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The Future Role of Natural Gas in the U.S.
U.T. Energy Symposium
Marianne Kah September 29, 2011
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1
REGARDING FORWARD-‐LOOKING STATEMENTS
This presenta=on includes forward-‐looking statements within the meaning of the Private Securi=es Li=ga=on Reform Act of 1995, and the forward-‐looking statements speak only as of the date on which such statements are made. You can iden=fy forward-‐looking statements by words such as “an=cipate,” “es=mate,” “believe,” “con=nue,” “could,” “intend,” “may,” “plan,” “poten=al,” “predict,” “should,” “will,” “expect,” “objec=ve,” “projec=on,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other similar references to future periods.
The company based the forward-‐looking statements on its current expecta=ons, es=mates and projec=ons about itself and the industries in which it operates. The company cau=ons you these statements are not guarantees of future performance, as they involve assump=ons that, while made in good faith, may prove to be incorrect, and involve risks and uncertain=es whose outcomes the company cannot predict. In addi=on, the company based many of these forward-‐looking statements on assump=ons about future events that may prove to be inaccurate.
Accordingly, our actual results could differ materially from those described in the forward-‐looking statements due to a variety of factors, including the economic, business, compe==ve and regulatory factors affec=ng our business generally as set forth in Item 1A of the company’s 2010 Form 10-‐K, including our Form 10-‐K and other reports and filings with the SEC. Copies are available from the SEC and from the ConocoPhillips website. Unless legally required, the company undertakes no obliga=on to update publicly any forward-‐looking statements, whether as a result of new informa=on, future events or otherwise.
REGARDING RESERVES
CauBonary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We use the term "resource" in this presenta=on that the SEC’s guidelines prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-‐K and other reports and filings with the SEC. Copies are available from the SEC and from the ConocoPhillips website.
CAUTIONARY STATEMENTS
OFF THE RECORD
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U.S. Natural Gas Supply and Demand Outlook
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U.S. Natural Gas Reserves and Resources
“Proven” = SEC proven reserves; all other categories shown are technically recoverable resources
DOE = Data from U.S. Department of Energy, Energy Informa=on Agency “Annual Energy Outlook”; data are as of January 1 of year indicated; 2007 data published in 2009 report
Tight Gas is included in Conven=onal Resource es=mates for all years
Sharp increase in shale gas resource esBmates in recent years
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Gas ProducBon Outlook from Key North American Shale Gas Plays
Source: Wood Mackenzie
Large increase in NA shale gas producBon through 2020
BCFD
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Cost of North American Resource Plays
Cost of service ($/MMbtu)1
Sources: Morgan Stanley 1 Henry Hub basis required for 10% IRR. 2 Value based conversion of $72/BBL = $6/MMbtu due to high liquids yield.
$6 / MMBtu
AXracBve economics for North American resource plays
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Alaska
LNG Imports
Other UnconvenBonal Growth
Net Pipeline Imports
U.S. Natural Gas Supply Sources BC
FD
ConvenBonal Growth ExisBng ProducBon
Projected U.S. demand
UnconvenBonal natural gas will dominate new U.S. supply
Shale Growth
Source: COP
* Observed decline rate, including reinvestment
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U.S. DOE Forecasts of Required U.S. LNG Imports
2005
Source: U.S. Department of Energy, EIA Annual Energy Outlooks
2011
BCFD
2007
The U.S. is projected to be more self-‐sufficient
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Crude-‐to-‐Gas Price RaBo
Sources: Futures is NYMEX seple on 9/7/2011; DOE is 2011 Annual Energy Outlook * WTI ($/bbl) divided by Henry Hub ($/mmbtu)
History
Futures
DOE
Consultant Range
Crude Parity
Some disconnect between U.S. gas and global oil prices likely to remain
WTI / Henry Hub Price Ratio*
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U.S. Natural Gas Demand By Sector
Source: History – U.S DOE, EIA, Outlook -‐ COP
Average Annual Growth Rate 2011-‐2030
2.3%
0.9%
0.2%
0.6%
0.5%
History Avg. Annual Growth Rates
