modeling the economics of the shale revolution: what have ...€¦ · modeling the economics of the...
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ModelingtheEconomicsoftheShaleRevolution:WhatHaveWeLearned?
HillardHuntingtonEnergyModelingForumStanfordUniversity
NGIAnnualAffiliatesMeetingandResearchReviewStanfordUniversity,Stanford,CA
8&9November2017
AncientNaturalGasMyths
• FPCChairmanpredictsrunningoutofnaturalgas• Keypolicyissue:deregulationofinterstatewellheadprices• Curtailments:gastoovaluableforpowersector• Naturalgaswouldsellat10%premiumabovedistillateoil
WhyUseModels?
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“Thepurposeofcomputingisinsight,notnumbers.”- R.W.Hamming
“Allmodelsarewrong,butsomeareuseful.”- GeorgeE.P.Box
ConditionalStatements
Forecasts
ShaleGasasaGameChanger?
• Re-industrializetheUSeconomy• Panaceaforglobalclimatechangedamages• ShiftgeopoliticalpowertotheUSA• Transformenergymarkets
NaturalGas,FuelDiversityandNorthAmericanEnergyMarkets
• WorkinggroupfirstmetinJanuary2002.• 2020pricescouldrangebetween58%and118%ofJune2003level.• Investmentsinresources/technologiesplayacriticalrole.• Fuel-substitutionopportunitiesprovideamorestablelong-runpricepath.
TheNew‘Normal’forNaturalGasPrices
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Citygatenaturalgasprice($/mcf)
APolicyFrameworkforEvaluatingNorthAmericanNaturalGasExports• Global framework evaluates major market risks• US LNG exports face increasing world competition• Policymakers should expect considerable export uncertainty
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PIorresearch
Engagingandinformativegraphicorimageabout
research• Apply to US strategies for cleaner power• Link:https://web.stanford.edu/group/emf-
research/docs/exports.pdf• Improves policy decisions by empha-
sizing uncertainty in market outcomes
Engagingandinformativegraphicorimageaboutresearch
‘IrrationalExuberance'DéjàVu?
Bcf/d %TotalLong-termNon-FTAapplicationsreceived 51.59 70.6%Long-termNon-FTAapplicationsapproved 21.35 29.2%TotalAnnualU.S.DryProduction 73.05
Source:DOE,OfficeofFossilFuel;EIA
• Notallprojectsareunderconstructionorwillbebuilttolicensedcapacity.• DemandforUSLNGexportscangrowfromcurrentlevels.
North American Energy Trade and Integration Prospectus Energy Modeling Forum, August 2017
Stanford EMF will be coordinating an effort to support trilateral discussion and sharing of energy information initiated by the Energy Secretaries and Minister from Canada, Mexico, and the United States for the North American region. This team effort will focus upon understanding:· the availability of existing data, · the opportunities for developing new metrics meeting investors’ and
policymakers’ needs, and · the sharing of market insights that flow from numerous analytical models and
frameworks.
Background information about the agreement can be found at http://www.nacei.org/en/.
AdditionalSlides
Prices/TradeinGlobalizingMarket
• WorkinggroupfirstmetinDecember2004ØNoshalegas/NoGreatRecessiononthehorizon
• WesternEuropeØStable/decliningproductionØGrowingconsumptionandtrade
• UnitedStatesØExpandingproduction/consumption/trade
GasTradeExpandsinEurope
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EuropeanGasMarkets(BcfperYear)
Consumption
DryProduction
Imports
Exports
NorthAmericanTradeShareRemainsSmall
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NorthAmericanGasMarkets(BcfperYear)
DryProduction
Consumption
Imports
Exports
SeveralOtherInsights
• Transitionfromcontractstoarbitrage• Marketresiliency:changeingasuserelativetopricechange• Somemodelsshow4xtheresiliencyofothermodels
ChangingtheGame?• ReturnedtothetopicwithourNorthAmerican“ChangingtheGame?”study,beginninginNovember2011.
• Broadenergymarketimpacts:displacecoal,slowdownnuclearandrenewableexpansion.ØFailedtoanticipaterenewablecostrevolution.
• BoostsGDPby$70billionannuallyoverthenextseveraldecades,butthatisonly0.46%ofthetotaleconomy.
• Modestimpactsonemissions:lesscoalbutalsonuclearandsomerenewableandenergyefficiency(lowerprices).
• Whichpricepath?
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AverageU.S.WellheadGasPrice(2010$/Mcf),2010-2050
Reference
HighShale
SupplyassessmentscalibratedtoEIA.EIAshowshigher-costproduction.
currentprice
NorthAmericanTransition
• ContinuedwithanewstudybeguninOctober2013.• SufficientflexibilityforCleanPowerPlanwithoutchangingpricesornetU.S.gasexports.
• USexportsfromnewLNGfacilitiesmustbecompetitivewiththecostsfromotherregions.
DiminishingRegionalDifferences
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2014:1 2014:7 2015:1 2015:7
NaturalGasPrices($/mmBtu)Source:IMF/WorldBank
German Japan Europe USA
TheEvaluationFramework
• GAMSmodelsolvesformarketbalances(equilibria)in13differentworldregions.
• Five-yearintervalsthrough2040.• Intertemporaloptimization.• USsupplyregioncompetesagainstallotherregionstoprovidegastoalldemandcenters.
• BothpipelinesandLNGfacilitiesprovidetransportationbetweenregions.
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PercentthatNew USExportsin2025WillReachatLeastSomeLevel(HorizontalAxis)
NetExports
NetImports