economic impacts of u.s. energy production renaissance · texas ~17,500 employees worldwide...
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Positive Spillover: Economic Impacts of U.S. Energy
Production Renaissance
Helen Currie, PhD Senior Economist
U.S. Association for Energy Economics 15-October-2013
Cautionary Statement
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The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict such as oil and gas prices; refining and marketing margins; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips’ business and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC).
Use of non-GAAP financial information - This presentation may include non-GAAP financial measures, which help facilitate comparison of company operating performance across periods and with peer companies. Any non-GAAP measures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure in an appendix.
Cautionary 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 presentation 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.
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Mission: We exist to power civilization. Vision: To be the E&P company of choice for all stakeholders. Goal: To consistently deliver strong, predictable returns to shareholders.
ConocoPhillips: A New Class of E&P Investment
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ConocoPhillips Profile As of June 30, 2013
Global Energy Company Exclusively E&P
Worldwide Presence Operating Segments
NYSE ticker: COP
Headquartered in Houston, Texas
~17,500 employees worldwide
Operations and activities in 30 countries
Exploration in 19 countries
Production in 14 countries
Proved reserves in 15 countries
Explore for, produce, transport and market hydrocarbons
Crude oil, natural gas, natural gas liquids (NGL), liquefied natural gas (LNG) and bitumen
Alaska
Lower 48 & Latin America
Canada
Europe
Asia Pacific & Middle East
Other International
Powering civilization calls on fossil fuels
44% 56%
2013
0%
20%
40%
60%
80%
100%
2005 2013 2020 2030
Fossil fuels will comprise 80% of energy supplies
Other
Nuclear
Coal
Natural Gas
Liquids
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37%
63%
2030
Demand projected to grow by 1/3 and remain dependent on fossil fuels Source: US DOE, International Energy Outlook 2013
OECD demand Non-OECD demand
From 1990 to 2012:
World Energy Demand grew by 54%
Non-OECD energy demand doubled
Non-OECD share of World Energy Demand rose from 43% to 56%
THE SHALE RESOURCE REVOLUTION
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The U.S. returned to being a major world producer
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0
10
20
30
40
50
60
70
US
Ru
ssia
Iran
Qat
ar
Can
ada
No
rway
Ch
ina
Sau
di A
rab
ia
Alg
eria
Ind
on
esia
Bill
ion
cu
bic
fe
et p
er
day
The U.S. was the largest natural gas producer in 2012
Source: BP Statistical Review 2013
0.0
0.3
0.5
0.8
1.0
1.3
1.5
U.S
.
Ru
ssia
Can
ada
Co
lom
bia
Kaz
akh
stan
Bra
zil
Ch
ina
Om
an
Ind
ia
20
08
-20
12
gro
wth
, M
illio
n b
arre
ls p
er
day
U.S. crude oil production growth surpassed all others in recent years
Source: Oil and Gas Journal; 2012 vs. 2008 average
U.S. shale gas production
Total non-shale
Shale Gas
40
45
50
55
60
65
70
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Bcf
pe
r D
ay
Shale gas grew from less than 1% of U.S. production in 1995 to approximately 36% in 2013
Source: Energy Information Administration
Shale gas transformed the North America natural gas market … and is affecting global gas balances as well
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Lower-48
Alaska
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3
4
5
6
7
8
9
10
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
MM
BD
Crude oil production grew about 50% from 2008-2013
Crude oil output
peaked at 9.6 MMBD
in 1970
Bakken ramp-up
Eagle Ford liquids-rich window
highlighted in E&P conference calls
U.S. liquids production: the unexpected turnaround
Source: EIA, Annual Energy Review 2013, Table 5.1b Source: EIA Field Production of natural gas liquids and LPG net imports.
