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© 2016 IHS
Presentation
ihsmarkit.com
IHS ENERGY
North American Natural Gas: Linkages amid
Change
North American Integrated Energy Research
February, 2017
Gas/Electric Partnership 2017: Opportunities in Infrastructure
Ed Kelly, Managing Director, North American Gas, [email protected]
© 2016 IHS
North American Power, Gas, Coal and Renewables: A
fully integrated IHS offering for interdependent energy
markets
The integration of the North
American energy markets
means that technologies
and fuels are increasingly
interdependent.
North American Gas,
Power, Coal, and
Renewables offering
highlights fully integrated
fuels and business areas.
2
IHS Energy: North American Power, Gas, Coal and Renewables
Source: IHS Energy © 2016 IHS
A fully integrated offering for interdependent
energy markets
Gas
Coal
Renewables
Power
Policy and
regulatory
analysis
Market
forecasting
Technology
costs
Market
fundamentals
© 2016 IHS
Key Power Themes: Renewables, Gas/Coal Competition
• Supportive policies and technology cost declines support a boom in US wind and solar
PV capacity additions through the early 2020s. Federal tax code changes have the
potential to moderate the boom, however.
• Utility scale solar PV is the largest renewable segment to 2025 and opportunities expand
beyond California.
• The missing money paradox continues to plague the power industry; conventional plant
retirements continue, owing to weak market fundamentals and public policy.
• A new competitive fuel dynamic has been established between natural gas- and coal-
fired power generation that will increase fuel demand volatility—in response to higher
natural gas prices, US coal-fired power generation is expected to increase by more
approximately 10% in 2017, contributing an increase in annual CO2 emissions of
approximately 4%.
• The CPP is unlikely to prevail as a final federal rule; a state patchwork of policies will
complement market forces in determining power sector CO2 emissions to at least 2025.
• Battery cost declines and targeted policies have given rise to niche power applications,
but further cost declines are required to be competitive with gas-fired peaking generation.
3
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS
Key Themes for Natural Gas: Demand Challenge,
Moving up a Flat Resource Cost Curve
• Large resource base:
Shale Gas Reloaded research found 1,400 trillion cubic feed (Tcf) of economic natural
gas resource at less than $4.00/MMBtu and over 700 Tcf at sub $3.00 with major
implications across the entire North American energy landscape.
• Risks from concentration of production:
Creates pipeline expansion dependency and challenge of matching supply growth to
demand growth.
Oil price and associated gas production not correlated to natural gas market.
Tight 2017 with higher prices and gas to coal switching.
Likely excess thereafter on capex surge to oil and pipeline expansion completions.
• Global Gas Reset:
Shale and US LNG exports changing how global gas prices get set.
Excess global LNG liquefaction likely concurrent with surge of US production.
Variable cost pricing leaves US exports uncompetitive until the global market grows into
the capacity.
4
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS
The “Trump Effect” on Natural Gas and Oil Pricing and
Production?
• Marginal:
Does not change the reality of the resource base on largely private lands; if the shale
revolution occurred under Obama, it is not likely to be slowed by Trump
However, toward the end of the Obama administration, obstacles to infrastructure
developments and new drilling were gathering force and momentum; intervenors are no
longer likely to be joined by a supportive federal government
As such, infrastructure development, and drilling plans, may experience an
“interregnum” in which industry investments may occur largely on schedule
The energy industry is likely strenuously to oppose a “border adjustment tax,” and the
fungibility of natural gas would make such a tax difficult to manage
• Price and supply impacts:
Oil: unlikely that large new territories will be effectively opened to drilling. Large oil
projects often take longer than 4 years, and require investment certainty (if territory is
opened by Trump it could be closed again by a later president).
Natural gas: Appalachian supplies may be more unleashed (limiting price appreciation),
with timely completions of planned pipeline projects. Exports to Mexico unlikely to be
affected, but do face risk from Mexico political uncertainty.
