Dream It, Do It, Repeat

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Transcript Dream It, Do It, Repeat

6 th Annual Harris County International Trade and Transportation Conference NRG Center, Houston, Texas October 23, 2014 4:00-5:00 p.m. The Impact of Shale Plays on Harris County Nancy L. Sauer © 2014 Nancy L. Sauer

Nancy L. Sauer President Government Relations Consulting P.O. Box 270596 Houston, Texas 77277-0596 713-668-1330 713-668-1143 (fax) [email protected].net

Adjunct Faculty Jones Graduate School of Business, Rice University [email protected]

http://business.rice.edu/OnlineDirectory/PersonnelDetail.aspx?id=3381 Adjunct Faculty Price School of Business, University of Oklahoma http://www.ou.edu/price/mba/EEMBA/Faculty/nancysauer.html

© 2014 Nancy L. Sauer

The energy history of our region is characterized by confidence, crisis and responses of unimaginable scale. In this presentation, we will examine examples of these cycles and what they might predict for the current shale boom, energy independence and Harris County’s role as a hub for this activity.

Outline    Our History and its Lessons Those Lessons and Shale Conclusion © 2014 Nancy L. Sauer

un·con·ven·tion·al

adjective \-

ˈ vench-n ə l, ˈ ven(t)-sh ə -n ə l\ : very different from the things that are used or accepted by most people : not traditional or usual : not conventional Source: http://www.merriam-webster.com/dictionary/unconventional , accessed 10/18/14. © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

Confidence Crisis Response

© 2014 Nancy L. Sauer

• US Weather Service’s Galveston Bureau Chief, Isaac Cline, recommends against building a seawall because the threat of a hurricane was considered remote.

• September 7, 1900: Most important city in TX • Storm warnings from Cuba went unheeded for fear of alarming the public • September 8, 1900: The Great Storm remains deadliest natural disaster in US history © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

  Raise the island 17 feet Build a seawall Photo: http://www.therealgalveston.com/Seawall.html

, accessed 10-19/14 © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

      Two Men A Crisis/An Opportunity An Idea A Federal/State project Economic development Innovation  Rail cars and spurs  Patent © 2014 Nancy L. Sauer

Build it and they will come.

© 2014 Nancy L. Sauer

 1930  9 oil refineries operate along Ship Channel  2 synthetic rubber plants added in WWII  Ship Channel becomes center of petrochemical industry in US © 2014 Nancy L. Sauer

    One mile offshore Louisiana 14 feet of water Fixed platform Launches new frontier for energy © 2014 Nancy L. Sauer

    German 10 th U-boat flotilla to Gulf of Mexico Seek to disrupt oil and supply lines to Europe Germans sink 56 vessels in Gulf Germans torpedo the Robert E. Lee in 1942 and 25 die © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

        Deadliest industrial accident in US history One of largest non-nuclear explosions SS Grandcamp docked at Port of Texas City Cargo of ammonium nitrate explodes Chain reaction in other ships and oil storage facilities Kills 581 including all but one of the Texas City Fire Department First ever class action lawsuit filed against US government under Federal Tort Claims Act $17,000,000 in claims © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

  Outer Continental Shelf Lands Act of 1953 Innovation outpaces regulation © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

 1973 Arab Oil Embargo  Largest government stockpile of emergency crude supplies in the world © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

     Pemex Ixtoc Exploratory Well explodes in Bay of Campeche 10-month spill $300 million damage to Texas coast Blowout preventer failure Pemex asserts sovereign immunity to avoid compensation claims © 2014 Nancy L. Sauer

   Oil Pollution Act of 1990 Double-hulled tankers Oil spill response capability © 2014 Nancy L. Sauer

• • • New hemispheric trading zone New transportation projects Proposals for international pipelines © 2014 Nancy L. Sauer

    Gulf Coast security vulnerabilities Department of Homeland Security Energy infrastructure New threats © 2014 Nancy L. Sauer

