MIT-Sabancı University Energy and Security Workshop Istanbul, 30-31 March 2012

MIT-Sabancı University Energy and Security WorkshopIstanbul, 30-31 March 2012

Gas resource holders

Climate change

Energy equity

Cost of alternatives

MIT Energy InitiativeMIT ei

Demand growth

Stranded gas, transport

Security of supply

Gas pricing

US Shale Gas Experience: Are

There Lessons for European Shale Development?

Melanie KenderdineBulgarian Energy Forum

Sofia, BulgariaDecember 12, 2012

MIT Energy Initiative 2

Global Energy Challenges, TrendsShale Gas: the US ExperienceEnvironmental Impacts of Shale Production, US RegulationEuropean Shale Gas: Issues, Potential Conclusions

MIT ei

3

Global Shale Opportunities: Changing Geopolitics (technically recoverable shale resources compared + 2009 consumption (Tcf))

Canada3883.0

U.S.86222.8

Brazil2260.7

Argentina7741.5

France1801.73

Libya2900.2

Algeria2311.02

South Africa

4850.2

Poland1870.6

China1,275

3.1

Australia3961.1

Mexico6812.2

*UK, France, Poland, Germany, Norway, Netherlands, Denmark, Sweden, Ukraine, Turkey, Lithuania, others

North America

1,931 / 27.4

South America

1,000 / 5.6

Africa

1,006 / 4.8

Asia-Pacific

1671 / 23.6

MIT Energy InitiativeiSource: EIA, World Shale Resources , 2011

Europe* 640 / 19.3

MIT e

MIT Energy Initiative 4MIT ei* Excludes unconventional gas outside North America** Cost curves based on 2007 cost bases. North America cost represent wellhead breakeven costs. All curves for regions outside North

America represent breakeven costs at export point. Cost curves calculated using 10% real discount rate, ICF Hydrocarbon Supply Model

Tcf of Gas

Breakeven Gas Price**$/MMBtu

Even with uncertainty, there is a significant amount of low

cost gas resources

Global Gas Supply Cost Curve*

Source: MIT Future of Natural Gas Study, 2011

MIT Energy Initiative

EIA Forecast – US Gas Production to 2035

Source: EIA, Richard Newell Presentation, 2010

eiMIT

MIT Energy InitiativeMIT ei 6

6

U.S. Gas Supply Cost Curves

* Cost curves calculated using 2007 cost bases. U.S. costs represent wellhead breakeven costs. Cost curves calculated assuming 10% real discount rate, ICF Hydrocarbon Supply Model

Aggregate Breakeven Gas Price* Breakdown of Mean U.S. Supply Curve by Gas Type , Breakeven Gas Price*

Tcf

$/MMbtu $/MMbtuThere are significant

shale resources with lower costs

than conventional gas

Shales

Conventionals



GasCoal

CO2 Mitigation with Carbon Price to 2050Electric Sector

MIT ei Source: MIT Future of Natural Gas Study, 2011

MIT Energy Initiative 8Sources: IEA, Natural Gas Information, 2011; Liquid Markets: Assessing the Case for U.S. Exports of Liquefied Natural Gas, Brookings, May, 2012

Approx. $14

Approx. $9

Approx. $4

Benchmark NG Prices in US, UK, Japan

MIT ei


1976

1977

1978

1979

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

0

0.5

1

1.5

2

2.5

3

3.5

0

5

10

15

20

25

30

35

40

Shale Gas Tax Credits ($/Mcf) DOE Spending GRI Spending

Annu

al S

hale

Gas

Pro

ducti

on (T

cf)/

Valu

e of

Tax

Cre

dits

($/M

cf)

Year

Annu

al P

rogr

am B

udge

t (M

illio

ns U

S Do

llars

in 1

999

Dolla

rs)

