Natural Gas Fortune or Folly - PDF Free Download

Scott W. Tinker Bureau of Economic Geology AGI Issues Forum November, 2014 Natural Gas Fortune or Folly

Outline Energy Demand Natural Gas Supply Issues and Options The Radical Middle

Population (millions) Global Population and Energy Primary energy (quads) 8000 7000 6000 5000 4000 Global Population Growth Rate 1.8% 1.1% 500 400 300 3000 200 2000 1000 100 0 1980 1985 1990 1995 2000 2005 2010 0 Year Source: BP Statistical Review of World Energy, 2012 http://www.eia.gov/iea/wecbtu.html Source: US Census Bureau Int l Database, June 2011 QAe874

Population 2015 ~1 billion people per color More people live inside the circle than outside

Population and the Economy 35 China s Share of world GDP at PPP*, % Population, bn 1.4 30 25 1.2 1.0 20 0.8 15 0.6 10 5 0.4 0.2 0 0 1700 1750 1800 1850 1900 1950 2014 * At purchasing-power parity Source: From Monitoring the World Economy, by Angus Maddison, as appeared in The Economist, August 23, 2014 QAe3086

GDP Growth (% change on 2000 chained dollars) Oil Domestic Wellhead Price (2013 $) The Economy and Energy U.S. Economy and Oil Price 12 10 Nixon Ford Carter Reagan Bush Clinton W Bush Obama 100 8 80 6 4 60 2 40 0 1970 1975 1980 1985 1990 1995 2000 2005-2 Year 2010 20-4 0 Data: BP Statistical Analysis; US Department of Commerce 1970-1983 Arabian Light 1984 Brent dated QAe876

Energy Mix 191 99 156 57 207 267 517 880 468 1017 975 10 5 820 3 24 1 371 376 78 289 64 Nuke Hydro Renew Coal Nat Gas Oil 5 28 166 149 16 302 98 111 167 2609 1389 562 (MTOE)

5 28 166 149 16 302 3 98 111 24 1 167 371 10 5 376 Energy Demand 156 57 207 267 191 99 517 880 468 1017 975 820 78 289 64 Hydro Renew Nuke Oil Coal 1389 Nat Gas 2609 562 (MTOE)

Global Population and Energy F o r e c a s t 12 10 Rest of World 8 Africa 6 4 Asia 2 0 1950 1970 1990 2010 2030 2050 2070 2100 Source: From the UN, as appeared in The Economist, August 23, 2014

Outline Energy Demand Natural Gas Supply Issues and Options The Radical Middle

BcF/Day Global Natural Gas Production 350.0 OECD Non-OECD 300.0 250.0 200.0 150.0 100.0 50.0 0.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: BP Statistical Review 2012

BCF/Day Global Natural Gas Production 350.0 300.0 Total North America Total S. & Cent. America Total Europe & Eurasia Total Middle East Total Africa Total Asia Pacific 115 Tcfy 250.0 200.0 150.0 100.0 50.0 0.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: BP Statistical Review 2012

Production cost (2008 $/Mbtu) Produced Conventional Coal Bed Methane Arctic Deep Water Global Natural Gas Resources v. Cost 15 10 5 0 Tight Shale Sour 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 30,000 Source: IEA World Energy Outlook (2009) Global Consumption 115 Tcfy Resources (TcF) Hydrates Deep Carbon QAe980

Marketed Production (Tcf) U.S. Natural Gas Production and Reserves 30 300 25 Annual U.S. Production 250 20 15 10 5 End-of-Year U.S. Proved Reserves 200 150 100 50 Proved Reserves (Tcf) 0 0 Data: BP World Energy 2012

U.S. Natural Gas Production (TcF) 25 23 TcF 20 15 10 5 0 1990 1995 2000 2005 2010 14 TcF 9 TcF Shale gas Coalbed methane Tight gas Non-associated offshore Alaska Associated with oil Non-associated onshore http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

Annual Natural Gas Production (Bcf) U.S. Natural Gas 25 20 15 25,000 Total Natural Gas Conventional Gas Unconventional Gas Production (TcF) An Anticipated Evolution From a 2004 Tinker Talk to the IPAA US Natural Gas 2004 forecast 25 TcF 23 TcF 14 TcF Shale gas Coalbed methane 20,000 10 15,000 15 TcF 10,000 10 TcF 5 5,000 0 1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015 0 1990 1995 2000 2005 2010 EIA (1949-1990) and NPC (1991-2015) 9 TcF Tight gas Non-associated offshore Alaska Associated with oil Non-associated onshore http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

