The shale revolution. Causes, Causes, opportunities and risks

Philippe Charlez, Total17/11/2016

US oil & gas production and imports

1973 1979 1986 1991 2001 2003

First oilcrisis

Second oilcrisis

Oil countershock

First gulfwar

Twintowers

Secondgulf war

Energy dependency (%)75%

US production

peak oil

1970 2006US

importpeak oil

Oil

Gas

0%

25%

50%

75%

1970 1978 1986 1994 2002

Dependency = import/consumption

BP outlook 2016

Worrying increase of energy dependencyThe answer…shale oil & gas revolution

2006-2008: the start of a revolution

Bakken

Six champions!

BP Energy outlook 2016

Oil + LPG Gas

Mbopd Bcf/d

Total 12.7 74.2

Shale 6.5 42.5

% 51% 57%

0%

10%

20%

30%

30%

40%

50%

60%

70%

2000 2005 2010 2015

Gas dependency

Oil dependency

Marcellus

HaynesvilleBarnett

Eagle-Ford

Permian

champions!

Barnett shales (Dallas)

2000 2005 2010 2015

Sea floorbiomass mud

How oil & gas are formed

2. Biomass sedimentation

Organic

Biodegradation

Biogenic gasBacteria

1. Minerals sedimentation(quartz, lime, clay)

Mineral

Overburden

T°Time

Gas + oil

Biogenic gasKerogen

BacteriaT°<80°C

Thermal alteration

Oil + gas

80°C

to 130°C

Oil w

indow

2 km

3,5 km

Burial

Pressure increases

Temperature increases

Gas

Depth Depth

Land surface

Overburden

Conventional exploits reservoir

Shale exploits source rock but…

Shale oil & gas = natural oil & gas

From source rock to reservoir

Réservoir

Seal

Trap Reservoir

1. Coarse grains

2. High permeability

3. Limited extension (1000 km 2)

Basement

Source rock

3. Limited extension (1000 km )

100 µ

Source rock

1. Very fine grains

2. Very low permeability

3. Very large extensions

1 µ

Hydrocarbon maturation = Temperature + Time

Time condition = very low permeability

Technology made shale O&G viable

Non economic production

Non economic production

Economic production

Economic production

� uneconomic permeability

Shale oil & gas

� economic permeability

Conventional

Non economic production

Recovery of oil and gas from shale formations requires horizontal drilling and

hydraulic fracturing to allow economic production

First in Oklahoma 1947. More than two millions frac in the states.

Hydraulic fracturing is a “mature” upgraded technology

US shale revolution : 3 consequences

40

80

120

5

10

Henry Hub Brent

Source

$/MBTU $/bbl

1. A « double pain » for producers

2. An opportunity for industry

Cement Glass

Steel PetrochemicalsSix years

00

2000 2005 2010 2015

BP outlook 2015 Steel Petrochemicals

2012 2020 2035

Million jobs 1.75 3 4

Source: IHS CERA

Power generation movedfrom coal to gas

3. A positive effect on GHG

400

450

500

550

600

5.4

5.8

6.2

6.6

7.0

2000 2005 2010 2015

Coal (Mt/an)GHG (Gt/an)

GHG (-13%)

Coal (-21%)

Source BP outlook 2015

Shale as the new oil swing

Production

Price

15

20

25

30

35

0

15

30

45

60

75

1965 1968 1971

1. Consumers

40

42

44

46

48

50

0

15

30

45

60

75

2002 2007 2012

3. Market

30

35

40

45

50

55

0

15

30

45

60

75

1973 1983 1993

2. Producers

Weakness of OPEC members, low « breakeven » of Saudi Arabia

0% 25% 50% 75% 100%

Breakeven price

Pétro-monarchies

OtherOPEP Russia

US OtherNon OPEP M

exic

o Bra

sil

Can

ada

(% of world production)

Weakness of OPEC members, low « breakeven » of Saudi Arabia

� Resilience: production resists to strong decline in activities

Shale as the new oil swing

Production (Mbopd)

0

1

2

3

4

5

janv.-12 janv.-13 janv.-14 janv.-15 janv.-16

0

350

700

1 050

1 400

1 750Rig count

Data sourceEIA & Baker Hugues

Production Activities

� Flexibility: light means easily stopped and restarted

� Privacy : subsurface belongs to land owners

VS

janv.-12 janv.-13 janv.-14 janv.-15 janv.-16

US oil dependency (%)