   Fire and explosion kill 15 workers Launches federal study Recommends industry review safety cultures © 2014 Nancy L. Sauer

  Bid triggers Congressional opposition and debate on foreign ownership of U.S. oil company Chevron makes successful counteroffer © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

   Requires a consortium to administer program R & D Research Partnership to Secure Energy for America (RPSEA) Ultra deepwater and unconventionals For additional information on unconventional resource research funded by the Energy Policy Act of 2005: http://www.alrc.doe.gov/technologies/oil-gas/EPAct2005/Projects/sec999-final-reports.html.

© 2014 Nancy L. Sauer

   Largest marine oil spill in history Loss of 11 lives Agency reorganization © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

         Build it and they will come for over 100 years Private sector innovation outpaces government Environment important Worker health and safety important Global trade exploding Security/Cybersecurity Public-Private Partnerships Work Research Consortia Contribute Natural and manmade disasters happen © 2014 Nancy L. Sauer

Unconventional thinkers Public/Private Partnerships Economic prosperity © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Map of basins with assessed shale oil and gas formations as of May 2013. Source:

United States: EIA and USGS; Other basins: ARI

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Source for graphic: www.energyfromshale.org

, accessed 10/18/14

© 2014 Nancy L. Sauer

Source: Taken from The Evolution of Giant Oil Field Production Behavior by Mikael Hook, Bengt Soderbergh, Kristofer

Jakobsson, and Kjell Aleklet, from Natural Resources Research, Vol. 18, No. 1, March 2009 (_ 2009)

DOI: 10.1007/s11053-009-9087-z. online version © 2014 Nancy L. Sauer

http://naturalgasnow.org/shale-gas-decline curves-demystified/ Source: EIA. http://naturalgasno w.org/shale-gas decline-curves demystified/ , accessed 10/19/14.

© 2014 Nancy L. Sauer

Directional Drilling and Hydraulic Fracturing: A Public-Private Partnership 1976-2007

     

DOE Eastern Gas Shales Project/Devonian (1976) Gas Research Institute (1991)/GTI (2000) Barnett Shale (DOE-Mitchell) Sandia National Laboratory Tax Incentives on Unconventional Gas Mitchell Energy (2000)

© 2014 Nancy L. Sauer

 10 years in on a 20-30 year ride © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Source: www.bputica.com

, accessed 10/18/14.

2002: Devon purchases Mitchell Energy

2002-2012: Devon drills nearly Barnett Shale with 7,500 5,000 wells in the remaining drilling locations.

Devon’s production increased from 200 million cubic feet of natural gas equivalent per day in 2002 to 1.2 billion in 2012.

© 2014 Nancy L. Sauer

Peak Oil Paradigm: Scarcity

“ Technology is fabulous, but it does exactly the opposite of what people thought it was going to do--it accelerates decline rates…the simple analogy is you're having a Slurpee-slugging contest. You have a normal vertical straw and someone comes along with a multilateral straw. You're not getting more out, just getting it out faster.“ Matthew Simmons SOURCE: Crude Cassandra Christopher Helman, 02.11.09, 06:00 PM EST Forbes Magazine dated March 02, 2009

© 2014 Nancy L. Sauer

       Father of Nanotechnology Inventor of “Buckeyballs” Co-winner of Nobel Prize in Chemistry (1996) First Energy and Nanotechnology Conference (2003) Rice Center for Nanoscience and Technology/Richard E. Smalley Institute Carbon Nanotechnologies Inc./Unidym National Nanotechnology Initiative (2005) © 2014 Nancy L. Sauer

Department of Energy Shale Gas Subcommittee issues two reports in 2011: The risk of hydraulic fracturing fluid contamination of drinking water sources is “remote.”

