33rd USAEE/IAEE North American Conference
"The Dynamic Energy Landscape"
October 25-28, 2015
Videos and Photos from the conference may be found at http://www.usaee.org/usaee2015/
You can also see what topics conference attendees were actively tweeting about under the Twitter hashtag #USAEE2015
Nathaniel HornerPh.D. CandidateCarnegie Mellon UniversityPittsburgh, PAnhorner@andrew.cmu.edu
On October 25-28, 327 representatives from the energy industry, government, and academia in 26 countries gathered amid brilliant fall foliage at the confluence of the Allegheny and Monongahela Rivers to discuss "The Dynamic Energy Landscape," the theme of the 33rd USAEE/iAEE North American Conference.
Sunday, October 25
The conference opened on Sunday evening with a Welcome Reception; the 4th annual Case Competition, origanized by Prof. Eric Hittinger (Rochester Institute of Technology) and won by the team from Carnegie Mellon University, Nathaniel Horner and Erin Mayfield; and a Student Mentoring Session, organized by John Holding. (Details about the Competition and the Mentoring Session may be found in accompanying articles in this issue of USAEE Dialogue.)
Monday, October 26
Plenary activities began on Monday morning with a welcome from Troy Thompson (Chevron), USAEE President and General Conference Chair; Peter Hartley (Rice University & University of Western Australia), IAEE President; Tina Vital (energy investment analyst), Plenary Session Coordinator; and Diana Stares (Washington and Jefferson College), President of the Three Rivers Chapter, host of the conference.
Troy Thompson, President, USAEE; and Peter Hartley, President, IAEE; at the opening of the 33rd USAEE/IAEE North American Conference. Tina Vital, Plenary Session Coordinator; Mina Dioun, Concurrent Sesions Chair; Derek Nixon, Student Coordinator; Diana Stares , President, Three Rivers Chapter.
The conference program included eight Plenary Sessions, coordinated by Tina Vital, each of which is discussed in detail within this article. In addition there were 45 Concurrent Sessions, organized by Mina Dioun (Dioun Energy Consulting), with a total of 190 presentations on research and case studies that touched upon virtually every aspect of our energy economics community's interests. The conference also hosted two site visits that are detailed in a companion article of this issue of USAEE Dialogue.
Ninety-four students were in attendance, participating in a program, coordinated by Derek Nixon (University of California, Davis), that was rich in opportunities for networking and engagement: a student breakfast, mentoring and networking sessions, job placement assistance, and friendly competitions.
The welcome was followed by the opening Plenary Session, “The Dynamic Energy Landscape: Natural Gas in the U.S.,” chaired by Benjamin Schlesinger (Benjamin Schlesinger & Associates). Analysts Vello Kuuskraa (Advanced Resources International) and Rusty Braziel (RBN Energy) joined Marcellus Shale Coalition president David Spigelmyer in discussing the ramifications of the current low-price environment.
Benjamin Schlesinger,President, USAEE.(2011)
Kuuskraa remarked on the size and speed of the shale gas production ramp up, which saw domestic supply transition from scarcity through expectation to glut. He characterized 2015 as an “irrational year” for the industry due to a continued level of drilling activity not economically justified at current price levels. Spigelmyer highlighted this dramatic price change, noting that gas prices have fallen from $13/MCF in 2008 to just over $1/MCF today and stating that these prices have led to a reduction in active rigs as well as planned investment. Braziel was a bit more optimistic, claiming that efficient producers can make money even at today’s prices, as drilling and completion costs have fallen quickly and rig productivity has improved on the order of 400% over the past five years.
One of Monday afternoon's Concurrent Sessions featured the Dennis J. O’Brien USAEE/IAEE Best Student Paper Award Competition, organized by Prof. Thomas Drennan (V.P. of Student Affairs for USAEE), and won by Yang Yu of Stanford University. (This and other student competitions are covered in companion articles in this issue of USAEE Dialogue.)
Lori Smith Schell,President, USAEE (2013)
At Monday’s Awards Luncheon USAEE honored several members for their long service to the organization. Adam Sieminksi and Howard Gruenspecht were given the Adelman Frankel Award for their data collection and publishing initiatives at the U.S. Energy Information Agency. Robert Borgström (independent consultant), Amy Jaffe (University of California, Davis), and Andrew Slaughter (Deloitte) were honored as Senior Fellows. These awards were presented by Lori Smith Schell (Empowered Energy), past president of USAEE and chair of the awards committee.
Severin Borenstein (University of California, Berkeley) was honored by IAEE for his outstanding contributions to the profession. Professor Borenstein received his award from Peter Hartley, president of IAEE. (Further details about each of the USAEE/IAEE awards may be found in companion articles in this issue of USAEE Dialogue.)
