Natural Gas Supply/Demand Outlook

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1 Natural Gas Supply/Demand Outlook Presentation to: The Fertilizer Outlook and Technology Conference Jacksonville, Florida By: John Harpole November 14, 2018

2

3 Fertilizer Industry vs. Natural Gas Industry Source: 3

4 11/1/2010 2/1/2011 5/1/2011 8/1/ /1/2011 2/1/2012 5/1/2012 8/1/ /1/2012 2/1/2013 5/1/2013 8/1/ /1/2013 2/1/2014 5/1/2014 8/1/ /1/2014 2/1/2015 5/1/2015 8/1/ /1/2015 $/MMBtu *Forecast from my 2010 speech: BENTEK Expects The Forward Curve To Fall Further $7 $6 $5 $4 $3 $2 $1 NYMEX BENTEK Est. $0 Source: BENTEK 4

5 Circa 2010 What will impact natural gas prices during the next 5 years? Shale gas/productivity gains (We aren t exploring, we are manufacturing gas.) Lower EPA Air Standards (demand increase) Renewable Portfolio Standards (in an inexpensive gas environment?) Coal to gas conversion (demand increase) Demand in Mexico (potential demand increase) LNG exports from North America (China is waiting) 5

6 Natural Gas Outlook Presentation to: 2013 Fertilizer Outlook & Technology Conference Tampa, Florida By: John Harpole November 20, 2013

7 Conclusions from November 20, 2013 U.S. continues to produce more gas, shale gas revolution was too successful, end-users will benefit During the next 3 years, supply will likely exceed demand Prices will remain in the $3.50 to $4.75 range, with short period above and below that band during adjustments Long term prices depend on demand growth. Without demand growth, supply will continue to be long and prices relatively low. A significant demand response can t occur for at least 3-5 years 7

8 The End of Scarcity? Natural Gas Outlook Presentation to: The Fertilizer Outlook and Technology Conference Jacksonville, FL By: John Harpole November 11, 2015

9 Circa 2015 The Big Three Issues to Watch 1. Global Oil Price Recovery 2. Marcellus and Utica Shale Production 3. U.S. LNG Exports 9

10 : Wellhead total data from DI Desktop : Kinder Morgan forecast Source: Kinder Morgan, 2015 Business Meeting: West Region Gas Pipelines, November 2,

11 Source: Kinder Morgan, 2015 Business Meeting: West Region Gas Pipelines, November 2,

12 Per MMBtu NYMEX Historical and Future Forecast $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 NYMEX Nov Average last 3 days of close as reported in Platts Gas Daily Report, Publication Future Forecast as of 11/07/2018 reported by MarketView Software 12

13 It is not a scarce resource anymore 13

14 US RIG COUNTS: Aug 2018 vs Aug /+9 CALIFORNIA 12/+5 6/+2 2/+0 OTHER ROCKIES 1/+1 4/+4 Rig Increases Dry Gas Focused Areas Rig Increases Liquids-Rich/Oil Focused Areas 19/+17 25/+7 61/+34 POWDER RIVER WIND RIVER D-J GREEN RIVER UINTA SAN JUAN 8/+5 PICEANCE 0/+0 RATON PERMIAN 471/+290 WILLISTON ANADARKO 46/+11 15/-1 FT WORTH OTHER MIDCONTINENT 96/ /+68 EAST TX 23/+12 35/+21 33/+21 25/+1 5/+1 10/+0 5/+2 2/-2 2/+1 32/+24 Rig Declines Source: S&P Global, Aug /+0 45/+3 ILLINOIS ARK FAYETTEVILLE ARKLA TX GULF EAGLE FORD MICHIGAN UTICA ARK WOODFORD 10/+8 LA GULF TX GULF AL-MS-FL OFFSHORE Active rig count: Aug 3, 2018 / Change in rig count from Aug 5, /-1 18/+9 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 1144 CHANGE +610 Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

15 Source: LNG Allies, The US LNG Association, 15

16 Source: LNG Allies, The US LNG Association, 16

17 US supply growing again; largest year-over-year gain in history Bcf/d U.S. Dry Gas Production Y-O-Y (Forecast) 2017/ Bcf/d Y-O-Y (YTD) 2017/ Bcf/d Y-O-Y 2014/ Bcf/d Y-O-Y 2013/ Bcf/d Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

18 Source: LNG Allies, The US LNG Association, 18

19 Source: accessed 08/20/

20 Major delays on Mexico s interior gas pipelines Mexican Pipeline Construction Tracker Project Details Start Date Tracker Pipeline Import Corridor Capacity MMcf/d Original ISD Estimated Start 6/1/2018 Days Delayed El Encino - La Laguna West Texas 1,500 Apr-17 Mar El Encino - Topolobampo West Texas 670 Oct-16 Jun Nueva Era South Texas 504 Jun-17 Dec Tula - Villa de Reyes South Texas 886 Dec-17 Jul La Laguna - Aguascalientes West Texas 1,189 Dec-17 Nov Villa de Reyes - Aguas. - Guadalajara West Texas 886 Dec-17 Nov Samalayuca - Sasabe West Texas 472 Jun-17 Nov Sur de Texas - Tuxpan South Texas 2,600 Jun-18 Oct Tuxpan - Tula South Texas 886 Mar-17 Dec-19 1,005 Average Delay Bcf/d delayed downstream of West Texas 4.9 Bcf/d delayed downstream of South Texas Average delay over 400 days Most new capacity delayed past 2018 US pipeline exports will remain capacity constrained until 2019 Source: SENER, S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

