EMF 20: Natural Gas, Fuel
Diversity and North American
Energy Markets
Hillard Huntington
Energy Modeling Forum
November 2003
http://www.stanford.edu/group/EMF/publications/
North American Market in Transition
• Burner-tip regulation after 60 years.
• Summer gas use changes storage dynamics and
volatility.
• Pipelines constrain gas use in some regions.
• Are continental resources peaking like oil 30 years
ago?
Organization of Talk
• A Crisis or Short-Term Market Imbalances?
• Implications of tightening supplies for price
competition.
• Policy agenda for the longer term
– Do we need subsidies?
– How important is it to compromise between
environmental goals and energy supplies?
$9
$8
$7
$6
$5
$4
$3
$2
$1
$0
20
03
.07
20
03
.01
20
02
.07
20
02
.01
20
01
.07
20
01
.01
20
00
.07
20
00
.01
(Dollars per Million BTU)
Wellhead Natural Gas and Crude Oil Price
Gas
Oil
Near-Term Price Forecasting:
The Ultimate Source
Depleted Resources and Expanded Demand
Demand Surge
Price
Depleted Resources
Initial Position
Consumption
Recent Natural Gas Price and Consumption
Natural Gas Share of Total Energy (%)
35%
30%
25%
20%
15%
10%
5%
0%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
US Natural Gas Production & Consumption
25
20
15
10
5
Production
Consumption
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Labor Productivity Gap: Oil-Gas
Extraction Minus Non-Farm Business
8%
6%
Gap wrt Non-Farm
Oil & Gas
4%
2%
0%
1988 1989 1990 1991
1997
1992 1993 1994 1995 1996
1998
2001
1999 2000
-2%
Source: US Bureau of Labor Statistics.
-4%
Natural Gas Reserve Replacement Rate
(= Additions/Production)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1960
1966
1972
1978
1984
1990
1996
Analysis for Insights and Decisions
A Communication Bridge Between
Developers and Users of Analysis
1. Compares Different Approaches
2. Develops Important Insights
3. Identifies New Research
Analysis
Users
Analysis
Developers
EMF Process
Revolves Around Working Groups
Experts
Modelers
EMF Working
Group on Topic
Corporate &
Policy Advisors
Intergovernmental
Panel on Climate
Change
Council of Economic Advisors
Stanford
EMF Staff
Corporate Affiliates
& Government
Sponsors
Comparing Natural Gas Models
Results
Scenarios
Models
Scenarios:
Models:
Low Oil Price
NEMS (EIA) MUSINGS
Low Drilling Productivity
POEMS
US MARKAL
High Growth (& Power)
EPA/ICF
NARG (CEC)
High Oil Price
CERI
Expanded Frontier
Wellhead Natural Gas Prices Across Models
4.50
(2000 Dollars per Mcf)
4.00
3.50
3.00
2.50
2.00
1.50
High Oil LS/HD
Low Oil LS/HD
AEO 2003
Low Oil
1.00
0.50
0.00
1985
1990
1995
2000
2005
2010
2015
2020
Wellhead-Crude Oil BTU Price Ratio
1.6
1.4
1.2
1.0
0.8
0.6
Low Oil LS/HD
Low Oil
High Oil LS/HD
AEO 2003
0.4
0.2
0.0
1985
1990
1995
2000
2005
2010
2015
2020
2020 Natural Gas Conditions, Reference Case
Wellhead Price (2000 $/ MCF)
5.00
POEMS
NEMS
CRA
4.50
NANGAS
E2020
Markal
NARG
4.00
3.50
3.00
2.50
20
25
30
35
Total Consumption (Trillion Cubic Feet per Year)
40
2020 Natural Gas Conditions, Reference Case
6.50
POEMS
NEMS
Wellhead Price (2000 $/ MCF)
6.00
CRA
NANGAS
E2020
Markal
NARG
5.50
5.00
NPC Reactive
4.50
4.00
3.50
3.00
2.50
20
25
30
35
Total Consumption (Trillion Cubic Feet per Year)
40
2020 Natural Gas Conditions, Low Supply Case
Wellhead Price (2000 $/ MCF)
7.00
POEMS
6.50
NEMS
6.00
CRA
5.50
E2020
NANGAS
Markal
5.00
NARG
NPC Reactive
4.50
4.00
3.50
3.00
2.50
20
25
30
35
Total Consumption (Trillion Cubic Feet per Year)
40
2020 Natural Gas Conditions, Other Cases
2020 Natural Gas Conditions, Other Cases
EMF Differs Because . . .
Technology
EMF
NPC
Policy
Markets
• More reserve growth over
time in Low Oil Reference
Case.
• Smaller price changes are
needed to increase
production or decrease
consumption.
• Policy has smaller effect
on price.
NPC/EMF Common Policy Choices
• Price stabilization – inventories, long-term
contracts, financial instruments.
• No new subsidies ($20 billion in tax breaks).
• Compromise between energy supply, land
use and environmental policies.
• Policies can influence market prices.
Wellhead Price With & Without
Expanded Frontier
4.50
(2000 Dollars per Mcf)
4.00
3.50
3.00
2.50
2.00
1.50
Low Oil LS/HD
AEO 2003
Expanded Frontier
1.00
0.50
0.00
1985
1990
1995
2000
2005
2010
2015
2020
Wellhead Price Changes
With Expanded Frontier
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
-16%
-18%
-20%
POEMS
NEMS
CRA
NANGAS
E2020
Markal
NARG
2000
2005
2010
2015
2020
EMF Study Scenarios
5
Combined Case +
Frontier Supply
2
Reference +
Low Supply
Case
4
Combined Case:
1
EMF
Reference
Case
Reference + Low Supply +
High demand
3
Reference +
High Demand
Case
6
Combined Case
With High Oil
Price
7
Combined Case +
Renewables
Models in EMF Study
Model Name
Symbol
Proprietor
Energy Markets
U.S. MARKAL
MARKAL
U.S. Department of Energy;
All U.S. energy markets
Brookhaven National Laboratory including exports and imports
Energy 2020
E2020
Canadian Energy Research Institute
All Canadian and U.S. energy
markets
National Energy Modeling
System
NEMS
U.S. Energy Information
Administration
All U.S. energy markets
including exports and imports
Policy Office Electricity
Modeling System
POEMS
U.S. Department of Energy;
Onlocation, Inc.
All U.S. energy markets
including exports and imports
NANGAS/IPM
NANGAS
U.S. Environmental Protection
Agency; ICF Consulitng
U.S. electricity and gas markets
including exports and imports
North American Regional Gas NARG
California Energy Commission
Canadian and U.S. gas markets
Model for US and International CRA
Natural Gas Simulations
(MUSINGS)
Charles River Associates
Canadian and U.S. gas markets
Some Study Conclusions
• Volatile prices not = resource depletion.
• Gas may lose some market share.
• Subsidies are not needed for new sources.
– Do not lock in expensive sources.
• Compromises in energy/environmental policies.
• Expanded frontier could reduce price by 40
cents/mcf.
• Until 2020: gas prices>renewable technology.
• Fuel competition: an important brake on gas
prices.