The Revolution in U.S. Natural Gas:
What Lies Ahead?
Pete Stark,
Senior Research Director and Advisor
IHS CERA
WPUI - Madison
September 14, 2012
CONFIDENTIAL
© 2012, All rights reserved, Cambridge Energy Research Associates, Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142
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WPUI September 13, 2012
1
Introduction: The Market Environment
• Multi-speed global recovery
• 2011 U.S. GDP 1.7%
• U.S. moderate expansion
• 2012 U.S. GDP ~ 1.8%
• 2011 (Aug.) Henry Hub at
• 2012 (Aug.) Henry Hub at
$4.07 per Mcf
• Storage = 2,906 bcf
$2.86 per Mcf
• Storage = 3,374 bcf (+17%)
• WTI oil (Aug.) at $90.73 / bbl
• WTI oil (Aug.) at $82.90 / bbl
• Rigs: Oil Gas Horiz %
• Rigs: Oil
1064 895 1136
Source: IHS Cambridge Energy Research Associates.
Copyright © 2012 IHS Inc. All Rights Reserved.
58%
WPUI September 13, 2012
Gas Horiz %
1419 473 1149 61%
2
North America Key Gas Plays
2009- 2012 (June) Gas Wells
Horn River
Montney
Marcellus
Granite Woodford
Fayetteville
Wash
Barnett
Haynesville
Horizontal Well
Eagle
Ford
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
3
Technology Breakthrough
Horizontal drilling + multi-stage hydraulic fractures
Longer Laterals – More Frac Stages
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
4
The Shale Gale:
NAM Natural Gas Resource Base is Intact - - and
3,000
IHS CERA Shale Resource Estimate (additional to PGC)
2,500
PGC Shale Resource Estimate
Non-Shale Resources
Total Potential Resources
2,000
Proved Reserves
1,500
Tcf
1,000
500
0
Source: EIA, PGC, IHS CERA.
Note: Tcf = trillion cubic feet.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
5
has delivered rapid production increases in
the US Lower 48 States with decreasing rigs
70
Gas Rigs**
February 2012
64.5 Bcf per day
1695
914
495
May 2012 = 65.4 Bcfd
65
July 2008
56.1 Bcf per day
+ 15.7 bcfd
60
Bcf
per
Day
NGL and oil rich
plays begin to drive
third wave
Barnett, Fayetteville,
Woodford Shales
dominate growth.
55
Several years of increasing
rig activity but stagnant
production at around 50 Bcf
per day
Haynesville, Marcellus
Shales drive growth
50
Hurricane Ike
45
Hurricanes Katrina, Rita
40
2004
2005
2006
Source: US Energy Information Administration (EIA), IHS CERA.
Note: Bcf = billion cubic feet.
Source: US Energy Information Administration (EIA), IHS CERA.
Copyright © 2012 IHS Inc. All Rights Reserved.
January 2007
49.7 Bcf per day
2007
2008
2009
September 2009
54 Bcf per day
57% fall in rig
count drives 3%
reduction in
production; shutins due to low
prices
2010
2011
2012
** Baker-Hughes
WPUI September 13, 2012
6
Major unconventional gas plays will grow &
increase share of North American gas supplies
60
50
40
Bcf
per 30
Day
20
10
0
2010
2011
2012
Haynesville
Fayetteville
Granite Wash
Horn
River
Source IHS
CERAIHS Inc. All Rights
Copyright
© 2012
Reserved.
2013
2014
2015
2016
Deep Bossier
Barnett
Marcellus
WPUI September 13, 2012
2017
2018
2019
2020
Eagle Ford
Woodford
Montney
NAG_RT_0509
12_Houston
7
Liquids revenue and technology combine to
reduce effective cost of new 2012 supplies
25
20
> 11 Bcfd @ $3.00 / Mcf or less
15
Eagle Ford
10
Dollars
per
Mcf
ETB
Haynesville
Marcellus
Haynesville
Weighted Average $1.89 per Mcf
5
0
0
1
2
-5
-10
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Bcf per day
• Natural gas liquids and oil revenue is reducing the effective cost of
natural gas.
• Further work needs to be done on capital cost. Interaction with oil
drilling may raise capital costs.
-15
Source: IHS CERA.
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
10
The other side of the gas supply story gas associated with Tight Oil Plays
(Oil wells 2009 – 2012 July)
Niobrara
Utica
Mississippian
Granite
Wash
Horizontal Well
Wolfberry
Eagle
Ford
Copyright © 2012 IHS Inc. All Rights Reserved.
