North American Natural Gas Landscape › pdfs... · U.S. Natural Gas » Natural Gas Supply Projections As recently as 2008, some gas industry representatives believed supply was limited

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April 12, 2014

North American Natural Gas Landscape: Unlocking North America’s Natural Gas

Border Legislative ConferenceCouncil of State Governments WestCamino Real Monterey Monterey, MX

1©2014 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y

Even Dilbert Knows Fracking – Awesome!


U.S. Natural Gas » Natural Gas Supply Projections

As recently as 2008, some gas industry representatives believed supply was limited and would be unable to respond to new gas demand. W

» The Natural Gas Council (INGAA, AGA, IPAA, NGSA) said major increases in demand could only be served by imports of foreign LNG or by opening up restricted drilling areas.

» Conventional wisdom was ‘we were running out of gas in North America’.

» Then in 2009, the Energy Information Administration reported a 24 percent or 6.2 Bcfd average annual adjustment in deliverability of unconventional onshore gas for 2010‐2030 in their Annual Energy Outlook 2009 compared to their AEO 2008.

» The supply ‘sea‐change’ had only just begun!


U.S. Natural Gas » Supply Assessment

In Navigant’s North American Natural Gas Supply Assessment Released In July 2008, we first indicated what was to come.


Surface Casing—Protects the Aquifer. . .

The most important, most regulated part of drilling operations

Horizontal Well, One to Two Miles Below the Aquifer

Hydraulic Fracturing. . .A Cylinder of Cracks about 100 feet from the Pipe

U.S. Natural Gas » What Has Made it Possible

Horizontal drilling and hydraulic fracturing made it all possible.

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Produced Water and Holding Pond


Industry/Governmental Associations Have Subsequently Confirmed What Navigant First Identified Years Ago.

The National Petroleum Council included in its national resource assessment of gas and oil and in its ‘Study Update – One Year Later’ on August 1, 2012, key conclusions that:

1. The potential supply of natural gas is far greater than thought even just a few years ago.

2. The potential supply of oil is also far greater than previously thought (the International Energy Agency has indicated the U.S. will become the biggest oil producer in the world by 2017 – ahead of Saudi Arabia.)

3. The US needs the oil and gas resources even as efficiency reduces demand and alternatives become more economically available.

4. That the benefits of natural gas and oil will require environmentally responsible development.

Shale Abundance Confirmed


Released April 9, 2013 ‐ w/Proven = 113 Years of supply (mean)

Potential Gas Agency / CO School of Mines Report – December 31, 2012


» Various environmental concerns must be resolved.– Hydraulic Fracturing: water use, contamination and disposal– Fugitive Methane – Methane Migration

» These are significant challenges to overcome given the industry was ‘behind’ in getting in front of the issues at the outset.

» Regulatory & operational best practices can mitigate the risks – Ensuring gas, water and chemicals can’t enter other formations– Minimizing water use– Treating and disposing water appropriately– Limiting gas venting

» The gas industry is committed to safe and responsible development. Out of necessity. It is their future too.

In the end, we have seen that any scenario for resolution could add costs to production and could slow development—but not to the point of seriously diminishing supply growth. Not in the face of –

• every technological advance increases production levels.• even when producers turn to oil drilling, they are producing large amounts of associated gas.• In‐other‐words, even with more regulation, the gas will be there.

Gas Supply Abundance is Here to Stay.

The Change is Here to Stay


We Told of Natural Gas Shale Widely Distributed Across North America

Abundant Natural Gas is Changing the Vision of the Future of North American Energy

NEB ‐ Canada


To Date Most Gas Development has Been in the Midcontinent and NE. Oil shale development in Texas and in North Dakota.

Oil and Gas Shale is Widely Distributed Across North America


Source: EIA, US Natural Gas Pipeline Network, American Clean Skies Foundation

U.S. Natural Gas Shale Basins Aligned with the Nationwide Pipeline Grid Has Assisted Speedy Development.

Gas Shale and Pipelines


U.S. Natural Gas » U.S. Gas Shale Production

U.S. Annual Average Natural Gas Production at the End of 2013 Was at Its All Time High of 24.3 Tcf, Exceeding the Previous High in 1973 by 2.6 Tcf

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21.7 Tcf



In 2013 U.S. Shale Production Was Up to Over 32 Bcf per Day – and is Still Rising, Averaging 35.6 Bcfd Through the First 2 Months of 2014.

