Energy Market Trends and Policies: Implications for Louisiana · Crude Oil Trends U.S. Crude Oil...

Energy Market Trends and Policies: Implications for Louisiana

Executive BriefingLakeshore Lion’s Club Monthly Meeting

David E. Dismukes, Ph.D.C t f E St di

June 20, 2011

Center for Energy StudiesLouisiana State University

Center for Energy Studies

1

T k A P i t O tl k d I


Take Away Points: Outlooks and Issues

• Recession coupled with increases in production led to relatively large capacity overhangs, particularly in natural gas.

• As the economy has recovered, markets show a new period of crude oil and natural gas price decoupling based upon current and anticipated changes in market fundamentals.

• Crude oil is king over the next few years and energy policy needs to appreciate and be mindful of those changes.

GOM continues to be a large contributor to overall energy production While• GOM continues to be a large contributor to overall energy production. While there is a growing appreciation regarding the region’s production contributions in natural gas (shales), few appreciate the considerable crude oil contribution made by the GOM, particularly from the deepwater areas.

• Energy policy needs to be mindful of the role that new production techniques play in facilitating new energy supply opportunities in hydrocarbons. The Deepwater Horizon accident has already imposed significant impacts for deepwater GOM activities as well as conventional shallow water activitiesdeepwater GOM activities as well as conventional shallow-water activities. Potential state and/or EPA regulations on hydro fracturing could have equally important implications.

2© LSU Center for Energy Studies


Crude Oil TrendsCrude Oil Trends


C d Oil d N t l G P i

Center for Energy Studies Crude Oil Trends

Crude Oil and Natural Gas Prices

Prices say a lot about what has been going on in energy markets over the past decade.

$14

$16

$140

$160 Crude Oil (WTI)

Natural Gas (Henry Hub)Recession

$10

$12

$100

$120

$/B

bl)N

atura

First decoupling

$

$6

$8

$

$60

$80

Cru

de O

il ($ l G

as ($/Mcf)

$0

$2

$4

$0

$20

$40

)

Second decoupling

$0 $0 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

Source: Federal Reserve Bank 4© LSU Center for Energy Studies

U S C d Oil P d R d P d ti


U.S. Crude Oil Proved Reserves and Production

Reserves holding steady between 22 to 20 BBbls since 1995.

3.5

4.0

35

40ReservesProduction

n ba

rrel

s)

2 0

2.5

3.0

20

25

30 Production

serv

es (b

illio

n

1.0

1.5

2.0

10

15

20

n (billion barreR

es

0.0

0.5

0

5

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

els)

Source: Energy Information Administration, U.S. Department of Energy 5© LSU Center for Energy Studies

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

GOM C d Oil P d ti Sh f T t l U S C d Oil P d ti


GOM Crude Oil Production as a Share of Total U.S. Crude Oil Production

GOM is an important contributor to domestic crude oil production. The region accounts for 30 percent of domestic crude oil production and originally

d b

30%

35%

on

anticipated to contribute more in upcoming years.

20%

25%

30%

U.S

. Pro

duct

io

10%

15%

20%

ent o

f Tot

al U

Hurricane Katrina(Sept-2005)

0%

5%

10%

Per

ce (Sept 2005)

Hurricanes Gustav and Ike

(Sept-2008)0%Jan-1990 Jan-1994 Jan-1998 Jan-2002 Jan-2006 Jan-2010

Source: Energy Information Administration, U.S. Department of Energy 6© LSU Center for Energy Studies


GOM OCS D t C d Oil P d ti

Crude Oil Trends

GOM OCS Deepwater Crude Oil Production

The significant increase in deepwater crude oil production has been a major new source of domestic crude oil supply

500

600

Deepwater Oil

l)

has been a major new source of domestic crude oil supply.

400

500 Shallow-water Oil

ctio

n (M

MB

b

1995

200

300

Oil

Pro

duc

0

100

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Source: Bureau of Ocean Energy Management, Regulation and Enforcement, US Department of the Interior. 7© LSU Center for Energy Studies


U S C d Oil P d ti F t

Crude Oil Trends

U.S. Crude Oil Production Forecast

Deepwater production is forecast to increase by almost 20 percent between 2010 and 2030.

