What s the Scenario? Winter 2015/2016 Natural Gas Market A PointLogic Energy Presentation Jack Weixel, Vice President September 29, 2015
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What s the Scenario? Supply Outlook for Winter 2015/2016 Is production at a standstill? Hostage no more, pipeline escape routes out of the Northeast and what it means for supply Regional imbalances and can the Northeast really supply the lower 48? Demand Outlook for Winter 2015/2016 Summer demand impact on storage levels Expectations for winter demand and the new normal Exports, are they too much of a good thing? Scenarios and Implications on Price
What s Going On With Production? 75.00 74.00 73.00 72.00 71.00 70.00 69.00 68.00 67.00 66.00 65.00 64.00 63.00 Lower 48 Dry Production (Bcf/d) +0.2 Bcf/d - 0.3 Bcf/d + 1.7 Bcf/d + 3.8 Bcf/d + 0.4 Bcf/d -1.0 Bcf/d +1.0 Bcf/d from 12/14 + 4.6 Bcf/d from 12/13-0.5 Bcf/d from 12/12 2015 2014 2013
Prices remain challenged in 2016 $20.00 Hydrocarbon Value Gap $/MMBtu Equivalent $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Value Gap WTI Crude MB NGLs CAPP Coal HH Gas
Production Momentum is Waning Falling Oil/NGL/Gas prices Producer s slash CAPEX 10-50% Rig Counts decline 57% to 802 Producers still expect YoY production growth. Tighter Cash Flows Debt-Servicing Reduced Drill Time Service companies cut costs10-33% Longer laterals Drilled but uncompleted wells Higher initial production rates Pad drilling/well-spacing High-grading Remaining Hedges New Infrastructure/Higher Prices IRR Reset Bond/Equity Issuance
Production Forecast Winter 2016 76.0 74.0 72.0 70.0 68.0 66.0 64.0 62.0 Dry Production Forecast through Winter 2016 (Bcf/d) 74.2 74.6 Actual Forecast Prod
Year-on-Year Winter Comparison + 0.3 Bcf/d + 0.4 Bcf/d + 0.2 Bcf/d + 2.3 Bcf/d L-48 Production grows 1.8 Bcf/d winter-onwinter - 1.3 Bcf/d - 0.6 Bcf/d + 0.5 Bcf/d
Escape Routes from the Northeast Bcf/d 35 30 25 20 15 10 5 0 E2W, U2GC Rover REX Z3 Phase I Enhancement Rover Phase II, Atlantic Coast Nexus, Leach Xpress, TEAL NED, Atlantic Coast, App. Connector Midwest Canada South-Ohio Valley South-Atlantic Coast New England
Unlike 2014, New Capacity isn t 100% Full MMcf/d 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 September is 78% utilized ~400 MMcf/d available Rice/Rex Gunslinger Eureka Hunter Capacity REX East to West Markwest Seneca Plant East Ohio Gas MMcf/d 450 400 350 300 250 200 150 100 50 0 September is 69% utilized ~130 MMcf/d available TETCO Uniontown to Gas City
Saving Grace Extreme Back-to-Back Winters and Robust Summer Demand Bcf/d 35 30 25 20 15 10 5 0-5 -10-7.4 Bcf/d - 5.5 Bcf/d + 3.3 Bcf/d + 5.3 Bcf/d Demand Supply Net Flows
Winter Spreads Narrow with New Routes and Longer Market Michcon Chicago Winter 14/15 Winter 12/13 $0.25 $0.36 $0.20 $3.26 $0.00 $1.00 $2.00 $3.00 $4.00 Winter 14/15 Winter 12/13 Transco Z6 NY $3.24 $3.66 $3.28 $6.72 $0.00 $2.00 $4.00 $6.00 $8.00 Winter 15/16 Winter 14/15 Winter 13/14 Winter 12/13 $0.23 $0.36 $0.16 $2.84 $0.00 $1.00 $2.00 $3.00 ($0.91) ($0.92) ($0.35) Dominion SP $0.01 Winter 15/16 Winter 14/15 Winter 13/14 Winter 12/13 * Prices as of 9/18/15 Arrows = Winter Change in Spread ($1.00) ($0.75) ($0.50) ($0.25) $0.00 $0.25
