struggling to find balance - gas/electric partnership · 2016. 2. 13. · presentation ihs.com ihs...
TRANSCRIPT
© 2016 IHS
Presentation
ihs.com
IHS
Struggling to Find Balance
North American Natural Gas and Crude Oil Markets:
Ed Kelly, Managing Director, +1 832-209-4524, [email protected]
February 2016
ENERGY
IHS Presentation to the 2016 Gas/Electric Partnership Conference Houston, Texas, February 3, 2016
© 2016 IHS 2
The North American Gas Market: Will demand
ever catch up?
© 2016 IHS 3
Searching for demand to balance supply
Market balance turns toward lower prices
© 2015 IHS
50502-S4
Source: IHS Energy
Utica
shale
El Nino
Winter
© 2016 IHS
4.00
3.00
2.00
1.00
0.00
-1.00
7.00
6.00
-7.00
5.00
1,000 1,500
-8.00
-9.00
500
8.00
2,000
-2.00
-3.00
-4.00
-5.00
-6.00
Avera
ge B
reak
-Even
$/M
cf
Tcf
Marcellus PA
Haynesville
Bakken
Utica
Marcellus
WV
Montney
Wolfcamp Delaware
Eagle Ford
Wolfcamp Midland
Horn River
Wattenberg
Anadarko Wash
Woodford Cana
Woodford Arkoma
Cotton Valley
SCOOP/STACK
Barnett
Upper Devonian
Anadarko
Pennsylvanian
N Am Gas Resource Chart:
Reserves and Cost
• ~ 850 Tcf at $3.00
• ~ 1350 Tcf at $4.00
© 2016 IHS
Key takeaways–Big picture
• IHS Energy’s new supply forecasting methodology is showing a massive resource base that could
potentially continue getting bigger with improving well EURs and a Utica play that still hasn’t been
proven up.
• Well costs and breakeven prices continue to fall and now look to stay below $4/MMBtu in real terms
through 2040.
• Upstream transition from exploration to manufacturing type operation means we can drill it up faster
than we can grow demand or build infrastructure.
• Power generation demand growth is real but the industry still hasn’t adequately dealt with how to pay
for firm supply for lower load factor generation, necessary for grid reliability.
• Massive pullback in rig activity is causing well costs to fall. Slower long term demand growth argues
against much pricing pressure in the future.
• The gas market was somewhat in balance in summer 2015 but fall Marcellus/Utica supply surge drove
storage balances to record levels and into injection constraints.
• North America and global energy markets (oil, coal, LNG, NG) expected to be demand-constrained
with excess capacity pressuring utilization levels.
• The North American market is looking at long-term gas-on-coal and gas-on-gas competition.
5
© 2016 IHS
40
45
50
55
60
65
70
75
80
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
US lower 48 dry gas production growth
Notes: Bcf/d = billion cubic feet
Source: EIA and IHS Energy © 2016 IHS
Bc
f/d
US lower-48 gas production growth
6
Several years of
production at
around 50 Bcf/d
Barnett,
Fayetteville,
Woodford shales
dominate growth
January 2007
49.7 Bcf/d Hurricanes Katrina, Rita
Hurricane Ike
September 2009
54 Bcf/d
57% fall in rig count
drives 3% reduction in
production
Haynesville,
Marcellus shale
plays drive
growth
Shift to wet gas and
oil drilling
Outlook
December 2014
73.7 Bcf/d, up over
24 Bcf/d from
January 2007
© 2016 IHS
-4
-2
0
2
4
6
8
10
12
14
16
18
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
US Lower 48 Canada
Projected supply growth in the US Lower 48 and Canada (from Jan 2014 levels)
Source: EIA, Canadian pipeline data scrapes, IHS Energy © 2016 IHS
Bc
f/d
North American production growth centers on the Marcellus/Utica
Marcellus/Utica infrastructure
expansions
7
© 2016 IHS 8
IHS Energy has implemented a quintiles-based North
American gas supply forecast model
Performance Evaluator categorization of Marcellus wells by quintile per peak
production in barrel oil equivalent
© 2016 IHS
Source: IHS
Peak production (boe)
1st Quintile
2nd Quintile
3rd Quintile
4th Quintile
5th Quintile
© 2016 IHS
New US lower-48 supply outlook focuses more
production growth in Appalachia
0
10
20
30
40
50
60
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90