4.0

4.5

5.0

per d

ay) Projection

2.5

3.0

3.5

ion

(MM

Bbl

s

Anticipated deepwater production growth from 900 MBbls/d to 1.75 MMBbls/d

1.0

1.5

2.0

e O

il P

rodu

cti

0.0

0.5

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Cru

de

Onshore Lower 48 GOM - Deep Water GOM - Shallow Water

Offshore Pacific & Atlantic Alaska8© LSU Center for Energy StudiesSource: Energy Information Administration, U.S. Department of Energy. Annual Energy Outlook.


Sh ll t d illi i ti it

Crude Oil Trends

Shallow-water drilling rig activity

Total pre‐spill shallow‐water activity currently down by about 35 percent.Other Standby

A 20

50

60

70 y

Active - Other Active - DrillingApr-20:Accident

30

40

50 Reduced Activity

10

20

30

0 5-Apr-10 17-May-10 28-Jun-10 16-Aug-10 27-Sep-10 8-Nov-10 20-Dec-10 31-Jan-11 14-Mar-11

Note: “Active-Other” includes Completion; Recomplete; and Workover categories; “Standby” includes Assigned; Circulate; Under Tow; Waiting on Location; Orders or Weather; Mobilizing, Monitoring and Standby categories.“Other” includes Plug & Abandon; Run Casing; Rigging Up; Logging; Moving On and Other categories.Source: RigData. 9© LSU Center for Energy Studies


D t d illi i ti it

Deepwater Horizon Oil Spill

Deepwater drilling rig activity

Total pre‐spill deepwater activity currently down by about 65 percent.Other Standby

A 20

50

60 y

Active - Other Active - DrillingApr-20:Accident

30

40

Reduced Activity

10

20

0 5-Apr-10 17-May-10 28-Jun-10 16-Aug-10 27-Sep-10 8-Nov-10 20-Dec-10 31-Jan-11 14-Mar-11

Note: “Active-Other” includes Completion; Recomplete; and Workover categories; “Standby” includes Assigned; Circulate; Under Tow; Waiting on Location; Orders or Weather; Mobilizing, Monitoring and Standby categories.“Other” includes Plug & Abandon; Run Casing; Rigging Up; Logging; Moving On and Other categories.Source: RigData. 10© LSU Center for Energy Studies


Natural Gas TrendsNatural Gas Trends


U S N t l G P d ti d P d R J 2007 t P t

Center for Energy Studies Natural Gas Trends

U.S. Natural Gas Production and Proved Reserves, January 2007 to Present

On average, natural gas reserves have been increasing by 5 percent per year since 2000 (except 2004‐2005 tropical season, 2 percent).

25

30

250

300

p p p

15

20

150

200

(Tcf

)P

roduProved gas reserves

10

15

100

150

Res

erve

s ( uction (Tcf)

Proved gas reserves at 272.5 Tcf, their highest level.

0

5

0

50

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

ReservesProduction

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Source: Energy Information Administration, U.S. Department of Energy. 12© LSU Center for Energy Studies

N t l G P i

Center for Energy Studies Pricing Trends

Natural Gas Prices

Customers have also seen considerable benefits from reduced natural gas pricing volatility.

$16

$18

$20average for period

2000-2001 heating season through 2008: $6.25

(standard deviation: $2.40)

$12

$14

$165-year average

through 2000: $2.89(standard deviation: $1.46)

cf

since 2009: $4.17(standard deviation: $0.72)

$6

$8

$10

$/M

c

$0

$2

$4

13© LSU Center for Energy StudiesSource: Intercontinental Exchange.

Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

F d L ki Ch ll


Forward-Looking Challenges

• 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 pcontribution 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 C a e ge o e t e e t t ee to e yea s be u de sta d g t e e s a d ose s tthe various plays.

• Can be as much variation in production within some of these plays and between them.14© LSU Center for Energy Studies

E ti t d Si f U S N t l G R

Center for Energy Studies Energy Opportunities

Estimated Size of U.S. Natural Gas Resources

Unconventional natural gas resources account for as much as conventional and is anticipated to exceed conventional resources in the future.1

1,600

1,800

2,000Shale Gas

Coalbed Methane

Traditional Gas Resources

p

1 000

1,200

1,400

c Fe

et

400

600

800

1,000

Trill

ion

Cub

ic

0

200

400

1966 1990 2006 20081966 1990 2006 2008

Source: Natural Gas Supply Association 15© LSU Center for Energy Studies

1In 2007, unconventional natural gas production represented 48 percent of Lower‐48 natural gas production. By 2020, it is forecast to be 69 percent of the Lower‐48 total. Vidas, H. and Hugman, V. 2008. Availability, economics and production potential of North American unconventional natural gas supplies. Prepared for the INGAA Foundation by ICF International. November 2008.

