1. Paul N. Cicio President Industrial Energy Consumers of America
-Energy & Environment Policy- Implications for Manufacturing Competitiveness
Paul N. Cicio
President
Industrial Energy Consumers of America

2. Key Public Policy Issues
Natural gas resources – but at what price?
Natural gas exports – long-term, potential to drive U.S. prices to international levels.
Overreliance on natural gas for power generation. Higher costs and reliability issues.
EPA GHG regulation on EGUs.

3. Manufacturing is Important to U.S. Economy
Contributed $1.87 trillion to the economy, up from $1.73 trillion.
11.9 percent of GDP. Every $1.00 adds another $1.48, the highest multiplier effect of any economic sector.
Supports 17.2 million jobs, one in six private sector jobs (12 million direct or 9 percent).

4. Industrial Energy Consumption to Increase by 21.8% by 2025
Source: EIA

5. U.S. Natural Gas Demand to Increase by 29.9% by 2020 (Bcf/day)
Actual Demand
2012
EIA Forecast
2020
2012 vs. 2020
Difference
Industrial
19.78
22.16
12.0%
Residential
11.37
12.22
7.5%
Commercial
7.95
8.66
9.0%
Electric
24.96
24.14
-3.3%
Transportation
0.082
0.219
166.7%
Lease & Plant Fuel
3.82
4.77
24.9%
Pipeline & Distribution Use
1.99
2.00
0.5%
Exports of LNG --
5.70
 --
Exports to Mexico
1.70
3.01
77.1%
Exports to Canada
2.66
2.96
11.3%
Total Demand
74.31
85.84
15.5%
Imports from Mexico
-0.00 %
Imports from Canada
-8.12
-6.00
-26.1%
Imports from LNG
-0.48
-0.41
-14.6%
Total Imports
-8.60
-6.41
-25.5%
NET TOTAL (Bcf/d)
65.71
79.43
20.9%
NET TOTAL (Tcf/y)
24.0
29.0
20.8%
Source: EIA – AEO 2014 Early Release, Net Demand

6. Energy-Intensive Industries Use 82% of All Energy from Industrial Sector (Small Energy Price Increases Have Large Competitive Impacts)
Sector
% of Operating Cost
Aluminum
30-35%
Recycled Steel
25%
Integrated Steel
85% (energy and raw materials)
Plastics
80% (feedstock)
Chemicals
Varies greatly 15-20% (fuel only)
Paper
10-20%
Glass
20-25%
Fertilizer
Food Processing
30%
Cement
25-35%
Refining
15-20% (fuel only)

7. Energy Price Sensitive Products are Essential for Economic Growth
Commercial &
Consumer Products
Convert to
Building Block Industries
Chemicals
Plastics
Fertilizer
Glass / ceramics
Steel
Aluminum
Pulp and Paper
Cement
Food Processing
Food Production
Automobiles
Consumer goods
Construction
Medical Supplies
Energy Production
Appliances
Household products
Defense industries
Telecommunication

8. The Relationship of Natural Gas Prices and Jobs

9. “A Direct Relationship Between Energy Costs and Jobs” (Natural Gas Prices Increased 209% from 1999 to 2008) (23% / year increase)
Source: EIA, Bureau of Labor Statistics

10. An Average Loss of 441,667 per Year:
Natural Gas Prices Significantly Contributed to the Loss of 5.4 Million Manufacturing Jobs (-31%)
54,905 Facilities Lost (Since 2001)
An Average Loss of 441,667 per Year:
(Jobs created in ,000)
Source: Bureau of Labor Statistics

11. Manufacturing job losses
Loss of Manufacturing Competitiveness Resulted in About 8.6 Million Job Losses
Manufacturing job losses
5.4 Million
Non-Mfg.
Job losses
3.1 Million
Total
8.5
Million
Source: NAM, based on 2009 data

12. Loss of Competitiveness Accelerated Manufacturing Imports by 42% (2000-2013)
2013 Deficit:
$448 Billion
Source: Department of Commerce

13. The Cost of Natural Gas to the Industrial Sector
Source: EIA

14. The Cost of Electricity to the Industrial Sector
Source: EIA

15. 100-Year Supply of Technically Recoverable Resources
Natural Gas Resources are More Uncertain than Believed

16. Recoverable at what price?
“Technically recoverable” does not mean that it is “economically” recoverable.
Recoverable at what price?

