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To view a full copy of this report, please visit www.web.mit.edu/mitei/research/studies/ natural-gas-2011.shtml. Advisory Committee Members. Thomas F. (Mack) McLarty, Chair – President and CEO, McLarty Associates Denise Bode – CEO, American Wind Energy Association

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MIT Future of Natural Gas Study

To view a full copy of this report, please visit

www.web.mit.edu/mitei/research/studies/

natural-gas-2011.shtml


Advisory committee members

MIT Future of Natural Gas Study

Advisory Committee Members

  • Thomas F. (Mack) McLarty, Chair – President and CEO, McLarty Associates

  • Denise Bode – CEO, American Wind Energy Association

  • Ralph Cavanagh – Senior Attorney and Co- Director for Energy Program, Natural Resources Defense Council

  • Sunil Deshmukh – Founding Member, Sierra Club India Advisory Council

  • Joseph Dominguez – Senior Vice President, Exelon Corporation

  • Ron Edelstein - Gas Technology Institute

  • R. Neil Elliot – Director, Regulatory and Government Relations, GTI

  • John Hess – Chairman and CEO, Hess Corporation

  • Jim Jensen – President, Jensen Associates

  • Senator (ret.) J. Bennett Johnston - Chairman, Johnston Associates

  • Vello A. Kuuskraa –President, Advanced Resources International, Inc.

  • Mike Ming – Oklahoma Secretary of Energy

  • Theodore Roosevelt IV –Managing Director & Chairman, Barclays Capital Clean Tech Initiative

  • Octavio Simoes – Vice President of Commercial Development, Sempra Energy

  • Gregory Staple –CEO, American Clean Skies Foundation

  • Peter Tertzakian – Chief Energy Economist and Managing Director, ARC Financial Corporation

  • David Victor – Directory, Laboratory on International Law and Regulation, University of California – San Diego

  • Armando Zamora – Director, ANH- Agencia Nacional de Hidrocarburos


Study sponsors

MIT Future of Natural Gas Study

Study sponsors

  • American Clean Skies Foundation

  • MITEI/donors

  • Hess Corporation

  • Agencia Nacional de Hidrocarburos (Colombia)

  • Gas Technology Institute

  • Exelon

  • Energy Futures Coalition


MIT Future of Natural Gas Study

Remaining Recoverable Natural Gas Resources(Excludes unconventional gas outside North America)

Tcf of Gas



MIT Future of Natural Gas Study

Global Gas Supply Cost Curve(Excludes unconventional gas outside North America)

Breakeven Gas Price*

$/MMBtu

Tcf of Gas

* Cost curves based on 2007 cost bases. North America cost represent wellhead breakeven costs. All curves for regions outside North America represent breakeven costs at export point. Cost curves calculated using 10% real discount rate and ICF Supply Models

** Assumes two 4MMT LNG trains with ~6,000 mile one-way delivery run, Jensen and Associates


MIT Future of Natural Gas Study

U.S. Gas Supply Cost Curve

Breakdown of Mean U.S. Supply Curve by Gas Type

Breakeven Gas Price*

$/MMBtu

Breakeven Gas Price*

$/MMBtu

Tcf of Gas

Tcf of Gas

* Cost curves calculated using 2007 cost bases. U.S. costs represent wellhead breakeven costs. Cost curves calculated assuming 10% real discount rate and ICF Supply Models


MIT Future of Natural Gas Study

Variation in Shale Well Performance and Per-Well Economics

IP Rate Probability

(Barnett 2009 Well Vintage)

Impact of IP Rate Variability on Breakeven Price (BEP)*

(2009 Well Vintages)