Source: http://www2.epa.gov/hfstudy , accessed 10/19/14 © 2014 Nancy L. Sauer

At the request of Congress, EPA is conducting a study to better understand any potential impacts of

Source:

hydraulic fracturing on drinking water resources. The scope of the research includes the full lifespan of water in hydraulic fracturing. The review in 2014. progress report

http://www2.epa.gov/hydraulicfracturing , accessed on 8/9/13.

was released in December 2012 and a draft report is expected to be released for public comment and peer

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

http://fracfocus.org/

  Texas Railroad Commission  Texas Seismologist Oklahoma Corporation Commission © 2014 Nancy L. Sauer

               Sheldon Whitehouse of Rhode Island, Dianne Feinstein of California, Barbara Boxer of California, Jack Reed of Rhode Island, Maria Cantwell of Washington, Ben Cardin of Maryland, Richard Blumenthal of Connecticut, Brian Schatz of Hawaii, Tammy Baldwin of Wisconsin, Chris Murphy of Connecticut, Mazie Hirono of Hawaii, Elizabeth Warren of Massachusetts, Ed Markey of Massachusetts, Angus King of Maine, and Bernie Sanders of Vermont © 2014 Nancy L. Sauer

GROWING IMPACTS OF ENERGY DEVELOPMENT ON HIGHWAYS AND BRIDGES An Overview of Potential Solutions July 25, 2013 © 2014 Nancy L. Sauer

        July 2013 Quebec, Canada oil-train derailment and fire (10 such accidents since 2008) US Transportation Department’s Pipeline and Hazardous Materials Safety Administration proposed safety rules for oil trains in July 2014 expected to be finalized in 2015 Rules propose new standards for tank-car brakes, lower speed limits and new routes in areas with high population 6-year process to retrofit railcars 10-year process to phase out/upgrade railcars Steel supply issues Welder shortages Backlog of 50,000 orders © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Source: US EIA Annual Energy Outlook 2014, http://www.eia.gov

/forecasts/aeo/MT_ naturalgas.cfm#sh ale_gas , accessed 10/16/14

© 2014 Nancy L. Sauer Source: http://www.eia.gov/ forecasts/aeo/MT_n aturalgas.cfm#shal e_gas , accessed 10/19/14.

   US: net exporter of natural gas in 2018 LNG Exports Variables  Global market price convergence  Natural gas v. oil competition in US  International gas markets  Natural gas supply growth outside US Source: http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm#shale_gas , accessed 10/19/14 © 2014 Nancy L. Sauer

2037 Source: http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm#shale_gas , accessed 10/19/14 © 2014 Nancy L. Sauer

          Exploration Drilling and production Royalties Pipeline and Delivery System Construction Maintenance and operation Wages and fees Transportation Export infrastructure Refining Payroll/Taxes © 2014 Nancy L. Sauer

Construction (other new nonresidential structures) Support activities for oil and gas operations Extraction of oil and natural gas Drilling oil and gas wells Food services Wholesale trade businesses Architectural- engineering- and related services Retail Stores - Food and beverage Monetary authorities and depository credit intermediaries Transport by truck

© 2014 Nancy L. Sauer

  Direct impact for Harris County:  Management and control of shale resources  Management and control of shale well services  Financing of shale development and production  Global shale thought leadership  Transportation (pipelines, trucks, rail, vessels)  Infrastructure (state, national and international)  Refining  Exports  Jobs Indirect Impacts © 2014 Nancy L. Sauer

 State and local government  Property taxes   Retail sales  Hotel and motel occupancy taxes Real estate development   Permit and fee revenue Taxable activities © 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer

          Local Bans Increased operating expenses Increased regulatory uncertainty Cybersecurity and Terrorism New accidents/disasters Price collapse New taxes Public opinion Loss of influence in DC Petro-dollar © 2014 Nancy L. Sauer

 54 Producing Operators  238 Producing Leases On File  3,653 Total Leases On File  15,417 Total Wells On File  103,380 Barrels of Oil Produced in May 2014  1,044,217 MCF of Gas Produced in May 2014 Source: http://www.drillingedge.com/texas/harris-county , accessed 10/19/14 © 2014 Nancy L. Sauer

  Which shale play?

