The Shale Boom Heard Around the World

Ben Montalbano Director of Research and Operations Energy Policy Research Foundation, Inc. (EPRINC) Clingendael Institute November 5, 2013

Is this the wrong question?

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“Unlike the immediate benefits that American consumers and businesses have seen from low natural gas prices, at the gasoline pump, it has been pretty much business as usual. While the U.S. economy may be benefiting from declining oil imports, prices at the pump have remained consistently high.” He adds, “this Committee is going to explore why so many consumers have not benefitted from these new lower cost sources of crude oil.” -U.S. Senator Ron Wyden, Senate hearing on gasoline prices, July 16, 2013

North American Oil Production

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Source: EIA

0

2000

4000

6000

8000

10000

12000

Tho

usa

nd

Bar

rels

Pe

r D

ay

CanadianProduction ofCrude Oil

U.S. FieldProduction ofCrude Oil

July U.S. Oil Production 7.5 mbd

0

1

2

3

4

5

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Mill

ion

Bar

rels

Per

Day

Periphery

Permian

Eagle Ford

Bakken

EPRINC’s Forecast for Major U.S. Shale Plays

Source: HPDI data with EPRINC forecast estimates

EPRINC forecasts an additional 1.5 mbd by 2022

4

CAPP 2013 Updated Production Forecast

5

Source: CAPP

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

Tho

usa

nd

s o

f B

arre

ls p

er

Day

Mining

In Situ

Conventional Light

Conventional Heavy

Over 3 mbd increase by 2029

EPRINC U.S. Forecast vs. Others

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Source: EPRINC Forecast and Estimates compiled from Deutsche Bank Report Dec 2012 “Future of US Oil”

4

5

6

7

8

9

10

11

Mill

ion

Bar

rels

Pe

r D

ay

DB

IEA

EIA

WoodMac

PIRA

EPRINC

Source: NDPA, HPDI

7

Current Shale Oil Play Production

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

jan

-07

mei

-07

sep

-07

jan

-08

mei

-08

sep

-08

jan

-09

mei

-09

sep

-09

jan

-10

mei

-10

sep

-10

jan

-11

mei

-11

sep

-11

jan

-12

mei

-12

sep

-12

jan

-13

mei

-13

Bar

rels

Per

Day

Bakken - North Dakota

Eagle Ford - Texas

Permian Basin - Texasand New Mexico

Niobrara/Codell -Colorado

Anadarko Basin

Source: Baker Hughes

8

U.S. Rig Count

0

500

1000

1500

2000

2500

# o

f R

igs

Oil

Gas

Total

Source: EIA

9

Current Shale Oil Play Production

Source: HPDI September 2013, Past 90 Days

Williston

Basin

Powder River

Basin

Uinta

Basin

DJ Basin (Niobrara Reservoir)

Anadarko Basin

(Mississippian, Granite

Wash, Mississippi Lime

and other stacked plays)

Permian

Basin

Eagle Ford

Reservoir

Utica

Permit Activity

10

Source: NationalAtlas.gov

11

U.S. Federal Land Map

0

2000

4000

6000

8000

10000

12000

Tho

usa

nd

Bar

rels

Pe

r D

ay

U.S. Importsfrom Canada ofCrude Oil

U.S. FieldProduction ofCrude Oil

U.S. Imports ofCrude Oil

12

U.S. Total Imports, U.S. Production, U.S. Canadian Imports

Source: EIA

U.S. Imports 7.6 mbd U.S. Production 8 mbd

Canadian Imports 2.5 mbd

U.S. Import Portfolio Shifting

Source: EIA, ENI World Oil Book

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0

500

1000

1500

2000

2500

3000

Tho

usa

nd

Bar

rels

Pe

r D

ay

Saudi Arabia - MediumSour/Light SourAlgeria - Light Sweet/Ultra Light

Nigeria - Light Sweet/MediumSweetEcuador - Heavy Sour

Iraq - Medium Sour

Brazil - Heavy/Medium Sour andMediumColombia - Heavy Sour/MediumSourMexico - Heavy Sour/MediumSourVenezuela - HeavySoure/Medium SourKuwait - Medium Sour

