natural gas to 2030 - kepis and pobe

Confidential and Proprietary

Gas is not only a ‘bridge’ but truly a

‘destination’ fuel in a lower carbon world

May, 2012

Natural Gas to 2030

1

Executive summary

• Global natural gas consumption expected to increase 47% by 2030

• Longterm demand will be driven by emerging market energy needs and

European imports

• Global recoverable reserves will become more plentiful due to

unconventional drilling technologies (e.g. shale gas, tight gas)

• Significant stranded reserves will tie into global supply network with

new transnational pipelines and liquified transport technologies

• Diversification of hydrocarbon trade dependencies will have a

democratizing effect on global energy security

• Natural gas will play a key role in meeting global carbon reduction

targets

2

6,600 tcf

105 tcf

62 yrs

47%

60%

290%

220%

140%

60%

Global proved reserves

Global gas production 2009

Global reserves to production (R/P ratio)

Growth in global gas production to 2030

Growth in OECD European gas imports to 2030

Growth in gas consumption in China to 2030

Growth in global unconventional gas to 2030

Growth in LNG shipping to 2030

Reduction in carbon footprint of switching from coal to gas

Key facts and figures

Sources: BP Statistical Review; EIA

3

Natural gas composition and carbon footprint

Sources: Canadian Centre for Energy Information; UK Department for Environment, Food and Rural Affairs; XTO; IPCC

CO2 emissions per energy unit

Indexed, coal = 100

Gas is “cleanest” hydrocarbon fuel

Energy

components

Non-energy

components

Methane (CH4)

Ethane (C2H6)

Propane (C3H8)

Butane (C4H10) Condensates

(C5H12–C10H22)

Nitrogen (N2)

Carbon dioxide (CO2)

Hydrogen sulphide (H2S)

Helium (He)

Unprocessed natural gas

Methane (CH4) is the simplest hydrocarbon molecule,

with one atom of carbon and four of hydrogen

4

40

83

100

0 50 100

Gas (withcarbon

capture)

Gas

Oil

Coal

4

Natural gas value chain

Liquefaction

Shipping

Regas

Marketing

• Exploration:

Technical and

economic

assessment of

hydrocarbon

basins, e.g.

seismic

• Development:

building

infrastructure to

produce gas, e.g.,

drilling, pipe-laying,

• Production:

operating

production facilities

• Gas processing:

removal of

mercury, sulphur,

carbon dioxide,

and condensate

from raw gas

• Loading:

transfer of

liquefied gas to

an LNG tanker,

usually able to

carry more

than 120,000

cubic meters of

LNG

• Regasification:

pumping LNG

through

vaporizers

which use

seawater to heat

LNG to its

gaseous form

• Storage: storing

LNG in stainless

steel tanks

• Wholesale: sales

and transmission

of gas

• Retail:

distribution of gas

to end-users,

• Pipeline transmission: compression of gas in

pipelines moving at speeds of up to 40 km/hour

Refining and

processing

Exploration and

production Pipelines

• Liquefaction:

cooling of pre-

treated gas to

-162ºC to

convert it into

liquid form at

1/600th of its

gaseous

volume

5

Local gas markets

1800s–1970

Regional gas markets

1970–2005

Globalized gas market

2005–2020

Major

markets

• USA

• Italy

• Netherlands

• North America

• FSU/Russia

• Western Europe

• North East Asia (Japan, Korea)

• North America

• Russia

• Western Europe

• North East Asia (Japan, Korea,

China, India)

Main

supply

routes

• Local USA pipelines

– SouthWest–Chicago

– SouthWest–Appalachia

– Texas–NorthEast

• Local European pipelines

• Intra-regional pipelines

– Canada–USA

– Russia–Central Europe

– Norway/Netherlands–West

Europe

– Algeria–Italy

• Regional LNG

• Long-distance pipelines

– Russia–China

– Middle East–India

– Middle East–Europe

– North Africa–Europe

• Global LNG arbitrage

– Middle East

– Atlantic Basin

– Pacific Basin

Tech-

nologies

• Basic pipelines • Long-distance pipelines

• LNG liquefaction and shipping

• Arctic E&P/LNG

• Unconventional gas

• CNG

Gas value chain evolving into a globally integrated

market with rise of new technologies and transport

corridors

Sources: Natural Gas and Geopolitics from 1970–2040, Cambridge University Press; McKinsey

