David E. Dismukes, Ph.D.Center for Energy StudiesLouisiana State University
Unconventional Oil & Natural Gas: Overview of Resources, Economics & Policy Issues
Center for Energy Studies
Society of Environmental Journalists Annual MeetingNew Orleans, Louisiana
September 4, 2014
Energy-RelatedCarbon Dioxide
81.2%
Summary and Take Away
2
• New natural gas supply availability is having considerable impacts on all energy markets today as well as on a longer term, forward-looking basis.
• Shale revolution is now migrating into liquids and crude oil production. Facilitating additional natural gas productiondespite low prices and some “dry” gas well shut-ins and decreased natural gas well drilling.
• Considerable economic development opportunities are starting to arise leading to a burst in considerable capital investment.
• There are fuel/resource diversity concerns and continued natural gas resource development/environmental concerns and opposition.
Center for Energy Studies
© LSU Center for Energy Studies
Introduction
Center for Energy Studies
Reminder – The Way Things Were
3© LSU Center for Energy Studies
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
2004 2008 2012 2016 2020 2024 2028
Onshore (Lower 48) Offshore (Lower 48)
Mill
ion
Bar
rels
per
day
Relatively uninspiring U.S. crude oil production forecast.
Source: USDOE/EIA, Annual Energy Outlook, 2006
Long Term US Crude Oil Production Forecast (2006)
Center for Energy Studies Historic Trends
4© LSU Center for Energy Studies
2.5
4.5
6.5
8.5
10.5
12.5
14.5
16.5
18.5
20.5
2004 2008 2012 2016 2020 2024 2028
Onshore (Lower 48) Offshore (Lower 48)
Trill
ion
cubi
c fe
et
Natural gas production forecasted to decrease starting in 2016.
Source: USDOE/EIA, Annual Energy Outlook, 2006
Long Term US Natural Gas Production Forecast (2006)
Center for Energy Studies Historic Trends
5© LSU Center for Energy Studies
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Dec
-96
Jun-
97
Dec
-97
Jun-
98
Dec
-98
Jun-
99
Dec
-99
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
Jun-
03
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
61
62
63
64
65
66
67
68
Rig CountProduction
Source: Energy Information Administration, Department of Energy; and Baker-Hughes Inc.
3 percent increasein production
(Aug-99 to Sep-01)
131 percent increase in rigs
(Apr-02 to Aug-06)Num
ber o
f Ope
ratin
g R
igs
12-M
onth
Mov
ing
Aver
age
(Bcf
/d)
158 percent increase in rigs
(Apr-99 to Jul-01)
4 percent decrease in production
(Feb-04 to Aug-06)
The maturing nature of US basins reflected in drilling productivity.Historic Monthly Rig Counts and Gas Production (1997-2006)
Center for Energy Studies Historic Trends
6© LSU Center for Energy Studies
Source: Natural Gas: Can We Produce Enough?” Independent Petroleum Association of America, website: http://www.ipaa.org/govtrelations/factsheets/NaturalGasProdEnough.asp.
ANWR = 3.5 TCF
ANS = 35 TCF
Policy advocacy focused on restricted areas as a potential solution to the resource constraint problem.
Resource Estimates: Restricted Areas (Percent Restricted)
Center for Energy Studies Historic Trends
7© LSU Center for Energy Studies
Source: National Petroleum Council
LNG provides 14% of the U.S. supply of natural gas by 2025.
NPC Forecast North American Supply Disposition
Center for Energy Studies Historic Trends
8© LSU Center for Energy Studies
Crude Oil and Natural Gas Prices
Center for Energy Studies Historic Trends
$0
$2
$4
$6
$8
$10
$12
$14
$16
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Crude Oil (WTI) Natural Gas (Henry Hub)
Source: Federal Reserve Bank
Cru
de O
il ($
/Bbl
) Natural G
as ($/Mcf)
Prices reflected the state of, and outlook for, energy markets.
First energy price crisis
Recession
9© LSU Center for Energy Studies
Center for Energy Studies
What Changed? The Way Things Are
10© LSU Center for Energy Studies
Unconventional vs. Conventional Geological Formations
Center for Energy Studies Recent Trends
11© LSU Center for Energy Studies
Source: Energy Information Administration, U.S. Department of Energy
Domestic Shale Gas Basins and Plays
Center for Energy Studies
Unlike conventional resources, shale plays
(natural gas, liquids, and crudes) are
located almost
ubiquitously throughout the U.S. and
are the primary
reason for the decrease in overall and
regional natural gas
prices.
Recent Trends
12© LSU Center for Energy Studies
Dry
Nat
ural
Gas
Pro
ved
Res
erve
s (T
cf)
Source: Energy Information Administration, U.S. Department of Energy.
-
5
10
15
20
25
30
0
50
100
150
200
250
300
350
400
1970 1975 1980 1985 1990 1995 2000 2005 2010
Reserves
Production
Marketed P
roduction (Tcf)
Current U.S. natural gas reserves are approaching record levels not seen since 1970. Natural gas production is at levels that surpass historic peaks.
Center for Energy Studies
Natural Gas Proved Reserves and Production
Recent Trends
13© LSU Center for Energy Studies
Source: Energy Information Administration, U.S. Department of Energy.
Shale’s Share of Natural Gas Reserves
The share of shale gas relative to total U.S. natural gas proved reserves has been increasing significantly, from less than 10 percent in 2007 to over 30
percent in 2010.
14
Center for Energy Studies
© LSU Center for Energy Studies
9%
13%
21%
31%
0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010
Per
cent
Recent Trends
Source: Energy Information Administration, U.S. Department of Energy.
