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Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans, LA January 26, 2012 David E. Dismukes, Ph.D. C t f E St di Center for Energy Studies Louisiana State University Center for Energy Studies

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Page 1: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges

LMOGA 2012 Annual MeetingNew Orleans, LAJanuary 26, 2012

David E. Dismukes, Ph.D.C t f E St di

y ,

Center for Energy StudiesLouisiana State University

Center for Energy Studies

Page 2: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Rig MovementsRig Movements

2© LSU Center for Energy Studies

Page 3: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

D ti d I t ti l Ri C t

Rig Movements

Domestic and International Rig Counts

Recent changes in crude oil prices are leading to a rebound in overall U.S. rig count from 2008‐2009 recession.

200

250

250

300

0=10

0)Internation

150

200

150

200

anua

ry 2

000

nal Rig C

oun

50

100100

150

Rig

Cou

nt (J

t (January 20

0

50

0

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

U.S

. 000=100)

U.S. Europe Middle East and Africa Asia Pacific Latin America

3Source: Baker Hughes.

Page 4: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

D ti Ri C t C d Oil N t l G

Rig Movements

Domestic Rig Count – Crude Oil vs. Natural Gas

However, for the first time in 16 years, the number of oil rigs is equivalent to gas rigs.

80%

90%

100%

60%

70%

80%

Tota

l Rig

s

Gas Rigs

30%

40%

50%

Per

cent

of

Oil Rigs

0%

10%

20%Oil Rigs

4

0%Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11

Source: Baker Hughes.

Page 5: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Supply ImplicationsSupply Implications

5© LSU Center for Energy Studies

Page 6: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

U S C d Oil P d R d P d ti

Center for Energy Studies Supply Implications

U.S. Crude Oil Proved Reserves and Production

Crude oil reserves holding steady between 22 to 20 BBbls since 1995.DWRRA (1995) helped reverse a deteriorating trend in GOM reserve declines.

s)

3.5

4.0

35

40

Probi

llion

bar

rels

2 0

2.5

3.0

20

25

30

oduction (billR

eser

ves

(

1.0

1.5

2.0

10

15

20 ion barrels)

Deepwater Royalty Relief Act (1995) resulted in 1.6 Bbbls in

reserve growth (1998-2002)

0.0

0.5

0

5

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Source: Energy Information Administration, U.S. Department of Energy 6© LSU Center for Energy Studies

Reserves Production

Page 7: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

U S N t l G P d ti d P d R J 2007 t P t

Center for Energy Studies Supply Implications

U.S. Natural Gas Production and Proved Reserves, January 2007 to Present

2006‐2007 reserves growth is the largest in over 30 years.  On average, natural gas reserves have been increasing by 5 percent per year since 2000

25

30

250

300

g y p p y(except 2004‐2005 tropical season, 2 percent).

20

25

200

250

es (T

cf)P

roduc

10

15

100

150

Res

erve

tion (Tcf)

Proved gas reserves at 272.5 Tcf, their

highest level.

0

5

0

50

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Reserves Production

Source: Energy Information Administration, U.S. Department of Energy. 7© LSU Center for Energy Studies

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Center for Energy Studies

Policy Issue 1:N t l G UNatural Gas Uses

8© LSU Center for Energy Studies

Page 9: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

P t ti l NGV U

Center for Energy Studies Natural Gas Uses

Potential NGV Usage

45

The large potential size of NGV market has a number of competing end‐use categories (i.e., chemicals, manufacturing) concerned.

Displaceable Market Volume: 61 6 Bcfe/d35

40

45

(Bcf

/d)

Displaceable Market Volume: 61.6 Bcfe/d

20

25

30

onsu

mpt

ion

(

10

15

20

atur

al G

as C

o

0

5

Light Duty Heavy Duty Medium  Marine Rail Upstream

Na

9© LSU Center for Energy StudiesSource: Data and forecast from EIA, Encana, 2010Displacement opportunities exclude Air, International Shipping, Military, Pipeline Fuel

g y y yDuty

p

NGV Use Categories

Page 10: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

N t l G C ti b S t

Center for Energy Studies Natural Gas Uses

Natural Gas Consumption by Sector

Currently, NGVs account for less than 0.18 percent of U.S. natural gas consumption, but the rate of growth in consumption (158 percent) over the past 

30

35

8

9

Tcf)

decade has surpassed all other end‐uses.

