US Natural Gas Market Deep-Dive - ANIQ Marcos Gomez...Shale Gas drives lower natural gas prices in...

US Natural Gas Market Deep-Dive

21st October 2014 1

2

Gas-rich shale is the source rock for many natural gas resources. Horizontal drilling and hydraulic fracturing have made shale gas an economically viable alternative to conventional gas resources.

Conventional gas accumulations occur when gas migrates from gas-rich shale into an overlying sandstone formation. Associated gas accumulates in conjunction with oil.

Tight sand gas accumulations occur in a variety of geologic settings where gas migrates from a source rock into a sandstone formation

Coalbed methane does not migrate from shale, but is generated during the transformation of organic material to coal.

Sources of Natural Gas in the US

INTERNAL 3

Shale Gas/Oil is not new – Technology to

exploit is…. Source: New York Herald 1959

October 30,

2014 INTERNAL 4

Mitchell Energy 1980-90

1947 2009

Innovation, Innovation, Innovation

Mitchell began poking in shale in the early '80s, in a picked-over spot in east Texas called the Barnett Shale.

Shale is dense, tight rock that traps hydrocarbons inside.

"I've had a lot of engineers and geologists say, you're wasting your money, Mitchell," Mitchell says.

One worker suggested a budget frac, of mostly water instead of an expensive gel-based fluid. That raised

eyebrows.

Of course it did take 17 years to get there, not exactly your overnight wonder.

Source Marketplace – NPR: http://www.marketplace.org/topics/sustainability/oil-man-who-figured-out-fracking

http://en.wikipedia.org/wiki/File:Fracting_pump.jpg

Surface Casing

Surface Casing

Cement

Production Casing

Production Casing

Cement

Production Tubing

Marcellus Shale ~ 1.3 miles

below impermeable rock

Horizontal Drilling and Hydraulic Fracturing

~1.3 miles

Source: Chesapeake

All chemicals are disclosed on FracFocus.org on a well-by-well basis

Other: 0.5%

Acid

Friction Reducer

Surfactant

Gelling Agent

Scale Inhibitor

pH Adjusting Agent

Breaker

Crosslinker

Iron Control

Corrosion Inhibitor

Antibacterial Agent

Clay Stabilizer

Water and Sand: 99.5%

Composition of the Fracture Stimulation Mix

visit www.hydraulicfracturing.com

The chemicals used in fracking are standard chemicals employed in a number of household

products

October 30,

2014 INTERNAL 7

Current Lower 48 States (US) unconventional

gas Hot Spots Technically Recoverable

Resources of Key Shales

Top nine shale plays contain 65% of total US shale resources

US Shale Gas Resources US Natural Gas Technically Recoverable Resources ca. 2500 tcf

Resource Estimates: EIA Report ‚‘Review of Emerging U.S. Shale gas & Oil Plays‘ performed by INTEK Inc.,

Released on July 2011, Adjusted based new USGC findings

1

2

3

5

6

7

8

9

1

2

3

4

5

8

7

6

9

4

WV

PA

OK

LA

OH

TX

NM

AR

WY

MT

CO

MI

KY

ND

KS

NY

VA

UT

IL

Antrim

Eagle Ford

Mancos

Woodford

Fayetteville

Barnett-

Woodford

Barnett

Haynesville

Marcellus

tcf

20

20

21

22

32

32

43

74

140

Estimates: Total Shale Gas Reserves ca. 850 tcf; Total Technically Recoverable Shale Gas Resources ca. 550 tcf

Source of the Map: US Department of Energy

Natural Gas Supply/Demand Balances Source: EIA Outlook 2013

8 CONFIDENTIAL 6/12/2012

There is enough supply to cover increased demand – supply elasticity

Today > 40% of natural gas supply coming from shale

tcf tcf

Oil/Gas

Decoupled

As a result of the supply surplus, natural gas prices in USA have decoupled from oil prices

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012E

$/mmBTU

Brent

NG

Henry Hub

NG

NWE

9

Oil/Gas

Coupled

Shale Gas

in USA

History of Oil & Natural Gas Prices Shale Gas drives lower natural gas prices in USA

Total U.S. NGL Supplies from Natural Gas

Will Continue to Rise Rapidly

Total NGL supply from natural gas are

expected to increase by almost 60% between

2012 and 2030.

The largest impact will be on ethane supply

which will rise by over 850 M BPD (90%).

Propane production will rise by over 345 M

BPD (50%).

