what’s going on with energy? how unconventional oil & gas … · 2017-04-11 · atlanta...

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

What’s Going on With Energy? How Unconventional Oil & Gas Development is Impacting Renewables, Efficiency, Power Markets and All That Other Stuff

Atlanta Economics Club Monthly Meeting December 10, 2012

Center for Energy Studies

Energy-Related Carbon Dioxide

81.2%

Summary and Take Away

2

• New natural gas supply availability is having considerable impacts on all energy markets today and on longer term, forward-looking basis.

• Shale revolution is now migrating into liquids and crude oil production. The expansion of this revolution is increasing liquids production as well as facilitating additional natural gas production despite low prices.

• Considerable economic development opportunities through

lower energy costs.

• Developments will change energy market dynamics including those associated with such clean energy initiatives and renewables, nuclear power, carbon capture and storage, and energy efficiency – it’s just not sinking in yet…..


© LSU Center for Energy Studies

Introduction


What Changed? The Way Things Are

3 © LSU Center for Energy Studies

Unconventional vs. Conventional Geological Formations



Recent Trends

Source: Energy Tomorrow


Shale, Horizontal Drilling, and Fractionation

• Shale (unconventional) wells differ from “conventional” wells since they are drilled horizontally and not vertically.

• Horizontal segments are then “fractured” with higher pressure water, chemicals and silica to break up the formation.

• The fractionation process releases/liberates the hydrocarbons.

• Some environmental and water use concerns expressed in some areas of the country on this drilling process.

Recent Trends


Production from a Typical Well and Shale Well


Recent Trends

Illustrative production decline from a convention vs. shale producing well. As much as 80 percent of total production thought to occur in the first two to three

years.

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.

Recent Trends


Game Changer 1: Natural Gas


$/M

cf

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

Natural Gas Price Variability


$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

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

average for period 2000-2001 heating season

through 2008: $6.24 (standard deviation: $2.39)

since 2009: $4.11 (standard deviation: $0.70)


The 2001 to 2009 market trend of higher average prices coupled with high volatility is reversing itself and post 2009 prices are significantly lower.

Average 1997 through 2000: $2.79 (standard deviation: $1.28)

Natural Gas Trends

Dry

Nat

ural

Gas

Pro

ved

Res

erve

s (T

cf)


Natural Gas Proved Reserves and Production


-

5

10

15

20

25

30

0

50

100

150

200

250

300

350

1970 1975 1980 1985 1990 1995 2000 2005 2010

Reserves

Production

Marketed P

roduction (Tcf)

10


Current U.S. natural gas reserves are approaching record levels not seen since 1970. Natural gas production is at levels that surpass historic peaks.

Natural Gas Trends

Res

erve

s - T

cf


Annual Energy Outlook, Natural Gas Reserves


200

220

240

260

280

300

320

2010 2015 2020 2025 2030 2035


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

Natural Gas Trends


Forecast U.S. natural gas production, 1990-2035


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

Natural Gas Trends

(201

0 $/

MM

BTU

)


Choosing Most Current Natural Gas Price Forecasts: AEO-2007 to AEO-2012


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


Shale availability has significant impact on future price outlook.

Anticipated price outlook in 2009.

Anticipated price outlook today.

Natural Gas Trends


Game Changer 2: Crude and Liquids

14


Crude Oil and Natural Gas Prices

Center for Energy Studies Crude Oil Trends

$0

$2

$4

$6

$8

$10

$12

$14

$16

$0

$20

$40

$60

$80

$100

$120

$140

$160

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

Crude Oil (WTI) Natural Gas (Henry Hub)

Source: Federal Reserve Bank

Cru

de O

il ($

/Bbl

) N

atural Gas ($/M

cf)

Two significant breaks (decoupling) of natural gas and crude oil prices.


First price decoupling: Gas Up, Crude Down

Second price decoupling: Crude Up, Gas Down

Recession


16

Domestic Rig Count – Crude Oil vs. Natural Gas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11

Per

cent

of T

otal

Rig

s

Source: Baker Hughes.

Oil Rigs

Gas Rigs

For the first time in 16 years, the number of oil rigs is equivalent to gas rigs.

Crude Oil Trends


Rig Count, North Louisiana (Haynesville) and Texas District 1 (Eagle Ford)


$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

0

100

200

300

400

500

600

700

800

900

1,000

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11

North Louisiana Texas - District 1 Spot Price Differential

Rig

Cou

nt (J

anua

ry 2

009=

100)

$/B

OE

Indexing the rig change from January 2009 highlights the basin preference.

Haynesville is losing its competitive advantage due to the

liquids preference associated with other shales.

Source: Baker Hughes. Rig counts are indexed to the level of active drilling rigs in each reported area as of January 2009.

Crude Oil Trends


18


Can you insert a slide that shows a

Crude Oil Trends

Annual Production, Unconventional Resources



Bcf/d MMBBl/d

Source: Advanced Resource Intl; presentation to Cheniere Board, March 2011; Cheniere Research

0

1

2

3

4

5

6

7

8

2010 2011E 2012E 2013E 2014E 2015E 2020E 0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0 Includes Eagle Ford, W. Barnett, Bakken Shales;

Granite Wash, Piceance & Uinta Tight Sands

Liquids Gas

Liquids production from shale plays > 3 million barrels per day by 2020 Associated natural gas > 7 Bcf/d of “costless” supply (or about 2.3 Bcf/d per

every 1.0 MMBbls/d of shale-based liquids production).

