supply and demand for natural gas - mercator energy€¦ · on the $3.50/mmbtu gas page is more...
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Supply and Demand for Natural Gas
July 16, 2013By:
John Harpole
Presentation to:Energy SummitLoveland, CO
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3Presentation to Senate Business and Commerce Committee & Senate Natural Resources Committee, April 15, 2008.
Population Growth from 1950-2050
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Quality of Life is Strongly Correlated with Electricity Consumption
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5Source: U.S. Energy Information Administration, International Energy Outlook 2011, September 19, 2011
World Natural Gas Consumption, 1990-2035(TCF)
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Russia, Iran and Qatar Form Natural Gas Cartel
Iranian Oil Minister, Gholam Hossein Nozari
Alexei Miller, Chief of Russia’s state gas monopoly - Gazprom
Qatar’s Deputy Premier and Minister of Energy and Industry, Abdullah bin Hamad Al-Attiya
10/21/2008 in Tehran, Iran
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Existing Terminals with ExpansionsA. Everett, MA : 1.035 Bcfd (Tractebel)B. Cove Point, MD : 1.0 Bcfd (Dominion)C. Elba Island, GA : 1.2 Bcfd (El Paso)D. Lake Charles, LA : 1.2 Bcfd (Southern Union)
Approved Terminals1. Hackberry, LA : 1.5 Bcfd, (Sempra Energy)2. Port Pelican: 1.0 Bcfd, (Chevron Texaco)Proposed Terminals – FERC3. Bahamas : 0.84 Bcfd, (AES Ocean Express)4. Bahamas : 0.83 Bcfd, (Calypso Tractebel)5. Freeport, TX : 1.5 Bcfd, (Cheniere / Freeport LNG Dev.)6. Fall River, MA : 0.4 Bcfd, (Weaver's Cove Energy)7. Long Beach, CA : 0.7 Bcfd, (SES/Mitsubishi)
Proposed Terminals – Coast Guard8. Gulf of Mexico: 0.5 Bcfd, (El Paso Global)9. California Offshore: 1.5 Bcfd, (BHP Billiton)10. Louisiana Offshore : 1.0 Bcfd (Gulf Landing – Shell)
Planned Terminals11. Brownsville, TX : n/a, (Cheniere LNG Partners)12. Corpus Christi, TX : 2.7 Bcfd, (Cheniere LNG Partners)13. Sabine, LA : 2.7 Bcfd (Cheniere LNG)14. Humboldt Bay, CA : 0.5 Bcfd, (Calpine)15. Mobile Bay, AL: 1.0 Bcfd, (ExxonMobil)16. Somerset, MA : 0.65 Bcfd (Somerset LNG)17. Louisiana Offshore : 1.0 Bcfd (McMoRan Exp.)18. Belmar, NJ Offshore : n/a (El Paso Global)19. So. California Offshore : 0.5 Bcfd, (Crystal Energy)20. Bahamas : 0.5 Bcfd, (El Paso Sea Fare)21. Altamira, Tamulipas : 1.12 Bcfd, (Shell)22. Baja California, MX : 1.3 Bcfd, (Sempra) 23. Baja California : 0.6 Bcfd (Conoco-Phillips)24. Baja California - Offshore : 1.4 Bcfd, (Chevron Texaco)25. Baja California : 0.85 Bcfd, (Marathon)26. Baja California : 1.3 Bcfd, (Shell)27. St. John, NB : 0.75 Bcfd, (Irving Oil & Chevron Canada)28. Point Tupper, NS 0.75 Bcf/d (Access Northeast Energy)29. Harpswell, ME : 0.5 Bcf/d (Fairwinds LNG – CP & TCPL)30. St. Lawrence, QC : n/a (TCPL and/or Gaz Met)31. Lázaro Cárdenas, MX : 0.5 Bcfd (Tractebel)32. Corpus Christi, TX : 1.0 Bcfd (ExxonMobil)33. Gulf of Mexico : 1.0 Bcfd (ExxonMobil)34. Sabine, LA : 1.0 Bcfd (ExxonMobil)35. Providence, RI ; 0.5 Bcfd (Keyspan & BG LNG)
Existing and Proposed Lower-48 LNG Terminals
December 2003
FERC
A
C
1 3 4
2 8
27
618
20
5
11
21
12
197
14
B
D
16
17
9
2830
29
31
10
152223
24 2526 31 33
3413
35
Source: Pat Wood, Federal Energy Regulatory Commission, LNG Ministerial Conference Presentation
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88Source: America’s New Natural Gas, America’s Natural Gas Alliance
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NYMEX Henry Hub Natural Gas Price* 1996 - 2016 Actual/Forecast**
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 4/30/2013
$ pe
r MM
Btu $ per M
MB
tu
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.0019
96
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
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THE SUPPLY CURVE HAS MOVED
According to the Potential Gas Committee, during the last two years, the future gas supply estimate for the
US rose nearly 25% to a 48-year record of 2,688 TCF.
