The Changing Nature of Gulf of Mexico Energy Infrastructure

The changing nature of Gulf of Mexico energy infrastructure.

Session 3B: New Directions in Social Science Research. 27th Gulf of Mexico Region Information Technology Meetings. August 24, 2017.

David E. Dismukes, Ph.D. Center for Energy Studies Louisiana State University Center for Energy Studies Infrastructure

Energy infrastructure supporting E&P activities. Louisiana has a plethora of critical energy infrastructure. A large portion of which originated to support offshore exploration and production activities.

Ports/Supply Base Natural Gas LNG Processing

Refineries Pipes Platform Fabrication

Petrochemical Natural Gas/LPG/NGL Waste Storage Handling Facilities

Electric Generation © LSU Center for Energy Studies 2 Center for Energy Studies Infrastructure

Louisiana’s critical energy infrastructure.

A large portion of this infrastructure, in fact, is located in the coastal zone, not only in Louisiana, but various places along the Texas Gulf coast as well.

Prior BOEM factbook research and analysis.

Goals of past BOEM (MMS) “fact-book” projects has been to: (1) describe and identify each of the relevant infrastructure categories and individual assets in the respective coastal areas (and develop GIS database to support this description) (2) Explain their relationship to the offshore industry. (3) Examine and explain infrastructure organization and structure (from industrial and labor market perspective). (4) Examine recent changes and the outlook for infrastructure development.

U.S. natural gas production – onshore v. offshore

Offshore natural gas production has fallen 70 percent in the last 15 years, at an average annual rate of 8 percent. Onshore production has increased 65 percent since 2001, and 30 percent since 20100

35 7

30 6

Production, Production, Offshore (Tcf)

)

Tcf

25 5 U.S. Natural Gas

20 4

15 3

U.S. Natural Gas Natural U.S. 10 2 Production, Onshore ( Onshore Production, 5 1

0 0 1990 1995 2000 2005 2010 2015

Onshore Production Offshore Production

Source: U.S. Energy Information Administration. © LSU Center for Energy Studies 6 Industry Changes

U.S. Crude Oil Production – Onshore v. Offshore

Onshore and offshore crude oil production have followed similar trends. Onshore production has increased 52 percent since 2010; offshore production has increased

almost 70 percent, which is mostly attributable to deepwater production.

) ) 2.0

1.8 Bbls 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2

U.S. Crude Oil Production (Trillion (Trillion Production Oil Crude U.S. 0.0 1990 1995 2000 2005 2010 2015 Onshore Production Offshore - Deepwater Offshore - Shelf

Source: U.S. Energy Information Administration. © LSU Center for Energy Studies 7 Industry Changes

Changes in reserves and production

Natural gas production and reserves are at levels not seen since the 1970s and both U.S. natural gas production and reserves are now at an all time recorded peak.

400 30

350

25 Marketed Production (Tcf)

300 U.S. U.S. Natural Gas 20 250

200 15

150

2012 reserve 10

U.S. Dry Natural Gas Natural Dry U.S. 100 estimates mark the Proved Reserves (Tcf) Reserves Proved

first decline in 14 5 50 years.

0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Natural Gas Reserves Natural Gas Production

Source: Energy Information Administration, U.S. Department of Energy. © LSU Center for Energy Studies 8 Source: Energy Information Administration, U.S.Department of Energy Annual Energy Outlook, n EnergyOutlook,Annual

Reserves, Tcf Unconventionalresources arenot a “flash inthepan”are and to anticipated 200 220 240 260 280 300 320 340 360 2012 2014 continue to increase over the next two continue to increaseoverthe nextdecades or two more. 2016 2018 atural 2020 g as reserves 2022

2024

2026 2028 2030 2032 IndustryChanges 2034 2036 © LSU LSU Center for Energy Studies

2038 2040

Industry Changes

Changes in crude oil reserves and production

Crude oil production and reserves are climbing back to levels not seen since

the early 1980s (reserves).

