Unconventional Oil & Gas: Reshaping Energy Markets


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Frank A. Verrastro, Senior Vice President & CSIS Energy, and James R. Schlesinger, Chair for Energy & Geopolitics - March 2013

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  • For natural gas, our study indicates that North America has the potential to meet decades of demand at moderate cost, if there is access to the resources and use of currently available advanced technologies. Using information from the recent MIT natural gas study, this chart shows a range of resource curves, compared with the range of cumulative demand to 2035. The wellhead development cost is on the y axis, and the resource size in trillions of cubic feet is on the x-axis. The curves, moving from left to right include more advanced technologies and higher resource estimates. The picture shows the availability of gas is tremendous under a wide range of future conditions. The yellow highlighted box shows the point at which the highest demand outlooks intersect with the mean resource curve, applying currently available advanced technology, and at moderate cost. Cost should not be taken as an indicator of price – many factors go into determining market prices and this study does not set out to make any statements about future price levels or trends
  • Updated 1/15/2013 with data through 2011. http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm
  • Pipelines: Tesoro Rail To WA Tesoro 3/2012 40,000Basin Plains 3/2012 50,000West Texas Gulf Sunoco 9/2012 100,000Lakehead (Line 5) Enbridge 12/2012 50,000Seaway Two Phases: ConocoPhillip s 2012-2013 400,000Enbridge Bakken Enbridge 3/2013 120,000Longhorn Reversal Magellan 6/2013 135,000Pony Express Kinder Morgan 3/2014 210,000Flanagan South Enbridge 6/2014 190,000Keystone XLPhases 3 & 4 TransCanada est. 2015 508,000Northern Gateway Enbridge est. 6/2016 525,000Trans Mountain 2 Kinder Morgan est. 12/2016 80,000Trans Mountain 3 Kinder Morgan est. 12/2017 320,000Rail Terminal Projects: North DakotaBerthold Rail Enbridge 7/2012 (10,000) 3/2013 (70,000)Tioga Facility Hess 2/2012 (54,000)Dore Terminal Musket 3/2012 (70,000)COLT Hub & Connector Rangeland/Tesoro 80,000Trenton, ND Savage 6/2012 (60,000)GulfEunice & Riverside 3 PhasesCrosstex 2012-2013 (50,000 Total)St. James EOG/NuStar 70,000Permian Basin Flint Hills/Koch OmniPort GT Logistics 100,000St. James Expansion Plains All American 65,000Port Arthur Savage 60,000Barge: Ingleside, TX Flint Hills 6/2012 (200,000)Dock: Westridge, BC Kinder Morgan est. 12/2017 450,000Refinery Projects Adding Overall Distillation Capacity Increase: Bakken Refinery Dakota Oil 5/2013 20,000Heavy Oil Upgrade Project (DHOUP) Marathon 12/2012 14,000Port Arthur Motiva 3/2012 325,000 Mandan Tesoro 6/2012 10,000McKee Valero 1/2014 25,000Salt Lake City Tesoro 12/2013 4,060Three Affiliated 3 Affiliated Tribes 15,000Woods Cross HollyFrontier 12/2014 14,000Somerset Continental 6/2013 5,500Elk Point Hyperion 3/1/2018 400,000
  • ND DMR, EIA, texas RRChttps://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdfhttp://www.rrc.state.tx.us/eagleford/EagleFordOilProduction.pdf
  • US Policy objectives need to be clarified/understoodIndustrial policy: job growth utilizing low(er) priced domestic energyEnvironmental policy: protect water and air resourcesClimate policy: reduce carbon emissionsEnergy Security and BOP Policy: reduce oil imports
  • I’ll then leave it to Doug to describe in greater detail technology drivers and change, climate concerns and renewables opportunities
  • 50-60% Has to be through e
  • When evaluating energy needs: need to look at foreign policy, national security and economic needs, as well as the environment. Herein you can have a real discussion about tradeoffs, as each choice has some risk involved and requires investment- and its figuring out how to balance all of these things.
