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icfi.com |
2015 Summer Meeting and Conference of the Freight Systems and Marine Committees Transportation Research Board
National Academy of Sciences Building
2101 Constitution Avenue
Washington, DC
Harry Vidas, ICF International
June 25, 2015
Domestic Energy Flows:
Oil and Gas Drilling Activity &
Production Trends with Associated
Transportation Needs
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• Overview of ICF
• Oil Market History and Outlook
• Natural Gas Market Expectations
• Rig Utilization Trends
• Historical and Forecast Well Counts
• Typical Well Construction and Materials Needs
• Transport Needs for Well D&C and Production
• Expected Future Trends and Implications
Outline of Presentation
3 icfi.com | ©Copyright ICF International, All Rights Reserved
Environmental Assessments
Regulatory Analysis
•Energy Efficiency
•Sustainability
•Smart Grid
•Demand Response
•Distributed Gen
•Transmission
•Distribution
•Integrated Resource Planning
•Coal
•Nuclear
•Natural Gas
•Renewables
•Natural Gas
•Natural Gas Liquids
•Petroleum
•Petrochemicals
•Adv Biofuels
Natural
Resources Generation
DSM Transmission
& Distribution
Diverse Consultancy with Domain Expertise in Energy Markets
Industry-best modeling and analytical capabilities
• Global presence—70+ offices;
headquartered in the Washington, DC
area
• More than 5,000 employees
• 2014 revenue of $1.05 Billion
• World-class domain expertise across
the energy, environment,
transportation, and health care sectors
• Diverse client base—US federal, state,
and local agencies, utilities,
commercial clients. Lead US EPA air
regulatory adviser since 1975
• One of America’s Best Small
Companies, Forbes 2005-2011
• Best Global Environmental
Consultancy in 5 of 6 categories,
Environmental Finance Magazine
• One of the largest energy efficiency
consultancy/implementation firms in
North America
• Leader in Customer Care/Engagement
ICF CORPORATE OVERVIEW
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Evolution of D&C Technologies and Practices
■ Horizontal drilling and steering
■ Multi-stage hydraulic fracturing
■ Fracturing fluids and techniques
■ Seismic and other geophysical analyses of drilling locations
■ Reductions in environmental impacts (multi-well pads, water conservation and recycling, reformulation of additives, RECs, etc.)
NATURAL GAS OVERVIEW
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• Natural gas prices are expected to recover from the current low levels.
– Higher than historical demand from the power sector observed in the first several
months of 2015 is expected to continue.
– Drilling activity has declined across all major producing basins and slower
production growth is expected in the coming months.
– Storage inventory is below the five-year annual average level due to cold weather in
February and March; storage injection will replenish inventories over the next
several months.
• In the long run, gas prices will continue to strengthen as demand grows.
– Large volumes of LNG exports are still expected to come on-line, despite lower oil
prices leading to weaker economics for projects in earlier stages of development.
– Incremental petrochemical gas use still expected, but ethylene production and LPG
exports (and thus, gas use associated with those activities) are not likely to be as
robust in a lower oil price environment.
– U.S. exports to Mexico will continue to increase, as projected demand growth from
power plants will continue to outpace Mexico’s domestic production.
– Power sector demand growth driven mostly by coal plant retirements in response to
environmental regulations.
North America Natural Gas Market Outlook – Price Trends
Section 1, Page 6
NATURAL GAS OVERVIEW
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ICF’s Natural Gas Price Projection
• Increased demand
growth will push gas
prices above $5 per
MMBtu by 2020.
• Long-term prices are
expected to range
between $5 and $6.50
per MMBtu. – Prices are high enough to
foster sufficient supply
development to meet
growing demand, but not
so high to throttle the
demand growth.
– Accelerated price growth
after 2030 reflects power
generation demand
growth for nuclear
capacity replacement and
natural gas reserves’
depletion effects.
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
2005 2010 2015 2020 2025 2030 2035
20
14
$/M
MB
tu
Annual Average Henry Hub Price
Historical ICF Projected
Perfect Storm Leads to
Unsustainably Low Gas
Prices
Demand Surge &
LNG Exports
Ramp Up
Stable Prices – Market
Growth and Supply
Growth in Lockstep
Nuclear Retirements
Supply Rationalization
Cold Winter Pops 2014 Gas Price
Section 1, Page 7
NATURAL GAS OVERVIEW
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• Gas production from oil wells is likely to moderate in response to lower oil
prices, as producers realign their portfolio to more productive plays. – The Marcellus and Utica shale plays will continue to be the primary sources of new
production.
– Canadian production growth will come entirely from shale and unconventional resource
development.
• Gas-focused midstream infrastructure development still robust, as
infrastructure is needed to accommodate growing gas production and
support market growth. – Development focuses on linking Marcellus/Utica supplies to regions with market growth.
– Natural gas flow patterns change significantly as Marcellus/Utica shale becomes the biggest
supply source for the North American natural gas market.