L i i Ri C t d N t l G P d ti

Center for Energy Studies Energy Opportunities

Louisiana Rig Count and Natural Gas Production

Louisiana natural gas production was relatively constant until late 2008. Production became explosive given new production from Haynesville shale parishes

200

250

200

250

became explosive given new production from Haynesville shale parishes.

150

200

150

200

r of R

igs

Producti

50

100

50

100

Rig CountHaynesville Era

Num

ber on -Bcf

00

n-05

r-05 l-0

5t-0

5n-

06r-

06 l-06

t-06

n-07

r-07 l-0

7t-0

7n-

08r-

08 l-08

t-08

n-09

r-09 l-0

9t-0

9n-

10r-

10 l-10

t-10

n-11

Rig CountProduction

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

16© LSU Center for Energy StudiesSource: Baker Hughes; and Energy Information Administration, U.S. Department of Energy.

Ri C t d C d Oil P i (E h St t M d R l ti t 1999 A ti it )


Rig Count and Crude Oil Price, (Each State Measured Relative to 1999 Activity)

$141 000

North Louisiana has been the shining opportunity in the industry during the recent price downturn/correction. However, that competitive advantage is starting to deteriorate.

$10

$12

$14

700

800

900

1,000

999

= 10

0) West Tex

$6

$8

$10

400

500

600

700

t (Ja

nuar

y 19

xas Intermedi

$2

$4

100

200

300

400

Rig

Cou

nt ate ($/BB

l)

$00

100

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10

N. Louisiana S. Louisiana - Inland Water S. Louisiana - LandN. Louisiana S. Louisiana Inland Water S. Louisiana Land

Texas New Mexico Oklahoma

Wyoming Natural Gas PriceSource: Baker Hughes; and Federal Reserve Bank of St. Louis. 17© LSU Center for Energy Studies


Ri C t N th L i i (H ill ) d T Di t i t 1 (E l F d)

LA Drilling/Production Challenges

Rig Count, North Louisiana (Haynesville) and Texas District 1 (Eagle Ford)

Indexing the rig change from January 2009 highlights the recent, fast and dramatic shift in basin preference. Has less to do with incentives than markets.

$70

$80

$90

600

700

800

=100

)

Haynesville is losing its competitive advantage due to the

liquids preference associated with other shales.

$50

$60

$70

400

500

600

nuar

y 20

09=

$/BO

$20

$30

$40

200

300

400

Rig

Cou

nt (J

aO

E

$0

$10

$20

0

100

J 09 A 09 J l 09 O t 09 J 10 A 10 J l 10 O t 10 J 11

R


Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

North Louisiana Texas - District 1 Spot Price Differential

Source: Baker Hughes. Rig counts are indexed to the level of active drilling rigs in each reported area as of January 2009.


Considerable Underutilized LNG Regasification Capacity along GOMConsiderable Underutilized LNG Regasification Capacity along GOM

A

Existing

JFRegasification O

T

B

ExistingExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 Bcfd

Under ConstructionApproved

Liquefaction

Q

SB

E. Energy Bridge, GOM: 0.5 BcfdF. Northeast Gateway, Offshore MA: 0.8 BcfdG. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)H. Sabine, LA: 4.0 BcfdI. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion)J N t Off h MA 0 4 B fd

Existing

Liquefaction

Under Construction

Approved

C

J. Neptune, Offshore MA: 0.4 BcfdK. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion)Under ConstructionL. Pascagoula, MS: 1.0 BcfdApprovedM Corpus Christi TX: 1 0 Bcfd

Approved

C

D

M. Corpus Christi, TX: 1.0 BcfdN. Corpus Christi, TX: 2.6 BcfdO. Fall River, MA: 0.8 BcfdP. Port Arthur, TX: 3.0 BcfdQ. Logan, NJ: 1.2 BcfdR. Port Lavaca, TX: 1.0 Bcfd

HIKG

L

MN

P

ES. Baltimore, MD: 1.5 BcfdT. LI Sound, NY: 1.0 Bcfd

M R

19


Moti ations for Mo ing Shale Gas to Global Cons ming AreasMotivations for Moving Shale Gas to Global Consuming Areas

Japan LNG U.K. NBP U.S. Henry Hub FSU @ German Border

14

16

18

p y @

• Excess U.S. shale production.