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11
Tight oil plays boost North American O&G reserves
Volumes added per play - MMboe
Sum = 5.2 Bboe
2.9 Bb oil + 2.3 Bboe gas
Copyright © 2012 IHS Inc. All Rights Reserved.
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12
Tight Oil Plays Drive Gas Production
+ 1.8 Bcf/d Since 1/1/2010
5000
4500
Heath
Utica
4000
Brown Dense
Atoka Cherokee
3500
Cane Creek
Mowry
3000
Mississippi
Delaware Wolfcamp
Midland Wolfcamp
2500
Wasatch Breen River
Niobrara
2000
Monterey
Cleveland
1500
Barnett
Bone Spring
1000
Bakken Williston
Tusc Marine
Eagle Ford
500
Midland Wolfberry
Granite Wash
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
28/01/2012
28/09/2011
28/05/2011
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28/09/2010
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28/05/2009
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28/01/2000
0
North America
Monthly Gas Storage Inventory
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
14
Shale Gale
Gas Game Changer Scorecard
• ~ 11 Bcf/d of recoverable gas @ < $3.00 / Mcf 2012
• Gas production grows 15.7 Bcfd (31%): 01/2007 to 05/2012
• Gas price decrease: 2007 = $7.04 to $2.45 in 2012 (YTD July)
• Shift from era of tight supplies to era of ample supplies
• Huge impact on economy
• Offset 8-10 Bcfd of anticipated LNG imports
• Support 870,000 jobs by 2015
• Generate >$115 billion/yr GDP by 2015
• Lower prices yield ~ $926 savings / household 2012-15
Copyright © 2012 IHS Inc. All Rights Reserved.
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16
Demand: Where Have
All the Buyers Gone?
17
Five Seasons of Extreme Weather
Weather-Related Demand Increases/Decreases by Season:
142 Bcf
112 Bcf
319 Bcf
226 Bcf
-589 Bcf
100
50
0
-50
-100
-150
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
-250
Jan-10
-200
Nov-09
HDD/CDD Deviation from Normals (1991 - 2005)
150
Source: National Climatic Data Center, IHS CERA.
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
NAG_RT_0509
12_Houston
18
Evolving US Power Generation Mix
2020 US Generation Mix
2011 US Generation Mix
Renewables/
Other*
5%
Oil
0% Hydro
Hydro
6%
8%
Oil
0%
Coal
43%
Nuclear
19%
Natural
Gas
25%
Renewables/
Other*
9%
Coal
38%
Nuclear
19%
Natural
Gas
28%
Source: IHS CERA.
*Includes wind, solar, geothermal, biomass, and pumped storage .
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
20
Unprecedented Scale of US Coal Retirements
Annual
Coal
Capacity
(GW)
HISTORY
OUTLOOK
16
14
12
Additions
10
Retirements
8
6
4
2
0
-2
-4
-6
-8
-10
-12
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Source: IHS CERA.
Data source: Ventyx Energy Velocity.
Notes: Based on net summer capacity and excluding units burning petroleum coke as primary fuel.
Retirements include plants converted from standalone status to combined-cycle configuration.
Copyright © 2012 IHS Inc. All Rights Reserved.
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22
US Power Sector CO2 Emissions, Planning
Scenario
3,000
HISTORY
2,500
2,000
OUTLOOK
Oil
Natural Gas
Coal
Million 1,500
Metric
Tons
1,000
500
0
1980
1990
2000
2010
2020
Source: IHS CERA and EIA.
Copyright © 2012 IHS Inc. All Rights Reserved.
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24
Revolution in U.S. Natural Gas
Take-aways
• Game Changer: Huge increase in shale gas
resources & supplies
• Shift from era of tight supplies to one of underdemand
• Ample supplies of low cost, clean & secure fuel
• Positive impact on economy
• Unexpected dividend on reduction of GHG
• Producers understand corporate responsibility to
safety, community interests and the environment
Copyright © 2012 IHS Inc. All Rights Reserved.
WPUI September 13, 2012
25
The Revolution in U.S. Natural Gas:
What Lies Ahead?
Pete Stark,
Senior Research Director and Advisor
IHS CERA
WPUI - Madison
September 14, 2012
CONFIDENTIAL
© 2012, All rights reserved, Cambridge Energy Research Associates, Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142
No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent.