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AIChE: Natural Gas Utilization WorkshopOvercoming Hurdles of Technology ImplementationNatural Gas in the United States:An Overview of Resources and Factors Affecting the Market
November 2, 2016
Justin M. Adder, Energy Markets Analysis Team
West Virginia
Texas
o Materials Performanceo Alloy Development/Manufactureo Geospatial Data Analysis
o Process Systems Engineeringo Decision Science o Functional Materialso Environmental Sciences
o Energy Conversion Deviceso Simulation-Based Engineeringo In-Situ Materials Characterizationo Supercomputer Infrastructure
Oil and Gas Strategic Office
Oil and Gas Strategic Office
Alaska
Pennsylvania
Oregon
The Fossil Energy LaboratoryONE LAB System
2
3
Core Competencies
Computational Science &
Engineering
High Performance Computing
Data Analytics
Materials Engineering & Manufacturing
Structural & Functional
Design, Synthesis & Performance
Geological & Environmental
Systems
Air, Water & Geology
Understanding & Mitigation
EnergyConversion
Engineering
Component & Device
Design & Validation
Systems Engineering& Analysis
Process & System
Optimization, Validation & Market Economics
MethaneHydrates
Transmission& Delivery
EnhancedResource Production
EnvironmentallyPrudent Development
OIL & GAS
4
Natural Gas Prices – Various CasesHenry Hub Spot Prices ($/MMBtu) Under Various EIA Cases
$0
$2
$4
$6
$8
$10
2000 2005 2010 2015 2020 2025 2030 2035 2040
$/M
MB
tu (2
015$
)
Low Oil & Gas Resource
Historical AEO 2016 Forecast
High Oil Price
High Oil & Gas Resource
Reference
Low Oil Price
There are several determinants of future natural gas prices
Source: EIA, AEO 2016
5
Determinants of Natural Gas PricesDirect and Indirect Determinants of Natural Gas Prices
Direct Forces Time Horizon Likely Effect Secular Demand Long Rising, thus prices rise; incentive for more supply
Cyclical Investment Behavior Short to Medium Pro-cyclical behavior increases amplitude of price fluctuations
Gas Storage Short to Medium If well behaved, counter-cyclical effect on price. Issue as to whether there will be enough storage
Pipeline Infrastructure Medium to Long Delays in permitting and constructing gathering lines and transmission projects moving gas from high supply areas to high demand areas
LNG Exports Short to MediumForeign markets where natural gas prices are higher; thus putting upward pressure on domestic prices
Access to Resources Medium to Long Advanced technology and federal lands could increase supply. Low natural gas prices could hinder production
Indirect Forces Industrial Use Short to Long Increased manufacturing adds structural element
to gas demand
Transportation Use Short to Long NG and NGL Vehicles and fleets add structural element to gas demand
Coal Power Short to Long Environmental regulations reduce use; structural element added to gas demand
Nuclear Power Short to Long Cheapest marginal operating cost, retirements add structural element to gas demand if coal unavailable
6
World Proved ReservesWorld Proved Natural Gas Reserves, 2015
U.S., 369 tcf (5.6%)
Saudi Arabia, 294 tcf (4.5%)
UAE, 215 tcf (3.3%)
Venezuela, 198 tcf (3%)
Nigeria, 181 tcf (2.7%)
Algeria, 159 tcf (2.4%)
Russia1,140 tcf (17.3%)
Iran1,201 tcf (18.2%)
Rest of World1,359 tcf (20.5%)
Turkmenistan617 tcf (9.4%)
Qatar866 tcf (13.1%)
World Total 6,599 tcf
Source: BP Statistical Review of World Energy 2016, http://www.bp.com/ (May not equal 100% due to rounding)
7
World ProductionWorld Natural Gas Production, 2015
Russia,20.2 tcf (16.1%)
Iran,6.5 tcf (5.4%)
Qatar, 6.4 tcf (5.1%)Turkmenistan,
2.6 tcf (2.0%)
U.S.,27.1 tcf (22.0%)
Saudi Arabia, 3.8 tcf (3.0%)
UAE, 2.0 tcf (1.6%)
Venezuela, 1.1 tcf (0.9%)
Nigeria, 1.8 tcf (1.4%)
Canada, 5.8 tcf (4.6%)
Mexico, 1.9 tcf (1.5%)
Norway, 4.1 tcf (3.3%)
China, 4.9 tcf (3.9%)