Total butane production will increase by

around 170 M BPD (45%).

Natural gasoline production will also increase

by around 140 M BPD (45%).

October 30,

2014 INTERNAL 10 Source: IHS-Pervin&Gertz

Increase of supply of NGLs associated with shale gas will create opportunities for the

chemical industry

October 30,

2014 INTERNAL 11

Petrochemical Value Chains

Steam Cracker

Ethylene (C2)

Propylene (C3)

C4 mixture

Refinery

Benzene

Toluene

Xylene

Natu

ral G

as

C

rud

e O

il

C1 Reformer

Syngas

Methanol

Ammonia

Acteylene

Acrylic Acid

Oxo Products

Acrylonitrile

Ethylene Oxide,

Ethanolamines

Vinyl Acetate

Formaldehyde

Acetic Acid

MMA

Butadiene

Raff 1&2, Isobutylene

BDO, THF &

PTHF

Aromatics

Nitric Acid

Caprolactam

Acrylonitrile

Sat Gas Plant

NGL Extraction

Naphtha

Ethane

Propane

Butane

Reformer

C2,3,4 & 6 Value Chains

Cracker Feeds

Value Chain

C1 Value Chain

Highly Favored

Highly unfavored

New Challenges

C1 Value Chain

12

North America Industry Projects Overview

Methanol Overview

Company Location Capacity (ktons) Start-up date

G2X Energy Pampa, TX 65 2014

Methanex (1st) Geismar, LA 1,000 2015

Celanese / Mitsui Clear Lake, TX 1,300 2015

Methanex (2nd) Geismar, LA 1,000 2016

Valero St. Charles, LA 1,600 2016

LCCE* Energy Lake Charles, LA 1,000 2016

S. Louisana MeOH St. James, LA 1,800 2016-17

Koch TX 1,000 2017

Methanex Medicine Hat, Alberta 1,300 2018

OCI Beaumont, TX 1,750 2016

Northwest Innovation Works Oregon & Washington 1,600 (x2) 2018

* LCCE: Lake Charles Clean Energy – project of Leucadia Energy INTERNAL

(cont. next page)


Methanol Overview (cont.)


Yuhuang Chemical St. James, LA 1,700 2018

Zeogas tbd USA 1,650 tbd

Total ~15,000

INTERNAL

Very dynamic situation with new announcements nearly on a weekly basis

Chinese producers interested in MeOH to export to China for MTO processes

Will USA become an exporter of MeOH in the future?


Ammonia Overview


OCI Iowa Fertilizer Co Wever, IA 750 2015

Dyno Nobel Waggaman, LA 725 2016

CF Industries Donaldson, LA 1,100 2016

CF Industries Port Neal, IA 725 2016

Ohio Valley Resources Rockport, IN 800 2017

Koch / Invista Victoria, TX 400 2017

Dakota Gas Co. ND 250 2017

BASF / Yara Freeport, TX 800 2018

Agrium Borger, TX 120 2016

CHS Inc Spiritwood, ND 725 2017

Eurochem Iberville, LA 800 2018

Northern Plains Nitrogen Grand Forks, ND 660 2016

Yara Belle Plains Balleplaine, Canada 750 2016

(cont. next page) INTERNAL


Ammonia Overview (cont.)


Iffco Canada Quebec, Canada 725 2016

Agrium Redwater, Canada 120 2016

LSB Industries El Dorado, AR 450 2016

JR Simplot Rock Springs, WY 200 2016

Summit Power Group Odessa, TX 400 2017

North Dakota Corn Growers ND 660 2017

Farmers of NA Fertilizer Limited Part. Belle Plaine, Canada 875 2017

SCS Energy Bakersfield, CA 460 2018

Magnolia Nitrogen Idaho American Falls, ID tbd tbd

Total ~12,000

INTERNAL

Increased ammonia production will decrease dependence on imports to NA.

C2 Value Chain

17


Ethylene Overview


LyondellBasell Channelview, TX 230 2014

Williams Geismar, LA 300 2014

Westlake Lake Charles, LA 110 2015

Braskem / Idesa (JV) Veracruz, Mexico 1,000 2015-16

LyondellBasell Corpus Christi, TX 800 2015-16

ExxonMobil Baytown, TX 750-1,500* 2016-17

Formosa Point Comfort, TX 800 2016-17

Chevron Phillips Chem. Cedar Bayou, TX 1,500* 2017-18

Dow Chemical Freeport, TX 1,500* 2018

Sasol Lake Charles, LA 1,400* 2017

OxyChem / Mexichem Ingleside, TX 500 2017

Shell Monaca, PA 1,500* 2019

Aither / Bayer Montgomery, WV tbd 2017

Indorama / partner Not disclosed 1,300* 2018

INEOS Lake Charles, LA 1,360* 2018

(cont. next page)

INTERNAL


Ethylene Overview (cont.)