Billion cubic feet per day TcF/Year 2013 Dry Shale Gas Production 35 30 25 20 Rest of US Bakken (ND) Eagle Ford (TX) Marcellus (PA and WV) Haynesville (LA and TX) Woodford (OK) Fayetteville (AR) Barnett (TX) Antrim (MI, IM, and OH) 10 15 5 10 5 0 2007 2009 Year 2011 2013 Source: U.S. Energy Information Administration QAe2255

Forecast vs. Actual Model: Rice University, Medlock, 2012 Actual

Unconventional Resource Plays Niobrara Fm Cody Bakken Utica Mowry HilliardBaxterMancos-Niobrara Heath Fm Gammon Niobrara- Mowry Niobrara Fm Antrim Antrim Utica- Collingwood Antrim Utica Marcellus Manning Canyon Mancos Kreyenhagen Hermosa Monterey- T emblor Gothic-Hovenweep Lewis Monterey Pierre- Niobrara W oodford New Albany Excello-Mulky Fayetteville Chattanooga Bend A valon-bone Spring W olfberry Cline W olfcamp (Delaware) Barnett- W oodford Barnett W olfcamp (Midland) Chattanooga W oodford-caney Conasauga Floyd-Neal Floyd-Chattanooga Haynesville T uscaloosa Pearsall Eagle Ford Cenozoic Miocene Mesozoic Cretaceous Paleozoic Permian Mississippian-Devonian T ight sands Miocene-Oligocene Jurassic Pennsylvanian Devonian Basins Eocene T rassic Mississippian-Penn Mississippian Ordovician Cambrian Modified from: EIA and National Geographic QAei2915

Unconventional Resource Plays Bakken Marcellus Fayetteville Permian Basin Barnett Haynesville Eagle Ford Cenozoic Miocene Mesozoic Cretaceous Paleozoic Permian Mississippian-Devonian T ight sands Miocene-Oligocene Jurassic Pennsylvanian Devonian Basins Eocene T rassic Mississippian-Penn Mississippian Ordovician Cambrian Modified from: EIA and National Geographic QAei2915

Middle Devonian Unconventional Resource Plays Bakken Laurentia & Baltica Marcellus Fayetteville Bakken Permian Basin Barnett Haynesville Eagle Ford From Blakey; http://cpgeosystems.com/paleomaps.html

Bureau of Economic Geology U.S. Shale Gas Integrated Study What is the total resource base in place? What portion is technically recoverable? What potion is economically recoverable? What is the long-term production outlook?

BEG Project Workflow Geologic Analysis: Based on: Log and core data Results: structure, porosity, net pay-zone, and OGIP maps Decline Analysis: Based on: Production data and directional surveys Results: Individual well EURs Statistical Data Analysis: Based on: Per well production history and geologic attributes Results: Typical well decline profiles, production drivers Well and Play Recovery Analysis: Based on: OGIP free in each mi 2 and existing wells production declines Results: Normalized well production, exp. productivity (tier) map, individual well recovery factors (by tier), inventory of future wells, Technically Recoverable Resources (TRR) Well Economics: Based on: By tier well production profiles, attrition rate, economic parameters Results: Breakeven prices and IRR by tier Production Outlook: Based on: Production history, well economics and estimated well inventory Results: Pace of drilling by tier by year and expected production scenarios

Barnett Shale Phi * H OGIP free BEG Shale Reserves and Production Project

Barnett Productivity Tiers Ikonnikova S., et al. 2013. SPE Res. Eval & Eng

Relative Frequency Barnett Monte Carlo Production Distribution 0.050 0.045 0.040 0.035 0.030 0.025 0.020 0.015 0.010 0.005 35 Tcf OGIP 444 TcF 56 Tcf 0.000 29 34 39 44 49 55 60 65 70 Cumulative Production (Tcf) Browning, J. et al. 2013. SPE Econ & Mgmt

Relative Frequency Fayetteville Monte Carlo Production Distribution 0.05 OGIP 80 TcF 0.04 0.03 0.02 13 Tcf 23 Tcf 0.01 0 10 12 14 17 19 21 23 26 28 Cumulative Production (Tcf) BEG Shale Reserves and Production Project

LNG - Conventional Natural Gas

LNG - Conventional Natural Gas Source: Anastasia Shcherbakova. Waterborne Energy, Inc. Units: USD/MMBtu

2013 Dry Shale Gas Production Global Forecast Model: Rice University, Medlock, 2012

Outline Energy Demand Natural Gas Supply Issues and Options The Radical Middle

Near Surface Hydraulic Fracturing Water Fracking Proppant Friction Reducers: always (polyacrylmide) Biocides: often (glutaraldehyde, chlorine) 3,000 to 10,000+ feet Scale Inhibitors: sometimes (phosphonate) Surfactants: sometimes (soaps and cleaners) Shale 3,000 10,000 feet 3 6 million gallons

