North American Gas – Changing Mix Bob Fryklund VP Industry Relations November 9, 2006.

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Presentation transcript:

North American Gas – Changing Mix Bob Fryklund VP Industry Relations November 9, 2006

Copyright © 2005 IHS Inc. All Rights Reserved. Resources Changes Source/Type Location Ownership Market Effects Supply and Demand Balance LNG’s Role Distribution changes Effects of Price changes Conclusions Overview

Copyright © 2005 IHS Inc. All Rights Reserved. Top Ten US Fields By Yr 2005 Annual Production STATEFIELD2005 BOE ALASKAPRUDHOE BAY650,877,691 NEW MEXICOBASIN103,601,852 ALASKAKUPARUK RIVER 86,190,197 TEXASNEWARK EAST83,466,633 COLORADOIGNACIO-BLANCO76,558,511 GULF OF MEXICOMISSISSIPPI CANYON BLOCK ,384,004 ALASKACOLVILLE RIVER52,051,705 NEW MEXICOBLANCO50,014,775 WYOMINGPOWDER RIVER BASIN COAL BED49,030,355 WYOMINGJONAH46,820,216

Copyright © 2005 IHS Inc. All Rights Reserved. TOP 20 US Gas Fields by 2005 Production ShaleTight Gas Coal Bed Methane Conventional

Copyright © 2005 IHS Inc. All Rights Reserved Bcf/Day Remaining OnshoreOffshoreCBMFrac ShaleTight Gas Sands Historical Gas Production By Resource Type – U.S. Lower 48 States Substantial increases in non-conventional gas drilling unable to offset conventional gas declines

Copyright © 2005 IHS Inc. All Rights Reserved. Gas Resource Plays U.S. Non-conventional Gas Production by Source 2005 Production: 7.7 Bcfd 2.6 Bcfd 4.7 Bcfd

Copyright © 2005 IHS Inc. All Rights Reserved. North American Gas Where the Plays and Trends Are ? Appalachian Basin Cherokee Basin Alberta Basin Powder River Basin San Juan Basin Arkoma Basin Black Warrior Basin Raton Basin Uinta- Piceance Basins CBM Tight Sds Shale

Copyright © 2005 IHS Inc. All Rights Reserved. Shift in Location of Reserves Rockies

Copyright © 2005 IHS Inc. All Rights Reserved. Vintage Gas Production Profile U.S. Lower 48 States - July base decline = 2.53 Tcf Well average production profile ~ Mcfd

Copyright © 2005 IHS Inc. All Rights Reserved. Impact of Drilling on Gas Production Source: IHS US Well and Production Databases

Copyright © 2005 IHS Inc. All Rights Reserved. Trend Mill Paradox U.S. Coal bed Gas Production by Basin Estimated reserves = 32.3 Tcf 85% in Rocky Mountain Basins

Copyright © 2005 IHS Inc. All Rights Reserved. Coal Bed Methane Productivity Profiles San Juan Basin Uinta Basin Powder River *IHS Energy Gas Business Model & IHS Energy Consulting ’ 12,000’ Yield scf/ton 3,000’

Copyright © 2005 IHS Inc. All Rights Reserved. Coalbed Gas Productivity Example: Eocene Coals - Powder River Basin, Wyoming Vintage Well Production Vintage Production Characteristcs: Low rank coal Biogenic gas 400 – 2,500 ft Shallow coal Mcfd Deep coal Mcfd

Copyright © 2005 IHS Inc. All Rights Reserved. Powder River Basin CBM Reserves Per Well

Copyright © 2005 IHS Inc. All Rights Reserved. Wells Needed to Sustain Production

Copyright © 2005 IHS Inc. All Rights Reserved. Shift in Ownership Top 15 Gas Reserves Holders Company2006 Q1 Production Mcf/d Reported Net Proved Reserves Mcf RP Ratio ConocoPhillips ExxonMobil BP Anadarko Chesapeake XTO Devon Dominion Chevron Williams Encana EOG Pioneer Shell Oxy , ,692 13,594 11,132 7,061 6,