100
110
120
130
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14
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24
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26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
Other Bakken Barnett
Cotton Valley Eagle Ford Fayetteville
Haynesville Marcellus Major Permian Plays
Pinedale/Jonah Utica Woodford/SCOOP
October 2015 lower-48 natural gas
productive capacity outlook
Source: IHS Energy, IHS North American Supply Analytics, IHS North American
Performance Evaluator © 2015 IHS
Bcf/
d
0
10
20
30
40
50
60
70
80
90
100
110
120
130
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14
20
16
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20
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20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
Other Bakken Barnett
Cotton Valley Eagle Ford Fayetteville
Haynesville Marcellus Major Permian Plays
Pinedale/Jonah Utica Woodford/SCOOP
September 2015 lower-48 natural gas
productive capacity outlook
Source: IHS Energy, IHS North American Supply Analytics, IHS North
American Performance Evaluator © 2015 IHS
Bcf/
d
9
© 2016 IHS
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
bc
f/d
Marcellus PA Marcellus WV Utica Barnett Eagle Ford
Fayetteville Haynesville Permian plays Smaller plays DUC
Other - Dry Gas Other - Wet Gas Other - Gassy Oil Other - Oil CBM
GoM Deep GoM Shelf
Source: IHS© 2015 IHS
Sustained lower prices and increasing focus on capital
discipline keeping a lid on near-term production growth
10
Marcellus PA
US total gas production by quarter
© 2016 IHS
75 74
• The Marcellus and Utica
shales are the primary
drivers of production growth
through the forecast period.
Marcellus and Utica
productivity gains outstrip
infrastructure growth in the
near-term, keeping the
regional basis depressed.
Weather could also play a
role as forecasts indicate
the possibility of a warm
winter.
• IHS projections for two
quarters of sub-$45 WTI oil
prices is a major component
of the outlook for associated
gas.
• Increased focus on capital
discipline in 2016 in both oil
and gas directed drilling will
be a key factor affecting
development plans and rig
counts.
73
© 2016 IHS
-
10
20
30
40
50
60
70
80
90
100
bcf/
d
Associated Gas Marcellus PA Marcellus WV Utica BarnettFayetteville Haynesville Smaller Plays DUCs Other - Dry GasOther - Wet Gas CBM GOM Deep GOM Shelf
Source: IHS © 2015 IHS
Full US gas production with associated gas
11
US total gas production by major contributing sources
© 2016 IHS
• Using play-level production
data, IHS estimates
associated gas at ~25% of
total Lower-48 production.
Near-term, associated gas
contributions are projected
to fall due to an oil drilling
decline driven by low oil
prices.
• A rebound in associated gas
volumes is forecast to begin
in late-2016/early-2017.
• Increasing activity in the
Eagle Ford and Permian
Unconventionals are the
key drivers of associated
gas through the forecast
period.
Associated Gas
Marcellus PA
© 2016 IHS
North American gas demand will surpass 140 Bcf/d by
2040
12
0
15
30
45
60
75
90
105
120
135
150
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Residential Commercial Industrial Power Vehicles LNG exports Mexico exports Other
North American natural gas demand
Source: IHS Energy, EIA and Statistics Canada © 2016 IHS
Bc
f/d
© 2016 IHS
Components of North American gas demand growth—
A longer-term slowdown
13
-10
0
10
20
30
40
50
60
70
80
2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039
Residential Commercial Industrial Power Vehicles Other LNG Exports MX Exports
North American gas demand growth over 2010 levels
Source: IHS Energy, EIA and Statistics Canada © 2016 IHS
Bc
f/d
3.4 Bcf/d 1.4 Bcf/d
© 2016 IHS
Future pipeline expansion
14
Future natural gas infrastructure
© 2015 IHS
Note: UC = Under construction.
