paradigm shift in domestic natural gas resources, supplies and costs
TRANSCRIPT
JAF028113.PPT1 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Paradigm Shift in Domestic Paradigm Shift in Domestic Natural Gas Resources, Supplies and CostsNatural Gas Resources, Supplies and Costs
Prepared For: EFI Gas-to-Market & Energy Conversion Forum
Prepared By:Vello Kuuskraa, PresidentADVANCED RESOURCES INTERNATIONAL, INC.Arlington, VA
September 21-23, 2009Grand Hyatt, Washington, DC
JAF028113.PPT2 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Presentation OutlinePresentation Outline
1. Where Are We and How Did We Get Here?
2. U.S. Natural Gas Resource Base
3. Role of Technology
4. What is the Outlook?
5. Challenges and Barriers
JAF028113.PPT3 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Where Are We?Where Are We?
• Gas storage is full and expected to reach record levels.
• We have a surplus of domestic natural gas production capacity.
• Gas prices (Henry Hub, spot) are down sharply from over $10/Mcf a year ago to about $3/Mcf today.
• The LNG terminals are mostly empty and the rig market has collapsed.
From expectations of scarcity and statements that “we cannot drill our way out” of the looming natural gas supply problem, today:
JAF028113.PPT4 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
How Did We Get Here?How Did We Get Here?
• Push for large-scale LNG (by Greenspan, Chairman of the Federal Reserve) to forestall shortages.
• Publication of “Diminishing Returns” (by CERA), projecting loss of natural gas production capacity, even at prices of $10/Mcf.
For many years, we were advised that shortages and high prices were the future of U.S. natural gas supply:
“With visions of sugar plums dancing in their heads”,industry invested massively in LNG and new drilling.
JAF028113.PPT5 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
How Did We Get Here?How Did We Get Here?
• Undue concentration on the challenges facing conventional gas supplies.
• Lack of understanding and acceptance of the potential offered by unconventional gas resources.
• Dismissal of the benefits from progress in technology.
To better understand today’s situation, we need to ask - -“Why was this past advice so off-base?”
JAF028113.PPT6 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
After A Decade of After A Decade of ““Running In PlaceRunning In Place””, Aggressive Pursuit of , Aggressive Pursuit of Unconventional Gas, Particularly Gas Shales, Has Led to IncreaseUnconventional Gas, Particularly Gas Shales, Has Led to Increased d
Production CapacityProduction Capacity
Source: DOE-EIA Short Term Energy Outlook (August 2009)
*Hurricane effects
*
*
*
40
42
44
46
48
50
52
54
56
58
60
Jan-1998
Jan-1999
Jan-2000
Jan-2001
Jan-2002
Jan-2003
Jan-2004
Jan-2005
Jan-2006
Jan-2007
Jan-2008
Jan-2009
Jan-2010
Month-Year
Dry
Gas
Pro
duct
ion
(Bcf
/d)
Actual Dry Gas (Bcf/d)
Projected Dry Gas (Bcf/d)
JAF2
0090
29.X
LS
JAF028113.PPT7 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
U.S. Natural Gas Resource BaseU.S. Natural Gas Resource Base
Conventional Gas Resources. While the undiscovered conventional gas resource base is large, much of it is costly and difficult to access:
• Much of Onshore Conventional Gas Resource, with 285 Tcf, is in small traps or on the margins of older fields, thus costly to develop.
• Offshore Conventional Gas Resources, with 309 Tcf, has not been able to replace production or reserves for the past 7 years.
• Production of Associated Gas, with 129 Tcf, has declined from 8 Bcfd (in 2001) to 5 Bcfd today, along with declines in oil production.
• The Alaskan Gas Resources, with 169 Tcf, remains locked in place.
JAF028113.PPT8 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Offshore (GOM) Natural Gas ResourcesOffshore (GOM) Natural Gas Resources
7.42.84.620077.53.04.52006
5.1
9.7
Shallow Water
2.8
3.7
Deep Water
7.9
13.4
TOTAL
Annual Production (Bcfd)
Base Year2001
Recent Years2005
Offshore GOM conventional natural gas reserves have declined by half and production has fallen by 6 Bcfd, since 2001.