Crude Oil Trends


Game Changer 3: Renewable Energy Markets



RPS States

ME 40% by 2017

VT: 20% by 2017

NH: 24.8% by 2025

WI: 10% by 2015

MT: 15% by 2015

IA: 105 MW

MN: 25% by 2025

WA: 15% by 2020

CA: 33% by 2020

NV: 25% by 2025

AZ: 15% by 2025

NM: 20% by 2020

UT: 20% by 2025

TX: 5,880 MW by 2015

MO: 15%

by 2021

IL: 25% by 2025

NC: 12.5% by 2021

VA: 15% by 2025

PA: 18% by 2020

NY: 29% by 2015

State RPS

State Goal

OR: 25% by 2025

CO: 30% by 2020

ND: 10% by 2015

SD: 10% by 2015

OH: 12.5% by 2024

MA: 22% by 2020 RI: 16% by 2020 CT: 27% by 2020 NJ: 20.4% by 2021 MD: 20% by 2022 DE: 25% by 2026 DC: 20% by 2020

Note: As of June 2012 Source: Database of State Incentives for Renewables and Efficiency.

MI: 10% +1,100 MW

by 2015

WV: 25% by 2025

OK: 15% by 2015

KS: 20% by 2020

IN: 10% by 2025

HI: 40% by 2030

Currently 37 states have RPS policies in place. Together these states account for over 72 percent of electricity sales in the U.S.


Renewable Energy


RPS Phase-In: Share of Total U.S. Retail Sales with RPS Requirements

Allowance “Allowances” are issued for

the allowed level of emissions.

Deficit Remaining credits needed

after allowances

Source: Energy Information Administration, U.S. Department of Energy. 22 © LSU Center for Energy Studies

State RPS requirements have been increasing significantly since 2005 and the post-Hurricane Katrina volatility in energy prices.

0%

10%

20%

30%

40%

50%

60%

70%

80%

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Katrina

Renewable Energy


Historic Wind Generation Capacity Development


Wind capacity development has been considerable. The last several years has seen considerable over-development and the industry current has about 4 GW of excess manufacturing capacity even if the federal wind PTC is continued. The federal 1603

option created considerable speculative activity.

0

5

10

15

20

25

30

35

40

45

50

0

2,000

4,000

6,000

8,000

10,000

12,000

1980 1985 1990 1995 2000 2005 2010

Installations Cumulative Capacity

Ann

ual C

apac

ity (M

W) C

umulative C

apacity (GW

)

Pre-PTC and RPS Post-PTC / Pre-RPS Post-PTC /Post-RPS*

Renewable Energy

REC Prices and Wind Development


REC prices in ERCOT have fallen considerably in large part due to the overdevelopment of wind capacity over the past several years. High

correlation between the increase in wind generation and decrease in REC prices.

$0

$1

$2

$3

$4

$5

$6

$7

0

500

1,000

1,500

2,000

2,500

3,000

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Texas Wind Generation Average Monthly REC Price

Texa

s W

ind

Gen

erat

ion

(MW

h)

Average RE

C P

rice ($/MW

h)


Renewable Energy Prices

Source: PJM-GATS

Cost of Solar Renewable Energy Credits through PJM-GATS


$0

$100

$200

$300

$400

$500

$600

$700

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Delaware District of Columbia MarylandNew Jersey Ohio PennsylvaniaVirgina

$ pe

r Sol

ar-R

EC

Solar energy costs (SRECs) have decreased considerably over the past year, even in high priced states such as New Jersey.


Renewable Energy


Forecasted Renewable Capacity Growth Opportunities

Note: Based on assumed growth in electricity demand and continued state RPS targets. Source: Energy Information Administration (load growth). 26 © LSU Center for Energy Studies

Renewable capacity opportunities likely to grow to close to 200 GW with wind likely dominating these growth opportunities. S&P estimates as much as $150 in capex over

next decade alone (even with expiration of federal wind PTC).




after allowances

RP

S C

apac

ity (G

W)

0

50

100

150

200

250

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Renewable Energy


Renewable Energy Outlook





after allowances

Renewable Energy

Energy-Related Carbon Dioxide

81.2%

Market Forces

• Over-development

• Low natural gas prices

• Reduced electricity demand

• Cost & operating efficiencies

• International competition

Policy Changes

• Reduction of over-incentives

• Potential state-level recalibration of expectations

• Changing environmental priorities (i.e., carbon) (??)

Renewables at this time still have strong outlook and a guaranteed market opportunity for growth not afforded to other generation resources.

Renewables will, however, be increasingly pressured by market forces and policy challenges.


Conclusions

28



Conclusions


• U.S is entering a energy renaissance period. Reserve development, production, capital expenditures are all up to record levels. U.S. and North America generally one of the more/most attractive for new investment. Impacts spreading to manufacturing.

• Policy and perception continue to be things that plague continued industry development. It is, however, starting to temper: at least at the state level. Continued federal positions bear watching.

• Policy uncertainty is the biggest impediment to continued development. Significant short-term policy retrenchment on unconventional resources could lead to economic impacts that would pale in comparison to past financial and housing crisis.

• Renewables have a bright outlook (due to policy), and the economics have seen significant improvements. They will continue to see market and policy pressures which may not be a bad thing overall for the industry and consumers.

Conclusions


Questions, Comments and Discussion

30

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Conclusions

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what’s going on with energy? how unconventional oil & gas … · 2017-04-11 · atlanta...

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