WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

August 3, 2017

MEMORANDUM FOR: Ian Mead

Assistant Administrator for Energy Analysis

FROM: John Staub

Director, Petroleum, Natural Gas, and Biofuels Analysis

Subject: Summary of Oil and Gas Working Group Meeting held on

July 26, 2017

This memorandum provides an overview of the presentations given during the first AEO2018 Oil and Gas 

Working Group meeting and a summary of the resulting discussions that took place. The presentation 

slides are available in a separate document.

Model updates

The meeting began by mentioning that this will be the first year projections through 2050 would be in 

included in the AEO annotated slide deck. For the previous AEO, projections through 2050 were only 

available in EIA’s table browser. Many of EIA’s modeling priorities were chosen to address the added 

uncertainty that arises with the extended projection period.

Anticipated changes and modeling developments were then discussed for each of the three modules 

covering oil and gas markets: the Liquid Fuel Market Module (LFMM), Natural Gas Market Module 

(NGMM), and Oil and Gas Supply Module (OGSM). The following points were highlighted:

LFMM

• The world oil prices for AEO2018 will be lower than those for AEO2017. 

• New pipeline capacities will be added to model, including the Dakota Access.

• Reduced sulfur specification for marine bunker fuel in 2020 will be introduced.

• Biofuel production capacity and feedstock supply curves will be updated.

NGMM

• The NGMM will replace the Natural Gas Transmission and Distribution Model.

• NGMM will add granularity and provide flexibility for bi-directional flows.

• Data on prices, liquefied natural gas (LNG), and information Mexico will be updated or more 

thoroughly modeled.

OGSM

• Estimated ultimate recovery and technically recoverable resources will be updated.

• Changes will be made to accommodate new NGMM model and better account for trade with 

Canada.

• Natural gas plant liquid (NGPL) and crude oil API gravity characteristics will be updated.

• The responsiveness of natural gas production to prices will be thoroughly examined.
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Discussion

The discussion followed the order in which the oil and gas market modules were presented.

LFMM 

The only question related to LFMM that arose was why oil prices were expected lower for AEO2018. EIA 

staff stated that OPEC production was higher and demand from OECD and non-OECD countries was 

slightly lower compared to previous AEO assumptions. Thus, EIA lowered the price paths throughout 

the projection period. In addition, data from the futures market has narrowed the range of uncertainty 

associated with oil prices, which slightly tightened the difference between oil price paths in the high and 

low price cases.

NGMM 

Many participants were interested in the new module with the first question asked being whether 

NGMM will have a supply and demand curve representation similar to that used in the related 

international model. Staff responded that NGMM did not quite have the same type of representation, 

and options were being considered for future updates. In addition, EIA’s work on its Global 

Hydrocarbon Supply Model (GHySMo) may help inform such a development for NGMM.

A participant asked how many regions (hubs) would be represented in the module. EIA stated a node 

currently exists for each of the lower 48 states, plus 2 in Canada and 5 in Mexico. In addition, nodes 

currently exist for all border crossings and at each coastal state for liquefied natural gas (LNG).

A question was raised regarding the switching the Citygate pricing methodology between the two 

models. EIA staff indicated that with the previous methodology the overhead cost of maintaining 

revenue calculations was significant and the model was unable to accommodate more flexible rates. It 

was also difficult to assess accuracy of results relative to published rates, and one had to deal at times 

with a misalignment with the actual city gate prices. In the new model, EIA sets state city gate prices 

using estimated equations where Citygate prices are a function of state spot prices and an associated 

quantity. The main advantage of the new approach is that it is a straightforward and expected to give 

reasonable results with a few notable exceptions when spikes in spot prices occur.

A few questions were asked that related to the build out and directionality of pipelines. EIA staff 

explained that the new model decides on the direction of flow based on variable tariff curves and solves 

for flows between hubs. Some pipelines have zero capacity for bi-directionality. And the capacity 

between two given points is not necessarily 100% reversible, especially in the short-term. However, the 

direction of the flow for many pipelines can change based on relative prices and seasonal trends. Staff 

also indicated that the new model takes into consideration which pipelines have a demonstrable ability 

to change the direction of flow. 

One participant specifically asked why are West Texas and East Texas nodes missing, especially as the 

Permian increases production. EIA staff explained that Texas is really three or more regions with 

intrastate constraints. However, it is difficult to ascribe state demand to sub-state regions with the data 

EIA collects. Thus, the demand models in NEMS do not provide this sub-state detail. The overarching 

goal of NEMS for the AEO is to build long-term market equilibrium representations, so sub-state detail is 
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less of a problem than other issues. Staff concluded by stating that they were aware of the issue, 

particularly for Texas and California. Staff also mentioned that it is relatively easy to build pipelines and 

infrastructure within Texas, which helps the Texas market function efficiently.