)

45 4.0

U.S. U.S. Crude Oil Production (Billion Bbl 40 3.5

35 Millions 3.0 30 2.5 25 2.0 20 1.5 15 1.0

10 Bbl

5 0.5

)

U.S. Crude Oil Proved Reserves (Billion (Billion Reserves Proved Oil Crude U.S. - 0.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Crude Oil Reserves Crude Oil Production

Source: Energy Information Administration, U.S. Department of Energy. © LSU Center for Energy Studies 10 Source: Energy Information Administration, U.S.Department of Energy Annual Energy Outlook, c EnergyOutlook,Annual

Reserves, Billion Barrels reservesCrude oil areexpected increase 20 to percent2020byand increase 10 15 20 25 30 35 40 45 50 0 5 2014 2016 2018 2020 rude by anotherby percent202040. by o 2022 il reservesil 2024

2026 2028 2030 2032

IndustryChanges 2034 2036 © LSU LSU Center for Energy Studies 2038 2040

Industry Changes

Current crude oil prices and near-term outlook

Banks have downgraded their oil price expectations, to average $53 per barrel in 2018. Prices are expected to stay below $60 per barrel in 2019.

$100 $93.17 4Q 2017 2018 (averages) $90

$80 Credit Credit Suisse Suisse $70 $62 Citigroup $60 Barclays $55 $60 $55 EIA $49.52 $49.58 BNP $48.68 HSBC $45 BBl $50

$43.29 $58 B of A; $/ Deutsche $40 ING, JP Morgan Bank Commerz $42 $52 $30 and $20 BNP $45 $10 $0 2014 2015 2016 2017 (YTD)

Source: U.S. Energy Information Administration; Wall Street Journal © LSU Center for Energy Studies 12 Industry Changes

Current natural gas prices and near-term outlook

Natural gas prices are expected to stay below $3.50 per MMBtu in 2017 and under $3.75 in 2018.

$5.00 4Q 2017 2018 $4.50 $4.37 Wells Jeffries $4.00 EIA Fargo Deloitte $3.50 Bloomberg $3.41 $3.41 $3.25 $3.50 $3.17 $3.03 World

$3.00 Bank $2.62 $2.52 EIA World Bloomberg IMF IMF $3.50 $2.50 $3.17 Bank $3.14 $2.93 $2.90 $3.00

Percent $2.00 $1.50 $1.00 $0.50 $0.00 2014 2015 2016 2017 (YTD)

Source: Energy Information Administration, U.S. Department of Energy. © LSU Center for Energy Studies 13 Infrastructure Development

© LSU Center for Energy Studies 14 Source: LouisianaCenter State University,for EnergyStudies. Gulf of Mexico region Mexico of Gulf The continued low natural gas price outlook has facilitated considerable development of developmentconsiderable facilitated has outlook gas price natural low continuedThe Billion $ $15 $20 $25 $30 $35 $40 $45 $50 $10 $0 $5 over $318 billion: $100 billion already completed, $218 billion remaining. $218 billion completed,already $100 billion $318 billion: over 2011 2012 2013 – Louisiana

state 2014 - specific total capital expenditures capital total specific 2015

2016 2017 Texas 2018 2019 5.0 Manufacturing 5.0Manufacturing Renaissance 2020 Alabama/Mississippi 2021

2022 2023 Development 2024 2025

5.0 ManufacturingDevelopment Renaissance

Gulf of Mexico region: total proposed capital expenditures by sector

Of the proposed facility expansions in the Gulf of Mexico region, LNG export facilities comprise the majority of proposed capital spending.

LNG Export, 55%

Cracker/Polymer, 30%

Methanol/Ammonia, 10%

Other, 5%

Source: Louisiana State University, Center for Energy Studies. 16 Development

U.S. petroleum product imports and exports In 2011, the U.S. became a net exporter of petroleum products. Net exports have increased 360 percent since then.

3 Net exports

2 Exports

per day) per

0 MMBbl ( -1

-2

-3 Imports Petroleum Product Imports and Exports and Imports Product Petroleum -4 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Distillate Motor gasoline Other petroleum products

Source: Energy Information Administration, U.S. Department of Energy. © LSU Center for Energy Studies 17 1. Ammonia/Nitrogen ManufacturingDevelopment

U.S. Recent and Upcoming Natural Gas Pipelines

Year Additional Pipeline Operator/Project Name Status In-Service State(s) Region(s) Capacity (MMcf/d)

