background, issues, and trends in underground hydrocarbon ...€¦ · 29/1/2009 · background,...
TRANSCRIPT
-
Background, Issues, and Trends in Underground Hydrocarbon Storage
David E. Dismukes
Center for Energy StudiesLouisiana State University
Environmental Permitting ClassJanuary 29, 2009
-
Description of the Natural Gasand Natural Gas Liquids Business
-
The Natural Gas Industry
Natural GasWells
Gas ProcessingPlant
Natural GasCompany
Main Line Sales
Production Transmission Distribution
Consumers
Source: Energy Information Administration, Department of Energy
UndergroundStorage
-
Hydrocarbon Storage Basics
-
Key Storage Characteristics& Terms
Characteristic Description
CapacityUsually though of in terms of base, working and total. (Denominated in Bcf)
Deliverability Speed of withdraw and injection.
Cycles Number of complete “turns” a facility can take.
All of these characteristics are a critical components in valuing storage assets.
5
-
Storage Basics
Why do we store hydrocarbons?
(1) Reliability: hedge on quantity (outages/curtailments).(2) Risk management: hedge on price (volatility).(3) Profitability: speculation (profits on market changes).
Generally, the more uncertainty and volatility (price) a commodity, the greater the need for storage
6
-
Natural Gas Storage Cycles
Source: Energy Information Administration, Department of Energy.
Bcf
Storage is needed to meet those peak usage periods when natural gas
demand exceeds natural gas supply.
Fundamental purpose of storage is to provide gas during peak periods (i.e., reliability).
-
Attractive Storage Physical Characteristics
Storage Characteristics Function / Nature
OptionalityLocation of facility will define the number of potential buyers/sellers given their location and connecting infrastructure
DeliverabilityType of facility tells you how quickly you can move the commodity to take advantage, or hedge, against market uncertainties
Interconnectibility Location to important infrastructure defines market scope / access
All of these characteristics are a critical part of storage value chain8
-
The Gulf of Mexico region accounts for:
• Approximately 30 percent of total U.S. crude oil production;
• Roughly 20 percent of total U.S. natural gas production;
• Almost 15 percent of total U.S. natural gas liquids production;
• 60 percent of U.S. crude oil imports;
• Over 20 percent of U.S. natural gas (non-pipeline) imports;
• 50 percent of U.S. natural gas liquids imports; and
• 43 percent of the Strategic Petroleum Reserve (“SPR”) storage capacity; and
• Over 45 percent of total U.S. petroleum refining capacity and 62 percent of the capacity east of the Rockies.
The Gulf of Mexico region is the most integrated and comprehensive energy economy in the world
Optionality
9
-
Storage Quick Facts
10Note: Gulf Coast states include Louisiana, Texas, Mississippi and AlabamaSource: Energy Information Administration, US Department of Energy.
• Natural gas can be stored for an indefinite period of time. The exploration, production, and transportation of natural gas takes time, and the natural gas that reaches its destination is not always needed right away, so it is injected into underground storage facilities.
• There are 57 active underground storage facilities in the Gulf Coast region, representing 14 percent of the nation’s underground storage facilities.
• In 2005, the Gulf Coast region had 1.4 Tcf of natural gas storage capacity. This represents approximately 17 percent of the nation’s underground storage capacity.
Duke Energy Gas Transmission Canada
pse.com
-
Different types of storage influence different deliverability attributes
Deliverability
Salt Caverns
• Very high withdrawal and injection rates. • Base gas requirements are relatively low. • Most salt caverns/domes in US along GOM. • More expensive, but faster and more flexible.
Depleted Reservoirs
Aquifers
• Most common - - has slower injection/withdrawal rates.• Conversion of a field from production to storage duty takes
advantage of existing wells, gathering systems, and pipeline connections.
• Usually used only in areas where there are no nearby depleted reservoirs.
• Single withdraw period (winter) & used to meet peak load requirements as well.
• Least desirable and most expensive type of natural gas storage facility.
11
-
Storage Types and Statistics
Market Pad GasInjection Rate
(Days)Withdraw Rate
(Days) CyclesStorage Type Share Share High Low High Low High Low
Depleted Reservoir 0.86 50% to 80% 200 250 100 150 1.22 0.91
Aquifer 0.1 50 200 250 100 150 1.22 0.91
Salt Cavern 0.04 20% -30 % 20 40 10 20 12.17 6.08
-
Salt Cavern Basics
-
What Does A Salt Dome Look Like?
14
-
How is a Salt Dome Mined for Storage?
15
-
DeliverabilityExisting Salt Domes
16
-
Other Types of Louisiana Underground Storage
Source: Energy Information Administration, U.S. Department of Energy; Federal Energy Regulatory Commission; and PennWell MAPSearch Database.
-
Pressures Changing Cost and Value for Hydrocarbon Storage
-
Factors Changing Hydrocarbon Storage Development
What are the factors increasing costs and value?