A question was also asked about how EIA estimates monthly demand at state levels. Staff responded 

that historical EIA data by state is used in addition to data from other NEMS models. A possible 

consideration for future improvement of this estimation would be to include growth rates and

population changes.

Two final questions were asked about liquefied natural gas supply: Do the results for the world supply 

and demand of LNG come from the IEO and get fed into the NGMM? For NGMM, is there a high 

technology case that considers demand-side technology (e.g. higher power generation, reductions in 

battery cost)? Staff responded by stating that part of EIA’s calculation takes into account the IEO’s 

result for world supply. In addition, electricity generation is done by Jim Diefenderfer’s group, and they

will have their own working group soon.

OGSM

EIA presented initial analysis of estimated ultimate recovery (EUR) of tight oil wells drilled in 2016 and 

2017 in the Permian basin, and Marcellus and Utica shale gas wells drilled between 2012-2016. EIA staff 

indicated that they were also looking for assessments of the resources in the Delaware basin of the 

Permian. Analysis of the most recent EUR data adds about 300 TCF of natural gas resources, mostly in 

the Marcellus and Utica plays, and are consistent with the recently release Potential Gas Committee 

report. Further, EIA staff indicated they are in the process of updating natural gas plant liquid and crude 

oil API gravity characteristics and examining natural gas supply response to prices, but the work was not 

far enough along to show drafts.

One participant asked if the plays include stacked wells. EIA staff indicated that stacked formations 

within plays were included—for example, five layers will be included in the Permian Wolfcamp for 

AEO2018. In AEO2017, only three layers were included. Wolfcamp is the biggest change for unproved 

total recoverable resources. The resources are divided by county. EIA would like to identify which zone 

was being targeted in the historical well data to better reflect the EUR in each layer.

A question arose regarding whether 100-acre spacing is too large for the surface area of a horizontal 

well. EIA staff explained that each stacked formation is assumed to have 100-acre spacing, but the 

surface spacing is much closer. The model also allows wells to be drilled closer than 100-acre spacing for 

each layer but with diminishing returns on EUR as they interfere with other wells. However, more wells 

with lower EUR could potentially produce more overall.

Two additional but unrelated questions were asked: Can we break out Alaska in the resource chart? 

And is there a correlation between drilling cost and oil price? Staff responded by stating that EIA does

break out Alaska and regions in tables 9.1 and 9.2 in the AEO Assumptions Report. In addition, there are 

adjustments in cost related to historical oil price and level of drilling. As the oil price rises, drilling activity 

increases which leads to increases in drilling costs.

One participant observed that the Permian has fairly constant natural gas production compared to 

growth in oil production. They followed up by asking whether we are getting “drier” oil from the 

Permian. EIA staff indicated that scaling makes the Permian look small on the graph. The growth in 
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natural gas production in the Marcellus far exceeds the growth in other plays, so the Permian appears to 

be fairly constant on the graph. However, Permian natural gas production has increased over 22% from 

the level seen in June 2016, similar to the growth of 26% in crude oil production.

One participant was particularly interested in knowing the amounts remaining and already produced 

from technically recoverable reserves. EIA staff provided context by stating that there have been 363

trillion cubic feet (Tcf) of dry natural gas produced from 2000 through 2016 in all of the United States 

(not including natural gas plant liquids). However, the chart in the presentation does not show 

cumulative production. The chart also does not include additional resources that will become technically 

recoverable as technology further advances.

This discussion on technically recoverable reserves concluded by noting that the presented chart likely 

underestimates the amount remaining. Drillers will target higher quality resources, then move into 

lower EURs, as production costs come down with technology. The supply model feeds the market as 

demand is placed against those resources. NEMS is currently running to 2050, so we’re not getting to 

the end of these resources, but as we go out further the question becomes how technological changes 

will affect the EUR and cost of production.

A final question related to whether there a gas supply curve passed between OGSM and NGMM? Staff 

informed participants that OGSM determines expected production at a price passed from the NGMM. 

The expected production and a short-term supply elasticity is sent to NGMM, which balances supply and 

demand, sends back how much is needed and at what price.

Assumptions for announced discoveries in the Gulf of Mexico were presented, but no questions were 

asked.

