Focus on the Non-ConventionalTransforming Gas Resources to SuppliesFocus on the Non-ConventionalTransforming Gas Resources to Supplies

Philip H. StarkIHS Energy

USAEE /IAEE: 25th Annual ConferencePlenary: Non-Conventional Energies: Probable to ProvenSeptember 20, 2005

Natural GasChange Dynamics from the 90’s

Natural GasChange Dynamics from the 90’s

•U.S. Price / Mcf: $ 1.72 $12.00

•Oil emphasis gas emphasis•Stranded gas marketable asset•Regional market global market•Pipelines tankers•Conventional non-conventional

Evolution of World Gas ResourcesDiscovered Conventional Gas Resources

Evolution of World Gas ResourcesEvolution of World Gas ResourcesDiscovered Conventional Gas ResourcesDiscovered Conventional Gas Resources

Source: IHS Energy IRIS21

0

500

1,000

1,500

2,000

2,500

Pre-19

0101

- 05

06 - 1

011

- 15

16 - 2

021

- 25

26 - 3

031

- 35

36 - 4

041

- 45

46 - 5

051

- 55

56 - 6

061

- 65

66 - 7

071

- 75

76 - 8

081

- 85

86 - 9

091

- 95

96 - 2

000

2001

-2004

Trill

ion

Stan

dard

Cub

ic F

eet

Gas in Gas-dominant DiscoveriesGas in Oil-dominant Discoveries

(excludes USA and Canada)

Hassi R'Mel

Zapolyarnoye

Urengoy

North Field

Astrakhan

Shah-Deniz

Mexilhao

South Pars

2001-04 Avg discoveries = 46 Tcf/yr 2005 Consumption (Est.) = 99 Tcf

0

500

1,000

1,500

2,000

2,500

Pre-19

0101

- 05

06 - 1

011

- 15

16 - 2

021

- 25

26 - 3

031

- 35

36 - 4

041

- 45

46 - 5

051

- 55

56 - 6

061

- 65

66 - 7

071

- 75

76 - 8

081

- 85

86 - 9

091

- 95

96 - 2

000

2001

-2004

Trill

ion

Stan

dard

Cub

ic F

eet

Gas Resources Discovered in PeriodGas Resources On-stream in Period

(excludes USA and Canada)

Gas Resources discovered vsGas Resources On-stream

Gas Resources discovered Gas Resources discovered vsvsGas Resources OnGas Resources On--streamstream

Remaining fallow gas = 1,710 Tcf

2001-04 Discoveries = 183 Tcf2001-04 On-stream = 911 Tcf

Produced & Conventional Gas Resources End - 2004

Produced & Conventional Gas Resources End - 2004

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

North America Latin America Europe Former SovietUnion

Africa Middle East Asia-Pacific

Trill

ion

Stan

dard

Cub

ic F

eet

Undiscovered Gas (USGS) at 1 Jan 2005 withResource GrowthGas Resource Growth

Remaining Discovered Gas at 1 Jan 2005

Cumulative Gas Production

49.0% 16.3% 4.9%

Ultimate: 14,845 tcfRemaining: 11,830 tcfDiscovered: 9,935 tcfDepletion: 20.3%

34.4%

Non-conventional 550 – 825 tcf

Recoverable Gas ResourcesConventional vs Non-conventional

Recoverable Gas ResourcesConventional vs Non-conventional

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

Conventional("Discrete") Gas

Coal-bed Gas "Tight" Sand /Basin-Center Gas

Shale Gas Gas Hydrates

Trill

ion

Stan

dard

Cub

ic F

eet

Cumulative ProductionRemaining Recoverable

2% RF oceanic 5% RF

permafrost North America

Assume 10% RF

In Place Resource9,250 tcf

7,000 tcf

90,000 tcf

Gas Resources SummaryGas Resources SummaryRemaining Recoverable Discovered Conventional GasRemaining Recoverable Discovered Conventional Gas•• 6,925 trillion 6,925 trillion cfcf

Ultimate Remaining Recoverable Conventional GasUltimate Remaining Recoverable Conventional Gas•• 11,830 trillion 11,830 trillion cfcf

Ultimate Recoverable Natural Gas from CoalUltimate Recoverable Natural Gas from Coal•• 1,000 trillion 1,000 trillion cfcf maximum; 550 trillion maximum; 550 trillion cfcf more likelymore likely

Ultimate Recoverable Tight Ultimate Recoverable Tight LithologiesLithologies plus Basinplus Basin--centred Gascentred Gas•• 550 550 –– 825 trillion 825 trillion cfcf (North America only)(North America only)

