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MIT-Sabancı University Energy and Security Workshop Istanbul, 30-31 March 2012. Climate change. Energy equity. Gas resource holders. US Shale Gas Experience: Are There Lessons for European Shale Development? . MIT Energy Initiative. Security of supply. - PowerPoint PPT Presentation
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MIT-Sabancı University Energy and Security WorkshopIstanbul, 30-31 March 2012
Gas resource holders
Climate change
Energy equity
Cost of alternatives
MIT Energy InitiativeMIT ei
Demand growth
Stranded gas, transport
Security of supply
Gas pricing
US Shale Gas Experience: Are
There Lessons for European Shale Development?
Melanie KenderdineBulgarian Energy Forum
Sofia, BulgariaDecember 12, 2012
MIT Energy Initiative 2
Global Energy Challenges, TrendsShale Gas: the US ExperienceEnvironmental Impacts of Shale Production, US RegulationEuropean Shale Gas: Issues, Potential Conclusions
MIT ei
3
Global Shale Opportunities: Changing Geopolitics (technically recoverable shale resources compared + 2009 consumption (Tcf))
Canada3883.0
U.S.86222.8
Brazil2260.7
Argentina7741.5
France1801.73
Libya2900.2
Algeria2311.02
South Africa
4850.2
Poland1870.6
China1,275
3.1
Australia3961.1
Mexico6812.2
*UK, France, Poland, Germany, Norway, Netherlands, Denmark, Sweden, Ukraine, Turkey, Lithuania, others
North America
1,931 / 27.4
South America
1,000 / 5.6
Africa
1,006 / 4.8
Asia-Pacific
1671 / 23.6
MIT Energy InitiativeiSource: EIA, World Shale Resources , 2011
Europe* 640 / 19.3
MIT e
MIT Energy Initiative 4MIT ei* Excludes unconventional gas outside North America** Cost curves based on 2007 cost bases. North America cost represent wellhead breakeven costs. All curves for regions outside North
America represent breakeven costs at export point. Cost curves calculated using 10% real discount rate, ICF Hydrocarbon Supply Model
Tcf of Gas
Breakeven Gas Price**$/MMBtu
Even with uncertainty, there is a significant amount of low
cost gas resources
Global Gas Supply Cost Curve*
Source: MIT Future of Natural Gas Study, 2011
MIT Energy Initiative
EIA Forecast – US Gas Production to 2035
Source: EIA, Richard Newell Presentation, 2010
eiMIT
MIT Energy InitiativeMIT ei 6
6
U.S. Gas Supply Cost Curves
* Cost curves calculated using 2007 cost bases. U.S. costs represent wellhead breakeven costs. Cost curves calculated assuming 10% real discount rate, ICF Hydrocarbon Supply Model
Aggregate Breakeven Gas Price* Breakdown of Mean U.S. Supply Curve by Gas Type , Breakeven Gas Price*
Tcf
$/MMbtu $/MMbtuThere are significant
shale resources with lower costs
than conventional gas
Shales
Conventionals
Source: MIT Future of Natural Gas Study, 2011
MIT Energy Initiative 7
GasCoal
CO2 Mitigation with Carbon Price to 2050Electric Sector
MIT ei Source: MIT Future of Natural Gas Study, 2011
MIT Energy Initiative 8Sources: IEA, Natural Gas Information, 2011; Liquid Markets: Assessing the Case for U.S. Exports of Liquefied Natural Gas, Brookings, May, 2012
Approx. $14
Approx. $9
Approx. $4
Benchmark NG Prices in US, UK, Japan
MIT ei
MIT Energy Initiative 9
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
0.5
1
1.5
2
2.5
3
3.5
0
5
10
15
20
25
30
35
40
Shale Gas Tax Credits ($/Mcf) DOE Spending GRI Spending
Annu
al S
hale
Gas
Pro
ducti
on (T
cf)/
Valu
e of
Tax
Cre
dits
($/M
cf)
Year
Annu
al P
rogr
am B
udge
t (M
illio
ns U
S Do
llars
in 1
999
Dolla
rs)
Shale Gas RD&D Spending and Supporting Policy Mechanisms
Federal Funding
GRI FundingSteady over 16 years
Time limited tax credit
MIT ei
Gas produced after tax
credit
Gas produced
under tax credit
MIT Energy Initiative
Source:MIT Future of Natural Gas Study, 2011eiMIT
Variation in Shale Well Performance/ Economics