Additional issues

There were some more general questions:

• What are EIA assumptions for the high/low technology cases? EIA staff indicated that the 

current plan is to use the same assumptions as AEO2017.

• Is there a high technology case that considers demand-side technology (e.g., higher power 

generation, reductions in battery cost)? EIA staff indicated that the team running the Electricity 

Market Module would be best group to talk with.

• Will the slides be posted? EIA staff informed participants that the slides would be posted. They 

also noted that they could contact the AEO team with feedback and questions. In addition, the 

next working group meeting with preliminary Reference case results will be held in September.

Attendees

Guests (in person)

John Powell DOE

Registered Guests (WebEx/phone)

Geoffery Brand API

David Shin API
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Celeste M. Marshall API

Radford Schantz BOEM

Sarah Coffman BOEM

Ben Schlesinger BSA Energy

Beth Lau Canadian Association of Petroleum Producers

Mark Pinney Canadian Association of Petroleum Producers

Stuart Mueller Canadian Association of Petroleum Producers

Deborah Gordon Carnegie Endowment for International Peace

David Austin Congressional Budget Office

Ron Gecan Congressional Budget Office

Shree Vikas ConocoPhillips

Sarah Ladislaw CSIS

Jairam Gopal Deloitte

Bill Noel Deloitte

Kathleen O'Dell Deloitte

Ryan Daly Deloitte

Donald Hanson DOE

Seth Snyder DOE

Yen Zhou DOE

Jennifer Li DOE

Amy Sweeney DOE

John Anderson DOE

John Powell DOE

Douglas Hollett DOE

Kevin P. Quinlan DOE

Isabella E. Ruble DOE

Hannah Gagarin DOE

Alan Yu DOE

Fred Joseck DOE

Elena Thomas-Kerr DOE

Brian D. Lavoie DOE

Kenneth Vincent DOE

Nancy Johnson DOE

Jamie Kern DOE

Elena Melchert DOE

Aaron Mintzes Earthworks

Jeffery Eppink Enegis

Anthony Petruzzo Energy Ventures Analysis

Ozge Kaplan EPA

Carol Lenox EPA

Elizabeth Miller EPA

Brian Keaveny EPA

Maria M. Coronado EPA
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Paul Argyropoulos EPA

William Yelverton EPA

Robert E. Gardner ExxonMobil

Yufen Shao ExxonMobil

Nicolas Sawaya ExxonMobil

Fu Dong ExxonMobil

Irene C. Chang ExxonMobil

Benjamin Salisbury FBR

Ramses Cabrales FERC

Ken Ditzel FTI Consulting

Marilyn Brown Georgia Tech

James Kliesch Honda

Kevin Birn IHS Markit

Stephen Beck IHS Markit

Caldwell Bailey IHS Markit

Barbara Treat InfrastructureWorld, LLC

Marshall Carolus INTEK Inc.

Yelena Dandurova Leidos

Lee M. Van Atta Leidos

Adrian Shaner Leidos

Ken Walsh Leidos

Fred H. Hutchison LNG Allies

J. Alan Weber MARC-IV

Tom Curry MJ Bradley & Associates

Keith King Moyes and Co.

Richard Nehring Nehring Associates

Nadejda M. Victor NETL

Charles A. Zelek NETL

Donald J. Remson NETL

Maria C. Vargas NETL

Joel R. Theis NETL

Peter C. Balash NETL

Gavin C. Pickenpaugh NETL

Thomas J. Tarka NETL

Emily Newes NREL

Niko Kydes OnLocation

Asher Miller Post Carbon Institute

Shashank Mohan Rhodium Group

Amir Zaman Rystad Energy

Robert L. Kleinberg Schlumberger

Henry Nuzum SEACOR Marine

Michael Lynch Strategic Energy & Economic Research Inc.

Gurcan Gulen The University of Texas at Austin
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Svetlana Ikonnikova The University of Texas at Austin

John Browning The University of Texas at Austin

Robert Dohner U.S. Department of the Treasury

Ana Cummings UNICA

Tim Carr West Virginia University

Paul B. Sankey Wolfe Research

EIA attendees (in person)

Joseph Benneche

Samantha Calkins

Meg Coleman

John Conti

Katie Dyl (presenter)

Arup Mallik

Elizabeth May

Danya Murali

James Preciado (presenter)

Corrina Ricker

John Staub (presenter)

Terry Yen

EIA attendees (WebEx/phone)

Neil Agarwal

Dana Van Wagener (presenter)

Troy Cook

Laura Singer

David Manowitz

Faouzi Aloulou