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Unconventional Gas AND Oil:A Game Changer in Global Competitiveness
Randy WoelfelCEO NOVA ChemicalsNovember 29, 2012
A Game Changer in Global Competitiveness
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NOVA Chemicals
• Headquartered in Calgary, Alberta, Canada
• 100% owned by International Petroleum Investment Company (IPIC)
• 2011 Revenue: $5.2 billion (USD)
• Number of Employees: 2,450 worldwide
• Focused on ethylene and polyethylene products and markets
• Two large olefin manufacturing centers in Canada
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• Joffre, Alberta – 2800 KTA ethylene and 1100 KTA polyethylene
• Sarnia, Ontario – 820 KTA ethylene and 585 KTA polyethylene
• Two smaller styrenic facilities in the United States
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North American Unconventional Oil and Gas
Shale gas discoveries are adding significant volumes to global energy supplies
New “fracking” methods have made shale development economical
• High market value of natural gas liquids (NGLs) further motivates extraction
Bakken
Antrim
Montney
Horn River
Joffre, Alberta
Oil Sands
Utica
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• Bias towards wet deposits
NOVA Chemicals is located near two large NGL rich unconventional shale sources and the oil sands
• Joffre, Alberta is near the Bakken Oil and Montney Gas Development and the Oil Sands
• Sarnia, Ontario is near the Marcellus and Utica Gas Developments
Source: U.S. Energy Information Administration (EIA) based on data from various published studies. Canada and Mexico plays from AIR. May 9, 2011
MarcellusWoodford
Barnett
Eagle Ford Haynesville
Fayetteville
Sarnia, Ontario
Utica
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“Natural gas is up now — way up — and it's changing how we think about energy throughout the world.”
TIME Magazine, Mar 2011
Shale gas is the largest, most impactful recent
event affecting oil and gas“The production of shale gas has rejuvenated the
natural gas industry in North America.”EIA, Jul 2012
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“Shale gas will revolutionize the industry—and change the world—in the coming decades. It will alter geopolitics. And it will slow the transition to renewable energy.”
WSJ; May 2010
“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world…”
IEA, Nov 2012
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The convergence of multiple factors have made
North America the first mover for shale
Abundant supply: Supportive regulatory environment:
• 831 TCF of Shale in NA
• 10 major basins spread across the continent
• Limited fracking bans
• Access to land for drilling and infrastructure
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Supporting resources:
Strong demand response:• Plentiful water supplies
• Mature, knowledgeable and responsible industry
• Established infrastructure
• Rising oil prices
• Energy independence push
• Coal to natural gas switching
Note: Reserve estimates are likely to change from year to year as new information is available and are meant to be directionalSource: EIA; ICF, “North American Midstream Infrastructure Through 2035” (June 2011)
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Shale will be the catalyst for long-term
natural gas supply growth
75
100
125
Canada and L-48 natural gas production by source(Bcf / day)
Shale gas
~13.5
Bcf/day
~51.4
Bcf/day
7 Source: Wood Mackenzie
0
25
50
2000 2005 2010 2015 2020 2025 2030
0.3% 18.6% 36.8% 43.8% 45.8% 47.2%1.9%Shale percentageof total
Tight gas
CBM
Conventional
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Shale basins double the gas available in
North America versus the view in 2008
NortheastMarcellus 141
Antrim 20
Gulf CoastHaynesville 75
Eagle Ford 21
Mid-continentFayetteville 32
Woodford 22
REGION SHALE PLAY
TRR
(TCF)
Bakken
Antrim
Montney
Horn River
Joffre, Alberta
Oil Sands
Utica
8Note: Reserve estimates are likely to change from year to year as new information is available and are meant to be directionalSource: EIA; ICF, “North American Midstream Infrastructure Through 2035” (June 2011)
Woodford 22
SouthwestBarnett 43
Barnett-Woodford 32
Rocky Mountain Mancos 21
West Coast Monterey Uncertain
Canada Multiple 424
Total 831
MarcellusWoodford
Barnett
Eagle Ford Haynesville
Fayetteville
Sarnia, Ontario
Utica
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Shale gas unlocks vast new supplies at historically low production costs
Shale gas enters on the low end of the cost curve
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Note: Associated, other shales, tight gas, and coalbed methane figures include both U.S. L-48 and Canada productionSource: Credit Suisse (Apr 2012); Rystad Energy; Wood Mackenzie, “North America Gas Long-Term View” (Dec 2011); EIA, “Annual Energy Outlook - Early Release” (Jan 2012); NEB
40 60 8020 120100
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New natural gas supply has dramatically changed the price relative to oil
40
60
Oil to gas ratioUSD per bbl / USD per MMbtu
• Historical oil-to-gas ratio of ~6-8x largely represented the ratio in energy content
• Shale gas, however, has driven a radical departure from historical
10
0
20
1995 2000 2005 2010
radical departure from historical norms
• Incremental volumes of natural gas are getting cheaper, while incremental drilling of oil is getting more expensive
Source: Bloomberg
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Increasing shale production has created pressure for regulation
THERE ARE NUMEROUS CONCERNS ABOUT FRACKING… …THAT HAVE GENERATED MEDIA ATTENTION
Water safety
Unsafe drilling
practices
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Water usage
and drought
Carbon impacts
of extraction
Surface
disruption
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While fracking has increased regulatory attention, production will continue
• Current fracking bans are temporary or in locations with minimal resources
• Few significant changes are currently being considered
• Gas sources from multiple geographic areas should ensure sufficient supply
• Increased costs will trigger some consolidation within the industry
Short term: minimal impact Long term: minimal impact
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being considered
• New proposed restrictions are limited in scope/impact
•Fluid disclosure requirements, permitting process, etc.
