Hello My Old Friend – the Resurgence of Natural Gas G as the Power G          h P       Generation F l of Choice          ...
Indianapolis Power & Light Company    •   IPL supplies electricity        to about 470 000                  470,000       ...
AES – The Power of Being Global    •   The AES Corporation has         – A widely di               id l diversified       ...
Coa          Coal in the Crosshairs                  t e C oss a s    aaa    bbb    ccc    ddd                            ...
If Not Coal, What?                                          •   Coal will shrink given the                                ...
Generation Growth – Past, Present & Future6
The Shale Gas Revolution                                                        •   Shale production in 2000:             ...
Shale Gas – Right Time and Place    •   IHS CERA estimates that today, shale gas is 34% of Lower 48        production     ...
Basis Prices Have Been Impacted in Ways Not                     Contemplated Just 5 Years Ago                             ...
Forward Curve Prices                                               $7     Avg Nominal Pric at Henry Hub ($/MMBTU)         ...
What Has Happened?     •   Shale gas is one of three unconventional forms of natural gas         (along with tight sands a...
Horizontal Drilling and Hydraulic Fracturing                    (Part 1 of 2)                                             ...
Horizontal Drilling and Hydraulic Fracturing                   (Part 2 of 2)                                              ...
US Lower 48 Natural Gas Production 2011-35                             •   CERA forecasts growth                          ...
US Lower 48 Natural Gas Demand 2011-35                            •   481 GW of new capacity                              ...
Shale Gas is Well Distributed Throughout     the US and Near Major Population Centers16
Marcellus Shale                                                    •   One of the largest Shale gas plays in              ...
But Fracking is Dangerous and Awful!                                                                •   Chances are that i...
Methane and the Marcellus Shale Formation     •   Methane has long migrated into drinking water in the Marcellus Shale    ...
Marcellus Shale Regulating Agencies                                                          •    Drilling regulated by in...
Marcellus Shale Water Use (Susquehanna                   River B i Example)                   Ri    Basin E     l )     So...
Natural Gas and Public Policy     •   The natural-gas industry must take great drilling care     •   Responsible regulatio...
Hello My Old Friend – the Resurgence of Natural Gas      as the Power Generation Fuel of Choice                 Richard Be...
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“Hello My Old Friend” – The Resurgence of Natural Gas as the Power Generation Fuel of Choice - Richard Benedict, Indianapolis Power & Light Company (IPL)

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Richard Benedict, Indianapolis Power & Light Company (IPL) - Speaker at the marcus evans Generation Summit 2012, held in San Antonio, TX, delevered his presentation entitled “Hello My Old Friend” – The Resurgence of Natural Gas as the Power Generation Fuel of Choice

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“Hello My Old Friend” – The Resurgence of Natural Gas as the Power Generation Fuel of Choice - Richard Benedict, Indianapolis Power & Light Company (IPL)

  1. 1. Hello My Old Friend – the Resurgence of Natural Gas G as the Power G h P Generation F l of Choice i Fuel f Ch i Generation Summit February 8, 2012 Richard Benedict, Director Project Development
  2. 2. Indianapolis Power & Light Company • IPL supplies electricity to about 470 000 470,000 customers • Most of IPL’s energy comes from the combustion of coal • Natural gas is used for peaking • In 2010 I 2010, generated t d about 2% of its energy from wind and forecasts 7% in 2012 • An Investor Owned Utility whose parent is The IPL Building – lighted for Super Bowl XLVI the AES Corporation2
  3. 3. AES – The Power of Being Global • The AES Corporation has – A widely di id l diversified ifi d Natural Gas Coal 34% generation mix 37% – Generating capacity > 40,000 40 000 MW – In 28 countries on five continents – $16.6 billion annual Oil, Diesel 5% revenues Renewables – $40.5 Billion in assets 24% – A global force of more g than 29,000 people AES Generation Mix3
