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Frank A. Verrastro, Senior Vice President & CSIS Energy, and James R. Schlesinger, Chair for Energy & Geopolitics - March 2013
Citation preview
Unconventional Oil & Gas: Reshaping Energy Markets
Frank A. VerrastroSenior Vice President & CSIS Energy and James R. Schlesinger Chair
for Energy & GeopoliticsMarch 2013
www.csis.org |
Landscape continues to change …US perspective
- US is 80% Energy Self-Sufficient But Still Part of a Global Market
- Changing Demand Growth Centers- New Emerging Players but Old Institutions- Transformational Impact of Unconventionals- Difficult to Isolate Oil, Liquids, and Natural Gas
Issues- Policies Based on Resource Scarcity and Rising
US Demand Need to Be Revisited- Environmental Issues Still Loom Large- The “Great Dilemma” of How We Go Forward
www.csis.org |
Unconventional Natural Gas
Resources
New technologies and practices drive production from shale deposits.
Source: USGS
www.csis.org |
Hydraulic Fracturing
• Multiple protective barriers of steel pipe and cement protect aquifers, which are located within 700 feet of the surface
• Fracturing occurs more than a mile below, and separated by thousands of feet of impenetrable rock, potential sources of water
U.S. Shale Gas Resources
Unconventional Gas
U.S. shale gas production from the major plays has increased dramatically
Unconventional Gas
2%
Projected Contribution of Shale Gas to Total US SupplyU.S. dry gas production, trillion cubic feet per year
Non-associated offshore
ProjectionsHistory
Associated with oil
Coalbed methane
Non-associated onshore
Shale gas
2010
10%
9%
21%
23%
9%
Tight gas26%
Source: EIA, Annual Energy Outlook 2013 Early Release
Unconventional Gas
Natural Gas Resources Have Potential to Supply the Market for Decades
High demand, advanced technology, moderate development cost
Unconventional Gas
19901992
19941996
19982000
20022004
20062008
20102012
20142016
20182020
20222024
20262028
20302032
20340
2
4
6
8
10
12
Projections for natural gas prices have declined as understanding of resource base expands
natural gas spot price (Henry Hub) per million BTU
Sources: EIA, Annual Energy Outlook 2011; EIA, Annual Energy Outlook 2010; and EIA, An Updated Annual Energy Outlook 2009 Reference Case
ProjectionsHistory
Updated AEO2009
AEO2011
AEO2010
AEO2013(201
1$)
Unconventional Gas
Increased Production Allows U.S. to Transition from Net Importer to Net Exporter of Natural Gas
Source: U.S. Energy Information Administration, Annual Energy Outlook 2012, June 25, 2012
Unconventional Gas
Potential Gas Pathways
Gas
Crude Oil
Pipeline
Asso
ciat
ed g
as
Non-Associated gas
Liquefaction
SyngasGas To Liquids (GTL)
Refined Oil Products
Chemical Reaction
Gas to Power/ Residential & Commercial
LNG for Export
LNG for Transport
Gas to Chemicals
Source: Royal Dutch Shell
Unconventional Gas
www.csis.org |
But…Major Policy Questions Remain
• Industry desire for “demand pull” to increase prices vs. gov’t need to ensure development is done right
• Gas Utilization Options (power generation, transport, petrochem or refinery feedstocks, industrial use?)
