Gas s Pipeline to Sustainability: An Update on Gas Markets September 28, 2017
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Wisconsin Quick Facts
What does the future hold for gas markets? How gas can become the backbone to a competitive, sustainable, clean energy future!
Natural Gas Commodity (Supply)
U.S. is world s largest natural gas producer.
UPDATED
Marcellus and Utica Shale Basins Provided 85%-90% of shale gas production growth since 2012 Ohio now has about 10 Tcf (trillion cubic feet) of proven gas (a 10-fold increase since 2009) Pennsylvania has over 70 Tcf (doubling since 2012 alone) Marcellus has enough gas to meet 30% to 39% of demand east of the Mississippi through 2040 Utica may be the largest domestic discovery of oil in 50 years The key drilling efficiencies Estimates could still be conservative with stacked plays
Efficiencies Southwestern Energy Investor Presentation for Northeast Appalachia
Shale Gas Production Shale production grows from 9.7 Tcf in 2012 to 19.8 Tcf in 2040. 54% Perspective: 2015 consumption projected at around 25-26 Tcf/year. 41%
Production Supplements Associated gas Drilled but uncompleted wells (DUCs) NGLs (natural gas liquids) Butane, propane, ethane, pentane, isobutene, and natural gasoline
Natural Gas Interstate Transportation (the Pipeline) The path and the contract
Map of Pipeline Infrastructure HENRY HUB: Centralized Price Point for Commodity Also, the physical trading point for the NYMEX (New York Mercantile Exchange)
Where Will the Marcellus/Utica Gas Flow? 51 pipeline infrastructure projects originate in Marcellus/Utica basin New pipelines, bidirectional capabilities, expansions, new storage capabilities Total capacity of ALL projects is 30 Bcf/day Plus, 6 Bcf/day of new processing capacity (to remove the NGLs)
In 2016, FERC certified 17.6 Bcf/day of pipeline capacity. In 2017, FERC certified 7 Bcf/day of pipeline capacity before losing its quorum.
Gas Pipeline Capacity Additions through 2018 Source: RBN Energy
Rockies Express Reversal REX Zone 3 Capacity Enhancement project went into service on 1/1/17 West to East capacity is 1.8 bcf/day, spanning 1,700 miles from northwestern Colorado and Wyoming to eastern Ohio REX Zone 3 has the ability to move 2.6 Bcf/day of gas east to west, AND 1.8 bcf./day of west to east Is adding.8 bcf/day by increasing the takeaway capacity form the Marcellus and Utica shale basins
Phase 1 complete by end of 2017 Phase 2 complete in Q1 2018 (3.25 Bcf/day)
The Nexus Pipeline will move natural gas through northeastern Ohio, en route to Michigan and the Midwest, moving 1.5 billion cubic feet of gas per day. Initial in-service date was end of 2017.
400,000 dth/day
Wisconsin Supply Sources Direct access to supply ANR: Louisiana, Kansas, Texas Plus interconnection at Joliet, IL Great Lakes: Canada Viking: Canada Northern Natural: Kansas, Oklahoma, Texas Interconnections that extend into Wisconsin Guardian: Connects with Joliet, IL Hub Joliet, IL Hub Interconnections ANR, Alliance, Guardian, Horizon, Kinder Morgan, NGPL, Northern Border, Midwestern, and Vector Pipelines
ANR Pipeline
Northern Natural
Other Regional Expansions Chicago Market Expansion: 238,000 dth/day from NGPL s Gulf Coast Mainline System to Chicago area Prairie State: 1.2-1.5 Bcf/day from central Illinois to Chicago region Northern Natural: Cedar Station, Northern Lights 2017, and Lake Mills are projects constructed for Minnesota customers (there may be some incidental systemic benefits for Wisconsin) ANR: Wisconsin South Expansion Project: 231,000 Mcf/day from Northern Illinois into Wisconsin (primarily increases capacity at Sandwich, Illinois, compressor stations). Construction to begin in Q4 2017 with a targeted in-service date of November 2018
Looking Ahead It s About More than Just Wisconsin
Reserving Pipeline Capacity Tariffed rates approved by the Federal Energy Regulatory Commission (FERC) Firm Service Guaranteed space on a specified route (path) Interruptible Service Allows shippers to move gas if pipeline space is available. Takes a back-seat to firm service Scheduling priorities The purpose of an open season Contracting for the RIGHT level of service
To Wisconsin.. 2 1 1+2 = City Gate
Putting the Pieces Together Building a Portfolio Gas Commodity Interstate Pipeline Burner Tip Power Generation Residential End User Choice of suppliers Utility ONLY C II T Y Utility (LDC) G A T E Commercial End User Industrial End User
Rarely, is it a single factor that moves prices
Production / Supply Levels
Platts: August 8, 2017 Long-Term: Rover and 15 other pipelines expected to add 3.7 Bcf/day of new pipeline capacity in Northeast in next six months. Platts: September 11, 2017
Long-Term Supply Projections Estimates for major production increase to ~78 Bcf/day in 2018 (some say that s too optimistic) Based on Q2 earnings calls, Marcellus and Utica producers collectively say they anticipate growth of 14.5 Bcf/day of natural gas production growth in the region by the end of 2019 Growth assumes a $3 per MMBtu forward price With DUCs, only need to add 79 rigs to reach this growth projection With associated gas production, growth from the start of 2017 to the end of 2019 could be 24 Bcf/day
Released on Thursdays Injections and withdrawals are a measurement of supply and demand
U.S. Natural Gas Demand Growth - Electric power increases steady after 2020.