Shale Gas RD&D Spending and Supporting Policy Mechanisms

Federal Funding

GRI FundingSteady over 16 years

Time limited tax credit

MIT ei

Gas produced after tax

credit

Gas produced

under tax credit


Source:MIT Future of Natural Gas Study, 2011eiMIT

Variation in Shale Well Performance/ Economics

* Breakeven price calculations carried out using 10% real discount rate ** Marcellus IP rates estimated based on industry announcements and available regulatory data

Source: MIT, HPDI production database and various industry sources

P20 P50 P80Barnett IP Mcf/d

BEP $/Mcf2,700$4.27

1,610$6.53

860$11.46

Fayetteville IP Mcf/dBEP $/Mcf

3,090$3.85

1,960$5.53

1,140$8.87

Haynesville IP Mcf/dBEP $/Mcf

12,630$3.49

7,730$5.12

2,600$13.42

Marcellus** IP Mcf/dBEP $/Mcf

5,500$2.88

3,500$4.02

2,000$6.31

Woodford IP Mcf/dBEP $/Mcf

3,920$4.12

2,340$6.34

790$17.04

Impact of IP Rate Variability on Breakeven Price (BEP)*(2009 Well Vintages)

48%


A mild winter that reduced household heating demand A decline in coal-fired electricity generation, due largely to historically low natural gas pricesReduced gasoline demand

11MIT eiSource: EIA Website

US CO2 emissions lowest in 20 years

Coal to Gas Fuel Substitution Benefits, contd.


2015 $197 billion

2035 $332 billion

2015 $49 billion

2035 $85

billionSource: The Economic and Employment Contributions of Unconventional Gas Development in State Economies, IHS, 2012

US Unconventional Gas: Economic Benefits $80 billion in new investment in

energy-intensive industries **Petrochemicals**Aluminum**Steel**Rubber**

Fertilizer**Glass

Source: Dow Chemical, “Industrial Demand and LNG Exports”, SNL Energy interview, Oct. 3, 2012

2010 Avg. Savings from Lower Gas

Prices in Ohio

Residential: $214

Commercial: $1,386

Industrial: $87,000


US Shale Gas Regulation: A Work in Progress

Four major areas of environmental concern with shale gas production:

Water use and contamination Air emissions Site disruptions Seismic activity

MIT Energy Initiative 14MIT ei

Mapped Fracture Growth in the Marcellus

Around 2,000 ft.

Around 4,000 ft.


Around 1,000 ft.


Source: MIT Future of Natural Gas Study, 2011eiMIT

Basin Public Supply

Mining/ Industrial

Irrigation Livestock Shale

Barnett82.7% 3.7% 6.3% 2.3% 0.4%

Marcellus12.0% 71.7% 0.1% <0.1% <0.1%

Comparative Water Use, US Shale Plays (%bbl/year)


16Source: MIT Future of Natural Gas Study, 2011 16

Key Shale Gas Environmental Issues

Primary environmental risks associated with shale gas

developmentContamination of groundwater aquifers with drilling fluids or natural gas

On-site surface spills of drilling fluids, fracture fluids and wastewater

Contamination as the result of inappropriate off-site wastewater disposal

Excessive water withdrawals for use in high-volume fracturing operations

Excessive road traffic and degraded air quality

Breakdown of Widely-Reported Environmental Incidents Involving

Gas Drilling; 2005-2009

20

14

4

21 2

Methane in groundwater On-site surface spills

Off-site disposal issues Water withdrawal issues

Air quality issues Well blowouts


• For optimum long-term development, need to improve understanding of shale gas science and technology

– Government-funded fundamental research– Industry/govt collaboration on applied research– Should also cover environmental research

• Determine and mandate best practice for gas well design and construction

• Create transparency around gas development– Mandatory disclosure of frac fluid components– Integrated water usage and disposal plans

• Continue to support research on methane hydrates

Recommendations

it is also clear is that the production of shale gasand MIT Energy Initiative

18

Methane Emissions from Shale Production

Barnett Fayetteville Haynesville Marcellus Woodford

147 159

633

218262

35 38 51 52 63

All vented Field practice

EPA MIT Analysis

228

216

Methane Emissions from Shale Gas

Wells (mg/well)

“…the production of shale gas [has] not materially altered the total GHG

emissions…for the vast majority of contemporary shale gas wells.”