• Export Policy and Volumes• Compatibility with Industrial Policy, Energy Security and
Environmental Goals• Regulation at Federal or State/Local levels • Funding for/Pace of Infrastructure buildout
Unconventional Gas
Environmental/Regulatory/Societal Challenges
Realizing the full promise of shale resources is not a certainty and US domestic policy is important
• All shales are not alike; application of drilling/reservoir fracturing technology & operational experience matters
• Steep decline rates require ongoing investment and drilling; and repeated fracturing
• Cost escalation and low commodity prices limit prospects
• Infrastructure build-out and refinery rationalization
• Well design and management of surface chemicals/materials are the best barriers to protecting water aquifers
• Disclosure of components of fracking
• Scale of water use, treatment & disposal are challenging
• Community Issues – infrastructure, land use, population density, noise, haze, health issues, road congestion and repair need to be addressed
• Seismicity – associated with wastewater injection
• Regulation and enforcement are essential
Technical/Economic ChallengesTechnical/Economic Challenges
Unconventional Gas
www.csis.org |
Tight/Unconventional Oil
Resources
www.csis.org |
Resource Assessments Often Reflect One’s Point of View
- Resource Enthusiasts- Proven Reserve Skeptics- Production Pessimists- Capacity Scoffers- Demand Worry Warts/Cassandras- National Security Alarmists- Resource Nationalists- Economic Idealists- Technology Bulls- Climate Bears
Unconventional Oil
NPC Study Identifies Large Oil Potential as Well
Unconventional Oil
www.csis.org |
“Change” is now the Constant :US technologic, economic, and policy environment continues to shift
- Rapidly rising production profiles from the Williston, Permian and Western Gulf basins
- Logistics, opportunities and challenges for oil, liquids, and natural gas
- Moving the bottleneck: timelines and sequencing – upstream, midstream and downstream investment & choices
- 40 years of policies based on resource scarcity and rising US demand need to be revisited
- Policy Dilemma: Reconciling fossil fuel abundance with climate objectives
- Federal, state & local/stakeholder issues
www.csis.org | 19
Key Onshore Crude Production Basins
Source: EIA STEO Supplement
Tight Oil Opportunities Span the Lower 48
Source: Wood Mackenzie, April 3, 2012
Unconventional Oil
www.csis.org |
Oil, Gas & NGL Price Comparison
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
0
5
10
15
20
25
30
0
5
10
15
20
25
30
WTI $/MMBtu HH Gas $/MMBtuMB NGL Ave. $/MMBtu
$/M
MB
tu E
qu
ival
ent
Unconventional Oil
Reorienting the US Rig Count
Unconventional Oil
Ver Dir Hor0
200400600800
100012001400
U.S. Active Rigs
Barnett Shale Gas Play
Marcellus Shale Gas Play
Fayetteville Shale Gas Play
Haynesville Shale Gas Play
Woodford Shale Gas Play
Pinedale/Jonah Tight Gas
Granite Wash, Cleveland, Miss.
Williston BasinBakken Shale (Oil Play)
Eagle Ford Shale Play
Permian Basin-Oil Targets
Niobrara Shale Play (Oil Play)
Source RigData and BENTEK: Lower 48 States, March 9, 2012
Uinta – Piceance
U.S. Active Rig Locations: Major Resource Plays Dominate
Unconventional Oil
www.csis.org |
Historical U.S. Crude Oil Production
Source: EIA
U.S. Onshore Crude Oil
Production on the Rise
1900
1903
1906
1909
1912
1915
1918
1921
1924
1927
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
0
2000
4000
6000
8000
10000
12000
Tho
usan
ds o
f b
arre
ls/d
ay
AlaskaFederal Offshore
Lower 48
Unconventional Oil
www.csis.org |
1900190819161924193219401948195619641972198019881996200420120
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1900-2007 2008-2010 2011-2016
‘000
s b
/d
Forecast through 2016 shows Continued Growth
Source: EIA, Excludes NGLs and Other Liquids
1988
Tight oil production for selected plays approaching 2.0 million b/d
Can the Bakken Story be Replicated (Again and Again)?