Environmental Impact Not to Scale! After JP Nicot, Bureau of Economic Geology

Environmental Impact 1000 s of Feet of Rock Drawn to Scale

Environmental Impact

Environmental Issues Regulatory Considerations I. Mandatory baseline data II. Cement all gas producing zones III. Minimize fresh water use on the front end IV. Full disclosure of chemicals V. Handle flowback and produced water VI. a. Treat and reuse b. Dispose: characterize for faults Minimize methane emissions and flaring VII. Minimize surface impact after Rao, 2012

Texas Water Use 55% 2011 water use for thermoelectricity: 0.41 maf 2010 water withdrawal for other sectors: 14 maf 30% 2% 2% Source: Scanlon et al., 2013

Texas Water Use 55% 2011 water use for thermoelectricity: 0.41 maf 2010 water withdrawal for other sectors: 14 maf 30% 8% 3% 2% 2% Source: Nicot and Scanlon, 2012, ES&T Source: Scanlon et al., 2013

Unconventional Summary Trade Offs Environmental Risks and Impacts Traffic/noise/light Surface Groundwater Quakes Health Local and atmospheric emissions Energy Security and Economic Benefits Available Affordable Reliable Jobs and Taxes

Options to Natural Gas for Power I. Coal o Available, affordable to generate, reliable o Dirty, expensive to build II. Nuclear o Efficient, no emissions, affordable generation o Expensive to build, waste, safety III. Wind o Simple, affordable, no emissions o Intermittent, land and visual, transmission IV. Solar o Simple, no emissions, local o Expensive, intermittent, land V. Hydro o Efficient, affordable to generate, no emissions o Water, land, drought VI. Geothermal o Affordable where concentrated, no emissions o Geology

Global Investment in Clean Energy 80 New investment*, $bn 70 60 50 40 30 20 10 0 2010 11 12 13 14 Solar Wind Biofuels Other *Excludes corporate and government R&D Source: Bloomberg New Energy Finance, The Economist, April 26, 2014 QAe2822

The Future Electricity Mix 120 North America Quadrillion BTUs Europe 120 120 Asia Pacific 100 80 100 Electricity Generation by Fuel 80 100 80 60 60 60 40 Renewables 40 40 Nuclear 20 Coal 20 20 Gas 0 Oil 0 0 1980 2005 2030 1980 2005 2030 1980 2005 2030 ExxonMobil Corporation, 2010, The outlook for energy: a view to 2030: ExxonMobil report, 53 p.

The Future Electricity Mix U.S. Electricity Generation 1980 1990 Coal Natural gas Nuclear Hydroelectric Other The Unintended 251 Consequences of 577 Million MWh/Year 2000 Political Will 754 2010 2013 789 807 Source: EIA Data

Thousand megawatt hours per day The Future Electricity Mix US Electricity Generation by Fuel, All Sectors 14,000 12,000 10,000 8000 49.8% 49.6% 49.0% 48.5% 48.2% 44.5% 44.8% 42.2% Forecast 36.7% 36.8% Coal Natural gas Petroleum Nuclear Hydropower Renewables 6000 4000 17.9% 18.8% 20.1% 21.6% 21.4% 23.3% 23.9% 24.8% 30.8% 30.1% 2000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Source: US EIA Short Term Energy Outlook 2011.

Million metric tons The Future Electricity Mix 1800 U.S. First Quarter Total Carbon Dioxide Emissions 1600 1400 1200 1000 800 600 400 200 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 QAe2823 Source: EIA

ETS carbon price (EUA) (Euro per tonne) Coal consumption OECD Europe (million tonnes) The Future Electricity Mix 50 500 40 400 30 300 20 200 10 100 0 0 2008 2009 2010 2011 2012 Sources: Thompson Reuters, IEA Thomson Reuters; IEA

Thousand megawatt hours per day The Future Electricity Mix 14,000 Country/ area China India Russia Japan Canada UK 12,000 10,000 8000 6000 4000 2000 Germany Europe US 0 US Electricity Generation by Fuel, All Sectors Energy-related carbon-dioxide emissions by geography, and net change since 2005 2011 emissions 8715 million metric tons 49.8% 49.6% 49.0% 48.5% 48.2% 44.5% 44.8% 42.2% 1726 1788 1181 17.9% 18.8% 20.1% 21.6% 21.4% 23.3% 23.9% 24.8% 553 497 748 4305-370 -61-71 -86-99 Forecast Net change in annual emissions from 2005 to 2011, million metric tons 201 544 36.7% 36.8% 30.8% 30.1% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 5491-509 Year Coal Natural gas Petroleum Nuclear Hydropower Renewables 3252 Source: US EIA Short Term Energy Outlook 2011. Sources: US DOE, The Wall Street Journal

