November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT 1 Prepared for: APEC Workshop on Unconventional Natural Gas Prepared By: Keith Moodhe, Sr. Consultant Vello A. Kuuskraa, President Scott Stevens, Sr. Vice President ADVANCED RESOURCES INTERNATIONAL, INC. Arlington, VA USA Washington, DC November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT 2 Unconventional gas has transformed North America, from shortage to surplus and (soon) export. UG production already significant in certain APEC economies, others haven't started yet. ARI identified large potential in certain basins. Further work is still needed to build data collection and geologic & technical understanding in APEC economies to foster investments in these emerging resources. (APEC might consider participating in this effort). Introduction - Unconventional Gas Source: USGS

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT 3 Advanced Resources International is completing a study for the APEC Secretariat entitled, “APEC Unconventional Natural Gas* Census: Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO 2 Emissions”. This APEC “Census” provides an in-depth look at each APEC Economy’s: (1) current unconventional gas production; (2) government and industry assessments of the size of its unconventional gas resource base; and (3) estimate of potential future volumes of unconventional gas production. The APEC Unconventional Natural Gas Census *Unconventional gas includes shale gas, coalbed methane and tight gas.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT 4 The APEC Economies The 21 APEC Economies are major consumers as well as significant producers of natural gas. We have placed these 21 APEC Economies into three groups: *In addition to being major natural gas producers, the U.S., China and Mexico are also natural gas importers. Major Consumers and Producers Moderate Consumers and Producers Significant Consumers and Importers United States*ThailandJapan RussiaBruneiS. Korea CanadaVietnamTaiwan China*PhilippinesSingapore IndonesiaPNGHong Kong MalaysiaChile Mexico*Peru AustraliaNew Zealand

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT APEC’s Natural Gas Consumption Natural gas provides a significant portion of energy in the APEC Economies. Last year, APEC consumed 1,767 Bcm (171 Bcfd), more than half (55%) of the worldwide use of natural gas. 5 U.S. and Russia account for two- thirds (1,114 Bcm, 124 Bcfd) of APEC’s natural gas consumption, with China, Japan and Canada each using over 100 Bcm (10 Bcfd). APEC’s consumption of natural gas has grown steadily, up by 20% from Significant future growth in gas consumption is anticipated in China, Japan, S. Korea and several of the other APEC Economies. APEC’s Natural Gas Consumption

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT APEC’s Natural Gas Production The APEC Economies are also major producers of natural gas producing 1,831 Bcm (177 Bcfd) in 2011, up substantially from prior years. 6 APEC’s excess of natural gas production of 64 Bcf (6 Bcfd) in 2011 was exported, primarily to Europe. In addition, an active market for natural gas exports and imports exist among the Asian APEC economies. APEC’s Natural Gas Production

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT APEC’s Unconventional Gas Production The APEC “Census” finds that nearly a third (558 Bcm, 54 Bcfd) of APEC’s annual natural gas production is already from unconventional gas. 7 Tight gas, at 275 Bcm (27 Bcfd), is the leader with 239 Bcm (23 Bcfd) from North America and 36 Bcm (nearly 4 Bcfd) from China. Shale gas at 217 Bcm (21 Bcfd in 2011 but currently about 25 Bcfd) is the fastest growing, essentially all from the U.S. and Canada. China and Mexico may become major producers of shale gas. Coalbed methane, the previous “bright star” of unconventional gas, provides 66 Bcm (6 Bcfd). Significant CBM production increases are expected from Australia, Indonesia and possibly Russia. APEC’s Natural Gas Production (2011)

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT APEC’s Unconventional Gas Resources The APEC’s technically recoverable unconventional gas resource base is large ,700 Bcm (4,048 Tcf) - - equal to over 200 years of production, at current rates. 8 Shale gas, with 65,840 Bcm (2,323 Tcf), accounts for over half of this resource base. Coalbed methane holds 28,700 Bcm (1,015 Tcf) of recoverable resources. Assessment of the recoverable portion of Russia’s and Indonesia’s large in-place CBM resources would greatly increase this number. Tight gas, with 20,160 Bcm (710 Tcf) of recoverable resources, is the least rigorously assessed, even in Australia, Mexico and China where significant volumes of tight gas are being produced. APEC’s Technically Recoverable Unconventional Gas Resource Base Total

