ENERGY &ENVIRONMENTA return to "normalcy" in US gas?April 15, 2010
BCG serves the full range of management issueseei - gas dynamics -15Apr10 - WAS-v1.ppt         1
BCG is global5,000 professionals - 69 offices in 38 countries                                           Minneapolis       ...
We have extensive experience throughout power and gas            Focus on Gas                      BCG energy projects in ...
US natural gas – a return to normalcy?At least for now, natural gas – rather than climate change – has turned out to be th...
In 2005, the US was about to be linked to a global gas market,  but instead it "discovered" unconventional                ...
High gas prices drove growth in unconventional gas supplyLNG flowed to even higher priced markets due to oil price indexed...
Shale gas is the dominant type of unconventional gas                      Fast growing production...                      ...
Many contributors to shale gas production...Forecasted production available for each company, in each shale gas basin in U...
...though four basins dominate    85% share today falling to 65% in 2025                                   Barnett Shale –...
Shale gas economics vary significantly between basins...Marcellus with best estimated economics               Break even p...
While outlook for unconventional gas has risen, US LNGforecasts have strongly declined                                    ...
Gas demand has dropped in all regions worldwide, with LNGabsorbing much of the impact                North America        ...
In Europe, Russia and domestic production compensated for    drop in demand                                     Origin of ...
In the US, LNG was hit hard by financial crisis and U gasdevelopment                        US LNG demand: 2008           ...
Fast decline of unconventional production fields allows a fastadjustment of market balance     Fast growth in US          ...
In this environment, will LNG may be competitive withunconventionals...                 Unconventional production         ...
... as LNG at marginal cost (since long) competes with fullcost of unconventional gas?                           Shale gas...
This may create a near term opening for LNG in the US      Significant room in the US -2011 situation                     ...
Longer term evolution of LNG price driven in part by playersconduct                                            "Return to ...
Producer with significant interest in oil-price indexing ...Link to OPEC-set oil prices has created tremendous value for p...
At the same time, U gas production efficiency is improvingExample: Chesapeake Fayetteville Shale operations               ...
What about the longer term prospects? When oversupply cleared, prices back to $7-9 inducing investments in unconventionals...
Several scenarios for 2012+ ....  Not all with same probability – need to be prepared for all ?                           ...
To many gas increasingly looks prudent again  Turbine supplier order books returning to pre-crisis levels                 ...
But as before, environmental policy could change everything                                                               ...
... and key uncertainties         How will Obamas energy policy (energy efficiency, power generation mix, RPS, CO2) impact...
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2010 04-us gas-boston-consulting-gabaldon

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2010 04-us gas-boston-consulting-gabaldon

  1. 1. ENERGY &ENVIRONMENTA return to "normalcy" in US gas?April 15, 2010
  2. 2. BCG serves the full range of management issueseei - gas dynamics -15Apr10 - WAS-v1.ppt 1
  3. 3. BCG is global5,000 professionals - 69 offices in 38 countries Minneapolis Atlanta Detroit Toronto Philadelphia New Jersey Cologne New York Düsseldorf Boston Oslo Copenhagen Amsterdam Stockholm London Helsinki Beijing Brussels Shanghai Moscow Paris Hamburg Seoul Frankfurt Kiev Tokyo Warsaw Stuttgart Nagoya Berlin Athens San Francisco Lisbon Prague Taipei Los Angeles Madrid Abu Dhabi Budapest Hong Kong Dallas Barcelona Dubai New Delhi Vienna Mumbai Bangkok Houston Zürich Rome Kuala Lumpur Mexico City Milan Munich Singapore Monterrey Jakarta Chicago Miami Washington São Paulo Santiago Sydney Buenos Aires Melbourne Aucklandeei - gas dynamics -15Apr10 - WAS-v1.ppt 2
