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Continued growth in shale gas and offshore drilling and production throughout the US

1st February 2013


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US shale gas development – in particular liquid rich plays – are set to enjoy years of growth with production estimated to reach 30 billion cubic feet per day (Bcf/d) by 2020, according to a US energy sector report from EIC Consult, the market research and consultancy arm of the Energy Industries Council (EIC).

The report also predicts that, despite much publicised opposition, the comprehensive or prohibitive regulation of shale gas in the future remains unlikely, due to the number of jobs created and taxes generated.
 
The EIC Consult’s USA Country Overview, the most comprehensive report on the Americas for the wider supply chain, provides 120 pages of critical analysis of contemporary developments in the US energy sector drawing on project data from EIC DataStream, the EIC's online database which tracks over 9,000 energy projects worldwide. In particular, the report focuses on business development and opportunities for UK companies.


 
Other key findings from the report include:
 
* That offshore deepwater drilling in the Gulf of Mexico is likely to regain the momentum it had, prior to the Macondo disaster. According to the report, there are currently 5,981 active leases in the Gulf of Mexico with over 130 new well permits since new regulations came into effect in October 2010.
 
* That the rise in shale gas development has led to a number of LNG (Liquefied Natural Gas) terminals being converted from import to export terminals and LNG exports doubling between 2009 and 2011. However, the report cautioned that the market for US LNG exports is far from secure.

* That ethanol production is likely to increase in 2010, with the US exporting fuel ethanol for the first time. EIC DataStream indicates that there are 42 future and active biofuel projects in the US.

* That natural gas fired plants are the most likely form of power generation growth with natural gas generation likely to increase by 305.81TWh (Terawatt-Hours per Year), to 1287.62TWh from 2010 to 2035. EIC DataStream is currently tracking 59 future and active gas-fired power plant projects in the US, representing over US$44 billion of investment and over 43GWe (Gigawatt-Electric) of generating capacity.

* And finally, that solar and wind power are leading the way in renewable energy. While there is a need for renewable technologies to become more competitive when compared with cheap gas, the report predicts that renewables will have an increasingly important role in the future US energy mix.

 
“In a world of rapidly rising oil prices and reduced imports, developing domestic energy resources, diversifying energy sources and expanding production have become major priorities for the US”, continues Phil Goddard, Director of Consultancy and the main author of the report.
 
“Whether it be shale gas, offshore exploration and production, or renewable sources, such as wind and solar, the US energy sector remains full of opportunities with firms at all stages of the supply chain standing to benefit.”
 
The report is priced at £950.00 plus VAT for EIC Members and £1,350 plus VAT for non-Members.

 
Key contents include an overview of trade relations between the US and UK; a political overview of the US including a look at the energy policies of President Obama as compared to the lead Republican contender, Mitt Romney; an assessment of the upstream, midstream and downstream oil and gas sectors, as well as the power, carbon capture and storage; and renewable energy sectors. In addition, the report also looks at the key energy states of Alaska, California and Texas and other important issues, such as security of supply, import & exports, finance and taxation, and US employment law.  The report also includes an A1 sized ‘US Project Opportunities Map.
 
Shale Gas Development Continues to Rise


According to the report, shale gas development will continue to progress with liquid rich plays the main targets, due to low gas prices and high oil prices. Daily production from shale gas increased from one billion cubic feet per day (Bcf/d) in 2003, to almost 20 Bcf/d by mid-2011 and could reach 30 Bcf/d by 2020, the report estimates.
 
In the past five years alone, the innovative application of technologies for tapping gas found in shale and other types of rock has enabled a 20% rise in US natural gas production and restored US gas output to levels not seen since its peak in the 1970s.

As of 2010, there were at least 22 major shale plays in the US, spread over more than 20 states. The oil rich Bakken and Eagle Ford plays were identified as the centre of many operators long term shale plans with intensive drilling driving up demand for development and production services and operators on the new look out for new technologies to maximize well output. Despite much publicized opposition, the report believes that the comprehensive or prohibitive regulation of shale gas is unlikely, due to the number of jobs created and taxes generated.

