The Shifting Sands of Natural Gas Abundance · Data: BP Statistical Review 2016. ... \爀屲By fuel...
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The Shifting Sands of Natural Gas Abundance August 17, 2016 Richard Meyer | Manager, Energy Analysis & Standards
The Shifting Sands of Natural Gas Abundance · Data: BP Statistical Review 2016. ... \爀屲By fuel oil, natural gas, and renewables all gr\w. Coal declined significantly in just
Richard Meyer | Manager, Energy Analysis & Standards
Presenter
Presentation Notes
Lots of titles or terms for what’s happened in natural gas markets during the past few years. “The Shale Revolution” “Golden Age of Natural Gas” The cautious: “Prudent Development: Realizing the Potential of American’s Natural Gas and Oil Resources” Viewing this abundance through lens of changing economic picture and importantly the market dynamics of supply and demand. These dynamics have evolved quickly over just the past couple years. Lots of potential for growth ahead.
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Here’s how global energy changed between 2014 and 2015. Winners were oil, natural gas, renewables.
2
8054
-71
8 9
48
127
1.9% 1.7%-1.8%
1.3% 1.0% 15.2% 1.0%
(100)
(50)
-
50
100
150
Oil NaturalGas
Coal NuclearEnergy
Hydroelectric
Renew-ables
Total
Mill
ion
Tonn
es O
il Eq
uiva
lent
Change in Global Primary Energy Consumption by Fuel, 2014-2015,
Absolute & Percentage
Data: BP Statistical Review 2016
Presenter
Presentation Notes
Let’s start broad and work our way down to the US market. Here’s how global energy changed between 2014 and 2015. Data from the BP Statistical Review, released each year. In general energy consumption grew, but much slower than average: slowdown in Chinese growth and compounded by continuing weakness in the global economy. By fuel oil, natural gas, and renewables all grew. Coal declined significantly in just one year, a consequence of declining demand in China and the US and competition from natural gas here in the states. The move away from coal and toward cleaner energy sources has implications for global carbon emissions, which were flat in 2015. Auspicious timing given the Paris agreement on climate change. What we’ll find is the US has led in most of these metrics. The growth in renewables, the rise of shale oil, and the increased production and use of natural gas.
Natural Gas Records in 2015
• Domestic Annual Production – 27.1 Tcf• Proved Reserves – 368 Tcf (dry)• Undiscovered Gas Resources – more than 2,500 Tcf• Domestic Natural Gas Consumption – 27.4 Tcf• Natural Gas Consumed for Power Gen – 9.4 Tcf• Working Gas in Underground Storage – 4,009 Bcf
Sources: Bentek Energy, Energy Information Administration, Potential Gas Committee
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Presenter
Presentation Notes
Still on 2015: The US set a number of natural gas records.
We have seen and continue to expect relatively low and stable natural gas prices
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Source: Energy Information Administration
0
2
4
6
8
10
12
14
16
18
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/MMBtu Natural Gas PricesPrompt-Month Futures at Henry Hub
Price Range2005-2009
2016 2015
2014
Presenter
Presentation Notes
The market rationalization of supply and demand – both topics of which I will cover in more detail shortly – means we have seen relatively low and stable natural gas prices. Before and after chart of daily natural gas prices: 1) before the shale revolution in grey. 2) Colored lines at bottom represent daily
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4
6
8
10
12
14
16
18
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/MMBtuNatural Gas Prices
Prompt-Month Futures at Henry Hub
Price Range2009-2014
2016 2015
Muted Price Response This Winter & Summer
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Source: Energy Information Administration
Presenter
Presentation Notes
We can see how the transition has shifted the “fairway” for prices: now not only lower and with less variance.
Record natural gas levels falling back. Glut has slimmed to 18% above average.
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Working Gas in Underground StorageLower 48 States (Bcf)
Max - Min Working Gas Storage Five year average
Record injection season Post-
winter glut
Source: EIA
Presenter
Presentation Notes
The supply picture is not only dry natural gas production, but a portfolio that includes Canadian pipeline imports of natural gas, LNG imports, and the flexibility afforded by extensive network of underground storage. Record injection season:
For years Growth was the name of the game.
7Source: Bentek Energy LLC
2014
30
35
40
45
50
55
60
65
70
75
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcfd
Daily Dry Natural Gas ProductionUS Lower-48
Four-Year Range 2007-2010
2015
Presenter
Presentation Notes
For years, Growth was the name of the game. Only ten years ago, US dry gas production was falling and expected to decline. The conventional wisdom had US supplies dwindling, only to be supplemented by imports from overseas. Daily natural gas production during this time was in the 50 Bcf range… Now we are above 70 Bcf consistently. The full year for 2011, 2012, and 2013 were records for dry natural gas demand. Here we see 2014 and 2015, both records as well. It’s this growth in natural gas production – and the recognition for significant potential growth -- that prompted the various terms and titles like the “Shale Gas Revolution.” However, by 2015 the market started to level out. The lower prices (shown earlier) began to take their toll. Operators pulled back spending on new exploration and production. Drilling activity declined.
