Oil and Gas Outlook
For Independent Petroleum Association of America November 13, 2014 | Palm Beach, FL
By Adam Sieminski, Administrator U.S. Energy Information Administration
U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov Recent research • Growth in light sweet crude oil production – U.S. supply of lighter API gravity crude will continue to outpace that of medium and heavier crudes; more than 60% of EIA’s forecast of production growth for 2014 and 2015 consists of sweet grades with API gravity 40+ oil; 28% of production growth in 2015 is Gulf of Mexico API gravity 27-35 medium sour oil • Updated LNG Study – EIA was asked to assess how significantly increased exports of LNG could affect domestic energy markets, focusing on consumption, production, and prices. The scenarios reach as high as 20 Bcf/d, with these exports phased in at a rate of 2 Bcf/d each year beginning in 2015, sourced from the lower 48 states • Study of the relationship of gasoline and crude oil prices – EIA looked into the determinants of gasoline prices in the United States, and whether a change in current limitations on crude oil exports would have an effect on those prices, and the magnitude of that effect
Independent Petroleum Association of America November 13, 2014 2 These seven regions accounted for 95% of U.S. oil production growth and all U.S. natural gas production growth from 2011-2013
Source: EIA, Drilling Productivity Report
Independent Petroleum Association of America November 13, 2014 3 The U.S. has experienced a rapid increase in natural gas and oil production from shale and other tight resources
U.S. tight oil production U.S. dry shale gas production million barrels of oil per day billion cubic feet per day Eagle Ford (TX) 4.5 Marcellus (PA & WV) 40 Bakken (MT & ND) Haynesville (LA & TX) Spraberry (TX & NM Permian) 4.0 35 Bonespring (TX & NM Permian) Eagle Ford (TX) 3.5 Wolfcamp (TX & NM Permian) Fayetteville (AR) 30 Delaware (TX & NM Permian) 3.0 Barnett (TX) Yeso-Glorieta (TX & NM Permian) 25 Niobrara-Codell (CO, WY) Woodford (OK) 2.5 Haynesville Bakken (ND) 20 Utica (OH, PA & WV) 2.0 Marcellus Antrim (MI, IN, & OH) 15 Woodford (OK) 1.5 Utica (OH, PA & WV) Granite Wash (OK & TX) Rest of US 'shale' 10 Austin Chalk (LA & TX) 1.0 Monterey (CA) 0.5 5
0.0 0 2000 2002 2004 2006 2008 2010 2012 2014 2000 2002 2004 2006 2008 2010 2012 2014
Sources: EIA derived from state administrative data collected by DrillingInfo Inc. Data are through August 2014 and represent EIA’s official tight oil & shale gas estimates, but are not survey data. State abbreviations indicate primary state(s).
Independent Petroleum Association of America November 13, 2014 4 U.S. shale gas leads growth in total gas production through 2040, when production exceeds 100 billion cubic feet per day
U.S. dry natural gas production trillion cubic feet billion cubic feet per day 2012 40 history projections 100 35 90 30 80
25 70 60 20 Shale gas 50 15 40 Tight gas 30 10 Non-associated onshore 20 5 Non-associated offshore Alaska Associated with oil 10 0 Coalbed methane 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Source: EIA, Annual Energy Outlook 2014, Reference case
Independent Petroleum Association of America November 13, 2014 5 Natural gas consumption growth is driven by electric power, industrial, and transportation use U.S. dry gas consumption trillion cubic feet 35.0 history projections
30.0
25.0 11.0 electric power
20.0 8.5
industrial* 15.0 11.2 9.1 10.0 1.7 transportation** 0.7 3.6 commercial 5.0 2.9 4.2 4.1 residential 0.0 2005 2012 2020 2025 2030 2035 2040 *Includes combined heat-and-power and lease and plant fuel Source: EIA, Annual Energy Outlook 2014, Reference case **Includes pipeline fuel
Independent Petroleum Association of America November 13, 2014 6 U.S. becomes a net exporter of natural gas in the near future
U.S. dry natural gas trillion cubic feet per year billion cubic feet per day history 2012 projections 40 100
30 75 Consumption
20 50 Domestic supply
10 25 Net exports
0 0
-10 -25 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Source: EIA, Annual Energy Outlook 2014 Reference case
Independent Petroleum Association of America November 13, 2014 7 Projected U.S. natural gas trade depends on assumptions regarding resources and future technology advances Reference case High Oil and Gas Resource case billion cubic trillion cubic feet per year trillion cubic feet per year feet per day 8 8 20
6 6 15 exports to Mexico 4 4 exports to 10 Canada
