"Ben Franklin Technology Center"
115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ ALTERNATIVE ENERGY REPORT 12/23/09 Natural Gas as a More “Carbon Friendly” Energy Source Background Natural gas is an extremely important source of energy for reducing pollution and maintaining a clean and healthy environment. In addition to being a domestically abundant and secure source of energy, the use of natural gas also offers a number of environmental benefits over other sources of energy, particularly other fossil fuels. As many proponents have suggested, natural gas could bridge the gap from the current high greenhouse gas emitting fuels, to other alternative energy or cleaner energy technologies, used for electricity generation and possibly transportation. The rush to drill more natural gas wells comes in part because newly identified gas reserves offer the nation an opportunity to wean itself from oil. Emissions from the Combustion of Natural Gas Natural gas is the cleanest of all the fossil fuels. Composed primarily of methane, the main products of the combustion of natural gas are carbon dioxide and water vapor, the same compounds we exhale when we breathe. Coal and oil are composed of much more complex molecules, with a higher carbon ratio and higher nitrogen and sulfur contents. This means that when combusted, coal and oil release higher levels of harmful emissions, including a higher ratio of carbon emissions, nitrogen oxides (NOx), and sulfur dioxide (SO2). Coal and fuel oil also release ash particles into the environment, substances that do not burn but instead are carried into the atmosphere and contribute to pollution. The combustion of natural gas, on the other hand, releases very small amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate matter, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons. Fossil Fuel Emission Levels - Pounds per Billion Btu of Energy Input Pollutant Natural Gas Oil Coal Carbon Dioxide 117,000 164,000 208,000 Carbon Monoxide 40 33 208 Nitrogen Oxides 92 448 457 Sulfur Dioxide 1 1,122 2,591 Particulates 7 84 2,744 Mercury 0.000 0.007 0.016 Source: EIA - Natural Gas Issues and Trends 1998 One of the principle greenhouse gases is carbon dioxide. Although carbon dioxide does not trap heat as effectively as other greenhouse gases (making it a less potent greenhouse gas), the sheer volume of carbon dioxide emissions into the atmosphere is very high, particularly from the burning of fossil fuels. In fact, according to the EIA in its report 'Emissions of Greenhouse Gases in the United States 2000', 81.2 percent of greenhouse gas emissions in the United States in 2000 came from carbon dioxide directly attributable to the combustion of fossil fuels. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 1 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ Because carbon dioxide makes up such a high proportion of U.S. greenhouse gas emissions, reducing carbon dioxide emissions can play a huge role in combating the greenhouse effect and global warming. The combustion of natural gas emits almost 30 percent less carbon dioxide than oil, and just under 45 percent less carbon dioxide than coal. Issue One issue that has arisen with respect to natural gas and the greenhouse effect is the fact that methane, the principle component of natural gas, is itself a very potent greenhouse gas. In fact, methane has an ability to trap heat almost 21 times more effectively than carbon dioxide. According to the Energy Information Administration, although methane emissions account for only 1.1 percent of total U.S. greenhouse gas emissions, they account for 8.5 percent of the greenhouse gas emissions based on global warming potential. Sources of methane emissions in the U.S. include the waste management and operations industry, the agricultural industry, as well as leaks and emissions from the oil and gas industry itself. A major study performed by the Environmental Protection Agency (EPA) and the Gas Research Institute (GRI) in 1997 sought to discover whether the reduction in carbon dioxide emissions from increased natural gas use would be offset by a possible increased level of methane emissions. The study concluded that the reduction in emissions from increased natural gas use strongly outweighs the detrimental effects of increased methane emissions. Thus the increased use of natural gas in the place of other, dirtier fossil fuels can serve to lessen the emission of greenhouse gases in the United States. Pollution from the Transportation Sector - Natural Gas Vehicles The transportation sector (particularly cars, trucks, and buses) is one of the greatest contributors to air pollution in the United States. Emissions from vehicles contribute to smog, low visibility, and various greenhouse gas emissions. According to the Department of Energy (DOE), about half of all air pollution and more than 80 percent of air pollution in cities are produced by cars and trucks in the United States. Natural gas can be used in the transportation sector to cut down on these high levels of pollution from gasoline and diesel powered cars, trucks, and buses. In fact, according to the EPA, compared to traditional vehicles, vehicles operating on compressed natural gas have reductions in carbon monoxide emissions of 90 to 97 percent, and reductions in carbon dioxide emissions of 25 percent. Nitrogen oxide emissions can be reduced by 