Source: IHS Energy, CFE, CRE
Existing–NPS
Existing–Third-party pipelines
Third-party pipelines – UC/Awarded
Proposed or tender
Waha 1
2
3
4
5
6
7 8 9
12
18
19
20 17
14
13
11
Nueces
16
15
10
Pipeline
1 Sasabe – Guaymas
2 Guaymas – El Oro
3 El Oro – Mazatlan
4 Ojinaga – El Encino
5 El Encino – La Laguna
6 Waha – Presidio
7 Waha – San Elizario
8 San Isidro-Samalayuca
9 Samalayuca – Sásabe
10 Tuxpan – Tula
11 Supply to BCS
12 Colombia – Escobedo
13 Tula-Villa de Reyes
14 Villa de Reyes – Guadalajara
15 Texas – Tuxpan
16 Nueces – Brownsville
17 Laguna – Aguascalientes
18 Los Ramones I
19 Ramones II – North
© 2016 IHS
Pipeline exports to Mexico will reach 5.6 Bcf/d by 2025,
double the 2015 levels
15
0
1
2
3
4
5
6
2010 2013 2016 2019 2022 2025
US lower-48 net pipeline exports to Mexico
Source: IHS Energy, EIA © 2016 IHS
Bc
f/d
© 2016 IHS
North American LNG projects in the current outlook
North American regasification facilities and advanced liquefaction projects
© 2016 IHS
40802-1B_02 11
Source: IHS Energy
16
Potential export site
Existing regas and
potential export site
Under-construction
export site
© 2016 IHS
North American LNG exports in the current outlook
signs point to a potentially looser market
17
0
2
4
6
8
10
12
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Canada capacity Canada volumes US lower-48 capacity US lower-48 volumes
US lower 48 and Canada liquefaction capacity and exports
Source: IHS Energy © 2016 IHS
Bc
f/d
© 2016 IHS
Rapid demand growth leads to higher natural gas prices, but
they remain under $4 per MMBtu until late 2021
18
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
Jan-14 Dec-14 Nov-15 Oct-16 Sep-17 Aug-18 Jul-19 Jun-20 May-21 Apr-22 Mar-23
Marginal cost range 2 Henry Hub
IHS forecast, January 2016 NYMEX, 11 January 2016
January 2016 Henry Hub history and forecast
Notes: MMBtu = million Btu.
Source: IHS, CME, Intelligence Press © 2016 IHS
$/M
MB
tu
OUTLOOK
© 2015 IHS 19 Client Name | Report Title | Report Type | Revision Number | MM YYYY
Crude Oil Markets – Closer to Rebalancing
© 2016 IHS
Current low oil prices are reducing upstream investment –
eventually oil supply will drop to meet demand
© 2016 IHS
Balance will (eventually) be reached and the price will rise materially
• The low oil prices are being met with banks and other analysts revising down their near- term price forecasts (which IHS has also done) along with extending their views of the depth and breadth of the price decline (which IHS is not doing at this time).
• These are the key data points we are watching to help inform us if we need to adjust our base case to an extended low price track rather than a recovery year
• US production declines: Relatively slow shale slowdown has been offset with higher Gulf of Mexico production. These declines are expected to continue in our current base case.
• Iran’s return: We expect another ~400,000 b/d from Iran by mid-year. We are watching for signs of stronger and sustained production increases as well as the potential to trigger an active market share battle with Saudi Arabia which causes them to increase production even further.
• Non-OPEC/non-US: We forecast no significant growth in this supply source and potentially declines, expecting an end to the production growth caused as some projects have come on slightly faster and field maintenance was shortened.
• Demand: Despite stronger headline economic growth, we do expect slower demand growth this year, but at 1.2 MMb/d, it is still sufficient to tighten the market at this level when combined with lower production.
• Stocks: One of the key assumptions in some analysts earlier low price predictions was “running out of storage space” which would indicate a very high contango, pushing the prompt price downward. While stocks are up, there is still an indication of available storage capacity.
• Longer term, to move to a lower price track, costs will need to fall even further, allowing investment to continue.
21
© 2016 IHS
Benchmark crude price outlook Brent will lower to $46.46/bbl in 2016, rising to $55.71/bbl by 2017
22
Assumptions
Low prices continue to put pressure on
US production
OPEC maintains production and
incremental Iranian barrels begin
entering the market . Additional 400,000
b/d by mid-2016.
Demand growth slows relative to 2015’s
strong growth but remains well above 1
MMb/d.
