IS THERE A PEAK GAS AHEAD?

Jean-Marie BOURDAIRE

jmbourdaire@sfr.fr

May 25, 2012

…and what would be its impact?

IV Congreso Anual Conjunto de Asociaciones del Sector Energético

y XII Congreso Anual de la AMEE Acapulco 2012

ACAPULCO

OUTLINE

• A/ World generalities on reserves

• B/ The rise of shale gas in the US

• C/ US shale gas: future perspectives

• D/ And what about elsewhere?

• E/ Annex: Gas resources plays

A/ GENERALITIES

ON RESERVES AND PEAK

THE 2005 NATURAL GAS VISIONWorld production peaks at 130 Tcf/y in 2030

9,9 7,4

4,5

58,6

75,8

14,7

16,2

North America

S-C America

Europe OCDE

Eurasia (FSU)

Middle-East

Africa

Asia-Pacific

WORLD GAS RESERVES (TCM)

Total reserves: 187 Tcm or 6.6 Pcf

NATGAS RESERVES: ~200 TCMEVOLUTION OF GAS PROVEN RESERVES (TCM)

0

20

40

60

80

100

120

140

160

180

200

1980 1985 1990 1995 2000 2005 2010

Asia-Pacific

Africa

Middle-East

Eurasia(FSU)

WesternEurope

S&CAmerica

NorthAmerica

THE 2012 LAHERRERE’S VISIONUltimate reserves: 13 Pcf = 10.4 Pcf conventional + 2.6 Pcf

unconventionalWorld production peaks at nearly 150 Tcf/y

If unconventionalgas is > 2.6 Pcf,the peak is not

changed butthe decline

is slower

B/ THE RISE OF SHALE GAS

IN THE UNITED STATES

MAIN SHALE GAS DEPOSITS

THE US SHALE GAS EARLY DAYS

• 1970-2000: Unconventional gas (on average 70% tight gas, 20% CBM and 10% gas shale up to 2008) has grown slowly from less than 1 Tcf/y in 1970 to ~5 Tcf/y in 2000

• 2000-2008: Unconventional gas was foreseen to reach a 9 Tcf/y plateau in 2010-25, but the fall of conventional gas was such that much increased LNG imports were to be needed

• 2008: Oil, natgas prices, and the US rig count, collapse. To maintain their production, operators deploy new technologies, which are at the origin of the shale boom

Because of their belief that LNG imports were set to grow, many operators have developed LNG terminals now idle

THE PRE-2008 VISIONNORTH AMERICA NATURAL GAS

Productions and 23-year shifted conventional gas discoveries

0

5

10

15

20

25

30

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Tcf

per

yea

r.

Smoothed discoveries over 7 years

Marketed gas production

Marketed less unconventional

Unconventional gas AEO-2005

Jean Laherrere 2005

Tight gas,shale gas,and CBM

US unconventionalgas was forecast toplateau at 9 Tcf/y

AEO FORECASTS: 2000-2008US DOMESTIC PRODUCTION (TCF)

0

5

10

15

20

25

30

2000 2005 2010 2015 2020 2025

AEO 2000

AEO 2001

AEO 2002

AEO 2003

AEO 2004

AEO 2005

AEO 2006

AEO 2007

AEO 2008

Year after year, the production forecasts get more pessimistic

2008: THE TURNING POINT

WET US GAS - SUCCESSIVE EIA FORECASTS (BCF/D)

46

48

50

52

54

56

58

60

Jan-07 Mar-07 May-07 July-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 July-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09

YEAR 2006

YEAR 2007

YEAR 2008

YEAR 2009

YEAR 2010

Shale gas contribution overtakes the decline of conventional gas

AEO SHOW A BREAK IN 2008…US UNCONVENTIONAL GAS PRODUCTION (TCF)

0

3

6

9

12

15

2000 2005 2010 2015 2020 2025

AEO 2000

AEO 2001

AEO 2002

AEO 2003

AEO 2004

AEO 2005

AEO 2006

AEO 2007

AEO 2008

AEO 2009

AEO 2010

2009 & 2010 are in discontinuity with the 9 Tcf/y

plateau foreseen before (2000-08)