35 to 60 percent, and other non-methane hydrocarbon emissions could be reduced by as much as 50 to 75 percent. In addition, because of the relatively simple makeup of natural gas in comparison to traditional vehicle fuels, there are fewer toxic and carcinogenic emissions from natural gas vehicles, and virtually no particulate emissions. Thus the environmentally friendly attributes of natural gas may be used in the transportation sector to reduce air pollution. Natural gas is the cleanest of the fossil fuels, and thus its many applications can serve to decrease harmful pollution levels from all sectors, particularly when used together with or replacing other fossil fuels. Accounting Problem Burning wood is considered "carbon neutral" because, as trees grow, they pull carbon out of the atmosphere and when they die, decompose, or are burned they release that same amount of carbon. With this, there is no net gain of CO2 in the atmosphere and growing plants and trees will continue to cycle that CO2. Compare this to the burning of fossil fuels like petroleum and natural gas, which release old carbon that has been deep in the earth for millions of years, creating a carbon imbalance in the atmosphere which contributes to global warming. However, a biomass co-generation plant converts carbon sequestered over a tree’s 50- to 60-year growing cycle to greenhouse gases. While existing greenhouse gas tracking and trading systems account only for emissions from fossil fuels, new tracking systems, which are already in development, will soon need to include emissions of biogenic carbon. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 2 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ Conventional and Unconventional Natural Gas Conventional natural gas is gas that may exist in the earth, trapped in a reservoir. 'Unconventional’ natural gas does not exist in these conventional reservoirs - rather, this natural gas takes another form, or is present in a peculiar formation that makes its extraction quite different from conventional resources. Unconventional natural gas, despite existing in non-traditional forms, is usually included in estimations of the amount of natural gas available for use. Historically, conventional natural gas deposits have been the most practical, and easiest, deposits to mine. However, as technology and geological knowledge advances, unconventional natural gas deposits are beginning to make up an increasingly larger percent of the supply picture. What was unconventional yesterday, may through some technological advance, or ingenious new process, become conventional tomorrow. In the broadest sense, unconventional natural gas is gas that is more difficult, and less economically sound, to extract, usually because the technology to reach it has not been developed fully, or is too expensive. For example, according to the Natural Gas.org site, prior to 1978, natural gas that had been discovered buried deep underground in the Anadarko basin was virtually untouched. It simply wasn't economical, or possible, to extract this natural gas. It was unconventional natural gas. However, deregulation of the area (and particularly the passage of the Natural Gas Policy Act, which provided incentives towards searching and extracting unconventional natural gas), spurred investment into deep exploration and development drilling, making much of the deep gas in the basin conventionally extractable. Industry and Market Structure The structure of the natural gas industry has changed dramatically since the mid-1980's, and is much more open to competition and choice. Wellhead prices are no longer regulated; meaning the price of natural gas is dependent on supply and demand interactions. Interstate pipelines no longer take ownership of the natural gas commodity; instead they offer only the transportation component, which is still under federal regulation. LDCs (local distribution companies) continue to offer bundled products to their customers, although retail unbundling taking place in many states allows the use of their distribution network for the transportation component alone. End users may purchase natural gas directly from producers or LDCs. One of the primary differences in the current structure of the market is the existence of natural gas marketers. Marketers serve to facilitate the movement of natural gas from the producer to the end user. Essentially, marketers can serve as a middle-man between any two parties, and can offer either bundled or unbundled service to its customers. Thus, in the structure mentioned above, marketers may be present between any two parties to facilitate the sale or purchase of natural gas, and can also contract for transportation and storage. Marketers may own the natural gas being transferred, or may simply facilitate its transportation and storage. Essentially, a myriad of different ownership pathways exist for natural gas to proceed from producer to end user. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 3 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ Simplified Structure of Industry after Pipeline Unbundling The diagram shows a simplified representation of the structure of the natural gas industry after pipeline unbundling and wellhead price deregulation. It is important to note that the actual ownership pathway of the gas may be significantly more complicated, as the marketer or the local distribution company (LDC) are not the final users. Either of these two entities may sell directly to the end user, or to other marketers or LDCs. Source: NGSA Global Statistics According to a June 2009 BP report on natural gas statistics for 2008, global gas consumption grew by 2.5%, below the 10-year average. In North America, spot gas prices for the year remained well below oil prices and consumption grew by an above-average 1.3%. Elsewhere only the Middle East saw above-average growth, driven by strong domestic consumption among energy-exporting nations and a rapid expansion of intra-regional trade. In OECD Europe and the Asia-Pacific region, oil-indexed gas prices rose more rapidly and consumption growth was below average. Chinese consumption grew by 15.8%, and China accounted for the largest incremental growth in world gas consumption. Global gas production grew by 3.8%, above the 10-year average of 3%. Strong growth was driven by the US, which for the second consecutive year accounted for the largest increment to global production. In the US output rose by 7.5%, 10 times the 10-year average and the strongest volumetric growth on record. The development of unconventional resources and strong drilling activity (which began to decline later in the year as prices weakened) drove the US increase. Natural gas accounts for 24.1% of world energy use, the highest share on record. See attached report http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_r eview_2008/STAGING/local_assets/2009_downloads/statistical_review_of_world_energy_full_report_2009.pdf The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 4 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ See chart for comparison of fuel consumption in the U. S. Note that the legend is opposite that of the chart. So for example, U. S. oil consumption is shown at the bottom of the chart. Data source: http://www.bp.com/iframe.do?categoryId=9024179&contentId=7044895 Natural Gas Prices More pricing and other data BP site http://www.bp.com/sectiongenericarticle.do?categoryId=9023782&contentId=7044477 The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 5 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ Natural gas conversions According to Sourcewatch, some coal-fired power plants have been converted to burn natural gas, the environmental impacts of which are better understood than those of biomass. Natural gas combustion produces almost 45 percent fewer carbon dioxide emissions than coal, emits lower levels of nitrogen oxides and particulates, and produces virtually no sulfur dioxide and mercury emissions. The lower levels of these emissions mean that the use of natural gas does not contribute significantly to smog or acid rain formation. In addition, because natural gas boilers do not need the scrubbers required by coal-fired power plants to reduce SO2 emissions, natural gas plants create much less toxic sludge. However, natural gas is still a fossil fuel. Although its carbon content is lower than that of coal, it nonetheless releases harmful CO2 into the atmosphere when burned. Its extraction from shale, the most significant new source of natural gas, can have harmful impacts on water, land use, and wildlife, if the process is not managed properly. As with biofuels, many environmentalists do not see natural gas as a long-term solution for the nation's fuel needs. In July 2009, Robert F. Kennedy Jr. published a column acknowledging the "environmental caveats" that come with converting coal plants to natural gas. He and other environmental advocates, however, do support natural gas as a short-term solution to reduce the environmental burden of coal until renewable solar, wind, and geothermal technologies can be implemented to their full potential. Below is a list of existing, in progress, and proposed coal plant conversion projects. McDonough Steam Generating Plant In August, 2009, the Chattanooga Times Free Press reported that Georgia Power is moving ahead with plans to replace the McDonough Steam Generating Plant in Smyrna, Ga., with a natural gas-fired plant. Progress Energy plants in N.C. Progress Energy Corp. announced in August 2009 that it will shut down the three-unit 397-megawatt Lee Steam Plant near Goldsboro, N.C., and apply for regulatory approval to replace the coal generation with 950 megawatts of natural gas-fired generation. North Carolina State regulators approved the plan on October 1. Riverside and High Bridge Plants: Minneapolis/St. Paul, MN In September 2003, Xcel Energy announced plans to convert its Riverside and High Bridge coal plants to natural gas. The move came in response to an emissions reduction bill passed in 2001 by the Minnesota Legislature, allowing any utility company in the state to convert its coal plants to natural gas and then recover the costs of conversion through rate increases. The facilities were part of a $1 billion upgrade of Xcel power plants in Minnesota. The new 570 MW High Bridge Plant went online in May 2008 and the new 511 MW Riverside Plant in April 2009. Capitol Power Plant: Washington, DC On February 26, 2009, Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid directed the Architect of the Capitol, Stephen T. Ayers, to switch the Capitol Power Plant to run on natural gas. The letter came just four days before a planned protest at the plant, where several thousand demonstrators gathered to protest global warming. The announcement was viewed by many as a victory for grassroots activism, but the rally went forward to call attention to coal issues around the country. In April 2009, Ayers responded that he was shifting the plant's fuel source to natural gas. As part of the transition, he requested $10 million to redesign and convert the second burner to use natural gas, a process that could be complete as early as November 2010. Ayers noted that the plant would continue to use coal as a backup fuel during abnormally cold weather or equipment outages. