the shale revolution: the us & asia in a new energy axis · the shale revolution: the us &...

The Shale Revolution: The US & Asia

in a New Energy Axis

By

Al Troner

ASIA PACIFIC ENERGY CONSULTING

Houston, Texas, USA

Phone: +1-281-759-4440

Email: [email protected]

Crude Oil Markets Asia Singapore, September 18-19, 2013

mailto:[email protected]

Asia Pacific & the Shale Revolution – Key Points/1

Tight Oil in Shale Revolution – Asia Pacific impacts/direct

Indirect impacts more immediate

Shale (crude/NGLs) forcing global structural shifts

Key Concerns - Light/heavy, sweet/sour price delta

1 ASIA PACIFIC ENERGY CONSULTING

Shale Oil has put North Dakota on the Global Crude Oil Map


Source: BP Statistical Review of World Energy June 2013; APEC

Asia Pacific & the Shale Revolution – Key Points/2

Key concerns - Delta WTI/Brent

Key concerns - Overdependence on Mideast

Ways & Means – Petrochemicals, transport & power

Asia Pacific/N. America - Emerging Supply/Demand Yin/Yang


US Tight Oil – Key Players in the Lower 48


Source: Deutsche Bank, Integrated Oils: Oil & Gas for Beginners, p.264

Some Definitions

Tight Oil, not Shale Oil

Bituminous Crude, Not Bitumen

Natural Gas Liquids (NGLs) = Ethane, LPG (Propane/Butane)

and Condensate

Crude & NGLs – generally valued for what they can make

Gas generally valued for heat it can create

US crude exports banned; NGLs unrestricted

Much of emerging Tight Oil is actually field condensate


NGLs Defined – A Summary


Product Characteristics Sectors

Methane (C1) Dry gas; calorific value only; Piped or LNG GTL feedstock

Power, heating, industry, GTL, methanol, urea/fertilizer

Ethane (C2) Both dry ga s & NGL; major value as petchem feedstock; needs pipelines, big gas output

As in methane; also petchem

Propane (C3/LPG) Needs containment; generally stripped from gas; higher capex and opex in transport; safer than butane

Generally home & business; transp ort use; gas supplement

Butane (C4/LGP) Containment needed; higher BTU value; like propane, high capex & opex

Mainly industrial; also in transport

Condensate (C5+)

Light, sweet crude lookalike; almost always > 50% naphtha; Can be naphthenic or paraffinic ; Moderate mid - distillate; once a liquid, remains a liquid; from wellhead or gas processing; some output sold as naphtha

Like crude, full range of products; strong impact on gasoline & petchems; can produce large volume of jet & ADO

Source: APEC

Short-Term Impacts

US back-out of light crude imports by end-2013, not 2014

USGC PADD-3 even earlier; backflow to Asia

New pipeline startups deflate Cushing overhang

Resulting in WTI/Brent delta collapse

Early 2013, WTI discount to Brent $25/BBL plus; Mid-2013,

WTI/Brent seesaw for premium


A Drop of Nearly One Third


Source: EIA (from RBN)

Medium-Term Impacts

Yet Tight Oil results consistently outrun forecast

Bakken 715 MBD/Eagle Ford 621 MBD + Condensate/100 MBD

= nearly 1.45 MM B/D

Total Tight Oil forecasts 1.4-1.8 MM B/D

Tight Oil price disconnect WTI (i.e. Eagle Ford)


2008-2012 Tight Oil Build-Up (In MBD)


Region 2008 2009 2010 2011 2012

%Gain

2008-2012

US Total 5,000 5,353 5,478 5,661 6,475 29.5%

North Dakota 172 218 310 419 662 284.9%

Bakken 75 136 235 393 655 773.3%

Texas 967 958 1,013 1,212 1,492 54.3%

Eagle Ford 2 15 83 197 411 20450.0%

Permian 810 823 844 891 1,220 50.6%

Note: * Tight Oil output for Permian estimated in part; all figures exclude plant

condensate which was 291 MBD in 2011.

