U.S. Natural Gas and the Poten3al for LNG Export Growth Presentation to: 2018 Wyoming Oil & Gas Fair By: John Harpole September 12, 2018
It is not a scarce resource anymore 2
US RIG COUNTS: Aug 2018 vs Aug 2016 15/+9 CALIFORNIA 12/+5 6/+2 2/+0 1/+1 4/+4 Rig Increases Dry Gas Focused Areas OTHER ROCKIES 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/+57 122/+68 EAST TX 23/+12 35/+21 33/+21 25/+1 5/+1 10/+0 5/+2 2/-2 2/+1 32/+24 TX GULF Rig Declines EAGLE FORD Source: S&P Global, Aug 2018 1/+0 45/+3 ILLINOIS ARK FAYETTEVILLE ARKLA MICHIGAN UTICA ARK WOODFORD 10/+8 LA GULF TX GULF AL-MS-FL OFFSHORE Ac3ve rig count: Aug 3, 2018 / Change in rig count from Aug 5, 2016 1/-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, 2018 4
Source: LNG Allies, The US LNG Association, www.lngallies.com 5
Source: LNG Allies, The US LNG Association, www.lngallies.com 6
Source: LNG Allies, The US LNG Association, www.lngallies.com 7
US supply growing again; largest year-over-year gain in history 85 80 75 70 65 60 U.S. Dry Gas Production Y-O-Y (Forecast) 2017/2018 +7.0 Y-O-Y (YTD) 2017/2018 +5.0 Y-O-Y 2014/2015 +3.4 Y-O-Y 2013/2014 +4.0 2013 2014 2015 2016 2017 2018 Forecast Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22, 2018 8
Source: LNG Allies, The US LNG Association, www.lngallies.com 9
Source: LNG Allies, The US LNG Association, www.lngallies.com 10
Domestic demand growth slows, global demand drives price and production +1.1 +0.0-0.1 +0.5 +0.0 +0.1 +1.9 +0.2-0.3 +0.3 US Domestic Demand (2018-2023) +4.8 +0.6 US Export Demand (2018-2023) +10.3 +1.9 +6.6 +3.3 Source: S&P Global Platts Analytics Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22, 2018 11
Source: LNG Allies, The US LNG Association, www.lngallies.com 12
Source: LNG Allies, The US LNG Association, www.lngallies.com 13
Source: www.eia.gov/dnav/ng/hist/n9132mx2m.thm accessed 08/20/2018 14
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-18 334 El Encino - Topolobampo West Texas 670 Oct-16 Jun-18 608 Nueva Era South Texas 504 Jun-17 Dec-18 548 Tula - Villa de Reyes South Texas 886 Dec-17 Jul-18 212 La Laguna - Aguascalientes West Texas 1,189 Dec-17 Nov-18 335 Villa de Reyes - Aguas. - Guadalajara West Texas 886 Dec-17 Nov-18 335 Samalayuca - Sasabe West Texas 472 Jun-17 Nov-18 518 Sur de Texas - Tuxpan South Texas 2,600 Jun-18 Oct-18 122 Tuxpan - Tula South Texas 886 Mar-17 Dec-19 1,005 Average Delay 460 4.7 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, 2018 15
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-19 10 5 0 2017 2018 2019 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, 2018 16
Source: LNG Allies, The US LNG Association, www.lngallies.com 17
Source: LNG Allies, The US LNG Association, www.lngallies.com 18
Source: LNG Allies, The US LNG Association, www.lngallies.com 19
High Utilization of US LNG Expected to Persist 12 10 8 6 4 2 0 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, 2018 20
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 UK 3 Bcf 9 Bcf SPAIN POLAND PORTUGAL 27 Bcf 3 Bcf 23 Bcf ITALY BRAZIL 45 Bcf Netherlands 6 Bcf 10% to Europe Lithuania 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 TAIWAN 12 Bcf JAPAN 87 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, 2018 21
Asia Clearly Driving LNG Demand 60 50 40 LNG Demand By Region LNG Demand in Asia expected to account for roughly 50% of the total LNG demand growth 2023 v 2018 30 20 10 0 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, 2018 22
China almost 30% of growth in global LNG demand (2018 to 2023) 60 50 40 30 20 10 0 18% 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, 2018 23
Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21, 2018 24
Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21, 2018 25
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Ruby Capacity (west) 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 Sum of Flow Max Opera3onal Capacity Source: Bernadette Johnson, DrillingInfo 28
Uinta and Piceance to Pacific Source: Veresen Corporate Presentation, November 2014 29
Pacific Connector Pipeline Source: Oregon Green Energy Guide 30
Source: Greg Ruben, KinderMorgan, Colorado Oil and Gas Association Trade presentation, August 21, 2018 31
Key Takeaways Forecasted North American 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 ) 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 U.S. natural gas producers are dependent upon export growth Source: Rick Allen, S&P Global Platts, The Energy Summit COGA 2018 presentation, August 22, 2018 32
Contact Information John Harpole President Mercator Energy 26 W. Dry Creek Circle, Suite 410 Littleton, CO 80120 harp@mercatorenergy.com (303) 825-1100 (work) (303) 478-3233 (cell) 33