Tag Archives: natural gas

EIA STEO: Natural Gas – 2/8/17

In its January 2017 Short-Term Energy Outlook (STEO), the EIA expects the Henry Hub natural gas spot price to average $3.55 per million British thermal units (MMBtu) in 2017 and $3.73/MMBtu in 2018, both higher than the 2016 average of $2.51/MMBtu.

The confidence interval range for natural gas prices is a market-derived range that reflecting trading on futures, not supply and demand estimates.

The EIA expects natural gas consumption to rise based on a return to more typical winter temperatures, while use of natural gas for electric power generation is expected to decline because of higher fuel prices.

Natural gas-fired power generation is forecast to rise in 2018, but remain below the 2016 level. Current plans for additions show 11.2 GW in 2017 and 25.4 GW in 2018, equating to an overall increase of 8% from the total capacity existing at the end of 2016.

The expansion of natural gas-fired capacity follows five years of net reductions of total coal-fired capacity. Available coal-fired capacity fell by an estimated 47.2 GW between the end of 2011 and the end of 2016, equivalent to a 15% reduction.

The electricity industry has been retiring some coal-fired generators and converting others to run on natural gas in response to environmental regulations, as well as low cost of natural gas resulting from expanded production from shale formations. Many of the natural gas-fired power plants currently under construction are located near major natural gas shale plays or pipeline networks.

Rising natural gas prices could lead developers to postpone or cancel some planned projects, or reduce the capacity used in existing plants. Despite the additions to capacity in 2017, the STEO forecasted share of total U.S. generation supplied by natural gas falls from 34% in 2016 to 32% in 2017. By 2018, however, the scheduled expansion of overall capacity fueled by natural gas is expected to result in a slight increase in natural gas’s share of total U.S. electricity generation despite other factors.

The Kemper Project: Clean-Coal Gone Awry – 2/1/17

Southern Co.’s “clean-coal” plant in Kemper County, Mississippi has been hailed as a first-of-its-kind project; it could also be the last.

After running more than two years behind schedule and $4 billion over its original $2.88 billion budget, the Kemper project was already hard to call a success. That difficulty becomes nearly insurmountable when you add a number of cheaper, cleaner alternatives to coal and a climate change skeptic in the White House.

The Kemper project began around 2008 when many believed that natural gas would soon become scarce. Shortly after, hydraulic fracturing applied to shales in the United States unlocked so much natural gas that the U.S. soon became a net exporter of the fuel.

And with skyrocketing supplies came plummeting prices.

In a matter of years, natural gas became a much better bet than coal.

Emissions related to combusting coal (206 to 229 lbs CO2/MMBtu) are also higher than those associated with combusting natural gas (117 lbs CO2/MMBtu), according to the EIAA cleaner burn makes natural gas more palatable for environmentalists and helps insulate it from future regulation of emissions. Such qualities are a must for new power plants which have lifetimes measured in decades and must remain profitable through multiple presidential and Congressional administrations.

Kemper was supposed to show how coal could be “clean”, but utilities have to make money too and Kemper only showed how far away carbon capture technology is from matching up to other available options.

On the regulatory side of things, the Trump administration’s committment to clean-coal technology and reviving America’s coal industry seems like a lucky break for the Kemper project. However, promises to roll back energy regulations hold their own problems.

Trump’s antipathy toward the Clean Power Plan would make the financial justification for clean coal an even tougher sell, said Christine Tezak, a managing director at Washington-based ClearView Energy Partners.

“The economics are incredibly disadvantageous,” Tezak said.

Once the government is no longer pushing for lower emissions, the Kemper project loses one of the few justifications for existing, or at least appears to, making it harder to build support.

On top of its economic and regulatory problems, the Kemper facility remains in a tricky legal situation as well. Oil producer, Treetop Midstream Services LLC, is suing for $100 million because of a canceled CO2 supply contract and customers are alleging Southern failed to fully disclose facts related to the plant’s cost. An institutional investor filed suit against Southern on Jan. 23, accusing the company of giving false information about the project.

Southern recently told state regulators that the five-year operating and maintenance costs of the facility have nearly quadrupled to about $1 billion from the original estimate, according to a regulatory filing. When some of those costs are passed along to ratepayers, as they inevitably will be, the project will grow harder and harder to defend.

EIA Annual Energy Outlook for 2017: Summary and Thoughts – 1/31/17

The EIA has released its annual energy outlook for 2017 so here is the short version with some additional analysis.

