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

Status and outlook for shale gas and tight oil development in the U.S. for Platts – North American Crude Marketing Conference March 01, 2013 | Houston, TX by Adam Sieminski, Administrator. Annual Energy Outlook 2013 projections to 2040.

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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 Platts – North American Crude Marketing Conference March 01, 2013 | Houston, TX 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 , Platts,March 01, 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 , Platts, March 01, 2013

  4. U.S. Shale Gas Adam Sieminski , Platts, March 01, 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 , Platts, March 01, 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 , Platts, March 01, 2013

  7. 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 Benchmark to USGS 2011 Marcellus Assessment 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 , Platts, March 01, 2013

  8. U.S. wet natural gas proved reserves, 1980-2010 trillion cubic feet Source: U.S. Energy Information Administration Adam Sieminski , Platts, March 01, 2013

  9. EIA fits well production data to hyperbolic decline curves to estimate EUR Classic hyperbolic decline curve (Arps 1945): 1985 vertical well EUR=1.41 bcf 2004 vertical well EUR=0.46 bcf 2011 horizontal well EUR=1.76 bcf Source: HPDI data from horizontal wells in the Newark East field in the Barnett Shale; EIA analysis Adam Sieminski , Platts, March 01, 2013

  10. 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 , Platts, March 01, 2013

  11. 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 , Platts, March 01, 2013

  12. 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 January 2013 and converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. Adam Sieminski , Platts, March 01, 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 , Platts, March 01, 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 , Platts, March 01, 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 , Platts, March 01, 2013

  16. Total natural gas exports nearly quadruple by 2040 in the AEO2013 Reference case U.S. natural gas exports trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release Exports to Mexico Exports to Canada Lower 48 LNG exports Alaska LNG exports Adam Sieminski , Platts, March 01, 2013

  17. 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 2011 History Projections Consumption Domestic supply Net imports Adam Sieminski , Platts, March 01, 2013

  18. U.S. Tight Oil Adam Sieminski , Platts, March 01, 2013

  19. 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 , Platts, March 01, 2013

  20. U.S. crude oil plus condensate proved reserves, 1980-2010 billion barrels Source: U.S. Energy Information Administration Adam Sieminski , Platts, March 01, 2013

  21. 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 October 2012. Adam Sieminski , Platts, March 01, 2013

  22. 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 , Platts, March 01, 2013

  23. U.S. petroleum product exports exceeded imports in 2011 for first time in over six decades annual U.S. net exports of total petroleum products, 1949 – 2011 million barrels per day Source: EIA, Petroleum Supply Monthly net product exporter Adam Sieminski , Platts, March 01, 2013

  24. U.S. dependence on imported liquids depends on both supply and demand U.S. liquid fuel supply million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 2005 Consumption 37% 45% 60% Net imports Domestic supply Adam Sieminski , Platts, March 01, 2013

  25. Light-duty vehicle liquids consumption is lower primarily due to more stringent CAFE standards light-duty vehicle liquids consumption million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release AEO2012 AEO2013 Adam Sieminski , Platts, March 01, 2013

  26. Reference case oil price initially drops and then rises steadily, but there is uncertainty about the future trajectory Annual average spot price of Brent crude oil 2011 dollars per barrel Source: EIA, Annual Energy Outlook 2013 Early Release 2011 History Projections High Oil Price Reference Low Oil Price Adam Sieminski , Platts, March 01, 2013

  27. Global liquids supply increases 26 percent with regional market shares relatively stable Global liquids supply million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release History Projections 2011 44% OPEC 40% 31% Other non-OECD 34% 25% OECD 26% Adam Sieminski , Platts, March 01, 2013

  28. 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 , Platts, March 01, 2013

  29. 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 and technology • Environmental constraints Adam Sieminski , Platts, March 01, 2013

  30. Changing electricity generation mix in AEO2012 reference case and carbon fee allowance side cases U.S. electricity net generation trillion kilowatthours Source: EIA, Annual Energy Outlook 2012 2012 Reference Case $15 Carbon Fee $25 Carbon Fee 2010 24% Natural gas 28% Natural gas 34% Natural gas 34% 10% Renewables 15% 23% Renewables 22% 20% Nuclear 18% Renewables Nuclear 27% 38% Nuclear 45% Coal 38% Coal 16% Coal 4% Adam Sieminski , Platts, March 01, 2013

  31. 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 , Platts, March 01, 2013

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