The Shale Revolution: The US & Asia
in a New Energy Axis
By
Al Troner
ASIA PACIFIC ENERGY CONSULTING
Houston, Texas, USA
Phone: +1-281-759-4440
Email: [email protected]
Crude Oil Markets Asia Singapore, September 18-19, 2013
Asia Pacific & the Shale Revolution – Key Points/1
Tight Oil in Shale Revolution – Asia Pacific impacts/direct
Indirect impacts more immediate
Shale (crude/NGLs) forcing global structural shifts
Key Concerns - Light/heavy, sweet/sour price delta
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Shale Oil has put North Dakota on the Global Crude Oil Map
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Source: BP Statistical Review of World Energy June 2013; APEC
Asia Pacific & the Shale Revolution – Key Points/2
Key concerns - Delta WTI/Brent
Key concerns - Overdependence on Mideast
Ways & Means – Petrochemicals, transport & power
Asia Pacific/N. America - Emerging Supply/Demand Yin/Yang
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US Tight Oil – Key Players in the Lower 48
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Source: Deutsche Bank, Integrated Oils: Oil & Gas for Beginners, p.264
Some Definitions
Tight Oil, not Shale Oil
Bituminous Crude, Not Bitumen
Natural Gas Liquids (NGLs) = Ethane, LPG (Propane/Butane)
and Condensate
Crude & NGLs – generally valued for what they can make
Gas generally valued for heat it can create
US crude exports banned; NGLs unrestricted
Much of emerging Tight Oil is actually field condensate
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NGLs Defined – A Summary
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Product Characteristics Sectors
Methane (C1) Dry gas; calorific value only; Piped or LNG GTL feedstock
Power, heating, industry, GTL, methanol, urea/fertilizer
Ethane (C2) Both dry ga s & NGL; major value as petchem feedstock; needs pipelines, big gas output
As in methane; also petchem
Propane (C3/LPG) Needs containment; generally stripped from gas; higher capex and opex in transport; safer than butane
Generally home & business; transp ort use; gas supplement
Butane (C4/LGP) Containment needed; higher BTU value; like propane, high capex & opex
Mainly industrial; also in transport
Condensate (C5+)
Light, sweet crude lookalike; almost always > 50% naphtha; Can be naphthenic or paraffinic ; Moderate mid - distillate; once a liquid, remains a liquid; from wellhead or gas processing; some output sold as naphtha
Like crude, full range of products; strong impact on gasoline & petchems; can produce large volume of jet & ADO
Source: APEC
Short-Term Impacts
US back-out of light crude imports by end-2013, not 2014
USGC PADD-3 even earlier; backflow to Asia
New pipeline startups deflate Cushing overhang
Resulting in WTI/Brent delta collapse
Early 2013, WTI discount to Brent $25/BBL plus; Mid-2013,
WTI/Brent seesaw for premium
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A Drop of Nearly One Third
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Source: EIA (from RBN)
Medium-Term Impacts
Yet Tight Oil results consistently outrun forecast
Bakken 715 MBD/Eagle Ford 621 MBD + Condensate/100 MBD
= nearly 1.45 MM B/D
Total Tight Oil forecasts 1.4-1.8 MM B/D
Tight Oil price disconnect WTI (i.e. Eagle Ford)
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2008-2012 Tight Oil Build-Up (In MBD)
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Region 2008 2009 2010 2011 2012
%Gain
2008-2012
US Total 5,000 5,353 5,478 5,661 6,475 29.5%
North Dakota 172 218 310 419 662 284.9%
Bakken 75 136 235 393 655 773.3%
Texas 967 958 1,013 1,212 1,492 54.3%
Eagle Ford 2 15 83 197 411 20450.0%
Permian 810 823 844 891 1,220 50.6%
Note: * Tight Oil output for Permian estimated in part; all figures exclude plant
condensate which was 291 MBD in 2011.