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 6 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ Arapahoe Station and Cameo Station In August 2008, Colorado regulators approved Xcel Energy’s plan to shut down two coal plants: the Arapahoe Station (Denver) and the Cameo Station (east of Grand Junction). According to Western Resource Advocates, "The utility’s decision to shut down the plants has been praised as the nation’s first voluntary effort to cut coal power generation in an attempt to reduce greenhouse gas emissions. In its decision to support Xcel’s plan, the Colorado Public Utilities Commission (PUC) cited public health benefits and shared concerns about carbon emissions as major selling-points in the company’s groundbreaking proposal. The verdict marks a collective effort to move the state and its utilities toward the carbon reduction goals outlined in Governor Bill Ritter’s Climate Action Plan." Xcel plans to replace the combined 229 MW of coal power with 850 MW of wind power and a 200 MW utility-scale solar power plant with storage capacity by 2015. Another key component of Xcel’s proposal, to build a 480 MW natural gas plant at the Arapahoe station, has been postponed pending approval by the Colorado PUC. Recent Innovation (now in the popular press) According to a 11/3/09 WSJ article…. The biggest energy innovation of the decade is natural gas—more specifically what is called "unconventional" natural gas. Some call it a revolution. Yet the natural gas revolution has unfolded with no great fanfare, no grand opening ceremony, no ribbon cutting. It just crept up. In 1990, unconventional gas—from shales, coal-bed methane and so-called "tight" formations—was about 10% of total U.S. production. Today it is around 40%, and growing fast, with shale gas by far the biggest part. Prices had gone up, but increased drilling failed to bring forth additional supplies. But a few companies were trying to solve a perennial problem: how to liberate shale gas—the plentiful natural gas supplies locked away in the impermeable shale. The experimental lab was a sprawling area called the Barnett Shale in the environs of Fort Worth, Texas. The companies were experimenting with two technologies. One was horizontal drilling. Instead of merely drilling straight down into the resource, horizontal wells go sideways after a certain depth, opening up a much larger area of the resource-bearing formation. The other technology is known as hydraulic fracturing, or "fraccing." Here, the producer injects a mixture of water and sand at high pressure to create multiple fractures throughout the rock, liberating the trapped gas to flow into the well. The critical but little-recognized breakthrough was early in this decade—finding a way to meld together these two increasingly complex technologies to finally crack the shale rock, and thus crack the code for a major new resource. It was not a single eureka moment, but rather the result of incremental experimentation and technical skill. The success freed the gas to flow in greater volumes and at a much lower unit cost than previously thought possible. In the last few years, the revolution has spread into other shale plays, from Louisiana and Arkansas to Pennsylvania and New York State, and British Columbia as well. The supply impact has been dramatic. In the lower 48, states thought to be in decline as a natural gas source, production surged an astonishing 15% from the beginning of 2007 to mid-2008. This increase is more than most other countries produce in total. Equally dramatic is the effect on U.S. reserves. With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply—a number that is bound to go up as more and more shale gas is found. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 7 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ This transforms the debate over generating electricity. The U.S. electric power industry faces very big questions about fuel choice and what kind of new generating capacity to build. In the face of new climate regulations, the increased availability of gas will likely lead to more natural gas consumption in electric power because of gas's relatively lower CO2 emissions. Natural gas power plants can also be built more quickly than coal-fired plants. Some areas like Pennsylvania and New York, traditionally importers of the bulk of their energy from elsewhere, will instead become energy producers. It could also mean that more buses and truck fleets will be converted to natural gas. Energy-intensive manufacturing companies, which have been moving overseas in search of cheaper energy in order to remain globally competitive, may now stay home. So far only one serious obstacle to development of shale resources across the U.S. has appeared—water. The most visible concern is the fear in some quarters that