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Clearing Up / Bearing Down

[February 3, 2017 / No. 1785]

Power Megatrends and 2017 North America Energy Markets

SUMMARY: After we recently previewed some key regional energy issues and themes for 2017, this column offers a broader perspective based on Navigant's outlook for North American energy markets. Much of it continues ongoing evolutions, but there are a few potential twists and uncertainties.

We recently outlined some key energy issues and themes that are on our minds for 2017, mainly from a Northwest perspective (CU No. 1782 [8]). Here we offer a broader look ahead, courtesy of a Jan. 25 webinar about Navigant's 2017 outlook on North American energy markets.

The short version: Look for continuation of ongoing energy evolutions, with a few potential twists and uncertainties.

Navigant Managing Director David Walls began with a summary of "megatrends" underpinning a transforming power sector:

  • Customer choice and changing demands, including self-generation.
  • More carbon-emission policies and regulations.
  • Shifting energy resources, "much of it driven by fundamental economics," and including coal-plant retirements and more gas and renewables.
  • Mergers and acquisitions, which were "quite high in the past year," Walls said. "Utilities not seeing growth in load are looking for other ways to create value through M&A."
  • A growing regionalization of energy resources, "as more and more resources are coming from different local markets," such as gas from the Marcellus Shale changing gas flows in the Northeast.
  • "Merging industries, new entrants and colliding giants," Walls said, such as "Google, Apple and others looking to supply energy resources and services, impacting the industry and loads and demand."
  • An emerging "Energy Cloud," with replacement of aging infrastructure and movement toward a more decentralized and smarter grid, which Walls said is "fundamentally changing the ways consumers buy and use energy and is having a significant impact on markets and demand."

Turning to a power market overview, Navigant Managing Director Rob Patrylak noted "a somewhat different view of [energy] markets going forward" from President Donald Trump and the Republican-led Congress. But, he said, in the near term, "things are not necessarily going to change very quickly and not have much of an impact ... Market momentum has occurred" with customer demand, state policies on infrastructure, technology advances and declining renewables prices.

"All these trends will likely continue despite any changes in the federal policy," he said—and I agree (CU No. 1779 [12]).

Patrylak indicated the Trump administration's people and pronouncements suggest a favorable environment for natural gas and expanded energy infrastructure.

He also reported Navigant has removed carbon pricing caused by the EPA Clean Power Plan from its base-case scenario. Among other effects, this improves forecasted coal-power economics in the long term, and reduces projected coal-plant retirements by about 5 GW over the next decade.

Renewables continue to grow, in Navigant's view, with 117 GW of new renewables capacity in North America projected over the next 20 years, although less than the 153 GW foreseen in the carbon-regulation case. Projected new gas capacity totals 137 GW over 20 years—very similar to the 140 GW envisioned in the carbon-regulation scenario.

Patrylak also expects a larger portion of new simple-cycle gas-fired turbines, as fewer coal retirements diminish the need for new combined-cycle plants.

Also through 2037, Navigant anticipates 26 GW of new distributed energy resources (including storage) and 46 GW of assorted demand-side resources. Policies in many states will support development of these resources, Patrylak said.

He offered several 20-year regional outlooks, including for the California ISO. The generation forecast for CAISO includes substantial growth in solar and energy efficiency/demand response, and nuclear going away in 2025. A 50-percent RPS by 2030, improving solar economics and peak-shaving capabilities, and limited new wind resources are important factors in the solar boom, according to Patrylak.

Navigant sees locational marginal prices in CAISO rising from about $30/MWh now to roughly $60/MWh in 20 years, in sync with gas prices rising proportionally similar.

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Taking out the CPP scenario reduced forecasted energy prices 4.7 percent in CAISO, a lesser decline than in more coal-influenced markets in the Southwest, Midwest and East Coast, where the post-CPP projected energy prices are about 13- to 16-percent lower.

In a Q&A session, Patrylak noted some utility reluctance to make long-term resource investments, "given the uncertainty over government policy." He also anticipated more asset transfers in 2017 than in 2016, as generation-portfolio strategies "are being revisited and as financial firms step in and pass off some of that risk for the traditional utility suppliers."

Navigant Director Gordon Pickering reviewed the natural gas market, as he did at a Northwest Gas Association webinar last July (CU No. 1762 [9]).

One overarching takeaway is emergence of the U.S. as"truly an energy superpower," including as the world'sleading oil and gas producer—a big change with large impacts.

Resource abundance has led to a shift in gas market dynamics, including reduced flows from Canada to the U.S., and from the Gulf of Mexico to demand centers. New gas-market opportunities are also emerging, Pickering said, notably including LNG exports.

Navigant listed 53 proposed liquefaction plants proposed or under construction in the U.S. and Canada, including 20 on the West Coast. The firm predicts 10 Bcf per day of U.S. LNG exports by 2022—all from the Gulf and East coasts—representing about 12 percent of U.S. gas demand. North American LNG export capacity is forecast to be second worldwide (behind Asia/Australia) by the early 2020s.

Pickering noted the dip in Henry Hub gas prices since 2008 (down 74 percent) along with a 77-percent increase in 2016. Navigant projects a more-level trajectory of increasing Henry Hub gas prices this year and beyond, to about $5/MMBtu in the late 2030s (in 2015 dollars).

Asked to elaborate on prices, Pickering responded, "The simple answer is that prices are going to be driven by still-increasing demand for natural gas, with some areas of demand that are coming to the forefront, especially in the export area"—LNG as well as pipeline exports to Canada and Mexico.

Gas-fired power generation is a big driver of domestic gas-demand growth, according to Pickering. [Mark Ohrenschall]

Bearing Down is excerpted from Energy NewsData's Clearing Up publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of Clearing Up.

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