U.S. Dry Natural Gas Reserve Adjustments
U.S. shale gas reserves are increasing, enough to more than offset the decrease in net reserves from all other sources in both 2008 and 2010.
15
Center for Energy Studies
© LSU Center for Energy Studies
-10
-5
0
5
10
15
20
25
30
35
40
2007 2008 2009 2010
Shale All Other Sources
Tcf
Recent Trends
Res
erve
s -T
cf
Source: Energy Information Administration, U.S. Department of Energy
Annual Energy Outlook, Natural Gas Reserves
Center for Energy Studies
200
220
240
260
280
300
320
2010 2015 2020 2025 2030 2035
16© LSU Center for Energy Studies
Unconventional resources are not a “flash in the pan” and are anticipated to continue to increase over the next two decades or more.
Recent Trends
Center for Energy Studies
There are a wide range of unconventional shale gas reserve estimates that are as low as 436 Tcf to as high as 2,750 Tcf. This represents a range of between 18 years and over 100 years of available natural gas resources based upon current consumption
levels.*
17© LSU Center for Energy Studies
0
500
1,000
1,500
2,000
2,500
3,000
EIA AEO 2012 MIT ITG InvestmentResearch
IHS Energy
Est
imat
ed R
eser
ves
-Tcf
Note: *Assumes an annual consumption level of 24.3 Tcf. The MIT study reached a mean estimate of technically recoverable resources of 631 Tcf with an 80 percent confidence interval of 418 to 871 Tcf. The ITG estimates of recoverable resources is for 10 overlapping plays, totaling 900 Tcf. These are the same 10 plays as estimated by the EIA’s AEO (resulting in 426 Tcf). IHS Energy estimates show that total recoverable shale in the U.S. could be as high as 2,750 Tcf, significantly higher than their estimate of 1,268 in 2010.
Recent Trends
Alternative Natural Gas Reserve Forecasts
Center for Energy Studies
Forecast U.S. Natural Gas Production
18© LSU Center for Energy Studies
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Shale gas Tight gas Non-associated offshoreAlaska Coalbed methane Associated with oilNon-associated onshore
Tcf
Shale availability will drive U.S. natural gas supply.
Shale Gas Production
Assc. Gas Production
Recent Trends
(201
0 $/
MM
BTU
)
Source: Energy Information Administration, U.S. Department of Energy
Changes in AEO Natural Gas Price Forecasts
Center for Energy Studies
0
2
4
6
8
10
12
14
16
1997 2002 2007 2012 2017 2022 2027 2032
Actual Henry Hub AEO-2007 AEO-2008 AEO-2009AEO-2010 AEO-2011 AEO-2012
19© LSU Center for Energy Studies
Shale availability has significant impact on future price outlook.
Anticipated price outlook in 2009.
Anticipated price outlook today.
Recent Trends
Changes in Well Costs and Productivity
20
Center for Energy Studies
© LSU Center for Energy Studies
11.910.3 9.9 9.3 9.0
15.6
9.6 9.0
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2006 2007 2008 2009 2010 2008 2009 2010
Well Cost (million $)
9.5
17.718.9
23.6 23.6
8.010.5
15.0
$0
$5
$10
$15
$20
$25
2006 2007 2008 2009 2010 2008 2009 2010
East Texas Deep Bossier Haynesville
Well Performance (MMcfe/d)
East Texas Deep Bossier Haynesville
Encana reports a reduction in well costs of 15-30% through use of multi-pad drilling, improved rig efficiencies, and lower hydraulic fracturing costs. The
use of higher water volumes, increased frac stages, and enhanced pay selection have resulted in 100-150% increases IP rates.
Source: U.S. Natural Gas Resources and Productive Capacity: Mid-2012, Prepared for Cheniere Energy, Advanced Resources International, Inc. August 23, 2012.
Recent Trends
Center for Energy Studies
Unconventional Crude Oil and Liquids
21© LSU Center for Energy Studies
Center for Energy Studies
Crude oil prices have doubled in the aftermath of the recession but natural gas prices have remained stable.
22© LSU Center for Energy Studies
$0
$2
$4
$6
$8
$10
$12
$14
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Crude Oil (WTI) Natural Gas (Henry Hub)
The price of natural gas has fallen 78
percent since June 2008.
Source: Federal Reserve Bank of St. Louis.
Cru
de O
il ($
/Bbl
)N
atural Gas ($/M
cf)
The price of crude oil has increased 140
percent since its low in February 2009.
Crude Oil and Natural Gas Price Decoupling
Liquids/Crude Oil
U.S. Oil/Gas Rig Split
Center for Energy Studies
Natural gas drilling emphasis over the past 20 years has shifted to crude oil drilling emphasis over the past two years.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Crude Oil Natural Gas
Per
cent
of T
otal
(%)
Source: Baker Hughes 23© LSU Center for Energy Studies
Unconventional Revolution
Annual Production from Unconventional Reservoirs
In just one year, Cheniere has revised its forecasted natural gas production in 2020 from slightly less than 8 Bcf per day to more than 12 Bcf per day; and
liquids production from 6 MMBbls per day to 7 MMBbls per day.
24
Center for Energy Studies
© LSU Center for Energy StudiesSource: Cheniere Energy Inc,, Corporate Presentations. Available at: http://phx.corporate‐ir.net/phoenix.zhtml?c=101667&p=irol‐presentations.