For starters, the EIA sees no growth for nuclear power industry. Nuclear generation is expected to decline slowly from now through 2040 as units are retired and relatively little new nuclear capacity comes online.

In contrast, EIA’s assessment of the renewable sector shows strong growth. From 612 billion kwh in 2016, renewable generation is expected to climb to 1,212 billion kwh by 2040.

The third major finding in EIA’s analysis has coal generation moving little from its initial 1,232 billion kwh, reaching 1,400 billion kwh in the late 2020s before falling back to 1,390 billion kwh in 2040. Overall, coal’s share of the electric generation market would decline from 30.3% to an estimated 27.8% of annual generation.

Keep in mind that the EIA projections do not reflect the possibility of future regulations such as the now assumed defunct Clean Power Plan. Should another administration or even a number of state governments implement emission reduction targets then coal share would drop relative to other power sources. The federal government has never set a comprehensive national energy policy anyways whereas many states have their own policies planned or in place making this a real possibility.

The EIA previously released data on the LCOE for new generation resources projected for 2020 which helps to explain some of its conclusions in the 2017 Outlook.

(click image to enlarge)

For context:

Fracking and horizontal-drilling capabilities have vastly lowered the cost of natural gas as reflected in the table above.

Prices for solar power modules have fallen 70% in the past six years.

Wind power costs have dropped 58% in the past five years.

Battery prices, which are seen as complementary to intermittent power sources like wind and solar, have also fallen approximately 14% annually since 2007.

EIA: Natural Gas Fuels Cleaner Power Sector – 1/26/17

Full EIA articles on natural gas and its effect on the power sector: first, second

For the first time since the late 1970s, U.S. CO2 emissions from the transportation sector exceeded electric power sector CO2 emissions on a 12-month rolling total basis, measured from October 2015 through September 2016. Electric power sector emissions are now regularly below those of the transportation sector  despite making up a larger share of total U.S. energy consumption.

The reason for this is a significant decline in carbon intensity for the power sector as natural gas replaces coal as the preferred fuel of electricity generators. On average, emissions associated with combusting coal (~206 to 229 lbs CO2/MMBtu) are higher than those associated with combusting natural gas (~117 lbs CO2/MMBtu). Natural gas electric generators also tend to be more efficient than coal generators, because they require less fuel to generate the same output.

In the 12 months from October 2015 through September 2016, coal and gas accounted for 31% and 34% of electric power generation, respectively. However, their shares of electric power sector emissions were 61% and 31%, respectively, as coal is much more carbon-intensive. Overall power sector carbon intensity has also decreased as generation share of fuels such as wind and solar has grown.

Emissions from the transportation sector are primarily from fuels which have carbon intensities lower than coal but higher than natural gas. For example, gasoline emits an average of 157 lbs of CO2/MMBtu. In the months observed, motor gasoline represented 60% of the total emissions from the transportation sector, while 23% was from distillate fuel oil and 12% was from jet fuel.


Falling prices for natural gas have helped fuel the shift from coal to natural gas in the power sector.

Natural gas spot prices in 2016 averaged $2.49 per million British thermal units (MMBtu) at the national benchmark Henry Hub, the lowest annual average price since 1999. Warmer-than-normal temperatures for most of the year and changing natural gas demand were the main drivers of natural gas prices in 2016.

In the first quarter of the year, much warmer-than-normal winter temperatures and large amounts of natural gas in storage caused prices to decrease. Prices began to gradually increase in late spring, with increasing demand and decreasing production, before sharply increasing at the end of the year with the onset of cold temperatures in mid-December.

Because of warm weather, natural gas consumption in the residential and commercial sectors in 2016 declined 7% and 4%, respectively, from the previous year. As a result, natural gas storage inventories were at or near record levels throughout most of the year.

In November 2016, the United States became a net exporter of natural gas on a monthly basis for the first time since 1957, based on data from PointLogic.

U.S. pipeline exports to Mexico continued to grow throughout 2016, making up 87% of all U.S. natural gas exports and, in May 2016, the Sabine Pass terminal began commercial operations in the Gulf Coast to export liquefied natural gas.

Despite growing demand, low prices resulted in lower natural gas production in 2016. Based on preliminary data, the EIA estimates natural gas marketed production to face its first annual decline since 2005. The number of active natural gas drill rigs is down 19% from the year-ago count, however, production has not fallen as sharply as the number of active rigs, as producers have continued to make gains in drilling efficiency.