* Breakeven price calculations carried out using 10% real discount rate ** Marcellus IP rates estimated based on industry announcements and available regulatory data
Source: MIT, HPDI production database and various industry sources
P20 P50 P80Barnett IP Mcf/d
BEP $/Mcf2,700$4.27
1,610$6.53
860$11.46
Fayetteville IP Mcf/dBEP $/Mcf
3,090$3.85
1,960$5.53
1,140$8.87
Haynesville IP Mcf/dBEP $/Mcf
12,630$3.49
7,730$5.12
2,600$13.42
Marcellus** IP Mcf/dBEP $/Mcf
5,500$2.88
3,500$4.02
2,000$6.31
Woodford IP Mcf/dBEP $/Mcf
3,920$4.12
2,340$6.34
790$17.04
Impact of IP Rate Variability on Breakeven Price (BEP)*(2009 Well Vintages)
48%
MIT Energy Initiative
A mild winter that reduced household heating demand A decline in coal-fired electricity generation, due largely to historically low natural gas pricesReduced gasoline demand
11MIT eiSource: EIA Website
US CO2 emissions lowest in 20 years
Coal to Gas Fuel Substitution Benefits, contd.
MIT Energy Initiative
2015 $197 billion
2035 $332 billion
2015 $49 billion
2035 $85
billionSource: The Economic and Employment Contributions of Unconventional Gas Development in State Economies, IHS, 2012
US Unconventional Gas: Economic Benefits $80 billion in new investment in
energy-intensive industries **Petrochemicals**Aluminum**Steel**Rubber**
Fertilizer**Glass
Source: Dow Chemical, “Industrial Demand and LNG Exports”, SNL Energy interview, Oct. 3, 2012
2010 Avg. Savings from Lower Gas
Prices in Ohio
Residential: $214
Commercial: $1,386
Industrial: $87,000
MIT Energy InitiativeMIT ei 13
US Shale Gas Regulation: A Work in Progress
Four major areas of environmental concern with shale gas production:
Water use and contamination Air emissions Site disruptions Seismic activity
MIT Energy Initiative 14MIT ei
Mapped Fracture Growth in the Marcellus
Around 2,000 ft.
Around 4,000 ft.
Source: MIT Future of Natural Gas Study, 2011
Around 1,000 ft.
MIT Energy Initiative
Source: MIT Future of Natural Gas Study, 2011eiMIT
Basin Public Supply
Mining/ Industrial
Irrigation Livestock Shale
Barnett82.7% 3.7% 6.3% 2.3% 0.4%
Marcellus12.0% 71.7% 0.1% <0.1% <0.1%
Comparative Water Use, US Shale Plays (%bbl/year)
MIT Energy Initiative
16Source: MIT Future of Natural Gas Study, 2011 16
Key Shale Gas Environmental Issues
Primary environmental risks associated with shale gas
developmentContamination of groundwater aquifers with drilling fluids or natural gas
On-site surface spills of drilling fluids, fracture fluids and wastewater
Contamination as the result of inappropriate off-site wastewater disposal
Excessive water withdrawals for use in high-volume fracturing operations
Excessive road traffic and degraded air quality
Breakdown of Widely-Reported Environmental Incidents Involving
Gas Drilling; 2005-2009
20
14
4
21 2
Methane in groundwater On-site surface spills
Off-site disposal issues Water withdrawal issues
Air quality issues Well blowouts
MIT Energy InitiativeMIT ei
• For optimum long-term development, need to improve understanding of shale gas science and technology
– Government-funded fundamental research– Industry/govt collaboration on applied research– Should also cover environmental research
• Determine and mandate best practice for gas well design and construction
• Create transparency around gas development– Mandatory disclosure of frac fluid components– Integrated water usage and disposal plans
• Continue to support research on methane hydrates
Recommendations
it is also clear is that the production of shale gasand MIT Energy Initiative
18
Methane Emissions from Shale Production
Barnett Fayetteville Haynesville Marcellus Woodford
147 159
633
218262
35 38 51 52 63
All vented Field practice
EPA MIT Analysis
228
216
Methane Emissions from Shale Gas
Wells (mg/well)
“…the production of shale gas [has] not materially altered the total GHG
emissions…for the vast majority of contemporary shale gas wells.”
