Embed Size (px)
Citation preview
Will Unconventional Oil & Gas Reignite the Economy?
Sheboygan Economic Club 19 November2013
Dr. T.K. Swift Chief Economist & Managing Director
Recessions Oil Price Associated with Spikes
$0
$20
$40
$60
$80
$100
$120
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: BP
$ per Barrel of Oil ($2012)
Shale Gas is Changing
Everything
• Shale gas is possibly the most important energy development in the past 50 years
• Shale gas now accounts for more than a third of US natural gas production
• Abundant supplies of natural gas liquids are changing the economics of global petrochemical production patterns
• Lower natural gas costs are improving the competitiveness of not only chemical producers, but other gas-intensive manufacturers
Shale Gas Resources and the Enabling Technologies
• New way of gathering natural gas from tight-rock deposits of organic shale
• Horizontal Drilling – Drill horizontal wells 1½ miles
beneath the surface – And lateral lengths of 10,000 feet
• Hydraulic Fracturing – Fracture the rock by using water
pressure aided by chemistry (polymers, gelling agents, foaming agents, etc.)
– Typical well requires 2 to 3 million gallons of water and 1.5 million pounds of sand
– About 99.5% of mixture is sand and water
• Computational modeling
Technologies Push out the Supply Curve
Quantity (Billion Cubic Feet per Day)
Pric
e ($
/Tho
usan
d Cu
bic
Feet
) S1
Market Demand
2005
60.3
$7.33
S2
$2.79 2012
69.8
Global Natural Gas Price Trends
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
02 03 04 05 06 07 08 09 10 11 12 13
United States Germany Japan Brazil China India
Source: EIA, Petrobas, IMF, World Bank, various na<onal sta<s<cal agencies
$ per million BTUs
Global Natural Gas Costs: 2012 ($US per million BTUs)
Note: Prices generally reflect domestic wellhead/hub prices or imported prices via pipeline. Some nations (e.g., Japan and Korea) import LNG. Thus, the higher prices. Other nations import LNG if it’s a minor share of demand but these prices aren’t generally reflected in the above.
USA: $2.74
Mexico: $2.69
Canada: $2.19
Saudi Arabia: $0.75
Iran: $2.98
Brazil: $9.98
Germany: $11.86
China: $9.05
India: $8.67
Korea: $16.55
Japan: $17.35
UK: $9.48 Belgium: $11.47
Russia: $3.14
Ukraine: $11.57
A Surge in US Oil & Gas Production
45
50
55
60
65
70
3
4
5
6
7
8
9
10
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Crude Oil Production (left) Natural Gas Production (right)
Million Barrels per Day (BPD) Billion Cubic Feet (BCF) per Day
Source: EIA November Short-Term Energy Outlook
Resulting in Lower Crude Oil Imports and Finished Petroleum Product Exports Net Imports - Million Barrels per Day (BPD)
Source: EIA November Short-Term Energy Outlook
-2
0
2
4
6
8
10
12
14
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Crude Oil Net Imports Petroleum Product/Other Liquid Net Imports
Summary of the Unconventional Oil & Gas Boom • Production of oil in the United States is outpacing expectations
thanks to growth in shale oil (where break-even costs of production have fallen on technological advances)
• It’s an unprecedented structural change • Leading to lower crude oil imports from the Middle East and the
rise of finished petroleum product exports (US Gulf Coast light crude imports could drop to zero by 2015)
• Unconventional gas production has turned the United States from a net importer to self-sufficiency…
• Changing the United States is a surplus natural gas producing nation – essentially forever
• US unconventional production has boosted the availability of natural gas worldwide
• Natural gas prices in the United States are trading along the breakeven cost of shale gas production
• In summary, a promising future!
Analyses Show Significant Macroeconomic Effects • An analysis by PWC found that US manufacturing companies could
employ approximately one million more workers by 2025 due to benefits from affordable energy and demand for products used to extract natural gas.
• Citigroup released a study which examined the effects of the domestic energy supply revolution and found new production and associated activity will accelerate economic growth by 30-40 basis points. By 2020, the cumulative impact will boost real GDP by 2.0% to 3.3%, creating from 2.7 million to as high as 3.6 million net new jobs, and reduce (by 60%) the current account deficit to 2.4% of GDP.
• A Boston Consulting Group study uncovered a “tipping point” in cost- risk among seven key industries (computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metal products, plastic & rubber products, and transportation goods) and that as these industries “re-shore” to the USA, the USA will gain $80 billion to $120 billion in added annual output and 2.0 million to 3.0 million jobs.
• IHS released a series of studies and finds that unconventional oil and gas add 2.0-3.2% to GDP (over $3,500 per household) and nearly 4.0 million jobs by 2025.
Unconventional Oil & Gas Impact on the Economy
$0 $100 $200 $300 $400 $500 $600 $700 $800
11 13 15 17 19 21 23 25
Incremental GDP due to Unconventional Oil & Gas
Billions of 2009$
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
11 13 15 17 19 21 23 25
Incremental Employment due to Unconventional Oil & Gas
Millions of Jobs
Note: Based on an analysis of the published literature and expressed as incremental to a baseline.
