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Status and outlook for shale gas and tight oil development in the U.S.

This report provides an overview of the status and outlook for shale gas and tight oil development in the U.S., including projections for energy production, consumption, and carbon dioxide emissions. It explores the drivers of oil and natural gas production, resource estimation metrics, and the growth of natural gas consumption in different sectors. The report also highlights the potential for growth in natural gas transportation.

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Status and outlook for shale gas and tight oil development in the U.S.

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  1. Status and outlook for shale gas and tight oil development in the U.S. For Consumer Energy Alliance February 21, 2013 | Washington, D.C. By Adam Sieminski, Administrator

  2. Annual Energy Outlook 2013 projections to 2040 • Growth in energy production outstrips consumption growth • Crude oil production rises sharply over the next decade • Motor gasoline consumption reflects more stringent fuel economy standards • The U.S. becomes a net exporter of natural gas in the early 2020s • U.S. energy-related carbon dioxide emissions remain below their 2005 level through 2040 Adam Sieminski February 21, 2013

  3. U.S. energy use grows slowly over the projection reflecting improving energy efficiency and slow, extended economic recovery Source: EIA, Annual Energy Outlook 2013 Early Release U.S. primary energy consumption quadrillion Btu Shares of total U.S. energy History Projections 2000 2011 28% Natural gas 24% 26% 11% 6% 8% Renewables (excluding liquid biofuels) 8% 9% 8% Nuclear 2% 1% 23% Liquid biofuels 19% 20% Coal 39% 36% 32% Oil and other liquids Adam Sieminski February 21, 2013

  4. There are three main drivers of oil and natural gas production and resource estimates Economics Geology Technology Adam Sieminski February 21, 2013

  5. These three drivers impact resource estimation metrics differently over time in an iterative process Geology Thermal maturity Pressure Formation depth Technology Recompletions Drilling costs Theory Experiment Practice Economics Price of gas Technically Recoverable Resources (TRR) Economically Recoverable Resources (ERR) Resources in Place P Q Well-level data, incl. estimated ultimate recovery (EUR) Adam Sieminski February 21, 2013

  6. EIA’s focus is on the timing of production; the modeling focuses on these parameters • average initial production (IP) rate per well • average decline curve (can vary by region and vintage) • IP & decline curve define the Estimated Ultimate Recovery (EUR) per well Other parameters • drilling and operating costs • number of active rigs • how many wells a rig can drill (rig efficiency) • well spacing Adam Sieminski February 21, 2013

  7. Technically recoverable resources (TRR) result from the well analysis Area (acres) ÷ drainage area of a well × % of area not yet drilled × % area with potential × distribution of EUR/well (see previous slide, this is the area under the curve for an individual well) = undiscovered TRR Adam Sieminski February 21, 2013

  8. U.S. Shale Gas Adam Sieminski February 21, 2013

  9. Technically recoverable natural gas resources reflect new information, a combination of assessments and EIA updates U.S. dry gas resources trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release USGS Marcellus Assessment Benchmarking Unproved shale gas 2,327 Unproved other gas (including Alaska* and offshore) *Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. Proved reserves (all types and locations) 543 1,479 304 AEO Edition Adam Sieminski February 21, 2013

  10. 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 December 2012 and converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. Adam Sieminski February 21, 2013

  11. An average well in shale gas and other continuous resource plays can also have steep decline curves, which require continued drilling to grow production million cubic feet per year Source: EIA, Annual Energy Outlook 2012 1 Adam Sieminski February 21, 2013

  12. For example: Oil production by monthly vintage of wells in the Williston Basin Source: DrillingInfo history through August 2012, EIA Short-Term Energy Outlook, February 2013 forecast Adam Sieminski February 21, 2013

  13. Shale gas leads growth in total gas production through 2040 U.S. dry natural gas production trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 Shale gas Tight gas Non-associated offshore Alaska Coalbed methane Associated with oil Non-associated onshore Adam Sieminski February 21, 2013

  14. Natural gas consumption is quite dispersed with electric power, industrial, and transportation use driving future demand growth U.S. dry gas consumption trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release History Projections *Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. Electric power 32% 31% Industrial* 33% 33% 2% Gas to liquids 6% 3% Transportation** 13% 12% Commercial 19% 14% Residential Adam Sieminski February 21, 2013