Gas Hydrate Resource InGas Hydrate Resource In--placeplace

•• 90,000 trillion 90,000 trillion cfcf (but only the (but only the 3,000 trillion 3,000 trillion cfcf inin--place place permafrost resource likely to be developed in near term)permafrost resource likely to be developed in near term)

EIA World Energy Use by SourceEIA World Energy Use by Source

Source: EIA International Energy Outlook 2005

+1.9%

+ 2.3%+ 2.0%

+ 1.9%+ 0.7%

U.S. Gas

Transforming Gas Resources to Supplies Transforming Gas Resources to Supplies Worldwide GasWorldwide Gas--toto--Liquids ProjectsLiquids Projects

GTL Project Capacities by Country and Status

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

USA

Bolivia

Chile

Malaysia

South Africa

Nigeria

Egypt

Trinidad

Indonesia

Australia

Iran

Qatar

Barrels per Day Output

Online Capacity (45,500 b/d)

FEED / Construction (288,750 b/d)

Firm Projects (154,000 b/d)

Concepts / Feasibility (980,000 b/d)

2nd qtr. 2005

Projected GTL GrowthProjected GTL Growth

0200400600800

1000120014001600

2005 Qatar2011

2012 > 2012

2005 2005-12 > 2012

MbopdBased on 2nd Qtr 2005 data – 34 projectsBased on 2nd Qtr 2005 data – 34 projects

GTL FactorsGTL Factors

• Estimated contribution to transport fuels– World demand growth

2004 -2020 = 17,100 Mb/d– Est. 70% diesel output 2020 = 1,028 Mb/d

6%

• Economics: Estimated Capex / b/d− Historic: $52,000 - $27,000 − Planned: $45,000 - $11,000− Refining: ~ $15,000

U.S. Gas Production DeclineImplies Tight Supplies, High Prices & Increased Imports - LNG

U.S. Gas Production DeclineImplies Tight Supplies, High Prices & Increased Imports - LNG

Vintage Production Profile

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Year

MC

F/D

ay

200420032002200120001999199819971996199519941993199219911990<1990

Sum of Lower 48US Lower-48 Vintaged Gas Production

Source: IHS Energy gas business model

Decrease400 MMcf

2002 base decline = 2.53 TcfNeed ~ 24,000 gas wells to maintain production

North American Supply and DemandNorth American Supply and Demand

Source: IHS Energy gas business model

2% growth = 26 bcf/day of additional demand

Accelerated declines and lower volume discoveries will keep supply flat (IF we invest over $30B annually)

LNG is required to fill the gap

U.S. Natural Gas Imports 2001 - 2025U.S. Natural Gas Imports 2001 - 2025

-1

0

1

2

3

4

5

6

7

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Canada

LNG

Mexico

Source: EIA, Annual Energy Outlook 2005

Role of LNG in the Market

• 2002 5% of imports

• 2010 39% of imports

Tcf

Worldwide Gas GrowthLNG Liquefaction & Regasification End-2004

Worldwide Gas GrowthLNG Liquefaction & Regasification End-2004

LNG Liquefaction Operating LNG Regasification Operating

Source: IHS Energy Mid-stream Database End -2004

LNG Liquefaction Operating LNG Liquefaction Under Construction LNG Liquefaction Planned&Engineering

LNG Regasification Operating LNG Regasification Under Construction LNG Regasification Planned&Engineering Planned Pipeline

Under C. Pipeline

Globalization of Natural GasProposed LNG & Major PipelinesGlobalization of Natural GasGlobalization of Natural GasProposed LNG & Major PipelinesProposed LNG & Major Pipelines

Source: IHS Energy Mid-stream Database End -2004

Worldwide LNG Liquefaction ProjectsWorldwide LNG Liquefaction ProjectsLNG Liquefaction Project Capacities by Country and Status

0

10

20

30

40

50

60

70

80

90

Qatar

Nigeria

Indon

esia

Austra

lia Iran

Algeria

Malays

iaEgy

ptTri

nidad

OmanRus

siaBrun

eiYem

enBoli

viaAbu

Dhabi

Angola

Venez

uela

PeruUkra

ineNorw

ay

Equato

rial G

uineaLib

yaUSA - A

laska

Japa

nM

illio

n To

nnes

per

Yea

r

Concepts / Feasibility (110 Mt / Y)Firm Projects Awaiting FID (75 Mt / Y)FEED / Construction (101 Mt / Y)Online Capacity (156 Mt / Y)

Year 2000 LNG trade: 100 Mt (4.9 Tcf)

5.4 Tcf3.7 Tcf4.9 Tcf7.6 Tcf

LNG Oversupply - 2010?LNG Oversupply - 2010?

Can the projected demand growth be financed?

