natural gas infrastructure and domestic tight oil development

1

Follow the Money: Natural Gas Infrastructure and

Domestic Tight Oil Development

Donald Santa

President & CEO

Interstate Natural Gas Association of America

2

Spotting the Trends

INGAA Foundation projection

of North American natural gas

infrastructure requirements is

regularly updated

In 2011, for the first time,

projection included crude oil

and NGL infrastructure

Recognized that shift to “wet”

gas plays and resurgence of

domestic oil affected natural

gas infrastructure development

3

Infrastructure Capital Requirements

Oil Pipeline Infrastructure 2011-20 2011-35 Average

Annual

Miles of Transmission Mainline (1000s) 13.0 19.3 0.8

Cost of Transmission Mainline (Billions 2010$) $19.6 $31.4 $1.3

NGL Pipeline Infrastructure 2011-20 2011-35 Average

Annual



Source: North American Natural Gas Midstream

Infrastructure Through 2035 – A Secure Energy Future

Natural Gas Infrastructure 2011-20 2010-35 Average

Annual



4

Jobs & Economic Benefits of Midstream Infrastructure

Development: US Economic Impacts through 2035

Highlights economic benefits

of constructing, operating and

maintaining the midstream

infrastructure

jobs

labor income,

value added,

economic output

federal, state and local tax

generation

5

Midstream Investment Spurs Economic Growth,

Jobs

Billions of 2011 dollars, employment in average annual jobs supported

NATURAL GAS INVESTMENT PLUS O&M IMPACTS

OIL INVESTMENT PLUS O&M IMPACTS

NATURAL GAS LIQUIDS (NGL) INVESTMENT PLUS O&M IMPACTS TOTAL

Investment, $ Billions

(Lower 48)

$190.3 Investment

$ Billions

(Lower 48)

$22.7 Investment

$ Billions

(Lower 48)

$16.1 $229.1

Results Results Results Results

Avg. Annual Employment

103,029 Avg. Annual Employment

12,659 Avg. Annual Employment

9,651 125,339

Income $140.6 Income $17.3 Income $13.2 $171.1

Value Added $214.3 Value Added $26.3 Value Added $20.1 $260.7

Output $420.4 Output $51.7 Output $39.4 $511.5

State and Local Taxes

$16.5 State and Local Taxes

$2.0 State and Local Taxes

$1.6 $20.1

Federal Taxes

$30.3 Federal Taxes

$3.7 Federal Taxes $2.8 $36.8

Source: Jobs & Economic Benefits of Midstream Infrastructure

Development: US Economic Impacts through 2035

6

Commodity Pricing Relationships

0

5

10

15

20

25

30

35

40

0

100

200

300

400

500

600

700

800

Jan

-96

Feb

-97

Mar

-98

Ap

r-9

9

May

-00

Jun

-01

Jul-

02

Au

g-0

3

Sep

-04

Oct

-05

No

v-0

6

Dec

-07

Jan

-09

Feb

-10

Mar

-11

Oil-

Gas

Pri

ce R

aio

Pri

ce In

dex

*

Historical Oil-Gas Price Relationship

Gas 1-Month NYMEX

Crude 1-Month NYMEX

OGPR

*Oil & Gas prices indexed to 100 in Jan-96

Source: Alliance Pipeline

7

Follow the Money to the “Wet” Plays

“Wet Gas” wells carry

market price advantages

over other shale basins

The higher the liquid

content, the cheaper the

break-even price

Source: Black & Veatch

8

Percentage of Gas Flared in North Dakota

9

Why Does Infrastructure Lag Behind Drilling?

Widely scattered wells

Large area

Drilling to hold leases

Weather challenges

Difficulties in obtaining rights-of-way

Existing facilities designed for smaller volume wells

Time needed to design, permit and construct new facilities

Manpower, equipment and housing shortages

Each situation is unique and affects processing economics

Source: Oneok Partners

10

Courtesy of the ND Pipeline Authority, January 24, 2012

Northern Border Alliance Pipeline

11

Producers vs. Gatherers/Processors:

Investment Considerations With Shale Plays

Producers

Nimble: Drilling rigs can be

re-deployed quickly

High initial volumes enable

investment to be recouped

quickly

Gathers & Processors

Fixed: Infrastructure is

immobile once investment

has been made

Absent continued drilling,

steep decline curves mean

that peak flow may occur in

year one

12

Transmission Pipeline Investment Considerations

Supply Push Pipelines

Producer shippers want to

limit contract duration to

minimize balance sheet

obligation

Re-contracting risk because

producer focus may shift to

other prospects

Greater credit risk – producer

credit quality typically lower

than LDCs and electric

utilities

Demand Pull Pipelines

LDCs and electric utilities are

likely to enter longer contracts

The market is much more

predictable and not nearly as

susceptible to shift as

production

Less credit risk – LDCs and

electric utilities typically have

high credit ratings

13

Follow the Money:

Natural Gas Infrastructure and Tight Oil Development

Commodity pricing relationship drives investment

Infrastructure lag caused by multiple factors

Investment Considerations

Producers vs. Gathers & Processors

Supply Push vs. Demand Pull Pipelines

All shale plays are not created equal

14

Donald Santa

President & CEO

Interstate Natural Gas Association of America

202.216.5901

[email protected]

http://www.ingaa.org

natural gas infrastructure and domestic tight oil development

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