Natural Gas / Electricity and the Natural Gas / Electricity and the Industrial SectorIndustrial Sector
““The Dismantling of US The Dismantling of US ManufacturingManufacturing””
Paul CicioPaul CicioPresident President
Industrial Energy Consumers of America Industrial Energy Consumers of America August, 2007August, 2007
Who Are Who Are Energy Price Sensitive Industries?Energy Price Sensitive Industries?
Commercial &Commercial &Consumer ProductsConsumer Products
Food ProductionFood ProductionDetergentsDetergentsAutomobilesAutomobilesComputersComputersConstructionConstructionMedical SuppliesMedical SuppliesPaintPaintPharmaceuticalsPharmaceuticalsCosmeticsCosmeticsTelecommunicationTelecommunication
ConvertConverttoto
Building BlockBuilding BlockIndustriesIndustries
ChemicalsChemicalsPlasticsPlasticsFertilizerFertilizerGlass / ceramicsGlass / ceramicsBrickBrickSteelSteelAluminumAluminumPulp and PaperPulp and PaperCementCementFood ProcessingFood Processing
Why Did These Industries Locate In Why Did These Industries Locate In The United States?The United States?
Access to the customers, quality of workforce, Access to the customers, quality of workforce, stability of government, reliable and globally stability of government, reliable and globally competitive energycompetitive energy
Resulted in longResulted in long--term investment in the U.S.term investment in the U.S.
Only one has changed significantly Only one has changed significantly ……natural gas and electricity costs.natural gas and electricity costs.
Natural Gas Price History Natural Gas Price History (average annual wholesale prices / year )(average annual wholesale prices / year )
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Nat
ural
Gas
Wel
lhea
d Pr
ice
$/M
SCF
Impact of High Natural Gas and Impact of High Natural Gas and Electricity PricesElectricity Prices
Major reason for loss of 3.1 million high Major reason for loss of 3.1 million high paying manufacturing jobs (18%) since year paying manufacturing jobs (18%) since year 20002000
Continued dismantling of manufacturingContinued dismantling of manufacturing
Increased trade deficit via imports of Increased trade deficit via imports of manufactured goods / Balance of payments manufactured goods / Balance of payments
When Plants Move Over Seas, They Often When Plants Move Over Seas, They Often Take Their Customers With ThemTake Their Customers With Them
ExampleExample
EthyleneEthylene
Moving the Ethylene Cracker offshore increases Moving the Ethylene Cracker offshore increases the potential for all downstream industries to move also.the potential for all downstream industries to move also.
EthyleneEthyleneCrackerCracker
PropylenePropylene
PlasticPlasticPelletsPellets
ChemicalsChemicals
Fabricators:Fabricators:ComputersComputersTelephonesTelephonesAuto Auto BumpersBumpersAppliancesAppliances
ChemicalChemicalProcessors:Processors:DetergentsDetergentsFertilizerFertilizerPaintPaintCosmeticsCosmetics
RetailRetailConsumerConsumer
FeedstockFeedstock
Natural Natural GasGas
CrudeCrudeRelatedRelated
World Natural Gas CostsWorld Natural Gas Costs$U.S./MMBtu (wholesale prices)$U.S./MMBtu (wholesale prices)
Where willWhere will manufacturingmanufacturing go?go?
U. S.$6.10+
Trinidad$1.60
N.Africa$0.80
Russia$0.80
Indonesia$2.70
Middle East$0.60
Venezuela$0.70
W. Europe~$5.25
Argentina$1.10
Ukraine$1.50 China
$4.05
Natural Gas Crisis Natural Gas Crisis -- What Are The What Are The Issues?Issues?
The US price of natural gas has, on average been The US price of natural gas has, on average been the highest in the world since 2000.the highest in the world since 2000.
Consumers paid $76 Billion more in 2006 versus Consumers paid $76 Billion more in 2006 versus 2000 for natural gas2000 for natural gas……and $65 billion more for and $65 billion more for electricity. electricity.
Manufacturing is the most price sensitive sector. Manufacturing is the most price sensitive sector. Higher prices mean loss of competitiveness Higher prices mean loss of competitiveness ––plant shutdowns.plant shutdowns.
Natural Gas Crisis Natural Gas Crisis -- What Are The What Are The Issues?Issues?
Natural gas demand by the power sector is Natural gas demand by the power sector is driving up the price for driving up the price for allall consumers.consumers.
Natural gas demand by power sector is up Natural gas demand by power sector is up 19 % since 2000. EIA forecasts continued 19 % since 2000. EIA forecasts continued higher demand, even without climate higher demand, even without climate mandates.mandates.
