Unconventional Oil & Natural Gas: Overview of Resources

David E. Dismukes, Ph.D.Center for Energy StudiesLouisiana State University

Unconventional Oil & Natural Gas: Overview of Resources, Economics & Policy Issues

Center for Energy Studies

Society of Environmental Journalists Annual MeetingNew Orleans, Louisiana

September 4, 2014

Energy-RelatedCarbon Dioxide

81.2%

Summary and Take Away

2

• New natural gas supply availability is having considerable impacts on all energy markets today as well as on a longer term, forward-looking basis.

• Shale revolution is now migrating into liquids and crude oil production. Facilitating additional natural gas productiondespite low prices and some “dry” gas well shut-ins and decreased natural gas well drilling.

• Considerable economic development opportunities are starting to arise leading to a burst in considerable capital investment.

• There are fuel/resource diversity concerns and continued natural gas resource development/environmental concerns and opposition.


© LSU Center for Energy Studies

Introduction


Reminder – The Way Things Were

3© LSU Center for Energy Studies

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

2004 2008 2012 2016 2020 2024 2028

Onshore (Lower 48) Offshore (Lower 48)

Mill

ion

Bar

rels

per

day

Relatively uninspiring U.S. crude oil production forecast.

Source: USDOE/EIA, Annual Energy Outlook, 2006

Long Term US Crude Oil Production Forecast (2006)

Center for Energy Studies Historic Trends


2.5

4.5

6.5

8.5

10.5

12.5

14.5

16.5

18.5

20.5

2004 2008 2012 2016 2020 2024 2028

Onshore (Lower 48) Offshore (Lower 48)

Trill

ion

cubi

c fe

et

Natural gas production forecasted to decrease starting in 2016.

Source: USDOE/EIA, Annual Energy Outlook, 2006

Long Term US Natural Gas Production Forecast (2006)



0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Dec

-96

Jun-

97

Dec

-97

Jun-

98

Dec

-98

Jun-

99

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

61

62

63

64

65

66

67

68

Rig CountProduction

Source: Energy Information Administration, Department of Energy; and Baker-Hughes Inc.

3 percent increasein production

(Aug-99 to Sep-01)

131 percent increase in rigs

(Apr-02 to Aug-06)Num

ber o

f Ope

ratin

g R

igs

12-M

onth

Mov

ing

Aver

age

(Bcf

/d)

158 percent increase in rigs

(Apr-99 to Jul-01)

4 percent decrease in production

(Feb-04 to Aug-06)

The maturing nature of US basins reflected in drilling productivity.Historic Monthly Rig Counts and Gas Production (1997-2006)



Source: Natural Gas: Can We Produce Enough?” Independent Petroleum Association of America, website: http://www.ipaa.org/govtrelations/factsheets/NaturalGasProdEnough.asp.

ANWR = 3.5 TCF

ANS = 35 TCF

Policy advocacy focused on restricted areas as a potential solution to the resource constraint problem.

Resource Estimates: Restricted Areas (Percent Restricted)



Source: National Petroleum Council

LNG provides 14% of the U.S. supply of natural gas by 2025.

NPC Forecast North American Supply Disposition



Crude Oil and Natural Gas Prices


$0

$2

$4

$6

$8

$10

$12

$14

$16

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Crude Oil (WTI) Natural Gas (Henry Hub)

Source: Federal Reserve Bank

Cru

de O

il ($

/Bbl

) Natural G

as ($/Mcf)

Prices reflected the state of, and outlook for, energy markets.

First energy price crisis

Recession



What Changed? The Way Things Are


Unconventional vs. Conventional Geological Formations

Center for Energy Studies Recent Trends


Source: Energy Information Administration, U.S. Department of Energy

Domestic Shale Gas Basins and Plays


Unlike conventional resources, shale plays

(natural gas, liquids, and crudes) are

located almost

ubiquitously throughout the U.S. and

are the primary

reason for the decrease in overall and

regional natural gas

prices.

Recent Trends


Dry

Nat

ural

Gas

Pro

ved

Res

erve

s (T

cf)

Source: Energy Information Administration, U.S. Department of Energy.

-

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

1970 1975 1980 1985 1990 1995 2000 2005 2010

Reserves

Production

Marketed P

roduction (Tcf)

Current U.S. natural gas reserves are approaching record levels not seen since 1970. Natural gas production is at levels that surpass historic peaks.


Natural Gas Proved Reserves and Production

Recent Trends



Shale’s Share of Natural Gas Reserves

The share of shale gas relative to total U.S. natural gas proved reserves has been increasing significantly, from less than 10 percent in 2007 to over 30

percent in 2010.

14



9%

13%

21%

31%

0%

5%

10%

15%

20%

25%

30%

35%

2007 2008 2009 2010

Per

cent

Recent Trends


U.S. Dry Natural Gas Reserve Adjustments

U.S. shale gas reserves are increasing, enough to more than offset the decrease in net reserves from all other sources in both 2008 and 2010.

