Plenty of Resources; Where Is The Demand? › Publication › vwLUAssets › EY-Americas...©CEE-UT,...
Transcript of Plenty of Resources; Where Is The Demand? › Publication › vwLUAssets › EY-Americas...©CEE-UT,...
©CEE-UT, 1
Gürcan Gülen, Ph.D.
Plenty of Resources; Where Is The Demand?
Americas Mining & Metals Forum 2013 September 12, 2013
©CEE-UT, 2
Gürcan Gülen, Ph.D.
HOW IS THE ECONOMY DOING?
©CEE-UT, 3
Gürcan Gülen, Ph.D.
It Was the Best of Times
• Unconventional resource boom
Cheap energy
Economic growth & jobs
Manufacturing renaissance
• Energy exports increase, imports decrease
improving current account balance
©CEE-UT, 4
Gürcan Gülen, Ph.D.
It Was the Worst of Times
• Lack / shortage of human and supply chain resources
• Infrastructure bottlenecks
• Environmental & community concerns
• “Too” cheap energy – producers cannot make money
• Where is the demand?
©CEE-UT, 5
Gürcan Gülen, Ph.D.
The Tale of Two (or more) Economies
• In the US, not everywhere is TX or ND
– Growth has been anemic and uneven
• Over time and across the states
• Labor force participation at historic lows
• ~2 million fewer jobs than early 2008
– Public discontent with and distrust of the political system
– Can the US reach a path of steady growth at 3%?
©CEE-UT, 6
Gürcan Gülen, Ph.D.
How about our Partners in Trade?
• Europe’s crisis is long-term & can be contagious
• China is faltering (housing bubble?)
• Widespread public discontent with and distrust of the political systems
– Poverty remains a key driver
• Can they recover without structural (political and economic) reforms?
• Can the US recover at the desired rate if they do not?
©CEE-UT, 7
Gürcan Gülen, Ph.D.
Infrastructure Upgrades are Necessary
• ASCE 2013 Report Card for U.S. Infrastructure:
– America’s infrastructure grade is D+
– $3.6 trillion of investment needed by 2020
• McKinsey Global Institute:
– The US must increase its annual infrastructure investment by $180 billion
– By 2020, up to 1.8 million jobs and up to $320 billion of additional annual GDP
• Long-term impact larger: $600 billion annually by 2030 http://www.mckinsey.com/insights/americas/us_game_changers?cid=game_changers-eml-alt-mgi-mck-oth-1307
http://www.infrastructurereportcard.org/
©CEE-UT, 8
Gürcan Gülen, Ph.D.
Education Quality has to Improve; Focus has to Change
• Need more STEM graduates
• Need more technicians of all kinds with special skills & training
– A college degree may not be necessary for a good job
• K-12 has to improve since it is the foundation
• McKinsey Global Institute:
– By 2020, up to $265 billion of additional annual GDP
• Long-term impact larger: $1,700 billion annually by 2030
©CEE-UT, 9
Gürcan Gülen, Ph.D.
MUCH TO CHEER ABOUT IN THE ENERGY SECTOR BUT…
©CEE-UT, 10
Gürcan Gülen, Ph.D.
Different Views of the World
0.0
0.5
1.0
1.5
2.0
2.5
2010 2015 2020 2025 2030 2035 2040
Consumption of Natural Gas (Index, 2010 = 1)
AEO Real GDP IHS Real GDP AEO Industrial
IHS Industrial AEO Electricity IHS Electricity
Based on data from EIA AEO 2013 & IHS Global Insight
Avg y-y growth of 2.5%
©CEE-UT, 11
Gürcan Gülen, Ph.D.
Global LNG Flows – Expectations Few Years Back
2000
EXPANDING FLOW TRENDS
2030
Source: NPC 2007, consolidated forecasts
New terminals built in the US since 2000: Sabine Pass (LA), Freeport (TX), Cameron (LA),
Golden Pass (TX)
©CEE-UT, 12
Gürcan Gülen, Ph.D.
As late as 2008, More Import Terminals Were Proposed
©CEE-UT, 13
Gürcan Gülen, Ph.D.
