a changing energy landscape
TRANSCRIPT
A Changing Energy Landscape
Dr. Tim BoersmaESADE Global Annual Energy Meeting, 25 November, 2016
Madrid, Spain
Outline
U.S. Elections and Possible Consequences For Energy Policy
The Future of the Paris Agreement
Global Gas Market Developments
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U.S. Elections and Possible Consequences For Energy Policy
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U.S. Energy and Climate Policy Entering Uncharted Territory
“Under my presidency, we will accomplish complete American energy independence.”
An “America First” energy plan...
Told New York Times he would be willing to ban the import of Saudi oil to the United States
“We’re going to cancel the Paris Climate Agreement”
“We’re going to rescind all the job-destroying Obama executive actions including the Climate Action Plan”
The Silver Lining – Rien Ne Va Plus..
4
Key Energy and Climate Policy Issues to Watch
Clean Power PlanUnlikely to survive post-election, but trends continue
Methane emissionsRegulation of existing wells (e.g. methane) less certain post-election
Fuel economy standardsMid-term evaluation likely influenced by election result
Energy exportsAnti-trade rhetoric and environmental activism pose downside risks
Renewable investment and production tax credits (ITC/PTC)Uncertain future for the main federal support scheme for solar and wind energy
Reviving the coal industryUnclear how to fulfil this promise absent drastic policy interventions
Leasing on federal landsExpansion of oil, gas and coal leasing, and Arctic drilling?
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CPP Impact Only Significant Post-2020 In Any Scenario
1.416 1.422 1.364 1.388 972 919
1.185 1.471 1.784 1.201 1.702 1.942
830973
1.204
836 1.0881.374
0
1.000
2.000
3.000
4.000
5.000
6.000
2020 2030 2040 2020 2030 2040
Coal Natural Gas Nuclear Renewables Other
Without CPP With CPP
• CPP compliance period only to start in 2022, repeal would only have measurable impact on U.S. electricity mix post-2020
• CPP removal could hit gas more than renewables, coal-fired generation may be the main beneficiary
U.S. Net Electricity Generation by Source With and Without the CPP (EIA AEO 2016 Reference Case)TWh
6
Wind Energy Enjoys Bi-Partisan Support
• Removal of renewable tax credits less likely than it seems: 63% of U.S. onshore wind capacity (45 GW out of 71 GW) is located in states that voted Republican in 2016
• Many of the largest onshore wind producing states (e.g. Texas, Iowa, Oklahoma) have no RPS in place – wind has thrived regardless
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The Future of the Paris Agreement
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Key Elements of The Paris Agreement
• Pledges occurring on a 5-year cycle, with higher goals each cycle
• Reduce emissions to keep global temperatures from rising more than 2˚C above pre-industrial levels, strive to limit global warming to 1.5˚C
• Enhance transparency and stocktaking measures
• Support developing countries in cutting emissions and preparing for climate change impacts
• Unique bottom-up approach allows countries to set own targets
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Paris Is Just The First Step Towards Deep Decarbonization
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Momentum in the U.S. Ends, Others May Take Over
• Momentum has been building until recently• Paris entered into force in October 2016: ratification by at
least 55 countries covering 55 percent of global emissions• Montreal agreement on curtailing aviation emissions• Further reduction of HFCs, Kigali Agreement
• Reasons for hope, despite the prospect of U.S. withdrawal• U.S. state and cities efforts will continue • Fight against air pollution remains key in major emerging
economies• China may take the helm as global climate leader
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Investors Have Embraced Decarbonization, Too: Not Just Policy Drives The Energy Transition
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Global Gas Market Developments
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U.S. Shale: There Will Be GasUS Dry Gas Production Under the EIA’s Reference Case ScenarioBcf/day
Source: IEA Medium-Term Gas Market Report 2016
0
20
40
60
80
100
12019
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
1620
1820
2020
2220
2420
2620
2820
3020
3220
3420
3620
3820
40
