Permian Goes GlobalHow to leverage USA LNG in a changing global market?

Dr. Ning LinChief Economist, Bureau of Economic Geology

Bureau of Economic Geology

• Jackson School of Geoscience -$300 million endowment, and the largest university-based geoscience program in US

• One of three Jackson School of Geosciences - $30 - 35 million/year budget, 90% grants & contracts• Established in 1909, 2nd largest research unit at UT• 250 researchers, staff & students• Assets include 3 core facilities, labs, field test sites.

Industry Consortium Sponsors

Roadmap

•Research Scope and Methodology•Regional Natural Gas and LNG Point of View•What matters to USA LNG?

•Supply•Cost positions•Demand shocks

Research on Natural Gas Value Chain

Upstream Midstream Downstream

North America Market Simulator

Global Gas and LNG Analysis

Gas to Power Integration

Hydrogen and other new markets

Flaring and CCUS

Geologic and Reservoir Analysis

Recovery and Productivity

Well Economics

Production Outlook

Waste and Water Management

Infrastructure Support Electricity, Water and

Processing

Drilling Patterns

Energy Transition Policies and

Economic Impacts

Upstream Resource AssessmentGeologyStratigraphic Framework

Petrophysics

3D Models

Production Outlook

(from Baumgardner, Hamlin and Rowe, 2016; computed from XRF data)

History Matching

Statistical Modeling

Expected DrillingProfitability and well inventory maps are used to create expected drilling maps:1. Depending on previous year’s drilling

and expected prices & costs we derive a projection for the drilling portfolio

2. Profitability map reveals which locations are likely to be drilled

3. Probability of drilling is assigned based on the inventory of wells available and drilling expected according to the portfolio.

Workflow of Natural Gas Market SimulatorsModel Inputs

Supply Builder

Demand Builder

Infrastructure Builder

Supply Flows

LNG Contract Flows

(TORA)Bottom-up resource

evaluation

Courtesy of RBAC, Inc.

Customized assumptions to

focus on specific

projects or markets

North America – GPCM• 245 Pipelines• +440 Storage areas• LNG Exports /

Imports• 100 Market Points)• Import and Exports

Global Gas Market – G2M2•Sectoral(5) Demand of

100+ countries•LNG Contracts and

Infrastructure •Pipeline (400+) and

Storage (600+)•Multi-tanker classes•Source and Destination

Flows•Imports and Exports by

pipe and LNG

Graphic Display of Flows

Demand and Supply Balance

Gas Security Ratio –Production/Consumption By Country

From left to right, countries have increasing dependency on imported gas.

Regional LNG Production versus Capacity

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North America – LNG as an outlet not a driver

• With upcoming projects, capacity constraints are not a major concern, except localized areas.

• Upstream gas procurement and facility utilization should be the focus, and

• What to monitor in the market:• upstream supply outlooks • supply region market basis

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Asia - Still a growth story despite of short disruptions

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LNG Imports in Asia

China

Asia - SW

Asia - SE

Asia - NE

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4.6%

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Regional Gas Demand - BCMRegional Gas Production - BCMRegional Gas Demand - CAGR5YR

North East Asia

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Equatorial Guinea

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Peru

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Oman

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Papua NewGuineaIndonesia

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China

Anticipated lower winter peak for upcoming winter due to improved infrastructure supportDevelopment of regional index and trading platform, supported by government

Long term need for LNG remains, while US becomes a major competitor to Australia and Qatar.

Europe – Uncertainty increases gas dependency

• Uncertainty of Climate Change Policies adds dependency to gas fired generations.

• Infrastructure interruption from Russia via Ukraine

• Potential hydrogen in the mix and integration of hydrogen into gas infrastructure and value chain.

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-4.4%

1.2%0.7% 0.7%

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Regional Gas Demand - BCM

Regional Gas Production - BCM

Regional Gas Demand - CAGR5YR

Regional Gas Production - CAGR5YR

Upstream - Be Aware of Decline Rates

Well Economics

Production Outlook

Drilling Patterns

Production outlook is a function of expected drilling, well economics and market and price conditions.

Geologic and Reservoir Analysis

Recovery and Productivity

Alternative Case – Faster Decline Rate

Decline Rate is one of the most critical factors, for determining the future price and Gulf LNG production. An alternative case which only includes an adjusted supply profile USA West South Central (including Permian as well as Barnett and Hayesville)

LNG CostStack2020 – 2025

• Demand is coming - By 2025, there is a fastgrowth of LNG demand, about 30% growth in 5 years, 120 Million tons, (16 bcf/d).

• In past 5 years, US added about 12 bcfd of liquefaction capacity, and there is another 6 bcfd for next 5 years.

Competition of LNG after 2025

Different scale

• Demand increase slows down after 2025, it takes 15 years for another 100 million tons (13 bcfd)

• With the decline rateprojected here, would USlose the competition? What are the caveats?

• Overestimating of decline rateselsewhere, and Uncertainty around shale production development in many developing countries.

• US have the best experience inshale production and cost reduction of the world

Short Term Demand Shocks• 15% down in Asia demand in

2020, 5% in 2021

• Warm winter for Europe in 2020-2021

• Price differential:• Henry Hub >=-0.10/mmbtu• Asia -$1.44/mmbtu• NBP -$0.25/mmbtu• TTF - $0.50/mmbtu

Summary - Permian Gas Goes Global

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Upstream

• Disciplined operation is key for upstream success.

• Ongoing study on shale production outside US

Midstream

• Sufficient domestic takeaway to LNG terminals; USA LNG Terminals' utilization rate average above 70% before 2030

Downstream

• Downstream potential is robust for the medium to long term.

• Greater demand potential in Asia and Europe for LNG as moves into energy transition, like H2.

• Additional cross-product monetization options for oil and gas industry in Texas

Thanks!

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