14.06.57.52007
Proved Reserves (Tcf)
14.917.4
27.1
6.78.220069.4
15.9
ShallowWater
8.0
11.3
DeepWater TOTAL
Base Year2001
Recent Years2005
JAF028113.PPT9 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
U.S. Natural Gas Resource BaseU.S. Natural Gas Resource Base
• Started twelve years ago, with low cost coalbed methane from the San Juan Basin and high productivity tight gas wells at Jonah/Pinedale (Green River Basin).
• Presentations by our firm, Advanced Resources, entitled “The Future is Unconventional”, heralded the start of this shift.
• Momentum provided by horizontal drilling and intensive stimulation technology that first unlocked the Barnett Shale andthen did the same, but more quickly, for the Fayetteville Shale.
• The final push has been the emergence of numerous large, low-cost gas shale plays.
Unconventional Gas Resources. The large, commercial-scale pursuit of unconventional gas is behind a “paradigm shift” in U.S. natural gas supplies.
JAF028113.PPT10 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Paradigm Shift in U.S. Natural Gas SuppliesParadigm Shift in U.S. Natural Gas SuppliesThe Marcellus and Haynesville are two of the “rock star” shale
basins behind the “paradigm shift” in U.S. natural gas supplies.
Marcellus Shale Haynesville Shale
JAF028113.PPT11 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Ten Of The Twelve Largest U.S. Lower-48 Natural Gas “Fields” Produce Unconventional Gas
0.5Tight Gas SandsDenver, COWattenberg100.4Conventional GasOffshore GOMLower Mobile Bay11
1.0Conventional GasHugoton Basin, OKHugoton Gas Area60.7Tight Gas SandsEast Texas, TXFreestone Trend (Shallow Bossier)*7
1.1Tight Gas SandsPiceance, COS. Piceance Basin Gas Area (Mesaverde/Williams Fork)5
0.6Tight Gas SandsEast Texas, TXCarthage (Cotton Valley)8
0.4
0.5
1.21.93.03.6
Year 2007Production
(Bcfd)
Tight Gas SandsGGRB, WYPinedale/Jonah (Lance)3
Tight Gas SandsEast Texas, TXSavell/Amoruso (Deep Bossier)12
Tight Gas SandsUinta, UTNatural Buttes (Wasatch/MV)9
CBMPowder River, WYWyodak/Big George Fairway4
Gas ShaleFt. Worth, TXNewark East (Barnett)2CBM/Tight Gas SandsSan Juan, NM/CO
San Juan Basin Gas Area (Mesaverde/Fruitland)1
Type ofResourceBasin/StateField NameRank
*Includes Firestone, Bold Prairie, Bear Creek, Dowdy Ranch and Dew.Sources: EIA 2005 and 2007 Annual Reserve Reports; Advanced Resources Unconventional Gas Data Base.
Evidence for the Paradigm ShiftEvidence for the Paradigm Shift
JAF028113.PPT12 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Evidence for the Paradigm ShiftEvidence for the Paradigm Shift
Source: EnCana, 2009
While total working U.S. natural gas rigs have declined by more than half, the rig count in the Haynesville area has remained strong, pushing Haynesville Shale production over 1 Bcfd.
JAF028113.PPT13 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
0
5
10
15
20
25
30
35
2000 2004 2008 Mid-2009
Years
U.S
. Unc
onve
ntio
nal G
as A
nnua
l Pro
duct
ion,
Bcf
/d
Coalbed MethaneTight Gas Sands
Gas Shales
U.S. Natural Gas Resource BaseU.S. Natural Gas Resource Base
Unconventional Gas Resources Unconventional Gas Production*
UndevelopedResource Base
ProvedReserves
Source: Advanced Resources International*Current U.S. natural gas consumption is about 62 Bcf.
Driven by advances in geologic understanding and progress in extraction technology, the unconventional gas resources will increasingly dominate U.S natural gas production.
366
917
48140
0
200
400
600
800
1000
1996 2008 1996 2008
Unc
onve
ntio
nal G
as R
esou
rces
(Tcf
)
CBM
Tight Gas
Gas Shales
JAF028113.PPT14 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
The Powerful Role of TechnologyThe Powerful Role of Technology
Increased understanding of unconventional gas resources and advances in horizontal drilling and intensive well completion technology have been key:
• Increased the size and productivity of recoverable resources.
• Provided predictability and lower risk.
• Converted these resources to low-cost assets.