2 2 5 lower 48 LNG exports 0 0 0 imports from Canada -2 -2 -5 LNG imports -10 -4 -4 2010 2015 2020 2025 2010 2015 2020 2025 Source: EIA, Annual Energy Outlook 2014, Reference case and High Oil and Gas Resource case
Independent Petroleum Association of America November 13, 2014 8 Key Takeaways from Updated EIA Study of added LNG exports Prices: Projected average natural gas prices at the producer level average 4% to 11% above the Reference case projection across export scenarios over 2015-40, while residential natural gas prices in the export scenarios average 2% to 5% above their base projection
Natural gas production: With the exception of one baseline/scenario pairing, higher natural gas production satisfies 60% to 80% of the increase in natural gas demand from LNG exports over 2015-40
Natural gas consumption: The electric power sector accounts for most of the decrease in delivered natural gas. The electric generation mix shifts towards other generation sources, including coal and renewables, with some decrease in total generation as electricity prices rise
CO2 emissions: Higher coal use leads to higher carbon dioxide output Expenditures: On average, from 2015 to 2040, natural gas bills paid by end-use consumers in the residential, commercial and industrial sectors combined increase 1% to 8% across pairings of export scenarios and baselines. Increases in electricity bills paid by end-use customers range from 0% to 3%
Economic gains: Changes in the level of GDP relative to baseline range from 0.05% to 0.17% and generally increase with the amount of added LNG exports required to fulfill an export scenario; EIA’s NEMS model may understate the economic benefits
Independent Petroleum Association of America November 13, 2014 9 Resource and technology assumptions have major implications for projected U.S. crude oil production beyond the next few years Reference case High Oil and Gas Resource case million barrels per day million barrels per day 2012 14 2012 14 history projections history projections
12 12 STEO October 2014 U.S. crude oil projection 10 10 tight oil 8 8 tight oil
6 6
4 other lower 48 4 other lower 48 states onshore states onshore 2 lower 48 states 2 lower 48 states offshore offshore Alaska Alaska 0 0 1990 2000 2010 2020 1990 2000 2010 2020 Source: EIA, Annual Energy Outlook 2014; Short Term Energy Outlook, October 2014
Independent Petroleum Association of America November 13, 2014 10 U.S. oil production growth helping to offset unplanned outages
estimated unplanned crude oil production outages million barrels per day
4.0 U.S. Production growth* 3.5 Other Non-OPEC 3.0 Non- Syria OPEC 2.5 Sudan / S. Sudan 2.0 Iraq 1.5 Nigeria 1.0 OPEC Libya 0.5 Iran 0.0 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Source: EIA, Short-Term Energy Outlook, November 2014 *monthly production delta versus Jan. 2011 production level
Independent Petroleum Association of America November 13, 2014 11 U.S. rail carloads of crude oil and petroleum products exceed 1.5 million b/d in 2014 number of rail carloads per week million barrels per day 18,000 1.8
16,000 1.6
14,000 1.4
12,000 1.2
10,000 1
8,000 0.8
6,000 0.6
4,000 0.4
2,000 0.2
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: U.S. Energy Information Administration, based on Association of American Railroads
Independent Petroleum Association of America November 13, 2014 12 Growing U.S. oil production and rising demand in China have together made China the world’s largest net oil importer net imports for China and the United States million barrels per day Aug-14 10 history projections 9 U.S. net imports 8
7
6
5 China net imports 4
3
2
1
0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Note: Net oil imports are defined as total liquid fuels consumption less domestic production Source: EIA, Short-Term Energy Outlook, October 2014
Independent Petroleum Association of America November 13, 2014 13 U.S. is the largest producer of petroleum and natural gas in the world estimated U.S., Russia, and Saudi Arabia petroleum and natural gas production quadrillion Btu million barrels per day of oil equivalent 60.0 30 United States Russia 50.0 25 Saudi Arabia 40.0 20
30.0 15 natural gas 20.0 10
petro10.0- 5 leum 0.0 0 2008 2009 2010 2011 2012 2013 2014e Source: U.S. Energy Information Administration Note: Petroleum production includes crude oil, natural gas liquids, condensates, refinery processing gain, and other liquids, including biofuels; barrels per day oil equivalent were calculated using a conversion factor of 1 barrel oil equivalent=5.55 million British thermal units (Btu)
Independent Petroleum Association of America November 13, 2014 14 Effect of low oil prices on U.S. shale oil production