Demand to date for Summer 2015 82.5 80.0 77.5 75.0 72.5 70.0 67.5 65.0 62.5 60.0 57.5 55.0 52.5 50.0 Total Demand - Summers in Bcf/d No reason for demand to dip going into late shoulder season as Mexico persists and price is suitable for power generators. 3-Year Range 3-Year Average 2015 Extrap. Forecast
Power and Mexico Pushing the Envelope Power up 4.0 Bcf/d Summer TD, Mexico up 1.0 Bcf/d Total Demand up 4.9 Bcf/d Versus Summer 2012 TD, Total Demand Up 3.3 Bcf/d Week on Week Power Burn Delta Summer 15 Versus Summer 14 (Bcf/d) 6.7 7.4 8.0 6.9 6.2 5.4 5.7 4.54.4 4.0 4.5 4.9 3.3 3.4 3.3 2.7 3.1 0.6 Week on Week Mexican Exports Delta Summer 15 Versus Summer 14 (Bcf/d) 1.1 1.1 1.1 1.2 1.1 1.1 1.1 1.0 0.9 1.0 0.8 0.8 0.9 0.8 0.7 0.3 1.3 1
2015 Summer Forecast vs. 2014 Summer Supply Demand Dry Prod LNG Can Imports Supply Power Industrial Res/Com Mex Ex Demand 3.3 3.5 3.2 4.3 0.3 0.0 0.0 1.1-0.1 Summer 15 Season Base Forecast: 0.8 Bcf/d Short Versus Summer 14 Equates to 173 Bcf less gas available to inject into storage 5.8 Bcf per week lower injection over 30 weeks of summer Source: PointLogic Energy Supply & Demand Report
Summer Demand Impact on Storage 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Storage Inventory (Bcf) Upper Bound: 4.2 Tcf 2014 Injection Rate Lower Bound: 3.0 Tcf 5 Yr. Minimum 3.99 Tcf 5 Year Range 2015 2015 Demand Forecast
Expectations for Winter 2015/2016 Demand What do these two temperature outlooks have in common?
Power Demand Potential Through Winter 15/16 28.0 27.0 26.0 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 Power Demand - Winter 14/15 vs. 5 Year NonCo Max (Bcf/d) Gap Between Non-Coincidental 5 Year Max and Last Winter Equals 1.0 Bcf/d for Entire Winter 2014-15 Max
Scenario #1: EIA Expectations Winter 2015/2016 Demand Delta to Winter 14/15 (Bcf/d) Power 0.0 Industrial 1.2 Res/Comm Mex Ex 1.0 LNG = Total Demand 0.2 0.3-2.0 0.6 Bcf/d Capacity at Sabine Train 1 starting in Dec/Jan. Actual commercial deliveries to start in April 16. Source: EIA and PointLogic Energy
Scenario #2: PointLogic Expectations Winter 2015/2016 Demand PointLogic Estimates -- Delta to Winter 14/15 (Bcf/d) Up 1.0 Bcf/d Based on 5 Year Max Power Pace of Industrial Gains Slower than Anticipated Industrial Weather is a Marginal Player Winter 15/16 Res/Comm Mex Ex LNG = Total Demand 1.0 0.5 1.0 0.2 0.7-2.0 0.6 Bcf/d Capacity at Sabine Train 1 starting in Dec/Jan. Actual commercial deliveries to start in April 16. Source: PointLogic Energy
Scenario #3: Winter 14/15 Repeat Delta to Winter 14/15 (Bcf/d) Power Industrial Res/Comm Mex Ex 1.0 LNG = Total Demand 1.2 0.0 0.0 0.0 0.2 0.6 Bcf/d Capacity at Sabine Train 1 starting in Dec/Jan. Actual commercial deliveries to start in April 16. Source: PointLogic Energy