JAF028113.PPT15 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Progress in Well Completion TechnologyProgress in Well Completion Technology
Source: Questar (2009)
Conventional Reservoir
Tight SandsSingle‐stage HF
Tight SandsMulti‐stage HF
Shale – horiz well +Multi‐stage HF
1850’s to present 1950’s to 1990’s 1990’s to present 2000 to present
JAF028113.PPT16 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
S. S. PiceancePiceance Basin: Williams Fork/Basin: Williams Fork/MesaverdeMesaverdeTight Gas Sand PlayTight Gas Sand Play
UT CO
WY
PiceancePiceance BasinBasin
• 5,000 Wells Drilled To Date• 1.1 Bcfd Tight Gas Sand Production**Average for 2007
JAF028113.PPT17 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Intensive Resource DevelopmentIntensive Resource Development
Intensive Field Development Pilot, Sec. 20, Rulison Field*
Expected Results from Intensive Resource Development (Sec. 20, T6S-R94W, Rulison)
CLOUGH19
CLOUGH21
RMV3-20
RMV6-20
RMV25-20
RMV33-20
RMV40-20
RMV55-20
RMV58-20
RMV57-20
RMV65-20
RMV67-20
RMV201-20
RMV200-20
RMV202-20 RMV
203-20
RMV64-20
RMV66-20
NW-1
20
R94W
T6S
20 Acre Pilot Infill Wells
N
JAF01862.CDR
541.70.610 A/W32Latest
1101.71.064Total
EURCum. To
Date
1.1
1.2
1.7
1.8
Avg. Recovery/ Well(Bcf)
16
8
4
4
No. of Wells
251.620 A/W1997-2000
131.640 A/W1996-1998
92.280 A/W1995
92.2160 A/WInitial Wells
EUR/Section
(Bcf)Well Spacing(Acres/Well)Date
Intensive resource development, at spacings of 10 acres/well, have transformed the modest (<3Tcf, USGS 2002) tight gas play in the Piceance Basin into a major 50 Tcf resource.
JAF028113.PPT18 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Arkoma Basin: Fayetteville Gas Shale PlayArkoma Basin: Fayetteville Gas Shale Play
Western AreaWestern Area
Arkoma Basin Arkoma Basin –– Fayetteville Gas Shale PlayFayetteville Gas Shale Play
AR
OK
TX
MO
MS
Central AreaCentral Area
Eastern AreaEastern Area
• 1,000 Wells Drilled To Date• 1 Bcfd Gas Shale Production**End of 2008
JAF028113.PPT19 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Fayetteville Shale: Improving Well PerformanceFayetteville Shale: Improving Well Performance
3,8702,3102,5402,9901201st Qtr 2009
3,3001,9402,1502,340751st Qtr 2008
4,1202,6902,9503,6101112nd Qtr 2009
3,7202,2102,4802,9202442nd/3rd/4th Qtr 2008
1,770
1,260
AverageIP Rate(Mcf/d)
1,490
1,070
30th Day Rate
AverageLateralLength
60th DayRate
Wells on ProductionTime Frame
197
58
1,290
960
2,500-3,1902nd/3rd/4th Qtr 2007
2,1001st Qtr 2007
Longer laterals, more frac stages, and more intensive perforation clusters (plus 3-D seismic), have improved the performance of Fayetteville Shale wells by nearly three-fold in a period of just over 2 years.
JAF028113.PPT20 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
JAF02052.CDR
What Is The Outlook?What Is The Outlook?
The Paradigm Shift. This “paradigm shift”, with vastly larger unconventional gas resources, is changing the long held belief that unconventional gas is the high cost portion of the resource base.
Unconventional gas and particularly gas shales are today the dominant source of supply and have become the low cost portion of the resource base.
Prior PerceptionPrior Perception New UnderstandingNew Understanding
Resources Resources
F&D
Cos
ts
F&D
Cos
ts
ConventionalGas
UnconventionalGas
UnconventionalGas
ConventionalGas
JAF028113.PPT21 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
What is the Outlook?What is the Outlook?
Source: Bloomberg
Oil and Natural Gas Price Relationships. A fundamental disconnect exists today in the traditional 10 to 1 oil and natural gas price relationship.
Oil Natural Gas
JAF028113.PPT22 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
What is the Financial Outlook for What is the Financial Outlook for Natural Gas Prices to Rebound?Natural Gas Prices to Rebound?
