Challenges and Opportunities of the North American Petroleum Justin Kringstad Trisha Curtis Renaissance Trisha Curtis, Director of Research, Upstream and Midstream Lou Pugliaresi, President Energy Policy Research Foundation, Inc. (EPRINC) Oxford Institute for Energy Studies January 30 th , 2014
About EPRINC • Founded in 1944 • Not-for-profit organization that studies intersection of energy economics and public policy, with emphasis on oil, natural gas, and petroleum product markets • Institutional support from private sector and project support from US Government • www.eprinc.org 2
EPRINC Embassy Series • Engagement with Washington’s energy policy community • Collaboration among the diplomatic community to provide both an interesting venue and constructive policy discussion • The series offers an opportunity to gain a greater understanding of U.S. energy policy in an era of expanding U.S. supplies of oil and gas 3
Importance of the North American Lens 20 18 16 Saudi Arabia 14 Million Barrels Russia 12 per Day USA 10 Iraq 8 Canada 6 4 N. America 2 0 2013 2015 2017 2019 2021 2023 Source: Wood Mackenzie (includes NGLs) 4
U.S. Imports of Crude Oil and Petroleum Products as a Percent of GNP Source: EIA, EPRINC Calculations 5
Regional Propane Prices Source: KBC Advanced Technologies 6
Average Projected Relative Manufacturing Costs for 2015 7
Major Global Challenge: Managing OPEC Spare Capacity Million barrels/day Tight oil Regional Rivalries and Iraq are wild cards and Downside here Price Risk 8
Outline 1. Breakdown of U.S. and Canadian Oil Production 2. Infrastructure Challenges in Moving Rising Volumes of North American Crude Oil 3. Regulatory Concerns and Conclusions 4. Global Implications and US Energy Security (discussion) Source: EIA 9
Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays 7,000,000 EPRINC forecasts an 6,000,000 additional 2.5 mbd by 2020 5,000,000 Periphery 4,000,000 Permian Eagle Ford 3,000,000 Bakken EPRINC's May 2013 Forecast 2,000,000 1,000,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: HPDI data with EPRINC forecast estimates 10
U.S. Total Imports, U.S. Production, U.S. Canadian Imports 12000 10000 U.S. Imports 7.8 mbd 8000 U.S. Production 7.7 mbd U.S. Imports from Canada of Crude Oil Mbbl/d 6000 U.S. Field Production of Crude Oil Mbbl/d 4000 U.S. Imports of Crude Oil Mbbl/d Canadian Imports 2.6 mbd 2000 0 201 … 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: EIA 11
U.S. Activity 12
Permit Activity Wil illi liston Ba Basin in Powder Riv River Ba Basin in DJ DJ Ba Basin in (Ni (Niobrara R Reser servoir ir) Uin Uinta Ba Basin in Ut Utica ica Permi mian Anadarko Ba An Basin in Basin Ba in (Mis (M issi sissi ssippian, ian, Granit ite Wash, sh, Mis issi sissi ssippi i Lime ime Ea Eagle le Ford and other st stacked plays) plays) Reservoir ir Source: HPDI January 18 2014, Past 90 Days 13
Drilling Then and Now Source Rocks and Reservoir Rocks Accumulations Source: From PIECE Course Workbook, Mark J Kaiser, Houston, July 2008, “Introduction to USA Petroleum Industry” 14 14
North American Potential…Shale Oil Plays 15 15
So how much oil is there…? Source: EPRINC 16 16
State Production Trends 3000 North Dakota Field Production of Crude Oil Mbbl/d 2500 Alaska Field Production of Crude Oil Mbbl/d Thousand Barrels Per Day 2000 Colorado Field Production of Crude Oil Mbbl/d 1500 California Field Production of Crude Oil Mbbl/d 1000 New Mexico Field Production of Crude 500 Oil Mbbl/d Texas Field Production of Crude 0 Oil Mbbl/d Jan-81 Apr-82 Jul-83 Oct-84 Jan-86 Apr-87 Jul-88 Oct-89 Jan-91 Apr-92 Jul-93 Oct-94 Jan-96 Apr-97 Jul-98 Oct-99 Jan-01 Apr-02 Jul-03 Oct-04 Jan-06 Apr-07 Jul-08 Oct-09 Jan-11 Apr-12 Jul-13 Source: EIA 17
