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Richard L. Levitan, rll@levitan April 30, 2010

New England Roundtable Future of Natural Gas in New England and Interaction with Electricity Markets. Richard L. Levitan, rll@levitan.com April 30, 2010. Key Questions. What’s the new conventional wisdom and why the radical shift? Is cheap natural gas a transient phenomenon or here to stay?

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Richard L. Levitan, rll@levitan April 30, 2010

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  1. New England RoundtableFuture of Natural Gas in New England and Interaction with Electricity Markets Richard L. Levitan, rll@levitan.com April 30, 2010

  2. Key Questions • What’s the new conventional wisdom and why the radical shift? • Is cheap natural gas a transient phenomenon or here to stay? • Is Marcellus Shale a game changer, one that will indefinitely flood the market in the greater Northeast? • Is New England’s gas supply diversified? • What’s on the horizon for natural gas power plants in New England?

  3. What’s the new conventional wisdom and why the radical shift? • Accelerated maturation of conventional resources will be more than offset by unconventional gas production from CBM and shale gas • Changes in fracturing and horizontal drilling technology allow for less expensive and more rapid development • Decline in WCSB gas coupled with oil sands development jeopardizes long haul transport from Canada • Massive increase in worldwide liquefaction capability, LNG tankers, and U.S. regas capability • Critical reliance on LNG no longer required to ensure commodity balance

  4. Declining SOEP Production

  5. WCSB Resource, Reserves and Deliverability Total Recoverable Resources 491 Tcf Source: NEB Proved Reserves 56 Tcf Remaining Conventional Resources 146 Tcf Recoverable Unconventional Resources 345 Tcf Total Recoverable Resources 491 Tcf Source: CAPP

  6. Is cheap natural gas a transient phenomenon or here to stay? • Natural gas will remain volatile and should remain moderately priced over the long run, i.e., $5.00 - $8.00 into-the-pipe • Traditional oil-to-gas Btu parity ratio is passé • “Basis” to New England will reflect increased commoditization of gas supplies across North America, in particular, growth of Marcellus shale • Basis blowouts due to periodic deliverability constraints are infrequent and short-lived

  7. Natural Gas Daily Spot Price

  8. NYMEX Henry Hub Futures

  9. MassHub On-Peak Forward Prices

  10. Is Marcellus Shale a game changer, one that will indefinitely flood the market in the greater Northeast? • Proximity to market center, sense of momentum, horizontal multi-frac technology a definite game changer • Disparate views re production forecasts, ramp-up

  11. Marcellus Shale Resources Marcellus Resource U.S. Resources1 2,080 Tcf U.S. Proved Reserves2 244 Tcf Marcellus Shale Resource3 256 Tcf Annual U.S. Consumption 23 Tcf 1 Potential Gas Committee, June 18, 2009 2 U.S. Energy Information Administration 3 Marcellus Proved Reserves < 1 Tcf

  12. Marcellus Shale Production Forecasts Sources: “An Emerging Giant: Prospects and Economic Impacts of Developing the Marcellus Shale Natural Gas Play.” T. Considine, R. Watson, R. Entler, J. Sparks, The Pennsylvania State University, College of Earth & Mineral Sciences, Department of Energy and Mineral Engineering. July 24, 2009. Integrated Resource Plan for Connecticut. The Brattle Group. January 1, 2010. (Wood Mackenzie)

  13. Marcellus Shale Production Outlook Source: Williams Partners L.P.

  14. Is New England’s gas supply diversified? • Greater intra-regional delivery flexibility than ever before • Decline of Sable Island offset by Repsol via M&N • TCPL long haul transport up for grabs →Iroquois now seasonal carrier • Algonquin / M&N injecting diversity benefits across system • Tennessee also well-positioned for increased market share

  15. Algonquin Flows: Peak Day 2009-10 Total Peak Day Receipts: 2,200 MDth(12/29/09)

  16. Algonquin: Receipts by Supply Source Offshore LNG Distrigas Receipts in MA from TGP Atl Canadian Receipts from M&N Western Canadian Receipts via Iroquois / Millennium 1,800 1,600 1,400 NJ Receipts from TETCO / TGP / Transco / Columbia 1,200 1,000 Average Monthly Receipts (MDth/d) 800 600 400 200 0 Jun-08 Jun-09 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Dec-08 Dec-09 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07

  17. What’s on the horizon for natural gas power plants in New England? • Newer vintage CC’s performing well w/o long haul primary transportation entitlements • Very limited growth due to EE / DR / Renewables • Repowering potential necessitates EDC sponsorship and intra-regional buildout

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