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Fuel Price Forecast & Key Drivers
November 29, 2007
GUAM POWER AUTHORITY
John J. Cruz, Jr., P.E.Guam Power Authority
Kemm C. Farney, PhDPL Mangilao Energy, LLC
2
LoadForecast
IRPGoal
FuelForecast
PossibleResources
3
What is a fuel price forecast ?
Types of fuel currently used
Types of fuel that might be used in the future
Understanding historical behavior
How will prices behave in the future?
What other fuel types should be considered?
4
How is a fuel price forecast done?
Field investigationWhat is the local and global development story?What is the utility planning objective?
5
How is a fuel price forecast done?
Determining the DriversGlobal economic growth especially the U.S. economy and the emerging economies of India and ChinaCurrency Exchange especially the US dollar versus other currenciesWeather Inventories versus productionGeopolitical eventsNew sourcesTechnology breakthroughsPrice of substitute fuels Local Storage and Processing CapabilitiesShipping Costs and Availability
6
How is a fuel price forecast done?
Gathering Time Series Datasets and Data Checking
Regression Analysis
Testing the Model
Developing the forecast based upon judgment and insight
Updating the inputs and the Model
7
Fuel Types Guam Power Authority Uses
Fuel types currently usedResidual Fuel Oils
High Sulfur Fuel Oil (2%)Low Sulfur Fuel Oil (1.19%)
Diesel Fuel OilHigh Sulfur (0.5%)Low Sulfur (0.3%)
8
Historical Price Behaviors
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
$/B
BL
HSFO LSFO DFO
9
WTI Prices (Through October 2007)Fuel Oil Price is Volatile
10
Key Drivers & Uncertainty for Oil based Fuels
Global economic growth especially the U.S. economy and the emerging economies of India and China
OPEC discipline
Non-OPEC suppliers
Global inventories and production expansion
Currency Exchange especially the US dollar versus other currencies
The effect of commodities traders and speculators
Weather affecting winter heating oil demand and affecting refinery or crude production
Geopolitical events especially in the Middle East or affecting crude oil production or refining capability
What factors do you feel are the most important?
11
RFO Forecast
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
2000 2005 2010 2015 2020 2025 2030 2035
Year
RFO
Del
iver
ed A
vera
ge P
rice
($/B
BL)
Low ScenarioMedium ScenarioHigh Scenario
Where do you see prices going?
12
Diesel Fuel Oil Forecast
-
20.00
40.00
60.00
80.00
100.00
120.00
2005 2010 2015 2020 2025 2030
Year
Com
posi
te D
iese
l For
ecas
t ($/
BB
L)
Low - Guam DFO
Medium - Guam DFO
High - Guam DFO
13
Coal as a fuel choice
Majority of the coals from Australia are mid-volatile bituminous coals with low sulphur and calorific values of around 11,300 Btu/lb
Coals from Indonesia are very wide-ranging but the majority of future production will be of a sub-bituminous nature with high levels of inherent moisture, high volatiles, mostly low in ash and sulphur but also having a calorific value of around 9,100 Btu/lb
Requires Large Infrastructure InvestmentsLand PortingHandling and Storage
Environmental Issues
14
Key Drivers & Uncertainty for Coal
Exchange Movements
Atlantic and Pacific MarketsDemandSupplyCross-Supply
Rapid development of Coal-fired power plants in China and India
Shipping Availability and Costs
What other factors do you feel are the most important?
15
Forecast of Coal Prices
0
20
40
60
80
100
120
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
US$
/met
ric to
nne
Australian-Nominal Indonesian-NominalAustralian-Real Indonesian-Real
Where do you see prices going?
16
Natural Gas as a fuel choice
Liquified Natural Gas (LNG)
Cleaner Energy Production
Requires Large infrastructure InvestmentsPorting
Storage
Regasification
17
Key Drivers & Uncertainty for LNG
Competitive LNG marketSlight changes in global supply – demand balance can cause dramatic price changesLNG supply is driven by high capital costs and lead times of five years or more. Occurrence of a brief low price bubble between now and 2011
Substantial number of LNG projects will come on line
The LNG market is likely to become very tight with high prices from 2011 to 2015.Contracting with Tangguh project in Indonesia
4,000 cubic meter tanker on dedicated serviceA crude estimate of the ship cost is about 40 million dollars
Substantial scale penalty for such a small regasification facility. $205 million dollars for FacilityRegasification margin of $3.20/MBTU versus $0.50 to $0.75/MBTU for Large Facilities
What factors do you feel these are the most important?
18
Forecast of LNG Prices
5
6
7
8
9
10
11
12
13
14
15
2005 2010 2015 2020 2025 2030Year
Del
iver
ed F
uel P
rice
($/M
BTU
) .
Low - LNG Guam Medium - LNG Guam High - LNG Guam
Where do you see prices going?
19
BioFuels
Solid, Liquid, or Gas Fuels Created from Renewable sources such as plants
TypesEthanol
Biodiesel
Environmental Issues
Nitrous Oxide (N2O) Concern
Biodiesel from rapeseed Bioethanol from corn (maize)
Less ConcernFuels from grasses and woody coppice species
Carbon Neutral
20
Biofuels Price Forecast
GPA believes that Biodiesel prices will track diesel prices given current price subsidies
21
Forecast Summary
-
2
4
6
8
10
12
14
2005 2010 2015 2020 2025 2030
Year
Del
iver
ed F
uel P
rice
($/M
BTU
) .
Medium - Guam RFO Medium - LNG Guam Medium - Guam DFO Coal - Guam (via Australia)
22
Forecast Summary
-
2
4
6
8
10
12
14
16
18
2005 2010 2015 2020 2025 2030
Year
Del
iver
ed F
uel P
rice
($/M
BTU
) .
Medium - Guam RFO Medium - LNG Guam Low - Guam DFO
Medium - Guam DFO High - Guam DFO Coal - Guam (via Australia)
23
Forecast Summary
-
2
4
6
8
10
12
14
2005 2010 2015 2020 2025 2030
Year
Del
iver
ed F
uel P
rice
($/M
BTU
) .
Low - Guam RFO Medium - Guam RFO High - Guam RFO
Medium - LNG Guam Medium - Guam DFO Coal - Guam (via Australia)
24
Forecast Summary
-
2
4
6
8
10
12
14
2005 2010 2015 2020 2025 2030Year
Del
iver
ed F
uel P
rice
($/M
BTU
) .
Medium - Guam RFO Medium - LNG Capital Grant Medium - Guam DFO Coal - Guam (via Australia)
25
Possible Greenhouse Gas legislation on impact on fuel choices
Carbon legislation (Greenhouse Gases) of some sort may likely be adoptedA carbon tax or trading legislation is likely to be in force by 2009Will likely be an “escalating” approach
Carbon caps will decrease over timeTax or trade values will increase over time
Impacts will apply to all fossil based generationCoal Oil Based Natural Gas basedBiofuels (?)
Europe already has a system in placeChina and India are listed as emerging economies and are resisting adoption of greenhouse gas caps
Their growing economies mean they will be the greatest sources for increases in greenhouse emissions.
What do you see as future legislation?
26
Fuel and New Generation
Generation additions Total system cost reduction, or
Fuel diversity policy
27
Closing Slide
Questions?