Long-term Natural Gas Price Forecast - nwcouncil.org

6/7/2013

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Long term Long-term Natural Gas Price Forecast

June 7th 2013

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Draft Agenda

Welcome and introductions 9:00 to 9:15 il’ d li i d f f Council’s modeling overview and use of forecasts

Northwest Gas Outlook –(NWNGA) 9:15 to 9:45 Shale Gas- alternative scenarios (CEC) 9:45 to 10:15 NAMgas model- (CEC) 10:15 to 10:45 Draft Environmental Costs 10:45 to 11:00 Break Straw man proposal 7th plan forecast prices 11:10 to 12:00

– Result of fuel price poll Result of fuel price poll – Comparison to other forecasts

Council’s Portfolio Model 12:00 to 12:20 Next steps 12:20 to 12:30

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Council’s Power Planning Process

Economic & Demographic

Forecasts

Demand Forecasting System

Residential Commercial Industrial Irrigation

Fuel PriceForecasts

ConservationPrograms and

Costs

g

Total Electricity Use

Supply - Demand Balance(RPM Model)

ElectricityPrice

3

GeneratingResources and

Costs

( )

Resource Supply(Cost and Amount)

Price

How HH price forecast is used

Demand Forecast – Direct Calculation of Retail natural gas Rates

Electricity Price Forecast– Direct Calculation of burner-tip prices for

power plants.

Resource Portfolio Selection Resource Portfolio Selection– Stochastically Used in setting expected values

for natural gas market price excursions.

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12.0

14.0

Relationship between Retail Natural Gas Prices and Henry Hub Prices

4.0

6.0

8.0

10.0

Dolla

rs P

er M

MBT

U

Henry HubID_COMID_INDID_RES

5

0.0

2.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Henry Hub price forecast shown here is for example, Council’s natural gas price projections will be updated later this year.

Comparison of Forecast and Actual 2012 (2012$)

Henry Hub Price Natural Gas F t

PRB Coal Prices2012$/mmbtu

Refiners Acquisition Cost Forecast2012$/B lForecast

2012$/mmbtu2012$/Barrel

Low $2.4 0.79 $85

Med-Low $2.5 $0.80 $90

Medium $2.6 $0.82 $95

Med-High $2.7 $0.83 $98$2.66 Actual

$0.78 Actual

High $2.7 $0.84 $105

6

$101 Actual

Except for coal, all fuel prices were within forecasted range

6/7/2013

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2013 NWGA Outlook Overview

Natural Gas Advisory Committee

June 7, 2013

Portland, OR

1914 Willamette Falls Dr., #255West Linn, OR 97068

(503) 344-6637www.nwga.org

NWGA Members:

Avista Corporation

Cascade Natural Gas Co.

FortisBC Energy

Intermountain Gas Co.

NW Natural

P get So nd EnergPuget Sound Energy

Kinder Morgan Ruby Pipeline

Spectra Energy Transmission

TransCanada GTN System

Williams NW Pipeline

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Supply

BC Production Forecast

Source: Canada National Energy Board

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Rockies Production Forecast

Source: Kinder Morgan, US Energy Information Administration

Rockies Rig Productivity

50

60

25

30• Gas well drilling efficiency increases

– 2011 average rig drilled twice the number of wells per year compared to 2006

– Last 3 years average wells productivity increased

20

30

40

10

15

20

ells Drilled per rig per year

MMcf/d/yr/rig

– Last 3 years average wells productivity increased 40%

– Rig productivity up by almost 150% from 2006

‐

10

0

5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

We

Rig Productivity Wells Drilled per Rig

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Demand

Recent Gas Demand

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2013 Outlook Demand Forecast

Forecast Comparison by End Use

300

350Base Case

150

200

250

Million Dth

0

50

100

'13 Res '13 Comm '13 Ind '13 Gen

'08 Res '08 Comm '08 Ind '08 Gen

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I-5 Peak Day Demand-Resource Balance

