North America s Natural Gas Crisis: The Big Picture Overview and the Role of Unconventional Gas

Transcription

1 North America s Natural Gas Crisis: The Big Picture Overview and the Role of Unconventional Gas Canadian Institute s 3 rd Annual Coalbed Methane Conference June 21, 24 J. David Hughes Geological Survey of Canada dhughes@nrcan.gc.ca GEOLOGICAL SURVEY OF CANADA CALGARY COMMISSION GÉOLOGIQUE DU CANADA CALGARY

2 Overview: - The Big Picture of Gas in the World and North America - North America Supply-Demand trends and forecasts - Solutions to projected North American gas supplydemand shortfalls - The Importance of Unconventional Gas as part of the solution

3 World Primary Energy Consumption: Million Tonnes Oil Equivalent By Region Asia Pacific Africa Middle East Former Soviet Union S. & C. America Europe North America 456% 51% 78% 33% 396% 612% Million Tonnes Oil Equivalent By Fuel 144% increase in World Consumption (3.9%/year uncompounded) Coal Gas 61% 261% Hydro Nuclear 182% % 2 1 Oil 13% Highest growth in 22 = Asia Pacific 7.9%; Coal 6.9% (data from BP Statistical Review of World Energy, 23)

4 Quadrillion Btu Forecast Growth In World Energy Consumption, (EIA, 24, Reference Economic Case) By Region 54% increase in World Consumption (1.8%/year) Former Soviet Union +42% Developing +91% Quadrillion Btu By Fuel Hydro/Renewables +56% Nuclear +15% Coal +47% Gas +68% 1 Industrialized +33% 1 Oil +57% (data from Energy Information Administration International Energy Outlook, May, 24)

5 World Gas Production and Consumption: Billion cubic feet per Day Production Asia Pacific Africa Middle East Former Soviet Union S. & C. America Europe North America 275% 1719% 13% 635% 482% Billion cubic feet per Day Consumption 147% Increase in Consumption (4.6%/year Uncompounded) 24% 1894% 1144% 447% 182% 317% % 18% (data from BP Statistical Review of World Energy, 23)

6 World Gas Reserves: % 9% Trillion Cubic Feet Former Soviet Union Middle East 1 Europe Asia-Pacific Africa S&C America N. America Percentage of Remaining Reserves 8% 7% 6% 5% 4% 3% Europe Former Soviet Union Middle East 2% Asia-Pacific Africa 1% N. America S&C America % (data from BP Statistical Review of World Energy, 23)

7 North American Gas Production and Movements: United States Total Consumption 6 Imports Billion cubic feet per Day Canada: 131% increase in production Canada Exports Consumption 56% Billion cubic feet per Day Production (data from BP Statistical Review of World Energy, 23)

8 Lifespan in s at Current Production Rates North American Gas Reserve/Production Ratio: USA Canada Mexico North America Region (data from BP Statistical Review of World Energy, 23)

9 Canada s Remaining Discovered and Undiscovered Conventional Natural Gas Resources According to NEB (24) Estimates including Lifetime assuming 21 Production Rates 63% CONSUMED PROVEN (7.6 years) POSSIBLE (4.9 years) 22% 78% HOPED FOR: UNDISCOVERED (45.3 years) PROVEN (7.6 years) POSSIBLE (4.9 years) 13% 9% 15% Discovered Resources Remaining Discovered and Undiscovered Resources (Estimates from National Energy Board, April, 24)

10 Remaining Discovered Nominal Marketable Gas in Canada Remaining Undiscovered Nominal Marketable Gas in Canada East Coast 16% East Coast 11% Arctic 17% WCSB 57% Arctic 7% WCSB 63% North/Delta 1% North/Delta 19% WCSB North/Delta Arctic Eastern/Offshore 95.8 Tcf Tcf (data from Canadian Gas Potential Committee, 21)

