Hammond Pearce Challenges To Renewables in A More Abundant Natural Gas World.012110

Pearce W. Hammond, Jr., C.F.A.
Director, InstitutionaI Research

Simmons & Company InternationaI
1he Cha||enge to kenewab|es |n a More Abundant Natura| Gas Wor|d
TREIA PoIicy Forum
Austin, Texas
January 21, 2010
Pearce Hammond, CFA | 713.546.7269 | phammond@simmonsco-intI.com
Overview
Shale Gas
Gas Supply Trends
mpact to Renewable Energy
Key Trends in Renewable Energy for 2010
Conclusion
Q&A
2
ShaIe Gas: Driving Big Change in Energy OutIook
From the American Petroleum nstitute.
Shale gas is defined as natural gas from shale formations.
Shale gas is an uncoventional gas source along with coalbed methane, tight sands and
methane hydrates.
Shales ordinarily have insufficient permeability to allow meaningful flow to the well
boretherefore production requires fractures to improve permeability.
More recent shale wells are horizontal and need artificial stimulation, like hydraulic
fracturing, to produce.
Significant advances in horizontal drilling and well stimulation technologies are leading
to the shale boom. Hydraulic fracturing is the most significant of these.
Estimates of total natural gas resources in North America exceed 2,300 Tcf, with shale
gas resources alone within this assessment accounting for over 500 Tcf of recoverable
natural gas (combining U.S. and Canada).
n Apr '09 report, "Modern Shale Gas Development in the U.S., the U.S. DOE stated
that the current recoverable resource estimate provides enough natural gas to supply
the U.S. for the next 90 years. Other estimates carry this above 100 years.
3
ShaIe PIays
Big Four
Haynesville (LA, TX)
Likely to become one of the largest natural gas fields in the U.S.
Currently ~12% of U.S. shale gas production.
Marcellus (Northeast)
Likely to become one of the largest natural gas fields in the U.S.
Currently very small production.
Barnett (TX)
Largest producing field in the U.S. today and produces ~50-60% of all shale gas in the U.S.
Fayetteville (AR)
Currently ~18% of U.S. shale gas production.
Other ShaIe PIays:
Bakken
Fayetteville
Woodford
Horn River
Utica
Chattanooga
Huron
4
VaIidating the ShaIe: Two Recent Signature Transactions
ExxonMobiI/ XTO Energy:
All share transaction.
$41 bn total value (includes $10 bn in debt).
TotaI/ Chesapeake:
CHK has agreed to sell a 25% interest in its upstream Barnett Shale assets to
Total E&P USA for $9.0 bn.
CHK has also agree to discuss a JV in the Eagle Ford Shale with TOT and to
work with TOT in evaluating several Canadian natural gas shale plays in which
it has shown interest.
5
ShaIe PIay Economics from CHK and XTO
6
9|ay
We||
Cost (5
MM)
Gross
LUk
(bcfe)
ID
Costs
(5]Mcfe)
Nat Gas
Q57S0
kCk
Nat Gas
Q 5S00
kCk
8arneLL Core 280 330 113 92 47
layeLLevllle 270 220 146 63 36
Woodford 300 380 133 33 32
Paynesvllle 800 630 138 39 36
Marcellus 330 300 134 99 70
9|ay
Gross
LUk
(bcfe)
We||
Costs
(5MM)
koya|ty
ID Cost
(5]mcfe)
9reCarry
Ikk 57 Gas]
570 C||
Paynesvllle 630 700 23 144 33
Marcellus 420 430 13 126 66
8arneLL 263 260 23 131 36
layeLLevllle 240 300 17 131 31
Colony CranlLe Wash 370 623 20 137 141
1x P CranlLe Wash 473 330 20 143 128
Average 436 480 20 139 76
CHK PIay Economics
Source: CHK.
XTO PIay Economics
Source: XTO.
Very high IRR's-even at Iow nat gas
prices.
Efficiencies and productivity shouId
get better over time.
Big question is what are threshoId
economics?
Current DriIIing Activity, Trends and Mix Shift
U.S. Gas directed rig count reached an aII-time high on October 17, 2008 and has impIoded ~50-60% from peak '08 IeveIs.
The majority of the rigs that were dropped were driIIing verticaI weIIs Ieading to a mix shift favoring more productive
highIy economic unconventionaI resource focused horizontaI weIIs.