Unconventional Oil & Gas Impact on the Economy
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
11 13 15 17 19 21 23 25
Incremental GDP due to Unconventional Oil & Gas
% Change
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
11 13 15 17 19 21 23 25
Incremental Employment due to Unconventional Oil & Gas
% Change
Note: Based on an analysis of the published literature and expressed as incremental to a baseline.
Shale Gas A Game Changer
“Manufacturing plants are returning to the US to take advantage of cheap natural gas, spurring major investments in petrochemical and steel production.” -- Wall Street Journal February 2012 “We think lower natural gas price are creating a structural economic advantage for the US. It’s a new competitive strength for US manufacturers.” -- Reynders McVeigh Capital Management February 2012 “Big industry may be coming back to the northeast United States.” -- Associated Press September 2011 “A renewed U.S. ethane advantage has lifted the fortunes of North American petrochemical makers. A surge in supply from unconventional gas sources has increased the availability and reduced the cost of ethane and other natural gas liquid (NGL) feedstocks.” --Chemical Week Cover Story March 18, 2011
“Some believe the potentially tremendous economic impact of the Marcellus shale will be a ‘game-changer’ for a state long dependent on the coal industry.” --Times-Herald, Charleston, WV, March 3, 2011 “Cheap U.S. shale gas production could deliver massive spill-over benefits to the U.S. chemicals industry. … Cheap natural gas will make U.S. chemicals companies cost competitive against just about everyone except the Middle East.” --Citi, “Shale Gas: A Game Changer for the Chemical Industry?,” P.J. Juvekar, March 11, 2010
The Chemical Industry is Energy-Intensive
Source: ACC analysis
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Chlorine/Caus9c Soda
Sodium Carbonate (Soda Ash)
Acrylonitrile Adipic Acid
Aniline Benzene
Butadiene (1,3-‐) Cumene
Ethylbenzene Ethylene
Ethylene Dichloride (EDC) Ethylene Glycol Ethylene Oxide
Methanol Phenol
Propylene Styrene
Terephthalic Acid Vinyl Acetate
Polyethylene (LDPE) Polyethylene (LLDPE) Polyethylene (HDPE) Polypropylene (PP)
Polystyrene (PS) Polyvinyl Chloride (PVC)
Anhydrous Ammonia Urea
Energy Costs Other Costs
Fuel, Power and Feedstock Costs as a Percent of Total Costs
$0
$20
$40
$60
$80
$100
$120
Brent Oil ($bbl) WTI Oil ($bbl)
2005-13: US Energy Prices Falling in Either Absolute / Relative Terms
$0 $1 $2 $3 $4 $5 $6 $7 $8 $9
Natural Gas - Henry Hub ($/000 CF)
WTI now at a discount to Brent
Source: EIA (Note 2013 data are YTD)
Leads to Falling US Feedstock Costs
Source: Chemical Week (Note 2013 data are YTD)
$0 $100 $200 $300 $400 $500 $600 $700 $800 $900
$1,000
05 06 07 08 09 10 11 12 13
Western European Naphtha ($/metric ton)
$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00
05 06 07 08 09 10 11 12 12
US Ethane ($/gallon)
Global Ethylene Supply Curve (Petrochemical Production Costs by Country/Region)
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
0 73 136 172 247 307
Prod
ucti
on C
osts
($/
poun
d)
Global Supply (Cumulative in billions of pounds)
2005
2012 Middle East
Middle East
United States
United States
China
Western Europe China
Western Europe
Other Northeast Asia
Other Northeast
Asia
Source: ACC analysis
Composition of Announced Projects
Inorganic Chemicals
4%
Fertilizers 18%
Bulk Petroche
micals 50%
Plastic Resins 23%
Other 5%
Ohio Valley 13%
Midwest 9%
Other 1%
Gulf Coast 77%
Investment by Industry Segment Investment by Region
Source: ACC analysis of 135 Announced Projects
US Chemical Industry Capital Investment: Incremental Due to Shale Gas
$0
$2
$4
$6
$8
$10
$12
$14
$16
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Billions of 2012 Dollars • The $90 billion total investment is spread over 10 years
• Peak year for investment spending – 2016
Source: ACC analysis
US Exports as Share of Plastic Resins Set to Expand
0
5
10
15
20
25
30
35
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Exports as % of Total Produc9on
Source: ACC analysis
In One Scenario, the US Captures Market Share Away From Western Europe
60
70
80
90
100
110
120
130
1990 1995 2000 2005 2010 2015 2020
United States Western Europe
Chemicals excl. Pharmaceuticals - Volume Index of Production (2007=100)
Sources: Eurostat, Federal Reserve, ACC analysis
Concluding Thoughts • Revolution in unconventional oil and gas is supporting economic
growth and job creation • Shale gas has been a game changer in US natural gas markets with US
first mover advantages • Shale gas has improved the competitiveness of the US
manufacturing, especially chemicals • Over135 major chemical industry projects have been announced (perhaps
150-175 when it’s all said and done) • Location of shale gas will foster new greenfield investment, generating new
business, jobs, and tax revenues • With global integration and renewed competitiveness, US exports
gain as share of output with reaccelerating growth and US capturing global market share
• In addition to shale gas, new materials (e.g., nanotechnology) and processes (e.g., bio-based chemistry) will also lead to enhanced growth
• In summary, a promising future! • But challenges remain...
Questions? Telephone: 202.249.6180 Email: [email protected]