“…the revenues gained from using reduced emissions completions…cover

the cost of executing such completions.”

12 mg/well

MIT ei Shale gas production: potential versus actual greenhouse gas emissions O’Sullivan & Paltsev, Environmental Research Letters, 11/12

MIT Energy Initiative 19MIT ei

Induced Seismicity and Hydraulic Fracturing

Managing Induced Seismicity

Avoid injection into active faultsMinimize pore pressure changes at depthInstall local seismic monitoring arraysEstablish modification protocols in advance Be prepared to alter plans or abandon wells*

Sources: Managing the seismic risk posed by wastewater disposal, Zoback, 2012; I Induced Seismicity Potential in Energy Technologies, National Research Council, 2012

Induced Seismicity Research Needs

Data CollectionInstrumentationHazard and Risk AssessmentModeling

11

38

2725

2

44

8

Some Induced Seismic EventsRangely, CO, injection experiments (M4.9, 1995), 1945-1995

Rocky Mountain Arsenal (M5.3, 1967), fluid injection, 1962-1966

Gazli, Uzbekistan, gas recovery (M7.2), 1976-1984

Water Reservoirs: Lake Mead (M5), Koyna (M6.3), Oroville (6.1) Tadjikistan, Italy and many others

Geysers Geothermal Field (M4.6), injection-enhanced production

Dallas Airport (M3.3), fluid injection, 2008-2009

Arkansas (M4.7), fluid injection, 2010-2011

Youngstown, Ohio (M4.0), fluid injection, 2011


Operator Best Practices

Protocol for Induced Seismicity

Public & regulatory communications

Hazard assessment

Risk assessment

Criteria for ground vibration

Seismic monitoring

Mitigation plans

Induced Seismicity Potential in Energy Technologies, National Research Council, 2012

MIT Energy InitiativeeiMIT

US Federal Regulation/Mgmnt of Shale Gas Environmental Protection Agency Authorities: Clean Air Act, Safe Drinking Water Act, Clean Water Act, Toxic Substances Control Act

Bureau of Land Management Land and water best practices for production on federal land

White House Executive Orders Inter-agency task force on shale gas production

+ Regional and state regulation Delaware River Basin, Texas, Pennsylvania, New York, Colorado, Wyoming, West Virginia….


Potential, Issues with Development of European Shale Basins

Population densityHigher drilling costsDeeper deposits, smaller basins

compared to US Subsurface ownershipLack of infrastructureLegal frameworks inadequateMore stringent environmental

regulationsIndustry structure Lack of experienced, skilled workers

MIT ei


Sources: EIA, Richard Newell Presentation, 2010eiMIT

Barnett Shale: 13,5000 Wells Drilled in 12 Years


Population Density & European

Shale Development

Source: EIA, World Shale Resources , 2011

Poland Shale Basins

Marcellus/Pennsylvania

eiMIT

Poland Population Density


Source: Geny, OIES, 2010, Honore, OIES Gas Research Program, 2011eiMIT

Illustrative Operational Requirements for Shale Development

Wells and pads per year Rigs

New land surface per

year

Net water consumption

per year

Between 700 and 1000

wells and 70 to 100 pads

Around 150 Between 226 to 324 km2

70 to 200 million barrels

per year

28 bcm/yr production (1 tcf), operational requirements over 15 year period

Communities are disrupted, communities need input and buy-in


Natural gas…. will gain importance as the back-up fuel for variable electricity generation

…in the medium term depleting indigenous conventional natural gas resources call for additional, diversified imports [of natural gas]

Gas networks face additional flexibility requirements in the system, the need for bi-directional pipelines, enhanced storage capacities and flexible supply, including liquefied (LNG) and compressed natural gas (CNG)

Single-source dependency, compounded by a lack of infrastructure, prevails in Eastern Europe. A diversified portfolio of physical gas sources and routes and a fully interconnected and bidirectional gas network, where appropriate, within the EU are needed already by 2020

EU Communication on Energy Security, 2010

Turkey

Ukraine

Belarus

Spain

Moldova

Italy

Greece

AlbaniaMacedonia

BulgariaSerbiaBosnia/H.