 Barnett Shale (DFW)  Eagle Ford (S. Texas)  Wolfcamp  Haynesville (LA)  Marcellus (PA)  Utica (NY)  Bakken (ND) What impact?

© 2014 Nancy L. Sauer

Present Largest concentration of Fortune 500 energy companies in the U.S. headquartered in region Trending Corporate inversions are shifting headquarters overseas; joint ventures with foreign energy companies increasing Houston is energy capital of the world Energy development is, increasingly, collaborative and widespread Major energy education/R&D/innovation centers located in region Increasing competition for higher education STEM educators overseas, increasing global reach of local educational institutions, increasing global competition for R&D Energy/legal/technical/human resource hub Houston is 2 nd largest U.S. port by tonnage, with Texas City, Galveston, Port Arthur and Beaumont providing additional capacity Attracting global energy expertise

© 2014 Nancy L. Sauer

Houston model being replicated in other shale plays such as Marcellus, Utica and Bakken In the period, 2002-2012, the Port of Houston experienced 34.1% growth. Deploying global energy expertise

© 2014 Nancy L. Sauer

 JV’s by non-US companies account for 20% of $133.7 billion in deals ($26.74 billion)  21 JV’s with US acreage holders and operators with additional investments in acquisitions, US companies and financial institutions  Foreign investors in JV’s usually buy a percentage of the host company’s shale plays acreages through an upfront cash payment and commit to cover part of the drilling cost within an agreed-upon timeframe.

EIA: US investments in shale plays highlight foreign JVs

HOUSTON, Apr. 9 04/09/2013 By Conglin Xu OGJ Senior Editor-Economics © 2014 Nancy L. Sauer

Fortune 500

As of 2013, 24 Fortune 500 [2] companies are headquartered in Houston and The Woodlands; 22 of which are energy-related. ( Anadarko Petroleum headquartered in The Woodlands .) is

4 Phillips 66 45 ConocoPhillips 64 Enterprise Products Partners 77 Plains All American Pipeline 106 Halliburton 135 Baker Hughes 144 National Oilwell Varco 167 Apache 174 Marathon Oil 233 EOG Resources 265 Kinder Morgan 310 Cameron International 334 KBR 344 CenterPoint Energy 381 Enbridge Energy Partners 397 Quanta Services 417 FMC Technologies 435 Targa Resources 451 MRC Global 459 Calpine 475 Spectra Energy

© 2014 Nancy L. Sauer

Eagle Ford Activity Generates over $25B in Economic Output in South Tx.

by Karen Boman Wednesday, May 09, 2012 - See more at: http://www.rigzone.com/news/article.asp?hpf=1&a_id=117728#sthash.fD2Ybb4E.dpuf

© 2014 Nancy L. Sauer

The Old Paradigm: Peak Oil, Finite Resources and Scarcity

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U.S. energy production declining U.S. energy imports rising U.S. energy prices rising U.S. manufacturing job losses U.S. energy insecurity

© 2014 Nancy L. Sauer

The New Paradigm: Abundance

     

U.S. energy production is rising U.S. energy imports are declining U.S. energy prices are declining or are expected to decline with increased supply U.S. energy exports (LNG) are expected to rise Manufacturing jobs return to the U.S.

