Natural Gas to 2030
Gas is not only a ‘bridge’ but truly a
‘destination’ fuel in a lower carbon world
May, 2012
Confidential and Proprietary
Executive summary
• Global natural gas consumption expected to increase 47% by 2030
• Longterm demand will be driven by emerging market energy needs and
European imports
• Global recoverable reserves will become more plentiful due to
unconventional drilling technologies (e.g. shale gas, tight gas)
• Significant stranded reserves will tie into global supply network with
new transnational pipelines and liquified transport technologies
• Diversification of hydrocarbon trade dependencies will have a
democratizing effect on global energy security
• Natural gas will play a key role in meeting global carbon reduction
targets
1
Key facts and figures
6,600 tcf
Global proved reserves
105 tcf
Global gas production 2009
62 yrs
Global reserves to production (R/P ratio)
47%
Growth in global gas production to 2030
60%
Growth in OECD European gas imports to 2030
290%
Growth in gas consumption in China to 2030
220%
Growth in global unconventional gas to 2030
140%
Growth in LNG shipping to 2030
60%
Reduction in carbon footprint of switching from coal to gas
Sources: BP Statistical Review; EIA
2
Natural gas composition and carbon footprint
Gas is “cleanest” hydrocarbon fuel
Unprocessed natural gas
Methane (CH4) is the simplest hydrocarbon molecule,
with one atom of carbon and four of hydrogen
Methane (CH4)
Ethane (C2H6)
Propane (C3H8)
CO2 emissions per energy unit
Indexed, coal = 100
100
Coal
Energy
components
Butane (C4H10)
Condensates
(C5H12–C10H22)
Nitrogen (N2)
Carbon dioxide (CO2)
Non-energy
Hydrogen sulphide (H2S) components
Helium (He)
Oil
83
Gas
40
Gas (with
carbon
capture)
4
0
50
100
Sources: Canadian Centre for Energy Information; UK Department for Environment, Food and Rural Affairs; XTO; IPCC
3
Natural gas value chain
Exploration and
production
• Exploration:
Refining and
processing
Liquefaction
Shipping
• Development:
building
infrastructure to
produce gas, e.g.,
drilling, pipe-laying,
removal of
mercury, sulphur,
carbon dioxide,
and condensate
from raw gas
Marketing
Pipelines
• Gas processing: • Liquefaction: • Loading:
Technical and
economic
assessment of
hydrocarbon
basins, e.g.
seismic
Regas
cooling of pretreated gas to
-162ºC to
convert it into
liquid form at
1/600th of its
gaseous
volume
transfer of
liquefied gas to
an LNG tanker,
usually able to
carry more
than 120,000
cubic meters of
LNG
• Regasification: • Storage: storing
pumping LNG
through
vaporizers
which use
•
seawater to heat
LNG to its
gaseous form
LNG in stainless
steel tanks
Wholesale: sales
and transmission
of gas
• Retail:
distribution of gas
to end-users,
• Pipeline transmission: compression of gas in
pipelines moving at speeds of up to 40 km/hour
• Production:
operating
production facilities
4
Gas value chain evolving into a globally integrated
market with rise of new technologies and transport
corridors
Globalized gas market
Regional gas markets
Local gas markets
1800s–1970
Major
markets
Main
supply
routes
1970–2005
North America
FSU/Russia
Western Europe
North East Asia (Japan, Korea)
• USA
• Italy
• Netherlands
•
•
•
•
• Local USA pipelines
• Intra-regional pipelines
– SouthWest–Chicago
– SouthWest–Appalachia
– Texas–NorthEast
• Local European pipelines
– Canada–USA
– Russia–Central Europe
– Norway/Netherlands–West
Europe
– Algeria–Italy
• Regional LNG
Technologies
• Basic pipelines
• Long-distance pipelines
• LNG liquefaction and shipping
•
•
•
•
2005–2020
North America
Russia
Western Europe
North East Asia (Japan, Korea,
China, India)
• Long-distance pipelines
–
–
–
–
Russia–China
Middle East–India
Middle East–Europe
North Africa–Europe
• Global LNG arbitrage
– Middle East
– Atlantic Basin
– Pacific Basin
• Arctic E&P/LNG
• Unconventional gas
• CNG
Sources: Natural Gas and Geopolitics from 1970–2040, Cambridge University Press; McKinsey
5
Gap between “have’s” and “have not’s” in gas will
drive long-term trade and investment dynamics
Proven gas reserves
Trillion cubic meters
Europe’s low
indogenous
reserves make it
dependent piped
Russian gas and
LNG imports
2 Canada
7
Currently a 10
yr R/P ratio,
but significant
additional
estimated
recoverable
reserves from
shale gas
sufficient to
satisfy current
US demand
for 100 years
US
5 Venezuela
2 Norway
UK 1
48
Russia
2 Netherlands
Kazak. 2
Turkmen.
