The Need for Coalbed Methane:
An Update on North America’s Natural Gas Crisis Canadian Institute’s 4th Annual Coalbed Methane Conference June 2005 J. David Hughes Geological Survey of Canada
Points to be covered: - World and North American Natural Gas Supply and Demand Patterns, including CBM - The Crisis: - What’s actually happening in the U.S compared to forecasts. - The need, the gap, and proposed solutions
- Coalbed Methane: - The Prize - The Potential - The need for reality checks in conversion of resources to supply
World Primary Energy Consumption: 1965-2003 By Fuel
By Region 9000
Million Tonnes Oil Equivalent
8000
10000
Asia Pacific
152% increase in World 9000 Consumption 1965-2003; 2003 increase = 2.9%
Africa Middle East Former Soviet
7000 495% 410%
6000
654%
5000 58%
4000 3000
82% 318%
2000
7000 6000 5000
74%
Coal
4000
269%
Gas 3000 2000
Oil 1000
184%
8000 Million Tonnes Oil Equivalent
10000
86%
0 1965 1971 1977 1983 1989 1995 2001 Year
138%
1000 0 1965 1971 1977 1983 1989 1995 2001 Year
Highest growth in 2003 = Asia Pacific 6.3%; Coal 6.9% (data from BP Statistical Review of World Energy, 2004)
Forecast Growth In World Energy Consumption, 2001-2025 (EIA, 2004, Reference Economic Case) By Fuel
By Region 700
54% increase in World Consumption (1.8%/year)
600
500
Quadrillion Btu
Quadrillion Btu
600
700
400
Developing +91%
300 200 100 0 2001
Industrialized +33%
2005
2010
2015
Year
2020
500 400 300
Gas +68% 200 100
2025
Coal +47%
0 2001 2005
Oil +57%
2010
2015
2020
2025
Year
(data from Energy Information Administration International Energy Outlook, May, 2004)
World Gas Production and Consumption: 1970-2003 Production
Billion cubic feet per Day
200
Asia Pacific Africa Middle Eas t Former Soviet Union Europe S. & Cent. America North America
250
153% increase in Consumption up 2.0% 2003 over 2002
200
1211%
150
291%
100 191%
577%
Billion cubic feet per Day
250
Consumption
2127%
150
212%
100 341%
524%
50
50 14%
0 1970 1975 1980 1985 1990 1995 2000 Year
13%
0 1970 1975 1980 1985 1990 1995 2000 Year (data from BP Statistical Review of World Energy, 2004)
World Gas Reserves: 1980-2003 7000
100% 90%
6000
29%
Middle East
Trillion Cubic Feet
5000
4000
Middle East
3000
2000
1000
Former Soviet Union Asia Pacific Africa Europe S. & C. America
North America
0 1980 1983 1986 1989 1992 1995 1998 2001 Year
Percentage of Remaining Reserves
80%
41%
70% 60% 50%
38%
Former Soviet Union
40%
32%
30%
Asia Pacific 20%
Africa Europe
10%
12%
North America 4% 0% 1980 1983 1986 1989 1992 1995 1998 2001 Year
(data from BP Statistical Review of World Energy, 2004)
World Natural Gas Reserve to Production Ratio in Years 1990-2003
Years of Production at Current Rates
140 120 100 80 60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
40 20 0 North America
Europe
Rest of World
Total World
(data from BP Statistical Review of World Energy, 2004)
North American Gas Production and Movements: 1986-2003 United States 70
Total Consumption
60
Billion cubic feet per Day
Imports Canada: 127% increase in Production 1986-2003; Production down 3.6% 2003 over 2002 Canada Billion cubic feet per Day
20
5
40
30
20
Production
15 10
50
Exports Consumption
0 1986 1989 1992 1995 1998 2001 Year
51%
10
0 1986 1989 1992 1995 1998 2001 Year (data from BP Statistical Review of World Energy, 2004)
Years of Production at Current Rates
80
North America Natural Gas Reserve to Production Ratio in Years 1990-2003 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
70 60 50 40 30 20 10 0 U.S.A.
