1 / 44

Natural Gas Pricing: What Does the Future Hold?

Natural Gas Pricing: What Does the Future Hold?. Presentation to: Denver Association of Lease and Title Analysts Denver, CO. October 24, 2012 By: John A. Harpole. EVOLUTION IN GAS WELL COMPLETION TECHNOLOGY - THE KEY TO TODAY’S NATURAL GAS REVOLUTION.

kaspar
Download Presentation

Natural Gas Pricing: What Does the Future Hold?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Natural Gas Pricing:What Does the Future Hold? Presentation to: Denver Association of Lease and Title Analysts Denver, CO October 24, 2012 By: John A. Harpole

  2. EVOLUTION IN GAS WELL COMPLETION TECHNOLOGY - THE KEY TO TODAY’S NATURAL GAS REVOLUTION Source: America’s New Natural Gas, America’s Natural Gas Alliance 2

  3. Rockies Supply vs. Regional Export Capacity1.5 Bcf/d Ruby Ruby 1500 expansion Bison 407 expansion Kern River 266 expansion MMcf/d REX West 1800 expansion 100% LF Kern River 145 expansion High Case Cheyenne Plains 170 expansion Cheyenne Plains 560 expansion Winter Peak Month Summer Peak Month 85% LF Supply Available for Export Base Case 4 Source: George Wayne, Wyoming Gas Fair – Rockies Market Update – 9/15/2011 presentation

  4. 5

  5. 6

  6. U.S. Liquids Plays Contributed 61% Of Incremental Volumes In Q4 - 11 Quarter 4 - 2011 Versus Quarter 4 - 2010 Liquids Plays: 2.8 Bcfd Lean Gas Plays: 1.7 Bcfd Other Dry Eagle Ford Anadarko Marcellus Permian Other Wet Fayette- ville Haynesville Source: Bentek Energy

  7. 2010 2012 US Production Is Up Nearly 7 Bcfd from 2011 2011 Comparison of Dry Production Pre-2010 US Production High 6.7 Bcfd Average Daily Production (Bcfd) Q-1 Q-2 Q-3 Q-4 Jan Apr Jul Oct Data through February 8, 2012 Source: BENTEK Supply and Demand Report

  8. Foreign Investment in U.S. Shale $12.1 B BHP Plans to Acquire Petrohawk PetroChina/Encana Reliance/Atlas ITOCHU/MDU Resources Statoil/Chesapeake CNOOC/Chesapeake BG/EXCO BHP/Chesapeake Statoil/Talisman Reliance/Pioneer CNOOC/Chesapeake BG/EXCO Source: Dr. Jim Duncan, ConocoPhillips, Decoding the Relevance of Abundant Supply, 2011 COGA Presentation KNOC/Anadarko

  9. Global Shale Reserves

  10. Recoverable Shale Reserves: 6622 Tcf Source: EIA

  11. A Cautionary Note • Forecasts Count on Real-Business-Cycle (RBC) Theories • RBC Theories/Models offer “no closed-form solution due to the interaction of linear and nonlinear elements”1 • Solution clarity? Causality? • RBC studies presume perfect information on data input 1Loglinear approximate solutions to RBC models: An Illustration and some observations, Sau-Him Paul Lau and Philip Hoi-Tak Ng, University of Hong Kong, January 2004

  12. Linear Calculations in a Very Non-Linear World

  13. The Crystal Ball for Demand

  14. 4 Significant Demand Factors to Consider • LNG Exports • Industrial Demand Growth • Coal to Gas Electric Generation Fuel Switching • CNG/Natural Gas Vehicles

  15. No Immediate Relief • It is difficult to foresee any demand response within the next three years (before 2015) that can significantly change the current natural gas price environment.

  16. NYMEX Henry Hub Natural Gas Price* 1996 - 2015 Actual/Forecast** $ per MMBtu $ per MMBtu Source: *Average of last three days of trading as published in the Platts Gas Daily Report ** Future forecasts based on NYMEX Henry Hub indices in Clearport Software as of 9/26/2012

  17. LNG Exports

  18. U.S. LNG Export Projects Jordan Cove Cove Point Freeport Lake Charles Corpus Christi Cameron Gulf LNG Sabine Pass * FERC Pre-Filing Process Export Terminals Source: Office of Oil and Gas Global Security and Supply, Office of Fossil Energy, U.S. Department of Energy; U.S. Federal Energy Regulatory Commission Slide from U.S. LNG Exports & Unconventional Gas presentation, Charif Souki, Cheniere Energy, Inc.