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2008 2009 2010 2011 2012 2013
… and NGL output grew 40%
Benefits of shale gas and tight oil development
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Economic
Environmental Security
Gas use in power:
-Fewer air emissions
-Less water use
-Smaller land footprint
-Sufficient supplies
-Reliable supplies
-Diverse onshore supply base
-Close to markets
-Domestic economic growth
-Job creation
-Affordable energy
-Revenues to governments
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Economic
Environmental Security
Gas use in power:
-Fewer air emissions
-Less water use
-Smaller land footprint
Sufficient supplies
Reliable supplies
Diverse onshore supply base
Close to markets
Domestic economic growth
Job creation
Affordable energy
Revenues to governments
Benefits of shale gas and tight oil development
U.S. CO2 emissions shrank as natural gas usage grew
4.3
4.5
4.7
4.9
5.1
5.3
5.5
5.7
5.9
6.1
0.75
1.00
1.25
1.50
1.75
2.00
2.25
1990 1994 1999 2003 2007 2011
… and pushed U.S. CO2 emissions back to 1995 levels Emissions from coal and natural gas consumption (left axis), and
U.S. total (right axis). Billion tonnes
CO2 emissions from Coal
Total CO2, all sources
from NG
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Source: U.S. Energy Information Agency. CO2 emissions are U.S. total from all sources of consumption, by fuel type.
48% 44% 45% 42% 37%
21%
23% 24%
25% 30%
50
60
70
25%
35%
45%
55%
65%
75%
2008 2009 2010 2011 2012
Gas penetration in power grew along with production …
Gas % in power
Coal % in power
Production (right axis, Bcfd)
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Economic
Environmental Security
Gas use in power:
Fewer air emissions
Less water use
Smaller land footprint
-Sufficient supplies
-Reliable supplies
-Diverse onshore supply base
-Close to markets
Domestic economic growth
Job creation
Affordable energy
Revenues to governments
Benefits of shale gas and tight oil development
Source: U.S. Energy Information Administration
North American shale plays
Geographic diversity across the continent 14
2
4
6
8
10
2010 2011 2012 2013
Mill
ion
bar
rels
pe
r d
ay
U.S. Imports of Light Sweet crude oil have fallen sharply
Light Sweet
Light Sour
Medium
Heavy
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Source: U.S. Energy Information Agency
Domestic production is reducing reliance on imports
U.S. Trade Balance benefits from ~$70 billion less crude import costs
Natural Gas Liquids are an important part of the North America Production Renaissance
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(0.15)
(0.10)
(0.05)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2005 2007 2009 2011 2013
Net
imp
ort
s, M
illio
n b
arre
ls p
er
day
U.S. is now a net exporter of LPGs
Plentiful and more affordable feedstocks for manufacturers and export markets
Source: EIA Field Production of natural gas liquids and LPG net imports. Bloomberg Mt. Belvieu ethane and Singapore naphtha prices.
0.0
0.5
1.0
1.5
2.0
2003 2005 2007 2009 2011 2013
Chemicals feedstock costs favor U.S.
Price ratio of Mt. Belvieu purity ethane vs Singapore naphtha
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Economic
Environmental Security
Gas use in power:
Fewer air emissions
Less water use
Smaller land footprint
Sufficient supplies
Reliable supplies
Diverse onshore supply base
Close to markets
-Domestic economic growth
-Job creation
-Affordable energy
-Revenues to governments
Benefits of shale gas and tight oil development
Importance of Oil and Natural Gas to the U.S. Economy
Employment
The industry supports about 9.6 million U.S. jobs
1.4 million more jobs could be created by 2030 with policies that encourage greater resource development
Economy The industry generates more than $1 trillion or 7.3 percent of U.S. GDP
Lower natural gas prices will increase GDP 1.1% in 2013 and support 3% higher industrial production in 2017
Government Revenues
Adds jobs, promotes economic growth and provides government revenues
Companies pay more than $86 million per day to the federal government in both income taxes and production fees
Policies that encourage development will raise over $800 billion in additional cumulative government revenue by 2030
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Job creation is far-reaching across the economy
4
5
6
7
8
9
10
140
160
180
200
2007 2008 2009 2010 2011 2012 2013
U.S. u
ne
mp
loym
en
t rate, %
Tho
usa
nd
em
plo
yee
s
Direct O&G extraction jobs vs. U.S. unemployment rate
Oil & Gas Extraction Employment
American Chemistry Council report on nearly 100 chemical industry investment projects valued at $71.7 billion, announced as of March 2013:
“By 2020, the projects can lead to 46,000 new chemical industry jobs, another 264,000 jobs in supplier industries and 226,000 ‘payroll induced’ jobs in communities where workers spend their wages, and can generate $20 billion in federal, state and local tax revenue. Nearly 1.2 million additional, temporary jobs can be created between 2010 and 2020, during the capital investment phase.”
