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The Energy Policy Act of 2005 and Its Impact on the U.S. Natural Gas Supply/Demand Imbalance. February 20, 2007 Robert W. Best, AGF Chairman Gary Gardner, AGF Executive Director Kevin Petak, Vice President, Gas Market Modeling EEA/ICF International. American Gas Foundation.

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Presentation Transcript
slide1

The Energy Policy Act of 2005 andIts Impact on the U.S. Natural GasSupply/Demand Imbalance

February 20, 2007

Robert W. Best, AGF Chairman

Gary Gardner, AGF Executive Director

Kevin Petak, Vice President, Gas Market Modeling EEA/ICF International

american gas foundation
American Gas Foundation

Independent source of information, research, and programs on energy and environmental issues that affect public policy

agf studies
AGF Studies
  • R&D in Natural Gas Transmission and Distribution (2007)
  • Public Policy and Real Energy Efficiency (2005)
  • Safety Performance & Integrity of the Natural Gas Distribution Infrastructure (2005)
  • Natural Gas Outlook to 2020 (2005)
  • Energy Price Volatility (2003)
  • Meeting the Gas Supply Challenge (2002)
  • Fueling the Future (2001)
slide4

“The Energy Policy Act of 2005 and Its Impact on the U.S. Natural Gas Supply/Demand Imbalance”

January 2007

study objectives
Study Objectives
  • Reexamine findings of AGF’s 2005 “Natural Gas Outlook to 2020” Study in light of recent market conditions
  • Compare the EPAct potential impacts to the 2005 AGF Outlook Study policy scenarios
slide6

Study Summary

  • EPAct was a significant first step toward addressing critical supply/demand issues
  • EPAct has brought us approx 1/3 of the way towards achieving the market balance outlined in the Expanded Policies scenario
  • Reinforced principle findings of the 2005 AGF Outlook Study
  • U.S. natural gas market remains in a tight supply/demand balance
impact of recent events
Impact of Recent Events
  • Natural gas production was lower
  • U.S. LNG imports were less
  • Apparent “floor” on gas prices as the market balance loosens
  • Short-term supply disruptions can causeprices to rise dramatically
major portions of the gas resource base are not accessible

18

TCF

346

TCF

40%

100%

37

TCF

100%

RestrictedPercentage

43

TCF

56%

Major Portions of the Gas Resource Base Are Not Accessible

Gulf of Mexico Energy Security Act of 2006

slide11

Projected Natural Gas Consumption

2007

Source: Energy Information Administration, U.S. Dept of Energy

2005 agf outlook study
2005 AGF Outlook Study
  • Analyzed effects of key policy variables
  • Analyzed effects on supply availability
  • Outlined supply impact on natural gas markets
scenario assumptions
Scenario Assumptions

ExpectedExpandedExisting

Drilling Moratoria Unchanged Relaxed Unchanged

Intermountain W Access Unchanged Increased Unchanged

Alaskan Pipeline 2014 2014 Not Built

LNG in 2020 18 Bcfd 23 Bcfd 5.3 Bcfd

New Gas-Fired Generation 60 GW 30 GW 60 GW

slide14

Actual & Projected Natural Gas Prices (Henry Hub)2005 Outlook Study

Gas Prices in the Expanded Policies scenario are 40% lower than the Existing Policies scenario, saving consumers up to $200 million per year

2008

impact to consumers
Impact to Consumers

Expected Expanded Existing

PoliciesPoliciesPolicies

Supply Greater diversity Diversity with Reliance on Conventional;

more LNG Strain on Lower-48

Demand 30.6 quads 30.6 quads 26.7 quads

More Industrial;

Less Electric Gen

2020 Prices $8.15 $13.76

$1 Trillion in additional cost over 15 years

impact to consumers1
Impact to Consumers

Expected Expanded Existing

PoliciesPoliciesPolicies

Supply Greater diversity Diversity with Reliance on Conventional;

more LNG Strain on Lower-48

Demand 30.6 quads 30.6 quads 26.7 quads

More Industrial;

Less Electric Gen

2020 Prices $8.15

$5.47

$575 Billion in savings over the 15 years

slide17

Energy Policy Act of 2005

  • Require expeditious compliance with the National Environmental Policy Act (NEPA) and timely action on applications for oil/gas permitting on federal lands
  • Create a federal pilot project to streamline permitting in the Intermountain West
  • Improve process for issuance of permits to drill on federal lands
  • National Academy of Sciences study ontotal energy efficiency
slide18

Progress Toward Addressing the Imbalance

  • Implemented – Impact of policies fully implemented
  • Enacted – Impact of policies that have been enacted but not yet implemented
  • Potential – Potential impact identified in 2005 AGF Outlook Study
slide19

Progress Toward Addressing the Imbalance

The total high of each bar represents

the potential annual contribution as defined in

the Expanded Policies case, not the maximum potential

slide20

Gas Demand Reduction

Enacted Score: 60%

Implemented Score: 40%

Potential (AGF Outlook Study): 650 Bcf per Year

  • EPAct has over 30 sections that address energy efficiency and conservation measures
  • EPAct includes some critical measures to promote coal, nuclear, and renewable generating technologies
slide21

Increased Access Onshore

Enacted Score: 40%

Implemented Score: 20%

Potential (AGF Outlook Study): 450 Bcf per Year

  • EPAct made some progress toward improving access to federal onshore lands, but barriers remain, particularly in the Intermountain West
  • An integrated, all encompassing review of restrictions in the Intermountain West is needed to coordinate and rationalize all regulations governing land access
slide22

Increased Access Offshore

Enacted Score: 50%

Implemented Score: 0%

Potential (AGF Outlook Study): 730 Bcf per Year

  • Unfortunately, EPAct did not take any action toward opening the OCS for oil and gas development
  • The Gulf of Mexico Energy Security Act of 2006 opened up 8.3 million acres of federal waters in the Gulf. However, abundant supplies in the OCS still remain off limits to development
slide23

Alaska Gas Pipeline

Enacted Score: N/A

Implemented Score: N/A

Potential (AGF Outlook Study): 2.2 Tcf per Year

  • Unlike other policies, this is an “all or nothing” proposition
  • No additional measures in EPAct, but a preliminary SGA contract agreement has been reached
  • For every year the project is delayed, the risk that it will be displaced by LNG imports increases
slide24

LNG Imports

Enacted Score: 30%

Implemented Score: 15%

Potential (AGF Outlook Study): 6.4 Tcf per Year

  • Grants FERC Federal authority over approval of LNG facilities, but still local opposition to new terminals
  • U.S. has added one new LNG import terminal and several more are currently under construction
  • The volume of LNG imports will depend on securinglong-term contracts and ability of U.S. to compete
slide25

Impact of Supply/Demand Variables on U.S. Natural Gas Market

Canadian

Imports

Lower-48

Production

Demand

Reduction

Alaska Gas

Pipeline

LNG

Imports

Lesser

Impact

Greater

Impact

the situation hasn t changed
The Situation Hasn’t Changed
  • Natural gas – “bridge to the future”
  • Ample resources exist
  • Supply access and infrastructure are being constrained
  • Demand is growing
  • Prices are volatile
  • High prices are detrimental
slide28

Policy Considerations

  • Appropriate and implement the natural gasprovisions in EPAct
  • Remove policy and regulatory constraints for supply
  • Ensure the Alaskan Pipeline and adequateLNG terminals are built
  • Promote real conservation and efficiency
slide29

Conclusion

Without addressing the supply/demand imbalance, the U.S. will continue to bear the burden of high and volatile natural gas prices and consumers will face billions in additionalgas costs over the next decade