Source: Cambridge Energy Research Associates

Demand

Estimated LNG Project Finance 2005-2006Estimated LNG Project Finance 2005-2006

2004 Global Project Spend

~ $75 billion for LNG Projects 2005-2006

$ Bi

llion

LNG Liquefaction Supply OutlookLNG Liquefaction Supply Outlook

• Drivers:– Robust natural gas prices– Growing market opportunities– Need for IOCs to book gas reserves– Costs decrease – larger, efficient plants

• Outlook for adequate supplies• Scramble to match regas capability

2007 2020Demand mmt/yr 172.6 360 - 480Supply mmt/yr 188.9 490.2 (Potential)

LNG Tanker OutlookLNG Tanker Outlook

30 % increase – 45 ships 2004-2005- Surplus capacity to endure- Fierce competition

05

10152025303540

2002 2003 2004 2005 2006 2007 2008

Capacity Demand

Based on peak annual estimates: Cambridge Energy Research

MMCu.M

Deepwater Ports - RegasificationDeepwater Ports - Regasification

Gravity Based DW Terminal

“Energy Bridge”

Platform Conversion

Moving Forward – But Where?

Source: Cambridge Energy Research Associates.40302-3_012105

LNG Facilities in North America—Existing and Proposed (1st Qtr 2005)LNG Facilities in North America—Existing and Proposed (1st Qtr 2005)

Existing

Proposed

Approved

Everett

Cove Point

ElbaIsland

AltamiraPort Pelican

Bahamas

LakeCharles

Canaport

Freeport

EnergyBridge

Cameron

LazaroCardenas

Clearwater Port LongBeach

Main Pass Energy Hub

Somerset LNG

Weavers Cove

Sabine

Manzanillo

Corpus Christi

Bear Head

Cabrillo Port

GulfLanding

Vermilion179

PortWestward

Keyspan LNG

Crown Landing

Port Arthur

Quoddy Bay

Northeast Gateway

Compass Port

Pearl Crossing

Sonora Pacific

Coronado IslandsEnergia

Costa Azul

Strait of Canso

Kitimat

JordanCove

Prince Rupert

GrosCacouna

Keltic Petrochemical

Rabaska

Galveston

Calhoun LNG

Broadwater

PhiladelphiaGas Works RFP

Pascagoula

Tidelands

Creole Trail

Beacon Port

Astoria

Proposed Capacity BcfdNorth America – 61.92 United States – 51.96

Existing – 4.26 Approved – 11.51 Proposed – 28.00Potential – 8.23

Proposed Capacity BcfdNorth America – 61.92 United States – 51.96

Existing – 4.26 Approved – 11.51 Proposed – 28.00Potential – 8.23

Potential U.S. overbuild: 2010Demand ~ 13.5 BcfdCapacity ~ 15.7 bcfd

Expect LNG costs in$3.50 - $5.50 Mcf range

LNG Facilities in North America Issues & Concerns

LNG Facilities in North America Issues & Concerns

• Governing laws: Multiple international, federal (DW Port Act + 13 others) and state laws apply

• Complex permitting and regulatory processes– Maritime Administration, US Coast Guard + 14 other

federal agencies and state agencies have jurisdiction– One year time limit for DW approval process– Substantial public opposition outside of TX & LA– Governor of adjacent state has veto power

Public Opposition to LNG FacilitiesPublic Opposition to LNG Facilities• The Issues:

– Security– Environmental damage– Trafficking of large tankers– Aesthetic impairment– Social equity– Falling property values– LNG is catastrophically unsafe

» (The most effective and real objection)

• The Slogans:– NIMBY- Not In My Back Yard– NOPE – Not On Planet Earth– BANANA – Build Absolutely Nothing Anywhere Near Anything

SummarySummary• Non-conventional gas resources increasingly important to

grow supplies• GTL expanding but not expected to make large impact

mid-term global liquids supplies• LNG expanding as leading edge to globalization of natural

gas– Near-term tight supplies in some markets – Potential overbuild after 2007 – Imbalances in LNG supply chain = opportunities

• Complex legal and regulatory environment• Secure supplies to match facilities & demand• Decreasing costs: LNG competes: $3.50 - $5.50/mcf

Focus on the Non-ConventionalTransforming Gas Resources to SuppliesFocus on the Non-ConventionalTransforming Gas Resources to Supplies

Philip H. StarkIHS Energy

USAEE /IAEE: 25th Annual ConferencePlenary: Non-Conventional Energies: Probable to ProvenSeptember 20, 2005

Acknowledgements:Special thanks to Dr. Ken Chew, Irena Agalliu, Carl Garrison and Michael Stoppard for their invaluable contributions.