20

25

30

5

6

7

nsum

ptio

n (T N

GV

Cons

10

15

2

3

4

5

tura

l Gas

Co um

ption (Bcf

-

5

-

1

2

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nat

f)

10© LSU Center for Energy Studies

Residential Commercial Industrial Electric Power NGV

Source: Energy Information Administration, U.S. Department of Energy

Page 11: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

R t il G li P i d N t l G GGE

Center for Energy Studies Natural Gas Uses

Retail Gasoline Prices and Natural Gas GGE

Basic economics, primarily lower relative prices,  have played an important role in driving recent increases in natural gas vehicle use.

$3.50

$4.00

$2.00

$2.50

$3.00

Gal

lon

$1.00

$1.50$ pe

r

$0.00

$0.50

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

11© LSU Center for Energy StudiesSource: Energy Information Administration, U.S. Department of Energy

Gasoline Natural Gas (GGE)

Page 12: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

L di St t i NGV P f

Center for Energy Studies Natural Gas Uses

Leading States in NGV Preferences

Many of these same states also have generous incentive programs that range from additional tax incentives, to infrastructure grant support.  Federal benefits include alternative fuel infrastructure tax credit an excise alternative fuel tax credit and analternative fuel infrastructure tax credit, an excise alternative fuel tax credit and an 

alternative fuel tax exemption.

Alternative fuel tax credits and/or infrastructure development credits

12© LSU Center for Energy StudiesSource: U.S. Department of Energy

p

Alternative fuel use and infrastructure grant support

Page 13: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

P t ti l N t l G C ti NGV

Center for Energy Studies Natural Gas Uses

Potential Natural Gas Consumption – NGV

NGV consumption of natural gas is estimated to increase at an average annual rate of 7 percent through 2035 At best this usage will be considerably less than 1 Tcf

0.70%0.18

f)

of 7 percent through 2035.  At best, this usage will be considerably less than 1 Tcfand slightly over one‐half of one percent of total natural gas market.  

N

0 40%

0.50%

0.60%

0 10

0.12

0.14

0.16

sum

ptio

n (T

cfN

GV

ConsumNGV use of natural 

0.20%

0.30%

0.40%

0 04

0.06

0.08

0.10

ral G

as C

ons

mption (%

of T

gas will stay below one percent of total U.S. natural gas consumption.

0.00%

0.10%

0.00

0.02

0.04

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Nat

urTotal)

13© LSU Center for Energy Studies

Consumption Percent of Total

Source: Energy Information Administration, U.S. Department of Energy

Page 14: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

U S P G ti F l Mi

Center for Energy Studies Natural Gas Uses

U.S. Power Generation – Fuel Mix

Over 250,000 MWs of natural gas power generation capacity has been added over the past decade at the expense of coal and nuclear. 

Petroleum Other Other Petroleum

2000 2010

Petroleum3%

Other1% 1% 1%

Renewables 9% Renewables 10%

Coal51%

Natural Gas16% Coal

45%Nuclear

19%

Nuclear20%

Natural Gas24%

14© LSU Center for Energy StudiesSource: Energy Information Administration, U.S. Department of Energy

Page 15: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

El t i I d t E i t l R l ti C t U t i t f C lElectric Industry Environmental Regulations Create Uncertainty for Coal

National Ambient Air Quality Standards (NAAQS)• Sets acceptable levels for six criteria pollutants (carbon monoxide, lead, nitrogen dioxide, particulate matter, ozone,

lf di id )sulfur dioxide).• A network of 4,000 State and Local Air Monitoring Stations is used to determine if geographic areas are meeting or

exceeding the NAAQS.

Transport Rule (now CSAPR) [proposed]p ( ) [p p ]• Issued to replace the Clean Air Interstate Rule (CAIR) and its predecessor the Clean Air Transport Rule (“CATR”).

Requires 31 states (and D.C.) to improve air quality by reducing power plant emissions (SO2 and NOX) that contribute to ozone and fine particulate pollution in other states (some annual, some on ozone season only).

• By 2014, the rule and other state and EPA actions would reduce power plant SO2 emissions by 80% over 2005 levels. Power plant NOx emissions would drop by 58%.

Utility Maximum Achievable Control Technology (MACT) [to be proposed]• EPA must set emission limits for hazardous air pollutants. The rule is expected to replace the Clean Air Mercury Rule

(CAMR) and add standards for lead, arsenic, acid gases, dioxins and furans.

