north american natural gas supply assessmentinvesting up to $200 million in gathering systems. (swn...

©2009 Navigant Consulting, Inc.

The Dynamics of Abundance of North American Domestic

Natural Gas Supply

Presentation To

32nd IAEE International Conference‘Energy, Economy, Environment: The Global View’

June 21‐24, 2009Grand Hyatt HotelSan Francisco, CA

Navigant Consulting Inc.

www.navigantconsulting.com

3100 Zinfandel DriveSuit 600Rancho Cordova, CA 95670(916)631‐3200

Navigant Consulting, Inc.

• Independent• Large engagement capability• Technical, industry‐specific,

specialized consulting

SacramentoSan Francisco

Los Angeles

Phoenix

Dallas

Austin

Houston

Nashville

Atlanta

Tampa

Chicago

Toronto BurlingtonBoston

WestburyLawrenceville

PhiladelphiaPittsburgh

ViennaReston

Denver

Detroit

Seattle

Palo Alto

Minneapolis

New York

St. Louis

Fairfield

Ottawa

Irvine

Miami

Rochester

PragueLondon

Hong Kong

ShanghaiBeijing

Washington, DC

Baltimo

re

Montreal

Quebec City

• NYSE Company: “NCI”• 2008 Revenue: $811 million• More than 1,900 professionals• Geographic presence in

42 cities

©2009 Navigant Consulting, Inc. 1

LegendOffice includes Energy PracticeOffice includes other practices


North American Natural Gas Supply Assessment, July 2008

Updating the State of North American Natural Gas Supply: Review of Study Groundbreaking Findings

• Assignment: To assess the North American gas resource base and its potential, with particular attention on U.S. unconventional gas, particularly shale gas.

• Process: Gathered resource data from public sources and directly from gas producers and state agencies, plus data from Lippman Consulting Inc. The outreach included:— 114 producers covering 90 percent of North American gas production by volume

with a 60 percent response rate.— Production officials in all major shale‐producing states.

• Findings:— Released inNavigant Consulting’s North American Natural Gas Supply

Assessment, July 2008, for the American Clean Skies Foundation in Washington, D.C.

— Showed that gas production from domestic unconventional gas supply has ramped up sharply over the last several years.

— That the recoverable resource is not constrained, that conservatively proven and ultimately recoverable domestic resources equal up to 2,247 Tcf, or 118 years of U.S. production at 2007 rates of production.

— That production growth in gas shale is the most dramatic.


• Total U.S. production reached 19.3 Tcf/year (52.9 Bcf/day) by the end of 2007, a 4.3% increase over the 18.5 Tcf/year (50.7 Bcf/day) level at the end of 2006.

• Production from unconventional sources increased from 5.4 Tcf/year (14.8 Bcf/day) in 1998 to 8.9 Tcf/year (24.4 Bcf/day) in 2007, an increase of almost 65%.

• Unconventional production increased from 28% of total U.S. gas production in 1998 to 46% of total production in 2007.

Study Found Total U.S. Gas Production Has Increased, Largely Due to a Decade of Increased Unconventional Production

U.S. Dry Natural Gas Production (Tcf/year)

Source: EIA – Natural Gas Production Reports,EIA AEO2008 unconventional production, NCI calculations.

0.00

5.00

10.00

15.00

20.00

25.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Tcf/year Unconventional

Conventional

Gas Supply Assessment Review


• Year‐end 2007 onshore production was at 52.1 Bcf/day, up 7.4% over year‐end 2006 levels of 48.5 Bcf/day, according to EIA Form 914 data.

• Average onshore production for 2007 exceeded 2006 by 5.32%.

• EIA’s 2008 AEO estimates 2006 – 2007 growth less than half that, 2.39%.*

• First quarter 2008 growth was even more pronounced, exceeding the same quarter in 2007 by 11.49%.

• This accelerating growth is consistent with the upward curve in unconventional gas production.