  • Did not update-Hisham 1/30/2012
  • Unconventional Oil & Gas: Reshaping Energy Markets

    1. 1. Unconventional Oil & Gas: Reshaping Energy Markets Frank A. Verrastro Senior Vice President & CSIS Energy and James R. Schlesinger Chair for Energy & Geopolitics March 2013
    2. 2. 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 |
    3. 3. Unconventional Natural Gas Resources www.csis.org |
    4. 4. New technologies and practices drive production from shale deposits.Source: USGS
    5. 5. 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 www.csis.org |
    6. 6. Unconventional GasU.S. Shale Gas Resources
    7. 7. Unconventional GasU.S. shale gas production from the major plays has increased dramatically
    8. 8. Unconventional Gas Projected Contribution of Shale Gas to Total US Supply U.S. dry gas production, trillion cubic feet per year History 2010 Projections 23% Shale gas 21% Non-associated onshore 9% Non-associated offshore 26% Tight gas 9% Coalbed methane 2% 10% Associated with oilSource: EIA, Annual Energy Outlook 2013 Early Release
    9. 9. Unconventional GasNatural Gas Resources Have Potential to Supply the Market for Decades High demand, advanced technology, moderate development cost
    10. 10. Unconventional Gas Projections for natural gas prices have declined as understanding of resource base expands natural gas spot price (Henry Hub) per million BTU 12 History Projections 10 Updated AEO2009 AEO2010 8 AEO2011(2011$) 6 AEO2013 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Sources: EIA, Annual Energy Outlook 2011; EIA, Annual Energy Outlook 2010; and EIA, An Updated Annual Energy Outlook 2009 Reference Case
    11. 11. Unconventional Gas Increased Production Allows U.S. to Transition from Net Importer to Net Exporter of Natural GasSource: U.S. Energy Information Administration, Annual Energy Outlook 2012, June 25, 2012
    12. 12. Unconventional Gas Potential Gas Pathways Non-Associated gas Gas to Power/ Residential & Gas Pipeline Commercial Associated gas LNG for Export Liquefaction LNG for Transport Gas to Chemicals Chemical Reaction Gas To Liquids (GTL) Syngas Refined Crude Oil Oil ProductsSource: Royal Dutch Shell
    13. 13. Unconventional Gas 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 www.csis.org |
    14. 14. Unconventional Gas Realizing the full promise of shale resources is not a certainty and US domestic policy is importantTechnical/Economic Challenges Environmental/Regulatory/Societal Challenges• All shales are not alike; application •Well design and management of of drilling/reservoir fracturing surface chemicals/materials are the technology & operational experience best barriers to protecting water matters aquifers• Steep decline rates require ongoing •Disclosure of components of fracking investment and drilling; and repeated fracturing • Scale of water use, treatment & disposal are challenging• Cost escalation and low commodity prices limit prospects •Community Issues – infrastructure, land use, population• Infrastructure build-out and refinery density, noise, haze, health issues, road rationalization congestion and repair need to be addressed •Seismicity – associated with wastewater injection •Regulation and enforcement are essential
    15. 15. Tight/Unconventional Oil Resources www.csis.org |
    16. 16. Unconventional OilResource 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 www.csis.org |
    17. 17. Unconventional OilNPC Study Identifies Large Oil Potential as Well
    18. 18. “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. 19. Key Onshore Crude Production Basins www.csis.org | 19Source: EIA STEO Supplement
    20. 20. Unconventional Oil Tight Oil Opportunities Span the Lower 48Source: Wood Mackenzie, April 3, 2012
