Contemplations about the future of natural gas: the good, the bad and the ugly Charles F. Mason H.A. True Chair in Petroleum and Natural Gas Economics Department of Economics Associate Dean, College of Business University of Wyoming Laramie, Wyoming December 13, 2017
36 Our Economics Team 25 20 15 10 The View Today Coal Natural Gas Crude Oil and NGPL a 5 Total US Energy Production (Quadrillion BTU) Renewable Energy Nuclear Electric Power 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 By Source, Monthly 2.5 Natural Gas 2.0 1.5 Crude Oil and NGPL a Coal 1.0 Renewable Energy 0.5 Nuclear Electric Power 0.0 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 2015 2016 2017 Total, January August By Source, August 2017 72 source: EIA 60 59.035 57.811 Natural Gas 56.091 2.362 48 Crude Oil and NGPL a 2.059
Emerging Global NG Demand and LNG emergence of global NG trade gating pockets of growth 6F /Yr. Gas plant orders (select countries) Avg. GW/y China 3,600 kwh/capita U.S.A. 12,000 kwh/capita Saudi Arabia 9,300 kwh/capita Japan 7,400 kwh/capita Mexico 2,100 kwh/capita Indonesia 800 kwh/capita China US Saudi Japan Mexico Indonesia 2.3 2.6 0.7 2.0 3.0 3.0 5.0 4.8 8.4 10.0 10.5 10.8 Avg. last 5 years Avg. next 5 years (forecast) Global NG imports, Trillion cubic feet 15 20 25 30 35 40 1990 1995 2000 2005 2010 year 22 24 26 28 30 32 percent of Global NG consumption via imports Malaysia 4,400 kwh/capita Malaysia 0.8 1.2 Global NG imports, Trillion cubic feet percent of Global NG consumption via imports World avg. = 3,000 kwh/capita he long-term positioned to win in short-term source: GE, EIA es of GT,ST and Hydro excludes oil recip. Engines, Storage and Industrial Mechanical Drive; 2016 data is still preliminary ECON 4430, C. Mason 16 Recent developments in Natural Gas Markets 20/
Bad Ugly Our Economics Team Variation invariability renewablesin Renewables Hourly solar energy, San Francisco Total Wind power energy demand production less renewables, (Trillion BTU) Twh 50 250 100 150 300 200 200 0 350 250 Jul2001 Jan2014 Jan2015 Jan2009 Jan2016 Jan2017 Jul2016 month date source: EIA large large fluctuation with with renewables renewables over over 24 24 hour hour period period over over course course of the of year implies need need for flexible for flexible power power supply supply to fill intogaps fill in gaps NG Ugly (Mason) Feria Destaca 2016 7 July, 2016 5 / 24
US natural gas production; monthly spot price Our Economics Team The Fracking Boom Billion cubic feet per month 1800 2000 2200 2400 2600 2800 USD per thousand cubic feet - average per month 0 5 10 15 Jan2000 Jan2005 Jan2010 Jan2015 Month Natural Gas Production Jan2000 Jan2005 Jan2010 Jan2015 Month Henry Hub Spot Price US Natural Gas production took off after 2007 led to steady decline in NG spot prices major driver in shift from Coal to Gas in electricity motivated push for LNG exports Good, Bad & Ugly (Mason) Feria Destaca 2016 25 November, 2016 4 / 26
US natural gas production; monthly spot price Our Economics Team The Fracking Boom Billion cubic feet per month 1800 2000 2200 2400 2600 2800 USD per thousand cubic feet - average per month 0 5 10 15 Jan2000 Jan2005 Jan2010 Jan2015 Month Natural Gas Production Jan2000 Jan2005 Jan2010 Jan2015 Month Henry Hub Spot Price US Natural Gas production took off after 2007 led to steady decline in NG spot prices major driver in shift from Coal to Gas in electricity motivated push for LNG exports Good, Bad & Ugly (Mason) Feria Destaca 2016 25 November, 2016 4 / 26 (how long) will this persist?
