Leaving our Corners Real Change in Today s Global Energy Climate

Southern Gas Association November, 2013 Leaving our Corners Real Change in Today s Global Energy Climate Scott W. Tinker Bureau of Economic Geology The University of Texas at Austin, Austin

Framing Observation A majority of the public do not know where electricity comes from or how it is made; nor do they particularly care. Therefore, energy policy makers are free to do incredibly dumb things, even if well intended. Energy education is imperative.

Outline THE MOST IMPORTANT ISSUE OF OUR TIME ENERGY RESOURCES Electricity Transportation LEAVING OUR CORNERS

Overarching Themes No energy source is perfect Energy security drives the pace of change Efficiency requires a change in thinking Energy transitions take time

Population (millions) Primary energy (quads) Global Population and Energy 8000 7000 500 6000 5000 4000 400 300 3000 2000 1000 200 100 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 QAe874

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

TPER per capita Energy and GDP 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 ~3 billion people Korea Brazil India After: Rice World Gas Trade Model Medlock, 2012 GDP per capita Japan 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 QAe963

Outline THE MOST IMPORTANT ISSUE OF OUR TIME ENERGY RESOURCES Electricity Transportation LEAVING OUR CORNERS

U. S. Energy Flows Solar 0.09 Nuclear 8.45 Hydro 2.45 Wind 0.51 Geothermal 0.35 Natural gas 23.84 Coal 22.42 0.01 2.43 0.51 0.31 8.45 6.82 20.54 Electricity generation 39.97 0.08 1.79 0.01 Net electricity Imports 4.99 0.06 3.20 12.68 0.2 0.1 0.11 8.14 4.70 4.61 3.35 9.18 6.86 19.15 Residential 11.48 Commercial 8.58 Energy services 42.15 Industrial 23.94 0.02 0.67 Electricity Transportation 27.86 6.96 (2008 Quads) Source: Lawrence Livermore National Laboratory and U.S. DOE based on Annual Energy Review, 2008 (EIA, 2009) From National Academies Press, America s Energy Future, 2009 QAd8174

The Future 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 Mix Source: US EIA Short Term Energy Outlook 2011

The Future Mix

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

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 Natural Gas Supply Resources and Cost 15 10 5 Tight 4X Shale Sour LNG 0 0 100 200 300 400 500 600 700 800 900 1,000 1,100 Resources (trillion cubic meters) Source: IEA World Energy Outlook (2009) 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

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

QAe2255 2013 Dry Shale Gas Production Model: Rice University, Medlock, 2012 Actual

Billion cubic feet per day TcF/Year QAe2255 2013 Dry Shale Gas Production 35 30 10 2010 Forecast is Low to Actual 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 In Actual 25 spite of popular prognostications about the poor economics of shale, parts of many basins 20 are economic, and technology and price allow 15 for continued drilling and production. 5 Rigorous, integrated, bottom-up geologic, engineering and economic studies provide a 0 2007 objective 2009 look at the future. 2011 2013 Year 5

U.S. Shale Gas Plays

Unconventional Reservoirs

Unconventional Reservoirs 1000 s of Feet of Rock

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 a. Treat and reuse b. Dispose: characterize for faults VI. Minimize methane emissions VII. Minimize surface impact after Rao, 2012

Barnett drilling location University of Texas at Arlington From XTO annual report Reducing Surface Disruption Carrizo location UT Arlington

Turnizontals 1 mile

Barnett Production Outlook Bottom Up! ~15,000 wells ~3,000 wells ~11,000 wells Model forecast was accurate for 2011-2012 Browning, J. et al. 2013. SPE Econ & Mgmt

Relative Frequency Economic Production Distribution 0.050 0.045 0.040 45 Tcf 35 Tcf Barnett 0.035 0.030 0.025 56 Tcf 0.020 0.015 0.010 0.005 0.000 29 34 39 44 49 55 60 65 70 Cumulative Production (Tcf) Browning, J. et al. 2013. SPE Econ & Mgmt

