Natural Gas Next: The Rockies and the West Callie Kolbe, Manager, Energy Analysis Sadie Fulton, Senior Energy Analyst September 25, 2017
Jordan Cove Back again?
There is even more gas?
NIMBY!
Renewable Targets
The Rockies and the West Production: Where can it go? Demand: The impact of renewables How pipeline flows are changing Expectations through Summer 2018
Late-Summer Heat in West Population Weighted Degrees 80 75 70 65 60 55 50 Western Temperatures Population Weighted Degrees 80 75 70 65 60 55 50 45 40 Rockies Temperatures 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Bakken-MT Bakken-ND Other-MT Williston, Non-Bakken-ND Big Horn-MT Powder River-MT Williston, Non-Bakken-SD Big Horn-WY Powder River-WY Other-SD Wind River Other-UT Overthrust Uinta Green River- WY Green River- CO Piceance Denver Julesburg- WY Denver Julesburg- CO Rocky Mountain Region 26 Producing Areas Paradox- UT Other-CO San Juan- CO Raton-CO Anadarko-CO
Rocky Mountain Region Gas Production, by Producing Area DJ Bakken Source: PointLogic Energy
Rockies Production Shrinking 14 12 10 Bcf/d 8 6 4 2 0 Powder River Uinta San Juan Piceance Denver - Julesburg Green River - Overthrust Other Forecast Rockies production expected to continue to succumb to pressures from Northeast production explosion, widely available Canadian gas, and shrinking western demand.
Rockies Supply & Demand 14.00 12.00 Bcf/d 10.00 8.00 6.00 In the last 5 years, winter balance has averaged 7 Bcf/d. Summer balance has averaged 8.9 Bcf/d. 4.00 2.00 - Demand Balance Supply Demand Forecast Balance Forecast Supply Forecast
Rockies Gets Shorter (well less long) 2012 vs. 2017 Supply Demand Lower production, combined with modest residential growth. 2017 was second consecutive year of production decreases. Source: PointLogic Energy
Pet-Chem Projects Lead Industrial Demand Growth But Not in West Most of the gas-intensive projects are not slated for buildout along the West and Rockies. Source: IHS-Markit & PointLogic Energy
West Gets Shorter 2012 vs. 2017 Supply Demand Higher demand driven by power and exports to Mexico. Source: PointLogic Energy
Power Burn Per Temp in the West 9 Jan.-Sept. Power Burn per Degree in the West, 2014-2017 8 Western Power Burn in Bcf/d 7 6 5 4 3 YTD 2017 Power YTD 2016 Power YTD 2015 Power YTD 2014 Power YTD 2017 Power Trendline YTD 2016 Power Trendline YTD 2015 Power Trendline YTD 2014 Power Trendline 2 40 45 50 55 60 65 70 75 80 85 Western Temperatures in Population Weighted Degrees
Nat Gas Power Growth Stronger in West than in Rockies Western Electricity Generation by source Rockies Electricity Generation by source 500 1,200 400 600 Generation (Million MW Hours) 450 400 350 300 250 200 150 100 50 1,150 1,100 1,050 1,000 950 900 Generation (Million MW Hours) 350 300 250 200 150 100 50 500 400 300 200 100 0 850 0 0 Total Hydro Nuclear Wind Coal Natural Gas Solar Total Hydro Nuclear Wind Coal Natural Gas Solar
California Loves Renewables As California s drought conditions lightened, hydro came back in 2017. For context, natural gas generation bumps around 20,000-40,000 thousand MW hours in California.
Coal Retirements are History in the Rockies Source: EIA
West adds Solar and Gas; Rockies adds Wind GW Western Power Generation Additions 6.00 5.00 4.00 3.00 2.00 1.00 GW 2.50 2.00 1.50 1.00 0.50 Rockies Power Generation Additions - 2017 2018 2019 2020 0.00 2017 2018 2019 2020 Natural Gas Wind Solar Natural Gas Wind Solar
Western Supply & Demand 16.00 14.00 Bcf/d 12.00 10.00 8.00 In the last 5 years, winter balance has averaged -7 Bcf/d. Summer balance averaged -5.5 Bcf/d. 6.00 4.00 2.00 - Supply Balance Demand Supply Forecast Balance Forecast Demand Forecast
The Flow Pattern Box Competition: Canada and Bakken Competition: Canada & constraints Competition: SCOOP/STACK & Northeast Competition: Growth from Permian
Bakken Supply: Large on Northern Border MMcf/d 2350 2300 2250 2200 2150 2100 2050 2000 1950 1900 Northern Border Outflows (Jan.-Sept.) 2011 2012 2013 2014 2015 2016 2017 Outflows to Midcontinent Bakken Sourced Supply 40% 35% 30% 25% 20% 15% 10% 5% 0% Bakken % of Supplies
The Flow Pattern Box Competition: Canada and Bakken Competition: Canada & constraints Competition: SCOOP/STACK & Northeast Competition: Growth from Permian