Source: U.S. FERC and industry reports as compiled by CEE-UT.
Today, Much Idle Capacity in NA
©CEE-UT, 14
Gürcan Gülen, Ph.D.
Thanks to Shale Gas Production
Source: EIA Annual Energy Outlook 2013
©CEE-UT, 15
Gürcan Gülen, Ph.D.
Technically Recoverable Resource Estimates
Source: Based on a widely used chart produced by Gas Technology Institute (GTI).
Grown significantly over time.
©CEE-UT, 16
Gürcan Gülen, Ph.D.
Shale Gas Mostly Responsible for Increased Estimates but…
Source: McGlade C, Speirs J, Sorrell S (2013). Unconventional gas – A review of regional and global resource estimates. Energy.
• Shale gas resource estimates cover a wide range • Some are for TRR; others are for ERR • Assumptions & approach not always transparent
©CEE-UT, 17
Gürcan Gülen, Ph.D.
Sources: IHS, DrillingInfo; USGS, TexasNRIS, Arkansas GS; Carrizo , ExxonMobil, Devon,
SWN, XTO, Chesapeake, MJ Systems, Cimarex.
Econometric Analysis:
Validate Decline Curve;
Test Geologic and Other
parameters;
Describe “typical well”
Well Economics:
Attrition rate,
Breakeven prices,
Representative well
profiles (by tier)
Production
Outlook:
Pace of drilling and
ultimate recovery
w.r.t.
Prices, Technology,
and Time
Log and
seismic data
Production
history data
and
directional
surveys
Geologic Analysis:
Structure, porosity,
net pay-zone maps
Decline Analysis:
Production rate
estimate, EURs
Spacing Study:
Well Recovery,
Drainage Areas,
Infill drilling
locations (by
tier)
=> Technically
Recoverable
Resources
BEG’s Integrated Approach: Barnett, Fayetteville, Haynesville, Marcellus
Funded by Alfred P. Sloan Foundation
©CEE-UT, 18
Gürcan Gülen, Ph.D.
$-
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0
0.5
1
1.5
2
2.5
1995 2000 2005 2010 2015 2020 2025 2030
Hen
ry H
ub
$2010
Tc
f p
er
Ye
ar
Tcf per Year (Base Case Sensitivity to Price)
Tcf @ $10 HH
Tcf @ $6 HH
Tcf @ $4 HH
Tcf @ $3 HH
Henry Hub$2010
Barnett Shale Resources Assumption Base case
- Henry Hub price for natural gas $4.00/MMBtu
- Partly drained acreage developable ceiling 80%
- Undrilled acreage developable ceiling 15%
- WTI price $80/bbl
- GPL/WTI price ratio 45%
- Annual technology improvement 0.39%
- Annual well-cost improvement 0.24%
- Economic limit for shutting-in a well (dry) 0.05 MMcf/d
- Economic limit for shutting-in a well (high Btu) 0.029 MMcf/d
- Minimum completions in a year (dry) 20 (Tiers 1–4) 2 (Tiers 5–10)
- Minimum completions in a year (high Btu) 25 (Tiers 2–5) 10 (Tiers 1, 6–10)
Base Case @ $4 HH 45 Tcf Cumulative Production
©CEE-UT, 19
Gürcan Gülen, Ph.D.
Fayetteville Shale Resources
$-
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2005 2010 2015 2020 2025 2030
He
nry
Hu
b $
20
10
Tc
f p
er
ye
ar
Tcf per Year (Base Case Sensitivity to Price) Tcf @ $10 HH
Tcf @ $6 HH
Tcf @ $4 HH
Tcf @ $3 HH
HH $2010
Base Case @ $4 HH
18 Tcf Cumulative Production
©CEE-UT, 20
Gürcan Gülen, Ph.D.
At What Price Can the Producers Deliver?
Monitoring U.S./Global Oil and Gas: Upstream Attainment, Producer Challenges http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20-%20Producers.pdf
©CEE-UT, 21
Gürcan Gülen, Ph.D.