Forecast Avg. Annual Growth Rate
1.2%
BCFD
1.2%
Most of the growth is for power generaBon
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Changing Electricity GeneraBon Mix
Source: EIA (history), COP (forecast)
Other renewables Forecast
% of Electricity GeneraBon
% of Electricity Capacity AddiBons
Natural gas will gain share in electricity generaBon
Aber two decades of leading growth, natural gas has second largest capacity
growth aber renewables
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U.S. Coal Fleet: Capacity By Age of Plant
• Average Age = 36 years
• 71 GW > 45 years
• 31 GW > 40 years, small* & inefficient**
Source: Ventyx Velocity Suite *Less than 300 MW ** Heat rate > 10,000 Btu/KWh
MW By Year of Plant Start-‐Up
Between 30 and 70 GW (10-‐20% of coal fleet) could be shuXered due to more stringent environmental regulaBons
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Role of Gas in U.S. Supply Mix
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Reasons Why Natural Gas Should Play A Larger Role in the U.S. Fuel Mix
Energy Security • Abundance & diversity of supplies • Increased storage and pipeline capacity • LNG deliverability
Affordability • Low cost of shale gas producBon in North America
• AXracBve economics in gas-‐fired power plants
AXracBve Environmental ProperBes
• CO2 emissions reducBon
• Clean air (liXle or no NOX, SOX, VOCs, mercury)
• RelaBvely small land use and water footprint
• Enables use of renewable power sources • No solid waste (fuel rods, ash)
Fuel choice will be driven by government
policy
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Top Ten Natural Gas Producing NaBons (2010)
BCFD
Source: BP Sta=s=cal Review 2011
The U.S. was the largest producer of gas in 2010
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U.S. DOE Forecasts of Henry Hub Natural Gas Prices
AEO 2009
AEO 2010
AEO 2011
2010 $/MMbtu
Source: U.S. Department of Energy, EIA, Annual Energy Outlook, 2009, 2010 and 2011
U.S. DOE has lowered its U.S. gas price forecasts in recent years
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Natural Gas Price VolaBlity Short-‐term price volaBlity moderated by:
• Increased natural gas storage in the U.S. • Increased pipeline capacity in the U.S. • 18 bcfd of LNG deliverability (~25% of U.S. gas demand)
• Produc=on growth onshore and spread throughout the U.S., which reduces supply disrup=ons from hurricanes
Long-‐term upside U.S. gas price risk moderated by enormous supply potenBal
• Large low-‐cost unconven=onal gas resources in U.S. & Canada • Arc=c gas poten=al (ANS gas, Mackenzie Delta in Canada)
• Surplus global LNG capacity with ability to deliver to U.S. • Unconven=onal gas revolu=on in the rest of the world
Price volaBlity will likely be moderated and it can be managed with market tools if regulators allow it
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Full-‐Cycle Costs of Building New Power Plants Cents/KWh
Source: DOE AEO 2011 Assump=ons for overnight capital costs Assumes 10% IRR for all technologies Renewable sources & nuclear include a federal tax credit
Levelized Cost of Power
AXracBve economics of combined cycle gas-‐fired power plants
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Water Intensity for Various Power GeneraBon Technologies
Source: U.S. Department of Energy, “Energy Demands on Water Resources”, December 2006; Chesapeake for shale gas water use * Assumes closed loop cooling tower **Other use includes water for other process uses such as emissions treatment, facili=es.
Gallons / MWh
Gas-‐fired combined cycle power plants use much less water than thermal power plants with only a small contribuBon from gas producBon
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Acreage Requirements for Electricity ProducBon
Natural gas has the smallest footprint of any energy source
Acres
Source: R.W. Beck and Black and Veatch for NGSA
To produce the fuel and generate enough electricity to serve 1,000 households for one year
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Pollutant Emissions From GeneraBng Electricity
Wood Coal Natural Gas Nuclear & Renewables
SO2 2.8 5.0 0.2 0.0
NOX 28.0 3.4 0.3 0.0
PM 2.7 0.9 0.0 0.0
VOC 5.6 0.2 0.0 0.0
Tons per year per thousand households
Most Middle None
Source: R.W. Beck for NGSA
Natural gas is clean burning
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PotenBal for Fuel-‐Switching from Coal to Natural Gas* In ExisBng U.S. Power Plants**
42% u=l.
(2007)
85% u=l.
Power GeneraBon (Million MWh)
75% u=l.
(2007)
51% u=l.