15



-10

-5

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010

Shale All Other Sources

Tcf

Recent Trends

Res

erve

s -T

cf


Annual Energy Outlook, Natural Gas Reserves


200

220

240

260

280

300

320

2010 2015 2020 2025 2030 2035


Unconventional resources are not a “flash in the pan” and are anticipated to continue to increase over the next two decades or more.

Recent Trends


There are a wide range of unconventional shale gas reserve estimates that are as low as 436 Tcf to as high as 2,750 Tcf. This represents a range of between 18 years and over 100 years of available natural gas resources based upon current consumption

levels.*


0

500

1,000

1,500

2,000

2,500

3,000

EIA AEO 2012 MIT ITG InvestmentResearch

IHS Energy

Est

imat

ed R

eser

ves

-Tcf

Note: *Assumes an annual consumption level of 24.3 Tcf. The MIT study reached a mean estimate of technically recoverable resources of 631 Tcf with an 80 percent confidence interval of 418 to 871 Tcf. The ITG estimates of recoverable resources is for 10 overlapping plays, totaling 900 Tcf. These are the same 10 plays as estimated by the EIA’s AEO (resulting in 426 Tcf). IHS Energy estimates show that total recoverable shale in the U.S. could be as high as 2,750 Tcf, significantly higher than their estimate of 1,268 in 2010.

Recent Trends

Alternative Natural Gas Reserve Forecasts


Forecast U.S. Natural Gas Production


0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Shale gas Tight gas Non-associated offshoreAlaska Coalbed methane Associated with oilNon-associated onshore

Tcf

Shale availability will drive U.S. natural gas supply.

Shale Gas Production

Assc. Gas Production

Recent Trends

(201

0 $/

MM

BTU

)


Changes in AEO Natural Gas Price Forecasts


0

2

4

6

8

10

12

14

16

1997 2002 2007 2012 2017 2022 2027 2032

Actual Henry Hub AEO-2007 AEO-2008 AEO-2009AEO-2010 AEO-2011 AEO-2012


Shale availability has significant impact on future price outlook.

Anticipated price outlook in 2009.

Anticipated price outlook today.

Recent Trends

Changes in Well Costs and Productivity

20



11.910.3 9.9 9.3 9.0

15.6

9.6 9.0

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2006 2007 2008 2009 2010 2008 2009 2010

Well Cost (million $)

9.5

17.718.9

23.6 23.6

8.010.5

15.0

$0

$5

$10

$15

$20

$25

2006 2007 2008 2009 2010 2008 2009 2010

East Texas Deep Bossier Haynesville

Well Performance (MMcfe/d)

East Texas Deep Bossier Haynesville

Encana reports a reduction in well costs of 15-30% through use of multi-pad drilling, improved rig efficiencies, and lower hydraulic fracturing costs. The

use of higher water volumes, increased frac stages, and enhanced pay selection have resulted in 100-150% increases IP rates.

Source: U.S. Natural Gas Resources and Productive Capacity: Mid-2012, Prepared for Cheniere Energy, Advanced Resources International, Inc. August 23, 2012.

Recent Trends


Unconventional Crude Oil and Liquids



Crude oil prices have doubled in the aftermath of the recession but natural gas prices have remained stable.


$0

$2

$4

$6

$8

$10

$12

$14

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Crude Oil (WTI) Natural Gas (Henry Hub)

The price of natural gas has fallen 78

percent since June 2008.

Source: Federal Reserve Bank of St. Louis.

Cru

de O

il ($

/Bbl

)N

atural Gas ($/M

cf)

The price of crude oil has increased 140

percent since its low in February 2009.

Crude Oil and Natural Gas Price Decoupling

Liquids/Crude Oil

U.S. Oil/Gas Rig Split


Natural gas drilling emphasis over the past 20 years has shifted to crude oil drilling emphasis over the past two years.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Crude Oil Natural Gas

Per

cent

of T

otal

(%)

Source: Baker Hughes 23© LSU Center for Energy Studies

Unconventional Revolution

Annual Production from Unconventional Reservoirs

In just one year, Cheniere has revised its forecasted natural gas production in 2020 from slightly less than 8 Bcf per day to more than 12 Bcf per day; and

liquids production from 6 MMBbls per day to 7 MMBbls per day.

24


© LSU Center for Energy StudiesSource: Cheniere Energy Inc,, Corporate Presentations. Available at: http://phx.corporate‐ir.net/phoenix.zhtml?c=101667&p=irol‐presentations.

Nat

ural

Gas

(Bcf

/d)

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

2011 2012 2015 2020 2011 2012 2015 2020

Liquids Natural Gas

Liquids (MM

Bbl/d)

Cheniere Outlook, March 2012 Cheniere Outlook, April 2013

Liquids/Crude Oil


Natural Gas and Economic Development: Moving from

“Revolution” to “Renaissance”


Changes in Crude Oil Reserves and Production


Crude oil production and reserves are climbing back to levels not seen since the 1980s.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

5

10

15

20

25

30

35

40

45

1970 1975 1980 1985 1990 1995 2000 2005 2010

Crude Oil Reserves Crude Oil Production

U.S

. Cru

de O

il P

rove

d R

eser

ves

(Bill

ion

Bbl

)U

.S. C

rude Oil P

roduction (Billion B

bls

Source: Energy Information Administration, U.S. Department of Energy. 26© LSU Center for Energy Studies


Annual Changes in U.S. Crude Oil Proved Reserves (Shale and Other)


Changes in crude oil reserves have also been positive and increasing over the past several years.