Price Expectations
Foss et al, “Sharp Cycles Ahead” Oil & Gas Investor, September 2013
©CEE-UT, 22
Gürcan Gülen, Ph.D.
Where is Demand? At What Price?
• Power generation
• Industrial demand
• Exports (LNG and pipeline)
• Transportation (LNG, CNG)
©CEE-UT, 23
Gürcan Gülen, Ph.D.
Gas Use in Generation Increased
15% 2% 19% 3% 52% 1998
31% 5% 19% 0% 37% 2012
Net generation by fuel, 1998-2012
©CEE-UT, 24
Gürcan Gülen, Ph.D.
More Risk for Coal & Nuclear
• Pending EPA regulations on SO2/NOX, mercury, water
– CSAPR stayed by federal court; can go to Supreme Court
• State-level regulations, including GHG
– New Obama climate change plan
• Up to 80 GW of coal capacity may retire by 2020; announced more than 30 GW; 8 GW retired in 2012
• 4 recent nuclear retirement announcements; more on the way?
©CEE-UT, 25
Gürcan Gülen, Ph.D.
A Scenario on Gas Use in Power
0
1
2
3
4
5
6
7
8
9
2030
Qu
ads
Nuclear shutdowns
Change in Gas Price Forecast
Coal risks
U.S. Gas-Power Linkages: Building Future Views for details: http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20Gas-
Power%20Linkages.pdf
1 Quad 1 tcf ~2.7
bcfd
©CEE-UT, 26
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
– Better capacity factors for wind
– Low 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)
©CEE-UT, 27
Gürcan Gülen, Ph.D.
Increased Industrial Competitiveness
HH WTI Ratio 2005 $8.69 $56.64 6.5 2012 $2.75 $94.00 34.2
American Chemistry Council, Shale Gas Study (May 2013)
What happens if the WTI-HH ratio
declines?
©CEE-UT, 28
Gürcan Gülen, Ph.D.
Risks for Industrial Demand
• Need to export petrochemical products
– Domestic market seems saturated
• Tremendous petchem capacity additions globally
• Ethane-naphtha cost differential
• Frac spread (ethane-natural gas)
• Infrastructure bottlenecks
– Tens of billions of dollars worth of pipeline & processing projects are planned or already under development
©CEE-UT, 29
Gürcan Gülen, Ph.D.
Processing Capacity
http://www.eia.gov/todayinenergy/detail.cfm?id=8530
517 facilities; 66 bcfd capacity by EIA v 72 bcfd
by Bentek/Platts
12-15 bcfd of new capacity by 2015 – 47 new
plants + 41 expansions
(Bentek/Platts)
Mt. Belvieu
©CEE-UT, 30
Gürcan Gülen, Ph.D.
NGL Pipelines & Fractionation
• Pipeline capacity expected to increase to 3.9 mbd by end of 2014 from 2.4 mbd
– ~1.1 mbd of this increase targeting Mont Belvieu
• Fractionation capacity expected to increase by ~1.4 mbd nationwide
– ~0.8 mbd of this increase targeting Mont Belvieu
• Short-term risk of overbuilding pipe capacity relative to capacity expansion in Mont Belvieu
©CEE-UT, 31
Gürcan Gülen, Ph.D.
Industrial Gas Demand – A Growth Scenario based on Projects in Progress
CEE analysis
17.50
18.00
18.50
19.00
19.50
20.00
20.50
21.00
21.50
22.00
22.50
2012 2013 2014 2015 2016 2017 2018 2019 2020
bcf
d
Chlor-Alkali
Methanol/Ammonia/Urea
Polypropylene
Polyethylene
Ethylene
Base Demand
©CEE-UT, 32
Gürcan Gülen, Ph.D.
Increasing Gas Exports
• Three terminals in the Gulf Coast received permits to export LNG to non-FTA countries
– Construction started on the first two 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)
• Pipeline exports to Mexico increased to 1.4 bcfd (0.5 tcf per year); expected to reach 6.6 bcfd (2.4 tcf per year) by 2040 (EIA AEO).
©CEE-UT, 33
Gürcan Gülen, Ph.D.