Natural Gas Overtakes Coal
Electricity Generation Mix Changes - As gas prices rebound from 2016 lower, gas-fired generation projected to drop below coal before declining after 2020. - Without the CPP, coal retains higher proportion of future generation mix.
- Older Fossil-fuels retirements projected - New wind and solar capacity due to declining capital costs and wind tax credits (ending 2023)
Exports - LNG exports increase booming through 2020. Source: EIA
What is Liquefied Natural Gas (LNG)? What is LNG? Gas that is cooled to minus 260 degrees Fahrenheit (liquid form) Gas takes up 600 times as much space as it does when in liquid form In liquid form, it can be transported More projects proposed than needed
LNG Exports
LNG Exports Cheniere Sabine Pass LNG facility: First export on February 24, 2016 100 th cargo export April 2017 2.1 Bcf/day approved (Trains 1-3) Cargo deliveries to 18 countries
LNG Transport Corridors
Global LNG oversupply situation from 2019-2022 In U.S., six projects under construction, three fully permitted, and 12 more in the queue (these projects represent 25 Bcf/day of capacity) LNG market begins to balance in 2024
- Prices lowering overseas as crude oil prices drop
Natural Gas Vehicles (NGVs) Alternative fuel vehicle that uses compressed natural gas (CNG) or liquefied natural gas (LNG) Infrastructure is improving More stations being built along major interstate trucking corridors Ideal for defined route vehicles that have point-to-point paths Transportation sector still accounts for very minimal natural gas demand in 2040 Low pump prices reduce NGV investment NGVs cost more than a vehicle that runs on gasoline
Weather Hotter temperatures drive air conditioning needs Colder temperatures drive heating needs Can also lead to pipeline capacity constraints Hurricanes Market didn t respond to hurricanes Why? Production returned quickly following Hurricanes Harvey and Irma with minimal issues Following Hurricane Katrina, production platforms reinforced and raised by approximately 20 feet First major test of infrastructure
Speculators Support and resistance price levels Capitalize on market uncertainty and weatherrelated events Do not CARE about logistics or the actual price of natural gas Tend to exaggerate price momentum, but an upward or downward trend cannot be sustained without underlying supporting fundamentals
The Big Picture U.S. annual natural gas consumption: 27.5 Tcf Proven reserves: 369 Tcf Technically recoverable resources: 2,355 Tcf (approx. 86 years)
Plenty of Gas, but at what price? Natural gas is a highly competitive market EIA projects that the price of the commodity will remain below $5 per MMBtu through 2040 with OR without Clean Power Plan Per unit prices have fallen due to improved efficiencies and higher production yields There are still plenty of outlook caveats EPA regulations, changing economics of coal, LNG, NGLs; fracking issues, etc. Gas supply is one issue deliverability is another!
Conclusions U.S. natural gas supply is plentiful and demand can be met If demand starts to exceed supply, higher prices will incent production You still need adequate infrastructure for deliverability Unconventional gas has given the U.S. enough excess production capacity to overcome mid-term demand shocks Price volatility is minimized during periods of low demand, but can STILL be heightened during periods of high demand even with adequate supply availability Volatility could increase when the U.S. becomes more fully integrated with the rest of the world via LNG exports Production story still trumps demand growth under nearly all scenarios
Thank You Valerie Wood, President Energy Solutions, Inc. Tel: (608) 848-6255 E-mail: vkwood@energysolutionsinc.com FREE 30-DAY TRIAL TO THE NATURAL GAS OUTLOOK Signup at: naturalgasoutlook.com