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MIT Future of Natural Gas Study 1. 2 To view a full copy of this report, please visit www.web.mit.edu/mitei/research/studies/ natural-gas-2011.shtml.

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Presentation on theme: "MIT Future of Natural Gas Study 1. 2 To view a full copy of this report, please visit www.web.mit.edu/mitei/research/studies/ natural-gas-2011.shtml."— Presentation transcript:

1 MIT Future of Natural Gas Study 1

2 2 To view a full copy of this report, please visit natural-gas-2011.shtml

3 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 MIT Future of Natural Gas Study 3

4 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 4

5 5 Remaining Recoverable Natural Gas Resources (Excludes unconventional gas outside North America) Tcf of Gas

6 6 MIT Future of Natural Gas study

7 7 MIT Future of Natural Gas Study Global Gas Supply Cost Curve (Excludes unconventional gas outside North America) * 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 Tcf of Gas Breakeven Gas Price* $/MMBtu

8 8 MIT Future of Natural Gas Study U.S. Gas Supply Cost Curve 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 Breakeven Gas Price* $/MMBtu Breakdown of Mean U.S. Supply Curve by Gas Type Breakeven Gas Price* $/MMBtu

9 9 MIT Future of Natural Gas Study Variation in Shale Well Performance and Per-Well Economics * 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 IP Rate Probability (Barnett 2009 Well Vintage) IP Rate: Mcf/day (30-day avg) P20P50 P80 BarnettIP Mcf/d BEP $/Mcf 2,700 $4.27 1,610 $ $11.46 FayettevilleIP Mcf/d BEP $/Mcf 3,090 $3.85 1,960 $5.53 1,140 $8.87 HaynesvilleIP Mcf/d BEP $/Mcf 12,630 $3.49 7,730 $5.12 2,600 $13.42 Marcellus**IP Mcf/d BEP $/Mcf 5,500 $2.88 3,500 $4.02 2,000 $6.31 WoodfordIP Mcf/d BEP $/Mcf 3,920 $4.12 2,340 $ $17.04 Impact of IP Rate Variability on Breakeven Price (BEP)* (2009 Well Vintages)

10 10 MIT Future of Natural Gas study

11 11 MIT Future of Natural Gas Study Key Environmental Issues Associated with Shale Gas Development Primary environmental risks associated with shale gas development 1. Contamination of groundwater aquifers with drilling fluids or natural gas 2. On-site surface spills of drilling fluids, fracture fluids and wastewater 3. Contamination as the result of inappropriate off-site wastewater disposal 4. Excessive water withdrawals for use in high-volume fracturing operations 5. Excessive road traffic and degraded air quality Breakdown of Widely-Reported Environmental Incidents Involving Gas Drilling;

12 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 Recommendations MIT Future of Natural Gas study

13 13 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 System Studies of Gas Futures MIT Future of Natural Gas Study

14 14 U.S. Gas Use, Production, Imports & Exports No New Climate Policy 14 MIT Future of Natural Gas Study

15 Carbon dioxide emissions pricing scenario - 50% reduction to 2050 in industrialized countries - 20 year time delay in large emerging economies - no constraint elsewhere

16 16 U.S. Gas Use, Production, Imports & Exports Price-Based Policy (50% by 2050, No Offsets) $/Mcf 13.3 $/Mcf 7.5 $/Mcf 13.3 $/Mcf MIT Future of Natural Gas Study

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20 20 Regional Markets Global Market 7.5 $/Mcf 13.3 $/Mcf 7.5 $/Mcf 13.3 $/Mcf 5.7 $/Mcf 11.4 $/Mcf 5.7 $/Mcf 11.4 $/Mcf MIT Future of Natural Gas Study International Market Evolution

21 21 Global Gas Market & Geopolitics MIT Future of Natural Gas Study Global Gas Market in 2030 Recoverable Shale (2009 use) More liquid, integrated global markets In U.S. economic interest Reduce security concerns Recommendations Support market integration, supply diversity Aid transfer of shale technology

