VA Powers

Should the CPUC Grant Access to Utility Ratepayer Contracts to Ensure LNG Terminals are Built to Serve the California Market?Comments on Cabrillo Port LNG Draft EIS/EIR, Submitted December 17, 2004: 

Should the CPUC Grant Access to Utility Ratepayer Contracts to Ensure LNG Terminals are Built to Serve the California Market? Comments on Cabrillo Port LNG Draft EIS/EIR, Submitted December 17, 2004 Bill Powers, P.E. Border Power Plant Working Group tel: (619) 295-2072 www.borderpowerplants.org

Slide2: 

Natural Gas Supply, Demand, and Price: Do We Need LNG to Prevent Another Energy Crisis in California?

California Natural Gas 101: 

California Natural Gas 101

North American Pipeline Infrastructure MapFrom: Greg Stringham, Canadian Association of Petroleum Producers, Canadian Natural Gas – An Important Part of North American Supply, Now and In the Future, National Energy Modeling System/ Annual Energy Outlook Conference, March 2004: 

North American Pipeline Infrastructure Map From: Greg Stringham, Canadian Association of Petroleum Producers, Canadian Natural Gas – An Important Part of North American Supply, Now and In the Future, National Energy Modeling System/ Annual Energy Outlook Conference, March 2004

PG&E, declining gas demandFrom: Les Buchner, Manager PG&E, Forecast of Demand Natural Gas Market Outlook 2006 –2016, CPUC/CEC Workshop, December 9, 2003, San Francisco. : 

PG&E, declining gas demand From: Les Buchner, Manager PG&E, Forecast of Demand Natural Gas Market Outlook 2006 –2016, CPUC/CEC Workshop, December 9, 2003, San Francisco.

SoCalGas & SDGE, declining gas demand From: Jeff Hartman, Director Energy Markets and Capacity Products SoCalGas/SDGE, Future Demand for Natural Gas in Southern California: 2006 –2016, CPUC/CEC Workshop, December 9, 2003, San Francisco.: 

SoCalGas & SDGE, declining gas demand From: Jeff Hartman, Director Energy Markets and Capacity Products SoCalGas/SDGE, Future Demand for Natural Gas in Southern California: 2006 –2016, CPUC/CEC Workshop, December 9, 2003, San Francisco.

Are we running out of domestic supplies of natural gas? No.: 

Are we running out of domestic supplies of natural gas? No. What the Department of Energy says: U.S. domestic production will increase by ~20% from 2001 to 2025, in response to 1.8% per year assumed growth rate in demand; Canadian imports will fluctuate, though remain relatively constant from 2001 to 2025; Primary growth area is electric power production. California: Gradual decline in use from 2002 peak, rebounding to 2002 level in 2016.

U.S. domestic natural gas production, along with Canadian production, will rise considerably to meet demand growth projected at 1.8% per year From: James Kendell, DOE EIA, Current Natural Gas and LNG Projections, National Association of Regulatory Utility Commissioners, July 29, 2003: 

U.S. domestic natural gas production, along with Canadian production, will rise considerably to meet demand growth projected at 1.8% per year From: James Kendell, DOE EIA, Current Natural Gas and LNG Projections, National Association of Regulatory Utility Commissioners, July 29, 2003

Sempra “doomsday” scenario – crisis in domestic natural gas outputFrom: presentation by Greg Bartholomew, VP Gas Strategies, Sempra LNG, CPUC/CEC natural gas 2006-2016 workshop, December 10, 2003, San Francisco. : 

Sempra “doomsday” scenario – crisis in domestic natural gas output From: presentation by Greg Bartholomew, VP Gas Strategies, Sempra LNG, CPUC/CEC natural gas 2006-2016 workshop, December 10, 2003, San Francisco. “California has little choice but to allow the development of LNG terminals” “The only decision is where and how”

U.S. natural gas demand increase primarily related to increased use of natural gas in power plants from 2008 onward: 

U.S. natural gas demand increase primarily related to increased use of natural gas in power plants from 2008 onward

Expected growth in U.S. domestic natural gas production, 2001 - 2025: 

Expected growth in U.S. domestic natural gas production, 2001 - 2025

Downgrading of Canadian import projection by DOE: Legitimate, political, or bit of both?Top: July 03 DOE EIA projection; Bottom: Jan 04 projection; DOE Sec. Abraham opening comments, LNG Summit, Dec 03: 

Downgrading of Canadian import projection by DOE: Legitimate, political, or bit of both? Top: July 03 DOE EIA projection; Bottom: Jan 04 projection; DOE Sec. Abraham opening comments, LNG Summit, Dec 03 DOE Sec. Abraham, Dec 2003: We need the contribution of a large and growing market in imported Liquefied Natural Gas; We are here at this [LNG] Summit to discuss ways to make that market a reality; To meet our energy needs, the United States will have to become a much large importer of LNG than it is today; Imports could account for 15% of our natural gas supply in 2025 - that should give you some sense of how important a large and efficient global LNG market is to us.