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
500
1000
1500
2000
2500
Surging U.S. Shale Liquid Production (oil and NGL)
Woodford
Niobrara
Marcellus
Lower Monterey
Granite Wash
Eagle Ford
Barnett
Bakken
Avalon/ Leonard
000 b/d
Source: Energy Security Analysis, Inc. (ESAI) April 3, 2012
LARGE UNCONVENTIONAL OIL RESOURCES
Unconventional Oil
www.csis.org |
PAD Districts and Refinery Locations
Source: EPRINC, Info. From CME Group and Purvin and Gertz Study
Unconventional Oil
Gateway
Bakken
Niobrara
Anadarko
Permian
Eagle Ford
Canada
Keystone XL
Basin
Enbridge
XL
Pony
Note: 2011 Average to 2016 Average (MB/d)
Source: EIA, Petroleum Project Tracker, Bentek, RFG, CSIS analysisNot All Projects Shown
Barge
Lakehead
Flanagan
Seaw
ay
WTG & Longhorn
TMX 2;3
Dock Terminal
Tesoro
New Pipeline Projects Delivering to Cushing (2010-2012): 815,000 bbl/dNew Pipeline Projects Delivering to Cushing (2013-2014): 1,225,000 bbl/dNew Pipeline Projects from Cushing Delivering to Gulf Coast (2013-2014): 1,400,000 bbl/d
Rail
www.csis.org |
HOUSTON, TX0
100200300400500600700800900
1000
MB
/D
Where Does All this Light Crude Go?? What Can PADD III Absorb? What Gets Displaced/Changed?
Note: 2011 Average Imports (Jan-Dec 2011)
PORT ARTHUR, TX0
100
200
300
400
500
600
700
Light (32 +)⁰
Intermediate (28-32 )⁰
Heavy (28 -)⁰
MB
/D
ST. JAMES, LA0
100
200
300
400
500
600
MB
/D
Unconventional Oil
Source: EIA, Texas RRC, North Dakota DMR
US Production Already Backing Out Imports
Thou
sand
Bar
rels
*Avg monthly production based on annual figures
Apr-2010
May-2010
May-2010
Jun-2010
Jul-2010
Aug-2010
Aug-2010
Sep-2010
Oct-2010
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Jan-2011
Feb-2011
Mar-2011
Apr-2011
Apr-2011
May-2011
Jun-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Sep-2011
Oct-2011
Nov-2011
Nov-2011
Dec-2011
Jan-2012
Feb-2012
Feb-2012
Mar-2012
Apr-2012
May-2012
May-2012
Jun-2012
Jul-2012
Jul-2012
Aug-2012
Sep-2012
Oct-2012
Oct-2012
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Bakken production
Eagle Ford Production
Angola Crude and Products
Nigeria Crude and Products
Algeria Crude and Products
www.csis.org |
Source: EIA Annual Energy Outlook 2013 Early Release
Continued liquids growth and reduced demand means lower importsUS Liquid fuels supply, 1970-2040
Mill
ion
b/d
Potential Implications & “Unconventional” Wisdom
• New supply growth (quality and volume) will shape the market; crude slate for US refineries will get lighter; growth in liquid supplies will back out (selectively) medium and heavier crudes
• Higher refinery utilization in will encourage refined product exports • New rail and pipe infrastructure will move domestic crudes east and
west as well as south• Economics/price spreads (and policies?) will determine how refineries
make crude choices• Micro decisions may drive Macro picture• There will be surprises, unintended consequences and sub-optimal
outcomes • Regulatory Policy in time of change needs to be flexible, adaptive.
responsible, effective and collaborative
Global Implications
• Some “obvious near term” winners and losers,• But … global impacts are more nuanced, less clear and time
sensitive• Strength of US refining sector could swamp new
construction in Latin America• Expansion of global shales could increase volume, reduce
prices & improve environment• New supply sources could impact global trade flows, but for
how long?
Energy imbalances improve in the Americas
Trade Balances May See Significant Change Due to Resources and Demand Growth – Creating A New Energy Security Paradigm?
Source: BP Energy Outlook 2030
Call on OPEC and Spare Capacity
www.csis.org |
What Could Change the Storyline?
• Resource Over/Under Performance?
