30th USAEE/IAEE North American Conference, Oct.9-12, Capital

1
30th USAEE/IAEE North American Conference,
Oct.9-12, Capital Hilton Hotel, Washington
DC Concurrent Sessions 18. Economics of Nuclear
and Unconventional Energy Resources
Analysis of Shale Gas Impact on International
Energy Market to 2050 Employing a
Regionally-Disaggregted World Energy Model
Ryoichi Komiyama , Yasumasa Fujii University of
Tokyo (Dept. of Nuclear Engineering) Michinobu
Furukawa, Takeshi Nishimura, Koji Yoshizaki Tokyo
Gas Co., Ltd. Assistant Professor, University
of Tokyo Visiting Scholar, Institute of Energy
Economics Japan (IEEJ) Visiting Assistant
Professor, University of California at Berkeley
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Outline

• Background
• World Energy Model (DNE21)
• Scenario
• - Natural Gas Production Cost Curve
• - CO2 Emissions Regulation
• Simulated Results Conclusions

3
Japanese Nuclear Policy (Before Fukushima Nuclear
Accident)
Building 14 new nuclear power plant to 2030
After the accident Natural gas-fired power
generation is the economically most attractive
alternative ?
4
Natural Gas Price (2009)
(Source) Institute of Energy Economics Japan
(IEEJ)
5
Levelized Cost of Power Generation
Coal-fired 8.2 cent/kWh(Japan, Aug.2011)
Assumption of Model Plant NGCC Plant Capital
Cost 1000/kW, Lifetime 30 years, Gas price
previous slide, Thermal Conversion Efficiency
50, Average cost of capital 7 Nuclear Plant
Capital Cost 4000/kW, Lifetime 30 years,
Average cost of capital 7
6
Background

• Rapid Shale Gas Growth in US
• Currently, U.S. is the largest natural gas
  production country, outstripping Russia. In
  United States, shale gas will increase annually
  at 7 million ton-LNG, and explain 47 of total
  gas production by 2035 in DOEs estimate.
• Global Potential of Shale Gas
• Shale gas resource is reported to be largely
  endowed in Europe, China and the other countries
  as well as USA, having potentially impact on
  future international gas market. In Europe,
  Poland is at the forefront of shale gas
  exploration activity, offering attractive fiscal
  terms for participation of multiple companies
  actively drilling in multiple basins. In
  addition, there has been great interest in
  Chinas potential for shale gas production, and
  several international companies have partnered
  with Chinese companies to explore potential shale
  resources.
• Nuclear Accident Accerelate More Shift to Gas ?
• Severe accident in Fukushima and foreseeable
  stagnation in nuclear development enhance the
  alternative role of gas.
• This presentation analyzes the quantitative
  prospect of natural gas demand and supply under
  global carbon regulation to 2050 and discuss its
  implication in global energy market.

Shale Gas Resource (technically recoverable
resource (TRR))
U.S. Gas Production Outlook
Total Shale Gas Resource 6,622 tcf Total
Conventional Gas Resource 6,609 tcf (Global Gas
Consumption100 tcf)
(Source) EIA/DOE
(Source) EIA/DOE
7
World Energy Model (DNE21)

• This energy model (DNE21) features a detailed
  representation of regional treatment, nuclear and
  renewable energy.
• Cost Minimization Model The model seeks the
  solution that minimizes the discounted total
  system cost for the years from 2000 to 2100 at
  ten-year intervals and multiple regions, under
  various kinds of constraints, such as amount of
  resource constraints, energy supply and demand
  balance constraints, and CO2 emissions
  constraints. (Report of 2050)
• 16 million variable, 24 million constraints The
  model is formulated as a linear optimization
  model, of which the number of the variables is
  more than 16 million and that of the constraints
  is 24 million.

8
Regional Disaggregation

• 54 regions, 82 nodes
• The world is divided into 54 regions. In the
  model, several large countries such as the United
  States, Russia, China and India are further
  divided into several sub-regions. Furthermore, in
  order to reflect geographical distribution of the
  site of regional energy demand and energy
  resource production, each region is constituted
  by city node shown as round markers and
  production node shown as square markers, the
  total number of which amounts to 82 points.
• City node, Production node
• The city node mainly shows representative points
  of the intensive energy demand, and the
  production node exhibits additional
  representative points for fossil fuel production
  to consider the contributions of resource
  developments in remote districts. The model, in
  detail, takes account of intra-regional and
  inter-regional transportation of fuel,
  electricity and CO2 between these 82 points.

