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Geoffrey Norman Brand PhD Senior Economic Advisor American Petroleum Institute brandg@api

What Happened? Why are We Talking about Exports? Natural Gas, Refined Products, and Crude Oil Pittsburgh Energy Law and Policy Institute August 2, 2013. Geoffrey Norman Brand PhD Senior Economic Advisor American Petroleum Institute brandg@api.org. 2008 Everybody was Thinking Imports

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Geoffrey Norman Brand PhD Senior Economic Advisor American Petroleum Institute brandg@api

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  1. What Happened?Why are We Talking about Exports?Natural Gas, Refined Products, and Crude OilPittsburgh Energy Law and Policy InstituteAugust 2, 2013 • Geoffrey Norman Brand PhD • Senior Economic Advisor • American Petroleum Institute • brandg@api.org

  2. 2008 Everybody was Thinking Imports Why the Sudden Shift? • Natural Gas and Crude Oil • Hydraulic Fracturing and Horizontal Drilling • Refined Products • Refinery Throughput / Utilization and Consumption Conservation 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  3. Exploration – Old Fashion Way Look for Traps or Concentrations of OilStill done Today Cap Rock Nonporous Nonpermeable ReservoirPorous and Permeable Source RockCarbon RichGood Stuff = 150 – 350 Million years old 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  4. Aquifer Hydraulic FracturingStraight to the Source More common to be combined with horizontal drilling. Is mostly a mechanicalprocess of creating cracks in nonpermeable source rocks. Oil or natural gas is there – it needs stimulation to flow. Typically 1000’s of feet below usable aquifers. Source Rock (Shale) Hydraulic fracturing in not new – it has been done for the last 60 years. We are just getting better at it therefore it is becoming more common. 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  5. Shale Resources in the U.S.Both Natural Gas and Oil 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  6. Natural Gas 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  7. In 2005 – 55 Proposed LNG Import Terminals (43 in the U.S.) 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  8. Today U.S. is the #1 natural gas producer in the world Historical U.S. Natural Gas Production Demand was projected to grow – Production was flat since 1990 Peaked in 1973Rising since 2006 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  9. Domestic production of shale gas has grown dramatically over the past few years shale gas production (dry) billion cubic feet per day Sources: LCI Energy Insight gross withdrawal estimates as of March 2013 and converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. It all started in Texas Adam Sieminski , WAMM, April 18, 2013

  10. Shale gas leads growth in total gas production through 2040 to reach half of U.S. output U.S. dry natural gas production trillion cubic feet Source: EIA, Annual Energy Outlook 2013 History Projections 2011 Everything is optimistic? Shale gas Tight gas Non-associated offshore Alaska Coalbed methane Associated with oil Non-associated onshore Adam Sieminski , WAMM, April 18, 2013

  11. US Production Jan 2010 to Jan 2012 Production Post 2012 Flat? +10 Bcf / day +18% Hurricanes If you are wondering 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  12. Average Annual Natural Gas PricesHenry Hub, Louisiana 2005 to 2008$7 to $9 Remember --production grew +10 Bcf /day until early 2012 After Recession No Price Recovery 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  13. U.S. Development has shifted to Liquids Baker Hughes Rig Counts - Oil vs. Natural Gas U.S. stopped drilling for natural gas at least significantly slowed Waiting for markets – the resource is there. Most natural gas wells drilled today also have liquids (ethane, butane and propane). 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  14. In 2013 – 26 Proposed LNG Export Terminals (23 in the U.S.) 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  15. The U.S. projected to be a net exporter of natural gas around 2020 U.S. dry gas trillion cubic feet Source: EIA, Annual Energy Outlook 2013 2011 History Projections Industry estimates for U.S. LNG exports are usually around 4 to 6 Bcf/day. Consumption World demand limitations. International competition from 60 to 70 projects US permitting delays increase the likelihood of other non-US projects going forward Domestic supply Net imports Adam Sieminski , WAMM, April 18, 2013

  16. Benefits of LNG Exports (Study by 2013 ICF International) • 4 to 16 Bcf /day of LNG Exports Results • Employment +75,000 to 450,000 • GDP +$15 billion to $75 billion • Moderate Impacts on natural gas prices - • $0.30 to $1.00 • Economic gains driven by • Increased oil and gas development • Increased chemical production • Increased manufacturing output • Increased Income in the economy http://www.api.org/news-and-media/news/newsitems/2013/may-2013/approve-remaining-us-lng-export-permits-without-delay

  17. Crude Oil 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  18. 2010 to 2013 +2 million barrels per day +40% U.S. Crude Oil Production has increased Peaked in 1970 Source: EIA 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  19. U.S. tight oil production has more than tripled in two years TX ND TX, OK, KS TX CA OK CO TX TX, LA Source: EIA 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  20. Recent Forecasts are being revised upwards Reference case High resource case History Projections History Projections 2011 2011 STEO April 2013 U.S. crude oil projection Tight oil Tight oil Other lower 48 states onshore Other lower 48 states onshore Lower 48 states offshore Lower 48 states offshore Alaska Alaska Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013 million barrels per day

  21. Even under aggressive production assumptions the U.S. is projected to be a net importer oil for the foreseeable future. U.S. liquid fuel supply million barrels per day Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013 History Projections 2012 -8% Consumption 37% Petroleum Exports 40% Net imports Domestic supply Current restrictions to export crude oil except to Canada.But why do we care about crude oil exports?

  22. Crude oils are NOT the same. Crude varies in weight and sulfur content. Each refinery Adam Sieminski , WAMM, April 18, 2013

  23. Potential Impacts of Removing Crude Oil Export Restrictions • Increased crude oil production – more markets for any type of crude • Reduced infrastructure constraints (pipelines, rail, barge) – You could go to a port or a refinery. • Reduced need for refinery upgrades • Better refinery utilization • Lowers per unit costs Note: There is a good chance that there may be approaching limits of sweet light crude refinery capacity in the Gulf region 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  24. Won’t restricting crude oil exports increase crude supply in the U.S. and result in lower gasoline prices to consumers? Crude prices are set on world markets Restricting crude exports may reduce the price of some types of crude in some areas of the country: However - gasoline prices are set by the highest marginal priced gallon – not the average and will likely not lower prices to consumers. 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  25. Eagle Ford – South Texas Satellite Photo of activity 225 Rigs operating 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  26. Refined Products 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  27. Refinery Throughput has recently increased. + 1 million barrels per day 2009 to 2012 Refineries use domestic and foreign inputs.

  28. Liquid Petroleum consumptions has recently decreased. Includes Gasoline, Jet Fuel, Kerosene, Distillate, Fuel oil 2007 to 2012 Minus 2 million barrels per day

  29. U.S. petroleum product exports exceeded imports in 2011 for first time in over six decades annual U.S. net imports of total petroleum products, 1949 – 2012 million barrels per day Source: EIA, Petroleum Supply Monthly and Annual Energy Review net product exporter imports net imports exports Other reasons to export – We like gasoline – Europe likes diesel. Adam Sieminski , WAMM, April 18, 2013

  30. Export Take-aways • Natural Gas – The U.S. can produce more than it consumes • Crude Oil – It is better to export the type of crude oil refineries don’t want and import the type it does. • Refined Products – It is best to keep our refineries at full capacity and export any product we do not need. Exports have positive impacts on the U.S. economy in terms of GDP, employment, and balance of trade. 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

  31. Thank - You 1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

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