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8

9

'08 Peak Day '13 Peak Day

2

3

4

5

6

7

Mil

lio

n D

th

0

1

2

Capacity

ProjectsPipelines• Southern Crossing Expansion• Palomar

Kitimat LNG

Palomar• Sunstone• Blue Bridge (N-MAX)• Ruby• Pacific Connector• Pacific Trail• Oregon LNG• Washington ExpansionLNG Terminals

Bradwood Landing LNG

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Kitimat LNG (export)Bradwood LandingOregon LNGJordan Cove LNG

Storage FacilitiesMistJackson Prairie

Oregon LNGBradwood Landing LNG

Jordan Cove LNG

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1914 Willamette Falls Dr., #255West Linn, OR 97068

(503) 344-6637www.nwga.org

NWGA Members:

Avista Corporation

Cascade Natural Gas Co.

FortisBC Energy

Intermountain Gas Co.

NW Natural

P get So nd EnergPuget Sound Energy

Kinder Morgan Ruby Pipeline

Spectra Energy Transmission

TransCanada GTN System

Williams NW Pipeline

California Energy Commission

North American Market GasNorth American Market Gas--Trade Trade (NAMGas) Model:(NAMGas) Model:

Updated CommonUpdated Common CasesCasesUpdated CommonUpdated Common CasesCases

Northwest Power and Conservation CouncilNorthwest Power and Conservation CouncilNatural Gas Advisory CommitteeNatural Gas Advisory Committee

June 7, 2013June 7, 2013

Robert V. KennedyRobert V. KennedyyyElectricity Analysis OfficeElectricity Analysis Office

Electricity Supply Analysis DivisionElectricity Supply Analysis DivisionCalifornia Energy CommissionCalifornia Energy Commission

[email protected]//[email protected]//916--654654--50615061

6/7/2013

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Work Continuing with Cases __________________________________

• February 19th IEPR Workshop

– NAMGas Model – Leon Brathwaite

– Iterative Modeling Process – Ivin Rhyne

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– Stakeholders’ comments and suggestions


Work Continuing with Cases (cont.)_______________

Rice University Iterative Modeling ProcessProduction

CostsNorth American

Gas ModelUpdated

Economic/ Demographic Assumptions

CA Transportation

Demand Models

CA Demand Models

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WECC Electricity

Production Cost Model

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Reference Case:Changes Made from February 19th Assumptions___________

• Coal Fired Generation Retirement:– 30 GW starting in 2014 => 61 GW starting in 2014– The Brattle Group - October, 2012

• Renewable Portfolio Standard:– California meets RPS on time, 5 year delay for other states =>

California and rest of WECC states meet RPS on time, 5 year delay elsewhere

• Updated Infrastructure Capacity Addition to Export

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• Updated Infrastructure Capacity Addition to Export Natural Gas to Mexico

• Added Structure to Improve Performance of the LNG Sector– Conversion from WGTM to NAMGas


High Price/Low Demand Case:Changes Made from February 19th Assumptions__________

• Cost Environment:– P50 Line => P10 Line



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Low Price/High Demand Case:Changes Made from February 19th Assumptions__ _

• Cost Environment:– P50 Line => P90 Line

• Coal Fired Generation Retirement:– 1 GW starting in 2014 => 31 GW starting in 2014– The Brattle Group - October, 2012


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North American Market Gas Trade Model:Developing a Cost Environment______________

Typical Cost Environment (P50): 1975, 1986, and 2003

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Sources: Baker Institute.

• Staff must simulate the cost environment for analysis:− Graph shows indexed cost between 1960 and 2010− High cost environment ~ 1979 – 1984− Low cost environment ~ 1992 – 2000.