Indonesia, 2.6 tcf (2.1%)
Algeria,2.9 tcf (2.3%)
Rest of World,31.3 tcf(24.8%)
World Total125 tcf
Source: BP Statistical Review of World Energy 2016, http://www.bp.com/ (May not equal 100% due to rounding)
8
U.S. Rig Count and ProductionOil and Natural Gas Rig Count and Natural Gas Production
0
10
20
30
40
50
60
70
80
90
0
500
1,000
1,500
2,000
2,500
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Bcf/d
U.S
. Rig
Cou
nt
oil rigs
total rig count
natural gas rigs
natural gas production
Natural gas production increases despite fall in rig count
Source: Baker Hughes, Inc. rig count, EIA Monthly Total Marketed Production
9
U.S. Drilling & Completion CostsU.S. Oil & Natural Gas Drilling & Completion Cost Reductions (indexed to Dec 2012)
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
30
40
50
60
70
80
90
100
110
120
130
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Henry H
ub Spot Price$ per M
illion Btu
Prod
ucer
Pric
e In
dex
by In
dust
ryD
ec. 2
012
= 10
0
Drilling
Frac Sand
Support
Henry Hub
From Feb 2014 to Feb 2016 the PPI by industry classification showed the following changes:• Rates for drilling activities, which represent fees for contractors to drill oil and gas wells, declined by 28.7%• Rates for support activities, which include surveying, cementing, casing, and treating wells, declined by 3.1%• The price of sands primarily used for hydraulic fracturing declined 20.0%
Source: United States Bureau of Labor Statistics, Industry Producer Price Indexes and EIA Henry Hub Spot Price
10
Marcellus Shale Drilling PermitsDrilling Permit Count and Natural Gas Production By Quarter
0
2
4
6
8
10
12
14
16
18
20
0
200
400
600
800
1,000
1,200
1,400
Production (Bcf/d)
Perm
it C
ount
Source: DI Analytics, DrillingInfo and EIA Drilling Productivity Report
11
Drilled but Uncompleted WellsGas Region DUC Well Inventory
-
200
400
600
800
1,000
1,200
1,400
Num
ber o
f DU
Cs
Haynesville Marcellus Utica
Source: U.S. Energy Information Administration, Drilling Productivity Report, September 2016.
12
U.S. Natural Gas Production ProjectionsU.S. Natural Gas Production (Tcf) by EIA Case, 2015-2040
0
10
20
30
40
50
60Tr
illio
n C
ubic
Fee
t
Reference Case 2016 Reference Case 2015 High Oil PriceLow Oil Price High Resource Case Low Resource Case
Source: U.S. Energy Information Administration, http://www.eia.gov/naturalgas/data.cfm and Annual Energy Outlook 2016
Alternative price and resource/technology assumptions could be quite different
13
U.S. Natural Gas Supply SourcesUnconventional Gas: Major Impact on U.S. Gas Supply Sources (Reference Case)
0
20
40
60
80
100
120
140
0
10
20
30
40
50
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Billion C
ubic Feet per Day
Trill
ion
Cub
ic F
eet
History Projections
Shale gas
Tight gas
Alaska
U.S. shale gas grows to 69 percent of total U.S. production by 2040
Other lower 48 onshore
Coalbed methaneLower 48 offshore
Source: EIA, Annual Energy Outlook 2016, Tables 13 and 14
14
U.S. Shale Gas ProductionU.S. Dry Shale Gas Production – Through June 2016
0
5
10
15
20
25
30
35
40
45
2000 2002 2004 2006 2008 2010 2012 2014 2016
Bill
ion
Cub
ic F
eet p
er D
ay Marcellus (PA & WV)Eagle Ford (TX)Haynesville (LA & TX)Barnett (TX)Fayetteville (AR)Woodford (OK)Bakken (ND)Antrim (MI, IN, & OH)Utica (OH, PA & WV)Rest of US 'shale'
Marcellus region provides nearly 40% of total U.S. shale gas production
Source: EIA, Natural Gas Weekly, Released July 2016
15
Gross Natural Gas Withdrawals by StateNatural Gas Withdrawals by State, Bcf/d
0
5
10
15
20
25
30B
cf/d
Texas Federal GOM Wyoming Oklahoma New Mexico Louisiana
Alaska Colorado Ohio Pennsylvania West Virginia
Pennsylvania, West Virginia and Ohio production continues to increase due to new wells being brought online in the Marcellus & Utica shale plays.