21 Downstream constraints alleviated in 2019 MEXICO IMPORT CAPACITY CONSTRAINTS (BCF/D) 15 Imports peak at ~4.9 Bcf/d in Oct-18 Imports peak at ~6.2 Bcf/d in Jul Imports Border Capacity Estimated Downstream Constraint Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

22 Source: LNG Allies, The US LNG Association, 22

23 Source: LNG Allies, The US LNG Association, 23

24 Source: LNG Allies, The US LNG Association, 24

25 High Utilization of US LNG Expected to Persist Bcf/d US LNG Feedgas Capacity and Forecast Elba Island T7-10 Elba Island T1-6 Corpus Christi T2 Corpus Christi T1 Cove Point T1 Cameron LNG T3 Cameron LNG T2 Cameron LNG T1 Freeport LNG T3 Freeport LNG T2 Freeport LNG T1 Sabine Pass T5 Sabine Pass T4 Sabine Pass T3 Sabine Pass T2 Sabine Pass T1 LNG Export Forecast LNG Feedgas Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

26 Latin America and Asia main markets US LNG MEXICO 275 Bcf 37% to Americas SABINE PASS and COVE POINT LNG TERMINALS CHILE 68 Bcf Colombia 2 Bcf DOMINICAN REPUBLIC 15 Bcf ARGENTINA 46 Bcf UK 3 Bcf 9 Bcf SPAIN POLAND PORTUGAL 27 Bcf 3 Bcf 23 Bcf ITALY BRAZIL 45 Bcf Netherlands 6 Bcf 10% to Europe Lithuania 7 Bcf MALTA 5 Bcf EGYPT 17 Bcf 17% to India and Middle-East TURKEY 29 Bcf JORDAN 65 Bcf Israel 3 Bcf PAKISTAN 13 Bcf KUWAIT 30 Bcf UAE 17 Bcf CHINA 163 Bcf INDIA 65 Bcf THAILAND 3 Bcf SOUTH KOREA 151 Bcf JAPAN 87 Bcf TAIWAN 12 Bcf 36% to Asia 1,240 BCF US LNG exports shipped to 27 countries *Numbers may not add up to 100% due to rounding Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

27 Asia Clearly Driving LNG Demand Bcf/d LNG Demand By Region LNG Demand in Asia expected to account for roughly 50% of the total LNG demand growth 2023 v Asia Demand Europe Demand ME Demand Americas Demand Other Demand Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

28 Bcf/d China almost 30% of growth in global LNG demand (2018 to 2023) % 16% 14% 12% 10% 8% 6% 4% 2% 0% China All Others China % of Total Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

29 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

30 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

31 Global Supply Concentrate to Three Players Bcf/d LNG Supply By Region US follows ramp in Australian volumes; +60% of total liquefaction capacity increase 2023 v Other Supply US Supply Qatar Supply Australian Supply Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

32 32

33 Source: LNG Allies, The US LNG Association, 33

34 Source: LNG Allies, The US LNG Association, 34

35 Source: Antero Resources Company Presentation, November

36 Source: Antero Resources Company Presentation, November

37 Source: Antero Resources Company Presentation, November

38 Source: Antero Resources Company Presentation, November

39 Source: Antero Resources Company Presentation, November

40 Source: Antero Resources Company Presentation, November

41 Source: Antero Resources Company Presentation, November

42 Source: Antero Resources Company Presentation, November

43 Source: Antero Resources Company Presentation, November

44 Source: Antero Resources Company Presentation, November

45 Source: Antero Resources Company Presentation, November

46 Source: Midstream to Markets: Oil Markets: Out of the Woods?, RBN Energy, The Energy Summit, August 23,

47 47 Key Takeaways from 2010 Shale gas/productivity gains (We aren t exploring, we are manufacturing gas.) Demand in Mexico (potential demand increase) LNG exports from North America (China is waiting) Key Takeaways from 2015 The Big Three Issues to Watch: Global Oil Price Marcellus and Utica Shale Production U.S. LNG Exports

48 Key Takeaways Forecasted NorAm production growth is highly dependent on global export markets; more exports to Mexico and LNG (10.3 Bcf/d) than organic demand growth in Canada and US (5.7 Bcf/d); reductions in exports forecasted are balanced by reductions in production growth Global demand for LNG continues growing; expect a second wave of LNG liquefaction capacity Gas infrastructure development is required to connect supply centers with emerging demand You have heard it s about location, location, location. Production is about efficiency, efficiency, efficiency. Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

49 The New Metaphor by Maytag 49

50 Contact Information John Harpole President Mercator Energy 26 W. Dry Creek Circle, Suite 410 Littleton, CO (303) (work) (303) (cell) 50

51 Per MMBtu NYMEX Historical and Future Forecast $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 NYMEX Nov Average last 3 days of close as reported in Platts Gas Daily Report, Publication Future Forecast as of 11/07/2018 reported by MarketView Software 51

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53 Survival of the Fittest? *Circa 2014: Saudis have staying power; $750 billion in foreign country reserves Source: Oilprice.com, The Saudi Arabian Oil Conspiracy and What it Might Mean for Your Portfolio, The Motley Fool, Adam Galas, January 18,

54 A Game of Chicken? Nation Oil price per barrel required to break even or balance budget US producers $38-$77 Qatar $58 Kuwait $59 UAE $90 Saudi Arabia $92 Angola $94 Russia $101 Iraq $116 Venezuela $117 According to data compiled by Bloomberg, prices have dropped below the level needed by at least 9 OPEC member states to balance their budgets. Algeria $119 Ecuador $122 Nigeria $124 Iran $136 Source: Reuters, The Saudi Arabian Oil Conspiracy and What it Might Mean for Your Portfolio, The Motley Fool, Adam Galas, January 18, 2015 Survival of fittest as oil tumbles below $65, Bloomberg News, December 1,