China: Fossil Fuels and Renewables – 12/13/16

China uses more energy than any other country. The scale of Chinese consumption of electricity and oil dwarfs any other nation’s besides the U.S. giving trends in China far reaching implications for global energy markets.

Oil

In oil markets, the expected slowdown of Chinese economic growth has contributed to oil prices to half their 2014 levels. Even now, China’s demand for imported oil is seen as major factor in if and how prices recover.

So far, oil output from China has slid this year as the country’s producers shut fields too expensive to operate at current prices. According to Bloomberg News, even China’s largest oil companies have struggled under low prices: PetroChina Co., the country’s biggest oil and gas producer, barely broke even in the the first half of 2016 and Cnooc Ltd., its biggest offshore explorer, posted a first half loss as low crude prices forced it to write down assets. Overall, China’s crude production from January to October fell 6.7% from a year ago, according to data from the National Bureau of Statistics.

Electricity

China currently uses about 47% of the world supply of coal, but health and environmental concerns have lead the Chinese government to consider supporting alternative fuels.

Seeking to boost the share of natural gas in its energy mix to 10% by 2020, the Chinese government has pushed favorable policies for the fuel including an adjustment of pipeline fees next year to stimulate use. China National Petroleum Corp., the country’s biggest oil producer, also plans to separate its pipeline and natural gas sales units, as reported by the state-owned China Daily.

In clean energy, China has encouraged a boom in wind turbine production, though it is now struggling to upgrade power grids needed to carry it to users. As a result of construction outpacing infrastructure, roughly one-fifth of wind power currently goes undistributed and the country’s energy authority in November was forced to slashed wind and solar targets through 2020 in response.

In its newly issued five-year plan for power, China’s government targets total installed solar capacity of 110 GW by 2020, down from earlier guidance by officials of 150. On wind, the government now aims for 210 GW of installed capacity, down from 250.

Meanwhile, a slowing economy is reducing the amount of electricity that people will ultimately need. The growth in electricity demand has already dropped from double-digits in recent years to less than 3% in the first half of 2016.

Natural Gas: Now and Later – 12/12/16

Natural Gas – The Near Future

OPEC’s promised cuts to its oil production threaten to sink natural gas prices and swell the existing glut.

Every barrel of oil extracted comes with natural gas as a byproduct so a revival in U.S. shale drilling could mean a veritable flood of gas. Any increased oil production in the U.S. could limit further gains in gas prices, as it would likely increase oil-associated gas production, which accounts for about 20% of domestic supply.

Prices being laid low yet again would devastate some gas bulls, but it also stands to boost the liquefied natural gas (LNG) market as LNG exporters could operate at an even deeper discount.

Natural Gas – The Far Future

Natural gas is projected to account for the largest increase in world primary energy consumption from 2012 to 2040 in the International Energy Outlook 2016 (IEO2016) Reference case by the EIA.

World LNG trade is expected to more than double from 2012 levels by 2040. Most of the increase in liquefaction capacity occurs in Australia and North America.

The United States is expected to increase its gas production by 11.3 Tcf from mainly from shale resources (global consumption was 120 trillion cubic feet (Tcf) in 2012; estimated  203 Tcf in 2040). Total gas production in China, the United States, and Russia accounts for nearly 44% of the overall increase in world production.

Horizontal drilling and hydraulic fracturing technologies have contributed to a near doubling of estimates for total U.S. technically recoverable natural gas since 2006. Shale gas accounts for more than half of U.S. natural gas production by 2040 in the IEO2016 Reference case.

Natural gas production in the OECD Americas is projected to grow by 49% from 2012 to 2040 with the United States accounting for more than 66% of total production growth. By 2040, shale gas and tight gas combine to account for 75% of total U.S. production in the Reference case.

On the consumption side, the power sector is favoring natural gas for new power plants because of its high fuel efficiency and clean burn relative to coal. The industrial and electric power sectors together account for 73% of the increase and about 74% of total gas consumption through 2040.

The strongest growth in gas consumption is projected for non-OECD Asia, like China and India, where economic growth leads to increased demand. Non-OECD countries’ share of total gas use grows from 52% in 2012 to 62% in 2040 in the reference case.

Oil Demand and Electric Cars – 12/7/16

“The oil demand growth is not coming from cars, it’s from trucks, aviation and the petrochemical industry and we don’t have major alternatives to oil products there,” IEA Executive Director, Fatih Birol, said at the Energy for Tomorrow conference. “I don’t buy the argument that electric cars alone will cause a peak in oil demand at least in short and medium term.”

