1. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Outline
• Historical perspective on predicting the future
• Resources: TRR, ERR, Reserves
– BEG shale gas resource assessment
– Breakeven economics & producer finances
• Difficulty of predicting demand
Plenty of Gas Resources; How About
Deliverability and Demand?
Flevum Shale Gas Conference Utrecht
November 12, 2013
–
–
–
–
Power generation
Industrial use
Exports (LNG & pipeline)
Transportation sector
©BEG-CEE-UT, 1
Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Global LNG Flows – Expectations Few
Years Back
2000
New terminals built in the US since 2000:
Sabine Pass (LA), Freeport (TX), Cameron (LA),
Golden Pass (TX)
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Today, Much Idle Capacity in NA
2030
EXPANDING FLOW TRENDS
Source: NPC 2007, consolidated forecasts
Source: U.S. FERC and industry reports as compiled by CEE‐UT.
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2. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Thanks to Shale Gas Production
Source: EIA Annual Energy Outlook 2013
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
Technically Recoverable Resource Estimates
Shale Gas Mostly Responsible for Increased
Estimates but…
• Shale gas resource estimates cover a wide range
• Some are for TRR; others are for ERR
• Assumptions & approach not always transparent
Source: Based on a widely used chart produced by Gas Technology Institute (GTI).
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Source: McGlade C, Speirs J, Sorrell S (2013). Unconventional gas – A review of regional
and global resource estimates. Energy.
©BEG-CEE-UT, 8

3. Gürcan Gülen, Ph.D.
BEG’s Integrated Approach: Barnett,
Fayetteville, Haynesville, Marcellus
Log and
seismic data
Structure, porosity,
net pay-zone maps
Production
history data
and
directional
surveys
Decline Analysis:
Production rate
estimate, EURs
Spacing Study:
Well Recovery,
Drainage Areas,
Infill drilling
locations (by
tier)
=> Technically
Recoverable
Resources
Attrition rate,
Breakeven prices,
Representative well
profiles (by tier)
Production
Outlook:
Pace of drilling and
ultimate recovery
w.r.t.
Prices, Technology,
and Time
www.beg.utexas.edu/sloan.php
Funded by Alfred P. Sloan Foundation
$10
Tcf @ $10 HH
Tcf per Year
(Base Case Sensitivity to Price)
$8
2
Tcf @ $4 HH
$7
Tcf @ $3 HH
$6
1.5
Henry Hub
$2010
$5
$4
1
$3
Base Case @ $4 HH
45 Tcf Cumulative Production
0.5
$2
$1
$-
0
1995
2000
2005
2010
2015
2020
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Gürcan Gülen, Ph.D.
$9
Tcf @ $6 HH
Well Economics:
Econometric Analysis:
Validate Decline Curve;
Test Geologic and Other
parameters;
Describe “typical well”
2.5
Tcf per Year
Geologic Analysis:
Barnett Shale Resources
Henry Hub $2010
Gürcan Gülen, Ph.D.
2025
2030
©BEG-CEE-UT, 10
Gürcan Gülen, Ph.D.
At What Price Can the Producers Deliver?
Depends on Location
$18
$16
$14
Breakeven Economics – 10% IRR
Barnett Low Btu
$12
$10
Barnett High Btu
$8
NGL Uplift: how much, when & where?
$4 Henry Hub
$6
$4
$2
$0
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6 Tier 7 Tier 8 Tier 9 Tier 10
Monitoring U.S./Global Oil and Gas: Upstream Attainment, Producer Challenges
http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20‐%20Producers.pdf
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BEG analysis.
©BEG-CEE-UT, 12

4. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Price Expectations
How Much Demand? At What Price?