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011Ann

ual C

hang

e (B

illio

n B

bl)

Note: Includes crude oil and lease condensate.Source: Energy Information Administration, U.S. Department of Energy. 27© LSU Center for Energy Studies


Res

erve

s, B

illio

n B

arre

ls


Annual Energy Outlook, Crude Oil Reserves


0

5

10

15

20

25

30

35

40

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Crude oil reserves are expected to increase over 20 percent by 2016 and then gradually increase by 18 percent another to 2040.




Forecast U.S. Crude Oil Production

29

0

5

10

15

20

25

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Net petroleum and biofuel imports OtherNatural gas plant liquids Tight oil productionCrude oil production (excluding tight oil)

Mill

ion

Bbl

spe

r day

U.S. production of crude oil is expected to increase at an average annual rate of four percent through 2016. Tight oil production increases from 1.31 million barrels per day

in 2011 to 4.8 million barrels per day in 2020, an increase of 266 percent.


Source: Energy Information Administration, U.S. Department of Energy © LSU Center for Energy Studies

International Oil Supply, 2005 and 2013



Eurasia, 13.9% Saudi Arabia, 13.1%Africa, 11.9% Asia & Oceania, 10.0%Middle East, 10.0% U.S., 9.8%Central & S. America, 8.6% N. America, 8.1%Europe, 7.3% Iran & Iraq, 7.2%

Eurasia, 15.1% U.S., 13.7%Saudi Arabia, 12.9% Africa, 10.4%Middle East, 10.4% Asia & Oceania, 9.9%Central & S. America, 8.8% N. America, 7.8%Iran & Iraq, 6.9% Europe, 4.2%

U.S. oil production has increased since 2005 surpassing Saudi Arabia, Africa and the rest of the Middle East.

In 2005, U.S. production of 8.3 MMBbls/d accounted for

almost 10 percent of

world supply.

In 2013, U.S. production of 12.3 MMBbl/d accounts for

almost 14 percent of

world supply.



Net Import Share of U.S. Petroleum and Liquid Fuels, 1990 – 2040



-10%

0%

10%

20%

30%

40%

50%

60%

70%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040Reference High Oil Price Low Oil PriceHigh Oil and Gas Resource Low Oil and Gas Resource

The share of U.S. net crude oil and product imports has been falling since 2005. The EIA expects the net import share to decrease to 26 percent in 2023. If however, high prices

encourage U.S. development, the share of net imports could drop to zero by 2036.



While the nature of manufacturing has admittedly changed given the “out-sourcing” prior to the 2008-2009 financial meltdown, the U.S. economyis beginning to emerge as a new manufacturing powerhouse.

However, the U.S. economic recovery, and regional economic developmentopportunities over the next decade will likely be concentrated in a fewstates and regions. What determines the “winners” and “losers” in thiseconomic resurgence?

The “winners” will be those areas with access to low-cost energysupplies and transportation infrastructure that can move those supplies torapidly emerging economic development opportunities in manufacturingthat were unimaginable as recently as five years ago.

Other important factors influencing manufacturing siting locations includesthe presence of a skilled labor force, competitive wage levels,supportive tax policies, as well as fair and stable regulations andregulatory practices..

32

Overview: Why Future Economic Development Will Not be Uniformly Distributed

Manufacturing IndependenceCenter for Energy Studies

33

94

96

98

100

102

104

106

108

110

112

114

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Em

ploy

men

t (20

05 =

100

)

States with major shale activity Non-shale states

Note: Shale states include Arkansas, Colorado, Louisiana, North Dakota, Pennsylvania, Utah and TexasSource: Bureau of Labor Statistics

Total employment and employment growth has been faster in unconventional shale-based states than in those without these unconventional resources.

Relative Employment Changes, Shale vs. Non-Shale States (2005=100)

Center for Energy Studies Manufacturing Independence

34

Percent Change in Real Quarterly GDP by State, 2013:III TO 2013:IV


States with significant shale activity.

States without significant shale activity.

WA1.8

ID2.7

MT1.1

CA3.2

OR1.2

NV4.7 UT

3.1 CO3.7

WY8.4

ND8.4

SD1.3

NE2.7

KS3.1

OK2.9

TX4.3

NM4.5

AZ3.2

MN0.0

IA0.3

MO3.0

WI1.8

AR3.0

LA5.4

IL3.0

IN4.2

MI3.2

KY3.1

MS-3.0

OH2.6

PA3.4

AL.07

TN 2.3

GA3.9

FL3.7

SC2.3

NC4.1

WV7.5

NY1.3

VA2.3

ME2.4

VT: 2.6NH: 1.1MA: 0.4RI: 1.8CT: 2.8NJ: 2.6DE: 2.2MD: 2.3

Many of the states with significant shale activity have the highest growth in quarterly GDP. North Dakota, Wyoming and West Virginia have the highest rates (8.4 percent, 8.4

percent and 7.5 percent, respectively). Louisiana is the third highest at 5.4 percent.