11 Produced, Established and Nominal Marketable Natural Gas in the WCSB (Tcf) - Canadian Gas Potential Committee, 21 Contained in 28,77 pools discovered with 1, exploration wells Remaining Reserves 22% (54 Tcf) Contained in 23,27 pools that will require more than 2, exploration wells to discover 9% Undiscovered Nominal Marketable 35% Cumulative Production 43% (17 Tcf) (88 Tcf) (data from Canadian Gas Potential Committee, 21)

12 Canada s Exploration Treadmill more and more drilling to find less and less gas Number of Gas Well Completion Well Completions Production Reserves Production (bcf/day) Reserves (Tcf) Estimate Canadian Association of Oil Well Drilling Contractors, 24 ( well completions); Statistics Canada, 24 ( Marketable Production); Canadian Association of Petroleum Producers, 23 ( reserves)

13 NEB, July, 23, Deliverability Scenarios from Existing Gas Sources Supply Push Scenario Techno-Vert Scenario 2 Peak 21 Peak MMcf/day MMcf/day WCSB Solution WCSB Existing Gas WCSB Additions Sable

14 Productivity Assumptions of NEB Scenarios for the Western Canada Sedimentary Basin WCSB drilling rates will be sustained at the record levels of 21 until 75% of the ultimate recoverable resource has been produced. Initial productivity of new wells will remain at current levels Initial productivity has declined from an average 7 mcf/day in 1997 to 35 mcf/day in 23 this trend may continue in the future. Decline rates in new wells will remain at current levels First year decline rates have increased from <2% in 199 to nearly 35% in 2 - this trend may continue in the future. The overall decline rate of the WCSB has increased from 13% in 1992 to 23% in 22 this means 3.8 Bcf/day of production must be replaced each year to keep production flat, which hasn t happened since 21. NEB (December, 23) expects production to decline by 3% through 25. (assumptions included in National Energy Board Report of July, 23, and data provided in December, 23, National Energy Board Report)

15 Marketable gas production by month (5 month moving average to February 24) Production down 5.3% 23 Production down 3.6% Versus Jan-87 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Month (Source of data Statistics Canada, 24) Thousand cubic metres per month

16 Jan-89 Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan over year change in production by month (5 month moving average through February 24) Ladyfern Discovery 23 Production down 3.6% Versus 22 Month (Source of data Statistics Canada, 24) Jan-87 Jan-88 to year % change

17 NEB, July, 23, Deliverability Scenarios from Existing and Proposed Conventional Gas Sources Supply Push Scenario 2 Peak 21 Peak Techno-Vert Scenario MMcf/day MMcf/day WCSB Solution Sable WCSB Non-Associated Newfoundland WCSB Additions Panuke Mackenzie NS Offshore BC Offshore LNG Imports NB LNG Imports Quebec

18 NEB, July, 23, Deliverability Scenarios from Existing and Proposed Conventional Gas Sources Including Coalbed Methane Supply Push Scenario Peak 21 2 Peak Techno-Vert Scenario CBM MMcf/day CBM MMcf/day WCSB Solution WCSB Non-Associated WCSB Additions Sable Newfoundland Panuke Mackenzie NS Offshore BC Offshore LNG Imports NB LNG Imports Quebec CBM

19 U.S. Coalbed Methane Reserves and Production By Region Trillion Cubic Feet Coalbed Methane Reserves Other States Colorado Alabama New Mexico Peak 1992 Peak Ten Months of U.S. Supply At 22 Consumption Rates Trillion Cubic Feet per Yea Coalbed Methane Production 8.5% of U.S. Production Other States Colorado Alabama New Mexico Most Productive Areas Peak 1999 Peak 1998 Peak % of U.S. CBM Production (Source of data Energy Information Administration, 24)