The Politics of Shale after Euan Means BP Data

The Politics of Shale Positive Mixed Neg Negative Positive Positive Positive Positive

Options to Fracking 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

U. S. Energy Flows 6.82 Electricity generation 39.97 Net electricity Imports 12.68 0.11 4.70 Residential 11.48 9.18 4.99 1.17 4.61 Natural gas 23.84 3.20 Commercial 8.58 0.57 3.35 6.86 Energy services 42.15 Transportation 8.14 8.58 Industrial 23.94 19.15 0.46 0.67 0.02 Petroleum 37.13 26.33 Transportation 27.86 6.96 (2008 Quads) Source: Lawrence Livermore National Laboratory and U.S. DOE based on Annual Energy Review, 2008 (EIA, 2009) From National Academies Press, America s Energy Future, 2009 QAd8174

Per capita oil consumption (bbl/yr) The Future Transportation Mix 35 30 25 20 U.S. 15 10 5 China 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Year BP Statistical Review of World Energy, CIA World Factbook, Census Bureaus, Marc Faber Limited, RJ Estimates From Raymond James and Associates, Inc., August 2, 2010

The Future Transportation Mix 25 20 North America Millions of oil-equivalent barrels per day Europe Asia Pacific Other 15 Jet fuel Natural gas Fuel oil 10 Diesel Biodiesel Ethanol 5 Gasoline 0 2000 2020 2040 2000 2020 2040 2000 2020 2040 ExxonMobil Corporation, 2013 The Outlook for Energy: A View to 2040, page 20.

1000s Bbl Day Global Oil Production Total North America Total S. & Cent. America Total Europe & Eurasia Total Middle East Total Africa Total Asia Pacific 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 30.5 BBY 1965 1975 1985 1995 2005 Source: BP Statistical Review 2012

Production cost (2008 $) MB/d Long-Term Oil Supply 140 120 Resources and Cost EOR Arctic 140 120 100 80 60 40 Deepwater and ultra-deepwater CO 2 EOR Other conventional oil Oil shales 2X Shale oil Heavy oil & bitumen Gas to liquids Coal to liquids 100 20 Produced MENA 0 0 2000 4000 6000 8000 10,000 Resources (billion barrels) Source: IEA World Energy Outlook (2009)

Thousand barrels/year Annual US Oil Production From: James D. Hamilton, Working Paper 17759, NATIONAL BUREAU OF ECONOMIC RESEARCH, 2012

Tinker, 2012 San Antonio Eagle Pass+ Houston Eagle Ford Flaring and Rig Lights Unconventional Reservoirs Laredo+ Corpus The Valley 2012 Credit: NASA - NOAA 1994

U.S shale liquids projected growth.(mbpd) 5 4 3 2 2010 U.S. SHALE LIQUIDS PROJECTION 3.8 mmbod by 2022 10% IRR: $68/bbl 10% IRR: $51/bbl 10% IRR: $50/bbl 10% IRR: $44/bbl 10% IRR: $50/bbl Monterey Woodford/Anadarko Utica Barnett Uinta Niobrara Permian Midland Permian Delaware Granite wash Eagle Ford 1 10% IRR: $44/bbl Bakken 0 2010 2012 2014 2016 2018 2020 2022 After Morse et. al., 2012, Energy 2020: North America, the new Middle East: Citi GPS: Global Perspectives & Solutions, figure 14, p. 17. IRR Source: Rystad Energy QAe465

Million barrels per day Tinker, 2012 US Shale and Tight Oil Production 2.5 2.0 1.5 1.0 E a g l e F o r d ( T X ) B a kk en ( ND ) Granite Wash (OK and TX) Bonespring (TX Permian) Wolfcamp (TX Permian) Monterey (CA) Woodford (OK) Niobrara-Codell (CO) Sprayberry (TX Permian) Austin Chalk (LA and TX) Right on Pace 0.5 0.0 2007 2009 Year 2011 2013 Source: U.S. Energy Information Administration QAe2254