What do the Canadians think? Somewhere in between the DOE ‘03 and ‘04 projections. From: Joe Lemée - Supply Specialist, National Energy Board, Canadian Gas Supply 1980 – 2025, NEMS/AEOConference, March 23, 2004. “Techno-Vert” means technology advances rapidly w/ preference for clean burning fuels.: 

What do the Canadians think? Somewhere in between the DOE ‘03 and ‘04 projections. From: Joe Lemée - Supply Specialist, National Energy Board, Canadian Gas Supply 1980 – 2025, NEMS/AEO Conference, March 23, 2004. “Techno-Vert” means technology advances rapidly w/ preference for clean burning fuels.

Will the arrival of LNG reduce the price of natural gas? No.: 

Will the arrival of LNG reduce the price of natural gas? No. What the Department of Energy says: Natural gas price will drop considerably over next two years, then slowly rise to $3.50/MMBtu in 2015 timeframe, and continue to $3.95/MMBtu (wellhead price adjusted to 2001) by 2025; Cost to get LNG to California is well over $4/MMBtu; Cost to get LNG to Baja California is $3.40/MMBtu; DOE projection assumes no LNG on West Coast until 2020. What some LNG developers say: Natural gas price is high and will go much higher without LNG to stabilize regional market No consensus among government and industry analysts whether LNG will have any impact on price

July 2003 DOE projection: Current high natural gas prices seen as spike, dropping to ~ $3/MMBtu wellhead price by 2006: 

July 2003 DOE projection: Current high natural gas prices seen as spike, dropping to ~ $3/MMBtu wellhead price by 2006

March 2004 DOE projection: Natural gas price beyond 2013 influenced by pace of technologyFrom: Dana Van Wagoner, DOE EIA, Domestic Natural Gas Supply: A Large Resource Base Does Not Guarantee Low Long-Term Prices, NEMS/AEO Conference, March 23, 2004: 

March 2004 DOE projection: Natural gas price beyond 2013 influenced by pace of technology From: Dana Van Wagoner, DOE EIA, Domestic Natural Gas Supply: A Large Resource Base Does Not Guarantee Low Long-Term Prices, NEMS/AEO Conference, March 23, 2004

DOE projects one LNG terminal on West Coast, in Baja California around 2020, in business-as-usual gas usage scenario: 

DOE projects one LNG terminal on West Coast, in Baja California around 2020, in business-as-usual gas usage scenario

Reason for no West Coast LNG is high cost relative to domestic gas, only Baja LNG becomes competitive around 2015-2020: 

Reason for no West Coast LNG is high cost relative to domestic gas, only Baja LNG becomes competitive around 2015-2020

Slide20: 

Effect on California Natural Gas Demand September 2, 2004 CPUC Decision on Long-Term Natural Gas Procurement

September 2, 2004 long-term natural gas procurement decision: 

September 2, 2004 long-term natural gas procurement decision Authorizes Southern California Gas Company to terminate 1,400 mmcfd of firm natural gas capacity rights, the equivalent throughput of two LNG terminals, on domestic pipelines serving California operated by Transwestern and El Paso; March 2004 responses of Transwestern and El Paso to this plan to terminate domestic natural gas firm capacity; El Paso: "If utilities decline to hold EPNG capacity now, it may be unavailable to California in the future.  Given the Commission's overarching goal of promising price stability and supply diversity/security, the Commission should consider requiring the utilities to continue to hold this capacity as a prudent hedge against an uncertain future."  Transwestern: “Important that utilities not sacrifice long-term supply reliability in the pursuit of supply diversity.”