• Relatively weak seasonal price spreads are expected, consistent with
recent history, but price volatility is likely to increase as demand
strengthens. – Price volatility is expected to remain high in certain markets, especially during winter.
North America Natural Gas Market Outlook – Production
and Infrastructure
NATURAL GAS OVERVIEW
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Projected North American Gas Supply
• Total gas production
increases by 1.8% per
year, primarily from shale
resource development that
grows by 3.8% annually.
– After 2020, shale gas
production accounts for
roughly two-thirds of all
U.S. and Canada gas
production.
• Other unconventional gas
production remains fairly
constant:
– Tight gas increases
modestly while CBM
declines.
• Conventional production
continues to decline by
3.3% annually.
• Offshore production
exhibits modest increases.
U.S. and Canadian Gas Production (Tcf per year)
Conventional Onshore
Coalbed Methane
Tight Offshore
Shale
0
5
10
15
20
25
30
35
40
45
50
2010 2015 2020 2025 2030 2035
NATURAL GAS OVERVIEW
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Domestic Gas Demand is Less than Supply
Other
Residential
Commercial
Industrial
Power
LNG Exports
Mexican Exports
0
20
40
60
80
100
120
140
2010 2015 2020 2025 2030 2035
U.S. and Canada Gas Demand, Average Bcfd
Natural gas demand growth
is driven by growth in export
markets (LNG and Mexican
exports), in the next five
years.
The power sector is the
largest single source of
incremental domestic gas
consumption in the long-
term.
– Between 2015 and 2020,
growth is primarily driven
by natural gas capacity
replacing coal.
– Accelerated growth is
expected after 2020 when
federal carbon regulation
is initiated.
– After 2030, nuclear
retirements start a new
round of growth.
NATURAL GAS OVERVIEW
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Exports Will Make up the Difference
• Since 2012, DOE has approved
non-FTA exports for 7 U.S. LNG
terminals: Sabine Pass, Freeport,
Lake Charles, Cove Point,
Cameron LNG, Jordan Cove, and
Oregon LNG. – ICF’s current projection assumes
U.S. LNG exports reach 9.1 Bcfd by
2024.
– LNG exports from British Columbia
are delayed by 2 years relative to
ICF’s Q1 2015 projection, and
projected to reach 2.1 Bcfd by 2025,
due to reduced oil prices.
• Recent growth in Mexican exports
have been driven by increases in
Eagle Ford production and growth
in Mexican gas use.
– Mexican gas demand is being driven
by replacement of oil-fired
generation.
0
2
4
6
8
2010 2015 2020 2025 2030 2035
US Exports to Mexico (Average Bcfd)
California West Texas/New Mexico Arizona South Texas
US Gulf Coast
US East Coast
British Columbia
0
2
4
6
8
10
12
14
2010 2015 2020 2025 2030 2035
LNG Exports (Average Bcfd)
NATURAL GAS OVERVIEW
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Changes in Pipeline Flows Over the Next Decade
• Robust Marcellus gas production growth displaces flows from the Gulf Coast such that many Gulf Coast to Northeast pipelines will reverse flow by 2017.
• Marcellus gas will reach Eastern Canada through Michigan and New York.
• Declining conventional production in Alberta and increasing gas consumption for oil sands development and LNG exports from British Columbia reduce eastward flows from Western Canada.
Source: ICF International
Section 1, Page 12
NATURAL GAS OVERVIEW
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Oil Market Trends
Production grew
(especially US tight oil) as
global demand slowed
Saudi Arabia responded by
defending its market share
driving prices down
ICF expects slow recovery
in oil prices to $75/bbl,
similar to futures market
trajectory while EIA see
higher long-term oil prices
Debt burdened E&P’s face
liquidity concerns and are
responding with reductions
in capital expenditures
PETROLEUM OVERVIEW
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Drivers for Future Oil Price Trends
Long term Expected Value
Duration of Low Prices
Oil Price Bottom Prices will recover when:
• Economic growth returns to Asia, Europe, strengthens in U.S.
• Oil production increases where the cost of marginal wells sets
the long-term price
Current conditions affecting near term prices:
• Anemic economic growth in China/Asia and Europe
• OPEC not cutting back on production
• US and Canada production remains strong/Massive U.S. stock overhang
• U.S. dollar value increase
Low prices will continue if:
• Economic weakness continues
• N.A. oil production maintains present levels or grows
• Iran re-enters the market
• Limitations on physical inventory storage persist
PETROLEUM OVERVIEW
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Increasing Horizontal Drilling
Source: Baker Hughes Note: Weekly drilling counts through 6/2015.