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Common Cases: Supply Balance _______________________

Performance of Cases:Performance of Cases:Lower 48Lower 48

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Common Cases: Price Performance of Cases (Henry Hub) ___

8.00

Henry Hub Prices

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2010

$/M

cf

Prelim II A Hi Case Prelim II A Ref Case Prelim II A Low Case

Orig Hi Case Orig Ref Case Orig Low Case

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• In general, prices behave as expected:− High Price case produced highest prices− Low price case produced lowest prices

• Adjusted cases have created a larger “zone of uncertainty”

Orig. Hi Case Orig. Ref Case Orig. Low Case

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National Cases: Price Performance of Cases (Differentials) __

Topock - Henry Hub

‐0.20

‐0.10

0.00

0.10

0.20

0.30

2010$/M

cf

Topock‐Henry Hub Price Differential

P li IIA Hi C P li IIA R f C P li IIA L C

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• In general, differentials turn positive after 2013:– Resource abundance more evident in the eastern US– Access to shale and ‘tight’ gas resources is re-ordering the

supply portfolio, impacting eastern prices more than western.

Prelim IIA Hi Case Prelim IIA Ref Case Prelim IIA Low Case


Common Scenarios Cases: Supply Portfolio of Reference Case (2025)__

Canadian

Lower 48Production: 74.6 Bcf/dDemand: 76.9 Bcf/d

Canadian Imports: 13.3 Bcf/d

• Two main demands: End-use and Exports

• Demand satisfied by:−Canadian Imports−L48 Production−LNG Imports

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Exports:8.2 Bcf/d

LNG Imports:0.24 Bcf/d

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Common Scenarios: Reconfiguration of Supply Portfolio (2025)__

CanadianHigh Price/Low Demand



• Two main demands: End-use (-8.2%) and Exports (+61.0%)

• Demand satisfied by:−Canadian Imports (-2.3%)−L48 Production (- 0.8%)−LNG Imports (-100.0%)

• Competing sources of natural gas reconfiguring the supply portfolio

Case (+16.9%)

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Exports:13.2 Bcf/d


reconfiguring the supply portfolio

( ) Percent change from reference case


Common Cases: Reconfiguration of Supply Portfolio (2025)__

CanadianLow Price/High Demand



• Two main demands: End-use (+8.0%) and Exports (-36.5%)

• Demand satisfied by:−Canadian Imports (-0.8%)−L48 Production (+5.0%)−LNG Imports (-58.3%)


Case (-16.2%)

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Exports:5.2 Bcf/d


reconfiguring the supply portfolio


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Common Cases: Supply Balance _______________________

Performance of Cases:Performance of Cases:CaliforniaCalifornia

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Common Cases: Price Performance of Cases (Topock Hub) ___

8 00Topock Hub Prices

0.001.002.003.004.005.006.007.008.00

2010

$/M

cf

New Hi Case New Ref Case New Low Case


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• In general, prices behave as expected:− High Price case produced highest prices− Low price case produced lowest prices

• The adjusted cases creates a larger “zone of uncertainty” for California.


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Common Cases: California Supply Portfolio (2025)_________

Calif. Imports (Malin):2 67 Bcf/d

Reference Case2.67 Bcf/d

Southwest:

Rocky Mountain:1.22 Bcf/d

• California Demand: End-use• Demand satisfied by:− Imports (Malin)−Rocky Mountain Supplies−Southwest Supplies−Local Production

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CaliforniaProduction: 0.21 Bcf/dDemand: 6.33 Bcf/d

2.34 Bcf/d





High Price/Low Demand Case (+16.7%)

2.57 Bcf/d

Southwest:


• California Demand: End-use (-8.2%)• Demand satisfied by:− Imports (Malin) (-3.7%)−Rocky Mountain Supplies (-8.2%)−Southwest Supplies (-11.5%)− Local Production (-19.0%)


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2.07 Bcf/d


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Low Price/High Demand Case (-13.2%)

2.79 Bcf/d


• California Demand: End-use (+10.6%)

• Demand satisfied by:− Imports (Malin) (+4.5%)−Rocky Mountain Supplies (+8.2%)−Southwest Supplies (+16.7%)−Local Production (+38.1%)


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Southwest:2.73 Bcf/d



Summary:_________________________________ • Work Ongoing with Cases

• Modeling Iterative Process still ongoing

• More Stakeholders suggestions and comments expected

L Z f U t i t

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• Larger Zone of Uncertainty

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Assessing Uncertainty on Shale Production