P20

P50

P80

IP Mcf/d

IP Mcf/d

IP Mcf/d

IP Mcf/d

IP Mcf/d

Barnett

860

5,500

1,610

3,920

2,340

7,730

12,630

2,600

2,000

1,960

790

1,140

3,500

3,090

2,700

BEP $/Mcf

BEP $/Mcf

BEP $/Mcf

BEP $/Mcf

BEP $/Mcf

$6.34

$4.27

$6.53

$11.46

$4.12

$3.85

$5.53

$13.42

$3.49

$5.12

$17.04

$4.02

$6.31

$2.88

$8.87

Fayetteville

Haynesville

Marcellus**

IP Rate: Mcf/day

(30-day avg)

Woodford

* Breakeven price calculations carried out using 10% real discount rate

** Marcellus IP rates estimated based on industry announcements and available regulatory data

Source: MIT, HPDI production database and various industry sources



MIT Future of Natural Gas Study

Key Environmental Issues Associated with Shale Gas Development

Primary environmental risks associated with shale gas development

Contamination of groundwater aquifers with drilling fluids or natural gas

On-site surface spills of drilling fluids, fracture fluids and wastewater

Contamination as the result of inappropriate off-site wastewater disposal

Excessive water withdrawals for use in high-volume fracturing operations

Excessive road traffic and degraded air quality

Breakdown of Widely-Reported Environmental Incidents Involving Gas Drilling; 2005-2009


For optimum long-term development, need to improve understanding of shale gas science and technology

Government-funded fundamental research

Industry/govt collaboration on applied research

Should also cover environmental research

Determine and mandate best practice for gas well design and construction

Create transparency around gas development

Mandatory disclosure of frac fluid components

Integrated water usage and disposal plans

Continue to support research on methane hydrates

MIT Future of Natural Gas study

Recommendations


MIT Future of Natural Gas Study understanding of shale gas science and technology

13

System Studies of Gas Futures

  • Emissions Prediction & Policy Analysis Model

    • Strength: explore market interactions

    • Limitation: some industry details beneath the level of market aggregation

  • Influences on U.S. Gas Futures

    • Size of resource base, and cost

    • Greenhouse gas mitigation

    • Evolution of international gas markets

    • Development of technology over time


U s gas use production imports exports no new climate policy

U.S. Gas Use, Production, Imports & Exports understanding of shale gas science and technologyNo New Climate Policy

MIT Future of Natural Gas Study

14


Carbon dioxide emissions pricing scenario understanding of shale gas science and technology

- 50% reduction to 2050 in industrialized countries

- 20 year time delay in large emerging economies

- no constraint elsewhere


U s gas use production imports exports price based policy 50 by 2050 no offsets

U.S. Gas Use, Production, Imports & Exports understanding of shale gas science and technologyPrice-Based Policy (50% by 2050, No Offsets)

MIT Future of Natural Gas Study

16

7.5 $/Mcf

13.3 $/Mcf


MIT Future of Natural Gas study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology

20

International Market Evolution

5.7 $/Mcf

11.4 $/Mcf

7.5 $/Mcf

13.3 $/Mcf

Global Market

Regional Markets


MIT Future of Natural Gas Study understanding of shale gas science and technology

21

Global Gas Market & Geopolitics

Recoverable Shale (2009 use)

Global Gas Market in 2030

  • More liquid, integrated global markets

    • In U.S. economic interest

    • Reduce security concerns

  • Recommendations

    • Support market integration, supply diversity

    • Aid transfer of shale technology


MIT Future of Natural Gas Study understanding of shale gas science and technology

Years Payback for CNG Light Duty Vehicles ($1.50 gallon of gasoline equivalent spread)

“The U.S. natural gas supply situation has enhanced the substitution possibilities

for natural gas in the electricity, industry, buildings, and transportation sectors.”


