U.S. Energy Information Administration Independent Statistics & Analysis Status and outlook for shale gas and tight oil development in the U.S. for Energy Symposium, University of Oklahoma, Price College Energy Institute March 05, 2013 | Norman, OK by Adam Sieminski, Administrator

EIA’s mission and main functions Adam Sieminski, Energy Symposium, March 05, Independent Statistical and Analytical agency within the U.S. Department of Energy –EIA collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. –By law, its data, analyses, and forecasts are independent of approval by any other officer or employee of the U.S. Government [EIA] …is the gold standard for energy data around the world, and the accessibility of it is so much greater than other places – Dan Yergin, Platts Inside Energy

Annual Energy Outlook 2013 projections to 2040 Adam Sieminski, Energy Symposium, March 05, Growth in energy production outstrips consumption growth Crude oil production rises sharply over the next decade Motor gasoline consumption reflects more stringent fuel economy standards The U.S. becomes a net exporter of natural gas in the early 2020s U.S. energy-related carbon dioxide emissions remain below their 2005 level through 2040

U.S. energy use grows slowly over the projection reflecting improving energy efficiency and slow, extended economic recovery 4 U.S. primary energy consumption quadrillion Btu Adam Sieminski, Energy Symposium, March 05, 2013 HistoryProjections % 20% 26% 8% 1% 32% 28% 19% 11% 9% 2% Shares of total U.S. energy Nuclear Oil and other liquids Liquid biofuels Natural gas Coal Renewables (excluding liquid biofuels) % 39% 24% 6% 8% Source: EIA, Annual Energy Outlook 2013 Early Release

U.S. Shale Gas 5 Adam Sieminski, Energy Symposium, March 05, 2013

Theory Experiment Practice These three drivers impact resource estimation metrics differently over time in an iterative process Adam Sieminski, Energy Symposium, March 05, Geology Technology Economics Resources in Place Technically Recoverable Resources (TRR) Economically Recoverable Resources (ERR) Well-level data, incl. estimated ultimate recovery (EUR) Thermal maturityPressureFormation depth Drilling costsRecompletions Price of gas P Q

Adam Sieminski, Energy Symposium, March 05, average initial production (IP) rate per well average decline curve (can vary by region and vintage) IP & decline curve define the Estimated Ultimate Recovery (EUR) per well Other parameters drilling and operating costs number of active rigs how many wells a rig can drill (rig efficiency) well spacing EIA’s focus is on the timing of production; the modeling focuses on these parameters

Technically recoverable natural gas resources reflect new information, a combination of assessments and EIA updates 8 U.S. dry gas resources trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release AEO Edition 2, ,479 *Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. Unproved shale gas Unproved other gas (including Alaska* and offshore) Proved reserves (all types and locations) Benchmark to USGS 2011 Marcellus Assessment Adam Sieminski, Energy Symposium, March 05, 2013

U.S. wet natural gas proved reserves, Adam Sieminski, Energy Symposium, March 05, trillion cubic feet Source: U.S. Energy Information Administration

Adam Sieminski, Energy Symposium, March 05, EIA fits well production data to hyperbolic decline curves to estimate EUR 1985 vertical well EUR=1.41 bcf 2004 vertical well EUR=0.46 bcf 2011 horizontal well EUR=1.76 bcf Classic hyperbolic decline curve (Arps 1945): Source: HPDI data from horizontal wells in the Newark East field in the Barnett Shale; EIA analysis

An average well in shale gas and other continuous resource plays can also have steep decline curves, which require continued drilling to grow production 11 million cubic feet per year Source: EIA, Annual Energy Outlook Adam Sieminski, Energy Symposium, March 05, 2013

For example: Oil production by monthly vintage of wells in the Williston Basin 12 Source: DrillingInfo history through August 2012, EIA Short-Term Energy Outlook, February 2013 forecast Adam Sieminski, Energy Symposium, March 05, 2013

Domestic production of shale gas has grown dramatically over the past few years 13 shale gas production (dry) billion cubic feet per day Sources: LCI Energy Insight gross withdrawal estimates as of December 2012 and converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. Adam Sieminski, Energy Symposium, March 05, 2013