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Shale Production Uncertainty Cases: Shale Production Uncertainty Cases: A Scenario ExaminationA Scenario Examination

Northwest Power and Conservation CouncilNorthwest Power and Conservation CouncilNatural Gas Advisory Committee Meeting Natural Gas Advisory Committee Meeting

June 07, 2013June 07, 2013

Leon D. Leon D. BrathwaiteBrathwaiteElectricity Analysis OfficeElectricity Analysis OfficeElectricity Analysis OfficeElectricity Analysis Office

Electricity Supply Analysis DivisionElectricity Supply Analysis DivisionCalifornia Energy CommissionCalifornia Energy Commission

[email protected]//[email protected]//916--654654--47714771

6/7/2013

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Shale Production Uncertainty Scenario Cases:Brief Background_________________________

•• In the last ten years the development of naturalIn the last ten years the development of natural•• In the last ten years, the development of natural In the last ten years, the development of natural gas resources from shale formations has gas resources from shale formations has generated much controversy:generated much controversy:–– The potential for groundwater contaminationThe potential for groundwater contamination–– The possibility of increased seismic activityThe possibility of increased seismic activity–– The diversion of freshwater used in hydraulic The diversion of freshwater used in hydraulic

fracturingfracturing

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fracturingfracturing–– The possibility of added methane emissions. The possibility of added methane emissions.


Shale Production Uncertainty Scenario Cases:Brief Background (cont’d)____________________________________

Decision makers are re examining policies related to the• Decision-makers are re-examining policies related to the development of these resources: – Some jurisdictions such as New York have delayed the

development of its shale resources– Others have instituted environmental impact fees– Others are tightening regulation of hydraulic fracturing

• Technological innovation has accelerated in the natural gas industry

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y• Natural gas from shale formations occupy larger share of total

Lower 48 production– In April 2013, shale formations produced 30.6 bcf/d– Production represents about 40% market share.

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Shale Production Uncertainty Scenario Cases:What are the Shale Production Uncertainty Cases?______

•• The development of shale formations is The development of shale formations is transforming the natural markettransforming the natural market

•• Four Scenario Cases will explore impact:Four Scenario Cases will explore impact:−− Shale AbundanceShale Abundance

−− Shale ReconsideredShale Reconsidered

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−− Shale ExpensiveShale Expensive

−− Shale DeferredShale Deferred


Shale Production Uncertainty Scenario Cases:Key Variables___________________________________

•• Variations in four key variables:Variations in four key variables:Ch i th l tCh i th l t−− Changes in the supply cost curvesChanges in the supply cost curves

−− Changes in the time of availability of some Changes in the time of availability of some resourcesresources

−− Changes in environmental impact feesChanges in environmental impact fees

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−− Changes in the rate of growth of technological Changes in the rate of growth of technological innovationinnovation

•• Changes relative to the reference case.Changes relative to the reference case.

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Shale Production Uncertainty Scenario Cases:Shale Abundance________________________________

•• Shale Abundance:Shale Abundance:Begins with the Reference CaseBegins with the Reference Case–– Begins with the Reference CaseBegins with the Reference Case

–– Supply Cost Curves ~Supply Cost Curves ~ Expanded resource baseExpanded resource base All known shale formations developedAll known shale formations developed Current estimates 15% low; lead to upward adjustment of curvesCurrent estimates 15% low; lead to upward adjustment of curves

–– Availability ~ No delay in production hookAvailability ~ No delay in production hook--upsups

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–– Environmental Impact Fees/O &M ~ Impact fees and Environmental Impact Fees/O &M ~ Impact fees and water handling cost at low end of range: $0.30/water handling cost at low end of range: $0.30/McfMcf

–– Technology & Innovation ~ Technology grows at 2.5%.Technology & Innovation ~ Technology grows at 2.5%.