 
Gulf of Mexico Offshore Development

The report also found that exploration and production in the Gulf of Mexico is still strong with 5,981 active leases.
 
Specific projects cited in the report through EIC DataStream and of interest to the UK supply chain include Shell’s Cardamom oil field, the first deepwater plan to be cleared after the Macondo disaster; Chevron’s Big Foot deepwater oil field; BP’s Mad Dog oil and gas field; Anadarko’s Lucius oil and gas field where appraisal drilling took place in July 2011; and future projects such as ExxonMobil and Anadarko’s Hadrian oil and gas field where first production is expected to begin in 2014.
 
Following the new permitting regulations which came into effect in October 2010 and which require higher standards regarding well design, casing and cementing, over 130 new well permits have been granted with new offshore prospects tending to be located in deep waters of over 1,500 metres (5,000 feet). By 2009 ultra deepwater oil production in the US in depths of over 1,500 metres had overtaken oil production in shallow waters.
 
With many more applications currently under consideration, the report predicts that offshore deepwater drilling is likely to regain the momentum it had prior to the Macondo disaster. 
 
 
LNG Terminals – From Import to Export

The increase in shale gas development has also led to existing LNG import terminals being converted to operate as export facilities. By July 2011, imports were down 44 per cent compared with the same time in 2010 with, according to Reuters, imports at the lowest monthly level since December 2002. At the same time, however, exports almost doubled from 33.355 Bcf (billion cubic feet) in 2009 to 64.793Bcf in 2010 - a result of the re-exportation of LNG imports.
 
The report found, however, that the future of LNG remains uncertain as the market for US exports is far from secure. Furthermore, the proposed export terminals are located on the East Coast lacking a direct route to the more profitable Asian markets. Furthermore the report stresses that, in order for US natural gas to be competitive in the global LNG market, domestic prices are required to remain moderately low for the 25 year life cycle of an export project.
 
The report also found that natural gas storage capacity is increasing to accommodate shale output with many new storage facilities entering construction, with resulting opportunities for the supply chain.
 
The Growth of Ethanol Production and Natural Gas Fired Generators – Nuclear Opportunities over the Next Few Years
The report also predicted that ethanol production will continue to increase and that coal will continue to remain the country’s main power source. EIC DataStream indicates that there are 42 future and active biofuel projects in the US.
 
In regard to power generation, new increases in generation capacity are likely to come from natural gas fired plants, due to falling gas costs and the possibility of a carbon tax on future coal plants.
 
With around 55GWe installed capacity, however, natural gas units makes up 81 per cent of the total new capacity added from 2000-2010. EIC DataStream is currently tracking 59 future and active gas-fired power plant projects. These represent over $44 billion of investment and over 43GWe of generating capacity. The report predicts that natural gas generation will increase by 305.81TWh to 1287.62TWh from 2010 to 2035.
 
Nuclear power also looks set to experience a slight increase in capacity, the report says. 30 new reactors applications were submitted by early 2011 and with all final decisions on the applications to be made between 2012 and late 2014, significant opportunities remain in the industry. EIC DataStream is currently tracking over 20 nuclear new build power projects, representing an investment value of around $159 billion.

 
Renewables – Wind and Solar Lead the Way

In regard to renewable energy, the report found that wind and solar energy are experiencing the largest expansion in generation capacity and new investment, although hydropower remains the single largest source of renewable energy in the US. EIC DataStream currently shows that over 70 commercial solar power projects as being under development in the US and numerous wind energy projects at all stages of development from planning to construction.
 
The report found that one of the key challenges for renewable development in the US is the need for technologies to become more cost-competitive when up against cheap gas. The report predicts, however, that renewable energy will have an increasingly important role in the US energy mix.

EIC Consult is the EIC’s new market research and consultancy service and one of the most comprehensive sources of business intelligence in the energy industry today. EIC Consult generates country overviews, sector reports, and bespoke studies.

To purchase a copy of this report or for further information, visit www.eic-consult.com


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