Electric utilities have alternatives such as Electric utilities have alternatives such as coal, nuclear and renewable energy coal, nuclear and renewable energy ––consumers do notconsumers do not
Natural Gas Crisis Natural Gas Crisis -- What Are The What Are The Issues?Issues?
Climate policy Climate policy must notmust not result in electric utility fuel result in electric utility fuel switching from coal to natural gas. All consumers switching from coal to natural gas. All consumers will suffer.will suffer.
Climate policy must not subsidize imports of Climate policy must not subsidize imports of energy intensive products.energy intensive products.
The real solution to reducing GHG emissions is The real solution to reducing GHG emissions is not capsnot caps……but increasing the supply of low carbon but increasing the supply of low carbon intensive energy.intensive energy.
Climate Cap & Trade PolicyClimate Cap & Trade Policy
Caps do not remove the government, Caps do not remove the government, market or technology barriers to increased market or technology barriers to increased supply of low carbon intensive energy.supply of low carbon intensive energy.Does not recognize that energy markets are Does not recognize that energy markets are not not ““free marketsfree markets”…”…but constrained by but constrained by government barriers.government barriers.Does not recognize that other countries will Does not recognize that other countries will not play fair. Will subsidize their energy and not play fair. Will subsidize their energy and manufacturing industries. manufacturing industries.
3.1 Million Manufacturing Jobs 3.1 Million Manufacturing Jobs LostLost(Millions)(Millions)
--18%18%14.114.114.214.214.314.314.514.515.215.216.416.417.217.2
DifferenceDifference20062006200520052004200420032003200220022001200120002000
Source: U.S. Dept. of Labor
Natural Gas Supply is Fragile Natural Gas Supply is Fragile
There is no reserve production capacity!There is no reserve production capacity!Inventory levels ok for now. Worry about hot Inventory levels ok for now. Worry about hot summer / cold winters / hurricanessummer / cold winters / hurricanesSupply is down 4 % since year 2000 despite Supply is down 4 % since year 2000 despite record well completionsrecord well completionsCanadian imports Canadian imports –– down by 4.9% since 2001down by 4.9% since 2001New Gulf of Mexico leases New Gulf of Mexico leases –– no supply impact for no supply impact for next five yearsnext five yearsAlaska Pipeline Alaska Pipeline –– no progress no progress -- 2017 at earliest2017 at earliestLNG producing countries creating a new cartelLNG producing countries creating a new cartel
Natural Gas ProductionNatural Gas Production(Volumes in Trillion Cubic Feet)(Volumes in Trillion Cubic Feet)
-- 4%4%18.518.518.118.118.618.619.119.118.918.919.619.619.219.2Dry Dry ProductionProduction
DifferenceDifference20062006200520052004200420032003200220022001200120002000
Source: EIA
+61%+61%7.17.18.58.56.16.15.65.63.73.74.64.64.44.4Electric Electric PowerPower
+76%+76%7.97.98.68.66.56.55.95.94.04.05.25.24.54.5IndustrialIndustrial
+82%+82%12.012.011.611.69.49.48.48.46.66.68.48.46.66.6CommercialCommercial
+77%+77%13.813.812.812.810.810.89.69.67.97.99.69.67.87.8ResidentialResidential
DifferenceDifference20062006200520052004200420032003200220022001200120002000
Source: EIA
Natural Gas PricesNatural Gas Prices(Dollars per Thousand Cubic Feet)(Dollars per Thousand Cubic Feet)
Natural Gas Consumption by End UseNatural Gas Consumption by End Use(Million Cubic Feet)(Million Cubic Feet)
+19%+19%6.26.25.95.95.55.55.15.15.75.75.35.35.25.2Electric Electric PowerPower
--19%19%6.66.66.76.77.27.27.27.27.57.57.37.38.18.1IndustrialIndustrial
--9%9%2.92.93.13.13.13.13.23.23.13.13.03.03.23.2CommercialCommercial
--12%12%4.44.44.84.84.94.95.15.14.94.94.84.85.05.0ResidentialResidential
+1.9%+1.9%21.921.922.222.222.422.422.322.323.023.022.222.221.521.5Total Total ConsumptionConsumption
DifferenceDifference20062006200520052004200420032003200220022001200120002000
Source: EIA
+31%+31%6.096.095.735.735.255.255.115.114.884.885.055.054.644.64IndustrialIndustrial
+26%+26%9.369.368.678.678.178.178.038.037.897.897.927.927.437.43CommercialCommercial
+26%+26%10.4010.409.459.458.958.958.728.728.448.448.588.588.248.24ResidentialResidential
% % 20062006200520052004200420032003200220022001200120002000
Source: EIA
Electricity Retail Prices Electricity Retail Prices (cents per kwh, including taxes)(cents per kwh, including taxes)
-1.5
0.5
2.5
4.5
6.5
8.5
10.5
12.5
14.5
16.5
2006 Average Retail Price of Electricity by State
Cen
ts p
er k
whr
U.S. Energy Information Administration 2006 – Continental U.S.