Source: EIA, Texas Railroad Commission
How the Future Changes (In MM B/D)
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Source: Deutsche Bank
2013 2014 2015 2016 2017 2018 2019 2020
IEA 1.8 2.3 2.7 3.1 3.3 N/A N/A N/A
WMC 2.4 2.9 3.4 3.8 4.1 4.4 4.5 4.6
EIA (12/2012) 2.4 2.5 2.6 2.7 2.7 2.7 2.8 2.8
EIA All (1/2013) 7.3 7.9 N/A N/A N/A N/A N/A N/A
APEC US Shale Outlook (In MM B/D)
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Source: APEC, Industry
2013 2014 2015 2016 2017 2018
Total US Crude (w/Field Cond.) 8.4 8.75 9 9.2 9.45 9.9
North Dakota (Est. Field) 0.81 0.87 0.95 1.05 1.2 1.3
Texas (Est. Field) 2.85 3.1 3.3 3.5 3.6 3.8
Tight Oil by Basin (Crude/Field Condensate, Plant within Total
Combined) (In MBD)
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Note: * Tight Oil is from Wolfe Camp & Bone Springs developments. It made up about
90% of Permian output in 2012 and will make up about 30% by 2018. Source: APEC,
Industry
Field 2013 2014 2015 2016 2017 2018
Bakken 800 840 880 950 1,150 1,220
of which: Est. Field Cond. 100 120 140 170 180 200
of which: Est. Plant Cond. 40 45 55 70 90 110
Eagle Ford 780 1,100 1,240 1,350 1,500 1,590
of which: Est. Field Cond. 280 400 455 505 540 560
of which: Est. Plant Cond. 110 130 160 180 210 230
Permian/Tight Oil*/Plant Only 170 320 410 480 670 710
of which: Est. Field Cond. 28 60 85 105 145 160
of which: Est. Plant Cond. 60 80 110 130 160 170
Why?
Much Tight Oil is field condensate
Sizable plant condensate too (EF/93 MBD; Bakken 25 MBD;
Permian 60 MBD)
Houston area crude avails – 2.7 MM B/D, equal to UAE output
Emerging WTI/Brent equilibrium? US crude market fragmenting?
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APEC Tight Oil Production Accessible to USGC (In MM B/D)*
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Note: *Production numbers include plant condensate.
Source: APEC
Basin 2012 2013 2014 2015 2016 2017 2018
Bakken 0.667 0.800 0.840 0.880 0.950 1.150 1.220
Eagle Ford 0.550 0.780 1.100 1.240 1.350 1.500 1.590
Permian Shale & Conventional 1.220 1.350 1.400 1.480 1.520 1.550 1.550
of which: Shale (Wolfe Camp &
Bone Springs) 0.110 0.170 0.320 0.410 0.480 0.670 0.710
Niobrara 0.100 0.120 0.200 0.270 0.360 0.400 0.380
Cana-Woodford (Mississippi Lime) 0.080 0.120 0.150 0.200 0.220 0.220 0.250
Utica 0.010 0.070 0.100 0.130 0.170 0.190 0.220
Total Tight Oil Output 1.517 2.060 2.710 3.130 3.530 4.130 4.370
Plant Condensate & Exports
No policy change in medium term
Field condensate still ‘crude’; only plant exportable
Yet buildup in plant output, declining US demand, means more
exports
Canada Will ‘kick back’ condensate by 2016-2017
Exports then in range of 400 MBD; Asia next export target
Lighter, paraffinic plant grade excellent for olefins
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US Crude/Plant Condensate Output
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Region 2008 2009 2010 2011 2012
US Crude 5,000 5,353 5,478 5,661 6,475
PADD-1 20 15 20 22 24
PADD-2 545 588 686 828 1,110
of which: North Dakota 172 218 310 419 662
PADD-3 2,727 3,112 3,186 3,269 3,791
of which: Texas 1,109 1,093 1,171 1,463 1,987
PADD-4 372 363 372 395 442
PADD-5 1,336 1,275 1,214 1,147 1,108
US Pentane Plus 264 270 277 291 317
PADD-1 3 3 5 6 8
PADD-2 35 36 39 44 50
PADD-3 158 159 159 165 180
PADD-4 38 42 47 49 51
PADD-5 30 30 27 27 28
Source: EIA
US Plant Condensate Forecast (In MBD)
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Source: APEC, Industry
2013 2014 2015 2016 2017 2018
Plant Condensate 340 370 410 450 500 560
US Crude (w/Field Cond.) 8,400 8,750 9,000 9,200 9,450 9,900
N. American Exports
No US crude; but Canadian syncrude (bituminous) by 2017
US plant condensate
Field condensate-derived products, ex. Kinder Morgan/BP
Galena Park
Ethane for the future? US followed by Canadian LPG
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Canadian Oil Sands Output Forecast
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Source: RBN; Chart based on CERI production forecast
NGL Wave Still Building
Ethane dominates NGL buildup, but heavier NGL output will rise
faster
Newest production zones – Bakken, Marcellus/Utica, Niobrara
Ethane, LPG will push plant condensate out of domestic use
LPG drive has filled Atlantic Basin
Expansion of US petchem capacity will not absorb all
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US NGL Forecast Production
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LPG to the Fore
From 2012-2014, Texas adds export capacity greater than Qatar
LPG impacts transport as much as petchems
Butane/iso-butane make gasoline components
LPG more efficient than CNG or LNG in urban traffic
Australia, S. Korea top Asian substitution markets
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LPG First; Profound Impacts on Asian Crude, Petrochemicals
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LPG Export Infrastructure (In MBD)
Source: Platts Commodities Week, “Major Supply, Demand Trends in US LPG/NGLs”,
Oct. 16, 2012; Suzanne Evans, Platts 3/7/2013.