6

Proven gas reserves

Trillion cubic meters

US 7

Venezuela 5

Canada 2

1 Argentina

48

30

26

Russia

Iran Qatar

8

Saudi Arabia 6

Nigeria 5

Algeria 5

UAE

3 Iraq

2 Kazak.

3 Indonesia

2

Malaysia

3 Australia

2 Norway

3 China 2

Kuwait

2 Netherlands

1 India

1 Pakistan

1 UK

Gap between “have’s” and “have not’s” in gas will

drive long-term trade and investment dynamics

Sources: CIA World Fact Book

7 Turkmen.

Russia and

Middle East hold

70% of global gas

reserves

Currently a 10

yr R/P ratio,

but significant

additional

estimated

recoverable

reserves from

shale gas

sufficient to

satisfy current

US demand

for 100 years

Europe’s low

indogenous

reserves make it

dependent piped

Russian gas and

LNG imports

Asian Pacific

investment in

LNG underway

to satisfy

emerging Asian

demand

7

Natural gas price,

USD/MMbtu

US $4

$1 Saudi

Arabia

China

$8 Europe

Sources: Platts, EIA, WSJ, Financial Express, Oil Egypt, Platts, Bloomberg

US prices

depressed as

a result of

recent shale

gas glut

China natural

gas prices

pegged to

crude oil

Prices reflect reserves: Europe and Asia

willing to pay to satisfy energy needs

$12

$4

$12

Japan

$3 Argentina

$11

Brazil $9 Chile

European

prices governed

by supply of

Russian and

LNG imported

gas

Indi

a

$4 Egypt

$3 Russia

Domestic prices in

Argentina artificially

low due to regulation;

LNG cargoes in line

with rest of Latin

America

8

Demand will remain strong through 2030 as Europe

ups imports and emerging markets develop energy

needs at home

Sources: EIA

26 31

US/Canada

19 23

OECD Europe

5 6

Japan/Korea

7 14

Latin America

7 13

Asia Other

11 20

Middle East

3 7

Africa

17 18

Russia

4 13

China/India

Production, tcf

Consumption, tcf

2007 2030

2007 2030

2007 2030

2007 2030

2007 2030

2007 2030

2007 2030

2007 2030

2007 2030

European

consumption

increases while

production falls

Middle East production

increase largely

consumed by own

energy needs

100% growth in

Asian demand

100% growth in

Latin American

demand

9

Drilling Technology: Unconventional drilling technologies such

as shale gas will have a multiplier effect on global gas reserves

and open new basins to exploration

Transporation: Expansion of liquified natural gas (LNG) and

transnational pipelines will provide new global supply routes

between the field and end-markets

Meanwhile, two disruptive factors will create

significant opportunities upstream

1

2

10

Unconventional drilling technologies will increase global

gas reserves by 3x: finding opportunities abundant Trillion cubic meters

141

Proven

reserves

Tight gas

Coal bed methane

Shale gas

Conventional gas Unconventional gas

179

455

255

210

643 920

“Stranded”

non-economic

reserves

Yet-to-find

50

Gas that is not

recoverable using

existing

technologies

Discovered reserves

that are economic to

recover

Resources yet to be

discovered

Discovered

reserves currently

uneconomic to

recover

Methane gas

contained in deep coal

beds that cannot be

directly mined

Gas produced from

reservoirs mostly

composed of shale

with lesser amounts of

fine-grained rock

Gas from tight

reservoirs with low

permeability

(<0.1 millidarcy) 193

Non-technically

recoverable

Gas under unusual

reservoir conditions Gas found in

conventional

reservoirs

80

Produced

R/P =

62 years

Sources: IEA; SPE; BP Statistical Review; Cedigaz; USGS; McKinsey

1

11

Overview of unconventional drilling

technologies (1 of 2)

• Unconventional

technologies access

previously

uneconomic

formations

• Shale gas

technology taps

directly into the

organic source rock

• Shut-in fields with

the right formations

can be reopened

• Significant

opportunities abroad

for players that

possess technical

know-how

1

12

Overview of unconventional drilling

technologies (2 of 2)

