1. www.epa.gov/ord/nrmrl ENERGY & CLIMATE ASSESSMENT TEAM National Risk Management Research Laboratory U.S. Environmental Protection Agency Office of Research and Development Energy Modeling Forum Study #26 Changing the game? Emissions and market implications of new natural gas supplies EPA US9r MARKAL model results Ozge Kaplan and Carol Lenox EMF 26 Meeting Washington, DC May 7-8, 2013

2. 2 Objectives Increased natural gas supply at competitive prices in North America has created an extensive search for new markets where natural gas may compete effectively with other energy sources. Recent government forecasts suggest that this transformation may have mixed effects on carbon dioxide emissions. Although natural gas is less carbon intensive than other fossil fuels, it is more carbon intensive than nuclear and renewables. This study looked at various scenarios to address the following questions: –which end-use sectors will absorb most of the increased natural gas supplies? –which energy sources in these sectors will be replaced by natural gas supplies? –what is the likely range of natural gas prices at the wellhead and by end-use sector? –how do these energy-market transformations influence greenhouse gas and criteria pollutant emissions? –what are the implications for LNG imports and US-Canadian pipeline flows? –will North America become a major gas exporter in world markets? The purpose of this presentation is to discuss updated results from the EPA US nine-region MARKAL model that analyzes market and environmental implications of increased natural gas resources.

3. 3 Disclaimer While this presentation has been cleared through the U.S. EPA Office of Research and Development clearance process, the views expressed within represent those of the authors and do not necessarily represent those of the Agency.

4. 4 Background on MARKAL and EMF-26 modeling MARKAL inputs: Energy service demands Primary energy resource supplies Technology characteristics Emissions and energy policies MARKAL outputs (via optimization): Least cost set of technologies Fuel use by type and region Sectoral and system-wide emissions NOx, SO 2, PM 10, CO 2, Hg, CH 4, N 2 O Water usage factors Marginal fuel and emissions reduction prices Key assumptions for the study: Represented domestic NG supply with a six-step supply curve at the regional level. Modeled LNG and Canadian imports as supply curves Modeled exports to Mexico exogenously Shifted the supply curves down by 25% starting in 2015 for each regional NG supply curve Base scenario is calibrated to AEO 2012 Updated RPS representation, including constraints on regional renewable technology splits Added GTL technology Implemented new CAFE standards

5. 5 Scenario descriptions Scenario 1: Reference: AEO 2012 reference case for oil prices and economic growth Scenario 2: High Shale: AEO 2012 High Shale estimated ultimate recovery (EUR) case and reference economic growth Decrease the price of regional U.S. natural gas supply curves below their reference case values by 25% in each year starting in 2015 Scenario 3: Low Shale: AEO 2012 Low Shale EUR case and reference economic growth Increase the price of regional U.S. natural gas supply curves below their reference case values by 25% in each year starting in 2015 Scenario 4: High Growth: AEO 2012 high economic growth case with reference oil and natural gas prices Increase the growth rate of real GDP by 0.5 percentage points per year, or from 2.7 to 3.2 percent based upon the EIA reference case Scenario 5: Advanced Demand: AEO 2012 reference case for oil prices and economic growth Increased market penetration of both light- and heavy-duty natural gas vehicles Expanded use of gas-to-liquids technology Scenario 6: Shale Growth: Combine High Shale (#2) and High Growth (#4) assumptions Scenario 7: Carbon: Set carbon dioxide costs equal to $25 per metric ton in 2013 and increase its real cost by 5% each year Scenario 8: Shale Carbon: Combine High Shale (#2) and Carbon (#7) assumptions together Scenario 9: High Exports: EPA MARKAL team did not conduct this scenario Scenario 10: Modelers' Choice: EPA MARKAL team investigated the interactions among natural gas (prices), various RPS levels and carbon constraints Scenarios with combinations of no RPS, very high RPS, low NG prices and carbon tax

6. 6 Gas wellhead price

7. 7 Dry gas production

8. 8 Electric sector

9. 9 Analysis of RPS and NG interactions Base No RPS: No forced renewable use in the electric sector Base RPS : Regionalized representation of state renewable portfolio standards Base High RPS : By 2040, regionalized RPS constraints have increased three-fold, up to a maximum of 50% renewables

10. 10 Trade-offs between NG and RPS % Difference from BASE: Total Fuel Use for Electricity Production by Fuel Type

11. 11 Emissions Implications

12. 12 Electric sector - Observations –Natural gas use increases as the gas gets cheaper and also with the carbon tax –With the carbon tax alone, coal is replaced mostly by natural gas and some renewables –With high RPS and the carbon tax, the model uses more renewables to replace coal

13. 13 Industrial sector - Low overall coal use in the industrial sector - Fuel switching allows for increased NG use

14. 14 Transportation sector

15. 15 Transportation sector CNG use doubles in the advanced tech scenario focused on heavy duty and medium duty transportation, not light duty vehicles Overall US liquids consumption is almost 25 times more than the NG use NG use in pipeline consumption is still dominant

16. 16 CO 2 emissions

17. 17 NO x emissions

18. 18 Thank you Questions and comments Ozge Kaplan 919-541-5069 kaplan.ozge@epa.govkaplan.ozge@epa.gov Carol Lenox 919-541-1868 lenox.carol@epa.govlenox.carol@epa.gov