Odebrecht/Braskem Washington, WV 1,500* 2018

Axiall / Lotte Chemical LA (tbd) tbd 2018

Formosa LA (tbd) 1,200 tbd

Total ~15,600

INTERNAL

Steam Cracker Yields

0%

20%

40%

60%

80%

100%

Ethan

e

Propa

ne

n-But

ane

Natu

ral G

asolin

e

Heav

y Nap

tha

H2 & Fuel Gas EthylenePropylene ButadieneBenzene TolueneOther Heavy Components

As feeds go lighter, C3 and C4 molecules

get squeezed out of the yield.

Abundant ethylene expected in USA

Propylene and Butadiene production from

crackers to decrease significantly

C3 Value Chain

20

30. September

2011 GLC CP 21

Alternative Routes to Propylene:

Technical Feasible Routes and Raw Materials

CH2

CH

CH3

n

Hydrocarbons

n = 2 to 18

Steam

Cracker

MTP OHCH

3

Methanol

MeOH

NG, HVR, Coal, Renewables

(Hydro)carbons CH

3

C

H2

CH3

Propane

Dehydro-

genation

Metha-

thesis Ethylene

CH2

CH2

Ethylene

CH2

CH2 Dimeri-

sation Butylene

CH2

CH

CH

2

CH3


Propylene Overview

Company Location Capacity (ktons) Start-up date Technology

Dow Freeport, TX 750 2015 PDH

Formosa Point Comfort, TX 600 2016-17 PDH

Williams Redwater, Alberta, Canada

500 2016-17 PDH

Ascend (C3 Petrochemicals)

Chocolate Bayou, TX 1,000 2017 PDH

Enterprise Mt. Belvieu, TX 750 2018 PDH

LyondellBasell Channelview, TX 200 2014 Metathesis, expansion

PetroLogistics Houston, TX 600 2016 PDH

Rextac Odessa, TX 300 2017 PDH

Dow Freeport, TX 500 2018 PDH

BASF US Gulf Coast (tbd) 400 tbd Methane to Propylene

Total ~5,500

INTERNAL

On Purpose Production of propylene will fill the gap left by ethane-based crackers

It would allow for investment in derivatives back integrated in propane/methane

October 30,

2014 INTERNAL 23

Petrochemical Value Chains

Steam Cracker

Ethylene (C2)

Propylene (C3)

C4 mixture

Refinery

Benzene

Toluene

Xylene

Natu

ral G

as

C

rud

e O

il

C1 Reformer

Syngas

Methanol

Ammonia

Acteylene

Acrylic Acid

Oxo Products

Acrylonitrile

Ethylene Oxide,

Ethanolamines

Vinyl Acetate

Formaldehyde

Acetic Acid

MMA

Butadiene

Raff 1&2, Isobutylene

BDO, THF &

PTHF

Aromatics

Nitric Acid

Caprolactam

Acrylonitrile

Sat Gas Plant

NGL Extraction

Naphtha

Ethane

Propane

Butane

Reformer

C2,3,4 & 6 Value Chains

Cracker Feeds

Value Chain

C1 Value Chain

Highly Favored

Highly unfavored

New Challenges

According to the ACC a 25 percent increase in ethane supply generates:

•17,000 new jobs in the U.S. chemical industry

•$32 billion increase in U.S. chemical production

•$16.2 billion in new capital investment by the chemical industry

•395,000 new jobs outside the chemical industry, including:

• 165,000 jobs in supplier industries, as a result of increase in U.S.

chemical production

• 230,000 jobs from new capital investment by the chemical industry

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Shale Gas is expected to create a lot of investment for the chemical industry in USA

American Chemistry Council (ACC) Report Impact of Shale Gas on Chemical Industry in USA

Impact of Shale Gas in US Economy and

Manufacturing Industry

25

Shale Gas is having a very positive impact on the US economy creating jobs and large

contributions to local, State and Federal taxes .