©CEE-UT, 34
Gürcan Gülen, Ph.D.
Is there Room for U.S. LNG Exports?
Source: Howard V. Rogers, Senior Research Fellow, The Oxford Institute for Energy Studies, and David Ledesma, South-Court, LNG 17, Houston, 2013.
Non-North American LNG Supply
2012 Consumption: 328 bcm
2012 Liquefaction capacity: 388 bcm
©CEE-UT, 35
Gürcan Gülen, Ph.D.
Global LNG Demand Risks
• Japan re-opening nuclear plants
• Increased pipeline trade
• Russia “flooding” the market
• Shale gas production picking up globally
• Increased & more effective use of renewables
©CEE-UT, 36
Gürcan Gülen, Ph.D.
Changing World LNG Trade – Exporters Mix
Indonesia36%
Malaysia15%
Australia11%
Brunei9%
United States (export)
2%
Abu Dhabi8%
Algeria19%
Libya2%
LNG Exporters 1995
Source: CEE calculations based on petroleum-economist.com and BP Statistical Review of World Energy
Small group dominated by Asian
suppliers (1995)
Much more diversified, emerging Middle
East suppliers led by Qatar
©CEE-UT, 37
Gürcan Gülen, Ph.D.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Low Cost High HH High CostEurope
High CostPacific
$/M
MB
tu
Regasification
Shipping
Liquefaction
Henry Hub
Is U.S. LNG Competitive?
$9/MMBtu Current European floor
CEE analysis
©CEE-UT, 38
Gürcan Gülen, Ph.D.
NG Use in Transportation Encouraged by Diesel-NG Price Differential
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
Jan
-19
97
Mar
-19
98
May
-19
99
Jul-
20
00
Sep
-20
01
No
v-2
00
2
Jan
-20
04
Mar
-20
05
May
-20
06
Jul-
20
07
Sep
-20
08
No
v-2
00
9
Jan
-20
11
Mar
-20
12
Diesel and Natural Gas Spot Prices (1997-2013)
Henry Hub Gulf CoastNatural Gas Spot Price($/DGE)
U.S. No 2 Diesel RetailPrices (Dollars per Gallon)
LNG $/DGE Estimate
LNG trucks are ~30% more expensive than
diesel trucks with emission systems
CEE analysis
©CEE-UT, 39
Gürcan Gülen, Ph.D.
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.
©CEE-UT, 40
Gürcan Gülen, Ph.D.
LNG Filling Stations
http://www.afdc.energy.gov/locator/stations/
Existing Public
Existing & Planned (Public & Private)
©CEE-UT, 41
Gürcan Gülen, Ph.D.
Expectations
• 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)
©CEE-UT, 42
Gürcan Gülen, Ph.D.
Additional Markets
• Marine use is the second largest potential market after trucking – emissions restrictions in ports could encourage faster transition
• Railways have been evaluating LNG and may be next in line to switch
• Drilling operations
• Substitute for propane in remote locations
• Boilers, power generation
©CEE-UT, 43
Gürcan Gülen, Ph.D.
LNG Exports & Use to Remain Low
-3
0
3
6
9
12
15
18
21
24
27
302
01
0
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
Tcf
pe
r ye
ar
U.S. Natural Gas Disposition
Transportation
GTL
GTL Heat & Power
Pipeline Fuel
Lease & Plant Fuel
Electric Power
Industrial
Commercial
Residential
LNG Net Imports
Pipeline Net Imports
EIA Annual Energy Outlook (2013)
©CEE-UT, 44
Gürcan Gülen, Ph.D.
What to Remember • The U.S. economy is doing better than most partially
thanks to unconventional resource development
– Created jobs along a wide-ranging supply chain
– Use of advanced technology is probably fueling more R&D
– Supplied affordable energy
• But, domestic and external risk factors remain
– The US needs export markets to sustain production
– Environmental concerns can curtail development
• Energy efficiency and conservation may dampen the growth of electricity and fuel demand
©CEE-UT, 45
Gürcan Gülen, Ph.D.
We Welcome Participation & Feedback
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) [email protected]
www.beg.utexas.edu/energyecon