Troy Thompson, President, USAEE; presenting Michael Canes (Logistics Management Institute), with a plaque honoring his service as President, USAEE (2014).
Prof. David A. HounshellCarnegie Mellon University
Pittsburgh’s position as an epicenter of several historic transitions in the U.S. energy economy was highlighted in the keynote presentation, “Two Centuries of Energy Transitions in the Pittsburgh Region,” by David Hounshell, David M. Rodereick Professor of Technology and Social Change, Carnegie Mellon University.
During the afternoon’s plenary session on “Renewable Energy Integration,” chaired by Julian Lamy (Carnegie Mellon), Jay Apt (Carnegie Mellon), and Resme Surendran (ERCOT) addressed the technical challenges of intermittent generation on the grid, while Severin Borenstein (University of California, Berkeley) and Mike Speerschneider (EverPower) discussed the effectiveness of policy incentives aimed at increasing renewables. Surendran described ERCOTs experiences with wind integration, noting that the ISO has the largest wind capacity of any US state, with today’s 14 GW of capacity comprising 10% of generation and expected to hit 25 GW by 2017. Since wind output is uncorrelated to peak load, ERCOT has adopted several strategies to handle to this variable generation. According to Apt, connecting geographically dispersed wind farms can decrease wind variability by as much as 90%, though there are diminishing returns after 3-4 farms and interconnection has limited benefit for smoothing high frequency fluctuations. However, Apt observed that most wind variation occurs at the hourly frequency and can thus be backed up with conventional power plants without the need for expensive, sub-hour ramping capacity. ERCOT also uses economic curtailment, phase shifter optimization, and improved forecasting to handle wind generation. Regarding forecasting, Apt emphasized that wind variability is not random: it can be measured and predicted, though wind forecasts tend to over-predict during periods of high wind and under-predict during lulls.
On the policy front, Borenstein argued that the current regulatory and rate structures for residential solar photovoltaic (PV) installations create perverse incentives for homeowners. Instead, an effective policy would incorporate real-time pricing, implement net metering, and pay for fixed costs like wires to the house. However, residential PV is seen as a threat to the traditional utility business model, as distributed generation offers an escape from most fixed and sunk costs in the industry. Speerschneider focused on the policy incentives in place for wind deployment, noting that the production tax credit’s strong positive effect on the industry can be observed by the dramatic drop in capacity additions when it is allowed to expire. To effectively support a market, these sorts of incentives need a longer-term commitment. He noted that renewables receive lower subsides than do other energy technologies, including nuclear, oil and gas, and biofuels. Beyond tax credits, regulatory measures such as the Clean Power Plan and Renewable Portfolio Standards are effective growth drivers.
David Williams, Executive Director, USAEE, with Troy Thompson, President, USAEE.
Those not attending the renewables integration panel heard Kenneth Medlock (Rice University), William Furlow (Society of Petroleum Engineers), Meagan Mauter (Carnegie Mellon), and John Walsh (Cetco Energy Services) discuss “Water at the Well Site: Production, Handling and Disposal.” Mauter described some of the challenges and risks associated with water use in drilling activity at unconventional oil and gas well sites, noting that water-related costs are high. Walsh noted that water is the third- or fourth-highest drilling and completion cost for shale wells. The specific challenges vary regionally, with disposal being the most pressing water issue in the Marcellus play due to lack of injection wells or on-site treatment. As a result, the conventional method of disposal is via trucking water at an energy cost 10 times greater than that of on-site treatment. The environmental costs of these activities are significant, with 40 out of 67 Pennsylvania counties incurring damages in excess of the impact fee revenue they receive for damage mitigation, according to Mauter. However, better, more efficient treatment options are being deployed, though Walsh noted that adoption of new technologies in the oil and gas industry is typically quite slow.
At the end of the day attendees enjoyed a Networking Reception with an opportunity to see the posters prepared by eleven student members as part of the annual Student Poster Competition. The competition, organized by John Holding (independent energy analyst), was won by Brock Glasco of Carnegie Mellon University with his presentation on “Understanding the Potential for Electricity Savings and Assessing Feasibility of a Transition towards DC Powered Buildings.”
Tuesday, October 27
Mine YucelPresident, USAEE (2004)
The second full day of the conference featured two dual plenary sessions. Chaired by Mine Yucel (Federal Reserve Bank of Dallas; and President, USAEE - 2004), Peter Balash (DOE), Martha Moore (American Chemistry Council) and Tom Duesterberg (Aspen Institute) discussed “Industrial Resurgence,” focusing on manufacturing and petrochemical sectors poised to thrive in an era of energy abundance and the corresponding potential for new economic growth. Duesterberg noted, however, that despite this promise, a labor crisis is pending: not enough students interested in industrial jobs, and too few education programs providing the necessary training.
