The US Shale Oil & Gas Revolution! Chuck Whisman, PE Chief Technical Officer GES
Agenda Discuss US oil and energy use Evaluate what caused the US shale boom Summarize Marcellus Shale activities & initiatives Describe NGLs & the petrochemical industry Identify the many industries that are positively impacted
The US has a long History of Oil and Gas Edwin Drake Well Titusville, PA 1859
The US Does Not Yet Have a National Energy Plan Which could: Help get us off foreign oil sooner (and their influence on pricing) Readily use natural gas as a transportation fuel (vehicles, rail, ) Build an advanced backbone electrical transmission grid Expedite important pipeline, energy, and processing projects that can spur economic growth, job creation, and reduced air emissions Increase and expedite transportation, delivery, and exporting projects Support all energy sources and the advancement of improved technologies Give incentives to home owners and businesses for energy efficiency
Our Dependence On Foreign Fuel in the US We use 21% of the global oil product, yet we have only 4% of the global population In 1970 the US imported ~ 25% of our oil. In 2011, it was ~ 60%. (~12 million barrels/day). ~ 70% US diesel is from foreign sources Every day 90 million barrels of oil are pumped out of the ground (~ 19 million is used in the US). Saudi Arabia produces 9.5 million barrels/day. In 2011, we spent $150 billion to import over 1.5 billion barrels of oil from OPEC nations. This could be $2 trillion over the next 10 years.
US Electricity Generation - 2011 Expect a significant increase in natural gas use as a US and worldwide electricity source. Low natural gas prices are resulting in many power generation conversions to natural gas including companies and developments that are coming off the grid to generate their own power!
Natural Gas: Clean, Abundant, and Versatile Resource Generation of electricity (on-grid or off-grid) Heating Light duty and heavy duty transportation applications Combined heat and power applications Feedstock for industries (petrochemicals) Utilization of natural gas liquids and gas-to-liquids
Gas Drilling Conventional & Unconventional the game changer
US Shale A Game Changer that was not known 5-10 years ago USGS estimates: Marcellus Shale - 84 trillion cubic feet of gas and 3.4 billion barrels of liquids that might be recovered. (2011) Utica Shale - 38 trillion cubic feet of natural gas, 940 million barrels of oil and 208 million barrels of natural gas liquids (2012) Other estimates: Eagle Ford Shale oil reserves are estimated at 3 billion barrels with potential output of 420,000 barrels a day. Haynesville shale -60 trillion cubic feet gas resource in TX and LA. CEO of Continental Resources estimates the Bakkan Shale in North Dakota and Montana hold about 20 billion barrels of recoverable crude and the natural gas equivalent of 4 billion barrels of oil. Total US Shale Gas estimate over 900 trillion cubic feet ConocoPhillips expects US shale liquids production to grow 150 per cent by 2020, and indicated North America could become selfsufficient in oil by 2025, and even a net exporter.
Growth of Shale Gas in the Natural Gas Market trillion cubic feet Source: Energy Information Administration Annual Energy Outlook, early release, January 2012
Shale Gas: A Global Phenomenon Source: Energy Information Administration
Shale Gas Revolution Across the U.S. Many States in the US are Feeling the Positive Impact Pennsylvania Ohio West Virginia Texas Oklahoma North and South Dakota Wyoming Colorado and more Source: Energy Information Administration
Marcellus Shale: Geographic Footprint
Natural Gas Delivery System
Natural Gas Supply & Demand Important factors to consider: Gas Drilling & Production Rates Storage Technical Issues Imports/Exports Availability of Exploration & Production Resources Delivery Capacity and Infrastructure (pipeline, rail, trucking, shipping) Gas Use (home, vehicles, power, petrochemical, ) Exporting to Increase Use/Development
Content from Anadarko Petroleum Company
Content from Anadarko Petroleum Company
Content from Anadarko Petroleum Company
GES Content from Anadarko Petroleum Company
Content from Anadarko Petroleum Company
Content from Anadarko Petroleum Company
Economic Benefits in PA Economic Value Added: 2011 2020 $12.8 billion $20.2 billion State/Local Taxes: $1.23 billion $2 billion Cumulative Employment: 156,695 256,420 Wells Drilled: 2,300 2,497 Output (bcfe/day): 3.5 17.5
Natural Gas Composition The determining factor in whether gas is considered wet or dry is the percentage of NGLs present. Each shale formation has a unique gas composition based on the geological conditions under which it was formed. Dry/Cold Wet/Hot % NGLs 31 31
Why do only a fraction of natural gas producing formations yield wet gas? Methane is primarily produced through two natural processes: > A biogenic process in which methane forms as a byproduct of decomposition of organic matter (ex: swamp gas). > A thermogenic process in which methane forms as the result of heat cooking organic materials, breaking carbon bonds. These materials are often marine life that settled to the ocean floor and was subsequently heated and compressed by overlying sediments. VS.
