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October 7, 2010 Unconventional Gas: An Exportable North American Revolution? JAF028241.PPT 1 Unconventional Gas: Unconventional Gas: An Exportable North American Revolution? An Exportable North American Revolution? Prepared By: Vello A. Kuuskraa, President ADVANCED RESOURCES INTERNATIONAL, INC. Arlington, VA Prepared for: The Changing Fundamentals of Global Gas Markets: Europe as the Battleground? Sponsored by: Carnegie Energy & Climate Change Program Carnegie Endowment for International Peace October 12, 2010, Washington, DC October 7, 2010 Unconventional Gas: An Exportable North American Revolution? JAF028241.PPT 2 From From “Fears of Shortages Fears of Shortages” to to Expectations of Plenty Expectations of Plenty” Gas shales have changed the outlook for U.S. natural gas from “fears of impending shortages” to “expectations of plenty”. Instead of declining, U.S. natural gas production increased, from 53 Bcfd in 2000 to 59 Bcfd this year. Gains in unconventional gas of 20 Bcfd more than countered declines in onshore and offshore conventional gas. Gas shales provide 12 Bcfd today (20% of domestic natural gas production) account for much of the 20 Bcfd of the growth. Today, unconventional gas provides over 60% of U.S. natural gas production.

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Page 1: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

October 7, 2010

Unconventional Gas: An Exportable North American Revolution?

JAF028241.PPT1

Unconventional Gas: Unconventional Gas:

An Exportable North American Revolution?An Exportable North American Revolution?Prepared By:

Vello A. Kuuskraa, PresidentADVANCED RESOURCES INTERNATIONAL, INC.

Arlington, VA

Prepared for:

The Changing Fundamentals of Global Gas Markets:Europe as the Battleground?

Sponsored by:

Carnegie Energy & Climate Change ProgramCarnegie Endowment for International Peace

October 12, 2010, Washington, DC

October 7, 2010

Unconventional Gas: An Exportable North American Revolution?

JAF028241.PPT2

From From ““Fears of ShortagesFears of Shortages”” to to

““Expectations of PlentyExpectations of Plenty””

Gas shales have changed the outlook for U.S. natural gas from “fears of impending shortages” to “expectations of plenty”.

• Instead of declining, U.S. natural gas production increased, from 53 Bcfd in 2000 to 59 Bcfd this year.

• Gains in unconventional gas of 20 Bcfd more than countered declines in onshore and offshore conventional gas.

• Gas shales provide 12 Bcfd today (20% of domestic natural gas production) account for much of the 20 Bcfd of the growth.

• Today, unconventional gas provides over 60% of U.S. natural gas production.

Page 2: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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Unconventional Gas: An Exportable North American Revolution?

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Year 2000

13 Bcfd

53 Bcfd

24 Bcfd

16 Bcfd

0

10

20

30

40

50

60

70TOTAL

Conve

ntional

Onsh

ore

Gas

*

Unco

nve

ntional

Gas

Offsh

ore

Gas

Dry

Gas

Pro

duct

ion (Bcf

d)

Year 2010

6 Bcfd

36 Bcfd

17 Bcfd

59 Bcfd

0

10

20

30

40

50

60

70

TOTAL

Conve

ntional

Onsh

ore

Gas

*

Unco

nve

ntional

Gas

Offsh

ore

Gas

Dry

Gas

Pro

duct

ion (Bcf

d)

Unconventional Gas Is Now the Dominant Source of U.S. Unconventional Gas Is Now the Dominant Source of U.S.

Natural Gas ProductionNatural Gas Production

*Includes onshore associated, non-associated and Alaska.

Source: U.S. Energy Information Agency (2010); Advanced Resources Int’l (2010).

JAF2010_043.XLS

The 20 Bcfd growth in unconventional gas production, has more than replaced declines in U.S. conventional onshore and offshore supplies

October 7, 2010

Unconventional Gas: An Exportable North American Revolution?

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0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Dry

Gas

Pro

duct

ion (Bcf

d)

Other Barnett Fayettevi l le Woodford Marcel lus Haynesvi l le

JAF2010_043XLS

Source: Advanced Resources International (2010)

(e)

Annual Gas Shale Production (Bcfd)

How Much Do Gas Shales Contribute Today?How Much Do Gas Shales Contribute Today?

Production of gas shales has grown by ten-fold and is expected to exceed 12 Bcfd, equal to 20% of U.S. natural gas production this year.

2000 2009 (p) 2010 (e)( bcfd) (Bcfd) (bcfd)

Haynesville 0.0 1.0 2.4Marcellus 0.0 0.4 1.0

Woodford 0.0 0.7 0.9

Fayetteville 0.0 1.4 1.9

Barnett 0.2 4.8 5.1Other 0.9 0.9 0.9

Sub-Total 1.1 9.2 12.2

Page 3: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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Projecting the impact and benefits of gas shales and unconventional gas for the U.S. requires that we first address aseries of questions:

• How large is the unconventional gas resource base?