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Forecasts for Shale Gas Resource?
• 2008 - 347 TCF - Energy Information Administration (EIA)• 2008 - 840 TCF - Navigant for Clean Skies Foundation• 2009 - 616 TCF - Potential Gas Committee (PGC)• 2011 - 827 TCF - Energy Information Administration (EIA)• 2013 – 1,073 TCF - Potential Gas Committee (PGC)
Source: Various resource estimates
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Dry Natural Gas Production Is Expected To Grow
11.8 Bcfd
Source: Ponderosa AdvisorsSource: Ponderosa Advisors LLC
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0
100
200
300
400
500
600
0
1
2
3
4
5
6
7
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Rig
Coun
t
Prod
ucti
on (b
cf/d
)Barnett Gas Production
Historical Gas Production (bcf/d) Rig Count
Barnett – Model for Future Shale Development
Source: HPDI, RigData, TPH EstimatesDave Pursell, Tudor Pickering Holt & Co., Macro Natural Gas and Oil Thoughts presentation, May 2, 2013
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15% Onshore Active Rigs Are Working In Dry Gas Areas
Dry (0‐1.15 GPM)Medium (1.15‐3.0)Wet (> 3.0)
Active Rigs By GPM(03/22/2013)
Onshore
Offshore 117282
225
1,327
No. Active Rigs By GPM
Source: Ponderosa Advisors LLC
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17Source: BENTEK Supply and Demand Report
Jan JulApr Oct
Average Daily Produ
ction (B
cfd)
Data through January 18, 2013
Q‐2Q‐1 Q‐3 Q‐4
Comparison of Dry Production
US Production Is Up From 2012 By Almost 400 MMcfd
< 0.7 Bcfd
2013
Source: Ponderosa Advisors LLC
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Faster Drilling Times Yield More Wells, More Production
3% Imp Time to Drill
10% Imp In IP Rate
Prod
uction
(MMcfd)
Source: Ponderosa Advisors LLC
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Fracturing Application Exploded
Source: Chris Wright, Liberty Resources Tuesday Lunch Club Presentation, 3/5/13
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10-fold growth in 10 years
Source: Chris Wright, Liberty Resources Tuesday Lunch Club Presentation, 3/5/13
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The “Ferrari” Affect Substantially Reduces The Likelihood Of Price Spikes
6 Month Drilling Curtailment
5 months after drilling restarts, previous production level exceeded
One Rig In the Haynesville
Source: Ponderosa Advisors, LLCSource: Ponderosa Advisors LLC
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Will the Demand Side Curve Move?
“There is no opportunity for which we can’t overcompensate.”
Four areas to consider:1. CNG/NGV vehicle demand2. Coal to gas electric gen conversion3. New industrial demand4. LNG Exports
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1. CNG/Natural Gas Vehicles
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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.• Let’s be aggressive and say 1 BCF per day of
demand by 2020.
Source: Raymond James & Associates, Inc., Weekly Energy Report 6-13-11
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2. Coal to Gas Electric Generation Fuel Switching
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10
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20
25
30
35
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
bcfd
Natgas Demand by End User1997‐2012
Why Care About Power Generation?• Power demand historically 20-33% of total US natural gas demand
• Grew to 39% in 2012
• Impressive but power’s relative growth even more dramatic
Commercial & Industrial
Residential
Power
Source: EIADave Pursell, Tudor Pickering Holt & Co., Macro Natural Gas and Oil Thoughts presentation, May 2, 2013
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Generation Supply Stack - $3.50 Natural Gas Price Deck
$20
$25
$30
$35
$40
$45
$50
$55
$60
‐ 50,000 100,000 150,000 200,000 250,000 300,000
Cost of P
ower Produ
ction ($/M
Wh)
Cumulative Capacity (MW)
Coal Capacity
Gas Capacity
This represents 100 GW of efficient gas-fired generation. Deep in-the-money vs. much of the coal supply stack. Running full out, that’s 18 Bcf/d of peak gas demand…that’s a lot of gas!
