The Shale Revolutions Implications for North American Markets
A Multi-Client Study Prospectus
THE ROAD TO U.S. ENERGY INDEPENDENCE: THE SHALE REVOLUTION AND ITS IMPLICATIONS FOR NORTH AMERICA'S ENERGY MARKETS OVERVIEW THE ROAD TO U.S. ENERGY INDEPENDENCE addresses the complex implications for North American pricing parity, crude and product flows, refining behavior and energy policy that will arise from increasing oil and gas production and falling imports. It features a two-day Client Forum (see page 5 for agenda), along with a written report and online database. BACKGROUND After 40 years of largely unsuccessful policy attempts to reduce U.S. energy import dependence, imports are now in structural decline. The lack of demand growth has certainly played a role and the combination of past and future energy policies will soon usher in a period of declining demand. However, the reversal in net imports is primarily due to an abrupt shift in supply trends resulting from a combination of continued progress in drilling technology, the creativity of upstream entrepreneurs in utilizing that technology on a well known resource base, and a price level that has made pursuit of these higher-cost opportunities economically attractive. The trend has been extremely powerful in the case of natural gas, as the U.S. market rapidly turned from a future of large LNG imports to one where it has the potential to be the next major LNG exporter. The revolution has now moved on to liquids both crude and NGLs and while the U.S. is likely to remain an importer for some time, the volumes will be in decline from this point forward and the composition (both source and quality) will be rapidly changing. In fact, much of the conventional wisdom regarding pricing parity, crude and product flows, refining behavior and even energy policy may no longer be true in this new U.S. energy world. These trends will not be news to those paying attention to press reports. However, many of the specific implications for the industry are complex and have not yet been fully analyzed until now. With the upcoming multi-client study, THE ROAD TO U.S. ENERGY INDEPENDENCE: THE SHALE REVOLUTION AND ITS IMPLICATIONS FOR NORTH AMERICA'S ENERGY MARKETS, PIRA is undertaking such an assessment. The studys findings will be provided to clients during a two- day forum (see agenda on page 5), as well as through a written report and online database, where each key sector will be addressed in detail. Net Imports Fall 85% from 2005 to 2030 As Production Grows and Demand Begins to Flatline 0 5 10 15 20 25 1990 1995 2000 2005 2010 2015 2020 2025 2030 MMB/D U.S. Oil Demand, Supply and Net Imports NGLs, Biofuels & Other Shale Crude Non Shale Crude Demand Net Imports PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 1 The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 2 The study addresses wide ranging issues such as pricing parity relationships between U.S. crudes and international crudes; the response of U.S. refiners to changing incentives to run light sweet vs. heavier crudes; the outlook for U.S. oil products, NGL and natural gas exports; and even the macroeconomic and policy implications of a world of ever-declining imports. STUDY FEATURES Due for release in September 2012, THE ROAD TO U.S. ENERGY INDEPENDENCE through a live forum, comprehensive written report, and online database features: PIRA's most likely outlook for North American liquids production, including shale crude and NGLs by formation, conventional onshore and offshore production, and the outlook for Canadian oil sands and conventional production. A summary of the pipeline infrastructure expected to be in place to carry the above production to market. The role of rail and trucking to supplement pipeline movements will also be addressed. PIRA's North American oil demand outlook by product, including the potential impact of natural gas use in transportation. Crude oil supply/demand balances in the major PADDs. Combined with the outlook for infrastructure, this provides an assessment on whether we are likely to see bottlenecks drive price relationships. The outlook for U.S. crude oil imports in total and by grade, with special focus on the Gulf Coast. Supporting this assumption will be an evaluation of the incentives and constraints for medium/heavy crude refineries to run higher volumes of light crude. The outlook for product exports from the U.S. assuming no political restrictions. The outlook for NGL balances and the prospects for propane and butane exports. PIRA's most likely outlook for North American natural gas production, including shale gas by formation, conventional onshore and offshore production, and the outlook for Canadian production and exports to the U.S. The demand outlook for natural gas, including domestic demand in power generation, industry and residential/commercial, along with the prospects for natural gas penetration in transportation, examining light and heavy vehicle markets separately. Anticipated LNG exports from the U.S. and Canada by location. The study will also assess the potential for GTL plants and other options