Canada
Mexico
North America
(data from BP Statistical Review of World Energy, 2004)
Canada’s Remaining Discovered and Undiscovered Conventional Natural Gas Resources According to NEB (2004) Estimates including Lifetime assuming 2004 Production Rates
63%
CONSUMED
PROVEN (8.1 years)
13%
22%
PROVEN (8.1 years) 78%
POSSIBLE (5.3 years)
HOPED FOR: UNDISCOVERED (48.5 years)
POSSIBLE (5.3 years)
9%
15%
Discovered Resources
Remaining Discovered and Undiscovered Resources
(Resource estimates from National Energy Board, April, 2004; 2004 Production from Statistics Canada, 2005)
Canada’s Exploration Treadmill – more and more drilling to find less and less gas 16000
Wells Drilled
17
66
16
65
15
64
14
63
13
12000
8000 6000
61
11
60
10
Reserves (Tcf)
10000
9 8 7
2000 0 1996 1998 2000 2002 Year
59 58 57 56
6
55
5
4000
Reserves
62
12 Production (bcf/day)
Number of Gas Wells Drilled
14000
Production
2004 estimated
4
54
3
53
2
52
1
51
0 1996 1998 2000 2002 2004
50 1996 1998 2000 2002 2004
Year
Year
(Drilling Statistics: Canadian Association of Oil Well Drilling Contractors; Marketable Production: Statistics Canada; Remaining Reserves: Canadian Association of Petroleum Producers)
NEB, July, 2003, Deliverability Scenarios from Existing Gas Sources Supply Push Scenario
Techno-Vert Scenario
20000
Peak 2001 18000
16000
16000
14000
14000
12000
12000
MMcf/day
MMcf/day
18000
20000
10000 8000
10000 8000
6000
6000
4000
4000
2000
2000
0 2001 2005 2009 2013 2017 2021 2025 Year WCSB Solution
WCSB Existing Gas
Peak 2001
0 2001 2005 2009 2013 2017 2021 2025 Year WCSB Additions Sable
Productivity Assumptions of NEB Scenarios for the Western Canada Sedimentary Basin
• WCSB drilling rates will be sustained at the record levels of 2001 until 75% of the ultimate recoverable resource has been produced. • Initial productivity of new wells will remain at current levels. WCSB initial productivity has declined from an average 700 mcf/day in 1997 to 350 mcf/day in 2003 – this trend may continue in the future. • Decline rates in new wells will remain at current levels First year decline rates have increased from <20% in 1990 to nearly 35% in 2000 - this trend may continue in the future. The overall decline rate of the WCSB has increased from 13% in 1992 to 21% in 2003 – this means 3.3 Bcf/day of production must be replaced each year to keep production flat, which hasn’t happened since 2001. NEB (November, 2004) expects production to increase by 2% through 2006, mainly because of coalbed methane. (assumptions included in National Energy Board Report of July, 2003, and data provided in November, 2004, National Energy Board Report)
Average Lifetime Output per Connection - WCSB
Output of Individual Connections is Less
Millions of Cubic Metres per Connection
60
1991
50 1991
40 1993
1995
30
1995 1997
20
1999 1998
2001 2001
10
2003 2003
0 0
20000
40000
60000
80000
100000
120000
Number of Connections Actual
Fitted Curve (From Paul Sears, March, 2005)
Trillion cubic feet per Year
Canada Monthly Marketable Gas Production January 1991 - March 2005 (centered 12 month moving average) 6.5 -3.1% Below Peak
6 5.5 5
Growth
Peak/ Decline Plateau
4.5 4 3.5
01 /01 /01 /01 /01 /01 /01 /01 /01 /01 /01 /01 /01 /01 / 91 992 993 994 995 996 997 998 999 000 001 002 003 004 9 1 1 1 1 1 1 1 1 1 2 2 2 2 2
Month
(Source of data Statistics Canada, June, 2005)
NEB, July, 2003, Deliverability Scenarios from Existing and Proposed Conventional Gas Sources 20000
