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The US shale revolution Implications for the North American energy markets Tor Kartevold Senior adviser Statoil NOG/Folk och Forsvar seminar Stockholm, 19 February, 2013
The US shale revolution Implications for the North American energy markets
Tor Kartevold Senior adviser Statoil
NOG/Folk och Forsvar seminar Stockholm, 19 February, 2013
The US shale revolution Outline – focus on the North American market
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US shale revolution
Natural gas market
Oil market
North American markets Other regional markets
Technology transfer
LNG exports?
Prices?
Global oil market balance
Other industries (macroeconomic)
Other industries (macroeconomic)
Price response?
Consolidation/ price formation
• Costs and prices
• Energy security
• Technology transfer
• Macroeconomic effects
Natural gas market
Oil market Effects
North American natural gas production/market
Huge resource base and low(er) costs
Opportunities for LNG exports?
3
The North American natural gas markets
-5
0
5
10
15
20
0
100
200
300
400
500
600
700
800
1970 1975 1980 1985 1990 1995 2000 2005 2010
US Consumption US ProductionUS Import share NAm Import share
4
US natural gas balance (bcm)
• Canadian pipeline gas has balanced the region
• Rising US imports through the 1990s - Healthy domestic demand - Low prices as a result of deregulation («gas bubble»)
• Growing US concern in the early 2000s - Opportunities for LNG imports
• «Something» happend in the mid-2000s - Production started to grow
Main trends
The region has been self sufficient – the US import position has fluctuated
Source: BP Statistical Review 2012
The North American natural gas markets
0
1
2
3
4
5
6
7
8
9
10
0
100
200
300
400
500
600
700
800
2000 2003 2006 2009 2012
ConventionalAssociatedCBMTight gasShale gasHH prices
5
US natural gas production (bcm)
Source: Wood MacKenzie, Dec 2012
• Large resource base - Known for years, but low well productivity until mid-2000
• High prices and entrepreneural spirit (triggers)
• Technological «revolution» - Combination of horizontal drilling and water fractioning - Improved «visualization» of reservoirs
• Low cost level
• Low gas prices in 2011-12, but resilient production - Licence commitments - Reduced drilling - Learning, increased productivity, focus on «sweet spots» - High oil prices
US shale gas production
High prices triggered the shale gas revolution
North American gas resources
Huge resource base
Huge resource base and low costs – environmental concern is a wild card?
Source: US DOE EIA, Statoil.
• Public concern - Use of water resources - Contamination of ground water? - Earth quakes?
• Federal assessment to be finalized in 2014
• Progress report (2012): Not dramatic
• The industry could expect tight(er) regulations
Resources for more than 150 years
Public concern about environmental effects
Long-term marginal costs ($/mmbtu) Illustration*
0
2
4
6
8
10
New production (volume)
Technology revolution
Pre 2005
Post 2010
* Based on estimates from various institutions
North American energy and gas demand Outlook for moderate growth in gas demand
North American energy demand (mtoe)
• US energy policy is crucial - Expectations/outlook for rising efficiency - Administrative measures (mandates), and eventually - Implementation of climate policy beyond 2020?
• Coal and oil will lose market shares
0,0
0,5
1,0
1,5
2,0
2,5
3,0
1990 2000 2010 2020 2030 2040Renewable Nuclear Gas Oil Coal
North American gas demand (bcm)
• Strongest demand growth in the power sector
• Cheap gas – towards moderate «re-industrialization» - Chemicals, but also other industries
• Potential for some gas penetration in transportion
0
500
1 000
1 500
1990 2000 2010 2020 2030 2040
Other transformation PowerNon-energy TransportOther stationary ResidentialIndustry
Source: Statoil, Energy Perspectives 2012.
0
2
4
6
8
10
12
14
16
2011 2020 2011 2020
HH price Liquefaction* Shipping Regasification
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Import price
Drivers behind LNG export
LNG exports economics from the US $/mmbtu
To Europe To Asia
Source: IEA, WEO 2012, * Incl. costs of pipelines to export terminal
North American LNG exports Potential for exports to Asia – and Europe?
• More globalized markets – pull/push from other regions
• Economic risk: Uncertainty about future price levels
• US energy/LNG export policy: Cautious opening - Acceptable market- and macroeconomic effects - Still approval of projects case by case - Only one project approved
-30,0
-10,0
10,0
30,0
50,0
70,0
90,0
2000 2005 2010 2015 2020 2025 2030
HistoryConsultant 1Consultant 2
North American LNG export (bcm)
IEA (WEO 2012)
Statoil (2012)
US shale gas revolution – conclusions The strongest markets effects have and will come in America
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• North American markets - Cost level and gas prices have (already) shifted downwards - Gas more important in the future energy mix? - Potential for LNG exports - Stimulus to chemicals and energy intensive industry
• Europe and Asian markets - North American LNG exports may soften the market balances, and - May add to pressure on oil indexation, but - The energy policy dilemmas are the most important
• Exports of «fracking» technology - Resources are in place, but uncertain, and - The cost level is higher than in the US - Expectations have dampened - Implementation may take more than a decade
Conclusions
EU energy policy Role of natural gas
Russian export strategy
LNG imports New and stronger trade flows?
