North American Crude Oil and Natural Gas Too Much Too Soon! Energy and Water Executive Forum August 9, 2018
Crude Oil, Natural Gas and Product Prices $105 250 2017 $18 $/Bbl $84 $63 $42 $21 c/gal 200 150 100 50 0 $16 $14 $12 $10 $8 $6 $4 $2 $0 $/MMbtu» OPEC/NOPEC production cuts» Middle East tensions» Uncertainty over Trump tariff retaliation Regular Gasoline Diesel Oil Gas 2
Crude, Natural Gas & NGL Production Spike 11 10 U.S. Crude Oil Production 80 75 U.S. Lower 48 Dry Gas Production 4.0 U.S. NGL Production From Gas Processing 9 70 3.5 MMB/d 8 7 6 5 Bcf/d 65 60 55 50 45 MMb/d 3.0 2.5 2.0 4 40 1.5 Source: EIA; RBN 3
Crude Oil Production Growth is Highly Concentrated» Since crude prices bottomed out in September 2016, U.S. crude oil production has increased about 2.4 MMb/d.» Of that total, 2.1 MMb/d or 85% of the growth has come from only five basins: the Bakken, the Anadarko, the Eagle Ford, the Niobrara (includes Powder River and D-J basin), and the Permian.» 55% or 1.4 million barrels per day of the total growth has come from only one basin: the Permian.» Most of the growth in U.S. production over the past 22 months has come from only a relatively small geographic footprint within each of these basins: 28 counties with a total land area of only 50,000 square miles, or about 1.7% of the U.S. lower-48 surface area. 4
U.S. Onshore Crude Oil Rig Counts by Basin 1,600 Oil Rigs by Basin 1,400 1,200 1,000 Rigs 800 600 400 200 0 Other Eagle Ford Anadarko Bakken Niobrara Permian Source: Baker Hughes 5
Crude Production From Major Tight Oil Basins M/bbl 3,000 2,500 2,000 1,500 1,000 500 Bakken M/bbl 3,000 2,500 2,000 1,500 1,000 500 Niobrara & Anadarko Niobrara Anadarko M/bbl 3,000 2,500 2,000 1,500 1,000 500 Permian M/bbl 3,000 2,500 2,000 1,500 1,000 500 Eagle Ford Source: EIA/RBN 6
U.S. Refinery Runs 18.5 18.0 2013 2014 2015 2016 2017 2018 17.5 17.0 Mb/d 16.5 16.0 15.5 15.0 14.5 14.0 7
U.S. Crude Oil Exports Mb/d 2,500 2,000 1,500 1,000 Canada Non Canada Annual Avg. Crude export ban lifted 3.0 MMb/d 6/22/18 500 0 Source: EIA/RBN 8
U.S. Crude Oil Supply / Demand Equation - 2018 Mb/d 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 [Production + Imports ] = [Refinery Runs + Exports]*» Every barrel that is exported requires that a replacement barrel be imported Supply Demand Imports Production Refinery Runs Exports * +/ Inventory Adjustments 9
Permian Basin Crude Pipeline Utilization 3.5 3.0 2.5 MMb/d 2.0 1.5 1.0 0.5 0.0 10
Permian Basin Crude Pipeline Utilization MMb/d 3.5 3.0 2.5 2.0 1.5 $/Bbl Midland Cushing Differential $5 $0 $5 $10 1.0 0.5 0.0 Pipeline Takeaway Refining Demand Production History $15 $20 $25 11
Midland - Cushing & Gulf Coast Oil Price Differential $/Bbl $ $(2) $(4) $(6) $(8) $(10) $(12) $(14) $(16) $(18) $(20) $(22) WTI Midland Cushing $/Bbl $ $(2) $(4) $(6) $(8) $(10) $(12) $(14) $(16) $(18) $(20) $(22) WTI Midland Gulf Coast 12
Permian Crude Takeaway Constraints Truck» Currently no more than 15,000 BPD moving from the Permian to Corpus; Rates approximately $20/bbl» Not enough trucks and not enough truck drivers.» The further the trucks have to go, the longer it takes to get there, which means still more trucks are needed.» Since early 2018 truckers must use electronic logging devices, or ELDs to monitor their hours and comply with driving hour limits, effectively reducing capacity. 13
