The Future
of Supply-Side
Energy Management
Today’s Agenda
Fellon-McCord Overview
Energy Market Update
Future of Supply-Side Energy Management
Meeting Energy Needs
Supply & Demand-Side Considerations
Closing Thoughts
Confidential & Proprietary
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Fellon-McCord Overview
Key Statistics
1992
Founded in Louisville, Kentucky
$14 Billion
Annual client energy spend in
North America and UK/Europe
400
Supported by a partnership
network of more than 400
energy professionals worldwide
What We Do
Reduce Costs for Energy Consumers
Services
Energy Consulting &
Management
Energy Scheduling &
Dispatching
Some of Our Clients
24/7
Power Control Center staffed
24 hours per day 7 days per
week with certified energy
professionals
3
Confidential & Proprietary
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Data Management & Utility
Bill Payment
Global Focus
y
Fellon-McCord delivers energy solutions for global organizations
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Energy Market
Update
Disclaimer
The data and information contained in this presentation are gathered
and provided to Fellon-McCord & Associates through proprietary
and public sources and are published with the intention of being
accurate. Fellon-McCord & Associates, and any affiliates cannot,
however, insure against or be held responsible for inaccuracies and
further assumes no liability whatsoever arising from use of such data
or any information contained in this presentation.
The material in this presentation does not, in any way, represent a
recommendation of any kind that you or your company purchase or
sell any commodity. Discussions or representations of past market
performance do not predict future market results. Any forecast of
potential future energy prices or market trends are for discussion
purposes only and are expressly not intended to induce the
purchase of any commodity of any kind.
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U.S. Natural Gas Production
75
$14
70
$12
65
$10
60
$8
55
$6
50
$4
45
$2
40
Jan-05
$0
Jan-06
Jan-07
Jan-08
Jan-09
U.S. Dry Gas Production
Jan-10
Jan-11
Jan-12
NYMEX Natural Gas Price
Source: EIA, NYMEX
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Jan-13
Jan-14
Gas Price $ per MMBtu
Production Bcf per Day
Increasing U.S. Natural Gas Production Has Pulled Prices Down
Power Prices
Correlated with Gas Prices
$120
$14
$105
$12
$90
$10
$75
$8
$60
$6
$45
$4
$30
$2
PJM Power
NYMEX Gas
Source: InterContinentalExchange, Market View
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Gas $/MMBtu
PJM Power $/MWh
PJM Power Price vs. NYMEX Natural Gas Price
NGL Prices Trending Down
Ethane
$1.00
Propane
$ per Gallon
$0.80
$ per Gallon
$0.60
$0.40
$0.20
$0.00
Jan
Feb
Mar
May
Jun
Aug
Sep
Nov
Jan
Dec
Mar
May
Jun
Aug
Sep
Nov
Dec
$2.60
$2.20
$2.40
$2.00
$2.20
$ per Gallon
$1.80
$1.60
$1.40
$1.20
$2.00
$1.80
$1.60
$1.40
$1.20
$1.00
$1.00
Jan
Feb
Mar
May
Jun
Aug
Sep
Nov
Dec
Jan
Source: EIA
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Feb
Iso-Butane
N-Butane
$ per Gallon
$1.80
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
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Feb
Mar
May
Jun
Aug
Sep
Nov
Dec
North American Competitive Advantage
Global Industrial Power Prices 2012
$0.30
$US per kWh
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Source: EIA, Bloomberg, Europe’s Energy Portal, Shenzhen Government Online, Canadian Electricity Association
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Manufacturing Renaissance
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Long-Term Energy Price Risks
The Four Forces that are driving U.S. energy prices higher
Regulation of
Hydraulic Fracturing
Coal/Nuclear
Retirements
LNG Exports
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Manufacturing
EPA Fracking Study Due December 2014
• Impetus – As part of a 2009 appropriations bill, Congress directed
EPA to study impacts of fracking on drinking water.