MIT Future of Natural Gas Study understanding of shale gas science and technology

Industrial Gas Demand

Conv. Boilers

22%

CHP/Cogen 14%

Process heating 42%

4.5 Tcf

Manufacturing 85%

6.3 Tcf

Industry 35%

7.4Tcf

23


MIT Future of Natural Gas Study understanding of shale gas science and technology

Industrial Boiler Replacement Costs

Net Present Value Costs (millions $)

Competition with Coal Boilers After Compliance with MACT Standards


MIT Future of Natural Gas Study understanding of shale gas science and technology

Replacing existing coal boilers and process heaters with new efficient gas boilers could lower costs for meeting EPA MACT standards


MIT Future of Natural Gas Study understanding of shale gas science and technology

Buildings: Full Fuel Cycle Energy/CO2

Energy Consumption

CO2 Emissions

2.7X

Source: Electricity + 194%

Ton CO2 per 100 MWh of Useful Energy

Site: Gas +10%

Fuel Energy per 100 MWh of Useful Energy

+

=

Source Energy

Site Energy

26

26


MIT Future of Natural Gas study understanding of shale gas science and technology

For buildings, a move to full fuel cycle efficiency (site vs. source) metrics will improve how consumers, builders, policy makers choose among energy options (especially natural gas and electricity).

Efficiency metrics need to be tailored to regional variations in climate and the electricity supply mix.


Gas oil price differential

MIT Future of Natural Gas Study understanding of shale gas science and technology

Gas-Oil Price Differential

If the current trend of large oil-gas price ratios continues, it could have significant implications for the use of natural gas in transportation.


MIT Future of Natural Gas study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology

Years Payback for CNG Light Duty Vehicles ($1.50 gallon of gasoline equivalent spread)

  • Payback times for US light duty vehicles are attractive when—

  • used in high mileage operations

  • have sufficiently low incremental costs

12,000 miles per year

35,000 miles per year

$ 3,0000

$10,0000


Lng long haul truck limitations

MIT Future of Natural Gas Study understanding of shale gas science and technology

LNG Long Haul Truck Limitations

  • Low temp onboard fuel storage

  • Fueling infrastructure with competitive pricing

  • High incremental cost and lower resale value

  • Mitigation in hub-to-hub


MIT Future of Natural Gas Study understanding of shale gas science and technology

Conversion of Natural Gas to Liquid Fuels

Reformer

Natural

Gas

Catalyst

Synthesis

Gas

Methanol

Diesel

DME

Mixed

Alcohols

Gasoline

Ethanol


MIT Future of Natural Gas study understanding of shale gas science and technology

Methanol/Gasoline Cost Comparison


MIT Future of Natural Gas study understanding of shale gas science and technology

The potential for gas to reduce oil dependence could be increased by its conversion…into liquid fuels…methanol is the only one that has been produced from natural gas for a long period at large industrial scale.

The US government should implement an open fuel standard, requiring tri-flex-fuel capability for light-duty vehicles.


MIT Future of Natural Gas study understanding of shale gas science and technology

  • Public and public-private funding for natural gas research is down substantially even as gas takes a more prominent role.

  • Consideration should be given to restoring a public-private RD&D research model –

    • Industry-led portfolios

    • Multi-year funding

RD&D Spending


MIT Future of Natural Gas study understanding of shale gas science and technology

Improving Economics of Resource Development

* Analysis/simulation of gas shale reservoirs

* Methane hydrates

Reducing environmental footprint of NG Production, Delivery and Use

* Water

* NGCC with CCS

* Fugitive emissions

NG Research Needs/Opportunities


MIT Future of Natural Gas study understanding of shale gas science and technology

Expanding current use and creating alternate applications of natural gas

* Power generation: integrated understanding of power/NG systems with large deployment of intermittent sources, DG, smart grids; better modeling capability (e.g. hybrid top-down and bottom-up);…

* Mobility: end-to-end analysis of multiple pathways to liquid fuels, integrated with vehicle and infrastructure engineering data;…

NG Research Needs/Opportunities


MIT Future of Natural Gas study understanding of shale gas science and technology

Improving Conversion Processes

* Process improvements: novel membranes for separations, more selective catalysts-by-design for synthesis, reduced process heat through integration,…

* New process technologies: low-T separation, new less energy-intensive materials,…

* DOE “Industries of the Future” program

NG Research Needs/Opportunities


MIT Future of Natural Gas study understanding of shale gas science and technology

