HomeMy WebLinkAbout20180411Yankel Supplemental Direct.pdfRECElVED
20\8 APR ll PM 5:31
MMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF PACIFICORP DBA ROCKY MOUNTAIN )
POWER FOR A CERTIFICATE OF PUBLIC )CASE NO.PAC-E-17-07
CONVENIENCE AND NECESSITY AND )BINDING RATEMAKING TREATMENT )
FOR NEW WIND AND TRANSMISSION )
FACILITIES )
IDAHO IRRIGATION PUMPERS ASSOCIATION,INC.
SUPPLEMENTAL TESTIMONY
OF
ANTHONY J.YANKEL
APRIL 10,2018
l Q.PLEASE STATE YOUR NAME,ADDRESS,AND EMPLOYMENT.
2
3 A.I am AnthonyJ.Yankel.I am President of Yankel and Associates,Inc.My
4 address is 12700 Lake Ave.,Suite 2505,Lakewood,Ohio,44107.
5
6 Q.ARE YOU THE SAME ANTHONY J.YANIŒL THAT FILED TESTIMONY
7 ON NOVEMBER 20,2017 IN THIS CASE?
9 A.Yes.
10
11 Q.ON WHOSE BEHALF ARE YOU TESTIFYING?
12
13 A.I am testifying on behalf of the Idaho Irrigation Pumpers Association (IIPA).
14
15 Q.WHAT CONCLUSION HAVE YOU DRAWN FROM YOUR REBUTTAL
16 TESTIMONY.
17
18 A.A number of variables have changed since the Company filed its original request
19 for approval of the Combined Projects in July 2017.At that time,PacifiCorp billed its proposal
20 as an "exciting opportunity"'and admitted that it had no internal need for the generation for 10
21 years.PacifiCorp's need for more internal generation has moved back further than the 10 years
22 originallymentioned in the original filing.
'Direct Testimony of Crane page 2 line 4 filed July 5,2017.
Yankel,Rebuttal-1
Irrigators
l Under all three sets of forecasts that have been filed between July 2017 and February
2 2018,there have been 2 out of the 9 scenarios that have consistently indicated that the customers
3 would be worse off under the Combined Projects.Additionally,the two scenarios where the
4 customers would be worse off,have the most likelihood of occurring.Utility regulation was not
5 meant to take gambles on "exciting opportunities".If the Combined Projects were needed to
6 serve internal load,then a choice would need to be made regarding what appeared to be the best
7 and cheapest way to meet that need.However,when there is no internalneed,the Commission
8 should not be taking chances with ratepayer funds that may or may not yield a customer benefit.
9 The Company's most recent filing in Wyoming points out that it needed to adjust/reduce
10 its modeled market price projections for solar because of the impact solar could have upon the
11 market.Thus,PacifiCorp's projects for the benefits of solar were reduce from what it would
12 have been if the same price projections were employed as those used for the Combined Projects.
13 The same adjustment should have been made for the Combined Projects as they will be built to
14 operate in the same future markets/prices that the Company is now using for a possible solar
15 project.Additionally,the Combined Projects and other wind projects in the region would have
16 their own impact on market prices as would the solar projects modelled by the Company.
17 Without these changes to the modelling of the impact of solar and wind projects in the region,all
18 of PacifiCorp's nine scenarios of the Combined Projects are over-optimistic.
19 The Combined Projects are not standard regulatoryprojects,and as an "exciting
20 opportunity",should be rejected by the Commission.If the Conunission were to approve the
21 Combined Projects,it should put sufficient caps and/or safeguards to insure that there will be no
22 negative benefit to the customers during the 30-year life of the project.
23
Yankel,Rebuttal-2
Irrigators
1 Q.PLEASE GIVE A BRIEF OVERVIEW OF PACIFICORP'S FORECASTS OF
2 THE BENEFITS OF ITS NEW WIND AND TRANSMISSION IN THIS CASE.
3
4 A.PacifiCorp has filed testimony three times in this case (plus one set of
5 corrections).The focus of these filings has been the forecast of the financial benefits to
6 customers of the Combined Projects over a 20-year and a 30-year timeframe.In each of the
7 filings,nine scenarios were run to predict the possible financial benefit to customers fi·om this
8 multi-billion-dollar project.The nine scenarios consisted of a high,medium,and low estimate
9 for natural gas prices and the possibility of a carbon tax.These were the onlyvariables that were
10 changed in order to calculate possible outcomes (benefits).The 30-year forecasted present value
11 benefit to the customers of each of these forecasts,for each scenario,are listed in Table 1 below:
Table 1
Nominal Revenue Requirement PVRR(d)
(Bencfit)/Cost of Combined Projects ($million)
J_une December December February
2017 2017 2017 2018
Corrected
Low Gas,Zero CO2 $174 $169 $195 $155
Low Gas,Medium CO2 $93 $133 $159 $98
Low Gas,High CO2 -$194 -$105 -$79 -$176
Medium Gas,Zero CO2 -$53 -$60 -$34 -$121
Medium Gas,Medium CO2 -$137 -$177 -$151 -$196
Medium Gas,High CO2 -$317 -$301 -$275 -$333
High Gas,Zero CO2 -$341 -$437 -$411 -$477
High Gas,Medium CO2 -$351 -$479 -$453 -$528
High Gas,High CO2 -$595 -$585 -$559 -$664
12
Yankel,Rebuttal-3
Irrigators
l These forecasts were made over a 9-month period.There has been a fair amount of
2 variation in the results,but some things have remained constant.There were some major
3 changes in circumstances between the July 2017 filing and the February 2018 filings.