22 MIT Future of Natural Gas Study 22 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.

23 MIT Future of Natural Gas Study 23 Industry 35% Manufacturing 85% 7.4Tcf 6.3 Tcf 4.5 Tcf CHP/Cogen 14% Conv. Boilers 22% Process heating 42% Industrial Gas Demand

24 MIT Future of Natural Gas Study 24 Competition with Coal Boilers After Compliance with MACT Standards Industrial Boiler Replacement Costs Net Present Value Costs (millions $)

25 MIT Future of Natural Gas Study 25 Replacing existing coal boilers and process heaters with new efficient gas boilers could lower costs for meeting EPA MACT standards

26 MIT Future of Natural Gas Study 26 Buildings: Full Fuel Cycle Energy/CO2 26 Energy Consumption CO2 Emissions Fuel Energy per 100 MWh of Useful Energy Site Energy Source Energy Ton CO2 per 100 MWh of Useful Energy Site: Gas +10% 2.7X + = Source: Electricity + 194%

27 27 MIT Future of Natural Gas study 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.

28 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 28

29 29 MIT Future of Natural Gas study

30 MIT Future of Natural Gas Study30 Years Payback for CNG Light Duty Vehicles ($1.50 gallon of gasoline equivalent spread) $ 3, ,000 miles per year35,000 miles per year $10,0000 Payback times for US light duty vehicles are attractive when used in high mileage operations have sufficiently low incremental costs

31 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 Study31

32 MIT Future of Natural Gas Study 32 Conversion of Natural Gas to Liquid Fuels Catalyst Synthesis Gas Reformer Natural Gas Ethanol Diesel DME Methanol Gasoline Mixed Alcohols

33 33 MIT Future of Natural Gas study Natural gas price Methanol production cost per gge Cost reduction relative to gasoline per gge $4/MMBtu$1.30$1.00 $6/MMBtu$1.60$0.70 $8/MMBtu$2.00$0.30 Methanol/Gasoline Cost Comparison

34 34 MIT Future of Natural Gas study 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.

35 35 MIT Future of Natural Gas study 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

36 36 MIT Future of Natural Gas study 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

37 37 MIT Future of Natural Gas study 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

38 38 MIT Future of Natural Gas study 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

39 39 MIT Future of Natural Gas study 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

40 MIT Future of Natural Gas Study 40 Federal Funding GRI Funding Steady over 15 years GRI Funding Steady over 15 years Time limited tax credit Gas produced under tax credit Gas produced after tax credit RD&D Spending

41 backup MIT Future of Natural Gas Study 41

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43 MIT Future of Natural Gas Study43 TX LA MS AR OK NM AZ CA NV OR WA ID MT WY ND SD MN IA WI IL MO TN AL FL GA SC NC VA WV OH MI IN PA MD DE NJ NY CT RI MA ME NH KY Scale: 100,000,000 MWh 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) Scale and Location of Fully-Dispatched NGCC Potential and Coal Generation (MWh, 2008)

44 MIT Future of Natural Gas Study 44 Coal to Gas Fuel Substitution Benefits Vary by Region

45 MIT Future of Natural Gas Study 45 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

46 MIT Future of Natural Gas Study 46 Large Scale Penetration of Intermittent Wind in Short Term for ERCOT 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. Gas Peakers NGCC

47 MIT Future of Natural Gas Study 47 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. Large Scale Penetration of Intermittent Wind in Long Term 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).

48 48 MIT Future of Natural Gas study

49 MIT Future of Natural Gas Study 49 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 EPAs 2011 revisions (teragrams)

50 50 MIT Future of Natural Gas study A detailed analysis of the growing interdependencies between the gas and electric infrastructures should be conducted. Natural Gas System/Infrastructure

51 51 MIT Future of Natural Gas Study Steps Involved in Completing Wells and Protecting Ground Water Feet Below Surface Key Steps in Well Completion Process 1. Acquire necessary well permits 2. Prepare well site 3. Drill and case well i. Drill and set conductor casing ii. Drill through shallow freshwater zones, set and cement surface casing iii. Drill, set and cement intermediate casing iv. Drill, set and cement production casing 4. Perforate and fracture well 5. Flowback fracture fluid 6. Place well into production

52 52 MIT Future of Natural Gas study


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