Midcontinent, Canada, and West

Transcription

1 Midcontinent, Canada, and West How will western markets fare as eastern supply tries to find a home? John Hilfiker May 17, 217 Energy Analyst Restrictions on Use: You may use the prices, indexes, assessments and other related information (collectively, Data ) in this presentation only for your personal use. You may not publish, reproduce, distribute, retransmit, resell, create any derivative work from and/or otherwise provide access to Data or any portion thereof to any person (either within or outside your company including, but not limited to, via or as part of any internal electronic system or Internet site), firm or entity. Disclaimer: S&P Global Platts ( Platts ), its affiliates and all of their third-party licensors disclaim any and all representations and warranties, express or implied, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use as to the data, or the results obtained by its use or as to the performance thereof. Limitation of Liability: In no event whatsoever shall Platts, its affiliates or their third-party licensors be liable for any indirect, special, incidental, punitive or consequential damages, including but not limited to loss of profits, trading losses, or lost time or goodwill, even if they have been advised of the possibility of such damages, whether in contract, tort, strict liability or otherwise. The Data is provided on an as is basis and your use of the Data is at your own risk. Copyright 217 by S&P Global Inc. All rights reserved. No portion of this publication may be photocopied, reproduced, retransmitted, put into a computer system or otherwise redistributed without prior authorization from Platts. S&P Global Platts is a trademark of S&P Global Inc..

2 Key Takeaways Western-N.A. gas market grows long in supply as renewables eat away at demand Supply pushback from the East has shifted depressed differentials to western supply hubs Prolific West Canada and SCOOP/STACK basins keep production resilient Hydro and renewables pressure West gas demand to record lows a new norm? No longer the premium West - erosion of basis reflects renewable build-out coupled with ample natural gas supply 2

3 Volatility - a New Normal for Gas-Fired Generators can the west be the dumping grounds for the rest of N.A. supply? 12 Evolution of Southwest Demand Forecast Southwest Demand Forecast Change Difference Bal () (.99) (.59) (.63) (.75) (.92) (1.1) 214 Current Difference to 214 Source: Platts Analytics Bentek CellCAST 3

4 Renewable Race southwest utility-scale solar capacity additions MW 25, MMcf/d 1,8 1,6 2, 15, 5,247 1,29 2,195 1,4 1,2 1, 1, 5, 2,398 3,326 3,79 1, Cumulative YoY Solar Capacity (LH) Annual Additions (LH) Gas Equivalent (RH) Source: Platts Analytics Bentek North American Power Plant Databank 4

5 Non-Hydro Resources Will Continue to Pressure Gas Duck Curve has shown renewables can make up 5% of total load during the middle of the day California ISO Duck Curve (YTD) California ISO Thermal Generation (YTD) GWh 3 Net Load = Total Load - Renewables GWh 14 Heat Rate MMBtu/MWh Renewables Hour Ending Source: CAISO & Platts Hour Ending 217 vs. 211 (LH) SP15 market heat rate (RH) Renewables: Biogass/mass, Solar (utility scale), Geothermal, Wind, & Small Hydro (less than 3 MW) 5

6 Eastern Supply Batters Western Basins lack of demand and boost to inflows weigh down basis Western NA Demand: Prod: -.21 Cash Basis $/MMBtu $. -$.2 -$.4 -$.6 -$.8 -$ vs $1.2 Western N.A. Cash Basis Slide (YTD) East-to-West Western NA Net Inflows: NE, SE, & TX Prod: +.4 +/- = Increase/Decrease Inflow +/- = Increase/Decrease Outflow 216 (LH) 217 (LH) % Diff. (RH) Diff. (%) 1% -1% -3% -5% -7% -9% -11% -13% -15% 6

7 What Has this Led to? regions grow long from renewables, gas-to-coal switching, and inflows 216 vs. 217 Balance Supply: Demand: Net Long: 4.3!! Western - U.S. Prod WCA Prod Net Inflows WCA Demand WCA Oil Sands Demand Industrial Power Burn ResComm Storage Required to Balance Source: Platts Analytics Bentek CellCAST 7

