Outlook for Natural Gas for National Conference of State Legislatures (NCSL) Hydraulic fracturing webinar John Staub, Team Lead for Exploration and Production Analysis December 19, 2012 U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov States pages include EIA datasets and analysis on all fuels and energy infrastructure included in EIA data collection John Staub NCSL webinar, December 19, 2012 3 EIA updates state level data sets with mapping features and energy infrastructure datasets Interactive map links to state level energy data John Staub NCSL webinar, December 19, 2012 4 Multiple layers of user selected options are available such as shale gas plays, power plants, pipelines, and transmission lines John Staub NCSL webinar, December 19, 2012 5 Henry Hub Natural Gas Price dollars per million btu 8 Historical spot price STEO forecast price NYMEX futures price 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval 7 6 5 4 3 2 1 0 Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013 Note: Confidence interval derived from options market information for the 5 trading days ending December 6, 2012. Intervals not calculated for months with sparse trading in near-the-money options contracts. Source: Short-Term Energy Outlook, December 2012 John Staub NCSL webinar, December 19, 2012 6 U.S. Natural Gas Prices dollars per thousand cubic feet 25 Forecast Residential price Henry Hub spot price 20 Composite wellhead price 15 10 5 0 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Source: Short-Term Energy Outlook, December 2012 John Staub NCSL webinar, December 19, 2012 7 U.S. Natural Gas Production and Imports billion cubic feet per day (bcf/d) annual change (bcf/d) 72 70 68 66 64 62 60 58 56 54 52 50 9 8 7 6 5 4 3 2 1 0 -1 -2 2010 2011 2012 2013 Federal Gulf of Mexico production (right axis) U.S. non-Gulf of Mexico production (right axis) U.S. net imports (right axis) Total marketed production (left axis) Marketed production forecast (left axis) Source: Short-Term Energy Outlook, December 2012 John Staub NCSL webinar, December 19, 2012 8 Natural gas prices increase over the outlook Henry Hub Spot Price 2011 dollars per million Btu History 12 Projections 2011 10 8 6 4 2 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 9 Coal regains some competitive advantage relative to natural gas over time on a national average basis Energy prices to the electric power sector ratio of natural gas price to steam coal price 2011 8 2011 dollars per Btu 10 History 2011 Projections 8 Natural gas 6 6 4 Coal 2 4 0 1990 2000 2010 2020 2030 2040 2 Competitive parity 0 1990 Projections History 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 10 Currently, U.S. shale gas production comprises about 35% of total U.S. dry production Shale gas production (dry) trillion cubic feet per year Shale gas production (dry) billion cubic feet per day 30 11.0 Other U.S. shale gas Bakken (ND and MT) Eagle Ford (TX) Marcellus (PA and WV) 20 7.3 Haynesville (LA and TX) Woodford (OK) Fayetteville (AR) Barnett (TX) 10 0 2000 3.7 Antrim (MI, IN, and OH) 0.0 2002 2004 2006 2008 2010 2012 Sources: LCI Energy Insight gross withdrawal estimates as of November 2012 that are converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. John Staub NCSL webinar, December 19, 2012 11 Domestic production grows rapidly over projection period, particularly natural gas and renewables, and liquids in the near term U.S. energy production quadrillion Btu Shares of total U.S. production History 120 Projections 2011 100 80 Natural gas 35% Renewables 14% Crude oil and natural gas plant liquids 17% 30% 60 12% 40 19% 20 28% Coal 24% 11% Nuclear 10% 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 12 U.S. energy use grows slowly over the projection reflecting improving energy efficiency and a slow and extended economic recovery U.S. primary energy consumption quadrillion Btu History Shares of total U.S. energy 2000 120 Projections 2011 100 28% 24% 26% 6% 8% 8% 8% 1% 20% 80 60 23% Natural gas Renewables (excluding liquid biofuels) 11% Nuclear Liquid biofuels Coal 19% Oil and other liquids 32% 40 39% 20 0 1980 1985 1990 1995 2000 36% 2005 2010 2015 9% 2% 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 13 Domestic natural gas production grows faster than consumption and the U.S. becomes a net exporter of natural gas around 2020 U.S. dry gas trillion cubic feet History 35 Projections 2011 30 25 Consumption 20 Domestic supply 15 10 5 Net imports 0 -5 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 14 Total natural gas exports nearly quadruple by 2040 in the AEO2013 Reference case U.S. natural gas exports trillion cubic feet 6 5 4 Exports