20 Actual Coalbed Methane Production in the U.S Compared to NEB Coalbed Methane Production Scenarios Trillion Cubic Feet per Coalbed Methane Production 8.5% of U.S. Production Other States Colorado Alabama New Mexico Most Productive Areas Peak 1999 Peak 1998 Peak % of U.S. CBM Production Trillion Cubic Feet per NEB Canadian CBM Production Scenarios 23% of Canadian production Supply Push Techno-Vert (Source of data Energy Information Administration, 24)

21 12 NEB, 23, Canadian Domestic Natural Gas Demand Scenarios by Sector, Supply Push Scenario 53% growth in domestic consumption Techno-Vert Scenario 53% growth in domestic consumption MMcf/day Other Commercial Residential Electricity +343% % MMcf/day Other Commercial Residential Electricity +2% % 2 Industrial 2 Industrial (data from National Energy Board, July, 23)

22 Canadian Electricity Generation Scenarios by Fuel, Supply Push Scenario Techno-Vert Scenario Terrawatt Hours Renewables Natural Gas Oil Orimulsion Coal Nuclear Hydro 421% 42% 52.4% total increase Terrawatt Hours Renewables Natural Gas Oil Orimulsion Coal Nuclear Hydro 1% 274% 5.6% total increase % % % % % (data from National Energy Board, July, 23)

23 Trillion Cubic Feet/ U.S. Gas Consumption by Sector, Consumption by Sector Transportation Industrial Commercial Residential Electric Power +27% +34% +14% % Trillion Cubic Feet/ Consumption by Sector Transportation Industrial Commercial Residential Electric Power -14% -1% -6% +46% (data from Energy Information Administration, 23)

24 Forecast U.S. Electricity Generation by Fuel Type (EIA Annual Energy Outlook, 24, Reference Economic Case) Terrawatt Hours Other Renewable Sources Petroleum Nuclear Power Gas Coal 51% total increase % 6% 15% (23 Forecast 185%) 1 59% (23 Forecast 41%)

25 U.S. Natural Gas Supply by Source (EIA Annual Energy Outlook, 24, Reference Economic Case) 35 38% Total Growth from Tcf Trillion cubic feet per Tcf Lower % Canada Offshore-Gulf Offshore-Associated Onshore-Associated Unconventional Liquefied Natural Gas +272% Lower % Alaska 5 Conventional (data from Energy Information Administration Annual Energy Outlook, 24)

26 Canadian Shortfalls in Gas Supply Given Domestic Production Scenarios and Forecast EIA (AEO 24) Reference U.S. Import Requirements Tcf/ Supply Push Scenario Requirement: Domestic Demand Plus Forecast EIA Exports Total Domestic Production Net Exports Shortfall 2.4 Tcf Tcf/ Techno-Vert Scenario Requirement: Domestic Demand Plus Forecast EIA Exports Total Domestic Production Shortfall Net Exports.75 Tcf Domestic Consumption 1 Domestic Consumption Note: Forecast Canadian LNG Imports are Excluded from Domestic Production (data from National Energy Board, July, 23, and EIA Annual Energy Outlook, 24)

27 North America Natural Gas Movements U.S. Natural Gas Imports and Exports 2-24 (5 Month Moving Average) 6 Net U.S. Imports of Natural Gas (5 Month Moving Average) 5 Exports to Mexico Exports to Canada LNG Imports Canada Imports 5 Net Imports Trillion cubic feet per LNG 2% of 23 U.S. Consumption Trillion cubic feet per Net Imports Down 21.5% January 21 - December 23 Jan- 2 Jul- 2 Jan- 21 Jul- 21 Jan- 22 Month Jul- 22 Jan- 23 Jul- 23 Jan- 2 Jul- 2 Jan- 21 Jul- 21 Jan- 22 Month Jul- 22 Jan- 23 Jul- 23 (Data from Energy Information Administration, May, 24)