for the conversion of gas to liquids. The macroeconomic outlook consistent with all of this, including the prospects for energy- intensive industrial production, and the likely evolution of the U.S. trade balance. Reference Case policy assumptions on trade limitations, biofuels, and fuel efficiency, reflecting the potential changes in policy as supply security becomes less important over time. A price outlook for the major Atlantic Basin crude grades, products, and refining margins along with natural gas prices at key hubs. In addition to the Reference Case, an outline of the key assumptions with the greatest range of uncertainty and the development of a series of alternative outcomes for volumes and pricing. These assumptions cover: a. Production volumes of liquids and gas including the potential of state or federal policy restrictions. The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 3 b. Upside potential on demand resulting from a more powerful industrial sector renaissance. c. Policy limitations on product and/or natural gas exports Identification of the likely winners and losers in the energy industry and elsewhere in the North American economy. Forecasts carried to the year 2030. THE ROAD TO U.S. ENERGY INDEPENDENCE answers the following questions: As the U.S. begins to reduce its crude imports, what crude qualities and sources will be displaced? The reductions cannot be only from light sweet grades as the growth in domestic production of such grades will ultimately exceed current import volumes. What will these changes mean for relative crude pricing? What will set Gulf Coast light sweet crude prices if the U.S. ceases to be a significant importer of that grade? If light-heavy differentials narrow, how will refiners respond, including those refineries designed to run on medium/heavy sour imports? What are the implications for heavy crude pricing and import volumes? Will the impact be large enough to weaken global flat crude prices? How will the U.S. dispose of ever growing volumes of natural gas and NGL production? What is the potential for growing domestic use? What are the limits to exports? Within North America, will the infrastructure required to move crude oil from North to South (and possibly East and West) keep pace with production growth or will we be facing an extended period of inland price disconnects? How will energy policy evolve in a world where supply security may not be the principal policy driver in the future? Will free market principles allow unlimited oil product and natural gas exports? Or will America-first policies seek to add additional restrictions on exports in order to force down U.S. prices? Will Canada be forced to respond by expanding efforts to increase its oil and gas exports to Asia and other alternative markets? Will enthusiasm for ethanol dissipate in this new world? Tough automobile fuel efficiency standards? Natural gas use in transportation? What will happen to production costs as drilling activity continues to accelerate? Will costs increase as economic rents mount as was the case in the development of the Canadian oil sands projects? Or will further improvements in technology and drilling productivity continue to drive costs down as has been the case for shale gas to date? Will the U.S. undergo a new energy-intensive manufacturing boom led by relatively (on a global scale) cheap gas, gas liquids and electricity prices? The answers to these questions are neither simple nor straightforward since they involve the interaction between regional liquids supply and demand trends and balances, refining economics, pipeline and other infrastructure assessments, and a potentially wide range of policy uncertainties. PIRA's ongoing detailed analysis of oil and gas supply/demand and balances, along with our refinery databases and flow models, make us uniquely qualified to carry out these assessments.
The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
STUDY DELIVERABLES AND TIMING Companies purchasing the study will be entitled to have three users to each of the following deliverables (licensing options are available to add extra users): CLIENT FORUM (September 10-11, 2012) Given the importance of the topic and the uncertainties across the upstream and downstream, oil and gas, domestic and international markets, etc., we believe that the topic of U.S. energy independence warrants extensive discussion and the ability for clients to probe the assumptions and methodology used in an open forum. Over the course of two days, attendees will have the opportunity to see a presentation of the key results, discuss those findings and their implications, and question the studys authors. The preliminary agenda appears on the following page.
WRITTEN REPORT (Released prior to the Forum) The report some 100+ pages in length explains the findings of the study and outlines the bases underlying those results, while providing a discussion of the key uncertainties that impact the major conclusions. The report also includes an executive summary and the full set of charts, with descriptions, to be displayed during the two-day forum.
