WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

September 12, 2016

MEMORANDUM FOR: Ian Mead

Assistant Administrator for Energy Analysis

FROM: John Staub

Team Lead, Exploration and Production Analysis

Mindi Farber-DeAnda

Acting Team Lead, Natural Gas Markets

Subject: First AEO2017 Oil and Gas Working Group Meeting held on

August 25, 2016

The meeting began with an overview of the areas under focus for the AEO2017 in the Oil and 

Gas Supply Module (OGSM) and the Natural Gas Transmission and Distribution Module 

(NGTDM). Initial results from model runs were also presented and questions were addressed. 

The presentation slides used to support this discussion are provided in a separate document.

Model updates

The AEO2017 is a “short” update, where few improvements re typically introduced into the 

model. However, a few improvements were made to the overall model during the current AEO 

cycle:

• The model projection was extended to 2050

• AEO cases were limited to 1) reference, high and low prices cases,2) high and low 

economic cases, 3) high and low resource and technology cases.

• The AEO2017 will reflect changes in the world oil price path

For oil and gas supply modeling, the following updates were made:

• The offshore Gulf of Mexico and Alaska were updated

• Estimated ultimate recovery (EUR) will be updated with another year of data

For natural gas market modeling, the following were made:

• Pipeline imports and exports were updated

• U.S. liquefied natural gas (LNG) exports and change in projects under construction
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

Discussion/questions (OGSM)

Offshore updating procedures were presented, and there were no questions.

TAPS shut down was mentioned as happening within the time horizon of AEO2017, which led to 

several questions:

• Has anyone investigated GTL conversion to continue using the pipeline rather than 

shutting it down? Yes, and it was thought to be uneconomical.

• Can GTL liquids could be used to thin the oil so that lower flowrates could be achieved? 

Yes, we a looking into this topic.

Resource availability and technological change was discussed, which led to several questions:

 

• Are assumptions of technology only current technology in use? Technology increases 1% 

a year and increases well level EURs in developing areas. Technology improves EURs 

more quickly in areas that are not yet developing.

• Have you investigated drilling density performance changes? We look at spacing of 

wells but not lateral lengths. We see evidence of diminishing returns in the data from 

interfering wells, and this is represented in the high resource case.

• Can cost improvements changed because of advances in technology? If the model drills 

more wells in a unit of time, the costs rise and prices are pushed up. Costs can also 

decrease with a drop in activity.

• How much analysis of existing infrastructure has been done? Pipeline constraints and 

planned builds are represented in first two years, after which pipelines are built to 

alleviate this problem.

• If you add up all the resources you project to be produced, do you have enough resources 

to support that rate of production? Perhaps you are using a highly successful case to 

create these numbers? We have a lot of resources in the Bakken and Permian.

• Based on how many resources you are assuming, do you nearly have to assume all

drilling locations are used? We run a low resource case as a sensitivity test.

• If you drop recovery by 50%, won’t you not have any low cost resources? When higher 

price levels return, this would bring drilling and production activity back up.
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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

Discussion/question (NGTDM)

A number of questions arose during the discussion of natural gas market results:

• Why do prices appear to stay low for a long period of time? Natural gas resources are 

large and technological improvements counter much of the effect of moving from lower 

cost to higher cost areas.

• Do you assume power demand grows? It is growing, about 0.9% / year as a national 

average, with Texas being about 1%/ year. We see LNG exports as an important 

component of demand growth, along with pipeline exports to Mexico which have been 

increasing in the near term. Likely future modeling efforts will be focused on improving 

the representation of Canada and Mexico. [Stakeholder Comment-There is going to be 

an oversupply of LNG in next 5 years relative to LNG demand around the world, which 

will make it difficult for US LNG exports.]

• Does the model build liquefaction terminals or are they assumed? LNG export capacity 

for the five terminals under construction are set exogenously. Thereafter, the model 

builds liquefaction terminals when domestic prices plus liquefaction, transport, and 

regasification costs are lower than estimated alternative prices in Asia and Europe. This 

capacity will generally stay at near full utilization unless the price differential narrows 

below the “sunk” liquefaction cost.

• Will the mismatch between prices and known low price areas like NE and the need for 

more pipelines with transport cost be accounted for? Pipelines are built when price 

differentials are high enough between regions. The model effectively includes a hurdle 

rate that is necessary to exceed before capacity is added. 

Guests (WebEx/phone)

Svetlana Ikonnikova

Bob Hugman

Gurcan Gulen

Mark Jensen

Matt Hansen

John Browning

Melissa Whitten

Harry Vidas

Michael Baer

Dave S.

Robert Smith

Joe Brucke

Katy D.
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

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

Bridget Scanlon

Nancy Johnson

K. Strelle

Geoffrey Brand

Anthony Yuen

Charles Nevle

Zeryai Hagos

Kim Coffman

Paul Pierson

Richard Meyer

Richard Nehring

Phyllis Martin

EIA attendees (in person)

Joseph Benneche

Katie Dyl (presenter)

Terry Yen

Danya Murali

John Staub (presenter)

EIA attendees (WebEx/phone)

Dana Van Wagener (presenter)

Troy Cook

Laura Singer

David Manowitz

Faouzi Aloulou