Energy Realities Facing the
United States
Frank Clemente Ph.D.
Senior Professor of Social Science & Energy Policy
Penn State University
fac226@psu.edu
1
Access to Electricity and the Quality of Life
People in Societies with Greater Access to Electricity:
Survive Live Drink Eat Are Better
Childhood Longer Cleaner Water Better Educated
Under Five Life Expectancy Access to Under Nourished Literacy
Death Rate/1000 (years) Improved Sources (%) Rate (%)
2
(%)
Five Basic Premises
• Worldwide growth in energy demand is unprecedented
and will continue for decades
• Coal is the main energy source able to meet this
demand in terms of scale, time, reliability, cost and
versatility
• Coal conversion to electricity, liquid fuel and NG
equivalents can greatly alleviate supply problems
• Carbon capture and storage (CCS) is the
technological pathway to the full potential of coal
• The U.S. should rapidly develop CCS and make it
available, affordable and deployable to the global
community –this is the moral energy issue of our time
3
Two Different Worlds
● “There is no such thing as clean coal”
– National Resources Defense Council.
● When asked how China would ever meet
the growing demand for electricity, liquid
fuel and NG, Du Minghua, Director of the
Beijing Research Institute replied: “Coal
is the solution to all three”.
4
Out of Poverty: Coal Based Energy has
Propelled China Forward
“China is an example for the developing world” IEA, 2007
1,094
534
0
Note: Poverty measure follows World Bank Definition of $1 per day income 5
Source: IEA, 2007; EIA, 2008
India’s Rapidly Emerging Demand for
Electricity
917
Removal of poverty is the greater
1000 immediate imperative than global
warming” P. Ghosh, Secretary of
900 the Environment, India
800 668
Equals
Population
Millions of People in India
700
of
600 Equals the
412
Population Western
500 of Hemisphere
USA
400
Equals UK
300
Population Italy
of Germany
200 USA France
UK Japan
100 Italy
0
No Electricity Cook with Wood or Dung No Refrigeration
Millions of People in India Toil in An Bleak World
6
Coal is India’s only Energy Advantage
20.0%
18.0% 17.1% “Coal is expected to be the
mainstay of power
16.0% generation in the years to
% of Worlds Proved Reserves
come” India’s 11th Five
14.0% Year Plan (2007-2012)
12.0%
10.2%
10.0%
8.0%
6.0%
4.0%
2.0% 0.8%
0.5% 0.6%
0.0%
Population Oil NG Uranium Coal
(1.15 Billion)
India’s Share of the World’s Energy Reserves
7
Steady Drumbeat Of Electricity Demand
Across the World
40000
35000
30000
Billion Kilowatt Hours
25000
20000
15000
10000
5000
0
1980 1990 2005 2010 2020 2030
US ROW
Note: Over 2 billion people do not have
adequate access to electricity and 1.6 billion
have none at all 8
The World Is Turning to Coal
243
250
China built more coal
generation in 2007 than
Giga watts of New Coal
200
Britain built in its history
Based Capacity
151
150
100 89
62 65
53
50
0
China India Other Europe USA ROW
Asia
Source: Data Derived from Platt’s Proprietary Database, 2008 9
Modernization – The Rise of
the Automobile
400
In 2002, there were 812
350 million vehicles. By 2030
there will be 2.1 billion.
300
Total Vehicles (Millions)
250
200
150
100
50
0
2002 2030
U.S. China India Mexico Brazil
Source (Dargay and Gately 2006)
10
Everything, Everywhere, All the Time:
Increases needed by 2030 to meet demand
● Nuclear power 38%
● Oil production 43%
● Renewable energy 61%
● NG production 64%
● Coal production 74%
11
U.S. Oil and NG Production
10 25
9
8 20
Crude Oil Production (mm/d)
7
Crude Oil Production (mn/d)
NG Production (Tcf/y)
6 15
ddd
5
4 10
3
2 5
1
0 0
1972 1977 1982 1987 1992 1997 2002 2007
Oil Production NG 12
WHERE WILL THE
ELECTRICITY COME FROM IN
THE UNITED STATES?
13
Rising Tide of Electricity Demand in U.S.