* EIA’s 2009 AEO reference case increases estimates for total U.S. domestic dry gas production (dry up 21.5% in 2030 compared to AEO 2008), but still lower than NCI study findings.

U.S. Onshore Natural Gas Production (Bcf/day)

Source: EIA – Production Survey 914

44.6 45.0

45.1

45.1 45.5

45.6

45.3 45.6

44.445.6 46.4

45.8 46.2 46.4 46.8

47.047.1 47.4

47.547.7 47.9 48.2 48.5

48.5

47.9

47.749.0

49.1 49.4 50.0

50.0 50.5 50.8

50.852.1

52.1 52.4 53.3 53.8

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

Jan‐05

Mar‐

05M

ay‐05Jul

‐05Se

p‐05

Nov‐0

5Jan

‐06M

ar‐06

May‐06Jul

‐06Se

p‐06

Nov‐0

6Jan

‐07M

ar‐07

May‐07Jul

‐07Se

p‐07

Nov‐0

7Jan

‐08M

ar‐08

Bcf/day

Study Showed U.S. Onshore Gas Production Growth Has Been Most Dramatic, Driven by the Growth of Unconventional Gas Supply

Compoun

d Annual

Rate of Gr

owth: 6.11

%

Gas Supply Assessment Review

©2009 Navigant Consulting, Inc.

What is Apparent is that Gas Shale Production Has Experienced Tremendous Growth, with the Barnett Shale in Texas Leading the Way

Sources: Lippman Consulting, Inc. Production Database, Michigan Public Service Commission, Arkansas Oil and Gas Commission and NCI Calculations.

• Study showed Barnett growing from 0.094 Bcfd in 1998 to 3.0 Bcfd in 2007; an increase of more than 3000%; latest Barnett production actuals are 4.6 Bcfd or 7.4% of total U.S. Lower 48 wellhead production of 62 Bcfd (Lippman Consulting, Q12009).

• Fayetteville, Haynesville, and Woodford were also reported as showing signs of ramping production with Marcellus identified as being next.

• Technology has allowed access to and economic production of a vastly greater resource base. Specifically the combination of improved hydraulic fracturingtechniques and improved horizontal drilling have allowed tight, geographically diffuse reserves to be developed in large volumes.

5

U.S. Shale Gas Production* (MMcf/day)

0

1,000

2,000

3,000

4,000

5,000

6,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Est.1Q08

MMcf/Day

Haynesville

Bakken

Arkoma WoodfordAntrim

Fayetteville

Fort Worth Barnett Form

ula Curve, Empiric

ally Matched

It’s a 2.9‐Power Exponential

Gas Supply Assessment Discussion

Even ‘Wikipedia’ Has U.S. Shales Now Listed in Largest Gas Fields in the World as per Report updated June 13, 2009




Update to the Resource Assessment Study

• In continuing to follow the development of domestic unconventional gas, signs continue to point to continuing unconventional gas production and reserves growth in the U.S. and Canada.

• While year‐end 2008 final EIA production numbers are still several months away, the production growth trends set in 2008 appear to be continuing. This despite challenging financial market conditions for many exploration and production companies and dramatically lower spot gas prices currently compared to last year.

• Some select ‘anecdotal’ results announced by shale producers recently indicate dramatic reported production increases for 2008 and for 2009, giving credence that the increasing production growth trend has the capability to continue. — Southwestern Energy (SWN) had net production of 134.5 Bcf in 2008 compared to

53.5 Bcf in 2007 out of the Fayetteville shale; an increase of over 150%. During 2008, 604 wells were drilled, and for 2009 SWN is planning on drilling up to 650 wells and investing up to $200 million in gathering systems. (SWN 2008 Annual Report).

— Range Resources expects to triple Marcellus production in 2009, with a target to exit the year at a net rate of 80 – 100 mmcfe per day (2008 Annual Report), or 36 Bcf per year.

Gas Supply Assessment Update


Update to the Resource Assessment Study (cont’d.)