  4. 4. We have extensive experience throughout power and gas Focus on Gas BCG energy projects in past five Focus on Power experience years experience Mass Market Retail B2C Coal: C&I Retail & CustomerRetail & Customer Sustainability: 33 (2%) ServiceService 220 (14%) Retail B2B Customer Service Retail Service Deregulation Dereg / Unbundling unbundling T&DT&D T&D Oil: 292 Distribution (18%) Supply & Trading Supply & Trading Transport Nuclear Storage Power: 723 (45%) Technology Gas-to-Pow erSourcing Strategy Sourcing Generation& trading Trading & Gas: 327 Operations Risk (21%) Other LNGUpstream Market Entry Upstream Power HR & Org Corporate ITCorporate General M&A eei - gas dynamics -15Apr10 - WAS-v1.ppt 3
  5. 5. US natural gas – a return to normalcy?At least for now, natural gas – rather than climate change – has turned out to be the real wildcard in the US electricity marketGas is one of the dominant drivers of electricity prices, and thus its price is critical forshaping future generation choices and profitability of existing unitsFollowing the merchant gas building boom (on the heels of sustained low gas prices),concerns grew about domestic gas shortages • Apparent linkage of natural gas to oil prices • Policy focused on enabling increased access to LNG... • ... despite safety and quality concerns i, and plus exposure to a foreign gas cartel and oil- indexed gas prices • CCGTs replaced by nuclear and (clean) coal as preferred source of future base loadWhat does the recovery of extensive and economically recoverable unconventionalresources mean for LNGIs natural gas once again the preferred choice for new generation?eei - gas dynamics -15Apr10 - WAS-v1.ppt 4
  6. 6. In 2005, the US was about to be linked to a global gas market, but instead it "discovered" unconventional Expectations What happened Today / Tomorrow (2003-2005) (2006 -2008) 2008-2012 High growth of US gas Moderate growth of gas Negative to moderate growth demand until 2020 demand of gas demand + + + Limited growth of U gas Plenty of U gas reserves, Still plenty of U reserves, yet production production costs decreasing production to stabilize/ decline to reflect lower investment and price signal + + + Plenty of available new LNG Tight supply situation in gas Oversupply of LNG due to exporting countries GLOBAL low demand + + + Attractive US net-back prices High oil prices, making Some decoupling in Europe, for LNG producers (moderate European market very reducing netback oil price) attractive LNG imports expected to reach LNG imports at ~ 10 bcm ????50bcm n 2008, 160 bcm in 2020 (EIA) eei - gas dynamics -15Apr10 - WAS-v1.ppt 5
  7. 7. High gas prices drove growth in unconventional gas supplyLNG flowed to even higher priced markets due to oil price indexed contractsHigh US prices drove significant development of ...while high oil prices kept global unconventional gas resources... LNG prices even higher Gas price Unconventional gas Gas price Oil price ($/mmBtu) (Bcf/day) ($/mmBtu) ($/bbl) 16.0 35 16.0 120 14.0 Unconventional gas 14.0 30 production 100 12.0 12.0 25 +15bcf/d 80 10.0 10.0 20 in 10 years 8.0 8.0 60 15 6.0 6.0 40 Gas price 10 4.0 4.0 5 20 2.0 2.0 0.0 0 0.0 0 97 98 99 00 01 02 03 04 05 06 07 08 09 97 98 99 00 01 02 03 04 05 06 07 08 09 Year Year Asia Weighted Avg. contract Asia Weighted Avg. spot European contract North American spot (Nymex) Oil priceSource: Waterborne LNG; EIA;UBS; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 6
  8. 8. Shale gas is the dominant type of unconventional gas Fast growing production... ...with most potential still to come Production [kboepd] 30,000 +11% 20,000 -1% -1% 10,000 -1% 0 2008 2025 Shale Gas Tight Gas Coalbed Methane Conventional Gas • The only real growth relay for gas in the US • Historical plays (SG Tier 1) most likely "gone"... • Expected to reprensent 1/3 of US/Ca. prod. by 2030 – Limited to no entry logic for IOCs – ~9 Tcf per year by 2025 (~2 Tcf today) • ... but entering Shale Gas still possible • Some emerging plays in Canada too – SG Tier 2 still offer upside potential – too early to asset full potential – SG Tier 3 has embedded "speculative" logicSource: Rystad UCube; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 7