Nat
ural
Gas
(Bcf
/d)
0
1
2
3
4
5
6
7
8
0
2
4
6
8
10
12
14
2011 2012 2015 2020 2011 2012 2015 2020
Liquids Natural Gas
Liquids (MM
Bbl/d)
Cheniere Outlook, March 2012 Cheniere Outlook, April 2013
Liquids/Crude Oil
Center for Energy Studies
Natural Gas and Economic Development: Moving from
“Revolution” to “Renaissance”
25© LSU Center for Energy Studies
Changes in Crude Oil Reserves and Production
Center for Energy Studies
Crude oil production and reserves are climbing back to levels not seen since the 1980s.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
5
10
15
20
25
30
35
40
45
1970 1975 1980 1985 1990 1995 2000 2005 2010
Crude Oil Reserves Crude Oil Production
U.S
. Cru
de O
il P
rove
d R
eser
ves
(Bill
ion
Bbl
)U
.S. C
rude Oil P
roduction (Billion B
bls
Source: Energy Information Administration, U.S. Department of Energy. 26© LSU Center for Energy Studies
Unconventional Revolution
Annual Changes in U.S. Crude Oil Proved Reserves (Shale and Other)
Center for Energy Studies
Changes in crude oil reserves have also been positive and increasing over the past several years.
-3
-2
-1
0
1
2
3
4
5
2007 2008 2009 2010 2011Ann
ual C
hang
e (B
illio
n B
bl)
Note: Includes crude oil and lease condensate.Source: Energy Information Administration, U.S. Department of Energy. 27© LSU Center for Energy Studies
Unconventional Revolution
Res
erve
s, B
illio
n B
arre
ls
Source: Energy Information Administration, U.S. Department of Energy
Annual Energy Outlook, Crude Oil Reserves
Center for Energy Studies
0
5
10
15
20
25
30
35
40
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Crude oil reserves are expected to increase over 20 percent by 2016 and then gradually increase by 18 percent another to 2040.
Unconventional Revolution
28© LSU Center for Energy Studies
Center for Energy Studies
Forecast U.S. Crude Oil Production
29
0
5
10
15
20
25
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Net petroleum and biofuel imports OtherNatural gas plant liquids Tight oil productionCrude oil production (excluding tight oil)
Mill
ion
Bbl
spe
r day
U.S. production of crude oil is expected to increase at an average annual rate of four percent through 2016. Tight oil production increases from 1.31 million barrels per day
in 2011 to 4.8 million barrels per day in 2020, an increase of 266 percent.
Unconventional Revolution
Source: Energy Information Administration, U.S. Department of Energy © LSU Center for Energy Studies
International Oil Supply, 2005 and 2013
Center for Energy Studies
30© LSU Center for Energy Studies
Eurasia, 13.9% Saudi Arabia, 13.1%Africa, 11.9% Asia & Oceania, 10.0%Middle East, 10.0% U.S., 9.8%Central & S. America, 8.6% N. America, 8.1%Europe, 7.3% Iran & Iraq, 7.2%
Eurasia, 15.1% U.S., 13.7%Saudi Arabia, 12.9% Africa, 10.4%Middle East, 10.4% Asia & Oceania, 9.9%Central & S. America, 8.8% N. America, 7.8%Iran & Iraq, 6.9% Europe, 4.2%
U.S. oil production has increased since 2005 surpassing Saudi Arabia, Africa and the rest of the Middle East.
In 2005, U.S. production of 8.3 MMBbls/d accounted for
almost 10 percent of
world supply.
In 2013, U.S. production of 12.3 MMBbl/d accounts for
almost 14 percent of
world supply.
Source: Energy Information Administration, U.S. Department of Energy.
Unconventional Revolution
Net Import Share of U.S. Petroleum and Liquid Fuels, 1990 – 2040
Center for Energy Studies
31© LSU Center for Energy Studies
-10%
0%
10%
20%
30%
40%
50%
60%
70%
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040Reference High Oil Price Low Oil PriceHigh Oil and Gas Resource Low Oil and Gas Resource
The share of U.S. net crude oil and product imports has been falling since 2005. The EIA expects the net import share to decrease to 26 percent in 2023. If however, high prices
encourage U.S. development, the share of net imports could drop to zero by 2036.
Source: Energy Information Administration, U.S. Department of Energy.
Unconventional Revolution
While the nature of manufacturing has admittedly changed given the “out-sourcing” prior to the 2008-2009 financial meltdown, the U.S. economyis beginning to emerge as a new manufacturing powerhouse.
However, the U.S. economic recovery, and regional economic developmentopportunities over the next decade will likely be concentrated in a fewstates and regions. What determines the “winners” and “losers” in thiseconomic resurgence?
The “winners” will be those areas with access to low-cost energysupplies and transportation infrastructure that can move those supplies torapidly emerging economic development opportunities in manufacturingthat were unimaginable as recently as five years ago.
Other important factors influencing manufacturing siting locations includesthe presence of a skilled labor force, competitive wage levels,supportive tax policies, as well as fair and stable regulations andregulatory practices..
32
Overview: Why Future Economic Development Will Not be Uniformly Distributed
Manufacturing IndependenceCenter for Energy Studies
33
94
96
98
100
102
104
106
108
110
112
114
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Em
ploy
men
t (20
05 =
100
)
States with major shale activity Non-shale states
Note: Shale states include Arkansas, Colorado, Louisiana, North Dakota, Pennsylvania, Utah and TexasSource: Bureau of Labor Statistics
Total employment and employment growth has been faster in unconventional shale-based states than in those without these unconventional resources.
Relative Employment Changes, Shale vs. Non-Shale States (2005=100)
Center for Energy Studies Manufacturing Independence
34
Percent Change in Real Quarterly GDP by State, 2013:III TO 2013:IV
Center for Energy Studies
States with significant shale activity.