US+CA, oil+NGLs from tight plays (kbbld)
Brent-indexed breakeven prices:
Source: Rystad Energy North America Quarterly Shale Report
Independent Petroleum Association of America November 13, 2014 15 U.S. is already a major net exporter of petroleum products
U.S. petroleum product net exports million barrels per day 3
2 2015(e)
1
0
-1
-2
-3 1950 1960 1970 1980 1990 2000 2010
Source: EIA, Annual Energy Outlook 2014 Reference case and Short Term Energy Outlook
Independent Petroleum Association of America November 13, 2014 16 Key observations from EIA’s analysis of the relationship between gasoline and crude oil prices • Prices of Brent crude oil, an international benchmark, are more important than the price of West Texas Intermediate (WTI), a domestic benchmark, for determining gasoline prices in all four U.S. regions studied
• The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices depends on its effect on international crude prices rather than its effect on domestic crude prices
• Gasoline is a globally traded commodity, and prices are highly correlated across global spot markets
• Gasoline supply, demand, and trade in various regions are changing; U.S. Gulf Coast and Chicago spot gasoline prices, which are closely linked, are now often the lowest in the world during fall and winter months
Independent Petroleum Association of America November 13, 2014 17 Most of the growth in production between 2011 and 2015 consists of sweet grades with API gravity of 40 or above
U.S. crude oil production by type million barrels of oil per day history forecast 10
9
8
7
6 API 50+ 5 API 40-50 API 35-40 4 API 27-35 3 API below 27
2
1
0 2011 2012 2013 2014 2015
Source: EIA, DrillingInfo, Colorado DNR, Texas RRC. http://www.eia.gov/analysis/petroleum/crudetypes/
Independent Petroleum Association of America November 13, 2014 18 Crude oil and associated liquids contain a wide variety of hydrocarbons
Source: EIA via Harvey Crude Assay Management System
Independent Petroleum Association of America November 13, 2014 19 Distillation processes and resulting products
processed products for domestic use or exportable without license
processed finished petroleum products and other condensate processed hydrocarbon liquids
EIA Refinery Survey
other plant processed condensate gas liquids complex splitter distillation stabilizer finished product streams gas processing plant dry gas fractionator separator (exportable with separation via temperature gradients order/authorization)
crude oil / lease condensate wet gas (exportable under limited conditions)
flash drum heater treater field / lease separator water separation via pressure changes
mixed hydrocarbon wells (gas, condensate, oil)
Independent Petroleum Association of America November 13, 2014 20 In the AEO reference case, annual carbon dioxide emissions rise slowly, but remain below levels reached in the 2000s
Source: EIA Annual Energy Outlook 2014
Independent Petroleum Association of America November 13, 2014 21 EIA projects declines in carbon dioxide emissions for all sectors except industrial relative to 2005
Source: EIA Annual Energy Outlook 2014
Independent Petroleum Association of America November 13, 2014 22 Coal continues to account for the largest share of global energy- related carbon dioxide emissions throughout the projection world energy-related carbon dioxide emissions by fuel billion metric tons 2010 Projections 50.0 History
40.0
30.0 Coal
20.0 Natural gas
10.0 Liquid fuels
0.0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Source: EIA, International Energy Outlook 2013
Independent Petroleum Association of America November 13, 2014 23 Areas of uncertainty in the outlook
• Oil prices
• China’s energy demand growth; particularly in transportation
• Increasing global trade of natural gas and hydrocarbon gas liquids in addition to oil
• Global development of tight oil and shale gas resources
• Policy decisions on crude oil exports
• Impact of geopolitical tensions on energy supply
• Constraints on CO2
Independent Petroleum Association of America November 13, 2014 24 For more information U.S. Energy Information Administration home page | www.eia.gov
Annual Energy Outlook | www.eia.gov/aeo
Short-Term Energy Outlook | www.eia.gov/steo
International Energy Outlook | www.eia.gov/ieo
Monthly Energy Review | www.eia.gov/mer
Today in Energy | www.eia.gov/todayinenergy
State Energy Portal | www.eia.gov/state
Drilling Productivity Report | www.eia.gov/petroleum/drilling/
Independent Petroleum Association of America November 13, 2014 25