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(1)

Role of Energy Efficiency

in Rebalancing

Natural Gas Markets

R. Neal Elliott, Ph.D., P.E. Industrial Program Director

ACEEE

Washington, D.C. July 26, 2005

(2)

The American Council for an Energy

Efficient Economy (ACEEE)

• Non-profit (501c (3)) dedicated to advancing energy efficiency through research and dissemination.

• 25 staffers in Washington DC, Delaware, Michigan and Wisconsin

• Industry, Buildings, Utilities, Transportation, and National Policy

• Conferences and Publications • Funding:

– Foundation and Federal grants (50%) – Specific Contract work (20%)

(3)

Natural Gas Consumption by Sector

Source: EIA 2003 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 194 9 195 1 195 3 195 5 195 7 195 9 196 1 196 3 196 5 196 7 196 9 197 1 197 3 197 5 197 7 197 9 198 1 198 3 198 5 198 7 198 9 199 1 199 3 199 5 199 7 199 9 200 1 Consumption ( M

ill. Cubic Feet)

Electric Power Transport Industrial Commercial Residential

(4)

U.S. Dry Natural Gas Production

-5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 1930 1933 1936 1939 1942 194 5 194 8 195 1 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 199 0 199 3 199 6 1999 2002 Dr y P roduction (M Mcf) Source: EIA 2004 Domestic Production Peaked in 1971

(5)

U.S. Sources of NatGas

Source: EIA 2004 -2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000 22,000,000 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Production or Imports (MMcf) Canada LNG U.S. Production

(6)

Average Monthly NatGas Prices

Source: ACEEE 2005 from DOE/EIA Data 2005

1 2 3 4 5 6 7 8 9 10 11 12 13 14 Janu ar y-85 January-86Jan uar y-87 Janu ar y-88 Jan ua ry-89 Janu ar y-90 Jan uary -91 Jan ua ry-92 Janu ar y-93 Jan uary-94 Jan uar y-95 Janu ar y-96 January-97 Jan uar y-98 Jan uar y-99 Jan uary-00 Jan uar y-01 Jan uary -02 Jan uar y-03 Jan uar y-04 January-05Jan uar y-06 Ave rag e Mon thly N G P ri c es ($/M MBtus) Well head Industrial Residential

(7)

Natural Gas Markets

Lower-48 Dry Gas Production vs. Dry Gas Productive Capacity (Bcfd) 44 45 46 47 48 49 50 51 52 53 54 55 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Productive Capacity Gas Production

Historical Gas Price at Henry Hub ($ per MMBtu) $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: EEA 2005

(8)

Tight Markets Causing

Economic Pain

• Fundamental supply/demand imbalance.

• High prices pinch gas-intensive industry

and low-income residential consumers

• Limited near-term supply options – Alaska

Gas 8-12 and LNG 3-7 years away

• Demand reductions through efficiency and

conservation most effective near-term

(9)

Role for Energy Efficiency

• Supply solutions take years to

come to market

• If modest increases in gas demand

produced large price increases,

then small decreases should

produce large price reductions

• Efficiency energy can produce

savings in both the near-term and

longer-term

(10)

ACEEE Research Approach

Sector estimates by State of the

near-term implementable potential for

energy efficiency and conservation

programs for:

1. End-User Natural Gas

2. End-User Electricity

Calculated “reasonably achievable”

savings based on sector end-uses (i.e.

space heating, motors, lighting...)

(11)

Using EEA Natural Gas Model

• EEA respected, independent natural gas analysts – used for current and past NPC NatGas studies

• Fully integrated natural gas market model

incorporating supply, transmission, storage and consumption at 106 nodes

• Using July 2003 projection as base case

• ACEEE modified consumption only – model handles other issues (e.g., fuel switching,

(12)

Impact of Energy Efficiency on

Henry Hub Natural Gas Pricing

Source: EEA 2004 and ACEEE 2005

2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 199 7 199 8 1999 2000 200 1 200 2 2003 2004 200 5 200 6 2007 200 8 200 9 201 0 2011 201 2 201 3 2014 2015 201 6 201 7 2018 201 9 202 0 N a tG as Price ($/M M c f) EEA May 2004 National EE only Midwest EE only Historic

(13)

Gas Consumption Reductions

from Energy Efficiency

-3,000,000 -2,500,000 -2,000,000 -1,500,000 -1,000,000 -500,000 0 500,000 1,000,000 Nat G as Savin g s ( M M c f)

POWER GENERATION GAS DEMAND INDUSTRIAL GAS DEMAND

COMMERCIAL GAS DEMAND RESIDENTIAL GAS DEMAND

(14)

Benefits and Costs from Reductions in

Energy Expenditures 2006-2010

Total Benefits = $142,800 Million

Total Investment and Program Costs = $22,441 Million

Benefits

Benefits CostsCosts

Residential Gas 9.5% Commercial Gas 1.8% Industrial Gas 3.2% Residential Elec. 44.0% Commercial Elec. 26.5% Industrial Elec. 15.1% Residential Gas 28.8% Commercial Gas 2.0% Industrial Gas 27.0% Residential Elec. 1.2% Commercial Elec. 1.2% Industrial Elec. 0.6%

Power Gen. Gas 39.3%

(15)

Conclusions

• We can do something about high natural gas prices – encourage energy efficiency

• Only viable near-term options – supply options will take 2-7 years

• Electric efficiency critical because of expanded natural gas generation

• National decision makers need to lead NOW

– consumers are motivated but need direction

• Sooner we start the sooner states will see benefits

(16)

Contact Information

R. Neal Elliott, Ph.D., P.E.

Industrial Program Director

ACEEE

1001 Conn. Ave, NW, Suite 801 Washington, DC 20036

202-429-8873

rnelliott@aceee.org

For more information and updates on Natural Gas and Energy Efficiency visit:

References

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