4 Specifically,bid prices had been received for the wind turbine installations,and the maximum
5 corporate federal income tax rate dropped from 35%to 21%.Continuingthe trend,I pointed out
6 in my Direct Testimony,the forecasted prices of natural gas dropped approximatelythree
7 percent2 ÎfORI ÍÎlOSC USed in the Company's July 2017 filing.Additionally,the Company's new
8 load forecast lowered system energy requirements in 2036 by 6.3%and summer peak
9 requirements by 7.2%3--reducing the need for generation for system load even further than that
10 used in the July 2017 filing.
11
12 Q.WHAT IS THE SIGNIFICANCE OF A DROP OF 7.2%IN THE SYSTEM
13 SUMMER PEAK REQUIREMENT?
14
15 A.The Company's 2017 IRP projects an 886 MW (8.7%)increase in summer peak
16 over the 10-year period 2017--2026.4 This is on the same order of magnitude as the 7.2%
17 decrease in forecasted in load used the February 2018 filing.Although the capacity of the
18 Combined Projects is now listed as 1,311 MWS,this is fàr more than the capacity that can be
19 expected to be delivered at the time of the summer peak.On an historical basis,the Company
20 owned wind resources (1,032 MW)and the Company non-owned wind resources (1,301 MW)
2 Supplemental Direct Testimony of Link page 20 line 5 filed January 18,2018.
3 Supplernental Direct Testimony of Link page 18 lines 19-21 filed January 18,2018.
2017 IRP page76.
*Second Supplemental Direct Testimony of Link page 1 line 15 filed February 16,2018.
Yankel,Rebuttal-4
Irrigators
l are only delivering 339 MW at summer peak.6 This translates into only 14.5%output at time of
2 summer system peak (339 /(1,032 +1,301)).For the 1,311 MW of new wind capacity,this
3 translates into 190 MW (1,311 x 0.145).The impact of the Combined Projects on meeting future
4 summer peaks is minuscule compared to the Company's changes in forecasted internal peak load
5 that that has been made during the July 2017-February2018 timeframe.
6 In the Company's July 2017 filing,it was admitted that PacifiCorp would not require
7 incremental system capacity until 2028.2 Assuming that most of the 2017 IPR projected increase
8 in internal load (in the range of 800-1,000 MW)does not occur,as now forecast in the
9 Company's January 2018 testimony,there is no need for the peaking capacity of 190 MW of the
10 new wind (1311 MW capacity)until well into the future.The Combined Projects should only be
11 viewed as an "exciting opportunity"as opposed to a traditional regulatory addition of plant to
12 satisfy internal load,
13
14 Q.WHAT HAS STAYED THE SAME BETWEEN THE THREE
15 FORECASTS THAT WERE FILED BETWEEN JULY 2017 AND FEBRUARY 2018?
16
17 A.Despite all the differences in input data between July 2017 and February
18 2018,two of the scenarios always forecast that the ratepayers would be worse off with
19 the Combined Projects-thelow gas/zero carbon and the low gas/medium carbon.It
20 should be noted that this is for the 30-year life of the project.The Company points to the
21 faut that for its 20-year forecast period,the Combined Projects are beneficial to the
6 2017 IRP at page 78.
7 Direct Testimony of Link at page 6 line 7-8 filed July 5,2017.
Yankel,Rebuttal-5
Irrigators
l ratepayers under all nine scenarios.However,this is a red herring as the expected life of
2 the project is 30 years and it is upon 30 years that the depreciation rate is calculated.
3
4 Q.GIVEN THE FACT THAT TWO OF THE NINE SCENARIOS THAT
5 WERE USED TO FORECAST RATEPAYER BENEFIT,SHOW A NEGATIVE
6 IMPACT ON RATE PAYERS,HOW SHOULD THE COMMISSION VIEW THESE
7 RESULTS IN LIGHT OF THE COMPANY'S REQUEST FOR REGULATORY
8 TREATMENT OF THE COMBINED PROJECTS?
9
10 A.The Combined Projects are not needed in the regulatory sense and,only
11 provide a unique "economic opportunity"as the Company claims.Utility regulation was
12 never meant to address "exciting opportunities".On its face,utility customers should
13 never be given a 7 out of 9 chance that an unneeded project will be economically
14 beneficial.If ratepayers were gamble's,they could choose to put their money in the
15 stock market or go to Vegas.The Commission should never make such a decision for the
16 customers.