5
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS 6
North American Natural Gas: A Resource in
Search of Markets
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS
2016 shale gas reloaded update
1,400 Tcf North American supply at Henry Hub <$4
7
IHS Energy: North American Power, Gas, Coal and Renewables
12
9
6
3
-3
-6
-9
-12Av
era
ge
bre
ak
-ev
en
He
nry
Hu
b p
rice
($
/MM
Btu
)
2,0001,5001,0005000
Tcf
0
Source: IHS Energy © 2016 IHS: 60204-1
Break-even price at Henry Hub for natural gas resources
Figure 3
1,400 Tcf <$4/MMBtu
Break-even price at Henry Hub for natural gas resources
© 2016 IHS 60204-1Source: IHS Energy
Demand
to 2040
Demand
to 2025
© 2016 IHS
Porting shale technology from gas to oil
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
1/1
/20
06
7/1
/20
06
1/1
/20
07
7/1
/20
07
1/1
/20
08
7/1
/2008
1/1
/20
09
7/1
/20
09
1/1
/20
10
7/1
/20
10
1/1
/2011
7/1
/20
11
1/1
/20
12
7/1
/20
12
1/1
/20
13
7/1
/20
13
1/1
/20
14
7/1
/20
14
1/1
/20
15
7/1
/20
15
1/1
/20
16
7/1
/20
16
1/1
/20
17
7/1
/20
17
Actual Forecast
US Lower 48 oil production growth relative to January 2006
Source: IHS
Lo
we
r4
8 o
il p
rod
uc
tio
ng
row
th (
1,0
00
s b
bl/
d)
© 2015 IHS
8
Global Energy Forum: North American Gas
© 2016 IHS
Driving rapid expansion of associated gas production
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1/1
/20
06
7/1
/20
06
1/1
/20
07
7/1
/20
07
1/1
/20
08
7/1
/2008
1/1
/20
09
7/1
/20
09
1/1
/20
10
7/1
/20
10
1/1
/20
11
7/1
/20
11
1/1
/20
12
7/1
/20
12
1/1
/20
13
7/1
/20
13
1/1
/20
14
7/1
/20
14
1/1
/20
15
7/1
/20
15
1/1
/20
16
7/1
/20
16
1/1
/20
17
7/1
/2017
Actual Forecast
Lower 48 associated gas production growth relative to January 2006
Source: IHS
Lo
we
r 4
8 a
ss
oc
iate
d g
as
pro
du
cti
on
© 2015 IHS
9
Global Energy Forum: North American Gas
© 2016 IHS
Concentration of production
Price risk with going oily and Appalachian
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
US lower 48 production
© 2016 IHS
Perc
en
tag
eo
f to
tal U
S L
48 p
rod
ucti
on
Notes: Aligns with North American Forecasting Service October 2016 outlook.
Source: IHS
10
Global Energy Forum: North American Gas
Appalachia
Other gas plays
Associated Gas
© 2016 IHS
North American gas reloads and reconnects
11
IHS Energy: North American Power, Gas, Coal and Renewables
Global demand
• Commodity super cycle
• Econometrics
• Politics
Global oil
• Demand constrained
• US swing supplier
• Changing foreign sources/cycles
North American oil
• Global price driver
• NGLs/Petchem
• Associated gas
North American gas
• Dry gas on the margin
• Expanding resource base
• Falling costs
• Coal/gas competition
• Global integration
© 2016 IHS
Appalachia and oil economics drive production growth
12
MoGas market analysis / February 2017
0
10
20
30
40
50
60
70
80
90
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Associated Gas Marcellus PA Marcellus WV Utica
Barnett Cotton Valley Fayetteville Haynesville
Pinedale Woodford (Arkoma) Gulf of Mexico Other - Dry Gas
Other - Wet Gas CBM
US gas production history and outlook by major play
Notes: Aligns with North American Forecasting Service January 2017 outlook.
Source: IHS © 2017 IHS
Bcf/
d
© 2016 IHS
Oil-related economics advancing associated gas
production
13
MoGas market analysis / February 2017
0
5
10
15
20
25
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Anadarko Penn Anadarko Wash Woodford - Cana Woodford - Ardmore
SCOOP/STACK Bakken Eagle Ford Mississippian Lime
Permian Wattenberg Niobrara Fracture Play Other - Gassy Oil
Other - Oil
Associated gas production by play
Notes: Aligns with North American Forecasting Service January 2017 outlook.