As a simpIe ruIe of thumb, horizontaI weIIs have EURs that are 3x verticaI weIIs and IP rates that are 4-5x verticaI weIIs.
Source: Smith Bits
Graph of Rig Count Change by WeII Type U.S. Gas Directed Rig Count
Source: Smith Bits
0
100
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600
700
3uec08 3leb09 3Apr09 3!un09 3Aug09 3CcL09 3uec09
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1030
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26Sep08 26uec08 26Mar09 26!un09 26Sep09 26uec09
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783
8
Rig Count Breakdown and UnconventionaI Production OutIook
0
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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
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1lghL Cas C8M Shale unconvenLlonal
Source: DOE Shale Gas Primer and SCI
Mix shift toward more economic and productive horizontaI weIIs drove the
recent production growth (~8% growth y/y) and is a trend we see increasing
going forward.
UnconventionaI resource provide the market with an abundantIy accessibIe
inventory of gas that wiII be on the Iower end of the cost curve insuring the
abiIity to meet naturaI gas demand for the foreseeabIe future.
ProIific production from unconventionaI pIays wiII IikeIy reduce the required
rigs, cycIe to cycIe, to keep production fIat.
CI k|g Count as of Ianuary 8 2009
8asln (PorlzonLal Cas) 01/08/10 C11u C4 A C/C eak off peak
Paynesvllle/Cv/!ames Llme 163 164 143 13 163 0
8arneLL Shale 66 67 60 11 169 61
Anadarko 8asln 63 64 46 37 88 28
Woodford Shale 24 23 23 1 31 33
Marcellus Shale 77 73 67 11 80 4
CLher Appalachla (PuronC8M1C) 12 9 16 43 23 32
layeLLevllle Shale/Arkoma 1C 33 33 32 3 60 43
Lagleford Shale 23 22 16 40 26 4
CLher 16 17 13 11 34 33
1oLal uS Land PorlzonLal Cas 481 473 421 12 346 12
8asln (verLlcal Cas) 01/08/10 C11u C4 A C/C eak off peak
Anadarko 8asln 26 23 24 4 146 82
SouLh 1exas 27 26 28 6 97 72
Appalachla 44 44 47 7 87 49
8ockles 16 13 13 3 96 83
ermlan 8asln 13 16 17 8 86 83
CLher 19 20 17 14 76 73
1oLal uS Land verLlcal Cas 200 196 191 2 768 74
8asln (ulrecLlonal Cas) 01/08/10 C11u C4 A C/C eak off peak
8ockles 63 63 66 2 164 60
Cnshore CC (ex L 1x) 17 18 19 6 36 70
Anadarko 8asln 8 8 7 13 23 68
ermlan 8asln 3 6 4 32 18 72
CLher 14 13 13 14 33 60
1oLal uS Land ulrecLlonal Cas 133 136 139 2 317 37
1oLal uS Land Cas urllllng 816 803 730 7 1397 49
SCI estimates a 150 Gas-Directed Rig Increase from Trough by
YE'10 based on a PartiaI Economic Recovery
9
uS uomesLlc 8ase uecllne CoLLon valley verLlcal 8ockles ulrecLlonal
8arneLL Shale PorlzonLal Anadarko verLlcal Culf CoasL ulrecLlonal
Paynesvllle PorlzonLal SouLh 1exas verLlcal CoLLon valley ulrecLlonal
layeLLevllle Shale PorlzonLal Appalachla verLlcal Anadarko ulrecLlonal
Woodford Shale PorlzonLal 8ockles verLlcal ermlan ulrecLlonal
CranlLe Wash PorlzonLal ermlan verLlcal CLher ulrecLlonal
Marcellus Shale PorlzonLal CLher verLlcal
ArdmoreWoodford PorlzonLal Pul daLa
CLher PorlzonLal LlA daLa
ury Cas roducLlon + urlll
uncompl (uuC) Wells
ury Cas roducLlon +
CurLallmenLs + uuC wells
Based on our rig driven gas suppIy modeI, we estimate production to decIine in 1 Bcf/d by YE'09 and to decIine by an
additionaI 0.5 Bcf/d by June 2010.
Given an expectation for a partiaI recovery in the economy (gas demand begins to increase in 2010) coupIed with
decIining production we anticipate the industry wiII need to add ~150 gas directed rigs to keep suppIy and demand in
baIance despite LNG imports and assuming normaI weather.
