Gas s Pipeline to Sustainability:

Transcription

1 Gas s Pipeline to Sustainability: An Update on Gas Markets September 28, 2017

2 An INDEPENDENT energy consulting company since 1996 No affiliation with any marketer, broker, agent, utility, pipeline or producer More than three decades of experience in the natural gas and electric industries Specialize in natural gas and electricity buying advice for businesses and the development and implementation of proactive purchasing plans Work with the customer (end user)

3 Publications Natural Gas Outlook Monthly / Weekly Editions NYMEX Recap Website access to industry info FREE 30-day trials Consulting (End Users) One-on-One tailored purchasing advice Customized reporting Secure access to reports

4 Wisconsin Quick Facts

5 What does the future hold for gas markets? How gas can become the backbone to a competitive, sustainable, clean energy future!

6 Natural Gas Commodity (Supply)

7 U.S. is world s largest natural gas producer.

8 UPDATED

9 Marcellus and Utica Shale Basins Provided 85%-90% of shale gas production growth since 2012 Ohio now has about 10 Tcf (trillion cubic feet) of proven gas (a 10-fold increase since 2009) Pennsylvania has over 70 Tcf (doubling since 2012 alone) Marcellus has enough gas to meet 30% to 39% of demand east of the Mississippi through 2040 Utica may be the largest domestic discovery of oil in 50 years The key drilling efficiencies Estimates could still be conservative with stacked plays

10 Efficiencies Southwestern Energy Investor Presentation for Northeast Appalachia

11 Shale Gas Production Shale production grows from 9.7 Tcf in 2012 to 19.8 Tcf in % Perspective: 2015 consumption projected at around Tcf/year. 41%

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13 Production Supplements Associated gas Drilled but uncompleted wells (DUCs) NGLs (natural gas liquids) Butane, propane, ethane, pentane, isobutene, and natural gasoline

14 Natural Gas Interstate Transportation (the Pipeline) The path and the contract

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16 Map of Pipeline Infrastructure HENRY HUB: Centralized Price Point for Commodity Also, the physical trading point for the NYMEX (New York Mercantile Exchange)

17 Where Will the Marcellus/Utica Gas Flow? 51 pipeline infrastructure projects originate in Marcellus/Utica basin New pipelines, bidirectional capabilities, expansions, new storage capabilities Total capacity of ALL projects is 30 Bcf/day Plus, 6 Bcf/day of new processing capacity (to remove the NGLs)

18 In 2016, FERC certified 17.6 Bcf/day of pipeline capacity. In 2017, FERC certified 7 Bcf/day of pipeline capacity before losing its quorum.

19 Gas Pipeline Capacity Additions through 2018 Source: RBN Energy

20 Rockies Express Reversal REX Zone 3 Capacity Enhancement project went into service on 1/1/17 West to East capacity is 1.8 bcf/day, spanning 1,700 miles from northwestern Colorado and Wyoming to eastern Ohio REX Zone 3 has the ability to move 2.6 Bcf/day of gas east to west, AND 1.8 bcf./day of west to east Is adding.8 bcf/day by increasing the takeaway capacity form the Marcellus and Utica shale basins

21 Phase 1 complete by end of 2017 Phase 2 complete in Q (3.25 Bcf/day)

22 The Nexus Pipeline will move natural gas through northeastern Ohio, en route to Michigan and the Midwest, moving 1.5 billion cubic feet of gas per day. Initial in-service date was end of 2017.

23 400,000 dth/day

24 Wisconsin Supply Sources Direct access to supply ANR: Louisiana, Kansas, Texas Plus interconnection at Joliet, IL Great Lakes: Canada Viking: Canada Northern Natural: Kansas, Oklahoma, Texas Interconnections that extend into Wisconsin Guardian: Connects with Joliet, IL Hub Joliet, IL Hub Interconnections ANR, Alliance, Guardian, Horizon, Kinder Morgan, NGPL, Northern Border, Midwestern, and Vector Pipelines

25 ANR Pipeline

26 Northern Natural

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29 Other Regional Expansions Chicago Market Expansion: 238,000 dth/day from NGPL s Gulf Coast Mainline System to Chicago area Prairie State: Bcf/day from central Illinois to Chicago region Northern Natural: Cedar Station, Northern Lights 2017, and Lake Mills are projects constructed for Minnesota customers (there may be some incidental systemic benefits for Wisconsin) ANR: Wisconsin South Expansion Project: 231,000 Mcf/day from Northern Illinois into Wisconsin (primarily increases capacity at Sandwich, Illinois, compressor stations). Construction to begin in Q with a targeted in-service date of November 2018

30 Looking Ahead It s About More than Just Wisconsin

31 Reserving Pipeline Capacity Tariffed rates approved by the Federal Energy Regulatory Commission (FERC) Firm Service Guaranteed space on a specified route (path) Interruptible Service Allows shippers to move gas if pipeline space is available. Takes a back-seat to firm service Scheduling priorities The purpose of an open season Contracting for the RIGHT level of service