9
Power Generation Dispatch

Optimal power generation dispatch in 82 nodes (54
regions) is respectively calculated at 6 time
periods in 24 hours on 3 seasons (summer, winter,
mid-season)
Electric Power Load Curve (World, 2050)
Optimal Power Dispatch (World, 2050)
10
Basic Outline of World Energy Model (DNE21)
Objective function
Major Constraints
(Depletion of fossil resources)
(Production of renewable energy)
(Primary Demand Supply Balance)
(Secondary Demand Supply Balance)
(Energy Conservation)
(Primary Energy Production Constraint)
(Energy Conversion Constraint)
(Energy Carrier Transportation Constraint
Onshore)
(Energy Carrier Transportation Constraint
Offshore)
Index dTime period of day(BiomassHydroW
indSolid Dem.Liquid Dem.Gas Dem.1,PVElec.
Dem.6), eProd.Conv. technology(e ? (renergy
resource)?(uconv. technology)),
fFuel(Coal,Oil,Gas,Biomass,Hydrogen,Methane,Metha
nol,Ethanol,DME,Fuel Oil,CO,Electricity), fdType
of energy demand(Solid,Liquid,Gaseous,Electricity)
, gGrade of energy resource(17), i,j Regional
nodes (182), r Energy source(Conventional
fossil(Coal,Oil,Gas),Unconv. fossil(Heavy oil/Tar
sand,Oil shale,Shale gas,Other unconv.
gas),Biomass(Energy crop,Forest biomass,Round
wood residue,Black liquid,Used paper,Lumber
residue,Crop harvesting residue,Sugar cane
residue,Bagass,Household garbage,Human
waste,Animal waste),Nuclear,HydroGeothermal,PV,Wi
nd,EOR,CCS(Gas well),CCS(Aquifer),CCS(Ocean),
ECBM), sSeason(BiomassHydroWindSolid
Dem.Liquid Dem.Gas Dem.No difference,PVElec.
Dem.Summer, Winter, Mid season), st Energy
storage, tYear(20002100, 11 year point), te
Transportation facility(Coal,Oil,Gas,Hydrogen,Meth
anol,DME,CO2,Electricity), tr Transportation
mode(Onshore,Offshore), uConversion
technology(Coal-fired,Oil-fired,NGCC,IGCC,
Nuclear,HydroGeothermal,PV,Wind,Biomass direct
combustion,BIG/GT,STIG,Waste generation,Hydrogen
generation,Methanol-fired generation,Partial
oxidation (coal, oil), Natural gas reformation,
Biomass thermal liquefaction, Biomass
gasification, Shift reaction, Methanol synthesis,
Methane synthesis, Dimethyl ether (DME)
synthesis, Diesel fuel synthesis, Water
electrolysis, Biomass methane fermentation,
Biomass ethanol fermentation, Hydrogen
liquefaction, Liquid hydrogen re-gasification,
Natural gas liquefaction, Liquefied natural gas
re-gasification, Carbon dioxide (CO2)
liquefaction, Liquefied CO2 re-gasification) Exoge
nous variables CostructCost Energy
production conversion cost/(Mtoe/year),/kW,C
onvEffi Energy conversion efficiency,CUtiFacto
r reciprocal of capacity factor,DemEffi Energy
consumption efficiency ,Disc Discount
rate,DistCost Distribution cost/Mtoe,Exhaust
Fossil fuel resource amountMtoe,FinalDemandFina
l energy demandMtoe,OpeCost Operating
cost/Mtoe,ProdCost Resource production
cost/Mtoe,ProdEffi Production
efficieny,PUtiFacotr Reciprocal of prodaction
facility capacity factor,Pupv Capacity
factor(PV),RemRemaining rate of
facility,Renewable Renewable energy
resourceMtoe,SaveCostEnergy saving
cost/Mtoe,SaveEffi Energy saving
efficiency,SaveLimits Energy saving
potentialMtoe,StorageCost Energy storage
cost/Mtoe,StrageEff Energy storage
efficiency,TConCost Transportation facility
cost/(Mtoe/year),/kW,Termlength of
timeyear,day,hour,TransCost Transportation
cost/Mtoe,TransEffi Transportation
efficiency,TRem Remaining rate of
transportation facility,TUtiFactor Capacity
factor of transportation facility Endogenous
variables DC Energy demandMtoe,EC
Energy production conversion capacityMtoe/year,
kW,PR Energy productionMtoe,SV Energy
savingMtoe,ST Energy storageMtoe,TC Energy
transportation capacityMtoe/year,kW,TCST
Objective function,TR Energy
transportationMtoe,US Energy inputMtoe
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Nuclear Fuel Cycle Model

• Nuke Technology
• Light-water reactors (LWR), light-water MOX
  reactors (LWR-MOX), and fast breeder reactors
  (FBR) are considered. This model considers 4
  types of nuclear fuel and SF fuel for initial
  commitment, fuel for equilibrium charge, SF from
  equilibrium discharge, and SF from
  decommissioning discharge.
• Commissioning/Decommissioning
• Fuel for initial commitment is demanded when new
  nuclear power plants are constructed. Equilibrium
  charged fuel and equilibrium discharged SF are
  proportional to the amount of electricity
  generation. Decommissioning discharged SF is
  removed from the cores of decommissioned plants,
  considering time lags of various processes in
  initial commitment, equilibrium charge,
  equilibrium discharge and decommissioning
  discharge.
• Reprocessing
• In waste management, SF, which is stored away
  from power plants is reprocessed or disposed of
  directly. Uranium 235 and Plutonium can be
  recovered through reprocessing of SF. Recovered
  Uranium 235 is recycled through re-enrichment
  process. Some of recovered Pu is stored if
  necessary and the remaining Pu is used as FBR and
  LWR-MOX fuel. It is assumed that SF of FBR is
  also reprocessed after cooling to provide Pu.

Nuclear Fuel Cycle Model
Charge/Discharge pattern of Nuclear Fuel
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Nuclear Fuel Cycle Model

Cost Data
Nuclear Fuel Characteristics by Reactor
13
Natural Gas Resource

• Global conventional gas resource is estimated to
  be 17,000 tcf. Current world gas demand is around
  100 tcf, and R/P ratio on a resource basis
  represents 170 years.
• World unconventional gas amounts to 31,000 tcf.
  Global endowments of coal-bed methane,
  tight-formation gas, gas from fractured shales
  are assumed to 9,000 tcf, 7,000 tcf and 15,000
  tcf respectively.
• In terms of conventional resource, almost
  three-quarters of the worlds natural gas
  resources are located in the Middle East and FSU.
  Russia, Iran, and Qatar together mostly accounted
  for the ratio. The rest of the world are
  distributed fairly evenly on a regional basis.
• Including unconventional resources, however, the
  portion of Middle East and FSU explains for about
  40 of the world resources, and N.America
  individually holds around 20.
• In this analysis, methane-hydrate is not within
  the scope due to the uncertainty of
  commercialization.

(Source) Rogner, H. H., (1997), EIA/DOE etc.
14
Shale Gas Production Cost Curve

• Several scenarios regarding shale gas production
  curve are assumed to investigate the sensitivity
  of its production cost. The lowest production
  cost is 5.8/MMBtu in Reference Schenario,
  3.6/MMBtu in Technologically-advanced Scenario
  and 1.8/MMBtu in Breakthrough Scenario. The
  aggregate curve shifts in accordance with the
  decreasing rate of the lowest cost in each curve.
  
• Technologically-advanced Scenario and
  Breakthrough Scenario is applied after 2020.

Shale Gas Production Curve (World)
Gas Production Cost
Reference Scenario
(Conv.Gas) 19 /MMBtu
(27cent/kWh) (Shale Gas)
Reference 69 /MMBtu
(57cent/kWh) Tech. Adv.
47 /MMBtu
(46cent/kWh) Breakthrough 25
/MMBtu
(35cent/kWh)
Technological-Advanced Scenario
5.8/MMBtu
Breakthrough Scenario
3.6 /MMBtu

• Production cost in Marcellus?Bernett?Haynesville
• Onshore conventional, highest (Rogner)

Levelized cost of power gen. in model plant
1.8 /MMBtu
Onshore conventional lowest (Rogner)
(Source) Rogner, H. H., (1997), EIA/DOE etc.
15
Natural Gas Production Cost Curve (World)
Nuclear (4000/kW)
8 cent/kWh
Reference Scenario
Nuclear (3000/kW)
Nuclear (2000/kW)
Breakthrough Scenario
2 cent/kWh
Levelized cost of power gen. in model plant
(Remarks) Gas demand, world (2009) 104 tcf (2.2
billion ton-LNG) Conventional gas
resource (this analysis) 17,000 tcf (340 billion
ton-LNG) Shale gas resource (this
analysis) 14,000 tcf (310 billion ton-LNG)
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CO2 Emissions Regulation

• Halving Global CO2 emissions
• Global CO2 emissions is designed to halve those
  emissions by 2050, stabilizing global temperature
  growth at 2 centigrade. (Similar to 450 ppm
  scenario in IPCC)
• Developed Countries Decrease CO2 by 80 until
  2050
• In developed countries, such as USA, Japan,
  Germany, UK, Canada and South Korea, the CO2
  emissions in each country should be decreased by
  80 until 2050.

Regulation Curve of World CO2 Emissions
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CO2 Shadow Price (Marginal Mitigation Cost)
simulated results in the model
CO2 shadow price in 2050 50 /t-CO2 400
/t-CO2 ? increasing gas-fired generation cost
by 2 15 cents/kWh (Developing countries)
50 /t-CO2 ? Gas price 3 /MMBtu
(Gas-fired 2 cents/kWh) (Developed countries)
150400 /t-CO2 ? Gas price 821
/MMBtu (Gas-fired 6 15 cents/kWh)
Note Gas-fired cost 27 cents/kWh, Nuclear 4
cents/kWh
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Power Generation Mix (World)
In no CO2 regulation scenario, shale gas is
competitive mainly with coal, and in CO2
regulation scenario, with nuclear (light water
reactor).
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
10
10
PV
PV
30
46
Gas
Gas
24
24
33
24
34
34
Coal
Coal
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
18
21
Nuclear(LWR)
13
13
Nuclear(LWR)
10
PV
PV
11
9
Wind
Wind
9
Hydro
Hydro
11
12
BIG/GT
BIG/GT
30
Gas
24
23
Gas
24
34
Coal
Coal
34
19
Primary Energy Mix (World)
Since shale gas production is observed to
increase even in CO2 regulation scenario, shale
gas is considered to be cost-effective option in
carbon-constrained scenario.
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
15
26
38
Shale Gas
23
Gas (Conv.)
Gas (Conv.)
28
28
22
22
Oil
Oil
35
35
26
19
Coal
21
21
Coal
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
27
24
Nuclear
Nuclear
12
Biomass
12
Biomass
8
Shale Gas
25
Gas (Conv.)
20
Gas (Conv.)
17
22
22
35
35
Oil
Oil
21
22
Coal
21
21
Coal
2
1
20
Shale Gas Impact on Energy Mix

• Increase in shale gas production will have a
  significant impact on the other energy source.
• In no CO2 regulation, shale gas mainly replaces
  coal-fired power plant. In CO2 regulation case,
  it substitute nuclear, photovoltaic and wind
  power.
• The development of shale gas will ensure more
  time enough for innovative technologies to
  commercialize , such as nuclear and renewable
  energy technologies.

Change in Primary Energy Mix(2050)
Shale Gas Production (Billion LNG-ton)
1.2 2.8 0.5 1.7
Change in Power Gen. Mix(2050)
Annual Inc. of Shale Gas to 2050 (Million LNG-ton)
20 60 10 40
Shale Gas
Gas
Biomass
Coal
Wind
Biomass
Coal
PV
Wind
Nuclear (LWR)
Gas(Conv.)
PV
Nuclear
21
Power Generation Mix (North America)
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
PV
13
11
PV
21
Wind
24
Wind
Nuclear(LWR)
Nuclear(LWR)
15
40
Gas
Gas
26
26
29
Coal
40
40
14
Coal
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
9
21
16
Nuclear(LWR)
Nuclear(LWR)
PV
18
PV
Wind
26
Wind
28
12
26
Gas
26
12
Gas
40
Coal
24
40
7
Coal
22
Primary Energy Mix (North America)
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
11
Wind
11
Wind
Nuclear
Nuclear
20
Gas
11
11
36
Gas
22
26
22
Oil
38
26
38
Oil
26
Coal
17
17
12
Coal
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
30
15
7
PV
7
PV
Nuclear
Wind
Nuclear
Wind
13
12
Hydro
Hydro
11
7
Biomass
7
11
Biomass
16
Gas
Gas
14
22
22
22
9
38
38
Oil
Oil
20
17
Coal
17
Coal
17
23
Shale Gas Production Outlook
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
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Shale Gas Production Outlook
In no CO2 regulation scenario with shale gas
breakthrough scenario, China, Middle East and
Latin America represents a considerable growth of
shale gas production. North America will be
placed as major gas production region as well as
Middle East and FSU. In CO2 regulation, shale gas
production will proceed in its resource endowed
country, though CO2 regulation restrict gas
consumption per se compared with CO2 regulation
scenario.
No CO2 Regulation
Shale Gas Breakthrough
Shale Gas Reference
CO2 Regulation
Shale Gas Breakthrough
Shale Gas Reference
25
LNG Trade Outlook (World)
Shale gas growth eventually enhance the
self-sufficiency in gas supply in North America
and China, and decrease LNG import in these
countries, where LNG import is previously
supposed to be expanded. No CO2 regulation
scenario Global LNG trade will grow toward 2050
in Reference Scenario, while that trading will
decrease by 70 in Shale Gas Breakthrough
scenario significantly. CO2 regulation
scenario Global LNG trade will decline toward
2050 in Reference Scenario, while the rate of
decline will be more accelerated in Shale Gas
Breakthrough scenario.
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LNG Import Price (Shadow Price)

