North American Gas: The New Big Picture. Jen Snyder North America Gas Research Wood Mackenzie 2010 Summer Seminar August 2, 2010

Transcription

1 North American Gas: The New Big Picture Jen Snyder North America Gas Research Wood Mackenzie 20 Summer Seminar August 2, 20

2 Cost Advances Continue to Redraw the Big Picture Improving Economics for Southwestern Energy Marcellus Drilling and Completion Costs % IRR Q Q Q4 D&C Costs ($MM) Data acquisition Facilities Pad Drilling Multi Completion techniques Horizontal Wells Gas Price * Average D&C Costs Horizontal Wells *Based on data from 9 operators Source : Pennsylvania DEP, Operator Reports 2

3 Piceance Highlands Core Shales Remain Toward the Bottom of the North American Cost Stack Key North American Supply Sources (2015) Development Breakeven (US$/mcf) Marcellus Pinedale Haynesville Barnett Core Bossier Lw Eagle Ford Granite Wash HZ Fayetteville Anadarko Woodford Piceance Valley Arkoma Woodford Core Barnett Non-core Cotton Valley Arkoma Woodford Non-core

4 Shale Production Surges, and U.S. Gas Supply Follows U.S. total supply flat through 2012 Aggressive activity only in the core shales in the near-to-mid term Marginal supplies such as Piceance Highlands and Utah s Wasatch see little drilling activity Shale and tight gas development both contribute to growth Resource is adequate to handle the added demand but prices reflect the markets new pull on supplies bcfd U.S. Gas Production Conventional CBM Tight Shale 4

5 The Big Growth Shales; What to Watch Haynesville Significant reduction in drilling times. Future improvements from pad drilling Well performance improvements Upside from Bossier Shale Marcellus Joint ventures accelerating development in the play More operators achieving near full scale water recycling Infrastructure bottlenecks still remain Eagle Ford High liquids content improves economics JVs expected in the shale later this year NAGS and Upstream Service 33 N 32 N Franklin Camp Tier Upshur Cherokee Jacksonville Houston Trinity 95 W 94 W Titus Morris Haynesville Shale Two Gregg Rusk Angelina Cass ArkLaTex Basin Longview Nacogdoches Lufkin Texas Marion Lake o' the Pines Shelby 95 W km Wright Patman Lake Panola Caddo Lake Harrison San Augustine Haynesville Play Sam Rayburn Reservoir 94 W Caddo Sabine Toledo Bend Reservoir Newton Red River Bossier De Soto Sabine Arkansas Shreveport Webster Marcellus Shale Red River Natchitoches U.S.A. MEXICO Claiborne Bienville 93 W Union CANADA Tier One Lincoln Grant Louisiana Haynesville Horizontal Producing Wells Peak Month greater/equal to 12 mmcfd Alexan Vernon Rapides Peak Month 6 mmcfd to 12 mmcfd Peak Month less than 6 mmcfd E 93 W 33 N 32 N 5

6 Gas Supply Patterns Follow Power Development In the near term, new coal plants and the reversal of 09/ coal displacement limit demand growth Pace of demand growth accelerates starting in 2013 Annual growth bcfd as coal plants retire Moderate carbon price (<$20/metric tonne) around 2015 But just as much pressure from EPA bcfd Power Sector Gas Demand Pre-recession Dec '09 Waxman Current View 6

7 Price Levels are Driven by Domestic Supply Competitive Prices Facilitate Growth Low demand profile limits price through 2012, although modest recovery reverses some displacement Core shales sufficient to meet demand Gas-related drilling holds low Cost pressure nonetheless with tight oil activity LNG could limit domestic drilling; some increase is likely, level is hard to call Upward shift in price expected by 2013 Higher activity levels, rig rates and service company margins Increased unconventional and shale drilling required Industrial demand grows steadily Oil gap is not easily bridged, but the dash for liquids does support gas, even if demand responses are limited 2009$/mmbtu Price Outlook Henry Hub NBP Adjusted CAPP WTI 7

8 By 2015, Higher Cost Supplies Have Been Pulled Into the Mix, and the Costs of Developing All Supplies is Higher The cost of developing supplies is higher by 2015 Non-core and tier 2 areas of plays are required to meet demand Areas such as the Rockies, with several marginal plays again attract capital Vertical drilling recovers, in addition to the shale focus 2009$/mmbtu Marcellus (0.76 bcfd) US L48 Supply Stack New Wells Barnett Non-core (0.01 bcfd) Haynesville (0.85 bcfd) Marcellus (0.43 bcfd) Production from New Wells (bcfd) Cotton Valley (0.56 bcfd) Barnett Non-core (0 bcfd) Cotton Valley (0.1 bcfd) Haynesville (0.93 bcfd) Total 20 L48 Production 54.6 bcfd Total 2015 L48 Production 60.6 bcfd 8

9 Could the Long-term Price Outlook and the Gap With Oil Fuel Additional Market Opportunity? Circle size reflects demand potential Short Res/Com Coal retirements Time Horizon NGVs Industrial Carbon bill Long LNG exports Plug-in hybrids Significant Minimal Capital Investment Required 9

10 Aggressive Multi-Pollutant Regulation Could Push Significant Coal Retirements Even in the Absence of Federal Carbon Legislation Several forces, other than federal carbon legislation, pushing aggressive coal retirements Multi-pollutant (SO 2, NOx, mercury) regulation from the EPA Hazardous Air Pollutants regulation State and utility initiatives Primary force for higher gas demand? Retirements could reach nearly 50 GW by 2020 bcfd Gas Demand Associated with Coal Retirements Business as Usual Preliminary stringent EPA Moderate Carbon Price

11 Wood Mackenzie Disclaimer This presentation has been prepared by Wood Mackenzie Limited for delivery at the 20 EPRI Summer Seminar. It has not been prepared for the benefit of any particular attendee and may not be relied upon by any attendee or other third party. If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered as a result. The information contained in these slides may be retained by attendees. However, these slides and the contents of this presentation may not be disclosed to any other person or published by any means without Wood Mackenzie Limited s prior written permission. 11

12 Wood Mackenzie Head Office Kintore House Queens Street Edinburgh EH2 4NS Global Contact Details Europe +44 (0) Americas Asia Pacific Global Offices Beijing - Boston - Dubai - Edinburgh - Houston - Kuala Lumpur - London - Moscow - New Jersey - New York - Singapore - Sydney - Tokyo Wood Mackenzie has been providing its unique range of consulting services and research products to the Energy and Life Sciences industries for over 30 years. Wood Mackenzie s market proposition is based on its ability to provide forward-looking commercial insight that enables clients to make better business decisions. For more information visit: Delivering commercial insight to the global energy industry 12