In the other morning plenary, chaired by Shree Viksas (ConocoPhillips), Steve Winberg (Batelle), Christopher Nichols (National Energy Technology Laboratory), and James Wood (West Virginia University) painted a fairly bleak picture in reflecting on "The Future of Coal" in the U.S. Displacement by cheap natural gas in the power sector—where 93% of coal is consumed—and the EPA endangerment finding have led to a 22% decrease in coal use from 2008. This decline is unlikely to recover, according to Winberg. The domestic coal fleet is aging: 70% of the coal burned domestically today is burned in units that are between 30-50 years old, and all three panelists agreed that their replacements are unlikely to be coal. Nichols estimated domestic coal use could fall an additional 20-40% over the next 25 years under the Clean Power Plan. While many have pinned the future of the U.S. coal industry on advanced coal technology such as oxyfuel combustion or carbon capture and storage (CCS) to reduce carbon emissions, the panel expressed skepticism as to how soon these technologies will be proven at scale, especially given the relatively low levels of R&D funding they receive.
While the panel’s view of domestic consumption is unanimously one of decline, the international picture is much different according to Nichols. China’s coal usage is expected to increase to 3 billion tons—three times the current U.S. consumption—over the next 25 years, a tenfold increase over 1990 levels. The cost advantages of natural gas in the U.S. do not apply worldwide, and coal will be an important source of energy in developing economies expanding electricity access. China’s interest in coal technology means that the country will be an important contributor to CCS development and testing. While international research efforts on CCS have been, as in the U.S., “woefully underfunded,” reaching global climate goals will be difficult without the technology. Thus, while global coal consumption is not likely to decline as it has in the U.S., the global community will need to continue to think about how this aligns, or does not align, with global carbon targets.
At Tuesday’s Awards Luncheon, the winners of the conference’s student competitions were announced and John Kingston, President of McGraw Hill Financial Global Institute was awarded the IAEE Journalism Award.
The afternoon included two plenary sessions. During the “Climate” plenary, chaired by Jared Anderson (Breaking Energy), Eliza Northrop (World Resources Institute), Kevin Massy (StatOil), and Granger Morgan (Carnegie Mellon) shared their perspectives on the upcoming Paris UN Climate Conference (COP21). Northrop expressed optimism, highlighting the agreement between the U.S. and China signed in November and noting that 113 of 127 countries have public plans outlining their post-2020 emissions outlook. Massy used Norway, the second largest gas supplier in Europe, as a case study of a country with large fossil resources committing to carbon reductions, noting that StatOil has been working on CCS for many years supported by government incentives and now has the most CCS in the world. He believes the Paris talks will decrease policy uncertainty and help provide a signal to the business community about reducing emissions.
Morgan took the contrasting viewpoint that comprehensive international agreements are unrealistic and that bottom-up, bilateral, or small-group agreements—like the US-China announcement—are much more productive. He sees a danger in the Paris talks, and in policies like the U.S. Clean Power Plan: people become encouraged by a level of activity that is, in reality, insufficient to achieve the needed emissions reductions. Morgan argues that it is important to avoid these potential “dead ends” and instead focus on aggressive strategies beyond carbon prices and market mechanisms, including a total systems perspective, preference for zero-carbon technologies, including nuclear, and—critically—investment in research and development. With the U.S. spending so little in R&D, Morgan sees China as the best hope for progress and leadership: China is putting the most effort and money in R&D and doesn’t have issues in setting regulations, so the country will be a good test-bed for new technology.
The “Electricity Markets” plenary, chaired by Steve Bossart (National Energy Technology Laboratory), featured Mario DePillis (Economic and Energy Analysis), Ingmar Sterzing (Pedernales Electric Cooperative), and Howard Haas (Monitoring Analytics). DePillis noted that, despite restructuring, 72% of U.S. generation remains vertically integrated. Those markets that are restructured have generally seen “good market reforms” as they have matured, although there is fatigue associated with continued market evolution. Haas agreed that market reforms are important, noting that under traditional cost-of-service regulation utilities make the decisions but consumers bear the risks for mistakes, which are “difficult to undo.” To function well, electricity markets should be designed to incentivize all the services necessary for efficient grid operation: not just energy, for instance, but also capacity and frequency regulation. Each of the speakers discussed the fact that restructured wholesale electricity markets still operate with transmission systems still under the cost-of-service paradigm. Sterzing noted that transmission costs in ERCOT have increased substantially and constraints have led to periods of negative pricing in Texas during high wind output. To address this problem, the Competitive Renewable Energy Zones project added over 3,000 miles of transmission lines to anticipate future wind growth.