  4. 4. Coa Coal in the Crosshairs t e C oss a s aaa bbb ccc ddd Source: Wood Mackenzie4
  5. 5. If Not Coal, What? • Coal will shrink given the current EPA “train wreck” policy and little new coal is likely to be built • 481 GW of new capacity will be needed from 2010 to 2035 (including 64 GW of coal retirement) according to CERA • Long lead times for construction limit nuclear growth U.S. Electricity Production in 2009 • Hydro is expensive and limited (Source: EIA) in location • Most growth will come from renewables rene ables and nat ral gas natural5
  6. 6. Generation Growth – Past, Present & Future6
  7. 7. The Shale Gas Revolution • Shale production in 2000: – 1 Bcf per day p y – 2% of Lower 48 production • Shale production in 2010: – 15 Bcf per day – 27% of Lower 48 production • Prices have dropped to below Pi h d dt b l $4/MMBtu Source: (Table) “Glut Hits Natural-Gas Prices”, Wall Street Journal 1/12/12; (Data) “The Economic and Employment Contributions of Shale Gas in • Has created 72,000 jobs since , j the United States”, IHS CERA and Lukert, Ecology and Environment, Inc., “Overview of 2009 in Pennsylvania Shale Gas Development and Environmental according to that state’s Dept Issues”, 10/2011 of Labor & Industry7
  8. 8. Shale Gas – Right Time and Place • IHS CERA estimates that today, shale gas is 34% of Lower 48 production – “Since 2009, gas producers have succeeded in meeting the demands of two colder-than-normal winters and two hotter-than-than normal summers while building storage inventories to record levels” • If not for shale gas, the current 67 Bcf per day US demand would be met with large quantities of LNG imports – LNG = Liquefied Natural Gas – US consumers would be paying European or even Asian prices for natural gas ($10 - $12/MMBtu rather than $4/MMBtu) – In addition increased demand from North America for global addition, LNG would put additional upward pressure on prices Source: “The Economic and Employment Contributions of Shale Gas in the United States”, IHS CERA8
  9. 9. Basis Prices Have Been Impacted in Ways Not Contemplated Just 5 Years Ago • Prices at Henry Hub Hub, TETCO M3 the benchmark for Rockies $0.80 -$1.81 Chicago $0.62 the NG market, have -$0.24 $0.24 -$0.16 fallen substantially $0.12 TCO • Nearly all basis $0.28 points now trade $0.04 closer to Henry Hub • 2012 futures prices HSC are from September -$0.40 and actual January -$.05 Henry Hub spot prices even S TX BASIS $7.45 lower than these -$0.49 5-yr Avg (‘04-’08) $4.41 figures -$0.09 2012 Futures in 9/2011 Source: CenterPoint Energy Services9 9
  10. 10. Forward Curve Prices $7 Avg Nominal Pric at Henry Hub ($/MMBTU) $6 b $5 ces $4.55 Low Trade Volumes - Higher Uncertainty $4 A $3 2012 2013 2014 2015 2016 2017 2018 2019 202010
  11. 11. What Has Happened? • Shale gas is one of three unconventional forms of natural gas (along with tight sands and coal bed methane) • Unconventional gas is in a low permeability rock formation – In other words, the gas is trapped and doesn’t want to flow even , g pp if you drill a well into it – Geologists have known about these reserves for decades – Up until recently, there was no economical way to recover this recently unconventional natural gas • Joining together horizontal drilling and hydraulic fracturing (“fracking”) have allowed unconventional gas to be economically recovered11
  12. 12. Horizontal Drilling and Hydraulic Fracturing (Part 1 of 2) • Because shale gas is in low permeability rock, it is located at great depths – The gas in permeable rock has already migrated upwards • Horizontal drilling involves drilling down and then turning sideways – A vertical well sunk thousands of feet below the ground – The vertical pipe is then moved horizontally to access a larger y g Source: Task Force On Ensuring Stable Natural Gas portion of source rock Markets, Bipartisan Policy Center and American Clean Skies Foundation12
