Fiji C. George
                                                  Manager, Corporate Development
                       201...
Cautionary Statement
Regarding Forward-looking Statements

This presentation includes certain forward-looking statements a...
Agenda
  Introduction

  The View

  Implications for Natural Gas

  Corporate Strategies




                            ...
Overview of El Paso Corporation
                         Colorado               Wyoming
                      Interstate G...
Legislative Considerations



Interstate Pipelines | Exploration & Production
Climate Change Bills
                   9 ,0 00


                   8 ,0 00


                                           ...
Key Policy Considerations for Natural
Gas
   Section 811
       S. 1733…a good improvement
       Fugitive emissions shoul...
Regulatory Drivers
                                                  • Reporting
                                         ...
GHG Mandatory Reporting Rule
  Finalized on September 22, 2009
  Applies to facilities with emissions greater than 25,000
...
GHG Tailoring Rule:
“The Glorious Mess”?

   Proposed on September 30, 2009
   Establishes PSD and Title V thresholds on a...
Implications of GHG Tailoring Rule (1)
   PTE limits vs. FERC certificates
   Presumptive BACT?
       CH4 and CO2 BACT
  ...
Implications of GHG Tailoring Rule (2)
                                             GHG Tailoring Rule Analysis

         ...
Implications of GHG Tailoring Rule (3)
   Natural gas a clear winner! Not quite…
       Complexity
          Fugitive/vent...
Implications for Natural Gas




Interstate Pipelines | Exploration & Production
Natural Gas Sector Business Impacts:
Impact of Allowance Price on Fuel


                Natural Gas   Gasoline        Coa...
Carbon Allowance Forecasts




     Carbon allowance prices depend on assumptions on:
        Electric demand and demand g...
Coal -> Gas Switch? There is a “sweet
  spot” for natural gas…

    Carbon prices for fuel switching at $40/t coal        ...
And Past Experience Tells Us…
    1990 Estimates of Compliance cost with Acid Rain Cap and Trade
                         ...
H.R. 2454: EIA Capacity Additions
(thousand MWs)—2030 (cumulative)




 EIA Scenarios show bulk of generating capacity add...
H.R. 2454:
EIA Generation by Fuel type—2030




   Natural gas generation grows when nuclear/CCS are limited or more expen...
Natural Gas Prices
                                                            Natural Gas Price Curves
                  ...
Natural Gas Demand
   Natural gas demand drivers in a carbon constrained
   environment
      Cap size
      Energy demand...
And the future for natural gas?

   Realistic assumptions on nuclear, renewable and CCS
   will likely result in may incre...
Corporate Strategies




Interstate Pipelines | Exploration & Production
El Paso Corporate:
Greenhouse Gas Commitment

  “Assess, engage and act”
      Commitment statement http://elpaso.com/prof...
El Paso Corporate:
Greenhouse Gas Commitment

  Serves on Advisory Committee—The Climate Registry (TCR)
      El Paso Natu...
El Paso GHG Organizational Response

   Board and Executive Committee leadership
   Executive in charge
   Optimizing GHG ...
Ruby Pipeline’s Goal of
Approaching Carbon Neutrality
 http://www.rubypipeline.com/

 FERC in Docket No. CP09-54-000

 Our...
Conclusions
   CO2 regulations are here

      GHG Tailoring Rule has serious implications on
      natural gas infrastruc...
Fiji C. George
                                                  Manager, Corporate Development
                       201...
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EMA 2009 - 2012 & Beyond: Operating in a Carbon Constrained Environment - Perspectives of a Natural Gas Company

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Presentation reviews potential legislative and regulatory issues that could impact operations of a natural gas company. Also, provides organizational response to upcoming carbon legislation/regulation

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EMA 2009 - 2012 & Beyond: Operating in a Carbon Constrained Environment - Perspectives of a Natural Gas Company