States without significant shale activity.
WA1.8
ID2.7
MT1.1
CA3.2
OR1.2
NV4.7 UT
3.1 CO3.7
WY8.4
ND8.4
SD1.3
NE2.7
KS3.1
OK2.9
TX4.3
NM4.5
AZ3.2
MN0.0
IA0.3
MO3.0
WI1.8
AR3.0
LA5.4
IL3.0
IN4.2
MI3.2
KY3.1
MS-3.0
OH2.6
PA3.4
AL.07
TN 2.3
GA3.9
FL3.7
SC2.3
NC4.1
WV7.5
NY1.3
VA2.3
ME2.4
VT: 2.6NH: 1.1MA: 0.4RI: 1.8CT: 2.8NJ: 2.6DE: 2.2MD: 2.3
Many of the states with significant shale activity have the highest growth in quarterly GDP. North Dakota, Wyoming and West Virginia have the highest rates (8.4 percent, 8.4
percent and 7.5 percent, respectively). Louisiana is the third highest at 5.4 percent.
Manufacturing Independence
What is “energy-based manufacturing?”
Energy-based manufacturing is comprised of industries that focus or relyheavily on energy as the primary input to make their respective products.
Energy is typically a “feedstock” for these industries which use energyto make a number of different products much like a baker uses a commoninput (flour) to make a variety of different products (biscuits, baguettes,pizza dough).
These energy-based manufacturing industries are large, capital-intensive, and compete globally. Energy-based manufacturing wagesare even higher than the already-above average manufacturing wagelevels.
35
Overview: Why Energy-Based Manufacturing
Center for Energy Studies Manufacturing Independence
36Note: Energy-based manufacturing includes: petroleum and coal products; chemical; and plastics and rubber products manufacturing.Source: Bureau of Economic Analysis, U.S. Department of Commerce.
Energy-based manufacturing wages in the South are higher than the average manufacturing wage. In 2012, the average energy-based manufacturing wage was 1.5 times that of the average manufacturing wage growing at average annual rate of 5.2
percent (compared to the manufacturing average of 4.2 percent)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Manufacturing Average Energy-Based Manufacturing Average
Aver
age
Wag
e ($
)
Southern energy-based manufacturing wages are
high-growth oriented
Southern Manufacturing Wages vs. Southern Energy-Based Manufacturing Wages
Center for Energy Studies Manufacturing Independence
37
Manufacturing industries use natural gas in a range of applications that include the generation of heat, steam, and power. Feedstock uses are equally important and are
the building blocks of modern petrochemical manufacturing.
Heat
Boiler/Steam
PowerGeneration
Feedstock
Industrial Natural Gas Usage
Center for Energy Studies Manufacturing Independence
38
Shale reserves have a significant impact on future price outlook. Abundant supplies should keep prices stable. The current AEO forecasts natural gas prices in 2030 at
$5.29/Mcf (47 percent less than the 2009 AEO forecast).
Nat
ural
Gas
Pric
e (2
010
$/M
MB
tu)
Source: Energy Information Administration, U.S. Department of Energy.
0
2
4
6
8
10
12
1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030
Historical Henry Hub AEO 2007 AEO 2008 AEO 2009
AEO 2010 AEO 2011 AEO 2012 AEO 2013
Anticipated price outlook today.
Anticipated price outlook in 2009.
Natural Gas Price Outlook – Annual Energy Outlook (“AEO”)
Center for Energy Studies Manufacturing Independence
39
U.S.$3.40
Germany$13.62
UK$10.26
U.S. natural gas prices are becoming increasingly competitive with other places around the globe that compete for new energy-based manufacturing investment.
Source: FERC; BP Statistical Energy Review; New Zealand Ministry of Business; Innovation & Employment; and recent tradepress.
3.0 Energy Production Revolution
Canada$3.17
Netherlands$10.31
Japan$16.75
(LNG import)Turkey$10.98
Saudi Arabia$0.75
India$4.20
New Zealand$5.77
China$13.40
(LNG import)
Argentina$11.00
World Natural Gas Prices for Industry ($/MMBtu), 2012
Center for Energy Studies Unconventional Revolution
40
The factors driving renewed U.S. manufacturing, particularly chemical manufacturing include:
• Low natural gas price
• Increasing U.S. competitiveness
• (Relative) regulatory certainty
• Agricultural and other final chemical output price stability
• Product affordability
• Strong global demand for chemicals
• U.S. import displacement opportunities
What the Strategic Factors Driving this Renewed Interest?
Center for Energy Studies Manufacturing Independence
41
U.S. imports are expected to drop by as much as 12 to 18 percent in 2016 and 2017 when new capacity comes online.
Mill
ion
nutri
ent t
ons
0
1
2
3
4
5
6
2000 2002 2004 2006 2008 2010 2012 2014 2016
Forecast
Note: Forecasts based on various industry sources. Source: International Fertilizer Industry Association; Food and Agriculture Organization of the United Nations; and CF Industries.
Forecasted U.S. Imports
Center for Energy Studies Manufacturing Independence
42Source: American Oil & Gas Reporter; Oil and Gas Journal.
0
1
2
3
4
5
6
7
8
9
2012 2013 2014 2015 2016 2017
U.S. China Rest of World
Mill
ion
met
ric to
ns
While U.S. based projects plan to add an impressive amount of methanol capacity, proposed projects in China will add almost three times as much, totaling 25 to 30
million metric tons. Projects in New Zealand, Brazil, Russia, Azerbaijan and India total 3.2 million metric tons. Still, U.S. projects account for 33 percent of worldwide projects.