Coal Combustion Residuals (CCR) [proposed]• Would establish, for the first time under the Resource Conservation and Recovery Act (RCRA) requirements for the

proper disposal of coal ash generated by coal combustion at electric power plants.

Power Plant Cooling Water Intake Structures RulePower Plant Cooling Water Intake Structures Rule• Section 316(b) of the Clean Water Act is intended to address environmental impacts from cooling water intake to and

discharge from power plant cooling systems. Requires that the location, design, construction and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact.

15

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Center for Energy Studies

Summary of Retirement Studies Related to EPA RulesSummary of Retirement Studies Related to EPA Rules

Study Retired Capacity Regulation Requirements

Levelized costs (@2008 CF) after retrofitting each unit for the environmental regulations compared to the cost of a new gas-fired unit

80Estimated GW of Retired Coal

10 20 30 40 50 60 70

Scenario 1 - Transport Rule

Scenario 2 - Transport Rule, MACTScenario 3 - Transport Rule, MACT, 316(b) Cooling Water, Coal Ash

Cost of retrofitting coal plant compared to cost of new CC

fired unit.NERC (October 2010)

47 to 76 GW by 2018 (total fossil fuel capacity, including oil and gas)

Scenario 1 - Transport Rule, MACTScenario 2 - Transport Rule, MACT, CWA 316(b)

Regulated Units - 15-year present value of costs > replacement power from a CC or CT. Merchant unit - 15 year present value of cost > revenues from energy

gas CC

B ttl G 50 t 65 GW b

ICF/IEE (May 2010)

25 to 60 GW by 2015

Transport Rule, MACT, 316(b) Cooling Water, Coal Ash

Size and existing controls

Transport Rule, MACT

15-year present value of cost > revenues from energy and capacity markets.

Brattle Group (December 2010)

50 to 65 GW by 2020

Credit Suisse (September 2010) 60 GW

Transport Rule, MACT

Switch to lower sulfur coal, install emission controls, or retire

T t R l MACT

In-house model (NEEMS) optimizing costs of existing capacity and costs of potential new capacity.

MJ Bradley (August 2010) 30 to 40 GW

Charles River Associates (December 2010)

39 GW by 2015

Source: Synapse Energy Economics, Inc., “Public Policy Impacts on Transmission Planning, Prepared for Earthjustice”, December 10, 2010; and “Miller, P. A Primer on Pending Environmental Regulations and their Potential Impacts on Electric System Reliability. Working Draft, JD Northeast States for Coordinated Air Use Management. January 24, 2011.

Transport Rule, MACT

Transport Rule, MACT

FGS + emissions on all coal fired units by 2015Bernstein Research (October 2010)

51 GW

16

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P t ti l N t l G C ti N G ti U (R ti d C l)

Center for Energy Studies Natural Gas Uses

Potential Natural Gas Consumption – New Generation Use (Retired Coal)

The retirement of 45 gigawatts of capacity would likely still  have only a limited i ll l

2 500

3,000

)

impact on overall natural gas usage. 

2,000

2,500

umpt

ion

(Bcf

)

1,000

1,500

al G

as C

onsu

0

500

Nat

ura

17© LSU Center for Energy Studies

NGV New Generation (Retired Coal)

Note: Assumes 160 Bcf of NGV natural gas use. Also assumes retirement of 45 GW of coal-fired capacity, replaced with new natural gas generation with an 85 percent capacity factor and a 7,600 Btu/kWh heat rate.

Page 18: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Policy Issue 2:LNG d US N t l G E tLNG and US Natural Gas Exports

18© LSU Center for Energy Studies

Page 19: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Considerable Underutilized LNG Regasification Capacity along GOMConsiderable Underutilized LNG Regasification Capacity along GOM

A

Existing

JFRegasification O

T

B

ExistingExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 Bcfd

Under ConstructionApproved

Liquefaction

Q

SB

E. Energy Bridge, GOM: 0.5 BcfdF. Northeast Gateway, Offshore MA: 0.8 BcfdG. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)H. Sabine, LA: 4.0 BcfdI. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion)J N t Off h MA 0 4 B fd

Existing

Liquefaction

Under Construction

Approved

C

J. Neptune, Offshore MA: 0.4 BcfdK. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion)Under ConstructionL. Pascagoula, MS: 1.0 BcfdApprovedM Corpus Christi TX: 1 0 Bcfd