• Is it large enough to enable unconventional gas to become a major climate change solution and support exports via LNG?

• How much of it can be converted to productive capacity at affordable prices?

• How much would progress in technology impact the economically affordable resource base?

• Can the resource be developed in an environmentally sound way?

Addressing the Fundamental QuestionsAddressing the Fundamental Questions

Understanding the impact of gas shales on the European gas markets requires addressing these same topics.

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One of the Many Benefits of Bountiful One of the Many Benefits of Bountiful

Unconventional Gas SuppliesUnconventional Gas Supplies

If abundant and affordable, unconventional gas can provide a major climate change mitigation option for power generation, reducing CO2

emissions by 70%.

Older, Inefficient

Coal Power Plant

(@ 30% Efficiency)

# of CO

2/k

wh

1.09

0.33

CO2/SO2 Emissions

by Fuel Type (lbs of CO2 & SO2/BBtu)CO2 Emissions for

Electricity (lbs/kwh)

250,000

200,000

150,000

100,000

50,000

0Coal Natural Gas

CO2

CO2

CO2

Source: EnCana 2009

SO2

SO2

SO2

3,000

2,500

1,500

1,000

500

0

2,000

1.0

0.8

0.6

0.4

0.2

0

1.2

New, Efficient

Natural Gas Power Plant

(@ 55% Efficiency)

Page 4: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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How Large is the Gas Shale and How Large is the Gas Shale and

Unconventional Gas Resource?Unconventional Gas Resource?

Our in-depth assessments of U.S. gas shale, tight gas sand and coalbed methane basins shows nearly 1,400 Tcf of recoverable resources.

In addition, the U.S. recoverable conventional gas resource base(including Alaska) is in excess of 1,200 Tcf.

SourcesRecoverable Resource*

Tcf

Gas Shales 700

Tight Gas Sands 567

CBM 106

*Includes 39 Tcf of gas shales proved reserves, 96 Tcf of tight gas sands proved reserves and 21 Tcf of coalbed methane proved reserves.

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U.S. Gas Shale BasinsU.S. Gas Shale Basins

Source: Advanced Resources International

Utica ShaleAnadarko – Woodford

0.1 Bcfed

Arkoma – Woodford

0.8 Bcfed

Haynesville Shale

2.4 Bcfed

Barnett Shale5.1 Bcfed

Floyd/Chattanooga Shale

Conasauga Shale

Lower Huron Shale

0.4 Bcfed

New Albany Shale

Antrim Shale

0.3 Bcfed

Fayetteville Shale

1.9 Bcfed

Marcellus Shale

1.0 Bcfed

Eastern U.S. Gas Shale Basins

Mid-2010 Production Rate

Page 5: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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JAF02052.CDR

Will Gas Shale and Unconventional Gas Remain Will Gas Shale and Unconventional Gas Remain

Economically Affordable?Economically Affordable?

Unconventional gas (particularly the higher quality gas shales) is today the low cost portion of the natural gas price/supply curve.

Prior PerceptionPrior Perception New UnderstandingNew Understanding

Gas Resources Gas Resources

Gas P

rices

Gas P

rices

ConventionalGas

UnconventionalGas (Gas Shale)

UnconventionalGas (Gas Shales)

ConventionalGas

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Role of Policies, R&D and TechnologyRole of Policies, R&D and Technology

(A Model for Europe and Other Gas Shale Regions)(A Model for Europe and Other Gas Shale Regions)

Gas shales and unconventional gas are a R&D and policy success story:

• The DOE/NETL helped build the essential resource and science knowledge base.

• The Gas Research Institute and industry launched the early technology demos.

• Section 29 tax credits (now expired) helped attract capital and build economies of scale.

However, we are still in the early, emerging stages of having anoptimum set of technologies.

Page 6: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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What Changed the Game?What Changed the Game?

Horizontal Well with Multi-Stage Fracturing

Source: EnCana

Natural gas production from shallow, fractured shale formations in the Appalachian and Michigan basins of the U.S. has been underway for decades.

What “changed the game” was the recognition that one could “create a permeable reservoir”and high rates of gas production by using intensively stimulated horizontal wells.

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Can These New Natural Gas Resources Be Can These New Natural Gas Resources Be

Developed In An Environmentally Sound Way?Developed In An Environmentally Sound Way?

• Reducing Surface Impacts

• Capturing Methane Emissions

• Assuring Environmentally Safe Wells and Hydraulic Fractures

As drilling increases and production grows, a harsher spotlight will fall on natural gas. “Green natural gas development” will help put a more environmentally friendly face on this activity.