ONLINE DATABASE (September 2012) A comprehensive database providing historical data back through 1995 and forecasts through 2030 in Excel spreadsheets for: Shale oil production (crude and NGL) by formation and by U.S. state and Canadian province; total crude by state and province; and total NGL by country. Oil product demand by end-use sector and product. Crude oil supply/demand balances for sub-regions within North America. U.S. crude and product gross and net import projections with quality breakouts. Price forecasts for key North American crude and product markets and the relationship between North American and key international prices.
FEES AND OPTIONS THE ROAD TO U.S. ENERGY INDEPENDENCE: THE SHALE REVOLUTION AND ITS IMPLICATIONS FOR NORTH AMERICA'S ENERGY MARKETS can be purchased by both PIRA retainer clients as well as non- clients. Existing PIRA retainer clients receive a reduced price. Companies that order before July 20, 2012, receive an early-bird discount. The standard fee allows for three users to the study (and three invitations to the Forum); extra report copies, database passwords and Forum invitations can also be purchased. For detailed service pricing options, see the Acceptance Form on page 9. PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 4 The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets Client Forum Monday and Tuesday, September 10-11, 2012 InterContinental Houston 2222 West Loop South Houston, Texas, 77027 Tel: +1-713-627-7600
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 5 Day 2: Tuesday, 8:00 a.m. 4:30 p.m.
Gas, Power, Macro, Policy and Pricing 8:00 8:30 a.m. Breakfast 8:30 9:40 a.m. Natural Gas Supply/Demand Outlook, Pricing and Interactions with Liquids 9:40 10:20 a.m. Implications for Coal, Renewables, Electricity, and Emissions 10:20 10:40 a.m. Break 10:40 11:20 a.m. U.S. Industrial Competitiveness and Macroeconomic Implications 11:20 12:10 p.m. Crude and Product Pricing, Including Location Differentials and Quality Premiums 12:10 1:10 p.m. Lunch 1:10 2:00 p.m. Policy Issues 2:00 2:55 p.m. Alternative Scenarios and Implications 2:55 3:15 p.m. Break 3:15 4:30 p.m. Winners/Losers, Client Feedback Concluding Remarks
Day 1: Monday, 10:00 a.m. 6:30 p.m.
Overview and Liquids Balances 10:00 11:00 a.m. Check-in 11:00 11:40 a.m. Study Overview 11:40 12:50 p.m. North American Liquids Production Outlook and Uncertainties 12:50 1:40 p.m. Lunch 1:40 2:15 p.m. North American Liquids Demand Outlook and Demand-Side Policy Assumptions 2:15 3:00 p.m. Crude Oil Infrastructure Outlook and Issues 3:00 3:20 p.m. Break 3:20 4:10 p.m. NGL Production, Petchem Demand, Infrastructure, Export Balances and Constraints 4:10 5:00 North American Refining Outlook: Output and Crude Choice, Trade Prospects and Issues 5:00 6:30 p.m. Cocktail Reception The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 6 WHO WILL BENEFIT FROM THIS STUDY Decisions by producers, refiners, farmers, vehicle manufacturers, energy end-users and others have been made over the past decades under the presumption that growing U.S. imports of gas and oil would drive pricing relationships, policy decisions, and the overall economic attractiveness of the U.S. as a place to conduct energy intensive business. The process of reassessment began several years ago in the case of natural gas, and it is time for a grassroots examination of the implications of the U.S. heading down the road toward net energy independence and possibly even reaching that goal in the next decade. THE ROAD TO U.S. ENERGY INDEPENDENCE will help market participants understand how market supply, demand, trade, and policy actions will all interact to change the North American energy market and its relative position in the world. The following market participants will all benefit from this study: North American crude producers will gain a better understanding of both the evolving factors that will determine the pricing for their crudes, new competition and the potential infrastructure limitations that could cause periodic disconnects from normal parity relationship. International crude producers will have a sense of how the U.S. crude import mix will evolve and the implications for pricing in North America vs. alternative export destinations. Refiners need to plan capacity changes based on the outlook for demand, feedstock supply, and relative pricing. The paradigm of deep conversion of inexpensive heavy sour crudes will be challenged by a surplus of attractively priced light sweet crude. The potential for growth in product exports and the policy uncertainties surrounding them could prove to be a critical issue to downstream success. Trading companies want to anticipate regional supply/demand changes and price dynamics as crude imports decline and product exports increase. This analysis will aid in planning terminal and shipping infrastructure needs to best capture future opportunities. Shipping companies will need to address some of the same changes. Biofuels producers may want to consider the future for their product if oil supply security becomes an increasingly less important driver for U.S. energy policy. Natural gas producers will want to examine how the key markets for their product will evolve, especially the growing role of industrial and transportation use. The study will also provide perspective n the future as national priorities re ocations around the world. Will the U.S. ow