Existing U.S. Proposals as a Share of World
Center for Energy Studies Manufacturing Independence
43Source: Platts, January 2013.
GreenfieldBrownfield
Over 10 million tons of ethylene cracking capacity is either under construction or has been proposed. This represents more than 35 percent of current ethylene capacity.
19
13
6
18
1415
162
320
4
5
717
8121
9 10 11
Most large scale projects are three to
four years away.
Recent and Proposed U.S. Ethylene Cracking Capacity Expansions
Center for Energy Studies
Owner/Operator Location Capacity Site Estimated(tonnes/year) Type Status In-Service
1. BASF-Total Port Arthur, TX 60,000 Brownfield Completed 20122. Dow Chemical Hahnville, LA 400,000 Brownfield Completed 20123. Westlake Chemical Lake Charles, LA 110,000 Brownfield Completed 20134. Williams Geismar, LA 230,000 Brownfield On Schedule 20135. Ineos Alvin, Tx 120,000 Brownfield On Schedule 20136. Westlake Chemical Calvert City, KY 80,000 Brownfield On Schedule 20147. BASF-Total Port Arthur, TX 100,000 Brownfield On Schedule 20148. Dow Chemical Plaquemine, LA 200,000 Brownfield On Schedule 2014-169. Dow Chemical Freeport, TX 200,000 Brownfield On Schedule 2014-16
10. LyondellBasell Channelview, TX 230,000 Brownfield On Schedule 2014-1611. LyondellBasell La Porte, TX 390,000 Brownfield On Schedule 2014-1612. Westlake Chemical Lake Charles, LA 110,000 Brownfield Postponed 201513. Aither Chemical Charleston, WV n.a. Greenfield Under Study 201614. Formosa Plastics Point Comfort, TX 800,000 Greenfield On Schedule 201615. ExxonMobil Chemical Baytown, TX 1,500,000 Greenfield On Schedule 201616. Chevron Phillips Baytown, TX 1,500,000 Greenfield On Schedule 201717. Dow Chemical Freeport, TX 1,500,000 Greenfield On Schedule 201718. OxyChem/Mexichem Ingleside, TX 550,000 Greenfield Postponed 201719. Shell Chemical Monaca, PA 1,000,000 Greenfield Under Study 201720. Sasol Lake Charles, LA 1,000,000 Greenfield Under Study 2017
Total 10,080,000
Manufacturing Independence
44Source: Platts, 2013; Oil and Gas Journal; Company websites; and recent tradepress.
Ethylene projects in the U.S. account for almost 30 percent of projects worldwide.
U.S., 28%
Middle East, 25%
Asia, 24%
South America, 13%
Rest of World, 10%
U.S. Proposals as a Share of World
Center for Energy Studies Manufacturing Independence
45Source: Platts, January 2013.
GreenfieldBrownfield
Over 10 million tons of ethylene cracking capacity is either under construction or has been proposed. This represents more than 35 percent of current ethylene capacity.
19
13
6
18
1415
162
320
4
5
717
8121
9 10 11
Most large scale projects are three to
four years away.
Recent and Proposed U.S. Ethylene Cracking Capacity Expansions
Center for Energy Studies Ethylene
Owner/Operator Location Capacity Site Estimated(tonnes/year) Type Status In-Service
1. BASF-Total Port Arthur, TX 60,000 Brownfield Completed 20122. Dow Chemical Hahnville, LA 400,000 Brownfield Completed 20123. Westlake Chemical Lake Charles, LA 110,000 Brownfield Completed 20134. Williams Geismar, LA 230,000 Brownfield On Schedule 20135. Ineos Alvin, Tx 120,000 Brownfield On Schedule 20136. Westlake Chemical Calvert City, KY 80,000 Brownfield On Schedule 20147. BASF-Total Port Arthur, TX 100,000 Brownfield On Schedule 20148. Dow Chemical Plaquemine, LA 200,000 Brownfield On Schedule 2014-169. Dow Chemical Freeport, TX 200,000 Brownfield On Schedule 2014-16
10. LyondellBasell Channelview, TX 230,000 Brownfield On Schedule 2014-1611. LyondellBasell La Porte, TX 390,000 Brownfield On Schedule 2014-1612. Westlake Chemical Lake Charles, LA 110,000 Brownfield Postponed 201513. Aither Chemical Charleston, WV n.a. Greenfield Under Study 201614. Formosa Plastics Point Comfort, TX 800,000 Greenfield On Schedule 201615. ExxonMobil Chemical Baytown, TX 1,500,000 Greenfield On Schedule 201616. Chevron Phillips Baytown, TX 1,500,000 Greenfield On Schedule 201717. Dow Chemical Freeport, TX 1,500,000 Greenfield On Schedule 201718. OxyChem/Mexichem Ingleside, TX 550,000 Greenfield Postponed 201719. Shell Chemical Monaca, PA 1,000,000 Greenfield Under Study 201720. Sasol Lake Charles, LA 1,000,000 Greenfield Under Study 2017
Total 10,080,000
46Source: Platts, 2013; Oil and Gas Journal; Company websites; and recent tradepress.
Ethylene projects in the U.S. account for almost 30 percent of projects worldwide.
U.S., 28%
Middle East, 25%
Asia, 24%
South America, 13%
Rest of World, 10%
U.S. Proposals as a Share of World
Center for Energy Studies Ethylene
LSU-CES Study (2013): Louisiana Total Capital Expenditures by Sector
Center for Energy Studies
47© LSU Center for Energy Studies
The LSU Center for Energy Studies (CES) reports an estimated $53.4 billion in new energy-based manufacturing development, most of which is anticipated to occur
between 2014 and 2019.