  9. 9. Many contributors to shale gas production...Forecasted production available for each company, in each shale gas basin in US and Canada Additional Production [bcfd] 10 Shale gas Tier 3 Tier 3 potential? 25 (U.S. and Canada) 20 Divisions represent individual basins 9 Shale gas Tier 2 15 (U.S. and Canada) 10 5 8 Shale gas Tier 1 (U.S. only) 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 8 Shale gas Tier 1 Tier 1 refer to "initial" SG development wave in basin that are already significantly developed (e.g. Barnett Shales) 9 Shale gas Tier 2 Tier 2 refer to new SG development on-going e.g. Marcellus 10 Shale gas Tier 3 Tier 3 refer to the next likely wave of SG development, in places where only land grabbing has happendedSource: Rystad UCube; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 8
  10. 10. ...though four basins dominate 85% share today falling to 65% in 2025 Barnett Shale – Producing Fayetteville Shale – Producing Production [bcfd] Production [bcfd] 6 3 8 Shale gas Tier 1 8 Shale gas Tier 1 4 2 2 1 9% 46% 14% 17% 0 0 20 20 20 20 20 20 04 09 25 04 09 25 Haynesville Shale – Developing Marcellus Shale – Developing Production [bcfd] Production [bcfd] 6 9 Shale gas Tier 2 6 9 Shale gas Tier 2 4 4 22% 22% 2 2 7% 13% 0 0 20 20 20 2004 2009 2025 04 09 25 1. Shale gas production doesnt include NGL or any conventional gas9 Source: Rystad UCube; BCG analysis eei - gas dynamics -15Apr10 - WAS-v1.ppt 9
  11. 11. Shale gas economics vary significantly between basins...Marcellus with best estimated economics Break even point IRR NPV Breakeven economics ($MMBtu1 ) Pretax IRRs at 8–10/MMBtu NYMEX gas NPV/Mcfe for a sample well2 8 86% 47% 69% 64% 33% 31% Marcellus 2.9 6.3 6.1 Haynesville 6 5.1 5.1 4.7 Barnett Core 2.0 2.0 1.7 4 3.2 Fayettevile 1.3 1.2 2 Woodford Barnett Noncore 0 0 20 40 60 80 100 e e lle s ille re lle l le d d e s or lu or or or or l lu co vi vi vi sv l tC -C df ce tC (%) df tte ce es tte on ne oo oo on ar et ar yn et ye ye tN ya W rn M W tNM rn Ha Fa Fa et Ba H Ba et rn rnBa Ba1. For a 10% pretax IRR 2. Pretax valuesSource: Deutche Bankeei - gas dynamics -15Apr10 - WAS-v1.ppt 10
  12. 12. While outlook for unconventional gas has risen, US LNGforecasts have strongly declined EIA net LNG imports projections – Reference scenarios bcm/yr 200 2005 150 -90 bcm 100 2008 50 -30 bcm 2009 updated 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026Source: EIA annual energy outlook (2009 and 2008)eei - gas dynamics -15Apr10 - WAS-v1.ppt 12
  13. 13. Gas demand has dropped in all regions worldwide, with LNGabsorbing much of the impact North America North-West Europe Asiain bcm in bcm in bcm -5% -9% -10% 395 208 71 375 16 42 -8% 189 64 -10% 38 Canada 23 14 Other1 -3% 20 -10% 22 NL 17 S.Korea 25 -3% 24 FR 46 -13% 40 IT 353 -4% 337 USA 45 -11% -8% 40 51 GER 47 Japan 53 -10% 48 UK 1st half 2008 1st half 2009 1st half 2008 1st half 2009 1st half 2008 1st half 20091. BE, LX, CH, ATSource: Snam Rete Gas; GRT Gaz; GTS; BAFA/BMWi/BDEW; DECC; E-Control; BP Statistical Review of World Energy; Natural Resources Canada; IEA Natural Gas Monthly Survey, BCG Analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 13
  14. 14. In Europe, Russia and domestic production compensated for drop in demand Origin of gas Essential changes in bcm Reduction of domestic production by ~8 bcm Net storage 208 • NL -6%; UK -12%; DE -5% LNG 8 189 18 +4 North Africa 4 Significant reduction of imports from Russia 12 -1 17 by ~17 bcm Russia 43 -18 • Reduction of expensive supply contracts 25 • Effect of crisis in Ukraine ~2-3 bcm Norway 46 - 47 Norway slightly increased production Additional LNG imports of ~4 bcm Domestic • Via Zeebrugge and UK/Interconnector production 93 -8(UK, NL, GER, IT) 85 • LNG oversupply with low prices Net withdrawal from storage facilities of ~4 bcm 1st half 2008 1st half 2009 • Due to crisis in Ukraine and cold winter Source: Snam Rete Gas; GRT Gaz; GTS; BAFA/BMWi/BDEW; DECC; E-Control; BP Statistical Review of World Energy; BCG analysis eei - gas dynamics -15Apr10 - WAS-v1.ppt 14