Shale Production Uncertainty Scenario Cases:Shale Reconsidered______________________________•• Shale Reconsidered:Shale Reconsidered:−− Begins with the Reference CaseBegins with the Reference CaseBegins with the Reference CaseBegins with the Reference Case

−− Supply Cost Curves ~Supply Cost Curves ~ Concerns about hydraulic fracturing delay further development of Concerns about hydraulic fracturing delay further development of

shale formationsshale formations Targeted moratorium on new drilling into shale formationsTargeted moratorium on new drilling into shale formations Resource base shrinks by 15%Resource base shrinks by 15%

−− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant

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environmental challenges; delays run about 3 yearsenvironmental challenges; delays run about 3 years

−− Environmental Impact Fees/O &M ~ Impact fees and Environmental Impact Fees/O &M ~ Impact fees and water handling cost at high end of range: $0.55/water handling cost at high end of range: $0.55/McfMcf

−− Technology & Innovation ~ Technology grows at 1.0%.Technology & Innovation ~ Technology grows at 1.0%.

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Shale Production Uncertainty Scenario Cases:Shale Expensive_________________________________•• Shale Expensive:Shale Expensive:−− Begins with the Reference CaseBegins with the Reference CaseBegins with the Reference CaseBegins with the Reference Case

−− Supply Cost CurvesSupply Cost Curves Resource base unchanged from the reference caseResource base unchanged from the reference case

−− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant environmental challenges; delays run about 3 yearsenvironmental challenges; delays run about 3 years

−− Environmental Impact Fees/O &M ~ Environmental Environmental Impact Fees/O &M ~ Environmental i t f i j i di ti 20% hi h thi t f i j i di ti 20% hi h th

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impact fees in many jurisdictions are 20% higher than impact fees in many jurisdictions are 20% higher than high end cost, reaching $0.67/high end cost, reaching $0.67/McfMcf



Shale Production Uncertainty Scenario Cases:Shale Deferred__________________________________•• Shale Deferred:Shale Deferred:−− Begins with the Reference CaseBegins with the Reference CaseBegins with the Reference CaseBegins with the Reference Case

−− Supply Cost Curves ~ Supply Cost Curves ~ Resource base unchanged from the reference caseResource base unchanged from the reference case

−− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant environmental challenges; delays run 3 environmental challenges; delays run 3 -- 5 years5 years

−− Environmental Impact Fees/O &M ~ Impact fees and Environmental Impact Fees/O &M ~ Impact fees and t h dli t t hi h d f t $0 55/t h dli t t hi h d f t $0 55/M fM f

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water handling cost at high end of range at $0.55/water handling cost at high end of range at $0.55/McfMcf


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Shale Production Uncertainty Scenario Cases:Final__________________________________________

Questions & CommentsQuestions & Comments

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CO2 Costs (draft)

CO2 Cost is incorporated in estimates of the retail CO2 Cost is incorporated in estimates of the retail rates costs that consumers see.

CO2 costs are also incorporated in calculation of wholesale electricity prices.

CO2 costs are also incorporated in resource selection process in Council’s Portfolio model.

Steve Simmons will talk about range of CO2 costs.

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Current Assumptions (subject to change)

60.00

70.00

80.00

$

Wholesale Price Forecast at Mid C

10.00

20.00

30.00

40.00

50.00

60.00

$/M

Wh

2012

Rea

l $

52

0.00

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2032

2032

2032

Year

Delayed Federal CO2 No Federal CO2Social Cost CO2 Social Cost CO2 Phased In

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Straw Man Proposal for Preliminary

Seventh Plan Forecast of Prices

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Background In the past three years we have seen major changes:

In the 2011 update, we lowered our long-term forecast of natural gas prices to reflect structural changes in the natural gas supply picture (due to technological changes such as hydraulic fracturing , horizontal drilling, and natural gas from shale formations.)

In 2012, we provided a lower short-term price forecast for the 2012-2015 period while maintaining long-term price forecast for 2016-2030 3

In this year’s forecast we raised short-term price forecast and narrowed the forecast range.

