1. NATURAL GAS REVOLUTION, MEET THE BATTERY REVOLUTION, AND VICE VERSA Ben Schlesinger, Benjamin Schlesinger and Associates, LLC Bethesda, Maryland, USA Plenary Session: Technological Change and Energy in Transport 39 th IAEE International Conference Bergen, Norway – June 21, 2016 1

2. Topics ■ Gas supply revolution ■ Search for new markets – Coal replacement, exports, others – Natural gas vehicles (NGV) ■ Revolution vs. revolution (batteries vs. natural gas)? ■ Conclusions & discussion 2

3. BSA – 32 years of gas and energy advisory services. Expertise ■ Mid-stream economics, rates, commodity risks, contracting. – Gas market research & training – Index & contract negotiation – Fuel risks/due diligence – Litigation support/rate cases. ■ 600+ assignments in 28 countries since March ‘84. Major Assignments 3 Clients: Energy traders, power generators, pipelines, utilities, banks, governments, universities. Power generators Lenders Pipelines/traders LNG projects Regulators Expert testimony European pipelines GdF Suez, Repsol, BG Eastern Europe West African pipeline Sonatrach (Bechtel) Japan gas utilities Mitsubishi Philippine NPC

4. Low-cost shale gas is now over 50% of US production, and undercutting most other E&P. 4 Source: BSA 2016, from EIA; state abbreviations indicate primary state(s); shale data re-aggregated in January 2015.

5. Global-scale Marcellus-Utica field lies in sub- urban Pittsburgh! Natural Gas Supplies (Dry) Potential Production, Bcm Est. Recoverable, Tcm Yamal Region310-35016.7 …of which, Bovanenkovo 2204.9 Marcellus- Utica 219 (June 2016) 12.8 Qatar181 (2015)25.1 5 Source: BSA 2016, from EIA, Drilling Productivity Report, June 2016; resource data from http://www.eia.gov/analysis/studies/usshalegas/ (Northeast excl. Antrim); Yamal data from Gazprom, http://www.gazprom.com/about/production/projects/mega-yamal/, incl. explored and provisionally estimated; Qatar data from EIA, BP 2016 statistical review.http://www.eia.gov/analysis/studies/usshalegas/http://www.gazprom.com/about/production/projects/mega-yamal/ But price has idled most rigs.

6. Creating demand at home: gas-based factories... 6 Source : BSA 2016, from 2015 American Chemical Society survey, US DOE/FERC data at 2 June 2016, 68 mtpa of approved LNG export capacity now in con- struction; another 38 mtpa approved/awaiting FID. Caution: Market prices and supply will determine how much of this activity will materialize, let alone become economical, and by when. and building > LNG export capacity than Qatar. $110 bn toward 250 new chemical, petrochemical, steel and other manufacturing, # plants by region

7. Meanwhile, most surplus gas is replacing aging, inefficient coal plants, greatly cutting CO2. 7 Source: BSA 2016, from EIA & Statistics Canada; coal plants in 20 Northeast and Mid-West states plus Ontario; 1Q2016 fuel use data are annualized.. …and the US coal fleet is inefficient (GW). Gas is competitive to electric generators… Gas and renewables both rising as electric gen fuels... …driving down US energy related CO2 emissions. Tonnes x10 6 $/MMBtu, delivered

8. Gas, especially LNG, is finding a market in offsetting wind and solar production variations. 8 LNG Regas in Spain Hourly Wind Production in TX, MW Sources: Enagas, 2012; K. Forbes 2010, ERCOT data for 7/2009; Baltimore Gas & Electric Co.. 104 LNG Storage Plants in US

9. But NGVs, the clean fuel, non-petroleum dream…why aren’t there 20 million in the US? The Chrysler “flat tank” CNG Dodge Charger that never was… Since 2014, all muni busses in Los Angeles run on natural gas. Westport Cummins LNG semi will travel up to 1,200 km.

10. CNG and LNG are especially well-suited to heavy-duty markets, rail and shipping. 10

11. In some US regions, battery EVs are just, in effect, very highly efficient NGVs. 11 Source: Schlesinger. Gas is the marginal fuel for most hours of the day in the mid-Atlantic states (shown), and Texas, California, Northeast, other US regional grids.