20000
Peak 2001
18000
16000
16000
14000
14000
12000
12000
MMcf/day
MMcf/day
18000
Supply Push Scenario
10000 8000
8000 6000
4000
4000
2000
2000
WCSB Solution Sable Mackenzie LNG Imports NB
Peak 2001
10000
6000
0 2001 2005 2009 2013 2017 2021 2025 Year
Techno-Vert Scenario
0 2001 2005 2009 2013 2017 2021 2025 Year
WCSB Non-Associated Newfoundland NS Offshore LNG Imports Quebec
WCSB Additions Panuke BC Offshore
NEB, July, 2003, Deliverability Scenarios from Existing and Proposed Conventional Gas Sources Including Coalbed Methane 20000
Supply Push Scenario Peak 2010
18000
18000
16000
16000
14000 12000 10000 8000
CBM
10000 8000 6000
4000
4000
2000
2000
WCSB Solution Sable Mackenzie LNG Imports NB
Peak 2015
12000
6000
0 2001 2005 2009 2013 2017 2021 2025 Year
Techno-Vert Scenario
14000
CBM MMcf/day
MMcf/day
20000
0 2001 2005 2009 2013 2017 2021 2025 Year
WCSB Non-Associated Newfoundland NS Offshore LNG Imports Quebec
WCSB Additions Panuke BC Offshore CBM
In Place Resource Estimate (Tcf)
In Place Coalbed Methane Resource Estimates by Reliability Factor Canadian Gas Potential Committee (2001) 400 350 300
Minimum Maximum
250 200 150 100 50 0
Very Low
Low
Medium
Minimum
36
36.3
115
Maximum
109
107
352
Reliability Factor
(From SAIC, 2004)
In Place CBM Resource SAIC (2004) = 440 Tcf Gas Technology Institute (2003) = 744 Tcf Advanced Resources International (2004) = 494 Tcf
Coalbed Methane Reserves in the United States 20 18 16 Trillion Cubic Feet
Western 3.7% Eastern 8.2%
Other States Alabama New Mexico Colorado
Utah 6.5% Wyoming 14.7%
14 12 10
Most Productive States 66.9%
8 6 4 2 0 1989
1991
1993
1995
1997
1999
2001
2003
Year (Source of data Energy Information Administration, 2005)
Actual Coalbed Methane Production in the U.S. 1989-2003 Compared to NEB Coalbed Methane Production Scenarios 2003-2025 U.S. Coalbed Methane Production
NEB Canadian CBM Production Scenarios 1.8
8.5% of U.S. Production
23% of Canadian production
1.8
1.2
Other States Alabama Colorado New Mexico
1 0.8 0.6 0.4
Alabama Peak 1998
Colorado Peak 2002
Most Productive Areas Peak 1999 New Mexico Peak 1997
0.2 0 1989 1991 1993 1995 1997 1999 2001 2003 Year
Trillion Cubic Feet per Year
1.4
1.6
U.S. Production Peak 2002
65% of U.S. CBM Production
Trillion Cubic Feet per Year
1.6
1.4
Supply Push Techno-Vert
1.2 1 0.8 0.6 0.4 0.2 0 2003 2007 2011 2015 2019 2023 Year
(Source of data Energy Information Administration, 2005; National Energy Board, July, 2003)
NEB, 2003, Canadian Domestic Natural Gas Demand Scenarios by Sector, 2002-2025 Techno-Vert Scenario
Supply Push Scenario 12000
53% growth in domestic consumption 2002-2025
10000
10000
8000
8000
6000
+343% 20022025
6000
23%
4000
4000
2000
2000
Industrial
0 2002 2006 2010 2014 2018 2022 Year
53% growth in domestic consumption 2002-2025
MMcf/day
MMcf/day
12000
+200% 20022025
16%
Industrial
0 2002 2006 2010 2014 2018 2022 Year (data from National Energy Board, July, 2003)
U.S. Gas Consumption by Sector, 1986-2004 Consumption by Sector 1996-2004
Consumption by Sector 1986-2004
30 28 26 24
Transportation Commercial Residential Industrial Electric Power
30 28
+37.5% 1986-2004
26 24
+29%
18 16
+13%
14 12 10 8
+29%
18 16
12 10
4
Year
-13%
8
4
0 1986 1989 1992 1995 1998 2001 2004
-7%
14
6
+106%
-5%
20
6
2
-1.3% 1996-2004
22 Trillion Cubic Feet/Year
Trillion Cubic Feet/Year
22 20
Transportation Commercial Residential Industrial Electric Power