Permian Crude Takeaway Constraints Permian Producers will vote with their feet Noble, Carrizo, Halcón, Cimarex, Parsley, etc. 14
U.S. Crude Oil Production Forecast Scenarios WTI Cushing 18 960 Mb/d/y $/Bbl $70 $65 $60 $55 $50 Mid Curve Low Flat High Flat MMb/d 16 14 12 10 8 6 4 2 0 400 Mb/d/y 15.8 14.3 12.8 2012 2017 2018 2023 High Flat 2018 2023 Mid Curve 2018 2023 Low Flat Source: RBN Forecast Unconstrained 15
Crude Oil Production Mid Curve Scenario (2018-2023) Bakken +350 Mb/d Niobrara +250 Mb/d STACK/SCOOP +125 Mb/d Permian +1,900 Mb/d Eagle Ford +400 Mb/d Total U.S. +3 MMb/d 16
Permian Crude Oil Pipeline Projects Plains Sunrise/Basin Expansion (+220) 670 Mb/d 2Q 2019 Plains Cactus II 670 Mb/d 3Q 2019 Midland, TX Plains/Exxon JV Permian Texas Gulf Coast >1 MMb/d 2021 Enterprise Midland to Sealy 575 Mb/d Energy Transfer Partners Permian Houston Nederland 600 1000 Mb/d 2020 P66/Andeavor Gray Oak 700 900 Mb/d 4Q 2019 Sunoco Permian Express III (+50) 140 Mb/d 2018 Magellan BridgeTex Expansion (+40) 440 Mb/d Q1 2019 Nederland, TX Houston, TX EPIC EPIC Crude 590 Mb/d 4Q 2019 Enterprise NGL Conversion (Seminole or Chaparral) 200 Mb/d Q2 2020 Corpus Christi, TX 17
Permian Basin Crude Pipeline Utilization MMb/d 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Plains/Exxon JV Enterprise NGL Conversion ETP Permian Houston Nederland EPIC Gray Oak Cactus II Basin/Sunrise Exp. Permian Express III Midland Sealy Cactus Expansion BridgeTex Expansion PELA Cactus Permian Express II BridgeTex Longhorn Amdel W. Texas Gulf Centurion Basin Refining Demand Production History RBN Prod. Forecast 18
IMO 2020 Looming Impact on Diesel Prices Sulfur Content in Fuel 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% IMO Global Sulfur Cap 2008 22 19
Lower 48 Natural Gas Production* 90 Dry Associated and Wet * Marketed Production (before processing shrinkage) Bcf/d 80 70 60 50 40 30 20 10 20
Northeast Natural Gas Production 25 Marcellus/Utica Production (Bcf/d) 20 15 10 5 0 Permian TX Permian Permian NM 21
Huge Shift in Rockies Express Gas Flows REX East to West MMCF/D 3,500 3,000 2,500 2,000 Up 634 MMCF/D Up 974 MMCF/D REX 1,500 1,000 500 0 Up 979 MMCF/D Source: Genscape 22
Displacement of Rover and Nexus Volumes 3,000 2,500 Rover Pipeline Receipts Cadiz MW Cadiz ORS Clarington Eureka Clarington OVC Madison Seneca Sundance Berne Michcon MMcf/d 2,000 1,500 1,000 +2.2 Chicago.75 1.03 Nexus.84 3.2 Dawn SW Marcellus & Utica 500 0 To the Gulf 23
Permian Natural Gas Takeaway Capacity 1.2 Waha to Mexico Forecast, Bcf/d Trans Western NGPL Northern 1 0.8 0.6 El Paso WAHA ET Fuel, Atmos 0.4 0.2 ETC & Oneok to Mexico Oasis, Enterprise, Kinder 0 Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18 Jan 19 May 19 Sep 19 Jan 20 May 20 Sep 20 * About 0.3 Bcf/d moving today on Roadrunner, Comanche Trail, Trans Pecos 24
Waha Cash Basis (Waha Henry Hub) $0.00 Waha $0.20 $/MMbtu $0.40 $0.60 $0.80 $1.00 Source: NGI 25
LNG Exports: Sabine Pass, Cove Point, Corpus Christi 4.0 3.5 3.0 2.5 2.0 Pipeline Deliveries to By LNG Terminal BCF/D 1.5 1.0 0.5 0.0 Sabine Pass Cove Point Corpus Christi Source: Genscape 26
Lower 48 Dry Gas Production Forecast Scenarios 120 History / High Flat 120 Mid Curve 120 Low Flat 100 100 100 80 80 80 Bcf/d 60 60 60 40 20 +1.7 Bcf/d Per Year +6.3 Bcf/d Per Year 40 20 +3.8 Bcf/d Per Year 40 20 1.4 Bcf/d Per Year 0 0 0 Source: RBN Forecast Unconstrained 27
Regional Natural Gas Production Outlook Production (Bcf/d) Production (Bcf/d) Production (Bcf/d) (Bcf/d) (Bcf/d) 30 14 8 12506 14 12 45 7 12 10 255 40 6 10 10 20 8354 5 30 8 8 4 15 6253 6 3 10 4 20 6 2 15 24 210 5 1 12 5 0 0 0 High Flat Mid Curve Western Northeast Southeast Rockies Mid-Continent Offshore Texas Low Flat Source: RBN Forecast Unconstrained 28
Permian Dry Gas Production Mid-Curve/Unconstrained 14,000 12,000 Permian 10,000 Production (MMcf/d) 8,000 6,000 4,000 2,000 0 Permian Midland Basin Permian Central Basin New Mexico Permian Delaware Basin 29
Permian Natural Gas Pipeline Projects New Mexico Texas Kinder/EagleClaw Permian Highway Pipeline 4Q 2020 2.0 Bcf/d Waha Williams Blue Bonnet Express 2020 2.0 Bcf/d Boardwalk/Sempra Permian Katy (P2K) 1Q 2020, 1.5 2.0 Bcf/d Tellurian Permian Global Access Pipeline (PGAP) 2H 2022 2.0 Bcf/d Kinder Morgan Gulf Coast Express 2H 2019, 1.98 Bcf/d Houston Central Plant Katy/Ship Sta. 30 Targa/WWM/NEE/MPLX Whistler Pipeline 4Q 2020, 2.0 Bcf/d NAmerico Pecos Trail Pipeline 2H 2019, 1.85 Bcf/d Agua Dulce 30
Permian Basin Natural Gas Pipeline Utilization Bcf/d 30 25 20 15 10 5 0 Permian Natural Gas Pipeline Utilization PGAP Williams Bluebonnet Permian Highway Whistler Permian Katy Gulf Coast Express Pecos Trail TPP CTP Oneok WesTex Enterprise/DCP Kinder Morgan Texas ET Fuel/Enterprise Oasis Atmos Roadrunner Transwestern EPNG NGPL NNG Demand History Low Flat Mid Curve High Flat 31
Waha Basis Declines Until New Pipeline Starts In Late 2019 $/MMBtu $ $(0.50) $(1.00) $(1.50) $(2.00) $(2.50) $(3.00) Assuming new 2.0 Bcf/d Pipeline» Additional Pipeline Projects» Flaring (Rotational)» Additional Ethane Recovery» Crude Oil Production Slowdown» Legacy Gas Curtailments» Reinjection/Gas Disposal Wells» Drilled but Uncompleted (Pads)» Shifting Geographic Focus 32
LNG Timing: Buildup of Export Capacity (2018-23) BCF/D 14 12 10 8 6 4 2 0 2nd Wave Corpus (1 3) Freeport (1 3) Elba Island (1 6, 7 10) Cameron (1 3) Cove Pt Sabine (1 5) Potential Expansions Cameron 4 5 Lake Charles 1 3 Sabine Pass 6 33
Natural Gas Supply/Demand Balance (Mid Curve Scenario) 110 100 Bcf/d 90 80 70 60 50 40 30 20 10 0 Canada Imports Dry Production LNG Exports Mexico Exports Power Indust. & Transp. Residential & Com. Fuel & Other* * Lease and Plant Fuel, Pipeline & Distribution Use, Change in Storage Balance, Balancing Item. 34
Henry Hub Natural Gas Price & Forward Curve 4.00 History Forward Curve 3.50 $/MMBTU 3.00 2.50 2.00 1.50 35
U.S. Gas Flows 2008: South-to-North, West-to-East 36
U.S. Gas Flows 2023: North-to-South, East-to-West 37
Too Much Too Soon! Rusty Braziel 2323 S. Shepherd Drive, Suite 1010 Houston, TX, 77019 rbraziel@rbnenergy.com www.rbnenergy.com 38