natural gas ventures. This study will allow for more informed decision-making on potential projects. on the incentives and potential limits to LNG exports. Car and truck manufacturers may want to consider both of the above trends as well as the questio of whether proposed fuel efficiency standards could be weakened in evolve away from energy security. Industrial energy consumers will want a solid understanding of where energy prices in the U.S. a heading and how they will compare with prices in other l become a low energy cost location by global standards? Policy-makers need to determine whether the current policy mix is appropriate timely insight into h proposed changes in product quality regulations will affect supply, demand, price, and industry profitability. This study will enable them to better evaluate the impact of future regulatory changes. Financial institutions must make sound evaluations of how changing market conditions will affect the economics and financing of new refining, upstream oil and The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 7 ABOUT PIRA ENERGY GROUP The PIRA Energy Group, founded in 1976, is an international energy consulting firm, offering Retainer Client Services as well as customized consulting on a broad range of subjects in international oil, natural gas (and LNG), coal, electricity, biofuels, freight markets, and related environmental issues. PIRA provides evaluation of key U.S. and international energy issues that impact the behavior and performance of the industry and its various markets and sectors. Currently, more than 500 companies worldwide retain PIRA, including international and national integrated oil and gas companies, independent producers, refiners, marketers, oil and gas pipelines, electric and gas utilities, industrials, trading companies, financial institutions, and government agencies. PIRA STUDY TEAM Dr. Mark Schwartz (Study Leader; President and Managing Director, Scenario Planning Service) works closely with PIRA's Global Oil and Natural Gas groups to evaluate the key assumptions underlying their outlooks and to develop plausible alternative assumptions and outcomes. Before joining PIRA in 2002, he was the Chief Economist of ExxonMobil Corp., where he was responsible for developing the companys long-range economic and energy outlook. During his 25 years at Exxon he also had assignments in Upstream Planning, Treasurers, and Corporate Planning functions. Mark holds a Ph.D. in economics from the University of Pennsylvania. Gregory J. Shuttlesworth (Executive Director, Natural Gas) directs PIRAs research covering all aspects of North American natural gas fundamentals. His work is aimed at providing PIRA clients with in-depth and timely analysis of how fast-breaking events will impact gas supply and demand, inter-fuel competition, and the outlook for gas prices. He is a principal author of PIRAs Gas Forecast Monthly, Gas Trade Monthly, Gas Regional Monthly and Gas Flash Weekly. Before founding PIRAs Natural Gas Group in 1981, his professional career centered on global petroleum and related energy economics. He held the positions of Senior Analyst at the petroleum-consulting firm of W.J. Levy Associates and Energy Economist at the Chase Manhattan Bank. Greg is a graduate of Johns Hopkins University. He has a B.A., M.B.A., and completed post-MBA studies in economics. Richard Joswick (Managing Director, Global Oil Group) develops PIRAs outlook for crude and products pricing, refinery margins, and inter-regional supply balances. He authors the monthly European Oil Market Forecast and numerous special projects. Over the last few years he was the study leader for the successful multi-client studies: Bottom of the Barrel: The Future for Residual Fuel Oil (2007 & 2012); Heart of the Barrel: The Future for Middle Distillate Fuels (2009); and Top of the Barrel: The Future for Gasoline, Naphtha, and LPG (2011). He joined PIRA in 2004 after 20 years with ExxonMobil in supply logistics, planning, refining, and engineering. During his time at ExxonMobil, he had assignments developing near-term oil market forecasts, designing heavy oil upgrading processes and evaluating refining economics. Rick has M.S. and B.S. degrees from Rutgers in chemical engineering. David A. Zinamon (Managing Director, Refining and NGLs) specializes in NGLs, refined products, refinery operations, alternative fuels and environmental matters, particularly as they affect petroleum product markets. Among other activities, he directs PIRA's Global NGL Market Service and oversees PIRAs World Refinery Database. Dave joined PIRA in 1984 after seven years of international energy consulting experience with Chem Systems. This followed several years of manufacturing, marketing and planning positions with Celanese Chemical, GAF Corp., and Airco. Dave has a B.Ch.E. from City College of New York and an M.B.A. from Rutgers University. The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