Source: IHS-Global Insights

Jobs: 1.6 million

GDP Contribution: $231 billion

Tax Contribution: $57 billion

Jobs: 600,000 jobs

GDP contribution: $76 billion

Tax Contribution: $18.6 billion

2010 2035 (estimate)

All energy intensive industries, e.g. iron, steel and aluminum, benefit from the low energy

costs.

Nucor is building a $750m factory to convert gas and iron ore pellets into iron in Louisiana

for steel mills

U.S. Steel added 200 jobs at its Lorain Tubular (OH) Operations to provide seamless steel

pipe for oil and gas producers

Michelin to expand its Charleston (SC) plant. Invest $750 million to make massive radial

earthmover tires CAGR (2009-11): 20%

600

6,400

6,500

11,200

12,800

13,700

13,700

19,300

21,900

36,100

Poland

Brazil

Algeria

Australia

Europe w/o Poland

South Africa

USA

Mexico

Argentina

China

Source: IEA Estimates & Anlaysis , World Energy Outlook 2011 – US Energy

Information Administration (EIA) sponsored study on global shale resources

Recoverable Shale Resources (bcm)

Previously: 5,300

STRICTLY CONFIDENTIAL 26 GRD/BE

Global Shale

Gas Ressources

No assessment available

Shale Gas prospects

Previously: 24,420

Global Shale Gas Resources There is plenty of shale gas in other regions, especially China

and Argentina

Summary & Conclusions

Ample supply of natural gas in NA at relatively low production costs

Resources are expected to be large enough to cover future demand

increases

Shale gas is providing a great impulse to North American economy in

general and to the petrochemical industry in particular

Wave of investment in petrochemicals in NA:

C1, C2 and NG/NGL-based C3 value chains to be favored in NA

However, challenges in escalated labor costs and project execution

If NA should become a exporter of basic petrochemicals and

derivatives, logistic bottlenecks should be addressed

Are we seeing a tight oil revolution in NA?

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Fracturing Fluid Additives Main compounds and common uses

To drill and hydraulically fracture a typical Marcellus Shale well requires 4 million gallons of

water; this volume represents a very small percentage of the total water resources used in the

Marcellus geographical region

The natural gas industry is expected to account for less than one tenth of one percent (0.1%)

of total water use in the Marcellus Shale area

How Much is Four Million Gallons?

The four million gallons of water needed to drill and fracture a Marcellus deep shale gas well is equivalent to

the amount of water consumed by:

New York City in five minutes

A 1,000 megawatt coal-fired power plant in 10 hours

A golf course in nine days

Six acres of corn in a season

While these represent continuing consumption,

the water required for a shale well is a one-time use

Water Usage Comparisons

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Hydraulic Fracturing is being regulated at the State level in USA. Some States have developed recently

new regulatory framework. Federal regulations might be implemented in the future but not to a degree

that it would be expected to have a negative impact in productions

Water treatment in the past: and today:

Recycling/reusing of produced water

• Produced water is collected and stored in

tanks onsite

• Blended with fresh water during the next

fracturing job

Benefits

• Reduces or eliminates need for water to be sent off-

site for disposal

• Reduces impact on local supplies

• Reduces truck traffic

Environmental regulations Treatment of Flow-Back Water

32 Source: IHS Global Insights

Infrastructure Capital Investment

approx. 330 US$ billion until 2035

US$ Billion

05

101520253035404550556065707580

2010

2011

-201

5

2016

-202

0

2021

-202

5

2026

-203

0

2031

-203

5

Gathering and Processing Interstate Pipelins LNG export

Main investment for gathering and

processing approx. 235 US$ billion,

followed by pipelines approx. 80 US$ billion

Natural Gas market in US is a demand

constrained market with ample supply

resources

The challenge will be whether the pace of

investment permits an acceptable return

under these conditions

Natural gas production will grow faster than

infrastructure, therefore leading to regional

price differences and some regional periodic

production constraints

US Estimated Capital Expenditures in

Natural Gas Infrastructure

Global flaring level in 2011: 140 bcm

Top 10 countries flare 72% of the global flaring in

total (101 bcm)

USA flared 60% more than in 2010 (+2.5 bcm)

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bcm/a

Sources:NOAA Satellite & Information Services, World Bank, GRD/B Estimates for NGL Recovery Potential

Global flared gas volumes in 2011

were 140 bcm 2011 Top 10 Countries for Gas Flaring

Accumulated

Satelite Flaring

Observations

For decades gas was simply flared

US Natural Gas Market Deep-Dive - ANIQ Marcos Gomez...Shale Gas drives lower natural gas prices in...

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