Energy Market Upheaval: The Shale Revolution

Transcription

1 Energy Market Upheaval: The Shale Revolution Benjamin Schlesinger and Associates, LLC Bethesda, Maryland New York Association for Energy Economics New York March 26,

2 BSA 29 years of gas and energy advisory services. Expertise Economics, pipeline rates, commodity risks, contracting. Market research & training Index & contract negotiation Lender due diligence LNG, power plants, gas storage Litigation support/rate cases, 16 jurisdictions assignments in 27 countries since March 84. Major Assignments European pipelines GdF Suez, Repsol, BG Eastern Europe West African pipeline Sonatrach (Bechtel) Japan gas utilities Mitsubishi Philippine NPC Power generators Lenders Pipelines/traders LNG projects Regulators Expert testimony Clients: Energy traders, power generators, pipelines, utilities, banks, governments, universities. 2

3 Despite all the words and numbers, people still don t really grasp this. Estm. US Shale Gas Production, Bcf/day 30 Rest of US 25 Bakken Eagle Ford 20 Marcellus Haynesville 15 Woodford Fayetteville 10 Barnett Antrim The ship arrives. Were it a country, US shale would be the world s 3 rd largest gas producer. Most US policy, economic, academic and environmental studies are totally outdated, e.g., from Internet/Google. Shale debate is lost on most people. Source: EIA 3/

4 MBD, equivalent US has added 4.6 MBD equivalent of 12.0 shale gas production since plus another 2 MBD rise in US shale oil production, so far Annual US shale gas production (growth only) Holland Norway Qatar EU, Total Venezuela Iran Saudi Gas Production, 2011 Oil Production, 2011 Source: BSA 2013, from BP Statistical Review 2012 & EIA (est. shale production). 4

5 $/MMBtu How long will North America s big hydrocarbons price gap persist? $20.00 $15.00 $10.00 $5.00 Henry Hub Acutals WTI Actuals Brent Actuals Henry Hub Futures WTI Futures Brent Futures $- Source: BSA 2013, from CME-NYMEX, March 15,

6 J-87 J-88 J-89 J-90 J-91 J-92 J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 Drilling Rig Count Most North American rigs are exploring for liquids. 1,800 1,600 1,400 1,200 1, Oil Gas Source: BSA 2013, from Baker Hughes, weekly rig count for U.S. through 12/28/

7 MBD US shale oil production ( tight oil ) is now rising as dramatically as gas did Eagle Ford Bakken Granite Wash Bonespring Monterey Woodford Niobrara-Codell Spraberry Austin Chalk Source: Adam Sieminski, from EIA, Drilling Info (formerly HPDI), Texas RRC, North Dakota DMR. 7

8 North Dakota s oil production will double Alaska s. 2,500 2,000 1,500 1, Production of Crude Oil by US State, thousands of b/d Texas North Dakota Alaska California Emerging shale plays force new technologies: Multi-well/multi-stage Recycling of return waters New tech (dry fracking). Major challenges: Low gas prices (tends to selfcorrect) Pipeline bottlenecks High cost of rail Skilled labor shortages. Source: BSA 2013, from EIA. 8

9 A veritable NGL waterfall is flowing from both oil and gas shales. March 15, 2013 Prices Crude oil, $16.11 Ethane, $4.14 Natural gas, 3.87 Source: EIA, data from Bloomberg, update: BSA 2013, from CME-NYMEX. 9

10 EIA s US Gas Production to 2035 Source: EIA, AEO 2013 Early Release, Reference Case, December 5,

11 QBtu Gas supplies 27% of US primary energy coal supplies 42% electricity Elec Sys Losses Elec Retail Renewable Hydro Nuclear Oil Gas Coal 5 0 Buildings Industry Transport Elec Gen Source: BSA 2013, from EIA data for 12-mo. year-ending 10/31/

12 Replacing old coal with gas CCCTs greatly reduces CO 2 and other emissions. But the low-hanging fruit might all be picked by Source: BSA 2012, from EIA and Siemens data. 12