Fracking: A new approach to extraction Conventional/Unconventional Geology MSEEL - Microseismic http://www.eia.gov/energy_in_brief/about_shale_gas.cfm Thomas Wilson - WVU
Natural gas production from major U.S. shale plays
Natural gas production: geography
WY NG distribution, basis effects pricing distortions when deliveries approach pipeline capacity
NG spot prices: Henry Hub vs. Dominion South difference between spot prices at Dominion South and Henry Hub
Pipeline Infrastructure in New England
Natural Gas Prices vs. Algonquin Pipeline Utilization MMBtu 400,000 Unused Capacity Algonquin Citygate Price $/MMBtu 70 60 300,000 50 40 200,000 30 100,000 20 10 0 1/1/14 7/1/14 1/1/15 7/1/15 0 Despite high prices, the Algonquin pipeline was often not fully utilized during the winters of 2013-14 and 2014-15
Natural Gas Prices vs. Algonquin Pipeline Utilization MMBtu 400,000 Unused Capacity Algonquin Citygate Price $/MMBtu 70 60 300,000 200,000 50 40 30 100,000 20 10 0 1/1/14 7/1/14 1/1/15 7/1/15 0 Aggregating the same data by week more clearly shows levels. On average, 78,000 MMBtu (roughly 7%) of the pipeline s capacity goes unused on days when the price of natural gas exceeds $10/MMBtu.
Patterns in average production per-well monthly production in MMcf 0 20 40 60 80 100 0 10 20 30 40 month pre 2000 2007 2008 2009 2010 2011 Natural gas production subject to decline curve effects production rate falls off rapidly during first several months suggests need for rolling frontier of new wells
Aggregate production and the number of wells quantity gas, million Mcf 0 20 40 60 80 0 1000 2000 3000 4000 number of operating wells Jul1992 Jul1999 Jul2006 Jul2013 month quantity gas, million Mcf number of operating wells
Drilling Rig Counts: US and Marcellus Gas Drilling Rigs in the US 0 200 400 600 800 1000 0 50 100 150 Gas Drilling Rigs in the Marcellus 1Jan2010 1Jan2012 1Jan2014 1Jan2016 Date Gas Drilling Rigs in the US Gas Drilling Rigs in the Marcellus
Stocks / Refinery receipts 15 20 25 30 Jan1985 Jan1990 Jan1995 Jan2000 Jan2005 Jan2010 Jan2015 Date
NG Stocks / Consumption 1 2 3 4 5 6 Jan2000 Jan2005 Jan2010 Jan2015 Date
WTI crude price return -.6 -.4 -.2 0.2.4.6 1Jul1997 1Jan2002 1Jul2006 1Jan2011 1Jul2015 Date
Henry Hub NG price return -.6 -.4 -.2 0.2.4.6 1Jul1997 1Jan2002 1Jul2006 1Jan2011 1Jul2015 Date
Barnett 80,000 >150,000 Haynesville 110,000 >200,000 Marcellus 120,000 >280,000 Source: Acharya, H.A., Henderson, C., Matis, H., Kommepalli, H., Moore, B., Wang, H., 2011, Cost Effective Water concerns? Recovery of Low-TDS Frac Flowback Water for Re-use, U.S. Department of Energy: DE-FE0000784 Final Report. Notes: TDS is total dissolved solids. PPM is parts per million (for reference, 10,000 ppm is equivalent to 1%). In this Department of Energy report, the authors refer to all returning water after hydraulic fracturing as flowback, and do not differentiate between fracking fluid flowback and produced water. Figure 6. Photograph of Flowback Water, Treated Flowback Water Ready for Reuse, and Produced Water Source: Earth and Mineral Sciences Energy Institute, Pennsylvania State University.
Environmental concerns?
What s in the Secret Sauce? Source: Columbus Dispatch