Transcript What Happened? Why are We Talking about Exports? Natural Gas, Refined Products, and Crude Oil Pittsburgh Energy Law and Policy Institute August 2, 2013 Geoffrey.

What Happened?
Why are We Talking about Exports?
Natural Gas, Refined Products, and Crude Oil
Pittsburgh Energy Law and Policy Institute
August 2, 2013
Geoffrey Norman Brand PhD
Senior Economic Advisor
American Petroleum Institute
[email protected]
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2008 Everybody was Thinking Imports
Why the Sudden Shift?
• Natural Gas and Crude Oil
• Hydraulic Fracturing and Horizontal
Drilling
• Refined Products
• Refinery Throughput / Utilization
and Consumption Conservation
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Exploration – Old Fashion Way
Look for Traps or Concentrations of Oil
Still done Today
Cap Rock
Nonporous
Nonpermeable
Reservoir
Porous and Permeable
Source Rock
Carbon Rich
Good Stuff = 150 – 350
Million years
old
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More common to be
combined with
horizontal drilling.
Hydraulic Fracturing
Straight to the Source
Aquifer
Is mostly a mechanical
process of creating
cracks in nonpermeable
source rocks.
Oil or natural gas is
there – it needs
stimulation to flow.
Typically 1000’s of feet
below usable aquifers.
Source Rock
(Shale)
Hydraulic fracturing in not new – it has been done
for the last 60 years. We are just getting better at it
therefore it is becoming more common.
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Shale Resources in the U.S.
Both Natural Gas and Oil
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Natural Gas
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In 2005 – 55 Proposed LNG Import
Terminals (43 in the U.S.)
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Historical U.S. Natural Gas Production
Today U.S. is
the #1 natural
gas producer in
the world
Average Billion Cubic Feet per Day
80
70
60
50
Demand was
projected to grow –
Production was flat
since 1990
40
30
Peaked in 1973
Rising since 2006
20
10
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2010
2000
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
0
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Domestic production of shale gas has
grown dramatically over the past few years
shale gas production (dry)
billion cubic feet per day
It all started in Texas
Sources: LCI Energy Insight gross withdrawal estimates as of March 2013 and converted to dry production
estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play.
Adam Sieminski , WAMM,
April 18, 2013
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Shale gas leads growth in total gas
production through 2040 to reach
half of U.S. output
U.S. dry natural gas production
trillion cubic feet
History
Projections
2011
Everything is
optimistic?
Shale gas
Non-associated offshore
Tight gas
Alaska
Coalbed methane
Associated with oil
Non-associated onshore
Source: EIA, Annual Energy Outlook 2013
Jan 2010 to Jan 2012 Production
80
Average Billion Cubic Feet per Day
70
US Production
Post 2012 Flat?
60
50
+10 Bcf / day +18%
40
30
Hurricanes
If you are wondering
20
10
0
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$'s per Million Btu
Average Annual Natural Gas Prices
Henry Hub, Louisiana
$10
$9
$8
$7
$6
$5
$4
$3
$2
$1
$0
2005 to 2008
$7 to $9
Remember -production grew
+10 Bcf /day
until early 2012
2013
6-month
average
After Recession
No Price
Recovery
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U.S. Development has
shifted to Liquids
Baker Hughes Rig Counts - Oil vs. Natural Gas
U.S. stopped drilling
for natural gas at
least significantly
slowed
Waiting for
markets – the
resource is there.
Most natural gas
wells drilled today
also have liquids
(ethane, butane and
propane).
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In 2013 – 26 Proposed LNG Export
Terminals (23 in the U.S.)
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The U.S. projected to be a net exporter of
natural gas around 2020
U.S. dry gas
trillion cubic feet
History
2011
Projections
Industry estimates for U.S. LNG exports
are usually around 4 to 6 Bcf/day.
Consumption
Domestic supply
World demand limitations.