Source: IHS © 2017 IHS
Bcf/
d
© 2016 IHS
Appalachian gas production to continue rising with
progressively fewer infrastructure hindrances
14
MoGas market analysis / February 2017
0
5
10
15
20
25
30
35
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18
Marcellus Shale PA Marcellus Shale WV Utica Shale Other Appalachia
Appalachia gas production history and outlook
Notes: Aligns with North American Forecasting Service January 2017 outlook.
Source: IHS © 2017 IHS
Bcf/
d
© 2016 IHS
Future production growth is driven foremost by
Appalachia and associated gas
0
10
20
30
40
50
60
70
80
90
100
Associated Gas Marcellus PA Marcellus WV Utica Barnett
Fayetteville Haynesville Smaller Plays DUCs Other - Dry Gas
Other - Wet Gas CBM GOM Deep GOM Shelf
US lower-48 total gas production
© 2016 IHS
Bcf/
d
Notes: Aligns with North American Gas April outlook.
Source: IHS
15
Associated gas
Marcellus PA
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS 16
Pipeline expansions delays owing to lengthy regulatory
processes (both intervention and regulatory capacity) and
low prices
0
1
2
3
4
5
6
7
8
9
2015 2016 2017 2018
East North Central East South Central Eastern Canada
Middle Atlantic New England South Atlantic
West South Central
Contracted expansion capacity as of March 2015
Notes: Contracted capacity shown is for a subset of all announced projects, i.e.,
those designated as an outlet for additional production to reach markets.
Source: IHS © 2016 IHS
Bcf/
d
Prior to the collapse of late
2015/early 2016, the expected
pipeline expansion buildout
was relatively strong for
2016–17.
0
1
2
3
4
5
6
7
8
9
2015 2016 2017 2018 2019 2020East North Central East South Central Eastern Canada
Middle Atlantic New England South Atlantic
West South Central
Contracted expansion capacity as of October 2016
Notes: Contracted capacity shown is for a subset of all announced projects, i.e.,
those designated as an outlet for additional production to reach markets.
Source: IHS © 2016 IHS
Bcf/
d
Projects previously expected to enter service in
2016–17 are pushed back. At least 4.5 Bcf/d
(15%) of capacity has been delayed by an
average of 19 months. Further project delays are
expected, pushing IHS expectations for project in-
service dates as far as 2020.
© 2016 IHS
0
5
10
15
20
25
30
35
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
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l-1
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Ja
n-1
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Ju
l-1
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Ja
n-1
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Ju
l-1
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n-1
7
Ju
l-1
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Ja
n-1
8
Ju
l-1
8
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n-1
9
Ju
l-1
9
Ja
n-2
0
Ju
l-2
0
Anadarko Penn Anadarko Wash Woodford—Cana Woodford—Ardmore
SCOOP/STACK Bakken Eagle Ford Mississippian Lime
Permian Conventional Permian Unconventional Wattenberg Niobrara Fracture Play
Other—Gassy oil Other—Oil
US lower-48 associated gas production
© 2016 IHS
Bcf/
d
Notes: Aligns with North American Forecasting Service October 2016 outlook
Source: IHS
Associated gas will grow steadily between 2018 and
2020 led by Permian, Eagle Ford, and SCOOP/STACK
17
Eagle Ford
SCOOP/STACK
© 2016 IHS
The influence of oil on our natural gas markets?
• It is growing – but for those with long memories, is not and will not be as
much as in the 1980s, and the effects are much longer term:
Very little direct switching capability
• Influences are multi-faceted:
Absolute oil price: a rise in absolute oil prices will encourage associated gas
production, adding to gas supplies
Relative oil and gas prices: Rise in oil relative to gas will (all else equal)
Increase US export demand, eventually
Increase associated gas production at the expense of dry gas production (likely net supply decline
depending on relative returns from oil and gas drilling)
Increase interest and investment in natural gas vehicles, and long-term gas demand potential.
