Natural Gas Supply Issues: Gulf Coast Supply Trends and Implications for Louisiana Energy Bar Association New Orleans Chapter January 28, 2010 Center for Energy Studies David E. Dismukes, Ph.D. Center for Energy Studies Louisiana State University
Overview of Topics Center for Energy Studies Recent Louisiana Natural Gas Production Trends & Implications for Louisiana Ongoing Production Challenges & Diversity Across Haynesville What About LNG? Other Emerging Opportunities Conclusions 2
Trends and Implications for Louisiana 3
Louisiana Gas Production Center for Energy Studies Louisiana natural gas production was relatively constant until late 2008. Production became explosive given new production from Haynesville shale parishes. 6 5 4 Bcf per day 3 2 1 Haynesville Era 0 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Source: Energy Information Administration, U.S. Department of Energy. 4
Haynesville Shale Quick Facts Center for Energy Studies $2.4 billion in new business sales within the state of Louisiana in 2008 created by Haynesville Shale activity. As a result, approximately $3.9 billion in additional household earnings (much of this from lease and royalty payments). Duke Energy Gas Transmission Canada 32,742 jobs created in 2008 due to Haynesville Shale activity. Source: The Economic Impact of the Haynesville Shale on the Louisiana Economic in 2008. By Loren C. Scott for the Louisiana Dept. of Natural Resources. $153.3 million in state and local tax revenues in 2008 due to Haynesville Shale activity. Conservative estimate. Data sampled included seven of the largest natural gas extraction firms, leaving out as many as ten other small to mid-size firms operating in the Haynesville Shale. 5
Haynesville and Coastal Parishes Natural Gas Severance Tax Revenue Millions of Dollars $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Natural gas severance revenues have grown throughout the state, but have been particularly significant for the Haynesville parishes. Combined Haynesville Parishes Combined Coastal Parishes Haynesville parishes include Bienville, Caddo, DeSoto, and Red River 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6
Haynesville and Coastal Parishes Share of Total State Natural Gas Severance Revenue The Haynesville parishes share of total severance revenue receipts has increased from less than 10 percent in 1994 to almost 30 percent in 2008. Share of Total State Revenues (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Combined Haynesville Parishes Combined Coastal Parishes Haynesville parishes include Bienville, Caddo, DeSoto, and Red River 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 7
Challenges and Diversity 8
Daily Henry Hub Prices (1998-Present) Center for Energy Studies ($/Mcf) $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 While price volatility is always an issue for energy investments, the sheer free-fall of gas prices from their July, 2008 high has been staggering. Survival in a low-gas price environment is one of the single biggest challenges for shale producers throughout the U.S. $20 5-year average through 2000: $2.89 (standard deviation: 1.46) average for period since 2000-2001 heating season: $5.91 (standard deviation: 2.4) Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Source: Intercontinental Exchange. 9
Forward-Looking Challenges Center for Energy Studies Analysis of shale resources over the past three years has focused very heavily on identifying and characterizing the resource. Significant emphasis on understanding its magnitude. This has been an important contribution since many producers now have a good appreciation for the opportunities in shale development. Other stakeholder groups, such as investors, policy makers, regulators, interest groups and the general public are also starting to understand and appreciate the importance of these resources. Challenge over the next three to five years will be in understanding the winners and losers within the various plays. Can be as much variation in production within some of these plays and between them. 10
Total Louisiana Haynesville Production by Parish Production (Bcf) 20 18 16 14 12 10 8 6 4 2 0 Prior to January 2009, there was relatively close movement in production trends across the six major Haynesville producing parishes. Afterwards, you see a break into three different camps. De Soto breaks out of the pack as leading total producer. Bossier, Red River and Caddo hold the middle ground in terms of total production. Sabine and Bienville bring up the rear. Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Bienville Bossier Caddo De Soto Natchitoches Red River Sabine Preliminary work compiled by the Center for Energy Studies. 11
