North American Gas: A dynamic environment. Josh McCall BP North American Gas and Power November 16, 2011

Transcription

1 North American Gas: A dynamic environment Josh McCall BP North American Gas and Power November 16, 2011

2 Disclaimer Copyright BP Energy Company. All rights reserved. Contents of this presentation do not necessarily reflect the Company s views. This presentation and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions. BP is not responsible for any inaccuracies in the information contained herein. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation. This presentation also contains forward-looking statements. Any statements that are not historical facts, including statements about BP's beliefs or expectations, are forward-looking statements. These statements are based mostly on publicly available information, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Participants should seek their own advice and guidance from appropriate legal, tax, financial and trading professionals when making decisions as to positions to take in the market. 2

3 What Does the Future Hold? Key signposts Demand: Economic indicators: stall, or growth? Global petchem trends New policies: EPA, EPA, EPA! EPA Cross States Air Pollution Rule (CSAPR) EPA Air Toxics Maximum Achievable Technology (MACT) rule EPA Coal ash disposal, ground-level ozone, cooling systems mandates Nuclear generation operating license extensions (following Japanese event) Supply: Producer behaviors, funding for drilling programs Continued shift to liquids-rich drilling, oil plays Supply cost inflation? Or efficiency gains? EPA hydraulic fracturing study (late 2012) Timing of LNG export approvals NEB, DOE and FERC 3

4 Natural Gas & Competing Fuels: Wide disconnect remains Source: Various, November 10, 2011 $28 $26 $24 $22 $20 $18 $/MMBtu $16 $14 $12 $10 $8 $6 $4 $2 $- Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 HH/NYMEX HH/NYMEX 6-mths ago HO #2 NYH WTI FO NYH #6 1% Coal NYMEX (unadj) 4

5 Rigs 2,000 1,800 1,600 1,400 1,200 1, ,000 Steady growth in rig counts with liquids focus Oil: 316 Gas: 1,450 Oil: 1,133 Gas: 877 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Since mid-april oil drilling activity has overtaken gas drilling Increasing utilization of rig fleet and oil/gas price disparity will influence future drilling dynamics Shale/Tight horizontal rigs are responsible for the majority of the turnaround in drilling Source: Baker Hughes All Other Gas Rigs 700 Rigs Appalachia/Marcellus TX Gulf Coast/Eagle Ford LA Land/Haynesville Anadarko/Granite Wash - Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 5

6 Unconventional development continues Montney Depth: 5,500 13,000 ft Gas in Place: Tcf Horn River Depth: 8,200 9,800 ft Gas in Place: Tcf Fayetteville Depth: 1,00 7,000 ft Gas in Place: Tcf Utica Depth: 1,500 11,000 ft Gas in Place: >120 Tcf Marcellus Area: 95,000 sq miles Depth: 4,000 8,500 ft Gas in Place: ~1,500 Tcf Barnett Area: 5,000 sq miles Depth: 6,500 8,500 ft Gas in Place: ~330 Tcf Woodford Depth: 6,000 11,000 ft Gas in Place: Tcf Haynesville Area: 9,000 sq miles Depth: 10,500 13,500 ft Gas in Place: ~720 Tcf Source: NEB, 2009; Advanced Resources, SPE/Holditch Nov 2002 Hill 1991, Cain, 1994 Hart Publishing, 2008, modified from Ziff Energy Group,

7 US shale gas production outlook: A view US shale gas production has doubled in last 2 years and surpassed 15 Bcfd Production from existing shales (excl Eagle Ford) expected to double in next 20 years Key risks include: Environmental impact (footprint, water), operating challenges (costs, people) Historical Shale Gas Production Shale Gas Production Outlook Tcf Source: EIA and Lippman Consulting Source: MIT Study 7

8 One View: US Demand for natural gas driven by industrial sector? Bcfd LDC IND ELC Historically, power sector led the growth of demand for natural gas; sector growth is projected to remain flat as per EIA Conversely, industrial sector is expected to lead the growth driven by growing demand for exports Source: EIA AEO

9 Coal retirements could significantly impact the gas and power markets Brattle Group estimates 40 to 55 GW of retirements, and up to 5.8 Bcfd of incremental gas demand (0.5 Bcfd) GW: Brattle Group s projected retirements in Gigawatts (0.1 Bcfd) (1.5 Bcfd) (0.4 Bcfd) (2.3 Bcfd) (0.3 Bcfd) (0.7 Bcfd) (0.1 Bcfd) 9

10 US LNG Imports: Re-thinking strategy? 12.0 March 2011 LNG Imports: 1.25 Bcf/d Bcf/d Legend: A. Everett, MA B. Cove Point, MD C. Elba Island, GA D. Lakes Charles, LA E. Gulf Energy Bridge F. Northeast Gateway G. Freeport, TX* H. Sabine, LA* I. Cameron LNG J. Neptune LNG K. Golden Pass L. Canaport, CN M. Altamira, MX N. Costa Azul, MX Source: FERC 0.0 * Authorized to re-export delivered LNG M ar-07 Sep-07 M ar-08 Sep-08 M ar-09 Sep-09 M ar-10 Sep-10 M ar-11 Tot al Exist ing Capacit y Source: DOE, EIA Cheniere/Sabine Pass and Freeport LNG have applied for full US export license; Kitimat LNG (star) applied for export license in Canada 10

11 Long-Term Henry Hub spot price outlooks Source: Various, November 10, 2011 $/MMBtu Range of spot price outlooks Historical Henry Hub prices NYMEX forward curve NYMEX year ago Historical Forecast View of gas demand, competing fuels, indigenous gas supply costs, production, and LNG imports will influence long-term outlook of gas prices many moving parts! 11

12 Questions? 12

13 Regional flow dynamics are evolving? Flow increase Flow decrease LNG imports???? 13

14 US natural gas balances: What a difference a year makes EIA 2010 Outlook EIA 2011 Outlook LNG LNG Bcfd 22 Bcfd 50 Bcfd 40 Bcfd L48 Offshore Onshore conventional CBM Shale Net Pipeline Imports Alaska Total Consumption L48 Offshore Onshore conventional CBM Shale Net Pipeline Imports Alaska Total Consumption Source: EIA AEO 2010/

15 Technology breakthrough unlocked shale resource Production Ramp-up 5,000 4,000 Haynesville mmcfd 3,000 2,000 Marcellus Fayetteville Barnett 1, Months Since First Production Source: Wood M ackenzie, State Production Data Haynesville & M arcellus Time Zero is 1Q 2008; Fayetteville Time Zero is 2004; Barnett Time Zero is 1982 Source: WoodMackenzie 15

16 What is hydraulic fracturing? Pump fracture fluid under high pressure to prop open the rock formation Proppants keep the fractures open for gas to flow to the well head Low permeability of rocks allows the combination of hydraulic fracturing and horizontal drilling to provide more exposure to the reservoir Fracture in stages to maintain pressure Issues Stages Water availability and water management Chemical disclosure Flowback water or produced water Naturally Occurred Radioactive Material (NORM) 16

17 Highly utilized and aged nuclear fleet: Watch for license renewals NA Nuclear Plant Licenses Up for Renewals Approximately 20% of US electricity net generation is nuclear Beginning in 2009 the US Nuclear Regulatory Commission (NRC) granted 20-year license renewals to more than half of the nuclear operating reactors Operation length has increased from 40 to 60 years MW MW Source: EIA, NRC 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-70,000 60,000 50,000 40,000 30,000 20,000 10, NA Nuclear Plant Capacity by Vintage Source: EIA, NRC 17