Natural Gas The North American market Trevor Sikorski, September 2014
Overview Gas pricing contrasting fortunes Global gas pricing $/mmbtu 20 18 16 14 12 10 8 6 4 Japan India UK US Global gas market: Still large global differences in pricing Gas is a premium fuel outside of NA Outside NA, prices fell on mild winter 2 0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 In NA, price rose due to cold winter North American gas prices are jealously viewed around the rest of the world Source: Reuters, Energy Aspects 2
Natural gas demand weather has brought support End user gas consumption Tcf End user gas consumption, y-y Bcf 3.5 2014 2013 2012 400 3.0 300 2.5 200 2.0 100 0 1.5 (100) Jan Feb Mar Apr May Jun Jul Aug Total end user consumption in 2014-to-date is up by 640 bcf (2.67 bcf/d, 3.7%) But there are no strong trends once you get past Q1 14 3
Natural gas demand weather has brought support Residential demand for gas Tcf Heating Degree Days HDDs 1.2 0.9 2014 2013 2012 1200 1000 800 2012 2013 2014 0.6 600 0.3 400 200 0.0 0 Residential & Commercial demand in 2014-to-date is up by 462 Bcf (1.90 bcf/d, 8%). Our forecast for 2015 is for it to fall by 364 bcf (1.0 bcf/d, 4.3%) HDDs were up y/y by 12% over Q4 13 and Q1 14 4
Industrial sector gas demand consistently strong Industrial demand for gas Tcf 0.75 0.70 0.65 0.60 0.55 0.50 2014 2013 2012 Company Location Type Cost Additional capacity (thousand t/ y) ($ Mn) 2013 2014 2015 2016 2017 2018+ Williams Geismar, LA Expansion 350-270 - - - Ineos Chocolate Bayou, TX Expansion n/a 115 - - - - Westlake Chemical Lake Charles, LA Expansion n/a 115-115 - - LyondellBasell La Porte, TX Expansion n/a - - 363 - - Westlake Chemical Calvert City, KY Expansion 220-90 - - - BASF Fina Petrochem. Port Arthur, TX Expansion n/a - 115 - - - ExxonMobil Chemical Baytown, TX Expansion n/a - - - - 1,500 Formosa Point Comfort, TX Construction 1,700 - - - - 1,000 Mexichem / Oxychem Ingleside, TX Construction 1,000 - - - - 544 Dow Chemical Freeport, TX Construction 1,700 - - - - 1,500 ChevronPhillips Chem. Baytown, TX Construction 5,000 - - - - 1,500 Shell Monaca, PA Construction 4,000 - - - - - 1,500 Sasol Lake Charles, LA Construction 4,500 - - - - 1,500 Braskem Parkersburg, WV Construction - - - - - 1,500 Total 18,495 230 475 478-7,544 3,000 Industrial consumption in 2014-to-date is up by 200 bcf (0.83 bcf/d, 4.1%). 2015 forecast: up by 263 bcf (0.72 bcf/d, 3.4%) Outpacing economic growth; could see another significant boost as largest additions potentially still to come 5
Power sector gas demand system balancing Power sector demand for gas Tcf Fuel switching Tcf 1.2 2014 2013 2012 1.0 0.8 0.6 0.4 Power sector demand in 2014-to-date is lower by 93.5 bcf (- 0.39 bcf/d, -2%). 2015 forecast: is higher by 1057 bcf (2.9 bcf/d, 13%). An important source of growth. Fuel switching is an important price mechanism for balancing the market 6
Gas in storage here every Thursday Storage injections Bcf 140 Max inj. - Min inj. 2014 5-year average 120 100 80 60 40 20 0 Apr May Jun Jul Aug Sep Oct Total winter withdrawal of 3 tcf left gas inventories lower by 847 bcf, 50% lower Summer injections have been higher y/y by 376 bcf, storage now 471 bcf down. On course for an injection season end of 3.55 tcf 7