Source: TPHe, EIA, SNL EnergyDave Pursell, Tudor Pickering Holt & Co., Macro Natural Gas and Oil Thoughts presentation, May 2, 2013
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Generation Supply Stack - $4.50 Natural Gas Price Deck
$20
$25
$30
$35
$40
$45
$50
$55
$60
‐ 50,000 100,000 150,000 200,000 250,000 300,000
Cost of P
ower Produ
ction ($/M
Wh)
Cumulative Capacity (MW)
Coal Capacity
Gas Capacity
The 100 GW of gas generation that was in-the-money on the $3.50/mmbtu gas page is more expensive to run at $4.50/mmbtu gas than a similar amount of coal generation.
Source: TPHe, EIA, SNL EnergyDave Pursell, Tudor Pickering Holt & Co., Macro Natural Gas and Oil Thoughts presentation, May 2, 2013
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Generation Supply Stack - $4.00 Natural Gas Price Deck
$20
$25
$30
$35
$40
$45
$50
$55
$60
‐ 50,000 100,000 150,000 200,000 250,000 300,000
Cost of P
ower Produ
ction ($/M
Wh)
Cumulative Capacity (MW)
Coal Capacity
Gas Capacity
@$4/mmbtu nat gas, the meat of the coal and gas supply stacks sit on top of each other...here it doesn’t take much to tip the balance to coal or gas. This is where we are today with a lot of market share potentially up for grabs.
Source: TPHe, EIA, SNL EnergyDave Pursell, Tudor Pickering Holt & Co., Macro Natural Gas and Oil Thoughts presentation, May 2, 2013
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3. Industrial Demand Growth(Chemical, Manufacturing, Ethane Crackers, etc.)
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3131
Source: Industrial Natural Gas Demand presentation, Paul N. Cicio, June 2013
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3232
Source: Industrial Natural Gas Demand presentation, Paul N. Cicio, June 2013
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3333
Source: Industrial Natural Gas Demand presentation, Paul N. Cicio, June 2013
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Source: Industrial Natural Gas Demand presentation, Paul N. Cicio, June 2013
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The Ammonia Story• Current approximate economics
– Ammonia worth $600 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
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Nucor EnCana – A Creative Solution• A price protection deal for Nucor Steel• $3.6 billion 20 year investment in 4,000 wells located in
western Colorado• Lack of counterparty creditworthiness drove the structure of
the deal• A financial investment/partnership in drilling and development
was the only solution for Nucor• Nucor will sell the gas in western Colorado and use the cash
to purchase like volumes in Louisiana• This deal structure allowed for the phased development of a
$1.4 billion DRI steel mill• The EnCana Nucor deal is responsible for all of EnCana’s 5
drilling rigs in western Colorado and will eventually increase to 8 rigs
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Drilling Rig Productivity Continues To ImproveSouthwestern EnergyFayetteville Shale
2,104
4,942
+135%
18
5
‐69%
1,066
2,373
+123%
$2.1$2.9
‐28%
21
68
+224%
160,397
18,360
+621%
Source: Southwestern Energy Financials
Time To Drill(Days)
Wells Per YrPer Rig
AverageLateral Length
(Feet)
30 Day Ave.Prod Rate(Mcf/d)
Unit ProdAdditions
Per Rig Per Yr(Mcf/d)
Drill & Complete
Costs ($MM)
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4. LNG Exports
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2223242526
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LNG Update
• U.S. Department of Energy Grants Freeport LNG Non-FTA Export Approval
• This is the first such license granted to an LNG export facility in the U.S. since approval was granted to Sabine Pass LNG in May 2011.
Source: http://gcaptain.com/u-s-energy-department-grants/ Rob Almeida, May 17, 2013
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Australia LNGWhile we review, they build…
Gladstone Australia’s 3 LNG plants represent $60 billion in investments
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World LNG Estimated June 2013 Landed Prices
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Incremental Demand/Supply Increase By 2020?
22.0 BCF/day11.5 BCF/dayIncremental Demand Total
25.0 BCF/day15.0 BCF/dayIncremental Supply Total*
7.0 BCF/day3.0 BCF/day3. Industrial Demand Growth
8.0 BCF/day5.0 BCF/day2. Coal to Gas
1.0 BCF/day0.5 BCF/day1. CNG/Natural Gas Vehicles
Low Case High Case
4. LNG Exports 3.0 BCF/day 6.0 BCF/day
*Current daily supply is 65 BCF per day.