•
•
•
•
Power generation
Industrial demand
Exports (LNG and pipeline)
Transportation (LNG, CNG)
Foss et al, “Sharp Cycles Ahead” Oil & Gas Investor, September 2013
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
Gas Use in Generation Increased
Different Views of the World
Net generation by fuel, 1998‐2012
Consumption of Natural Gas (Index, 2010 = 1)
2.5
Avg y‐y growth
of 2.5%
2.0
1.5
1.0
0.5
AEO Real GDP
IHS Real GDP
AEO Industrial
IHS Industrial
AEO Electricity
IHS Electricity
0.0
2010
2015
2025
2030
2035
Based on data from EIA AEO 2013 & IHS Global Insight
2040
©BEG-CEE-UT, 15
15%
2%
19%
3%
52%
31%
2020
5%
19%
0%
37%
1998
2012
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5. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
A Scenario on Gas Use in Power
More Risk for Coal & Nuclear
– announced about 32 GW (2014‐2020)
– 2.6 GW in 2011; 8 GW in 2012; 2 GW in 2013 YTD
already retired (mostly older, smaller units)
• 4 recent nuclear retirement announcements;
more on the way?
9
8
7
Quads
• Pending EPA regulations on SO2/NOX, mercury,
water, coal ash, GHG
• State‐level regulations
• Up to 80 GW of coal capacity may retire by 2020
Nuclear shutdowns
6
Change in Gas Price Forecast
5
Coal risks
4
3
2
1 Quad  1 tcf  ~2.7
bcfd
1
0
2030
U.S. Gas‐Power Linkages: Building Future Views for details:
http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20Gas‐
Power%20Linkages.pdf
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
Dampers on Gas Use in Power
• Currently, coal is competitive with gas at $4‐4.5/MMBtu
of gas price (even at $3.5 in some locations)
• Renewables capacity has been growing
Increased Industrial Competitiveness
2005
2012
HH
$8.69
$2.75
WTI
$56.64
$94.00
Ratio
6.5
34.2
– Better capacity factors for wind
– Declining cost of PVs (thanks to Chinese subsidies)
– Storage projects seem to be moving forward
• Smart grid and demand response
• Energy efficiency and conservation (EIA AEO 2013
Reference Case: 0.9% annual demand growth; 0.2% in
“best technology available” case)
©BEG-CEE-UT, 19
What happens if the
WTI‐HH ratio
declines?
American Chemistry Council, Shale Gas Study (May 2013)
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6. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Volatile Markets
140%
Propane % of Oil
120%
12
NGL Composite % of Oil
10
Frac Spread ‐ Propane
100%
Risks for Industrial Demand
14
HH % of Oil
Frac Spread ‐ NGL Composite
• Need to export petrochemical products
– Domestic market seems saturated
8
6
80%
4
2
60%
0
40%
‐2
•
•
•
•
Tremendous petchem capacity additions globally
Ethane‐naphtha cost differential
Frac spread (ethane‐natural gas)
Infrastructure bottlenecks
‐4
20%
‐6
0%
‐8
– Tens of billions of dollars worth of pipeline &
processing projects are planned or already under
development
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
Industrial Gas Demand – A Growth
Scenario based on Projects in Progress
Increasing Gas Exports
• Several terminals received permits to export LNG
to non‐FTA countries
– Construction started on 2 liquefaction trains of the
Sabine Pass terminal in August 2012
– The first exports are not expected until 2016
• EIA AEO: 4.4 bcfd by 2027 (1.6 tcf per year)
• Others: 6‐8 bcfd by 2020 and 8‐10 bcfd by 2025 (3.6 tcf)
• Pipe exports to Mexico was 0.6 tcf in 2012
– Expected to reach 2.4 tcf by 2040 (EIA AEO) or
sooner (much sooner).
CEE analysis
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7. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Is there Room for U.S. LNG Exports?
Non‐North American
LNG Supply
2012 Consumption:
328 bcm
2012 Liquefaction
capacity: 388 bcm
Source: Howard V. Rogers, Senior Research Fellow, The Oxford Institute for
Energy Studies, and David Ledesma, South‐Court, LNG 17, Houston, 2013.
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
Changing World LNG Trade –
Exporters Mix
Global LNG Market Risks
• Slow economic recovery / growth
– Continental European demand fell 6+ million tons (or
~9 bcm) between 2012 and 2013
• Japan re‐opening nuclear plants
• Increased pipeline trade
• Russia “flooding” the market; non‐Gazprom
exports?
