Northeast Drives US Basis Trends

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1 Northeast Drives US Basis Trends Rocco Canonica, Director Energy Analysis September Platts, McGraw Hill Financial. All rights reserved. Benposium 2014.

2 Agenda 2014 Year of Extremes; Review Record Winter Basis Spikes Overview of Rapidly Changing US Market Conditions this Summer Overview of the Many Expansions Scheduled for Service in the Near Term Detail the Impacts on Various Northeast Basis Markets Summary of the Impacts of Spreading Northeast Supply on Other US Market Locations Benposium

3 Basis Locations Aren t Just Points on a Map Benposium

4 Greatest Pipeline Development Period in History? 38 Projects Between Now and End of Bcf/d 22 Projects -- Wet Marcellus/Utica Takeaway Additions 12 Bcf/d 19 Projects -- Dry Marcellus Takeaway Nearly 4.5 Bcf/d DRAFT: Not for External Distribution

5 Extreme Winter Led to Huge Cash Basis Spikes in Daily Market $ $ $ $80.00 $60.00 $40.00 $20.00 $0.00 ($20.00) Winter Highs: Transco Z6 NY -- $116 TETCO M3 -- $74 Algonquin -- $73 Chicago -- $35 SoCal -- $12 Transco Zn6 NY TX Eastern M-3 Algonquin Citygates Chicago Mich Con CG Nrthrn Ventura SoCal Gas PG&E CG Benposium

6 Polar Vortex Leads to Record Demand Bcf/d Last Winter Included 12 of the Top 20 Highest Demand Days Since January 2005 Record Bcf/d Jan. 7, 2014 Benposium

7 Inventories Plummet to Extreme Lows US Storage Inventories (Bcf) 4,000 5 Yr Avg 3,750 3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1, Entered withdrawal season with storage surplus. US ended March at 822 Bcf, or about 783 Bcf Below the 5 Yr. Min 5 Yr Min 2013/2014 Source: BENTEK Market Call Short Term

8 Henry reaches highest levels since hurricane s hit in September 2008 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Henry Hub Henry Exceeds $6 on 12 Days Last Winter in February and March; Reachs High of $7.92 on March 5 Benposium

9 US Market Conditions Changing Rapidly This Summer US Market Net Long 3.5 Bcf/d Bcf/d (1.0) Summer 2014 vs. Summer 2013 Fundamentals Total Supply Production Supply 0.3 Imports-Canada (0.1) LNG (0.5) Power (0.0) (0.2) Benposium ResComm Net Long 3.5 Bcf/d Industrial Demand Exports-Mexico Pipe Loss Total Demand

10 Production Growth Accelerates: Up 4.8 Bcf/d from January; More than Double the 2013 Pace Northeast Drives Growth, But Southeast Declines Have Slowed, and Texas, Midcontinent and Midwest Production Also is Growing Rockies Southwest Midwest Midcon Southeast Texas Northeast Benposium

11 Fastest Injection Rate in History Thanks to Rapid Production Growth, Weak Demand Bcf 4,000 3,500 3,000 2,500 2,000 1,500 1, US Storage inventories 40% More Gas Injected Than 5-Year Average Rate 5-year min/max Last year Benposium

12 Wave of Late 2014 Expansions Relieve Takeaway Constraints 11 Projects Adding 3.4 Bcf/d of Capacity through the rest of 2014: Rose Lake 0.2 Bcf/d REX Backhaul 0.6 Bcf/d TEAM Bcf/d Transco Northeast Connector: 0.1 Bcf/d Rockaway Lateral 0.6 Bcf/d 12

13 Major Northeast Pipeline Expansions 26 More Projects in (Some shown below): 13 Bcf/d REX East to West: 1.2 Bcf/d TETCO Uniontown to Gas City: 0.4 Bcf/d Benposium