Shale/tight

gas

Description Pros/Cons

• Sweet gas stored within the

pours of a coal resevoir,

typically with low permeability

• Similar to conventional

production except need for

water removal

– Wells are drilled into coal bed

– Water is removed before gas

flows out

Coalbed

methane

• High drilling success rates

• Inexpensive and quick well

completion

• Environmental concerns on

produced water disposal

• Shale: gas trapped in original

shale source rock with insufficient

porosity and permiability to flow

• Tight: gas trapped in unusually

impermeable, hard rock, or non-

porous sandstone or limestone

• Accessed by drilling horizontal

well that intersects natural

fractures and using pressurized

liquids to fracture the rock and

stimulate flow

• Significant basin potential globally

• Volume drilling effects reduce

cost of drilling and fracing

• Lower, but economic flow rates

• Drilling and fracing requires

learning effects unique to basin

Frontiers

Marcellus

Sichuan basin

Perth basin

Baltic basin

Lower Saxony

Paris basin

Neuquen basin

Horn River

Powder River

Queensland

Erdos basin

Indonesia

1

13

LNG terminal network will expand as technology

becomes increasingly in demand and cost competitive

LNG becoming more

competitive…

• Increasing scale of

Liquefaction and

regasification plants

• LNG vessels:

floating storage and

regas unit, floating

liquefaction unit ,

energy bridge

• Improved production

process of building

LNG vessels

• Larger share of

offshore/sub-sea

facilities (lower cost

and building time)

Global LNG trade, tcf per year

Liquification terminals planned or under contstruction

Sources: Ocean Shipping Consultants; Energy Tribune

2

14

Transnational pipeline network reaching further

to access stranded gas

Nabucco

Pipeline

Description Construction

Iran-

Pakistan-

India

Pipeline

• End-market: Europe

• Gas sources: Iraq, Azerbajan,

Turkmenistan

• Capacity: 1.1 tcf / yr

• Consortium:

• Cost: $11 bn

• Length: 1,800 km

• Completion: 2015

Route

Central

Asia-China

Pipeline

• End-market: China

• Gas sources: Turkmenistan


• Consortium:

• Cost: $7 bn



Major projects new or in discussion

• End-market: India, Pakistan

• Gas sources: Iran


• Consortium:

• Cost: $8 bn



2

15

Natural gas backed by an emerging political will –

old and new relationships in play

“We want the Southern Corridor to be ready by 2016-2017 … Research shows that energy production in Europe will

decrease by then and the need for gas increase … If Azerbaijan cannot supply the Nabucco gas pipeline in full, other

regional countries, for example Kazakhstan and Turkmenistan, can join too.”

Guenther Oettinger, European Union Energy Commissioner, Nov. 2010

“We are discussing [LNG] with other potential consumers in the Gulf, Canada, Argentina and Chile … We’re seeing new

markets there. New customers there. Customers even if you talked about five years ago no one would believe you …”

Abdullah bin Hamad Al Attiyah, Qatar Deputy Premier, Nov. 2010

“Huge discoveries of natural gas promise to shake up the energy markets and geopolitics … Europe may have nearly

200 trillion cubic feet of its own shale gas … Resources are believed to extend into countries such as Poland, Romania,

Sweden, Austria, Germany—and Ukraine. Once European shale gas comes, the Kremlin will be hard-pressed to use its

energy exports as a political lever. Greater shale-gas production in Europe will also make it harder for Iran to profit from

exporting natural gas.”

Amy Jaffe, Baker Institute, WSJ, Shale Gas Will Rock the World, May 2010

“The United States will promote the use of shale gas … natural gas is the cleanest fossil fuel available for power

generation today, and a number of countries in the Americas may have shale gas resources. If developed, shale gas

could make an important contribution to our region’s energy supply …”

Hilary Clinton, U.S. Secretary of State, April 2010

“The US and China will use experience gained in the United States to assess China’s shale gas potential, promote

environmentally-sustainable development of shale gas resources, conduct joint technical studies to accelerate

development of shale gas resources in China, and promote shale gas investment in China through the US-China Oil and

Gas Industry Forum, study tours, and workshops…”

Barack Obama, U.S. President, Nov. 2009

Hu Jintao, President of China, Nov. 2009

16

Kepis & Pobe new frontiers: European shale gas

case study

3

5

1

2

3

5

BNK Entry to Europe

BNK Petroleum (BKX.TO) recognized

high European gas prices ($8 – $12

mcf ), EU overdependence on

Gazprom (40% of gas supply), and

lack of entrants into European shale

Diversified entry strategy by analyzing

over 25 basins for shale gas potential

Obtained unique core data in Polish

Baltic basin; licensed1mn acres of

prime shale for 55 cents an acre

Obtained 2.4 mn acres in 5

concessions in Germany

Major IOCs followed in Poland within

2 to 3 yrs (Exxon, Conoco, Talisman);

value of acreage increased to $100 to

$200 an acre (300x return)

