Accessing New Markets for Rockies Natural Gas

Transcription

1 Accessing New Markets for Rockies Natural Gas Presentation to: 2018 Uinta Basin Energy Summit By: John Harpole August 30, 2018

2 It is not a scarce resource anymore 2

3 Hydraulic Fracturing Pumping fluid under high pressure to fracture formation Creates fracture highway for gas to be rapidly produced from formation Hydraulic Fractures 3 Source: The natural gas revolution and energy self reliance in North America, Don McClure, Encana, March 26,

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5 US RIG COUNTS: Aug 2018 vs Aug /+9 CALIFORNIA 12/+5 6/+2 2/+0 OTHER ROCKIES 1/+1 4/+4 Rig Increases Dry Gas Focused Areas Rig Increases Liquids Rich/Oil Focused Areas 19/+17 25/+7 61/+34 POWDER RIVER WIND RIVER D-J GREEN RIVER UINTA SAN JUAN 8/+5 PICEANCE 0/+0 RATON PERMIAN 471/+290 WILLISTON ANADARKO 46/+11 15/ 1 FT WORTH OTHER MIDCONTINENT 96/ /+68 EAST TX 23/+12 35/+21 33/+21 25/+1 5/+1 10/+0 5/+2 2/ 2 2/+1 32/+24 Rig Declines Source: S&P Global, Aug /+0 45/+3 ILLINOIS ARK FAYETTEVILLE ARKLA TX GULF EAGLE FORD MICHIGAN UTICA ARK WOODFORD 10/+8 LA GULF TX GULF AL-MS-FL OFFSHORE Active rig count: Aug 3, 2018 / Change in rig count from Aug 5, / 1 18/+9 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 1144 CHANGE +610 Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

6 Source: LNG Allies, The US LNG Association, 6

7 Source: LNG Allies, The US LNG Association, 7

8 Source: LNG Allies, The US LNG Association, 8

9 US supply growing again; largest year-over-year gain in history U.S. Dry Gas Production Y-O-Y (Forecast) 2017/ Y-O-Y (YTD) 2017/ Y-O-Y 2014/ Y-O-Y 2013/ Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

10 Northeast continues to be largest driver of growth, associated gas grows on higher oil price Canada-US Production ( ) Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

11 Source: LNG Allies, The US LNG Association, 11

12 Source: LNG Allies, The US LNG Association, 12

13 Domestic demand growth slows, global demand drives price and production +0.0 US Domestic Demand ( ) US Export Demand ( ) Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

14 Source: LNG Allies, The US LNG Association, 14

15 Source: LNG Allies, The US LNG Association, 15

16 Res-Com and Industrial Power Growth Plateaued 350 Annual US Sales of Electricity, by Sector (TWh/Month) Growth is Flat TWh/Month Industrial Residential Commercial Source: EIA Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

17 Renewable generation eating into fossil fuel market share 2010 US Fuel Supply Mix 2016 US Fuel Supply Mix Fossil Fuels Renewable Generation Fossil Fuels Renewable Generation Hydro Nuke Hydro Nuke Other Other 2% 2% 20% 21% 2% 7% 69% 7% 7% 63% Source: EIA Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

18 Rockies Natural Gas Supply/Demand Trends Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

19 Rockies Pipeline Infrastructure Source: Bentek Rockies Observer 19

20 Rockies Supply vs. Regional Export Capacity Source: George Wayne, Colorado Interstate Gas 20

21 Modest demand growth and West Canada inflows limit westbound flow increases Ruby, Northwest, Kern River Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

22 Exports are the Answer By Pipe and LNG Carrier 22

23 Source: accessed 08/20/

24 Major delays on Mexico s interior gas pipelines Mexican Pipeline Construction Tracker Project Details Start Date Tracker Pipeline Import Corridor Capacity MMcf/d Original ISD Estimated Start 6/1/2018 Days Delayed El Encino La Laguna West Texas 1,500 Apr 17 Mar El Encino Topolobampo West Texas 670 Oct 16 Jun Nueva Era South Texas 504 Jun 17 Dec Tula Villa de Reyes South Texas 886 Dec 17 Jul La Laguna Aguascalientes West Texas 1,189 Dec 17 Nov Villa de Reyes Aguas. Guadalajara West Texas 886 Dec 17 Nov Samalayuca Sasabe West Texas 472 Jun 17 Nov Sur de Texas Tuxpan South Texas 2,600 Jun 18 Oct Tuxpan Tula South Texas 886 Mar 17 Dec 19 1,005 Average Delay delayed downstream of West Texas 4.9 delayed downstream of South Texas Average delay over 400 days Most new capacity delayed past 2018 US pipeline exports will remain capacity constrained until 2019 Source: SENER, S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

25 Downstream constraints alleviated in 2019 MEXICO IMPORT CAPACITY CONSTRAINTS (BCF/D) 15 Imports peak at ~4.9 in Oct-18 Imports peak at ~6.2 in Jul Imports Border Capacity Estimated Downstream Constraint Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