Winter 2015/16 vs. Winter 2014/15 Supply Demand Dry Prod LNG Can Imports Supply Scenario #1 Scenario #2 Scenario #3 1.8 0.0 0.0 1.8 0.3 0.7 1.2 Winter 15/16 Scenario Analysis Scenario #1: Market long 1.5 Bcf/d, or 222 Bcf less gas withdrawn Scenario #2: Market long 1.1 Bcf/d, or 162 Bcf less gas withdrawn Scenario #3: Market long 0.6 Bcf/d, or 86 Bcf less gas withdrawn. Source: PointLogic Energy Supply & Demand Report
Supply and Demand Impact on Storage 4,500 4,000 3,500 Storage Inventory (Bcf) Upper Bound: 2.5 Tcf 5 Yr. Maximum 3,000 2,500 2,000 1,500 1,000 500 Lower Bound: 0.8 Tcf 5 Yr. Minimum Scenario 1 2.09Tcf Scenario 2 2.02Tcf Scenario 3 1.95Tcf 5 Year Range 2015 2015 Demand Forecast 2016 PLE Forecast 2016 EIA Forecast 2016 14/15 Demand
Let s Take Production Down a Notch Supply Demand Dry Prod LNG Can Imports Supply Scenario #1 Scenario #2 Scenario #3 0.8 0.0 0.0 0.8 0.3 0.7 1.2 Winter 15/16 Lower Production Scenario Analysis Scenario #1: Market long 0.5 Bcf/d, or 75 Bcf less gas withdrawn Scenario #2: Market long 0.1 Bcf/d, or 15 Bcf less gas withdrawn Scenario #3: Market short 0.4 Bcf/d, or 60 Bcf more gas withdrawn. Source: PointLogic Energy Supply & Demand Report
Supply and Demand Impact on Storage 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Storage Inventory (Bcf) Scenario 1 2.09Tcf Scenario 2 2.02Tcf Scenario 3 1.95Tcf Dropping Production Gains to a More Pedestrian 0.8 Bcf/d Winter on Winter Increase Takes 150 Bcf Out of Prior Storage Estimates. Scenario 1 1.94Tcf Scenario 1.88Tcf Scenario 3 1.81Tcf Range 2.1 Tcf 1.8 Tcf 5 Year Range 2015 2015 Demand Forecast 2016 PLE Forecast 2016 EIA Forecast 2016 14/15 Demand
Storage Inventory Impact on Price 3.50 3.25 3.00 2.75 2.50 Nov-15 2.67 Mar-16 2.92 Apr-16 2.77 Jul-16 2.85 Nov-16 2.96 November Can Still Dip Lower as Lower 48 Storage Approaches Historical Fill Record. 2.25 2.00 1.75 1.50 Modest Upward Pressure Going into Jan and Feb as Power and Mexican Export Demand Persist, and LNG Commissioning Cargoes Arrive on Scene. Downward Pressure into Summer 2016 as Market Exits Winter full on Storage Gas.
Key Takeaways Lower 48 Production Pains Weigh on Growth Potential. Silver Linings Becoming Harder to Find. Projects to Escape Northeast Provide Cushion for Production Levels, Though May Not Fill Right Away. Winter Demand Expected to Increase Season on Season. Exit Winter 2015/16 on the High Side of Storage Inventories Under Most Scenarios, Unless Serious Winter Shows. Systemic Increase in Demand Led By Mexican Exports Could Lead to Pop in Prices this Winter.
Contact Us Today! Jack Weixel Vice President, Analysis 202.607.6354 jweixel@pointlogicenergy.com Customer Support Phone: 855.650.4500 ext. 1 support@pointlogicenergy.com Gaithersburg HQ: 9737 Washingtonian Blvd. Sales Phone: 855.650.4500 ext. 2 sales@pointlogicenergy.com Houston, TX Office: 1155 Dairy Ashford Rd.