8 Western basins will lend a hand in the supply story 8

9 Production Prolific-ness Western N.A. home to 5 of the top 1 most-attractive basins IRR 4% 35% 3% 25% 2% 15% 1% 5% % -5% -1% Apr 217 Apr 216 April 217 Price Assumptions: Gas=12 month forward average curve for each regional pricing point (range $2.2- $3.38/Mcf) Oil=12 month forward average WTI +/- differential (range $ $5.84/barrel) NGLs=weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $ $28.6/barrel) Source: Platts Analytics Bentek Production Monitors 9

10 Growth Determined by Oil-Targeted Drilling % of Production 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % #1 #2 #3 #4 #5 4% 35% 3% 25% 2% 15% 1% 5% % IRR Oil % Gas % NGL % Apr '17 IRR April 217 Price Assumptions: Gas=12 month forward average curve for each regional pricing point (range $2.2- $3.38/Mcf) Oil=12 month forward average WTI +/- differential (range $ $5.84/barrel) NGLs=weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $ $28.6/barrel) Source: Platts Analytics Bentek Production Monitors 1

11 Will Oil Rebound Add MORE Gas Supply to Western N.A.?! western rigs crawl back # Rigs Western US Active Rig Count $/Bbl Western US Production & Projections At Current Rig Activity Total Rockies Midcon Market West Midcon Producing WTI Rockies Midcon West Midwest Source: Platts Analytics Bentek Production Monitors 11

12 What About Canada? same story but with an added bonus # Rigs Natural Gas Canadian Demand Rig Count in the by Type Oil Sands by Oil Sands Demand YoY Growth (MMcf/d): : : +221 Basin WCA Projections YoY Growth (MMcf/d): : : +53 $/Bbl Canadian Oil Sands Projects West Canada Dry Gas Production & Projections At Current Rig Activity Grand Total BIT CBM GAS Mining Athabasca Cold Lake Peace River O/G OIL WCS Alberta - Cardium Alberta - Montney Other Alberta - Duvernay British Columbia - Montney *Other: AB Bakken, Viking, Oil Sands, BC Cordova, Liard, Horn River, SK Bakken, Viking, Shaunavon, NW Territories, Yukon Source: Platts Analytics Bentek Canadian Production Monitor 12

13 Best-in-Class Basins Have Significant Upside Western N.A. basins could add +1. by year s end and another +.7 in Premium Western-U.S. Basins YoY Premium WCA Basins YoY DJ SCOOP/STACK Delware-NM Montney Duvernay Source: Platts Analytics Bentek Production Monitors 13

14 How will this supply find a home? 14

15 WCA Running Out of Options falling contracts to the east reroutes flows 4 WCA ECA WCA - MW Range 5 Yr Avg CellCAST Range 5 Yr Avg 217 CellCAST $/MMBtu $1.4 $1.2 $1. $.8 $.6 $.4 $.2 $. -$.2 Netbacks to Dawn AECO Routes Dom South Midcon Producing Source: Platts Analytics Bentek CellCAST, The Sun Sets on Dawn Market Alert 15

16 Renewables Push Back western burn has been tag-teamed by hydro and solar generation, accounts for 4% of national decline GWh/d Combined CAISO & BPA Hydroelectric Generation Hydro Gas Equivalent (MMcf/d): 17 vs. 5 Yr. = -1, vs. 16 = 1,125 GWh/d peak: 96 GWh/d, up 38% from 216 Cal-ISO solar generation Solar Gas Equivalent (MMcf/d): 17 vs. 5 Yr. = vs. 16: Range 5 Yr Avg Forecast Heat Rate for Gas Equivalent: Mid-C & Sumas, NP15 & PG&E Malin, SP15 & SoCal Gas Source: CAISO, BPA, Platts Analytics Bentek 16

17 Canada Beats out Rockies Regardless of Demand WCA differentials dominate NW market share Rockies swing supplier Northwest Demand NW Imports Northwest WCA S&D 216 () NW Inflows Rockies = Rockies Inflows 2 1 = WCA Imports Range 5Y Average E Elasticity of Corridor Flows Range 5Y Average E Source: Platts Analytics Bentek CellCAST 17