26 Source: LNG Allies, The US LNG Association, 26

27 Source: LNG Allies, The US LNG Association, 27

28 Source: LNG Allies, The US LNG Association, 28

29 High Utilization of US LNG Expected to Persist US LNG Feedgas Capacity and Forecast Elba Island T7-10 Elba Island T1-6 Corpus Christi T2 Corpus Christi T1 Cove Point T1 Cameron LNG T3 Cameron LNG T2 Cameron LNG T1 Freeport LNG T3 Freeport LNG T2 Freeport LNG T1 Sabine Pass T5 Sabine Pass T4 Sabine Pass T3 Sabine Pass T2 Sabine Pass T1 LNG Export Forecast LNG Feedgas Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

30 Latin America and Asia main markets US LNG MEXICO 275 Bcf 37% to Americas SABINE PASS and COVE POINT LNG TERMINALS CHILE 68 Bcf Colombia 2 Bcf DOMINICAN REPUBLIC 15 Bcf ARGENTINA 46 Bcf Netherlands 6 Bcf Lithuania UK 3 Bcf 9 Bcf SPAIN POLAND PORTUGAL 27 Bcf 3 Bcf 23 Bcf ITALY BRAZIL 45 Bcf 10% to Europe 7 Bcf MALTA 5 Bcf EGYPT 17 Bcf 17% to India and Middle-East TURKEY 29 Bcf JORDAN 65 Bcf Israel 3 Bcf PAKISTAN 13 Bcf KUWAIT 30 Bcf UAE 17 Bcf CHINA 163 Bcf INDIA 65 Bcf THAILAND 3 Bcf SOUTH KOREA 151 Bcf JAPAN 87 Bcf TAIWAN 12 Bcf 36% to Asia 1,240 BCF US LNG exports shipped to 27 countries *Numbers may not add up to 100% due to rounding Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

31 Asia Clearly Driving LNG Demand LNG Demand By Region LNG Demand in Asia expected to account for roughly 50% of the total LNG demand growth 2023 v Asia Demand Europe Demand ME Demand Americas Demand Other Demand Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

32 Global Supply Concentrate to Three Players LNG Supply By Region US follows ramp in Australian volumes; +60% of total liquefaction capacity increase 2023 v Other Supply US Supply Qatar Supply Australian Supply Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

33 Asian demand outpaces Asian supply Asian Supply and Demand Balance Asia gets shorter over the next five years increases reliance on supplies from other regions -40 Russia Australia Indonesia Malaysia Other S.E. Asia Supply China India ISC: Other NEA: Japan NEA: S Korea NEA: Taiwan S.E. Asia Demand Net Balance Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

34 China almost 30% of growth in global LNG demand (2018 to 2023) % 16% 14% 12% 10% 8% 6% 4% 2% 0% China All Others China % of Total Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

35 Evolution of US LNG Exports to China China All Others Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

36 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

37 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

38 38

39 Upside for Rockies West Coast LNG Exports Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

40 Will Mexico become an LNG exporter? Energia Costa Azul: Multi-staged design Finial design capacity12.4 Mtpa (~1.7 ) capacity Outlet for Permian Basin associated gas West Coast location with pre-existing infrastructure Avoids Panama Canal Regulatory process well underway Pipeline expansions needed (see map) $/MMBtu Shipping Cost Savings (2016 avg.) $1.50 $1.00 $0.50 $- Sabine -$0.60 -$0.70 Sonora LNG Energia Costa Azul Source: S&P Global Platts Analytics Possible Expansions Needed: Expansion of El Paso s South Mainline? Expansion on Samalayuca Sasabe? New Sasabe Yuma pipeline? Mexico could be part of the second wave of North American LNG export projects Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

41 LNG exports from the west coast could open PNW market share for Rockies West Canada to PNW Westcoast Pipeline at Sumas NWPL Sumas Flows NWPL Sumas Capacity Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 West Canada to PNW GTN Pipeline at Kingsgate GTN-Kingsgate Flows GTN-Kingsgate Capacity Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Source: S&P Global Platts Analytics 41 Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22, 2018

42 NWPL open capacity seasonally; Ruby has space Rockies to Pacific NW Northwest Pipeline Kemmerer Compressor Flow Kemmerer Compressor Capacity ~0.6 spare capacity in 2018 YTD Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Rockies to Pacific NW Ruby Pipeline Ruby West Flows Ruby West Capacity ~0.6 spare capacity in 2018 YTD Source: S&P Global Platt Analytics Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

43 How do we get there? 43

44 Location of the Uinta Piceance Province and associated cultural and physiographic features Source: Chapter 5 of Petroleum Systems and Geologic Assessment of Oil and Gas in the Uinta-Piceance Province, Utah and Colorado, R.F. Dubiel, USGS Geological Survey Digital Data Series DDS-69-B 44

45 Generalized stratigraphic chart of Cretaceous and younger rocks from west to east across the Uinta and Piceance Basins Source: Chapter 16 of Petroleum Systems and Geologic Assessment of Oil and Gas in the Uinta-Piceance Province, Utah and Colorado, Laura N.R. Roberts, USGS Geological Survey Digital Data Series DDS-69-B 45