Why do only a fraction of natural gas producing formations yield wet gas? The gas in both the Marcellus Shale and the Utica Shale was formed through a thermogenic process. The contents of a thermogenic hydrocarbon deposit are largely dependent on how deep the deposit is and how long it was cooked. This characteristic is called thermal maturity. % Liquids Immature Deposit Oil Wet Gas Dry Gas Overmature Deposit Thermal Maturity 33
Why do only certain parts of the Marcellus and Utica formations yield wet gas? The Marcellus shale formed as a result of marine deposition in the Appalachian Basin. Over millions of years as the basin dried up, these layers of organic debris were covered with sediment. The pressure of this sediment compressed the organic material, creating the natural gas found today. 34 Eastern North America during the Middle Devonian (385 Ma) Source: Blakey, NAU Geology
Why do only certain parts of the Marcellus and Utica formations yield wet gas? The deeper, more thermally mature shale is in the eastern part of the formation, while the shallower, less mature shale lies to the west. It is in the shallow zone that the majority of wet gas is found. Though thousands of feet deeper than the Marcellus, the Utica Shale resembles the Marcellus: deep to the east, shallow to the west. Less Mature Zone Wet Gas More Mature Zone Dry Gas 0.5 % R 3.0 O Devonian Thermal Maturity (%R O ) Source: Wrightstone, Search and Discovery Article #10206, 2009
The composition of Marcellus wet gas NGLs and Condensate 25.3% GAS STREAM Methane 74.2% Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5
The composition of NGLs & Condensate Ethane - 15.6% Propane - 5.5% Iso Butane - 0.7% Normal Butane - 1.4% Iso Pentane - 0.5% Normal Pentane - 0.5% Hexanes+ - 1.1% Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5
NG/ NGL Extraction 38 MarkWest Liberty Rich Gas Infrastructure
NGL Distribution 39 MarkWest Liberty Rich Gas Infrastructure
NGL Processing Volumes from natural gas separation plants are expected to increase more than 40% over the next five years alone according to PricewaterhouseCoopers October 2012 report. MarkWest Liberty Rich Gas Infrastructure 40
What s driving interest in wet gas? Due to increased supply, natural gas prices have reached a 10 year low. Source: http://ycharts.com/indicators/natural_gas_spot_price
What s driving interest in wet gas? NGLs Natural Gas
NGL Markets: Ethane/Ethylene Ethylene is used to create petrochemical intermediates, which are subsequently used in the production of an array of industrial and consumer goods, including: > Packaging, shopping bags, beverage bottles, and housewares > Detergents and surfactants > Antifreeze > Building materials, synthetic rubber, and wire insulation > PVC and solvents such as PCE and TCE
NGL Markets: Propane Industrial and domestic heat source. Natural gas heating is expected to become more prevalent domestically as prices fall, possibly making the export market for propane more viable than local markets. Combined with butane to form LPG or Autogas, the 3 rd most popular auto fuel source in U.S. Used as petrochemical feedstock in the production of ethylene and propylene. Petrochemical facilities often use or store propane during the summer months when consumer demand, and thus prices, are low.
NGL Markets: Normal Butane Normal butane is used: > As a petrochemical feedstock in the production of ethylene and butadiene (a key ingredient of synthetic rubber) > Combined with propane as LPG > As a blendstock for motor gasoline > To derive isobutane > As fuel for consumer goods such as lighters, camping stoves, and torches Higher percentages of butane are used in winter grade gasoline because of its higher vapor pressure and lower cost as compared to other blending agents. It is used more sparingly during summer months to reduce the overall vapor pressure of blended gasoline (as required by the EPA), and must be stored during this time.