Romania

Croatia

SloveniaAustria

Hungary

SlovakiaCzech Rep.

PolandGermanyBelgium

Netherlands

United Kingdom

Switzerland

France


Slovakia Used storage for

several weeks, covered 75% of

demand, alternative fuel used

Greece Increased LNG

shipments, one gas plant switched to oil

Austria Increased imports

from Norway, Germany, used storage

SloveniaIncreased gas from

Algeria/Austria, storage in Austria

Hungary Increased gas from

Norway, gas storage, alternative fuel used

Poland½ cut covered by Yamal,

gas from Norway, gas storage used

Germany Increased imports from Norway, Netherlands,

used storage

ItalyIncreased imports from

Libya, Norway, Netherlands, used storage

Croatia Increased production,

used storageBosnia Herzegovina

Used fuel oil for 21 days

Czech RepublicIncreased imports from Norway, used

storage, increased productionRomania

Increased production, used

storage

Bulgaria Used storage for 2-3 days, covered 35% of

demand, alternative fuel usedMacedonia

Used fuel oil for

industry

Serbia Used fuel

oil for 20 days

Anatomy of European Response to Supply Lost in Russia/Ukraine Disruption, 2009

100% >50%

<50%

100 97

80

6671

45

33 34

10

2515

100 100 100

40

100

% of Gas Supply Lost in Disruption

Source: Vulnerability and Bargaining Power in EU-Russia Gas Relations, Christie, et al, 2011

• Netherlands flows to UK decreased

• UK interconnector reversed

• Yamal flows increased• Blue Stream flows

increased

Immediate Day 3 Day 9 Day 11

• Croatian production/ offtake increased

• Additional spot LNG to Turkey, Greece

• Flows reversed from Czech Republic to Bosnia

• Flows reversed from Greece to Bulgaria

• Hungary increased pipeline flows to Serbia, Bosnia

Crisis Response: Roadmap for Greater European Energy Security/Integration

Response OptionsAlternative fuel redundancyInterconnectionsReverse flowsStorageIncreased pipeline gasIncreased LNG imports

Main Infrastructure BeneficiariesInterconnected countries with adequate storage and fuel redundancy fared the best

AddEastern Mediterranean gas developmentShale gas developmentMore LNG in Mediterranean ring

Moral of the Story: relatively inexpensive energy security can be achieved with more storage, interconnections, increased imports (+ shale gas/E.

Mediterranean)

Europe Regasification CapacityCurrent: 187.4

Under construction: 23.0 Subtotal 210.4

Planned: 260.6 TOTAL 471.0

LNG Consumption 79 bcm Capacity factor: 42%


United States Europe

12487

US: 15% more gas consumption

US: 42% more gas storage

European/US Gas Consumption/ Storage, 2010, bcm

Source: IEA, Natural Gas Information, 2011

European countries that lost 70-100% of gas in 2009

disruption

US storage as % of consumption: 18%All Europe: 15%Disruption subset: 10%Balkans subset: 5.7%

2.7

27

United States

Europe

683

593

Storage Consumption,Capacity 2010


Uncertainties in European Gas Supply/Demand

Reduction in renewable subsidies Aftermath of Fukushima German policy decisions Plans for life extension of old nuclear plants Impacts of EU policy – “20% by 2020” Global economyMIT ei

S u

p p

p l y

D e

m a

n d

Higher demand/prices in Asian markets Arab spring Reduced indigenous production Caspian geopolitics Shale gas development Arctic development North African demand Eastern Mediterranean development Global economy

MIT-Sabancı University Energy and Security Workshop Istanbul, 30-31 March 2012

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Transcript of MIT-Sabancı University Energy and Security Workshop Istanbul, 30-31 March 2012