RegardIess of the economic scenario we empIoy, their wiII be a need to add anywhere from 100 to 500 rigs, but utiIization
wiII remain Iow with 1,000 or Iess rigs envisioned to be running in 2010 under our best case scenario. WeII beIIow the
1,600 peak in October 2009.
Source: EIA, HPDI, SmithBits, Simmons & Company InternationaI.
0
3000000
10000000
13000000
20000000
23000000
30000000
33000000
40000000
43000000
30000000
33000000
60000000
63000000
70000000
73000000
80000000
PlsLory MaLch lorecasL
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SepL 08 Purrlcane AcLlvlLy
Call on 09 Cas
roducLlon 690 8cf/d
10 Supply 693 8cf/d
Call on 10 Cas
roducLlon 702 8cf/d
09 Supply 719 8cf/d
9S0 r|gs +1S0 r|gs
Case Study: Southwestern Energy Efficiency Gains
10
Source: SWN QuarterIy Earnings ReIease, FayetteviIIe ShaIe.
18
26
13
$29
14
36
21
$28
11
41
30
$29
0
2
4
6
8
10
12
14
16
18
20
1lme Lo urlll (uays) Average LaLeral LengLh ln leeL
(1housands)
30 uay Avg l 8aLe (MMcf/d) urllllng CompleLlon cosL
($MM)
I
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s
U.S. Gas Production
11
44
46
48
30
32
34
36
38
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U.S. Nat Gas Production (Bcf/d)
Source: EA.
U.S. naturaI gas production was 57.6
bcf/d in Oct '09.
Despite the steep drop in the rig count,
the production in Oct '09 was down just
0.9 bcf/d from record 58.5 bcf/d in Feb
'09.
Oct '07 production was 52.9 bcf/d.
In 2 years production grew by 4.7 bcf/d
or 9%.
12
LNG Liquefaction Additions CouId be Significant in 2009/2010
Note: Projects are subject to further deIays.
Country FaciIity Primary Market 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 2010 2011
Nigeria NLNG, Train 6 Atlantic Basin 0.5 0.5 0.5 0.5 0.5
Qatar QatarGas , Train 4 Europe, UK 1.0 1.0 1.0 1.0 1.0
Qatar RasGas, Train 6 NAM 1.0 1.0 1.0 1.0
Australia NWS, Train 5 Japan, Korea 0.6 0.6 0.6 0.6 0.6 0.6 0.6
ndonesia Tangguh Mexico, Asia 1.0 1.0 1.0 1.0
Yemen Yemen LNG, Train 1 US, Korea 0.4 0.4 0.4
Yemen Yemen LNG, Train 2 US, Korea 0.4 0.4
Russia Sakhalin Asia, NAM-WC 0.6 0.6 0.6 1.3 1.3
Qatar QatarGas , Train 5 Europe, UK 1.0 1.0 1.0 1.0
Qatar RasGas, Train Asia & Other 1.0 1.0 1.0
Qatar QatarGas , Train 6 Asia, NAM 1.0 1.0
Qatar QatarGas V, Train Asia 1.0
TotaI 0.0 0.6 0.6 2.8 5.9 7.4 9.4 10.4
Liquefaction Capacity Summary (bcfd)
13
2008 LNG Imports by Country (bcfd)
uS
211
10
lrance
123
6
Spaln
234
11
lndla
097
4
!apan
839
39
SouLh korea
333
13
1alwan
106
3
CLher
226
10
2008 LNG Exports by Country (bcfd)
1rlnldad
1obago
18
8
Cman
12
6
CaLar
38
17
Algerla
23
11
LgypL
14
6
nlgerla
21
9
AusLralla
20
9
8runel
09
4
lndonesla
28
12
Malaysla
30
13
CLher
11
3
Key Nations InvoIved in LNG Trade
LNG Regas Capacity
14
uS and nAM CapaclLy ls plenLlful
8Clu 2007 2008 2009
Cove olnL 08 16 16
Llba lsland 08 08 08
LvereLL 07 07 07
Culf CaLeway 03 03 03
Lake Charles 18 18 18
lree orL 13 13
nL CaLeway 03 03
Sablne ass 26 4
Cameron LnC 13
Colden ass 2
1oLal uS 8egas CapaclLy 46 10 149
uS LnC lmporLs 21 1 21
uLlllzaLlon 046 01 014
Mexlco and Canada AddlLlons
AlLamlra Mexlco 07 07 07
CosLa Azul Mexlco 1 1
CanaporL Canada 1
1oLal nAM CapaclLy 07 17 27
8egas CapaclLy 33 117 176
Clobal 8egas AddlLlons