28 U.S. Supply with Canadian Imports and Shortfalls Given NEB, 23, Supply Scenarios, EIA Production Growth Scenarios and EIA Reference Case Import Requirements 35 Supply Push Scenario 35 Techno-Vert Scenario Tcf/ Liquefied Natural Gas Shortfall Alaska Canada Offshore-Gulf Offshore Associated Onshore Associated 7.2 Tcf (23%) Tcf/ Canada Offshore-Gulf Offshore Associated Onshore Associated Liquefied Natural Gas Alaska 5.4 Tcf (17%) 1 Unconventional 1 Unconventional 5 5 Conventional Conventional (data from Energy Information Administration Annual Energy Outlook, 24, and National Energy Board, July, 23)

29 Number of Successful Gas Wells Drilled The U.S. Gas Exploration Treadmill U.S. Gas Wells Drilled Estimated Trillion Cubic Feet per U.S. Dry Gas Production EIA Forecast 21 EIA Forecast Production Peak 2Q (data from Independent Petroleum Association of America, May, 24, and U.S. Energy Information Administration, May, 24; 23 drilling estimate based on first 1 months of 23 compared to same period in 22)

30 U.S. Dry Gas Production (3 Month Moving Average) Peak 2Q 21 EIA Estimates EIA 21 Production Forecast Trillion cubic feet per Growth 1.1%/year Raymond James Decline 3.5%/year EIA Decline 1.3%/year 16.5 Jan-1995 Jan-1996Jan-1997 Jan-1998 Jan-1999Jan-2 Jan-21Jan-22 Jan-23 Month (data from Energy Information Administration, May, 24; Raymond James and Associates Inc. decline rates based on independent survey of producers)

31 Baker-Hughes Weekly Active Rig Count U.S. Active Drilling Rig Count and Dry Gas Production 2-23 (23 U.S.A. Decline Rate is now 28%) Active Rigs 2-24 Peak 2Q 21 Oil Gas Trillion Cubic Feet per Dry Gas Production (3-month moving average) Peak 2Q 21 EIA 22 Forecast EIA 21 Forecast (Raymond James Decline = 3.5%/year) EIA Decline ~ 1.3%/year -3.3% From Peak 2Q (data from Baker-Hughes, 24, and Energy Information Administration, May, 24; Raymond James and Associates Inc. decline rates based on independent survey of producers) 14 Jan- Jan-1 Jan-2 Jan-3 EIA Estimates

32 U.S. Supply with Canadian Imports and Shortfalls Assuming NEB, 23, Canadian Supply Scenarios, Flat Lower 48 Production and EIA Reference Case Import Requirements 35 Supply Push Scenario 35 Techno-Vert Scenario Tcf/ Canada Liquefied Natural Gas Canada Shortfall Lower 48 Shortfall Alaska 9.5 Tcf (3%) Tcf/ Canada Liquefied Natural Gas Lower 48 Shortfall Alaska 7.8 Tcf (25%) 1 Lower 48 if production Flat at estimated 23 level 1 Lower 48 if production Flat at estimated 23 level (data from Energy Information Administration Annual Energy Outlook, 24, and National Energy Board, July, 23)

33 U.S. Supply with Canadian Imports and Shortfalls Assuming NEB, 23, Canadian Supply Scenarios, a 1% Decline in Lower 48 Production and EIA Reference Case Import Requirements 35 Supply Push Scenario 35 Techno-Vert Scenario Tcf/ Canada Liquefied Natural Gas Canada Shortfall Lower 48 Shortfall Alaska 13.2 Tcf (42%) Tcf/ Canada Liquefied Natural Gas Lower 48 Shortfall Alaska 11.6 Tcf (37%) 1 Lower 48 if production declines at 1%/year from estimated 23 level 1 Lower 48 if production declines at 1%/year from estimated 23 level (data from Energy Information Administration Annual Energy Outlook, 24, and National Energy Board, July, 23)

