111 Energy Realities Facing the United States Frank Clemente Ph.D. Senior Professor of Social Science & Energy Policy Penn State University

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333 Five Basic Premises Worldwide growth in energy demand is unprecedented and will continue for decades Coal is the main energy source able to meet this demand in terms of scale, time, reliability, cost and versatility Coal conversion to electricity, liquid fuel and NG equivalents can greatly alleviate supply problems Carbon capture and storage (CCS) is the technological pathway to the full potential of coal The U.S. should rapidly develop CCS and make it available, affordable and deployable to the global community –this is the moral energy issue of our time

444 Two Different Worlds ●“There is no such thing as clean coal” – National Resources Defense Council. ●When asked how China would ever meet the growing demand for electricity, liquid fuel and NG, Du Minghua, Director of the Beijing Research Institute replied: “Coal is the solution to all three”.

55 “China is an example for the developing world” IEA, 2007

66 India’s Rapidly Emerging Demand for Electricity Millions of People in India Toil in An Bleak World Removal of poverty is the greater immediate imperative than global warming” P. Ghosh, Secretary of the Environment, India

77 Coal is India’s only Energy Advantage India’s Share of the World’s Energy Reserves “Coal is expected to be the mainstay of power generation in the years to come” India’s 11th Five Year Plan ( )

8888 Steady Drumbeat Of Electricity Demand Across the World Note: Over 2 billion people do not have adequate access to electricity and 1.6 billion have none at all

99 The World Is Turning to Coal Source: Data Derived from Platt’s Proprietary Database, 2008 China built more coal generation in 2007 than Britain built in its history

10 Modernization – The Rise of the Automobile In 2002, there were 812 million vehicles. By 2030 there will be 2.1 billion. Source (Dargay and Gately 2006)

11 Everything, Everywhere, All the Time: Increases needed by 2030 to meet demand ● Nuclear power 38% ● Oil production 43% ● Renewable energy61% ● NG production64% ● Coal production 74%

12 U.S. Oil and NG Production NG Production (Tcf/y) Crude Oil Production (mm/d)

13 WHERE WILL THE ELECTRICITY COME FROM IN THE UNITED STATES?

14 Rising Tide of Electricity Demand in U.S. Any plan for new generation must account for the pressure of steadily growing demand for electricity

15 The Steady Erosion of Electric Reliability in the United States, Number of contiguous states in reliability regions where available capacity margin meets minimal accepted level -- 15% By 2016, only one in four states will be in a reliability region meeting NERC’s minimum acceptable standards 2016

16 The Danger of Relying on NG for Electricity 1.NG has 4 times the price and 20 times the price volatility of coal 2.Using NG for electricity drives up the price of both electricity and NG for families and businesses. 3.North American NG production may have peaked. If so, LNG imports from risky sources (e.g. Russia, Iran) must balance supply.

17 Some States Highly Dependent on NG for Power

18 This Second “ Dash to Gas” is Real, Risky and Expensive Source, Platts, 2007 *Note: The Platts survey is the most recent available but does not include many recently proposed NG Plants or many recently cancelled coal plants

19 Depletion Sets the Context: Wanted: A New Texas Every Year (6 TCF) Sources: EIA; EOG; CIBC World Markets

20 The U.S. Bets On A Brave New World Where new NG supply came from Where new supply is projected to come from Source: EIA “North America is setting itself to import LNG in large quantities” (IEA, 2007)

21 More Global NG Consumption Means Competition: Billions of New Kids on the Block Source: EIA, International Energy Outlook, 2008 Increases in NG Consumption “The U.S. is the market of last resort for LNG… we will get the gas Europe and Asia don’t need” -Goldman Sachs, 2008.

22 If Aubrey McClendon is Correct, The U. S. Faces Significantly Higher Electric Rates ●“U.S. natural gas producers can increase supplies by 5 percent a year…there is plenty of natural gas to burn to make electricity” ●“We think gas prices stay in the $9-$11 range…aggressive 35% to 40% first year declines are going to kick in” “An average of $10 is a pretty good price” ● But NG prices have averaged only $6.22 over the past 5 years and electric rates have still increased 27%. ●$10 NG will dramatically increase the cost of NG for electricity as well as the cost of NG for families and business.

23 What $10 NG Would Mean to American Consumers? - $70 Billion Dollars More in Costs “An average of $10 is a pretty good price” Aubrey McClendon, CEO, Chesapeake Energy, July, 2008

24 Show Me The Gas : Failed Optimism has surrounded NG ●In U.S production would significantly increase and lead to $2.58 NG in 2008 ●In LNG imports would significantly increase and lead to $ 3.67 NG in 2008 ●In LNG and shale gas will increase and lead to low cost NG ●But NG prices are still twice as high as predicted just 4 years ago

25 Systematic Bias : Since 2000, EIA has: ●Overestimated NG production in 23 of 28 forecasts ●Underestimated NG used for generation in 27 of 28 forecasts ●Underestimated price of NG to generators in 27 of 28 forecasts See our article in Public Utilities Fortnightly, July, 2007

26 If Boone Pickens is Correct and we are at Peak Oil –The long run price of NG/LNG Source: "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007 Price of W TI Oil in Dollars per Barrel “Natural gas prices are anchored in a long-term relationship with crude oil prices” Stephen Brown, Federal Reserve Bank of Dallas, 2007

27 Coal Is the Cornerstone Of Electricity Generation In The U.S.

28 The Scale Needed to Replace Coal in the U.S. ●NUCLEAR: 250 more reactors ●NATURAL GAS: 17 more Trillion Cubic Feet ●HYDRO: 500 facilities size of Hoover Dam. The reality of physics is that electricity cannot be stored in large quantities – an inevitable constraint on solar and wind generation.

29 Nuclear Power: Four bottlenecks will significantly delay the construction of new nuclear power plants in the United States 1.High Level Waste management, transportation and storage 2.Entrenched Opposition at both national and local levels 3.Supply chain issues (a) availability and cost of fuel, (b) scientific expertise and skilled labor (c) global competition for nuclear grade components 4.Societal inertia, litigation and bureaucratic creep –we have not built a nuclear plant for decades.

30 Bottleneck: Competition with the rest of the world for nuclear grade components, fuel and expertise –we are behind the curve and falling Source: World Nuclear Association New Reactors which will come online by 2015

31 “ Will Weather Provide Reliable Electricity?” Energy Policy journal, August,2008: Findings from UK wind analysis 1.Wind output can be very low at the moment of maximum demand. 2.Expect power swings of 70% within 12 hours 3.This volatility will cause backup NG plants to go on and offline frequently, reducing efficiency and reliability 4.These reductions will lead to increases in the cost of electricity and offset environmental benefits

32 Wind Generation’s Performance During 2006 California Heat Wave * Adapted and estimated from Dixon, U.S. DOE (2006) When California’s Daily Peak exceeded 45,000 MW, in no case did wind provide more than 325 MW despite rated capacity of 2500 MW.

33 Distance Between Major Wind Farms (In Miles) * Note: Distance between Altamont and San Gorgonio is 370 miles * * Montezuma Hills California San Diego Horse Hollow (TX) Elk River (KS) 350

34 Lest We Forget : US Coal Reserves vs. Oil and NG Reserves Source: EIA, 2008

35 Over 70 Billion Barrels of Stranded Oil Recoverable Through CO 2 – EOR * Billion Barrels Texas has over 30 billion barrels of oil potentially recoverable with CO 2 - EOR * Excludes Alaska and Offshore