2
+41%
0 1996
1998
2000
2002
2004
Year (data from Energy Information Administration, 2005)
35
Trillion cubic feet per year_
30
U.S. Natural Gas Supply Forecast by Source 2004-2025 (Energy Information Administration) 34% Total Growth from 2004-2025
30.2 Tcf
25.6 Tcf
25 Canada Imports
20 15 10
U.S. Production Up 8.0% 2004-2010
U.S. Domestic Production Including Alaska
U.S. Production Up 15.7% 2004-2020
5 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Year (data from Energy Information Administration Annual Energy Outlook, 2005)
The U.S. Gas Exploration Treadmill 25000
U.S. Gas Wells Drilled 1993-2004
22
U.S. Dry Gas Production 1993-2004
2010 EIA Forecast
20000
15000
10000
Trillion Cubic Feet per Year
Number of Successful Gas Wells Drilled
2020 EIA Forecast 20
18
Production Peak 2Q 2001 16
5000
0 1993 1995 1997 1999 2001 2003 Year
14 1993
1995
1997
1999
2001
2003
Year (data from U.S. Energy Information Administration, April, 2005)
Canadian Shortfalls in Gas Supply Given Domestic Production Scenarios and Forecast EIA (AEO 2005) Reference U.S. Import Requirements
8 7
Supply Push Scenario Requirement: Domestic Demand Plus Forecast EIA Exports
Tcf/Year
4
8
Total Domestic Production
Requirement: Domestic Demand Plus Forecast EIA Exports
Shortfall .73 Tcf
2.4 Tcf
Net Exports
6 5 4
3
3
2
2
1
Techno-Vert Scenario
7
Shortfall
6 5
9
Tcf/Year
9
Domestic Consumption
0 2004 2007 2010 2013 2016 2019 2022 2025
Year Note: Forecast Canadian LNG Imports are Excluded from Domestic Production
1
Total Domestic Production
Net Exports
Domestic Consumption
0 2004 2007 2010 2013 2016 2019 2022 2025
Year (data from National Energy Board, July, 2003, and EIA Annual Energy Outlook, 2005)
North America Natural Gas Movements 2000-2004 Net U.S. Imports (7 Month Moving Average)
450
450
400
400
350 300 250
LNG 2.8% of 2004 Consumption
200 150 100 50
Japan LNG Exports Mexico Exports Canada Exports LNG Imports Mexico Imports Canada Imports
0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Month
Billion cubic feet per month
Billion cubic feet per month
U.S. Imports and Exports (7 Month Moving Average)
350 300 250 200 150 100
Net Imports Down 13.7% January, 2001 Versus July, 2004
50 0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Month (Data from Energy Information Administration, December, 2004)
U.S. Supply with Canadian Imports and Shortfalls Given NEB, 2003, Supply Scenarios and EIA (2005) Reference Case Supply Scenario
Liquefied Natural Gas
25
Shortfall Alaska
Tcf/Year
Canada
20 15
Domestic Production Including Alaska
10
30
20 15
0 2004
0 2004
2016
Year
Domestic Production Including Alaska
10 5
2012
Liquefied Natural Gas Canada
5
2008
Liquefied Natural Gas Canada Shortfall Canadian Imports Domestic Production
25
Tcf/Year
30
35
Liquefied Natural Gas Canada Shortfall Canadian Imports Domestic Production
8.8 Tcf (28.5%)
35
Techno-Vert Scenario
2020
2024
7.1 Tcf (23%)
Supply Push Scenario
2008
2012
2016
2020
2024
Year (data from Energy Information Administration Annual Energy Outlook, 2005, and National Energy Board, July, 2003)
20.5
Trillion cubic feet/Year
20
U.S. Dry Gas Production Rate by Month January 1993 - January 2005 (12 month moving average) Peak 2Q 2001
EIA 2010 Forecast
19.5
Down 4.6%
19 18.5 18
Growth 1.1%/Year
Decline 1.5%/Year
Ja n93 Ja n94 Ja n95 Ja n96 Ja n97 Ja n98 Ja n99 Ja n00 Ja n01 Ja n02 Ja n03 Ja n04
17.5
