Update On Radical Shifts In California's Power And Gas Markets -- RBN Energy -- July 25, 2016

Active rigs:

	7/25/2016	07/25/2015	07/25/2014	07/25/2012	07/25/2011
Active Rigs	32	73	192	208	179

RBN Energy: great read. Part 2 in this series -- radical shifts in California's power and gas markets.

After averaging more than a nickel below Henry Hub all this year, the California Border natural gas price spiked to 66 cents/MMbtu above Henry on Friday. 

This kind of price volatility is no surprise to anyone following the radical shifts in California energy markets, starting five years ago when the state legislature enacted its 33%-by-2020 renewable portfolio standard (RPS) law. 

By mid-2015, more than 14,000 MW of new solar and wind power had pulled down gas demand in California to the point that natural gas prices at the SoCal Border were averaging a negative basis to Henry Hub. 

Still not satisfied, last year California legislators voted to establish a 50% renewables target for 2030.  On top of it all, the West Coast was coming up on a La Niña year that would bring more rain –– and hydroelectric generation –– to the Pacific Northwest and eventually into California. With all that renewable power (solar, wind and hydro),

California seemed headed for an unprecedented period of low gas prices, but it did not turn out to be so simple.  In today’s blog, we continue our look at California’s power and gas markets with the events and drivers that shaped late 2015 and the first six-plus months of 2016, and consider what’s to come. 

In the first episode of California Sunset we discussed the events that transpired between 2011 and mid-2015 that reshaped the Golden State’s energy markets.  Not long after the RPS law was passed, California shut down the nuclear generating plants at San Onofre, regulators expedited the build-out of new transmission lines to move more solar and wind power to market, and the state implemented a carbon cap-and-trade program. The market responded by building new solar projects and wind farms, which displaced the need for gas generation, especially through the middle of most days. 

It's an incredibly good read; I've archived it. This episode ends with this:

Looking at the longer term, there are a lot of moving parts that will impact the displacement of natural gas in the West, specifically California.

To comply with the updated RPS goals of 50% renewable-sourced generation by 2030 mentioned above, solar capacity will need to continue to grow by roughly 2,000 MW/y, with behind-the-meter rooftop solar growing by roughly 500 MW/y. 

The rule of thumb for solar output across the heavy load hours is to use a 50% capacity factor (heavy load average output/capacity), which would imply a year-on-year increase of 1,250 MWa (2,000+500)/2). Using the same conversion mentioned above of 0.15 Bcf per 1,000 MW, that is an incremental annual decline of 0.187 Bcf/d. 

So over the next 10 years, at that rate the California market will reduce its need for gas by almost 2.0 Bcf/d.

Consequently, by 2026 environmentally minded Californians should achieve some of the goals of the state’s aggressive RPS.  What’s more, their ambitious renewables program has shifted the entire landscape for West Coast gas as all of that displaced gas will likely be backed up into the Desert Southwest/West Texas, Midcontinent and the Pacific Northwest/Canada. As RBN regulars are familiar, such profound changes in one energy market can cascade through others like falling dominoes, leading to unintended consequences.

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Too Good Not To Post

Reading To Georgie

True Love

I'm not sure what book Sophia is reading to Georgie, but I do see that Sophia has her favorite book to her right: Llama, Lama Red Pajama. 

Llama, Lama Red Pajama