Shale gas leads growth in total gas production through U.S. dry natural gas production trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release Associated with oil Coalbed methane Tight gas Shale gas Alaska Non-associated onshore Non-associated offshore ProjectionsHistory 2011 Adam Sieminski, Energy Symposium, March 05, 2013

15 U.S. dry gas consumption trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release ProjectionsHistory Industrial* Electric power Commercial Residential Transportation ** 33% 14% 6% 32% 12% 33% 19% 3% 31% 13% *Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. Gas to liquids 2% Natural gas consumption is quite dispersed with electric power, industrial, and transportation use driving future demand growth Adam Sieminski, Energy Symposium, March 05, 2013

Growth of natural gas in transportation led by heavy duty trucks (LNG) and gas to liquids (diesel)… marine and rail to come? 16 U.S. natural gas consumption quadrillion Btu Pipeline fuel Light-duty vehicles 2011 HistoryProjections 95% 3% 1% 28% 38% 3% 31% 1% Buses Freight trucks Gas to liquids Note: Gas to liquids includes heat, power, and losses. Source: EIA, Annual Energy Outlook 2013 Early Release Adam Sieminski, Energy Symposium, March 05, 2013

Total natural gas exports nearly quadruple by 2040 in the AEO2013 Reference case 17 U.S. natural gas exports trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release Alaska LNG exports Exports to Mexico Exports to Canada Lower 48 LNG exports Adam Sieminski, Energy Symposium, March 05, 2013

Domestic natural gas production grows faster than consumption and the U.S. becomes a net exporter of natural gas around U.S. dry gas trillion cubic feet Source: EIA, Annual Energy Outlook 2013 Early Release ProjectionsHistory 2011 Consumption Domestic supply Net imports Adam Sieminski, Energy Symposium, March 05, 2013

U.S. Tight Oil 19 Adam Sieminski, Energy Symposium, March 05, 2013

20 U.S. crude oil and lease condensate resources in non-prohibited areas billion barrels (1)The USGS reduced NPR-A resource estimates, which is responsible for the lower AEO2013 Alaska resources. (2)Prior to AEO2009, resources in Pacific, Atlantic, and Eastern GOM OCS were under moratoria and not included. (3)Includes shale oil. Prior to AEO2011, tight oil is included in unproved other lower-48 onshore category. Multiple factors have contributed to U.S. crude oil resource estimate increases over the years, with tight oil contributing recently Source: EIA, Annual Energy Outlook 2013 Early Release Adam Sieminski, Energy Symposium, March 05, 2013

U.S. crude oil plus condensate proved reserves, Adam Sieminski, Energy Symposium, March 05, billion barrels Source: U.S. Energy Information Administration

Domestic production of tight oil has grown dramatically over the past few years 22 tight oil production for select plays million barrels per day Source: Drilling Info (formerly HPDI), Texas RRC, North Dakota department of mineral resources, and EIA, through August 2012 Adam Sieminski, Energy Symposium, March 05, 2013

U.S. tight oil production leads a growth in domestic production of 2.6 million barrels per day between 2008 and U.S. crude oil production million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release and Short-Term Energy Outlook, February 2013 ProjectionsHistory 2011 Alaska Tight oil Other lower 48 onshore Lower 48 offshore STEO Feb U.S. crude oil projection Adam Sieminski, Energy Symposium, March 05, 2013

U.S. petroleum product exports exceeded imports in 2011 for first time in over six decades 24 annual U.S. net exports of total petroleum products, 1949 – 2011 million barrels per day Source: EIA, Petroleum Supply Monthly net product exporter Adam Sieminski, Energy Symposium, March 05, 2013

U.S. dependence on imported liquids depends on both supply and demand 25 U.S. liquid fuel supply million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release Consumption Domestic supply Net imports 45% 37% ProjectionsHistory % 2005 Adam Sieminski, Energy Symposium, March 05, 2013

Light-duty vehicle liquids consumption is lower primarily due to more stringent CAFE standards Adam Sieminski, Energy Symposium, March 05, light-duty vehicle liquids consumption million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release AEO2012 AEO2013