Copyright © 2005 IHS Inc. All Rights Reserved. Supply and Demand Balance LNG’s Role Effects of New Supplies Effects of Price changes Market Factors

Copyright © 2005 IHS Inc. All Rights Reserved. North American Gas Demand Growth Driven by Power Sector Source: Cambridge Energy Research Associates. Note: Data are for US Lower 48 and Canada. CAGRs, 2006–12 Residential: 1.4% Commercial : 1.7% Industrial: 1.3% Power: 5.5% Total: 2.4% Industrial Power Residential Commercial Other Billion Cubic Feet Per Day 26% Increase: Gas for Power 18% Decline: Gas for Industry

Copyright © 2005 IHS Inc. All Rights Reserved. North America 2020 Gas Supply and Demand Scenario Source: IHS Energy gas business model 2% growth = 26 bcf/day of additional demand Accelerated declines and lower volume discoveries will keep supply flat: (IF we invest > $30B annually) LNG is required to fill the gap

Copyright © 2005 IHS Inc. All Rights Reserved. LNG Facilities in North America—Existing and Proposed (April 2006) Source: Cambridge Energy Research Associates _ CERA

Copyright © 2005 IHS Inc. All Rights Reserved. LNG Oversupply 2010 to 2020? Can the projected demand growth be financed? Source: Cambridge Energy Research Associates Demand

Copyright © 2005 IHS Inc. All Rights Reserved. North American West to East Gas Pipeline flows and LNG imports (2005) Source: Cambridge Energy Research Associates. Henry Hub AECO Opal Flow Bcf per day LNG Bcf per day Total west to east flow: 18.1 Bcf per day Total LNG flow: 1.4 Bcf per day Net Exports to Mexico: 0.9 Bcf per day Net Export to Mexico Northeast LNG Mid-Atlantic LNG Southeast LNG

Copyright © 2005 IHS Inc. All Rights Reserved. Continental Divide Pricing Source: Cambridge Energy Research Associates. Eastward pull on Western Canadian supply Bottlenecks drive gas-on-gas competition in the Mid-Continent Southern California Border AECO Katy Opal

Copyright © 2005 IHS Inc. All Rights Reserved. New Gas Pipelines: Bridging the Divide Source: Cambridge Energy Research Associates. Appalachia AECO Katy Opal 1.5 Bcfd, early 2008 (+0.3, 2009) 1.8 Bcfd, Bcfd 1.8 Bcfd plus associated projects 1.0 to 1.5 Bcfd 1.2 Bcfd 1.5 Bcfd 1.0 Bcfd Various Northeast projects

Copyright © 2005 IHS Inc. All Rights Reserved. Situation – Higher natural gas prices have led to increased drilling activity, but gas production has not increased significantly Complication – Cost of gas production is increasing as a result of market driven input costs and a maturing resource base Concern – What are the implications of these trends on the future competitiveness of North America gas resources? Price Effects

Copyright © 2005 IHS Inc. All Rights Reserved. Impact of Gas Price: US Gas Drilling Sources: Cambridge Energy Research Associates, Baker Hughes, IFERC HH Gas Prices, US Energy Information Administration.

Copyright © 2005 IHS Inc. All Rights Reserved Canadian Rigs Baker Hughes Apache,Encana,Devon,CNR redirect drilling dollars from conventional gas Apache,Encana,Devon,CNR redirect drilling dollars from conventional gas

Copyright © 2005 IHS Inc. All Rights Reserved. North American Regional Gas Resource Costs Regional Cost Comparison - Example $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $ Reserves (TCF) Cost $/Mcf Range of LNG Competition

Copyright © 2005 IHS Inc. All Rights Reserved. Conclusions: Unconventional Gas Resources will continue to increase in importance in the US energy mix. Upside exists as technology and experience increase from best practices and lessons learned Potential constraints are- price, environmental issues, costs and manpower shortages. Location of unconventionals is changing many markets– regionally and locally Further market changes are expected when LNG en mass arrives in ’09-’10. Some regions, such, as Canada are very susceptible to gas price fluctuations.