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23.5

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32.735.6

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U.S. Shale Production


U.S. Shale Gas Production is Furthermore Expected to Continue to Increase Over the Long Term.


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Utica Shale

Bakken Shale

Woodford Shale

Fayetteville Shale

Barnett Shale

Eagle Ford Shale

Haynesville Shale

Marcellus Shale

Source: Navigant’s North American Natural Gas Market Outlook, Fall 2013

Bcfd


Navigant’s U.S. Forecast Gas Shale Production to 2020

Strong Gas Shale Production Growth Will Change Supply Makeup ‐ To a 60% Share of Total Production by 2020 – From 7% in 2006. A Span of Only 15 Years.

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U.S. Dry Production by Type

Shale

Conventional7% Shale93% Conventional

58% Shale42% Conventional

Source: Navigant’s North American Natural Gas Outlook, Fall 2013


So Much Gas that LNG Exports are Planned / To Connect North America to the Global Market for the First Time in History

North American LNG Exports—Approximately 37 Bcfd at DOE and 5 Bcfd at NEB Filed or Approved

*Navigant has assisted in analysis for 8 US LNG export projects

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Estimated Shale Gas Technically Recoverable ‐ Select Basins in 32 Countries – 14 Regions Outside the US

Technically Recoverable Shale Gas Resources (TCF)Europe 631North America 1931Asia 1785Africa 1052

South America 1225

Total of Above 6624(Source: EIA/ARI World Shale Gas Resources: April 5, 2011)

An EIA Report Identified Gas Shale Around the Globe

In Fact Gas Shale is Widely Distributed Globally


Some See the Gas Shale Resource as Much Greater than EIA Estimates



Proven/Probable plus Potential Reserves – About 143 Years of Supply at Global Dry Gas Consumption of 112.9 Tcf in 2010 (EIA)



» In Europe, industry and whole countries have recognized the unconventional gas revolution is spreading – beyond the US

» The International Energy Agency (IEA) has suggested a ‘Golden Age of Gas’» Potential environmental risks have swayed some countries to adopt moratoria or outright bans on the production of shale gas, particularly fracking – FRANCE

» The potential of US LNG exports has already caused changes in European energy supply, affecting matters of energy security.

» Which in 2012 lead to a situation where Europe had a reduction in gas demand, more coal consumption and higher GHG’s ‐ at odd’s with EU climate and energy policies.

» Of even more concern in Europe is the impact of the ‘shale gale’ on the increase in overall economic competitiveness of the US and its industries vs Europe industry!

» How will Europe be able to compete? How will other countries and regions?

» A lot of focus currently on North America gas!

In Europe from a recent visit ‐ the Risk is Increasingly Seen in NotExploiting Gas Shale Resources

Gas Shale in Europe


On Supply Abundance ‐ U.S. Gas Prices Responded

Natural Gas Prices

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$/MMBtu

Historical Annual Average Monthly Henry Hub Price

2008

Pre‐Shale Revolution Shale Revolution

Source: Navigant / Platts


Oil at $98.00 per BBl or $15.60 per MMBtu (Heat Value Equivalent) and Natural Gas at $3.80 per MMBtu, Oil is about 3.8 Times the Price of Natural Gas. Natural Gas Is the Least Expensive (competitive now with coal) and by Far the Most Environmentally Clean Fossil Fuel!

Gas Price Changes

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$/MMBtu

Average Monthly Natural Gas and Crude Oil Prices

AECO‐C Henry Hub SoCal Gas WTI (Right)Source: Navigant/Platts


Natural Gas Prices are Expected to Remain Relatively Low Across the US for the Long Term – Below $6.50 MMBtu through 2025

Gas Price Changes

3.003.504.004.505.005.506.006.507.00

2014 2020 2025

2012$/MMBtu

Navigant’s North American Natural Gas Outlook, Fall 2013: Select Prices

Transco, Zone 6 N.Y. Chicago City‐Gates SoCal City‐Gate

Henry Hub AECO


Its Coming to California Too. Let’s get Ready! The Monterey Shale/Santos Shale Play – Primarily an Oil Play

California’s Monterey Shale

• Southeast of SF, some 1700 square miles encompassing the San Joaquin and Los Angeles basins.