• Technology Advancements, including Disruptive Technologies in
Competing Areas
• Commerciality/Economics/Energy Prices & Costs
• Investment Climate for Participants
• Timing/Expense of Infrastructure Buildout
• Public Sentiment – License to Operate (upstream & downstream)
• Geopolitical and/or Catastrophic Events/Accidents
• Policy & Regulations
• Climate Change & the Transformation to Low Carbon Energy
www.csis.org |
Climate Change
Food
Water
Ecosystems
ExtremeWeather
Risk of Irreversibleor Abrupt Changes
Today
E3G, Adapted from Stern 2006
450ppm
550ppm
650ppm
750ppm
850ppm
950ppm
Climate Change Risks
Falling crop yields in developing regions first, then developed regions later
Mountain glaciersdisappear; Decreasedwater in some areas
Many more areas sufferfrom low water availability
Sea level risethreatens major cities
Rising numbers of species extinctions Extensive damage to coral reefs
Rising intensity of storms, wildfires, droughts, floods, heatwaves
Rising risk of dangerous positive feedbacks,Rapid SLR and collapse of Atlantic conveyor
Warming
4242Water Scarcity Demography Crop Decline Hunger Coastal Risks
Climate Change as Threat Multiplier
43
65%
33%
71%
28%
15 Gt
7 Gt
20
25
30
35
40
45
1990 2000 2010 2020 2030 2035
Gt
Current PoliciesScenario
450 Scenario
New PoliciesScenario
Non-OECDOECD
GHG Reductions Required to Meet 2 Degree Goal
www.csis.org |
Build 130 new (1GW) nuclear power plants in lieu of
new coal-fired power plants without CO2 capture and
storage
CO2 CaptureIn Forestry
Nuclear
Coal-Fired Generation
Improved Efficiency
Double fuel efficiency; Deploy 290 million new cars at
40mpg rather than 20mpg
Build 320 new zero-emission 500MW coal-fired power
plants in lieu of coal-fired plants without CO2 capture
and storage (none exist now)
Convert 100 million acres of barren area to new forest
(equiv of Spain, 2.5 times the size of Washington
state)
Technology Each option would save one gigatonne of CO2 per year
Source: DOE Climate Change Technology Program, http://www.climatetechnology.gov/stratplan/final/index.htm 44
www.csis.org |
A schematic overview of inter-relationships between adaptation, mitigation and impacts.
Cost of M
itigation
Cos
t of I
mpa
cts
Cost of Adaptation
AllMitigation
No Action All Adaptationmor
e
more
less
less
less
more
What is Optimal?
There Will Be Costs
The Questions: How We Choose to Pay, Who Will Pay, How will the $ be spent?
Choices Must Be Made in Context of Balancing “E3” Goals of
• Energy Security• Economy• Environment
Source: Holdridge, M.L. Parry
Balancing Costs of Impacts, Mitigation, and Adaptation
Security & Foreign Policy
ObjectivesPromotes/Supports
Sustainable Environment
DefensibleNatural
GasOil
Energy Efficiency
Nuclear
RenewableEnergy
Coal
Economic Objectives
Environmental Objectives
POLICY MODEL
Affordable/Accessible
Supports Economic Growth &
Employment
Environmentally Benign
Low/no emissions
Reliable and Secure
Carbon Capture and
Storage
20092010
20112012
20132014
20152016
20172018
20192020
20212022
20232024
20252026
20272028
20292030
0
5
10
15
20
25
Imports
Domestic Oil Supply
Liquid Fuels Demand
Mmb/d
Diversify suppliesMaintain/expand domestic oil output
Moderate demand
Source: EIA Reference Case / NPC Global Oil and Gas study survey.
Strategies to Enhance Oil U.S. Security
…Becoming a Reality
Energy Security Leadership Council, “The New American Oil Boom, Implications for Energy Security,” 2012
What Could a 21st Century Energy Network Look Like?
Market Price
Demand
Inventory Levels
Capacity Utilization
Refining Configuration and Product slates
Crude Quality
Supply
Market Momentum
Financial Markets
Geopolitics
Demand Growth/Macroeconomics
Supply Growth
Investment $
Infrastructure Availability
Weather
Interest Rates, Foreign Exchange, Asset Markets
The “NEW” Fundamentals FUTURE EXPECTATIONS