Global Energy Market Upheaval: The Shale Revolution Spreads

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29 Νοε 2013 (πριν από 3 χρόνια και 8 μήνες)

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Global Energy Market Upheaval:
The Shale Revolution Spreads

Benjamin Schlesinger and Associates, LLC

Bethesda, Maryland


32nd USAEE/IAEE North American
Conference

Plenary
Session: Unconventional Oil & Gas
Development

Anchorage


Tuesday, July 30, 2013

1

Outline


Introduction


Gas supply: shale gas (and shale oil)


Gas demand in crisis


Coal substitution, other new markets


Global gas markets


Conclusions.





2

BSA


29 years of gas and energy advisory
services.


Economics, pipeline tariffs,
contracting, price risks.


Research & training


Negotiation of gas contracts


D
ue diligence


Review for lenders
in financing of LNG, power plants,
gas storage


Expert in courts & arbitrations,
testified in 16 jurisdictions.


600+ assignments


27 countries.

Clients
: Energy
buyers & sellers, electricity
and heating plants, gas and oil pipelines
,
banks
, governments, universities.

Expertise

Major Assignments

Power generators

Lenders

Pipelines/traders

LNG projects

Regulators

Expert testimony


UNECE

European
pipelines

GdF

Suez,
Repsol
, BG

Eastern Europe

West African pipeline

Sonatrach

(Bechtel)


Japan gas utilities

Mitsubishi

Philippine NPC

3

Despite
all the
words and numbers, people
are only slowly coming to grasp
this.


Were it a country, US shale would
be the world’s 3
rd

largest gas
producer.


Marcellus shale is now producing
9.5
Bcf
/day (May ‘13), but
Haynesville and other fields are
less economical.


Most US policy, economic,
academic and environmental
studies are totally outdated, e.g.,
from Internet/Google.


Shale ‘debate’ is lost on most
people.

4

Estm
. US Shale Gas Production,
Bcf
/day

0
5
10
15
20
25
30
2000
2002
2004
2006
2008
2010
2012
Rest of US
Bakken
Eagle Ford
Marcellus
Haynesville
Woodford
Fayetteville
Barnett
Antrim
Source: EIA 3/2013, BSA, Lippmann through 5/2013.

US has added 5 MBD equivalent of shale
gas production since 2001.


1.1


2.0


2.7


4.2


2.7


3.7


11.5

-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Holland
Norway
Qatar
EU, Total
Venezuela
Iran
Saudi
MBD, equivalent

Annual US shale gas production (just the growth)

Source: BSA 2013, from BP Statistical Review 2013 & EIA (est. shale production).

Gas Production, 2012

Oil Production, 2012

5

…plus: over 2.5 MBD rise in US shale
oil production, so far.

How long will North America’s big
hydrocarbons price gap persist?

Source: BSA 2013, from EIA, CME
-
NYMEX, July 23, 2013 Settlements.

6

$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
$22.00
$24.00
Jan-01
Feb-02
Mar-03
Apr-04
May-05
Jun-06
Jul-07
Aug-08
Sep-09
Oct-10
Nov-11
Dec-12
Jan-14
Feb-15
Mar-16
Apr-17
May-18
Jun-19
Jul-20
Henry Hub Futures
Henry Hub Acutals
WTI Actuals
Brent Actuals
WTI Futures
Brent Futures
High crude oil prices (relative to gas) mean
drillers will continue to seek tight oil.

-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Jan-19
WTI/HH Actuals
WTI/HH Futures
Oil Rigs/Gas Rigs

Past: Crude prices rose while gas
prices fell, until crude prices
averaged 6x gas price in 2012


drillers moved off to oily shales:


Eagle Ford, Texas


Bakken, North Dakota


Utica, Ohio


Today: $96 crude oil is 4x gas
($16.55/MMBtu versus $4.10).


Outlook: Oil prices and oil drilling
rigs both at 3
-
to
-
one over natural
gas, until gas production falls and
its price rises.


7

Oil
-
to
-
Gas Ratio

Price of crude / gas
(actual)

Price of crude / gas
(NYMEX futures)

Rigs drilling for
crude / gas

Source: BSA 2013, from CME
-
NYMEX, futures at 3/28/13, Baker Hughes U.S. weekly rig count.

US production of tight oil and NGLs is now
rising as dramatically as natural gas did.


Emerging shale plays
are forcing
new technologies:


Multi
-
well/multi
-
stage


Recycling of return waters


New tech (dry
fracking
, CO
2
)
.


Major challenges:


Low
gas and NGL
prices (tends to
self
-
correct)


Pipeline
bottlenecks, both gas and
oil (flaring)


High cost of
rail


Environmental issues?


Skilled labor shortages.


8

Source

(chart): Adam
Sieminski
, EIA, May 2013..