Iraq
7
3 China
3
Kuwait
30 Iran
5
Algeria
2
Qatar
8 26
1 Pakistan
6
1 India
Saudi Arabia
UAE
Malaysia
5 Nigeria
2
Russia and
Middle East hold
70% of global gas
reserves
3
Indonesia
Argentina
3 Australia
1
Asian Pacific
investment in
LNG underway
to satisfy
emerging Asian
demand
Sources: CIA World Fact Book
6
Prices reflect reserves: Europe and Asia
willing to pay to satisfy energy needs
Natural gas price,
USD/MMbtu
European
prices governed
by supply of
Russian and
LNG imported
gas
China natural
gas prices
pegged to
crude oil
Russia $3
$8
Europe
China
$4 US
$12
Egypt $4
US prices
depressed as
a result of
recent shale
gas glut
Japan
$12
$1 Saudi
Arabia
$4 Indi
a
$11
Chile
Domestic prices in
Argentina artificially
low due to regulation;
LNG cargoes in line
with rest of Latin
America
$9
Brazil
$3 Argentina
Sources: Platts, EIA, WSJ, Financial Express, Oil Egypt, Platts, Bloomberg
7
Demand will remain strong through 2030 as Europe
ups imports and emerging markets develop energy
needs at home
European
consumption
increases while
production falls
Consumption, tcf
Production, tcf
OECD Europe
Russia
100% growth in
Asian demand
17
18
2007
2030
US/Canada
26
31
19
23
2007
2030
Japan/Korea
China/India
2007
2030
Africa
Middle East
4
2007
5
6
2007
2030
13
2030
Asia Other
3
Latin America
7
11
100% growth in
Latin American
demand
2007
7
2007
14
2030
2030
2007
20
7
2030
2007
13
2030
Middle East production
increase largely
consumed by own
energy needs
Sources: EIA
8
Meanwhile, two disruptive factors will create
significant opportunities upstream
1
Drilling Technology: Unconventional drilling technologies such
as shale gas will have a multiplier effect on global gas reserves
and open new basins to exploration
2
Transporation: Expansion of liquified natural gas (LNG) and
transnational pipelines will provide new global supply routes
between the field and end-markets
9
1
Unconventional drilling technologies will increase global
gas reserves by 3x: finding opportunities abundant
Trillion cubic meters
Gas found in
conventional
reservoirs
Conventional gas
Gas that is not
recoverable using
existing
technologies
Non-technically
recoverable
Discovered
reserves currently
uneconomic to
recover
“Stranded”
Yet-to-find Coal bed methane
non-economic
reserves
50
Proven
Shale gas
reserves
Discovered reserves
that are economic to
recover
Resources yet to be
discovered
Gas under unusual
reservoir conditions
Unconventional gas
643
920
210
Gas from tight
reservoirs with low
permeability
(<0.1 millidarcy)
255
Methane gas
contained in deep coal
beds that cannot be
directly mined
Tight gas
193
Gas produced from
reservoirs mostly
composed of shale
with lesser amounts of
fine-grained rock
R/P =
62 years
179
141
Produced
80
455
Sources: IEA; SPE; BP Statistical Review; Cedigaz; USGS; McKinsey
10
1
Overview of unconventional drilling
technologies (1 of 2)
• Unconventional
technologies access
previously
uneconomic
formations
• Shale gas
technology taps
directly into the
organic source rock
• Shut-in fields with
the right formations
can be reopened
• Significant
opportunities abroad
for players that
possess technical
know-how
11
1
Overview of unconventional drilling
technologies (2 of 2)
Shale/tight
gas
Description
Pros/Cons
• Shale: gas trapped in original
• Significant basin potential globally
• Volume drilling effects reduce
shale source rock with insufficient
porosity and permiability to flow
• Tight: gas trapped in unusually
impermeable, hard rock, or nonporous sandstone or limestone
• Accessed by drilling horizontal
cost of drilling and fracing
Frontiers
Baltic basin
Horn River
• Lower, but economic flow rates
Lower Saxony
• Drilling and fracing requires
Marcellus
learning effects unique to basin
well that intersects natural
fractures and using pressurized
liquids to fracture the rock and
stimulate flow
Neuquen basin
Paris basin
Perth basin
Sichuan basin
• Sweet gas stored within the
Coalbed
methane
pours of a coal resevoir,
typically with low permeability
• Similar to conventional
production except need for
water removal
• High drilling success rates
Erdos basin
• Inexpensive and quick well
Indonesia
completion
• Environmental concerns on
produced water disposal
Powder River
Queensland
– Wells are drilled into coal bed
– Water is removed before gas
flows out
12
2
LNG terminal network will expand as technology
becomes increasingly in demand and cost competitive
Global LNG trade, tcf per year
LNG becoming more
competitive…
• Increasing scale of
Liquefaction and
regasification plants
• LNG vessels:
Liquification terminals planned or under contstruction
floating storage and
regas unit, floating
liquefaction unit ,
energy bridge
• Improved production
process of building
LNG vessels
• Larger share of
offshore/sub-sea
facilities (lower cost
and building time)
Sources: Ocean Shipping Consultants; Energy Tribune
13
2
Transnational pipeline network reaching further
to access stranded gas
Major projects new or in discussion
Nabucco
Pipeline
IranPakistanIndia
Pipeline
Central
Asia-China
Pipeline
Description
Construction
• End-market: Europe
• Gas sources: Iraq, Azerbajan,
• Consortium:
Turkmenistan
Route
• Cost: $11 bn
• Capacity: 1.1 tcf / yr
• Length: 1,800 km
• Completion: 2015
• End-market: India, Pakistan
• Gas sources: Iran
• Capacity: 1.9 tcf / yr
• Consortium:
• End-market: China
• Gas sources: Turkmenistan
• Consortium:
• Capacity: 1.4 tcf / yr
• Cost: $7 bn
• Length: 1,800 km
• Completion: 2009
• Cost: $8 bn
• Length: 2,800 km
• Completion: 2015
14
Natural gas backed by an emerging political will –
old and new relationships in play
“We want the Southern Corridor to be ready by 2016-2017 … Research shows that energy production in Europe will
decrease by then and the need for gas increase … If Azerbaijan cannot supply the Nabucco gas pipeline in full, other
regional countries, for example Kazakhstan and Turkmenistan, can join too.”
Guenther Oettinger, European Union Energy Commissioner, Nov. 2010
“We are discussing [LNG] with other potential consumers in the Gulf, Canada, Argentina and Chile … We’re seeing new
markets there. New customers there. Customers even if you talked about five years ago no one would believe you …”
Abdullah bin Hamad Al Attiyah, Qatar Deputy Premier, Nov. 2010
“Huge discoveries of natural gas promise to shake up the energy markets and geopolitics … Europe may have nearly
200 trillion cubic feet of its own shale gas … Resources are believed to extend into countries such as Poland, Romania,
Sweden, Austria, Germany—and Ukraine. Once European shale gas comes, the Kremlin will be hard-pressed to use its
energy exports as a political lever. Greater shale-gas production in Europe will also make it harder for Iran to profit from
exporting natural gas.”
Amy Jaffe, Baker Institute, WSJ, Shale Gas Will Rock the World, May 2010
“The United States will promote the use of shale gas … natural gas is the cleanest fossil fuel available for power
generation today, and a number of countries in the Americas may have shale gas resources. If developed, shale gas
could make an important contribution to our region’s energy supply …”
Hilary Clinton, U.S. Secretary of State, April 2010
“The US and China will use experience gained in the United States to assess China’s shale gas potential, promote
environmentally-sustainable development of shale gas resources, conduct joint technical studies to accelerate
development of shale gas resources in China, and promote shale gas investment in China through the US-China Oil and
Gas Industry Forum, study tours, and workshops…”
Barack Obama, U.S. President, Nov. 2009
Hu Jintao, President of China, Nov. 2009
15
Kepis & Pobe new frontiers: European shale gas
case study
BNK Entry to Europe
1
1
BNK Petroleum (BKX.TO) recognized
high European gas prices ($8 – $12
mcf ), EU overdependence on
Gazprom (40% of gas supply), and
lack of entrants into European shale
2
Diversified entry strategy by analyzing
over 25 basins for shale gas potential
3
Obtained unique core data in Polish
Baltic basin; licensed1mn acres of
prime shale for 55 cents an acre
4
Obtained 2.4 mn acres in 5
concessions in Germany
5
Major IOCs followed in Poland within
2 to 3 yrs (Exxon, Conoco, Talisman);
value of acreage increased to $100 to
$200 an acre (300x return)
2
3
4
5
K&P Partner Ford Nicholson is
Chairman and co-founder of BNK
Petroleum
16
Kepis & Pobe team (1 of 2)
About K&P
Team
Kepis & Pobe is a Canadian based
private investment company focusing on
the resources sector:
• Seasoned team with extensive mining,
oil and gas experience
• Incubator of exceptional early stage oil
and gas companies leveraging unique
global network and expertise
• Team has acted as management and
directors of over $12 bn USD market
capitalization
Ford Nicholson, Partner, has over 25 years of experience managing
international projects. He is a founder/co-founder of Nations Energy
Ltd., Banker’s Petroleum and BNK Petroleum, and a non-executive
board member of Interoil, a fully integrated oil and gas company listed
on the NYSE. Mr. Nicholson is on the President's council of the
International Crisis Group.