Manufacturing Independence

What is “energy-based manufacturing?”

Energy-based manufacturing is comprised of industries that focus or relyheavily on energy as the primary input to make their respective products.

Energy is typically a “feedstock” for these industries which use energyto make a number of different products much like a baker uses a commoninput (flour) to make a variety of different products (biscuits, baguettes,pizza dough).

These energy-based manufacturing industries are large, capital-intensive, and compete globally. Energy-based manufacturing wagesare even higher than the already-above average manufacturing wagelevels.

35

Overview: Why Energy-Based Manufacturing


36Note: Energy-based manufacturing includes: petroleum and coal products; chemical; and plastics and rubber products manufacturing.Source: Bureau of Economic Analysis, U.S. Department of Commerce.

Energy-based manufacturing wages in the South are higher than the average manufacturing wage. In 2012, the average energy-based manufacturing wage was 1.5 times that of the average manufacturing wage growing at average annual rate of 5.2

percent (compared to the manufacturing average of 4.2 percent)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Manufacturing Average Energy-Based Manufacturing Average

Aver

age

Wag

e ($

)

Southern energy-based manufacturing wages are

high-growth oriented

Southern Manufacturing Wages vs. Southern Energy-Based Manufacturing Wages


37

Manufacturing industries use natural gas in a range of applications that include the generation of heat, steam, and power. Feedstock uses are equally important and are

the building blocks of modern petrochemical manufacturing.

Heat

Boiler/Steam

PowerGeneration

Feedstock

Industrial Natural Gas Usage


38

Shale reserves have a significant impact on future price outlook. Abundant supplies should keep prices stable. The current AEO forecasts natural gas prices in 2030 at

$5.29/Mcf (47 percent less than the 2009 AEO forecast).

Nat

ural

Gas

Pric

e (2

010

$/M

MB

tu)


0

2

4

6

8

10

12

1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030

Historical Henry Hub AEO 2007 AEO 2008 AEO 2009

AEO 2010 AEO 2011 AEO 2012 AEO 2013

Anticipated price outlook today.

Anticipated price outlook in 2009.

Natural Gas Price Outlook – Annual Energy Outlook (“AEO”)


39

U.S.$3.40

Germany$13.62

UK$10.26

U.S. natural gas prices are becoming increasingly competitive with other places around the globe that compete for new energy-based manufacturing investment.

Source: FERC; BP Statistical Energy Review; New Zealand Ministry of Business; Innovation & Employment; and recent tradepress.

3.0 Energy Production Revolution

Canada$3.17

Netherlands$10.31

Japan$16.75

(LNG import)Turkey$10.98

Saudi Arabia$0.75

India$4.20

New Zealand$5.77

China$13.40

(LNG import)

Argentina$11.00

World Natural Gas Prices for Industry ($/MMBtu), 2012

Center for Energy Studies Unconventional Revolution

40

The factors driving renewed U.S. manufacturing, particularly chemical manufacturing include:

• Low natural gas price

• Increasing U.S. competitiveness

• (Relative) regulatory certainty

• Agricultural and other final chemical output price stability

• Product affordability

• Strong global demand for chemicals

• U.S. import displacement opportunities

What the Strategic Factors Driving this Renewed Interest?


41

U.S. imports are expected to drop by as much as 12 to 18 percent in 2016 and 2017 when new capacity comes online.

Mill

ion

nutri

ent t

ons

0

1

2

3

4

5

6

2000 2002 2004 2006 2008 2010 2012 2014 2016

Forecast

Note: Forecasts based on various industry sources. Source: International Fertilizer Industry Association; Food and Agriculture Organization of the United Nations; and CF Industries.

Forecasted U.S. Imports


42Source: American Oil & Gas Reporter; Oil and Gas Journal.

0

1

2

3

4

5

6

7

8

9

2012 2013 2014 2015 2016 2017

U.S. China Rest of World

Mill

ion

met

ric to

ns

While U.S. based projects plan to add an impressive amount of methanol capacity, proposed projects in China will add almost three times as much, totaling 25 to 30

million metric tons. Projects in New Zealand, Brazil, Russia, Azerbaijan and India total 3.2 million metric tons. Still, U.S. projects account for 33 percent of worldwide projects.

Existing U.S. Proposals as a Share of World


43Source: Platts, January 2013.

GreenfieldBrownfield

Over 10 million tons of ethylene cracking capacity is either under construction or has been proposed. This represents more than 35 percent of current ethylene capacity.

19

13

6

18

1415

162

320

4

5

717

8121

9 10 11

Most large scale projects are three to

four years away.