Page 7: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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““GreenGreen”” Unconventional Gas DevelopmentUnconventional Gas Development

Source: Canadian Association of Petroleum Producers, 2010

Reducing Land Use Impacts with Multi-Well Pads and Horizontal Wells

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Reducing Methane EmissionsReducing Methane Emissions

Source: U.S. Environmental Protection Agency (www.epa.gov.gasstar/accomplish.htm)

• Since 1990, Natural Gas Star partners have eliminated over 500 Bcf of methane emissions from the oil and gas production sector.

• Williams reports 24 Bcf of methane emissions captured with costs of $17 million and revenues of $159 million.

Cumulative Methane Emission Reductions by EPA Natural Gas STAR Partners (2000-2008)

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Cu

mu

lati

ve E

mis

sio

n R

ed

ucti

on

s (

Bcf)

Other

Production Sector

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Protecting the Environment Protecting the Environment (Properly Designing the Well and Monitoring the Frac)(Properly Designing the Well and Monitoring the Frac)

• The well is designed with steel casing and cement to protect groundwater aquifers.

• The shale interval is 5,000 to 10,000 feet below the water table, protected by unfractured strata.

• Real-time micro-seismic monitoring reveals that the fractures remain in the shales, deep underground.

• Disclosure and less environmentally impactful chemicals are increasingly being used.

SHALE FRAC

Source: Shell

AQUIFER

5,000+ FEET IMPERMEABLE

ROCK

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Feet

Source: EOG

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Unconventional Gas: An Exportable North American Revolution?

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European Gas Shales:European Gas Shales:

ResourcesResources

Our preliminary gas shale resource assessment is 1,000+ Tcf (~30 Tcm), with a potential recoverable resource of 140 Tcf (4 Tcm).

These resources are located in three deposits - - the Alum Shale of Sweden, the Silurian Shales of Poland and the Mikulov Shale of Austria.

Page 9: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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European Gas Shale Geology Is Complex European Gas Shale Geology Is Complex

• Europe is structurally more complex than North America.

• Steeper dips, larger and more closely spaced faults.

• Faults may be water conduits which would inhibit gas production.

• More structural analysis needed. Every well becomes a PhD thesis.

Source: Hamilton et al, 2000

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Unconventional Gas: An Exportable North American Revolution?

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Highest Potential Gas Shales May Be In Poland Highest Potential Gas Shales May Be In Poland

• Poland appears to be favorable for gas shales.

– Geology is simpler, with fewer faults; numerous prospective areas.

– Lane/COP’s first well mid-May 2010 near Zwartowo. Second well near Gdansk. BNK/RAG/ Sorgenia first well mid-2010.

– Resources is characterized as “Silica-rich, mature, high in TOC.”

BALTIC BASIN

POMERANIA

WIELKOPOLSKA

LUBLIN BASIN

CARPATHIAN FOREDEEP

Page 10: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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Constraints Facing European Gas Shale Constraints Facing European Gas Shale

Development Development

While the gas shale resources of Europe, and particularly Poland, are impressive, many barriers and constraints need to beovercome for converting these resources to reserves:

• Establishing the size and quality of the economically recoverable shale resource.

• Resolving the environmental consequences of hydraulic fracturingplus water use and disposal.

• Expanding the infrastructure to efficiently drill, develop, transport and store gas.

• Overcoming significantly higher capital and operating costs, currently at least two times those in North America.

• Initiating simpler certification approvals and a transparent regulatory process.

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Unconventional Gas: An Exportable North American Revolution?

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Concluding RemarksConcluding Remarks

• Promote progress on climate change by substituting

natural gas for coal in old, inefficient power plants.

• Increase energy security by replacing imported petroleum for transportation with CNG and low emission power for electric cars.

• Improve the economy from lower energy costs, more domestic jobs and an improved trade balance.

Our work to date shows that the U.S. and potentially Europe have large resources of gas shales and other unconventional gas. The challenge for Europe is to convert these resources into economically competitive reserves.

With “green development practices”, these resources can be developed in an environmentally sound way.

Bountiful supplies from gas shales and unconventional sources can provide many benefits:

Page 11: Unconventional Gas: An Exportable North American Revolution?carnegieendowment.org/files/kuuskraa.pdf · October 7, 2010 Unconventional Gas: An Exportable North American Revolution?

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Advanced

Resources International

www.adv-res.com

Office Locations

Washington, DC4501 Fairfax Drive, Suite 910

Arlington, VA 22203Phone: (703) 528-8420

Fax: (703) 528-0439

Houston, Texas

11490 Westheimer, Suite 520Houston, TX 77042

Phone: (281) 558-6569

Fax: (281) 558-9202