Rockies Eastbound Flows (Jan.-Sept.) 3.5 3 2.5 2 Bcf/d 1.5 1 0.5 0 2011 2012 2013 2014 2015 2016 2017 REX CIG Cheyenne Plains Southern Star
Rockies Westbound Flows 3000 2500 2000 1500 MMcf/d 1000 500 0-500 Northwest Pipeline Ruby Pipeline Kern River TransColorado Northwest West Southwest South 2011 2012 2013 2014 2015 2016 2017
2012 vs. 2017: Flow Patterns Jan.-Sept. Net Rockies (Bcf/d) 2012: (6.8) 2017: (7.0) Change: +(0.2) (0.1) Jan. Sept. Net West (Bcf/d) 2012: 5.9 2017: 6.9 Change: +1.0 +0.9
Summer 2016 vs. 2017: Flow Patterns April-Sept. Net Flows from Rockies (Bcf/d) 2016: (7.7) 2017: (7.4) Change: -(0.3) +0.1 April-Sept. Net Flows to West (Bcf/d) 2016: 7.0 2017: 6.9 Change: - (0.15) +0.4
Traditional Constraints 2016 - PG&E Redwood Path: 88.5% 2.1 Bcf/d 2017 - PG&E Redwood Path: 89.5% 2.1 Bcf/d Utilization Capacity (summer to date) 2016 Ruby (West): 26% 2.4 Bcf/d 2017 Ruby (West): 26% 2.4 Bcf/d 2016 - Kern River (Veyo): 93% 2.4 Bcf/d 2017 - Kern River (Veyo): 86% 2.4 Bcf/d Transwestern (W. Thoreau): 77% 1.2 Bcf/d 2016 - PG&E Baja Path: 36% 1.1 Bcf/d 2017 - PG&E Baja Path: 31% 1.1 Bcf/d Transwestern (W. Thoreau): 76% 1.2 Bcf/d 2016 - El Paso South ML at Cornudas: 75% 2.4 Bcf/d 2017 - El Paso South ML at Cornudas: 82% 2.4 Bcf/d
Rockies & West Basis Widen $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 -$0.10 -$0.20 -$0.30 -$0.40 -$0.50 Rockies and West Basis Opal S. California Border Malin PG&E CG Opal2 S. California Border3 Malin4 PG&E CG5 Above-average Rockies storage inventories, along with cheap supply from western Canada and the Permian Basin, will continue to limit Rockies outflows, keeping basis discounts wider than last year North and South California basis remains wider than the five-year average in both regions because of weak power sector gas demand and large discounts in California s supply regions. Source: IHS
Rockies and the West: Conclusions As Northeast supply spills over into neighboring regions, it will put downward pressure on traditional supply basis because it is closer and cheaper to premium markets. Competition in the Midwest forces Rockies supply to shift to the West. Pipeline constraints to the Southwest play an important role in dictating how Rockies gas will find a home in the West.
Appendix
Rockies Gets Slightly Less Long Summer 2016 vs. 2017 Dry Prod Supply Canadian Imports Total Supply Power Demand Industrial Res/Com Total Demand 0.01-0.05-0.04-0.06-0.10-0.14-0.19 Source: PointLogic Energy
West Gets Slightly Longer Summer 2016 vs. 2017 Supply Demand Dry Prod Canadian Imports Total Supply Power Industrial Res/Com Mexican Exports Total Demand 0.06 0.03 0.02 0.01 0.04-0.03-0.11-0.18 Power demand collapses summer-on-summer Source: PointLogic Energy
Pricing: California Hub Basis 2 1.5 1 $/MMBtu 0.5 0-0.5-1 Malin Basis PG&E-Citygate Basis SoCal Border Basis SoCal-Citygate Basis Note: Negative numbers indicate a price discount to Henry Hub.
Competition from Canada 8 7 6 5 Canadian Flows into Rocky Mountains Canadian production nearly doubles Rockies quantities to ship. Bcf/d 4 3 2 1 0
Change in Flows Demand: Winter = 10.7 Summer = 9.2 Demand: Winter = 4 Summer = 2.2 Rockies to Mid-Continent: 5.8 Winter, 6.2 Summer All data: Average of last 5 years, Bcf/d
Big-Picture Flows: Summer 2017 Demand = 9.0 Demand= 2.1 Rockies to Mid-Continent: 6.6 All data: Summer 2017 (April-September), Bcf/d
West Production: Small and Steady Bcf/d 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Other Monterey Shale Suan Juan-NM Permian-NM Forecast Production in Western Region dominated by Permian-NM and San Juan-NM. Source: PointLogic Energy We expect production for the Western region to remain relatively flat at 3.6 Bcf/d through the forecast period as increasing production from Permian-NM is offset by losses in the rest of the region.
West Demand 12 10 8 Bcf/d 6 4 2 0 2011 2012 2013 2014 2015 2016 2017* 2011 2012 2013 2014 2015 2016 2017* Winter Summer Industrial Res/Comm Power
Power Burn Per Temp: Rockies 1 Jan.-Sept. Power Burn per Degree in the Rockies, 2014-2017 0.9 0.8 Rockies Power Burn in Bcf/d 0.7 0.6 0.5 0.4 0.3 0.2 YTD 2017 Power YTD 2016 Power YTD 2015 Power YTD 2014 Power YTD 2017 Power Trendline YTD 2016 Power Trendline YTD 2015 Power Trendline YTD 2014 Power Trendline 0.1 0 0 10 20 30 40 50 60 70 80 90 Rockies Temperatures in Population Weighted Degrees