  13. 13. Horizontal Drilling and Hydraulic Fracturing (Part 2 of 2) • Hydraulic fracturing is the injection of fluid under high pressure to create new fractures in the source rock – The fluid is a mixture of water, sand and chemicals – The sand prevents the cracks from closing • Fracturing is done well below aquifers used for drinking water and steel casing and cement is Source: Task Force On Ensuring Stable Natural Gas used to protect the pipe passing Markets, Bipartisan Policy Center and American through the aquifer Clean Skies Foundation13
  14. 14. US Lower 48 Natural Gas Production 2011-35 • CERA forecasts growth from 65 B f per d i f Bcf day in 2010 to nearly 90 Bcf per day in 2035 • The growth will come in unconventional gas – especially shale gas14
  15. 15. US Lower 48 Natural Gas Demand 2011-35 • 481 GW of new capacity between 2010-35, b t 2010 35 including 64 GW of coal retirement • 60% Gas fired (290 GW) • 32% Wind/Renewable ( 5 GW) (154 G ) • 3% Nuclear (14 GW) • 5% Clean Coal (24 GW)15
  16. 16. Shale Gas is Well Distributed Throughout the US and Near Major Population Centers16
  17. 17. Marcellus Shale • One of the largest Shale gas plays in the United States • Located primarily in New York, Pennsylvania and West Virginia • 5,000 to 8,000 feet below ground and 25 to 1,800 feet thick • Estimates as high as 500 tcf of gas in place (trillion cubic feet) • Over 3,600 wells drilled as of August 3 600 2011 in Pennsyvania Source: (Map) National Energy Board of Canada , (Statistics) Lukert, Ecology and Environment, Inc., “Overview of Shale Gas Development and Environmental Issues”, 10/201117
  18. 18. But Fracking is Dangerous and Awful! • Chances are that if you only know one thi l k thing about fracking, it is that it “caused” this guy’s tap water to catch on fire • Often reproduced, this video is used by opponents of drilling in the Marcellus Shale Source: “Sierra Club Scrapbook” - http://sierraclub.typepad.com/scrapbook/2012/01/big-new- p yp p p g jersey-rally-demands-fracking-ban-in-delaware-river- • Needless to say the say, basin.html facts are a bit more involved than that18
  19. 19. Methane and the Marcellus Shale Formation • Methane has long migrated into drinking water in the Marcellus Shale region of Pennsylvania and New York g y – Methane is naturally occurring in the region – One study (critical of fracking) acknowledges that methane was detected in 85% of wells studied regardless of whether drilling occurred nearby or not • Fracking occurs thousands of feet below where individual or muncipal wells are located • Steel and cement casings surround the drill hole for unconventional gas as it penetrates aquifers • Leaky well casings are a legitimate area for state and local regulation – but the risks are not unique to fracking, which has provided no unusual evidence of contamination Source: “The Facts About Fracking”, Wall Street Journal 6/25/201119
  20. 20. Marcellus Shale Regulating Agencies • Drilling regulated by individual states – Pennsylvania Department of Environmental Protection (PADEP) – New York State Department of Environmental Conservation E i t lC ti (NYSDEC) • Water Usage – Susquehanna River Basin Commission (SRBC) – Delaware River Basin Commission ( (DRBC)) Source: (Picture) Wikipedia, Marcellus Shale Gas Drilling Tower 1 crop.jpg, (Statistics) Lukert, Ecology and Environment, Inc., Environment Inc “Overview of Shale Gas Development and Environmental Issues” 10/2011 Issues”,20
  21. 21. Marcellus Shale Water Use (Susquehanna River B i Example) Ri Basin E l ) Source: Data from Susquehanna River Basin Commission, quoted by Lukert, Ecology and Environment, Inc., “Overview of Shale Gas Development and Environmental Issues” 10/2011 Issues”,21
  22. 22. Natural Gas and Public Policy • The natural-gas industry must take great drilling care • Responsible regulation is also appropriate • Natural gas as a fuel for electric generation has many environmental benefits • The task for the rest of us in whether we are serious about domestic energy production – Without shale gas, what will power the incremental 290 GW of new electrical capacity needed by 2035? – All forms of energy have risks and environmental costs gy – The decision to utilize natural gas and hydraulic fracturing needs to be made based upon science and not emotion22
  23. 23. Hello My Old Friend – the Resurgence of Natural Gas as the Power Generation Fuel of Choice Richard Benedict (317) 261-5009 richard.benedict@aes.com

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