U.S. energy security is enhanced

© 2014 Nancy L. Sauer

“ We can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future – an all-of-the-above strategy for the 21st century that develops every source of American made energy.” President Barack Obama March 15, 2012

© 2014 Nancy L. Sauer

Same Song, Second Verse

Unrealistic production estimates

Lack of long-term energy policy

Federal/state/local tax threats

Rising production costs

Boom/bust management

Captive to cartels

Foreign opposition to development of shale resources

© 2014 Nancy L. Sauer

New Game

Introduction of International Players/NOC’s

Global Standards/Best Practices

    

Technology Export Markets Climate Change Politics Job Creation (3 million/2020) Investment ($245 billion/2020)

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Tax Revenues ($900 million/2013/TX) Water Competition Urban Drilling and Production Long Supply Chains (water/sand/guar)

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Source: http://www.whitehouse.gov/ blog/2013/08/29/reducing america-s-dependence foreign-oil-strategy-increase economic-growth-and-redu ., accessed 10/16/14

“Shale Threatens Saudi Economy, Warns Prince Alwaleed Investor Says Kingdom's Economy Increasingly Vulnerable”

WSJ: MIDDLE EAST NEWS Updated July 29, 2013, 1:12 p.m. ET

© 2014 Nancy L. Sauer

Saudi Price War Should Fuel Drive for U.S. Crude Exports

(Wednesday, October 15, 2014) Saudi Arabia's move to keep crude oil production high, fueling a steep global price slump, may have an unexpected consequence: intensifying the campaign by U.S. producers to scrap Washington's decades-old ban on exports of domestic crude.

© 2014 Nancy L. Sauer

Conflict over Natural Gas: LNG Exports or Domestic Manufacturing Use?

June 2012 Letter to US Energy Secretary Steven Chu from U.S. Rep. Bill Johnson (R OH) and U.S. Rep. Tim Ryan (D-OH) and 21 other co-signers

© 2014 Nancy L. Sauer

“Natural gas has become a key element in the economic turnaround in my district and throughout Ohio, Pennsylvania and West Virginia. We need to support the businesses that are creating quality jobs by allowing them to compete in the global market, and I hope that Secretary Chu will speed up the approval process in a responsible way to permit producers of LNG to export their products to consumers around the world.“ U.S. Rep. Tim Ryan (D-OH)

© 2014 Nancy L. Sauer

Can shale plays replace depletion of existing oil fields?

© 2014 Nancy L. Sauer

        

Geology Tax Breaks Service Industry Population Density/Approval Mineral Estate Ownership GHG Rules Environmental Community French Ban Polish Exports?

© 2014 Nancy L. Sauer

Issues for Global Shale Plays

Private Property Rights/Mineral Rights

Service Providers

Infrastructure Commitments

Geopolitics

© 2014 Nancy L. Sauer

 Region characterized by:  Unconventional leadership  World class Public-Private Partnerships  National political leadership  Technological innovation  Transformation through crisis  Audacious public infrastructure improvements  World class higher education resources  Global mindset  Extreme experience with crisis and disaster © 2014 Nancy L. Sauer

         Impact of Proposed Denton, TX hydraulic fracturing ban: http://energyindepth.org/wp-content/uploads/2014/07/Perryman-Denton Fracking-Ban-Impact.pdf

. EIA Shale Gas and Shale Oil Report (2011): ftp://ftp.eia.doe.gov/natgas/usshaleplays.pdf

EPA’s Hydraulic Fracturing Initiatives: http://www.epa.gov/hydraulicfracturing FracFocus Chemical Registry: http://fracfocus.org/ Impacts of Climate Change and Variability on Transportation Systmes and Infrastructure: Gulf Coast Study, Phase I; US Climate Science Program, March 2008: http://downloads.globalchange.gov/sap/sap4-7/sap4-7-final-all.pdf

National Nanotechnology Initiative Strategic Plan, February 2014: http://nano.gov/sites/default/files/pub_resource/2014_nni_strategic_plan.pdf

Hydraulic Fracturing Initiatives: http://www.epa.gov/hydraulicfracturing FracFocus Chemical Registry: http://fracfocus.org/ The Perryman Group Economic Study of Barnett Shale Impacts: www.fortworthchamber.com/chamber/docs/BSISeptember2014.pdf

© 2014 Nancy L. Sauer

© 2014 Nancy L. Sauer Source: http://www.eia.gov/forec asts/aeo/MT_naturalgas.

cfm#shale_gas