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David E. Dismukes, Ph.D. Center for Energy Studies Louisiana State University
What’s Going on With Energy? How Unconventional Oil & Gas Development is Impacting Renewables, Efficiency, Power Markets and All That Other Stuff
Atlanta Economics Club Monthly Meeting December 10, 2012
Center for Energy Studies
Energy-Related Carbon Dioxide
81.2%
Summary and Take Away
2
• New natural gas supply availability is having considerable impacts on all energy markets today and on longer term, forward-looking basis.
• Shale revolution is now migrating into liquids and crude oil production. The expansion of this revolution is increasing liquids production as well as facilitating additional natural gas production despite low prices.
• Considerable economic development opportunities through
lower energy costs.
• Developments will change energy market dynamics including those associated with such clean energy initiatives and renewables, nuclear power, carbon capture and storage, and energy efficiency – it’s just not sinking in yet…..
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© LSU Center for Energy Studies
Introduction
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What Changed? The Way Things Are
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Unconventional vs. Conventional Geological Formations
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Recent Trends
Source: Energy Tomorrow
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Shale, Horizontal Drilling, and Fractionation
• Shale (unconventional) wells differ from “conventional” wells since they are drilled horizontally and not vertically.
• Horizontal segments are then “fractured” with higher pressure water, chemicals and silica to break up the formation.
• The fractionation process releases/liberates the hydrocarbons.
• Some environmental and water use concerns expressed in some areas of the country on this drilling process.
Recent Trends
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Production from a Typical Well and Shale Well
6 © LSU Center for Energy Studies
Recent Trends
Illustrative production decline from a convention vs. shale producing well. As much as 80 percent of total production thought to occur in the first two to three
years.
Source: Energy Information Administration, U.S. Department of Energy
Domestic Shale Gas Basins and Plays
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7 © LSU Center for Energy Studies
Unlike conventional resources, shale plays
(natural gas, liquids, and crudes) are
located almost
ubiquitously throughout the U.S. and
are the primary
reason for the decrease in overall and
regional natural gas
prices.
Recent Trends
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Game Changer 1: Natural Gas
8 © LSU Center for Energy Studies
$/M
cf
Source: Energy Information Administration, U.S. Department of Energy.
Natural Gas Price Variability
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$0
$2
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$8
$10
$12
$14
$16
$18
$20
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
average for period 2000-2001 heating season
through 2008: $6.24 (standard deviation: $2.39)
since 2009: $4.11 (standard deviation: $0.70)
9 © LSU Center for Energy Studies
The 2001 to 2009 market trend of higher average prices coupled with high volatility is reversing itself and post 2009 prices are significantly lower.
Average 1997 through 2000: $2.79 (standard deviation: $1.28)
Natural Gas Trends
Dry
Nat
ural
Gas
Pro
ved
Res
erve
s (T
cf)
Source: Energy Information Administration, U.S. Department of Energy
Natural Gas Proved Reserves and Production
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1970 1975 1980 1985 1990 1995 2000 2005 2010
Reserves
Production
Marketed P
roduction (Tcf)
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Current U.S. natural gas reserves are approaching record levels not seen since 1970. Natural gas production is at levels that surpass historic peaks.
Natural Gas Trends
Res
erve
s - T
cf
Source: Energy Information Administration, U.S. Department of Energy
Annual Energy Outlook, Natural Gas Reserves
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2010 2015 2020 2025 2030 2035
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Unconventional resources are not a “flash in the pan” and are anticipated to continue to increase over the next two decades or more.
Natural Gas Trends
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Forecast U.S. natural gas production, 1990-2035
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0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Shale gas Tight gas Non-associated offshoreAlaska Coalbed methane Associated with oilNon-associated onshore
Tcf
Shale availability will drive U.S. natural gas supply.
Shale Gas Production
Assc. Gas Production
Natural Gas Trends
(201
0 $/
MM
BTU
)
Source: Energy Information Administration, U.S. Department of Energy
Choosing Most Current Natural Gas Price Forecasts: AEO-2007 to AEO-2012
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1997 2002 2007 2012 2017 2022 2027 2032
Actual Henry Hub AEO-2007 AEO-2008 AEO-2009AEO-2010 AEO-2011 AEO-2012
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Shale availability has significant impact on future price outlook.