* Combined cycle only **Maximum potential - limited by transmission grid, gas pipeline & storage capacity, flexibility of power system operators, proximity of gas to coal plants, etc. Source: U.S. Congressional Research Service, “Displacing Coal with Generation from Existing Natural Gas-Fired Power Plants,” January, 2010
32%
253.6
635.7
CO2 Emissions (MM MT)
Coal-‐to-‐gas fuel-‐switching in exisBng power plants can reduce CO2 emissions relaBvely quickly
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Cost of CO2 Avoided From Switching Away from ExisBng Coal-‐Fired Power
$/Tonn
e CO
2 Avoided
Chart represents the cost of CO2 avoided by switching from exis=ng coal power to selected source
Source: DOE Cost es=mates AEO 2011
Natural gas is the least expensive fuel source for reducing emissions
CC = Combined Cycle
Existing Plants – Gas Only
New Plants – Various Fuels
Gas price in $/mmbtu
Back up capital for single
cycle NG
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GHG Emissions from Natural Gas Cornell University study indicated that natural gas produced from shale has more
GHG emissions than coal
Study had biased and unjusBfied assumpBons
• Ignored the efficiency of gas-‐fired combined cycle power plants
• High fugiBve emission data for shale gas wells
– Ignored widespread use of 'green' compleBons & assumed that all flowback emissions vented when 50-‐to-‐90% are flared.
• Use of 20 vs. 100-‐year Bme horizon to value warming potenBal
– Disadvantages gas as CO2 remains in the atmosphere for thousands of years, while methane has a shorter life.
• Use of ‘new’ Global Warming PotenBal values for gas to capture interacBon with other chemicals in the atmosphere
– Controversial and inconsistent with IPCC
• Undercounts fugiBve emissions from coal mining
With more realisBc assumpBons for comparing coal and gas in power generaBon, natural gas is found to emit at least 50% less GHG than coal.
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ImplicaBons for CO2 Emissions ReducBon
Limited reducBon in CO2 emissions to the extent that backs out low carbon natural gas vs. coal
Emissions trading or carbon pricing are more cost effecBve ways of reducing CO2 emissions
(6%)
(16%)
Billion
KWh
DOE Analysis of the Impact of an RES on U.S. Natural Gas-‐Fired Power GeneraBon
Source: U.S. Department of Energy, EIA Analysis of RES, April 2009 Fischer & Preonas, RFF, “Combining Policies for Renewable Energy,” March 2010
An RES is not the most effecBve way to reduce CO2 emissions
Renewable Electricity Standard Will Reduce Gas-‐Fired Power GeneraBon
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IndicaBve U.S. Power Load Curve Va
riab
le W
holesale Cash Co
st
$/M
Wh
Capacity GW
Hydro Nuclear
Combined Cycle Gas Turbines (CCGT)
Gas/Oil Steam Turbines
Coal
Internal Com
busBon
Wind
Average Off-‐Peak
Average Demand
Average On-‐Peak
Growth in renewable power could back out demand for natural gas
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Will Renewable Power Lower CO2 Emissions? Impact of IntermiXency
Heat rates: Exis=ng coal – 11,000 btu/kwh; SCNG – 10,930 btu/kwh; CCNG – 7,100 btu/kwh
Source: COP
Capex ($2010 / KW)
CO2 Emissions (Pounds / MWh)
Wind
Wind backed up by coal or single cycle gas could have higher CO2
emissions than running a combined cycle gas plant by itself
SCNG = Single cycle gas-‐fired power plant
CCNG = Combined cycle gas-‐fired power plant
20% wind u=l. 80% SCNG
Wind Wind
SCNG CCNG
CCNG
Gas Only
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Importance of Natural Gas to the U.S. Economy
Employment
• Nearly 3 million Americans are employed in and supported by the natural gas industry
• An addi=onal 1.1 million jobs could be created by 2020 in the U.S. with policies that encourage the development of new and exis=ng oil and gas resources
Economy
• Natural gas development added nearly $400 billion to the U.S. economy in 2008
Government Revenues
• Natural gas companies contributed over $4.4 billion per year on average in gas royalty payments alone to the federal government between 2005 and 2010
MeeBng Energy Needs
• One-‐third of the na=on’s natural gas is consumed by American manufacturers
• 70 million homes and businesses use gas for heat and power
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Adequate Natural Gas Supply at CompeBBve Prices Helps Grow the U.S. Economy
Lower gas prices have helped U.S. industry
Chemical and ferBlizer faciliBes are seeing increased uBlizaBon with lower gas prices
Energy-‐intensive industry can be more compeBBve in the global market
AddiBonal potenBal demand from natural gas vehicles
U.S. Industrial Demand for Natural Gas
Source: Wood Mackenzie
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SupporBve Government Policy Needed to Capture Gas Opportunity
PosiBve business climate for investment • RealisBc tax policy • Ensure benefits of regulaBon exceed cost
Facilitate resource access • Do not over-‐regulate hydraulic fracturing • Limit permiung delays
Policies that are fuel neutral • Avoid picking technology winner