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Natural Gas Markets Enter an Era of Unprecedented Uncertainty NARUC Winter Committee Meetings February, 2008. US Supply Growth Has Allowed Gas and Oil Prices to Take Different Paths. Gas and Oil prices moved in different directions in ’07
NARUC Winter Committee Meetings
Gas and Oil prices moved in different directions in ’07
Gas supply proved sufficient to serve end users that could switch between oil and gas
LNG import levels hit record highs this summer, allowing sustained high storage inventories, but dropped this winter when oil-indexed gas markets with higher prices
Low US gas prices relative to oil will threaten longer term LNG imports
Gas and Oil Price History
Can US gas markets remain somewhat insulated from oil markets?
Rising Capital Costs
Shrinking Reserve Margins and Strong Demand Growth
Rush to Build Gas
Acceleration in Demand Growth, 2011-2015?
Over half the coal projects announced since 2000 have been cancelled or postponed
The Wood Mac base case does not assume significant amounts of new coal is built over the next decade
A stronger than expected shift to gas could increase gas price volatility
Reduction Target Level?
How much nuclear?
Timing of the Target?
Cap & Trade or Tax?
Price Caps or Safety Valves?
2006 levels by 2020, and 1990 levels by 2030
Cap with safety valves prices at $12-$25 per ton
US Assumed Capacity Build
Increase in gas demand is limited between 2013 and 2022 as renewables offset reduction in coal capacity.
Gas demand in base case is already growing at a high rate due to conservative outlook for coal
In the long term, gas demand tracks below base case demand, as nuclear generation limits the call on gas
Henry Hub Natural Gas Price (Real)
Gas prices are higher relative to the base case between 2013 and 2020
US prices are higher relative to oil-indexed European prices allowing US to attract LNG cargoes to meet demand associated with carbon regulations
…Gas Demand Would Increase Quickly During a Period in Which Gas Prices are Heavily Tied to Oil
Gas Demand Could Push Higher than the Greenhouse Gas Outlook…
Optimistic estimates for coal plant development have proved to be false as public opposition, high costs, and the threats of GHG legislation have combined to derail over half of the proposed projects
Natural gas will be the fuel of choice for power generation build over the next decade due lead time constraints and the lack of viable alternatives
Gas supplies in the US are now growing, but within five years, just as gas demand could accelerate, supplies look likely to level off. Canadian supplies are in decline.
A reliance on gas alone would likely mean higher, more volatile prices and an increased dependence on LNG
GHG Legislation: Even with a very optimistic view on technology, CO2 targets are not met, highlighting the difficulty of the challenge
Gas demand rises strongly through about 2018. Later, nuclear capacity additions begin to displace gas.
Gas prices increase rapidly after 2011, rising to near $8.00 per mmbtu (real). Despite the price, gas competes with coal because of the CO2 tax.
There is tremendous uncertainty around GHG legislation and technology development
Aggressive targets, or a “failure” in technology will result in a much stronger pull on natural gas