North American Natural Gas...

1

North American Natural Gas Outlook Fundamentals and Price Outlook for 2013 and Beyond

February 6th, 2013

2 www.BentekEnergy.com

BENTEK Energy Market Information

Agenda:

A Mucho Robusto Gas Market - What’s in Store for 2013

Gas Demand to Pull Market

Natural Gas Production Response and the Evolution of Supply

Storage Inventory and Prices for the Next Five Years


$0

$20

$40

$60

$80

$100

$120

-

100,000

200,000

300,000

400,000

500,000

600,000

Fu

el C

ost

of

Ge

nera

tio

n (

$/M

Wh

)

To

tal In

sta

lled

Cap

acit

y (

MW

)

Coal Gen Cap Gas Gen Cap CAPP HH

2009-Present: Fuel Price Competition and Shift to Natural Gas

Source: BENTEK GENCast, Platts Gas Daily, Coal Trader

Power

Investment

Power

Buildout Supply

Investment

Robust

Equilibrium


-800

-600

-400

-200

0

200

400

600

800

-40

-30

-20

-10

0

10

20

30

40

Bcf

Bcf/

d

Res/Comm Power Burn Accumulated Difference

Over Past 15 Months: Res/Comm Down 0.9 Tcf

Power Up Over 1.5 Tcf

YOY Deltas Show Power Gains in Absence of Weather

Source: BENTEK Supply Demand Report


2.3

-0.4 -0.3

1.6

4.0

0.0

-2.2

0.2

2.0

Do

m P

rod

LN

G

Can

Im

po

rts

Su

pp

ly

Po

wer

Ind

ustr

ial

Res/C

om

Mex E

x

Dem

an

d

2012 vs. 2011 - US Net Short 0.4 Bcf/d

Supply Side Demand Side

On July 1st, U.S. was nearly 2 Bcf/d long versus 2011.

Source: BENTEK Supply & Demand Report


-0.6 -0.2 -0.4 -1.2 -1.0

0.5

6.9

0.4

6.8

Do

m P

rod

LN

G

Can

Im

po

rts

Su

pp

ly

Po

wer

Ind

ustr

ial

Res/C

om

Mex E

x

Dem

an

d

2013 vs. 2012 – Getting Shorter - 8 Bcf/d

Supply Side Demand Side

Source: BENTEK Supply & Demand Report


$3.85

$4.20

$1.98

$3.20

0

500

1000

1500

2000

2500

3000

April 2010 April 2011 April 2012 April 2013

YOY Inventory vs. Henry Hub Price

Inventory Price

Enter 2013 At Higher Price = New Environment

Source: BENTEK Market Call, EIA


15.0

20.0

25.0

30.0

35.0

40.0

U.S. Power Burn Per Degree (Bcf/d)

2009-11 2012

Power Burn Up Significantly in 2012 – Can This Continue in 2013?

6 Bcf

3 Bcf

Source: BENTEK Power Burn and Associated Data Sets

2013?


Evolution of Power Sector Development By Region

In US, nearly 16 GW of new gas

under construction, in the face

of 30 GW of coal retirements.

Source: Platts Power Plant Buildout Database

16 GW at 50%

Utilization and 7.5 Heat

Rate = 1.44 Bcf/d of

new gas demand.


-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

YTD Change in Power Burn by Pipeline, 2007 VS 2012

Eastern Pipes: +82%

Transco, TX Eastern, Tenn: +35%

Midcon Pipes: +13%

Source: BENTEK Data Warehouse and Associated Data Sets


Power Generation Growth in the Northeast

4.4 GW Under Construction with

Another 13.2 GW Proposed – Exploit

Prod Gains and Soak Up Supply.

Source: Platts Power Plant Buildout Database


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Bcf/

d

Northeast Power Burn

History Forecast

Power Burn Expected To Continue to Increase

Source: BENTEK CellCast and Cell Model

Increase of 1.2 Bcf/d (23%)


Majority of Power Growth Along Eastern Seaboard

5.4 Bcf/d in Pipeline Expansions by 2017

• SONAT South System III: 375 MMcf/d, June 2012

• Transco Mid-South: 225 MMcf/d by July 2013

• Gulf South Southeast Market: 450 MMcf/d, Q4 2014

• Elba Express: 255 MMcf/d by December 2014

• Transco Atlantic Access: 1.8 Bcf/d by late 2014

All targeting power demand growth

Most designed to takeaway Marcellus supply

Source: BENTEK Southeast/Gulf Observer Expansions, Demand Analytics

Ahead of the Curve – 3.7 GW Under

Construction with 2.5 GW Proposed.