17
18 Q.DO YOU BELIEVE THAT EACH OF THE NINE SCENARIOS USED
19 BY THE COMPANY HAVE AN EQUAL CHANCE OF OCCURRING?
20
21 A.Absolutely not.With each passing day,the six scenarios that are not
22 based on "Low Gas"prices become less and less likely.This is suggestedby the ever
23 decreasing forecasted prices of natural gas that the Company has been using over recent
Yankel,Rebuttal-6
Irrigators
l years.The fact that the forecasted prices of natural gas in the January 2018 filing
2 dropped approximatelythree percent from those used in the Company's July 2017 filing
3 (6 months earlier)attests to the appropriateness of assuming low future prices of natural
4 gas will be the norm as opposed to the Company's Medium Gas and High Gas scenarios
5 (6 out of the 9 scenarios).
6
7 Q.WHY HAVE THE FORECASTED PRICES OF NATURAL GAS BEEN
8 DROPPING AND WHY WOULD THEY CONTINUE TO BE LOW IN THE
9 FUTURE?
10
11 A.Natural gas future prices,like any commodity,depend upon expectations
12 of future supply and demand.In turn,expectations of future supply and demand depend
13 upon past performance and how the historical patterns are expected to change in the
14 future.Natural gas supplies and demands have undergone unprecedented changes in
15 recent years.During the last decade,the demand for natural gas has radically increased
16 because of the use of gas turbine generators and the decisions to increase exports
17 including the liquification of natural gas for export.Such radical increases in the.use,and
18 thus demand,for natural gas should have driven prices much higher than historic trends.
19 However,prices have been decreasing and not increasing.It has been the decreasing of
20 prices that made the use of gas turbines and export of natural gas possible.
21
22 Q.WHAT HAS CAUSED THE DECREASES IN THE PRICE OF
23 NATURAL GAS?
Yankel,Rebuttal-7
Irrigators
l
2 A.The price of natural gas has been driven down by a combination of new
3 technology and new finds of natural gas reserves.The region in which I live has always
4 produced natural gas,but its production was pale in comparison to that coming out of the
5 Gulf and Texas area.I cannot speak from personal knowledge of other regions,but the
6 natural gas productionin my region has changed dramatically.
7 By way of example,I was recently told by a local Congressman that:If Ohio,
8 Pennsylvania,and West Virginia were to become their own county,then that "new
9 nation"would be the third largest producer of natural gas in the world.The onlything
10 keeping supply increases from going through the roof is the low price of natural gas.
11
12 Q.CAN YOU POINT TO ANY SOURCES THAT ADDRESS THE
13 GROWING GLUT OF NATURAL GAS IN THE COUNTRY?
14
15 A.Yes.Less than a month ago there was a detailed article in the Wall Street
16 Journal that addressedchanges that are taking place and the glut of natural gas in this
17 Country."A copy of this article is contained as Exhibit 401.There are several things that
18 can be gleaned from this article:
19 *This winter heating season has been robust,domestic demand is up,and
20 record volumes are being sold abroad.Even with this unprecedented
21 growth in demand,the price of natural gas has dropped.
Walls Street Journal,"Two Wells Help Explain Natural-Gas Glut"March 22,2018,page B-14.
Yankel,Rebuttal-8
I1Tigators
1 *Two "supersized"wells in southwestern Wyoming were the featured in
2 the article.These "supersized"wells deliver far more than normal wells
3 and the cost of the wells per unit of output is less than for traditional wells.
4 *Ultra Petroleum,the owner of the two wells,claims to have 700 locations
5 on its land where it believes it can drill similarly designed wells.
6 *Natural gas is surging out of West Texas as a byproduct of frenzied oil
7 drilling.
8 *In Louisiana,producers have been "supersizing"wells.
9 *New pipelines are being built in Appalachiato bring this output to market.
10
11 A paradigm shift began in the natural gas industry about a decade ago,and this news
12 article speaks of yet another paradigm shift that is beginningto take place.This further
13 supports the fact that the Low Gas scenarios in PacifiCorp's forecasts are for more likely
14 to occur than the Medium Gas or High Gas scenarios.
15
16 Q.THERE HAS BEEN RECENT DISCUSSION IN OTHER STATES
17 THAT PACIFICORP SHOULD BE PROPOSING TO BUILD SOLAR GENERATION
18 AS A BETTER ALTERNATIVE THAN THE COMBINED PROJECTS THAT ARE
19 NOW BEFORE THE COMMISSION.WHAT HAVE YOU GLEANED FROM
20 OTHER STATES REGARDING THE PROPOSAL TO SUBSTITUTE NEW SOLAR
21 GENERATION FOR THE COMBINED PROJECTS?
22
23 A.I have not gotten into the specifics of the solar verse wind discussion,
24 however there are two things that I came away with after reading the Company's
Yankel,Rebuttal-9
Irrigators
1 Supplemental Rebuttal Testimony filed in Wyoming a month ago on March 14,2018.
2 First,the Company does not see solar as a substitute for wind at this time,but that a
3 combination of wind and solar should be considered."The Company suggests that 1,320
4 MW of solar may be beneficial to the customers-in addition to the 1,311 MW of wind
S that is not needed to serve internal load for well over a decade.Although the Company
6 admits that solar resource "costs are expected to continue to fall"and that it "does not
7 need to act now in order to capture these tax savings"°it still wants to move forward
8 now with the Combined Projects.