Source: EIA, Texas Railroad Commission

How the Future Changes (In MM B/D)


Source: Deutsche Bank

2013 2014 2015 2016 2017 2018 2019 2020

IEA 1.8 2.3 2.7 3.1 3.3 N/A N/A N/A

WMC 2.4 2.9 3.4 3.8 4.1 4.4 4.5 4.6

EIA (12/2012) 2.4 2.5 2.6 2.7 2.7 2.7 2.8 2.8

EIA All (1/2013) 7.3 7.9 N/A N/A N/A N/A N/A N/A

APEC US Shale Outlook (In MM B/D)


Source: APEC, Industry

2013 2014 2015 2016 2017 2018

Total US Crude (w/Field Cond.) 8.4 8.75 9 9.2 9.45 9.9

North Dakota (Est. Field) 0.81 0.87 0.95 1.05 1.2 1.3

Texas (Est. Field) 2.85 3.1 3.3 3.5 3.6 3.8

Tight Oil by Basin (Crude/Field Condensate, Plant within Total

Combined) (In MBD)


Note: * Tight Oil is from Wolfe Camp & Bone Springs developments. It made up about

90% of Permian output in 2012 and will make up about 30% by 2018. Source: APEC,

Industry

Field 2013 2014 2015 2016 2017 2018

Bakken 800 840 880 950 1,150 1,220

of which: Est. Field Cond. 100 120 140 170 180 200

of which: Est. Plant Cond. 40 45 55 70 90 110

Eagle Ford 780 1,100 1,240 1,350 1,500 1,590



Permian/Tight Oil*/Plant Only 170 320 410 480 670 710



Why?

Much Tight Oil is field condensate

Sizable plant condensate too (EF/93 MBD; Bakken 25 MBD;

Permian 60 MBD)

Houston area crude avails – 2.7 MM B/D, equal to UAE output

Emerging WTI/Brent equilibrium? US crude market fragmenting?


APEC Tight Oil Production Accessible to USGC (In MM B/D)*


Note: *Production numbers include plant condensate.

Source: APEC

Basin 2012 2013 2014 2015 2016 2017 2018

Bakken 0.667 0.800 0.840 0.880 0.950 1.150 1.220

Eagle Ford 0.550 0.780 1.100 1.240 1.350 1.500 1.590

Permian Shale & Conventional 1.220 1.350 1.400 1.480 1.520 1.550 1.550

of which: Shale (Wolfe Camp &

Bone Springs) 0.110 0.170 0.320 0.410 0.480 0.670 0.710

Niobrara 0.100 0.120 0.200 0.270 0.360 0.400 0.380

Cana-Woodford (Mississippi Lime) 0.080 0.120 0.150 0.200 0.220 0.220 0.250

Utica 0.010 0.070 0.100 0.130 0.170 0.190 0.220

Total Tight Oil Output 1.517 2.060 2.710 3.130 3.530 4.130 4.370

Plant Condensate & Exports

No policy change in medium term

Field condensate still ‘crude’; only plant exportable

Yet buildup in plant output, declining US demand, means more

exports

Canada Will ‘kick back’ condensate by 2016-2017

Exports then in range of 400 MBD; Asia next export target

Lighter, paraffinic plant grade excellent for olefins


US Crude/Plant Condensate Output


Region 2008 2009 2010 2011 2012

US Crude 5,000 5,353 5,478 5,661 6,475

PADD-1 20 15 20 22 24

PADD-2 545 588 686 828 1,110

of which: North Dakota 172 218 310 419 662

PADD-3 2,727 3,112 3,186 3,269 3,791

of which: Texas 1,109 1,093 1,171 1,463 1,987

PADD-4 372 363 372 395 442

PADD-5 1,336 1,275 1,214 1,147 1,108

US Pentane Plus 264 270 277 291 317

PADD-1 3 3 5 6 8

PADD-2 35 36 39 44 50

PADD-3 158 159 159 165 180

PADD-4 38 42 47 49 51

PADD-5 30 30 27 27 28

Source: EIA

US Plant Condensate Forecast (In MBD)


