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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)
 

“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” ...

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

    • 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
    • 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
    • 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
    • Coa Coal in the Crosshairs t e C oss a s aaa bbb ccc ddd Source: Wood Mackenzie4
    • 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
    • Generation Growth – Past, Present & Future6
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • Shale Gas is Well Distributed Throughout the US and Near Major Population Centers16
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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