to Mexico 3 Exports to Canada 2 Lower 48 LNG exports 1 Alaska LNG exports 0 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 15 Shale gas production leads growth in production through 2040 U.S. dry natural gas production trillion cubic feet History 35 Projections 2011 30 25 Shale gas 20 15 Tight gas Non-associated offshore 10 Alaska Coalbed methane Associated with oil 5 0 1990 Non-associated onshore 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 16 Natural gas consumption is quite dispersed with electric power, industrial, and transportation use driving future demand growth U.S. dry gas consumption trillion cubic feet History 35 Projections *Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. 30 Electric 32% power 25 31% 20 33% 15 Industrial* 33% 2% 6% 10 Gas to liquids Transportation** 3% 13% 12% Commercial 19% 14% Residential 5 0 2005 2011 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 17 There are three main drivers of natural gas production Economics Geology John Staub NCSL webinar, December 19, 2012 Technology 18 Three drivers impact resource estimation metrics differently Theory Experiment Practice Thermal maturity Pressure Formation depth Recompletions Drilling costs Technology Price of gas Economics Gas in Place (GIP) Technically Recoverable Resources (TRR) Economically Recoverable Resources (e.g. proved reserves) Geology P Q Well-level data, incl. estimated ultimate recovery (EUR) John Staub NCSL webinar, December 19, 2012 19 Technically recoverable natural gas resources continue longterm rise U.S. dry gas resources trillion cubic feet 3,000 2,500 2,000 Unproved shale gas Unproved other gas (including Alaska* and offshore) Proved reserves (all types and locations) 2,327 *Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. 543 1,500 1,479 1,000 500 304 0 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 AEO Edition Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 20 Steep decline curves for shale gas plays make the market more responsive to price million cubic feet per year 2,000 Haynesville Eagle Ford Woodford Marcellus Fayetteville 1,500 1,000 Cumulative production 100% 50% 0% 0 5 10 15 20 500 0 0 1 5 10 15 20 Source: EIA, Annual Energy Outlook 2012 John Staub NCSL webinar, December 19, 2012 21 Estimated ultimate recovery (EUR) calculated from historical individual natural gas well data shows most wells are concentrated around mean. Fort Worth Basin – natural gas bcf/well billion cubic feet/well maximum 75th percentile mean median 25th percentile Average EUR Number of wells minimum Source: EIA analysis, EUR = total projected production over 30 year life of wells John Staub NCSL webinar, December 19, 2012 22 For more information U.S. Energy Information Administration home page | www.eia.gov Annual Energy Outlook | www.eia.gov/forecasts/aeo Short-Term Energy Outlook | www.eia.gov/forecasts/steo International Energy Outlook | www.eia.gov/forecasts/ieo Today In Energy | www.eia.gov/todayinenergy Natural Gas Weekly Update | http://www.eia.gov/naturalgas/weekly/ States data | http://www.eia.gov/beta/state/ Shale gas | http://www.eia.gov/energy_in_brief/article/about_shale_gas.cfm John Staub NCSL webinar, December 19, 2012 23 Supplemental slides John Staub NCSL webinar, December 19, 2012 24 Over time the electricity mix gradually shifts to lower-carbon options, led by growth in natural gas and renewable generation U.S. electricity net generation trillion kilowatthours History 1993 6 Projections 2011 5 30% Natural gas 4 25% 3 13% 11% 2 19% 1 53% 16% Renewables 13% 19% Nuclear 42% Coal 17% 35% Oil and other liquids 4% 0 1990 1% 1995 2000 2005 2010 2015 2020 2025 2030 2035 1% 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 25 Natural gas and renewables account for the vast majority of capacity additions from 2012 to 2040 U.S. cumulative capacity additions gigawatts 350 300 250 Natural gas 200 150 100 Renewables 50 0 2011 2015 2020 2025 2030 2035 Nuclear Coal 2040 Source: EIA, Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 26 Natural gas, wind and other renewables account for the vast majority of capacity additions from 2011 to 2040 2011 capacity Nuclear 101 (10%) Hydropower* 101 (10%) Other renewables 15 (1%) Wind 45 (4%) 1,055 gigawatts Capacity additions 2012 to 2040 Nuclear Hydropower* 11 (3%) Coal 2 (1%) 8 (2%) Coal Other renewables End-use coal 315 (30%) 58 (17%) 1 (0.4%) Other 0.4 (0.1%) Wind 339 42 (13%) gigawatts End-use coal 4 (0.4%) Other 59 (6%) Natural gas 215 (64%) Natural gas 413 (39%) * Includes pumped storage Source: EIA, Annual Energy Review 2011 and Annual Energy Outlook 2013 Early Release John Staub NCSL webinar, December 19, 2012 27