Technologies to recover it were refined as natural gas prices rose to $10 per MMBtu Locations of shale gas were known for decades

Transcription

1

2 Technologies to recover it were refined as natural gas prices rose to $10 per MMBtu Locations of shale gas were known for decades Discovery rates are very high Reduces producer expenses Volume was greatly underestimated Estimates continue to change with a consistently upward-sloping trend New wells provide additional data and technologies change Long-term productivity remains untested

3 Productive portion comparisons Marcellus Shale: 95,000 square miles Barnett Shale (Texas): 5,000 square miles

4 Lies beneath the Marcellus Shale Stacked plays Still many unknowns Estimated to hold as much as 25 billion barrels of oil May be the largest domestic discovery of oil in 50 years

5 Revenue supplements NGLs Associated natural gas production (greatly underestimated) Break-even prices have fallen Expenses have fallen (lower rig rental rates, less labor needed, falling real estate prices) Higher well productivity levels (more gas from single rig, higher reserve finds) Improved efficiencies (average time to drill to total depth has fallen by more than 25% in past two years) Bigger, more powerful equipment

6 1,800 U.S. Active Drilling Rig Count 1,600 1,400 Crude Oil Rig Count Natural Gas Rig Count Source: Baker Hughes 1,200 1, /1/1990 6/1/1991 6/1/1992 6/1/1993 6/1/1994 6/1/1995 6/1/1996 6/1/1997 6/1/1998 6/1/1999 6/1/2000 6/1/2001 6/1/2002 6/1/2003 6/1/2004 6/1/2005 6/1/2006 6/1/2007 6/1/2008 6/1/2009 6/1/2010 6/1/2011 6/1/2012

7 Disconnection between rig count, production levels and price Investors want active companies New infrastructure is allowing a backlog of wells ready to come on-line Supply exists and will be produced at the right price New attitudes toward the market Periodic price rallies allow producers the opporutnity to hedge forward production Supply is positive for consumers

8

9

10

11 Most growth from the electric power sector Near-term: Increased coal-to-natural gas fuel switching because of price Long-term: Coal-fired plant retirements could drive a 4-6 Bcf/day rise in demand from the electric power sector through 2018 Unknowns: Compliance timing and requirements with new EPA rules Additional demand growth from LNG and pipeline exports

12 LNG Exports U.S. becomes a net exporter in 2016 or later. The price of U.S. natural gas will influence LNG exports far more than LNG exports will influence domestic prices. Projections of 2 Bcf/day to 6.4 Bcf/day by 2030 and only a modest impact on natural gas prices LNG export costs from Gulf of Mexico Europe: Henry Hub Price + $3.80 ($2.60 in liquefaction costs + $1.20 for shipping) Japan: Henry Hub Price + $5.30 ($2.60 in liquefaction costs + $2.70 for shipping) $12-$18 per MMBtu overseas due to price link to crude oil

13 Natural Gas Vehicles (NGVs) Needs improved infrastructure. Transportation sector still accounts for just 1.5 Bcf/day of demand in Consumer Demand Residential and Commercial demand unresponsive to natural gas prices. Industrial/Manufacturing sector to have the greatest impact but previous efficiency gains remain in place.

14 Few additions after 2018 Source: Goldman Sachs Equity Research

15 On price alone, at sub-$3 price levels, natural gas has become a competitive fuel choice for electric generation Gas peaking units in the Southeast outcompete most base load coal units Central Appalachian (CAPP) $57/ton = $2.85/MMBtu Balance between emission reductions and prices Estimated 4-6 Bcf/day rise in demand from the electric power sector between

16 Coal is viewed as both the floor and cap for natural gas prices As natural gas prices rise, there may be a larger amount of fuel switching back to coal Reduces natural gas demand Stockpiles of coal decline, increasing coal prices As natural gas prices fall, there may be a larger amount of fuel switching to natural gas Natural gas demand rises Stockpiles of coal rise, reducing coal prices Renewables have a large impact as well.

17 A change in the perception of the future balance between supply and demand Caused by?? Economy, storage, weather, demand Influence from speculative players They still decide when the bottom is in, but they need support from the fundamentals. Waterless fracking Global shale production Production ownership

18 Changes in the outlook for crude oil prices Economic data becomes increasingly positive Non-OPEC countries experience large and persistent oil supply disruptions Changes in the outlook for coal commodities Coal prices tumble causing natural gas demand to significantly decline Restrictive EPA policies that support a faster transition to natural gas-fired electric generation Changes in the outlook for NGLs Economics of NGL supplements declines Ethane rejection

19 Natural Gas EPA regulations placing restrictions on coal-fired emissions from power plants struck down Fracking issues (earthquakes, water supply) Technologies of waterless fracking implemented Economics of accessing stacked plays declines Draft EPA Fracturing Study to determine the potential impact of fracking fluids on drinking water, human health and the environment to be released at end of 2012 (not delayed to 2014) Legislation which dramatically alters the number of players participating in futures market trading LNG export market doesn t evolve as anticipated

20 Valerie Wood Verona, WI Tel: (608) Industry info at