18 Rockies Prices May Allow Flows to Keep Moving East REX supply fights for market share from both ends of the pipe 3 REX Volumes to the Midwest Spreads $/MMBtu $2.5 2 $2. $1.5 1 $1. $.5 $. REX East (LH) Chicago - Opal Spread (RH) REX West (LH) Chicago - Dom South Spread (RH) Source: Platts Analytics Bentek Data Warehouse, Platts M2MS Futures 18

19 Midwest Can Absorb some But under the right circumstances coal-to-gas switching potential Power Burn Sample () NW & SW Burn-Per-Degree 217 YTD vs. 5 Yr: -1.4 Power Burn Sample () Midwest Sample Burn-Per-Degree at Various Price Levels Degrees Fahrenheit Year Average Degrees Fahrenheit Year-to-date Summer-to-Date $1.5 - $2. $2. - $2.5 $2.5 - $3. $3. - $3.5 $3.5 - $4. Source: Platts Analytics Bentek Power Burn Report 19

20 Power Burn Expected to Lag in spite of hefty coal retirements, power demand may trend at lowest levels of past five years GW Cumulative Coal-Fired Capacity Retirements Power Burn: West, Rockies, Midwest 216 vs. 217: West Midwest Rockies West Canada Range 5 Yr Avg CellCAST 218 CellCAST Source: Platts Analytics Bentek North American Power Plant Databank, CellCAST 2

21 Midwest to Southeast Flow Corridor Flips Chicago saturated with supply, basis discounted to move out of region Cash & Future Basis ($/MMBtu) $2. $1.5 $1. $.5 $. -$.5 -$1. Net ANR NGPL Trunkline MW-SE CellCAST Chicago Basis Source: Platts Analytics Bentek CellCAST, Platts M2MS Curves

22 Western Differentials Stay Wide supply continues to push into western N.A. and weigh down basis East-to-West $/MMBtu $.2 $. -$.2 -$.4 -$.6 -$.8 -$1. -$ YTD & Bal 218 Source: Platts M2MS Curves 22

23 West Absorbs Supply Bcf 2, 1,8 1,6 1,4 Western U.S. Storage Inventory Bcf WCA Storage Inventories ,2 1, YoY Season-Ending Delta: -165 Bcf (-15%) 2 1 YoY Season-Ending Delta: Bcf (-15%) Rolling 5 Year CellCAST Rolling 5 Year CellCAST Source: Platts Analytics Bentek CellCAST 23

24 Aliso Canyon Update Recent updates, risks March 1: SoCal starts SSEP OFO s ensue nearly everyday since April 28: SoCal letter reiterates supply reliability concern May 8: CA state agencies request SoCal to inject as much as possible May 16 largest injection since mid- September, 216 Inventory is currently 17 Bcf last year at just 43 Bcf May 11: Line 3 remediation completion revealed for Q4 217 Topock Subzone has been offline for roughly 1 year CPUC expected to make a decision on the fate of the field by mid-218 Shut it all down Bring back at ~3 Bcf of capacity 15 of which is base gas -5% reduction in withdrawal rate

25 Western N.A. production comes in strong, normal level lifts rescomm in MW Supply: vs. 217 Balance Net Demand: Net Short: Western - U.S. Prod -1.1 WCA Prod Net Inflows WCA Demand WCA Oil Sands Demand Industrial Power Burn ResComm Storage Required to Balance Source: Platts Analytics Bentek CellCAST 25

26 Key Takeaways Western-N.A. gas market grows long in supply as renewables eat away at demand Supply pushback from the East has shifted depressed differentials to western supply hubs Prolific West Canada and SCOOP/STACK basins keep production resilient Hydro and renewables pressure West gas demand to record lows a new norm? No longer the premium West - erosion of basis reflects renewable build-out coupled with ample natural gas supply 26

27 Thank You! Q&A Platts Analytics Bentek Energy John Hilfiker Energy Analyst 18 Larimer Street in Denver, CO 27