  1. 1. Fiji C. George Manager, Corporate Development 2012 & Beyond: Operating in Carbon Constrained Environment—Perspectives of a Natural Gas Company Environmental Market Association Fall 2009 Conference October 22, 2009 Interstate Pipelines | Exploration & Production Houston, TX
  2. 2. Cautionary Statement Regarding Forward-looking Statements This presentation includes certain forward-looking statements and projections. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, our ability to implement and achieve our objectives in the 2008 plan, including earnings and cash flow targets; our ability to meet production volume targets in our E&P segment; uncertainties and potential consequences associated with the outcome of governmental investigations; outcome of litigation; our ability to comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline projects and our ability to successfully construct and operate such projects; the risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions by the credit rating agencies; the successful close of our financing transactions; our ability to successfully exit the energy trading business; our ability to close our announced asset sales on a timely basis; changes in commodity prices and basis differentials for oil, natural gas, and power and relevant basis spreads; inability to realize anticipated synergies and cost savings associated with restructurings and divestitures on a timely basis; general economic and weather conditions in geographic regions or markets served by the company and its affiliates, or where operations of the company and its affiliates are located; the uncertainties associated with governmental regulation; political and currency risks associated with international operations of the company and its affiliates; competition; and other factors described in the company’s (and its affiliates’) Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise. 2
  3. 3. Agenda Introduction The View Implications for Natural Gas Corporate Strategies 3
  4. 4. Overview of El Paso Corporation Colorado Wyoming Interstate Gas Interstate Tennessee Gas Pipeline Cheyenne Mojave Plains Pipeline Pipeline Southern Natural Gas El Paso Elba Island Natural Gas LNG Gulf LNG (50%) Florida Gas 2011 Transmission (50%) Premier Pipeline Franchise Top 10 independent E&P 10%+ EBIT growth 2008–2013 2.8 Tcfe proven reserves* 42,000 miles of interstate pipeline Top 10 independent domestic 17 Bcf/d throughput (28% of gas gas producer delivered to U.S. consumers) Nearly $8 billion committed project International developments backlog *As of 12/31/07 excluding reserves related to properties divested in 2008; also includes reserves from proportionate share of Four Star 4
  5. 5. Legislative Considerations Interstate Pipelines | Exploration & Production
  6. 6. Climate Change Bills 9 ,0 00 8 ,0 00 Non -C ap ped 7 ,0 00 Ca pp ed Sectors Re s/Co mm In dustrial 6 ,0 00 MMTonnes CO 2e 5 ,0 00 W a xma n-Ma rkey Ca p 4 ,0 00 Kerry-B oxer Ca p 3 ,0 00 Electric Po wer 2 ,0 00 Pe tro le um /L iq uid F ue l 1 ,0 00 0 2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 6
  7. 7. Key Policy Considerations for Natural Gas Section 811 S. 1733…a good improvement Fugitive emissions should not be regulated Equitable treatment for natural gas Section 181 Support funding through a 2% set aside from the cap LCPS vs. RES Offsets from natural gas fugitive emissions on a “positive list” Federal pre-emption State/regional cap and trade and performance standards CAA regulations – NSPS, PSD, Title V Pass through/cost recovery 7
  8. 8. Regulatory Drivers • Reporting • Tailoring Rule Interstate Pipelines | Exploration & Production
  9. 9. GHG Mandatory Reporting Rule Finalized on September 22, 2009 Applies to facilities with emissions greater than 25,000 tonnes per year of GHG emissions Compliance to begin on January 1, 2010 First report due on March 31, 2011 CO2 emissions from combustion only EPA will finalize rules for fugitive emissions in 2010 and will require compliance from 2011 Will require monitoring and recording of fugitive emissions 9
  10. 10. GHG Tailoring Rule: “The Glorious Mess”? Proposed on September 30, 2009 Establishes PSD and Title V thresholds on a “temporary level” basis for 6 years PSD permit is required for “construction” or “modification” Title V permit is required for “operations” 25,000 tpy of CO2e for new or “minor” facilities 10,000 – 25,000 tpy of CO2e “significance” levels for existing major facilities Over 5000 memos, guidance documents and court decisions govern the minutia of PSD & Title V permits 10
  11. 11. Implications of GHG Tailoring Rule (1) PTE limits vs. FERC certificates Presumptive BACT? CH4 and CO2 BACT Treatment of fugitive methane Fugitive source vs. fugitive emission point? Definition of a facility for E&P sources? Title V fees? Permit application status – if stay is NOT granted Pending air permit applications (major or minor NSR)? New permit applications? 11
  12. 12. Implications of GHG Tailoring Rule (2) GHG Tailoring Rule Analysis 8000 7000 6000 Co m p resso r H P 5000 Facility HP @25k - MST 4000 Facility HP @10k - 3000 Significance 2000 1000 0 6500 7500 8000 8500 9000 9500 10000 11000 Heat Rate Major Source Thresholds at ~ 5500 hp Significance levels at ~ 2000 hp 12
  13. 13. Implications of GHG Tailoring Rule (3) Natural gas a clear winner! Not quite… Complexity Fugitive/vented vs. “simple” combustion Fugitive emissions exists even when the unit is NOT running! Multiple emission points vs. few stacks Even new NGCC installation will now have a BACT review Time consuming and costly for natural gas sector Permitting process can take years (especially in north-east) Delays to FERC permits No flexibility in reduction alternatives BACT alternatives are relatively more cost effective $$ add up due to BACT on multiple sources Limits can conflict with FERC certificates 13