Bob Cross, Partner, has more than 20 years of experience as a
financier in the resources sector and has helped raise in excess of US
$1 billion dollars in the last 4 years. He is currently the Chairman of
Bankers Petroleum Ltd. Mr. Cross earned an Engineering degree from
the University of Waterloo and his M.B.A. degree from the Harvard
Business School.
Headquarters:
One Bentall Centre
505 Burrard Street
Suite 1560
Vancouver, BC V7X 1M5
Ph: +1-778-373-3737
Murray Flanigan, Partner, has experience in corporate finance, M&A,
international taxation, risk management, banking, treasury, corporate
restructuring and accounting. Prior to joining K&P, Mr. Flanigan served
as EVP and CFO of Qwest Investment Management, and has had
senior financial roles at a number of major companies. Mr. Flanigan
holds a Bachelor of Commerce from the University of British Columbia
and holds C.A and C.F.A. designations.
Fx: +1-778-373-0448
www.kepisandpobe.com
profiles continued on next page …
17
Kepis & Pobe team (2 of 2)
Team
Rui Teixeira, Principal – K&P Atlantic, is responsible for the sourcing of conventional and unconventional oil and
gas opportunities for Kepis & Pobe Atlantic globally. Mr. Teixeira is fluent in English and Portuguese and maintains
a network of international contacts in Portugal, Spain, Brazil, Libya and West Africa. He has an extensive
background in the oil and gas industry and the natural resource sector more broadly and has served as a
consultant to Amal SA and a director of Trofagas SL. Mr. Teixeira holds a mechanical engineering degree from the
University of Porto, Portugal.
General Wesley K. Clark, Advisor, served 38 years in the United States army. His last position was NATO's
Supreme Allied Commander and the Commander-in-Chief of the US European Command. He now serves on the
board of directors of a number of public and private companies. General Clark graduated first in his class from
West Point and was a Rhodes Scholar.
18
Appendix
19
Proved gas reserves by country
50% of global proven reserves
Rank
Country
1
Russia
2
Trillion Cubic
Meters (TCM)
Rank
Country
TCM
47.6
11
Iraq
3.2
Iran
29.6
12
Australia
3.1
3
Qatar
25.5
13
China
3.0
4
Turkmenistan
7.5
14
Indonesia
3.0
5
Saudi Arabia
7.5
15
Kazakhstan
2.4
6
United States
6.9
16
Malaysia
2.4
7
UAE
6.1
17
Norway
2.3
8
Nigeria
5.2
18
European Union
2.2
9
Venezuela
5.0
19
Uzbekistan
1.8
10
Algeria
4.5
20
Kuwait
1.8
Sources: CIA World Fact Book
20
Hydrocarbon and energy unit Conversion table
To
billion
cubic
meters
From
1 billion cubic meters
(BCM)
billion
cubic
feet
million
tons oil
equivalent
million
metric
tons
trillion
million
British
barrels oil
thermal units equivalent
Multiply by
1
35.3
0.90
0.73
36
6.29
1 billion cubic feet
(bcf)
0.028
1
0.026
0.021
1.03
0.18
1 million tons oil equivalent
(mmtoe)
1.111
39.2
1
0.805
40.4
7.33
1.38
48.7
1.23
1
52.0
8.68
0.028
0.98
0.025
0.02
1
0.17
0.16
5.61
0.14
0.12
5.8
1
1 million metric tons
(mil MT)
1 trillion British thermal units
(tbtu)
1 million barrels oil equivalent
(mmboe)
Sources: BP Statistical Review
21
Natural gas terminology (1 of 4)
Term
Definition
• Coalbed methane
• Natural gas generated during the coalification process and trapped within coal
seams, commonly referred to as natural gas from coal
Gases
• Dry gas
• Natural gas from the well that is free of liquid hydrocarbons, or gas that has
been treated to remove all liquids; pipeline gas
• Natural Gas
• Gaseous petroleum consisting primarily of methane with lesser amounts of (in
order of abundance) ethane, propane, butane and pentane, and heavier
hydrocarbons as well as non-energy components such as nitrogen, carbon
dioxide, hydrogen sulphide and water
• Natural gas liquids • Liquids obtained during production of natural gas, comprising ethane, propane,
(NGLs)
• Sour gas
butane and condensate
• Raw natural gas with a relatively high concentration of sulphur compounds,
such as hydrogen sulphide
• Sweet gas
• Raw natural gas with a relatively low concentration of sulphur compounds,
such as hydrogen sulphide
• Wet gas