Supply is still surging Dry gas production Tcf Rig counts Rigs 2.4 2014 2013 2012 2,500 Oil Gas 2.2 2,000 2.0 1,500 1,000 1.8 500 1.6 0 11 12 13 14 Impressive increases in gas production 2014-to-date is up y/y by 759 bcf (3.12 bcf/d, 3.4%). 2015 forecast is for a 1 tcf y/y increase (3.0 bcf/d, 4.3%) Gas rig counts are down by over 60% since the highs of 2011 8
Natural gas supply and it is all about Marcellus Shale gas production Bcf/d Shale gas production, y/y change in production Bcf/d 50 Bakken Niobrara Permian Haynesville 8 Bakken Permian Niobrara Eagle Ford Marcellus Haynesville 40 Eagle Ford Marcellus 6 30 4 2 20 0 10 (2) 0 10 11 12 13 14 (4) Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Marcellus growth 2014 is up by 918 bcf (3.78 bcf/d, 35%). 2015 forecast is for increases of 2.38 bcf/d Size of y/y production declines dropping at other basins and higher y/y increments elsewhere 9
Natural gas supply Rig productivity outpacing legacy losses New well productivity gains production per rig Production in bcf/d, Legacy losses, y/y change in production Bcf/d 10 8 Eagle Ford Haynesville Marcellus Niobrara 0.0 10 11 12 13 14 6 (0.5) 4 2 0 10 11 12 13 14 (1.0) (1.5) Bakken Niobrara Marcellus Permian Haynesville Eagle Ford Growth is driven by a number of factors: debottlenecking is having a big impact Legacy losses are up by 329 bcf (30 bcf/d, 10%) in 2014 10
US gas exports Mexico as a source of demand Mexico: exports Bcf 70 60 50 40 30 2014 2013 2012 Additional Expected Project capacity bcf/ d start date Country Company Details Los Ramones 2.1 Q4 2014 Mexico Ienova US Border (TX) to Los Ramones. Los Ramones P2 2015 Mexico Pemex Los Ramones distribution network to five central Mexican states. Eagle Ford Shale Pipeline 2.1 Q4 14 US Net midstream Agua Dulce hub to near Rio Grande City on Mexican Border. FERC approval awarded. Northwest pipeline (Sonora) 0.76 Q4 14 Mexico Ienova Sasabe (US border, AZ) to Guayamas. Being built by Ienova. Sonora Pipeline P2 0.5 Q3 16 Mexico Ienova Link to the North-West pipleine at Guyamas to El Oro, Los Mochis (Sinaloa), connecting to El Encino And El Oro pipes. Ienova. Sierrita lateral 0.21 Q4 14 US Kinder Morgan Sasabe to Tuscon. Chihuahua corridor 0.85 2013 Mexico Fermaca Ciudad Juárez to El Encino. Completed. El Encino project 0.67 Q3 2016 Mexico TransCanada Link from Chihuahua Corridor at El Encino to Topolobampo in Sinaloa. El Oro project 0.2 Q4 2016 Mexico TransCanada Link from Mazatlan to El Oro potential connection with El Encino or with the Sonora pipeline. Norte crossing 0.37 2013 US Completed. Samalayuca lateral 0.24 2013 US Completed Others South Texas expanison 0.3 H2 14 US Gas from existing pipelines tied into Texas Texas Eastern Eastern's interconnection with Pemex at (Spectra) Reynosa. No update on any progress. Total 3.7 Imports in 2014-to-date are up y/y by 12.7 bcf (0.07 bcf/d, 3.8%). 2015 forecast is for increase of 0.20 bcf/d (10%) Pipeline capacity, underlying demand growth, the power sector and energy sector reform are all key maybe 1.5-1.8 bcf/d of added demand by 2020. 11
