Natural Gas Issues and Opportunities

1
Natural Gas Issues and Opportunities

• Ron Edelstein
• Gas Technology Institute
• Tennessee Regulatory Authority Symposium
• Nashville, Tennessee
• August 19, 2003

2
Topics

• Causes of todays natural gas crisis?
• Potential solutions for supply?
• Will increased supplies alone lower the prices to
  end users?
• Are there any solutions for customers?

3
Causes of Todays Natural Gas Crisis

• Demand Issues
• Supply Issues

4
Ref U.S. EIA

5
Much of Natural Gas Demand by Small Customers is
Inelastic
Ref U.S. EIA
6
Demand Issues

• Increased use of gas for power generation
• Natural gas consumption is relatively inelastic
  to prices in the short term because gas equipment
  typically has lifetimes in excess of 15 years,
  and most small customers cannot switch fuels

7
Natural Gas Production Capacity
Ref U.S. EIA
8
Relationship between Drilling and
Wellhead Prices
Ref U.S. EIA
Ref U.S. EIA
9
Production Declines Increasing
Ref U.S. EIA
10
Electricity Demands Impact Gas Storage
Ref U.S. EIA
11
Supply Issues

• When the industry operates at close to full
  capacity, small changes in supply or demand can
  cause significant market pressures and
  substantial price increases or decreases
• Significant delays (6 18 months) occur
  between changes in price and changes in wellhead
  supply
• Rapid declines in production are occurring from
  new gas wells, which could rapidly turn a supply
  surplus into a deficit during a period of low
  producer investment
• The increased demand by power plants for natural
  gas has also impacted on the ability to refill
  natural gas storage
• The U.S. natural gas market is relatively
  isolated from overseas gas supplies

12
Potential Solutions for Supply

• Enhanced recovery from unconventional gas
• LNG facility expansion and new facility
  development
• Increased drilling allowed on federal lands and
  offshore
• Expedited siting of new pipelines
• RD on enhanced exploration, stimulation, and
  recovery technologies
• Alaskan and MacKenzie Delta gas
• Natural gas storage is critical

13
What should we expect short- and long-term
looking ahead? U.S. Energy Demand Projections
Ref U.S. EIA
14
Lower-48 Production Must Continue Apace
Ref U.S. EIA
15
Underground Gas Storage is Essential to U.S. Gas
Industry and Its Customers
Ref U.S. EIA
16
There is Enough Gas Out There
Ref U.S. EIA
17
Ref GTI EP Dept.
18
Will increased supplies alone lower prices to end
users?

• Clear market-based, unbiased price signals to
  producers and other market players
• More imported LNG will allow world market to
  react to U.S. prices
• Allow long-term contracts between producers and
  energy marketers, end users, and LDCs
• Allow LDCs to hedge their bets on gas prices
• Consider other fuels for power plants, as well as
  natural gas

19
Are there any Solutions for Customers?

• Combined heating/cooling and power
• New energy-efficient appliances
• Advancedindustrial processes
• Lower gas TD OM costs
• Customer-funded, PUC-approved RD to reduce TD
  OM costs and develop advanced end-use equipment

20
Residential/Commercial Opportunities

• Heating-only gas heat pump with efficiencies of
  120-140
• Fully condensing gas water heaters with
  efficiencies of 93
• Combined space/water heaters
• Microgeneration with PEM fuel cells (long-term)
• Modulating furnace

21
Industrial Opportunities

• SuperBoiler with 94 efficiency
• Oscillating Combustion with 5-20 increase in
  heat transfer, 3 fuel savings

22
TD Cost Reduction Opportunities

• Lower installation costs with guided directional
  drilling, more automated service connections
• Advanced sensors for gas leak locating and
  pinpointing, plastic pipe location,
  nondestructive evaluation of pipelines and mains
• Keyhole repair technologies
• In-pipe repair technologies

23
Conclusions

• Natural gas has a vital role to play in both
  U.S. and world energy future
• Supplying resources to meet 30 Tcf demand in
  U.S. poses a serious challenge
• Technology, the gas industry, and the free market
  can rise to this challenge, as they have done in
  the past
• Expedited siting of LNG terminals and natural
  pipelines and wells will allow the free market to
  act
• Opportunities for research collaboration by
  industry, government, and RD organizations
  should be exploited