Recent and Proposed U.S. Ethylene Cracking Capacity Expansions


Owner/Operator Location Capacity Site Estimated(tonnes/year) Type Status In-Service

1. BASF-Total Port Arthur, TX 60,000 Brownfield Completed 20122. Dow Chemical Hahnville, LA 400,000 Brownfield Completed 20123. Westlake Chemical Lake Charles, LA 110,000 Brownfield Completed 20134. Williams Geismar, LA 230,000 Brownfield On Schedule 20135. Ineos Alvin, Tx 120,000 Brownfield On Schedule 20136. Westlake Chemical Calvert City, KY 80,000 Brownfield On Schedule 20147. BASF-Total Port Arthur, TX 100,000 Brownfield On Schedule 20148. Dow Chemical Plaquemine, LA 200,000 Brownfield On Schedule 2014-169. Dow Chemical Freeport, TX 200,000 Brownfield On Schedule 2014-16

10. LyondellBasell Channelview, TX 230,000 Brownfield On Schedule 2014-1611. LyondellBasell La Porte, TX 390,000 Brownfield On Schedule 2014-1612. Westlake Chemical Lake Charles, LA 110,000 Brownfield Postponed 201513. Aither Chemical Charleston, WV n.a. Greenfield Under Study 201614. Formosa Plastics Point Comfort, TX 800,000 Greenfield On Schedule 201615. ExxonMobil Chemical Baytown, TX 1,500,000 Greenfield On Schedule 201616. Chevron Phillips Baytown, TX 1,500,000 Greenfield On Schedule 201717. Dow Chemical Freeport, TX 1,500,000 Greenfield On Schedule 201718. OxyChem/Mexichem Ingleside, TX 550,000 Greenfield Postponed 201719. Shell Chemical Monaca, PA 1,000,000 Greenfield Under Study 201720. Sasol Lake Charles, LA 1,000,000 Greenfield Under Study 2017

Total 10,080,000

Manufacturing Independence

44Source: Platts, 2013; Oil and Gas Journal; Company websites; and recent tradepress.

Ethylene projects in the U.S. account for almost 30 percent of projects worldwide.

U.S., 28%

Middle East, 25%

Asia, 24%

South America, 13%

Rest of World, 10%

U.S. Proposals as a Share of World


45Source: Platts, January 2013.

GreenfieldBrownfield

Over 10 million tons of ethylene cracking capacity is either under construction or has been proposed. This represents more than 35 percent of current ethylene capacity.

19

13

6

18

1415

162

320

4

5

717

8121

9 10 11

Most large scale projects are three to

four years away.

Recent and Proposed U.S. Ethylene Cracking Capacity Expansions

Center for Energy Studies Ethylene

Owner/Operator Location Capacity Site Estimated(tonnes/year) Type Status In-Service

1. BASF-Total Port Arthur, TX 60,000 Brownfield Completed 20122. Dow Chemical Hahnville, LA 400,000 Brownfield Completed 20123. Westlake Chemical Lake Charles, LA 110,000 Brownfield Completed 20134. Williams Geismar, LA 230,000 Brownfield On Schedule 20135. Ineos Alvin, Tx 120,000 Brownfield On Schedule 20136. Westlake Chemical Calvert City, KY 80,000 Brownfield On Schedule 20147. BASF-Total Port Arthur, TX 100,000 Brownfield On Schedule 20148. Dow Chemical Plaquemine, LA 200,000 Brownfield On Schedule 2014-169. Dow Chemical Freeport, TX 200,000 Brownfield On Schedule 2014-16

10. LyondellBasell Channelview, TX 230,000 Brownfield On Schedule 2014-1611. LyondellBasell La Porte, TX 390,000 Brownfield On Schedule 2014-1612. Westlake Chemical Lake Charles, LA 110,000 Brownfield Postponed 201513. Aither Chemical Charleston, WV n.a. Greenfield Under Study 201614. Formosa Plastics Point Comfort, TX 800,000 Greenfield On Schedule 201615. ExxonMobil Chemical Baytown, TX 1,500,000 Greenfield On Schedule 201616. Chevron Phillips Baytown, TX 1,500,000 Greenfield On Schedule 201717. Dow Chemical Freeport, TX 1,500,000 Greenfield On Schedule 201718. OxyChem/Mexichem Ingleside, TX 550,000 Greenfield Postponed 201719. Shell Chemical Monaca, PA 1,000,000 Greenfield Under Study 201720. Sasol Lake Charles, LA 1,000,000 Greenfield Under Study 2017

Total 10,080,000

46Source: Platts, 2013; Oil and Gas Journal; Company websites; and recent tradepress.

Ethylene projects in the U.S. account for almost 30 percent of projects worldwide.

U.S., 28%

Middle East, 25%

Asia, 24%

South America, 13%

Rest of World, 10%

U.S. Proposals as a Share of World

Center for Energy Studies Ethylene

LSU-CES Study (2013): Louisiana Total Capital Expenditures by Sector



The LSU Center for Energy Studies (CES) reports an estimated $53.4 billion in new energy-based manufacturing development, most of which is anticipated to occur

between 2014 and 2019.