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT APEC’s Unconventional Gas Resources China dominates the official tabulation of the unconventional gas resources ,000 Bcm (1,271 Tcf) including 25,100 Bcm (886 Tcf) of shale gas. The U.S. is second, followed by Australia, Canada and Mexico. (Note there is large uncertainty regarding shale resources in non-producing countries) 9 APEC’s Technically Recoverable Unconventional Gas Resource Base *Significant tight gas production, estimated at 36 Bcm (3.5 Bcfd) is being produced in China (from the Ordos and Sichuan basins) and about 2 Bcm (0.2 Bcfd) is being produced in Mexico (from the Burgos Basin). However, no official estimates exist for tight gas sand resources in these two countries..

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT U.S. Unconventional Gas 10 Annual (Wet) Shale Gas Production (Bcfd) Source: Advanced Resources International (2012) The wet gas production value of 21.6 Bcfd becomes 20.5 Bcfd of dry gas, after extraction of NGLs. U.S. Shale Gas Production Has Increased Dramatically in the Past Decade The U.S. is the leader in unconventional gas production and technology. Established U.S. Shale Gas Basins Source: Advanced Resources International (2012) Last year, the U.S. produced 441 Bcm (42.6 Bcfd) of unconventional gas, about 2/3 of total gas production. Shale gas provided half of the total. With its large and high-quality resource base of 35,100 Bcm (1,239 Tcf), unconventional gas production is expected to grow - - reach 500 Bcm (48 Bcfd) in 2020 and 610 Bcm (59 Bcfd) by 2035.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Canada’s Unconventional Gas Canada’s Western Sedimentary Basin holds bountiful recoverable resources of unconventional gas: 11 Shale gas in Horn River Basin of 2,550 Bcm (90 Tcf) plus an unofficial 1,300 Bcm (46 Tcf) in the Liard Basin.* Tight gas in the Montney and other plays of 4,820 Bcm (170 Tcf). Coalbed methane in southern Alberta Plains of 1,270 Bcm (45 Tcf). Shale Gas Basins of Western Canada Unconventional gas already provides about half of Canada’s natural gas supply and is poised to grow from 70 Bcm (7 Bcfd) today: 90 Bcm (9 Bcfd) by Bcm (13 Bcfd) by 2035 Source: Advanced Resources International (2011) *The U.S. EIA/ARI assessment of Canada’s recoverable shale gas resources is 355 Tcf (10 Tcm) in five major basins.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Mexico’s Unconventional Gas 12 Mexico’s Gulf of Mexico basins hold promising unconventional gas resources: 8,410 Bcm (297 Tcf) of recoverable shale gas estimated by Pemex, ranging from 150 to 459 Tcf*. 110 Bcm (4 Tcf) of recoverable coalbed methane. Onshore Shale Gas Basins of Eastern Mexico Outlook for Mexico’s Unconventional Gas Production Source: Advanced Resources International (2011) The Mexican Ministry of Energy looks for shale gas production to reach 1.3 to 3.3 Bcfd by 2026, starting with the Eagle Ford Shale. *The U.S. EIA/ARI assessment of Mexico’s recoverable shale gas resources is 19 Tcm (681 Tcf). Mexico has a long history of oil and gas development. With growing consumption (68 Bcm, 6.6 Bcfd) and declining production (55 Bcm, 5.4 Bcfd), Mexico is today an importer of natural gas.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT China’s Unconventional Gas 13 Unconventional Gas Basins of China Source: Advanced Resources International (2012) With natural gas consumption of 131 Bcm (12.8 Bcfd) and production of 103 Bcm (10.0 Bcfd), China’s natural gas imports have grown steadily. China has massive recoverable shale gas (25,100 Bcm, 886 Tcf) and coalbed methane resources, plus significant tight gas.* China has ambitious year 2020 plans for production of shale gas and coalbed methane, but also recognizes many challenges: Shale Gas: 60 to 100 Bcm/yr. (6 to 10 Bcf) CBM: 30 Bcm/yr. (3 Bcfd) *The U.S. EIA/ARI Assessment of China’s recoverable shale gas resource is 1,275 Tcf (36 Tcm); ARI estimates China’s current tight gas production at 36 Bcm (3.5 Bcfd). China, currently highly reliant on coal, is pursuing significant increases in natural gas use, to 10% of energy use by 2030 from 3% today. China is looking to LNG imports and domestic unconventional gas production for new gas supplies.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Australia & New Zealand Unconventional Gas 14 Australia’s Assessed Prospective Shale Gas and Oil Basins Source: Advanced Resources International (2012) Australia’s assessment of its technically recoverable unconventional gas resources: CBM: 12,400 Bcm (439 Tcf) Shale Gas: 11,300 Bcm (398 Tcf)* Tight Gas: 600 Bcm (20 Tcf) Australia, poised to challenge Qatar as the world’s dominant LNG exporter, has conventional gas resources on the Northwest Shelf, coalbed methane in Queensland and New South Wales, and shale gas (and tight gas) resources in numerous basins. Last year, Australia produced 6 Bcm (0.6 Bcfd) of coalbed methane for the local market. In New Zealand, a coalbed methane resource of 50 Bcm (2 Tcf) has been estimated. Additionally, shale gas and oil exploration is underway in several Australia and New Zealand basins. *Australia used U.S. EIA/ARI’s 2011 World Shale Gas Resource Assessment