Approved

C

D

M. Corpus Christi, TX: 1.0 BcfdN. Corpus Christi, TX: 2.6 BcfdO. Fall River, MA: 0.8 BcfdP. Port Arthur, TX: 3.0 BcfdQ. Logan, NJ: 1.2 BcfdR. Port Lavaca, TX: 1.0 Bcfd

HIKG

L

MN

P

ES. Baltimore, MD: 1.5 BcfdT. LI Sound, NY: 1.0 Bcfd

M R

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LNG V l Ch i

Center for Energy Studies Natural Gas Uses

LNG Value Chain

Feedstock (production) costs will be critical in determining the location of basin-specific production along the global LNG supply curve.

Feedgas Liquefaction Shipping & Fuel Regas Delivered Equivalent

Europe:

LowHigh

56%($/MMBtu)

$4.00$6.50

11%-17%($/MMBtu)

$1.25$1.25

20%-29%($/MMBtu)

$1.40$1.65

4%-7%($/MMBtu)

$0.50$0.50

Cost($/MMBtu)

$7.15$9.90

Oil Price*($/BOE)

$41.47$57 42High

Asia:LowHigh

$6.50

$4.00$6.50

$1.25

$1.25$1.25

$1.65

$2.90$3.45

$0.50

$0.50$0.50

$9.90

$8.95$11.70

$57.42

$51.91$67.86

20© LSU Center for Energy StudiesSource: Cheniere.Note: *uses a BOE conversion of 5.8 Mcf/BOE.

Henry Hub: $4.50$5.00

WTI: $97.00

$100.00

Page 21: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Moti ations for Mo ing Shale Gas to Global Cons ming AreasMotivations for Moving Shale Gas to Global Consuming Areas

Japan LNG U.K. NBP U.S. Henry Hub FSU @ German Border

14

16

18

p y @

• Excess U.S. shale production.

10

12

14

mmbtu

• Growing global energy demand.

4

6

8

$/m

• Climate change issues.

• Global natural

0

2

Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11

Global natural gas price differentials.

21Source: Marathon

Page 22: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

B i C titi

Center for Energy Studies Natural Gas Uses

Basin Competition

Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcfin conventional suggest a potentially solid resource base for many decades.

Canada388 Tcf

China1,275 Tcf

388 Tcf

U.S. 862 Tcf

France180 Tcf

Poland187 Tcf

Al i Lib

Brazil226 Tcf

Mexico681 Tcf

Algeria231 Tcf

Libya290 Tcf

Australia396 TcfSouth 

Africa485 T f

Argentina774 Tcf

226 Tcf

Source: MIT Energy Initiative. 22© LSU Center for Energy Studies

485 Tcf

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Center for Energy Studies

Policy Issue 3:Drilling-ProductionDrilling Production

Challenges & Opportunities

23© LSU Center for Energy Studies

Page 24: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Ri C t d C d Oil P i (E h St t M d R l ti t 1999 A ti it )

Center for Energy Studies Drilling Challenges & Opportunities

Rig Count and Crude Oil Price, (Each State Measured Relative to 1999 Activity)

$141 200

North Louisiana has been the shining opportunity in the industry during the recent price downturn/correction. However, that competitive advantage is starting to deteriorate.

$10

$12

$14

1,000

1,200

999

= 10

0)H

e

$6

$8

$10

600

800

t (Ja

nuar

y 19

enry Hub ($/M

$2

$4

200

400

Rig

Cou

ntM

cf)

$00 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

N Louisiana Texas Pennsylvania New MexicoN. Louisiana Texas Pennsylvania New Mexico

Oklahoma Wyoming Natural Gas Price

Source: Baker Hughes; and Federal Reserve Bank of St. Louis. 24© LSU Center for Energy Studies

Page 25: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

A l P d ti U ti l R (Ch i )

Center for Energy Studies Drilling Challenges & Opportunities

Annual Production, Unconventional Resources (Cheniere)

Liquids production from shale plays > 3 million barrels per day by 2020 Associated natural gas > 7 Bcf/d of “costless” supply