ANR Pipeline Lebanon Lateral Project Completed 2014 OH Northeast 350 Lebanon Lateral Project Phase 3 Announced 2017 OH Northeast Lebanon Lateral Project Phase 2 Announced NA IN,OH Northeast 290 Southeast Mainline System Reversal Announced NA IN,KY,TN,MS,AR,LA Northeast,Southwest 1,000 Cheniere Creole Trail Pipeline Creole Trail Expansion Project 1 Completed 2015 LA Southwest 765 Creole Trail Expansion Project 2 Approved 2016 LA Southwest 765 Columbia Gas Transmission Pipeline operators have West Side Expansion Project (Gulf Bi-Direction) Completed 2013 KY,TN,MS,LA Southeast,Southwest 540 West Side Expansion Project (Smithfield III) Completed 2014 PA,WV,KY Northeast,Southeast 444 responded to the increase in Cameron Access Project Approved 2017 LA Central 800 Rayne XPress Project Filed 2017 KY,TN,MS,LA Southeast,Southwest 621 natural production, particularly in Iroquois Gas Pipeline South to North project Announced 2017 NY,CN Northeast,Canada 650 Natural Gas Pipeline Company of America the shale regions, with a flurry of Gulf Coast Market Expansion Project Announced 2019 IL,AR,TX Midwest,Southwest 750 Panhandle Eastern Pipeline construction activity. Thirteen Panhandle Backhaul Project Approved 2017 OH,IN,IL Northeast 750 Rockies Express Pipeline operators have announced 27 Zone 3 East-to-West Project Completed 2015 OH,IN,IL Northeast,Midwest 1,200 Pipeline Zone Three Capacity Enhancement Construction 2016 OH,IN,IL Northeast,Midwest 800 Tennessee Gas Pipeline projects that are expected to be Utica Backhaul Transportation Completed 2014 PA,TN Northeast,Southeast 500 Texas Eastern Transmission built through the end of the Uniontown to Gas City Expansion Project (U2GC) Completed 2015 PA,OH,IN Northeast,Midwest 425 Ohio Pipeline Energy Network Completed 2015 OH,KY,TN,AL,MS,LA Northeast,Southwest 550 decade. Gulf Markets Expansion (bi-directional) Approved 2017 PA,OH,WV,KY,TX Northeast,Central 650 Lebanon Extension Project Filed 2017 PA Northeast 102 Adair Southwest Project Filed 2017 PA,WV,OH,KY Northeast,Southeast 200 Access South Project Filed 2017 PA,WV,KY,TN,AL,MS Northeast,Midwest 320 Texas Gas Transmission Ohio-Louisiana Access project Construction 2016 OH,IN,KY,TN,MS,LA Northeast,Southwest 626 Northern Supply Access Project Filed 2017 OH,IN,KY,TN,MS,LA Northeast,Southeast 384 Transcontinental Gas Pipeline Atlantic Sunrise Project (bi- directional) Approved 2017 PA,VA,NC,SC,GA,AL Northeast,Central 1,700 Trunkline Gas Co Trunkline Backhaul Project Applied 2017 IL,KY,TN,MS Midwest,Southwest 750 Vector Pipeline 2017 Vector Pipeline Mainline Announced 2017 MI Midwest 1,300

Source: U.S. Energy Information Administration 18 1. Ammonia/Nitrogen ManufacturingDevelopment

Natural Gas Pipeline Reversal ANR Pipeline’s Southeast line was constructed to transport gas from south Louisiana, north to Michigan. The Lebanon Lateral was built as a joint venture between ANR and Texas Eastern to bring additional supplies into northeast markets by delivering gas into Texas Eastern and Dominion systems. Today, those supplies are not longer needed as Appalachian production is displacing those long haul supplies. Flows have been reversed on the Lebanon Lateral, as well as the Southeast line, moving gas north and south.

19 Industrial Development

Examples of other selective industry changes

Infrastructure GOM Influencing Category Outlook Factors

low natural gas prices; diverse sources; low Petrochemicals volatility. low crude oil prices, diverse crude quality, diverse Refineries sources. flat intrinsic growth because of efficiency Power Generation measures; new end uses. diverse resource mix; northeast constraints; re- Pipelines purposing, re-orientation opportunities. No supply volatility; ample storage of intrinsic Storage growth.

Gas Processing Growing liquids market

Shipyards, bases, and Decreasing offshore activity. marine terminals Increasing export oppportunites; abundant, LNG diverse supplies. © LSU Center for Energy Studies 20 Conclusions

Conclusions

• Offshore activity has been abysmal and has led to considerable deterioration of offshore service sector activity along GOM. • Drilling and exploration preference is strongly biased to onshore unconventional production, with the exception of a limited amount of offshore crude oil development, much of which was planned several years in advance. • Offshore impacts of decreasing and low prices has not translated to supporting infrastructure since (a) this infrastructure is being re- purposed to handle new domestic resources and (b) using coastal locations to leverage new energy export economy. • Advantages of this development is that if and when offshore activity does re-emerge, new, improved and modern infrastructure will be in place to service and support that production.

[email protected] www.enrg.lsu.edu