Russia - Medium Sour

Canadian Pipeline Export Options

Source: Canadian Energy Pipeline Association

• Kinder Morgan’s Transmountain line off BC coast - currently 300,000 b/d capacity-recent announcements to expand up to 800,000 b/d (early 2017)

• (Now Spectra) Platte line to Wood River 280,000 b/d-full

• Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd—Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions

• TransCanada’s Keystone 581,000 b/d-full—XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k

Nearly full pipelines creates need for XL and Gateway opportunities for rail

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Market Saturation

Source: CAPP Crude Oil Forecast June 2013

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Pipeline Choke Points

Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software

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0

10

20

30

40

50

60

-

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

7.000.000

8.000.000

9.000.000

10.000.000

PADD 1East Coast

PADD 2Midwest

PADD 3Gulf Coast

PADD 4Rockies

PADD 5West Coast

Nu

mb

er

of

Re

fin

eri

es

Bar

rels

Pe

r C

ale

nd

ar D

ay

OperableAtmosphericCrude OilDistillationCapacity

ThermalCrackingCokingDownstreamChargeCapacity

OperatingRefineries

Where light sweet Bakken and heavy (blended bitumen) needs to go…

Source: AFPM map, EIA data for graph

Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD

Cokers = Heavy refining capability

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18

Canadian vs. Total Foreign Imports by PADD

Source: EIA Data

0200400600800

1000120014001600

PADD I East Coast(PADD 1)Total ForeignImports

East Coast(PADD 1)Imports fromCanada 0

500

1000

1500

2000

PADD II

Midwest (PADD 2)Total ForeignImports

Midwest (PADD 2)Imports fromCanada

0

1000

2000

3000

4000

5000

6000

PADD III

Gulf Coast(PADD 3)Total ForeignImports

Gulf Coast(PADD 3)Imports fromCanada

0

50

100

150

200

250

300

PADD IV

Rocky Mountain (PADD4) Total Foreign Imports

Rocky Mountain (PADD4) Imports from Canada

0

200

400

600

800

1000

1200

1400

2008 2009 2010 2011 2012 Jan-July2013

PADD V

West Coast (PADD 5)Total Foreign Imports

West Coast (PADD 5)Imports from Canada

Regional Pricing Disparities

Source: Flint Hills, EIA, CME Group, and estimates

• Western Canadian Select -$33 to WTI

19

$0,00

$20,00

$40,00

$60,00

$80,00

$100,00

$120,00

$140,00

$160,00

jan

-08

jun

-08

no

v-0

8

apr-

09

sep

-09

feb

-10

jul-

10

dec

-10

mei

-11

okt

-11

mrt

-12

aug-

12

jan

-13

jun

-13

WTI

Bakken (NorthDakota LightSweet Flint Hills)

WCS (WesternCanadian Select)

Brent

-15

-10

-5

0

5

10

15

20

25

30

35

0

10.000

20.000

30.000

40.000

50.000

60.000

$/

Bar

rel

Cu

shin

g St

ock

s -

Tho

usa

nd

Bar

rel

Cushing OK EndingStocks excluding SPRof Crude OilThousand Barrels

WTI BrentDifferential (Brentminus WTI)

Cushing Stocks vs. WTI Brent Differential

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Source: EIA

$0

$20

$40

$60

$80

$100

$120

$140

$/

Bar

rel

U.S. Landed Costs ofNigerian Crude Oil

U.S. Landed Costs ofMexican Crude Oil

U.S. Landed Costs ofVenezuelan Crude Oil

U.S. Landed Costs ofCanadian Crude Oil

Cushing OK WTI SpotPrice FOB $/bbl

Europe Brent Spot PriceFOB $/bbl

Price of Canadian Crude Imports

Landed Cost: “The dollar per barrel price of crude oil at the port of discharge. Includes charges associated with the purchase, transportation, and insuring of a cargo from the purchase point to the port of discharge. Does not include charges incurred at the discharge port (e.g., import tariffs or fees, wharfage charges, and demurrage).”

• U.S. production surge • Lack of adequate

outbound capacity to refining centers

• Market saturation

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Source: EIA

Venezuelan and Mexican crude

Canadian crude

22

Daily Crude by Rail Shipment in U.S. and Canada

Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels).