Termination of firm capacity rights creates artificial need for new natural gas supply capacity in form of LNG: 

Termination of firm capacity rights creates artificial need for new natural gas supply capacity in form of LNG California Resource Agency Asst. Secretary for Energy, Joe Desmond, stated just prior to the CPUC Sept. 2, 2004 decision that California has the need for two LNG terminalsa; In reality the CPUC has authorized a course of action that will require SoCalGas to acquire the capacity rights to the equivalent of two LNG terminals; This CPUC action is clearly directed at creating a need for gas capacity where none previously existed to provide access to LNG supplies; given future access to domestic gas capacity via Transwestern and El Paso may be lost. Kinder Morgan Pipeline Company called for the CPUC to hold evidentiary hearings on LNG in August 2004, given the decision (ultimately adopted without such hearings) is unfavorable to KM’s proposal to build a 750 mmcfd pipeline (Silver Canyon Pipeline) from the Rockies to California. Two rehearing applications have been filed over the September 2 decision. These rehearing petitions will be heard in January 2005; If the rehearing application(s)s are denied, a lawsuit is the likely next step. a) Japan Times, LNG Can Lighten California’s Energy Load, August 7, 2004.

Non-competitive natural gas trading is issue, not shortage of domestic supply: 

Non-competitive natural gas trading is issue, not shortage of domestic supply The wellhead price for U.S. natural gas in 1998 averaged $2/MMBtua; The wellhead price in 2002 was under $3/MMBtua; U.S. gas consumption has remained essentially static in the 1998-2004 timeframe (Slide 8); In 2004 production is strong relative to consumption and gas storage is at historic high; The marginal cost of production for domestic natural gas is well under $3/MMBtu; DOE estimates the cost to import LNG to California, to be over $4/MMBtu (Slide 19); LNG supplies will not put downward pressure on natural gas prices in a competitive market; Current high natural gas prices appear to be the result of a “badly broken” natural gas trading systemb; Substituting higher cost LNG supplies for domestic gas in a non-competitive natural gas market will have no modulating impact on high natual gas prices. a) DOE EIA U.S. Natural Gas Wellhead Prices ($/Mcf), 1973-2004. b) Odessa American, Petrochemical manufacturer Huntsman renews call for natural gas- price probe, October 28, 2004.

Slide24: 

Accelerated Energy Efficiency and Renewables Alternative to LNG Imports on West Coast

Aggressive efficiency/renewables is cost-effective alternative to LNG: 

Aggressive efficiency/renewables is cost-effective alternative to LNG Gas demand is static, no growth in 2002-2016, Demand and price can be decreased considerably by aggresively implementing energy conservation renewable energy, Potential to reduce natural demand by the equivalent of at least 2 LNG terminals, Best environmental, fuel price, and public policy.

California and natural gas needs – Increase supply or decrease demand?: 

California and natural gas needs – Increase supply or decrease demand?

What is the cost of energy options for California?: 

What is the cost of energy options for California?

Impact of efficiency, community choice, renewables – High renewables % competes well with utility rates: 

Impact of efficiency, community choice, renewables – High renewables % competes well with utility rates CA reduced peak electricity demand by 11% in late spring of 2001 and helped break market power;a Saving peak energy fastest way to reduce gas usage and price - 20% price reduction, $0.90/MMBtu, possible in 12 months;a Sept 2004: 40 cities/counties seeking to go community choice, 22 have committed to 40% RPS by 2017, other 18 yet to disclose RPS commitment;b These 22 cities/counties, plus San Francisco, represent ~15-20% of statewide electricity load; Sept 2004: Navigant study – even in worst case scenario with H bond direct financing (San Francisco approach), no rate increase with 40% RPS – low cost energy efficiency programs neutralize higher cost of renewables. a) American Council for an Energy-Efficient Economy, Impacts of Energy Efficiency and Renewable Energy on Natural Gas Markets, December 2003. b) Comments of Paul Fenn, Local Power, summarizing presentations at Law International’s New Directions for California Energy Markets seminar, Sept. 16-17, 2004, San Francisco.

ACEEE – National effect of efficiency and renewables on natural gas price: 

ACEEE – National effect of efficiency and renewables on natural gas price

Gas demand reduction is best public policy approach: 

Gas demand reduction is best public policy approach Tremendous public support for renewables; Conservation effort in spring 2001 probably most unifying event among CA citizenry in last 25 years; The public interest would be best served by decreasing demand aggresively with efficiency and renewables, not increasing supply via LNG; Biggest political obstacles to implementing demand reduction policy will be utilities and companies with financial interest in natural gas and LNG supply business.