Source: Bloomberg
NYMEX/Henry Hub Forward Price Curve ($/Mcf)
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 FY10 FY11 FY12
JAF028113.PPT23 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
What Is The Outlook?What Is The Outlook?
• EnCana, North America’s largest natural gas producer, expects long-term natural gas supply costs of $6 to $7/MMBtu.
• Anadarko, the third largest U.S natural gas producer, states that for its large Marcellus shale acreage “the economics are good” at $3/Mcf (NYMEX) (Oil and Gas Investor, August, 2009).
Source: EnCana (2009)
Producer Expectations.
JAF028113.PPT24 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Challenges and BarriersChallenges and Barriers
1. Build confidence in adequate and robust natural gas supplies.
2. Assure affordable future natural gas prices and underlying costs.
3. Address environmental barriers to natural gas development.
4. Increase demand for natural gas in a “carbon constrained” world.
The domestic natural gas supply base is diverse and abundant - -with theoretically producible resources sufficient to meet 100 years of demand, at today’s production levels.
However, a number of challenges need to be met before this theoretical potential can be converted to available and affordable natural gas production:
JAF028113.PPT25 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
However, Only a Portion of the Unconventional Gas Resource However, Only a Portion of the Unconventional Gas Resource Base is Base is ““High Quality/Low CostHigh Quality/Low Cost””
261209470Gas Shales
91790
357
TotalUndeveloped
48641
184
LowerQuality
431TOTAL49Coalbed Methane
173Tight Gas Sands
HighQuality
Continuing advances in science, geological knowledge and extraction technologies will be essential for converting the lower quality/higher cost resources to affordable natural gas supplies.
Tight GasSandsCoalbed
Methane
Gas Shales
Source: Advanced Resources Int’l., 2009
470 Tcf
90 Tcf
357 Tcf
JAF028113.PPT26 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Addressing the Environmental Barriers to Addressing the Environmental Barriers to Greater Natural Gas DevelopmentGreater Natural Gas Development
• Capturing More Methane Emissions
• Further Reducing Surface Impacts
• Pursuing Safe Hydraulic Fracturing
As drilling increases and production grows, a harsher “spotlight” will fall on natural gas. “Green natural gas development” will help put a more environmentally friendly face on this activity.
JAF028113.PPT27 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Composition of Fluids, Chemicals and Composition of Fluids, Chemicals and Materials in Hydraulic Fracturing OperationsMaterials in Hydraulic Fracturing Operations
Acids:Hydrochloric or muriatic acids; commonly used in swimming pools.
KCI:Food preservative; low sodium table salt.
Surfactants:Used in shampoos, household detergents.
Source: Arthur, J. Daniel, et al., 2008.
*Eliminated in many fracturing operations.
GellingAgent0.05%
Breaker0.009%
Crosslinker0.006%
*
*
*Sand8.95%
Other0.44%Water
90.6%
JAF028113.PPT28 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Building Demand for Natural Gas in a Building Demand for Natural Gas in a Carbon Constrained WorldCarbon Constrained World
Natural gas is a relatively “clean fuel” with lower emissions of CO2and SO2 than coal or oil. Still, producing and using natural gas contributes to overall emissions of greenhouse gases.
1.0
0.8
0.6
0.4
0.2
0Coal Natural Gas
# of C
O 2/kwh
0.99(32% E)
0.75(43% E)
0.34(54% E)
Source: EnCana 2009
CO2/SO2 Emissions Levelsby Fuel Type (lbs/BBtu)
CO2 Emissions Levels for Electricity (lbs/kwh)
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Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
Closing Comments Closing Comments
Numerous studies by financial houses have projected that we will soon return to the “glorious days to yesteryear”, with expectations of high natural gas prices and unmet demand.
These outlooks will prove to be overly optimistic because of the fundamental “paradigm shift” that has taken place in the size of the natural gas resource base and its fundamental costs.
It is time to discard our prior perceptions and rigorously incorporate new understandings of the size and costs as well as the challenges facing domestic natural gas supplies into our business plans.
JAF028113.PPT30 September 21, 2009
Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs
AdvancedResources
Internationalwww.adv-res.com
Office LocationsWashington, DC4501 Fairfax Drive, Suite 910Arlington, VA 22203Phone: (703) 528-8420Fax: (703) 528-0439
Houston, Texas11490 Westheimer, Suite 520Houston, TX 77042Phone: (281) 558-6569Fax: (281) 558-9202