Bill
ion
$
$0
$2
$4
$6
$8
$10
$12
$14
2011 2012 2013 2014 2015 2016 2017 2018 2019
LNG Export Cracker/Polymer Methanol/Ammonia Other GTL
Source: David E. Dismukes (2013). Unconventional Resources and Louisiana’s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies.
Development Potential
Manufacturing Renaissance
Center for Energy Studies
48© LSU Center for Energy Studies
The LSU-CES study identified gas-to-liquids and LNG export as the majority of proposed capital spending.
LNG Export, $19.5 billion, 37%
Cracker/Polymer, $14.8 billion, 28%
GTL, $12.5 billion, 23%
Methanol/Ammonia, $4.2 billion, 8%
Other, $2.4 billion, 4%
Source: David E. Dismukes (2013). Unconventional Resources and Louisiana’s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies.
Development Potential
Total 2011 2012 2013 2014 2015 2016 2017 2018 2019
Output (million $)Direct 17,727.7$ 4.4$ 1,715.4$ 2,458.1$ 3,538.2$ 3,872.0$ 4,091.7$ 1,890.0$ 157.9$ -$ Indirect 2,846.2$ 0.7$ 275.4$ 394.6$ 568.1$ 621.6$ 656.9$ 303.4$ 25.4$ -$ Induced 5,516.8$ 1.4$ 533.8$ 765.0$ 1,101.1$ 1,204.9$ 1,273.3$ 588.2$ 49.1$ -$
Total 26,090.6$ 6.4$ 2,524.6$ 3,617.7$ 5,207.3$ 5,698.5$ 6,021.9$ 2,781.6$ 232.4$ -$
Employment (jobs)Direct 120,114 30 11,623 16,655 23,973 26,234 27,723 12,806 1,070 - Indirect 19,201 5 1,858 2,662 3,832 4,194 4,432 2,047 171 - Induced 49,032 12 4,745 6,799 9,786 10,709 11,317 5,227 437 -
Total 188,347 47 18,225 26,116 37,591 41,138 43,472 20,080 1,678 -
Wages (million $)Direct 5,777.7$ 1.4$ 559.1$ 801.1$ 1,153.1$ 1,261.9$ 1,333.5$ 616.0$ 51.5$ -$ Indirect 835.2$ 0.2$ 80.8$ 115.8$ 166.7$ 182.4$ 192.8$ 89.0$ 7.4$ -$ Induced 1,549.7$ 0.4$ 150.0$ 214.9$ 309.3$ 338.5$ 357.7$ 165.2$ 13.8$ -$
Total 8,162.6$ 2.0$ 789.8$ 1,131.8$ 1,629.1$ 1,782.8$ 1,884.0$ 870.2$ 72.7$ -$
Construction Impacts
Potential Economic Impacts/Benefit: Construction, State
Center for Energy Studies
49© LSU Center for Energy Studies
Not quiet as clear will be the additional power/gas requirements for all the new residential and commercial activities supporting development/operation. Should
elevate regional usage trends relative to national averages.
Development Potential
Industrial Production and Capacity Indices
Center for Energy Studies
50© LSU Center for Energy Studies
Per
cent
Cha
nge
-20%
-15%
-10%
-5%
0%
5%
10%
2008 2009 2010 2011 2012 2013 2014
Industrial Production Industrial Capacity
Source: Federal Reserve Bank.
Industrial capacity development “leads” later production (and employment trends). Recent development announcements suggest a strong steady opportunity for U.S.
manufacturing output and employment growth.
Positive turn in capacity development
Roughly 18 month lag in production response.
Development Potential
Center for Energy Studies
Changes in Power Generation
51© LSU Center for Energy Studies
Center for Energy Studies
New Natural Gas End Uses & Fuel Diversity Concerns
• As noted earlier, the industrial “renaissance” is likely to lead to the first increase in industrial natural gas demand in decades. The extent and degree of this is indeterminate. Consider that a new GTL plant or a new LNG facility, use roughly 2/Bcfd alone at full capacity (730 Bcf of annual load each).
• However, power generation has been – and will continue to be – a significant natural gas end use.
• Environmental regulations are having a considerable impact on developers’ capacity development decisions.
• The low cost of natural gas is clearly provides a preference to new gas over new coal.
New Natural Gas Uses
52© LSU Center for Energy Studies
Center for Energy Studies
Ozone
PM2.5
Beginning CAIR Phase I Seasonal NOx Cap
HAPs MACT proposed
rule
Revised Ozone NAAQS
Begin CAIR
Phase I Annual
SO2 Cap
Next PM-2.5
NAAQS Revision
Next Ozone NAAQS Revision
SO2 Primary NAAQS
SO2/NO2Secondary
NAAQS
NO2 Primary NAAQS
SO2/NOx
New PM-2.5 NAAQS Designations
Hg/HAPS
Final EPA Nonattainment Designations
PM-2.5SIPs due (‘06)
Proposed Transport Rule
HAPS MACT final rule expected
CAIRVacated
HAPS MACT Compliance 3 yrs
after final rule
CAIR Remanded
CAIR/CSAPR
Begin CAIR
Phase I Annual
NOx Cap
PM-2.5 SIPs due (‘97)
316(b) proposedrule
316(b) final ruleexpected
316(b) Compliance< 8 yrs after final ruleEffluent
Guidelinesproposed rule
expected
Water
Effluent GuidelinesFinal rule expected Effluent Guidelines
Compliance 3-5 yrs after final rule
Begin Compliance Requirements under Final CCR Rule (ground water
monitoring, double monitors, closure, dry ash conversion)
Ash
Proposed Rule for CCRs
Management
Final Rule for CCRs Mgmt
Final Transport Rule Issued
Compliance with CSAPR
CO2
CO2Regulation
Reconsidered Ozone NAAQS
-- updated from Wegman (EPA 2003)
CAMR & Delisting Rule vacated
2008 2011 2012 2013 2015 20162009 2010 20172014
Electric Industry Environmental Regulations Create Uncertainty for Coal
Transport rule (CSAPR) vacated
New Natural Gas Uses
53© LSU Center for Energy Studies
Coal-Fired Capacity Share by Age Category
Center for Energy Studies
Source: Energy Information Administration, U.S. Department of Energy
Less than 30 years:79,876 MW; 22% of capacity;73 plants (averaging 1,094 MW)
30 to 50 years:238,934 MW; 66% of capacity;
208 plants (averaging 1,149 MW)
Greater than 50 years:45,382 MW; 12% of capacity;72 units (averaging 630 MW)
There is a considerable amount of legacy coal capacity (45 GWs) that is relatively old, and in some instances, has few to little controls to meet
anticipated standards.
