Market overview: Crude, natural gas and NGLs

Argus North American Gas Markets 2012

David Givens, head of gas and power services, North America

March 23, 2012

London, Houston, Washington, Jersey City, Portland, Calgary, Santiago, Bogotá, Johannesburg, Dubai, Singapore, Tokyo, Beijing, Sydney, Moscow,

Astana, Kiev and Berlin

Agenda

• Crude, NGL production drives rig count and gas output

• Gas basis narrows, except in US Northeast• Ethane nearly at rejection• Infrastructure challenges persist• Firm natural gas transportation devalued

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Argus Natural Gas Americas

US crude, gas production rising

Jan-08110

130

150

170

190

1,400

1,600

1,800

2,000

2,200

Crude

mn

bb

l/m

on

th

BC

F/m

on

th

Three years of divergence

Jan-08 Oct-08 Aug-09 Jun-10 Apr-11 Feb-120

5

10

15

20

25US mmBtu values

Henry Hub prompt

$

NGL prices climb relative to gas

Sep-08 May-09 Jan-10 Oct-10 Jun-11 Mar-1240

90

140

190

240

1

3

5

7

9Mt. Belvieu vs Henry

Propane Mt. Belvieu Butane Mt. Belvieu Henry Hub

$/U

SG

$/m

mB

tu

Low breakevens narrow Northeast basis• SW Marcellus, wet

– 15pc ROR: $2.66/mmBtu (CS)– 12pc ROR: $2 (GS)

• SW Marcellus, dry: $3.63 (CS)

• NE Marcellus, dry: $3.80 (GS)

Sources: Credit Suisse; Goldman, Sachs

Fractionation spread

• Value of natural gas vs. splitting CH4 into NGLs

• Each NGL is assumed a representative % of barrel

• Each NGL distinct heating value

• Fuel used to frac (shrink)

• Btu value of some NGLs weaker recently

Major fractionators in the US

EPD

D

MWE

OKS

OKS

OKSWMB

DCP Mid

ECA

NRGY

COP

DVN

EPD

OKS

DCP Mid

DCP Mid

EPD

EPD

EPD

WPZ/DPM

NGLS NGLS

Dow/EPD

Chevron

XOM

Formosa

NGLS

Aux Sable

US NGL usage

Ethane (C2)

Supply*

mbpd % Total

Propane (C3)

Butanes (C4)

N-Gasoline (C5+)

820

550

320

250

42%

28%

17%

13%

Total Supply 1,940 100%

Heating/Agriculture

Refineries

Petrochemicals

Demand

1,100

270

570

56%

14%

30%

mbpd % Total

Total Demand 1,940 100%

Source: Tudor, Pickering, Holt& Co.

*Supply is natural gas plant field production.

Midstream paradise

Mar-11 May-11 Jul-11 Oct-11 Dec-11 Mar-121

2

3

4

5

6Mont Belvieu fractionation spreads

Non-LDH Ethane Propane Normal ButaneIso-Butane Pentanes Plus

$/m

mB

tu

E-P mix values bounce

Mar-11 May-11 Aug-11 Oct-11 Dec-11 Mar-120.5

1.5

2.5

3.5

4.5

5.5Conway fractionation spreads

Ethane-Propane Mix Propane Normal ButaneIso-Butane Pentanes Plus

$/m

mB

tu

Fractionation spreads

Non-LST butane percentage of USGC 87 gasoline

USGC 87 gasoline vs non-LST natural gasoline

EIA ethane data

Mar-815,000

10,000

15,000

20,000

25,000

30,000

35,000US gas plant production of ethane-ethylene

'00

0 b

l

What it means for US natural gas

Impact on markets

• Some constrained burnertip markets remain• Pipeline capacity turnback• Shale gas + capacity release = underutilization• Backhaul prospects in east

– Tetco– Transco– Columbia– Tennessee

• West impact varies– Pushback of REX gas– Permian production wetter

Focus of Tennessee Gas Pipeline settlement

Effect on Columbia system

2009 2010 20110.05

0.1

0.15

0.2

0.25

0.160.15

0.12

0.21

0.18

0.08

Columbia App minus Onshore

April-Oct Nov-Mar

$/m

mB

tu

Traditional Midcontinent winter basis

2009 2010 20110.05

0.1

0.15

0.2

0.25

0.3

0.08

0.11

0.17

0.27 0.29

0.23

Chicago minus NGPL South Texas

April-Oct Nov-Mar

$/m

mB

tu

Western basis volatility

2009 2010 20110

0.0900000000000001

0.18

0.27

0.36

0.11

0.05

0.190.19

0.0800000000000001

0.320000000000002

SoCal border minus El Paso Permian

April-Oct Nov-Mar

$/m

mB

tu

REX versus Marcellus

April-Oct Nov-Mar0.1

0.2

0.3

0.4

0.5

0.6

0.7 0.650000000000004

0.320000000000002

0.330000000000002

0.15

Clarington minus Cheyenne

2010 2011

$/m

mB

tu

Marcellus pushes REX supply west

2009 2010 20110.09

0.18

0.27

0.36

0.450.42

0.27

0.14

0.35

0.150.14

Malin minus Opal

April-Oct Nov-Mar

$/m

mB

tu

Conclusions

• Unabated growth through drill bit

• Btu values of crude, NGLs keep production high

• Shift to wet plays has ongoing gas basis effect

• Impact on east gas : backhauls, displacement

• Impact on west gas: Rockies supply to traditional markets

Thank you!

David GivensHead of gas and power services, North Americadavid.givens@argusmedia.com+1-202-349-2891

London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogotá, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana,

Kiev, Porto, Brussels and Johannesburg