hydrocarbons or chemicals used in fraccing might flow into aquifers that supply drinking water. However, in most instances, the gas-bearing and water-bearing layers are widely separated by thousands of vertical feet, as well as by rock, with the gas being much deeper. Therefore, the hydraulic fracturing of gas shales is unlikely to contaminate drinking water. The risks of contamination from surface handling of wastes, common to all industrial processes, requires continued care. While fraccing uses a good deal of water, it is actually less water-intensive than many other types of energy production. This new innovation will take time to establish its global credentials. The U.S. is really only beginning to grapple with the significance. It may be half a decade before the strength of the unconventional gas revolution outside North America can be properly assessed. But what has begun as the shale gale in the U.S. could end up being an increasingly powerful wind that blows through the world economy. See full article http://online.wsj.com/article_email/SB10001424052748703399204574507440795971268- lMyQjAxMDA5MDAwMjEwNDIyWj.html Water Quality Concerns Buried Secrets: Is Natural Gas Drilling Endangering U.S. Water Supplies? by Abrahm Lustgarten, ProPublica - November 19, 2008 In July, a hydrologist dropped a plastic sampling pipe 300 feet down a water well in rural Sublette County, Wyo., and pulled up a load of brown oily water with a foul smell. Tests showed it contained benzene, a chemical believed to cause aplastic anemia and leukemia, in a concentration 1,500 times the level safe for people. The results sent shockwaves through the energy industry and state and federal regulatory agencies. Sublette County is the home of one of the nation's largest natural gas fields, and many of its 6,000 wells have undergone a process pioneered by Halliburton called hydraulic fracturing , which shoots vast amounts of water, sand and chemicals several miles underground to break apart rock and release the gas. The process has been considered safe since a 2004 study by the Environmental Protection Agency found that it posed no risk to drinking water. After that study, Congress even exempted hydraulic fracturing from the Safe Drinking Water Act. Today fracturing is used in nine out of 10 natural gas wells in the United States. Over the last few years, however, a series of contamination incidents have raised questions about that EPA study and ignited a debate over whether the chemicals used in hydraulic fracturing may threaten the nation's increasingly precious drinking water supply. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 8 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ An investigation by ProPublica, which visited Sublette County and six other contamination sites, found that water contamination in drilling areas around the country is far more prevalent than the EPA asserts. Our investigation also found that the 2004 EPA study was not as conclusive as it claimed to be. A close review shows that the body of the study contains damaging information that wasn't mentioned in the conclusion. In fact, the study foreshadowed many of the problems now being reported across the country. The contamination in Sublette County is significant because it is the first to be documented by a federal agency, the U.S. Bureau of Land Management. But more than 1,000 other cases of contamination have been documented by courts and state and local governments in Colorado, New Mexico, Alabama, Ohio and Pennsylvania. It is difficult to pinpoint the exact cause of each contamination, or measure its spread across the environment accurately, because the precise nature and concentrations of the chemicals used by industry are considered trade secrets. Not even the EPA knows exactly what's in the drilling fluids. And that, EPA scientists say, makes it impossible to vouch for the safety of the drilling process or precisely track its effects. Of the 300-odd compounds that private researchers and the Bureau of Land Management suspect are being used, 65 are listed as hazardous by the federal government. Many of the rest are unstudied and unregulated, leaving a gaping hole in the nation's scientific understanding of how widespread drilling might affect water resources. "Halliburton's proprietary fluids are the result of years of extensive research, development testing," said Diana Gabriel, a company spokeswoman, in an e-mail response. "We have gone to great lengths to ensure that we are able to protect the fruits of the company's research…. We could lose our competitive advantage." "It is like Coke protecting its syrup formula for many of these service companies," said Scott Rotruck, vice president of corporate development at Chesapeake Energy, the nation’s largest gas driller, which has been asked by New York State regulators to disclose the chemicals it uses. Thanks in large part to hydraulic fracturing, natural gas drilling has vastly expanded across the United States. In 2007, there were 449,000 gas wells in 32 states, thirty percent more than in 2000. By 2012 the nation could be drilling 32,000 new wells a year, including some in the watershed that provides drinking water to New York City and Philadelphia, some five percent of the nation's population. See full article http://www.propublica.org/feature/buried-secrets-is-natural-gas-drilling-endangering-us-water- supplies-1113 