Improving Safety and Operation of NG Infrastructure

* Improved data quality

* Minimize environmental footprint

Improving the Efficiency of NG Use

* Micro-CHP/low HPR,…

NG Research Needs/Opportunities


MIT Future of Natural Gas Study understanding of shale gas science and technology

RD&D Spending

GRI Funding

Steady over 15 years

Gas produced after tax credit

Federal Funding

Time limited tax credit

Gas produced under tax credit


Backup

MIT Future of Natural Gas Study understanding of shale gas science and technology

backup


MIT Future of Natural Gas study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology

WA

Scale and Location of Fully-Dispatched NGCC Potential and Coal Generation (MWh, 2008)

ME

MT

ND

MN

OR

NH

MA

NY

ID

SD

MI

WY

WI

CT

RI

PA

IA

IL

OH

NJ

MD

NV

WV

DE

IN

VA

CA

KY

MO

NC

TN

AZ

AR

SC

OK

AL

NM

GA

MS

LA

Scale: 100,000,000 MWh

TX

FL

MWh coal generation, heat rate <10,000

MWh coal generation for pre-1987 plants with >10,000 heat rate

Existing NGCC capacity operating at 85% capacity factor minus 2008 actual MWh generation (FDNP)

43


MIT Future of Natural Gas Study understanding of shale gas science and technology

Coal to Gas Fuel Substitution Benefits Vary by Region

44


MIT Future of Natural Gas Study understanding of shale gas science and technology

  • Nationwide, coal generation displacement with surplus NGCC would:

    • reduce CO2 emissions from power

    • generation by 20%

    • reduce CO2 emissions nationwide

    • by 8%

    • reduce mercury emissions by 33%

    • reduce NOx emissions by 32%

    • cost roughly $16 per ton/CO2

  • The displacement of coal generation with NGCC generation should be pursued as the only practical option for near term, large scale CO2 emissions reductions


MIT Future of Natural Gas Study understanding of shale gas science and technology

Large Scale Penetration of Intermittent Wind in Short Term for ERCOT

Gas Peakers

NGCC

Coal

Wind

  • The principal impacts of increased deployment of intermittent renewable energy sources in the short term are –

    • the displacement of NGCC generation

    • increased utilization of operating reserves

    • more frequent cycling of mid-range or even base load plants.

46


MIT Future of Natural Gas Study understanding of shale gas science and technology

Large Scale Penetration of Intermittent Wind in Long Term

Policy and regulatory measures should be developed to facilitate adequate levels of investment in gas generation capacity needed for large scale penetration of intermittent renewables.

The development or expansion of electric system models is needed to inform the design of policies that would mandate large amounts of solar or wind generation (important for both short and long-term impacts).


MIT Future of Natural Gas study understanding of shale gas science and technology


MIT Future of Natural Gas Study understanding of shale gas science and technology

Natural Gas System/Infrastructure

DOE and EPA should co-lead a new effort to review and update methane emission factors associated with gas systems, focusing on actual fugitive emissions measurements and cost effective mitigation. Effort should also include oil and coal.

CO2e Emissions from Gas Systems, 2008 reflecting EPA’s 2011 revisions (teragrams)


MIT Future of Natural Gas study understanding of shale gas science and technology

Natural Gas System/Infrastructure

A detailed analysis of the growing interdependencies between the gas and electric infrastructures should be conducted.


MIT Future of Natural Gas Study understanding of shale gas science and technology

Steps Involved in Completing Wells and Protecting Ground Water

Feet Below Surface

Key Steps in Well Completion Process

  • Acquire necessary well permits

  • Prepare well site

  • Drill and case well

    • Drill and set conductor casing

    • Drill through shallow freshwater zones, set and cement surface casing

    • Drill, set and cement intermediate casing

    • Drill, set and cement production casing

  • Perforate and fracture well

  • Flowback fracture fluid

  • Place well into production


MIT Future of Natural Gas study understanding of shale gas science and technology


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