  14. 14. Implications for Natural Gas Interstate Pipelines | Exploration & Production
  15. 15. Natural Gas Sector Business Impacts: Impact of Allowance Price on Fuel Natural Gas Gasoline Coal $/Tonne CO2 ($/MMBtu) ($/gallon) ($/MMBtu) $10 $0.53 $0.10 $0.95 $20 $1.06 $0.21 $1.90 $30 $1.60 $0.31 $2.85 $40 $2.13 $0.41 $3.80 $50 $2.66 $0.51 $4.75 15
  16. 16. Carbon Allowance Forecasts Carbon allowance prices depend on assumptions on: Electric demand and demand growth Availability of low carbon intensive technologies Availability of offsets and other cost containment features 16
  17. 17. Coal -> Gas Switch? There is a “sweet spot” for natural gas… Carbon prices for fuel switching at $40/t coal Carbon prices for fuel switching at $60/t coal Source: BoA – Merrill Lynch Research, April 29, 2009 Source: ICF 17
  18. 18. And Past Experience Tells Us… 1990 Estimates of Compliance cost with Acid Rain Cap and Trade (Source: CRS, September 2009) (Billions, 2005$) 2000 2010 EPA-ICF $2.7–$3.6 $3.4–$8.0 NCAC-Pechan $4.4–$4.6 No estimate (annual average for 2000–2009) EEI-TBS $7.1–$8.7 $7.9–$11.2 Estimated Actual Costs $1.9 $2.2 2000–2007: Ellerman, et al. (annual average 2010: EPA for 2000–2007) “There is no reason to believe that cost estimates for greenhouse gas reductions will be any more accurate than the 1990 SO2 estimates; indeed, they are likely to be less reliable. This is not to say that they will be too high; they may be too low.” — CRS, September 2009 18
  19. 19. H.R. 2454: EIA Capacity Additions (thousand MWs)—2030 (cumulative) EIA Scenarios show bulk of generating capacity added coming from zero/low carbon sources Advanced Coal w CCS Nuclear Renewables Only in the case where nuclear technology/CCS is limited with no international offsets does NGCC/CT show significant contribution 19
  20. 20. H.R. 2454: EIA Generation by Fuel type—2030 Natural gas generation grows when nuclear/CCS are limited or more expensive Limitation on international offsets results in greater nuclear and renewable generation in lieu of natural gas 20
  21. 21. Natural Gas Prices Natural Gas Price Curves 25.00  Delivered Price (2007$ per MMBtu) 20.00  15.00  10.00  5.00  ‐ 2010 2015 2020 2025 2030 2035 2040 2045 2050 EIA Base Case EPA Base Case EIA No Int'l/Limited Nuclear EPA Limited Nuclear NG prices increase more steeply with increased gas demand Again, this occurs with stricter limits on low carbon technologies 21
  22. 22. Natural Gas Demand Natural gas demand drivers in a carbon constrained environment Cap size Energy demand Low/zero carbon technologies Price of natural gas Price collars on allowance prices Offsets Models depict natural gas demand and prices going down in most cases Governmental models have an optimistic view of low carbon technologies 96–135 GW of nuclear additions!! OR Renewable generation increasing by ~50%-3x Low carbon technologies have greater impact in reducing natural gas demand than offsets 22
  23. 23. And the future for natural gas? Realistic assumptions on nuclear, renewable and CCS will likely result in may increase gas demand A level playing field? ACES does not provide any incentive for natural gas, other than a theoretical carbon price signal Environmental targets and cost containment can be managed cost effectively with increased natural gas use Section 181 LCPS Existing cost containment features 23
  24. 24. Corporate Strategies Interstate Pipelines | Exploration & Production
  25. 25. El Paso Corporate: Greenhouse Gas Commitment “Assess, engage and act” Commitment statement http://elpaso.com/profile/mainneighbor.shtm Carbon Disclosure Project (CDP) 5–7 http://www.cdproject.net/ Issued first CSR in June 2008 http://elpaso.com/CSR/index.html California Climate Action Registry (CCAR) First company in CCAR history to certify without significant errors First company to achieve Climate Action Leader™ for 2007 First natural gas company to join CCAR First natural gas company to certify all GHG emissions from operations in the entire US 25
  26. 26. El Paso Corporate: Greenhouse Gas Commitment Serves on Advisory Committee—The Climate Registry (TCR) El Paso Natural Gas and Colorado Interstate Gas are TCR “Founding Reporters” Coalition for Emission Reduction Projects (CERP) Signatory to the Tropical Forest-Climate Unity Agreement 2008 Southern Gas Association (SGA) Environmental Excellence Award for leadership on GHG matters Committed to developing the $3 billion proposed Ruby Pipeline as a carbon-neutral project 26
  27. 27. El Paso GHG Organizational Response Board and Executive Committee leadership Executive in charge Optimizing GHG tasks between corporate and business units GHG teams at business units Climate risk management Shadow pricing Disclosures 27
  28. 28. Ruby Pipeline’s Goal of Approaching Carbon Neutrality http://www.rubypipeline.com/ FERC in Docket No. CP09-54-000 Our goal to achieve a carbon-neutral project Mitigate construction and operational Scope I emissions relative to a “business as usual” design “Portfolio” approach Electric compression via RECs Best (methane) management practices Internal pipe coating Allowances, VERs and re-forestation 28
  29. 29. Conclusions CO2 regulations are here GHG Tailoring Rule has serious implications on natural gas infrastructure projects Complex factors will dictate the role of natural gas in a carbon constrained environment Natural gas should be a “foundation fuel” under reasonable forecasts and a level playing field Assess and incorporate carbon risks Need to initiate NOW Certifiable grade inventory took three years 29
  30. 30. Fiji C. George Manager, Corporate Development 2012 & Beyond: Operating in Carbon Constrained Environment—Perspectives of a Natural Gas Company Environmental Market Association Fall 2009 Conference October 22, 2009 Interstate Pipelines | Exploration & Production Houston, TX

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