14 Can Dominion Remain So Depressed with Multiple Takeaway Projects Entering Service? $1.00 Projects With Potential Impacts on Dominion $0.50 Project Name Capacity MMcf/d ISD TETCO TEAM /1/2014 TETCO $0.00 TEAM South /1/2014 REX East-to-West 1,200 6/1/2015 Constitution ($0.50) Pipeline /1/2015 ANR Glen Karn /1/2015 Tennessee ($1.00) Broad Run Flexibility /1/2015 Tennessee Utica Backhaul /1/2015 TETCO ($1.50) OPEN /1/2015 TETCO Uniontown to Gas City /1/2015 Transco Leidy Southeast Project /1/2015 ($2.00) ANR Lebanon Lateral (phase 2) /1/2016 Dominion Iroquois (NIMO East) /1/2016 Dominion WV West /1/2016 ETP Rover 3,250 11/1/2016 Dominion South History Dominion South Point Forwards Benposium

15 Large Well Backlog Will Quickly Fill Initial Wave of Expansions Wet Marcellus/Utica Well Inventory (1,166 wells) South PA 235 SW PA 476 OH 455 NE PA Dry Well Inventory (826 wells) NE PA 670 Central PA Source: : Rig Data Jul 14; OH DNR Jun 14; PA DEP Mar 14 15

16 NE PA Dry Forecast vs. Pipeline Capacity NE Natural Gas Region Takeaway vs. Production (Bcf/d) Constitution Bcf/d TGP Niagara Bcf/d TCO east side 0.31 Bcf/d TGP Rose Lake 0.23 Bcf/d Transco NE Connector 0.1 Bcf/d Transco Atlantic Sunrise Bcf/d AGT AIM Bcf/d DTI/IRQ NIMO Bcf/d Transco Leidy SE Bcf/d AGT Atlantic Bridge Bcf/d Spectra New England 1 Bcf/d TGP NE Energy Direct- 2.2 Bcf/d NE PA Dry Pipeline Takeaway- High Case Pipeline Takeaway

17 Wet Marcellus and Utica Constrained Until 2017; Excess Capacity Exists Thereafter 30 Wet Marcellus/ Utica Natural Gas Takeaway vs. Production (Bcf/d) Region stressed until 2017 when new infrastructure relieves bottlenecks South Dry Marcellus Marcellus Wet OH Wet Area Pipeline Takeaway

18 Pace of Production Growth Overwhelms Dominion Basis Through 2016 $ $/MMBtu $0.40 ($0.10) ($0.60) $0.31 $0.21 $0.12 TETCO Team (600 MMcf/d) November 2014; $0.02 Team South (300 MMcf/d) November 2014; REX East to West (1.2 Bcf/d) June 2015; ($0.21) Transco Leidy (525 MMcf/d) December 2015 ($1.10) ($0.98) ($0.90) ($0.83) 5.0 ($1.08) ($1.26) ($1.16) ($1.60) Dominion South History Dominion South Point Forwards Dominion South Forecast Northeast Production Benposium Bcf/d

19 Net Outflows Expected in NE Next Year Regional Supply Surpasses Demand for the First Time in (5.0) Net Inflows Switch to Net Outflows Total Supply Total Demand Net Regional Pipeline Inflows Benposium

20 Columbia Already Sending Gas South West Side Expansion Ramping Up to 0.4 Bcf/d of Southeast/Gulf Flows through Leach in November Gulf Bi-directional Already In Service; offers up to 540 MMcf/d backhaul from Leach, KY, to Gulf Coast markets. Smithfield III Portion of the Project (November 2014); will enable 444 MMcf/d to flow from receipt points in Washington County, PA and Doddridge County, WV to Leach, KY. Leach Benposium

21 Forwards Have Columbia App Getting Hammered Despite TCO Westside, Tetco Team, REX West $0.60 $0.40 $0.20 $0.00 ($0.20) ($0.40) ($0.60) ($0.80) Projects With Potential Impacts on Columbia Project Name Capacity MMcf/d ISD TCO West Side Expansion /1/2014 TETCO TEAM /1/2014 TETCO TEAM South /1/2014 REX East-to-West 1,200 6/1/2015 ANR Glen Karn /1/2015 Columbia East Side Expansion /1/2015 TCO QuickLink /1/2015 Tennessee Broad Run Flexibility /1/2015 Tennessee Utica Backhaul /1/2015 TETCO OPEN /1/2015 TETCO Uniontown to Gas City /1/2015 ANR Lebanon Lateral (phase 2) /1/2016 Columbia Appalachia History ETP Rover 3,250 11/1/2016 Columbia Appalachia Forecast Columbia Appalachia Forwards Benposium