Price forecast risks Upside: Iranian barrels do not enter the
market in large quantities. Conventional
production begins to slow more rapidly than
expected. Financial short squeeze pushes
price up in near term.
Downside: Continued bearish news without
a break, balance does not occur until 2017
as production remains too high from US,
non OPEC, non US.
$25
$45
$65
$85
$105
$125
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Brent LLS WTI
Brent and other benchmark crude oil price outlook to 2017
Qu
art
erl
y a
vera
ge p
rice p
er
barr
el
Source: IHS; Argus Media Limited
Notes: LLS = Louisiana Light Sweet. WTI = West Texas Intermediate.
Outlook
© 2016 IHS
© 2016 IHS
Source: IHS, Argus Media Limited
© 2016 IHS
Despite the oversupply of crude oil we see right now, future barrels
are going to be more expensive to find and produce
0
10
20
30
40
50
60
70
80
90
2005 2010 2015 2020 2025 2030 2035 2040
Shale Found & in productionFound & under development Found & under approvalYet to find
World Crude Oil Development Forecast
Source: IHS Energy © 2015 IHS
Mil
lio
n B
arr
els
pe
r D
ay
© 2016 IHS
US tight oil production will likely peak in the late 2020s
0
1
2
3
4
5
6
7
8
2005 2010 2015 2020 2025 2030 2035 2040
Bakken Eagle Ford Permian Plays Niobrara Woodford Utica Other
US Tight Oil Production
Source: IHS Energy
Mil
lio
n b
arr
els
pe
r d
ay
© 2015 IHS
© 2016 IHS
Thin OPEC spare capacity will become a serious issue in late-2016
25
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
OPEC spare crude oil production capacity
Source: IHS
Millio
n b
arr
els
pe
r d
ay
© 2016 IHS
© 2016 IHS
35%
36%
37%
38%
39%
40%
41%
42%
43%
44%
45%
0
10
20
30
40
50
60
70
80
90
100
2010 2015 2020 2025 2030 2035 2040
Non-OPEC OPEC % OPEC
OPEC & Non-OPEC Crude Production (Ex. Seg. Condensates)
Source: IHS © 2015 IHS
Mil
lio
n b
arr
els
per
day
• Canadian oil sands development
growth is reduced but not reversed
• Brazil’s production will be delayed due
to high upstream costs, project delays,
currency devaluation, reduced oil prices
and ongoing corruption scandal
• Kazakh supply growth depends on
successful restart of the Kashagan field,
likely post 2025
• Mexico’s energy reform may stabilize
production in the next decade but
declines will continue medium term
• Low prices will exacerbate the North
Sea production decline
• Russian crude oil output will decline
slowly due to sanctions and oil prices
• Chinese output expected to remain
stable
The call on OPEC production will increase as non-OPEC supply
sources are unable to keep pace with demand
Saudi: only OPEC country intentionally not operating
at capacity, but higher production than in recent years
Iran: Recent lifting of sanctions may increase
production above this forecast
Iraq: Sectarian tensions will delay crude production
Venezuela: economic mismanagement deferring
needed investments
Nigeria: hard to find capital for deepwater projects
Libya: failed state - expect production below capacity
Non-OPEC
OPEC
© 2016 IHS
The base case for Brent crude oil included an oversupply mini-
cycle following a recovery period
© 2016 IHS
• Saudi crude oil output could be above our projected 10 million barrels per day,
thus lowering global spare capacity below 2.5 million barrels per day and exposing global
markets to potentially very high prices in the case of a market disruption
• IHS assumes that North American tight oil production crests next decade and that
the scale of its success is not replicated elsewhere
• IHS assumes that key OPEC countries will be able to overcome their critical
aboveground issues; these include Venezuela, Iraq, Iran and Libya
• We expect crude oil growth to be lighter through 2025 driven by North American tight
oil; longer term the light sweet crude growth will subside and be replaced by heavier oil;
an extension of the North American tight oil production would impact our assumptions
around light heavy spreads and the call on OPEC
• The Rivalry (Base Case) scenario assumes competition among primary energy
sources, with natural gas and renewables gaining share among transportation
fuels. Failure of natural gas and renewables to achieve that higher share will likely
increase the call on crude oil.
Risks to the crude oil forecast
IHSTM
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