Bcf/d MMB/d8 4.0

Includes Eagle Ford W Barnett Bakken Shales; GraniteIncludes Eagle Ford W Barnett Bakken Shales; Granite

g pp y

5

6

7

2.5

3.0

3.5Includes Eagle Ford, W. Barnett, Bakken Shales; Granite 

Wash, Piceance & Uinta Tight SandsIncludes Eagle Ford, W. Barnett, Bakken Shales; Granite 

Wash, Piceance & Uinta Tight Sands

Liquids

3

4

5

1.5

2.0

2.5Gas 

0

1

2

0

0.5

1.0

25© LSU Center for Energy StudiesSource: Advanced Resource Intl; presentation to Cheniere Board, March 2011; Cheniere Research

0

2010 2011E 2012E 2013E 2014E 2015E 2020E0

Page 26: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Th N t F ti C d Oil Sh l

Drilling Challenges & Opportunities

The Next Frontier: Crude Oil Shales

• Number of i demerging crude

oil shale plays that could have dynamic impact

i d ton industry.

• As much as 24 billion barrels i l hin plays such as Monterey (CA), Bakken(ND), Eagle Ford (TX) andFord (TX), and Niabrara(CO/NE).

26© LSU Center for Energy StudiesSource: Energy Information Administration.

Page 27: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

C d Oil Sh l O t iti L i i

Drilling Challenges & Opportunities

Crude Oil Shale Opportunities -- Louisiana

• 1998 LGS Study primary publicly-available source of yinformation on the formation.

• Lies between sands of the upper and lower Tuscaloosa.

• Varies in thickness from 500 feet (MS) to around 800 feet (LA).

• Shallowest opportunity around 10,000 feet – mostly between 11,000 to 12,000 –some areas as deep as 16,000 (EBR).

• Estimated potential resource

27© LSU Center for Energy StudiesSource: Oil and Gas Journal and Louisiana Geological Survey.

of 7 BBbls.

Page 28: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

U it d St t E l t (2005 100)

Drilling Challenges & Opportunities

United States Employment (2005 = 100)

150Oil and gas employment

140

0)

Total emplyoment

120

130

ent (

2005

= 1

00

110

Empl

oym

e

90

100

28© LSU Center for Energy Studies

902005 2006 2007 2008 2009 2010 2011

Source: Bureau of Labor Statistics

Page 29: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

U S /Sh l P d i St t E l t (2005 100)

Drilling Challenges & Opportunities

U.S./Shale Producing State Employment (2005 = 100)

108

104

106

0)

102

ent (

2005

= 1

00

98

100

Empl

oym

e

94

96 States with major shale activity

Rest of U.S.

29© LSU Center for Energy Studies

942005 2006 2007 2008 2009 2010 2011

Shale states: LA, TX, AR, ND, UT, CO, & PASource: Bureau of Labor Statistics

Page 30: Louisiana’s Unconventional Plays: Economic Opportunities ... · Louisiana’s Unconventional Plays: Economic Opportunities, Policy Challenges LMOGA 2012 Annual Meeting New Orleans,

Center for Energy Studies

Oil d G I d t E l t (2005 100)

Drilling Challenges & Opportunities

Oil and Gas Industry Employment (2005 = 100)

450

500Louisiana TexasA k N th D k t

350

400

450

0)

Arkansas North DakotaUtah ColoradoPennsylvania North Dakota

250

300

ent (

2005

= 1

00

150

200

Empl

oym

e

0

50

100

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02005 2006 2007 2008 2009 2010 2011

Shale states: LA, TX, AR, ND, UT, CO, & PA

Source: Bureau of Labor Statistics

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Center for Energy Studies

C ti d Sh l D l t Ch ll

Drilling Challenges & Opportunities

Continued Shale Development Challenges

Still a number of lingering issues that create challenges for all shaleStill a number of lingering issues that create challenges for all shale development:

• Public challenges on true resource size.

• Water/aquifer contamination issues.

• Water usage issues.

• Other environmental issues (geological emissions)• Other environmental issues (geological, emissions)

• Regulatory/tax changes

• Supporting infrastructure development.

• Market demand and price support.