Lowest Level Since November 1995
Month (Data from Energy Information Administration, April, 2005)
U.S. Active Drilling Rig Count and Dry Gas Production 2000-2005 (2003 Overall U.S. Decline Rate is now 28%) Active Rigs 2000-2005
Peak 3Q 2004
1200
1000
22
EIA 2020 Forecast
21
Trillion Cubic Feet per Year
Baker-Hughes Weekly Active Rig Count
1400
Dry Gas Production (12-month moving average)
Oil
800
600
400
Gas 200
Peak 20 2Q 2001 19 18
EIA -4.6% From Peak 2Q 2001
17 16
EIA Decline 1.5%/year
15
0
EIA 2010 Forecast
14
2000
2001
2002
2003
2004
02 03 04 JanJanJanMonth (data from Baker-Hughes, 2005, and Energy Information Administration, February, 2004; Production data for December 2004 estimated at November 2004 levels) Year
00 Jan-
01 Jan-
U.S. Supply with Canadian Imports and Shortfalls Given NEB, 2003, Supply Scenarios and EIA Reference Case Supply Scenario with 1% Yearly Decline in U.S. Production
Liquefied Natural Gas
25
Canada Shortfall
Tcf/Year
Alaska
20
U.S. Shortfall
Canada
15
10 5 0 2004
1% YEARLY DECLINE in Domestic Production Including Alaska
2008
2012
2016
Year
2020
30
Liquefied Natural Gas U.S. Shortfall
20 Canada
15
10 5
2024
Liquefied Natural Gas Canada Shortfall U.S. Shortfall Actual Canadian Exports Domestic Production
25
Tcf/Year
30
35
Liquefied Natural Gas Canada Shortfall U.S. Shortfall Canadian Imports Domestic Production
15.3 Tcf (49.7%)
35
Techno-Vert Scenario
13.6 Tcf (44.3%)
Supply Push Scenario
0 2004
1% YEARLY DECLINE in Domestic Production Including Alaska
2008
2012
2016
2020
2024
Year (data from Energy Information Administration Annual Energy Outlook, 2005, and National Energy Board, July, 2003)
FUTURE OUTLOOK:
- IMPLICATIONS – If supply and demand forecasts are to be believed, there appear to be serious supply shortfalls in Continental natural gas coming – Canada is unlikely to be able to
fill the supply gap
- SOLUTIONS - probably involve a portfolio of options: - Conservation and Efficiency - LNG – already factored into existing forecasts;
GEOPOLITICAL + NIMBY IMPLICATIONS - Unconventional Gas - already factored into existing forecasts in a big way - Fuel Switching – to oil or coal – capacity quit limited without new capital investment - Destroy Demand – move gas intensive industries offshore (fertilizer and petrochemical plants) this is already happening; GEOPOLITICAL IMPLICATIONS
LNG Logistics
OPERATING COSTS (FREEPORT, TEXAS1): - Production = $US .50-$1.00/mcf - Liquefaction = $US .80-$1.00/mcf
- Shipping = $US .50-$1.45/mcf
- Receiving = $US .24-$.40/mcf - TOTAL =
$US 2.04-$3.85/mcf (U.S. 2004 Imports priced at $US 5.00-$6.00+/mcf) (1Reimer, Freeport LNG, 2003)
LNG Logistics COVERING PROJECTED U.S. SHORTFALLS OF 6-15 TCF/YEAR WITH LNG WOULD REQUIRE MORE THAN DOUBLING TO NEARLY QUADRUPILING THE WORLD’S LNG CAPACITY (the U.S. will also be in competition with many other countries for expanded LNG supplies). EXPANSION OF LNG CAPACITY TO 15 TCF/YEAR WOULD REQUIRE IN THE ORDER OF: - 240 New 3bcf capacity LNG Tankers - 40 New 1bcf/day North America-based receiving terminals - 75 New Foreign-based 200 bcf/year liquefaction trains - Capital investment in the order of $US100+ Billion - Time to Build Total Capacity = 10-20+ Years - OVERCOMING THE NIMBY SYNDROME IN LOCATING NEW TERMINALS - ACCEPTING THE GEOPOLITICAL IMPLICATIONS OF DEPENDENCY ON OFFSHORE SUPPLY SOURCES
(3.715 bcf/d)
(8.91 bcf/d)
Cancelled Terminals