19
(1) Continued natural gas price volatility – seasonal differentials.
(2) Growth in natural gas usage, particularly power generation.
(3) Basis differentials/regional supply corrections (changing pipe and production configurations)
(4) Increasing LNG imports requires capacity development
-
Pricing Considerations
-
Daily Henry Hub Prices(1998-Present)
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20Ja
n-98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
($/M
cf)
Source: Intercontinental Exchange
5-year average through 2000: $2.89(standard deviation: 1.46)
average for periodsince 2000-2001
heating season: $5.4(standard deviation: 2.25)
21
Continued natural gas price volatility for near term.
-
Henry Hub – Houston Ship Channel Spread
-$2
-$1
$0
$1
$2
$3
$4M
ay-0
2
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Jan-
06
May
-06
Sep
-06
Jan-
07
May
-07
($/M
cf)
22
Basis differentials can be serious issue during market interruptions.
Post Katrina/RitaSupply disruptions
-
Intrinsic and Extrinsic Value inNatural Gas Storage
• The seasonal valuation of storage. • Evaluated as the difference between the
two prices in a pair of forward prices. • Value secured by locking-in a forward
spread, either physically or financially.
• Determined by the ability to profit by the volatility and uncertainty of prices.
Intrinsic Value:
Extrinsic Value:
-
Difference between Intrinsic and ExtrinsicValue of Natural Gas Storage
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03
January 2004contract
July 2003contract
The intrinsic value of storage is the difference between the cost of July 2003 gas (here at
contract expiration) and the value of January 2004 gas sold the same day.
The cost of July gas in storage is fixed after contract expiration
Opportunity for additional value on July-January spread
Source: Federal Energy Regulatory Commission and NYMEX.
$/M
MB
tu
-
Power Generation Considerations
-
Daily Entergy Spot Prices(2001-Present)
26
Power generation prices volatile – natural gas driven – cyclical load.
-
Power Generation Impacts
27
(1)Since the late 1990s, over 225,000 MWs of gas-fired capacity has come on line.
(2)While construction costs have escalated, still relatively attractive to other baseload options.
(3)Gas is important transition (?) fuel for carbon policy.
No new coal plants is becoming the norm in most states.Nuclear takes too long and costs too much – too much
uncertainty.Carbon sequestration (stack) expensive and inefficient.
(4)Renewables are in kW not in MW – scale issue and regional limitations.
(5)Large scale hydroelectric facilities very limited and unlikely.
-
LNG Considerations
-
Corpus Christi, TX
Lake Charles, LA
Port Pelican (13)
Freeport, TX
Golden Pass
Port Lavaca, TX
Port Arthur
Sabine Pass, LA
Main PassMcMoran
Hackberry
Bienville
Pascagoula, MS
Cameron
Gulf GatewayVista Del Sol
Ingleside LNG
Existing Terminal
Approved Terminal
Proposed Terminal
Potential Terminal
Gulf Coast LNG Terminals
29
-
0
5
10
15
20
25
30
35
40
45
2007 2008 2009 2010 2011
Proposed
Current
Note: New capacity includes terminals that have been approved, or are pending approval.
Planned LNG Capacity Additionsand Expansions (2007-2010)
Source: FERC and various tradepress and company websites
Cap
acity
(Bcf
/d)
30
Most LNG regasification capacity on line within the next 5 years.
-
Constructed Regasification Facilities
-
LNG Supply Curve
Source: ICF Consulting
-
Production & Transportation Considerations
-
Unconventional Gas Production
Energy Information Administration.
Bcf
-
Unconventional Gas Production
Source: ICF Consulting.
-
Cost Considerations
-
Recent Acquisition Costs
Source: ICF Consulting.
-
Reported Development Costs
Source: ICF Consulting.
-
Conclusions & Outlook
-
FERC Certification &Reclassifications
0
2
4
6
8
10
12
14
16
18
20
Certifications
Reclassifications
Source: Federal Energy Regulatory Commission.
-
Source: ICF Consulting.
Forecasted Storage Capacity Growth
-
Source: ICF Consulting.
Forecasted Storage Capacity Growth
-
Source: ICF Consulting.
Forecasted Production AreaStorage Capacity Growth
-
Louisiana Development Issues
44
(1) Changing production opportunities (Haynesville) will have big impact on facility location.
(2) Salt cavern availability.
(3) Cost escalation issues.
(4) Water use issues.
(5) Regulatory and tax issues.
(6) State lands development.
(7) Resource competition for other forms of underground storage (NGLs, crudes, product, CO2)
-
Questions, Comments, & Discussion
www.enrg.lsu.edu
mailto:[email protected]://www.enrg.lsu.edu/
Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Slide Number 32Slide Number 33Slide Number 34Slide Number 35Slide Number 36Slide Number 37Slide Number 38Slide Number 39Slide Number 40Slide Number 41Slide Number 42Slide Number 43Slide Number 44Slide Number 45