The EIA reports that of the total U.S. petroleum product consumption in 2015, 47% was motor gasoline (includes ethanol), 20% was distillate fuel (heating oil and diesel fuel), and 8% was jet fuel so Birol’s view may be reasonable. Still, Birol’s statement brings up the question how long exactly is the short/medium-term when many oil companies are already preparing to focus on petrochemicals and natural gas as demand for oil from the transportation sector begins to decline.

Bloomberg New Energy Finance estimates that plug-in cars will displace 13 million b/d of oil a day globally by 2040 — compared to current U.S. consumption of 19.4 million b/d — which is not small by any means, and the IEA chief’s comments contrast with recent pessimistic forecasts for the oil industry.

For example, Fitch Ratings reported reported Oct. 18 that battery technologies used by electric cars could trigger a “death spiral” investments linked to fossil fuels. Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, said on a conference call on Tuesday that oil demand could peak in as little as five years as renewable energy and disruptive technologies gain traction.

The strong statements come primarily based on the downward trend in battery costs for electric cars and residential energy storage, which have plummeted since 2010 and are expected to continue falling.

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That large a decline makes electric cars competitive with conventional vehicles in a way they never have been before. Since the cost of the battery makes up a large portion of the electric car’s overall cost further cost reductions would bring electric car prices below even the new Tesla Model 3’s $35,000. If you include subsidies such as the $7500 federal tax credit for new electric cars and various state level incentives, then the number of electric cars could follow the exponential growth pattern indicated on the BNEF graph below

Should Congress lower efficiency standards or take away electric car subsidies, it will make gasoline cars a bit more competitive for a while, but it will also make them more costly to drive over the life of the vehicle. At worst, harmful U.S. policies would slow U.S. adoption, which was only about 25% of total expected adoption anyway, so shrink the blue bars of the graph based on how much of a slowdown you expect.

So electric cars will definitely have an impact on oil demand, but what about the other areas Birol mentioned?

Semi-trucks obviously have different requirements than cars; they need to travel much further in a day for one. Part of what holds back electric cars is concern about travel range and the time it takes to charge the battery. For cargo trucks — semi-trucks that criss-cross the country at the fastest pace they can manage — having to stop to recharge for any longer than the total time it takes to sleep and fill gas tanks would be a deal breaker. Tesla, a company largely unique in its dedication to all electric vehicles, is only offering a semi-truck model that uses natural gas to extend its driving range. Still, that natural gas range extension poses its own threat to oil demand… if using natural gas becomes more cost-effective.

A similar problem shows up for aviation. Though a plane running on batteries and solar power can travel the world, it still does so much more slowly and with many more stops than conventional aircraft.

Its wishful thinking to believe oil demand increasing solely on petrochemicals could make up for a significant loss of the around 75% of crude oil used to make fuel for transportation; however, so long the road blocks for making electric trucks and planes are in the way that may not be a problem for oil demand for at least a few decades.

Emissions Will Probably Still Fall – 12/6/16

The president-elect’s climate policy won’t be anything like the Obama administrations, but emissions could still drop to historic lows.

In a report published by the Breakthrough Institute, pointed out that real progress on reducing carbon in the atmosphere has been driven so far by specific domestic energy, industrial and innovation policies, “not emissions targets and timetables or international agreements intended to legally constrain national emissions.”

International and even national action on climate has rarely been the driver of emission declines. The Kyoto accords which committed advanced nations to reduce emissions between 1990 and 2010 did little to reduce dependency on. And even the Obama administration’s strictest bill on emissions, which was blocked in the Senate in 2009, proposed emissions limits that were higher than what emissions have turned out to be due to the recession and the power sector’s move from coal to natural gas.

Should promoting natural gas and energy security take precedence over bringing back coal jobs, the drop in carbon emissions could come sooner than expected. Burning natural gas produces functionally half the emissions of coal per unit energy produced.

If the Clean Power Plan is dropped and the U.S. drops its commitment to the Paris accord, the nation will still be on track to reduce emissions so long as the nation’s nuclear power plants stay online, tax incentives for wind and solar energy are left alone, and the shale energy revolution continues, according the report’s authors, Ms. Lovering and Mr. Nordhaus. Meeting those conditions, they write, “the U.S. might outperform the commitments that the Obama administration made in Paris.”

