Unconventional Resources and America’s Energy Future GIC 4th Annual Rocky Mountain Economic Summit Jackson Hole, Wyoming July 27, 2012 GROWTH EQUITY FOR ENERGY & RESOURCE EFFICIENCY 1
Agenda
2
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
Agenda
3
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
What is shale? • Source rock and a reservoir • Highly porous, but not permeable • Thin layer deep underground • Not previously economic to develop
4
Unlocking the Resource - Technology Innovation
Finding
Drilling
Producing
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• Seismic technology refinement (3D) • Accuracy and interpretation improvements
• Subsurface geospatial positioning and directional drilling • Rotary steerable drilling tools • Real-time measurement and logging
• Multi-stage hydraulic fracturing (“frac’ing” or “fracking”) • Micro-seismic monitoring
6
Agenda
7
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
U.S. natural gas resource additions • Shale and tight gas have made huge additions to U.S. recoverable gas reserves (“the Saudi Arabia of gas”) • TRR = 800 trillion cubic feet, or 89 years at current rate of consumption Total Technically Recoverable U.S. Natural Gas Resources (trillion cubic feet)
2,500
2,000 Alaska (onshore and offshore) Shale gas
1,500
Tight gas Coalbed methane
1,000
Lower 48 offshore non-associated Lower 48 onshore non-associated
500 0 2002
8
Source: EIA
2009
U.S. petroleum resource additions • Shale oil more than doubled recoverable oil resources • Oil shale (not to be confused with shale oil), esp. in Green River Basin, could also materially increase resource base (800 billion barrels) Technically Recoverable U.S. Oil Resources (billion barrels)
1,600 1,400 1,200
1,000 Oil Shale
800
Unconventional
600
Total conventional
400
200 2002
9
Source: Institute for Energy Research, EIA
2009
Where are those resources? Shale gas resources Shale oil resources Region Northeast
Subtotal Gulf Coast
Subtotal Mid-Continent
Subtotal Southwest
Subtotal Rocky Mountain
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Subtotal West Coast Subtotal Total onshore Lower-48 States
Shale play Marcellus Utica Other Haynesville Eagle Ford Floyd-Neal & Conasauga Fayetteville Woodford Cana Woodford Barnett Barnett-Woodford Avalon & Bone Springs Mancos Lewis Williston-Shallow Niobraran* Hilliard-Baxter-Mancos Bakken Monterey/Santos
Tcf % of total 141 29% No estimate 61 13% 203 42% 75 16% 21 4% 4 1% 100 21% 32 7% 22 5% 6 1% 60 12% 43 9% 32 7% 76 16% 21 4% 12 2% 7 1% 4 1% 43 9% 482 100%
B bbl 3 3 2 2 4 4 15 15 24
% of total 13% 13% 8% 8% 17% 17% 63% 63% 100%
Source: EIA, Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays, July 2011, Marcellus estimate revised 2012
U.S. oil and gas resource additions • Drilling and production activity has opened up in new plays all across the U.S. – Application of horizontal drilling and frac’ing to conventional plays may also increase production
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Offsets conventional gas declines • Shale gas reserve additions have already offset a decades-long U.S. decline U.S. Dry Gas Proved Reserves and Gross Withdrawals (billion cubic feet)
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
12
Source: EIA
Offsets conventional oil declines • New shale oil finds are more than sufficient to offset ongoing conventional production declines U.S. Crude Oil Production (million bb/day)
12.00
10.00
8.00
6.00
4.00
2.00
13
0.00 1900
Source: EIA
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
LNG balance of trade reversal • U.S. shale gas is projected to turn the U.S. from a net importer to a net exporter within a decade U.S. Gas Production by Source, Including Net Imports (trillion cubic feet)
30
25
20 Shale gas 15
Tight gas Coalbed methane Conventional
10
Net imports 5
0 1990
14
-5
Source: EIA
1995
2000
2005
2010
2015
2020
2025
2030
2035
What’s next? • U.S. has been the leader in developing its shale reserves • Significant opportunities in Latin America, Australia, and parts of Europe • Poland and Argentina beginning to develop resources • France and the Netherlands have significant reserves, but have banned frac’ing • China may have the most shale gas of any single country – No significant production to date – Recently set a target of producing 230 Bcf/year by 2015; hopes to produce 2.1-3.5 Tcf/year by 2020 – CNOOC acquisition of Nexen and Chesapeake JVs 15
Global gas reserve additions • Approximate doubling in global gas reserves, especially outside of the Middle East - shifting the world’s energy balance
16
Source: The Economist, from the International Energy Agency and BP
Regional price divergence • Global natural gas market integration via LNG is still many years away. Natural Gas Prices by Region ($/mmBtu)
$18 $16 $14 $12 $10 $8
Europe Import Price Index
$6
Henry Hub
$4 $2 $0
17
Japan LNG Import Price
Agenda
18
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
Low natural gas prices • Full-cycle cost of shale gas is 40-50% less than full-cycle cost of conventional gas (2011 wells) • Without shale gas, reliance on high levels of LNG imports would cause U.S. natural gas prices to increase by at least 100% • But, with shale gas and shale oil: – Prices are at unprecedented lows – Long-term forecasts expected to remain favorable – Domestic resource stability should remove supply uncertainty and therefore will flatten out price volatility
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Source: IHS Global Insight
Shifting power generation mix • Each percentage point of share is roughly 40 million MWh/year. • By comparison, all solar projects in 2010 produced 1.3 million MWh
