America s New Energy Future: The Unconventional Revolution and the US Economy

Transcription

1 America s New Energy Future: The Unconventional Revolution and the US Economy Presented to: Central Penn Business Journal Energy Symposium Mohsen Bonakdarpour Managing Director, IHS Consulting

2 Agenda Investment prospects in the US energy sectors America s New Energy Future Unconventional Revolution Outlook for Pennsylvania 2

3 USD Billion USD Billion U.S. Upstream Oil & Gas (E&P) While upstream conventional capital expenditure is expected to be relatively flat over next 4 years, the unconventional activity exhibits healthy growth Share of unconventional capital expenditure is expected to grow from 40% in 2012 to 47% in Off shore permits have picked up recently as the process has reached historical patterns Upstream Capex (E&P) Conventional Unconventional Upstream Capex (E&P) Onshore Offshore 3

4 U.S. Downstream Based on IHS Midcontinent Crude Oil Study an Additional 6-8 Projects, 50 KB/D Flexibility Each, Will be Required at USGC Light Sour Refineries for Tight Oil West Coast H2 Plants (2013+) + Chevron Richmond (Replace) + Valero Benicia (Replace) + BP Ferndale Utah Waxy Crude Oil (2013+) + Tesoro Salt Lake City + HollyFrontier Woods Cross (15 KBD Crude, FCC, HDT) Tight Oil Capacity & Flexibility (2013+) + Valero Houston (+90 KBD) + KM Galena Park (+50 KBD) + FHR Corpus Christi + Valero McKee (+25 KBD) + Western El Paso (+25 KBD) Total Crude Capacity Increase of 545 Thousand B/D by 2015 (Excluding Closures & Additional Tight Oil Flexibility Projects) BP Whiting (2013) + Crude / Vacuum (Replace) + Coker + HGO Hydrotreater + Sulfur / H2 Plant (Offsite) BP / Husky Toledo (2015) + Crude (15 KBD) + Vacuum (30 KBD) + Coker + Diesel Hydrotreater Husky Lima (2013) + Jet Hydrotreater PES Philadelphia (2014+) + H2 Plant (Onsite) + Hydrocracker Retrofit (Potential) Hydrocrackers ( ) + Valero Port Arthur, TX + Valero St. Charles, LA + Valero Meraux, LA + H2 Plants (Offsites Valero All) + Chevron Pascagoula, MS (Lubes) Motiva Port Arthur (2013) MB/D Crude + Coker + Hydrocracker & Reformer + Hydrotreaters + Sulfur & H2 Plant (Offsite) 4

5 $ Billion U.S. Downstream Refinery capital spending outlook to peak in 2015/16 at over $50 billion per year* OBL IBL IBL: Inside Unit Battery Limit; OBL: Outside Unit Battery Limit * Figures do not include cost of land, working capital, interest expense, or overhead. 5

6 U.S. Downstream Investment will total $217 billion over six years, while capacity increases 52 million barrels per day Hydrocracker Coker Hydrotreaters FCCU Vacuum Reformer Crude Capacity KBD Spend $ Million Other 0 10,000 20,000 30,000 40,000 50,000 60,000 6

7 U.S. Power Sector Continued investment strength in renewable more than 50% of total Abundant availability and low price of natural gas reflects increased investment and very high generation capacity Expected continued substitution between coal and natural gas 7

8 America s New Energy Future 8

9 America s New Energy Future 1.7 million jobs today; 3.5 million jobs by 2035 Increased Energy Independence Manufacturing Renaissance 9

10 IHS is Assessing the Contribution of the Unconventional Oil and Gas Industry to the US Economy on Three levels October 2012: National Level Economic Contribution The direct, indirect and induced impact of the unconventional oil and gas industry on the US economy as measured in jobs, GDP contribution, labor income and government revenue. December 2012: State Level Economic Contribution The national contribution assessment is further broken down to the state level. The use of extensive domestic supply chains means benefits will accrue even to states that are not unconventional energy producers February 2013: The Manufacturing Renaissance An assessment of how unconventional gas -- as both an energy source and industrial feedstock will alter the competitiveness of the US manufacturing sector on the world stage 10

11 Unconventionals are redefining energy importexport dynamics US Oil import requirements down from 60% in 2005 to 42% today Tight oil plays have added nearly 1.8 million barrels per day of new domestic crude oil production, helping to reverse a three-decade decline in US oil production US natural gas production up 25% over the same period From 52 billion cubic feet (Bcf) per day in 2005 to 65 Bcf per day Driven largely by unconventional gas activity The increase in US natural gas production from shale gas and tight gas plays is making it possible that the United States will become a net exporter of gas by the end of this decade. 11

12 Launching a game-changing transformation of the US economy Cumulative capital investment by 2035 will surpass $5.1 trillion $87B today, almost doubling to $173 by 2020 Average of $200B through 2035 Capital investments will also be dispersed throughout the United States via an extensive network of domestic suppliers Businesses in states that do not directly produce unconventional energy will benefit as participants in the supply network. Fosters employment gains across many industries and regions of the US More on this in Part 2 of the America s New Energy Future Series (November 2012) Unconventional Capex and Opex creates jobs In 2012, unconventionals supported more than 1.7 million jobs, 360,000 direct oil and gas jobs, 537,000 indirect supplier-industry jobs, and 850,000 induced jobs. A total of 3 million and 3.5 million jobs on 2020 and 2035, respectively 12

13 Unconventional Oil and Gas Supply & Demand 13

14 Unconventional Oil and Gas Plays in North America 14 Enough to satisfy more than 100 years of consumption at current rates

15 Unconventional Tight Oil will dominate US by 2015 US Tight Oil Production Outlook: 2012 to 2035 Million Barrels per Day Tight Oil production share 32% in % in % in Conventional Deep-Water Tight Oil 15

16 Unconventional oil production, decreasing demand and improved fuel efficiency are driving down US oil imports US Average Net Oil Imports*: 2000 to 2012 Million Barrels per Day The 1.7 mbd of domestic tight oil production will reduce US oil imports by $70B in 2012 Without tight oil production, the US trade deficit would increase by 10%

17 Unconventional Gas Production Transformation Sources of Changes in Annual Gas Production Levels, Unconventional Gas Production increased 17.7 Bcf per day Bcf per day Conventional Gas Production declined 4.0 Bcf per day Production Decline in Conventional Production Increase in Unconventional Production 2011 Production

18 Unconventional natural gas currently accounts for 75% of US lower-48 gas production capacity and is expected to exceed 90% by 2035 US Lower 48 Natural Gas Productive Capacity* Outlook by Type: 2012 to 2035 Bcf per Day Shale share of gas production capacity 37% in % in % in 2035 Associated CBM Conventional Tight Gas Shale Gas NOTE: *Productive capacity is the amount of gas that can be produced if unconstrained by infrastructure bottlenecks. 18

19 Unconventional gas production is transforming the LNG import/export dynamics US Average Annual Natural Gas Net Imports: 2000 to 2011 Bcf 5,000 4,500 Five years ago the US was on track to spend $100B annual on LNG imports 4,000 3,500 3,000 Today there are discussions on the US becoming a LNG exporter 2,

20 Domestic Demand Drivers for Gas, Demand will increase from approximately 69 bcf/day in 2012 to 84 bcf/day in 2020 Increased Domestic Demand (Residential, Commercial, Industrial, and PowerGen) will account for nearly 46% of the growth (6.9 bcf/d) Chemicals and Manufacturing will lead the Natural Gas Intensive Industries in growth Bcf per day Sources of Demand Growth, Changes in Import/Export patterns will account for 54% of growth (7.8 bcf/d) Demand Domestic Demand Increase LNG Exports Exports to Mexico Reduction in Imports from Canada 2020 Demand 20

21 Measuring the Economic Contributions 21

22 Nearly $5.1 trillion in cumulative capital investments are expected to be made between 2012 and Unconventional Oil and Gas Capital Expenditures (billions of 2012 dollars) Unconventional Gas Unconventional Oil

23 Defining the Economic Contribution Direct Contribution Impact on the core producing industries: Exploring, producing, transporting and delivering to downstream elements or providing critical onsite services Indirect Contribution Impact on the supply chain and their supplier industries Induced Contribution Expenditure induced impact through household income 23

24 From 2012 to 2035 the employment contribution of the unconventional oil and gas industry will double 4,000 3,500 3,000 2,500 Induced Indirect Direct Employment Contributions of Unconventional Oil and Gas Activity (thousands of workers) 2,000 1,500 1,

25 ...Causing a Ripple Effect Through the Economy Employment Contribution in 2020 Others 2,188,625 Oil & Gas Extraction 210,758 Professional, Scientific, and Technical Services 102,294 Food Services & Drinking Places 157,807 Machinery Manufacturing 115,730 Real Estate 107,660 Wholesalers 102,294 Upstream unconventional oil and natural gas activity, on average, demonstrates one of the larger employment multipliers. On average direct employment will represent about 20% of all job resulting from unconventional oil and gas activity with the balance contributed by indirect and induced employment. 25

26 Net New Employment short term The US economy has been stagnant and operating below potential since , and is expected to continue as such until at least The current unemployment rate is 7.8% whereas IHS Global Insight considers a 4.9% rate to be the full employment level. Hence, a large portion of the jobs contribution over are truly net new jobs that would not otherwise have existed. That is, a large portion of the 2.5 million workers whose direct/indirect/induced jobs are due to the unconventional oil and gas industry would be unemployed without this industry. The 4.9% unemployment rate is what is naturally to be expected given normal turnover within the labor market without causing inflationary pressure from excess demand for labor. As long as unemployment stays above this rate, we can consider a large portion of the forecast jobs to be jobs that otherwise would not have existed. 26