K&P Partner Ford Nicholson is

Chairman and co-founder of BNK

Petroleum

1

2

4 4

17

About K&P

Kepis & Pobe team (1 of 2)

Kepis & Pobe is a Canadian based

private investment company focusing on

the resources sector:

• Seasoned team with extensive mining,

oil and gas experience

• Incubator of exceptional early stage oil

and gas companies leveraging unique

global network and expertise

• Team has acted as management and

directors of over $12 bn USD market

capitalization

Team

Ford Nicholson, Partner, has over 25 years of experience managing

international projects. He is a founder/co-founder of Nations Energy

Ltd., Banker’s Petroleum and BNK Petroleum, and a non-executive

board member of Interoil, a fully integrated oil and gas company listed

on the NYSE. Mr. Nicholson is on the President's council of the

International Crisis Group.

Bob Cross, Partner, has more than 20 years of experience as a

financier in the resources sector and has helped raise in excess of US

$1 billion dollars in the last 4 years. He is currently the Chairman of

Bankers Petroleum Ltd. Mr. Cross earned an Engineering degree from

the University of Waterloo and his M.B.A. degree from the Harvard

Business School.

Murray Flanigan, Partner, has experience in corporate finance, M&A,

international taxation, risk management, banking, treasury, corporate

restructuring and accounting. Prior to joining K&P, Mr. Flanigan served

as EVP and CFO of Qwest Investment Management, and has had

senior financial roles at a number of major companies. Mr. Flanigan

holds a Bachelor of Commerce from the University of British Columbia

and holds C.A and C.F.A. designations.

profiles continued on next page …

Headquarters:

One Bentall Centre

505 Burrard Street

Suite 1560

Vancouver, BC V7X 1M5

Ph: +1-778-373-3737

Fx: +1-778-373-0448

www.kepisandpobe.com

18

Kepis & Pobe team (2 of 2)

Team

Rui Teixeira, Principal – K&P Atlantic, is responsible for the sourcing of conventional and unconventional oil and

gas opportunities for Kepis & Pobe Atlantic globally. Mr. Teixeira is fluent in English and Portuguese and maintains

a network of international contacts in Portugal, Spain, Brazil, Libya and West Africa. He has an extensive

background in the oil and gas industry and the natural resource sector more broadly and has served as a

consultant to Amal SA and a director of Trofagas SL. Mr. Teixeira holds a mechanical engineering degree from the

University of Porto, Portugal.

General Wesley K. Clark, Advisor, served 38 years in the United States army. His last position was NATO's

Supreme Allied Commander and the Commander-in-Chief of the US European Command. He now serves on the

board of directors of a number of public and private companies. General Clark graduated first in his class from

West Point and was a Rhodes Scholar.

19

Appendix

20

Proved gas reserves by country

Rank CountryTrillion Cubic

Meters (TCM)Rank Country TCM

1 Russia 47.6 11 Iraq 3.2

2 Iran 29.6 12 Australia 3.1

3 Qatar 25.5 13 China 3.0

4 Turkmenistan 7.5 14 Indonesia 3.0

5 Saudi Arabia 7.5 15 Kazakhstan 2.4

6 United States 6.9 16 Malaysia 2.4

7 UAE 6.1 17 Norway 2.3

8 Nigeria 5.2 18 European Union 2.2

9 Venezuela 5.0 19 Uzbekistan 1.8

10 Algeria 4.5 20 Kuwait 1.8

Sources: CIA World Fact Book

50% of global proven reserves

21

Hydrocarbon and energy unit Conversion table

To

Multiply by From

1 billion cubic meters

(BCM)

1 billion cubic feet

(bcf)

1 million tons oil equivalent

(mmtoe)

1 million metric tons

(mil MT)

1 trillion British thermal units

(tbtu)

1 million barrels oil equivalent

(mmboe)

billion

cubic

meters

1

0.028

1.111

1.38

0.028

0.16

billion

cubic

feet

35.3

1

39.2

48.7

0.98

5.61

million

tons oil

equivalent

0.90

0.026

1

1.23

0.025

0.14

million

metric

tons

0.73

0.021

0.805

1

0.02

0.12

trillion

British

thermal units

36

1.03

40.4

52.0

1

5.8

million

barrels oil

equivalent

6.29

0.18

7.33

8.68

0.17

1

Sources: BP Statistical Review

22

Definition Term

• Coalbed methane

• Dry gas

• Natural Gas

• Natural gas liquids

(NGLs)