Southeast To Absorb Excess Supply

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Bcf/

d

Southeast Power Burn

History Forecast

Increase of 1.3 Bcf/d (16%)

Source: BENTEK CellCast and Cell Model

15 bentekenergy.com

(2.2)

(3.6)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Bcf/

d

Canadian Imports LNG Sendout Mexican Exports

LNG Exports Net Imports

U.S. Net Imports Near

Zero by 2017

U.S. On Track to Export More than it Imports

Source: BENTEK Forward Curve


Mexican Demand – Driven By Power – Is Growing

CC Norte III (2015)

954 MW

CC Guaymas II

(2017) 747 MW

CC Guaymas III

(2018) 747 MW

Topolobampo I (2016) 320 MW

CC Topolobampo II (2016) 700 MW

CC Topolobampo III (2017) 700 MW

Guaymas I (2015)

108 MW

CC Norte V (2022)

944 MW

CC Norte IV (2019)

918 MW

CC Norte II (2013)

459 MW

CC Norte VI (2025)

918 MW

2013 – 2025

9,302 MW

1.0 Bcf/d @ 50%;

7.5 heat rate

P. Libertad

620 MW (2014)

Mazatlan (2016)

300 MW

Source: Comision Federal de Electricidad (CFE)

CC Mazatlan

(2021)

867 MW

El Paso Wilcox Lateral: 185 MMcf/d,

Apr. 2013

El Paso Samalayuca Lateral: 97 MMcf/d,

Jul. 2013

El Paso Sasabe: 200-770 MMCf/d,

Jul. 2014

Total El Paso: 482-1,052 MMcf/d


U.S. Gulf Coast LNG Exports - Base

0

1

2

3

4

5

6

7

2016 2017 2018 2019 2020

Bcf/

d

Sabine Pass Exports Cameron Exports Freeport Exports

Cove Point Exports Total US Capacity



0

10

20

30

40

50

60

70

80

Bcf/

d

Industrial ResComm Power Burn

U.S. Power Burn Drives Demand Growth


33%

40%

37% 38%


48.0

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

Bc

f/d

2011 2012 2013 2013 Fcst

U.S. Gas Production Will Increase In 2013

Source: BENTEK Supply and Demand Report, Dry Production

Maintenance &

Freeze-offs

2011 Avg. = 61.4 Bcf/d

2012 Avg. = 63.8 Bcf/d

2013 Est. = 65.6 Bcf/d

Hurricane Isaac


7/-1

198/-4

40/-21

57/-61

13/-1

9/+3

32/-5

18/-11

29/+9

96/+21

4/-19

5/+1

222/-18

30/+17

5/-5

36/-7

21/-12

5/+0

Active rig count: January 4, 2013 / Change in rig count from January 6, 2012

Rig Increases Dry Gas Focused Areas

Rig Increases Liquids-Rich/Oil Focused Areas

Rig Declines Source: BENTEK, January 2013

Sliding Oil Prices, Depressed NGLs, and Continued

Weakness in Gas Pushes Rig Counts Lower

1/-2

97/+11

57/+0

38/+15

58/-43

16/-14 209/-28

439/-19

43/-39

TOTAL

1824

CHANGE

-287

12/-10 PICEANCE

CALIFORNIA

MICHIGAN

POWDER RIVER

GREEN RIVER

WIND RIVER

OTHER ROCKIES

WILLISTON

SAN

JUAN

UINTA

OTHER

APPALACHIAN

D-J

MARCELLUS WET

MARCELLUS

DRY

UTICA

ILLINOIS

ARK FAYETTEVILLE

ARK WOODFORD

OFFSHORE

TX GULF

EAGLE FORD

PERMIAN

ANADARKO

FT

WORTH

AL-MS-FL

LA GULF

EAST

TX

ARLKA

OTHER

MIDCONTINENT

TX GULF

25/-44

RATON 1/+0

HH

($/MMBtu)

WTI

($/Barrel)

Mt. Belvieu

($/Gal)

