U. S. Energy Policy - geestrategies

sprocketflipΠετρελαϊκά και Εξόρυξη

8 Νοε 2013 (πριν από 3 χρόνια και 11 μήνες)

68 εμφανίσεις

U.S. Energy Policy and Its
Development Strategies

SCHOOL OF INTERNATIONAL AND PUBLIC
AFFAIRS

SHANGHAI JIAOTONG UNIVERSITY

SHANGHAI, P.R.C.

OCTOBER 22, 2004

ROBERT W. GEE

PRESIDENT


GEE STRATEGIES GROUP LLC

2

Overview


The policy basis in the United States for restructuring its
electric and natural gas industries to enable market
competition to set prices



How well thus far

-

or not
--

this policy has worked to
achieve its anticipated objectives



How this policy has led to fresh concerns regarding
continued affordability and availability of energy



What is being considered in the U.S. to address these
questions





3

Basic Cornerstones of Current
U.S. Energy Policy


Secure supply


generally maintained through
diversity of fuel types and source locations



Safe


no threat to public health and welfare



Reasonably affordable



(For electricity) Always available (i.e., reliable and not
subject to unintended interruption)



Clean (non
-
polluting to air or water)



4

The Reality Today:


Some supply may become increasingly reliant upon
foreign sources, making energy security even more
important



Cost of fuel for energy (natural gas & electricity) will
likely be volatile and rising



System could become less reliable as demands grow
and necessary infrastructure investment deferred
because of lack of regulatory certainty




5

Projection Through 2025: The U.S. Thirst
for Energy Will Continue Unabated


U.S. electricity demand expected
to grow by 1.8 percent annually
(from 3,600 billion kwh to 5,500
billion kwh)




Demand for natural gas expected
to grow by 1.4 percent annually
(from 22.8 Tcf to 31.4 Tcf)



Coal consumption will grow by 1.6
percent annually (22.2 quadrillion
Btu to 31.7 quadrillion Btu)


Source: Energy Information Administration / Annual Energy Outlook 2004


6

U.S. Electricity generation by
fuel, 1970
-
2025

(billion kilowatthours)



Although coal use has
numerous issues, discussion
today will be deferred



Even with environmental
challenges, it will remain the
dominant fuel



With a 200
-
year supply, U.S. is
the “Saudi Arabia of coal”



Major concerns center on
natural gas because of supply
availability and price volatility

Source: Energy Information Administration /
Annual Energy Outlook 2004


7

Key Milestones Over The Last
Half Century


For most of the last century, natural gas and electric power were highly
regulated by government



These services were considered “natural monopolies”, unable to draw
competition because of high costs of market entry



Natural gas wellhead prices controlled


Wholesale & retail power prices controlled



However, by the 1970’s, natural gas shortages occurred because of lack of
financial incentives for producers



Also, electric power generation technology advances made efficient, affordable
power from others more feasible



Eventually, policy makers chose to deregulate prices (in most areas of the U.S.)



Natural gas supplies grew and prices stayed level for almost a decade


8

U.S. Natural Gas Markets Today:
Issues Over Price


Higher spot prices and greater volatility than seen during the 1990’s when
gas prices were around $2.00


3.00 per MMBtu



$6.50


8.00 per MMBtu in summer


$10.00 per MMBtu in winter



Allegations of market manipulation being claimed by some, and state and
federal investigations were triggered



Role of traders/speculators questioned in driving up spot prices



But reason can be largely attributed to economic forces of supply (which is
declining) and demand (which is increasing)

9

Current U.S. Natural Gas Domestic
Supply Forecast through Year 2025


Higher wellhead gas prices
no longer yield greater gas
production, contrary to prior
wisdom



More drilling necessary just
to maintain production
because of higher rates of
production declines



Despite more drilling, higher
prices expected because of
greater offshore drilling, and
use of technology intensive
practices


Source: Energy Information Administration / Annual
Energy Outlook 2004


10

New Sources Of Natural Gas Will
Be Required to Meet U.S. Demand


Imported Liquefied
Natural Gas (LNG)


Alaskan production


Nonassociated
unconventional
sources (tight gas,
shale gas, and
coalbed methane)


Source: Energy Information Administration / Annual Energy Outlook 2004


11

Will LNG be the Answer?


