THE POLAR VORTEX: A WAKE-UP CALL FOR NORTHEAST GAS MARKETS

Transcription

1 THE POLAR VORTEX: A WAKE-UP CALL FOR NORTHEAST GAS MARKETS NGA Market Trends Forum Hartford, CT Vince Morrissette Vice President, Origination & Regulatory Affairs May 1, 2014 Vince Morrissette Vice President, Origination & Regulatory Affairs April 16, 2013

2 DISCLAIMER Forward Looking Statements ALL RIGHTS ARE RESERVED REPSOL YPF, S.A Repsol YPF, S.A. Repsol is the exclusive owner of this document. No part of this document may be reproduced (including photocopying), stored, duplicated, copied, distributed or introduced into a retrieval system of any nature or transmitted in any form or by any means without the prior written permission of Repsol. This document does not constitute an offer or invitation to purchase or subscribe shares, in accordance with the provisions of the Spanish Securities Market Law (Law 24/1988, of July 28, as amended and restated) and its implementing regulations. In addition, this document does not constitute an offer of purchase, sale or exchange, or a request for an offer of purchase, sale or exchange of securities in any other jurisdiction. Some of the resources mentioned in this document do not constitute proved reserves and will be recognized as such when they comply with the formal conditions required by the U. S. Securities and Exchange Commission. This document contains statements that Repsol believes constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of These forward-looking statements may include statements regarding the intent, belief, or current expectations of Repsol and its management, including statements with respect to trends affecting Repsol s financial condition, financial ratios, results of operations, business, strategy, geographic concentration, production volume and reserves, as well as Repsol s plans, expectations or objectives with respect to capital expenditures, business, strategy, geographic concentration, costs savings, investments and dividend payout policies. These forward-looking statements may also include assumptions regarding future economic and other conditions, such as future crude oil and other prices, refining and marketing margins and exchange rates. These statements are not guarantees of future performance, prices, margins, exchange rates or other events and are subject to material risks, uncertainties, changes and other factors which may be beyond Repsol s control or may be difficult to predict. Repsol s future financial condition, financial ratios, results of operations, business, strategy, geographic concentration, production volumes, reserves, capital expenditures, costs savings, investments and dividend payout policies, as well as future economic and other conditions, such as future crude oil and other prices, refining margins and exchange rates, could differ materially from those expressed or implied in any such forward-looking statements. Important factors that could cause such differences include, but are not limited to, oil, gas and other price fluctuations, supply and demand levels, currency fluctuations, exploration, drilling and production results, changes in reserves estimates, success in partnering with third parties, loss of market share, industry competition, environmental risks, physical risks, the risks of doing business in developing countries, legislative, tax, legal and regulatory developments, economic and financial market conditions in various countries and regions, political risks, wars and acts of terrorism, natural disasters, project delays or advancements and lack of approvals, as well as those factors described in the filings made by Repsol and its affiliates with the Comisión Nacional del Mercado de Valores in Spain, the Comisión Nacional de Valores in Argentina, and the Securities and Exchange Commission in the United States and with all the supervisory authorities of the markets where the securities issued by Repsol and/or its affiliates are admitted to trading. In light of the foregoing, the forward-looking statements included in this document may not occur. Repsol does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that the projected performance, conditions or events expressed or implied therein will not be realized. The information contained in the document has not been verified nor revised by the External Accountant Auditors of Repsol. 2

3 DISCUSSION TOPICS Repsol Overview Repsol s Presence in North America Repsol s Winter 2013/14 Winter Performance Backfeed Gas Supply Dynamics Polar Vortex Impact on Northeast Prices Polar Vortex Impact on Power Generation Markets Utilization of LNG as Peaking Supply Conclusions 3