Gas Supply According to a Dec 2009 report from First Enercast Financial, U.S. Natural Gas Inventories. On October 30, 2009, working natural gas in storage was 3,788 Bcf (U.S. Working Natural Gas in Storage Chart), 414 Bcf above the 5-year average (2004–2008), 379 Bcf above the level during the corresponding week last year, and 223 Bcf above the previous record of 3,565 Bcf reported for the end of October 2007. Assuming a winter storage withdrawal about 14 percent (240 Bcf) greater than the previous 5-year average (October 2004 – March 2009), end-of-winter (March 31, 2010) stocks will be about 1,739 Bcf. This would be the highest end-of-winter storage level since 1991, when inventories measured 1,912 Bcf. See full report http://www.firstenercastfinancial.com/e_commentary.php?cont=2854 The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 9 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ Future Gas Prices According to an Oct 2009 article from Bulk Transporter, natural gas is getting more attention as a commercial truck fuel. EIA projects the monthly Henry Hub natural gas spot price to average $2.32 per thousand cubic feet (Mcf) in October, the lowest monthly average spot price since September 2001. Natural gas inventories likely will set a new record high at the end of this year's injection season (October 31), reaching more than 3.8 trillion cubic feet (Tcf). The projected Henry Hub annual average spot price increases from $3.65 per Mcf in 2009 to $4.78 in 2010. However, upward price pressure next year is limited by the sensitivity of natural gas use in the electric power sector to higher natural gas prices and continued expansion of U.S. natural gas production from shale formations. See full article http://bulktransporter.com/fleet/technology/diesel-projected-price-1001/ See current pricing http://tonto.eia.doe.gov/dnav/ng/ng_pri_top.asp Forecast Gas Prices According to the EIA site, the Henry Hub Spot Price for the year 2035 is expected to be $8.88 (in 2008 dollars). See full report http://www.eia.doe.gov/oiaf/forecasting.html According to the James A. Baker III Institute for Public Policy at Rice University, Henry Hub averages for natural gas is expected to be $6.98 (2010-2020) and $7.79 (2021-2030). See full report North American Shale Gas, Russia and Europe: An Unexpected Intersection Impacts of a Cap-and-Trade Program on Industries’ Production Costs (EPA report) In the absence of any mitigating policy measures like those proposed in H.R. 2454 (H.R. 2454: American Clean Energy and Security Act of 2009 http://www.govtrack.us/congress/bill.xpd?bill=h111-2454), the primary determinants of a cap- and-trade program’s effect on an industry’s production costs are the emission allowance price, the emission-intensity of the industry’s production — taking into account both its direct emissions and its indirect emissions from its electricity use — and the industry’s ability to shift to less emission-intensive production methods. The higher the allowance price, the more emission-intensive the industry’s production, and the less able an industry is to shift to less emission-intensive production methods, the greater will be the cap-and trade program’s impact on the industry’s production costs. In addition to the above factors, through its broader effects on the economy, a cap-and trade program can have other indirect effects on industries’ production costs. In particular, a cap-and-trade program can affect the cost of various raw materials (e.g., steel) that an industry uses. Through its effect on the demand for various fuels, such as coal and natural gas, a cap-and trade program can also affect the underlying price of those fuels (i.e., the price excluding any allowance costs) beyond the effect directly arising from the emission allowance requirement. A primary concern of many in industry, particularly those that use natural gas as a feedstock, is a cap-and-trade program’s effect on the demand for and underlying price of natural gas. However, it is important to recognize that a cap-and-trade program will not necessarily increase the underlying price of natural gas. In fact, it could reduce the underlying price of natural gas. A cap-and-trade program will reduce demand for natural gas in some applications by making energy efficiency improvements and renewable energy more economically attractive. At the same time, demand for natural gas could increase in other applications where natural gas use becomes more attractive than using coal or oil. Reflecting these countervailing effects, over the years, economic modeling has reached varying conclusions about whether and to what extent a cap-and-trade program would increase or reduce the total demand for and price of natural gas. Most current modeling projects relatively small impacts on the underlying price of natural gas, with a majority of studies projecting a small decline. For example, in its core scenario analysis, EPA’s modeling of H.R. 2454 projects that the underlying price (without allowance value) of natural gas decreases 0.6 percent in 2015 and 1.5 percent in 2020 relative to business-as-usual (BAU) levels. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 10 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 email@example.com www.cnp.benfranklin.org _______________________________________________________________________________________________ See full article http://www.epa.gov/climatechange/economics/pdfs/InteragencyReport_Competitiveness&EmissionLeakage.pdf Other influences According to the James A. Baker III Institute for Public Policy at Rice University (a leading institution advancing effective, nonpartisan foreign and domestic policy), twenty years ago, nearly 75% of federal lands were available for lease to oil and gas exploration companies. In recent years, however, environmental and land-use considerations have prompted the U.S. to withhold significant acreage from oil and gas development, and the share of Federal lands available has fallen below 20%. Moreover, since U.S. demand for natural gas is projected to grow during the next two decades, U.S. natural gas imports will have to rise significantly. This, in turn, raises concerns about security of supply and appropriate national natural gas policy. As U.S. natural gas demand grows, questions also arise about potential structural changes that might occur in the marketplace and how they might influence the future pricing relationships with competing fuels. This, in turn, has implications for future investments and the cost of various policies enacted today. In particular, the outlook for natural gas markets in North America are complicated by factors such as (i) the possibility of extreme volatility in international oil price trends, which are likely to be highly influenced by geopolitical factors, (ii) uncertainty about future environmental regulations in the U.S. electricity sector, and (iii) natural gas developments in other key consuming and producing regions around the world. Each of these will have implications for the competitiveness of natural gas relative to other fuels as a choice in industrial applications, power generation, and residential and commercial uses. See full article http://www.bakerinstitute.org/programs/energy-forum/research/northam- gas/index.html/?searchterm=natural%20gas%20price Natural gas now is in the spotlight According to a Nov 2009 article from San Antonio’s web site, …With CPS Energy's nuclear expansion plans on shaky ground, San Antonio soon could be looking for other ways to meet future energy needs. Because of a $4 billion cost estimate increase, Mayor Julián Castro says he is committed to protecting the utility's investment thus far, but he's ready to walk away from the deal and begin looking at alternatives. For CPS Energy, which spent the summer touting the nuclear expansion as the most affordable choice, natural gas is the next best option. At dozens of public meetings across the city, CPS Energy officials had said nuclear energy would cost 8.5 cents per kilo-watt hour, with natural gas coming in at 10.5 cents. The utility estimates wind would cost 12.5 cents, solar 21 cents. Yet CPS Energy also points out natural gas' weaknesses: its cost has been historically volatile — from highs above $12 per unit to current lows of $3 to $4 — and there are long-held concerns that the supply is declining. Consensus is growing within the energy industry, however, that new technological advances may have turned conventional wisdom on its head. Natural gas is viewed as a good alternative to coal because it emits about half the carbon dioxide. However, nuclear power plants, once construction is complete, don't produce any carbon dioxide — one of the reasons CPS Energy is pursuing the expansion so vigorously. The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 11 of 12 115 Technology Center University Park PA 16802-7000 Tel: (814) 865-6878 Fax: (814) 865-0960 firstname.lastname@example.org www.cnp.benfranklin.org _______________________________________________________________________________________________ San Antonio is no stranger to natural gas. Thirty years ago, all of the city's electricity was produced by burning the fuel. That changed in 1974, when LoVaca Gathering Co.'s Oscar Wyatt violated his contracts with the city and boosted the price of natural gas, sending residents' electric bills skyrocketing almost overnight. The incident persuaded CPS Energy leaders to diversify from what had been the city's sole energy source. They began building coal-fired power plants and bought into the two nuclear reactors opened at the South Texas Project in the late 1980s. Natural gas now makes up a little less than half of the city's power capacity. If the price of nuclear increases much, or if the long-term price of natural gas decreases, gas soon became the better option, he said. And with bigger, better-capitalized companies now in the natural gas business and the supply potentially opening up, Williams said that may be exactly what's happening. See full article http://www.mysanantonio.com/livinggreensa/70126532.html Appendix Exxon report http://www.exxonmobil.com/Corporate/Files/news_pub_eo_2009.pdf Rig Counts http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm Other Pricing Estimates http://www.aidea.org/AEA/RenewableEnergyFund/Fuel_Price_Assumptions.pdf Storage http://www.naturalgas.org/naturalgas/storage.asp Shale Supplies See presentation "Energy Market Consequences of an Emerging U.S. Carbon Management Policy - Progress to Date" page 4 for US shale locations and page 8 for supply quantities. Author Mike Chmela (Project Director, Market Research) The Ben Franklin Technology Center is committed to affirmative action, equal opportunity and the diversity of its workforce. Page 12 of 12