  19. LNG in the Headlines • Boosting the Economy Through Natural Gas Exports • Washington Post Editorial Board, March 14, 2012 • “BG Group’s CEO Frank Chapman, suggested that U.S. LNG exports could reach 5.8 BCF/day by 2020” • Sutherland LNGLawBlog.com, February 10, 2012 • BG is looking at an LNG export project on the West Coast of Canada at Prince Rupert • Sutherland LNGLawBlog.com, February 10, 2012 • “The United States would probably only export a trickle of gas over the next five years, it could be exporting 4 BCF by 2022 and 15 BCF by 2027.” • The New York Times Green Blog, April 18, 2012

  20. LNG in the Headlines • Cheniere receives FERC approval for Sabine Pass LNG Export Terminal • Edward McAllister and Ayesha Rascoe, Reuters, April 17, 2012 • Sempra Energy Unit Signs Commercial Development Agreements with Mitsubishi Corporation, Mitsui & Co., Ltd. to Develop $6 Billion Louisiana Liquefaction Facility • Sempra Energy PRNewswire, April 17, 2012 • Energy Transfer Equity LP has filed for federal permission to build an export facility at its import terminal at Lake Charles • The Associated Press, April 17, 2012

  21. LNG in the Headlines • Royal Dutch Shell plc, Mitsubishi Corporation, China National Petroleum Corporation and Korea Gas Corporation are expected to reach an agreement soon to build a $12.35 billion LNG terminal near Kitimat, British Columbia • Sutherland LNGLawBlog.com, April 12, 2012 • Cheniere to Submit Resource Reports Soon for Corpus Christi LNG Export Project • Sutherland LNGLawBlog.com, April 19, 2012 • DOE delays LNG export study • Reuters.com, September 17, 2012

  22. Kitimat LNGIssued license by NEB October 2011 Export Facility

  23. Shipping Routes Source: http://www.kitimatlngfacility.com/Markets/marketing.aspx

  24. Industrial Demand Growth

  25. Chemical Plant Growth “Chemical Makers Ride Gas Boom” - Wall Street Journal, April 19, 2012 • Chevron Phillips Chemical • Shell • Dow Chemical • Formosa • Westlake • ExxonMobil

  26. The Ammonia Story • Current economics • Ammonia worth $590 per ton in world market • Can be produced for $180 per ton at current U.S NYMEX natural gas price strip • 14 Ammonia plants closed in the U.S. between 1998 and 2006 thanks in part to high natural gas prices • Top 5 world producers would like to build new facilities in the U.S. • 1 ammonia plant can consume as much as 100,000 MMBtu per day

  27. The Ammonia Story • What it could mean to demand for natural gas: • North America imports approximately 12,500,000 tons of nitrogen per year (22% from Canada, 78% from overseas) • 37 MMBtu is roughly equal to 1 ton of nitrogen • If all overseas imports were eliminated by domestic production, natural gas demand would increase by approximately 1 BCF per day or 3.6 TCF per year

  28. Petrochemical End Use Automobiles Electronics Appliances About 600 pounds of petrochemical-derived plastics, composites, rubber, coating and textile products are used in the average vehicle accounting for about 15% of the total vehicle weight. Home electronics and appliance products contain up to 40% or more of plastics derived from petrochemicals. Source: Bill Bradley, Enterprise

  29. Coal to Gas Electric Generation Fuel Switching

  30. Impact of Mercury and Air Toxics Standards (MATS) and Cross-State Air Pollution Rule (CSAPR) • “We estimate that by 2015 some 54 GW of coal fired capacity will cease operations rather than incur the cost of compliance with CSAPR and MATS, while 74 GW will be upgraded.” • “A further 12 GW of coal fired capacity is likely to be retired as these units reach 60 years of age.” Source: Bernstein Research, U.S. Utilities: The EPA Finalizes Its Mercury and Air Toxics Standards; What Will Be the Impact? December 22, 2011

