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: apenergy@apecconsulting.com 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 1 ASIA PACIFIC ENERGY CONSULTING
Shale Oil has put North Dakota on the Global Crude Oil Map Source: BP Statistical Review of World Energy June 2013; APEC 2 ASIA PACIFIC ENERGY CONSULTING
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 3 ASIA PACIFIC ENERGY CONSULTING
US Tight Oil Key Players in the Lower 48 Source: Deutsche Bank, Integrated Oils: Oil & Gas for Beginners, p.264 4 ASIA PACIFIC ENERGY CONSULTING
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 5 ASIA PACIFIC ENERGY CONSULTING
NGLs Defined A Summary Product Characteristics Sectors Methane (C1) Dry gas; calorific value only; Piped or LNG GTL feedstock Both dry ga s & NGL; major value as Ethane (C2) petchem feedstock; needs pipelines, big gas output Propane (C3/LPG) Butane (C4/LGP) Condensate (C5+) Source: APEC Needs containment; generally stripped from gas; higher capex and opex in transport; safer than butane Containment needed; higher BTU value; like propane, high capex & opex 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 Power, heating, industry, GTL, methanol, urea/fertilizer As in methane; also petchem Generally home & business; transp ort use; gas supplement Mainly industrial; also in transport Like crude, full range of products; strong impact on gasoline & petchems; can produce large volume of jet & ADO 6 ASIA PACIFIC ENERGY CONSULTING
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 7 ASIA PACIFIC ENERGY CONSULTING
A Drop of Nearly One Third Source: EIA (from RBN) 8 ASIA PACIFIC ENERGY CONSULTING
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) 9 ASIA PACIFIC ENERGY CONSULTING
2008-2012 Tight Oil Build-Up (In MBD) 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 10 ASIA PACIFIC ENERGY CONSULTING
How the Future Changes (In MM B/D) 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 Source: Deutsche Bank 11 ASIA PACIFIC ENERGY CONSULTING
APEC US Shale Outlook (In MM B/D) 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 Source: APEC, Industry 12 ASIA PACIFIC ENERGY CONSULTING
Tight Oil by Basin (Crude/Field Condensate, Plant within Total Combined) (In MBD) 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 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 13 ASIA PACIFIC ENERGY CONSULTING
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? 14 ASIA PACIFIC ENERGY CONSULTING
APEC Tight Oil Production Accessible to USGC (In MM B/D)* 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 Note: *Production numbers include plant condensate. Source: APEC 15 ASIA PACIFIC ENERGY CONSULTING
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 16 ASIA PACIFIC ENERGY CONSULTING
US Crude/Plant Condensate Output 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 17 ASIA PACIFIC ENERGY CONSULTING
US Plant Condensate Forecast (In MBD) 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 Source: APEC, Industry 18 ASIA PACIFIC ENERGY CONSULTING
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 19 ASIA PACIFIC ENERGY CONSULTING
Canadian Oil Sands Output Forecast Source: RBN; Chart based on CERI production forecast 20 ASIA PACIFIC ENERGY CONSULTING
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 21 ASIA PACIFIC ENERGY CONSULTING
US NGL Forecast Production 22 ASIA PACIFIC ENERGY CONSULTING
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 23 ASIA PACIFIC ENERGY CONSULTING
LPG First; Profound Impacts on Asian Crude, Petrochemicals LPG Export Infrastructure (In MBD) 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-2013 1.24-2.48 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 Total 923-1,023 Source: Platts Commodities Week, Major Supply, Demand Trends in US LPG/NGLs, Oct. 16, 2012; Suzanne Evans, Platts 3/7/2013. 24 ASIA PACIFIC ENERGY CONSULTING
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 25 ASIA PACIFIC ENERGY CONSULTING
Asian Petroleum Imports Category Source: APEC Average Share of Asian Imports Crude 70-75% Products (excl. LPG) 60-65% NGLs 75-80% LNG 40-45% 26 ASIA PACIFIC ENERGY CONSULTING
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 27 ASIA PACIFIC ENERGY CONSULTING
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 28 ASIA PACIFIC ENERGY CONSULTING
Prime Country Candidates for Shale Development Score Card 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 Source: APEC 29 ASIA PACIFIC ENERGY CONSULTING
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 30 ASIA PACIFIC ENERGY CONSULTING
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 31 ASIA PACIFIC ENERGY CONSULTING