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
Center for Energy Studies
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
Center for Energy Studies
Crude Oil TrendsCrude Oil Trends
3© LSU Center for Energy Studies
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
Center for Energy Studies Crude Oil Trends
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
Center for Energy Studies Crude Oil Trends
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
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
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.
Center for Energy Studies
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
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
Center for Energy Studies
Natural Gas TrendsNatural Gas Trends
11© LSU Center for Energy Studies
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
Center for Energy Studies Natural Gas Trends
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 )
Center for Energy Studies Natural Gas Trends
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
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
18© LSU Center for Energy Studies
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.
Center for Energy Studies
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
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Center for Energy Studies
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
Center for Energy Studies Natural Gas Uses
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.
22© LSU Center for Energy Studies
• 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
Center for Energy Studies Natural Gas Uses
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)
23© LSU Center for Energy Studies
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
Center for Energy Studies Natural Gas Uses
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)
24© LSU Center for Energy Studies
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
Center for Energy Studies
ConclusionsConclusions
25© LSU Center for Energy Studies
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.
26© LSU Center for Energy Studies
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
l dwww.enrg.lsu.edu
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