• Sour gas

• Sweet gas

• Wet gas

• Natural gas generated during the coalification process and trapped within coal

seams, commonly referred to as natural gas from coal

• Natural gas from the well that is free of liquid hydrocarbons, or gas that has

been treated to remove all liquids; pipeline gas

• Gaseous petroleum consisting primarily of methane with lesser amounts of (in

order of abundance) ethane, propane, butane and pentane, and heavier

hydrocarbons as well as non-energy components such as nitrogen, carbon

dioxide, hydrogen sulphide and water

• Liquids obtained during production of natural gas, comprising ethane, propane,

butane and condensate

• Raw natural gas with a relatively high concentration of sulphur compounds,

such as hydrogen sulphide

• Raw natural gas with a relatively low concentration of sulphur compounds,

such as hydrogen sulphide

• Raw natural gas with a relatively high concentration of natural gas liquids

(ethane, propane, butane, and condensates)

Gases

Source: Canadian Centre for Energy Information

Natural gas terminology (1 of 4)

23

Definition Term

• Gas resevoir

• Geological trap

• Permeability

• Porosity

• Probable reserves

• Proved reserves

• Source rock

• Seismic survey

• A porous and permeable rock formation in which natural gas accumulates

• Any geological structure that stops the migration of hydrocarbons through

subsurface rocks, causing an accumulation in the reservoir rock

• The capacity of a substance (such as rock) to transmit a fluid. The degree of

permeability depends on the number, size, and shape of the pores and/or

fractures in the rock and their interconnections. It is measured by the time it

takes a fluid of standard viscosity to move a given distance

• The capacity of a reservoir to store fluids. The ratio of the aggregate volume of

pore spaces in rock or soil to its total volume, usually stated as a per cent

• Reserves believed to exist with reasonable certainty based on geological

information

• Reserves that can be economically produced with a large degree of certainty

from known reservoirs using existing technology

• The rocks in which hydrocarbons are created or sourced from carbohydrates

through heat and pressure. Source rocks are often black shales

• Running one or more 2-D or 3-D seismic lines over a large area and using the

acquired data to create detailed models of underlying geological formations


Geology /

Exploration


24


Definition Term

• Completion

• Conventional gas

• Environmental

assessment

• Fracing

• Gas cycling

• Horizontal drilling

• Stimulation

• Unconventional

natural gas

• Preparing a newly drilled well for production; usually involves setting casing to

prevent caving and protect against ground water contamination

• Natural gas that can be produced using recovery techniques traditionally

employed by the oil and gas industry

• Planning and decision-making tool used by industry and regulators to identify

the environmental impacts and costs of proposed energy projects

• A reservoir stimulation technique in which fluids are pumped into a formation

under high pressure to create fractures allowing the gas to flow

• A petroleum recovery process that takes produced gas and condensate and

injects it back into the reservoir to increase pressure and production of NGLs

• Drilling horizontally through a reservoir to increase the exposure of the well

• Enhancing the production of a well; includes acidizing and fracturing the

reservoir as well as removing wax and sand from the wellbore

• Conventional gas found in reservoirs requiring special production methods

such as natural gas from coal, natural gas from tight sands and shale gas

Production


25

Definition Term

• Compression

• Floating liquified

natural gas (FLNG)

• Gasification

• Gas transmission

systems

• Liquefied natural

gas (LNG)

• Trunk lines

• Increasing the pressure of natural gas to move it through pipelines or other

facilities; natural gas in its gaseous state that has been compressed to about

one per cent of its volume and stored at 20,000 to 27,500 kilopascals

• Method of liquifying gas for transport using ships capable of liquification

• Pipelines that carry natural gas at high pressure from producing areas to

consuming areas

• The process of turning liquefied natural gas into a vaporous or gaseous state

by increasing the temperature and decreasing the pressure

• Supercooled natural gas that is maintained as a liquid at or below -160°C;

LNG occupies 1/640th of its original volume and is therefore easier to

transport if pipelines cannot be used

• Large-diameter pipelines that transport crude oil, natural gas liquids and

refined petroleum products to refineries and petrochemical plants; some trunk

lines also transport refined products to consuming areas

Transport



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