• Focus – Five main areas
– Large volume water withdrawals from ground and surface waters
– Surface spills on or near well pads
– Well injection and fracturing process
– Surface spills of flowback water
– Wastewater treatment and disposal
• Progress
– Progress Report released December 2012 (no conclusions)
– Final draft scheduled for release “late 2014” for public comment and
peer review.
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Coal Retirements
Source: SNL Financial
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Natural Gas Needed to Replace Coal
Additional Natural Gas Needed
To Replace Coal Generation (by year)
Natural Gas Bcf per Day
5.00
4.50
0.24
0.00
2018
2019
0.25
0.00
0.05
2020
2021
2022
0.41
4.00
0.20
1.87
3.50
3.00
2.50
2.00
1.50
0.46
1.16
1.00
0.50
0.00
2013
2014
2015
2016
2017
Source: SNL Financial, Fellon-McCord
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US Nuclear Plant Closures / Additions
Vt. Yankee
620 MW
Kewaunee
556 MW
Watts Bar
1,200 MW
San Onofre
2,150 MW
Virgil C Summer
2,200 MW
Vogtle
2,234 MW
Crystal River
838 MW
New – Under Construction (5,634 MW)
At Risk (11,535 MW)
Source: Nuclear Regulatory Commission, Inside Climate News,
Bechtel Corp, Southern Company
Closures Announced (4,164 MW)
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Coal Generation Being Displaced by Natural Gas
Coal Generation Being Displaced by Natural Gas
Renewable
3%
Hydro
6%
2008
Nuclear
20%
Petroleum
1%
Natural Gas
21%
2012
Renewable
5%
Hydro
7%
Other
1%
Coal
48%
Other
1%
Nuclear
19%
Petroleum
1%
Source: EIA
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Natural Gas
30%
Coal
37%
LNG Historical Price Disparity
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LNG Export Approval Pipeline
Five terminals with a total of 8.5 Bcf per day of capacity have
received DOE approval for LNG exports to non-FTA countries
Freeport LNG
(1.8 Bcf per Day)
Lake Charles
(2.0 Bcf per Day)
Cove Point
(0.8 Bcf per Day)
More than 20
pending
applications
(>25 Bcf per Day)
Cameron
(1.7 Bcf per Day)
DOE Approval
FERC Approval
Construction
DOE Approval
FERC Approval/
Environmental
Review
Construction
Sabine Pass
(2.2 Bcf per Day)
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Exports (late 2015)
Exports
(late 2015?)
70
20
62
19
54
18
46
17
38
16
2006
2007
2008
2009
U.S. Gas Production
2010
2011
2012
Industrial Gas Consumption
Source: EIA
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2013
Industrial Consumption Bcf/day
Gas Production Bcf/day
Industrial Consumption Increasing
Major Shift in Crude
Oil
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Source: EIA
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2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
Million Barrels per Day
U.S. Crude Production
U.S. Crude Oil Production
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
Canadian Crude Production
Canadian Crude Oil Production
4.0
Million Bbls/day
3.5
3.0
2.5
2.0
1.5
Source: National Energy Board
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U.S. Now a Net Exporter of Petroleum
5
22
4
21
3
20
2
19
1
18
0
17
-1
16
-2
U.S. became a net exporter in late 2010
Product Net Imports
Source: EIA
Total Consumption
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15
Consumption
Million Barrels per Day
Net Imports
Million Barrels per Day
U.S. Petroleum Product Net Imports
vs. Consumption
North American Liquids Production
Could increase by as much as 74% by 2020
Source: Citigroup
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Mexico Energy Reforms
Mexico’s state-owned oil company, Pemex, has held a
monopoly on oil and gas production for the past 75 years, per
constitutional amendment.
Aging fields and the lack of capital, technology, and expertise
to develop new resources have resulted in declining
production.
Mexico’s president pushed through constitutional reforms that
passed the legislature in December 2013. Secondary laws to
enable implementation are due by mid-April.
These reforms will allow foreign capital, technology and
expertise to enter Mexico’s energy markets, providing a path
to increased production and market transparency.
