Average TDS (PPM) Maximum TDS (PPM)

Fayetteville 13,000 20,000

Woodford 30,000 40,000

Barnett 80,000 >150,000

Haynesville 110,000 >200,000

Marcellus 120,000 >280,000

Source: Acharya, H.A., Henderson, C., Matis, H., Kommepalli, H., Moore, B., Wang, H., 2011, Cost Effective Recovery of Low-TDS Frac Flowback Water for Re-use, U.S. Department of Energy: DE-FE0000784 Final Report.

Notes: TDS is total dissolved solids. PPM is parts per million (for reference, 10,000 ppm is equivalent to 1%). In this Department of Energy report, the authors refer to all returning water after hydraulic fracturing as “flowback,” and do not differentiate between fracking fluid “flowback” and “produced water.”

Figure 6. Photograph of Flowback Water, Treated Flowback Water Ready for Reuse, and Produced Water

Source: Earth and Mineral Sciences Energy Institute, Pennsylvania State University.

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Environmental concerns?

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What’s in the Secret Sauce?

Source: Columbus Dispatch

Documents

Contemplations about the future of natural gas: the good ...€¦ · Sources: GE Power Marketing, Platts, McCoy Power Reports, BNEF, IHS, MAKE Industry volatility New plant orders