• Global shale gas production (longer term)
• Increased & more effective use of renewables;
energy efficiency & conservation
©BEG-CEE-UT, 27
Small group dominated by Asian
suppliers (1995)
Algeria
19%
Libya
2%
Indonesia
36%
Abu Dhabi
8%
United States
(export)
2%
Brunei
9%
Australia
11%
Malaysia
15%
Much more diversified, emerging Middle
East suppliers led by Qatar
Source: CEE calculations based on petroleum‐economist.com and BP
Statistical Review of World Energy
©BEG-CEE-UT, 28

8. Gürcan Gülen, Ph.D.
CEE analysis
Jan‐2011
CEE analysis
©BEG-CEE-UT, 29
Gürcan Gülen, Ph.D.
Mar‐2012
Henry Hub
Sep‐2008
Liquefaction
Nov‐2009
High Cost
Pacific
Jul‐2007
High Cost
Europe
May‐2006
High HH
Jan‐2004
Low Cost
LNG $/DGE Estimate
Mar‐2005
Shipping
U.S. No 2 Diesel Retail
Prices (Dollars per Gallon)
Nov‐2002
Regasification
Henry Hub Gulf Coast
Natural Gas Spot Price
($/DGE)
Jul‐2000
$11/MMBtu Japan 2010
$10/MMBtu NBP
$9/MMBtu European floor
Diesel and Natural Gas Spot Prices (1997‐2013)
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$‐
Sep‐2001
$15‐16/MMBtu Asia spot
May‐1999
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
NG Use in Transportation Encouraged
by Diesel‐NG Price Differential
Jan‐1997
$/MMBtu
Is U.S. LNG Competitive?
Mar‐1998
Gürcan Gülen, Ph.D.
LNG trucks are ~30%
more expensive than
diesel trucks with
emission systems
©BEG-CEE-UT, 30
Gürcan Gülen, Ph.D.
Expectations
Infrastructure Challenge
• Only 32 public LNG fueling stations in operation,
with about a third of them located in California;
41 private LNG filling stations; and 72 planned
stations.
• 587 CNG stations available to the public; 639
private filling stations; and 87 planned stations.
• In comparison, there are 4,000 truck stops that
sell diesel fuel.
©BEG-CEE-UT, 31
• The most aggressive
scenarios: 1‐3 bcfd of
incremental use by
2020 (1 tcf per year).
• EIA: less than 0.3 bcfd
by 2020.
• Current use is about
0.1‐0.2 bcfd.
American Clean Skies Foundation (2013)
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9. Gürcan Gülen, Ph.D.
Gürcan Gülen, Ph.D.
Putting All Together
CEE “What If” Scenario
45
45
40
40
Transportation EIA ref
35
35
LNG exports EIA ref
LNG exports CEE
Pipeline exports EIA ref
30
30
Power generation EIA ref
25
Dry gas prod EIA ref
Imports EIA ref
15
Total supply EIA ref
10
Total demand CEE High
25
TCF
TCF
Other EIA ref
20
Power generation CEE
20
Industrial CEE
15
Other CEE (EIA ref Other &
Transportation)
10
Total supply EIA High OGR
5
0
2012
Pipeline exports CEE
Industrial EIA ref
5
2015
2018
2021
2024
2027
0
2012
2030
2015
2018
2021
2024
2027
2030
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Gürcan Gülen, Ph.D.
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Gürcan Gülen, Ph.D.
What to Remember
We Welcome Participation & Feedback
• Shale gas resources are significant but
– Costs for many locations are higher than $3‐3.5
– Infrastructure bottlenecks and environmental regulations can
delay development
– Conventional production has been declining
– NGL revenues help
• Demand side puzzles
– Export markets are needed, at least for liquids &
petrochemical products
– The largest growth potential for gas use remains power
generation, which depends on many uncertain factors
©BEG-CEE-UT, 35
Gürcan Gülen, Ph.D.
Senior Energy Economist
Center for Energy Economics
Bureau of Economic Geology
Jackson School of Geosciences
The University of Texas at Austin
713‐654‐5404 (o)
gurcan.gulen@beg.utexas.edu
www.beg.utexas.edu/energyecon
©BEG-CEE-UT, 36