• Since international LNG market to 2050 is
  calculated to be relaxed mainly due to increasing
  shale gas production, Japanese LNG import
  increase in no CO2 regulation with shale gas
  breakthrough case, compared with Reference
  Scenario.
• Japanese LNG import price (shadow price) will
  decline by 10 towards 2050. Relaxation of global
  LNG market backed by shale gas growth will
  provide more affordable LNG price with increase
  in Japanese LNG import.

Japan?no CO2 regulation
Reference
Breakthrough
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Concluding Remarks
Calculated results suggest that shale gas
development potentially have a broad impact on
global energy mix and LNG trading
Uncertainty

• Environmental Impact
• Impact of chemical composition of fluids used in
  the hydraulic fracturing process on human health
  and the environment ?
• Natural Gas Pricing Issues
• Tenuous relationship between Atlantic and Pacific
  market ,
• Asian LNG import price is correlated with crude
  oil,
• preferable effect of shale gas on Asian LNG
  market ?
• Nuclear and Renewable
• Advanced nuclear reactor ? Renewable ?
• Natural gas is a key alternative resource after
  severe nuclear accident in Fukushima ?

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Background

• The share of shale gas in US gas production
  rapidly increase from 4 in 2005 to 16 in 2009.
• The amount of shale gas production in 2009 reach
  3.3 tcf (68 million ton-LNG), showing an annual
  increase at 15 million ton-LNG, and
  unconventional gas production in aggregate
  dominates 56 in 2009 while conventional gas
  production continuously decrease.
• U.S. gas production growth is attributable to
  advanced production technologies, especially
  horizontal drilling and hydraulic fracturing
  techniques that has made the countrys vast shale
  gas resources accessible, and estimates of shale
  gas resources have been rising.
• The movement of natural gas price tend to be
  different from that of oil price showing a high
  level. The ratio of natural gas price to oil
  price represents 0.3 in thermal equivalent.
• U.S. shale gas production has recently continued
  to grow despite low natural gas prices. However,
  as North American natural gas prices have
  remained low, and in contrast, liquids prices
  have risen with international crude oil prices,
  U.S. shale drilling has concentrated on
  liquids-rich shales such as the Bakken shale
  formation in North Dakota and the Eagle Ford
  formation in Texas.

Incremental Increase in US Gas Production
(2005-2009)
Natural Gas Production in U.S.
16 (2009)
4 (2005)
(Source) EIA/DOE
(Source) EIA/DOE
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Total System Cost (World)

• Extensive shale gas production decrease global
  system cost by from 3 to 9 in 2050 in no CO2
  regulation scenario, by from 2 to 4 in 2050 in
  CO2 regulation scenario.
• In both CO2 regulation scenario, massive growth
  of shale gas production will decline energy
  system cost.

No CO2 Regulation
CO2 Regulation
Tech. Adv.
Tech. Adv.
Breakthrough
Breakthrough
30
Power Generation Mix (China)
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
15
14
9
30
45
37
65
65
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
39
38
16
16
12
12
19
12
65
65
31
Primary Energy Mix (China)
No CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
8
6
Nuclear
Nuclear
17
46
30
26
23
Gas
Gas
23
24
Oil
24
Oil
22
22
38
32
Coal
Coal
61
61
CO2 Regulation
Shale Gas Reference
Shale Gas Breakthrough
45
43
Nuclear
Nuclear
8
Hydro
8
Hydro
30
Biomass
8
7
Biomass
24
24
23
Gas
Gas
13
16
Oil
22
22
Oil
19
18
61
Coal
Coal
61