13 LNG is uniquely able to offset variable generation, e.g., Spanish CCCTs. LNG Regas in Spain Hourly Wind Production, MW MW Source: Enagas, 2012; K. Forbes 2010, ERCOT data for 7/

14 LNG will move trucks miles, depending on tank options. Source: Westport Innovations Inc., Vancouver, BC. 14

15 $ per US gallon Why doesn t America have 20 million natural gas vehicles by now? $4.50 $4.00 No price risk the $2 margin is hedgeable till the vehicle rusts out! $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Natural Gas 87 Octane Henry Hub Mid & Marketing WGL Delivery Compression Natural gas is best used in large, high-mileage fleet vehicles: Municipal trucks, buses, UPS Forklifts, compressors, rail, ships Personal vehicles are headed toward advanced BEV technology: 61% efficient CCCTs (using cheap gas) vs. 26% efficient piston engines (burning petroleum gasoline) Road Tax Pump Price No wonder electricity = 96 c/gal! Source: BSA 2011, from CME-NYMEX, EIA data. 15

16 EVs are actually just high-efficiency NGVs in NY, PJM, ERCOT and California! Production of liquid vehicle fuels from natural gas will also become options, as price path remains favorable. Source: Ben Schlesinger, 3/26/

17 Bcf per day Global firms plan to spend $80 billion in new US gas-based industries. About 100 new manufacturing plants in development: Chemicals & petrochemicals Fertilizers Steel & aluminum Tires, plastics Gas to liquids Most sited near the Gulf Coast. If all proceed, added gas demand will reach 11 Bcf/day by Incremental gas demand Source: Dow Chemical,

18 LNG Exports: Linking the US to Global Gas Markets 18

19 EU27 Gas Production, BCM European demand for gas imports is rising with supply & nuclear issues. Plunging European gas production is intensifying winter supply crises, and is building LNG demand. In less than a decade, the UK has transformed from exporter to LNG importer on scale exceeding Spain. The Nord Stream pipeline entered partial service in June 2011; other lines are planned from the Middle East United Kingdom Netherlands Germany Hungary Romania Italy Poland Denmark Other Source: UNECE Sustainable Energy/Working Party on Gas LNG Report, 2012, from Gas Strategies,

20 Pacific Basin gas demand rose especially sharply in The Fukushima disaster boosted LNG demand for electricity generation in Japan and elsewhere as nuclear plants were rechecked, and expansion plans were reevaluated. At the same time, Asian economies emerged strongly from the global recession, thus their gas demand increased as well, especially in China, India and Southeast Asia. 20

21 Fukushima s impact on gas demand cannot be understated. Worst-case post- Fukushima Japan nuclear plant capacity availability actually took place. Source: EIA, based on Bloomberg L.P., 3/15/

22 Tcf/year Globally, gas transported as LNG is gaining steadily against pipelines % 40 40% 30 30% LNG % 10% Pipeline Share of LNG (right axis) % Source: UNECE Sustainable Energy/Working Party on Gas LNG Report, 2012, from IEA. 22

23 Gas prices among markets differ greatly from one another. Source: UNECE WPG LNG report, Chapter 1, update courtesy Ken Medlock, James K. Baker III Institute, Rice Univ. 23

24 LNG exports from the US are needed economically and strategically. Source: IEA World Energy Outlook

25 Global shale gas is unlikely to threaten US LNG exports for years. Potential Shale Gas, Tcm North America China Africa South America Europe (excl. Russia) Australia India and Pakistan Total US Canada Mexico South Africa Other Africa Argentina Brazil Other So. America Poland France Other Europe Source: BSA 2011, from US EIA. Most foreign gas markets are dominated by long-term contracts tied to fuel oil. Gas pipelines mostly closed. European, Asian and Russian shale gas resources could remain in place without a vibrant independent producing sector, technical expertise, and education. 25

26 Benjamin Schlesinger and Associates, LLC The Bethesda Gateway 7201 Wisconsin Avenue, Suite 740 Bethesda, MD Phone: (301) Fax: (301) Visit us at 26