CounLry ClLy 8CM lanned SLarL uaLes
ArgenLlna 8uenos Alres 4 04 !une09
8ahla 8lanca 13 01 Mld 2009
8razll Cuanabara 8ay 48 03 Mld 2009
ecem lS8u 2 02 !anuary09
kuwalL Mlna alAmadl 3 03 May09
lndla 8aLnaglrl 73 07 1C 2009
uahe[ Lxpanslon 82 08 1C 2009
Chlna Shanghal ? 41 04 Mld 2009
lLaly AdrlaLlc LnC 8 08 Mld 2009
lrance los Cavaou 83 08 Mld 2009
uk Craln Lxpanslon 91 09 november09
SouLh Pook 106 1 March09
uragon 6 06 May09
Canada CanaporL 103 1 May09
uS Cameron 13 13 2C 2009
Colden ass 212 21 March09
Chlle Me[lllones 18 02 LaLe 2009
CulnLero 34 03 Mld 2009
1288 126
Does More Abundant NaturaI Gas Prevent RenewabIe Energy Adoption?
No.
Why?
1. Subsidy support
2. Gas compliments renewables.
3. Renewables produce little to no carbon.
4. Renewable Portfolio Standards.
5. ncreasing EPA scrutiny of gas.
6. Crude-to-gas spread supports gas as a transportation fuel.
But, cheap natural gas does create a headwind for the sector.
15
Subsidy Support
LCOE for a combined cycle gas plant at $5.00/mmbtu gas with a $25/ton
carbon price is $0.054/kwh.
Onshore wind is $0.06-$0.09/kwh.
Tough to compete for wind, but there is a subsidy (Production Tax Credit) of
$0.021/kwh which help close the gap and mandates which stimulate demand.
n addition, there are opportunities to lower wind technology costs (as well as
other alternative energy technologies) over time.
16
Gas CompIiments RenewabIes
More abundant natural gas is much more a threat to coal and nuclear power
both for new builds (coal, nuke) and existing capacity (coal).
n '09, the U.S. coal industry lost ~40 MM tons of demand (4% of '08 utility
coal burn) due to lower priced natural gas.
Gas-fired generation can cycle up/down quickly making it ideal to compliment
with intermittent renewable power generation.
1
RenewabIes Produce LittIe to No Carbon
While the global warming movement might be peaking (temporarily?), there is
still a strong desire among citizens to have cleaner, more efficient forms of
generation.
While gas produces less carbon than does coal, it still produces carbon.
18
Proposed CIimate LegisIation: U.S. CO2 Emissions
19
1he Waxman 8lll calls for a 17 reducLlon of greenhouse gases (CPC) from '03 levels by 2020
ln 2003 uS energyrelaLed CC2 emlsslons were 3973 MM Lonnes 1herefore Lhe Waxman 8lll ls calllng for
energyrelaLed CC2 emlsslons Lo reach 4960 MM Lonnes by 2020 (12 CAC8)
1oLal emlsslons of uS CPC were 7282 MM Lonnes ln 2007 LnergyrelaLed CC2 emlsslons accounLed for
81 of LhaL LoLal
8eLween 19882008 uS CC2 emlsslons lncreased Lo 3802 MM Lonnes from 4993 MM Lonnes (073
CAC8)
LlecLrlclLy accounLs for 41 of uS CC2 emlsslons wlLh coal 81 of LoLal elecLrlclLyrelaLed CC2 emlsslons
0
1000
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7000
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LlecLrlclLy 1ransporLaLlon lndusLrlal Commerclal 8esldenLlal
U Lnergyke|ated CC
2
Lm|ss|ons
Source LlA
2007 U CC
2
Lm|ss|ons by Lnd Use
Source LlA
LlecLrlclLy
41
1ransporLaLlon
33
lndusLrlal
16
Commerclal
4
8esldenLlal
6
U L|ectr|c|ty CC
2
Lm|ss|ons
Source LlA
eLroleum
3
Coal
81
naLural
Cas
13
CLher
1
Proposed CIimate LegisIation: Impact to AIternative Energy
20
WhaL ls Lhe lmpacL from a comblned naLlonwlde 8LS and cllmaLe blll?