12. COMPETITIVENESS OF NATURAL GAS MARKETS GOING FORWARD 12

13. Rule: Advanced technology and intensive manufacturing will slash product costs. And global solar PV costs are decreasing as fast... The same pattern is now underway for Li-Ion batteries. Source: BSA 2016, EIA data; graphs from JB Straubel, before EIA Annual Conference, Washington, DC, July 2015. Example: US shale drilling productivity rose dramatically… 13

14. What does all this have to do with gas demand, let alone petroleum? ■ The most vulnerable markets will get hit first. ■ Indeed, small CNG vehicles may already have fallen victim! – Last year, Honda pulled the last CNG passenger car sold in the US. – In contrast, automakers are rushing to build EVs. – But large-scale NGVs will not be affected soon. ■ Next comes peak shaving, and offsetting wind and solar production variations. – For example, in the US Sunbelt, solar & battery systems could replace gas in homes and buildings. ■ Ultimately, the petroleum vehicle stock would convert. How long will that take? Source: BSA 2016, interpolated from USDA, USDOE Oak Ridge National Lab data. 14

15. For power generation, most peaking fuels consist of oil and natural gas: Source: BSA 2015, from EIA. Capacity Factors for Utility Scale Peaking Generators Primarily Using Fossil Fuels, January 2014-July 2015 15

16. Estimated value of electricity storage ($/kWh): Source: BSA 2016, BSA $/kwh estimates; other info from NREL, 2013; “Arb” value reflects peak-offpeak basis; “Regn” refers to load regulation. 2012 Tesla Model S 2016 benchmark 2020 goal for Gigafactory? 16

17. But Hittinger & Lueken showed low cost natural gas can undermine US battery economics: Source: Hittinger & Lueken, 2014, Note, Storage values are represented by the estimated revenue that would have been earned, even if storage plants were operated with full knowledge of the day’s changes in electricity prices. 17

18. Cheap enough batteries could reverse this... Low Fuel PricesHigh Fuel Prices High Battery Costs Current US situation (Hittinger & Lueken)  Cheap fuel retards battery markets.  Batteries threatening CNG vehicles as auto manufacturers shift niche production to EVs.  Gas demand remains steady or rising in its traditional markets. Currently Europe & Asia-Pacific  Steady outlook for gas demand, main competition is from renewables and coal in power generation markets.  Both EVs and NGVs growing per national taxation policies favoring carbon and oil replacement. Low Battery Costs Anticipated by California regulators.  Batteries teamed with solar dis- place gas in buildings.  Batteries threaten oil-fired peakers first, then gas-fired.  Larger NGVs threatened if manufacturers pursue EV development and batteries really improve.  ZEVs in green states. Tesla’s World  May emerge in Europe and Asia.  Regulators and industry begin to favor battery development and sales at the expense of gas & coal.  Significant opportunities for batteries to arbitrage electricity markets.  EV growth limited only by availability and infrastructure.  ZEVs rise quickly. 18

19. Summary/Conclusions ■ US natural gas supplies will hold for at least two decades, and remain competitive – but US prices will rise to rebalance markets. – Coal replacement will keep reducing US CO2 emissions through the early- 2020s, when we run out of ancient, inefficient coal-fired plants to replace. – Newly created domestic gas demands (and pipeline exports to Canada and Mexico) will outpace US LNG exports. – Mid-stream gas infrastructure (pipelines, gathering/processing, distribution) will expand to serve gas growth throughout most of North America, but not all. ■ Private investment and public/municipal investment will stimulate large-scale NGV markets, both on-road and off-road. ■ EVs/ZEVs (long-range, superfast charging) will grow into the millions – just how will the electricity distribution grid deal with this? 19

20. Benjamin Schlesinger and Associates, LLC (BSA) 3 Bethesda Metro Center, Suite 700 Bethesda, MD 20814-6300, USA (301) 951-7266 Fax (301) 951-3381 bschles@bsaenergy.com Visit us at BSAenergy.com 20