  15. 15. In the US, LNG was hit hard by financial crisis and U gasdevelopment US LNG demand: 2008 Financial crisis Real growth of 5.5–5.9 (-1% Reduced economic growth has significantly hindered the conventional and +12% non- development of LNG demand conventional) versus previous • Power and gas consumption growth highly correlated with (bcma) forecast economic growth 40 • LNG imports take the first impact due to their flexibility and position in supply curve 33 Real growth -13% 30 Unconventional production 20 Unconventional production is direct competitor of LNG in US 10 • Covering gap derived from drop in imports from Canada and 10 decline in conventional production Real growth +0.5–0.7% versus During 2008, unconventional gas supply in the +3% pre-financial crisis forecast US rose +12% 0 • Full year impact of developments launched in high gas price 1 Pre- Local gas Net Demand Real environment financial production pipeline crisis imports forecast However, there may be a near term role for LNG in the US1. Range includes discrepancies between estimates for 2008 and other effects like variations in inventory and lossesSource: Cedigaz: IEA: BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 15
  16. 16. Fast decline of unconventional production fields allows a fastadjustment of market balance Fast growth in US ...followed by a sharp ...could lead to a fall in unconventional production decrease in drilling unconventional supply if in 2004-2008... activity in 2009 investments are discontinued (bcma) # gas rigs in US "Without continuing investments, 400 1,750 production rates will not be maintained due to the steep 1,500 decline rates (60% within the first 292 year) of shale gas wells." (Center 300 +8% -55% 259 1,250 for Strategic and International 231 Studies, mar-2009) 226 212 1,000 200 750 "Unconventional wells have steep decline rates, and any decrease 500 in drilling will quickly result in 100 dramatically lower gas production 250 -40% from these plays." (American Association of Petroleum 0 0 Geologists, sep-2009) 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2009 Marcellus Shale and Total gas rigs Haynesville Shale rig count Unconventional rigs1 even growing in 09 vs. 08 1. Includes rigs in Barnett, Fayetteville, Greater Green River, Haynesville, Marcellus, Piceance, Williston, and Woodford Source: EIA; Land Rig Newsletter; Baker&Hughes eei - gas dynamics -15Apr10 - WAS-v1.ppt 16
  17. 17. In this environment, will LNG may be competitive withunconventionals... Unconventional production LNG Constant investment in E&P required to keep Investments in regas terminals already current production rates committed • Unconventional gas fields decline fast • Current terminals hold > 100 bcma of • New drilling activity is required to keep capacity2 (vs. 10 bcma of LNG imports in production levels 2008) – These terminals concentrate ~$10bn of Additional investments in transportation are accumulated investment needed to allow the flow of additional • Terminals under construction hold c. 90 bcma unconventional production into the market of additional capacity • Rockies connection currently limited; Rockies Express facing challenges and with limited Connections of regas terminals to the flow (18 bcma) vs. production potential networks already done or committed • Marcellus shale holding limited access to New England, where the highest prices are LNG importers holding Use Or Pay contracts registered against these investments New investment decisions in unconventionals New flows of LNG in the US will consider will consider whether gas prices support whether gas prices support MARGINAL COST FULL COST of investment of investment11. And, of course, gas prices in other markets vs. US gas prices 2. At the end of 2008 3. Assumes new capacity expected to come online in 2009-2012Source: Cedigaz; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 17
  18. 18. ... as LNG at marginal cost (since long) competes with fullcost of unconventional gas? Shale gas full cost LNG marginal cost $/MMBtu $/MMBtu 8 7.1-9.3 8 0.8-1.9 Transportation 2.3-6.8 5.3-7.9 0.8 TX 6 0.8-1.9 6 4.3-6.9 0.8-1.9 1.0-2.7 Liq. 4 4 6.3-7.4 Lifting 1.6-3.3 0.3 4.5-6.0 3.5-5.0 2 2 1.0-2.7 0.5-3.3 E&P 0.7 0.3 0.1 0 0 0.3 0.3 Shale Gas Shale Gas Coal Bed •Own Liquef. •Tolling Liquef. •Tolling Liquef. -Barnett -US average Methane1 •Own Vessel •Own Vessel •Chartered Vessel •Own E&P •Own E&P •3rd party E&P1. Assumes reference values for WIlliams Fork/S.Piceance and Wasatch basinsSource: Cedigaz; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 18