• Some recent results (cont.) — Petrohawk Energy (HK) increased reserves from 1.06 Tcfe to 1.42 Tcfe mostly

through additional shale properties, an increase of about 40%, and estimate their potential reserves to be 23.6 Tcfe, most of which lies in shale properties (April 2009 investor presentation).

— Quicksilver Resources (QRI), which concentrates on unconventional gas, increased production from 211 MMcfd in Q1 2008 to 332 MMcfd in 1Q 2009, a gain of 57% (News release May 6, 2009).

— Devon Energy (DVN), the largest producer in the prolific Barnett Shale formation around Fort Worth, Texas, increased its net production to 1.2 Bcfd in Q1 2008 from 0.995 Bcfd in Q1 2007 (News release May 6, 2009).

— XTO Energy (XTO), in May 7, 2009 Gas Daily was reported as having gas production surging 30% from one year ago to 2.23 Bcfd driven by shale plays in Barnett (up 40%) and quadrupling output from Woodford and Fayetteville.


9©2008 Navigant Consulting, Inc. 9

In the Past, EIA Has Tended to Underforecast Gas Production, Especially Shale• Measuring the rapidly increasing

growth in shale production, then projecting it if the resource base can support it, yields an unconventional gas contribution well in excess of even EIA’s most recent forecast in the AEO09.

• This despite the EIA having dramatically increased their previous U.S. domestic gas forecast by +43.5% (from AEO08) for unconventional gas, including shale, by 2030 while at the same time reducing forecasts of foreign LNG imports.

• Yet we believe the EIA’s new forecast is likely again to be too low in its forecast of domestic U.S. shale gas!

EIA AEO Shale Underestimate



• Vertical gas rig counts have fallen off significantly since last year, experiencing a decline of 73% (209 rigs in the week ending June 12) from the peak of 781 rigs for the week ending July 4, 2008.

• Horizontal gas rig counts have also declined, but at 330 rigs for the week ending June 12 are still at levels near last year’s low of 356 rigs (week ending Jan. 4, 2008) and relatively flat year over year.

• U.S. production is still holding relatively flat, due to unconventional supplies especially from gas shales.

Since Last Fall, Vertical Gas Drilling Has Dramatically Declined –Horizontal Drilling Has Not. U.S. Gas Production Is Holding Up

US Dry Production and Gas Drilling Rigs

Sources: NCI / Smith Bits / EIA



A Key Finding of the NCI Study Was that Proved Reserves Plus Assessed Resources— Resulted in An Expanded Life of the Gas Resource

• The 2006 Potential Gas Committee (PGC) a voluntary, broad based industry and academic group of experts reported total P3 (proved, probable, and potential) resource estimate was 1,530 Tcf, inclusive of 204 Tcf of proved reserves. At that year’s U.S. production rate, this is 82 years’ worth of gas supply.

• Remarkably, the maximum reported assessment for shale according to producer reports collected by NCI, is 842 Tcf. Using this estimate, NCI’s estimate was that the total resource estimate would increase to 2,247 Tcf, or 118 years of production at 2007 levels.

82 years at 2006 Prod. Rate


-

500

1,000

1,500

2,000

2,500

PGC 2006 MeanAssessment

Total Gas withUpdated Shale and

Proved

Total Gas UsingMaximum ReportedShale Assessment

Tcf

ProvedReserves

UnprovedTechnicallyRecoverableResource



U.S. Total Gas Supply (Tcf)

Potential Gas Committee Report 2008 Validates NCI Study

• Last Thursday, June 18, 2009, the Potential Gas Committee (PGG) released the results of it biennial natural gas resource assessment – an assessment that was the largest increase of gas reserves in its 44 year history – an increase of 35% in just two years.

• This report effective year end 2008, announced technically recoverable gas supply in the U.S. of 2,074 Tcf up from 1,532 Tcf in 2006.

