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

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Presentation on theme: "North American Gas – Changing Mix Bob Fryklund VP Industry Relations November 9, 2006."— Presentation transcript:

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

2 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

3 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 080776,384,004 ALASKACOLVILLE RIVER52,051,705 NEW MEXICOBLANCO50,014,775 WYOMINGPOWDER RIVER BASIN COAL BED49,030,355 WYOMINGJONAH46,820,216

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

5 Copyright © 2005 IHS Inc. All Rights Reserved. 0 10 20 30 40 50 60 70 1990199119921993199419951996199719981999200020012002200320042005 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

6 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

7 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

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

9 Copyright © 2005 IHS Inc. All Rights Reserved. Vintage Gas Production Profile U.S. Lower 48 States - July 2006 2002 base decline = 2.53 Tcf Well average production profile ~ - 500 Mcfd

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

11 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

12 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 430 60 400 700’ 12,000’ Yield scf/ton 3,000’

13 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 150-220 Mcfd Deep coal 100-120 Mcfd

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

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

16 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 2296 1707 2485 2206 1408 1126 1444 943 1782 661 1161 758 420 1117 582 16, 228 13,692 13,594 11,132 7,061 6,086 5164 4856 4428 3382 3129 2948 2751 2680 2338 19.4 22 15 13.8 13.7 14.8 9.8 14.1 6.8 14.0 7.4 10.7 18.0 6.6 11.0

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

18 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 0 10 20 30 40 50 60 70 80 19982000200520102012 Billion Cubic Feet Per Day 26% Increase: Gas for Power 18% Decline: Gas for Industry

19 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

20 Copyright © 2005 IHS Inc. All Rights Reserved. LNG Facilities in North America—Existing and Proposed (April 2006) Source: Cambridge Energy Research Associates. 40302-3_041206 CERA

21 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

22 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

23 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

24 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, 2009 1.0 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

25 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

26 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.

27 Copyright © 2005 IHS Inc. All Rights Reserved. 2006 Canadian Rigs Baker Hughes Apache,Encana,Devon,CNR redirect drilling dollars from conventional gas Apache,Encana,Devon,CNR redirect drilling dollars from conventional gas

28 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 $8.00 0100200300400500600700800 Reserves (TCF) Cost $/Mcf Range of LNG Competition

29 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.

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