Shale gas production jumps above the former 9 Tcf/y forecast

2008: THE RIG COLLAPSE…NATURAL GAS RIGS NUMBER VERSUS HH PRICE

0

5

10

15

20

25

J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12

Gas rig count divided by 100

Henry hub price in $/MBtu

Spot WTI price in $/MBtu

The rig countclosely followsthe price trend

…BUT PRODUCTION GROWSUS NATURAL GAS MARKETED PRODUCTION (BCF/D)

40

45

50

55

60

65

70

J-80 J-82 J-84 J-86 J-88 J-90 J-92 J-94 J-96 J-98 J-00 J-02 J-04 J-06 J-08 J-10 J-12

Impressive

growth up

to 2012

C/ FUTURE PERSPECTIVES

FOR THE US SHALE GAS

THE VOICE AGAINST SHALE GAS

• High costs, poor economics and destruction of capital,

• Infrastructure limitations (pipelines and NGL-stripping plants),

• Physical fundamentals (small core areas, fast decline rates),

• Average break-even prices higher than current prices,

Contrary to the major limitations that Arthur Berman sees…

• Shale gas development is not like a Ponzi scheme…• …and US gas majors are not behaving like Madoff.• Some operators may fool some analysts for a while but…• …the entire industry cannot be wrong for ever

…One may be optimistic about the future of shale gas

TRUE SHALE GAS REALITIES• Shale gas is the last unconventional gas in development,

and still is at the beginning of its learning curve.

• The pace of technological improvement will continue

• Expected ultimate reserves critically depend on the type of decline (exponential or hyperbolic)

• High costs plays: Liquids (oil or NGL) are essential for the economics

• Core areas with good IP are small (a few %), but overall reserves may be very large

• Good operators will manage environmental concerns

• Infrastructure (NGL plants and pipelines) is critical

US PRODUCTION GROWTHShale gas dominates the natural gas growth

WHAT CHESAPEAKE SAYS

WHAT THE US DOE-EIA SAYS:US dry natural gas production forecast in the AEO-2012:

Growing from 5 Tcf in 2010 to 14 Tcf in 2035!

D/ AND WHAT ABOUT

ELSEWHERE IN THE WORLD?

UNCONVENTIONAL TRANSPORT OF METHANE IN CHINA (1997)

CANADA SHALE RESOURCESWith resources of 1100 Tcf, 200-300 Tcf may be recoverable

A total of 1100 TCF

of which ~50% in

the Horn River Basin

AND WHAT ABOUT THE WORLD?First feedbacks are good for Argentina, possibly

good for China (?), uncertain for Europe and Ukraine

6600 Tcf or 6.6 Pcf of which 2-3

recoverable?

CONCLUSION: WHAT FUTURE?

• In North America: Exports of a few % of production as LNG will sustain a balanced price level (5-6 $/kcf) which, in turn, will allow production to grow evenly.

• In Europe: Unconventional gas prospects are remote: not only spot LNG imports push prices down but the EU E&P legislation needs to be deeply redrafted

• In Asia-Pacific: Neither China unconventional (still far away), nor Australian CBM-to-LNG (a few Bcf/d) will be game changers and decouple LNG from oil soon.

E/ ANNEX:

GAS RESOURCES PLAYS

29

Recoverable: 600-700 Tcf?

500 - 700

750

75 CBG resource in-place (Tcf)

Other countries with significant exploration activity

335-450

220 - 350

800 - 1,100

1,680

390-425

140–1,040

30-280

60

0.5

15-50

5-10

100

100 22-44

30

CBM RESOURCE PLAYS

30

Production Summary

• USA - production commenced in San Juan Basin in 1953. CBM production in 2007: 4.8 Bcf/d (9% of total US dry gas)

• Canada – since 2002: 208 Mcf/d in 2007. Could exceed 1.4 Bcf/d by 2015. Average new well on stream at 100 Mcf/d.

• Australia – since 1996; 215 Mcf/d in 2006; Queensland produced 272 Mcf/d in 2007; planning up to 6 LNG schemes near port of Gladstone.