-Cheniere LNG, Brownsville, TX -Cheniere LNG, Pinto Island, AL -Fairwinds LNG, Harpswell, ME -Hope Island LNG, ME -Humbolt Bay LNG, Eureka, CA -Mare Island LNG, Vallejo, CA -Navy Homeport LNG, Mobile, AL -NJ Energy Bridge, Belmar, NJ -Ormond Beach LNG, CA -Radio Island LNG, NC -Tampa LNG, Tampa, FL
(3.1 bcf/d)
(14.6 bcf/d)
(8.3 bcf/d)
-Tijuana Energy Center, Tijuana, MX -Offshore Shell Gulf Landing, LA (13.83 bcf/d)
(4.91 bcf/d)
(4.9 bcf/d) Total = 62.265 bcf/d
(4.215 bcf/d)
(11.51 bcf/d)
(2.6 bcf/d) (2.0 bcf/d) (3.1 bcf/d)
(17.6 bcf/d)
(8.3 bcf/d)
Total = 49.325 bcf/d
LNG Supply Forecasts of U.S. National Petroleum Council (September, 2003) versus Requirement Scenarios
18 Number of Terminals
16 14
Available Receiving Terminals Balanced Case Reactive Case Low Sensitivity Case
Maximum 9 New Terminals by 2025
12 10 8 6 4
50 Billion cubic feet per Day
20
Supply Gap with Different Lower-48 Production Scenarios Growth Flat 1%/year decline 2%/year decline
40
-2% -1%
30 Flat
20 Growth
10
Reactive
2 Low Sensitivity
0
0 2000 2005 2010 2015 2020 2025 Year
2004 2008 2012 2016 2020 2024
Year
(data from National Petroleum Council 2003; supply gap based on Energy Information Administration, Annual Energy Outlook 2005 forecasts and National Energy Board 2003 Supply Push scenario for Canada)
Can CBM in Canada fill the Supply Gap? - MOST PROBABLY NOT, but CBM is an important and growing contribution to a solution. - In Place Resources are huge â&#x20AC;&#x201C; the question is what proportion of
these resources can contribute to supply and at what rates?
- As in the U.S., in place resources are pegged by some at more
than 500 Tcf. However in the U.S. booked reserves are about 19 Tcf (11 months of U.S. demand) and Trident estimates recoverable resources of between 10 and 23 Tcf in Canada (up to one year of U.S. demand). - There is a wide diversity in the quality and gas concentration in
potential CBM targets.
In Place Methane Resources versus Coal Zone at Depths of Less than 1200 Metres assuming 100% Gas Saturation 80
In Situ Methane Resources (trillion cubic feet)
70 60 50 40 30 20 10 0 Ardley
CarbonLower Lethbridge Thompson Horseshoe Canyon
Coal Zone
Taber
MacKay Mannville
Contributions to the Total In Situ CBM Resources beneath the Alberta Plains, by Gas Concentration in bcf/section (assuming 100% saturation) In Situ CBM Resource for cumulative classes (billion cubic feet)
400000 350000 300000 250000
~ 100 Tcf in place at >3bcf/section concentration
200000 150000 100000 50000 0 0-12
1-12
2-12
3-12
4-12
5-12
6-12
7-12
8-12
Gas Concentration (bcf/section)
9-12 10-12 11-12
Where Does this Leave Us? THER E AR E BI G CHALLENGES AHEAD I N M EETI NG DEM AND EXP ECTATI ONS FOR NOR TH AM ER I CAN NATUR AL GAS - The BAD NEWS is that we are on a gas production treadmill that requires ever more drilling to keep up with demand, and it looks like we may be losing - Coalbed Methane will be an important incremental contribution to a solution, however, so far, average well deliverability has been considerably less than average conventional wells, therefore, to offset declines in conventional production the treadmill gets worseâ&#x20AC;Ś And policy makers have to be realistic as to the total amount of the in place resource that can be converted into supply (and at what rate) - The GOOD NEWS is that the GAS price outlook looks good for the forseeable future, so the future for explorers is very bright