Site Owner/Operator Product Capacity Startup Notes
Houston Ship Channel Enterprise Propane 115 2012 Multiple tanker loading
Houston Ship Channel Enterprise Propane 100 3Q-2013 Excludes ethane in E/P mix
Houston Ship Channel Enterprise Propane 94 1Q/2Q-2014 Expand dock; Can load VLGC
Beaumont, TX Vitol Propane 100-200 1Q-20131.24-2.48 MM BBLs storage
(100,000-200,000 MT)
Galena Park, TX Targa Resources Propane 84 3Q-2013
Can load up to 4 VLCG tankers
monthly
Houston Ship Channel
Phillips 66, Occidental,
TransMontaigne Propane/Butane 430 1Q-2014 Can load pipeline to Mt. Belvieu
923-1,023Total
Mideast Gulf & Asia Pacific
Structural dependence of Asia on Mideast crude, products,
NGLs, LNG
Mideast exporters consider Asia Pacific their backyard
Long-term North American commercial challenge
At minimum, Mideast pricing must be revamped
Other alternative suppliers – Russia (crude/gas), East Africa
(LNG) emerging
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Asian Petroleum Imports
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Source: APEC
Category Average Share of Asian Imports
Crude 70-75%
Products (excl. LPG) 60-65%
NGLs 75-80%
LNG 40-45%
Mideast Attitudes to the Shale Revolution
After hesitation, realization that the trend is long-term
US, Canadian competition is inevitable
Yet few efforts made to reform pricing structures, export or
domestic
Challenge is across the board – crude, products, gas &
petrochemicals
Now claiming shale development; yet Goldilocks dilemma
unresolved
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The Shale Revolution in Asia Pacific
Is the US experience replicable? At what cost in time/money?
We believe it is replicable…
… but will cost more and take longer than anticipated.
Most promising countries – China & Australia
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Prime Country Candidates for Shale Development – Score Card
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Source: APEC
Shale Project Basics US Canada China Australia Argentina
Size Reserves 5 5 5 3 4
Quality Reserves 5 5 3 3 4
Pricing Mechanisms 5 5 2 5 2
Gas Transport Network 5 4 2 3 2
Gas Process Capacity 5 5 2 4 2
Size Petchem 5 3 5 2 2
Feedstock Flexibility 5 5 2 4 2
Total 35 32 21 24 18
Basics for the Shale Revolution
Size of natural resource base
Quality of reserves, depth and wetness ratio
Free market pricing, supporting more costly development
Gas/NGL processing, transport infrastructure
Petchem capacity (chiefly on ethane)
Flexibility of petchem substitution – liquids vs. ethane
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Conclusions
The Shale Revolution is real and long term in duration
It impacts oil, gas, NGL and petrochemical production
For crude, North America essentially will be self-sufficient by
2020
Crude pricing impacts already felt; light/heavy, sweet sour price
deltas
Shale-derived NGLs will also impact crude balances
NGLs will reshape petchem and transport sectors
The Mideast and N. America will compete to supply Asia’s future
energy needs
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