27 Net New Employment longer term Over the long term the economy will move much closer to full employment. The 3.5 million supported jobs in 2035 are real, but in the absence of unconventional energy activity most of the people in those jobs would have found jobs in other sectors. However, unconventional energy activity will be creating real, incremental value added and net new labor (and other) income that will be making all workers richer than they would have been otherwise. Without unconventional energy, the 3.5 million workers in 2035 would have ended up working in other sectors of the economy, but the average household would be poorer. A bigger pie: increased income from the exploitation of the unconventional oil and gas resources A bigger slice of the pie: increased demand for labor increases wages. 27

28 By 2020, the annual contribution of unconventional oil and gas activity to GDP is projected to reach $416 billion and by 2035 is expected to reach $475 billion Induced Indirect Direct Value Added Contributions to GDP of Unconventional Oil and Gas Activity (billions of 2012 dollars)

29 Taxes, royalties, and private lease payments are projected to exceed $2.5 trillion over Contribution to US Lower 48 Government Revenue: Total Unconventional Activity* (2012 $M) ** Federal Taxes 28,936 42,183 50,229 55,686 57,365 57,846 1,137,602 Personal Taxes 22,110 32,003 38,082 42,301 43,721 44, ,197 Corporate Taxes 6,827 10,180 12,147 13,385 13,644 13, ,405 State and Local Taxes 30,931 46,582 57,731 63,999 65,009 64,967 1,317,506 Personal Taxes 3,536 5,136 6,112 6,783 6,999 7, ,650 Corporate Taxes 19,150 28,539 34,024 37,493 38,217 38, ,165 Severance Taxes 5,450 8,657 11,769 13,306 13,387 13, ,882 Ad Valorem Taxes 2,795 4,251 5,825 6,417 6,407 6, ,809 Federal Royalty Payments 1,964 2,639 3,204 2,923 2,271 1,593 62,141 Total Government Revenue 61,832 91, , , , ,406 2,517,248 Lease Payments to Private Landowners ,096 1,185 1,232 23,599 NOTES: *Total unconventional activity represents the sum of unconventional oil and unconventional gas activity. ** represents the total for all years including those years not reported. Source: IHS Global Insight 29

30 Regional Contribution & Impact on Pennsylvania 30

31 Impact of Unconventionals on the US Economy in 2020 Extensive Supply Chain will spread Economic Contribution beyond Producing States Producing States Non-Producing States Top 10 Other Top 10 Other 31

32 Impact of Unconventionals on the US Economy in 2020 adding $416 billion to US GDP in 2020 Producing States $332 Producing States $332 supporting millions of jobs Non- Non- Producing States $85 $85 GDP Contribution (billions of 2011 dollars) Producing States 2,200,000 73% 3 million jobs in 2020 Non- Producing States 800,000 27% and generating significant Government Revenues Non-Producing States $461 $461 Producing Producing States States $2,094 Cumulative Govt. Revenue, (billions of 2011 dollars) 32

33 Number of Employees 2012 $Millions Pennsylvania State Outlook Unconventional Gas Employment Unconventional Gas Value Added 350,000 $40, ,000 $35, , ,884 $30,000 $7, ,000 $25,000 $6, ,000 85,815 $20,000 $15, ,000 46,960 50,000 33, ,560 43, Direct Indirect Induced $10,000 $2,399 $20,565 $2,362 $5,000 $7,030 $ Direct Indirect Induced 33

34 Pennsylvania State Outlook 34

35 Conclusion 35

36 Unconventional Oil and Gas are Redefining Import-Export Dynamics Increased Energy Independence Tight oil plays have added nearly 1.8 million barrels per day of new domestic crude oil production, helping to reverse a three-decade decline in US oil production US natural gas production has increased 25%, Driven largely by unconventional gas activity The United States is poised to become a net exporter of gas by the end of this decade. 36

37 The required Capital Investments will drive economic growth and jobs Cumulative capital investment by 2035 will surpass $5.1 trillion Average of $200B through 2035 Capital investments will also be dispersed throughout the United States via an extensive network of domestic suppliers Businesses in states that do not directly produce unconventional energy will benefit as participants in the supply network. Unconventional Capex and Opex creates jobs In 2012, unconventionals supported more than 1.7 million jobs, 360,000 direct oil and gas jobs, 537,000 indirect supplier-industry jobs, and 850,000 induced jobs. A total of 3 million and 3.5 million jobs on 2020 and 2035, respectively 37

38 Questions & Answers Contact Information: Mohsen Bonakdarpour Managing Director, IHS Consulting +1 (215)