  15. Growth of natural gas in transportation led by heavy duty trucks (LNG) and gas to liquids (diesel)… marine and rail to come? U.S. natural gas consumption quadrillion Btu Note: Gas to liquids includes heat, power, and losses. Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 28% Gas to liquids Freight trucks 38% 1% 3% Buses 1% 1% Light-duty vehicles 3% Pipeline fuel 31% 95% Adam Sieminski February 21, 2013

  16. Domestic natural gas production grows faster than consumption and the U.S. becomes a net exporter of natural gas around 2020 U.S. dry gas trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 Consumption Domestic supply Net imports Adam Sieminski February 21, 2013

  17. U.S. Tight Oil Adam Sieminski February 21, 2013

  18. Multiple factors have contributed to U.S. crude oil resource estimate increases over the years, with tight oil contributing recently U.S. crude oil and lease condensate resources in non-prohibited areas billion barrels Source: EIA, Annual Energy Outlook 2013 Early Release 222.6 23.8 48.6 41.6 16.5 67.0 25.2 The USGS reduced NPR-A resource estimates, which is responsible for the lower AEO2013 Alaska resources. Prior to AEO2009, resources in Pacific, Atlantic, and Eastern GOM OCS were under moratoria and not included. Includes shale oil. Prior to AEO2011, tight oil is included in unproved other lower-48 onshore category. Adam Sieminski February 21, 2013

  19. Domestic production of tight oil has grown dramatically over the past few years tight oil production for select plays million barrels per day Source: Drilling Info (formerly HPDI), Texas RRC, North Dakota department of mineral resources, and EIA, through August 2012 Adam Sieminski February 21, 2013

  20. U.S. tight oil production by selected plays U.S. crude oil production million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 Adam Sieminski February 21, 2013

  21. U.S. tight oil production leads a growth in domestic production of 2.6 million barrels per day between 2008 and 2019 U.S. crude oil production million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release and Short-Term Energy Outlook, February 2013 2011 History Projections STEO Feb. 2013 U.S. crude oil projection Tight oil Other lower 48 onshore Lower 48 offshore Alaska Adam Sieminski February 21, 2013

  22. U.S. import share of liquid fuels declines due to increased production of tight oil and gas liquids, and greater fuel efficiency U.S. liquid fuels supply million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release Note: Petroleum production includes: crude oil, lease condensates, refinery gain, stock changes History Projections 2011 45% 37% Net petroleum and biofuel imports Biofuels excluding imports Natural gas plant liquids 17% 12% 7% 1% Liquids from natural gas and coal 5% Petroleum production 38% 38% Adam Sieminski February 21, 2013

  23. More stringent standards for liquids consumption in light-duty vehicles made a big difference in EIA’s demand projections Light-duty vehicle liquids consumption million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release AEO2012 AEO2013 Adam Sieminski February 21, 2013

  24. Global Shale Gas and Tight Oil Adam Sieminski February 21, 2013

  25. EIA/ARI study to update & expand coverage of shale gas assessment and identifying prospective tight oil formations ,not assessed Source: U.S. Energy Information Administration www.eia.gov/analysis/studies/worldshalegas/ Adam Sieminski February 21, 2013

  26. Uncertainties that could slow global growth of shale gas and tight oil • Resource quantities and distribution • Surface vs. mineral rights • Risk appetite of industry participants • Infrastructure/technology • Environmental constraints Adam Sieminski February 21, 2013

  27. Global tight oil production comparisons IEO2013 DRAFT BP Energy Outlook 2030 million barrels per day Source: Preliminary International Energy Outlook 2013, BP Energy Outlook 2030 Adam Sieminski February 21, 2013

  28. For more information U.S. Energy Information Administration home page | www.eia.gov Annual Energy Outlook | www.eia.gov/forecasts/aeo Short-Term Energy Outlook | www.eia.gov/forecasts/steo International Energy Outlook | www.eia.gov/forecasts/ieo Today In Energy | www.eia.gov/todayinenergy Monthly Energy Review | www.eia.gov/totalenergy/data/monthly Annual Energy Review | www.eia.gov/totalenergy/data/annual Adam Sieminski February 21, 2013

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