US Energy Independence & Energy Exports

Fred C. Beach, Ph.D. Earth Wind & Fire Conference Addison, TX. 4 October, 2014

10/12/2014 1

Global Consumption Trends 2011

• Energy Consumption, + 2.5% OEDC, Down

Non-OEDC, Up • Oil Consumption, + 0.7% OEDC, -1.2% Non-OEDC, +2.8% • Natural Gas Consumption, +2.2% EU, -9.9% China, +21.5% • Coal Consumption, +5.4% OEDC, -1.1% Non-OEDC, +8.4%

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87 % of the Worlds Energy Consumption Comes from Fossil Fuels and the Percentage Is Growing

Energy Dependence 1970-2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

US Germany France UK Italy Spain Japan

1970

1990

2010

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U.S. Energy Independence Trend

US for 2012 (Quads)

Consumption = 95 Production = 80

Imports = 15.8%

2013

12.9%

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EIA 2010 vs 2012 Forecast Change

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U.S. Oil Production 1900-2010

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U.S. Oil Production, Technology Breakthrough?

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Actually, It Was A Price Revolution

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U.S. Petroleum Liquids Net Imports

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U.S. Petroleum Liquids Net Imports

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U.S. Coal Production

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U.S. Coal Exports

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Coal Retirements

• About 50 GW of coal capacity may retire by 2020 – Almost 21 GW already retired in 2010-13 (mostly older units) – Announced about 29 GW (2014-2020)

Gürcan Gülen, Ph.D.

©CEE-UT, 7

Source: EIA Annual Energy Outlook 2013

US Natural Gas Production

U.S. Natural Gas Production

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Technically Recoverable Resource Estimates

Source: Based on a widely used chart produced by Gas Technology Institute (GTI).

Gürcan Gülen, Ph.D.

$3.91 $3.52

$2.41

$3.40

$2.7N1 $2.99

$3.66

GL Uplift: how much,$3.73

$0.66 $0.65 $0.61

$0.71 $7.28 $7.16 $6.67

$7.84

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

Average All Producers

(2009)

Average All Producers

(2010)

Average All Producers

(2011)

Average All Producers

(2012)

$/M

CFE

10% Return

U.S. Cash Operating Costs $/MCFE

U.S. All Source FD Costs $/MCFE

Henry Hub Spot Price $4/MCF

Note: All Source FD Costs are 3-year rolling averages

As of: December 4, 2013

At What Price Can Producers Deliver?

Monitoring U.S./Global Oil and Gas: Upstream Attainment, Producer Challenges http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20-%20Producers.pdf

when & where?

How Much Demand? At What Price?

• Power generation • Industrial demand • Exports (LNG and pipeline) • Transportation (LNG, CNG) – not covered today

Different Views of the World

0.0

0.5

1.0

1.5

2.0

Consumption of Natural Gas in Power Generation (Index, 2010 = 1) 2.5

2010 2015 2020 2025 2030 2035 Based on data from EIA AEO 2013 & IHS Global Insight

2040

AEO Real GDP IHS Real GDP AEO Electricity IHS Electricity

Avg y-y growth of 2.5%

Nuclear Relicensing?

• 4 recent announcements • 5,500 MW in 3 plants under construction

Industrial Gas Demand – A Growth Scenario based on Projects in Progress

0

1

2

3

4

5

6

7

8

9

2013 2014 2015 2016 2017 2018 2019 2020

TCF

GTL

MTG

Metals

Propylene

Polyethylene

Chlor-Alkali

Methanol

Ammonia-urea-fertilizer

Ethylene Crackers Base

Demand (2012)

Source: CEE Industrial Projects Database

Increasing Gas Exports?

• 7 terminals received 8 permits to export LNG to non-FTA countries (as of April 2014) – Only 3 with FERC approval – Construction started on 2 liquefaction trains of the

Sabine Pass terminal in August 2012 – The first exports are not expected until 2016

• Forecasts cover a wide range from 1.6 to 3.6 tcf by 2025

• Pipe exports to Mexico have been increasing and are expected to reach 2.4 tcf by 2040 (EIA AEO) or early 2020s (based on pipe projects).

Proposed Does Not Equate to Realized

Gürcan Gülen, Ph.D.

3

6 6 6 6

1 1 1 1

3

3 3 3 5

1.3

1.3 2 3.5

6

0.4

0.4 0.8

0.8

Shipping Liquefaction Field to Terminal Henry Hub

0.9

20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

The Attraction "Reality" High Cost Delivery to Atlantic Basin

High Cost Delivery to Pacific Basin

Super High Cost Delivery to Pacific

Basin

$/MMBtu Regasification

Is U.S. LNG Competitive?

$9-11 NBP

$14-19 Asia spot

$10 Japan pre- Fukushima

Sep ’14

NBP $6-7

http://www.beg.utexas.edu/energyecon/thinkcorner/Is%20US%20LNG%20Competitive.pdf

Sep ’14

©CEE-UT, 33

LNG $10.5

A strong “demand stack” scenario

0

5

10

15

20

25

30

35

40

45

2012 2015 2018 2021 2024 2027 2030

TCF LNG exports CEE

Pipeline exports CEE

Power generation CEE

Industrial CEE

Other (Res, Comm, Trans) EIA ER Dec 2013 Total demand CEE High Case

Total supply EIA ER Dec 2013

Other 2030 = 10.8 (residential+ commercial 10.5)

Industrial 2030 = 8.8 (EIA ER = 8.5)

Power 2030 = 15.9 (EIA ER = 10.1)

Pipe Exports 2030 = 3.9 (EIA ER = 3.4) LNG Exports 2030 = 1.0 (EIA ER = 3.5)

CEE analysis; EIA ER refers to EIA 2014 Early Release, Dec 2013 (reference case)

EIA 2010 vs 2012 Forecast Change

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By 2020 North America Could be Energy Independent

The Energy Economies • In the US, not everywhere is like TX or ND

– Growth has been anemic and uneven • Over time and across the states • Labor force participation at historic lows • ~2 million fewer jobs than early 2008

Public discontent with and distrust of the politicalsystem – Can the US reach a path of steady growth at >3% ?

• Especially if our trade partners falter (Europe, China)

The World Economy Runs on Energy &

Runs “Best” on Cheap Energy

Energy Dependence 1970-2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

US Germany France UK Italy Spain Japan

1970

1990

2010

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