9
10 Q.WHAT IS THE SECOND THING THAT YOU CAME AWAY WITH AFTER
11 READING THE COMPANY'S SUPPLEMENTAL REBUTTAL TESTIMONY FILED
12 IN WYOMING LAST MONTH7
13
14 A.For its analysis of solar benefits PacifiCorp "refined how it converts its
15 forward market prices into hourlyprices to more accurately reflect hourlymarket-price
16 variation in those hours when solar resources are producing energy.""(Emphasis added)
17 Althoughthis sounds highlytechnical,what it means is that the Company
18 discounted/reduced the future market price it has used during hours of solar generation-
19 discounting the value of solar energy.The theory is simply that as more solar facilities
*Supplemental Rebuttal of Link page 30 lines 1-6 filed in Wyoming Docket No.2000-520-EA-17 on
March 14,2018.
Supplemental Rebuttal of Crane page 2 line 9 filed in Wyoming Docket No.2000-520-EA-17 on March
14,2018."Supplemental Rebuttal of Link page 32 lines 6-8 filed in Wyoming Docket No.2000-520-EA-17 on
March 14,2018.
Yankel,Rebuttal-10
Irrigators
1 come on line,the price of energy during hours of solar generation will be lowered.
2 Basically,as supply goes up during certain hours,the price will drop.
3 This theory (ignoring the calculations)has credibility,but it begs the question;
4 Shouldn't a similar price sensitivity be used to calculate the benefits of the Combined
5 Projects?PacifiCorp did not use these devalued market prices for the Combined Projects.
6 There is a lot of wind generation that is going to be placed in service which is not
7 reflected in the five years of hourlydata presently used by PacifiCorp to develop the
8 forward price curves it used to analyze the benefits of the Combined Projects.The idea
9 of discountingprices because of increased solar generation also can apply to wind
10 generation.The fact is that relative wind speeds do not vary greatly over large regions.
11 When wind speeds are high in one area,they are likely to be high in other areas and if
12 wind speeds are low in one area,they are likely to be low in other areas as well.The
13 Company's modelingneeds to vary its output from the Combined Projects so as to reflect
14 the day to day changes in wind speed that actually occur.Additionally,if the Company is
15 going to vary its market prices for its solar calculations,it should also vary its prices for
16 wind energy to reflect when wind generation is higher,causing market prices to be lower
17 and when wind generation is lower,causing market prices would be higher.If similar
18 adjustments made to solar market prices were made to the modeling of the Combined
19 Projects,the customer benefits under all scenarios would have been lower.
20
21 Q.Does this conclude your rebuttal testimony?
22
23 A.Yes.
Yankel,Rebuttal-11
h·rigators
Exhibit No.401
Case No.PAC-E-17-07
Witness:AnthonyJ.Yankel
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IDAHO IRRIGATION PUMPERS ASSOCIATION,INC.
Exhibit Accompanying Supplemental Testimony of AnthonyJ.Yankel
April l1,2018
M4
|
Th
u
r
s
d
a
y
Ma
r
c
h
22
,
20
1
8
TH
E
WA
L
L
ST
R
E
E
T
JO
U
R
N
A
L
.
MA
R
K
E
T
S
'I
\
v
o
We
l
l
s
He
l
p
Ex
p
l
a
i
n
Na
t
u
r
a
l
-
G
a
s
Gl
u
t
Br
u
n
a
Re
c
o
r
d
U.
S
.
ga
s
pr
o
d
u
c
t
i
o
n
ha
s
we
l
g
h
e
d
on
pr
i
c
e
s
th
i
s
wi
n
t
e
r
,
Gr
e
e
n
Riv
e
r
Ba
s
i
n
,
ty
p
i
c
a
l
l
y
ev
e
n
wi
t
h
ri
s
i
n
g
do
m
e
s
t
i
c
de
m
a
n
d
an
d
ex
p
o
r
t
s
ve
r
t
i
c
a
l
we
l
l
s
in
t
o
a
Na
t
u
r
a
l
-
g
a
s
pr
o
d
u
c
e
r
s
In
Ap
r
i
2
0
1
8
,
Ul
t
r
a
fil
e
d
fo
r
sh
o
u
l
d
be
de
l
i
g
h
t
e
d
A
co
l
d
U.
S
.
na
t
u
r
a
b
g
a
s
pr
o
d
u
c
t
i
o
r
i
da
i
l
y
av
e
r
a
g
e
Fr
o
n
t
-
m
o
n
t
h
na
t
u
r
a
l
-
g
a
s
fu
t
u
r
e
s
pr
i
c
e
ba
n
k
r
u
p
t
c
y
pr
o
t
e
c
t
i
o
n
af
t
e
r
win
t
e
r
ha
s
fu
r
n
a
c
e
s
bla
z
i
n
g
lo
w
ga
s
pr
i
c
e
s
pu
s
h
e
d
it
s
in
t
o
la
t
e
Ma
r
c
h
,
do
m
e
s
t
i
c
de
-
$-
--
---
-
---
-
-
-
$4
.
0
0
pe
r
mU
o
n
&
.
ea
r
n
i
n
g
s
re
l
a
t
i
v
e
to
de
b
t
be
-
ma
n
d
is
up
,
an
d
re
c
o
r
d
vo
l
We
d
n
e
s
d
a
y
lo
w
th
r
e
s
h
o
l
d
s
sp
e
l
l
e
d
ou
t
in
am
e
s
ar
e
be
i
n
g
so
l
d
ab
r
o
a
d
.
ag
r
e
e
m
e
n
t
s
wit
h
cr
e
d
i
t
o
r
s
.
Ye
t
fu
e
l
pr
i
c
e
s
ar
e
de
-
Wh
e
n
th
e
Ho
u
s
t
o
n
co
m
p
a
n
y
pr
e
s
s
e
d
.
A
pa
i
r
of
we
l
l
s
in
75
3.5
0
so
u
t
h
w
e
s
t
Wy
o
m
i
n
g
he
l
p
s
ex
-
te
c
t
i
o
n
a
ye
a
r
la
t
e
r
,
it
em
-
pl
a
i
n
wh
y
.
ba
r
k
e
d
on
a
pla
n
to
dr
i
ß
ho
r
i
-
Th
i
s
win
i
e
r
,
Ult
r
a
Pe
t
r
o
l
e
u
m
zo
n
t
a
l
we
l
l
s
.
Ca
r
p
.
,
ju
s
t
mo
n
t
h
s
af
t
e
r
em
e
r
g
-
A
ho
r
i
z
o
n
t
a
l
we
l
l
in
20
1
6
in
g
fr
o
m
ba
n
k
m
p
t
c
y
,
co
m
p
l
e
t
e
d
-
wa
s
a
fl
o
p
.
Bu
t
th
i
s
tim
e
,
Ul
t
r
a
tw
o
hu
g
e
we
R
s
in
th
e
st
a
t
e
,
dr
i
l
l
e
d
a
ga
,
wh
i
c
h
ma
x
e
d
dr
i
l
l
i
n
g
do
w
n
mo
r
e
th
a
n
2
ou
t
at
th
e
eq
u
i
v
a
l
e
n
t
of
51
m
ü
-
mi
l
e
s
an
d
th
e
n
si
d
e
w
a
y
s
fo
r
65
25
lio
n
cu
b
i
c
fe
e
t
a
da
y
.
A
ti
l
i
r
d
mo
t
h
e
r
2.
Ea
c
h
ha
s
pr
o
d
u
c
e
d
we
n
wa
s
fa
r
le
s
s
pr
o
l
i
f
i
c
.
mo
n
g
h
ga
s
to
fu
e
l
ev
e
r
y
Fo
r
th
e
fo
u
r
t
h
we
l
l
,
be
g
u
n
io
n
s
e
h
o
l
d
in
Wy
o
m
i
8.
vii
n
b
u
s
h
e
e
n
n
g
j
e
n
s
a
in
Ja
r
m
a
r
y
,
th
e
co
m
p
a
n
y
we
n
t
Ult
r
a
'
s
we
l
l
s
-
w
h
o
s
e
in
i
t
i
a
l
&
,
2D
o
ba
c
k
to
th
e
ro
a
r
e
su
c
c
e
s
s
f
u
l
So
w
s
ha
v
e
be
e
n
am
o
n
g
th
e
20
1
1
12
33
14
35
26
7
18
Is
e
p
t
lo
c
t
IN
o
v
De
c
Fe
b
Ma
h
we
U
de
s
i
g
n
,
wh
i
c
h
in
v
o
l
v
e
d
ar
g
e
s
t
ev
e
r
in
th
e
U.
S
.
-
s
b
0
W
20
1
7
20
1
8
pu
m
p
i
n
g
28
1
,
0
0
0
ba
r
r
e
l
s
of
lo
w
pr
o
s
p
e
c
t
o
r
s
co
n
t
i
n
u
e
to
wa
t
e
r
an
d
12
.
4
mi
l
l
i
o
n
po
u
n
d
s
ou
t
p
u
t
-
i
s
Na
t
u
r
a
l
-
g
a
s
in
v
e
n
t
o
r
i
e
s
U.
S
.
na
t
u
r
a
l
-
g
a
s
de
m
a
n
d
,
U.
S
.
n
a
t
u
r
a
l
-
g
a
s
ex
p
o
r
t
s
,
e
a
se
n
s
e
s
in
th
e
fu
e
l
'
s
us
e
an
d
we
e
k
l
y
de
n
y
av
e
r
a
g
e
an
n
u
a
l
l
y
th
a
n
th
e
pr
e
c
e
d
i
n
g
on
e
,
pr
o
-
te
e
p
i
n
g
a
li
d
on
pr
i
c
e
s
.
du
c
i
n
g
as
mu
c
h
as
th
e
eq
u
i
m
On
We
d
n
e
s
d
a
y
na
t
u
r
a
l
-
g
a
s
g0
0
nc
80
t
on
gf
e
e
t
a
_
_
4,
0
0
0
!
on
cu
b
i
c
fe
e
t
le
n
t
of
54
.
5
mŒ
l
o
n
cu
b
i
c
fe
e
t
utu
r
e
s
fo
r
Ap
r
i
l
de
l
i
v
e
r
y
a
da
y
.
It
co
s
t
ab
o
u
t
$9
mi
l
l
i
o
n
.
io
s
e
d
at
$2
.
6
3
8
a
mi
D
i
o
n
Br
i
t
-
On
a
da
B
y
ba
s
i
s
,
th
a
t
is
ma
r
E
sh
th
e
r
m
a
l
un
i
t
s
,
do
w
n
27
%
th
a
n
six
tim
e
s
as
mu
c
h
ga
s
al
ro
m
a
win
t
e
r
-
h
e
a
t
i
n
g
se
a
s
o
n
3,0
0
0
60
3,
0
0
0
5
ty
p
i
c
a
l
ve
r
t
i
c
a
l
we
l
l
dg
h
re
a
c
h
e
d
in
Ja
n
u
a
r
y
an
d
wh
i
c
h
co
s
t
$3
mB
l
i
o
n
to
dr
i
B
.
el
o
w
br
e
a
k
ev
e
n
fo
r
ma
n
y
"W
e
n
pe
r
f
o
r
m
a
n
c
e
lik
e
th
h
tr
i
D
i
n
g
pr
o
s
p
e
c
t
s
.
Ma
n
y
ba
n
k
s
is
on
e
of
th
e
re
a
s
o
n
s
we
ar
e
r
t
ud
an
a
l
y
s
t
s
pr
e
d
i
c
t
av
e
r
a
g
e
40
2,0
0
0
Op
t
i
m
i
s
t
i
c
fo
r
a
na
t
u
r
a
l
-
g
m
do
e
s
wm
re
m
a
i
n
be
l
o
w
$3
40
0
_
-
-
--
-
pr
i
c
e
re
c
o
v
e
r
y
,
"
sa
i
d
Sh
a
n
Be
l
or
ye
a
r
s
.
.
an
a
l
e
t
.
a
t
R
o
b
e
r
't
h
a
t
is
go
o
d
fo
r
th
e
ho
m
e
-
W.
3
a
l
r
d
&
Ca
.
'
S
h
e
r
e
n
si
m
p
l
y
on
e
r
s
,
ch
a
n
d
c
a
l
ma
k
e
r
s
an
d
to
o
mu
c
h
su
p
p
l
y
av
a
B
a
b
l
e
.
"
ow
e
r
pl
a
n
t
s
th
a
t
bu
y
ga
s
.
Bu
t
10
0
0
20
10
0
0
.
Ult
r
a
sa
y
s
it
ha
s
70
0
lo
c
a
-
be
s
p
ga
s
ha
s
be
d
e
v
B
e
d
dr
B
I
-
tio
n
s
an
it
s
la
n
d
wh
e
r
e
it
be
-
rs
,
ma
n
y
ct
wh
o
m
ar
a
ba
t
t
l
i
n
g
Win
t
a
r
-
h
e
e
n
n
g
ll
e
v
e
s
it
ca
n
dr
i
B
sb
n
B
a
r
l
y
de
-
sw
pr
i
c
e
s
by
dr
i
D
i
n
g
big
g
e
r
se
a
s
o
n
s
si
g
n
e
d
we
l
l
s
.
mH
s
in
se
a
r
c
h
of
om
r
i
s
m
a
n
o
o
o
Th
i
s
we
e
k
,
Je
f
f
e
r
i
e
s
an
a
-
U.
S
.
g
a
s
p
r
o
d
u
c
t
i
o
n
h
a
s
a
y
-
ga
y
,
16
17
28
20
1
1
1
2
33
*1
4
15
16
'1
7
38
20
1
1
1
2
13
¾
15
16
37
ly
s
t
s
l
o
w
e
r
e
d
t
h
e
i
r
n
a
t
u
r
a
l
-
ra
g
e
d
79
.
6
3
bH
B
e
n
co
h
l
e
fe
e
t
ga
s
-
p
r
i
c
e
fo
r
e
c
a
s
t
s
fa
r
th
i
s
da
y
th
i
s
ye
a
r
,
up
ne
a
r
l
y
10
%
So
u
n
e
s
:
SW
GIc
h
a
m
a
t
t
s
An
e
l
y
n
c
s
de
m
a
n
WS
J
M
u
k
e
t
Da
t
a
Gro
u
p
pm
ye
a
r
an
d
ne
x
t
to
$2
.
8
0
a
ud
l
-
om
20
1
7
8
Te
c
o
r
d
oir
t
p
u
t
,
aC
-
U.S
.
B-
g
y
in
l
a
n
n
a
d
a
n
Ad
s
h
i
s
t
r
a
t
i
o
n
Om
a
n
t
o
d
e
l
,
up
o
r
t
s
)
TE
E
WA
M
.
S
T
R
E
r
r
a
o
t
n
o
u
t
.
li
o
n
BT
U
s
fr
a
m
$3
.
2
5
.
Ra
y
-
or
d
i
n
g
to
S&
T
Glo
b
a
l
Pla
t
t
s
,
.
ma
n
d
Ja
m
e
s
&
As
s
o
c
i
a
t
e
s
lis
c
.
Ad
c
h
co
m
p
i
l
e
s
pip
e
l
i
n
e
da
t
a
.
no
r
'
e
a
s
t
e
r
s
in
Ma
r
c
h
ha
v
e
re
-
Po
i
n
t
ex
p
o
r
t
te
r
m
i
n
a
l
i
n
Ma
r
y
-
ma
r
k
e
t
.