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14.00

16.00

18.00

Henry Hub Monthly PricesConstant 2012 dollars

4.00

6.00

8.00

10.00

12.00

55

0.00

2.00

Jan-

89Se

p-8

9M

ay-

90Ja

n-91

Sep

-91

Ma

y-92

Jan-

93Se

p-9

3M

ay-

94Ja

n-95

Sep

-95

Ma

y-96

Jan-

97Se

p-9

7M

ay-

98Ja

n-99

Sep

-99

Ma

y-00

Jan-

01Se

p-0

1M

ay-

02Ja

n-03

Sep

-03

Ma

y-04

Jan-

05Se

p-0

5M

ay-

06Ja

n-07

Sep

-07

Ma

y-08

Jan-

09Se

p-0

9M

ay-

10Ja

n-11

Sep

-11

Ma

y-12

What a difference a year can make.June 11, 2012 : prices in low $2 range

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By April 2013 prices were over $4.

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Natural Gas Strawman Proposalcompared to short-term prices from SNL

Annual Strip( as of May 1, 2013 )

Natural Gas Price Henry Hub

2011 2012 2013 2014 2015 2016 2017 2018 2019-

1.0 2.0 3.0 4.0 5.0 6.0

2012

$/M

MBT

U

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2011 2012 2013 2014 2015 2016 2017 2018 2019Council L 4.0 2.7 3.7 3.8 3.9 3.9 4.0 4.0 4.0 Council M 4.0 2.7 3.9 4.1 4.2 4.4 4.5 4.6 4.7 Council H 4.0 2.7 4.1 4.3 4.6 4.8 5.0 5.3 5.5 SNL 4.05 2.66 4.37 4.26 4.14 4.08 4.08 4.14 4.28

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Preliminary Long term Natural Long-term Natural Gas Price Forecast for use in the Council’s Seventh Plan

Range of Low Price Forecast Range of Medium Price ForecRange of High Price ForecMi i A M Mi i A M Mi i A M

Results of NGAC Poll

Minimum Average Max Minimum Average Max MinimumAverage Max2015 2.14 3.19 4.15 2.86 3.87 4.58 4.19 4.70 5.25 2020 2.06 3.46 4.17 3.03 4.45 5.10 4.17 5.53 7.28 2025 2.02 3.64 4.43 3.19 4.67 5.53 4.23 5.85 8.30 2030 2.03 3.66 4.89 3.14 4.66 5.84 4.07 6.06 8.76 2035 2.03 3.66 5.04 3.07 4.70 6.31 4.02 6.24 9.46

60

2035 2.03 3.66 5.04 3.07 4.70 6.31 4.02 6.24 9.46

Among the respondents there is a wide range of expectations

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Proposed Henry Hub Price Forecasts $2012/MMBTU Average values from NGAC Poll in 2012$/MMBTU

Council L Council M Council H Poll- LOW Poll- Medium Poll-High2011 4.0 4.0 4.0 2012 2.7 2.7 2.7 2013 3.7 3.9 4.1 2014 3.8 4.1 4.3 2015 3.9 4.2 4.6 3.3 3.9 4.72020 4 0 4 8 3 4 6 62020 4.0 4.8 5.7 3.7 4.6 5.62025 4.1 5.3 6.6 3.9 4.8 5.92030 4.2 5.8 7.2 3.9 4.8 6.22035 4.3 6.4 8.0 3.9 4.9 6.3

Average 2015-2035 4.1 5.3 6.4 3.7 4.6 5.8

Annual Growth rate2015-2020 0.7% 2.5% 4.6% 2.5% 3.3% 3.6%2020-2025 0.5% 2.0% 2.8% 1.0% 1.1% 1.3%2025-2030 0.5% 2.0% 2.0% 0.1% 0.0% 0.8%2030 2035 0 4% 2 0% 2 0% 0 0% 0 3% 0 4%

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Council’s forecast of 2012 HH prices was 2.6 $/MMBTU, Actual HH price for 2012 was 2.7 $/MMBTU

2030-2035 0.4% 2.0% 2.0% 0.0% 0.3% 0.4%2012-2035 2.1% 3.9% 4.9% 1.6% 2.6% 3.7%

Comparison of 2012 and 2013 forecasts (2012$/MMBTU)

