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Ryoichi Komiyama *, Yasumasa Fujii University of Tokyo (Dept. of Nuclear Engineering)

30 th 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

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Ryoichi Komiyama *, Yasumasa Fujii University of Tokyo (Dept. of Nuclear Engineering)

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  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

  2. 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 DOE’s 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 China’s 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 Consumption：100 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) Indexd:Time period of day（Biomass・Hydro・Wind・Solid Dem.・Liquid Dem.・Gas Dem.：1，PV・Elec. Dem.：6）, e:Prod.・Conv. technology(e ∊ {(r:energy resource)∪(u:conv. technology)}), f:Fuel(Coal，Oil，Gas，Biomass，Hydrogen，Methane，Methanol，Ethanol，DME，Fuel Oil，CO，Electricity), fd：Type of energy demand（Solid，Liquid，Gaseous，Electricity）, g:Grade of energy resource(1～7), i,j: Regional nodes (1～82), 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，Hydro・Geothermal，PV，Wind，EOR，CCS(Gas well)，CCS(Aquifer)，CCS(Ocean), ECBM), s:Season（Biomass・Hydro・Wind・Solid Dem.・Liquid Dem.・Gas Dem.：No difference，PV・Elec. Dem.：Summer, Winter, Mid season）, st: Energy storage, t:Year(2000～2100, 11year point), te: Transportation facility(Coal，Oil，Gas，Hydrogen，Methanol，DME，CO2，Electricity), tr: Transportation mode(Onshore，Offshore), u:Conversion technology(Coal-fired，Oil-fired，NGCC，IGCC, Nuclear，Hydro・Geothermal，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) Exogenous variables CostructCost: Energy production & conversion cost[$/(Mtoe/year),$/kW]，ConvEffi :Energy conversion efficiency[%]，CUtiFactor: reciprocal of capacity factor，DemEffi: Energy consumption efficiency[%]，Disc: Discount rate，DistCost :Distribution cost[$/Mtoe]，Exhaust: Fossil fuel resource amount[Mtoe]，FinalDemand:Final energy demand[Mtoe]，OpeCost: Operating cost[$/Mtoe]，ProdCost: Resource production cost[$/Mtoe]，ProdEffi: Production efficieny[%]，PUtiFacotr: Reciprocal of prodaction facility capacity factor，Pupv: Capacity factor(PV)[%]，Rem:Remaining rate of facility，Renewable: Renewable energy resource[Mtoe]，SaveCost:Energy saving cost[$/Mtoe]，SaveEffi: Energy saving efficiency[%]，SaveLimits: Energy saving potential[Mtoe]，StorageCost: Energy storage cost[$/Mtoe]，StrageEff: Energy storage efficiency[%]，TConCost: Transportation facility cost[$/(Mtoe/year),$/kW]，Term:length of time[year,day,hour]，TransCost: Transportation cost[$/Mtoe]，TransEffi: Transportation efficiency[%]，TRem: Remaining rate of transportation facility，TUtiFactor: Capacity factor of transportation facility[%] Endogenous variablesDC: Energy demand[Mtoe]，EC: Energy production & conversion capacity[Mtoe/year,kW]，PR: Energy production[Mtoe]，SV: Energy saving[Mtoe]，ST: Energy storage[Mtoe]，TC: Energy transportation capacity[Mtoe/year,kW]，TCST: Objective function[$]，TR: Energy transportation[Mtoe]，US: Energy input[Mtoe]

  11. 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

  12. 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 tcfrespectively. • In terms of conventional resource, almost three-quarters of the world’s 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) 1～9 $/MMBtu (2～7cent/kWh*) (Shale Gas) Reference 6～9 $/MMBtu (5～7cent/kWh*) Tech. Adv. 4～7 $/MMBtu (4～6cent/kWh*) Breakthrough 2～5 $/MMBtu (3～5cent/kWh*) 5.8$/MMBtu Technological-Advanced Scenario 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 Onshoreconventional lowest (Rogner) (Source) Rogner, H. H., (1997), EIA/DOE etc.

  15. Natural Gas Production Cost Curve (World) Nuclear (4000$/kW) 8cent/kWh* Reference Scenario Nuclear (3000$/kW) Nuclear (2000$/kW) Breakthrough Scenario 2cent/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)

  16. CO2Emissions 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

  17. CO2Shadow 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) 150～400 $/t-CO2 ⇒　Gas price +8～21 $/MMBtu (Gas-fired +6 ～15 cents/kWh) Note: Gas-fired cost: 2～7 cents/kWh, Nuclear: 4 cents/kWh

  18. 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 CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 10% 10% PV PV 30% 46% Gas Gas 24% 24% 33% 24% 34% Coal 34% Coal CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 21% 18% Nuclear(LWR) Nuclear(LWR) 13% 13% 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 CO2Regulation 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 CO2Regulation 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% Coal 21% 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 CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough PV 13% 11% PV 21% Wind Wind 24% Nuclear(LWR) Nuclear(LWR) 15% 40% Gas Gas 26% 26% 29% Coal 40% 40% Coal 14% CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 9% 21% 16% Nuclear(LWR) PV Nuclear(LWR) 18% PV Wind 26% Wind 28% 12% 26% Gas 26% Gas 12% 40% Coal 24% 7% 40% Coal

  22. Primary Energy Mix (North America) No CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 11% Wind 11% Wind Nuclear Nuclear 20% Gas 11% 11% Gas 36% 22% 26% 22% Oil 38% 26% 38% Oil 26% Coal 17% 17% 12% Coal CO2Regulation Shale Gas: Breakthrough Shale Gas: Reference 30% 15% 7% PV 7% PV Nuclear Wind Nuclear Wind 13% Hydro 12% Hydro 11% Biomass 7% 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 CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough

  24. 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 CO2Regulation Shale Gas: Breakthrough Shale Gas: Reference CO2Regulation Shale Gas: Breakthrough Shale Gas: Reference

  25. LNGTrade 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.

  26. LNGImport 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

  27. 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 ?

  28. 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 country’s 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

  29. 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 CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 15% 14% 9% 30% 45% 37% 65% 65% CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 39% 38% 16% 16% 12% 12% 19% 12% 65% 65%

  31. Primary Energy Mix (China) No CO2Regulation 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% CO2Regulation Shale Gas: Reference Shale Gas: Breakthrough 45% 43% Nuclear Nuclear 8% Hydro 8% Hydro Biomass 30% 8% 7% Biomass 24% Gas 23% 24% Gas 13% 16% Oil 22% 22% Oil 19% 18% 61% Coal Coal 61%

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