In the evening, attendees took the short walk (or shuttle bus ride) across the river to the Andy Warhol Museum for a reception, which included opportunities to tour the exhibits and to get hands-on with silkscreen printing in the basement "Factory."
Wednesday, October 28
The final day of the conference held dual plenary sessions on geopolitics and energy infrastructure. During the “Geopolitics” plenary, chaired by David Knapp (Energy Intelligence Group), the panel addressed the ramifications of unstable geopolitics on energy project economics. Guy Caruso (Center for Strategic and International Studies) estimated that geopolitical issues add only $1-2 per barrel to the price of oil. This relatively small impact is due to increasing North American oil production and a faster, more responsive investment cycle in the industry. Outside of North America, Iraqi oil production, while heavily disrupted, does not impact the oil market; OPEC is dominated by Saudi Arabia; and Russia is pivoting away from the EU toward China and the Middle East for gas exports. Frank Linden (Multilateral Investment Guarantee Agency) summarized his organization’s options for insuring companies making energy project investments in developing countries and areas of potential instability, protecting mainly against government intervention such as federalization, restrictions on equity and profits, breach of contract, and war.
The other dual plenary, chaired by Christopher Nichols (National Energy Technology Laboratory), focused on the state of U.S. "Energy Infrastructure," which the American Society of Civil Engineers graded as a D+. William Hederman (U.S. Department of Energy) discussed infrastructure’s central role in balancing economic competitiveness, environmental responsibility, and energy security, noting that funding is required to modernize systems such as natural gas distribution networks. The U.S. natural gas transmission system, on the other hand, is the “envy of the world,” with 300K miles of interstate pipelines, according to Donald Santa (Interstate Natural Gas Association of America). However, transmission pipeline development is tremendously difficult: construction only occurs when a customer has signed a contract for long-term firm supply; regional planning is nonexistent, so each project is evaluated in isolation; oversight can be delegated from the federal level to state governments; and, finally, the association of pipelines with fracking has led to greater public opposition. Pipeline constraints have led to use of other transmission options, and John Schmitter (KEP, LLC) provided insight into the U.S. rail industry, which has seen increased crude shipments. Most locations in the U.S. are captive to one of a handful of regional railroads, and capacity expansion is responsive rather than anticipatory, so it takes some time to ramp capacity as volume increases.
The conference closed with a panel on “Energy Finance and Risk Management,” chaired by Tina Vital (energy investment analyst) and comprised of Amy Jaffe (University of California, Davis), Glen Swindle (Scoville Risk Partners), and Michael Sell (Global Association of Risk Professionals). The session began by polling the audience on a series of questions about oil supply and demand, which were then compared with assessments from the expert panel. Response rates were quite low (due in part to technical issues and unfamiliarity with the polling system) but it was interesting to see where opinions differed. Nearly half the responders agreed with the panel’s estimate of $50-60 billion in 2015 U.S. oil and gas industry write-downs, but the experts’ saw more risk of a drop in world energy consumption over the next two years than did the audiece responders.
During the panel presentations, Jaffe drew an analogy between the current shale boom and oil production in the 1980s: price drops led to innovation and efficiencies rather than curtailing production, which led to continued price reductions. This continuing technological improvement means that, in her view, “peak oil” theory has been debunked—at least for the foreseeable future. Addressing project financing, Swindle noted that liquidity for long-term contracts is down, making hedging more difficult for risk managers. Sell spoke to the quantitative practice of risk management, highlighting differences between market, credit, and operational risks and noting that there is no “silver bullet” in the risk management process. Rather, analysts need to work to define better probability distributions and perform stress testing and scenario analysis for more robust results.
USAEE Senior Fellows: [front row] David Knapp, Michael Canes, Benjamin Schlesinger, Adam Sieminski; [back row] Kenneth Medlock, Robert Borgström, Kevin Forbes, Carol Dahl, Mine Yucel, Andrew Slaughter, Peter Hartley, Troy Thompson, and Lori Smith Schell.
After the conference, Kenneth Medlock (Rice University), Chuck Zelek (National Energy Techology Laboratory), Peter Kobos (Sandia National Laboratories), and Haibo Zhai (Carnegie Mellon) conducted a workshop on CCS, discussing various R&D programs at NETL and a system analysis of the feasibility of CCS retrofits at existing U.S. coal-fired power plants. The audience showed a strong interest in the timing of CCS deployment and R&D activities in major developing countries such as China.
Contributors to this article: Melanie Craxton (Stanford University) and Julian Lamy (Carnegie Mellon University).