“…the revenues gained from using reduced emissions completions…cover
the cost of executing such completions.”
12 mg/well
MIT ei Shale gas production: potential versus actual greenhouse gas emissions O’Sullivan & Paltsev, Environmental Research Letters, 11/12
MIT Energy Initiative 19MIT ei
Induced Seismicity and Hydraulic Fracturing
Managing Induced Seismicity
Avoid injection into active faultsMinimize pore pressure changes at depthInstall local seismic monitoring arraysEstablish modification protocols in advance Be prepared to alter plans or abandon wells*
Sources: Managing the seismic risk posed by wastewater disposal, Zoback, 2012; I Induced Seismicity Potential in Energy Technologies, National Research Council, 2012
Induced Seismicity Research Needs
Data CollectionInstrumentationHazard and Risk AssessmentModeling
11
38
2725
2
44
8
Some Induced Seismic EventsRangely, CO, injection experiments (M4.9, 1995), 1945-1995
Rocky Mountain Arsenal (M5.3, 1967), fluid injection, 1962-1966
Gazli, Uzbekistan, gas recovery (M7.2), 1976-1984
Water Reservoirs: Lake Mead (M5), Koyna (M6.3), Oroville (6.1) Tadjikistan, Italy and many others
Geysers Geothermal Field (M4.6), injection-enhanced production
Dallas Airport (M3.3), fluid injection, 2008-2009
Arkansas (M4.7), fluid injection, 2010-2011
Youngstown, Ohio (M4.0), fluid injection, 2011
MIT Energy InitiativeMIT ei 20
Operator Best Practices
Protocol for Induced Seismicity
Public & regulatory communications
Hazard assessment
Risk assessment
Criteria for ground vibration
Seismic monitoring
Mitigation plans
Induced Seismicity Potential in Energy Technologies, National Research Council, 2012
MIT Energy InitiativeeiMIT
US Federal Regulation/Mgmnt of Shale Gas Environmental Protection Agency Authorities: Clean Air Act, Safe Drinking Water Act, Clean Water Act, Toxic Substances Control Act
Bureau of Land Management Land and water best practices for production on federal land
White House Executive Orders Inter-agency task force on shale gas production
+ Regional and state regulation Delaware River Basin, Texas, Pennsylvania, New York, Colorado, Wyoming, West Virginia….
MIT Energy Initiative 22
Potential, Issues with Development of European Shale Basins
Population densityHigher drilling costsDeeper deposits, smaller basins
compared to US Subsurface ownershipLack of infrastructureLegal frameworks inadequateMore stringent environmental
regulationsIndustry structure Lack of experienced, skilled workers
MIT ei
MIT Energy Initiative
Sources: EIA, Richard Newell Presentation, 2010eiMIT
Barnett Shale: 13,5000 Wells Drilled in 12 Years
MIT Energy Initiative
Population Density & European
Shale Development
Source: EIA, World Shale Resources , 2011
Poland Shale Basins
Marcellus/Pennsylvania
eiMIT
Poland Population Density
MIT Energy Initiative
Source: Geny, OIES, 2010, Honore, OIES Gas Research Program, 2011eiMIT
Illustrative Operational Requirements for Shale Development
Wells and pads per year Rigs
New land surface per
year
Net water consumption
per year
Between 700 and 1000
wells and 70 to 100 pads
Around 150 Between 226 to 324 km2
70 to 200 million barrels
per year
28 bcm/yr production (1 tcf), operational requirements over 15 year period
Communities are disrupted, communities need input and buy-in
MIT Energy InitiativeMIT ei 26
Natural gas…. will gain importance as the back-up fuel for variable electricity generation
…in the medium term depleting indigenous conventional natural gas resources call for additional, diversified imports [of natural gas]
Gas networks face additional flexibility requirements in the system, the need for bi-directional pipelines, enhanced storage capacities and flexible supply, including liquefied (LNG) and compressed natural gas (CNG)
Single-source dependency, compounded by a lack of infrastructure, prevails in Eastern Europe. A diversified portfolio of physical gas sources and routes and a fully interconnected and bidirectional gas network, where appropriate, within the EU are needed already by 2020
EU Communication on Energy Security, 2010
Turkey
Ukraine
Belarus
Spain
Moldova
Italy
Greece
AlbaniaMacedonia
BulgariaSerbiaBosnia/H.