32 To Wisconsin = City Gate

33 Putting the Pieces Together Building a Portfolio Gas Commodity Interstate Pipeline Burner Tip Power Generation Residential End User Choice of suppliers Utility ONLY C II T Y Utility (LDC) G A T E Commercial End User Industrial End User

34 Rarely, is it a single factor that moves prices

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36 Production / Supply Levels

37 Platts: August 8, 2017 Long-Term: Rover and 15 other pipelines expected to add 3.7 Bcf/day of new pipeline capacity in Northeast in next six months. Platts: September 11, 2017

38 Long-Term Supply Projections Estimates for major production increase to ~78 Bcf/day in 2018 (some say that s too optimistic) Based on Q2 earnings calls, Marcellus and Utica producers collectively say they anticipate growth of 14.5 Bcf/day of natural gas production growth in the region by the end of 2019 Growth assumes a $3 per MMBtu forward price With DUCs, only need to add 79 rigs to reach this growth projection With associated gas production, growth from the start of 2017 to the end of 2019 could be 24 Bcf/day

39 Released on Thursdays Injections and withdrawals are a measurement of supply and demand

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41 U.S. Natural Gas Demand Growth - Electric power increases steady after 2020.

42 Natural Gas Overtakes Coal

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44 Electricity Generation Mix Changes - As gas prices rebound from 2016 lower, gas-fired generation projected to drop below coal before declining after Without the CPP, coal retains higher proportion of future generation mix.

45 - Older Fossil-fuels retirements projected - New wind and solar capacity due to declining capital costs and wind tax credits (ending 2023)

46 Exports - LNG exports increase booming through Source: EIA

47 What is Liquefied Natural Gas (LNG)? What is LNG? Gas that is cooled to minus 260 degrees Fahrenheit (liquid form) Gas takes up 600 times as much space as it does when in liquid form In liquid form, it can be transported More projects proposed than needed

48 LNG Exports

49 LNG Exports Cheniere Sabine Pass LNG facility: First export on February 24, th cargo export April Bcf/day approved (Trains 1-3) Cargo deliveries to 18 countries

50 LNG Transport Corridors

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52 Global LNG oversupply situation from In U.S., six projects under construction, three fully permitted, and 12 more in the queue (these projects represent 25 Bcf/day of capacity) LNG market begins to balance in 2024

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54 - Prices lowering overseas as crude oil prices drop

55 Natural Gas Vehicles (NGVs) Alternative fuel vehicle that uses compressed natural gas (CNG) or liquefied natural gas (LNG) Infrastructure is improving More stations being built along major interstate trucking corridors Ideal for defined route vehicles that have point-to-point paths Transportation sector still accounts for very minimal natural gas demand in 2040 Low pump prices reduce NGV investment NGVs cost more than a vehicle that runs on gasoline

56 Weather Hotter temperatures drive air conditioning needs Colder temperatures drive heating needs Can also lead to pipeline capacity constraints Hurricanes Market didn t respond to hurricanes Why? Production returned quickly following Hurricanes Harvey and Irma with minimal issues Following Hurricane Katrina, production platforms reinforced and raised by approximately 20 feet First major test of infrastructure

57 Speculators Support and resistance price levels Capitalize on market uncertainty and weatherrelated events Do not CARE about logistics or the actual price of natural gas Tend to exaggerate price momentum, but an upward or downward trend cannot be sustained without underlying supporting fundamentals

58 The Big Picture U.S. annual natural gas consumption: 27.5 Tcf Proven reserves: 369 Tcf Technically recoverable resources: 2,355 Tcf (approx. 86 years)

59 Plenty of Gas, but at what price? Natural gas is a highly competitive market EIA projects that the price of the commodity will remain below $5 per MMBtu through 2040 with OR without Clean Power Plan Per unit prices have fallen due to improved efficiencies and higher production yields There are still plenty of outlook caveats EPA regulations, changing economics of coal, LNG, NGLs; fracking issues, etc. Gas supply is one issue deliverability is another!

60 Conclusions U.S. natural gas supply is plentiful and demand can be met If demand starts to exceed supply, higher prices will incent production You still need adequate infrastructure for deliverability Unconventional gas has given the U.S. enough excess production capacity to overcome mid-term demand shocks Price volatility is minimized during periods of low demand, but can STILL be heightened during periods of high demand even with adequate supply availability Volatility could increase when the U.S. becomes more fully integrated with the rest of the world via LNG exports Production story still trumps demand growth under nearly all scenarios

61 Thank You Valerie Wood, President Energy Solutions, Inc. Tel: (608) FREE 30-DAY TRIAL TO THE NATURAL GAS OUTLOOK Signup at: naturalgasoutlook.com