46 Rockies Pipeline Infrastructure Source: Bentek Rockies Observer 46

47 REX(Entrega segment) Capacity REX White River Hub to Wamsutter /1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Sum of Flow Max Design Capacity Source: Bernadette Johnson, DrillingInfo 47

48 WIC Capacity (north) Sum of Flow Max Operational Capacity Source: Bernadette Johnson, DrillingInfo 48

49 TransColorado Capacity (south) 700, , , , , , ,000 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Sum of Flow Design Capacity Source: Bernadette Johnson, DrillingInfo 49

50 50

51 Ruby Capacity (west) Sum of Flow Max Operational Capacity Source: Bernadette Johnson, DrillingInfo 51

52 Northwest Pipeline Capacity (west) /1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Sum of Flow Max Operational Capacity Source: Bernadette Johnson, DrillingInfo 52

53 Uinta and Piceance to Pacific Source: Veresen Corporate Presentation, November

54 Pacific Connector Pipeline Source: Oregon Green Energy Guide 54

55 Intra-regional flows bumping up to constraints Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

56 Rockies eastbound flows approaching capacity Rox to Midcon Market Flows Bison KMI North Line REX Trailblazer WBI Capacity 2.5 Rox to Midcon Producing Flows Source: S&P Global Platts Analytics Cheyenne Plains CIG Cheyenne CIG Raton KMI Pny KMI South Line Southern Star Capacity Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

57 Rockies Express Pipeline 57

58 Source: It s Been A Long Time Comin New REX Zone 3 Capacity And Northeast Gas Markets, Part 2, Sheetal Nasta, RBN Energy, LLC, January 30,

59 Kern River Capacity (west) /1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Sum of Flow Max Operational Capacity Source: Bernadette Johnson, DrillingInfo 59

60 Decline of Natural Gas Price Index and Uinta Basin Rig Count 2008 Current (By Quarter) per MMBtu $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $ CIG Index Uinta Basin Rig Count Source: Inside FERC s Gas Marketing Report, S&P Global Platts Publication and Tudor Pickering Holt & CO data 60

61 Basis Differential Between Northwest Rockies and NYMEX 2010 Current per MMBtu $0.80 $0.60 $0.40 $0.20 $0.00 -$0.20 -$0.40 -$0.60 -$0.80 -$1.00 -$1.20 NW Rockies vs. NYMEX Source: Inside FERC s Gas Marketing Report, S&P Global Platts Publication 61

62 Uinta and Piceance Basin Price Superiority Last 12 months $0.00 $0.20 $0.40 $0.60 $0.80 ($0.52) ($0.61) ($0.75) $1.00 $1.20 $1.40 $1.60 $1.80 ($1.72) $2.00 Northwest Rockies (Piceance Index) CIG (Uinta Index) Dominion South (Marcellus Index) Westcoast station 2 (Montney Index) Source: Inside FERC s Gas Marketing Report, S&P Global Platts Publication, September August 2018 information as compared to NYMEX average of last 3 days 62

63 Average Basis Differential for 2017 $0.00 ($0.01) -$0.10 -$0.20 -$0.30 -$0.40 ($0.34) ($0.37) -$0.50 ($0.44) -$0.60 -$0.70 -$0.80 -$0.90 Northwest Rockies CIG Transco Zone 6 non-ny ($0.84) ($0.84) TX Eastern M-3 Leidy Hub Dominion South Source: Inside FERC s Gas Marketing Report, S&P Global Platts Publication 63

64 Waha Basis Differential 2014 Current $0.40 $0.20 $ $(0.20) Per MMBtu $(0.40) $(0.60) $(0.80) $(1.00) $(1.20) $(1.40) $(1.60) Source: Inside FERC s Gas Marketing Report and Gas Daily, S&P Global Platts Publications 64

65 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

66 Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21,

67 Key Takeaways Forecasted NorAm production growth is highly dependent on global export markets; more exports to Mexico and LNG (10.3 ) than organic demand growth in Canada and US (5.7 ); reductions in exports forecasted are balanced by reductions in production growth Global demand for LNG continues growing; expect a second wave of LNG liquefaction capacity Gas infrastructure development is required to connect supply centers with emerging demand Rockies production grows with DJ and GRO gains; shortterm infrastructure challenges for DJ associated gas Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

68 Contact Information John Harpole President Mercator Energy 26 W. Dry Creek Circle, Suite 410 Littleton, CO (303) (work) (303) (cell) 68

69 DJ, Powder River, Green River, Piceance and Wind River Rockies Production at Current Development Pace Total Rockies Growth 522 MMcf/d Denver-Julesburg Green River-Overthrust Wind River Powder River Piceance Rockies Other Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,

70 Rockies to Southwest; displacement from Permian Kern River Kern River Capacity TransColorado & Northwest TransColorado N to S Capacity Northwest S to N Capacity Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22,