Three dozen LNG proposals being considered



Each faces daunting technical and permitting hurdles,
slowing process of completion



Safety & security questions raised



Even if successful, raises reliance on imports
thrusting U.S. energy security into global dependence
akin to oil


12

Electricity Generation’s Growing
Dependence on Natural Gas


Natural gas has become the “fuel of choice” for new power generation


Environmental advantages


Shorter lead times of completion


Improved efficiencies



From 2000 to 2004, 200,000 Megawatts (MW) of new power plant
capacity was added to existing capacity base of 903,000 MW



94 percent of this new capacity was natural gas fueled



Currently, higher risks for power plant developers:


Exposure to higher fuel costs


Exposure to price volatility



13

For New Electric Generation, Natural
Gas is the Preferred Fuel

Source: Energy Information Administration / Annual Energy Outlook 2004


Annual Additions To Electricity Generation Capacity


By Fuel, 1950
-
2002 (Gigawatts)


14

Electricity Sector Market
Reforms


Until 1990’s, electric utilities held monopolies for transmission,
distribution and generation services in all markets



Early 1990’s: Federal government allowed creation of independent
power producers, thereby creating a competitive wholesale power
market and deregulating the generation sector; transmission and
distribution remained monopolies



Mid
-
1990’s: states began to require unbundling of services or
functional separation of services/ some generation was sold to
independent power producers



Some states began allowing retail power competition


15

But Notable Failures Have Occurred In
Competitive Electricity Markets


California badly designed its deregulated retail market, resulting in
an economic and political crisis



Wholesale prices surged when supplies were short



Customers were economically harmed by unreasonably high prices
passed on at the retail level



One major utility underwent costly bankruptcy



Voters removed the Governor of California in special election and
elected instead an international action movie star and aging
bodybuilder

16

California’s Current Governor: A Warrior
to Tame the Power Markets . . .

“Conan”

17

Electricity Generation’s Current
Dilemma: Overcapacity


Markets are overbuilt with 25
-
40% excess and some
as much as 100%



Oversupply of generation capacity will last for at least
five years in most regions.



Natural gas and coal will continue to supply the vast
majority of generation growth



Natural gas price volatility will continue to affect
electric prices



18

But
Undercapacity

Plagues the Electricity
Delivery Infrastructure System!


Disproportionate attention has been placed on generation


Transmission system investment has been declining for over 25 years
by $115 million/yr in real dollars

Source: E.Hirst,
“Transmission Crisis
Looming?”
Public
Utilities Fortnightly
,
September 15, 2000


19

Policy Disputes And Regulatory Uncertainty
Currently Discourage New Transmission
Infrastructure Investment


Electric industry restructuring reform
has resulted in diffusion of
government oversight



Lack of clarity over which
government entity (state or federal)
regulates transmission system



Some states and federal government
disagree over jurisdiction



Transmission
-
owning utilities
unwilling to invest if cost recovery left
uncertain

20

Proposals to Reexamine the Role of
Government Regulation of Power
Generation


Basic Premises:



Fuel diversity is essential to maintain public policy goal of energy security


Electricity prices must be affordable and fairly consistent over time,
allowing for periodic rate increases



Many question whether competitive markets will achieve this alone




Others propose greater government role to oversee or mandate electric
supply portfolio:



Combination of long
-
term contracted supplies and spot market supplies


Diverse fuel sources



Others advocate full or partial resumption of government regulation over
entire electricity industry, including power generation sector

21

Lessons Learned from U.S. market reforms for
natural gas and power generation




Markets tend to function in a cyclical manner, sometimes causing shortages
and surpluses of traded commodities (effects of supply and demand)



Electric power and natural gas are no different
--

if they are regarded as
commodities, they will be subject to a “boom and bust” cycle



But the public’s unchecked exposure to these forces can cause political
problems and reactionary responses



Opening natural gas and electricity sectors to market competition was not a
mistake



Consumers benefited from greater available volumes of affordable gas for
a lengthy period



Risk of failure remains on independent power providers, not utility
customers






22

Lessons Learned from U.S. market reforms
for natural gas and power generation (con’t.)


But markets can be unforgiving



Consequently, the proper role of government regulation and oversight
needs continued rethinking




Total reversal of market
-
oriented policy would be difficult, expensive,
and likely discourage capital urgently needed for infrastructure
investment



Need to properly balance market freedom with government regulation
so that public is not asked to shoulder undue market risk



Government policy can play a constructive role so long as it is focused,
coherent, and consistent over time, allowing for fine
-
tuning calibrations

23

Some Lessons for China’s
Proposed Energy Sector Reforms


Learn from mistakes of others such as the U.S.



There is no single “perfect” model for creating an
energy market



Take best practices from other countries



Don’t delay reform to try to reach a “perfect”
outcome, but endeavor to craft a workable scheme
that avoids major,
ex post facto

corrections



Don’t overreact if something unintended occurs

24

Thank You For Your Attention

Xie Xie

25

Robert W. Gee

President

Gee Strategies Group LLC

7609 Brittany Parc Court

Falls Church, VA 22304

U.S.A.

703.593.0116

703.698.2033 (fax)

rwgee@geestrategies.com

www.geestrategies.com