  19. 19. This may create a near term opening for LNG in the US Significant room in the US -2011 situation US Regas Global LNG "Excess" LNG1 capacity3 U gas production2bcm bcm bcm bcm400 400 400 400 300300 New 300 300 300 LNG200 200 200 200Jap, Korea100 100 100 100 LNG import Production (EIA 2009) decrease -100% 0 0 0 0 2008 2011 2008 2011 2008 2011 2008 2011 Main uncertainties •China as possible alternative •Duration of window also dependent on strategic behaviors of U gas producers 1. U and L scenarios; 2. Low scenario assumed low rig count until 2011, high scenario until end 2010. 3. Average capacity (6600hrs) - 2011 figures accounts only for regas in operation or under construction as of Oct 2009 Source: EIA, Cedigas, BCG analysis eei - gas dynamics -15Apr10 - WAS-v1.ppt 19
  20. 20. Longer term evolution of LNG price driven in part by playersconduct "Return to "Goodbye "Aggressive producers the good old world" oil-indexation" go downstream" • LTC with ToP and oil- • Reduced LTC (with and • Low share of LTCs Market indexation remain without ToP) indexed to • Diverse supply channels structure hub prices for end-customers compete • Spot market volume • Increased spot market • High spot market volume Market increases, but remains volume • Very reliable price liquidity relatively low • Reliable price indication indication • High price stability • High price volatility • Medium price stability Price • Prices bound to oil-price • Contracts may provide • Volatility depends on stability more price flexibility player‘s specific price strategy • Small changes • Moderate changes • Significant changes in Market • Utilities only in competition • Wholesale share will shift downstream market shares with each other • Increasing competition • Broad competition with among utilities increasing pressureSource: BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 20
  21. 21. Producer with significant interest in oil-price indexing ...Link to OPEC-set oil prices has created tremendous value for producers Expected profits under current price conditions of Merit order delivery into North-west Europe SRMC in $/MMBtu Cost in €/MWh Profits/profit decline in € bn 17,4 8 20 Oil-linked import price (BAFA 20€/MWh) 13,3 6 Demand 15 12,2 9,8 2008 Profit Poten- 9,1 7,4 with tial 4 10 7,1 oil-link loss Current spot price LNG (9 – 10 €/MWh) Italy Algeria 2 5 8,8 4,2 Denmark Russia 7,6 Profit 2,2 2,6 5,1 5,9 at Netherlands spot- Norway UK 2,0 price 1,5 0 0 0,3 0,3 Germany 0 100 200 300 400 Russia LNG Algeria UK1 Norway Nether- Gas supply North-west Europe 2008 in bcm lands ... however pressure to have a competitive position in short- and long-term1. In a balanced market continental oil linked prices influence gas to gas pricing in UK -> UK has the same interest in keeping the oil-gas linkSource: Wood Mackenzie; EU Sector Inquiry; BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 21
  22. 22. At the same time, U gas production efficiency is improvingExample: Chesapeake Fayetteville Shale operations Days versus Depth Depth versus Dollars Measured depth (m) Measured depth (m) 0 0 2006 2007 2008 2006 2007 2008 1,000 1,000 2,000 2,000 3,000 3,000 4,000 4,000 5,000 5,000 ~60% less cost 6,000 6,000 7,000 7,000 ~40% less time 8,000 8,000 9,000 9,000 0 5 10 15 20 25 30 35 0 0.5 1.0 1.5 2.0 2.5 Days from spud Drilled and cased cost ($ mln) "Halliburton expects plenty of demand for its shale technologies which are "We believe that the most effective cost control will be achieved by the intended to help cash-strapped exploration and production companies ongoing implementation of new oil field service technologies, particularly increase efficiency and maximize the value " The Oil Daily, 20 Nov. 2008 for the upstream segment. " Uralsib, 8 Dec. 2008Source: Chesapeakeeei - gas dynamics -15Apr10 - WAS-v1.ppt 22
  23. 23. What about the longer term prospects? When oversupply cleared, prices back to $7-9 inducing investments in unconventionals again 2009 supply curve Similar demand levels in Short-run 6 2009 and 2012 marginal cost in $/mBTU 4 2 LNG Shale Pipeline regas. Onshore Conv. CBM Tight gas SW DW gas import1 cap. 0 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 bcm/yr Long-run 10 2012 possible supply curvemarginal cost/ Break-even 8 price2 in $/mBTU 6 LNG 4 regasification Shale capacity 2 Pipeline Tight gas SW DW gas Onshore Conv. import CBM 0 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 bcm/yr Break-even price of Note: Lower 48 states shale gas with main 1. Pipeline imports primarily from Canada and likely to decline as Can. prod declines and demand from oil sands increase influence on 2. Price yielding 10% IRR including all costs Source: EIA AEO 2009; Wood MacKenzie; Rystad; BCG analysis gas price in Atlantic eei - gas dynamics -15Apr10 - WAS-v1.ppt 23
