Kentucky Natural Gas & NGL Pricing.Why traditional assumptions are no longer valid Midwest Energy Logistics, LLC

Transcription

1 Kentucky Natural Gas & NGL Pricing.Why traditional assumptions are no longer valid Midwest Energy Logistics, LLC Mark Jergens, Founder & CEO

2 MEL History Founded in 2005 by Mark Jergens NYMEX Price & Basis Forecasting Monthly Price Forecast (Opinion History is in Writing) Based on mathematical modeling, intensive analysis, and data consolidation Producer Services Transactional activity Interconnection planning & optimization NGL Extraction & Marketing CVR Liquids, LLC Management Consulting Marcellus/Utica Positioning Services 2

3 Presentation Topics Natural Gas NYMEX Price Forecast Natural Gas Basis Pricing Forecast NGL Price Forecast 3

4 Natural Gas NYMEX Pricing The only way to credibly forecast futures pricing is to challenge the underlying assumptions that are included in current pricing! 4

5 Natural Gas Futures Opinion MEL s overall opinion is bullish on NYMEX pricing versus current prices US and Canada developing LNG export market which becomes major new demand category in 2015 Most new gas in Marcellus where negative basis values are driving down producer s net price Natural gas replacing coal fired power generation at an accelerating rate Cold winter of will leave us 500 Bcf under filled in storage this year despite record production MEL s opinion is that a $5.00 $ month strip is needed to support Producer s dry gas well costs MEL also is of the opinion that we wont see another runaway market because of the availability of proven reserves 5

6 Natural Gas Futures Opinion Bullish Factors Oct 31, 2014 only at 3.32 Tcf if we average 25% more injections from July Oct Overall coal fired generation capacity being reduced every year Export markets growing including Mexico, Canada, and LNG terminals Import levels declining Basis pricing changing as too much gas being added in too small an area with too little take away capacity Bearish Factors El Nino weather forecast usually brings warm winters and low hurricane threats US Production at record levels and climbing Associated gas expected to increase as oil drilling ramps up New pipeline infrastructure bringing new gas to markets Economy growing slowly 6

7 Midwest Basis Markets Midwestern Region basis values plummeting quickly Dominion, Tennessee, and Texas Eastern falling first because of direct connections to processing hubs TCO lagging but starting to fall as DTI, TETCO, and TGP shipping into TCO wherever possible Columbia Gulf pricing attractive but might not last long Many long haul pipelines will reverse flow direction as contract expirations allow (multiple lines in same right or way) Bid Offer spreads still very wide, making the capture of lower basis numbers elusive for now 7

8 Midwest Basis Markets $0.400 $0.300 COLUMBIA BASIS PRICE HISTORY & PROJECTIONS $0.200 $0.100 $ $ $ $0.300 TCO Basis Price Col Gulf Mainline Basis -$ $ $ $0.700 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 8

9 Midwest Basis Markets $1.000 $0.500 DOMINION TRANSMISSION BASIS PRICE HISTORY & PROJECTIONS $ $0.500 DTI South Point -$ $ $2.000 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 9

10 Midwest Basis Markets $0.500 TETCO BASIS PRICE HISTORY & PROJECTIONS $ $0.500 TETCO M2 Basis Price TETCO ELA Basis -$ $ $2.000 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 10

11 Midwest Basis Markets $0.600 TENNESSEE BASIS PRICE HISTORY & PROJECTIONS $0.400 $0.200 $ $ $ $0.600 TGP Zone 4 Basis Price TGP Zone Leg Basis -$ $ $1.200 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 11

12 Midwest Basis Markets Arguments Supporting Weaker Basis Utica gas flows expected to increase from 400,000 Mcfd to 1 Bcfd in 2014, and 2 Bcfd in 2015 Pennsylvania production has increased from 1 Bcfd at end of 2009 to 10 Bcfd at end of 2013 and is increasing 3 Bcfd per year The unit cost of funding new pipelines typically runs around $.75 $1.00 per Dth, producer preference is sponsoring expansion projects with same pipelines they connect to currently Arguments Supporting Stronger Basis Eventually all pipelines will be forced to interconnect with processing hubs, thus distributing shale production across more pipeline capacity Many pipelines will convert from gas service to NGL service or oil service over the coming 5 years when their long term contracts expire Basis spreads will allow well capitalized trading companies to creatively distribute flowing gas from the Utica/Marcellus to other regions LNG Export terminals will create another large market for gas supplies in

13 What Kentucky Producers Can Do To Protect Themselves From Falling Basis Pricing Don t assume that basis pricing will recover or that it can t get worse Evaluate all pipeline alternative options and understand the pipeline build option for your area Work cooperatively with other producers to minimize cost of new pipeline projects Work cooperatively with gathering pipelines to design win win projects where both parties have an incentive to change 13

14 Producer Economics 14

15 Economics Driven by Liquid Content 15

16 Midwest Processing Hubs Source: JobsOhio 16

17 Midwest Infrastructure Projects 17

18 Midwest Infrastructure Projects 18

19 Midwest Infrastructure Projects 19

20 North American LNG Export Terminals 20

21 The New Demand Paradigm 21

22 LNG Export Pros & Cons Arguments Supporting LNG Exports Since cost of liquefaction shipping regasification is $4.00 $6.00 per Dth, exports are guaranteed to be priced above the US price. Your globally competitive position should be more important than net price. US jobs created in every link of supply chain and indirect jobs created to service those direct workers. We live in a Capitalist country. Capitalism works best when trade barriers are removed. Isolationism doesn t work, free markets do. What trade restrictions are placed on the output from the chemical companies leading the argument against exports? More gas production also likely to lead to more NGL production which is great news for petrochemical companies. Will reduce the trade deficit. Will raise new tax revenue for States. Will strengthen the US geopolitical position. More global natural gas use will lower carbon dioxide emissions and reduce smog. Arguments Against LNG Exports Likely to lead to higher US prices. Higher prices lead to manufacturing retraction and job losses We would be in essence be selling our finite natural resources, weakening our country 100 years from now. That makes the issue one of national security. Chemical companies have invested $91.2 Billion on 136 new projects, why substitute one job gained in one category for one job lost in another. Oil is not a free market driven commodity, it is cartel controlled. Access to cheap natural gas will drive foreign investment in US companies on US soil, creating more jobs. Natural gas is building block for manufactured goods, it creates eight times more value across the entire economy. In this way, American s natural gas bounty is more than a simple commodity. It s a once in a generation opportunity to export advanced products and not just BTUs. More Nat Gas means more fracking, and more fracking is bad. 22

23 NGL Production Rising Rapidly Source: Dominion Blue Racer 23

24 NGL Logistics Revolve Around Ethane Source: Dominion Blue Racer 24

25 NGL Price History & Forecast Source: Dominion Blue Racer 25

26 What Kentucky Producers Can Do To Cash In on the NGL Opportunity Understand extraction technology and economics Partner with marketing company that understands where to get best prices for overall product mix Evaluate used equipment in place of new equipment to reduce payback timelines Understand how big a spread exists in the NGL markets between wholesale and retail; work towards goal of moving towards realizing retail price 26

27 Thank You To obtain a copy of these slides or to request more information, please contact Mark Jergens at: mjergens@midwestenergylogistics.com (614)