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

Jan

08

Ap

r 0

8

Jul 0

8

Oct

08

Jan

09

Ap

r 0

9

Jul 0

9

Oct

09

Jan

10

Ap

r 1

0

Jul 1

0

Oct

10

Jan

11

Ap

r 1

1

Jul 1

1

Oct

11

Jan

12

Ap

r 1

2

Jul 1

2

Oct

12

Jan

13

Ap

r 1

3

Jul 1

3

Bar

rels

Per

Day

U.S. Average BarrelsPer Day of Petroleumand Petroleum Product

Canadian AverageBarrels Per Day ofPetroleum andPetroleum Product

EPRINC's U.S. DailyCrude by Rail Estimate- 770,000 b/d

EPRINC's Canada DailyCrude by Rail Estimate- 130,000 b/d

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Pipeline and Rail

Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software

• Severely limited due to lack of Keystone XL and lack of historical build out to the coasts – system designed to import into the Gulf and move up

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• New markets • Diversification • Neat Barrels • Nimble - Quickly adjustable • Optionality for Canadian and U.S. crude, NGLS,

and other petroleum products

Williston Basin Crude Transportation

Source: NDPA, EPRINC Estimates

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Tesoro Refinery: 68,000 b/d Truck to Canadian Pipeline: 12,000 b/d Rail: 670,000 b/d Pipeline: 241,000 b/d

Williston Basin Production: 955,000 b/d North Dakota: 875,000 b/d South Dakota: 5,000 b/d Eastern Montana: 75,000 b/d

Potential Issues, Hurdles, and Regulatory Concerns

• Oil prices • Water Usage • Oil spills (rail and pipeline) • Environmental Concerns • Regs on Federal Land-Fracking • Infrastructure Delays-

PERMITTING • Lack of prudent policy: failing

to connect what is happening on the ground to what is understood in Washington

• Costs incurred

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U.S. Transportation Fuel Demand

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0

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20

13

Weekly U.S. Product Suppliedof Distillate Fuel Oil(Thousand Barrels per Day)

Weekly U.S. Product Suppliedof Kerosene-Type Jet Fuel(Thousand Barrels per Day)

Weekly U.S. Product Suppliedof Finished Motor Gasoline(Thousand Barrels per Day)

U.S. Auto-Fleet Fuel Economy

27

U.S. Liquid Fuels Consumption

28

-0,30

-0,15

0,00

0,15

0,30

0,45

0,60

0,75

2011 2012 2013 2014

16,5

17,0

17,5

18,0

18,5

19,0

19,5

20,0

U.S. Liquid Fuels Consumption million barrels per day (MMbbl/d)

Motor gasoline (right axis) Jet fuel (right axis)

Distillate fuel (right axis) Other fuels (right axis)

Total consumption (left axis) Consumption forecast (left axis)

annual change (MMbbl/d)

Source: Short-Term Energy Outlook, October 2013

The Silent Disruption

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OPEC Spare Capacity

30

World Liquid Fuels Balance

31

Non-OPEC Production Growth

32

WTI Price

33

0

20

40

60

80

100

120

140

160

jan

02

, 20

04

jun

02

, 20

04

no

v 0

2, 2

00

4

apr

02

, 20

05

sep

02

, 20

05

feb

02

, 20

06

jul 0

2, 2

00

6

dec

02

, 20

06

mei

02

, 20

07

okt

02

, 20

07

mrt

02

, 20

08

aug

02

, 20

08

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02

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v 0

2, 2

00

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apr

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02

, 20

11

jul 0

2, 2

01

1

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02

, 20

11

mei

02

, 20

12

okt

02

, 20

12

mrt

02

, 20

13

aug

02

, 20

13

Weekly Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Non-FTA LNG Export Approvals

34

6.6 bcf/d approved thus far

Conclusions

• Shale (gas and oil) having a beneficial and tangible impact in the U.S. • Refineries reopening in the U.S. vs. closing in Europe • Economic growth, stimulus, some manufacturing returning

• North America may soon be oil self-sufficient • Plus and minuses for the rest of the world

• Europe – competitiveness harmed for gas/NGL based industries, but LNG more abundant • Lower oil price path

• Middle East and Asia will become more interdependent • Enabled U.S. Iran policy???

• LNG exports important, but perhaps more important is that the U.S. will not be a large importer

• Could be 2008, or worse, all over again.

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