Estm
. US
Shale
Oil
Production,
10
3

Bbl
/day


-
0.5
1.0
1.5
2.0
2.5
1-Jan-00
1-Oct-00
1-Jul-01
1-Apr-02
1-Jan-03
1-Oct-03
1-Jul-04
1-Apr-05
1-Jan-06
1-Oct-06
1-Jul-07
1-Apr-08
1-Jan-09
1-Oct-09
1-Jul-10
1-Apr-11
1-Jan-12
1-Oct-12
Eagleford (TX)
Bakken (ND & MT)
Spraberry (TX Permian)
Wolfcamp (TX Permian)
Bonespring (TX Permian)
Yeso (TX Permian)
Glorieta (TX Permian)
Niobrara_Codell (CO, WY)
Monterey (CA)
Granite Wash (TX & OK)
Woodford (OK)
Austin Chalk (TX & LA)
Barnett (TX)
EIA’s US Gas Production to 2035

9

Source: EIA, AEO 2013 Early Release, Reference Case, December 5, 2012.

Most near
-
term surplus gas will be spent
replacing coal in aging power plants.

-
20
40
60
10

Source: BSA 2012, coal plants in 20 Northeast and Mid
-
West states from EIA, plus Ontario; map from AEP.

Newer than 30
years, 12%



30
-
40 years, 27%



40
-
50 years, 33%



50 years or older, 28%


Coal
-
Fired Plants, MW

Retiring Coal
-
Fired Plants

The good news: Replacing
old coal with
new gas reduces
CO
2

emissions by
63
-
72%.

Average

Age of
Plants
at
Retire
-
ment


No. of
Plants
Retired
in Each
Year



Total Net
Summer
Capacity,
GW

CO2
Reducti on
Repl aci ng
Bi tumi nous
Coal wi th
Gas

2009

50

12

0.5

67.7%

2010

54

35

1.5

69.4%

2011

62

31

2.5

63.3%

2012

56

57

8.9

63.9%

2013

55

14

2.1

71.7%

2014

57

34

4.7

64.4%

2015

57

61

9.9

63.1%


GHG reduction due to:


Chemical

advantage: Gas burning
emits 46% less CO
2

than coal.


Efficiency

advantage of new gas
CCGTs versus old coal boilers: 55
-
60% vs. 31
-
33%.


Carbon emissions savings from fuel
cycle as well.


Other
criteria air emissions
reduced/prevented
, especially
sulfur,
particulates, oxidants.


But the “low
-
hanging fruit”
might all be picked by 2020.



11

Source: BSA 2012, from EIA and Siemens data.

LNG is uniquely able to offset variable
generation, e.g., Spanish CCCTs.

12

0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
MW
LNG
Regas

in Spain

Hourly Wind Production, MW

Source:
Enagas
, 2012;
K. Forbes 2010, ERCOT
data for 7/2009
.


Other key new gas markets will take longer


NGVs, petrochemicals, LNG exports.

13

Source: Westport Innovations Inc., Vancouver, BC.

Why doesn’t America have 20 million
natural gas vehicles by now?

$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Natural Gas
87 Octane
$/MMBtu

Henry Hub
Mid & Marketing
WGL Delivery
Compression
Road Tax
Pump Price

Favorable economics since 1980s!


Natural gas is best used in large
vehicles, high
-
mileage fleets:


LNG: Long
-
distance trucks and
railroads, buses, shipping


CNG: UPS, Dulles Flyer cabs.
forklifts, compressors


Lower mileage personal vehicles
will benefit more from electricity:


$4
natural gas
vs. $32 gasoline
(per MMBtu)


61% efficient CCCTs vs. 26%
efficient piston engines


No wonder electricity = 79 c/gal!

14

Source: BSA 2011, from NYMEX, EIA data.

In some regions, battery EVs are, in effect,
just very high
-
efficiency NGVs.


Production of methanol and gasoline from natural gas will also
become options, as price differentials remains favorable.

15

Source: Schlesinger, 3/2013.

Globally, gas prices differ greatly from one
market to another.

16

Source: UNECE WPG LNG report, Chapter 1, update courtesy Ken Medlock, James K. Baker III Institute, Rice
Univ

.

US and international firms are spending
$
80
bn

on new US
gas
-
based
industries.


About 200 new manufacturing
plants in development:


Chemicals & petrochemicals


Fertilizers


Steel & aluminum


Tires, plastics


Gas to liquids


Most sited near the Gulf Coast.


Added gas demand could reach
6
-
11
Bcf
/day by 2035.

17

0
2
4
6
8
10
12
2018
2035
Bcf per day

Incremental gas demand

Source: American Chemistry Council, 2013; Dow Chemical, 2012.

Source: IEA World Energy Outlook 2012.

18

LNG exports from the US are sought for
both strategic and economic reasons.

Global shale gas development timing may
lag the North American pace.

0
10
20
30
40
50
60
India and Pakistan
Australia
Europe (excl. Russia)
South America
Africa
China
North America
Total
US
Canada
Mexico
South Africa
Other Africa
Argentina
Brazil
Other So. America
Poland
France
Other Europe

Most
foreign gas
markets are
dominated by long
-
term
contracts tied to fuel
oil.


European, Asian and Russian
shale gas resources
may
remain
in place
absent:


Vibrant
independent producing
sector


Technical expertise


Institutional reform/TPA


Education.

19

Potential Shale Gas,
Tcm

Source: BSA
2011,
from
US EIA.

Benjamin Schlesinger and Associates, LLC

The Bethesda Gateway

7201 Wisconsin Avenue, Suite 740

Bethesda, MD


20814

Phone: (301)
951
-
7266 Fax
: (301) 951
-
3381

Visit us at www.BSAenergy.com

20