Variation in Initial Production Levels of Haynesville Wells Production rates show some different stories. DeSoto has an average IP rate well below other parishes despite its commanding lead in total production. Bossier, considered a moderate from total production perspective is clearly seeing strong IP rates, on average, with a maximum in excess of 26 million per day. Preliminary work compiled by the Center for Energy Studies. Only wells with complete 12 month history of production used for comparisons. 12
Distribution and Status of Haynesville Wells Center for Energy Studies There are as many wells waiting on completion (306) as there are those currently producing (302). Overwhelming majority of those wells drilled and waiting on completion are in De Soto parish. Reinforces the Navigant extrapolation of production opportunities for the region. Producing Well (302 wells) Permitted Well Waiting on Completion (306 wells) Permitted Well Drilling in Process (97 wells) Permitted Well Not Drilling (160 wells) 13
What About LNG? 14
U.S. and Canadian Natural Gas Supply Center for Energy Studies Anybody remember when LNG was the backbone of our energy future? LNG provides 14% of the U.S. supply of natural gas by 2025. Where s the shale? If it s here, it s not that impressive Source: National Petroleum Council 15
Net U.S. Imports of Natural Gas 2005 Versus 2009 Outlook What a difference four years can make. Tcf 7 6 5 4 3 EIA Annual Energy Outlook, 2005 EIA Annual Energy Outlook, 2009 Tcf 4 LNG LNG Canada 3 Canada Mexico Mexico 2 1 2 1 0 1990 2000 2010 2020-1 0 1990 2000 2010 2020 2030-1 -2 Source: Energy Information Administration, U.S. Department of Energy. 16
GOM LNG Terminals Usage vs. Capacity, 2007 and 2008 (MMcf/d) 3,000 2,500 2,000 1,500 1,000 Capacity Usage NEW NEW NEW 500 0 NEW Freeport, TX** Gulf of Mexico* Lake Charles, LA* Sabine Pass, LA** Note: * indicates 2007 data; ** indicates 2008 data. 17
U.S. LNG Imports Center for Energy Studies 120,000 100,000 80,000 (MMcf) 60,000 40,000 20,000 0 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Note: * indicates 2007 data; ** indicates 2008 data. 18
Emerging Opportunities 19
McMoran Exploration Co. Find Center for Energy Studies On January 20 th, McMoran Exploration Co. announced a Davy Jones ultradeep well find. Oil and Gas Journal: 2 Tcf or more. Located in 20 feet of water 10 miles south of Marsh Island Drilled to 28,603 feet. 200 net feet of sand natural gas pay. O&GJ: The exploration could revive exploration on the GOM shelf. It could be one of the largest discoveries in decades. Source: McMoran Exploration Co, Oil and Gas Journal 20
Schlumberger Estimates of Field Size Distribution for South Louisiana Deep Wells (2002 Estimate) Source: Schlumberger Estimates, PTTC Workshop on Deep Drilling, LSU Center for Energy Studies, 2002. 21
Number of Leases Issued by Year and Water-Depth Category (MMcf/d) 1,200 1,000 800 600 In 2008, over 65 percent of all GOM leases issued were in water depths greater than 800 feet. < 200 m 200-400 m 400-800 m > 800 m DWRRA Post-DWRRA 400 200 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Minerals Management Service 22
Number and Volume of Deepwater Discoveries 3,000 2,500 While there continues to be formidable natural gas reserves, deepwater is materializing as more of a big crude play than gas. Proved Reserves Unproved Reserves, resources and industry-announced discoveries Number of Discoveries 30 25 2,000 20 (MMcf/d) 1,500 1,000 15 10 500 5 0 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note: Graph is estimated. Source: Minerals Management Service 23
Resource Estimates Restricted Areas Estimated Percentage Restricted Frontier areas still in play given the release of the offshore drilling moratoria. Several Atlantic seaboards states expressing an interest (Carolinas, Virginia). ANWR = 3.5 TCF ANS = 35 TCF Source: Independent Petroleum Association of America 24
Conclusions 25
Take-Away Points Center for Energy Studies Understatement to note shale is a game changer the large unknowns are to what extent, and how far, these opportunities can spread particularly abroad. Shale clearly changes energy market dynamics, short run issues, domestically, more on demand-side than supply. Important to not take our eye off the ball and neglect the importance of these resources (i.e. tax increases, dramatic changes in state mineral revenue regimes, environmental regulations) LNG will always provide discipline to the market (margin cost of importing can be very low). Existing opportunities (Rockies, Alaska, deepwater) are still there and new opportunities (frontier areas, deep drilling) continue to materialize (i.e., substitutes and alternatives) 26
Questions, Comments, & Discussion dismukes@lsu.edu Center for Energy Studies www.enrg.lsu.edu