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Source: Industrial Natural Gas Demand presentation, Paul N. Cicio, June 2013
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Two Stories on Hydraulic Fracturing or “Fracking”
Story Number 1: How “fracking” positively affects the poor
Story Number 2:“Fracking” and China
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Story Number 1
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May 13th, 1966
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35 Years of Energy Bills
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World LNG Estimated June 2013 Landed Prices
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Perspective: Residential Gas Usage
In a single year, the average US home uses 84 MCF of natural gas.
Source: Natural Gas Supply Association
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The Effect of Fracking on Residential Gas Cost
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The Effect of Fracking on Residential Gas Cost
• With the gas cost in Spain of $10.05/MMBtu, the total residential bill would have been:
• With the gas cost in China of $13.70/MMBtu, the total residential bill would have been:
$67.84
$82.29
80%Increase
118%Increase
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What Fracking Means to Low Income Households
2003-2008 NYMEX1 Avg. Price2/MMBtu-
1 NYMEX – Average last 3 days of close of Natural Gas Contract as reported in Platts Gas Daily Report
2 See Addendum A for supporting documentation
3 2012 Residential Gas Usage – EIA Natural Gas Consumption by End Use
2012 NYMEX1 Avg. Price/MMBtu $2.80
$7.21
Price Differential/MMBtu $4.41
2012 Residential Gas Usage3/MMBtu 4,179,740,000x
2012 Residential Cash Savings = $18,432,653,400
61%Drop
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4 US Census Bureau State and County Quickfacts
5 LIHEAP Home Energy Notebook for FY 2009: Appendix B: Income Eligibility Household Estimates; See Addendum A
6 Households with income up to 150% of the federal poverty income guidelines or, if greater, 60% of the state median income
7 10% decrease due to General Administrative Expense; 15% due to efficiency
• 36% of residential households (114 million total4) are estimated to qualify for LIHEAP assistance5
Percent of households LIHEAP eligible .36x
= $6,635,755,2242012 LIHEAP Eligible Cash Savings
2012 Residential Cash Savings = $18,432,653,400
What Fracking Means to Low Income Households
2012 LIHEAP Total Cash Assistance7 = $2,625,000,000
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Story Number 2: “Fracking” and China
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Harpoles In China: 2010 & 2012
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China is Looking to Us
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Conclusions• U.S. continues to produce more gas, shale gas
revolution was too successful, end-users will benefit
• During the next 3 years, supply will likely exceed demand
• Prices will remain in the $3.50 to $4.50 range, with short period above and below that band during adjustments
• Long term prices depend on demand growth. Without demand growth, supply will continue to be long and prices relatively low.
• A significant demand response can’t occur for at least 3-5 years
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Conclusions (cont’d)• Infrastructure investment in the 4 areas of potential new
demand (CNG/NGV, coal to gas, industrial demand growth, LNG exports) could take 5-8 years to be meaningful
• Natural gas liquids will continue to be the driving force in drilling
• BTU value disparity between natural gas and crude oil will continue for many years
• Beware of entities that are “talking their own book” (ie –chemical and manufacturing trade associations, LNG developers, NGV advocates, etc.)
• Exports must become a greater part of the demand equation, with obvious political implications.
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Wildcards• World economy (every one is “talking their
own book”)• Ban on hydraulic fracturing in U.S. (it is a
battle city by city, town by town)• The Streetlight Effect
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Citations for ReportAll of the information utilized for this report is a compilation of information pulled from the following data sources:Ponderosa Advisors LLCBlue, Johnson Associates, Inc.Chris Wright, Liberty ResourcesOffice of Fossil EnergyDave Pursell, Tudor Pickering Holt & CoTudor Pickering Holt & CoBloombergAmerica’s Natural Gas AllianceHPDIRigDataSNL EnergyOffice of Oil Gas Global Security SupplyU.S. Department of EnergyRaymond James and Associates, Inc.Charif Souki, Cheniere Energy Inc.; Cheniere ResearchU.S. Federal Energy Regulatory CommissionInstitute for Energy Research (IER) Energy Information Administration (EIA)Bernstein ResearchWestern Energy AlliancePlatts Gas Daily Report, A McGraw Hill PublicationSEC FilingsPaul N. Cicio
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John A. HarpolePresident
Mercator Energy LLC26 W. Dry Creek Circle, Suite 410
Littleton, CO [email protected]
(303) 825-1100 (work)(303) 478-3233 (cell)
Contact Information