5,500
Any plan for new
generation must account
Billion kWh of Electricity Generation
5,000 for the pressure of steadily
growing demand for
electricity
4,500
4,000
3,500
3,000
2,500
2,000
1990 1995 2000 2005 2010 2015 2020 2025 2030
Electric Generation
14
The Steady Erosion of Electric Reliability in the
United States, 2003-2016
48
50
Number of States Meeting at Least Minimum
45 By 2016, only one in four states will
be in a reliability region meeting
40 NERC’s minimum acceptable
standards
35
Relieability Levels
25
30
25
20
14
12
15
10
5
0
2003 2007 2011 2016
1016
Number of contiguous states in reliability regions where available
15
capacity margin meets minimal accepted level -- 15%
The Danger of Relying on NG
for Electricity
1. NG has 4 times the price and 20 times the
price volatility of coal
2. Using NG for electricity drives up the
price of both electricity and NG for
families and businesses.
3. North American NG production may have
peaked. If so, LNG imports from risky
sources (e.g. Russia, Iran) must balance
supply.
16
Some States Highly Dependent on NG for Power
70% 67%
% of Electricity Generation from NG
65%
60% 55%
53%
55% 50%
50% 45%
45% 42%
40%
35%
30%
25% 21%
20%
15% 8%
10%
5%
0%
PA U.S. OK FL TX MA CA NV
17
This Second “ Dash to Gas” is Real,
Risky and Expensive
62
61 GW of NG and Rising
Gigawatts of New Generation Planned
60
Since 2002 the price of
NG to produce electricity
has increased over 160%
or Under Construction
58
Dozens of
56 NG Plants
Have Been
Proposed in 53 GW of Coal
2007-2008 and Falling
54
Dozens of
52 Coal Plants
have been
Cancelled in
50 2007-2008
48
NG NG Coal
Coal
Gigawatts Planned or Under Construction by Fuel
Source, Platts, 2007
*Note: The Platts survey is the most recent available but does not include many recently proposed
18
NG Plants or many recently cancelled coal plants
Depletion Sets the Context:
Wanted: A New Texas Every Year (6 TCF)
22
20
18
TCF/Y - Dry Production
16
14
12 New
10 NG
8
Needed
6
4
2
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
EIA Projected Production Depletion at 32%
Sources: EIA; EOG; CIBC World Markets
19
The U.S. Bets On A Brave New World
Where new supply is
Where new NG supply came
projected to come from
from 1993 - 2006
2006-2019
“North America is setting itself to import
LNG in large quantities” (IEA, 2007)
•Source: EIA 20
More Global NG Consumption Means Competition:
Billions of New Kids on the Block
“The U.S. is the market of last resort for LNG… we
will get the gas Europe and Asia don’t need”
-Goldman Sachs, 2008.
Increases in NG Consumption 2005-2030
21
Source: EIA, International Energy Outlook, 2008
If Aubrey McClendon is Correct, The U. S.
Faces Significantly Higher Electric Rates
● “U.S. natural gas producers can increase supplies by 5 percent a
year…there is plenty of natural gas to burn to make electricity”
● “We think gas prices stay in the $9-$11 range…aggressive 35% to
40% first year declines are going to kick in” “An average of $10 is
a pretty good price”
● But NG prices have averaged only $6.22 over the past 5 years
and electric rates have still increased 27%.
● $10 NG will dramatically increase the cost of NG for electricity as
well as the cost of NG for families and business.
22
What $10 NG Would Mean to American
Consumers? - $70 Billion Dollars More in Costs
“An average of $10 is a pretty good price” $230 B
$250 Aubrey McClendon, CEO, Chesapeake
Energy, July, 2008
Total Cost of NG to U.S. Consumers
$200
$160 B
$132 B
$150
$88 B
$100
$50
$0
2001 2004 2007 200?
