game changers in crude and natural gas markets · 2017. 4. 11. · game changers in crude and...

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

Game Changers in Crude and Natural Gas Markets

Chevron Community Advisory Panel Meeting

September 17, 2012

Center for Energy Studies

Energy-RelatedCarbon 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. Facilitating additional natural gas production despite low prices.

• Considerable economic development opportunities.

• Early in the process, considerable uncertainties, considerable risks, difficult to attain information, play understandings still very preliminary – policy need to manage expectations despite the (justified) excitement.


© LSU Center for Energy Studies

Introduction


Reminder – The Way Things Were

3© LSU Center for Energy Studies

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

2004 2008 2012 2016 2020 2024 2028

Onshore (Lower 48) Offshore (Lower 48)

Mill

ion

Bar

rels

per

day

Relatively uninspiring U.S. crude oil production forecast.

Source: USDOE/EIA, Annual Energy Outlook, 2006 © LSU Center for Energy Studies

Long Term US Crude Oil Production Forecast (2006)

Center for Energy Studies Historic Trends

2.5

4.5

6.5

8.5

10.5

12.5

14.5

16.5

18.5

20.5

2004 2008 2012 2016 2020 2024 2028

Onshore (Lower 48) Offshore (Lower 48)

Trill

ion

cubi

c fe

et

Natural gas production forecasted to decrease starting in 2016.

Source: USDOE/EIA, Annual Energy Outlook, 2006 © LSU Center for Energy Studies

Long Term US Natural Gas Production Forecast (2006)


Crude Oil and Natural Gas Prices


$0

$2

$4

$6

$8

$10

$12

$14

$16

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Crude Oil (WTI) Natural Gas (Henry Hub)

Source: Federal Reserve Bank

Cru

de O

il ($

/Bbl

) Natural G

as ($/Mcf)

Prices reflected the state of, and outlook for, energy markets.


First energy price crisis

Recession

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Dec

-96

Jun-

97

Dec

-97

Jun-

98

Dec

-98

Jun-

99

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

61

62

63

64

65

66

67

68

Rig Count

Production

Source: Energy Information Administration, Department of Energy; and Baker-Hughes Inc.

3 percent increasein production

(Aug-99 to Sep-01)

131 percent increase in rigs

(Apr-02 to Aug-06)

Num

ber o

f Ope

ratin

g R

igs

12-M

onth

Mov

ing

Aver

age

(Bcf

/d)

158 percent increase in rigs

(Apr-99 to Jul-01)

4 percent decrease in production

(Feb-04 to Aug-06)

The maturing nature of US basins reflected in drilling productivity.Historic Monthly Rig Counts and Gas Production (1997-2006)


Source: Natural Gas: Can We Produce Enough?” Independent Petroleum Association of America, website: http://www.ipaa.org/govtrelations/factsheets/NaturalGasProdEnough.asp.

ANWR = 3.5 TCF

ANS = 35 TCF

Policy advocacy focused on restricted areas as a potential solution to the resource constraint problem.

Resource Estimates: Restricted Areas (Percent Restricted)


Source: National Petroleum Council

LNG provides 14% of the U.S. supply of natural gas by 2025.


NPC Forecast North American Supply Disposition



What Changed? The Way Things Are

10


Unconventional vs. Conventional Geological Formations


11


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


14


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

15


$/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 period2000-2001 heating season

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

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

16


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 1997through 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)

17


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

Impo

rts -

Bcf


Natural Gas Imports

Center for Energy StudiesP

ercent of Total U.S

. Supply -%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

LNG Imports Pipeline Imports Imports as a Percent of Total Supply


Natural gas imports, once thought the be the supply remedy for meeting future gas needs are falling to levels also not seen since the 1990s.

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

Basin Competition


Source: MIT Energy Initiative. 20© LSU Center for Energy Studies

China1,275 Tcf

Australia396 Tcf

South Africa485 Tcf

Argentina774 Tcf

Brazil226 Tcf

Mexico681 Tcf

Canada388 Tcf

U.S. 862 Tcf

France180 Tcf

Poland187 Tcf

Algeria231 Tcf

Libya290 Tcf

Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcfin conventional suggest a potentially solid resource base for many decades.

