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The Coming Renaissance in North American Oil and Gas The Alaska World Affairs Council Northrim Bank Oil and Gas Series Anchorage, Alaska Lou Pugliaresi, President Energy Policy Research Foundation, Inc. (EPRINC) April 20, 2012 Energy Policy

  1. The Coming Renaissance in North American Oil and Gas The Alaska World Affairs Council Northrim Bank Oil and Gas Series Anchorage, Alaska Lou Pugliaresi, President Energy Policy Research Foundation, Inc. (EPRINC) April 20, 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 1

  2. NPC Findings Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 2

  3. 3 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org

  4. Projected Imports of LNG vs. Actual (or why forecasters should have humility) 3.00 10 9 2.50 8 7 2.00 tcf per year of LNG 6 Reference Case - Net U.S. imports of LNG (tcf) - $/MMBTU 2008 EIA Annual Energy Outlook 1.50 5 Actual US Net LNG Imports 4 Henry Hub Gulf Coast Natural Gas Spot Price ($/MMBTU) (right axis) 1.00 3 2 0.50 1 Prices at $2.50 to 0.00 0 $2.80 in Feb 2012 Source : EIA data and forecasts Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 4

  5. NGL Production Outlook to 2020 3500 3000 2500 Thousand barrels per day U.S. Gas Plant Production of NGLs 2000 Forecast NGL Production Ethane Share 1500 1000 500 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: EIA Data, EPRINC forecast. Assumes ethane continues to incrementally increase its share of the NGL pool. Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 5

  6. Petrochemical Cost Curve , By Country 2010 Source: American Chemistry Council Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 6

  7. Thermoplastic Exports and Oil-to-Gas Ratio Source: American Chemistry Council Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 7

  8. Low Cost NG Lowers Production Costs U.S. Refiners' Effective Cost of Production 10 9 8 $/bbl 7 6 Cumulative Capacity 5 15 mbd 5 mbd 10 mbd 4 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118 121 Refinery # (most complex on left, least complex on right) <<<---Higher CAPEX/OPEX, generally large, but better yields, feedstock flexibility Lower CAPEX/OPEX, generally smaller, but worse yields, less flexibility --->>> Effective Production Cost Production Cost with Low NG Price of $4/mcf = $0.75/bbl lower cost Effective Production Cost takes into account a refinery’s ability to use heavy crude feedstocks (complexity), product slate (yields) and operating costs (OPEX). Source : OGJ Data for 2009, EPRINC Calculations Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 8

  9. Bakken Production in Only Montana Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 9

  10. Oil and Gas Permits in Past 90 Days As of March 16th As of Feb 13th Source: HPDI March 16 , 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 10

  11. Rig Count and Permits Source: Photo Baker Hughes Interactive Rig Count Jan 25, 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 11

  12. Estimated Ultimate Recovery Source: Brigham Exploration via World Oil Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 12

  13. Technology Progression, ND and MT Source: Continental Resources , from Platts Midstream Development & Management Conference, May 12, 2011.

  14. Williston Basin Production 600,000 North Dakota 500,000 Eastern Montana 400,000 South Barrels Per Day Dakota 300,000 TOTAL North Dakota accounts for almost 200,000 10% of US Production 100,000 Almost all new production is from the Bakken/Three Forks 0 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 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 Source: NDIC Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 14

  15. Source: HPDI March 21, 2012 Barrels Per Day 100000 150000 200000 250000 50000 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 0 1/1/1985 Trend Area Daily Average Production 11/1/1985 9/1/1986 7/1/1987 5/1/1988 3/1/1989 1/1/1990 11/1/1990 9/1/1991 7/1/1992 LIQ 5/1/1993 3/1/1994 GAS 1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 0 100000 200000 300000 400000 500000 600000 15 mcf/day

  16. Eagle Ford Production 350000 1800000 1600000 300000 1400000 250000 LIQ 1200000 Barrels Per Day GAS 200000 mcf/day 1000000 800000 150000 600000 100000 400000 50000 200000 0 0 1/1/2000 6/1/2000 11/1/2000 4/1/2001 9/1/2001 2/1/2002 7/1/2002 12/1/2002 5/1/2003 10/1/2003 3/1/2004 8/1/2004 1/1/2005 6/1/2005 11/1/2005 4/1/2006 9/1/2006 2/1/2007 7/1/2007 12/1/2007 5/1/2008 10/1/2008 3/1/2009 8/1/2009 1/1/2010 6/1/2010 11/1/2010 4/1/2011 9/1/2011 Source: HPDI March 21, 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 16

  17. Three Win indow Map of f Eagle le Ford Wet Gas/Condensate Oil Dry Gas Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 17

  18. Unconventional Liquids 2011 to 2017 Raymond James 5 4.5 Eagle Ford Liquid Daily Average 4 Bakken/Three Forks 3.5 Liquid Daily Average million barrels per day 3 Niobrara/Codell Liquids 2.5 Daily Average 2 Permian Basin Liquids 1.5 Daily Average 1 Note: 0.5 Sustainable rates 0 of NA upstream 1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 7/1/2012 5/1/2013 3/1/2014 1/1/2015 11/1/2015 9/1/2016 7/1/2017 Liquids Growth now Likely at 500 kbbls/yr. Source: EPRINC , Building Blocks of the NA Petroleum Renaissance 18

  19. Resources for the Future on the Keystone XL Pipeline* … from a national perspective, whether the pipeline is approved or not is relatively unimportant. Instead, we should focus on reducing our contribution to the global carbon footprint and improving the efficiency of our carbon-based fuel use. Putting Politics Aside: The Consequences of the Keystone XL Rejection RFF Feature, By Joel Darmstadter and Alan J. Krupnick, January 24, 2012 * Did they miss something? Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 19

  20. North American Crude Oil Pipelines Source: GeoWeb Portal Rextag Hart Energy Mapping Service Feb 13 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 20

  21. North American Pipes Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 21

  22. Canadian Imports and Potential Markets Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 22

  23. Choke Points Source: Savage, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 with EPRINC Additions Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 23

  24. Bakken Prices at Clearbrook Source: Bloomberg, Mar 16, 2012 Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 24

  25. North Dakota Crude Oil Transport October Estimates, December Estimates, 2011 2011 January Estimates, 2012 Source: North Dakota Pipeline Authority Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 25

  26. Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org

  27. Final Observations • Major new pipeline infrastructure will deliver sustained and large scale benefits. Keystone decision has created uncertainty on whether those benefits will be realized. • U.S. is now poised for major economic renaissance from the both oil sands and unconventional liquids. Net present value of $1 to $2 trillion if appropriate policies put into place. • Paradigm shift possible, but not without new approach to government regulations (and permitting) of both midstream and downstream facilities & access to federal lands. (

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