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US Natural Gas Price Outlook Presentation at IURC’s IRP Contemporary Issues Technical Conference April 25, 2017
US Natural Gas Price Outlook
Presentation at IURC’s IRP Contemporary Issues Technical ConferenceApril 25, 2017
Introduction and Key takeaways
Major market intelligence service providers have “cautiously” forecasted slight increases in prices in the near future
Continued developments in the Marcellus and the Utica will continue to drive growth in total natural gas production in the US
▬Pipeline takeaway capacity is needed to move the gas from the Northeast
Demand is now the swing fundamental factor in determining prices
The ensuing summer will be a test for the adequacy of production to refill storage
Current low oil price calls for increased natural gas price to incentivize gas drilling investments
For coal, the current theme is more gas and less coal, but unpredictable events could disrupt the trend
Natural gas price (Henry Hub) forecasts by industry consultants
Natural gas production, demand and storage
Regional Pipeline Takeaway Capacities, emphasis on the Northeast
Coal vs Natural Gas fuel costs
Outline
3
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026EIA (Ref. Case) 3.06 3.55 4.22 4.90 4.88 4.83 4.97 5.23 5.45 5.74Consultants Avg. 3.46 3.45 3.42 3.36 3.34 3.36 3.50 3.64 3.85 4.03NYMEX 3.11 2.90 2.91 2.93 2.96 3.00 3.07 3.14 3.20 3.27
0.00.51.01.52.02.53.03.54.04.55.05.56.06.5
$/MMBtu
Natural Gas Price Forecasts, Henry Hub (2017‐2026)
The major market intelligence service providers have “cautiously” forecasted for slight increases in prices in the near future
Source: Drillinginfo, PIRA, EIA, Wood Mackenzie, & SNL
EIA (Ref. Case w/CPP)1
Industry Consultants Avg.
NYMEX (04/19/2017)
1Note: The EIA has several other scenarios with different price forecasts
0
5
10
15
20
25
30
35
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Tcf
Lower 48 Onshore Dry Gas Production By Supply Region in the Reference Case (2015‐2026)
East +11.8 Bcf/d growth (2016‐2026)
Gulf Coast +6.04 Bcf/d growth (2016‐2026)
Midcontinent
Dakotas/Rocky Mountains
Southwest & West Coast
Marcellus and the Utica will continue to drive US domestic production, gas power burn is expected to grow slightly
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
‐
5
10
15
20
25
30
35
40
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
$/MMBtu
Tcf
U.S. Dry Gas Production and Consumption and Henry Hub Prices1 in the Reference Case (2015‐2026)
Production/Consumption Henry Hub
Source: EIA
0
1,000
2,000
3,000
4,000
5,000
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Bill
ion
Kill
owat
thou
rs
US Net Electricity Generation by Fuel Type_ReferenceCase w/o CPP (2015‐2026)
Coal Petroleum Natural GasNuclear Power Renewable Sources Other
0
1,000
2,000
3,000
4,000
5,000
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Billion
Killow
atthou
rs
US Net Electricity Generation by Fuel Type_ReferenceCase w/CPP (2015‐2026)
Coal Petroleum Natural GasNuclear Power Renewable Sources Other
1Note: This is EIA Reference case w/CPP, see slide 4 for a comparison with average price forecasts from industry consultants
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
bcf
Monthly Storage Inventories
Despite increasing rig count, the ensuing injection season will test the adequacy of production to refill gas storage in the summer
62
64
66
68
70
72
74
76
78
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf
/d
US Monthly Dry Gas Production
As at 03/24 809
0200400600800
10001200140016001800
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
US Rig Counts (Crude Oil and Dry Gas)
- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5Ja
n-16
Mar
-16
May
-16
Jul-1
6Se
p-16
Nov
-16
Jan-
17M
ar-1
7
$/M
MB
tu
$/B
bl
Monthly PricesWTI1 HH1
Source: Wood Mackenzie, PIRA & EIA
2016
2017
2015
2014
2012 2016
2014
2015
2013
2017 & WM forecast
2018
5 yr. avg. 2012-2016
1Note: WTI is West Texas Intermediate, a benchmark price for crude oil. HH is Henry Hub, a benchmark price for natural gas
The current low oil price calls for increased natural gas prices to incentivize gas drilling investments
Source: Drillinginfo
0123456789
1011