New daily record in Feb 2016.Production has slowed, but stubborn.
8Source: Bentek Energy LLC
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35
40
45
50
55
60
65
70
75
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcfd
Daily Dry Natural Gas ProductionUS Lower-48
Four-Year Range 2007-2010
2016
New record Feb’16
Production slows
Presenter
Presentation Notes
Record production in February of this year. Since then production has slowed – again, a perfectly rational response to a market that has traded in prices around $2 through the winter and less than $3 all year. Note the lack of a steep drop-off in natural gas production. Drilling rigs are down, as we will see, but production has not shown a commensurate decline. Why? Drilling and completion efficiencies. Longer lateral lengths for horizontal well bores. High-grading – to the extent that exploration and production has continued, operators tend to drill in the spots with the best economics. Economics are improving – costs are coming down.
“Drilled but uncompleted” gas well inventory helping sustain production, but for how much longer?
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Drilled but Uncompleted Wells
Source: Bentek
Presenter
Presentation Notes
Here's Bentek's view of "drilled but uncompleted" gas wells. #'s dropped from 3,000 to 1,500 during 2015.
Oil and natural gas rigs are on the floor. But for how much longer?
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0200400600800
1,0001,2001,4001,600
US Rotary Rig CountNumber in Operation
Oil Gas
Uptick?
Source: Baker Hughes
Presenter
Presentation Notes
Southwestern Energy ramping up drilling in Pennsylvania and Arkansas
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2,000
4,000
6,000
8,000
10,000
12,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Crude Oil Production(thousand barrels per day)
Jan’11
US oil production has begun to flatten
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Source: EIA
+70%-4.8%
Jan’15
US demand of natural gas down slightly for the year after mild winter. Strong exports & power generation keeping levels strong
12Source: Bentek Energy LLC
(4.0)
(3.0)
(2.0)
(1.0)
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1.0
2.0
3.0
4.0
Exports PowerGeneration
Industrial Res/Comm Total
US Natural Gas Demand YTD Difference 2015-16 (Bcfd)
Natural gas electricity setting records due to coal retirements, hot weather, low prices
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All time record for natural gas demand set in July, according to EIA.
Massive change underway in the US electric power sector: huge coal-to gas switching with renewable growth
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Reflects a larger trend in the electricity space. Coal is being replaced by natural gas and to a lesser extent renewables.
Coal exports declined 23% in 2015. Deliveries are down further this year.
Energy-related CO2 emissions projected fall below 5.2 billion metric tons this year, lowest since 1992
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-15
-10
-5
0
5
2014 2015 2016 2017
(percent)
US Energy-Related Carbon Dioxide Emissions Growth
All fossil fuels (percent) Coal (percent)
Petroleum (percent) Natural gas (percent)
Two years consecutive
declines
Presenter
Presentation Notes
EIA estimates that energy-related emissions of carbon dioxide decreased by 2.7% in 2015. Emissions are forecast to decrease by 1.5% in 2016 and then increase by 0.8% in 2017. These forecasts are sensitive to assumptions about weather and economic growth.
Let the LNG games begin! Shippers waiting for Sabine Pass startup (February 2016)
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Presenter
Presentation Notes
On Sunday February 21, 2016 the Asia Vision, an LNG tanker arrived at Sabine Pass LNG export facility according to BMAP <GO> on the Bloomberg Terminal. The Asia Vision has been waiting in the Gulf of Mexico since late January along with another LNG vessel, the Energy Atlantic, which has been anticipating exports from the Sabine Pass LNG export terminal for over a month. Sabine Pass LNG exports were expected to begin in late January, but equipment issues discovered in mid-January have delayed shipments. Cheniere Energy, owner of Sabine Pass, has announced that it expects exports to begin in late-February or early March.
LNG Cargoes Have Been Delivered to Europe, South America, Asia, and the Middle East
Looking towards 50 Bcfd of global LNG supply Nearly 40 of demand. Becomes a story of east Asian demand. Japan. China. Will the growth materialize. And questions: Does economic growth in Asia spur more natural gas demand? Will environmental concerns and a push towards switching to natural gas create new demand?
Source: Bloomberg New Energy Finance.