10

12

14

mmbtu

• Growing global energy demand.

4

6

8

$/m

• Climate change issues.

• Global natural

0

2

Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11

Global natural gas price differentials.

Source: Marathon20

B i C titi

Center for Energy Studies Natural Gas Uses

ShaleBasin Competition ShaleResources

(Tcf)

Asia Pacific 6,155 North America 3,842 Middl E t 2 548

Shale production is not a domestic, “flash in the pan” supply opportunity. The opportunity spans the globe

regardless of what we do in North America Middle East 2,548 South America 2,117 Asia 627 Europe 549 Africa 274

Worldwide 16 112

regardless of what we do in North America.

Worldwide 16,112

21© LSU Center for Energy StudiesSource: Energy Information Administration, U.S. Department of Energy

N t l G V hi l


Natural Gas Vehicles

• A natural gas vehicle (“NGV”) uses compressed natural gas (“CNG”) or, less commonly, liquefied natural gas (“LNG”) as a clean alternative to other automobile fuels.

• CNG releases over 1.6 times as much energy as that released from petroleum based fuels (or for the same amount of energy, CNG produces nearly 40 percent less CO2).

• In 2008, NGVs used 215 million gasoline-equivalent gallons. To compare, total gasoline usage in 2008 was 55 million gallons per day, or a total of 20 billion gallons.

• Currently in the U.S., about 12 to 15 percent of public transit buses in run on natural gas (either CNG or LNG).

• States with the highest consumption of natural gas for transportation are California, New York, Texas, Georgia,Massachusetts and D.C.


• One major limitation is that CNG vehicles require a greater amount of space for fuel storage.

N t l G C ti b S t


Natural Gas Consumption by Sector

Currently, NGVs account for less than 0.18 percent of U.S. natural gas consumption, but the rate of growth in consumption (158 percent) over the past

30

35

8

9

Tcf)

decade has surpassed all other end‐uses.

20

25

30

5

6

7

nsum

ptio

n (T N

GV

Cons

10

15

2

3

4

5

tura

l Gas

Co um

ption (Bcf

-

5

-

1

2

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nat

f)


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Residential Commercial Industrial Electric Power NGV

Source: Energy Information Administration, U.S. Department of Energy

P t ti l N t l G C ti NGV


Potential Natural Gas Consumption – NGV

NGV consumption of natural gas is estimated to increase at an average annual rate of 7 percent through 2035 At best this usage will be considerably less than 1 Tcf

0.70%0.18

f)

of 7 percent through 2035. At best, this usage will be considerably less than 1 Tcfand slightly over one‐half of one percent of total natural gas market.

N

0 40%

0.50%

0.60%

0 10

0.12

0.14

0.16

sum

ptio

n (T

cfN

GV

ConsumNGV use of natural

0.20%

0.30%

0.40%

0 04

0.06

0.08

0.10

ral G

as C

ons

mption (%

of T

gas will stay below one percent of total U.S. natural gas consumption.

0.00%

0.10%

0.00

0.02

0.04

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Nat

urTotal)


2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Consumption Percent of Total

Source: Energy Information Administration, U.S. Department of Energy


ConclusionsConclusions


C l i

Center for Energy Studies Conclusions

Conclusions

• Understatement to note shale is a game changer – the large unknowns are to what extent, and how far, these opportunities can spread – particularly abroad. 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). Unfortunately, the Deepwater Horizon accident has already imposed a significantly negative impact on deepwater GOM activities and is likely to prevent drilling in offshore frontier areas in the foreseeable future.

• Demand (recovery) big unknown at this point. New technologies likely to have significant and unknown impacts on markets. Environmental regulation likely to have a big impact.

• Policy still has an impact, several initiatives that could unwind resource gains. Opportunities for big gains, big contractions.


p p• Renewables and alternative fuel vehicles all put pressure on gas resources

if developed to anticipated levels.

Q ti C t d Di i

Center for Energy Studies Conclusions

Questions, Comments and Discussion

[email protected]

l dwww.enrg.lsu.edu

27

Energy Market Trends and Policies: Implications for Louisiana · Crude Oil Trends U.S. Crude Oil...

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