ln Lhe flrsL scenarlo we assumed LhaL nonhydro renewables lncreased Lhelr share from 3 currenLly Lo 13 Moreover we
assumed LhaL Lhe uS reached Lhe 17 CC2 reducLlon LargeL
1he lmpacLs
Coal's share of uS elecLrlclLy would decllne from 49 currenLly Lo 32 (24 per annum decllne beLween '07'20)
naLural gas' share of uS elecLrlclLy would lncrease Lo 29 from 21 and Lhls would resulL ln lncremenLal gas
demand (from '07 levels) of 106 bcf/d
nonhydro renewable capaclLy would lncrease from 46 CW Lo 264 CW or 218 CW of lncremenLal capaclLy 1hls
represenLs a sLaggerlng 198 CW per annum of addlLlonal capaclLy over Lhe nexL 11 years 1o place Lhls flgure ln
perspecLlve Lhe uS wlnd lndusLry lnsLalled a record 84 CW of Lurblnes ln 2008
under all scenarlos LhaL we ran renewables lncreased share and naLural gas demand lncreased
keep ln mlnd LhaL runnlng Lhe exlsLlng uS comblned cycle fleeL aL a 60 capaclLy facLor (lnsLead of 38) could resulL ln 81 bcf/d
of lncremenLal gas demand
cenar|o Cne 2020 Generat|on w|th 1S kenewab|e Assumpt|on keach|ng 17 CC2 keduct|on
Source LlA SnL Lnergy and Slmmons Co lnLernaLlonal
1ype
Capac|ty
(GW)
Capac|ty Iactor
GWhs
(|n 000s)
CC
2
Iootpr|nt
(tonnes of
CC
2
]MWh)
CC
2
Lm|ss|ons
(MM tonnes)
L|ectr|c|ty
M|x
0720
GWhs
CAGk
Coal 3137 330 1466 0936 1401 317 242
eLroleum 318 100 43 0800 36 10 281
combloeJ cycle Cos 2055 659 1187 0400 475 257
leoket Cos 2109 74 1J7 0570 78 J0
1oLal Cas 4164 363 1324 0418 333 287 293
nuclear 1017 930 828 0000 0 179 021
Pydro 997 300 262 0000 0 37 066
nonPydro 8enewables 264 300 693 0000 0 130 1360
1oLal 12489 4618 1990 1000
CC
2
Lm|ss|on 1arget by 2020 1990
21
Carbon LegisIation: Impact to Merchants
044
08S
089
090
097
040
0S0
060
070
080
090
100
C9N DN NkG kkI MIk
C
C
2
1
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s
]
M
W
h
IPP Carbon Intensity
FueI Mix by Region
Iue| 1ype Carbon 1ons]MWh
Coal 10
luel Cll 10
CombusLlon 1urblne 06
Comblned Cycle 04
CeoLhermal 01
Carbon Intensity by FueI Type
For coaI fired generators that operate in markets where gas
sets the price of power (NRG in Texas, Mirant in PJM East,
and RRI in CentraI PJM), carbon IegisIation has the potentiaI
to significantIy reduce margins.
If carbon IegisIation is stringent enough, combined cycIe
assets have the abiIity to dispIace coaI fired capacity
especiaIIy in the Southeast.
In markets where high heat rate combustion turbine (CT)
gas assets often set the price of power, efficient CCGT gas
assets shouId see a benefit in spark spreads.
CPN benefits from stringent carbon IegisIation
Current IegisIation passed in the House is extremeIy favorabIe to coaI based merchants and
shouId cause minimaI earnings detriment over the next decade.
Renewable Portfolio Standards
State renewable portfolio standard
State renewable portfolio goal
www.dsireusa.org / ]anuary 2010
Solar water heating eligible
*
|
Extra credit for solar or customersited renewables
!ncludes nonrenewable alternative resources
WA: 1S by 2020*
CA: 33 by 2020
!: 2S by 202S*
AZ: 1S by 202S
!: 20 by 2020 (!OUs)
10 by 2020 (coops)
H!: 40 by 2030
inimum solar or customersited requirement
TX: S,880 W by 201S
UT: 20 by
202S*
CO: 20 by 2020 (!OUs)
10 by 2020 (coops S large munis)*
T: 1S by 201S
!: 10 by
201S
S: 10 by
201S
!A: 10S W
!: 2S by 202S
(Xcel: 30 by 2020)
O: 1S by 2021
W!: aries by utility,
10 by 201S goal
!: 10 + 1,100 W
by 201S*
OH: 2S by 202S1
E: 30 by 2000
!ew RE: 10 by 2017
!H: 23.8 by 202S
A: 1S by 2020
+ 1 annual increase
(Class ! Renewables)
R!: 16 by 2020
CT: 23 by 2020
!: 24 by 2013
!]: 22.S by 2021
PA: 18 by 20201
: 20 by 2022
E: 20 by 2013*
C: 20 by 2020
A: 1S by
202S*
!C: 12.S by 2021 (!OUs)
10 by 2018 (coops S munis)
T: (1) RE meets any
increase in retail sales by
2012,
(2) 20 RE S CHP by 2017
23 states S C
have an RPS
6 states have goals
KS: 20 by 2020
OR: 2S by 202S (large utilities)*
S 10 by 202S (smaller utilities)
!L: 2S by 202S
W: 2S by 202S*1
Increased EPA Scrutiny of Gas
Hydraulic fracturing has come under pressure.
Water usage is also a concern.
Look for the coal lobby to strike back.
23
24
Crude-Gas Spread Supports Gas as a Transportation FueI
Compressed natural gas is cheaper than diesel and gasoline.
Retail pump prices for CNG total $2.00/GGE (gallon of gasoline equivalent) in
Houston and even lower in other parts of the country where stations or
pipeline natural gas is more available.
This compares with retail gasoline at $2.6/gal.
The spread of $0.6/GGE or 25% discount is enticing and falls just short of
the average discount for CNG over the last 4.5 years of 28%.
PotentiaI: if 10% of the total regional trucking fleet in the U.S. switched to
natural gas, this would equate to 3 bn GGE's annually or 1 Bcf/d of
incremental demand.
25
Crude-Gas Spread Supports Gas as a Transportation FueI
26
AIternative Energy: Key Trends for 2010
1. No carbon bill in D.C., but maybe an energy bill.
2. More robust capital markets.
3. Consolidation
4. Better demand and financing.
5. Higher interest rates
2
ConcIusion
Shale gas appears to be a significant change to the energy landscape.
More abundant natural gas does make it more difficult to adopt renewables,
but it does not prevent adoption.
More abundant natural gas ultimately is a headwind for the renewable energy
sector.
There are complimentary adoption strategies for renewables and natural gas:
bridge fuel to lower carbon era and solution for renewable intermittency.
We believe it is of paramount importance that investors focus on those
alternative energy technologies that illustrate the clearest path to becoming
economic without a subsidy.
28
Q&A
Appendix
TechnoIogy Cost Comparison
31
Nonubs|d|zed Leve||zed Cost of L|ectr|c|ty
Source LlA lLA Slmmons Co lnLernaLlonal
TechnoIogy CapitaI Cost ($/kw)
DeIivered FueI
Cost ($/mmbtu)
LeveIized Cost
(cents/kwh)
LeveIized Cost
with $15/ton CO2
(cents/kwh)
LeveIized Cost
with $25/ton CO2
(cents/kwh)
U.S. InstaIIed Capacity
- Net Summer
Capacity (GW)
GIobaI
InstaIIed
Capacity
(GW)
Energy
Consumption to
Produce 1 kw
CoaI $2,000-$2,500 3.13 5.0-6.0 .0-.5 8.0-8.5 315 1,382 ~1lb of coal
NaturaI Gas--
Combined CycIe
$800-$1,000 .00 6.50 .00 .50 200 1,124* ,000 btu
NaturaI Gas--Peaker $500-$800 .00 11.5-12.5 12.5-13.5 13-14 220 * 12,000 btu
Hydro $4,000+ Free 4.00 4.00 4.00 100 919 Free
NucIear $5,000-$6,000 0.6 8.400 8.400 8.400 100 368 <1g of uranium
OiI $00-$1,000 8.93 12.5-13.0 13.5-14.0 14.5-15.0 50 415 10,000 btu
SoIar PV $4,000-$6,000 Free 21-32 21-32 21-32 2 16 Free
Wind--Onshore $1,800 - $2,000 Free 6.0-9.0 6.0-9.0 6.0-9.0 25 130 Free
Wind--Offshore $4,000+ Free 10-12 10-12 10-12 0 2 Free
T
r
a
d
i
t
i
o
n
a
I

E
n
e
r
g
y
A
I
t
e
r
n
a
t
i
v
e

E
n
e
r
g
y
Wind
32
33
Wind: Growth Forecast
W|nd ector Demand Cverv|ew (|n MW)
Source Clobal Wlnd Lnergy Councll and 81M ConsulL
Region
Accum.
end of 2005
2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E
TotaI
Accum.