Pipeline projects in the works to bring natural gas to New England
Note: Confidence interval derived from options market information for the 5 trading days ending Aug 4, 2016. Intervals not calculated for months with sparse trading in near-the-money options contracts.
Source: Short-Term Energy Outlook, August 2016.
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Consumer Natural Gas Prices Back to 1990s Levels
Source: EIA STEO
0
5
10
15
20
1967 1974 1981 1988 1995 2002 2009 2016
Residential Natural Gas PricesNominal Real
Forecast
Average household consumption of natural gas has dropped by half since 1970.
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0
50
100
150
1970 1977 1984 1991 1998 2005 2012
Residential Natural Gas Use per Customer, Weather Normalized
(Mcf)
Source: Energy Information Administration, AGA Calculations
Presenter
Presentation Notes
Natural gas use during the past forty years has been relatively flat, even though he natural gas market has grown substantially during this time. Since 1970, more than 30 million more customers have been added onto the natural gas system. While the system has grown, the use of natural gas by individual customers has declined. The result is that the average household today uses 50 percent less natural gas than in 1970. This decline in use per customer results from steady improvements to appliance efficiencies, tighter building shells, behavioral changes in gas consumption, and the effectiveness of gas utility efficiency programs.
Natural Gas Used Directly In Homes and Businesses Reduces Greenhouse Gas Emissions
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74
45
3127
Electric Furnaces Oil-fired Furnaces Air Source Heat Pumps Gas-Fired Furnaces
Space Heating System Carbon Dioxide Emissions (Ton CO2 per 100 MW Useful Energy Consumption)
Source: MIT Future of Natural GasAppliance efficiencies Energy STAR compliant.
Presenter
Presentation Notes
This efficiency of the gas system and its users has led to no material increase in annual CO2 emissions from natural gas use during this time. However, carbon emissions have risen. Residential CO2 emissions have increased 23 percent since 1973, mostly associated with growth in residential electric power, which increased 78 percent during this time. By contrast, residential carbon dioxide emissions from natural gas direct use have remained relatively flat.
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System Modernization Has Been a Decades Long Process and Will Continue
Source: Department of Transportation
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,00019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
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Cast Iron and Unprotected Steel Pipeline (Miles)
Unprotected Bare Steel
Cast/Wrought Iron
Miles of installed main has increased 34% since 1990.
Even with this tremendous growth, estimated methane emissions from pipeline leaks declined 74%.
A consequence of increased removal of unprotected steel & cast iron pipe replaced with plastic & protected steel.
Pipeline Replacement Lowers Emissions
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600
700
800
900
1,000
1,100
1,200
1,300
02468
10121416
Thousand Miles of Main
Million Metric Tons CO2
equivalent
Estimated Emissions from Main PipeInstalled Main Pipe
Source: AGA chart and calculations using data from EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2014
The gas utility sector in flux?
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Nine US nuclear reactors have announced intent to retire. This could push natural gas demand up 1.35 Bcfper day
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• How will state energy plans treat nuclear? (eg. California vs. New York)
• Clean Power Plan – Will SCOTUS send EPA back to the drawing board?
• Will there be renewed interest in discussions about a carbon tax? Where does the natural gas industry stand?
Natural Gas Energy Policy Questions
Presenter
Presentation Notes
Gas Market environment today vs. ten years ago This provides context for how we can envision the natural gas market looking ahead. The view will be shaped by new factors and not those that shaped views a decade ago. Supply scarcity and demand uncertainty have given way to the abundance of supply. How then do we view our energy portfolio within this new market environment? How does our view of how customers use energy, of energy efficiency, within this market context? Three components to cover today: An overview of the changes to the market – a baseline of facts that lead us to the present. AGA market stability study on “Rethinking Natural Gas” – an effort to evaluate the potential drivers of natural gas demand to create a vision of where the market may be headed? new confidence in the U.S. resource base highlighted by the development of shale gas and the technologies that support its extraction; regulatory changes to local gas utility rate structures that enable commitments to energy efficiency; improvements in natural gas appliance efficiency; discernible environmental benefits attributed to natural gas compared to alternatives; the possibility of U.S. liquefied natural gas (LNG) exports; and U.S. natural gas supply can respond efficiently and robustly to foreseeable and plausible demand growth scenarios at an affordable cost compared to other energy alternatives. a rallying of business, government, regulators, advocacy groups, and other stakeholders around the benefits of efficient and focused use of natural gas in the country’s energy mix. Because of these changes, there is more room for wise and efficient growth of natural gas consumption in today’s domestic energy market.
What’s next for 2016 and 2017?
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Richard MeyerManager, Energy Analysis and [email protected]@RichardMeyerDC