Thousand megawatt hours per day ETS carbon price (EUA) (Euro per tonne) Coal consumption OECD Europe (million tonnes) 50 40 Average national electricity prices (in 2011 US cents/kwh) 50 500 Data: average Energy-related prices from 2011 carbon-dioxide converted at emissions by mean exchange rate for that year 14,000 Country/ area 30 China India 20 Russia Japan 10 Canada UK 12,000 10,000 8000 6000 4000 2000 Germany 0 Europe US 8 India 0 US Electricity Generation by Fuel, All Sectors 8 40 2011 emissions 308715 million metric tons 201788 553 10 497 China The Future Electricity Mix geography, and net change since 2005 Forecast 400 Net change in annual emissions from 2005 to 2011, million metric tons 28 29 300 49.8% 49.6% 49.0% 48.5% 48.2% 44.5% 44.8% 42.2% 1726 1181 10-61 201 17.9% 18.8% 20.1% 21.6% 21.4% 23.3% 23.9% 24.8% -71-86 36.7% 36.8% 30.8% 30.1% 748-99 0 0 4305-370 Mexico 10 Canada 10 S. Africa 11 Russia 12 USA 17 Brazil 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 5491-509 Year 200 100 Coal Natural gas 35 Petroleum Nuclear Hydropower Renewables Source: US EIA Short Term Energy Outlook 2011. Thomson Reuters; IEA Sources: US DOE, The Wall Street Journal Sources: IEA, EIA, national electricity boards, OANDA, shrinkthatfootprint.com 18 Nigeria 544 19 France 20 UK 26 Japan Italy Australia 30 Spain Germany 41 3252 Denmark

Outline Energy Demand Natural Gas Supply Issues and Options The Radical Middle

Energy Security Affordable Available Reliable Sustainable Cost Price Volatility: stable or fluctuating Infrastructure: Cost to build the plant Access: substantial resources Intermittent: source consistent or variable Safe: natural/human causes Clean: air and atmospheric emissions Dense: land footprint Dry: fresh water use/risk

Energy Security Affordable Available Reliable Sustainable Cost Economy Price Volatility: stable or fluctuating Infrastructure: Cost to build the plant The Three Es Access: substantial resources Intermittent: source consistent or variable Safe: natural/human causes Environment Clean: air and atmospheric emissions Dense: land footprint Dry: fresh water use/risk

The 4 th E Environment Efficiency Energy Economy

Efficiency Benefits Save energy Lower emissions Less water Less infrastructure Less land Save $ Challenges Incentivize producers to produce less Expensive to install Requires a cultural change

The 5E Waltz Environment Education Efficiency Energy Economy

TPER per capita Energy and the Economy 9,000 8,000 7,000 6,000 5,000 TPER = Total Primary Energy Requirement. Energy needed to facilitate Total Final Consumption (TFC does not include conversion and transmission losses). Australia United States 4,000 3,000 2,000 1,000 0 0 World China Korea Brazil India After: Rice World Gas Trade Model Medlock, 2012 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP per capita Japan QAe963

TPER per capita Energy and the Economy 9,000 8,000 7,000 6,000 5,000 TPER = Total Primary Energy Requirement. Energy needed to facilitate Total Final Consumption (TFC does not include conversion and transmission losses). Australia United States 4,000 3,000 2,000 1,000 0 0 World ~3 billion people China Korea Brazil India After: Rice World Gas Trade Model Medlock, 2012 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP per capita Japan QAe963

TPER per capita 9,000 Energy and the Economy A Global Challenge 8,000 United States Balance of Trade 7,000 Exports 6,000 Imports Australia Regulation and Planning 5,000 Infrastructure Developing Nations Resources 4,000 Food Korea Permitting 3,000 Housing Emissions, Climate, Environment Japan Clothing 2,000 World Energy Security Education 1,000 Healthcare Electricity Brazil India 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP per capita Developed Nations QAe963

The Radical Middle Academia/NGO Government The Radical Middle Industry Scott W. Tinker, EARTH, 2013

The Eight 1. Energy security affordable, available, reliable, sustainable should guide energy strategy. Dear Keystone decision makers 2. Governments, industry and academe must compromise for objective, balanced energy strategy. 3. Energy efficiency requires a cultural change. 4. A diverse energy mix is healthy. 5. Renewables will remain regional supplements until advances are made in energy storage. 6. Shale will play a global role in the energy future; above ground issues are as challenging as below ground. 7. Natural gas resources are abundant and along with nuclear is a 21 st century foundational energy. 8. Energy, the economy and the environment are linked.