• At U.S. production rates of 19 to 20 Tcf per year this is more than 100 years of supply.• The 2,074 Tcf compares to NCI’s forecast at year ago of that showed a range of 1,680 Tcf

to 2.247 Tcf of technically recoverable reserves.• The PGC also identified the growth impact of shale, indicating of the 1,836 Tcf of total

potential resources 616 Tcf or 33% is from shale, moderately less than NCI’s reported maximum reported shale resource of 842 Tcf that however was 37% of our total maximum technically recoverable and close in percentage share to the PGC finding.

• In any event, one year later and with a more ground up approach, the PGC report confirms what NCI and the American Clean Skies Foundation have been saying –natural gas in North America is abundant and shale is the primary reason.



In the Past Many Forecasting Entities besides the EIA Have Been Challenged by the Rapid Changes in Domestic Shale Gas Supply • ‘Game changing’ events like what we identified in our ‘North American Gas Supply

Assessment’ study has made it exceeding difficult for many forecasts to incorporate the changing supply – demand fundamentals of the current market.

• The particular challenge presented by shale, has been its rapidity and to a degree the time lag getting information to and from the various reporting agencies in anything close to ‘real time’.

• EIA 914 report attempts to address this time lag matter – through its survey of production volume information on a monthly basis. In must be realized however that the Form 914 is only a sample and is subject to change when ‘actuals’ come in.

• Only recently have many forecasts and forecasters been able to incorporate the domestic supply growth that NCI identified in its study one year ago.

• And now, with the PGC report findings announced last week there should be clear validation of the abundance of natural gas in North America.

©2009 Navigant Consulting, Inc.13



This Should Bring into Focus More Discussion on How Excess Gas Should Be Utilized by the Market


In postulating that ‐• EIA 2009 Forecast of Lower 48 Onshore gas supply in 20201: 44.0 Bcfd• NCI Forecast of Lower 48 Onshore gas supply in 2020 (approx): 59.4 Bcfd

• Forecasting Difference: 15.4 BcfdDiscussion scenarios for 2020 to conceptualize scale and possibilities:• EIA forecasts U.S. diesel transport fuel use to be 20.1 Bcfd‐equivalent in 2020.

— 15.4 Bcfd of gas could displace more than 75% of U.S. diesel fuel in 2020 .• EIA forecasts U.S. coal demand for electric generation to be 10.5 Bcfd‐equivalent

more in 2020 than it is in 2009. — 15.4 Bcfd of gas could displace 100% of coal fired electric generation growth, and

leave 4.9 Bcfd for vehicle fuel, enough to serve 10% of 2009 U.S. vehicle fuelneeds. This would operate about 82,000 Honda Civic GXs annually (average 25 mpg‐equivalent, 12,000 miles per year per vehicle).

— 15.4 Bcfd represents 21% of 2008 EIA’s annual U.S. coal demand in 2008 of 73.7 Bcfde.

1 Source of EIA numbers is the recently released 2009 Annual Energy Outlook of the U.S. Energy Information Administration and include projections much higher than AEO 2008.


Major Shale Basins are Located Across the Entire U.S. and Canada

Source: American Clean Skies Foundation, compiled from various sources

Major U.S. Shale Basins



Source: EIA, with California additions by NCI based on data from Schlumberger and Energy Velocity

San JoaquinBasin

Santa MariaBasin

Major Shale Basins are Located Across the Entire U.S.

Major U.S. Shale Basins• There are at least 21shale basins in over 20 states in the U.S.

• Producing areas include Antrim, Barnett, Devonian, Fayetteville, and Woodford.

• Rapidly emerging plays include Haynesville and very soon the Marcellus (potentially the biggest of them all.

• In California, the Monterey and McClure basins (within the San Joaquin and Santa Maria basins) are potential gas shale plays.


We Should also Note ‐ Shale is Also Found Outside North America

• Although shale gas is most developed in North America, Schlumberger indicated in World Gas Intelligence in it April 2009 edition, that it estimates the world has more than 15,000 Tcf of shale gas‐in‐place. Compare this to the PGC 2008 estimate of 616 Tcfin the U.S., or even NCI’s maximum producer estimate of 842 Tcf.