International competition from 60 to 70 projects
US permitting delays increase the likelihood of
other non-US projects going forward
Net imports
Source: EIA, Annual Energy Outlook 2013
Benefits of LNG Exports
(Study by 2013 ICF International)
• 4 to 16 Bcf /day of LNG Exports Results
• Employment +75,000 to 450,000
• GDP +$15 billion to $75 billion
• Moderate Impacts on natural gas prices • $0.30 to $1.00
• Economic gains driven by
• Increased oil and gas development
• Increased chemical production
• Increased manufacturing output
• Increased Income in the economy
http://www.api.org/news-and-media/news/newsitems/2013/may-2013/approve-remaining-us-lng-export-permits-without-delay
Crude Oil
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U.S. Crude Oil Production has
increased
Average Million Barrels per Day
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2010 to 2013
+2 million barrels per day
+40%
10
8
6
Peaked in 1970
4
2
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
0
Source: EIA
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U.S. tight oil production
has more than tripled in two years
TX
TX, OK, KS
ND
TX
CA
OK
CO
TX
TX, LA
Source: EIA
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Recent Forecasts are being
revised upwards
Reference case
High resource case
million barrels per day
History
2011
Projections
History
2011
Projections
STEO April 2013 U.S. crude oil projection
Tight oil
Tight oil
Other lower 48 states onshore
Other lower 48 states onshore
Lower 48 states offshore
Lower 48 states offshore
Alaska
Alaska
Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013
Even under aggressive production
assumptions the U.S. is projected to be a
net importer oil for the foreseeable future.
U.S. liquid fuel supply
million barrels per day
History
2012
Projections
-8%
Consumption
37%
Net imports
40%
Petroleum Exports
Domestic supply
Current restrictions to export crude oil except to Canada.
But why do we care about crude oil exports?
Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013
Crude oils are NOT the same.
Crude varies in weight and sulfur content.
Each refinery
Adam Sieminski , WAMM,
April 18, 2013
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Potential Impacts of Removing
Crude Oil Export Restrictions
• Increased crude oil production – more markets for any
type of crude
• Reduced infrastructure constraints (pipelines, rail,
barge) – You could go to a port or a refinery.
• Reduced need for refinery upgrades
• Better refinery utilization
• Lowers per unit costs
Note: There is a good chance that there may be approaching
limits of sweet light crude refinery capacity in the Gulf region
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Won’t restricting crude oil exports increase
crude supply in the U.S. and result in lower
gasoline prices to consumers?
Crude prices are set on world markets
Restricting crude exports may reduce the price of
some types of crude in some areas of the country:
However - gasoline prices are set by the highest
marginal priced gallon – not the average and will
likely not lower prices to consumers.
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Eagle Ford – South Texas
Satellite Photo
of activity
225 Rigs
operating
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Refined Products
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20
100%
19
95%
18
90%
17
85%
16
80%
15
75%
14
70%
13
65%
+ 1 million barrels per day
2009 to 2012
12
11
60%
55%
Refineries use domestic and foreign inputs.
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Refinery Throughput
Refinery Capacity
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
50%
1985
Average Million Barrels per Day
Refinery Throughput has recently
increased.
% Utilization
Liquid Petroleum consumptions has
recently decreased.
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Average Million Barrels per Day
24
23
Includes Gasoline, Jet Fuel,
Kerosene, Distillate, Fuel oil
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21
20
19
18
17
16
2007 to 2012
Minus 2 million barrels per day
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Liquid Petroleum Consumption
U.S. petroleum product exports
exceeded imports in 2011 for first time
in over six decades
annual U.S. net imports of total petroleum products, 1949 – 2012
million barrels per day
imports
net
product
exporter
net imports
exports
Other reasons to export – We like gasoline –
Europe likes diesel.
Source: EIA, Petroleum Supply Monthly and Annual Energy Review
Adam Sieminski , WAMM,
April 18, 2013
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Export Take-aways
• Natural Gas – The U.S. can produce more than it
consumes
• Crude Oil – It is better to export the type of crude oil
refineries don’t want and import the type it does.
• Refined Products – It is best to keep our refineries at
full capacity and export any product we do not need.
Exports have positive impacts on the U.S. economy in terms
of GDP, employment, and balance of trade.
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Thank - You
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