($3.96) ($5.89) ($6.97) ($10.00)
Total cost of NG to U.S. Consumers ($)
23
Show Me The Gas: Failed Optimism
has surrounded NG
● In 2000---U.S production would significantly
increase and lead to $2.58 NG in 2008
● In 2004---LNG imports would significantly
increase and lead to $ 3.67 NG in 2008
● In 2008---LNG and shale gas will increase
and lead to low cost NG
● But NG prices are still twice as high as
predicted just 4 years ago
24
Systematic Bias: Since 2000, EIA
has:
● Overestimated NG production in 23 of 28
forecasts
● Underestimated NG used for generation in
27 of 28 forecasts
● Underestimated price of NG to generators
in 27 of 28 forecasts
See our article in Public Utilities Fortnightly, July, 2007
25
If Boone Pickens is Correct and we are at
Peak Oil –The long run price of NG/LNG
$30.00 $28.19
“Natural gas prices are anchored in a long-term
relationship with crude oil prices” Stephen Brown, $25.50
Federal Reserve Bank of Dallas, 2007
$25.00
Price of Henry Hub NG ($/MCF)
$22.82
$20.13
$20.00 $17.45
$14.76
$15.00
$12.08
$9.70
$10.00
$5.00
$0.00
$70 $90 $110 $130 $150 $170 $190 $210
Price of W TI Oil in Dollars per Barrel
26
Source: "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007
Coal Is the Cornerstone Of
Electricity Generation In The U.S.
50% 50%
45%
40%
U.S. Electric Generation
35%
30%
25% 20%
19%
20%
15%
7%
10%
1% 2%
5%
0%
Oil Renewables Hydro Nuclear NG Coal
U.S. Electric Generation
27
The Scale Needed to Replace Coal
in the U.S.
● NUCLEAR: 250 more reactors
● NATURAL GAS: 17 more Trillion Cubic Feet
● HYDRO: 500 facilities size of Hoover Dam.
The reality of physics is that electricity cannot
be stored in large quantities – an inevitable
constraint on solar and wind generation.
28
Nuclear Power: Four bottlenecks will
significantly delay the construction of new
nuclear power plants in the United States
1. High Level Waste management, transportation and
storage
2. Entrenched Opposition at both national and local levels
3. Supply chain issues
(a) availability and cost of fuel,
(b) scientific expertise and skilled labor
(c) global competition for nuclear grade components
4. Societal inertia, litigation and bureaucratic creep –we
have not built a nuclear plant for decades.
29
Bottleneck: Competition with the rest of the
world for nuclear grade components, fuel and
expertise –we are behind the curve and falling
18 17
U.S. will be “miniscule” in the global competition for new
nuclear grade components (Power Engineering, 2007)
16
14
“We have nothing to offer other countries when it
comes to nuclear power” David Barry, Shaw Group
12
10 10
10 9
8 7
6
6
4
4
2 0
0
China Russia Japan Europe Korea India R.O.W. U.S.
New Reactors which will come online by 2015 30
Source: World Nuclear Association
“Will Weather Provide Reliable Electricity?”
Energy Policy journal, August,2008:
Findings from UK wind analysis
1. Wind output can be very low at the moment of
maximum demand.
2. Expect power swings of 70% within 12 hours
3. This volatility will cause backup NG plants to go on
and offline frequently, reducing efficiency and
reliability
4. These reductions will lead to increases in the cost of
electricity and offset environmental benefits
31
Wind Generation’s Performance During 2006
California Heat Wave
2,600
2,400 Rated Wind Capacity (2500 MW) -- CA Independent System Operator
2,200
2,000
Megawatt Production
1,800 When California’s Daily Peak
exceeded 45,000 MW, in no case
1,600
did wind provide more than 325 MW
1,400 despite rated capacity of 2500 MW.
1,200
1,000
800
600
400 250 325
200 89 90 110 113
0
7/13/2006 7/15/2006 7/17/2006 7/19/2006 7/21/2006 7/23/2006
Date of Heat Wave (2006)
* Adapted and estimated from Dixon, U.S. DOE (2006) 32
Distance Between Major Wind Farms
(In Miles)
California
0 25 40 45* 95 295 315 415* 425 436 505
Montezuma Hills San Diego
350
Horse Hollow (TX) Elk River (KS)
* Note: Distance between Altamont and San Gorgonio is 370 miles 33
Lest We Forget :
US Coal Reserves vs. Oil and NG Reserves
6000
5000
4000
Quadrillion BTU
3000
2000
1000
0
USA Russia Iran Qatar Saudi Venezuela
Coal Arabia
Natural Gas Crude Oil Coal
Source: EIA, 2008 34
Over 70 Billion Barrels of Stranded Oil
Recoverable Through CO2 – EOR *
Texas has over 30 billion barrels of oil
potentially recoverable with CO2 - EOR
Billion Barrels
* Excludes Alaska and Offshore 35