The Shale Boom Heard Around the World Ben Montalbano Director of Research and Operations Energy Policy Research Foundation, Inc. (EPRINC) Clingendael Institute November 5, 2013
Is this the wrong question? Unlike the immediate benefits that American consumers and businesses have seen from low natural gas prices, at the gasoline pump, it has been pretty much business as usual. While the U.S. economy may be benefiting from declining oil imports, prices at the pump have remained consistently high. He adds, this Committee is going to explore why so many consumers have not benefitted from these new lower cost sources of crude oil. -U.S. Senator Ron Wyden, Senate hearing on gasoline prices, July 16, 2013 2
Thousand Barrels Per Day North American Oil Production 12000 10000 July U.S. Oil Production 7.5 mbd 8000 6000 Canadian Production of Crude Oil 4000 2000 0 U.S. Field Production of Crude Oil Source: EIA 3
Million Barrels Per Day EPRINC s Forecast for Major U.S. Shale Plays 6 5 4 EPRINC forecasts an additional 1.5 mbd by 2022 3 2 Periphery Permian Eagle Ford Bakken 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: HPDI data with EPRINC forecast estimates 4
Thousands of Barrels per Day CAPP 2013 Updated Production Forecast 8.000 7.000 Over 3 mbd increase by 2029 6.000 5.000 4.000 3.000 2.000 Mining In Situ Conventional Light Conventional Heavy 1.000 0 Source: CAPP 5
Million Barrels Per Day EPRINC U.S. Forecast vs. Others 11 10 DB 9 IEA 8 EIA 7 WoodMac 6 5 PIRA 4 EPRINC Source: EPRINC Forecast and Estimates compiled from Deutsche Bank Report Dec 2012 Future of US Oil 6
jan-07 mei-07 sep-07 jan-08 mei-08 sep-08 jan-09 mei-09 sep-09 jan-10 mei-10 sep-10 jan-11 mei-11 sep-11 jan-12 mei-12 sep-12 jan-13 mei-13 Barrels Per Day Current Shale Oil Play Production 1.400.000 1.200.000 1.000.000 Bakken - North Dakota Eagle Ford - Texas 800.000 600.000 400.000 200.000 Permian Basin - Texas and New Mexico Niobrara/Codell - Colorado Anadarko Basin 0 Source: NDPA, HPDI 7
# of Rigs U.S. Rig Count 2500 2000 1500 1000 Oil Gas Total 500 0 Source: Baker Hughes 8
Current Shale Oil Play Production Source: EIA 9
Permit Activity Williston Basin Powder River Basin Uinta Basin DJ Basin (Niobrara Reservoir) Utica Anadarko Basin (Mississippian, Granite Wash, Mississippi Lime and other stacked plays) Permian Basin Eagle Ford Reservoir Source: HPDI September 2013, Past 90 Days 10
U.S. Federal Land Map Source: NationalAtlas.gov 11
Thousand Barrels Per Day U.S. Total Imports, U.S. Production, U.S. Canadian Imports 12000 10000 8000 6000 4000 U.S. Imports 7.6 mbd U.S. Production 8 mbd U.S. Imports from Canada of Crude Oil U.S. Field Production of Crude Oil 2000 0 U.S. Imports of Crude Oil Source: EIA Canadian Imports 2.5 mbd 12
Thousand Barrels Per Day U.S. Import Portfolio Shifting 3000 2500 2000 1500 1000 500 0 Saudi Arabia - Medium Sour/Light Sour Algeria - Light Sweet/Ultra Light Nigeria - Light Sweet/Medium Sweet Ecuador - Heavy Sour Iraq - Medium Sour Brazil - Heavy/Medium Sour and Medium Colombia - Heavy Sour/Medium Sour Mexico - Heavy Sour/Medium Sour Venezuela - Heavy Soure/Medium Sour Kuwait - Medium Sour Russia - Medium Sour Source: EIA, ENI World Oil Book 13