  31. Natural Gas vs Coal • “The collapse in the price of natural gas since 2008, combined with recent increases in the cost of Appalachian coal, have caused the variable cost of operation of the average power plant burning Appalachian coal to converge with that of the average combined cycle gas turbine generator.” Source: Bernstein Research, U.S. Utilities: The EPA Finalizes Its Mercury and Air Toxics Standards; What Will Be the Impact? December 22, 2011

  32. Increase in Utility Consumption of Natural Gas Annual (TCF) and Daily (BCF) Average • U.S. Gas Consumption in 2010: 22.1 TCF 60.50 BCF/D • Increase due to Natural Gas Coal Plant Retirements: 0.3 TCF 0.82 BCF/D • Increase due to EPA Regulation of SO2 and Mercury: 1.7 TCF 4.65 BCF/D • Reduction Due to New Coal Plants: (0.8 TCF) (2.19 BCF/D) • U.S. Expected Gas Consumption in 2015E: 23.3 TCF 63.01 BCF/D Annual Average Daily Average Source: Bernstein Research, U.S. Utilities: The EPA Finalizes Its Mercury and Air Toxics Standards; What Will Be the Impact? December 22, 2011

  33. Range of Levelized Cost of New Generating Technologies Due To Regional Cost Differences, 2016 Source: Institute for Energy Research, Levelized Cost of New Electricity Generating Technologies, Updated February 1, 2011; Energy Information Administration, Annual Energy Outlook 2011, http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

  34. CNG/Natural Gas Vehicles

  35. How many NGVs to get to 1 BCF per day of Demand? • “The U.S. currently has about 110,000 NGVs on the road (less than 0.1% of total U.S. vehicles), mostly owned by fleets.” • “To get to 1 BCF per day would mean a roughly ten-fold increase in the number of U.S. NGVs.” • It will take the right incentives and plenty of time. Source: Raymond James & Associates, Inc., Weekly Energy Report 6-13-11

  36. Natural Gas to Power Pickups • Tuesday, March 6, 2012 • Chevrolet, GMC introduce bi-fuel pickups for 2013 model year Source: Platts Gas Daily publication, Rodney White

  37. Demand Increase By 2015?

  38. Bcf/d Annual Production from Unconventional Reservoirs MMB/d 8 4.0 Includes Eagle Ford, W. Barnett, Bakken Shales; Granite Wash, Piceance & Uinta Tight Sands 7 3.5 6 3.0 Liquids 5 2.5 Gas 4 2.0 3 1.5 2 1.0 1 0.5 0 0 2010 2011E 2012E 2013E 2014E 2015E 2020E Oil Production Drives Investment Decisions for Gas • Liquids production from shale plays > 3 million b/d by 2020 • Associated natural gas > 7 Bcf/d of “costless” supply Source: Advanced Resource Intl presentation to Cheniere Board, March 2011; Cheniere Research Slide from U.S. LNG Exports & Unconventional Gas presentation, Charif Souki, Cheniere Energy, Inc.

  39. Conclusions • A significant demand response won’t occur for at least 3-5 years • Infrastructure investment in the 4 areas of potential new demand (LNG export facilities, industrial (steel/chemical/ammonia/nitrogen), new gas fired electric generation, NGV) could take 5-8 years to be meaningful • Marginal cost of gas is moving lower • Natural gas liquids will be the driving force in drilling • BTU value disparity between natural gas and crude oil will continue for many years • Demand will increase but too slowly • Don’t forget the “tuition” slide

  40. Citations for Report All of the information utilized for this report is a compilation of information pulled from the following data sources: Bentek Energy Charif Souki, Cheniere Energy Inc.; Cheniere Research Office of Oil and Gas Global Security and Supply Office of Fossil Energy U.S. Department of Energy U.S. Federal Energy Regulatory Commission Institute for Energy Research (IER) Energy Information Administration (EIA) Bernstein Research EnCana Raymond James and Associates, Inc. Western Energy Alliance Bill Bradley, Enterprise Sutherland LNG Blog www.Kitimatlngfacility.com

  41. Contact Information John A. HarpolePresident Mercator Energy LLC 26 W. Dry Creek Circle, Suite 410 Littleton, CO 80120 harp@mercatorenergy.com (303) 825-1100 (work) (303) 478-3233 (cell)

More Related