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US Oil and Gas Completions and Footage
• Approximately 45,000
new US oil and gas
completions per year
• About two-thirds in 2013
were oil wells
• Total footage has
increased to about 375
million feet due to
growing number of
horizontal wells
Source: API Quarterly Completion Report
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US Well Completions &
Footage – Horizontal and
Vertical
• In 2012, about
16,000 out of
45,000 completed
oil and gas wells
were horizontal
• Total drilled footage
is almost 3X the
year 2000 level
• Most current
footage is from
horizontal wells
Source: IPAA Producing Oil and Gas Industry in Your State
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ICF U.S. Well Completion Forecast
• ICF expects
recent fall off in
well counts to
continue unless
oil price rebound
significantly.
• Future wells to
be horizontal
wells with high
productivity,
bolstered by
continued
technological
advances. Excludes dry holes and some minor well categories
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Well Site Development Requires Significant
Materials and Equipment Supplies
• Drilling and
completing a
horizontal gas well
costs from $3-$8
million.
• First step is site
development: road
construction, pad
construction, mud &
wastewater pit and
construction, and rig
mobilization
• A typical drill pad
now accommodates
2 to 8 wells
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The Drilling Stage Requires a Large Number of
Personnel, Materials and Services and Onsite Equipment
Equipment and services
required to drill include:
• Rig rental
• Rental of other tools
• Water
• Fuel supply sources (e.g.,
diesel fuel)
• Materials transport to and
from site
• Food and lodging for drill
site personnel
• Tubular goods
• Cement
• Wellhead equipment
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Well Construction Involves Several Layers of Steel Casing
and Cement
• A typical shale well has between 3-5 layers of
casing, with cement between each layer to seal
the well
• An average shale gas well requires 22,000 feet
of steel casing, 8,000 feet of well tubing, and a
quarter-mile of gathering lines per well
• Recent size of US OCTG market about 7
million tons per year.
• Market for cement for US oil and gas drilling is
about 3.3 million tons per year.
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Large Volumes of Sand and Water Required for Hydraulic
Fracturing
• An well in the Marcellus shale might
requires 5 million pounds of sand
• Recent size of US proppant market
(brown sand, white sand, ceramics, etc.)
about 50 million tons per year.
• The “frack” fluid includes roughly 95%-
97% water, 3%-5% sand “proppants,”
and 0.5%-1% chemicals.
• A typical horizontal shale gas well needs
3-9 million gallons of water for hydraulic
fracturing.
Source:
http://www.northcountrypublicradio.org/news/story/20432/20120906/to
wns-prep-for-heavy-fracking-truck-traffic
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Transport Needs for Drilling and Completion of
Horizontal Wells • Approximately
1,200 to 2,200 round trip truck trips required for each HZ shale gas or tight oil well.
• About half of these are for fracture supply water.
• Fracture flowback disposal water also significant.
• Significantly fewer trips per well with pad drilling.
• Materials such as proppants and OCTG transported to region by rail and brought to well site by truck.
Analysis of Number of Round Trips per Completed Shale WellBoulder County, Colorado - 2013
Single Well - Four well Pad -
Round pad average
Activity trips totals per well
Construction Pad and road construction 87 90 23
Drilling Drilling rig 93 90 23
Drilling fluid and materials 68 270 68
Drilling equipment (casing, pipe, etc.) 113 450 113
Completion Completion rig 42 40 10
Completion fluid and materials 43 170 43
Completion equip.(pipe, wellhead, etc.) 10 10 3
Fracturing equipment (pump trucks, tanks, etc.) 317 320 80
Fracture water 1,038 4,200 1,050
Fracture sand 48 190 48
Flowback water disposal 350 1,400 350
Total 2,209 7,230 1,808
Source: "Boulder County Oil and Gas Roadway Impact Study," prepared for Boulder County, CO, January, 2013
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Transportation Needs Related to Producing Wells
• Crude and condensate transport from well (truck and pipeline): currently about 9.6
million barrels per day
• Natural gas transport from well (pipeline): currently about 92 bcfd wet raw gas from
wellhead and 72 bcfd dry marketed gas.
• Water transport from well (truck and pipeline): estimated at roughly 35 million of
barrels per day
• Water transport to wells for waterfloods and steamfloods (pipeline and truck – mostly
recycle produced water)
• CO2 transport to well for CO2 floods: roughly 2 bcfd of “new carbon” dioxide delivered
to well sites – not counting recycled gases.
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Future Trends Influencing Transportation Needs
• Near-term concerns are overwhelmingly cost reductions and improved
efficiencies
• More horizontal wells with pad drilling
• Increased lateral length
• Denser frack spacing along laterals
• More proppant per stage
• Re-fracks of existing wells
• More use of onsite natural gas instead of diesel for rigs and pumpers
• Environmental rules affecting well designs, water recycling, water
transport by pipeline, water disposal, etc.
• Substituting gases (N2, CO2, propane) for water as frack fluid
• Changing regional mix of production and imports/exports that affect
midstream transportation networks
28 icfi.com |
Contact Information
Harry Vidas Vice President [email protected]
(703) 218-2745
Bob Hugman Senior Consultant [email protected]
(703) 218-2737