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Russia’s Unconventional Gas 15 Unconventional Gas Basins of Russia Source: Advanced Resources International (2012) Russia is targeting its large coalbed methane resource in-place of 83,700 Bcm (2,950 Tcf). (No data on recoverable CBM): Russia is a giant in terms of conventional natural gas resources, exporting 182 Bcm (17.6 Bcfd) by pipeline to Europe (potentially in the future to China). Gazprom goal of 20 Bcm (2 Bcfd) of annual CBM production from Kuzbass Coal Basin. Russia has large un-assessed shale gas and tight gas resources in Western Siberia. Until recently the development of unconventional gas has not been a priority for Russia due to its large conventional gas resources, although President Putin recently directed Gazprom to increase its shale efforts. The IEA special study on recoverable unconventional gas estimated that Russia has 8 Tcm (280 Tcf) of shale gas, 20 Tcm (700 Tcf) of CBM and 7 Tcm (250 Tcf) of tight gas.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Chile & Peru Unconventional Gas 16 Unconventional Gas Basins of Chile Source: Advanced Resources International (2012) In June 2012, Chile’s ENAP reported plans to dill two shale appraisal wells in the Magallanes Basin. GeoPark is currently conducting fracture injection tests for shale gas and oil while having previously evaluated coalbed methane potential. While no official government estimates exist for unconventional gas reserves or resources for Chile or Peru, coalbed methane and shale gas resources may show potential. In Peru, smaller companies are exploring Devonian-age shale gas in the Ucayali Basin. Drilling Info’s private 2010 study estimates 2,070 Bcm (73 Tcf) of shale gas in the Ucayali. Unconventional Gas Basins of Peru

