u.s. natural gas the search for equilibrium...strictly confidential u.s. natural gas the search for...
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STRICTLY CONFIDENTIAL
U.S. Natural GasThe Search for Equilibrium
May 2019
Oliver Trpcic[Oliver.Trpcic@macquarie.com]
PAGE 1STRICTLY CONFIDENTIAL MACQUARIE
Global presence across key energy centers with financial and physical commodity capabilities
Group Overview
Macquarie’s Canadian Energy PlatformCommodities and Global Markets
Cargill Acquisition Cargill acquisition provides greater access to Eastern Canadian
end-user’s and utilities
Increased egress strategies on Alliance and TransCanada Pipelines
Large storage presence for Eastern Canadian natural gas storage
Dedicated structuring analyst to combine corporate finance solutions with hedging of underlying commodity exposure
Company Bcf/d
BP 21.2
Macquarie Energy 13.2*
Shell 10.0
Tenaska 9.8
ConocoPhillips 8.3
* Macquarie Estimates
Top North American Gas Marketers: Q4 2017(1)
By Wholesale Physical Volumes Sold (in Bcf/d)
Oil Natural Gas NGLsPhysical crude and product marketing and trading Crude oils, diesel,
gasoline, jet fuel, fuel oil
Financial options and derivatives:
Crude oil basis hedging(WTI, Brent, Dubai)
Crude differentials (WTS, Mid/Cush, LLS, Mars, WCC, WCS)
Physical natural gas marketing and trading Henry Hub & UK NBP
Basis locations
Financial options and derivatives:
Henry Hub & NBP
Most N.A. basis points
Optimization of storage and pipeline capacity
Physical and financialnatural gas liquids marketing and trading Mont
Belvieu/Conway
Ethane, propane, butanes, natural gasoline
Out to 48 months
Key
Sta
tsSe
rvic
esLe
ader
ship
Oliver TrpcicManaging Director,Co-Head, CanadianGas and Power Trading
Darren SlaterManaging DirectorCanadian Oil Trading
LARGEST MARKETER OF NATURAL GAS IN NORTH AMERICA
ACQUIRED CARGILL’S NORTH AMERICA POWER & GAS BUSINESS IN 2017
MARKETED CRUDE CANADA100 Kbbl/d
(1) Platts Q4 2017.
Craig FisherManaging Director,Co-Head, CanadianGas and Power Trading
Dylan JohnsonSenior Vice PresidentCanadian Oil Trading
2ND
PAGE 2STRICTLY CONFIDENTIAL MACQUARIE
In any commodity, the intersection of supply and demand is always trying to find equilibrium
The Search for Equilibrium
PAGE 3STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
1000%
2000%
3000%
4000%
5000%
6000%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Aeco Vol
PAGE 4STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
1000%
2000%
3000%
4000%
5000%
6000%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Aeco Vol
Regulatory change on NOVA
services
PAGE 5STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Sumas Vol
PAGE 6STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Sumas Vol
Westcoast Pipeline explosion
PAGE 7STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
100%
200%
300%
400%
500%
600%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
SoCal Vol
PAGE 8STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
100%
200%
300%
400%
500%
600%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
SoCal Vol
Aliso Canyon storage leak
PAGE 9STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
100%
200%
300%
400%
500%
600%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
SoCal Vol
Aliso Canyon storage leak
SoCal pipeline issues (needles)
PAGE 10STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
DomS Vol
PAGE 11STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: EIA, Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
DomS Vol
Production growth
PAGE 12STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
1000%
2000%
3000%
4000%
5000%
6000%
7000%
8000%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Waha Vol
PAGE 13STRICTLY CONFIDENTIAL MACQUARIE
Equilibrium manifests itself in volatility of price movements
Source: EIA, Macquarie Energy LLC
Annualized 90 Day equal weighted price volatility
The Search For Equilibrium
0%
1000%
2000%
3000%
4000%
5000%
6000%
7000%
8000%
Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018
Waha Vol
Associated gas production growth
PAGE 14STRICTLY CONFIDENTIAL MACQUARIE
Storage capacity relative to size of supply & demand is shrinking…
The Search for Equilibrium of Instability
20
22
24
26
28
30
32
34
Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18
Storage Capacity as Multiple of Total Daily Supply+Demand
Source: EIA, Macquarie Energy LLC
Both supply and demand have grown by ~25% since 2013, but storage capacity
has actually fallen
PAGE 15STRICTLY CONFIDENTIAL MACQUARIE
The Search for Equilibrium of Instability
Source: Macquarie Energy LLC
Transportation bottlenecks
Appalachia
Upper Midwest
Southeast & Gulf
Permian
Midcon Producing
PAGE 16STRICTLY CONFIDENTIAL MACQUARIE
Average traded AECO Monthly Index volumes have collapsed
Source: Macquarie Energy LLC
The trade community is stepping away…
The Search For Equilibrium
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
2014 2015 2016 2017 2018 2019
Billons of Cubic Feet Traded
PAGE 17STRICTLY CONFIDENTIAL MACQUARIE
New dynamics of gas market going forward
The Search for Equilibrium
• More frequent short-term price swings when storage limits are reached
• Basis dislocations to come more suddenly – plenty of transport capacity…until there isn’t
• Global gas supply/demand balances will matter – 100% utilization of export facilities is not a sure thing
• Aging infrastructure needs to be replaced/new infrastructure needs to be built
• Realized volatility is mis-priced, however the available pricing mechanisms are also limited
• Who can hold the Value @ Risk?
PAGE 18STRICTLY CONFIDENTIAL MACQUARIE
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