10 0

12.0 2012 Council L

2 0

4.0

6.0

8.0

10.0 2012 Council M

2012 Council H

2013 Proposed Council L

62

-

2.0 2013 Proposed Council M

2013 Proposed Council H

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Comparison to other forecasts

AEO 2013 Reference case

CEC 2013 (preliminary)

IHS_Global Insight

Natural Gas Week quarterly Analysts

Idaho Power IRP

Poll of NGAC members

SNL (short-term 2013-2014)

63

Various Long-term forecasts (2012$/MMBTU)

8 0 9.0

10.0 Council LCouncil MCouncil H

O 20 3 f

3.0 4.0 5.0 6.0 7.0 8.0 AEO 2013-Reference

AEO High growthAEO Low growthCEC Preliminary LowCEC Preliminary MEDCEC Preliminary HighIDP- LOWIDP- MEDIDP- HIGH

64

-1.0 2.0 Poll- LOW

Poll- MediumPoll-HighIHSGI-LowIHSGI-MediumIHSGI-High

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Low Range of the Forecasts (2012$/MMBTU)

6.0

7.0 Council L

2.0

3.0

4.0

5.0

6.0 AEO Low growth

CEC Preliminary Low

IDP- LOW

P ll LOW

65

-

1.0 Poll- LOW

IHSGI-Low

Medium Range of Forecast (2012$/MMBTU)

7.0

8.0 Council M

2 0

3.0

4.0

5.0

6.0

7.0 AEO 2013-Reference

CEC Preliminary MED

IDP- MED

Poll- Medium

66

-

1.0

2.0 Poll Medium

IHSGI-Medium

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High Range of Forecast (2012$/MMBTU)

9.0 10.0 Council H

3.0 4.0 5.0 6.0 7.0 8.0 AEO High growth

CEC Preliminary High

IDP- HIGH

Poll-High

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-1.0 2.0

Poll High

IHSGI-High

Comparison of 6th and proposed Preliminary 7th Power Plan Forecast of

Natural Gas Prices (2012$/MMBTU)14.0

4.0

6.0

8.0

10.0

12.0 6th Plan Low

6th Plan Medium

6th Plan High

Proposed 7th Plan Low

68

-

2.0 Proposed 7th Plan M

Proposed 7th Plan H

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Would you recommend

For 2013-2014 we use SNL market data?

For 2015-2035 use a blend of strawman proposal and the poll results?

Lower growth rate in long-term (post 2025 prices)?

69

Fuel Prices Futures in Council’s Portfolio Model

“Futures are how the Portfolio Model stress-tests resource strategies”

Dr. Michael Schilmoeller

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Sources of Uncertainty

Fifth Power Plan Sixth Power Plan– Load requirements– Gas price– Hydrogeneration– Electricity price– Forced outage rates– Aluminum price– Carbon allowance cost

Power plant construction costs

Technology availability Conservation costs and

performance

– Production tax credits– Renewable Energy Credit

(Green tag value)

Different Kind of Risk Modeling

Imperfect foresight and use of decision Imperfect foresight and use of decision criteria for capacity additions Adaptive plans that respond to futures

– Primarily options to construction power plants or to take other action

– May include policies for particular resources

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May include policies for particular resources

“Scenario analysis on steroids”– 750 futures, strategic uncertainty– Frequency that corresponds to likelihood

Planning Principles

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Observations

Stress-testing means– Using extreme and unlikely futures

(Don’t predict! Test!)

– Looking at unusual relationships(Remember the Mortgage Crisis!)

– Thinking in terms of effect and categories of Thinking in terms of effect and categories of uncertainty , rather than detailed causes

(Remember Boardman and Centralia!)