4 WHO IS REPSOL? One of World s Largest Integrated Oil Companies Exp. & Prod. Refining Retail LNG E&P Operations in 26 countries, operating in 18 of them. Core Areas: North Africa, Gulf of Mexico (USA), and Latin America. Growth Areas: Norway, Alaska, Canada, and West Africa 30 discoveries from 2008 to 2011, with 4 of those among annual top 5 worldwide #1 refiner in Iberian Peninsula. Operations in Spain and Peru comprise over half of local capacity Chemicals integrated in the Refinery business Integrated system with high conversion ratio #1 Retailer in Spain with 42% market share Over 4,000 sites on the Iberian Peninsula 108% efficiency of network over Spanish average Leading Spanish provider of LPG: ranked 4th worldwide. World s first sustainable service station. Canaport TM LNG in Saint John, New Brunswick: 75% facility ownership 100% (1.0 Bcfd) capacity ownership LNG Trading in Madrid to procure cargoes for Repsol refineries and Canaport LNG One of the world s most admired oil companies Fortune Magazine The world s most transparent oil company Dow Jones Sustainability Indexes Energy company with the best environmental performance Newsweek 2012 Platt s Global Energy Awards CEO of the Year Antonio Brufau More than 700 social projects worldwide via the Repsol Foundation 4

5 REPSOL S NORTH AMERICAN ASSETS Strong Growth in E&P Alaska 207 Blocks in North Slope 93 Blocks in Chukchi Sea 71 Blocks in Beaufort Sea Offshore Newfoundland 5 Exploration Blocks Mississippi Lime (OK and KA) 363,000 net lease acreage 2,000 boepd production Canaport LNG 10 Bcf Storage 1.0 Bcfd Send-out Offshore GoM 124 Exploration Blocks 30,000 boepd production 28% stake in Shenzi field 12.5% stake in Buckskin field 5

6 REPSOL S NORTH AMERICAN ACTIVITIES Natural Gas Commercialization Commenced North American trading activities in Nov. 2008, focusing initially on Northeast US and Maritimes Canada markets. Expanded footprint into Midwest, Appalachia, and Gulf Coast. Currently growing presence in Southeast and Mid-Atlantic markets. Average daily sales volume in excess of 500,000 Dth in 2013, with the majority of the sales in the Northeast GAS SALES, BCF 2013 GAS SALES, BCF 6

7 REPSOL ENERGY NORTH AMERICA Northeast U.S. / Maritimes Canada Natural Gas Assets Producer Services Corridor Resources McCully Field Brunswick Pipeline 850 MDth/d of capacity Producer Services EnCana Deep Panuke (Summer 2013 start-up) M&NP U.S. 730 MDth/d of capacity Canaport LNG 1.0 Bcfd capacity ~10 Bcf storage Producer Services ExxonMobil Sable Island Pipeline Capacity LNG Regasification Gas Supply 7

8 REPSOL S PERFORMANCE: WINTER 2013/14 Less LNG but More Natural Gas Supply Canaport TM LNG Total Send-out (Nov Mar): ~20 Bcf vs. ~37 Bcf in 2012/13 Daily Average: ~130 MMcfd vs. ~250 MMcfd in 2012/13 Peak Send-out: ~695 MMcfd vs. ~925 Mmcfd in 2012/13 Deep Panuke Total Send-out (Nov Mar): ~32 Bcf Daily Average: ~215 MMcfd Peak Send-out: ~300 MMcfd Significant Events in 2013/14 Sale of Repsol s LNG Supply Assets (Dec. 2013) Commencement of Deep Panuke Production (Sep. 2013) Commencement of Boil-off Compression at Canaport TM (Oct. 2013) 8

9 PNGTS AND M&NP SUPPLY/DEMAND BALANCE Excess Supply Only During Periods of High Demand 1,600,000 Sable Nova Scotia (Offshore) Corridor New Brunswick (Onshore) Portland East Hereford Canaport Deep Panuke Total PNGTS and M&NP Markets 1,400,000 1,200,000 Gas Volume, Dth 1,000, , , , ,000 Source: Ventyx 9