Source: EIA, Monthly Natural Gas Gross Production Report, July, 2016
16
Natural Gas Production ShiftsU.S. Natural Gas Production in Jan. 2006, Bcf/d
9.24 Bcf/d
7.93 Bcf/d
4.41 Bcf/d
4.41 Bcf/d
3.65 17.03 Bcf/d
5.62 Bcf/d
3.34 0.25
0.59
0.50
Source: EIA, Annual Energy Outlook 2012 and Monthly Natural Gas and Petroleum Report, July 31, 2012
17
Natural Gas Production ShiftsU.S. Natural Gas Production, Jan. 2006 compared to Jan. 2016, Bcf/d
4.46 Bcf/d
3.66
5.34 Bcf/d
22.82 Bcf/d9.64
Bcf/d
3.51Bcf/d
3.23 6.90Bcf/d
5.13 Bcf/d34
%
41%
56%
5.03Bcf/d
1,33
2%
4%
3.51Bcf/d
4.63Bcf/d
39%
3.51Bcf/d
636%
14.23 Bcf/d 2,
312%
Source: EIA, January Monthly Natural Gas and Petroleum Report
18
Natural Gas Pipeline Miles and CapacityAnnual Addition of Natural Gas Pipeline Miles and Capacity, Northeast Region vs. Total U.S. (2000–2020)
05101520253035404550
0
1,000
2,000
3,000
4,000
5,000
6,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Capacity Added (B
cf/d)Mile
s of
Pip
elin
e Ad
ded
Northeast Miles Total U.S. Miles Northeast Capacity Total U.S. Capacity
*Announced
*(Not all announced pipelines will be built)
Source: EIA, http://www.eia.gov/naturalgas/data.cfm#pipelines
19
Natural Gas Infrastructure DevelopmentMajor Natural Gas Pipeline Capacity Additions in the Northeast
EastMidwest
~20 Bcf/d of new natural gas pipeline takeaway capacity from 30+ pipeline builds, expansions and reversals to move gas out of the Appalachian basin by 2019.
Source: RBN Energy and EIA
20
Natural Gas ConsumptionU.S. Natural Gas Consumption by Sector through 2040 (Reference Case)
4.62 4.58
3.22 3.690.93 1.70
9.6111.96
9.09
11.82
0
5
10
15
20
25
30
35
40
2005 2015 2020 2025 2030 2035 2040
Trill
ion
Cub
ic F
eet
Residential
Commercial
Transportation**
Industrial*
Electric Power
Natural gas consumption growth is led by electricity generation and industrial uses; natural gas use rises in all sectors except residential
History Projections
*Includes combined heat-and-power and lease and plant fuel**Includes pipeline fuel
Source: U.S. Energy Information Administration, http://www.eia.gov/naturalgas/data.cfm and Annual Energy Outlook 2016
21
Natural Gas Prices Versus DemandHenry Hub Spot Prices ($/MMBtu) vs. Total Consumption & Production (Tcf)
0
5
10
15
20
25
30
35
40
45
$0
$2
$4
$6
$8
$10
$12
$14
Tcf
$/M
MB
tu (2
015$
)
Henry Hub Price
Total Consumption
Historical AEO 2016 Forecast
Total Production
Source: U.S. Energy Information Administration, http://www.eia.gov/naturalgas/data.cfm and Annual Energy Outlook 2016
22
U.S. Natural Gas Imports and ExportsU.S. Natural Gas Imports and Exports, (Reference Case) Tcf
Lower 48 LNG exports
-6
-4
-2
0
2
4
6
8
10
12
14
16
2000 2005 2010 2015 2020 2025 2030 2035 2040
Lower 48 states LNG exports
Pipeline imports from Canada
LNG imports
2015History Projections
U.S. natural gas exports reflect the spread between domestic natural gas prices and world energy prices
Alaska LNG exports
Source: EIA, Annual Energy Outlook 2016, Tables 13 and 14
23
Thank You
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