PLATTS BENTEK METHODOLOGY
Bob Yu Senior Analyst, Quantitative Modeling June 13, 2016
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Balance
The Platts Bentek Approach
3
Data
Modeling
Forecast
Hist
ory
Research
Optimization
Meter
Prod
Power Utilization
Corridor Flows Storage
RCI Policy/ Economics
Dmd
Flow / Capacity
Pipeline Exp
Type Curves
Processing GIS LNG Trade Flows
Power Plant
Industrial
Infrastructure
Rig Data
NGL Supply EIA Well
Data CEMS
Note: Graphic above Is not inclusive of all data, research and model performed by Platts Bentek.
FACTS
INSIGHT
WISDOM
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The Platts Bentek Approach
40 50 60 70 80 90
Bcf
US Supply
Production Sample LNG Sendout Sample
Imports Sample Supply Benchmark
Modeled Supply Forecast Supply
-
50
100
150
Bcf
US Demand
RCI Sample Power Sample
Exports Sample Demand Benchmark
Modeled Demand Forecast Demand
- 500
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Bcf
US Storage Inventory
Historical US Inventory Forecast US InventoryBENPOSIUM 2016 4
Source: Platts Bentek CellModel/CellCAST
MODELING HISTORICAL TRENDS
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• Modeling approach is Bottom-Up. Fundamentals are estimated at the regional level and then grossed up to a US number.
• Many different statistical methods are used in the estimations, however, the flow sample is the primary driver. Transparency is key.
• Models have a hierarchy. There are multiple checks at each level to ensure accuracy. • Balancing item helps us track EIA. • Are the benchmarks always right?
Modeling Historic Trends
Regional US Inputs
(600) (400) (200) - 200
18,000 20,000 22,000 24,000
MM
cf/d
(Cha
nge)
MM
cf/d
Texas Natural Gas Marketed Production (EIA)
Revision MarketedProduction_Jan2016MarketProduction_May2016
BENPOSIUM 2016 6 Source: EIA
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
MM
cf
NE Flows on REX
CHANDLERSVILLE CS TO CLARINGTON-E2W East Ohio - REX - ClaringtonEureka Hunter / REX Cameron Ohio River System/REX Bearwallow MonRICE/REX GUNSLINGER Seneca Plt
20,500
21,000
21,500
22,000
22,500
23,000
23,500
MM
cf
Northeast Dry Gas Production
Transparency
Production dropped 544 MMcf from 2/29 – 3/1
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Source: Platts Bentek Supply/Demand, Basic Supply Market Model, Maintenance Calendar
Historical Accuracy
-
5
10
15
20
25
30
35
40
Bcf
/d
US Power Burn Demand – EIA vs. Platts Bentek
Sample EIA Platts Bentek Estimate
Source: Platts Bentek Power Burn Daily report
Since 2015… Average Error: 58 MMcf/d Average Sample Size: 72%
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Getting the Story Right Matters
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
(1,500)
(1,000)
(500)
-
500
1,000
1,500
$/M
MB
tu
Bcf
Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit
Historic Surplus/Deficit Henry Hub Cash
Warm winter leads to inventory surplus, crushing prices
Polar Vortex causes record demand, driving prices higher
Production continues to ramp, demand falls as US experiences warm winter
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Source: EIA, NYMEX
FORECASTING FUTURE TRENDS
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Prediction
DEMAND • The three main drivers of demand:
weather, market growth, market share. • A regression of historic demand to 10-
year normal temperatures give a starting point for the forecasts (seasonality).
• Market growth is defined as an increase in demand due to structural shifts (new facilities being built, new ways to consume gas, etc.).
• Market share is defined as demand that is sensitive to pricing (economic fuel switching).
• Demand forecasts are a combination of
multiple linear regression models to capture these three drivers.
PRODUCTION • Production projections are starting point.
• Type curves are developed for each class of well and by orientation for each basin.
• Each basin is fitted with a type curve in order to predict future production trends in the area from new and existing wells.
• Projections are then updated to account
for infrastructure constraints, IRRs, well inventory, etc.
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Production Projection Example
-
1
2
3
4
5
6
7
8
Bcf
/d
Eagle Ford Gas Production Projection
Directional Vertical Horizontal History Future
History Projection
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Source: Platts Bentek Production Monitors
Demand Projection Example
-
2
4
6
8
10
12
Bcf
/d
Northeast Power Burn Demand
History Seasonality Market Growth Market Share
- 20 40 60 80
100
Deg
rees
Fah
renh
eit
NE Population-Weighted Temperatures
(20,000) (10,000)
- 10,000 20,000 30,000 40,000
MW
NE New Gas Build and Power Plant
Retirements
NewBuilds Retirements
$- $20.00 $40.00 $60.00
$/M
Wh
Cost of Generation Differences – Coal Vs. Gas
$/MWh - Coal (CAPP)
$/MWh - Gas (Dom South)
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Source: Platts Bentek CellModel/CellCAST
Balancing the Forecasts
(2,500)
(2,000)
(1,500)
(1,000)
(500)
-
500
1,000
-
20
40
60
80
100
120
MM
cf/d
(Ann
ual S
uppl
y –
Dem
and)
Bcf
/d (S
uppl
y, D
eman
d)
US Supply and Demand Balance
Annual Supply - Demand Historical Supply Historical DemandSupply Forecast Demand Forecast
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Source: Platts Bentek CellModel/CellCAST
Getting the Story Right Matters
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$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
(1,500)
(1,000)
(500)
-
500
1,000
1,500
$/M
MB
tu
Bcf
Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit
Historic Surplus/Deficit Forecast Surplus/Deficit Henry Hub Cash
Demand growth outpaces supply, causing declining inventories in the short
term
???
Source: Platts Bentek CellModel/CellCAST, EIA, NYMEX
Back-Testing the Fundamental Forecasts
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$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
-
100
200
300
400
500
600
700
800
900
1,000
$/M
MB
tu
Bcf
Inventory Surplus/Deficit Forecast (July 2015) Actual Inventory Surplus/DeficitNYMEX (July 2015) Bentek Henry Hub Forecast (July 2015Henry Hub Cash
Source: Platts Bentek Nat Gas Market Call
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Energy Metro Desk Storage Forecast Rankings
17
Source: Energy Metro Desk
Takeaways
• The foundation of Platts Bentek estimates is good data!
• Transparency is key!
• Platts Bentek forecasts balanced markets.
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Thank you!
QUESTIONS? Platts Analytics Bob Yu Senior Analyst, Quantitative Modeling [email protected] 720-264-6752 1800 Larimer Street in Denver, CO