NGL Markets: Isobutane Isobutane is fractionated from mixed butane (a mix stream of normal butane and isobutane) or produced from normal butane through the process of isomerization. It is used: > In refinery alkylation to enhance octane content of motor gasoline > In the production of isooctane and other octane additives > In the production of propylene > As fuel for consumer goods
NGL Markets: Pentanes+ (Natural Gasoline) Natural gasoline, a mixture of pentanes and heavier hydrocarbons, is primarily used as a blendstock for motor gasoline or as a petrochemical feedstock. Other uses include: > A blending agent used to denature ethanol for use in E85 flexible fuel vehicles > A diluent in Canada for tight oil sands crude; used to thin bitumen and/or heavy oil
What does increased availability of NGLs mean for the future of petrochemical industry? A look at Ethane: In 2011 the American Chemistry Council analyzed a hypothetical, but realistic 25 percent increase in ethane supply, and discovered it would generate: > 17,000 new knowledge-intensive, high-paying jobs in the U.S. chemical industry > 395,000 additional jobs outside the chemical industry (related jobs and jobs from new capital investment) > $4.4 billion more in federal, state, and local tax revenue, annually > A $32.8 billion increase in U.S. chemical production > $16.2 billion in capital investment by the chemical industry to build new petrochemical and derivatives capacity > $132.4 billion in U.S. economic output Source: Shale Gas and New Petrochemicals Investment: Benefits for the Economy, Jobs, and US Manufacturing, Economics & Statistics, American Chemistry Council, 2011
The Impact on the US Petrochemical Industry and More! Low natural gas prices will reduce the price of ethylene, which is expected to reduce from around ~$980/ton to near $300/ton. This will likely provide 20+ years of stable and low cost petrochemical feedstock in the US. Stable polyethylene costs will resonate throughout the plastics industry Example: the blow molding industry uses more HDPE in North America than any other group, as 2.6 billion lbs of plastic was blow molded into finished goods in the first 7 months of 2012.
The Impact on the US Petrochemical Industry and More! Petrochemical industry growth will occur in existing petrochemical areas (Gulf in US, Canada) and many new areas in the US (PA, WV, OH, and other key locations). The growth will be significant. The impact to US rails, pipelines, and shipping projects is dramatic. (In June 2012, Phillips 66 ordered 2,000 rail cars at a cost of $200 million to transport shale oil from North Dakota fields to its refineries). US will likely become a significant exporter to the worldwide petrochemical industry
Impact of U.S. shale gas on manufacturing and petrochemical industries Low prices are sparking the construction of new chemical plants. (MIT Technology Review, January 2013) > Dow Chemical plans to spend $4 billion to expand its U.S. chemicals production, including a new plant in Freeport, Texas that will focus on making ethylene from ethane found in natural gas. > The South African company Sasol plans to build a huge $14 billion plant in Louisiana to convert natural gas to diesel. > Both Shell and ExxonMobil Chemical Co. are anticipating building or expanding chemical facilities for new cracker projects. (Pittsburgh Business Times, January 2013) > CF Industries is spending $2.1 billion to expand its nitrogen fertilizer manufacturing complex.