• The message is ‐ the world has a bountiful potential of shale gas yet to be discovered.• While the most highly developed shale resources are in Canada and the U.S., deposits

are estimated by Schlumberger and others as being located in 688 different shales in 142 separate basins around the world.

• China is thought to contain the second largest total shale gas resources to North America with 4,000 Tcf gas‐in‐place.

• In Canada, potential shale is identified in Alberta and BC and also Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia.

• Estimates of total gas‐in‐place in Canada are as high as 1,500 Tcf (U.S. estimates were 3,764 Tcf as per NCI study). And at these estimates, the Canadian numbers seem low!




• History would show that an era of high prices usually has led to a decline in energy demand and in the converse, in a period of low prices gas demand has flourished.

• A new dynamic potentially affecting gas demand, is ‘climate change’ and concerns over carbon and other GHG emissions.

• As shown in the Table from the EIA below, gas emits half the CO2 of coal and very low other air pollutants compared to coal and oil.

• Which fossil fuel would you choose?

With Supply Abundance Beginning, Yes Beginning to Be Understood ‐ Next Step is to Identify How Natural Gas Factors into the Future Low Carbon Environment


Fossil Fuel Emission Levels- Pounds per Billion Btu of Energy Input

Pollutant Natural Gas Oil CoalCarbon Dioxide 117,000 164,000 208,000Carbon Monoxide 40 33 208Nitrogen Oxides 92 448 457Sulfur Dioxide 1 1,122 2,591Particulates 7 84 2,744Mercury 0 0.007 0.016

Source: EIA - Natural Gas Issues and Trends 1998

.

… Future Low Carbon Future, Cont’d.

• Given most of the greenhouse gas emissions in the U.S. come from CO2 as a direct result of fossil fuel combustion, increasing natural gas demand in place of other fossil fuels would result in lower GHG emissions.

• Climate change policy we see then as having the affect of ‐ sharply increasing gas demand possibly despite higher prices – given gas’s inherent fuel source advantages of being abundant, being clean and being domestic.

• Certainly with the reduction of GHG emissions as a clear policy initiative of the Obama administration, as well as a key matter in Congress and across the country in the majority of states, certainly in California – it appears natural gas is well positioned to play a sharply increased role in the low carbon energy environment of this country for the foreseeable future.




• Natural gas supply appears well placed to serve an increasing share of the vehicle fuel market in this country.

• Here in California in the state with the largest number of vehicles in the country, other legislation already in place in California (AB 118) looks to continue to support increased use of natural gas and other alternative fuels to meet at least a portion of this market.

• According to the California Energy Commission own reports, natural gas usage in place of diesel in the heavy‐duty truck sector could cut GHG emissions by 10%‐20%.

• We believe the use of natural gas replacing coal in the power generation market an even more likely growth market for natural gas ‐ as a result of the affects of State AB 32 the Global Warming Solutions Act of 2006 in California and Federal measures such as Waxman‐Markey aimed at addressing climate change and reducing GHG emissions.

• With natural gas abundance becoming clearly recognized with the recent PGC report and others, and natural gas’s ‘clean’ qualities becoming more sharply in focus, natural gas is set to compete for a vastly larger market share of the fossil fuel market over the next few decades, longer. Time will tell how large a market share gas becomes!

We Certainly See The Abundant Natural Gas Supply Picture Supporting New Markets



Gordon [email protected]

916.631.3249

Sacramento Houston

The full North American Natural Gas Supply Assessmentis available for download at the Navigant website at

http://www.navigantconsulting.com/knowledge _center/hot_topics/Under Natural Gas Studies (North American Natural Gas Supply

Assessment)

Rick [email protected]

713.646.5029

Contact Information for Follow Up

http://www.navigantconsulting.com/knowledge _center/hot_topics/

north american natural gas supply assessmentinvesting up to $200 million in gathering systems. (swn...

Documents