PIRA Energy Group, 3 Park Avenue, 26 th Floor, New York, NY 10016-5989 (Tel) 1-212-686-6808 (Fax) 1-212-686-6628 Copyright 2012 PIRA Energy Group. All rights reserved. 8 PIRA STUDY TEAM (continued) F.W.A. (Bill) Fuller (Senior Director, International Oil) had over 30 years of energy forecasting and analytical experience with Exxon International before joining PIRA in 1997. He now oversees PIRAs analysis and forecasting of near-term industry oil balances, with particular emphasis on international supplies, and monitors events impacting PIRAs oil market view. Bill has a B.S. in chemical engineering from Cornell University. Peter Jaquette (Senior Director, Global Oil Group) oversees PIRAs World Energy Demand Model and is a key contributor to PIRA's Scenario Planning Service. He was the coordinator for PIRA's Planning for Tomorrow study series. He joined PIRA in 2007 with more than 25 years of experience in corporate strategic planning and economic consulting, including 14 years with ARCO and nine years with Weyerhaeuser, where he was involved in evaluating cellulosic ethanol and other energy projects. Peter has a B.A. in economics from Swarthmore College and an M.A. in economics from Stanford University. Gary Greenstein (Director, Global Oil Group) joined PIRA following 38-year career with ExxonMobil, where he was involved in all aspects of the refining business, including planning, operations, engineering, and research. Gary has a B.Ch.E. from City College of New York, an M.S. in chemical engineering from New Jersey Institute of Technology, and an M.B.A. from Fairleigh Dickinson University. Dr. Naing Oo (Associate Director) joined PIRAs Global Oil Group in 1995. He focuses on quantitative and econometric analysis for forecasting oil demand and prices. He is also involved in analysis on crude and product balances and trade flows. Naing holds a Ph.D. in economics from the City University of New York. Su Hyung Ryu (Associate Director) focuses on crude and product price forecasts. Ms. Ryu maintains and develops integrated oil demand and pricing models and information systems. Since joining PIRA in 1998, she has participated in numerous benchmarking and competitive analysis projects, crude and product marketing assessments, and asset valuations. Prior to joining PIRA, Su worked at Citibank Global Banking, where she analyzed and developed investment database applications. She holds M.S. in business computer information systems from Baruch College in New York. Lila Noury (Associate Director, Political Risk) is responsible for analyzing political and economic issues in key energy-producing and -consuming countries. Prior to joining PIRA, she analyzed Irans oil and gas sector for a leading consulting firm in Iran. She also worked with Grameen Bank, a micro-finance institution in Bangladesh, evaluating and researching alternative-energy programs. Lila has a B.A. in economics and international relations from Bowdoin College and an M.A. from Columbia University in international energy management and policy. Miriam Levy (Senior Analyst, Global Oil) leads PIRA's upstream modeling efforts including a new generation of play-by-play shale liquids models. She is responsible for the weekly Energy Market Recap, and contributes to special projects and multi-client studies. From 2006 to 2009, she consulted electric utilities on power procurement at NERA Economic Consulting. She also worked as an analyst at an emerging markets hedge fund. Miriam has a B.A. in Ethics, Politics, and Economics from Yale University and an M.A. from Columbia University in International Energy Management and Policy. The Shale Revolutions Implications for North American Markets A Multi-Client Study Prospectus
ACCEPTANCE FORM
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Note: The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets will contain no confidential technical information, to the best knowledge of PIRA. However, except for information that is or becomes available to the public in printed publication, or is already in the possession of subscriber or developed independently by subscriber, or is received by subscriber in good faith from a third party, any information in the study is for the sole and confidential use of the subscriber. Subscribers agree to use reasonable efforts to protect the confidential nature of the information supplied to them as part of this study.