So the loss of the Clean Power Plan might not even make that much of a difference since the shift from coal to gas will likely happen regardless of what action the federal government takes. A study commissioned last December by the Environmental Defense Fund concluded that most states could comply “by relying exclusively on existing generation, investments already planned within each state and implementation of respective existing state policies.” In other words, state level initiatives were already on track to make the CPP irrelevant.

As far as support for sources of clean energy, production tax credits for renewables have already been extended by a Republican-controlled Congress until 2021 and the new administration is already indicating it favors nuclear energy.

Even the federal energy program known for its part in the Solyndra debacle is likely to survive. Given that it would take new legislation from Congress to kill the program, that the program’s loan portfolio generated about $1.65 billion in interest payments to date, and that the program is loans to clean-energy projects, as well as those including coal and natural gas, it will probably survive. Still, every new loan must be approved by the Energy Secretary so whoever takes over the Energy Department could effectively suffocate the program by not signing off on new applications.

Commercial self-interest will also keep interest in clean energy high as the costs of clean energy tumble. Solar power is closing in on gas and coal as an attractively cheap source of power, according to Bloomberg New Energy Finance.

And solar costs are expected to fall about 60% over the next eight years.

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The falling cost of solar power and the 80% drop in the cost of batteries for electric vehicles and home energy storage since 2008 are expected to curb demand for coal and oil in the coming years. Opportunities those cost declines offer will be tapped so long market forces are allowed to run their course.

On the matter of energy independence, according to the 2016 edition of the International Energy Agency’s World Energy Outlook, the United States could become energy independent as soon as 2040 on current policies thanks to rising shale oil and gas production, as well as increasing fuel efficiency. The Trump administration only has to maintain existing CAFE standards and U.S. dependence on oil from the Middle East would drop like a rock.

EIA Reports on U.S. Energy Consumption History – 11/16/16

Energy consumption in the United States has changed significantly over the past hundred years, according to data collected by the EIA.

In 1908, the country consumed just 15 quadrillion British thermal units (Btu), of which 75% was coal, compared to 1997 when it totaled 94 quadrillion Btu with coal’s share of total consumption reaching only 25% and with significantly higher shares for natural gas and nuclear power.

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The share of nonhydro renewable consumption is actually lower today (10%) than it was in 1908 (15%), largely because wood (technically a renewable biomass fuel) was displaced by coal. Today, solar and wind generation are increasing and make up most of the total nonhydro renewables.

As the primary transportation fuel, petroleum has remained a major component of energy consumption in the U.S. with no other fuel eating into its share as was the case with coal. The effects of affordable self-driving and/or electric vehicles remains to be seen, but will almost certainly become noticeable in the next decade.

The EIA data below shows in better detail the trending of U.S. energy consumption away from coal use and towards the use of natural gas over the last 15 years. The shift accelerated in the last few years as fracking opened up vast natural gas resources throughout the U.S. and environmental regulations favored gas for its less carbon intensive burn.

US total production

Chesapeake Energy – 9/30/16

Billionaire investor Carl Icahn has cut his stake in shale driller Chesapeake Energy Corp. by more than half to 4.6% citing “tax-planning reasons”. After the cut, Icahn is no longer the Oklahoma City-based explorer’s biggest holder though he has publicly stated he still has confidence in the company’s management team.

Icahn began amassing significant amounts of Chesapeake stock during the second quarter of 2012, when the shares traded between about $12.60 and $22.40. Chesapeake shares traded at roughly $6.96 Tuesday as a heavy debt load, weak energy prices, and controversy weighed on the second-largest U.S. natural gas producer.

Chesapeake has taken $16 billion in impairments on its gas and oil fields since the beginning of 2015, according to data compiled by Bloomberg. As the data from the EIA shows, the price of natural gas has fallen substantially since 2014 which has meant significant losses for the company on investments paid for with debt during the shale boom. Chesapeake has lost money for six consecutive quarters since the natural gas glut began to weigh on the industry.

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Chesapeake Energy Corp. is also currently facing U.S. Justice Department scrutiny. Chesapeake has been at the center of antitrust probes of gas-lease auctions and government investigations into how it pays royalties to landowners and accounts for its assets.

A recently received subpoena from the Justice Department sought “information on our accounting methodology for the acquisition and classification of oil and gas properties and related matters,” according to a regulatory filing by the company on Thursday.

Icahn Enterprises LP, the billionaire’s publicly traded holding company, has declined almost 30% in the past 12 months, hurt in part by energy investments including Chesapeake and natural gas exporter Cheniere Energy Inc.

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