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Source: Bureau of Labor Statistics. Oil & Gas Extraction employment data for NAICS 211.
Energy production has been, and can continue to be, a lifeline to the U.S. economy
Source: American Chemistry Council Shale Study, May 2013.
Key economic impacts from LNG exports
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Source: ICF LNG Exports study for API, May 2013. *Impacts include direct, indirect and induced impacts.
Both ICF and DOE/NERA studies concluded that LNG exports yield net benefits to U.S. GDP which increase as the volume of exports grow
Impact (2016-2035 average)*
Change from Zero Exports Case
ICF Base Case (up to ~4 Bcfd)
Middle exports case (up to ~8 Bcfd)
High exports case (up to ~16 Bcfd)
Employment change 73,100 – 145,100 112,800 – 230,200 220,100 – 452,300
GDP change (Bln 2010$) $15.6 – 22.8 $25.4 – 37.2 $50.3 – 73.6
Henry Hub price change $0.32 $0.59 $1.02
Other changes include:
• 7,800-76,800 net manufacturing job gains on average between 2016 and 2035, including 1,700-11,400 net job gains in the specific manufacturing sectors that include refining, petrochemicals, and chemicals
• GDP gains include economic impacts associated with additional hydrocarbon liquids production (produced along with natural gas) and additional petrochemical production attributed to increasing NGL volumes
U.S. LNG exports (if they were not limited by government regulations) would likely fall within the range of 4 to 16 Bcfd through 2035. This indicates that U.S. LNG exports would have 12% to 28% market share of new LNG contract volumes in 2025 and market share of 8% to 25% in 2035.
North Dakota’s economy is now led by energy
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325
350
375
400
State employment expanded by 15% as oil production rose
Employment (thousands)
$20
$30
$40
$50
N.D. economy more than doubled in a decade ($Bln)
Sources: Bureau of Labor Statistics; Energy Information Administration.
Unprecedented change in Central Texas
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Economic impacts in Eagle Ford Counties
Source: UTSA Eagle Ford Shale Economic Impact Study, March 2013
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Total economic impact of Eagle
Ford Shale
Full-time jobs associated with
development
2012 $61 billion 116,500
2022 $89 billion 127,000
$13.9
$28.2
$44.1
2009 2011 2012
Just one example: Karnes County economic benefits –
Value of transactions subject to sales tax, $MM
Eagle Ford potential
began to be realized
Operators partnering in community support
ConocoPhillips, Talisman, Pioneer & Wood Group
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50 hours per week
300-400 pounds per day
Since August 2012
Highway Clean-Up Karnes County
Cooperation In Action - Eagle Ford Task Force
Karnes County V.F.D.
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3,000 gal. water truck
13 Operators
$185,000 donated
Capitalizing on oil & natural gas opportunities
Create positive business climate for investment
o Realistic tax policy
o Regulations should be efficient and effective
Facilitate resource access
o Open more public lands to drilling
o Reduce permitting delays
o Support ongoing reviews of state regulations of well operations including hydraulic fracturing
Avoid picking “winners”
o Don’t mandate or subsidize particular fuels or technologies
o Set performance based regulations that encourage cost effective innovation to meet environmental objectives
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Supportive government policies needed to realize broad benefits of energy production
China 14%
Argentina 10%
Algeria 9%
U.S. 15%
Canada 7%
Mexico 7%
Australia 6%
South Africa 5%
Russia 4%
Brazil 3%
Rest of World 20%
Technically Recoverable Shale Resources: Gas -- 7,795 TCF
Russia 22%
U.S. 17%
China 9% Argentina
8% Libya 7%
Australia 5%
Venezuela 4%
Mexico 4%
Pakistan 2%
Canada 3%
Rest of World 19%
Oil -- 345 Billion Barrels
Source: ARI for U.S. Department of Energy, EIA, June 2013
Thank You
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