California Energy Commission Integrated Energy Policy Report Lead Commissioner Workshop: Preliminary Results Natural Gas Common Cases California Energy Commission th Street Sacramento, CA May 21, 2015 Leon D. Brathwaite Supply Analysis Office Energy Assessment Division

California Energy Commission Purpose 2 Key elements of the natural gas model –How the model was run Integrated Energy Policy Report (IEPR) Common Cases –Elements of the common cases Preliminary Results –Present demand, supply, and prices –Discuss trends

California Energy Commission Major Model Inputs: Demand 3 Demand in Five Disaggregated Sectors:  Residential Key factors: recent historical demand for natural gas, population, natural gas price, income, heating oil price, and cold weather  Commercial Key factors: recent historical demand for natural gas, income, natural gas price, population, heating oil price, and cold weather  Industrial Key factors: recent historical demand for natural gas, natural gas price, coal price, industrial production, and cold weather  Power Generation Key factors: total electricity generation, weather, natural gas price, fuel oil price, renewable electricity generation, and coal price  Transportation Key Factors: recent historical demand for natural gas, income, natural gas price, and population Applied outside California Estimated Elasticity  Residential, Commercial, Industrial, Power Gen, and Transportation  Range of elasticity ~ –

California Energy Commission Major Model Inputs: Supply 4 Marginal cost profile is a major input parameter for the natural gas model: − Technology is shifting the marginal cost profile − Overall, the shifting of the marginal cost supply profile results in more resources available at lower cost Sources: California Energy Commission; Baker Institute; National Petroleum Council Cost Curves rightward shift

California Energy Commission North American Market Gas-trade (NAMGas) Model 5 Simplified View: Produces estimates of supply, demand, and hub prices Generates end-use burner-tip prices from hub prices Natural gas supply basins Connected to Interstate and Intrastate Pipelines Connected to Demand centers Model iterates through all time periods and all regions

California Energy Commission IEPR Natural Gas Common Cases 6 Staff constructed the following outlooks:  Mid Energy Demand Case Reference Case  Low Energy Demand (LD) Case  High Energy Demand (HD) Case HD High Demand LD Low Demand

California Energy Commission Natural Gas Common Cases: Key Assumptions Major change since last workshop

California Energy Commission Preliminary Results 8 Performance of Cases: United States

California Energy Commission Preliminary Results: Henry Hub Prices 9 Annual growth rates between 2018 and 2030 vary 1.9% and 2.0% 2030 prices vary between $3.59 and $6.36 per Mcf Price rebound driven by demand growth faster than supply On the dashed line, the 2015 and 2016 values are EIA's published estimates.

California Energy Commission Preliminary Results: US Natural Gas Demand 10 US natural gas demand growing steadily  Annual growth rate in Reference Case about 1.4%  By 2030 demand surpasses 80 bcf/d

California Energy Commission Preliminary Results: US Power Generation Demand for Natural Gas 11 Aggressive coal retirement pushing demand in the power generation sector higher  In high demand case, by 2030, natural gas demand surpasses 40 bcf/d

California Energy Commission Preliminary Results: US Natural Gas Production 12  Highest natural gas production in Low Demand Case Less imports enter the Lower 48 Lower 48 production more competitive with Canadian imports  More imports in the high cost environment (LD Case)

California Energy Commission Comparison of Results: Energy Commission vs EIA 13  EIA’s long term prices are higher than CEC’s CEC cases reflect higher supply expectations relative to demand This tends to lower prices

California Energy Commission Preliminary Results 14 Performance of Cases: California

California Energy Commission Price Performance Topock Hub 15 Topock and Malin price projections mirror that of Henry Hub  Growth rates are about the same Malin Topock

California Energy Commission Price Differentials 16 In general, differentials turn positive after 2013:  Resource abundance more evident in the eastern US  Access to shale and ‘tight’ gas resources re-ordering supply portfolio, impacting eastern prices more than western Negative differential between Malin and Henry Hub expected to continue Point of Interest - Henry Hub

California Energy Commission Preliminary Results : California Natural Gas Demand 17 The implementation of renewable generation suppresses California’s natural gas demand  Decline at an annual rate of 0.63% between 2015 and 2026  Overall natural gas climbs to 5.84 bcf/d by 2030, but remains below the 2015 level

California Energy Commission Preliminary Results: California Power Generation Demand for Natural Gas 18  No significant coal retirements in California High input natural gas demands return high final output natural gas demands Low input demands return low final output natural gas demand  Implementation of renewable generation suppress demand until around 2025  Demand rebounds after the full implementation of the renewable portfolio standard

California Energy Commission California Supply Portfolio  Displays the reconfiguration of the supply portfolio under the conditions of each case Each wedge of pie represents percent of demand satisfied by the supply region Flows at Malin composed of flows on both Ruby and GTN pipelines In-state share of the supply portfolio remains relatively constant over the three cases  Variations in Malin supplies suggest that this source is the marginal supplier Low Demand Case Demand: 5.18 Bcf/d High Demand Case Demand: 6.25 Bcf/d Reference Case Demand: 5.67 Bcf/d

California Energy Commission Preliminary Results Conclusions 20 US natural gas demand grows at an annual rate of 1.4% between 2015 and 2030, reaching 31.1 bcf/d in the Reference case The implementation of renewable generation suppresses California’s natural gas demand, declining at an annual rate of 0.63% between 2015 and Overall natural gas climbs to 5.84 bcf/d by 2030, but remains below the 2015 level Henry Hub prices reach $5.42 (2010$)/Mcf by 2030, representing an annual growth rate of 1.80% between 2017 and 2030 Aggressive coal retirements outside of California contribute to higher natural gas demand and prices California’s share of the supply portfolio remains relatively constant across cases –In-state production declines in all three cases Malin supplies display the most fluctuations across the cases, suggesting that this California supply source is the marginal supplier.

California Energy Commission Preliminary Results Next Steps 21 Further investigate the issue of coal retirements –Incorporate any added information from US EPA –Impact on demand and price Further investigate the development of the Renewable Portfolio Standard –Incorporate any added information from US EPA Incorporate data from Demand Analysis Office and Transportation Office Examine Canadian supply cost curves –Impact on flows into the Lower 48 Develop and produce the revised cases –Schedule for August, 2015

California Energy Commission Preliminary Results Common Cases 22 Questions and Comments