Jan. 6, 2012 $2.97 $103 $1.44

Jan. 4, 2013 $3.20 $93 $0.96


0.80

0.90

1.00

1.10

1.20

1.30

1.40

400

600

800

1000

1200

1400

1600

Wells D

rilled

Per

Mo

nth

Per

Rig

To

tal

Wells

Dri

lled

an

d R

igs A

cti

ve

Wells Per Month Per Rig Horizontal Rig Count Horizontal Wells Drilled

Switch to Pad Drilling in Oil and Gas Plays

Driving Drilling Times Lower Increasing Rig Output

Source: BENTEK, RigData as of 1/13/2013


-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

-

50

100

150

200

250

300

350

400

Well p

er

Rig

per

Mo

nth

No

. W

ells D

rill

ed

/Acti

ve R

igs

Eagle Ford Wells Drilled vs. Active Rigs

Wells per Month per Rig Horizontal Rigs Horizontal Wells Drilled

Eagle Ford Wells Drilled Surge in 2012



-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-

20

40

60

80

100

120

140

160

180

200

Well p

er

Rig

per

Mo

nth

No

. W

ells D

rill

ed

/Acti

ve R

igs

Marcellus Wells Drilled vs. Active Rigs

Wells per Month per Rig Horizontal Rigs Horizontal Wells Drilled

Marcellus Wells Drilled Surge in 2012



Barn

ett

Marcellus Production Will Grow Despite Rig Cuts

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Potential Northeast Production Profile (Bcf/d)

Legacy Production Lean Marcellus Wet Marcellus Utica

• Production Hits 16 Bcf/d by 2018!

• Assumes 50% Rig Count Decline

Source: BENTEK Production Monitors


-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

IRR

$2 $5

Diverse Resource Base Maintains Pressure on Gas Prices

Note: Oil $80

NGL 30% of Crude

Support U.S. Production in Weak Price Environment Higher Pricing Drives Dry Gas Growth

Lower Gas Price Sensitivity High Gas Price Sensitivity


Production Growth Centered Around Residue Gas

+0.7

Bcf/d

-1.5

Bcf/d

-0.6

Bcf/d

-1.1

Bcf/d

+8.4

Bcf/d +1.4

Bcf/d

+4.7

Bcf/d

-0.2

Bcf/d

+0.2

Bcf/d

Note: Forecasts

Compare 2012 to 2017

(Bcf/d)

Source: BENTEK CellCast, CellModel


U.S. NGL Production to Increase by 1.5 MMb/d

2.00

2.20

2.40

2.60

2.80

3.00

3.20

3.40

3.60

3.80

4.00

2012 2013 2014 2015 2016 2017 2018

MM

b/d

Source Market Call: NGLs, Updated as of 1/18/2013


50.9 54.0 55.2 57.1

61.5 63.8 65.6 68.1 70.7

74.2 76.4 80.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

U.S. Dry Gas Production Forecast to Grow

16.6 Bcf/d from 2012 to 2018

+2.6 Bcf/d Per Year +3.0 Bcf/d Per Year 1.8 Bcf/d



40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

U.S. Supply/Demand Balance

Dry Production US Production Forecast

US Demand US Demand Forecast

U.S. Goes Supply Long By 2017

11%

14%

25%

27%

Need 2.3 Bcf/d of Mexico

and 2.4 Bcf/d of LNG to

Balance Market in 2017/18!

Source: BENTEK Supply Demand and Forward Curve


1,200

1,700

2,200

2,700

3,200

3,700

4,200

$2.80

$3.00

$3.20

$3.40

$3.60

$3.80

$4.00

$4.20

$4.40

$4.60

$4.80

$5.00

$5.20

Storage Inventory (Bcf) NYMEX (Feb 5) BENTEK Fcst (Feb 2013)

NYMEX Forward Curve Expectations

NYMEX – Feb 5, 2013

BENTEK Forecast – Feb 2013

Source: BENTEK Forward Curve, NYMEX


U.S. Storage / Supply Glut Less Prevalent in 2013 than

2012 = Higher Average Price = Less Demand Upside

YOY

However, High-er Price Environment A Boon For

Producers – Look for Prod Gains As Market Gets

Shorter

Production Growth Centered Near Liquids and Oil Rich

Heavy Hydrocarbon Plays

Get Ready for Cheap-er Energy – Henry Hub to

Average $4.19, WTI Drop of Over 25% Over Next Five

Years

Conclusions and Takeaways


BENTEK Energy

BENTEK is an energy market analytics company focused on the natural gas, oil, and liquids markets and related energy sectors.

Jack Weixel

Director, Energy Analysis

[email protected]

Contact Any Analyst at 303.988.1320

DISCLAIMER. THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE

INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN

CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND

EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL

DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED

THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

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