California Energy Commission Integrated Energy Policy Report Commissioner Workshop: Revised Results Natural Gas Common Cases September 21, 2015 Leon D. Brathwaite Supply Analysis Office Energy Assessment Division

California Energy Commission Purpose 2 Key changes since preliminary natural gas model runs Integrated Energy Policy Report (IEPR) Common Cases –Elements of the common cases Revised Results –Demand, supply, and prices –Discuss trends

California Energy Commission Major Activities since Preliminary Runs 3 Revised power generation demand for natural gas in WECC Incorporated CA-specific results from other Energy Commission demand models:  Residential, Commercial, and Industrial demand from the CED  Transportation demand from the transportation model Ensure consistency with the US EPA’s 111(d) rule  Verified coal retirements scenarios  Verified renewable portfolio standard scenarios Adjusted Canadian supply cost curves  Updated cost values consistent with current development activity

California Energy Commission Revised IEPR Natural Gas Common Cases 4 Staff constructed three Cases:  Mid Energy Demand Case Reference Case  Low Energy Demand (LD) Case  High Energy Demand (HD) Case HD High Demand LD Low Demand

California Energy Commission Natural Gas Common Cases: Key Assumptions and Major Inputs Assumptions Mid Demand Case Low Demand Case High Demand Case GDP Growth Rate 2.30%2.00%3.50% Natural Gas Technology Improvement Rate 1% 2.50% Maximum RPS Target CA Meets TargetOn time WECC Meets TargetOn time Other States Meet5 year delayOn time 10 year delay Additional U.S. Coal Generation Converts to Natural Gas Starting in 2016 (GW) Elasticities to (except CA and all WECC Power Generation) Elasticities On (except for CA and WECC Power Generation) Elasticities On (except for CA and WECC Power Generation) Cost Environment Mid (P50)High (P5)Low (P95)

California Energy Commission Major Model Inputs: Supply 6 Marginal cost profile is a major input parameter for the natural gas model:  Technology shifting the marginal cost profile  Overall, shifting marginal cost supply profile results in more resources available at lower cost Sources: California Energy Commission; Baker Institute; National Petroleum Council Cost Curves rightward shift

California Energy Commission Revised Results: Blending market information with fundamental market forecast 7 On the dashed line, the 2015 and 2016 values are EIA's published estimates. Projections of Reference and High cases, between 2015 and 2019, blended with NYMEX futures projection  Trade date ~ September 14, 2015  Information from NYMEX website  The 2015 and 2016 Henry Hub midcase prices originated from the NYMEX futures strip  The 2017, 2018, and 2019 values combined the NYMEX futures strip and the NAMGas projection  Average of NYMEX futures value and the NAMGas value to determine the Reference Case projections  Projections beyond 2019 originated from the NAMGas model  Equivalent blending performed on High Case  Low Case not blended

California Energy Commission Revised Results: Henry Hub Prices Grow at 1.8% 8 Demand growth drives prices:  High Demand Case, high demand leads to higher prices  Low Demand, low demand leads to lower prices Between 2020 and 2030, in the Reference Case, Henry Hub prices grow at an annual rate of about 1.8% On the dashed line, the 2015 and 2016 values are EIA's published estimates.

California Energy Commission US Power Generation Demand for Natural Gas: Potential Coal Retirements Pushing Demand Higher 9 Price elasticity function turned off in WECC (power generation only) Aggressive coal retirements in High Demand case pushing demand in the power generation sector higher  In high demand case, by 2030, natural gas demand surpasses 36 Bcf/d

California Energy Commission Revised Results: US Natural Gas Production Highest in Low Demand Case 10  In general, highest natural gas production in Low Demand Case Less imports enter the Lower 48 Lower 48 production more competitive with Canadian imports  More Canadian imports in the high cost environment (HD case)

California Energy Commission California Price Performance Price Growth Rate at Topock and Malin Hubs Parallel Henry Hub 11 Topock and Malin price projections mirror that of Henry Hub  Growth rates are about the same  About 1.8% Malin Topock

California Energy Commission California Points of Interest: Negative Price Differentials at Malin Expected to Continue 12 In general, Topock differentials turn positive after 2013:  Resource abundance more evident in the eastern US  Access to shale and ‘tight’ gas resources re-ordering supply portfolio, impacting eastern prices more than western Negative differential between Malin and Henry Hub expected to continue; Competition between Canadian gas and Rockies gas at Malin Point of Interest - Henry Hub

California Energy Commission California Supply Portfolio (2025) In-state production expected to provide about 2% of demand requirements 13 California Production: 0.13 Bcf/d Demand: 5.52 Bcf/d Canadian & Rockies Imports (Malin): 2.63 Bcf/d Southwest: 2.01 Bcf/d Rocky Mountain: 0.85 Bcf/d California Demand: End-use Demand satisfied by: −Imports (Malin) −Rocky Mountain Supplies −Southwest Supplies −Local Production Reference Case

California Energy Commission Revised Results : Implementation of renewable generation dampens California’s demand 14 Implementation of renewable generation suppresses California’s natural gas demand  Decline at annual rate of 0.63% between 2015 and 2026  Overall natural gas climbs to about 5.8 Bcf/d by 2030  Remains below 2015 level

California Energy Commission Gas Demand (CA) for Power Generation: Power Generation Demand falls as Renewable Generation Rises 15  No significant coal in California High input natural gas demands return high final output natural gas demands Low input demands return low final output natural gas demand  Implementation of renewable generation suppress demand until around 2025  Demand rebounds after the full implementation of the renewable portfolio standard

California Energy Commission California Supply Portfolio (2025) Competition at Malin Changing Supply Portfolio 16  Displays the reconfiguration of the supply portfolio under the conditions of each case Each wedge of pie represents percent of demand satisfied by the supply region Flows at Malin composed of flows on both Ruby and GTN pipelines In-state share of the supply portfolio remains relatively constant over the three cases  Variations in Malin supplies reflective of intense competition at this supply source Low Demand Case Demand: 5.13 Bcf/d High Demand Case Demand: 6.71 Bcf/d Reference Case Demand: 5.52 Bcf/d

California Energy Commission International Revised Results: Exports to Mexico Increasing in all Cases 17 Exports to Mexico rise in all three cases, reaching a high of about 4.5 bcf/d in the High Demand Case By the end of the forecast horizon  High Demand and Reference Cases show shrinking exports as Mexico develops its resources  Resource development begins around 2020 in the low cost environment of the Low Demand Case

California Energy Commission Revised Results Conclusions 18 US natural gas demand grows at an annual rate of 1.4% between 2015 and 2030, reaching about 84 Bcf/d in the Reference case Implementation of renewables suppresses California’s natural gas demand, declining at annual rate of 0.63% between 2015 and Overall natural gas demand climbs to about 5.8 bcf/d by 2030, but remains below the 2015 level Henry Hub prices reach $6.00 (2014$)/Mcf by 2030, representing an annual growth rate of 1.80% between 2020 and 2030 Aggressive coal retirements outside of California contribute to higher natural gas demand and prices California’s production share of the supply portfolio remains relatively constant across cases –In-state production declines in all three cases Malin supplies display the most fluctuations across the cases, reflective of the intense competition at this supply source Exports to Mexico are growing, reaching a high of about 4.5 bcf/d.

California Energy Commission Revised Results Common Cases 19 Questions and Comments