Canadian Pipeline Export Options Kinder Morgan s Transmountain line off BC coast - currently 300,000 b/d capacity-recent announcements to expand up to 800,000 b/d (early 2017) (Now Spectra) Platte line to Wood River 280,000 b/d-full Source: Canadian Energy Pipeline Association Nearly full pipelines creates need for XL and Gateway opportunities for rail Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions TransCanada s Keystone 581,000 b/d-full XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k 14
Market Saturation Source: CAPP Crude Oil Forecast June 2013 15
Pipeline Choke Points Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software 16
Barrels Per Calendar Day Number of Refineries Where light sweet Bakken and heavy (blended bitumen) needs to go 10.000.000 9.000.000 8.000.000 7.000.000 6.000.000 5.000.000 4.000.000 3.000.000 Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = Heavy refining capability 60 50 40 30 20 Operable Atmospheric Crude Oil Distillation Capacity Thermal Cracking Coking Downstream Charge Capacity 2.000.000 1.000.000 10 Operating Refineries - PADD 1 East Coast PADD 2 Midwest PADD 3 Gulf Coast PADD 4 Rockies PADD 5 West Coast 0 Source: AFPM map, EIA data for graph 17
Canadian vs. Total Foreign Imports by PADD 1600 1400 1200 1000 800 600 400 200 0 PADD I East Coast 2000 (PADD 1) Total Foreign 1500 Imports 1000 East Coast (PADD 1) 500 Imports from Canada 0 PADD II Midwest (PADD 2) Total Foreign Imports Midwest (PADD 2) Imports from Canada 6000 5000 4000 3000 2000 1000 0 PADD III Gulf Coast (PADD 3) Total Foreign Imports Gulf Coast (PADD 3) Imports from Canada 300 250 200 150 100 50 0 PADD IV Rocky Mountain (PADD 4) Total Foreign Imports Rocky Mountain (PADD 4) Imports from Canada 1400 1200 1000 800 600 400 200 0 PADD V 2008 2009 2010 2011 2012 Jan-July 2013 West Coast (PADD 5) Total Foreign Imports West Coast (PADD 5) Imports from Canada Source: EIA Data 18
jan-08 jun-08 nov-08 apr-09 sep-09 feb-10 jul-10 dec-10 mei-11 okt-11 mrt-12 aug-12 jan-13 jun-13 Regional Pricing Disparities $160,00 $140,00 WTI $120,00 $100,00 $80,00 $60,00 $40,00 Bakken (North Dakota Light Sweet Flint Hills) WCS (Western Canadian Select) $20,00 $0,00 Brent Western Canadian Select -$33 to WTI Source: Flint Hills, EIA, CME Group, and estimates 19
Cushing Stocks - Thousand Barrel $/ Barrel Cushing Stocks vs. WTI Brent Differential 60.000 50.000 40.000 30.000 20.000 10.000 0 35 30 25 20 15 10 5 0-5 -10-15 Cushing OK Ending Stocks excluding SPR of Crude Oil Thousand Barrels WTI Brent Differential (Brent minus WTI) Source: EIA 20
$/ Barrel Price of Canadian Crude Imports $140 $120 $100 $80 $60 $40 U.S. production surge Lack of adequate outbound capacity to refining centers Market saturation Venezuelan and Mexican crude Canadian crude U.S. Landed Costs of Nigerian Crude Oil U.S. Landed Costs of Mexican Crude Oil U.S. Landed Costs of Venezuelan Crude Oil U.S. Landed Costs of Canadian Crude Oil $20 Cushing OK WTI Spot Price FOB $/bbl $0 Europe Brent Spot Price FOB $/bbl Source: EIA Landed Cost: The dollar per barrel price of crude oil at the port of discharge. Includes charges associated with the purchase, transportation, and insuring of a cargo from the purchase point to the port of discharge. Does not include charges incurred at the discharge port (e.g., import tariffs or fees, wharfage charges, and demurrage). 21
Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Barrels Per Day Daily Crude by Rail Shipment in U.S. and Canada 1.600.000 1.400.000 1.200.000 1.000.000 800.000 600.000 400.000 200.000 U.S. Average Barrels Per Day of Petroleum and Petroleum Product Canadian Average Barrels Per Day of Petroleum and Petroleum Product EPRINC's U.S. Daily Crude by Rail Estimate - 770,000 b/d EPRINC's Canada Daily Crude by Rail Estimate - 130,000 b/d 0 Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels). 22
Pipeline and Rail Severely limited due to lack of Keystone XL and lack of historical build out to the coasts system designed to import into the Gulf and move up New markets Diversification Neat Barrels Nimble - Quickly adjustable Optionality for Canadian and U.S. crude, NGLS, and other petroleum products Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software 23 23
Williston Basin Crude Transportation Williston Basin Production: 955,000 b/d North Dakota: 875,000 b/d South Dakota: 5,000 b/d Eastern Montana: 75,000 b/d Tesoro Refinery: 68,000 b/d Truck to Canadian Pipeline: 12,000 b/d Rail: 670,000 b/d Source: NDPA, EPRINC Estimates Pipeline: 241,000 b/d 24
Potential Issues, Hurdles, and Regulatory Concerns Oil prices Water Usage Oil spills (rail and pipeline) Environmental Concerns Regs on Federal Land-Fracking Infrastructure Delays- PERMITTING Lack of prudent policy: failing to connect what is happening on the ground to what is understood in Washington Costs incurred 25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 U.S. Transportation Fuel Demand 18000 16000 14000 12000 10000 8000 6000 4000 2000 Weekly U.S. Product Supplied of Distillate Fuel Oil (Thousand Barrels per Day) Weekly U.S. Product Supplied of Kerosene-Type Jet Fuel (Thousand Barrels per Day) Weekly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day) 0 26
U.S. Auto-Fleet Fuel Economy 27
U.S. Liquid Fuels Consumption U.S. Liquid Fuels Consumption million barrels per day (MMbbl/d) 20,0 19,5 19,0 18,5 18,0 17,5 17,0 annual change (MMbbl/d) 0,75 0,60 0,45 0,30 0,15 0,00-0,15 16,5 2011 2012 2013 2014 Motor gasoline (right axis) Jet fuel (right axis) Source: Short-Term Energy Distillate Outlook, fuel October (right axis) 2013 Other fuels (right axis) Total consumption (left axis) Consumption forecast (left axis) -0,30 28
The Silent Disruption 29
OPEC Spare Capacity 30
World Liquid Fuels Balance 31
Non-OPEC Production Growth 32
jan 02, 2004 jun 02, 2004 nov 02, 2004 apr 02, 2005 sep 02, 2005 feb 02, 2006 jul 02, 2006 dec 02, 2006 mei 02, 2007 okt 02, 2007 mrt 02, 2008 aug 02, 2008 jan 02, 2009 jun 02, 2009 nov 02, 2009 apr 02, 2010 sep 02, 2010 feb 02, 2011 jul 02, 2011 dec 02, 2011 mei 02, 2012 okt 02, 2012 mrt 02, 2013 aug 02, 2013 WTI Price 160 140 120 100 80 60 40 20 0 Weekly Cushing, OK WTI Spot Price FOB (Dollars per Barrel) 33
Non-FTA LNG Export Approvals 6.6 bcf/d approved thus far 34
Conclusions Shale (gas and oil) having a beneficial and tangible impact in the U.S. Refineries reopening in the U.S. vs. closing in Europe Economic growth, stimulus, some manufacturing returning North America may soon be oil self-sufficient Plus and minuses for the rest of the world Europe competitiveness harmed for gas/ngl based industries, but LNG more abundant Lower oil price path Middle East and Asia will become more interdependent Enabled U.S. Iran policy??? LNG exports important, but perhaps more important is that the U.S. will not be a large importer Could be 2008, or worse, all over again. 36