Ga
s
is
su
r
g
i
n
g
ou
t
of
si
a
n
a
'
s
Ha
y
n
e
s
v
l
B
e
sh
a
l
e
,
an
d
pr
e
d
i
c
t
s
an
ev
e
n
lo
w
e
r
$2
.
7
5
"S
u
p
p
l
y
is
ca
s
t
i
n
g
a
pa
ß
du
c
e
d
ga
s
in
st
o
r
a
g
e
to
it
s
la
n
d
b
e
g
a
n
f
i
O
i
n
g
t
a
n
k
e
r
s
w
i
t
h
We
s
t
Te
x
a
s
,
a
by
p
r
o
d
u
c
t
of
zi
o
w
W
y
o
m
i
n
g
,
p
r
o
d
u
c
e
r
s
h
a
v
e
ov
e
r
t
h
a
t
t
i
m
e
.
Ve
r
wh
a
t
s
go
i
n
g
on
on
th
e
lo
w
e
s
t
le
v
e
l
in
th
r
e
e
ye
a
r
s
.
li
q
u
e
l
l
e
d
na
t
u
r
a
l
ga
s
th
i
s
fr
e
n
z
i
e
d
oil
dr
i
B
i
n
g
in
th
e
su
p
e
r
s
j
z
e
we
n
s
i
n
at
t
e
m
p
t
s
to
"W
e
oft
e
n
ha
a
r
th
e
qu
e
s
-
em
a
n
d
sid
e
of
th
e
le
d
g
e
r
,
"
Ch
e
n
d
c
a
l
ma
k
e
r
s
an
d
ot
h
e
r
mo
n
t
h
,
pu
s
h
i
n
g
ov
e
r
s
e
a
s
LN
G
Pe
r
m
i
a
n
Ba
s
i
n
.
Ap
p
a
l
a
m
a
n
lo
w
e
r
th
e
i
r
co
s
t
pe
r
un
i
t
an
d
tio
n
:
I
s
th
e
r
e
an
y
l
i
o
p
e
fo
r
U.S
.
aid
Ric
h
a
r
d
Re
d
a
s
h
,
wh
o
ma
n
u
f
a
c
t
u
r
e
r
s
ar
e
co
n
s
u
m
i
n
g
si
d
p
m
e
n
t
s
to
ne
w
hig
h
s
.
ou
t
p
u
t
is
on
th
e
up
s
w
i
n
g
as
be
t
t
e
r
co
m
p
e
t
e
wit
h
ch
e
a
p
e
r
-
na
t
u
r
a
l
-
g
a
s
pr
i
c
e
s
?
"
th
e
fi
r
m
'
s
sa
d
e
th
e
fir
m
'
s
No
r
t
h
Am
e
r
i
-
re
c
o
r
d
vo
l
u
m
e
s
.
Me
x
i
c
o
is
Ye
t
th
i
s
un
p
r
e
c
e
d
e
n
t
e
d
de
-
ne
w
pi
p
e
h
n
e
s
co
n
n
e
c
t
sw
a
t
h
s
to
-
d
r
i
ß
ar
e
a
s
.
.
an
a
l
y
s
t
s
wr
o
t
e
in
a
ma
t
e
to
cu
-
an
ga
s
an
d
po
w
e
r
re
s
e
a
r
c
h
.
po
r
t
i
n
g
mo
r
e
th
a
n
ev
e
r
.
An
d
ma
n
d
gr
o
w
t
h
ha
s
ba
r
e
l
y
ab
-
of
th
e
Ma
r
c
e
B
u
s
an
d
Ut
i
c
a
Ul
t
r
a
ha
s
be
e
n
on
e
of
tl
i
e
en
t
s
.
W
sh
o
r
t
an
s
w
e
r
:
No
,
Sn
o
w
da
y
s
in
Eo
u
s
t
o
n
an
d
Do
m
a
um
En
e
r
g
y
In
c
.
'
s
Co
v
e
so
r
b
e
d
th
e
ga
s
flo
o
d
i
n
g
th
e
sh
a
l
e
s
to
th
e
ma
r
k
e
t
.
In
Lo
u
l
-
ma
i
n
pr
o
d
u
c
e
r
s
in
Wy
o
m
i
n
g
'
s
th
e
r
e
is
n
'
t
.
"
4/11/2018 How Two Wells in Wyoming Explain the Natural-Gas Glut -WSJ
How Two Wells in Wyoming Explain the
Natural-Gas Glut
Demand is growing,but so are the troves of gas being unearthed by prospectors
A drilling rig operating in a natural-gas field near Pinedale,
Wy.PHOTO:WILLIAM CAMPBELL/CORBIS/GETTY IMAGES
By Ryan Dezember and
Stephanie Yang
Updated March 21,2018 4:37 p.m.ET
163 COMMENTS
Natural-gasproducers should be delighted:A cold winter
has furnaces blazinginto late March,domestic demand is
up,and record volumes are being sold abroad.