US Imports Call on Canadian gas falling Canada: imports Bcf Canada: production Bcf 300 2014 2013 2012 550 2014 2013 2012 250 500 450 200 400 150 350 US imports have fallen post-winter. 2014 is down by 50 bcf y/y (-0.28 bcf/d, -3.8%). 2015 forecast is down by 0.56 bcf/d (-7.5%) Canadian production started the year off well 12
Natural gas trade LNG as demand, but not until 2016 LNG liquefaction terminals Project, St at e (Developer) United States LNG Terminals Export volumes Export st at us FERC Bcf/ d MTPA bcma FTA Non-FTA Approval Target start Sabine Pass, LA (Cheniere) 2.20 16.72 22.48 Approved Approved Approved 2016 DOE Approved = 108 Mtpa (14 bcf/d) Freeport LNG, TX (Freeport LNG development) 1.40 10.64 14.31 Approved Approved Approved 2018 Lake Charles Exports, LA (BG) 2.20 16.72 22.48 Approved Approved Proposed 2019 DOE Applied = 330 Mtpa (43.4 bcf/d) Cove Point, MD (Dominion) 1.77 13.45 18.09 Approved Approved Proposed 2017 Freeport LNG, TX (Freeport LNG development) 1.80 13.68 18.40 Approved Approved Approved 2018 FERC Approved = 6.25 bcf/d Cameron LNG, LA (Sempra) 1.70 12.92 17.37 Approved Aproved Approved 2018 Jordan Cove, OR (Jordan Cove Energy - Veresen Inc) 2.00 15.20 20.44 Approved Approved Proposed 2019 Warrenton, OR (LNG Development) 1.25 9.50 12.78 Approved Approved Proposed 2019 Corpus Christi, TX (Cheniere) 1.78 13.50 18.15 Approved DOE review Proposed 2019 Lavaca Bay LNG, TX (Excelerate) 1.38 10.49 14.10 Approved DOE review Proposed 2017 Only a selection of projects but 7-10 bcf/d of exports possible by 2020 13
Natural gas trade LNG as an outlet for Canadian supply LNG liquefaction terminals Project, Province (Developer) Export volumes Export licence Target Bcf/ d MTPA bcm a start Canada LNG Term inals BC LNG - Douglas Channel, BC (LNG Partners) 0.09 0.70 0.94 Approved 2016 Kitimat, BC (Apache, Chevron) 1.32 10.00 13.45 Approved 2017 LNG Canada, BC (Shell, Mitsub., PetroCh., Kor. Gas) 1.58 12.00 16.14 Approved n/ a Pacific North-West, BC (Petronas / Japan Petroleum) 0.79 6.00 8.07 Approved 2019 Prince Rupert, BC (BG, Spectra) 1.84 14.00 18.83 Approved 2021 WCC LNG (ExxonMobil, Imperial) 1.32 10.00 13.45 Approved 2021 Woodfibre LNG 0.26 2.00 2.69 Approved 2017 Prince Rupert Triton, BC (Idemitsu / Altagas) 0.33 2.50 3.36 Approved n/ a Aurora LNG, BC (CNOOC, Inpex, JGC) 3.16 24.00 32.27 Approved n/ a Kitsault LNG, BC 2.63 20.00 26.90 Applied 2018 Goldboro LNG, Nova Scotia (Pieridae Energy) 1.32 10.00 13.45 Applied 2019 Stewart Energy LNG, BC (Canada Stewart) 3.95 30.00 40.34 Applied P1=2017 WesPac Midstream, BC 0.41 3.10 4.17 Applied Steelhead LNG, BC (Steelhead) 3.95 30.00 40.34 Applied 2022 Discovery LNG, BC, (Quicksilver) 2.63 20.00 26.90 Applied 2021 * Canada'a NEB has also approved exports through the US based projects of Jordan Cove and Oregon LNG Approved 10.68 81.20 109.20 Tot al Canada 25.57 194.30 261.29 More direct equity stakes by big Asian players. Could see 3 bcf/d of exports by 2020-2025 14
How will the US gas market balance post 2020 Price gas out of power = 4 $/mmbtu Attract more rigs from oil = +6 /mmbtu Close the LNG arb window = HH + 1.5 to 3 $/mmbtu 15
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