Anticipated price outlook in 2009.
Anticipated price outlook today.
Natural Gas Trends
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Game Changer 2: Crude and Liquids
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Crude Oil and Natural Gas Prices
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Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Crude Oil (WTI) Natural Gas (Henry Hub)
Source: Federal Reserve Bank
Cru
de O
il ($
/Bbl
) N
atural Gas ($/M
cf)
Two significant breaks (decoupling) of natural gas and crude oil prices.
15 © LSU Center for Energy Studies
First price decoupling: Gas Up, Crude Down
Second price decoupling: Crude Up, Gas Down
Recession
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Domestic Rig Count – Crude Oil vs. Natural Gas
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11
Per
cent
of T
otal
Rig
s
Source: Baker Hughes.
Oil Rigs
Gas Rigs
For the first time in 16 years, the number of oil rigs is equivalent to gas rigs.
Crude Oil Trends
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Rig Count, North Louisiana (Haynesville) and Texas District 1 (Eagle Ford)
17 © LSU Center for Energy Studies
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Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
North Louisiana Texas - District 1 Spot Price Differential
Rig
Cou
nt (J
anua
ry 2
009=
100)
$/B
OE
Indexing the rig change from January 2009 highlights the basin preference.
Haynesville is losing its competitive advantage due to the
liquids preference associated with other shales.
Source: Baker Hughes. Rig counts are indexed to the level of active drilling rigs in each reported area as of January 2009.
Crude Oil Trends
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Can you insert a slide that shows a
Crude Oil Trends
Annual Production, Unconventional Resources
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Bcf/d MMBBl/d
Source: Advanced Resource Intl; presentation to Cheniere Board, March 2011; Cheniere Research
0
1
2
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8
2010 2011E 2012E 2013E 2014E 2015E 2020E 0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 Includes Eagle Ford, W. Barnett, Bakken Shales;
Granite Wash, Piceance & Uinta Tight Sands
Liquids Gas
Liquids production from shale plays > 3 million barrels per day by 2020 Associated natural gas > 7 Bcf/d of “costless” supply (or about 2.3 Bcf/d per
every 1.0 MMBbls/d of shale-based liquids production).
Crude Oil Trends
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Game Changer 3: Renewable Energy Markets
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Center for Energy Studies
RPS States
ME 40% by 2017
VT: 20% by 2017
NH: 24.8% by 2025
WI: 10% by 2015
MT: 15% by 2015
IA: 105 MW
MN: 25% by 2025
WA: 15% by 2020
CA: 33% by 2020
NV: 25% by 2025
AZ: 15% by 2025
NM: 20% by 2020
UT: 20% by 2025
TX: 5,880 MW by 2015
MO: 15%
by 2021
IL: 25% by 2025
NC: 12.5% by 2021
VA: 15% by 2025
PA: 18% by 2020
NY: 29% by 2015
State RPS
State Goal
OR: 25% by 2025
CO: 30% by 2020
ND: 10% by 2015
SD: 10% by 2015
OH: 12.5% by 2024
MA: 22% by 2020 RI: 16% by 2020 CT: 27% by 2020 NJ: 20.4% by 2021 MD: 20% by 2022 DE: 25% by 2026 DC: 20% by 2020
Note: As of June 2012 Source: Database of State Incentives for Renewables and Efficiency.
MI: 10% +1,100 MW
by 2015
WV: 25% by 2025
OK: 15% by 2015
KS: 20% by 2020
IN: 10% by 2025
HI: 40% by 2030
Currently 37 states have RPS policies in place. Together these states account for over 72 percent of electricity sales in the U.S.
21 © LSU Center for Energy Studies
Renewable Energy
Center for Energy Studies
RPS Phase-In: Share of Total U.S. Retail Sales with RPS Requirements
Allowance “Allowances” are issued for
the allowed level of emissions.