• On net – high oil prices may increase both gas supply and gas demand,
longer term. Any shorter-term impacts are largely psychological and
trading-based
18
IHS Energy: North American Power, Gas, Coal and Renewables
© 2016 IHS
Will the US become “energy independent?” Not
necessarily: The IHS US Crude Balance
19
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2010 2015 2020 2025 2030
Exports
Imports - Other
Imports - Canada
US Production
US Consumption
Bb
ls/d
, 0
00
s
© 2016 IHS
The Oil/gas ratio is expected to recover, led by oil
prices; will it reignite interest in NGVs?
20
Eagle Ford
0
5
10
15
20
25
-
20
40
60
80
100
120
140
160
2010 2015 2020 2025 2030 2035 2040
WT
I $/B
bl
Natural Gas and Oil - A Quicker Oil Recovery
WTI Crude
Henry Hub($/MMBtu -Right axis)
WTI/HenryHub (Rightaxis)
© 2016 IHS
US lower-48 demand to approach 125 Bcf/d by 2040;
exports and vehicles are material contributors
21
0
15
30
45
60
75
90
105
120
135
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Residential Commercial Industrial Power Vehicles LNG exports Exports to Mexico Other
US lower-48 natural gas demand, 2010 - 2040
Source: IHS Energy and EIA © 2016 IHS
Bcf/
d
© 2016 IHS 22
IHS Energy: North American Power, Gas, Coal and Renewables
Wind and solar capacity additions dominate the outlook to 2025, supported by federal tax credits
available for projects coming online through the early 2020s. Longer term, renewables and natural
gas share the market for new additions.
US total capacity additions by year
0
100
200
300
400
500
600
700
History
0
5
10
15
20
25
30
35
40Other
Solar
Wind
Hydro
Nuclear
NaturalGas
Coal
US Lower-48 total capacity additions, 2011–40
Source: IHS Energy and ABB Velocity Suite
GW
© 2016 IHS
US power generating fuel mix
23
IHS Energy: North American Power, Gas, Coal and Renewables
Natural gas and renewable power generation grow at the expense of coal. Penetration of natural
gas and non-hydro renewables reaches 35% and 20%, respectively, by 2030.
History
0
1,000
2,000
3,000
4,000
5,000
6,000
Other
Solar
Wind
Hydro
Nuclear
Natural gas
Coal
US Lower-48 power generation by fuel type, 2008-40
Source: IHS Energy and ABB Velocity Suite
TW
h
© 2016 IHS 24
The US Lower-48 will see nearly 60 Bcf/d of gas demand
growth by 2040 over 2010 levels, moving into higher-
cost supply areas
-10
0
10
20
30
40
50
60
70
2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039
Residential Commercial Industrial Power Vehicles LNG exports Exports to Mexico Other
US lower-48 demand growth relative to 2010
Source: IHS Energy and EIA © 2016 IHS
Bcf/
d
2.5 Bcf per day year-over-year
growth average (2015- 2025)
1.46 Bcf per day year-over-year
growth average (2026- 2040)
© 2016 IHS
Total natural gas demand in heavy goods
transportation: globally, it’s 2/3 an LNG story
Over 3.1 million barrels per day
(185 BCM, BCM/10 ~ 18.5 Bcf
per day) of diesel equivalent gas
demand
Conclusions
• Conversion to natural gas will
slow down with low oil prices,
but not disappear
• Globally, LNG demand in on-
road applications outpaces CNG
demand – but this is very market
specific
• LNG’s use as a bunker fuel
remains a major potential
market
• Rail conversions are “binary,”
based on a few company and
national policies
• Diesel displacement is lower
than natural gas demand
because of efficiency
differences.