20 Source: EIA
Reduced carbon emissions • Switching to natural gas from coal and heating oil can have a significant GHG impact
CO2 Emissions in Power Generation and Heating
CO2 Emissions in Transportation Fuel
(kg CO2 per MMBtu)
(kg CO2 per gallon equivalent)
120
12 96
100
10
73
80
63
60
10.2
9.6
8.9 7.4
8
53
6
40
4
20
2 0
0 Coal
21
Fuel Oil
Propane
Natural Gas
Diesel
B5 Biodiesel
Gasoline
Natural gas
Reduced carbon emissions • Because of the recession and the shift in generation mix, U.S. CO2 emissions are at mid-90’s levels and trending lower U.S. CO2 Emissions from Energy Consumption (million metric tons)
7,000 6,000 5,000 4,000
Natural Gas Coal
3,000
Petroleum 2,000 1,000
1973 1975 1977 1978 1980 1981 1983 1985 1986 1988 1989 1991 1992 1994 1996 1997 1999 2000 2002 2004 2005 2007 2008 2010 2011
0
22 Source: EIA
Economic and employment benefits • Nearly $1.9 trillion in cumulative capex is expected by 2035, leading to substantial economic value added and the creation of more than 1.6 million jobs (NOT including gas transportation infrastructure) 2010
2015
Shale Gas Economic Value Added (1) ($ billion)
$77
$118
$231
Total Government Revenue
($ billion)
$19
$29
$57
Shale Gas Employment (1)
(000 workers)
601
870
1,660
($ billion) ($ billion) 0 ($ billion) 0
$25 $8 $33 $0
$40 $9 $49 $0
$117 $10 $127 $0
Shale Gas Capital Expenditures Upstream Midstream Total (1)
Direct, indirect, and induced Source: IHS CERA
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2035
Predictions • Average reduction of 10% in electricity costs nationwide by 2035 • 2.9% higher industrial production by 2017, 4.7% higher by 2035; chemicals industry to benefit especially • Annual average savings of $926 per year in disposable household income between 2012 and 2015, and >$2,000 per household in 2035
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Source: IHS Global Insight
So let’s do the math ….. • Low, stable pricing for fuel and electricity, PLUS • Reduced carbon and GHG emissions, PLUS • Shifting transportation fuel mix and required infrastructure Leads to…. • Improved global competitiveness • Jobs creation across much of the U.S. (and particularly depressed areas) • Significant economic lift
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Agenda
26
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
Environmental considerations • • • • • •
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Aquifer contamination Seismic activity Surface water contamination Drilling solids disposal Air quality Infrastructure wear and tear
Subsurface water contamination? • Over 1M wells frac’ed in U.S. with no subsurface contamination • Significant distance between frac zone and aquifer • Proper casing & cementing and regulatory oversight are important 28
Seismic activity? • Yes, however: – Geologically very localized – Magnitude is typically much smaller than the “quakes” a car passing by would cause on the earth’s surface – Negative Richter scale number, or about 1 million times smaller than a typical California tremor – Exceptions: • Large fracs at very shallow depths • Disposal wells, potentially
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Surface fluids and drilling solids • Runoff from surface pits holding drilling solids or flowback/ produced water is a real concern • Hauling water and drilling solids in trucks increases spill risk • Inadequate municipal water treatment capacity/capability where injection wells are unavailable
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Solutions to surface issues • Closed-loop solids control during well drilling – Eliminate pits – Make efficient use of fluids – Reduce haul-off volume
• Specialized flowback and produced water treatment – Makes clean water available for reuse, reducing disposal volumes 31
Air quality • Less public attention, but a bigger focus among regulators – “Green completion” regulations at EPA and state levels – Limit venting and flaring – Limit truck traffic/reduce emissions – Reduce compressor station emissions
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Infrastructure wear & tear • Truck traffic is a significant problem in rural areas – Traffic can be reduced through improved water sourcing/disposal and better waste management practices – Regulations/tax regimes to ensure impact is mitigated – Excise or production taxes should be targeted to local economies and infrastructure 33
Agenda
34
1
What is driving the shale boom?
2
What has been the result?
3
What does this mean for the U.S.?
4
What about the environmental issues?
5
Where do we see opportunity?
Where do we see opportunity? Upstream
Midstream
• Oilfield environmental services • Water services
• Compression, compression optimization, waste heat recovery • Pipeline construction, operations, NDT, maintenance
• Fuel substitution in transportation • Fuel substitution in powergen (e.g. maintenance) Downstream • Negative for renewables
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Summary • Shale oil and gas development provides enormous benefits to the U.S. and other economies – Technology is still advancing rapidly and only getting better
• Environmental impacts can be controlled with current technology and prudent regulation • Investment opportunities across the value chain 36
David Lincoln Michael Bevan Michael DeRosa Sam Gabbita
david@elementpartners.com michael@elementpartners.com mderosa@elementpartners.com sam@elementpartners.com
3 Radnor Corporate Center Suite 410 Radnor, PA 19087 (610) 964-8004 www.elementpartners.com
GROWTH EQUITY FOR ENERGY & RESOURCE EFFICIENCY 37