Reference case oil price initially drops and then rises steadily, but there is uncertainty about the future trajectory 27 Annual average spot price of Brent crude oil 2011 dollars per barrel ProjectionsHistory 2011 High Oil Price Low Oil Price Reference Source: EIA, Annual Energy Outlook 2013 Early Release Adam Sieminski, Energy Symposium, March 05, 2013

Global liquids supply increases 26 percent with regional market shares relatively stable 28 Global liquids supply million barrels per day Source: EIA, Annual Energy Outlook 2013 Early Release ProjectionsHistory 2011 OPEC Other non-OECD OECD 44% 25% 31% 40% 26% 34% Adam Sieminski, Energy Symposium, March 05, 2013

Global tight oil production comparisons 29 Source: Preliminary International Energy Outlook 2013, BP Energy Outlook 2030 million barrels per day BP Energy Outlook 2030IEO2013 DRAFT Adam Sieminski, Energy Symposium, March 05, 2013

Uncertainties that could slow global growth of shale gas and tight oil Adam Sieminski, Energy Symposium, March 05, Resource quantities and distribution Surface vs. mineral rights Risk appetite of industry participants Infrastructure and technology Environmental constraints

Changing electricity generation mix in AEO2012 reference case and carbon fee allowance side cases 31 U.S. electricity net generation trillion kilowatthours Source: EIA, Annual Energy Outlook 2012 Natural gas 2012 Reference Case $15 Carbon Fee $25 Carbon Fee Renewables Nuclear Coal Natural gas Renewables Nuclear Coal % 10% 20% 45% 28% 15% 18% 38% 34% 22% 27% 16% 34% 23% 38% 4% Adam Sieminski, Energy Symposium, March 05, 2013

Coal and Electricity 32 Adam Sieminski, Energy Symposium, March 05, 2013

Growth in electricity use slows, but still increases by 28% from 2012 to U.S. electricity use percent growth (3-year rolling average) Source: EIA, Annual Energy Outlook 2013 Early Release Structural Change in Economy - Higher prices - Standards - Improved efficiency Projections History 2011 Period Annual Growth 1950s s s s s Adam Sieminski, Energy Symposium, March 05, 2013

Over time the electricity mix shifts toward natural gas and renewables, but coal remains the largest fuel source 34 U.S. electricity net generation trillion kilowatthours 25% 19% 42% 13% 1% Nuclear Oil and other liquids Natural gas Coal Renewables 2011 ProjectionsHistory 17% 16% 35% 30% 1% % 13% 19% 11% 4% Source: EIA, Annual Energy Outlook 2013 Early Release Adam Sieminski, Energy Symposium, March 05, 2013

Coal regains some competitive advantage relative to natural gas over time on a national average basis 35 ratio of natural gas price to steam coal price Source: EIA, Annual Energy Outlook 2013 Early Release History Projections dollars per Btu HistoryProjections2011 Competitive parity Energy prices to the electric power sector Coal Natural gas Adam Sieminski, Energy Symposium, March 05, 2013

Non-hydro renewable generation more than doubles between 2011 and non-hydropower renewable generation billion kilowatthours per year Source: EIA, Annual Energy Outlook 2013 Early Release Wind Solar Geothermal Waste Biomass Industrial CHP Power sector Advanced biofuels cogeneration (not visible) 2011 ProjectionsHistory Adam Sieminski, Energy Symposium, March 05, 2013

Energy and CO 2 per dollar of GDP continue to decline; per- capita energy use also declines Adam Sieminski, Energy Symposium, March 05, energy and emission intensity index, 2005=1 Source: EIA, Annual Energy Outlook 2013 Early Release HistoryProjections 2011 Carbon dioxide emissions per 2005 dollar of GDP Energy use per 2005 dollar of GDP Energy use per capita 2005

In the AEO2013 Reference case, energy-related CO 2 emissions never get back to their 2005 level 38 carbon dioxide emissions billion metric tons Source: EIA, Annual Energy Outlook 2013 Early Release ProjectionsHistory (billion metric tons) %-5.1% (percent change from 2005) AEO2013 Adam Sieminski, Energy Symposium, March 05, 2013

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