New Natural Gas Uses
54© LSU Center for Energy Studies
U.S. Power Generation – Fuel Mix
Coal51%
Nuclear20%
Natural Gas16%
Petroleum3%
Other1%
Coal42%
Natural Gas25%
Nuclear19%
Other0.5%
Petroleum1%
Renewables 9% Renewables 13%
2000 2011
Source: Energy Information Administration, U.S. Department of Energy.
Over 250,000 MWs of natural gas power generation capacity has been added over the past decade at the expense of coal and nuclear.
Center for Energy Studies New Natural Gas Uses
55© LSU Center for Energy Studies
U.S. Generation Capacity by Fuel Type: 2011, 2025 and 2040
Center for Energy Studies
EIA estimates the growth in new generation to come primarily from natural gas (~170 GWs) and renewables (~75 GWs).
0
50
100
150
200
250
300
350
Coal Oil/gassteam
Natural gascombined
cycle
Natural gascombustion
turbine
Nuclear Renewable/other
2011 2025 2040
Cap
acity
(GW
)
Source: Energy Information Administration, U.S. Department of Energy.
Down Up Wishful thinking
Up UpDown
New Natural Gas Uses
56© LSU Center for Energy Studies
Growth Opportunities or Fly in the Ointment?
New Natural Gas Uses
Natural Gas UsesCenter for Energy Studies
57© LSU Center for Energy Studies
Natural Gas Vehicles
58
• A natural gas vehicle (“NGV”) uses compressed natural gas (“CNG”) or, less commonly, liquefied natural gas (“LNG”) as a clean alternative to other automobile fuels.
• CNG produces nearly 40 percent less CO2 than refined products.
• In 2008, NGVs used 215 million gasoline gallon equivalent (“GGE”). To compare, total gasoline usage in 2008 was 55 million gallons per day, or a total of 20 billion gallons.
• Currently in the U.S., about 12 to 15 percent of public transit buses in run on natural gas (either CNG or LNG).
• States with the highest consumption of natural gas for transportation are California, New York, Texas, Georgia, Massachusetts and D.C.
• One major limitation is that CNG vehicles require a greater amount of space for fuel storage.
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
Potential NGV Usage
59Source: Data and forecast from EIA, Encana, 2010Displacement opportunities exclude Air, International Shipping, Military, Pipeline Fuel.
05
1015202530354045
Light Duty HeavyDuty
MediumDuty
Marine Rail Upstream
Nat
ural
Gas
Con
sum
ptio
n (B
cf/d
)
NGV Use Categories
The large potential size of NGV market has a number of competing end-use categories (i.e., chemicals, manufacturing) concerned.
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
Displaceable Market Volume: 61.6 Bcfe/d
Natural Gas Consumption by Sector
60
-
5
10
15
20
25
30
35
-
1
2
3
4
5
6
7
8
9
10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Residential Commercial Industrial Electric Power NGV
Nat
ural
Gas
Con
sum
ptio
n (T
cf)
NG
V C
onsumption (B
cf)
Source: Energy Information Administration, U.S. Department of Energy.
Currently, NGVs account for less than 0.18 percent of U.S. natural gas consumption, but the rate of growth in consumption (158 percent)
over the past decade has surpassed all other end-uses.
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
Retail Gasoline Prices and Natural Gas GGE
61Source: Energy Information Administration, U.S. Department of Energy.
Basic economics, primarily lower relative prices, have played an important role in driving recent increases in natural gas vehicle use.
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Gasoline Natural Gas (GGE)
$ pe
r Gal
lon
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
Leading States in NGV Preferences
62Source: U.S. Department of Energy.
Many states have generous incentive programs that range from additional tax incentives, to infrastructure grant support. Federal benefits include alternative fuel infrastructure
tax credit, an excise alternative fuel tax credit and an alternative fuel tax exemption.
Alternative fuel tax credits and/or infrastructure development credits
Alternative fuel use and infrastructure grant support
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
Potential Natural Gas Consumption – NGV
63
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Consumption Percent of Total
Nat
ural
Gas
Con
sum
ptio
n (T
cf)
NGV consumption of natural gas is estimated to increase at an average annual rate of 7 percent through 2035, less than 1 Tcf.
Source: Energy Information Administration, U.S. Department of Energy.
NG
V C
onsumption (%
of Total)
NGV use of natural gas
will stay below one percent of
total U.S. natural gas
consumption.