30%

40%

50%

60%

70%

1990 1995 2000 2005 2010 2015

BP energy outlook 2016

-50%

-30%

-10%

10%

30%

50%

70%

1981 1986 1991 1996 2001 2006 2011

China oil dependency(%)

BP energy outlook 2016

Impact on future oil market: displacement to China

+3-18,6+12

US

China+India

Others

2000

1990 1995 2000 2005 2010 2015 1981 1986 1991 1996 2001 2006 2011

+19,3-25,7+4

US

China+India

Others

2030

LNG market

� 1990 : 50 Mtons

� 2000 : 100 Mtons

�2014 : 250 Mtons

� 2030 : 500 Mtons

US LNG

� 20 Mtons in 2020

� 60 Mtons in 2025

� 90 Mtons in 2030

Impact on future gas market: US LNG exports

40

60

80

100

120Production & demand (Bcf/day)

Production

Demande

12 B

cf/jou

r

Russian gas

American LNG

Chineseshale gas?

40

2005 2015 2025 2035

American LNG : a threath forRussian gas markets ?

Threath for russian gas market (Europe)?

Paris

Moscow

Warsaw

Kiev

Minsk

Berlin

Yamal

R² = 0,96

0 20 40 60 80

Wholesale gas price Europe (€/MWh)

0 20 40 60 80Oil price (€/MWh)

Russian gas<<

American GNL

0

2

4

6

8

10du GNL ($/MBTU)

CAPEX

OPEX

Prix du gaz

Coût du GNL américain ($/MBTU)

CAPEX

OPEX

Prix du gaz

Pétrole Gaz Europe

$/bbl $/MBTU

110 11.2

50 5.6

30 3.8

Price Russian gas(5,6$/MBtu)

Threath for russian gas market (Asia)?

Tuymen

Prokokovo

Blagove-

CHAYANDA

URENGOY

OmskSAKHALINE

YAMAL

Vers les marchés

européens

Gazoduc existant

Projet f

Liaison des deux réseaux

Projet Altaï

Novossibirsk

0%

25%

50%

75%

100%

2000 2005 2010 2015

Europe CEI Asie

% d

es e

xp

ort

ati

on

s d

e g

az r

usse

Cost russian gas (9$/Mbtu)Coût du GNL ($/MBTU)

0

2

4

6

8

10

Asie

CAPEX

OPEX

Prix du gaz

Pétrole

$/bbl

110

50

30

Gaz Asie

$/MBTU

15.3

7.5

4.9

Vladivsotok (GNL)

Blagove-shensk

Khaba-rovsk

KOVYTKA

Omsk

Entrée ouest

Entrée est

2000 2005 2010 2015

% d

es e

xp

ort

ati

on

s d

e g

az r

usse

Russian gas=

American GNL

The case of Europe: shale not a game changer

2035 -20 -10 -28

Gas price

reduction (%)

Electricity price

reduction (%)

Energy import

dependency (%)

2035 0,7 50 900

Additional

growth (%/yr)

Increase in taxes

(Geuros/yr)

Employment

(thousands jobs)

BP energy outlook 2015 & IEA

Tcf Gboe

Poland 148 25

France 137 23

Romania 51 9

Denmark 32 5

Shale gasCountry

Unit 2014 2035

Gas consomption Bcf 41

Gas production Bcf 14

Gas dependency % 67% 95%

Russian gasDenmark 32 5

UK 26 4

Netherlands 26 4

Others 50 9

Total 470 80

<5 $/MBtu

>12 $/MBtu

- Geology

- Social blockage

- Uneconomic

(>12$/MBtu)

Russian gas<<<

European SG

Short Resume

Philippe A. Charlez is Mining Engineer from Ecole Polytechnique de Mons (Belgium) and PHD from Institut de

Physique du Globe de Paris. He works for 35 years with Total E&P. He was during 15 years Rock Mechanics Expert. He

then occupies several operational positions in Scotland, Angola and more recently Kazakhstan. Expert in

Unconventional Resources, he is currently Senior Technical Advisor. Charlez is the author of more than 50 scientific

papers. He has published in 2014 & 2015 with Ed. Technip “Our Energy Future is not Set In Stone” and “The Shale Oil

& Gas debate”. A new book on energy transition is planned to be published September 2016.

www.philippecharlez.com

www.editionstechnip.com