AlaskaCoalbed methaneLower 48 offshoreOtherTight gasShale gas and tight oil plays
ProjectionHistory
Source: EIA Annual Energy Outlook 2016
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U.S. LNG Export Capacity Ramping Up US LNG Export Capacity Under ConstructionBcf per day
Source: Company disclosures
• 8.6 Bcf/d of U.S. export capacity in operation, commissioning or under construction
• Offtakers are under no obligation to lift physical LNG volumes
• Export decisions will likely be based solely on variable costs
• Curtailments of U.S. export capacity can (and most likely will) happen in medium-term
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1,0
2,0
3,0
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5,0
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10,0
Jan-
16
Jul-1
6
Jan-
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Jul-1
7
Jan-
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Jul-1
8
Jan-
19
Jul-1
9
Jan-
20
Jul-2
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Sabine PassCove PointCameronFreeportCorpus Christi
Total capacity under construction (as of 9/30/2016): 8.6 Bcf/day
Capacity sold under long-term offtake agreements: 7.5 Bcf/day (~87% of total capacity)
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Gas Market Impact of U.S. LNG
• U.S. LNG flexibility will undermine oil price link and the pricing power of established exporters
• Gas supply glut combined with U.S. LNG flexibility is creating a buyers’ market
• U.S. LNG can cap spot gas prices overseas (as long as the market is oversupplied and the U.S. is the marginal supplier)
• Helps the creation of more efficient gas markets based on gas-to-gas competition
“We believe that US exports will effectively set Henry Hub as a key driver of European gas prices and weaken further their historical dependency on oil formulas.”
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Geopolitical Impacts of LNG
• Greater optionality and supply diversity (e.g. Lithuania, Poland) = energy security
• Increased negotiating leverage with dominant suppliers
• Greater flexibility than pipeline gas supply
• Cheap LNG may give further impetus for EU gas market integration
• The EU still needs more investment in infrastructure, reverse flow capability, interconnectors, storage The Independence FSRU helped Lithuania’s gas utility
negotiate a ~23% price discount with Gazprom
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For more information contactDr. Tim BoersmaDirector of Global Natural Gas MarketsCenter on Global Energy Policy Columbia University
Thank you!
The North American Shale Gas Resource Base Is HugeUS Natural Gas Supply Curve, Henry Hub Breakeven PriceTrillion cubic feet, $ per MMBtu
Source: IHS
-12-10-8-6-4-202468
1012
0 200 400 600 800 1.000 1.200 1.400 1.600 1.800 2.000
830 Tcf at < $3 per MMBtu
1,400+ Tcf at < $4 per MMBtu
19
Marcellus/Utica to Account for Bulk of Gas Production GrowthUS Dry Gas Production by AreaBcf/day
Source: IEA Medium-Term Gas Market Report 2016
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US and Australia Dominate LNG Export Capacity Additions
Projected LNG Export Capacity in 2021Bcf/day
Source: IEA Medium-Term Gas Market Report 2016, company disclosures
0
2
4
6
8
10
12
Australia Qatar US Malaysia Indonesia Algeria
Sabine PassFreeportCove PointCameronCorpus Christi
0
10
20
30
40
50
60
70
Capacityin 2015
US Australia Other Capacityin 2021
LNG Export Capacity Growth Between 2015 and 2021Bcf/day
Source: IEA Medium-Term Gas Market Report 2016
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Global Gas Prices Have Dropped Significantly Since 2015Gas Prices in Asia, Europe and the US$ per MMBtu
Source: IEA Medium-Term Gas Market Report 2016
• The gap between US and overseas gas prices has narrowed significantly• Global LNG glut and growing gas market competition will likely keep prices low for some time• Recent price spikes driven by temporary factors (unplanned nuclear outage in France, Korea)
22
Oversupplied LNG Markets for The Next 5-10 Years
• With US and Australian capacity additions, the global LNG market will likely be oversupplied through the early-2020s
• The economics of new liquefaction projects is challenging at current prices
• Uncertain demand outlook for LNG adds further to the challenges
• Without new FIDs in the next few years, tight markets may return by around 2023
Oversupply build-up
Oversupply reduction
Global LNG Supply and DemandMillion tons per annum
Source: David Ledesma 23