The Shifting Sands of Natural Gas Abundance

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1 August 17, 2016 The Shifting Sands of Natural Gas Abundance Richard Meyer Manager, Energy Analysis & Standards

2 Here s how global energy changed between 2014 and Winners were oil, natural gas, renewables. Million Tonnes Oil Equivalent (50) (100) Change in Global Primary Energy Consumption by Fuel, , Absolute & Percentage % 1.7% Oil Natural Gas -1.8% -71 Coal % 1.0% 15.2% 1.0% Nuclear Energy Hydro electric Renewables Total Data: BP Statistical Review

3 Natural Gas Records in 2015 Domestic Annual Production 27.1 Tcf Proved Reserves 368 Tcf (dry) Undiscovered Gas Resources more than 2,500 Tcf Domestic Natural Gas Consumption 27.4 Tcf Natural Gas Consumed for Power Gen 9.4 Tcf Working Gas in Underground Storage 4,009 Bcf Sources: Bentek Energy, Energy Information Administration, Potential Gas Committee 3

4 We have seen and continue to expect relatively low and stable natural gas prices $/MMBtu Natural Gas Prices Prompt-Month Futures at Henry Hub 10 8 Price Range Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Energy Information Administration 4

5 Muted Price Response This Winter & Summer $/MMBtu Natural Gas Prices Prompt-Month Futures at Henry Hub 10 8 Price Range Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Energy Information Administration 5

6 Record natural gas levels falling back. Glut has slimmed to 18% above average. Working Gas in Underground Storage Lower 48 States (Bcf) Max - Min Working Gas Storage Five year average 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Record injection season Postwinter glut Source: EIA 6

7 For years Growth was the name of the game. Bcfd Daily Dry Natural Gas Production US Lower Four-Year Range Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Bentek Energy LLC 7

8 New daily record in Feb Production has slowed, but stubborn. Bcfd New record Feb 16 Daily Dry Natural Gas Production US Lower-48 Production slows 2016 Four-Year Range Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Bentek Energy LLC 8

9 Drilled but uncompleted gas well inventory helping sustain production, but for how much longer? Drilled but Uncompleted Wells Source: Bentek 9

10 Oil and natural gas rigs are on the floor. But for how much longer? 1,600 1,400 1,200 1, US Rotary Rig Count Number in Operation Uptick? Oil Gas Source: Baker Hughes 10

11 US oil production has begun to flatten 12,000 US Crude Oil Production (thousand barrels per day) 10,000 8, % Jan % 6,000 4,000 Jan 11 2, Source: EIA 11

12 US demand of natural gas down slightly for the year after mild winter. Strong exports & power generation keeping levels strong (1.0) (2.0) (3.0) (4.0) US Natural Gas Demand YTD Difference (Bcfd) Exports Power Generation Industrial Res/Comm Total Source: Bentek Energy LLC 12

13 Natural gas electricity setting records due to coal retirements, hot weather, low prices 13

14 Massive change underway in the US electric power sector: huge coal-to gas switching with renewable growth 14

15 Coal exports declined 23% in Deliveries are down further this year. 15

16 Energy-related CO2 emissions projected fall below 5.2 billion metric tons this year, lowest since 1992 US Energy-Related Carbon Dioxide Emissions Growth (percent) 5 Two years consecutive declines All fossil fuels (percent) Coal (percent) Petroleum (percent) Natural gas (percent) 16

17 US Gas Exports to Mexico

18 Let the LNG games begin! Shippers waiting for Sabine Pass startup (February 2016) 18

19 LNG Cargoes Have Been Delivered to Europe, South America, Asia, and the Middle East LNG Tanker Departures from Sabine Pass, Expected & Actual VESSEL DESTINATION DEPARTED ARRIVED Capacity (bcf) Sestao Knutsen 8/2/ Maran Gas Sparta 8/2/ Maran Gas Delphi 7/30/ Maran Gas Apollonia 7/19/ Gaslog Greece 7/16/ Hispania Spirit 7/13/ Gaslog Salem Brazil, Pecem FSRU 3/26/2016 3/26/ Clean Ocean India, Ratnagiri 3/15/2016 3/15/ Asia Vision Brazil, Guanabara Bay FSRU 2/24/2016 2/24/ Total Vessels 115 Bcf Source: Bloomberg 19

20 On the heels of the first US LNG exports, Australia s Gorgon LNG project prepared its first cargo. 20

21 How much US LNG can the global market absorb? Maybe not much. Global LNG Supply and Demand Balance (MMTPA) 1, Other North America Russia East Africa West Africa Australia North America Australia Other Russia West Africa North Africa Indonesia Malaysia Qatar Demand Pre-FID Operational, under construction or post-fid Source: Bloomberg New Energy Finance, Poten & Partners 21

22 Pipeline projects in the works to bring natural gas to New England 55 Source: Bloomberg New Energy Finance.

23 Midstream infrastructure continues to grow, but could soon outpace production. App Basin Takeaway Capacity Bcfd Takeaway pipeline capacity outpaces production growth Production Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 23

24 Outlook is for continued low and stable prices $/MMBtu Henry Hub Natural Gas Price Historical spot price STEO forecast price NYMEX futures price 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval 0 Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Note: Confidence interval derived from options market information for the 5 trading days ending Aug 4, Intervals not calculated for months with sparse trading in near-the-money options contracts. Source: Short-Term Energy Outlook, August

25 Consumer Natural Gas Prices Back to 1990s Levels Residential Natural Gas Prices 20 Nominal Real Forecast Source: EIA STEO 25

26 Average household consumption of natural gas has dropped by half since Residential Natural Gas Use per Customer, Weather Normalized (Mcf) Source: Energy Information Administration, AGA Calculations 26

27 Natural Gas Used Directly In Homes and Businesses Reduces Greenhouse Gas Emissions Space Heating System Carbon Dioxide Emissions (Ton CO2 per 100 MW Useful Energy Consumption) Electric Furnaces Oil-fired Furnaces Air Source Heat Pumps Gas-Fired Furnaces Source: MIT Future of Natural Gas Appliance efficiencies Energy STAR compliant. 27

28 System Modernization Has Been a Decades Long Process and Will Continue 80,000 70,000 60,000 Cast Iron and Unprotected Steel Pipeline (Miles) Unprotected Bare Steel 50,000 40,000 30,000 20,000 Cast/Wrought Iron 10, Source: Department of Transportation 28

29 Pipeline Replacement Lowers Emissions Miles of installed main has increased 34% since Million Metric Tons CO2 equivalent Estimated Emissions from Main Pipe Installed Main Pipe Thousand Miles of Main 1,300 1,200 1,100 1, Even with this tremendous growth, estimated methane emissions from pipeline leaks declined 74%. A consequence of increased removal of unprotected steel & cast iron pipe replaced with plastic & protected steel. Source: AGA chart and calculations using data from EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks:

30 The gas utility sector in flux? 30

31 Nine US nuclear reactors have announced intent to retire. This could push natural gas demand up 1.35 Bcf per day 31

32 Natural Gas Energy Policy Questions How will state energy plans treat nuclear? (eg. California vs. New York) Clean Power Plan Will SCOTUS send EPA back to the drawing board? Will there be renewed interest in discussions about a carbon tax? Where does the natural gas industry stand? 32

33 What s next for 2016 and 2017? 33

34 Find Us Online Richard Meyer Manager, Energy Analysis and Standards