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Indonesia’s Unconventional Gas 17 Indonesia’s Unconventional Gas Basins Source: Advanced Resources International (2012) A rigorous evaluation of the technical and economically recoverable portion of these large resources is a priority. While still a major natural gas exporter (38 Bcm, 3.6 Bcfd), Indonesia’s growing natural gas consumption (38 Bcm, 3.7 Bcfd) is placing challenges on meeting existing LNG export commitments. Indonesia has 12,800 Bcm (453 Tcf) of in-place coalbed methane, in five coal basins. VICO (BP/ENI) is producing and exporting CBM via LNG with ExxonMobil, TOTAL, Santos and others drilling exploration wells. Indonesia may also have 334 Tcf of shale gas resource (Pertamina estimate), plus tight gas prospects in numerous structurally complex, poorly characterized basins.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Asian Natural Gas Producing APEC Economies Unconventional Gas 18 Asian Natural Gas Producing APEC Economies Source: Advanced Resources International (2012) Natural Gas Exporters: Brunei, Malaysia. Natural Gas Importers: Thailand Natural Gas Balanced: PNG, Philippines, Vietnam. Additional Asian natural gas producing APEC economies fall into three distinct groups: Much of current oil and gas production is focused offshore, however these deposits and their source rocks may hold onshore unconventional potential. Only a handful of resource assessments have been conducted for in-place or technically recoverable unconventional gas, which includes a coalbed methane gas in- place of 197 Bcm (7 Tcf). With growing consumption and LNG demand, additional unconventional gas assessments are needed.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Asian Natural Gas Non-Producing APEC Economies Unconventional Gas 19 Asian Natural Gas Non-Producing APEC Economies Source: Advanced Resources International (2012) In 2011, these APEC economies consumed an estimated 180 Bcm or 17.4 Bcfd of natural gas, a significant increase from 164 Bcm (15.8 Bcfd) in Japan and South Korea accounted for much of the natural gas imports in 2011 (153 Bcm, 14.8 Bcfd), primarily via LNG from Malaysia, Australia, Qatar, and Indonesia. Consumption for the remaining APEC economies was met through gas pipelines as well as various LNG sources. Given the limited remaining conventional natural gas resources in the region, the presence and active pursuit of unconventional gas would ease future demand concerns for these economies. The five Asian natural gas non-producing APEC economies include Japan, South Korea, Taiwan, Singapore, and China Hong Kong. These have limited geologic potential.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Outlook for Unconventional Gas Within APEC 20 What conclusions can we draw from the APEC Census: “Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions?” First, the size of the official technically recoverable unconventional gas resource base within APEC is large ,700 Bcm (4,048 Tcf) - - equal to 200 years of production at current rates. Assessments of recoverable coalbed methane in Russia and Indonesia, tight gas in Mexico and China, and shale gas in Russia and several of the Asian countries would further increase the official estimates. Second, unconventional gas already makes a major contribution, with 558 Bcm/yr (54 Bcfd), equal to nearly a third of APEC’s total natural gas production of 1,831 Bcm (177 Bcfd).

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Actual and Projected APEC Unconventional Gas Production 21 We anticipate significant growth of unconventional gas production within the APEC Economies, enabling natural gas to be a “bridge fuel” for lower CO2 emissions.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Outlook for Unconventional Gas Within APEC 22 However, data reporting, resource appraisal, and fiscal regimes in the APEC region need strengthening. This could be addressed by, for example, a future APEC project engaging an Expert Consulting Team to work with APEC economies, much as the 2003 ADB project fostered CBM development in Indonesia. Third, the outlook for unconventional gas within APEC is highly promising: −The U.S., Canada and Mexico expect an increase from 514 Bcm (50 Bcfd) last year (2011), to 610 Bcm (59 Bcfd) by 2020, and to 780 Bcm (75 Bcfd) by −Australia is expected to produce nearly 100 Bcm (10 Bcfd) of unconventional gas (primarily coalbed methane) in 2035, up from 5 Bcm (0.5 Bcfd) today. −China has ambitious goals for shale gas and coalbed methane production of 120 Bcm (12 Bcfd) by 2020, up from 10 Bcm (1 Bcfd) today. Tight gas production would add 40 Bcm (4 Bcfd) to this total. −Russia is targeting coalbed methane in the large Kuzbass Coal Basins, with expectations of 4 Bcm (0.4 Bcfd) by 2020 and 20 Bcm (2 Bcfd) in the longer- term. We look for at least 20 Bcm (7 Bcfd) of unconventional gas from Russia by 2035.

November 6, 2012 APEC Unconventional Natural Gas Census Evaluating the Potential for Unconventional Gas Resources to Increase Gas Production and Contribute to Reduced CO2 Emissions KDM2012_1106.PPT Advanced Resources International Office Locations Washington, DC 4501 Fairfax Drive, Suite 910 Arlington, VA Phone: (703) Fax: (703) Houston, Texas Westheimer, Suite 520 Houston, TX Phone: (281) Fax: (281)