Yet fuel prices are depressed.A pair of wells in southwest
Wyoming helps explainwhy.
https://www.wsj.com/articles/how-two-wells-in-wyoming-explain-the-natural-gas-glut-1521637200?mod=searchresults&page=1&pos=1 1/5
4/11/2018 How Two Wells in Wyoming E×plain the Natural-Gas Glut -WSJ
This winter,Ultra Petroleum UPL +5.47%Corp.,just
monthsafter emerging from bankruptcy,completed two
huge wells in the state,drilling down more than two miles
and then sideways for another two.Each have produced
enough gas to fuel every householdin Wyoming.
Ultra's wells-whose initial flows have been among the
largest ever in the U.S.-show how prospectors continue to
unearth huge troves of gas.That output is offsetting
increases in the fuel's use and keeping a lid on prices.
On Wednesday,natural-gas futures for April delivery
closed at $2.638 a million British thermal units,down 27%
from a winter-heatingseason high reached in Januaryand
below break even for many drilling prospects.Many banks
and analysts predict average prices will remain below $3
for years.
Gassed Up
U.S.gas production has hit records,weighing
on prices
Natural gas production,daily average
B5 billion cubic feet per day
BO
75
70
65
80
55
2011 '12 '13 '14 '15 '16 '17 '18
That is good for the homeowners,chemical makers and
power plants that buy gas.But cheap gas has bedeviled
https://www.wsj.com/articles/how-two-wells-in-wyoming-explain-the-natural-gas-glut-1521637200?mod=searchresults&page=1&pos=1 2/5
4/11/2018 How Two Wells in Wyoming E×plain the Natural-Gas Glut -WSJ
drillers,many of whom are battlinglow prices by drilling
bigger wells in search of efficiencies.
U.S.gas production has averaged 79.63 billion cubic feet a
day this year,up nearly 10%from 2017's record output,
according to S&P Global Platts,which compiles pipeline
data.
"Supply is casting a pall over what's going on on the
demand side of the ledger,"said Richard Redash,who
leads the firm's North American gas and power research.
Snow days in Houston and nor'easters in March have
reduced gas in storage to its lowest level in three years.
Chemical makers and other manufacturersare consuming
record volumes.Mexico is importingmore than ever.
And Dominion Energy Inc.'s Cove Point export terminal in
Maryland began filling tankers with liquefied natural gas
this month,pushing overseas LNG shipments to new highs.
Yet this unprecedented demand growth has barely absorbed
the gas floodingthe market.Gas is surging out of West
Texas,a byproduct of frenzied oil drilling in the Permian
Basin.Appalachian output is on the upswing as new
pipelines connect swaths of the Marcellus and Utica shales
to the market.In Louisiana's HaynesvilleShale,and now
Wyoming,producers have supersized wells in attempts to
lower their cost per unit and better compete with cheaper-
to-drill areas.
Ultra has been one of the main producers in Wyoming's
Green River Basin,typically drilling vertical wells into a
gas-bearing rock.
In April 2016,Ultra filed for bankruptcy protectionafter
low gas prices pushed its earnings relative to debt below
https://www.wsj.com/articles/how-two-wells-in-wyoming-explain-the-natural-gas-glut-1521637200?mod=searchresults&page=1&pos=1 3/5
4/11/2018 How Two Wells in Wyoming Explain the Natural-Gas Glut -WSJ
thresholds spelled out in agreements with creditors.When
the Houston company emerged from bankruptcy protection
a year later,it embarked on a plan to drill horizontal wells.
A horizontal well in 2016 was a flop.But this time,Ultra
drilled a gusher,which maxed out at the equivalentof 51
million cubic feet a day.A third well was far less prolific.
For the fourth well,begun in January,the company went
back to the more successful well design,which involved
pumping 281,000 barrels of water and 12.4 million pounds
of sand beneath the surface.This attempt was even better
than the preceding one,producing as much as the
equivalentof 54.5 million cubic feet a day.It cost about $9
million.
Severe weather this winter has helped fire up demand for natural
gas.PHOTO:GLEN STUBBE/ASSOCIATED PRESS
On a daily basis,that is more than six times as much gas as
Ultra's typical vertical well,which cost $3 million to drill.
"Well performance like this is one of the reasons we aren't
optimisticfor a natural-gasprice recovery,"said Ethan
Bellamy,energy analystat Robert W.Baird &Co."There's
simply too much supply available."
https://www.wsj.com/articles/how-two-wells-in-wyoming-explain-the-natural-gas-glut-1521637200?mod=searchresults&page=1&pos=1 4/5
4/11/2018 How Two Wells in Wyoming Explain the Natural-Gas Glut -WSJ
Ultra says it has 700 locations on its land where it believes
it can drill similarly designed wells.
This week,Jefferies analysts lowered their natural-gas-
price forecasts for this year and next to $2.80 a million
BTUs from $3.25.Raymond James &Associates Inc.
predicts an even lower $2.75 over that time.
"We often hear the question:Is there any hope for U.S.
natural-gas prices?"the finn's analysts wrote in a note to
clients."The short answer:No,there isn't."
Write to Ryan Dezember at ryan.dezember@wsj.comand
Stephanie Yang at stephanie.yang@wsj.com
Appearedin the March 22,2018,print edition as 'Two Wells Help
Explain Natural-Gas Glut.'
https://www.wsj.com/articles/how-two-wells-in-wyoming-explain-the-natural-gas-glut-1521637200?mod=searchresults&page=1&pos=1 5/5