Bill

ion

$

$0

$2

$4

$6

$8

$10

$12

$14

2011 2012 2013 2014 2015 2016 2017 2018 2019

LNG Export Cracker/Polymer Methanol/Ammonia Other GTL

Source: David E. Dismukes (2013). Unconventional Resources and Louisiana’s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies.

Development Potential

Manufacturing Renaissance



The LSU-CES study identified gas-to-liquids and LNG export as the majority of proposed capital spending.

LNG Export, $19.5 billion, 37%

Cracker/Polymer, $14.8 billion, 28%

GTL, $12.5 billion, 23%

Methanol/Ammonia, $4.2 billion, 8%

Other, $2.4 billion, 4%

Source: David E. Dismukes (2013). Unconventional Resources and Louisiana’s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies.


Total 2011 2012 2013 2014 2015 2016 2017 2018 2019

Output (million $)Direct 17,727.7$ 4.4$ 1,715.4$ 2,458.1$ 3,538.2$ 3,872.0$ 4,091.7$ 1,890.0$ 157.9$ -$ Indirect 2,846.2$ 0.7$ 275.4$ 394.6$ 568.1$ 621.6$ 656.9$ 303.4$ 25.4$ -$ Induced 5,516.8$ 1.4$ 533.8$ 765.0$ 1,101.1$ 1,204.9$ 1,273.3$ 588.2$ 49.1$ -$

Total 26,090.6$ 6.4$ 2,524.6$ 3,617.7$ 5,207.3$ 5,698.5$ 6,021.9$ 2,781.6$ 232.4$ -$

Employment (jobs)Direct 120,114 30 11,623 16,655 23,973 26,234 27,723 12,806 1,070 - Indirect 19,201 5 1,858 2,662 3,832 4,194 4,432 2,047 171 - Induced 49,032 12 4,745 6,799 9,786 10,709 11,317 5,227 437 -

Total 188,347 47 18,225 26,116 37,591 41,138 43,472 20,080 1,678 -

Wages (million $)Direct 5,777.7$ 1.4$ 559.1$ 801.1$ 1,153.1$ 1,261.9$ 1,333.5$ 616.0$ 51.5$ -$ Indirect 835.2$ 0.2$ 80.8$ 115.8$ 166.7$ 182.4$ 192.8$ 89.0$ 7.4$ -$ Induced 1,549.7$ 0.4$ 150.0$ 214.9$ 309.3$ 338.5$ 357.7$ 165.2$ 13.8$ -$

Total 8,162.6$ 2.0$ 789.8$ 1,131.8$ 1,629.1$ 1,782.8$ 1,884.0$ 870.2$ 72.7$ -$

Construction Impacts

Potential Economic Impacts/Benefit: Construction, State



Not quiet as clear will be the additional power/gas requirements for all the new residential and commercial activities supporting development/operation. Should

elevate regional usage trends relative to national averages.


Industrial Production and Capacity Indices



Per

cent

Cha

nge

-20%

-15%

-10%

-5%

0%

5%

10%

2008 2009 2010 2011 2012 2013 2014

Industrial Production Industrial Capacity

Source: Federal Reserve Bank.

Industrial capacity development “leads” later production (and employment trends). Recent development announcements suggest a strong steady opportunity for U.S.

manufacturing output and employment growth.

Positive turn in capacity development

Roughly 18 month lag in production response.



Changes in Power Generation



New Natural Gas End Uses & Fuel Diversity Concerns

• As noted earlier, the industrial “renaissance” is likely to lead to the first increase in industrial natural gas demand in decades. The extent and degree of this is indeterminate. Consider that a new GTL plant or a new LNG facility, use roughly 2/Bcfd alone at full capacity (730 Bcf of annual load each).

• However, power generation has been – and will continue to be – a significant natural gas end use.

• Environmental regulations are having a considerable impact on developers’ capacity development decisions.

• The low cost of natural gas is clearly provides a preference to new gas over new coal.

New Natural Gas Uses



Ozone

PM2.5

Beginning CAIR Phase I Seasonal NOx Cap

HAPs MACT proposed

rule

Revised Ozone NAAQS

Begin CAIR

Phase I Annual

SO2 Cap

Next PM-2.5

NAAQS Revision

Next Ozone NAAQS Revision

SO2 Primary NAAQS

SO2/NO2Secondary

NAAQS

NO2 Primary NAAQS

SO2/NOx

New PM-2.5 NAAQS Designations

Hg/HAPS

Final EPA Nonattainment Designations

PM-2.5SIPs due (‘06)

Proposed Transport Rule

HAPS MACT final rule expected

CAIRVacated

HAPS MACT Compliance 3 yrs

after final rule

CAIR Remanded

CAIR/CSAPR

Begin CAIR

Phase I Annual

NOx Cap

PM-2.5 SIPs due (‘97)

316(b) proposedrule

316(b) final ruleexpected

316(b) Compliance< 8 yrs after final ruleEffluent

Guidelinesproposed rule

expected

Water

Effluent GuidelinesFinal rule expected Effluent Guidelines

Compliance 3-5 yrs after final rule

Begin Compliance Requirements under Final CCR Rule (ground water

monitoring, double monitors, closure, dry ash conversion)