Deficit Remaining credits needed
after allowances
Source: Energy Information Administration, U.S. Department of Energy. 22 © LSU Center for Energy Studies
State RPS requirements have been increasing significantly since 2005 and the post-Hurricane Katrina volatility in energy prices.
0%
10%
20%
30%
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50%
60%
70%
80%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Katrina
Renewable Energy
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Historic Wind Generation Capacity Development
23 © LSU Center for Energy Studies
Wind capacity development has been considerable. The last several years has seen considerable over-development and the industry current has about 4 GW of excess manufacturing capacity even if the federal wind PTC is continued. The federal 1603
option created considerable speculative activity.
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0
2,000
4,000
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1980 1985 1990 1995 2000 2005 2010
Installations Cumulative Capacity
Ann
ual C
apac
ity (M
W) C
umulative C
apacity (GW
)
Pre-PTC and RPS Post-PTC / Pre-RPS Post-PTC /Post-RPS*
Renewable Energy
REC Prices and Wind Development
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REC prices in ERCOT have fallen considerably in large part due to the overdevelopment of wind capacity over the past several years. High
correlation between the increase in wind generation and decrease in REC prices.
$0
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500
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Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Texas Wind Generation Average Monthly REC Price
Texa
s W
ind
Gen
erat
ion
(MW
h)
Average RE
C P
rice ($/MW
h)
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Renewable Energy Prices
Source: PJM-GATS
Cost of Solar Renewable Energy Credits through PJM-GATS
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$0
$100
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Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Delaware District of Columbia MarylandNew Jersey Ohio PennsylvaniaVirgina
$ pe
r Sol
ar-R
EC
Solar energy costs (SRECs) have decreased considerably over the past year, even in high priced states such as New Jersey.
25 © LSU Center for Energy Studies
Renewable Energy
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Forecasted Renewable Capacity Growth Opportunities
Note: Based on assumed growth in electricity demand and continued state RPS targets. Source: Energy Information Administration (load growth). 26 © LSU Center for Energy Studies
Renewable capacity opportunities likely to grow to close to 200 GW with wind likely dominating these growth opportunities. S&P estimates as much as $150 in capex over
next decade alone (even with expiration of federal wind PTC).
Allowance “Allowances” are issued for
the allowed level of emissions.
Deficit Remaining credits needed
after allowances
RP
S C
apac
ity (G
W)
0
50
100
150
200
250
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Renewable Energy
Center for Energy Studies
Renewable Energy Outlook
27 © LSU Center for Energy Studies
Allowance “Allowances” are issued for
the allowed level of emissions.
Deficit Remaining credits needed
after allowances
Renewable Energy
Energy-Related Carbon Dioxide
81.2%
Market Forces
• Over-development
• Low natural gas prices
• Reduced electricity demand
• Cost & operating efficiencies
• International competition
Policy Changes
• Reduction of over-incentives
• Potential state-level recalibration of expectations
• Changing environmental priorities (i.e., carbon) (??)
Renewables at this time still have strong outlook and a guaranteed market opportunity for growth not afforded to other generation resources.
Renewables will, however, be increasingly pressured by market forces and policy challenges.
Center for Energy Studies
Conclusions
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© LSU Center for Energy Studies
Center for Energy Studies
Conclusions
29 © LSU Center for Energy Studies
• U.S is entering a energy renaissance period. Reserve development, production, capital expenditures are all up to record levels. U.S. and North America generally one of the more/most attractive for new investment. Impacts spreading to manufacturing.
• Policy and perception continue to be things that plague continued industry development. It is, however, starting to temper: at least at the state level. Continued federal positions bear watching.
• Policy uncertainty is the biggest impediment to continued development. Significant short-term policy retrenchment on unconventional resources could lead to economic impacts that would pale in comparison to past financial and housing crisis.
• Renewables have a bright outlook (due to policy), and the economics have seen significant improvements. They will continue to see market and policy pressures which may not be a bad thing overall for the industry and consumers.
Conclusions
Center for Energy Studies
Questions, Comments and Discussion
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www.enrg.lsu.edu
dismukes@lsu.edu
Conclusions
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