10 NEW ENGLAND WINTER PRICE COMPARISON Price Volatility Returns Colder than normal temperatures increased natural gas demand to unforeseen levels, which strained the existing gas transportation infrastructure and caused severe swings in gas prices. 2012/13 Winter 2013/14 Winter o F o F 10

11 NEW ENGLAND DAILY GAS PRICE HISTORY Day-Ahead Gas Prices Nearly Doubled 11

12 NEW YORK CITY WINTER PRICE COMPARISON Higher Peaks than New England Even with significant new pipeline capacity (800,000 Dth/d) into New York City, gas prices hit record levels on multiple days this winter. 2012/13 Winter 2013/14 Winter o F o F 12

13 LNG UTILIZATION IN NEW ENGLAND Provides Relief During Periods of Peak Demand The location of the two LNG import facilities that can supply New England allows them to backfeed the New England market without risk of curtailment by pipelines. 2012/13 Winter Gas Demand in New England (Dth) 2012/13 Winter LNG Send-out in New England 13

14 BACKFEED SUPPLY AND POWER GENERATION Lack of Supply Reduced Gas-Fired Power Generation 1,200,000 Average Daily Gas Volume, Dec. to Feb., Dth 1,000, , , ,000 Avg Boston Temp = 32 o F Max = 60 o F Min = 14 o F Avg Boston Temp = 30 o F Max = 51 o F Min = 6 o F Avg Boston Temp = 37 o F Max = 55 o F Min = 13 o F Avg Boston Temp = 34 o F Max = 61 o F Min = 4 o F Note: Everett volumes do not include those delivered directly to the Mystic plant, nor do the NE Power Gen volumes. Avg Boston Temp = 30 o F Max = 59 o F Min = 2 o F 200, / / / /13 New England Power Gen Maritimes Canada Everett Canaport PNGTS 2013/14 Source: Ventyx 14

15 WORLD LNG PRICE COMPARISON Estimated February 2014 Landed Prices ($/MMBtu) The average Algonquin Citygate GDA for February was $21.04 and the AGT Index was $35.05, so prices in this region during periods of peak winter demand can attract LNG imports. Lake Charles $3.61 United Kingdom $10.87 Cove Point $5.09 Belgium $10.66 South Korea $18.85 Mexico - Manzanillo $19.51 Spain $16.30 India $16.85 China $18.45 Japan $18.85 Brazil $17.05 Argentina $16.51 Source: Waterborne LNG 15

16 WINTER PEAKING SERVICE Mitigates Gas Supply Risk During Peak Demand Periods RENA offered a winter peaking service to the market that is structured as follows: During the contract term, the counter-party has a call option for gas supply from RENA. The call option includes a maximum daily quantity ( MDQ ) limit as well as an aggregate quantity limitation ( AQL ) on the volume that the counter-party has committed to purchase. The call option includes either a demand charge / commodity charge price structure or simply a fixed delivered gas price that ensures that RENA can attract LNG at prevailing Atlantic Basin LNG prices. The delivery points for the gas would be Dracut (TGP), Beverly (AGT), or any M&NP delivery point. RENA has an absolute firm obligation to deliver the quantity of gas that is called up to the MDQ, and the counter-party has an absolute firm obligation to purchase the entire AQL during the term of the agreement. 16

17 FINAL THOUGHTS The persistent and often extreme cold during the 2013/14 winter highlighted the need for additional natural gas infrastructure to accommodate demand growth and changing market dynamics. The abundance of shale gas supply has significantly increased the reliance on gas-fired power generation which has dramatically changed the regional flow dynamics of natural gas pipelines. Increased communication efforts between the gas and electric industries helped to mitigate gas and electric supply shortfalls during the 2013/14 winter. Existing LNG import facilities that serve the Northeast markets should be utilized like conventional gas storage to mitigate gas supply shortfalls during periods of peak demand. Even in an era of relatively low cost gas and abundant supply, power generation diversity (both fuel type and gas supply source) is key to reliability. 17