U.S. Rig Count 2,500 2,000 1,500 # of Rigs Oil Gas 1,000 Total 500 0 Source: Baker Hughes 18
Part of the U.S. story Source: NationalAtlas.gov 19
The Soaring Eagle Ford 20
Eagle Ford Wells Source: HPDI Nov 2013 21
Source: HPDI Nov 2013 Thousand Barrels Per Day 1000000 1200000 200000 400000 600000 800000 0 1/1/2005 4/1/2005 7/1/2005 10/1/20 … 1/1/2006 4/1/2006 7/1/2006 10/1/20 … 1/1/2007 Eagle Ford Production 4/1/2007 7/1/2007 10/1/20 … 1/1/2008 4/1/2008 7/1/2008 10/1/20 … 1/1/2009 4/1/2009 7/1/2009 10/1/20 … 1/1/2010 4/1/2010 7/1/2010 10/1/20 … 1/1/2011 4/1/2011 7/1/2011 10/1/20 … 1/1/2012 4/1/2012 7/1/2012 10/1/20 … 1/1/2013 4/1/2013 7/1/2013 0 500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 GAS LIQ 22
The Prolific Permian Basin 23
Source: HPDI Oct 2013 Thousand Barrels Per Day 1000000 1200000 1400000 1600000 1800000 2000000 200000 400000 600000 800000 0 1/1/19 … 1/1/19 … Permian Basin Production 1.38 mbd 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/19 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 1/1/20 … 0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 8000000 GAS LIQ 24
EPRINC November Revised Permian Forecast Source: EPRINC 25
Bakken 26
Williston Basin Production 1,200,000 1,000,000 800,000 North Dakota 600,000 Eastern Montana South Dakota TOTAL 400,000 North Dakota accounts for almost 10% of US Production 200,000 Almost all new production is from 0 the Bakken/Three Forks Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Source: NDIC 27
Bakken Drilling Source: Triangle Petroleum Corporation, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 28
Decline Rates Source: HPDI, Bakken 29
Infrastructure Challenges 30
Pipeline Choke Points Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software 31
All Canadian Pipeline Export Options are Full • Kinder Morgan’s Transmountain line off BC coast - currently 300,000 b/d capacity-recent announcements to expand up to 800,000 b/d (early 2017) • (Now Spectra) Platte line to Wood River 280,000 b/d-full • Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd — Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions, light oil access +400,000 b/d • TransCanada’s Keystone 581,000 b/d-full — XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k Source: Canadian Energy Pipeline Association 32
Market Saturation Source: CAPP Crude Oil Forecast June 2013 33
Where light sweet Bakken and heavy (blended bitumen) needs to go… Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = 10,000,000 60 Operable Heavy 9,000,000 Atmospheric refining Crude Oil 50 8,000,000 Distillation Barrels Per Calendar Day capability Capacity 7,000,000 Number of Refineries 40 6,000,000 Thermal Cracking 5,000,000 30 Coking Downstream 4,000,000 Charge 20 3,000,000 Capacity 2,000,000 10 Operating Refineries 1,000,000 - 0 PADD 1 PADD 2 PADD 3 PADD 4 PADD 5 East Coast Midwest Gulf Coast Rockies West Coast Source: AFPM map, EIA data for graph 34
Regional Pricing Disparities $160.00 WTI $140.00 $120.00 Bakken (North $100.00 Dakota Light Sweet Flint $80.00 Hills) WCS (Western $60.00 Canadian Select) $40.00 Brent $20.00 $0.00 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 • Western Canadian Select -$18.50 to WTI Source: Flint Hills, EIA, CME Group, and estimates 35
The Rise of Rail 36
Daily Crude by Rail Shipment in U.S. and Canada 1,600,000 1,400,000 U.S. Average Barrels Per Day of Petroleum and Petroleum Product 1,200,000 1,000,000 Canadian Average Barrels Per Barrels Per Day Day of Petroleum and Petroleum Product 800,000 EPRINC's U.S. Daily Crude by Rail 600,000 Estimate - 900,000 b/d 400,000 EPRINC's Canada Daily Crude by 200,000 Rail Estimate - 160,000 b/d 0 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels). 37
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