north american gas: the new big picturemydocs.epri.com/docs/summerseminar10/presentations/2.1...•...

North American Gas: The New Big Picture

Jen SnyderNorth America Gas ResearchWood Mackenzie2010 Summer SeminarAugust 2, 2010

2© 2010 Electric Power Research Institute, Inc. All rights reserved.

Cost Advances Continue to Redraw the Big Picture

Improving Economics for Southwestern Energy

10

20

30

40

50

60

70

3.00 5.00 7.00 9.00

Gas Price

% IR

R

2009 Q12007 Q4

2006 Q4

0

2

4

6

8

10

2007 2008 2009 2010*

D&

C C

osts

($M

M)

0

200

400

600

800

1000

1200

Hor

izon

tal W

ells

Average D&C Costs Horizontal Wells

Source : Pennsylvania DEP, Operator Reports

Completion techniques

Pad DrillingMulti

Data acquisition Facilities

*Based on data from 9 operators

Marcellus Drilling and Completion Costs


Core Shales Remain Toward the Bottom of the North American Cost Stack

Key North American Supply Sources (2015)

3

4

5

6

7

8

Marcellu

sPineda

leHayn

esville

Barnett Core

Bossier L

wEag

le Ford

Granite

Wash

HZFay

ettevil

le

Anadarko W

oodfordPicea

nce Vall

ey

Arkoma Woodford Core

Barnett Non

-core

Cotton Vall

ey

Arkoma Woodford Non-co

re

Piceance

Highlands

Dev

elop

men

t Bre

akev

en (U

S$/m

cf)

Source: Wood Mackenzie


Shale Production Surges, and U.S. Gas Supply Follows

• U.S. total supply flat through 2012• Aggressive activity only in the

core shales in the near-to-mid term

• Marginal supplies such as Piceance Highlands and Utah’s Wasatch see little drilling activity

• Shale and tight gas development both contribute to 2013-2020 growth

• Resource is adequate to handle the added demand…

• …but prices reflect the markets new pull on supplies

0

10

20

30

40

50

60

70

80

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

bcfd

Conventional CBM Tight Shale


U.S. Gas Production


The Big Growth Shales; What to Watch

• Haynesville– Significant reduction in drilling times.

Future improvements from pad drilling– Well performance improvements– Upside from Bossier Shale

• Marcellus– Joint ventures accelerating development

in the play– More operators achieving near full scale

water recycling– Infrastructure bottlenecks still remain

• Eagle Ford– High liquids content improves economics– JVs expected in the shale later this year

Red R

iver

Lake o'the Pines

Wright Patman Lake

Caddo Lake

Sam Rayburn Reservoir

Toledo Bend

Reservoir

Lufkin

Longview

Alexan

Jacksonville

Shreveport

E

Trinity

Angelina

SanAugustine

Newton

Nacogdoches

Rusk

Gregg

Cherokee

Shelby

Panola

Upshur

Sabine

Franklin

Camp

Titus

Harrison

Cass

Morris

Marion

HoustonVernon

Rapides

Natchitoches

Grant

Caddo

Red River

Bossier

Sabine

LincolnBienvilleWebster

Claiborne

De Soto

Union

Arkansas

ArkLaTex BasinTexas

LouisianaHaynesvil le

Play

93°W

93°W

94°W

94°W

95°W

95°W

33°N

33°N

32°N

32°N

0 40 8020km

U.S.A.

MEXICO

CANADA


Haynesville Horizontal Producing Wells

Peak Month greater/equal to 12 mmcfd

Peak Month 6 mmcfd to 12 mmcfd

Peak Month less than 6 mmcfd

Source: Wood Mackenzie NAGS and Upstream Service

Haynesville Shale

Marcellus Shale

TierOne

TierTwo


Gas Supply Patterns Follow Power Development

• In the near term, new coal plants and the reversal of ’09/’10 coal displacement limit demand growth

• Pace of demand growth accelerates starting in 2013

• Annual growth 1-1.5 bcfd 2013-2020 as coal plants retire

• Moderate carbon price (<$20/metric tonne) around 2015

• But just as much pressure from EPA

101214

1618202224

262830

2009 2011 2013 2015 2017 2019

bcfd

Pre-recession Dec '09Waxman Current View


Power Sector Gas Demand


Price Levels are Driven by Domestic Supply—Competitive Prices Facilitate Growth

• Low demand profile limits price through 2012, although modest recovery reverses some displacement

– Core shales sufficient to meet demand

– Gas-related drilling holds low– Cost pressure nonetheless with

tight oil activity– LNG could limit domestic drilling;

some increase is likely, level is hard to call

• Upward shift in price expected by 2013– Higher activity levels, rig rates and

service company margins– Increased unconventional and

shale drilling required 2012-2018– Industrial demand grows steadily

• Oil gap is not easily bridged, but the dash for liquids does support gas, even if demand responses are limited


Price Outlook

0

2

46

8

10

1214

16

18

2005

2007

2009

2011

2013

2015

2017

2019

2009

$/m

mbt

u

Henry Hub NBP Adjusted CAPP WTI


By 2015, Higher Cost Supplies Have Been Pulled Into the Mix, and the Costs of Developing All Supplies is Higher

• The cost of developing supplies is higher by 2015

• Non-core and tier 2 areas of plays are required to meet demand

• Areas such as the Rockies, with several marginal plays again attract capital

• Vertical drilling recovers, in addition to the shale focus

0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8 9 10

Production from New Wells (bcfd)

2009

$/m

mbt

u

2010 2015

US L48 Supply Stack—New Wells


Total 2010 L48 Production 54.6 bcfdTotal 2015 L48 Production 60.6 bcfd

Cotton Valley (0.1 bcfd)

Barnett Non-core (0 bcfd)

Haynesville (0.93 bcfd)Marcellus (0.43 bcfd)

Haynesville (0.85 bcfd)

Marcellus (0.76 bcfd)

Barnett Non-core (0.01 bcfd)

Cotton Valley (0.56 bcfd)


Tim

e H

oriz

onSh

ort

Res/Com

IndustrialNGVs

Coal retirements

Carbon bill

Circle size reflects demand potential

LNG exports

Capital Investment Required

Long

Significant Minimal

Plug-in hybrids

Could the Long-term Price Outlook—and the Gap With Oil—Fuel Additional Market Opportunity?



Aggressive Multi-Pollutant Regulation Could Push Significant Coal Retirements Even in the Absence of Federal Carbon Legislation

Gas Demand Associated with Coal Retirements

-1

0

1

2

3

4

5

2010 2012 2014 2016 2018 2020

bcfd

Business as Usual Moderate Carbon PricePreliminary stringent EPA

• Several forces, other than federal carbon legislation, pushing aggressive coal retirements– Multi-pollutant (SO2,

NOx, mercury) regulation from the EPA

– Hazardous Air Pollutants regulation

– State and utility initiatives

• Primary force for higher gas demand?– Retirements could reach

nearly 50 GW by 2020


Wood Mackenzie Disclaimer

• This presentation has been prepared by Wood Mackenzie Limited for delivery at the 2010 EPRI Summer Seminar. It has not been prepared for the benefit of any particular attendee and may not be relied upon by any attendee or other third party. If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered as a result.

• The information contained in these slides may be retained by attendees. However, these slides and the contents of this presentation may not be disclosed to any other person or published by any means without Wood Mackenzie Limited’s prior written permission.


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