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Center for Energy Studies

Policy Issue 4: Other New End-Uses d I d t i l R iand Industrial Renaissance

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L i i Sh l F ilit t d E l t

Center for Energy Studies Industrial Growth Opportunities

Louisiana Shale-Facilitated Employment

A $5.4 BILLION investment in expanded ethylene production capacity in Louisiana will

In Louisiana, more than 35,000 permanent jobs will be created in the chemical

More than $2.3 BILLION in wages will go into the pockets of Louisiana p y

generate a total of $10.9BILLION in additional chemical industry output, bringing the state’s industry revenues to $56.9 BILLIONand maintaining it as the country’s

d

industry and throughout the supply chain in everything from trade and craft jobs to highly-skilled knowledge workers.

pworkers, generating $399

MILLION in state tax revenue and nearly $440 MILLION in federal revenue.

2nd largest chemical producing state.

INVESTMENT PHASE(building the facility)

OPERATION PHASE(ongoing production)

33© LSU Center for Energy StudiesSource: American Chemistry Council

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E i I t f Additi l Eth Utili ti

Center for Energy Studies Industrial Growth Opportunities

Economic Impact of Additional Ethane Utilization

Economic Impact fromExpanded Production of Petrochemical Economic Impact from

Impact Type Employment Payroll Output Employment Payroll Output

Expanded Production of Petrochemicaland Derivatives from a 25 Percent

Increase in Ethane Production

--- (Billion $) --- --- (Billion $) ---

Economic Impact from New Investment in

Plant and Equipment

Direct Effect 17,017 2.4$ 32.8$ 54,094 4.3$ 16.2$ Indirect Effect 79,870 6.6$ 36.9$ 74,479 5.1$ 16.8$ Induced Effect 85,563 4.1$ 13.7$ 100,549 4.8$ 16.1$

Total Effect 182,450 13.1$ 83.4$ 229,122 14.2$ 49.1$Total Effect 182,450 13.1$ 83.4$ 229,122 14.2$ 49.1$

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R t E i A t

Center for Energy Studies Industrial Growth Opportunities

Recent Expansion Announcements

Sep-2011: Williams announced an expansion at its Geismar olefins production facility (Baton Rouge, LA). The expansion will increase the facility’s ethylene production by 600 million pounds per year to a new annual capacity of 1.95 billion pounds and is expected to be in service by the third quarter of 2013.p y p p y q

Apr-2011: Dow announced plans to increase its ethylene and propylene production, and to integrate its US operations into feedstock opportunities available from increasing supplies of US shale gas. Specifically, the Company plans to increase its ethylene supply and cracking capabilities at existing Gulf Coast facilities by:• Re-starting an ethylene cracker at its St. Charles operations site near Hahnville, LA by the end of 2012;• Improving ethane feedstock flexibility for an ethylene cracker at its Plaquemine, LA site in 2014;• Increasing ethane feedstock flexibility for an ethylene cracker at the Freeport, TX site in 2016;• Constructing a new, world-scale ethylene production plant in the US Gulf Coast, for startup in 2017.

Apr-2011: Westlake Chemical Corporation announced an expansion program to increase the ethane-based ethylene capacity at Lake Charles, LA, and the evaluation of expansion options and the upgrade of ethylene production facilities at Calvert City, KY in order to capitalize on new low cost ethane and other "light" feedstocksbeing developed.

Mar-2011: Chevron Phillips Chemical announced it is advancing a feasibility study to construct a “world-scale” ethane cracker and ethylene derivatives at one of its existing facilities in the Gulf Coast region. The new facility would utilize the advantaged feed sources expected from development of shale gas reserves.

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Dec-2010: Sasol announced plans to construct the world’s first commercial tetramerization unit, capable of producing over 100,000 metric tons per year of combined 1-octene and 1-hexene, at its existing Lake Charles, LA Chemical Complex.

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Center for Energy Studies

ConclusionsConclusions

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Center for Energy Studies

C l i

Conclusions

Conclusions

• Exceptional industry performance: employment up; reserves up; production up; investment/capacity up; and exports up.production up; investment/capacity up; and exports up.

• Traditional sectors of energy industry have proven they are high technology, high capital, and high growth – you’d have a hard time figuring that out watching the nightly news.that out watching the nightly news.

• Policy and perception continue to be things that plague continued industry development. It is hard to imagine the development and innovation that could arise if the current policy uncertainty were removed.could arise if the current policy uncertainty were removed.

• There are a large number of new domestic end-uses: many are likely to arise over the next several years and many have simply been take away by policy (not economics).policy (not economics).

• 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

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could lead to economic impacts that would pale in comparison to past financial and housing crisis.

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Center for Energy Studies

Q ti C t d Di iQuestions, Comments and Discussion

[email protected]

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