  24. 24. Several scenarios for 2012+ .... Not all with same probability – need to be prepared for all ? Most probable Unlikely Back to normal, LNG pushed out Interspersed supply • Recovery of US demand Eur • End of LNG surplus Eur (carbon?) price bringing prices back in the price • New LNG costs going $6-8/MMBtu range down (liquefaction back to LNG • U gas production growing U gas LNG 200-300M$/Mtpa)U gas U gas back quickly after • Some disappointments on 2010/2011 U Gas (volume and cost) Why not? ??? Sustained spot LNG New US gas boom • Global oversupply Eur maintained after 2012- Eur price 2014 • Very high growth of US LNG priceU gas • European prices LNG demand (dash for gas) U gas depressed (decoupling) • Shale unable to • LNG entering into the US cope w/ demand below full costs • Abundant LNG eei - gas dynamics -15Apr10 - WAS-v1.ppt 24
  25. 25. To many gas increasingly looks prudent again Turbine supplier order books returning to pre-crisis levels Expected production volumes in units by supplier (2009-2013)1,200 1,122 1,109 Pratt & Whitney 1,062 29 28 Solar Turbines 992 301,000 Siemens Westinghouse 941 29 (SGT6-5000F) 28 338 332 284 Siemens Westinghouse (SGT6-6000G) 286 800 282 Turbomeca 12 12 12 Rolls-Royce 12 131 135 128 10 OPRA 600 126 55 122 51 53 Mitsui Engineering 48 45 45 45 36 36 36 Mitsubishi Heavy 52 40 3 31 4 4 32 3 31 Industries 40 32 5 4 2 400 27 29 MAN Group 21 6 3 153 149 143 3 146 Vericor 143 1 15 0 16 0 15 Kawasaki 12 1 200 12 1 Dresser-Rand 265 271 278 194 223 Hitachi GE 0 2009 2010 2011 2012 2013 High confidence Good confidence Source: Forecast International, Gas Turbine Forecast eei - gas dynamics -15Apr10 - WAS-v1.ppt 25
  26. 26. But as before, environmental policy could change everything Carbon legislation w/o RES Combination of RES and Federal RES alone would would increase gas demand CO2 would increase demand reduce gas demand by 8% up to 16% at high CO2 prices Gas demand (Bcf/d) Gas demand (Bcf/d) Gas demand (Bcf/d) 90 90 90 2020 2020 2020 80 +10 80 80 75 +4 74 -5 70 70 70 68 69 67 64 64 64 62 60 59 0 0 0 2008 BAU 20% RPS with 1/4 2008 $12/T $30/T $50/T 2008 $12/T $30/T $50/T EE BAU CO2 CO2 CO2 BAU CO2, CO2, CO2, 20% RPS 20% 20% RPS RPS1. Based on the equilibrium case, and power sector wide optimizationSource: EIA, BCG analysiseei - gas dynamics -15Apr10 - WAS-v1.ppt 26
  27. 27. ... and key uncertainties How will Obamas energy policy (energy efficiency, power generation mix, RPS, CO2) impact US natural gas demand? What is the future cost structure of unconventional plays? Will unconventionals experience further technological revolutions? What US markets could unconventional production be serving in the future, given transportation constraints (and, therefore, what prices will these projects be capturing)? • Which pipeline projects will succeed and how much will they cost? • Is there a possibility to monetize unconventional reserves through liquefaction projects (ie: Kitimat)? What is the real potential of unconventional production in the US? Are Canadian imports going to be available and competitive? • Development of NG production in Canada vs. Tar Sands and domestic demand • Competitiveness of new developments (ie: Horn River) vs. transportation costs to NA (ie: Transcanada) How attractive is the US market price expected to be vs. other accessible markets (ie: NW Europe, Far East)? What can US LNG operators that hold regas assets or Use or Pay contracts do to mitigate their sunk costs? • Should companies sign long term deals that cover partially / do not cover sunk costs? • Could new LNG plays emerge in the US, rendering additional profits for LNG operators (ie: role of storage, bi-directional regas-liquefaction investments, etc)?eei - gas dynamics -15Apr10 - WAS-v1.ppt 27
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