Impacts on the Rail Industry Railroads remain busy transporting frac sand, pipe, chemicals, and other commodities required for shale exploration and drilling. > Norfolk Southern (NS) Railway has seen the most activity in the southwestern part of the Marcellus. > NS is working on Marcellus and Utica shale with 26 short lines and regional railways. > CSX frac sand carloads increased by more than 40% to greater than 12,000 in 2011. > BNSF s carloads increased 75% in the second quarter of 2012. > Canadian Pacific expects oil shipments to rise from 13,000 carloads last year to at least 70,000 carloads sometime this year. Source: Marcellus and Utica shale drilling keeps railroads busy, Progressive Railroading, 2013; Shale Oil and Gas: Revitalizing Inland Transportation Networks, Site Selection, 2012
Impacts on the Rail Industry Railroads have been preparing for the shale business. > Wheeling and Lake Erie Railway Co. received a $1.1 million state grant to rebuild a rail siding that will handle the increased output. > Economic Planning Associates estimates that railcar manufacturers have received orders of more than 89,000 rail cars. The capacity of rail facilities in Bakken shale oil estimates 305,000 415,000 b/d with an increase to 1Mil 1.3Mil b/d in the next years. (Argus) two Source: Marcellus and Utica shale drilling keeps railroads busy, Progressive Railroading, 2013; Shale Oil and Gas: Revitalizing Inland Transportation Networks, Site Selection, 2012
Impacts on the Rail Industry Oil and natural gas operators are planning to spend $1 billion on rail depot projects. Total petroleum shipments in 2012 were ~540,000 rail carloads compared to 370,000 carloads in 2011. Source: Oil Industry Investing in Rail Depots: An Alternative to Keystone, Canada Free Press, 2013
Gas-to-Liquids Processes Fischer and Tropsch (FT) synthesis has been used by many industries to convert natural gas to liquid. > FT synthesis is a collection of chemical reactions that converts a mixture of CO and H into liquid hydrocarbons. Source: Oil & Gas Industry, Siemens, 2007
Gas-to-Liquids Projects Sasol plans to build the second largest gas-to-liquids (GTL) plant in the world. (The New York Times, December 2012) > The Louisiana plant will produce 96,000 barrels of fuel a day and cost ~$14 billion to construct. > Sasol is also teaming with PETRONAS to construct a new GTL plant in Uzbekistan and with Chevron to build a plant in Nigeria. Shell plans to exploit cheap natural gas in Qatar and possibly the U.S. Gulf Coast (Shell Global) > The world s largest GTL plant is Pearl GTL in Qatar with the capacity to produce 260,000 barrels of fuel a day. > Shell is currently exploring the possibility of a GTL plant on the Gulf Coast and in PA.
U.S. Exporting Opportunities According to the Center for Liquefied Natural Gas, one NGL export terminal could create nearly $11 million in new tax revenue every year for federal, state, and local governments. (Marietta Times, February 2013) U.S. has cheap natural gas prices compared to other countries. (Marietta Times, February 2013) The U.S. has an opportunity to reduce its import dependence. > The U.S. internal energy revolution along with the rise in production of oil and gas have increased gas production by 25 percent and decreased oil import dependence from 60 percent to 40 percent. (Reuters, February 2013)
Plans for the Future: U.S. Exporting Projects According to the Energy Information Administration (EIA), the US is on track to be a net exporter in 2016. > U.S. propane exports are set to match those of Saudi Arabia, the third largest liquefied petroleum gas exporter, by the end of this year. > Countries are backing out of European product to pursue U.S. propane exports. These exports are being sent to Mexico, Brazil and South America, and the ARA Netherlands-Belgium hub in Europe. > Japan is hoping to obtain NGL from U.S. to meet its energy demands and cut its import bills. Around 17 additional shale- NGL export projects are looking to source U.S. shale. (Petroleum Economist, January 2013) Source: U.S. Shale Boom Redraws Liquefied Petroleum Gas Market Map, Money News, 2013
Mariner East Project Mariner East pipeline is projected to deliver propane and ethane from Marcellus Shale to the Sunoco terminal in Marcus Hook. INEOS Europe has entered into a 15-year shipping agreement with Evergas to transport Marcellus Shale ethane to Rafnes, Norway from Marcus Hook. > From Norway, the gas will be supplied to other parts of Europe. Source: INEOS Europe, Evergas enter into long-term shipping agreements, Platts, 2013
How do we get there? Investments in midstream and distribution facilities must be made to avoid the potential bottlenecking associated with production outpacing processing and delivery. These facilities include: > Gas processing/fractionation plants > NG and NGL pipelines > NG and NGL storage facilities > Ethane cracking facilities > Gas-to-liquids facilities > Rail projects > Exporting and shipping projects(to other part of US, Canada, and the rest of the world)
Summary - Our Amazing Opportunity! The US is fortunate to have an amazing opportunity to take advantage of oil & gas natural resources due to horizontal drilling & hydraulic fracturing. This opportunity can get us off Middle East Oil and spur jobs, industrial growth, and impact many industries. Industries that are already growing: pipelines, processing, power generation, petrochemicals, rail, shipping, storage, trucking, consulting/engineering, and much more to come! Our best scientists and professionals are involved in protecting human health & the environment and developing best practices. The best is yet to come as the impacts of US shale oil and gas are just beginning!
The US Shale Oil & Gas Revolution! Chuck Whisman, PE Chief Technical Officer GES cwhisman@gesonline.com For more information: www.marcelluscoalition.org Twitter.com/marcellusgas Facebook.com/marcelluscoalition