    21. 21. Unconventional Oil Oil, Gas & NGL Price Comparison 30 30 25 25$/MMBtu Equivalent 20 20 15 15 10 10 5 5 0 0 WTI $/MMBtu HH Gas $/MMBtu MB NGL Ave. $/MMBtu www.csis.org |
    22. 22. Unconventional OilReorienting the US Rig Count
    23. 23. Unconventional Oil U.S. Active Rig Locations: Major Resource Plays Dominate Williston Basin Bakken Shale (Oil Play) Pinedale/Jonah Niobrara Shale Play Tight Gas (Oil Play) Uinta – Piceance Marcellus Woodford Shale Gas Play Shale Gas Play Granite Wash, Cleveland, Miss. Fayetteville Shale Gas Play Barnett Shale Gas Play Haynesville Permian Basin-Oil Shale Gas Play U.S. Active Rigs Targets 1400 1200 1000 800 Eagle Ford Shale Play 600 400 200 0 Ver Dir HorSource RigData and BENTEK: Lower 48 States, March 9, 2012
    24. 24. Unconventional Oil Historical U.S. Crude Oil Production 12000 Federal Alaska Lower 48 Offshore 10000 U.S. Onshore Crude OilThousands of barrels/day 8000 Production on the Rise 6000 4000 2000 0 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 www.csis.org |Source: EIA
    25. 25. Forecast through 2016 shows Continued Growth 10,000 9,000 8,000 7,000„000s b/d 6,000 5,000 4,000 3,000 1988 2,000 1,000 0 1955 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1900-2007 2008-2010 2011-2016 www.csis.org | Source: EIA, Excludes NGLs and Other Liquids
    26. 26. Tight oil production for selected plays approaching 2.0 million b/d
    27. 27. Can the Bakken Story be Replicated (Again and Again)? 000 b/d Surging U.S. Shale Liquid Production (oil and NGL) 2500 Woodford 2000 Niobrara Marcellus 1500 Lower Monterey Granite Wash 1000 Eagle Ford Barnett 500 Bakken 0 Avalon/ Leonard 2005 2010 2015 2020Source: Energy Security Analysis, Inc. (ESAI) April 3, 2012
    29. 29. Unconventional Oil PAD Districts and Refinery Locations www.csis.org |Source: EPRINC, Info. From CME Group and Purvin and Gertz Study
    30. 30. New Pipeline Projects Delivering to Cushing (2010-2012): 815,000 bbl/d New Pipeline Projects Delivering to Cushing (2013-2014): 1,225,000 bbl/d New Pipeline Projects from Cushing Delivering to Gulf Coast (2013-2014): 1,400,000 bbl/d Canada Bakken Niobrara Anadarko Seaway Permian Eagle Ford RailSource: EIA, Petroleum Project BargeTracker, Bentek, RFG, CSIS analysisNot All Projects Shown Dock TerminalNote: 2011 Average to 2016 Average (MB/d)
    31. 31. Unconventional Oil Where Does All this Light Crude Go?? What Can PADD III Absorb? What Gets Displaced/Changed? 1000 700 600 900 600 500 800 700 500 400 600 400 MB/DMB/D MB/D 500 300 400 300 300 200 200 200 100 100 100 0 0 0 HOUSTON, TX PORT ARTHUR, TX ST. JAMES, LA Light (32⁰+) Intermediate (28-32⁰) Heavy (28⁰-) www.csis.org | Note: 2011 Average Imports (Jan-Dec 2011)
    32. 32. US Production Already Backing Out Imports 40,000 Bakken production 35,000 Eagle Ford Production Angola Crude and Products 30,000 Nigeria Crude and Products Algeria Crude and Products 25,000Thousand Barrels 20,000 15,000 10,000 5,000 0 Jun-2010 Oct-2010 Jan-2011 Mar-2011 Jun-2011 Oct-2011 Jan-2012 Mar-2012 Jun-2012 Oct-2012 Apr-2010 May-2010 Aug-2010 Apr-2011 May-2011 Aug-2011 Apr-2012 May-2012 Aug-2012 Jul-2010 Sep-2010 Nov-2010 Feb-2011 Jul-2011 Sep-2011 Nov-2011 Feb-2012 Jul-2012 Sep-2012 Dec-2010 Dec-2011Source: EIA, Texas RRC, North Dakota DMR *Avg monthly production based on annual figures
    33. 33. Continued liquids growth and reduced demand means lower imports US Liquid fuels supply, 1970-2040 Million b/d www.csis.org |Source: EIA Annual Energy Outlook 2013 Early Release
    34. 34. 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
    35. 35. 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?