0
50
100
150
200
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2015 2020 2025 2030 2035 2040
LNG - trucks LNG - Bunkers
LNG - Rail CNG
Approximate diesel displacement
Natural Gas Demand - Global
© 2014 IHS
1000 b
bl d
ge / d
ay
Source: IHS
Natural Gas Demand - Global
BC
M
25
© 2016 IHS 26
Australia and US Dominate New Supply Build
280 285
311
340 361
391
413
0
50
100
150
200
250
300
350
400
450
2014 2015 2016 2017 2018 2019 2020
US Australia Other Paciifc
Other Atlantic Middle East Southeast Asia
Africa
Global liquefaction capacity
Note: MMtpa = Million metrics tons per annum
Source: IHS © 2016 IHS
MM
tpa
-10
0
10
20
30
40
2015 2016 2017 2018 2019 2020
US Australia Other Paciifc
Other Atlantic Middle East Southeast Asia
Africa
Incremental liquefaction capacity additions
Note: MMtpa = Million metrics tons per annum
Source: IHS © 2016 IHS
MM
tpa
© 2016 IHS
A steep ramp of North American LNG liquefaction
capacity
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Chart Title
US Canada
North American LNG exports
Source: IHS Energy, EIA © 2017 IHS
Bc
f/d
27
Global Energy Forum: North American Gas
© 2016 IHS
Global LNG: How big is the oversupply?
250
300
350
400
450
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Global LNG supply unconstrained by demand
Source: IHS Energy © 2017 IHS
Milli
on
to
ns
LN
G
28
Unconstrained
LNG supply
Including forecast of
additional supply
projects
No additional
projects sanctioned
LNG demand
Global Energy Forum: North American Gas
© 2016 IHS
Excess liquefaction capacity reduces US utilization
0
1
2
3
4
5
6
7
8
9
10
Ja
n-1
6
Ju
l-1
6
Ja
n-1
7
Ju
l-1
7
Ja
n-1
8
Jul-18
Ja
n-1
9
Ju
l-1
9
Ja
n-2
0
Ju
l-2
0
Ja
n-2
1
Ju
l-2
1
Ja
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2
Ju
l-2
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Ja
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3
Ju
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Ju
l-2
5
US lower-48 LNG exports
© 2017 IHS
Bc
f/d
Notes: Excludes liquefaction losses.
Source: ABB Velocity Suite, IHS
29
© 2016 IHS 30
Mexico: The “push” to import
0
1
2
3
4
5
6
7
8
9
10
2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040
US lower-48 net pipeline exports to Mexico
Source: IHS Energy, EIA © 2016 IHS
Bcf/
d
Mexican supply sources through 2026 Latest export view: + 0.7 Bcf/d added
since spring, by 2025
Changes on the margin in the past year:
Mainly Mexican production challenges; slower rebound
Small added demand potential
0
2
4
6
8
10
12
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Marketed production Pipeline imports LNG imports
Mexico’s natural gas supply outlook
Source: IHS © 2016 IHS
Bc
f/d
IHS Energy: North American Power, Gas,
Coal and Renewables
© 2016 IHS
MISOMISO
MISO
MISO
SPP
SPP
ERCOT
Southeast
Southeast
Southeast
WECC
NYNE
NYNE
PJMPJM
PJM
PJM
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
CAPP NAPP ILB PRB
Coal-to-gas delivery economics for 2016
Bre
ak
-eve
n n
atu
ral g
as
pri
ce
($/M
MB
tu)
Notes: NYNE = New York and New England; WECC = Western Electricity Coordinating Council. CAPP = Central Appalachia basin; NAPP =
Northern Appalachia basin; ILB = Illinois Basin; PRB = Powder River Basin. Coal price adjusted to gas equivalent (10,250 Btu/kWh coal versus
7,800 Btu/kWh gas).
Source: IHS Energy © 2017 IHS
Market balancing with coal/gas switching
31
Global Energy Forum: North American Gas
2017 Henry Hub average price range
2016 Henry Hub average price range
© 2016 IHS
Henry Hub price history and outlook
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
Jan-14Nov-14Sep-15 Jul-16 May-17Mar-18Jan-19Nov-19Sep-20 Jul-21 May-22Mar-23
Marginal cost range 2 Marginal Cost Range Henry Hub
IHS forecast, January 2017 NYMEX, 20 January 2017
January 2017 Henry Hub history and forecast
Notes: MMBtu = million Btu.
Source: IHS, CME, Intelligence Press © 2017 IHS
$/M
MB
tu
OUTLOOK
MC 2014
MC 2016
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