Ash

Proposed Rule for CCRs

Management

Final Rule for CCRs Mgmt

Final Transport Rule Issued

Compliance with CSAPR

CO2

CO2Regulation

Reconsidered Ozone NAAQS

-- updated from Wegman (EPA 2003)

CAMR & Delisting Rule vacated

2008 2011 2012 2013 2015 20162009 2010 20172014

Electric Industry Environmental Regulations Create Uncertainty for Coal

Transport rule (CSAPR) vacated



Coal-Fired Capacity Share by Age Category



Less than 30 years:79,876 MW; 22% of capacity;73 plants (averaging 1,094 MW)

30 to 50 years:238,934 MW; 66% of capacity;

208 plants (averaging 1,149 MW)

Greater than 50 years:45,382 MW; 12% of capacity;72 units (averaging 630 MW)

There is a considerable amount of legacy coal capacity (45 GWs) that is relatively old, and in some instances, has few to little controls to meet

anticipated standards.



U.S. Power Generation – Fuel Mix

Coal51%

Nuclear20%

Natural Gas16%

Petroleum3%

Other1%

Coal42%

Natural Gas25%

Nuclear19%

Other0.5%

Petroleum1%

Renewables 9% Renewables 13%

2000 2011


Over 250,000 MWs of natural gas power generation capacity has been added over the past decade at the expense of coal and nuclear.

Center for Energy Studies New Natural Gas Uses


U.S. Generation Capacity by Fuel Type: 2011, 2025 and 2040


EIA estimates the growth in new generation to come primarily from natural gas (~170 GWs) and renewables (~75 GWs).

0

50

100

150

200

250

300

350

Coal Oil/gassteam

Natural gascombined

cycle

Natural gascombustion

turbine

Nuclear Renewable/other

2011 2025 2040

Cap

acity

(GW

)


Down Up Wishful thinking

Up UpDown



Growth Opportunities or Fly in the Ointment?


Natural Gas UsesCenter for Energy Studies


Natural Gas Vehicles

58

• A natural gas vehicle (“NGV”) uses compressed natural gas (“CNG”) or, less commonly, liquefied natural gas (“LNG”) as a clean alternative to other automobile fuels.

• CNG produces nearly 40 percent less CO2 than refined products.

• In 2008, NGVs used 215 million gasoline gallon equivalent (“GGE”). To compare, total gasoline usage in 2008 was 55 million gallons per day, or a total of 20 billion gallons.

• Currently in the U.S., about 12 to 15 percent of public transit buses in run on natural gas (either CNG or LNG).

• States with the highest consumption of natural gas for transportation are California, New York, Texas, Georgia, Massachusetts and D.C.

• One major limitation is that CNG vehicles require a greater amount of space for fuel storage.

Natural Gas Uses (NGV)Center for Energy Studies


Potential NGV Usage

59Source: Data and forecast from EIA, Encana, 2010Displacement opportunities exclude Air, International Shipping, Military, Pipeline Fuel.

05

1015202530354045

Light Duty HeavyDuty

MediumDuty

Marine Rail Upstream

Nat

ural

Gas

Con

sum

ptio

n (B

cf/d

)

NGV Use Categories

The large potential size of NGV market has a number of competing end-use categories (i.e., chemicals, manufacturing) concerned.



Displaceable Market Volume: 61.6 Bcfe/d

Natural Gas Consumption by Sector

60

-

5

10

15

20

25

30

35

-

1

2

3

4

5

6

7

8

9

10

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Residential Commercial Industrial Electric Power NGV

Nat

ural

Gas

Con

sum

ptio

n (T

cf)

NG

V C

onsumption (B

cf)


Currently, NGVs account for less than 0.18 percent of U.S. natural gas consumption, but the rate of growth in consumption (158 percent)

over the past decade has surpassed all other end-uses.



Retail Gasoline Prices and Natural Gas GGE

61Source: Energy Information Administration, U.S. Department of Energy.

Basic economics, primarily lower relative prices, have played an important role in driving recent increases in natural gas vehicle use.

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Gasoline Natural Gas (GGE)

$ pe

r Gal

lon



Leading States in NGV Preferences

62Source: U.S. Department of Energy.

Many states have generous incentive programs that range from additional tax incentives, to infrastructure grant support. Federal benefits include alternative fuel infrastructure

tax credit, an excise alternative fuel tax credit and an alternative fuel tax exemption.

Alternative fuel tax credits and/or infrastructure development credits

Alternative fuel use and infrastructure grant support



Potential Natural Gas Consumption – NGV

63

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Consumption Percent of Total

Nat

ural

Gas

Con

sum

ptio

n (T

cf)

NGV consumption of natural gas is estimated to increase at an average annual rate of 7 percent through 2035, less than 1 Tcf.


NG

V C

onsumption (%

of Total)

NGV use of natural gas

will stay below one percent of

total U.S. natural gas

consumption.