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Example risk treatment – natural gas prices

14 00

16.00

4.00

6.00

8.00

10.00

12.00

14.00

2004

Do

llars

Per

MM

Btu

74

0.00

2.00

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77

Quarters

2

6/7/2013

38

Natural Gas Prices

30.000%

10%

20%

5.00

10.00

15.00

20.00

25.00

200

4 $/

MM

BT

U 20%

30%

40%

50%

60%

70%

75

0.00

Sep

-03

Sep

-05

Sep

-07

Sep

-09

Sep

-11

Sep

-13

Sep

-15

Sep

-17

Sep

-19

Sep

-21

80%

90%

100%

Range of Forecast Natural Gas Price Delivered to Electric Utilities PNW East &Deciles used in RPM

(2006$/mmBTU)

12 00

14.00

16.00

010

6.00

8.00

10.00

12.00 2030405060708090Forecast-Low

0.00

2.00

4.00

3 7 111519232731353943475155596367717579

Forecast-Medium LowForecast-MediumForecast-Medium HighForecast-high

Quarterly prices - 2010-2029

76For illustration only

6/7/2013

39

Next Steps

Create the proposed fuel price forecasts for the Create the proposed fuel price forecasts for the Seventh Power Plan.

Review and approval by Council- July

Prepare report on updated price forecast - July

Incorporate forecast fuel prices in:– Demand Forecast October 2013

– Electricity price forecast November 2013

– Council’s Portfolio Model 2014

77

Feedback on this year’s format

Does holding the meeting right after NWNGA l f k?NWNGA annual conference work?

Does the early start suit you.

Any other comments???

78

6/7/2013

40

Thank you for your participation

Proposed Forecast of Refiners Acquisition Cost (2012$/barrel) for use in Council’s

Seventh Power Plan

140 0

160.0

60.0

80.0

100.0

120.0

140.0 Actual

Low

Medium low

Medium

Medium High

80

-

20.0

40.0

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

High

6/7/2013

41

Proposed Forecast of Refiners Acquisition Cost (2012$/barrel) for use in Council’s Seventh

Power Plan160.0

60.0

80.0

100.0

120.0

140.0

Low

Medium

81

-

20.0

40.0

60.0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

High

Comparison of RAQ Cost 2012$/Barrel

200.0

250.0 Proposed Low

Proposed Medium

P d Hi h

100.0

150.0

Proposed High

Poll-Low

Poll Medium

Poll High

IHSGlobal-Low

IHSGlobal-Medium

82

-

50.0 IHSGlobal-High

AEO-Low

AEO-Medium

AEO-High

6/7/2013

42

Proposed Oil Price Forecast for Council’s Seventh Power Plan

Refiners Acquisition Cost $2012 dollars per Barrel Refiners Acquisition Cost $dollars per Barrel Low Medium High Low Medium High

2015 81 96 116 2015 85 101 122

2020 77 100 122 2020 88 114 139

2025 73 104 128 2025 91 128 159

2030 70 108 135 2030 94 145 182

83

2035 66 112 141 2035 98 165 209

Comparison of PRB Coal Price Forecasts 2012$/MMBTU

1 4

1.6

1.8

Proposed Low

0 4

0.6

0.8

1.0

1.2

1.4 p

Proposed MediumProposed High

AEO2013 LOW

AEO2013 Reference

84

-

0.2

0.4 AEO2013 High

SNL

6/7/2013

43

Historical and Proposed Forecast of PRB Coal Prices (2012$/MMBTU) for Use in Council’s

Seventh Power Plan1.20

1.40

0.40

0.60

0.80

1.00

85

-

0.20

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

Actual Low MED-low Medium Medium High High

2012 is the last year for actual prices

Comparison of 6th and proposed 7th Power Plan Forecast of Refiners Acquisition Cost (2012$/Barrel)

140.0

160.0

40.0

60.0

80.0

100.0

120.0

6th Plan Low6th Plan Medium6th Plan HighProposed 7th Plan LowProposed 7th Plan MediumProposed 7th Plan High

86

-

20.0

0.0

6/7/2013

44

Proposed PRB price Forecast 2012$/MMBTU

Year Low Medium HighYear Low Medium High

2015 0.77 0.79 0.81

2020 0.75 0.81 0.86

2025 0.73 0.83 0.91

2030 0.71 0.85 0.97

87

2035 0.70 0.88 1.03

Thank you for your participation

Documents

Long-term Natural Gas Price Forecast - nwcouncil.org