• Raw natural gas with a relatively high concentration of natural gas liquids
(ethane, propane, butane, and condensates)
Source:
Canadian Centre for Energy Information
22
Natural gas terminology (2 of 4)
Geology /
Exploration
Term
Definition
• Gas resevoir
• A porous and permeable rock formation in which natural gas accumulates
• Geological trap
• Any geological structure that stops the migration of hydrocarbons through
subsurface rocks, causing an accumulation in the reservoir rock
• Permeability
• The capacity of a substance (such as rock) to transmit a fluid. The degree of
permeability depends on the number, size, and shape of the pores and/or
fractures in the rock and their interconnections. It is measured by the time it
takes a fluid of standard viscosity to move a given distance
• Porosity
• The capacity of a reservoir to store fluids. The ratio of the aggregate volume of
pore spaces in rock or soil to its total volume, usually stated as a per cent
• Probable reserves • Reserves believed to exist with reasonable certainty based on geological
information
• Proved reserves
• Reserves that can be economically produced with a large degree of certainty
from known reservoirs using existing technology
• Source rock
• The rocks in which hydrocarbons are created or sourced from carbohydrates
through heat and pressure. Source rocks are often black shales
• Seismic survey
• Running one or more 2-D or 3-D seismic lines over a large area and using the
acquired data to create detailed models of underlying geological formations
Source:
Canadian Centre for Energy Information
23
Natural gas terminology (3 of 4)
Term
Definition
• Completion
• Preparing a newly drilled well for production; usually involves setting casing to
prevent caving and protect against ground water contamination
Production
• Conventional gas
• Natural gas that can be produced using recovery techniques traditionally
employed by the oil and gas industry
• Environmental
assessment
• Fracing
• Planning and decision-making tool used by industry and regulators to identify
the environmental impacts and costs of proposed energy projects
• A reservoir stimulation technique in which fluids are pumped into a formation
under high pressure to create fractures allowing the gas to flow
• Gas cycling
• A petroleum recovery process that takes produced gas and condensate and
injects it back into the reservoir to increase pressure and production of NGLs
• Horizontal drilling
• Drilling horizontally through a reservoir to increase the exposure of the well
• Stimulation
• Enhancing the production of a well; includes acidizing and fracturing the
reservoir as well as removing wax and sand from the wellbore
• Unconventional
natural gas
Source:
• Conventional gas found in reservoirs requiring special production methods
such as natural gas from coal, natural gas from tight sands and shale gas
Canadian Centre for Energy Information
24
Natural gas terminology (4 of 4)
Transport
Term
Definition
• Compression
• Increasing the pressure of natural gas to move it through pipelines or other
facilities; natural gas in its gaseous state that has been compressed to about
one per cent of its volume and stored at 20,000 to 27,500 kilopascals
• Floating liquified
• Method of liquifying gas for transport using ships capable of liquification
natural gas (FLNG)
• Gasification
• Pipelines that carry natural gas at high pressure from producing areas to
consuming areas
• Gas transmission
systems
• Liquefied natural
Source:
• The process of turning liquefied natural gas into a vaporous or gaseous state
by increasing the temperature and decreasing the pressure
• Supercooled natural gas that is maintained as a liquid at or below -160°C;
gas (LNG)
LNG occupies 1/640th of its original volume and is therefore easier to
transport if pipelines cannot be used
• Trunk lines
• Large-diameter pipelines that transport crude oil, natural gas liquids and
refined petroleum products to refineries and petrochemical plants; some trunk
lines also transport refined products to consuming areas
Canadian Centre for Energy Information
25