• Holding estimates of 15.42 billion barrels of technically recoverable oil representing 64% of the total US oil shale reserves of the lower 48.

• The largest deep‐shale reserves in the world

• Double the Bakken (3.6 billion barrels) and the Eagle Ford (3.35 billion barrels) shale in ND and Texas – combined.

• Not including another 10 Billion barrels in oil offshore and 12 Tcf of natural gas.

• A POSSIBILITY AS A RESULT OF HYDRUAULIC FRACTURING

• According to a study by Cal State –Fresno – the Monterey could generate 195,000 new jobs and boost personal income by $22 billion by 2030


Existing Oil Production (all conventional) – California Already Ranks Third in the Country

Crude oil is produced in 31 states and U.S. coastal waters. In 2013, 64% of U.S. crude oil production came from 5 States

California’s Monterey Shale

Rank StateShare of Total U.S.

Production1 Texas 34%2 North Dakota 12%3 California 7%4 Alsaka 7%5 Oklahoma 4%

Top Five 64%Source: Navigant/EIA


» According to the CEC, California oil production is expected to decline in the future by 2.2% to 3.1% per year through 2030.

» Not including any forecasts for oil shale production in the Monterey basin using hydraulic‐fracking and advanced‐technology drilling!

» Might the Monterey change this profile of California oil production decline towards an economic revitalization of the State while contributing to California and US energy security?

Oil Production in California has Been in Decline – Since 1985

Oil – the Next Best Thing to Natural Gas as a Substitute for Foreign Oil!

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California Oil Production

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541 Mb/d


» Currently California consumes the largest volume of gas and diesel in the country – 35% more than the next highest state (Texas) in 2013.

» 96% of California transportation is petroleum based

» As California and Alaska production declines have occurred, this has meant more foreign oil has been required in California since 2000 to a point where foreign oil now exceeds 50% of total oil used in the state.

» This despite overall reduced gasoline and diesel demand in CA – on better gas mileage vehicles and growth of alternative vehicles.

» The EIA/ BP have estimated by 2040, 80% of our energy will still be fossil‐fuel based –renewables will grow but still be a small part of the overall energy supply mix.

» The Monterey oil shale seems to offer an option to California to reduce imports of foreign oil to the state thereby increasing security.

Unfortunately, California is a Huge Oil Consumer

Oil – The Next Best Thing to Natural Gas as a Substitute to Foreign Oil


» It started in Texas gas fields, migrated to Arkansas, Oklahoma, Virginia, West Virginia and Pennsylvania then to North Dakota – where the technology of hydraulic fracturing combined with horizontal drilling was shifted to oil development.

» What do these states have in common besides geology? Answer. Federal land holdings are small and mineral rights are in private hands.

» In California where private lands area smaller part of the landscape but are still potentially significant in helping to ‘spread the wealth’.

» Ample supplies of oil and gas, combined with taxpayer fatigue over green subsidies mean a range of costly and heretofore uncompetitive technologies such as biofuels (renewable natural gas) and even electric cars may face the prospect of additional challenges.

» On April 5, 2013, the EIA reported energy related CO2 emissions as the lowest since 1994. Why? Due to coal‐to‐gas switching for power generation ‐ to the least carbon‐intensity fossil fuel there is – natural gas.

» Currently, US net petroleum imports have also fallen from 60% of total consumption in 2005 to 42% in 2013. Good for energy security – good for the economy!

» A new age / a new way forward.

So…. Where did this All Come From – Heading to?

Lessons from the Shale Revolution

KeyC O N T A C T S


KeyC O N T A C T S


KeyC O N T A C T S


KeyC O N T A C T S


28E N E R G Y

Gordon Pickering | Director, Energy 35 Iron Point Circle, Ste. 225Folsom, CA 95630 [email protected] direct

E N E R G Y

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North American Natural Gas Landscape › pdfs... · U.S. Natural Gas » Natural Gas Supply Projections As recently as 2008, some gas industry representatives believed supply was limited