17. Potential Gas Committee Assessment 2013 (“technically recoverable”)
Tcf
Probable (existing fields)
708.5
Possible (“new fields”)
952.3
Speculative (“frontier fields”)
558.7
TOTAL
2,225.6
Alaska
-193.8
Available to Lower 48
2,031.8
Key Point: 74% of potential supply in lower 48 is from “less certain” resource estimates.
Source: Potential Gas Committee

18. Potential Gas Committee (Undiscovered Technically Recoverable Resources – Tcf)
Source: Potential Gas Committee, 2013

19. Can Production Meet and Sustain New Demand?
More demand to be added between 2016 and 2020 than in the past 20 years combined!
Must replace declining “conventional” well production of 19 bcf/d.
Production base decline from horizontal wells is 30% equal to 10 bcf/d.
This means replacing almost four times the production of the Barnett Shale each year!

20. LNG & Pipeline Exports
Six approved by DOE for shipments to non-free trade countries. New demand of 8.7 bcf/d or +12.4%.
26 others pending. Potential demand of 14.1 Tcf/year, + 54% (DOE).
Pipeline exports to Mexico and Canada to increase by 37% to 6 bcf/d by 2020 (EIA).

21. U.S. Natural Gas Gross Exports Exceed 5 Tcf in 2025
U.S. natural gas imports and exports
trillion cubic feet per year
billion cubic feet per day
History
2012
Projections
2025 25
5.4 tcf of exports
(14.8 bcf/day) 20
Pipeline exports to Mexico 15
Pipeline exports to Canada 10
Lower 48 states LNG exports 5
Alaska LNG exports
Pipeline imports from Canada -5
2.0 tcf of imports
(5.4 bcf/day)
LNG imports
-10
-15
Source: EIA, Annual Energy Outlook 2014 Early Release
Adam Sieminski, December 16, 2013 21 21

22. Australia: Manufacturers and Power Generators are Being Asked to Pay the LNG Export Price

23. Overreliance on Natural Gas for Power Generation

24. Major EPA Regulations Directed at Stopping Coal Use
Industrial Boiler MACT
Utility MACT (Mercury)
Cross State Air Pollution Rule (SO2, NOx)
Fly Ash Rule (Classify as a hazardous material)
Proposed GHG regulation for new power plants (Only natural gas qualifies)
GHG regulation for “existing” power plants
GHG regulation for “industrial” facilities (TBD).

25. Electricity Sector Costs, (MACT, CSAPR, Coal Combustion Residuals, Cooling Water Regulations)
(Billion 2010$)
Annual Avg.
Present Value
Environmental Controls
$15
$89
Replacement Capacity $2
$11
Fuel $5
$28
Total
$21
$127
Notes: - Compliance costs from 2012 through 2020 are discounted to January 1, 2011 using a real annual discount rate of 7 percent.
- Annual average costs are based on the present values and discounting.
- The cost of environmental controls includes net cost savings for operating and maintenance (O&M) expenses.
Source: ACCCE

26. All of the $127 billion in costs over eight years will be passed onto the consumer!

27. Coal Retirement Predictions
Source
Retirement
Date
EPA
17.5 GW
December 2011
EIA
49 GW
July 2012
Credit Suisse
60 GW
September 2010
ICF International
75 GW
October 2010
NERC
36.4 GW
The Brattle Group
57.5 GW
December 2010
ICF/EEI
71.5 GW
January 2011
FBR Capital Markets
37.5 GW
March 2011
FERC
60.5 GW
August 2011
NERA Economic Consulting
48 GW
September 2011
The McIlvain’ Company
50 GW
March 2012
Bloomberg Finance
55 GW
June 2012
68 GW
October 2012
Source: Bloomberg Finance

28. Coal is a Low Cost Source of BTUs for Electricity Generation
Coal is a low cost source of energy. Its price has consistently been low and is not price volatile like natural gas. Natural gas on the other hand saw escalating prices because of supply issues and was the most price volatile commodity in the world. The chart illustrates why it is important to keep coal in the fuel mix. We need natural gas, coal, nuclear and renewable energy to all compete with one another and not become increasingly too dependent on natural gas. When these energy sources compete…..consumers win.
Source: EIA

29. Implications of Greater Natural Gas Consumption in Power Generation
As natural gas prices rise…and they will…industrials will be impacted by both higher natural gas costs plus higher electricity costs!!
Base load coal generation is needed to compete on a BTU basis with natural gas.
Coal use and fuel diversity is essential for reliability.

30. EPA Regulation of EGU GHGs
Higher electricity prices and reduced reliability.
Set precedent for regulation of industrial sector.
Support: inside fence-line standards based on engineering limitations of equipment.
An emission rate – not a mass-based limit.

31. Industrial Energy Consumers of America
1776 K Street, NW, Suite 720
Washington, DC 20006