Americas
10,061 2,61 3,515 5,815 9,52 ,650 10,450 12,450 16,200 18,300 93,968
Europe 40,85 6,32 ,682 8,285 9,19 11,580 13,505 15,900 18,080 20,150 145,218
South & East Asia
5,43 1,836 3,220 5,010 8,201 9,650 10,300 12,400 13,400 15,300 83,224
OECD - Pacific 2,121 484 491 59 1,051 1,100 1,350 1,600 1,900 2,250 12,460
Other Areas
412 44 109 86 232 645 1,035 1,40 1,810 2,520 8,319
TotaI MW New
Capacity Every Year
11,407 15,017 19,791 28,190 30,625 36,640 43,820 51,390 58,520 343,153
AccumuIated
Capacity (MW)
59,194 74,211 94,002 122,158 152,783 189,423 233,243 284,633 343,153
2009 growLh sLunLed markeL expecLaLlons 3 Lo +3 y/y
We belleve '09 wlll be down y/y Lo 23 CW '10 could be sLarL
of nexL mulLl year ramp SllghLly slower growLh raLe 20 per
annum movlng forward lnsLead of 23
3year growLh pro[ecLlons doubllng of annual markeL
Crld dependenL growLh Lo 900 CW by 2018 (8 of global
elecLrlc needs)
uS MarkeL lacLors 8LS 1C exLenslon Cbama energy pollcy
Clobal MarkeL lacLors lndusLry deallng wlLh Lurblne over
supply Lu 20 by 2020 Chlna exploslve growLh Lransmlsslon
ls a greaL challenge
G|oba| W|nd Insta||ed Capac|ty Growth
0
30000
100000
130000
200000
230000
300000
330000
400000
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
3
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
L
2
0
1
0
L
2
0
1
1
L
2
0
1
2
L
2
0
1
3
L
M
W
lnsLalled MW CumulaLlve MW
08-13E CAGR
Cumulative: 23%
nstalled: 16%
Source 81M ConsulL
SoIar
34
2010 SoIar OutIook
We expect a relatively strong 1H'10 as installers rush to get German projects
on the ground ahead of the speculated EEG decline. Overall, 2010 should be
a better year than 2009.
SuppIy/Demand: We are estimating 8.4 GW (+45% y/y) of module demand
in 2010 with 13 GW of potential supply.
ASPs: We estimate mid-$1.00/W by the end of 2010 for wholesale module
prices. Some recent contracts have been between $1.60-$1.5/W.
Key Market to Watch: Germany with EEG revision.