34 FUTURE OUTLOOK: - IMPLICATIONS If supply and demand forecasts are to be believed, there appear to be serious supply shortfalls in Continental natural gas coming Canada is unlikely to be able to fill the supply gap - SOLUTIONS - probably involve a portfolio of options: - Conservation and Efficiency -LNG already factored into existing forecasts; GEOPOLITICAL + NIMBY IMPLICATIONS - Unconventional Gas - already factored into existing forecasts in a big way - Fuel Switching to oil or coal capacity quite limited without new capital investment - Destroy Demand move gas intensive industries offshore (fertilizer and petrochemical plants) - this is already happening; GEOPOLITICAL IMPLICATIONS

35 LNG Logistics OPERATING COSTS (FREEPORT, TEXAS 1 ): - Production = $US.5-$1./mcf - Liquefaction = $US.8-$1./mcf - Shipping = $US.5-$1.45/mcf - Receiving = $US.24-$.4/mcf - TOTAL = $US 2.4-$3.85/mcf LNG is very cost competitive at Today s domestic gas prices ( 1 Reimer, Freeport LNG, 23)

36 LNG Logistics SCALEUP TO COMPLETELY COVER A NORTH AMERICA SHORTFALL OF 13 TCF/YEAR WITH LNG WOULD REQUIRE A TRIPLING OF THE WORLD S LNG CAPACITY. REQUIREMENTS WOULD BE IN THE ORDER OF: new 3bcf capacity Ships bcf/day North America-based receiving terminals - 18 Foreign based 5 Train liquefaction terminals - Capital investment in the order of $US9+ Billion - Time to Build Total Capacity = 1-2+ s - OVERCOMING NIMBY SYNDROME IN LOCATING NEW TERMINALS - ACCEPTING THE GEOPOLITICAL IMPLICATIONS OF DEPENDENCY ON OFFSHORE SUPPLY SOURCES

37 FERC Existing and Proposed Lower-48 LNG Terminals (plus Canada and Mexico) February Office of Energy Projects 3 36 A B 4 C D Existing Terminals with Approved Expansions A. Everett, MA : 1.35 Bcfd (Tractebel) B. Cove Point, MD : 1. Bcfd (Dominion) C. Elba Island, GA : 1.2 Bcfd (El Paso) D. Lake Charles, LA : 1.2 Bcfd (Southern Union) Approved Terminals 1. Hackberry, LA : 1.5 Bcfd, (Sempra Energy) 2. Port Pelican: 1.6 Bcfd, (Chevron Texaco) 3. Bahamas :.84 Bcfd, (AES Ocean Express)* 4. Gulf of Mexico:.5 Bcfd, (El Paso Global) Proposed Terminals FERC 5. Bahamas :.83 Bcfd, (Calypso Tractebel) 6. Freeport, TX : 1.5 Bcfd, (Cheniere / Freeport LNG Dev.) 7. Fall River, MA :.8 Bcfd, (Weaver's Cove Energy) 8. Long Beach, CA :.7 Bcfd, (SES/Mitsubishi) 9. Corpus Christi, TX : 2.6 Bcfd, (Cheniere LNG Partners) 1. Sabine, LA : 2.6 Bcfd (Cheniere LNG) 11. Corpus Christi, TX : 1. Bcfd (Vista Del Sol/ExxonMobil) 12. Sabine, TX : 1. Bcfd (Golden Pass/ExxonMobil) 13. Logan Township, NJ : 1.2 Bcfd (Crown Landing LNG BP) Proposed Terminals Coast Guard 14. California Offshore: 1.5 Bcfd, (Cabrillo Port BHP Billiton) 15. Louisiana Offshore : 1. Bcfd (Gulf Landing Shell) 16. So. California Offshore :.5 Bcfd, (Crystal Energy) Planned Terminals and Expansions 17. Brownsville, TX : n/a, (Cheniere LNG Partners) 18. Humboldt Bay, CA :.5 Bcfd, (Calpine) 19. Mobile Bay, AL: 1. Bcfd, (ExxonMobil) 2. Somerset, MA :.65 Bcfd (Somerset LNG) 21. Louisiana Offshore : 1. Bcfd (McMoRan Exp.) 22. Belmar, NJ Offshore : n/a (El Paso Global) 23. Bahamas :.5 Bcfd, (Seafarer - El Paso/FPL ) 24. Altamira, Tamulipas : 1.12 Bcfd, (Shell) 25. Baja California, MX : 1. Bcfd, (Sempra & Shell) 26. Baja California :.6 Bcfd (Conoco-Phillips) 27. Baja California - Offshore : 1.4 Bcfd, (Chevron Texaco) 28. Baja California :.85 Bcfd, (Marathon) 29. California - Offshore :.5 Bcfd, (Chevron Texaco) 3. St. John, NB :.75 Bcfd, (Irving Oil & Chevron Canada) 31. Point Tupper, NS.75 Bcf/d (Access Northeast Energy) 32. Harpswell, ME :.5 Bcf/d (Fairwinds LNG CP & TCPL) 33. St. Lawrence, QC : n/a (TCPL and/or Gaz Met) 34. Lázaro Cárdenas, MX :.5 Bcfd (Tractebel) 35. Gulf of Mexico : 1. Bcfd (ExxonMobil) 36. Providence, RI :.5 Bcfd (Keyspan & BG LNG) 37. Mobile Bay, AL: 1. Bcfd (Cheniere LNG Partners) 38. Lake Charles, LA:.6 Bcfd (Southern Union) 39. Cherry Point, WA:.5 Bcfd (Cherry Point Energy LLC) 4. Cove Point, MD :.8 Bcfd (Dominion) *US pipeline approved; LNG terminal pending in Bahamas Intense Public Opposition Cancelled Due to Public Opposition (Modified after Kelly, 24, U.S. Federal Energy Regulatory Commission; Status from New York Times, May 14,24)