Thousand barrels/year Annual US Oil Production 1.4 Bby shale oil by 2022 From: James D. Hamilton, Working Paper 17759, NATIONAL BUREAU OF ECONOMIC RESEARCH, 2012

Options to Oil for Transport I. Biofuels II. III. IV. o o o o o o o o o o Valuable supplement, lower carbon Scale, land use, cost Soil science, hydrogeology, fertilizers, weather, climate CNG, LPG, LNG, GTL Cleaner than oil, regionally cheap, available Dirtier than others, regionally expensive Subsurface, environmental, hydro, economics, policy Electricity Clean depending on source, efficient engine Expensive, chemicals, range See coal, natural gas, nuclear, hydro, wind, solar Hydrogen Ten years away

Outline THE MOST IMPORTANT ISSUE OF OUR TIME ENERGY RESOURCES Electricity Transportation LEAVING OUR CORNERS

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 Energy Sustainable 50% of primary energy Efficiency is wasted! Environment Economy

U. S. Energy Flows Solar 0.09 Nuclear 8.45 Hydro 2.45 Wind 0.51 Geothermal 0.35 Natural gas 23.84 Coal 22.42 Biomass 3.88 0.01 2.43 0.51 0.31 0.46 8.45 Electricity generation 39.97 0.08 Net electricity Imports 12.68 Efficiency! 3.20 0.01 0.06 0.42 6.82 20.54 0.67 1.79 4.99 0.83 0.2 0.1 2.03 0.49 0.11 0.10 8.14 8.58 0.02 4.70 Residential 11.48 1.17 4.61 Commercial 8.58 0.57 3.35 Industrial 23.94 27.39 1.71 4.78 2.29 20.90 Rejected energy 57.07 Petroleum 37.13 26.33 Transportation 27.86 (2008 Quads) Source: Lawrence Livermore National Laboratory and U.S. DOE based on Annual Energy Review, 2008 (EIA, 2009) From National Academies Press, America s Energy Future, 2009 QAd8174

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

Global Energy Mix (MTOE) 237 831 560 3 24 1 4,131 98 167 3,730 111 2,987

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

Global Global Consumption Consumption (Q) (Q) Global Consumption (Q) 100% 800.0 700.0 90% 80% 600.0 50% 70% 500.0 60% 45% 400.0 50% 300.0 40% 40% 30% 200.0 20% 35% 100.0 10% Tinker Forecast A Look at the Global Future 30% 70% Petroleum Consumption Coal Consumption Natural Gas Consumption Nuclear Electric Power Consumption Hydroelectric Power Consumption 60% 40% Biomass, Geothermal, Solar & Wind Consumption 30% 0% Energy 0.0 transitions take time 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 200.0 100% 25% 800.0 180.0 90% 160.0 700.0 20% 80% 140.0 600.0 450 70% 120.0 15% 500.0 60% 100.0 400.0 50% 10% 80.0 40% 70 300.0 60.0 30% 40.0 200.0 5% 300 20% 20.0 200 100.0 10% 0% 0.0 0% 0.0 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 1980 1980 1990 1990 2000 2000 2010 2010 2020 2020 2030 2030 2040 2040 2050 2050 2060 2060 2070 2070 2080 2080

Leaving our Corners Government Compromise Academia/NGO Industry

Summary Thoughts Oil and gas from shale will be a big part of the future and above ground challenges must be addressed. Energy security affordable, available, reliable, sustainable drives energy mix, and government policies that attempt to induce an energy transition often sound smart, but usually aren t. Diverse energy portfolios are inevitable, and for the most part desirable; efficiency is part of the energy portfolio. The global energy transition will take time; let s come out of our corners to The Radical Middle, where things get done.

http://www.switchenergyproject.com/ Tinker, 2012