35
Current U.S. Generation Mix
36
Waxman 8lll has naLlonwlde 8enewable LlecLrlclLy SLandard (8LS) LhaL calls for 20 of uS elecLrlclLy Lo come
from nonhydro renewable sources by 2020 Powever 3 percenLage polnLs can be meL Lhrough energy efflclency
leavlng an effecLlve 8LS of 13
ln 2007 [usL 3 of uS elecLrlclLy was from nonhydro renewable sources
2008 U Net kenewab|e (Nonnydro) L|ectr|ca| Generat|on
Coal
49
eLroleum
Llqulds
1
eLroleum Coke
0
naLural Cas
21
CLher Cases
0
nuclear
20
1oLal
Pydro
6
1oLal nonPydro
8enewables
3
CLher
0
2008 U Generat|on by Iue|
Source lLA
Source lLA
Wlnd
4209
Solar
(1hermal +
v)
068
Wood
3138
CeoLhermal
1202
CLher
8lomass
1382
3
UnconventionaI Gas Metrics
Metr|cs
Marce||us
(dry)
norn
k|ver
Lag|e
Iord
Iayettev|||e
(core)
8arnett
(Core)
naynesv|||e Woodford
Anadarko
Woodford
Ionah]
9|neda|e
(vert)
Gran|te
Wash
9|ceance
(vert)
Iames
L|me
U|nta
(vert)
CI
(vert)
Nora C8M katon
9owder
k|ver
an Iuan
CosL per Well ($MM) $37 $100 $30 $31 $28 $73 $30 $80 $33 $60 $16 $27 $17 $17 $04 $03 $03 $19
Lu8 per Well (8cfe) 33 100 33 26 30 63 40 81 39 64 10 20 12 10 04 06 03 14
8oyalLy () 13 13 23 20 23 23 13 20 13 13 17 20 17 20 13 13 13 17
lu CosL ($/Mcfe) $124 $118 $122 $148 $123 $134 $148 $123 $160 $111 $187 $171 $171 $218 $120 $113 $116 $172
l 8aLe (MMcf/d) 33 82 90 28 23 140 36 60 30 73 10 30 12 10 004 009 004 014
ulfferenLlal () 3 13 12 8 8 2 8 8 18 8 13 3 13 7 3 13 13 13
LCL ($/Mcfe) 090 100 093 070 090 083 080 073 070 080 083 106 083 092 070 161 230 103
CA ($/Mcfe) 033 033 033 000 000 033 000 000 033 033 033 033 033 033 033 033 033 033
roducLlon Lax () 3 3 3 3 8 33 7 7 6 8 6 2 6 2 3 12 12 13
1sL ?r uecllne () 62 63 82 64 63 83 39 38 76 72 38 86 63 67 66 37 214 234
2nd ?r uecllne () 33 34 41 33 34 41 43 34 33 37 33 46 34 33 7 0 11 11
3rd ?r uecllne () 21 19 22 21 19 26 32 22 9 30 22 33 16 18 9 2 8 4
CuL ?r uecllne () 3 6 3 3 6 3 3 6 10 6 3 6 6 7 6 3 18 17
1hreshold rlce ($/Mcfe) $383 $323 $410 $393 $410 $490 $300 $430 $373 $440 $370 $303 $380 $663 $320 $600 $630 $623
ootce votloos compooy tepotts
1|ght Gas C8M ha|es
38
Appendix D
Appendix D
Analyst Certification:
, Pearce Hammond, hereby certify that the views expressed in this research report to the best of my knowledge, accurately reflect my personal views about
the subject compan(ies) and its (their) securities; and that, have not been, am not, and will not be receiving direct or indirect compensation in exchange for
expressing the specific recommendation(s) or views in this research report.
mportant Disclosures:
For detailed rating information, go to http://publicdisclosure.simmonsco-intl.com. Additional information is available upon request. Simmons & Companys
ratings system categorizes individual stock performance as Underweight, Neutral or Overweight relative to the performance of the S&P 500 ndex and its
discrete energy sub-sector over a 12 month period. Research analysts compensation is based upon (among other things) the firms general investment
banking revenues. Simmons & Company nternational may seek compensation for investment banking services from other companies for which research
coverage is provided. The firm would expect to receive compensation for any such services.
Foreign Affiliate Disclosure:
This report may be made available in the United Kingdom through distribution by Simmons & Company nternational Capital Markets Limited, a firm
authorized and regulated by the Financial Services Authority to undertake designated investment business in the United Kingdom. Simmons & Company
nternational Capital Markets Limiteds policy on managing investment research conflicts is available by request. The research report is directed only at
persons who have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5)
Financial Services and Markets Act (Financial Promotion) Order 2001 (as amended) ("FPO"); persons who fall within Article 49(2)(a) to (d) FPO (high net
worth companies, unincorporated associations etc.) or persons who are otherwise market counterparties or intermediate customers in accordance with the
FSA Handbook of Rules and Guidance ("relevant persons"). The research report must not be acted on or relied upon by any persons who receive it within
the EEA who are not relevant persons. Simmons & Company nternational Capital Markets Limited is located at Sackville House, 40 Piccadilly, Mezzanine,
London, United Kingdom.
Disclaimer:
This e-mail is based on information obtained from sources which Simmons & Company nternational believes to be reliable, but Simmons & Company does
not represent or warrant its accuracy. The opinions and estimates contained in the e-mail represent the views of Simmons & Company as of the date of the
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Pearce W. Hammond, Jr., C.F.A.

Director, InstitutionaI Research

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