Basin/Field/Tier
Perm
ian‐Delaw
are ‐ Bo
ne Spring‐…
Perm
ian‐Midland
‐ Sprab
erry‐Tier1
Williston‐Ba
kken
‐ Nesson‐Tier1
Perm
ian‐Delaw
are ‐ W
olfCam
p‐Tier2
Anad
arko
‐Stack‐Tier1
Marcellu
s‐PA
‐West‐Tier1
Anad
arko
‐Mississippi Lim
e‐Tier1
Marcellu
s‐PA
‐North‐Tier1
Utica‐Dry Gas‐Tier2
Marcellu
s‐WV‐Tier2
East Texas / Hayne
sville‐Arkla ‐…
Eagle Ford‐Haw
kville‐Tier2
Ft. W
orth‐Barne
tt wet‐Tier1
Perm
ian‐Midland
‐ WolfCam
p ‐Tier2
Anad
arko
‐Cleveland
/Ton
kawa‐Tier2
Arko
ma‐Woo
dford‐Tier2
Anad
arko
‐Sed
gwick‐Tier1
Ft. W
orth‐Barne
tt wet‐Tier2
Anad
arko
‐Cleveland
/Ton
kawa‐Tier3
Arko
ma‐Woo
dford‐Tier3
DJ ‐ Other‐Tier1
Eagle Ford‐Aguila
Vad
o‐Tier1
Eagle Ford‐EF Dry‐Tier3
Eagle Ford‐Sugarkane
‐Tier3
Ft. W
orth‐Barne
tt oil‐Tier3
Marcellu
s‐PA
‐West‐Tier3
Perm
ian‐Delaw
are ‐ B
one Sprin
g‐Tier3
Perm
ian‐Eastern Shelf‐T
ier3
Perm
ian‐Midland
‐ Sprabe
rry‐Tier3
Perm
ian‐Northwest S
helf ‐ O
ther‐Tier2
Perm
ian‐TX
‐ Other‐Tier1
Perm
ian‐Va
l Verde
Basin‐Tier3
Powde
r River‐Niobrara‐Tier2
Powde
r River‐Parkm
an‐Tier3
Powde
r River‐Sussex‐Tier3
Utica‐Rich Con
densate‐Tier2
Williston‐Ba
kken
‐ Ba
iley‐Tier2
Williston‐Ba
kken
‐ Elm Cou
lee‐Tier1
Williston‐Ba
kken
‐ Other‐Tier1
Williston‐Ba
kken
‐ Po
plar Dom
e‐Tier1
Williston‐Ba
kken
‐ Re
d River‐Tier3
Williston‐Ba
kken
‐ Th
reshold‐Tier3
$/MMBtu
HH Breakeven @ $52/Bbl for WTI & 20% MARR1
~8%
~71%
~22%
1MARR: Minimum acceptable rate of return
West
Pacific Mountain West NorthCentral
East NorthCentral
Middle Atlantic
New England
South AtlanticEast South Central
West South Central
Midwest Northeast
SouthSource: Drillinginfo
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2017 2018 2019 2020 2021 0.0
2.0
4.0
6.0
8.0
10.0
12.0
2017 2018 2019 2020 2021
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2017 2018 2019 2020 2021
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2017 2018 2019 2020 2021
Takeaway Capacity (Bcf/d)
With the increased production expected from the Northeast and the South, most of the takeaway capacity1 will come from these regions
Note: Takeaway capacity is the volume of natural gas transported by natural gas pipelines from a producing area to a demand area
If production grows more than currently anticipated, new infrastructure would be needed to move volumes out of the region
Source: Drillinginfo
0
5
10
15
20
25
30
35
40
1/1/
2015
4/1/
2015
7/1/
2015
10/1
/201
51/
1/20
164/
1/20
167/
1/20
1610
/1/2
016
1/1/
2017
4/1/
2017
7/1/
2017
10/1
/201
71/
1/20
184/
1/20
187/
1/20
1810
/1/2
018
1/1/
2019
4/1/
2019
7/1/
2019
10/1
/201
91/
1/20
204/
1/20
207/
1/20
2010
/1/2
020
1/1/
2021
4/1/
2021
7/1/
2021
10/1
/202
1
Bcf
/d
Northeast Capacity and Production (2015-2021)
WV PA West Utica PA North CurrentCapacity Proposed Capacity
Avg. Capacity 4/1-12/21 => 29.6 Bcf/d
Avg. Overbuilt Capacity => 6.2 Bcf/dAvg. Production 4/1-12/21 => 23.4 Bcf/d
3/31/17 => 20.9
Source: Drillinginfo
Delayed Pipeline Projects and Capacity constraints; more losers, including consumers
Coal vs Gas, coal is still with us
Source: PIRA and EIA1This is a simplistic analysis and assumes a ratio of 1.4 for the heat rates of an average coal steam unit and average combined cycle gas unit. It does not account for the cost of emissions.
0.00
0.50
1.00
1.50
2.00
2.50
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Coal-vs-Gas $/MMBtu Fuel Cost Ratios1
PJMMISOERCOT
0%
5%
10%
15%
20%
25%
30%
35%
40%
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
US Electricity Generation Mix Reference Case w/CPP (2015-2026)
Coal 30% (2017-2026 avg.)
Natural Gas 30% (2017-2026 avg.)
Renewables
Petroleum and Other
Conclusions
A $3+ gas price in the near future is easily justifiable
Demand not supply, is the likely swing fundamental factor in determining prices and the more we are able to understand these drivers, the better our forecasts will be
Given the current trajectory of storage and production, should demand increase, prices will increase
The current low levels of crude oil prices call for an increase in natural gas prices to incentivize gas drilling investments
Coal vs. natural gas switching is driven primarily by economics and coal is still with us
US Gas Production Plays and Basins
Basins
Plays
Source: SNL