Source: APEC, Industry

2013 2014 2015 2016 2017 2018

Plant Condensate 340 370 410 450 500 560

US Crude (w/Field Cond.) 8,400 8,750 9,000 9,200 9,450 9,900

N. American Exports

No US crude; but Canadian syncrude (bituminous) by 2017

US plant condensate

Field condensate-derived products, ex. Kinder Morgan/BP

Galena Park

Ethane for the future? US followed by Canadian LPG


Canadian Oil Sands Output Forecast


Source: RBN; Chart based on CERI production forecast

NGL Wave Still Building

Ethane dominates NGL buildup, but heavier NGL output will rise

faster

Newest production zones – Bakken, Marcellus/Utica, Niobrara

Ethane, LPG will push plant condensate out of domestic use

LPG drive has filled Atlantic Basin

Expansion of US petchem capacity will not absorb all


US NGL Forecast Production


LPG to the Fore

From 2012-2014, Texas adds export capacity greater than Qatar

LPG impacts transport as much as petchems

Butane/iso-butane make gasoline components

LPG more efficient than CNG or LNG in urban traffic

Australia, S. Korea top Asian substitution markets


LPG First; Profound Impacts on Asian Crude, Petrochemicals


LPG Export Infrastructure (In MBD)

Source: Platts Commodities Week, “Major Supply, Demand Trends in US LPG/NGLs”,

Oct. 16, 2012; Suzanne Evans, Platts 3/7/2013.

Site Owner/Operator Product Capacity Startup Notes

Houston Ship Channel Enterprise Propane 115 2012 Multiple tanker loading

Houston Ship Channel Enterprise Propane 100 3Q-2013 Excludes ethane in E/P mix

Houston Ship Channel Enterprise Propane 94 1Q/2Q-2014 Expand dock; Can load VLGC

Beaumont, TX Vitol Propane 100-200 1Q-20131.24-2.48 MM BBLs storage

(100,000-200,000 MT)

Galena Park, TX Targa Resources Propane 84 3Q-2013

Can load up to 4 VLCG tankers

monthly

Houston Ship Channel

Phillips 66, Occidental,

TransMontaigne Propane/Butane 430 1Q-2014 Can load pipeline to Mt. Belvieu

923-1,023Total

Mideast Gulf & Asia Pacific

Structural dependence of Asia on Mideast crude, products,

NGLs, LNG

Mideast exporters consider Asia Pacific their backyard

Long-term North American commercial challenge

At minimum, Mideast pricing must be revamped

Other alternative suppliers – Russia (crude/gas), East Africa

(LNG) emerging


Asian Petroleum Imports


Source: APEC

Category Average Share of Asian Imports

Crude 70-75%

Products (excl. LPG) 60-65%

NGLs 75-80%

LNG 40-45%

Mideast Attitudes to the Shale Revolution

After hesitation, realization that the trend is long-term

US, Canadian competition is inevitable

Yet few efforts made to reform pricing structures, export or

domestic

Challenge is across the board – crude, products, gas &

petrochemicals

Now claiming shale development; yet Goldilocks dilemma

unresolved


The Shale Revolution in Asia Pacific

Is the US experience replicable? At what cost in time/money?

We believe it is replicable…

… but will cost more and take longer than anticipated.

Most promising countries – China & Australia


Prime Country Candidates for Shale Development – Score Card


Source: APEC

Shale Project Basics US Canada China Australia Argentina

Size Reserves 5 5 5 3 4

Quality Reserves 5 5 3 3 4

Pricing Mechanisms 5 5 2 5 2

Gas Transport Network 5 4 2 3 2

Gas Process Capacity 5 5 2 4 2

Size Petchem 5 3 5 2 2

Feedstock Flexibility 5 5 2 4 2

Total 35 32 21 24 18

Basics for the Shale Revolution

Size of natural resource base

Quality of reserves, depth and wetness ratio

Free market pricing, supporting more costly development

Gas/NGL processing, transport infrastructure

Petchem capacity (chiefly on ethane)

Flexibility of petchem substitution – liquids vs. ethane


Conclusions

The Shale Revolution is real and long term in duration

It impacts oil, gas, NGL and petrochemical production

For crude, North America essentially will be self-sufficient by

2020

Crude pricing impacts already felt; light/heavy, sweet sour price

deltas

Shale-derived NGLs will also impact crude balances

NGLs will reshape petchem and transport sectors

The Mideast and N. America will compete to supply Asia’s future

energy needs


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