http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html
MA: 16.08 cents per kwhr
MA Manufacturing Employment
200.0
250.0
300.0
350.0
400.0
450.0A
ug 9
6Ja
n 97
Jun
97N
ov 9
7A
pr 9
8S
ep 9
8Fe
b 99
Jul 9
9D
ec 9
9M
ay 0
0O
ct 0
0M
ar 0
1A
ug 0
1Ja
n 02
Jun
02N
ov 0
2A
pr 0
3S
ep 0
3Fe
b 04
Jul 0
4D
ec 0
4M
ay 0
5O
ct 0
5M
ar 0
6A
ug 0
6
thou
sand
s
As Natural Gas Prices Go UpAs Natural Gas Prices Go Up……So So Does the Cost of ElectricityDoes the Cost of Electricity
($/MWH)($/MWH)
$68.00$68.00$49.51$49.51$20.80$20.80$13.54$13.54
NonNon--Hydro RenewableHydro RenewableNatural GasNatural GasCoalCoalNuclearNuclear
Source: EIA
Natural Gas Fired Power Generation Natural Gas Fired Power Generation Impacts on All Consumers Impacts on All Consumers
A single 500 MW rankine cycle power A single 500 MW rankine cycle power plant (10,000 Btu/kwh) will use the plant (10,000 Btu/kwh) will use the equivalent natural gas used to fuel equivalent natural gas used to fuel 842,308 homes each year. 842,308 homes each year.
Electric Power Research InstituteElectric Power Research Institute
““Even though natural gas is used to produceEven though natural gas is used to produceonly 20 percent of the electricity, it accountsonly 20 percent of the electricity, it accountsfor 55% of the electric industryfor 55% of the electric industry’’s entire fuel s entire fuel expense ($50B out of $91B).expense ($50B out of $91B).””
Industrial Energy Consumers of Industrial Energy Consumers of AmericaAmerica
IECA is a 501 ( C ) ( 6 ) nonprofit organization IECA is a 501 ( C ) ( 6 ) nonprofit organization created to promote the interests of manufacturing created to promote the interests of manufacturing companies for which the availability, use and cost companies for which the availability, use and cost of energy, power or feedstock play a significant of energy, power or feedstock play a significant role in their ability to compete in domestic and role in their ability to compete in domestic and world markets. IECA does not have a PAC.world markets. IECA does not have a PAC.
www.iecawww.ieca--us.orgus.org202202--223223--1661 1661
ENDEND
Manufacturing EmploymentManufacturing EmploymentDirectly Impacted by High Natural Gas and Directly Impacted by High Natural Gas and
Electricity Costs (in Millions)Electricity Costs (in Millions)YearYear JobsJobs GDPGDP1999 17.3 4.71999 17.3 4.72000 17.2 2.22000 17.2 2.22001 16.4 .022001 16.4 .022002 15.2 2.32002 15.2 2.32003 14.5 4.42003 14.5 4.42004 14.3 3.92004 14.3 3.92005 14.2 3.5 2005 14.2 3.5 2006 14.1 3.32006 14.1 3.3
Net loss of 3.2 million jobs or 18.5% (Labor Dept)Net loss of 3.2 million jobs or 18.5% (Labor Dept)
Major Concern: Coal to Natural Gas Major Concern: Coal to Natural Gas Fuel Switching Fuel Switching
March 26, 2007March 26, 2007Senate Committee on Energy & Natural Resources Senate Committee on Energy & Natural Resources Hearing on European Union's Emissions Trading SchemeHearing on European Union's Emissions Trading Scheme
Question by Senator Bob Corker about carbon trading and price siQuestion by Senator Bob Corker about carbon trading and price signals:gnals:““The level at which you are trading nowThe level at which you are trading now……the 16 dollars. Is that a level that the 16 dollars. Is that a level that
really creates enough pain for people to invest in technology orreally creates enough pain for people to invest in technology or is that is that still way below what causes people to actually make investments still way below what causes people to actually make investments in in technology?technology?””
Answer by Garth Edwards: Shell Oil, Trading Manager Answer by Garth Edwards: Shell Oil, Trading Manager –– Environmental Products, Environmental Products, London, EnglandLondon, England
““The bulk of emission reductions in the EU are made actually by cThe bulk of emission reductions in the EU are made actually by coal to gas oal to gas (natural gas) fuel switching in power stations.(natural gas) fuel switching in power stations. AndAnd any price will start to any price will start to change the dispatch of powerchange the dispatch of power plantsplants……and start change away from coal and start change away from coal into gas (natural gas)into gas (natural gas).. It certainly is the case that prices of 16 Euros or It certainly is the case that prices of 16 Euros or $24, what ever, will start to change those dispatch decisions. Y$24, what ever, will start to change those dispatch decisions. Yes.es.””