22 New England Price Spikes Due to Constraints, Lack of LNG MMcf/d Bailyville Flows into U.S Bcf/d Compressor Station MMcf/d Everett LNG Sendout Bcf/d TGP STA 245 Throughput TGP STA 245 Capacity 2.0 Stony Point Compressor Stony Point Throughput Stony Point Capacity 22

23 Constraints Still Support Algonquin $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 ($5.00) Spikes not as high as forwards indicate Algonquin AIM (0.3 Bcf/d) in November 2016 PNGTS C2C (0.1 Bcf/d) November 2016 Algonquin History Algonquin Forwards Algonquin Forecast Benposium

24 Tetco M3 Next Winter also has relatively high winter peak despite TETCO Expansions; Summers are weak $20.00 $15.00 $10.00 $5.00 $0.00 ($5.00) Projects With Potential Impacts on Tetco M3 Project Name Capacity MMcf/d ISD TETCO TEAM /1/2014 TETCO Natrium Lateral /1/2014 TETCO OPEN /1/2015 TETCO Uniontown to Gas City /1/2015 Transco Leidy Southeast Project /1/2015 EQT Ohio Valley Connector 1,000 7/1/2016 Algonquin AIM /1/2016 TETCO Gulf Project II /1/2016 Lingering Fears of Extreme Winter TETCO M3 History Tetco M3 Forwards TETCO M3 Forecast Benposium

25 Will Transco Z6 Winter Peaks Match Recent History with Expansions on the Way? $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 ($5.00) Projects With Potential Impacts on Transco Z6NY Project Name Capacity MMcf/d ISD Transco Rockaway Delivery Lateral /1/2014 Transco Northeast Connector /1/2014 Transco Virginia Southside 270 9/1/2015 Columbia East Side Expansion /1/2015 Transco Leidy Southeast Project /1/2015 Lingering Fears of Extreme Winter Transco Z6NY History Transco Z6NY Forwards Transco Z6NY Forecast Benposium

26 Net Long/Short Balances Drive Regional Basis Changes 0.0 PNW Balance (Bcf/d) (1.0) (2.0) Rockies Balance (Bcf/d) (9) (10) (11) MW Balance (Bcf/d) Net Short MCP Balance (Bcf/d) Northeast Balance (Bcf/d) 0.0 (5.0) (10.0) Southwest Balance (Bcf/d) Texas Balance (Bcf/d) 5 0 (5) (10) Southeast Balance (Bcf/d) Net Short 8 Source: BENTEK Cell Cast

27 Expected Basis Changes $(0.02) Sumas AECO $(0.13) $0.12 SoCal Border Opal Chicago MichCon $(0.19) $(0.07) $(0.02) El Paso Permian NGPL Midcon $(0.14) $0.01 $(0.01) Transco Z6NY $(0.34) Columbia App $(0.62) $(0.29) Dominion South $(0.01) FGT Z.3 Algonquin $(1.60) Ship Channel Benposium

28 Conclusions and Takeaways Lingering Fears of Extreme Winter Influence Forwards Multitude of Expansions Complicate Market Conditions Northeast production growth fills projects in the near term Market expansions cut Z6 premium dramatically, send M3 negative Northeast supply spills into other regions, bringing basis down in multiple supply areas and markets.

29 Thank you for your time today! Questions? Benposium 2014

30 Competition for Midwest Market Share Weakens Midcon Basis $1.00 $0.50 $0.00 ($0.50) ($1.00) NGPL Midcon History NGPL Midcon Forwards NGPL Midcon Forecast Benposium

31 Competition for Midwest Market Share Weakens Rockies Basis $1.00 $0.50 $0.00 ($0.50) ($1.00) Opal History Opal Forwards Opal Forecast Benposium

32 Can SoCal Remain Near Historical Avg if Mexico Takes Some of Its Last Remaining Long Haul Capacity? $0.80 $0.60 $0.40 $0.20 $0.00 ($0.20) ($0.40) ($0.60) ($0.80) ($1.00) SoCal Border History SoCal Border Forwards SoCal Border Forecast Benposium