consolidation within the industry
• Consolidation will leverage experience and scale to create cost advantages
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ANNUAL SPENDING HAS INCREASED… …TO EXPAND NG INFRASTRUCTURE
Shale is disrupting traditional flows and requires dramatic infrastructure changes
• 670K kilometers of gas gathering lines will be needed
- 38 lateral pipeline projects planned
• 58K kilometers of gas transmission pipelines will be needed
- 26 new pipeline projects planned
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- 26 new pipeline projects planned
• 43 Bcfd of gas pipeline capacity will be added by 2035
- 43 expansion projects planned
Source: INGAA Foundation, Inc. N.A. Natural Gas Infrastructure Through 2035; Pipeline and Gas Journal
Major shifts in NG supply locations require greater spending on expansion projects
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Key drivers Bcf/d growth (%)
• Global LNG demand
• Export policy
• 8 (500+%)
• NGV subsidies • 1 (800+%)
• Coal to gas price ratio • 9 (40%)
New supplies will go to export, power, and industrial demand
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• Coal to gas price ratio • 9 (40%)
• Coal to gas price ratio • 7 (30%)
Commercial:
• Heating conversions to NG
• Offset by energy efficiency
• ~1 (10%)
Residential:
• New home NG heating
• Offset by energy efficiency
• ~0 (Flat)
Source: EIA April 2012; Canada NEB Nov. 2011; Bain
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NGL feedstock dynamics have dramatically
shifted North American competitiveness
• In 2004 and 2008, North America was a high cost region
• Western Europe is a proxy for ROW naphtha producers
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naphtha producers
• Today, North American cash costs are second only to Middle East ethane
Source: IHS Chemical, NOVA Chemicals
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…and North America’s petrochemical industry is responding to belief of a long-term opportunity
• Low ethane prices are resulting in a shale based ethylene and polyethylene growth revolution
• Substantial growth planned from 2015 to 2020
• Growth is ethane based and
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• Growth is ethane based and could double the use of ethane in North America over 10 years
• Announced potential is 13 MT polyethylene
- Representing capacity growth of ~40% by 2020
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Executive Summary
• Shale gas and oil discoveries are adding significant volumes to global energy supplies
• New “fracking” methods have made shale gas drilling economical; high market value of NGLs further motivates extraction, with a bias towards high NGL/oil deposits
• In North America, abundance of economical supply could drive sustained low
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• In North America, abundance of economical supply could drive sustained low natural gas prices for at least the next decade
• The Middle East will retain its cost advantage in petrochemicals; but North America will clearly be second – and highly competitive versus future Middle East and Asian expansion
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www.novachemicals.com
PERFORMANCE DRIVEN. CUSTOMER INSPIRED.
The information contained herein is provided for general reference purposes only.By providing the information contained herein, NOVA Chemicals makes no guaranty or warranty and does not assume any liability, with respect to the accuracy or completeness of such information, or product results in any specific instance, and hereby expressly disclaims any implied warranties of merchantability or fitness for a particular purpose or any other warranties or representations whatsoever, expressed or implied. Nothing contained herein shall be construed as a license to use the products of NOVA Chemicals in any manner that would infringe any patent. Nothing herein shall be copied, reproduced, distributed or otherwise used without the express written permission of NOVA Chemicals.
is a registered trademark of NOVA Brands Ltd.; authorized use. Responsible Care® is a registered trademark of the Chemistry Industry Association of Canada (CIAC) in Canada and is a registered service mark of the American Chemistry Council (ACC) in the United States.
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