Romania
Croatia
SloveniaAustria
Hungary
SlovakiaCzech Rep.
PolandGermanyBelgium
Netherlands
United Kingdom
Switzerland
France
MIT Energy InitiativeMIT ei
Slovakia Used storage for
several weeks, covered 75% of
demand, alternative fuel used
Greece Increased LNG
shipments, one gas plant switched to oil
Austria Increased imports
from Norway, Germany, used storage
SloveniaIncreased gas from
Algeria/Austria, storage in Austria
Hungary Increased gas from
Norway, gas storage, alternative fuel used
Poland½ cut covered by Yamal,
gas from Norway, gas storage used
Germany Increased imports from Norway, Netherlands,
used storage
ItalyIncreased imports from
Libya, Norway, Netherlands, used storage
Croatia Increased production,
used storageBosnia Herzegovina
Used fuel oil for 21 days
Czech RepublicIncreased imports from Norway, used
storage, increased productionRomania
Increased production, used
storage
Bulgaria Used storage for 2-3 days, covered 35% of
demand, alternative fuel usedMacedonia
Used fuel oil for
industry
Serbia Used fuel
oil for 20 days
Anatomy of European Response to Supply Lost in Russia/Ukraine Disruption, 2009
100% >50%
<50%
100 97
80
6671
45
33 34
10
2515
100 100 100
40
100
% of Gas Supply Lost in Disruption
Source: Vulnerability and Bargaining Power in EU-Russia Gas Relations, Christie, et al, 2011
• Netherlands flows to UK decreased
• UK interconnector reversed
• Yamal flows increased• Blue Stream flows
increased
Immediate Day 3 Day 9 Day 11
• Croatian production/ offtake increased
• Additional spot LNG to Turkey, Greece
• Flows reversed from Czech Republic to Bosnia
• Flows reversed from Greece to Bulgaria
• Hungary increased pipeline flows to Serbia, Bosnia
Crisis Response: Roadmap for Greater European Energy Security/Integration
Response OptionsAlternative fuel redundancyInterconnectionsReverse flowsStorageIncreased pipeline gasIncreased LNG imports
Main Infrastructure BeneficiariesInterconnected countries with adequate storage and fuel redundancy fared the best
AddEastern Mediterranean gas developmentShale gas developmentMore LNG in Mediterranean ring
Moral of the Story: relatively inexpensive energy security can be achieved with more storage, interconnections, increased imports (+ shale gas/E.
Mediterranean)
Europe Regasification CapacityCurrent: 187.4
Under construction: 23.0 Subtotal 210.4
Planned: 260.6 TOTAL 471.0
LNG Consumption 79 bcm Capacity factor: 42%
MIT Energy InitiativeMIT ei 28
United States Europe
12487
US: 15% more gas consumption
US: 42% more gas storage
European/US Gas Consumption/ Storage, 2010, bcm
Source: IEA, Natural Gas Information, 2011
European countries that lost 70-100% of gas in 2009
disruption
US storage as % of consumption: 18%All Europe: 15%Disruption subset: 10%Balkans subset: 5.7%
2.7
27
United States
Europe
683
593
Storage Consumption,Capacity 2010
MIT Energy Initiative 29
Uncertainties in European Gas Supply/Demand
Reduction in renewable subsidies Aftermath of Fukushima German policy decisions Plans for life extension of old nuclear plants Impacts of EU policy – “20% by 2020” Global economyMIT ei
S u
p p
p l y
D e
m a
n d
Higher demand/prices in Asian markets Arab spring Reduced indigenous production Caspian geopolitics Shale gas development Arctic development North African demand Eastern Mediterranean development Global economy