Natural Gas Uses (NGV)Center for Energy Studies
© LSU Center for Energy Studies
What About Gas Exports?
64
Natural Gas UsesCenter for Energy Studies
© LSU Center for Energy Studies
Considerable Underutilized LNG Regasification Capacity along GOM
A
B
C
D
E
Existing
J
F
ExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 BcfdE. Energy Bridge, GOM: 0.5 BcfdF. Northeast Gateway, Offshore MA: 0.8 BcfdG. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)H. Sabine, LA: 4.0 BcfdI. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion)J. Neptune, Offshore MA: 0.4 BcfdK. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion)Under ConstructionL. Pascagoula, MS: 1.0 BcfdApprovedM. Corpus Christi, TX: 1.0 BcfdN. Corpus Christi, TX: 2.6 BcfdO. Fall River, MA: 0.8 BcfdP. Port Arthur, TX: 3.0 BcfdQ. Logan, NJ: 1.2 BcfdR. Port Lavaca, TX: 1.0 BcfdS. Baltimore, MD: 1.5 BcfdT. LI Sound, NY: 1.0 Bcfd
HIK
Regasification
Under Construction
Approved
Existing
Liquefaction
Under Construction
Approved
G
L
M
N
OT
P
Q
R
S
Natural Gas Uses (LNG)Center for Energy Studies
© LSU Center for Energy Studies 65
LNG Value Chain
66Source: Cheniere.Note: *uses a BOE conversion of 5.8 Mcf/BOE.
Feedstock (production) costs will be critical in determining the location of basin-specific production along the global LNG supply curve.
Europe:
LowHigh
Asia:LowHigh
Feedgas56%
($/MMBtu)
$4.00$6.50
$4.00$6.50
Liquefaction11%-17%
($/MMBtu)
$1.25$1.25
$1.25$1.25
Shipping & Fuel20%-29%($/MMBtu)
$1.40$1.65
$2.90$3.45
Regas4%-7%
($/MMBtu)
$0.50$0.50
$0.50$0.50
DeliveredCost
($/MMBtu)
$7.15$9.90
$8.95$11.70
EquivalentOil Price*($/BOE)
$41.47$57.42
$51.91$67.86
Henry Hub: $4.50$5.00
WTI: $97.00
$100.00
Natural Gas Uses (LNG)Center for Energy Studies
© LSU Center for Energy Studies
Motivations for Moving Shale Gas to Global Consuming Areas
Source: Marathon.
0
2
4
6
8
10
12
14
16
18
Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11
$/mmbtu
Japan LNG U.K. NBP U.S. Henry Hub FSU @ German Border
• Excess U.S. shale production.
• Growing global energy demand.
• Climate change issues.
• Global natural gas price differentials.
Natural Gas Uses (LNG)Center for Energy Studies
67© LSU Center for Energy Studies
FOB Gas Price Necessary to Yield 12 Percent Return (Atlantic Delivery)0.
0 0.4 0.
7
0.7 1.
1 1.4 1.5
1.5 1.7
1.7
1.7 1.8 2.0
2.0
2.0 2.1 2.2 2.4 2.6 2.7 2.9
2.9 3.
2 3.4 3.5 3.6
5.7 6.
0 6.1 6.
6
7.5 7.7
8.8
11.2
0
2
4
6
8
10
12
AD
GA
SQ
atar
gas-
4A
run
Liqu
id N
iugi
ni G
asA
ltant
ic L
NG
Bon
tang
Qat
arga
sA
ltant
ic L
NG
2&
3Q
alha
t LN
GA
tlant
ic L
NG
4E
G L
NG
ELN
G 2
Dam
ietta
ELN
G 1
Dar
win
Bru
nei L
NG
OLN
GM
LNG
Tig
aTa
nggu
hB
rass
LN
GM
LNG
Yem
en L
NG
MLN
G D
uaPe
ru L
NG
Nor
th W
est S
helf
Ang
ola
LNG
Ken
aiU
S S
hale
Gas
Sno
hvit
QC
LNG
PN
G L
NG
Plu
toG
orgo
nS
akha
lin 2
$/M
MB
tu
Source: Pacific LNG.
U.S. is likely to be at the upper end of the global LNG supply curve.
Natural Gas Uses (LNG)Center for Energy Studies
68© LSU Center for Energy Studies
Basin Competition
Source: MIT Energy Initiative.
China1,275 Tcf
Australia396 TcfSouth
Africa485 Tcf
Argentina774 Tcf
Brazil226 Tcf
Mexico681 Tcf
Canada388 Tcf
U.S. 862 Tcf
France180 Tcf
Poland187 Tcf
Algeria231 Tcf
Libya290 Tcf
Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcf in conventional suggest a potentially solid resource base for many decades.
Natural Gas Uses (LNG)Center for Energy Studies
69© LSU Center for Energy Studies
Center for Energy Studies
Conclusions
70© LSU Center for Energy Studies
Center for Energy Studies
Conclusions – Natural Gas Markets
• Natural gas markets continue to be resilient, affordable and lessvolatile.
• Natural gas supply growth increasingly driven by “associated”natural gas – a byproduct of increasing production coming fromhigher hydrocarbon-based production (Marcellus, Eagle Ford,Bakken).
• New end uses are a blessing (new manufacturing, moreefficient/cleaner power generation) but need to be watched forunanticipated consequences.
• Continued resource development is policy dependent. Changesin economic and environmental policy can impact the trajectoryof unconventional resource development.
Conclusions
71© LSU Center for Energy Studies
Center for Energy Studies
Questions, Comments and Discussion
72© LSU Center for Energy Studies