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Unconventional Oil & Gas: Reshaping Energy
                 Markets
                         Frank A. Verrastro
  Senior Vice President & CSIS Energy and James R. Schlesinger Chair
                         for Energy & Geopolitics
                               March 2013
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




                    www.csis.org |
New technologies and practices drive production from
                        shale deposits.




Source: USGS
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 |
Unconventional Gas




U.S. Shale Gas Resources
Unconventional Gas




U.S. shale gas production from the major plays has increased dramatically
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 oil




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



                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
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
     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 Products


Source: Royal Dutch Shell
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 |
Unconventional Gas




    Realizing the full promise of shale resources is not a
       certainty and US domestic policy is important
Technical/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
Tight/Unconventional Oil
       Resources




                  www.csis.org |
Unconventional Oil




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

                                          www.csis.org |
Unconventional Oil




NPC Study Identifies Large Oil Potential as Well
“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 |
Key Onshore Crude Production Basins




                                          www.csis.org | 19


Source: EIA STEO Supplement
Unconventional Oil




                                Tight Oil Opportunities Span the Lower 48




Source: Wood Mackenzie, April 3, 2012
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 |
Unconventional Oil




Reorienting the US Rig Count
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     Hor



Source RigData and BENTEK: Lower 48 States, March 9, 2012
Unconventional Oil & Gas: Reshaping Energy Markets
Unconventional Oil




                                                               Historical U.S. Crude Oil Production
                           12000
                                                                                                                                                                        Federal
                                                    Alaska                                                Lower 48
                                                                                                                                                                        Offshore
                           10000
                                                                               U.S. Onshore
                                                                                 Crude Oil
Thousands 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
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
Tight oil production for selected plays
      approaching 2.0 million b/d
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                        2020




Source: Energy Security Analysis, Inc. (ESAI) April 3, 2012
Unconventional Oil




LARGE UNCONVENTIONAL OIL RESOURCES
Unconventional Oil




          PAD Districts and Refinery Locations




                                                                  www.csis.org |

Source: EPRINC, Info. From CME Group and Purvin and Gertz Study
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
                                                                                Rail
Source: EIA, Petroleum Project
                                                                                Barge
Tracker, Bentek, RFG, CSIS analysis
Not All Projects Shown                                                          Dock Terminal
Note: 2011 Average to 2016 Average (MB/d)
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/D
MB/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)
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
                   25,000
Thousand 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-2011



Source: EIA, Texas RRC, North Dakota DMR                                                                                                                                              *Avg monthly production based on annual figures
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
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?
Trade Balances May See Significant Change Due to Resources and Demand Growth
                 – Creating A New Energy Security Paradigm?
Call on OPEC and Spare Capacity




Source: BP Energy Outlook 2030
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




             www.csis.org |
Climate Change Risks
                                            Warming

Food           Falling crop yields in developing regions first, then developed regions later


               Mountain glaciers
                                          Many more areas suffer            Sea level rise
Water          disappear; Decreased
                                          from low water availability       threatens major cities
               water in some areas
Ecosystems
             Extensive damage                    Rising numbers of species extinctions
             to coral reefs

Extreme
                           Rising intensity of storms, wildfires, droughts, floods, heatwaves
Weather

Risk 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     ppm
E3G, Adapted from Stern 2006
Climate Change as Threat Multiplier




42
42
Water Scarcity    Demography   Crop Decline   Hunger   Coastal Risks
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   2035




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
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 |
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
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    2030


Source: EIA Reference Case / NPC Global Oil and Gas study survey.
…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?
Unconventional Oil & Gas: Reshaping Energy Markets
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

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Unconventional Oil & Gas: Reshaping Energy Markets

  • 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. 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. Unconventional Natural Gas Resources www.csis.org |
  • 4. New technologies and practices drive production from shale deposits. Source: USGS
  • 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 |
  • 7. Unconventional Gas U.S. shale gas production from the major plays has increased dramatically
  • 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 oil Source: EIA, Annual Energy Outlook 2013 Early Release
  • 9. Unconventional Gas Natural Gas Resources Have Potential to Supply the Market for Decades High demand, advanced technology, moderate development cost
  • 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. 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
  • 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 Products Source: Royal Dutch Shell
  • 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. Unconventional Gas Realizing the full promise of shale resources is not a certainty and US domestic policy is important Technical/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. Tight/Unconventional Oil Resources www.csis.org |
  • 16. Unconventional Oil 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 www.csis.org |
  • 17. Unconventional Oil NPC Study Identifies Large Oil Potential as Well
  • 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. Key Onshore Crude Production Basins www.csis.org | 19 Source: EIA STEO Supplement
  • 20. Unconventional Oil Tight Oil Opportunities Span the Lower 48 Source: Wood Mackenzie, April 3, 2012
  • 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 |
  • 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 Hor Source RigData and BENTEK: Lower 48 States, March 9, 2012
  • 25. Unconventional Oil Historical U.S. Crude Oil Production 12000 Federal Alaska Lower 48 Offshore 10000 U.S. Onshore Crude Oil Thousands 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
  • 26. 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
  • 27. Tight oil production for selected plays approaching 2.0 million b/d
  • 28. 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 2020 Source: Energy Security Analysis, Inc. (ESAI) April 3, 2012
  • 30. Unconventional Oil PAD Districts and Refinery Locations www.csis.org | Source: EPRINC, Info. From CME Group and Purvin and Gertz Study
  • 31. 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 Rail Source: EIA, Petroleum Project Barge Tracker, Bentek, RFG, CSIS analysis Not All Projects Shown Dock Terminal Note: 2011 Average to 2016 Average (MB/d)
  • 32. 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/D MB/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)
  • 33. 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 25,000 Thousand 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-2011 Source: EIA, Texas RRC, North Dakota DMR *Avg monthly production based on annual figures
  • 34. 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
  • 35. 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
  • 36. 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?
  • 37. Trade Balances May See Significant Change Due to Resources and Demand Growth – Creating A New Energy Security Paradigm?
  • 38. Call on OPEC and Spare Capacity Source: BP Energy Outlook 2030
  • 39. 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 |
  • 40. Climate Change www.csis.org |
  • 41. Climate Change Risks Warming Food Falling crop yields in developing regions first, then developed regions later Mountain glaciers Many more areas suffer Sea level rise Water disappear; Decreased from low water availability threatens major cities water in some areas Ecosystems Extensive damage Rising numbers of species extinctions to coral reefs Extreme Rising intensity of storms, wildfires, droughts, floods, heatwaves Weather Risk 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 ppm E3G, Adapted from Stern 2006
  • 42. Climate Change as Threat Multiplier 42 42 Water Scarcity Demography Crop Decline Hunger Coastal Risks
  • 43. 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 2035 43
  • 44. 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
  • 45. 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 |
  • 46. 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
  • 47. 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 2030 Source: EIA Reference Case / NPC Global Oil and Gas study survey.
  • 48. …Becoming a Reality Energy Security Leadership Council, “The New American Oil Boom, Implications for Energy Security,” 2012
  • 49. What Could a 21st Century Energy Network Look Like?
  • 51. 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

Notas del editor

  1. 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
  2. Updated 1/15/2013 with data through 2011. http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm
  3. 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
  4. ND DMR, EIA, texas RRChttps://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdfhttp://www.rrc.state.tx.us/eagleford/EagleFordOilProduction.pdf
  5. 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
  6. I’ll then leave it to Doug to describe in greater detail technology drivers and change, climate concerns and renewables opportunities
  7. 50-60% Has to be through e
  8. 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.
  9. Did not update-Hisham 1/30/2012