38 Number of Terminals LNG Supply Forecasts of U.S. National Petroleum Council (September, 23) versus Requirement Scenarios Available Receiving Terminals Balanced Case Reactive Case Low Sensitivity Case Maximum 9 New Terminals by Billion cubic feet per Day Supply Gap with Different Lower-48 Production Scenarios Growth Flat 1%/year decline 2%/year decline -2% -1% Growth Flat Balanced Reactive 5 Low Sensitivity (data from National Petroleum Council 23; supply gap based on Energy Information Administration, Annual Energy Outlook 24 forecasts and National Energy Board 23 Supply Push scenario for Canada)

39 Where Does this Leave Us? THERE ARE CHALLENGES AHEAD IN MEETING DEMAND EXPECTATIONS FOR NORTH AMERICAN NATURAL GAS - The BAD NEWS is that we are on a gas production treadmill that requires ever more drilling to keep up with demand, and it looks like we may be losing - The GOOD NEWS is that the GAS price outlook looks good for the forseeable future

40 Can CBM fill the Supply Gap? - Probably not, but it is an important and growing part of the solution - CBM production growth is exploding in Canada - Although in situ CBM resources are estimated at more than 5 Tcf by some groups, recoverable resources are likely to be much smaller, probably in the order of 2-4 Tcf in the foreseeable future

41 If we didn t connect any new gas wells in Canada the current yearly decline would be 3.8 bcf/day, or 23% of production - CBM production in 23 is.5 bcf/day or 1.3% of decline - CBM production in 24 is estimated to be.1 bcf/day or 2.6% of decline - If we could recover CBM resources of 25 Tcf in 3 years we need to boost production to an average of 2.3 bcf/day, or 6% of decline - Unfortunately, declines are likely to increase going forward

42 There is a BIG JOB ahead and Canada s Gas Industry is taking up the Challenge

43 CBM Drilling in Canada Holes drilled and Connected pre- 199 Drilled Connected

44 CBM Industry Activity as of October 23: Alberta: 17 companies B.C.: 13 companies Saskatchewan: 3 companies Nova Scotia: 1 company Yukon: 1 company

45 Thank you Contact Coordinates: Dave Hughes nrcan.gc.ca