    36. 36. Trade Balances May See Significant Change Due to Resources and Demand Growth – Creating A New Energy Security Paradigm?
    37. 37. Call on OPEC and Spare CapacitySource: BP Energy Outlook 2030
    38. 38. 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 |
    39. 39. Climate Change www.csis.org |
    40. 40. Climate Change Risks WarmingFood Falling crop yields in developing regions first, then developed regions later Mountain glaciers Many more areas suffer Sea level riseWater disappear; Decreased from low water availability threatens major cities water in some areasEcosystems Extensive damage Rising numbers of species extinctions to coral reefsExtreme Rising intensity of storms, wildfires, droughts, floods, heatwavesWeatherRisk of Irreversible Rising risk of dangerous positive feedbacks,or Abrupt Changes Rapid SLR and collapse of Atlantic conveyor Today 450 550 650 750 850 950 ppm ppm ppm ppm ppm ppmE3G, Adapted from Stern 2006
    41. 41. Climate Change as Threat Multiplier4242Water Scarcity Demography Crop Decline Hunger Coastal Risks
    42. 42. GHG Reductions Required to Meet 2 Degree Goal 45 Gt OECD 28% Current Policies 40 Non-OECD Scenario 7 Gt 71% 35 New Policies 33% Scenario 30 15 Gt 65% 25 450 Scenario 20 1990 2000 2010 2020 2030 203543
    43. 43. Technology Each option would save one gigatonne of CO2 per year Build 130 new (1GW) nuclear power plants in lieu of Nuclear new coal-fired power plants without CO2 capture and storage Build 320 new zero-emission 500MW coal-fired power Coal-Fired Generation 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 CO2 Capture In Forestry (equiv of Spain, 2.5 times the size of Washington state) Improved Double fuel efficiency; Deploy 290 million new cars at Efficiency 40mpg rather than 20mpg www.csis.org |Source: DOE Climate Change Technology Program,http://www.climatetechnology.gov/stratplan/final/index.htm 44
    44. 44. Balancing Costs of Impacts, Mitigation, and Adaptation There Will Be Costs The Questions: How We Choose to All Pay, Who Will Pay, How will the $ Mitigation be spent? Choices Must Be Made in Context of Balancing “E3” Goals of • Energy Security • Economy • Environment What is No Action All Adaptation Optimal? less Cost of Adaptation more A schematic overview of inter-relationships between adaptation, mitigation and impacts.Source: Holdridge, M.L. Parry www.csis.org |
    45. 45. POLICY MODEL Economic Objectives Reliable and Secure Affordable/Accessible Supports Economic Natural Oil Growth & Gas Defensible Employment Nuclear Coal Energy Efficiency Carbon Environmentally Capture and Benign Storage Renewable Energy Security & Environmental Foreign Objectives Promotes/Supports Policy Low/no Sustainable Objectives emissions Environment
    46. 46. Strategies to Enhance Oil U.S. Security Mmb/d 25 20 Moderate Liquid Fuels Demand demand 15 Imports 10 Diversify supplies Maintain/ 5 expand domestic Domestic Oil Supply oil output 0 2009 2012 2015 2018 2021 2024 2027 2030Source: EIA Reference Case / NPC Global Oil and Gas study survey.
    47. 47. …Becoming a RealityEnergy Security Leadership Council, “The New AmericanOil Boom, Implications for Energy Security,” 2012
    48. 48. What Could a 21st Century Energy Network Look Like?
    49. 49. The “NEW” Fundamentals FUTURE EXPECTATIONS Supply Weather Demand Geopolitics Inventory Levels Market Price Demand Growth/Capacity Utilization Macroeconomics Refining Supply Growth Configuration and Product slates Investment $ Crude Quality Market Momentum Infrastructure Availability Financial Markets Interest Rates, Foreign Exchange, Asset Markets