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

(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

23


Crude Oil and Natural Gas Prices

Center for Energy Studies Crude Oil Trends

$0

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$12

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$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

0

20

40

60

80

100

120

140

160

180

200

0

500

1,000

1,500

2,000

2,500

2000 2002 2004 2006 2008 2010

Onshore Offshore


Domestic Rig Counts – Onshore vs. Offshore

25

U.S

. Ons

hore

Rig

Cou

nt

Source: Baker Hughes.

U.S

. Offshore R

ig Count

Deepwater Horizon Spill

Onshore rig counts are moving close to their pre-recession levels, primarily motivated by increased crude oil drilling, not natural gas.

Crude Oil Trends


26

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 and Crude Oil Price, (Each State Measured Relative to 1999 Activity)


$0

$2

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$14

0

200

400

600

800

1,000

1,200

1,400

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

N. Louisiana Texas PennsylvaniaNew Mexico Oklahoma WyomingColorado Natural Gas Price

Source: Baker Hughes; and Federal Reserve Bank of St. Louis.

Rig

Cou

nt (J

anua

ry 1

999

= 10

0)H

enry Hub ($/M

cf)


Drilling rig activity increasing rapidly in liquids rich shale.

Crude Oil Trends


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


$0

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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)

$/BO

E

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


29


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 2020E0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

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

Granite Wash, Piceance & Uinta Tight Sands

LiquidsGas

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


Closer to Home: Louisiana and the Tuscaloosa Marine Shale (“TMS”)

31



Crude Oil Shale Opportunities -- Louisiana

32© LSU Center for Energy StudiesSource: Oil and Gas Journal and Louisiana Geological Survey.

• 1998 LGS Study primary publicly-available source of information on the formation.

• Lies between sands of the upper and lower Tuscaloosa.

• Approximately 2.7 MM acres.

• Varies in thickness from 500 feet (MS) to around 800 feet (LA).

• Shallowest opportunity around 10,000 feet – mostly between 11,000 to 12,000 –some areas as deep as 16,000 (EBR).

• Estimated potential resource of 7 BBbls.

Tuscaloosa Marine Shale


Cumulative TMS Wells Drilled

33© LSU Center for Energy StudiesSource: Amelia Resources.


Approximately 13 wells drilled to date.

Production Decline Curve Differences


34



• Recently-drilled wells located primarily in southwestern MS and in the Florida parishes.


Tuscaloosa Marine Shale Wells




Tuscaloosa Trend Scout Report, Score Card




TMS Daily Oil Production



Initial production (“IP”) rates important, but only one of several statistics that should be reviewed given typical production characteristics and uncertainty.


The Early Days, Eagle Ford Shale




United States Employment (2005 = 100)


90

100

110

120

130

140

150

2005 2006 2007 2008 2009 2010 2011

Empl

oym

ent (

2005

= 1

00)

Oil and gas employment

Total emplyoment

Source: Bureau of Labor Statistics


Oil and gas employment is almost 40 percent above its 2005 level while total U.S. employment struggles to regain four years of losses.


U.S./Shale Producing State Employment (2005 = 100)


94

96

98

100

102

104

106

108

2005 2006 2007 2008 2009 2010 2011

Empl

oym

ent (

2005

= 1

00)

States with major shale activity

Non-shale states

Shale states: LA, TX, AR, ND, UT, CO, & PASource: Bureau of Labor Statistics


A comparison of total employment tells story beyond just oil and gas. Recession not as severe; recovery more robust.


Conclusions

41



Conclusions


• Exceptional industry performance: employment up; reserves up; production up; investment/capacity up; and exports up.

• Traditional sectors of energy industry have proven they are high technology, high capital, and high growth – you’d have a hard time figuring that out watching the nightly news.

• Policy and perception continue to be things that plague continued industry development. It is hard to imagine the development and innovation that could arise if the current policy uncertainty were removed.

• 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.

Conclusions


Questions, Comments and Discussion

43

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game changers in crude and natural gas markets · 2017. 4. 11. · game changers in crude and...

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