Market balance pressure Price formation
«Fracking» technology
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US oil production
Large resource base of tight oil – but it is not low costs resources
Too much of a good thing?
Towards transformation of the Middle East?
The shale gas success has spread to oil
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The US tight oil revolution
0
0,5
1
1,5
2
2,5
3
2005 2007 2009 2011 2013 F 2015F
BakkenEagle FordOther
US tight oil production (mb/d) Based on current price level
Sources: IEA, US EIA, Statoil (forecast)
• Well-known resources (but uneconomic up to 2008)
• “New” technology and strong price incentives
• Supportive supplier industry and flexible infrastructure - pipeline bottlenecks, but flexible rail system
Conditions have been in place
The US oil market
0
10
20
30
40
50
60
70
0
4
8
12
16
20
24
1950 1960 1970 1980 1990 2000 2010
US Consuption
US liquids production*
Net imports**
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US oil consumption and total liquids production (mb/d, pct)
High import dependence and geopolitical concern
0
2
4
6
8
10
12
1990 1995 2000 2005 2010Lower 48* Alaska OffshoreTight oil NGL Other OxygAdjustments Biofuels Proc gains
US total liquids production (mb/d)
Source: US DOE EIA Source: US DOE EIA ** Incl. Processing gains, ** Crude imports and products exports
US tight oil production (mbd) Dependent on oil price level
Uncertainties about various drivers
Huge uncertainty about “how much” and “how fast”? The global market and oil prices are the most important?
The US tight oil revolution
• Below ground drivers - The productivity of the formations - Further learning and technological improvements - Recovery rate: 1-2% (up to revolution) – or 5-10%?
• Regulations - Concern about ground water –tighter regulations?
• “Well economics” and market risk - High depletion rates of individual wells - Break-even prices (WTI) mainly from $60 to $80/bbl - Investments are also sensitive to cash-flow - WTI prices in the $85-75/bbl range may hurt - Pipeline bottlenecks – but only temporary
• The global oil market - Is there room for +/- 4 mbd of US tight oil? - Something may have to give 0
1
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2009 2012 2015 2018 2021 2024
Most likely?
Upside
Potential
EP 2012 (May)
Source: US DOE EIA, Statoil , various energy consultants
US import share may fall sharply – but magnitude dependent on prices
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Future US oil import dependence
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10
20
30
40
50
60
70
0,0
5,0
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20,0
25,0
1990 2000 2010 2020 2030 2040Consumption (RC) Procduction (RC)Import share (RC) Import share ($75/bbl)
US net imports mb/d
pct
Source: US DOE EIA, Statoil , various energy consultants
0
2
4
6
0
2
4
6
8
2000 2005 2010 2012 2015 2020
Other Opec spare capacity*Saudi spare capacityIraqi oil production (rhs)
Opec spare capacity Iraqi oil production (rhs)
mb/d mb/d
Two oil price scenarios
• Reference Case – prices around $100/bbl - Long-term supply costs above $90/bbl - Further – moderate – supply disruptions - Acceptable demand for Saudi crude oil (assumption)
• Price cycle around $75/bbl - Lower prices slow US tight oil expansion for several years - Relative stability of the Middle East
Source: IEA, Statoil, Energy Perspectives. May 2012 * *Higher spare capacity with revised US tight oil forecasts
**
US shale oil revolution – conclusions The revolution will affect the rest of the world
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• Huge resources of tight oil, but
• The US tight oil production is price sensitive - The most expensive spots have high break-even prices
• The US important dependence will fall sharply - From 7.6 mbd (2012) to 1-5 mbd (scenario dependent) - Reduced pressure to tighten energy efficiency mandates?
• The Middle East is still important - Outlook for continued and social and political turmoil, and - Further supply disruption - Severe and long lasting disruption justify high North American oil production
• Exports of «fracking» technology - Resources are in place, but uncertain and high cost - Implementation may take more than a decade (like natural gas)
Conclusions
Transformation of the Middle East How large supply disruptions?
Saudi price strategy Volume Prices and income
US/non-Opec production Towards sustained high growth?
Market balance pressure Price formation
«Fracking» technology
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Presentation title
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