• Minor production or approaching commercial production: UK; China; India; Kazakhstan; Russia (Kuznetsk Basin).

• 13 coal-producing countries have CBM projects.

CBM RESOURCE PLAYS

Pierre Mauriaud, ASPO 9 Bruxelles

CBM (BCF/D)

32

Recoverable: ~1350 Tcf?

560

6,800

75 Tight sand gas resource in-place (Tcf)

Other countries / areas with known tight sand exploration activity

0.5

TIGHT SANDS RESOURCE PLAYS

33

Gas dissolved in abnormally-pressured low-permeability aquifers in the central (generally deeper) part of basins -• over-pressured in subsiding basins• under-pressured in uplifted and eroded basins.

Examples: San Juan Basin & Greater Green River basins (USA);Western Canada Sedimentary Basin (southern deep basin);Northwest Europe Permian Basin; Pannonian Basin;Algerian basins; Oman Basin; Ordos Basin, China.

Also known as “deep gas” and “tight sand gas” but these are not necessarily restricted to continuous accumulations (and BCG is not always deep).

Basin-Centered Gas

TIGHT SANDS RESOURCE PLAYS

34

Resources of tight Sand Gas / Basin-Centered Gas

No reliable global resource estimate available

Enormous in-place resources in USA (all tight sands)

• 3,000-5,000 Tcf in the Greater Green River Basin;

• 900 Tcf in the Wind River Basin, Wyoming;• Total in-place resource ~ 7,000 Tcf.

USA Ultimate Tight Sand Resource Estimate

• 380 Tcf: 140 produced, 60 proved, 180 unproved/undiscovered, 200 Tcf produced and proved considered as “conventional”

• USA unproved/undiscovered BCG resource estimates from other sources range up to 340 Tcf.

TIGHT SANDS RESOURCE PLAYS

35

Production of tight Sand Gas / basin-centered gas

USA production from all tight sands

• Total US production estimated at >6 Tcf (16.5 Bcf/d) in 2007

• 5-6% recovery factor - but much higher from “sweet spots”:- Pinedale: 56% (10-acre spacing);- San Juan Mesaverde: 44% (160-acre spacing);- Uinta Mesaverde (EOG): 37% (10-acre spacing);- Jonah Lance: 30% (40-acre spacing).

Canada

• Canadian production from tight sands and carbonates:- Alberta: ~3 Bcf/d;- British Columbia: ~1 Bcf/d.

TIGHT SANDS RESOURCE PLAYS

TIGHT GAS (BCF/D)

Pierre Mauriaud, ASPO 9 Bruxelles

37

Recoverable: > 700 Tcf?

AB / BC~ 1,000

600 Shale gas resource in-place (Tcf)

Other countries / areas with known shale gas exploration activity / potential

1,900

SHALE GAS RESOURCE PLAYS

38

USA Ultimate Fractured Shale Resource Estimate

• ~415 Tcf: 9 produced, 21 proved, 385 unproved/undiscovered (ICF International). 30 Tcf produced + proved is considered “conventional”.

• Unproved / undiscovered shale gas recoverable resource estimates from other sources range from 32 Tcf to 125 Tcf but

predate recent improvements in recovery and assessment of recent plays such as Haynesville and Marcellus.

Global Resource Estimates

• No reliable estimate available but considerable potential exists.

• Canada (BC; AB; QC; NB; NS) will be next significant player. Estimated 860 Tcf IP in Western Canada (130 Tcf recoverable).

SHALE GAS RESOURCE PLAYS

Source: World gas profiles (2011)Pierre Mauriaud, ASPO 9 Bruxelles

SHALE GAS (BCF/D)

WORLD SHALE RESOURCES6 622 Tcf of which 20-30% may be recoverable

ALL GAS RESOURCE PLAYS6600 Tcf of which 20-30% may be recoverable

UNCONVENTIONAL GAS RECOVERABLE BY REGIONS

RANGE OF UNCONVENTIONAL REGIONAL RECOVERABLE GAS