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Summary
Oil and natural gas production in North America have
increased more than 30% in the past five years.
Increased supplies have pulled industrial gas and power
prices down to give the U.S. and Canada a competitive
advantage in energy prices.
This, and other competitive advantages are attracting
manufacturing back to North America.
There are four forces that can drive energy prices higher
•
•
•
•
Fracking regulations
Coal generation retirements
LNG exports
Industrial (manufacturing) renaissance – increasing demand
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Energy markets are dynamic
and always a cause for a plan
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Meeting Energy Needs
Developing a Plan
CEO’s, CFO’s, COO’s, CPO’s are looking for:
A centralized solution (i.e., single source) for energy supply and
demand
Ways to leverage energy needs to create savings across all
locations
Ways to track Plan performance
Ability to demonstrate Environmental Stewardship
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Meeting Energy Needs
Developing a Plan
Goals/Challenges:
Procurement Strategies
Load Aggregation
Contract Management
Sustainability Initiatives
Reporting and Benchmarking
Data Management
Budget
Certainty
Managing Risk
Price Forecasting
Market Timing
Market Movement
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Low Cost
Supply
Meeting Energy Needs
Developing a Plan
Supplier Margin
Utility Distribution
Cost
Transmission
Delivery Cost
(Basis)
Total Energy
Delivered Cost
Energy Commodity
Cost
Consumers need to create transparency in the Energy Supply Chain.
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Meeting Energy Needs
Developing a Plan
Opportunities exist in deregulated and regulated markets
Deregulated Markets
•
•
•
•
•
•
•
Regulated Markets
Load profile optimization
On-site generation
Tariff optimization
Regulatory intervention (rate cases)
Demand response
Ancillary market participation
Procurement: physical and financial*
•
•
•
•
•
•
•
Load profile optimization
On-site generation
Tariff optimization
Regulatory intervention (rate cases)
Demand response
Ancillary market participation
Utility negotiation*
Look for solutions in all regions where you have facilities.
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Supply & Demand Side: Today
CUSTOMER’S
TOTAL ENERGY COST
SUPPLY
Procurement
Risk Management
• Aggregation
• RFPs
• Contract Optimization
• Market Intelligence
• Market Timing
• Continuous Monitoring
DEMAND
Data Management
• Benchmarking
• Opportunity Targeting
• Performance Assessment
OPEX
• System Optimization
• Operating Procedures
• Behavior Modification
CAPEX
• Equipment
• Controls
• Building Modification
Supply and Demand-Side Services are typically fulfilled
in a non-aligned manner.
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Supply & Demand Side: Future
CUSTOMER’S
TOTAL ENERGY COST
SUPPLY
Procurement
Risk Management
• Aggregation
• RFPs
• Contract Optimization
• Market Intelligence
• Market Timing
• Continuous Monitoring
DEMAND
Data Management
• Benchmarking
• Opportunity Targeting
• Performance Assessment
OPEX
• System Optimization
• Operating Procedures
• Behavior Modification
CAPEX
• Equipment
• Controls
• Building Modification
Businesses need to reduce energy usage, and obtain
the most reliable and economic energy supplies available.
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Closing Thoughts
For Kentucky, as well as much of the Midwest:
√ Physical, financial, regulatory and legislative factors - globally, nationally
and locally - will continue to impact our region’s energy pricing.
√ Energy Pricing will likely continue an upward trend.
√ Power now tracks natural gas and this fact likely will not change any time
soon due to coal and nuclear plant retirements.
√ Accessing the real market price of power will be a challenge in Kentucky
and could put Kentucky at a disadvantage to other areas of the country that
can readily access third-party supplies.
√ Focus on lowering your energy usage, first, and then buy what your facilities
do need to consume as close to market pricing (i.e. wholesale) as possible.
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Thank you
We appreciate the opportunity
to present to
Andrew R. (Drew) Fellon
President & CEO
502-214-9418
[email protected]
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