The New Economic Realities of Fossil Fuels: Implications for the Rail Industry

Transcription

1 The New Economic Realities of Fossil Fuels: Implications for the Rail Industry Presentation to the Northeast Association of Rail Shippers Philadelphia, PA Bernard L. Weinstein, Ph.D. Associate Director, Maguire Energy Institute Cox School of Business Southern Methodist University Dallas, Texas October 16, 2015

2 DRAKE S WELL Venango Country, PA 1859

3 TYPICAL FRACKING PAD SITE IN PENNSYLVANIA

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9 GROWTH IN OIL PRODUCTION: US v. OPEC

10 BATTLE OF THE SHEIKS VS. SHALE HAS BEGUN

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12 Historical and Forecasted Oil and $120 Natural Gas Prices Futures Prices as of 9/15/15 $9 $100 $8 $7 $80 $6 Oil ($/ bbl) $60 $5 $4 Gas ($/ MMBtu) $40 $3 $20 $2 $1 $0 $0 Oil (WTI) Natural Gas (Henry Hub) 12

13 $200 billion of deferred E&P projects worldwide

14 200,000 Announced Layoffs and Counting: Is This the New Normal?

15 STACKED RIGS IN MIDLAND, TEXAS

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21 COAL TRAIN IN APPALACHIA

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24 ACTUAL AND PLANNED RETIREMENTS OF COAL FIRED POWER GENERATION

25 HOW WILL LOWER OIL AND GAS PRICES AFFECT THE DEMAND FOR FRAC SAND?

26 Destination of Frac Sand Shipments in 2014 Major producing and active exploration and development plays for unconventional oil and gas State(s) or region with activity Million tons of frac sand consumed (rounded to two significant figures)* Percentage share of total frac sand consumed among selected basins* Estimated share of frac sand to total proppants consumed in play (percent)* Eagle Ford Woodbine (East Texas Basin) Texas Appalachia (includes Marcellus and Utica shales) Northeastern U.S

27 SOME POSITIVE INDICATORS FOR FRAC SAND DEMAND O A June 11 report from investment bank Jefferies finds that overall demand for frac sand is down in 2015 but its use per well has been steadily increasing over the past three years. O Many energy companies have discovered that using more sand results in higher oil and natural gas yields, especially in the Marcellus and Utica plays. O Silica sand made up 9.5 percent of fracking fluid a few years ago but can now represent up to 20 percent of fracking fluid during horizontal drilling activity. O More than 3,000 wells have been drilled but not yet fracked.

28 GAS AND NGL PRODUCTION IN THE UTICA AND MARCELLUS TO CONTINUE GROWING THROUGH 2016

29 Challenges Facing Railroads and Rail Shippers Rail shipments of petroleum and related produces are down 5 percent this year Coal demand has dropped 9 percent for rails over the past year as power plants switch to natural gas Metal business is down as oil and gas drillers demand fewer pipes and imports become cheaper Positive train control deadline Tanker car replacement schedule Proposed Pilgrim Pipeline could significantly alter crude by rail logistics in the North East

30 POSITIVE TRAIN CONTROL If Congress does not extend a deadline for implementing train safety technology, the economy stands to take a beating, according to a report out today from the American Chemistry Council. All rail lines carrying hazardous materials must implement positive train control, a GPS technology that improves train operational safety, by the end of the year. Many lines are not up to date, despite having been ordered to do so by Congress in The report says that failing to extend the deadline could stop train traffic on lines across the country, costing the economy $30 billion.

31 Nation s Rail Service Is Threatened as Deadline for Safety System Looms

32 Safety Board Urges Aggressive Timetable to Replace Oil Tank Cars Source: Bloomberg, April 7, 2015

33 RAIL TANK CARS IN THE BAKKEN

34 Collision in North Dakota, December 2013

35 TANKER CAR DERAILMENT IN WEST VIRGINIA, FEBRUARY 2015

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37 THE GREAT UNKNOWN If the current ban on petroleum exports is repealed, how will that affect the spread between Brent and WTI? If the spread narrows, will oil imports increase, implying a lower demand for crude by rail? Repeal is unlikely until the next Administration

38 THE PETROSTATE OF AMERICA