{"id":163,"date":"2012-01-23T21:50:40","date_gmt":"2012-01-24T03:50:40","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=163"},"modified":"2012-02-28T19:07:59","modified_gmt":"2012-02-29T01:07:59","slug":"eia-annual-energy-outlook-aeo-2011-points-of-interest","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2012\/01\/23\/eia-annual-energy-outlook-aeo-2011-points-of-interest\/","title":{"rendered":"EIA Annual Energy Outlook AEO 2012 Points of Interest"},"content":{"rendered":"

Each year when the <\/span>EIA releases their Annual Energy Outlook<\/span><\/a> AEO, there is much talk about the results.\u00a0\u00a0 The problem I find each year is trying to understand the change in the relationships between various markets.\u00a0 This is a function of the underlying model they are using.\u00a0\u00a0 They are using the <\/span>NEMS model<\/span><\/a> which uses a general equilibrium concept.\u00a0\u00a0 Personally, I never felt modeling should be left to the model.\u00a0 General equilibrium models are very dependent on all the experts to enter the relationships.\u00a0 Then the model will model those relationships.\u00a0 However, if you don\u2019t have an expert of all things, the model may produce interesting relationship changes; since these experts are experts without integration.<\/span><\/span><\/p>\n

My quick review focused on the Natural Gas, Coal, and Distillate: This is largely because the power market comingles these fuels, therefore, these relationships should be acted upon by the power market.\u00a0 Below are the gas price comparisons to coal and distillate deltas to the 2011 AEO deltas.<\/span><\/span><\/p>\n

\"\"<\/a><\/p>\n

AEO 2012 decided in this year\u2019s outlook that the oil spread to gas will be larger than last years by over $5\/MMbtu.\u00a0\u00a0 The gas to coal spread will decline by $0.30\/MMbtu.\u00a0 This is largely a result of coal prices being stronger than gas prices being weaker.<\/span><\/span><\/p>\n

Given these relationships before examining the consumption numbers, I would believe that more gas will be in the power sector.\u00a0 Coal use should decline.\u00a0 There should be some gas to liquids (GTL) at some point given the large economic incentive.<\/span><\/span><\/p>\n

The consumptions on a high level show coal consumption being 10% less \u2013 no surprise there.\u00a0\u00a0 However, total gas consumption is essentially the same as last year\u2019s AEO 2011. Digging deeper the power sector use of natural gas\u00a0climbs over 12% from last year\u2019s AEO.\u00a0 Where is the demand for gas falling to keep the totals the same?\u00a0 It would seem the EIA has a more bearish outlook for natural gas use in the industrial sector and commercial sector.\u00a0 The commercial sector falls 7% which perhaps can be accounted for by efficiency improvements.\u00a0 Industrials seem counter intuitive given the many chemical projects recently announced.<\/span><\/span><\/p>\n

Coal to liquids (CTL) demand fell by half, directionally correct since coal prices are higher but certainly not to the degree that liquid prices are higher.\u00a0 Interesting to see no gas to liquid\u00a0(GTL) demand.\u00a0 I understand the complexity of\u00a0GTL (I have a BS Chemical Engineering degree from the University of Texas).\u00a0\u00a0 Numerous reports suggest GTL likely many years out.\u00a0 However all those reports were written when gas and oil were much closer to parity in the United States.<\/span><\/span><\/p>\n

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\u00a0In addition, the driver for GTL was for stranded gas not in the US.\u00a0\u00a0 The US innovative market structure plus the sustained large spread between gas and oil should lead to GTL development.\u00a0 My skepticism in GTL lies in the premise the spread will be that large for such a sustained time period.\u00a0\u00a0 Based on my assessment, the amount of natural gas usage in the power sector is still too low by around 20%.\u00a0 It would be hard press to maintain the coal fleet as it ages with gas prices below $5\/MMbtu for the next 10 years.\u00a0 In terms of balancing capital and environmental risk, no other form of generation can beat natural gas for baseload demand across the country.\u00a0 New coal units cannot compete with new natural gas plants with gas-coal spreads less than $3\/MMbtu.\u00a0 Around $3\/MMbtu, it is marginable and when considering the CO2 risk, it would take spreads closer $4\/MMbtu+.\u00a0 Commissions approving coal plants in this environment are typically incorporating other unrelated energy economics (e.g. local jobs, resources).\u00a0 The only thing that haunts natural gas is the price spike seen in 2005-2008.\u00a0 However, if you think about the catalyst that drove that price rise, hurricane Katrina, it becomes less likely to vision in the future. \u00a0\u00a0Shale gas has created another layer of gas in the supply curve, which is less sensitive to gulf coast storms.<\/span><\/span><\/p>\n

Further analysis of the AEO is warranted.\u00a0\u00a0 A certain credit must be given to them for being the pundit willing to go out on the limb and supply every bit of information.\u00a0 I don\u2019t usually agree with the EIA forecast, but they have made great strides in their forecasting ability.\u00a0 They have incorporated more reasonable capital cost projections.\u00a0 They are a good benchmark for modeling.\u00a0 We can only wish other countries around the world would emulate the EIA in supplying historical information and estimated forecast figures. <\/span><\/span><\/p>\n

Market assessments and market forecasting\u00a0are one of our specialties.\u00a0<\/span><\/p>\n

We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society (see projects<\/a>).<\/p>\n

 <\/p>\n

Please consider All Energy Consulting for your consulting needs.<\/p>\n

 <\/p>\n

Your Energy Consultant,<\/span><\/p>\n

David K. Bellman<\/span><\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Each year when the EIA releases their Annual Energy Outlook AEO, there is much talk about the results.\u00a0\u00a0 The problem I find each year is trying to understand the change in the relationships between various markets.\u00a0 This is a function of the underlying model they are using.\u00a0\u00a0 They are using the NEMS model which uses […]<\/p>\n","protected":false},"author":1,"featured_media":35,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,26,6],"tags":[48,32,51,47,52,50,53,14,49],"class_list":["post-163","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-oil-petroleum-products","category-power","tag-aeo-2012","tag-coal","tag-coal-to-liquids","tag-eia","tag-gas-to-liquids","tag-generation","tag-gtl","tag-natural-gas-2","tag-oil"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/163","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=163"}],"version-history":[{"count":8,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/163\/revisions"}],"predecessor-version":[{"id":167,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/163\/revisions\/167"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/35"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=163"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=163"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=163"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}