What About Gas Exports?

64

Natural Gas UsesCenter for Energy Studies


Considerable Underutilized LNG Regasification Capacity along GOM

A

B

C

D

E

Existing

J

F

ExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 BcfdE. Energy Bridge, GOM: 0.5 BcfdF. Northeast Gateway, Offshore MA: 0.8 BcfdG. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)H. Sabine, LA: 4.0 BcfdI. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion)J. Neptune, Offshore MA: 0.4 BcfdK. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion)Under ConstructionL. Pascagoula, MS: 1.0 BcfdApprovedM. Corpus Christi, TX: 1.0 BcfdN. Corpus Christi, TX: 2.6 BcfdO. Fall River, MA: 0.8 BcfdP. Port Arthur, TX: 3.0 BcfdQ. Logan, NJ: 1.2 BcfdR. Port Lavaca, TX: 1.0 BcfdS. Baltimore, MD: 1.5 BcfdT. LI Sound, NY: 1.0 Bcfd

HIK

Regasification

Under Construction

Approved

Existing

Liquefaction

Under Construction

Approved

G

L

M

N

OT

P

Q

R

S

Natural Gas Uses (LNG)Center for Energy Studies

© LSU Center for Energy Studies 65

LNG Value Chain

66Source: Cheniere.Note: *uses a BOE conversion of 5.8 Mcf/BOE.

Feedstock (production) costs will be critical in determining the location of basin-specific production along the global LNG supply curve.

Europe:

LowHigh

Asia:LowHigh

Feedgas56%

($/MMBtu)

$4.00$6.50

$4.00$6.50

Liquefaction11%-17%

($/MMBtu)

$1.25$1.25

$1.25$1.25

Shipping & Fuel20%-29%($/MMBtu)

$1.40$1.65

$2.90$3.45

Regas4%-7%

($/MMBtu)

$0.50$0.50

$0.50$0.50

DeliveredCost

($/MMBtu)

$7.15$9.90

$8.95$11.70

EquivalentOil Price*($/BOE)

$41.47$57.42

$51.91$67.86

Henry Hub: $4.50$5.00

WTI: $97.00

$100.00



Motivations for Moving Shale Gas to Global Consuming Areas

Source: Marathon.

0

2

4

6

8

10

12

14

16

18

Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11

$/mmbtu

Japan LNG U.K. NBP U.S. Henry Hub FSU @ German Border

• Excess U.S. shale production.

• Growing global energy demand.

• Climate change issues.

• Global natural gas price differentials.



FOB Gas Price Necessary to Yield 12 Percent Return (Atlantic Delivery)0.

0 0.4 0.

7

0.7 1.

1 1.4 1.5

1.5 1.7

1.7

1.7 1.8 2.0

2.0

2.0 2.1 2.2 2.4 2.6 2.7 2.9

2.9 3.

2 3.4 3.5 3.6

5.7 6.

0 6.1 6.

6

7.5 7.7

8.8

11.2

0

2

4

6

8

10

12

AD

GA

SQ

atar

gas-

4A

run

Liqu

id N

iugi

ni G

asA

ltant

ic L

NG

Bon

tang

Qat

arga

sA

ltant

ic L

NG

2&

3Q

alha

t LN

GA

tlant

ic L

NG

4E

G L

NG

ELN

G 2

Dam

ietta

ELN

G 1

Dar

win

Bru

nei L

NG

OLN

GM

LNG

Tig

aTa

nggu

hB

rass

LN

GM

LNG

Yem

en L

NG

MLN

G D

uaPe

ru L

NG

Nor

th W

est S

helf

Ang

ola

LNG

Ken

aiU

S S

hale

Gas

Sno

hvit

QC

LNG

PN

G L

NG

Plu

toG

orgo

nS

akha

lin 2

$/M

MB

tu

Source: Pacific LNG.

U.S. is likely to be at the upper end of the global LNG supply curve.



Basin Competition

Source: MIT Energy Initiative.

China1,275 Tcf

Australia396 TcfSouth

Africa485 Tcf

Argentina774 Tcf

Brazil226 Tcf

Mexico681 Tcf

Canada388 Tcf

U.S. 862 Tcf

France180 Tcf

Poland187 Tcf

Algeria231 Tcf

Libya290 Tcf

Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcf in conventional suggest a potentially solid resource base for many decades.




Conclusions



Conclusions – Natural Gas Markets

• Natural gas markets continue to be resilient, affordable and lessvolatile.

• Natural gas supply growth increasingly driven by “associated”natural gas – a byproduct of increasing production coming fromhigher hydrocarbon-based production (Marcellus, Eagle Ford,Bakken).

• New end uses are a blessing (new manufacturing, moreefficient/cleaner power generation) but need to be watched forunanticipated consequences.

• Continued resource development is policy dependent. Changesin economic and environmental policy can impact the trajectoryof unconventional resource development.

Conclusions



Questions, Comments and Discussion

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Documents

Unconventional Oil & Natural Gas: Overview of Resources