EU Cap & TradeEU Cap & TradeMarch 26, 2007March 26, 2007Senate Committee on Energy & Natural Resources Senate Committee on Energy & Natural Resources Hearing on European Union's Emissions Trading SchemeHearing on European Union's Emissions Trading Scheme
Answer by Garth Edwards: Shell Oil, Trading Manager Answer by Garth Edwards: Shell Oil, Trading Manager ––Environmental Products, London, EnglandEnvironmental Products, London, England““The bulk of emission reductions in the EU are made The bulk of emission reductions in the EU are made actually by coal to gas (natural gas) fuel switching in actually by coal to gas (natural gas) fuel switching in power stations.power stations. AndAnd any price will start to change the any price will start to change the dispatch of powerdispatch of power plantsplants……and start change away from and start change away from coal into gas (natural gas)coal into gas (natural gas).. It certainly is the case that It certainly is the case that prices of 16 Euros or $24, what ever, will start to prices of 16 Euros or $24, what ever, will start to change those dispatch decisions. Yes.change those dispatch decisions. Yes.””
Incremental Electricity Generation Will Greatly Incremental Electricity Generation Will Greatly Increase Natural Gas Demand Even Before Increase Natural Gas Demand Even Before Considering Climate Change LegislationConsidering Climate Change Legislation
Coal
Nuclear
Natural Gas
Other
-200
0
200
400
600
800
1000
1200
1400
2001 2005 2009 2013 2017
MM
MW
H
Source: EIA 2007 AEO
Comparison of Climate Change Proposals in the 110th Congress 1990-2050
500
2,500
4,500
6,500
8,500
10,500
12,500
14,500
16,500
1990 2000 2010 2020 2030 2040 2050
Mill
ion
Met
ric T
ons
of C
O2
Eq.
Non-OECD Asia (CO2 only)
US Reference Case (CO2 Only)
Udall-Petri Safety Valve
Bingaman $5 Phased Auction
Bingaman $9 Phased Auction
Udall-Petri No Safety Valve
Lieberman-McCain
Olver-Gilchrest
Kerry-Snowe
Sanders-Boxer
Sources: EIA (International Energy Outlook 2006, Annual Energy Outlook 2007, analysis of various bills) and legislative proposals.
Natural Gas and ProductionNatural Gas and Production(Volumes in Trillion Cubic Feet)(Volumes in Trillion Cubic Feet)
--4%4%18.518.519.219.2Dry ProductionDry Production
DifferenceDifference2006200620002000
Source: EIA
Wells ProducedWells Produced(In Thousands)(In Thousands)
+18%+18%405405342342Producing WellsProducing WellsDifferenceDifference2006200620002000
Source: EIA
Natural Gas and ProductionNatural Gas and Production(Volumes in Trillion Cubic Feet)(Volumes in Trillion Cubic Feet)
--4%4%18.518.519.219.2Dry ProductionDry Production
DifferenceDifference2006200620002000
Source: EIA
Natural Gas Natural Gas –– Number of Producing Number of Producing Wells Wells
19991999 20042004302,421 405,040 up 34%302,421 405,040 up 34%
EIA EIA
OCS Gas ProductionOCS Gas ProductionQuarter 1 2007 Gas OutlookQuarter 1 2007 Gas Outlook
0
1
2
3
4
5
6
'98 '00 '05 '07 '10 '15
Non-Shelf Shelf
Tcf
Gulf of Mexico Gas Reserve Gulf of Mexico Gas Reserve Adds per WellAdds per Well
FourFour--Year Running CumulativeYear Running Cumulative
0
2
4
6
8
10
12
14
16
18
20
'82 '85 '90 '95 '00 '050
2
4
6
8
10
12
14
16
18
20
per oil well per gas well
Bcf/well Bcf/well
1982-97 Average: 14.4 + 1.6 Bcf/well
Year Ending
MfgMfg’’ing Natural Gas Demand ing Natural Gas Demand Destruction of 1.5 TCF or 18.5 %Destruction of 1.5 TCF or 18.5 %
The US is balancing natural supply on the backs of the The US is balancing natural supply on the backs of the manufacturing jobs!!manufacturing jobs!!
Natural Gas DemandNatural Gas Demand
21.921.96.66.62006200622.222.26.76.72005200522.422.47.27.22004200422.322.37.17.12003200323.023.07.57.52002200222.222.27.37.32001200123.323.38.18.120002000
U.S. Total*U.S. Total*Mfg*Mfg*
*Trillion cubic feet (EIA)
