unconventional development & energy independence...annual changes in u.s. natural gas proved...

Unconventional Development & Energy Independence 2014 SONRIS To Sunset Annual Conference Louisiana Department of Natural Resources August 27, 2014

David E. Dismukes, Ph.D. Center for Energy Studies Louisiana State University

Center for Energy Studies


Take Away Points

2 © LSU Center for Energy Studies

• Unconventional development continues to dramatically change the U.S. economic landscape.

• U.S. has already moved from being an anticipated importer to major exporter of natural gas.

• U.S. has moved being the largest crude oil producer.

• U.S. likely to be a net exporter by 2036 under continued high prices.

• Impacts go far beyond resource independence and are now reaching into manufacturing.

• U.S. likely to unwind decades worth of global manufacturing market share losses.

Overview


Unconventional Development & Energy Resource Independence


Source: Energy Information Administration, U.S. Department of Energy

Domestic Shale Gas Basins and Plays



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.

Unconventional Revolution

Changes in Natural Gas Reserves and Production


Natural gas production and reserves are at levels not seen since the 1970s and both U.S. natural gas production and reserves are now at an all time recorded peak.

0

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

1970 1975 1980 1985 1990 1995 2000 2005 2010

Natural Gas Reserves Natural Gas Production

U.S

. Dry

Nat

ural

Gas

P

rove

d R

eser

ves

(Tcf

) U

.S. N

atural Gas

Marketed P

roduction (Tcf)

Source: Energy Information Administration, U.S. Department of Energy. 5 © LSU Center for Energy Studies


Annual Changes in U.S. Natural Gas Proved Reserves (Shale and Other)


Expanded exploration and development of unconventional resources has driven increases in natural gas proved reserves in recent years. Net additions in shale natural gas reserves totaled 34.2 Tcf in 2011, outpacing the overall net decrease in natural gas

reserves from all other sources combined.

-10

-5

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011

Shale Other

Ann

ual C

hang

e (T

cf)


0%

10%

20%

30%

40%

2007 2008 2009 2010 2011

Shale’s Share of Reserves


Res

erve

s, T

cf


Annual Energy Outlook, Natural Gas Reserves


200

250

300

350

400

450

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Unconventional resources are not a “flash in the pan” and are anticipated to continue to increase over the next two decades or more.




There are a wide range of unconventional shale gas reserve estimates from as low as 436 Tcf to as high as 2,750 Tcf. This represents a range of between 18 years to over

100 years of available natural gas resources based upon current consumption levels.1


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: 1Assumes 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.

Alternative Natural Gas Reserve Forecasts



Forecast U.S. Natural Gas Production


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

Associated Gas Production



U.S. Natural Gas Rig Count and Henry Hub Price


Natural gas rigs closely follow the natural gas spot price. Price decrease that started in 2007 has reduced gas drilling attractiveness.

Num

ber o

f Rig

s


$0

$2

$4

$6

$8

$10

$12

$14

$16

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Natural Gas Rigs Henry Hub Price

Natural G

as Price ($/M

cf)

Source: Energy Information Administration, U.S. Department of Energy; and Baker Hughes.


U.S. Oil/Gas Rig Split


Drilling emphasis over the past 20 years has almost exclusively concentrated on developing new natural gas wells. This 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 11 © LSU Center for Energy Studies


Changes in Crude Oil Reserves and Production


Crude oil production and reserves are climbing back to levels not seen since the 1980s.

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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



Annual Changes in U.S. Crude Oil Proved Reserves (Shale and Other)


-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011

Ann

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. 13 © LSU Center for Energy Studies


Res

erve

s, B

illio

n B

arre

ls


Annual Energy Outlook, Crude Oil Reserves


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.




Forecast U.S. Crude Oil Production

15

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

s pe

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.


Source: Energy Information Administration, U.S. Department of Energy © LSU Center for Energy Studies

International Oil Supply, 2005 and 2013



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.


Net Import Share of U.S. Petroleum and Liquid Fuels, 1990 – 2040



-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.





Manufacturing & Economic Independence

While the nature of manufacturing has admittedly changed given the “out-sourcing” prior to the 2008-2009 financial meltdown, the U.S. economy is beginning to emerge as a new manufacturing powerhouse.

However, the U.S. economic recovery, and regional economic development opportunities over the next decade will likely be concentrated in a few states and regions. What determines the “winners” and “losers” in this economic resurgence?

The “winners” will be those areas with access to low-cost energy supplies and transportation infrastructure that can move those supplies to rapidly emerging economic development opportunities in manufacturing that were unimaginable as recently as five years ago.

Other important factors influencing manufacturing siting locations includes the presence of a skilled labor force, competitive wage levels, supportive tax policies, as well as fair and stable regulations and regulatory practices.

19

Overview: Why Future Economic Development Will Not be Uniformly Distributed

Manufacturing Independence Center for Energy Studies

20

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 Texas Source: 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

21

Percent Change in Real Quarterly GDP by State, 2013:III TO 2013:IV


States with significant shale activity.

States without significant shale activity.

WA 1.8

ID 2.7

MT 1.1

CA 3.2

OR 1.2

NV 4.7 UT

3.1 CO 3.7

WY 8.4

ND 8.4

SD 1.3

NE 2.7

KS 3.1

OK 2.9

TX 4.3

NM 4.5

AZ 3.2

MN 0.0

IA 0.3

MO 3.0

WI 1.8

AR 3.0

LA 5.4

IL 3.0

IN 4.2

MI 3.2

KY 3.1

MS -3.0

OH 2.6

PA 3.4

AL .07

TN 2.3

GA 3.9

FL 3.7

SC 2.3

NC 4.1

WV 7.5

NY 1.3

VA 2.3

ME 2.4

VT: 2.6 NH: 1.1 MA: 0.4 RI: 1.8 CT: 2.8 NJ: 2.6 DE: 2.2 MD: 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 rely heavily on energy as the primary input to make their respective products. Energy is typically a “feedstock” for these industries which use energy to make a number of different products much like a baker uses a common input (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 wages are even higher than the already-above average manufacturing wage levels.

22

Overview: Why Energy-Based Manufacturing


23 Note: 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


24

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

Power Generation

Feedstock

Industrial Natural Gas Usage


25

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?


26

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)


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”)


27

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

28

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


29 Source: 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


30 Source: Platts, January 2013.

Greenfield Brownfield

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.

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13

6

18

14 15

16 2

3 20

4

5

7 17

8 12 1

9 10 11

Most large scale projects are three to

four years away.

Recent and Proposed U.S. Ethylene Cracking Capacity Expansions


Owner/Operator Location Capacity Site Estimated(tonnes/year) Type Status In-Service00

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

31 Source: 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



Development Potential


LSU-CES Study (2013): Louisiana Total Capital Expenditures by Sector



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.


Industrial Production and Capacity Indices



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.



Conclusions



Conclusions


•The unconventional energy production revolution is having considerable positive economic impacts on U.S. manufacturing/industrial development.

•However, policy needs to recognize that all of this development and the potential “independence” is resource-specific and policy dependent.

• “Independence” does not mean that we will be entirely removed, nor disengaged, from global markets and particular areas of the world.

Conclusions


Questions, Comments and Discussion

37

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unconventional development & energy independence...annual changes in u.s. natural gas proved...

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